LITIGATION BACKGROUNDER

Sun Valley Administrative Appeal

Family Farm Facing Ruinous Fines for Paperwork Mistake Sues Agency that Acts as Prosecutor, Judge and Jury

In early 2016, federal agents from the U.S. Department of Labor came to Sun Valley Orchards to hand-deliver a letter. According to the letter, the farm—a fourth-generation family farm in southern New Jersey—was being ordered to pay the government over $550,000. The bulk of that amount (over $320,000) was because of a single paperwork violation.

Brothers Joe and Russell Marino, the owners of Sun Valley, spent the next five years trying to fight the agency’s decision. They were dragged through a series of hearings before Department of Labor agency judges—judges employed by the very same agency trying to fine them. One agency judge, who presided over a four-day trial, had been employed by the Department of Labor for nearly 30 years—practically her entire career. And then the brothers appealed from her decision to a panel of five more agency judges, all appointed by the Secretary of Labor and likewise employed by the agency. The agency served as prosecutor, judge, and jury, and the agency won every time.

Now the Marino brothers are joining with the Institute for Justice to demand their day in court, before a real federal judge. Article III of the U.S. Constitution created the system of federal courts—with judges appointed by the President, confirmed by Congress, and protected by life tenure—and vests the “judicial power” in those federal courts. Before the government can take away half a million dollars from a family farm, the government should have to prove its case in a real court.

Unfortunately, those constitutional protections have eroded, and for decades federal agencies have expanded their use of administrative courts overseen by agency judges. Prior to the 1970s, if the government wanted to impose a monetary fine, the government almost always had to file a lawsuit in a real federal court. But today the Marino brothers’ experience is all too common, and every year thousands of farms, small businesses and individuals are subjected to monetary fines imposed in agency courts.

This case seeks to reverse that trend. If the government wants to take your property, you should get your day in court—not your day before a bureaucrat.

Sun Valley Orchards

Sun Valley Orchards is a fourth-generation family farm in southern New Jersey run by two brothers: Joe and Russell Marino. They grow a variety of fresh vegetables, including peaches, peppers, squash, eggplant, cucumbers and asparagus.

Vegetable farming is labor intensive, as vegetables are too fragile to be harvested by machine. So, the Marinos employ about 150 seasonal workers every year. The workers are paid above minimum wage. In 2015, the Marinos paid their workers $11.29 per hour, as compared to the then-prevailing state minimum wage of $8.38 per hour. Workers are also provided with free lodging at the farm. Working on a vegetable farm is hard and physical work, but it is a good way to make a decent amount of money in a summer.

During the 2015 harvest season, the Marinos decided for the first time to participate in the Department of Labor’s H-2A visa program, which allows farms to bring migrant immigrant labor into the United States to fill agricultural jobs. Up until 2015, the Marinos had relied on seasonal workers from Florida and Puerto Rico. In part, they had avoided bringing in foreign workers because they had heard horror stories about other farms’ regulatory tie-ups with the Department of Labor. But in 2015 the farm was finding it increasingly hard to hire enough domestic workers to work the fields.

By entering the H-2A program, the Marino brothers were trying to do the right thing. They weren’t employing anyone illegally; instead, they were signing up to bring seasonal workers into the country legally, following the government’s rules. At the end of the day, they were just trying to get the workers that they needed to keep their farm in business.

The Half-Million Dollar Sanction

That first year in the H-2A program, toward the beginning of the 2015 harvest season, an inspector from the Department of Labor visited the farm. When the inspectors left, the Marinos asked if they had spotted any issues and if there were any changes the Marinos ought to make. The Department’s inspectors assured them that everything was fine. But then, in June 2016, the Department’s agents returned to hand-deliver their $550,000 letter. Needless to say, the Marinos were not given the opportunity to correct violations that the inspectors failed to tell them about the first time they visited.

Of the $550,000 in liability imposed by the agency, over $320,000 relates to a single paperwork violation. The farm had hired a consultant to help them fill out the H-2A paperwork, and, when filling out the government’s application form, the consultant had failed to disclose that the farm would offer a meal plan to the employees, under which employees could pay $75 per week for breakfast, lunch and dinner (a cost of approximately $3.50 per meal). To be clear, there is nothing illegal about offering farm workers a meal plan, and nobody has said that the cost of the meal plan was in any way unreasonable; the farm today continues to offer the meal plan without the Department raising any concerns. The violation was based on a problem with their paperwork: the fact that the Marinos—in their first year in the H-2A program—failed to disclose the meal plan on the application.

