Philip Morris USA, Incorporated v. Thomas Vilsack

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 12-2498

PHILIP MORRIS USA, INCORPORATED,

Plaintiff - Appellant,

v.

THOMAS J. VILSACK, Secretary of Agriculture; UNITED STATES
DEPARTMENT OF AGRICULTURE,

Defendants – Appellees,

CIGAR ASSOCIATION OF AMERICA, INCORPORATED,

Intervenor/Defendant – Appellee.

Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond. Henry E. Hudson, District
Judge. (3:11-cv-00087-HEH)

Argued: September 19, 2013 Decided: November 20, 2013

Before DUNCAN and THACKER, Circuit Judges, and Gina M. GROH,
United States District Judge for the Northern District of West
Virginia, sitting by designation.

Affirmed by published opinion. Judge Duncan wrote the opinion,
in which Judge Thacker and Judge Groh joined.

ARGUED: Lauren R. Goldman, MAYER BROWN, LLP, New York, New York,
for Appellant. Sydney Foster, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C.; Daniel Gordon Jarcho, MCKENNA, LONG
& ALDRIDGE, LLP, Washington, D.C., for Appellees. ON BRIEF: Dan
Himmelfarb, Richard P. Caldarone, MAYER BROWN LLP, Washington,
D.C., for Appellant. Neil H. MacBride, United States Attorney,
OFFICE OF THE UNITED STATES ATTORNEY, Alexandria, Virginia;
Stuart F. Delery, Acting Assistant Attorney General, Mark B.
Stern, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellees.

2
DUNCAN, Circuit Judge:

Philip Morris brings this appeal seeking review of a United

States Department of Agriculture decision regarding the

implementation of the Fair and Equitable Tobacco Reform Act

(“FETRA”). Pub. L. 108-357 § 601, 118 Stat. 1418, 1521 (2004)

(codified at 7 U.S.C. §§ 518 et seq.). FETRA instructs USDA to

levy certain assessments against manufacturers and importers 1 of

tobacco products. Philip Morris challenges USDA’s decision to

use 2003 tax rates instead of current tax rates in calculating

how these assessments are to be allocated across manufacturers

of different tobacco products. The district court concluded

that USDA’s decision was based upon a reasonable interpretation

of FETRA and granted USDA’s motion for summary judgment. For

the reasons that follow, we affirm.

I.

In 2004, Congress enacted FETRA to end the system of quotas

and other price supports that tobacco growers in the United

States had enjoyed since the passage of the Agricultural

Adjustment Act of 1938. It chose, however, to ease the

transition from the old quota system by replacing it with a

1
For brevity’s sake, we will refer solely to manufacturers.
“Manufacturers” may therefore be taken to mean “manufacturers
and importers.”

3
temporary system of periodic payments to tobacco growers and

other holders of tobacco quotas. The payments began in 2005 and

are to cease in 2014. See 7 U.S.C. §§ 518a & 518b. FETRA

created the Tobacco Trust Fund to fund these payments. The fund

is administered by the Commodity Credit Corporation (“CCC”), a

government corporation administered by USDA, and funded with CCC

assets as well as assessments imposed on manufacturers of

tobacco products. 7 U.S.C. § 518e. At issue in this case is

the permissibility of USDA’s chosen method for making those

assessments.

A.

Each year, FETRA requires USDA to determine the total

amount of funds that must be raised through the assessment

process in order to make the payments required for that year

under 7 U.S.C. §§ 518a & 518b and to cover other fund expenses.

7 U.S.C. § 518d(b)(2). Then, USDA is to follow a two-step

procedure to determine what portion of that total amount is to

be paid by each manufacturer of tobacco products.

In the first step of that procedure, USDA is instructed to

calculate the percentages of the total national assessment to be

paid collectively by the manufacturers of each class of tobacco

product: cigarettes, cigars, snuff, roll-your-own tobacco,

chewing tobacco, and pipe tobacco. 7 U.S.C. § 518d(c). Then,

at step two, USDA is to determine each manufacturer’s individual

4
liability by multiplying its market share within each class by

that class’s total assessment burden as calculated in step one.

7 U.S.C. §§ 518d(e),(f). USDA performs these calculations in an

initial determination at the beginning of each year, and then

collects the resulting amounts from manufacturers in quarterly

payments. Described at this level of abstraction, the procedure

seems simple, but this veneer of simplicity dissolves under

closer examination.

1.

