Case 1:16-cv-01460-APM Document 159 Filed 10/23/19 Page 1 of 66

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

CIGAR ASSOCIATION OF AMERICA )

1310 G Street, N.W. )
Washington, D.C. 20005-7505 )
)
PREMIUM CIGAR ASSOCIATION )
513 Capitol Court N.E. )
Washington, D.C. 20002 )
)
CIGAR RIGHTS OF AMERICA )
300 New Jersey Avenue N.W., Suite 900 )
Washington, D.C. 20001 )
)
Plaintiffs, )
)
v. )
)
UNITED STATES FOOD AND DRUG )
ADMINISTRATION )
10903 New Hampshire Avenue )
Silver Spring, MD 20993 )
)
UNITED STATES DEPARTMENT OF )
HEALTH AND HUMAN SERVICES )
200 Independence Avenue )
Washington, D.C. 20201 )
) Civ. No. 1:16:cv-0 1 4 6 0 - A P M
ALEX AZAR, in his official capacity )
as Secretary of Health and Human Services )
Office of the Secretary )
200 Independence Avenue )
Washington, D.C. 20201 )
)
NORMAN E. SHARPLESS, M.D., )
in his official capacity )
as Acting Commissioner of Food and Drugs )
10903 New Hampshire Avenue )
Silver Spring, MD )
)
Defendants. )
)

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

 Case 1:16-cv-01460-APM Document 159 Filed 10/23/19 Page 2 of 66

INTRODUCTION

1. This action seeks declaratory, injunctive, and other relief arising from an unlawful Final

Rule published on May 10, 2016, by the Food and Drug Administration (“FDA”) that threatens

the sale of any cigars, pipe tobacco and associated products not on the market as of February 15,

2007. FDA’s Final Rule is contrary to the language and purpose of the Family Smoking

Prevention and Tobacco Control Act of 2009 (“TCA”), Pub. L. 111-31, 123 Stat. 1776 et seq.,

the United States Constitution, and the Administrative Procedure Act, 5 U.S.C. §§ 702 et seq. (the

“APA”). The Cigar Association of America, Inc. (“CAA”), the Premium Cigar Association

(formerly the International Premium Cigar and Pipe Retailers Association) (the “PCA”) and

Cigar Rights of America (“CRA”) (together, the “Plaintiff Associations”) bring this action to

challenge the Final Rule and to enjoin its enforcement.

2. When Congress enacted the TCA in 2009, it established a carefully crafted regulatory

scheme to immediately regulate four categories of tobacco products – cigarettes, cigarette tobacco,

roll-your-own, and smokeless tobacco (the “Originally Regulated Products”). It also granted

FDA certain authority to “deem” other classes of tobacco products subject to regulation under

the statute at some future date.

3. On May 10, 2016, FDA published its Final Rule “deeming” cigars, pipe tobacco and

certain other products (e.g., e-cigarettes) subject to regulation (“Newly Deemed Products”). See

81 Fed. Reg. 28974 (May 10, 2016) (to be codified at 21 C.F.R. Parts 1100, 1140 and 1143)

(“Final Rule”).

4. The Final Rule is legally defective and contrary to the TCA and Congressional intent in

several respects:

(a) It incorrectly and impermissibly subjects Newly Deemed Products to

stricter regulatory restrictions than Originally Regulated Products.

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(b) It effectively imposes a tax on cigars and pipe tobacco in the form of “user
fees.” Moreover, these “user fees” are imposed on only some of the Newly
Deemed Products, contravening Congress’s intention that all regulated
entities will bear their fair share of the costs associated with regulating
tobacco products.

(c) It fails to provide an adequate cost-benefit analysis determining that the

benefits of the Final Rule outweigh its undeniably severe costs, particularly
as to thousands of small businesses.

(d) It ignores Congressional intent that “appropriate” regulations permit the

continued sale of cigars and pipe tobacco to adults.

(e) It imposes new and expanded warning label format requirements without
analyzing whether the new requirements are necessary and least restrictive.

(f) It regulates as “manufacturers” small retail tobacconists who blend and/or

repackage finished pipe tobacco and products received in bulk form into
smaller quantities and cigar retailers who create “cigar samplers” from
finished cigars.

(g) It purports to treat pipes as “components” or “parts” of tobacco products

instead of as “accessories,” contrary to the definitions in FDA’s own
regulations.

(h) It would require the submission of so-called substantial equivalence reports

before the completion of final rules providing for the content and format of
such reports for cigars and pipe tobacco (and potentially including the testing
of cigars and pipe tobacco).

(i) It sets effective and compliance dates for certain aspects of the Rule—
including the premarket review and substantial equivalence application
deadlines—based on a potentially legally invalid premise that the agency
would retain the discretion to modify those dates, without notice and
comment rulemaking, to accommodate necessary agency actions prior to
enforcement.

(j) It arbitrarily and capriciously imposed the Rule’s regulatory regime on

premium cigars, rejecting Option 2 before the agency to exempt those
products from the ambit of regulation. In doing so, it arbitrarily and
capriciously requires premium cigars marketed after 2007 to survive the
substantial equivalence process, while ignoring several less burdensome
alternatives to streamline the process for premium cigars.

5. In these respects, the Final Rule violates the Federal Food, Drug and Cosmetic Act

(“FD&C Act”), as amended by the TCA; the Administrative Procedure Act (including but not
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limited to the Regulatory Flexibility Act (“RFA”)); and the First and Fifth Amendments to the

Constitution. Accordingly, and as set forth below, the Court should vacate, set aside, and enjoin

enforcement of the Final Rule.

JURISDICTION AND VENUE

6. This Court has subject matter jurisdiction under 28 U.S.C. § 1331. Plaintiffs’ causes of

action arise under the laws and Constitution of the United States, including the APA, 5 U.S.C. §§

702 et seq., the RFA, 5 U.S.C. §§ 601 et seq., the FD&C Act, 21 U.S.C. §§ 301 et seq., and the

First and Fifth Amendments.

7. Venue is proper in this district under 28 U.S.C. § 1391. Defendants FDA and the

Department of Health and Human Services (“HHS”) reside in this district. Defendants Secretary

Azar and Commissioner Sharpless perform their official duties in this district.

8. An actual controversy exists between the parties under 28 U.S.C. § 2201, and this Court

has authority to grant declaratory and injunctive relief, and to set aside the Final Rule, as

requested herein. 28 U.S.C. §§ 2201, 2202; 5 U.S.C. §§ 705, 706.

PARTIES

9. Plaintiff CAA, a non-profit trade association, is a national trade group representing cigar

manufacturers, importers, distributors, and major suppliers to the industry. CAA has member

companies from all sectors of the industry, from manufacturers of handmade premium cigars to

producers of machine-made small cigars.

10. Plaintiff PCA is a non-profit trade association representing premium cigar and tobacco

retail shops located throughout the United States and abroad. PCA has retail members that are

small businesses, typically family-owned and operated. PCA members operate more than

2,000 retail stores, employ more than 35,000 people, and sell tobacco products, primarily premium

cigars, in face-to-face sales, to adults. Plaintiff PCA is a “small organization” as that term is
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defined by the RFA, and PCA’s members are “small businesses” for purposes of the RFA.

11. Plaintiff CRA is a non-profit association that serves as a voice of premium cigar

manufacturers and consumers in the United States on matters of legislative and regulatory

concern, with a membership that spans all 50 states. CRA members include over 60 diverse

artisan producers of handmade premium cigars. Additionally, CRA includes members from the

entire spectrum of the supply chain, i.e., distributors, growers, mail-order houses, logistics, and

associated supporting enterprises as well as consumers of premium cigars.

12. As a result, the Plaintiff Associations have a vital interest in ensuring that any regulation

of cigars and pipe tobacco imposed under the TCA is consistent with statutory and constitutional

requirements.

13. Furthermore, the Plaintiff Associations have standing to bring this suit because (a) their

members would otherwise have standing to sue in their own right; (b) the interests they seek to

protect are germane to the organizations’ purposes; and (c) neither the claims asserted nor the

relief requested requires the participation of individual members in the lawsuit. E.g., United

Food & Commercial Workers Union Local 751 v. Brown Grp., Inc., 517 U.S. 544, 552-57

(1996). With regard to impending enforcement of the Final Rule, the Associations’ members face

massive compliance costs that may be unnecessary if enforcement occurred after the agency

completed multiple rulemaking proceedings to provide content and structure to the substantial

equivalence regime and to consider the exemption from the Final Rule or differential and

streamlined regulation of premium cigars.

14. Defendant HHS is an executive department of the United States government. HHS is

headquartered in Washington, D.C.

15. Defendant FDA is an administrative agency within HHS and is responsible for tobacco

product regulation under the TCA.

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16. Defendant Alex Azar is Secretary of HHS and sued in his official capacity. He replaces

Sylvia M. Burwell pursuant to Fed. R. Civ. P. 25(d). The Secretary oversees FDA’s

activities with respect to the TCA.

17. Defendant Norman E. Sharpless, M.D. is the Acting Commissioner of Food and Drugs

and sued in his official capacity. H e r e p l a c e s R o b e r t C a l i f f p u r s u a n t t o F e d . R .

C i v . P . 2 5 ( d ) . The A c t i n g Commissioner is directly responsible for FDA’s

administration of the TCA.

BACKGROUND

A. The Tobacco Control Act

18. In enacting the TCA in 2009, Congress determined that the Originally Regulated

Products would be subject to immediate regulation. FD&C Act § 901(b) (21 U.S.C. § 387a(b)).

That determination was expressed as a Congressional Finding in section 2(31) of the TCA that

regulating cigarettes and smokeless tobacco was of crucial importance to preventing the life-

threatening health consequences associated with their use. See 123 Stat. 1776, 1779 (stating that

FDA’s final regulation from 1996, after incorporation into current regulations, would “directly

and materially advance the Federal Government’s substantial interest in reducing the number of

children and adolescents who use cigarettes and smokeless tobacco and in preventing the life-

threatening health consequences associated with tobacco use.”) There was no suggestion that

any tobacco products other than these four categories posed a significant threat to public health.

19. Based on its findings, Congress set forth purposes, restrictions and limits of the TCA.

Congress gave FDA regulatory authority for specific purposes and subject to various parameters

such as: “(2) to ensure that the Food and Drug Administration has the authority to address

issues of particular concern to public health officials, especially the use of tobacco by young

people . . . ; (4) to provide new and flexible enforcement authority to ensure that there is
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effective oversight of the tobacco industry’s efforts to develop, introduce, and promote less

harmful tobacco products . . . ; (7) to continue to permit the sale of tobacco products to adults

in conjunction with measures to ensure that they are not sold or accessible to underage

purchasers; (8) to impose appropriate regulatory controls on the tobacco industry.” 123 Stat.

1776, 1781-82 (emphasis added).

20. In contrast to the detailed and immediate regulation of the Originally Regulated Products,

the TCA provides FDA with authority to “deem” other tobacco products subject to the TCA at a

later date, but does not require it to do so. FD&C Act § 901(b) (21 U.S.C. § 387a(b)). Congress

did not intend that, in “deeming” additional tobacco products subject to regulation, FDA would

impose more intrusive regulatory burdens than those imposed on the Originally Regulated

Products which were Congress’s primary and immediate concern.

21. For all new tobacco products that were not on the market as of February 15, 2007, the

date of the TCA’s introduction in Congress, or for grandfathered products that were modified

after that date, the FD&C Act requires a premarket application and an authorization order from

FDA permitting the marketing of such products (referred to as a “marketing authorization order”).

See FD&C Act § 910 (21 U.S.C. §§ 387j).

22. A marketing authorization order is not required if: (a) a manufacturer submits a

“substantial equivalence” report to FDA under section 905(j) and obtains an order under section

910(a)(2) finding that the new tobacco product is substantially equivalent to a tobacco product

commercially marketed in the United States as of February 15, 2007, or a tobacco product that

FDA determined was substantially equivalent to a tobacco product commercially marketed as of

February 15, 2007 and in compliance with the requirements of the FD&C Act, or (b) a tobacco

product is exempt from the substantial equivalence requirements. FD&C Act §§ 905(j), 910 (21

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U.S.C. §§ 387e(j), 387j).

23. To determine substantial equivalence, the new tobacco product is compared to a predicate

tobacco product. A predicate product is a tobacco product that was commercially marketed

(other than for test marketing) in the United States as of February 15, 2007, or a tobacco product

that was determined to be substantially equivalent to another predicate product and in

compliance with the FD&C Act. FD&C Act § 905(j)(1)(A)(i) (21 U.S.C. §§ 387e(j)(1)(A)(i)).

24. The FD&C Act provides that manufacturers of the Originally Regulated Products are

allowed to continue marketing products that were on the market on June 22, 2009, at the time

they were first subject to regulation, and allows them to “look back” only two and a half years—

to February 15, 2007—for predicate products. Under the Final Rule, by contrast, manufacturers

of Newly Deemed Products, however, are forced to “look back” over nine years for predicate

products. This puts Newly Deemed Products in a severely different regulatory scheme compared

to Originally Regulated Products.

25. Under the TCA, manufacturers of Originally Regulated Products were permitted to change

existing products and introduce new products until March 22, 2011, when marketing

applications were first due.

26. Originally Regulated Products, for which applications were filed by March 22, 2011,

could remain on the market (subject to compliance with the other provisions of the TCA) unless

and until FDA rejected a product’s application.

27. To fund regulatory programs under the TCA, Congress provided for payments from

regulated entities in the form of “user fees.” FD&C Act § 919 (21 U.S.C. § 387s). As Congress

made clear in other contexts, “user fees” have three basic characteristics: (a) fees are predicated

on a voluntary act by payers; (b) persons who pay the fees receive a specific service or benefit;

and (c) payments are not meant for regulation of others or for general public benefit (i.e., a tax).
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E.g., User Fee Design Guide, GAO-08-386SP; National Cable Television Ass’n, Inc. v. United

States., 415 U.S. 336, 340-41 (1974).

