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Cutting Edge Enterprises, Inc. v. National Association of Attorneys General

March 6, 2007

CUTTING EDGE ENTERPRISES, INC., PLAINTIFF,
v.
THE NATIONAL ASSOCIATION OF ATTORNEYS GENERAL, ET AL., DEFENDANTS.



The opinion of the court was delivered by: George B. Daniels, District Judge

MEMORANDUM DECISION AND ORDER

Plaintiff Cutting Edge Enterprises, Inc. ("Cutting Edge"), brought suit against The National Association of Attorneys General ("NAAG"),*fn1 and forty individual State Attorneys General, in their official capacities as Attorneys General,*fn2 and Robert Spagnoletti, in his official capacity as Corporation Counsel of the District of Columbia (the "Attorneys General," collectively with NAAG "Defendants"), seeking declaratory and injunctive relief for alleged violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, the Due Process*fn3 and Commerce Clauses*fn4 of the United States Constitution, and common law. NAAG and the Attorneys General each filed motions to dismiss the complaint for lack of personal jurisdiction, lack of subject matter jurisdiction, and improper venue. This Court does not have personal jurisdiction over Defendants. Therefore, the motions to dismiss are granted.*fn5

BACKGROUND

On November 23, 1998, 46 States, the District of Columbia, Puerto Rico and four United States territories (the "Settling States") entered into a Master Settlement Agreement ("MSA") with the country's four largest tobacco companies (known in the MSA as the "Original Participating Manufacturers" or "OPMs"). Amended Complaint (Compl.) ¶ 14. The MSA settled litigation brought by the Settling States against the OPMs to recover the costs incurred by the Settling States in treating smoking related illnesses. Id. The MSA's execution was the culmination of several months of extensive negotiations, which took place in New York City, between the Settling States and the OPMs. Id. To effect the dismissal of the various lawsuits, the trial court in each Settling State approved and entered a Consent Decree which was part of the MSA. AG Motion to Dismiss at 5. In exchange for a release and dismissal of the various claims, the OPMs (1) "agreed to a wide array of restrictions on advertising, promotion and marketing of cigarettes"; and (2) "they agreed to make annual payments to the States in perpetuity." Id.

The MSA also provides that other tobacco manufacturers may join the MSA as Subsequent Participating Manufacturers ("SPMs," collectively with OPMs "Participating Manufacturers"). Id. at 6. SPMs are bound by the same public health restrictions of the MSA as OPMs and are also required to make the same annual payments to the Settling States. Id. All tobacco companies that become Participating Manufacturers "acknowledge[d] that the court that approved the Consent Decree in each State has exclusive jurisdiction for the implementation and enforcement of the MSA and is the only court to which disputes under the MSA or the Consent Decree as to that State can be presented." Id. (citing MSA § VII(a) and NAAG Declaration at ¶ 11).

Further, the MSA contained a model escrow statute that was enacted by each of the Settling States ("Escrow Statutes"). See MSA Ex. T. Under these Escrow Statutes, a cigarette manufacturer that does not wish to join the MSA could still sell cigarettes as a Non-Participating Manufacturer ("NPM"), provided it makes deposits into state escrow accounts on a flat per-cigarette basis. AG Motion to Dismiss at 6. The escrow accounts have two purposes: first, they provide a resource from which any judgment brought by a state against a NPM can be satisfied; and second, they prevent NPMs from enjoying the benefit of selling cigarettes without sharing in the costs that cigarette smoking imposes on the state. Id. at 7.

