T.W.R., Inc. v. United States Secretary of Agriculture

Slip Op. 08-59
UNITED STATES COURT OF INTERNATIONAL TRADE
______________________________
:
T.W.R., Inc., :
:
Plaintiff, :
:
v. : Before: Richard K. Eaton, Judge
:
UNITED STATES : Court No. 05-00356
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: May 28, 2008
Steven D. Schwinn and Clayton P. Solomon,1 for plaintiff.
Gregory G. Katsas, Acting Assistant Attorney General; Jeanne
E. Davidson, Director, Patricia M. McCarthy, Assistant 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 the motion
of plaintiff T.W.R., Inc. for judgment upon the agency record
pursuant to USCIT Rule 56.1. By its motion, plaintiff challenges
the final determination of the United States Department of
Agriculture (the “Department”) denying its application, pursuant
to 19 U.S.C. § 2401e (2002), for cash benefits under the Trade
Adjustment Assistance for Farmers (“TAA”) program. See Mem.
1
Appearing pursuant to a Law Student Appearance Form,
authorized by USCIT Admin. Order No. 06-01, and consented to by
the court on April 20, 2007.
Court No. 05-00356 Page 2
Supp. Pl.’s Mot. J. Agency R. (“Pl.’s Br.”); Reconsideration Upon
Remand of the Application of T.W.R., Inc. (Dep’t of Agric. Dec.
14, 2006) (the “Negative Determination”). Jurisdiction lies
under 19 U.S.C. § 2395(c).
For the reasons set forth herein, the Department’s Negative
Determination is remanded.
BACKGROUND
Plaintiff is a family-owned shrimping company that has
operated its business off the Texas Gulf Coast since the early
1970s. Pl.’s Br. 2. According to plaintiff, from as early as
1984, its business has suffered because of declining shrimp
prices attributable to increased competition from imports. Pl.’s
Br. 3.
In October 2003, the Texas Shrimp Association (“TSA”) filed
a petition with the Department on behalf of Texas shrimp
producers for TAA certification pursuant to 19 U.S.C. § 2401a and
7 C.F.R. § 1580.201 (2003). See TAA for Farmers, 68 Fed. Reg.
60,078 (Dep’t of Agric. Oct. 21, 2003) (notice).2 On November
2
Obtaining TAA for Farmers cash benefits is a two-step
process. Under the first step, a group of agricultural commodity
producers or their authorized representative files a petition
seeking a certification making them eligible to apply for TAA
benefits. The Department, in turn, will grant the certification
if the petitioning group establishes that certain criteria have
been met. See 19 U.S.C. § 2401a(c). Under the second step,
individual commodity producers can apply for cash benefits if
(continued...)
Court No. 05-00356 Page 3
19, 2003, the Department certified Texas shrimp producers as
eligible to apply for TAA cash benefits. See TAA for Farmers, 68
Fed. Reg. 65,239 (Dep’t of Agric. Nov. 19, 2003) (notice). The
certification was for a period of one year, with the possibility
of additional time upon qualifying in subsequent years. See 19
U.S.C. § 2401a(d).
On November 30, 2004, the Department re-certified the TAA
petition for Texas shrimp producers, finding that average prices
during the “2003 marketing period (January-December 2003)” were
33.7 percent less than the average for the five-year base period
preceding the 2002 marketing year, i.e., 1997 through 2001. See
TAA 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, as a certified Texas
shrimp producer, became eligible to apply for TAA cash benefits.
See Pl.’s Br. 4; 19 U.S.C. § 2401e(a)(1). Plaintiff did not
apply for benefits under the original certification. It did,
however, apply on January 19, 2005 under the re-certification.
See Application Dated Jan. 19, 2005 for TAA for Individual
Producers, of T.W.R., Inc., Admin. R. (“AR”) at 1; see also 7
C.F.R. § 1580.401(f) (stating that “[a]n eligible producer who
(...continued)
they meet the requirements set forth in 19 U.S.C. § 2401e(a)(1).
Court No. 05-00356 Page 4
did not apply for adjustment assistance in the initial year may
apply [upon a re-certification]”).
In support of its application, plaintiff submitted financial
information to the Department, including its Form 1120 corporate
tax returns for 2002 and 2001, along with their attached
schedules and associated documents. See Def.’s Resp. Pl.’s Mot.
