UNITED STATES DEPARTMENT OF AGRICULTURE

BEFORE THE SECRETARY OF AGRICULTURE

In re:

 

 

 

 

 

 

Natural Bridge Stockyard, Inc.; and

Calvin D. (Bo) Wells, Jr.,

P&S Docket No. 22-J-0004

P&S Docket No. 22-J-0005

 

 

 

 

Respondents.

 

 

DECISION AND ORDER GRANTING COMPLAINANT’S

MOTION FOR SUMMARY JUDGMENT

 

Appearances:

 

Charles L. Kendall, Esq., Office of the General Counsel, United States Department of Agriculture, Washington, DC, for the Complainant, Deputy Administrator, Fair Trade Practices Program, Agricultural Marketing Service (“AMS”)

Melvin Hasting, Esq., Law Office of Melvin Hasting, Cullman, AL, for the Respondents, Natural Bridge Stockyard, Inc. and Calvin D. (Bo) Wells, Jr.

 

Before Channing D. Strother, Chief Administrative Law Judge

 

Introduction

 

This is a proceeding under the Packers and Stockyards Act, 1921, as amended and supplemented (7 U.S.C. §§ 181 et seq.) (“Act”); the regulations promulgated thereunder (9 C.F.R. §§ 201.1 et seq.) (“Regulations”); and the Rules of Practice Governing Formal Adjudicatory Proceedings Instituted by the Secretary Under Various Statutes (7 C.F.R. §§ 1.130 through 1.151) (“Rules of Practice”). The matter initiated with a complaint filed by the Deputy Administrator of the Fair Trade Practices Program, Agricultural Marketing Service, United States Department of Agriculture (“Complainant”), against Natural Bridge Stockyard, Inc. and Calvin D. (Bo) Wells, Jr. (“Respondents”), alleging violations of the Act and Regulations. Before me is a motion for summary judgment filed by Complainant.

Based on review of the submissions and evidence before me, I find there has been no demonstration of genuine material issues of fact to warrant a hearing and that Complaint is entitled to judgment as a matter of law. As set out below, I find that Complainant, in its Motion for Summary Judgment and accompanying papers, has come forward with evidence demonstrating that Respondents both misused their custodial account and failed to maintain their custodial account in accordance with the Act and Regulations. Respondents have failed to submit any evidence to the contrary. Therefore, Complainant’s Motion for Summary Judgment is hereby GRANTED.

Issue

The issue is whether, based upon the parties’ pleadings and materials submitted therewith, there exist material issues of fact that would require a hearing to resolve.

Procedural History

On October 13, 2021, Complainant filed a complaint against Respondents alleging violations of the Act and Regulations. Specifically, the Complaint alleged that: on or about December 18, 2018 and April 22, 2019, Respondent Natural Bridge Stockyard, Inc. (“Respondent NBS”)—under the direction, management, and control of Respondent Calvin D. (Bo) Wells, Jr. (“Respondent Wells”)—failed to properly use and maintain its Custodial Account for Shipper’s Proceeds (“custodial account”), endangering the faithful and prompt accounting of shippers’ proceeds and the payments due the owners or consignors of livestock; and Respondent NBS—under the direction, management, and control of Respondent Wells—engaged in unfair and deceptive practices by misusing its custodial account in that Respondents permitted Peoples Bank of Alabama to take withdrawals from the custodial account to make payments on a personal loan. By reason of these facts, the Complaint alleged that Respondents willfully violated sections 307 and 312(a) of the Act (7 U.S.C. §§ 208, 213(a)) and section 201.42 of the Regulations (9 C.F.R. § 201.42). The Complaint further alleged that Respondents, in connection with their operations subject to the Act, failed to keep and maintain records that fully and correctly disclosed all the transactions involved in their business as required by section 401 of the Act (7 U.S.C. § 221), and by reason of such failure, Respondents willfully violated section 401 of the Act (7 U.S.C. § 221). Complainant requested that an order or orders be issued, including an order requiring Respondents to cease and desist from the violations found to exist, and assessing such penalties as are authorized by the Act and warranted under the circumstances.

On December 13, 2021, Respondents filed an answer denying that any funds from their custodial account were used for personal use, including payments of a personal loan, and included a note to that effect from the bank. The Answer did not, however, deny the remaining allegations of the Complaint.

On June 30, 2022, Complainant filed a motion for decision without hearing by reason of admissions (“Motion for Default”) and proposed decision without hearing by reason of admissions (“Proposed Decision”). On October 5, 2022, Respondents filed a response “demanding a hearing on this motion and complaint filed against them.”[1] On October 18, 2022, I issued an order denying Complainant’s Motion for Default on the bases that the Answer “comport[ed] with section 1.136 of the Rules of Practice” and Respondents had “not admitted all the allegations of the Complaint.”[2] 

On January 10, 2023, I held a telephone conference with the parties at Complainant’s request. The parties agreed to jointly file a proposed procedural schedule to aid in the resolution of this matter, to include deadlines for the filing of any motions for summary judgment, countermotions, and the like. On January 31, 2023, the parties filed a “Stipulated Proposed Procedural Schedule” stating Complainant would file a motion for summary judgment on or before March 1, 2023 and Respondents would file a response on or before March 15, 2023. On February 7, 2023, I issued an order approving the parties’ proposed schedule.

