353 F. Supp. 3d 235
S.D. Ill.2018Background
- New York enacted the Opioid Stewardship Act (OSA) (effective July 1, 2018), establishing a six-year, $600 million Opioid Stewardship Fund funded by annual assessments on opioid manufacturers and wholesale distributors licensed to sell or distribute opioids in New York.
- Assessments are based on each licensee's percentage share of Morphine Milligram Equivalents (MMEs) sold or distributed the prior year; DOH calculates and collects payments to a segregated Fund earmarked for opioid treatment, prevention, and related programs.
- The OSA contains an express prohibition on licensees "passing the cost" of their ratable share to purchasers (including ultimate users) and authorizes penalties up to $1,000,000 per incident for any pass-through.
- Plaintiffs: Healthcare Distribution Alliance (HDA; distributors), Association for Accessible Medicines (AAM; generic manufacturers/distributors), and SpecGx (generic opioid manufacturer) sued, challenging the OSA as unconstitutional (including under the Dormant Commerce Clause); AAM and SpecGx sought preliminary injunctions targeting the pass-through prohibition.
- State issued 2018 assessments based on 2017 sales (due Jan 1, 2019); record evidence showed economic strain on manufacturers (assessments exceeding margins on some generics) and market responses (distributors threatening to shift costs upstream or stop accepting shipments), creating imminent injury.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the OSA assessments are a "tax" barring federal review under the Tax Injunction Act (TIA) | Assessments are regulatory penalties/fees tied to regulation, not general-revenue taxes; TIA does not bar suit | OSA raises revenue for public programs and thus is a tax invoking TIA; court should abstain or dismiss | Court: OSA is not a tax but a regulatory penalty/fee; TIA does not bar federal adjudication |
| Whether tax-comity or Pullman abstention preclude federal review of OSA (esp. pass-through prohibition) | Plaintiffs: doctrines inapplicable because OSA is not a tax and statutory text is not ambiguous; federal adjudication appropriate | New York: comity and Pullman counsel abstention to avoid disrupting state tax administration and allow state courts to construe statute | Court: comity and Pullman abstention not warranted; statute not fairly susceptible to interpretation that avoids federal constitutional issues |
| Whether the pass-through prohibition violates the Dormant Commerce Clause by regulating extraterritorially or discriminating against out-of-state commerce | Plaintiffs: prohibition either reaches wholly out-of-state transactions (extraterritorial) or, if limited in-state, discriminates against out-of-state purchasers (impermissible protectionism) | New York: will interpret/enforce narrowly (in-state only) or limit enforcement to avoid constitutional problems; prohibition serves Medicaid/state interests | Court: Under plain text application it would be extraterritorial; even if limited to in-state it discriminates in effect; prohibition violates Dormant Commerce Clause |
| Whether the pass-through prohibition is severable from the remainder of the OSA | Plaintiffs (HDA): prohibition is integral; legislative intent shows the surcharge was to be borne by industry not consumers, so OSA cannot stand without prohibition | State: contains severability clause and could keep remainder in force or replace funding later | Court: provision not severable; invalidating it would frustrate legislature's primary design; entire OSA unconstitutional |
Key Cases Cited
- Entergy Nuclear Vermont Yankee, LLC v. Shumlin, 737 F.3d 228 (2d Cir.) (distinguishes taxes from regulatory fees by examining ultimate use of revenue)
- San Juan Cellular Tel. Co. v. Pub. Serv. Comm'n of Puerto Rico, 967 F.2d 683 (1st Cir.) (spectrum test for tax vs. fee; focus on revenue use and regulatory purpose)
- Mobil Oil Corp. v. Tully, 639 F.2d 912 (2d Cir.) (pass-through prohibition characterized as police power pricing regulation, not a tax, and implicated Commerce Clause concerns)
- Healy v. Beer Inst., Inc., 491 U.S. 324 (U.S.) (state law cannot control prices or commerce beyond its borders; extraterritoriality doctrine)
- C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383 (U.S.) (facially neutral statutes may regulate interstate commerce by practical effect)
- Pike v. Bruce Church, Inc., 397 U.S. 137 (U.S.) (balancing test for nondiscriminatory burdens on interstate commerce)
- Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519 (U.S.) (statutory labeling and context inform whether an exaction is treated as a tax for procedural doctrines)
- Brown & Williamson Tobacco Corp. v. Pataki, 320 F.3d 200 (2d Cir.) (examines discrimination and protectionism under Dormant Commerce Clause)
- Freedom Holdings, Inc. v. Spitzer, 357 F.3d 205 (2d Cir.) (upholding contraband statutes where no in-state commercial interest was advantaged)