Commonwealth Brands, Inc. v. Morgan

• Decision Date: 04 April 2013
• Docket Number: No. 2011–CA–01274–SCT.,2011–CA–01274–SCT.
• Citation: 110 So.3d 752
• Court: Mississippi Supreme Court
• Parties: COMMONWEALTH BRANDS, INC., The Corr–Williams Company, and Vicksburg Specialty Company v. J. Ed MORGAN, Commissioner of Revenue of the Department of Revenue.

110 So.3d 752

COMMONWEALTH BRANDS, INC., The Corr–Williams Company, and Vicksburg Specialty Company

v.J. Ed MORGAN, Commissioner of Revenue of the Department of Revenue.

No. 2011–CA–01274–SCT.

Supreme Court of Mississippi.

April 4, 2013.

Luther T. Munford, Fred L. Banks, Jr., Robert Gregg Mayer, Robert J. Brookhiser, Elizabeth B. McCallum, Stephen J. Carmody, Louis G. Fuller, attorneys for appellants.

Gary Wood Stringer, Bridgett Thomas, attorneys for appellee.

Before DICKINSON and RANDOLPH, P.JJ., and PIERCE, J.

RANDOLPH, Presiding Justice, for the Court:

¶ 1. Appellants raise a constitutional challenge to a fee legislated on cigarettes distributed through Mississippi for sale outside the state, claiming separate violations of the Commerce and Due–Process Clauses. In 2009, the Mississippi Legislature passed a law imposing a fee ¹ on the sale, purchase, and distribution in Mississippi of cigarettes manufactured by companies that did not enter into settlement agreements with the State of Mississippi as a result of a 1997 lawsuit (the “nonsettling manufacturer” or “NSM” law), “including cigarettes sold, purchased or otherwise distributed in this state for sale outside of this state.” ²Miss.Code Ann. § 27–70–5 (Rev.2010) (amended in 2010) (emphasis added).

¶ 2. In 2009, one nonsettling manufacturer—Commonwealth Brands, Inc. (“Commonwealth”)—and one distributor—the Corr–Williams Company (“Corr–Williams”) (collectively “Appellants”)—sued Ed Morgan, in his capacity as Commissioner of Revenue of the Department of Revenue (“Commissioner”) in Hinds County Chancery Court. Appellants claimed that the imposition of the NSM fee on products sold, purchased, or distributed in Mississippi, but ultimately sold to consumers or users outside Mississippi, violated the Commerce and Due–Process Clauses of the United States Constitution. They sought a declaration that the imposition of the NSM fee on cigarettes for sale outside Mississippi is unconstitutional; an injunction to prevent the State from collecting the fee from them for cigarettes distributed in Mississippi for sale outside the state; and damages, expenses, and attorney fees under 42 U.S.Code Sections 1983 and 1988.

¶ 3. In October 2009, the chancery court entered a temporary restraining order enjoining the Commissioner from assessing and collecting the challenged fee. In November 2009, the chancery court held an evidentiary hearing, after which it granted Appellants a preliminary injunction and ordered them to post surety bonds. The chancery court found as follows:

(A) There is a substantial likelihood that Plaintiffs will prevail on their constitutional challenges to the assessment and payment of fees on the sale of NSM cigarettes sold, purchased or otherwise distributed in Mississippi for sale outside of Mississippi ...;

(B) Corr–Williams and Commonwealth Brands will suffer immediate and irreparable harm with such threat being imminent if the MSTC assesses and demands payment of fees on the sale of [such] cigarettes ... in that Corr–Williams may lose its ability to distribute NSM cigarettes and other grocery products in the State of Louisiana, with an accompanying loss in competitive advantage, business reputation, and goodwill and that Commonwealth Brands also faces the threat of immediate loss of competitive advantage, market share, business reputation, and good will with respect to cigarettes sold, purchased or otherwise distributed in this state for sale outside of this state.

(C) The threat of irreparable injury to Corr–Williams and Commonwealth Brands far outweighs any potential harm to the State ..., even considering the present economic conditions of the State of Mississippi and the potential implications of ... reduced revenues that this [preliminary injunction] might have on the State budget, and moreover, ... the threat of injury to the Defendant is minimal in that if the MSTC ultimately prevails, it will be able to assess and collect the tax that accrues during the pendency of this litigation; and

(D) The public interest is served by the entry of the [preliminary injunction] because if the MSTC assesses and demands payment of fees on the sale of NSM cigarettes sold, purchased or otherwise distributed in Mississippi for sale outside of Mississippi ... from Commonwealth Brands or by Corr–Williams, there may be a resulting loss of jobs and tax revenue when Corr–Williams and distributors in situations similar to Corr–Williams move all or some of its operations to the State of Louisiana and other states to avoid the effect thereof, or when Commonwealth and manufacturers in situations similar to Commonwealth shift some or all of their business to distributors in other states to avoid the effect thereof.

