KT&G Corp., et al v. Attorney General-OK

Filing 920080723

Opinion

FILED
United States Court of Appeals Tenth Circuit

July 23, 2008
Elisabeth A. Shumaker Clerk of Court

PUBLISH

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

KT&G CORP., XCALIBER INTERNATIONAL LIMITED, LLC, Plaintiffs - Appellants, v. ATTORNEY GENERAL OF THE STATE OF OKLAHOMA, W.A. Drew Edmondson, in his official capacity as Attorney General, Defendant - Appellee. Nos. 05-5175, 05-5178

XCALIBER INTERNATIONAL LIMITED, LLC, Plaintiff - Appellant, v. STEPHEN SIX, Attorney General, in his official capacity as Attorney General, State of Kansas, Defendant - Appellee. No. 06-3061

Appeal from the United States District Court for the Northern District of Oklahoma (D.C. No. 04-CV-922-EA) Appeal from the United States District Court for the District of Kansas (D.C. No. 05-CV-2261-JWL)

Leonard Violi, Law Offices of Leonard Violi, LLC, Mamaroneck, New York (David R. Cordell and Bruce W. Freeman, Conner & Williams, LLP, Tulsa, Oklahoma, with him on the briefs), for Plaintiff-Appellant KT&G Corp. Kyle M. Keegan, Roy, Kiesel, Keegan & DeNicola, Baton Rouge, Louisiana (Chris D. Kiesel, Roy, Kiesel, Keegan & DeNicola, Baton Rouge, Louisiana, Bruce W. Freeman and David R. Cordell, Connor & Winters, Tulsa, Oklahoma, and William M. Modrein, Stinson Morrison Hecker LLP, Kansas City, Missouri, with him on the briefs) for Plaintiff-Appellant Xcaliber International Limited, LLC. Gary D. Wilson, Washington, D.C. (Guy L. Hurst, Senior Assistant Attorney General, Oklahoma Attorney General's Office, Oklahoma City, Oklahoma and Mark Greenwold, Special Assistant Attorney General, State of Oklahoma, National Association of Attorneys General, Washington, D.C., with him on the briefs) for Defendant-Appellee W.A. Drew Edmondson, Attorney General, State of Oklahoma. Gary D. Wilson, Washington, D.C. (Michael G. Hering and Peter J. Hering, National Association of Attorneys General, Washington, D.C., and Eliehue Brunson, Assistant Deputy Attorney General, Topeka, Kansas, with him on the brief) for Defendant-Appellee Stephen Six, Attorney General, State of Kansas. 1

Before O'BRIEN, EBEL and TYMKOVICH, Circuit Judges.

Pursuant to Fed. R. App. P. 43(c)(2), the current Kansas attorney general, Stephen Six, has been substituted for the former attorney general, Phill Kline. See Khader v. Aspin, 1 F.3d 968, 969 n.1 (10th Cir. 1993).
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EBEL, Circuit Judge.

In 1998, forty-six states, as well as several territories ("the settling states"), entered into a Master Settlement Agreement ("MSA") with the four major tobacco companies. By that agreement, the settling states agreed to release the tobacco companies from liability for claims the states had against them to recover for tobacco-related health costs, and the tobacco companies in turn agreed to make annual payments to the states in perpetuity. Pursuant to the MSA, each of the settling states also enacted legislation that required tobacco manufacturers who sell cigarettes in a particular state and who have not joined the MSA ("non-participating manufacturers" or "NPMs"), to make annual payments to be held in an escrow fund for twenty-five years. These escrowed monies create a fund from which the state can later recover from an NPM, if the state sues that NPM to recover tobacco-related costs. Kansas and Oklahoma, which were among the settling states, joined most of those states in amending the provisions of their escrow statutes that provided for refunds to NPMs of part of their annual escrow payment. The effect of this amendment, known as the Allocable Share Amendment, was to reduce the amount of escrow funds refunded to the NPMs each year. In the cases underlying these appeals, two NPMs, Xcaliber International Limited LLC and KT&G Corp. ("Plaintiffs"), challenge Kansas's and Oklahoma's
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Allocable Share Amendments, arguing those amendments violate the Sherman Act and are unconstitutional. Having jurisdiction to consider these appeals under 28 U.S.C. § 1291, we AFFIRM the district courts' decisions to dismiss Plaintiffs' claims. I. BACKGROUND A. Master Settlement Agreement In November 1998, forty-six states, including Kansas and Oklahoma, as well as the District of Columbia, Puerto Rico, and the territorial governments of Guam, the Virgin Islands, American Samoa, and the Northern Marianas (collectively "the settling states"), entered into the MSA with the four major tobacco companies ("original participating manufacturers," or "OPMs"). 2 In that agreement, the settling states released past, pending, and future claims they had, or might have, against the OPMs seeking "recovery for Medicaid and other public health expenses incurred in the treatment of smoking-induced illnesses." Robin Miller, supra, at 460. In return, the OPMs agreed to restrict their advertising, sponsorship, lobbying, and litigation activities, particularly as those activities These four major tobacco companies are Brown and Williamson Tobacco Corporation, Lorillard Tobacco Company, Philip Morris, Incorporated, and R.J. Reynolds Tobacco Company. Four states, Florida, Minnesota, Mississippi, and Texas, had previously entered into separate agreements to settle similar claims against these same companies. See Robin Miller, Validity, Construction, Application, and Effect of Master Settlement Agreement (MSA) Between Tobacco Companies and Various States, and State Statutes Implementing Agreement; Use and Distribution of MSA Proceeds, 25 A.L.R. 6th 435, 461n.13 (2007).
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targeted youth; to disband three specific "Tobacco-Related Organizations," and to restrict their creation and participation in trade associations; generally to make available to the public documents the OPMs had disclosed during the discovery phase of their litigation with the settling states; and to create and fund the National Public Education Foundation, dedicated to reducing youth smoking and preventing diseases associated with smoking. Each OPM acknowledged that its decision to join the MSA was voluntary, and further acknowledge[d] that it understands that certain provisions of this Agreement may require it to act or refrain from acting in a manner that could otherwise give rise to state or federal constitutional challenges and that, by voluntarily consenting to this Agreement, it (and . . . any trade associations formed or controlled by any Participating Manufacturer)[] waives for purposes of performance of this Agreement any and all claims that the provisions of this Agreement violate the state or federal constitutions. The OPMs further agreed to make annual payments to the settling states in perpetuity. The MSA sets forth specific amounts that the OPMs have agreed to pay the settling states each year. Those annual amounts are subject to a number of adjustments. The OPMs each pay a portion of the total annual payment according to each OPM's "Relative Market Share" for the preceding year. 3
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The MSA specifically provides that

