A I-SE/A IBSNH (T .2 - Technotory end Science AGRICULTURE DECISIONS Volume 52 a January - June 1993 Part Two (P&S) Pages 546-595 EDT Rorr PUBLIC LIBRARY OCT § 1903 DEPOSIToRy OvCuseyy UNITED STATES DEPARTMENT OF AGRICULTURE BEST COPY AVAILABLE. vi ny DETROIT i iii AGRICULTURE DECISIONS AGRICULTURE DECISIONS is an official publication by the Secretary of Agriculture consisting of decisions and orders issued in formal adjudicatory administrative proceedings conducted for the Department under various statutes and regulations pursuant to the Administrative Procedure Act. For the convenience of the public, rulings issued by the Department’s administrative law judges on the appeal of nonprocurement debarments and suspensions and selected court decisions concerning the Department’s regulatory programs are also included. The Department is required to publish its rules and regulations in the Federal Register and, therefore, they are not included in AGRICULTURE DECISIONS. Consent Decisions entered subsequent to December 31, 1986, are no longer published. However, a list of the decisions is included. (53 Fed. Reg. 6999, March 4, 1988.) The decisions are on file and may be inspected upon request made to the Hearing Clerk, Office of Administrative Law Judges. Beginning in 1989, AGRICULTURE DECISIONS is comprised of three Parts, each of which is published every six months. Part One is organized by statute, and contains all decisions and orders other than those pertaining to the Packers and Stockyards Act and the Perishable Agricultural Commodities Act, which are contained in Parts Two and Three, respectively. The published decisions and orders may be cited by giving the volume number, page number and year, e.g., 1 Agric. Dec. 472 (1942). It is unnecessary to cite a decision’s docket or decision numbers, e.g., D-578; S. 1150, and the use of such references generally indicates that the decision has not been published in AGRICULTURE DECISIONS. Direct all inquiries regarding this publication to: Editors, Agriculture Decisions, Hearing Clerk Unit, Office of Administrative Law Judges, U.S. Department of Agriculture, Room 1081 South Building, Washington, D.C. 20250-9200, Telephone: (202) 720-4443. LIST OF DECISIONS REPORTED JANUARY - JUNE 1993 PACKERS AND STOCKYARDS ACT TIMMONS CARPENTER, ET AL. P&S Docket No. 19-93-55. Denson and Order; cc. 6 ccc ccc ce ccs ccs ececes 580 SONNY BARTHOLD, D/B/A BARTHOLD CATTLE COMPANY. P&S Docket No. D-93-16. I Res 4.No ys iraw wk be Niee weM OS wees 584 FRED M. MCCREADY, ET AL. P&S Docket No. D-92-50. I NE asap a uh neu nea 5g) ca ig o seatowl © dukaares 586 MICHAEL C. KNEDLIK. P&S Docket No. D-93-1. eo, So yGile: Gone aticiiane@ avaigre'ew Saw are 588 eS Cons hea ake kaw ke ASE ROE S Ewe wR PACKERS AND STOCKYARDS ACT DISCIPLINARY DECISIONS In re: CEDAR VALE SALE BARN, INC., DOYLE HAWKINS and JERRY MULLINS. P. & S. Docket No. D-91-74. Decision and Order filed January 28, 1993. Unfair trade practice - Check kiting - Alter Ego - Registration suspension. Judge Paul Kane found respondent guilty of unfair trade practices involving check kiting in cattle purchases. Respondent, who was the corporate president, was responsible for the management, direction and control of a livestock market which was registered as a market agency under the Act. Although respondent and his employer were unwitting dupes in a check kiting scheme perpetrated on them, Judge Kane found that respondent’s assent was essential to the unlawful acts committed by a purported customer. Check kiting by a livestock market, even in its general account, is considered an unfair trade practice in violation of the Act, because it poses a threat to the rights of consignors to promptly receive payment for their cattle. Finding that Departmental precedent supports the imposition of sanctions on individuals who are not registrants, Judge Kane suspended respondent as a registrant under the Act for a period of one year. Julie Cook, for Complainant. Carl N. Kelly, Wichita, KS, for Respondent. Decision and Order issued by Paul Kane, Administrative Law Judge. This decision is promulgated pursuant to the Administrative Procedure Act, Pub. L. 89-554, September 6, 1966, 80 Stat. 384, as amended,’ and the Rules of Practice of the Department of Agriculture Governing Formal Adjudicatory Administrative Proceedings, 7 C.F.R. §§ 1.130-.151 (1992). The Administrator of the Packers and Stockyards Administration by complaint filed August 30, 1991, alleges that Cedar Vale Sale Barn, Inc., hereinafter the "Sale Barn," under the direction and control of its then President and Manager, Mr. Doyle Hawkins, in concert with Mr. Jerry Mullins, who was a buyer and seller of cattle through the Sale Barn, pursued unfair practices in the establishment of inaccurate balances in the demand accounts of financial