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Resolute Forest Products, Inc. v. U.S. Department of Agriculture

United States District Court, D. Columbia.

September 9, 2015

RESOLUTE FOREST PRODUCTS, INC., Plaintiff,
v.
U.S. DEPARTMENT OF AGRICULTURE, et al., Defendants

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[Copyrighted Material Omitted]

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          For RESOLUTE FOREST PRODUCTS, INC., Plaintiff: Andrew M. Grossman, David B. Rivkin, Jr., Michael Steven Snarr, Elliot J. Feldman, BAKER & HOSTETLER LLP, Washington, DC.

         For UNITED STATES DEPARTMENT OF AGRICULTURE, THOMAS J. VILSACK, Defendants: David Michael Glass, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Civil Division, Washington, DC.

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         MEMORANDUM OPINION

         JAMES E. BOASBERG, United States District Judge.

         " Out of timber so crooked as that from which man is made, nothing entirely

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straight can be carved." So said Immanuel Kant about humanity; so claims Plaintiff Resolute Forest Products about the lawfulness of compulsory marketing programs developed by private parties and overseen by the U.S. Department of Agriculture.

         In 2010 and 2011, Agricultural Marketing Service (AMS), housed within the USDA, assisted members of the softwood-lumber industry in establishing a budding Softwood Lumber Checkoff Order. Checkoff orders are rooted in our nation's history of government support for commodity producers who seek the benefits of collective marketing and promotion. These orders rake in mandatory assessments from all manufacturers and importers of a given commodity. The Commodity Promotion, Research and Information Act (the CPRIA), 7 U.S.C. § § 7411-7425, empowers many industries -- including the softwood-lumber industry -- to work with the USDA to plant the seeds for the cultivation of such collective-marketing programs through the development and issuance of these orders.

         In the case of the Softwood Lumber Checkoff Order, however, Resolute believes the rulemaking process was rotten to the core. In a nutshell, it is unhappy with the manner in which assessments have been determined. After protesting the Order before an administrative law judge and appealing that judge's denial, it brought suit before this tribunal. Resolute's Complaint lumbers on at length about problems with the agency's procedures, seemingly having an ax to grind with every step in the promulgation of the Checkoff Order. It raises numerous objections to the notice-and-comment rulemaking process, the agency's deference to the industry's Blue Ribbon Commission that put forward the Order, and the referendum AMS held to obtain industry approval. Plaintiff's claims ultimately branch out into four constitutional challenges to the CPRIA and six allegations of violations of the Administrative Procedure Act. As to the latter category, Plaintiff assails the AMS for mistakes made during the rulemaking process, some of which stem from misstatements in the Federal Register and opaque explanations for its seemingly questionable actions. Both sides have now moved for summary judgment.

         Much timber has been felled to produce the administrative record that grew out of the ALJ's adjudication, including hearing logs, Resolute's administrative appeal, and the parties' briefs before this Court. Given that the parties at times camouflage the issues with unclear briefing, the Court was repeatedly forced to leaf through the administrative record itself to find answers. Having now done so, the Court concludes that Plaintiff has generally barked up the wrong tree. Resolute's wooden understanding of the agency's obligations largely does not mesh with the broad discretion the USDA is granted to construct a permissible checkoff order.

         Defendants -- and not Plaintiff -- are therefore entitled to summary judgment on nearly every APA count. Yet on one issue Resolute hits the nail on the head. Defendants fall short of providing an adequate explanation for the threshold chosen to exempt certain smaller industry players from the Order. While it often goes against the grain to remand without vacatur, in this instance that remedy is appropriate, so as not to prematurely uproot an ongoing checkoff order. On one APA count alone, then, the Court will deny Defendants' Motion for Summary Judgment and remand to the USDA. Such an outcome also obviates the need to rule on the constitutional questions, which must lie dormant for another season.

