Strickland v. Commissioner, Maine Department of Human Services

UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT

No. 96-1435
NANCY STRICKLAND, ET AL.,

Plaintiffs, Appellants,

v.

COMMISSIONER, MAINE DEPARTMENT OF HUMAN SERVICES,

Defendant, Appellee,

v.

SECRETARY, U.S. DEPARTMENT OF AGRICULTURE,

Third-Party Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. D. Brock Hornby, U.S. District Judge]

Before

Selya, Circuit Judge,

Aldrich and Bownes, Senior Circuit Judges.

Rufus E. Brown, with whom Jack Comart, Patrick Ende, and

Pine Tree Legal Assistance, Inc. were on brief, for appellants.

Jennifer H. Zacks, Attorney, Civil Division, Dept. of

Justice, with whom Frank W. Hunger, Assistant Attorney General,

Mark B. Stern, Attorney, Civil Division, Dept. of Justice, and

Jay McCloskey, United States Attorney, were on brief, for

Secretary of Agriculture.

September 24, 1996

SELYA, Circuit Judge. Nearly four centuries ago, an
SELYA, Circuit Judge.

English playwright wrote of a young monarch exhorting his battle-

weary comrades to stride "once more unto the breach, dear

friends, once more." William Shakespeare, King Henry the Fifth,

Act III, Sc. 1, l.1 (1600). Nancy and Lyle Strickland, the

appellants here, issue a similar call, again requesting that this

court invalidate a regulation which the Secretary of Agriculture

(the Secretary) promulgated under authority granted by the Food

Stamp Act, 7 U.S.C. 2011-2025 (1988) (the Act). In Strickland

v. Commissioner, Me. Dept. of Human Servs., 48 F.3d 12 (1st

Cir.), cert. denied, 116 S. Ct. 145 (1995) (Strickland I), we

applied the teachings of Chevron, U.S.A. Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837 (1984), and upheld

a portion of the regulation that gave meaning to an ambiguous

phrase contained within the Act. See Strickland I, 48 F.3d at 21

(upholding 7 C.F.R. 273.11(a)(4)(ii)(D) (1994) as a reasonable

rendition of 7 U.S.C. 2014(d)(9)). This second time around the

appellants seek to strike down a different (but closely related)

section of the same regulation. Because Chevron is still the law

of the land, we affirm the lower court's entry of summary

judgment in the appellees' favor.

I. THE STATUTORY SCHEME
I. THE STATUTORY SCHEME

First enacted in 1964, the Act is designed "to

safeguard the health and well-being of the Nation's population by

raising levels of nutrition among low-income households." 7

U.S.C. 2011; see generally Strickland I, 48 F.3d at 14-15. The

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states administer most aspects of the Food Stamp Program (the

Program) while the federal government underwrites the cost (which

now amounts to some $29 billion per year). Recipients, whose

eligibility is determined by income and family size, receive

assistance in the form of coupons that may be used to purchase

groceries at local stores. In order to implement the Program,

Congress has authorized the Secretary to promulgate "such

regulations . . . as [he] deems necessary or appropriate for the

effective and efficient administration" of the Program's federal

aspects. See 7 U.S.C. 2013(a), (c). Responsibility for other

elements of the Program devolves upon state agencies. In Maine,

that obligation reposes with the Department of Human Services

(DHS).

In 1971, Congress instructed the Secretary to set

national eligibility standards for the Program. The Secretary

did so. Of particular interest for present purposes, the

Secretary barred any consideration of principal payments made on

the purchase price of capital assets in computing the costs which

could be offset against the income of a self-employed individual

to determine whether that person met the national eligibility

standard. See 36 Fed. Reg. 14102, 14107 (July 29, 1971). Six

years later, Congress overhauled the Act. It directed, inter

alia, that for purposes of determining eligibility for

participation in the Program, a person's income should not

include the "cost of producing self-employment income." 7 U.S.C.

2014(d)(9). Though Congress did not define the term "cost,"

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the House Committee on Agriculture noted, seemingly with

approbation, that existing Program regulations did not treat

principal payments as a "cost" that could be set off against

income. See H. Rep. No. 464, 95th Cong., 1st Sess. 25, reprinted

in 1977 U.S.C.C.A.N. 1978, 2001-02.

