UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
R.J. REYNOLDS TOBACCO )
COMPANY, et al., )
)
PLAINTIFFS, )
)
v. ) Civ. No. 14-cv-1388 (KBJ)
)
UNITED STATES DEPARTMENT OF )
AGRICULTURE, et al., )
)
DEFENDANTS. )
)
MEMORANDUM OPINION
Congress enacted the Fair and Equitable Tobacco Reform Act of 2004 (the
“FETRA”), Pub. L. 108–357 § 601, 118 Stat. 1418, 1521 (2004) (codified at 7 U.S.C.
§§ 518 et seq.), to wean tobacco farmers off of U.S. government subsidies at the
expense of the manufacturers and importers of cigarettes and other tobacco products .
Pursuant to the FETRA, the manufacturers and importers of tobacco products assume
financial responsibility for making subsidy payments to tobacco growers for a period of
ten years, and the Commodity Credit Corporation (“CCC”), an agency within the United
States Department of Agriculture (“USDA”), determines on a quarterly basis the
particular FETRA payments that each manufacturer or importer has to make—a
determination that, by statute, must be based upon the manufacturer’s or importer’s
relative share of the overall domestic market for tobacco products. Plaintiffs R.J.
Reynolds Tobacco Company and Santa Fe Natural Tobacco C ompany (“Plaintiffs”)
have long believed that the CCC has underestimated the size of the overall domestic
2
market by excluding illegal cigarette sales from the FETRA calculation and, thereby,
has overcharged Plaintiffs with respect to their quarterly FETRA assessments.
To support their contention that the domestic market for cigarette sales is larger
(and, thus, Plaintiffs’ relative market share smaller) than the figures that the CCC has
used to calculate FETRA assessments, Plaintiffs commissioned a private investigation
in 2012 that, according to Plaintiffs, proves that two Native American tribes in upstate
New York are engaged in the unlawful manufacturing and selling of cigarettes.
Plaintiffs then launched administrative challenges to two of their 2013 quarterly
FETRA assessments based on the findings of their own report, insisting that the CCC
had no choice but to credit their study’s conclusions and adjust the assessments
accordingly. When the agency announced that it would not accept Plaintiffs’ findings
regarding illegal sales because they were not relevant to the FETRA calculation insofar
as the figures were imprecise and had not been substantiated by another federal agency,
Plaintiffs filed the instant lawsuit against the USDA, the Farm Service Agency, the
CCC, Tom Vilsack (in his official capacity as Secretary of the USDA), and Juan Garcia
(in his official capacity as Administrator of the Farm Services Agency and Executive
Vice President of the CCC), claiming that the agency’s refusal to accept their findings
violates both the terms of the FETRA and the prohibition against arbitrary and
capricious decision making that appears in the Administrative Procedure Act (“APA”).
(See Compl., ECF No. 1, ¶¶ 194–95 (Count One: FETRA); 200–09 (Count Two: APA).)
Before this Court at present is Defendants’ motion to dismiss Plaintiffs’
complaint. Defendants assert that the allegations of Plaintiffs’ complaint establish that
the USDA has complied with the FETRA and the APA as a matter of law, and thus that
3
Plaintiffs’ complaint fails to state a claim upon which relief can be granted. For the
reasons explained below, this Court agrees with Defendants that the FETRA permits the
agency to decide to credit only precise figures that other government agencies have
already substantiated, and therefore, the CCC’s refusal to accept Plaintiffs’ study was
consistent with the law. See Skidmore v. Swift & Co., 323 U.S. 134, 139–140 (1944).
The Court also agrees with Defendants that Plaintiffs’ APA claim cannot proceed
because the FETRA provides an adequate remedy for their grievances. Consequently,
Defendants’ motion to dismiss Plaintiffs’ complaint will be GRANTED.
A separate order consistent with this Memorandum Opinion will follow.
I. BACKGROUND
A. The Fair and Equitable Tobacco Reform Act of 2004
The Fair and Equitable Tobacco Reform Act of 2004 (“FETRA”) puts an end to
federal tobacco subsidy and price support programs. See 7 U.S.C. §§ 518 et seq. Price
supports and marketing quotas for U.S. tobacco growers were initially established
during the Great Depression as a means of stabilizing the domestic tobacco market. See
generally Agricultural Adjustment Act of 1938, 7 U.S.C. §§ 1281–1407. 1 The subsidy
1
Tobacco growers are not unique in this respect. Many of the nation’ s crops are (or were) subject to a
government-imposed quota system. See, e.g., Matthew Nis Leerberg, Note, Takings and Statutory
Entitlements: Does the Tobacco Buyout Take Quota Rights Without Just Compensation? , 55 Duke L.J.
865, 865 & n.1 (2006) (observing past and present quota systems for corn, wheat, cotton, rice, and
peanuts). Under this system as it pertains to tobacco, the “USDA set the amount of tobacco a producer
could sell during a given season and the price at which he could sell it . . . . [and t]he only way a
producer of tobacco could sell his product was to own or lease [a] quota.” Ryan D. Dreveskracht,
Forfeiting Federalism: The Faustian Pact with Big Tobacco , 18 Rich. J.L. & Pub. Int. 291, 306–07
(2015) (internal quotation marks omitted) (footnote omitted). By limiting competition, the quota
systems increased U.S. tobacco prices. Bruce Yandle et al., Bootleggers, Baptists & Televangelists:
Regulating Tobacco by Litigation, 2008 U. Ill. L. Rev. 1225, 1231 n.13. Simultaneously, the
government established a “support price”—a target price for tobacco sales. Lay v. Burley Stablization
Corp., No. 3:09-CV-252, 2010 WL 2639931, at *1 (E.D. Tenn. June 28, 2010). A grower unable to sell
his crop at a price at least as high as the support price would be supported by the government ’s direct
purchase of that crop at the support price. See id. The parties describe this system of quotas and price
supports as “subsidies,” and so does the Court.
4
system functioned relatively well for nearly 70 years but , beginning in the early 1990s,
several factors converged to convince Congress that the t ime had come to terminate the
tobacco subsidy program. See, e.g., State v. Philip Morris USA Inc., 618 S.E.2d 219,
220 (N.C. 2005) (explaining that tobacco quotas and price supports began to “work[] at
cross-purposes”); A.D. Bedell Wholesale Co. v. Philip Morris Inc., 263 F.3d 239, 241–
42 (3d Cir. 2001) (discussing the nationwide mass tort lawsuit that state attorneys
general brought against tobacco-product manufacturers); see also Craig P. Raysor,
From the Sword to the Pen: A History and Current Analysis of U.S. Tobacco Marketing
Regulations, 13 Drake J. Agric. L. 497, 528 (2008). Instead of abruptly terminating
seven decades of tobacco-production subsidies, however, Congress chose to taper off
the payments to tobacco growers slowly, through a new system called the Tobacco
Transition Payment Program (“TTPP”). See Pub. L. No. 108–357 §§ 601–43, 118 Stat.
1418, 1522–36 (Oct. 22, 2004) (codified in part as amended at 7 U.S.C. §§ 518–19a).
Pursuant to the TTPP, tobacco growers who had previously benefited from the repealed
subsidy programs became eligible for ten years of transition payments, from fiscal year
2005 through fiscal year 2014. See 7 U.S.C. § 518d(b)(1)–(2); id. § 518d(k).
The TTPP served two purposes. First, the transitional payments served to
“cushion” tobacco growers against “the initial shock” of the rapid price plummet that
the move to a free market precipitated. Raysor, supra, at 536. “According to the
legislative history,” Congress hoped that during this ten-year buyout period “[t]obacco
[g]rowers would either become more competitive with the free market or would
transition to new crops or would move to entirely different means of earning a living. ”
In re Int’l Tobacco Partners, Ltd., 468 B.R. 582, 585 (Bankr. E.D.N.Y. 2012) (citing
5
150 Cong. Rec. H8704–03, at *H8717–18). Second, the payments relieved the federal
government of its responsibility for subsidizing the tobacco growers out of the public
fisc and intentionally transferred that responsibility to tobacco-product manufacturers
and importers. See 7 U.S.C. § 518d(b)(1)–(2); see also State v. Philip Morris USA Inc.,
No. 98 CVS 14377, 2004 WL 2966013, at *4 (N.C. Super. Ct.) (noting that “[s]ince the
dismantling of [the quota] systems benefits the tobacco companies, Congress made
them pay for it”), rev’d on other grounds by State v. Philip Morris USA Inc., 618 S.E.2d
219 (N.C. 2005). Tobacco-product manufacturers understood and accepted this shift in
responsibility for making the subsidy payments to tobacco farmers; in fact, this
financial obligation was specifically envisioned during the negotiations that preceded
the 1998 nationwide settlement of mass tort litigation that state attorneys general had
brought against Big Tobacco. See generally Raysor, supra, at 524–31. 2
2
The cases that state attorneys general brought against the tobacco -product manufacturers were
resolved pursuant to a Master Settlement Agreement (“MSA”) that the parties understood would result
in reduced tobacco consumption. See Philip Morris, 618 S.E.2d at 221. Consequently, the MSA
required the manufacturers to meet with the leadership of the tobacco -growing states to find ways to
mitigate the “potentially negative economic consequences.” Id. Those meetings resulted in the
National Tobacco Grower Settlement Trust Agreement (“Trust Agreement”), in which, among other
things, the tobacco-product manufacturers agreed to spend approximately five billion dollars on
economic assistance to tobacco farmers. See id. These payments were intended to ease tobacco
growers’ worries amidst the rising product prices and lower consumer demand that other settlement
terms caused, see Raysor, supra, at 529–30, and “[t]he parties drafted the Trust Agreement knowing
federal and state governments might take additional measures to aid tobacco farmers [,]” including
“measures [that] would probably entail additional assessments” against Big Tobacco, Philip Morris,
618 S.E.2d at 222 (emphasis added). Accordingly, the Trust Agreement included a “Tax Offset
Adjustment” that allowed tobacco manufacturers to reduce their payment s to growers under the
agreement if a “Governmental Obligation”—defined as “a new or increased” obligation to pay monies
“used in whole or in part for the benefit of t obacco farmers”—was subsequently imposed. Id.; see also
Dreveskracht, supra note 1, at 309 (explaining that the Tax Offset Adjustment was included so t hat, “if
[tobacco-product manufacturers were] required by law to pay any more than the amount [they] agreed
to pay under [the Trust Agreement,] . . . all of the benefit that the tobacco farmers were supposed to
receive from the MSA would disappear in lieu of a new benefit conferred by state or federal
legislation”). Thus, tobacco-product manufacturers benefited financially from Congress’s enactment of
the FETRA insofar as, once that legislation passed, the Trust Agreement payments that the
manufacturers owed to tobacco growers were eliminated. See id. at 310.