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28. Consistent with its use of the term “user fees,” Congress intended that user fees assessed

under the TCA would be paid by manufacturers of classes of tobacco products subject to

regulation under the TCA. Conversely, manufacturers of unregulated classes of products would

not pay user fees. FD&C Act § 919(b)(2)(B)(iv) (21 U.S.C. § 387s(b)(2)(B)(iv)) (providing for

reallocation so that manufacturers of regulated classes share the percentage of fees that would be

otherwise applicable to unregulated classes of tobacco products).

29. Although Congress provided a formula to allocate “user fees” based on classes of tobacco

products that existed on the market at the time of enactment, id. at § 919(b)(2)(B)(i) (21 U.S.C. §

387s(b)(2)(B)(i)), it did not in any manner suggest that additional classes of tobacco products, if

“deemed” subject to regulation by FDA, would be exempt from paying user fees.

B. FDA’s 2014 Proposed Rule

30. On April 25, 2014, FDA published a proposed rule for “Deeming Tobacco Products To

Be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking

Prevention and Tobacco Control Act,” including “Regulations on the Sale and Distribution of

Tobacco Products and Required Warning Statements for Tobacco Products.” 79 Fed. Reg.

23142 (Apr. 25, 2014) (“Proposed Rule”).

31. The Proposed Rule applied to numerous categories of tobacco products that had not

previously been subject to regulation, including cigars and pipe tobacco. It also proposed a

phase-in period similar to that provided by statute for the Originally Regulated Products.

Specifically, FDA proposed to extend the compliance period for submitting a substantial

equivalence report to 24 months following the effective date of a final rule, and also proposed a

24-month compliance period for the submission of premarket tobacco applications. Id. at 23144.

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32. Under the Proposed Rule, if a manufacturer submitted a substantial equivalence report or

a premarket tobacco application within the applicable period, FDA would not initiate

enforcement action against the product for failing to have an FDA marketing authorization

pending FDA’s review of the submission or unless or until FDA issued an order denying the

substantial equivalence submission or the premarket tobacco application. Id. at 23175-76.

33. FDA’s Proposed Rule included two regulatory options: “Option 1,” under which all

deemed tobacco products, including all types of cigars, would be subject to regulation; and

“Option 2,” under which premium cigars would not be included in the deeming regulation. Id. at

23143, 23150-52. 1

34. FDA’s Proposed Rule included comprehensive warning requirements for Newly Deemed

Products that were essentially repeated in the Final Rule. The Proposed Rule did not consider or

analyze the need for such format requirements in light of an existing framework for cigars

contained in a consent decree entered into between the Federal Trade Commission (“FTC”) and

seven of the largest cigar manufacturers (“FTC Consent Decree”). The FTC Consent Decree

required clear and conspicuous disclosure of four of the five FDA proposed warning statements

for cigars.

35. In conjunction with the Proposed Rule, FDA submitted a legally required Preliminary

Regulatory Impact Analysis (“PRIA”) in which it admitted that it could not carry out a realistic

prospective cost/benefit analysis, and instead suggested it would conduct a “retrospective review”

after implementing the final rule. The PRIA wholly failed to justify the costs of regulation

1
For “Option 2,” FDA defined premium cigars as any cigar that: “(1) [is]wrapped in whole tobacco leaf; (2) contains a
100 percent leaf tobacco binder; (3) contains primarily long filler tobacco; (4) is made by combining manually the
wrapper, filler, and binder; (5) has no filter, tip, or non-tobacco mouthpiece and is capped by hand; (6) has a retail
price (after any discounts or coupons) of no less than $10 per cigar (adjusted, as necessary, every 2 years, effective
July 1st, to account for any increases to the price of tobacco products since the last price adjustment); (7) does not
have a characterizing flavor other than tobacco; and (8) weighs more than 6 pounds per 1000 units.” 79 Fed. Reg.
23150, 23203.
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against any benefits. Indeed, it failed to even attempt such a justification with respect to premium

cigars and small businesses that would be covered by the Proposed Rule.

36. FDA’s Proposed Rule defined “manufacturer” to include “any person, including any

repacker and/or relabeler, who manufactures, fabricates, assembles, processes, or labels a

finished tobacco product.” 79 Fed. Reg. 23203. FDA’s discussion in the Proposed Rule did not

suggest that tobacconists who merely blend regulated, finished pipe tobacco products would be

subject to regulation as “manufacturers.”

37. FDA’s Proposed Rule made clear that “accessories” of Newly Deemed Products would

not be subject to regulation. Nothing in the proposed rule suggested that pipes would be

considered as anything other than “accessories.”

38. The Proposed Rule set forth an effective date of 90 days after publication of the Final Rule

for automatic provisions of the Final Rule. The Proposed Rule also set forth a compliance policy,

on which it invited comment. The Proposed Rule’s compliance policy set dates by which regulated

parties would have to comply with certain aspects of the Final Rule. Most relevant here, the

compliance policy recognized that immediate compliance concurrent with the effective date of the

Rule was completely infeasible. 81 Fed. Reg. at 29,011-12. Rather, it set compliance dates for

submitting Substantial Equivalence Reports (“SE Reports”) at 18 months after the Final Rule’s

effective date, premarket applications at 24 months after the Final Rule’s effective date, reports of

“harmful and potentially harmful constituent” (“HPHC”) testing results at 36 months after the effect

dates, and many other compliance dates for individual regulatory requirements. The Proposed Rule

further provided that the agency would not force products from the market so long as an application

had been made by the substantial equivalence or premarket review deadlines and was still pending.

The Proposed Rule expressly stated that the agency had absolute discretion to set these compliance

dates and that neither the compliance dates in the Proposed Rule nor any future modifications
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thereof were required to go through the notice and comment rulemaking. 81 Fed. Reg. at 29,010,

28, 977.

C. Comments on the Proposed Rule

39. CAA, PCA and CRA submitted detailed comments on the Proposed Rule.

40. CAA’s comments challenged the Proposed Rule in numerous respects. For instance,

CAA argued that subjecting premium cigars to the substantial equivalence process would be

particularly onerous, given the wide variety of premium cigars on the market and that the cost of

the process duplicates with each cigar variety. CAA also explained that pushing premium cigars

through the substantial equivalence process would not have public health benefits remotely

corresponding to the process’s costs, because premium cigars have been made the same way for

generations. CAA proposed that, if premium cigars were to be subjected to the substantial

equivalence process, the agency’s regulatory provisions streamline the process for premium

cigars. CAA further challenged the imposition of a February 15, 2007 “grandfather cut-off date

for cigars” and noted that it would leave cigar manufacturers “significantly disadvantaged

relative to cigarette manufacturers, without any rational justification” by effectively denying

cigar manufacturers predicates upon which to compare their new cigar offerings, rendering

substantial equivalence showings nearly impossible, unlike the manufacturers of the Originally

Regulated Products. CAA opposed Option 1 (regulating all cigars, including premium cigars)

and supported a modified version of Option 2 (the option excluding regulation of premium

cigars). CAA’s comments also expressed concerns about the proposed size of the warnings on

both cigar labeling and advertising, noting that such requirements exceed those of the FTC

Consent Decree, which satisfy the FTC’s “clear and conspicuous” disclosure standard. CAA’s

comments stated that user fees must be assessed on all newly-regulated products, not just a

subset of them. Finally, CAA’s comments challenged FDA’s PRIA for failing to carry out a
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proper prospective review, failing to supply evidence of benefits for warning label requirements,

failing to properly assess the costs and supposed benefits of premarket review for newly-

regulated products, and inadequately considering less costly regulatory alternatives.

41. In its comments, PCA, among other things, strongly opposed Option 1 and stated its

support for a slightly modified Option 2. PCA offered comments on the definition of “premium

cigar,” and the development of a “Safe Harbor” whereby the cigar manufacturer’s

characterization of a premium cigar would define the cigar’s status for retailers. PCA also

discussed the detrimental effects of a sampling ban on retailers. PCA commented that the

financial burdens on premium cigar manufacturers and retailers under Option 1 would be

devastating to the premium cigar industry, mostly comprised of small businesses, and cited

FDA’s PRIA that estimated that up to 50% of hand-rolled cigars would cease to be marketed in

the U.S. if the Proposed Rule would become final with Option 1.

42. In its comments, CRA highlighted the differences between premium cigars and other

tobacco products to support the position that these differences compel exempting premium cigars

from FDA regulation under FDA’s proposed Option 2. Additionally, CRA commented on specific

aspects of the Proposed Rule, expressing particular concern with the proposed premarket approval

requirement for cigars introduced, or modified, after February 15, 2007. CRA commented that

the Proposed Rule would devastate the premium cigar industry, including forcing manufacturers

to curtail their product offerings and forcing adult consumers to pay dramatically higher

prices for premium cigars. Finally, CRA commented that FDA failed to consider the downstream

effects on small businesses, including distributors, retailers, suppliers, trade show proprietors and

workers foreign and domestic which depend on this industry as a way of life.

D. The Final Rule

43. FDA’s Final Rule largely rejected the comments of CAA, PCA and CRA, and instead
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incorporated each of the defects that these organizations had identified in their comments, and

added additional defects as well.

44. The Final Rule applied the TCA’s general provisions, including its premarket review

requirements and substantial equivalence provisions, to Newly Deemed Products. However,

rather, than tailoring the timeline for implementation of these provisions to account for the

passage of time since enactment of the TCA, FDA chose to apply some provisions as written by

Congress, yet rewrite other provisions.

45. The Final Rule required that substantial equivalence showings demonstrate equivalence

between Newly Deemed Products and tobacco products on the market as of February 15, 2007 –

that is, nine years before the Final Rule was published.

46. FDA refused to consider alternatives to the February 2007 grandfather date that would

regulate Newly Deemed Products in the same manner as Congress mandated Originally

Regulated Products be regulated. FDA concluded that it “lack[ed] authority to change the

grandfather date for the newly deemed products” based on what it considered “the clear language

of the Tobacco Control Act.” 81 Fed. Reg. 28993.

47. Further, FDA asserted that “manufacturers of the newly deemed products have been on

notice for more than 4 years that these products could and likely would be regulated,” id.,

without identifying the basis for such notice and explaining how such “notice” would have

assisted manufacturers in preparing for as yet promulgated regulations, let alone preparing

SE Reports for new products compared to products that were marketed nine years prior to the

publication of the Final Rule.

48. The use of the February 2007 “grandfather date” is prejudicial to manufacturers of Newly

Deemed Products. It is onerous, costly and time-consuming for them, nine years after the fact, to

find “predicate” products for the substantial equivalence comparisons to new products required
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by FDA. Further, it will be impossible for cigar or pipe manufacturers who entered the market

after February 15, 2007 to demonstrate the substantial equivalence of their products as they will

not have a predicate product of their own by virtue of not being in business as of the grandfather

date. This differs from the Originally Regulated Products, which were subject to only a two and

a half year predicate look back.

49. The Final Rule also deviated from the TCA in prohibiting any modification of an existing

cigar or pipe tobacco product, or introduction of a new product, immediately upon the effective

date of the regulation. The TCA allowed manufacturers of Originally Regulated Products to

make such adjustments until the due date for marketing authorization applications – 21 months

after the TCA went into effect.

50. In the Final Rule FDA provides staggered compliance periods for Newly Deemed

Products that were introduced after February 15, 2007, and on the market on the effective date of

the Final Rule (August 8, 2016), based on the type of submission. The compliance periods for

submissions are 12, 18 and 24 months following the effective date of the Final Rule based on the

type of submission: Substantial Equivalence Exemption Requests (“SE Exemption”) will have to

be filed in 12 months; SE Reports in 18 months; and premarket tobacco applications in 24

months. 81 Fed. Reg. 28977-78. The agency stated that it was setting the compliance dates for

these and other aspects of the Final Rule on the express premise that neither they nor any

adjustment of them need go through notice and comment rulemaking. In doing so, the agency

presumed it had the legal authority to adjust those compliance dates to accommodate future

rulemakings that would give content to necessary components of the substantial equivalence and

other regulatory processes. The agency promised that future rulemakings clarifying these

processes, including the constituent testing requirement, would be forthcoming and promised to

review and adjust the compliance dates as needed, using its enforcement discretion.
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51. Additionally, those products for which timely premarket submissions are made will be

granted an additional continued compliance period of 12 months to accommodate the time

anticipated by the agency for FDA’s reviews. If at the conclusion of the continued compliance

periods, an applicant has provided the needed information and review of a pending marketing

application has made substantial progress toward completion, FDA may consider, on a case-by-

case basis, whether to defer enforcement of the premarket authorization requirements for a

reasonable time period. Id. at 28978.

52. FDA’s compliance period approach for Newly Deemed Products in the Final Rule is

starkly different from the approach required for Originally Regulated Products in the TCA, and

from the approach FDA set forth in its Proposed Rule. FDA proposed a compliance period

similar to the compliance period prescribed by statute for the Originally Regulated Products. In

the Proposed Rule, FDA proposed that newly regulated products introduced or modified during

the period from February 15, 2007, through a date 24 months after the effective date of the final

rule, could continue to remain on the market without enforcement, as long as they submitted

timely SE Reports or pre-market approval applications for such products during that period.

53. Unlike the Originally Regulated Products that can be marketed until FDA finishes its

ongoing reviews and issues substantial equivalence determinations, the marketing of Newly

Deemed Products is subject to a finite period of time and is entirely dependent on FDA to timely

review new submissions, something it has been unable to do for the past five years, as described

below.

54. Regarding warning labels, FDA imposed format requirements on cigars without any

basis. In particular, FDA relied on international standards and the Comprehensive Smokeless

Tobacco Health Education Act of 1986 (CSTHEA)—a statute that set forth requirements for

products other than cigars—to justify imposing warning label requirements for cigars of 30% on
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a product’s two principal display panels and 20% in advertising. 81 Fed. Reg. 29065-66. While

five of the six FDA required warning statements are the same as those required by the FTC

Consent Decree, and FDA expressly credited the FTC Consent Decree in adopting those warning

messages, nonetheless, FDA offered no rationale for changing the format requirements of the

FTC Consent Decree, which apply specifically to cigars; instead, FDA noted only that the

formatting requirements in the Final Rule are “similar to the requirements for smokeless products

and similar to those suggested by FCTC [i.e., the World Health Organization’s Framework

Convention on Tobacco Control, and the CSTHEA].” Id.

