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Prime Time International Co. v. Vilsack

United States District Court, District Circuit

June 10, 2013

PRIME TIME INTERNATIONAL CO., Plaintiff,
v.
THOMAS J. VILSACK, Secretary U.S. Department of Agriculture, et al., Defendants. UNITED STATES OF AMERICA Plaintiff,
v.
PRIME TIME INTERNATIONAL CO., Formerly known as SINGLE STICK, INC., Defendant.

MEMORANDUM OPINION

ROYCE C. LAMBERTH, Chief Judge.

This case concerns the proper method to calculate assessments under the Tobacco Transition Payment Program. To phase out the old system of price supports and marketing caps, this transitional program collects assessments from tobacco manufacturers and importers and distributes these funds to eligible tobacco growers. Prime Time International Co., formerly known as "Single Stick, Inc., "[2] has long disputed how the U.S. Department of Agriculture ("USDA") calculates cigar companies' assessments. Prime Time primarily makes "small" cigars, which may contain significantly less tobacco per cigar than "large" cigars. USDA determines each cigar company's market share-and, in turn, each company's proportional responsibility to pay into the fund-by a "stick count" or "per-stick" method. This method relies on the number of cigars, not the weight of tobacco contained in each cigar, to determine each company's market share. Prime Time maintains that this method-which treats large and small cigars alike-is patently unfair and violates a statutory mandate that each company pay no more than its "pro rata" share. USDA had argued that the governing statute mandated this "per-stick" method. After Prime Time challenged USDA's methodology, and USDA obtained summary judgment at the district court, the court of appeals reversed the district court in part. Upon remand, USDA reaffirmed its per-stick rule after notice and comment rulemaking.

The parties' cross-motions for summary judgment concern the nature and scope of the court of appeals' administrative remand, whether USDA's interpretation deserves Chevron deference, and whether USDA's interpretation is reasonable. Since this Court finds that USDA's per-stick rule is a reasonable interpretation of ambiguous statutory language, it will uphold USDA's assessment calculation method. Therefore, the Court will grant the United States' Motion for Summary Judgment, Civil No. 12-910, Sept. 14, 2012, ECF No. 13; deny Prime Time's Cross-Motion for Summary Judgment, Civil No. 06-1077, Oct. 19, 2012, ECF No. 44; and enter judgment for the United States in the amount of $11, 679, 006.05, plus any additional unpaid assessments and interest accrued since September 14, 2012.

I. BACKGROUND

A. Statutory & Regulatory History

Prior to 2004, the government had implemented tobacco price support programs and marketing quotas for tobacco growers to aid domestic tobacco farmers. In order to gradually end such programs, Congress passed the Fair and Equitable Tobacco Reform Act of 2004 ("FETRA"). Pub. L. No. 108-357 §§ 601-43, 118 Stat. 1418, 1522-36 (Oct. 22, 2004). This Act created the Tobacco Transition Payment Program ("TTPP"), a ten-year program to provide transitional payments to certain tobacco producers and farm owners while the government phased out the old system of price support and marketing quotas. FETRA designated USDA to administer the program in conjunction with the Commodities Credit Corporation ("CCC") and the Farm Services Agency ("FSA"), two bodies under the umbrella of the Department of Agriculture.[3] 7 U.S.C. §§ 518-19a.

Per FETRA, USDA issues quarterly Tobacco Transition Assessments ("TTA") on tobacco manufacturers and importers, and then distributes those funds to eligible tobacco quota holders and growers. 7 U.S.C. §§ 518a-b. In determining each company's assessment, USDA follows several steps. The preliminary step is determining the total annual amount of the national assessment. The Act specifies that the assessments cannot exceed $10.14 billion over ten years, 7 U.S.C. § 518f, and the average annual total assessment is about $1 billion, 76 Fed. Reg. 15859, 15860 (Mar. 22, 2011) ( available at Prime Time Administrative Record ("AR") 12, Civ. No. 12-910, Sept. 12, 2012, ECF No. 12).

