Ketchikan Drywall Services, Inc. v. Immigration & Customs Enforcement, 2013 U.S. App. LEXIS 16230

Background

Ketchikan Drywall Services (KDS), a small drywall employer, was inspected by ICE after a subpoena for I-9 Forms and related documents covering hires from 2005–2008.
ICE issued an amended Notice of Intent to Fine alleging 271 paperwork violations across four counts (missing I-9s; incomplete Section 1; incomplete Section 2; combined omissions), later proving 225 violations.
At the administrative hearing, KDS produced additional document copies late; the ALJ excluded those late-produced documents and granted summary decision for 225 violations, denying liability on the rest.
The ALJ adopted ICE’s penalty methodology, adjusted the base penalties for proven violations, declined to mitigate for good faith or non-seriousness, and imposed a civil penalty of $173,250.
KDS petitioned for review arguing (1) copying retained documents satisfied verification requirements or cured I-9 defects; (2) the ALJ improperly excluded late-produced documents; and (3) the penalty calculation was improper.
The Ninth Circuit denied the petition, holding copying alone does not substitute for completing I-9s, the Virtue Memorandum guidance is entitled to Skidmore deference, the ALJ properly excluded untimely documents, and the penalty decision was not arbitrary or capricious.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether copying and retaining identity/authorization documents satisfies I-9 completion requirements	KDS: Copies of documents (and signatures) suffice so missing entries on I-9s are cured	ICE: Statute and regs require full completion of I-9 Section 2/Section 1; copying permitted but not substitute	Copying is permitted but neither necessary nor sufficient; employers must "fully" complete I-9 Sections
Whether KDS is entitled to the §1324a(b)(6)(A) "good faith" defense for paperwork omissions	KDS: Omissions were technical/procedural made in good faith and should be excused	ICE: Some omissions are substantive; good-faith defense limited and fact-specific	Agency guidance (Virtue Memorandum) distinguishing substantive vs. technical errors gets Skidmore weight; many omissions here are substantive and not excused
Whether ALJ properly excluded documents produced for first time with summary decision materials	KDS: Late-produced copies would cure I-9 defects; ALJ should have considered them	ICE: Virtue guidance only excuses defects when legible copies were retained with the I-9 and presented at inspection; late production cannot cure substantive defects	Exclusion affirmed: only documents presented at I-9 inspection can convert substantive defects to technical ones; late-produced docs inadmissible
Whether penalty calculation and mitigation findings were arbitrary or lacked individualized findings	KDS: ALJ misapplied ICE guidelines, failed to make individualized assessments, ignored good-faith and non-seriousness	ICE: ALJ permissibly used ICE methodology, considered statutory factors generally, and declined mitigation after weighing facts	Penalty affirmed: ALJ acted within discretion, considered statutory factors sufficiently, and did not act arbitrarily or capriciously

Key Cases Cited

Judulang v. Holder, 565 U.S. 42 (2011) (standard of review under Administrative Procedure Act noted)
Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984) (agency statutory interpretation/deference framework)
United States v. Mead Corp., 533 U.S. 218 (2001) (limits of Chevron deference; role of Skidmore)
Skidmore v. Swift & Co., 323 U.S. 134 (1944) (persuasive weight factors for agency interpretations)
Balice v. U.S. Dep’t of Agric., 203 F.3d 684 (9th Cir. 2000) (standard for reviewing civil penalty determinations)
Christensen v. Harris County, 529 U.S. 576 (2000) (policy statements and guidance do not get Chevron deference)
Montero-Martinez v. Ashcroft, 277 F.3d 1137 (9th Cir. 2002) (interpretive consistency across statutory provisions discussed)
EEOC v. First Citizens Bank of Billings, 758 F.2d 397 (9th Cir. 1985) (good-faith compliance argument insufficient without supporting proof)