Filed: Nov. 20, 2013
Latest Update: Mar. 02, 2020
Summary: 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 De
Summary: 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 Dec..
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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.
24
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
27
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.
29
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.
30
