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Air Transport Association of America, Inc. v. United States Department of Agriculture

United States District Court, District of Columbia

March 28, 2018

AIR TRANSPORT ASSOCIATION OF AMERICA, INC. d/b/a AIRLINES FOR AMERICA, et al., Plaintiffs,
v.
UNITED STATES DEPARTMENT OF AGRICULTURE, et al., Defendants.

          OPINION

          ROSEMARY M. COLLYER, United States District Judge.

         The Agriculture Quarantine Inspection program is an essential part of the nation's efforts to secure its plants and animals from pests and diseases that are not native to the territory of the United States. The Animal and Plant Health Inspection Service (APHIS), an agency within the Department of Agriculture, works with Customs and Border Protection (CBP), an agency within the Department of Homeland Security (DHS), to inspect all persons and vessels entering the United States. In 1990, Congress ordered APHIS to charge its costs for the required inspections to the applicable classes of users; since then, APHIS has proposed various rules concerning fees for different user classes. In 2015, APHIS adopted a rule which set a new fee structure. Under that rule, international airline passengers are charged a Passenger Fee of $3.96 (reduced from $5) and international commercial aircraft are charged a Commercial Aircraft Fee of $225 (increased from $70.75). The Air Transport Association of America, Inc. and the International Air Transport Association (collectively, Plaintiffs) challenge the validity of the rule. They argue that it is inconsistent with the governing statutory provisions and violates the Administrative Procedure Act (APA), 5 U.S.C. § 500 et seq. (2012).

         Having studied the parties' briefs, oral arguments, and the entire record, the Court finds that (1) Plaintiffs' claims are not time-barred; (2) APHIS's actions were consistent with the governing statute in charging both an air passenger fee and commercial aircraft fee to passenger aircraft; (3) APHIS has not unlawfully engaged in cross-subsidization; (4) APHIS and Grant Thornton, LLP reasonably relied on the fiscal year (FY) 2010 and 2011 data; and (5) Plaintiffs were not harmed by the withholding of some data during the notice and comment period. The Court also finds that after FY02, the governing statute no longer permitted APHIS to set fees in order to maintain a reasonable balance, which APHIS used to fund its reserve account. Thus, the Court will deny Defendants' motion to dismiss, grant summary judgment to Defendants on Counts I, II, and IV, and grant summary judgment in favor of Plaintiffs on Count III and remand this part of the rulemaking for further consideration and possible rulemaking by APHIS.

         I. BACKGROUND

         APHIS has been inspecting “persons and vessels entering the customs territory of the United States for possible infection or infestation with pests and diseases that threaten the resident flora and fauna” of the United States for over a century. Defs.' Mem. of P. & A. in Supp. of Their Mot. to Dismiss and for Summ. J. and in Opp'n to Pls.' Mot. for Summ. J. (APHIS Opp'n) [Dkt. 24-1] at 1; see also Plant Protection Act, 7 U.S.C. § 7701 et seq. (2010); 7 C.F.R. § 330.105. The inspections are conducted through the Agricultural Quarantine Inspection (AQI) program. Prior to the enactment of the Food, Agriculture, Conservation, and Trade (FACT) Act of 1990, Pub. L. No. 101-624, § 2509, 104 Stat. 3359, 4069-70 (1990) (current version at 21 U.S.C. § 136a (2013)), the costs of AQI were covered by annual appropriations to the Department of Agriculture.

         However, in 1990, Congress enacted the FACT Act, which “authorizes [APHIS] to collect user fees for certain agricultural quarantine and inspection (AQI) services.” Final Rule at ¶ 229.[1] Because the terms of the statute have changed over time, and are integral to the current dispute, the Court details the legislative history. As originally enacted, the FACT Act provided that

The Secretary of Agriculture . . . may prescribe and collect fees to cover the cost of providing agricultural quarantine and inspection services in connection with the arrival at a port in the customs territory of the United States, or the preclearance or preinspection at a site outside the customs territory of the United States, of a commercial vessel, commercial aircraft, commercial truck, or railroad car.

