Prime Time International Company v. Johanns ( 2009 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
)
SINGLE STICK, INC., )
)
Plaintiff, )
)
v. ) Civil Action No. 06-1077 (RWR)
)
MICHAEL JOHANNS, et al., )
)
Defendants. )
______________________________)
MEMORANDUM OPINION
Plaintiff Single Stick, Inc. brought this action against the
Secretary of Agriculture, and the United States Department of
Agriculture (collectively “USDA”) challenging the USDA’s
interpretation of The Fair and Equitable Tobacco Reform Act
(“Tobacco Reform Act”), 7 U.S.C. §§ 518-519a, and alleging that
the USDA violated the Information Quality Act (“IQA”), 44 U.S.C.
§ 3516 note. The USDA has moved under Federal Rule of Civil
Procedure 12(b)(6) to dismiss for failure to state a claim and
Single Stick has moved under Rule 56 for summary judgment.
Because the USDA’s interpretation of the Tobacco Reform Act
comports with congressional intent and is entitled to deference,
and because the IQA does not create any individual right to the
production or correction of information, the USDA’s motion to
dismiss, treated in part as a motion for summary judgment, will
be granted and Single Stick’s motion for summary judgment will be
denied as moot.
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BACKGROUND
Single Stick manufactures and sells “small” cigars –- those
that weigh less than three pounds per thousand cigars. (See
Compl. ¶ 5.) Under the Tobacco Reform Act, Single Stick, as a
tobacco manufacturer, must pay assessments to the Tobacco
Transition Payment Program (“Payment Program”). The funds
obtained through the Payment Program are used to subsidize
domestic tobacco farmers. (See id. ¶¶ 12-13.) The Tobacco
Reform Act identifies six classes of tobacco products, including
cigarettes, cigars, snuff, roll-your-own tobacco, chewing
tobacco, and pipe tobacco. See 7 U.S.C. § 518d(c)(1). The
Commodity Credit Corporation (“CCC”), an agency within the USDA,
determines the annual assessments for which each class of tobacco
product will be responsible. See 7 U.S.C. § 518d(c)(1).
The Tobacco Reform Act sets forth how assessments are to be
calculated. “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.”1 7 U.S.C. § 518d(e)(1). “The amount of
the assessment for each class of tobacco product . . . to be paid
1
Gross domestic volume is determined by “the volume of
tobacco products . . . removed[.]” 7 U.S.C. § 518d(a)(2)(A).
Removed tobacco consists of “the removal of tobacco products
. . . from internal revenue bond . . . and shall also include the
smuggling or other unlawful importation of such articles into the
United States.” 26 U.S.C. § 5702(j).
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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). For cigars, a manufacturer’s
or importer’s “volume[] of domestic sales shall be measured by
. . . the number of . . . cigars” it places into the domestic
market. 7 U.S.C. § 518d(g)(3). Implementing these rules, the
CCC derives the total number of cigars placed in the domestic
market from excise tax reports provided to the CCC by
manufacturers and importers. (Defs.’ Mem. in Opp’n to Summ. J.
(“Defs.’ Opp’n”) at 3.) See 7 U.S.C. § 518d(h); 7 C.F.R.
§ 1463.7. The CCC then determines an individual manufacturer or
importer’s pro rata share “by dividing the number of cigars from
[the] particular manufacturer or importer by the total number of
cigars [placed] in the domestic market [(“per-stick method”)].”
(Defs.’ Opp’n at 3.)
Using the per-stick method, the CCC assessed Single Stick
$339,719 for the period of October to December 2004 based on a
market share of 4.81 percent, $455,373 for the period of January
to March 2005 based on a market share of 6.45 percent, and
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$1,152,530 for the period of April to June 2005 based on a market
share of 7.78 percent.2 (See Compl. ¶ 20.) Single Stick timely
appealed these assessments, alleging that the USDA “substantially
overstated [its] ‘stick count’ market share and improperly
inflated [its] Payment Program obligation” because the per-stick
method resulted in an assessment “far in excess of Single Stick’s
pro rata share of the removed volume of cigar tobacco.” (Id.