J. Agency R. (“Def.’s Resp.”) 4-5. Plaintiff filed its tax
returns on a fiscal year,3 rather than a calendar year basis.
Consequently, plaintiff’s 2001 tax return4 was based upon a
taxable year beginning October 1, 2001, and ending September 30,
2002, while plaintiff’s 2002 tax return was based upon a taxable
3
A “fiscal year” is defined as “[a]n accounting period of
12 consecutive months . . . [and] is often different from the
calendar year, [especially] for tax purposes.” Black’s Law
Dictionary 1646 (8th ed. 1990).
4
Consistent with the Department’s usage:
(1) plaintiff’s year “2000 tax return” corresponds
with its fiscal year 2001, and covers the time
period October 1, 2000 through September 30, 2001;
(2) plaintiff’s year “2001 tax return” corresponds
with its fiscal year 2002, and covers the time
period October 1, 2001 through September 30, 2002;
and,
(3) plaintiff’s year “2002 tax return” corresponds
with its fiscal year 2003, and covers the time
period October 1, 2002 through September 30, 2003.
Plaintiff’s year “2003 tax return” is not in the record, but the
court presumes, given plaintiff’s consistency through the years,
that this return would cover the time period October 1, 2003
through September 30, 2004, i.e., plaintiff’s fiscal year 2004.
Court No. 05-00356 Page 5
year beginning October 1, 2002, and ending September 30, 2003.
Def.’s Resp. 4-5.
The Department denied plaintiff’s application in a letter
dated March 7, 2005, stating in pertinent part:
You have been denied a TAA cash benefit
because you failed to meet the net income
requirement, in accordance with 7 CFR Part
1580.401(e). An applicant’s net income
for 2003 must be less than their net income
for 2001.
Letter Dated Mar. 7, 2005 from Department to T.W.R., Inc., AR at
46. Thus, the Department based its determination on a comparison
of plaintiff’s net income in fiscal year 2003 and fiscal year
2001, and concluded that plaintiff’s net income did not decline
between those periods. See Pl.’s Br. 4-5.
Plaintiff sought judicial review of this determination by
filing a letter with the Court on May 6, 2005. Letter Dated May
6, 2005 from T.W.R., Inc. to Clerk of the Court, USCIT
(“Compl.”). The Clerk of the Court accepted plaintiff’s letter,
pursuant to USCIT Rule 5(e), “as fulfilling in principle the
requirements of the summons and complaint . . . .” Letter Dated
May 18, 2005 from Office of the Clerk, Donald C. Kaliebe, Case
Management Supervisor, to Ms. Pearlene Walls, at 1. In the
letter, plaintiff’s primary allegation was that the Department
improperly relied solely upon net income reported in its tax
returns to assess its net income. Thus, in plaintiff’s view, the
Court No. 05-00356 Page 6
Department should have looked beyond its tax returns, and
assessed all “accounting variables,” which, if considered, would
provide a more accurate representation of plaintiff’s net income.
See Compl. 2-3.
On May 10, 2006, the Department filed a motion for voluntary
remand because plaintiff’s “2000 tax return [covering the period
October 1, 2000 through September 30, 2001], rather than its 2001
tax return [covering the period October 1, 2001 through September
30, 2002], represented the tax year previous to that associated
with the most recent marketing year5 in the initial producer
petition.” Def.’s Resp. 6. Thus, the Department stated that it
had made its initial determination using incorrect tax periods.
On June 2, 2006, the court granted the Department’s motion. See
T.W.R., Inc. v. United States Sec’y of Agric., Court No. 05-00356
(June 2, 2006) (order).
On October 31, 2006, plaintiff provided the Department with
its year 2000 tax return, along with “additional competent
evidence” of its net income during the period covered by its 2000
return and thus its 2001 fiscal year, i.e., October 1, 2000
through September 30, 2001. See Letter Dated Oct. 31, 2006 from
5
“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, in this case January
2003 through December 2003. TAA for Farmers, 69 Fed. Reg. at
69,582.
Court No. 05-00356 Page 7
T.W.R., Inc. to the Department (“Suppl. Letter”), Suppl. Admin.
