Tobaccoville USA Inc v. United States Department of The Treasury

Filing 25

AMENDED ORDER denying 8 Motion for Temporary Restraining Order, Preliminary Injunction, or Stay. Signed by the Honorable R. Bryan Harwell on 3/9/2016. (eney, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
FLORENCE DIVISION
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.
)
____________________________________)

Civil Action No.: 4:16-cv-00424-RBH

ORDER

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 Fact2
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.
1

The Court prepared this Order in an expedited manner due to obvious time constraints, and it reserves the
right to modify this Order in the future.

2

The Court gleans these facts from Plaintiff’s complaint and amended complaint, Plaintiff’s current motion
and attached exhibits, Defendants’ response and attached exhibit, and representations made by the parties at the
expedited hearing. See ECF Nos. 1, 7, 8, 13, and 15.

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
3

TTB is a federal bureau under the Department of the Treasury and is “responsible for enforcing the laws
regulating alcohol production, importation, and wholesale businesses; tobacco manufacturing and importing
businesses; and alcohol labeling and advertising.”
TTB’s Responsibilities— W hat W e D o,
http://www.ttb.gov/consumer/responsibilities.shtml.

4

The statutes do not specify whether they are retroactive.

2

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

5

Significantly, TTB promulgated the temporary regulation without prior notice and public comment. See
78 Fed. Reg. 38,555, 38,567 (June 27, 2013) (“TTB is issuing this temporary final rule without prior notice and
comment pursuant to authority under section 4(a) of the Administrative Procedure Act (5 U.S.C. [§] 553(b)). This
provision authorizes an agency to issue a rule without prior notice and comment when the agency for good cause
finds that those procedures are ‘impracticable, unnecessary, or contrary to the public interest.’ W e believe prior
notice and comment is unnecessary because we expect the affected industry members will benefit from an extension
of the permit duration which will reduce the industry members' ongoing regulatory burdens. In addition, TTB
believes that good cause exists to provide the industry with this temporary rule because, in addition to the extension
of the duration of the permit, the temporary rule incorporates statutory amendments that are already in effect.”).

3

import permit. At some point in the proceeding Tobaccoville filed a motion to compel, which the
administrative law judge found to be untimely.
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

6

Tobaccoville amended its complaint on February 24, 2016.

7

5 U.S.C. § 551, et seq.

8

Tobaccoville also seeks attorney’s fees.

4

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 prejudice and
specifying the merits hearing for the contested administrative proceeding remained scheduled for March
2, 2016.
On February 25, 2016, Tobaccoville filed the instant Motion for a Temporary Restraining Order,
Preliminary Injunction, or Stay. In its motion, Tobaccoville requests injunctive relief based on the same
allegations presented in its complaint. The Court held a hearing the next day—Friday, February 26,
2016—heard arguments from both Tobaccoville and TTB, and directed TTB to file a response to
Tobaccoville’s motion by Monday, February 29, 2016. TTB filed a response on the morning of
February 29, 2016.
Conclusions of Law
Federal Rule of Civil Procedure 65 establishes the procedure for federal courts to grant
preliminary injunctions.10 See Fed. R. Civ. P. 65. Because of the extraordinary nature of injunctive
relief, the Supreme Court has admonished that preliminary injunctions “may only be awarded upon a
clear showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Def. Council, Inc., 555
U.S. 7, 22 (2008).
A plaintiff seeking a preliminary injunction must establish all four of the following elements:

9

On February 17, 2016, Tobaccoville filed a motion asking the administrative law judge to reconsider his
order denying the motion to compel discovery. In the February 23, 2016 order, the administrative law judge granted
TTB until February 26, 2016, to file a response to Tobaccoville’s pending motion.

10

Because TTB has received notice and an opportunity to respond, the Court treats Plaintiff’s motion as one
for a preliminary injunction. See, e.g., Reliable Prop. Servs., LLC v. Capital Growth Partners, LLC, 1 F. Supp. 3d
961, 962 n.2 (D. Minn. 2014) (“Although the motion is styled as a motion for a temporary restraining order,
defendants have received notice and an opportunity to respond. Accordingly, the [c]ourt treats it as a motion for a
preliminary injunction.”).

