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National Ass'n of Tobacco Outlets, Inc. v. City of New York

United States District Court, S.D. New York

June 18, 2014

NATIONAL ASSOCIATION OF TOBACCO OUTLETS, INC., et al., Plaintiffs,
v.
CITY OF NEW YORK, et al., Defendants

Page 416

For National Association of Tobacco Outlets, Inc., New York Association of Convenience Stores, Bodega Association of the United States, Inc., Plaintiffs: Michael J. Edney, LEAD ATTORNEY, PRO HAC VICE, Steptoe & Johnson, LLP, Washington, DC; Charles R.A. Morse, Jones Day (NYC), New York, NY; Evan Glassman, Steptoe & Johnson, LLP (NYC), New York, NY; Floyd Abrams, Joel Laurence Kurtzberg, Cahill Gordon & Reindel LLP, New York, NY; Miguel Angel Estrada, Gibson, Dunn & Crutcher, LLP (DC), Washington, DC.

For Lorillard Tobacco Company, Plaintiff: Charles R.A. Morse, Jones Day (NYC), New York, NY; Evan Glassman, Steptoe & Johnson, LLP (NYC), New York, NY; Floyd Abrams, Joel Laurence Kurtzberg, Cahill Gordon & Reindel LLP, New York, NY; Miguel Angel Estrada, Gibson, Dunn & Crutcher, LLP (DC), Washington, DC.

For R.J. Reynolds Tobacco Co., Inc., American Snuff Company, Plaintiffs: Noel J. Francisco, LEAD ATTORNEY, Jones Day (DC), Washington, DC; Charles R.A. Morse, Jones Day (NYC), New York, NY; Evan Glassman, Steptoe & Johnson, LLP (NYC), New York, NY; Floyd Abrams, Joel Laurence Kurtzberg, Cahill Gordon & Reindel LLP, New York, NY; Miguel Angel Estrada, Gibson, Dunn & Crutcher, LLP (DC), Washington, DC.

For U.S. Smokeless Tobacco Brands Inc., John Middleton Company, Plaintiffs: Michael J. Edney, LEAD ATTORNEY, PRO HAC VICE, Steptoe & Johnson, LLP, Washington, DC; Charles R.A. Morse, Jones Day (NYC), New York, NY; Evan Glassman, Steptoe & Johnson, LLP (NYC), New York, NY; Floyd Abrams, Joel Laurence Kurtzberg, Cahill Gordon & Reindel LLP, New York, NY; Jennifer H. Rearden, Gibson, Dunn & Crutcher, LLP (NY), New York, NY; Miguel Angel Estrada, Gibson, Dunn & Crutcher, LLP (DC), Washington, DC.

For Philip Morris USA Inc., Plaintiff: Michael J. Edney, LEAD ATTORNEY, PRO HAC VICE, Steptoe & Johnson, LLP, Washington, DC; Evan Glassman, Steptoe & Johnson, LLP (NYC), New York, NY; Jennifer H. Rearden, Gibson, Dunn & Crutcher, LLP (NY), New York, NY.

For City of New York, New York City Council, New York City Department of Health and Mental Hygiene, New York City Department of Consumer Affairs, New York City Department of Finance, Bill De Blasio, in his official capacity as Mayor of New York City, Melissa Mark-Viverito, in her official capacity as Speaker of the New York City Council, Dr. Mary Bassett, in her official capacity as Commissioner of the New York City Department of Health and Mental Hygiene, Alba Pico, in his official capacity as First Deputy Commissioner of th New York City Department of Consumer Affairs, Beth E. Goldman, in her official capacity as Commissioner of the New York City Department of Finance, Defendants: Nicholas Robert Ciappetta, LEAD ATTORNEY, NYC Law Department, Office of the Corporation Counsel (NYC), New York, NY.

For American Heart Association, American Legacy Foundation (Legacy), American Lung Association, American Lung Association in New York, Bronx Health REACH, Campaign for Tobacco-Free Kids, Lesbian, Gay, Bisexual & Transgender Community Center in New York City, NYC Coalition for a Smoke-Free City, N.Y.S. American Academy of Pediatrics, District II, Public Health Association of New York City, Tobacco Control Legal Consortium, American Cancer Society Cancer Action Network (ACS CAN), Amicus: Shawn Patrick Naunton, LEAD ATTORNEY, Zuckerman, Spaeder LLP(NYC), New York, NY.

For Washington Legal Foundation, Washington Legal Foundation, Amicus: Mark Warren Smith, Richard Craig Rubinstein, LEAD ATTORNEYS, Smith Valliere PLLC, New York, NY.

OPINION

Page 417

Thomas P. Griesa, United States District Judge.

