Slip Op. 07-91
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
________________________________________
LADY KIM T. INC. :
:
Plaintiff, : Court No. 05-00511
:
v. :
:
UNITED STATES SECRETARY OF :
AGRICULTURE :
:
Defendant. :
________________________________________:
Held: United States Department of Agriculture’s Remand
Determination is affirmed.
Neville Peterson, LLP, (Curtis Walter Knauss; Laura Martino)
for Lady Kim T. Inc., Plaintiff.
Peter D. Keisler, Assistant Attorney General, Jeanne Davidson,
Director, Patricia M. McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (Michael J. Dierberg); of counsel: Jeffrey Kahn, Office
of the General Counsel, United States Department of Agriculture,
for the United States Secretary of Agriculture, Defendant.
June 6, 2007
OPINION
Tsoucalas, Judge: This matter is before the Court on motion
for judgment upon the agency record filed by Plaintiff, Lady Kim T.
Inc. (“Plaintiff” or “Lady Kim”). Plaintiff challenges the final
determination of the Foreign Agricultural Service of the United
States Department of Agriculture (“Defendant” or “Department”) and
the subsequent remand determination ordered by this Court in Lady
Court No. 05-00511 Page 2
Kim T. Inc. v. United States, 30 CIT __, 469 F. Supp. 2d 1262
(“Lady Kim I”), denying its application for trade adjustment
assistance (“TAA”) benefits.1 See Reconsideration Upon Remand of
the Application of Lady Kim T. Inc., (Dep’t of Agric. Mar. 14,
2007) (“Remand Determination”). After considering all the briefs
and the papers filed herein, and for the reasons that follow, the
Court holds that the Department’s findings of fact with regard to
this matter are supported by substantial record evidence and that
the Department’s legal conclusions are not arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with law.
Accordingly, the Department’s Remand Determination is affirmed.
JURISDICTION
The Court has jurisdiction over this matter pursuant to 19
U.S.C. § 2395(c)(2000).
STANDARD OF REVIEW
When reviewing a determination by the Department, the
“findings of fact by the . . . [Department] . . . if supported by
substantial evidence, shall be conclusive; but the court, for good
cause shown, may remand the case to [the Department] to take
further evidence, and [the Department] may thereupon make new or
modified findings of fact and may modify [its] previous action . .
1
See Trade Adjustment Assistance Reform Act of 2002,
Pub. L. No. 107-210, Title I, Subtitle C § 141, 116 Stat. 953
(2002); see also 19 U.S.C. § 2401 et. seq.
Court No. 05-00511 Page 3
. .” 19 U.S.C. § 2395(b). Accordingly, the Court will uphold the
Department’s determination if its factual findings are supported by
substantial record evidence. See id.; Cabana v. United States
Sec’y of Agric., 30 CIT __, 427 F. Supp. 2d 1232 (2006).
Substantial evidence is “more than a mere scintilla. It means such
relevant evidence as a reasonable mind might accept as adequate to
support a conclusion.” Universal Camera Corp. v. NLRB, 340 U.S.
474, 477 (1951) (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197,
229 (1938)). The Court will uphold the Department’s legal
determination if it is in accordance with law pursuant to the
default standard set forth in the Administrative Procedure Act.2
See 5 U.S.C. § 706 (2000). In reviewing the Department’s
determination the Court must “hold unlawful and set aside agency
action, findings and conclusions found to be . . . arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance
with law.” 5 U.S.C. § 706(A). “[T]he ‘touchstone’ of the
‘arbitrary, capricious’ standard is rationality.” Hyundai Elec.
Indus. Co., Ltd. v. United States, 899 F.2d 1204, 1209 (Fed. Cir.
1990). To be sustained, “the agency must 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 v. State Farm Mut. Auto. Ins. Co., 463
2
The Court applies the default standard of review set
forth in the Administrative Procedure Act because the TAA statute
is silent on questions of law.
Court No. 05-00511 Page 4
U.S. 29, 43, (1983) (internal quotation and citation omitted).
BACKGROUND
The facts of this case were set forth in the Court’s previous
opinion in this matter. The facts relevant to the instant inquiry
are as follows. In February 2005, Plaintiff, a Subchapter S
Corporation, applied for TAA benefits for the 2003 marketing year.
