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

United States District Court, District of Columbia

May 17, 2016



          JAMES E. BOASBERG United States District Judge

         For the past several years, Plaintiff Resolute Forest Products, Inc. and the U.S. Department of Agriculture have been locked in a struggle over the latter’s Softwood Lumber Checkoff Order. That Order requires any softwood-lumber domestic manufacturer or foreign importer who produces or imports more than 15 million board feet (15mmbf) per year to pay a mandatory assessment on all softwood lumber shipped above that amount. Checkoff orders such as this are a kind of compulsory marketing program developed by private parties and overseen by the Department in accordance with the Commodity Promotion, Research and Information Act (the CPRIA), 7 U.S.C. §§ 7411-7425. Apparently unhappy that it must pay assessments under the Order, Resolute lodged a failed administrative protest before an ALJ and then subsequently brought suit here, raising four constitutional challenges to the Order and six alleged violations of the Administrative Procedure Act.

         In its September 9, 2015, Memorandum Opinion, this Court dismissed all but one of Plaintiff’s APA challenges. See Resolute Forest Products, Inc. v. U.S. Dep’t of Agric., 130 F.Supp.3d 81 (D.D.C. 2015). On the sole remaining APA claim (Count V), however, this Court remanded without vacatur to the Department of Agriculture for a reasoned and coherent treatment of its decision to select 15mmbf per year as the threshold amount. Defendants responded with a memorandum and exhibits providing additional explanation for the selection of that figure. See ECF No. 26. Although Defendants’ second explanation was better than its first, it nonetheless raised as many questions as it answered. Unable to reconcile certain discrepancies within the agency’s explanations and the data it presented, the Court remanded again, this time ordering the Department to point to the underlying data sources relied upon in selecting 15mmbf and to explain the discrepancies the Court identified. See Resolute Forest Products, Inc. v. U.S. Dep’t of Agric., No. 14-2103, 2016 WL 1714312 (D.D.C. Feb. 2, 2016). The agency responded again with further exhibits and an additional memorandum. See ECF No. 33.

         After all of the back and forth, the same question remains: was the agency’s selection of 15mmbf arbitrary and capricious in violation of the APA? Despite two remand opportunities, Defendants have still not provided a reasonable explanation for selecting that quantity. Nearly every calculation upon which the agency relies has significant mismeasurements or inaccuracies, and many of the agency’s explanations across its original rulemaking process, its briefings, and its two responses to the Court’s remand orders contradict one another. While APA review does not demand perfection from an agency, the Court here must ineluctably conclude that USDA’s promulgation of the Checkoff Order was arbitrary and capricious.

         I. Background

         Because the Court has already addressed many of the substantive and procedural issues of this case in its earlier Opinion, see Resolute Forest Products, 130 F.Supp.3d 81, it will focus on those still in contention here.

         A. The Softwood Lumber Checkoff Order

         The Softwood Lumber Checkoff Order that Plaintiff challenges here grew out of the softwood-lumber industry’s struggles during one of the “worst market[s] in history” after the great recession and the collapse of the housing market at the end of the last decade. See Softwood Lumber Research, Promotion, Consumer Education and Industry Information Order; Proposed Rules, 75 Fed. Reg. 61, 002, 61, 005 (Oct. 1, 2010). To prop up the struggling industry, a trade association known as the Blue Ribbon Commission (BRC) - comprising 21 softwood-lumber chief-executive officers and business leaders - submitted its incipient proposal to USDA’s Agricultural Marketing Service. Id. AMS administers marketing orders under the CPRIA, the statute that governs the proposal, approval, and administration of checkoff orders for a variety of commodity products. See 7 U.S.C. § 7412-13. When a proposed order is submitted by “an association of producers” (here, the BRC), the statute instructs the Secretary to “determine[] that a proposed order is consistent with and will effectuate the purpose” of the CPRIA. Id. § 7413(b)(1)-(2). If he so determines, he then proceeds through the standard notice-and-comment rulemaking process for the proposed order. Id. § 7413(b)(2)-(4).

         In addition to typical notice-and-comment rulemaking, however, the CPRIA mandates that the Secretary also obtain the approval of “persons subject to assessments” under the order via a referendum. Id. § 7413(b)(1). The Secretary may conduct said referendum either before finalizing a proposed checkoff order or else within three years of the first assessments taking place in accordance with it. Id. § 7417(b)(2). Crucial to this suit and the present dispute, the Secretary also has the authority to exempt from the order any “de minimis quantity” of the agricultural commodity subject to assessment. Id. § 7415(a)(1). And because eligibility to participate in the referendum depends on being “among persons to be subject to an assessment, ” the de minimis quantity also affects who may vote in a given referendum. Id. § 7417(a)(1).

