Red Earth LLC v. U.S.

• Decision Date: 30 July 2010
• Docket Number: Nos. 10-CV-550A,Nos. 10-CV-530A,s. 10-CV-530A,s. 10-CV-550A
• Citation: 728 F.Supp.2d 238
• Parties: RED EARTH LLC d/b/a Seneca Smokeshop and Aaron J. Pierce, Plaintiffs, v. UNITED STATES of America and Eric H. Holder, Jr., in his Official Capacity as Attorney General of the United States, Defendants. Seneca Free Trade Association, Plaintiff, v. United States of America and Eric H. Holder, Jr., in his Official Capacity as Attorney General of the United States, et al., Defendants.
• Court: U.S. District Court — Western District of New York

728 F.Supp.2d 238

RED EARTH LLC d/b/a Seneca Smokeshop and Aaron J. Pierce, Plaintiffs,

v.UNITED STATES of America and Eric H. Holder, Jr., in his Official Capacity as Attorney General of the United States, Defendants.

Seneca Free Trade Association, Plaintiff,

v.United States of America and Eric H. Holder, Jr., in his Official Capacity as Attorney General of the United States, et al., Defendants.

Nos. 10-CV-530A, 10-CV-550A.

United States District Court, W.D. New York.

July 30, 2010.

Lisa A. Coppola, Michael T. Feeley, Rupp, Baase, Pfalzgraf, Cunningham & Coppola LLC, Daniel Barrie Moar, Goldberg Segalla LLP, Buffalo, NY, Fred F. Fielding, Howard M. Radzely, R. Edward Cruz, Russell R. Bruch, Morgan, Lewis & Bockius LLP, Washington, DC, for Plaintiffs.

Gerald C. Kell, U.S. Department of Justice, Washington, DC, Matthew Myerson, Bureau of Alcohol Tobacco Firearms & Explosives, Brooklyn, NY, Richard D. Kaufman, Mary Pat Fleming, U.S. Attorney's Office, Richard T. Sullivan, Harris Beach LLP, Buffalo, NY, Riyaz A. Kanji, Kanji & Katzen, PLLC, Ann Arbor, MI, for Defendants.

PRELIMINARY INJUNCTION ORDER

RICHARD J. ARCARA, District Judge.

INTRODUCTION

Currently before the Court are motions for a preliminary injunction made by plaintiffs, Native Americans who are in the business of selling cigarettes and tobacco products via the Internet, mail and telephone. Plaintiffs seek to enjoin enforcement of the Prevent All Cigarette Trafficking Act of 2009 ("PACT Act" or "Act"), Pub.L. No. 111-154, 124 Stat. 1087 (2010), asserting that various provisions of the Actviolate their due process and equal protection rights. They also assert that the Act violates the Commerce Clause, the Tenth Amendment and is void for vagueness.

Defendants, the United States of America and Attorney General Eric Holder, Jr., oppose the motion arguing that plaintiffs have failed to make the requisite showing necessary to enjoin enforcement of a federal statute.

Upon consideration of the parties' submissions and after hearing argument on July 7, 2010, the Court finds that plaintiffs have demonstrated: (1) a clear likelihood of success on the merits of their due process claim; (2) that they will suffer irreparable injury absent injunctive relief; and (3) that injunctive relief is in the public interest. Accordingly, the Court grants plaintiffs' motion for a preliminary injunction.

BACKGROUND

Plaintiff Aaron J. Pierce is a member of the Seneca Nation of Indians ("Seneca Nation"), a federally recognized Indian tribe. Pierce owns and operates a tobacco retail business located on the Cattaraugus Indian Reservation, a Seneca Nation Territory, under the name Red Earth LLC d/b/a Seneca Smokeshop. Pierce has owned and operated that business since 2000, and employs 17 people, two of whom are members of the Seneca Nation. Red Earth conducts business in 46 out of 50 states, and transacts all of its business via Internet, telephone, and mail orders.

Plaintiff Seneca Free Trade Association ("SFTA") is a not-for-profit organization chartered by the Seneca Nation. SFTA is authorized to engage in advocacy efforts on behalf of its members. Approximately 140 members of SFTA are in the tobacco retail business, including plaintiff Red Earth. Those 140 members conduct their retail operations via Internet, telephone and mail orders and many rely exclusively on the United States Postal Service to deliver their tobacco products to their customers. Customers of those 140 members are located throughout the United States.

Plaintiffs seek to enjoin enforcement of the PACT Act, which requires retailers of cigarettes and smokeless tobacco who perform "delivery sales" ¹ to comply with all state and local laws in the jurisdiction where those products are being delivered (sometimes referred to herein as the "destination jurisdiction"). Specifically, the Act requires that delivery sellers ² comply with:

(3) all state, local, tribal, and other laws generally applicable to sales of cigarettes or smokeless tobacco as if the delivery sales occurred entirely within the specific state and place, including laws imposing-

(A) excise taxes;

(B) licensing and tax-stamping requirements;

(C) restrictions on sales to minors; and

(D) other payment obligations or legal requirements relating to the sale, distribution, or delivery of cigarettes or smokeless tobacco; and

(4) the tax collection requirements set forth in subsection (d).