See Application for Trade Adjustment Assistance for Lady Kim T
Inc., (February 14, 2005) (“Application”), Administrative Record
(“AR”) 1. In its application, Plaintiff provided various business
records including copies of its 2002 and 2003 Internal Revenue
Service (“IRS”) Form 1120S income tax returns (“returns”).3 See
Pl. Submission, AR at 12–29. On Form 1120S, “Total Income (loss)”
is reported on line 6. See Form 1120S, www.irs.gov (last visited
June 5, 2007). Line 6 appears in the section of the return
entitled “Income.” Id. “Ordinary income (loss) from trade or
business activities” is reported on line 21, and appears in the
section of form 1120S labeled “Deductions.” Id. On its 2002
return, Lady Kim reported a total income of $19,665 in line 6. See
3
As a Subchapter S Corporation, Lady Kim filed its tax
returns using IRS Form 1120S. Form 1120S is entitled “U.S.
Income Tax Return for an S Corporation.” See Form 1120S,
www.irs.gov (last visited June 5, 2007).
As directed by IRS Form 1120S, “Total Income (loss)” is
calculated by adding “gross profit,” “net gain (loss)” and “other
income (loss).” See id. “Ordinary income (loss) from trade or
business activities” is determined by subtracting “Total
deductions” from “Total income.” Id.
Court No. 05-00511 Page 5
Br. Supp. Pl.’s Mot. J. Agency R. (“Pl.’s Lady Kim I Br.”) at 7.
It reported an ordinary income of $-96,356 in line 21. See Def.’s
Resp. Pl.’s Mot. J. Agency Rec. (“Def.’s Lady Kim I Br.”) at 3. On
its 2003 return, Plaintiff reported a total income of $3,037 on
line 6, and an ordinary income of $-59,226 on line 21. See Pl.’s
Lady Kim I Br. at 8; Def.’s Lady Kim I Br. at 3. Based upon the
documentation provided, Lady Kim certified that its 2003 net
fishing income declined from the petitions pre-adjustment year.
See Application, AR 1; Form 1120S 2003 return, AR 12; Form 1120S
2002 return, AR 13.
The Department denied Lady Kim’s application by letter dated
July 6, 2005 (“final determination”). See Letter from Ronald Ford,
Deputy Director, Import Policies and Program Division, Foreign
Agricultural Services, United States Department of Agriculture, to
Lady Kim T Inc. (July 6, 2005), AR 58. The letter stated, in
relevant part, that the USDA “reviewed the information that [Lady
Kim] provided to the Farm Service Agency with [its] application and
made a final determination that [Lady Kim is] ineligible for a cash
payment. [Lady Kim has] been denied a TAA cash benefit because
[its] net fishing income for 2003 was greater than [its] net
fishing income for 2002.” See id. In Lady Kim I, the Court found
that the Department “failed to adequately explain its rationale for
the final determination denying Plaintiff TAA benefits.” 30 CIT at
__, 469 F. Supp. 2d at 1268. Accordingly, this Court ordered the
Court No. 05-00511 Page 6
Department to explain the basis for its decision and to demonstrate
the analysis necessary for it to determine, rather than simply
state, whether Plaintiff’s net income was greater in 2003 than in
2002. Id. Pursuant to the Court’s order, on March 13, 2007 the
Department filed its Remand Determination. Thereafter, Plaintiff
filed its comments thereto, and Defendant filed its reply to such
comments. See Pl.’s Resp. Def.’s Reconsideration Remand
Application Lady Kim T. Inc. (“Pl.’s Mem.”); Def.’s Reply Pl.’s
Comments USDA’s Remand Det. (“Def.’s Reply”). Plaintiff challenges
the Department’s Remand Determination and again seeks this Court’s
review. See generally Pl.’s Mem. at 2–4.
Plaintiff sets forth several arguments in response to the
Remand Determination. It contends that the Department “did not
follow the instructions of this Court,” and therefore requests that
this Court remand the determination and “consider awarding costs to
plaintiff for the preparation of this Response.” See Pl.’s Mem. at
2. Plaintiff correctly states that the Court ordered that the
Department determine whether its net income was greater in 2003
than in 2002. It argues, however, that Defendant “made no attempt
to undertake this analysis but merely repackaged its argument.”
