Opinion ID: 784121
Heading Depth: 2
Heading Rank: 5

Heading: Calculation of Recapture.

Text: 43 The Paulys argue that the USDA impermissibly included capital improvements in calculating the appreciation on their farm. Apparently, it had been the USDA's practice in processing over 5,000 SAAs to include capital improvements in its appraisals for the purpose of calculating the amount of recapture due. See 65 Fed. Reg. 50,403 (2000). Nonetheless, on August 18, 2000, during the pendency of this appeal, the agency adopted a new regulation which excluded capital improvements from the appraisal at the end of the term of an SAA. See 7 C.F.R. § 1951.914(c)(1) (2000). The district court erred in compelling the USDA to apply its regulations retroactively, despite the agency's express decision against retroactive application. 44 The Supreme Court has observed that [r]etroactivity is generally disfavored in the law. Eastern Enters. v. Apfel, 524 U.S. 498, 532, 118 S.Ct. 2131, 141 L.Ed.2d 451 (1998) (plurality opinion). In Bowen v. Georgetown University Hospital, 488 U.S. 204, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988), the Court held that administrative rules will not be construed to have retroactive effect unless their language requires this result. Id. at 208, 109 S.Ct. 468. The district court recognized Bowen's limitation on retroactivity, but nonetheless concluded that Smiley v. Citibank, 517 U.S. 735, 116 S.Ct. 1730, 135 L.Ed.2d 25 (1996), effectively limited Bowen. Pauly v. USDA, No. 01-5037, at 22. 45 The district court's reliance on Smiley was misplaced. In Smiley, the Supreme Court held that the Comptroller of the Currency's interpretation of the National Bank Act was entitled to deference, even though its interpretation was expressed in a regulation that had been adopted in response to ongoing litigation. In a footnote, the Court acknowledged the argument that application of the regulation might have an impermissibly retroactive effect. See Smiley, 517 U.S. at 744 n. 3, 116 S.Ct. 1730. The Court disagreed, explaining, 46 There might be substance to this point if the regulation replaced a prior agency interpretation — which, as we have discussed, it did not. Where, however, a court is addressing transactions that occurred at a time when there was no clear agency guidance, it would be absurd to ignore the agency's current authoritative pronouncement of what the statute means. 47 Id. The Court in Smiley emphasized that the Comptroller's regulation did not displace any prior agency interpretation. Smiley does not apply to a situation, such as the one here, where an agency's new regulation represents an explicit break with prior practice. 48 Smiley also says nothing about whether a rule may be applied retroactively when the agency has expressly decided against retroactive application. Under the district court's approach, it would be impossible for an agency to promulgate a rule that was not retroactive, unless it expressly contradicted a prior rule. This turns Bowen on its head by creating a presumption in favor of retroactivity. No other court has read into the Smiley footnote such extraordinary precedent and we refuse to do so today.