`
`No. 19-183(L)
`Nos. 19-199, 19-201(CON)
`___________________________________
`In the
`United States Court of Appeals
`for the
`Second Circuit
`___________________________________
`
`ASSOCIATION FOR ACCESSIBLE MEDICINES,
`HEALTHCARE DISTRIBUTION ALLIANCE, and SPECGX LLC,
`Plaintiffs-Appellees,
`v.
`LETITIA JAMES, in her official capacity as Attorney General
`of the State of New York, and HOWARD A. ZUCKER, in his official capacity
`as Commissioner of Health of the State of New York,
`Defendants-Appellants.
`___________________________________
`On Appeal from a final judgment of the
`United States District Court for the Southern District of New York
`___________________________________
`
`
`PETITION FOR PANEL REHEARING OR REHEARING EN BANC
`___________________________________
`
`
`JAY P. LEFKOWITZ
`Kirkland & Ellis LLP
`601 Lexington Avenue
`New York, NY 10022
`
`MATTHEW D. ROWEN
`Kirkland & Ellis LLP
`1301 Pennsylvania Avenue, NW
`Washington, DC 20004
`
`Counsel for Appellee Association for
`Accessible Medicines
`
`ERIN R. MACGOWAN
`Ropes & Gray LLP
`Prudential Tower
`800 Boylston Street
`Boston, MA 02199
`
`Counsel for Appellee SpecGx LLC
`
`MICHAEL B. KIMBERLY
`SARAH P. HOGARTH
`McDermott Will & Emery LLP
`500 North Capitol Street, NW
`Washington, DC 20001
`
`ANDREW B. KRATENSTEIN
`M. ELIAS BERMAN
`McDermott Will & Emery LLP
`340 Madison Avenue
`New York, NY 10173
`
`Counsel for Appellee Healthcare
`Distribution Alliance
`
`DOUGLAS H. HALLWARD-DRIEMEIER
`Ropes & Gray LLP
`2099 Pennsylvania Avenue, NW
`Washington, DC 20006
`
`Counsel for Appellee SpecGx LLC
`
`
`
`
`
`
`
`Case 19-183, Document 134, 11/12/2020, 2972586, Page2 of 21
`
`
`
`TABLE OF CONTENTS
`
`Table of Authorities ....................................................................................... i
`
`Rule 35(b) Statement .................................................................................... 1
`
`Background ................................................................................................... 1
`
`Questions Presented ..................................................................................... 5
`
`Reasons for Granting the Petition ................................................................ 6
`
`A. The question whether the district court had jurisdiction to
`rule on severability warrants rehearing .......................................... 6
`
`B. The question whether the OSA assesses a “tax” warrants
`rehearing ........................................................................................... 8
`
`1. The panel opinion establishes two novel and incorrect
`rules of TIA analysis, warranting rehearing ............................ 9
`
`2. The panel’s approach to other TIA factors conflicts with
`decisions of the First and Fourth Circuits .............................. 12
`
`C. The questions presented are exceptionally important .................. 15
`
`Conclusion ................................................................................................... 17
`
`
`
`TABLE OF AUTHORITIES
`
`Cases
`People ex rel. Alpha Portland Cement Co. v. Knapp,
`129 N.E. 202 (N.Y. 1920) ........................................................................... 8
`Ayotte v. Planned Parenthood of N. New Eng.,
`546 U.S. 320 (2006) ................................................................................... 8
`Bell v. Hood,
`327 U.S. 678 (1946) ................................................................................... 8
`Bidart Bros. v. Cal. Apple Comm’n,
`73 F.3d 925 (9th Cir. 1996) ..................................................................... 13
`Consolidated Edison v. Pataki,
`292 F.3d 338 (2d Cir. 2002) ......................................................... 2, 3, 9, 10
`Dep’t of Revenue of Mont. v. Kurth Ranch,
`511 U.S. 767 (1994) ................................................................................. 10
`
`i
`
`
`
`Case 19-183, Document 134, 11/12/2020, 2972586, Page3 of 21
`
`
`
`Cases—continued
`Direct Mktg. Ass’n v. Brohl,
`575 U.S. 1 (2015) ..................................................................................... 15