Plaintiffs in this case--a group of tobacco manufacturers and retailers--seek a declaratory judgment that a recently enacted New York City Ordinance that prohibits them from selling or offering to sell cigarettes and tobacco products below the listed, or advertised, price (1) violates their rights under the First Amendment of the United States Constitution and the Free Speech Clause of the New York State Constitution, (2) is preempted by the Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1331, and (3) is preempted by New York State Public Health Law, Article-F-Regulation of Tobacco Products, Herbal Cigarettes and Smoking Paraphernalia; Distribution to Minors, § 1399-bb. Plaintiffs also request a permanent injunction again the city's enforcement of the ordinance. The parties have cross-moved for summary judgment.

The court grants the city's motion for summary judgment in its entirety.

Facts

On October 30, 2013, the New York City Council passed Local Law 1021-A-2013 and former Mayor Michael Bloomberg signed it into law on November 19, 2013, whereupon it became Local Law 97 of 2013 (" Local Law 97" ). The provisions in Local Law 97 work together to create higher prices for cigarettes and tobacco products in New York City.

In its legislative findings, the City Council detailed its reasons for passing Local Law 97. See Decl. of Nicholas R. Ciapettta, Ex. A. The City Council highlighted the well-known health risks associated with tobacco use and explained that it is the leading cause of preventable death in New York City. Id. at 1. Additionally, the City Council noted that smoking-related illnesses cost New Yorkers billions of dollars annually in health care costs and lost productivity. Id. As a result of the significant human and economic costs associated with tobacco use, over the years, the City Council has taken steps both to reduce tobacco use among adults and to prevent youths from beginning to use tobacco products. Id. at 1-2. The City Council explained that through a variety of programs, it succeeded in reducing the prevalence of adult tobacco use from 21.5% in 2002 to 15.5% in 2012. Id. at 2. Similarly, youth smoking rates declined from 17.6% in 2001 to 8.5% in 2007. Id. However, youth smoking rates have plateaued since 2007. Id.

Consequently, given that tobacco use persists among youths and adults, the City Council elected to take further action to lower smoking rates and passed Local Law 97. The City Council explained that numerous

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studies have demonstrated that high tobacco prices reduce consumption among both youths, who are especially price-sensitive, and adults. For instance, a 10% increase in cigarette prices reduces demand among adult smokers by 3-5% and among youth smokers by 7%. Id. In all, high tobacco prices reduce the prevalence of tobacco use, the likelihood of trying tobacco for the first time, the average number of cigarettes consumed per smoker, the initiation of daily smoking, and the initiation of daily heavy smoking. Id.

Local Law 97 works to achieve the goal of raising the price of cigarettes and tobacco products and thus, reducing tobacco consumption in the following four ways: (1) reducing the illegal evasion of cigarette excise taxes; (2) prohibiting the sale of tobacco products below the listed, or advertised, price; (3) creating a price floor for a package of cigarettes and little cigars; and (4) requiring inexpensive cigars to be sold in packages of no fewer than four.

Plaintiffs[1] only challenge a narrow provision of Local Law 97--namely, N.Y.C. Admin. Code § 17-176.1 (b) and § 17.176.1(c) (collectively, " the ordinance" ). The ordinance prohibits the sale and the offer to sell cigarettes and tobacco products below the listed, or advertised price. The ordinance defines listed price " as the price listed for cigarettes or tobacco products on their packages or on any related shelving, posting, advertising or display at the place where the cigarettes or tobacco products are sold or offered for sale, including all applicable taxes." N.Y.C. Admin. Code § 17-176.1(a). The two challenged provisions--§ 17-176.1(b) and § 17-176.1(c)--contain the same prohibitions and only differ in so far as § 17.176.1(b) regulates cigarettes and § 17.176.1(c) regulates tobacco products.[2]

In particular, § 17-176.1(b) and § 17-176.1(c) provide that no retailer may:

1. Honor or accept a price reduction instrument in any transaction related to the sale of cigarettes [or tobacco products] to a consumer;
2. Sell or offer for sale cigarettes [or tobacco products] to a consumer through any multi-package discount or otherwise provide to a consumer any cigarettes [or tobacco products] for less than the listed price in exchange for the purchase of any other cigarettes [or tobacco products] by the consumer;
3. Sell, offer for sale, or otherwise provide any product other than cigarettes [or tobacco products] to a consumer for less than the listed price in exchange for the purchase of cigarettes [or tobacco products] by the consumer; or

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4. Sell, offer for sale, or otherwise provide cigarettes [or tobacco products] to a consumer for less than the listed price.

N.Y.C. Admin. Code § 17-176.1(b); § 17.176.1(c) (relevant language added in brackets).