The remainder of the award relates to a handful of other concerns raised by the Department. The agency imposed over $70,000 in liability because the workers’ supervisor made a profit by selling them bottled drinks; the agency would have had no problem if an independent third party had come to the farm to sell beverages, but the agency decided it was unlawful for a supervisor to profit from the sales. Just over $10,000 of the award related to actual working conditions—including over $7,000 imposed because the workers drove farm vehicles without domestic driver’s licenses. And then the remainder of the award consisted of approximately $140,000 relating to the early departure of 19 workers, who the Department alleged were fired, but who the Marino brothers say actually quit.

In total, the Department described about $200,000 of the total award as a “penalty” and about $350,000 as “back wages.” But, importantly, those “back wages” are not actually amounts that are owed to employees. The majority were imposed because of the meal plan paperwork violation. Moreover, these “back wages” are paid to the agency—not to employees. Employees can theoretically recover the money if they file a claim with the agency, but the agency often fails even to notify employees of their right to do so. The Department’s own inspector general found, in 2015, that the Department “made minimal efforts to locate” employees on whose behalf it had collected such back wages.[1]

Sun Valley Orchards simply does not have $550,000 to pay the government, and, if that sanction is upheld, it could destroy the business.

The Agency Serves as Prosecutor, Judge and Jury

The Department of Labor in this case appointed itself prosecutor, judge and jury. After the penalty was first assessed by the Department’s investigators, the case was tried at a four-day hearing before an Administrative Law Judge (ALJ) employed by the Department. The ALJ is a Department of Labor lifer: After finishing her education in 1990, she started work at the Department in 1991, and, except for a one-year hiatus to work at the Social Security Administration, she has worked there ever since. In her decision, she upheld the penalty imposed by the Department on the ground that it was “rational” and “reasonable.”

Before this ALJ, the Marino brothers argued that the penalty for the meal plan violation was completely out of line with any possible harm from their paperwork error. After all, nothing in the H-2A program requires employers to provide their workers with free food, and the workers still would have had to pay to eat if the farm had not provided a meal plan. The ALJ, however, held that any such paperwork violation “necessarily provides ‘harm’ to both the workers’ reliance on the H-2A program to ensure that their rights are protected, as well as the overall integrity of the program itself.”

After the ALJ issued her decision, the Marino brothers appealed to the Department’s Administrative Review Board—an appellate court within the Department that consists of five administrative judges appointed by the Secretary of Labor. The Board affirmed on May 27, 2021. Like the ALJ, the Board deemed it “irrelevant” whether the paperwork violations at issue actually caused harm to the workers; in the Board’s view, a significant penalty was needed “to deter other H-2A employers from making the same failures to disclose.”

Legal Claims

This case seeks to restore the role of the federal courts as a check on the ability of government bureaucrats to impose monetary fines. The U.S. government’s three-part structure guarantees that the laws are implemented fairly: Federal administrative agencies like the Department of Labor are part of the executive branch, which enforces the laws that Congress writes, and the judiciary is designed to act as an independent check on both the other branches by interpreting laws when there is disagreement about their application and meaning.[2] Trial before an agency “judge” upends that entire structure.

Moreover, the agency in this case took on that role for itself—without even permission from Congress. When Congress created the H-2A program, Congress allowed the Department’s agency judges to penalize “substantial” violations of the program by excluding employers from the program for up to three years; Congress nowhere allowed agency judges to impose monetary fines. Yet the Department of Labor nonetheless claimed the role of judge and jury.

As a result, the agency enjoys nearly unfettered power to impose crippling penalties. And, given that lack of oversight over the agency, it is not surprising that it imposed penalties out of proportion with the alleged violations. Thankfully, the Constitution also prohibits excessive fines,[3] and that includes a half-million-dollar sanction for a paperwork violation.

Sun Valley Orchards is also challenging the sanction in this case under the Administrative Procedure Act (APA), a statute that governs the way administrative agencies are supposed to act. Under the APA, an agency’s actions must be supported by substantial evidence and cannot be “arbitrary and capricious.”[4] And, under the APA, when an agency imposes sanctions without authorization from Congress, as the Department of Labor did here, an employer should also be entitled to a new trial in a proper court.

