LEGATO VAPORS LLC et al, v. COOK, et al.

Filing 107

ORDER ON PENDING MOTIONS - The reasons stated herein, we hold that the Act does not violate the Dormant Commerce Clause, Equal Protection Clause, or Indiana Constitution. We DENY Petitioners' Motion for Summary Judgment Dkt. No. 56 . W e GRANT Respondents' Cross-Motion for Summary Judgment. Dkt. No. 70 Because Petitioners' Motion for Preliminary Injunction raises the same issues as their Motion for Summary Judgment and was conditioned on a finding that the Act is unconstitutional (which we did not find), we DENY Petitioners' Motion for Preliminary Injunction Dkt. No. 55 as MOOT. Denying as moot 93 Motion to Intervene; denying as moot 97 to Join in Motion to Intervene. Final judgment shall enter accordingly. Signed by Judge Sarah Evans Barker on 6/30/2016. (CKM)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
LEGATO VAPORS LLC a Kentucky limited
liability company, et al.
Petitioners,
vs.
DAVID COOK in his official capacity as
Chairman of the Indiana Alcohol and Tobacco
Commission, et al.
Respondents.

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1:15-cv-00761-SEB-TAB

ORDER ON PENDING MOTIONS
This litigation challenges the constitutionality of Indiana Code § 7.1-7-1 et seq.,
which places certain requirements on the manufacture of e-liquids used in e-devices sold
in Indiana. Petitioners Legato Vapors, LLC, Jet Setter Juice LLC, Rocky Mountain Ecigs
LLC, and Derb E Cigs Indiana LLC and the Intervenor-Petitioner, the Right to Be SmokeFree Coalition, Inc. (collectively referred to as “Petitioners”) filed a Motion for Preliminary
Injunction [Dkt. No. 55] and Motion for Summary Judgment [Dkt. No. 56] to enjoin
enforcement of IC 7.1-7-1 et seq. and declare it unconstitutional. 1 Respondents, the

1

We mention here at the outset that Petitioners have left us somewhat confused as to the relief
they are seeking from the court. Petitioners framed this litigation initially in very broad terms,
seeking to have us declare 23 separate sections of the Act unconstitutional. [Am. Compl. at 1920.] However, Petitioners’ Motion for Summary is limited to “Section 9 of HEA 1432, as modified
in part by Sections 8, 9 and 10 of SEA 463” and “Sections 1 through 6 of SEA 463” to be declared
unconstitutional. [Dkt. No. 56.] Petitioners’ Brief in Support of their Motion for Summary
Judgment uses the word “Partial” in terms of the relief sought, although Petitioners do not specify
which of their claims are subject to the motion, nor do they specify which, if any, claims remain.
[Dkt. No. 63.] In their Response to Respondents’ Motion for Summary Judgment/Reply in Support
of Petitioners’ Motion for Summary Judgment, Petitioners state that they “are not challenging the

commissioners of the Indiana Alcohol and Tobacco Commission (the “ATC”), the
Superintendent of the Indiana Excise Police, and the State of Indiana, along with Amici
Curiae Indiana Vapor Co., LLC and Buy Rite, Inc. (collectively “Respondents”) defend
the Act, arguing in favor of its constitutionality and seeking summary judgment in their
favor [Dkt. No. 70; Dkt. No. 90]. 2 For the reasons explained below, we DENY Petitioners’
Motion Summary Judgment and GRANT Respondents’ Cross-Motion for Summary
Judgment and DENY Petitioners’ Motion for Preliminary Injunction as MOOT. 3

vast majority of provisions in the Indiana statute that seek to protect consumers,” including
prohibiting teens from purchasing e-liquids, the restrictions on e-liquid ingredients, the child-proof
cap and tamper evident packaging requirements, labeling requirements, and sample testing
requirements. [Dkt. No. 86 at 1.] These requirements are included in Section 9 of HEA 1432, as
modified in part by Sections 8, 9 and 10 of SEA 463. In their conclusion, Petitioners request that
we “declare the challenged provisions of the Indiana statute unconstitutional and permanently
enjoin their enforcement,” without providing any further description beyond “the security, clean
room, and audit requirements.” [Id. at 34, 2 (emphasis added).] Respondents Cross-Moved for
Summary Judgment, seeking a final judgment. [Dkt. No. 70 at 1, 41 (“The Petitioners have moved
for summary judgment on each of their claims, but in the course of responding to Petitioners’
motion the Respondent[s] have conclusively established that the Act passes constitutional muster
in all respects.”).] Despite the confusion, our order resolves all of Petitioners’ claims with regard
to the constitutionality of Indiana Code 7.1-7-1 et seq., as amended and Indiana Code 7.1-3-18.51, as amended.
2

Several additional e-liquid manufacturers have requested to intervene in this action: Cloudtown,
LLC, DB Vapes, LLC, DNM Ventures, LLC, and Vapor Bank E-Liquid [Dkt. No. 93] as well as
Licensed E-Liquid Manufacturing LLC and VapeIng LLC [Dkt. No. 97]. They seek to intervene
“for the limited purpose of seeking a bond to secure themselves against the damage they would
suffer if Petitioners’ preliminary injunction request were granted.” The putative intervenors argue
that they have invested significant resources to obtain permits from the ATC based on their
compliance with the requirements of the Act. [Dkt. No. 93 at 2.] Because we are denying
Petitioners’ preliminary injunction motion, the motions to intervene are DENIED as moot.
3

The parties agreed to consolidate their cross motions for summary judgment with Petitioners’
Motion for Preliminary Injunction. [Pet. Br. in Supp. at 2, n.1 (citing Dkt. No. 47 at § IX); Rep.
Cross-Mtn./Resp. Br. at 1, n.1 (same).] In their motion for preliminary injunction, Petitioners seek
to stay the June 30, 2016 application deadline “in the event that this Court rules in favor of the
Movants on the underlying summary judgment motion, but does not do so until after June 30,
2016.” [Pet. Mtn. for Prelim. Inj. at 2-3.] Again, because we are denying Petitioners’ Motion for

2

Background and Undisputed Material Facts
The parties have stipulated to certain uncontested facts [Dkt. No. 53], which we
have incorporated in the following material facts as well as other facts that are likewise
undisputed.
The statute at issue regulates the manufacture and sale of e-vapor devices. E-vapor
devices, designed to evaporate (or aerosolize) an e-liquid, first arrived in the United States
in approximately 2007. E-liquids typically are made from a mixture of propylene glycol
and/or vegetable glycerin, flavorings, nicotine and water, and are sold with a range of
nicotine concentrations, including nicotine-free. Although e-liquids may contain nicotine,
as extracted from certain plants, e-liquids do not contain tobacco and do not generate smoke
because there is no combustion. E-vapor devices are considered “tobacco harm reduction
products,” sometimes used to help stop tobacco use. The British government recently
concluded that e-vapor products are 95% less harmful to humans than tobacco cigarettes;
however, given the relative newness of e-liquids, long-term effects of their use has not yet
been determined.
There are three major components of all e-vapor devices: a battery (usually a lithium
battery), an atomizer, and a fluid-filled cartridge or tank. The atomizer has a heating
element that uses the battery’s power to evaporate the e-liquid solution in the cartridge or

Summary Judgment prior to June 30, 2016, the Movants’ Motion for Preliminary Injunction is
DENIED as MOOT.

3

tank. Once the e-liquid is heated and vaporized, the user inhales the vapor through a
mouthpiece creating a flavor and sensation similar to smoking a traditional cigarette.
There are two main categories of e-vapor devices. The first category is designed to
look like a traditional or “slim” cigarette – often called a “cigalike.” These devices have
smaller lithium batteries that are disposable (used only once) or rechargeable. Due to the
lower battery power, their vapor production is relatively low. Cigalikes are sometimes
called first generation e-vapor devices, are referred to as “closed systems”, and are sold
mostly in convenience stores, gas stations, grocery stores, and pharmacies. The following
diagram illustrates these design features:

The second device category includes “eGos” and Vapor-Tanks-Mods (“VTMs”),
which differ as to their size and shape, being somewhat larger than cigalikes. These devices
contain higher capacity and rechargeable lithium batteries that can produce relatively more
vapor. VTMs also provide the user with variable voltage and/or temperature control
settings that can regulate the quality of the vaping experience. eGos and VTMs are often
referred to as second and third generation devices and are called “open systems” or
sometimes “vapor pens”. These “open systems” have tanks that are designed to be refilled
with any type or flavor of e-liquid that is sold in separate bottles, as shown below:

