Citland, Ltd. v. COM. EX REL. KILGORE

• Decision Date: 22 March 2005
• Docket Number: Record No. 0608-04-2.
• Citation: 610 S.E.2d 321,45 Va. App. 268
• Court: Virginia Court of Appeals
• Parties: CITLAND, LTD. v. COMMONWEALTH of Virginia, ex rel. Jerry W. KILGORE, Attorney General.

610 S.E.2d 321

45 Va. App. 268

CITLAND, LTD. v. COMMONWEALTH of Virginia, ex rel. Jerry W. KILGORE, Attorney General.

Record No. 0608-04-2.

Court of Appeals of Virginia, Richmond.

March 22, 2005.

Anthony F. Troy (Bryan M. Haynes; Troutman Sanders LLP, on briefs), Richmond, for appellant.

Francis S. Ferguson, Deputy Attorney General (Jerry W. Kilgore, Attorney General, Anne Marie Cushmac, Senior Assistant Attorney General, on brief), for appellee.

Present: HUMPHREYS and KELSEY, JJ., and ROSENBLATT,¹ Retired J.

KELSEY, Judge.

This case presents the question whether the Attorney General can preclude a tobacco manufacturer from doing business in the Commonwealth (by excluding it from the statutory directory set up by Code § 3.1-336.5) solely on the ground that the manufacturer failed to pay statutory penalties proposed by the Attorney General, but not yet adjudicated by the courts. We hold the governing statutes afford him no such discretion. We reverse the circuit court's contrary ruling and remand the case for further proceedings consistent with this opinion.

I.

A. THE STATUTORY FRAMEWORK

(i) The 1998 Tobacco Settlement

In 1998, Virginia and forty-five other states entered into a Master Settlement Agreement with the several major tobacco manufacturers. See generally Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 533, 121 S.Ct. 2404, 2405-06, 150 L.Ed.2d 532 (2001); Star Scientific, Inc. v. Beales, 278 F.3d 339 (4th Cir.2002) (upholding Virginia tobacco settlement statutes against various constitutional challenges). The parties intended the settlement to end further litigation between state governments and tobacco manufacturers. The states released the manufacturers from past and future liability in exchange for their agreement to abide by advertising and promotional restrictions and to make annual monetary payments to the states based on annual cigarette sales.

Not all tobacco manufactures participated in the original settlement. For those that did not participate, the General Assembly enacted the Tobacco Escrow Act, Code § 3.1-336.1 et seq. The Act permits manufacturers to sell tobacco products in the Commonwealth if they either (i) join the master settlement agreement and comply with its terms, or (ii) make specified payments into an escrow fund intended to "guarantee a source of compensation and to prevent such manufacturers from deriving large, short-term profits and then becoming judgment-proof before liability may arise...." 1999 Va. Acts, chs. 714, 754; see Code § 3.1-336.2(A). If they choose the latter option, the manufacturers must file annual certifications with the Attorney General verifying that they made the required escrow payments. See Code § 3.1-336.2(C).

(ii) Enforcing Escrow Payment Obligations

The Tobacco Escrow Act authorizes the Attorney General to "bring a civil action on behalf of the Commonwealth against any tobacco product manufacturer that fails to place into escrow the funds required under this section." Code § 3.1-336.2(C). Upon finding a manufacturer liable, the "court" may assess a "civil penalty" against the manufacturer. Code § 3.1-336.2(C)(1) & (2). Depending on whether the court classifies the violation as knowing or inadvertent, the penalty can range from 5% to 300% of the delinquent amount. Id. When a court finds a "second knowing violation," the court can prohibit the manufacturer "from selling cigarettes to consumers within the Commonwealth" for up to two years. Code § 3.1-336.2(C)(3).

(iii) Admission Into & Exclusion From The Directory

In 2003, the General Assembly passed additional legislation to enhance the enforceability of the Tobacco Escrow Act. See 2003 Va. Acts, ch. 789 (Code §§ 3.1-336.3 to 3.1-336.16). These new provisions, commonly called the "Complementary Legislation," require the Attorney General to maintain a directory listing all manufacturers that have filed current and accurate certifications. See Code § 3.1-336.5(A). A manufacturer not listed in the directory may not sell any tobacco products in the Commonwealth. See Code §§ 3.1-336.6, 3.1-336.10.

Under Code § 3.1-336.5(A), the Attorney General "shall" list in the directory all manufacturers with "current and accurate certifications" in conformity with Code § 3.1-336.4. The Act provides two exceptions to this mandatory duty.

