ASSOCIATION FOR ACCESSIBLE MEDICINES, HEALTHCARE DISTRIBUTION ALLIANCE, SPECGX LLC, Plаintiffs-Appellees, v. LETITIA JAMES, IN HER OFFICIAL CAPACITY AS ATTORNEY GENERAL OF THE STATE OF NEW YORK, HOWARD A. ZUCKER, IN HIS OFFICIAL CAPACITY AS COMMISSIONER OF HEALTH OF THE STATE OF NEW YORK, Defendants-Appellants.
Docket Nos. 19-183-cv(L), 19-199-cv(CON), 19-201-cv(CON)
United States Court of Appeals, Second Circuit
September 14, 2020
Before: CABRANES and LOHIER, Circuit Judges, and REISS, District Judge.*
New York State appeals from consolidated judgments of the United States District Court for the Southern District of New York (Failla, J.) invalidating the State’s Opioid Stewardship Act (OSA). The OSA requires opioid manufacturers
JAY P. LEFKOWITZ, Kirkland & Ellis LLP, New York, NY (Matthew D. Rowen, Kirkland & Ellis LLP, Washington, DC, on the brief), for Plaintiff-Appellee Association for Accessible Medicines.
MICHAEL B. KIMBERLY, McDermott Will & Emery LLP, Washington, DC (M. Miller Baker, Sarah P. Hogarth, Eric Hageman, McDermott Will & Emery LLP, Washington, DC, Andrew B. Kratenstein, M. Elias Berman, McDermott Will & Emery LLP, New York, NY, on the brief), for Plaintiff-Appellee Healthcare Distribution Alliance.
Douglas H. Hallward-Driemeier, Ropes & Gray LLP, Washington, DC, Erin R. Macgowan, Ropes & Gray LLP, Boston, MA, for Plaintiff-Appellee SpecGx LLC.
STEVEN C. WU, Deputy Solicitor General (Barbara D. Underwood, Solicitor General, Caroline A. Olsen, Assistant Solicitor General, on the brief), for Letitia James, Attorney General for the State of New York, New York,
LOHIER, Circuit Judge:
To address the substantial costs imposed by the national opioid public health crisis as it struck New York, the New York State Legislature enacted the Opioid Stewardship Act (OSA). See 2018 N.Y. Sess. Laws, ch. 57, pt. NN (codified at N.Y. Pub. Health Law § 3323 and N.Y. State Fin. Law § 97-aaaaa). Part of the Act requires opioid manufacturers and distributors to pay an annual “opioid stewardship payment.” The proceeds must be used to support statewide programs that provide opioid treatment, recovery, prevention, and education services. Another part of the Act, known as the “pass-through prohibition,” bars manufacturers and distributors of opioids from passing the costs of the opioid stewardship payment through to their customers.
