Pub. Timber Purchasers' Grp. v. U.S. Dep't of Agric.

580 F.Supp.3d 863

PUBLIC TIMBER PURCHASERS’ GROUP, an Oregon nonprofit corporation, and Sierra Pacific Industries, a California stock corporation, Plaintiffs,

v.UNITED STATES DEPARTMENT OF AGRICULTURE, United States Forest Service, Randy Moore, Regional Forester, Pacific Southwest Region, United States Forest Service, in his official capacity; and Scott Russell, Forest Supervisor, Shasta-Trinity National Forest, United States Forest Service, in his official capacity, Defendants.

No. 2:19-cv-01087 MCE-KJN

United States District Court, E.D. California.

Signed January 19, 2022

Josh Newton, Best Best & Krieger LLP, Sarah Monkton, PHV, Pro Hac Vice, Karnopp Petersen LLP, Bend, OR, for Plaintiffs Public Timber Purchasers’ Group, Sierra Pacific Industries.

Victoria L. Boesch, United States Attorney's Office, Sacramento, CA, for Defendants United States Department of Agriculture, United States Forest Service.

MEMORANDUM AND ORDER

MORRISON C. ENGLAND, JR., SENIOR UNITED STATES DISTRICT JUDGE

Through the present action, Plaintiffs Public Timbers Purchasers’ Group ("PTPG") and Sierra Pacific Industries ("SPI") (hereinafter collectively referred to as "Plaintiffs" unless otherwise indicated) seek review of two administrative appeal decisions issued by Defendant Randy Moore ("Moore"), in his official capacity as the Pacific Southwest Regional Forester for Defendant United States Forest Service ("USFS"). Those decisions pertain to Moore's structural change recomputation of the small business share allocation for timber sales conducted within the Trinity Market Area of the Shasta-Trinity National Forest. In addition to Moore and the USFS, the Forest Supervisor who made the initial decision, Scott Russell ("Russell"), is also named as a Defendant, as is the United States Department of Agriculture ("USDA"), who developed the small business set-aside program ("set-aside program") in conjunction with the Small Business Administration ("SBA").¹

Plaintiffs now move for summary judgment on grounds that neither of the subject appeals was proper in the first instance. They go on to contend that even if they were, Moore both exceeded his authority in modifying Russell's initial decision and acted arbitrarily and capriciously in any event in making the recomputation he did. The Federal Defendants filed their own cross-motion for summary judgment in response arguing that the decisions on appeal were entirely proper. As set forth below, Plaintiffs’ motion is DENIED, and Federal Defendants’ cross-motion is GRANTED.²

PROCEDURAL FRAMEWORK

The Small Business Act, now codified at 15 U.S.C. §§ 631, et seq. ("Act") established the SBA and provides that contracts for the sale of government property be awarded to small businesses if the SBA and its "disposal agency" determine that such an award is "in the interest of assuring that a fair proportion of the total sales of [g]overnment property be made to [such] concerns." 15 U.S.C. § 644(a)(5). Defendant USFS is the disposal agency for the sale of timber from the National Forest System.

Beginning in 1958, the USDA and the SBA developed a timber sale set-aside program to ensure that qualifying small timber purchasers be accorded the opportunity to purchase a fair share of USFS timber offered for sale. Administrative Record ("AR") 27, p. 1.³ Later, in 1971, the USDA entered into a written agreement ("1971 Agreement") for the sale of national forest timber and related forest products to small businesses which provided the foundation for the set-aside program now in effect.

The set-aside program is currently administered by the USFS, in consultation with the SBA, through both the 1971 Agreement and the Forest Service Directive System, which consists of the Forest Service Manual ("FSM"), as well as the applicable Forest Service Handbook ("FSH") for each Region. The FSM identifies two policy objectives in implementing the set-aside program;

1. To ensure that small business purchasers have the opportunity to purchase a fair proportion of the sales of National System timber.

2. To administer the [set-aside program] consistently between and across the National Forests within each Region.

FSM § 2439.02.

The FSM goes on to generally vest Forest Supervisors with the duty, as the so-called "Responsible Official" for administering the set-aside program "in accordance with applicable policies and procedures," as contained within the FSH. Id. at §§ 2439.04d, 2439.1. In that role, the FSH specifies that Forest Supervisors are responsible, among other things, for reallocating the proportion of timber sales offered to small businesses in the event of a so-called "structural change." Such a change occurs when a "small or large business firm that purchased at least 10 percent of the total sawlog volume during the last recomputation⁴ period discontinues operations or changes its size status through the sale or purchase of manufacturing capacity." FSH, § 90.5(8)(b).

