GOODCAT, LLC v. COOK et al

Filing 54

ORDER granting GoodCat's 9 Motion for Preliminary Injunction. The court hereby ENJOINS the ATC from enforcing Indiana Code §§ 7.1-7-2-14, 7.1-7-2-22(3)(B), and 7.1-7-4-1(d) against GoodCat. The court further ORDERS the ATC to issue GoodCat a manufacturing permit until GoodCat's claims reach final disposition. Signed by Judge Richard L. Young on 8/19/2016. (TMD)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

GOODCAT, LLC,

)
)
Plaintiff,
)
)
vs.
)
)
DAVID COOK, DAVID COLEMAN,
)
DALE GRUBB, and MARJORIE MAGINN, )
in their official capacities for the Indiana
)
Alcohol and Tobacco Commission; and the
)
STATE OF INDIANA,
)
)
Defendants.
)
______________________________________ )
)
CLOUDTOWN, LLC,
)
DB VAPES, LLC,
)
DNM VENTURES, LLC,
)
VAPOR BANK E-LIQUID, LLC,
)
LICENSED E-LIQUID MANUFACTURING )
LLC, and VAPEING, LLC,
)
)
Intervenors.
)

1:16-cv-01514-RLY-DML

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER
GoodCat LLC, the Plaintiff, challenges the constitutionality of certain requirements
that Indiana Code § 7.1-7-1 et seq. (the “Indiana Act” or the “Act”) imposes on
manufacturers of electronic vapor liquids (“e-liquids”) who wish to sell their products in
Indiana. Effective July 1, 2016, any manufacturer of e-liquids destined for sale or
distribution in Indiana must have a manufacturing permit issued by the Indiana Alcohol
and Tobacco Commission (“ATC”). On June 20, the ATC rejected GoodCat’s permit
1

application. That same day, GoodCat filed this lawsuit seeking a temporary restraining
order (“TRO”) and a preliminary injunction against Defendants, Commissioners of the
ATC and the State of Indiana, enjoining the ATC from enforcing certain provisions against
GoodCat.

Other manufacturers of e-liquids, Cloudtown LLC, et al. (collectively,

“Intervenors”), subsequently requested to intervene in this action to oppose GoodCat’s
challenges to the Act. On June 30, the statutory deadline for the ATC to issue permits, the
court granted GoodCat’s request for a TRO and ordered the ATC to issue GoodCat a
provisional manufacturing permit.
Also on June 30, this court issued an opinion in a related case, Legato Vapors LLC
v. Cook, No. 1:15-cv-761, 2016 WL 3548658 (S.D. Ind. June 30, 2016). In that case, the
plaintiffs challenged the Act on several constitutional grounds, including the dormant
Commerce Clause, the Equal Protection and Due Process Clauses of the Fourteenth
Amendment, and the Indiana Constitution’s Privileges and Immunities Clause. The court
rejected each of the plaintiffs’ arguments and granted summary judgment in favor of the
State. GoodCat, unlike the plaintiffs in Legato Vapors, challenges only a narrow group of
provisions—commonly known as the “security requirements”—on legal theories not
squarely before the court in Legato Vapors. The court, therefore, confines the scope of its
consideration in this matter to issues not raised in Legato Vapors.
On July 11, the court held a preliminary injunction hearing. GoodCat, Defendants,
and Intervenors appeared by counsel. Having considered GoodCat’s Verified Complaint,
the parties’ briefs in support of and opposition to the motion for a preliminary injunction,

2

and evidence and argument of counsel at the hearing, the court now issues the following
findings of fact and conclusions of law.
I.

Findings of Fact1

A.

Introduction to e-liquids and GoodCat LLC

1.

E-liquids typically contain nicotine, flavorings, propylene glycol, and/or vegetable

glycerin. The nicotine concentrations and flavor combinations vary widely among eliquids. (Stipulated Facts ¶¶ 2, 4).
2.

Electronic nicotine delivery devices (or “ENDS”), including electronic cigarettes,

heat and aerosolize e-liquids. Once the device aerosolizes the e-liquid, the user of the
device inhales the vapor through a mouthpiece. (Id. ¶¶ 1, 3).
3.

Since 2009, GoodCat has manufactured e-liquids from its manufacturing facility in

Naples, Florida. (Filing No. 46 (“Hr’g Tr.”) at 53:16–54:5).
4.

GoodCat has forty employees, including nine degreed scientists, and the capacity to

produce up to 3 million bottles a month and approximately 100 metric tons of e-liquid
products per year. (Id. at 54:6–15, 55:8–11, 57:15–18).
5.

GoodCat produces e-liquid products for approximately 104 brands with

approximately 20,000 unique products, or “SKUs.” (Id. at 56:15–23). In addition to
shipping bottled e-liquids, approximately 20 to 25 percent of its sales consists of stock, or
“white label,” e-liquids sold by the barrel to other distributors or smaller retailers who wish

1

GoodCat and the Defendants filed Joint Stipulations of Fact (Filing No. 36 (“Stipulated
Facts”)) prior to the preliminary injunction hearing and before the court granted the Intervenors’
Motion to Intervene. Thus, the court cites to the stipulated facts only to the extent Intervenors
neither objected to them during the July 11 hearing nor presented conflicting evidence.

3

to bottle their own products. (Id. at 87:11–88:10). GoodCat’s products are sold through
convenience stores, big box stores, and so-called vape shops in Indiana.2 (Id. at 56:8–14).
It is estimated that approximately 200 retail outlets in Indiana sell GoodCat’s products.
(Id. at 56:21–23).
6.

Raymond Keller founded GoodCat and currently serves as the company’s president.

Mr. Keller has a degree in biology and a background in nuclear engineering. Mr. Keller
built GoodCat’s production facility to implement stringent security measures similar to
those he experienced in the nuclear industry. (Id. at 52:24–53:1, 92:19–93:3).
7.

GoodCat uses keycard locks on all doors at its manufacturing facility to limit access

to authorized personnel. A security computer records who enters or exits each door at
GoodCat’s facility, including the date and time. GoodCat also has a sophisticated, realtime surveillance system consisting of sixty-four camera views of the facility. (Id. at
62:12–64:6).
8.

GoodCat does not have a physical presence in Indiana. (Id. at 54:2–3).

9.

Since 2009, GoodCat has been registered as a tobacco product establishment with

the United States Food and Drug Administration (“FDA”). GoodCat has filed each of its
product formulations with the FDA. (Id. at 64:17–65:1).
B.

The Federal Government’s regulation of e-liquid

10.

In 2009, Congress enacted the Family Smoking Prevention and Tobacco Control

Act (“TCA”), codified at 21 U.S.C. § 387 et seq., to grant the Food and Drug

2

“Vape shops” are typically small retail outlets where e-liquid users can purchase e-liquids
and ENDs. (See Hr’g Tr. at 55:24–56:7).
4

Administration (“FDA”) authority to regulate tobacco products under the Food, Drug, and
Cosmetics Act (“FDCA”), 21 U.S.C. § 301 et seq. See 21 U.S.C. § 387a(a).
11.

The TCA extends the FDA’s authority to regulate “all cigarettes, cigarette tobacco,

roll-your-own tobacco, and smokeless tobacco and to any other tobacco products that the
[FDA] by regulation deems to be subject to [the TCA].” Id. § 387a(b).
12.

The TCA established certain regulations, such as “annual registration” and

“premarket review” requirements, see id. §§ 387e and 387j, and gives the FDA the
authority to promulgate further regulations in certain areas, such as for manufacturing
standards. Id. § 387f(e).
13.

On May 10, 2016, the FDA exercised its authority under § 387a(b) to promulgate

what is known as its “Deeming Rule,” by which the FDA deems e-liquid a “tobacco
product” and therefore subject to regulation as such under the FDCA. See Deeming
Tobacco Products to be Subject to the FDCA, 81 Fed. Reg. 28,974 (May 10, 2016). The
Deeming Rule takes effect on August 8, 2016. Id.
14.

