Lady Kim T. Inc. v. U.S. Secretary of Agriculture

• Decision Date: 15 December 2006
• Docket Number: Slip Op. 06-183. Court No. 05-00511.
• Parties: LADY KIM T. INC., Plaintiff, v. UNITED STATES SECRETARY OF AGRICULTURE, Defendant.
• Court: U.S. Court of International Trade

469 F.Supp.2d 1262

LADY KIM T. INC., Plaintiff, v. UNITED STATES SECRETARY OF AGRICULTURE, Defendant.

Slip Op. 06-183. Court No. 05-00511.

United States Court of International Trade.

December 15, 2006.

Neville Peterson, LLP, (Curtis Walter Knauss; Laura Martino), Washington, DC, for Lady Kim T. Inc., Plaintiff.

Peter D. Keisler, Assistant Attorney General, David M. Cohen, Director, Patricia M. McCarthy, Assistant Director, Commercial Litigation Branch, Civil. Division, United States Department of Justice (Michael L. Dierberg); of counsel: Jeffrey Kahm, Office of the General Counsel, United States Department of Agriculture, for the United States Secretary of Agriculture, Defendant.

OPINION AND ORDER

TSOUCALAS, Senior Judge.

This matter is before the Court on motion for judgment on the agency record brought by Plaintiff, Lady Kim T. Inc. ("Plaintiff' or "Lady Kim") pursuant to USCIT Rule 56.1. Plaintiff challenges the final determination of the Foreign Agricultural Service of the United States Department of Agriculture ("Defendant" or "the Department") denying its application for trade adjustment assistance ("TAA") benefits.¹ For the reasons set forth below, the Court remands this matter for further action in conformity with this opinion.

JURISDICTION & STANDARD OF REVIEW

The Court has jurisdiction over this matter pursuant to 19 U.S.C. § 2395(c) (2000) amended by 19 U.S.C. § 2395 (Supp. II 2002). The Court will uphold the Department's determination if its factual findings are supported by substantial record evidence. See 19 U.S.C. § 2395; 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, 71 S.Ct. 456, 95 L.Ed. 456 (1951) (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 83 L.Ed. 126 (1938)). The Court will uphold the. Department's legal determinations if they are otherwise "in accordance with law." See Former Employees of Elec. Data Sys. Corp. v. U.S. Sec'y of Labor, 28 CIT ___, ___, 350 F.Supp.2d 1282, 1286 (2004); see also Trinh v. U.S. Sec'y of Agric., 29 CIT ___, ___, 395 F.Supp.2d 1259, 1265 (2005) ("The court, in reviewing a challenge to one of Agriculture's determinations regarding eligibility for trade adjustment assistance, will uphold the challenged determination if the factual findings are supported by substantial evidence on the record and its legal determinations are otherwise in accordance with law.").

BACKGROUND

On December 15, 2004, the Secretary certified a TAA petition filed by the Louisiana Shrimp Association and invited eligible shrimp farmers to apply for benefits. See Trade Adjustment Assistance for Farmers, 69 Fed.Reg. 77,708 (Dep't Agric. Dec. 15, 2004) (notice). Thereafter, 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. As part of its application, Plaintiff provided various business records, as well as copies of its 2002 and 2003 Internal Revenue Service ("IRS") Form 1120S income tax returns ("returns").² 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 December 15, 2006). 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 Br. Supp. Pl.'s Mot. J. Agency R. ("Pl.'s 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 Response") 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 Br. at 8; Def.'s Resp. at 4. Lady Kim also certified that, based upon the documentation provided, its 2003 net fishing income declined from the petition's 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. Plaintiff filed a timely appeal challenging the final determination with this Court.

Plaintiff sets forth several arguments in support of its appeal. Its primary contention, however, is that the Department's final determination is not supported by substantial record evidence.³ See Pl.'s Br. at 5. Specifically, Plaintiff insists that the Department erred by not omitting depreciation from its calculation of net fishing income. Id. ("Agriculture's negative determination did not omit depreciation from its calculation of net farm income in contravention of the statute."). It maintains that an examination of line 6 of its proffered tax returns indicates that it experienced a reduction in net income from 2002 to 2003. This, it claims "fulfill[s] the intent of the statute and also make[s] plaintiff eligible for TAA benefits." Id. at 8. Plaintiff further argues that the controlling statute, here, 19 U.S.C. § 2401e(a)(1), directs that the Department make a determination as to net farm income and that nothing on the record "shows whether [the Department] undertook the required analysis[.]" Id. at 11. As a result, Plaintiff seeks remand.

Defendant disagrees, and argues that the denial of TAA benefits was both supported by substantial evidence and otherwise in accordance with law. See Def.'s Resp. at 5. It maintains that a comparison of line 21 of Plaintiff's 2002 and 2003 tax returns reflects that Plaintiff's net income did not decrease from 2002 to 2003. Consequently it contends that Plaintiff was not entitled to TAA benefits. Id. at 7. Defendant further responds that it "appropriately took into account depreciation and other expenses." Id. Along these lines, Defendant argues that because § 2401e(a)(1) does not define the phrase net fishing income, Chevron deference to its regulations is warranted. Id. at 8 ("Neither the statute nor the regulation compels the agency to define net income so as to exclude depreciation. The statute does not define net income, but rather leaves the definition of net income to the discretion of the USDA."). In response to Plaintiffs argument that the Department make a determination of net income, the Department contends that it is not obligated to perform "some sort of investigation or ad hoc analysis of" an applicant's finances. Id. at 10 (citing Pl.'s Br. at 8). As such, Defendant requests that the final determination be sustained.

DISCUSSION

I. Statutory and Regulatory Framework

Following certification⁴ by the Department, in order to be eligible for TAA benefits a producer must meet certain criteria. This criteria is set forth in 19 U.S.C. § 2401e(a), and is entitled "Qualifying requirements for agricultural commodity producers." The statute instructs, in 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) (Supp. II 2002). The statute, however, does not define the phrase "net farm income." See Cabana, 30 CIT at ___, 427 F.Supp.2d at 1236.

In instances where Congress has "explicitly left a gap for the agency to fill," the agency's regulations are usually "given controlling weight" and afforded considerable discretion. Id. at 1235 (citing Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)). The Secretary of Agriculture promulgated formal regulations implementing the statute and clarifying its application. See Trade Assistance for Farmers, 68 Fed.Reg. 50,048 (Dep't Agric. Aug. 20, 2003) (final rule); 7 C.F.R. § 1580.102 (2006). Therein, the Secretary explained that the statute applies not only to farmers but also to certain fisherman. 68 Fed.Reg. at 50,048. In the instant matter, the relevant regulation is 7 C.F.R. § 1580.301 ("regulation"). Paralleling the language of the statute, the regulation requires a producer applying for TAA monetary benefits to certify, inter alia, that his "net farm or fishing income was less than that during the producer's pre-adjustment year." § 1580.301(e)(4). The 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." § 1580.102. In demonstrating its net income, the regulation permits a producer to submit "(i) [s]upporting documentation from a certified public accountant or attorney, or (ii)[r]elevant documentation and other supporting financial data, such as financial statements, balance sheets, and reports prepared for or provided to the Internal Revenue...