Throughout, the Secretary has consistently hewed to the

position that principal payments on capital assets are not a cost

of producing self-employment income. The current regulation

epitomizes this longstanding viewpoint; it states that "cost,"

when figured for that purpose, shall not include "[p]ayments on

the principal of the purchase price of income-producing real

estate and capital assets, equipment, machinery, and other

durable goods." 7 C.F.R. 273.11(a)(4)(ii)(A).

II. THE COURSE OF LITIGATION
II. THE COURSE OF LITIGATION

Mr. and Mrs. Strickland operate a construction business

in Belgrade, Maine (where they reside). When their business

faltered, they applied for admission to the Program and began

receiving benefits. In 1993 the DHS determined that the

Stricklands' average monthly income was more than double the

Program's eligibility limit. Had they been permitted to deduct

depreciation on business equipment as a "cost of producing self-

employment income," they would have remained eligible for food

stamp assistance. Consequently, they challenged the regulation

that excluded depreciation, 7 C.F.R. 273.11(a)(4)(ii)(D),

arguing that it had been promulgated in derogation of 7 U.S.C.

2014(d)(9). See Strickland I, 48 F.3d at 15-16. In due season

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the appellants asserted claims against both the DHS and the

Secretary, and the district court certified the Stricklands as

representatives of a class of "all Maine food stamp applicants or

recipients adversely affected by the [] regulation on or after

July 1, 1992." Id. at 16.

The appellants enjoyed some initial success. After the

parties submitted the case on a stipulated record, the trial

court invalidated the Secretary's "no depreciation" regulation.

See Strickland v. Commissioner, Me. DHS, 849 F. Supp. 818 (D. Me.

1994). We reversed, finding ambiguity in the term "cost" as used

in the statutory phrase "cost of producing self-employment

income." See Strickland I, 48 F.3d at 19. Stressing that

ambiguity made deference appropriate, we upheld the Secretary's

right to exclude depreciation from "cost" as a permissible

rendition of the statute. See id. at 21. In what may now be

viewed as an overabundance of caution, we noted that the parties'

arguments in Strickland I did "not require us to decide whether

self-employed food stamp recipients must be given some

alternative deduction, such as a deduction for replacement costs,

in recognition of either the cost of acquiring capital goods or

their consumption in the course of producing income." Id. at 21

n.6.1

Apparently convinced that a judicial footnote is a

1That issue was neither briefed nor argued in this court
during the pendency of Strickland I. In any event, the

appellants had told the district court that they did not dispute
the Secretary's authority to disallow principal payments on
equipment loans as a cost of producing self-employment income.

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terrible thing to waste, the Stricklands promptly reformulated

their suit to challenge that portion of 7 C.F.R.

273.11(a)(4)(ii) in which the Secretary purposed to exclude

payments on the principal of the purchase price of capital

assets, averring that a favorable finding would entitle them to

continued eligibility for food stamp assistance.

This about-face proved unproductive. The district

court granted summary judgment in favor of the state and federal

defendants, holding that the Secretary permissibly excluded

principal payments in determining the cost of producing self-

employment income. See Strickland v. Commissioner, Me. DHS, 921

F. Supp. 21, 24 (D. Me. 1996) (Strickland II) (concluding that

"if the Secretary is not required to recognize even depreciation,

he certainly cannot be required to recognize cash principal

payments"). This appeal followed.

III. STANDARD OF REVIEW
III. STANDARD OF REVIEW

Because the interpretation of a statute or regulation

presents a purely legal question, courts subject that

interpretation to de novo review. See United States v. Gifford,

17 F.3d 462, 472 (1st Cir. 1994); Liberty Mut. Ins. Co. v.

Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir. 1992).

This standard of review is between appellate tribunals and lower

courts. It does not diminish the deference that courts must

accord to authoritative interpretations of opaque statutory

provisions undertaken by those whom Congress has empowered to

administer or enforce particular laws. As we have regularly

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held, such deference is due the Secretary's interpretation of a

less-than-pellucid food stamp statute. See, e.g., Strickland I,

48 F.3d at 16; Massachusetts v. Secretary of Agric., 984 F.2d

514, 520-21 (1st Cir.), cert. denied, 114 S. Ct. 81 (1993); see

also 7 U.S.C. 2013(a), (c) (empowering the Secretary to

administer the Act).