Id. at 2–3 (“Defendant’s [Remand Determination] still did not
determine net income of Lady Kim T. Inc. as it was directed to
do.”).
Court No. 05-00511 Page 7
Defendant insists that it “explained the basis for its
decision in the remand determination.” Def.’s Reply at 3 (“[T]he
basis for [the Department’s] denial of benefits to Lady Kim may be
reasonably discerned in its remand determination.”). It contends
that Plaintiff failed to demonstrate that its Remand Determination
“lacked substantial evidence or was arbitrary and capricious.” Id.
at 5. It requests that the Remand Determination be affirmed
“because [Plaintiff] has not demonstrated that it was unreasonable
to conclude based upon the evidence in the record that
[Plaintiff’s] net income increased, rather than decreased, from
2002 to 2003.”4 Id. at 6. The Court agrees and, for the foregoing
reasons, finds that the Department’s Remand Determination be
affirmed.
DISCUSSION
In order to be eligible for TAA benefits a producer must
meet certain criteria set forth in 19 U.S.C. § 2401e(a). See 19
U.S.C. § 2401e(a) (Supp. II 2002). The statute instructs, in
4
Both Plaintiff and Defendant make several other
ancillary arguments, none of which the Court need address to
reach its decision. Defendant, however, draws one conclusion the
Court chooses to briefly address. Contrary to the Defendant’s
assertion, the Court did not state “that previous cases suggest
that [the Department’s] methodology is contrary to statute.”
Def.’s Reply at 3, fn1. Instead, the Court simply observed that
the caselaw of this Court and the Court of Appeals for the
Federal Circuit “seem to contemplate a certain level of analysis
in order . . . to make a determination.” Lady Kim I, 469 F.
Supp. 2d at 1266. In addition to being irrelevant, Defendant’s
argument is also misplaced.
Court No. 05-00511 Page 8
relevant part, that in general:
Payment of a [sic] adjustment assistance under
this part shall be made to an adversely
affected agricultural commodity producer
covered by a certification under this part
. . . if the following conditions are met:
. . .
(C)The producer’s net farm income
(as determined by the Secretary
[of Agriculture]) for the most
recent year is less than the
producer’s net farm income
for the latest year in which no
adjustment assistance was received
by the producer under this part.
§ 2401e(a)(1) (emphasis added).5 In Lady Kim I, the Court was
unable to discern whether the Department “determined,” in
accordance with § 2401e(a)(1), if Plaintiff’s net income was less
in 2003 than in 2002. See 469 F. Supp. 2d at 1266–67. Indeed, it
found that the caselaw of this Court and the Court of Appeals seem
to contemplate that a certain level analysis is necessary. Id. at
1266 (citing Steen v. United States, 468 F.3d 1357, 1363–64 (2006);
Selivanoff v. United States, 30 CIT __, __ Slip Op. 06-55 at 7
(Apr. 18, 2006) (not published in the Federal Supplement)
(“Congress mandated that the Secretary determine net farm income,
5
The statute does not define the phrase “net farm
income” and thus, under Chevron, the agency’s regulations are
usually “given controllable weight” and afforded considerable
discretion. Lady Kim I, 469 F. Supp. 2d at 1265 (quoting Chevron
U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837
(1984)). In the instant matter, the Department’s regulation
defines net fishing income as “net profit or loss . . . reported
to the Internal Revenue Service for the tax year that most
closely corresponds with the marketing year under consideration.”
7 C.F.R. § 1580.102 (2006).
Court No. 05-00511 Page 9
not merely determine the meaning of net farm income; rote reliance
upon a single line item ‘reported to the Internal Revenue Service’
without further analysis . . . will not suffice.”)). As such, this
Court directed the Department to set forth an analysis
demonstrating that it determined, rather than stated, Plaintiff’s
net income.6 Id. at 1268. The Court finds that the Department
complied with the Court’s order.