Congress’s instructions for determining each class’s total

assessment burden are sparse. FETRA provides specific

percentages of the assessment burden to be allocated to each of

the six classes of tobacco product in fiscal year 2005. 7

U.S.C. § 518d(c)(1). But for subsequent years, the statute

instructs only that these percentages are to be adjusted “to

reflect changes in the share of gross domestic volume” held by

each class of product. 7 U.S.C. § 518d(c)(2). “Gross domestic

volume,” in turn, is defined as the volume of product “removed

into commerce” 2 and subject to federal excise taxes or import

tariffs at the time of removal. 7 U.S.C. § 518d(a)(2)(A).

2
FETRA uses the Internal Revenue Code definition for
“removal”: “the removal of tobacco products or cigarette papers
or tubes, or any processed tobacco, from the factory or from
internal revenue bond . . . , or release from customs custody,
and shall also include the smuggling or other unlawful
(Continued)
5
 Volumes of different classes of tobacco product are

measured in different units. Volumes of cigarettes and cigars

are measured in sticks, but volumes of all other tobacco

products are measured in pounds. See 7 U.S.C. § 518d(g)(3)

(prescribing units of measurement to be used in calculating

“volume of domestic sales”); 26 U.S.C. § 5701 (prescribing

excise tax rates per stick for cigars and cigarettes, and per

pound for the other classes of tobacco product). USDA

determined that, in arriving at the initial allocations in

§ 518d(c)(1), Congress converted these volumes into a common

unit--dollars--by multiplying each class’s volume by the maximum

excise tax rate applicable to that class. To arrive at a

percentage for each class, the resulting dollar amount for each

class was then divided by the sum of all dollar amounts across

all six classes. See Tobacco Transition Assessments, 70 Fed.

Reg. 7007-01, 7007 (February 10, 2005) (codified at 7 C.F.R. pt.

1463). The statute itself, however, does not explain that this

is how the initial allocations were determined or explicitly

indicate that future allocations are to be arrived at in this

way.

importation of such articles into the United States.” 26 U.S.C.
§ 5702(j).

6
 2.

Step two of the FETRA allocation procedure deals with

subdividing the step-one inter-class allocation among

manufacturers of tobacco products within each class. As a

starting point, FETRA provides that the total assessment for

each class of tobacco product is to be allocated among the

manufacturers of that class “based on” each manufacturer’s share

of gross domestic volume. 7 U.S.C. § 518d(e)(1). More

specifically, this allocation is to be calculated by multiplying

each manufacturer’s market share within a class by that class’s

total allocation from step one. 7 U.S.C. § 518d(f). A

manufacturer’s market share, in turn, is to be its “share” of

the “volume of domestic sales” for that class of product. 7

U.S.C. § 518d(a)(3).

Compared to its skeletal treatment of “gross domestic

volume,” FETRA provides considerable detail about how to

calculate “volume of domestic sales.” FETRA devotes two

subsections to the latter, one for “determining” it and another

for “measuring” it. 7 U.S.C. §§ 518d(g),(h). USDA is

instructed to calculate volume of domestic sales based upon

gross domestic volume, forms relating to a manufacturer’s volume

of removals and taxes paid, and “any other relevant

information.” 7 U.S.C. §§ 518d(g)(1),(g)(2),(h)(2). Thus,

while § 518(e)(1) instructs USDA to base its intra-class

7
allocations on gross domestic volume, § 518(g) indicates that

other factors are to be considered as well.

B.

In February of 2005, USDA promulgated a final rule

implementing the FETRA assessment methodology codified at 7

U.S.C. § 518d. Tobacco Transition Assessments, 70 Fed. Reg.

7007-01 (February 10, 2005) (codified at 7 C.F.R pt. 1463).

That rule provided that USDA would determine each year’s inter-

class allocation on the basis of “each class’s share of the

excise taxes paid . . . . [b]ased upon the reports filed by

domestic manufacturers and importers of tobacco products with

the Department of the Treasury and the Department of Homeland

Security.” 7 C.F.R. § 1463.5(a) (2005). 3

With this interpretation in place, Congress incorporated

the FETRA methodology into another statute, the Family Smoking

Prevention and Tobacco Control Act (“FSPTCA”), Pub. L. 111-31,

123 Stat. 1776 (2009). That statute relies upon the FETRA

methodology to determine the “user fee” to be paid by

manufacturers of tobacco products to the Food and Drug

Administration to fund the exercise of its newly conferred

3
USDA reiterated this language--that it would use “excise
taxes paid”--in its briefs in an unrelated case before the
Eleventh Circuit. Swisher Int’l, Inc. v. Schafer, 550 F.3d 1046
(11th Cir. 2008).