Healthcare Distribution Alliance (HDA) and Association for Accessible Medicines (AAM) are trade associations that represent manufacturers and distributors of pharmaceutical products, including opioids, while SpecGx develops, manufactures, and sells opioids. The three plaintiffs filed separate actions challenging thе OSA and seeking declaratory and injunctive relief against the New York Attorney General and the New York Commissioner of Health in
The New York State Legislature subsequently amended the OSA so that its provisions expired in December 2018. See 2019 N.Y. Sess. Laws ch. 59, pt. XX, § 5. It then enacted a new payment mandate, effective July 2019, that does not include a pass-through prоhibition. See 2019 N.Y. Sess. Laws ch. 59, pt. XX (codified at N.Y. Tax Law §§ 497–99) (the “2019 Act”). In light of this legislative development, the State has elected not to seek reversal of the District Court’s invalidation of the pass-through prohibition. On appeal, therefore, New York asks us only to reverse the District Court’s invalidation of the remainder of the Act, including the opioid stewardship payment requirement. We conclude that the payment is a tax within the meaning of the Tax Injunction Act (TIA),
BACKGROUND
Opioids are a class of drugs that include prescription pain relievers, synthetic opioids like fentanyl, and heroin. While prescription opioid medications can treat and manage pain when properly prescribed by a physician, they also pose serious risks of addiction and abuse. Starting in 1999, the United States experienced a rapid rise in prescription opioid overdose deaths, followed by spikes in heroin and synthetic opioid overdose deaths. The death toll was accompanied by steep economic costs estimated to total $78.5 billion each year. In 2017 the United States Department of Health and Human Services declared the opioid epidemic a nationwide public health emergency.1 That same year, the New York State Department of Health reported that the rate of overdose deaths
The New York State Legislature enacted the OSA to raise $600 million over six years to address the costs of dealing with the crisis. See N.Y. Pub. Health Law § 3323(3); N.Y. State Fin. Law § 97-aaaaa(4); 2018 N.Y. Sess. Laws, ch. 57, pt. NN, § 5. The OSA thus imposes an annual fixed $100 million “opioid stewardship payment” collectively on all licensed opioid manufacturers and distributors that sell or distribute opioids in the State (“licensees”). N.Y. Pub. Health Law § 3323(2)-(3). Each licensee is responsible for paying a portion of the $100 million total based on its market share of opioid sales in New York. Id. § 3323(5). The Department of Health, which collects the funds, annually calculates the amount of each licensee’s payment based on reported opioid sales from the previous year. Id. § 3323(4)–(6). Based on 2017 reports, the Department determined that 97 licensees owed stewardship payments in 2018.3
HDA and SpecGx challenged both the opioid stewardship payment and the pass-through prohibition, while AAM challenged only the pass-through prohibition. As relevant here, the plaintiffs argued that thе pass-through prohibition violates the dormant Commerce Clause. HDA moved for summary
In a consolidated Opinion and Order, the District Court denied New York’s motions to dismiss, granted HDA’s motion for summary judgment, and granted AAM’s and SpecGx’s motions for preliminary injunctions. The District Court concluded that the TIA did not apply to plaintiffs’ claims because neither the opioid stewardship payment nor the pass-through prohibition is a tax that triggers the TIA. The District Court also concluded that the separate pass-through prohibition violates the dormant Commerce Clause. Relying on the legislative history rather than the text of the OSA, the District Court held that the stewardship payment requirement could not survive without the pass-through
This appeal followed.
DISCUSSION
On appeal, New York asks us to reverse the District Court’s invalidation of the OSA, including the opioid stewardship payment, but it no longer defends the pass-through prohibition. The validity of the pass-through prohibition thus is not before us on appeal. The only remaining issue is whether the District Cоurt lacked jurisdiction to invalidate or enjoin the State’s collection of the opioid stewardship payment because the payment is a tax within the meaning of the TIA, as opposed to a regulatory fee or a punitive fine. We conclude that it is a tax and that the District Court should have dismissed the challenges to the payment requirement for lack of subject matter jurisdiction. Because New York does not challenge the District Court’s invalidation of the pass-through
I
The TIA provides that “[t]he district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.”
“Two conditions must be satisfied to invoke the protection of the TIA: first, the surcharges must constitute ‘taxes,’ and second, the state remedies available to plaintiffs must be ‘plain, speedy and efficient.’” Travelers Ins. Co. v. Cuomo, 14 F.3d 708, 713 (2d Cir. 1993) (footnote omitted), rev’d on other grounds sub nom.
