Red Earth LLC v. United States
2011 U.S. App. LEXIS 19257
2d Cir.2011Background
- PACT Act imposes delivery-seller taxation and compliance requirements for online/mail tobacco sales.
- Red Earth (on the Seneca Reservation) and SFTA retailers ship tax-free products under prior federal and state rules.
- PACT Act requires delivery sellers to pay taxes and comply with state laws as if sales occurred entirely in the delivery state.
- District Court granted a preliminary injunction staying three tax-collection provisions due to alleged due-process violations for out-of-state sellers.
- The government appeals; plaintiffs cross-appeal on equal protection and Tenth Amendment issues; injunction largely preserved non-tax provisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PACT Act tax-provisions violate due process. | Red Earth/SFTA contend no minimum state contact; retroactive to all deliveries. | Govt. argues Congress may regulate interstate commerce and tax where not physically present. | District court did not abuse discretion; due process issue remains close but injunction affirmed. |
| Whether injunction is broader than necessary. | Injunction should be limited to tax-collection provisions only. | Broader injunction justified to preserve applicable protections. | Court affirmed amount and scope; severability preserved other provisions. |
| Whether public equities/commercial impact justify injunction. | Enforcement would cause economic harm to delivery sellers. | Compliance furthers tobacco control. | Equities favored plaintiffs; injunction sustained. |
| Whether plaintiffs have standing/merits on Tenth Amendment equal protection claims. | Bond allows standing to challenge federal action imposing state taxation. | Standing question unresolved; merits not reached. | Bond controls standing; court does not resolve merits. |
Key Cases Cited
- Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (due process limits on taxation of out-of-state sellers; minimum contacts)
- National Bellas Hess, Inc. v. Department of Revenue, 386 U.S. 753 (1967) (strict distinction between in-state presence and mail-only contact)
- J. McIntyre Mach., Ltd. v. Nicastro, 131 S. Ct. 2780 (2011) (single delivery into a state not definitively controlling due process)
- Ashcroft v. ACLU, 542 U.S. 656 (2004) (close constitutional questions in preliminary injunctions require deference)
- Alaska Airlines, Inc. v. Brock, 480 U.S. 678 (1987) (refrain from invalidating more of the statute than necessary; severability guidance)
- Regan v. Time, Inc., 468 U.S. 641 (1984) (severability and overbreadth concerns in constitutional analysis)
- Bond v. United States, 131 S. Ct. 2355 (2011) (individual standing to raise Tenth Amendment challenges confirmed)
- Brooklyn Legal Services Corp. B v. Legal Services Corp., 462 F.3d 219 (2006) (standing for Tenth Amendment claims questioned; later overruled by Bond)