Some of the most popular cigar companies in the U.S. have filed a lawsuit seeking refunds from the user fees the companies paid to the FDA between 2016-2023.
Last week, nine cigar companies filed a lawsuit against the U.S. government, seeking at least $10 million in refunded user fees and interest.
Those companies are:
- Arturo Fuente
- Ashton
- CLE Cigar Co.
- J.C. Newman
- Oliva Cigar Co.
- La Flor Dominicana
- My Father Cigars, Inc.
- Padrón
- Rocky Patel Premium Cigars, Inc.
Eight of the nine—all but CLE—are members of the Cigar Rights of America board, the trade organization that helped pay for a previous lawsuit that made this new lawsuit possible. That lawsuit, Cigar Association of America et al. v. United States Food and Drug Administration et al., was a 10-year-old legal battle that came to an end in April. Three cigar trade organizations sued the FDA over its 2016 era deeming regulations, arguing, amongst other things, that the agency failed to follow legally-required procedures regarding evaluating whether certain handmade cigars, later defined as “premium cigars,” were as harmful and of interest to underage users as cigars more broadly.
After multiple twists and turns, the cigar industry was victorious in the lawsuit and, as a result, cigars that meet the definition of “premium cigar,” a handmade cigar that does not have any added flavoring, are not currently regulated by the FDA.
Because of the original language in the regulations that staggered the implementation of specific rules and the Cigar Association lawsuit, these “premium cigars” were never subject to most of the regulations.
However, one part of the regulations that premium cigar companies had to comply with was user fees, the subject of the new lawsuit, Rocky Patel Premium Cigars, Inc. et al. v. United States of America. It has been filed in the U.S. Court of Federal Claims, a specific court that deals with lawsuits that seek money from the federal government.
In its most basic form, cigar companies were charged a nominal fee, roughly equivalent to 5-10 cents per cigar depending on the specific year. These companies paid the user fees on “premium cigars” and are now arguing to a court that, because the government shouldn’t have been regulating these cigars in the first place, the companies shouldn’t have had to pay the fees.
User fees are implemented by the FDA across a variety of different industries to fund the agency’s regulatory mission.
Rather than drawing money from appropriated funds that are, in theory, funded by all of the country’s taxpayers, user fees target the companies engaged in the specific business being regulated, whether it be a cigar company or one selling titanium parts for a knee replacement. The idea is that user fees mean that only those involved with the specific product will have to pay the burden of regulation, i.e., a non-smoker isn’t paying taxes to regulate cigarettes. While charging a “tax” on a specific product seems relatively straightforward, the process is quite a bit more complicated.
First, the user fees paid by these companies are part of a larger group of user fees paid by not just companies selling premium cigars but also those that sell billions of machine-made cigars. And the cigar user fees is one of a half dozen categories that total more than $700 million in annual user fees for tobacco products. From 2009-2018, the total user fee amount increased each year, though since 2019, it has been stuck at $712 million per year. Those user fees are used to fund the FDA’s Center for Tobacco Products, i.e. the regulators.
The user fees are calculated by splitting a year’s worth of payments into six different categories for different types of tobacco products: cigarettes, cigars, RYO tobacco, pipe tobacco, snuff, and chewing tobacco. Each category is assessed a total user fee payment for a given year, calculated using the amount of excise taxes, not user fees, that products in that category paid in the previous year.
That $712 amount, as well as the payments owed by each company, is determined based on the share of total taxes paid against the rest of the category. Because of the different variables in how the user fees are calculated, it’s possible that a company could sell fewer cigars in its current year, but owe more user fees, or vice versa.
Further complicating matters is that the total amount of tobacco user fees for a given year, the $712 million figure, is set by Congress, meaning that the FDA has very little ability to make adjustments to how the process works. Most notably, e-cigarette and vaping companies have not been charged user fees, something that the FDA has said it would like to change but is something Congress must change.
Particularly relevant to the user fee refunds is one other added layer of complexity: many cigar companies that paid user fees did not pay those fees to the government.
The user fees are only assessed to companies that are either importers or domestic manufacturers of these products. Many cigar companies, including some of the largest handmade cigar companies and those with some of the largest handmade cigar factories, do not always serve as their own importer. Other companies like All American Tobacco and Family Tobacco Traders, two popular importers, are contracted by cigar companies to do the importation. Because of this, All American and Family are officially the ones who paid the user fees to the government, even if those fees were passed on and funded by their clients.
This will be a potential added layer of complexity for the refund process because it is ultimately up to the company that paid the government to go through the legal process of getting refunds.
While the Cigar Association lawsuit wasn’t finally decided until April—the deadline for the government to appeal the April decision has since passed—the government lost a major ruling in July 2023. Shortly after, the FDA announced that it would stop charging user fees on premium cigars. Companies have had to continue to submit reports to the FDA, but then specifying the difference between a company’s premium cigars and all other cigars, i.e. ones that are still subject to user fees.
In September 2024, a court filing revealed that the government believed that there would be “over $100 million in refunds of past-year fees.”
Unfortunately, the new Rocky Patel lawsuit doesn’t shed any light on how much money is at stake; beyond that it is at least $10 million, which includes interest payments. It’s unclear what the actual total number would be and how much each company is seeking.
The cigar companies have retained Morgan Lewis to represent them in this case. Notably, Michael Edney—who served as the lead attorney for most of the Cigar Association case—joined Morgan Lewis in May.
Overall Score
Arturo Fuente
Ashton Distributors Inc.
CLE Cigar Co.
Deeming Regulations
FDA
J.C. Newman
La Flor Dominicana
My Father Cigars Inc.
Oliva Cigar Co.
Padrón
Rocky Patel Premium Cigars Inc.
Rocky Patel Premium Cigars Inc. et al. v. United States of America
U.S. Court of Federal Claims
U.S. Food & Drug Administration
User Fees
