Each year, the USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) initiates over one-hundred enforcement actions against packers, dealers, market agencies, live poultry dealers and other regulated entities for alleged violations of the Packers and Stockyards (P&S) Act. These actions are taken for alleged unfair and deceptive trade practices, or anticompetitive behavior, such as collusion between dealers and packers, or agreements between dealers to alternate bids or refrain from competing on livestock at auctions. GIPSA also brings enforcement actions for other violations of the P&S Act and implementing regulations, such as failure to make full payment promptly, failure to provide a seller of livestock or poultry details of the purchase contract, and failure to register with USDA as a dealer or market agency.
Most of GIPSA’s enforcement actions take the form of “Notices of Violations” or offers of “Stipulation Agreements.” A Notice of Violation alleges a minor infraction of the P&S Act and simply requests corrective measures. An offer for Stipulation Agreement alleges minor infractions of the P&S Act, seeks a small civil penalty, and can be resolved informally without the need for an administrative proceeding.
However, enforcement actions can also take the form of “formal administrative proceedings.” Here, the agency files a Complaint before an Administrative Law Judge (ALJ) requesting that the ALJ impose a substantial civil penalty and an Order requiring the regulated entity to cease and desist from engaging in the alleged unlawful activity (i.e., “Cease and Desist Order”). In the case of dealers and market agencies, the agency might also request that the ALJ issue an Order suspending the dealer or market agency’s P&S registration, without which they can buy and sell livestock.
Faced with an offer of Stipulation Agreement or an administrative Complaint, regulated entities must decide whether to settle the matter by paying a civil penalty and, in the case of Complaints, agreeing to a Cease and Desist Order and possibly a suspension of registration, or challenge the action by requesting an administrative hearing before the ALJ. This is a difficult decision, and one in which it is necessary that both the regulated entity and its attorney understand the administrative process for challenging GIPSA enforcement actions.
The administrative process for challenging GIPSA enforcement actions is not exactly stacked in the favor of regulated entities (otherwise known as “respondents”). First, although the respondent is entitled to a hearing before an ALJ, it is important to understand that the ALJ is a USDA employee. A review of ALJ decisions shows that the ALJ more often than not rules in favor of the agency. If the ALJ rules in favor of the agency and assesses a civil penalty and a Cease and Desist Order, the respondent can appeal the ALJ’s decision to another USDA employee, the Judicial Officer (JO). Only after losing at this stage can the respondent appeal the agency’s decision to the United States Court of Appeals in the circuit where the respondent resides. The Court of Appeals will review the JO’s decision under a deferential standard, reviewing the JO’s conclusions of law de novo, but affirming the JO’s finding of fact if, upon review of the record, they are supported by substantial evidence.
Second, although the respondent has an opportunity to introduce witness testimony and evidence at the hearing before the ALJ and cross-examine GIPSA’s witnesses, respondents have limited opportunities for discovery prior to the Hearing. Discovery is generally limited to the ALJ ordering the agency and respondent to exchange proposed exhibits and a witness list, which includes a short description of the witnesses’ testimony. Although GIPSA regulations also allow respondents to request that the ALJ order the issuance of subpoenas or allow depositions, these requests are not granted very often.
This does not mean that the above hurdles make it impossible for Respondents to have success at the ALJ or JO stages of the administrative process. For example, in one matter in which we represented the respondent, the ALJ found that our client violated the P&S Act but denied GIPSA’s request to impose a civil penalty of more than $1,000,000 (and issued no civil penalty) because the ALJ determined that our client’s action was unintentional, and GIPSA did not put our client on notice that its conduct would have violated the P&S Act. Notwithstanding, the above hurdles should be considered when contemplating whether or not to challenge a GIPSA enforcement action.
Respondents should also consider the following additional factors:
- What is the likelihood of success at each level of the administrative process and at the Court of Appeals?
- What will be the legal costs involved in challenging the enforcement action at each step of the process?
- How much would the civil penalty be if the case was settled compared to how much it would be if the case went to a hearing and the respondent loses? How does the projected civil penalty compare to the estimated legal costs?
- If a Cease and Desist Order is issued, how onerous would it be to comply with the Order (violations of a Cease and Desist Order can be prosecuted as a criminal offense)?
- In the case of dealers and market agencies, is GIPSA seeking to suspend registrations, without which they can conduct business? If so, how long would the registrations be suspended?
- How would sellers or buyers of the regulated entity respond if the regulated entity agreed to settle a GIPSA enforcement action or was found by the ALJ, JO or Court of Appeals to have violated the P&S Act (GIPSA will issue press releases announcing impositions of civil penalties and Cease and Desist Orders)?
Only the regulated entity can make the decision whether it is worthwhile to contest a GIPSA enforcement action or to settle it. However, to fully consider the factors above and make a sound business decision, the entity would be well advised to seek advice from someone who fully understands the administrative process, P&S precedent in similar enforcement proceedings, and the GIPSA employees who are involved in the administrative process. Making a decision to fight cases that have an unlikely chance of success results in the business paying far more money in legal costs than the civil penalty ultimately imposed. Making a decision simply to accept the GIPSA complaint has downsides as well – payment of an excessive penalty or agreeing to a unsupportable cease and desist can have an adverse effect on your business.
