The opinion of the court was delivered by: Stanton, District Judge.
This is an appeal by Koam Produce, Inc. ("Koam") from a
November 16, 2000 reparation award in the amount of $4,800 plus
interest and costs, rendered by a Judicial Officer of the United
States Department of Agriculture ("USDA") against Koam and in
favor of DiMare Homestead, Inc. ("DiMare").
Under Section 499g(c) of the Perishable Agricultural
Commodities Act ("PACA"), 7 U.S.C. § 499a et. seq., such an
appeal is tried de novo in the federal district court, in the
same manner as other civil damage suits, except that the factual
findings in the reparation order are prima facie evidence of the
A non-jury trial on stipulated facts and exhibits was held
before me on May 20, 2002.
Sales of fresh fruits and vegetables in interstate commerce
are regulated by the USDA pursuant to PACA. The USDA, through
the Agricultural Marketing Service ("AMS"), employs inspectors
who independently evaluate the quality and condition of produce.
See 7 U.S.C. § 499n. The USDA summarizes the inspection
process as follows:
USDA fruit and vegetable inspection is a voluntary,
fee-for-service program, administered by AMS since
1928. The objective of the inspection program is to
facilitate trade by providing buyers and sellers of
fresh fruits and vegetables with impartial and
accurate information about the quality (inherent,
non-progressive characteristics, such as size or
shape) and condition (defects of a progressive
nature, such as decay or ripeness) of shipments of
fresh produce based on well-known, published USDA
The inspection program for fresh fruits and
vegetables is available at shipping points located
in growing areas and at wholesale markets and other
points where large volumes of fresh produce are
received. At shipping points, inspection is
requested by growers, processors or packers for
quality assurance, to satisfy the requirements of
state or federal marketing orders, or to verify
compliance with specifications on fresh produce for
processing. At wholesale markets, such as Hunts
Point, and other receiving points, fresh produce
inspection is most often requested to resolve a
dispute between a buyer and seller about the
quality or condition of delivered produce. In
either case, the inspection program enables
financially interested parties to verify the extent
to which shipments meet expectations.
At wholesale markets, either the seller or a
prospective buyer can request AMS inspection.
Although shippers at times initiate the request,
most often it is buyers that ask for inspections,
generally when they suspect that the shipment does
not meet contract requirements and are seeking an
adjustment in the price. . . .
"Report and Analysis of the Hunts Point Bribery Incident," Koam
Ex. B, at 1-2 ("Report").
On October 27, 1999, as part of an investigation known as
"Operation Forbidden Fruit" covering the years 1996 to 1999,
twenty-one people were arrested for bribery at the Hunts Point
Wholesale Produce Market in the Bronx: eight USDA inspectors and
thirteen owners and employees of wholesale companies doing
business at Hunts Point. Another inspector and two wholesalers
from a fourteenth company had previously been arrested, and
cooperated with the government. "The AMS inspectors were charged
with accepting cash bribes in exchange for reducing the grade of
the produce they inspected, which then allowed the Hunts Point
companies to pay some amount less than the invoice price to
their suppliers." Id., at 1. All of the inspectors and most of
the employees pleaded guilty. These included Marvin Friedman, an
employee of Koam, who pleaded guilty to ten counts of bribing
inspectors, and the three inspectors who
inspected the five shipments from DiMare to Koam which are
involved in this case.
As part of its response to the Hunts Point bribery scandal,
the USDA sent letters to 17,000 members of the produce industry
informing them of indictments in connection with the scandal,
the department's plans to improve inspections, and a process by
which injured parties could file PACA reparations claims for
DiMare filed its claim, to the effect that it had paid $4,800
to Koam in unjustified price reductions based on fraudulent
certificates issued by bribed inspectors. The Judicial Officer
ruled in DiMare's favor, holding as a matter of law that Koam's
negotiation of the adjustments, without disclosure of its
involvement of the bribery of the federal inspectors,
constituted a misrepresentation basic to the adjustment process,
rendering the adjustments voidable because of misrepresentation
and mistake. He held that because Koam could not rely on the
tainted inspection certificates, or affidavits of its employees,
it could not carry its burden of showing that the quality of the
tomatoes DiMare had shipped to it was inferior. Accordingly, he
held that the full contract price was payable by Koam, and set
aside the $4,800 adjustments.
