[00:00:00] Speaker 00:
case number 21-5118, Air Transport Association of America, Inc., doing business as airlines for America, an international air transport association at balance versus United States Department of Agriculture and out Mr Mitlicki for the balance.

[00:00:16] Speaker 00:
Mr. Overvolt for the appellees.

[00:00:23] Speaker 06:
Thank you, your honor.

[00:00:25] Speaker 06:
Good morning.

[00:00:26] Speaker 06:
Is it okay?

[00:00:27] Speaker 06:
Good morning.

[00:00:29] Speaker 06:
It's okay to begin.

[00:00:31] Speaker 06:
Yes, please.

[00:00:32] Speaker 06:
Thank you, your honor and Tom at list key for appellants.

[00:00:34] Speaker 06:
I'd like to reserve five minutes if I could.

[00:00:37] Speaker 06:
Sure, may please the court.

[00:00:40] Speaker 06:
I want to make clear at the outset that my clients and their members do not object to and in fact fully support if this is a QI program.

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But I think it's common ground at this point that in the several decades since Congress established the program, it's been plagued by a lack of transparency and an inability of the agency to comply with the Fact Act.

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That's why APHIS hired Grant Thornton and promulgated the final rule.

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It was supposed to fix the agency's transparency problems and make sure that their user fee model complied with the statute.

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But the final rule simply did not accomplish that goal.

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The rule is arbitrary, capricious, and contrary to law for several reasons.

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And I'd like to focus on two here, if I could.

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First, the rules in position of an additional fee on top of inspection and administrative costs to finance a reserve is contrary to the Fact Act, and in particular, to section 136 AA1, in which Congress expressly granted the secretary

[00:01:37] Speaker 06:
the authority to collect fees on top of costs to build and maintain such a reserve, but made clear that the authority expired in 2002.

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Mr. Metlitsky, go ahead and mention your other one and then we'll circle back, I'm sorry.

[00:01:52] Speaker 06:
The second one that I wanted to raise here is the duplicative fee issue, the issue of charging passenger fees and commercial aircraft fees for aircraft who carry passengers, but I'm happy to just start with the first one and answer your question, Your Honor.

[00:02:10] Speaker 03:
Sure, why don't you go with the first one?

[00:02:12] Speaker 02:
So on the first one, do you understand the purpose of some short number of years after the fee system was established, this account in treasury is set up, but it's set up only for the six year period.

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Do you understand the purpose of having moved that over to treasury and then transitioning back to having the money go and just be in agriculture's control?

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So I think the idea was that they were transitioning from an appropriations model to a direct user fee model.

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And so as I understand it, it's a little bit confusing under the statute, but as I understand the way it worked until 2002, the agency was collecting user fees in these three categories that were authorized.

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The first was fees sufficient to cover inspection costs,

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The second was fees sufficient to cover administrative costs.

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And the third was fees sufficient to maintain a reserve.

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And all of that money was going into this fund at Treasury.

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And then I believe that the money was then going from Treasury to agriculture through appropriations.

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And then after 2002, that entire fund.

[00:03:26] Speaker 03:
Wait, excuse me.

[00:03:28] Speaker 03:
So you're saying that Congress

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appropriated the money in the treasury account and designated it for agriculture.

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Is that what happened?

[00:03:42] Speaker 06:
I believe that's well, it didn't appropriate the money.

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It authorized the agency to

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collect money, collect fees in these three different respects.

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Those fees would go into a treasury fund and then that money through 2002 was transferred to agriculture from treasury for agriculture to use on inspections.

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After 2002, the agency

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maintained two of the three fee prescription and collection authorities.

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The authorities to collect fees sufficient to cover inspection costs and sufficient to cover administrative costs.

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But that money went directly to agriculture.

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Treasury was sort of taken out of the game after 2002.

[00:04:24] Speaker 03:
But after 2002, the statute says that all the money in that account quote shall be credited

[00:04:35] Speaker 03:
to the Department of Agriculture accounts so that sounds like there wasn't any other congressional appropriation here by virtue of this statute.

[00:04:48] Speaker 06:
was in the treasury account was quote credited to the agriculture that's right that's my that's my understanding of how there's nothing there's nothing in that account anymore i mean it may be there but it's there there is nothing yes there's there should be nothing in that account anymore just now just parenthetically nothing turns on it for this argument they say that something like 30 percent of their current inspection costs are funded by appropriations that's their response to our separate cross uh subsidization argument which i think is

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inconsistent with the way congress intended the statute to work but for purposes of are there still appropriations excuse me your honor are there still appropriations is there a

[00:05:31] Speaker 01:
an act of Congress of some sort that appropriates funds for them in addition to what's raised by the fees.

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So it's not clear to me from the rule or even from their brief what funds other than the funds that they're raising through fees are being used to fund these exempt classes.

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My guess is that it is a general appropriation to it.

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I think it's DHS, but I don't know if there's a specific earmark for this program.

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I just don't know.

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That's one of the things that they don't explain in the rule as to the cross-subsidization argument.

[00:06:04] Speaker 01:
One of the questions that I had, so I guess I'll ask them.

[00:06:07] Speaker 01:
Yeah, I think that's a question for them.

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You're coming to one of the things that bothered me.

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Go ahead.

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Right.

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So just to follow up on the account in Treasury, I also had sort of first understood this as putting it like the Treasury account is sort of training wheels.

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They're transitioning from

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appropriations based to a fee paid, but the Fact Act is enacted in 1990 and it's not until 1996 that this treasury account is set up and at that time it's set up for this temporary six-year period and I'm just trying to understand because one way to view this disputed provision

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136AA1C, which is the provision that allows through fiscal year 2002, the maintenance of a reasonable balance in the Treasury account is that it has something to do with

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the clarity, like the unusualness of having maintaining a balance in a treasury account as opposed to an agency's own independent ledger, you know, back, back at home and and so I just, I just was wondering why it went from

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in-house agriculture to this treasury, what I refer to as a training wheels account, back to agriculture.

[00:07:27] Speaker 06:
I don't know why they did that.

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I can tell you why they transitioned from treasury to agriculture.

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I don't know why the original change happened.

