Hacker v. United States Secretary of Agriculture

Slip Op. 09 - 62
UNITED STATES COURT OF INTERNATIONAL TRADE
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LARRY J. HACKER and NANCY A. HACKER, :
Plaintiffs, :
v. : Court No. 07-00008
UNITED STATES SECRETARY OF AGRICULTURE, :
Defendant. :
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Memorandum
[Plaintiffs’ motion for judgment on the
agency record denied; action dismissed.]
Decided: June 19, 2009
Miller & Chevalier Chartered (Daniel P. Wendt) for the
plaintiffs.
Tony West, Assistant Attorney General; Jeanne E. Davidson,
Director, Franklin F. White, Jr., Assistant Director, Commercial
Litigation Branch, Civil Division, U.S. Department of Justice
(Brian T. Edmunds); and Office of General Counsel, U.S.
Department of Agriculture (Jeffrey Kahn), of counsel, for the
defendant.
AQUILINO, Senior Judge: Upon commencement of this
action pursuant to 19 U.S.C. §2395 and 28 U.S.C. §1581(d) to
contest the denial of a cash benefit under the Trade Adjustment
Assistance for Farmers program by the Foreign Agricultural
Court No. 07-00008 Page 2
Service (“FAS”), U.S. Department of Agriculture, the defendant
interposed a motion to remand to FAS so that
it may issue a new and more detailed decision
explaining the reasons for its denial of plaintiffs’
request for certification for trade adjustment
assistance (“TAA”).
I
That motion was granted, and the order of remand has
brought forth a reconsidered decision by FAS that, nevertheless,
on
the basis of the net farm income reported on the 2003
and 2004 Schedule F’s that Mr. Hacker submitted, there
was not a decline in his net farm income from 2003 to
2004, and therefore Mr. Hacker does not meet the
requirements of 19 U.S.C. § 2401e(a)(1)(C) and 7
C.F.R. § 1580.301(e)(4) and is not eligible for a cash
payment under TAA.1
1
The “Schedule F’s” referred to were part of plaintiffs’
submissions to the Internal Revenue Service on Forms 1040 for
those calendar years. See Administrative Record (“AR”), pp. 5,
6.
Footnote 1 to this decision states that, according to the
agency record,
Larry J. Hacker was the sole applicant for TAA
benefits. Although Nancy A. Hacker also signed the
application, her name is not listed as an applicant,
and all determinations were made solely with respect
to Larry J. Hacker. . . . However, this does not
affect the determination in this case.
AR citations omitted. Plaintiffs’ counsel concur. See Hackers’
Rule 56.1 Brief, p. 1 n. 1.
Court No. 07-00008 Page 3
Whereupon, with the able assistance of counsel pro bono publico,
the plaintiffs filed an amended complaint, which has been duly
answered by the defendant, and then a motion for judgment on the
agency record pursuant to USCIT Rule 56.1.
That motion indicates that plaintiffs are American
farmers who have grown and harvested Concord and Niagara grapes
in the state of Michigan. It proceeds to describe in haec verba
their circumstances in this matter as follows:
A drought in 2001 ruined much of the Hackers’
grape crop, but the Secretary was there to help,
providing a disaster relief payment of $80,000. The
Hackers received the payment in early 2004. By that
time, however, the Hackers were struggling to cope
with an influx of low-priced imports from Argentina.
Soon, the Secretary recognized that grape prices had
significantly fallen due to the low-priced imports and
made TAA payments available to eligible farmers. To
be eligible, a farmer must show that his or her net
farm income has decreased at the same time as low-
priced imports penetrated the market. For the
Hackers, this meant that they were required to show
that their 2004 net farm income was lower than their
2003 net farm income.
But the Hackers’ net farm income - as reported in
their tax filings - did not decline from 2003 to 2004
because the Hackers’ 2004 net farm income included the
$80,000 disaster relief payment. However, the
Hackers’ true net farm income - i.e., the net farm
income excluding the disaster relief payment - did
decline from 2003 [to] 2004. Indeed, although they
farmed approximately the same acreage in 2003 and
Court No. 07-00008 Page 4
2004, the Hackers produced fewer grapes in 2004 in a
market with declining prices.
The Secretary relied solely on the Hackers’ net
farm income as reported in their tax returns and
denied the Hackers’ request for TAA payments. . . .
Hackers’ Rule 56.1 Brief, pp. 1-2 (emphasis in original).
The motion takes the position that defendant’s denial
of assistance was not based on substantial evidence because the
Secretary relied solely on the Hackers’ net farm income as
reported in their tax returns.
Also, the Secretary’s determination was not
otherwise in accordance with law because the . . .
regulation defining net farm income, as applied to Mr.
Hacker’s application, unjustifiably and arbitrarily
distinguishes between farmers based on the irrelevant
facts of (1) if and when a farmer receives a disaster
relief payment unrelated to the relevant period; and
(2) whether the farmer reports net farm income for tax
purposes on an accrual or cash basis.
Id. at 2. It argues that the defendant could have and should
have provided the plaintiffs with relief, first by excluding the
disaster payment “per se” from its determination of their net
farm income or, second, by accepting plaintiffs’ “invitation” to
calculate that income on an accrual, rather than a cash, basis.
See id. at 2-3.
Court No. 07-00008 Page 5
A
Congress has enacted qualifying requirements for
relief of the kind prayed for herein, including that a
producer’s net farm income (as determined by the
Secretary) for the most recent year [be] 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.