In January 2010, the chancery court allowed Vicksburg Specialty to intervene, entered a preliminary injunction enjoining the Commissioner from imposing the NSM fee on NSM cigarettes distributed by Vicksburg Specialty, and required Vicksburg Specialty to post a surety bond.

¶ 4. In May 2010, the chancery court issued a “Stipulated Order Regarding Schedule and Procedures,” in which the parties agreed, in lieu of trial, to submit proposed stipulations of facts and proposed findings of fact and conclusions of law to the chancellor. In August 2010, the chancery court issued an order denying Appellants a permanent injunction and declaratory relief, and finding all other issues moot. The chancery court found that the NSM fee did not violate the Commerce Clause or the Due–Process Clause, based on its findings that: (1) there was “a substantial nexus between the tax and the transaction within Mississippi”; (2) the fee was fairly apportioned, because, even if other states had an identical statute, those states would not tax Commonwealth for the “same purpose”—distribution through Mississippi; (3) the fee did not discriminate against interstate commerce, because, (like its reasoning for finding fair apportionment) even if other states had an identicalstatute, they would not impose a fee on the same transaction as the Mississippi law—distribution through Mississippi; and (4) the fee was fairly related to distribution activities and services in Mississippi.

¶ 5. Subsequently, the Commissioner filed a “Motion for Entry of Final Judgment,” seeking fees, interest, and penalties from Appellants for the two years that it was enjoined from collecting fees under the preliminary injunction, and Appellants filed a motion for reconsideration. The chancery court held a hearing on both motions in December 2010. The chancery court reserved ruling on the motions until the end of the 2011 Mississippi Legislative Session, during which the Legislature amended the statute to provide that the NSM fee does not apply to cigarettes sold, purchased, or distributed in Mississippi for sale outside the state.Miss.Code Ann. § 27–70–5 (Supp.2012).

¶ 6. In May 2011, the chancery court found that the legislative amendment did not apply retroactively, denied Appellants' motion for reconsideration, and granted the Commissioner's motion for final judgment. However, the chancery court did not enter final judgment at that time. Rather, three months later, on August 30, 2011 (upon the parties' request for a status conference), the chancellor entered final judgment, which incorporated the August 2010 order (denying Appellants' request for a permanent injunction and declaratory relief) and the May 2011 order (denying motion for rehearing and granting motion for final judgment). Commonwealth, Corr–Williams, and Vicksburg Specialty appeal the final judgment, and the Commissioner cross-appeals.

FACTS

¶ 7. Mississippi has long imposed and collected taxes on the sale of tobacco within the state under the Tobacco Tax Act. The Tobacco Tax Act provides that:

The ... tax is levied upon the sale, use, gift, possession or consumption of tobacco within the State of Mississippi, and the impact of the tax levied by this chapter is hereby declared to be on the vendee, user, consumer or possessor of tobacco in this state; and when said tax is paid by any other person, such payment shall be considered as an advance payment and shall thereafter be added to the price of the tobacco and recovered from the ultimate consumer or user.

Miss.Code Ann. § 27–69–13 (Rev.2010) (emphasis added). The Tobacco Tax Act also specifies that “[t]he provisions of this chapter shall not apply to dealers in tobacco made the subject of interstate sales, except as provided in Chapter 70, Title 27, Mississippi Code of 1972.” Miss.Code Ann. § 27–69–19 (Rev.2010).

¶ 8. In 1997, the State of Mississippi entered into a settlement agreement with the four largest U.S. cigarette manufacturers. The settling manufacturers agreed to pay the State certain sums, to be adjusted by domestic tobacco product volume sales.

¶ 9. In 1998, forty-six other states and territories entered into a separate settlement agreement with the same four cigarette manufacturers that were parties to the 1997 Mississippi agreement (“Master Settlement Agreement” or “MSA”).³ Under the Master Settlement Agreement, as under the 1997 agreement, the manufacturers agreed to pay certain sums to the settling states and territories. Id. The MSA based these sums on national tobacco sales, net of, inter alia, amounts paid to Mississippi under the 1997 agreement. Id. Manufacturers other than the four originally sued were permitted to join the MSA voluntarily. Id. Commonwealth elected to do so. ⁴

¶ 10. In 2009, the Mississippi Legislature enacted the NSM law, imposing on manufacturers that were not parties to the 1997 agreement a fee for sales, purchases, and distribution of tobacco products in Mississippi. Miss.Code Ann. §§ 27–70–1 to 27–70–23 (Rev.2010). The stated purpose of the NSM law was to:

(a) Prevent nonsettling manufacturers from undermining this state's policy of discouraging underage smoking by offering cigarettes at prices that are substantially below the prices of...