(Aug. 2) The first case challenging reparation orders issued against Hunts Point receivers over the Operation Forbidden Fruit bribery sting was turned down on appeal July 26.

In a precedent-setting win for the shipping community, U.S. District Court Judge Louis Stanton ruled against Hunts Point wholesaler Koam Produce Inc. in its appeal of a Nov. 16, 2000, award of $4,800 to tomato shipper DiMare Homestead Inc., Homestead, Fla.

The award was originally made by the U.S. Department of Agriculture’s Perishable Agricultural Commodities Act branch to compensate DiMare for downward price adjustments on four shipments of tomatoes.

Koam’s employee, Marvin Friedman, was among those who pleaded guilty to bribing USDA inspectors for fraudulently downgrading shipments, and the four loads contested by DiMare involved inspectors implicated in the scam.

The award against Koam was made because it did not disclose the payments to DiMare, and that amounted to a misrepresentation even though the specific shipments made by DiMare weren’t specifically tied to bribes, ac-cording to a theory developed by Mike Bess, manager of marketing services for the Orlando-based Florida Fruit & Vegetable Association, which helped file the original DiMare claim against Koam.

PRECEDENT SETTING

Bess said Stanton’s decision, which calls for Koam to also pay legal fees, is significant for shippers everywhere.

“It’s a precedent,” Bess said. “There’s no way DiMare would have agreed to the downgrades if they knew of the bribes. Now you have a decision in federal court backing up a PACA reparations case. It gives (other shippers) a blueprint and a good start in how to defend their cases.”

FFVA helped fund DiMare’s defense of Koam’s appeal. That’s because more was at stake than the relatively small amount of the award, which would ordinarily lead shippers to walk away if faced with the costly task of defending an appeal, Bess said.

“Over an award that was only $4,800, you’d eat that up in legal fees in no time at all,” he said. “But you can’t let receivers take advantage of the system because they know shippers won’t defend an appeal.”

FFVA enlisted the help of Newport Beach, Calif.-based Rynn & Janowsky when Koam appealed the case. Part-ner Lewis Janowsky said the decision was important because it validated PACA’s central argument that specific proof wasn’t needed that bribes took place for every single load.

“When (wholesalers and inspectors) pled guilty, they pled to briberies that were captured on (hidden) cam-eras,” Janowsky said. “But the cameras weren’t always going in each particular transaction. They were on spo-radically, at random.”

Of nearly 30 Forbidden Fruit reparation cases decided by PACA, he said, about two dozen were favorable to shippers. Of those, at least a half dozen are in the pipeline on appeal and figure to be influenced by the July 26 decision, Janowsky said.

HIGH COSTS

Attorneys fees that Koam will have to pay will likely equal more than 10 times the reparation award itself, he added. That could play a role in whether Koam decides to further appeal the case because the firm would have to post a bond to cover the amount or risk DiMare executing on Stanton’s judgment in the meantime by levying against Koam’s assets, Janowsky said.

In his decision, Stanton said enforcement of the discounts granted by DiMare would be “unconscionable.” But Koam’s attorney, Paul Gentile of New York City-based Gentile & Dickler, said he believes Stanton made several factual errors, such as misreading affidavits related to the case.

“Our position was that the Koam decision was a myth in that shippers know the quality of the product they send,” Gentile said. “They’re not totally in the dark. They don’t rely totally on inspections (in agreeing to price adjustments). There are some very, very questionable factual findings in the decision.”

For that reason, he said, he believes Koam will take the case to the U.S. Circuit Court of Appeals. But that deci-sion, which must come within 30 days, hadn’t been made by late July.

In September, the USDA filed an administrative action to revoke Koam’s PACA license. Among its allegations: Koam failed to make full payment to seven sellers in the amount of $40,883 by using fraudulent inspection certifi-cates. A hearing has not yet been set.