6
1. The Commodity Credit Corporation
The FETRA established the Commodity Credit Corporation (“CCC”) as an
agency within the USDA that was charged with the responsibility of managing the
process of administering the transfer of payments from tobacco-product manufacturers
to tobacco growers. See 15 U.S.C. § 714 (creating a “body corporate to be known as
Commodity Credit Corporation . . . , which shall be an agency and instrumentality of
the United States, within the Department of Agriculture, subject to the general
supervision and direction of the Secretary of Agriculture”); see also 7 U.S.C.
§ 518d(b)–(c) (noting that “[t]he Secretary, acting through the Commodity Credit
Corporation, shall impose quarterly assessments” pursuant to FETRA). Congress
authorized the CCC to issue regulations to govern the process for collecting money
from the manufacturers and importers, see 7 U.S.C. § 519(a), and also specifically
determined that the CCC could promulgate these regulations without having to adhere
to the Administrative Procedure Act’s notice and comment provisions, see id.
§ 519(b)(1). As outlined in the regulations that the CCC promulgated, the agency was
to collect payments—termed “assessments”—from the manufacturers and importers of
tobacco products on a quarterly basis (totaling approximately one billion a year) and
deposit those assessments into the “Tobacco Trust Fund,” which is a revolving trust
fund that Congress created to carry out the FETRA’s purposes. See 7 U.S.C. § 518e(a);
7 C.F.R. § 1463.8. So collected, those funds would then be distributed by the CCC to
eligible tobacco growers and quota holders. See 7 U.S.C. § 518a (providing for
payments for tobacco quota holders), id. § 518b (providing for payments for producers
of quota tobacco).
7
By statute, the FETRA assessment, collection, and distribution process
concluded in 2014. See 7 U.S.C. § 518d(k). Over the ten-year life of the program, the
CCC collected more than $10 billion in assessments from tobacco-product
manufacturers and importers and distributed them to program beneficiaries in
accordance with FETRA’s terms. See USDA, Tobacco Transition Payment Program;
Cigar and Cigarette Per Unit Assessments, 76 Fed. Reg. 15,859 (Mar. 22, 2011); see
also 7 U.S.C. § 518f.
2. The Process By Which The CCC Calculated Assessments
The CCC’s determination of the amount of the TTPP quarterly assessment to be
paid by each tobacco-product manufacturer or importer involved several calculations.
See generally Determination of the Administrator of the Farm Service Agency and
Executive Vice President of the Commodity Credit Corporation Regarding the Current
“Step A” and “Step B” Assessment Methods in the Tobacco Transition Payment
Program, Nov. 16, 2011. 3 First, the CCC determined the amount of the national
assessment needed to make subsidy payments to tobacco growers overall, and then the
CCC used a two-step process to allocate payment responsibility for that national
assessment amount among the tobacco-product manufacturers and importers. See 7
U.S.C. § 518d(b)(2); 7 C.F.R. § 1463.4; see also Prime Time Int’l Co. v. USDA, 753
F.3d 1339, 1340 (D.C. Cir. 2014); Philip Morris USA, Inc. v. Vilsack, 736 F.3d 284,
285-86 (4th Cir. 2013). In Step A, the overall national assessment amount that was to
be collected from the various tobacco manufacturers and importers was allocated based
on the six classes of tobacco products: cigarettes, cigars, snuff, roll -your-own tobacco,
3
Available at http://www.fsa.usda.gov/Internet/FSA_File/tobacco_determ_11162011.pdf .
8
chewing tobacco, and pipe tobacco. See 7 U.S.C. § 518d(c)(1)–(2); 7 C.F.R. §§ 1463.3,
1463.5; see also Prime Time, 753 F.3d at 1340; Philip Morris, 736 F.3d at 286. 4 In
Step B, the CCC determined each manufacturer’s or importer’s particular “market
share” within each of the classes of tobacco products. See 7 U.S.C. § 518d(a)(2)–3,
(e)(1). Per the FETRA, that determination was made by dividing each individual
manufacturer’s and importer’s volume of domestic sales of the particular class of
tobacco product by the total volume of domestic sales of that product. See id.
§ 518d(a)(3); see also id. § 518d(f).
Significantly for present purposes, Congress specified that the volume of
domestic sales for each product class was a figure that the CCC must determine based
on all of the non-tax-exempt tobacco products that are “removed” into domestic
commerce during the assessment period. See id. §§ 518d(a)(2)(A), (g)(2). The term
“removed” as used in the FETRA is a term of art—it incorporates the Internal Revenue
Code’s definition, which broadly includes any means of placing tobacco products into
the stream of commerce, including taking domestically manufactured products “from
the factory” or “releas[ing] [imported products] from customs custody,” and it also
includes employing wrongful means of sale or distribution such as “smuggling or other
unlawful importation.” 26 U.S.C. § 5702(j).
Notably, the FETRA contains a provision that speaks specifically to the
authorized sources of information that the CCC can rely upon to determine the overall
4
For example, because cigarettes represented 88.499% of total national tobacco sales in the second
quarter of 2013, cigarette manufacturers and importers were required collectively to contribute
88.499% of the aggregate third quarter 2013 assessments imposed on all manufacturers and importers
of the specified classes of tobacco products. ( See Compl. ¶¶ 40–41.)
9
volume of sales for each class of tobacco product that has been removed into domestic
commerce:
(g) Determination of volume of domestic sales
(1) In general
The calculation of the volume of domestic sales of a class of
tobacco product by a manufacturer or importer, and by all
manufacturers and importers as a group, shall be made by the
Secretary based on information provided by the manufacturers
and importers pursuant to subsection (h), as well as any other
relevant information provided to or obtained by the Secretary.
7 U.S.C. § 518d(g)(1) (emphasis added). Subsection (h)—entitled “Measurement of
volume of domestic sales”—requires each manufacturer and importer of tobacco
products to submit to the CCC “a certified copy of each of the returns or forms
described by paragraph (2) that are required to be filed with a Federal agency[,]” which
must be provided “on the same date that those returns are filed, or required to be filed,
with the agency.” See id. § 518d(h)(1). And paragraph (2) of subsection (h) establishes
that these required submissions consist of “returns and forms” tobacco manufacturers
and importers file regarding “the removal of tobacco products into domestic
commerce[,]” and “the payment of taxes imposed under” chapter 52 of Title 26 of the
U.S. Code. See id. §§ 518d(h)(2). 5 Thus, section 518d(g)(1) of the FETRA essentially
directs the CCC to calculate the “volume of domestic sales” based on certified excise
tax and customs forms and also “any other relevant information provided to or obtained
by the Secretary.” Id. § 518d(g)(1).
5
As examples of the latter, paragraph (2) notes “AFT Form 5000.24 and United States Customs Form
7501.” 7 U.S.C. § 518d(h)(2). Form 5000.24 is an excise tax-return form for self-reporting tobacco-
product removals that federal regulations require tobacco -product manufacturers to file with the U.S.
Alcohol and Tobacco Tax and Trade Bureau, 27 C.F.R. § 40.162, and Customs Form 7501 is a general
“entry summary,” 19 C.F.R. § 144.12, on which importers describe products they are importing.
10
As mentioned, the FETRA provides that once the CCC has determined the total
volume of domestic sales for each class of tobacco product, it must then calculate the
market share of each tobacco-product manufacturer and allocate the national assessment
amount for each class of tobacco product to each manufacturer or importer according to
that entity’s market share. See id. § 518d(e)(1) (“The assessment for each class of
tobacco product . . . shall be allocated on a pro rata basis among manufacturers and
importers based on each manufacturer’s or importer’s share of gross domestic
volume.”); see also id. §§ 518d(a)(3) (defining “market share”); id. § 518d(f) (requiring
that “[t]he amount of the assessment for each class of tobacco product” shall be
“determined . . . by multiplying” the market share of that manufacturer or importer by
“the total amount of the [national] assessment for that quarterly payment period . . . for
[that] class of tobacco product”). The FETRA statute also makes clear that “[n]o
manufacturer or importer shall be required to pay an assessment that is based on a share
that is in excess of the manufacturer’s or importer’s share of domestic volume.” Id.