4

As an alternative to tobacco cigarettes, e-vapor devices have enjoyed rapid growth,
resulting in over 8,500 brick-and-mortar vape shops springing up around the country; at
least 94 are located within the state of Indiana. According to the managing member of two
of the Petitioners, open system devices and e-liquids comprise 60% of the marketplace,
whereas closed system devices comprise the remaining 40%. [Decl. of Troy LeBlanc ¶ 5.]
Vape shops typically sell open system devices; the industry generates $4.6 billion annually
with estimates of projected earnings by 2020 reaching $11.6 billion. Indiana’s market
share of revenue from open system devices and e-liquids is currently approximately $77.2
million per annum. Approximately 164 out-of-state manufacturers account for 90% of
name-brand e-liquids sold in Indiana.
The statute at issue originated with House Bill 1432, which was amended by Senate
Bill 463 and codified as IC 7.1-7-1 et seq. Following the commencement of this litigation,
IC 7.1-7-1 et seq. was amended apparently to address some of Petitioners’ challenges.
Indiana Code 7.1-7-1, et seq., as amended, is referred to herein as the “Act.” A video was
presented to the General Assembly depicting a pharmacist testing open system e-liquids.
One sample showed nicotine levels that substantially varied from the data on the label of
the bottle and another sample proved to be untestable. These results are problematic
because nicotine overdoses can be toxic. This information, along with the lack of any
5

federal regulation of e-liquids, prompted the Indiana General Assembly to enact the statute
at issue here based on three primary purposes, to wit, “to protect public health and safety
by: (1) ensuring the safety and security of e-liquid manufactured for sale in Indiana; (2)
ensuring that e-liquid manufactured or sold in Indiana conforms to appropriate standards
of identity, strength, quality, and purity; and (3) ensuring that e-liquid is not contaminated
or adulterated by the inclusion of ingredients or other substances that might pose
unreasonable threats to public health and safety.” To that end, IC 7.1-7-4 requires
“manufacturers”, defined as “a person or cooperative, located inside or outside Indiana,
that is engaged in manufacturing e-liquid” (IC 7.1-7-2-15) to obtain a permit from the ATC
before June 30, 2016, “before mixing, bottling, packaging, or selling e-liquid to retailers or
distributors in Indiana.” IC 7.1-7-4-1(a). 4
An application to obtain a permit requires, among other things, evidence of: a “clean
room space where all mixing and bottling activities will occur” (IC 7.1-7-4-1(d)(1)(A)) and
which complies with Indiana Commercial Kitchen Code (IC 7.1-7-2-4), a service
agreement with a single security firm (i.e., subcontracting is not permitted) valid for five
years (IC 7-7-4-1(2)), and consent to allow the ATC to inspect the manufacturing location
and take samples of the product(s) manufactured there (IC 7.1-7-4(d)(10)). The security
firm must employ employees accredited or certified by the Door and Hardware Institute as
4

“[The]ATC interprets the Indiana statute as requiring an out-of-state manufacturer to obtain a
manufacturing permit under the Indiana statute if it sells e-liquids to: (i) a distributor or retailer
located in Indiana; (ii) a distributor who is located outside of Indiana who then sells or distributes
the product to a retailer located in Indiana; (iii) a consumer or end-user in Indiana over the Internet;
and (iv) an out-of-state retailer who then sells the product to a consumer or end in user in Indiana
over the Internet.” [J. Stip. ¶ 13.]

6

an Architectural Hardware Consultant and the International Door Association as a certified
Rolling Steel Fire Door Technician, and provide 24/7 offsite video surveillance, a high
security key system with remote monitoring, and expertise in doors and locking systems.
IC 7.1-7-4-1(d)(3). 5
The Act regulates only e-liquids used in open systems, although the e-liquids used
in open and closed systems are subject to the same production processes which, for some
manufacturers, are conducted in the same facilities using the same equipment. Although
e-liquids do not contain tobacco, the Act defines “tobacco products” to include any “eliquid that contains nicotine.” IC 7.1-1-3-47.5 (as amended); id. 7.1-6-1-3. As a result,
retailers of open system e-liquids must obtain a valid tobacco distributor license under
Indiana tobacco regulations. See id. 7.1-7-5-1(c).
Petitioners challenge the Act as a violation of the Dormant Commerce Clause, the
Equal Protection Clause, and the Indiana Constitution. 6
Summary Judgment Standard
Summary judgment is appropriate when the record establishes that there is Ano
genuine issue as to any material fact and that the moving party is entitled to a judgment as

5

Indiana Code § 7.1-7 contains a host of additional requirements which Petitioners do not
challenge. For example, e-liquid containers must use child-proof caps and tamper-evident
packaging, contain labels identifying all active ingredients and designate if the products contain
nicotine, and include a batch number, and include only statutorily-approved ingredients.
Additionally, the manufacturer must store and maintain samples and consent to criminal history
background checks for those persons listed on the application. See IC 7.1-7.
6

Petitioners advanced a challenge to the Act under the Due Process Clause arguing that no security
companies in the country satisfy the requirements under the Act; however, Petitioners have now
withdrawn this argument. [See Pet. Resp./Reply Br. at 1, n.1.]

7

a matter of law.@ Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Disputes concerning material facts are genuine where the evidence is such that a reasonable
jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986). In deciding whether genuine issues of material fact exist, the court
construes all facts in a light most favorable to the non-moving party and draws all
reasonable inferences in favor of the non-moving party. See id. at 255. However, neither
the Amere existence of some alleged factual dispute between the parties,@ id. at 247, nor the
existence of Asome metaphysical doubt as to the material facts,@ Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), will defeat a motion for summary
judgment. Michas v. Health Cost Controls of Illinois, Inc., 209 F.3d 687, 692 (7th Cir.
2000).
The moving party Abears the initial responsibility of informing the district court of
the basis for its motion, and identifying those portions of [the record] which it believes
demonstrate the absence of a genuine issue of material fact.@ Celotex, 477 U.S. at 323.
The party seeking summary judgment on a claim on which the non-moving party bears the
burden of proof may discharge its burden by showing an absence of evidence to support
the non-moving party’s case. Id. at 325.
When the issues presented are purely questions of law, as the case at bar, summary
judgment standards nonetheless apply. See Oneida Tribe of Indians of Wisconsin v.
Wisconsin, 951 F.2d 757, 760 (7th Cir. 1991). Courts are often confronted with cross
motions for summary judgment because Rules 56(a) and (b) of the Federal Rules of Civil
Procedure allow both plaintiffs and defendants to move for such relief. AIn such situations,
8

courts must consider each party=s motion individually to determine if that party has satisfied
the summary judgment standard.@ Kohl v. Ass=n. of Trial Lawyers of Am., 183 F.R.D. 475
(D. Md. 1998). While cross motions for summary judgment may lead to a judgment
without trial, the standard for determining whether summary judgment should issue is
unchanged from that which applies when only a single party has moved for the relief.
Discussion
I.

Dormant Commerce Clause
Petitioners contend that the Act violates the Commerce Clause of the United States

Constitution by attempting to impose these extraterritorial regulations on e-liquid
manufacturing that is conducted entirely outside the state of Indiana. [Am. Compl., Count
II, p. 13-14, 24.] According to Petitioners, Indiana’s attempts to regulate under the Act the
manufacturing of e-liquids wholly outside the state is per se invalid. [Pet. Br. in Supp. at
19-20.] They seek both declaratory and injunctive relief.
Respondents rejoin that the Act’s regulations regarding the manufacture of e-liquids
are not triggered unless the manufactured e-liquids are sold or intended for sale within the
state of Indiana. As a result, the Act does not target commerce that occurs wholly outside
the State. [Resp. Cross-Mtn. Br. at 12.] Respondents maintain that the Act is neutral on
its face, in that it does not differentiate between local manufacturers and manufacturers
located outside of Indiana, and in its effect and is rationally related to the state’s legitimate
and well-established goal of protecting the health and safety of Hoosier citizens within its
borders. [Id. at 12-14.] Thus, it does not suffer from any constitutional infirmities.

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A.

