Court Opinion

ID: 817514
Source: CourtListenerOpinion
Date Created: 2013-02-01 01:53:53.852981+00
Date Added: 2024-06-11T15:25:23.220642
License: Public Domain

Slip Op. 08 - 32

 UNITED STATES COURT OF INTERNATIONAL TRADE

                                                :
HARLEY & MYRA DORSEY, d/b/a                     :
CONCORDE FARMS,                                 :
                                                :
                              Plaintiffs,       :
                                                :
                     v.                         :      Before: MUSGRAVE, Senior Judge
                                                :      Court No. 06-00449
UNITED STATES SECRETARY OF                      :
AGRICULTURE                                     :
                                                :
                              Defendant.        :
                                                :

[On the government’s motion for reconsideration of an opinion remanding to the U.S. Department
of Agriculture for further proceedings, motion granted in part and denied in part.]

                                                                          Dated: March 19, 2008

                                    OPINION AND ORDER

        Steven D. Schwinn, Associate Professor of Law, The John Marshall Law School, for the
plaintiffs.

       Jeffrey S. Bucholtz, Acting Assistant Attorney General; Jeanne E. Davidson, Director
Patricia M. McCarthy, Assistant Director, Civil Division, Commercial Litigation Branch, United
States Department of Justice (Delisa M. Sanchez), and Office of the General Counsel, U.S.
Department of Agriculture, International Affairs and Commodity Programs Division (Jeffrey Kahn),
of counsel, for the defendant.

       In Dorsey v. U.S. Sec. of Ag., Slip Op. 08-14 (Jan. 25, 2008), familiarity with which is

presumed, the court remanded to the U.S. Department of Agriculture, Foreign Agricultural Service

(“FAS” or “USDA”) FAS’s negative redetermination on the Dorseys’ application for trade

adjustment assistance (“TAA”) benefits on the ground that FAS had only presumed the Dorseys’

election to report accelerated depreciation on a wind machine to the IRS in a single year “was the
Court No. 06-00449                                                                            Page 2

most advantageous way to report the expense to the IRS from the standpoint [of] reducing the

income taxes owed that year[,]” Remand Det. at 3, and, as a result, had not yet appeared to have fully

considered the Dorseys’ claim that the deduction distorted their TAA net farm income1 and that it

should be excluded therefrom. The defendant has now interposed a motion for reconsideration.

       Disposition of such a motion is within the Court’s discretion. See USCIT Rule 59(a). See,

e.g., Kerr-McGee Chem. Corp. v. United States, 14 CIT 582, 583 (1990); Union Camp Corp. v.

United States, 21 CIT 371, 372, 963 F. Supp. 1212, 1213 (1997). The purpose of reconsideration is

to rectify “a significant flaw in the conduct of the original proceeding.” W.J. Byrnes & Co. v. United

States, 68 Cust.Ct. 358, 358 (1972) (footnote omitted). However, a court should not disturb its prior

decision unless it is “manifestly erroneous.” See, e.g., Starkey Labs., Inc. v. United States, 24 CIT

504, 505, 110 F. Supp.2d 945, 946-47 (2000); Volkswagen of Am., Inc. v. United States, 22 CIT 280,

282, 4 F. Supp. 2d 1259, 1261 (1998). To the extent the present motion argues a significant flaw or

manifest error, the matter merits further discussion. See Starkey Labs.

       The government argues that FAS’s interpretation of its own regulations and controlling legal

precedent prevent it from excluding plaintiffs’ deduction for the wind machine from their 2003 net

farm income “as reported to the IRS.” See id. at 3. Specifically, the government contends that Steen

v. United States, 468 F.3d 1357 (Fed. Cir. 2006) rejected the argument that the Secretary of

Agriculture “must make a case-by-case determination of net farm income instead of relying upon the

[Internal Revenue Code (“IRC”)] definition.” Id. (referencing 468 F.3d at 1363-64).

       1
         According to USDA regulations, “net fishing income” for the purpose of determining TAA
means “net profit or loss, excluding payments under this part, reported to the Internal Revenue
Service [“IRS”] for the tax year that most closely corresponds with the marketing year under
consideration.” 7 C.F.R. § 1580.102.
Court No. 06-00449                                                                                Page 3

        “Net farm income” is not precisely defined in the IRC, but assuming for the sake of argument

that the government is not jumping the gun or attempting to relitigate its position, it appears that the

contention misconstrues Steen. In effect, the government’s argument is that USDA regulations and

law estop claimants from taking the position that the net farm/fishing income they report to the IRS

is a distorted version of the net farm income that should be considered as their TAA net farm income

(cf., e.g., 26 U.S.C. § 1301), yet, in contrast to such rigidity, the appellate decision actually observed

that FAS’s regulations are not “impermissibly rigid” and that they did not lead to legal error in the

context of that case; further, it stated that “this is not a case in which reliance on tax returns has

resulted in a determination that does not reflect the applicant’s net income from all fishing

sources[,]” implying that there may be instances where reliance upon tax return information may

present a distorted picture of net farm/fishing income for TAA purposes. Steen, 468 F.3d at 1363.