8
jurisdiction to regulate them. Id. § 919(b)(2)(B)(ii) (codified

at 21 U.S.C. § 387s(b)(2)(B)(ii)).

Congress also passed the Children’s Health Insurance

Program Reauthorization Act of 2009 (“CHIPRA”). Pub. L. No.

111-3, 123 Stat. 8. As well as expanding federal health

insurance programs for children, that bill also increased the

excise taxes on every class of tobacco product. CHIPRA § 701.

The cigar industry, through the Cigar Association of America,

mounted a lobbying campaign to persuade Congress not to increase

excise taxes on cigars on the grounds that the tax itself would

be burdensome and that the change in rates would increase the

cigar industry’s FETRA assessment burden. This campaign reached

“a great many congressional members.” J.A. 167. But the

lobbying effort, it would seem, did not succeed. CHIPRA

equalized the tax rates for cigarettes 4 and small cigars at

$50.33 per thousand. CHIPRA §§ 701(a)(1), (b)(1).

Though the rates were equalized, the relative change in

rates was much larger for cigars than cigarettes. While the

4
The Internal Revenue Code defines two categories of
cigarette, large and small. For the years at issue here,
however, no large cigarettes were actually removed. See, e.g.,
Alcohol and Tobacco Tax and Trade Bureau, Department of the
Treasury, Statistical Report: Tobacco (Dec. 2005) (indicating
that no large cigarettes were removed in 2004 or 2005). (Reports
for other years also show that no large cigarettes were
removed.) We will therefore use “cigarette” to refer only to
small cigarettes.

9
rate for cigarettes was increased to $50.33 from $19.50 per

thousand, 26 U.S.C. § 5701(b)(1) (2000); CHIPRA § 701(b)(1), the

rate for small cigars increased to $50.33 from only $1.828 per

thousand, 26 U.S.C. § 5701(a)(1) (2000); CHIPRA § 701(a)(1).

The tax rate for large cigars was also greatly increased: the

rate increased from $48.75 per thousand cigars to $402.60 per

thousand cigars. 5 26 U.S.C. § 5701(a)(2) (2000); CHIPRA §

701(a)(3).

C.

As described above, the FETRA inter-class allocation

calculates each class’s share of the burden by multiplying the

removed volume of each class of product by the maximum

applicable excise tax rate. USDA’s regulations at the time

CHIPRA was enacted provided that inter-class allocations would

be determined on the basis of “each class’s share of the excise

taxes paid,” which implied that USDA would use current tax rates

in performing these calculations. 6 Therefore the tax rate

changes in CHIPRA would have substantially reduced the burden

5
The act expresses this rate as “40.26 cents per cigar.”
CHIPRA § 701(a)(3).
6
Beyond this implication, however, USDA never explicitly
took a position on how future changes in the excise tax rates
would be reflected in the inter-class allocation process. The
tobacco excise tax rates had remained constant during the life
of the FETRA program until the enactment of CHIPRA.

10
allocated to the cigarette industry and shifted it to

manufacturers of other types of tobacco products. The cigar

industry in particular would have seen a marked increase in its

liability.

After the passage of CHIPRA, however, USDA promulgated a

technical amendment to 7 C.F.R. § 1463.5 to make clear that it

would continue to use the 2003 tax rates--the rates applied by

Congress in setting the fiscal year 2005 allocations. Tobacco

Transition Payment Program; Tobacco Transition Assessments, 75

Fed. Reg. 76921-01 (Dec. 10, 2010) (to be codified at 7 C.F.R

pt. 1463). This amendment altered the text of the regulation

such that USDA would calculate each class’s share of the year’s

assessment on the basis of “each class’s share of the excise

taxes paid using for all years the tax rates that applied in

fiscal year 2005.” 7 C.F.R. § 1463.5(a)(2010) (emphasis added).

USDA published an extensive explanation of the amendment, 75

Fed. Reg. at 76921-01, which it summarized as follows:

[USDA] is modifying the regulations for the Tobacco
Transition Payment Program (TTPP) to clarify,
consistent with current practice and as required by
the Fair and Equitable Tobacco Reform Act of 2004
(FETRA), that the allocation of tobacco manufacturer
and importer assessments among the six classes of
tobacco products will be determined using constant tax
rates so as to assure that adjustments continue to be
based solely on changes in the gross domestic volume
of each class. This means that [USDA] will continue
to determine tobacco class allocations using the
Federal excise tax rates that applied in fiscal year
2005. These are the same tax rates used when TTPP was

11
 implemented and must be used to ensure, consistent
with FETRA, that changes in the relative class
assessments are made only on the basis of changes in
volume, not changes in tax rates. This technical
amendment does not change how the TTPP is implemented
by [USDA], but rather clarifies the wording of the
regulation to directly address this point.

