Prime Time Int'l Co. v. Vilsack

• Decision Date: 10 June 2013
• Docket Number: Civil Nos. 06–1077 (RCL) , 12–910(RCL).
• Citation: 930 F.Supp.2d 240
• Parties: PRIME TIME INTERNATIONAL CO., Plaintiff, v. Thomas J. VILSACK, Secretary U.S. Department of Agriculture, et al., Defendants. United States of America, Plaintiff, v. Prime Time International Co., Formerly known as Single Stick, Inc., Defendant.
• Court: U.S. District Court — District of Columbia

930 F.Supp.2d 240

PRIME TIME INTERNATIONAL CO., Plaintiff,
v.
Thomas J. VILSACK, Secretary U.S. Department of Agriculture, et al., Defendants.
United States of America, Plaintiff,
v.
Prime Time International Co., Formerly known as Single Stick, Inc., Defendant.

Civil Nos. 06–1077 (RCL) ¹, 12–910(RCL).

United States District Court,
District of Columbia.

June 10, 2013.

[930 F.Supp.2d 242]

Reed D. Rubinstein, Dinsmore & Shohl, LLP, Jerry Stouck, Precious Murchison, Greenberg Traurig, LLP, Peter J. Phipps, U.S. Department of Justice, Washington, DC, for Plaintiff.

Peter J. Phipps, John R. Griffiths, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION
ROYCE C. LAMBERTH, Chief Judge.

This case concerns the proper method to calculate assessments under the Tobacco Transition Payment Program. To phase out the old system of price supports and marketing caps, this transitional program collects assessments from tobacco manufacturers and importers and distributes these funds to eligible tobacco growers. Prime Time International Co., formerly known as “Single Stick, Inc.,” ² has long disputed how the U.S. Department of Agriculture (“USDA”) calculates cigar companies' assessments. Prime Time primarily makes “small” cigars, which may contain significantly less tobacco per cigar than “large” cigars. USDA determines each cigar company's market share—and, in turn, each company's proportional responsibility to pay into the fund—by a “stick count” or “per-stick” method. This method relies on the number of cigars, not the weight of tobacco contained in each cigar, to determine each company's market share. Prime Time maintains that this method—which treats large and small cigars alike—is patently unfair and violates a statutory mandate that each company pay no more than its “pro rata” share. USDA had argued that the governing statute mandated this “per-stick” method. After Prime Time challenged USDA's methodology, and USDA obtained summary judgment at the district court, the court of

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appeals reversed the district court in part. Upon remand, USDA reaffirmed its per-stick rule after notice and comment rulemaking.

The parties' cross-motions for summary judgment concern the nature and scope of the court of appeals' administrative remand, whether USDA's interpretation deserves Chevron deference, and whether USDA's interpretation is reasonable. Since this Court finds that USDA's per-stick rule is a reasonable interpretation of ambiguous statutory language, it will uphold USDA's assessment calculation method. Therefore, the Court will grant the United States' Motion for Summary Judgment, Civil No. 12–910, Sept. 14, 2012, ECF No. 13; deny Prime Time's Cross–Motion for Summary Judgment, Civil No. 06–1077, Oct. 19, 2012, ECF No. 44; and enter judgment for the United States in the amount of $11,679,006.05, plus any additional unpaid assessments and interest accrued since September 14, 2012.

I. BACKGROUNDA. Statutory & Regulatory History

Prior to 2004, the government had implemented tobacco price support programs and marketing quotas for tobacco growers to aid domestic tobacco farmers. In order to gradually end such programs, Congress passed the Fair and Equitable Tobacco Reform Act of 2004 (“FETRA”). Pub. L. No. 108–357 §§ 601–43, 118 Stat. 1418, 1522–36 (Oct. 22, 2004). This Act created the Tobacco Transition Payment Program (“TTPP”), a ten-year program to provide transitional payments to certain tobacco producers and farm owners while the government phased out the old system of price support and marketing quotas. FETRA designated USDA to administer the program in conjunction with the Commodities Credit Corporation (“CCC”) and the Farm Services Agency (“FSA”), two bodies under the umbrella of the Department of Agriculture.³7 U.S.C. §§ 518–19a.

