Grabba-Leaf, LLC v. Dep't of Bus. & Prof'l Regulation, 1D16-4273

• Decision Date: 06 November 2018
• Docket Number: No. 1D16-4273,1D16-4273
• Citation: 257 So.3d 1205
• Parties: GRABBA-LEAF, LLC, Appellant, v. DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION, Division of Alcoholic Beverages and Tobacco, Appellee.
• Court: Florida District Court of Appeals

257 So.3d 1205

GRABBA-LEAF, LLC, Appellant,

v.DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION, Division of Alcoholic Beverages and Tobacco, Appellee.

No. 1D16-4273

District Court of Appeal of Florida, First District.

November 6, 2018

Gerald J. Donnini II, Joseph C. Moffa, James McAuley, and Jonathan W. Taylor of Moffa, Sutton, & Donnini, P.A., Fort Lauderdale, for Appellant.

Pamela Jo Bondi, Attorney General, and Elizabeth Teegen, Tallahassee, Assistant Attorney General, for Appellee.

Osterhaus, J.

Grabba-Leaf, LLC, filed an unadopted rule challenge in 2016, just after the Florida Department of Business and Professional Regulation issued a memorandum to distributors of tobacco products changing its practice of taxing tobacco wraps. The memo stated that the Department would no longer tax "homogenized tobacco wraps" because of a court decision, but would continue taxing "whole leaf" tobacco wraps as "tobacco products." The Department interpreted whole leaf wraps to qualify as "loose tobacco suitable for smoking" under the definition of "tobacco products." § 210.25(12), Fla. Stat. But Grabba-Leaf argues that the Department's policy and interpretation of the statute required formal agency rulemaking, not simply just a memo to tobacco distributors. We agree. Because the policy and practice set forth in the memo alters the Department's tax policy, makes new distinctions between taxable and non-taxable tobacco wraps, and includes taxing whole leaf tobacco products that aren't clearly covered by the applicable statutory definition, we conclude that the Department's statement constitutes an unadopted rule.

I.

The appellant, Grabba-Leaf, is a licensed distributor of tobacco wrap products (known colloquially as "blunt wraps"). After the federal government began taxing blunt wraps in 2009, the State of Florida followed suit by applying its "other tobacco products" tax to tobacco wraps. Florida's blunt wrap distributors were not pleased. Distributor Brandy's Products, Inc., challenged the State's tax on the basis that its wraps were not taxable "tobacco products" as defined by § 210.25, Florida Statutes. And its argument ultimately prevailed before this court. See Brandy's Prods., Inc. v. Dep't of Bus. & Prof'l Regulation, 188 So.3d 130, 133 (Fla. 1st DCA 2016) (reversing the agency's determination that Brandy's blunt wraps "are taxable ‘tobacco products’ ").

Following the Brandy's decision, the Department amended its tax policy to carve out Brandy's Products-like tobacco wraps, but continue taxing other wraps. The Department sent a memorandum to licensed distributors of tobacco products taking the position that "homogenized tobacco wrap products," like those sold by Brandy's Products, would not be taxed. But that it would continue taxing whole leaf blunt wraps as "tobacco products." See §§ 210.276 & 210.30, Fla. Stat.

In response to the memo, Grabba-Leaf challenged the new tax policy as an unadopted rule. See § 120.56(4), Fla. Stat. The challenge culminated below in an administrative hearing, where Grabba-Leaf argued that the Department was unlawfully enforcing interpretations of the statute and of the opinion in Brandy's without having satisfied its rulemaking obligations.

An administrative law judge, however, concluded that rulemaking wasn't required. In his view, the Department's memo applied the plain meaning of a clear and unambiguous statute to Grabba-Leaf's wraps: "[I]t is readily apparent that whole leaf, non-homogenized cigar wraps meet [ § 210.25(12)'s] statutory definition of loose tobacco suitable for smoking." Grabba-Leaf timely appealed this final order.

II.

We review the ALJ's conclusions of law in this unadopted rule challenge de novo. See Volusia Cty. Sch. Bd. v. Volusia Homes Builders Ass'n, Inc. , 946 So.2d 1084, 1089 (Fla. 5th DCA 2006). Grabba-Leaf's argument on appeal strikes at the heart of the Department's authority, in the absence of rulemaking, to assess taxes against products that only arguably fall within the parameters of a tax statute. Grabba-Leaf doesn't argue that its wraps cannot be taxed as "tobacco products" under the statute (not yet at least). Rather, it argues that the Department must initiate rulemaking before applying that tax to its whole leaf tobacco wraps, because it isn't clear that they are "loose tobacco suitable for smoking." § 210.25(12), Fla. Stat.

A.