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         I. Background

         Puns aside, given the complexities of the administrative process -- and the often picayune nature of Plaintiff's grievances -- a contextual overview is necessary first. The Court thus begins by briefly introducing the parties to this lawsuit and then moves on to a longer explanation of the CPRIA and the process through which the Softwood Lumber Checkoff Order was developed and implemented. Caution, fair reader, for into the administrative-lawmaking thicket we go.

         A. Parties

         Plaintiff Resolute Forest Products, Inc., is an American company incorporated under the laws of Delaware, with significant investments in the production of Canadian softwood lumber, paper, and other forest products. See Compl., ¶ 18. Its principal place of business is in Canada, where the majority of its sawmills are located. See id. Plaintiff imports softwood lumber into the United States and is thus subject to assessment under the Softwood Lumber Checkoff Order. See Def. MTD/MSJ at 2.

         Defendants include the United States Department of Agriculture and its Secretary, Tom Vilsack, who is sued in his official capacity. See Compl., ¶ 20. The Secretary is charged with administering checkoff orders under the CPRIA. See 7 U.S.C. § § 7411-25. Most of the Secretary's functions under the CPRIA have been delegated to the Under Secretary of Agriculture for Marketing and Regulatory Programs and then further " sub-delegated" to the Administrator of the Agricultural Marketing Service, which administers, among other things, marketing orders. See Def. MTD/MSJ at 5. For readability, the Court will here reference the Secretary, the USDA, and AMS interchangeably.

         B. The CPRIA and the Softwood Lumber Checkoff Program

         Congress has long regulated the promotion and sale of agricultural commodities by enabling the federal government to coordinate with industries to advance such promotional efforts. See Avocados Plus Inc., v. Veneman, 370 F.3d 1243, 1245, 361 U.S. App.D.C. 519 (D.C. Cir. 2004). For most agricultural commodities, limited product differentiation means that if one producer promotes its commodity product, all producers are likely to benefit, creating free-rider problems. See William Connor Eldridge, United States v. United Foods: United We Stand, Divided We Fall -- Arguing the Constitutionality of Commodity Checkoff Programs, 56 Ark. L.Rev. 147, 159 (2003). The CPRIA thus authorizes the Secretary of Agriculture to establish " checkoff" programs, which impose on domestic manufacturers and foreign importers of an agricultural commodity a mandatory assessment on the sale of that commodity.

         Marketing programs funded by these checkoff orders can be famously effective, producing well-known classics of American advertising such as " Beef, it's what's for dinner" and " Milk, it does a body good." See Compl., ¶ 2. Among the agricultural commodities covered under the CPRIA are " products of forestry," see 7 U.S.C. § 7412(1)(D), including softwood lumber, a term the USDA uses to refer to certain " 'lumber and products' manufactured from 'one of the botanical groups of trees that have needle-like or scale-like leaves, or conifers.'" Def. MTD/MSJ at 1. Softwood lumber is used in the United States primarily in residential home construction. See Softwood Lumber Research, Promotion, Consumer Education and Industry Information Order, 76 Fed.Reg. 46,185, 46,186 (Aug. 2, 2011).

         After facing one of the " worst markets in history" in the late aughts, in 2010

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members of the softwood-lumber industry sought to benefit from such a campaign. See Softwood Lumber Research, Promotion, Consumer Education and Industry Information Order, 75 Fed.Reg. 61,002, 61,005 (Oct. 1, 2010). The CPRIA authorizes the Secretary to issue an order in response to requests by associations representing producers of a particular commodity. See 7 U.S.C. § 7413(a)(1)(C). Industry participation is critical: each checkoff order must also establish an industry group that will carry out the program. See id. § 7414(b)(1). In this case, it was the Blue Ribbon Commission (BRC), composed of 21 softwood-lumber chief-executive officers and business leaders, which submitted the proposed Softwood Lumber Checkoff Order to AMS. See Pl. Opp./MSJ at 6; 75 Fed.Reg. at 61,005. AMS modified this proposed Order, then determined it was " consistent with and would effectuate the purposes" of the CPRIA. See id. at 61,016. Announcing its intention to implement the Checkoff Order, AMS published a notice of proposed rulemaking in the Federal Register. See id. at 61,002. The proposed Order announced an initial assessment rate of $0.35 per thousand board feet of softwood lumber shipped within or imported into the United States. See id.

