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), 12-910(RCL)
United States District Court, District of Columbia
June 10, 2013
946 F. Supp. 2d 240
ROYCE C. LAMBERTH, Chief Judge.
ation of CMC, Sodexo‘s breach of contract claim will be dismissed.
CONCLUSION
Sodexo has not alleged sufficient facts to state a claim for breach of contract on either the express or implied assumption of debt theory or the mere continuation theory. Therefore, the defendant‘s motion to dismiss will be granted and the complaint will be dismissed. The plaintiff‘s motion to strike will be denied as moot. An appropriate Order accompanies this memorandum opinion.
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
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. BACKGROUND
A. 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“).
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.
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.
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.”
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.”
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.”
B. Procedural History
Prime Time predominately manufactures “small” cigars, which weigh less than three pounds per thousand cigars. Cf.
After the Secretary made his determination, Single Stick petitioned for review in the district court per FETRA‘s judicial review provision. See
Single Stick appealed, and while appeal was pending changed its corporate name to Prime Time International. See Prime Time v. Vilsack, 599 F.3d 678 (D.C. Cir. 2010). The D.C. Circuit reversed in part and affirmed in part the judgment of the district court. The court of appeals reversed the grant of summary judgment to USDA on Prime Time‘s FETRA claims, avoided reaching Prime Time‘s due process claims as USDA represented that they may become moot, and affirmed the dismissal of the IQA challenge. Prime Time, 599 F.3d at 686.
The nature and scope of the D.C. Circuit‘s remand on the FETRA issue is hotly contested among the parties, and will be discussed in more detail infra. Prime Time‘s basic argument on appeal was that USDA‘s two-step method:
[S]kips a necessary step [b]ecause FETRA requires that the allocation within a tobacco class be “on a pro rata basis” with “[n]o manufacturer or importer ... required to pay an assessment that is based on a share that is in excess of the manufacturer‘s or importer‘s share of domestic volume.” 7 U.S.C. § 518d(e) . Therefore, [Prime Time] argues, after allocating the assessment by class of tobacco products, USDA should divide the cigar class assessment into subclasses of large and small cigars, with the relative allocation determined by total weight, and then divide the assessments among individual large and small cigar manufacturers and importers on a per-stick basis from the subdivided assessments, satisfying subsection (g)(3)(A).
Id. at 682. The relevant, and contested, portion of the Circuit‘s opinion is as follows:
The plain text of FETRA does not self-evidently vindicate USDA‘s two step assessment method. Under FETRA, the “volume of domestic sales” and “market share” are not synonymous with “gross domestic volume.” FETRA provides, for example, that “[t]he volume of domestic sales shall be calculated based on gross domestic volume,”
7 U.S.C. § 518d(g)(2) (emphasis added), indicating two different meanings for the terms. And section 518d(g)(3)(A) does not, on its face, require that a compound number of large and small cigars serve as the denominator when calculating a manufacturer‘s or importer‘s volume of domestic sales on a per-stick basis. Most critically, USDA‘s interpretation appears to ignore the pro-rata-basis limitation Congress imposed on assessments within a tobacco class in subsection (e). As interpreted by USDA, it is irrelevant that one large cigar consumes far more tobacco than a small cigar, and so accounts for a far larger segment of the market than its per-stick contribution would indicate. Yet the text and structure of the statute titled the Fair and Equitable Tobacco Reform Act suggests an easy counting metric for cigarettes and cigars may not override a statutory mandate that assessments be “allocated on a pro rata basis” within each class of tobacco product,id. § 518d(e)(1) . Prime Time‘s interpretation suggests that there is at least one way to interpret FETRA‘s provisions consistently and in harmony, with none made superfluous or insignificant. See Corley v. United States, 556 U.S. 303 (2009); City of Anaheim, Cal. v. FERC, 558 F.3d 521, 522 (D.C. Cir. 2009).For the purpose of this appeal, the court need only observe that USDA‘s present interpretation is not mandated by the plain text of FETRA. USDA does not maintain that its interpretation of FETRA is a permissible view of an ambiguous statute entitled to deference under Chevron step 2, 467 U.S. at 843. Given that FETRA does not appear to be susceptible of only a single interpretation, we reverse and remand to the district court with instructions to remand Prime Time‘s FETRA claims to the USDA for further proceedings. See PDK Labs. Inc. v. U.S. DEA, 362 F.3d 786, 797-98 (D.C. Cir. 2004).
