R.J. Reynolds Tobacco Co. v. U.S. Dep't of Agric.

• Decision Date: 17 September 2015
• Docket Number: Civ. No. 14–cv–1388 (KBJ)
• Citation: 130 F.Supp.3d 356
• Parties: R.J. Reynolds Tobacco Company, et al., Plaintiffs, v. United States Department of Agriculture, et al., Defendants.
• Court: U.S. District Court — District of Columbia

130 F.Supp.3d 356

R.J. Reynolds Tobacco Company, et al., Plaintiffs,

v.United States Department of Agriculture, et al., Defendants.

Civ. No. 14–cv–1388 (KBJ)

United States District Court, District of Columbia.

Signed September 17, 2015

Ashley Charles Parrish, Jeffrey S. Bucholtz, Mark Steven Brown, King & Spalding, LLP, Washington, DC, for Plaintiffs R.J. Reynolds Tobacco Company and Santa Fe Natural Tobacco Company, Inc.

Peter J. Phipps, U.S. Department of Justice, Washington, DC, for Defendants United States Department of Agriculture, Farm Service Agency, Commodity Credit

Corporation, Thomas J. Vilsack and Juan M. Garcia.

MEMORANDUM OPINION

KETANJI BROWN JACKSON, United States District Judge

Congress enacted the Fair and Equitable Tobacco Reform Act of 2004 (the "FETRA"), Pub.L. 108–357 § 601, 118 Stat. 1418, 1521 (2004) (codified at 7 U.S.C. §§ 518 et seq. ), to wean tobacco farmers off of U.S. government subsidies at the expense of the manufacturers and importers of cigarettes and other tobacco products. Pursuant to the FETRA, the manufacturers and importers of tobacco products assume financial responsibility for making subsidy payments to tobacco growers for a period of ten years, and the Commodity Credit Corporation ("CCC"), an agency within the United States Department of Agriculture ("USDA"), determines on a quarterly basis the particular FETRA payments that each manufacturer or importer has to make—a determination that, by statute, must be based upon the manufacturer's or importer's relative share of the overall domestic market for tobacco products. Plaintiffs R.J. Reynolds Tobacco Company and Santa Fe Natural Tobacco Company ("Plaintiffs") have long believed that the CCC has underestimated the size of the overall domestic market by excluding illegal cigarette sales from the FETRA calculation and, thereby, has overcharged Plaintiffs with respect to their quarterly FETRA assessments.

To support their contention that the domestic market for cigarette sales is larger (and, thus, Plaintiffs' relative market share smaller) than the figures that the CCC has used to calculate FETRA assessments, Plaintiffs commissioned a private investigation in 2012 that, according to Plaintiffs, proves that two Native American tribes in upstate New York are engaged in the unlawful manufacturing and selling of cigarettes. Plaintiffs then launched administrative challenges to two of their 2013 quarterly FETRA assessments based on the findings of their own report, insisting that the CCC had no choice but to credit their study's conclusions and adjust the assessments accordingly. When the agency announced that it would not accept Plaintiffs' findings regarding illegal sales because they were not relevant to the FETRA calculation insofar as the figures were imprecise and had not been substantiated by another federal agency, Plaintiffs filed the instant lawsuit against the USDA, the Farm Service Agency, the CCC, Tom Vilsack (in his official capacity as Secretary of the USDA), and Juan Garcia (in his official capacity as Administrator of the Farm Services Agency and Executive Vice President of the CCC), claiming that the agency's refusal to accept their findings violates both the terms of the FETRA and the prohibition against arbitrary and capricious decision making that appears in the Administrative Procedure Act ("APA"). (See Compl., ECF No. 1, ¶¶ 194–95 (Count One: FETRA); 200–09 (Count Two: APA).)

Before this Court at present is Defendants' motion to dismiss Plaintiffs' complaint. Defendants assert that the allegations of Plaintiffs' complaint establish that the USDA has complied with the FETRA and the APA as a matter of law, and thus that Plaintiffs' complaint fails to state a claim upon which relief can be granted. For the reasons explained below, this Court agrees with Defendants that the FETRA permits the agency to decide to credit only precise figures that other government agencies have already substantiated, and therefore, the CCC's refusal to accept Plaintiffs' study was consistent with the law. SeeSkidmore v. Swift & Co., 323 U.S. 134, 139–140, 65 S.Ct. 161, 89 L.Ed. 124 (1944). The Court also agrees with Defendants that Plaintiffs' APA claim cannot proceed because the FETRA provides an adequate remedy for their grievances. Consequently, Defendants' motion to dismiss Plaintiffs' complaint will be GRANTED .

A separate order consistent with this Memorandum Opinion will follow.

