Red Earth LLC et al v. United States of America et al

Filing 45

DECISION AND ORDER granting in part and denying in part plaintiffs' motion for a preliminary injunction. Signed by Hon. Richard J. Arcara on 7/30/2010. (JMB) Modified on 7/30/2010 (JMB).

Red Earth LLC et al v. United States of America et al

Doc. 45

UNITED STATES DISTRICT COURT W E S T E R N DISTRICT OF NEW YORK

RED EARTH LLC d/b/a SENECA SMOKESHOP and AARON J. PIERCE, Plaintiffs, PRELIMINARY INJUNCTION ORDER 10-CV-530A

v. UNITED STATES OF AMERICA and ERIC H. HOLDER, JR., in his Official Capacity as Attorney General of the United States, Defendants.

SENECA FREE TRADE ASSOCIATION, Plaintiff, PRELIMINARY INJUNCTION ORDER 10-CV-550A v. UNITED STATES OF AMERICA and ERIC H. HOLDER, JR., in his Official Capacity as Attorney General of the United States, et. al., Defendants.

IN T R O D U C T IO N C u rre n tly before the Court are motions for a preliminary injunction made by p la in tiffs , Native Americans who are in the business of selling cigarettes and

Dockets.Justia.com

tobacco products via the Internet, mail and telephone. Plaintiffs seek to enjoin e n fo rc e m e n t of the Prevent All Cigarette Trafficking Act of 2009 ("PACT Act" or "A c t"), Pub. L. No. 111-154, 124 Stat. 1087 (2010), asserting that various p ro vis io n s of the Act violate their due process and equal protection rights. They a ls o assert that the Act violates the Commerce Clause, the Tenth Amendment a n d is void for vagueness. Defendants, the United States of America and Attorney General Eric H o ld e r, Jr., oppose the motion arguing that plaintiffs have failed to make the re q u is ite showing necessary to enjoin enforcement of a federal statute. Upon consideration of the parties' submissions and after hearing argument o n July 7, 2010, the Court finds that plaintiffs have demonstrated: (1) a clear lik e lih o o d of success on the merits of their due process claim; (2) that they will s u ffe r irreparable injury absent injunctive relief; and (3) that injunctive relief is in th e public interest. Accordingly, the Court grants plaintiffs' motion for a p re lim in a ry injunction.

B AC K G R O U N D P la in tiff Aaron J. Pierce is a member of the Seneca Nation of Indians ("S e n e c a Nation"), a federally recognized Indian tribe. Pierce owns and operates a tobacco retail business located on the Cattaraugus Indian Reservation, a S e n e c a Nation Territory, under the name Red Earth LLC d/b/a Seneca

2

Smokeshop. Pierce has owned and operated that business since 2000, and e m p lo ys 17 people, two of whom are members of the Seneca Nation. Red Earth c o n d u c ts business in 46 out of 50 states, and transacts all of its business via In te rn e t, telephone, and mail orders. Plaintiff Seneca Free Trade Association ("SFTA") is a not-for-profit o rg a n iz a tio n chartered by the Seneca Nation. SFTA is authorized to engage in a d vo c a c y efforts on behalf of its members. Approximately 140 members of SFTA a re in the tobacco retail business, including plaintiff Red Earth. Those 140 m e m b e rs conduct their retail operations via Internet, telephone and mail orders a n d many rely exclusively on the United States Postal Service to deliver their to b a c c o products to their customers. Customers of those 140 members are lo c a te d throughout the United States. Plaintiffs seek to enjoin enforcement of the PACT Act, which requires re ta ile rs of cigarettes and smokeless tobacco who perform "delivery sales"1 to c o m p ly with all state and local laws in the jurisdiction where those products are b e in g delivered (sometimes referred to herein as the "destination jurisdiction"). Specifically, the Act requires that delivery sellers 2 comply with: (3 ) all state, local, tribal, and other laws generally a p p lic a b le to sales of cigarettes or smokeless tobacco
1

A "delivery sale" is a sale of cigarettes or smokeless tobacco that occurs when the buyer is not in the physical presence of the seller at the time of the sale. See PACT Act, at § 1 (codified at 15 U.S.C. § 375(1)).
2

A delivery seller is one who performs a delivery sale. Id.

3

as if the delivery sales occurred entirely within the s p e c ific state and place, including laws imposing-(A ) excise taxes; (B ) licensing and tax-stamping r e q u ire m e n ts ; (C ) restrictions on sales to minors; and (D ) other payment obligations or legal re q u ire m e n ts relating to the sale, distribution, or d e liv e ry of cigarettes or smokeless tobacco; and (4 ) the tax collection requirements set forth in subsection (d).

S e e § 15 U.S.C. § 376a (a)(3)(2010). The tax collection requirements referred to in subsection (d) are codified at 15 U.S.C. § 376a(d) and require delivery sellers to pay any existing state or local excise taxes in advance of the sale or delivery. See id. at § 276a(d)(1). Furthermore, the Act provides that "a delivery sale shall b e deemed to have occurred in the State and place where the buyer obtains p e rs o n a l possession of the cigarettes or smokeless tobacco, and a delivery p u rs u a n t to a delivery sale is deemed to have been initiated or ordered by the d e live ry seller." Id. at § 376a(f). In addition to requiring that delivery sellers comply with all state and local re q u ire m e n ts relating to the sale and distribution of cigarettes and smokeless to b a c c o in the destination jurisdiction, the Act declares cigarettes and smokeless to b a c c o to be "nonmailable matter." The Act provides:

4

All cigarettes and smokeless tobacco (as those terms are defined in s e c tio n 1 of the Act of October 19, 1949, commonly referred to as th e Jenkins Act) are nonmailable and shall not be deposited in or c a rrie d through the mails. The United States Postal Service shall not a c c e p t for delivery or transmit through the mails any package that it k n o w s or has reasonable cause to believe contains any cigarettes or s m o k e le s s tobacco made nonmailable by this paragraph.

S e e § 4(3)(a)(1) of the PACT Act (codified at 18 U.S.C. § 1716E(a)). Exceptions to this general mailing prohibition are made for cigars and for "mailings [of c ig a re tte s and smokeless tobacco products] within the State of Alaska or within th e State of Hawaii." Id. at § 3(b). Any violation of the PACT Act is subject to civil p e n a ltie s , as well as felony criminal prosecution punishable by imprisonment of u p to three years. See PACT ACT, § 3(a)(1) (codified at 15 U.S.C. § 377(a)(1)). Plaintiffs seek to enjoin enforcement of the PACT Act asserting that it vio la te s their due process and equal protection rights, as well as the Commerce C la u s e and the Tenth Amendment. They argue that it is simply impossible to c o m p ly with the Act because its mandates are too vague and sweeping, and if the A c t is permitted to take effect, they will be forced to close their businesses or face p o te n tia l criminal prosecution. The defendants assert that the PACT Act represents a valid act of C o n g re s s enacted pursuant to its Art. I, § 8 powers governing commerce.