§ 2509(a)(1). The FACT Act was first amended in 1990 to add “international passengers” as a class of persons responsible for paying an AQI fee. See Omnibus Budget Reconciliation Act of 1990, Pub. L. No. 101-508, § 1203, 104 Stat. 1388, 1388-11 (1990). The original FACT Act required the Secretary to set and adjust the fees:

to reflect the cost to the Secretary in administering such subsection, in carrying out the activities at ports in customs territory of the United States and preclearance and preinspection sites outside the customs territory of the United States in connection with the provision of agricultural quarantine inspection services, and in maintaining a reasonable balance in the Account.

§ 2509(a)(4).

         Congress further amended the FACT Act in 1991. As relevant, the 1991 amendment specified that inspection fees may only be collected in an amount commensurate with the costs of inspection for each class of persons or entities paying the fees. See Food, Agriculture, Conservation, and Trade Act Amendments of 1991, Pub. L. No. 102-237, § 1015, 105 Stat 1818, 1902 (1991).

Fees, including fees from international airline passengers and commercial aircraft operators, may only be collected to the extent that the Secretary reasonably estimates that the amount of the fees are commensurate with the costs of agricultural quarantine and inspection services with respect to the class of persons or entities paying the fees. The costs of such services with respect to passengers as a class includes the costs of related inspections of the aircraft.

Id. § 1015(a)(1)(D) (emphasis added). The meaning of the highlighted sentence is strongly disputed here. In response, APHIS set initial fees in 1991 and 1992; for international air passengers the fee was $2.00 and for commercial aircraft the fee was $76.75. See 56 Fed. Reg. 14837, 14845 (April 12, 1991) (setting $2 international air passenger fee); 57 Fed. Reg. 755, 769 (Jan. 9, 1992) (setting $76.75 commercial aircraft fee).

         A. 1996 Amendment

         The FACT Act was amended again as part of the Federal Agriculture Improvement and Reform Act of 1996. See Pub. L. No. 104-127, § 917, 110 Stat. 888, 1187-88 (1996) (codified at 21 U.S.C. § 136a (2013)). That amendment created a temporary Agricultural Quarantine Inspection User Fee Account in the Department of the Treasury where, for FY96 through FY02, “all of the fees collected under this subsection and late payment penalties and interest charges collected” as part of AQI were held. 21 U.S.C. § 136a(a)(5)(A) (1996). After FY02, the balance in the Treasury account was to be “credited to the Department of Agriculture accounts that incur the costs associated with the provision of agricultural quarantine and inspection services and the administration of this subsection.” Id. § 136a(a)(6). In addition to creating a temporary account to hold AQI fees, the 1996 amendment revised the section describing the authorized fees.

(1) Fees authorized The Secretary of Agriculture may prescribe and collect fees sufficient-
(A) to cover the cost of providing agricultural quarantine and inspection services in connection with the arrival at a port in the customs territory of the United States, or the preclearance or preinspection at a site outside the customs territory of the United States, of an international passenger, commercial vessel, commercial aircraft, commercial truck, or railroad car;
(B) to cover the cost of administering this subsection; and
(C) through fiscal year 2002, to maintain a reasonable balance in the Agricultural Quarantine Inspection User Fee Account established under paragraph (5).

Id. § 136a(a) (emphasis added). As before, the meaning and relevance of the emphasized sentences are hotly contested.