R. (“SR”) at 2. The “additional competent evidence” consisted
of, among other things, balance sheets reflecting loans from
stockholders, invoices, and purchase orders. In its
correspondence, plaintiff reiterated its position, asking the
Department to consider the “many factors” that affect its net
income in making its determination. See Suppl. Letter, SR at 2.
On December 14, 2006, the Department denied plaintiff’s
application, again reasoning that plaintiff was unable to
demonstrate the requisite decline in net fishing income. See
Negative Determination at 1. The Department stated:
[T]he 2000 U.S. Corporation Income Tax Return
corresponding to marketing year 2001, and the
2002 U.S. Corporation Income Tax Return
corresponding to marketing year 2003, and
other supporting documents provided by
T.W.R., Inc., [demonstrate] that there was no
decline in the net fishing income from the
pre-adjustment year, 2001, to the most recent
year for which marketing data was available,
2003. The 2000 U.S. Corporation Income Tax
Return for the period October 1, 2000, ending
September 30, 2001, on line 30 shows taxable
income (income less deductions) as a loss of
. . . . The 2002 U.S. Corporation Income Tax
Return for the period October 1, 2002, ending
September 30, 2003, on line 30 shows taxable
income of . . . . Based on these returns,
the plaintiff was unable to demonstrate the
required decline in its net fishing income.
Even if the agency were to consider the other
supplemental documentation submitted by
T.W.R., Inc., it also does not support a
decline in T.W.R., Inc.’s net fishing income.
Court No. 05-00356 Page 8
Negative Determination at 1-2 (citations omitted).
Plaintiff then moved to remand this matter to the Department
for further consideration. See Pl.’s Br. 21. Plaintiff argues
that the Department’s denial of cash benefits was flawed because
the Department: (1) failed to review tax returns from consecutive
years and (2) failed to look beyond net income as reported in
plaintiff’s tax returns.
STANDARD OF REVIEW
The Department’s TAA eligibility determination should be
upheld if its factual findings are supported by substantial
evidence in the record and its legal determinations are in
accordance with law. See 19 U.S.C. § 2395(b); Truong v. United
States Sec’y of Agric., 31 CIT __, __, 484 F. Supp. 2d 1324, 1326
(2007)(citations omitted); Van Trinh v. United States Sec’y of
Agric., 29 CIT 1058, 1063, 395 F. Supp. 2d 1259, 1265 (2005).
Substantial evidence is “more than a ‘mere scintilla,’ but
sufficient evidence to reasonably support a conclusion.” Viet Do
v. United States Sec’y of Agric., 30 CIT __, __, 427 F. Supp. 2d
1224, 1227 (2006) (citations omitted). The scope of review of
the Department’s actions is limited to the administrative record.
Defenders of Wildlife v. Hogarth, 25 CIT 1309, 1315, 177 F. Supp.
2d 1336, 1342-43 (2001). For “good cause shown,” the court may
remand a case to the Department to take further evidence and make
Court No. 05-00356 Page 9
new and modified findings. See 19 U.S.C. § 2395(b).
DISCUSSION
I. Plaintiff’s Application for TAA Cash Benefits
A. Relevant Law
As noted, an individual agricultural commodity producer’s
receipt of TAA benefits is the result of a two-step process, only
the second of which is at issue here. Under the second step,
following group certification under 19 U.S.C. § 2401b, an
individual producer can apply for cash benefits6 “within 90 days
after the date on which the [Department] makes a determination
6
Under 19 U.S.C. § 2401e(a)(1), the statutory requirements
for an individual producer to receive benefits are as follows:
(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 for the latest year in which no
adjustment assistance was received by the
producer under this part. . . .
[and the producer has met certain other
requirements with respect to seeking
information and technical assistance.]
Court No. 05-00356 Page 10
and issues a [group ]certification of eligibility.” See 19
U.S.C. § 2401e(a)(1).
In order to qualify for cash benefits, an individual
producer must establish, among others things, that its net income
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 part.”7 19 U.S.C.
§ 2401e(a)(1)(C). With respect to establishing net income,
“because of the ex parte nature of the [TAA] certification
process, and the remedial purpose of the [TAA] program, [the
Department] is obligated to conduct [its] investigation with the
utmost regard for the interests of the petitioning workers.”8
7
The Department’s regulations require that an individual
producer demonstrate that its “net . . . fishing income was less
than during the producer’s pre-adjustment year.” 7 C.F.R.
