Anderson v. U.S. Sec'Y of Agriculture

462 F.Supp.2d 1333

Robert L. ANDERSON, Plaintiff, v. UNITED STATES SEC'Y OF AGRICULTURE, Defendant.

Slip Op 06-161. Court No. 05-00329.

United States Court of International Trade.

November 1, 2006.

Robert L. Anderson, Plaintiff pro se.

Peter D. Keisler, Assistant Attorney General; David M. Cohen, Director, Patricia M. McCarthy, Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice (David S. Silverbrand), for Defendant United States Secretary of Agriculture.

OPINION

POGUE, Judge.

Plaintiff Robert L. Anderson challenges the decision of the Foreign Agricultural Service of the United States Department of Agriculture (hereinafter "Agriculture" or the "USDA") denying his application for benefits under the trade adjustment for farmers program¹ ("TAA program"). Plaintiff claims that Agriculture's decision improperly failed to recognize the actual accrual basis decline in his net farm income for 2002. The court finds that the USDA entirely failed to consider an important aspect of the problem presented, see Motor Vehicle Mfs. Ass'n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983), and remands the determination.

JURISDICTION AND STANDARD OF REVIEW

The court has jurisdiction under 19 U.S.C. § 2395.² The court must uphold the factual determinations of the USDA if they are supported by substantial evidence. 19 U.S.C. § 2395(b). On legal issues, the court considers whether the Secretary's determination is "in accordance with law." Former Employees of Gateway Country Stores LLC v. Chao, 30 CIT ___, ___, 2006 WL 539129, *6 (March 3, 2006), Former Employees of Elec. Data Sys. Corp. v. United States Sec'y of Labor, 28 CIT ___, ___, 350 F.Supp.2d 1282, 1286 (2004), Former Employees of Rohm & Haas Co. v. Chao, 27 CIT ___, ___, 246 F.Supp.2d 1339, 1346 (2003).

BACKGROUND

A.

Under the TAA program, producers who have been certified as eligible for benefits, see 19 U.S.C. § 2401a, must then individually meet several conditions in order to receive such benefits, 19 U.S.C. § 2401e. In particular, a producer qualifies for assistance only if "the producer's net farm income (`as determined by the Secretary [of Agriculture]') for the most recent year is less than the producer's net farm income for the latest year in which no adjustment assistance was received by the producer under this chapter [19 U.S.C. §§ 2401 et seq.]". 19 U.S.C. § 2401e (a)(1)(C) (emphasis added).³ Pursuant to this Statutory Authority, and invoking the Internal Revenue Service ("IRS") code, the Secretary defined "net farm income" as "net farm profit or loss, excluding payments under this part, reported to the Internal Revenue Service for the tax year that most closely corresponds with the marketing year under consideration." 7 C.F.R. § 1580.102⁴ (emphasis added) (also defining "net fishing income" the same way.).

B.

In October of 2003, the Foreign Agricultural Service of the Department of Agriculture certified "[s]almon fishermen holding permits and licenses in the states of Alaska and Washington" as eligible to apply for trade adjustment assistance benefits. Trade Adjustment Assistance for Farmers, 68 Fed.Reg. 62,766 (Dep't Agric. Nov. 6, 2003)(notice). Pursuant to this certification and notification thereof, in January of 2004, Plaintiff applied for benefits under the trade adjustment for farmers program pursuant to 19 U.S.C. § 2401e. The USDA denied Mr. Anderson's application for benefits on February 4, 2005, stating that the application was denied because his "net fishing income did not decline from the latest year in which no adjustment assistance was received (2001)." Letter from Ronald Ford, Deputy Director, Program Division, to Robert L. Anderson (Feb. 4, 2005) Administrative Record at 23.

Acting on the agency's letter sent to him, and 7 C.F.R. § 1580.505⁵, Mr Anderson appealed the USDA determination to this court. In his appeal, Mr. Anderson stated that despite the fact that his income tax returns, which were based on cash receipts, reflected an increase in his income over the period in question, his true income, based on actual sales of salmon (the "accrual method") showed a decline in his income.⁶

C.