Pursuant to the procedural schedule, Complainant filed a Motion for Decision on the Record Without Hearing (Summary Judgment) (“Motion for Summary Judgment”) and proposed Decision and Order Without Hearing on the Record (“Proposed Decision”) on March 1, 2023. Respondents filed their Response on March 15, 2023.

Summary of the Evidence[3]

Exhibit No.

Document

Description

CX-1

Complainant’s Appendix A to Motion for Summary Judgment

Custodial Account Shortage / Misuse – Analysis of Custodial Account for Shippers’ Proceeds Entity Information (USDA, Packers and Stockyards Division)

CX-2

Complainant’s Appendix B to Motion for Summary Judgment

 

Memorandum to File by Michael XXXXX, Resident Auditor, dated July 17, 2019

Schedule of Misuse of Funds

Loan Inquiry Report for Natural Bridge Stockyard, Inc.

Sweep Inquiry Report for Natural Bridge Stockyard, Inc.

CX-3

Complainant’s Appendix C to Motion for Summary Judgment

Notice of Violation

RX-1

Respondents’ Attachment to Answer

Letter from Peoples Bank of Alabama dated December 13, 2021

I hereby admit to the record all the exhibits identified above.

Jurisdiction

Congress enacted the Packers and Stockyards Act “to assure fair competition and fair trade practices in livestock marketing and in the meatpacking industry.”[4] To that end, the Act prohibits any market agency from engaging in or using any unfair, discriminatory, or deceptive practice.[5] Congress provided for enforcement of the Act by the Secretary of Agriculture.[6] Regulations promulgated under the Act are in Title 9, Part 201 of the Code of Federal Regulations.

The Summary Judgment Standard

The Judicial Officer has articulated the legal standard for summary judgment in USDA administrative proceedings as follows:

The Rules of Practice do not specifically provide for the use or exclusion of summary judgment; however, I have consistently held that hearings are futile and summary judgment is appropriate in proceedings in which there is no factual dispute of substance. A factual dispute of substance is present if sufficient evidence exists on each side so that a rational trier of fact could resolve the dispute either way and resolution of the dispute is essential to the proper disposition of the claim. The mere existence of some factual dispute will not defeat an otherwise properly supported motion for summary judgment because the factual dispute must be material. The usual and primary purpose of summary judgment is to isolate and dispose of factually unsupported claims or defenses.

 

If the moving party supports its motion for summary judgment, the burden shifts to the non-moving party who may not rest on mere allegation or denial in the pleadings, but must set forth facts showing there is a genuine issue of fact or trial. In setting forth such facts, the non-moving party must identify the facts by reference to depositions, documents, electronically stored information, affidavits, declarations, stipulations, admissions, interrogatory answers, or other materials. In ruling on a motion for summary judgment, all evidence must be considered in the light most favorable to the non-moving party with all inferences to be drawn in the non-movant’s favor.

 

Knaust, 73 Agric. Dec. 92, 98-99 (U.S.D.A. 2014) (footnotes omitted) (emphasis added).

A fact is “material” if it “might affect the outcome of the suit under the governing law. Factual disputes that are irrelevant or unnecessary will not be counted.”[7] And a dispute of material fact is “genuine” where “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”[8] Thus, when a party moves for summary judgment on its own claim, the moving party must show there is no genuine issue of fact as to each element of its claim as a matter of law.[9] “Where the nonmoving party only proffers evidence that is ‘merely colorable, or is not significantly probative, summary judgment may be granted.’”[10]

Statutory and Regulatory Authority

The purpose of the Packers and Stockyards Act is “to assure fair trade practices in the livestock marketing and meat-packing industry in order to safeguard farmers and ranchers against receiving less than the true market value of their livestock” and “protect consumers against unfair business practices in the marketing of meats.”[11] Accordingly, the Act makes it unlawful for “any stockyard owner, market agency, or dealer to engage in or use any unfair, unjustly discriminatory, or deceptive practice or device in connection with . . . the receiving, marketing, buying, or selling on a commission basis or otherwise . . . of livestock.”[12] It also requires every stockyard owner and market agency “to establish, observe, and enforce just, reasonable, and nondiscriminatory . . . practices in respect to the furnishing of stockyard services”[13] and requires stockyard owners and market agencies to “keep such accounts, records, and memoranda as fully and correctly disclose all transactions involved in his business.”[14]

Under the Act, the term “stockyard owner” means “any person engaged in the business of conducting or operating a stockyard.”[15] The term “market agency” means “any person engaged in the business of (1) buying or selling in livestock on a commission basis or (2) furnishing stockyard services.”[16]

Further, the Regulations require stockyard dealers and market agencies to maintain and properly use Custodial Accounts for Shippers’ Proceeds (“custodial accounts”). The Regulations regarding handling of custodial accounts provide:

§ 201.42 Custodial accounts for trust funds.

