Brown & Williamson Tobacco Corp. v. Pataki
| Decision Date | 13 February 2003 |
| Docket Number | Docket No. 01-7813.,Docket No. 01-7806. |
| Parties | BROWN & WILLIAMSON TOBACCO CORPORATION, BWTdirect, LLC and Santa Fe Natural Tobacco Co., Inc., Plaintiffs-Appellees, v. George E. PATAKI, in his official capacity as Governor of the State of New York, Eliot Spitzer, in his official capacity as Attorney General of the State of New York, Antonia C. Novello, M.D., in her official capacity as Commissioner of Health of the State of New York and Arthur J. Roth, individually and in his capacity as Commissioner of Taxation and Finance of the State of New York, Defendants-Appellants, Teresa Mason, individually and in her capacity as Sheriff of the City of New York, Defendant. |
| Court | U.S. Court of Appeals — Second Circuit |
Lisa M. Landau, Assistant Attorney General of the State of New York, New York, N.Y. (Eliot Spitzer, Attorney General of the State of New York, Caitlin J. Halligan, Solicitor General of the State of New York, Daniel Smirlock, Deputy Solicitor General, Andrew Bing, Assistant Solicitor General, on the briefs), for Defendants-Appellants.
David H. Remes, Covington & Burling, Washington, DC (M. Stacey Bach, Covington & Burling, Washington, DC, Laurence A. Silverman, Mark P. Gimbel, Covington & Burling, New York, NY, on the brief), for Plaintiffs-Appellees Brown & Williamson Tobacco Corp. and BWTDirect, LLC.
Rodrick J. Enns, Enns & Archer LLP, Winston-Salem, NC (Franklin B. Velie, Dierdre A. Burgman, Salans Hertzfeld Heilbronn Christy & Viener, New York, NY) for Plaintiff-Appellee Santa Fe Natural Tobacco Co., Inc.
Before: MINER, CABRANES, and POOLER, Circuit Judges.
Defendants-appellants the Governor of the State of New York and other State officials (the "State") appeal from a judgment entered in the United States District Court for the Southern District of New York (Preska, J.) striking down as unconstitutional section 1399-ll of New York's Public Health Law ("the Statute"), the court having found that the Statute discriminates against interstate commerce in violation of the Commerce Clause. The Statute prohibits cigarette sellers and common and contract carriers from shipping and transporting cigarettes directly to New York consumers.
Plaintiffs-appellees, Santa Fe Natural Tobacco Co., Inc. ("Santa Fe"), Brown & Williamson Tobacco Corporation and BWTDirect, LLC (together "B & W") filed complaints, later consolidated in the district court, challenging the constitutionality of the Statute under the Commerce Clause and seeking to enjoin its enforcement. On November 13, 2000, the district court issued a temporary restraining order prohibiting enforcement of the Statute. On April 24, 2001, the district court consolidated the hearing on a motion for preliminary injunction with a trial on the merits. Following a five-day bench trial, the district court, in an unpublished corrected opinion, declared the Statute to be an unconstitutional violation of the Commerce Clause and permanently enjoined its enforcement. Santa Fe Natural Tobacco Co., Inc. v. Spitzer, Nos. 00-7274, 00-7750, 2001 WL 636441 (S.D.N.Y. June 8, 2001).
The court found that the Statute was subject to strict scrutiny because it discriminated against interstate commerce both on its face "by requiring that retail sales take place only in-state," id. at *13, and in effect by "effectively bann[ing interstate direct shippers] from engaging in retail cigarette sales with New York customers," id. at *17. In applying strict scrutiny, the court concluded that the State failed to demonstrate the absence of less discriminatory means of advancing a legitimate state interest. Id. at *21-28. In the alternative, the court found that the Statute also failed the less stringent Pike balancing test because the marginal ability of the Statute to further its "wholly laudable goals" was outweighed by its substantial interference with interstate commerce. Id. at *29. The State timely appealed.
For the reasons that follow, we reverse.
The background of this case is set forth in precise detail in the district court's opinion, familiarity with which is assumed. Only the facts necessary to our disposition are recounted here.