5

(1) that the plaintiff is likely to succeed on the merits, (2) that the plaintiff is likely to suffer irreparable
harm in the absence of preliminary relief, (3) that the balance of equities tips in the plaintiff’s favor, and
(4) that an injunction is in the public interest. League of Women Voters of N. Carolina v. N. Carolina,
769 F.3d 224, 236 (4th Cir. 2014) (citing Winter, 555 U.S. at 20). A plaintiff must make a clear
showing that it is likely to succeed on the merits of its claim. Winter, 555 U.S. at 20-22. Likewise, a
plaintiff must make a clear showing that it is likely to be irreparably harmed absent injunctive relief.
Id. Only then may the court consider whether the balance of equities tips in the plaintiff’s favor. Real
Truth About Obama, Inc. v. Fed. Election Comm’n, 575 F.3d 342, 346-47 (4th Cir. 2009), vacated on
other grounds, 559 U.S. 1089 (2010), reissued in part, 607 F.3d 355 (4th Cir. 2010), overruling
Blackwelder Furniture Co. of Statesville v. Seilig Mfg. Co., 550 F.2d 189 (4th Cir. 1977). Finally, the
court must pay particular regard to the public consequences of employing the extraordinary relief of
injunction. Id. at 347.
Without expressing any opinion as to the merits of Tobaccoville’s claims,11 the Court finds it
cannot grant injunctive relief in this matter. In its response to Tobaccoville’s motion, TTB makes the
following statement:
[T]he Alcohol and Tobacco Tax and Trade Bureau (TTB) has
confirmed that the plaintiff will maintain its permit throughout
the administrative and any judicial review of its application. The
plaintiff thus will be able to remain in business while it makes it[s]
case – including any challenges to the discovery rulings – in the
administrative proceeding and, if necessary, in judicial review of the
final administrative action. As a result, the plaintiff will suffer no
harm, much less any irreparable harm, by allowing the pending
administrative proceeding to run its course.
ECF No. 15 at 2. Elsewhere in its response, TTB reiterates “that plaintiff will maintain its permit

11

In particular, the Court emphasizes it expresses no opinion as to the merits of the discovery issue.

6

throughout the administrative and judicial review process.” Id. at 5.
In light of TTB’s representations, the Court cannot conclude Tobaccoville faces irreparable harm
without an injunction. Tobaccoville will not lose its permit throughout any phase of the administrative
proceedings. Even if TTB’s final decision results in Tobaccoville being denied a permit, Tobaccoville
will not lose its permit if it subsequently seeks judicial review of an adverse administrative decision.
The Court notes TTB’s authority to allow Tobaccoville to maintain its permit throughout all levels of
administrative and judicial (if any) proceedings exists under the Administrative Procedures Act, which
provides that “[w]hen an agency finds that justice so requires, it may postpone the effective date of
action taken by it, pending judicial review.” 5 U.S.C. § 705. In short, Tobaccoville does not face an
imminent danger of losing its current ability to import tobacco products, not even “for one day” as it
alleges. See ECF No. 13 at 4.
Furthermore, the Court finds Tobaccoville will not suffer irreparable harm by having to exhaust
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.’” Philip Morris, Inc. v. Block, 755 F.2d 368, 369 (4th Cir. 1985) (quoting Myers v.
Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51 (1938)). The Fourth Circuit “has noted, however,
that judicial intervention is authorized when an agency acts in ‘brazen defiance’ of its statutory
authorization.” Id. Other exceptions to the exhaustion requirement include situations where the
administrative proceeding involves questions of significant national interest or where the administrative
agency has clearly violated the constitutional rights of the party seeking to bypass exhaustion. Id. at
371. The Court finds no such exception applies in this case.
Tobaccoville has not cited any authority with procedural facts similar to those present in this
7

case, i.e., where the administrative law judge allegedly errs in limiting discovery and where the district
court intervenes in the ongoing administrative proceeding.