5

DISCUSSION I. S ta n d a r d s for Injunctive Relief In general, a district court may grant a preliminary injunction if the moving p a rty establishes (1) irreparable harm and (2) either (a) a likelihood of success on th e merits, or (b) sufficiently serious questions going to the merits of its claims to m a k e them fair ground for litigation, plus a balance of the hardships tipping d e c id e d ly in favor of the moving party. Monserrate v. New York State Senate, 5 9 9 F.3d 148, 154 (2d Cir. 2010). However, where a party seeking a preliminary in ju n c tio n attempts to enjoin application of a governmental statute or regulation, it c a n n o t obtain injunctive relief by meeting the lesser "sufficiently serious q u e s tio n s " and "balance of the hardships" standard. Instead, it must demonstrate irre p a ra b le harm and a clear likelihood of success on the merits. Id.; see also G ra n d River Enterprise Six Nations, Ltd. v. Pryor, 481 F.3d 60 (2d Cir. 2007); B ro o k ly n Legal Servs. Corp. v. Legal Servs. Corp., 462 F.3d 219, 225 (2d Cir. 2 0 0 6 ). Additionally, the movant must show that granting a preliminary injunction is in the public interest. Winter v. Natural Res. Defense Council, Inc., 129 S. Ct. 3 6 5 (2008). Injunctive relief "is an extraordinary and drastic remedy, one that s h o u ld not be granted unless the movant, by a clear showing, carries the burden o f persuasion." Moore v. Consol. Edison Co., 409 F.3d 506, 510 (2d Cir. 2005) (in te rn a l quotation marks omitted).

6

II.

Ir re p a r a b le Harm A n irreparable harm is a harm for which "a monetary award cannot be

a d e q u a te ." Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d C ir. 1979). To satisfy the irreparable harm requirement, plaintiffs must d e m o n s tra te that absent injunctive relief they will suffer a harm that cannot be re m e d ie d by damages. Plaintiffs must also show that the injury they will suffer is "a c tu a l and imminent" and not "remote or speculative." Grand River, 481 F.3d at 66. Plaintiffs assert that if the PACT Act is permitted to take effect, they will s u ffe r deprivations of their due process and equal protection rights. "W h e n an a lle g e d deprivation of a constitutional right is involved, . . . no further showing of irre p a ra b le injury is necessary." Mitchell v. Cuomo, 748 F.2d 804, 806 (2d Cir. 1 9 8 4 ) (citing 11 C. W rig h t & A. Miller, Federal Practice and Procedure, § 2948, at 4 4 0 (1973)). Since plaintiffs allege deprivation of their constitutional rights, the C o u rt is satisfied that the they have demonstrated a threat of irreparable injury a b s e n t injunctive relief. M o re o ve r, the allegations in the complaint indicate that plaintiffs will likely g o out of business if the PACT Act is permitted to take effect. Plaintiffs assert th a t the PACT Act's requirement that they collect and pay all state and local e xc is e taxes to the destination jurisdiction before shipping any products is unduly b u rd e n s o m e because it requires them know of and comply with potentially

7

thousands of different state and local taxing schemes. They assert that the cost o f compliance far outweighs the continued operation of their businesses. In fact, th e record reflects that a number of cigarette retailers have begun closing down th e ir businesses in anticipation of the Act taking effect. See, e.g., Case No. 10c v-5 5 0 , Dkt. No. 7, at ¶ ¶ 41-42 (Decl. of Thomas Moll) ("[M]any of the 19 lic e n s e d Seneca tobacco wholesalers will be forced to close their doors in the im m e d ia te future and their employees will also lose their jobs . . . . I have p e rs o n a l knowledge that many SFTA members have already shut down, or are in th e process of shutting down because of the PACT Act."). They also point to the A c t's prohibition on use of the United States mails to ship cigarettes and s m o k e le s s tobacco and claim that if that provision takes effect, delivery sellers w h o rely exclusively on the United States mails to ship their products will be u n a b le to deliver their products to their customers. The "loss of . . . an ongoing b u s in e s s representing many years of effort and the livelihood of its . . . owners, c o n s titu te s irreparable harm" that cannot be fully compensated by monetary d a m a g e s . See Roso-Lino Beverage Distributors, Inc. v. Coca-Cola Bottling Co. o f New York, Inc., 749 F.2d 124, 125-26 (2d Cir. 1984). In light of those a lle g a tio n s , the Court finds that plaintiffs have easily satisfied their burden of s h o w in g a threat of irreparable injury if injunctive relief is not granted.

8

III.

L ik e lih o o d of Success T o obtain injunctive relief, plaintiffs must also show a clear likelihood of

s u c c e s s on the merits of their claim. Plaintiffs assert that the Act violates the C o m m e rc e Clause, due process, equal protection and the Tenth Amendment. The Court will now consider the merits of those claims.

A.

C o m m e r c e Clause P u rs u a n t to Article 1, § 8 of the Constitution, Congress has exclusive

a u th o rity to "regulate Commerce with foreign Nations, and among the several S ta te s ." The Commerce Clause contains both an affirmative grant of authority a n d a negative sweep (referred to as the "dormant" commerce clause). The n e g a tive or dormant implication of the Commerce Clause "prohibits state taxation o r regulation that discriminates against or unduly burdens interstate commerce, [th e re b y impeding] the free private trade in the national marketplace." See G e n e ra l Motors Corp. v. Tracy, 519 U.S. 278, 287 (1997). All parties agree that the seminal case on the issue of the Commerce C la u s e , as it relates to the facts of this case, is Quill Corp. v. North Dakota, 504 U .S . 298 (1992). In Quill, the Supreme Court was asked to determine whether a m a il-o rd e r catalog business that did not have any physical presence in the State o f North Dakota could be required to collect and pay an excise tax on goods p u rc h a s e d by North Dakota residents for use in that State. Adhering to the

9

"bright line" physical presence rule adopted in National Bellas Hess, Inc. v. Dep't o f Revenue of Ill., 386 U.S. 753 (1967) (overruled in part by Quill), the Supreme C o u rt held that North Dakota's attempt to tax an out-of-state entity that lacked a n y physical presence in that State violated the dormant Commerce Clause. The C o u rt explained that a "bright-line" rule requiring physical presence in a taxing ju ris d ic tio n before an out-of-state retailer can be subject to a tax was beneficial b e c a u s e it "firmly establishes the boundaries of legitimate state taxing authority to im p o s e a duty to collect sales or use taxes and reduces litigation concerning th o s e taxes." Id. at 315-16. Citing Quill, plaintiffs assert that, because they lack any physical presence o u ts id e of New York State, the PACT Act's requirement that they pay state and lo c a l excise taxes in jurisdictions where they are not physically present violates th e Commerce Clause. The key distinction between Quill and this case, h o w e ve r, is that the PACT Act is an act of Congress, not the act of an individual s ta te . Although the Commerce Clause prohibits state and local jurisdictions from im p o s in g taxes on entities located outside of their jurisdiction, that restriction does n o t apply to Congress. Congress has plenary authority to regulate the in s tru m e n ta litie s of commerce and along with this power, Congress can authorize a state or local tax that would otherwise run afoul of the Commerce Clause. See N e w England Power Co. v. New Hampshire, 455 U.S. 331, 340 (1982) ("C o n g re s s may use its powers under the Commerce Clause to `[confer] upon the

