S & M Brands, Inc. v. Summers

• Citation: 393 F.Supp.2d 604
• Decision Date: 06 October 2005
• Docket Number: No. 3:05-0171.,3:05-0171.
• Parties: S & M BRANDS, INC. and International Tobacco Partners, Ltd., Plaintiffs, v. Paul G. SUMMERS, in his official capacity as Attorney General of the State of Tennessee, Defendant.
• Court: U.S. District Court — Middle District of Tennessee

Page 604

393 F.Supp.2d 604

S & M BRANDS, INC. and International Tobacco Partners, Ltd., Plaintiffs, v. Paul G. SUMMERS, in his official capacity as Attorney General of the State of Tennessee, Defendant.

No. 3:05-0171.

United States District Court, M.D. Tennessee, Nashville Division.

October 6, 2005.

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David F. Dobbins, Walter M. Luers, Patterson, Belknap, Webb & Tyler, New York, NY, Jennifer S. Ghanem, Clark Hickman Tidwell, Lassiter, Tidwell & Hildebrand, Nashville, TN, Jerry W. Laughlin, Rogers, Laughlin, Nunnally & Hood, Greenville, TN, for Plaintiffs.

John H. Sinclair, Jr., Daniel Champney, Tennessee Attorney General's Office, Nashville, TN, for Defendant.

MEMORANDUM OPINION

WISEMAN, Senior District Judge.

I. INTRODUCTION

Plaintiffs S & M Brands, Inc. ("S & M") and International Tobacco Partners, Ltd. ("ITP") (collectively, "Plaintiffs") filed their Complaint on January 19, 2005 in the Eastern District of Tennessee, Greeneville Division, seeking injunctive and declaratory relief. The case was transferred to the Middle District of Tennessee on February 28, 2005. Defendant Paul G. Summers, in his official capacity as Attorney General of the State of Tennessee ("Defendant"), filed his Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted and Memorandum of Law in support thereof (Doc. Nos. 35 and 36) on March 21, 2005. Plaintiffs filed their response in opposition to Defendant's motion on April 6, 2005 (Doc. No. 52). With the Court's permission, Defendant has filed a Reply (Doc. No. 82).

On April 15, 2005, the Court granted Plaintiffs' motion for a stay of adjudication of the motion to dismiss and stayed these proceedings entirely pending a decision by the Judicial Panel on Multidistrict Litigation (the "Panel") whether to transfer this action, pursuant to 28 U.S.C. § 1407, for coordinated pretrial proceedings with four other basically identical actions filed in the Southern District of New York, the Eastern District of Kentucky, and the Northern District of Oklahoma. The Panel issued its Order Denying Transfer on June 16, 2005. Accordingly, the stay of these proceedings has been lifted and the Court is now prepared to issue its ruling on Defendant's Motion.

For the reasons set forth below, the Court will GRANT Defendant's motion to dismiss counts I and III of the Complaint in their entirety, with prejudice, and will likewise GRANT the motion to dismiss Count II of the Complaint with prejudice except insofar as Count II relates to Plaintiffs' claims that Defendant's allegedly retroactive enforcement of the 2004 amendment to the so-called Allocable Share Release provision originally contained in Tenn.Code Ann. § 47-31-103(a)(2)(B)(ii) violates their constitutional rights. That issue was not addressed in Defendant's motion, though it is the subject of a Motion for Partial Summary Judgment recently filed by Plaintiffs (Doc. No. 85), which has not yet been fully briefed and is not ripe for consideration. The Court will address the retroactivity issue in the context of ruling on that motion. For now, Defendant's motion as to that issue is DENIED.

II. PROCEDURAL BACKGROUND

Plaintiffs' claims arise in connection with the Master Settlement Agreement ("MSA") executed in November 1998 by and among forty-six states and six territories¹ on the one hand (the "Settling States") and, on the other, the four largest domestic cigarette manufacturers (Philip Morris USA, Inc., R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Company, and Lorillard Tobacco Company (collectively referenced herein as the "Original Participating Manufacturers" ("OPMs") or the "Majors")). Plaintiffs are tobacco manufacturers or importers who did not join in the MSA, and they challenge the validity of certain statutes enacted by the State of Tennessee pursuant to the terms of the MSA, including the Tennessee Tobacco Manufacturers' Escrow Fund Act of 1999, Tenn.Code Ann. § 47-31-101 et seq. ("Escrow Act"), as amended effective April 20, 2004 by 2004 Pub. Acts. ch. 535, § 1, to repeal the "Allocable Share Release Provision" contained in the original version of Tenn.Code Ann. § 47-31-103(a)(2)(B)(ii) ("ASR Amendment"), and the tax laws passed to aid in the enforcement of the Escrow Act, Tenn.Code Ann. § 67-4-2601 et seq. ("Contraband Statute") (collectively referenced herein as the "Tobacco Statutes").