Pursuant to the applicable standard of review, this Court will
uphold the agency’s findings of fact if they are supported by
substantial evidence. 19 U.S.C. § 2395(b). On questions of law,
the Court will uphold an agency’s determination as long as the
findings of law are not arbitrary, capricious, an abuse of
discretion or not otherwise in accordance with law. See Hyundai
Elecs. Indus. Co., Ltd., v. United States, 899 F.2d 1204, 1209
(Fed. Cir. 1990) (The “touchstone” of this standard of review is
rationality.). Indeed, a fundamental requirement of administrative
law is that an agency set forth its reasons for decision; an
agency’s failure to do so constitutes arbitrary and capricious
agency action. See Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43.
6
The Court noted, however, that in reaching a
determination the Department need not conduct an independent
exploratory investigation into the net income of a producer. In
conformity with the statutory and regulatory scheme, the
Department need rely only on the information submitted to it by
the producer. See Lady Kim I, 30 CIT at __, 469 F. Supp. 2d at
1267.
Court No. 05-00511 Page 10
As explained supra, to be upheld, the Department “must examine the
relevant data and articulate a satisfactory explanation for its
action including a rational connection between the facts found and
the choice made.” See id. (internal quotation and citation
omitted). This notwithstanding, the Court may “uphold a decision
of less than ideal clarity if the agency’s path may reasonably be
discerned.” Bowman Transp. Inc. v. Arkansas-Best Frieght Sys., 419
U.S. 281, 286 (1974) (citing Colorado Interstate Gas Co., v. Fed.
Power Comm’n, 324 U.S. 581, 595 (1945)). For the reasons that
follow, the Court finds that the Department provided a cogent
explanation for its decision to deny Plaintiff’s application for
trade adjustment assistance, and therefore affirms the Remand
Determination.
A. The Department’s Determination Was Supported By
Substantial Evidence and Was Not Arbitrary or Capricious.
Plaintiff complains that the Department did not determine
whether its net income was greater in 2003 than in 2002. See Pl.s’
Mem. at 2 (“Defendant’s [Remand Determination] made no attempt to
undertake this analysis but merely repackaged it’s [sic] argument
in it’s [sic] Response . . . .”). The Court, however, disagrees.
Not only was the conclusion drawn by the Department reasonable, but
the explanation proffered was satisfactory.
Unlike the Department’s initial letter denying Plaintiff TAA
benefits, the Remand Determination provides a cogent explanation
Court No. 05-00511 Page 11
indicating how the Department determined Plaintiff’s net income.7
First, the Department set forth the relevant statutory and
regulatory criteria for qualifying for TAA benefits and defined key
terms. See Remand Determination at 1 (“One of these criteria is
that the individual producer’s ‘net farm income was less than
during the producer’s pre-adjustment year.’”). Specifically, it
defined “net fishing income” and “pre-adjustment year.” Id.
(citing 7 C.F.R. § 1580.102). Next, the Department delineated the
analysis employed for determining net income. Id. It explained:
To determine whether there has been the
requisite decline in net income the agency
compared line 21, “[o]rdinary income (loss)
from trade or business activities,” which the
agency believes is the best evidence of net
fishing income, on the Form 1120S filed for
2002 and for 2003. Line 21 is calculated by
subtracting line 20, ‘[t]otal deductions,’
from line 6, ‘[t]otal income (loss).’ Thus
line 21 sets forth the net of total income (or
loss) and total deductions, i.e., net income,
7
As indicated in Lady Kim I, the Department’s letter
denying Plaintiff’s TAA application was devoid of a cogent
explanation for the basis of its decision. In its memoranda to
this Court, however, Defendant attempted to explain the rationale
for its decision. The Court correctly noted that any explanation
offered by Defendant in its briefs is a post hoc rationalization
and therefore an insufficient basis for the Court to reach a
decision on the legality of its conclusion. In its briefs
currently before the Court, Defendant seems to suggest that the
Court erred by not accepting this new line of argument. See
Def.’s Reply at 2. Defendant misses the point. It is well
established that the “courts may not accept appellate counsel’s
post hoc rationalizations for agency action.” Burlington Truck
Lines, Inc. v. United States, 371 U.S. 156, 168 (1962). As such,
the Court was correct in basing its decision on the record and
original letter denying Plaintiff’s TAA benefits, and not
Defendant’s brief to this Court.
