Court Opinion

ID: 2967182
Source: CourtListenerOpinion
Date Created: 2015-09-22 02:06:01.235299+00
Date Added: 2024-06-11T15:27:53.978564
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

GOLD DOLLAR WAREHOUSE,
INCORPORATED; GROWERS TOBACCO
WAREHOUSE, INCORPORATED; BIG
BRICK TOBACCO WAREHOUSE,
INCORPORATED,
Plaintiffs-Appellants,

v.
                                        No. 98-2461
DANIEL GLICKMAN, in his official
capacity as Secretary, United States
Department of Agriculture; SAMUEL
J. COLEY, in his official capacity as
North Carolina State Executive
Director of Farm Service Agency,
Defendants-Appellees.

GOLD DOLLAR WAREHOUSE,
INCORPORATED; GROWERS TOBACCO
WAREHOUSE, INCORPORATED; BIG
BRICK TOBACCO WAREHOUSE,
INCORPORATED,
Plaintiffs-Appellees,

v.
                                        No. 98-2491
DANIEL GLICKMAN, in his official
capacity as Secretary, United States
Department of Agriculture; SAMUEL
J. COLEY, in his official capacity as
North Carolina State Executive
Director of Farm Service Agency,
Defendants-Appellants.
Appeals from the United States District Court
for the Eastern District of North Carolina, at Greenville.
Malcolm J. Howard, District Judge.
(CA-97-174-4-H)

Argued: November 30, 1999

Decided: April 13, 2000

Before MURNAGHAN, LUTTIG, and MOTZ, Circuit Judges.

_________________________________________________________________

Affirmed in part, reversed in part, and remanded with instructions by
published opinion. Judge Luttig wrote the opinion, in which Judge
Murnaghan and Judge Motz joined.

_________________________________________________________________

COUNSEL

ARGUED: Thomas Courtland Manning, MANNING & CROUCH,
Raleigh, North Carolina, for Appellants. Barbara Dickerson Kocher,
Assistant United States Attorney, Raleigh, North Carolina, for Appel-
lees. ON BRIEF: Howard E. Manning, Jr., Kristen G. Lingo, Thomas
C. Kilpatrick, MANNING, FULTON & SKINNER, P.A., Raleigh,
North Carolina, for Appellants. Janice McKenzie Cole, United States
Attorney, Anne M. Hayes, Assistant United States Attorney, Raleigh,
North Carolina, for Appellees.

_________________________________________________________________

OPINION

LUTTIG, Circuit Judge:

Appellants tobacco warehouses appeal from the district court's dis-
missal, for failure to state a claim, of their challenge to appellee
United States Department of Agriculture's ("USDA")1 assessment of
_________________________________________________________________
1 We refer to the defendant-appellees collectively as the USDA.

                    2
penalties. The USDA cross-appeals from the district court's rejection
of its argument that the district court lacked subject matter jurisdiction
over the dispute because the warehouses had not exhausted their
administrative remedies; from the district court's declaratory judg-
ment that the USDA may not assess penalties for activities that
occurred outside a five-year statute of limitations period; and from the
district court's permanent injunction prohibiting the USDA from
enforcing penalties that would violate the statute of limitations.

For the reasons that follow, we affirm the district court's dismissal
of one of the warehouses' claims. We hold, however, that the ware-
houses were required to complete their administrative appeal before
bringing two of their other claims in federal court, and therefore that
the district court lacked subject matter jurisdiction over those claims.
Accordingly, we affirm in part, reverse in part, and remand with
instructions to dismiss the claims that require exhaustion.

I.

The warehouses participate in the USDA's tobacco regulatory
scheme. Under this scheme, the USDA sets quotas to limit the amount
of tobacco individual farmers, or producers, are permitted to sell with-
out losing their price protection from the government. Any excess
tobacco over the quota limit that is sold by a producer is subject to
a tobacco marketing quota ("TMQ") penalty of seventy-five percent
of the market price of the tobacco.2 Recognizing that excess tobacco
_________________________________________________________________
2 The TMQ penalty is established by 7 U.S.C. § 1314(a):

          The marketing of (1) any kind of tobacco in excess of the mar-
          keting quota for the farm on which the tobacco is produced . . .
          shall be subject to a penalty of 75 per centum of the average
          market price . . . . Such penalty shall be paid by the person who
          acquired such tobacco from the producer but an amount equiva-
          lent to the penalty may be deducted by the buyer from the price
          paid to the producer . . . or, if the tobacco is marketed by the pro-
          ducer through a warehouseman or other agent, such penalty
          shall be paid by such warehouseman or agent who may deduct
          an amount equivalent to the penalty from the price paid to the
          producer . . . .

