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Tobaccoville USA Inc. v. United States Department of Treasury

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

January 19, 2017

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 Defendants' motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). See ECF No. 26. The Court grants Defendants' motion for the reasons set forth below.

         Background

         The factual and procedural history of this case and the underlying administrative proceeding are fully set forth in this Court's March 9, 2016 order. See ECF No. 25, available at 2016 WL 892661. In brief, Tobaccoville USA, Inc. (“Tobaccoville”) holds a tobacco products importer permit issued by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”).[1] Due to new regulations issued by TTB, Tobaccoville had to reapply for a permit.[2] TTB issued a notice of contemplated disapproval of Tobaccoville's permit application, and Tobaccoville contested the contemplated disapproval by requesting a hearing before an administrative law judge. Despite the ongoing administrative proceeding, Tobaccoville has filed the instant action in this Court against TTB and two individual defendants[3] (collectively, “Defendants”) seeking declaratory and injunctive relief.[4] Defendants have now filed a motion to dismiss pursuant to Rule 12(b)(1) and Rule 12(b)(6) of the Federal Rules of Civil Procedure. ECF No. 26. Tobaccoville has filed a response in opposition (with exhibits), and Defendants have filed a reply. See ECF Nos. 27 & 28.

         Discussion

         Defendants move to dismiss Tobaccoville's claims pursuant to both Federal Rule of Civil Procedure 12(b)(1) (lack of subject matter jurisdiction) and 12(b)(6) (failure to state a claim upon which relief can be granted), arguing Tobaccoville has failed to exhaust its administrative remedies.[5] “There is some uncertainty as to whether a failure to exhaust administrative remedies is properly brought in a Rule 12(b)(1) motion, as a jurisdictional defect, or in a Rule 12(b)(6) motion for failure to state a claim.”[6] Temples v. U.S. Postal Serv., No. 3:12-cv-00034-JFA-SVH, 2012 WL 1952655, at *2 (D.S.C. May 8, 2012), adopted by, 2012 WL 1952299 (D.S.C. May 30, 2012). Notably, the United States Court of Appeals for the Fourth Circuit “has characterized exhaustion as a jurisdictional requirement” that is “more properly addressed under Rule 12(b)(1), instead of Rule 12(b)(6).” Agolli v. Office Depot, Inc., 548 F. App'x 871, 875 (4th Cir. 2013) (citing Balas v. Huntington Ingalls Indus., Inc., 711 F.3d 401, 406 (4th Cir. 2013)). Moreover, Rule 12(b)(1) would appear to be the more appropriate vehicle, given that Tobaccoville has submitted various exhibits in support of its response in opposition to Defendants' motion to dismiss. See ECF Nos. 27-1 through 27-8; Goldfarb v. Mayor & City Council of Baltimore, 791 F.3d 500, 506 (4th Cir. 2015) (“When a defendant challenges subject matter jurisdiction via a Rule 12(b)(1) motion to dismiss, the district court may regard the pleadings as mere evidence on the issue and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment.”); Melendez v. Sebelius, 611 F. App'x 762, 763 (4th Cir. 2015) (“Where a challenge under Rule 12(b)(1) is raised to the asserted basis for subject matter jurisdiction, the burden of proving the asserted basis for jurisdiction falls on the plaintiff.”). In any event, Tobaccoville's case must be dismissed because it has not exhausted its administrative remedies.

         “It is a ‘long-settled rule of judicial administration that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted.'” Cavalier Tel., LLC. v. Virginia Elec. & Power Co., 303 F.3d 316, 322 (4th Cir. 2002) (quoting Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 51 (1938)). “In other words, ‘[w]here relief is available from an administrative agency, the plaintiff is ordinarily required to pursue that avenue of redress before proceeding to the courts; and until that recourse is exhausted, suit is premature and must be dismissed.'” Id. (alteration in original) (quoting Reiter v. Cooper, 507 U.S. 258, 269 (1993)). “The exhaustion requirement serves many purposes, not the least of which are to allow an agency the opportunity to use its discretion and expertise to resolve a dispute without premature judicial intervention and to allow the courts to have benefit of an agency's talents through a fully developed administrative record.” Thetford Properties IV Ltd. P'ship v. U.S. Dep't of Hous. & Urban Dev., 907 F.2d 445, 448 (4th Cir. 1990) (internal citation omitted).