A
“Although there is no bright line between assessments that are taxes and those that are not, most courts agree that [a]ssessments which are imposed primarily for revenue-raising purposes are ‘taxes,’ while levies assessed for
In San Juan Cellular Telephone Co. v. Public Service Commission, 967 F.2d 683, 685 (1st Cir. 1992) (Breyer, C.J.), the First Circuit devised a three-factor test, which we have cited with approval, for distinguishing taxes from regulatory fees.7 See also Entergy Nuclear Vt. Yankee, LLC v. Shumlin, 737 F.3d 228, 232–33 (2d Cir. 2013) (citing San Juan Cellular with approval); Travelers, 14 F.3d at 713 (same). The three factors are: (1) the nature of the entity imposing the assessment, (2) the population subject to the assessment, and (3) the ultimate allocation or use of the revenues generated by the assessment. See Entergy, 737 F.3d at 232–33. To put these factors in context, the First Circuit helpfully described “a spectrum with a paradigmatic tax at one end and a paradigmatic fee at the other”:
The classic “tax” is imposed by a legislature upon many, or all, citizens. It raises money, contributed to a general fund, and spent for the benefit of the entire community. . . . The classic “regulatory fee” is imposed by an agency upon those subject to its regulation. . . .
It may serve regulatory purposes directly by, for example, deliberately discouraging particular conduct by making it more expensive. . . . Or, it may serve such purposes indirectly by, for example, raising money placed in a special fund to help defray the agency’s regulation-related expenses.
San Juan Cellular, 967 F.2d at 685.
In Entergy, we focused largely on the third San Juan Cellular factor. See Entergy, 737 F.3d at 232–33 (discussing the other two factors with approval but finding it unnecessary to adopt them at the time). Our sister circuits appear to agree that this factor is the most significant. See Hill v. Kemp, 478 F.3d at 1245 (“[T]he critical inquiry focuses on the purpose of the assessment and the ultimate use of funds.” (quotation marks omitted)); Hedgepeth v. Tennessee, 215 F.3d at 612 (describing the revenue’s ultimate use as “the predominant factor” (quotation marks omitted)); Collins Holding Corp. v. Jasper County, 123 F.3d 797, 800 (4th Cir. 1997) (explaining that “the heart of the [TIA] inquiry centers on function, requiring an analysis of the purpose and ultimate use of the assessment”); San Juan Cellular,
“[T]he principal identifying characteristic of a tax, as opposed to some other form of state-imposed financial obligation,” therefore, “is whether the imposition serve[s] general revenue-raising purposes,” which “in turn depends on the disposition of the funds raised.” Entergy, 737 F.3d at 231 (quotation marks omitted); see id. at 232 (“[C]ourts applying the San Juan factors . . . have . . . concluded that whether the purported tax is directed to general public purposes is the most salient factor in the decisional mix.” (quotation marks omitted)). If the “revenue’s ultimate use” is to “provide[] a general benefit to the public, of a sort often financed by a general tax,” then the imposition is likely to be a tax. Id. at 232 (quoting San Juan Cellular, 967 F.2d at 685). By contrast, if the funds are allocated to “provide[] more narrow benefits to regulated companies or defray[] [an] agency’s costs of regulation,” the assessment is more likely to be seen as a regulatory fee that does not implicate the TIA. Id. (quoting San Juan Cellular, 967 F.2d at 685).
As we have described, faced with rising costs associated with mounting statewide opioid addiction and opioid-related deaths, the State Lеgislature crafted the opioid stewardship payment to raise $600 million to respond to the State’s public health crisis. New York’s allocation of revenues from the payment thus strongly suggests that the stewardship payment requirement serves general revenue-raising purposes without a regulatory or punitive aim.
Funds from the stewardship payment are statutorily directed to support programs that are operated or authorized by OASAS “to provide opioid treatment, recovery and prevention and education services” and to support the State’s prescription monitoring program registry. N.Y. State Fin. Law § 97-aaaaa(4). Both the OASAS programs and the registry reflect broad public health initiatives that undoubtedly provide a “general benefit” to New York residents “of a sort often financed by a general tax.” Entergy, 737 F.3d at 232 (quotation marks omitted); see, e.g., N.Y. Tax Law § 482(b); N.Y. Pub. Health Law § 2807-v (funding public health programs with the proceeds from New York’s cigarette excise tax).
Consideration of the other two San Juan Cellular factors only reinforces the view that the opioid stewardship payment is a tax. “The first of these additional factors, the nature of the entity imposing the charge, cuts strongly in favor of classifying the [stewardship payment] as a tax.” Entergy, 737 F.3d at 232. The payment was clearly imposed by the Legislature, which wields the taxing power, and not by a “limited-purpose” agency.8 Id. The agency appears to have played little substantive role in imposing it.