7 U.S.C. § 1314(a) (emphasis added).

                     3
continues to be sold without anyone paying the TMQ penalties, the
USDA has promulgated regulations over the years that extend the
responsibility for paying the TMQ penalties to agents other than the
producers.

There are three primary players in the sale of tobacco -- producers,
dealers, and warehouses. Producers can auction their"producer
tobacco" to dealers through auction on warehouse floors or through
non-auction sales to dealers, and all of their sales are required by the
USDA to be recorded on producer "cards," which indicate the amount
of the producer's quota that has been sold. Once the producer tobacco
has been sold by some means to a dealer, it becomes"resale tobacco"
and can either be sold from dealer to dealer or through auction on a
warehouse floor. Dealers also maintain dealer cards to record their
purchases and sales so that the USDA can verify that they have not
sold more than they recorded that they purchased. By 1992, the
USDA extended liability for unpaid TMQ penalties to"[a] dealer or
warehouse operator who permits [a person who owes TMQ penalties]
to use such dealer's or warehouse operator's identification card to
market tobacco." 7 C.F.R. § 723.311(d)(2).

The plaintiffs in this case are warehouses that were notified on
August 4, 1997, by letters from the USDA that they were being
assessed for unpaid TMQ penalties from sales of excess tobacco in
1990, 1991, and 1992. In relevant part, the letters from the USDA
read as follows:

           This determination and resulting assessment arises out of
          an investigation of fraud and other illegal activity in the
          flue-cured tobacco program for the 1990-1992 marketing
          years by tobacco dealers, warehouse operators and others.
          ...

           This investigation revealed, in a number of cases, a
          scheme to market excess tobacco. Generally, a tobacco
          dealer or other person familiar with tobacco auction ware-
          houses and their operation would solicit persons to act as
          bogus dealers and those bogus dealers would obtain a
          tobacco dealer registration card and record books . . . . The
          "true" dealer would then use the bogus dealer registration

                    4
          number and [book] to make false records and reports of pur-
          chases of tobacco from the bogus dealer to the "true" dealer
          that would then be used to sell excess tobacco of local pro-
          ducers at auction warehouses. . . .

          ....

           . . . These arrangements in the schemes set forth above
          effectively amounted to a first marketing of the producer
          tobacco on the floor of the warehouse, but under the guise
          of the tobacco being tobacco which belonged to the dealers
          [i.e. dealer tobacco].

J.A. 35-37, 49-51 (emphasis added). The warehouses, which are
required by the USDA to sell dealers' resale tobacco, contend that, to
the contrary, they went above and beyond to ensure that dealers were
legitimate and that they did not in any way collude to sell excess pro-
ducer tobacco without paying the TMQ penalties.

The warehouses appealed the assessments within the agency,
which appeal was stayed pending the result of a civil false claims
action. J.A. 42, 56. Following the stay of their appeal, the warehouses
filed the present action in the district court for a declaratory judgment
that the USDA lacked statutory authority to assess TMQ penalties
against them; for a declaratory judgment that the USDA's assess-
ments of any penalties due before August 4, 1992, were time-barred
by the five-year statute of limitations in 28 U.S.C.§ 2462;3 and for
injunctions preventing the USDA from enforcing any assessments, or
in the alternative, any assessments for penalties due before August 4,
1992.
_________________________________________________________________
3 The generally applicable statute of limitations reads:

          Except as otherwise provided by Act of Congress, an action, suit
          or proceeding for the enforcement of the civil fine, penalty, or
          forfeiture, pecuniary or otherwise, shall not be entertained unless
          commenced within five years from the date when the claim first
          accrued . . . .