On remand, USDA commenced notice and comment rulemaking on its Step B calculation method. See
USDA then intended to adjudicate three factual issues specific to Prime Time: (1) the reliability of the A.C. Nielsen data for determining market share; (2) Prime Time‘s request for information concerning the market shares of other tobacco companies; and (3) the basis for USDA‘s adjustment to Prime Time‘s assessment at the end of the first year of the program. See United States’ Mot. Summ. J. 7; Letter from Scott Sanford to James Deer, Jan. 26. 2012, AR 118-22. Prime Time, however, took the position that “there are no remaining factual issues for the agency to adjudicate” and wished to expedite judicial review of USDA‘s Step B methodology. Letter from John Wertheim to Scott Sanford, Dec. 27, 2011, AR 117.
Before the USDA‘s final determination came in, Prime Time moved for summary judgment in the original district court action, Civil No. 06-1077. Prime Time‘s Mot. for Summ. J., Civ. No. 06-1077, Oct. 17, 2011, ECF No. 29. The district court denied this motion without prejudice. Minute Order, Civ. No. 06-1077, Sept. 19, 2012.
On a separate track, the United States initiated a new civil case, Civil No. 12-910, as an enforcement action against Prime Time for failing to make millions of dollars in tobacco assessment payments. See Complaint, Civ. No. 12-290, Jun. 5, 2012, ECF No. 1. In the interest of judicial economy, the Court consolidated Civil Actions 06-1077 and 12-290, with all subsequent filings to be made in 06-1077. Order Consolidating Cases, Civ. No. 06-1077, Sept. 19, 2012, ECF No. 42. Prime Time then filed a cross-motion for summary judgment in 06-1077, seeking an adjudication that USDA‘s Step B assessment method is invalid. Prime Time‘s Cross-Mot. Summ. J., Civ. No. 06-1077, Oct. 19, 2012, ECF No. 44. Both motions for summary judgment are ripe for adjudication, and the Court resolves both herein.
II. LEGAL STANDARDS
A. Summary Judgment
Under
B. Chevron Deference
The court reviews an agency‘s interpretation of a statute under the framework articulated in Chevron v. N.R.D.C., 467 U.S. 837 (1984). The threshold inquiry—sometimes called Chevron “step zero“—is determining whether Congress has delegated interpretive authority to the agency in question. See, e.g., United States v. Mead Corp., 533 U.S. 218, 226-27 (2001); Cass R. Sunstein, Chevron Step Zero, 92 VA. L. REV. 187, 190-92 (2006). If so, the court turns to Chevron “step 1.” The Chevron framework requires “that both the agency and the courts give effect to Congress‘s unambiguously expressed intent if the underlying statute speaks directly to the precise question at issue.” Citizens Coal Council v. Norton, 330 F.3d 478, 481 (D.C. Cir. 2003). Therefore, under Chevron step 1, the court uses the “traditional tools of statutory interpretation—text, structure, purpose, and legislative history,” to determine whether the statute speaks directly to the question at issue. Pharm. Research & Mfrs. of Am. v. Thompson, 251 F.3d 219, 224 (D.C. Cir. 2001). If the statute is clear, then the unambiguous intent of Congress must control and the Chevron inquiry is over. However, if the statute is “silent or ambiguous with respect to the specific issue” the court must defer to the agency‘s interpretation if it is reasonable. Citizens Coal, 330 F.3d at 481 (quoting Chevron, 467 U.S. at 843). In Chevron step 2, the court must determine whether the agency‘s interpretation of ambiguous statutory language is reasonable, and the reviewing court‘s inquiry is limited thusly. The reviewing court may not “substitute [its] preferred interpretation for an agency‘s reasonable interpretation when that agency is the entity authorized to administer the statute in question.” Id. at 482.
III. DISCUSSION
The proper interpretation of the D.C. Circuit‘s remand opinion is at the center of the parties’ dispute. May USDA readopt its Step B method after remand? Has the Circuit already decided that USDA‘s existing rule would be an unreasonable interpretation of the statute? How much deference should this Court give to USDA‘s interpretation of FETRA?
The court of appeals did not find either that USDA‘s Step B method was necessarily unreasonable or that Prime Time‘s interpretation was mandated. The court of appeals said FETRA was susceptible to more than one reasonable interpretation, and USDA erred when it concluded that the statute mandated its Step B method. Since USDA did not recognize that the statute was ambiguous, its determination was not due Chevron deference, and the Circuit remanded to allow USDA to exercise its agency expertise in interpreting FETRA.