Standard of Review

The United States Constitution allocates to Congress the power to “regulate
Commerce ... among the several States.” U.S. Const. Art. I, § 8. Implicit in Congress’s
exclusive authority over interstate commerce is a restriction on states from doing intruding
on that power. See New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273 (1988).
Encroachments on the exclusive authority reposing in Congress are prohibited by the
Dormant Commerce Clause. More specifically, because it is intended to prevent economic
protectionism, the Dormant Commerce Clause prohibits “regulatory measures designed to
benefit in-state economic interests by burdening out-of-state competitors ... Thus, state
statutes that clearly discriminate against interstate commerce are routinely struck down ...
unless the discrimination is demonstrably justified by a valid factor unrelated to economic
protectionism ....” Id. at 273-74, 90 S.Ct. 844; Midwest Title Loans, Inc. v. Ripley, 616 F.
Supp. 2d 897, 903 (S.D. Ind. 2009), aff’d sub nom. Midwest Title Loans, Inc. v. Mills, 593
F.3d 660 (7th Cir. 2010)
States sometimes also run afoul of the Commerce Clause by seeking to regulate
commerce which takes place “wholly” outside their own state, “whether or not the
commerce has effects within the State.” Healy v. Beer Inst., 491 U.S. 324, 336 (1989)
(“[A] state law that has the ‘practical effect’ of regulating commerce occurring wholly
outside the State’s borders is invalid under the Commerce Clause.”); Dean Foods Co. v.
Brancel, 187 F.3d 609, 614 (7th Cir.1999) (stating that it is “a fact well known” that
extraterritorial legislation is barred by the federal constitution); Nat’l Solid Wastes Mgmt.
Ass’n v. Meyer, 63 F.3d 652 (7th Cir.1995) (“[T]he Commerce Clause constrains a state
10

from projecting its economic legislation onto commerce wholly occurring in its sister
states.”); Ripley, 616 F. Supp. 2d at 903.
State laws affecting commerce fall into one of three categories. First, laws that
explicitly discriminate against interstate commerce, such as an Illinois statute that forbade
the sale of spray paint manufactured outside of Illinois. Nat’l Paint & Coatings Ass’n v.
City of Chicago, 45 F.3d 1124, 1131 (7th Cir. 1995). Such a law is per se unconstitutional
based on its “disparate treatment” effect. Id. “The second category comprises laws that
appear to be neutral among states but that bear more heavily on interstate commerce than
on local commerce.” Id. For example, a state law limiting trailers to 55-feet in length
when nearly all other states permit 65-foot long trailers; such a law would effectively place
an embargo on interstate commerce thus violating the Dormant Commerce Clause. Id.
These laws also fall within the “disparate impact” category and are analyzed based on the
test imposed by Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) (although the Seventh
Circuit has expressed doubts as to the utility of the Pike test 7). The third category of state
laws “affect commerce without any reallocation among jurisdictions – that do not give
local firms any competitive advantage over those located elsewhere.” Id. Laws in this
third category are reviewed under the rational basis analysis. Id.

7

On more than a few occasions, the Seventh Circuit has recognized the challenges presented by
the Pike balancing test when courts are called upon to “strike a fine balance between the burden
that a particular state regulation lays on interstate commerce and the benefit of that regulation to
the state’s legitimate interests.” Wiesmueller v. Kosobucki, 571 F.3d 699, 704 (7th Cir. 2009).
Judge Hamilton of that Court (and Indiana) has described the Pike analysis of determining whether
a burden on state commerce is clearly excessive in relation to local benefits to be like asking
“whether a blue race-car is clearly faster than it is blue.” Lebamoff Enter. v. Huskey, 666 F.3d
455, 468-69 (7th Cir. 2012) (Hamilton, J., concurring).

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B.

Extraterritorial Law/Disparate Treatment

The parties’ dispute, properly framed, centers on whether the Act’s regulation of
out-of-state manufacturing of e-liquids for sale in Indiana constitutes the regulation of
commerce “wholly outside” the state of Indiana, thus implicating the Dormant Commerce
Clause prohibitions. Petitioners describe the Act in terms of its having the “practical
effect” of controlling conduct outside of Indiana, which, they say, makes it per se invalid.
Respondents contend in response that the Act does not differentiate between intra and
interstate commerce and also successfully passes a rational basis review. We begin our
analysis by discussing the issue of whether the Act is extraterritorial.
As repeatedly made clear by this circuit and others, and as Petitioners concede, there
is no right to sell e-liquids in Indiana entirely free from regulation. [Pet. Resp./Reply Br.
at 12, n.7 (Petitioners “have not argued that they should be able to sell e-liquid in Indiana
without being subject to any health and safety regulations.”).] 8 The Ninth Circuit ruled
that although “[s]tates may not mandate compliance with their preferred policies in wholly

8

See e.g., Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 523-24 (1935) (New York may impose
“sanitary precautions” on milk sold there, including from out-of-state farmers; certificates of
compliance “may be exacted from farmers … elsewhere,” and “milk may be excluded if necessary
safeguards have been omitted”); Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070, 110103 (9th Cir. 2013) (California law on ethanol sold in-state did not regulate “out-of-state conduct;”
it “regulates only the California market,” saying nothing “about ethanol produced, sold, and used
outside California”; however, California’s law created financial incentives to sell certain quality
ethanol whereas the Act here sets forth manufacturing requirements); Nat’l Elec. Mfrs. Ass’n v.
Sorrell, 272 F.3d 104, 110 (2d Cir. 2001) (Vermont labeling law for mercury-containing lamps
sold in-state does not “require manufacturers to label all lamps wherever distributed” and “is
‘indifferent’ to whether lamps sold anywhere else in the United States are labeled or not”); see KS Pharmacies, Inc. v. Am. Home Prods. Corp., 962 F.2d 728, 730-32 (7th Cir. 1992) (upholding
Wisconsin uniform-price law for drugs sold to in-state pharmacies; “[s]o long as a seller charges
the same price to all pharmacies in Wisconsin, it may do as it pleases in Minnesota or Micronesia”).

12

out-of-state transactions, [] they are free to regulate commerce and contracts within their
boundaries with the goal of influencing the out-of-state choices of market participants.”
Rocky Mountain, 730 F.3d at 1103.
In support of their argument, Petitioners rely on Midwest Title Loans, Inc. v. Ripley,
616 F. Supp. 2d 897 (S.D. Ind. 2009), characterizing the Act to “control and audit all
aspects of the production process occurring beyond its borders”, which the Dormant
Commerce Clause prohibits. [Pet. Br. in Supp. at 23-24.] In Ripley, we considered the
constitutionality of Indiana’s Uniform Consumer Credit Code (“IUCCC”), which imposed
Indiana licensing and regulatory requirements on lenders who solicited and made consumer
loans to Indiana residents. 616 F. Supp. 2d at 901. The plaintiff, an Illinois corporation
with no business locations in Indiana, engaged in advertising and soliciting of Indiana
customers, but its loan applications were accepted in-person only in Illinois, the loan
documents were executed in Illinois, and loan funds were distributed in Illinois. Id. at 90001. On this basis, we concluded that the transactions at issue occurred wholly within the
state of Illinois which meant that the IUCCC directly regulated extraterritorial activity,
thereby violating the Dormant Commerce Clause.

Id. at 905-06.

Discounting the

significance of the lender’s solicitations in Indiana and the fact that the loan proceeds were
likely spent largely in Indiana, the Seventh Circuit affirmed, holding that because the
contracts were made and executed in Illinois, Indiana’s attempt to regulate these contracts
violated the Dormant Commerce Clause. Midwest Title Loans, Inc. v. Mills, 593 F.3d 600,
669 (7th Cir. 2010).

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The Ripley/Mills analysis focuses on the fact that the transaction was completed in
“Illinois where loan documents were signed and [plaintiff] had tendered a loan payment in
exchange for a promise to pay” and plaintiffs’ only acts occurring in Indiana were
solicitation efforts. Ripley, 616 F. Supp. 2d at 905-06. Here, in contrast, the sale (or
purchase) of Petitioners’ product must occur within the state of Indiana to trigger the Act’s
manufacturing requirements. As Respondents note, unlike Ripley, the Act does not prohibit
an Indiana resident from travelling to another state to purchase an e-liquid product that is
free from Indiana regulation. [Resp. Cross-Mtn. Br. at 15.] The facts in Ripley do not
mirror those in the case before us.
Petitioners also rely on National Solid Wastes Management Association v. Meyer,
63 F.3d 652 (7th Cir. 1995) (“NSWM”), to support their argument that the Act’s practical
effect is to force manufacturers of e-liquids, which will never be sold in Indiana, to produce
those e-liquids under the same conditions as e-liquids bound for sale within the state of
Indiana. [Pet. Br. in Supp. at 25-26.] The statute at issue in NSWM required both in-state
and out-of-state municipalities seeking to dispose of certain types of waste in Wisconsin
landfills to adopt an approved “effective recycling program” in order to reduce the amount
of waste disposed-of in Wisconsin landfills. NSWM, 63 F.3d at 655. The Wisconsin statute
did not apply to individuals or individual companies, only to “regions” and “communities.”
Id. at 654. Accordingly, “all citizens in the effective recycling community [were required
to] observe the statute’s recycling provisions, whether or not they actually dump[ed] waste
in Wisconsin.” Id. at 655 (“Everyone in the community either must separate recyclables

14

or must use a materials recovery facility in order for anyone to receive access to
Wisconsin’s landfills”) (emphasis in original).
Finding that the Wisconsin statute “essentially control[ed] the conduct of those
engaged in commerce occurring wholly outside the State of Wisconsin and therefore
directly regulat[ing] interstate commerce,” the Seventh Circuit concluded that the
Wisconsin statute violated the Dormant Commerce Clause. Id. at 658-61. The Court
stated:
The practical effect of the Wisconsin legislation is to impose the
requirements of Wisconsin law on numerous waste generators who neither
reside, nor dispose of their waste in Wisconsin; eighty percent of the out-ofstate waste subject to this legislation is destined for non-Wisconsin landfills.
Out-of-state waste generators who do not dump in Wisconsin but who are
located in communities adhering to Wisconsin’s “effective recycling
program” must therefore bear the costs of complying with the Wisconsin law
while their competitors in non-effective recycling communities, who may be
dumping solid waste at the very same non-Wisconsin landfill, do not. The
Wisconsin statute reaches across the Wisconsin state line and regulates
commerce occurring wholly outside Wisconsin. As a price for access to the
Wisconsin market, it attempts to assume control of the integrity of the
product that is moving in interstate commerce. Wisconsin’s approach to
sound solid waste management, and no one else’s, must govern, even when
the product will never cross its borders. The Commerce Clause contemplates
a very different market among the states of the Union.
Id. at 661.
The facts before us are quite different from those in NSWM.