¶¶ 21, 23-24.) Single Stick also filed a Freedom of Information
Act (“FOIA”) request seeking the CCC’s primary data sources
underlying the CCC’s calculations and an IQA petition seeking
both data source disclosure and information correction. (Id.
¶¶ 26-27.) The USDA denied Single Stick’s FOIA request3 and did
not respond to the IQA petition.4 (Id.)
Single Stick filed this action challenging the calculation
methods used by the USDA to determine Single Stick’s Payment
2
On administrative appeal, the USDA determined that Single
Stick was paying more than its proportional share because of “the
CCC’s admitted failure to meet [the Tobacco] Reform Act
requirements when it issued an initial round of assessments.”
(Compl. ¶ 35.) The USDA has since recalculated Single Stick’s
assessments, and, as a result, raised Single Stick’s October to
December 2004 assessment to $351,007.23 based on a market share
of 5.32 percent, raised its January to March 2005 assessment to
$472,017.47 based on a market share of 7.15 percent, and reduced
its April to June 2005 assessment to $1,135,353.46 based on a
market share of 7.78 percent. (See id. ¶ 38.)
3
Single Stick does not challenge the FOIA request denial in
this action.
4
Single Stick also filed an IQA Request for Reconsideration
that went unanswered.
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Program assessments. Specifically, Single Stick argues that the
USDA violated the Tobacco Reform Act by assessing Single Stick in
excess of its pro rata share of removed tobacco product, by
assessing Single Stick without regard to its share of gross
domestic volume, by calculating market share without regard to
tobacco that was smuggled or unlawfully imported, and by
calculating Single Stick’s volume of domestic sales on a per-
stick basis. (See id. ¶ 44(a).) As a result, Single Stick
contends that the USDA over-estimated Single Stick’s market
share. (See id. ¶ 44(b).) Single Stick also alleges that the
USDA violated the IQA by “refus[ing] to respond or otherwise
acknowledge Single Stick’s IQA Petition and Request for
Reconsideration” and “by failing to correct influential
information [publicly] disseminated . . . and/or to make
available data and data sources Single Stick needed and requested
to test and reproduce the [USDA’s] estimate of market share.”
(Id. ¶¶ 44(c)-(d).) Finally, Single Stick contends that, because
the USDA failed to disclose the data underlying its market share
calculations, Single Stick’s due process right to a full and fair
administrative hearing was denied. (Id. ¶¶ 29, 44(e).)
The USDA has moved under Rule 12(b)(6) to dismiss Single
Stick’s claims, arguing that the USDA’s method of calculating
assessments was permitted under the Tobacco Reform Act, the IQA
did not create a right to production or correction of data, and
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the APA does not provide a remedy because “IQA production and
correction of data is ‘committed to agency discretion.’”5 (See
Defs.’ Mem. in Support of Its Mot. to Dismiss (“Defs.’ Mem.”) at
2-3 (citing 5 U.S.C. § 701(a)(2) and Heckler v. Chaney, 470 U.S.
821, 830 (1985)).) Single Stick has moved for summary judgment
in its favor under Rule 56. In its opposition to Single Stick’s
summary judgment motion, the USDA suggests without opposition
that its motion to dismiss be converted to a motion for summary
judgment. (Defs.’ Opp’n at 2 n.1.)
DISCUSSION
I. TOBACCO REFORM ACT
Summary judgment may be granted only where “the pleadings,
the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material
fact and that the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(c). The relevant inquiry “is the
threshold inquiry of determining whether there is a need for a
trial -- whether, in other words, there are any genuine factual
issues that properly can be resolved only by a finder of fact
5
The USDA also argued that the USDA was statutorily
prohibited from releasing the information that Single Stick
requested. However, the USDA withdrew this argument in light of
a recent Federal Register notice, see Tobacco Transition Payment
Program; Release of Records, 73 Fed. Reg. 23,065 (Apr. 29, 2008),
explaining that the market share information reported to the CCC
by manufacturers and importers is not confidential tax
information. (Defs.’ Notice of Withdrawal of Argument at 2.)