The plaintiffs argue that the remaining factor cited in San Juan Cellular, the population subject to the charge, suggests that the stewardship payment is not a tax because it falls on a narrow set of only 97 companies. But this argument, like the plaintiff’s failed argument in Entergy, is “too simplistic” insofar as it asks us to just tally the number of entities subject to аn assessment. Id. at 233. With respect to this factor, our task is to consider whether “[t]he
II
A
Urging a contrary conclusion, the plaintiffs insist that the payment is a regulatory fee, not a tax, because the public health prоgrams supported by the payment serve “not a general revenue-raising purpose” but a “narrow” and “specific one.” HDA Br. 29 (emphases in original); see id. at 35 (contrasting purportedly “‘narrow’ industry-related programs funded by the opioid stewardship fund” with the “lengthy catalogue of general public health programs” funded by the New York cigarette excise tax). They claim that the specific purpose of the programs is to “defray[] . . . expenses associated with
But the public health programs that the stewardship payment funds “relate directly to the general welfare of the citizens of [New York,] and the assessments to fund them are no less general revenue raising levies simply because they are dedicated to a particular aspect of the commonwealth.” Hedgepeth, 215 F.3d at 613 (quotation marks omitted); see id. at 612–13 (holding that a disabled parking placard fee was a tax even though its proceeds went primarily to the state’s highway fund). In New York, the statewide OASAS programs benefit the broader New York population through “prevention and education services,” as well as New Yorkers struggling with opioid addiction. N.Y. State Fin. Law § 97-aaaaa(4). The prescription monitoring program registry similarly extends well beyond the opioid crisis to include several categories of non-opioid controlled substances that have debilitated countless New Yorkers. N.Y. Pub. Health Law § 3343-a(1), (2); id. § 3306.
Moreover, the assessment would be a tax even if it helped to alleviate only the social and other costs to New Yorkers caused by the sale and manufacture of opioids by the assessed entities. “[T]axes imposed on industries believed to
Directing us to Entergy, the plaintiffs separatеly contend that the deposit of the opioid stewardship payment proceeds in a “special revenue” fund, rather than in New York’s general fund, cuts strongly against recognizing the payment as a tax. They point to our assertion in Entergy that “[i]f the proceeds [of a measure] are deposited into the state’s general fund (rather than directly allocated to the agency that administers the collection, for the purpose of providing a narrow benefit to or offsetting costs for the agency), the imposition will generally be seen as serving the general benefit of the state, and thus as a tax.” Entergy, 737 F.3d at 231; see also Travelers, 14 F.3d at 713 (concluding that surcharges imposed on health insurers were taxes because they were “paid into the State’s general fund”).
Recall that the proceeds from the opioid stewardship payment are deposited in a separate, “special revenue” account in the state treasury. See N.Y. State Fin. Law § 97-aaaaa(1). The New York State Finance Law defines “special
We agree with a number of our sister circuits that “even assessments that are segregated from general revenues” may be taxes “under the TIA if expended to provide a general benefit to the public.” Bidart Bros., 73 F.3d at 932 (quotation marks omitted); see also Hill, 478 F.3d at 1244–45; Am. Landfill, Inc. v. Stark/Tuscarawas/Wayne Joint Solid Waste Mgmt. Dist., 166 F.3d 835, 839 (6th Cir. 1999)
We now turn to the remaining Entergy factors. Although the designation to the generаl treasury of the tax in Entergy was the “principal” characteristic supporting its status as a tax, Entergy, 737 F.3d at 233, we also observed that the statute imposing the tax (1) directed that its proceeds be paid to the
The plaintiffs claim that all three of these remaining factors weigh against recognizing the stewardship payment as a tax. The OSA, they point out, directs the payment to be paid to the Department of Health, not the Department of Taxation and Finance; it reserves the payment for a specific purpose; and it does not refer to the paymеnt as a “tax.”