Id.

D.

The technical amendment first had an effect in USDA’s

allocation of the fiscal year 2011 national assessment. Philip

Morris contends that, because USDA used the pre-CHIPRA tax

rates, it calculated that the cigarette industry would pay 91.6%

of the national assessment instead of 78.5%, the maximum that

would have been allocable to it had the then-current rates been

applied. The cigar class was allocated 7.1% instead of 19.5%.

In the first quarterly assessment of that year, therefore,

manufacturers of cigarettes paid approximately $219 million

instead of $188 million. Of this $219 million, $99 million was

assessed to Philip Morris by virtue of its cigarette market

share. Had USDA allocated only $188 million to the cigarette

class, Philip Morris’s individual assessment would have been

significantly lower.

Philip Morris appealed this assessment, as well as the

assessments for the next two quarters, to the Secretary of

Agriculture under 7 U.S.C. 518d(i). USDA denied all three

appeals on the basis that the appeal process could only be used

12
to assert mathematical or factual errors, not to challenge the

assessment formula itself.

Philip Morris also petitioned USDA for a rulemaking that

would, in effect, repeal the December 10, 2010 technical

amendment to 7 C.F.R. § 1463.5, 75 Fed. Reg. 76921-01, and

require USDA to always use current tax rates. USDA rejected

that petition. See 76 Fed. Reg. 71934-02 (Nov. 21, 2011).

Finally, Philip Morris brought this lawsuit, arguing that

USDA’s December 10, 2010 technical amendment was inconsistent

with FETRA. It sought an order vacating that amendment,

restraining USDA from collecting assessments in excess of what

Philip Morris would have paid had current tax rates been

applied, and directing USDA to refund the excessive payments

Philip Morris had already made. At summary judgment, however,

the district court concluded that USDA’s methodology “faithfully

adjust[s] the percentage of the total amount required to be

assessed against each class of tobacco product . . . as directed

by 7 U.S.C. § 518d(c)(2)” and “reasonably reflects the

congressional intent underlying FETRA.” Philip Morris USA Inc.

v. Vilsack, 896 F. Supp. 2d 512, 524 (E.D. Va. 2012).

Accordingly, it granted USDA’s motion for summary judgment.

This appeal followed.

13
 II.

In determining whether USDA’s decision to use only the tax

rates applicable in 2005 is permissible, we conduct the two-step

analysis articulated in Chevron, U.S.A., Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837 (1984). We first

ask whether “Congress has directly spoken to the precise

question at issue.” Id. at 842. At step one, we employ “the

traditional rules of statutory construction.” Elm Grove Coal

Co. v. Dir., O.W.C.P, 480 F.3d 278, 293-94 (4th Cir. 2007)

(quoting Brown & Williamson Tobacco Corp. v. FDA, 153 F.3d 155,

162 (4th Cir. 1998)). In so doing, we consider “the overall

statutory scheme, legislative history, the history of evolving

congressional regulation in the area, and . . . other relevant

statutes.” Id. At this stage, the court gives no weight to the

agency’s interpretation. Mylan Pharm., Inc. v. FDA, 454 F.3d

270, 274 (4th Cir. 2006). If the court determines that

Congress’s intent is clear, then the inquiry ends and Congress’s

intent is given effect. See Chevron, 467 U.S. at 843.

If we conclude that Congress has not clearly answered the

question at issue, we then consider whether the agency’s

interpretation of the statute is based upon a permissible

construction of the governing statute. Id. at 843. To

elucidate the gaps and ambiguities in the programs created by

Congress is one of the core functions of an administrative

14
agency, a function that we presume Congress intentionally

invokes in drafting such a statute. Id. at 843-44. We

therefore will not usurp an agency’s interpretive authority by

supplanting its construction with our own, so long as the

interpretation is not “arbitrary, capricious, or manifestly

contrary to the statute.” Id. at 844. A construction meets

this standard if it “represents a reasonable accommodation of

conflicting policies that were committed to the agency’s care by

the statute.” Id. at 485 (quoting United States v. Shimer, 367

U.S. 374, 383 (1961)).