USDA revisited its Step B methodology through notice and comment rulemaking, addressed all relevant concerns and comments, and came to a reasonable interpretation of the statute. Thus, the Court owes USDA‘s reaffirmed per-stick rule Chevron deference. Under Chevron Step 2, it does not matter whether Prime Time‘s proffered alternative is a “better” reading of the statute. USDA‘s interpretation is
A. Interpreting the D.C. Circuit‘s Opinion Ordering Administrative Remand
The district court originally granted USDA summary judgment, finding that its use of a per-stick calculation method combining small and large cigars was a permissible interpretation of FETRA entitled to Chevron deference. Single Stick, 601 F. Supp. 2d at 313-14. The court of appeals reversed this grant of summary judgment, and remanded Prime Time‘s FETRA claims to USDA for further proceedings. Prime Time, 599 F.3d at 683.
The parties disagree about the reasons for, and the nature of, this remand. The government argues the Circuit remanded because USDA‘s conclusion that FETRA mandated its per-stick method was not, in fact, an interpretation of an ambiguous statute, but an erroneous conclusion that there was no ambiguity at all. The court of appeals did not necessarily agree with Prime Time‘s interpretation, but used it to show that the statute was reasonably susceptible to more than one interpretation. The Circuit remanded to allow USDA to engage in the type of Chevron step 2 analysis that USDA did not attempt in the first instance. As USDA stated in its final determination reaffirming its Step B method:
USDA does not perceive that the remand compels changes in Step B procedures, but rather, that USDA must address the D.C. Circuit‘s concerns, such as resolving the ambiguity that it identified in the statute. USDA also perceives the remand as requiring it to give full and fair consideration to Prime Time‘s alternative methodologies and any theories of calculation that are presented.
Final Determination 13 (AR 71).
Prime Time argues that this is a Chevron step 1 case, arguing that “Congress has spoken directly to the issue of how the portion of total TTPP assessment attributable (in Step A) to the class of cigar products shall be allocated (in Step B) among manufacturers and importers[.]” Prime Time‘s Cross-Mot. Summ. J. 18. As interpreted by Prime Time, the D.C. Circuit found that any rule that did not account for the differences in the amount of tobacco between large and small cigars would violate FETRA‘s statutory mandate that assessments be allocated in a pro-rata-basis within each class of tobacco product. Id. at 18-20. Since “pro rata” means “proportionate,” a pro-rata-basis allocation “cannot be one that that measures cigars by sticks ... regardless of the varying volumes of tobacco in each cigar.” Id. at 19 (emphasis in original). Prime Time argues that “[t]he allocation method must be ‘proportionate’ to volume, and thus must account for the different tobacco volumes between large and small cigars.” Id. (emphasis in original). Prime Time claims that “to the extent the D.C. Circuit found FETRA ambiguous, it was not because that court fount the interpretations by Prime Time and USDA to be equally reasonable.” Id. at 21-22. In Prime Time‘s eyes, the D.C. Circuit rejected USDA‘s interpretation and endorsed Prime Time‘s. The statute is ambiguous inasmuch as the Circuit was unwilling, at that time, to say that Prime Time‘s interpretation was the only way to give full weight to all of FETRA‘s provisions. On remand, USDA was to consider how to harmonize FETRA‘s provisions; USDA could not, Prime Time argues, readopt a discredited rule the D.C. Circuit found to clearly violate the statutory language. Id. at 22-23.
In other words, the district court‘s error was not finding that a per-stick method could be a reasonable interpretation of the statute; the district court‘s error was finding that USDA, when it said the statute mandated the per-stick method, had exercised delegated authority to interpret an ambiguous statute. When USDA said FETRA mandated its Step B method, it wrongly concluded that Congress had spoken directly on the issue. Courts give Chevron deference to agency interpretations of ambiguous statutory language. Courts do not defer to agency determinations of whether or not the statute is ambiguous—they address Chevron step 1 independently, using the normal tools of statutory construction to determine whether language is susceptible to more than one reasonable interpretation. See Chevron, 467 U.S. at 842-43 & n. 9.