While it is true that the Department of Health is tasked with collecting proceeds of the stewardship payment, the OSA requires that the proceeds be remitted to the special revenue fund jointly held by the State Comptroller and the Commissioner of Taxation and Finance. In other words, the funds are functionally and legally maintained by the State’s taxing authorities, a fact that strongly favors New York’s argument that the payment is a tax.
Nor is the payment a regulatory fee merely because the OSA reserves the proceeds to support public health programs in New York. Such a broad, statewide purpose is not “particular” in the way Entergy contemplates. To the
As for the final factor, we recognize that the OSA does not call the stewardship payment a “tax” per se. But “‘[t]axation’ is unpopular these days, so taxing authorities avoid the term.” Empress Casino, 651 F.3d at 730. It may well be significant, sometimes even dispositive, that the legislature affirmatively attaches the label “tax” to a required payment. But the legislature’s silent refusal to call a tax a tax, even though it raises revenue to provide a clear general public benefit, is less significant to our inquiry.
For these reasons, we can safely conclude that the stewardship payment is not a regulatory fee.
B
The plaintiffs’ final argument, that the opioid stewardship payment is a punitive fine, fares no better. In assessing the argument, we note that the legislature is entitled to require an industry to pay a tax to support public programs designed to address a widespread problem caused by the industry. See Entergy, 737 F.3d at 233 n.2. Even if we assume, as the plaintiffs claim, that the State Legislature here imposed the stewardship payment to hold opioid
The plaintiffs also argue that the stewardship payment is a fine because it is a “fixed sum” of $100 million per year. HDA Br. 38. While fines are “typically” fixed sums, the plaintiffs say, taxes are “usually” calculated as a percentage of each sale. HDA Br. 38. But the TIA is not limited to taxes that a State assesses based on a “usual” method of calculation. The statute broadly bars federal court interference with the “assessment, levy or collection of any tax.”
The plaintiffs alternatively emphasize that the OSA’s pass-through prohibition places the entire burden оf the payment on manufacturers and distributors by barring them from passing the costs on to purchasers. This, they contend, is a telltale feature of a punitive fine. But the pass-through prohibition is a separate and distinct element of the OSA that New York no longer defends.
GenOn Mid-Atlantic, LLC v. Montgomery County, 650 F.3d 1021 (4th Cir. 2011), to which the plaintiffs point us, is not to the contrary. There, the Fourth Circuit held that a county legislature’s charge on carbon dioxide emissions was a punitive fee. In determining that the charge was a fee, the court relied in significant part on two facts: first, that the burden of the charge fell on the plaintiff “alone,” and second, that GenOn, the electricity plant subject to the charge, would “likely be unable to pass the cost of the charge on to its customers” because it lacked the market power to do so. Id. at 1024. GenOn’s inability to pass on the cost of the charge was critical to the county council’s decision to impose the charge. See id. at 1025. Neither of these concerns are factors in this case. Here, the burden imposed by the stewardship payment is more generally borne. And because New York no longer defends the OSA’s pass-through prohibition, nothing prevents the plaintiffs and other similarly
In summary, after considering the factors in Entergy and San Juan Cellular, we conclude that the primary purpose of the opioid stewardship payment is to raise revenue, not to punish or regulate the plaintiffs and other licensees who are required to make the payment. For this reason, we hold that the payment is a tax within the meaning of the TIA. The District Court therefore lacked jurisdiction to declare it invalid or to enjoin its enforcement.9
III
Because New York has “elected not to seek rеversal of the district court’s invalidation of the pass-through prohibition, and seeks reversal only of the district court’s invalidation of the remainder of the OSA, including the opioid
CONCLUSION
For the foregoing reasons, we REVERSE the District Court’s judgment invalidating and enjoining enforcement of the opioid stewardship payment and all other provisions of the OSA except for the pass-through prohibition, the invalidation of which is not before us.