                NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 12a0921n.06

                                           No. 11-3163                                    FILED
                                                                                     Aug 20, 2012
                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT                           LEONARD GREEN, Clerk



RYO MACHINE, LLC; TOBACCO OUTLET                         )
EXPRESS, LLC; TIGHTWAD TOBACCO, LLC,                     )
                                                         )        ON APPEAL FROM THE
       Plaintiffs-Appellees,                             )        UNITED STATES DISTRICT
                                                         )        COURT     FOR     THE
v.                                                       )        NORTHERN DISTRICT OF
                                                         )        OHIO
U.S. DEPARTMENT OF TREASURY,                             )
ALCOHOL AND TOBACCO TAX AND TRADE                        )                          OPINION
BUREAU; JOHN J. MANFREDA, Administrator,                 )
Alcohol and Tobacco Tax and Trade Bureau,                )
                                                         )
       Defendants-Appellants.                            )
                                                         )



BEFORE: BATCHELDER, Chief Judge; McKEAGUE, Circuit Judge; and QUIST, Senior
    District Judge.*

       McKEAGUE, Circuit Judge. The Department of Treasury, Alcohol and Tobacco Tax and

Trade Bureau and its Administrator (collectively, “the Bureau”) appeal the district court’s grant of

a preliminary injunction to RYO Machine, LLC (“RYO”) and Tobacco Outlet Express, LLC

(“Tobacco Outlet”) (collectively, “the Companies”). The injunction prevented enforcement of the

Bureau’s ruling 2010-4 (“the Ruling”). The Ruling deemed retailers that offer roll-your-own

cigarette machines “manufacturers of tobacco products” within the meaning of 26 U.S.C. § 5702(d),




       *
       The Honorable Gordon J. Quist, Senior United States District Judge for the Western District
of Michigan, sitting by designation.
No. 11-3163
RYO Machine, LLC, et al. v. U.S. Department of Treasury, Alcohol & Tobacco Tax & Trade Bureau,
et al.

and thus, subjected the retailers to the same permitting processes and taxation as mass

manufacturers. The Companies claim that the Ruling is an incorrect interpretation of § 5702(d).

During the pendency of this appeal, Congress amended § 5702(d) in a way that effectively adopts

the Bureau’s position in the Ruling, prospectively mooting the controversy over how the statute

should apply to roll-your-own retailers as of the date the amendment went into effect. Further, we

disagree with the district court’s conclusion that the Anti-Injunction Act did not preclude its exercise

of jurisdiction over the entire suit. Therefore, we vacate the preliminary injunction and remand this

action to the district court with instructions to dismiss.

                                        I. BACKGROUND

        The Companies manufacture and distribute high-speed cigarette rolling machines that

retailers offer to customers who want to roll their own roll cigarettes. The Companies’ machines

produce a carton of cigarettes in roughly 8 minutes. (See Mot. TRO, Ex. A, TTB Rul. 2010-4 at 2,

ECF No. 2-1.) The Bureau is charged with enforcing the excise tax on tobacco products. 26 U.S.C.

§ 5701. Under the code, any manufacturer of tobacco products is liable to pay the excise tax. 26

U.S.C. §§ 5703(a)(1), 5701(b). Before the Bureau issued the Ruling, retailers offering the

Companies’ machines to customers were not liable for the excise tax because they were not

considered manufacturers. (See Mot. TRO, Ex. A, TTB Rul. 2010-4 at 4, ECF No. 2-1.) The Ruling

deems the retailers manufacturers, and therefore, requires them to acquire manufacturer permits and

pay the excise tax. (Id.)




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No. 11-3163
RYO Machine, LLC, et al. v. U.S. Department of Treasury, Alcohol & Tobacco Tax & Trade Bureau,
et al.

       On October 28, 2010, the Companies and another plaintiff, Tightwad Tobacco, LLC

(“Tightwad”), filed a verified complaint for declaratory and injunctive relief and a temporary

restraining order in the district court. Tightwad is a retailer subject to the Ruling. The Bureau

moved to dismiss the complaint. On December 14, 2010, the district court granted a preliminary

injunction enjoining the Bureau from enforcing the Ruling. See RYO Mach. Rental, LLC v. U.S.