In fact, there is authority directly

contradicting Tobaccoville’s position:
The appellants argue that the district court’s order was premature
because of the “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.” Myers v.
Bethlehem Corp., 303 U.S. 41, 51 (1938). This doctrine has retained
its vitality, and apart from narrow exceptions, Leedom v. Kyne, 358
U.S. 184 (1958) and McKart v. U.S., 395 U.S. 185 (1969), the federal
courts continue to apply it in order to avoid the untimely interruption
of the administrative process. Borden, Inc. v. F.T.C., 495 F.2d 785,
787 (7th Cir. 1974).
....
Obviously the administrative proceeding here had not progressed to
a hearing. Who knows whether the Administrative Law Judge will
find the evidence sufficient to sustain the charges, or whether the
Secretary will agree with him if he does? If the final order were
favorable to appellees, the present contentions would be moot. Once
the hearing be completed, the devices suggested by the
Administrative Law Judge may have proved adequate, or events at the
hearing may demonstrate a need for the inquiry desired by appellees,
and persuade the Administrative Law Judge to follow a procedure
which will satisfy them. See Maremont Corporation v. F.T.C., 431
F.2d 124, 128 (7th Cir. 1970). “Until administrative action has
become final, no court is in a position to say that such action did or
did not conform to applicable regulations.” Sampson v. Murray, 415
U.S. 61, 74 (1974).
Assuming a final order, adverse to appellees, and that they continue
to contend that denial of discovery prejudiced their defense, such
denial may be reviewed along with review of the final action. 5
U.S.C. § 704, Bristol-Myers Company v. F.T.C., 469 F.2d 1116, 1117
(2d Cir. 1972).
Frey v. Commodity Exch. Auth., 547 F.2d 46, 49 (7th Cir. 1976) (reversing the district court’s order that
found the arbitrary denial of pre-hearing administrative discovery violated due process and that enjoined
8

the administrative proceeding from occurring until the plaintiffs were given the opportunity to complete
pre-hearing discovery; and remanding the case to the district court with directions to dismiss). The
Court cannot articulate its reasoning any better than did the Seventh Circuit did in Frey. Tobaccoville
has not yet received a ruling from the administrative law judge, and that ruling may very well be
favorable to Tobaccoville. Moreover, even if the administrative law judge issues an unfavorable
decision, Tobaccoville still has the opportunity to challenge that decision at two more levels of
administrative review before TTB issues a final decision on Tobaccoville’s application.12
Significantly, in one of the cases cited by Tobaccoville, another judge in this district explained
that “[t]o be excused from the administrative exhaustion requirement, plaintiff must show that (1) the
suit involves a collateral attack rather than one on the merits; and (2) its interest in prompt judicial
review is so compelling that deference to the agency’s determination is inappropriate.” Ridgeview
Manor of Midlands, L.P. v. Leavitt, No. C A 307-CV-861-JFA, 2007 WL 1110915, at *4 (D.S.C. Apr.
9, 2007) (emphasis added) (citing Bowen v. City of New York, 476 U.S. 467, 483 (1986)). Tobaccoville
fails to meet the first prong set forth in Ridgeview because its current lawsuit and motion are not a
collateral attack; rather, the lawsuit is an attack on the merits of the as-yet-to-be-decided administrative
proceeding. Specifically, Tobaccoville challenges the administrative law judge’s discovery ruling and
general ability to go forward with the permit application proceedings. The proper time to address these

12

In its response to Tobaccoville’s motion, TTB details the administrative review process. See ECF No. 15
at 5-6 (citing 27 C.F.R. §§ 71.78, 71.107, 71.116). First, the administrative law judge conducts a hearing and
recommends a decision to the TTB Officer (“the Officer”). 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.
However, if the Officer contemplates disapproval, the Officer serves the administrative law judge’s recommendation
on the applicant, informs the applicant of the contemplated disapproval, and affords the applicant the ability to submit
proposed findings and conclusion or exceptions to the recommendation. The Officer then reviews the applicant’s
submission and makes the initial decision. If the Officer does not approve the application, the applicant may appeal
to the TTB Administrator (namely, Defendant Manfreda), who makes the final decision.

9

issues is after Tobaccoville proceeds through all levels of administrative review and obtains a final
decision that it can then appeal to this Court in accordance with 5 U.S.C. §§ 702-706.13
Conclusion
For the reasons explained above, the Court DENIES Plaintiff’s Motion for a Temporary
Restraining Order, Preliminary Injunction, or Stay [ECF No. 8].
IT IS SO ORDERED.

Florence, South Carolina
March 9, 2016

s/ R. Bryan Harwell
R. Bryan Harwell
United States District Judge

13

As explained above, Tobaccoville cannot satisfy all elements of the Winter test for issuing a preliminary
injunction because it has failed to make a clear showing that it will suffer irreparable harm without an injunction.
Therefore, its motion must be denied.

10