55. Regarding user fees, FDA imposed user fees on manufacturers of cigars and pipe tobacco,

but not on manufacturers of e-cigarettes and other electronic nicotine delivery systems

(“ENDS”). 81 Fed. Reg. 28707. 2

56. Without disputing that the end result of its user fee regulations would be a class of “free

riders” who would be regulated under the Act but pay no user fees, FDA justified its differential

treatment by averring that the formula referenced in section 919 of the TCA precluded the

assessment of “user fees” on classes of Newly Deemed Products not specifically identified in

that section. Id. at 28709-10.

57. FDA added that even if it believed that it had discretion to assess user fees on all classes

of regulated products, it would nevertheless exercise that discretion in favor of assessing user

fees only on the subset of the regulated entities identified in the TCA for purposes of

administrative convenience. Id. at 28712 (citing an “easy-to-implement system”).

58. Another example of FDA’s unlawful regulatory approach is reflected in its treatment of

PCA’s Citizen Petition to the agency requesting an exemption for premium cigars. PCA

2
The Final Rule referred to another Rule, published that same day, supplying regulations for the assessment of “user
fees” on some classed of Newly Deemed Products. Plaintiffs’ challenges to the Final Rule include and incorporate, to
the extent necessary, challenges to these separately published “user fee” regulations.
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submitted its Petition in August 2011, nearly three years before FDA published its Proposed

Rule. FDA did not respond to that Petition until the day the agency published the Final Rule. In

that Citizen Petition Response, FDA stated that it interpreted the Citizen Petition “to either

request that FDA initiate a rulemaking as to which cigars, if any, should be deemed subject to

[the Tobacco Control Act] or to initiate a rulemaking that would deem all cigars subject to [the

Tobacco Control Act] except for traditional large and premium cigars.” See May 5, 2016, Letter

from Beverly Chernaik, Director Office of Regulations, Center for Tobacco Products to David B.

Clissold, Hyman, Phelps & McNamara in Response to PCA’s Citizen Petition dated August

24, 2011.

59. In fact, FDA did neither of the above. In its draft notice of proposed rulemaking, sent by

FDA to the Office of Management and Budget (“OMB”) for regulatory clearance, FDA planned

to regulate cigars, premium cigars and anything else that fell within the scope of the definition of

“tobacco product.” After OMB reviewed the draft rule, “Option 2,” exempting premium cigars,

was added to the Proposed Rule. The Final Rule, however, reveals that FDA never seriously

considered that or any other option other than full regulation—regardless of the burden placed on

the regulated industry, which by FDA’s own estimate consisted largely of small businesses such

as PCA’s members. In doing so, the agency did not seriously consider a streamlined path for

premium cigars through the substantial equivalence process, again one of the Final Rule’s largest

cost-drivers for premium cigars. Although it is possible that the agency was deferring the provision

of that streamlined path to future rulemakings regarding the content and format of substantial

equivalence applications or the testing requirements, now that enforcement of the substantial

equivalence requirement is contemplated before the finalization of those rules, the agency arbitrarily

rejected that streamlined alternative for premium cigars.

60. Regarding blended pipe tobacco products, the Final Rule prohibits the action of
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thousands of small tobacconists nationwide that blend and/or apportion finished tobacco

products in bulk form in response to customer requests or retailers’ choice. In particular, the

Final Rule provides that any retailer who blends finished pipe tobacco is subject to regulation as

a manufacturer. 81 Fed. Reg. 29004, 29049. The Final Rule also could turn retailers into

manufacturers by virtue of placing the blended pipe tobacco into a generic container for

consumers. The same problem will be true for certain cigar retailers who take finished cigars

and create “cigar samplers” of these finished cigars.

61. In determining that local retailers that blend finished pipe tobacco would be subject to

regulation as manufacturers, FDA rejected – without explanation – suggestions from industry

commenters that retailers blending up to either 3,000 pounds or 5,000 pounds of finished pipe

tobacco per year be exempt from the requirements of the law that apply to manufacturers. As a

result, the Final Rule threatens to eliminate these sales which make up a minute portion of the

industry, but are important to numerous small tobacco shops.

62. FDA’s approach to the regulation of pipe tobacco ignores the fact that bulk pipe tobacco

is a finished product. The “blending” of pipe tobacco that FDA refers to essentially consists of

placing two different types of bulk tobacco into a single bag and then placing the blend in a small

generic container. In particular, bulk tobacco that is “blended” is itself a finished tobacco

product that was produced by a regulated tobacco product manufacturer and was subjected to

premarket review. FDA’s Final Rule creates an unjustified cost to the many small businesses

that engage in pipe tobacco blending. The blending of finished pipe tobacco does not chemically

or physically alter the tobacco in any way, and the bulk tobacco is not a component or part

necessary for the construction of a finished tobacco product because the pipe tobacco is itself a

finished product.

63. Likewise, the FDA’s position on pipes is arbitrary and capricious. The preamble to the
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Final Rule inexplicably suggests that FDA intends to treat pipes as “components” or “parts” of

tobacco products, and therefore subject to regulation, rather than as “accessories” that are exempt

from regulation. 81 Fed. Reg. 29042; see id. at 28975.

64. Under FDA’s definitions of “component or part” and “accessory,” pipes would not be

considered as “components” or “parts.” In particular, “accessory” is defined, in relevant part, to

mean “any product that is intended or reasonably expected to be used with or for the human

consumption of a tobacco product; does not contain tobacco and is not made or derived from

tobacco; and . . . (1) [i]s not intended or reasonably expected to affect or alter the performance,

composition, constituents, or characteristics of a tobacco product.” 81 Fed. Reg. 29102. A

“component” or “part,” by contrast, is “any software or assembly of materials intended or

reasonably expected: (1) [t]o alter or affect the tobacco product’s performance, composition,

constituents or characteristics; or (2) [t]o be used with or for the human consumption of a

tobacco product,” except that “[c]omponent or part excludes anything that is an accessory of a

tobacco product.” Id. at 29103. Under these definitions, a pipe is clearly an accessory because it

is not made or derived from tobacco and does not affect or alter the performance, composition,

constituents, or characteristics of a tobacco product. It is simply a container from which pipe

tobacco is consumed; it is not a component or part of the tobacco. Further, a pipe is not a

“tobacco product” itself, as a pipe sold without tobacco is not “made or derived from tobacco”

and, therefore, pipes should not be subject to FDA regulation.

E. FDA’s Final Regulatory Impact Analysis

65. FDA published its Final Regulatory Analysis (“FRIA”) in May 2016.

66. FDA’s FRIA did not properly assess the costs and benefits of the Final Rule, in violation

of the requirements of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. §§ 1501 et seq.)

and the RFA (5 U.S.C. §§ 601 et seq.). In addition, the RFA requires the agency to prepare a
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“regulatory flexibility analysis” detailing the effects of regulations on small businesses. 5 U.S.C.

§ 604. The RFA is particularly salient here, given FDA’s admission that “approximately 90

percent of domestic entities affected by this rule are estimated to be small.” FRIA at 133.

Although FDA purported to have followed these requirements, its FRIA is defective because it

does not contain valid “factual, policy and legal reasons for selecting the alternative adopted in

the final rule and why each one of the other significant alternatives . . . which affect small

entities was rejected.” 5 U.S.C. § 604 (a)(6).

67. Moreover, FDA did not follow Executive Order 12866 guidance that sets forth

cost/benefit considerations applicable to the Unfunded Mandates Reform Act and the RFA and

advises that “[e]ach agency shall assess both the costs and the benefits of the intended regulation

and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a

regulation only upon a reasoned determination that the benefits of the intended regulation justify

its costs.” It also requires that “[e]ach agency shall tailor its regulations to impose the least

burden on society, including individuals, businesses of differing sizes, and other entities

(including small communities and governmental entities), consistent with obtaining the

regulatory objectives, taking into account, among other things, and to the extent practicable, the

costs of cumulative regulations.” Exec. Order No. 12,866, 58 Fed. Reg. 51735 (Sept. 30, 1993).

The agency did not show that the benefits of the regulation justify its costs.

68. Notwithstanding Plaintiff Associations’ comments on its PRIA, FDA did not correct the

defects in that analysis when it published the FRIA in May 2016. In particular, FDA failed to

address CAA’s concern that FDA did not quantify the benefits of the intended regulation and

admitted it was “unable to quantify any possible unintended offsetting effects.” FRIA at 21.

Further, FDA admitted that “[r]eliable evidence on the impacts of warning labels, premarket

review, and marketing restrictions on users of cigars . . . does not, to our knowledge, exist.”
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FRIA at 62. Finally, FDA admitted that it had not quantified the benefits of “regulatory

alternatives” or how they “would differ from those of the final rule.” FRIA at 127.

69. FDA likewise did not adequately respond to PCA’s comments to the Proposed Rule

expressing concern, based on FDA’s preliminary economic impact analysis, that as a result of the

costs imposed on manufacturers of premium cigars under Option 1, up to 50% of handmade

cigars would cease to be marketed in the United States, and that small businesses would be most

affected by Option 1, potentially forcing some companies out of business. Instead, FDA glossed

over the significant burdens that regulation would impose on premium cigar manufacturers and

small businesses, and merely lumped premium cigars in with all other tobacco products in an

undifferentiated way.

70. Indeed, FDA’s consideration of Option 2 consisted of a single paragraph in which FDA

recognized that adopting this option would provide regulatory relief to small businesses.

Nonetheless, FDA stated: “Because we do not know the number of manufacturers and importers

of premium and non-premium cigars, we do not analyze these effects quantitatively.” FRIA at

134. Here FDA’s regulatory flexibility analysis amounts to no analysis at all, but instead

represents a complete abdication of FDA’s duty to fairly consider alternatives that would achieve

regulatory goals with less impact on small business. FDA did not adequately address PCA’s

concerns that unnecessary overregulation of premium cigars would have a devastating effect

on manufacturers and retailers, particularly small businesses, or CRA’s comment that the

agency failed to consider the downstream impacts of the proposed regulations, not just on

tobacco product manufacturers and importers, but also distributors, retailers, suppliers, trade

show proprietors, and workers that depend on the tobacco industry, again many whom are small

businesses.

71. While FDA acknowledged that numerous comments addressed the effects of the
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Proposed Rule on the retail sector, its response was that “any retailers who meet the definition of

manufacturer due to other activities, such as mixing e-liquids or blending pipe tobacco, are likely

to cease engaging in manufacturing activities and convert to a pure retail model.” FRIA at 48.

Moreover, FDA states, because it is “unable to estimate the extent to which this final rule would

lead to a reduction in the use of tobacco products, [the agency is] unable to estimate the extent to

which retailers of newly deemed tobacco products may lose sales.” FRIA at 49. FDA asserts that

“[e]conomy-wide, retailers would not be harmed as consumers would switch to purchasing other

goods.” Id.

72. Similarly, FDA did not provide any appropriate response to CRA’s comment regarding

the “dramatic” economic impact on the industry, including small businesses that would result

from regulating premium cigars. With regard to cigar or pipe tobacco markets that are

characterized by a large number of products with slight variations or frequent changes to products,

FDA agreed “that product exit is likely to occur” but stated without explanation that “much of

this may occur as a result of consolidation of similar products within product lines instead of

through exit by manufacturers.” FRIA at 39.

73. With regard to the significant adverse effect of regulation on employment in newly

regulated industries FDA’s response was only that “total tobacco industry employment accounts

for only a small proportion of total employment in the US economy” and that “[n]ewly deemed

segments of the tobacco industry would only account for a portion of total tobacco industry

employment; therefore, the affected segments of the tobacco industry would be extremely small

in the context of the US economy.” FRIA at 48. Finally, FDA concluded that “[w]hile increases

in costs and potential reductions in revenue could lead to some reduction in jobs in certain

segments of the tobacco industry, employment is not expected to drop to zero in any segment of

the tobacco industry.” Id.

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F. The Backlog at the FDA and its Implications

74. Since the initiation of premarket review submissions in 2011, FDA’s backlog of pending

SE Reports has consistently been over 3,500, virtually ensuring that submissions by manufacturers

of Newly Deemed Products will not be processed before the passage of time renders the marketing

of their products illegal. In fact, in the context of Originally Regulated Products, FDA-Track

indicates that there are over 4,000 SE Reports (both provisional and regular) pending before the

agency.3 In FY 2015, FDA received 967 SE Reports.4

75. Because the number of active stock keeping units (“SKUs”) for cigars is much greater

than the number of SKUs for cigarettes, there is a reasonable expectation that the number of SE

Reports will increase significantly based on cigar submissions alone. CAA’s comments to the

Proposed Rule estimated that at that time, the three leading premium cigar manufacturers had

over 8,000 SKUs and the three leading mass-market cigar manufacturers had over 2,000 SKUS.

76. Significantly, the cigar industry expects submission of approximately 10,000 SE Reports

within eighteen months of the Final Rule’s effective date if the February 15, 2007 grandfather

date is used. Certainly, the pipe tobacco industry will have a significant number of submissions

as well.

77. Further, FDA is not receiving any additional funds to review this larger influx of SE

Reports. Based on the current backlog and the expected number of additional SE Reports, there

is no reason to believe that FDA will be able to review the submissions for Newly Deemed

Products within the allotted timeframe, with the result that such products will be deemed to be

3
See http://www.accessdata.fda.gov/scripts/fdatrack/view/track.cfm?program=ctp&status=public&id=CTP-OS-
regular-SE-reports&fy=2015; see
http://www.accessdata.fda.gov/scripts/fdatrack/view/track.cfm?program=ctp&id=CTP-OS-provisional-SE-reports (last
visited July 8, 2016).
4
See http://www.accessdata.fda.gov/scripts/fdatrack/view/track.cfm?program=ctp&id=CTP-OS-total-product-
submissions-received. (last visited July 8, 2016).
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“adulterated” under section 902 of the TCA, and prohibited from commercial distribution.

