202 F. Supp. 3d 896
S.D. Ind.2016Background
- Indiana enacted a statutory scheme (Ind. Code § 7.1-7-1 et seq.) requiring manufacturers of e-liquids to obtain an Indiana Alcohol and Tobacco Commission (ATC) manufacturing permit before selling or distributing e-liquid in Indiana; among the permit prerequisites are detailed "security firm" requirements.
- GoodCat, an out-of-state (Florida) e-liquid manufacturer that ships products into Indiana, applied for a permit; ATC rejected its application because GoodCat’s security contractor subcontracted certified personnel rather than directly employing them, contrary to the Act’s text.
- The Act’s security criteria effectively left only a single security firm (Mulhaupt’s, an Indiana firm) able to qualify; Mulhaupt’s exercised discretion in deciding which manufacturers to serve and had limited capacity.
- GoodCat sought and the court granted a temporary restraining order and then, after a preliminary hearing, a preliminary injunction ordering ATC to issue GoodCat a permit and enjoining enforcement of the security provisions against GoodCat.
- The court limited its review to the security requirements (not the entire Act) and found GoodCat likely to succeed on a dormant Commerce Clause claim; it rejected a preemption challenge by GoodCat (under 21 U.S.C. § 387p) because the FDA had not yet promulgated federal manufacturing/good-practice regulations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Federal preemption under TCA § 916 (21 U.S.C. § 387p) | Indiana's security requirements are "different from or in addition to" federal requirements governing product registration, adulteration, premarket review, or good manufacturing standards, so they are preempted. | The FDA has not promulgated manufacturing/product standards or GMP regulations for e‑liquids; absent an existing federal requirement the preemption clause does not apply; moreover the Act regulates sale/distribution (saved by the savings clause). | Court: Preemption unlikely. Because FDA has not issued manufacturing/GMP regulations, the state security rules are not preempted; savings clause also supports non-preemption. |
| Dormant Commerce Clause — discriminatory effect | The security rules functionally block out‑of‑state manufacturers (GoodCat) by conditioning market access on a permit that only one in‑state security firm can satisfy. | The permit process was neutral; several permittees include out‑of‑state entities; any burden falls on security firms, not product manufacturers. | Court: GoodCat likely to succeed. The statute’s operation (single in‑state qualifying firm with limited capacity and discretionary contracting) disfavors interstate commerce; burden on interstate commerce outweighs local benefits. |
| Dormant Commerce Clause — appropriate level of scrutiny / Pike balancing | N/A (plaintiff argues discriminatory effect warrants heightened scrutiny or fails Pike under balancing). | N/A (defendants argue rational‑basis or Pike balance favors the statute). | Court: Even under Pike balancing, GoodCat showed a reasonable likelihood of success (burden clearly exceeds benefits). |
| Due Process (procedural/substantive) | Security requirements are arbitrary and deprive GoodCat of protected interests without due process. | N/A (primary defense focused on preemption and Commerce Clause). | Court: Court limited review at preliminary stage; because GoodCat showed likelihood of success on Commerce Clause, no further merits ruling on Due Process was required for injunction. |
Key Cases Cited
- Planned Parenthood of Ind., Inc. v. Comm’r of Ind. State Dept. of Health, 699 F.3d 962 (7th Cir. 2012) (standard for preliminary injunction factors).
- Judge v. Quinn, 612 F.3d 537 (7th Cir. 2010) (sliding scale for weighing injunction equities).
- Hoosier Energy Rural Elec. Co-op, Inc. v. John Hancock Life Ins. Co., 582 F.3d 721 (7th Cir. 2009) (degree of merits showing varies with balance of harms).
- Freightliner Corp. v. Myrick, 514 U.S. 280 (1995) (absence of a federal regulation does not itself establish preemption).
- U.S. Smokeless Tobacco Mfg. Co. v. City of New York, 708 F.3d 428 (2d Cir. 2013) (distinguishing sales restrictions from manufacturing standards for preemption analysis).
- Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) (balancing test for nondiscriminatory burdens on interstate commerce).
- Lebamoff Enters., Inc. v. Huskey, 666 F.3d 455 (7th Cir. 2012) ("relates to" in preemption context should not be read overbroadly).