28 U.S.C. § 2462 (emphasis added).

                    5
The district court held that no administrative remedy was available
to the plaintiffs for their challenge to the regulations and therefore
rejected the USDA's argument that the court lacked subject matter
jurisdiction because the warehouses had not exhausted administrative
remedies. J.A. 226-31. The court also granted the warehouses' request
for a declaratory judgment that the USDA could not enforce penalties
due before August 4, 1992, and permanently enjoined the USDA from
collecting those penalties. J.A. 244. However, the court denied the
warehouses' request for a declaratory judgment nullifying the USDA
regulations, and granted the USDA's motion to dismiss for failure to
state a claim, because there was no set of facts that would entitle the
warehouses to relief on their claim that the USDA regulations
exceeded its statutory authority. J.A. 231-38. The warehouses
appealed and the USDA cross-appealed.

II.

We address first the question of whether the district court properly
exercised subject matter jurisdiction over this dispute. We conclude,
for the reasons recited below, that the district court properly exercised
subject matter jurisdiction over one of the claims made by the ware-
houses but improperly exercised jurisdiction over two other of the
warehouses' claims.

We confess at the outset considerable uncertainty even as to the
precise arguments advanced by the warehouses on the exhaustion
question; however, after painstaking study of the briefs, we realize
that much of that uncertainty is attributable to the briefing itself and
to the arguments by the parties, and in particular to the briefing and
argument of the warehouses.

The warehouses frame the issues before the court, in terms that
bespeak the quintessential as applied challenge to agency regulations,
as whether the USDA exceeded its authority by promulgating regula-
tions that impose penalties on warehouses "even though (a) the ware-
houses properly complied with all of their regulatory obligations and
went above and beyond their duties to avoid selling excess tobacco;
[and] (b) the USDA's own negligent supervision of the tobacco mar-
ket contributed to the loss of the funds the USDA now seeks to
recover . . . ." Appellants' Br. at 1 ("Statement of Issues"). Although

                     6
they so frame the issues presented for review, the warehouses proceed
to spend the lion's share of their brief arguing, as apparently they did
before the district court, that the relevant USDA regulations exceed
the scope of the agency's authority under 7 U.S.C.§ 1314 because
they permit the USDA to assess penalties against warehouses for their
sale of excess resale tobacco from dealers, whereas, they contend,
section 1314 permits the assessment of penalties against the ware-
houses only for the purchase of excess tobacco directly from the pro-
ducers. See, e.g., id. at 3-22 (arguing that the warehouses' challenge
to the regulations depends on the "fact" that penalties were assessed
for the warehouses' sale of resale tobacco from the dealer); see also
J.A. 234 (district court op.) (observing that "plaintiffs contend Con-
gress intended that [TMQ] penalties be assessed against warehouses
only when warehouses purchased tobacco from producers"). So seem-
ingly evident is it from this portion of their brief that this is the ware-
houses' principal argument -- even though it was advanced in the
warehouses' "Statement of the Facts" and "Statement of Regulatory
Background" -- that the United States responds almost exclusively to
this argument in its Brief in Response. In the "Argument" section of
their brief, however, the warehouses argue instead (and only) that the
regulations exceed the scope of section 1314 not because they permit
the imposition of penalties for the sale of resale tobacco, but, rather,
because they impose direct and personal liability for TMQ penalties
upon warehouses, whereas, the warehouses contend, the statute pro-
vides only that the warehouses shall collect the TMQ penalties from
those persons who owe them. See, e.g. , Appellants' Br. at 25 ("By
adding regulations . . . that expanded the warehouses' liability for the
TMQ penalties beyond mere collection responsibility, the government
seeks to collect money from warehouses that it otherwise cannot
under 7 U.S.C. § 1314(a)."); id. at 27 ("[The statute] does not put per-
sonal liability for the TMQ Penalty, beyond mere collection responsi-
bility, on the warehouse . . . .").

