Cole v. United States Department of Agriculture

33 F.3d 1263

• Court: Court of Appeals for the Eleventh Circuit
• Decided: September 13, 1994
• Docket: No. 93-8230
• Status: Published

Opinions

ANDERSON, Circuit Judge:

The United States Department of Agriculture imposed monetary penalties on plaintiff-appellee Graham L. Cole, a tobacco dealer, under statutes and regulations governing the marketing of tobacco. After unsuccessfully challenging the penalties at the administrative level, Cole brought the present action in district court, eventually moving for summary judgment on the ground that the Secretary of Agriculture lacked specific statutory authority to impose a penalty for Cole’s conduct. The district court agreed and granted Cole’s motion. We are presented with an appeal from a grant of summary judgment involving issues of law; therefore we review the district court’s ruling de novo. Akins v. Snow, 922 F.2d 1558, 1560 (11th Cir.1991); Frio Ice, S.A. v. Sunfmit, Inc., 918 F.2d 154, 157 (11th Cir.1990).

Although in the district court Cole asserted several factual defenses to the imposition of the penalty in this case, Cole’s motion for summary judgment, and the district court’s grant thereof, were based solely upon Cole’s argument that there was no statutory authority for the imposition of this particular penalty. Cole concedes that the penalty assessed against him was imposed pursuant to a correct application of the regulations at issue; accordingly, Cole’s argument is that there is no statutory authority for the regulations. The gist of Cole’s argument is that the statute authorizes the imposition of a penalty when a producer sells over-quota tobacco to a dealer, but does not authorize the imposition of a penalty upon the next stage in the marketing process, ie., upon the dealer’s resale. Because the regulations -focus on the second event (the dealer’s resale), and because the penalty in the instant case was imposed upon dealer Cole on account of his resale, Cole argues that the regulation and the penalty imposed in this ease are beyond statutory authority. In other words, Cole argues that the regulation imposes the penalty on the wrong event. In response, the government argues that proof of the second event triggers a presumption by virtue of which the first event is inferred; that is, that a regulatory presumption operates to sap Cole’s argument of all of its force. A brief review of the statutory and regulatory framework is required for an understanding of this ease.

STATUTORY AND REGULATORY FRAMEWORK

The marketing of tobacco is subject to government regulation pursuant to the Agricultural Adjustment Act of 1938 (codified as amended at 7 U.S.C. § 1311 et seq.). In addition to statutory guidelines, the Act authorizes the Secretary of Agriculture to issue regulations for the enforcement of the marketing scheme.¹ 7 U.S.C. § 1375. The amount of tobacco marketed is controlled by a quota system that establishes an allotment to each tobacco-producing farm. The marketing of tobacco in excess of a producer’s allotment is subject to a penalty, as specified in 7 U.S.C. § 1314(a):

The marketing of ... any kind of tobacco in excess of the marketing quota for the farm on which the tobacco is produced ... shall be subject to a penalty of 75 per centum of the average market price ... for such kind of tobacco for the immediately preceding market year. Such penalty shall be paid by the person who acquired such tobacco from the producer but an amount equivalent to the penalty may be deducted by the buyer from the price paid to the producer

Thus, the statute provides that when a dealer or other purchaser buys tobacco from a producer in excess of the producer’s allotment (over-quota tobacco), the purchaser must remit the penalty to the government; the purchaser may then recover the penalty from the producer. Cole acknowledges that he is a dealer who purchases tobacco from producers, among other sources. Any person who acquires over-quota tobacco — a broad class that includes dealers such as Cole — is subject to collection of a penalty under Section 1314(a).

The marketing scheme involves a regulatory record-keeping mechanism that accounts for all tobacco sales and purchases. The Department of Agriculture (“USDA”) issues a marketing card to each producer. A marketing card shows the producer’s total allotment or quota; every time the producer sells tobacco, the quantity of the sale is noted on the card. Purchasers from a producer should, and as a practical matter do, look at the producer’s card at the time of each purchase; and thus, it is readily apparent to any purchaser when the producer has sold his quota of tobacco. In addition, parties who purchase tobacco (including dealers) are required to report the amount of each purchase to the USDA. Similarly, each purchaser is required to report each resale. Thus there is a reported accounting each time the ownership of a pound of tobacco changes.²

The USDA’s regulations also provide for penalties when dealers sell more tobacco than they have reported purchasing or fail to report the resale of tobacco. These regulations—the subject of this action—provide as follows:³

(d) Dealer’s tobacco. The flue-cured tobacco resales by a dealer which are in excess of his total prior flue-cured tobacco purchases shall be considered to be a marketing of excess tobacco and penalty thereon shall be due at the time the marketing takes place which results in the excess....