`Empress Casino Joliet v. Balmoral Racing Club,
`651 F.3d 722 (7th Cir. 2011) ................................................................... 14
`Entergy Nuclear Vermont Yankee, LLC v. Shumlin,
`737 F.3d 228 (2d Cir. 2013) ........................................................... 1, 12, 13
`GenOn Mid-Atlantic v. Montgomery County,
`650 F.3d 1021 (4th Cir. 2011) ....................................................... 9, 14, 15
`Grupo Dataflux v. Atlas Glob. Grp., L.P.,
`541 U.S. 567 (2004) ................................................................................. 10
`Mobil Oil Corp. v. Tully,
`639 F.2d 912 (2d Cir. 1981) .............................................................. passim
`San Juan Cellular Tel. Co. v. Pub. Serv. Comm’n of Puerto Rico,
`967 F.2d 683 (1st Cir. 1992) .................................................................... 13
`Trailer Marine Transp. Corp. v. Rivera Vazquez,
`977 F.2d 1 (1st Cir. 1992) ............................................................ 13, 14, 15
`
`
`
`Statutes
`28 U.S.C. § 1341 ............................................................................................. 1
`Opioid Stewardship Act ........................................................................ passim
`New York Public Health Law
`§ 3323(2) ..................................................................................................... 2
`§ 3323(5) ..................................................................................................... 2
`§ 3323(6) ..................................................................................................... 2
`New York State Finance Law
`
`§ 97-aaaaa(2) ............................................................................................. 2
`
`§ 97-aaaaa(4) ............................................................................................. 2
`§ 97-aaaaa(7) ............................................................................................. 2
`
`Tax Injunction Act ................................................................................ passim
`
`
`
`
`
`
`
`
`ii
`
`
`
`Case 19-183, Document 134, 11/12/2020, 2972586, Page4 of 21
`
`
`
`RULE 35(b) STATEMENT
`
`This case presents two related questions of exceptional practical impor-
`
`tance to the proper application of the Tax Injunction Act (TIA), a statute with
`
`jurisdictional force. The panel’s answers to these questions conflict with
`
`Mobil Oil v. Tully, 639 F.2d 912 (2d Cir. 1981), and Entergy Nuclear Vermont
`
`Yankee v. Shumlin, 737 F.3d 228 (2d Cir. 2013), and decisions of the First
`
`and Fourth Circuits.
`
`Reduced to its essence, the question here is whether federal courts have
`
`jurisdiction to hear federal constitutional challenges to punitive exactions by
`
`state legislatures against politically unpopular, out-of-state parties, or
`
`instead whether such parties must seek recourse from the courts of the very
`
`State that has singled them out for punishment. The panel’s reasoning will
`
`virtually always funnel such challenges to state court. That deeply troubling
`
`prospect is inconsistent with precedent and offends the purposes of the TIA
`
`and Article III. It cries out for full-court rehearing.
`
`BACKGROUND
`
`1. The TIA provides that federal district courts “shall not enjoin, sus-
`
`pend or restrain the assessment . . . of any tax under State law” if state
`
`remedies are adequate and available. 28 U.S.C. § 1341. It is settled, however,
`
`that the TIA does not bar federal courts from enjoining the collection of
`
`“punitive fine[s] or regulatory fee[s],” as opposed to “tax[es].” Entergy, 737
`
`F.3d at 231. Nor does the TIA prohibit injunctions against economic regula-
`
`1
`
`
`
`Case 19-183, Document 134, 11/12/2020, 2972586, Page5 of 21
`
`
`
`tions that are merely incident to the collection of revenue, including pro-
`
`visions that forbid the passing on of a government exaction in transactions
`
`with subsequent market participants. Mobil Oil, 639 F.2d at 917.