19 U.S.C. §2401e(a)(1)(C). In furtherance of this statutory
condition, the Secretary of Agriculture has determined to define
“net farm income” to mean
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.2
And the courts have determined that this is a “reasonable
definition of the statutory term, to which [they] are obligated
to defer.” Steen v. United States, 468 F.3d 1357, 1360
(Fed.Cir. 2006), aff’g, 29 CIT 1241, 395 F.Supp.2d 1345 (2005).
In this matter, the defendant has proceeded in
accordance with this law, thereby leaving the plaintiffs to
2
7 C.F.R. §1580.102. The court notes that plaintiffs’
$80,000 disaster relief payment was not the kind of “payment[]
under this part” contemplated by this regulation.
Court No. 07-00008 Page 6
attempt to find relief in certain cases decided subsequent to
Steen, including Robert L. Anderson v. U.S. Sec’y of
Agriculture, 30 CIT 1993, 469 F.Supp.2d 1300 (2006); Dus &
Derrick, Inc. v. U.S. Sec’y of Agriculture, 31 CIT ___, 469
F.Supp.2d 1326 (2007); Mark T. Anderson v. U.S. Sec’y of
Agriculture, 31 CIT , Slip Op. 07-77 (May 16, 2007).
In the case of Robert L. Anderson, the court remanded
his claim because it found the agency failed to consider the
reasonableness of its regulation as applied to Mr. Anderson in
its determination. See 30 CIT 1742, 1753, 462 F.Supp.2d 1333,
1342 (2006). Citing Steen, which was decided by the court of
appeals one month after that order, the agency declined to carry
out its mandate. Whereupon the CIT ordered the Secretary, yet
again, to comply on the grounds of improper procedure and that
“a plain reading of Steen would have demonstrated its
inapplicability”3 because that matter lacked any contention that
the tax returns distorted the net amount of income derived from
all fishing sources in the two relevant years. There was such
an assertion in Robert L. Anderson. See 31 CIT ___, ___, 493
F.Supp.2d 1288, 1291 (2007).
3
30 CIT at 1994, 469 F.Supp.2d at 1301.
Court No. 07-00008 Page 7
Such a reading does not lead to the same conclusion in
this action. Indeed, what seemingly has come to discomfort the
plaintiffs is the timing of their application at the end of one
tax year for the disaster relief payment, which was then
received soon after the start of the ensuing such year.
It is well-established that the cash method
usually leads to distorted income statements for any
one taxable year. See, e.g., Frysinger v. Comm’r, 645
F.2d 523, 527 (5th Cir. 1981). However, the
“sacrifice in accounting accuracy under the cash
method represents an historical concession by the
Secretary and the Commissioner to provide a unitary
and expedient bookkeeping system for farmers and
ranchers in need of a simplified accounting
procedure.” United States v. Catto, 384 U.S. 102, 116
(1966); see also Frysinger, 645 F.2d at 527 (finding
the Commissioner has specifically granted farmers the
special privilege of using the cash method despite the
high probability for substantial distortions of income
in any one taxable year). For income reporting
purposes, the distortions are not considered material
because “over a period of years the distortions will
tend to cancel out each other.” Van Raden v. Comm’r,
71 T.C. 1083, 1104 (1979); see also Spitalny v. United
States, 430 F.2d 195, 197 (9th Cir. 1970).
Robert L. Anderson v. U.S. Sec’y of Agriculture, 30 CIT at 1750,
462 F.Supp.2d at 1340. Presumably the delayed receipt of the
disaster relief payment was the result of appropriate business
planning, yet having the effect countenanced by the foregoing
cited cases.
Court No. 07-00008 Page 8
Moreover, the evidence of those farm-relief funds on
the agency record differentiates this action from all the others
cited by the plaintiffs herein. Compare, e.g., Dus & Derrick,
Inc. v. U.S. Sec’y of Agriculture, supra, with id., 32 CIT ,
Slip Op. 08-19 (Feb. 6, 2008), and Mark T. Anderson v. U.S.
Sec’y of Agriculture, 30 CIT 1104, 441 F.Supp.2d 1379 (2006),
with id., supra. In sum, this court is unable to conclude that
defendant’s determination after remand is not in accordance with
law and not supported by substantial evidence on the record.
B
With regard to appropriate relief, the plaintiffs take
the position that the Secretary of Agriculture’s definition of
“net farm income”, supra, is not in accordance with law. To
contend that the disaster relief payment received be excluded
from farm income for TAA-calculation purposes does not coincide
with plaintiffs’ own understanding of the payment, which they
included as net farm income on that line of their Schedule F
income-tax filing. Nor does it concur with the Secretary’s
recognized use under its Generally Accepted Accounting
Principles all-inclusive concept of net income that includes
even extraordinary items. See, e.g., Selivanoff v. U.S. Sec’y
Court No. 07-00008 Page 9
of Agriculture, 30 CIT 1051 (2006); Dorsey v. U.S. Sec’y of
Agriculture, 32 CIT ___, Slip Op. 08-76 (July 11, 2008).
II
In view of the foregoing, plaintiffs’ Rule 56.1 motion
for judgment on the agency record must be denied. Judgment
dismissing this action will enter accordingly.
Decided: New York, New York
June 19, 2009
/s/ Thomas J. Aquilino, Jr.
Senior Judge