Ryo Mach., LLC v. U.S. Dep't of Treasury

• Decision Date: 20 August 2012
• Docket Number: No. 11–3163.,11–3163.
• Citation: 696 F.3d 467
• Parties: RYO MACHINE, LLC; Tobacco Outlet Express, LLC; Tightwad Tobacco, LLC, Plaintiffs–Appellees, v. UNITED STATES DEPARTMENT OF TREASURY, Alcohol and Tobacco Tax and Trade Bureau; John J. Manfreda, Administrator, Alcohol and Tobacco Tax and Trade Bureau, Defendants–Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

696 F.3d 467

RYO MACHINE, LLC; Tobacco Outlet Express, LLC; Tightwad Tobacco, LLC, Plaintiffs–Appellees,

v.UNITED STATES DEPARTMENT OF TREASURY, Alcohol and Tobacco Tax and Trade Bureau; John J. Manfreda, Administrator, Alcohol and Tobacco Tax and Trade Bureau, Defendants–Appellants.

No. 11–3163.

United States Court of Appeals, Sixth Circuit.

Argued: April 10, 2012.

Decided and Filed: Aug. 20, 2012.^*

ARGUED:Teresa E. McLaughlin, United States Department of Justice, Washington, D.C., for Appellants. William H. Hurd, Troutman Sanders LLP, Richmond, Virginia, for Appellees. ON BRIEF:Teresa E. McLaughlin, Patrick J. Urda, Gilbert S. Rothenberg, United States Department of Justice, Washington, D.C., for Appellants. William H. Hurd, Brian M. Haynes, Anthony F. Troy, Troutman Sanders LLP, Richmond, Virginia, Robert B. Casarona, John J. Schriner, Roetzel & Andress, Cleveland, Ohio, Mark E. Nagle, Troutman Sanders, LLP, Washington, D.C., for Appellees.

Before: BATCHELDER, Chief Judge; McKEAGUE, Circuit Judge; QUIST, Senior District Judge.^**

OPINION

McKEAGUE, Circuit Judge.

The Department of Treasury, Alcohol and Tobacco Tax and Trade Bureau and its Administrator (collectively, “the Bureau”) appeal the district court's grant of a preliminary injunction to RYO Machine, LLC (“RYO”) and Tobacco Outlet Express, LLC (“Tobacco Outlet”) (collectively, “the Companies”). The injunction prevented enforcement of the Bureau's ruling 2010–4 (“the Ruling”). The Ruling deemed retailers that offer roll-your-own cigarette machines “manufacturers of tobacco products” within the meaning of 26 U.S.C. § 5702(d), and thus, subjected the retailers to the same permitting processes and taxation as mass manufacturers. The Companies claim that the Ruling is an incorrect interpretation of § 5702(d). During the pendency of this appeal, Congress amended § 5702(d) in a way that effectively adopts the Bureau's position in the Ruling, prospectively mooting the controversy over how the statute should apply to roll-your-own retailers as of the date the amendment went into effect. Further, we disagree with the district court's conclusion that the Anti–Injunction Act did not preclude its exercise of jurisdiction over the entire suit. Therefore, we vacate the preliminary injunction and remand this actionto the district court with instructions to dismiss.

I. BACKGROUND

The Companies manufacture and distribute high-speed cigarette rolling machines that retailers offer to customers who want to roll their own roll cigarettes. The Companies' machines produce a carton of cigarettes in roughly 8 minutes. ( See Mot. TRO, Ex. A, TTB Rul. 2010–4 at 2, ECF No. 2–1.) The Bureau is charged with enforcing the excise tax on tobacco products. 26 U.S.C. § 5701. Under the code, any manufacturer of tobacco products is liable to pay the excise tax. 26 U.S.C. §§ 5703(a)(1), 5701(b). Before the Bureau issued the Ruling, retailers offering the Companies' machines to customers were not liable for the excise tax because they were not considered manufacturers. ( See Mot. TRO, Ex. A, TTB Rul. 2010–4 at 4, ECF No. 2–1.) The Ruling deems the retailers manufacturers, and therefore, requires them to acquire manufacturer permits and pay the excise tax. ( Id.)

On October 28, 2010, the Companies and another plaintiff, Tightwad Tobacco, LLC (“Tightwad”), filed a verified complaint for declaratory and injunctive relief and a temporary restraining order in the district court. Tightwad is a retailer subject to the Ruling. The Bureau moved to dismiss the complaint. On December 14, 2010, the district court granted a preliminary injunction enjoining the Bureau from enforcing the Ruling. See RYO Mach. Rental, LLC v. U.S. Dept. Treasury, No. 4:10–CV–2462, 2010 WL 5158880, at *11 (N.D.Ohio, Dec. 14, 2010). The district court also granted the Bureau's motion to dismiss in part, finding that its jurisdiction over Tightwad's claims was barred by the Anti–Injunction Act. Id. at *6. This timely appeal followed.

