Earl C. McDANIELS, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. Randolph F. Lovett, Plaintiff-Appellant, v. United States of America, Defendant-Appellee. Alton E. Brown, Jr., Plaintiff-Appellant, v. United States of America, Defendant-Appellee.
Nos. 01-2086 to 01-2088
United States Court of Appeals, Fourth Circuit
Decided July 29, 2002
300 F.3d 407
Argued May 7, 2002.
Before WILKINSON, Chief Judge, and NIEMEYER and LUTTIG, Circuit Judges.
Affirmed by published opinion. Judge NIEMEYER wrote the majority opinion, in which Chief Judge WILKINSON joined. Judge LUTTIG wrote a dissenting opinion.
OPINION
NIEMEYER, Circuit Judge.
The Secretary of Agriculture denied the applications of farmers Earl McDaniels, Randolph Lovett, and Alton Brown for livestock disaster relief because each farmer‘s 1997 gross revenue exceeded $2.5 million, making him ineligible for assistance under applicable Department of Agriculture regulations. In this action, brought under the
The district court held that the applicable regulations were “reasonable and a permissible construction” of the enabling statute and affirmed the Secretary‘s decision. For the reasons that follow, we affirm the judgment of the district court.
I
In October 1998, Congress established the 1998 Crop Loss Disaster Assistance Program (“CLDAP“) and the 1998 Emergency Livestock Feed Assistance Program (“LAP“). To fund these programs, it appropriated, as an emergency measure, $1.5 billion to “producers on a farm who have incurred losses in the 1998 crop due to disasters,”
In accordance with Congress’ instructions, the Department of Agriculture issued regulations for the implementation of the 1998 Single-year and Multi-year Crop Loss Disaster Assistance Program and Emergency Livestock Assistance. See
II
Earl McDaniels, Randolph Lovett, and Alton Brown are farmers in South Carolina who derive less than 50% of their income from farming. Each, however, suffered losses in his South Carolina farming operations and therefore applied to the Farm Service Agency (“FSA“) of the Department of Agriculture for livestock disaster assistance under the CLDAP and the LAP. The FSA administers the distribution of benefits for disaster assistance on behalf of the Department of Agriculture. As these farmers received less than 50% of their gross income from farming and ranching, their eligibility for assistance depended on whether their total 1997 gross revenue “from all sources” was less than $2.5 million. Because each farmer had gross revenue that exceeded $2.5 million, when pass-through funds from tobacco auctions at warehouses in which they had an interest were included, the FSA denied the farmers benefits.
McDaniels owned a one-third partnership interest in New Tabor Warehouse, located in Tabor City, North Carolina. The 1997 sales for New Tabor Warehouse were more than $10 million (6 million pounds of tobacco at $1.68 per pound). Lovett owned a two-thirds interest in the stock of Big L Warehouse, Inc., a subchapter S corporation, which owned and operated a tobacco warehouse in Mullins, South Carolina. The 1997 sales for Big L Warehouse totaled $10.7 million. And Brown owned 100% of the stock of Brown Brothers Warehouse, Inc., which operated a tobacco warehouse located in Kingstree, South Carolina. The 1997 sales for Brown Brothers Tobacco Warehouse totaled $3.3 million (approximately 2 million pounds of tobacco at $1.68 per pound).
Some of the tobacco auctioned at each of these warehouses was owned by the warehouse owners, but most was owned by other producers, who stored their tobacco at and auctioned it from the warehouse under a bailment arrangement. Proceeds
The FSA determined that each of the farmers’ gross revenue, including the receipts from auction sales at the tobacco warehouses, exceeded $2.5 million and therefore denied the farmers’ applications for benefits. The farmers appealed the FSA‘s rulings to the Department of Agriculture‘s National Appeals Division, asserting in particular that because they never took title to the bailment tobacco sold from their warehouses on behalf of third party producers, it was erroneous to treat the proceeds of bailment tobacco as revenue. Following separate evidentiary hearings, the National Appeals Division affirmed the FSA‘s determinations. Finally, the Director Review Determinations affirmed the appellate decisions.
After exhausting their administrative remedies, the farmers filed separate complaints in the district court for judicial review of the agency‘s final decisions, pursuant to the
These appeals followed, and, because each farmer presents the same issue, they have been consolidated.
