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Prime Time Internatonal Co. v. United States Department of Agriculture

United States Court of Appeals, District of Columbia Circuit

June 10, 2014


Argued, May 6, 2014

Appeals from the United States District Court for the District of Columbia. (No. 1:06-cv-01077), (No. 1:12-cv-00910).

Jerry Stouck argued the cause and filed the briefs for appellant. Precious M. Gittens entered an appearance.

Sydney A. Foster, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief were Stuart F. Delery, Assistant Attorney General, Ronald C. Machen, Jr., U.S. Attorney, and Mark B. Stern, Attorney.

Before: HENDERSON, ROGERS, and TATEL, Circuit Judges. Opinion for the Court filed by Circuit Judge TATEL.


Page 1340

Tatel, Circuit Judge

The Fair and Equitable Tobacco Reform Act directs the U.S. Department of Agriculture to fund a subsidy program for tobacco growers by imposing monetary assessments on manufacturers of tobacco products. In this case, one such manufacturer argues that USDA's method of calculating assessments for cigars violates the Act. The district court disagreed, concluding that the Department's approach represented a reasonable interpretation of the Act. We affirm.


Section 518d of the Fair and Equitable Tobacco Reform Act (FETRA) requires USDA to impose monetary assessments on tobacco product manufacturers and importers pursuant to a three-step process. See 7 U.S.C. § 518d. First, USDA must calculate the total monetary assessment needed to fund the subsidy program. See id . § 518d(b)(1)-(2). Second, the Department must apportion this amount among six classes of tobacco products--cigarettes, cigars, snuff, roll-your-own, chewing, and pipe--based, in part, on each class's share of the gross domestic volume of tobacco products. See id . § 518d(c). Third, under subsection (e)--the focus of this case--USDA must divide each class's assessment among the manufacturers and importers within each class " on a pro rata basis . . . based on each manufacturer's and importer's share of gross domestic volume." Id. § 518d(e)(1). Under subsections (f) and (g), USDA " shall . . . determine[]" this amount based on the manufacturer's or importer's " market share" of " the class of tobacco product," id. § 518d(f), which the Department " shall . . . measure[] by[,] in the case of cigarettes and cigars, the number of cigarettes and cigars; and[] in the case of the other classes of tobacco products . . . in terms of number of pounds," id. § 518d(g)(3). In accordance with this three-step process, USDA promulgated the so-called Per Stick Rule, under which it calculates each cigar manufacturer's assessment based on the number of cigars--also known as " sticks" --that the manufacturer puts into commerce. See 7 C.F.R. § 1463.7.

Appellant Prime Time, a manufacturer of small cigars, challenged the Per Stick Rule in district court, arguing that the Rule's equal treatment of small and large cigars violated subsection (e)'s " pro rata basis" requirement. According to Prime Time, subsection (e) requires the Department to account for large and small cigars' different tobacco volume by subdividing the cigar assessment between large and small cigar manufacturers and then allocating the assessment within each subclass based on the number of cigars sold. The district court dismissed the case, but in Prime Time International Co. v. Vilsack, 599 F.3d 678, 389 U.S.App. D.C. 416 (D.C. Cir. 2010) (" Prime Time I" ), this court held, contrary to USDA's position at the time, that the Per Stick Rule was " not mandated by the plain text of FETRA." Id. at 683. Observing that the Act " does not appear to be susceptible of only a single interpretation" and recognizing that " USDA [did] not maintain that its interpretation of FETRA [was] a permissible view of an ambiguous statute entitled to deference under Chevron step 2," we remanded to the district court with instructions to return the issue to the Department for further proceedings. Id.

USDA then solicited public comments on the question of whether it should revisit the Per Stick Rule. After considering the comments, it issued a " Determination" in which it concluded that its calculation " methodology [was] the optimal reading of FETRA" and accordingly declined to revise the Rule. See Determination of the Administrator of the Farm Services Agency

Page 1341

and Executive Vice President of the Commodity Credit Corporation Regarding the Current " Step A" and " Step B" Assessment Methods in the Tobacco Transition Payment Program at 20 (Nov. 16, 2011) (" Determination" ). USDA explained that the Rule implements the statute's language by interpreting subsection (e)(1) " to set the general rule" and subsections (f) and (g) to " inform [it] and direct [it] on how to implement the general rule of (e)." Id. at 30. As to cigars in particular, the Department explained that " the cigar class allocation is . . . properly allocated on a 'pro rata' basis among manufacturers and importers based on each ...

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