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Tobaccoville USA, Inc. v. United States Department of Treasury, Alcohol and Tobacco Tax and Trade Bureau

United States District Court, D. South Carolina, Florence Division

February 29, 2016

Tobaccoville USA, Inc., Plaintiff,
v.
United States Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau; John Manfreda, Administrator, in his official capacity; and Jacob J. Lew, Secretary of the Treasury, in his official capacity, Defendants.

ORDER

R. Bryan Harwell United States District Judge

This matter is before the Court on Plaintiff’s Motion for a Temporary Restraining Order, Preliminary Injunction, or Stay, filed on February 25, 2016. See ECF No. 8. The Court held an expedited hearing on the motion the next day, February 26, 2016; all parties were represented and afforded the opportunity to present arguments. The Court denies Plaintiff’s motion for the reasons set forth below.[1] In so ruling, the Court makes the following findings of fact and conclusions of law.

Findings of Fact[2]

Plaintiff Tobaccoville USA, Inc. (“Tobaccoville” or “Plaintiff”) is a South Carolina corporation with its principal place of business in Hartsville, South Carolina. Tobaccoville is an importer and distributor of Seneca brand cigarettes, which are manufactured in Canada by Grand River Enterprises Six Nations, Ltd. John M. June, Jr. and Larry C. Phillips are shareholders and officers of Tobaccoville.

Defendant United States Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau (“TTB”) is responsible for, among other duties, [3] issuing permits relating to the importation of tobacco. Defendant John Manfreda is the Administrator of TTB, and Defendant Jacob J. Lew is the Secretary of the Treasury.

On January 17, 2006, TTB issued a tobacco products importer permit to Tobaccoville. On February 4, 2009, Congress amended portions of the statutes relating to permits for the importation of tobacco; the amendments allow TTB to deny or revoke a permit-after notice and the opportunity for a hearing-if the permit holder (or in the case of a corporation, one of its principals) is convicted of a tobacco-related felony under state or federal law. See 26 U.S.C. §§ 5712(3)(B), 5713(b)(1).[4]

On January 26, 2010, the State of North Carolina indicted June and Phillips-principals of Tobaccoville-for conspiracy to obtain property by false pretenses, obtaining property by false pretenses, and tax evasion. The indictments alleged that the crimes occurred between August 2005 and May 2007. On January 6, 2011, June and Phillips entered into a plea agreement, made pursuant to North Carolina v. Alford, 400 U.S. 25 (1970), in which they agreed to plead guilty to lesser included offenses to the charges in the indictments and specified the criminal conduct occurred in August 2005.

Based upon the 2009 statutory amendments and June’s and Phillips’s convictions, TTB instituted a permit revocation proceeding against Tobaccoville by issuing a rule to show cause dated March 30, 2012. In late 2012 and early 2013, an administrative law judge issued orders staying the revocation proceedings to allow the parties to participate in settlement negotiations. The parties did not reach a settlement, and litigation continued in 2013.

While the revocation proceeding was pending, TTB promulgated a temporary regulation requiring all tobacco import permit holders with a permit issued before August 26, 2013, to reapply. See 27 C.F.R. §§ 41.201(b), 41.202(b) (effective August 26, 2013).[5] Tobaccoville submitted an application for a new permit on January 23, 2014.

The parties never reached a settlement agreement. Instead, because Tobaccoville had applied for a new permit, TTB dismissed the permit revocation proceeding and indicated in the corresponding notice of dismissal (dated May 20, 2014) that Tobaccoville was permitted to operate under its existing permit until TTB acted upon Tobaccoville’s application.

On June 24, 2015, TTB sent Tobaccoville a formal “Notice of Contemplated Disapproval of Application for Permit.” Tobaccoville contested the contemplated disapproval by submitting a written request asking for a hearing before an administrative law judge. The contested administrative proceeding is currently the matter at issue in Tobaccoville’s instant motion.

During the course of the contested administrative case, Tobaccoville sought discovery relating to (1) TTB’s treatment of permit holders and applicants similarly situated to Tobaccoville, (2) the retroactive application of the 2009 statutory amendments, and (3) the implementation process for the August 26, 2013 temporary regulation under which Tobaccoville was required to reapply for a tobacco import permit. At some point during the proceeding, Tobaccoville filed an untimely motion to compel discovery in the administrative law court.

On February 10, 2016, Tobaccoville filed a complaint in this Court seeking declaratory and injunctive relief.[6] In its complaint, Tobaccoville asserts, among other allegations, that denial or revocation of its permit will cause irreparable harm; that it need not exhaust administrative remedies due to unconstitutional restrictions on its ability to develop a record in the contested administrative proceeding; that TTB’s attempts to force Tobaccoville to reapply for a new permit unconstitutionally realign the burden of proof for a revocation proceeding; that TTB’s interpretation of the relevant statutes and regulations concerning tobacco import permits is unconstitutional; that TTB’s actions constitute a taking without compensation and thereby violate Tobaccoville’s due process rights; and that TTB’s implementation of the temporary regulation in August 2013 without notice and public comment violates section 553 of the Administrative Procedures Act.[7] Tobaccoville asks the Court (1) to enjoin the pending administrative action from proceeding unless and until Tobaccoville is afforded the opportunity to develop the record through adequate discovery, and (2) to declare that Tobaccoville’s current permit (the one issued in January 2006) remains in full force and effect.[8]

On February 12, 2016, the administrative law judge issued an order denying Tobaccoville’s motion to compel discovery. The administrative law judge found that the motion to compel was untimely and that Tobaccoville failed to show good cause to excuse its tardiness; thus, the judge declined to reopen discovery.[9] On February 23, 2016, the administrative law judge issued an order denying Tobaccoville’s and TTB’s cross-motions for summary judgment without ...


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