“A plain reading of the statute... demands that, for an application made in 2005, net income for 2004 (the ‘most recent year’) must be compared to that earned in 2003 (‘the latest year in which no adjustment assistance was received by the producer’).”
How later courts described this case
- “A plain reading of the statute... demands that, for an application made in 2005, net income for 2004 (the ‘most recent year’) must be compared to that earned in 2003 (‘the latest year in which no adjustment assistance was received by the producer’).”
- not reported in the Federal Supplement
Written by the judges who cited it.
The opinion
Slip Op. 07-2
UNITED STATES COURT OF INTERNATIONAL TRADE
:
DUS & DERRICK, INC., :
:
Plaintiff, :
:
v. : Before: Richard K. Eaton, Judge
:
: Court No. 05-00346
UNITED STATES SECRETARY :
OF AGRICULTURE, :
:
Defendant. :
:
OPINION AND ORDER
[United States Department of Agriculture’s final determination
denying plaintiff’s application for trade adjustment assistance
remanded.]
Dated: January 8, 2007
Steven D. Schwinn, for plaintiff.
Peter D. Keisler, Assistant Attorney General; David M. Cohen,
Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice; Jeanne E. Davidson, Deputy
Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice (Michael J. Dierberg), for
defendant.
Eaton, Judge: This matter is before the court on plaintiff
Dus & Derrick, Inc.’s (“plaintiff” or “Dus & Derrick”) motion for
judgment upon the agency record pursuant to USCIT Rule 56.1(a).
By its motion, plaintiff challenges the decision of the Foreign
Agricultural Service of the United States Department of
Agriculture (the “Department”) to deny its application under the
Court No. 05-00346 Page 2
Trade Adjustment for Farmers program for trade adjustment
assistance (“TAA”) pursuant to 19 U.S.C. § 2401e (2002).1 See
Letter from Ronald Lord, Deputy Director Import Policies and
Program Division to Dus & Derrick, Inc. (Mar. 7, 2005) (“Negative
Determination”), AR2 at 55; see generally Pl.’s Mem. Supp. R.
56.1 Mot. J. Agency R. (“Pl.’s Mem.”). The Department concluded
that because plaintiff’s net fishing income for calendar year
2003 was not less than its net income for calendar year 2001,
1
As initially adopted, the TAA statute established a
mechanism by which domestic workers, firms and communities
affected adversely by an increase in imports like or directly
competitive with the products they produced could apply to the
United States Department of Labor for a cash payment or other
benefits intended to compensate for economic harm caused by the
increased imports. See Trade Act of 1974, Pub. L. No. 93-618,
§§ 221–250, 251–264, 271–274, 88 Stat. 1978, 2019–40 (1975). The
law was amended in 2002 to provide similar relief through the
Department of Agriculture for agricultural or farm workers who
were considered “commodity producers.” See Trade Act of 2002,
Pub. L. No. 107-210, §§ 141–143, 116 Stat. 933, 946–53 (2002).
By its regulations for this amended provision, the Department of
Agriculture defined a “producer” as a “person who is either an
owner, operator, landlord, tenant, or sharecropper, who shares in
the risk of producing a crop and who is entitled to share in the
crop available for marketing from the farm, or a qualified
fisherman.” 7 C.F.R. § 1580.102 (2005). In other words, farmers
and qualified fishermen are permitted to seek TAA benefits much
like other claimants. According to the regulations, however, in
order to be a “qualified fisherman,” the applicant must be a
“person whose catch competes in the marketplace with like or
directly competitive aquaculture products and report[s] net
fishing income to the Internal Revenue Service.” Id. These
definitions would include Dus & Derrick. In addition, the 2002
Act contained provisions found in 19 U.S.C. §§ 2401 et seq. and
later 19 U.S.C. § 2395, which provides for judicial review of
final determinations made by the Secretary of Agriculture.
2
Citations to “AR” refer to the Administrative Record
submitted in this action.
Court No. 05-00346 Page 3
plaintiff failed to “meet the net income3 requirement, in
accordance with [7 C.F.R. § 1580.401(e) (2005)],” and therefore
was ineligible to receive benefits. Negative Determination, AR
at 55.4
Plaintiff asserts two arguments in support of its request
for remand. First, in plaintiff’s view, the Department’s
regulations required a comparison of plaintiff’s net income for
2002, not 2001, to that from 2003. Second, plaintiff contends
that by basing its denial solely on a comparison of the
information contained in line 28 of plaintiff’s submitted 2001
3
According to the Department’s regulations, “net fishing
income” is “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.
4
The regulatory provision cited as the basis for the
Department’s denial of plaintiff’s application provides:
The amount of an adjustment assistance
payment during a qualifying year shall be
determined in the same manner as in the
originating year, except that the average
national price shall be determined by using
the 5-marketing-year period used to determine
the amount of cash benefits for the first
certification.