institutions. The Administrator’s complaint additionally alleges that Mr. Hawkins is the alter ego of the Sale Barn, and asserts that the acts of the Sale Barn, Mr. Hawkins and Mr. Mullins, resulted in a willful violation of section 312(a) of the Packers and Stockyards Act, Pub. L. 67-51, August 15, 1921, c.64, 42 Stat., 159, as amended, hereinafter the "Act"? These practices are alleged to have occurred in 1989 and 1990. By this complaint, the Administrator seeks to suspend the Sale Barn and the individual respondents as registrants under the Act, to assess civil penalties, and to prohibit the future performance of these allegedly illegal practices. By answer filed on September 30, 1991, the Sale Barn and Mr. Hawkins admit to several jurisdictional allegations, but deny the essential allegations of the ‘Particular reference is made to 5 U.S.CA. §§ 554, 557 (West 1977 and Supp. 1992). (Unofficial codifications of statutes are cited herein.] 77 U.S.CA. § 213(a) (West 1980 and Supp. 1992). CEDAR VALE SALE BARN, INC., et al 547 52 Agric. Dec. 546 complaint. By answer filed October 9, 1991, Mr. Mullins admits to several jurisdictional allegations, but denies the essential allegations of the complaint. Thereafter, on January 16, 1992, a consent decision was issued with respect to Mr. Mullins and an order was entered. On April 29, 1992, a consent decision was issued with respect to the Sale Barn and an order was entered. Thus, this matter presently relates only to Mr. Hawkins.’ Pursuant to the motion of counsel, the public hearing was held on May 12, 1992, in Wichita, Kansas, before the undersigned. Subsequently, proposed findings and briefs were filed by counsel. To the extent indicated, they are adopted herein. All other proposed findings, conclusions and arguments are rejected as being irrelevant, or lacking legal or evidentiary bases. As used herein, "Tr." refers to the transcript of the public hearing. "CX" refers to the numbered exhibits offered by complaint counsel. Exhibits were not offered by counsel to Mr. Hawkins. The interests of the Department are represented by Julie Cook, Esq., Washington, D.C. The interests of Mr. Hawkins are represented by Carl N. Kelly, Esq., Wichita, Kansas. Upon consideration of all matters, of record, the following Findings of Fact are made and Conclusions of Law reached. As a result thereof, violations are found as alleged, and there is entered an order suspending Mr. Hawkins, from registration for a period of one year and imposing a cease and desist order. Statutes Mr. Hawkins is charged only with a single violation of the Act, which is as follows:* (a) It shall be 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 determining whether persons should be authorized to operate at the stockyards, or with 3Complaint counsel have subsequently ceased the pursuit of civil penalties as an appropriate sanction. “7 U.S.C.A. § 213(a) (West 1980 and Supp. 1992). PACKERS AND STOCKYARDS ACT the receiving, marketing, buying, or selling on a commission basis or otherwise, feeding, watering, holding, delivery, shipment, weighing, or handling of livestock. Authority to impose the sanctions sought by complaint counsel is found in the following sections of the Act: (b) Whenever complaint is made to the Secretary by any person, or whenever the Secretary has reason to believe, that any stockyard owner, market agency, or dealer is violating the provisions of subsection (a) of this section, the Secretary after notice and full hearing may make an order that he shall cease and desist from continuing such violation to the extent that the Secretary finds that it does or will exist.° ese eee On and after July 12, 1943, the Secretary may require reasonable bonds from every market agency (as defined in this subchapter), every packer (as defined in subchapter II of this chapter) in connection with its livestock purchasing operations (except that those packers whose average annual purchases do not exceed $500,000 will be exempt from the provisions of this paragraph), and every other person operating as a dealer (as defined in this subchapter), under such rules and regulations as he may prescribe, to secure the performance of their obligations, and whenever, after due notice and hearing, the Secretary finds any registrant is insolvent or has violated any provisions of this chapter he may issue an order suspending such registrant for a reasonable specified period. Such order of suspension shall take effect within not less than five days, unless suspended or modified or set aside by the Secretary +7 U.S.CA. § 213(a) (West 1980 and Supp. 1992). 