"Relative Market Share" means an [OPM's] respective share (expressed as a percentage) of the total number of individual Cigarettes shipped in or to the fifty United States, the District of Columbia and Puerto Rico (continued...)
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The OPMs pay these annual amounts to an escrow agent who disburses the payments among the settling states according to each state's "allocable share." The MSA's Exhibit A sets forth a specific value representing each state's allocable share. Kansas' allocable share is 0.8336712%, meaning each year Kansas receives approximately .83% of the total annual payments that the participating manufacturers make under the MSA. Similarly, Oklahoma, with an allocable share of 1.0361370%, receives just over one percent of the annual payments made by participating manufacturers. Each state's allocable share does not change from year to year, and thus the distribution of the annual payments according to each state's allocable share is "not dependent on sales volumes within" each state, Miller, supra, at 464. Rather, it represents a preset agreement among the settling states on how the MSA payments will be divided among them. Cigarette manufacturers other than the OPMs can also join the MSA. Such (...continued) by all the [OPMs] during the calendar year immediately preceding the year in which the payment at issue is due (regardless of when such payment is made), as measured by the [OPMs'] reports of shipments of Cigarettes to Management Science Associates, Inc. (or a successor entity acceptable to both the [OPMs] and a majority of those Attorneys General who are both the Attorney General of a Settling State and a member of the NAAG [National Association of Attorneys General] executive committee at the time in question). A Cigarette shipped by more than one Participating Manufacturer shall be deemed to have been shipped solely by the first Participating Manufacturer to do so. For purposes of the definition and determination of "Relative Market Share," 0.09 ounces of "roll your own" tobacco constitutes one individual Cigarette.
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a manufacturer is referred to as a subsequently participating manufacturer ("SPM"). To join, an SPM must agree to abide by the MSA's restrictions on advertising, marketing, lobbying, and litigation. In return, the settling states will release relevant claims that the states have, or might have, against that SPM. Approximately forty SPMs have now joined the MSA. See Miller, supra, at 462. As an incentive to join the MSA, the agreement provides that, if an SPM joined within ninety days following the MSA's "Execution Date," that SPM is exempt ("exempt SPM") from making annual payments to the settling states unless the SPM increases its share of the national cigarette market beyond its 1998 market share, or beyond 125% of that SPM's 1997 market share. If the exempt SPM's market share in a given year increases beyond those relevant historic limits, the MSA requires that the exempt SPM make annual payments to the settling states, similar to those made by the OPMs, but based only upon the SPM's sales representing the exempt SPM's market share increase. SPMs joining the MSA after this ninety-day exempt period must, instead, make annual payments based upon all of the SPM's national cigarette sales for a given year. In addition to its annual payment obligations, in order to join the MSA now, a non-exempt SPM must, "within a reasonable time after signing the" MSA, pay the amount it would have been obligated to pay under the MSA during the time between the MSA's effective date and the date on which the SPM joined the agreement.
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Both exempt and non-exempt SPMs' annual payment obligations under the MSA are "calculated on the basis of the percentage of the four original participating manufacturers' total domestic market share represented by the SPM[s'] domestic market share . . . . In other words, the denominator in the calculation is the total OPM market share, not the total OPM and SPM market share." Miller, supra, at 465-66. Furthermore, the parties agree that the amount the SPMs pay per cigarette is roughly the same as the per-cigarette amount that the OPMs pay under the MSA. To the extent the amount differs, the OPMs pay slightly more than the SPMs on a per cigarette basis. One of Xcaliber's primary complaints is that its direct competitors are the exempt SPMs which, like Xcaliber, sell cheaper discount brand cigarettes. As the MSA is designed, these exempt SPMs have a distinct pricing advantage as compared to all other cigarette manufacturers, including the OPMs, the non-exempt SPMs, and the NPMs. The exempt SPMs will not have to make any annual payments on cigarette sales in a given year until they exceed their protected market share. Xcaliber, as well as OPMs, non-exempt SPMs, and the other NPMs, on the other hand, will have to make annual payments calculated under the MSA for all of their cigarette sales during a given year, although the NPM payments will be in the nature of annual escrow payments, which they may be able to retrieve in twenty-five years. Xcaliber further complains that, because it did not go into business until
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2001, which was after the ninety-day period provided for an exempt SPM to join the MSA, Xcaliber never had the opportunity to join the MSA as an exempt SPM. (KT&G, on the other hand, was in business at the time the MSA was executed and so did have an opportunity to join as a non-exempt SPM, but chose not to do so.) XCaliber and KT&G can still join the MSA, but only as non-exempt SPMs who will have to make annual payments based upon all of their national cigarette sales. In addition, they would have to make back payments representing the amounts they would have had to pay under the MSA in the preceding years. XCaliber and KT&G further contend that, even if they decided to join the MSA now, the manufacturers who are already participating in the MSA could veto Xcaliber's and KT&G's participation. The states, on the other hand, assert that the participating manufacturers do not hold any such veto power. B. Escrow statutes The MSA includes a model escrow (or qualifying) act and provides strong incentives for settling states to adopt it. See Miller, supra, at 466-67. "[A] Qualifying Statute . . . is one that effectively and fully neutralizes the cost disadvantages that the Participating Manufacturers experience vis-a-vis Nonparticipating Manufacturers within the state." Id. at 467 (quotation omitted). The MSA encouraged settling states to adopt the model escrow act by providing that a settling state's allocated payment--that is, the portion of the annual MSA payment that a particular state receives in a given year--could be
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reduced by applying a non-participating manufacturers ("NPM") adjustment. That adjustment lowers a state's allocated share of the annual MSA payment if the OPMs lose market share to NPMs and if "a nationally recognized firm of economic consultants" determines that the MSA was "a significant factor contributing to the Market Share Loss for the year in question." The NPM adjustment does not apply to any state that has enacted and has in "full force and effect" a "qualifying" or model escrow statute. All settling states, including Kansas and Oklahoma, adopted the model escrow act. Kan. Stat. §§ 50-6a01 through 50-6a03; Okla. Stat. tit. 37, §§ 600.21 through 600.23, see Miller, supra, at 467. The escrow statute is premised on the legislative finding that, in light of the MSA settling the states' claims against the major cigarette manufacturers, [i]t would be contrary to the policy of the State if tobacco product manufacturers who determine not to enter into such a settlement could use a resulting cost advantage to derive large, short-term profits in the years before liability may arise without ensuring that the State will have an eventual source of recovery from them if they are proven to have acted culpably. It is thus in the interest of the State to require that such manufacturers establish a reserve fund to guarantee a source of compensation and to prevent such manufacturers from deriving large, short-term profits and then becoming judgment-proof before liability may arise. See Kan. Stat. § 50-6a01(f); Okla. Stat. tit. 37, § 600.21(D). In light of that, the model escrow statute requires an NPM selling cigarettes in a given state to do one of two things: 1) join the MSA, agreeing to "become a

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participating manufacturer (as that term is defined in section II(jj) of the [MSA]) and generally perform its financial obligations under the [MSA]," or 2) make similar annual payments into the state's escrow fund. See also Kan. Stat. § 50-6a03; Okla. Stat. tit. 37, § 600.23(A). An NPM's annual escrow payments in a particular state are calculated by multiplying a per-cigarette amount, established by the state's legislature and set forth in the statute, by the number of cigarettes the NPM sold in that state in the year for which payment is being made. 4 See also Kan. Stat. § 50-6a03(b)(1); Okla. Stat. tit. 37, § 600.23(A)(2). The parties agree that this per-cigarette amount is roughly equivalent to the per-cigarette amount the MSA requires from OPMs and SPMs for sales which are not exempt. To the