7 C.F.R. § 1580.401(e). This provision applies after the
Department has determined that the producer qualifies for
benefits based on its application under a re-certification, and
all that remains is the amount of benefits to be awarded. While
it is unclear how the cited regulation provides a basis for the
denial of plaintiff’s application, it is clear from the record
that the primary reason for the Department’s determination was
plaintiff’s failure to demonstrate the required decrease in its
net income.
Court No. 05-00346 Page 4
and 2003 Form 1120 tax returns,5 the Department unreasonably
determined that plaintiff’s net fishing income for 2003, the
marketing year,6 was not less than its net fishing income for
2001, the pre-adjustment year.7 See Pl.’s Mem. at 9, 11.
Jurisdiction lies with 19 U.S.C. § 2395(c). For the following
reasons, the Department’s Negative Determination is remanded.
BACKGROUND
Plaintiff is a family-owned shrimp fishing company that has
operated its business off the Texas Gulf Coast since the early
1970's. Plaintiff owns its own shrimp boat and, in addition to
other business-related expenses, regularly incurred maintenance
costs including fuel, new equipment, repairs and labor associated
with the boat. Plaintiff, for the most part, received a steady
income from its operations. Its business benefitted from the
price of shrimp being determined primarily by domestic market
forces of supply and demand. Beginning in 2001, however,
5
Plaintiff filed its tax returns on a calendar year
basis.
6
“Marketing year means the marketing season or year as
defined by National Agriculture Statistic Service (NASS), or a
specific period as proposed by the petitioners and certified by
the Administrator.” 7 C.F.R. § 1580.102. It appears that 2003
is the marketing year for the re-certification of shrimp
producers for benefits.
7
“Pre-adjustment year means the tax year previous to
that associated with the most recent marketing year in the
initial producer petition.” 7 C.F.R. § 1580.102.
Court No. 05-00346 Page 5
increased shrimp imports caused the domestic price of shrimp to
drop. See Def.’s Resp. Pl.’s Mot. J. Agency R. (“Def.’s Resp.”)
at 4. In October 2003, as a result of the steadily declining
price of U.S. shrimp, the Texas Shrimp Association (“TSA”) filed
with the Department a petition on behalf of Texas shrimp
producers (including Dus & Derrick) for TAA certification in
accordance with 19 U.S.C. § 2401a and 7 C.F.R. § 1580.201.8 See
Trade Adjustment Assistance for Farmers, 68 Fed. Reg. 60,078
(Dep’t of Agric. Oct. 21, 2003) (notice). On November 19, 2003,
after conducting an investigation, the Department found that
increased shrimp imports had contributed importantly “to a
decline in the landed prices of shrimp in Texas by 27.8 percent
during January 2002 through December 2002, when compared with the
previous 5-year average,” and granted the petition. Trade
Adjustment Assistance for Farmers, 68 Fed. Reg. 65,239 (Dep’t of
Agric. Nov. 19, 2003) (notice).9 The downward trend in domestic
8
According to the statute, the petition for
certification is to be filed by “a group of agricultural
commodity producers or by their duly authorized representative.”
19 U.S.C. § 2401a(a). In addition, the regulation provides
instructions as to the required contents of the petition. See
7 C.F.R. § 1580.201(c).
9
Where a group of agricultural commodity producers or
its authorized representative files a petition seeking a
certification as eligible to apply for TAA benefits, the
Department will make the certification if the petitioner
establishes:
(1) that the national average price for the
(continued...)
Court No. 05-00346 Page 6
shrimp prices continued and, on November 30, 2004, the
Department, having found that “continued increases in imports of
like or directly competitive products contributed importantly to
a decline in the average landed price of shrimp in Texas by 33.7
percent during the 2003 marketing period (January-December 2003),
compared to the 1997-2001 base period,” re-certified the TSA and
its member producers as eligible to apply for TAA benefits.
Trade Adjustment Assistance for Farmers, 69 Fed. Reg. 69,582
(Dep’t of Agric. Nov. 30, 2004) (notice).
In accordance with the statutory scheme, once the TSA
received its certification, plaintiff (one of the agricultural
commodity producers covered by the certification) became eligible
to individually apply for a cash payment. See 19 U.S.C.
§ 2401e(a).
9
(...continued)
agricultural commodity, or a class of goods
within the agricultural commodity, produced
by the group for the most recent marketing
year for which the national average price is
available is less than 80 percent of the
average of the national average price for
such agricultural commodity, or such class of
goods, for the 5 marketing years preceding
the most recent marketing year; and
(2) that increases in imports of articles
like or directly competitive with the
agricultural commodity, or class of goods
within the agricultural commodity, produced
by the group contributed importantly to the
decline in price described in paragraph (1).
19 U.S.C. § 2401a(c).
Court No. 05-00346 Page 7
Plaintiff did not file for benefits under the original
certification but rather made its application upon re-
certification on January 19, 2005. See Application for TAA for
Individual Producers for Dus & Derrick, Inc. (“Pl.’s
Application”), AR at 1. In its application, plaintiff certified
that it was entitled to a cash payment in part because its net
fishing income in calendar year 2003 (what the application refers
to as the “crop year”) was less than its net fishing income in
calendar year 2002,10 the year plaintiff understood to be the
pre-adjustment year. See Pl.’s Application, AR at 1 (“I reported
on the applicable federal tax form that my net farm or net
fishing income declined from the petition’s pre-adjustment
year.”); see also 19 U.S.C. § 2401e(a)(1)(C); 7 C.F.R.
