Swisher Intern., Inc. v. Schafer

• Decision Date: 03 December 2008
• Docket Number: No. 07-15886.,07-15886.
• Citation: 550 F.3d 1046
• Parties: SWISHER INTERNATIONAL, INC., Plaintiff-Appellant, v. Ed SCHAFER, Secretary of Agriculture, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

550 F.3d 1046

SWISHER INTERNATIONAL, INC., Plaintiff-Appellant, v. Ed SCHAFER, Secretary of Agriculture, Defendant-Appellee.

No. 07-15886.

United States Court of Appeals, Eleventh Circuit.

December 3, 2008.

Karen Cox, Bush, Ross, Gardner, Warren & Rudy, P.A., Tampa, FL, Andrew G. Celli, Emery, Celli, Brinckerhoff & Abady, LLP, New York City, for Plaintiff-Appellant.

Christopher J. Walker, Mark B. Stern, Mark R. Freeman, U.S. Dept. of Justice, Civ. Div., App. Staff, Washington, DC, for Schafer.

Appeal from the United States District Court for the Middle District of Florida.

Before ANDERSON, BARKETT and COX, Circuit Judges.

ANDERSON, Circuit Judge:

Swisher International, Inc. ("Swisher") appeals the district court's grant of summary judgment in favor of Edward T. Schafer, Secretary of Agriculture (the "Secretary").¹ Swisher alleged that the Fair and Equitable Tobacco Reform Act of 2004, 7 U.S.C. § 518 et seq. (the "Act") and its implementing procedures violate the Takings and Due Process Clauses of the Fifth Amendment and Swisher's constitutional right to equal protection. The Act transforms the heavily regulated and subsidized tobacco production system into a free market system. As part of the transition process, the Act provides a buyout for tobacco farmers and tobacco quota holders. The buyout is funded through quarterly assessments levied on tobacco manufacturers and importers selling tobacco products in the domestic market. Swisher believes that these assessments violate the Constitution. We have determined that the Takings Clause does not apply to Swisher's mere obligation to pay an assessment. We hold that Swisher's obligations under the Act do not violate the Due Process Clause or Swisher's equal protection rights. We affirm the district court's summary judgment in favor of the Secretary.

I. BACKGROUND

In 1938, Congress began regulating tobacco growers by establishing a system of quotas and price supports. The price support system was managed by the Commodity Credit Corporation ("CCC"). The type of tobacco used in the production of cigarettes has been the historical focus of the price support system. Swisher, as a cigar manufacturer, purchased less than one percent of its tobacco through the price support system in 1999-2004, averaging 0.031% percent of the total tobacco sold through the program in each year.

When the CCC began to sustain losses as a result of operating the program, Congress required tobacco importers, buyers, and producers to make payments to a fund that covered the losses. By the early part of this century, Congress determined that the price support system was no longer in the best interest of the industry. In 2004, the President signed into law the Fair and Equitable Tobacco Reform Act, 7 U.S.C. § 518 et seq. The Act dismantled the tobacco quotas and price supports that had been in place since 1938 and created a program to help tobacco farmers make the transition to a free market system. The Act works as a buyout of tobacco growers, taking place over ten years and financed by payments from tobacco manufacturers and importers.²

Under the Act, the Department of Agriculture determines the assessments owed by each manufacturer using a two-step process. First, the total yearly assessment is divided among six classes of tobacco manufacturers (cigarettes, cigars, snuff, roll-your-own, chewing tobacco, and pipe tobacco), based on their market share in the preceding calendar year quarter. 7 U.S.C. § 518d(b)(1), (e)(1). The percentage of the total yearly assessment for which each class is responsible was statutorily established for fiscal year 2005, but the Secretary has the authority to adjust the percentages in subsequent years. Id. § 518d(c)(1)-(2). The market share for each class is determined by multiplying each class's tobacco volume by the excise taxes paid by that class in the prior year. 7 C.F.R. §§ 1463.3, 1463.4. For all classes of tobacco except cigars, the actual excise tax rates are used to calculate market share. Id. § 1463.7(c). Because the excise tax rate for cigars varies, the market share for cigar manufacturers is calculated using the maximum excise tax rate and the number of units sold. Determination of the market share of each tobacco class is referred to as "Step A."

Once the market share for each class has been determined, the Secretary allocates the percentage of the total assessment owed by each class among individual manufacturers and importers. 7 C.F.R. § 1463.7(d). For cigarette and cigar sellers, the individual assessments are determined by the number of cigarettes and cigars sold. 7 U.S.C. § 518d(g)(3)(A). For the remaining classes of tobacco products, the number of pounds of tobacco is used to determine the assessments. Id. § 518d(g)(3)(B). This determination is referred to as "Step B."