The D.C. Circuit‘s Prime Time decision falls within the long “line of circuit decisions which hold that ‘deference to an agency‘s interpretation of a statute is not appropriate when the agency wrongly believes that interpretation is compelled by Congress.‘” Peter Pan Bus Lines, Inc. v. Federal Motor Carrier Safety Admin., 471 F.3d 1350, 1354 (D.C. Cir. 2006) (quoting PDK Laboratories, Inc. v. DEA, 362 F.3d 786, 798 (D.C. Cir. 2004)) (other internal quotation marks and citations omitted).5 In Peter Pan, the D.C. Circuit continued:
As we explained in PDK, Chevron step 2 deference is reserved for those instances when an agency recognizes that the Congress‘s intent is not plain from the statute‘s face. “In precisely those kinds of cases, it is incumbent upon the agency not to rest simply on its parsing of the statutory language“—“[i]t must bring its experience and expertise to bear in light of competing interests at stake.” PDK, 362 F.3d at 797-98 (citing Chevron, 467 U.S. at 865-66 (footnote omitted)). “When it does so it is entitled to deference, so long as its reading of the statute is reasonable.” Id. at 798.
The court of appeals’ remand in Prime Time is precisely the kind of administrative remand seen in Peter Pan and PDK Labs. USDA found the statute to be unambiguous and did not engage in the kind of interpretation that would be due deference under Chevron step 2. Since Prime Time‘s proffered interpretation shows that the statute did not mandate USDA‘s rule, the court owed USDA‘s interpretation no Chevron deference. The D.C. Circuit remanded the case to USDA so it could properly exercise agency expertise, and took no position on whether the current per-stick rule could be permissible under Chevron step 2. Prime Time, 599 F.3d at 683. Tellingly, when the D.C. Circuit remanded for further proceedings in Prime Time, the Court immediately cited PDK Labs. See Id. (citing PDK Labs., 362 F.3d at 797-98).
Certainly, the court of appeals’ opinion was sympathetic to Prime Time‘s interpretation; the Circuit thought Prime Time offered “at least one way to interpret FETRA‘s provisions consistently and in harmony, with none made superfluous or insignificant.” Id. However, just because the Circuit found Prime Time‘s interpretation reasonable does not turn an ambiguous statute unambiguous, or deprive USDA the opportunity on remand to offer a reasonable interpretation that differs from Prime Time‘s. If the court of appeals found that subdividing the cigar class was not only reasonable, but mandated by the plain text, it would have said so clearly. If it thought that USDA‘s rule plainly violated FETRA, it would not have hedged and stated that “the court need only observe that USDA‘s present interpretation is not mandated by the plain text of FETRA.” Id. Instead, the court of appeals’ decision resembles Peter Pan Bus Lines, 471 F.3d 1350; PDK Labs., 362 F.3d 786; and the litany of other Circuit decisions where remand was appropriate when the agency incorrectly concluded that the controlling statute spoke directly to the issue. The persuasiveness of the challenger‘s alternative interpretation only goes to show that the statute is not unambiguous, and does not ensure that the challenger‘s interpretation must win out after the agency properly exercises its delegated interpretive authority.
B. USDA‘s Step B Calculation is a Reasonable Interpretation of FETRA
The court of appeals has already decided the first few Chevron questions. Under Chevron step “zero,” Congress has explicitly delegated authority to USDA to interpret and implement FETRA. See Single Stick, 601 F. Supp. 2d at 313; Prime Time, 599 F.3d at 686;
1. The Circuit‘s Decision Did Not Foreclose a Per-Stick Method
The Court should reiterate that the court of appeals did not find that using a per-stick method, or not differentiating between small and large cigars, was necessarily contrary to the plain text of the statute. Instead, it limited its holding to finding that such a rule is “not mandated by the plain text of FETRA.” Prime Time, 599 F.3d at 683. Thus, despite Prime Time‘s repeated and strenuous arguments to the contrary, the D.C. Circuit did not forbid USDA from adopting a per-stick or combined cigar class calculation on remand. Nothing in the Circuit‘s opinion prohibited USDA from deciding—after exercising its agency expertise under Chevron step 2—that its prior per-stick method is still the best interpretation of the ambiguous statutory language. Administrative remands frequently allow the agency to come to the same conclusion after the agency has properly considered the matter. See, e.g., Holder v. Martinez Gutierrez, — U.S. —, 132 S. Ct. 2011, 2017 (2012); Negusie v. Holder, 555 U.S. 511, 523 (2009); Nat‘l Cable & Telecommunications Ass‘n v. Brand X Internet Servs., 545 U.S. 967, 980 (2005).
Prime Time bases its argument largely on select language from the court of appeals’ decision. In Prime Time, the D.C. Circuit found that under FETRA, the “volume of gross domestic sales” and “market share” are not synonymous with “gross domestic volume.” 599 F.3d at 683. The D.C. Circuit continued:
[S]ection 518d(g)(3)(A) does not, on its face, require that a compound number of large and small cigars serve as the denominator when calculating a manufacturer‘s or importer‘s volume of domestic sales on a per-stick basis. Most critically, USDA‘s interpretation appears to ignore the pro-rata-basis limitation Congress imposed on assessments within a tobacco class in subsection (e).... Prime Time‘s interpretation suggests that there is at least one way to interpret FETRA‘s provisions consistently and in harmony, with none made superfluous or insignificant.