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The escrow statute specifically requires that the NPM

place into a qualified escrow fund by April 15 of the year following the year in question the following amounts (as such amounts are adjusted for inflation)-(A) 1999: $.0094241 per unit sold after the effective date of this act; (B) 2000: $.0104712 per unit sold; (C) for each of 2001 and 2002: $.0136125 per unit sold; (D) for each of 2003 through 2006: $.0167539 per unit sold; (E) for each of 2007 and each year thereafter: $.0188482 per unit sold. Kan. Stat. § 50-6a03(b)(1); see also Okla. Stat. tit. 37, § 600.23(A)(2).
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extent it differs, the OPMs pay slightly more than the SPMs, which pay slightly more than the NPMs. The NPMs' escrowed funds will be released only upon three occurrences: Such funds themselves shall be released from escrow only under the following circumstances­ (A) to pay a judgment or settlement on any released claim brought against such tobacco product manufacturer by the State or any releasing party located or residing in the State. Funds shall be released from escrow under this subparagraph (i) in the order in which they were placed into escrow and (ii) only to the extent and at the time necessary to make payments required under such judgment or settlement; (B) to the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow in a particular year was greater than the State's allocable share of the total payments that such manufacturer would have been required to make in that year under the [MSA] (as determined pursuant to section IX(i)(2) of the [MSA], and before any of the adjustments or offsets described in section IX(i)(3) of that Agreement other than the Inflation Adjustment) had it been a participating manufacturer, the excess shall be released from escrow and revert back to such tobacco product manufacturer; or (C) to the extent not released from escrow under subparagraphs (A) or (B) . . . funds shall be released from escrow and revert back to such tobacco product manufacturer twenty-five years after the date on which they were placed into escrow. See also Kan. Stat. § 50-6a03(b)(2); Okla. Stat. tit. 37, 600.23(B). The NPM earns interest on the funds it pays into the escrow fund. See Kan. Stat. § 50-6a03(b)(2); Okla. Stat. tit. 37, § 600.23(B). An NPM must annually certify to the state that it is in compliance with the escrow statute. See Kan. Stat. § 50-6a03(b)(3); Okla. Stat. tit. 37, § 600.23(E)

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(after amendment). The NPM faces civil penalties if it fails to make the required escrow payments. See Kan. Stat. § 50-6a03(b)(3); Okla. Stat. tit. 37, § 600.23(E) (after amendment). C. Allocable Share Amendment The Allocable Share Amendment ("Amendment") at issue in these cases concerned the second manner in which escrowed funds can be released--refunding escrowed funds in excess of the amount an NPM would have had to pay under the MSA in a given year. The originally enacted escrow statutes permitted an NPM to obtain a refund of the amount the NPM paid into the escrow fund to the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow in a particular year was greater than the State's allocable share of the total payments that such manufacturer would have been required to make in that year under the [MSA] . . . had it been a participating manufacturer. (Emphasis added.) See also Kan. Stat. § 50-6a03(b)(2)(B); Okla. Stat. tit. 37, § 600.23(B)(2). The settling states agreed to divide the annual MSA payment among themselves according to each state's preset allocable share, rather than according to the volume of sales made in a particular state in a given year. See Miller, supra, at 464. An NPM's payments into a state's escrow fund, on the other hand, were dependent on the number of cigarettes that the NPM sold in that state in a given year. Nevertheless, the originally enacted escrow statute based any refund
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of those escrowed funds payments on that state's allocable share of the national MSA payment. This refund provision, then, assumed an NPM would sell its cigarettes nationally. See id. at 469. Rather than selling cigarettes nationally, however, several NPMs instead concentrated their sales in just a few states. See id. Because the originally enacted escrow statute refunded escrow funds to the extent those funds exceeded each state's "allocable share" of the national MSA payment, NPMs were able to obtain refunds of most of the monies they had paid into a state's escrow fund. To illustrate, if an NPM only sold cigarettes in Kansas in 2006, the Kansas escrow statute would require that NPM to pay into the Kansas escrow fund $.0167539 for each cigarette the NPM sold in that state. See Kan. Stat. § 50-6a03(b)(1)(D). Pursuant to the refund provision in the originally enacted Kansas escrow statute, however, the NPM could obtain a refund of all but .8336712% of those payments. One commentator further explains that the calculations under the [originally enacted escrow] statutes were based on an assumption that a nonparticipating manufacturer sold cigarettes nationally. When this was the case, the statutes functioned as intended, permitting the NPM to obtain a refund of excess amounts placed in escrow in each state. However, when an NPM followed a regional sales strategy, as several did, the original escrow statutes allowed the NPM to obtain a refund that was much larger than intended. Miller, supra, at 469 (footnotes omitted). The "Allocable Share Amendment" ("Amendment") revised the originally enacted escrow statute's refund calculation to remove the reference to the enacting
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state's "allocable share" of the annual MSA payments.

The amended statute,

therefore, now provides that an NPM will be entitled to a refund [t]o the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow, based on units sold in the state . . . in a particular year, was greater than the [MSA] payments, as determined pursuant to section IX(i) of that agreement including, after final determination of all adjustments, that such manufacturer would have been required to make based on such units sold had it been a participating manufacturer, the excess shall be released from escrow and revert back to such tobacco product manufacturer. Kan. Stat, § 50-6a03(b)(2)(B) (2005); see also Okla. Stat. tit. 37; § 600.23(B)(2). 5 Thus, an NPM still has to pay annually into a state's escrow fund an amount calculated by multiplying the number of cigarettes the NPM sells in that state during the year in question by the same per-cigarette amount for that year as set forth in the state's escrow statute. The NPM can obtain a refund to the extent