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because they may reasonably be resolved in favor of either
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250
(1986). In considering a motion for summary judgment, all
evidence and inferences to be drawn from the underlying facts
must be viewed in the light most favorable to the party opposing
the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986).
“When a court reviews an agency’s construction of the
statute which it administers, it is confronted with two
questions.” Chevron U.S.A., Inc. v. Natural Res. Def. Council,
Inc., 467 U.S. 837, 842 (1985). The first question is “whether
Congress has directly spoken to the precise question at issue.”
Id. If it has, “the court, as well as the agency, must give
effect to the unambiguously expressed intent of Congress.” Id.
at 842-43. However, “if the statute is silent or ambiguous with
respect to the specific issue, the question for the court is
whether the agency’s answer is based on a permissible
construction of the statute.” Id. at 843. In these
circumstances, a court “‘must defer to the agency’s
interpretation of the ambiguous statutory term if it represents a
reasonable accommodation of the conflicting policies that were
committed to the agency’s care by statute.’” Back Country
Horsemen of Am. v. Johanns, 424 F. Supp. 2d 89, 95 (D.D.C. 2006)
(quoting New York v. EPA, 413 F.3d 3, 23 (D.C. Cir. 2005)
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(internal quotation marks omitted)). The agency’s construction
of the statute is given deference when “there is an express
delegation of authority to the agency to elucidate a specific
provision of the statute by regulation.” Chevron, 467 U.S. at
843-44.
Congress expressly delegated authority under the Tobacco
Reform Act to the Secretary of the USDA to “promulgate such
regulations as are necessary to implement” the statute. 7 U.S.C.
§ 519a(a). Single Stick’s claims that the USDA’s implementation
of the Tobacco Reform Act is impermissible amount to assertions
that: (1) the USDA was not authorized to assess Single Stick on a
per-stick basis, but rather was required by the statute to
consider “the disparity in gross domestic volume between small
and large cigars,” and (2) the USDA should have accounted for
smuggled or unlawfully imported tobacco in calculating market
share. (See Compl. ¶ 44(a)(iii)-(iv).)
A. Per-stick method of calculating assessments
The USDA contends that the Tobacco Reform Act “dictates that
. . . assessments are based on the number of cigars, and not on
the weight of tobacco in the cigars.” (Defs.’ Mem. at 13.) They
ground their argument in support of a per-stick measurement of a
manufacturer’s volume of domestic sales in the plain language of
the Tobacco Reform Act, which provides that “volumes of domestic
sales shall be measured by -- in the case of cigarettes and
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cigars, the number of cigarettes and cigars[.]” 7 U.S.C.
§ 518d(g)(3)(A). Single Stick contends that such a reading of
the Tobacco Reform Act fails to take into account the requirement
that volume of domestic sales be measured by gross domestic
volume, see 7 U.S.C. § 518d(g)(2), which considers the amount of
tobacco products removed, see 7 U.S.C. § 518d(a)(2)(A), and that
each manufacturer is to be assessed its pro rata share of gross
domestic volume. See 7 U.S.C. § 518d(e)(1). Even if ambiguity
exists as to whether the Tobacco Reform Act requires a per-stick
calculation method, the USDA’s method is a permissible
construction of that Act given the clear support for it in the
directive of 7 U.S.C. § 518d(g)(3)(A).
The USDA further maintains that by using a per-stick
calculation method, Single Stick is not being assessed in excess
of its pro rata share of gross domestic volume. (See Defs.’ Mem.
at 13-14.) Instead, the USDA argues that Single Stick’s pro rata
share of gross domestic volume is determined by calculating
Single Stick’s volume of domestic sales, and that such a
calculation, utilizing the per-stick method, is warranted under
the Tobacco Reform Act. (See id.) The Tobacco Reform Act
requires that each class of tobacco product be assessed under the
Payment Program. See 7 U.S.C. § 518d(c)(1). The statute does
not differentiate between small and large cigars, but groups all
cigars into a class of tobacco product from which assessments are
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to be obtained. See 7 U.S.C. § 518d(c)(1)(B). With respect to
individual manufacturers, the Tobacco Reform Act specifies that
assessments are to be made based in part on that manufacturer’s
market share, see 7 U.S.C. § 518d(f), which is measured using the
manufacturer’s volume of domestic sales. See 7 U.S.C.