(a)   Payments for livestock are trust funds. Each payment that a livestock buyer makes to a market agency selling on commission is a trust fund. Funds deposited in custodial accounts are also trust funds.

 

(b)   Custodial accounts for shippers' proceeds. Every market agency engaged in selling livestock on a commission or agency basis shall establish and maintain a separate bank account designated as “Custodial Account for Shippers' Proceeds,” or some similar identifying designation, to disclose that the depositor is acting as a fiduciary and that the funds in the account are trust funds.

 

(c)   Deposits in custodial accounts. The market agency shall deposit in its custodial account before the close of the next business day (the next day on which banks are customarily open for business whether or not the market agency does business on that day) after livestock is sold (1) the proceeds from the sale of livestock that have been collected, and (2) an amount equal to the proceeds receivable from the sale of livestock that are due from (i) the market agency, (ii) any owner, officer, or employee of the market agency, and (iii) any buyer to whom the market agency has extended credit. The market agency shall thereafter deposit in the custodial account all proceeds collected until the account has been reimbursed in full, and shall, before the close of the seventh day following the sale of livestock, deposit an amount equal to all the remaining proceeds receivable whether or not the proceeds have been collected by the market agency.

 

(d)   Withdrawals from custodial accounts. The custodial account for shippers' proceeds shall be drawn on only for payment of (1) the net proceeds to the consignor or shipper, or to any person that the market agency knows is entitled to payment, (2) to pay lawful charges against the consignment of livestock which the market agency shall, in its capacity as agent, be required to pay, and (3) to obtain any sums due the market agency as compensation for its services.

 

(e)   Accounts and records. Each market agency shall keep such accounts and records as will disclose at all times the handling of funds in such custodial accounts for shippers' proceeds. Accounts and records must at all times disclose the name of the consignors and the amount due and payable to each from funds in the custodial account for shippers' proceeds.

 

(f)    Insured banks. Such custodial accounts for shippers' proceeds must be established and maintained in banks whose deposits are insured by the Federal Deposit Insurance Corporation.

 

(g)   Certificates of deposit and/or savings accounts. Funds in a custodial account for shippers' proceeds may be maintained in an interest-bearing savings account and/or invested in one or more certificates of deposit, to the extent that such deposit or investment does not impair the ability of the market agency to meet its obligations to its consignors. The savings account must be properly designated as a party of the custodial account of the market agency in its fiduciary capacity as trustee of the custodial funds and maintained in the same bank as the custodial account. The certificates of deposit, as property of the custodial account, must be issued by the bank in which the custodial account is kept and must be made payable to the market agency in its fiduciary capacity as trustee of the custodial funds.

 

9 C.F.R. § 201.42.

 

Violations of the Act and Regulations may result in sanctions. Per 7 U.S.C. § 213(b), the Secretary is authorized to “make an order that [the violator] shall cease and desist from continuing such violation to the extent that the Secretary finds that it does or will exist.”[17] The Secretary may also assess a civil penalty of not more than $28,061.00 for each of Respondents’ violations.[18] When determining the amount of civil penalty to assess, the Secretary “shall consider the gravity of the offense, the size of the business involved, and the  effect of the penalty on the person’s ability to continue in business.”[19] Additionally, the Act authorizes the Secretary to suspend a registrant “for a reasonable specified period.”[20]

The Department’s sanction policy is clear: “the sanction in each case will be determined by examining the nature of the violations in relation to the remedial purposes of the regulatory statute involved, along with relevant circumstances, always giving appropriate weight to the recommendations of administrative officials charged with the responsibility for achieving the congressional purpose.”[21] Although the Act requires the Secretary to consider certain factors when determining civil penalties, there is no such requirement with respect to imposition of a suspension period.

Discussion

I.       No Issues of Material Fact in Dispute

Applying the foregoing standard to the evidence before me, I find there are no genuine issues of material fact regarding the allegations in the Complaint. While Complainant’s Motion for Summary Judgment is fully supported by evidence showing serious violations of the Act and Regulations, Respondents have not produced evidence to establish a material dispute as to the facts in this case. I further find that based on the undisputed facts of record, Complainant is entitled to judgment as a matter of law.

Further, I note that Respondents have answered only one of the three allegations contained in the Complaint. While Respondents have denied and continue to deny custodial-account misuse, they have never addressed the allegations relating to account shortages or failure to keep and maintain proper records. As I explained in the October 28, 2022 Order Denying Complainant’s Motion for Decision Without Hearing by Reason of Default:

The Answer . . . appears to be a statement of a denial by Respondents that any funds were taken from the custodial account were used for any personal use, including payments of a personal loan, accompanied by a note from the bank that the funds are not used for a personal use. Such a denial is all that is necessary under section 1.136 of the Rules of Practice in order to avoid admitting the particular element of the Complaint. . . . Therefore, I find that Respondent[s] ha[ve] not admitted all the allegations of the Complaint.

 

Order Denying Complainant’s Motion for Decision Without Hearing by Reason of Default at 4-5 (emphasis added). The Answer addressed only this allegation of the Complaint. And as described in further detail below, Respondents even neglected to respond to these allegations in their Response to Complainant’s Motion for Summary Judgment.