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The second change happened because I think the idea was that they were going to be financed through a user fee model, but I don't think it's right.

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that their argument is that A1C, right, was an authorization to place money and to maintain a balance, right, an authorization to maintain a balance in this account.

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But that isn't so.

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The authorization to maintain money in this account is 5A, which says it establishes the account, and it says that the account shall contain all of the fees collected under this subsection.

[00:08:13] Speaker 02:
Right, but that's why I wonder about sort of a treasury account versus an agriculture account because ordinarily under appropriations law my understanding is that you don't maintain balances year to year, that you have an appropriation for the default I mean obviously there's millions of exceptions but the default is.

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for the fiscal year.

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So if you have money somewhere and you don't use it, it reverts back to the general treasury.

[00:08:36] Speaker 02:
So maintaining a balance, it seems to me, might be something that calls for statutory specification and potentially maintaining a balance in

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this Treasury account might need more specification than just maintaining a balance in agriculture, you know, once it goes back home to agriculture, I'm just not sure about that.

[00:08:55] Speaker 02:
But I'm, I'm trying to understand the peculiarity of, you know, because because the conditions in one C are not only reasonable balance, it's maintaining and it's at Treasury.

[00:09:08] Speaker 06:
Well, I actually think it's not really any of those things, because the A1 generally is about fee authorization, right?

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The beginning of the statute says the Secretary of Agriculture may prescribe and collect fees sufficient for three particular things, and the first and the second

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are sufficient to cover actual costs.

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And my view is that they are reading A and B to include the power that was granted, specifically granted, in C. Well, maybe or maybe not.

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Go ahead, David.

[00:09:47] Speaker 03:
So your point is that their interpretation made C a surplus, right?

[00:09:51] Speaker 03:
But what do you think about the district court said it wasn't because

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He said it served an independent purpose, which he described as authorizing maintenance of a reasonable balance in a specific account of the treasury or part for a limited period of time.

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Right.

[00:10:09] Speaker 06:
So the court did say that.

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And my answer to that is that the C mentions maintaining a reasonable balance.

[00:10:18] Speaker 06:
But the actual authorization that is granted in C is the authorization to prescribe and collect fees sufficient

[00:10:26] Speaker 06:
to maintain a reasonable balance, which is what they are doing now in other words, a grants them authority sufficient to sufficient to cover the cost right that's a quote of inspection be grants them the authorities sufficient to cover the cost of administering.

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And what C does is give them authority to prescribe and collect fees more than sufficient to cover those two things that is sufficient to carry a reserve.

[00:10:56] Speaker 02:
Maybe, maybe.

[00:10:58] Speaker 02:
Go ahead, David, I'm sorry.

[00:10:59] Speaker 02:
No, you go ahead.

[00:11:02] Speaker 02:
I guess I had two questions.

[00:11:04] Speaker 02:
One is, it seems like

[00:11:08] Speaker 02:
One could say that authority to collect fees sufficient to cover services and authority to collect fees sufficient to cover administering would encompass authority to collect fees sufficient for, let's just call it cost smoothing, you know, which is the reasonable balance for, you know, you're not going to hire and fire people just because in one period you need more of these services and another period less.

[00:11:33] Speaker 02:
So maybe,

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one C is sort of surplus edge altogether.

[00:11:40] Speaker 02:
And then the mystery is why only with respect to the Treasury can now you said it doesn't make sense to have it be about the definition of the Treasury account because five already includes, I guess it would be five a talks about contain all the fees.

[00:11:55] Speaker 02:
But five a says nothing about maintaining a balance.

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And that's the thing that

[00:12:01] Speaker 02:
it seems to me might be distinctive about 1C.

[00:12:04] Speaker 02:
And again, if I knew more about appropriations law and the way a treasury account functions, the notion that Congress might want to specify, look, you can maintain year to year a balance of these fees, even though the basic model is collect fees for the services you're doing in, you know,

[00:12:23] Speaker 02:
in close temporal proximity to the service provided.

[00:12:28] Speaker 02:
But if there's a desire to have this holdover while that account exists, that seems like that could explain 1C.

[00:12:38] Speaker 06:
Well, that would explain 1C if 1C said, and you can maintain a reasonable balance in this fund until the fund expires, but that's not what it says.

[00:12:46] Speaker 06:
It says that the agency can prescribe and collect fees sufficient to have this reserve, right?

[00:12:53] Speaker 06:
And, you know, I'm not sort of making this up.

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I mean, if you look at what the agency actually said before the authority expired,

[00:13:01] Speaker 06:
This was in a 1999 rulemaking.

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It's reproduced at 537 of the appendix.

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They say, we include a reserve building component in the amended fees to ensure that reserves can gradually be built to an adequate level by 2002.

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which the agency thought was essential to ensure continuity of service and the like.

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In other words, they understood their authority at the time was to build up a reserve that they can then use going forward.

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And by the way, we don't think they lack the authority to have a reserve balance.

[00:13:35] Speaker 06:
Of course not.

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But the way the statutory scheme was supposed to work is they build up a reserve.

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that they could use going forward.

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And then if they're over on their estimate, as they were in 2011, for example, with respect to the passenger fee, they were $155 million over what it actually cost them, according to the GAO, they can put that in the reserve.

[00:13:58] Speaker 06:
If they're under, they can draw from the reserve and they can use the reserve in the way they say that it's supposed to be used, which is for these sort of temporal fluctuations.

[00:14:07] Speaker 03:
But they can't, in your view, impose a fee to continue.

[00:14:11] Speaker 03:
Exactly.

[00:14:12] Speaker 06:
They can't impose a fee on top of fees sufficient to cover inspection costs and administrative costs.

[00:14:21] Speaker 02:
But is your view that they could build a fee into

[00:14:24] Speaker 02:
the costs sufficient to provide the services and administer the subsection, they could.

[00:14:31] Speaker 06:
No, that's no.

[00:14:32] Speaker 06:
So I think if well, so if C didn't exist, right, we would be the fight would be we would be saying sufficient to cover inspection costs means enough to cover, but not more than enough to cover.

[00:14:45] Speaker 06:
Right.