§ 1580.301(e)(4). Defendant’s regulations define “net fishing
income” as “net profit or loss, excluding payments under [19
U.S.C. §§ 2401- 2401g], 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. Defendant’s
regulations define “pre-adjustment year” as “the tax year
previous to that associated with the most recent marketing year
in the initial producer petition.” 7 C.F.R. § 1580.102.
8
Under 7 C.F.R. § 1580.301(e)(4), individual producers
must “certif[y] that net . . . fishing income was less than that
during the producer’s pre-adjustment year,” but the regulation
does not itself state which year’s income must be less than that
of the “pre-adjustment year.” The definition of “net fishing
income,” however, provides guidance. As noted, the Department
defines “net fishing income” as “net profit or loss, excluding
payments under [C.F.R. Part 1580], reported to the Internal
Revenue Service for the tax year that most closely corresponds
with the marketing year under consideration.” 7 C.F.R.
(continued...)
Court No. 05-00356 Page 11
See Van Trinh, 29 CIT at 1066, 395 F. Supp. 2d at 1267 (citations
omitted; second alteration added; emphasis in original).
B. The Department’s Use of Non-Consecutive Years
During the pendency of this action, this Court decided Dus &
Derrick, Inc. v. United States Secretary of Agriculture, 31 CIT
__, 469 F. Supp. 2d 1326 (2007) (“Dus & Derrick I”), and Dus &
Derrick, Inc. v. United States Secretary of Agriculture, 32 CIT
__, Slip Op. 08-19 (Feb. 6, 2008) (not reported in the Federal
Supplement) (“Dus & Derrick II”). Dus & Derrick I held:
[T]he 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 plain
reading of the statute, however,
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
(...continued)
§ 1580.102. “Marketing year” is defined as “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 [Department].” Id.
Court No. 05-00356 Page 12
adjustment assistance was received
by the producer”).
31 CIT at __, 469 F. Supp. 2d at 1335 (footnote omitted). The
court will follow Dus & Derrick I and II when making its findings
in this case.
Thus, as an initial matter, the court will not accord
Chevron deference to the Department’s interpretation of 19 U.S.C.
§ 2401e as applied to the facts presented here. For the court,
19 U.S.C. § 2401e(a)(1)(C) clearly directs that two consecutive
years should be compared when the producer has not previously
received TAA benefits.9 That is, the statute calls for a
comparison of “the most recent year” to plaintiff’s January 19,
2005 application, i.e., plaintiff’s fiscal year 2004, to “the
latest year in which no adjustment assistance was received” by
plaintiff, i.e., plaintiff’s fiscal year 2003. See 19 U.S.C.
§ 2401e(a)(1)(C). Under its regulations, the Department compared
plaintiff’s net income from fiscal year 2003, as “the tax year
that most closely corresponds with the marketing year under
consideration,” with its income from fiscal year 2001, as “the
tax year previous to that associated with the most recent year in
9
In Dus & Derrick II, the Court found that 19 U.S.C.
§ 2401e(a)(1)(C) does not always require that consecutive years
be compared. When a producer has received benefits “in the year
. . . preceding the ‘most recent year,’ the statute directs the
comparison of non-consecutive years.” See Dus & Derrick II, 32
CIT at __, Slip Op. 08-19 at 3 n. 2. Here, plaintiff has at no
time received benefits.
Court No. 05-00356 Page 13
the initial [group] producer petition.” See Def.’s Resp. 20-21.
When a plain reading of the statute evinces Congress’s clear
intent, as it does here, then “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.” Chevron U.S.A.,
Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842–43
(1984).
