On December 5, 2011, the U.S. District Court for the District of Columbia issued a preliminary injunction blocking enforcement of the Prevent All Cigarette Trafficking Act’s (“PACT Act”) provisions which prohibit remote sales of cigarettes and smokeless tobacco unless the applicable state and local taxes are paid in advance.  The court, however, upheld the provisions of the PACT Act which ban delivery of cigarettes and smokeless tobacco products through the U.S. mail.  The case began when Robert Gordon, a Seneca Nation tobacco retailer who sold cigarettes and other tobacco products in his store and through internet website and mail orders, filed suit against various federal government agencies and officials challenging the constitutionality of the PACT Act’s mail ban and tax provisions.  The D.C. district court initially denied Gordon’s application for a temporary restraining order and preliminary injunction, but in February of this year, the D.C. appellate court remanded the case for further proceedings, leading Gordon to file a second application for a preliminary injunction that ended with the December 5th decision.

In his renewed application, Gordon argued that the PACT Act’s mail ban violates his 5th Amendment due process rights by interfering with his property interest because he can no longer ship his legal products in a commercially viable way and is operating at a net loss.  Prior to the effective date of the PACT Act, 95% of Gordon’s sales were shipped by U.S. mail.  Gordon also argued that the mail ban violates his equal protection rights because it irrationally prefers in-state tobacco merchants who engage in face-to-face transactions.  The district court rejected both of Gordon’s arguments under the rational basis review, finding that the mail ban advanced the legitimate government interest of reducing underage tobacco use and cigarette trafficking by, for example, eliminating problems associated with remote sales of tobacco products, such as the ease of avoiding age-verification and tax-collection.  The court thus concluded that Gordon had failed to state a claim that the mail ban violates the 5th Amendment due process and equal protection clauses.

Gordon next argued that the PACT Act’s tax provisions violate the due process rights of non-resident retailers by requiring them to pay state and local taxes regardless whether they have minimum contacts with the state or locality.  The court agreed with Gordon’s argument because it could not find that each of Gordon’s sales established the requisite minimum contacts with the states into which he sells his products.  In other words, the court could not find that due process was satisfied by a single sale of cigarettes into a state.  The court further noted that its conclusion on this issue was consistent with recent rulings from New York district and appellate courts.

Lastly, Gordon argued that the PACT Act’s tax provisions violated the 10th Amendment because they require state officials to implement a taxation scheme different from the ones that states previously had.  The court disagreed.  It distinguished the PACT Act from laws which courts have found to be contrary to the 10th Amendment, observing that the PACT Act does not require states to enact a particular kind of law or to administer or enforce a federal regulatory program, nor does it infringe on any state’s power to tax or limit its ability to change its tax scheme.  Instead, the Act merely requires delivery sellers to comply with existing state and local tax laws.

In sum, the court found that Gordon is likely to succeed on the merits of his claim that the PACT Act’s tax provisions violate due process, but dismissed Gordon’s other claims.  The court also found that the potential deprivation of constitutional due process rights constitutes irreparable harm, that the balance of the equities weighed in Gordon’s favor, and “that enforcement of a potentially unconstitutional law that would also have severe economic effects is not in the public interest.”  For these reasons, the court granted Gordon’s renewed application in part, and entered an order enjoining the enforcement of the PACT Act’s tax provisions pending a decision on the merits of the claim.

To read the district court’s entire memorandum opinion, go to https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2010cv1092-36.

Contributor: Brenna Newman

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.