When an agency’s decision constitutes a change in position,

the court must be satisfied that such a change in course was

made as a genuine exercise of the agency’s judgment. Such a

change does not, however, require greater justification than the

agency’s initial decision. See FCC v. Fox Television Stations,

Inc., 556 U.S. 502, 515 (2009). We defer to the agency’s new

position no less than the old, so long as we are satisfied that

the agency’s change in position was intentional and considered.

It is not the court’s role to evaluate whether the agency’s

reasons for its new position are better than its reasons for the

old one. Id. We review the district court’s factual and legal

conclusions on an administrative record de novo. Ohio Valley

Envtl. Coal. v. Aracoma Coal Co., 556 F.3d 177, 189 (4th Cir.

2009).

15
 A.

We begin our Chevron step one analysis with this most basic

observation: nowhere does FETRA explicitly say that USDA is

required to use any tax rate at all in computing an inter-class

assessment allocation, much less that it must use the rates that

were applicable in any particular year. The statute’s only

overt references to taxes or tax rates can be found in 7 U.S.C.

§§ 518d(a)(2)(B) & (h)(2)(B). Section 518d(a)(2)(B) requires

that gross domestic volume only include tobacco product that is

taxable when removed. Section 518d(h)(2)(B) requires that

manufacturers of tobacco products submit copies of forms related

to their excise tax payments. Significantly, neither of these

provisions deal directly with the computation of inter-class

assessment allocations.

Instead it was USDA that discovered, through mathematical

reverse engineering, that Congress had used the excise tax rates

applicable in 2003 to compute the initial assessment allocation

in § 518d(c)(1). USDA determined that it could reproduce the

numbers in that paragraph by obtaining volume information from

publically available statistical reports published by the

Treasury Department 7 and multiplying those volumes by the maximum

7
See, e.g., Alcohol and Tobacco Tax and Trade Bureau,
Department of the Treasury, Statistical Report: Tobacco (Dec.
2005).

16
excise tax rate applicable to each class of product. This

process generated dollar amounts that, when taken as percentages

of the total dollar amount across all six classes, corresponded

with the percentages in § 518d(c)(1).

But even at Chevron step one, we must not confine ourselves

to a merely superficial reading of the statute. We must also

make use of our traditional tools of statutory construction to

determine whether Congress’s intent is revealed in more subtle--

though still unambiguous--ways. Elm Grove Coal, 480 F.3d at

293-94.

Notwithstanding the lack of any overt reference to a

current-tax-rate requirement, Philip Morris argues that such a

requirement is implied from the overall structure of the statute

and by subsequent congressional action. It does so by cobbling

together various provisions relating to FETRA’s intra-class

allocation procedure and by speculating about the policy goals

of Congress’s chosen method for performing the inter-class

allocation calculations. Philip Morris’s reading of FETRA may

be a plausible one, but its burden is far higher than showing

plausibility. To disturb USDA’s decision at Chevron step one,

it must persuade us that USDA’s decision is contrary to the

unambiguously expressed intent of Congress. This it has not

done.

17
 1.

Philip Morris argues that “Congress commanded USDA to

adjust the class shares based upon changes in the share of

currently taxable removals” in § 518d(a)(2)(B). Therefore, it

argues, “it follows that Congress intended USDA to use current

rates.” Appellants’ Br. at 27 (emphasis omitted). Philip

Morris’s premise is correct, but its conclusion does not

necessarily follow. It might have made sense to use the same

edition of the Internal Revenue Code to determine what products

are to be included in gross domestic volume and to determine how

volumes are to be translated into percentages. But there is

nothing incoherent about taking a different approach.

To conclude otherwise would invert the standard we apply

under Chevron step one: we vacate an agency’s decision if

Congress clearly manifested a contrary intent, not when Congress

could have but did not clearly manifest its approval. In this

light, congressional silence might actually cut the other way.

Section 518d(a)(2)(B) exemplifies language that Congress could

have used in § 518d(c), but conspicuously did not, to make clear

that current tax rates were to be used in calculating the

assessment allocations.

2.

Philip Morris argues that Congress clearly indicated that

it expected USDA to always use current rates in the inter-class

18
allocations by requiring manufacturers to submit forms “that

relate to . . . the payment of [tobacco product excise taxes].”

But FETRA only instructs USDA to use these forms as a part of

the intra-class allocation process.