Here, only

manufacturers of e-liquids who sell their product in Indiana are bound by the Act. 9 If a

9

The Act also applies to sales by retailers and distributors who sell the e-liquids in the state of
Indiana that was produced by an unpermitted manufacturer or by one that fails to adhere to the
manufacturing requirements in the Act. IC 7.1-7-6-2(a).

15

manufacturer does not sell in Indiana, it is wholly unaffected by the Act and is not
hamstrung in its competition with other non-Indiana-selling manufacturers. This is quite
unlike NSWM where waste generators that did not dispose of their waste in Wisconsin were
still required to comply with the Wisconsin legislation based on their location in an out-ofstate “effective recycling community”. Those waste generators suffered an economic
disadvantage not experienced by generators that similarly did not dispose of waste in
Wisconsin, but were exempt from the costs of the program based on their location outside
an effective recycling community. It is undisputed that e-liquid manufacturers who do not
sell their product in Indiana are not required to comply with the Indiana legislation. NSWM
is therefore inapposite.
Respondents rely on two cases which upheld state labeling regulations:
International Dairy Foods Association v. Boggs, 622 F.3d 628 (6th Cir. 2010) and National
Electrical Manufacturers Association v. Sorrell, 272 F.3d 104 (2d Cir. 2001). In Boggs,
the Sixth Circuit upheld an Ohio labeling standard that had no bearing on how milk
processors labeled milk intended for sale in states other than Ohio, even if the processors
chose to standardize their labeling to comply with Ohio’s regulation. Similarly, in Sorrell,
the Second Circuit rejected arguments of light bulb manufacturers that Vermont’s mercury
labeling requirements were extraterritorial because they would be required to completely
revamp their packaging operation to comply with the labeling law. The Sorrell Court found
that the manufacturers’ arguments were based on their unwillingness to differentiate
between Vermont-bound and non-Vermont-bound lightbulbs.

It held that the

manufacturers’ own business choices did not support a finding that the law was
16

extraterritorial. The Second Circuit concluded that even if manufacturers were convinced
to withdraw from the Vermont market, the law would still not violate the Commerce
Clause.
Petitioners attempt to distinguish these labeling cases by contrasting the extensive
nature of the Act’s security and sanitation requirements with the Ohio and Vermont
regulations which “simply regulated labeling content”. Petitioners argue that they cannot,
as a practical matter, modify their production processes to distinguish e-liquids intended
for Indiana from that intended for sale in other states. [Pet. Resp./Reply Br. at 910.] 10
Petitioners seek to contrast these labeling cases on another ground, to wit, that Petitioners’
challenge to the Act is “not based on broader incidental effects that are not explicitly
regulated by the statute” (i.e., costly or cumbersome compliance that unduly burdens
interstate commerce) but “the application of the security and clean room requirements
themselves to manufacturing activities conducted entirely outside of Indiana (i.e., the fact
that Indiana is expressly telling out-of-state manufacturers how to produce e-liquids and

10

Petitioners argue that it “is not, and cannot be, the law” that “out-of-state manufacturers can
avoid the extraterritorial effects of the statute by simply deciding not to sell product in Indiana.”
[Pet. Resp./Reply Br. at 12.] Relying on the Seventh Circuit’s decisions in Ripley/Mills and
NSWM, Petitioners contend that the plaintiffs in those cases could have foregone business with
Indiana loan consumers (Ripley/Mills) or sent all their refuse to non-Wisconsin landfills (NSWM),
but the Seventh Circuit did not require such. [Id.] Petitioners’ position is a red herring. Those
cases, as explained above, could not be remedied by refusing to do business in Indiana or in
Wisconsin because the Court concluded that those companies were already not doing business in
Indiana and Wisconsin. In those cases, the offending statutes reached business conducted in
Illinois (loans made in Illinois to Indiana citizens) and outside Wisconsin (by requiring those who
did not send their waste to Wisconsin to nonetheless participate in Wisconsin’s recycling
program). That is simply not the case with the Act. Here, out-of-state manufacturers do not have
to comply with the Act if they choose not to sell e-liquids in Indiana. The Act places no restrictions
on e-liquid manufacturers’ sales outside the state of Indiana.

17

under what conditions).” [Id. at 10.] We are not persuaded by Petitioners’ argument that
the Act is distinguishable from the regulation in the labeling cases; however, because we
are persuaded that the Act does not regulate activities conducted “entirely outside of
Indiana”, we need not discuss the labeling cases further.
Here, Indiana has enacted a law that does not mandate e-liquid manufacturing
policies as to out-of-Indiana sales. As is well-established above, Indiana is free to place
restrictions on the sale of e-liquids within its borders when these restrictions are indifferent
to e-liquids sold elsewhere in the United States. The Act does not regulate commerce
wholly outside the state of Indiana and, therefore, is not an extraterritorial law.
Accordingly, we find that the Act is not per se invalid under the Dormant Commerce
Clause.
C.

Disparate Impact

Petitioners do not contend that the Act has a disparate impact on interstate
commerce or that the Pike balancing test is necessary; however, in arguing that the Act is
extraterritorial, Petitioners have interspersed arguments that fall more precisely under a
disparate impact analysis, and thus we address those arguments under that rubric. The Pike
test, although criticized by the Seventh Circuit, provides: “‘Where the statute regulates
even-handedly to effectuate a legitimate local public interest, and its effects on interstate
commerce are only incidental, it will be upheld unless the burden imposed on such
commerce is clearly excessive in relation to the putative local benefits.’ As often as this
‘Pike test’ is cited, it is actually applied to invalidate laws in extremely rare cases.”

18

Panhandle E. Pipe Line Co. v. Madison Cty. Drainage Bd., 898 F. Supp. 1302, 1313 (S.D.
Ind. 1995); see also Cavel Int’l v. Madigan, 500 F.3d 551, 555 (7th Cir. 2007).
We start with the expressed “local benefits” of the Act, which are “to protect public
health and safety” by ensuring e-liquids are “not contaminated or adulterated by
[ingredients or substances] that might pose unreasonable threats to public health and
safety.” IC 7.1-7-1-2. It is well-established that states have the responsibility to protect
the health, safety, and welfare of its citizens and are afforded great latitude to do so. United
Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 342-43
(2007). The Supreme Court has explained that when applying Dormant Commerce Clause
principles, a “common sense of our traditional recognition of the need to accommodate
state health and safety regulation” exists. Gen. Motors Corp. v. Tracy, 519 U.S. 278, 306
(1997). We find that the local benefits provided by the Act relating to the health and safety
of Indiana citizens are significant.
According to Petitioners, the Act imposes several intolerable burdens on interstate
commerce. None of those burdens, however, can be viewed as excessive in relation to the
putative local benefits. First, Petitioners argue that possible competitive advantages are
lost when a manufacturer of e-liquids sells its product within Indiana in addition to other
states because its entire production process must comply with the costly Indiana
regulations. [Pet. Br. in Supp. at 26 (citing to NSWM, 63 F.3d at 660-61).] The Seventh
Circuit, in recognizing the significantly limited bases on which a state law is deemed
violative of the Dormant Commerce Clause, has held that “the fact that a statute is
inconvenient or expensive for those involved in interstate commerce, or requests them to
19

change their preferred methods of doing business, does not render the statute violative of
the commerce clause.”

Panhandle, 898 F. Supp. at 1313-14 (citations omitted).