§ 518d(e)(2).
3. The Process By Which Manufacturers And Importers Challenge
FETRA Assessments
The FETRA and its implementing regulations also provide an administrative
mechanism for challenging the assessment amounts that the CCC prescribes. Within 30
days of receiving notice of the assessment, a manufacturer or importer may submit a
written statement to the agency that sets forth the basis for the challenge. See 7 U.S.C.
§ 518d(i)(1); 7 C.F.R. § 1463.11(a). And the FETRA specifies that, “[i]n challenging
the assessment, the manufacturer or importer may use any information that is available,
including third party data on industry or individual company sales volumes.” 7 U.S.C.
11
§ 518d(i)(2). The CCC’s Executive Vice President then assigns a person to act as a
hearing officer—that individual prepares an administrative record to provide the
Executive Vice President with the information necessary to render a final determination
on the matter in dispute. See 7 C.F.R. § 1463.11(b). The FETRA also establishes that
manufacturers and importers have a right to sue in fed eral court: upon conclusion of the
process for challenging an assessment outlined in the regulations, a manufacturer may
seek federal court review of the agency’s final determination. See 7 U.S.C. § 518d(j);
see also 7 C.F.R. § 1463.11(c) (noting that administrative remedies are deemed
exhausted for purposes of 7 U.S.C. § 518d(j)(1) if 30 calendar days elapse following the
manufacturer’s or importer’s final submission of challenge-related documentation to the
CCC).
B. Plaintiffs’ 2013 Assessments, Independent Investigation, And Appeal
Plaintiffs R.J. Reynolds Tobacco Company (“RJRT”) and Santa Fe Natural
Tobacco Company (“Santa Fe”) are cigarette manufacturers that the CCC has required
to pay TTPP assessments. (See Compl. ¶¶ 22–23, 192.) 6 The instant action involves
two sets of quarterly assessments that the CCC charged to these manufacturers: (1) the
second-quarter assessments of 2013 (dated September 1, 2013), which amounted to
approximately $49.073 million by RJRT and approximately $2.746 million by Santa Fe
(Id. ¶ 82), and (2) the third-quarter assessments of 2013 (dated December 1, 2013) in
the amount of approximately $49.301 million by RJRT and approximately $3.069
million by Santa Fe (see id. ¶ 101). These assessments were based on the CCC’s
calculation of RJRT’s and Santa Fe’s market shares during the assessment period , as
6
Both RJRT and Santa Fe are wholly-owned subsidiaries of Reynolds American, Inc. ( See Compl.
¶¶ 22–23.)
12
described above. (See supra Part I.A.2.) It is undisputed that, when the CCC calculated
the total volume of domestic tobacco-product sales upon which the market shares of
individual manufacturers and importers are based, it did not take into account the
volume of sales resulting from any illegal manufacturing of tobacco products, which,
according to Plaintiffs, unlawfully skewed the FETRA calculations. (See id. ¶ 130.)
1. Plaintiffs Hire A Business Investigation Firm To Estimate How
Many Cigarettes Are Sold By Two Non-Reporting, Unlicensed
Cigarette Manufacturers
According to the allegations in the complaint, the unreported and illegal
production and sale of cigarettes is a widely-recognized problem. (See, e.g., Compl.
¶ 70 (discussing a 2007 report prepared by the staff of the U.S. House Committee on
Homeland Security, which estimated that 5% of the annual domestic cigarette market of
approximately 414 billion cigarettes is unreported and untaxed); id. ¶ 73 (discussing a
2011 Government Accountability Office report on illicit tobacco manufacturing, which
stated that most unlicensed cigarette manufacturing occurs in northern New York .) In
2012, Plaintiffs allegedly retained GlobalSource LLC, a business investigations firm, to
investigate the illicit cigarette trade in upstate New York (see id. ¶ 76, see also id.
¶¶ 129–39, 141–53, 155–66, 168–73), and GlobalSource’s investigation focused on two
unlicensed Native American cigarette manufacturers operating in the area—the
Onondaga Nation Cigarette Factory (“Onondaga” or “Onondaga Nation”) and T&D
Enterprises. 7 According to the Complaint, neither Onondaga nor T&D Enterprises
reports its production volumes to the CCC as required under the FETRA, and the CCC
does not account for these entities’ cigarette manufacturing in calculating the total
7
Plaintiffs apparently chose to investigate Onondaga and T&D because these companies were
mentioned in newspaper articles about illicit cigarette manufacturing. ( See Compl. ¶¶ 138–39.)
13
volume of domestic cigarettes removed into the stream of commerce for FETRA
purposes. (See id. ¶¶ 11, 129.)
GlobalSource investigators allegedly employ a number of accepted methods of
investigation to gather information, and according to Plaintiffs, law enforcement and
regulatory agencies have routinely relied on information developed in GlobalSource
investigations to initiate enforcement actions or to prompt further investigations that
result in civil or criminal actions. (See id. ¶¶ 131–35.) To conduct its investigation of
Onondaga and T&D Enterprises, GlobalSource allegedly researched public records,
conducted targeted surveillance (including on-the-ground surveillance) of
manufacturing facilities, consulted confidential sources and others knowledgeable of
the factories’ operations and production equipment used, performed in-person and
telephone interviews, and surveyed retail cigarette shops that sell cigarettes made by
Onondaga and T&D Enterprises. (See id. ¶¶ 141, 155.) Based on this research,
GlobalSource estimated that Onondaga manufactures approximately 1.092 million
cartons of cigarettes per year and that T&D Enterprises manufactures approx imately 6.5
million cartons per year. (See id. ¶¶ 10, 148, 163.) Moreover, according to
GlobalSource, the cigarettes that Onondaga and T&D Enterprises manufacture end up
being distributed off of their respective reservations, ultimately making their way into
the broader domestic cigarette market. (See id. ¶¶ 149–50, 153, 159, 163, 166.) 8
8
Plaintiffs stress that only cigarettes sold on Native American Indian reservations to reservation
members are exempt from federal excise taxes, and thus that federal excise tax laws and associated
reporting requirements apply to cigarettes that are manufactured by Native American tribes and sold
either outside the reservation or to a purchaser who is not a reservation member. (See Compl. ¶¶ 67–
68.) Therefore, Plaintiffs argue, the figures in the GlobalSource report represent an informed
estimation of the volume of illegal (unreported) cigarette sales by Onondaga and T&D Enter prises.
14
2. Plaintiffs Request Revision Of Their September 2013 And
December 2013 Quarterly Assessments Based On GlobalSource’s
Findings
In light of GlobalSource’s findings, RJRT and Santa Fe challenged the amount of
the quarterly assessments that the CCC had allocated to them for September 2013 and
December 2013 under the FETRA. (See Compl. ¶¶ 7–9, 82–86, 101–05.) Specifically,
Plaintiffs argued that the CCC had overcharged them because the agency had failed to
account for illegal cigarette manufacturers generally, and the production by Onondaga
and T&D Enterprises in particular, when it determined the total domestic volume of
cigarette production. (See id. ¶¶ 85–99, 104–118.) Plaintiffs insisted that, as a result of
this alleged miscalculation, they were entitled to a reduction in their respective
assessments: at least $119,004 for RJRT and $6,543 for Santa Fe for the September
2013 quarterly assessment, and at least $257,148 for RJRT and $15,836 for Santa Fe for
the December 2013 quarterly assessment. (See id. ¶¶ 12, 99, 118.) Plaintiffs arrived at
these sums by applying a complicated formula that was designed to generate the
particular assessment amounts that Plaintiffs believed the agency would have charged
RJRT and Santa Fe if the cigarette sales of T&D Enterprises and Onondaga Nation had
been included in the agency’s gross domestic volume calculations. 9
9
Plaintiffs’ calculation of the revised assessment amounts involved several steps. First, GlobalSource
estimated the number of cigarettes that T&D Enterprises and Onondaga Nation manufactured on an
annual basis, as explained, and Plaintiffs divi ded that number by four to arrive at each company’s
quarterly volume of domestic sales. (See id. ¶ 89–90.) Then, Plaintiffs multiplied the combined total
of the quarterly volume of cigarette sales of T&D Enterprises and Onondaga Nation by the 2013 federa l
excise tax rate and, thereby, estimated the federal excise taxes that T&D Enterprises and Onondaga
Nation should have paid during the payment period. (See id. ¶¶ 91–92.) Next, Plaintiffs added the
estimated T&D Enterprises and Onondaga Nation excise ta xes to the total reported gross excise taxes
paid for the cigarette class for the reported period, and estimated the adjusted gross domestic volume
for the cigarette class. (See id. ¶¶ 93–94.) Plaintiffs then divided the total gross excise taxes paid by
RJRT and Santa Fe during the payment period by the new adjusted gross excise taxes for the cigarette
class that included T&D Enterprises and Onondaga Nation. (See id. ¶ 95.) Finally, Plaintiffs
multiplied the total program costs by each company’s adjuste d market share, and the total interest costs
by each company’s adjusted market share. (See id. ¶ 96–99.)
15
Plaintiffs detailed their estimates and calculations on the required administrative
dispute forms and filed their objections regarding the September 2013 and December
2013 assessments on September 30, 2013, and December 31, 2013, respectively. (See
Compl. ¶¶ 85, 104.)