In the ordinance, the City has prohibited common methods that tobacco manufacturers and retailers undertake to sell cigarettes and tobacco products below the listed price. In practice, these pricing practices often play out in the following manner:

1. § 17.176.1(b)(1). A consumer receives a coupon in the mail from the Lorrilard Tobacco Company offering $1 off of the listed price for a pack of Newport cigarettes. The consumer may redeem the coupon at any store that sells Newport cigarettes.
2. § 17.176.1(b)(2). A retailer provides a promotion whereby upon purchasing two packs of Marlboro cigarettes, a consumer receives $2 off of the listed price for purchasing a third pack of Marlboro cigarettes.
3. § 17.176.1(b)(3). In exchange for purchasing a pack of Camel cigarettes, a retailer provides a consumer with a free, or discounted, lighter bearing the Camel logo.
4. § 17.176.1(b)(4). A retailer provides a one-day sale where all American Spirit cigarettes are sold at $1 off of the listed price.

These examples merely provide a sample of the many ways in which tobacco manufacturers and retailers employ these discount pricing practices.

The practical effect of the ordinance is that by prohibiting tobacco manufacturers and retailers from utilizing these discount pricing practices, the city has made it so that tobacco manufacturers and retailers may only sell cigarettes and tobacco products at the listed price. Tobacco manufacturers and retailers will no longer be able to employ any pricing practices to generate sales below the listed price. Naturally, tobacco retailers may change the listed price for cigarettes and tobacco products and a City implementing rule for the ordinance, makes clear that retailers may " inform[] customers that the listed price has changed." R.C.N.Y. § 13-02(d)(ii). But as a result of the ordinance, this method--changing the listed price--is the only manner in which manufacturers and retailers will be able to effect the price of cigarettes and tobacco products. Moreover, Local Law 97 has established a price floor for cigarettes and little cigars of $10.50.[3] Thus, at no may point may retailers reduce the price below this point. See N.Y.C. Admin. Code § 17.176.1(d).[4]

In an effort to detail the policy reasons for the ordinance in particular, as opposed to Local Law 97 writ large, discussed supra at 2-3, the city submitted two affidavits by Dr. Mary T. Bassett, Commissioner of the New York City Department of Health and Mental Hygiene. Dr. Bassstt reiterated the city Council's fundamental premise that tobacco users are price-sensitive. See Dr. Bassett Decl. in Opposition to Motion for Preliminary Injunction, ¶ ¶ 3, 34-41. With respect to the challenged ordinance, Dr. Bassett explained that " [n]umerous studies and tobacco industry documents show that the tobacco industry manipulates prices of tobacco products through

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various discounting schemes to encourage price-conscious customers like teenagers and low-income smokers to buy their addictive and deadly products." Id. at ¶ 4. Tobacco manufacturers and retailers, according to Dr. Bassett, utilize these pricing practices in order to offset the impact of tobacco tax increases and other tobacco control efforts. Id. at ¶ 48. Dr. Basset went on to explain that there is a " pronounced association between the availability of price-reducing strategies and the progression from experimentation with cigarettes to regular use, and ultimately, addiction." Id. at ¶ 5. Accordingly, given that these pricing practices result in increased tobacco use, especially among youths, Dr. Bassett recommended that the city undertake the restrictions in the ordinance to reduce tobacco consumption in New York City. Id. at ¶ ¶ 63-65.

Procedural Posture

On January 30, 2014, plaintiffs filed their complaint. Plaintiffs allege that the ordinance (1) violates their rights under the First Amendment of the United States Constitution and the Free Speech Clause of the New York State Constitution, (2) is preempted by the Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1331, and (3) is preempted by New York State Public Health Law § 1399-bb.

On February 16, plaintiffs sought a temporary restraining order and preliminary injunction to enjoin the city from enforcing the challenged provisions of Local Law 97--N.Y.C. Admin. Code § 17-176.1(b) and § 17.176.1(c)--pending the final resolution of this litigation. The ordinance was originally scheduled to go into effect on March 19, 2014.

The court held a conference on the motion for a preliminary injunction on March 14, 2014, where the parties jointly suggested that the case proceed to summary judgment. The parties agreed that there are no factual disputes in the litigation and as such, that the court should resolve the case on summary judgment. Accordingly, on March 19, 2014, the parties filed a stipulation staying enforcement of the challenged provisions of Local Law 97 until May 23, 2014. See Order, Mar. 19, 2014, ECF No. 55.

On March 20, 2014, the city filed an answer to the complaint in which it denied all of plaintiffs' allegations.

The parties filed their motions for summary judgment on April 25. The parties filed their reply briefs on May 2.

On May 6, the Court held a hearing on the cross-motions for summary judgment. At the conclusion of the hearing, the Court issued an order (1) directing the parties to submit supplemental briefing on the issue of whether the ordinance is preempted by New York State Public Health Law ยง 1399-bb and (2) extending the stay of enforcement of the ordinance until June 20, 2014. ...


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