         At the core of the dispute between the parties is the fact that the Order does not apply to all softwood-lumber manufacturers and importers. Under the CPRIA, the Secretary is authorized " to exempt from the order any de minimis quantity of an agricultural commodity otherwise covered by the order." 7 U.S.C. § 7415(a)(1). To this end, AMS stated that the proposed Order would exempt from assessment all entities that domestically ship or import less than 15 million board feet per fiscal year. See 75 Fed.Reg. at 61,002. As we will see, whether the 15 million-board-feet exemption was a " de minimis quantity" under the CPRIA is central to the resolution of the dispute.

         Following the well-worn notice-and-comment-rulemaking playbook, AMS invited interested parties to submit comments on the proposed Order. See id. at 61,016. In a contemporaneous press release, AMS stated that " [i]f a majority of those commenting favored USDA moving forward" with the proposed Order, " a referendum would need to be held," and a majority of the voters by both number and volume would need to support the program in order for AMS to implement it. See USDA Seeks Comments on Establishing New Softwood Lumber Research, Promotion, Consumer Education and Industry Information Order, AMS 189-10 (Oct. 1, 2010) (Administrative Record, AR2105). In response, AMS received 55 comments in total, the majority of which it deemed supportive of the proposed Order. See Softwood Lumber Research, Promotion, Consumer Education and Industry Information Order, 76 Fed.Reg. 22,757, 22,770 (Apr. 22, 2011). Trees were not spared during this process, as AMS responded in great detail to these various comments. See id. at 22,770-75. Resolute, nevertheless, argues that AMS's actions related to the notice-and-comment process were in violation of the APA, see Compl., ¶ ¶ 41-53, as discussed in more detail below.

         Finding the industry largely in favor of the proposed Order, AMS then announced a referendum among all producers who would be assessed under it. See 7 U.S.C. § 7417(a)(1) (" For the purpose of ascertaining whether the persons to be covered by an order favor the order going into effect, the order may provide for the Secretary to conduct an initial referendum among persons to be subject to an assessment . . . ." ). AMS announced the procedures and timing of the referendum in the Federal Register, and it noted that every non-exempt softwood-lumber domestic manufacturer or importer was eligible to vote. See 76 Fed.Reg. at 22,775. Resolute

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contests the manner in which AMS conducted the referendum, including its determination of which producers and importers were eligible. See Compl., ¶ ¶ 69-74.

         AMS received a total of 173 completed ballots from the referendum, 159 of which it deemed valid. See Administrative Law Hearing, Witness Testimony of Sonia Jimenez, Director of the Promotion and Economics Division of the Fruit and Vegetable Program of the AMS at 319 (Jan. 28, 2013) (AR3316) [hereinafter " Testimony of Sonia Jimenez" ]. Of those 159 ballots returned, 107 favored the Order, see id., constituting 67 percent of those voting in the referendum and " 80 percent of the volume represented in the referendum." 76 Fed.Reg. at 46,185. The results of the referendum encouraged AMS to move forward with the Order, although not without protest from Resolute. AMS published the final Order in the Federal Register in August of 2011. See id. at 46,185-46,202.

