VIBO Corp., Inc. v. Conway

• Decision Date: 22 February 2012
• Docket Number: No. 10–5043.,10–5043.
• Citation: 669 F.3d 675,2012 Trade Cases P 77796
• Parties: VIBO CORPORATION, INC., Plaintiff–Appellant, v. Jack CONWAY, et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

2012-1 Trade Cases P 77,796

669 F.3d 675

VIBO CORPORATION, INC., Plaintiff–Appellant,

v.Jack CONWAY, et al., Defendants–Appellees.

No. 10–5043.

United States Court of Appeals, Sixth Circuit.

Argued: Oct. 6, 2011.Decided and Filed: Feb. 22, 2012.

ARGUED: John K. Bush, Greenebaum Doll & McDonald PLLC, Louisville, Kentucky, for Appellant. Gary D. Wilson, Washington, D.C., Douglas L. Wald, Arnold & Porter LLP, Washington, D.C., for Appellees. ON BRIEF: John K. Bush, Daniel W. Redding, Greenebaum Doll & McDonald PLLC, Louisville, Kentucky, for Appellant. Gary D. Wilson, Washington, D.C., Douglas L. Wald, Michael B. Bernstein, Arnold & Porter LLP, Washington, D.C., Eric Shapland, Arnold & Porter LLP, Los Angeles, California, Michael Plumley, Office of the Kentucky Attorney General, Frankfort, Kentucky, Irving Scher, Scott Martin, Greenberg Traurig LLP, New York, New York, Charles S. Cassis, Theresa A. Canaday, Frost Brown Todd LLC, Louisville, Kentucky, Stephen R. Patton, Douglas G. Smith, Kirkland & Ellis LLP, Chicago, Illinois, Robert J. Brookhiser, Elizabeth B. McCallum, Baker & Hostetler, Washington, D.C., Merrill S. Schell, M. Stephen Pitt, Wyatt, Tarrant & Combs, LLP, Louisville, Kentucky, Eric Estes, Office of the Arkansas Attorney General, Little Rock, Arkansas, David Lapp, Office of the Maryland Attorney General, Baltimore, Maryland, Brett DeLange, Office of the Idaho Attorney General, Boise, Idaho, Paul Berks, Office of the Illinois Attorney General, Chicago, Illinois, Brian D. Devlin, Office of the Michigan Attorney General, Lansing, Michigan, Douglas A. Bahr, Office of the North Dakota Attorney General, Bismarck, North Dakota, Susan C. Walker, Office of the Ohio Attorney General, Columbus, Ohio, Rebekah A. Baker, Office of the Tennessee Attorney General, Nashville, Tennessee, Michael T. Weirich, Oregon Department of Justice, Salem, Oregon, for Appellees.

Before: CLAY, GIBBONS, and WHITE, Circuit Judges.

CLAY, J., delivered the opinion of the court, in which GIBBONS, J., joined. WHITE, J. (p. ––––), delivered a separate concurring opinion.

OPINION

CLAY, Circuit Judge.

Plaintiff VIBO Corporation, Inc., appeals the district court's order dismissing its antitrust claims against Defendant tobacco companies, filed pursuant to the Sherman Act, 15 U.S.C. §§ 1, 3(a); dismissing its constitutional claims against Defendant Attorneys General, filed pursuant to the Equal Protection Clause of the Fourteenth Amendment, the Due Process Clauses of the Fifth and Fourteenth Amendments, and the Due Process, Commerce, and Compact Clauses of Article I; dismissing its request for relief from the constitutional violations, filed pursuant to 42 U.S.C. § 1983; dismissing its state common law fraud claim; and denying its motion for preliminary injunctive relief. For the reasons set forth below, we AFFIRM.

BACKGROUND

Plaintiff VIBO Corp., doing business as General Tobacco, filed a Complaint against sixteen tobacco manufacturers (“Manufacturer Defendants”) ¹ and fifty-two Attorneys General (“Attorneys General Defendants”) acting in their official capacities,² alleging federal antitrust and constitutional violations and a pendent state fraud claim. On January 6, 2010, the district court entered judgment dismissing Plaintiff's claims against Defendants for failure to state a claim or lack of subject matter jurisdiction, denying as moot Defendants' other motions to dismiss, and denying Plaintiff's request for preliminary injunctive relief. See Vibo Corp., Inc. v. Conway, 594 F.Supp.2d 758, 788–89 (W.D.Ky.2009).

A. The Master Settlement Agreement

The claims at issue revolve around a November 1998 settlement, the Master Settlement Agreement (MSA), which was executed to end litigation between several states and the four largest tobacco companies at the time.³ The litigation involved the tobacco companies' advertising strategies, which allegedly misled consumers as to the harmful and addictive effects of tobacco and inappropriately targeted underage consumers.