As a consequence of the Deeming Rule, which took effect on August 8, 2016, the

FDCA’s requirements concerning manufacturer and product registration, submission of
ingredient listings, marketing, and premarket review applies to e-liquids. Id. at 28,976.
15.

The Deeming Rule also established three new regulations governing the sale of e-

liquids: (1) prohibitions on sales to persons under 18 years of age; (2) requirements that
packages bear health warnings; and (3) prohibitions on vending machine sales. Id.
16.

Although the FDA has had authority to promulgate regulations since 2009, it has

not promulgated regulations concerning good manufacturing standards.
5

17.

With respect to tobacco products, the FDCA specifically addresses preservation and

preemption in Section 916 of the TCA, codified at 21 U.S.C. § 387p(a). That section, in
pertinent part, provides as follows:
(1) Preservation
Except as provided in paragraph (2)(A), nothing in this
subchapter, or rules promulgated under this subchapter, shall
be construed to limit the authority of . . . a State or political
subdivision of a State . . . to enact, adopt, promulgate, and
enforce any law, rule, regulation, or other measure with respect
to tobacco products that is in addition to, or more stringent
than, requirements established under this subchapter, including
a law, rule, regulation, or other measure relating to or
prohibiting the sale, distribution, possession, exposure to,
access to, advertising and promotion of, or use of tobacco
products by individuals of any age, information reporting to the
State, or measures relating to fire safety standards for tobacco
products.
(2) Preemption of certain State and local requirements
(A) In General
No State . . . may establish or continue in effect with respect to
a tobacco product any requirement which is different from, or
in addition to, any requirement under the provisions of this
subchapter relating to tobacco product standards, premarket
review, adulteration, misbranding, labeling, registration, good
manufacturing standards, or modified risk tobacco products.
(B) Exception
Subparagraph (A) does not apply to requirements relating to
the sale, distribution, possession, information reporting to the
State, exposure to, access to, the advertising and promotion of,
or use of, tobacco products by individuals of any age, or
relating to fire safety standards for tobacco products.
21 U.S.C. § 387p(a).
6

C.

Indiana’s regulation of e-liquid

18.

During its 2015 legislative session, the Indiana General Assembly enacted Indiana

Public Law 176-2015, as amended by Indiana Public Law 214-2016 and codified at Indiana
Code § 7.1-7-1 et seq. The Act imposes a comprehensive regulatory and permitting scheme
on the manufacture of e-liquids for use in electronic cigarettes and other vaping devices.
It applies to (1) “[t]he commercial manufacturing, bottling, selling, bartering, or importing
of e-liquid in Indiana”; and (2) “[t]he sale, possession, and use of e-liquid products in
Indiana.” Ind. Code § 7.1-7-1-1; (see Stipulated Facts ¶ 5).
19.

The purpose of the Act is:
in the absence of federal regulations, 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.

Ind. Code § 7.1-7-1-2.
20.

The Act requires a “manufacturer,” defined as “a person or cooperative, located

inside or outside Indiana, that is engaged in manufacturing e-liquid,” id. § 7.1-7-2-15, to
obtain a permit from the ATC “before mixing, bottling, packaging, or selling e-liquid to
retailers or distributors in Indiana.” Id. § 7.1-7-4-1(a).
21.

Defendants interpret the Act as requiring an out-of-state manufacturer to obtain a

manufacturing permit under the Act if the manufacturer sells e-liquid to: (i) a distributor or
retailer located in Indiana; (ii) a distributor located outside of Indiana who then sells or
7

distributes the product to a retailer located in Indiana; (iii) a consumer or end-user in
Indiana over the Internet; or (iv) an out-of-state retailer who then sells the product to a
consumer or end user in Indiana over the Internet. (Stipulated Facts ¶ 8).
22.

In the event an e-liquid manufacturer sells its product in Indiana without first having

obtained a manufacturing permit, the manufacturer commits a Class A infraction and may
be subject to civil liability for damages and attorney’s fees in a lawsuit by one or more
permittee-manufacturers. Ind. Code §§ 7.1-7-6-3, 7.1-7-6-4.
1.
23.

Security firm requirements

To obtain a permit, a manufacturer must submit an application to the ATC

containing, inter alia, evidence that it has a service agreement with a single security firm,
valid for a period of five years. Id. § 7.1-7-4-1(d)(2).
24.

The Act defines “security firm” as any entity that (1) “is independent from an

applicant and manufacturer”; (2) “has experience in the security business”; and (3) as of
July 1, 2015, (i) satisfies the requirements under Section 7.1-7-4-1(d)(3), (ii) is a locksmith
as defined under Section 7.1-7-2-14, and (iii) provides security services to the
manufacturer. Id. § 7.1-7-2-22.
25.

To qualify for a permit, the applicant-manufacturer must contract with a single

security firm that, inter alia:
 has continuously employed, for not less than the previous one-year period, at least
one employee who is accredited or certified by the Door and Hardware Institute as
an Architectural Hardware Consultant;
 has continuously employed, for not less than the previous one-year period, at least
one employee who is accredited or certified as a certified Rolling Steel Fire Door
8

Technician by the International Door Association or the Institute of Door Dealer
Education and Accreditation;
 employs an employee that, for at least a one-year period, has been certified as a
professional locksmith by the Associated Locksmiths of America;
 has at least one year of commercial experience in the preceding year with owning
and operating a security monitoring station with ownership, control, and use of a
redundant offsite backup security monitoring station; and
 has at least one year of commercial experience in the preceding year with operating
a facility that modifies commercial hollow metal doors, frames, and borrowed lights
with authorization to apply the Underwriters Laboratories label.
Id. §§ 7.1-7-4-1(d), 7.1-7-2-14, and 7.1-7-2-22(3). A qualifying security firm may not
subcontract with another entity or person to meet the credential requirements above.
Id. § 7.1-7-2-11; (Stipulated Facts ¶ 9).
26.

Although the Act requires that an eligible security firm have employed a certified

Rolling Steel Fire Door Technician for at least a year, the Act does not require an e-liquid
manufacturer to have rolling steel fire doors in its facility. (Hr’g Tr. at 64:10–16).
27.

Defendants have no position on how a rolling steel fire door protects against

tampering or adulteration of e-liquid during the manufacturing process. (Stipulated Facts
¶ 11).
28.

A security firm qualifies under the Act only if it has complied continuously with

Sections 7.1-7-4-1(d)(3), 7.1-7-2-14, and 7.1-7-2-22 since July 1, 2015. Id. § 7.1-7-222(3); (Stipulated Facts ¶ 10).
29.

The Act requires that all applications for e-liquid manufacturing permits be

submitted and approved by the ATC no later than June 30, 2016. The ATC has not
accepted and will not accept manufacturing permit applications after June 30, 2016. Ind.
9

Code § 7.1-7-4-1(b); (Stipulated Facts ¶¶ 5–6). Defendants do not know of any reason for
the General Assembly’s decision to set the June 30, 2016 deadline for e-liquid
manufacturing permit applications. (Stipulated Facts ¶ 7).
2.
30.

Mulhaupt’s and the Act

Mulhaupt’s, Inc. is a security firm with facilities in Indianapolis, Terre Haute, and

Lafayette, Indiana.

(Hr’g Tr. at 16:2–6).

At any given time, Mulhaupt’s employs

approximately 90 to 100 employees. (Id. at 17:20–21).
31.

In August 2015, ATC Commissioner Marjorie Maginn and Jessica Allen, counsel

for the ATC, toured a Mulhaupt’s facility and discussed Mulhaupt’s “capacities.” (Id. at
25:15–20).
32.