`
`This case concerns New York’s Opioid Stewardship Act (OSA). As
`
`originally enacted, the OSA assessed a $600 million lump sum payment on
`
`opioid manufacturers and distributors, to be assessed in recurring $100
`
`million installments over six years. PHL § 3323(2). In response to this law-
`
`suit, the legislature repealed the OSA and replaced it with a traditional
`
`excise tax applicable in 2019 onward. What remains in dispute here is the
`
`State’s ability to collect $200 million under the original OSA for calendar
`
`years 2017 and 2018.
`
`The fixed annual amount, which bears no resemblance to an ordinary
`
`tax, is apportioned among market participants the year following and col-
`
`lected by the Department of Health, not by taxing authorities. Id. §§ 3323(5),
`
`(6). The proceeds of the OSA are deposited by DOH into a segregated “Opioid
`
`Stewardship Fund,” strictly earmarked to offset the costs of treating and pre-
`
`venting opioid addiction. SFL §§ 97-aaaaa(2), (4). The only two entities with
`
`authority to spend money from the fund are DOH and the Office of Alcohol-
`
`ism and Substance Abuse. Id. § 97-aaaaa(7). The Act also includes a pass-
`
`through prohibition, which—by forbidding the targets of the surcharge from
`
`passing it on to consumers (PHL § 3323(2))—is inherently punitive (see
`
`Consol. Edison v. Pataki, 292 F.3d 338, 355 (2d Cir. 2002)).
`
`2
`
`
`
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`
`
`
`On its face, the $600 million surcharge is a kind of regulatory restitu-
`
`tion payment, assessed as a legislative response to perceived responsibility
`
`for the opioid crisis. Indeed, the legislative history is overrun with express
`
`statements that the purpose of the OSA is to make the targets of the sur-
`
`charge “pay for their illegal and reprehensible conduct” and to “hold[] [them]
`
`accountable.” JA62 ¶¶ 1, 3 (statements of Governor Cuomo). In Consolidated
`
`Edison, this Court found eerily similar facts to be “explicit evidence of
`
`punitive intent.” 292 F.3d at 355.
`
`2. Plaintiffs-Appellees each brought a challenge in federal district
`
`court, and the suits were consolidated for decision. At the threshold, each
`
`plaintiff argued that the OSA’s surcharge is not a “tax” within the meaning of
`
`the TIA. From there, plaintiffs argued that the pass-through prohibition,
`
`taken alone, violates the dormant Commerce Clause; and that the surcharge
`
`is unconstitutional under various theories. The Healthcare Distribution
`
`Alliance also argued that the pass-through prohibition is not severable from
`
`the remainder of the law.
`
`The district court agreed. It held that the OSA’s exaction is a “regula-
`
`tory penalty on opioid manufacturers and distributors,” enacted as punish-
`
`ment for perceived misconduct. SA3. It held further that the surcharge is a
`
`“regulatory fee.” SA24-25.
`
`On the merits, the district court held that the pass-through prohibition
`
`violates the dormant Commerce Clause. SA40-42. The court then concluded
`
`3
`
`
`
`Case 19-183, Document 134, 11/12/2020, 2972586, Page7 of 21
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`
`
`that the pass-through prohibition is not severable from the balance of the
`
`Act, which could not achieve its punitive aims without it. SA45-47. The court
`
`therefore did not reach the merits of the remaining claims. SA48-49.
`
`3. On appeal, the State declined to defend the legality of the pass-
`
`through prohibition. Instead, it argued only that the OSA assesses an ordin-
`
`ary tax, and that the district court thus lacked jurisdiction to invalidate the
`
`surcharge after invalidating the pass-through prohibition.
`
`A panel of this Court agreed with the State and reversed. The panel
`
`acknowledged that, in deciding the tax/fee distinction, “the revenue’s ul-
`
`timate use” “is the most salient factor.” Slip op. 15. On this point, the panel
`
`observed that the OSA’s proceeds are not deposited in the State’s general
`
`treasury for open-ended public use (as taxes typically are), but instead are set
`
`aside in a special fund earmarked to offset costs related to the opioid crisis.