IV. ANALYSIS
IV. ANALYSIS

When courts review an agency's interpretation of a

statute that it administers, Chevron directs them to engage in a

bifurcated inquiry. See Passamaquoddy Tribe v. State of Me., 75

F.3d 784, 794 (1st Cir. 1996); Strickland I, 48 F.3d at 16. In

an oft-quoted passage, the Chevron Court delineated the nature of

the inquiry:

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; for
the court, as well as the agency, must give
effect to the unambiguously expressed intent
of Congress. If, however, the court
determines Congress has not directly
addressed the precise question at issue, the
court does not simply impose its own
construction on the statute, as would be
necessary in the absence of an administrative
interpretation. Rather, 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 842-43 (footnotes omitted). These are the

same questions that this court posed in Strickland I, 48 F.3d at

16, and we retrace our steps to the extent appropriate.

A
A

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We first look to see if Congress has spoken to the

precise question at issue by mandating either the inclusion or

the exclusion of principal payments on capital assets from the

computation of the "cost of producing self-employment income"

under 7 U.S.C. 2014(d)(9).2 Since this branch of the inquiry

deals exclusively with statutory construction and congressional

intent, no deference is due the Secretary's views.

In Strickland I we determined that the statute, 7

U.S.C. 2014(d)(9), did not require depreciation to be included

as a "cost of producing self-employment income." In reaching

this conclusion, we focused on the ambiguity inherent in the word

"cost" a word that Congress chose not to define. We concluded

that "the word `cost' is a chameleon, capable of taking on

different meanings, and shades of meaning, depending on the

subject matter and the circumstances of each particular usage."

2In their complaint, the appellants asked the district court
to strike down the Secretary's policy, embodied in 7 C.F.R.
273.11(a)(4)(ii)(A), of disallowing principal payments made to
purchase capital assets (which they term "capital costs"). The
district court confined its ruling accordingly. See Strickland

II, 921 F. Supp. at 24-25. At oral argument before us, however,

the appellants' counsel suggested that the pivotal issue should
be cast in broader terms; he posed the ultimate question of
whether the Secretary's general regulatory scheme, in not
allowing any offset for wear and tear on capital assets by means
of depreciation, principal payments, or otherwise, is
permissible. For purposes of Chevron's first step, it makes no

difference whether we accept or reject this formulation of the
issue. Because the statute (and, particularly, the word "cost")
is ambiguous, see text infra, either formulation of the issue

leads ineluctably to the second step of the Chevron inquiry.

8

Strickland I, 48 F.3d at 19.3 We therefore found that Congress

had not spoken directly to the matter at issue. See id. at 19-

20.

Although Strickland I did not address exactly the same

question that confronts us today, we agree with the district

court that its analysis controls. The appellants would have us

believe that by some thaumaturgical sleight-of-hand the word

"cost" has acquired a plain meaning in the brief interval since

we decided Strickland I. They seek to persuade us that, though

"cost" was not clear enough to force the inclusion of

depreciation, the word nonetheless possesses sufficient clarity

to force the inclusion of either principal payments on capital

assets, or, at least, some offset for the expense of acquiring

and using up such assets.4 We are unconvinced. Statutory

ambiguity does not flash on and off like a bank of strobe lights

3Though noting the open question as to whether legislative
history could be considered at the first stage of a Chevron

inquiry, see Strickland I, 48 F.3d at 16-18, we examined the slim

legislative history underpinning 7 U.S.C. 2014(d)(9) and deemed
it insufficient to "suck the elasticity from the word `cost' and
convey an `unambiguously expressed intent of Congress,'" id. at

19-20 (quoting Chevron, 467 U.S. at 842-43). That conclusion

remains unscathed.