10

States an ability to restrict the flow of interstate commerce that they would not o th e rw is e enjoy . . . .'") (quoting Lewis v. BT Investment Managers, Inc., 447 U.S. 2 7 , 44 (1980)). The Supreme Court reiterated that very point in Quill when it n o te d that "Congress has plenary power to regulate commerce among the States a n d thus may authorize state actions that burden interstate commerce. . . ." Quill, 5 0 4 U.S. at 305. Indeed, the Court expressly noted in Quill that if Congress did n o t agree with the Court's conclusion in Quill, it possessed the "ultimate power" u n d e r the Commerce Clause to enact legislation to change that result. Id. at 318. However, as plaintiffs correctly note, if Congress intends to permit a state la w that would otherwise burden commerce, it must evince a clear intent to p ro vid e such authorization. See Wyoming v. Oklahoma, 502 U.S. 437, 457 (1 9 9 2 ) ("Congress must manifest its unambiguous intent before a federal statute w ill be read to permit or to approve such a violation of the Commerce Clause . . . ."). The Court will look to the legislative history or language of the statute to a s c e rta in whether Congress manifested an intent to alter the limits of state power im p o s e d by the Commerce Clause. New England Power, 455 U.S. at 341. In o rd e r for a state regulation to be removed from the reach of the dormant C o m m e rc e Clause, "congressional intent must be unmistakably clear." See S o u th -C e n tra l Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 91 (1984). In this Court's view, congressional intent to burden interstate commerce is "u n m is ta k a b ly clear." The language of the PACT Act evinces clear congressional

11

intent to authorize the imposition of state and local cigarette taxes that would o th e rw is e be inapplicable to out-of-state venders. For example, as a basis for e n a c tin g the PACT Act, Congress found, inter alia, that "unfair competition from ille g a l sales of cigarettes and smokeless tobacco [over the Internet, through mail, fa x and phone orders] is taking billions of dollars of sales away from law-abiding re ta ile rs throughout the United States," and "the intrastate sale of illegal c ig a re tte s and smokeless tobacco over the Internet has a substantial effect on in te rs ta te commerce." See PACT Act, at § 1(b)(6) and (10). To deal with this is s u e , Congress enacted the PACT Act to "require Internet and other remote s e lle rs of cigarettes and smokeless tobacco to comply with the same laws that a p p ly to law-abiding tobacco retailers" and to "increase collections of Federal, S ta te and local excise taxes on cigarettes and smokeless tobacco." Id. at § 1 (c )(1 ) and (5). The PACT Act requires that remote sellers of cigarettes and s m o k e le s s tobacco pay all state and local excise taxes imposed by a given ju ris d ic tio n before shipping those tobacco products into that jurisdiction. Id. at § 2 A (d ) (codified at 15 U.S.C. § 376a(d)) (requiring the payment of all state and lo c a l excise taxes in the destination jurisdiction to be paid "in advance" of d e live ry). Congress intended to assist state and local governments in the c o lle c tio n of cigarette and smokeless tobacco excise taxes and to require remote s e lle rs to be subject to the same taxes that apply to non-remote sellers. Since a

12

primary goal of the legislation is to make otherwise invalid state and local taxes 3 a p p ly to remote sellers, Congressional intent to alter the limits of state power o th e rw is e restricted by the Commerce Clause is "unmistakably clear." And b e c a u s e Congress has the power to authorize state and local laws that burden c o m m e rc e , the Court finds that plaintiffs have failed to show a likelihood of s u c c e s s on the merits of their Commerce Clause claim. Plaintiffs also assert that the PACT Act violates the non-delegation d o c trin e . The non-delegation doctrine prevents Congress from abdicating, or tra n s fe rrin g to others, the essential legislative functions with which it is vested. See Panama Refining Co. v. Ryan, 293 U.S. 388, 421 (1934). Plaintiffs assert th a t if Congress desires to impose taxes on the sale of cigarettes or smokeless to b a c c o , it has the power to do that. W h a t it cannot do, plaintiffs assert, is d e le g a te its taxing authority to a state. The Court does not agree that the PACT Act runs afoul of the nond e le g a tio n doctrine. In the Act, Congress is not delegating its own authority to ta x. Instead, Congress is merely eliminating any dormant Commerce Clause re s tric tio n , leaving states free to tax out-of-state retailers pursuant to their own ta xin g authority­not Congress's. Accordingly, the Court finds that plaintiffs are u n lik e ly to succeed on the merits of their non-delegation doctrine claim.

For the reasons discussed above, pre-PACT Act, any state or local tax by jurisdictions located outside New York State would have been invalid as to plaintiffs under Quill because plaintiffs are not physically present outside of New York State.

3

13

B.

D u e Process Clause 1. F a ilu re to Account for Minimum Contacts

In addition to the Commerce Clause, state taxing schemes must also s a tis fy the requirements of the Due Process Clause. As one commentator stated: "[I]n order for [a state tax] to reach the harbor of constitutionality, it must sail s a fe ly past the Scylla of the Commerce Clause and the Charybdis of due p ro c e s s ." Charles Trost and Paul Hartman, Federal Limitations on State and L o c a l Taxation, § 2:3 (2d ed.). "The Commerce Clause and the Due Process C la u s e impose distinct but parallel limitations on a State's power to tax o u t-o f-s ta te activities. Meadwestvaco Corp. V. Ill. Dep't of Revenue, 553 U.S. 16, 2 4 (2008)(citing Quill, 504 U.S. at 305-06). The Commerce Clause forbids states to levy taxes that discriminate against or burden interstate commerce, whereas th e Due Process Clause "demands that there exist some definite link, some m in im u m connection, between a state and the person, property or transaction it s e e k s to tax." Id. (internal quotations omitted.). Due process also requires that "in c o m e attributed to the State for tax purposes must be rationally related to the va lu e s connected with the taxing State." Quill, 504 U.S. at 306 (internal quotation o m itte d ). "The restraining power of the [D]ue [P]rocess [C]lause on the taxing p o w e r of the States . . . keeps the taxing power of the States at home." Trost and H a rtm a n , Federal Limitations on State and Local Taxation, § 2:3 (2d ed.). A state

14

tax that fails to satisfy due process considerations will not survive constitutional s c r u tin y . P la in tiffs argue that the PACT Act violates the Due Process Clause b e c a u s e it subjects them to the taxing jurisdiction of state and local governments w ith o u t regard to whether they have sufficient minimum contacts with those taxing ju ris d ic tio n s . Before Quill, the test for a state or local tax imposed on an out-ofs ta te vendor under the Due Process Clause was the same as the test under the C o m m e rc e Clause­physical presence within the taxing jurisdiction was required. Absent physical presence in the taxing jurisdiction, a state tax was deemed to vio la te due process. Hence, in Bellas Hess, the Supreme Court struck down an Illin o is state tax that required an out-of-state retailer to collect excise taxes on p u rc h a s e s made by Illinois residents. The Supreme Court opined that due p ro c e s s considerations prohibited a state from imposing a duty to collect a use ta x upon an out-of-state retailer with no physical presence in that state. Bellas H e s s , 386 U.S. 758-59. In contrast, in Nat'l Geographic Society v. California B o a rd of Equalization, 430 U.S. 551 (1977), the Supreme Court upheld the c o n s titu tio n a lity of a California State tax that required an out-of-state seller to c o lle c t use taxes on mail-order purchases made by California residents where the o u t-o f-s ta te seller maintained offices in California. Thus, pre-Quill, the to u c h s to n e for imposing a duty to collect use taxes under the Due Process C la u s e was­like the Commerce Clause­physical presence.