Per FETRA, USDA issues quarterly Tobacco Transition Assessments (“TTA”) on tobacco manufacturers and importers, and then distributes those funds to eligible tobacco quota holders and growers. 7 U.S.C. §§ 518(a, b). In determining each company's assessment, USDA follows several steps. The preliminary step is determining the total annual amount of the national assessment. The Act specifies that the assessments cannot exceed $10.14 billion over ten years, 7 U.S.C. § 518f, and the average annual total assessment is about $1 billion, 76 Fed.Reg. 15859, 15860 (Mar. 22, 2011) ( available at Prime Time Administrative Record (“AR”) 12, Civ. No. 12–910, Sept. 12, 2012, ECF No. 12).

Once USDA calculates the total annual assessment, it undertakes a two-step process to determine each company's assessment amount. Under “Step A,” USDA divides the annual assessment liability among six statutorily-enumerated classes of tobacco products: cigarettes, cigars, snuff, roll-your-own tobacco, chewing tobacco, and pipe tobacco. 7 U.S.C. § 518d(c)(1); 7 C.F.R. §§ 1463.3, 1463.5. Congress set the initial apportionment percentages for each class in FETRA—for example, Congress made the cigarette class responsible for 96.331% of the total assessment, and the cigar class responsible for 2.783%. 7 U.S.C. § 518d(c)(1). Congress directed USDA to adjust the Step A assessment percentages periodically “to reflect changes in the share of gross domestic volume held by that class of tobacco product.” 7 U.S.C. § 518d(c)(2). To made these adjustments:

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Each year USDA uses data from the U.S. Department of the Treasury (Treasury) and the U.S. Department of Homeland Security Bureau of Customs and Border Security (Customs)—the new volume figures (units for cigars and cigarettes)—and multiplies them by the 2004 tax rates to adjust the Step A allotments using the calculation Congress was determined to have used for the initial Step A allotments, Those former tax rates (not the [ ] revised rates) are used so that the adjustments to the Step A category allotments are for changes in volume (units and weights) only, not changes in tax rates.

76 Fed.Reg. at 15860 (AR 12).

After USDA determines the proportional liability of each class of tobacco product, it must divide that amount among manufacturers and importers within that category. This is known as “Step B,” and it is at issue in this case. FETRA sets forth how USDA should calculate these Step B assessments. “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,” 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.” 7 U.S.C. §§ 518d(e)(1, 2). “The amount of the assessment for each class of tobacco product ... to be paid 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).

Key to this case, FETRA states, “For purposes of calculations under this subsection ... the volumes of domestic sales shall be measured by—[ ] in the case of cigarettes and cigars, the number of cigarettes and cigars.” 7 U.S.C. § 518d(g)(3). Implementing this statute, USDA derives the total number of cigars placed in the domestic market from excise tax reports provided to USDA by manufacturers and importers. See7 U.S.C. § 518d(h); 7 C.F.R. § 1463.7. USDA then determines an individual manufacturer or importer's pro rata share by dividing the number of cigars from a particular manufacturer or importer by the total number of cigars placed in the domestic market. See7 C.F.R. § 1463.7. This is known as the “per-stick” or “stick count” method; this method of determining each cigar company's market share does not differentiate between small and large cigars.

A manufacturer or importer may appeal its assessment to the Secretary of Agriculture, 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.” 7 U.S.C. §§ 518d(i)(2), (i)(4)(B).

B. Procedural History

Prime Time predominately manufactures “small” cigars, which weigh less than three pounds per thousand cigars. Cf.26 U.S.C. § 5701(a)(1) (defining “small cigars” for tax purposes). In 2005, Prime Time's predecessor company, Single Stick, Inc., filed an administrative appeal pursuant to 7 U.S.C. § 518d(i), arguing that USDA's per-stick approach improperly treated differently sized cigars similarly. In addition, Single Stick submitted third

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party industry sales data from A.C. Nielsen as an alternative source for calculating its market share. The Secretary, acting through the Deputy Administrator for Farm Programs, acknowledged that Single Stick's objection to assessing large and small cigars equally was “philosophically well founded,” but took the position that section 518d(g)(3)(A) of FETRA mandated the per-stick method. 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 USDA base market share calculations on the amount of product “removed.” ⁴ The Secretary agreed, however, that Single Stick 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 adjusted Single Stick's assessments amount after considering these issues. The Secretary...