Opinion ID: 708113
Heading Depth: 2
Heading Rank: 2

Heading: The Industry-Wide Substantial Compliance Standard

Text: 13 Although the parties argue this case in terms of both Chevron analysis and arbitrary and capricious review, they interpret the case as one involving review of an agency's construction of a statute and look primarily to Chevron for the appropriate analytical framework. We, however, do not find Chevron controlling. In challenging the FDA's regulation defining substantial compliance, appellants seek traditional arbitrary and capricious review governed by Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983). 4 We recognize that, in some respects, Chevron review and arbitrary and capricious review overlap at the margins. See note 6 infra. But it would be a mistake to view this case as one involving typical Chevron review. 14 Chevron is principally concerned with whether an agency has authority to act under a statute. See Chevron, 467 U.S. at 842-45, 104 S.Ct. at 2781-83. Thus, a reviewing court's inquiry under Chevron is rooted in statutory analysis and is focused on discerning the boundaries of Congress' delegation of authority to the agency; and as long as the agency stays within that delegation, it is free to make policy choices in interpreting the statute, and such interpretations are entitled to deference. Id. at 843-45, 865-66, 104 S.Ct. at 2781-83, 2792-93. The paradigmatic Chevron case concerns  '[t]he power of an administrative agency to administer a congressionally created ... program.'  Id. at 843, 104 S.Ct. at 2781 (quoting Morton v. Ruiz, 415 U.S. 199, 231, 94 S.Ct. 1055, 1072, 39 L.Ed.2d 270 (1974)) (emphasis added); see, e.g., Railway Labor Executives' Ass'n v. National Mediation Bd., 29 F.3d 655, 670-71 (D.C.Cir.1994) (as amended July 20, 1994) (en banc ) (The issue before the court was not whether the agency's regulations were reasonable--which is a hallmark of traditional arbitrary and capricious review--but rather, whether the agency had any authority to promulgate regulations in the area in which it sought to act.), cert. denied, --- U.S. ----, 115 S.Ct. 1392, 131 L.Ed.2d 243 (1995). In such a case, the question for the reviewing court is whether the agency's construction of the statute is faithful to its plain meaning, or, if the statute has no plain meaning, whether the agency's interpretation is based on a permissible construction of the statute. Chevron, 467 U.S. at 843, 104 S.Ct. at 2781. 15 In the present case, however, there is no question that the FDA had authority to define the circumstances constituting food retailers' substantial compliance with the NLEA's voluntary labeling guidelines. The only issue here is whether the FDA's discharge of that authority was reasonable. Such a question falls within the province of traditional arbitrary and capricious review under 5 U.S.C. Sec. 706(2)(A) (1988). 5 See Chevron, 467 U.S. at 843-44, 104 S.Ct. at 2781-82 (The Court notes that where there has been an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation, and the delegation of authority has been exercised, the agency's regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.). 6 Thus, in the present case, State Farm is controlling regarding the standard of review. In State Farm, the Court held: 16 The scope of review under the arbitrary and capricious standard is narrow and a court is not to substitute its judgment for that of the agency. Nevertheless, 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. In reviewing that explanation, we must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. The reviewing court should not attempt itself to make up for such deficiencies; we may not supply a reasoned basis for the agency's action that the agency itself has not given. 17 State Farm, 463 U.S. at 43, 103 S.Ct. at 2866 (citations and internal quotations omitted). Under this standard of review, it is clear that the FDA's regulations must be upheld. 18 The FDA certainly took account of the relevant factors in devising its sixty-percent, industry-wide standard for food retailers' substantial compliance under the NLEA. In the context of the NLEA, Congress intended that the determination of substantial compliance would be informed by the number, size, and market share of the food retailers in compliance with the voluntary guidelines. 21 U.S.C. Sec. 343(q)(4)(B)(ii) (1994). The FDA specifically considered these factors in its rulemaking. 56 Fed.Reg. 30468, 30477 (1991) (to be codified at 21 C.F.R. pt. 101) (proposed July 2, 1991). Moreover, as the District Court observed, [b]y focusing attention on market share, Congress implied that the success of this legislation would be judged by how many people received nutrition information not strictly by how many stores posted the information. Arent, 866 F.Supp. at 14. In furtherance of the statutory intent to focus on market penetration in assessing compliance with the voluntary guidelines, the FDA identified and considered additional relevant factors, such as the categories of retail stores to include in its survey evaluation--such as chains, independents, or stores with high volume sales--and the correlation between the distribution of grocery sales among categories of stores and the distribution of the population served by those categories of stores. 56 Fed.Reg. at 30477. 19 The FDA also has articulated an explanation for its decision that demonstrates its reliance on a variety of relevant factors and represents a reasonable accommodation in light of the facts before the agency. The FDA observed that chain and independent grocery stores with annual sales of two million dollars or more represent only 18% of all U.S. food stores but account for 81.5% of total U.S. grocery sales, while independents with annual sales of $300,000 or less represent 42.6% of all food stores but only 2.7% of all grocery sales. Id. at 30477, 30481. The FDA also observed that the distribution of grocery sales among categories of stores closely approximates the distribution of the population served by those categories of stores. Id. at 30477. In view of these observations and the breakdown of retail stores included in its 2,000-store survey, the FDA determined that setting a sixty-percent cutoff value for substantial compliance would ensure that 20 substantial compliance will not be achieved unless there is significant participation by the chains. Thus, substantial compliance based on the 60 percent standard will mean that a significant number of large retailers that serve a large part of the retail food market will be in compliance with the guidelines. 21 Id. at 30478. Thus, the FDA reasonably concluded that its numerical standard would ensure that, while not all covered retailers are providing nutrition labeling, the most significant segment of the food retailing industry is. Id. 22 Given the record before the agency, the FDA's sixty-percent figure is not unreasonable and it certainly does not reveal a clear error of judgment. Overton Park, 401 U.S. at 416, 91 S.Ct. at 823. Moreover, the statutory intent was not to assure one-hundred-percent compliance, but rather substantial compliance, and the FDA's sixty-percent standard does ensure that a major portion of the retail food market will receive nutritional information. Thus, we find no basis for setting aside the FDA's sixty-percent standard for substantial compliance under the NLEA.