§ 1580.301(e)(4).
In support of its application, plaintiff submitted its Form
1120 corporate tax returns for calendar years 2001, 2002 and
2003. On line 28 of each return, which is entitled “Taxable
income before net operating loss deduction and special
deductions,” the following data is provided: (1) for 2001, a net
loss of $17,750.00; (2) for 2002, a net loss of $16,003.00; and
(3) for 2003, a net profit of $9,044.00. See Pl.’s Mem. at Apps.
C, D and E. While standing on their own these tax forms indicate
10
The status of 2002 as the pre-adjustment year is one of
the issues in this case.
Court No. 05-00346 Page 8
that plaintiff’s net income improved in each year, plaintiff
states in its papers that it believed it would be given an
opportunity to demonstrate this was not the case.
In addition, plaintiff understands the language of 7 C.F.R.
§ 1580.102 defining “net fishing income” to require the
Department to at least review the tax returns in their entirety
in order to understand fully the circumstances that led to the
net figures. See Pl.’s Mem. at 11–12.
The Department maintains, however, that such a review is not
mandated by either the TAA statute or the regulations. See
Def.’s Resp. at 14 (“[N]either [the Department]’s regulations nor
the TAA statute require [the Department] to engage in the sort of
ad hoc analysis that Dus & Derrick suggests would have been more
appropriate.”). Thus, without more, the Department compared
plaintiff’s net income figure on line 28 of its 2003 Form 1120 to
that reported on line 28 of its 2001 return and, finding that the
2003 amount was not less than the 2001 number, denied plaintiff’s
application. In doing so, the Department used 2003 as the
“marketing year” and 2001 as the “pre-adjustment year.” See id.
(“[I]n determining whether [plaintiff] qualified for
benefits . . . , [the Department] compared [plaintiff’s] net
income as reported to the IRS for 2003 with its net income
reported to the IRS for 2001. This net income is reflected in
line 28 . . . of [plaintiff’s] Form 1120, which was circled by
Court No. 05-00346 Page 9
[the Department].”).
On May 6, 2005, plaintiff timely commenced the instant
action asking that this matter be remanded to afford it the
opportunity to explain its net income figures. See Letter from
Wanda F. Walls to Office of the Clerk of the Court (May, 6, 2005)
(“Complaint Letter”) at 1. For the following reasons, the
Department’s denial of plaintiff’s application is remanded.
STANDARD OF REVIEW
When reviewing a final determination by the Department,
“[t]he findings of fact by the . . . [Department] . . . if
supported by substantial evidence, shall be conclusive; but the
court, for good cause shown, may remand the case to [the
Department] to take further evidence, and [the Department] may
thereupon make new or modified findings of fact and may modify
[its] previous action . . . .” 19 U.S.C. § 2395(b); see also
Former Employees of Gateway Country Stores LLC v. Chao, 30 CIT
, Slip Op. 06-32 at 7 (Mar. 3, 2006) (not published in the
Federal Supplement). “Substantial evidence is ‘such relevant
evidence as a reasonable mind might accept as adequate to support
a conclusion.’” Huaiyin Foreign Trade Corp. (30) v. United
States, 322 F.3d 1369, 1374 (Fed. Cir. 2003) (quoting Consol.
Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)). The existence of
substantial evidence is determined “by considering the record as
Court No. 05-00346 Page 10
a whole, including evidence that supports as well as evidence
that ‘fairly detracts from the substantiality of the evidence.’”
Id. (quoting Atl. Sugar, Ltd. v. United States, 744 F.2d 1556,
1562 (Fed. Cir. 1984)).
The court reviews whether the Department’s determination is
in accordance with law pursuant to “the default standard outlined
in the Administrative Procedure Act.” Former Employees of Elec.
Data Sys. Corp. v. U.S. Sec’y of Labor, 28 CIT , 350 F. Supp.
2d 1282, 1286 (2004) (referencing 5 U.S.C. § 706); see also
Former Employees of Gateway Country Stores LLC, 30 CIT at ,
Slip Op. 06-32 at 9; Former Employees of Rohm & Haas Co. v. Chao,
27 CIT 116, 122, 246 F. Supp. 2d 1339, 1346 (2004); Woodrum v.
Donovan, 5 CIT 191, 193, 564 F. Supp. 826, 828 (1983); Alaska
Dep’t of Envtl. Conservation v. EPA, 540 U.S. 461, 496–97 (2004).
DISCUSSION
I. Plaintiff’s Individual Agricultural Commodity Producer
Application for TAA Cash Payments
A. Relevant Law
Receipt of TAA benefits by an individual agricultural
commodity producer is the result of a two-step process. Only the
second step, the application of an individual commodity producer
for TAA benefits, is at issue here.