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And they would be saying, well, it includes this authority to cover a reserve because that would be reasonable or whatever and I would make that argument and, you know, I think it would be a tough Chevron argument for me, but here, see exists and it, and it was operative.

[00:15:00] Speaker 06:
through 2002.

[00:15:01] Speaker 06:
And so until 2002, that means Congress said, you can prescribe and collect fees for three specific purposes.

[00:15:10] Speaker 06:
Two of them are to cover specific costs.

[00:15:13] Speaker 06:
And one of them is to exceed costs, right?

[00:15:15] Speaker 06:
And the fact that Congress then said that authority to collect fees, prescribe and collect fees sufficient to exceed costs and maintain a balance expires in 2002 means that it expired in 2002, just as the agency thought it would.

[00:15:30] Speaker 06:
before 2002.

[00:15:31] Speaker 06:
Otherwise, I don't think that the sunset provision is being given any effect at all.

[00:15:38] Speaker 02:
Well, the sunset in the account, I'm not sure I caught, I think you were very clear.

[00:15:43] Speaker 02:
I just think I was not absorbing entirely.

[00:15:46] Speaker 02:
You were saying you did or didn't think that, let's say there is no C and there is no treasury account.

[00:15:55] Speaker 06:
Right.

[00:15:56] Speaker 02:
You would be arguing that it was arbitrary and capricious to collect costs above the actual cost of the service your clients received in a particular period and above the cost of administering in that particular period to also build into the concepts of

[00:16:15] Speaker 02:
services and administering some cost smoothing buffer or reasonable balance.

[00:16:24] Speaker 02:
You would object to that as beyond what the statute.

[00:16:27] Speaker 06:
Well, I might.

[00:16:28] Speaker 06:
I might object to it.

[00:16:30] Speaker 06:
What I'm saying is I think I would probably have the better of that argument if there weren't Chevron.

[00:16:34] Speaker 06:
I think it would be a tough case for me if there were Chevron.

[00:16:37] Speaker 02:
But, but the problem with this case is, it's not just like I'm just trying to understand right I'm just trying to understand the nature and limits of your I do I absolutely understand that your argument is that there's very strong and direct negative implication from one see.

[00:16:52] Speaker 02:
About this, you know, because the prior statute before 1996 said you can collect services and for services for administering and to maintain a reasonable balance.

[00:17:02] Speaker 00:
Right.

[00:17:02] Speaker 02:
And so you're saying, well, now they're separating it out and the only the fate of reasonable balance dies with the Treasury.

[00:17:08] Speaker 02:
Yeah, because it's and that that's your argument.

[00:17:10] Speaker 06:
And it's not even a negative implication.

[00:17:11] Speaker 06:
I just want to make clear that it's not like we're arguing sort of Congress precluded the agency from doing this full stop.

[00:17:19] Speaker 06:
We're arguing that Congress first expressly granted them the very authority that they are exercising now, but sunset it.

[00:17:26] Speaker 06:
But they just kept on doing it after the sunset provision, which seems to me to be an even stronger indication that they're no longer allowed to do it than if we were just talking about the sort of negative implication that you would normally think of.

[00:17:41] Speaker 01:
I could turn this argument or this discussion just a little bit.

[00:17:45] Speaker 01:
In order that we might or might not learn from others, are there any other provisions with respect to other agencies that mirror this one, or is this a purple tail?

[00:17:55] Speaker 06:
I'm not sure, Your Honor.

[00:17:57] Speaker 06:
I'm not sure of any provisions that are similar to this, unfortunately.

[00:18:01] Speaker 06:
I apologize.

[00:18:02] Speaker 06:
I know I'm way over my time, but I did want to get to the... Way over.

[00:18:08] Speaker 03:
Well, you're into your rebuttal time.

[00:18:12] Speaker 06:
Okay.

[00:18:14] Speaker 06:
So very quickly, just on this issue of charging both passenger fees and commercial aircraft fees as to passenger aircraft, and we think that's precluded by the statute altogether, but at the very least, if you disagree with that under Chevron, I think the rule itself is clearly arbitrary and capricious really for two reasons.

[00:18:37] Speaker 06:
One is that it just fails to explain despite numerous comments on this point,

[00:18:42] Speaker 06:
why it simply ignored the premise of the Grand Thornton analysis, which is that passenger fees would cover inspection of the entire aircraft carrying passengers.

[00:18:53] Speaker 03:
I thought the agency responds that the underlying data shows that that's not in fact what Grand Thornton did.

[00:18:59] Speaker 03:
That the calculation it actually did was correct, that that was just internet language.

[00:19:05] Speaker 03:
That's what they say.

[00:19:07] Speaker 03:
That's what they say in their brief.

[00:19:09] Speaker 03:
Well, if you look at the numbers, they're right.

[00:19:11] Speaker 06:
Well, I don't know.

[00:19:13] Speaker 06:
Well, a few points, Judge Tatel.

[00:19:14] Speaker 06:
First of all, they don't say that in the rule at all.

[00:19:18] Speaker 03:
We can look at the numbers and see that, in fact, I mean, don't you agree that, in fact, the numerator includes all the denominator includes both commercial and carbon.

[00:19:31] Speaker 06:
So, you know, I don't know.

[00:19:33] Speaker 06:
That's what they say.

[00:19:34] Speaker 06:
But the thing is, the actual premise of the analysis was that.

[00:19:38] Speaker 03:
Isn't that what the numbers show?

[00:19:41] Speaker 06:
That's what they say the numbers show.

[00:19:42] Speaker 03:
I mean, I don't personally... Can you look at the numbers of the company they don't show that?

[00:19:47] Speaker 06:
The number is 819,000 flights, and they say that that is the total number of cargo flights.

[00:19:54] Speaker 06:
I mean, maybe that's right, but even if it's right, I don't understand how that solves their problem, because that just means that the analysis that they adopted, I mean, they explicitly adopted this Grant Thornton report, is internally inconsistent.

[00:20:08] Speaker 06:
I mean, just before that 819, I'm looking at 510 of the appendix, right?

[00:20:14] Speaker 06:
There is a fee schedule that uses that

[00:20:17] Speaker 06:
Sorry, 819,000 number right next to that number it says commercial air cargo only right and so commenters rightly wanted to figure out what is commercial air cargo only mean.

