Court Opinion

ID: 2643231
Source: CourtListenerOpinion
Date Created: 2013-11-20 19:42:18.983342+00
Date Added: 2024-06-11T12:51:42.342527
License: Public Domain

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