15

As commerce became increasingly interstate, the Court's jurisprudence u n d e r the Due Process Clause evolved, eventually leading the Court to abandon its "bright line" rule requiring physical presence as the touchstone for jurisdiction to tax. In Quill, the Court overruled Bellas Hess's mandate that an out-of-state s e lle r must have a physical presence in the state before the state tax will pass m u s te r under the Due Process Clause. Instead, the Court explained that the state tax will satisfy due process as long as the out-of-state seller has "minimum c o n ta c ts with the jurisdiction `such that the maintenance of the suit does not o ffe n d traditional notions of fair play and substantial justice.'" Quill, 504 U.S. at 3 0 7 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1045)). That is, th e Court "abandoned more formalistic tests that focused on a defendant's `p re s e n c e ' within a State in favor of a more flexible inquiry into whether a d e fe n d a n t's contacts with the forum made it reasonable, in the context of our fe d e ra l system of Government, to require it to defend the suit in that State" id., or c o lle c t an excise tax. The Court held that the North Dakota tax at issue in Quill d id not violate due process, even though the plaintiff had no physical presence in N o rth Dakota, because plaintiff was "engaged in continuous and widespread s o lic ita tio n of business within [that state]" such that it had "fair warning that [its] a c tivitie s may subject [it] to jurisdiction of the foreign sovereign." Id. at 308 (q u o ta tio n omitted). Based upon that "continuous and widespread solicitation of b u s in e s s " in North Dakota, the Court found:

16

[T]here is no question that Quill has purposefully directed its a c tiv itie s at North Dakota residents, that the magnitude of those c o n ta c ts is more than sufficient for due process purposes, and that th e use tax is related to the benefits Quill receives from access to the S ta te . W e therefore agree with the North Dakota Supreme Court's c o n c lu s io n that the Due Process Clause does not bar enforcement of th a t State's use tax against Quill.

Id . In light of Quill, it is clear that a state tax imposing a duty to collect excise ta xe s upon an out-of-state seller will survive due process scrutiny when out-ofs ta te seller engages in "regular or systematic solicitation" of business within that ta xin g jurisdiction. The unique problem presented in this case is that the PACT Act requires re m o te sellers who are not physically present in a taxing jurisdiction to collect s ta te and local excise taxes on cigarettes and smokeless tobacco regardless of w h e th e r their existing contacts with that taxing jurisdiction rise to the level of m in im u m contacts necessary to satisfy due process considerations. Perhaps e ve n more troublesome is the fact that the Act makes the failure to collect and re m it such taxes a federal felony punishable by up to three years of im p ris o n m e n t. If the statute is permitted to take effect, remote sellers will be re q u ire d to pay taxes anywhere they ship their products even if they otherwise la c k minimum contacts with that taxing jurisdiction. And their failure to do so will s u b je c t them to criminal prosecution.4

It is not clear where jurisdiction for such a criminal action would lie. The Jenkins Act provides that "district courts shall have jurisdiction to prevent and restrain violations" of that statute, but does not say where those criminal actions can be brought. It is conceivable that a

4

17

In Quill, the Supreme Court made clear that Congress does not have the p o w e r to authorize violations of the Due Process Clause. See Quill, 504 U.S. at 3 0 5 ("[W ]h ile Congress has plenary power to regulate commerce among the S ta te s and thus may authorize state actions that burden interstate commerce, it d o e s not similarly have the power to authorize violations of the Due Process C la u s e .") (citing Int'l Shoe, 326 U.S. at 315) (emphasis added). Defendants c o n c e d e that a state cannot seize property from a person, even in the form of ta xa tio n , without "some definite link, some minimum connection between the s ta te and the person, property or transaction it seeks to tax." See Def. Memo. of L a w in Opp. to Mtn. for Preliminary Injunction, Case No. 10-CV-530, Dkt. 25, at 2 4 (citing Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-45 (1954)). Defendants a ls o acknowledge that "[w]ithout minimum contacts, a state cannot require an out o f state corporation to collect taxes on shipments made from another state." Id. (c itin g Quill, 504 U.S. at 306); see also Washington v. Confederated Tribes of C o lv ille Indian Reservation, 447 U.S. 134, 182 (1980) (Rehnquist, J., concurring in part and dissenting in part) ("Of course in order to collect the tax from the m e rc h a n t located beyond the territorial jurisdiction of the taxing State, there must a ls o be a relationship between the State and the burdened merchant sufficient to

criminal prosecution could be brought in the destination jurisdiction, even though plaintiffs are not physically present in that jurisdiction and may never have stepped foot in that state. See, e.g., Washington Dep't of Revenue v. www.dirtcheapcig.com, Inc., 260 F. Supp. 2d 1048 (W.D. W ash. 2003)(holding that State of Washington could bring civil action against out-of-state retailer for violation of the Jenkins Act based upon internet sales made through website to W ashington residents).

18

satisfy principles of due process."). Nevertheless, defendants assert that there is n o due process problem inherent in the PACT Act because "minimum contacts" w ith the taxing jurisdiction are satisfied by: (1) the fact that plaintiffs maintain a c o m m e rc ia l website advertising the products for sale; and (2) the fact that p la in tiffs ship their goods into the specific taxing jurisdiction. Reliance upon the existence of Internet websites to establish minimum c o n ta c ts is problematic for two reasons. First, and most importantly, not all p la in tiffs in this case have websites. The allegations in this case are that some p la in tiffs have websites and others do not. The ones that don't simply accept te le p h o n e or mail orders for cigarettes and smokeless tobacco and then ship th o s e products to their customers via United States mail.5 Defendants' argument m a k e s no accommodation for those remote sellers that lack any Internet p re s e n c e . Second, even as to those sellers that do have an Internet presence, th o s e websites are arguably classified as "passive." The website is akin to a virtu a l mail order catalog of cigarettes and smokeless tobacco, available for in te re s te d customers to view from their home computer (if they specifically seek o u t that website by doing an Internet search), but with no ability to consummate th e purchase over the Internet. Instead, the customer may place an online order

At this juncture, it is undisputed that none of the plaintiffs advertise outside New York state, send catalogs to other states, or send mailings to other states. However, plaintiff Red Earth admits to sending unsolicited emails to its existing and former customers.

5

19

that will be filled only after that customer then mails a money order to the retailer.6 D u rin g oral argument, defendants urged this Court to find that merely having an In te rn e t website establishes minimum contacts with any jurisdiction in which that w e b s ite can be viewed. The Court declines to adopt such a sweeping p re s c rip tio n which appears to lack support under existing caselaw. In any event, th e existence of a website for some plaintiffs does not overcome the due process p ro b le m because the statute applies even as to those plaintiffs who don't have a n y Internet presence.7 Therefore, the constitutionality of the Act cannot be s a tis fie d by showing that a particular plaintiff does business over the Internet. T h a t leaves only the second ground cited by the defendants to satisfy due p ro c e s s ­ i.e . that the transaction itself creates sufficient minimum contacts with a fo ru m for due process purposes. Since plaintiffs will be required to pay the tax in e a c h jurisdiction where they ship their products, regardless of how isolated or s p o ra d ic those shipments may be, it would appear that the defendants are urging

The government mistakenly asserts in its brief that the plaintiffs accept credit card payments over the Internet via their website. Based upon representations made by plaintiffs during oral argument, that is incorrect. No credit card or paypal payments are accepted and the sale is not consummated until a money order is received via mail. Numerous courts have struggled to define when Internet contacts are sufficient to create personal jurisdiction. In doing so, many district and circuit courts have turned to the standards set out in Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119 (W.D. Pa 1997). In that case, the court described a "spectrum" of Internet contacts that might suffice for due process, with a "passive Web site that does little more than make information available to those who are interested in it" at one end of the spectrum, and an "interactive" website through which the defendant does business over the Internet at the other. Id. at 1124. It is not clear where on that spectrum plaintiff Red Earth's website would fall. However, the Court finds it unnecessary to reach that issue at this juncture because the PACT Act applies to all venders, even those lacking any Internet presence.
7