On August 16, 2000, section 1399-ll of New York's Public Health Law, entitled "Unlawful shipment or transport of cigarettes," was signed into law. The Statute reads in relevant part:
1. It shall be unlawful for any person engaged in the business of selling cigarettes to ship or cause to be shipped any cigarettes to any person in this state who is not: (a) a person licensed as a cigarette tax agent or wholesale dealer...; (b) an export warehouse proprietor... or an operator of a customs bonded warehouse ...; or (c) a person who is an officer, employee or agent of the United States government, this state or a department, agency, instrumentality or political subdivision of the United States or this state, when such person is acting in accordance with his or her official duties....
2. It shall be unlawful for any common or contract carrier to knowingly transport cigarettes to any person in this state reasonably believed by such carrier to be other than a person described in paragraph (a), (b) or (c) of subdivision one of this section. For purposes of the preceding sentence, if cigarettes are transported to a home or residence, it shall be presumed that the common or contract carrier knew that such person was not a person described in paragraph (a), (b) or (c) of subdivision one of this section. It shall be unlawful for any other person to knowingly transport cigarettes to any person in this state, other than to a person described in paragraph (a), (b) or (c) of subdivision one of this section. Nothing in this subdivision shall be construed to prohibit a person other than a common or contract carrier from transporting not more than eight hundred cigarettes at any one time to any person in this state.
N.Y. Pub. Health Law §§ 1399-ll (1)-(2). Simply put, subdivision one subjects to civil and criminal penalties cigarette sellers who ship cigarettes directly to New York consumers, and subdivision two subjects to the same penalties those who transport cigarettes to New York consumers. Subdivision two specifically applies to "any common or contract carrier," or "any other person" not a common or contract carrier, that "knowingly" transports cigarettes to anyone other than a permitted recipient, as defined in subdivision one of the Statute. Id. § 1399-ll (2).1 Subdivision two includes a limited exception from the penalties for direct delivery of cigarettes, which permits the delivery by "a person other than a common or contract carrier" of four cartons or fewer of cigarettes to "any person in this state." Id.
The legislative findings made in support of the Statute "declare[ ] that the shipment of cigarettes sold via the internet or by telephone or by mail order to residents of this state poses a serious threat to public health, safety, and welfare, to the funding of health care ..., and to the economy of the state." Id. ch. 262, § 1. The legislature also found that cigarette sales accomplished through direct shipment made the verification of the purchaser's age difficult and that existing penalties for cigarette bootlegging were inadequate. Id.
The district court applied strict scrutiny analysis based on its determination that the Statute discriminated against interstate commerce both on its face and in effect. Id. at *13, *17. The court found that the Statute was facially discriminatory for two reasons. First, the court concluded that although the Statute's prohibitions apply to both in-state and out-of-state direct cigarette sellers,
the law, on its face, discriminates against interstate commerce by requiring that retail sales take place only in-state. Specifically, subdivision 1 prohibits the direct shipment of cigarettes to any person in New York who is not a licensed tax agent or wholesaler, export warehouse proprietor, operator of a customs bonded warehouse, or government official. Therefore, the only way to effect a retail sale to a New York consumer is by an in-state, face-to-face transaction. Thus, subdivision 1 shifts the interstate retail market to instate brick-and-mortar retailers.
Id. at *13. Second, the court found facially discriminatory the so-called delivery exception embodied in the last sentence of subdivision two. N.Y. Pub. Health Law § 1399-ll (2). The court rejected the State's argument that the exception "only permits consumers[, rather than brick-and-mortar retailers with home-delivery services,] to transport up to four cartons of cigarettes to their homes or to other individuals." Santa Fe, 2001 WL 636441, at *14.
The court found instead that "[a]s the statute is drafted, out-of-state retailers that depend on common or contract carriers are prohibited from directly selling and delivering cigarettes to consumers, while in-state brick-and-mortar outlets that have their own delivery services are not." Id. The court concluded that because of this "local benefit," the Statute "discriminates on its face against interstate commerce by providing a delivery exemption for New York brick-and-mortar businesses with their own delivery services." Id.
For similar reasons, the court found that the Statute discriminates against interstate commerce in effect. Id. at *16-17. First, the court stated that "[t]he only way an out-of-state seller could legally sell retail cigarettes to New York consumers under [the Statute] is to establish a brick-and-mortar outlet in New York." Id. at *16. The court credited testimony that this option was "unworkable" and "uneconomic" for the Plaintiffs and that, as a result, "the effect of [the Statute] is to...
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