Once USDA calculates the total annual assessment, it undertakes a two-step process to determine each company's assessment amount. Under "Step A, " USDA divides the annual assessment liability among six statutorily-enumerated classes of tobacco products: cigarettes, cigars, snuff, roll-your-own tobacco, chewing tobacco, and pipe tobacco. 7 U.S.C. § 518d(c)(1); 7 C.F.R. §§ 1463.3, 1463.5. Congress set the initial apportionment percentages for each class in FETRA-for example, Congress made the cigarette class responsible for 96.331% of the total assessment, and the cigar class responsible for 2.783%. 7 U.S.C. § 518d(c)(1). Congress directed USDA to adjust the Step A assessment percentages periodically "to reflect changes in the share of gross domestic volume held by that class of tobacco product." 7 U.S.C. § 518d(c)(2). To made these adjustments:

Each year USDA uses data from the U.S. Department of the Treasury (Treasury) and the U.S. Department of Homeland Security Bureau of Customs and Border Security (Customs)-the new volume figures (units for cigars and cigarettes)- and multiplies them by the 2004 tax rates to adjust the Step A allotments using the calculation Congress was determined to have used for the initial Step A allotments, Those former tax rates (not the [ ] revised rates) are used so that the adjustments to the Step A category allotments are for changes in volume (units and weights) only, not changes in tax rates.

76 Fed. Reg. at 15860 (AR 12).

After USDA determines the proportional liability of each class of tobacco product, it must divide that amount among manufacturers and importers within that category. This is known as "Step B, " and it is at issue in this case. FETRA sets forth how USDA should calculate these Step B assessments. "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, " with "[n]o manufacturer or importer... required to pay an assessment that is based on a share that is in excess of [its] share of domestic volume." 7 U.S.C. §§ 518d(e)(1)-(2). "The amount of the assessment for each class of tobacco product... to be paid by each manufacturer or importer of that class of tobacco product shall be determined... by multiplying-(1) the market share of the manufacturer or importer...; by (2) the total amount of the assessment... for the class of tobacco product." 7 U.S.C. § 518d(f). "The term market share' means the share of each manufacturer or importer of a class of tobacco product... of the total volume of domestic sales of the class of tobacco product[.]" 7 U.S.C. § 518d(a)(3).

Key to this case, FETRA states, "For purposes of calculations under this subsection... the volumes of domestic sales shall be measured by-[ ] in the case of cigarettes and cigars, the number of cigarettes and cigars." 7 U.S.C. § 518d(g)(3). Implementing this statute, USDA derives the total number of cigars placed in the domestic market from excise tax reports provided to USDA by manufacturers and importers. See 7 U.S.C. § 518d(h); 7 C.F.R. § 1463.7. USDA then determines an individual manufacturer or importer's pro rata share by dividing the number of cigars from a particular manufacturer or importer by the total number of cigars placed in the domestic market. See 7 C.F.R. § 1463.7. This is known as the "per-stick" or "stick count" method; this method of determining each cigar company's market share does not differentiate between small and large cigars.

A manufacturer or importer may appeal its assessment to the Secretary of Agriculture, using "any information that is available, including third party data on industry or individual company sales volumes, " and the Secretary "must make any revisions necessary to ensure that each manufacturer and importer pays only its correct pro rata share of total gross domestic volume from all sources." 7 U.S.C. §§ 518d(i)(2), (i)(4)(B).

B. Procedural History

Prime Time predominately manufactures "small" cigars, which weigh less than three pounds per thousand cigars. Cf. 26 U.S.C. § 5701(a)(1) (defining "small cigars" for tax purposes). In 2005, Prime Time's predecessor company, Single Stick, Inc., filed an administrative appeal pursuant to 7 U.S.C. § 518d(i), arguing that USDA's per-stick approach improperly treated differently sized cigars similarly. In addition, Single Stick submitted third party industry sales data from A.C. Nielsen as an alternative source for calculating its market share. The Secretary, acting through the Deputy Administrator for Farm Programs, acknowledged that Single Stick's objection to assessing large and small cigars equally was "philosophically well founded, " but took the position that section 518d(g)(3)(A) of FETRA mandated the per-stick method. The Secretary also took the position that A.C. Nielsen data, which measures across-the-counter sales of tobacco products, did not conform to the requirement that USDA base market share calculations on the amount of product "removed."[4] The Secretary agreed, however, that Single Stick correctly challenged both the exclusion of non-reporting manufacturers and importers in apportioning assessments and the inclusion of certain expenses in calculating assessments under the transition payment program. The Secretary adjusted Single Stick's assessments amount after considering these issues. The Secretary rejected Single Stick's claim that it was entitled as a matter of due process to examine the industry-wide tax and customs data USDA used to calculate the assessments because such information about other companies was made confidential by statute, per 26 U.S.C. § 6103. See generally Prime Time Int'l Co. v. Vilsack, 599 F.3d 678, 681 (D.C. Cir. 2010) (describing history of case).