The confusion sown by the warehouses' submissions was only
compounded by their oral argument before the court. Before us, the
warehouses led with the argument that the USDA could not impose
personal liability on them, but, rather, was limited to enforcement of
the warehouses' statutory obligation to collect the TMQ penalties
from those persons responsible for their payment-- the argument that
they had devoted comparatively little time briefing. In midstream,

                     7
however, they shifted to the argument that the USDA could not penal-
ize the warehouses for tobacco bought from dealers (i.e., resale
tobacco), counsel for the warehouses declaring at one point, for exam-
ple, that "[t]his is all resale tobacco. The case is not about anything
else but resale tobacco." At other times, the warehouses appeared to
combine the two arguments. Thus, when asked whether the statute
ever permits the USDA to assess penalties against warehouses, coun-
sel responded that "[i]f they are the people who are marketing the
tobacco for the producer, then it is their duty to collect the marketing
penalty." And, as the argument progressed, the warehouses even
appeared on occasion to contradict their own arguments. When asked
by the court, for example, whether they were contending that the
USDA was without any authority to levy a penalty against ware-
houses, counsel for the warehouses replied "[n]o, we are not contend-
ing that," a disclaimer that would seem to represent an abandonment
of their collection argument. And, in rebuttal, in response to yet other
questions, counsel stated that "[they were] not saying that the regula-
tions do not reach resale tobacco," a statement that would seem to
represent an abandonment of their argument that the regulations
exceed the scope of the statute because they permit imposition of a
penalty for the sale of resale tobacco.

Although it is apparent that the warehouses are themselves uncer-
tain which arguments they wish to make in support of their claim that
they were not required to exhaust administrative remedies (and cer-
tainly they appear uncertain as to the relative merit of the various
arguments they arguably make), we ascribe to them two principal
arguments -- that the USDA regulations impermissibly impose penal-
ties for the warehouses' sale of resale tobacco and that the regulations
impermissibly impose personal liability on the warehouses. We
understand the warehouses' remaining arguments essentially to be
policy arguments advanced in support of these two principal legal
arguments. With this charitable ascription to the warehouses, we turn
to the question whether either or both of these arguments (and the dis-
tinct statute of limitations argument) must be administratively
exhausted before federal jurisdiction will lie.

Parties are required by statute to exhaust available administrative
remedies before they may bring an action against the USDA in fed-
eral court. The exhaustion provision reads:

                    8
          Notwithstanding any other provision of law, a person shall
          exhaust all administrative appeal procedures established by
          the Secretary or required by law before the person may
          bring an action in a court of competent jurisdiction against
          -- (1) the Secretary; (2) the Department; or (3) an agency,
          office, officer, or employee of the Department.

7 U.S.C. § 6912(e) (emphasis added). USDA regulations in turn
define when the agency's administrative appeal procedures are avail-
able. The regulations permit program participants to contest "adverse
decisions" made by the USDA within the National Appeals Division
of the agency. 7 C.F.R. § 11.3(a). However, the regulations make
clear, "[t]he procedures . . . may not be used to seek review of statutes
or USDA regulations issued under Federal Law." 7 C.F.R. § 11.3(b).

The district court held that, because the warehouses were challeng-
ing "the department's authority to issue the regulations," the ware-
houses could not avail themselves of the agency appeal procedures
under 7 C.F.R. § 11.3(b). Therefore, the court rejected the govern-
ment's claim that the warehouses were required to exhaust adminis-
trative remedies. J.A. 228-31 (district court op.). Although the district
court separately identified the two claims that we have ascribed to the
warehouses when it addressed the merits of the warehouses' claims,
see id. at 231-32 ("Plaintiffs seek a declaratory judgment that the
USDA has no statutory authority to assess marketing penalties against
them because [the statute] provides that only tobacco producers, and
not warehouse operators, are liable for such penalties."); id. at 234
("[P]laintiffs contend Congress intended that such penalties be
assessed against warehouses only when warehouses purchased
tobacco from producers."), the district court did not distinguish
between these two claims for purposes of its exhaustion analysis. In
failing to consider separately whether each of these individual claims
required exhaustion, we believe that the district court erred. Upon
consideration of these claims separately, we conclude that one
requires exhaustion and one does not.

A.

The warehouses' argument that the regulations exceed the scope of
section 1314 because they permit the USDA to impose personal lia-

                     9
bility, rather than mere collection responsibility, on the warehouses,
we believe does not require exhaustion. It is uncontested that the reg-
ulations do impose personal liability on the warehouses, albeit a lia-
bility that is then subject to a form of indemnification through
discount. Therefore, the warehouses' argument -- whether the regula-
tions, by imposing personal liability on warehouses for the payment
of penalties, exceed the scope of section 1314 -- is indeed a facial
challenge to the regulations. If the warehouses are correct that the
statute does not permit the USDA to impose personal liability against
warehouses at all, there are no circumstances under which the regula-
tions could lawfully be applied so as to impose personal liability on
the warehouses. As a direct facial challenge to the regulations, this
argument cannot be brought within the agency's appellate process
because, as noted, 7 C.F.R. § 11.3(b) precludes agency review of
USDA regulations. Administrative exhaustion is accordingly not
required before suit upon this theory may be brought in federal court.