There are two minor variations between the Kansas statute and the amended Oklahoma statute. First, the Oklahoma statute places the comma following "as determined pursuant to Section IX(i) of that Agreement" in a different place than the above-quoted Kansas statute­that is, the Oklahoma statute states "of that Agreement, including after final determination of all adjustments." Okla. Stat. tit. 37, § 600.23(B)(2). Second, the Oklahoma statute added to the end of this provision "shall be released from escrow and revert back to such tobacco product manufacturer, unless otherwise provided for by subsection C or D of this section." Subsection C of the Oklahoma statute provides that "[i]f this act, or any portion of the amendment to paragraph 2 of subsection B of this section made by this act [the "allocable share amendment"], is held by a court of competent jurisdiction to be unconstitutional, then paragraph 2 of subsection B of this section shall have no force and effect." Okla. Stat. tit. 37, § 600.23(C). And subsection D adds a provision that becomes effective if the Allocable Share Amendment is held to be unconstitutional and "if, thereafter, a court of competent jurisdiction finds that subsection B of this section without the provisions of paragraph 2 of subsection B of this section is unconstitutional." Id. § 600.23(D).
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those escrowed funds are greater than the amount that the NPM would have had to pay under the MSA for that same year, based upon that same number of cigarettes sold. One of Plaintiffs' complaints is that, under the Allocable Share Amendment, Kansas and Oklahoma get to keep more of an NPM's payment than if that manufacturer had been participating in the MSA. The reason for this is that Oklahoma, for example, gets just over 1% of the annual MSA payment made to all settling states. That percentage is fixed and will never change. Therefore, it may not accurately reflect the percentage of national cigarette sales made in Oklahoma for a given year. So even if 2% of the national cigarette sales for a given year occurred in Oklahoma, Oklahoma still receives only 1% of the annual MSA payment for that year. On the other hand, because an NPM's escrow payments are based upon the specific number of cigarettes the NPM sells in Oklahoma during that same year, that amount could increase (or decrease) from the amount represented by 1% of the MSA payment Oklahoma would have received, had the NPM instead joined the MSA. For most of Plaintiffs' theories of recovery, the fact that Kansas and Oklahoma might receive more from an NPM than if the NPM had chosen to join the MSA does not matter. What is relevant to Plaintiffs' theories is the amount that the NPM must pay. And that amount should, on a per-cigarette basis, be roughly the same as the per-cigarette cost to a manufacturer making payments
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under the MSA. D. Oklahoma Litigation Xcaliber is an Oklahoma limited liability company based in Pryor, Oklahoma. It began its business in 2001, after the MSA was executed and took effect. Xcaliber has chosen not to join the MSA and, therefore, is an NPM. KT&G is a Korean corporation that sells cigarettes in the United States and specifically in Oklahoma. It, too, has declined to join the MSA. The Oklahoma legislature enacted the Allocable Share Amendment in 2003; it took effect January 1, 2005. In December 2004, Xcaliber and KT&G filed suit in the Northern District of Oklahoma ("Oklahoma district court") against the Oklahoma attorney general, W.A. Drew Edmondson, in his official capacity ("Oklahoma"). In that action, Plaintiffs challenged only the Allocable Share Amendment, and specifically did not challenge either the MSA or the originally enacted escrow statute. 6 Plaintiffs allege that the Allocable Share Amendment See Okla. R. at 22 ("Plaintiffs bring this action to enjoin preliminarily and permanently defendant's enforcement of a recent amendment to the Oklahoma Escrow Statute"); 23 ("Without prejudice to their rights to challenge the entirety of the Oklahoma Escrow Statute, the Plaintiffs are challenging the anticompetitive Allocable Share Amendment and the precarious constitutional balance that it has upset under the MSA."); 24 ("Plaintiffs seek declaratory and injunctive relief . . . to prevent the Attorney General from enforcing the Allocable Share Amendment."); 35 ("Plaintiffs respectfully request this Court to grant . . . [a] declaratory judgment in favor of the Plaintiffs that the Allocable Share Amendment violates the Sherman Act, U.S. Constitution, and Oklahoma Constitution on its face and as applied to the Plaintiffs" and "[a]n injunction preliminarily and permanently enjoining Defendant from implementing and (continued...)
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violates the Sherman Act, 15 U.S.C. § 1, and the United States and Oklahoma constitutions. The Oklahoma district court dismissed Plaintiffs' constitutional claims under Fed. R. Civ. P. 12(b)(6), concluding those causes of action failed to state a claim on which relief could be granted. The court heard evidence on the remaining Sherman Act claims, after which the court granted Oklahoma summary judgment on those claims. The district court later denied Plaintiffs' post-judgment motions for relief from judgment. KT&G appeals the Oklahoma district court's decisions in appeal No. 05-5175, while Xcaliber appeals those decisions in appeal No. 05-5178. (...continued) enforcing the Allocable Share Amendment."); see also id. at 38 (Plaintiffs' motion seeking "a preliminary injunction enjoining Defendant from implementing and enforcing a recent amendment to the Oklahoma Escrow Statute"); id. at 346 (Plaintiffs arguing orally to district court that "[w]e have not brought an action against the master settlement agreement or the basic escrow statute"); 372 (KT&G, in opposing motion to dismiss, asserting that it "does not challenge the Escrow Statute, but, rather, its recent amendment as being in violation of the Constitution and federal law. The Complaint alleges that the amendment (not the Escrow Statute) furthers a regulatory scheme and agreement among competitors that restricts output and forces Plaintiff [KT&G] to raise prices beyond levels at which it can effectively compete against manufacturers that have joined the MSA."); 1240 (asserting, in Plaintiffs' surreply opposing motion to dismiss, that "Plaintiffs' antitrust and constitutional challenges are focused narrowly on the Amendment;" denying Oklahoma's assertion that Plaintiffs are, instead, "challenging the entire MSA"); 3144 (Plaintiffs orally arguing to district court that, while they believe that the original escrow statute was also illegal, they did not sue to challenge that statute because "the price difference was not that great. We could survive. What happened with the Escrow Amendment is, they're putting us out of business."); see also Xcaliber's (Okla.) Br. at 5; KT&G's Br. at 18.
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E.

Kansas Litigation The Kansas legislature enacted the Allocable Share Amendment in 2005.