As set forth in section 1.136 of the Rules of Practice, an “answer shall . . . [c]learly admit, deny or explain each of the allegations of the Complaint and shall clearly set forth any defense asserted by the respondent.”[22] Section 1.136 further provides that “failure to deny or otherwise respond to an allegation of the Complaint shall be deemed, for purposes of this proceeding, an admission of said allegation.”[23] I therefore find that Respondents, by failing to deny or even address the account shortage and records charges, have admitted those allegations of the Complaint.[24]

A.    Custodial-Account Misuse

The salient facts relating to Respondents’ custodial account are not at issue. Respondents admit to having a “sweep” account attached to their custodial account,[25] which constitutes a misuse of the custodial account. Complainant describes the “sweep” account as follows:

Briefly stated, what this means is that, in addition to the Custodial Account, Respondent Wells also had a line of credit with Peoples Bank of America that is associated with the Custodial Account (with Wells designated personally as the borrower). This line of credit account is designated as a “sweep” account, and is directly associated with the NBS Custodial Account, with a designated “parent/child” relationship. Whenever the Custodial Account has a remaining cash balance at the end of a business day, Peoples Bank of Alabama will “sweep” (withdraw) all available cash remaining in the Custodial Account and apply these funds to repay any outstanding balance on the line of credit.

 

Motion for Summary Judgment at 8 (emphasis added). Complainant provided documentation of these accounts in Appendix B to its Motion for Summary Judgment, including a loan inquiry report by Peoples Bank of Alabama that shows transfers from Respondents’ custodial account to Respondent Wells’s “personal loan,” or line of credit.[26]

The lawful purposes for withdrawing from a custodial account are provided in section 201.42(d) of the Regulations (9 C.F.R. § 201.42(d)). The Regulation specifies three permissible purposes for withdrawal:

The custodial account for shippers’ proceeds shall be drawn on only for payment of (1) the net proceeds to the consignor or shipper, or to any person that the market agency knows is entitled to payment, (2) to pay lawful charges against the consignment of livestock which the market agency shall, in its capacity as agent, be required to pay, and (3) to obtain any sums due the market agency as compensation for its services.

 

9 C.F.R. § 201.42(d) (emphasis added). Proceeds may not be drawn upon for a stockyard owner or market agency’s own purposes. Contrary to Respondent’s contentions,[27] withdrawals for bank fees or debts—regardless of the reason or function of those fees or debts—are prohibited.[28]

Here, Respondents admitted their custodial account was attached to a line of credit that functioned as a “sweep” account, and—as established above—bank withdrawals from the custodial account are not permitted for this purpose. While Respondents argue that a “close reading of Section (d) reveals no limitation of who can withdraw from the custodial account,” the identity of the withdrawer is not at issue here.[29] It is also immaterial that none of Respondents’ checks were returned unpaid or that Respondents “ensured that all of the sellers got paid their proceeds ‘whether or not the proceeds ha[d] been collected by the market agency.’”[30] As the Seventh Circuit Court of Appeals has explained: “The argument that there is no evidence of any particular shipper not being paid[] is not controlling. It is the duty of a regulatory agency to prevent potential injury by stopping unlawful practices in their incipiency. Proof of a particular injury is not required.”[31]

Accordingly, I find there is no dispute of material fact that Respondents misused their custodial account in violation of 7 U.S.C. §§ 208 and 213(a) and 9 C.F.R. § 201.42(d).  

B.     Custodial-Account Shortages

It is clear that Respondents failed to maintain their custodial account in accordance with the Act and Regulations. The evidence shows shortages in Respondents’ custodial account that were due, in part, to Respondents’ failure to deposit into the custodial account an amount equal to the proceeds receivable from the sale of consigned livestock within the time prescribed by section 201.42 of the Regulations (9 C.F.R. § 201.42). Specifically, Complainant has demonstrated that Respondents’ custodial account was short $38,637.77 on December 18, 2018 and short $14,950.22 on April 22, 2019, as a result of outstanding checks that were drawn on the custodial account. While Complainant provided a chart of the financial components related to these shortages and a bank audit of Respondents’ accounts,[32] Respondents submitted no evidence to rebut these claims. In fact, Respondents never addressed, denied, disputed, or explained the custodial-account shortages in either their Answer or their Response to Complainant’s Motion for Summary Judgment.

Accordingly, I find there is no dispute of material fact that on or about December 18, 2018 and April 22, 2019, Respondents failed to properly use and maintain their custodial account, thereby endangering the faithful and prompt accounting of shippers’ proceeds and the payments due the owners or consignors of livestock,[33] in violation of sections 307 and 312(a) of the Act (7 U.S.C. §§ 208, 213(a)) and section 201.42 of the Regulations (9 C.F.R. § 201.42).