`
`Slip op. 19-23. Declining to credit case law from other circuits holding that
`
`such factors are strongly indicative of a fee or fine, the panel concluded
`
`nonetheless that “opioid-related public health initiatives [are] for the benefit
`
`of the public at large,” indicating a tax. Slip op. 23.
`
`The panel also acknowledged that taxes are typically collected by taxing
`
`authorities, not a State’s department of health (slip op. 25); and that taxes
`
`based on market participation are always assessed “as a percentage of each
`
`sale,” not in annual “fixed sums” that are apportioned among market par-
`
`ticipants post hoc (slip op. 27). But again disregarding contrary precedent
`
`4
`
`
`
`Case 19-183, Document 134, 11/12/2020, 2972586, Page8 of 21
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`
`
`from this and other circuits, the panel took the stunning position that, as a
`
`matter of law, “the method of assessment is [not] relevant to whether a state-
`
`imposed payment is a tax within the meaning of the TIA.” Slip op. 27.
`
`As for the OSA’s pass-through prohibition, the panel reached the novel
`
`conclusion that, once the district court struck down the pass-through pro-
`
`vision and the State had ceased to defend it on appeal, the character of the
`
`surcharge changed; it began to “function[] much like [a] tax,” and its purpose
`
`thus converted into one “to raise revenue, not to punish or regulate.” Slip op.
`
`28-29. The panel accordingly held that, with the pass-through prohibition
`
`stricken and not defended on appeal, this judicially modified version of the
`
`OSA now fell within the TIA’s ambit. As such, the district court had juris-
`
`diction until the State decided to abandon the invalidated aspect of the
`
`statute following the notice of appeal. Id. The panel reached that conclusion
`
`without citing, let alone distinguishing, Mobil Oil, in which this Court
`
`invalidated a functionally identical pass-through prohibition even though it
`
`was clear that doing so meant that the underlying tax could not and would
`
`not operate without it. 639 F.2d at 913-914.
`
`QUESTIONS PRESENTED
`
`1. Whether the panel erred—in conflict with Mobil Oil—in holding that
`
`the district court lost jurisdiction to rule on the severability of the OSA’s
`
`pass-through prohibition once the district court held the pass-through prohib-
`
`ition unconstitutional and the State chose not to defend it on appeal.
`
`5
`
`
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`Case 19-183, Document 134, 11/12/2020, 2972586, Page9 of 21
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`
`
`2. Whether the panel erred—in conflict with Entergy and decisions of
`
`the First and Fourth Circuits—in holding that the OSA is an ordinary tax
`
`even though it is neither assessed nor collected like a tax and its proceeds are
`
`placed in a segregated fund earmarked to offset the costs of the opioid crisis.
`
`REASONS FOR GRANTING THE PETITION
`
`The panel opinion conflicts with binding precedent from this and other
`
`circuits, deepening confusion in an area of law already beset by inconsistent
`
`rulings. It also takes an aberrational approach to the question of legislative
`
`intent, ruling that a statute’s purpose can be converted from one thing into
`
`another by judicial order. En banc review is essential both to secure the
`
`uniformity of this Court’s precedents and to realign them with the original
`
`meaning and purpose of the Tax Injunction Act.
`
`A.
`
`The question whether the district court had jurisdiction
`to rule on severability warrants rehearing
`
`In Mobil Oil, this Court considered a pass-through prohibition enacted
`
`as part of a gross-receipts tax assessed against oil companies. See 639 F.2d at
`
`913. The underlying assessment was unquestionably a tax. The Court ex-
`
`pressly rejected the State’s argument that the TIA barred the challenge to
`
`the pass-through prohibition itself, reasoning that such measures do not
`
`themselves “raise taxes.” Id. at 918. But that was not all. The legislature in
`
`Mobil Oil had “hinged the viability of the tax itself upon the validity of the
`
`anti-passthrough provision,” meaning that if a court invalidated the pass-
`
`through prohibition, the entire act would become inoperative and the State
`
`6
`
`
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`Case 19-183, Document 134, 11/12/2020, 2972586, Page10 of 21
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`
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`would not be able to collect the tax. Id. at 913-914. That was of no moment,
`
`according to the Court: Neither “the fact that the anti-passthrough section is
`
`contained in a tax law” nor the fact that invalidating the pass-through pro-
`
`hibition would result in the unenforceability of the entire act indicated that
`
`the plaintiff’s challenge was barred by the TIA. Id. at 917-918. In short, Mobil
`
`Oil held that a challenge to a pass-through prohibition is not within the TIA’s
`
`ambit even when invalidating such a provision would make collection of the
`
`underlying tax impossible.