In 2015 and 2016, Mulhaupt’s had no employee with both certifications and

therefore, prior to the Amendment, did not qualify as an eligible security firm under the
statute. (Id. at 25:24–26:17, 29:9–23).
33.

Doug Mulhaupt, president of Mulhaupt’s, testified that prior to the Amendment, he

had concerns that Mulhaupt’s could not comply with the statute. (Id. at 25:24–26:17;
Stipulated Facts, Ex. 9). Mr. Mulhaupt further testified that he believed that the company’s
attorneys, Jack Thar and Jennifer Drewry, discussed the ATC’s approval of Mulhaupt’s
with members of the ATC prior to the Amendment’s enactment in March 2016. (Hr’g Tr.
at 26:21–27:10, 47:21–48:11).
34.

In 2016, the General Assembly passed Indiana Public Law 214-2016, which

amended Section 7.1-7-4-1(d)(3), effective March 24, 2016 (the “Amendment”). Prior to
the Amendment, the law required a security firm to have an employee certified as both an
10

architectural hardware consultant and a rolling steel fire door technician. See 2016 Ind.
Acts 3154. The Amendment allows a qualifying security firm to satisfy the certification
requirements with multiple employees holding different certifications. Id.; Ind. Code
§ 7.1-7-4-1(d)(3).
35.

Mulhaupt’s vice president, Michael Gibson, serves as the president-elect of the Door

and Hardware Institute, which is the certifying organization identified in the statute for the
Architectural Hardware Consultant certification. (Hr’g Tr. at 30:2–5).
36.

Since the Act took effect, the ATC has approved only one security firm, Mulhaupt’s,

as compliant with the statutory requirements in Sections 7.1-7-4-1(d), 7.1-7-2-14, and 7.17-2-22. (Id. at 18:9–12).
37.

Despite the exhaustive searches of GoodCat and other e-liquid manufacturers, no

other known security firm anywhere in the United States satisfies the security firm
requirements. (Id. at 18:9–16, 28:21–23, 84:1–4, 14–19; see also Stipulated Facts ¶ 30
n.1).
38.

Mulhaupt’s advised potential applicants for e-liquid manufacturing permits that,

among other criteria, its decision to enter into service agreements with applicants would
depend on “Mulhaupt’s ability to meet the applicant’s needs in the terms of service.”
(Stipulated Facts ¶ 34, Ex. 9; Hr’g Tr. 44:8–21). Mulhaupt’s also advised potential
applicants of a timeline for completing the application process. (Pl.’s Ex. 9).
39.

Mulhaupt’s received inquiries of some type from between twenty and forty e-liquid

manufacturers and approximately eighteen applications, including multiple applications
from manufacturers located outside Indiana. (Hr’g Tr. at 18:17–20, 19:5–15, 43:4–9).
11

Preliminarily, Mulhaupt’s determined that it might only do business with approximately
eight of the eighteen applicants. (Id. at 19:1–4, 45:4–12). Mr. Mulhaupt testified that some
of the manufacturers it rejected were located outside of Indiana and its contiguous states.
(Id. at 45:4–9).
D.

Intervenors

40.

The ATC ultimately granted permits to six e-liquid manufacturers—Cloudtown,

LLC; DB Vapes, LLC; DNM Ventures, LLC; Licensed E-Liquid Manufacturing LLC;
VapeINg LLC; and Vapor Bank E-Liquid, LLC. (Pl.’s Ex. 11). Each of the six permittees
entered into a security services agreement with Mulhaupt’s. (Id.; Stipulated Facts ¶ 30).
The six permittees have also intervened in this litigation to oppose GoodCat’s challenge to
the Act.
41.

Four of the six permittees—DB Vapes, LLC; Licensed E-Liquid Manufacturing

LLC; VapeINg LLC; and Vapor Bank E-Liquid, LLC—are located in Indiana.
42.

Cloudtown, LLC is an Ohio-based company with a physical address in Cleves,

Ohio. (Hr’g Tr. at 131:6–132:1). Despite having a permit, Cloudtown does not yet
manufacture e-liquid for sale in Indiana. (Id. at 31:4–15).
43.

DNM is a Florida company with headquarters in Bonita Springs, Florida, and

manufacturing facilities in Largo, Florida. (Pl.’s Exs. 12 and 21). DNM manufactures,
distributes, markets, and sells e-liquids. (Hr’g Tr. at 108:12–23). The majority interest
holder in the company, with 75 percent ownership, has an Indianapolis, Indiana address;
the holder of the remaining 25 percent interest has a Bonita Springs, Florida address. (Pl.’s
Ex. 12). DNM’s current chief executive officer is Brian King. (Id.; Hr’g Tr. 108:9–12).
12

44.

The ATC received DNM’s permit application on April 11, 2016, and approved it on

April 19. (Pl.’s Ex. 12 and 13).
45.

DNM began production of e-liquids in early June 2016. (Hr’g Tr. at 114:14–17).

46.

DNM’s permit application listed 8565 Somerset Drive, Unit A, Largo, Florida, as

the address for its manufacturing facility. (Pl.’s Ex. 21). Another Florida company, Lizard
Juice, LLC, shares the same physical address. (Pl.’s Ex. 20).
47.

Regarding the relationship between DNM, a permittee, and Lizard Juice, Mr. King

testified as follows:
Q:

What’s the relationship, if any, between Lizard Juice,
LLC and DNM Ventures?

A:

Lizard Juice is a brand—a regional brand that we
brought to Indiana as part of our brand package. We
have operational control of the plant and the
manufacturing of our brand[s], the Lizard Juice, Akua,
AMP, Space Jam and other brands that we’re bringing
to market as well.

(Hr’g Tr. at 116:14–20).
48.

DNM has no ownership interest in Lizard Juice, LLC. (Id. at 117:7–12).

E.

Mulhaupt’s rejects GoodCat’s application for security services

49.

GoodCat began its search for a qualifying security firm in fall 2015. (Hr’g Tr. at

67:24–68:1).
50.

GoodCat first heard that Mulhaupt’s might satisfy the security firm criteria in

February or March 2016. (Id. at 68:8–12). GoodCat immediately attempted to contact
Mulhaupt’s regarding its services. (Id. at 68:13–15).

13

51.

On March 16, 2016, an employee of Mulhaupt’s sent Mr. Keller of GoodCat an

email enclosing a Mulhaupt’s application and a standard non-disclosure agreement.
(Stipulated Facts ¶ 36; Pl.’s Ex. 10). A few hours later, Mr. Keller sent GoodCat’s
completed application and non-disclosure agreement to Mike Gibson, Vice President of
Mulhaupt’s. (Hr’g Tr. at 69:16–70:3; Pl.’s Ex. 14).
52.

On April 13, 2016, GoodCat received a letter via email from Mulhaupt’s indicating

that it rejected GoodCat’s application. (Stipulated Facts ¶ 37). Mr. Keller made multiple
follow-up inquiries with Mulhaupt’s regarding its rejection of GoodCat’s application but
received no further information. (Hr’g Tr. at 72:17–22).
F.

GoodCat’s attempts to comply with the Act’s security requirements

53.

Following Mulhaupt’s decision not to do business with GoodCat, GoodCat

negotiated and entered into a services agreement with a Florida-based security firm,
Security Specialist Incorporated (“SSI”). SSI meets the video surveillance requirements
set forth in Indiana Code § 7.1-7-4-1(d)(3)(B)(i) with one exception: SSI neither owns nor
operates a remote monitoring station. Instead, SSI contracts with another security company
for this service. (Stipulated Facts ¶ 21; Pl.’s Exs. 1–2).
54.