Because the USDA's regulations defining net farm income invoke the IRS code, the agency's determination of a decline in income between the relevant time periods depends on how that income has been reported to the IRS. Pursuant to the IRS's reporting requirements, taxpayers must report their income for each year. Recognizing that payment for goods and services frequently lags the sale of such goods and services, the IRS code permits taxpayers to report their income using two principle accounting methods: (1) the cash receipts and disbursements method ("cash method"); and (2) an accrual method.⁷ 26 U.S.C. § 446(c).⁸

In plain terms,

[t]he accrual method, as distinguished from the cash receipts and disbursements method of accounting, reports revenues when they are earned even though no cash may have been received and reports expenses when they have been incurred even though no payment of cash has been made in connection with such expenses.

Charles H. Meyer, Accounting and Finance for Lawyers in a Nutshell 26 (3d ed.2006).⁹

Agriculture's regulations do not distinguish between cash and accrual accounting. Rather, when these accounting methods are incorporated into Agriculture's regulations, the regulations implicitly define "net farm income" to mean either (a) a producer's cash receipts in a given year, or (b) the amount of income, reported under the accrual method tracking the sales less expenses, that the producer earns from agricultural production. Consequently, Agriculture's determination of a decline in income between the relevant time periods depends on how that income has been reported to the IRS.

To illustrate, consider two identical wheat farmers (Producer A and Producer B) who, in all material respects, have the same income stream. Producer A reports her income to the IRS on an accrual basis and Producer B reports his income to the IRS on a cash basis. Assume both make a sale in year 1 for $10 but do not collect the proceeds of this sale until year 2; because of import competition, both farmers are unable to sell any wheat in year 2. At the end of year 2, the Secretary certifies wheat farmers for trade adjustment assistance. By virtue of how they reported their income to the IRS, Producer A will have reported her income to the IRS as $10 in year 1, and $0 in year 2; Producer B would have reported his income to the IRS as $0 in year 1 and $10 in year 2. Consequently, under the Secretary's definition of "net farm income," Producer A would qualify for adjustment assistance while Producer B would not.¹⁰

D.

The underlying question presented by this case is whether Agriculture's application of its definition of net farm income is lawful. The court's review of such a question is guided by the well-established test enunciated in Chevron U.S.A. Inc. v. Nat'l Resources Defense Council Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). First, the court must consider whether Congress has "directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Id. However, "[i]f Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute." Id.

In 19 U.S.C. § 2401e, Congress did not directly define net farm income; rather, by requiring that a "producer's net farm income (as determined by the Secretary)" decline, Congress left an explicit gap for the Secretary to fill. See Steen v. U.S., 29 CIT ___, 395 F.Supp.2d 1345 (2005). The phrase "as determined by the Secretary" provides "an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation." Transitional Hosps. Corp. of La. v. Shalala, 222 F.3d 1019, 1025 (D.C.Cir.2000) (citing Chevron, 467 U.S. at 843-44, 104 S.Ct. 2778); But cf. Selivanoff v. U.S. Sec'y of Agric., 30 CIT ___, ___, 2006 WL 1026430,. *5 (April 18, 2006). Accordingly, the court may only reject the Secretary's definition if she exercises her discretion unreasonably. Transitional Hosps. Corp., 222 F.3d at 1025.

The Secretary filled the statutory gap through 7 C.F.R. § 1580.102, stating "Net fishing income means net profit or loss, excluding payments under this part, reported to the Internal Revenue Service for the tax year that most closely corresponds with the marketing year under consideration." 7 C.F.R. § 1580.102. Accordingly, this regulation, issued under a specific grant of congressional rulemaking authority, has "legislative effect," see Batterton v. Francis, 432 U.S. 416, 425, 97 S.Ct. 2399, 53 L.Ed.2d 448 (1977), and the court will pay a "very high degree of deference" to the regulation, "unless they are arbitrary, capricious, or manifestly contrary to the statute." Schuler Indus., Inc. v. United States, 109 F.3d 753, 755 (Fed. Cir.1997) (quoting Chevron, 467 U.S. at 844, 104 S.Ct. 2778). Thus, the court must defer to the regulation "unless the Secretary's interpretation is contrary to clear congressional intent or frustrates the policy Congress sought to implement." Schneider v. Chertoff, 450 F.3d 944, 960 (9th Cir.2006). Further, where, as here, Congress has not specifically mandated individual determinations, "[t]he administration of public assistance based on a formula is not inherently arbitrary." Schweiker v. Gray Panthers, 453 U.S. 34, 48, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981). Barnhart v. Thomas, 540 U.S. 20, 29, 124 S.Ct. 376, 157 L.Ed.2d 333 (2003) ("Virtually eve...