A major new case on state sovereignty
on Apr 25, 2006 at 6:08 pm
This is another in a continuing series of reports on interesting new appeals to the Supreme Court. At this stage, the blog takes no position on whether the Court is likely to agree to review the cases. The reports will appear only when the blog has obtained an electronic copy of the petition. Thanks to Illinois’ Solicitor General, Gary Feinerman, for supplying this petition.
Thirty states’ attorneys general, telling the Supreme Court their states’ authority to pass and enforce legislation has been put in serious jeopardy, have asked the Justices to deny a federal court in New York the power to rule on passage and enforcement of state laws inside those 30 other states. The laws at issue were adopted as part of the multi-state plan to carry out the huge settlement of the states’ lawsuits against the cigarette industry. The attorneys general’s petition, docket 05-1343, can be found here; it includes the lower court rulings in the case that is now titled King, et al., v. Grand River Enterprises Six Nations, et al.
The 30 states have been sued by three smaller tobacco companies in U.S. District Court in New York City. At this point, the case has not gone to trial, on claims that the 30 states’ attorneys general are violating the Sherman Antitrust Act and the Constitution’s Commerce Clause by their states’ enactment and enforcement of state laws that apply to those three companies. The states’ legislatures passed those laws to help protect the settlement plan.
Here is the background of this litigation:
The three companies involved did not join in the $206 billion settlement plan. They are Grand River Enterprises Six Nations, Lt., a Canadian cigarette maker that is owned by the Iroquois tribes; Naitonwide Tobacco, Inc., a Washington State company that distributes cigarettes made in the Philippines, and 3B Holdings, inc., a Washington State maker of loose tobacco.
Because they did join in the master agreement, they are required, under laws passed in the 30 states (as well as in New York — a state about which there is now no jurisdictional controversy), to put money into an escrow fund in each state if they do not join the settlement in the future. The funds are to function as security, to cover potential future damage awards resulting from cigarette-related claims in those states’ courts. The states also passed laws to require the non-joining companies to file an annual certificate saying they have made their escrow deposits if they continued to remain outside the settlement. Failure to file the certificate can cost the company the right to sell cigtarettes in that state.
The lawsuit made various claims, but the only ones surviving the Second Circuit Court ruling in the case are a Sherman Act trade restraint claim and a Commerce Clause claim of an invalid nationwide regulation resulting in higher prices for cigarettes.
U.S. District Judge John F. Keenan of New York City dismissed the claims against the 30 state attorneys general (leaving claims against New York State’s attorney general), finding that a federal court in New York has no jurisdiction to judge passage and enforcement of state laws elsewhere. The three companies then took the case to the Second Circuit, and won on the jurisdictional issue.
In their appeal to the Supreme Court, the attorneys general claim that the Circuit Court ruling “violates principles of state sovereignty and due process by treating a state’s most sovereign act — the passage of legislation — as though it were the culmination of a commercial antitrust conspiracy.” State laws are passed inside the several states, and state sovereignty is demeaned if the pre-enactment actions of state officials can subject them to lawsuits in federal courts elsewhere, the petition asserts. They contend that the Supreme Court left this constitutional issue unresolved in a 1979 case, Leroy v. Great Western United Corp. And, while they concede there is no Circuit Court conflict at this point, and that the case has not yet gone to trial, the attorneys general nonetheless argue that the case is worth the Court’s attention now because the states’ officers are being made “litigation proxies for the sovereign states they serve.” Morever, they contend, the Circuit Court ruling is likely to invite all such litigation to the federal courts in New York, because those courts have been “declared…open for business” to such litigation, so no Circuit conflict is likely to develop. Because of the insult to their states’ sovereignty, they argue, they should not have to go through a trial in a case where court jurisdiction ultimately may not exist.
The Second Circuit found jurisdiction in New York because, in the five months leading up to the settelement deal reached in November 1998, state representatives worked out the details of the settlement plan in New York, and agreed on — among other things — model laws to carry out the obligations of the tobacco companies that stayed outside of the settlement deal.
A New York state law, the Court said, provides jurisdiction over non-residents who transact any business within the state, and that statute can be applied to a single transaction that occurs in New York State. “We see no reason why the negotiation and execution of the Master Settlement Agreement should be viewed any differently than an ordinary commercial contract,” the Court said.
Moreover, it said, there was a substantial link between the New York negotiations and the legal complaints of the three smaller tobacco companies. “Because these negotiations were carried on in New York, it was foreseeable that [the attorneys general] would be sujbect to suit in the state.”
Ordinarily, it conceded, New York would not be the proper place to challenge another state’s laws and their enforcement. But the fact that representatives of the sovereign states did meet intentionallly in New York to jointly settle the states’ lawsuits against the industry, and there agreed to the enactment of individual state laws, “New York is the proper forum for this lawsuit.”