On Koam's appeal to this court, the parties stipulated the
facts as follows:
1. DiMare was the complainant in a reparation proceeding
brought under the Perishable Agricultural Commodities Act of
1930, as amended ("PACA"), 7 U.S.C. § 499a et seq., entitled
DiMare Homestead, Inc. v. Koam Produce, Inc., ("PACA Docket
R-00-159, United States Department of Agriculture, Before the
Secretary of Agriculture") ("Reparation Proceeding").
2. Koam was the respondent in the reparation proceeding.
3. DiMare instituted the reparation proceeding by filing an
informal complaint against Koam on December 1, 1999 in which
DiMare sought reparations in the amount of $4,800.00 in
connection with DiMare's sale of tomatoes to Koam.
4. Thereafter, on April 7, 2000, DiMare filed a formal
complaint against Koam seeking the same relief that DiMare
requested in its informal complaint.
5. The amount of the claim against Koam did not exceed
$30,000.00, and therefore the reparation proceeding was
conducted under the documentary procedure provided in the Rules
of Practice (7 C.F.R. § 47.20).
6. By decision and order dated November 16, 2000 (the
"Reparation Order"), Judicial Officer, William G. Jenson, acting
through the office of the Secretary of Agriculture (the
"Secretary") granted DiMare the relief it requested in its
complaint and ordered Koam to pay reparations in the sum of
$4,800.00 plus interest and costs.
7. On or about January 10, 2001, Koam filed a petition for
reconsideration of the Reparation Order with the Secretary.
8. On or about March 1, 2001, the Secretary issued an order on
reconsideration dismissing Koam's petition for reconsideration
and upholding the Reparation Order.
9. Koam appealed the Reparation Order to the United States
District Court Southern District of New York when it filed with
the Court a Notice of Appeal and Petition on or about March 23,
10. DiMare is a corporation whose address is 258 N.W. 1st
Avenue, Florida City, Florida 33034.
11. Petitioner is a corporation whose address is 238 NYC
Terminal Market, Bronx, New York 10474.
TRANSACTIONS BETWEEN KOAM AND DiMARE
13. On March 16, 1999, under DiMare invoice number 1316,
DiMare shipped to Koam 1600 boxes of DiMare brand 5 × 6 tomatoes
at a price of $7.85 per box plus $23.50 for temperature recorder
or a total of $12,583.50 F.O.B.
14. The shipment arrived at Koam on March 18, 1999 and, at
Koam's request, 2 federal inspections were conducted, K677992-0
and K678203-1. Subsequent to the inspections, DiMare granted to
Koam an allowance of $.50 per box or $800.00 in total. Koam
check number 19666 in the amount of $11,783.50 was paid to
DiMare in full payment of DiMare invoice number 1316. Neither of
the investigations were conducted by investigators charged with
or connected with any wrong doing regarding the Hunts Point
15. The transaction evidenced by DiMare invoice number 1316
was not included in DiMare's complaint against Koam.
16. On March 20, 1999, under DiMare invoice number 1383,
DiMare shipped to Koam 1600 boxes of DiMare brand 5 × 6 count
price of $7.85 per box plus $23.50 for recorder or a total
17. The shipment arrived at Koam on March 22, 1999, and
without inspection, DiMare granted to Koam an allowance of $1.00
per box or $1600.00 in total. Koam paid DiMare invoice number
1383 by check number 19735 in the amount of $10,983.50
18. The transaction evidenced by DiMare invoice number 1383
was not included in DiMare's complaint against Koam.
19. On March 27, 1999 under DiMare invoices 1578 and 90884,
DiMare shipped to Koam 800 boxes of 5 × 6 at $5.85 per box and
160 boxes of plum tomatoes at $7.90 per box plus $23.50 for
recorder for a total of $5,967.50 for the two invoices. The
shipment arrived at Koam on March 29, 1999. Koam paid DiMare
invoices 1578 and 90884 by check number 19790 in the amount of
$5,967.50. The transaction covered by DiMare invoices 1578 and
90884 are not the subject of DiMare's complaint against Koam.
20. On March 27, 1999 under DiMare invoice number 1678, DiMare
shipped to Koam 800 boxes of 5 × 6 tomatoes at the price of
$5.85 per box plus $23.50 for recorder for a total of $4703.50.
There was no federal inspection of the shipment. Koam paid
DiMare invoice number 1678 by check number 19870 in the amount
of $4,703.50. The shipment ...