         Exhaustion is required where Congress explicitly mandates it. Cavalier, 303 F.3d at 322. “Even where the statutory requirement of exhaustion is not explicit, courts are guided by congressional intent in determining whether application of the doctrine would be consistent with the statutory scheme.” Id. “Thus, every exhaustion inquiry begins with a look at congressional intent and the relevant statutory scheme.” Barnes v. Int'l Amateur Athletic Fed'n, 862 F.Supp. 1537, 1542 (S.D. W.Va. 1993).

         TTB's administrative regulations provide for three levels of administrative review, as summarized in Defendants' motion to dismiss. See ECF No. 26-1 at 3 (citing 27 C.F.R. §§ 71.78, 71.107, 71.116). First, an administrative law judge (“ALJ”) conducts a hearing on the permit application and recommends a decision to the TTB Officer. 27 C.F.R. § 71.78. The Officer then makes an initial decision on whether the permit should be issued; if the Officer concludes the permit should be issued, the application is approved. Id. § 71.107. However, if the Officer contemplates disapproval, the Officer serves the ALJ's recommendation on the applicant, informs the applicant of the contemplated disapproval, and affords the applicant the ability to submit proposed findings and conclusions or exceptions to the recommendation. Id. The Officer then reviews the applicant's submission and makes the initial decision. Id. If the Officer does not approve the application, the applicant may appeal to the TTB Administrator, who makes the final decision.[7] Id. § 71.116. Significantly, the regulations provide that “[a]n appeal to the Administrator is required prior to application to the Federal courts for review.” Id. § 71.115 (emphasis added).

         At the time Defendants filed their motion to dismiss (April 18, 2016), an ALJ had already conducted a hearing on March 2 and 3, 2016, and was in the process of recommending a decision to the TTB Officer.[8] See ECF No. 26-1 at 3. Defendants noted that even assuming the ALJ proposed adverse action on Tobaccoville's permit application, Tobaccoville still had to proceed through two more levels of administrative review-via the Officer and the Administrator-before it could seek judicial review by this Court. Id. at 4.

         In its response to Defendants' motion to dismiss, Tobaccoville does not dispute that administrative proceedings are ongoing. See ECF No. 27. However, Tobaccoville argues:

This case meets a well-recognized exception to the general rule that a district court should dismiss litigation prior to a final administrative decision in a regulatory matter. . . .
The Constitutional issues presented in this case are such that Tobaccoville's interest in prompt access to judicial review, under normal judicial process, outweighs the government's interest in efficiency or administrative autonomy. Furthermore, the actions of TTB below clearly indicate that the TTB pre-determined its denial of Tobaccoville's import permit, rather than conducting an impartial investigation and review.

Id. at 1. Tobaccoville justifies these arguments by citing McCarthy v. Madigan, 503 U.S. 140 (1992), wherein the United States Supreme Court extensively discussed the general principles of exhaustion and limited exceptions thereto. See 503 U.S. at 144-49. The Supreme Court stated, “[A]dministrative remedies need not be pursued if the litigant's interests in immediate judicial review outweigh the government's interests in the efficiency or administrative autonomy that the exhaustion doctrine is designed to further.” Id. at 146. The Supreme Court then outlined “three broad sets of circumstances in which the interests of the individual weigh heavily against requiring administrative exhaustion”; those circumstances include: (1) when requiring exhaustion may unduly prejudice subsequent court action; (2) when an agency's remedy may be inadequate; and (3) “where the administrative body isshown to be biased or has otherwise predetermined the issue before it.” Id. at 146-48 (emphasis ...


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