§ 518d(a)(3). The statute explains that volume of domestic sales
for cigar manufacturers is measured by the number of cigars. See
7 U.S.C. § 518d(g)(3)(A). Additional support for the per-stick
method of calculating cigar manufacturer’s assessments is found
in the language of the Tobacco Reform Act that separates cigars
and cigarettes from other classes of tobacco products whose
volume of domestic sales is measured “in terms of pounds[.]” 7
U.S.C. § 518d(g)(3)(B). Thus, the USDA’s interpretation of the
Tobacco Reform Act to allow for a per-stick calculation method is
not contrary to clear congressional intent, but is a permissible
construction of the statute and will be accorded deference.
B. Smuggled or unlawfully imported tobacco
Single Stick alleges that the USDA violated the Tobacco
Reform Act by calculating volume of domestic sales based solely
on information submitted to the agency, and not taking into
consideration cigars smuggled or unlawfully imported. (See
Compl. ¶ 44(a)(iii).) In response, the USDA argues that the
Tobacco Reform Act does not require that smuggled or unlawfully
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imported cigars be considered in calculating market share. (See
Defs.’ Mem. at 14-15.)
Although Single Stick cites the definition of gross domestic
volume in support of its contention that the Tobacco Reform Act
dictated that smuggled and unlawfully imported cigars be included
in the USDA’s calculation of market share (see Pl.’s Opp’n at
14), market share is not measured by gross domestic volume, but
by the volume of domestic sales. See 7 U.S.C. § 518d(a)(3). The
Tobacco Reform Act provides that “the calculation of the volume
of domestic sales . . . shall be . . . based on information
provided by the manufacturers and importers . . ., as well as any
other relevant information provided to or obtained by the
Secretary.” 7 U.S.C. § 518d(g)(1). Tobacco manufacturers and
importers are asked to submit information relating to “the
removal of tobacco products into domestic commerce,” 7 U.S.C.
§ 518d(h)(2), which includes “the removal of tobacco products
. . . from internal revenue bond . . . and shall also include the
smuggling or unlawful importation of such articles into the
United States.” 26 U.S.C. § 5702(j). The Tobacco Reform Act
does not specify whether the Secretary is required to
affirmatively seek information about smuggled or unlawfully
imported tobacco products in determining the volume of domestic
sales, or whether the Secretary is simply required to incorporate
this information if it is available. The Tobacco Reform Act’s
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implementing guidelines state that the calculation is to be based
on “reports filed by domestic manufacturers and importers of
tobacco with the Department of Treasury and the Department of
Homeland Security and shall correspond to the quantity of the
tobacco product that is removed into domestic commerce by each
such entity[.]” 7 C.F.R. § 1463.7(b). As such, the USDA’s
decision to calculate market share based on information submitted
does not contradict clear congressional intent.
The plain language of the Tobacco Reform Act and its
implementing guidelines support the reasonableness of the USDA’s
interpretation that the statute did not require incorporation of
smuggled or unlawfully imported cigars in the USDA’s calculation
of volume of domestic sales where that information had not been
provided by manufacturers or importers. While an interpretation
of the Tobacco Reform Act to require a calculation based on
amount of removed tobacco volume -- both reported and smuggled or
unlawfully imported -- may also be reasonable, the USDA need not
prove that the “agency construction was the only one it
permissibly could have adopted [for a court] to uphold the
construction, or even the reading the court would have reached if
the question initially had arisen in judicial proceeding.”
Chevron, 467 U.S. at 844 n.11. Thus, the USDA’s interpretation
of the Tobacco Reform Act as not requiring inclusion of all
smuggled or unlawfully imported cigars in calculating volume of
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domestic sales constitutes a permissible construction of the
statute and will be given deference.