B.

The second argument that we ascribe to the warehouses, that the
regulations exceed the scope of section 1314 because they permit the
USDA to impose penalties against warehouses for the sale of excess
resale tobacco, however, does require exhaustion. According to this
argument, because section 1314 establishes penalties for tobacco mar-
keted "by a producer through a warehouseman," 7 U.S.C. § 1314(a),
the penalties cannot be imposed on warehouses for tobacco marketed
by a dealer through a warehouseman. As explained below, this claim
is an as applied challenge to the regulations, which includes a predi-
cate challenge to the adverse decision of the agency. Therefore, the
warehouses are required to complete their appeal through the USDA
before they may bring suit in federal court based upon this theory.

The challenged regulations do not distinguish resale tobacco from
producer tobacco. See 7 C.F.R. § 723.311(d)(2) ("A dealer or ware-
house operator who permits an indebted person[, one who owes TMQ
penalties on excess tobacco,] to use such dealer's or warehouse opera-
tor's identification card to market tobacco shall be liable for the
amounts due by the indebted person to the United States under this
part up to the amount of the value of the tobacco so. . . ."). However,
the warehouses' regulatory challenge contests the reach of the regula-

                    10
tions to resale tobacco. As part of that challenge, the warehouses nec-
essarily contend that they were engaged only in the sale of excess
resale tobacco. The USDA, in contrast, contends that the warehouses
were assessed penalties for engaging in the sale of excess producer
tobacco. See J.A. 35-37, 49-51 ("[The warehouses' scheme] effec-
tively amounted to a first marketing of the producer tobacco on the
floor of the warehouse . . . ."); Appellees' Br. at 11-12 ("Agriculture
could prove in the administrative proceedings that the knowing ware-
housemen stepped into the shoes of those persons liable for the TMQ
penalties . . . or that the tobacco was truly marketed through the ware-
house . . . ."); see also id. at 26 ("If the warehouse is used as the con-
duit for the sale at auction of what is in reality"producer" or first-sale
excess tobacco, the warehouse can and must be held responsible
. . . .").

Faced squarely with a challenge to its authority to penalize ware-
housers for their sale of resale tobacco, the USDA would presumably
argue, as they did in this case, that the regulations reach both resale
and producer tobacco. But even if one assumes that the warehouses
are correct that the regulations cannot reach the warehouse sale of
resale tobacco, the antecedent question to resolution of their challenge
remains whether the warehouses were engaged in the sale of resale or
producer tobacco. If they were engaged in the sale of producer
tobacco, the warehouses would have no viable claim, even on the
terms of their own argument. If they were engaged in the sale of
resale tobacco, then, and only then, would they be in a position,
according to their understanding of the regulations, to challenge the
agency's promulgation of the regulations as beyond the agency's stat-
utory authority. The antecedent factual question of whether the ware-
houses were engaged in the sale of producer or resale tobacco is
unquestionably one for the agency in the first instance.

The warehouses' claim that they are facially challenging the USDA
regulations and not the agency's adverse regulatory application of the
regulations, see Appellants' Reply Br. at 3, is, upon close examina-
tion, belied by the warehouses' own briefs and arguments. First, the
warehouses devote the opening twenty-two pages of their initial brief
to establishing their version of the "facts," namely, that, contrary to
the assertions of the USDA, the warehouses were not in collusion to
sell producer tobacco, but rather went to great lengths to verify that