Id. This language does not, as Prime Time contends, mean that the D.C. Circuit “adopted” Prime Time‘s interpretation and “discredited” USDA‘s interpretation. Cf. Prime Time‘s Cross-Mot. Summ. J. 22-23. The Circuit clearly stated that the relevant statutory language is ambiguous, and explicitly limited its holding to saying only that FETRA did not mandate the per-stick rule. Prime Time, 599 F.3d at 683.
On the other hand, an interpretation by USDA that does not adequately address these concerns might not be reasonable. USDA must endeavor to harmonize the pro-rata-basis limitation with per-stick metric in a way that minimizes surplus language. USDA does not have to come to the same conclusion as Prime Time, but it must treat the D.C. Circuit‘s interpretive concerns as relevant considerations.
2. USDA Undertook Notice and Comment Rulemaking on Remand
USDA came to a deeply-considered conclusion in reaffirming its Step B methodology.
USDA received comments from several interested parties, both supporting and opposing the per-stick rule. Prime Time submitted comments contesting certain claims made by USDA in its notice and strenuously opposing a per-stick rule. Prime Time‘s first comment contested predictions made in USDA‘s notice about the impact that adopting Prime Time‘s preferred rule would have on large cigar manufacturers. Comment from James Deer, Prime Time Int‘l, Apr. 19, 2011, AR 17-18. The same comment also strenuously objected to any retroactive application of a newly-adopted rule. Id.
A later comment from Prime Time‘s outside counsel repeated these charges of inaccuracy, argued that the D.C. Circuit mandate forbade USDA from keeping the status quo, and championed a three-step assessment process that would calculate large and small cigar assessments separately. Comment from Donald Stein, Greenberg Traurig LLP, May 23, 2011, AR 47-50. This three-step assessment process would have worked as follows:
Step A—Allocate the amount of total assessment among the six classes based on the Federal excise taxes paid by each class, with separate figures for large and small cigars, as currently done by CCC.
Step B—Divide the class assessment for cigars into large and small cigar segments. This will divide the market share of cigars along the lines of overall size and weight (and coincidentally, market value) of the products removed.
Step C—For large cigars, divide the amount of the total cigar assessments attributable to large cigars by the stick count number of the large cigars removed by each company to establish a company assessment for the large cigar segment of its sales. For small cigars, divide the amount of the total cigar assessment attributed to small cigars by the number of small cigars each company removed to establish the company assessment for the small cigar segment of its sales.
Ashton Distributers, an importer and distributor of premium cigars, supported continuing the per-stick rule, stating that any change would be unfair and “would result in greater burden to a tobacco category [large, premium cigars] that never benefited from the federal subsidy program for which the assessment is designed to eliminate.” Comment from Nadia Trowbridge, CFO, Ashton Distributers, May 19, 2011, AR 19-20. The comment also stated that it was “difficult to believe that USDA would change the assessment calculation on a program that is more than half way through its life cycle.” Id. at AR 20.
Altria Client Services, the regulatory arm of Altria Group (the parent company of Phillip Morris and a manufacturer of
A group of cigar manufacturers, “represent[ing] a diverse cross-section of cigar manufacturers and importers with product lines including virtually all cigar varieties, shapes and sizes” including small cigars, submitted a comment in favor of keeping the per-stick rule. Comment, May 20, 2011, AR 24-46. This coalition of cigar companies argued: (1) creating two separate categories for large and small cigars would be contrary to Congressional intent, as FETRA plainly created one cigar class and never spoke of treating large and small cigars differently; (2) Prime Time‘s proposed alternative method would be arbitrary and impractical, as weight data for cigars is not as available and reliable as stick count data, and cigar companies can manipulate product weight to fall into the “small cigar” category; and (3) any change to the methodology must be prospective only. Id. at AR 24-28.