C. Administrative hearing
Single Stick claims that its “due process right[] to a full
and fair hearing” was impaired by the USDA’s failure to disclose
the market share data underlying its assessments. (Compl. ¶ 9.)
This claim must fail because Single Stick has not shown any
prejudice resulting from the USDA’s lack of disclosure. See
Throckmorton v. Nat’l Transp. Safety Bd., 963 F.2d 441, 446 (D.C.
Cir. 1992) (finding no due process violation where plaintiff
failed to show prejudice caused by alleged errors in the
administrative proceeding). To the extent Single Stick
challenged the CCC’s calculation methodology, access to the
market share data for the per-stick method was irrelevant and,
for the reasons already stated, the administrative law judge
correctly concluded that the CCC’s per-stick calculation method
was a permissible interpretation of the Tobacco Reform Act.
Single Stick advanced on appeal two other arguments that,
under the per-stick method, CCC’s assessments were incorrect.
The first argument was the CCC did not include tobacco companies
that failed to report production data to the CCC in the total
market calculation, but such companies’ excise tax information
was available and should have been used. (Pl.’s Mot. for Summ.
J., Ex. 7 at 4-6.) However, the CCC conceded that it should
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have used unreported but accessible data and recalculated its
assessments. (Id. at 5-6.) The second argument was the CCC
unlawfully exempted small manufacturers and importers with a
market share of .000049 or less. (Id. at 7-8.) The Tobacco
Reform Act states that market share must be “expressed as a
decimal to the fourth place.” 7 U.S.C. § 518d(a)(3). The
statute does not discuss when or how the CCC may round
calculation figures to reach the market share figure. The CCC’s
practice at the time of the challenged assessments was to round
up fractional digits of 50 or more after the fourth decimal place
by adding one to the fourth decimal place and dropping fractional
digits of 49 or less beyond the required four decimal places to
result in the exclusion of manufacturers and importers with
market shares of .000049 or less. (Pl.’s Ex. 7 at 8.) Because
the statute does not instruct the CCC how to reach the final
four-decimal market share figure and the CCC’s rounding rule is a
permissible interpretation, it will be accorded deference. As
Single Stick has not alleged that access to the market share data
information would have altered the outcome of its administrative
claim, there is no showing of any prejudice caused by the USDA’s
failure to disclose its data. Thus, Single Stick has neither
alleged nor shown a due process violation.
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II. IQA
Under Rule 12(b)(6), a party may move to dismiss a complaint
for failure to state a claim upon which relief can be granted.
See Fed. R. Civ. P. 12(b)(6). “On review of a 12(b)(6) motion a
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.’” Holy Land Found. for
Relief & Dev. v. Ashcroft, 333 F.3d 156, 165 (D.C. Cir. 2003)
(quoting Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113
(D.C. Cir. 2000)). “While a complaint attacked by a Rule
12(b)(6) motion to dismiss does not need detailed factual
allegations, a plaintiff’s obligation to provide the grounds of
his entitle[ment] to relief requires more than labels and
conclusions . . . .” Bell Atl. Corp. v. Twombly, 550 U.S. 545,
555 (2007) (citations and internal quotations omitted). “Factual
allegations must be enough to raise a right to relief above the
speculative level . . . on the assumption that all of the
allegations in the complaint are true . . . .” Id.Single Stick alleges that the USDA violated the IQA by
failing to correct or disclose its data sources underlying its
market share calculations and by failing to respond to Single
Stick’s petition and request for reconsideration. To allow a
plaintiff to seek review of an agency’s violation of a statute,
the court must examine “whether or not Congress intended to
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confer individual rights upon a class of beneficiaries” in
enacting the statute. Gonzaga Univ. v. Doe, 536 U.S. 273, 285
(2002). “The question is not simply who would benefit from the
Act, but whether Congress intended to confer federal rights upon
those beneficiaries.” California v. Sierra Club, 451 U.S. 287,
294 (1981). To make this determination, a court should focus on
whether the statute contains “rights-creating language,” see
Gonzaga Univ., 536 U.S. at 287, which is language that emphasizes
the individuals protected rather than simply dictating the
actions an agency should take. See Alexander v. Sandoval, 532
U.S. 275, 289 (2001) (holding that “[s]tatutes that focus on the
person regulated rather than the individuals protected create ‘no
implication of an intent to confer rights on a particular class
of persons’” (quoting Sierra Club, 451 U.S. at 294)).