3. Defendants Hold A Hearing To Consider Plaintiffs’ Argument That
Their September 2013 And December 2013 Assessments Should Be
Reduced
The CCC’s hearing officer reviewed Plaintiffs’ submissions and responded to
Plaintiffs’ challenge to the September 2013 quarterly assessment in writing, on
November 15, 2013. (See Compl. ¶ 120.) The agency articulated its view that “no
revisions are warranted” because RJRT and Santa Fe did not “allege that CCC has
miscalculated the assessment as a function of the tax and custom forms it has received ”;
rather, “[t]he allegation that [Plaintiffs] raise[d] as a basis for [their] appeal is an
allegation of tax evasion” by Onondaga and T & D Enterprises. (Id. (third and fourth
alterations in original).) Plaintiffs responded to this decision on December 9, 2013,
requesting a hearing “to provide evidence and testimony establishing that the [CCC’s]
determination was erroneous, arbitrary and capricious, and not in accordance with law.”
(Id. ¶ 121.) The Executive Vice President of the CCC granted Plaintiffs’ request, and a
hearing was scheduled for February 26, 2014. (See id. ¶ 122.) 10
In advance of the hearing, Plaintiffs submitted documents that Plaintiffs believed
supported a reduction in RJRT’s and Santa Fe’s respective quarterly assessments,
10
Although the CCC did not respond directly to Plaintiffs’ challenge to the December 2013 quarterly
assessment, it told Plaintiffs informally that it would deny the December 2013 challenge on the same
grounds as the September 2013 challenge; accordingly, the scheduled hearing concerned Plaintiffs’
challenges to both quarterly assessments. (See id. ¶ 123.)
16
including a letter brief and the declarations of two witnesses that Plaintiffs intended to
present at the hearing. (See id. ¶124.) Specifically, Steve Gentry, Senior Director of
Regulatory Taxes for Plaintiffs, provided a statement regarding the calculations behind
the challenged assessment amounts for September and December 2013, and Richard
Hynes, case manager for GlobalSource, provided a declaration regarding the
GlobalSource investigation. (See id.) Plaintiffs also provided the agency with several
government reports, lists, and figures regarding unreported cigarette manufacturing that
Plaintiffs had obtained under the Freedom of Information Act and from publically
available studies. (See id. ¶¶ 130, 135.)
At the hearing, Plaintiffs relied on these facts to argue that the CCC’s
“categorical exclusion” of unreported manufacturing from the total domestic volume
figure “in the face of relevant evidence of significant contributions to total domestic
volume[] violates Congress’s plain command” in the FETRA. (Pls.’ Opp’n to Defs.’
Mot. to Dismiss (“Pls.’ Opp’n”), ECF No. 12, at 27 (citing 7 U.S.C. § 518d(g)(1),
(i)(4)(B)); see also Compl. ¶ 126.) 11 Plaintiffs first pointed out that the FETRA states
that a tobacco manufacturer cannot be charged more than its “correct pro rata share of
total gross domestic volume from all sources,” (see Pls.’ Opp’n at 27–28 (citing 7
U.S.C. § 518d(g)(1)) (emphasis deleted)), which, according to Plaintiffs, means that
Congress intended assessments to be “proportionate to a manufacturer’s share of the
entire market for the relevant tobacco product[,]” (id. at 27 (emphasis in original).)
And, in Plaintiffs’ view, the entire market for cigarettes must include cigarettes that are
manufactured and sold illegally, because the TTPP assessments are calculated based on
11
Citations to the documents the parties have filed refer to the page numbers that the Court’s electronic
filing system assigns.
17
the volume of “removed” tobacco products as defined in the Internal Revenue Code,
and the Code defines removal to include any means of placing tobacco products in the
stream of commerce, including unlawful means such as “unlawful importation.” (Id. at
28; see also id. (asserting that the “FETRA cannot be reasonably construed to carve out
unlawful or unreported cigarette production from the scope of ‘total volume o f domestic
sales’”).) Plaintiffs then maintained that, when determining the volume of illegal sales
as the FETRA requires the CCC to do, Congress has expressly prevented the CCC from
accepting only certain information regarding such sales, and instead, enacted a statute
that requires the agency to rely on “all ‘relevant information’” regarding the proportion
of the domestic market that is comprised of illegal sales. (Id. at 30 (quoting 7 U.S.C.
§ 518d(g)(1)); see also id. (“[W]hen presented with relevant information of cigarette
removals by non-reporting manufacturers, USDA is obligated to reasonably account for
that illicit production in its calculation of total domestic volume to ensure that law -
abiding manufacturers are not required to pay more than their lawf ul pro rata share.”
(citing and discussing 7 U.S.C. § 518d(g)(1))).)
In sum, Plaintiffs argued at the hearing that, “by unreasonably excluding all
unreported cigarette manufacturers,” the agency had “erroneously inflat[ed] [plaintiffs’]
market share and concomitant assessments” in violation of the FETRA’s “demand[] that
assessments must be proportionate to each company’s ma rket share.” (Pls.’ Opp’n at 26
(emphasis in original).)
4. Defendants Deny Plaintiffs’ Request Because The Global Source
Findings Are Not “Relevant” Within The Meaning Of The Statute
In a letter dated March 27, 2014—which is quoted in the complaint and relied
upon extensively by both parties—the Executive Vice President of the CCC denied
18
Plaintiffs’ joint administrative appeals. (See Compl. ¶ 177; see also Letter from Juan
M. Garcia, Exec. VP, CCC, to Mitchell Neuhauser and Mark Brown, attorneys for RJRT
and Santa Fe (Mar. 27, 2014) (“March 27, 2014 Letter Ruling”), Ex. 1 to Defs.’ Mot. to
Dismiss, ECF No. 10-1).) The decision letter began by describing the CCC’s
methodology for calculating assessments under the FETRA (see March 27, 2014 Letter
Ruling at 2–4), and by noting that the agency has a statutory obligation to ensure that
“each manufacturer’s or importer’s assessment is proportional to its market share within
[each] class” of tobacco products (id. at 3, 5 (citing 7 U.S.C. § 518d(e)(1); 7 C.F.R
§ 1463.7)). The letter further acknowledged that the agency is required to base its
calculation of domestic volume not only on excise tax and customs documents but also
“any other relevant information provided to or obtained by the Secretary[,]” (id. at 5
(quoting 7 U.S.C. § 518d(g)(1))), and it rehearsed Plaintiffs’ factual and legal
assertions regarding inclusion of the volume of illegal sales (see id.). The CCC’s
Executive Vice President expressed no disagreement with Plaintiffs’ underlying
assertion that non-reporting cigarette manufacturers, including Onondaga Nation and
T&D Enterprises, are responsible for a share of domestic cigarette sales (see id.; see
also Compl. ¶ 181); nevertheless, his letter explained that Plaintiffs’ request that the
Secretary revise their quarterly assessments to account for illegal sales by non-reporting
cigarette manufacturers was being denied in full because there was “insufficient
evidence to determine that the information offered by [Plaintiffs] is relevant for the
purpose of [7 U.S.C. 518d(g)(1)].” (See id. at 6–7 (citing 7 U.S.C. § 518d(g)(1).)
The letter offered two reasons for this conclusion. First, it explained that the
information that Plaintiffs had provided regarding illicitly traded cigarettes had not
19
been reported in official government documents and substantiated by other federal
agencies. (See id. at 6 (“The information and evidence presented by the [Plaintiffs]
must be substantiated by the U.S. Department of the Treasury, the U.S. Department of
Homeland Security, or the U.S. Department of Justice (Bureau of Alcohol, Tobacco,
and Firearms) as appropriate, before the Secretary can rely upon it when determining
individual assessments[.]”).) The letter pointed out that Plaintiffs had “acknowledge[d]
that they have not provided [the] CCC with copies, certified or otherwise, of excise tax
returns with respect to the alleged removals [of cigarettes by Onondaga Nation and
T&D Enterprises] and [Plaintiffs] further acknowledge that they have not provided any
of their investigatory information to any relevant tobacco enforcement agencie s.” (Id.
at 5.)
Second, the letter stated that the information that Plaintiffs had provided
regarding illicitly traded cigarettes was not sufficiently specific. (See id. at 6.) In the
Executive Vice President’s view, Plaintiffs’ evidence and testimony was “largely based
on estimates, approximations, and assumptions,” and thus the CCC could not “reliably,
much less accurately, determine amounts and timing of the tobacco placed into
commerce so as to correctly adjust quarterly [Plaintiffs’] TTPP assessment levels.”
(Id.) The letter further explained that “[t]he timing and amounts of the alleged
removals are critical, because quarterly assessments are based on a tobacco company’s
share of gross domestic volume for each fiscal quarter; they are not based on annual
estimations of such volume.” (Id. (emphasis added).) “Consequently,” the Executive
Vice President concluded that “any determinations by the Secretary based on this
anecdotal information would necessarily be arbitrary.” (Id.)