6

20

this Court to conclude that each sale itself creates the minimum contacts n e c e s s a ry to impose a duty to collect taxes on an out-of-state seller. A "bright-line" rule holding that each sale automatically satisfies minimum c o n ta c ts with a taxing jurisdiction is appealing, and would undoubtedly inject c e rta in ty into the area of whether minimum contacts exist.8 As far as this Court is a w a re , however, such a rule has not yet been endorsed by the Supreme Court or b y any circuit courts. In fact, existing cases suggest the opposite­that a single, is o la te d sale may not be enough to subject a seller to a foreign jurisdiction. In B u rg e r King Corp. v. Rudzewicz, 471 U.S. 462 (1985), the Supreme Court e xp la in e d that "a forum legitimately may exercise personal jurisdiction over a n o n re s id e n t who "purposefully directs" his activities toward forum residents," id. at 4 7 3 , so as to "ensure[] that a defendant will not be hauled into a jurisdiction solely a s a result of `random,' `fortuitous,' or `attenuated' contacts." Id. at 475. In Burger K in g , the Court found that sufficient contacts were established where the d e fe n d a n t had deliberately engaged in "significant activities" within the forum s ta te and created "continuing obligations" between himself and residents of the fo ru m such that it was not unreasonable to require him to submit to the burdens o f litigation there. Likewise, parties who "reach out beyond one state and create

As one district court rhetorically asked: "Wouldn't a simpler rule­e.g., one holding that an internet seller is subject to jurisdiction anywhere he delivers a product­be preferable, if only to avoid the social cost of repeated litigation over whether the quality and nature of the defendant's activity support jurisdiction?" Chloe v. Queen Bee of Beverly Hills, LLC, 630 F.Supp. 2d 350, 355-56 (S.D.N.Y. 2009).

8

21

continuing relationships and obligations with citizens of another state" are subject to regulation and sanctions in the other State for the consequences of their a c tivitie s . Travelers Health Assn. v. Virginia, 339 U.S. 643, 647 (1950). H o w e ve r, as far as this Court is aware, it has never been held that a single sale, w ith o u t more, will automatically satisfy due process requirements. In fact, several c a s e s have held to the contrary. See, e.g., Chloe v. Queen Bee of Beverly Hills, L L C , 630 F.Supp. 2d 350 (S.D.N.Y. 2009) (holding that a single Internet-based s a le of a counterfeit retail product in New York by a California defendant c o n s titu te d insufficient contacts to require a California defendant to be subject to s u it in New York based upon that purchase); Shamsuddin v. Vitamin Research P ro d u c ts , 346 F.Supp. 2d 804, 813 (D. Md. 2004) (holding that two sales to forum re s id e n ts from commercial website were insufficient for the exercise of personal ju ris d ic tio n over the defendant, and stating that "[a] corporation's sales to forum re s id e n ts must be more than `isolated' occurrences for the assertion of jurisdiction to satisfy the requirements of due process."); iAccess Inc. v. WEBcard Tech. Inc., 1 8 2 F.Supp. 2d 1183, 1189 (D. Utah 2002) (finding that one purchase by a forum re s id e n t was not sufficient for personal jurisdiction); Butler v. Beer Across A m e ric a , 83 F.Supp. 2d 1261 (N.D. Ala. 2000) (holding that single purchase of b e e r over internet to Alabama minor by Illinois corporation was insufficient to s u p p o rt jurisdiction over Illinois defendant in Alabama).

22

Defendants cite Allstate Ins. Co. v. Hague, 949 U.S. 302 (1981), as having p ro vid e d a "concise test" for determining whether legislative jurisdiction may be e xe rc is e d over an out-of-state entity: [F]or a State's substantive law to be selected in a constitutionally p e rm is s ib le manner, that State must have a significant contact or s ig n ific a n t aggregation of contacts, creating state interests, such that c h o ic e of its law is neither arbitrary nor fundamentally unfair. S e e Def. Memo. of Law in Opp. to Mtn for a Preliminary Injunction, Case No. 10c v-5 3 0 A , Dkt. No. 25, at 25 (citing Hague, 449 U.S. at 312-13) (emphasis added). If defendants are correct and Hague is the test to be applied, it is doubtful that s in g le , isolated sales would rise to the level of "significant contact" or a "s ig n ific a n t aggregation of contacts" necessary to satisfy due process. Indeed, if a single sale into a foreign jurisdiction were sufficient to automatically impose a d u ty-to -c o lle c t taxes, the Supreme Court in Quill likely would have rested its due p ro c e s s discussion on that ground. But the Supreme Court did not. Instead, the S u p re m e Court opined that minimum contacts existed because the mail-order h o u s e at issue had "engaged in continuous and widespread solicitation of b u s in e s s " within that state, which included sending a "deluge of catalogues" into th a t forum. Quill, 504 U.S. at 308. According to the Court, due process was not o ffe n d e d based upon the "magnitude" of Quill's contacts with the forum state. In contrast to the "magnitude" of contacts that existed in Quill, the PACT A c t automatically subjects a remote seller to "all state, local, tribal, and other laws g e n e ra lly applicable to sales of cigarettes or smokeless tobacco" of the forum 23

where those products are delivered, notwithstanding the presence or absence of a n y other contacts with that forum. This means that plaintiffs will now be subject to the taxing jurisdiction of every state, municipality, village, town and school d is tric t that imposes taxes on sales of cigarettes and smokeless tobacco.9 By fa ilin g to require any minimum contacts before subjecting the out-of-state retailer to "all state, local, tribal, and other laws generally applicable to sales of cigarettes o r smokeless tobacco," Congress is broadening the jurisdictional reach of each s ta te and locality without regard to the constraints imposed by the Due Process C la u s e . That it cannot do. It would appear that the PACT Act seeks to legislate th e due process requirement out of the equation. To the extent that it does and th a t doing so is beyond Congressional authority, plaintiffs have established a c le a r likelihood of success on the merits of their due process claim.

2.

V a g u e n e s s of PACT Act Prohibitions

T h e absence of any threshold requirement for minimum contacts dovetails in to the plaintiffs' second due process argument­that the statute is void for va g u e n e s s . Plaintiffs argue that the PACT Act is unconstitutionally vague b e c a u s e the statute is inconsistent with the sovereign rights of Native-Americans, a n d because it is impermissibly vague in defining the laws with which plaintiffs m u s t comply in order to avoid criminal prosecution.

The PACT Act also grants every state and local taxing jurisdiction access to plaintiffs' records for sales made to residents of those jurisdictions. See 15 U.S.C. § 376a(c).