[00:20:31] Speaker 06:
Okay, and the agency responds in the final rule.

[00:20:34] Speaker 06:
The term commercial air, cargo only, refers to those commercial aircraft carrying only cargo.

[00:20:41] Speaker 06:
This is a 245 of the JA.

[00:20:43] Speaker 06:
So even the agency in the final rule itself, when commenters are saying, hey, what is this number?

[00:20:48] Speaker 06:
They say it's cargo only.

[00:20:50] Speaker 06:
So look, I mean, I don't see how it solves their problem to tell you that the math doesn't match the actual explanation of the math.

[00:20:57] Speaker 06:
That seems like just describing a new problem.

[00:21:00] Speaker 06:
And then the other issue here is their explanation for why

[00:21:06] Speaker 06:
passenger aircraft are treated differently than cruise ships.

[00:21:10] Speaker 06:
They didn't explain it in the rule again.

[00:21:12] Speaker 06:
In the proposed rule at 20 of the JA, they say explicitly that they should be treated the same.

[00:21:21] Speaker 06:
They say consistent with our AQI fee authority, the cost of inspecting cruise ships themselves would be covered by the proposed sea passenger fee rather than a separate fee similar to the commercial.

[00:21:32] Speaker 06:
maritime cargo vessel fee, just as the international air passenger fee covers the costs associated with inspecting the aircraft on which they arrived.

[00:21:42] Speaker 06:
Sorry.

[00:21:43] Speaker 02:
I thought that, I mean, in the language of the statute, it talks about related.

[00:21:48] Speaker 02:
And one of the things that the service relies on is to mean what you say it means and to mean what it means for the cargo, for the cruises, it would just say passenger fees include the cost of inspections of the aircraft as opposed to include the cost of related inspections of the aircraft in their view.

[00:22:06] Speaker 02:
And then the rule does delineate

[00:22:09] Speaker 02:
different kinds of aircraft inspection costs and you know what they say is certainly non-arbitrary that there is passenger cabin inspection, that there's waste that comes from service of passengers, that there's passenger luggage hold inspections and that those are

[00:22:30] Speaker 02:
inspections of the aircraft that are related to the passenger function.

[00:22:34] Speaker 02:
I mean, I'm telling you something you know, but and and that there's other inspection the exterior of the aircraft and the cargo hold of the aircraft of a passenger aircraft that are not charged as part of the fee, but are charged separately as a generic

[00:22:49] Speaker 02:
aircraft fee and so if that's if that's actually what they are doing in terms of it's really three categories there's passengers themselves and where they've been picking up mad cow disease and what they're carrying in their purse that's you know fruit and then there's the the aircraft relating to passengers and then there's aircraft not relating to passengers if those are three separate buckets and if they're not

[00:23:16] Speaker 02:
charging twice for any of those three buckets, but just describing them as three rather than two, what is wrong with that?

[00:23:26] Speaker 06:
So a few points.

[00:23:27] Speaker 06:
First of all, just starting with the end, that they're not charging twice.

[00:23:30] Speaker 06:
I don't know that they're not charging twice.

[00:23:33] Speaker 06:
They didn't give us the underlying data.

[00:23:37] Speaker 06:
And they say that error was harmless.

[00:23:39] Speaker 06:
Do you not have it now?

[00:23:41] Speaker 06:
We have it now, it was in the administrative record, but so I'm looking at, for example, page 3083 of the administrative record.

[00:23:48] Speaker 06:
It has a line item called program passenger aircraft, right?

[00:23:55] Speaker 06:
And then a separate line that I don't think was disclosed anywhere in the record called CBP08 passenger aircraft inspection.

[00:24:04] Speaker 06:
Now that label sounds like it includes the inspection of the aircraft,

[00:24:09] Speaker 06:
But they say it's ambiguous but it doesn't but you know I don't know that that's true I have no idea what that includes they should have provided it with, you know, with the proposed rule so that's just on the double counting point.

[00:24:22] Speaker 06:
Then you asked, I think, several, there were several questions embedded in your question one was about statutory authority and one is about what they were actually doing.

[00:24:31] Speaker 06:
So on what they were actually doing, they say that the difference between a cruise ship and a passenger plane is that cruise ships don't carry cargo.

[00:24:42] Speaker 06:
OK, maybe that's a difference.

[00:24:44] Speaker 06:
A lot of passenger planes don't carry cargo, too, and they're still charging the commercial aircraft fee as to those planes.

[00:24:51] Speaker 06:
Also, they say that the inspection of the outside of the airplane is not related to passenger inspections.

[00:24:59] Speaker 06:
Okay, well then why is the inspection of the outside of a cruise ship related to passenger inspections?

[00:25:06] Speaker 06:
They never explained that at all, then it makes no sense, right?

[00:25:10] Speaker 06:
There's just, I don't understand how those two things could be consistent with each other.

[00:25:15] Speaker 06:
It seems to me to warrant an explanation at their release.

[00:25:18] Speaker 02:
They're doing categories of things.

[00:25:20] Speaker 02:
And if the equipment and the staff that they have that are able to do

[00:25:24] Speaker 02:
the inspection of the outside of aircraft are the same for aircraft that carry passengers and that don't, they don't have two separate enterprises for that.

[00:25:34] Speaker 02:
Whereas the whole of the enterprise that looks at cruise ships is about what passengers, it's this passenger specific service.

[00:25:40] Speaker 02:
So they're just allocating a cost of a service and aircraft happen to be both cargo and passenger.

[00:25:49] Speaker 06:
Well, two points.

[00:25:51] Speaker 06:
First of all, not all aircraft, most aircraft, most passenger aircraft don't carry.

[00:25:55] Speaker 02:
The category of passenger aircraft includes a category of hybrid.

[00:25:59] Speaker 06:
But Your Honor, your very cogent explanation of the difference just now included facts, like there were there are different people doing these things and stuff like that.

[00:26:07] Speaker 06:
None of that is in the rule.

[00:26:09] Speaker 06:
If that's true, let them explain it.

[00:26:11] Speaker 06:
It's not even in their brief, right?

[00:26:13] Speaker 06:
But certainly, it's not in the rule.