GoodCat and SSI each then contracted separately with local Florida-based persons

that hold the Architectural Hardware Consultant and Rolling Steel Fire Door Technician
certifications required by Indiana Code § 7.1-7-4-1(d)(3)(A)(i)–(ii), as well as a local
Florida-based person that has been certified as a professional locksmith by the Associated
Locksmiths of America for at least a one-year period as required by Indiana Code § 7.1-72-22(3)(B). (Stipulated Facts ¶¶ 22–24, 27–29; Pl.’s Exs. 3–8).
14

55.

GoodCat and SSI each contracted with Fields Door and Hardware, Inc., which holds

an Architectural Hardware Consultant certification. Although Fields Door and Hardware
has operated for more than one year a facility that modifies commercial hollow metal doors,
frames, and borrowed lights, it does not have authorization to apply the Underwriters
Laboratories label. Instead, it has authority to apply the “Intertek label,” a competing fire
rating label. (Stipulated Facts ¶¶ 25–26; Hr’g Tr. at 20:18–22). Like Underwriters
Laboratories, Intertek is one of the Occupational Safety and Health Administration’s
(“OSHA”) Nationally Recognized Testing Laboratories (“NRTL”). (Stipulated Facts
¶ 26).
56.

GoodCat thus satisfies all of the statutory criteria for the award of an e-liquid

manufacturing permit except that:
a.

SSI has not continuously employed, for not less than a one-year period, at

least one employee who is accredited or certified by the Door and Hardware Institute as an
Architectural Hardware Consultant;
b.

SSI has not continuously employed, for not less than the previous one-year

period, at least one employee who is accredited or certified as a Rolling Steel Fire Door
Technician by the International Door Association or the Institute of Door Dealer Education
and Accreditation;
c.

SSI does not employ an employee that, for at least a one-year period, has

been certified as a Professional Locksmith by the Associated Locksmiths of America;
d.

SSI does not own and operate the remote video security monitoring station,

but rather contracts with another security company for this service;
15

e.

SSI does not operate a facility that modifies commercial hollow metal doors,

frames, and borrowed lights or have authorization to apply the Underwriters Laboratories
label. (Stipulated Facts ¶ 15).
G.

The ATC rejects GoodCat’s permit application

57.

On April 28, 2016, GoodCat submitted a partial application for an e-liquid

manufacturing permit to the ATC. GoodCat submitted additional materials in support of
its application on June 16, 2016, including (1) an e-liquid security firm certification; (2) an
addendum to the security firm certification; and (3) the service agreements between SSI
and GoodCat and the subcontracting firms. (Id. ¶ 14; Pl.’s Exs. 1–8; Hr’g Tr. at 73:1–
75:11).
58.

The time required for GoodCat to negotiate and execute the various service

agreements caused the delay between GoodCat’s submission of the partial application and
the supplemental materials. (Hr’g Tr. at 73:12–16, 75:12–16).
59.

Part of the application to the ATC required GoodCat to certify that its e-liquid

products contain only ingredients deemed permissible by Indiana Code § 7.1-7-5-1(a).
(Hr’g Tr. at 65:12–15).
60.

On June 20, 2016, the ATC returned the application materials to GoodCat’s for

failure to comply with Indiana Code § 7.1-7-4-1(d)(3)(A) insofar as GoodCat’s security
services firm, SSI, subcontracted—and does not directly employ—persons with the
requisite credentials. (Pl.’s Ex. 17; Hr’g Tr. at 75:25–76:21).

16

H.

Changes in Indiana’s market for e-liquids

61.

Prior to June 30, 2016, approximately 190 brands of e-liquids were sold in Indiana

by Indiana retailers, excluding private label “house brands” manufactured by Indiana vape
shops. Approximately 90 percent of the revenue from branded e-liquids came from eliquids manufactured outside of Indiana. (Stipulated Facts ¶ 44; Hr’g Tr. at 98:1–5).
62.

Prior to June 30, 2016, the brands of e-liquid sold by retailers in Indiana were

associated with 177 distinct businesses.3 Of those businesses, thirteen were located in
Indiana; and approximately 164 were out-of-state businesses selling e-liquid in Indiana.
(Stipulated Facts ¶ 45).
63.

Amy Lane, the owner of a vape shop in Peru, Indiana, testified that since the Act

took effect, she experienced a 44 percent price increase on an identical product that, prior
to July 1, 2016, she could purchase from a West Coast manufacturer. (Hr’g Tr. at 99:5–
23). Ms. Lane testified that, in her opinion, the Act has caused a relative scarcity of eliquids in Indiana and associated higher prices. In her view, rising prices and the inability
of permitted manufacturers to fulfill retail orders for products has caused at least 24 vape
shops to close in Indiana. (Id. at 102:2–103:14).

3

It is not clear from the briefs or evidence presented to the court whether this figure includes
only manufacturers of e-liquids.

17

II.
1.

Conclusions of Law

To the extent any of the foregoing findings of fact constitute conclusions of law, the

court hereby adopts them as conclusions of law. Similarly, if any conclusions of law set
forth below constitute findings of fact, the court adopts them as findings of fact.
2.

The ATC is an executive agency of the State of Indiana. Ind. Code § 7.1-2-1-1. The

Indiana General Assembly created the ATC and charged it with, inter alia, implementing
and enforcing the regulatory scheme for e-liquids set forth in the Act. Ind. Code § 7.1-73-1.
3.

The State of Indiana is a body politic. The State, acting through the General

Assembly, enacted the statutory provisions challenged in this matter.
4.

Because GoodCat challenges the Act’s security requirements—and the ATC’s

enforcement of them—as violations of the United States Constitution, the court has
jurisdiction over this matter pursuant to 28 U.S.C. § 1331.
A.

Standard

5.

To succeed on a motion for a preliminary injunction, the moving party must show

that it has (1) some likelihood of success on the merits, (2) no adequate remedy at law, and
(3) that it will suffer irreparable harm without the injunction. Planned Parenthood of Ind.,
Inc. v. Comm’r of Ind. State Dept. of Health, 699 F.3d 962, 972 (7th Cir. 2012). If it makes
this threshold showing, the court weighs the balance of harm a grant or denial of the
injunction would inflict on the parties and the effect of an injunction on the public interest.
Id. The interdependence of these considerations requires the court to evaluate them on a
sliding scale. Judge v. Quinn, 612 F.3d 537, 546 (7th Cir. 2010); Coronado v. Valleyview
18

Pub. Sch. Dist. 365-U, 537 F.3d 791, 795 (7th Cir. 2008). Thus, “the more net harm an
injunction can prevent, the weaker the plaintiff’s claim on the merits can be while still
supporting some preliminary relief.” Hoosier Energy Rural Elec. Co-op, Inc. v. John
Hancock Life Ins. Co., 582 F.3d 721, 725 (7th Cir. 2009). As with any preliminary
injunction motion, the court’s inquiry begins with the merits of the claims.
B.

GoodCat’s Claims

7.

In its Verified Complaint, GoodCat alleges that the security requirements set forth

in Indiana Code §§ 7.1-7-2-14, 7.1-7-2-22, and 7.1-7-4-1(d) violate the dormant Commerce
Clause in Article I, Section 8 of the United States Constitution; the Due Process Clause of
the Fourteenth Amendment; and the Supremacy Clause of Article VI by way of federal
preemption. Because the court addresses statutory issues before constitutional ones, it
turns first to the issue of preemption. See Patriotic Veterans, Inc. v. Indiana, 736 F.3d
1041, 1046 (7th Cir. 2013).
1.
8.

Preemption

GoodCat argues that Section 916 of the TCA, codified at 21 U.S.C. § 387p,

preempts the Act’s security requirements for e-liquid manufacturers. Defendants and
Intervenors counter that (1) security requirements do not “relate to” matters Congress
expressly reserved for itself to regulate; and (2) even if the security requirements fall within
the preemption clause, they cannot be “different from, or in addition to” existing federal
regulations because the FDA has not exercised its authority to regulate tobacco products.
9.