7 C.F.R. § 725.94(d) (1989 ed.) (parenthetical material omitted).

(e) Resales not reported. Any resale of tobacco which is required to be reported by a warehouseman or dealer, but which is not so reported within the time and in the manner required, shall be considered to be a marketing of excess tobacco, unless and until such warehouseman or dealer furnishes a report of such resale which is acceptable to the State executive director. The penalty thereon shall be paid by the warehouseman or dealer who fails to make the report as required.

7 C.F.R. § 725.94(e) (1989 ed.).

DISCUSSION

Accepting Cole’s argument that the regulations impose the penalty on the wrong event, the district court concluded that the regulation went beyond the statutory authority. The flaw in the district court’s analysis of this case was its failure to recognize that the relevant regulations create a rebuttable presumption that dealer Cole purchased over-quota tobacco from a producer. The district court never addressed the government’s indication that the regulations impose a presumption. Nor did Cole address the presumption issue in the district court. On appeal, Cole acknowledges that the regulations create a presumption. Appellee’s Br. at 13 n. 6, 19.⁴ However, apparently failing to recognize the significance of that fact, Cole does not address the legal significance of the presumption or the legal principles governing regulatory presumptions.

The government contends that 7 C.F.R. § 725.94(d) and (e) create a presumption: when a tobacco dealer sells more tobacco than he has reported buying, or when a dealer fails to report a resale of tobacco, it is presumed that the tobacco sold was over-quota tobacco, i.e., tobacco purchased from a producer in excess of that producer’s quota. The relevance of this presumption is obvious. The presumed fact — purchase of over-quota tobacco from a producer — is the fact, Cole acknowledges, that triggers the statutory-penalty.⁵ Thus, if the presumed fact properly flows from the predicate fact — a dealer’s resale of more tobacco than he reported buying or a dealer’s failure to report a resale— then Cole’s argument must fail.

As mentioned, Cole acknowledges for purposes of summary judgment that the fact to be presumed would authorize the penalty. Nor does Cole in this summary judgment posture contest the predicate fact, i.e., that in fact he did resell more tobacco than he reported purchasing or that he did fail to report resales. Thus, if the presumed fact properly flows from the predicate fact, it is clear that the penalty at issue was appropriately imposed.

Viewed in proper perspective, the true issue in this appeal is the validity of the regulatory presumption. The law is well established that presumptions may be established by administrative agencies, as long as there is a rational nexus between the proven facts and the presumed facts. Alabama ByProducts Corp. v. Killingsworth, 733 F.2d 1511 (11th Cir.1984); Atchison, T. & S.F. Ry. v. ICC, 580 F.2d 623, 629 (D.C.Cir.1978). In Killingsworth, this court was confronted with a challenge to a regulatory presumption adopted under the Federal Coal Mine Health and Safety Act of 1969. Although that case, unlike the present one, involved a direct challenge to the constitutionality of the presumption under the Due Process Clause, the standard employed in Killingsworth is generally applicable: a presumption is valid “if there is some rational connection between the fact proved and the ultimate fact presumed, and the inference of one fact from proof of another is not so unreasonable as to be a purely arbitrary mandate.” Alabama By-Products Corp. v. Killingsworth, 733 F.2d at 1517 (citing Usery v. Turner Elkhom Mining Co., 428 U.S. 1, 28, 96 S.Ct. 2882, 2898, 49 L.Ed.2d 752 (1976)). See also Atchison, T. & S.F. Ry. v. ICC, 580 F.2d 623, 629 (D.C.Cir. 1978) (adopting the rational connection test when determining whether “presumptions embodied in the challenged regulations represent a legitimate exercise of the [agency’s] authority” under the applicable statute).

Thus, in challenging the validity of the regulatory presumption in this case, Cole bears the heavy burden of demonstrating that there is no rational connection between the fact proved and the ultimate fact to be presumed. As mentioned above, however, Cole does not address the issue of the validity or rationality of the presumption. Therefore, we must take the arguments he does make and assess their relevance and significance when cast in the proper context: as challenges to the validity of the regulatory presumption. We discuss in turn the several arguments asserted by Cole.