See § 15 U.S.C. § 376a(a)(3)(2010). The tax collection requirements referred to in subsection (d) are codified at 15 U.S.C. § 376a(d) and require delivery sellers topay any existing state or local excise taxes in advance of the sale or delivery. See id. at § 276a(d)(1). Furthermore, the Act provides that "a delivery sale shall be deemed to have occurred in the State and place where the buyer obtains personal possession of the cigarettes or smokeless tobacco, and a delivery pursuant to a delivery sale is deemed to have been initiated or ordered by the delivery seller." Id. at § 376a(f).

In addition to requiring that delivery sellers comply with all state and local requirements relating to the sale and distribution of cigarettes and smokeless tobacco in the destination jurisdiction, the Act declares cigarettes and smokeless tobacco to be "nonmailable matter." The Act provides:

All cigarettes and smokeless tobacco (as those terms are defined in section 1 of the Act of October 19, 1949, commonly referred to as the Jenkins Act) are nonmailable and shall not be deposited in or carried through the mails. The United States Postal Service shall not accept for delivery or transmit through the mails any package that it knows or has reasonable cause to believe contains any cigarettes or smokeless tobacco made nonmailable by this paragraph.

See § 4(3)(a)(1) of the PACT Act (codified at 18 U.S.C. § 1716E(a)). Exceptions to this general mailing prohibition are made for cigars and for "mailings [of cigarettes and smokeless tobacco products] within the State of Alaska or within the State of Hawaii." Id. at § 3(b). Any violation of the PACT Act is subject to civil penalties, as well as felony criminal prosecution punishable by imprisonment of up to three years. See PACT ACT, § 3(a)(1) (codified at 15 U.S.C. § 377(a)(1)).

Plaintiffs seek to enjoin enforcement of the PACT Act asserting that it violates their due process and equal protection rights, as well as the Commerce Clause and the Tenth Amendment. They argue that it is simply impossible to comply with the Act because its mandates are too vague and sweeping, and if the Act is permitted to take effect, they will be forced to close their businesses or face potential criminal prosecution.

The defendants assert that the PACT Act represents a valid act of Congress enacted pursuant to its Art. I, § 8 powers governing commerce.

DISCUSSION

I. Standards for Injunctive Relief

In general, a district court may grant a preliminary injunction if the moving party establishes (1) irreparable harm and (2) either (a) a likelihood of success on the merits, or (b) sufficiently serious questions going to the merits of its claims to make them fair ground for litigation, plus a balance of the hardships tipping decidedly in favor of the moving party. Monserrate v. New York State Senate, 599 F.3d 148, 154 (2d Cir.2010). However, where a party seeking a preliminary injunction attempts to enjoin application of a governmental statute or regulation, it cannot obtain injunctive relief by meeting the lesser "sufficiently serious questions" and "balance of the hardships" standard. Instead, it must demonstrate irreparable harm and a clear likelihood of success on the merits. Id.; see also Grand River Enterprise Six Nations, Ltd. v. Pryor, 481 F.3d 60 (2d Cir.2007); Brooklyn Legal Servs. Corp. v. Legal Servs. Corp., 462 F.3d 219, 225 (2d Cir.2006). Additionally, the movant must show that granting a preliminary injunction is in the public interest. Winter v. Natural Res. Defense Council, Inc., 555 U.S. 7, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). Injunctive relief "is an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion."Moore v. Consol. Edison Co., 409 F.3d 506, 510 (2d Cir.2005) (internal quotation marks omitted).

II. Irreparable Harm

An irreparable harm is a harm for which "a monetary award cannot be adequate." Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979). To satisfy the irreparable harm requirement, plaintiffs must demonstrate that absent injunctive relief they will suffer a harm that cannot be remedied by damages. Plaintiffs must also show that the injury they will suffer is "actual and imminent" and not "remote or speculative." Grand River, 481 F.3d at 66.

Plaintiffs assert that if the PACT Act is permitted to take effect, they will suffer deprivations of their due process and equal protection rights. "When an alleged deprivation of a constitutional right is involved, ... no further showing of irreparable injury is necessary." Mitchell v. Cuomo, 748 F.2d 804, 806 (2d Cir.1984) (citing 11 C. Wright & A. Miller, Federal Practice and Procedure, § 2948, at 440 (1973)). Since plaintiffs allege deprivation of their constitutional rights, the Court is satisfied that the they have demonstrated a threat of irreparable injury absent injunctive relief.

Moreover, the allegations in the complaint indicate that plaintiffs will likely go out of business if the PACT Act is permitted to take effect. Plaintiffs assert that the PACT Act's requirement that they collect and pay all state and local excise taxes to the destination jurisdiction before shipping any products is unduly burdensome because it requires them know of and comply with potentially thousands of different state and local taxing schemes. They assert that the cost of compliance far outweighs the continued operation of their businesses. In fact, the record reflects that a number of cigarette retailers have begun closing down...