Swisher paid $11 million in the first year of the program. Swisher anticipates its total assessments over the ten years will be in excess of $100 million. In 2005, Swisher filed suit against the Department of Agriculture, challenging the constitutionality of the Act. The district court granted summary judgment in favor of the Secretary, and Swisher now appeals.

II. STANDARD OF REVIEW

We review a district court's grant of summary judgment de novo. Holloman v. Mail-Well Corp., 443 F.3d 832, 836 (11th Cir.2006). Summary judgment is appropriate when the evidence, viewed in the light most favorable to the nonmoving party, presents no genuine issue of fact and compels judgment as a matter of law. Fed.R.Civ.P. 56(c); Holloman, 443 F.3d at 836.

III. DISCUSSION

Both parties rely upon Eastern Enterprises v. Apfel, 524 U.S. 498, 118 S.Ct. 2131, 141 L.Ed.2d 451 (1998). We agree that Eastern Enterprises and its progeny provide significant guidance for this case. Thus, we first analyze that case to arrive at a rule of decision for this case. Then we determine whether Swisher's rights were violated under the Due Process Clause of the Fifth Amendment. Finally, we determine whether the methodology for apportioning the assessments violates Swisher's equal protection rights under the Fifth Amendment.

A. Analysis of Eastern Enterprises and Determination of a Rule of Decision for this Case

In Eastern Enterprises, the Supreme Court considered challenges to the Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act") under the Due Process and Takings Clauses of the Constitution. 524 U.S. at 503-04, 118 S.Ct. at 2137 (plurality opinion). The Coal Act assigned retirees to previous employers according to a statutory formula, requiring the employers to pay premiums into the Combined Fund to cover benefits for the retirees. Id. at 514-15, 118 S.Ct. at 2141-42. By 1965, Eastern had transferred all of its coal-related operations to a subsidiary and was no longer involved in the industry. Id. at 516, 118 S.Ct. at 2143. Following the Coal Act's enactment, Eastern was assigned the obligation for premiums regarding over 1,000 retired miners who had worked for the company before 1966, with the premiums for a 12-month period exceeding $5 million. Id. at 517, 118 S.Ct. at 2134. Eastern asserted that the Coal Act violated substantive due process and constituted a taking of its property. Id.

1. Justice O'Connor's plurality opinion concluded that application of the Coal Act to Eastern violated the Takings Clause

The plurality applied the Takings Clause and concluded "that the Coal Act's allocation of liability to Eastern violates the Takings Clause, and ... should be enjoined as applied to Eastern." Id. at 538, 118 S.Ct. at 2153. The case did not involve a classic taking in which private property is taken by the government for its own use. Id. at 522, 118 S.Ct. at 2146. Although not the traditional takings model, the plurality asserted that economic regulation such as the Coal Act can amount to a taking. Id. at 522-23, 118 S.Ct. at 2146. The party challenging a governmental action as a taking has a heavy burden because government regulations often curtail some use of private property, and not every destruction of property is a taking in the constitutional sense. Id. at 523, 118 S.Ct. at 2146.

"[T]he process for evaluating a regulation's constitutionality involves an examination of the `justice and fairness' of the governmental action." Id. The inquiry is essentially ad hoc and fact intensive, and the Court has found three factors to have particular significance: "[T]he economic impact of the regulation, its interference with reasonable investment backed expectations, and the character of the governmental action." Id. at 523-24, 118 S.Ct. at 2146 (alteration in original). The plurality noted that its prior decisions give Congress a lot of leeway to create economic legislation, including the power to impact contracts between parties and to impose a certain degree of retroactive legislation. Id. at 528, 118 S.Ct. at 2149. However, the plurality stated that its decisions "left open the possibility that legislation might be unconstitutional if it imposes severe retroactive liability on a limited class of parties that could not have anticipated the liability, and the extent of the liability is substantially disproportionate to the parties' experience." Id. at 528-29, 118 S.Ct. at 2149.

The plurality determined—by applying the three factor test used in regulatory takings analysis—that the Coal Act's allocation scheme, as applied to Eastern, constituted a taking. Id. at 529, 118 S.Ct. at 2149. In discussing the first factor, economic impact, the plurality concluded that there was no doubt that the Coal Act placed a significant financial burden on Eastern. Id. Eastern's cumulative payments under the Coal Act were estimated to be between $50 and $100 million. Id. The plurality indicated "that an employer's statutory liability for multiemployer plan benefits should reflect some proportion[ality] to its experience with the plan." Id. at 530, 118 S.Ct. at 2149 (alteration in original) (internal...