Federal Magistrate Judge Recommends Vacating Judgments Obtained by the United States Department of Labor Against Blueberry Growers Through “Extrinsic Fraud”

January 27, 2014 | Kristine A. Tidgren

Perez v. Pan-American Berry Growers, LLC, 2014 U.S. Dist. LEXIS 5602 (D. Or. Jan. 15, 2014)

Update: In early 2015, the the Department of Labor agreed to return money taken from the bluberry growers and drop "hot goods" charges against them. In exchange, the growers agreed to drop their counterclaims against the DOL. See this story for further information: www.capitalpress.com/Oregon/20150119/dol-drops-hot-goods-charges-against-growers

A magistrate judge for the United States District Court for the District of Oregon has recommended vacating consent judgments entered into between two blueberry growers and the United States Department of Labor (DOL). The judge recommended granting the growers’ requests to vacate the judgments after finding that the DOL had used its “hot goods” authority to subject the growers to economic duress, thereby depriving them of due process. Such duress, the judge found, constituted “extrinsic fraud” sufficient to set aside the consent judgments pursuant to Federal Rule of Civil Procedure 60(b)(3).

The Growers

The two unrelated growers involved in this case employed seasonal workers to hand-pick blueberries on their Oregon farms. In 2012, grower one grew about 2 million pounds of fresh blueberries on its 165-acre farm.  Grower one employed 280 seasonal workers and paid about $1.4 million to a labor contractor for the workers’ services. Grower two employed 310 seasonal workers on its 150-acre farm. Both growers employed “piece rate workers,” who were paid based on the number of units they produced. Units were tracked with “picker cards.” Both growers employed labor contractors to hire and supervise their seasonal agricultural workers. The labor contractors maintained the payroll records for the growers.

The Investigations

On July 28, 2012, the DOL initiated an investigation at grower one’s farm. The DOL encountered 200 pickers in the field that day and interviewed 10 percent of them. The agency also reviewed grower one’s payroll records. The DOL conducted a similar investigation at grower two’s farm, beginning on July 30, 2012.

“Ghost Worker” Formula

In conjunction with its investigations, the DOL employed a formula to calculate the number of “ghost workers” that the growers must have employed during the time period in question.  Applying this undocumented formula—apparently based on the average berries picked by the workers over a one-month period—the DOL determined that any workers who picked more than the average over the season must have been supported by “ghost workers” who did not submit picker cards. Consequently, the DOL determined that, based upon the number of berries picked, 287 “ghost workers” must have picked berries for grower one during the one-month period in question. Similarly, the DOL determined that grower two owed back wages for 810 unpaid workers. 

“Hot Goods” Authority

The “hot goods” provisions of the Fair Labor Standards Act (FLSA) makes it illegal to ship in commerce goods that were produced in violation of federal minimum wage and overtime requirements.  The FLSA grants the Secretary of the DOL the authority to seek an order from a federal district court to enjoin the shipment of “hot goods.”[1]

After their investigations, the DOL sent hot goods objections to the growers, instructing them that they had violated wage and hour laws and telling them to refrain from shipping their blueberries. The notices were also sent to the growers’ down-line purchasers. Historically the DOL has lifted these hot goods objections once accused violators have placed proposed back wages and fines into escrow pending litigation. The DOL informed these growers, however, that the objections would not be lifted absent actual consent decrees.

Faced with rotting berries and potential losses in the millions, the growers agreed to sign consent decrees within a week of the DOL’s hot goods objections. In exchange for the agreements to pay back wages and penalties, the DOL lifted its objections. Grower one agreed to pay $41,778.15 in back wages and a penalty of $7,040. Grower two agreed to pay $156,616 in back wages and a $13,200 penalty.  The DOL’s objection held up about 400,000 pounds of grower one’s berries and delayed picking for seven days, which amounted to an additional 30-50,000 pounds of berries not picked per day. Grower two argued that it lost $89,712.41 in revenue due to rotting and overripe berries during its four-day objection period.

Consent Decrees

Following the growers’ execution of the consent decrees, the DOL filed formal complaints against the growers, alleging that they violated the FLSA by paying employees less than minimum wage and by failing to make available and preserve employee records. A federal district court entered consent judgments against the growers based upon the consent decrees.

Motions to Vacate and Magistrate’s Recommendations

Just short of one year later, both growers filed motions to vacate the respective consent judgments, arguing that they were under duress when they signed the decrees and that the judgments violated their due process rights.

The cases were consolidated and considered by a magistrate judge, who granted the motions.

The judge stated that a motion to set aside a judgment could only be granted if the opposing party engaged in fraud, misrepresentation, or misconduct that prevents a party from having an opportunity to present his claim or defense in court. Fraud, the judge stated, is extrinsic when it prevents a party from having an opportunity to present his claim or defense in court or deprives a party of his day in court. “Obtaining a judgment against a party through coercion or duress,” the judge explained, “may constitute extrinsic fraud.”

The judge then found that the growers had established the three elements required to prove a prima facie case of economic duress: (1) wrongful acts or threats by the DOL; (2) financial distress caused by the wrongful acts or threats; and (3) the absence  of reasonable alternatives to the terms presented by the DOL.

Even though the DOL possessed statutory hot good authority, the judge found that the DOL’s application of that authority to the growers’ perishable goods deprived the growers of their day in court.

The hot goods objection eliminated any potential market for the blueberries.  Any further delay in the processing of the blueberries would have financially devastated the growers. The judge found that to avoid the potential loss of millions of dollars’ worth of berries, the growers had to agree to the DOL’s allegations without an opportunity to present a defense or confront the DOL’s evidence. The judge found that when one party to a settlement agreement has to agree to a “comparatively minor penalty or lose millions simply to engage in the judicial process,” such “heavy handed leverage” was “fraught with economic duress brought about by an unfair advantage.” The judge was also concerned that the DOL deprived the growers of an opportunity to determine through any deliberate process the validity of the DOL’s so-called “ghost worker” calculations.

Given the economic duress placed upon the growers by the DOL to secure the consent judgments, the judge recommended that the judgments be vacated and the cases reopened.

Next Steps

Because this is a magistrate’s decision, it is only a recommendation to the district court. The parties may file objections to the recommendation, and then respond to the other parties’ objections. The DOL has sought and been granted an extension to February 28, 2014, to file its objections. After receiving the objections and responses, the district court will decide whether to adopt or reject the magistrate’s recommendation. As mentioned above, the coercive actions of the DOL in this case deviated substantially from its precedent of allowing potential violators to place proposed back wages and penalties in escrow pending litigation. Because this case raises important issues of government misconduct and the deprivation of due process, we will closely monitor future developments.

 

[1] 29 U.S.C. §§ 211(a), 215(a)(1), 217