         As to the Checkoff Order here, after the Secretary determined that the BRC’s proposal would effectuate the purpose of the CPRIA, AMS announced the proposed rule in the Federal Register, providing notice and seeking comment. See 75 Fed. Reg. at 61, 012. The agency announced that the proposed Order would provide for initial assessments of $0.35 per thousand board feet shipped within or imported to the U.S., although it could eventually be increased up to $0.50. Id. The agency also stated that the proposed de minimis quantity exempted from assessment would be 15mmbf per producer or importer per year, with assessments only applying to amounts shipped or imported by a given producer above that threshold in any given year. Id. In determining this assessment price and exemption threshold, the agency also explored what portion of the softwood-lumber industry would pay assessments under the Order and considered several different prices and de minimis quantities. Id. at 61, 012-13.

         As support for its proposed de minimis quantity, the agency determined that a 15mmbf exemption and an assessment of $0.35 per thousand board feet would “generate sufficient income to support an effective promotion program for softwood lumber.” Id. at 61, 013. The agency also noted that the BRC had explored various de minimis exemption thresholds - including 15 million, 20 million, and 30 million board feet - and concluded that the 15mmbf exemption (“a quantity sufficient to build approximately 1, 000 homes, ” Resolute Forest Products, 130 F.Supp.3d at 102 (internal citation and quotation marks omitted)) would yield “a deduction of 11.3 percent in assessment income” by reducing the total quantity of softwood lumber to be assessed by that percentage. See 75 Fed. Reg. at 61, 013. In justifying this exemption quantity, the agency estimated that roughly 61% of domestic manufacturers and about 12% of foreign importers would be subject to the Order. Id.

         After the agency issued the initial proposed rule, it followed up with a summary of comments received and provided responses to those comments. See Softwood Lumber Research, Promotion, Consumer Education and Industry Information Order, 76 Fed. Reg. 22, 757, 22, 770-75 (April 22, 2011). As the majority of comments supported the proposed Order, AMS next announced a referendum to approve it, in which all eligible producers and importers could participate. Id. at 22, 775. Eligibility required manufacturing and shipping of 15mmbf or more between January 1 and December 31, 2010. Id. After the May 23-June 10, 2011, referendum was conducted, AMS announced that 67% of those voting, a group that collectively shipped 80% of the volume of softwood lumber represented in the referendum, had voted in favor of the Order. See Softwood Lumber Research, Promotion, Consumer Education and Industry Information Order, 76 Fed. Reg. 46, 185, 46, 188, 46, 189 (Aug. 2, 2011). Based on this approval, AMS subsequently put the Checkoff Order into effect.

         B. Resolute’s Challenge

         Resolute has opposed the Checkoff Order from the beginning. As Plaintiff imported less than 15 million board feet during 2010, it was ineligible to vote in the referendum, see In Re: Resolute Forest Products Petitioner, No. 12-40, 2014 WL 1993757, at *5-6 (U.S.D.A. Apr. 30, 2014), but because it has since begun to import more than that amount, it has had to pay assessments on imports above that threshold since January 2012. See Pl. MSJ Reply (ECF No. 21) at 7. Opposing the Checkoff Order, Plaintiff filed a petition with USDA on October 28, 2011, shortly after it went into effect. See Compl., ¶ 81. When Resolute did not prevail administratively, it filed suit before this Court in December 2014.

         The grist of Plaintiff’s challenge is that AMS violated the Administrative Procedure Act in both the rulemaking and referendum process, id., ¶¶ 149-200, and that the CPRIA unconstitutionally delegates executive and legislative authority to private parties and also violates the due-process rights of producers and importers. Id., ¶¶ 123-148. In its September 9, 2015, Opinion, this Court granted summary judgment for the agency on five of Resolute’s six APA challenges. See Resolute Forest Products, 130 F.Supp.3d at 92-100. Because it remanded without vacatur on the sixth APA claim, the Court, following the doctrine of constitutional avoidance, deferred Resolute’s constitutional challenges for a later date. Id. at 105.