         B. Regulatory History

         From the time it set the first inspection fees in 1991, APHIS has indicated that the costs covered by the AQI fee were intended to include “the total cost of delivery costs, program support costs, and agency-level support costs, as well as funding the reserve.” APHIS Opp'n at 8 (citing 56 Fed. Reg. 8148, 8151 (Feb. 27, 1991)). Described as a “reasonable balance, ” the reserve was designed to cover three months' average operating costs for the AQI program, see 1992 Interim Rule at ¶ 71769, and was necessary because fees were (and are) remitted in arrears and the agency needed to be prepared to handle emergencies or unexpected volumes. See 56 Fed. Reg. at 8151. As APHIS explained most recently:

The reserve fund ensures that AQI program operations can continue without interruption when service volumes fluctuate due to economic conditions or other circumstances and CBP and APHIS are able to adjust their activity to account for the changed economic conditions.

         Proposed Rule at ¶ 18. Until this litigation, no user has challenged funding the reserve.

         Between FY92 and FY96, the overall cost of the AQI program went from $85, 922, 000 to a projected $127, 027, 001. See 62 Fed. Reg. 3823, 3823 (Jan. 27, 1997). At that point, APHIS recognized that the requirements of notice-and-comment rulemaking to reset fees was causing user fees to “lag behind the level of current costs.” Id. at 3824. In response, APHIS set a schedule of increasing fees for FY97 through FY 2002. See 62 Fed. Reg. 39747, 39747-48, 39754 (July 24, 1997). This effort was not fully successful and APHIS further amended the fee schedule in 1999 to cover increasing costs. See 64 Fed. Reg. 43103, 43103 (Aug. 9, 1999).

         The attack of September 11, 2001 on the World Trade Center in New York City caused a major decline in international passenger and cargo traffic into the United States. Another result of the attack was increased security concerns that required increased inspections. See 69 Fed. Reg. 71660, 71660-61 (Dec. 9, 2004). As part of the response to September 11, Congress passed the Homeland Security Act of 2002, which “transferred AQI inspections from the U.S. Department of Agriculture (USDA) to the Department of Homeland Security (DHS) and left certain other AQI responsibilities at USDA.” May 2006 GAO Rep. at ¶ 69965. Thereafter, and continuing to the present, CBP conducts all port-of-entry inspections (sea, land, and air) and APHIS provides scientific guidance, training, pest identification, risk analysis, and other related services. See id. at ¶ 69965 (“In March 2003, more than 1, 800 agriculture specialists within USDA's Animal and Plant Health Inspection Service (APHIS) became DHS Customs and Border Protection (CBP) employees, while USDA retained responsibility for AQI activities such as setting inspection policy, providing training, and collecting user fees.”). AQI fees collected by APHIS are now shared with CBP to cover the costs of that agency's services. In addition, CBP receives annual appropriated funds to cover the costs of inspection services where a fee is not collected. See Final Rule at ¶ 253. APHIS issued an interim rule in 2004, raising fees to address the increased costs that followed after September 11. See May 2006 GAO Rep. at ¶ 69998.

         The number of international passengers and goods has again increased since 2004, although there was a slight downturn associated with the 2008 recession. See AQI Q&A at ¶ 116; Stakeholder Webinar Tr. at ¶ 171. During this period, APHIS has experienced significant fee shortfalls. Stakeholder Webinar Tr. at ¶ 172, 177.

         C. GAO and OIG Investigations

         The AQI program has been the subject of numerous Government Accountability Office (GAO) and DHS Office of Inspector General (OIG) investigations and studies since CBP became primarily responsible for conducting the inspections in 2003. GAO focused on monitoring the success of the transition from a purely APHIS-run program to the combined APHIS/CBP program. GAO first issued a report in May 2006, finding that CBP was understaffed, failed to develop an adequate way to evaluate performance, and lacked sufficient data on the cost of the AQI program to determine appropriate AQI fees. See May 2006 GAO Rep. at ¶ 69965, 69970-73, 69999. A February 2007 OIG audit further identified issues with CBP data systems, which resulted in incomplete data and an inability to set AQI fees accurately. See Feb. 2007 OIG Rep. at ¶ 70744-48. In September 2007, a GAO report addressed the challenges faced by CBP in administering three separate international air passenger inspections, which are funded by three separate statutes. See Sept. 2007 GAO Rep. at ¶ 70039 (explaining that CBP is responsible for customs, immigration, and agricultural inspections of incoming international passengers). A February 2008 GAO study again found that CBP lacked sufficient data to track the actual cost of each type of inspection for each type of user class. See Feb. 2008 GAO Rep. at ¶ 70129-30. In September 2012, the GAO conducted further review and again found significant data reliability issues and inherent data limitations associated with the AQI program. See Sept. 2012 GAO Rep. at ¶ 70267-68, 70277-80. Finally, in March 2013, GAO noted a significant difference between costs and fees collected and recommended increasing AQI fees. See March 2013 GAO Rep. at ¶ 70568, 70579-84.