After considering these public comments, USDA decided not to make any changes to the existing Step A and Step B assessment methods.6 See generally Final Determination (AR 54-95). USDA‘s final determination was detailed and responded comprehensively to Prime Time‘s stated concerns. The USDA began with explaining and defending its Step B methodology, stating that its determination is “grounded in the text of FETRA.” Id. at 10 (AR 63). USDA started with
USDA relied on its expertise and experience to determine that the “volumes” of different types of tobacco products are typically “measured” by different units—cigars and cigarettes typically measured by stick count, roll-your-own and pipe tobacco by weight. Id. at 10-16, 20-24 (AR 63-69, 73-77). USDA expressed the difficulties of calculating cigar volume and market share by reference to cigar weight. USDA claimed that “data are non-existent for specific cigar weights.” Id. at 20 (AR 73). While the government differentiates between small and large cigars for some excise tax purposes, the division may not
But any per-stick measurement fails to account for weight differences within a class—even within the subcategories Prime Time proposes. For instance, within the proposed large cigar category, heavy “large” cigars and very light “large” cigars (those that barely qualify as “large“) would pay the same per-stick amount. This result contradicts Prime Time‘s premise, that in the interest of equity, cigars weighing less should pay a smaller share of the assessments.
Id. at 24 (AR 77). Therefore, it is not practical—or necessarily equitable—to impose Prime Time‘s desired cigar subclass-es.
USDA also points out that nothing in the statute indicates that “volume,” as it is used in “gross domestic volume” or otherwise—necessarily means “weight,” or would contemplate disaggregating or measuring cigars by weight. Id. at 20 (AR 73). USDA finds support for this position in the text of FETRA:
[O]ther provisions of FETRA contemplate the term “volume” as having a meaning that corresponds to the relevant metric for tobacco products and not a pre-set meaning as either weight or stick count. For instance, in subsection (g)(3), FETRA provides that “volume of domestic sales” shall be measured by stick count for cigarettes and cigars and by pounds for all other classes of tobacco products. Thus, subsection (g)(3) incorporates the concept that the term “volume” as generally used in FETRA does not refer to a fixed unit of measurement, but one that varies, depending on the product measured. That is why subsection (g)(3) explicitly defines which unit of measure shall apply to volumes for different classes of tobacco product.
Id. at 22 (AR 75). Therefore, FETRA‘S text indicates that stick count is the proper metric for calculating the volume of cigars.
However, Prime Time‘s comments do not suggest doing away with stick count entirely. Instead, it suggests that USDA treat large and small cigars differently when determining market share using the per-stick method. See, e.g., Comment from Donald Stein, AR 47-50. As described earlier, Prime Time argues that after allocating the assessment by class of tobacco products, USDA should divide the cigar class assessment into sub-classes of large and small cigars, with the relative allocation determined by total weight, and then divide the assessments among individual large and small cigar manufacturers and importers on a per-stick basis from the subdivided assessments. Prime Time, 599 F.3d at 682.
USDA‘s final determination rejected this “sub-classing” as not the best interpretation of plain text or Congressional intent. USDA emphasized that Congress, knowing how to create subclasses for different sizes of cigars in other contexts, “pointedly, combined the small and large cigar tallies [taken from excise tax data] and made them one class.” Final Determination 21 (AR 74). USDA notes that “Prime Time‘s method,”
The final determination also addressed Prime Time and the D.C. Circuit‘s concerns over giving effect to subsection (e)‘s pro-rata-basis limitation, which directs that “no manufacturer or importer shall be required to pay an assessment that is based on a share that is in excess of the manufacturer or importer‘s share of domestic volume.”
Pursuant to subsection (e)(2), USDA ensures that no manufacturer or importer pays an assessment greater than an amount based on its “share of” [gross domestic volume (“GDV“)]. For instance, if a manufacturer had a “share of” of GDV that was 100 cigars, that manufacturer would not pay more than the amount of a Step B assessment that is calculated using 100 cigars. Also, by operation of subsection (e)(2), USDA does not reassign any unpaid part of the class assessment (by a delinquent manufacturer or importer) to a paying manufacturer or importer.
*
USDA understands subsection (e)(2) to mean that liability for any unpaid part of the class assessment (by a delinquent manufacturer or importer) is not transferred to a paying manufacturer. Otherwise, the assessment for the paying parties could exceed the amount that can be attributed to their actual share or contribution to the GDV. In a sense, USDA reads subsection (e)(2) as preventing joint and several liability among manufacturers and importers in a class or tobacco product.
Accordingly, USDA reads subsection (e)(2) to mean that no manufacturer or importer pays an assessment greater than the amount calculated on the basis of its “share of” GDV, however GDV is measured.
Final Determination 12, 25-26 (AR 65, 78-79). Under this interpretation, USDA gives effect to the pro-rata-basis limitation without requiring a differentiation between small and large cigars.
