Gulf Coast Mar. Supply, Inc. v. United States, Case No. 16-cv-1461 (TSC)

• Decision Date: 25 October 2016
• Docket Number: Case No. 16-cv-1461 (TSC)
• Citation: 218 F.Supp.3d 92
• Parties: GULF COAST MARITIME SUPPLY, INC., Plaintiff, v. UNITED STATES of America, et al., Defendants.
• Court: U.S. District Court — District of Columbia

218 F.Supp.3d 92

GULF COAST MARITIME SUPPLY, INC., Plaintiff,

v.UNITED STATES of America, et al., Defendants.

Case No. 16-cv-1461 (TSC)

United States District Court, District of Columbia.

Signed October 25, 2016

John M. Peterson, Neville Peterson, LLP, New York, NY, Peter J. Bogard, Michael K. Tomenga, Neville Peterson LLP, Washington, DC, for Plaintiff.

Ari David Kunofsky, U.S. Department of Justice, Carl Ezekiel Ross, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendants.

MEMORANDUM OPINION

TANYA S. CHUTKAN, United States District Judge

In this case brought under the Administrative Procedure Act ("APA"), 5 U.S.C. § 558, Plaintiff Gulf Coast Maritime Supply, Inc. ("Gulf Coast") moves for a preliminary injunction to halt the termination of its basic permits for importing and wholesaling alcohol, and its tobacco export warehouse proprietor permit. Defendants the United States of America, Alcohol and Tobacco Tax and Trade Bureau ("TTB") of the U.S. Department of the Treasury, and John Manfreda in his official capacity as Administrator of TTB move to dismiss the suit for lack of subject matter jurisdiction. Upon consideration of the parties' motions and the arguments presented by counsel at the hearing held on October 6, 2016, Defendants' motion to dismiss is GRANTED and Plaintiff's motion for a preliminary injunction is therefore DENIED.

I. BACKGROUND

A. Statutory Framework

This case involves two types of permits: the basic permits for importing and wholesaling alcohol ("basic permits" or "alcohol permits") and the tobacco export warehouse proprietor permit ("tobacco permit"). These permits allow the permit holder to import, store, and sell tobacco or alcohol without paying taxes on those products.

1. Alcohol Permits

Federal law requires businesses importing or purchasing alcoholic beverages for resale to have a permit issued by the Secretary of the U.S. Treasury. 27 U.S.C. § 203. To obtain a permit, importers or wholesalers like Gulf Coast must submit an application to TTB. 27 U.S.C. § 204 ; 27 C.F.R. § 1.25. Once approved, the business may use the alcohol permit

until suspended, revoked, or annulled as provided herein, or voluntarily surrendered; except that ... 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.

27 U.S.C. § 204(g) (emphasis added). Thus, when a permittee experiences a change in actual or legal control, its permit "automatically terminate[s]" under the statute. The permittee then has thirty days to submit a new application, and if it does so its prior permit remains valid until TTB reaches a decision on the application. Id. Alternatively, TTB may revoke a permit after "due notice and opportunity for [a] hearing," if the business "has willfully violated any of the conditions" of the permit, "has not engaged in the operations authorized by the permit for a period of more than two years," or if the permit "was procured through fraud, or misrepresentation, or concealment of [a] material fact." 27 U.S.C. § 204(e). After revocation or denial of a new application, the permittee has sixty days to appeal TTB's decision to a U.S. Court of Appeals, which has "exclusive jurisdiction." 27 U.S.C. § 204(h).

2. Tobacco Permit

Domestic sale of tobacco products is subject to an excise tax on the manufacturers or importers of such products. 26 U.S.C. § 5703(a)(1). An export warehouse, such as Gulf Coast, stores tobacco products for shipment to purchasers outside of internal revenue jurisdiction, and as such is not required to pay the federal taxes on the tobacco it stores. 26 U.S.C. § 5702(h), (i). Export warehouse proprietors must operate with a permit issued by TTB. 26 U.S.C. §§ 5712, 5713. Without such a permit, they may become liable for the excise tax and penalties if they receive tobacco products that did not have the excise tax paid by the manufacturer. 26 U.S.C. §§ 5703(a)(2), 5704(b), 5761(c). Proprietors must apply for a permit before commencing business and "at such other time as the Secretary shall by regulation prescribe." 26 U.S.C. § 5712. The TTB regulation for tobacco permits states:

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 (emphasis added). The statute separately provides that TTB can suspend or revoke permits, requiring a show cause hearing. 26 U.S.C. § 5713(b).

