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Marine Wholesale & Warehouse Co. v. United States

United States District Court, District of Columbia

May 15, 2018

MARINE WHOLESALE & WAREHOUSE CO., Plaintiff,
v.
UNITED STATES OF AMERICA, et al., Defendants.

          MEMORANDUM OPINION

          BERYL A. HOWELL CHIEF JUDGE

         The 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.[1] 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.

         I. BACKGROUND

         The 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.

         A. Statutory Framework

         MWW's 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.

         1. Tobacco Export Warehouse Proprietor Permits

         The 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), 5761(c).

         Export 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 follows:

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.[2] 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).

         While 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)).

         2. Basic Permits for Importing and Wholesaling Beverage Alcohol

         Permits 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).[3] 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 application. Id.

         Section 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.

         3. Judicial Review

         These 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.

         B. The Plaintiff's Permits

         The 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. 14.[4]

         In 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).

         The 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 1-2.

         The 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 ...

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