78. The difficulty in completing review of many thousands of reports within 12 months will

be compounded by the manner in which FDA has implemented the required filing of data

regarding HPHCs for Newly Deemed Products. FDA requires the inclusion of comparative

HPHC data as a part of any SE Report. See, e.g. 81 Fed. Reg. 28995 (noting that “FDA

generally expects that cigars with blending changes . . . will be able to successfully use the SE

pathway as long as the blending change does not significantly raise levels of HPHCs in the

product . . . .”). HPHC requirements for cigars currently do not exist, yet FDA has stated that

Guidance will be released in “enough time for manufacturers to report given the 3-year

compliance period for HPHC reporting.” Id. at 28996. However, SE filings were to be required

no later than 18 months after the effective date; which is 18 months prior to the original HPHC

reporting deadline, which would not have been required until 36 months after the effective date.

Id.

79. Moreover, FDA is arbitrarily regulating the Newly Deemed Products differently from the

Originally Regulated Products, the products Congress chose to regulate. FDA is permitting

those products to remain on the market until FDA completes its review of each product’s SE

Report. Many such products continue in commercial distribution during the lengthy pendency of

premarket submissions under FDA’s review.

80. In sum, FDA’s Final Rule threatens to regulate cigars and other Newly Deemed Products

unnecessarily and impermissibly by: (a) denying manufacturers the ability to establish

“predicate” products for substantial equivalence review through the operation of a February 2007

predicate date; (b) ensuring, by virtue of FDA’s existing and anticipated backlog, that any SE

Reports that manufacturers are able to submit will not be acted on in time to avoid the expiration

of FDA’s stipulated twelve-month review period; and (c) denying manufacturers the benefit of
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provisions that allow the continued marketing of products with a timely submitted and pending

SE Report until such time as FDA determines that a new product is not substantially equivalent

to a predicate.

81. In addition, the cost of compliance and regulatory uncertainty will be too great a burden

for many manufacturers, particularly the many small manufacturers of specialty or seasonal

premium cigar products. Finally, the increased regulatory burden on small business retailers will

undeniably force many out of business. FDA’s response to these small businesses is that they

“would be able to shift shelf space and other activities to non-tobacco products.” FRIA at 119.

FDA offers no suggestions as to what non-tobacco products a small business tobacco and cigar

shop should sell.

CLAIMS FOR RELIEF

COUNT I
(Violation of the Administrative Procedure Act:
FDA’s Actions Regarding the Predicate Date and the Substantial Equivalence Process Are
Arbitrary, Capricious, an Abuse of Discretion and Not in Accordance With Law, and
Exceed FDA’s Regulatory Authority)

82. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

83. The Final Rule is “final agency action for which there is no other adequate remedy.”

5 U.S.C. § 704.

84. The APA proscribes agency action that is “arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). The APA further bars agency

action that is “in excess of statutory jurisdiction, authority, or limitations.” Id. at § 706(2)(C).

85. In establishing the regulatory framework for the Originally Regulated Products, Congress

set out a precise timeline for implementation of the premarket review provisions. It also provided

FDA the authority to “deem” other products to be subject to the TCA.

86. The Final Rule, promulgated seven years after the enactment of the TCA, does not apply
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the timeline crafted by Congress. Instead, the Final Rule arbitrarily deviates from the statutory

scheme mandated by the statute.

87. FDA applies a February 15, 2007 grandfather date to all Newly Deemed Products,

including cigars and pipe tobacco. FDA claimed that it had no authority to change the

February 2007 grandfather date.

88. As a result, the Final Rule now requires cigar and pipe tobacco manufacturers to use

products at least twelve years old as predicate products, making it extremely difficult to compare

new tobacco products to grandfathered predicates for the purpose of establishing substantial

equivalence.

89. Application of a February 15, 2007 grandfather date impermissibly favors the Originally

Regulated Products. In particular, the Originally Regulated Products had only to look back two

and a half years for predicate tobacco products for substantial equivalence comparisons, whereas

the Final Rule, at the time of its promulgation, required Newly Deemed Products to look back nine

years for such predicate products.

90. Pursuant to the TCA, the Originally Regulated Products were permitted by statute to

remain on the market until FDA completed its review of the substantial equivalence report.

However, FDA is not affording Newly Deemed Products the same consideration. Instead, Newly

Deemed Products that have filed substantial equivalence r e p or t s , even when those r e p o r t s

have not yet been reviewed by FDA, are subject to removal from the market after twelve months.

91. The Final Rule for Newly Deemed Products renders it onerous, costly and time-

consuming to establish substantial equivalence given the passage of time and the lack of available

predicate products, and also provides for limited compliance periods for deemed products to

achieve substantial equivalence determinations or be withdrawn from the market. See Motor

Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)
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(holding “the agency must examine the relevant data and articulate a satisfactory explanation for

its action including a ‘rational connection between the facts found and the choice made.’”)

(internal citations omitted).

92. The result is a regulatory regime that is contrary to the structure and purpose of the TCA

in that cigars and other Newly Deemed Products face different regulatory hurdles not faced by

the Originally Regulated Products under the TCA to protect the public health.

93. Even assuming the presence of predicate products, application of the TCA’s premarket

review provisions, together with the FDA’s inability to timely review SE Reports for Newly

Deemed Products, will result in the removal from the market of these products, notwithstanding

timely submission of SE Reports; this will occur because of FDA’s inability to review such

reports timely, not misconduct of tobacco product manufacturers or product deficiencies.

94. FDA’s imposition of a February 2007 grandfather date also has the effect of penalizing

cigar and pipe tobacco manufacturers from being able to identify predicate products for purposes

of establishing substantial equivalence because the passage of time effectively eliminated them.

FDA has entirely failed to justify the harmful “secondary retroactivity” of its Final Rule against

any benefit to be derived from applying that grandfather date. See National Cable & Telecomms.

Ass’n v. FCC, 567 F.3d 659, 670 (D.C. Cir. 2009) (agency action is arbitrary and capricious

when the agency fails to “balance the harmful ‘secondary retroactivity’ of upsetting prior

expectations or existing investments against the benefits of applying their rules to those

preexisting interests.”) (internal citation omitted).

95. Here, application of a February 2007 grandfather cut-off date, resulting in immediate

restrictions on modification or introduction of products, and the threat of removing products

from the marketplace before FDA has even reviewed a product application, is contrary to the

structure, object, and policy of the TCA and yields results that Congress could not have intended
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and did not intend.

96. FDA also has violated the Administrative Procedure Act with regard to the substantial

equivalence process by enforcing deadlines for the submission of substantial equivalence reports

for cigars and pipe tobacco without first issuing promised final rules and guidance relating to the

substantial equivalence process and the testing of cigars and without first resolving an open

rulemaking docket under which the agency is considering exempting premium cigars from that

process. The agency is acting arbitrarily and capriciously when it enforces the substantial

equivalence process in a manner inconsistent with its own prior pronouncements and reasoning and

while it is actively reconsidering the application of that process to premium cigars.

97. FDA also violated the Administrative Procedure Act when it selected effective dates and

compliance dates for the Final Rule that did not provide sufficient time for the agency to finalize

foundational rules for the substantial equivalence process. The agency set an effective date for

many parts of the Final Rule of 90 days after the date of publication based upon the explicit legal

conclusion that the agency could rely on its enforcement discretion to adjust compliance dates for

regulatory provisions without going through notice and comment rulemaking. To the extent the

agency’s setting of the original effective and compliance dates was based on a false legal premise,

as suggested by American Academy of Pediatrics v. Food & Drug Admin., 379 F. Supp. 3d 461

(D. Md. 2019)), the setting of those dates was arbitrary, capricious, and contrary to law in violation

of the Administrative Procedure Act and the Final Rule should be vacated and remanded for the

agency to exercise its discretion to set effective and compliance dates under the correct legal

standard.

98. Plaintiffs have no adequate or available administrative remedy; in the alternative, any

effort to obtain an administrative remedy would be futile.

99. Plaintiffs have no adequate remedy at law.

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100. FDA’s “substantial equivalence” process—specifically including the imposition of a

February 2007 grandfather cut-off date—has imposed ongoing harm on Plaintiffs.

101. This Court should accordingly set aside and declare unlawful FDA’s Final Rule imposing

the premarket review and substantial equivalence process on cigars and pipe tobacco, including

aspects of the Final Rule establishing a February 15, 2007 grandfather cut-off date for Newly

Deemed Products that denies manufacturers of Newly Deemed Products the same protections

for continued marketing that the statute affords to manufacturers of Originally Regulated Products,

denying cigar and pipe tobacco companies forbearance of enforcement while their substantial

equivalence reports are pending, and setting effective dates and compliance deadlines for the Final

Rule that occur before the agency provides necessary foundational rules for the substantial

equivalence, premarket review, and testing processes and that are based on an incorrect legal

premise regarding the agency’s ability to adjust those dates.

COUNT II
(Violation of the Administrative Procedure Act:
The Final Rule’s User Fee Provisions are Arbitrary, Capricious, and Not in Accordance
With the TCA, and Exceed FDA’s Regulatory Authority)

102. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

103. Section 919 of the TCA provides that amounts paid by regulated entities should be in the

form of “user fees.” In employing the term “user fees” to describe the payments to be made by

regulated entities, Congress intended that these payments would bear the hallmarks of user fees

as opposed to taxes—i.e., fees are predicated on a voluntary act by payers; persons who pay the

fees receive a specific service or benefit; and payments are not meant for regulation of others or

for general public benefit.

104. FDA’s construction of the TCA requires manufacturers of certain classes of tobacco

products (e.g., cigars and pipe tobacco) to pay for costs associated with regulating competing
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products (e.g., e-cigarettes) that are not subject to “user fees”—in effect, taxing one group of

product manufacturers for the benefit of another. Such a construction is contrary to the statutory

language that makes clear that regulated entities are to pay “user fees,” not taxes.

105. Plaintiffs have no adequate or available administrative remedy; in the alternative, any

effort to obtain an administrative remedy would be futile.

106. Plaintiffs have no adequate remedy at law.

107. FDA’s “user fee” provisions, which require cigar and pipe tobacco manufacturers to bear

the cost of regulation for other classes of tobacco products such as e-cigarettes, impose ongoing

harm on Plaintiffs.

108. This Court accordingly should set aside and declare unlawful FDA’s Final Rule

establishing user fees for Newly Deemed Products.

COUNT III
(Violation of the Fifth Amendment to the U.S. Constitution:
The Final Rule’s User Fee Provisions Violate Plaintiffs’ Members’ Right to Due Process
and Equal Protection)

109. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

110. The Equal Protection Clause, applicable to the federal government through the Due

Process Clause of the Fifth Amendment (Bolling v. Sharpe, 347 U.S. 497 (1954)), requires “a

rough equality in tax treatment” and demands that inequalities be supported by a rational basis.

Allegheny Pittsburgh Coal Co. v. Cty. Comm’n of Webster Cty., 488 U.S. 336, 343-44 (1989);

see Armour v. City of Indianapolis, 132 S. Ct. 2073, 2083 (2012).

111. FDA’s user fee regulations effectively impose a tax not a user fee on cigar and pipe

tobacco manufacturers to pay for regulation of other “deemed” products such as e-cigarettes, for

which FDA has elected to assess no user fees.

112. FDA has not even attempted to identify a rational basis or justification for excluding e-
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cigarettes from user fees while placing the entire burden of regulating such products on

competitors such as cigars and pipe tobacco manufacturers, and no such basis exists.

113. Plaintiffs have no adequate or available administrative remedy; in the alternative, any

effort to obtain an administrative remedy would be futile.

114. Plaintiffs have no adequate remedy at law.

115. FDA’s “user fee” provisions, which require cigar and pipe tobacco manufacturers to bear

the cost of regulation for other classes of tobacco products such as e-cigarettes, impose ongoing

harm on Plaintiffs.

116. As a result, Plaintiffs are entitled to a declaration that FDA’s Final Rule establishing user

fees for Newly Deemed Products violates the Fifth Amendment to the U.S. Constitution and

should be set aside. See 28 U.S.C. § 2201(a).

COUNT IV
(Violation of the Administrative Procedure Act:
FDA’s Failure to Carry Out a Proper Cost-Benefit Analysis Is Arbitrary and Capricious
and Violates the Regulatory Flexibility Act and Unfunded Mandates Reform Act of 1995)

117. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

118. Agency action is arbitrary and capricious when the agency has failed to “respond to

‘relevant’ and ‘significant’ public comments.” Public Citizen, Inc. v. FAA, 988 F.2d 186, 197

(D.C. Cir. 1993) (internal citation omitted).

119. The Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-4, 109 Stat. 48 et seq.)

and the Regulatory Flexibility Act (5 U.S.C. §§ 601 et seq.) require agencies examine the

potential economic consequences of rulemaking. Presidential Executive Order 12866, which

elaborates on those requirements, provides that “[e]ach agency shall assess both the costs and

benefits of the intended regulation and, recognizing that some costs and benefits are difficult to

quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of

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the intended regulation justify its costs.” Exec. Order No. 12,866, 58 Fed. Reg. 51735 (Sept. 30,

1993).

120. In light of FDA’s admission in its PRIA that it was unable to carry out a realistic

prospective analysis, and its statement that it would conduct a “retrospective review” (PRIA at

52), Plaintiff Associations submitted comments challenging FDA to justify the costs of the

proposed regulation through a proper Regulatory Impact Analysis before imposing those costs.

Plaintiffs also submitted comments taking issue with aspects of FDA’s Preliminary Regulatory

Impact Analysis including, in particular, the costs and adverse economic impacts of regulation

and the failure to properly consider regulatory alternatives.

