GRIFFITH, Circuit Judge:
Robert Gordon owns a business that sold tobacco products across state lines. In the district court, Gordon sought a preliminary injunction against the enforcement of provisions of the Prevent All Cigarette Trafficking Act (PACT Act) that require him to pay state and local taxes and ban him from sending his products through the U.S. mail. Gordon argues that the tax provisions violate the Due Process Clause and the Tenth Amendment and that the mail ban runs afoul of the Due Process and Equal Protection Clauses.
The district court enjoined the enforcement of the tax provisions on due process grounds, but otherwise dismissed Gordon's claims. The government appeals the preliminary injunction, and Gordon cross-appeals the district court's dismissal of, and refusal to grant a preliminary injunction for, his remaining claims. For the reasons set forth below, we affirm the district court's decision in its entirety.
In most states, the liability for sales and use taxes falls primarily on the buyer. U.S. Government Accountability Office, GAO-03-714T, Internet Cigarette Sales: Limited Compliance and Enforcement of the Jenkins Act Result in Loss of State Tax Revenue 3 (2003) (hereinafter GAO Report); WALTER HELLERSTEIN, STATE TAXATION ¶ 12.01 (3d ed.2012). States require retailers to collect applicable taxes from resident buyers and remit the receipts to the state. STEVEN MAGUIRE, CONGRESSIONAL RESEARCH SERV., STATE TAXATION OF INTERNET TRANSACTIONS 1 (2013). A state may not, however, impose such an obligation on a retailer with whom the state lacks minimum contacts. See Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904, 119 L.Ed.2d 91 (1992).
More than a half century has elapsed since the passage of the Jenkins Act, and as the Internet has made it easier for consumers to order tobacco products from out-of-state sellers, it has become more difficult for states and localities to collect taxes on these transactions. H.R.Rep. No. 111-117, at 18-19 (2009); see also GAO Report, supra, at 8, 12-13. Remote purchasing also makes it easier for parties to evade age restrictions and otherwise traffic in cigarettes illegally. 15 U.S.C. § 375 note; see also H.R.Rep. No. 111-117, at 18. Finding the Jenkins Act inadequate, H.R.Rep. No. 111-117, at 18, Congress has sent the PACT Act into the breach.
The PACT Act is "aimed primarily at combating three evils: tobacco sales to minors, [illicit] cigarette trafficking, and circumvention of state taxation requirements." Gordon v. Holder (Gordon I), 632 F.3d 722, 723 (D.C.Cir.2011). It does so by restricting "delivery sales" of cigarettes and smokeless tobacco products. A delivery sale is any sale in which either the purchase or the delivery does not occur face-to-face. 15 U.S.C. § 375(5). Two sections of the Act are at issue here. Section 2a prohibits delivery sales unless all applicable state and local taxes are paid "in advance of the sale, delivery, or tender." 15 U.S.C. § 376a(a)(3)-(4), (d). Delivery sellers must comply with "all State, local, tribal, and other laws generally applicable to sales of cigarettes or smokeless tobacco as if the delivery sales occurred entirely within the specific State," meaning that they must collect any taxes that state or local laws require in-state retailers to collect. 15 U.S.C. § 376a(a)(3). They are subject to federal criminal and civil penalties if the applicable taxes have not been paid in advance. 15 U.S.C. § 376a(d)(1) (prohibition); 15 U.S.C. § 377 (penalties). Section 3 prohibits sending tobacco products in the U.S. mail. 18 U.S.C. § 1716E. As a result, tobacco delivery sellers must resort to private carriers.
According to his complaint, Robert Gordon ran a business selling tobacco products in the Alleghany Territory of the Seneca Nation of Indians, located in western New York. After starting his business in 2002, Gordon accepted orders in person, over the phone, and occasionally online. At the height of his business, Gordon took in two million dollars in revenue every month. Ninety-five percent of that revenue came from sales to customers outside of New York. Gordon claims, however, that he has never made a sale into some state
Gordon asserts that his business has suffered under the PACT Act. Until recently, Gordon has enjoyed the protection of a Western District of New York preliminary injunction against the enforcement of the tax provisions,
Gordon's case has been before us already. Gordon v. Holder (Gordon I), 632 F.3d 722 (D.C.Cir.2011). On June 28, 2010, the day before the PACT Act took effect, Gordon filed a complaint alleging that the tax provisions and the mail ban are unconstitutional and sought a preliminary injunction against their enforcement. Id. at 723. The district court denied Gordon's motion the next day on the sole ground that it was too late to stop the Act from taking effect. Id. at 724. Gordon appealed.
We remanded Gordon's motion to the district court to consider the factors a plaintiff must demonstrate to obtain a preliminary injunction. Gordon I, 632 F.3d at 726. On remand, the district court enjoined the tax provisions on due process grounds, but dismissed for failure to state a claim Gordon's Tenth Amendment challenge to the tax provisions and his due process and equal protection challenge to the mail ban. See Gordon v. Holder, 826 F.Supp.2d 279 (D.D.C.2011). Both parties appealed.