C.     Failure to Maintain Records

It is undisputed that Respondents failed to maintain an accurate custodial account register in violation of the Act and Regulations. While Complainant made this allegation in both its Complaint and Motion for Summary Judgment,[34] Respondents never addressed it—not in their Answer, and not in their Response to Complainant’s Motion. By failing completely to respond to this allegation, Respondents are deemed to have admitted the violation.[35]

Accordingly, I find there is no material dispute of fact that Respondents failed to keep and maintain records that fully and correctly disclosed all the transactions involved in their business as a dealer as required by section 401 of the Act (7 U.S.C. § 221) and section 201.42 of the Regulations (9 C.F.R. § 201.42).

II.    Respondent’s Response to Complainant’s Motion for Summary Judgment Is 

      Insufficient to Demonstrate a Genuine Issue of Material Fact.

 

The usual and primary purpose of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses.[36] Once the moving party satisfies its burden by producing evidence demonstrating the absence of a genuine issue of fact, the burden shifts to the non-moving party to defeat summary judgment.[37]

It is well settled that the non-moving party “may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial.”[38] The non-moving party must identify those specific facts “by reference to depositions, documents, electronically-stored information, affidavits, declarations, stipulations, admissions, interrogatory answers, or [similar] materials”;[39]  he cannot rest on ignorance of facts, speculation, or suspicion in the hope that something will turn up at trial.[40] If the non-moving party does not produce such evidence, summary judgment should be entered when appropriate. However, in reviewing a motion for summary judgment, I must view all the evidence in the light most favorable to the non-moving party.[41] I have done so here.

Here, the non-moving party—Respondents— have failed to submit any specific facts that would rebut Complainant’s Motion for Summary Judgment. Respondents have neither provided nor made “reference to depositions, documents, electronically-stored information, affidavits, declarations, stipulations, admissions, interrogatory answers, or other materials” that would refute, rebut, and/or disprove Complainant’s evidence or otherwise support their defense.[42] Instead, Respondents have raised three general, non-fact-specific arguments that each lack merit.

First, Respondents contend that the Complaint was not filed “timely” pursuant to 7 U.S.C. § 210(a) because it was not filed within ninety days from the date the cause of action accrued.[43] Respondents’ argument lacks merit, as 7 U.S.C. § 210(a) applies to reparations proceedings initiated by non-government “persons”– not by, as in this case, the Secretary of Agriculture. This is a disciplinary proceeding initiated by the Secretary. Disciplinary proceedings instituted by the Secretary are governed by the Rules of Practice (7 C.F.R. §§ 1.130 et seq.), and there is no ninety-day requirement for complaints filed by the Secretary.[44]

Second, Respondents assert that Complainant has failed to state a cause of action under the unfair and deceptive practices provision of the Act because “nothing in the act states that the misuse of a custodial account is a violation of discriminatory or unfair or deceptive trade practices.”[45] Respondents are mistaken. Although the Act does not explicitly identify such misuse as a violation, the Judicial Officer has held that “[m]issue of proceeds is an unreasonable and unfair practice under the act.”[46]

Finally, Respondents argue there is an issue of material fact as to whether payment of a personal loan constitutes misuse of a custodial account.[47] This is not an issue of fact but rather a question of law that has already been settled. As previously discussed, withdrawals may be made from custodial accounts

only for payment of (1) the net proceeds to the consignor or shipper, or to any person that the market agency knows is entitled to payment, (2) to pay lawful charges against the consignment of livestock which the market agency shall, in its capacity as agent, be required to pay, and (3) to obtain any sums due the market agency as compensation for its services.

 

9 C.F.R. § 201.42(d) (emphasis added). Personal-loan payments are not one of the three lawful purposes for withdrawal.[48]

In light of the foregoing, I find that Respondents’ Response to the Motion for Summary Judgment fails to demonstrate any genuine dispute of material fact that would warrant an evidentiary hearing. Complainant has come forward with evidence to prove Complainant’s allegations, and Respondents have not met their burden to prove there is a dispute of material fact that warrants an evidentiary hearing in this matter. Entry of summary judgment is appropriate.

III. Sanctions

Recommendations by administrative officials charged with the responsibility for achieving the congressional purpose of a statute are highly relevant to any sanction to be imposed and entitled to great weight in light of their experience gained during their day-to-day supervision of the regulated industry.[49] Here, Complainant—the Deputy Administrator of the Fair Trade Practices Program—requests that Respondents be issued a cease-and-desist order, suspended as a registrant pending showing of compliance with the Act, and assessed a civil penalty of $28,061.00.[50] I find Complainant’s sanctions recommendation to be supported and appropriate.

As previously discussed, the Act explicitly authorizes the Secretary to require that a registrant “cease and desist from continuing such violation[s]”[51] and to suspend a registrant “for a reasonable specified period.”[52] I find that Respondents have committed serious violations sections 307 and 312(a) of the Act (7 U.S.C. §§ 208, 213(a)) and section 201.42 of the Regulations (9 C.F.R. § 201.42),[53] and by failing to keep and maintain accurate transaction records.[54]

At the time of Respondents’ violations, the Act provided for a civil penalty of up to $28,061 for each violation.[55] As noted above, Respondents engaged in custodial-account misuse on numerous occasions by permitting their bank to regularly “sweep” impermissible withdrawals from the Custodial Account. Complainant, however, cited just two instances of misuse in the Complaint: those which either caused or occurred during shortages in the custodial account. Respondents could be liable for up to $112,244.00 in civil penalties for their violations ($28,061 per violation for four violations). I find that a single civil penalty of $28,061.00 is reasonable under the circumstances. It should not impact Respondents’ ability to continue doing business in the future.

