In determining whether an agency decision is arbitrary, capricious, or an abuse of discretion, the standard of review is narrow, and the district court "is not empowered to substitute its judgment for that of the agency." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). In applying this standard of review, the court determines whether the agency "considered the relevant factors and articulated a rational connection between the facts found and the choice made." Resources Ltd. v. Robertson, 35 F.3d 1301, 1304 (9th Cir. 1993).

"Substantial evidence" within the meaning of 5 U.S.C. § 706(2)(E) is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Western Truck Manpower, Inc. v. United States Dep't of Labor, 12 F.3d 151, 153 (9th Cir. 1993) (quoting Richardson v. Perales, 402 U.S. 389, 401 (1971)).

The court must also grant "a high degree of deference to an agency's interpretation of the statutory provisions and regulations it is charged with administering." Natural Resources Defense Council v. United States Dep't of the Interior, 113 F.3d 1121, 1124 (9th Cir. 1997) (citation omitted).

DISCUSSION

In this action Balice seeks judicial review of the Secretary of Agriculture's decision that Balice violated four aspects of the California Almond Marketing Order.

The California almond handling industry is regulated by the Almond Marketing Order, 7 C.F.R. § 981 (the "Order"). The Order was established in 1950 by USDA pursuant to the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. § 608c (the "Act"). The purpose of the Act is to "establish and maintain such orderly marketing conditions for agricultural commodities in interstate commerce" as "to avoid unreasonable fluctuations in supplies and prices." 7 U.S.C. §§ 602(1), 602(4) (1988). The Act authorizes the Secretary of Agriculture (the "Secretary") to issue, following notice and an opportunity for hearing, marketing orders that will "tend to effectuate the declared policy of [the Act]" with respect to the particular commodity. 7 U.S.C. § 608c(4) (1988). The Order is administered by the [California Almond] Board, which has the power to "make rules and regulations to effectuate the terms and provisions" of the Order. 7 C.F.R. § 981.38 (1993). The Board has ten members, all of whom are industry representatives appointed by the Secretary. The Board engages in a variety of activities, including research and development, marketing, quality control, and volume regulation.

57 Agric. Dec. 841

Cal-Almond, Inc. v. United States Dep't of Agriculture, 14 F.3d 429, 433 (9th Cir. 1993).

Under 7 U.S.C. § 608c(14)(B) the Secretary of the USDA can assess against a handler or an agent of a handler a civil penalty of up to $1,000 per day for each violation of a marketing order. Each day that a violation continues is deemed to be a separate day for which a penalty of up to $1,000 can be assessed.

The administrative order at issue imposes a fine against Balice of $225,000, and includes findings that Balice violated certain regulations within the Marketing Order. Balice contests certain aspects of each of the four violations, and also challenges the fine as a whole as being excessive.

I. The Reserve Requirement Violation

The Judicial Officer fined Balice $124,000 for violating the "reserve" requirement of the Marketing Order, fining him $1,000 per day for 124 days of violation.

The Ninth Circuit has explained the nature of the reserve requirement as follows:

The reserve requirement is the mechanism the Board uses to regulate the volume of almonds entering the market, pursuant to the Act's goals of protecting almond prices and maintaining an orderly flow of almonds to market. 7 U.S.C. § 608c(6)(A) (1988). Every year, the Board recommends to the Secretary what percentage of the total almond crop should be "salable" and what percentage should be held in "reserve" by handlers. 7 C.F.R. § 981.49 (1993). Handlers may only sell the salable percentage of almonds they receive; they must withhold from marketing an amount equal to the reserve percentage. 7 C.F.R. § 981.50 (1993). The Secretary designates the final percentage based on the Board's recommendation and "any other available information." 7 C.F.R. § 981.47 (1993).

Cal-Almond, Inc., 14 F.3d at 443.

For the crop year 1987-88, the reserve requirement was 18%, meaning that Balice was required to withhold from both domestic and export markets 18% of the merchantable almonds he obtained from growers in that crop year. 52 Fed. Reg. 39,900 (1987). On August 1, 1988 handlers were allowed to "release" their entire reserve into edible markets after the Secretary of Agriculture determined that the market could sustain such an influx. 53 Fed. Reg. 28,630 (1988).

The Judicial Officer found that Balice, as an agent for the O.R.C. Company,

violated 7 C.F.R. §§ 981.46,3 981.50, and 981.525 on March 22, 1988 and from March 31, 1988 through July 31, 1988, for a total of 124 days. The Judicial Officer further found that Balice fully understood the reserve requirement but deliberately violated the regulation.

In his motion for summary judgment Balice does not specifically contend that these findings are unsupported by substantial evidence." Balice instead contends that the amount of the fine was excessive and was arbitrary and capricious, because (1) he shipped the reserve to Italy at the bequest of his uncles because the uncles believed that they needed the reserve in Italy to comply with an Italian currency rule, (2) the Secretary failed to show that the almonds not held in reserve were actually placed in the stream of commerce, and (3) the Judicial Officer did not consider other mitigating circumstances, namely that O.R.C.'s reserve requirement was small given that O.R.C. itself was a small handler of California almonds. Because Balice does not expressly challenge the sufficiency of the evidence as to the finding that he violated the reserve requirement, the court interprets Balice's arguments as being offered to lower the amount of the fine, rather than to contest the fact that he was found in violation of the reserve regulation.