I. BACKGROUND

A. The Fair and Equitable Tobacco Reform Act of 2004

The Fair and Equitable Tobacco Reform Act of 2004 ("FETRA") puts an end to federal tobacco subsidy and price support programs. See 7 U.S.C. §§ 518 et seq. Price supports and marketing quotas for U.S. tobacco growers were initially established during the Great Depression as a means of stabilizing the domestic tobacco market. See generally Agricultural Adjustment Act of 1938, 7 U.S.C. §§ 1281 –1407.¹ The subsidy system functioned relatively well for nearly 70 years but, beginning in the early 1990s, several factors converged to convince Congress that the time had come to terminate the tobacco subsidy program. See, e.g.,State v. Philip Morris USA Inc., 359 N.C. 763, 618 S.E.2d 219, 220 (2005) (explaining that tobacco quotas and price supports began to "work[ ] at cross-purposes"); A.D. Bedell Wholesale Co. v. Philip Morris Inc., 263 F.3d 239, 241–42 (3d Cir.2001) (discussing the nationwide mass tort lawsuit that state attorneys general brought against tobacco-product manufacturers); see also Craig P. Raysor, From the Sword to the Pen: A History and Current Analysis of U.S. Tobacco Marketing Regulations, 13 Drake J. Agric. L. 497, 528 (2008). Instead of abruptly terminating seven decades of tobacco-production subsidies, however, Congress chose to taper off the payments to tobacco growers slowly, through a new system called the Tobacco Transition Payment Program ("TTPP"). See Pub.L. No. 108–357 §§ 601–43, 118 Stat. 1418, 1522–36 (Oct. 22, 2004) (codified in part as amended at 7 U.S.C. §§ 518 –19a). Pursuant to the TTPP, tobacco growers who had previously benefited from the repealed subsidy programs became eligible for ten years of transition payments, from fiscal year 2005 through fiscal year 2014. See 7 U.S.C. § 518d(b)(1)–(2) ; id. § 518d(k).

The TTPP served two purposes. First, the transitional payments served to "cushion" tobacco growers against "the initial shock" of the rapid price plummet that the move to a free market precipitated. Raysor, supra, at 536. "According to the legislative history," Congress hoped that during this ten-year buyout period "[t]obacco [g]rowers would either become more competitive with the free market or would transition to new crops or would move to entirely different means of earning a living." In re Int'l Tobacco Partners, Ltd., 468 B.R. 582, 585 (Bankr.E.D.N.Y.2012) (citing 150 Cong. Rec. H8704–03, at *H8717–18 ). Second, the payments relieved the federal government of its responsibility for subsidizing the tobacco growers out of the public fisc and intentionally transferred that responsibility to tobacco-product manufacturers and importers. See 7 U.S.C. § 518d(b)(1)–(2) ; see alsoState v. Philip Morris USA Inc., No. 98 CVS 14377, 2004 WL 2966013, at *4 (N.C.Super.Ct.) (noting that "[s]ince the dismantling of [the quota] systems benefits the tobacco companies, Congress made them pay for it"), rev'd on other grounds byState v. Philip Morris USA Inc., 359 N.C. 763, 618 S.E.2d 219 (2005). Tobacco-product manufacturers understood and accepted this shift in responsibility for making the subsidy payments to tobacco farmers; in fact, this financial obligation was specifically envisioned during the negotiations that preceded the 1998 nationwide settlement of mass tort litigation that state attorneys general had brought against Big Tobacco. See generally Raysor, supra, at 524–31.²

1. The Commodity Credit Corporation

The FETRA established the Commodity Credit Corporation ("CCC") as an agency within the USDA that was charged with the responsibility of managing the process of administering the transfer of payments from tobacco-product manufacturers to tobacco growers. See 15 U.S.C. § 714 (creating a "body corporate to be known as Commodity Credit Corporation ..., which shall be an agency and instrumentality of the United States, within the Department of Agriculture, subject to the general supervision and direction of the Secretary of Agriculture"); see also 7 U.S.C. § 518d(b) –(c) (noting that "[t]he Secretary, acting through the Commodity Credit Corporation, shall impose quarterly assessments" pursuant to FETRA). Congress authorized the CCC to issue regulations to govern the process for collecting money from the manufacturers and importers, see 7 U.S.C. § 519(a), and also specifically determined that the CCC could promulgate these regulations without having to adhere to the Administrative Procedure Act's notice and comment provisions, seeid. § 519(b)(1). As outlined in the regulations that the CCC promulgated, the agency was to collect payments—termed "assessments"—from the manufacturers and importers of tobacco products on a quarterly basis (totaling approximately one billion a year) and deposit those assessments into the "Tobacco Trust Fund," which is a revolving trust fund that Congress created to carry out the FETRA's purposes. See 7 U.S.C. § 518e(a) ; 7 C.F.R. § 1463.8. So collected, those funds would then be distributed by the CCC to eligible tobacco growers and quota holders. See 7 U.S.C. § 518a (providing for payments for tobacco quota holders), id. § 518b (providing for payments for producers of quota tobacco).

By statute, the FETRA assessment, collection, and distribution process concluded in 2014. See 7 U.S.C. § 518d(k). Over the ten-year life of the program, the CCC collected more than $10 billion in assessments from tobacco-product manufacturers and importers and distributed them to program beneficiaries in accordance with FETRA's terms. See USDA, Tobacco...