After the MSA was executed and the Escrow Statutes were enacted by the Settling States, states began enacting directory statutes (the "Directory Statutes").*fn6 Each defendant state has enacted a directory statute. Id. The Directory Statutes were not part of the MSA and there was no model directory statute negotiated during the MSA negotiations. Id.; Compl. ¶ 10. Under these statutes, each state is required to create and maintain a state directory listing all of the cigarette manufactures entitled to sell cigarettes in that respective state and the brands of cigarettes certified for sale. AG Motion to Dismiss at 7. Generally, these Directory Statutes require a tobacco manufacturer wishing to be listed on a State's directory to certify that it is either (1) a Participating Manufacturer in compliance with its MSA payment obligations, or (2) a NPM that is in compliance with that State's Escrow Statute. Id. at 8. To establish its conformance with one of these requirements, a cigarette manufacturer must provide each respective state with certain particularized information. States may also, pursuant to their Directory Statutes, request further information from manufacturers "when warranted." Id.

Although it is not a party to the MSA and has no authority to enforce the MSA's terms, see AG Motion to Dismiss at 9,*fn7 NAAG has, since the MSA's inception, maintained a list of companies that have become Participating Manufacturers to the MSA on the NAAG website. Id. Unlike the state Directory Statutes, however, NAAG's directory "has no legal significance and is not binding on the States or other MSA Parties." Id. (internal citation omitted); see also Memorandum of Law in Support of Defendant NAAG's Motion to Dismiss (NAAG Motion to Dismiss) at 3.

Cutting Edge was incorporated in Maryland on May 11,1998, and joined the MSA as an SPM in December 2000. Compl. ¶ 17. On March 16, 2005, before Cutting Edge had sold any cigarettes, its founder sold the stock in the company to Windy City Tobacco, LLC. Id. at ¶ 18. About a week later, on March 22, 2005, counsel for Cutting Edge formally requested that two new Cutting Edge-brand cigarettes be added to the NAAG website. Id. at ¶ 19. NAAG declined to do so. Id. Over the next several months, Cutting Edge continued its efforts to obtain listing on the NAAG website and on state directories to no avail.*fn8 See id. at ¶¶ 19-22. Ultimately, its efforts to secure the listing of Cutting Edge-brand cigarettes on the NAAG website and on several state directories failed.*fn9 Id. at ¶ 23. Cutting Edge then instituted this lawsuit seeking declaratory and injunctive relief for alleged violations of Section 1 of the Sherman Act, the Due Process and Commerce Clauses of the United States Constitution, and common law.

Both NAAG and the Attorneys General moved to dismiss the complaint for lack of personal and subject matter jurisdiction, and for improper venue.

PERSONAL JURISDICTION

Defendants move to dismiss the amended complaint for lack of personal jurisdiction.

"District courts resolving issues of personal jurisdiction must engage in a two-part analysis." Grand River Enterprises Six Nations v. Pryor (Grand River), 425 F.3d 158, 165 (2d Cir. 2005) (citation and alteration omitted). First, the court must determine whether there is jurisdiction over the defendant under the law of the state in which the district court sits. Id. If jurisdiction does exists under the relevant state law, the court must then determine whether exercising jurisdiction would be consistent with federal due process requirements. Id. The burden is on the plaintiff to establish that personal jurisdiction exists, see, e.g., Kernan v. Kurz-Hastings, Inc., 175 F.3d 236, 240 (2d Cir. 1999), and when the court chooses "not to conduct a full-blown evidentiary hearing on the motion, the plaintiff need make only a prima facie showing of jurisdiction through its own affidavits and supporting materials" to satisfy its burden. Bank Brussels Lambert v. Fiddler, Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999) (citation omitted).

Here, of course, the relevant state law is New York's, and, in particular, New York C.P.L.R. § 302(a)(1), New York's "long-arm statute."*fn10 See, e.g., Sunward Electronics, Inc. v. McDonald, 362 F.3d 17, 22 (2d Cir. 2004). Section 302(a)(1) "provides that a court may exercise personal jurisdiction over any foreign defendant if that defendant 'transacts any business within the state,' and the claim arises from those business transactions." Id. (citing N.Y. C.P.L.R. § 302(a)(1)). "A non-domiciliary 'transacts business' under C.P.L.R. § 302(a)(1) when he purposely avails himself of the privilege of conducting activities within ...


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