When a structural change is identified, the Forest Supervisor "must recompute[ ] the small business share in accordance with the procedure set out in [FSH § 91.22b]." Id. That procedure is "designed to provide small business firms the opportunity to maintain their historical share when a firm changes size" in order to provide an "adjustment of shares to reflect changes that may develop." Id. The FSH accordingly mandates that the applicable small business share be recomputed three years after a structural change occurs based on the sawlog purchase history for that three-year period. Id. Structural change recomputations are subject to a lower limit of one-half of the "original base share," which is the original small business share established for each market area under the 1971 Agreement, and an upper limit of 80 percent of total sawlog volume of the area. Id.

The FSH directs the Forest Supervisor to consult with the SBA both as to whether a structural change has occurred and for any resulting recomputation of the small business share based on purchase history, with a formula provided for the necessary calculation. Id. at § 91.17, 91.22b. If the Forest Supervisor and the SBA disagree as to the small business share recomputation, the FSH provides for referral of the matter to the Regional Forester, who may establish a small business share that differs from the recomputation formula contained within the FSH. Id. at § 91.17.

Recomputation decisions, once finalized, may be appealed by the timber sales purchasers, or their representatives, affected by the decision. 36 C.F.R. § 223.118(c), (h)(1). Where, as here, the Forest Supervisor issues the recomputation decision, the Regional Forester is the "Appeal Deciding Officer" responsible for adjudicating the appeal. Id. at § 223.118(d). If the Regional Forester is responsible for the underlying decision, however, the Chief of the USFS, or his designee, becomes the Appeal Deciding Officer. The Appeal Deciding Officer is vested with the authority to "affirm or reverse," in whole or in part, the recomputation decision. Id. at § 223.118(j)(3).

FACTUAL BACKGROUND

Between approximately 2010 and 2015, the Trinity River Lumber Company had purchased some 94 percent of sawlog volume obtained from the Trinity Market Area of the Shasta-Trinity National Forest. AR 21. As a small business, this purchase volume had established a 74 percent small business share for the Trinity Market Area. On or about May 28, 2015, however, Trinity River Lumber purchased an additional mill and thereby ceased to qualify as a small business concern. Id. Thereafter, on March 31, 2016, the Forest Supervisor for the Shasta-Trinity National Forest, Defendant Scott Russell, issued a Pre-Decision Notice of SBA Structural Change announcing that after consultation with the SBA, he determined that Trinity River Lumber's purchase made it necessary to recompute the applicable small business share. Id. Russell subsequently revealed, on May 13, 2016, his methodology in undertaking that recomputation, indicating that purchase and harvest date from October 1, 2015, through September 30, 2018 would be employed, and that the resulting new figure would take effect on October 1, 2018. AR 20.

Russell ultimately proposed, by written notice issued on October 30, 2018, a new small business share of 67 percent. He did this by limiting the change from the previously established 74 percent share to one-half of the original base share of 14 percent, a 7 percent reduction. AR 9. Russell invited qualifying timber sale purchaser interested parties to review his recommendation and provide any written commentary by November 29, 2018, after which time a decision would be forthcoming.

Both the SBA and Franklin Logging, a small business concern that expressed interest in purchasing timber from the Trinity Market Area, submitted comments in support of Russell's proposal within the requisite period. Plaintiff PTPG, a regional trade organization representing large forest produce manufacturers that purchase USFS timber, also commented, as did Plaintiff SPI, a large timber purchase and member of PTPG.

Both SPI and PTPG asserted that Russell erred in calculating the new proposed business share, since the limitation to one-half of the original base share formula he relied upon applied only to periodic five-year recomputation and not to the recomputation needed after an intervening structural change. AR 8, 15. In a structural recomputation, according to Plaintiffs, the only limit that applied was that under FSH § 91.22b, such that the new share would be not less than one-half of established base share of 14 percent, or 7 percent. In the Trinity Market Area, because there had been virtually no timber sales during the applicable control period (only one small sale occurred to a large company), no percentage was assigned to small business interests, Plaintiffs argued that a zero percentage allocation therefore had to be applied for small purchasers, bringing the new percentage down to the 7 percent minimum...