         In response to AMS's implementation of the Order, Resolute filed a petition with the USDA in accordance with the CPRIA on October 28, 2011. See Compl., ¶ 81; 7 U.S.C. § 7418(a)(1)(A) (" A person subject to an order . . . may file with the Secretary a petition . . . stating that the order . . . is not established in accordance with law; . . ." ). Based on its 2010-calendar-year sales, Plaintiff imported less than 15 million board feet during 2010 and was thus ineligible to vote in the referendum. See In Re: Resolute Forest Products Petitioner, No. 12-0040, 2014 WL 1993757, at *5-6 (U.S.D.A. Apr. 30, 2014). Resolute later began to import more than 15 million board feet per year, however, and has been paying assessments on imports above that threshold since January 2012. See Pl. Rep. at 7. Resolute ultimately amended its protest, including a litany of constitutional challenges to the CPRIA, and these claims are mirrored in the counts it brings before this Court. See First Amended Petition to Terminate or Amend USDA's Softwood Marketing Order (June 22, 2012) (AR0236).

         Plaintiff's first two adjudicative bites at the apple met with little success. Administrative Law Judge Jill S. Clifton conducted a four-day hearing on Resolute's petition from January 28-31, 2013, at the USDA in Washington, D.C. See Compl., ¶ 89. Judge Clifton denied Resolute's petition, affirming both the Softwood Lumber Checkoff Order and the CPRIA. See In re: Resolute, 2014 WL 1993757, at *12. Undeterred, Plaintiff then filed a timely appeal to the USDA Judicial Officer on June 12, 2014. See Compl., ¶ 118. Judicial Officer William G. Jenson denied Resolute's appeal in a decision dated November 26, 2014. See In re: Resolute Forest Products, Petitioner, No. 12-0040, 2014 WL 7534275 (U.S.D.A. Nov. 26, 2014).

         Plaintiff now brings its case before this Court, seeking review of the denial of its petition, as the CPRIA allows. See 7 U.S.C. § 7418(b)(1) (" The district court of the United States . . . shall have jurisdiction to review the final ruling on the petition . . . ." ). Among its constitutional claims are that the CPRIA unconstitutionally delegates executive and legislative authority to private parties and violates the due-process rights of producers and importers. As touched on above, Plaintiff also alleges APA violations in nearly every action taken by AMS in the development and application of the Checkoff Order. In response, Defendants have now filed a Motion to Dismiss or, in the Alternative, for Summary Judgment. Plaintiff responded by filing a Cross-Motion for Summary Judgment.

         II. Legal Standard

         In the typical case, summary judgment may be granted if " the movant shows that

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there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Holcomb v. Powell, 433 F.3d 889, 895, 369 U.S. App.D.C. 122 (D.C. Cir. 2006). A fact is " material" if it is capable of affecting the substantive outcome of the litigation. See Liberty Lobby, 477 U.S. at 248; Holcomb, 433 F.3d at 895. A dispute is " genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. See Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007); Liberty Lobby, 477 U.S. at 248; Holcomb, 433 F.3d at 895.

         Although styled Motions for Summary Judgment, the pleadings in this case more accurately seek the Court's review of an administrative decision. Challenges under the CPRIA proceed under the Administrative Procedure Act's familiar " arbitrary and capricious" standard of review. See 7 U.S.C. § 7418(b)(1); 5 U.S.C. § 706(2)(A). Because of the limited role federal courts play in reviewing such administrative decisions, the typical Rule 56 summary-judgment standard does not apply to the parties' dueling motions on Resolute's APA claims. See Sierra Club v. Mainella, 459 F.Supp.2d 76, 89-90 (D.D.C. 2006). Instead, in APA cases, " the function of the district court is to determine whether or not . . . the evidence in the administrative record permitted the agency to make the decision it did." Id. (internal citations omitted). Summary judgment thus serves as the mechanism for deciding, as a matter of law, whether an agency action is supported by the administrative record and is otherwise consistent with the APA standard of review. See Bloch v. Powell, 227 F.Supp.2d 25, 31 (D.D.C. 2002) (citing Richards v. INS, 554 F.2d 1173, 1177, 180 U.S. App.D.C. 314 (D.C. Cir. 1977)).

