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TTB Label Approval System Survives First Amendment Challenge from DC Brewery

I. Factual Background

During the 34-day government shutdown occurring between December 2018 and January 2019, producers and importers of beer, wine and distilled spirits needing label approval to bring new products to market were forced to wait until the shutdown was resolved, when Tax and Trade Bureau (TTB) could begin again to process Certificate of Label Approval  (COLA) applications. The difficulties presented by this situation included the prospect of needing to destroy valuable, perishable inventory.

Unable to obtain a COLA due to the shutdown, Atlas Brew Works (Atlas) filed suit in January in the US District Court for the District of Columbia, challenging the constitutionality of the COLA system. Atlas alleged that the requirement to obtain label approval violates the First Amendment, since, in the event of a government shutdown, the COLA requirement amounted to a prior restraint on protected speech. As the court explained in its opinion, Atlas’s argument boiled down to the claim that “a law that prohibits speech without regulatory approval becomes an outright ban on speech when the approval process is shuttered.” Shortly after the case was filed, the shutdown ended and Atlas received its COLA. The government asked the court to dismiss the case, arguing that it was now moot. After giving the parties several months in which to brief the issue, the court ruled in favor of the government’s motion, finding Atlas’s case moot.

II. The District Court’s Analysis.

A. Mootness  

Under Article III of the Constitution, courts have jurisdiction only with respect to actual “cases or controversies” between litigants. Citing precedent, the court pointed out that a case becomes moot, and therefore no longer a “case” or “controversy” purposes of Article III, “when the issues presented are no longer ‘live’ or the parties lack a legally cognizable interest in the outcome.” Furthermore, an “intervening event may render a claim moot if there is no reasonable expectation that the conduct will recur.” The government contended that the end of the shutdown functioned as just such an intervening event, arguing that Atlas’s claims now only sought to challenge actions that would occur during a “speculative future lapse in government operations.” For proof, the government pointed to certain passages in Atlas’s amended complaint using temporal qualifiers such as “whenever” or “from time to time” to describe suspensions of the COLA process.

Atlas countered by arguing that it was challenging an ongoing policy: namely, the ongoing policy of enforcing the COLA requirement, not merely a one-time event. The court, however, noted that Atlas’s pleadings did not allege any harm arising from the policy other than the inability to obtain COLAs during a shutdown. This harm, the court reasoned, could not form the basis of a present case or controversy both because it could only occur in the future and because it was dependent on an exercise of executive discretion.

The court noted that Atlas had not argued that the possibility of a future delay in receiving a COLA constituted a present harm to Atlas. It suggested that this argument would have changed its analysis of the mootness question, and might even have changed the outcome. But, because Atlas did not take this position, the court did not consider it in the analysis of the mootness question.

B. Exception to Mootness: Capable of Repetition yet Evading Review

The court noted that an “otherwise moot case may be salvaged if one of the exceptions to mootness applies.” The mootness exception alleged by Atlas applies to claims that are “capable of repetition but evade judicial review.” This exception applies only in cases where the plaintiff can “demonstrate that (1) the challenged action is in its duration too short to be fully litigated prior to its cessation or expiration, and (2) there is a reasonable expectation that the same complaining party would be subjected to the same action again” (citations omitted). The court found that Atlas could not satisfy the second of the two conditions, and accordingly focused its analysis on the second.

The court cited various Supreme Court precedents establishing that the “reasonable expectation” needed for this exception must be based on a “reasonable degree of likelihood” that the legal wrong complained of is reasonably likely to recur. This reasonable expectation must go beyond mere possibility. The court noted that in order for this dispute to recur, five distinct events would have to occur in conjunction: (1) there is a lapse in government appropriations; (2) the lapse affects the Treasury Department; (3) the lapse lasts long enough to cause a shutdown; (4) Treasury responds to the shutdown by shuttering the TTB’s COLA processing; and (5) Atlas happens to have a COLA application pending at the time the shutdown begins or files one shortly thereafter. The court explained that “this case will not again present a live controversy unless each and every potentiality discussed here happens, and happens at the right time. Stretching the capable-of-repetition exception to cover this chain of contingencies would permit the exception to swallow the rule.”

III. Consequences

The primary consequence of the ruling is that the current federal system of label approval will remain in place for the foreseeable future. In the event that a government shutdown appears imminent, manufacturers should consider expediting their preparation and filing of COLA applications. Finally, if a manufacturer or importer attempts to mount a legal challenge to the COLA system in connection with a future shutdown, it should focus its arguments on actual and present harms, rather than potential, future ones, thus avoiding the mootness trap while giving the court an opportunity to address the substantive constitutional questions.

© 2019 McDermott Will & Emery

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About this Author

Daniel McGuire, McDermott Law Firm, Corporate Law Attorney, Washington DC
Associate

Daniel P. McGuire focuses his practice on general corporate matters, such as mergers and corporate restructuring, and securities regulation.

While in law school, Daniel served as a senior editor of the Ave Maria Law Review, and was twice elected to the Honor Board. He interned at the US Department of Justice, Environment and Natural Resources Division, in Washington, DC, and as a law clerk for the Wayne County Office of Corporation Counsel in Detroit.

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