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A New York state law restricting the direct shipment of cigarettes to consumers does not discriminate against interstate commerce, the 2nd U.S. Circuit Court of Appeals ruled Thursday. Reversing a lower court, the 2nd Circuit said the burden on commerce among states imposed by New York Public Health Law � 1399-11 was “de minimus,” and that any actual burden on commerce was “significantly” outweighed by the local benefits of the law. The law, “neither impedes nor obstructs the flow of cigarettes in interstate commerce,” Senior Judge Roger J. Miner said. Section 1399-11, signed into law on Aug. 16, 2000, set criminal and civil penalties against cigarette sellers and transporters. The law was passed to support the collection of taxes on cigarettes — and therefore was a significant revenue source for the funding of health care in New York — and to combat underage smoking. Southern District Judge Loretta Preska ruled in June 2001 that the law, even though it applied to both in-state and out-of-state direct cigarette sellers, “discriminates against interstate commerce by requiring that retail sales take place only in-state.” The judge also found to be facially discriminatory an exception that allows consumers to transport up to four cartons of cigarettes to their homes or to other individuals. In Preska’s view, the exception discriminated because it provided “a delivery exemption for New York brick-and-mortar businesses with their own delivery services.” Preska also found that the loopholes in the law, which included the four-carton exception, sales made by Indian nations and shipments made by the U.S. Postal Service, were “fatal to its effectiveness,” and that the state had failed to show that its policy aims could be realized by an “alternative, less discriminatory means.” But on the appeal in Brown & Williamson v. Pataki, 01-7806, the 2nd Circuit said that the balancing test applied to determine whether burdens on interstate commerce are greater than the local benefits “does not invite courts to second-guess legislatures by estimating the probable costs and benefits of the statute.” Writing for the appeals court, Senior Judge Roger J. Miner disagreed the statute was facially discriminatory. The law does not require that retail sales take place only in-state, he said. “[I]t merely prohibits cigarette sellers from shipping, and common and contract carriers and others from transporting, cigarettes directly to New York consumers.” And the problem with finding the delivery exception facially discriminatory, he said, was that such a determination “relied upon the exception’s effect, rather than its terms.” “The statute at issue in this case does not on its face limit any commercial activity to in-state or local transactions,” he said. Miner said further that the statute was not discriminatory in effect, adding that nothing in the law prejudiced out-of-state direct sales retailers at the expense of in-state direct shippers. Also, the judge noted, “The fact that these particular plaintiffs may be priced out of the retail cigarette market does not establish a discriminatory effect,” because the Commerce Clause of the U.S. Constitution protects the interstate market, and not particular firms. Miner noted the U.S. Supreme Court’s position that interstate commerce is not impermissibly burdened where an “otherwise valid regulation” causes some business to shift from one supplier to another. He said “the effect of the Statute is to eliminate all sales of cigarettes to New York consumers that do not involve face-to-face sales or the transportation of fewer than four cartons of cigarettes to anyone consumer.” “Thus, the Statute merely prohibits one manner in which cigarettes could otherwise be sold to New York consumers, namely through direct shipments,” he said. Judge Miner also found that the statute’s delivery exception did not have a discriminatory effect. “The Plaintiffs’ in-state counterparts are not New York brick-and-mortar retail outlets that sell cigarettes; rather, they are non-brick-and-mortar sellers who ship cigarettes directly to New York consumers following purchases made by Internet, telephone, or mail order,” he said, adding that the tobacco sellers had not shown that the law gives their “in-state counterparts a competitive advantage.” JUDGE DISSENTS Judge Jose Cabranes dissented in part. He concurred that the statute “does not violate the dormant Commerce Clause,” but he said he disagreed with the “majority’s interpretation of the Statute to permit home deliveries by traditional retailers.” Judge Rosemary S. Pooler joined in the majority opinion. Assistant Attorney General Lisa M. Landau, Deputy Solicitor General Daniel Smirlock and Assistant Solicitor General Andrew Bing represented New York state. David H. Remes, M. Stacey Bach, Laurence A. Silverman and Mark P. Gimbel of Covington & Burling represented Brown & Williamson Tobacco Corp. and BWTDirect. Rodrick J. Enns of Enns & Archer in Winston-Salem, N.C., and Franklin B. Velie and Dierdre A. Burgman of Salans represented Sante Fe Natural Tobacco Co.

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