Further, the purpose of administrative sanctions is to accomplish the remedial purposes of the Act by deterring future similar violations, by both Respondents and other potential violators.[56] I find that, in order to achieve those purposes, it is necessary to impose the recommended civil penalty, suspension, and cease-and-desist order.

Based on the foregoing, I find that a hearing is not necessary in this matter. Accordingly, Complainant’s Motion for Summary Judgment is granted.

In accordance with the evidence of record in this docket, the following findings of fact and conclusions are hereby adopted:

Findings of Fact

1.      The Secretary has jurisdiction in this matter.

2.      Respondent Natural Bridge Stockyard, Inc. (“Respondent NBS”) is a corporation organized under the State of Alabama, with its principal place of business located at 15504 Highway 13, Haleyville, AL 35565. The corporation’s President, as registered with the Alabama Secretary of State, is Calvin D. Wells, Jr. That address was provided to the Hearing Clerk for service of process but is being withheld to protect Mr. Wells’s personally identifiable information.

3.      Respondent NBS, at all times material herein, was engaged in the business of conducting and operating a posted stockyard subject to the provisions of the Packers and Stockyards Act, engaged in the business of a market agency selling consigned livestock in commerce on a commission basis at the stockyard, and registered with the Secretary of Agriculture as a market agency selling livestock in commerce on a commission basis and as a dealer buying and selling in commerce.

4.      Respondent Calvin D. (Bo) Wells, Jr. (“Respondent Wells”) is an individual whose address was provided to the Hearing Clerk but is being withheld to protect Mr. Wells’s personally identifiable information.

5.      Respondent Wells is and at all times material herein was: (a) 100-percent owner and President of Respondent NBS; (b) sole officer of Respondent NBS; (c) responsible for the day-to-day direction, management, and control of Respondent NBS; (d) engaged in the business of a market agency selling consigned livestock in commerce on a commission basis and as a dealer buying and selling livestock in commerce within the meaning of and subject to the provisions of the Act.

6.      On or about December 18, 2018 and April 22, 2019, Respondent NBS, under the direction, management, and control of Respondent Wells, failed to properly use and maintain its Custodial Account for Shippers’ Proceeds (“custodial account”), endangering the faithful and prompt accounting of shippers’ proceeds and the payment due the owners or consignors of livestock. The shortages in Respondent NBS’s custodial account were due, in part, to Respondents’ failure to deposit into the custodial account an amount equal to the proceeds receivable from the sale of consigned livestock within the time prescribed by section 201.42 of the Regulations (9 C.F.R. § 201.42).

7.      Respondent NBS, under the direction, management, and control of Respondent Wells, engaged in unfair and deceptive practices by misusing their custodial account in that Respondents permitted Peoples Bank of Alabama to take withdrawals from the custodial account to make payments on a personal loan.

8.      Respondents, in connection with their operations subject to the Act, failed to keep and maintain records that fully and accurately disclosed all the transactions involved in their business as a stockyard and market agency as required by section 401 of the Act (7 U.S.C. § 221) and by section 201.42 of the Regulations (9 C.F.R. § 201.42). Specifically, Respondents failed to maintain an accurate custodial account check register.

Conclusions

By reason of the facts above, Respondents Natural Bridge Stockyard, Inc. and Calvin D. (Bo) Wells, Jr. have willfully violated sections 307 and 312(a) of the Act (7 U.S.C. §§ 208, 213(a)) and section 201.42 of the Regulations promulgated thereunder (9 C.F.R. § 201.42) and have willfully violated section 401 of the Act (7 U.S.C. § 221).

ORDER

1.      Complainant’s Motion for Summary Judgment is GRANTED.

2.      Respondents Natural Bridge Stockyard, Inc. and Calvin D. (Bo) Wells, Jr., their agents and employees, directly or through any corporate or other device, in connection with operations subject to the Packers and Stockyards Act, shall cease and desist from failing to properly use and maintain their Custodial Account for Shippers’ Proceeds and shall cease and desist from misusing their Custodial Account for Shippers’ Proceeds.

3.      In accordance with section 312(b) of the Act (7 U.S.C. § 213(b)), Respondents Natural Bridge Stockyard, Inc. and Calvin D. (Bo) Wells, Jr. jointly and severally are assessed a civil penalty in the amount of twenty-eight thousand and sixty-one dollars ($28,061.00).

4.      In accordance with 7 U.S.C. § 204, the registrations of Respondents Natural Bridge Stockyard, Inc. and Calvin D. (Bo) Wells, Jr. are suspended for a period of thirty (30) days and thereafter until Respondent Natural Bridge Stockyard, Inc. demonstrates to the Fair Trade Practices Program that the shortages in the Custodial Account for Shippers’ proceeds have been eliminated. Pursuant to 7 U.S.C. § 203, Respondents are prohibited from engaging in any operation subject to the Packers and Stockyards Act while their registrations are suspended.