The Supremacy Clause provides that “the Laws of the United States . . . shall be the

supreme Law of the land . . . any Thing in the Constitution or Laws of any State to the
19

Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. The clause provides Congress the
power to preempt state law. Michigan S. R.R. Co. v. City of Kendallville, 251 F.3d 1152,
1153 (7th Cir. 2001). Thus, in determining whether a federal statute preempts state law,
the court looks to the intent of Congress. Patriotic Veterans, Inc., 736 F.3d at 1046.
10.

Generally, the court ascertains Congress’s intent “through a lens that presumes that

the state law has not been preempted.” Id. “[G]iven the historic police powers of the states,
a court must assume that Congress did not intend to supersede those powers unless the
language of the statute expresses a clear and manifest purpose otherwise.” Id. When a
challenged state law aims to protect public health and safety, the court must therefore
construe any ambiguity in a preemption clause against preemption. Id. However, as
GoodCat notes, that presumption does not apply where the state law in question bears upon
an area with a history of significant federal presence. United States v. Locke, 529 U.S. 89,
108, 120 S. Ct. 1135, 146 L. Ed. 2d 69 (2000) (finding presumption inapplicable because
Congress, since “the earliest days of the Republic,” has legislated matters of maritime
commerce).
11.

The plain language of the Act expresses the State’s purpose of protecting the health

and safety of Indiana consumers through its own regulatory scheme for e-liquids. Despite
this traditional exercise of police powers, GoodCat argues—and neither Defendants nor
Intervenors directly counter—that the non-preemption presumption does not trigger in this
case because Congress has historically regulated the tobacco industry. Congress first
asserted its authority over the manufacture of tobacco products in 2009 with the enactment
of the TCA. See 21 U.S.C. § 387f(e). And, effective August 8, 2016, the FDA’s Deeming
20

Rule for the first time brought e-liquids within its sphere of regulatory authority over
tobacco products.4 Deeming Tobacco Products to be Subject to the FDCA, 81 Fed. Reg.
28,974 (May 10, 2016). GoodCat further suggests that Congress’s long and active presence
in the Tobacco industry, particularly with respect to product labeling and advertising, see
FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 143–44, 120 S. Ct. 1291, 146
L. Ed. 2d 121 (2000) (“Congress has enacted six separate pieces of legislation since 1965
addressing the problem of tobacco use and human health.”), forecloses operation of the
presumption in this case. Although the court doubts that the federal presence in the tobacco
industry rises to the level GoodCat suggests, the court need not make this determination
because, as explained below, Congress’s expression of dominion over the manufacturing
of tobacco products leaves little ambiguity for the court to construe. See Altria Grp., Inc.
v. Good, 555 U.S. 70, 77, 129 S. Ct. 538, 172 L. Ed. 2d 398 (2008) (affirming that courts
must consider substance and scope of clause with a presumption disfavoring preemption
“when the text . . . is susceptible of more than one plausible reading”); Bates v. Dow
Agrosciences LLC, 544 U.S. 431, 449, 125 S. Ct. 1788, 161 L. Ed. 2d 687 (2005) (“In areas
of traditional state regulation, we assume that federal statute has not supplanted state law

4

Defendants devote substantial attention to the particulars of a consolidated action pending
in the District Court for the District of Columbia, Nicopure Labs, LLC v. FDA, No. 1:16-cv-878ABJ (D.D.C.), which challenges the FDA’s Deeming Rule on constitutional and administrative
grounds. Defendants do not elaborate on the significance of that litigation, other than to suggest
that this court should “wait and see” how it unfolds before deciding the merits of GoodCat’s
preemption claim. The court disagrees. See Kraft Foods Holdings, Inc. v. Helm, 205 F. Supp. 2d
942, 953 n.12 (N.D. Ill. 2002) (declining to stay proceedings pending the outcome of case before
the Supreme Court which, one party argued, would resolve a circuit split on burden of proof
required to show trademark dilution).

21

unless Congress has made such an intention clear and manifest.” (internal quotation marks
omitted)).
12.

As noted above, Section 387p(a) contains three clauses: a preservation clause, a

preemption clause, and a savings clause. Section 387p(a)(1) preserves states’ traditional
power to adopt any “measure relating to or prohibiting the sale, distribution, possession,
exposure to, access to, advertising and promotion of . . . tobacco products, [or] information
reporting to the State . . . .” Congress limited states’ regulatory power only to those areas
not preempted in Section 387p(a)(2)(A). That section prohibits states from enacting any
measure “which is different from, or in addition to, any requirement . . . relating to tobacco
product standards, premarket review, adulteration, misbranding, labeling, registration,
[and] good manufacturing standards . . . .” Id. Despite the express preemption, the savings
clause specifically exempts from preemption an otherwise preempted state law if it relates
to “the sale, distribution, possession, [or] information reporting to the State.” Id. §
387p(a)(2)(B). In essence, states retain broad power to regulate, and even ban, the sale of
tobacco products. See U.S. Smokeless Tobacco Mfg. Co. v. City of New York, 708 F.3d
428, 433 (2d Cir. 2013) (noting that although Congress prohibited the FDA from banning
entire categories of products, the TCA did not extend that prohibition to the states). As the
Second Circuit observed, however, the preemption clause “reserves regulation at the
manufacturing stage exclusively to the federal government.” Id. (distinguishing between
a sales ban on tobacco products with certain characteristics and a product standard subject
to preemption); see also Indep. Gas & Serv. Stations Ass’n, Inc. v. City of Chicago, 112 F.
Supp. 3d 749, 754 (N.D. Ill. 2015) (same).
22

13.

The court now turns to GoodCat’s contention that the Act’s security requirements

run afoul of Section 387p because they are “different from, or in addition to” the TCA’s
requirements relating to the registration, adulteration, premarket review, and good
manufacturing standards of tobacco products.
a.
14.

Product registration

The TCA requires that “every person who owns or operates any establishment in

any State engaged in the manufacture, preparation, compounding, or processing of a
tobacco product” must annually register business and contact information with the FDA
and subject registered establishments to FDA inspections. 21 U.S.C. §§ 387e(b), (g). This
annual registration also requires manufacturers to provide the FDA complete lists of all
tobacco products and copies of product labels. Id. § 387e(i)(1)(b). GoodCat argues that
the Indiana Act’s mandate that manufacturers certify compliance with the security
requirements amounts to additional and different registration requirements within the
meaning of the preemption clause.
15.

GoodCat’s position fails for at least two reasons. First, the court must not interpret

“relates to” literally, for “everything in an open economy relates to everything else.”
Lebamoff Enters., Inc. v. Huskey, 666 F.3d 455, 457 (7th Cir. 2012). The TCA requires a
manufacturer to register as such and to provide the FDA with comprehensive product lists
and corresponding labels. The Act, on the other hand, requires a manufacturer to verify
that it has a service agreement with an eligible security firm before it may sell e-liquids in
Indiana. To construe, as GoodCat does, the Act’s security requirements as additional or
different registration requirements within the meaning of the TCA would call into question
23

any state or local regulation that requires a manufacturer to verify its compliance. In light
of Congress’s express reservation of regulatory power to the states, see 21 U.S.C. §
387p(a)(1), the court finds GoodCat’s construction impermissibly broad. Second, the Act’s
security requirements relate to the sale and distribution of tobacco products—i.e., a
manufacturer may not sell or distribute e-liquids in Indiana without a permit—and
therefore fall within the savings provision. See id. § 387p(a)(2)(B); U.S. Smokeless
Tobacco Mfg. Co., 708 F.3d at 434 (finding no preemption of ordinance that bans sale of
products with certain flavor characteristics); see also Nat’l Ass’n of Tobacco Outlets, Inc.
v. City of Providence, 731 F.3d 71, 83 (1st Cir. 2013) (same).
b.
16.