`
`The panel’s decision in this case conflicts squarely with that holding.
`
`There is no dispute here that the OSA’s pass-through prohibition violates the
`
`federal Constitution’s Commerce Clause. Nor is there any dispute that, under
`
`Mobil Oil, the district court had jurisdiction, notwithstanding the TIA, to
`
`entertain plaintiffs’ challenge to the pass-through prohibition itself. Yet the
`
`panel concluded that the district court lost jurisdiction to rule on the sever-
`
`ability of the pass-through prohibition, once the pass-through prohibition was
`
`deemed unlawful and the State ceased to defend it on appeal. See slip op. 12
`
`n.6. Thus, on the panel’s reasoning, a plaintiff wishing to obtain complete
`
`relief in a case involving a challenge to a pass-through prohibition (or any
`
`other economic regulation incident to a tax, for that matter) must bring a
`
`challenge in state court after all; only there will a court be allowed to consider
`
`severability and other remedies that might affect collection of the underlying
`
`assessment. In a federal forum, the district court will effectively always be
`
`7
`
`
`
`Case 19-183, Document 134, 11/12/2020, 2972586, Page11 of 21
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`
`
`required to hold that the pass-through prohibition is severable, even when,
`
`under applicable state law, that is plainly not the case.
`
`It is not a basis for distinguishing Mobil Oil that the law there con-
`
`tained a “self-destruct” provision, whereas the OSA does not. Under New
`
`York law, the question of severability is a matter of legislative intent. People
`
`ex rel. Alpha Portland Cement Co. v. Knapp, 129 N.E. 202, 207 (N.Y. 1920)
`
`(Cardozo, J.). It makes no difference whether, when a pass-through pro-
`
`hibition is stricken, the remainder of the law ceases to operate as a matter of
`
`expressly-stated intent (as in Mobil Oil) or instead as a matter of intent
`
`inferred from the Act’s structure and purposes (as here).
`
`The panel’s contrary reasoning is deeply flawed. Jurisdiction applies to
`
`claims. Severability, by contrast, is “question of remedy” (Ayotte v. Planned
`
`Parenthood of N. New Eng., 546 U.S. 320, 323 (2006)) that arises only after
`
`the district court has asserted jurisdiction over the claim. As a question of
`
`remedy, severability cannot be a basis for declining subject matter juris-
`
`diction over claims. Cf. Bell v. Hood, 327 U.S. 678, 682 (1946) (entitlement to
`
`remedies “must be decided after . . . the court has assumed jurisdiction”). The
`
`panel’s resolution of this issue breaks from Mobil Oil.
`
`B. The question whether the OSA assesses a “tax” warrants
`rehearing
`
`The OSA’s surcharge is both a regulatory fee and a punitive fine. That
`
`is so for a host of reasons: (1) It is assessed by DOH, not by New York taxing
`
`8
`
`
`
`Case 19-183, Document 134, 11/12/2020, 2972586, Page12 of 21
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`
`
`authorities, against a very small number of regulated entities. (2) Its pro-
`
`ceeds are deposited into a segregated fund that may not be commingled with
`
`the general treasury and that must be used to pay for opioid abuse preven-
`
`tion and treatment, suggesting a restitutionary fine. (3) It is assessed in a
`
`lump sum, which is typical of a fine and utterly unheard of in taxation. (4) It
`
`is attended by a pass-through prohibition, which this Court has said is inher-
`
`ently punitive. And (5) the legislature did not call the surcharge a tax.