After a group of producers is certified pursuant to 19
U.S.C. § 2401a, an individual commodity producer is entitled to
Court No. 05-00346 Page 11
apply for a cash payment “within 90 days after the date on which
the [Department] makes a determination and issues a certification
of eligibility under section 2401b of this title.” 19 U.S.C.
§ 2401e(a)(1). It is the Department’s responsibility to
determine whether the individual producer has satisfied the
statutory requirements to receive a cash payment. See id.11
11
The statutory criteria that must be met in order for an
individual producer to receive a cash payment are as follows:
(1) Requirements
Payment of a[n] adjustment assistance
under this part allowance shall be made to an
adversely affected agricultural commodity
producer covered by a certification under
this part who files an application for such
assistance within 90 days after the date on
which the Secretary makes a determination and
issues a certification of eligibility under
section 2401b of this title, if the following
conditions are met:
(A) The producer submits to the
Secretary sufficient information to
establish the amount of
agricultural commodity covered by
the application filed under this
subsection that was produced by the
producer in the most recent year.
(B) The producer certifies that the
producer has not received cash
benefits under any provision of
this subchapter other than this
part.
(C) The producer’s net farm income
(as determined by the Secretary)
for the most recent year is less
than the producer’s net farm income
(continued...)
Court No. 05-00346 Page 12
Thus, once the group of producers has carried the burden of
establishing that competitive imports have contributed
importantly to a decline in the industry, an individual producer
is entitled to a cash payment if it can establish, among other
things, that its net income “for the most recent year is less
than [its] net farm income for the latest year in which no
11
(...continued)
for the latest year in which no
adjustment assistance was received
by the producer under this part.
(D) The producer certifies that the
producer has met with an Extension
Service employee or agent to
obtain, at no cost to the producer,
information and technical
assistance that will assist the
producer in adjusting to import
competition with respect to the
adversely affected agricultural
commodity, including ——
(i) information regarding
the feasibiity and
desirability of
substituting 1 or more
alternative commodities
for the adversely
affected commodity; and
(ii) technical assistance
that will improve the
competitiveness of the
production and marketing
of the adversely affected
agricultural commodity by
the producer, including
yield and marketing
improvements.
19 U.S.C. § 2401e(a)(1); see also 7 C.F.R. § 1580.301.
Court No. 05-00346 Page 13
adjustment assistance was received by the producer . . . .” 19
U.S.C. § 2401e(a)(1)(C).12 Here, the Department compared line 28
of plaintiff’s Form 1120 for 2003 with the same line from 2001.
Plaintiff insists that in denying its application for a cash
payment, the Department (1) unreasonably interpreted its own
regulations by not using 2002 as the pre-adjustment year; and (2)
failed to fully examine plaintiff’s tax returns and did not allow
it to explain the reasons for the apparent increase in its net
income from 2001 to 2002 and 2003. Thus, the court’s task is to
determine whether the law and the facts support the Department’s
conclusion that plaintiff does not qualify for TAA benefits.
B. The Department’s Interpretation of “Pre-Adjustment
Year”
Plaintiff’s first contention is properly understood as a
12
In its regulations, the Department requires that along
with submitting its application, a producer must also certify
“that net farm or fishing income was less during the producer’s
pre-adjustment year” in order to receive benefits.
7 C.F.R. § 1580.301(e)(4). To comply with this provision, the
Department permits a producer to submit:
(i) Supporting documentation from a certified
public accountant or attorney,
(ii) Relevant documentation and other
supporting financial data, such as financial
statements, balance sheets, and reports
prepared for or provided to the Internal
Revenue Service or another U.S. Government
agency.
7 C.F.R. § 1580.301(e)(6).
Court No. 05-00346 Page 14
challenge to the Department’s interpretation of its regulation
defining “pre-adjustment year.”13 See Pl.’s Reply Def.’s Resp.
Pl.’s Mot. J. Agency R. (“Pl.’s Reply”) at 6. Specifically,
plaintiff takes issue with the Department’s understanding that
the phrase “initial producer petition” used in the regulation’s
definition of pre-adjustment year refers to the initial group
petition. For plaintiff:
“Initial producer petition” here can only
refer to the individual producer’s initial
application for TAA benefits pursuant to 7
C.F.R. § 1580.301, not, as the defendant
suggests, the group of producers[’] petition
for TAA pursuant to 7 C.F.R. § 1580.201.
First, the plain language of the regulations
supports this reading. . . . [T]he
regulations define “pre-adjustment year” in
terms of a singular “producer,” not a “group
of producers” or “authorized
representatives.” Only a “producer”
(singular) may apply for TAA benefits
pursuant to 7 C.F.R. § 1580.301 —— and only
after a “group of producers” or “authorized
representative” applies for certification
pursuant to 7 C.F.R. § 1580.201 or
recertification pursuant to 7 C.F.R.
§ 1580.401. Under the regulations, a
“producer” (singular) does not apply for
certification pursuant to 7 C.F.R. § 1580.201
or recertification pursuant to 7 C.F.R.