9

24

W ith regard to the first argument, the PACT Act certainly raises unresolved is s u e s relating to conflicts between the Act's enforcement and sovereign rights of N a tive Americans. Prior to the PACT Act, the law was clear that a state has a u th o rity to tax non-Indian residents who purchase goods at Indian-owned smoke s h o p s located on an Indian reservation, and that the state could also impose the "m in im a l burden" of collecting that tax upon the Indian-owned retailer.1 0 See W a s h in g to n v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (1 9 8 0 ); Moe v. Confederated Salish and Kootenai Tribes of Flathead R e s e rv a tio n , 425 U.S. 463 (1976). Indeed, plaintiffs acknowledged at oral a rg u m e n t that, provided sufficient minimum contacts with a forum exist, a state m a y impose the duty to collect excise taxes upon Indian-owned retailers for sales m a d e to non-Indians. However, in contrast to the "minimal burden" approved of b y the Supreme Court in Moe and Colville, the PACT Act requires Native A m e ric a n retailers to collect taxes on behalf of a host of different state and local

Of course, a tax imposed directly upon the Indian smoke shop itself would be problematic because a "[s]tate is without power to tax reservation lands and reservation Indians." See Oklahoma Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 458 (1995). The key issue is: who bears the legal incidence of a tax. If the legal incidence of an excise tax rests on a tribe or on tribal members for sales made inside Indian country, the tax cannot be enforced. . . . But if the legal incidence of the tax rests on nonIndians [as it clearly does in this case], no categorical bar prevents enforcement of the tax . . . [and] the State may impose its levy . . . and may place on a tribe or tribal members `minimal burdens' in collecting the toll. . . . . Id. at 459.

10

25

taxing jurisdictions. Compliance with the plethora of state and local laws now m a d e applicable under the PACT Act far exceeds the "minimal burden" approved o f by the Supreme Court. W h e th e r the Supreme Court would likewise approve of th e requirement that Native American retailers be subject to the jurisdiction of e v e ry state and every locality into which their goods are shipped is unclear and c e rta in ly merits further inquiry. At this juncture, however, it cannot be said that p la in tiffs have shown a clear likelihood of success on the merits of that claim. Alternatively, plaintiffs argue that the statue is impermissibly vague as to th e conduct that is prohibited because it incorporates generally the laws relating to the sale of cigarettes and smokeless tobacco of the destination jurisdiction. They note that there are at least 6,000 different taxing jurisdictions (possibly as m a n y as 8,000) and that requiring a remote seller to know what conduct is p ro s c rib e d by each one of those taxing jurisdictions is impossible to ascertain. Defendants cavalierly dismiss plaintiffs' concerns as to the burdens im p o s e d by the PACT Act as "the cost of doing business." They also claim that o n ly 550 of those 6,000 plus taxing jurisdictions currently have laws relating to the s a le of cigarettes. The Court finds the number of current taxing statutes to be irre le va n t because, even if there are only 550 today, there are thousands of ta xin g jurisdictions and any one of them can enact new legislation relating to the s a le of cigarettes and smokeless tobacco tomorrow. Indeed, plaintiffs proffered a t oral argument that the City of Buffalo is currently considering imposing its own

26

tax levy on the sale of cigarettes. And as the Supreme Court noted in Bellas H ess, [I]f the power of Illinois to impose use tax burdens upon National w e re upheld, the resulting impediments upon the free conduct of its in te rs ta te business would be neither imaginary nor remote. For if Illin o is can impose such burdens, so can every other State, and so, in d e e d , can every municipality, every school district, and every other p o litic a l subdivision throughout the Nation with power to impose s a le s and use taxes. The many variations in rates of tax, in allowable e xe m p tio n s , and in administrative and record-keeping requirements c o u ld entangle National's interstate business in a virtual welter of c o m p lic a te d obligations to local jurisdictions with no legitimate claim to impose `a fair share of the cost of the local government.' B e lla s Hess, 386 U.S. 759-60 (footnotes omitted). Although the Court agrees that the PACT Act makes compliance with the va rio u s state and local cigarette laws truly burdensome, the Court finds that p la in tiffs are unlikely to succeed on their void-for-vagueness claim. "It is a basic p rin c ip le of due process that an enactment is void for vagueness if its prohibitions a re not clearly defined." Grayned v. City of Rockford, 408 U.S. 104, 108 (1972). T h u s , a law or regulation whose violation could lead to such a deprivation must b e crafted with sufficient clarity to "give the person of ordinary intelligence a re a s o n a b le opportunity to know what is prohibited" and to "provide explicit s ta n d a rd s for those who apply them." Id. Vague laws offend several important values. First, because we a s s u m e that man is free to steer between lawful and unlawful c o n d u c t, we insist that laws give the person of ordinary intelligence a re a s o n a b le opportunity to know what is prohibited, so that he may a c t accordingly. Vague laws may trap the innocent by not providing fa ir warning. Second, if arbitrary and discriminatory enforcement is to 27

be prevented, laws must provide explicit standards for those who a p p ly them. A vague law impermissibly delegates basic policy m a tte rs to policemen, judges, and juries for resolution on an ad hoc a n d subjective basis, with the attendant dangers of arbitrary and d is c rim in a to ry applications." See Grayned, 408 U.S. at 108-109. The Supreme Court recently reiterated the vo id -fo r-va g u e n e s s doctrine in Skilling v. United States, 130 S. Ct. 2896, 2927-28 (2 0 1 0 ). "To satisfy due process, `a penal statute [must] define the criminal o ffe n s e (1) with sufficient definiteness that ordinary people can understand what c o n d u c t is prohibited and (2) in a manner that does not encourage arbitrary and d is c rim in a to ry enforcement.'" Id. (quoting Kolender v. Lawson, 461 U.S. 352, 357 (1 9 8 3 )). In Interactive Media Entertainment and Gaming Ass'n, Inc. v. United S ta te s , 580 F.3d 113 (3d Cir. 2009), the Third Circuit addressed an argument s im ila r to that made by the plaintiffs here. Plaintiff in that case challenged the U n la w fu l Internet Gambling Enforcement Act of 2006, 31 U.S.C. § 5361, as void fo r vagueness. That statute incorporated federal, state and tribal laws relating to th e legality of gambling, and made it a crime for any person to engage in the b u s in e s s of gambling with another person via the Internet where "such bet or w a g e r is unlawful under any applicable Federal or State law in the State or Tribal la n d s in which the bet or wager is initiated, received or otherwise made." Id. at 1 1 4 (quoting 31 U.S.C. § 5362). Like the PACT Act, a violation of that statute w a s punishable as a felony crime. Plaintiff argued that compliance with the

28

statute was impossible because the statute lacked an "ascertainable and w o rk a b le definition" of illegal gambling by failing to define illegal gambling and in s te a d incorporating other federal and state laws relating to gambling. The Third C irc u it rejected that argument stating: "`[A] statute is not unconstitutionally vague m e re ly because it incorporates other provisions by reference; a reasonable p e rs o n of ordinary intelligence would consult the incorporated provisions.'" Id. at 1 1 6 (quoting United States v. Iverson, 162 F.3d 1015, 1021 (9 th Cir. 1998)). In d e e d , as the defendants note, there are a plethora of federal statutes that in c o rp o ra te state and local laws by reference. See Def. Memo. of Law in Opp. M tn . for Preliminary Injunction, Case No. 10-cv-530, Dkt. 25, at 16 n.2. Compliance with the plethora of federal and local laws relating to cigarette s a le s no doubt will be burdensome. Before shipping an order, a remote seller will n e e d to consult the existing laws to ensure that they have paid the requisite taxes a n d are in full compliance with the applicable laws of the destination jurisdiction. And a violation of any of those state or local laws could subject plaintiffs to civil a n d criminal penalties. However, the fact that compliance will be burdensome d o e s not make it vague. As the Interactive Media court noted: "[w]hat renders a s ta tu e vague is not the possibility that it will sometime be difficult to determine w h e th e r the incriminating fact it establishes has been proved; but rather the in d e te rm in a c y of precisely what that fact is." Interactive Media, 580 F.3d at 117 (q u o ta tio n omitted). Because a reasonable person could determine what is

29

prohibited and what is permissible by consulting state and local laws governing c ig a re tte sales in the governing jurisdictions, the PACT Act's incorporation of s ta te and local laws does not make it unconstitutionally vague and therefore p la in tiffs are unlikely succeed on that claim.