Adulteration

GoodCat’s argument with respect to adulteration and premarket review fail for

similar reasons. Section 387b of the TCA directs the FDA to deem a tobacco product
“adulterated” if, inter alia, it is “contaminated by any added poisonous or deleterious
substance” or “it has been prepared, packed, or held under insanitary conditions.” GoodCat
points to no FDA regulations promulgated to address the adulteration of tobacco products.
Rather, GoodCat directs the court to the Act’s stated purpose of ensuring that e-liquids sold
in Indiana are not contaminated or adulterated. Because the Act’s stated purpose involves
protecting Indiana consumers from adulterated products, GoodCat argues, the security
requirements constitute different or additional requirements relating to adulteration and
therefore subject to preemption. But the text of the preemption clause does not limit the
purpose of state or local regulations of tobacco products; it applies only to specific
measures imposing different or additional requirements. See 21 U.S.C. § 387p(a)(2)(A)
24

(“No State . . . may establish . . . any requirement which is different from, or in addition
to, any requirement under the provisions of this subchapter . . . .”) (emphasis added). Thus,
the clause does not operate unless the FDA regulates the adulteration of tobacco products,
and GoodCat has not directed the court to any such regulations. Additionally, as explained
above, because the Act’s security requirements function to limit the sale or distribution of
e-liquids in Indiana, the savings clause applies.
c.
17.

Premarket review

Section 387j governs premarket review. For any tobacco products not commercially

marketed as of February 15, 2007, a manufacturer must submit such products for premarket
review and approval by the FDA before placing them in interstate commerce. See 21
U.S.C. §§ 387j(a)–(b). The application for premarket review must include a list of all
components, ingredients, and additives in the product, and full descriptions of the
manufacturing facilities and the processes used in its production. Id. § 387j(b); (see also
Filing No. 10-1 at 12–18 (detailing information to include in application for premarket
review)). GoodCat highlights the absence of security requirements from the information
required for premarket review and concludes that, because a manufacturer could satisfy all
the reporting requirements in Section 387j and yet fail to obtain authorization to sell eliquids in Indiana, the Act’s security requirements must be preempted. This view, however,
conflates the FDA’s review of specific tobacco products before they enter interstate
commerce and the measures a manufacturer must implement at its facilities before selling
any e-liquid in Indiana. The court finds the preemption clause inapplicable here.

25

d.
18.

Good manufacturing standards

GoodCat’s strongest argument for preemption lies in Congress’s decision to vest the

FDA with authority to regulate “good manufacturing standards” for tobacco products. The
TCA charges the FDA with prescribing regulations “requiring that the methods used in,
and the facilities and controls used for, the manufacture . . . packing, and storage of a
tobacco product conform to current good manufacturing practice.”

21 U.S.C. §

387f(e)(1)(A). GoodCat argues that the Indiana Act’s security requirements relate to the
“facilities and controls used for the manufacture . . . packing, and storage of a tobacco
product,” because any manufacturer wishing to participate in the Indiana market for eliquids must have an eligible security firm willing to continuously monitor its
manufacturing facilities.
19.

GoodCat relies on the Second Circuit’s observation in U.S. Smokeless Tobacco

Manufacturing Co. that Congress “reserve[d] regulation at the manufacturing stage
exclusively to the federal government.” 708 F.3d at 434. In that case, the court considered
whether a New York City ordinance banning the sale of flavored tobacco products
amounted to a “tobacco product standard” preempted by Section 387p(a)(2)(A). Id. at
433–45. The plaintiffs argued that such a sales ban functioned as a product standard in the
same way the California law governing nonambulatory pigs in National Meat Association
v. Harris, — U.S. —, 132 S. Ct. 965, 181 L. Ed. 2d (2012) functioned as a production
standard in violation of the Federal Meat Inspection Act (“FMIA”), 21 U.S.C. § 601 et seq.
The law at issue in National Meat prohibited slaughterhouses from holding or processing
nonambulatory pigs for food—proscriptions absent from the FMIA—and required
26

immediate and humane euthanasia.

The Supreme Court held that California’s ban

effectively imposed production requirements “in addition to, or different than” those under
the FMIA and thus violated the FMIA’s preemption provision.5 Nat’l Meat Ass’n, — U.S.
—, 132 S. Ct. at 973 (“[Criminal proscription] is something more than an ‘incentive’ or
‘motivator’; the sales ban instead functions as a command to slaughterhouses to structure
their operations in the exact way the [California law] mandates.”). Finding no preemption,
the U.S. Smokeless Tobacco court distinguished New York City’s ordinance from a product
standard, explaining that although states and localities cannot circumvent preemption by
simply framing a local standard as a sales ban, operation of the ordinance “depends
on . . . [the] end product, and not on whether it was manufactured in a particular way or
with particular ingredients.” 708 F.3d at 434–35.6

5

The FMIA’s preemption clause reads, in relevant part:
Requirements within the scope of [the FMIA] with respect to
premises, facilities, and operations of any establishment at which
inspection is provided under . . . [the FMIA] which are in addition
to, or different than those made under [the FMIA] may not be
imposed by any State.

21 U.S.C. § 678 (emphasis added).
6

In National Association of Tobacco Outlets, Inc., the First Circuit considered the
preemptive effect of Section 387p on a Providence, Rhode Island ordinance similar to the New
York City ordinance at issue in U.S. Smokeless Tobacco. 731 F.3d at 74, 81–83. Although the
court reached the same result as the U.S. Smokeless Tobacco court, it noted its disagreement with
the Second Circuit’s suggestion that a sales regulation may in effect, yet impermissibly under
National Meat, regulate the manufacturing of tobacco products. Id. at 83 n.11. The National
Association court explained that unlike the FMIA’s preemption clause at issue in National Meat,
Section 387p contains a savings clause that exempts sales regulations from preemption. Id.
Therefore, the court reasoned, whether a sales regulation impacts manufacturing has no bearing
on the preemption analysis. Id. The court finds this reasoning persuasive in light of Congress’s
express reservation of states’ authority to wholly ban entire categories of tobacco products. 21

27

20.

Even if the Indiana Act’s security requirements (1) relate to good manufacturing

standards, see 21 U.S.C. § 387p(a)(2)(A), and (2) do not relate to the sale or distribution of
e-liquids and thus fall under the savings clause, see id. § 387p(a)(2)(B), the FDA’s failure
to promulgate any regulations pursuant to its statutory authority condemns GoodCat’s
preemption challenge.
21.

The parties appear to agree that the FDA has not issued product standards or good

manufacturing practice regulations. See, e.g., 81 Fed. Reg. 28,974, at 29,003 (rejecting
calls to delay the deeming rule until the FDA issues regulations for product and
manufacturing standards; explaining that the agency needs more product-specific
information by way of automatic registration requirements before promulgating such
standards). Nor has GoodCat provided the court any indication that new regulations will
be forthcoming. Furthermore, as Intervenors note, the FDA must satisfy certain review
requirements before promulgating a new regulation, such as holding a hearing and
affording an advisory committee reasonable time to submit recommendations. See 21
U.S.C. § 387f(e)(1)(B). Because the preemption clause in Section 387p triggers only when
a state or local measure “is different from, or in addition to, any [federal] requirement,” the
clause cannot preempt the Indiana Act’s security requirements.
22.

This conclusion finds reinforcement in Freightliner Corp. v. Myrick, 514 U.S. 280,

115 S. Ct. 1483, 131 L. Ed. 2d 385 (1995). There, the Supreme Court considered
preemption challenges to Georgia common law causes of action for negligent design

U.S.C. § 387p(a)(1); see U.S. Smokeless Tobacco Mfg. Co., 708 F.3d at 433 (observing that the
TCA prohibits the FDA—but not the states—from banning tobacco products).