Balice's first argument is that his uncles ordered him to ship some portion of the reserve to Italy, which is perhaps characterized as a duress defense, in that the uncles asserted to Balice that they needed the almonds in Italy in order to comply with an Italian currency rule. The Judicial Officer found that Balice and uncles knew well in advance of the deadlines imposed by the Italian law in question that they were subject to both sets of laws, and did nothing to prepare for the perceived conflict. Further the Judicial Officer adopted the reasoning of the ALJ that the Italian currency law and the United States' almond reserve requirements were not in conflict in the first place, and this court finds no error in such a legal conclusion.

3"When a reserve percentage has been fixed for any crop year,... no handler shall handle almonds except on condition that he comply with the requirements in respect to withholding reserve almonds."

"When "reserve percentages are in effect for a crop year, each handler shall withhold from handling a quantity of almonds having a kernel weight equal to the reserve percentage of the kernel weight of all almonds such handler receives for his own account during the crop year."

"Each handler shall, at all times, hold in his possession or under his control, in proper storage for the account of the Board, the quantity of almonds necessary to meet his reserve obligations."

"To the extent that Balice may be implicitly challenging the quantum of evidence offered to sustain the findings, the court finds that the Judicial Officer's findings are supported by substantial evidence as set forth and identified in the Judicial Officer's opinion at pp. 7-11, 33-34, 38, and 42.

57 Agric. Dec. 841

Based on the above the Judicial Officer's decision not to consider this defense to be an appropriate mitigating factor calling for a lower fine was not a capricious and arbitrary decision.

As to whether the Judicial Officer did or did not find that Balice actually caused harm to his competitors by placing the almonds not held in reserve in the stream of commerce, the record is not clear. However, the findings that Balice willfully and deliberately violated the reserve requirement and that O.R.C. did not have on hand a sufficient reserve on hand for 124 days would seem to give rise to a reasonable inference that the almonds had been placed into the stream of commerce in some manner or another. If in fact no such finding was implicitly made by the Judicial Officer, the court nevertheless finds that the Judicial Officer's decision not to lower the daily fine on the basis that the USDA did not prove that Balice caused actual harm to a competitor was not an arbitrary and capricious decision.

The court also finds that, contrary to Balice's interpretation of the administrative record, the Judicial Officer did consider the asserted mitigating factor that Balice was a small handler. The Judicial Officer expressly stated that, as to the administrative complaint as a whole, he would consider any "circumstances shedding light on the degree of culpability involved." Judicial officer's Decision and Order, p. 32. After reviewing the Judicial Officer's opinion, this court cannot conclude that the Judicial Officer failed to consider any evidence of additional circumstances offered by Balice. As to the point that Balice was a small handler, applied to the reserve requirement violation, the Judicial Officer noted that, based on the reserve amount that Balice was required to hold and on the then-prevailing market rate for edible almonds, Balice stood to gain close to a quarter to a million dollars in profit by releasing the reserve before the release date. From Balice's perspective he may have been a small handler as compared to larger operators, but the profit available to him from selling the reserve almonds before the release date was not small. Also as noted by the Judicial Officer if all "small" handlers ignored the reserve requirements the integrity of the reserve program would quickly erode.

Additionally the Judicial Officer reported that imposition of the fines against Balice and his uncles were the first fines to be imposed for handlers of California almonds under the then-new section 608c(14)(B),' and that the first fine should set the standard. Congress passed section 608c(14)(B) to provide for a civil penalty alternative to the previously available criminal penalties for violation of the reserve requirement. The Judicial Officer believed that it was congressional intent to create

77 U.S.C. § 608c(14)(B) became law on December 22, 1987. Public Law No. 100-203, tit. I, § 1501, 101 Stat. 1330 (1987).

the alternative civil penalties because federal prosecutors rarely invoked the available criminal statute due to workload restrictions. The Judicial Officer concluded that, to be an effective alternative to criminal prosecution, the first civil fine cases should be sufficient to deter similar conduct by Balice and all other handlers in the future.

In any action in which a violation of the Marketing Order is found, the Judicial Officer has the discretion granted by 7 U.S.C. § 608c(14)(B) to issue a daily fine in some amount below $1,000. After reviewing the record, and based on the above, this court cannot conclude that the Judicial Officer's decision to fine Balice for the statutory maximum due to the violations of the reserve requirement was arbitrary and capricious.

II. The Recordkeeping Requirement Violations

The Judicial Officer fined Balice $74,500 for violating certain recordkeeping regulations of the Marketing Order, fining him $250 per day for 289 days of violation.

7 C.F.R. § 981.70 of the Marketing Order requires handlers to keep records to "clearly show the details of his receipts of almonds, withholdings, sales, shipments, inventories, reserve disposition, advertising and promotion activities, and other pertinent information with respect to his operations pursuant to" the Marketing Order. That regulation also requires that handlers retain such records for two years after the end of the crop year to which they are applicable.

The Judicial Officer adopted the finding of the ALJ that Balice violated the recordkeeping requirement on May 18, 1988. The ALJ found that on May 18, 1988 a Board auditor, Charles Charlton, visited Balice to audit O.R.C., but Balice could not provide records of grower receipts, withholdings, sales, shipments, inspections and inventories.

The Judicial Officer further adopted the finding of the ALJ that Balice violated the recordkeeping requirements from March 13, 1989 to January 5, 1990. The ALJ found that on March 13, 1989 a compliance officer with the USDA, Stephen Pollard, requested from Balice certain records for the 1987-88 crop year, but that Balice could not produce them, and admitted that certain of the records had never been created or maintained. Further the ALJ found that Balice sent some of the records to Italy after Pollard originally informed him that O.R.C. was being audited, thus indicating that Balice had control over the records but chose not to provide them to Pollard in an attempt to frustrate the USDA's investigation. The records were not produced at any time after March 13, 1989. The ALJ found that violation continued up to the point that the USDA filed the complaint, which was