Court No. 05-00511 Page 12
which may be a positive or negative amount.
Line 21 is consistent with the definition in
the regulation of net fishing income, and
accords with the generally accepted definition
of net income. Black’s Law Dictionary defines
‘net income’ to mean ‘[t]otal income from all
sources minus deductions, exemptions, and
other tax reductions.’ It further states:
‘Income tax is computed on net income.’
Black’s Law Dictionary (7th ed., 1999) at 767.
Lady Kim’s tax returns indicated a net loss of
$96,356, as reported on line 21 of its Form
1120S, for 2002. Lady Kim’s tax returns
indicated a net loss of $59,226, as reported
on line 21 of its Form 1120S, for 2003.
Therefore, Lady Kim’s net income did not
decline from 2002 to 2003. Thus, Lady Kim
does not meet one of the mandatory criteria
for eligibility for TAA cash benefits.
Remand Determination at 1–2.
After explaining which statutes and regulations it looked to;
the definitions relied upon; and how it calculated net income, the
Department then addressed Plaintiff’s contentions regarding
depreciation. In its initial Motion for Judgment Upon the Agency
Record, Plaintiff maintained that the Department erred by not
omitting depreciation from its calculation of net fishing income.
See generally Pl.’s Lady Kim I Br. at 5 (“Agriculture’s negative
determination did not omit depreciation from its calculation of net
farm income in contravention of the statute.”). It maintained that
an examination of its proffered tax returns indicated that it
experienced a reduction in net income from 2002 to 2003. Id. at 8.
The Department rejected Plaintiff’s contentions for the following
reasons:
Court No. 05-00511 Page 13
The definition of net fishing income in the
regulation requires the agency to look to the
producer’s net income as reported by the
producer to the IRS. Lady Kim’s net income as
Lady Kim reported to the IRS, in fact,
included a deduction for depreciation. For
example, for 2003, Lady Kim reported a net
loss of $59,226 (line 21), which was based
upon total income of $3,307 (line 6), less
total deductions of $62,263 (line 20). The
total deductions (line 20) included a
deduction of $23,787 for depreciation (line
14c)(internal citation omitted).
Remand Determination, at 2. The Department further explained that
“even if the regulation defined net income in a way so as to
exclude depreciation, Lady Kim would still not have a decline in
income from 2002 to 2003, and thus would not be entitled to TAA
benefits.” Id.
The Court finds that this, and the additional information set
forth in the Remand Determination provides a satisfactory
explanation for the Department’s action and a rational connection
between the facts on the record and the choice made. See Motor
Vehicle Mfrs. Ass’n, 463 U.S. at 43. In accordance with the
Court’s remand instructions in Lady Kim I, the Department provided
a cogent explanation for its decision, and set forth the analysis
undertaken in determining net income. Accordingly, the Court
affirms the Department’s Remand Determination.
Court No. 05-00511 Page 14
Conclusion
For the reasons stated herein, the Court affirms the
Department’s Remand Determination denying Plaintiff’s application
for TAA benefits. Judgment will enter accordingly.
Dated: June 6, 2007 /s/ Nicholas Tsoucalas
NICHOLAS TSOUCALAS
SENIOR JUDGE
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
________________________________________
LADY KIM T. INC. :
:
Plaintiff, : Court No. 05-00511
:
v. :
:
UNITED STATES SECRETARY OF :
AGRICULTURE :
:
Defendant. :
________________________________________:
JUDGMENT
Upon consideration of the United States Department of
Agriculture’s Reconsideration Upon Remand of the Application of
Lady Kim T. Inc., (Dep’t Agric. Mar. 14, 2007) (“Remand
Determination”), all other papers filed and proceedings herein, and
Commerce having complied with the Court’s remand instructions, it
is hereby:
ORDERED that the Remand Determination is affirmed; and it is
further
ORDERED that this action is dismissed.
Dated: June 6, 2007 /s/ Nicholas Tsoucalas
NICHOLAS TSOUCALAS
SENIOR JUDGE