Dept. Treasury, No. 4:10-CV-2462, 2010 WL 5158880, at *11 (N.D. Ohio, Dec. 14, 2010). The

district court also granted the Bureau’s motion to dismiss in part, finding that its jurisdiction over

Tightwad’s claims was barred by the Anti-Injunction Act. Id. at *6. This timely appeal followed.

       During the pendency of this appeal, Congress passed and the President signed into law the

Moving Ahead for Progress in the 21st Century Act, which authorized funding for highways and

other transit programs (“the Highway Act” or “the Act”). See Pub. L. 112-141. The Highway Act

offset the cost of providing such funding, in part, by amending the definition of “manufacturer of

tobacco products” to include retailers who make roll-your-own machines available to customers,

thereby achieving the same result as the Ruling. Specifically, the Highway Act amends 26 U.S.C.

§ 5702(d) as follows:

       [The term “manufacturer of tobacco products”] shall include any person who for
       commercial purposes makes available for consumer use (including such consumer’s
       personal consumption or use under paragraph (1)) a machine capable of making
       cigarettes, cigars, or other tobacco products. A person making such a machine
       available for consumer use shall be deemed the person making the removal as
       defined by subsection (j) with respect to any tobacco products manufactured by such




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RYO Machine, LLC, et al. v. U.S. Department of Treasury, Alcohol & Tobacco Tax & Trade Bureau,
et al.

        machine.[1 ] A person who sells a machine directly to a consumer at retail for a
        consumer’s personal home use is not making a machine available for commercial
        purposes if such machine is not used at a retail premises and is designed to produce
        tobacco products only in personal use quantities.

Pub. L. 112-141 § 100122. This amendment effects sales of roll-your-own cigarettes to customers

after July 6, 2012.

                                         II. JURISDICTION

        The Highway Act divides our assessment of the preliminary injunction into two separate

questions. On the one hand, we must address the status of the district court’s preliminary injunction

after the Act’s effective date, July 6, 2012. On the other hand, we must also address the status of the

injunction before the effective date of the Highway Act. We find that the Highway Act mooted the

underlying controversy with regard to roll-your-own tobacco removed after its enactment. Further,

as for tobacco removed before the amendment’s enactment, we find that the Anti-Injunction Act

barred the district court’s jurisdiction over this matter, and so we vacate the injunction in its entirety.

        Mootness, even when not raised by the parties, is a jurisdictional question which we must

independently resolve. North Carolina v. Rice, 404 U.S. 244, 246 (1971). A case is moot when

there is no prospect that its decision will have an impact on the parties. Murphy v. Hunt, 455 U.S.

478, 481 (1982). This rule applies where the enactment of legislation ends the controversy between



        1
         “Removal” or “remove” is defined as “removal of tobacco products or cigarette papers or
tubes, or any processed tobacco, from the factory or from internal revenue bond under section 5704,
as the Secretary shall by regulation prescribe, or release from customs custody, and shall also include
the smuggling or other unlawful importation of such articles into the United States.” 26 U.S.C.
5702(j).

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RYO Machine, LLC, et al. v. U.S. Department of Treasury, Alcohol & Tobacco Tax & Trade Bureau,
et al.

two parties. See Mosley v. Hairston, 920 F.2d 409, 414 (6th Cir. 1990). Furthermore, “an appellate

court must apply the law in effect at the time it renders its decision.” Thorpe v. Housing Auth. of

Durham, 393 U.S. 268, 281 (1969) (relying on United States v. Schooner Peggy, 5 U.S. (1 Cranch)

103, 110 (1801)). The Highway Act definitively settles the legal status of retailers who provide the

Companies’ machines to customers as manufacturers of tobacco products. Because there is now no

question as to the proper interpretation of § 5702(d) as amended, it appears there is no longer any

live controversy between the parties with respect to tobacco removed after the amendment’s

enactment. Thus, the prospective operation of the preliminary injunction may not extend beyond

July 6, 2012.2

       We also find that the injunction should be vacated in its entirety, i.e., even as to tobacco

removed before the Highway Act’s effective date, because the district court’s exercise of jurisdiction

was barred by the Anti-Injunction Act. With few exceptions, no court has jurisdiction over a suit

to preemptively challenge a tax. 26 U.S.C. § 7421(a); see also Bob Jones Univ., 416 U.S. at 736–37.

