Resolute Forest Prods., Inc. v. U.S. Dep't of Agric.

• Decision Date: 17 May 2016
• Docket Number: Civil Action No. 14-2103 (JEB)
• Parties: Resolute Forest Products, Inc., Plaintiff, v. U.S. Department of Agriculture, et al., Defendants.
• Court: U.S. District Court — District of Columbia

187 F.Supp.3d 100

Resolute Forest Products, Inc., Plaintiff,

v.U.S. Department of Agriculture, et al., Defendants.

Civil Action No. 14-2103 (JEB)

United States District Court, District of Columbia.

Signed May 17, 2016

Andrew M. Grossman, David B. Rivkin, Jr., Michael Steven Snarr, Elliot J. Feldman, Baker & Hostetler LLP, Washington, DC, for Plaintiff.

David Michael Glass, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION

JAMES E. BOASBERG, United States District Judge

For the past several years, Plaintiff Resolute Forest Products, Inc. and the U.S. Department of Agriculture have been locked in a struggle over the latter's Softwood Lumber Checkoff Order. That Order requires any softwood-lumber domestic manufacturer or foreign importer who produces or imports more than 15 million board feet (15mmbf) per year to pay a mandatory assessment on all softwood lumber shipped above that amount. Checkoff orders such as this are a kind of compulsory marketing program developed by private parties and overseen by the Department in accordance with the Commodity Promotion, Research and Information Act (the CPRIA), 7 U.S.C. §§ 7411 –7425. Apparently unhappy that it must pay assessments under the Order, Resolute lodged a failed administrative protest before an ALJ and then subsequently brought suit here, raising four constitutional challenges to the Order and six alleged violations of the Administrative Procedure Act.

In its September 9, 2015, Memorandum Opinion, this Court dismissed all but one of Plaintiff's APA challenges. SeeResolute Forest Products, Inc. v. U.S. Dep't of Agric., 130 F.Supp.3d 81 (D.D.C.2015). On the sole remaining APA claim (Count V), however, this Court remanded without vacatur to the Department of Agriculture for a reasoned and coherent treatment of its decision to select 15mmbf per year as the threshold amount. Defendants responded with a memorandum and exhibits providing additional explanation for the selection of that figure. See ECF No. 26. Although Defendants' second explanation was better than its first, it nonetheless raised as many questions as it answered. Unable to reconcile certain discrepancies within the agency's explanations and the data it presented, the Court remanded again, this time ordering the Department to point to the underlying data sources relied upon in selecting 15mmbf and to explain the discrepancies the Court identified. SeeResolute Forest Products, Inc. v. U.S. Dep't of Agric., No. 14–2103, 2016 WL 1714312 (D.D.C. Feb. 2, 2016). The agency responded again with further exhibits and an additional memorandum. See ECF No. 33.

After all of the back and forth, the same question remains: was the agency's selection of 15mmbf arbitrary and capricious in violation of the APA? Despite two remand opportunities, Defendants have still not provided a reasonable explanation for selecting that quantity. Nearly every calculation upon which the agency relies has significant mismeasurements or inaccuracies, and many of the agency's explanations across its original rulemaking process, its briefings, and its two responses to the Court's remand orders contradict one another. While APA review does not demand perfection from an agency, the Court here must ineluctably conclude that USDA's promulgation of the Checkoff Order was arbitrary and capricious.

I. Background

Because the Court has already addressed many of the substantive and procedural issues of this case in its earlier Opinion, seeResolute Forest Products, 130 F.Supp.3d 81, it will focus on those still in contention here.

A. The Softwood Lumber Checkoff Order

The Softwood Lumber Checkoff Order that Plaintiff challenges here grew out of the softwood-lumber industry's struggles during one of the "worst market [s] in history" after the great recession and the collapse of the housing market at the end of the last decade. See Softwood Lumber Research, Promotion, Consumer Education and Industry Information Order; Proposed Rules, 75 Fed. Reg. 61,002, 61,005 (Oct. 1, 2010). To prop up the struggling industry, a trade association known as the Blue Ribbon Commission (BRC)—comprising 21 softwood-lumber chief-executive officers and business leaders—submitted its incipient proposal to USDA's Agricultural Marketing Service. Id. AMS administers marketing orders under the CPRIA, the statute that governs the proposal, approval, and administration of checkoff orders for a variety of commodity products. See7 U.S.C. § 7412 –13. When a proposed order is submitted by "an association of producers" (here, the BRC), the statute instructs the Secretary to "determine[ ] that a proposed order is consistent with and will effectuate the purpose" of the CPRIA. Id.§ 7413(b)(1)–(2). If he so determines, he then proceeds through the standard notice-and-comment rulemaking process for the proposed order. Id.§ 7413(b)(2)–(4).