The final determination also addressed other of Prime Time‘s challenges—involving, for instance, the A.C. Nielsen data—not at issue in this case. It also addressed a challenge by Phillip Morris to the Step A calculation method. The final determination concluded by reaffirming the existing Step A and Step B calculation methods. See id. at 27-42 (AR 80-95).
3. USDA‘s Interpretation is Reasonable under Chevron Step 2
USDA‘s rulemaking relied on agency expertise and responded to all significant comments. USDA‘s procedures demonstrate a rigorous and thorough interpretive process. USDA‘s rulemaking process shows that the pre-stick rule is a substantively reasonable interpretation of the statutory ambiguities in FETRA, and the Court owes USDA‘s interpretation deference under Chevron step 2. In addressing how USDA reaffirmed the per-stick rule in its final determination, the Court discussed the interpretive and practical issues USDA considered. See supra Part III.B.2. The full administrative record goes into even greater detail than the
The D.C. Circuit expressed serious concerns over whether USDA‘s per-stick rule could give proper weight to “the pro-rata-basis limitation Congress imposed on assessments within a tobacco class in subsection (e)” of FETRA. Prime Time, 599 F.3d at 683.
USDA‘s interpretation adequately harmonizes FETRA‘s provisions without making any clause dead letter. As explained in greater detail supra, USDA‘s final determination explained how its rule gives effect to
The Court agrees with Prime Time that the canon against surplus language is very important. See Prime Time‘s Cross-Mot. Summ. J. 16-17, 20-27. Certainly, [i]t is a fundamental principle of statutory construction that “effect must be given, if possible, to every word, clause and sentence of a statute ... so that no part will be inoperative or superfluous, void or insignificant.” In re Surface Mining Regulation Litig., 627 F.2d 1346, 1362 (D.C. Cir. 1980) (quoting 2A SUTHERLAND, STATUTORY CONSTRUCTION § 46.06 (4th ed. 1973) (internal quotations omitted)). However, Prime Time treats this canon as if it were an absolute mandate. USDA must give the pro-rata-basis limitation its fullest possible expression, even if this means essentially rewriting the statute to “create” cigar subclasses that are never explicitly mentioned in the statute. The government is correct to point out that the “‘preference for avoiding surplusage constructions is not absolute.‘” United States’ Opp‘n to Prime Time‘s Cross-Mot. 7, Civ. No. 06-1077, Nov. 19, 2012, ECF No. 45 (quoting Lamie v. U.S. Trustee, 540 U.S. 526, 536 (2004)). See also Adirondack Med. Ctr. v. Sebelius, 891 F. Supp. 2d 36, 46-47 (D.D.C. 2012) (“The canon of construction regarding superfluities ... is not a mandate. The canon merely provides that ‘if possible’ a court should construe a statute to give effect to every word and clause and should avoid a construction that renders a word or clause surplusage.“).
As noted supra, USDA‘s interpretation of the pro-rata-basis limitation does not render that clause totally meaningless. This interpretation might leave Prime Time with a less “robust” reading of the clause than it might have hoped, but the interpretation does not reduce it to nothing. In interpreting the pro-rata-basis limitation, USDA had to weigh the canon of avoiding superfluities against the canon that specific terms in a statute should govern more general ones. “To resolve a
The fact that FETRA plainly lists six—not seven—tobacco product classes strongly supports USDA‘s decision to assess all cigars using a uniform methodology. Prime Time‘s proffered interpretation would require USDA to treat small and large cigars differently for the purposes of assigning assessments. Prime Time argues that this is clearly mandated by the pro-rata-basis limitation of FETRA, but this Court thinks that such differential treatment is not required by the statute. USDA offers compelling arguments that dividing the cigar class into small and large cigar subclasses (or doing the functional equivalent thereof) may undercut a carefully constructed statutory scheme that intentionally created only one cigar class.
USDA first points to the plain text. FETRA consistently treats large and small cigars as part of the same class. It speaks of “cigars” generally, and does not differentiate between cigars based on their size. See
Congress did not treat large and small cigars as two different classes under FETRA.
And as discussed supra, it might do violence to the text to allow the broad “pro rata” language of
USDA thought that “add[ing] a size element now or subcategories” to treat small and large cigars differently “would seem to legislate rather than interpret the legislation.”