Later that same year, Xcaliber filed suit in Kansas district court against the then Kansas attorney general, Phill Kline, in his official capacity ("Kansas"), asserting that the Amendment violated the Sherman Act and the United States and Kansas constitutions. Xcaliber's complaint was substantively identical to the complaint Plaintiffs had filed in the Oklahoma action, except that Xcaliber did not assert a claim under the Commerce Clause in its Kansas litigation. Like the Oklahoma action, in this Kansas litigation, Xcaliber challenged only the Allocable Share Amendment, and specifically did not challenge either the MSA or the originally enacted Kansas escrow statute. 7 The district court dismissed Xcaliber's free speech and equal protection claims under Fed. R. Civ. P. 12(b)(6), after concluding those causes of action failed to state a claim upon which relief could be granted. The district court later granted Kansas summary See Kan. R. at 15-17, 27 (Xcaliber making the same allegations Plaintiffs made in the Oklahoma litigation, seeking to enjoin only the Allocable Share Amendment); see also id. at 29 (Xcaliber seeking "a preliminary injunction enjoining Defendant . . . from implementing and enforcing a recent amendment to the Kansas Escrow Statute"); 794-95 (Xcaliber arguing, in opposition to motion to dismiss, that "[i]n an effort to deflect attention from the challenged Amendment of Kansas' Escrow Statute (or `Allocable Share Amendment'), the Attorney General attempts to turn this appeal [sic] into a challenge of the MSA. Xcaliber has made clear that its antitrust and constitutional claims are limited to Kansas' Amendment to the Escrow Statute. The MSA and the original Escrow Statute did not achieve the unconstitutional effects that Kansas' Amendment does.") (citations omitted); 2282, 2294 (Xcaliber asserting to the district court that it is challenging the amendment); Xcaliber's (Kan.) Br. at 16.
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judgment, see Fed. R. Civ. P. 56, on the remaining Sherman Act and due process claims. Xcaliber appeals those decisions in appeal No. 06-3061. II. ANALYSIS A. Sherman Act Section 1 of the Sherman Act "declare[s] to be illegal" "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." 15 U.S.C. § 1. Plaintiffs allege that section 1 preempts Kansas's and Oklahoma's Allocable Share Amendments. "In determining whether the Sherman Act pre-empts a state statute, we apply principles similar to those which we employ in considering whether any state statute is pre-empted by a federal statute pursuant to the Supremacy Clause." Rice v. Norman Williams Co., 458 U.S. 654, 659 (1982). Congress has "the authority, in exercising its Article I powers, to pre-empt state law." California v. ARC Am. Corp., 490 U.S. 93, 100 (1989) (addressing Sherman Act preemption). Although Congress can expressly preempt state law, see id., we do not have that situation here. In the absence of an express statement by Congress that state law is pre-empted, there are two other bases for finding pre-emption. First, when Congress intends that federal law occupy a given field, state law in that field is pre-empted. Second, even if Congress has not occupied the field, state law is nevertheless pre-empted to the extent it actually conflicts with federal law, that is, when compliance with both state and federal law is impossible, or when the state law stands as an obstacle to
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the accomplishment and execution of the full purposes and objectives of Congress. Id. at 100-01 (citations, quotations omitted). Here, Plaintiffs contend that the Sherman Act preempts the Allocable Share Amendment because that Amendment conflicts with the Sherman Act. 8 As previously explained, supra, nn. 6 and 7, Plaintiffs have consistently challenged only the Allocable Share Amendment and have expressly disclaimed any challenge to the MSA or the original escrow statute enacted by Kansas and Oklahoma. This is understandable because it is the MSA, in combination with the original escrow statute, that provided the environment in which Plaintiffs were able to develop their business niche. Plaintiffs' claim specifically is that the MSA and its original escrow statute were intended to be anti-competitive, contrary to the Sherman Act, but they did not succeed. Because Plaintiffs were able to flourish under that scheme, they have no real complaints about it. Their complaint is instead with the Allocable Share Amendment, which Plaintiffs assert did succeed in making the entire MSA scheme anti-competitive. As relief, Plaintiffs seek, not to overturn the MSA and all of its accompanying legislation, but simply to eliminate the Allocable Share Amendment and return to the MSA and its original escrow statute. The fact that Plaintiffs are expressly not challenging the MSA and the original escrow statutes distinguishes these appeals from several of the cases on which Plaintiffs rely, cases which instead addressed Sherman Act claims specifically challenging the MSA and its original implementing statutes. See Freedom Holdings, Inc. v. Spitzer, 357 F.3d 205, 208-09, 222 (2d Cir. 2004) (addressing Sherman Act challenge to New York's contraband statutes implementing the MSA); A.D. Bedell Wholesale Co. v. Philip Morris Inc., 263 F.3d 239, 241, 244-45, 247 (3d Cir. 2001) (addressing Sherman Act challenges to the MSA and its original qualifying statute); see also Freedom Holdings, Inc. v. Spitzer, 363 F.3d 149, 152 (2d Cir. 2004) (opinion denying reh'g). Moreover, these cases on which Plaintiffs rely are appeals from the denial of motions to dismiss Sherman Act claims under Fed. R. Civ. P. 12(b)(6). See Freedom Holdings, 363 F.3d at 151; Freedom Holdings, 357 F.3d at 208; Bedell, 263 F.3d at 241. In addressing such a motion, the court must accept the plaintiff's well-pled allegations as true. Here, on the other hand, Plaintiffs are (continued...)
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8

Both district courts granted Kansas and Oklahoma summary judgment on Plaintiffs' Sherman Act claims. This court reviews summary judgment decisions de novo, viewing the record in the light most favorable to the parties opposing the motion, KT&G and Xcaliber. See Shero v. City of Grove, 510 F.3d 1196, 1200 (10th Cir. 2007). Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In determining whether the Sherman Act preempts the Allocable Share Amendment, the relevant inquiry is whether there exists an irreconcilable conflict between the federal and state regulatory schemes. The existence of a hypothetical or potential conflict is insufficient to warrant the pre-emption of the state statute. A state regulatory scheme is not pre-empted by the federal antitrust laws simply because in a hypothetical situation a private party's compliance with the statute might cause him to violate the antitrust laws. A state statute is not preempted by the federal antitrust laws simply because the state scheme might have an anticompetitive effect. A party may successfully enjoin the enforcement of a state statute only if the statute on its face irreconcilably conflicts with federal antitrust policy. Rice, 458 U.S. at 659 (citations omitted). "[A] state statute should be struck down on pre-emption grounds `only if it mandates or authorizes conduct that

(...continued) appealing the district court's decision to grant the States summary judgment on Plaintiffs' Sherman Act claims.
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8

necessarily constitutes a violation of the antitrust laws in all cases, or if it places irresistible pressure on a private party to violate the antitrust laws in order to comply with the statute.'" Fisher v. City of Berkeley, 475 U.S. 260, 265 (1986) (quoting Rice, 458 U.S. at 661). In arguing that the Sherman Act preempts the Allocable Share Amendment, Plaintiffs rely on two theories: 1) the Allocable Share Amendment is a per se violation of the Sherman Act; and 2) the Amendment creates a "hybrid restraint" on competition that violates the Sherman Act. See id. at 261, 265-68 (considering both of these theories in support of a claim alleging that the Sherman Act preempted a municipal ordinance). 1. Per se violation

As a starting point, we reiterate that "a state statute should be struck down on pre-emption grounds `only if it mandates or authorizes conduct that necessarily constitutes a violation of the antitrust laws in all cases, or if it places irresistible pressure on a private party to violate the antitrust laws in order to comply with the statute.'" Id. at 265 (quoting Rice, 458 U.S. at 661). We, therefore, inquire whether "the conduct contemplated by the [Amendment] is in all cases a per se violation" of the Sherman Act. Rice, 458 U.S. at 661. Plaintiffs contend that the Allocable Share Amendment is a per se violation of the Sherman Act because it implements the MSA, which is itself an agreement among competing cigarette manufacturers to limit their cigarette output and which
23

penalizes participating manufacturers who do not do so. 9 We cannot agree. The Allocable Share Amendment itself simply requires that NPMs make annual escrow payments, based upon the number of cigarettes an NPM sells in that particular state. This annual escrow payment is calculated by multiplying the number of cigarettes the NPM sells in that state in a given year by a per-cigarette amount established by the state's legislature. The Allocable Share Amendment caps an NPM's annual escrow payment by referencing the amount the NPM would have had to pay under the MSA for that year, based upon its sale of the same number of cigarettes. On its face, then, the Amendment does not mandate or authorize conduct that violates the Sherman Act in every case. Nor does it "`place[] irresistible pressure on a private party to violate the antitrust laws in order to comply with the statute.'" Fisher, 475 U.S. at 265 (quoting Rice, 458 U.S. at 661). Plaintiffs conceded as much in the district court. The Sixth Circuit reached this same conclusion in Tritent International Corp. v. Kentucky, 467 F.3d 547, 555-58 (6th Cir. 2006). So, too, have a number Plaintiffs also complain that the MSA does not require exempt SPMs to make any annual payments so long as they do not increase their market share. That, however, is not a result of the Allocable Share Amendment, but instead is a feature of the MSA itself, which Plaintiffs expressly do not challenge. Plaintiffs' complaint is, instead, that under the MSA and the originally enacted escrow statute, the NPMs had been able to compete with the exempt SPMs, even though the MSA did not require them to make an annual payment (unless the exempt SPM increased its market share). But Plaintiffs can no longer compete with exempt SPMs after the states enacted the Allocable Share Amendment.
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9