4In this connection, we are puzzled by the appellants'
reliance on Estey v. Commissioner, Me. DHS, 21 F.3d 1198 (1st

Cir. 1994). We ruled there that the term "energy assistance" had
a generally understood meaning and then proceeded to apply that
meaning to a particular set of facts. See id. at 1201, 1207.

The appellants' suggestion that the term "cost" has an equally
familiar meaning a meaning that includes principal payments on
capital assets as a component of "cost" flies in the teeth of
our unequivocal holding that "cost," as that term is used in the
Act, does not have any readily apparent meaning. See Strickland

I, 48 F.3d at 19.

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at a discotheque, shining brightly at the time of one lawsuit and

then vanishing mysteriously in the interlude before the next suit

appears.

We need not dawdle. There is nothing in the record

before us to indicate that Congress ever had an unambiguously

expressed intent to include principal payments on capital assets

as a cost of producing self-employment income. The text of the

statute does not encourage such a construction and there is no

legislative history (beyond that already considered and deemed

insufficient in Strickland I, 48 F.3d at 19-20) that supports

including principal payments or any proxy therefor as a "cost."

To the precise contrary, all the extrinsic evidence suggests that

Congress concurred in the Secretary's longstanding decision to

disregard such payments. The most persuasive datum comes from

the archives of the Program. The Secretary had been excluding

principal payments from the cost of producing self-employment

income for several years by the time Congress enacted 7 U.S.C.

2014(d)(9). That being so, the presumption is that Congress

intended the word "cost" to be given the same meaning that

already had been established in the regulatory context. See

Commissioner v. Keystone Consol. Indus., Inc., 508 U.S. 152, 159

(1993); Strickland I, 48 F.3d at 20.

Here, moreover, it cannot plausibly be argued that

Congress merely overlooked the Secretary's contemporaneous

treatment of principal payments, for the House Committee on

Agriculture explicitly recognized the prevailing practice. See

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H. Rep. No. 464, supra, 1977 U.S.C.C.A.N. at 2001-02. This

combination congressional awareness of an existing

administrative praxis coupled with a concomitant unwillingness to

revise that praxis strongly implies legislative approval.

"[W]hen Congress revisits a statute giving rise to a longstanding

administrative interpretation without pertinent change, the

`congressional failure to revise or repeal the agency's

interpretation is persuasive evidence that the interpretation is

the one intended by Congress.'" CFTC v. Schor, 478 U.S. 833, 846

(1986) (quoting NLRB v. Bell Aerospace Co., 416 U.S. 267, 274-75

(1974) (footnotes omitted)).5

In sum, because Congress has not plainly resolved the

interpretive question that is now before us, we must move to the

second step of the Chevron pavane.

B
B

During the second stage of a Chevron analysis, an

inquiring court accords substantial respect to authoritative

agency interpretations. See Strickland I, 48 F.3d at 17-18.

5We dismiss out of hand the appellants' contention that
Strickland I etched in stone a particular conception of "cost,"

equating the word with cash outlays. This contention reflects a
misunderstanding of the thrust of our opinion. The first step of
a Chevron inquiry requires a court to determine whether the

language of a statute is susceptible to more than one natural
meaning. Finding "cost" to be inherently ambiguous in the
context of the Act, we held that plain meaning did not foreclose
the Secretary's decision to exclude depreciation from the cost of
producing self-employment income. See Strickland I, 48 F.3d at

19. Our intention was to explain why the courts must defer to
any permissible interpretation of "cost" adopted by the

Secretary, not to endorse a particular conception of "cost"
(whether it be that of an economist, a layman, or a food stamp
recipient).

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Thus, an interpretive regulation must be honored unless it is

"arbitrary, capricious, or manifestly contrary to the statute."

Chevron, 467 U.S. at 844. In deciding this issue, a court must

avoid inserting its own policy considerations into the mix. "The

agency need not write a rule that serves the statute in the best

or most logical manner; it need only write a rule that flows

rationally from a permissible construction of the statute."

Strickland I, 48 F.3d at 17; accord Cohen v. Brown Univ., 991

F.2d 888, 899 (1st Cir. 1993). Though the level of respect

varies with the circumstances, deference to an agency's

interpretation is "particularly appropriate in complex and highly

specialized areas where the regulatory net has been intricately

woven." Massachusetts Dept. of Educ. v. United States Dept. of

Educ., 837 F.2d 536, 541 (1st Cir. 1988) (quoting Citizens Sav.