28

defects in tractor-trailers unequipped with antilock braking systems. Freightliner Corp.,
514 U.S. at 286. The petitioner-manufacturers argued that the National Traffic and Motor
Vehicle Safety Act of 1966 (“Safety Act”), 49 U.S.C. § 30101 et seq., expressly preempted
any state standard not identical to the federal standard. Id. Although the agency charged
with implementing the Safety Act issued a regulation concerning braking systems, an
appeals court suspended the regulation and remanded it to the agency for further
consideration. At time of the litigation, the agency still had not taken final agency action
to reinstate the standard. Id. at 285–86.
23.

Like GoodCat, the petitioners in Freightliner argued that “the absence of regulation

itself constitutes regulation.” Id. at 286; (see Filing No. 10 (“Pl.’s Br. Supp.”) at 22 (“No
such security firm or 24-hour video monitoring requirements have even been suggested,
much less imposed, by the FDA.”)). The Court disagreed, concluding that:
[T]here is no evidence that [the agency] decided that trucks and
trailers should be free from all state regulation of stopping
distances . . . . Indeed, the lack of federal regulation did not
result from an affirmative decision of agency officials to
refrain from regulating air brakes. [The agency] did not decide
that the minimum, objective safety standard required by [the
Safety Act] should be the absence of all standards, both federal
and state. Rather, the lack of a federal standard stemmed from
the decision of a federal court that the agency had not compiled
sufficient evidence to justify its regulation.
Freightliner, 514 U.S. at 286 (footnote omitted). The FDA has clearly expressed its intent
to regulate manufacturing standards at some point in the future; but the undisputed fact
remains that no such standards yet exist. Furthermore, Section 387p’s preservation and
savings clauses underscore the lack of congressional intent “to centralize all authority over
29

the [manufacturing of tobacco products] in . . . the Federal Government.” See id. For these
reasons, the court finds that GoodCat is unlikely to succeed on its preemption challenge to
the Indiana Act’s security requirements.
2.
24.

Commerce Clause

The Commerce Clause empowers Congress to regulate interstate commerce. U.S.

Const. art. I, § 8, cl. 3. Although not expressly stated, the so-called “dormant” Commerce
Clause implicitly prohibits state and local governments, even in the absence of federal
legislation, from enacting laws that discriminate against or excessively burden interstate
commerce. See Comptroller of Treasury of Md. v. Wynne, — U.S. —, 135 S. Ct. 1787,
1794, 191 L. Ed. 2d 813 (2015). GoodCat argues that the Act’s security requirements
impermissibly discriminate against out-of-state e-liquid manufacturers.7
25.

To prevail under the dormant Commerce Clause, the plaintiff must first demonstrate

that a law burdens interstate commerce. Alliant Energy Corp. v. Bie, 330 F.3d 904, 911
(7th Cir. 2003). The parties do not dispute that since the Act took effect, fewer e-liquids
manufactured outside Indiana now find their way onto store shelves in Indiana. Thus, the
court must categorize this burden to determine the level of scrutiny to apply. See Nat’l
Paint & Coatings Ass’n v. City of Chicago, 45 F.3d 1124, 1130–31 (7th Cir. 1995). Laws

7

The court notes that in Legato Vapors LLC v. Cook, No. 1:15-cv-761, 2016 WL 3548658
(S.D. Ind. June 30, 2016), the plaintiffs challenged the Act as an attempt to regulate commerce
wholly outside of Indiana in violation of the dormant Commerce Clause. GoodCat does not make
this argument. To the extent the Legato Vapors court evaluated the Act under the Pike balancing
test, see infra, it did not consider—as the plaintiffs did not specifically challenge—the
constitutionality of the security requirements as discriminating against interstate commerce. See
id at *9–11 (finding evenhanded regulation that only incidentally impacts interstate commerce;
and thus no violation of the dormant Commerce Clause).

30

affecting interstate commerce fall into three categories: (1) laws that explicitly discriminate
against interstate commerce; (2) facially neutral laws that bear more heavily on interstate
commerce than on local commerce; and (3) and laws that burden commerce but do not
discriminate, either explicitly or in effect, against interstate commerce. Id. at 1131.
26.

Laws that explicitly discriminate are treated as “virtually per se” unconstitutional.

Id.; see also Dep’t of Revenue of Ky. v. Davis, 553 U.S. 328, 338, 128 S. Ct. 1801, 170 L.
Ed. 2d 685 (2008) (“A discriminatory law . . . will survive only if it ‘advances a legitimate
local purpose that cannot be adequately served by reasonable nondiscriminatory
alternatives’ . . . .” (internal citations omitted)). The Act does not fall into this category.
27.

Instead, the parties’ dispute centers on whether the Act’s security requirements have

a disparate impact on interstate commerce and thus fall into the second category. Even
within this category, a facially neutral law may nonetheless function as a facially
discriminatory law if it acts “as an embargo on interstate commerce without hindering
intrastate sales.” Nat’l Paint & Coatings Ass’n, 45 F.3d at 1131. Courts will subject such
laws to the same heightened scrutiny applied to laws that explicitly discriminate. Id. By
contrast, a law that regulates evenhandedly and has only incidental or indirect effects on
interstate commerce must survive the Pike balancing test, whereby “[the law] will be
upheld unless the burden imposed on such commerce is clearly excessive in relation to the
putative local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S. Ct. 844, 25
L. Ed. 2d 174 (1970). Although no clear line separates the Pike approach and the
heightened scrutiny for laws that more severely affect interstate commerce, “the critical
consideration is the overall effect of the statute on both local and interstate activity.”
31

Alliant Energy Corp., 330 F.3d at 911–12 (quoting Brown-Forman Distillers Corp. v. New
York State Liquor Auth., 476 U.S. 573, 579, 106 S. Ct. 2080, 90 L. Ed. 2d 552 (1986)); see
also Lebamoff Enters., Inc. v. Huskey, 666 F.3d 455, 460 (7th Cir. 2012) (noting the
difficulty in categorizing and weighing effects on interstate commerce).
28.

If, as Defendants and Intervenors argue, the security requirements do not

disproportionately impact interstate commerce, they fall into the third category of effects
and the rational basis standard applies. Nat’l Paint & Coatings Ass’n, 45 F.3d at 1131; see
also Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 126 n.16, 98 S. Ct. 2207, 57 L.
Ed. 2d 91 (1978) (finding no discriminatory effect where the “statute has no impact on the
relative proportions of local and out-of-state goods sold in Maryland and, indeed, no
demonstrable effect whatsoever on the interstate flow of goods”).

As proof of no

discrimination, both Intervenors and Defendants rely on the fact that two of the six permit
holders reside outside Indiana. Even more, one permittee, DNM Ventures, manufactures
e-liquids in GoodCat’s home state, Florida. (See supra Findings of Fact ¶¶ 3, 43). Thus,
the argument goes, GoodCat cannot plausibly assert discrimination against non-Indiana
manufacturers when one-third of the permittees have manufacturing facilities outside
Indiana.
29.

The court finds differently. Prior to the Act taking effect, 164 of the 177 businesses

(more than 90 percent) selling e-liquids in Indiana were out-of-state businesses, (see supra
Finding of Fact ¶ 62), and approximately 90 percent of the revenue from branded e-liquids
came from e-liquids manufactured outside Indiana. Fast-forward to present, and two-thirds

32

of the permittees producing e-liquids for sale in Indiana have Indiana addresses.8 This
reallocation of commerce among local and out-of-state firms, by itself, calls for greater
scrutiny than mere rational basis. See Nat’l Paint & Coatings Ass’n, 45 F.3d at 1131. That
two permittees reside outside of Indiana means only that the effect of the security
requirements did not amount to a complete ban on e-liquid sales from out-of-state
manufacturers. GoodCat need not show complete discrimination to succeed on a dormant
Commerce Clause challenge. See id.; Hunt v. Washington State Apple Advert. Comm’n,
432 U.S. 333, 351–53, 97 S. Ct. 2434, 53 L. Ed. 2d 383 (1977) (finding discrimination
against sales of Washington apples where North Carolina law did not ban Washington
apples but it eliminated the competitive advantage Washington growers enjoyed vis-à-vis
North Carolina growers).
30.