After the Secretary made his determination, Single Stick petitioned for review in the district court per FETRA's judicial review provision. See 7 U.S.C. § 518d(j). The district court granted summary judgment to the Secretary and USDA. Single Stick, Inc. v. Johanns, 601 F.Supp.2d 307 (D.D.C. 2009). The district court deferred to USDA's interpretation that FETRA mandated the per-stick method as not contrary to congressional intent and as a permissible interpretation of the statute under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Single Stick, 601 F.Supp.2d at 314. It rejected Single Stick's due process claim regarding access to the data underlying the Secretary's assessments because Single Stick failed to demonstrate prejudice. Id. at 315. Finally, the district court dismissed Single Stick's claim that USDA's failure to respond to requests for disclosure and "correction" of the data underlying the assessments violated the Information Quality Act ("IQA"), 44 U.S.C. § 3516, ruling that the IQA did not vest any party with the right to disclosure and correction and that USDA's failure to respond did not constitute final agency action subject to judicial review under the Administrative Procedure Act, 5 U.S.C. § 704. Single Stick, 601 F.Supp.2d at 316-17.

Single Stick appealed, and while appeal was pending changed its corporate name to Prime Time International. See Prime Time v. Vilsack, 599 F.3d 678 (D.C. Cir. 2010). The D.C. Circuit reversed in part and affirmed in part the judgment of the district court. The court of appeals reversed the grant of summary judgment to USDA on Prime Time's FETRA claims, avoided reaching Prime Time's due process claims as USDA represented that they may become moot, and affirmed the dismissal of the IQA challenge. Prime Time, 599 F.3d at 686.

The nature and scope of the D.C. Circuit's remand on the FETRA issue is hotly contested among the parties, and will be discussed in more detail infra. Prime Time's basic argument on appeal was that USDA's two-step method:

[S]kips a necessary step... [b]ecause FETRA requires that the allocation within a tobacco class be "on a pro rata basis" with "[n]o manufacturer or importer... 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). Therefore, [Prime Time] argues, after allocating the assessment by class of tobacco products, USDA should divide the cigar class assessment into sub-classes of large and small cigars, with the relative allocation determined by total weight, and then divide the assessments among individual large and small cigar manufacturers and importers on a per-stick basis from the subdivided assessments, satisfying subsection (g)(3)(A).

Id. at 420. The relevant, and contested, portion of the Circuit's opinion is as follows:

The plain text of FETRA does not self-evidently vindicate USDA's two step assessment method. Under FETRA, the "volume of domestic sales" and "market share" are not synonymous with "gross domestic volume." FETRA provides, for example, that "[t]he volume of domestic sales shall be calculated based on gross domestic volume, " 7 U.S.C. § 518d(g)(2) (emphasis added), indicating two different meanings for the terms. And section 518d(g)(3)(A) does not, on its face, require that a compound number of large and small cigars serve as the denominator when calculating a manufacturer's or importer's volume of domestic sales on a per-stick basis. Most critically, USDA's interpretation appears to ignore the pro-rata-basis limitation Congress imposed on assessments within a tobacco class in subsection (e). As interpreted by USDA, it is irrelevant that one large cigar consumes far more tobacco than a small cigar, and so accounts for a far larger segment of the market than its per-stick contribution would indicate. Yet the text and structure of the statute titled the Fair and Equitable Tobacco Reform Act suggests an easy counting metric for cigarettes and cigars may not override a statutory mandate that assessments be "allocated on a pro rata basis" within each class of tobacco product, id. § 518d(e)(1). Prime Time's interpretation suggests that there is at least one way to interpret FETRA's provisions consistently and in harmony, with none made superfluous or insignificant. See Corley v. United States, 556 U.S. 303, 129 S.Ct.. 1558, 1566, (2009); City of Anaheim, Cal. v. FERC, 558 F.3d 521, 522 (D.C. Cir. 2009).
For the purpose of this appeal, the court need only observe that USDA's present interpretation is not mandated by the plain text of FETRA. USDA does not maintain that its interpretation of FETRA is a permissible view of an ambiguous statute entitled to deference under Chevron step 2, 467 U.S. at 843. Given that FETRA does not appear to be susceptible of only a single interpretation, we reverse and remand to the district court with instructions to remand Prime Time's FETRA claims to the USDA for further proceedings. See PDK Labs. Inc. v. U.S. DEA, 362 F.3d 786, 797-98 (D.C. Cir. 2004).