First, Cole argues that the penalty is not imposed on dealers like himself, but rather is imposed only upon producers, ie., farmers. This argument is without merit, because the express language of the statute itself provides for collection of the penalty from the broad class of persons who buy tobacco from producers, which of course includes dealers. Indeed, Cole never argues that the penalty against him would have been improper had the government based it upon his purchase of over-quota tobacco from a producer. Rather, Cole merely uses this first argument to enhance the appeal of his major argument discussed immediately below, namely, that the regulations impose the penalty on the wrong event.⁶

Second, the major thrust of Cole’s argument is that the statute authorizes a penalty upon event A—i.e., the sale of over-quota tobacco by a producer to a dealer—whereas the regulation imposes a penalty upon event B—ie., the resale by a dealer. Thus, Cole argues, the regulation has penalized the wrong event and is beyond the statutory authority. It is immediately apparent that Cole’s argument fails to recognize the significance of the regulatory presumption. To the extent that the fact to be presumed (event A) is properly inferred from proof of the predicate fact (event B), Cole’s argument evaporates. The USDA is not, in fact, imposing a penalty on event B. Rather, event B is merely evidence of event A, and it is uncontested that a penalty may be imposed upon event A.⁷

Thus, we are taken back again to the true issue in this appeal: the validity and rationality of the regulatory presumption. We continue our consideration of the only arguments asserted by Cole that are relevant to this issue.

Cole faults the government for failing to affirmatively identify over-quota tobacco that has been purchased by Cole from a producer. The obvious flaw in this argument is that this is precisely the fact to be presumed, thus implicating again the necessity for Cole to demonstrate that the presumption is irrational. Cole’s argument also misplaces the burden. It is the party challenging the validity of the presumption who must demonstrate that it is irrational. Alabama ByProducts Corp. v. Killingsworth, 733 F.2d 1511, 1517 (11th Cir.1984) (noting that the burden of proving arbitrariness is on a party challenging a statutory presumption on due process grounds); Atchison, T. & S.F. Ry. v. ICC, 580 F.2d 623, 629 (D.C.Cir.1978) (regulatory presumptions are entitled to deference); United States v. Parish of St. Bernard, 756 F.2d 1116, 1124 (5th Cir.1985) (a regulation is presumptively valid, and one who attacks it has the burden of showing invalidity), cert. denied, 474 U.S. 1070, 106 S.Ct. 830, 88 L.Ed.2d 801 (1986). Thus, the burden is on Cole to demonstrate that the regulatory presumption at issue is invalid because the presumed fact has no rational connection with the predicate fact.

Cole has adduced no evidence, nor proffered any reasons which pass scrutiny, indicating that there is no rational connection between the presumed fact and the predicate fact. Moreover, there is nothing intuitively irrational about the instant presumption. To the contrary, the fact that the predicate fact involves the immediately succeeding stage in the marketing process suggests potential rationality.⁸ For example, consider the following hypothetical case. A producer with a quota of 10,000 pounds of tobacco instead grows 12,000. The producer then sells his entire production to a single dealer. The producer and the dealer agree that both parties will report the marketing of only 10,000 pounds, thus hiding the excess.⁹ The dealer later resells and properly reports 10,000 pounds of tobacco, but resells without reporting the additional 2,000 pounds. The innocent purchaser of those 2,000 pounds, however, should report the sale. At the end of the marketing year, the USDA discovers that the dealer has sold 2,000 more pounds of tobacco than he reported. Under the regulation, the predicate fact (i.e., that the dealer sold 2,000 more pounds than he reported) provides the basis for inferring the fact to be presumed (i.e., that the dealer purchased the 2,000 pounds as over-quota tobacco from a producer). It seems apparent in this hypothetical case that the predicate fact does provide some relevant evidence of the fact to be presumed.¹⁰

The connection between the predicate fact and the fact to be presumed must also be placed in proper context — that is, a context in which every purchase and every sale of tobacco is required by regulation to be recorded and reported. Thus, the required records account for every purchase by every dealer, and also every resale. A dealer’s resales should precisely balance that dealer’s purchases. In addition, the record of each purchase should indicate whether it included over-quota tobacco subject to the penalty. Finally, and significantly, the equity of the obligation placed upon dealers like Cole is ensured by the fact that a dealer should always know when he is purchasing over-quota tobacco; the producer’s card will readily reveal this fact. Through this regulatory scheme, a dealer’s resales (the predicate event) are linked by the regulatory framework to that dealer’s purchases (which necessarily include any over-quota purchases from a producer, the event to be presumed). Thus, when the predicate fact in this ease and the presumed fact are viewed in their context of this regulatory scheme, the relationship is obviously close.

