The opinion of the court was delivered by: Emmet G. Sullivan United States District Judge
Plaintiffs bring this action to challenge the interim rule issued by defendant Food and Nutrition Service ("FNS"), an agency of the U.S. Department of Agriculture ("USDA"). The interim rule implements provisions of the Special Supplemental Nutrition Program for Women, Infants, and Children ("WIC"). 42 U.S.C. § 1786. Plaintiffs argue that in promulgating the interim rule, the FNS failed to abide by the notice and comment rulemaking requirements of the Administrative Procedure Act ("APA"), 5 U.S.C. § 553(b), and failed to conduct an analysis consistent with the requirements of the Regulatory Flexibility Act ("RFA"), 5 U.S.C. § 601 et seq. Plaintiffs also argue that the interim rule is contrary to the underlying statute and to Congressional intent. See Pls.' Mot. for Summ. J. at 1-2. Pending before the Court are the parties' cross motions for summary judgment. A hearing on the motions was held on January 26, 2006. Upon careful consideration of the parties' cross motions, the responses, replies and supplemental motions thereto, oral arguments, and the entire record, the Court DENIES plaintiffs' Motion for Summary Judgment and GRANTS defendant's Motion for Summary Judgment. Accordingly, plaintiffs' claims are DISMISSED WITH PREJUDICE.
A. The Special Supplemental Nutrition Program for Women, Infants, and Children ("WIC")
Plaintiffs are National Women, Infants, and Children Grocers Association ("NWGA"), Nutritional Food Distributors, Inc., County Food Services, Inc., and Dillard Foods, Inc. NWGA is a small, voluntary, not-for-profit trade organization. Complaint ¶ 4. The other named plaintiffs are small businesses operating in Arkansas and Oklahoma. Complaint ¶¶ 5-7.
The Special Supplemental Nutrition Program for Women, Infants, and Children ("WIC") is a nation-wide federal program that provides supplemental foods and nutrition education to lower-income pregnant, breast-feeding, and postpartum women, and infants and children who are at nutritional risk. See 42 U.S.C. § 1786(a). The Secretary of Agriculture ("Secretary") is authorized to carry out WIC, 42 U.S.C. § 1786(c)(1), and the Secretary has delegated the administration of WIC to the Food and Nutrition Service ("FNS"). 7 C.F.R § 246.3(a). In 2005, WIC served approximately 8 million participants, including approximately 1.9 million women, 2.1 million infants, and 4 million children ages five and under. See Complaint ¶ 11. WIC is expected to serve roughly 8.5 million participants in 2006. Id.
WIC is a federal grant-in-aid program. 42 U.S.C. § 1786(c)(1). Through WIC, states receive grants to provide supplemental foods and nutrition education to lower-income women, infants and children who are determined by a competent professional authority to be at nutritional risk. Id. Individual state agencies are responsible for implementing WIC within their states. State agencies are required to authorize the participation of retail food stores ("authorized vendors"), create vendor agreements that govern the contractual relationship between the state and authorized vendors, establish price limitations for paying authorized vendors, train authorized vendors, and monitor compliance. See Complaint ¶ 28; 7 C.F.R. §§ 246.3(b) and 246.12.
The women and children eligible to participate in the program receive "food instruments" or vouchers from state and local agencies which they can exchange for supplemental food packages that are tailored to meet their needs. 42 U.S.C. § 1786(d); Complaint ¶ 29. For example, in exchange for her voucher, a pregnant woman may receive a food package that includes fluid milk, eggs, cereal, juice, and dry beans. 7 C.F.R. § 246.10(c)(5). WIC participants must redeem their vouchers at retail food vendors who have received prior authorization from respective state agencies to carry pre-approved supplemental foods. Complaint ¶ 15, 28. These preauthorized vendors then submit the vouchers for reimbursement from the states. Id.
There are approximately 45,000 retail vendors authorized to redeem WIC vouchers. Complaint ¶ 15. Generally, authorized vendors are corner grocery stores, neighborhood supermarkets, and big box stores such as Target and Walmart. See Transcript of Hearing on Motion for Summary Judgment (Jan. 26, 2006) ("01/26/06 Tr.") at 4. Of the 45,000 authorized vendors, there are approximately 1,200 vendors who specialize in redeeming WIC vouchers.*fn1 Complaint ¶ 15. These vendors are known in the industry as "WIC-only" vendors. See 01/26/06 Tr. at 4. Only 20 states have WIC-only vendors. Complaint ¶ 15. WIC-only vendors focus on WIC participants' varied needs and offer them specialized services. Complaint ¶ 17-23. WIC-only stores often hire current and former WIC participants who are knowledgeable about the Program and can help shoppers identify what size package of which authorized brands to get under their particular voucher. Id.
B. The Child Nutrition and WIC Reauthorization Act of 2004
On June 30, 2004, Congress passed the Child Nutrition and WIC Reauthorization Act of 2004 ("Reauthorization Act"). Pub. L. No. 108-265. This law reauthorized WIC through 2009 and made a number of substantive changes to the underlying statute. Congress imposed cost containment measures on state agencies in order to constrain rising program costs. See 42 U.S.C. § 1786(h)(11).