This rule arises from a policy preference that those aggrieved by taxation pay the tax first, and then

sue for a refund. Bob Jones Univ., 416 U.S. at 736–37. The Anti-Injunction Act (“AIA”) says that



       2
         In supplemental briefing addressing the effect of the Highway Act’s amendment to § 5702(d)
on this case, the Companies argue that this Court should not vacate the district court’s injunction,
even prospectively from the date of the Highway Act’s enactment, because the Companies suggest
there are “serious questions about the constitutionality of the new legislation . . . involv[ing] the
equal protection aspect of the Due Process Clause and / or the Takings Clause.” (Appellant Ltr. Br.
2.) To the extent the Companies raise a question before this Court as to the constitutionality of the
Highway Act, such a claim preemptively challenging the validity of a tax is barred by the Anti-
Injunction Act, just as the Companies’ claim with regard to the Ruling is barred, as discussed in
detail herein. See Bob Jones Univ. v. Simon, 416 U.S. 725, 736–37, 749 (1974).
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RYO Machine, LLC, et al. v. U.S. Department of Treasury, Alcohol & Tobacco Tax & Trade Bureau,
et al.

“no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in

any court.” 26 U.S.C. § 7421(a). This language prevents courts from asserting jurisdiction over such

cases unless they fall into one of two narrow exceptions to the AIA. See, e.g., Alexander v. Ams.

United Inc., 416 U.S. 752, 757 (1974).

        A decision as to whether an injunction can legally issue under the AIA is reviewed de novo.

Huguley v. Gen. Motors Corp., 999 F.2d 142, 145–46 (6th Cir. 1993). First we must consider

whether the Companies’ complaints are within the purview of the AIA as a “suit for the purpose of

restraining the assessment or collection of any tax.” 26 U.S.C. § 7421(a). If so, we must decide

whether this case falls into an exception to the AIA that would allow us to consider the merits. We

conclude that it does not.

        The Companies purport to challenge the permit requirement and not the excise tax levied on

the retailers—presumably because a claim directly challenging the excise tax is plainly prevented

by the AIA. But the Bureau notes that the acquisition of a permit is intertwined with the overall tax

scheme for tobacco manufacturers, and so a challenge to the permit is equally barred by the AIA.

The AIA has been interpreted broadly to encompass almost all premature interference with the

assessment or collection of any federal tax. See Bob Jones Univ., 416 U.S. at 736–37; see also Int’l

Lotto Fund v. Virg. State Lottery Dep’t, 20 F.3d 589, 591 (4th Cir. 1994) (“Regardless of how the

claim is labelled, the effect of an injunction here is to interfere with the assessment or collection of

a tax. The [plaintiff] is not free to define the relief it seeks in terms permitted by the Anti-Injunction




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RYO Machine, LLC, et al. v. U.S. Department of Treasury, Alcohol & Tobacco Tax & Trade Bureau,
et al.

Act while ignoring the ultimate deleterious effect such relief would have on the Government’s taxing

ability.” (internal quotations omitted)).