                     11
they were transacting business with legitimate dealers. See Appel-
lants' Br. at 3-22; id. at 5 ("Plaintiff warehouses properly followed all
the tobacco regulations, . . . and did not knowingly sell any excess
tobacco."). They maintain that, in fact, they were dealing in resale
tobacco and therefore could not even have been expected to know that
the tobacco was excess tobacco. See id. at 7 ("The USDA's allega-
tions focus only on the auction sale and Producer Tobacco, and ignore
both the non-auction sale and Resale Tobacco. These omissions give
the incorrect impression that the issues in this case revolve around
auction sales of Producer Tobacco and the alleged failure of the ware-
houses to abide by the auction-sale regulations. The crucial issues
here concern dealers' non-auction purchases of Producer Tobacco and
their subsequent resales of the tobacco." (emphasis added)); id. at 22
("[T]he TMQ penalties at issue in the USDA's actions against plain-
tiffs result from dealer resales of excess tobacco at auction." (empha-
sis added)). And, the warehouses allege that there were no safeguards
put in place by the agency to enable them to know that they were
reselling excess tobacco, and that if anyone is to blame, it is the
agency itself because of its laxity in tracking excess tobacco. See id.
at 10 ("In this case, the USDA failed to properly monitor . . . non auc-
tion entrance [into the market], and this failure, along with its failure
to monitor non-auction resales . . . contributed to the lost TMQ penal-
ties it now seeks to improperly recover from the warehouses."); id. at
14 ("By failing to examine the records in a timely manner, the USDA
is largely responsible for the lost TMQ penalties that it now seeks to
recover from plaintiff warehouses."). These "facts" are necessary for
the warehouses' argument that the USDA exceeded its authority when
it extended liability for TMQ penalties to innocent warehouses for the
sale of resale tobacco.

The warehouses even articulate this challenge to the regulations in
terms specific to the USDA's assessment of the penalties in their par-
ticular case; absent is any language of a facial challenge that there
could be no lawful application of the regulations. For example, as ref-
erenced above, the warehouses frame the "Statement of Issues" before
the court in terms specific to their case, a case in which "(a) the ware-
houses properly complied with all of their regulatory obligations and
went above and beyond their duties to avoid selling excess tobacco;
[and] (b) the USDA's own negligent supervision of the tobacco mar-

                     12
ket contributed to the loss of the funds the USDA now seeks to
recover . . . ." Appellants' Br. at 1.

Indeed, in contesting the district court's dismissal, the warehouses
even acknowledge that there are genuine issues of material fact, or
disputed facts, in this case. See, e.g. , Appellants' Br. at 34 ("[Our]
affidavits show that there are genuine issues of material fact in dis-
pute . . . ."); id. ("[The warehouses] state that each inspected all
required paperwork and never conspired with anyone else to sell
excess tobacco -- contrary to the unsupported assertions of the
USDA."); id. ("The facts that could determine whether plaintiffs are
liable for the TMQ Penalties are therefore in dispute."). Given the
indisputable evidence of the warehouses' underlying factual challenge
to the adverse decision by the USDA to enforce penalties against
them, we are persuaded that the warehouses' appeal within the agency
must be completed before the federal courts can address any residual
challenge that the USDA regulations are invalid to the extent that they
permit the imposition of penalties on warehouses for the sale of resale
tobacco.

C.

We turn, finally, to the warehouses' claim that, regardless of our
view of the substantive merits of their challenges to the USDA regu-
lations, the USDA was precluded by statute of limitations from
imposing penalties for the sale of excess tobacco that occurred more
than five years prior to the date of the agency's assessment. The dis-
trict court did not address this limitations claim at all in its exhaustion
discussion before ruling in favor of the warehouses on the merits of
the claim. Although in oral argument the USDA did not contest the
federal courts' jurisdiction over the statute of limitations issue either,
we leave to the USDA appeal process in the first instance the question
whether 28 U.S.C. § 2462's five year statute of limitations applies to
TMQ penalties assessed by the agency, because this argument by the
warehouses does not constitute a challenge to either a USDA regula-
tion or a federal statute; rather, this is a straightforward argument for
review of the USDA's adverse decision to assess penalties for years
that would fall outside of a five-year statute of limitations period. In
the event the issue is not adequately resolved within the agency

                     13
review process, this court will no doubt benefit from the agency's
deliberations and opinions on this issue.

III.

Having concluded that the district court properly exercised jurisdic-
tion over only the warehouses' claim that the USDA lacked authority
to impose personal liability on them, it remains for us to consider
whether the district court correctly rejected this claim on its merits.
We conclude that it did, this claim bordering on the frivolous.