Indeed, the statute itself would seem to contemplate this close regulatory relationship between the several stages of the marketing process. 7 U.S.C. § 1375(a) provides:

The Secretary shall provide by regulations for the identification, wherever necessary, of corn, wheat, cotton, rice, peanuts, or tobacco so as to afford aid in discovering and identifying such amounts of the commodities as are subject to and such amounts thereof as are not subject to the marketing restrictions in effect under this subchapter.

Thus, the statute specifically authorizes regulations that will identify the commodity at the various stages for the express purpose of aiding “in discovering and identifying such amounts of the commodities as are subject to” the various penalties and other restrictions. This seems to contemplate identifying and proving over-quota tobacco by means of evidence reflecting the identity of the commodity at the various stages in the marketing process.

Finally, Cole argues in vague terms that it is possible for there to be a sale of more tobacco than recorded purchases without necessarily involving over-quota tobacco.¹¹ It is obvious that the mere possibility asserted by Cole falls far short of demonstrating that there is no rational nexus at all. The mere statement that the fact to be presumed does not always follow necessarily from the predicate fact obviously leaves ample room for some lesser, though still rational, connection between the two. If indeed a dealer oversold for some reason other than the purchase of over-quota tobacco — for example, by inadvertently underreporting a legitimate purchase — he could avoid being assessed a penalty by adducing proof of the error.¹²

The instant case is an appeal by the government from the district court’s grant of summary judgment in favor of Cole. In this posture, we need hold only that on this summary judgment record Cole has failed to demonstrate that the regulatory presumption is irrational or otherwise invalid. We so hold. Accordingly, the judgment of the district court is reversed, and the case is remanded to the district court for further proceedings not inconsistent with this opinion.

VACATED and REMANDED.

1 . The parties agree that the regulations found in the 1989 edition of the Code of Federal Regulations were applicable at all times relevant to this case. The regulatory scheme has subsequently been changed, although the presumptions at issue in this case are still contained in the regulations. See 7 C.F.R. § 723.410 (1993 ed.).

2 . See generally 7 C.F.R. §§ 725.87, 725.98-.100 (1989 ed.).

3 . The quoted regulations apply to flue-cured tobacco, one of the two types of tobacco at issue in this case. Substantively identical regulations apply to burley tobacco, the second type of tobacco involved. 7 C.F.R. § 726.88 (1989 ed.).

4 . We note that the language of 7 C.F.R. § 729.-94(e) is couched in terms of a rebuttable presumption. On the other hand, we note that 7 C.F.R. § 725.94(d) is not; its language does not expressly provide for an opportunity to rebut. However, as noted in text. Cole acknowledges that a presumption is created. Moreover, it is clear from the administrative proceedings in this case that the government has consistently treated the presumption as' rebuttable. See, e.g., Transcript of Proceedings, In the Matter of Civil Penalties Assessed Against Peachtree Tobacco Co. for Excess Marketing (June 20, 1990), at 4 (Admin.R. 60) (stating that penalties would be assessed against Cole "unless he furnishes satisfactory proof that these were not excess resales”); see also Letter from Samuel F. Brewer to Graham L. Cole, June 1, 1989 (Admin.R. 246); Letter from Ralph T. Hudgens to Graham L. Cole (undated) (Admin.R. 193); Letter from Ralph T. Hudgens to Graham L. Cole, March 6, 1990 (Admin.R. 157) (all stating that Cole may contest the penalty by furnishing proof that the excess poundage was not over-quota tobacco). An agency’s interpretation of its own regulations is controlling unless it is plainly erroneous or inconsistent with the regulation. Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 1217, 89 L.Ed. 1700 (1945); see also Martin v. Occupational Safety & Health Rev. Comm'n, 499 U.S. 144, 156, 111 S.Ct. 1171, 1179, 113 L.Ed.2d 117 (1991) (indicating that an agency's interpretation of regulations taken during an administrative proceeding is not a "post hoc rationalization” and is entitled to deference).