Petitioners’ complaint is merely that: an argument that the Act is inconvenient, expensive,
and requires a change in the way they do business. As taught by Panhandle, this is not
enough to demonstrate a “clearly excessive” burden on interstate commerce. Id.; see also
Amanda Acquisition Corp. v. Universal Food Corp., 877 F.2d 496, 506 (7th Cir. 1989)
(finding that a Wisconsin corporate law did not violate the Commerce Clause and, in fact,
“[s]tates could ban mergers outright, with even more powerful consequences.”).
Second, Petitioners posit that the Act will increase the “the chance that out-of-state
manufacturers will be subject to inconsistent regulatory obligations.” [Pet. Br. in Supp. at
27.] However, Petitioners do not point to any statutes currently in conflict with Indiana’s
e-liquid manufacturing requirements. Huron Portland Cement Co. v. City of Detroit, 362
U.S. 440, 448 (1960) (holding that no impermissible burden is established based on the
possibility of differing requirements without pointing to such a statute). Said differently,
no evidence in the record reflects that a manufacturer cannot comply with the Act without
violating another state’s regulations (or vice versa). See Panhandle, 898 F. Supp. at 1314
n.5 (“Regulations are ‘inconsistent’ in this sense not when they are merely different, but
when one regulating authority requires conduct that another regulating authority forbids,
such that the regulated entity cannot comply with both.”). Without such evidence, we
cannot conclude that the Act presents an impermissible burden.
Third, Petitioners rely on Ripley/Mills to argue that although they have not
demonstrated an impossible burden of complying with two conflicting e-liquid laws, the
20

effect of the Act is to exalt Indiana’s public policy choices over those of states with less
restrictive manufacturing requirements. [Pet. Resp./Reply at 19.] Relying on the Arkansas
State Legislature’s limited regulation of e-liquid manufacturing as an example, Petitioners
characterize Arkansas’ approach as “common sense.” [Id. at 20 (the Arkansas law requires
“hand washing sink,” the “[c]leanliness and maintenance of e-liquid preparation and
mixing equipment,” and prohibits food, drink, and animals in the mixing areas).] 11 The
interstate commerce burden, as Petitioners see it, is that “Arkansas will not be able to
effectuate the balance it struck between too little or too much regulation because Indiana,
as a practical matter, has the final say” due to its more restrictive regulations. [Id. at 21.]
Although we recognize that the Act may diminish the effect of Arkansas’s policy choice
to regulate e-liquids in a more minimalistic fashion, this is only true for manufacturers who
choose both to (1) sell in Indiana and (2) overhaul their entire manufacturing process to
comply with the Indiana standards; and only as to manufacturers who wish to sell their
product in both Indiana and Arkansas.
Even if the potential for minimizing Arkansas’s policy choices were considered a
burden on interstate commerce, we are reluctant to consider this impact “clearly excessive”
relative to the Indiana legislature’s purpose of protecting the health and safety of Indiana

11

Petitioners also rely on recent administrative rules promulgated by the authority of the Utah
Code which contain similarly narrow requirements of good hygiene practices, easily cleanable
surfaces, and proper storage of ingredients, but do not include the same security protocol, clean
room, or kitchen requirements that are included in the Indiana Act. [Pet. Resp./Reply Br. at 17.]
Additionally, Petitioners provide a survey of other states’ sales restrictions pertaining to e-liquids,
none of which, Petitioners represent, require the same security, clean room, and kitchen code
standards as included in the Indiana Act. [Id. at 22, n.11.]

21

citizens. This is the paradigmatic Pike conundrum, requiring a balance to be struck
between Indiana’s attempts to regulate an unregulated, unchartered territory in order to
protect the health and safety of its citizens in what it calls a “dire and immediate” situation
[Rep. Cross-Mtn. Br. at 25-26] with Arkansas’s own efforts to navigate the same unsettled
area in a different way. The Pike test illustrates how ill-equipped courts are in terms of
deciding which is more significant: Indiana regulating potentially harmful e-liquids or
Indiana stymying the policies of other states. We cannot say that the Act’s effect of being
of the most stringent regulation among Indiana’s sister states, assuming it does, inflicts a
“clearly excessive” burden on interstate commerce.
Fourth, in minimalistic fashion, Petitioners argue that interstate commerce could be
hampered if other states were to adopt statutes similar to the Act because e-liquid
manufacturers would be forced to choose between states based on which one imposes the
least burden and then supply e-liquids only to those states. [Pet. Br. in Resp. at 28.]
Expressing the concern that the regulatory impact of the Act will be wide and far reaching,
Petitioners argue that out-of-state manufacturers will “bear the brunt of this [Indiana]
statute” because, computed annually, $13.5 million of branded e-liquids sold in Indiana are
manufactured outside the state. [Pet. Br. in Supp. at 26-28; Pet. Resp./Reply Br. at 11-15.]
This argument is inconsistent with Petitioners’ other positions in this litigation.
The clearest “harm” imposed by the Act is that e-liquids will be more expensive to
purchase in Indiana and/or that consumers in Indiana will have a diminished e-vapor
selection to choose from. [See Pet. Br. in Supp. at 4 (“For Indiana distributors and retailers
who have benefited from the rapidly growing e-liquid sector, they will no longer be able
22

to sell these products within the State’s borders. And Indiana consumers who use e-vapor
devices will ultimately bear the burden of facing a substantially reduced universe of evapor products from which to choose.”)]. The Dormant Commerce Clause seeks to prevent
one state from subjecting its regulations on interests outside the state. Here, as Petitioners
concede, the citizens and businesses of Indiana will bear the costs of the Act. “There is no
reason to step in and hand local businesses a victory they could not obtain through the
political process.” United Haulers Ass’n, 550 U.S. at 345; see also Nat’l Paint, 45 F.3d at
1132 (opining that the “law-abiding residents of Chicago will be the losers” and that the
“law may well be folly,” but was still constitutional); Sorrell, 272 F.3d at 111 (noting that
“[i]f lamp manufacturers were to withdraw from the Vermont market, only Vermont
residents would feel any appreciable effect . . . [a]ny loss by residents of other states would
be minor by comparison”). The Dormant Commerce Clause does not protect Indiana
citizens from economically or socially unfavorable legislation within its own boundaries.
Applying the esoteric Pike balancing test, which is rarely used to strike down state
statutes as unconstitutional, we conclude that the Act “regulates even-handedly to
effectuate a legitimate local public interest, and its effects on interstate commerce are only
incidental.” Pike, 397 U.S. at 142. The burden imposed on interstate commerce is not
“clearly excessive in relation to the putative local benefits.” See id. Consequently, we find
that the Act does not have a disparate impact on interstate commerce.
D.

Rational Basis

We have concluded that the Act is non-discriminatory, does not regulate extraterritorially, and has no “disparate impact” on interstate commerce. As a result, the Act
23

need only satisfy the “normal rational-basis standard” to survive a constitutional Dormant
Commerce Clause challenge, which it has done by passing the Pike balancing test. Nat’l
Paint, 45 F.3d at 1131 (“No disparate treatment, no disparate impact, no problem under the
dormant commerce clause.”); Alliant Energy Corp. v. Bie, 330 F.3d 904, 919 (7th Cir.
2003) (holding that laws that pass the Pike balancing “serve a legitimate state interest”).
The Act’s stated purpose, in the absence of federal regulations, is to protect public
health and safety by ensuring the safety of e-liquids manufactured for sale in Indiana;
ensuring that e-liquids sold in Indiana conformed to standards of identity, strength, quality,
and purity; and protecting e-liquids from contamination or adulteration that might pose
unreasonable threats to public health and safety. IC 7.1-7-1-2. Petitioners “do not quarrel
with the legitimacy of these goals, . . .” [Pet. Br. in Supp. at 41] and the Act’s strict
manufacturing specifications reasonably further those goals. Specifically, the security
requirements further the goal of preventing intentional tampering and sabotage, the clean
room requirement furthers the goal of preventing contamination or adulteration, and the
audit requirement ensures compliance with the manufacturing requirements. Under a
rational basis test, a “legislature need not choose the least restrictive means of the
regulation.” Nat’l Paint, 45 F.3d at 1129. Indiana’s manufacturing regulations pertaining
to e-liquids sold in Indiana, although quite restrictive, are rationally related to the concerns
to which the Act seeks to address.

24

Although Petitioners submit scores of examples in support of their position that the
Act will not actually make e-liquids safer for Hoosiers, 12 it is not our place to judge whether
the General Assembly was right or wrong in its belief that the Act will prevent threats to
public health and safety. Rather, we must determine whether the legislature could have
rationally believed that the Act would make e-liquids safer. K-S Pharms., 962 F.2d at 731
(“The dormant commerce clause does not call for proof of a law’s benefits, after the fashion
of substantive due process, whenever the subject is trade. On the contrary, legislation
regulating economic affairs is within public power unless the rules are so silly that a
justification cannot even be imagined.”). Respondents easily pass over this low threshold
to satisfy a rational basis for the Act’s requirements. For these reasons, we conclude that
the Act, specifically the security, clean room, and audit requirements, does not violate the
Dormant Commerce Clause.
II.