This leaves the applicable standard somewhere between heightened scrutiny for

facially neutral but severely discriminatory laws and the tougher Pike balancing test. The
court concludes that even under the Pike approach, GoodCat has shown a reasonable
likelihood of success under the Commerce Clause. But first, more on discrimination.
31.

The Act provides that before any manufacturer can sell or distribute e-liquids in

Indiana, it must first obtain a manufacturing permit issued by the ATC. To qualify for a

8

The court acknowledges its limited fact-finding at this early stage in the litigation. Despite
having had an evidentiary hearing, the court and parties adhered to an expedited briefing and
hearing schedule due to the then-looming effective date of the Act’s permitting scheme. Thus, for
example, the court does not know whether or to what extent in-state manufacturers were
responsible for bringing e-liquid labels into Indiana from outside Indiana before or after the Act
took effect. But because neither the Defendants nor Intervenors challenged GoodCat’s assertions
or their significance, (see supra Finding of Fact ¶ 62), the court accepts them as true.

33

permit, the applicant must prove it has a services agreement with a security firm that meets
the security requirements. (See supra Findings of Fact, Section C(1)). The rigorous
security requirements resulted in a single security firm in the United States qualifying to
provide security services to manufacturers. This firm, Mulhaupt’s, operates exclusively in
Indiana, (see supra Finding of Fact ¶ 30); has limited capacity such that it cannot do
business with every e-liquid manufacturer who seeks to participate in the Indiana market
(see supra Findings of Fact ¶¶ 38–39); and maintained complete discretion in deciding
whom to contract with, (see id.; Pl.’s Exs. 9 and 10). Moreover, the Act precludes all other
firms who failed to satisfy the requirements from ever becoming eligible to provide security
services. (See supra Findings of Fact ¶¶ 24–25). Therefore, even though the ATC issued
permits evenhandedly (i.e., any manufacturer with, inter alia, proof of a services agreement
with an eligible security firm could obtain a permit) the Act effectively delegated a policy
of economic protectionism to a private entity.
32.

Defendants and Intervenors argue that GoodCat has no basis to challenge the

security requirements because to the extent the Act discriminates against interstate
commerce, it discriminates against other security firms—not e-liquids manufacturers. This
argument misses the mark. The court sees no reason to limit its inquiry into “discriminatory
effect” to whether a direct line of causation connects the State to the actual burden imposed
on interstate commerce. The Act’s security requirements are such that only one local firm
can provide a state-mandated service for commercial access to Indiana’s market for eliquids. As one might predict, the lone firm’s capacity in fact favors local commerce at the
expense of interstate commerce.
34

33.

On the other side of the Pike balance, Intervenors and Defendants point to the

court’s observation in Legato Vapors:
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.” [Ind. Code §] 7.1-7-1-2. It is wellestablished that states have the responsibility to protect the
health, safety, and welfare of its citizens and are afforded great
latitude to do so. 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. We
find that the local benefits provided by the Act relating to the
health and safety of Indiana citizens are significant.
Legato Vapors LLC, at *19.

Although the Legato Vapors court acknowledged the

legitimate ends of the Act’s statutory scheme—the safety of Indiana consumers against
intentional tampering and sabotage of e-liquid products—the court did not squarely address
the security requirements or, more importantly, their impact on interstate commerce.
GoodCat does not challenge the validity of the Act in its entirety, but rather the security
requirements.
34.

Defendants highlight, for example, the benefits of a single security firm with W2

employees compared to a piecemeal security team consisting of subcontractors. Beyond
this, Defendants point to mere rational justifications for the remaining requirements, such
as personnel certified in modifying commercial hollow metal doors. In light of the burden
imposed on interstate commerce as set forth above, the court finds that the burden on
interstate commerce clearly exceeds any purported benefits. As such, the court concludes

35

that GoodCat has a reasonable likelihood of succeeding on its claim under the dormant
Commerce Clause.
3.
35.

Due Process

GoodCat also challenges the security requirements as a violation of the Due Process

Clause. For purposes of a preliminary injunction, however, the plaintiff need only present
“a plausible claim on the merits” to show a reasonable likelihood of success. Hoosier
Energy Rural Elec. Co-op, Inc. v. John Hancock Life Ins. Co., 582 F.3d 721, 725 (7th Cir.
2009). Having determined that GoodCat has a reasonable likelihood of success on its claim
under the Commerce Clause, the court’s consideration of the merits ends here.
C.

Balance of harms

36.

Absent injunctive relief, the court must determine whether GoodCat will suffer

irreparable harm and, if so, the weight of that harm compared to any harm occasioned on
the other parties.
37.

“Irreparable harm is harm which cannot be repaired, retrieved, put down again,

atoned for . . . . [T]he injury must be of a particular nature, so that compensation in money
cannot atone for it.” Graham v. Med. Mut. of Ohio, 130 F.3d 293, 296 (7th Cir.1997)
(internal quotation and citation omitted). Defendants and Intervenors argue that GoodCat
has an available remedy for any harm through a final adjudication of this case. The court
finds otherwise. Principles of sovereign immunity would preclude GoodCat any recovery
against Defendants. See, e.g., Cmty. Pharmacies of Ind., Inc. v. Ind. Family, 801 F. Supp.
2d 802, 806 (S.D. Ind. 2011) (finding that the Eleventh Amendment would prevent the
plaintiff from recovering money damages). If the court denied preliminary relief, GoodCat
36

would have to withdraw its commercial presence in Indiana. GoodCat would incur lost
profits during the pendency of this litigation and have no way to recover.

More

fundamentally, however, a reasonable likelihood of a constitutional violation, such as
GoodCat alleges, rises to the level of irreparable harm for the purposes of injunctive relief.
Baskin v. Bogan, 983 F. Supp. 2d 1021, 1028 (S.D. Ind. 2014) (citing cases).
38.

Because GoodCat seeks an injunction against enforcement of the security

requirements as against GoodCat only, Intervenors’ investment interests and concerns of
any competitive advantage GoodCat might enjoy carry little weight here. First, as all
parties agree, GoodCat has already invested substantial resources to comply with standards
it expects the FDA to issue. Secondly, this Entry does not constitute a final ruling on the
merits; it is merely the court’s early, best analysis as to the merits of GoodCat’s claims.
39.

Similarly, although Indiana has a valid and important interest in seeing that its laws

are enforced, the balance of harm to the State or to Indiana consumers does not outweigh
the very real and nearly certain economic harm GoodCat will incur absent an injunction.
III.

Conclusion

For the reasons set forth herein, the court finds that GoodCat has a reasonable
likelihood of succeeding on the merits of its claim under the dormant Commerce Clause,
and that, absent a preliminary injunction, GoodCat will suffer irreparable harm that would
outweigh any potential harm to Defendants, Intervenors, or the public interest. The court,
therefore, GRANTS GoodCat’s Motion for a Preliminary Injunction (Filing No. 9). The
court hereby ENJOINS the ATC from enforcing Indiana Code §§ 7.1-7-2-14, 7.1-7-2-

37

22(3)(B), and 7.1-7-4-1(d) against GoodCat. The court further ORDERS the ATC to issue
GoodCat a manufacturing permit until GoodCat’s claims reach final disposition.

SO ORDERED this 19th day of August 2016.

_________________________________
__________________________________
RICHARD L. YOUNG, CHIEF JUDGE
RICHARD L. YOUNG, CHIEF JUDGE
United States District Court
United States District Court
Southern District of Indiana
Southern District of Indiana
Distributed Electronically to Registered Counsel of Record.

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