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Prime Time International Co. v. Vilsack

March 26, 2010

PRIME TIME INTERNATIONAL COMPANY, FORMERLY KNOWN AS SINGLE STICK, INC., APPELLANT
v.
THOMAS J. VILSACK, SECRETARY OF AGRICULTURE AND UNITED STATES DEPARTMENT OF AGRICULTURE, APPELLEES



Appeal from the United States District Court for the District of Columbia (No. 1:06-cv-01077).

The opinion of the court was delivered by: Rogers, Circuit Judge

Argued January 11, 2010

Before: ROGERS and GRIFFITH, Circuit Judges, and EDWARDS, Senior Circuit Judge.

In 2004 Congress enacted the Fair and Equitable Tobacco Reform Act ("FETRA"), 7 U.S.C. § 518 et seq., repealing a system of quotas and price supports for tobacco production and providing for payments for ten years to producers and persons who had established marketing quotas to ease the transition. These payments are funded by quarterly assessments on manufacturers and importers of tobacco products. Prime Time International Company, a manufacturer of small cigars, challenged its assessments for three quarters of FY 2005, asserting claims under FETRA, the Information Quality Act, 44 U.S.C. § 3516 note, and the Due Process Clause of the Constitution. The district court granted summary judgment to the Secretary and Department of Agriculture on the FETRA and due process claims, and dismissed the IQA claim pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Our review is de novo,and we affirm in part and reverse in part.

I.

Upon "repeal[ing] all aspects of the Federal tobacco support program," H.R. REP. NO. 108-755, at 440 (2004) (Conf. Rep.), reprinted in 2004 U.S.C.C.A.N. 1341, 1518, Congress established a ten-year transitional program under which the United States Department of Agriculture ("USDA") continues to make payments to farmers formerly covered by marketing quotas. 7 U.S.C. § 518e. The payments come from a newly established Tobacco Trust Fund in the Commodity Credit Corporation at USDA. Id. § 518e(a). The Trust Fund is supported by quarterly assessments on tobacco manufacturers and importers. Id. § 518d(b). Under FETRA, assessments are to be allocated among manufacturers and importers of six types of tobacco: cigarettes, cigars, snuff, roll-your-own, chewing, and pipe. Id. § 518d(c). The allocation within each class of tobacco product "shall be... on a pro rata basis... 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." Id. § 518d(e)(1), (2). An individual manufacturer's or importer's assessment within a class of tobacco product is determined by multiplying its market share of the tobacco class by the total amount of the assessment for the tobacco class. Id. § 518d(f). "Market share" is defined as "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 during the base period for a fiscal year for an assessment...." Id. § 518d(a)(3).

Congress set the class allocations for FY 2005, see id. § 518d(c)(1), while authorizing the Secretary of Agriculture to adjust the allocations in subsequent years "to reflect changes in the share of gross domestic volume held by that class of tobacco product," id. § 518d(c)(2). Gross domestic volume is defined as "the volume of tobacco products removed (as defined by section 5702 of Title 26)" and "not exempt from tax under chapter 52 of Title 26 at the time of their removal under that chapter or the Harmonized Tariff Schedule of the United States," neither of which is germane.*fn1 Id. § 518d(a)(2). "[R]emoved," as used by FETRA, means "the removal of tobacco products or cigarette papers or tubes, or any processed tobacco, from the factory... or release from customs custody." 26 U.S.C. § 5702(j).*fn2 A manufacturer or importer may appeal its assessment to the Secretary, 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." Id. § 518d(i)(2), (i)(4)(B).

As interpreted by USDA, FETRA creates a two-step process for determining the amount of each manufacturer's or importer's quarterly assessment. First, assessments are allocated among six classes of tobacco. Id. § 518d(c); 7 C.F.R. § 1463.5. For FY 2005, Congress apportioned 2.783% of the total assessment to the cigar class. 7 U.S.C. § 518d(c)(1)(B). Second, USDA allocates each class's share among individual manufacturers and importers based on market share, which turns on the "volume of domestic sales." See id. § 518d(f), (a)(3). For cigarette and cigar companies, the "volume of domestic sales" is, according to USDA, determined solely by the number of cigarettes and cigars, without differentiating between large and small cigars. USDA relies on section 518d(g)(3)(A), which provides that "the volumes of domestic sales shall be measured by - in the case of cigarettes and cigars, the number of cigarettes and cigars." See also 7 C.F.R. § 1463.7(b)(1). For "other classes of tobacco products," the measurement of the "volumes of domestic sales" shall be "in terms of number of pounds, or fraction thereof, of those products." 7 U.S.C. § 518d(g)(3)(B); see also 7 C.F.R. § 1463.7(b)(2). USDA obtains the data needed for these calculations from copies of tax and customs forms (listing the number of cigarettes and cigars and numbers of pounds of other tobacco products "removed" into domestic commerce) that are filed with the Treasury Department and the Department of Homeland Security and submitted to USDA by manufacturers and importers. See 7 U.S.C. § 518d(h)(1), (2); 7 C.F.R. § 1463.7(b).