Federal Equal Protection – Open System E-liquid Regulation
The parties agree that the Act applies only to e-liquids manufactured for use in open

system vapor devices. Petitioners contend that no rational basis exists to justify the Act’s
applicability to e-liquids manufactured for use in open system devices, but not e-liquids
manufactured for use in closed system devices. It is their position that all e-liquid products
are made with the same ingredients and manufactured using the same processes; thus to

12

For example, Petitioners argue that the risks addressed by the security and clean room
requirements, to wit, adulteration and sabotage, have a very low probability of actually manifesting
themselves and Respondents are unaware of e-liquids shipped or sold in the United States that
have been tampered with of sabotaged. [Pet. Resp./Reply Br. at 2-3.]

25

distinguish between these two groups, they say, violates the Equal Protection Clause. [Pet.
Br. in Supp. at 37.]
Citing the deference to be granted acts promulgated by the legislature, Respondents
rejoin that the General Assembly is free to deal with perceived problems in a piecemeal
fashion. [Resp. Cross-Mtn. Br. at 29.] Respondents argue that because the vast majority
of closed system e-liquid manufacturers are already regulated under tobacco laws, it is
reasonable for the Indiana General Assembly to focus its efforts on a single segment of the
e-liquid market. [Id. at 30-33.]
The Fourteenth Amendment provides in pertinent part, “No State . . . shall deny to
any person within its jurisdiction the equal protection of the laws.” U.S. Const., amend
XIV, cl. 1. The purpose of the Equal Protection Clause is to “secure every person within
the State’s jurisdiction against intentional and arbitrary discrimination, whether occasioned
by express terms of a statute or by its improper execution through duly constituted agents.”
Vill. of Willowbrook v. Olech, 528 U.S. 562, 564 (2000) (citation omitted); see also Martin
v. Shawano-Gresham Sch. Dist., 295 F.3d 701, 713-14 (7th Cir. 2002). In addressing the
analysis of classifications arising in Equal Protection cases, the Supreme Court explained
in Nordlinger v. Hahn, 505 U.S. 10 (1992), that: “[t]he Equal Protection Clause does not
forbid classifications. It simply keeps governmental decisionmakers [sic] from treating
differently persons who are in all relevant respects alike.” See also Vacco v. Quill, 521
U.S. 793, 799 (1997), (the Equal Protection Clause “embodies a general rule that States
must treat like cases alike”). The government may thus classify persons and make
distinctions in the creation and application of laws, but those classifications may not be
26

based on “impermissible criteria or arbitrarily used to burden a group of individuals.” Little
Arm, Inc. v. Prosecutors: Adams, 13 F. Supp. 3d 893, 912 (S.D. Ind. 2014) (citation
omitted).
Legislation which neither burdens a fundamental constitutional right nor targets a
suspect classification will withstand constitutional scrutiny so long as it bears a rational
relationship to a legitimate state interest. Vacco, 521 U.S. at 799; Romer v. Evans, 517
U.S. 620, 631 (1996). Under the rational basis test, which the parties agree applies in this
case, “the government’s action simply ‘cannot run afoul of the Equal Protection Clause if
there is a rational relationship between the disparity of treatment and some legitimate
governmental purpose.’” Smith v. City of Chicago, 457 F.3d 643, 652 (7th Cir. 2006)
(quoting Bd. of Trs. of Univ. of Ala. v. Garrett, 531 U.S. 356 (2001)) (emphasis added).
The government is not required to articulate the legitimate interest at the time of a statute’s
adoption; rather, “the burden is upon the challenging party to eliminate ‘any reasonably
conceivable state of facts that could provide a rational basis for the classification.’” Id.
(quoting Heller v. Doe, 509 U.S. 312, 320 (1993)). Moreover, because the rational basis
test “is not subject to courtroom fact-finding,” the government’s reasons may be based
even on “rational speculation unsupported by evidence or empirical data.” FCC v. Beach
Commc’ns, Inc., 508 U.S. 307 (1993). Once a plausible basis for the legislation is
identified, the inquiry by a court is at its end. U.S. R.R. Retirement Bd. v. Fritz, 449 U.S.
166, 179 (1980). When dealing with a local economic regulation, the test becomes even
more indulgent of the State’s interests; in those cases “‘it is only the invidious
discrimination, the wholly arbitrary act, which cannot stand consistently with the
27

Fourteenth Amendment.’” Goodpaster v. City of Indianapolis, 736 F.3d 1060, 1071 (7th
Cir. 2013) (quoting Listle v. Milwaukee Cty., 138 F.3d 1155 (7th Cir. 1998). The import
of the rational basis standard is that Petitioners must overcome a tall hurdle to prove that
the Act violates the Equal Protection Clause.
In support of its argument that no rational basis exists for regulating open system eliquids, while impliedly not regulating closed system e-liquids, Petitioners point to a trio
of cases referred to as the “filled milk” decisions from the 1970s. [Pet. Br. in Supp. at 3943 (citing Milnot Co. v. Douglas, 452 F. Supp. 505 (S.D. W.Va. 1978) (challenging a West
Virginia statute); Milnot Co. v. Arkansas State Bd. of Health, 388 F. Supp. 901 (E.D. Ark.
1975) (challenging a nearly identical Arkansas statute); Milnot Co. v. Richardson, 350 F.
Supp. 221 (N.D. Ill. 1972) (5th Amendment challenge to the Filled Milk Act, 21 U.S.C.
§61-64).] Douglas and Arkansas are factually very similar as well as the statutes at issue
and the respective courts’ analyses. In those cases, state statutes imposed an absolute
prohibition on the sale of “filled milk”, defined as milk which has had all or the greater
part of the butterfat removed and some other oil or fat substituted in lieu thereof. Arkansas,
388 F. Supp. at 902; Douglas, 452 F. Supp. at 506. In both cases, the regulatory body
banned the sale of Milnot (a product consisting of fat free milk, soya oil, and vitamins A
and D) based on the statutory prohibition, while at the same time it allowed the sale of
other products that fell within the statutory definition of “filled milk”. Arkansas, 388 F.
Supp. at 904; Douglas, 452 F. Supp. at 508-09. The regulatory body could not provide a
rational basis for treating Milnot differently from other products that constituted “filled
milk” under the language of the statutes at issue causing courts to conclude that Milnot was
28

denied equal protection of the laws as guaranteed by the Fourteenth Amendment.
Arkansas, 388 F. Supp. at 905; Douglas, 452 F. Supp. at 509.
Petitioners contend that as with the “filled milk” products, all e-liquids contain the
same ingredients and are manufactured using the same processes in the same type of
facilities. As a result, following the analysis in the “filled milk’ cases, no rational basis
exists for treating closed system e-liquids differently from their similarly situated
counterpart, open system e-liquids. [Pet. Br. in Supp. 37-41.] This analogy, however,
ignores a critical distinguishing fact, to wit, the “filled milk” cases involved “as applied”
challenges to their respective state statutes; those courts were not asked to and therefore
did not conclude that the statutes were facially unconstitutional. In the “filled milk” cases,
it was the administrative application of the statutes that denied Milnot equal protection
under the law. In our case, if the Act regulated the manufacturing of all e-liquids and the
ATC enforced the law only as to open device e-liquids, the “filled milk” cases would likely
be applicable. Here, however, Petitioners ask us declare the Act facially unconstitutional,
and, as a result, the facts, analysis, and conclusion of the “filled milk” cases are inapposite
to our analysis.
The Respondents and Amici explain that the manufacturing of e-liquids differs
widely between closed system devices and open system devices, and more e-liquid
consumers use open devices. [Amici Br. at 7-8; Resp. Cross-Mtn. Br. at 30-31.] Where
only five cig-a-like brands have captured 85% of the closed system e-liquid market, the
production of open-system e-liquids resulted from a “grassroots effort[] by hobbyists,
consumers, and entrepreneurs to create and sell a class of products;” indeed, an estimated
29

46% of e-liquid revenue comes from “private labels”, i.e., brands that are owned by a retail
business. [Declaration of Steve Hong, founder of Roebling Research LLC, ¶¶ 116, 23337.]

As Amici argue, “[p]roliferation of open-system e-liquid makers and products

compromises reliability and safety.” [Amici Br. at 2-3.]
According to a Declaration submitted by Petitioners, “the vast majority of [members
in a smoke-free alternative association] prefer the open-system products as a superior
alternative to cigalikes.” [Declaration of Julie T. Woesnner, President of the Board of
Directors and the Executive Director of The Consumer Advocates for Smoke-free
Alternatives Association (an organization with more than 100,000 members, more than
3,000 of whom live in Indiana) ¶ 24.] It is entirely rational for the General Assembly to
regulate the sale of e-liquids in a manner that will make the greatest impact on the health
and safety of its citizens. Because a greater percentage of the e-device consumer market
uses open system devices and liquids (60% as opposed to 40% using closed system
devices), the Act regulates the e-products in greater use in Indiana, which in turn protects
a greater percentage of its citizens. As the Supreme Court explained more than fifty years
ago, “[t]he prohibition of the Equal Protection Clause goes no further than the invidious
discrimination”, in other words, the legislature may regulate to address the most acute
phase of the problem or one step at a time, neglecting other phases of the problem.
Williamson v. Lee Optical of Oklahoma, Inc., 348 U.S. 483, 487-89 (1955). Indiana has
done just that in regulating open device e-liquids while leaving unregulated the
manufacture of closed e-liquid.

