ASHLAND SPECIALTY CO. INC., Petitioner Below, Petitioner
DALE W. STEAGER, STATE TAX COMMISSIONER OF WEST VIRGINIA, Respondent Below, Respondent
Submitted: April 11, 2018
from the Circuit Court of Kanawha County The Honorable Carrie
L. Webster Civil Action No. 14-AA-102.
M. Sayre, III, Esq. Bowles Rice LLP Martinsburg, West
Virginia Mark A. Lloyd, Esq. (admitted pro hac vice) Bingham
Greenbaum Doll LLP Louisville, Kentucky Counsel for the
Patrick Morrisey, Esq. Attorney General Katherine A. Schultz,
Esq. Senior Deputy Attorney General Cassandra L. Means, Esq.
Assistant Attorney General Charleston, West Virginia Counsel
for the Respondent
JUSTICE DAVIS and JUSTICE KETCHUM dissent in part and concur
in part and reserve the right to file separate opinions
dissenting in part and concurring in part.
"In an administrative appeal from the decision of the
West Virginia Office of Tax Appeals, this Court will review
the final order of the circuit court pursuant to the
standards of review in the State Administrative Procedures
Act set forth in W.Va. Code, 29A-5-4(g) .
Findings of fact of the administrative law judge will not be
set aside or vacated unless clearly wrong, and, although
administrative interpretation of State tax provisions will be
afforded sound consideration, this Court will review
questions of law de novo" Syllabus Point 1,
Griffith v. ConAgra Brands, Inc., 229 W.Va. 190');">229 W.Va. 190, 728
S.E.2d 74 (2012).
"The 'clearly wrong' and the 'arbitrary and
capricious' standards of review are deferential ones
which presume an agency's actions are valid as long as
the decision is supported by substantial evidence or by a
rational basis." Syllabus Point 3, In re Queen,
196 W.Va. 442');">196 W.Va. 442, 473 S.E.2d 483 (1996).
"A review of a proportionality determination made
pursuant to the Excessive Fines Clause of the West Virginia
Constitution is de novo." Syllabus Point 8, Dean v.
State, 230 W.Va. 40');">230 W.Va. 40, 736 S.E.2d 40 (2012).
Specialty Company, Inc. (Ashland) unlawfully sold 12, 230
packs of cigarettes in West Virginia in 2009 that were not
approved for sale by the Tax Commissioner of the State of
West Virginia (Commissioner). Acting pursuant to West Virginia
Code § 16-9D-8(a) (2016), the Commissioner penalized
Ashland $159, 398 for selling those cigarettes unlawfully, a
penalty equal to 500% of the cigarettes' retail value.
The Office of Tax Appeals (OTA) then ordered that penalty
reduced by twenty-five percent. On review, the Circuit Court
of Kanawha County reversed the OTA and reimposed the
Commissioner's original $159, 398 penalty.
to Ashland's arguments on appeal, we find that the
Commissioner's original penalty (1) is not an abuse of
the discretion afforded the Commissioner under West Virginia
Code § 16-9D-8(a); (2) should not be cancelled or
reduced due to circumstances that Ashland argues mitigate
their unlawful cigarette sales; and (3) does not violate the
Excessive Fines Clause of the West Virginia Constitution or
the Eighth Amendment to the United States Constitution. For
those reasons, and as discussed more fully below, we affirm
the April 11, 2017 order of the Circuit Court of Kanawha
County reversing the OTA and reinstating the Tax
Commissioner's original $159, 398 penalty.
FACTUAL AND PROCEDURAL BACKGROUND
addressing the facts specific to Ashland's appeal, we
first briefly review the statutes implicated by their
arguments. These include West Virginia Code §§
16-9B-1 through 4 (2016) ("Implementing Tobacco Master
Settlement Agreement") and §§ 16-9D-1 through
10 (2016) ("Enforcement of Statute Implementing Tobacco
Master Settlement Agreement"), related to the Tobacco
Master Settlement Agreement (MSA) and subsequent efforts by
the Legislature to ensure the MSA and its related
requirements are enforced.