`
`Had this case arisen in any other circuit—or, alternatively, had the
`
`panel appropriately applied this Court’s own precedent—the surcharge would
`
`not have been ruled a tax.
`
`1.
`
`The panel opinion establishes two novel and incorrect
`rules of TIA analysis, warranting rehearing
`
`The panel’s decision establishes two novel rules for the tax/fee analysis
`
`under the TIA. Both are deeply misguided, and rehearing is imperative.
`
`Pass-through prohibition. This Court has held that pass-through
`
`prohibitions like the one included in the OSA are “unavoidably punitive in
`
`operation.” Consol. Edison, 292 F.3d at 355; see id. at 353-354 (holding that
`
`nothing “other than punishment can justify . . . . preventing [payers] from
`
`passing [an exaction] along to [customers]”). That conclusion has particular
`
`force when the prohibition is coupled, as it is here, with “legislative history
`
`evinc[ing] a legislative intent to punish.” Id. at 354; accord GenOn Mid-
`
`Atlantic v. Montgomery County, 650 F.3d 1021, 1024-1025 (4th Cir. 2011).
`
`9
`
`
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`Case 19-183, Document 134, 11/12/2020, 2972586, Page13 of 21
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`
`
`The pass-through prohibition is thus clear evidence, under applicable pre-
`
`cedent, that the surcharge is a restitutionary fine, not a tax.
`
`But the panel brushed the pass-through prohibition aside. Slip op. 28-
`
`29. Even supposing the OSA was punitive as originally enacted, according to
`
`the panel’s reasoning, it ceased to be so when the district court invalidated
`
`the pass-through prohibition, and the State ceased defending it. Id. After that
`
`point, companies could once again pass on their share.
`
`That conclusion breaks from common sense as well as precedent. The
`
`question whether the OSA is punitive—and thus whether the district court
`
`had jurisdiction to entertain plaintiffs’ challenge to the surcharge—turns on
`
`“legislative intent.” Consol. Edison, 292 F.3d at 354; accord Dep’t of Revenue
`
`of Mont. v. Kurth Ranch, 511 U.S. 767, 779-780 (1994) (a legislative fine is a
`
`levy “motivated by . . . punitive[] purposes”). Legislative intent cannot be
`
`transformed from one thing (punishment) into another (raising revenue) mid-
`
`stream in litigation, by judicial order, even when followed by the State’s
`
`acquiescence in that order. That is necessarily so in this context because the
`
`TIA is jurisdictional, and “[i]t has long been the case that ‘the jurisdiction of
`
`the court depends upon the state of things at the time of the action brought.’”
`
`Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 570 (2004).
`
`The panel’s contrary reasoning leads to absurd results. It would mean
`
`that if the district court had focused on a different claim and declared the
`
`OSA unlawful under (for instance) the Bill of Attainder Clause, without
`
`10
`
`
`
`Case 19-183, Document 134, 11/12/2020, 2972586, Page14 of 21
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`
`
`separately invalidating the pass-through prohibition, there would be no TIA
`
`problem here. That makes no sense.
`
`The legislature’s and governor’s intent with the OSA was manifestly
`
`punitive. The court thus had jurisdiction to consider the legality of the
`
`surcharge. The panel broke from precedent in ruling that the OSA’s purpose
`
`converted into something different, divesting the court of jurisdiction, simply
`
`because the district court declared the pass-through prohibition unlawful.
`
`Method of assessment. En banc review is further warranted because
`
`the method of calculating and collecting the OSA surcharge is wholly incon-
`
`sistent with taxation—a fact the panel rejected categorically, as a matter of
`
`law.
`
`The surcharge is assessed in recurring lump sums, which must be
`
`divvied up among manufacturers and distributors post hoc. Each company’s
`
`share of the fixed sum is due to DOH between one and two years after the
`
`underlying sales take place. And because the size of a company’s ratable
`
`share depends not only on its own sales, but also on the relative volume of its
`
`competitors’ sales, the surcharged companies cannot know their liability until
`
`years later, when they receive an invoice from DOH. We know of no “tax”
`
`anywhere in the world that is administered in this way. By contrast, fines are
`
`typically assessed in lump sums after the conduct giving rise to liability—just
`
`like the OSA’s surcharge.