The requirement that manufacturers submit these forms

appears in § 518d(h), which is entitled “Measurement of volume

of domestic sales.” Consistent with this characterization,

FETRA only requires that USDA actually use the forms in one

place: § 518d(g)(1). This paragraph directs USDA to compute

volume of domestic sales, not gross domestic volume, “based on

information provided by the manufacturers and importers . . . as

well as any other relevant information. . . .” Id. And, as we

have noted, FETRA only instructs USDA to use volume of domestic

sales for one purpose: computation of a manufacturer’s market

share to determine the intra-class allocations at step two of

the FETRA assessment procedure. §§ 518d(a)(3),(f). 8

8
Philip Morris also points out that “the forms relate to
calculations concerning ‘all manufacturers and importers [within
a class] as a group.’” Appellants’ Brief at 35. But this is
quite a selective quotation of § 518d(g)(1). What the statute
actually says is that the forms are to be used in calculating
“the volume of domestic sales of a class of tobacco product . .
. by all manufacturers and importers as a group.” Id. The
obvious purpose of this is to form the denominator of the
fraction contemplated by § 518d(f)(2) in calculating market
share.

19
 Philip Morris argues that Congress cannot have intended to

require the use of these forms only for the intra-class

allocation because information about taxes paid is unnecessary

for those calculations. This is so, it contends, because intra-

class market share calculations will always be apples-to-apples

(or cigar-to-cigar, etc.) comparisons. Therefore, unlike the

inter-class allocation that deals with differing units of

measurement, there is no need to use the excise tax rates as a

conversion factor for intra-class calculations.

This overlooks, however, the possibility that Congress

intended for USDA to use these forms for some purpose other than

unit conversion. They could be valuable, for example, in

determining the volume of taxable products actually removed by

each manufacturer. Indeed, the record indicates that USDA uses

the forms in exactly this way. But even if Philip Morris’s

assumption were correct, the forms’ irrelevance would be an

infirmity in FETRA, not in USDA’s interpretation of it. That

the data might be superfluous in the calculation for which

Congress directed it be used does not amount to a clear

articulation that it should actually be used for some other

purpose.

3.

Philip Morris’s remaining step one arguments presuppose the

existence of a textual basis for concluding that Congress

20
intended for USDA to always use current rates under 518d(c).

But, for the reasons discussed above, we conclude otherwise.

The only direct evidence of Congress’s intent in this regard is

its actual use of the then-current 2003 rates, in establishing

the initial allocation under § 518d(c)(1). But this provides no

basis for determining whether Congress intended that USDA would

always use current rates or that it would always use 2003 rates.

The minimal textual evidence is equally consistent with both

methodologies.

This conclusion dooms Philip Morris’s remaining Chevron

step one arguments. Most basically, Philip Morris argues that

USDA must follow the methodology Congress used in establishing

its initial allocation, and that this methodology was to use the

excise taxes that applied in the year the products were removed.

But, as we have just pointed out, there is no independent

textual support for this contention.

Philip Morris also argues that, in adjusting for changes in

each class’s share of gross domestic volume, Congress decided to

use each class’s then-current excise tax burden as the factor

with which to convert volumes to shares. But this argument begs

the same question.

Likewise, we are not persuaded by Philip Morris’s argument

that Congress intended to further the policies underlying its

choice of excise tax rates by building them into the FETRA

21
assessment allocation. There is no evidence in the text of

FETRA or elsewhere to indicate that Congress intended to use

FETRA as a vehicle to further tax policy writ large. The record

equally supports the conclusion that Congress used the 2003

excise tax rates only because they were a useful mathematical

expedient. Therefore, having found no clear statement of

Congressional intent, we turn to step two of the Chevron

analysis.

B.

The Chevron step two analysis brings us closer to the heart

of this dispute. Here we examine whether USDA’s decision is

based upon a permissible reading of FETRA, a reading that

reflects a reasonable balancing of the policy considerations

that Congress entrusted to USDA’s care. Chevron, 467 U.S. at

843-45. We do not evaluate which interpretation of FETRA is

best. That is a responsibility delegated by Congress to USDA.

Our task is simply to determine whether USDA’s interpretation is

reasonable in light of all we know about Congress’s intent in

passing it.

Many of Philip Morris’s arguments at step two of the

Chevron analysis are reiterations of its step-one arguments.

They are equally unavailing in the context of Chevron step two.