More specifically, Plaintiffs purport to assert three separate causes of action relating to the Tobacco Statutes. First, Plaintiffs claim that the enactment and enforcement of the Tobacco Statutes have the effect of implementing an illegal combination or "output cartel" created by the Settling States and the participating manufacturers in the MSA, and that said implementation constitutes a per se restraint of trade in violation of the Sherman Act, to Plaintiffs' injury.² On those grounds, Plaintiffs request a declaration that the Tobacco Statutes are illegal and void under the Sherman Act, 15 U.S.C. § 1, and that they are preempted by federal law.³ Second, Plaintiffs contend that enactment and enforcement of the Tobacco Statutes, together with the retroactive application of the ASR Amendment "without any notice by the defendant that he was intending to exercise a purported right to make a retroactive application thereof" (Compl.¶ 95), violates Plaintiffs' procedural and substantive due process rights in violation of the Fourteenth Amendment to the United States Constitution. Finally, Plaintiffs claim that the enforcement of the Tobacco Statutes violates Plaintiffs' rights under the Equal Protection Clause of the Fourteenth Amendment in that it constitutes discrimination against those cigarette manufacturers such as Plaintiffs who are not party to the MSA but who seek to do business in Tennessee. As part of their third claim for relief, Plaintiffs also allege that enforcement of the Tobacco Statutes "burdens [their] First Amendment rights of freedom of speech and freedom to petition." (Compl.¶ 98.) In addition, based upon the language contained in Plaintiffs'"Prayer for Relief," it appears that Plaintiffs may also seek a declaration that the MSA itself, or the "output cartel formed under the MSA, which includes Tennessee," violates the Sherman Act and the Clayton Act. Although it is not entirely clear whether Plaintiffs have in fact stated a legitimate claim for injunctive relief as to the MSA, the Court will nonetheless address that issue below.

In response to Plaintiffs' Complaint, the Defendant filed his Rule 12(b)(6) Motion to Dismiss for failure to state a claim upon which relief may be granted. In addition to arguing that Plaintiffs are not entitled to relief under any theory, Defendant also asserts that because ITP is a cigarette importer rather than a manufacturer, it is not directly affected by the MSA or the Tobacco Statutes and therefore lacks standing to bring any of the claims asserted in the Complaint. Defendant also asserts that he is not a proper defendant to this action by virtue of the Eleventh Amendment.

As mentioned in Part I, above, Defendant's motion and initial memorandum in support thereof do not address Plaintiffs' allegations regarding the retroactive application of the ASR Amendment, though Defendant does raise the issue in his Reply To Plaintiffs' Response To Motion To Dismiss (Doc. No. 82). Because the issue was not raised until the reply brief, the Court will not consider it here. See Wright v. Holbrook, 794 F.2d 1152, 1156 (6th Cir.1986) ("It is impermissible to mention an issue for the first time in a reply brief, because the appellee then has no opportunity to respond.") (quoting Knighten v. Comm'r, 702 F.2d 59, 60 n. 1 (5th Cir.), cert. denied, 464 U.S. 897, 104 S.Ct. 249, 78 L.Ed.2d 237 (1983)).

III. STANDARD OF REVIEW

Under Rule 12 of the Federal Rules of Civil Procedure, a defendant may move to dismiss the plaintiff's complaint "for failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, a court must treat all of the well pleaded allegations of the complaint as true, Saylor v. Parker Seal Co., 975 F.2d 252, 254 (6th Cir.1992), and must construe all of the allegations in the light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). The Court is not required, however, to "accept as true legal conclusions or unwarranted factual inferences." Bovee v. Coopers & Lybrand, C.P.A., 272 F.3d 356, 361 (6th Cir.2001) (internal quotation marks and citation omitted).

A 12(b)(6) motion to dismiss is directed solely to the complaint, Roth Steel Prods. v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir.1983), and any exhibits attached to it, see Fed.R.Civ.P. 10(c) ("A copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes."). The merits of the claims set forth in the complaint are not at issue on a motion to dismiss for failure to state a claim. Consequently, a complaint will be dismissed pursuant to Rule 12(b)(6) only if there is no law to support the claims made if the facts alleged are insufficient to state a claim, or if on the face of the complaint there is an insurmountable bar to relief. See Rauch v. Day & Night Mfg. Corp., 576 F.2d 697, 698 (6th Cir.1976). Rule 12(b)(6) must be read in conjunction with Rule 8(a), which provides that a pleading for relief shall contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a); 5A Wright & Miller, Federal Practice and Procedure, § 1356 (1990). The moving party is entitled to relief only when the complaint fails to meet this liberal standard.

IV. FACTUAL BACKGROUND

In accordance with the standard of review referenced above, the Court will assume for purposes of reviewing Defendan...