4. It is Irrelevant whether Prime Time‘s Interpretation is “Better”
Since this Court has determined that USDA‘s interpretation is reasonable and deserves deference, the Court will not address the merits of Prime Time‘s rival interpretation. As the court of appeals stated, the relevant language in FETRA is not “susceptible to a single interpretation” and is ambiguous. Prime Time, 599 F.3d at 683. As long as the agency‘s interpretation of that ambiguous language is reasonable, it does not matter whether Prime Time‘s interpretation is “more” reasonable. Rejecting a reasonable agency interpretation because the Court prefers an alternative accords no deference whatsoever. The Court‘s role at Chevron step 2 is not to pick between possible interpretations of the statute. It is to determine whether the agency‘s interpretation is reasonable, and if so, defer to that reasonable interpretation. See, e.g., Brand X, 545 U.S. at 980 (“If a statute is ambiguous, and if the implementing agency‘s construction is reasonable, Chevron requires a federal court to accept the agency‘s construction
USDA, on remand, has offered a reasonable interpretation of the ambiguous statutory language. It has recognized that FETRA does not, in fact, mandate its per-stick method and has exercised its delegated power and agency expertise in offering a reasonable interpretation. USDA has gone above and beyond on remand, subjecting its Step B method to notice and comment rulemaking even though FETRA exempts this kind of rule from that process. USDA‘s rulemaking solicited and responded to comments from Prime Time and other interested parties. USDA considered the court of appeals’ concerns about harmonizing its per-stick method with FETRA‘s pro-rata-basis limitation. USDA has thoroughly addressed why it thinks its rule is a proper interpretation of the ambiguous statutory language. Having made this finding, the Court need not—and should not—address whether Prime Time‘s interpretation is “better.” Since USDA‘s rule is a reasonable interpretation of ambiguous language, Chevron requires this Court to defer to USDA‘s interpretation.
C. Prime Time Had No Legal Basis to Withhold Assessment Payments
It is clear from Prime Time‘s briefs that it adamantly disagrees with USDA‘s Step B calculations. It fervently feels that USDA has improperly calculated Prime Time‘s market share using statutorily-infirm methods, leading to USDA levying excessive assessment charges against Prime Time. What isn‘t clear is the legal authority Prime Time claims for completely failing to make any payments for over three years. Prime Time did not pay the assessments then sue to recover any overcharged amounts, plus interest. See
Prime Time had previously challenged other aspects of USDA‘s Step B calculations, including discrepancies between USDA‘s market share calculations and market share figures offered by private tracking company A.C. Nielsen. At this point in the litigation, Prime Time does not address these challenges, and focuses on its general challenge to USDA‘s Step B methodology. See, e.g., Letter from Scott Sanford to James Deer, AR 118-12 (stating that USDA intends to complete fact-specific adjudication on these questions); Letter from John Wertheim to Scott Sanford, AR 117-18 (stating that no such factual adjudication is needed; Prime Time is eager to proceed to federal court without having A.C. Nielsen issues administratively adjudicated).
Prime Time does not seem to otherwise dispute that, if the Court upholds USDA‘s Step B methodology, it would owe the amounts indicated in the quarterly assessments. In its pending motion for summary judgment, Prime Time does not allege that USDA misapplied the Step B methodology or otherwise made a calculation
IV. CONCLUSION
When the court of appeals overturned the district court‘s grant of summary judgment, it was because the district court erred in giving Chevron deference to USDA‘s conclusion that the statute mandated its “Step B” assessment methodology. A line of cases in this Circuit hold that when an agency concludes that a law speaks clearly on a particular issue, this is not the kind of agency “interpretation” that is due Chevron deference. If a reviewing court finds, under Chevron Step 1, that the language in question is in fact unclear, then it is appropriate to remand to allow the agency to exercise its delegated authority to resolve statutory ambiguities. The reviewing court typically takes no position on whether what the agency thought the statute “mandated” could be a reasonable interpretation under Chevron step 2.
In this case, the court of appeals issued this kind of administrative remand. USDA then opened its rule to notice and comment rulemaking and, after considering all relevant factors, readopted its prior rule as the best interpretation of the statute. Since USDA‘s interpretation is reasonable, this Court affords it deference under Chevron step 2 and will not displace it in favor of Prime Time‘s preferred interpretation. Therefore, the Court will deny Prime Time‘s cross-motion for summary judgment in Civil Action No. 06-1077. Since the past due assessment amounts are otherwise uncontested, the Court will enter summary judgment in favor of the United States in Civil Action No. 12-910 in the amount of $11,679,006.05, plus any amounts of unpaid assessments and interest accrued between September 14, 2012, and this date.
A separate Order accompanying this Memorandum Opinion shall issue this date.
ROYCE C. LAMBERTH
CHIEF JUDGE
UNITED STATES DISTRICT COURT