C.

E q u a l Protection Claims P la in tiffs assert that the PACT Act violates the equal protection component

o f the Fifth Amendment's Due Process Clause1 1 because: (1) it is motivated by an in te n t to discriminate against Native American retailers; and (2) the use-of-them a ils prohibition discriminates against citizens of different states without any ra tio n a l basis.

1.

In te n tio n a l Discrimination against Native American Retailers

A s to their first contention, plaintiffs claim that Congress intentionally d is c rim in a te d against them based upon their status as Native Americans in vio la tio n of equal protection guarantees. Intentional discrimination can be d e m o n s tra te d in several ways. First, a law or policy is discriminatory on its face if it expressly classifies persons on the basis of race or gender. See Adarand C o n s tru c to rs , Inc. v. Pena, 515 U.S. 200, 213 (1995). Second, a law which is

Equal protection analysis under the Fifth Amendment is the same as that under the Fourteenth Amendment. Buckley v. Valeo, 424 U.S. 1, 93 (1976).

11

30

facially neutral violates equal protection if it is applied in a discriminatory fashion. See Yick Wo v. Hopkins, 118 U.S. 356, 373-74 (1886). Lastly, a facially neutral s ta tu te violates equal protection if it was motivated by discriminatory animus and its application results in a discriminatory effect. See Village of Arlington Heights v. M e tro p o lita n Housing Dev. Corp., 429 U.S. 252, 264-65 (1977). It is clear that plaintiffs are alleging the third scenario­that the PACT Act, a fa c ia lly neutral statute, violates equal protection because it was motivated by d is c rim in a to ry animus and its application results in a discriminatory effect. T h a t the PACT Act will have a disproportionate effect on Native Americans is undisputed. Defendants admitted during oral argument that the vast majority of re ta ile rs selling cigarettes and smokeless tobacco remotely are Native A m e ric a n s . In fact, the government estimated that at least 80 percent or more of c ig a re tte and smokeless tobacco delivery sellers are Native American. Legislative history of the Act indicates that Congress was keenly aware of that fa c t. See, e.g., Dkt. No. 30-2, at 50 (testimony of Government Accounting Office th a t the majority of Internet cigarette retailers are Native Americans); Dkt. No. 33 a t 51 (letter to Congress from National Association of Convenience Stores stating th a t the majority of Internet cigarette retailers are operated by Native Americans). However, an equal protection violation cannot be established simply by s h o w in g an adverse impact upon a particular group. "Disproportionate impact is n o t irrelevant, but it is not the sole touchstone of an invidious discrimination."

31

Washington v. Davis, 426 U.S. 229, 242 (1976). Instead, plaintiffs must establish th a t Congress enacted the PACT Act with the intent to discriminate against N a tive Americans. D is c rim in a to ry purpose "implies that the decisionmaker . . . selected or re a ffirm e d a particular course of action at least in part `because of,' not merely `in s p ite of,' its adverse effects upon an identifiable group." Personnel Administrator v . Feeney, 442 U.S. 256, 279 (1979) (emphasis added). Discriminatory purpose "implies more than intent as volition or intent as awareness of consequences." Id. Discriminatory intent or purpose typically refers to those instances when a g o ve rn m e n t actor seeks to disadvantage or negatively impact a group of persons. S e e , e.g., Washington, 426 U.S. at 245-46 (1976) (concluding that purposeful d is c rim in a tio n was not present in a police officers' examination designed simply to te s t the level of an applicant's verbal skills even though black candidates suffered d is p ro p o rtio n a te adverse effects); Arlington Heights, 429 U.S. at 268-71 (finding th a t, although the ultimate effect of a policy was discriminatory, there was no in te n t to discriminate when the record aptly demonstrated the decision was m o tiva te d by zoning, not racial, concerns). Plaintiffs assert that Congress acted with a discriminatory purpose in e n a c tin g the statute. In particular, they point to numerous instances in the record w h e re members of Congress stated that the PACT Act was necessary to deal w ith the problem of remote cigarette sales by Native Americans who claim

32

sovereignty from state and local taxes.1 2 They also point to legislative history that th e y perceive evinces animus toward Native Americans. Specifically, they note th a t when a letter from the Seneca Nation of Indians was being introduced into th e Congressional record, there was laughter by some of these present. Plaintiffs p e rc e ive the laughter as indicating ridicule of the Seneca Nation's position. In enacting the PACT Act, Congress was clearly concerned with the loss of s ta te and local tax dollars each year. Congress attributed some of those losses to th e fact that state and local governments were unable to collect taxes from Native A m e ric a n retailers who, in Congress's view, had improperly asserted sovereignty a s a basis for avoiding taxes. Sovereignty is a characteristic unique to Native A m e ric a n s as only Native Americans can plausibly make an assertion of s o ve re ig n ty­ w h e th e r properly or improperly. That the PACT Act was intended to c u rta il what Congress believed to be improper assertions of sovereignty by Native A m e ric a n retailers is not the same thing as saying that Congress purposefully d is c rim in a te d against Native Americans as a group. Rather than purposeful d is c rim in a tio n against Native Americans because they are Native Americans, the A c t is directed at leveling the playing field for all individuals engaged in retail
. See, e.g., Dkt. No. 30-2 at 54 (inquiry by Rep. Keller to GAO official Paul Jones as to whether Native American status provides an exemption from the Jenkins Act); Dkt. No. 31 at 2-5 (letter exchange between Rep. Smith and GAO official Paul Jones regarding GAO's position on the applicability of the Jenkins Act to Native American tribes); Dkt. No. 32-2 at 38 (report by Rep. King) ("However, in the 14 years since the U.S. Supreme Court ruled that it was within the constitutional authority for the State of New York to tax cigarette sales by Native Americans to non-Native Americans, New York State has not collected these taxes. Instead, the State maintains its policy of forbearance. While no clear reason has been given, it is likely that Albany simply fears upsetting the State's Native American population.").
12

33

sales of cigarettes and smokeless tobacco. Congress recognized that leveling th e playing field would have an adverse impact upon Native American retailers, b u t took that action in spite of that fact, and not because of it. Accordingly, p la in tiffs have failed to establish a clear likelihood of success on the merits of th e ir invidious discrimination claim.

2.