2 PAT nan Si ST ES RO CEDAR VALE SALE BARN, INC., et al 549 52 Agric. Dec. 546 or a court of competent jurisdiction. Findings of Fact 1. Mr. Doyle Hawkins was, at all times relevant herein, President and Manager of Cedar Vale Sale Barn, Inc., which did business at P.O. Box 147, Cedar Vale, Kansas 67024. (CX 1) 2. Mr. Hawkins joined twenty of his neighbors in 1989 as new investors in the purchase of all of the outstanding capital stock of the Sale Barn from previous owners. Mr. Hawkins invested $10,000.00 in return for 7.4% of the Sale Barn’s capital stock. Thereafter, he was elected a Director and employed as President. (CX 2) 3 At all times relevant herein, the Sale Barn was a registrant as a market agency with the Department of Agriculture. (CX 2) 4, Mr. Hawkins has not applied to become a registrant, and has never been registered, as a market agency with the United States Department of Agriculture. (Tr. 104) - § As a result of the actions of Mr. Jerry Mullins of Ponca City, Oklahoma, who utilized a trade name of C & J Cattle Company, the Sale Barn’s financial structure was ruined and, according to the testimony of Coral Magnus, the owner of 3.7% of the Sale Barn’s capital stock, CX 2, who had been employed as the corporate Secretary and Bookkeeper from 1987, it ceased operations in 1991. (Tr. 79) 6. However, the Sale Barn’s demise occurred in 1990, for as of May 24, 1990, the general checking account of the Sale Barn at the Chisholm Trail State Bank, Wichita, Kansas, was at a negative $356,374.94. (Tr. 71; CX 44, p. 14). This was a loss taken by the Chisholm Trail State Bank. (Tr. 75) vP The Department’s investigating auditor, Mr. Terry Platz described (Tr. 31), the process by which checks, written by Mrs. Magnus on the Sale Barn’s general account at the Chisholm Trail State Bank, were tendered to C & J Cattle Company. Mrs. Magnus then believed C & J Cattle Company to be a partnership. These checks entered the flow of interstate banking commerce for the stated purpose of purchasing cattle which, by related transactions, were immediately sold to Mr. Jerry Mullins, who then tendered his checks in payment for these purchases. The record details thirty- five groups of transactions which occurred between November 21, 1989, and °7 U.S.CA. § 204 (West 1980 and Supp. 1992). 550 PACKERS AND STOCKYARDS ACT May 15, 1990. During this period Mrs. Magnus wrote checks requiring payments totaling more than $17,000,000 and Mr. Jerry Mullins wrote checks requiring payments also totaling more than $17,000,000. (CX 3) Ina particular instance, Mrs. Magnus wrote three checks to C&J Cattle Company on May 8, 1990, for the stated purchase of 739 head of cattle. These checks were in the amount of $123,614.39 (CX 35, p. 2), $186,311.67 (CX 35, p. 3) and $94,036.13 (CX 35, p. 4), totaling $403,962.19. To this amount was added $500.00 as a buyer’s commission (CX 35, p. 1), for a total of $404,462.19. On May 7, 1992, and May 8, 1992, Mr. Mullins wrote two checks in the amounts of $217,093.14 (CX 35, p. 6) and $187,369.05 (CX 35, p. 7) for a total of $404,462.19. The three checks Mrs. Magnus drew on Chisholm Trail State Bank on May 8, 1990, were deposited in the account of C & J Cattle Co. at the Community Bank of Shidler, Oklahoma, on May 8, 1990 and May 9, 1990, but not paid by the Chisholm Trail State Bank, Wichita, Kansas, until May 10, 1990. The two checks Mr. Mullins issued on May 7, 1990 and May 8, 1990, which were initially unpaid as being unsupported by sufficient funds, were paid by the Community Bank of Shidler, Oklahoma, on May 10, 1990, even though the funds represented by these two checks, $404,462.19, were recorded as being deposited in the Sale Barn’s account at Chisholm Trail State Bank on May 9, 1990. (CX 44, p. 22) Hence, for purposes of these transactions the balances in the Sale Barn’s account at Chisholm Trail State Bank were supported only by deposits made of checks issued by Mr. Jerry Mullins on the account of C & J Cattle Company, and the balances in the account of C & J Cattle Company at the Community Bank of Shidler, Oklahoma, were supported only by deposits made of checks issued by Mrs. Magnus. 8. As a result of these thirty-five transactions, the account of Mr. Jerry Mullins at the Community Bank of Shidler, Oklahoma, was preserved from an overdraft position, except on April 25, 1990, by deposit into that account of funds demanded by checks issued by Mrs. Magnus. The one occasion that Mr. Jerry Mullins’ account at the Community Bank was overdrawn occurred on April 25, 1990, in the amount of $77,205.91. (CX 39, p. 9) On May 17, 1990, Mr. Jerry Mullins’ account at this bank was in balance at $0.00. (CX 39, p. 10) 9. As a result of these thirty-five transactions, the account of the Sale Barn at the Chisholm Trail State Bank, Wichita, Kansas, was preserved from an overdraft position, except on January 11, 1990, January 12, 1990 and continuously after May 24, 1990, by deposit into that account of funds demanded by checks issued by Mr. Jerry Mullins. Cedar Vale’s account at the