5.      In accordance with section 401 of the Act (7 U.S.C. § 221), Respondents shall keep and maintain records that fully and correctly disclose all transactions involved in their business subject to the Act.

This Decision and Order shall be final and effective without further proceedings thirty-five (35) days after service upon Respondent unless an appeal to the Judicial Officer is filed with the Hearing Clerk within thirty (30) days after service, as provided in section 1.145 of the Rules of Practice (7 C.F.R. § 1.145).

Copies of this Decision and Order shall be served upon the parties and counsel by the Hearing Clerk.

 

Done at Washington, D.C.,

this 28 day of April 2023

/S/

Channing D. Strother

Chief Administrative Law Judge

 

 

Hearing Clerk’s Office

U.S. Department of Agriculture

South Building, Room 1031

1400 Independence Avenue, SW

Washington, DC 20250-9203

Tel:      202-720-4443

Fax:     1-844-325-6940

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[1] Response to Motion for Default at 1.

[2] Order Denying Complainant’s Motion for Decision Without Hearing by Reason of Default at 5 (emphasis added).

[3] This summary judgment relies upon the pleadings and upon documents attached to Respondents’ Answer and Complainant’s Motion for Summary Judgment.

[4] H.R. Rep. No. 85-1048, at 1 (1958).

[5] See 7 U.S.C. §§ 208, 213(a).

[6] 7 U.S.C. § 228(a); see Excel Corp. v. U.S. Dep’t of Agric., 397 F.3d 1285, 1297 (10th Cir. 2005).

[7] Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986) (“This materiality inquiry is independent and separate from the question of the incorporation of the evidentiary standard into the summary judgment determination. That is, while the materiality determination rests on substantive law, it is the substantive law’s identification of which facts are critical and which facts are irrelevant that governs. Any proof or evidentiary requirements imposed by the substantive law are not germane to this inquiry, since materiality is only a criterion for categorizing factual disputes in their relation to the legal elements of the claim and not a criterion for evaluating the evidentiary underpinnings of those disputes.”).

[8] Id. at 248.

[9] See Crescent Towing & Salvage Co. v. M/V ANAX, 40 F.3d 741, 744 (5th Cir. 1994); Fontenot v. Upjohn Co., 780 F.2d 1190, 1994 (5th Cir. 1986); United States v. Great Am. Veal, Inc., 998 F. Supp. 416, 419 (D.N.J. 1998) (citing Celotex Corp., 477 U.S. at 323), reprinted in 57 Agric. Dec. 504 (U.S.D.A. 1998)).

[10] Christian v United States, 131 Fed. Cl. 134, 145 (2017) (quoting Anderson, 477 U.S. at 249-50.

[11] Bruhn’s Freezer Meats of Chicago, Inc. v. U.S. Dep’t of Agric., 438 F.2d 1332, 1337 (8th Cir. 1971) (citing H.R. Rep. No. 85-1048, 85th Cong., 1st Sess. (1957)) (internal quotation marks omitted).

[12] 7 U.S.C. § 213(a).

[13] 7 U.S.C. § 208(a).

[14] 7 U.S.C. § 221.

[15] 7 U.S.C. § 201(a).

[16] 7 U.S.C. § 201(c).

[17] 7 U.S.C. § 213(b).

[18] See 7 U.S.C. § 213(b); 7 C.F.R. § 3.91(b)(1)(lvi). This was the maximum civil penalty per violation on December 18, 2018 and April 22, 2019, on or about the dates Respondents committed the alleged violations in this case.

[19] 7 U.S.C. § 213(b).

[20] 7 U.S.C. § 204.

[21] S.S. Farms Linn Cnty., Inc., 50 Agric. Dec. 476, 497 (U.S.D.A. 1991) (Decision as to James Joseph Hickey & Shannon Hansen), aff'd, 991 F.2d 803, 1993 WL 128889 (9th Cir. 1993) (not to be cited as precedent under the 9th Circuit Rule 36-3) (emphasis added)).

[22] 7 C.F.R. § 1.136(b) (emphasis added).

[23] 7 C.F.R. § 1.136(c).

[24] See Fontes v. Porter, 156 F.2d 956, 957 (9th Cir. 1946) (“The allegation was not denied in the answer and accordingly must be taken as admitted. Neither proof nor finding is requisite in respect of uncontested issues.”) (citing Fed R. Civ. P. 8(d)); see, e.g., U.S. for Use of Automatic Sprinkler Corp. of Am. v. Merritt-Chapman & Scott Corp., 305 F.2d 121, 123 (3d Cir. 1962 (“The Answer admits some of the allegations of the Complaint [and] denies others . . . except those of Paragraph 11. The Answer contains no reference to Paragraph 11. Since the Answer fails to deny the quoted allegations of the Complaint, they are deemed admitted.”).

[25] See Answer at 1; RX-1 (Respondents’ Attachment to Answer) at 1. That “sweep” account was a line of credit with Respondent Wells “designated personally as the borrower.” CX-2 (Complainant’s Appendix B to Respondent’s Motion for Summary Judgment).