        The Supreme Court has found that the AIA applied where nonprofit organizations

complained about a change in their tax-exempt status. See Bob Jones Univ., 416 U.S. at 731–32;

see also Alexander v. Ams. United, Inc., 416 U.S. 752, 755–57 (1974). In Bob Jones University and

Americans United, decided on the same day, the organizations focused their complaints on the fact

that a non-exempt designation would cause their donors to pay taxes, which would decrease the

organizations’ donations. The Court in Bob Jones University, 416 U.S. at 732, said that this

challenge fell “squarely within the literal scope of the Act.” In Americans United, 416 U.S. at 761,

the Court observed “[i]ndeed, respondent would not be interested in obtaining the declaratory and

injunctive relief requested if that relief did not effectively restrain the taxation of its contributors.”

Similarly here, the purpose of the Ruling—and the permitting requirements that go with it—is to

clarify the taxation status of retailers who offer high-speed rolling machines to customers so that the

Bureau can enforce the excise tax. It follows that the Companies’ complaint is directed at the

assessment and collection of taxes, and comes within the ambit of the AIA.

        The district court found that the Companies’ claims fit into the exception to the AIA created

by the Supreme Court in South Carolina v. Regan, 465 U.S. 367 (1984). Ryo Mach. Rental, 2010

WL 5158880 at *4. There, South Carolina sought an injunction against the Tax Equity and Fiscal

Responsibility Act, Public Law 97-248, which made the interest on bearer bonds taxable, while

interest on registered bonds remained non-taxable. South Carolina, 465 U.S. at 370. South Carolina


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No. 11-3163
RYO Machine, LLC, et al. v. U.S. Department of Treasury, Alcohol & Tobacco Tax & Trade Bureau,
et al.

claimed that this forced it to issue registered bonds in violation of the Tenth Amendment. Id. at

371–72. The Supreme Court observed that if the AIA applied, South Carolina would have to depend

on third parties (the bond purchasers) to raise the State’s constitutional challenge in their tax refund

suits. Id. at 379–80. The Court reasoned that “Congress did not intend the Act to apply where an

aggrieved party would be required to depend on the mere possibility of persuading a third party to

assert his claims.” Id. at 381. So the Court created an exception to the AIA where Congress has not

“provided an alternative avenue for an aggrieved party to litigate its claims” and allowed the suit to

go forward. Id.

        But this exception is very narrow. “Because of the strong policy animating the Anti-

Injunction Act, and the sympathetic, almost unique, facts in [South Carolina], courts have construed

the [South Carolina] exception very narrowly, undermining [plaintiff’s] efforts to fit its own claims

within the confines of this exception.” Judicial Watch v. Rossotti, 317 F.3d 401, 408 n.3 (4th Cir.

2003) (citing In re Am. Bicycle Ass’n, 895 F.2d 1277, 1281 (9th Cir. 1990) (“Promoting the purpose

behind the [AIA] requires a strict construction of any possible exceptions.”)); see also Am. Soc. of

Ass’n Execs. v. Bentsen, 848 F. Supp. 245, 250 (D.D.C. 1994) (noting that the exception announced

in South Carolina “is a narrow one tailored to the unique factual pattern in that case”).

        This case is distinguishable from South Carolina in various ways. To begin with, the context

of our consideration is quite different because the South Carolina Court construed the AIA in light

of a claim that barring South Carolina’s suit would be an unconstitutional restriction on the Supreme




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No. 11-3163
RYO Machine, LLC, et al. v. U.S. Department of Treasury, Alcohol & Tobacco Tax & Trade Bureau,
et al.
Court’s original jurisdiction. See South Carolina, 465 U.S. at 373 n.9. Clearly, no such claim exists

in this case.

          Furthermore, the Companies’ interests are inextricably intertwined with those of the retailers.

This is a significant difference from South Carolina, where the bond purchasers had very little

incentive to bring suit. In South Carolina, bond purchasers who wanted to avoid taxation could

simply purchase the registered bonds and avoid the tax altogether. Therefore, the bond purchasers

in South Carolina had no occasion to pay the tax and then sue for a refund. The Court sympathized

with South Carolina’s situation, stating that it was “by no means certain that the State would be able

to convince a taxpayer to raise its claims,” and reasoned that the State should not have to depend on

the “mere possibility of persuading a third party to assert [its] claims.” Id. at 380, 81.