§ 1580.401. Thus, “initial producer
petition” must refer to a producer’s initial
application for TAA benefits pursuant to 7
C.F.R. § 1580.301.
13
It is worth noting that plaintiff does “not argue that
the Department’s regulations run contrary to the law.” Pl.’s
Mem. at 8. Rather, plaintiff asserts that “the Department wholly
failed to apply its own regulations properly in this case.” Id.
at 9.
Court No. 05-00346 Page 15
Pl.’s Reply at 6 (emphasis in original) (footnote omitted). It
is plaintiff’s position, therefore, that the pre-adjustment year
is to be determined by referencing the marketing year proposed by
the individual commodity producer in its application for TAA
benefits, not the year that the group of producers filed their
petition for certification. See 7 C.F.R. § 1580.102 (defining
“pre-adjustment year”).
Plaintiff provides support for its asserted definition of
“pre-adjustment year” by explaining that the word “petition” used
in the regulation does not preclude plaintiff’s proffered
interpretation. See Pl.’s Reply at 7. Plaintiff asserts that
the interpretative weight attributable to the singular form of
the word “producer” far outweighs that attached to the word
“petition.” See id. Thus, according to plaintiff:
The use of the term “petition” in the
definition of “pre-adjustment year” is
undeniably confusing, but when read with its
qualifier “producer” (singular) and within
the larger context of the regulations as a
whole, the plain language of the regulations
only supports a reading that “initial
producer petition” means an individual
producer’s initial application for TAA
benefits pursuant to 7 C.F.R. § 1580.301.
Id. (emphasis in original).
Finally, plaintiff claims that the Department’s
interpretation of “pre-adjustment year” leads to the unintended
comparison of net fishing income from non-consecutive years (here
2001 compared to 2003). Plaintiff relies on the language of 19
Court No. 05-00346 Page 16
U.S.C. § 2401e(a)(1)(C), which requires the producer to
demonstrate that its net fishing income for “the most recent
year” is less than “the producer’s net [fishing] income for the
latest year in which no adjustment assistance was received by the
producer . . . .” Reading the definition of pre-adjustment year
to be the year before that in which an individual producer
applies for TAA benefits, plaintiff contends, would ensure the
comparison of consecutive years that is required by the statute.
Thus, relying on both the statute and the regulations, plaintiff
claims that the Department unreasonably compared plaintiff’s net
fishing income from non-consecutive years in denying its
application.
The Department maintains that “2001 is the only year that
could be the pre-adjustment year based upon the clear language of
the applicable regulations.” Def.’s Resp. at 8.
Plaintiff’s contention that the pre-
adjustment year is 2002 is directly contrary
to the definition of “pre-adjustment year”
pursuant to 7 C.F.R. § 1580.102. Dus &
Derrick appears to assume that “pre-
adjustment” year means the year prior to the
year in which an individual applicant
received benefits. This conflicts with [the
Department]’s definition of pre-adjustment
year as “the tax year previous to that
associated with the most recent marketing
year in the initial producer petition.” The
definition refers to the “initial producer
petition,” which is the initial petition
filed by the group of producers, in this case
the [TSA], for certification for [TAA]. It
does not refer to the individual producer’s
initial application for benefits. The
Court No. 05-00346 Page 17
applicable statute and regulations clearly
distinguish between the group’s “petition” in
the first stage of the TAA process, and an
individual producer’s “application” in the
second stage of the process.
Id. at 9 (emphasis in original) (citations omitted). Based on
its interpretation, the Department contends that it properly used
2001 as the pre-adjustment year because, as the marketing year in
the initial producer petition was 2002, the previous tax year is
2001.
While plaintiff can hardly be faulted for straining to make
sense of the Department’s regulations, the court finds that its
efforts are unnecessary. This is because, at least in the
context of a re-certification, the regulations are not a
permissible interpretation of the statute.
When a court reviews an agency’s construction of the statute
which it administers, it uses the familiar two-step process set
forth in Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 842–43 (1984). The first step is to
determine “whether Congress has directly spoken to the precise
question at issue.” Id. at 842. If a plain reading of the
statute clearly reveals the intent of Congress, “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.
at 842–43. As applied to the facts of this case, the court must
determine whether Congress has directly addressed the issue of
Court No. 05-00346 Page 18
what years are to be compared by the Department when determining
whether an agricultural commodity producer has satisfied the net
income requirement for the receipt of TAA benefits. For the
court, the language of 19 U.S.C. § 2401e(a)(1)(C) is clear in its
instruction that consecutive years must be compared when
determining whether a producer has satisfied the net income
requirement. In addition, the court finds that the statute
requires that the second of the two years to be used for
comparison must be the year prior to that in which the
application is made. Thus, it is unnecessary to address
Chevron’s second step.
“In determining whether a particular regulation carries out
the congressional mandate in a proper manner, [the court] look[s]
to see whether the regulation harmonizes with the plain language
of the statute, its origin, and its purpose.” Nat’l Muffler
Dealers Ass’n, Inc. v. United States, 440 U.S. 472, 477 (1979).