[00:26:15] Speaker 06:
And you can't come up with the post hoc rationalization rule everybody understands.

[00:26:20] Speaker 06:
But they didn't even need to.

[00:26:21] Speaker 02:
But that's sort of the basic thing about how the world works and how institutional functions operate, no?

[00:26:26] Speaker 06:
That the outside of the plane is inspected by different people in the cargo line?

[00:26:30] Speaker 02:
That the same activity would be done by the same people

[00:26:36] Speaker 02:
Anyway, I don't wanna get into that.

[00:26:39] Speaker 02:
What about the argument about related?

[00:26:42] Speaker 02:
That's the statutory argument.

[00:26:44] Speaker 06:
That's the statutory argument.

[00:26:46] Speaker 06:
And so our point there is that the reason the word related there is because the sentence is really kind of non-grammatical without the word.

[00:26:55] Speaker 06:
The sentence would read the cost of the services with respect to passengers as a class includes the cost of inspections of the aircraft or other vehicle.

[00:27:04] Speaker 06:
Now you could figure out from context

[00:27:06] Speaker 06:
that it means the aircraft on which the passenger arrived.

[00:27:10] Speaker 06:
But it would just be a weird sentence.

[00:27:12] Speaker 06:
And the word related, I think, is there to tell you that the aircraft or other vehicle that they're talking about is the one on which the passenger arrived.

[00:27:20] Speaker 06:
But our point is that the second sentence doesn't do anything at all if what it means is

[00:27:27] Speaker 06:
just that the cost as the passenger as a class is inspection of the passenger and things related to the passenger, that would be true under the first sentence.

[00:27:38] Speaker 06:
We think what the second sentence is there to tell you is that when you're talking about passenger fees as a class,

[00:27:47] Speaker 06:
the costs associated with that class include the cost of the vehicle on which they arrive.

[00:27:53] Speaker 06:
But if you disagree with us on that under Chevron, I think they still have a pretty bad arbitrary and capricious problem.

[00:28:01] Speaker 03:
I'm sorry, I don't understand why you say the second sentence wouldn't mean anything.

[00:28:07] Speaker 03:
The first sentence says,

[00:28:16] Speaker 03:
They must be commensurate with the person's playing the fees.

[00:28:20] Speaker 03:
And the second one says that for passengers, that includes the related costs of the airplane.

[00:28:28] Speaker 03:
I don't understand the conflict there.

[00:28:30] Speaker 06:
I don't think there's any conflict.

[00:28:31] Speaker 06:
It's just if you didn't have the second sentence, I think that it would be clear that the cost.

[00:28:36] Speaker 03:
The second sentence is in the stature.

[00:28:39] Speaker 03:
And the agency has included in the calculation of the passenger fee.

[00:28:46] Speaker 03:
related inspections of the aircraft.

[00:28:50] Speaker 03:
And I think that would be true under just the first sentence.

[00:28:55] Speaker 06:
And we think the second sentence is there.

[00:28:59] Speaker 06:
That's our argument.

[00:29:00] Speaker 06:
My point is, if you disagree with that, if you defer to them, they still have the problem of failing to explain why their analysis contradicts the premises of their accountant and the cruise ship issue.

[00:29:14] Speaker 06:
Thank you, Your Honor.

[00:29:15] Speaker 03:
I'll give you a minute or two for rebuttal.

[00:29:19] Speaker 06:
Thank you.

[00:29:19] Speaker 06:
I appreciate it.

[00:29:26] Speaker 05:
Thank you, your honors.

[00:29:28] Speaker 05:
May it please the court?

[00:29:29] Speaker 05:
Life overruled with the Department of Justice.

[00:29:32] Speaker 05:
I'd like to start on the reserve issue and maybe just start on the history of this, what is sort of an unusual, now true user fee system, but that was not sort of the history in the 90s.

[00:29:46] Speaker 05:
And a lot of the fight is sort of about how the program operated both before 1996 and then from 1996 to 2002.

[00:29:55] Speaker 05:
So when USDA was granted this fee collection authority in the first place, at that time, it still, it had the authority to collect fees for the cost of providing services, but it still was dependent on Congress to appropriate, essentially to enact an appropriation that allowed it to apply to the fund to get reimbursement for its expenses.

[00:30:16] Speaker 05:
So it was a free authority, but still generally operating as if Congress was appropriating each year.

[00:30:23] Speaker 02:
You're talking about 1990 to 96 now?

[00:30:25] Speaker 05:
That's 1990 to 96.

[00:30:26] Speaker 05:
OK.

[00:30:28] Speaker 05:
And then the 1996 statute, I mean, that system, Congress determined, was not especially workable since the agency was still dependent on this cumbersome appropriations process.

[00:30:39] Speaker 05:
It's not certain that it would get the amount it would request in a particular year.

[00:30:44] Speaker 05:
It didn't truly have access to the fees collected to fund its program services.

[00:30:50] Speaker 01:
Now let me interrupt you just a moment.

[00:30:52] Speaker 01:
I hate to do so.

[00:30:53] Speaker 01:
No, I don't really hate to do.

[00:30:56] Speaker 01:
Is there still an appropriations bill for this agency?

[00:31:00] Speaker 01:
Or is it a pure fee for services funding?

[00:31:03] Speaker 05:
It is still not a pure fee for service system.

[00:31:07] Speaker 05:
USDAFIS still receive some services, some appropriations and CBP, which does do a lot of the on the ground inspection work after the Homeland Security Act also receives their appropriations.

[00:31:19] Speaker 01:
So do they still, they do then it's still reset.

[00:31:21] Speaker 01:
There still is an appropriation bill.

[00:31:23] Speaker 01:
There still are appropriated funds.

[00:31:25] Speaker 05:
Yes, and that is the basis for, you know, the things like pedestrians entering the country.

[00:31:33] Speaker 01:
How does that distinguish what that's expended for from the general administrative costs that are accounted for in the fee for services?

[00:31:48] Speaker 01:
How do they know which bucket that's coming out of, if you would?

[00:31:52] Speaker 05:
which bucket, the general program expense, they account for it.