          By contrast here, there is much more than a mere possibility the retailers will obtain the

permit, pay the tax, and sue for a refund. There is no need to find an elusive third-party challenger,

as at least one such challenger already exists. Tightwad, a retailer, was originally part of this lawsuit

and appears to have every incentive to contest the Ruling through a refund suit. More generally, if

retailers choose to continue offering the high-speed rolling machines to customers, they have an

incentive to move forward by obtaining the permit, paying the excise tax, and then suing for a

refund.

          Unlike South Carolina, which sought to preserve its own ability to issue unregistered bonds,

the Companies primarily seek to preserve the position of their customers and thereby to protect

themselves from lost profits. This would be analogous to an investment advisor who specializes in


                                                   -9-
No. 11-3163
RYO Machine, LLC, et al. v. U.S. Department of Treasury, Alcohol & Tobacco Tax & Trade Bureau,
et al.
placing clients under a tax shelter suing to halt the IRS’s invalidation of that shelter because the

advisor would lose business. Some of our sister circuit courts have sensibly held that such suits are

barred by the AIA. See Educo, Inc. v. Alexander, 557 F.2d 617, 620 (7th Cir. 1977); see also Inv.

Annuity, Inc. v. Blumenthal, 609 F.2d 1, 7–8 (D.C. Cir. 1979). It follows that application of the

South Carolina exception here would improperly extend its reach and pave the way for

circumvention of the AIA.

        The Court in South Carolina was concerned about this possibility. Specifically, Justice

O’Connor suggested in her concurrence that the majority’s holding might allow taxpayers to evade

the AIA by simply forming organizations to litigate their tax grievances for them, which Justice

O’Connor called a “fundamental undermining of the congressional purpose [as expressed in the

AIA].” South Carolina, 465 U.S. at 394–95 (O’Connor, J., concurring in the judgment). The

majority responded that “[b]ecause taxpayers have alternative remedies, it would elevate form over

substance to treat such organizations as if they did not possess alternative remedies.” Id. at 381 n.19.

The majority concluded that “such organizations could not successfully argue that the Act does not

apply because [the organizations] are without alternative remedies.” Id. Likewise here, it would

“elevate form over substance” to treat the Companies as though they have no alternative remedy, and

so this case lies outside the narrow reach of the South Carolina exception to the AIA.

        The second exception is set forth in Enochs v. Williams Packing & Nav. Co., 370 U.S. 1, 7

(1962), and applies only in those cases where (1) it is clear the Government will not ultimately

prevail; and (2) equity jurisdiction otherwise exists. But this case does not fall under that exception


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No. 11-3163
RYO Machine, LLC, et al. v. U.S. Department of Treasury, Alcohol & Tobacco Tax & Trade Bureau,
et al.
either. Whether or not equity jurisdiction exists based on the irreparable harm the Companies may

face, the Companies cannot satisfy the first part of the Williams Packing test because the Ruling’s

interpretation of the Code is plausible on its face. Cf. id. (stating that the exception should apply

only if it is “apparent that, under the most liberal view of the law and the facts, the United States

cannot establish its claim”).

        Because the Companies’ suit is an attempt to impede the assessment of taxes, and because

no exception to the AIA applies, the district court should have dismissed this case for lack of

jurisdiction.3

                                        III. CONCLUSION

        Accordingly, we VACATE the preliminary injunction and REMAND to the district court

with instructions to dismiss for lack of jurisdiction.




        3
          We also note that the Companies’ alleged injury results from the exercise of unbridled,
legitimate business discretion of the retailers and not directly out of any injury caused by the Bureau.
This situation raises serious questions regarding the Companies’ standing to bring suit. See Ammex,
Inc. v. United States, 367 F.3d 530, 534 (6th Cir. 2004). However, because the AIA deprived the
district court of jurisdiction over the asserted claims, we do not decide whether standing was also
lacking. See Heckler v. Mathews, 465 U.S. 728, 737 (1984).

                                                 - 11 -