Congress provided that an individual producer is entitled to
receive a cash payment only if it demonstrated, among other
things, that its “net farm income (as determined by the
Secretary) for the most recent year is less than [its] net farm
income for the latest year in which no adjustment assistance was
received by the producer . . . .” 19 U.S.C. § 2401e(a)(1)(C).
In promulgating its regulatory scheme, however, the Department
altered the phrase “most recent year” to read the “tax year that
Court No. 05-00346 Page 19
most closely corresponds to the marketing year under
consideration.”14 7 C.F.R. § 1580.102 (defining “net fishing
income” as “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.”); see also id. (defining “marketing year” as “the
14
Prior to November 1, 2004, the Department’s regulations
required a producer to submit, along with its application, a
certification that its net fishing income “for the most recent
tax year” was less than that in the producer’s pre-adjustment
year. 7 C.F.R. § 1580.301(e)(4) (2004). The regulatory scheme
was based on a producer application made “with respect to the
most recent marketing year for which national average prices
[were] available.” Trade Adjustment Assistance for Farmers, 69
Fed. Reg. 63,317, 63,317 (Dep’t of Agric. Nov. 1, 2004) (final
rule; technical amendments). As of November 1, 2004, however,
the Department amended its regulations and replaced the reference
to the “most recent tax year” in 7 C.F.R. § 1580.301(e)(4) with
the phrase “tax year that most closely corresponds with the
marketing year under consideration.” Id. According to the
Department:
Because national average prices take months
to be gathered and published by the
Department, a producer’s most recent tax year
may follow the tax year that most closely
corresponds with the marketing year being
considered for TAA. Therefore, to correct
this deficiency, § 1580.301(e)(4) is amended
to delete reference to “the most recent tax
year”. Consequently producers are required
to certify that net farm or fishing income
during the tax year that most closely
corresponds with the marketing year under
consideration was less than that during the
pre-adjustment tax year, in order to receive
payments.
Id. Thus, in order to facilitate a determination of the amount
of the TAA benefit, the Department altered the statutorily
mandated manner in which eligibility was determined.
Court No. 05-00346 Page 20
marketing season or year as defined by National Agriculture
Statistic Service (NASS), or a specific period as proposed by the
petitioners and certified by the Administrator.”). The
Department further provided that the producer’s net income from
the marketing year would be compared to its income from, what the
Department refers to as, the “pre-adjustment year” or “the tax
year previous to that associated with the most recent marketing
year in the initial producer petition.” 7 C.F.R. § 1580.102
(emphasis added).
While this scheme may comply with the statute where an
application is made following an initial certification, it
violates the statute when applied to an application made upon re-
certification. This is highlighted by the scenario presented
here. Dus & Derrick made its application for TAA in 2005. In
reviewing the company’s application, the Department compared its
net income over non-consecutive years, i.e., 2001 and 2003. The
year 2001 was selected because it is the year immediately
preceding the marketing year used in the initial producer
petition. The marketing year chosen for comparison, however, was
the marketing year used in the petition for re-certification,
i.e., 2003. Under these facts, the Department’s regulations
would always result in a producer’s net income for the marketing
year being compared to 2001. As a result, if the TSA were to be
re-certified in 2004 and a producer were to apply for benefits in
Court No. 05-00346 Page 21
2005 claiming 2004 as the marketing year, the present definition
of “pre-adjustment year,” as interpreted by the Department, would
result in a comparison of that producer’s net income from 2004 to
that from 2001. This comparison is not in keeping with the
language of the statute, which demands that a producer establish
that its net fishing income for the most recent year (in the
example 2004) is less than its net fishing income for the latest
year in which no adjustment assistance was received by the
producer (in the example 2003).15 See 19 U.S.C.
§ 2401e(a)(1)(C). Thus, at least with respect to individual
applications for benefits made pursuant to re-certifications, the
court finds that the regulations are not a permissible
interpretation of the statute, which clearly expresses Congress’s
intent that consecutive years be compared.
In addition, the court finds that the language of the
statute did not invite the Department to devise an alternative
definition for the phrase “most recent year.” For the court,
that phrase can only refer to the year preceding that of the
application. The statutory phrase “is less than” clearly
indicates that a comparison is to be made between two years.
Plaintiff was denied benefits based on a comparison between 2003
as the marketing year to 2001 as the pre-adjustment year. A
15
The record indicates that Dus & Derrick has never
applied for or received TAA benefits.
Court No. 05-00346 Page 22
plain reading of the statute, however, demands that, for an
application made in 2005, net income for 200416 (the “most recent
year”) must be compared to that earned in 2003 (“the latest year
in which no adjustment assistance was received by the producer”).
Therefore, the court concludes that because the intent of
Congress manifested in 19 U.S.C. § 2401e(a)(1)(C) is clear, the
Department’s regulations in the context of a re-certification are
an impermissible interpretation of the statute to the extent that
they: (1) provide for the comparison of non-consecutive years
when determining whether a producer has satisfied the statutory
net income requirement; and (2) provide for a year other than the
“most recent year” as the year selected for the comparison.