5 . Cole makes no argument that there is a lack of statutory authority for a penalty to be collected from him upon proof that he purchased over-quota tobacco from a producer. Indeed, Cole could hardly make such an argument in the face of the plain language of the statute, which provides that any person (clearly including a dealer like Cole) who purchases such over-quota tobacco shall pay the penally.

6 . Cole points to United States v. Whittle, 287 F.2d 638 (4th Cir.1961), to support his argument that the Section 1314(a) penalty is levied against the producer. The Whittle court held that ultimate liability for the penalty did fall on the producer. Apparently rejecting an argument that the government could proceed only against the dealer, the court held that the government could collect the penalty directly from the producer in order to avoid "an unnecessary circuity in the collection of the penalty.” Id. at 640. Nothing in Whittle suggests that the government could not also have exercised its option to collect the penalty from the dealer; indeed, any such holding would have contradicted the plain language of the statute. As noted above, the statute expressly provides for collection of the penalty from the dealer-purchaser, leaving the dealer free to recover the amount of the penalty from the producer if he so chooses. If Cole is unable to rebut the presumption that he entered into the purchase of excess tobacco from a producer, he must pay the Section 1314(a) penalty, but then may recover that amount from the producer with whom he entered the unauthorized transaction. This is exactly the process that the statute anticipates.

7 . Cole relies on Gold Kist, Inc. v. USDA, 741 F.2d 344 (11th Cir.1984), to support his contention that the penalties imposed by administrative agency regulations must be expressly authorized by statute. However, this case is unlike Gold Kist. In that case, the position of the USDA was that it had "inherent authority to impose money penalties” without the necessity of express statutory authority. Id. at 345. The USDA argued that the mere existence of a regulatory scheme regarding peanuts was sufficient to authorize penalties which were not specifically provided for by statute. Rejecting the USDA position, this court held that a "statute must plainly establish a penal sanction in order for the agency to have authority to impose a penalty.” Id. at 348. Gold Kist did not involve regulatory presumptions. By contrast, in this case, the USDA does not attempt to justify the penalties assessed against Cole by mere reference to the regulatory scheme regarding tobacco, or by invoking its inherent authority. Rather, the government points out that the penalties are precisely those authorized by Section 1314(a), and that it has established the precise event upon which the statute imposes a penalty by inferring same from proof of the predicate fact. In other words, this case is different from Gold Kist because in this case, through operation of the presumption, the precise fact upon which the statute imposes a penalty is presumed from demonstration of predicate facts. Thus, as discussed in text, the issue in this case is the validity and rationality of the regula-toty presumption.

8 .Cole implicitly argues that the fact that event A (the sale by producer to dealer) and event B (the resale by dealer) occur at different stages somehow indicates that the two events are totally unrelated. However, the fact that the two events involve different stages of the marketing process says little or nothing with respect to whether or not there is a rational nexus between the two events, and it certainly does not demonstrate or carry Cole’s burden of demonstrating that there is no rational connection at all. Moreover, as noted in the text, the two events do occur in immediately succeeding stages of the same marketing process. Also, the two events are tied together as indicated below by the record and reporting requirements of the regulatory framework.

9 . Under the regulatory framework, an innocent dealer would examine the producer’s marketing card and it would be immediately apparent that 2,000 pounds were over-quota.

10 . The reason for the presumption is also apparent. Because of the collusion between the producer and dealer in the hypothetical, it would be difficult for the government to trace and identify the producer who initially sold the over-quota tobacco.

11 . Cole suggests that he could have purchased tobacco from a warehouse or another dealer, rather than from a producer, and thus such a purchase would not implicate over-quota tobacco subject to a penalty. However, Cole's purchases from a warehouse or another dealer, like all other purchases of tobacco, are required by regulation to be recorded and reported. Accordingly, the regulatory framework provides a ready means for Cole to rebut the presumption that he has purchased over-quota tobacco from a producer.

12 . We recognize that Cole claims his violations of the regulations stem from fraud perpetrated upon him by a third party using his dealer card. While this type of conduct may or may not be sufficient to rebut the presumption, it is not relevant to the issue now before us. There also is no argument on appeal that the regulation is unreasonable because it does not afford sufficient scope for a dealer’s rebuttal of the presumption, or that the USDA has been arbitrary in declining to credit his excuses. Thus, for example, we do not have before us a case in which the USDA would not entertain rebuttal of a presumption when a dealer's records were destroyed by fire.