In addition to typical notice-and-comment rulemaking, however, the CPRIA mandates that the Secretary also obtain the approval of "persons subject to assessments" under the order via a referendum. Id.§ 7413(b)(1). The Secretary may conduct said referendum either before finalizing a proposed checkoff order or else within three years of the first assessments taking place in accordance with it. Id.§ 7417(b)(2). Crucial to this suit and the present dispute, the Secretary also has the authority to exempt from the order any "de minimis quantity" of the agricultural commodity subject to assessment. Id.§ 7415(a)(1). And because eligibility to participate in the referendum depends on being "among persons to be subject to an assessment," the de minimis quantity also affects who may vote in a given referendum. Id.§ 7417(a)(1).

As to the Checkoff Order here, after the Secretary determined that the BRC's proposal would effectuate the purpose of the CPRIA, AMS announced the proposed rule in the Federal Register, providing notice and seeking comment. See75 Fed. Reg. at 61,012. The agency announced that the proposed Order would provide for initial assessments of $0.35 per thousand board feet shipped within or imported to the U.S., although it could eventually be increased up to $0.50. Id. The agency also stated that the proposed de minimis quantity exempted from assessment would be 15mmbf per producer or importer per year, with assessments only applying to amounts shipped or imported by a given producer above that threshold in any given year. Id. In determining this assessment price and exemption threshold, the agency also explored what portion of the softwood-lumber industry would pay assessments under the Order and considered several different prices and de minimis quantities. Id. at 61,012 –13.

As support for its proposed de minimis quantity, the agency determined that a 15mmbf exemption and an assessment of $0.35 per thousand board feet would "generate sufficient income to support an effective promotion program for softwood lumber." Id. at 61,013. The agency also noted that the BRC had explored various de minimis exemption thresholds—including 15 million, 20 million, and 30 million board feet—and concluded that the 15mmbf exemption ("a quantity sufficient to build approximately 1,000 homes," Resolute Forest Products, 130 F.Supp.3d at 102 (internal citation and quotation marks omitted)) would yield "a deduction of 11.3 percent in assessment income" by reducing the total quantity of softwood lumber to be assessed by that percentage. See75 Fed. Reg. at 61,013. In justifying this exemption quantity, the agency estimated that roughly 61% of domestic manufacturers and about 12% of foreign importers would be subject to the Order. Id.

After the agency issued the initial proposed rule, it followed up with a summary of comments received and provided responses to those comments. SeeSoftwood Lumber Research, Promotion, Consumer Education and Industry Information Order, 76 Fed. Reg. 22,757, 22,770 –75 (April 22, 2011). As the majority of comments supported the proposed Order, AMS next announced a referendum to approve it, in which all eligible producers and importers could participate. Id. at 22,775. Eligibility required manufacturing and shipping of 15mmbf or more between January 1 and December 31, 2010. Id. After the May 23–June 10, 2011, referendum was conducted, AMS announced that 67% of those voting, a group that collectively shipped 80% of the volume of softwood lumber represented in the referendum, had voted in favor of the Order. SeeSoftwood Lumber Research, Promotion, Consumer Education and Industry Information Order, 76 Fed. Reg. 46,185, 46,188, 46,189 (Aug. 2, 2011). Based on this approval, AMS subsequently put the Checkoff Order into effect.

B. Resolute's Challenge

Resolute has opposed the Checkoff Order from the beginning. As Plaintiff imported less than 15 million board feet during 2010, it was ineligible to vote in the referendum, seeIn Re: Resolute Forest Products Petitioner, No. 12–40, 2014 WL 1993757, at *5–6 (U.S.D.A. Apr. 30, 2014), but because it has since begun to import more than that amount, it has had to pay assessments on imports above that threshold since January 2012. See Pl. MSJ Reply (ECF No. 21) at 7. Opposing the Checkoff Order, Plaintiff filed a petition with USDA on October 28, 2011, shortly after it went into effect. See Compl., ¶ 81. When Resolute did not prevail administratively, it filed suit before this Court in December 2014.

The grist of Plaintiff's challenge is that AMS violated the Administrative Procedure Act in both the rulemaking and referendum process, id., ¶¶ 149–200, and that the CPRIA unconstitutionally delegates executive and legislative authority to private parties and also violates the due-process rights of producers and importers. Id., ¶¶ 123–148. In its September 9, 2015, Opinion, this Court granted summary judgment for the agency on five of Resolute's six APA challenges. SeeResolute Forest Products, 130 F.Supp.3d at 92–100. Because it remanded without vacatur on the sixth APA claim, the Court, following the...