         In its remaining APA challenge (now before the Court), Resolute alleged that the agency acted arbitrarily and capriciously in selecting the 15mmbf “de minimis quantity” under the CPRIA. See Pl. Opp./MSJ (ECF No. 15) at 25. Plaintiff especially took issue with the agency’s original legal argument that any exemption quantity that would “generate sufficient income to support an effective promotion program” would be a permissible de minimis quantity because it was “impossible for [AMS] to know the total volume” of softwood lumber produced and shipped. See Def. MSJ (ECF No. 13) at 24 (citation and internal quotation marks omitted). Resolute argued that AMS lacked discretion to designate any amount whatsoever as the de minimis quantity and asserted that the Service could not substantiate its reasons for selecting 15mmbf as the de minimis quantity. See Pl. Opp./MSJ at 26-27. In essence, it concluded, “AMS accepted the 15 million board foot exemption given to it by the BRC because that threshold was calculated by the BRC to hit the revenue targets that the BRC desired.” Id. at 27.

         The Court shared Plaintiff’s concern about the agency’s argument that it was “impossible” to know the amount of softwood lumber to be assessed, particularly where considerable record evidence suggested that total volumes of softwood lumber produced and shipped were readily available and, indeed, were relied upon in determining the 15mmbf exemption. See Resolute Forest Products, 130 F.Supp.3d at 101 (“At least two documents in the Joint Appendix submitted by the parties suggest such figures were obtainable or had been obtained.”). The Court, accordingly, remanded without vacatur to the agency to supply additional explanation as to the data that supported a 15mmbf exemption threshold, as well as the underlying rationale in selecting such a threshold. Id. at 103-05. Defendants returned several months later with a memorandum from Rex A. Barnes, AMS Associate Administrator, discussed in greater detail below. See First Remand Notice (ECF No. 26), Exh. A.

         In the course of examining Barnes’s explanation and attached exhibits, the Court was still unable to understand how the sources of data the agency purported to rely upon yielded the estimates it had provided during rulemaking. Heeding the maxim of “if at first you don’t succeed, try, try, try again, ” the Court remanded without vacatur a second time, ordering the agency to provide reassurance that, inter alia, “some verifiable source of data accurately depicted the softwood-lumber market and supported the selection of 15 million board feet as the appropriate de minimis quantity.” Resolute Forest Products, 2016 WL 1714312, at *3. The agency responded with a memorandum from Charles W. Parrott, Deputy Administrator of the Specialty Crops Program, as well as additional exhibits. See Notice (ECF No. 33), Exh. 1. This, too, proved unsatisfactory to Resolute. See Pl. Second Remand Response (ECF No. 35). In any event, with this additional information in hand - the agency’s two remand memoranda and attached exhibits - the Court may finally rule on Resolute’s remaining APA challenge.

         II. Legal Standard

         In the typical case, summary judgment may be granted if “the movant shows that 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 (1986); Holcomb v. Powell, 433 F.3d 889, 895 (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 (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 (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 - 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.” Motor Vehicle Mfrs. Ass’n of United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (citation and 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 (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 (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 (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 (1974)).

         More specific to Resolute’s remaining APA challenge here - a challenge to the Secretary’s interpretation of an ambiguous statutory term - “[w]hen a court reviews an agency’s construction of the statute which it administers, it is confronted with two questions.” Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842 (1984). “First, applying the ordinary tools of statutory construction, the court must determine ‘whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear[, ] . . . the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’” City of Arlington, Tex. v. FCC, 133 S.Ct. 1863, 1868 (2013) (quoting Chevron, 467 U.S. at 842-43). However, “if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Chevron, 467 U.S. at 843. This latter analysis is colloquially known as “Chevron step two.” Vill. of Barrington, Ill. v. Surface Transp. Bd., 636 F.3d 650, 660 (D.C. Cir. 2011) (“At Chevron step two we defer to the agency’s permissible interpretation, but only if the agency has offered a reasoned explanation for why it chose that interpretation.”).

         III. Analysis

         The Court now turns to the heart of Resolute’s remaining APA challenge: that the agency’s selection of 15mmbf as the de minimis quantity exempted was arbitrary and capricious. See Pl. Opp./MSJ at 25-26. The first step in considering a challenge such as this is to assess the agency’s interpretation of the statute itself. Because the Court has already found the statutory term “de minimis quantity” ambiguous, see Resolute Forest Products, 130 F.Supp.3d at 102-103, it resumes its analysis at Chevron step two: given the ambiguity in the statute, has the agency offered a permissible construction of “de minimis quantity”?

         This question, in turn, implicates two separate issues. The Court must first assess whether the agency considered appropriate criteria in determining a viable de minimis quantity to be exempted. Satisfied that it did so, the Court next considers the agency’s explanation and evidence supporting its selection of 15mmbf as de minimis in light of the agency’s identified criteria.

