On June 18, 2014, the United States District Court for the Southern District of New York upheld a New York City ordinance that effectively prohibits all promotional marketing and discounts for cigarettes and tobacco products. The District Court found that there was no First Amendment violation and that the newly enacted city code, which bans any sale of cigarettes or tobacco products below the “listed” or “advertised” price, was not preempted by federal or state law.
The New York City Council passed Local Law 97 in October 2013 with the stated purpose of raising the price of cigarettes and tobacco products in order to reduce tobacco consumption. The law prohibits New York City retailers from using “discounting schemes” such as coupons or multi-package discounts for tobacco products.
In November 2013, then-Mayor of New York City Michael Bloomberg signed the ordinance into law. Shortly thereafter, the National Association of Tobacco Outlets (“NATO”) and a group of tobacco manufacturers joined as plaintiffs to challenge the discounting prohibition of Local Law 97. NATO and its co-plaintiffs sued the City of New York in federal court, arguing that Local Law 97 was invalid for three reasons. Plaintiffs alleged that the ordinance: (1) violated the First Amendment of the U.S. Constitution and the Free Speech Clause of the New York Constitution; (2) was preempted by the Federal Cigarette Labeling and Advertising Act (“Labeling Act”); and (3) was preempted by New York State Public Health Law.
The parties agreed there were no factual disputes, so they opted to forego trial and consent to a summary judgment ruling. Meanwhile, enforcement of the ordinance was stayed from March 2014 until June 2014 when the District Court granted summary judgment for the City of New York. In a 36 page opinion, the court rejected each of plaintiffs’ arguments, holding that Local Law 97 posed neither constitutional nor preemption concerns.
In addressing the First Amendment claim, the District Court relied heavily on an appellate decision from the United States Court of Appeals for the First Circuit (“First Circuit”), which upheld a similar ordinance passed by the City of Providence in Rhode Island. In that case, the First Circuit held that offering coupons and providing multi-pack discounts is not protected activity under the First Amendment.
Likewise in this case, because the New York City discounting prohibition does not prevent retailers from communicating a listed price, the District Court found no restriction on free speech. The ordinance “only regulates an economic transaction… it does not restrict the dissemination of pricing information.”
Similarly, the District Court relied on the First Circuit decision when dismissing the tobacco companies’ second argument, that the Labeling Act preempted Local Law 97. That court held that the preemption provision of the Labeling Act was solely intended to prevent interference or supplementary efforts by states or local authorities in regulating advertising about the health risks of smoking. Moreover, a 2009 amendment to the law specifically left the door open for states to impose time, place, and manner regulations on tobacco advertising so long as the restrictions were content neutral. Because the New York ordinance does not regulate the inclusion of health information on cigarette packages, the District Court concluded that the Labeling Act did not preempt Local Law 97.
In their third argument, tobacco companies claimed that a New York State law preempted Local Law 97. They relied on a state law that prohibits the sampling and free distribution of tobacco products and also regulated the distribution of tobacco coupons. In response, the City of New York relied on the legislative history of the state law. The City argued that the New York legislature intended “coupon” in the law to refer to free, not discounted tobacco. When the bill was introduced, the sponsor noted that the “unrestricted free distribution of cigarettes all too often results in distribution of tobacco products to minors and is an inducement to smoke.”
As a result, the District Court found that the state law dealt only with sampling or distribution of free, rather than partially discounted tobacco products. As such, the state health law did not preempt New York City’s Local Law 97.
To date, the tobacco companies have not filed a notice for appeal to the United States Court of Appeals for the Second Circuit (“Second Circuit”). If they decide to do so, they have 30 days from the date of the District Court decision to note an appeal – or until July 18th.
Advocates of tobacco regulation may now attempt to pass similar laws in other cities and states. After the District Court handed down its decision, a spokesperson for New York City described the ruling as a “huge victory for the city’s comprehensive efforts to reduce tobacco usage.” The effect of the New York and the City of Providence ordinances remains to be seen, but presumably the regulations will negatively impact ability to discount cigarettes and tobacco products.
Local Law 97 bans a wide array of marketing techniques. For example, a tobacco manufacturer might mail customers a $1 off coupon for a particular brand of cigarettes redeemable at any retail location. Similarly, a tobacco retailer might offer specials such as: (1) “buy two packs, get $2 off the third;” (2) a free or discounted lighter in exchange for purchasing a box of cigarettes; and (3) a one-day sale where all cigars are sold at $2 off the listed price. Under Local Law 97, all of these promotions are now illegal in New York City.
For questions and/or comments, please contact Bryan Haynes, Troutman Sanders tobacco practice partner, at 804.697.1420 or by email.