         The APA requires courts to " hold unlawful and set aside agency action, findings, and conclusions" that are " arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). Under this " narrow" standard of review -- which appropriately encourages courts to defer to the agency's expertise, see Motor Vehicle Mfrs. Ass'n of United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983) -- an agency is required to " examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made." Id. (internal quotation marks omitted). " In reviewing agency action under that standard, a court is not to substitute its judgment for that of the agency," GameFly, Inc. v. Postal Regulatory Comm'n, 704 F.3d 145, 148, 403 U.S. App.D.C. 271 (D.C. Cir. 2013) (citation and internal quotation marks omitted), nor to " disturb the decision of an agency that has examine[d] the relevant data and articulate[d] . . . a rational connection between the facts found and the choice made." Americans for Safe Access v. DEA, 706 F.3d 438, 449, 403 U.S. App.D.C. 388 (D.C. Cir. 2013) (internal quotation marks and citation omitted). On the other hand, where the agency has not provided a reasonable explanation for its actions, " [t]he reviewing court should not attempt itself to make up for such deficiencies: We may not supply a reasoned basis for the agency's action that the agency itself has not given." State Farm, 463 U.S. at 43 (1983) (citation and internal quotation marks omitted). A court should nevertheless " uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned." Id. (quoting Bowman Transp. Inc. v. Arkansas-Best Freight System, 419 U.S. 281, 286, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974)).

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         III. Analysis

         The Court begins, as it must, with standing. Once satisfied of this jurisdictional prerequisite, it next considers Plaintiff's APA claims. Determining that Resolute prevails on one, the Court thereafter assesses the proper remedy. It concludes with a brief discussion of the fate of the constitutional questions raised herein.

         A. Standing

         As a threshold matter, Resolute must establish standing to pursue its claims, which Defendants argue it cannot do. Article III of the United States Constitution limits the jurisdiction of the federal courts to resolving " Cases" and " Controversies." U.S. CONST. art. III, § 2, cl. 1. A party's standing " is an essential and unchanging part of the case-or-controversy requirement of Article III." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). To maintain standing, a plaintiff must, at a constitutional minimum, meet the following criteria. First, it " must have suffered an injury in fact -- an invasion of a legally-protected interest which is (a) concrete and particularized . . . and (b) actual or imminent, not conjectural or hypothetical . . . ." Id. (citations and internal quotation marks omitted). Second, " there must be a causal connection between the injury and the conduct complained of -- the injury has to be fairly . . . trace[able] to the challenged action of the defendant, and not . . . th[e] result [of] the independent action of some third party not before the court." Id. (alterations in original) (citation and internal quotation marks omitted). Third, " it must be 'likely,' as opposed to merely 'speculative,' that the injury will be 'redressed by a favorable decision.'" Id. at 561 (citation omitted). A " deficiency on any one of the three prongs suffices to defeat standing." U.S. Ecology, Inc. v. U.S. Dept. of Interior, 231 F.3d 20, 24, 343 U.S. App.D.C. 386 (D.C. Cir. 2000). In addition, " a plaintiff must demonstrate standing for each claim he seeks to press. . . ." DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352, 126 S.Ct. 1854, 164 L.Ed.2d 589 (2006). In the present case, Resolute brings four causes of action alleging violations of the Constitution (Counts I-IV), as well as six claims that the USDA violated the Administrative Procedure Act (Counts V-X).

         For all its causes of action, Resolute's injury-in-fact is straightforward: it has been paying assessments under the Order, which it claims is unlawful, since January 2012 -- at this point, for over three and a half years. See Pl. Rep. at 7. Plaintiff's redressability threshold is similarly satisfied, since a judgment voiding the Order would alleviate Plaintiff's alleged injury. Defendants, however, raise two central challenges to Plaintiff's satisfaction of the causation factor. First, AMS contends that because the referendum was technically optional -- the Secretary was not required to conduct it before implementing the order -- it cannot be said to have caused Plaintiff's injury. To similar effect, Defendants relatedly maintain that because the Secretary has discretion to cancel the Checkoff Order at any time, Resolute cannot show that the operation of the referendum " caused" its injury. Second, Defendants assert that because ...


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