III
The farmers agree that a proper application of the regulations required the Secretary to deny them disaster assistance because each had gross revenue in excess of $2.5 million when including the pass-through funds realized from auction sales of bailment tobacco. They contend, however, that the regulations themselves exceed the Secretary‘s statutory authority, which requires the Secretary to distribute the benefits in a “fair and equitable manner.” They also contend that the regulations are unreasonable, arbitrary, and capricious because they include, as a component of gross revenue, pass-through funds for bailment tobacco sales even though the farmers “neither owned title to the tobacco nor had a right to the proceeds from the bailment sales.” They point out that the Secretary provided no explanation of why such funds were included in gross revenue. The farmers assert that, but for the inclusion of pass-through funds, they would have qualified for disaster assistance.
We therefore must determine whether the Secretary acted reasonably and in accordance with his authority when he adopted regulations, basing eligibility for
“[W]hen it appears that Congress delegated authority to [an] agency generally to make rules carrying the force of law,” we give great deference to an “administrative implementation of [the] particular statutory provision.” United States v. Mead Corp., 533 U.S. 218, 226-27 (2001). And in determining whether the agency acted within the scope of its power, we are “confronted with two questions.” Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842 (1984). “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.” Id. at 842-43. Even if Congress’ intent is ambiguous, we defer to the agency‘s construction of the statute, asking only “whether the agency‘s answer is based on a permissible construction of the statute.” Id. at 843. At bottom, when Congress delegates “authority to the agency to elucidate a specific provision of [a] statute by regulation[,][s]uch legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.” Id. at 843-44; see also Mead, 533 U.S. at 227.
In this case, we cannot imagine how Congress could have been more clear in its delegation of authority to the Secretary. In enacting the 1999 Appropriations Act, Congress gave the Secretary instructions to distribute the appropriated disaster relief funds in a “fair and equitable manner . . . in all affected geographic regions of the United States,”
Acting within these broad criteria to distribute the limited funds available, the Secretary narrowed the class of persons eligible by adopting the uniform and objective criterion of gross revenue, determining that $2.5 million in gross revenue was the cutoff point for disaster relief under these programs. Without adopting complex administrative criteria for determining what might constitute other measures of economic strength, such as net revenue or net income—undoubtedly recognizing the bureaucratic delay that would ensue—the Secretary adopted a gross revenue criterion and defined gross revenue simply to be gross receipts without any adjustments:
Gross revenue includes the total income and total gross receipts of the person, before any reductions. Gross revenue shall not be adjusted, amended, discounted, netted or modified for any reason. No deductions for costs, expenses or pass-through funds will be deducted from any calculation of gross revenue.
The farmers argue that the regulations should not be given controlling weight because the eligibility criteria chosen are “arbitrary, capricious, or manifestly contrary to the statute” in that they do not meet the statutory requirement of be
But Congress expressly provided that the Secretary need not provide an explanation for eligibility criteria. In the 1999 Appropriations Act, Congress authorized the Secretary to promulgate regulations without regard to the notice and comment requirements of the
Even though reasonable minds might differ as to whether eligibility criteria based on gross revenue—as distinct from net income, assets, or net worth—were the best choice to measure a farmer‘s economic strength and therefore need for relief, there can be no doubt that the basis chosen for eligibility was reasonable. Gross revenue is an economic measure of the size of a farmer‘s operations, just as are net income, assets, and net worth. While gross revenue may overstate the size of an operation because its net income may be only a small portion, net income could be just as imprecise, failing to identify a large operation that is managed poorly or in which substantial individual incomes are sheltered as items of cost. There is no doubt that more precise definitions of economic strength could be made, but with more precise definitions come the disputes
The choice of measuring a farmer‘s economic strength by gross revenue can rationally be justified as a way to “allow relief to be made available quickly, and effectively, within the limits of the funding available for this program.” 64 Fed.Reg. 18553, 18554 (Apr. 15, 1999). Using gross revenue as the basis for eligibility eases the administrative burden of calculating each farmer‘s income. Lumping pass-through funds with revenue reduces the likelihood of sellers manipulating the structure of their transactions to convert non-deductible costs of goods sold into deductible pass-through funds. And, as perhaps the most objective criterion available, it avoids the possibility of inefficient farmers benefiting more than efficient ones, as well as the potential for manipulating income through creative accounting.
In sum, we conclude that the selection of a gross revenue criterion without deductions of any kind, including pass-through funds, was a rational application of the Secretary‘s authority to distribute funds in a fair and equitable manner.
Accordingly, we affirm the judgment of the district court.
AFFIRMED.
LUTTIG, Circuit Judge, dissenting.
