United States District Court, District of Columbia
A. HOWELL CHIEF JUDGE
plaintiff, Marine Wholesale & Warehouse Co.
(“MWW”), has filed a three-count complaint
against defendants the United States of America, the Alcohol
and Tobacco Tax and Trade Bureau (“TTB”), and
John J. Manfreda, in his official capacity as Administrator
of the TTB, seeking “a declaratory judgment concerning
whether MWW's TTB Tobacco Export Warehouse
Proprietor's Permit, Alcohol Importer's Basic Permit,
and Alcohol Wholesaler's Basic Permit automatically
terminated in January 2013, and whether TTB properly warned
MWW that continued operation of its facilities could lead to
imposition of civil and criminal penalties.” Am. Compl.
¶ 13, ECF No. 9. The defendants have moved to dismiss the
complaint based on lack of subject-matter jurisdiction,
failure to state a claim upon which relief can be granted,
and insufficient service of process. See Defs.'
Mot. Dismiss (“Defs.' Mot.”) at 1, ECF No.
14. For the reasons described below, this Court lacks
subject-matter jurisdiction over the plaintiff's claims
and, accordingly, the defendants' motion is granted.
statutory framework governing the relevant permits is
discussed first, followed by the details of the
plaintiff's claims and the relevant litigation history in
both this Court and the D.C. Circuit.
claims involve two types of permits: a tobacco export
warehouse proprietor permit, issued under Title 26, Chapter
52 of the U.S. Code (“tobacco permit”), and basic
permits for the importing and wholesaling of beverage
alcohol, issued under the Federal Alcohol Administration Act
(“FAAA”), 27 U.S.C. § 201 et seq.
(“alcohol permits”). Am. Compl. ¶ 13.
Tobacco Export Warehouse Proprietor Permits
tobacco permits are regulated under the Internal Revenue
Code, which imposes on manufacturers and importers of tobacco
products an excise tax on the domestic sale of such products.
26 U.S.C. § 5703(a)(1). Certain federal tax exemptions
are available, including for an export warehouse proprietor,
which is defined as “any person who operates” a
“warehouse for the storage of tobacco products or
cigarette papers or tubes or any processed tobacco, upon
which the internal revenue tax has not been paid, for
subsequent shipment to a foreign country . . . or for
consumption beyond the jurisdiction of the internal revenue
laws of the United States.” Id. §
5702(h)-(i). Export warehouse proprietors must operate with
valid permits issued by the TTB. Id. §§
5712-13. Without valid permits, export warehouse proprietors
are liable for the unpaid excise taxes and penalties that
would otherwise apply to the importation of such products.
See Id. §§ 5703(a)(2), 5704(b)-(d),
warehouse proprietors must apply for such permits
“before commencing business as a manufacturer or
importer of tobacco products or processed tobacco or as an
export warehouse proprietor, and at such other time as the
Secretary [of the Treasury] shall by regulation
prescribe.” Id. § 5712. Pursuant to that
authority, the TTB promulgated a regulation requiring export
warehouse proprietors to submit new applications after
certain changes in their stockholders and corporate
ownership. Specifically, the pertinent regulation provides as
Where the issuance, sale, or transfer of the stock of a
corporation, operating as an export warehouse proprietor,
results in a change in the identity of the principal
stockholders exercising actual or legal control of the
operations of the corporation, the corporate proprietor
shall, within 30 days after the change occurs, make
application for a new permit; otherwise, the present permit
shall be automatically terminated at the expiration of such
30-day period . . . . If the application for a new permit is
timely made, the present permit shall continue in effect
pending final action with respect to such application.
27 C.F.R. § 44.107. Thus, if a permittee fails to notify
the TTB of a change in “actual or legal control of the
operations of the corporation, ” the permit
automatically terminates by operation of law “within 30
days after the change occurs, ” and the permittee must
submit an application for a new permit to continue operating
as an export warehouse proprietor. Id. New permit
applications “may be rejected and the permit denied if
the Secretary, after notice and opportunity for hearing,
finds that” certain conditions are present. 26 U.S.C.
§ 5712. In addition, the TTB may suspend or revoke
permits and may also order permit holders to show cause why
their permits should not be suspended or revoked.
Id. § 5713(b).
the relevant TTB regulation “does not expressly provide
for judicial review of a denied new permit application, the
Internal Revenue Code authorizes refund actions.”
Gulf Coast Maritime Supply, Inc. v. United
States (“Gulf Coast II”), 867 F.3d
123, 126 (D.C. Cir. 2017) (citing 26 U.S.C. § 7422).
Such actions may be pursued only after “a claim for
refund or credit has been duly filed with the
Secretary” of the Treasury. 26 U.S.C. § 7422(a).