20
The letter memorializing the CCC’s denial of Plaintiffs’ consolidated appeals
emphasized that, absent such clarity and confirmation by another agency, Plaintiffs’
illegal-sales estimates were not “relevant” within the meaning of 7 U.S.C. § 518d(g)(1),
and, therefore, that the agency need not use those figures in determining Plaintiffs’
TTPP assessments. The Executive Vice President concluded the correspondence by
stating that the “CCC is forwarding the evidence presented to it by [Plaintiffs] to the
proper authorities at the U.S. Department of the Treasury and the U.S. Department of
Justice (Bureau of Alcohol, Tobacco, and Firearms).” (Id.) Moreover, he
“encourage[d] the [Plaintiffs] to likewise submit to those agencies this and any other
information [the Plaintiffs] believe[] demonstrates that a tobacco manufacturer or
importer has failed to report the removal of tobacco products or payment of excise taxes
for such products.” (Id.) In addition, the letter informed Plaintiffs that, “at such time
that CCC receives a determination by an appropriate enforcement authority (of amounts
and timing of the tobacco removals)[,] CCC will consider that information” during the
annual assessment audit process (id. at 7), and would do so “retroactively if necessary”
(id. at 6). Thus, the CCC represented to Plaintiffs that if another federal agency
subsequently substantiated the GlobalSource report, the agency would consider the
Plaintiffs’ figures regarding illegal cigarette sales to be relevant to the CCC’s
calculation of the gross domestic volume and revise the assessments accordingly. Until
that happened, however, the agency had determined “[f]or the reasons cited above, [that
Plaintiffs’] request that the Secretary revise their quarterly assessments is denied.” (Id.
at 7 (emphasis in original).)
21
C. Procedural History
Plaintiffs filed the instant complaint on August 14, 2014. Count One alleges that
the CCC violated the FETRA when it “fail[ed] to base its calculation of gross domestic
volume on relevant information concerning cigarette production and sales by Onondaga
Nation and T&D Enterprises specifically, and by non -reporting cigarette manufacturers
generally,” and otherwise “fail[ed] to make any reasonable effort to account for
unreported cigarette sales in calculating plaintiffs’ quarterly assessments[.]” (Compl.
¶ 194–95.) Count Two alleges that this same behavior violated the Administrative
Procedure Act’s prohibition on arbitrary and capricious agency decision making. (See
id. ¶¶ 200–09.)
On December 2, 2014, Defendants moved for dismissal of Plaintiffs’ complaint
pursuant to Federal Rule of Civil Procedure 12(b)(6). ( See Defs.’ Mot. to Dismiss
(“Defs.’ Mot.”), ECF No. 10.) In Defendants’ view, “[t]he central issue in this
litigation is a pure question of law: is [the CCC] . . . required to give weight to
[P]laintiffs’ . . . study regarding the amount of illicitly traded tobacco products?” ( See
Defs.’ Mot at 5.) Defendants contend that “[t]he answer to that question is no” (id.)—
reasoning, as to Count One, that the CCC was not obligated to credit Plaintiffs’
estimates of illicitly traded cigarettes because “it is reasonable and lawful for [the
CCC]—an agency without law enforcement or investigatory capabilities regarding
tobacco products—to refuse to give weight to reports of illicitly traded cigarettes that
are not corroborated by a federal agency with either law enforce ment or investigatory
powers[,]” and, with respect to Count Two, that “[P]laintiffs cannot proceed with a
claim under the APA when FETRA provides an adequate remedy for challenging
alleged over-assessments” (id. at 12).
22
This Court held a hearing on Defendants’ motion on June 9, 2015.
II. LEGAL STANDARDS
Defendants have moved for dismissal pursuant to Federal Rule of Civil
Procedure 12(b)(6), rather than summary judgment pursuant to Rule 56, and have not
filed the administrative record with the Court. Although “[s]ummary judgment is
[ordinarily] the proper mechanism for deciding, as a matter of law, whether an agency
action is supported by the administrative record and consistent with the APA standard
of review[,]” Loma Linda Univ. Med. Ctr. v. Sebelius, 684 F. Supp. 2d 42, 52 (D.D.C.
2010), a Rule 12(b)(6) motion to dismiss can be entertained in administrative law cases
if the complaint “presents no factual allegations, but rather only arguments about the
legal conclusion[s] to be drawn about the agency action[,]” Marshall Cty. Health Care
Auth. v. Shalala, 988 F.2d 1221, 1226 (D.C. Cir. 1999). In such a case, “the sufficiency
of the complaint is the question on the merits, and there is no real distinction . . .
between the question presented on a 12(b)(6) motion and a motion for summary
judgment.” Id. (emphasis added); see also Am. Bankers Ass’n v. Nat’l Credit Union
Admin., 271 F.3d 262, 266 (D.C. Cir. 2001) (holding that the district court did not err
by failing to direct the agency to produce the administrative record because the case
could be resolved based on “nothing more than the statute and its legislative h istory”);
cf. Univ. Med. Ctr. of S. Nev. v. Shalala, 173 F.3d 438, 440 n.3 (D.C. Cir. 1999)
(explaining that a district court reviewing agency action may resolve the purely legal
question of whether the agency acted arbitrarily and capriciously on the agen cy record
irrespective of the precise motion in which it is presented) . So it is here. Defendants
have asserted—and Plaintiffs do not contest—that “[t]he central issue in this litigation
23
is a pure question of law,” (Defs.’ Mot at 1), and this Court agrees; consequently, it is
procedurally proper for Defendants to have filed a Rule 12(b)(6) motion to dismiss the
complaint in the instant case.
A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the factual
allegations that appear on the face of the complaint. When evaluating a Rule 12(b)(6)
motion to dismiss, a court generally does not consider matters beyond the pleadings.
See Ward v. D.C. Dep’t of Youth Rehab. Servs., 768 F. Supp. 2d 117, 119–20 (D.D.C.
2011). However, the court may consider “the facts alleged in the complaint, documents
attached as exhibits or incorporated by reference in the complaint, or documents upon
which the plaintiff’s complaint necessarily relies even if the document is produced not
by the plaintiff in the complaint but by the defendant in a motion to dismiss[.]” Id. at
119 (internal quotation marks and citations omitted); see also Equal Emp’t Opportunity
Comm’n v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997)
(same). “To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)); see also Rollins v. Wackenhut Servs., Inc., 703 F.3d 122, 129
(D.C. Cir. 2012). A claim is facially plausible when the pleaded factual content “allows
the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Iqbal, 556 U.S. at 678. Moreover, in assessing whether or not the
plaintiff has stated a plausible claim for relief, courts do not question “the truth of what
is asserted or determin[e] whether a plaintiff has any evidence to back up what is in the
complaint.” ACLU Found. of S. Cal. v. Barr, 952 F.2d 457, 467 (D.C. Cir. 1991).
24
Instead, the Court must “treat the complaint’s factual allegations as true, and must grant
plaintiff ‘the benefit of all inferences that can be derived from the facts alleged.’”
Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000) (internal
citations omitted) (quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir.
1979)); see also Am. Nat’l Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. Cir. 2011).
III. ANALYSIS
Plaintiffs assert that the CCC’s “categorical exclusion” of unreported cigarette
manufacturing “in the face of relevant evidence of significant contributions to total
domestic volume[] violates Congress’s plain command to account for ‘total gross
domestic volume from all sources,’ using all ‘relevant information’ available [.]” (Pls.’
Opp’n at 27 (quoting 7 U.S.C. § 518d(g)(1), (i)(4)(B)).) Notably, the agency decision
that Plaintiffs challenge here is a relatively narrow one—the CCC did not conclude that
illegally sold cigarettes could never factor into the calculation of the volume of
domestic sales for FETRA purposes, nor did the agency appear to disagree with
Plaintiffs’ core contention that the CCC may rely upon information other than excise
tax returns and customs forms to calculate the volume of domestic sales. Rather, the
CCC rejected Plaintiffs’ insistence that the FETRA requires the agency to deem the
GlobalSource report “relevant information” as that term is used in the FETRA. Put
another way, while, in Plaintiffs’ view, the term “relevant information” in 7 U.S.C.
§ 518d(g)(1) must mean anything that is related to the volume of domestic sales of
tobacco products (see Pls.’ Opp’n at 33–34), the CCC determined that information that
is related to the volume of domestic sales is only “relevant” to the agency’s calculation
for FETRA purposes if the information is precise and also substantiated by another
25
government agency (see Defs.’ Mot. at 12–14). According to the CCC, standard
principles of statutory interpretation support this result, because (1) the phrase “other
relevant information” in section 518d(g)(1) appears as part of a list that includes only
information that is precise and verified by another federal agency, and (2) Congress has
not provided the CCC with the tools that would be necessary for that agency to verify
the GlobalSource report or any other such numbers presented to by tobacco
manufacturers to reduce their assessment liability.
For the reasons explained below, this Court finds that the agency is correct that
the phrase “other relevant information” can be interpreted to mean only precise figures
that have been submitted to and substantiated by another federal agency, and thus, the
Court concludes that Defendants’ refusal to credit Plaintiffs’ findings regarding the
volume of illegal sales does not violate the FETRA. Moreover, this Court finds that
Plaintiffs may not challenge their September 2013 and December 2013 assessments
under the APA’s judicial-review provisions because the FETRA provides Plaintiffs with
an adequate means of challenging assessments.
A. The Agency Properly Determined That The GlobalSource Study Was
Not “Relevant Information” For FETRA Purposes
1. This Court Will Apply Skidmore Deference To The Agency Decision
At Issue Here
Defendants have not argued that the CCC’s interpretation of section 518d(g)(1)
in this case carries the force of law and is therefore entitled to the high level of
deference the Supreme Court describes in Chevron, U.S.A., Inc. v. Nat. Res. Def.