Under the MSA, the Attorneys General of several states agreed to release their past and future claims against the tobacco companies in exchange for large settlement payments, future annual disbursements from the tobacco companies managed under an approved payment scheme, and restrictions on the companies' future advertising and marketing schemes. The four original tobacco companies party to the MSA were known as the original participating manufacturers (OPMs). In addition to releasing their claims against the OPMs under the MSA, Attorneys General Defendants released claims against the OPMs' suppliers, retailers, and distributors. The release provided an incentive for these businesses to partner with OPMs rather than tobacco companies that had not joined the MSA, known as non-participating manufacturers (NPMs).

Attorneys General Defendants also wanted NPMs to join the MSA and thus be subject to its payment and marketing requirements. Thus, the MSA outlined procedures for NPMs to join the MSA despite not being party to the original litigation. If an NPM joined the MSA, it would become a subsequent participating manufacturer (SPM). In order to encourage the expedited entry of SPMs into the MSA, any SPM that entered the MSA within ninety days of its November 1998 execution date was “grandfathered” into the MSA and had a reduced payment obligation for its future annual payments under the payment scheme when compared with the payment obligations of non-grandfathered SPMs. However, by MSA requirement, the OPMs retained the most favorable payment terms.

In order to induce NPMs to join the MSA and in order to prevent NPMs from having a market advantage over the OPMs and SPMs that were subject to large MSA payments and marketing restrictions, the agreement permitted the states to enact “Escrow Statutes.” These statutes required an NPM to make annual deposits into state escrow accounts for each state where the NPM sold its products. The escrow payment amounts were based on each company's sales in each state. The deposits were held for twenty-five years, in the event that a state obtained a future judgment or settlement from that NPM. If no judgment is obtained during that time, the deposit would be released back to the NPM. For many tobacco companies, especially those selling products in multiple states, the payment scheme under the MSA was less burdensome than the payment schedules provided in the Escrow Statutes.

If an NPM joined the MSA later than ninety days after its execution, it would be required to negotiate an MSA “adherence agreement” with the Attorneys General. After doing so, it became a non-grandfathered SPM and was subject to higher payment obligations than the OPMs and grandfathered SPMs. A “back-payment” provision required every tobacco company that joins the MSA after ninety days of its execution to make the payments to the states that it would have been obligated to make had it joined the MSA at the time of its execution. The payment amount was based on the company's nationwide sales since 1999. The company also had to make annual payments going forward, which were based on the company's national market shares. These payments were not reduced as were the grandfathered SPMs' payments. The adherence agreement determined the back-payment amount and the annual payment obligation amount going forward.

The MSA also contained provisions to ensure that the OPMs retained favored treatment among the other participating manufacturers (PMs). If any adherence agreement of an SPM provides for more favorable terms for that company than the terms governing the OPMs under the MSA, then a clause in Section XVIII(b) of the MSA, entitled “Limited Most Favored Nations” (LMFN), granted the OPMs the right to receive those same favorable terms. The LMFN clause did not grant any PM the authority to vote on whether an NPM may become a party to the MSA or to determine the terms of an adherence agreement. Other provisions in the MSA governed waiver of constitutional claims, jurisdiction, venue, and arbitration agreements.

B. Plaintiff Becomes a Party to the MSA

Plaintiff entered the tobacco market in 2000, two years after the MSA's execution. Plaintiff originally operated as an NPM in a few states, including Kentucky, Florida, and North Carolina. It paid into state escrow accounts, but the states began to amend their escrow statutes to make the escrow payments more burdensome. Ultimately, Plaintiff determined that it would be more profitable to operate as an SPM. Plaintiff joined the MSA in 2004 by negotiating its Adherence Agreement (AA) with Attorneys General Defendants. The AA outlined Plaintiff's mandatory back-payment amount and the payment amounts it would make going forward. These payment amounts were determined, in part, based on Plaintiff's two-percent share in the national tobacco market (the largest share among NPMs at the time).

According to Plaintiff, during negotiations for the AA, Attorneys General Defendants failed to explain the extent of the payment reductions granted to grandfathered SPMs and denied Plaintiff access to this information on the grounds that other PMs' payment arrangements were confidential. Plaintiff also claims that it was assured that Attorneys General Defendants enforced their Escrow Statutes (thereby confirming to Plaintiff that it would be more beneficial to join the MSA) and that the LMFN clause would not prevent Plaintiff's ability to obtain more favorable terms under the MSA if it sought to do so at a later date.

After joining the MSA, Plaintiff became dissatisfied with the disparate treatment afforded the other tobacco companies, such as the lack of back-payments for the OPMs and the reduced payment obligations available to eligible grandfathered SPMs. Plaintiff's per-carton payment obligation to Attorneys General Defendants was higher than the obligations of the OPMs and some SPMs.

Plaintiff eventually was unable to meet its back-payment...