These cost containment measures were designed to control rising food costs associated with WIC-only vendors. See 01/26/06 Tr. at 72-74. The cost containment provision addresses Congress's concern that WIC-only vendors, unlike regular food retail vendors, operate outside of the competitive market forces because WIC-only vendors do not need to keep their food prices low and competitive in order to attract non-WIC customers. See S. Rep. No. 108-279, at 53-57, 2004 U.S.C.C.A.N. 668, at 714-718. Since WIC customers pay in government vouchers, they are not likely to be as sensitive to food prices. Id. WIC customers will receive what is denoted on their voucher regardless of the food price. Id. The Senate Report accompanying the Senate version of the Reauthorization Act states:
This [cost containment] provision is designed to respond to a new type of store in the WIC program, so-called WIC-only stores. . . . Available evidence suggests that WIC-only stores, on average, tend to charge much higher prices for WIC food items than do regular grocery stores, resulting in significantly higher costs to the federal government and creating long-term cost-containment problems in the WIC program. . . . [Because WIC-only stores] have no need to attract non-WIC customers. . . [they] have no incentive to set prices that are determined by market forces. . . . In order to ensure sound stewardship of taxpayer dollars, the Child Nutrition and WIC Reauthorization Act of 2004 includes several provisions designed to ensure that the WIC program continues to rely on market forces to contain food costs and that WIC-only stores do not charge higher prices than other stores leading to waste of federal funds. . . . It also requires the state agency to ensure that WIC-only stores are cost neutral to the WIC program. . . . S. Rep. No. 108-279, at 54-55, 2004 U.S.C.C.A.N. 668 at 715-716.
Congress established certain important deadlines for the implementation of the cost containment provision of the Reauthorization Act. Congress provided: (1) States "shall comply" with the cost containment provision by December 30, 2005, 42 U.S.C. § 1786(h)(11)(G); (2) the Secretary "shall" issue guidance to state agencies "as soon as practicable," 42 U.S.C. § 1758 Notes; (3) the Secretary "shall" promulgate a final regulation by June 30, 2006, Id.; and (4) the Secretary "may" promulgate interim final regulations to implement the cost containment provision (no date specified), Id. The first three deadlines are congressionally mandated, whereas Congress used the permissive term "may" with regard to the interim final rule.
On November 29, 2005, the FNS published the interim rule in the Federal Register. See 70 Fed. Reg. 71708. The interim rule was to go into effect on December 29, 2005, a day before the states were required to implement the cost containment provisions. Id. On December 16, 2005, plaintiffs moved for a temporary restraining order asking the Court to enjoin the implementation of the interim rule. A hearing on the motion was held on December 28, 2005, and the Court granted plaintiffs' motion. The Court provided a brief explanation for its ruling in open court the following day, and stated that it was not persuaded at that juncture that the FNS had complied with the notice and comment requirements under § 553 of the Administrative Procedure Act ("APA"); nor was the Court persuaded that the government was not required to conduct an analysis under the Regulatory Flexibility Act ("RFA"). See Transcript of Hearing on Motion for Temporary Restraining Order (Dec. 29, 2005) ("12/29/06 Tr.") at 5-6. Thus, the Court enjoined the FNS through February 9, 2006, from taking any enforcement actions against the named plaintiff businesses and the members of the named plaintiff trade organization under 7 C.F.R. § 246.12(g)(4)(i)(D) and § 246.12(g)(4)(vi). See 2005 WL 3576840 (D.D.C. Dec. 29, 2005). With regard to 7 C.F.R. § 246.12(g)(4)(vi), the Court specified that its injunction was "only to the extent that sentences two and three of that provision may be construed to require States to compare average payments per food instrument to above-50-percent vendors (WIC-only stores) to average payments per food instrument made to all other WIC vendors rather than to other comparable WIC vendors." Id. On January 26, 2006, pursuant to a request of the Court and with the consent of the parties, the temporary restraining order was extended through February 23, 2006, to afford the Court a reasonable period of time within which to resolve the pending motions.
Pursuant to Federal Rule of Civil Procedure 56, summary judgment should be granted only if the moving party has shown that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986); Waterhouse v. District of Columbia, 298 F.3d 989, 991 (D.C. Cir. 2002). In ruling on cross-motions for summary judgment, the Court shall grant summary judgment only if one of the moving parties is entitled to judgment as a matter of law upon material facts that are not genuinely disputed. Rhoads v. McFerran, 517 F.2d 66, 67 (2d Cir. 1975). Further, in APA review cases, whether agency action was contrary to law is a legal issue that a Court resolves on the basis of the administrative record. American Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001).
Moreover, review of an agency's construction of the statute which it administers is a two-fold inquiry under Chevron v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). "First, always, is the question 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. . . . [the Court] must give effect to the unambiguously expressed intent of Congress." Chevron, 467 U.S. at 842-3. The Court must look at the statutory provision in context when determining whether it speaks directly to the question at issue. Food and Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132-33 (2000). However, if the statute is "silent or ambiguous," the next question for the Court is "whether the agency's answer is based on a permissible construction of the statute." Chevron, 67 U.S. at 843. Further, "[t]he Court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction" in order to conclude that the agency's construction was reasonable. Id. at 843, n.11.
IV. STATUTORY CONSTRUCTION CHALLENGE
A. The Vendor Cost Containment ...