         D. Current Rulemaking

         Despite repeated attempts to adjust fees, as of the rulemaking in 2014-2015 APHIS was still not recovering enough fees to cover the costs of AQI inspections.

The AQI fees have not been adjusted since FY 2010 and do not reflect the current cost of providing AQI services. As a result, U.S. Customs and Border Protection (CBP) of the Department of Homeland Security, which collaborates with APHIS in providing . . . AQI services . . ., has relied more heavily on its appropriated funds to provide AQI services that are not paid for by AQI revenue or to cover the cost of services for which the current fee revenue is insufficient.

         Final Rule at ¶ 230. This time, APHIS retained Grant Thornton LLP, an international audit, tax, and advisory firm, to develop a model that calculated the appropriate fee for each user class based on the actual costs associated with inspecting that user class. Grant Thornton used an “activity-based costing (ABC) methodology” to determine the appropriate fee for each user class based on the specific costs that were attributed to inspections for that class. May 2012 Grant Thornton Rep. at ¶ 636. The accountants first assigned all associated AQI costs to a specific activity and then matched each activity to a corresponding class of persons or entities. March 2012 Grant Thornton Rep. at ¶ 442. Despite flaws in the data, Grant Thornton used what was available from FY10 and FY11 to conduct its analysis.

         APHIS submitted a proposed new rule for notice and comment on April 25, 2014. Hundreds of comments were received over the next 90 days, see Final Rule at ¶ 230, and APHIS issued the Final Rule (Final Rule or Rule) on October 29, 2015, which decreased the air passenger fee to $3.96 (from $5) and increased the commercial aircraft fee to $225 (from $70.75). See Final Rule at ¶ 229-60. The related regulation has long defined “commercial aircraft” as “[a]ny aircraft used to transport persons or property for compensation or hire.” 7 C.F.R. § 354.3(a).

         Plaintiffs submitted comments objecting to the proposed rule and questioning “the application of the commercial aircraft fee to passenger aircraft, the rounding up of fees to fund the AQI reserve, and the nature and quality of the information published in the rulemaking docket.” APHIS Opp'n at 16 (citing Comments of Airlines for America at ¶ 71133-49). After the Rule was published, on May 13, 2016, Plaintiffs filed suit. The Complaint advances four alleged violations of the APA:

Count I: The Rule violates the FACT Act's prohibition against duplicative commercial aircraft fees;
Count II: The Rule violates the FACT Act's prohibition on cross-subsidization of fees among user classes;
Count III: The Rule maintains a reserve, in violation of the FACT Act removal of APHIS's authority to maintain a reserve after 2002; and
Count IV: The Rule was adopted without reasoned decision-making due to unreliable data and data which was withheld from commenters.