of district courts. See Int'l Tobacco Partners, Ltd. v. Kline, 475 F. Supp. 2d 1078, 1080, 1086-87 (D. Kan. 2007); Int'l Tobacco Partners, Ltd. v. Beebe, 420 F. Supp. 2d 989, 994-97 (W.D. Ark. 2006); Grand River Enters. Six Nations, Ltd. v. Beebe, 418 F. Supp. 2d 1082, 1089-91 (W.D. Ark. 2006); Dos Santos v. Beebe, 418 F. Supp. 2d 1064, 1071-73 (W.D. Ark. 2006); S&M Brands, Inc. v. Summers, 393 F. Supp. 2d 604, 629 (M.D. Tenn. 2005) (holding that neither Tennessee's Allocable Share Amendment nor the MSA itself represented a per se violation of the Sherman Act), aff'd, 228 Fed. App'x 560 (6th Cir. 2007) (unpublished); cf. Grand River Enters. Six Nations, Ltd. v. Pryor, No. 02-Civ. 5068, 2006 WL 1517603, at *8-*9 (S.D.N.Y. May 31, 2006) (denying preliminary injunction enjoining application of allocable share amendment in part because there was no likelihood of success, in light of the plaintiff's inability to establish a per se violation of the Sherman Act), aff'd, 481 F.3d 60 (2d Cir. 2007). But see Freedom Holdings, Inc. v. Spitzer, 447 F. Supp. 2d 230, 248, 259-60, 265 (S.D.N.Y. 2004) (granting preliminary injunction enjoining enforcement of New York's Allocable Share Amendment, after concluding that the plaintiff had shown a reasonable likelihood of success on its claim that the Amendment was a per se violation of the Sherman Act), aff'd, 408 F.3d 112 (2d Cir. 2005); Xcaliber Int'l Ltd., LLC v. Foti, No. 04-0069, 2006 WL 2990126, at *1-*2 (E.D. La. Oct. 18, 2006) (refusing to dismiss, under Fed. R. Civ. P. 12(b)(6), claim that Louisiana's Allocable Share Amendment amounted to a per se violation of the Sherman Act;
25

accepting as true plaintiffs' allegations that the "restraints created, implemented and enforced pursuant to" the amendment are per se violations of the Sherman Act because the amendment "creates and implements a cost-sharing agreement and output cartel in the domestic market for cigarettes, which has the purpose of raising prices to monopolistic levels, thereby protecting the market shares of the original participating manufacturers and driving smaller competitors from the market" (alterations, quotations omitted)). Plaintiffs argue that the Sherman Act, nevertheless, preempts the Allocable Share Amendment if the Amendment has an anticompetitive "effect." But that is incorrect. The Supreme Court held in Rice that "[a] state statute is not preempted by the federal antitrust laws simply because the state scheme might have an anticompetitive effect." 458 U.S. at 659 (emphasis added); see also Fisher, 475 U.S. at 264 (noting that this is so because "the function of government may often be to tamper with free markets, correcting their failures and aiding their victims"); Exxon Corp. v. Governor of Md., 437 U.S. 117, 133 (1978) (noting that, "if an adverse effect on competition were, in and of itself, enough to render a state statute invalid, the States' power to engage in economic regulation would be effectively destroyed"). Instead, "[a] party may successfully enjoin the enforcement of a state statute only if the statute on its face irreconcilably conflicts with federal antitrust policy." Rice, 458 U.S. at 659 (emphasis added). Moreover, the circumstances here are very different from the cases where
26

the Supreme Court has held that the Sherman Act preempts a state law. In California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), for example, the Supreme Court held that a California statute that expressly required members of the wine industry to file fair trade contracts or price schedules that would establish the price for wine sales amounted to a per se violation of the Sherman Act. See id. at 99-100, 102-03. Similarly, in 324 Liquor Corp. v. Duffy, 479 U.S. 335 (1987), a New York statute expressly required liquor wholesalers each month to "post" monthly price schedules. See id. at 337-38. The law further required retailers to charge their customers 112% of these "posted" prices. See id. at 337-40. The statute "applie[d] to all wholesalers and retailers of liquor," and made retailers "subject to penalties for failure to adhere to the resale price schedules." Id. at 342. The Supreme Court concluded that this statutory scheme "directly restricts retail prices," requiring "resale price maintenance," which is vertical price fixing that is per se illegal under the Sherman Act. See id. at 341-42. Therefore, the Court held that this statute was "inconsistent" with, and thus preempted by, the Sherman Act. See id. at 343, 345 n.8. Here, however, the Allocable Share Amendment only requires NPMs to make an annual escrow payment, based upon the number of cigarettes that the NPM sells in the state in a given year multiplied by a per-cigarette amount established by the state legislature. The fact that the amount of that escrow
27

payment is capped by referencing the amount that the NPM would have paid under the MSA on that same volume of sales does not change the fact that the statute, on it face, does not mandate or authorize conduct that is a per se violation of the Sherman Act in all cases. 2. Hybrid restraint

Plaintiffs next allege that the Allocable Share Amendment creates a hybrid restraint of trade that conflicts with the Sherman Act. Again our starting point is the premise that "a state statute should be struck down on pre-emption grounds `only if it mandates or authorizes conduct that necessarily constitutes a violation of the antitrust laws in all cases, or if it places irresistible pressure on a private party to violate the antitrust laws in order to comply with the statute.'" Fisher, 475 U.S. at 265 (quoting Rice, 458 U.S. at 661). "A hybrid restraint is [another] form of state law that is per se illegal under the Sherman Act." Sanders v. Brown, 504 F.3d 903, 918 (9th Cir. 2007) (citing Fisher, 475 U.S. at 267-70). "Certain restraints may be characterized as `hybrid,' in that nonmarket mechanisms merely enforce private marketing decisions. Where private actors are thus granted a degree of private regulatory power, the regulatory scheme may be attacked under § 1" of the Sherman Act. Fisher, 475 U.S. at 267-68 (citations, quotations omitted). A hybrid restraint, thus, "exists when the state passes laws that enforce companies' decisions to collude on prices, to dictate prices by which other companies must abide, or to otherwise violate the
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Sherman Act." Sanders, 504 F.3d at 918. In support of their hybrid-restraint theory, Plaintiffs again assert that the Allocable Share Amendment implements the MSA, which is an agreement among private cigarette manufacturers to limit their cigarette production output and which penalizes participating manufacturers who do not do so. This, according to Plaintiffs, permits manufacturers participating in the MSA to increase prices without fear of competition. 10 The Allocable Share Amendment, however, does not authorize or permit private parties to make anticompetitive decisions that will then be enforced by the state. Rather, it is the state legislatures that set the per-cigarette amount, which is multiplied by the number of cigarettes that that NPM sells in the state in a given year to calculate an NPM's annual escrow payment. It is true that an NPM's annual escrow payment is capped by the amount the NPM would have to pay under the MSA. And calculating the amount an NPM would have to pay each year under the MSA will vary depending upon a number of factors, including the cigarette sales and market shares of those manufacturers participating in the MSA. That connection, however, to the conduct of private entities is too