1998, leading tobacco product manufacturers entered into the
MSA with the State of West Virginia. In pertinent part,
"[t]he master settlement agreement obligates these
manufacturers, in return for a release of past, present and
certain future claims against them . . . to pay substantial
sums to the State (tied in part to their volume of sales) . .
. ."The following year, the Legislature
enacted Article 9B of Chapter 16. In part, Article 9B
requires cigarette manufacturers who are not part of the MSA,
but whose cigarettes are sold in West Virginia, to make
annual deposits into escrow accounts intended to pay a
judgment or settlement resulting from a claim brought against
the manufacturer by the State or a West Virginia
2003, the West Virginia Legislature enacted model legislation
to prevent violations and aid enforcement of the obligations
imposed by Article 9B of Chapter 16 of the West Virginia
Code. This legislation, codified at Article 9D
of Chapter 16 of the West Virginia Code, directs the
Commissioner to create and maintain a directory of cigarette
brands approved for sale in West Virginia. Chapter 16,
Article 9D also charges the Commissioner with adding or
removing manufacturers from the list as appropriate,
not without first notifying the manufacturer and distributors
of the manufacturer's affected brand or brands. However, a
manufacturer or distributor's failure to receive notice
from the Commissioner of changes to the directory, or even
the Commissioner's failure to provide such notice, does
not excuse a party from their obligations under Article 9D of
Chapter 16 of the West Virginia Code. 
unlawful to sell, offer, or possess for sale in West Virginia
a brand of cigarettes that is not included in the
Commissioner's list. Pursuant to West Virginia Code §
16-9D-8(a), the Commissioner may impose a wide range of
penalties upon a party that sells a brand of cigarettes in
West Virginia when that brand does not appear on the
Commissioner's list-that is, when the brand is
Ashland's Violations of § 16-9D-3(c).
is a Kentucky corporation that distributes cigarettes to
convenience stores in West Virginia and other states. It is
undisputed that between June and September 2009, Ashland sold
12, 210 packs of delisted GP and GP Galaxy Pro brand
cigarettes and 20 packs of delisted Berley brand cigarettes
in violation of West Virginia Code § 16-9D-3(c). The
Commissioner identified these illegal sales during a 2012
audit. In August 2012, pursuant to his authority under §
16-9D-8(a), the Commissioner assessed a $159, 398 penalty
upon Ashland, a penalty equal to 500% of the retail value of
the 12, 230 packs of delisted cigarettes.
Commissioner previously assessed a $3, 808 penalty upon
Ashland for selling 56 cartons of delisted cigarettes from
2001 to 2003. Ashland had also paid a $5, 127 penalty for
selling 62 cartons of delisted cigarettes from 2005 to 2008.
Like the penalty imposed by the Commissioner in 2012, these
penalties equated to 500% of the retail value of the delisted
cigarettes. Ashland did not contest these smaller penalties.
Review before the OTA.
timely petitioned the OTA to review the Commissioner's
August 2012 penalty assessment. The administrative law judge
(ALJ) conducted an evidentiary hearing in August 2013.
Testimony offered at the hearing by a representative of the
West Virginia State Tax Department indicated that the
Commissioner consistently imposes a 500%-of-retail-value
penalty for violations of West Virginia Code §
16-9D-3(c). Specifically, the Commissioner's
Yes. My auditors have no discretion. I mean they have the
ability to come to me. I have the ability to go to my
director and get anything-to request something less. It's
never happened. I mean we-in my recollection, they've all
been 500 percent that we've done. And these are rare.
There's not many of them. . . .