`
`11
`
`
`
`Case 19-183, Document 134, 11/12/2020, 2972586, Page15 of 21
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`
`
`Despite these clear indications that the surcharge does not work like a
`
`“tax,” the panel made new law, holding that “the method of assessment is
`
`[not] relevant to whether a state-imposed payment is a tax within the
`
`meaning of the TIA.” Slip op. 27. That cannot possibly be correct.
`
`By the panel’s own acknowledgement, the TIA analysis turns on
`
`“functional” distinctions (slip op. 22) between taxes and fees. The “nature of
`
`the entity imposing the tax” matters, for example, because taxes are not
`
`usually collected by regulators. Entergy, 737 F.3d at 232. The “ultimate des-
`
`tination of the revenue” matters, too, because taxes are not usually put into
`
`segregated funds and “reserve[d] . . . for [a] particular purpose.” Id. at 231,
`
`232. No less than these other functional considerations, “the method of
`
`assessment” (slip op. 27) informs the nature of the levy. The panel offered no
`
`reason—none—for its categorical rejection of that rule.
`
`2.
`
`The panel’s approach to other TIA factors conflicts
`with decisions of the First and Fourth Circuits
`
`The panel’s novel and misguided approach to the pass-through pro-
`
`hibition, and its redefinition of the TIA framework, are grounds enough for
`
`rehearing. But there is more: The panel’s approach to the remaining tax/fee
`
`factors conflicts squarely with numerous other cases.
`
`Segregated fund. As this Court held in Entergy, the “principal” factor
`
`in determining whether an exaction “serv[es] the general benefit of the state”
`
`(in which case it is likely a tax for TIA purposes) is whether “the proceeds are
`
`12
`
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`deposited into the state’s general fund.” 737 F.3d at 231. The Court held the
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`assessment in Entergy to be a tax because the statute “direct[ed] that it be
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`paid to the Commissioner of the Department of Taxes” and “explicitly direct-
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`[ed] the proceeds . . . into the state general fund.” Id. Crucially, “[n]othing in
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`the statute reserve[d] the proceeds . . . for any particular purpose.” Id.
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`Entergy’s holding on this point is consistent with other circuits. See,
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`e.g., Bidart Bros. v. Cal. Apple Comm’n, 73 F.3d 925, 932 (9th Cir. 1996) (“An
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`assessment placed in a special fund and used only for special purposes is less
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`likely to be a tax.”); Trailer Marine Transp. Corp. v. Rivera Vazquez, 977 F.2d
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`1, 5-6 (1st Cir. 1992) (it is suggestive of a fee that an assessment is “held
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`separately from general state funds”); San Juan Cellular Tel. Co. v. Pub.
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`Serv. Comm’n of Puerto Rico, 967 F.2d 683, 658 (1st Cir. 1992) (Breyer, C.J.)
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`(similar).
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`Under these precedents, the facts here strongly suggest that the OSA
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`assesses a fee: The surcharge is collected by DOH, and commingling of the
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`proceeds with other funds for spending on general purposes is expressly
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`forbidden. The panel’s contrary opinion conflicts with Entergy and numerous
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`other circuits.
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`General public benefit. The panel concluded that the segregation and
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`earmarking of the OSA’s proceeds “does not end [its] inquiry” because the
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`proceeds, although strictly reserved in a separate fund for a limited purpose,
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`are used neither to “provid[e] a narrow benefit” to the payers of the surcharge
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`nor to “offset[] costs” of regulation. Slip op. 22; accord slip op. 17. Rather, they
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`are used to fund “public health programs” relating “to the general welfare.”
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`Slip op. 20. Two features of that holding warrant en banc reconsideration.