121. In the FRIA, FDA either ignored or failed to adequately address Plaintiffs’ comments

and failed to supply a reasoned determination that the benefits of the regulation justify its costs.

In particular, FDA failed to quantify the benefits of the intended regulation and admitted it was

“unable to quantify any possible unintended offsetting effects” (FRIA at 21); admitted that

“[r]eliable evidence on the impacts of warning labels, premarket review, and marketing restrictions

on users of cigars … does not, to our knowledge, exist” (FRIA at 62); and admitted that it had

not analyzed the costs and benefits of available regulatory alternatives. FRIA at 127.

122. Indeed, because the Final Rule creates more onerous conditions than the Proposed Rule,

in particular in relationship to the premarket submission review process, FDA’s failure to carry

out a proper Regulatory Impact Analysis is even more acute. The Final Rule provides no

justification for imposing the costs of essentially wiping out entire classes of products through

the application of premarket review and substantial equivalence procedures that present

insurmountable obstacles to regulatory approval.

123. FDA also violated the Administrative Procedure Act when it engaged in a deeply flawed

analysis of the costs and benefits of the substantial equivalence process for cigars and pipe tobacco.
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Among other defects, that analysis ignored plain evidence in the record and dramatically

underestimated the costs of imposing the substantial equivalence regime on cigars and pipe

tobacco, and in particular on premium cigars, while failing to reasonably explain how any

corresponding public health benefits possibly could have justified those massive costs. FDA’s

interpretation in the Final Rule of the substantial equivalence requirements of the TCA illustrates

that it expects those costs to include the testing of each single product and the collection of a

staggering amount of data about them and their predicates. FDA acted arbitrarily and capriciously

when it imposed these massive costs on the cigar and pipe tobacco industries without a sensible

and reasoned explanation of the corresponding benefits that will arise from it or consideration of

less burdensome alternatives to achieve those benefits.

124. Plaintiffs have no adequate or available administrative remedy; in the alternative, any

effort to obtain an administrative remedy would be futile.

125. Plaintiffs have no adequate remedy at law.

126. FDA’s adoption of a Final Rule without a proper cost-benefit analysis has imposed

ongoing harm on Plaintiffs.

127. This Court accordingly should declare unlawful FDA’s Final Rule insofar as it

establishes a regulatory regime for Newly Deemed Products without a proper cost-benefit analysis

determining that the benefits of the Final Rule outweigh its costs, and compel FDA to undertake

a proper cost-benefit analysis and defer enforcement of the Final Rule against Plaintiffs’ members

until such analysis is completed.

COUNT V
(Violation of the Administrative Procedure Act:
FDA’s Treatment of Premium Cigars and Failure to Consider Option Two is Arbitrary
and Capricious)

128. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

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129. FDA’s justification for subjecting premium cigars to the same regulatory regime as other

tobacco products is “that ‘deeming all cigars, rather than a subset, more completely protects the

public health.’” 81 Fed. Reg. 29020. Even assuming that FDA’s conclusion on that point is

correct, Congress did not intend for that factor alone to be the basis for FDA’s regulatory

decision. Rather, Congress intended for FDA to consider the congressional findings and purposes

in determining how to appropriately regulate premium cigars to continue to permit the sale of

premium cigars to adults. FDA did not, and its failure to do so is arbitrary and capricious.

130. FDA recognized that ninety percent (90%) of the entities affected by the Final Rule were

small businesses. FRIA at 133.

131. FDA further recognized that under the approach taken in the Final Rule, up to half of

handmade cigar products on the market would disappear from the U.S. market. FRIA at 22.

132. FDA also recognized that subjecting premium cigars to some—but not all—of FDA’s

regulatory authority would both dramatically reduce costs on small businesses and further FDA’s

public health interests. Specifically, in its PRIA, FDA admitted that by exempting premium

cigars from the labeling and premarket application requirements, the cost to small businesses

“would be dramatically reduced.” PRIA at 57. In light of FDA’s own conclusions, FDA’s

conclusory statement that “deeming all cigars, rather than a subset, more completely protects the

public health” entirely failed to consider an important aspect of the problem, namely the massive

costs of regulation and whether FDA could achieve its public health goals with a less

burdensome regulatory regime. 81 Fed. Reg. 29020.

133. In addition, FDA utterly failed to address Plaintiffs’ comments addressing regulatory

options for premium cigars other than the “Option 1” approach, under which FDA acknowledges

that up to half of handmade cigar products on the market today would disappear. FRIA at 22.

FDA could have analyzed a regulatory alternative that exempted premium cigars from labeling
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change and new product submission requirements, which would have dramatically reduced the

costs on small business without significantly affecting public benefits, but FDA did not do so.

Instead, FDA entirely failed to address the potential costs and benefits of the regulatory

alternative that would have exempted premium cigars from regulation, admitting that it “d[id]

not analyze these effects quantitatively.” FRIA at 134.

134. FDA also violated the Administrative Procedure Act when it failed to adequately consider

other less burdensome regulatory alternatives for premium cigars that would have achieved the

goals of the substantial equivalence process without harming the premium cigar industry with

excessive costs and disruption. Examples of obvious, reasonable, and less burdensome alternatives

for premium cigars that were overlooked by the agency included that: (i) FDA could have only

required manufacturers to submit the size, shape and weight of a new premium cigar, and then

asked follow-up questions if necessary to determine substantial equivalence; (ii) FDA could have

provided in its Final Rule that every cigar that meets the definition of premium cigars is

substantially equivalent to a predicate product; or (iii) FDA could have exempted premium cigars

from the requirements of the substantial equivalence process in its entirety, and instead issued

tobacco products standards appropriate for premium cigars. FDA acted arbitrarily and capriciously

when it failed to adequately consider reasonable regulatory alternatives such as these or to explain

its rejection of such regulatory alternatives. FDA further acted arbitrarily and capriciously in

failing adequately to respond to comments submitted on the administrative record proposing such

alternatives.

135. FDA’s treatment of premium cigars in the Final Rule is arbitrary and capricious and has

caused immediate and ongoing harm to Plaintiffs.

136. The cumulative effect of the Final Rule, including but not limited to user fees, premarket

approval, and warning labels will threaten the very existence of many of the small businesses
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affected by the Final Rule.

137. This Court accordingly should declare unlawful FDA’s Final Rule with respect to

premium cigars and compel FDA to undertake a proper analysis of regulation of premium cigars.

This Court should vacate and set aside enforcement of the Final Rule as to premium cigars until

FDA does so.

COUNT VI
(Violation of the Administrative Procedure Act:
The Final Rule’s Warning Label Requirements are Arbitrary and Capricious)

138. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

139. “The requirement that agency action not be arbitrary or capricious includes a

requirement that the agency adequately explain its result.” Public Citizen, Inc., 988 F.2d at 197.

Further, an agency must consider and explain its rejection of “reasonably obvious alternative[s].”

Natural Res. Def. Council, Inc. v. SEC, 606 F.2d 1031, 1053 (D.C. Cir. 1979).

140. FDA’s Final Rule imposes warning label format requirements of 20% disclosure space

for advertising and 30% disclosure space for the two principal display areas for product packaging

without considering the adequacy of the existing FTC Consent Decree format requirements that

apply specifically to cigars.

141. There is no evidence in the administrative record that the FTC “clear and conspicuous”

disclosure requirements in the FTC Consent Decree are in any manner inadequate to protect the

governmental interests advanced by the Final Rule.

142. Plaintiffs have no adequate or available administrative remedy; in the alternative, any

effort to obtain an administrative remedy would be futile.

143. Plaintiffs have no adequate remedy at law.

144. FDA’s Final Rule containing warning label requirements in excess of the FTC Consent

Decree has imposed ongoing harm on Plaintiffs.

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145. This Court accordingly should set aside and declare unlawful the warning label

requirements for cigars contained in FDA’s Final Rule.

COUNT VII
(Violation of the First Amendment to the U.S. Constitution:
The Final Rule’s Warning Label Requirements Impermissibly Restrict Free Speech)

146. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

147. Under the First Amendment, the burden is on FDA to show that its warning label and

advertising disclosure requirements are supported by a “substantial governmental interest” and

that the requirements achieve that interest “through the least restrictive available means.”

Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 647 (1985).

148. FDA has not met and cannot meet its burden of showing that its disclosure requirements

are the “least restrictive available means” to achieve a legitimate governmental interest in

disclosure.

149. Plaintiffs have no adequate or available administrative remedy; in the alternative, any

effort to obtain an administrative remedy would be futile.

150. Plaintiffs have no adequate remedy at law.

151. FDA’s Final Rule containing warning label requirements has imposed ongoing harm on

Plaintiffs.

152. As a result, Plaintiffs are entitled to a declaration that FDA’s Final Rule establishing

warning label requirements for cigars violates the First Amendment to the U.S. Constitution and

should be set aside. See 28 U.S.C. § 2201(a).

COUNT VIII
(Violation of the Administrative Procedure Act:
Regulation of Tobacconists Who Blend or Apportion Finished Pipe Tobacco or Create
“Cigar Samplers” as “Manufacturers” is Arbitrary, Capricious, and Not in Accordance
With the TCA, and Exceeds FDA’s Regulatory Authority)

153. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.
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154. The Final Rule deeming retailers who blend and/or apportion finished pipe tobacco in

bulk form, or who create “cigar samplers” of finished cigars, to be “manufacturers,” and

subjecting them to the full range of regulations applicable to manufacturers of cigarettes and

other tobacco products, has no basis in law, and threatens small businesses across the nation

without adequate justification.

155. Plaintiffs have no adequate or available administrative remedy; in the alternative, any

effort to obtain an administrative remedy would be futile.

156. Plaintiffs have no adequate remedy at law.

157. FDA’s Final Rule deeming retailers who blend and/or apportion finished pipe tobacco

products, or who create “cigar samplers” of finished cigars, to be “manufacturers” subject to full

regulation has imposed ongoing harm on Plaintiffs.

158. This Court accordingly should set aside and declare unlawful FDA’s determination that

retailers who blend and/or apportion finished pipe tobacco, or who create “cigar samplers” of

finished cigars, are manufacturers subject to the requirements of the FD&C Act.

COUNT IX
(Violation of the Administrative Procedure Act:
Regulation of Pipes as “Components” Rather Than as “Accessories” is Arbitrary,
Capricious, and Not in Accordance With Law)

159. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

160. The Final Rule decreeing that pipes will be considered “components” or “parts” of

tobacco products subject to regulation, as opposed to “accessories” not subject to regulation,

contravenes FDA’s own definitions as well as common sense and historical practice.

161. Plaintiffs have no adequate or available administrative remedy; in the alternative, any

effort to obtain an administrative remedy would be futile.

162. Plaintiffs have no adequate remedy at law.

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163. FDA’s Final Rule decreeing that pipes will be regulated as “components” or “parts” of

tobacco products has imposed ongoing harm on Plaintiffs.

164. This Court accordingly should set aside and declare unlawful FDA’s determination that

pipes are “components” or “parts” of tobacco products.

COUNT X
(Declaratory Judgment:
The Guidance Is Valid and in Effect for Cigars and Pipe Tobacco)

165. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

166. An actual controversy within the jurisdiction of this Court presently exists regarding the

validity and effectiveness of the FDA’s enforcement policy extending certain compliance deadlines

for premium cigars and pipe tobacco as set forth in the Guidance for Industry entitled “Extension

of Certain Tobacco Product Compliance Deadlines Related to the Final Deeming Rule,” which was

issued by the FDA in August 2017 (as amended, the “Guidance”).

167. The Guidance extended the compliance deadline for manufacturers to submit substantial

equivalence exemption requests, substantial equivalence reports, and premarket tobacco product

applications under the Final Rule, through August 8, 2021, for combustible tobacco products such

as cigars and pipe tobacco that were on the market as of August 8, 2016. The Guidance further

provided that the FDA would allow manufacturers to continue selling such products without an

application until August 8, 2021, and thereafter if an application had been submitted. At the same

time, the Guidance extended those equivalent compliance deadlines for noncombustible tobacco

products such as e-cigarettes through August 8, 2022.

168. In February 2017, Plaintiffs had filed a comprehensive motion for summary judgment in

the case including with respect to their claims challenging the Final Rule’s premarket approval and

substantial equivalence scheme. ECF No. 22. In reliance on the Guidance, Plaintiffs entered into

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an agreement with the Government to defer briefing and resolution of claims relating to those

aspects of the Final Rule affected by the Guidance. ECF Nos. 40, 51, 53, 110, 112, 115, and 119.

This Court’s case management orders have incorporated and relied upon the extensions set forth

in the Guidance and the agreement of the parties to this litigation concerning the framework for

litigating the claims in this case in an orderly and reasonable manner. ECF Nos. 35 at 1-2, 51 at

2-3.

169. On March 27, 2018, six organizations that this Court held (ECF No. 68) lacked standing to

intervene in this case, concerning the application of the Deeming Rule to cigars and pipe tobacco,

filed a new lawsuit in the District of Maryland captioned American Academy of Pediatrics v. Food

and Drug Administration, Case No. 8:18-cv-00883-PWG (D. Md.). Those six public health

advocacy groups challenged the extensions, an issue they raised before this Court as a reason the

agency could not be trusted to defend the existing Rule.

170. On May 15, 2019, the District of Maryland (Grimm, J.) granted summary judgment for the

plaintiffs. See American Academy of Pediatrics v. Food & Drug Admin., 379 F. Supp. 3d 461 (D.

Md. 2019). The Maryland Court concluded that it would “vacate the FDA’s August 2017

Guidance” based on the concerns raised in the opinion, almost all of which pertain to e-cigarettes

and their reported increasing popularity among teenagers. See id. at 498. The Maryland Court

directed further briefing by the parties as to appropriate remedies, which is currently underway.

See id.

171. Cigar and pipe tobacco manufacturers including Plaintiffs’ members would suffer millions

of dollars in unnecessary regulatory compliance costs, business disruption, and other ongoing

severe harms were they required to comply immediately with the premarket approval regime.