During the pendency of this appeal, Congress passed and the President signed into law the Moving Ahead for Progress in the 21st Century Act, which authorized funding for highways and other transit programs (“the Highway Act” or “the Act”). SeePub.L. 112–141. The Highway Act offset the cost of providing such funding, in part, by amending the definition of “manufacturer of tobacco products” to include retailers who make roll-your-own machines available to customers, thereby achieving the same result as the Ruling. Specifically, the Highway Act amends 26 U.S.C. § 5702(d) as follows:

[The term “manufacturer of tobacco products”] shall include any person who for commercial purposes makes available for consumer use (including such consumer's personal consumption or use under paragraph (1)) a machine capable of making cigarettes, cigars, or other tobacco products. A person making such a machine available for consumer use shall be deemed the person making the removal as defined by subsection (j) with respect to any tobacco products manufactured by such machine.¹ A person who sells a machine directly to a consumer at retail for a consumer's personal home use is not making a machine available for commercial purposes if such machine is not used at a retail premises and is designed to produce tobacco products only in personal use quantities.Pub.L. 112–141 § 100122. This amendment effects sales of roll-your-own cigarettes to customers after July 6, 2012.

II. JURISDICTION

The Highway Act divides our assessment of the preliminary injunction into two separate questions. On the one hand, we must address the status of the district court's preliminary injunction after the Act's effective date, July 6, 2012. On the other hand, we must also address the status of the injunction before the effective date of the Highway Act. We find that the Highway Act mooted the underlying controversy with regard to roll-your-own tobacco removed after its enactment. Further, as for tobacco removed before the amendment's enactment, we find that the Anti–Injunction Act barred the district court's jurisdiction over this matter, and so we vacate the injunction in its entirety.

Mootness, even when not raised by the parties, is a jurisdictional question which we must independently resolve. North Carolina v. Rice, 404 U.S. 244, 246, 92 S.Ct. 402, 30 L.Ed.2d 413 (1971). A case is moot when there is no prospect that its decision will have an impact on the parties. Murphy v. Hunt, 455 U.S. 478, 481, 102 S.Ct. 1181, 71 L.Ed.2d 353 (1982). This rule applies where the enactment of legislation ends the controversy between two parties. See Mosley v. Hairston, 920 F.2d 409, 414 (6th Cir.1990). Furthermore, “an appellate court must apply the law in effect at the time it renders its decision.” Thorpe v. Housing Auth. of Durham, 393 U.S. 268, 281, 89 S.Ct. 518, 21 L.Ed.2d 474 (1969) (relying on United States v. Schooner Peggy, 5 U.S. (1 Cranch) 103, 110, 2 L.Ed. 49 (1801)). The Highway Act definitively settles the legal status of retailers who provide the Companies' machines to customers as manufacturers of tobacco products. Because there is now no question as to the proper interpretation of § 5702(d) as amended, it appears there is no longer any live controversy between the parties with respect to tobacco removed after the amendment's enactment. Thus, the prospective operation of the preliminary injunction may not extend beyond July 6, 2012.²

We also find that the injunction should be vacated in its entirety, i.e., even as to tobacco removed before the Highway Act's effective date, because the district court's exercise of jurisdiction was barred by the Anti–Injunction Act. With few exceptions, no court has jurisdiction over a suit to preemptively challenge a tax. 26 U.S.C. § 7421(a); see also Bob Jones Univ., 416 U.S. at 736–37, 94 S.Ct. 2038. This rule arises from a policy preference that those aggrieved by taxation pay the tax first, and then sue for a refund. Bob Jones Univ., 416 U.S. at 736–37, 94 S.Ct. 2038. The Anti–Injunction Act (“AIA”) says that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.” 26 U.S.C. § 7421(a). This language preventscourts from asserting jurisdiction over such cases unless they fall into one of two narrow exceptions to the AIA. See, e.g., Alexander v. Ams. United Inc., 416 U.S. 752, 757, 94 S.Ct. 2053, 40 L.Ed.2d 518 (1974).

A decision as to whether an injunction can legally issue under the AIA is reviewed de novo. Huguley v. Gen. Motors Corp., 999 F.2d 142, 145–46 (6th Cir.1993). First we must consider whether the Companies' complaints are within the purview of the AIA as a “suit for the purpose of restraining the assessment or collection of any tax.” 26 U.S.C. § 7421(a). If so, we must decide whether this case falls into an exception to the AIA that would allow us to consider the merits. We conclude that it does not.

The Companies purport to challenge the permit requirement and not the excise tax levied on the retailers—presumably because a claim directly challenging the excise tax is plainly prevented by the AIA. But the Bureau notes that the acquisition of a permit is intertwined with the overall tax scheme for tobacco manufacturers, and so a challenge to the permit is equally barred by the AIA. The AIA has been interpreted broadly to encompass almost all premature interference with the assessment or collection of any federal tax. See Bob Jones Univ., 416 U.S. at 736–37, 94 S.Ct. 2038;see also Int'l Lotto Fund v. Virg. State Lottery Dep't, 20 F.3d 589, 591 (4th Cir.1994) (“Regardless of how the claim is labelled, the effect of an injunction here is to interfere with the assessment or collection of a tax. The [plaintiff] is not free to define the relief it seeks in terms permitted by the Anti–Injunction Act while ignoring the ultimate deleterious effect such relief would have on the Government's taxing ability.” (internal quotations...