Council, Inc., 467 U.S. 837 (1984). See United States v. Mead Corp., 533 U.S. 218,
226–27 (2001) (explaining that “administrative implementation of a . . . statutory
provision qualifies for Chevron deference when it appears that Congress delegated
26
authority to the agency generally to make rules carrying the force of law, and that the
agency interpretation claiming deference was promulgated in the exercise of that
authority”). But Defendants’ apparent reluctance to claim that Chevron deference
applies does not necessarily mean that the CCC’s determination here warrants no
deference; indeed, the Supreme Court has long recognized that “the well-reasoned
views of the [agency] implementing a statute ‘constitute a body of experience and
informed judgment to which courts and litigants may properly resort for guidance.’”
Bragdon v. Abbott, 524 U.S. 624, 642 (1998) (quoting Skidmore v. Swift & Co., 323
U.S. 134, 139–140 (1944)). “The fair measure of deference to an agency administering
its own statute has been understood to vary with circumstanc es, and courts have looked
to the degree of the agency’s care, its consistency, formality, and relative expertness,
and to the persuasiveness of the agency’s position[.]” Mead Corp., 533 U.S. at 228
(citing Skidmore, 323 U.S. at 139–140) (footnotes omitted). Pursuant to Skidmore, “the
thoroughness evident in [the agency’s] consideration,” and also “the validity of its
reasoning” and “its consistency with earlier and later pronouncements,” id. (quoting
Skidmore, 323 U.S. at 140), can all “persuade” the Court that the agency’s view is
correct, Skidmore, 323 U.S. at 140. In other words, the agency’s reading of its statute
is “‘entitled to respect,’ . . . but only to the extent that those interpretations have the
‘power to persuade,’ even where they lack [Chevron’s] ‘power to control.’”
Christensen v. Harris Cty., 529 U.S. 576, 587 (2000) (quoting Skidmore, 323 U.S. at
140).
In light of these standards, this Court has focused its analysis on the
persuasiveness of the CCC’s statutory interpretation—without regard to whether that
27
agency determination is entitled to Chevron deference under the circumstances
presented here. The Court’s conclusion that the agency has interpreted section
518d(g)(1) correctly when viewed through the less deferential lens offered by
Skidmore—which is explained fully below—renders it unnecessary for the Court to
decide the Chevron versus Skidmore question. See, e.g., Edelman v. Lynchburg Coll.,
535 U.S. 106, 114 (2002) (finding there was “no need to resolve any question of
deference” because the agency’s rule was “not only a reasonable one, but the position
[the Court] would adopt even if there were no formal rule”).
2. Defendants Have Correctly Interpreted The Term “Other Relevant
Information” As It Appears In 7 U.S.C. § 518d(g)(1)
As noted, the FETRA specifically requires the CCC to calculate “the volume of
domestic sales of a class of tobacco product . . . based on information provided by
manufacturers and importers pursuant to subsection (h), as well as any other relevant
information provided to or obtained by the Secretary.” See 7 U.S.C. § 518d(g)(1).
Plaintiffs insist that the statute’s reference to “other relevant information” means
virtually anything related to the volume of domestic sales that is brought to the
agency’s attention, but Defendants interpret this language to mean that the agency must
calculate the volume of domestic sales based on precise figures that have been
substantiated in documents submitted to other federal agencies. Given the text and
purpose of the FETRA, this Court is persuaded that Defendants are correct.
a. The Plain Text Of The Provision Supports Defendants’ Reading
First of all, the term “other relevant information” appears as part of a list that
opens with a reference to “information provided by manufacturers and importers
pursuant to subsection (h)[.]” See 7 U.S.C. § 518d(g)(1). By stating plainly that the
28
CCC must calculate the volume of domestic sales based on the submissions that the
manufacturers and importers have made pursuant to subsection (h) and also “other
relevant information,” id. § 518(g)(1), Congress likely intended for the category of
“other relevant information” to mean information that is similar to the excise tax
returns and customs forms that legally operating manufacturers and importers submit
pursuant to subsection (h)—so say “the established interpretative canons of noscitur a
sociis and ejusdem generis[.]” Wash. State Dep’t of Soc. & Health Servs. v.
Guardianship Estate of Keffeler, 537 U.S. 371, 384 (2003) (noting these canons mean
that “[w]here general words follow specific words in a statutory enumeration, the
general words are construed to embrace only objects similar to those enumerated by the
preceding specific words”(citation and internal quotation marks omitted) ); see also
Gutierrez v. Ada, 528 U.S. 250, 255 (2000) ( “[W]ords . . . are known by their
companions”); Jarecki v. G. D. Searle & Co., 367 U.S. 303, 307 (1961) (“The maxim
noscitur a sociis, that a word is known by the company it keeps, while not an
inescapable rule, is often wisely applied where a word is capable of m any meanings in
order to avoid the giving of unintended breadth to the Acts of Congress.”) ; Antonin
Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 199 (2012)
(explaining that, when terms that begin a list are specific and belong to “an obvious and
readily identifiable genus, one presumes that the speaker or writer has that category in
mind for the entire passage”). And basic principles of statutory interpretation also
dictate that terms listed in a statute are to be read narrowly, while still giving effect to
each word. See CSX Transp., Inc. v. Alabama Dep’t of Revenue, 562 U.S. 277, 295
(2011) (“We typically use ejusdem generis to ensure that a general word will not render
29
specific words meaningless.”); see also, e.g., Yates v. United States, 135 S. Ct. 1074,
1087 (2015) (plurality opinion) (applying the canons of noscitur a sociis and ejusdem
generis in holding that fish do not fall within the Sarbanes–Oxley Act’s prohibition
against knowingly destroying “any record, document , or tangible object” because “[h]ad
Congress intended ‘tangible object’ in [the statute] to be interpreted so generically as to
capture physical objects as dissimilar as documents and fish, Congress would have had
no reason to refer specifically to ‘record’ or ‘document’”).
Applying these principles here, the first listed item listed in section 518d(g)(1) is
a specific reference to certain excise tax returns and customs forms that tobacco-
product manufacturers and importers are required to submit to the U.S. Alcohol and
Tobacco Tax and Trade Bureau. See 7 U.S.C. §§ 518d(g)(1), (h)(2). This means that
the succeeding “other relevant information” phrase should likely be interpreted to
include information that is similar to such documents, see Yates, 135 S. Ct. at 1087, and
Defendants are correct that similar information is that which has been substantiated by
a federal agency and has precise figures for the amount of timing of removals of
tobacco products. (See Defs.’ Supp’l Mem., ECF No. 20, at 3.) It is also clear that
Plaintiffs’ argument that “other relevant information” should be construed in the
dictionary sense of that phrase—and, according to Black’s Law Dictionary,
“[i]nformation is ‘relevant’ if it is ‘[l]ogically connected and tending to prove or
disprove a matter in issue” (Pls.’ Opp’n at 33–34 (quoting Black’s Law Dictionary 1404
(9th ed. 2009) (second alteration in original))—clearly reads the CCC’s statutory
directive too broadly, because it essentially ignores subsection (g)(1)’s preceding
specific reference to information provided pursuant to subsection (h) and, in effect,
30
renders Congress’ specific mention of subsection (h) meaningless. See Keffler, 537
U.S. at 385 (holding that a general term that follows specific terms should be read as
similar to the specific terms, otherwise, Congress’s use of the specific terms would be
unnecessary).
b. The Purpose Of The FETRA Confirms Defendants’ Construction
This Court is also persuaded that permitting the CCC to reject imprecise removal
information that has not already been verified by other government agencies when the
agency undertakes to determine the volume of domestic sales of tobacco products is
precisely what Congress intended. Although Congress plainly required the CCC to
make assessment determinations based on variables such as the gross volume of
domestic sales, 7 U.S.C. § 518d(e), and also mandated that the gross volume of
domestic sales be determined based on excise tax and customs forms that the
manufacturers submit to the agency as well as “other relevant information[,]” id.
§ 518d(g)(1), Congress did not provide the CCC with the power to investigate or
otherwise substantiate any of the information that, according to the FETRA, must be
used to calculate assessments—i.e., the CCC cannot issue subpoenas for documents
from companies that are suspected of illegally underreporting sales, or compel
testimony from individuals who smuggle cigarettes off of Indian reservations, or order
agents to stake out businesses that may be selling illicitly imported cigarettes. Thus, if
the reported removals are going to be substantiated at all, the CCC must get this
verification from other agencies (those that have the tools that are necessary to
determine the accuracy of the reported figures), which strongly suggests that Congress
intended for the CCC to be more of an accounting agency than an investigative one.
That is, although Congress certainly could have required tobacco-product manufacturers
31
and importers to self-report their removal figures directly to the CCC for that agency to
verify and credit, it chose not to do so, thereby indicating that it had no intention of
authorizing the CCC to engage in the kinds of investigations that Plaintiffs admit would
be necessary to verify the illegal sales figures at issue here .
And it makes eminent sense that Congress intended for the CCC to rely only on
information that other federal law enforcement agencies (such as the Department of the
Treasury, the Department of Homeland Security, and the Department of Justice ) have
already verified; otherwise, it would be far too easy for tobacco-product manufacturers
and importers to impact the assessment calculation in inaccurate and unwarranted ways.