The IQA “creates no legal rights in any third party,” and
“does not create a legal right to access to information or to
correctness.” Salt Inst. v. Leavitt, 440 F.3d 156, 159 (4th Cir.
2006). Both the actual text of the statute and its implementing
guidelines dictate the actions that agencies must take and do not
contain “individually focused terminology.” Gonzaga Univ., 536
U.S. at 287; see 44 U.S.C. § 3516 note (“The Director [of the
Office of Management and Budget (“OMB”)] shall . . . issue
guidelines . . . that provide policy and procedural guidance to
Federal agencies . . . ”); see also Guidelines for Ensuring and
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Maximizing the Quality, Objectivity, Utility, and Integrity of
Information Disseminated by Federal Agencies, 67 Fed. Reg. 8452,
8458 (Feb. 22, 2002) (republication) (ordering that agencies
should “[i]ssue their own information quality guidelines[,] . . .
[e]stablish administrative mechanisms[, and] . . . report to the
Director of OMB the number and nature of complaints”). The focus
of the IQA is the communication between agencies and the
development of internal procedures for ensuring quality of
information. While the statute obligates agencies to establish a
process by which individuals can alert an agency to a need for
information correction to improve information quality, the
statute does contain any indication that individuals choosing to
participate in such a process have a right to seek or correct
information. See 67 Fed. Reg. at 8458-59. Because the IQA lacks
any rights-creating language, Single Stick has no right under
that statute to seek review of the USDA’s actions.
In addition, Single Stick’s challenge under the APA to the
USDA’s failure to respond to its IQA petition and request for
reconsideration cannot stand because there was no final agency
action. An agency action is reviewable under the APA only if the
action is a final agency action. Norton v. S. Utah Wilderness
Alliance, 542 U.S. 55, 61-62 (2004). A final agency action is
one where “‘rights or obligations have been determined,’ or from
which ‘legal consequences will flow[.]’” Bennett v. Spear, 520
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U.S. 154, 178 (1997) (quoting Port of Boston Marine Terminal
Ass’n v. Rederiaktiebolaget Transatlantic, 400 U.S. 62, 71
(1970)). Because the IQA does not vest any party with a right to
information or to correction of information, see Salt Inst., 440
F.3d at 159, the USDA’s actions under the IQA did not determine
Single Stick’s rights or cause any legal consequence. See Ams.
for Safe Access v. HHS, No. C 07-01049 WHA, 2007 WL 2141289, at
*4 (N.D. Cal. July 24, 2007) (holding that because the IQA does
not grant any legal rights, there was no legal consequence
flowing from the defendant’s response to the plaintiff’s IQA
petition). Accordingly, the USDA’s lack of response was not a
final agency action and cannot be reviewed under the APA. See
id.CONCLUSION
The USDA’s interpretations of the Tobacco Reform Act are
entitled to Chevron deference and the USDA’s failure to provide
the market share data underlying its assessments did not alter
the outcome of Single Stick’s administrative action. Since no
material facts are in dispute regarding Single Stick’s claims
under the Tobacco Reform Act and the USDA is entitled to
judgment, the defendants’ motion to dismiss this claim, treated
as a motion for summary judgment, will be granted. Because the
IQA does not confer any rights to individuals, the defendants’
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motion to dismiss plaintiff’s IQA claims will be granted. Single
Stick’s motion for summary judgment will be denied as moot.
A final, appealable Order accompanies this Memorandum
Opinion.
SIGNED this 10th day of March, 2009.
________/s/_________________
RICHARD W. ROBERTS
United States District Judge