[00:31:57] Speaker 05:
And this is sort of the thrust of the methodology they use in the latest rule by calculating a particular cost associated with the proportion of the program's expenses that are tied to the classes that are paying a fee and ensuring that the amount of the fee charged is derived by that proportion divided by the number.

[00:32:18] Speaker 01:
Now as to the appropriated funds,

[00:32:22] Speaker 01:
I don't purport to have expertise in appropriations law, but the general nuisance that we put up with when I was trying to get appropriations, you had two steps there that you had the appropriation.

[00:32:32] Speaker 01:
You still had to go to the authorizers so that it was two steps before you ever actually got your hands on the money.

[00:32:37] Speaker 01:
Is that the case with appropriated funds here or how does that work if you know?

[00:32:43] Speaker 05:
I don't know for sure.

[00:32:45] Speaker 05:
I believe it is sort of the general two-step appropriation process.

[00:32:50] Speaker 05:
Thank you.

[00:32:51] Speaker 02:
Go ahead, I'd love to hear your sort of big picture.

[00:32:55] Speaker 02:
And I'm also curious about whether during the, you're probably getting to that, the period from 1996 to 2002, were they also in that hybrid model where they're getting some appropriations.

[00:33:07] Speaker 02:
It just wasn't clear to me under 5B, which talks about

[00:33:13] Speaker 02:
appropriations acts, whether that's just the authority to use the fee revenue or whether that's also getting money from the Treasury separate from the fee.

[00:33:23] Speaker 02:
But anyway, go ahead and explain to us the shift to

[00:33:28] Speaker 05:
I think I understand.

[00:33:29] Speaker 05:
I will try and answer your question in the context of this explanation.

[00:33:33] Speaker 05:
So in 1996, Congress decides it does want to shift this to a true user fee program.

[00:33:39] Speaker 05:
But for us, the six year transitional period, the way it operates is you do have this account in the treasury.

[00:33:44] Speaker 05:
I believe paragraph five says if you have more than 100 million in that account, that excess amount is available without further appropriation.

[00:33:53] Speaker 05:
If you're under that, you are still waiting for Congress

[00:33:57] Speaker 05:
to issue an appropriation that essentially allows the agency to seek reimbursement for its expenses.

[00:34:03] Speaker 05:
And then Congress also provided that at the end of this transition period, any unallocated balance in the Treasury accounts will be transferred to the USDA accounts and then be available for program expenses there.

[00:34:17] Speaker 03:
Any idea why the $100 million?

[00:34:19] Speaker 03:
The Treasury account is now non-existent or exists and is empty, correct?

[00:34:24] Speaker 05:
That's right.

[00:34:25] Speaker 05:
It was wound up at the end of this transition period.

[00:34:30] Speaker 02:
Why $100 million?

[00:34:31] Speaker 02:
What is that?

[00:34:35] Speaker 05:
I'm not sure what the particular sort of restriction imposed, what the purpose for that.

[00:34:39] Speaker 05:
I mean, it does assure Congress that the agency has collected enough money that

[00:34:47] Speaker 05:
there's not a concern essentially of funding that's coming not from the fee collection authority, but from Congress's general appropriations.

[00:34:54] Speaker 05:
Congress is getting the savings of setting this up as a user fee system rather than, you know, something that is funded entirely by appropriations, as was the case before 1991.

[00:35:05] Speaker 03:
Could you just go straight to, so could you just give us your best argument as to why the authority granted in C

[00:35:16] Speaker 03:
to maintain a reasonable balance which ends in 02 can continue today.

[00:35:21] Speaker 03:
That's what this issue is all about.

[00:35:24] Speaker 05:
Yes, and our point is just that 1C was conveying a particular authority specific to this Treasury account under this sort of unusual transition period to maintain a reasonable balance in that account, even though it is somewhat unusual that you're maintaining a balance in the Treasury account that's not being directly used for expenses of the program administrative costs.

[00:35:48] Speaker 05:
making particularly clear that there's nothing wrong with the agency maintaining that balance for this period that will then be transferred to the agency at the end of that period.

[00:36:00] Speaker 03:
What bothers me about that is that A says they can impose a fee to cover the cost of providing services, the cost of providing services.

[00:36:18] Speaker 03:
how can you get a reasonable, an additional amount in there for a cushion?

[00:36:24] Speaker 05:
Well, I mean, the reason I don't understand the other side to take issue with our general understanding what A does, which is the agency has long recognized your recovering costs, but your recovering costs in the situation in which one, you have this three month temporal lag between

[00:36:40] Speaker 05:
performing the service and getting the fee for it.

[00:36:42] Speaker 05:
You also have a situation in which we know repeatedly there's going to be differences in the projection activity value from what we actually see.

[00:36:50] Speaker 05:
And when, as in the current COVID pandemic, we are getting much, many fewer fee generating activity than expected.

[00:37:00] Speaker 05:
You still have fixed costs that if you don't have a reserve, you're just not going to be able to recover the costs.

[00:37:05] Speaker 05:
of the program in that regard.

[00:37:06] Speaker 05:
So I mean, the authority to cover the cost includes under the particular features of this program, the reserve when that's how you actually recover costs and administer the program.

[00:37:23] Speaker 02:
What about Mr. Matilsky's point that

[00:37:27] Speaker 02:
there was an understanding during this sort of what I call the training wheels period from 1996 to 2002 that a reserve would be built up.

[00:37:35] Speaker 02:
And that once that's built up, you basically get ahead of the time lag.

[00:37:39] Speaker 02:
I mean, the time lag is just a time lag.

[00:37:41] Speaker 02:
And so the revenues do come in.

[00:37:43] Speaker 02:
And if there's a reserve there, maybe that's also enough to be the cushion for the ups and downs.

[00:37:53] Speaker 02:
In terms of the usage of the service.

[00:37:55] Speaker 02:
So why don't we just understand Congress to have made that determination because it is curious that these three authorities to pay for services to pay for administering and to pay for maintaining reasonable balance work.

[00:38:09] Speaker 02:
in the fact act as originally enacted in 1990.

[00:38:12] Speaker 02:
And we're converted into these three categories in 1996.

[00:38:17] Speaker 02:
And then the category C vanishes.