There is nothing in the FETRA statute or its history that suggests that Congress
intended for the CCC to calculate TTPP assessments using unreliable figures regarding
the volume of domestic tobacco sales or any of the other specified variables, and given
the lack of investigative authority, the only way for the CCC to ensure the accuracy of
the removal data that the agency relies upon to fulfill its statutory duty to calculate the
volume of domestic sales is for the agency to accept only the information that has
already been reported in official government documents. (See Defs.’ Mot. at 6, 14.)
Thus, this Court is persuaded that Defendants’ reading of “other relevant information”
to mean information that is substantiated by a federal agency and has precise figures for
the amount of timing of removals of tobacco products is consistent with the statutory
scheme and makes good sense.
c. Plaintiffs’ Statutory Argument Is Unpersuasive
Plaintiffs’ argument to the contrary fails in several respects. First, Plaintiffs
have managed to turn the FETRA on its head with their contention that “nothing in the
statute permits [CCC] to categorically exclude information just because it has no t been
32
verified or corroborated by other government agencies.” (Pls.’ Opp’n at 33.) This
assertion is dramatically circular—it assumes that Congress intended for the agency to
accept any and all information that the manufacturers present to it regarding the volume
of domestic sales regardless of whether or not the information has been verified as
accurate, when, as explained above, the text and purpose of the FETRA strongly
suggest otherwise.
Plaintiffs have also erected a menacing straw man with their vigorous contention
that Congress has specifically directed the CCC to make assessment determinations
based on market share, and that, by failing to include illegal sales, the agency has
shirked its statutory responsibility in a manner that transgresses the FETRA’s dictates.
(See Pls.’ Opp’n at 36 (contending that the CCC has both “exaggerate[d] the challenge
of complying with FETRA and shrugg[ed] off [its] legal duty to make a reasonable
determination concerning factors prescribed by Congress” ).) Plaintiffs are correct to
point out that “[t]he D.C. Circuit has repeatedly recognized that when Congress directs
an agency to make particular factual determinations in carrying out a regulatory
scheme, the agency’s self-professed incompetence is no excuse for noncompliance.”
(Id. at 37 (citing NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) (“[A]n
agency may not shirk a statutory responsibility simply because it may be difficult.”)
(superseded on unrelated grounds by statute)); see also Cobell v. Salazar, 573 F.3d 808,
813 (D.C. Cir. 2009); Chamber of Commerce of U.S. v. SEC, 412 F.3d 133, 143 (D.C.
Cir. 2005). However, Plaintiffs have failed to acknowledge that what really was at
issue in the D.C. Circuit cases that Plaintiffs rely upon was the agency’s refusal to do
something that Congress had specifically directed the agency to do, rather than the
33
agency’s well-reasoned determination that, in the course of undertaking to fulfill its
statutory duty, it need not consider a particular factor that an interested party wanted
the agency to take into account.
In Chamber of Commerce, for example, the Securities and Exchange Commission
(“SEC”) issued a rule that imposed two restrictions on mutual funds pursuant to a
federal statute that required the SEC to consider whether promulgating a rule under the
statute would be “consistent with the public interest” insofar as it would “promote
efficiency, competition, and capital formation.” 412 F.3d at 142 (quoting 15 U.S.C
§ 80a-2(c)). When the plaintiffs objected to the rule on the ground that the agency had
shirked its obligation to consider the public interest by failing to determine whether the
costs of the rule might impede efficiency, competition, and capital formation , the SEC
responded that it could not consider that statutory factor because, despite the statute’s
clear mandate to do so, the agency had no “reliable basis” for determining such costs.
Id. Rejecting the SEC’s argument, the D.C. Circuit explained that the “difficulty” of
assessing the full cost of the rule did “not excuse the Commission from its statutory
obligation to determine as best it can the economic implications of the rule it has
proposed.” Id. Similarly, in Cobell, the D.C. Circuit held that that, where Congress
had directed the Department of the Interior to undertake an extremely complex
accounting of a federal Native American trust fund, the agency was not free to “throw
up its hands and stop the accounting[,]” but instead must “provide[] the best accounting
it can.” 573 F.3d at 813.
Here, by contrast, the FETRA makes no analogous statutory command that the
CCC consider and/or address the volume of illicitly manufactured cigarettes. See
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Single Stick, Inc. v. Johanns, 601 F. Supp. 2d 307, 314–15 (D.D.C. 2009), rev’d on
other grounds sub nom. Prime Time Intl., Inc. v. Vilsack, 599 F.3d 678 (D.C. Cir. 2010)
(holding that CCC need not make independent determinations regarding the volume of
all smuggled tobacco products in creating its market share calculations). (See also
Defs.’ Reply Br. in Supp. Of Mot. to Dismiss, ECF No. 14, at 6 (noting that “[t]he
commonality of [Chamber of Commerce and Cobell] is that they both involved a clear
statutory command on an issue central to an agency’s mission” but that “neither of
those conditions is satisfied here”).) Instead, the FETRA’s direction to the CCC is that
the agency must levy assessments against tobacco-product manufacturers and importers
and distribute the collected monies to tobacco growers, and in doing so, it must base the
assessment calculations on certain factors, including the volume of domestic sales for
various classes of tobacco products. There is no dispute that the CCC has, in fact,
generated a “volume of domestic sales” figure that is based on the subsection (h)
submissions and whatever other information the Secretary deems relevant —in clear
contrast to the agencies that totally eschewed their mandated duties in Chamber of
Commerce and Cobell. And the CCC has also accomplished its core mission of
collecting and distributing tobacco subsidy payments, notwithstanding the fact that, in
doing so, the agency has exercised its considerable discretion under the statute to reject
certain information related to the “volume of domestic sales” factor due to the
unreliability of the unverified data that Plaintiffs presented to it.
It is also clear to this Court (and Plaintiffs do not deny) that Congress has vested
the CCC with the discretion to filter out irrelevant information related to the volume of
domestic sales—i.e., the agency does have the power to reject some manufacturer
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submissions. (See, e.g., 6/9/2015 Mot. Hr’g Tr. (“Hr’g Tr.”), ECF No. 15, at 56:1–13
(Plaintiffs’ counsel conceding that the CCC could legitimately reject at least some types
of information notwithstanding a manufacturer’s attempt to offer them, such as
“astronomy charts”).) Thus, Plaintiffs are hard-pressed to explain their contention that,
when exercising its discretion to separate the wheat from the chaff in determining the
volume of domestic sales, the CCC acts contrary to the FETRA’s mandates if the
agency deems unreliable (and thus irrelevant) information that has not already been
verified by another federal agency and that, the agency says, it is ill-equipped to verify
itself.
Plaintiffs’ argument that the FETRA requires the CCC to credit the GlobalSource
findings or otherwise undertake to verify the illegal product sales figures itself—i.e.,
that “nothing stops [CCC] from hiring (or reassigning) appropriate personnel to gather
whatever additional information it believes is important to include in the administrative
record” (Pls.’ Supp’l Mem., ECF No. 18, at 2), and the “[CCC] can analyze the
information submitted and, exercising its own judgment, make a reasonable estimate of
the amount of unreported sales” (id. at 1)—likewise ignores important statutory context.
As explained, it was Congress’s clear intention that the CCC’s role in collecting
assessment amounts and distributing money to tobacco farmers was to be narrow and
well-defined, and the limited authority that Congress provided to the CCC in this regard
is manifestly inconsistent with Plaintiffs’ insistence here that the agency can dispatch
its employees to gather and analyze evidence, and/or effectively make binding factual
determinations regarding the scope of illegal behavior in course of making the required
assessment calculations. This Court has no doubt that Plaintiffs and their fellow
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tobacco-product manufacturers and importers would be up in arms (on lack-of-
statutory-authority grounds) if the CCC attempted to go behind the removal numbers
that are routinely submitted to it—whether to question the accuracy of those figures
directly or to seek further corroboration—and yet, that is precisely what Plaintiffs
contend that the CCC has the statutory authority to do (but won’t do) regarding the
illegal sales report in this case. But this Court finds that Plaintiffs cannot have it both
ways: since it is clear beyond cavil that Congress intended for the CCC to make an
accurate determination of each manufacturer’s and importer’s assessment amount
(which Plaintiffs concede), and it is also clear that Congress has not provided the CCC
with the tools to verify the accuracy of the information it receives (which Plaintiffs
appear to acknowledge and would undoubtedly emphasize if the agency attempted any
such verification of Plaintiffs’ own removal figures), then Plaintiffs cannot deny that
Congress must have intended for the agency to opt to rely on information that has been
verified by other federal agencies. Put another way, while Plaintiffs here assert that
nothing in the FETRA permits the CCC to exclude domestic sales information that has
not been verified by another agency, as this Court reads the statute, nothing in the
FETRA requires the CCC to include such information, and in fact, the statute’s text and
purpose strongly suggests that relying on other reliable sources is precisely what
Congress wanted the CCC to do.
Finally, to the extent that Plaintiffs seek to appeal to general principles of
fairness and proportionality (see Hr’g Tr. at 4:13–4:22), their reliance on such
principles is misplaced. Plaintiffs stress that “Congress was clear bordering on
redundant that an assessment must be proportionate to a manufacturer’s share of the
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entire market for the relevant tobacco product[,]” (Pls.’ Opp’n at 27–28 (emphasis in
original)), and thus, the CCC cannot fairly exclude unaccounted-for illegal cigarette
sales from the FETRA calculation because to do so requires those manufacturers that
operate legally to pay greater assessments than are warranted given their actual market
share. (See Pls.’ Supp’l Mem. at 1 (“When the government is aware of manufacturers
unlawfully failing to report sales of tobacco products, and the government chooses not
to enforce the laws against those non-compliant manufacturers, the financial burden of
that non-enforcement decision should not be borne by law-abiding manufacturers.”).)