The majority‘s speculation as to the rationales that might have underlay the Department of Agriculture regulation (on the strength of which it then upholds the regulation) constitutes yeoman‘s work. It is even possible that these speculated reasons were in fact the reasons that the Department promulgated the regulation. But the jurisprudential insight that eludes the majority is that it just may well be that these were not the reasons that prompted the agency‘s regulation that we review today. I do not know the reasons for the agency‘s inclusion of pass-through funds in gross revenue, and neither does the majority, for no reasons for that decision have been provided by the agency, either in the course of the regulation‘s promulgation or in the course of this litigation. It is in this very circumstance that the Supreme Court has cautioned the courts against their own post hoc supply of reasons for agency action and explained that the proper procedure is, instead, for the courts to require of the agency that it explain its own action, after which meaningful judicial review may then be had. I would heed the Supreme Court‘s warning and hew to its mandated procedure in this case. Accordingly, I dissent.
That an agency must give some statement of explanation for its actions is a basic precept of administrative law. As the Supreme Court admonished in Motor Vehicle Manufacturers Association of the United States, Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43 (1983), “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.‘” Id. at 43 (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)). The reasons provided by the agency are the only basis on which the agency‘s actions may be upheld. See State Farm, 463 U.S. at 50 (“It is well-established that an agency‘s action must be upheld, if at all, on the basis articulated by the agency itself.“). As the Court explicitly warned in State Farm, reviewing courts are not to rely on reasons that the agency itself has not provided: “More importantly, it is the agency‘s responsibility, not this Court‘s, to explain its decision.” Id. at 57.
The majority attempts to relieve the Department of its obligation to provide an explanation, but this attempt results in yet another mis-application of law. The majority concludes that because the 1999 Appropriations Act exempts the Secretary from the notice and comment requirements of
The Supreme Court has sensibly treated
By positing reasons for the Secretary‘s action, the majority has, pure and simple, (mis)equated arbitrary and capricious review with minimum rationality review, in contravention of the Supreme Court‘s clear instruction in State Farm, that “the presumption of constitutionality afforded legislation drafted by Congress and the presumption of regularity afforded an agency in fulfilling its statutory mandate” are not “equivalent.” See State Farm, 463 U.S. at 43 n. 9. The Supreme Court only recently reaffirmed this principle, of which the majority stands in violation, in Bowen v. American Hospital Association, 476 U.S. 610 (1986) (plurality opinion). After quoting the above noted language from State Farm,
In light of the complete absence of any agency explanation for its inclusion of pass-through funds in the calculation of gross revenue, I would, as required by Supreme Court precedent, remand to the Department for a statement of its reasons for this inclusion, a disposition that would thereafter permit meaningful judicial review. “[I]f the reviewing court simply cannot evaluate the challenged agency action on the basis of the record before it, the proper course, except in rare circumstances, is to remand to the agency for additional investigation or explanation.” Florida Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985). Unlike the majority, I am unwilling to speculate as to the reasons for the agency‘s decision. I believe it is as unacceptable for a court to generate its own reasons for agency action, as it is to substitute its own views for those of the agency as to the propriety of particular action. The former, which the majority has indulged in here, may seem a comparatively trivial limitation on the judicial power, but it is not. It goes just as much to the legitimacy of the judicial process and the independence of the executive process as does the latter. See Chenery Corp., 332 U.S. at 196 (noting that for a court to uphold agency action where the agency has not provided sufficient reasons “would propel the court into the domain which Congress has set aside exclusively for the administrative agency“).
For these reasons, I respectfully dissent.
Notes
Any inquiry, therefore, into the rationality of the rule examines the rule itself to determine whether any reasonable basis can support it; it does not speculate on the rule‘s application. See Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729 (1984) (holding that as long as “a statute is supported by a legitimate legislative purpose furthered by rational means, judgments about the wisdom of such legislation remain within the exclusive province of the” promulgating entity); Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78 (1911) (holding that under rationality review, a law should be invalidated only where it lacks “any reasonable basis and therefore is purely arbitrary“). And in determining whether a reasonable basis for the rule exists, we need not determine whether that basis is the actual reason for which the rule was passed. See, e.g., U.S. R.R. Ret. Bd. v. Fritz, 449 U.S. 166, 179 (1980) (“Where, as here, there are plausible reasons for Congress’ action, our inquiry is at an end. It is, of course, ‘constitutionally irrelevant whether this reasoning in fact underlay the legislative decision‘” (quoting Flemming v. Nestor, 363 U.S. 603, 612 (1960))).