Id. at 422.

On remand, USDA commenced notice and comment rulemaking on its Step B calculation method. See 76 Fed. Reg. 15859 (AR 11-16). The USDA received five sets of comments in response to its notice, and issued a final determination on November 6, 2011 concluding that the existing Step B method will remain in place. Bruce Nelson, Determination of the Administrator of the Farm Services 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 (" Final Determination "), Nov. 16. 2011, AR 57-96.

USDA then intended to adjudicate three factual issues specific to Prime Time: (1) the reliability of the A.C. Nielsen data for determining market share; (2) Prime Time's request for information concerning the market shares of other tobacco companies; and (3) the basis for USDA's adjustment to Prime Time's assessment at the end of the first year of the program. See United States' Mot. Summ. J. 7; Letter from Scott Sanford to James Deer, Jan. 26. 2012, AR 118-22. Prime Time, however, took the position that "there are no remaining factual issues for the agency to adjudicate" and wished to expedite judicial review of USDA's Step B methodology. Letter from John Wertheim to Scott Sanford, Dec. 27, 2011, AR 117.

Before the USDA's final determination came in, Prime Time moved for summary judgment in the original district court action, Civil No. 06-1077. Prime Time's Mot. for Summ. J., Civ. No. 06-1077, Oct. 17, 2011, ECF No. 29. The district court denied this motion without prejudice. Minute Order, Civ. No. 06-1077, Sept. 19, 2012.

On a separate track, the United States initiated a new civil case, Civil No. 12-910, as an enforcement action against Prime Time for failing to make millions of dollars in tobacco assessment payments. See Complaint, Civ. No. 12-290, Jun. 5, 2012, ECF No. 1. In the interest of judicial economy, the Court consolidated Civil Actions 06-1077 and 12-290, with all subsequent filings to be made in 06-1077. Order Consolidating Cases, Civ. No. 06-1077, Sept. 19, 2012, ECF No. 42. Prime Time then filed a cross-motion for summary judgment in 06-1077, seeking an adjudication that USDA's Step B assessment method is invalid. Prime Time's Cross-Mot. Summ. J., Civ. No. 06-1077, Oct. 19. 2012, ECF No. 44. Both motions for summary judgment are ripe for adjudication, and the Court resolves both herein.

II. LEGAL STANDARDS

A. Summary Judgment

Under Rule 56 of the Federal Rules of Civil Procedure, a court shall grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). In cases involving final agency action, the Rule 56 applies differently, as the court has a limited role in reviewing the administrative record. See Sierra Club v. Mainella, 459 F.Supp.2d 76, 89 (D.D.C. 2006). The court should focus on the administrative record compiled by the agency, "not some new record made initially in the reviewing court." Camp v. Pitts, 411 U.S. 138, 142 (1973); see also Envtl. Def. Fund., Inc. v. Costle, 657 F.2d 275, 322 (D.C. Cir. 1981) ("It is well settled that judicial review of agency action is normally confined to the full administrative record before the agency at the time the decision was made."). The agency's role "is to resolve factual issues to reach a decision supported by the administrative record, while the function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision as it did.'" Burmeister v. Pension Ben. Guar. Corp, __ F.Supp.2d __, 2013 WL 1869171, *3 (D.D.C. May 6, 2013) ( quoting Mainella, 458 F.Supp. at 90). These record-review principles apply to FETRA enforcement actions brought by the government. See United States v. ...


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