It is once again worth noting that Plaintiffs are not challenging the MSA for the obvious reason that they benefit from the MSA by itself. It is only the Allocable Share Amendment that Plaintiffs allege restrains competition at the level where they operate, and accordingly the alleged restraint they specifically challenge is the Amendment, set of course in the context of the MSA. See supra, nn. 6,7.
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10

attenuated for this court to conclude that Kansas and Oklahoma have delegated regulatory power to these private individuals. Our conclusion is bolstered by considering the cases in which the Supreme Court has previously found a hybrid restraint to exist. In Schwegmann Brothers v. Calvert Distillers Corp., 341 U.S. 384 (1951), the Court considered a Louisiana statute that "authorized a distributor to enforce agreements fixing minimum retail prices not only against parties to such contracts, but also against retailers who sold the distributor's products without having agreed to the price restrictions." Fisher, 475 U.S. at 268 (describing Schwegmann). In Schwegmann, the Court held that two liquor distributors had violated [the Sherman Act's] § 1 when they attempted to hold a retailer to the price-fixing terms of a contract it had refused to sign. In so holding, the Court noted that "when a state compels retailers to follow a parallel price policy, it demands private conduct which the Sherman Act forbids." 341 U.S., at 389 . . . . However, under the Louisiana statute, both the selection of minimum price levels and the exclusive power to enforce those levels were left to the discretion of distributors. While the petitioner-retailer in that case may have been required to adhere to the levels so selected, the involvement of his suppliers in setting those prices made it impossible to characterize the regulation as unilateral action by the State of Louisiana. Fisher, 475 U.S. at 268. Likewise, in Midcal, the state regulatory scheme "entailed a similar degree of free participation by private economic actors." Fisher, 475 U.S. at 268. Midcal addressed a Sherman Act challenge to a California law, discussed above, that required wine producers, or wholesalers in their stead, to set retail prices for the

30

producer's product. See Midcal, 445 U.S. at 99. The state had no control over the prices set by the wine producers and did not review the prices for reasonableness, but the state did enforce the prices set by the wine producers. See id. at 99-100. The Supreme Court noted that the New York liquor distribution statute in 324 Liquor was also a hybrid restraint. See 379 U.S. at 345 n.8. As in Midcal, the New York statute at issue there required private parties, liquor wholesalers, to set the prices retailers would pay for the liquor they purchased and then the state enforced those prices. See id. at 337-40. The state statutes at issue in these three cases, which the Supreme Court held created hybrid restraints on competition, expressly delegated regulatory authority to private actors. See Sanders, 504 F.3d at 918-19. That is simply not the case here. The Allocable Share Amendment is, instead, more analogous to the municipal ordinance the Supreme Court addressed in Fisher. There, the electorate of the City of Berkeley, California, enacted a rent control ordinance. See 475 U.S. at 261-62. That Ordinance establishe[d] a base rent ceiling reflecting the rents in effect at the end of May 1980. A landlord may raise his rents from these levels only pursuant to an annual general adjustment of rent ceilings by a Rent Stabilization Board of appointed commissioners or after he is successful in petitioning the Board for an individual adjustment. A landlord . . . who fails to adhere to the maximum allowable rent set under the Ordinance may be fined by the Board, sued by his tenants, or have rent legally withheld from him. If his violations are willful, he may face criminal penalties. Id. at 262-63.
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The Supreme Court held that this ordinance did not amount to a hybrid restraint: The hybrid restraints condemned in Schweggman and Midcal were . . . quite different from the pure regulatory scheme imposed by Berkeley's Ordinance. While the Ordinance does give tenants­certainly a group of interested private parties­some power to trigger the enforcement of its provisions, it places complete control over maximum rent levels exclusively in the hands of the Rent Stabilization Board. Not just the controls themselves but also the rent ceilings they mandate have been unilaterally imposed on the landlords by the city. Id. at 269. Similarly, in this case, the state legislatures require NPMs to make annual escrow payments, calculated by multiplying the number of cigarettes the NPM sells in that state by a legislatively-created per-cigarette amount. The fact that the

payments are capped by reference to the MSA does not amount to delegating regulatory authority to private parties. See Int'l Tobacco Partners, Ltd., 420 F. Supp. 2d at 994-97; Grand River Enters. Six Nations, Ltd., 418 F. Supp. 2d at 1089-91; Dos Santos, 418 F. Supp. 2d at 1072-73 (W.D. Ark. 2006); S&M Brands, 393 F. Supp. 2d at 630 (holding neither Tennessee's Allocable Share Amendment or the MSA was a hybrid restraint); cf. Grand River Enters. Six Nations, 2006 WL 1517603, at *9 (denying request for preliminary injunction, after concluding plaintiff had not established likelihood of success on Sherman Act claim challenging New York's Allocable Share Amendment because plaintiff had failed to establish a per se violation; rejecting argument that Allocable Share Amendment was a hybrid

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restraint). Moreover, Plaintiffs have failed to assert evidence, sufficient to survive summary judgment, in support of their allegations that the Allocable Share Amendment's referencing the MSA to cap an NPM's annual escrow payments enables private actors to manipulate the amount of escrow payments an NPM must make. Nor did Plaintiffs present any evidence that the manufacturers participating in the MSA have otherwise been wielding regulatory power granted them by the Allocable Share Amendment. In particular, Plaintiffs' allegations that the

participating manufacturers were actively involved in drafting this legislation and in getting it enacted are not sufficient to establish that the Allocable Share Amendment then grants these manufacturers private regulatory power. Furthermore, Plaintiffs' evidence supporting their assertion that the Allocable Share Amendment is anti-competitive because it implements the MSA, which is itself anti-competitive, is insufficient to survive summary judgment. Other than their own allegations, Plaintiffs have produced no evidence that the MSA itself penalizes manufacturers for increasing their market share to such a degree that those manufacturers will refrain from unilaterally making their own pricing and production decisions. Instead, the evidence indicates that the OPMs, SPMs, and NPMs all pay roughly the same amount for each cigarette sold. The exempt SPMs, too, will pay roughly this same amount when their sales exceed their protected market share. In light of the fact that these manufacturers all face roughly the same per-cigarette cost
33

under either the MSA or the allocable share amendment, there is no indication that they will avoid increasing their own market share, nor is there any suggestion that they will not unilaterally make their own pricing and output decisions. Both

Plaintiffs' and the States' experts appear to agree on this point. Plaintiffs, therefore, have failed to assert evidence to the contrary sufficient for their claim to survive summary judgment. Finally, Xcaliber argues that the Oklahoma district court erred in refusing to consider the additional evidence it asserted in its motion for reconsideration. Xcaliber moved for reconsideration under both Fed. R. Civ. P. 59(e) and 60(b). The district court did not abuse its discretion in denying that motion. See Manning v. Astrue, 510 F.3d 1246, 1249 (10th Cir. 2007) (reviewing denial of Rule 60(b) motion for an abuse of discretion), petition for cert. filed, 76 U.S.L.W. 3637 (U.S. May 22, 2008) (No. 07-1468); Ogden v. San Juan County, 32 F.3d 452, 455 (10th Cir. 1994) (reviewing denial of Rule 59(e) motions for an abuse of discretion). 3. Conclusion