In particular, as it did under Chevron step one, Philip

Morris contends that USDA was entrusted with all of the complex

22
and important policy considerations that drive tax law

generally. USDA’s interpretation is unreasonable, it argues,

because it disregards the considerations reflected in other

statutes involving tobacco excise taxes. But as we concluded

above, there is no evidence that Congress intended for FETRA to

do anything more than provide a workable methodology for the

allocation of assessments across manufacturers of tobacco

product.

Philip Morris does, however, present some independent step-

two arguments. It argues that USDA’s decision is based upon an

interpretation of FETRA at odds with the text of the statute, 9

that USDA’s decision is inconsistent with its previous position,

and that Congress subsequently entrenched this prior position,

rendering it immune to further modification by the USDA. We

consider each of these arguments in turn, and conclude that, as

at step one, Philip Morris presents nothing more than a

plausible alternative reading of FETRA.

9
We consider this under Chevron step two because Philip
Morris’s argument targets not the consistency of USDA’s decision
itself with the text of FETRA, but the permissibility of the
statutory interpretation that underlies it. See Chevron, 467
U.S. at 843 (“[I]f 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.”).

23
 1.

Philip Morris argues that USDA’s decision to continue using

2003 rates rests on an impermissible interpretation of the

phrase “share of gross domestic volume” in § 518d(c)(2). USDA

has interpreted that term to mean a given class’s “contribution

to the total” such that the share changes only in response to

changes in actual volume produced. Philip Morris presents two

arguments. First it argues that USDA’s interpretation defines

“share of gross domestic volume” as a volume and, thus, makes it

synonymous with a different statutory term, “volume of domestic

sales.” In the alternative, Philip Morris argues that USDA’s

interpretation has defined the term as a percentage but

impermissibly uses different conversion rates for calculating

this percentage at the two steps of the assessment process--2003

tax rates for the inter-class allocation, but current tax rates

for the intra-class allocation. 10

These arguments are, however, unavailing. A volume is an

actual number of objects in an absolute sense. But a share, as

USDA has interpreted it, is an abstract relationship between a

volume and a larger total volume. USDA’s interpretation

10
It also argues that USDA is obliged to use the same
conversion factor as Congress did in arriving at the initial
class allocations in § 518d(c)(1). This argument fails for the
reasons explained in part II.A.3 supra.

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therefore defines “share of gross domestic volume” differently

from “volume of domestic sales.”

“Share of gross domestic volume,” as USDA has interpreted

the term, also need not be a percentage. A percentage is a

numerical representation of a share, not the share itself.

Therefore “share of gross domestic volume” as USDA has

interpreted it, need not incorporate any conversion factor at

all. Philip Morris argues that USDA does, in fact, use taxes

actually paid (and thus current tax rates) as a conversion

factor in the intra-class allocation procedure. But USDA uses

taxes paid as a proxy for the volume of product removed, not as

a conversion factor to relate volumes to one another.

Therefore, although USDA’s interpretation may not be the most

natural reading of the statute, it is a reasonable one, and that

is all that Chevron requires.

2.

As we noted earlier, prior to USDA’s December 10, 2010

technical amendment, many members of Congress were informed that

under USDA’s regulations at the time, changes in excise tax

rates would affect the FETRA assessment calculations. Philip

Morris argues that Congress, in effect, legislated that view,

rendering it impervious to modification by USDA, when it did two

things. First, Congress passed CHIPRA, with its dramatic tax

increase on cigar manufacturers, over the protestations of the

25
cigar industry that this change would increase its assessment

burden under FETRA. Second, Congress passed FSPTCA, which gave

the Food and Drug Administration the authority to regulate

tobacco and, to fund these new duties, imposed user fees on

manufacturers of tobacco products. In allocating these fees

across “users,” it provides that “[t]he applicable percentage of

each class of tobacco product . . . for a fiscal year shall be

the percentage determined under [FETRA] for each such class of

product for such fiscal year.” 21 U.S.C. § 387s(b)(2)(B)(ii).

Therefore, Philip Morris argues, because Congress was aware

of USDA’s original interpretation, and took action without

disturbing that interpretation, it sub silentio ratified and

entrenched it. Thus, Philip Morris contends, USDA’s prior

interpretation now has, in effect, the force of a statute and

USDA cannot deviate from it without congressional action.

But we have never articulated such a standard for

entrenchment, and for good reason: it is far too low. If Philip

Morris’s formulation were the standard, Congress would

inadvertently entrench agency interpretations much too

frequently, resulting in extensive ossification of our

regulatory system--the signal virtue of which is its

flexibility. Such a standard would therefore contravene the

axiom that agencies “must be given ample latitude to ‘adapt

their rules and policies to the demands of changing

26
circumstances.’” FDA v. Brown & Williamson Tobacco Corp., 529

U.S. 120, 156-57 (2000) (quoting Motor Vehicle Mfrs. Assn. v.