C. The Department’s Reliance Solely on Line 28 of
Plaintiff’s Tax Returns
The court next addresses the question of the steps the
Department must take in rendering a final determination with
respect to a producer’s net income. In plaintiff’s view, the
Department’s denial of its application for TAA benefits was not
supported by substantial evidence because the agency did nothing
more than look at one line in plaintiff’s tax returns when
determining whether plaintiff had satisfied the net income
16
The court recognizes that a tax return for the
preceding year may not be available when the application is made.
Tax returns, however, are not the only means of determining net
income. See 7 C.F.R. § 1580.301(e)(6).
Court No. 05-00346 Page 23
requirement for an award of TAA benefits. The Department
maintains that because “net income is reflected in line
28 . . . of Dus & Derrick’s Form 1120,” there was no need to look
further into how those figures were calculated, or to consider
any other evidence relating to net income. Def.’s Resp. at 14.
The Department does not dispute that it took no other action and,
in fact, argues that no other action is required by law. See id.
at 14–15 (“Contrary to Dus & Derrick’s suggestion, [the
Department]’s regulation does not require a consideration of
‘profit and loss information,’ ‘net income data,’ or every line
item that makes up Dus & Derrick’s tax return. The regulation
requires only a comparison of net income.”).
Plaintiff asserts that the statute requires the Department
is to “determine” an individual commodity producer’s net fishing
income prior to granting or denying an individual application for
a cash payment. See 19 U.S.C. § 2401e(a)(1)(C). According to
plaintiff, the statutory language does not permit the agency to
make a finding of net fishing income based on a review of a
single line in a producer’s tax return. In fact, it is
plaintiff’s position that the Department’s interpretation of 19
U.S.C. § 2401e(a)(1)(C) embodied in its definition of net fishing
income under 7 C.F.R. § 1580.102 likewise prohibits the
Department’s current one-line-comparison method for determining
net fishing income. Specifically, plaintiff maintains that the
Court No. 05-00346 Page 24
phrase “net profit or loss . . . reported to the Internal Revenue
Service” included in the definition of “net fishing income” means
that the Department must consider all of a producer’s submitted
tax information, including the various factors that went into
calculating the reported numbers. See Pl.’s Mem. at 13. In
plaintiff’s view, the Department’s failure to look beyond the one
line in plaintiff’s tax returns prevented it from considering
that the deductions in 2001 and 2002 resulted from boat repairs
that were financed from the company’s savings and a private loan
from one of the company’s shareholders. That is, plaintiff
argues that the figures contained in line 28 of its 2001 and 2003
Form 1120 tax returns do not tell the whole story.
Plaintiff’s position is best expressed in the Complaint
Letter.
1) in the year 2001, which sets up the
controls for future years, the business had
cash in the bank of $17,000 which was used to
pay outstanding expenses plus gross sales
which created the large net losses which in
turn created the false basis
2) in the year 2002, stockholder loaned to
the corporation approximately $16,000 working
capital to pay outstanding expenses, plus
gross sales which created another year of
losses, just not quite as much as 2001 (We
were also denied pmts for this same reason
for this year) (mechanical down/time reduced
sales)
3) in the year 2003, there was no longer any
money in the bank and there were no
stockholder contributions to be made.
The business had to be conducted entirely
Court No. 05-00346 Page 25
from gross sales and with no additional
capital sources. We could spend no more
than we made.
Complaint Letter at 2. Therefore, plaintiff claims that when
determining a producer’s net fishing income, the Department must
consider the “many accounting variables which affect the net
income/loss.” Id. These facts and this argument are echoed in
the brief filed on plaintiff’s behalf by counsel. See Pl.’s Mem.
at 13. Thus, according to plaintiff, the variance between the
net income reported in line 28 of its tax returns should have
triggered a more comprehensive review of the evidence by the
Department in order to determine whether plaintiff was in a worse
financial condition in 2003 than it was in 2001. See id. at
15–16.
The Department contends that its regulations require nothing
more than a comparison of the net income figures as reported to
the Internal Revenue Service on plaintiff’s tax returns. See
Def.’s Resp. at 14. As the Department argues:
The regulation requires only a comparison of
net income. Although there may be numerous
revenue and expense line items that are used
in calculating net income, net income is
ultimately a number based upon that
calculation. Furthermore, although there may
be a variety of ways of calculating net
income, depending upon the rules being
followed and accounting choices made by the
company, [the Department] determined that the
net income for purposes of TAA should be “net
profit or loss, excluding payments under this
part, reported to the Internal Revenue
Service . . . .” 7 C.F.R. § 1580.102.
Court No. 05-00346 Page 26
Therefore, it was appropriate for [the
Department] to compare Dus & Derrick’s net
income in 2003 with its net income in 2001
based upon the net income that Dus & Derrick
reported to the IRS in line 28 of its tax
returns.
Id. at 14–15 (emphasis in original) (footnote omitted).