[26] See CX-2 (Complainant’s Appendix B to Motion for Summary Judgment); see supra note 24.

[27] See Response to Motion for Summary Judgment at 6 (“Since the respondents chose to use a credit line from People’s Bank to maintain a balanced account for sellers to receive their proceeds from the sale, it is permitted as a lawful charge for the stockyard to repay the bank for the credit line used to maintain that account.”). 

[28] See, e.g., Ravenna Auction, LLC, 75 Agric. Dec. 263, 276-77 (U.S.D.A. 2016) (Decision and Order of Administrative Law Judge Jill S. Clifton); see also Shannon, 7 Agric. Dec. 951, 966-67 (U.S.D.A. 1948) (“Market agencies are specifically prohibited by regulation for using shippers’ proceeds for purposes of their own, either through recourse to the float bank account in which funds were deposited or in any other manner. Misuse of proceeds is an unreasonable and unfair practice under the act.”) (emphasis added).

[29] Response to Motion for Summary Judgment at 5.

[30] See Shannon, 7 Agric. Dec. at 967 (“The fact that the respondents had considerable means and ample credit at their bank, with which they had deposited a large collateral, is immaterial.”).

[31] Daniels v. United States, 242 F.2d 39, 41-42 (7th Cir. 1957) (citations omitted).

[32] CX-1 (Complainant’s Appendix A) and CX-2 (Complainant’s Appendix B).

[33] See Livestock Mktg. Dev. Co., 33 Agric. Dec. 784, 806-07 (“[T]he custodial account is a trust account whose primary purpose is to assure that producers and other consignors of livestock will get paid the proceeds from the sale of their livestock. . . . It is recognized that shortages endanger the proper and prompt payment of sales proceeds to consignors.”).

[34] Complaint at 3 ¶ IV; Motion for Summary Judgment at 4, 12. I note that Complainant, in its Motion for Summary Judgment, did not set forth specific facts related to this alleged violation. However, the allegation was already admitted by way of Respondent’s failure to respond to the allegation in the Complaint. See supra note 24 and accompanying text.

[35] See 7 C.F.R. § 1.136(c) (“[F]ailure to deny or otherwise respond to an allegation of the Complaint shall be deemed, for purpose of this proceeding, an admission of said allegation.”).

[36] Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986).

[37] Muck v. United States, 3 F.3d 1378, 1380 (10th Cir. 1993); T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987).

[38] Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

[39] Id. at 247; Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998).

[40] Conaway v. Smith, 853 F.2d 789, 793 (10th Cir. 1988).

[41] Anderson, 477 U.S. at 243; see Tolan v. Cotton, 572 U.S. 650, 651 (2014) (finding that the Fifth Circuit Court of Appeals “failed to adhere to the axiom that in ruling on a motion for summary judgment, the evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor”) (internal quotation marks omitted)); Mize v. Jefferson City Bd. of Educ., 93 F.3d 739, 742 (11th Cir. 1996) (“[A]ll inferences drawn from the evidence must be viewed in the light most favorable to the non-moving party.”).

[42] Knaust, 73 Agric. Dec. 92, 99 (U.S.D.A. 2014); Agri-Sales, Inc., 73 Agric. Dec. 612, 628 (U.S.D.A. 2014).

[43] Response to Motion for Summary Judgment at 1-2.

[44] See 9A Fed. Proc. Forms § 30:109 (“Disciplinary proceedings brought by the Grain Inspection, Packers and Stockyards Administration (Packers and Stockyards Programs) against a stockyard owner or market agency for an apparent violation of the Packers and Stockyards Act are conducted in accordance with the USDA uniform practice rules governing formal adjudicatory proceedings.”).

[45] Response to Motion for Summary Judgment at 3.

[46] Shannon, 7 Agric. Dec. at 966-67.

[47] Response to Motion for Summary Judgment at 4-6.

[48] See supra note 28 and accompanying text.

[49] S.S. Farms Linn Cnty., Inc., 50 Agric. Dec. at 496.

[50] Motion for Summary Judgment at 13-14.

[51] 7 U.S.C. § 213(b).

[52] 7 U.S.C. § 204.

[53] See George Cnty. Stockyard, Inc., 45 Agric. Dec. 2342, 2350 (U.S.D.A.1986) (“Custodial account violations have long been recognized as serious violations of the Packers and Stockyards Act.”).

[54] See Hyatt v. United States, 276 F.3d 308, 312 (10th Cir. 1960) (“One of the important and essential means in the accomplishment of the Packers and Stockyards Act is to require market agencies to keep such accounts, records and memoranda as will fully and correctly disclose all transactions involved in their handling of livestock.”); George Cnty. Stockyard, Inc., 45 Agric. Dec. 2342, 2350 (U.S.D.A. 1986) (“Complete and accurate records are essential to effective enforcement of the regulatory program.”).

[55] See supra note 23 and accompanying text.

[56] See Syverson, 69 Agric. Dec. 1500, 1509 (U.S.D.A. 2010) (Decision and Order on Remand); Ferguson, 48 Agric. Dec. 341, 383 (U.S.D.A. 1989).