C la s s ific a tio n based upon Geographical Location

P la in tiffs next challenge the use-of-the-mails prohibition on the ground that it discriminates in favor of residents of Alaska and Hawaii in violation of equal p ro te c tio n guarantees. The proper method of analysis of this challenge is ra tio n a l-b a s is review because fundamental rights are not implicated. See City of C le b u rn e v. Cleburne Living Center, Inc., 473 U.S. 432, 439-40 (1985); Decatur L iq u o rs , Inc. v. District of Columbia, 478 F.3d 360, 363 (D.C. Cir. 2007). W h e n legislation is reviewed for a rational basis, "courts are quite reluctant to overturn governmental action on the ground that it denies equal protection of th e laws." Gregory v. Ashcroft, 501 U.S. 452, 470-71 (1991) (internal quotation m a rk s omitted). The Supreme Court has stated that courts should "not overturn s u c h a [law] unless the varying treatment of different groups or persons is so u n re la te d to the achievement of any combination of legitimate purposes that we c a n only conclude that the legislature's actions were irrational." Vance v. Bradley, 4 4 0 U.S. 93, 97 (1979). Furthermore, the Supreme Court has emphasized that

34

under rational basis review, legislatures are allowed to act incrementally: the E q u a l Protection Clause "does not compel . . . [l]egislatures to prohibit all like e vils , or none. A legislature may hit at an abuse which it has found, even though it has failed to strike at another." United States v. Carolene Prods. Co., 304 U.S. 1 4 4 , 151 (1938). Rational-basis review in equal protection analysis "is not a lic e n s e for courts to judge the wisdom, fairness, or logic of legislative choices." F C C v. Beach Communications, Inc., 508 U.S. 307, 313 (1993). Nor does it a u th o riz e "the judiciary [to] sit as a superlegislature to judge the wisdom or d e s ira b ility of legislative policy determinations made in areas that neither affect fu n d a m e n ta l rights nor proceed along suspect lines." New Orleans v. Dukes, 427 U .S . 297, 303 (1976) (per curiam). For these reasons, a classification neither in vo lvin g fundamental rights nor proceeding along suspect lines is accorded "a s tro n g presumption of validity." Heller v. Doe by Doe, 509 U.S. 312, 319 (1993). "A classification must be upheld against [an] equal protection challenge if there is a n y reasonably conceivable state of facts that could provide a rational basis for th e classification." Id. at 320. Essentially, plaintiffs argue that the classification established under the s ta tu te is overinclusive because it includes many people in Alaska and Hawaii th a t do not rely exclusively upon the mail to obtain their consumables, such as in d ivid u a ls living in large cities like Honolulu and Anchorage. Plaintiffs argue that th e classification is also underinclusive because it leaves out individuals in other

35

remote regions of the 48 contiguous states who also rely exclusively upon the m a ils to obtain their groceries. For example, plaintiffs note that there are rural re s id e n ts located outside of Alaska and Hawaii who also depend exclusively on th e United States mails to receive their groceries and other consumables,1 3 yet th e PACT Act does not exempt those similarly-situated residents. Unfortunately fo r plaintiffs, "rational basis review allows legislatures to act incrementally and to p a s s laws that are over (and under) inclusive without violating [equal protection re q u ire m e n ts ]." See Hayden v. Paterson, 594 F.3d 150, 171 (2d Cir. 2010). "Even if the classification . . . is to some extent both underinclusive and o ve rin c lu s ive , and hence the line drawn . . . imperfect, it is nevertheless the rule th a t . . . perfection is by no means required." Vance v. Bradley, 440 U.S. 93, 108 (1 9 7 9 ) (affirming statutory provision requiring forced retirement from foreign s e rvic e at age 60). "The provision does not offend the Constitution simply b e c a u s e the classification is not made with mathematical nicety . . . ." Id. (internal q u o ta tio n omitted). Legislatures are permitted to use generalizations so long as "th e question is at least debatable." Heller, 509 U.S. at 326.

See, e.g., Dkt. No. 26-2 at 17 ("The Point Roberts, WA, Post Office cannot be reached by vehicle unless you drive through British Columbia, Canada. Only a boat or float plane will get you there directly."); id. at 18 ("Most Unusual Delivery Method--mule trains in Arizona. Each mule carries about 130 pounds of mail, food, supplies and furniture down the 8-mile trail to the Havasupai Indians, averaging 41,000 pounds per week."); Dkt. No. 26-4 (discussing mail service to the Frank Church Wilderness area of Idaho).

13

36

Here, the statute seeks to prohibit use of the mails because it was Congress's judgment that use of the mails to deliver cigarettes and smokeless to b a c c o facilitates illegal cigarette trafficking and enhances the accessability of c ig a re tte s for minors. Accordingly, Congress enacted the PACT Act to preclude u s in g the mails as a means to ship cigarettes and smokeless tobacco products. It is beyond dispute that Congress has the authority to completely ban those p ro d u c ts from the mails. However, Congress made an exception for mailings within the States of A la s k a and Hawaii because it was Congress's judgment that, without such an e xc e p tio n , some citizens in Alaska and Hawaii would not be able to obtain those p ro d u c ts at all. The legislative history reveals that Congress was concerned that c e rta in areas of those states are so remote that its citizens rely exclusively upon th e use of the mails to obtain their groceries and other consumables. See Dkt. N o . 34-2 at 16 (copy of S. Rep. 110-153 (2007)) ("This exception was included to a llo w mailings of cigarettes and smokeless tobacco to persons located in remote a re a s of Hawaii or Alaska, where individuals are forced to rely exclusively on the m a ils to obtain groceries and other consumables."). W ith o u t an exception, the P A C T Act would essentially operate as a complete ban of those products in c e rta in remote communities in Hawaii and Alaska because there would be no w a y for residents of those states to obtain them. Nothing about the PACT Act in d ic a te s that Congress intended to completely ban the sale of cigarettes and

37

smokeless tobacco. Instead, the statute is intended curb the proliferation of sales o f those products over the Internet and Congress believed that one way to do so w o u ld be to restrict how those products can be delivered. Congress determined th a t by permitting cigarettes and smokeless tobacco to be mailed within the S ta te s of Alaska and Hawaii, while maintaining the prohibition of interstate m a ilin g s of those products, Congress could achieve the PACT Act's purposes of p re ve n tin g illicit trafficking and evading state taxes while at the same time making th o s e products available to citizens located in remote areas of those states who re ly exclusively on the mails to obtain their consumables. W h e n there are "p la u s ib le reasons" for governmental action, this Court's inquiry must cease. U n ite d States RR Retirement Bd. v. Fritz, 449 U.S. 166, 179 (1980). "The task of c la s s ifyin g persons for . . . benefits . . . inevitably requires that some persons who h a ve an almost equally strong claim to favored treatment be placed on different s id e s of the line, and the fact the line might have been drawn differently at some p o in ts is a matter for legislative, rather than judicial, consideration." Id. (internal c ita tio n and quotation omitted). Accordingly, the Court finds that plaintiffs have failed to show that they are lik e ly to succeed on the merits of their equal protection claims.

38

4.

T e n th Amendment F in a lly , plaintiffs assert a claim under the Tenth Amendment of the

C o n s titu tio n , which provides "[t]he powers not delegated to the United States by th e Constitution, nor prohibited by it to the States, are reserved to the States re s p e c tive ly, or to the people." This Court need not address the merits of their T e n th Amendment claim because under binding Second Circuit authority, p la in tiffs , as private parties, lack standing to bring it. See Brooklyn Legal Servs. C o rp . v. Legal Servs. Corp., 462 F.3d 219, 234 (2d Cir. 2006) (holding that p riva te parties lack standing to bring Tenth Amendment claim); accord United S ta te s v. Bond, 581 F.3d 128 (3d Cir. 2009) (joining the majority of circuit courts in concluding that a private party lacks standing to bring a Tenth Amendment c la im but observing a slit of circuit authority on that question).

IV .

In ju n c tive Relief is in the Public Interest Before granting injunctive relief staying the enforcement of an act of

C o n g re s s , the Court must find that the public interest favors such an e xtra o rd in a ry remedy. The Court is mindful that an act of Congress represents th e collective will of a majority of our nation's democratically-elected re p re s e