United States v. King Mountain Tobacco Co.
| Decision Date | 27 July 2015 |
| Docket Number | NO: 1:14-CV-3162-RMP,: 1:14-CV-3162-RMP |
| Court | U.S. District Court — District of Washington |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. KING MOUNTAIN TOBACCO COMPANY, INC., Defendant. |
BEFORE THE COURT are four motions filed by the United States: a Motion for Summary Judgment, ECF No. 15; a Motion to Dismiss Counterclaim, ECF No. 14; a Motion to Strike Jury Demand, ECF No. 22; and a Motion to Strike Reply Memorandum, ECF No. 37. Also before the Court are two motions for discovery filed by King Mountain Tobacco Co., Inc.: a Rule 56(d) Motion in Opposition to United States of America's Motion for Summary Judgment, ECF No. 23; and a Motion in Support of Defendant's Essential Right to Conduct Discovery, ECF No. 25. The Court heard oral argument on the motions on June18, 2015. Trial Attorney Kenneth Sealls appeared on behalf of the United States, and Randolph Barnhouse appeared on behalf of King Mountain. The Court has reviewed the motions, considered the parties' arguments, and is fully informed.
On October 30, 2014, the United States, on behalf of the Commodity Credit Corporation ("CCC") of the United States Department of Agriculture ("USDA"), filed a complaint against King Mountain Tobacco Co., Inc. ("King Mountain") to recover unpaid assessments mandated by the Fair and Equitable Tobacco Reform Act of 2004, codified at 7 U.S.C. §§ 518-519a ("FETRA"). ECF No. 1 at 1-2. FETRA provided for tobacco farmers to receive annual payments over a period of ten years, for fiscal years 2005 - 2014, from the Secretary of Agriculture ("Secretary"), "in exchange for the termination of tobacco marketing quotas and related price support." § 518a(a); see §§ 518a, 518b; FETRA, Pub. L. No. 108-357, secs. 611, 612, 118 Stat. 1418 ().
To fund these payments, FETRA directed the Secretary to impose quarterly assessments during the same time period on tobacco product manufacturers and importers. § 518d(b). The Secretary determined the amount of each manufacturer's quarterly assessment by first calculating the amount necessary tocover all contract payments for the quarter, then allocating that amount among six classes of tobacco products, and then dividing each class's portion among the manufacturers and importers of that product class based on their respective market share of gross domestic volume. §§ 518d(b)(2), (c), (e), (f).
After calculating a manufacturer's assessment for a given quarter, FETRA required the Secretary to notify the manufacturer of the amount to be assessed at least thirty days before the payment date. § 518d(d)(1). If a manufacturer wished to "contest an assessment," it could do so by notifying the Secretary within thirty days after receiving the assessment notification. § 518d(i)(1). Specifically, 7 C.F.R. § 1463.11 required a manufacturer to submit a written statement setting forth the basis of the dispute to the Executive Vice President of CCC. 7 C.F.R. § 1463.11(a).
The Executive Vice President would then assign a person to act as the hearing officer on behalf of CCC to develop an administrative record that would provide the Executive Vice President with sufficient information to render a final determination on the matter in dispute. § 1463.11(b). The agency could revise an assessment if the manufacturer successfully established that the "initial determination of the amount of an assessment [was] incorrect." 7 U.S.C. § 518d(i)(3). Any manufacturer who was "aggrieved by a determination of theSecretary with respect to the amount of any assessment" could seek judicial review of the Secretary's determination. 7 U.S.C. § 518d(j)(1); 7 C.F.R. § 1463.11(d).
The administrative record in this case contains the quarterly assessment notifications, or invoices, that CCC sent to King Mountain between June 1, 2007, and December 1, 2014. ECF No. 16. CCC sent King Mountain two invoices for each quarter: one based on King Mountain's manufacture of cigarettes and one based on its manufacture of roll your own tobacco. Each invoice stated the class of tobacco product for which it applied and the total assessment owed by King Mountain for that product. ECF No. 16.
Additionally, each invoice provided the information necessary to understand how the assessment amount was calculated: the total amount of money that CCC needed to collect that quarter to fully fund its annual payments to tobacco farmers; the percentage of sales in each product class; the proportionate amount of money that CCC needed to collect for each product class; the total amount of taxes paid by all tobacco manufacturers on the product class to which the invoice pertained; the amount of taxes that King Mountain paid on the product class to which the invoice pertained; King Mountain's percentage of the total amount of paid taxes on the applicable product class; and finally, the amount of King Mountain's total quarterly assessment, calculated by multiplying King Mountain's "share," orpercentage of total taxes paid in that product class, by the total amount of money that CCC needed to collect on that class. ECF No. 16.