As observed above, the warehouses are anything but clear in their
articulation of their collection claim. Although the warehouses do not
even attempt to anchor their argument in any particular statutory lan-
guage, presumably they believe that the provision in the statute for
what, in effect, is almost a right of indemnification -- "[the ware-
houseman] may deduct an amount equivalent to the penalty from the
price paid to the producer," 7 U.S.C. § 1314(a) -- negates the per-
sonal liability that otherwise is provided for on the face of the statute
-- "such penalty shall be paid by such warehouseman," id. (emphasis
added).

As it did in its exhaustion discussion, the district court addressed
the warehouses' claims on the merits together in a single undifferenti-
ated discussion, treating the claims as one challenge to the USDA's
regulatory authority. Therefore, it is difficult for us to discern on
which bases the district court rejected the warehouses' resale claim
and on which it rejected the collection claim (assuming that the two
were not rejected on the same bases). For example, the district court
held that the regulations were "reasonably related" to 7 U.S.C. § 1314,
and that the USDA's only means of collecting the unpaid TMQ penal-
ties at this point is to collect the penalties from the warehouses. J.A.
234-36 (citing Mourning v. Family Publications Servs., 411 U.S. 356,
369 (1973) ("[T]he validity of a regulation promulgated [under
enabling legislation] will be sustained so long as it is `reasonably
related to the purpose of the enabling legislation.'" (citation omit-
ted))). This reasoning could be the basis for rejection of either of the
warehouse' claims -- that regulations that both reach resale tobacco
and impose personal liability on the warehouses are reasonably

                     14
related to the statute and are necessary for the USDA to collect the
unpaid penalties.

Although this "reasonably related" analysis may provide a reason
for why the USDA can impose personal liability on warehouses for
unpaid TMQ penalties, we believe the warehouses' collection claim
can be rejected for a much simpler reason -- the statute on its face
requires warehouses to pay the penalties, at least when the tobacco is
marketed by the producer through a warehouse.4 See 7 U.S.C.
§ 1314(a) ("[I]f the tobacco is marketed by the producer through a
warehouseman . . ., such penalty shall be paid by such warehouseman
. . . ." (emphasis added)). Given the novelty of this collection theory
-- that the privilege of indemnification essentially operates to negate
altogether the personal liability expressly imposed in the statute -- we
are not surprised that the warehouses cite no authority in support of
this theory. We are satisfied by a reading of plain language of the stat-
ute that Congress did not intend for us to read the statute's optional
deduction language ("may deduct"), which follows the mandatory lia-
bility language ("shall be paid"), even as a condition precedent to the
warehouses' obligation to pay the penalties, much less as a complete
elimination of the mandatory payment obligation that appears on the
face of the statute.
_________________________________________________________________
4 Within this collection theory argument, the warehouses make an
equally suspect claim that imposing personal liability on warehouses
would be in effect imposing strict liability, and thus unfair, because they
lack the necessary information to ensure that they are not selling excess
tobacco. See Appellants' Br. at 29-30. Not only does this argument
piggy-back on the meritless argument that personal liability is not per-
mitted, but the warehouses make no attempt to explain how strict liability
would contravene the statute, which does not include a culpability
requirement.

In yet another proffered argument under the collection theory, the
warehouses contend that the presence of a statutory provision permitting
the USDA to fine warehouses for filing false reports necessarily pre-
cludes the USDA from assessing penalties against warehouses for the
unreported sale of excess tobacco. See id. at 30-32. This argument, in
addition to lacking logical coherence on its face, also ignores the statu-
tory language that makes express the reach of TMQ penalties to ware-
houses. See 7 U.S.C. § 1314(a) ("[The TMQ] penalty shall be paid by
such warehouseman . . . .").

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IV.

For the reasons stated, we conclude that the district court lacked
jurisdiction to hear the warehouses' claim that the regulations cannot
permissibly reach resale tobacco (as well as their claim that the
USDA assessments were subject to a five-year statute of limitations),
and we therefore remand those claims to the district court with
instructions that these claims be dismissed. We conclude, however,
that the warehouses were not required to exhaust their claim that the
regulations impermissibly impose personal liability on warehouses,
and we affirm the district court's denial of the warehouses' request
for a declaratory judgment that, for this reason, the regulations are
ultra vires.

The judgment of the district court is affirmed in part, reversed in
part, and remanded with instructions.

IT IS SO ORDERED

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