[00:38:21] Speaker 02:
And it's just hard to know what to make of that under your theory, why the narrative that Mr. Matilsky has given us isn't the better understanding.

[00:38:33] Speaker 05:
Our argument is once he is just there's less need to be particularly clear on the authority to maintain a balance when you no longer have the unusual situation of a treasury account, subject to these restrictions that will be transferred.

[00:38:47] Speaker 05:
Eventually, and there's no indication in the rulemaking.

[00:38:50] Speaker 05:
in any of the legislative history or anything like that, that Congress thought the point was you get to some particular number.

[00:38:57] Speaker 05:
Congress hasn't said anything about what that number is.

[00:39:01] Speaker 05:
But then in 2002, you're just fixed at that number.

[00:39:04] Speaker 05:
The agency can do nothing to ensure that it's maintaining the sort of three-month, 90-day reserve it needs given the temporal features of the program.

[00:39:13] Speaker 05:
It just stuck at whatever that number ended up

[00:39:15] Speaker 05:
for whatever reason in 2002.

[00:39:17] Speaker 03:
I mean- But we do know that Congress must have expected that at the end of 02, there would be a reasonable balance in that fund that would now transfer to the agriculture department, right?

[00:39:30] Speaker 05:
Yeah.

[00:39:31] Speaker 05:
Yes.

[00:39:33] Speaker 03:
So why isn't Judge Fillard's sort of sense of this exactly right?

[00:39:36] Speaker 03:
That that's the cushion you get for the future.

[00:39:39] Speaker 03:
And if the program turns out to be a problem,

[00:39:45] Speaker 03:
in terms of the ebb and flow of expenses and money and the cushion's not enough, the agency can go back to Congress and ask them to either fix it or to appropriate money or to allow it to reinstitute the reasonable balance required.

[00:40:02] Speaker 05:
Well, that's just not what the agency was doing at any point during this period I mean as early as 1991 1992.

[00:40:09] Speaker 05:
One of the reasons offered for the reserve is not just, we need to build up the three months in light of the delay between when we perform the services when we get the fees it's also this concern that.

[00:40:20] Speaker 05:
you need some sort of reserve for continuity of operations.

[00:40:23] Speaker 05:
This is an area in which, you know, activity volumes might drop and we still have fixed costs.

[00:40:28] Speaker 05:
So if we don't have a reserve to sort of smooth those costs out, we're just not recovering costs.

[00:40:33] Speaker 05:
That's also part of it.

[00:40:35] Speaker 05:
And I mean, there was a reserve component of the rule in 1999, again, in 2002.

[00:40:41] Speaker 05:
In 2004, 2006, again, the agency is still

[00:40:46] Speaker 05:
using the fees collected to maintain a reserve and, you know, reporting the reserve balance to Congress the whole time.

[00:40:55] Speaker 05:
But I mean, there's no, the story that Congress expected there to be some number and then that was it going forward is just not reflected anywhere.

[00:41:04] Speaker 02:
Harold, you said a few minutes ago that there was less need to be particularly clear when, for Congress to be particularly clear

[00:41:14] Speaker 02:
during the period when the authority had reverted to the Department of Agriculture, then there was when the account was in the treasury.

[00:41:22] Speaker 02:
And does that have to do with, I'd like to hear sort of more why that is.

[00:41:27] Speaker 02:
Does that have to do with treasury account typically fiscal year or treasury account typically everything needs to be re-appropriated every year or authorized or what is the difference between the nature of

[00:41:43] Speaker 02:
the Treasury account and the nature of things going forward under the auspices of the Department of Agriculture that supports your point that there's less need to be particularly clear after 2006.

[00:41:54] Speaker 05:
So the differences are first that now when USDA has collected these fees, they're immediately available and available until expended in the USDA accounts for these accounts.

[00:42:06] Speaker 05:
Whereas during the transition period, it's still subject to these restrictions that

[00:42:12] Speaker 05:
You can use them if you have over 100 million in the account, otherwise you're still waiting for an appropriation.

[00:42:16] Speaker 05:
And then two, we know that the account in which you're maintaining a balance will be wound up at the end of fiscal year 2002.

[00:42:25] Speaker 05:
At that time, any unobligated balance will be transferred.

[00:42:29] Speaker 05:
Even in that situation, it's true.

[00:42:30] Speaker 05:
Ultimately, the balance may be used for program purposes, but there's a number of steps at that time that we don't have here, and that's sort of

[00:42:42] Speaker 05:
what would make Congress potentially want to be particularly clear.

[00:42:45] Speaker 01:
And again, in offering- Does it really make sense to say Congress did this just to get rid of clarity?

[00:42:52] Speaker 01:
Is that what you're saying?

[00:42:54] Speaker 01:
You're saying they took it out because they didn't need to be as clear as they were in the past.

[00:42:59] Speaker 01:
So they're- No, Your Honor.

[00:43:00] Speaker 01:
We don't want to be clear?

[00:43:02] Speaker 05:
Just that there are reasons to think you would want to be particularly clear that you have the authority to maintain a reasonable- I can see why there was a good reason to put it in.

[00:43:09] Speaker 01:
I'm not sure why there was a good reason to

[00:43:12] Speaker 01:
sunset or to leave it out of the further statute.

[00:43:17] Speaker 05:
Well, it did sunset at the same time that the very accounts for which this need for clarity sunset as well.

[00:43:24] Speaker 05:
I mean that both the one C is specifically tied to this particular treasury account, which ends in fiscal year 2002 and that same language is in one C. Would it have been possible for the agency over time here to simply label those things which draw on that

[00:43:39] Speaker 01:
reserve account as a general administration and put this in two buckets instead of three.

[00:43:47] Speaker 01:
Just not had a separate bucket for maintaining the balance.

[00:43:56] Speaker 05:
That would be sort of described as a different cost.

[00:43:59] Speaker 05:
That's whether to describe it as a different cost versus the way the agency has consistently explained it as this is how we pay for the costs we have incurred.

[00:44:08] Speaker 05:
I'm not sure that makes a particular difference.

[00:44:13] Speaker 05:
The rationale that's been offered is that given the features of the program that the agency has sort of since 1991, 1992 explained, we need this reserve to cover the costs, both of providing services and administering the program.