Support for plaintiff’s position can be found in the
decisions of this Court and the Court of Appeals for the Federal
Circuit (“Federal Circuit”). Specifically, this Court has found
that: when examining the documents submitted to it, the
Department has a duty to make a “reasonable inquiry” into the
impact of those documents on a producer’s application for
benefits, see Van Trinh v. U.S. Sec’y of Agric., 29 CIT , ,
395 F. Supp. 2d 1259, 1268 (2005) (“While the Department has
considerable discretion in conducting its investigation of TAA
claims, there exists a threshold requirement of reasonable
inquiry.”) (alterations, citations, emphasis and internal
quotation marks omitted); see also Anderson v. U.S. Sec’y of
Argic., 30 CIT , , 429 F. Supp. 2d 1352, 1355 (2006) (“The
Department of Agriculture’s discretion in conducting its
investigations of TAA claims is prefaced by the existence of a
threshold requirement of reasonable inquiry.”) (internal
citations and quotation marks omitted); that it is appropriate to
disregard certain income when determining net income, see Than
Viet Do & Binh Thi Nguyen v. U.S. Sec’y of Agric., 30 CIT , ,
427 F. Supp. 2d 1224, 1231 (2006) (“Thus, it was reasonable for
Court No. 05-00346 Page 27
Agriculture to define net fishing income as net profit or loss
excluding the gain or loss from the sale of business assets.”);
that some kinds of expenses may also be disregarded, see
Selivanoff v. U.S. Sec’y of Agric., 30 CIT , , Slip Op. 06-55
at 8 (Apr. 18, 2006) (not published in the Federal Supplement)
(remanding the Department’s denial of plaintiff’s application to
determine whether “extraordinary” expenses had been reported as
net income); that the determination should take into account
different accounting methods, see Anderson v. U.S. Sec’y of
Agric., 30 CIT , , Slip Op. 06-161 at 21 (Nov. 1, 2006)
(remanding the Department’s denial of plaintiff’s application and
instructing the agency to consider “the reasonableness of its
regulation as applied to [the plaintiff], in view of the
differences in cash versus accrual accounting”); Anderson v. U.S.
Sec’y of Agric., 30 CIT , Slip Op. 06-186 (Dec. 20, 2006) (not
published in the Federal Supplement); and that the Department
cannot simply compare one line of a producer’s tax return when
determining net fishing income, see Lady Kim T. Inc. v. U.S.
Sec’y of Agric., 30 CIT , , Slip Op. 06-183 at 14–15 (Dec. 15,
2006) (not published in the Federal Supplement) (remanding the
Department’s denial of a producer’s application for benefits with
instructions for the agency to explain the reasons behind its
negative determination).
In addition, the Federal Circuit has indicated that the
Court No. 05-00346 Page 28
Department’s determination should include an examination of
documents other than a producer’s tax returns. See Steen v.
United States, 468 F.3d 1357, 1360–61, 1363 (Fed. Cir. 2006)
(holding that “net farm income,” when applied to a producer in
the fishing industry, means net income from all fishing activity,
not just that income from a particular commodity; and further
providing that “the regulations make it reasonably clear that the
determination of . . . net fishing income is not to be made
solely on the basis of tax return information if other
information is relevant to determining the producer’s net income
from all . . . fishing sources.”).
Further support for this view is found in the Department’s
own regulations. Under 7 C.F.R. § 1580.301(e)(6), a producer is
allowed to support its claim that its net income has diminished
by providing the Department with other documents besides its tax
returns. Specifically, a producer may submit balance sheets,
financial statements or “documentation from a certified public
accountant or attorney.” 7 C.F.R. § 1580.301(e)(6). Thus, the
agency may not rely solely on the information contained in
plaintiff’s tax return when other information is available.
It is not clear what effect, if any, a more complete
analysis of plaintiff’s submitted net income data will have on
the ultimate determination; however on remand, plaintiff shall be
given an opportunity to submit information as provided in 7
Court No. 05-00346 Page 29
C.F.R. § 1580.301(e)(6). The Department is instructed to take
that information into account when making its final determination
and explain how, if at all, it affects that determination.
CONCLUSION
Because the regulations at issue here govern situations
other than those presented by the facts of this case, the court
will not order their vacatur. See Allied-Signal, Inc. v. U.S.
Nuclear Regulatory Comm’n, 988 F.2d 146, 150–51 (D.C. Cir. 1993).
Rather, on remand, the Department shall: (1) construct a
methodology for considering a producer’s application pursuant to
a re-certification that comports with this opinion; (2) inform
plaintiff of the methodology and give it an opportunity to place
on the record any further documentation in accordance with 7
C.F.R. § 1580.301(e)(6); and (3) fully explain its methodology
and reasons for reaching its final determination with respect to
plaintiff’s application. Remand results are due May 8, 2007.
Comments to the remand results are due June 7, 2007. Replies to
such comments are due June 19, 2007.
/s/Richard K. Eaton
Richard K. Eaton
Dated: January 8, 2007
New York, New York