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`First, it is well recognized that many kinds of exactions other than
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`narrow-benefit, cost-of-regulation “user fees” fall outside the TIA’s scope.
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`Included in that category are exactions that are “designed . . . to punish” and
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`those that “compensate the state for costs imposed on it” by the payers’
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`conduct. Empress Casino Joliet v. Balmoral Racing Club, 651 F.3d 722, 728
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`(7th Cir. 2011) (en banc). Both of those alternatives describe this case to a
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`tee. The panel’s rejection of those principles—its holding, in effect, that only
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`simple user fees are outside the TIA’s reach—is badly out of step with
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`precedent and warrants rehearing.
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`Second, the panel’s reasoning conflicts squarely with the First Circuit’s
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`decision in Trailer Marine and the Fourth Circuit’s decision in GenOn.
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`In Trailer Marine, Puerto Rico assessed an annual, per-truck assess-
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`ment against commercial shipping companies to fund an automobile accident
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`compensation plan, which “provide[d] hospital and medical costs” and “pay-
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`ments for death or disability” to “victims of motor vehicle accidents.” 977 F.2d
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`at 2. The First Circuit held the exaction was a fee. Like the surcharge here,
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`the proceeds were placed in a segregated fund set aside exclusively to pay for
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`“damage resulting from [the] activity” in which the payers of the fee were
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`engaged. Id. at 6. The First Circuit rejected the proposition that the proceeds
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`were used to fund a “social welfare program” of general public benefit, rather
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`than to offset the “agency’s costs of regulation.” Id. After all, accepting such a
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`broad view of public benefit would mean that just about every exaction with a
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`rational basis would be covered by the TIA.
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`Likewise in GenOn. There, the Fourth Circuit considered a “carbon
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`charge” assessed against large power plants. 650 F.3d at 1022-1023. Half of
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`the proceeds were earmarked “for County greenhouse gas reduction pro-
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`grams.” Id. at 1025. The express purpose of the charge was to ensure that
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`large greenhouse gas emitters were required to “contribute to paying for
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`[those] programs,” to offset the external social costs of their activities, just as
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`here. Id. Because of separate rate regulations, moreover, the plaintiff was
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`“unable to pass the cost of the charge on to its customers.” Id. at 1024. The
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`Fourth Circuit held that the charge was a “punitive and regulatory” fee. Id.
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`As in Trailer Marine, the court did not factor into that conclusion the fact
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`that reducing greenhouse gas emissions serves the general welfare.
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`C. The questions presented are exceptionally important
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`First, the Supreme Court repeatedly has emphasized that it “favor[s]
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`clear boundaries in the interpretation of jurisdictional statutes.” Direct Mktg.
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`Ass’n v. Brohl, 575 U.S. 1, 11 (2015). The panel opinion muddies the waters
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`with respect to the TIA, a jurisdictional statute.
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`Second, the panel’s decision has no practical limit. According to the
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`panel’s logic, all government exactions except simple regulatory user fees will
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`Case 19-183, Document 134, 11/12/2020, 2972586, Page19 of 21
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`fall within the TIA’s scope. If that extraordinary holding truly is the law of
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`this Circuit, many unconstitutional state levies will escape federal judicial
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`review. Yet the Nation’s Framers understood the importance of a neutral
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`federal forum, which is why they provided for diversity and federal-question
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`jurisdiction for cases like this in the first place.
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`Here, the New York legislature has adjudicated guilt and determined
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`the penalty by ordering opioid manufacturers and distributors to pay $100
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`million annually in restitution. That is manifestly unlawful. And when a
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`revenue-generating measure crosses the line into punishment, as the OSA
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`does, this Court’s precedents make clear that those subject to the exaction are
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`entitled to challenge its constitutionality in a federal court. The district court
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`was right to so hold, and the panel was wrong to reverse. All the more so
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`because it created an intra-circuit conflict along the way.
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`A decision substantially rewriting the TIA, as the panel opinion has
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`done here, warrants the full Court’s attention.
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`CONCLUSION
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`The Court should grant rehear