172. Plaintiffs have no adequate or available administrative remedy; in the alternative, any

effort to obtain an administrative remedy would be futile.

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173. Plaintiffs have no adequate remedy at law.

174. As a result, Plaintiffs are entitled to a declaration that the Guidance, including its

extension of compliance deadlines for substantial equivalence exemption requests, substantial

equivalence reports, and premarket tobacco product applications, is valid and in effect for cigars

and pipe tobacco or, in the alternative, for Plaintiffs and Plaintiffs’ members. See 28 U.S.C.

§ 2201(a).

COUNT XI
(Violation of the Administrative Procedure Act: FDA’s Decision to Set and to Enforce
Substantial Equivalence Report Deadlines, Without Issuing Promised Final Rules and
Guidance Is Arbitrary, Capricious, and not in accordance with Law)

175. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

176. FDA has violated the Administrative Procedure Act by enforcing deadlines for the

submission of SE Reports for cigars and pipe tobacco without first issuing promised final rules and

guidance relating to the substantial equivalence process with adequate time for industry to

understand and comply with those rules and guidance.

177. In the Final Rule itself, FDA promised further rules or guidance to establish the

requirements for and provide content to the substantial equivalence process, recognizing that such

further content was necessary to make mandating compliance with the substantial equivalence

process reasonable. See 81 Fed. Reg. at 29,011-12. On July 28, 2017, FDA issued a press release

affirming its promise in the Final Rule that the agency planned to “issue foundational rules to make

the product review process more efficient, predictable, and transparent for manufacturers,”

including “regulations outlining what information the agency expects to be included in. . .

applications and reports to demonstrate Substantial Equivalence (SE).” See Press Release, U.S.

Food & Drug Admin., FDA Announces Comprehensive Regulatory Plan to Shift Trajectory of

Tobacco-Related Disease, Death (July 28, 2017) (the “July 28 Press Release”), available at

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https://www.fda.gov/newsevents/newsroom/pressannouncements/ucm568923.htm.

178. FDA has not issued its promised final rules to establish the requirements for and provide

content to the substantial equivalence process for cigars and pipe tobacco. On April 2, 2019, FDA

requested comments on a proposed rule concerning the substantial equivalence process. See

Content and Format of Substantial Equivalence Reports, Food and Drug Administration Actions

on Substantial Equivalence Reports, 84 Fed. Reg. 12,740 (Apr. 2, 2019) (the “Proposed SE Rule”).

That comment period closed on June 17, 2019, and there is no indication that a final rule will be

issued soon. In the days after releasing the Proposed SE Rule, Former Commissioner Gottlieb

reiterated that such additional rules and guidance are necessary to make the substantial equivalence

process function properly and as the agency envisioned:

We’re committed to issuing foundational rules to make the science-based

regulatory review process more efficient, predictable, and transparent for
manufacturers. . . . [I]t’s critical we have a strong, science-based application review
process. . . . One way we can help achieve this is by developing new guidance and
regulations to further clarify the rules of the road for what information the FDA
needs in order to review and potentially allow new tobacco products to come to
market. . . . [I]t’s critical that manufacturers provide high-quality submissions to
allow the FDA to make a determination.

See Statement from FDA Commissioner Scott Gottlieb, M.D., on actions to advance our

comprehensive plan to reduce tobacco-related disease and death, through new efforts to improve

the tobacco product application review process, including a newly proposed rule (March 28, 2019),

available at https://www.fda.gov/news-events/press-announcements/statement-fda-

commissioner-scott-gottlieb-md-actions-advance-our-comprehensive-plan-reduce-tobacco.

179. FDA’s failure to issue promised final rules governing the substantial equivalence process

has been compounded by its separate failure to issue promised final guidance and rules regarding

HPHC testing. FDA indicated in the Final Rule that the submission of SE Reports would require

HPHC testing. See 81 Fed. Reg. at 28,995. In the Proposed SE Rule, FDA likewise signaled an

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intent to incorporate HPHC testing in the substantial equivalence process. See 84 Fed. Reg. at

12,745, 12,763. But in the Final Rule FDA committed “to issue a guidance regarding HPHC

reporting, and later a testing and reporting regulation,” and to do so well in advance of any

compliance deadline for which such testing would be relevant. See 81 Fed. Reg. at 29,052; see

also id. at 28,980.

180. Neither final guidance regarding reporting of HPHC testing nor a rule providing a

methodology for HPHC testing has been released. Recognizing that cigar and pipe tobacco

manufacturers could not comply with the November 8, 2019, HPHC reporting deadline without

such additional HPHC rules and guidance, FDA extended the deadline until “6 months from the

publication date of a final guidance regarding HPHC reporting under section 904(a)(3).” See

Extension of Certain Tobacco Product Compliance Deadlines Related to the Final Deeming Rule,

Guidance for Industry (Revised 7th Ed.) at 12. Such rules and guidance regarding the HPHC testing

process are equally necessary before SE Reports must be submitted to the agency. FDA recognized

both in the Final Rule and subsequently that it needed to issue regulations and agency guidance—

including to establish the requirements for and provide content to the substantial equivalence

process before it reasonably could expect industry participants to submit to the agency SE Reports

for cigars and pipe tobacco products. Any effort to enforce a May 2020 deadline for the

submission of SE Reports would be flatly inconsistent with the Final Rule. Such enforcement, in

the absence of promised regulations and guidance now less than eight months before SE Reports

must be submitted, is inconsistent with the agency’s prior statements including in the Final Rule

itself. Further, final rules or guidance issued close to the SE Report deadline will not relieve the

arbitrary and capricious nature of enforcing such a deadline. That is because an SE Report is

required for each of a manufacturer’s products introduced onto the market in the last 12 years.

And each application may require at least six months of laborious research, scientific testing and
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data collection, and drafting.

181. Agency action is arbitrary and capricious when it cannot be reconciled with the agency’s

own pronouncements and reasoning. See Dist. Hosp. Partners, L.P. v. Burwell, 786 F.3d 46, 59

(D.C. Cir. 2015); U.S. Postal Serv. v. Postal Reg. Comm’n, 785 F.3d 740, 753–56 (D.C. Cir. 2015).

This proscription against arbitrary and capricious decisionmaking encompasses both the issuance

of a regulation and its enforcement. See Airmark Corp. v. FAA, 758 F.2d 685, 691–92 (D.C. Cir.

1985) (“grossly inconsistent and patently arbitrary” enforcement of regulation violates the APA).

And FDA’s failure to discharge self-imposed obligations necessary to enable compliance with its

own regulations amounts to arbitrary and capricious action. See Portland Cement Ass’n v. EPA,

665 F.3d 177, 187 (D.C. Cir. 2011) (agency violated APA by ignoring parallel rulemaking with

the potential to modify the requirements for the regulated industry).

182. To the extent that the agency insists on the submission of SE Reports simply on the basis

of information currently available, the agency will have arbitrarily ignored multiple comments that

additional guidance and implementing rules would be necessary before cigar and pipe tobacco

manufacturers could be reasonably required to submit SE Reports. Indeed, the agency

acknowledged these comments in the Final Rule and promised such rules and guidance, prior to

the date compliance was required, in the preamble to the Final Rule. It is a plain violation of the

APA and the definition of arbitrary and capricious agency action not to adequately address

comments received through notice and comment rulemaking. Public Citizen, Inc. v. FAA, 988 F.2d

186, 197 (D.C. Cir. 1993) (agency action is arbitrary and capricious when the agency has failed to

“respond to ‘relevant’ and ‘significant’ public comments”). And the failure to address such

comments will become clear if FDA demands enforcement before finalizing pending rules

regarding the substantial equivalence and testing processes.

183. Plaintiffs have no adequate or available administrative remedy. In the alternative, any effort
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to obtain an administrative remedy would be futile.

184. Plaintiffs have no adequate remedy at law.

185. FDA’s actions with respect to the SE Report deadline and other requirements of the

substantial equivalence process will cause ongoing harm to Plaintiffs.

186. Therefore, this Court should set aside, declare unlawful, and enjoin FDA from enforcing

against cigars and pipe tobacco any requirement of the substantial equivalence process, as such

enforcement without the final resolution of foundational rules for the process is arbitrary and

capricious, and vacate the Final Rule so that the agency may properly order the timing of

enforcement of the substantial equivalence process and the resolution of these open and/or

promised rulemaking dockets. At a minimum, this Court should enjoin the enforcement of the

substantial equivalence and premarket review process until one year after final rules are issued

pursuant to the open dockets for rules governing the substantial equivalence process. In addition,

this Court should enter a preliminary injunction and/or a postponement pursuant to 5 U.S.C. § 705

restraining FDA from enforcing any requirement of the substantial equivalence process against

cigars and pipe tobacco.

COUNT XII
(Violation of the Administrative Procedure Act: The Agency’s Setting of Compliance Dates
and Decision to Enforce the Substantial Equivalence Provisions of the Final Rule Prior to
Resolving the Premium Cigar Rulemaking Docket Is Arbitrary and Capricious)

187. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

188. On March 26, 2018, FDA issued an Advance Notice of Proposed Rulemaking requesting

studies and information concerning “the patterns of use and resulting public health impacts from

premium cigars,” to aid the agency as it further “consider[s] the appropriate regulatory status of

premium cigars.” See Regulation of Premium Cigars, 83 Fed. Reg. 12,901, 12,902 (Mar. 26, 2018).

Plaintiffs and many other industry participants submitted comments to FDA wherein they provided

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studies and information showing the starkly different patterns of use and resulting public health

impacts from premium cigars, in comparison to other tobacco products. These commenters, on the

basis of this data, urged that premium cigars be exempted from the Final Rule in general and the

substantial equivalence process in particular. FDA has not yet resolved this premium cigar docket:

In the most recent Unified Agenda of Regulatory and Deregulatory Actions, the premium cigar

docket (RIN: 0910-AH88) was not scheduled for resolution for at least one year, which would

place it after any May 2020 compliance date for cigars entering the substantial equivalence process.

189. At the same time, FDA appears poised to require manufacturers of premium cigars to

submit substantial equivalence reports for those products by May 2020, prior to the resolution of

the premium cigar rulemaking docket considering the exemption of premium cigars from the entire

premarket review process or a different, more streamlined, process for premium cigars to pass

through that process.

190. FDA’s enforcement of a deadline for the submission of SE Reports despite an open

premium cigars rulemaking docket with the potential to change the scope of cigars subject to

regulation violates the APA. An agency’s continued enforcement of a regulation that it is actively

reconsidering amounts to “a grossly unfair exercise of agency authority.” Cigar Ass’n of Am. v.

FDA, 317 F. Supp. 3d 555, 563 (D.D.C. 2018). The APA’s proscription against arbitrary and

capricious decisionmaking encompasses both the issuance of a regulation and its enforcement. See

Airmark Corp. v. FAA, 758 F.2d 685, 691–92 (D.C. Cir. 1985) (“grossly inconsistent and patently

arbitrary” enforcement of regulation violates the APA). And the agency must take cognizance of

and explain the interaction of parallel open rulemakings and its enforcement decisions. See

Portland Cement Ass’n v. EPA, 665 F.3d 177, 187 (D.C. Cir. 2011) (agency violated APA by

ignoring parallel rulemaking with the potential to modify the requirements for the regulated

industry).
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191. The agency’s contemplated enforcement of the substantial equivalence process against

premium cigars prior to the resolution of the premium cigar rulemaking docket violates the APA

and all of the principles thereunder articulated above. The costs of the substantial equivalence

process on premium cigars are massive, given the vast variety of premium cigars, thousands of

which will have to go through the substantial equivalence process or be pulled from the

marketplace. The costs of the substantial equivalence process also are significantly frontloaded

rather than spread over the lifespan of the agency’s regulatory scheme. Significantly, SE Reports

for each premium cigar product, if the agency does not change course, would have to be submitted

prior to May 2020, pushing nearly all of the costs of the substantial equivalence process before the

premium cigar rulemaking docket is resolved. It is the height of arbitrary and capricious regulatory

enforcement to force those costs now, when the agency may shortly, though after May 2020, decide

to exempt premium cigars from the process or regulate them differently from other products. This

is especially the case as the substantial equivalence requirement is not a primary regulation of

conduct, but what the agency refers to as an “enabling rule” gathering information (albeit in a

manner very expensive for the industry) for future regulatory actions by the agency. See 81 Fed.

Reg. 29,075; FRIA at 5.

192. Plaintiffs have no adequate or available administrative remedy. In the alternative, any effort

to obtain an administrative remedy would be futile.

193. Plaintiffs have no adequate remedy at law.

194. FDA’s actions with respect to the SE Report deadline and other requirements of the

substantial equivalence process will cause ongoing harm to Plaintiffs.

195. Therefore, this Court should set aside, declare unlawful, and enjoin FDA from enforcing

any requirement of the substantial equivalence process against cigars, as such enforcement without

the final resolution of the premium cigar rulemaking docket and scope of cigar products subject to
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the substantial equivalence process is arbitrary and capricious, and vacate the Final Rule so that

the agency may properly order the timing of enforcement of the substantial equivalence process

and the resolution of the premium cigar rulemaking docket. At a minimum, this Court should

enjoin the enforcement of the substantial equivalence and premarket review process against

premium cigars until one year after final rules are issued pursuant to the open docket concerning

the appropriate regulatory treatment of premium cigars. In addition, this Court should enter a

preliminary injunction and/or a postponement pursuant to 5 U.S.C. § 705 restraining the FDA from

enforcing any requirement of the substantial equivalence process against cigars, or premium cigars.