I've never gone up the food chain for any-. I've
never heard a good explanation to go up the food chain. Our
audit program is locked in at 500 percent. I mean I
don't-. Like I said, these were rare. I don't recall
any reason to ask for a reduced rate.
asked to justify the 500%-of-retail-value penalty imposed by
the Commissioner in this case, the representative explained
that Ashland had "two previous audits, that they've
been forewarned, and-they're still continuing to do so, I
don't really see any need to reduce it. I mean,
they've had plenty of warning and they keep making the
August 2014, the ALJ issued a written order finding the
Commissioner's $159, 398 penalty to be "erroneous,
unlawful, void, or otherwise invalid[.]" The ALJ
reasoned that "the Tax Commissioner exercised no
discretion at all in issuing the penalty" to Ashland
because the evidence demonstrated that the Commissioner
invariably assessed the 500%-of-retail-value penalty for the
sale of delisted cigarettes. Additionally, the ALJ concluded
that the $159, 398 penalty was too harsh because
"[c]ommon sense tells us that the maximum penalty should
be reserved for the worst offenders, for example, a seller
who deliberately sells delisted brands or who engages in some
criminal activity in connection with cigarette sales."
Consequently, the ALJ reduced the penalty by 25% to $119,
Review before the Circuit Court of Kanawha County.
the Commissioner and Ashland appealed the OTA's reduction
of the Commissioner's original penalty, and briefing on
the matter proceeded before the Circuit Court of Kanawha
County. On April 11, 2017, the circuit court
entered an order reversing the order of the OTA and
reinstating the Commissioner's original penalty. The
circuit court found, among other things, that: (1) the OTA
erred in concluding that the Commissioner exercised no
judgment, when the $159, 398 penalty imposed was not the
maximum permitted by West Virginia Code § 16-9D-8(a);
(2) the OTA erred in concluding that the Commissioner abused
his discretion by imposing the same, proportional penalty on
all violators of § 16-9D-3(c); and (3) the $159, 398
penalty did not violate the Excessive Fines Clause of the
West Virginia Constitution or the Eighth Amendment to the
United States Constitution. Ashland now appeals from that
Standard of Review
arguments implicate several standards of review. We set out
each below within the analysis of the corresponding
assignment of error.
attacks the circuit court's order on several fronts.
First, it argues that the circuit court erred by reinstating
the Commissioner's original $159, 398 penalty. Ashland
contends that the OTA correctly concluded that the
Commissioner's consistent application of a
500%-of-retail-value penalty is, itself, an abuse of
discretion, and that by reinstating the Commissioner's
original judgment, the circuit court substituted its judgment
for that of the OTA. Ashland also argues that the circuit
court should have further reduced, or completely forgiven,
the reduced penalty ordered by the OTA due to circumstances
that Ashland contends mitigate its violation of West Virginia
Code § 16-9D-3(c). Ashland next argues that the
Commissioner's original penalty violates the Excessive
Fines Clause of the West Virginia Constitution and the Eighth
Amendment to the United States Constitution. It also
challenges the Circuit Court of Kanawha County as the
appropriate venue for the proceedings below. We address each
of Ashland's arguments in turn.
Reinstatement of the Commissioner's original
first argues that the circuit court abused its discretion by
reversing the decision of the OTA and reinstating the
Commissioner's original $159, 398 penalty. In Syllabus
Point 1 of Griffith v. ConAgra Brands, Inc.,
this Court confirmed the standard of review applicable to
appeals such as Ashland's:
In an administrative appeal from the decision of the West
Virginia Office of Tax Appeals, this Court will review the
final order of the circuit court pursuant to the standards of
review in the State Administrative Procedures Act set forth
in W.Va. Code, 29A-5-4(g) . Findings of fact
of the administrative law judge will not be set aside or
vacated unless clearly wrong, and, although administrative
interpretation of State tax provisions will be afforded sound
consideration, this Court will review questions of law de
West Virginia Code § 29A-5-4(g) (2015) provides:
The court may affirm the order or decision of the agency or
remand the case for further proceedings. It shall reverse,
vacate or modify the order or decision of the agency if the
substantial rights of the petitioner or petitioners have been
prejudiced because the ...