The administrative record indicates that, on numerous occasions, King Mountain either only partially paid a quarterly assessment or neglected to pay the assessment entirely. ECF No. 16. The United States notes that King Mountain made fourteen payments on the assessments between June 2007 and September 2010. ECF No. 15 at 6. Since September 2010, King Mountain has not made any payments. ECF No. 15 at 6; ECF No. 16. USDA sent King Mountain thirty separate demand letters between July 15, 2009, and November 15, 2014. ECF No. 16. During that time, King Mountain's alleged owed balance increased from $472,794.22 to $6,373,275.29. ECF No. 16.
The record also shows that King Mountain objected to the assessments on several occasions. In February of 2012, King Mountain contacted the Receivable Management Office ("RMO") of the Farm Service Agency ("FSA") within USDA and informed Judy Curtis, an RMO employee and the point of contact listed on the demand letters, that King Mountain was disputing its assessment. ECF No. 16, KM-AR-000101. The outcome of that contact is unclear.
On March 15, 2012, King Mountain's counsel contacted FSA again to dispute the assessments. ECF No. 16, KM-AR-000189. In a follow-up e-mail to another FSA employee, Julianna Young, King Mountain disputed that it owed$1,519,547.71, confirmed that King Mountain's counsel's telephone conversation with Ms. Young qualified as notice of appeal as required under the statute, and informed FSA that to the extent the assessments were predicated on taxes owed by King Mountain, King Mountain was currently in litigation disputing those tax assessments. ECF No. 16, KM-AR-000189. Ms. Young did not respond to King Mountain's e-mail until eleven days later, at which time she stated that her "supervisor is coordinating with our [Tobacco Transition Assistance Program] folks," and she believed that "at some point some guidance will come back to [her]." ECF No. 16, KM-AR-000189. There is no evidence in the record that Ms. Young or any other FSA employee reengaged King Mountain on the issue.
Subsequently, it appears that counsel for King Mountain and Ms. Young had a telephone conversation on July 6, 2012, in which King Mountain demanded the return of $75,000 which the Bureau of Alcohol, Tobacco, Firearms and Explosives had agreed to give King Mountain as part of a settlement agreement in a separate excise tax case, but which FSA confiscated and applied as an "offset" to King Mountain's unpaid FETRA assessments. ECF No. 16, KM-AR-000098. Ms. Young allegedly informed King Mountain for the first time that assessment disputes should be directed to Jane Reed. ECF No. 16, KM-AR-000099. King Mountain objected to never having been directed to contact Jane Reed previously, and reminded Ms. Young of her representation that the March telephoneconversation constituted sufficient notice of intent to dispute the assessments. ECF No. 16, KM-AR-000099.
Larry Durant, Chief of RMO, responded by e-mail on July 12, 2012, to King Mountain's letter dated July 9, 2012. He did not address King Mountain's objection to the assessments, stating only that the "Receivable Management Office does not handle dispute request [sic]." ECF No. 16, KM-AR-000101. Mr. Durant stated that the $75,000 confiscation was "in compliance with DCIA regulations," and refused to return the funds to King Mountain. ECF No. 16, KM-AR-000101.
King Mountain responded to Mr. Durant on August 7, 2012. ECF No. 16, KM-AR-000103. King Mountain reiterated its position that the confiscation was wrongful, that FSA had failed to adequately inform King Mountain of available administrative remedies, and that the outcome of King Mountain's litigation against the Bureau of Alcohol, Tobacco, Firearms and Explosives would directly affect the validity of the assessments. ECF No. 16, KM-AR-000103.
On September 17, 2012, King Mountain mailed an appeal letter to CCC and the Economic and Policy Analysis Staff ("EPAS") of FSA, disputing the Notice of Acceleration or Revision letter, dated August 16, 2012, which asserted that King Mountain owed $3,033,625.80 under the Tobacco Transition Assessment Program ("TTAP") and informed King Mountain that amount would be placed in DOJ litigation status. ECF No. 16, KM-AR-000104. King Mountain also requested ahearing before CCC. ECF No. 16, KM-AR-000104. King Mountain argued that the Yakama Treaty of 1855 prohibited the assessments on King Mountain's tobacco products and requested that "all payments made under TTAP assessments be returned to it, as well as funds illegally offset by the [FSA]." ECF No. 16, KM-AR-000106. Additionally, King Mountain disputed the offset because it...
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