         A. Permissible Interpretation of “De Minimis Quantity”

         The Court begins by considering the agency’s interpretation of “de minimis quantity” under the CPRIA. As a reminder, Defendants’ initial summary-judgment pleadings maintained that because it was “impossible” to know the total quantity of softwood lumber produced - despite evidence to the contrary in the agency’s own rulemaking notices - the Secretary’s selection of “any” de minimis quantity was permissible under the CPRIA. Compare Def. Reply at 23 (“‘[i]t’s impossible for us to know the total volume’ of softwood lumber”), with 75 Fed. Reg. at 61, 003 (“According to USDA’s Forest Service, for 2007-2008, total output (production) of softwood lumber by U.S. sawmills averaged about 29.5 billion board feet annually.”), and Id. at 61, 004 (“According to U.S. Department of Commerce, Census Bureau, Foreign Trade Statistics data, imports of softwood lumber from 2007 through 2009 averaged about 13 billion board feet annually.”) (citation omitted). Given the implausibility of the agency’s interpretation - in light of the plain meaning of “de minimis” and the appearance of evidence in its rulemaking notices suggesting it was possible to obtain total quantity estimates - the Court remanded “for a reasoned and coherent treatment of the decision to select a 15 million-board-feet-per-year exemption as the ‘de minimis quantity’ exemption in accordance with” the CPRIA. See Resolute Forest Products, 130 F.Supp.3d at 105.

         In response to this Order, Defendant provided a memorandum from Rex A. Barnes, Associate Administrator, AMS. Recognizing the problematic nature of its initial litigation position at summary judgment, the agency’s memorandum provides a more thorough account of the general criteria it asserts are appropriate in selecting a “de minimis quantity” in accordance with 7 U.S.C. § 7415(a)(1). The agency has not had a prior occasion to articulate how it determines a “de minimis quantity” to be exempted from a proposed checkoff order, nor has a court previously endorsed a particular interpretive approach, so this is a question of first impression.

         As the agency noted in its rulemaking notice, “[T]he 1996 Act does not define the term de minimis and USDA is not limited to using the definition of de minimis as specified in another law or agreement. The de minimis quantity is defined for a particular program and industry.” 76 Fed. Reg. at 22, 772. Because the CPRIA “provides no set methodology or formula for computing a de minimis quantity, ” the Barnes Memorandum explains that USDA considered several factors in selecting a threshold, including (1) an estimate of the total quantity of the particular agricultural commodity (both quantity assessed and quantity exempted); (2) free-rider implications of a particular quantity; (3) the impact of such a limit on small businesses; and (4) the available funding to support a viable program operating at that exemption threshold. See Barnes Mem. at 3.

         From the vantage point of Chevron step-two analysis, the question is whether the agency’s proposed construction of the ambiguous term - “de minimis quantity” - is a permissible interpretation. These general factors were not articulated in quite this fashion in the agency’s notice of the proposed rulemaking, its response to comments, and in the final regulation implementing it. Given that Chevron deference is owed to “the administrative official and not to appellate counsel, ” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212 (1988) (citation and internal quotation marks omitted), “we give no deference to agency ‘litigating positions’ raised for the first time on judicial review.” Vill. of Barrington, Ill., 636 F.3d at 660. In this case, however, it was legal counsel’s position - that it was impossible to know the total quantity of softwood lumber - that the Court found not credible, and the explanation of considerations regarding the selection of a de minimis quantity come from a member of the agency (Rex A. Barnes of AMS), not from legal counsel.

         Consideration of the agency’s arguments on the first remand regarding its approach to interpreting the ambiguous term is also perfectly acceptable insofar as courts “frequently remand matters to agencies while leaving open the possibility that the agencies can reach exactly the same result as long as they . . . explain themselves better or develop better evidence for their position.” Nat’l Treasury Employees Union v. Fed. Labor Relations Auth., 30 F.3d 1510, 1514 (D.C. Cir. 1994). The agency’s more robust explanation is entirely the product of this Court’s first remand order for a fuller account of the 15mmbf-exemption selection criteria, and so the Court may consider these factors in assessing whether the agency’s choice of the de minimis quantity was supported by substantial evidence. After all, “the usual rule is that, with or without vacatur, an agency that cures a problem identified by a court is free to reinstate the original result on remand.” Heartland Reg’l Med. Ctr. v. Leavitt, 415 F.3d 24, 29-30 (D.C. Cir. 2005); see also FEC v. Akins, 524 U.S. 11, 25 (1998) (noting that, after remand, agency “might later, in the exercise of its lawful discretion, reach the same result for a different reason” than one rejected by reviewing court) (citing SEC v. Chenery Corp., 318 U.S. ...

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