[00:44:29] Speaker 03:
I want to ask you about a different issue, the cross-subsidization issue.

[00:44:36] Speaker 03:
The airlines quote this sentence in the regulatory impact analysis, which says that AQI services served by classes that do not pay user fees are covered through appropriated funding or a portion of user fees otherwise collected.

[00:44:54] Speaker 03:
And you respond in your brief that that quote has to do with a proposal that was rejected.

[00:45:01] Speaker 03:
But in their reply brief, they say that's not the case.

[00:45:04] Speaker 03:
Can you clarify that for us?

[00:45:06] Speaker 05:
Yes, Your Honor.

[00:45:08] Speaker 05:
The context there, I mean, it has particularly to do with both changes in the fee schedule that were adopted and certain ones that were rejected.

[00:45:17] Speaker 05:
Specifically, what's being discussed there is this fee schedule adds

[00:45:24] Speaker 05:
fees charged to the cruise ship passengers and to users of all types that are receiving treatments, which is, as I understand it, essentially when you are trying to bring a shipment or something else that is determined to have some sort of pest infestation and you need to receive the treatment to ensure that that issue is remediated.

[00:45:45] Speaker 05:
Those are the two particular categories in which

[00:45:51] Speaker 05:
regulatory impact assessment.

[00:45:52] Speaker 05:
I believe the rule discusses it in these ways too.

[00:45:56] Speaker 05:
Prior to those fees being charged, those costs may have been funded by other users.

[00:46:03] Speaker 05:
I believe there was a cruise ship vessel fee before the cruise ship passenger was being charged.

[00:46:07] Speaker 05:
And similarly, if you're not charging a specific fee for treatment, some of those costs may be borne by

[00:46:13] Speaker 05:
the general class of user.

[00:46:15] Speaker 05:
That's the particular sort of context in which that statement is offered.

[00:46:18] Speaker 05:
And it's not at all connected to the sort of exempt users that they're trying to connect it to now.

[00:46:24] Speaker 05:
There's nothing in the regular impact assessment about that.

[00:46:30] Speaker 03:
Okay.

[00:46:34] Speaker 03:
Any other questions?

[00:46:35] Speaker 03:
Well, okay.

[00:46:39] Speaker 03:
Mr. Miklitsky,

[00:46:42] Speaker 03:
You were out of time, but you can take two minutes.

[00:46:44] Speaker 06:
Thank you, Your Honor.

[00:46:45] Speaker 06:
If I could just start very quickly on that last point.

[00:46:47] Speaker 06:
If you look at the paragraph I'm talking about, this is at 169 of the record.

[00:46:52] Speaker 06:
It's not true that it doesn't apply to these non-exempt categories.

[00:46:56] Speaker 06:
It says, AQI services received by classes that did not pay user fees are covered through appropriated funding or a portion of user fees otherwise collected.

[00:47:05] Speaker 06:
Then it says, classes that do not currently pay user fees will not pay user fees under the rule

[00:47:10] Speaker 06:
and would not under the alternatives evaluated, including private vehicles, pedestrian, bus passengers, etc.

[00:47:16] Speaker 06:
Those are the non-exempt groups.

[00:47:18] Speaker 06:
The treatment point is two paragraphs later and has nothing at all to do with this.

[00:47:22] Speaker 06:
So there's just this unexplained cross-substance, like just admission of cross-substance in the rule, and we think that is an independent

[00:47:31] Speaker 06:
basis to vacate the rule, or that portion of the rule.

[00:47:35] Speaker 06:
But now getting back to the first issue, I just want to make two points clear.

[00:47:41] Speaker 06:
One is that, again, I just want to emphasize that when my friend is describing Section A1, he's talking about A1C, he's talking about it as an authorization to

[00:47:52] Speaker 06:
maintain a reasonable balance, and that is not what it is.

[00:47:55] Speaker 06:
It's an authorization to prescribe and collect feeds.

[00:48:00] Speaker 06:
That's the whole point, right?

[00:48:01] Speaker 06:
And then two, we do not dispute.

[00:48:03] Speaker 02:
Tell me what flows from that.

[00:48:06] Speaker 06:
What flows from it is that there were until 2002, the authority to collect fees for three different reasons, one to cover costs, one to cover administrative costs, and one to maintain a reserve, and they got rid of one of those.

[00:48:20] Speaker 06:
So that means you're only left with the first two.

[00:48:22] Speaker 06:
They say we still have the third one.

[00:48:25] Speaker 06:
Now, the agency, I mean, that's the sum and substance of our argument.

[00:48:30] Speaker 06:
The second point is just that we don't object to the proposition that they should be able to have a reserve.

[00:48:37] Speaker 06:
Congress thought so too, which is why it thought they should build up a reserve through 2002.

[00:48:42] Speaker 06:
That's what they themselves thought.

[00:48:44] Speaker 06:
Again, this is at 537 of the record in a 1999 rulemaking.

[00:48:49] Speaker 06:
But their argument now is that their argument assumes that their predictions are going to be systematically under actual cost, right, but there's no reason to think that's true they can maintain a reserve, they start with the balance that they created, and then when they're when they're over when their projections are.

[00:49:07] Speaker 06:
You know, too high.

[00:49:08] Speaker 06:
It's not like they give my clients a refund.

[00:49:11] Speaker 06:
They keep the money and they can put that money into the reserve.

[00:49:14] Speaker 06:
Now it's the third thing they said is catastrophic events like 9-11 or COVID.

[00:49:19] Speaker 06:
That's true.

[00:49:20] Speaker 06:
But throughout the government when there are catastrophic events,

[00:49:24] Speaker 06:
that aren't accounted for by a statutory scheme, every agency has to go back to Congress.

[00:49:29] Speaker 06:
And this agency is no different.

[00:49:30] Speaker 06:
It's perfectly reasonable to think that Congress legislated for the mine run case, not for catastrophic events that haven't happened ever or in a century.

[00:49:40] Speaker 06:
And in terms of the mine run case, our way of reading the statutory scheme, it seems to me makes perfect sense and theirs can't account for C. Okay, thank you very much.

[00:49:52] Speaker 03:
Case is submitted.