It thus follows that the Department’s regulations, which do
not provide for a comparison of consecutive years here, cannot
apply to applicants in plaintiff’s circumstances, i.e., those
producers applying under re-certification, having not received
benefits under the original certification. Accordingly, the
court again finds that, under the facts presented here, the
Department’s regulations are an impermissible interpretation of
19 U.S.C. § 2401e(a)(1)(C) to the extent they require a
comparison of non-consecutive years. Because the court finds
that Congress’s intent manifested in 19 U.S.C. § 2401e(a)(1)(C)
is clear, this matter must be remanded for further
consideration.10
On remand, the Department is instructed to compare
plaintiff’s net income from “the most recent year” to plaintiff’s
10
It is worth noting that, as in the Dus & Derrick cases,
the Department does not argue for the reasonableness of its
regulation based on the availability of information or efficiency
of administration. See Dus & Derrick II, 32 CIT at __, Slip Op.
08-19 at 16.
Court No. 05-00356 Page 14
application to “the latest year in which no adjustment assistance
was received” by plaintiff.11 19 U.S.C. § 2401e(a)(1)(C).
Because the Department has not yet compared plaintiff’s net
fishing income for the appropriate years, the court will not
address the adequacy of the Department’s inquiry into plaintiff’s
net income as reflected in documents other than plaintiff’s tax
returns.12 The Department is reminded, however, that the United
States Court of Appeals for the Federal Circuit has stated that
11
Based upon plaintiff’s filing its tax returns on a
fiscal year basis and the Department, in turn, performing its net
income analysis using plaintiff’s fiscal years, this instruction
calls for the Department to compare plaintiff’s net income from
its 2002 tax return (covering October 2002 through September
2003) and 2003 tax return (covering October 2003 through
September 2004), along with other appropriate documentation
submitted by plaintiff.
12
In 2001 and 2002, plaintiff took on loans from
shareholders to pay outstanding expenses and “keep its boat on
the water.” Pl.’s Br. 3. It alleges:
[T]hese loans had a perverse effect on the
Plaintiff’s net income as reported on its
corporate tax returns over time: the loans
did not appear as “income” on the Plaintiff’s
corporate tax return[s], but the Plaintiff’s
expenses——which were financed by the
loans——appeared as losses. In short, the
loans were not credited toward income, but
they appeared as deductions.
Pl.’s Br. 3. Plaintiff’s business also faced other “losses,”
including officer and employee compensation, repairs, and
depreciation, which plaintiff claims varied significantly each
year as plaintiff’s business adjusted to declining shrimp prices.
See Pl.’s Br. 3-4. Thus, plaintiff maintains that its net income
was “palpably declining,” but that this decline was not reflected
in its corporate tax returns. Pl.’s Br. 4.
Court No. 05-00356 Page 15
“the [Department’s] 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.” Steen v. United States, 468
F.3d 1357, 1363 (2006); see also Durfey v. United States Sec’y of
Agric., 32 CIT __, Slip Op. 08-55 (May 22, 2008).
CONCLUSION
Consistent with this Court’s Dus & Derrick decisions,
“[b]ecause the regulations at issue here govern situations other
than those presented by the facts of this case, the court will
not order their vacatur.” Dus & Derrick I, 31 CIT at __, 469 F.
Supp. 2d at 1338 (citing Allied-Signal, Inc. v. U.S. Nuclear
Regulatory Comm’n, 988 F.2d 146, 150-51 (D.C. Cir. 1993)). On
remand, the Department shall: (1) reconsider plaintiff’s
application in a manner consistent with this opinion, by
comparing plaintiff’s net fishing income from its 2003 fiscal
year (October 2002 through September 2003) to its net fishing
income from its 2004 fiscal year (October 2003 through September
2004); (2) inform plaintiff of the methodology by which it will
reconsider its application; (3) afford plaintiff the opportunity
to place on the record additional proof of its net income in
Court No. 05-00356 Page 16
accordance with 7 C.F.R. § 1580.301(e)(6);13 (4) fully examine
all information submitted by plaintiff in accordance with the
remedial nature of the TAA statute; and, (5) fully explain its
methodology and reasons for reaching its final determination with
respect to plaintiff’s application.
Remand results are due on or before August 26, 2008.
Comments to the remand results are due on or before September 25,
2008. Replies to such comments are due October 9, 2008.
/s/Richard K. Eaton
Richard K. Eaton
Dated: May 28, 2008
New York, New York
13
This provision provides:
(6) To comply with certifications in paragraph
(e)(4) of this section [regarding net
income], an applicant shall provide either--
(i) Supporting documentation from a
certified public accountant or
attorney, or
(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).