COUNT XIII
(Violation of the Administrative Procedure Act: The Agency’s Setting of Effective Dates
and Compliance Dates for the Final Rule Was Arbitrary, Capricious, and not in
accordance With Law)

196. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

197. Plaintiffs plead Count XIII solely in the alternative to Count XI.

198. When FDA issued the Final Rule, it provided an effective date and a series of compliance

dates for different aspects of the Final Rule. For those provisions FDA regarded as “automatic

provisions” that were required by statute after the decision to deem cigars and pipe tobacco subject

to the TCA, the Final Rule provided for compliance on the same timeline as the effective date of

the Final Rule, or August 8, 2016. See 81 Fed. Reg. at 28,976. In setting the effective date,

however, the agency expressly stated a core premise: that it had enforcement discretion to require

compliance with individual automatic provisions at later dates than the effective date. 81 Fed. Reg.

at 29,010. The agency knew that this legal authority to set compliance dates for individual

provisions later than the effective date was indispensable: the agency recognized that industry

participants would require additional time to prepare substantial equivalence reports and comply

with other aspects of the Final Rule. The agency also recognized that FDA itself needed additional

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time too: it promised in the Final Rule to issue further regulations and agency guidance to establish

the requirements for and provide content to the substantial equivalence process and HPHC testing.

See 81 Fed. Reg. at 28,980, 29,011-12, 29,052.

199. In reliance on and implementing the legal premise that it had discretion to establish

compliance dates later than the effective date for individual automatic provisions of the Final Rule,

FDA adopted an enforcement and compliance policy that provided staggered compliance dates for

individual automatic provisions. Among other such compliance dates, the Final Rule established

a compliance deadline for SE Reports of 18 months after the effective date, i.e., April 8, 2018; for

premarket tobacco product applications, 24 months after the effective date; and for reporting the

results of harmful and potentially harmful constituents, 36 months after the effective date. See 81

Fed. Reg. at 29,011-12.

200. As indispensable to the agency’s legal premise that it had authority to set compliance dates

later than the effective date of the Final Rule was that it could adjust those compliance dates later

without notice and comment rulemaking. FDA expressly stated that the“[a]gency

compliance/enforcement policies [setting the substantial equivalence compliance date, among

others] are not subject to the requirements that govern notice-and-comment rulemaking,” and that

the agency possessed the authority to change them without the issuance of a new rule. See 81 Fed.

Reg. at 29,010, see also id. at 28,977. The agency said it was including its proposed compliance

dates in the proposed rule because it was interested in public views, but stated from the beginning

that the compliance dates need not and were not going through the formal notice and comment

rulemaking process. And the agency said it would use this authority—without modifying the

substantive rule—to review and revise the dates as appropriate in the circumstances. 81 Fed. Reg.

at 29,008.

201. In other words, FDA’s selection of the effective date for the Final Rule’s substantial
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equivalence requirements was based on a legal presumption of agency authority to adopt and revise

compliance deadlines for those requirements as needed to accommodate the agency’s development

of further foundational rules and guidance for industry.

202. An agency violates the Administrative Procedure Act when it issues a rule “based on [a]

faulty legal premise.” See Phillips Petroleum Co. v. FERC, 792 F.2d 1165, 1171 (D.C. Cir. 1986).

Moreover, a rule should be vacated and remanded if the agency misunderstands the scope of its

legal authority or discretion in issuing or enforcing any aspect of it. See id. (remanding to agency

to reconsider regulation based on “erroneous reading” of the law); see also Noble Energy, Inc. v.

Salazar, 671 F.3d 1241, 1246 n.5 (D.C. Cir. 2012) (courts “will vacate and remand” if “an agency

incorrectly concludes that Congress mandated a particular regulatory interpretation”). And “[i]t is

well-established that an agency’s action must be upheld, if at all, on the basis articulated by the

agency itself.” Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,

50 (1983).

203. A decision from the United States District Court of the District of Maryland suggests that

such a faulty legal premise and express misunderstanding of the agency’s legal authority is

imbedded in the Final Rule.

204. On May 15, 2019, the District of Maryland (Grimm, J.) invalidated certain extensions the

agency had granted of compliance dates stated in the Final Rule. See American Academy of

Pediatrics v. Food & Drug Admin., 379 F. Supp. 3d 461, 498 (D. Md. 2019). Judge Grimm held

that the TCA provided the agency with no meaningful discretion to delay compliance with

automatic provisions of the Final Rule after the effective date of its decision to deem new products

(in the case at issue there, e-cigarettes) subject to the Act. Moreover, the Court suggested that the

agency lacked the discretion to change the compliance dates set forth in the compliance and

enforcement policy section of the Final Rule’s release “without adhering to the
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[notice-and-comment requirements of the] APA.” Id. at 497-98.

205. If Judge Grimm’s ruling were correct, the agency imbedded a serious legal error in its

decision to deem cigars and pipe tobacco subject to the Act, to set an effective date for the

automatic provisions only 90 days after the publication date, and in setting staggered compliance

dates for individual automatic provisions. The selection of the effective date for the Final Rule

deeming cigars and pipe tobacco subject to the Act and the compliance dates for individual

automatic provisions is therefore arbitrary and capricious. The Final Rule should be vacated and

remanded for the agency to exercise its legal authority and discretion properly defined and to set

an effective date appropriate under all the facts and circumstances and the correct legal standard.

The agency may then properly consider—which (if Judge Grimm is correct) it did not in the Final

Rule—what the effective date should be to accommodate necessary additional FDA rulemakings

setting “foundational rules” for the substantial equivalence process.

206. Plaintiffs have no adequate or available administrative remedy. In the alternative, any effort

to obtain an administrative remedy would be futile.

207. Plaintiffs have no adequate remedy at law.

208. FDA’s actions with respect to the substantial equivalence process will cause ongoing harm

to Plaintiffs.

209. Therefore, this Court should set aside, declare unlawful, and enjoin FDA from enforcing

the Final Rule and remand it to the agency to exercise its properly defined legal authority and

discretion to set an effective date for the Final Rule. In addition, this Court should enter a

preliminary injunction and/or a postponement pursuant to 5 U.S.C. § 705 restraining FDA from

enforcing any requirement of the substantial equivalence process against cigars and pipe tobacco.

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COUNT XIV
(Violation of the Administrative Procedure Act: Subjecting All Cigars to an Identical
Substantial Equivalence Process and Failing to Establish a Separate Procedure for
Premium Cigars is Arbitrary, Capricious, and not in accordance With Law)

210. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

211. FDA’s issuance of the Final Rule violated the Administrative Procedure Act because it

subjected all cigars to the same substantial equivalence process imposed on cigarettes and

smokeless tobacco, and failed to adequately consider less burdensome regulatory alternatives for

premium cigars that would have achieved the goals of the substantial equivalence process without

harming the premium cigar industry with excessive costs and disruption.

212. Premium cigars are different from other tobacco products. The agency recognized that

these differences present serious questions in proposing so-called “Option 2” in the Proposed Rule.

That option would have exempted a class of premium cigars from the scope of the Final Rule,

including the premarket review and substantial equivalence process. The agency proposed a

definition of “premium cigars” in the Proposed Rule. The agency’s definition, which it used to

evaluate the appropriate treatment of premium cigars, provided required elements about the

physical characteristics of a premium cigar: “(1) [is] wrapped in whole tobacco leaf; (2) contains

a 100 percent leaf tobacco binder; (3) contains primarily long filler tobacco; (4) is made by

combining manually the wrapper, filler, and binder; (5) has no filter, tip, or non-tobacco

mouthpiece and is capped by hand; . . . (7) does not have a characterizing flavor other than tobacco;

and (8) weighs more than 6 pounds per 1000 units.” 79 Fed. Reg. 23150, 23203. 5 Plaintiffs and

5
The agency’s definition has as sixth element, omitted above, that concerns the price of an
individual cigar. It provides that the cigar: “(6) has a retail price (after any discounts or coupons)
of no less than $10 per cigar (adjusted, as necessary, every 2 years, effective July 1st, to account
for any increases to the price of tobacco products since the last price adjustment).” 79 Fed. Reg.
23150, 23203. Many commenters, including the Plaintiffs in this matter, urged the agency to omit
the price term from any final definition of premium cigars. Whether a price term should or should
not be included in the definition of a premium cigar is not relevant to the substantial equivalence
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other industry members, in comments addressing the Proposed Rule, suggested revisions to FDA’s

definition, but the agency’s definition shows the class of premium cigars that the agency was

evaluating in reaching the Final Rule. In both the Proposed Rule and its later rulemaking docket

regarding premium cigars, the agency reinforced that premium cigars—as a class—have different

physical and other characteristics that warrant nuanced regulatory treatment. The pending

rulemaking docket to consider exempting premium cigars entirely from FDA regulation or

regulating them differently, including with regard to the premarket review and substantial

equivalence processes, indicates the agency is giving this issue the serious consideration it

deserves.

213. Premium cigars continue to be made the same way they have been for centuries. They are

made by hand and from natural whole leaf tobacco. See 79 Fed. Reg. at 23,150. As such, a

premium cigar on the market today is necessarily substantially equivalent to a premium cigar that

was on the market in 2007 or earlier: it has the same physical characteristics and does not raise any

different questions of public health than did such “predicate” products. See FD&C Act

§ 910(a)(3)(A), 21 U.S.C. § 387j(a)(3)(A).

214. The substantial equivalence process imposed on all Newly Deemed Products is particularly

arduous for the premium cigar industry. Although premium cigars comprise a tiny fraction of one

percent of the tobacco products sold in the United States, crop variations, the handmade

manufacturing process, and consumer demand for different cigar sizes, shapes, and blends all

contribute to a diverse market comprised of tens of thousands of different premium cigar products.

process because that process—and the need to go through it—focuses exclusively on the physical
characteristics of a cigar. See Philip Morris USA Inc. v. FDA, 202 F. Supp. 3d 31, 52 (D.D.C. 2016
(“[T]he Act defines ‘characteristics’ only in terms of the physical elements of a tobacco product.”).
Plaintiff organizations also have urged the agency to make other revisions to its proposed definition
of a premium cigar, and the agency is considering in the currently open premium cigar rulemaking
docket how “premium” cigar should be defined.
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The one-size-fits-all substantial equivalence process mandated by the Final Rule requires each

premium cigar product to complete the same extensive and expensive requirements to demonstrate

substantial equivalence as FDA required for cigarettes. By FDA’s own estimate, under the Final

Rule up to half of the handmade cigar products in the United States will be forced from the market.

FRIA at 22.

215. Plaintiffs and other commenters urged FDA to select a less burdensome alternative and to

tailor the regulatory scheme to the unique aspects of premium cigars. FDA could have done so:

Congress authorized FDA to provide the rules governing its substantial equivalence process, see

FD&C Act § 905(j)(1), 21 U.S.C. § 387e(j)(1), and in fact the agency promised such rules in its

Final Rule. And Congress granted FDA the authority to devise appropriate tobacco products

standards for premium cigars without requiring the agency to automatically subject those products

to all aspects of the TCA. See FD&C Act § 907(a)(3)(A), 21 U.S.C. § 387g(a)(3)(A).

216. As an example of one obvious and reasonable alternative: FDA could have provided in the

Final Rule that premium cigar manufacturers simply had to submit information (i.e., cigar name,

size, shape and weight) to FDA to show that a premium cigar was substantially equivalent, and

only if FDA had questions would more information be required. Further, FDA could have

provided in the Final Rule that every cigar that meets the definition of a premium cigar is

substantially equivalent to a predicate product. With this alternative, FDA could have required

manufacturers submitting substantial equivalence reports for a premium cigar product only to

supply evidence that the product meets the definition of a premium cigar. For another obvious,

reasonable alternative: FDA could have exempted premium cigars from the requirements of the

substantial equivalence process in its entirety, and instead issued tobacco products standards, or

good manufacturing practices, appropriate for premium cigars.

217. FDA failed to consider these (or other) obvious, reasonable, less burdensome regulatory
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alternatives for premium cigars. Indeed, the sole alternative to subjecting premium cigars to the

Final Rule’s substantial equivalence requirements that FDA considered (albeit inadequately) was

“Option 2” (i.e., exempting premium cigars from all regulation).

218. Agency action is arbitrary and capricious when the agency fails to adequately consider

reasonable regulatory alternatives or to explain its rejection of such regulatory alternatives. See

Del. Dep’t of Nat’l Res. & Envtl. Control v. EPA, 785 F.3d 1, 16–18 (D.C. Cir. 2015) (agency

action “set aside” where “EPA too cavalierly sidestepped its responsibility to address reasonable

alternatives”). Agency action also is arbitrary and capricious when the agency bases its decision

on an incomplete or inadequate record. See Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut.

Auto. Ins. Co., 463 U.S. 29, 43 (1983) (an agency violates the APA when it “entirely fail[s] to

consider an important aspect of the problem” or “offer[s] an explanation for its decision that runs

counter to the evidence before the agency”). The agency also acts arbitrarily and capricious in not

considering proposals provided in public comments and explaining its response to them.

219. In failing to consider obvious and reasonable alternatives to onerous regulation and to

respond to comments making such proposals, FDA’s treatment of premium cigars is arbitrary and

capricious.

220. Plaintiffs have no adequate or available administrative remedy. The open rulemakings

regarding premium cigars and regarding the form and content of SE Reports provided a potential

administrative remedy, but having SE Reports for cigars due in May 2020 renders that

administrative remedy unavailable and inadequate. In the alternative, any effort to obtain an

administrative remedy would be futile.

221. Plaintiffs have no adequate remedy at law.

222. FDA’s actions with respect to the substantial equivalence process will cause ongoing harm

to Plaintiffs.
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223. Therefore, this Court should set aside, declare unlawful, and enjoin FDA from enforcing

the Final Rule in general, and its substantial equivalence process in particular, and remand the

Final Rule to the agency appropriately to consider less burdensome alternatives, such as

contemporaneously with the Final Rule providing rules governing the substantial equivalence

process and providing a streamlined path for premium cigars, among others. In the alternative, the

Court should enjoin enforcement of the premarket review and substantial equivalence process

against cigars with the physical characteristics set forth in the agency’s definition of premium

cigars and detailed in paragraph of 213 of the Complaint. In addition, this Court should enter a

preliminary injunction and/or a postponement pursuant to 5 U.S.C. § 705 restraining FDA from

enforcing any requirement of the substantial equivalence process against cigars and pipe tobacco.