Plaintiffs liken this situation to a State extracting additional sums from law-abiding
drivers to cover toll booth shortfalls: “[I]f I’m driving on a toll road and somebody
speeds by me past the toll booth, it’s not usual for the toll operator to then ask me [to]
pay twice just because someone else didn’t pay their fair share.” (Hr’g Tr. at 4:18–
4:22; see also id. at 48:14 (suggesting that, instead of collecting more from other
manufacturers, the government may make up the subsidy losses by “tak[ing] it out of its
own general appropriations”).)
Albeit clever, Plaintiffs’ toll booth analogy is transparently inapposite, because
the assessments that tobacco-product manufacturers and importers must pay under the
FETRA do not arise pursuant to a general tax scheme, such as a highway toll collection
effort. Instead, as explained above, the FETRA is premised on the fact that there is a
subsidy “debt” that the federal government has traditionally paid to tobacco farmers (a
sum certain), and the statute is specifically designed to transfer the burden of bearing
this cost to tobacco manufacturers and importers. See supra at Part I.A; see also 7
U.S.C. § 518d (Congress titled the statute “[u]se of assessments as source of funds for
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payments”). In this regard, then, rather than operating like a general toll or tax, the
FETRA is much more akin to the familiar legal framework of joint and several liability,
which plainly rejects the notion that the victim should be left wanting out of a
misplaced sense of proportional fairness to the tortfeasors and, instead, “forces all
parties responsible for the harm to bear the burden of any lapses in liability .” United
States v. Philip Morris USA, 316 F. Supp. 2d 19, 26–27 (D.D.C. 2004); see also W.
Page Keeton et al., Prosser and Keeton on the Law of Torts § 67, at 475 (5th ed. 1984)
(noting joint and several liability places “the aggregate wealth of the defendants . . .
behind the judgment,” irrespective of “the proportionate responsibility of the
defendants individually for the loss”). To be sure, Congress did state in the FETRA
that “[n]o manufacturer shall be required to pay an assessment that is based on a share
that is in excess of the manufacturer’s or importer’s share of domestic volume,” 7
U.S.C. § 518d(e)(2), but the most obvious aspect of the FETRA assessment scheme is
Congress’s clear intention to relieve the public fisc of the continued burden of tobacco
subsidies—which means that Plaintiffs are unquestionably mistaken to suggest that
fairness to them requires the CCC to include illegal sales in the assessment calculus,
thereby generating assessment figures that can never be recouped, and make up the
difference in subsidy payments owed to tobacco farmers by “tak[ing] it out of [the
government’s] own general appropriations[.]” (Hr’g Tr. at 48:14.)
In sum, Defendants have persuaded the Court that the CCC was correct to
interpret the FETRA’s “other relevant information” language to mean only precise
figures that have been substantiated by another federal agency and that the agency acted
consistently with the text and purpose of the FETRA when it refused to reduce
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Plaintiffs’ 2013 assessments based on the unsubstantiated estimates in their
GlobalSource report. Therefore, Count One of Plaintiffs’ complaint fails to state a
claim upon which relief can be granted.
B. The Remedy That The FETRA Provides Precludes Plaintiffs’ APA Claim
Plaintiffs have not only claimed that Defendants’ rejection of the GlobalSource
report violated the FETRA, but also that this same conduct violates the APA’s
prohibition on arbitrary and capricious agency decision making. (See Compl. ¶¶ 200–
09.) In this respect, Plaintiffs’ complaint makes the same claim of wrongful agency
behavior twice—once under FETRA, and again under the APA. For the following
reasons, this Court agrees with Defendants that an APA claim is not properly
entertained as an alternative basis for ruling in the Plainti ffs’ favor, and therefore
Plaintiffs’ APA claim must be dismissed.
Section 704 of the APA provides that “[a]gency action made reviewable by
statute and final agency action for which there is no other adequate remedy in a court
are subject to judicial review.” 5 U.S.C. § 704. Thus, “if an adequate remedy at law
exists” for the agency action about which the plaintiff complains, then “equitable relief
is not available under the APA.” Cohen v. United States, 650 F.3d 717, 731 (D.C. Cir.
2011). Furthermore, “the alternative remedy need not provide relief identical to relief
under the APA, so long as it offers relief of the ‘same genre.’” Garcia v. Vilsack, 563
F.3d 519, 522 (D.C. Cir. 2009) (quoting El Rio Santa Cruz Neighborhood Health Ctr. v.
U.S. Dep’t of Health & Human Servs., 396 F.3d 1265, 1272 (D.C. Cir. 2005)).
Therefore, “in determining whether an adequate remedy exists,” courts “focus[] on
whether a statute provides an independent cause of action or an alternative review
procedure.” El Rio Santa Cruz Neighborhood Health Ctr., 396 F.3d at 1270. For
40
example, courts will find alternative relief is adequate “where a statute affords an
opportunity for de novo district-court review” of the agency action. Id. In such cases,
courts reason that “[w]hen Congress enacted the APA to provide a general authorization
for review of agency action in the district courts, it did not intend that general grant of
jurisdiction to duplicate the previously established special statutory procedures relating
to specific agencies.” Bowen v. Massachusetts, 487 U.S. 879, 903 (1988). By contrast,
courts will find that alternative relief is not adequate where the remedy offers only
“doubtful and limited relief[,]” Garcia, 563 F.3d at 522 (quoting Bowen, 487 U.S. at
901), because Congress’s intent to avoid the duplication of remedies “should not be
construed to defeat the central purpose of providing a broad spectrum of judicial review
of agency action[,]” Bowen, 487 U.S. at 903.
The FETRA provides that “[a]ny manufacturer or importer aggrieved by a
determination of the Secretary with respect to the amount of any assessment may seek
review of the determination in the United States District Court for the District of
Columbia” or in the district in which it resides or has its pri ncipal place of business “at
any time following exhaustion of the administrative remedies.” 7 U.S.C. § 518d(j)(1).
The statute further states that “[t]he court shall restrain collection of the excessive
portion of any assessment or order a refund of excessive assessments already paid,
along with interest . . . , if it finds that the Secretary’s determination is not supported by
a preponderance of the information available to the Secretary.” Id. § 518d(j)(3). It is
clear, then, that the FETRA presents a canonical example of legislation that “affords an
opportunity for de novo district-court review” of the agency action. El Rio Santa Cruz
Neighborhood Health Ctr., 396 F.3d at 1270.
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Plaintiffs appear to concede that this is the case. (See Pls.’ Opp’n at 31 n.3
(“FETRA provides a complete remedy here . . . and, for that reason, this case could be
fully resolved on the FETRA claim alone.”).) Nevertheless, Plaintiffs insist that this “is
no basis for dismissing the APA claim at this stage” because they believe they may
plead these similar but mutually exclusive claims in the alternative. (Id.) While the
Federal Rules of Civil Procedure may allow alternative pleading as a general matter, see
Fed. R. Civ. P. 8(d)(2), pleading an APA violation in the alternative is not permissible
where, as here, an adequate alternative remedy exists. See Mittleman v. U.S. Treasury,
773 F. Supp. 442, 449 (D.D.C. 1991) (holding that, when an APA claim is “simply a
restatement” of a claim brought under another statute that pro vides an adequate vehicle
for seeking relief, the APA claim “is properly dismissed” under section 704 of the
APA). In fact, courts routinely dismiss alternatively pled APA claims upon finding that
another statute offers an adequate alternative remedy. See, e.g., Garcia, 563 F.3d at
523–26 (affirming dismissal of plaintiffs’ alternatively pled APA claims where the
federal statute also relied upon provided an adequate alternative remedy); Am. Rd. &
Transp. Builders Ass’n v. E.P.A., 865 F. Supp. 2d 72, 80, 83 (D.D.C. 2012) (same);
Feinman v. F.B.I., 713 F. Supp. 2d 70, 77–78 (D.D.C. 2010) (same). This Court will do
the same here.
IV. CONCLUSION
This Court is persuaded that, when Congress directed the CCC to base its
calculation of the volume of domestic sales of tobacco products for the purpose of the
FETRA on “other relevant information[,]” Congress intended for the agency to have the
discretion to decide that such information should consist of removal-related figures that
42
are precise and that have been verified by another federal government agency, just like
those in the excise tax forms and customs forms to which section 518d(g)(1)
specifically refers. Thus, Plaintiffs’ contention that it violated the FETRA when the
CCC decided to reject what it considered to be imprecise and unverified illegal sales
figures fails as a matter of law. Furthermore, Plaintiffs’ alternative legal contention—
i.e., that the same agency conduct that purportedly violated the FETRA violates the
APA—is not appropriately maintained, given that the FETRA would have provided
Plaintiff with an adequate remedy all by itself.
Accordingly, as set forth in the accompanying order, Defendants’ motion to
dismiss the complaint pursuant to Rule 12(b)(6) will be GRANTED, and Plaintiffs’
complaint will be DISMISSED.
DATE: September 17, 2015 Ketanji Brown Jackson
KETANJI BROWN JACKSON
United States District Judge
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