A blog on practice in the Nation’s second-most powerful court

D.C. Circuit finds lack of substantial evidence—again

Courts rarely hold that agency decisions lack substantial evidence.  Or so goes the conventional wisdom.  And there’s something to it—see, for example, our recent post on the D.C. Circuit upholding an agency’s scanty ruling on best practices in breeding iguanas.  But three recent published D.C. Circuit decisions show that “once in a blue moon” does not mean never.

Last week, the court considered a decision by the USDA to bar an officer of a licensed fruit-and-vegetable seller from working for the company after the officer pleaded guilty to concealing fraud at the company.  No. 20-1235, Finberg v. USDA (Aug. 3, 2021).  After the fraud was exposed, the company could not pay its bills, which, in turn, triggered complaints at USDA under a statute that forbids employing those connected to unfair conduct—like willfully failing to pay bills.  USDA agreed with the complaints and barred his employment.

But according to the D.C. Circuit (decision here), USDA never connected the fraud concealed by the officer (named Finberg) to the failure of his employer (called Adams Produce) to pay its bills.  Indeed, the USDA “obviously lacked substantial evidence” of that connection:

The [USDA] obviously lacked substantial evidence for the determination that the activities Finberg was involved in resulted in Adams Produce’s failure to pay its suppliers in violation of the Act.  Indeed, the [USDA] completely failed to make any factual findings connecting Finberg and the business’s failure to pay its suppliers. One sentence in the entire order … alludes to causation: “Finberg’s activities helped bring about the downfall of Adams, which resulted in Adams’ violation of the PACA [i.e., Perishable Agricultural Commodities Act].”  App. 24.

The [USDA’s] conclusion is a syllogism, resting directly on multiple premises, something like the following: The violation of the Act involved the failure to pay suppliers; the previous fraud with which Finberg was involved deprived the company of some financial assets; therefore, Finberg’s actions are causally connected to the commission of the charged acts of nonpayments.  The validity of the syllogism is subject to much question.  However, even assuming that the [USDA’s] view of the law was defensible, there is no evidence to support the premise that any financial degradation attributable to the fraud caused the ultimate failure to pay.  The [USDA’s] order contains no findings about how much money the firm lost due to the scheme or what the firm’s finances would have looked like in the absence of the scheme.

Explicitly tracing out the connection between the scheme Finberg participated in and Adams Produce’s violations of the Act is particularly necessary in circumstances such as these when Adams Produce was embroiled in multiple fraudulent schemes.  …  Moreover, as Finberg persuasively argues, the scheme to defraud the Department increased the business’s revenues in the short term.

Likewise, USDA “did not make any factual findings relevant to … whether Adams Produce was the alter ego” of its owners.  That mattered, because, as a non-shareholder, Finberg could not be barred from employment if his employer was the alter ego of its owners.

Now, the D.C. Circuit does not explain why Finberg wanted to keep working for his non-paying, fraudulent, and—we do learn in the opinion—bankrupt employer.  Perhaps he aimed to work for a different employer and the bar extended to that employer, too.  But the decision shows that even a less-than-sympathetic litigant can show lack of substantial evidence when an agency “completely fail[s]” to make necessary findings.

Finberg is not alone.  Just days ago, the court published two opinions likewise holding that agency rulings lacked substantial evidence.  You can read those decisions here and here.