A Larger Problem

The H-2A program has been called “bureaucratically complex.”[5] Sun Valley Orchards learned the full meaning of this understatement when it tried, for the first time, to meet its labor needs through the program. The horror stories the Marino brothers had heard were well-founded.

The situation Sun Valley Orchards faces is particularly egregious, but it’s far from the only farm to be targeted by the Department of Labor. As recently as 2006, civil monetary penalties imposed by the Department for violations of the H-2A program totaled just $57,900, but that crossed the million-dollar threshold in 2012 and hasn’t dipped below it since.[6] In 2019, the agency imposed $2.8 million in civil monetary penalties against over 431 employers in connection with the H-2A program.[7] However, violations of H-2A regulations are generally minor: An average of only 0.27 percent of farmers per year have been barred from the program because of serious H2-A violations.[8] In this case, for instance, while the Department imposed half a million dollars in liability, it evidently did not think the violations were sufficiently serious to warrant excluding Sun Valley Orchards from the H-2A program.

The use of agency ALJs to impose monetary sanctions also is not limited to the H-2A program.[9] The Department of Labor employs 41 ALJs, who can impose fines under a broad variety of regulations. And other agencies with ALJs include the EPA, SEC, NLRB, CFPB, and FTC—among others.

Unfortunately, the reality is that ALJs face significant pressure from their employing agencies. One 2015 article contrasted the SEC’s success rate of 90% before its own ALJs with the agency’s win-rate of 69% in federal court.[10] The same article quoted a former SEC ALJ who stated that she “came under fire” for ruling too often for defendants and ultimately retired as a result. Meanwhile, a 1992 survey found that 61% of ALJs across all agencies reported that agency interference was a problem, with 26% reporting that it was a frequent problem.[11] The current system of trial-by-ALJ is simply incompatible with the independent judiciary that the Constitution guarantees. IJ’s lawsuit, if successful, will create precedent that could be used across in cases dealing with any government agency that uses ALJs.

The Litigation Team

The case is being litigated by IJ Senior Attorney Robert Johnson and IJ Attorney Renée Flaherty. They are joined as local counsel by Scott Wilhelm, of Winegar, Wilhelm, Glynn & Roemersma, P.C.

About the Institute for Justice

Founded in 1991, the Institute for Justice is a public-interest non-profit law firm leading the fight against overreach by the administrative state and abusive fines and fees. IJ litigates in the courts of law and in the court of public opinion to defend free speech, economic liberty, educational choice and property rights. IJ has filed lawsuits all over the country defending individuals against the power of the administrative state and against excessive fines.

[1] U.S. Department of Labor, Office of Inspector General, Report to Wage and Hour Division, Wage and Hour Division Needs to Strengthen Management Controls for Back Wage Distributions: March 31, 2015, at 1-2, available at https://www.oig.dol.gov/public/reports/oa/2015/04-15-001-04-420.pdf.

[2] See U.S. Const. art. III. § I (“The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.”).

[3] See U.S. Const. amend. VIII (”Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.”).

[4] See 5 U.S.C. § 706(2)(A), (E).

[5] Bier, David J., H-2A Visas for Agriculture: The Complex Process for Farmers to Hire Agricultural Guest Workers, Cato Institute, March 10, 2020, at 1, available at: https://www.cato.org/publications/immigration-research-policy-brief/h-2a-visas-agriculture-complex-process-farmers-hire.

[6] See id. at p. 16, Table B.

[7] Id.

[8] Id. at 12.

[9] Office of Personnel Management, ALJs by Agency, https://www.opm.gov/services-for-agencies/administrative-law-judges/#url=ALJs-by-Agency.

[10] Jean Eaglesham, SEC Wins With In-House Judges, Wall St. J., May 6, 2015, available at http://on.wsj.com/2hFczUw; see also Gideon Mark, SEC and CFTC Administrative Proceedings, 19 U. Pa. J. Const. L. 45, 64 (2016) (“[I]t is undeniable that the SEC enjoys considerably more success on its home court than it does in federal court.”).

[11] Paul R. Verkuil et al., Administrative Conference of the United States, The Federal Administrative Judiciary 916-17 (1992).