BakerHostetler secures victory for Resolute Forest Products in objection to USDA Checkoff Program

News / December 7, 2016

The United States Department of Agriculture (“USDA”) in 2011 initiated a “check-off” program for softwood lumber requiring companies shipping softwood lumber within or to the United States to pay a tax on every shipment that would be spent on collective promotion of softwood lumber in the United States.  BakerHostetler’s client, Resolute Forest Products, one of the leading forestry companies in the world, was not interested in the proposed promotional program  (which it considered defective) and did not want to pay the tax.  A BakerHostetler team of lawyers – led  by Elliot Feldman with Mike Snarr, David Rivkin, and Andrew Grossman – concluded that the law under which the promotional program was to be set up was unconstitutional, both de facto and de jure, and had been instituted contrary to the terms of the statute itself (the Commodity Promotion, Research, and Information Act of 1996) and the Administrative Procedure Act.  Resolute asked BakerHostetler to institute legal proceedings aimed at exempting Resolute from paying the tax and at recovering all taxes paid until the time when collection of the tax might cease.

Judge James Boasberg of the United States District Court in the District of Columbia, in a 19-page Memorandum Opinion issued on November 30, summarized the tortuous path BakerHostetler and Resolute had to follow before Resolute’s view of the softwood lumber program and the CPRIA could be vindicated. The law required an exhaustion of administrative remedies at USDA, which took more than two years.  Only after negative decisions from an Administrative Law Judge and a Hearing Officer appointed by the Secretary of Agriculture, could the BakerHostetler team bring the case to federal court. There, Judge Boasberg remanded three times to  USDA to address the serious defects the BakerHostetler team had exposed in USDA’s creation of the check-off order.  Judge Boasberg, meanwhile, invoked the doctrine of constitutional avoidance, setting aside the constitutional claims  for another day, if there were to be one—a result possible only if Resolute were not to prevail on its statutory claims related  to  the CPRIA and the APA.

Last summer, Judge Boasberg found the softwood lumber check-off  order “unlawfully promulgated” and enjoined all collections of taxes from Resolute.  However, Judge Boasberg requested further argument as to the requested remedy, asking  whether the sovereign immunity of the United States would prevent a refund,  and whether USDA’s claims of benefits to Resolute should reduce the refund  if any were to be awarded. 

Finally, on November 30, Judge Boasberg awarded Resolute everything it was seeking:  total relief from the order and a total refund of all taxes paid pursuant to it. Central to the decision was the affidavit of Resolute CEO Richard Garneau, explaining that Resolute had not derived any benefits from  the promotional program.  Judge Boasberg concurred that there was no credible evidence to the contrary.  Also central to the conclusion was the persuasive argument that there was no impediment in sovereign immunity for a full refund to be made.

USDA check-off programs date back to the 1930s. They always have been controversial, particularly as to the First Amendment and the obligation of companies to pay taxes for promotional programs they may not endorse.  The Supreme Court, however, has upheld these programs as to the First Amendment. Most other attempts to strike them down (and they are on everything from milk to avocados and almonds) have failed. The BakerHostetler legal victory, therefore,  could mark a turning point in this activity of the U.S. Agricultural Marketing Service.

The ultimate legal victory is a testament to the determination and persistence of Resolute. M. Garneau said, after learning of Judge Boasberg’s final decision, “It took a long time, but it was worth it. When something just seems wrong, it should be challenged. When it is costing a company money the company shouldn’t be paying, it should be stopped. Everything about this program was wrong, and we are pleased to see that the judicial process under U.S. law produced, ultimately, the right result.”