State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42 (1983)).

Brown & Williamson provides a useful model of what sort of

congressional action would be required to entrench an agency’s

interpretation. In Brown & Williamson the question was whether

congressional action had ratified the FDA’s prior conclusion

that it lacked jurisdiction to regulate tobacco products. In

concluding that it had, the Court devoted thirteen pages in the

U.S. Reports to narrating the 35-year pattern of congressional

action on the issue, id. at 143-156, of which the following is

merely a summary:

Congress has enacted several statutes addressing the
particular subject of tobacco and health, creating a
distinct regulatory scheme for cigarettes and
smokeless tobacco. In doing so, Congress has been
aware of tobacco’s health hazards and its
pharmacological effects. It has also enacted this
legislation against the background of the FDA
repeatedly and consistently asserting that it lacks
jurisdiction under the [Food, Drug, and Cosmetic Act]
to regulate tobacco products as customarily marketed.
Further, Congress has persistently acted to preclude a
meaningful role for any administrative agency in
making policy on the subject of tobacco and health.
Moreover, the substance of Congress’ regulatory scheme
is, in an important respect, incompatible with FDA
jurisdiction.

Id. at 155-56. We are not aware of, and Philip Morris has not

directed us to, any case where a court has found congressional

entrenchment of an agency decision on the basis of anything

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less. The circumstances surrounding Congress’s enactment of

CHIPRA and FSPTCA fall far short of this standard.

3.

Finally, Philip Morris argues that USDA’s current position-

-that it will continue to use 2003 rates in the inter-class

allocation--is unreasonable because it is inconsistent with its

prior position. Before the December 10, 2010 technical

amendment, USDA’s regulations indicated that it would use taxes

paid under current rates.

A mere change in position, however, would not in itself

render USDA’s current position unreasonable. It is well

established that “[a]n initial agency interpretation is not

instantly carved in stone.” Chevron, 467 U.S. at 863. Indeed,

a change in an agency’s position in itself is not even subject

to a heightened level of scrutiny. Fox Television Stations,

Inc., 556 U.S. at 514 (2009); E.E.O.C. v. Seafarers Int'l Union,

394 F.3d 197, 201 (4th Cir. 2005). Thus, without more, it is of

little significance whether USDA’s current position is the same

as its original one.

Philip Morris argues that USDA has denied changing its

position, but it misconstrues USDA’s argument. USDA has only

argued that, prior to the December 10, 2010 technical amendment,

it had never taken a position on whether future changes in tax

rates would affect the FETRA assessment calculations. There was

28
no need to have done so because, before that point, the excise

tax rates had not changed during the life of the FETRA program.

This is a plausible interpretation, and because it is an

agency’s interpretation of its own regulation, we defer to it.

See Auer v. Robbins, 519 U.S. 452, 461 (1997).

USDA has not argued that the decision at issue in this

case, the technical amendment’s insertion of the words “using

for all years the tax rates that applied in fiscal year 2005,” 7

C.F.R. § 1463.5(a)(2010), made no difference in the FETRA

calculations. Quite the opposite: USDA’s recognition of the

difference between the original regulation and the amended one

is precisely why it issued the technical amendment. Moreover,

in response to Philip Morris’s rulemaking petition, USDA issued

a detailed determination explaining why it would continue to use

2003 rates instead of current rates, as Philip Morris had

proposed--an act quite inconsistent with the view that USDA

regarded the two approaches as equivalent.

We defer to an agency’s interpretation--even if it

constitutes a change of position--so long as that decision

resulted from a deliberate exercise of the agency’s judgment and

expertise. Fox Television Stations, Inc., 556 U.S. at 514–15.

There can be no dispute on this record that the decision under

review is a product of just that process.

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 III.

We therefore conclude that USDA’s decision to make use of

only 2003 tax rates in computing the inter-class assessment

allocation under 7 U.S.C. 518d(c)(2) is a permissible

interpretation of FETRA. There is no clear indication in the

text of the statute, or in Congress’s prior or subsequent

action, that Congress intended for USDA to take a different

course. There is similarly no basis for concluding that USDA

filled that gap with an unreasonable interpretation. The

district court’s decision granting USDA’s motion for summary

judgment is

AFFIRMED.

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