For these reasons, we affirm the district courts' determinations that the Sherman Act did not preempt the Kansas and Oklahoma Allocable Share Amendments. There is, therefore, no need for this court to consider whether state-action immunity, recognized in Parker v. Brown, 317 U.S. 341 (1943), will save these state statutes from preemption. See Rice, 458 U.S. at 662 n.9 (because Court concluded Sherman Act did not preempt the state statute, "it is not
34

necessary for us to consider whether the statute may be saved from invalidation under the [Parker] doctrine"); Tritent, 467 F.3d at 558 (holding that, because the Sherman Act did not preempt statutes implementing the MSA, the court did not need to consider whether Parker's state-action immunity would save those state statutes from preemption); see also Fisher, 475 U.S. at 265 (noting that "[l]egislation that would otherwise be pre-empted . . . may nonetheless survive if it is found to be state action immune from antitrust scrutiny under Parker"); 324 Liquor Corp., 479 U.S. at 342-43, 345 n.8 (determining that state statute was "inconsistent" with Sherman Act, and thus would be preempted, before applying Parker's "state action exemption"). B. Constitutional claims 1.
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First Amendment claims

Plaintiffs allege that the Allocable Share Amendment violates the First Amendment and "similar" provisions of the Kansas and Oklahoma constitutions. Both the Kansas and Oklahoma district courts dismissed Plaintiffs' First Amendment claims pursuant to Fed. R. Civ. P. 12(b)(6), for failure to state a claim upon which relief could be granted. Plaintiffs argue that the Allocable Share Amendment violates not only the United States Constitution, but also the Oklahoma and Kansas constitutions. Nevertheless, Plaintiffs never identified any relevant provision of either state constitution. Nor do they make any argument in this regard under state constitutional law. We, therefore, assume that Plaintiffs are asserting that the relevant state constitutional provisions are coterminous with the federal constitution.
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11

This court will review those decisions de novo. See Teigen v. Renfrow, 511 F.3d 1072, 1078 (10th Cir. 2007). In doing so, we accept as true all well-pleaded facts and view them in the light most favorable to the non-moving parties, Xcaliber and KT&G. Id. We review the complaint for "plausibility," id.; that is, to determine whether the complaint includes "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1970, 1974 (2007); see also Teigen, 511 F.3d at 1078. In support of their First Amendment claim, Plaintiffs specifically allege that the Allocable Share Amendment "coerces Plaintiffs and other [NPMs] into relinquishing their constitutionally protected First Amendment rights of speech, association and petition, penalizes them for asserting and refusing to waive such rights, conditions receipt of a government entitlement and benefit on the waiver of such rights, and imposes unlawful prior restraint on speech." We address those allegations in turn. First, Plaintiffs allege that the Allocable Share Amendment coerces them into relinquishing their First Amendment rights to freedom of speech, association and petition. We interpret Plaintiffs' claims to allege that the Allocable Share Amendment makes doing business as an NPM so financially unattractive that it compels NPMs to waive their First Amendment rights and join the MSA. But we reject that argument. Plaintiffs do not allege that they are worse off doing business as NPMs,
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subject to the states' escrow statutes, as amended by the Allocable Share Amendment, than they would be if they joined the MSA. Rather, they instead argue that the Allocable Share Amendment requires them to pay more to Kansas and Oklahoma than they would have to pay these individual states if Plaintiffs were members of the MSA. 12 Plaintiffs' theory is this: If they belonged to the MSA, each of them would be required to make annual payments to the MSA's escrow agent. Those payments, along with the annual payments made by the other participating manufacturers, would then be divided between the settling states according to each state's allocable share. Thus, Kansas would receive its allocable share, 0.8336712%, of Plaintiffs' annual payments, while Oklahoma would receive 1.0361370% of Plaintiffs' annual payments (as well as the payments of all other participating manufacturers). The rest of Plaintiffs' annual payments would be divided among the other settling states. As an NPM under the Allocable Share Amendment, however, Plaintiffs must make escrow payments to Kansas and Oklahoma, based upon the number of

For purposes of our discussion here, we treat NPMs' payments into the states' escrow funds, which may be released to the NPMs in twenty-five years and on which the NPMs earn interest, the same as payments participating manufacturers make under the MSA. See generally Simon & Schuster, Inc. v. Members of the New York State Crime Victims Bd., 502 U.S. 105, 116-17 (1991) (noting that, while challenged law at issue in that case "escrows all of the speaker's speech-derived income for at least five years, rather than taxing a percentage of it outright, this difference can hardly serve as the basis for disparate treatment under the First Amendment. Both forms of financial burden operate as disincentives to speak.").
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12

cigarettes Plaintiffs sell in those states. Kansas and Oklahoma would keep those funds in escrow, to the extent those funds did not exceed the payments Plaintiffs would have been required to make on those sales under the MSA, had Plaintiffs joined that agreement. If Plaintiffs concentrated their cigarette sales in just a few states, rather than selling nationally, Kansas and Oklahoma would receive more of Plaintiffs' payments than those states would have received from Plaintiffs under the MSA. The Kansas and Oklahoma district courts properly recognized that Plaintiffs' theory focuses on the wrong inquiry. 13 See also Int'l Tobacco Partners, Inc., 420 F. Supp. 2d at 997-98 (reaching this same conclusion); Grand River Enters. Six Nations, Ltd., 418 F. Supp. 2d at 1092-93 (same); Dos Santos, 418 F. Supp. 2d at 1074-75 (same). In determining whether the Allocable Share Amendment burdens Plaintiffs' First Amendment rights, the relevant inquiry is not whether Kansas and Oklahoma will retain more of Plaintiffs' escrow payments than before the Amendment, but rather whether Plaintiffs, as NPMs, must pay more in annual payments than those manufacturers that have chosen to participate in the MSA. See Int'l Tobacco Partners, 420 F. Supp. 2d at 997-98; Grand River Enters. Six Nations, Ltd., 418 F. Supp. 2d at 1092-93; Dos Santos,

Xcaliber asserts that the district courts erred in failing to accept these allegations as true for Fed. R. Civ. P. 12(b)(6) purposes. But the district courts did not reject Plaintiffs' allegations; rather, the courts held those allegations focused on the wrong inquiry and therefore were not relevant.
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13

418 F. Supp. 2d at 1074-75. In this way, it might arguably be more beneficial financially for Plaintiffs to relinquish their First Amendment rights and join the MSA. But Plaintiffs do not allege any such compulsion to join the MSA. Instead Plaintiffs must make escrow payments of approximately two cents for each cigarette Plaintiffs sell in Kansas or Oklahoma, which is approximately the same per-cigarette payment Plaintiffs would have to make if they joined the MSA. Therefore, Plaintiffs are no worse off financially as NPMs than if they had joined the MSA. See S&M Brands, Inc., 393 F. Supp. 2d at 637-38. And as NPMs, they retain their First Amendment protections pertaining to advertising, lobbying, and seeking governmental redress. See id. at 638. Plaintiffs further argue that, as NPMs, they do have to pay more than grandfathered SPMs, which, because they joined the MSA within ninety days of its execution, are exempt from making any annual payments unless the exempt SPMs exceed their 1997 or 1998 market shares by a specific amount. That, however, is a feature of the MSA, which Plaintiffs expressly do not challenge in this action. The Allocable Share Amendment itself does not change that calculus. See Grand River Enters. Six Nations, Ltd. v. Pryor, No. 02 Civ. 5068I JFK, 2003 WL 22232974, at *17 (S.D.N.Y. Sept. 29, 2003) (unpublished) (in action challenging only escrow statute and specifically not challenging the MSA, rejecting First Amendment argument that NPM