30

As a related justification for not regulating the manufacture of closed system eliquids in the Act, Respondents explain that four out of the five manufacturers of 85% of
closed-system e-liquids are owned by tobacco companies. Although Petitioners protest,
quite vehemently, that the federal tobacco laws do not regulate e-liquids, this is not
Respondents’ contention. [See Pet. Resp./Reply Br. at 22-25.] The carefully-worded
argument advanced by Respondents is that tobacco companies are highly regulated and
that the tobacco regulation’s efforts to avoid adulteration, contamination, and tampering
would be transferrable to those companies’ manufacture of e-liquids, even if tobacco
manufacturers use facilities separate from closed e-liquid manufacture. 13 [See Resp. CrossMtn. Br. at 30-31.] Respondents take this logic a step further, arguing that for the
manufacturers of e-liquids for closed systems that are not owned by tobacco companies,
some of those manufacturers produce e-liquids for both open and closed systems, and their
processes would be similarly impacted by the Act. [Id.] Thus, a plausible basis exists to
justify the General Assembly’s approach to regulate the manufacture of the e-liquids for
open systems that is sold in Indiana wherein the manufacturers are considered to be largely
unregulated at all. By attacking the Act on rational basis ground, Petitioners have the
burden to negate “every conceivable basis which might support it.” Goodpaster v. City of

13

According to Petitioners, “[m]ost traditional tobacco companies that also make e-liquids for
closed e-vapor systems do not produce e-liquids in the same facilities as other products (e.g.,
cigarettes). Rather, they either maintain a separate facility for e-liquid production or subcontract
with an independent manufacturer.” [Pet. Resp./Reply Br. at 5 (citation omitted).]

31

Indianapolis, 736 F.3d 1060, 1071 (7th Cir. 2013) (citing FCC v. Beach Commc’ns, Inc.,
508 U.S. 307, 315 (1993)). The Petitioners have not met that burden.
Having found a plausible basis for the legislation, our inquiry is complete. Fritz,
449 U.S. at 179. The Act does not violate the Equal Protection Clause.
III.

Indiana Privileges and Immunities – Open v. Closed Systems
Article 1, Section 23 of the Indiana Constitution provides that “[t]he General

Assembly shall not grant to any citizen, or class of citizens, privileges or immunities,
which, upon the same terms, shall not equally belong to all citizens.” The Indiana
Constitution “imposes two requirements upon statutes that grant unequal privileges or
immunities to differing classes of persons” as detailed in Collins v. Day, 644 N.E.2d 72,
80 (Ind. 1994). “First, the disparate treatment accorded by the legislation must be
reasonably related to inherent characteristics which distinguish the unequally treated
classes. Second, the preferential treatment must be uniformly applicable and equally
available to all persons similarly situated.” Id.
Under the first prong:
legislative classification must be based upon substantial distinctions germane
to the subject matter and the object to be attained. The distinctions must
involve something more than mere characteristics which will serve to divide
or identify a class. There must be inherent differences in [the] situation
related to the subject-matter of the legislation which require, necessitate, or
make expedient different or exclusive legislation with respect to the members
of the class.
Id. at 78-79 (also noting that distinctions must be “just,” “natural,” “reasonable,”
“substantial,” “not artificial,” “not capricious,” and “not arbitrary.”) (citations omitted).
With regard to the second prong, a statute will be found to be in violation if it “creates a
32

preference, and establishes an inequality among a class of citizens of all of whom are
equally meritorious” or which “applies to persons in certain situations, and excludes from
effect other persons who are not dissimilar in these respects.” Id. at 79 (citation omitted).
As with federal law, courts must give substantial deference to legislative discretion and
proceed with a presumption of constitutional validity. Id. at 80; Boehm v. Town of St. John,
675 N.E.2d 318, 321 (Ind. 1996).
In contending that the Act violates Article I, Section 23 of the Indiana Constitution,
Petitioners rely on the same arguments that they advanced in support of their Equal
Protection claim. [Pet. Br. in Supp. at 43-45; Pet. Resp./Reply at 34-35.] Not surprisingly,
Respondents repeat their arguments that, like the Equal Protection Clause, the Act does not
violate the Indiana Constitution. [Rep. Cross-Motion/Resp. Br. at 39-41.] Petitioners and
Respondents bolster their Equal Protection arguments with Indiana caselaw in support of
their respective positions. [Pet. Br. in Supp. at 44-45 (citing State Board of Barber
Examiners v. Cloud, 220 Ind. 552 (1942)) (analogizing this case with the holding in Cloud
that regulating barbers’ hours of operation and minimum pricing was unrelated to
purported health and sanitation goals and that no reason existed to single out barbers as a
class); Resp. Cross-Mtn./Resp. Br. at 34-35 (citing State v. Price, 724 N.E.2d 670, 675-76
(Ind. Ct. App. 2000)) (analogizing this case to the holding in Price that a seat belt law
applicable to cars, but not trucks or recreation vehicles did not violate the Privileges and
Immunities Clause, because in part, an inherent distinction existed, to wit, trucks and
recreational vehicles provide more structural protection than cars).]

33

Respondents have demonstrated that closed device e-liquids are distinguishable
from open device e-liquids. First, more e-liquid consumers use open device e-liquid.
Second, manufacturers of e-liquids are unregulated, as compared to the majority of closed
device manufacturers who are regulated through their tobacco production. [Resp. CrossMtn./Reply Br. at 35 (Respondents argue that “by regulating open system, nearly all closed
system would also be manufactured in a facility that was highly regulated by either Indiana
Statute or tobacco regulations.”).] Third, closed device e-liquids are manufactured in large
part by five manufacturers, four of whom are regulated for their tobacco production,
whereas open device e-liquids are manufactured by countless individual retail vape shops.
The prolific unregulated production of open device e-liquids can easily threaten to
compromise reliability and safety of the product.
Petitioners repeat their theme that no rational distinction exists between open device
and closed device e-liquids because they contain the same ingredients and are
manufactured in the same way often in the same facilities. They have failed, however, to
negate every conceivable basis for the Act’s regulation of open e-liquids, as opposed to
closed e-liquids, as is required under a rational basis standard. Collins, 644 N.E.2d at 80.
We accord substantial deference to the Indiana General Assembly’s discretion to make a
just, reasonable, and non-arbitrary distinction between e-liquids that furthers the purpose
of the Act.

Petitioners’ arguments and contentions have failed to overcome the

presumption of the Act’s constitutional validity.
Following the briefing by the parties of their cross-motions for summary judgment,
the Marion Superior Court (the “State Court”) issued an Order on a Motion for Preliminary
34

Injunction sought by Hoosier Vapers, Inc. against the ATC, Cause No. 49D04-1512-PL41749 (the “State Case”).

[Dkt. No. 102-1.]

Identical Indiana constitution-based

challenges were raised in that State Case. In its order dated June 1, 2016, the State Court
issued the following conclusions of law:
54. The Court finds, in the case at bar, that the General Assembly chose
several rationally-related inherent characteristics of the two different classes
of e-liquid manufacturing methodology, based on an aim to protect the public
consumer, in order to distinguish between e-liquids manufactured for use in
open systems and e-liquids manufactured in closed systems that justify
differential treatment.
55. The [General Assembly] was able to observe that a large portion of eliquids for closed systems were already being manufactured by highlyregulated tobacco companies. The top five closed-system brands in the
country control about 85% of the market for those devices, and four of the
top five brands are owned by tobacco companies. The General Assembly
members were advised, during consideration of Public Law 176, that opensystem e-liquid manufacturers were a public health and safety problem. They
were shown definite inconsistencies in the contents of open system e-liquids
being manufactured by vape shops similar to those operated by some of the
Plaintiffs in this lawsuit. Therefore, based on essential differences between
these products, it was not irrational for the Legislature to believe that is was
only necessary to currently regulate the manufacturers of open systemliquids. The majority of closed-system manufacturers were already regulated
as being tobacco manufacturers. The import of the new law is reasonably
related to those differences.
. . . 14
57. With deference to General Assembly’s choice in regulating only opensystem e-liquid manufacturers, the Court does not find that the ACT violates
Article 1, Section 23 of the Indiana Constitution. The Court will not
substitute is judgment for that of the Legislature.

14

The State Court found that “closed-system devises are already regulated.” [State Court Order
¶ 56.] As discussed above, the evidence and arguments of the parties here demonstrate that closed
system devices are not regulated, although a large percentage of their manufacturers are regulated
as a result of their tobacco manufacture.