B. Parties and This Litigation

Plaintiff Gulf Coast is a corporation in Houston, Texas, that acquires untaxed alcohol and tobacco products and sells them to commercial vessels for consumption while at sea. (Compl. ¶¶ 14, 16–17). Plaintiff has held alcohol and tobacco permits since 1973. (Id. ¶ 16, 17; Compl. Exs. 5, 8). Prior to 1994, Gulf Coast's shares were divided in half and owned by Salem Geller and Barbara Geller, who were married. (Compl. Ex. 1). In November 1994, Gulf Coast's stock allocation changed, such that Salem and Barbara Geller each owned forty-five percent of the shares and their son Jay Geller owned ten percent. (Id. ). This was reported to TTB that same month. (Id. ). This ownership allocation remained in place until August 2013, when Salem Geller died. Prior to his death, Salem was the "primary owner and operator" of Gulf Coast. (Compl. Ex. 2). Barbara Geller then inherited Salem's shares, leaving her with ninety percent of the shares and majority control of Gulf Coast. (Compl. ¶¶ 23–27). After his death in 2013 through 2016, Gulf Coast's manager Jay Goldstein continued to use Salem Geller's signature stamp to file reports with TTB. (Wachholder Decl. ¶ 8; Gov't Ex. 101).

On April 14, 2016, TTB informed Gulf Coast that because of the change in stock allocation in August 2013, TTB determined that Plaintiff's permits had terminated automatically by operation of law in 2013, and continued operation would be taxable and potentially subject to civil or criminal penalties. (Compl. Ex. 9). On May 31, 2016, TTB sent Gulf Coast another letter, stating:

A recent TTB investigation conducted at your premises disclosed that during October 1, 2013 through March 31, 2016, Gulf Coast Maritime Supply received 141,267,600 cigarette sticks without payment of tax while operating without a valid warehouse permit. Based on our investigation, we have determined that you are liable for tax, plus penalties and interest, in the total amount of $7,836,787.40. This inquiry is being sent to give you the opportunity to voluntarily pay the amount we have determined to be due, or to provide additional information for us to consider. ... If we do not hear from you within 45 days, we will process the returns we have prepared for you and assess the tax under the authority of 26 U.S.C. § 6020(b) of the Internal Revenue Code. You will then be billed for the amount of the tax liability plus any penalties and interest due.

(Compl. Ex. 10 at 2).

Plaintiff's permits indicate that changes in ownership or control must be immediately reported to TTB. Plaintiff's alcohol permits state, in capital letters, that "This permit 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 ...." (Compl. Ex. 8). This language rephrases the authorizing statute, described above. Plaintiff's tobacco permit provides that the permit holder must comply with applicable provisions of 26 U.S.C. chapter 52, and that failure to do so may result in the permit being "suspended, revoked, automatically terminated, or voluntarily surrendered as provided by law and regulations. ... Any change in name, address, ownership, or control must be immediately reported to the [TTB]." (Compl. Ex. 5).

Gulf Coast continues to operate, has not paid these excise taxes and penalties, and has not applied for a new alcohol permit or tobacco permit. Gulf Coast filed this APA action alleging that TTB failed to provide sufficient notice and procedures before terminating the permits, and seeks a preliminary injunction to preserve the status quo, which in its perspective means continued operation under its now-terminated permits.

II. LEGAL STANDARD

A. Motion to Dismiss for Lack of Jurisdiction

Federal courts are courts of limited jurisdiction. See Gen. Motors Corp. v. EPA , 363 F.3d 442, 448 (D.C. Cir. 2004) ("As a court of limited jurisdiction, we begin, and end, with an examination of our jurisdiction."). The law presumes that "a cause lies outside [the court's] limited jurisdiction" unless the plaintiff establishes otherwise. Kokkonen v. Guardian Life Ins. Co. of Am. , 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). When a defendant files a motion to dismiss a complaint for lack of subject matter jurisdiction, the plaintiff bears the burden of establishing jurisdiction by a preponderance of the evidence. See Lujan v. Defenders of Wildlife , 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) ; Shekoyan v. Sibley Int'l Corp. , 217 F.Supp.2d 59, 63 (D.D.C. 2002).

In evaluating a motion to dismiss under Federal Rule 12(b)(1), the court must "assume the truth of all material factual allegations in the complaint and ‘construe the complaint liberally, granting plaintiff the benefit of all inferences that can be derived from the facts alleged[.]’ " Am. Nat'l Ins. Co. v. F.D.I.C. , ...