Florida's Constitution divides the power of the state government between three branches: the legislative, executive, and judicial branches. Art. II, § 3, Fla. Const. Each branch possesses "its own powers and responsibilities." Bush v. Schiavo , 885 So.2d 321, 329 (Fla. 2004). Generally speaking, the Florida Constitution grants the power to make the laws to the legislative branch and the power to execute the laws to the executive branch. Various agencies within the executive branch perform the role of interpreting and enforcing Florida's laws in everyday areas of life, including taxation. But their authority is constrained. Executive agencies can neither assume the power to enact law nor exercise unrestricted discretion in carrying out the laws. See Sims v. State , 754 So.2d 657, 668 (Fla. 2000) (recognizing that "the Legislature may not delegate the power to enact a law or the right to exercise unrestricted discretion in applying the law"). Agency interpretations and applications must comport with the laws they are carrying out. And if they cannot be squared with the laws, their interpretations and applications must give way. See, e.g. , Verizon Bus. Purchasing, LLC v. Dep't of Revenue , 164 So.3d 806, 812 (Fla. 1st DCA 2015) ("Judicial deference does not require that courts adopt an agency's interpretation of a statute when the agency's interpretation cannot be reconciled with the plain language of the statute.").

An agency statement that "implements, interprets, or prescribes law or policy or describes the procedure or practice requirements of an agency" is considered a "rule." §§ 120.52(16), 120.56(4)(a), Fla. Stat. Statements that are rules cannot be enforced unless they are formally adopted in accordance with requirements set forth in chapter 120. See § 120.54, Fla. Stat. If an agency statement meets the definition of a rule, but hasn't been adopted as a rule under chapter 120, then it is considered an "unadopted rule." § 120.52(20), Fla. Stat. Agencies may not enforce an unadopted rule against a party's substantial interests. § 120.57(e)1., Fla. Stat.; Coventry First, LLC v. State, Office of Ins. Regulation , 38 So.3d 200, 203 (Fla. 1st DCA 2010) (quoting Dep't of Revenue v. Vanjaria Enters., Inc. , 675 So.2d 252, 255 (Fla. 5th DCA 1996) ).

If an agency statement merely reiterates a law, or declares what is "readily apparent" from the text of a law, however, the statement is not considered a rule. See, e.g. , Amerisure Mut. Ins. Co. v. Dep't of Fin. Servs. , 156 So.3d 520, 532 (Fla. 1st DCA 2015) ; St. Francis Hosp., Inc. v. Dep't of Health and Rehab. Servs. , 553 So.2d 1351, 1354 (Fla. 1st DCA 1989). The parties' arguments in this case focus on this rulemaking exception. We must decide whether the Department's 2016 memorandum, setting forth its post- Brandy's intention to tax only whole leaf blunt wraps, amounts to a simple reiteration of what is "readily apparent" from the text of § 210.25(12).

B.

After this court's decision in Brandy's , the Department issued a memorandum interpreting our opinion to prohibit the taxation of blunt wraps made partly of tobacco, but not of whole leaf wraps consisting completely of tobacco. In accordance with its interpretation, the Department altered its practice of taxing all wraps and announced going forward that it would only be taxing "whole leaf, non-homogenized" wraps. In changing its policy, the Department did not initiate rulemaking.¹ Rather, it viewed its policy as reiterating the court's decision and as carrying out its obligation to tax "loose tobacco suitable for smoking." § 210.25(12), Fla. Stat.² The Department considers itself free to forgo rulemaking because its policy is "readily apparent from its literal reading" of the statute.

We aren't convinced, however, that its authority to tax whole leaf blunt wraps is readily apparent from the statute. Whether and how § 210.25(12)'s "tobacco products" definition applies to blunt wraps is not an easy question. Prior to 2009, the statute wasn't applied to blunt wraps.³ After that, the Department began interpreting the statute to apply to all blunt wrap products. When Brandy's Products challenged the tax, this court determined that the "loose tobacco" part of the statute didn't apply to its blunt wraps. A debate exists about the breadth of our Brandy's opinion. Some language in the Brandy's opinion suggests that it forbade the taxation of blunt wraps across the board:

[W]e agree with the ALJ that ‘giving the words used in section 210.25(11) their plain and ordinary signification, the definition ... does not include blunt wraps within its reach.

[W]e agree with the ALJ that the agency's purported failure of proof on [whether blunt wraps are "suitable for smoking"] is so completely overshadowed by the conclusion that blunt wraps are not loose tobacco as to be superfluous to the outcome of this case.

Brandy's , 188 So.3d at 132 & n.2 (quotation omitted). At least one court has interpreted Brandy's to extend, for instance, to Grabba-Leaf's whole leaf wraps.⁴

But the dissent correctly points out that Brandy's limited its relief to Brandy's Products' own wraps: "we reverse the agency's determination that the blunt wraps distributed by Appellant are taxable ‘tobacco products.’ " And the make-up of Brandy's Products' wraps and Grabba-Leaf's wraps are different. It is into this interpretive vacuum that the Department's 2016 memorandum introduced a composition-based distinction between blunt wrap products. It took the position in its memorandum that Brandy's only applied to "homogenized" blunt wraps, and not to "whole leaf" blunt wraps. This...