Bank v. Bell, 605 F. Supp. 1033, 1041 (D.R.I. 1985)). Moreover,

longstanding agency interpretations generally receive greater

deference than newly contrived ones. See Visiting Nurse Ass'n of

No. Shore, Inc. v. Bullen, F.3d , (1st Cir. 1996) [No.

95-1849, slip op. at 24].

Applying these standards, we readily conclude that 7

C.F.R. 273.11(a)(4)(ii) is within the pale. The regulation,

which reflects the agency's consistent interpretation for the

past quarter-century, emanates from the Secretary's reasonable

determination that the purpose of the Act is to help low-income

families purchase food, not to underwrite the acquisition of

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capital assets.6 To be sure, rental payments on capital assets

are, as the appellants point out, deductible as a "cost," but

such payments easily can be distinguished from principal

payments. When one leases a capital asset (say, a tractor) no

ownership interest is acquired, and the lease payments go

entirely toward producing self-employment income. By contrast,

when one buys a capital asset and pays for it in installments,

the payments not only permit the payer to use the asset as a

means of producing self-employment income but also permit him to

build equity. This additional feature changes the nature of the

transaction. The Secretary's regulation reasonably seeks to

avoid subsidizing such "dual purpose" payments.

Of course, the appellants now put a different spin on

the situation. See supra note 2. They suggest that, instead of

appraising the validity of 7 C.F.R. 273.11(a)(4)(ii)(A), we

should view the matter in broader terms and determine whether the

Secretary must allow some offset for expenses associated with the

acquisition and depletion of capital assets used in a trade or

business.

Passing potential procedural problems and addressing

this argument on the merits, it does not benefit the appellants.

6Our determination that the Secretary reasonably excluded
principal payments on capital assets from the cost of producing
self-employment income is bolstered by the evidence, already
chronicled, that this interpretation of "cost" is very likely the
one that Congress intended. See supra pp. 10-11. When an

agency's interpretation jibes with discernible congressional
intent, a court is hard-pressed to declare that interpretation
impermissible under Chevron's second step.

13

Their premise is that, by putting capital assets to one side, the

Secretary has defined "cost of producing self-employment income"

so grudgingly as to frustrate Congress' intent. But this premise

is faulty. The Secretary has not ignored the costs of doing

business; rather, he has recognized numerous items as allowable

costs, e.g., labor, stock, inventory, business-related interest

(including interest associated with installment payments on

capital assets), and taxes paid on income-producing property.

See 7 C.F.R. 273.11(a)(4)(i). He simply has refused to

recognize the kind of costs for which the appellants seek credit,

saying in effect that when a self-employed person is building

equity (a phenomenon that almost invariably accompanies the

purchase of capital assets), the Secretary will define "cost"

very restrictively (probably because no good way exists to give a

credit for expenses related to the purchase of capital assets

without also subsidizing some intangible ownership interest). As

a result, food stamp recipients who buy capital assets are able

to claim relatively few offsets for the expense connected with

acquiring and using those assets.

We frankly acknowledge that the Secretary's

interpretation is a harsh one, especially as it relates to

persons in the appellants' position. The regulatory edifice that

now exists may not be the one which we, if building on an empty

site, would choose to construct. But that is largely beside the

point. The term "cost" is ambiguous, and a harsh interpretation,

as here, which arises out of the Secretary's reasonable refusal

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to subsidize ownership, is not per se arbitrary or capricious.

V. CONCLUSION
V. CONCLUSION

We need go no further. The "cost of producing self-

employment income," 7 U.S.C. 2014(d)(9), is imprecise and

Congress has neither specified that payments designed to amortize

the purchase price of capital assets must be deemed part of the

cost nor decreed that some equivalent write-off must be

recognized in calculating the cost. Thus, the regulation here at

issue represents a permissible construction of the statute.

After all, within the wide limits that Chevron sets, courts must

respect the Secretary's policy choices.

Affirmed.
Affirmed.

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