Prime Time is a manufacturer of "small" cigars, which weigh less than three pounds per thousand cigars. Cf. 26 U.S.C. § 5701(a)(1) (defining "small cigars"). For FY 2005, USDA initially assessed Prime Time $339,719 for the first quarter based on a market share for the cigar class of 4.81%; $455,374 for the second quarter based on a market share of 6.45%; and $1,152,530 for the third quarter based on a market share of 7.78%. Prime Time filed an administrative appeal of its assessments to the Secretary pursuant to 7 U.S.C. § 518d(i), arguing that USDA's per-stick approach improperly treated differently sized cigars similarly and submitted verifiable A.C. Nielsen sales data as an alternative source for calculating its market share. The Secretary, acting through the Deputy Administrator for Farm Programs, acknowledged that Prime Time's objection to the inequity of assessing large and small cigars equally was "philosophically well founded," but took the position that the per-stick method was mandated by section 518d(g)(3)(A) of FETRA. Letter Decision of Feb. 8, 2006 at 4. 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 market share calculations be based on the amount of product "removed." See id. at 6. The Secretary agreed, however, that Prime Time 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 rejected Prime Time's claim that it was entitled as a matter of due process to examine the industry-wide tax and customs data used by USDA to calculate the assessments on the ground that such information about other companies was made confidential by statute, see 26 U.S.C. § 6103. As subsequently revised, Prime Time's FY 2005 assessments for the first, second, and third quarters were $351,007.23, $472,017.47, and $1,135,353.46, respectively.

Prime Time petitioned for review in the district court pursuant to 7 U.S.C. § 518d(j). The district court granted summary judgment for 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 of FETRA that the per-stick method of determining market share was statutorily mandated as not contrary to congressional intent and 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 Prime Time's due process claim regarding access to the data underlying the Secretary's assessments because Prime Time failed to demonstrate prejudice. Id. at 315. Finally, it dismissed Prime Time'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 note, 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. Prime Time appeals, and this court's review is de novo, "as if the agency's decision had been appealed to this court directly." Gerber v. Norton, 294 F.3d 173, 178 (D.C. Cir. 2002) (internal quotation marks omitted).

II.

Prime Time contends that USDA's interpretation of the Fair and Equitable Tobacco Reform Act is contrary to ordinary construction and plain meaning of the word "volume" in the phrase "gross domestic volume," which is defined in section 518d(a)(2) as the "volume of tobacco products - removed (as defined by section 5702 of Title 26)" and "not exempt from tax" pursuant to provisions not relevant to this appeal, supra note 1. It observes that where statutory terms, such as "volume" here, are not defined in a statute, courts give them their ordinary meaning, citing Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187 (1995). USDA responds that "volume" is "clearly explained" in FETRA to mean the number of cigars because section 518d(g)(3) provides that the number of cigars determines the "volume of domestic sales" and thus "market share" under section 518d(f).

Prime Time replies that under USDA's elastic construction it has calculated the cigar class's share of gross domestic volume at step one by separately calculating the excise tax paid on large and small cigars and then adding the two amounts. See 70 Fed. Reg. 7007, 7008 (Table 1) (Feb. 10, 2005). But then, at step two, USDA calculates the market shares for individual manufacturers and importers based on their share of the "commingled number of large and small cigars." Reply Br. 5. This skips a necessary step, Prime Time maintains, because 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, it 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). Prime Time contends such a method is required by the plain text of subsection (e) as well as subsection (i)(4)(B), which, upon administrative appeal, requires the Secretary to "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."

In interpreting a statute, the court begins with the text, and employs "traditional tools of statutory construction" to determine whether Congress has spoken directly to the issue. See Chevron, 467 U.S. at 842--43 & n.9. If so, the court's task is at an end. See id. at 842--43. USDA construes section 518d(g)(3)(A) of FETRA to mandate the per-stick method for apportioning assessments among individual manufacturers and importers within the cigarette and cigar class without first sub-dividing the cigar class into large and small cigars. In its view "[t]he statute could hardly be more explicit." Appellees' Br. 15. It suggests Swisher Int'l Inc. v. Schafer, 550 F.3d 1046 (11th Cir. 2008), cert. denied, 130 S.Ct. 71 (2009), supports this interpretation. However, Swisher provides no analysis, stating only that ...


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