35

The parties have not addressed the practical effect of the State Court’s Order;15
however, we take proper notice of this ruling which accords with our own judgments. 16
Though merely a preliminary ruling rather than a final adjudication on the merits, it has
some relevance here. Based on the reasons explained above, we hold that the Act does not
violate Indiana’s Privileges and Immunities Clause.
IV.

E-liquids Defined as a “Tobacco Product” and Required Sales Certificates
Petitioners challenge the Act’s definition of “tobacco product” because it includes

e-liquids. It is their contention that this definition violates the Due Process Clause, 17 Equal
Protection Clause, and Indiana’s Privileges and Immunities Clause because, as Petitioners
have said it, no rational basis exists for such a definition. [Pet. Br. in Supp. at 46-47.]
Definitions and classifications drawn by a legislative body are entitled to considerable
judicial deference and subject to the rational basis standard. [Pet. Br. in Supp. at 46 (citing
to City of Cleburne v. Cleburne Living Center, Inc., 473 U.S. 432 (1985); Johnson v. Daley,
15

In the final pages of an objection to additional intervenors joining this litigation, Petitioners bury
an argument that the State Court Order is not dispositive. [See Dkt. No. 103 at 14-16.]
Respondents have not had the opportunity to respond to Petitioners’ view of the State Court Order,
to the extent they are even aware of it. In any event, we are not suggesting that the State Court
Order is in any sense dispositive.
16

Considering the issue sua sponte, we do not believe that the circumstances before us trigger the
doctrine of Pullman abstention because the Act is not unclear (nor do the parties claim it is
unclear). See Brownsburg Area Patrons Affecting Change v. Baldwin, 943 F. Supp. 975, 989 (S.D.
Ind. 1996) (abstention under the Pullman doctrine required when an unclear state statute is “‘fairly
susceptible’ to an interpretation that would avoid or substantially alter the constitutional issue”).
17

The Due Process Clause, Section 2 of the Fourteenth Amendment, prohibits states from
“depriv[ing] any person of life, liberty, or property, without due process of law.” The level of
scrutiny applied under a Due Process analysis is the same as our previously-stated Equal Protection
analysis. Eby–Brown Co., LLC v. Wis. Dept. of Agric., 295 F.3d 749, 754 (7th Cir. 2002); Turner
v. Glickman, 207 F.3d 419, 424 (7th Cir. 2000).

36

339 F.3d 582, 587 (7th Cir. 2003); see also Resp. Cross-Mtn. Br. at 36.] However, a
statutory classification which “manifests a patently arbitrary classification, utterly lacking
in rational justification” will be found to violate the Due Process Clause. Flemming v.
Nestor, 363 U.S. 603 (1960); United States v. Arango-Montoya, 61 F.3d 1331 (7th Cir.
1995).
Following the filing of Petitioners’ claims, the Act was amended by House Enrolled
Act 1035, as follows:
(b) “Tobacco product”, for purposes of IC 7.1-3-18.5, means a product
that:(1) contains tobacco, including e-liquid (as defined by IC 7.1-7-2-10)
that contains tobacco nicotine; and (2) is intended for human consumption.
Ind. Code § 7.1-1-3-47.5(b), amended by HEA 1035. Despite the amendment clarifying
that e-liquids contain nicotine (not tobacco), by including e-liquids in the definition of
“tobacco product”, e-liquid retailers will be required to obtain a Tobacco Sales Certificate.
See IC 7.1-7-5-1(c); IC 7.1-3-18.5-1. 18
18

Petitioners final claim and argument in their Motion for Summary Judgment is that the Act “now
requires open system e-liquid retailers (e.g., vape shops) to obtain a [Tobacco Sales] Certificate
by July 1, 2015.” No such requirement exists for closed system e-liquid retailers, they stress. [Pet.
Br. in Supp. at 50-51.] This argument is simply a continuation of Petitioners’ previously-stated
positions that have been rejected based on a rational justification for regulating open and closed eliquids differently. Petitioners argue: “For the same reasons that Indiana statute’s distinction
between open and closed system e-liquids violates notions of equal protection . . . so too does the
different classification of retailers selling those products.” [Id. at 55.] We repeat: it would have
been rational for the General Assembly to believe that closed system e-liquids were being sold
alongside tobacco products which already required a Tobacco Sales Certificate. Indeed,
Petitioners argue that closed system e-liquids are often sold with tobacco cigarettes [Pet. Br. in
Supp. at 6], whereas open system e-liquids are sold in thousands of vape shops across the country
that “generally do not sell tobacco products.” [Id. at 14]. Petitioners’ arguments do nothing to
overcome the General Assembly’s rational speculation, despite that speculation being unsupported
by evidence or empirical data. See Beach Commc’ns, 508 U.S. 307 (1993). Accordingly, we
conclude that a rational justification exists to require retailers of open e-liquid, but not closed eliquids, to obtain a Tobacco Sales Certificate.

37

It is undisputed that e-liquids do not contain tobacco and that nicotine is not a form
of tobacco. Because the above-quoted definition equates nicotine with tobacco, Petitioners
challenge the definition as “factually unsupported, and [] thus without any rational basis.”
[Pet. Br. in Supp. at 47; Pet. Resp./Reply Br. at 31-33.] 19
Respondents rejoin that a rational justification for defining e-liquids as “tobacco
products” exists. Specifically, during the hearings before the House Committee on Public
Policy, the President of the Indiana Grocery and Convenience Store Association, Joe
Lackey, argued that by treating e-liquids as tobacco products, grocers can ensure that the
products they sell are safe. [Resp. Cross-Mtn. Br. at 36-37.] According to the Committee
Report, Mr. Lackey opined that “all nicotine should be included [as tobacco products] and
that the FDA will eventually regulate [e-liquids] like tobacco.” [Id. at Ex. C at p. 8.]
Although its definition does not mention “nicotine,” the FDA defines “tobacco product” to
include “any product made or derived from tobacco that is intended for human
consumption,” which arguably includes nicotine. 21 U.S.C. § 321(rr)(1). 20 Petitioners

19

Petitioners rely on Prestonia Area Neighborhood Ass’n v. Abramson, 797 S.W.2d 708, 712 (Ky
1990) in support of their argument that the Indiana General Assembly’s definition of e-liquids as
tobacco products are akin to legislatively declaring an apple to be an orange. [Pet. Br. in Supp. at
48.] We fail to perceive Prestonia’s is relevance to the facts and issues here. In that case, the
court was analyzing whether substantial evidence supported an urban renewal ordinance. Neither
the facts, issues, nor standard of review mirrors the case before us.
20

The parties draw our attention to a 2014 proposed Federal Drug Administration regulation
known as the “Deeming Rule.” If adopted, the Deeming Rule would deem all products meeting
the definition of “tobacco product” subject to the Tobacco Control Act. As a result, e-liquids
containing nicotine derived from tobacco used for open and closed devices would be regulated by
the FDA. 79 Fed. Reg. 23,142 (Apr. 25, 2014). Although Petitioners suggest a preemption claim
may be possible in the future on this basis, [Pet. Resp./Reply Br. at 24], as of the date of this Order,

38

concede that “e-liquids typically contain nicotine derived from tobacco plant[, although it]
is completely distinct from tobacco.” [Pet. Br. in Supp. at 13; see also id. at 14 (noting that
nicotine is pharmaceutical smoking cessation products are not considered “tobacco
products” under federal law).] These two items of evidence provide a rational justification,
or at the very least “rational speculation,” for defining “tobacco product” to include eliquids containing nicotine. Respondents have provided the requisite justification to avoid
a violation of the Due Process and Equal Protection Clauses. As previously stated, our
inquiry ends when a plausible basis for the legislation is identified. Monarch Beverage
Co. v. Grubb, 138 F. Supp. 3d 1002, 1010 (S.D. Ind. 2015). The Act and Indiana Code
7.1-3-18.5-1, as amended, does not violate the Due Process Clause, Equal Protection
Clause, or Indiana’s Privileges and Immunities Clause by defining e-liquids as tobacco
products.
Conclusion
For all the reasons stated herein, we hold that the Act does not violate the Dormant
Commerce Clause, Equal Protection Clause, or Indiana Constitution. Accordingly, we
DENY Petitioners’ Motion for Summary Judgment [Dkt. No. 56].

We GRANT

Respondents’ Cross-Motion for Summary Judgment. [Dkt. No. 70.] Because Petitioners’
Motion for Preliminary Injunction raises the same issues as their Motion for Summary
Judgment and was conditioned on a finding that the Act is unconstitutional (which we did

we assume the Deeming Rule has not been adopted by the FDA. Thus, we will not address any
possible implications that the proposed Deeming Rule may in terms of the Act.

39

not find), we DENY Petitioners’ Motion for Preliminary Injunction [Dkt. No. 55] as
MOOT. Final judgment shall enter accordingly.

Date: ________________
6/30/2016

Distribution:
All cm/ecf counsel of record

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