Refund actions include not only claims regarding tax
liability but also “issues that ‘hinge[ ] on
precisely' whether one is liable for taxes-such as an
entity's entitlement to tax-exempt status.”
Gulf Coast II, 867 F.3d at 126 (alteration in
original) (quoting Alexander v. “Americans United,
” Inc., 416 U.S. 752, 762 (1974)).
Basic Permits for Importing and Wholesaling Beverage
issued by the TTB are also required in order to import or
purchase alcoholic beverages for sale. See 27 U.S.C.
§§ 203-04; 27 C.F.R. §§ 1.20-25. Unlike
the tobacco permits, alcohol permits are not connected to tax
exemptions. See generally 27 U.S.C. § 204(a).
An alcohol permit may, “by order of the Secretary of
the Treasury, after due notice and opportunity for hearing to
the permittee, ” be “revoked, ”
“suspended, ” or “annulled” in
certain circumstances. See Id. §
204(e). Alcohol permits “shall continue in
effect until suspended, revoked, or annulled” as
provided in that subsection. Id. § 204(g). In
addition, like tobacco permits, alcohol permits automatically
terminate upon the occurrence of certain conditions.
Specifically, § 204(g) provides that:
(1) if leased, sold, or otherwise voluntarily transferred,
the permit shall be automatically terminated thereupon, and
(2) if transferred by operation of law or if actual or legal
control of the permittee is acquired, directly or indirectly,
whether by stock-ownership or in any other manner, by any
person, then such permit shall be automatically terminated at
the expiration of thirty days thereafter: Provided,
That if within such thirty-day period application for a new
basic permit is made by the transferee or permittee,
respectively, then the outstanding basic permit shall
continue in effect until such application is finally acted on
by the Secretary of the Treasury.
Id. (emphasis in original). Notice and an
opportunity for hearing are not required before the automatic
termination of an alcohol permit; rather, a permittee may
file an application for a new permit within thirty days of
the change and await the Secretary's action on that new
204 also specifies the availability of and procedures for
judicial review. If an application for a new permit is
denied, or if a permit is suspended, revoked, or annulled,
“the permittee or applicant for a permit” may
appeal that decision by filing, within sixty days of the
Secretary's order, “a written petition praying that
the order of the Secretary be modified or set aside in whole
or in part.” Id. § 204(h). Such petition
must be filed “in the court of appeals of the United
States within any circuit wherein such person resides or has
his principal place of business, or in the United States
Court of Appeals for the District of Columbia.”
Id. The statute specifies that, “[u]pon the
filing of such petition such court shall have exclusive
jurisdiction to affirm, modify, or set aside such order, in
whole or in part.” Id.
statutory schemes recognize that the purpose of such permits
is to “exclude undesirable persons from holding
permits, ” Mid-Valley Distilling Corp. v.
Decarlo, 161 F.2d 485, 488 (3d Cir. 1947) (discussing
basic alcohol permits), by ensuring that the agencies know
the identities of the individuals exercising actual or legal
control over the permitted entities. Thus, as the D.C.
Circuit has explained, these statutes and regulations
“require[ ] full disclosure and good faith on the part
of applicants for such privileges.” Middlesboro
Liquor & Wine Co. v. Berkshire, 133 F.2d 39, 41
(D.C. Cir. 1942). To this end, “[a]s to both alcohol
and tobacco permits, the law establishes a process to
ensure” that the TTB is “updated of any ownership
changes, ” that a permit will “automatically
terminate when an unreported ownership change occurs, ”
and that a permittee may “seamlessly continu[e]
operation, despite ownership changes, ” by timely
submitting a new application reflecting the change in
ownership. Gulf Coast II, 867 F.3d at 126. In
addition, “[j]udicial review is available if a new
permit is denied-a refund suit in the tobacco permit context,
and an appeal to a circuit court in the alcohol permit
context-and that review may include considering whether it
was necessary to update TTB as to a change in
ownership.” Id. If a permittee fails to comply
with these requirements, then “[u]nder both the tobacco
and alcohol permit schemes, automatic termination is a
distinctive means by which a permit ceases to operate.”
Id. at 127. Indeed, “[b]oth statutory
frameworks reflect this, treating the automatic termination
process separately from the process afforded to other forms
of cessation.” Id. With this background in
mind, the plaintiff's permits are examined next.
The Plaintiff's Permits
plaintiff is a family-owned S-corporation based in San Pedro,
California, that operated a warehouse where it received
untaxed tobacco and alcohol products and sold such products
to commercial vessels for consumption while at sea. Am.