The first exception states that the Attorney General "shall not" include in the directory "any nonparticipating manufacturer that fails to provide the required certification or whose certification the Attorney General determines is not in compliance with subsections C and D of § 3.1-336.4, unless the Attorney General has determined that such violation has been cured to his satisfaction." Code § 3.1-336.5(A)(1). Subsections C and D of § 3.1-336.4 require that the certification include certain information, verify that the escrow fund has been established, and include a declaration that the manufacturer is in "full compliance" with the governing statutes.

The second exception makes clear no manufacturer can be included in the directory if the Attorney General concludes the required escrow funds "have not been fully paid" or the manufacturer has not satisfied "all outstanding final judgments" for any statutory violation. Code § 3.1-336.5(A)(2).

Finally, Code § 3.1-336.11 subjects any "determination of the Attorney General to not list or to remove" a manufacturer from the directory to judicial review pursuant to the Virginia Administrative Process Act (VAPA), Code § 2.2-4000 et seq.

B. THE DISPUTE BETWEEN CITLAND & THE ATTORNEY GENERAL

Citland did not participate in the 1998 master settlement agreement. In 2003, Citland submitted an application to the Attorney General for inclusion in the directory. The Attorney General initially rejected the application, alleging that Citland had sold cigarettes in Virginia in 2001 and 2002 without filing the necessary certifications and depositing the appropriate escrow funds. In response, Citland filed the appropriate certifications and fully funded the escrow account.

Citland again asked to be included in the directory. The Attorney General again refused. Before being allowed into the directory, the Attorney General advised, Citland would have to pay a proposed statutory penalty of almost $150,000 for the earlier statutory defaults that allegedly occurred in 2001 and 2002. Citland contested the amount of the proposed penalty and asserted legal defenses to its imposition. Citland also argued that only a court, not the Attorney General, could impose statutory penalties. Only the nonpayment of a judicially imposed penalty, Citland reasoned, could preclude it from being listed in the directory. See Code § 3.1-336.5(A)(2). The Attorney General disagreed, entered a final case decision excluding Citland from the directory, and advised Citland of its right of appeal under the VAPA.

Citland filed a VAPA appeal in circuit court seeking declaratory and injunctive relief. The circuit court received from the parties an agreed statement of facts.² Both parties conceded that Citland "satisfied all of the requirements" of the Attorney General "except one: Citland has not paid the penalties demanded by the Attorney General for Citland's alleged failure to timely establish and fund a qualified escrow account for sales in the Commonwealth during calendar years 2001 and 2002." Joint Statement of Record ¶ 15, at 4-5. After briefing and oral argument, the circuit court dismissed the appeal and denied Citland all of its requested relief. Citland now appeals to us, claiming the circuit court erred as a matter of law.³ As it did below, Citland contends on appeal that the Attorney General has no discretion to exclude it from the directory for nonpayment of proposed penalties for alleged violations of the statute.

II.

Under the VAPA, the governing standard of review depends on the nature of the controversy.⁴ When the contest involves factfinding, we defer to the agency just as we would a jury or a trial court. See Mattaponi Indian Tribe v. Commonwealth, 43 Va.App. 690, 706, 601 S.E.2d 667, 675 (2004) (noting the court may reject agency factfinding "only if, considering the record as a whole, a reasonable mind would necessarily come to a different conclusion" (citations omitted and emphasis in original)). Similarly, when the appellant challenges a judgment call on a topic on which "the agency has been entrusted with wide discretion by the General Assembly," we will overturn the decision only if it can be fairly characterized as "arbitrary or capricious" and thus a "clear abuse of delegated discretion." Vasaio v. Dep't of Motor Vehicles, 42 Va.App. 190, 196-97, 590 S.E.2d 596, 599 (2004) (citations omitted).

On the other hand, an "agency does not possess specialized competence over the interpretation of a statute merely because it addresses topics within the agency's delegable authority." Finnerty v. Thornton Hall, Inc., 42 Va.App. 628, 634, 593 S.E.2d 568, 571 (2004); see also 7-Eleven, Inc. v. Dep't of Envtl. Quality, 42 Va.App. 65, 73, 590 S.E.2d 84, 88 (2003) (en banc). Pure statutory construction, a matter within the "core competency of the judiciary," Finnerty, 42 Va.App. at 635, 593 S.E.2d at 571, requires de novo review. Mattaponi Indian Tribe, 43 Va.App. at 707, 601 S.E.2d at 675 (citation omitted). "This axiom stems from basic principles of separation of powers. `It is emphatically the province and duty of the judicial department to say what the law is.'" Finnerty, 42 Va.App. at 635, 593 S.E.2d at 571 (quoting Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177, 2 L.Ed. 60 (1803)). It necessarily follows that the a priori question whether the statute delegates or withholds discretion is itself a question of statutory interpretation, one implicating our duty of de novo review.

Exercising this duty, we conclude that the General Assembly did not delegate to the Attorney General discretionary power to exclude manufacturers from the directory...