Knapp v. United States Department of Agriculture, 2015 U.S. App. LEXIS 13415

Background

Bodie Knapp operated an animal exhibition business and held an AWA exhibitor license that was revoked in 2005 after prior enforcement actions and a default ALJ decision.
The USDA Administrator later charged Knapp with 30 post-revocation transactions (429 animals listed) between 2005–2010; the ALJ found 8 violations and assessed $15,000 and fees for other charges; the Judicial Officer reversed and found many more violations.
The Judicial Officer concluded Knapp bought/sold 235 regulated animals without a license (violating 7 U.S.C. § 2134 and 9 C.F.R. §§ 2.1, 2.10), imposed $42,800 for unlicensed-dealer violations and $353,100 for knowing breaches of prior cease-and-desist orders (total $395,900), and ordered cease-and-desist relief.
Knapp challenged: (1) applicability of personal-use and farm-animal exemptions, (2) reliance on agency Guide, (3) classification of species (aoudad, alpaca, miniature donkeys), (4) whether some sales had an unknown/unenforceable intended purpose (auction sales to Lolli Brothers), (5) penalty sizing and whether violations were knowing.
The Fifth Circuit reviewed for substantial evidence, Chevron/Auer deference where appropriate, and abuse of discretion for sanctions; it affirmed most rulings but remanded for agency explanation on (i) farm-animal classifications and (ii) the intended-purpose findings for 22 sales to Lolli Brothers.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether purchases for personal use are exempt from licensing	Knapp: purchases not for resale are exempt under Guide and §2.1(a)(3)(viii)	USDA: regulation’s plain text exempts only persons who do not sell or exhibit; Guide cannot override regulation	Held for USDA — Knapp not exempt; regulation controls and gave fair notice
Whether certain species (aoudad, alpaca, miniature donkeys) are "farm animals"	Knapp: these are farm animals and thus outside the AWA licensing requirement	USDA: Judicial Officer treated them as regulated animals	Remanded — agency failed to explain why it rejected ALJ findings; insufficient reasoning
Whether sales at auction (Lolli Brothers) were lawful because purchaser’s intent was unknown	Knapp: auction sales where intended use unknown are exempt per Guide/statute	USDA: Judicial Officer found 12 sales had regulated purpose; other 22 were summarily treated as unlawful	Partial affirmance and partial remand — 12 upheld; 22 remanded for explanation
Whether penalties (per-violation and for violating cease-and-desist) were lawful and supported	Knapp: penalties excessive, arbitrary, not discretionary, or based on unfair notice; some violations not "knowing"	USDA: penalties within statutory/regulatory maxima; interpretation re: $1,650 per knowing cease-and-desist violation reasonable; violations were knowing	Held for USDA on remaining counts: per-violation $200 and $1,650 per knowing cease-and-desist violation upheld; Judicial Officer didn’t abuse discretion for those violations upheld by court

Key Cases Cited

Pension Benefit Guar. Corp. v. Wilson N. Jones Mem’l Hosp., 374 F.3d 362 (5th Cir. 2004) (articulating deferential arbitrary-and-capricious review and explanation standard)
Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (agency must articulate rational connection between facts and decision)
Auer v. Robbins, 519 U.S. 452 (1997) (deference to agency interpretations of its own ambiguous regulations)
Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984) (two-step test for deference to agency statutory interpretations)
United States v. Mead Corp., 533 U.S. 218 (2001) (when Chevron deference applies to agency adjudicative interpretations)
FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009) (agency adjudication and retroactive notice concerns; sanctions and policy change considerations)
Bryan v. United States, 524 U.S. 184 (1998) (knowledge requirement generally pertains to knowledge of facts, not knowledge of illegality)