Thus, in a nutshell, the appellate court determined that FAS has not precluded itself by regulation

from determining that a claimant’s net farm income for purposes of TAA differs from what may

have been reported to the IRS. See id. at 1363-64 (“the regulations make it reasonably clear that the

determination of net farm income or net fishing income is not to be made solely on the basis of tax

return information if other information is relevant to determining the producer’s net income from

all farming or fishing sources[;] . . . . the regulations are not solely and inflexibly linked to the

producer’s tax returns for this purpose”).2 And, in this matter, the government’s motion itself

        2
          The regulation governing the evidence that an applicant may provide in order to prove a
decline in “net farm income,” 7 C.F.R. § 1580.301(e)(6), is broader than the regulatory “definition”
of “net farm income” as embodied in 7 C.F.R. § 1580.102, and thus the determination of “net farm
income” for TAA purposes is not conditional upon “as reported to the IRS” as “defined” in section
1580.102. The provisions must be read in pari materia, and they permit proof of net farm income
                                                                                      (continued...)
Court No. 06-00449                                                                                  Page 4

acknowledges that to be the case insofar as it recognizes that Steen anticipated that if an applicant’s

net income as reported to the IRS includes revenue or expenses “unconnected to” farming/fishing

business, i.e., “extraordinary” income or expenses, then the producer’s net farming/fishing income

may not be equivalent to its net income as reported to the IRS and an adjustment to an applicant’s

net farming/fishing income “could potentially be relevant to the determination of an applicant’s net

farming/fishing income.” See Def.’s Mot for Recons. at 2-3 (discussing Steen, 468 F.3d at 1363-64).

        The jurisdiction of this Court conferred by Congress over these types of matters is “ to affirm

the action of the . . . Secretary of Agriculture . . . or to set such action aside, in whole or in part.” 19

U.S.C. § 2395(c). The Dorseys’ essential claim is that their tax returns present a distorted view of

their TAA net farm income because of an “extraordinary” expense item. Is this “a case in which

reliance on tax returns has resulted in a determination that does not reflect the applicant’s net

income” (see Steen, 468 F.3d at 1363)? That remains to be determined. In the meantime, the

government argues it is undisputed that the wind machine is “directly connected” to the Dorseys’

farm business and that

                this Court ordered USDA to construct a methodology for “considering the
                Plaintiffs’ claim that the deduction for its wind machine in 2003 is

        2
           (...continued)
for TAA purposes that may differ from what has been reported to the IRS. Cf. Steen, 468 F.3d. at
1364 (“we need not address in detail the circumstances in which other income or expenses may, or
must, be considered in determining net fishing income” because the plaintiff “does not contend that
his tax returns distort the net amount of his income”). Cf. also, e.g., Viraj Group v. United States,
476 F.3d 1349, 1355 (Fed. Cir. 2007) (if there is ambiguity in regulation, a court gives the
promulgating agency’s interpretation substantial deference as long as the agency’s interpretation is
neither plainly erroneous nor inconsistent with the regulation); Star Fruits S.N.C. v. United States,
393 F.3d 1277, 1282 (Fed. Cir. 2005) (“[a]n agency’s interpretation of its own regulations is entitled
to substantial deference and will be accepted unless it is plainly erroneous or inconsistent with the
regulation”).
Court No. 06-00449                                                                                 Page 5

                extraordinary and that such a deduction is properly excluded from [USDA’s]
                determination of net farm income.” January 25, 2008 Order at 1-2.
                Respectfully, the Court’s order impermissibly directs USDA to substitute the
                Court’s own judgment as to how net farm income should be defined and
                determined for that of the agency. Because Congress expressly delegated to
                the Secretary of Agriculture, not to courts of law, the responsibility to define
                and determine net farm income, the Court’s order usurps USDA’s statutory
                and regulatory responsibilities concerning the administration of the TAA
                program.

Id. at 3 (italics added).

        It is possible that the plaintiffs may have pressed that interpretation of the January 25, 2008

Order before FAS prior to the government’s motion. Cf. Pl.s’ Resp. to Def.’s Mot for Recons. at 1

(“this Court ruled that the Department’s definition of ‘net income’ was contrary to the statute and

the Department’s regulations, and that the Department must exclude the Plaintiffs’ extraordinary

expense for a wind machine in order to bring that definition within the statute and the Department’s

regulations”). Be that as it may, the “that” in the language of the Order quoted by the government

was intended in the sense of “whether” (FAS had, of course, yet to reconsider the Dorseys’ claim),

but in view of the parties’ arguments, it appears appropriate at this juncture to clarify for them that

there has been no ruling that the claimed wind machine expense deduction is extraordinary or that

it is appropriately excluded (or included) for the purpose of determining the plaintiffs’ TAA net farm

income; no opinion has been expressed to that effect, and all that Slip Op. 08-14 attempted to do was

observe that TAA determinations must be based upon consideration of all record evidence and

relevant claims, that there were analytical flaws in FAS’s prior negative determination, and that it

was therefore appropriate to remand the matter to FAS for further consideration. However, to avoid

any “manifest” confusion, the court grants the motion in part in order to vacate, as redundant under
Court No. 06-00449                                                                          Page 6

administrative legal principles, the above-quoted language of the order, and to substitute therefor

nunc pro tunc the order that upon remand, FAS shall analyze and make appropriate findings with

respect to whether the operation of the wind machine that encompasses the claimed accelerated

depreciation expense, and any related income, are distinct from the Plaintiffs’ farm business

(notwithstanding any aggregation and reporting of such items on farm income filings as may be

permitted on IRS forms) and whether the claimed deduction for such machine should be, therefore

or otherwise, excluded from FAS’s determination of the Plaintiffs’ TAA net farm income.

       SO ORDERED.

                                                    /s/ R. Kenton Musgrave
                                                R. KENTON MUSGRAVE, Senior Judge

Dated: March 19, 2008
       New York, New York
                                           ERRATA

Dorsey v. United States Secretary of Agriculture, Court No. 06-00449, Slip-Op. 08-32 (March 19,
2008):

On page 2, footnote 1, “fishing” should read “farm”.

Dated March 19, 2008