Compl. [Dkt. 1] at 36, 37, 39, 40. Defendants answered on July 18, 2016. See Answer [Dkt. 15]. Plaintiffs moved for summary judgment on all claims on March 15, 2017. See Mem. of Law in Supp. of Pls.' Mot. for Summ. J. [Dkt. 20-1] (Pls.' Mot.). Defendants opposed and filed a combined cross motion for summary judgment and motion to dismiss Counts I and III as time barred on May 8, 2017. APHIS Opp'n. Plaintiffs filed a consolidated reply and opposition on June 29, 2017, see Pls.' Consol. Opp'n to Defs.' Cross-Mot. for Summ. J. and Reply Br. in Supp. of Pls.' Mot. for Summ. J. [Dkt. 26] (Pls.' Opp'n), and Defendants replied. See Defs.' Reply Mem. in Supp. of Their Mot. to Dismiss and for Summ. J. [Dkt. 28] (APHIS Reply). The Court conducted oral argument on March 13, 2018. The motions are ripe for review.

         II. LEGAL STANDARD

         A. Motion to Dismiss - Statute of Limitations

         An affirmative defense that claims are barred by a statute of limitations may be asserted in a Rule 12(b)(6) motion “when the facts that give rise to the defense are clear from the face of the complaint.” Smith-Haynie v. District of Columbia, 155 F.3d 575, 578 (D.C. Cir. 1998). A court may only rule on a statute of limitations defense under Rule 12(b)(6) when the face of the complaint conclusively shows that it is time-barred. See Performance Contracting, Inc. v. Rapid Response Constr., Inc., 267 F.R.D. 422, 425 (D.D.C. 2010) (citing Smith-Haynie, 155 F.3d at 578); see also Lewis v. Bayh, 577 F.Supp.2d 47, 51 (D.D.C. 2008); Turner v. Afro-American Newspaper Co., 572 F.Supp.2d 71, 72 (D.D.C. 2008).

         B. Motion for Summary Judgment - Fed.R.Civ.P. 56

         Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment shall 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); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). “In a case involving review of a final agency action under the Administrative Procedure Act, however, the standard set forth in Rule 56[ ] does not apply because of the limited role of a court in reviewing the administrative record.” Sierra Club v. Mainella, 459 F.Supp.2d 76, 89 (D.D.C. 2006) (internal citation omitted), appeal dismissed, Nos. 06-5419 & 07-5004, 2007 WL 1125716 (D.C. Cir. Mar. 30, 2007); see also Charter Operators of Alaska v. Blank, 844 F.Supp.2d 122, 126-27 (D.D.C. 2012); Buckingham v. Mabus, 772 F.Supp.2d 295, 300 (D.D.C. 2011). Under the APA, the agency's role is to resolve factual issues to reach a decision supported by the administrative record, while “‘the function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did.'” Sierra Club, 459 F.Supp.2d at 90 (quoting Occidental Eng'g Co. v. INS, 753 F.2d 766, 769-70 (9th Cir. 1985)). “Summary judgment thus serves as the mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review.” Id. (citing Richards v. INS, 554 F.2d 1173, 1177 & n.28 (D.C. Cir. 1977)).

         C. Administrative Procedure Act

         The APA, requires courts to review agency actions and determine if they are arbitrary, capricious, or not in accord with the law. 5 U.S.C. § 706(2)(A); see also Tourus Records, Inc. v. DEA, 259 F.3d 731, 736 (D.C. Cir. 2001). Its basic legal tenets are longstanding and clear. In determining whether an action was arbitrary and capricious, a reviewing court “must consider whether the [agency's] decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.” Marsh v. Or. Nat. Res. Council, 490 U.S. 360, 378 (1989) (internal quotation marks and citation omitted). At a minimum, the agency must have considered relevant data and articulated an explanation establishing a “rational connection between the facts found and the choice made.” Bowen v. Am. Hosp. Ass'n, 476 U.S. 610, 626 (1986) (internal quotation marks and citation omitted); see also Pub. Citizen, Inc. v. FAA, 988 F.2d 186, 197 (D.C. Cir. 1993) (“The requirement that agency action not be arbitrary or capricious includes a requirement that the agency adequately explain its result.”).

         An agency action usually is arbitrary or capricious if:

the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ...

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