COUNT XV
(Violation of the Administrative Procedure Act: The Agency’s Comparison of the Costs of
Imposing the Substantial Equivalence Process on Cigars and Pipe Tobacco Is Arbitrary,
Capricious, and not in accordance with Law)

224. Plaintiffs incorporate the preceding paragraphs as if fully set forth herein.

225. Imposing the substantial equivalence process on cigars and pipe tobacco imposes massive

costs on manufacturers and retailers, including thousands of small businesses, without any

remotely corresponding public health benefit. This situation is particularly acute for premium

cigars, which by definition are made by hand from whole tobacco and exclude novel innovations

that could be dangerous to public health. The agency attempted to analyze the costs and benefits

of foisting the substantial equivalence process on cigars and pipe tobacco products. 81 Fed. Reg.

at 29,075; FRIA at 92-93. But its analysis of the costs and benefits of the overall Final Rule, and

the imposition of the substantial equivalence process in particular, with regard to cigars and pipe

tobacco was deeply flawed.

226. It is arbitrary and capricious for an agency to impose massive costs on an industry, without

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a sensible and reasoned explanation of the corresponding benefits that will arise from it or

consideration of less burdensome alternatives to achieve those benefits. See Michigan v. EPA, 135

S.Ct. 2699, 2707 (2015) (“One would not say that it is even rational, never mind ‘appropriate,’ to

impose billions of dollars in economic costs in return for a few dollars in health or environmental

benefits.”). Moreover, where a statute directs an agency to find regulations “appropriate and

necessary,” that agency must consider the proposed rule’s costs and benefits. See id. The TCA is

such a statute: Section 3(8) declares that one of the purposes of the TCA is “to impose appropriate

regulatory controls on the tobacco industry.” TCA § 3(8), 123 Stat. at 1782 (emphasis added). As

such, before FDA made the discretionary decision to subject cigars and pipe tobacco to regulation

under that statute, it was incumbent upon the agency to give reasoned consideration to the costs

and benefits of that decision. In addition, once FDA endeavored to perform a cost-benefit analysis

as part of its rulemaking, a material flaw in that analysis renders the Final Rule unreasonable. See

Nat’l Ass’n of Home Builders v. EPA, 682 F.3d 1032, 1039-40 (D.C. Cir. 2012).

227. In determining that the benefits of applying the substantial equivalence requirements of

the Final Rule to cigars and pipe tobacco justified the exorbitant costs, 81 Fed. Reg. at 28,981,

FDA conducted exactly such a faulty cost-benefit analysis.

228. The agency concluded that it was unable to predict the benefits of applying the substantial

equivalence requirements of the Final Rule to cigars and pipe tobacco. 81 Fed. Reg. at 29,075. In

doing so, the agency arbitrarily gave up on any serious analysis of the benefits of requiring every

post-2007 cigar or pipe tobacco product to go through the substantial equivalence process. The

evidence in the record amply demonstrated that those benefits would be limited at best.

229. With regard to premium cigars, there was extensive evidence in the record that new

varieties of such products arising since 2007 stemmed from artisan attention through the hand

crafting process. There was no evidence that these post-2007 variations presented any different
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public health issue or that the substantial equivalence process would stop any public health

problem caused by these variations. Instead, given the variety in premium cigars, many of which

may have been marketed for the first time after 2007, the substantial equivalence process would

impose crushing costs on the premium cigar industry with virtually no explanation of the

corresponding public health benefits. To the contrary, the record before the agency showed that

premium cigars are not used by youth in significant numbers, and that instead premium cigar

consumers tend to be older, higher income, and better educated adults who use premium cigars

infrequently in a manner inconsistent with nicotine addiction and that does not pose the health

risks of other tobacco products.

230. Even FDA predicted that the substantial equivalence requirements and other burdens of

the Final Rule would impose heavy costs on the cigar and pipe tobacco industries. It acknowledged

that 90% of the entities affected by the Final Rule were small businesses, that up to half of the

handmade cigars currently available could be forced out of the market, and that the estimated costs

to each small cigar manufacturer or importer would be between $277,750 and $397,350 upfront

and no less than $235,060 annually thereafter, and made the blunt observation that “some firms

may exit the market.” FRIA at 22, 78-80, 132, 133.

231. FDA could have but did not attempt to estimate the number of cigar and pipe tobacco

manufacturers or retailers that would be forced to close as a result of the substantial equivalence

process and other requirements of the Final Rule. Had the agency performed that analysis, they

would have found that even adopting their (unrealistically low) first-year and ongoing

compliance-cost assumptions, such costs would exceed the total profit of the large majority of

cigar manufacturers in the United States.

232. Moreover, FDA ignored plain evidence in the record and underestimated the costs of

imposing the substantial equivalence regime on the cigar and pipe tobacco industries. For example,
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FDA’s cost estimates were woefully incomplete because they omitted any consideration of the

substantial costs to businesses of analyzing the substantial equivalence regulations, deciding

whether they will exit the market, and developing implementation and compliance plans. These

are relatively fixed costs that will fall particularly hard on the small businesses that predominate

in the premium cigar and pipe tobacco industries, many of which lack a sophisticated in-house

legal or compliance function.

233. FDA’s cost estimates for the submission of SE Reports were themselves dramatically

understated. For example, the agency’s labor cost estimates materially undervalued the number of

hours that legal professionals and executive management would need to devote to each such SE

Report. And the agency’s estimates of the hourly cost of that time were far too low, including

because much of the legal labor would by necessity be externally sourced.

234. The devastating burdens and expense of the substantial equivalence requirements

mandated in the Final Rule has been further illustrated by FDA’s interpretation of those

requirements. For example, one manufacturer submitted substantial equivalence reports to FDA

for certain premium cigar products and in response received a 10-page letter from the agency dated

June 27, 2017 (the “Preliminary Findings Letter”). A copy of that Preliminary Findings Letter is

attached hereto as Exhibit A. The Preliminary Findings Letter advised that an extensive litany of

additional information and data was “needed in order for FDA to make a scientific finding as to

whether your SE Reports establish substantial equivalence” and warned that, absent such

information and data, “we will find that your tobacco products are not substantially equivalent to

the predicate tobacco products.”

235. The Preliminary Findings Letter shows that FDA intends to require that every SE Report

include testing of each single product and a staggering amount of data. It insists that a manufacturer

submit data about the product’s “draw resistance,” the mass of the tobacco filler, its density and
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moisture, and the porosity of the binder and wrapper. These are data that cigar manufacturers have

not traditionally compiled and that would require sophisticated testing to determine. Further, many

of the data points may be completely inapplicable or even not testable in certain products. The

Preliminary Findings Letter further requires that a manufacturer study not only the physical

characteristics of the product, but how it is used, including how many “puffs” (undefined) a user

might take off the cigar. To the extent the length and width of the cigar had changed, the agency

wanted longitudinal studies about how those changes will not cause any greater incidence of

disease. Even though promised HPHC guidance and rules specifying what will be required for

cigars have yet to be issued, the agency appears to intend to demand HPHC testing results of both

the applicant and the predicate cigars. For all cigars this data would be challenging to provide, and

for premium cigars and pipe tobacco, this data would be near impossible to provide.

236. The Preliminary Findings Letter shows that study and testing of cigars themselves is not

enough for the agency. Instead, the agency seeks extensive data about how the cigar product is

stored and studies of how storage conditions may affect product stability. The agency wants

ingredient listings for the box in which they would be stored and the plastic wrappers in which

they would be packaged, because “[i]ngredients in cellophane are expected to differ from [those

in a] wooden box.” Perhaps most incredibly, FDA wants “ingredient and material information for

cigar bands,” that is, the slender pieces of paper that identify the cigar brand. FDA demands all of

this information and more, not only for the product applying for approval, but for the pre-2007

predicate product as well.

237. Further, in October 2018, FDA released a series of “Appendix” documents identifying

“common deficiencies” seen in SE Reports for each category of tobacco products. True and

accurate copies of the Appendix documents for cigars and pipe tobacco are attached hereto as

Exhibits B and C, respectively. Those Appendix documents demonstrate that FDA is still intending
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to require nearly impossible testing data for cigars and pipe tobacco, much of which is not routinely

tested for in these products, or that manufacturers even would know how to test for.

238. Plaintiffs have no adequate or available administrative remedy. In the alternative, any

effort to obtain an administrative remedy would be futile.

239. Plaintiffs have no adequate remedy at law.

240. FDA’s violations of law herein will impose ongoing harm on Plaintiffs. For example,

Plaintiffs estimate that SE Reports will cost tens to hundreds of thousands of dollars per SKU and

the industry well in excess of $1 billion. That expense will be cost prohibitive for many

manufacturers and they could be left with no products to market. Plaintiffs further estimate that

the substantial equivalence process and other demands of the Final Rule will force out of business

at least approximately 85 to 90 percent of cigar manufacturers and importers in the United States,

leading to the loss of over 5,300 domestic jobs.

241. Therefore, this Court should set aside, declare unlawful, and enjoin FDA from enforcing

the Final Rule against cigars and pipe tobacco, particularly any requirement of the substantial

equivalence process. The Court should remand the Rule to the agency to justify the imposition of

massive costs on cigars and pipe tobacco with few corresponding public health benefits. In

addition, this Court should enter a preliminary injunction and/or a postponement pursuant to 5

U.S.C. § 705 restraining FDA from enforcing any requirement of the substantial equivalence

process against cigars and pipe tobacco.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs request that the Court enter judgment in its favor and:

a. Vacate and set aside the Final Rule under 5 U.S.C. § 706 as arbitrary, capricious, an

abuse of discretion, and otherwise not in accordance with law, and in excess of FDA’s

authority, all in violation of the APA, because: (i) it applies a grandfather date of February
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15, 2007 for substantial equivalence review to Newly Deemed Products that is inconsistent

with the structure and purpose of the TCA, thus denying manufacturers of such products a

reasonable opportunity for the predicates necessary to make a substantial equivalence

showing; and (ii) it denies Newly Deemed Products the benefit of statutory protection for

continued marketing, unless and until the issuance of a not substantially equivalent order

by FDA.

b. Vacate and set aside the Final Rule under 5 U.S.C. § 706 as arbitrary, capricious, an

abuse of discretion, and otherwise not in accordance with law, and in excess of FDA’s

authority, all in violation of the APA, because it imposes “user fees” on certain classes of

Newly Deemed Products but not others.

c. Declare that the Final Rule imposing “user fees” on some classes of Newly Deemed

Products but not others violates the Fifth Amendment to the U.S. Constitution.

d. Declare the Final Rule unlawful under 5 U.S.C. § 706 as arbitrary, capricious, an abuse of

discretion, and otherwise not in accordance with law, and in excess of FDA’s authority, all

in violation of the APA, insofar as it lacks the support of a proper cost-benefit analysis,

and compel FDA to undertake a proper cost-benefit analysis and defer enforcement of the

Final Rule against small entities until such analysis is completed.

e. Vacate and set aside the Final Rule under 5 U.S.C. § 706 as arbitrary and capricious, and not

in accordance with law, and in excess of FDA’s authority, all in violation of the APA, for

imposing warning label format requirements on cigars in excess of the FTC Consent Decree’s

requirements without justification for the additional requirements.

f. Declare that the Final Rule imposing warning label format requirements on cigars in

excess of those contained in FTC Consent Decree violates the First Amendment to the U.S.

Constitution.
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g. Vacate and set aside the Final Rule under 5 U.S.C. § 706 as arbitrary, capricious, an

abuse of discretion, and otherwise not in accordance with law, and in excess of FDA’s

authority, all in violation of the APA, because it treats retailers who blend and/or apportion

finished tobacco products, or who create “cigar samplers” of finished cigars, as

“manufacturers” subject to full regulation as such.

h. Vacate and set aside the Final Rule under 5 U.S.C. § 706 as arbitrary, capricious, an

abuse of discretion, and otherwise not in accordance with law, and in excess of FDA’s

authority, all in violation of the APA, because it decrees that pipes are to be regulated as

“components” or “parts” of tobacco products instead of “accessories” which are not

subject to regulation.

i. Enter a preliminary injunction and/or a postponement pursuant to 5 U.S.C. § 705 restraining

FDA from implementing or enforcing the Final Rule in violation of the APA and the

Constitution, as set forth above.

j. Enter a permanent injunction restraining Defendants from implementing or enforcing the

Final Rule in violation of the APA and the Constitution, as set forth above.

k. Declare that the Guidance, including its extension of compliance deadlines for substantial

equivalence exemption requests, substantial equivalence reports, and premarket tobacco

product applications, is valid and in effect for cigars and pipe tobacco or, in the alternative, for

Plaintiffs and Plaintiffs’ members.

l. Vacate and set aside the Final Rule under 5 U.S.C. § 706 as arbitrary, capricious, an

abuse of discretion, and otherwise not in accordance with law, and in excess of FDA’s

authority, all in violation of the APA, to the extent that it requires manufacturers of cigars and

pipe tobacco to submit SE Reports or comply with any other requirements of the substantial

equivalence process.
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m. Award Plaintiffs their litigation costs and reasonable attorneys’ fees; and

n. Order such other relief as the Court may deem just and proper.

Dated: October 23, 2019 Respectfully submitted,

/s/ Michael J. Edney

Michael J. Edney, DC Bar No. 492024
NORTON ROSE FULBRIGHT US LLP
799 9th Street, NW, Suite 1000
Washington, DC 20001-4501
Telephone: (202) 662-0200
Fax: (202) 662-4643
[email protected]

Attorneys for Plaintiffs Premium Cigar

Association (formerly International Premium
Cigar and Pipe Retailers Association) and
Cigar Rights of America

/s/ Mark S. Raffman

Mark S. Raffman, DC Bar No. 414578
Andrew Kim, DC Bar No. 1029348
GOODWIN PROCTER LLP
901 New York Avenue, NW
Washington, DC 20001
Telephone: (202) 346-4000
Fax: (202) 346-4444
[email protected]
[email protected]

Attorneys for Plaintiff Cigar Association of

America

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