Compl. ¶¶ 15-16, 24. MWW was first issued an export
warehouse permit in 1961, and between 1961 and 1992, MWW
properly reported changes to its corporate officers and
owners to the TTB. Defs.' Mem. Supp. Mot. Dismiss
(“Defs.' Mem.”) at 5, ECF No.
March 2001, MWW underwent a compliance inspection conducted
by the TTB's predecessor agency, the Bureau of Alcohol,
Tobacco, and Firearms (“ATF”). Defs.' Mot.,
Ex. A, Letter from Roger L. Bowling to Robert L. Hartry,
dated February 12, 2002 (“February 2002 Letter”)
at 1, ECF No. 14-1. During this inspection, the ATF
discovered an “unreported change in stock control that
occurred on December 29, 1992.” Id.
Accordingly, on July 6, 2001, MWW President Robert L. Hartry
informed the ATF of MWW's current stock ownership and
applied for a new tobacco permit. Defs.' Mot., Ex. B,
Letter from Robert L. Hartry to ATF, dated July 6, 2001
(“2001 Tobacco Permit App.”) at 1-4, ECF No.
14-2. This letter stated that Robert L. Hartry owned 804
shares, or 80.4 percent, of MWW; his son Eric M. Hartry owned
146 shares, or 14.6 percent; and his son Robert H. Hartry
owned 50 shares, or 5 percent. Id. at 1; see
also Am. Compl. ¶ 18. On the application, Robert L.
Hartry agreed that he would “operate in conformity with
the applicable provisions of 26 U.S.C. Chapter 52, and all
applicable regulations made pursuant to law which are now, or
may hereafter be, in force.” 2001 Tobacco Permit App.
at 3. Similarly, on September 17, 2001, Robert L. Hartry
submitted an application for new alcohol permits, citing
“change in ownership” as the reason for the
application and stating the same stock ownership listed in
the 2001 Tobacco Permit Application. Defs.' Mot., Ex. C,
Applications for Basic Permits under the Federal Alcohol
Administration Act (“2001 Alcohol Permit Apps.”)
at 1-2, ECF No. 14-3. In this permit application, Robert L.
Hartry attested, under penalty of perjury, that he would
“immediately notify the ATF official with whom this
application is filed of any change in ownership, management,
or control of the applicant (in the case of a
corporation, any change in the officers, directors, or
persons holding 10 percent or more of the corporate
stock).” Id. at 2 (emphasis in original).
2001 Tobacco Permit Application was granted on February 12,
2002. See Defs.' Mot., Ex. D, Export Warehouse
Proprietor Permit No. EW-CA-5 (“Tobacco Permit”)
at 1, ECF No. 14-4. This permit states on its face that it
“will remain in effect on condition that you comply
with the applicable provisions of 26 U.S.C. Chapter 52, the
Federal Water Pollution Control Act, and all applicable
regulations made pursuant to law which now or may hereafter
be, inforce, and until suspended, revoked, automatically
terminated, or voluntarily surrendered, as provided by law
and regulations.” Id. The permit further
states that “[t]his permit is not
transferable. Any change in name, address, ownership, or
control must be immediately reported to the District
Director, Bureau of Alcohol, Tobacco and Firearms.”
Id. (emphasis in original). In the cover letter
transmitting the Tobacco Permit, the ATF informed Robert L.
Hartry that MWW had “been operating without a valid ATF
permit” and reminded him that “any future changes
that could affect the validity of this permit should be
reported in a timely manner.” February 2002 Letter at
2001 Alcohol Permit Applications were granted on November 6,
2001. See Defs.' Mot., Ex. E, Basic Permit Nos.
CA-I-4940 & CA-P-8736 (“Alcohol Permits”) at
1-2, ECF No. 14-5. These permits specify that they are
“conditioned upon your compliance with the Federal
Alcohol Administration Act” and “all applicable
regulations made pursuant to law which are now, or may
hereafter be, in force, ” among other laws.
Id. In addition, the alcohol permits state that they
“WILL AUTOMATICALLY TERMINATE THIRTY DAYS AFTER ANY
CHANGE IN PROPRIETORSHIP OR CONTROL OF THE BUSINESS, unless
an application for a new basic permit is made by the
transferee or permittee within the thirty day period.”
Id. (capitalization in original). If such an
application is filed, “the outstanding basic permit
will continue in effect until the application is acted
on” by the ATF. Id. An additional, capitalized
paragraph further specifies that:
THIS PERMIT IS NOT TRANSFERABLE. ANY CHANGE IN THE TRADE
NAME, CORPORATE NAME, MANAGEMENT OR ADDRESS OF THE BUSINESS
COVERED BY THIS PERMIT, OR ANY CHANGE IN STOCK OWNERSHIP
(MORE THAN 10%) MUST BE REPORTED TO ...