We have jurisdiction to review the resolution of Gordon's motion for a preliminary injunction under 28 U.S.C. § 1292(a)(1), and the dismissal of his claims under 28 U.S.C. § 1291. The closure of Gordon's business has not mooted his appeal. His wife submitted a sworn declaration that she and Gordon intend to reopen their business if they prevail, and that they remain capable of doing so. Marcia Gordon Third Decl. ¶¶ 5-7. Gordon's "uncontroverted intention to operate in the future in ways that would violate" the PACT Act "keeps the controversy alive." See Unity08 v. FEC, 596 F.3d 861, 864 (D.C.Cir. 2010).
As we explained in Gordon I, "`[a] plaintiff seeking a preliminary injunction
The government and dissent argue that Ashcroft's gloss on the standard of review applies only to preliminary injunctions based on the First Amendment, when the government bears a special burden to justify the challenged law with a compelling governmental interest. Appellants' Reply Br. 16 n. 9 (citing Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal, 546 U.S. 418, 429-30, 126 S.Ct. 1211, 163 L.Ed.2d 1017 (2006)). We disagree. The Ashcroft Court expressly derived its deferential approach "from established standards of appellate review" set out in Walters v. National Association of Radiation Survivors — a case involving a preliminary injunction based, like the one here, on the Due Process Clause. Ashcroft, 542 U.S. at 664, 124 S.Ct. 2783 (quoting Walters v. National Association of Radiation Survivors, 473 U.S. 305, 336, 105 S.Ct. 3180, 87 L.Ed.2d 220 (1985) (O'Connor, J., concurring)). Our sister circuits have also applied Ashcroft's standard of review to preliminary injunctions based on due process challenges. See Red Earth, 657 F.3d at 145 (applying Ashcroft to an identical due process challenge to the PACT Act); Reproductive Health Serv. of Planned Parenthood of St. Louis Region v. Nixon, 428 F.3d 1139, 1145 (8th Cir.2005) (applying Ashcroft to a constitutional challenge to an abortion regulation). In fact, we find no case expressly limiting Ashcroft's command to First Amendment challenges. To be sure, Ashcroft was a First Amendment case, and certain features of the Court's analysis naturally have no bearing outside the First Amendment context. For example, the Court affirmed the district court's conclusion that the plaintiff was likely to succeed on the merits because the government had not met its special First Amendment burden to justify the challenged restrictions on speech with a compelling governmental interest. See Gonzales, 546 U.S. at 429, 126 S.Ct. 1211 (describing Ashcroft). But the Ashcroft Court's description of our standard of review is not so restricted. It reflects the general principle that, even though Congress has provided for interlocutory review of preliminary injunctions, premature resolution of difficult constitutional questions
We conclude that the district court did not abuse its discretion by entering a preliminary injunction.
We begin with the district court's assessment of Gordon's likelihood of success on the merits, which is left untouched by the closure of Gordon's business. The district court held that Gordon is likely to succeed on the merits of his due process challenge. Gordon, 826 F.Supp.2d at 293. Because we find the underlying constitutional questions to be close, we affirm the district court's conclusion. See Ashcroft, 542 U.S. at 664-65, 124 S.Ct. 2783.
Gordon argues that the PACT Act "violates nonresident tobacco retailers' due process rights ... by subjecting them to taxes in state and local forums without regard to whether they have minimum contacts with the taxing jurisdiction."
Although it is well-settled that the Due Process Clause requires minimum contacts between the taxing sovereign and the taxed entity, see Miller Bros. Co. v. Maryland, 347 U.S. 340, 342, 344-45, 74 S.Ct. 535, 98 L.Ed. 744 (1954), this appeal presents a unique twist on that principle: with which sovereign must the taxed entity possess minimum contacts when there is one sovereign that defines and benefits from the tax obligation (in this case, the state or local government), and another that imposes and enforces the obligation (in this case, the federal government)? Gordon and the government think that the question can be resolved by reference to precedent. We do not. This question is
For its part, the government argues that the Act is constitutional because Gordon has minimum contacts with the federal government, the sovereign that imposed and will enforce his tax obligations. The government correctly points out that this is not the first time a seller has challenged Congress's power to oblige participants in interstate commerce to comply with state-defined duties. The Supreme Court has twice upheld federal laws against similar challenges — one to the Ashurst-Sumners Act and one to the Webb-Kenyon Act. See Ky. Whip & Collar Co. v. Ill. Cent. Ry. Co., 299 U.S. 334, 57 S.Ct. 277, 81 L.Ed. 270 (1937); James Clark Distilling Co. v. W. Maryland Ry. Co., 242 U.S. 311, 37 S.Ct. 180, 61 L.Ed. 326 (1917). The Ashurst-Sumners Act made "it unlawful knowingly to transport in interstate or foreign commerce goods made by convict labor into any State where the goods are intended to be received, possessed, sold, or used in violation of its laws." Kentucky Whip & Collar Co., 299 U.S. at 343, 57 S.Ct. 277. The Webb-Kenyon Act prohibited "the transportation in interstate commerce of all liquor `intended ... to be received, possessed, sold, or in any manner used ... in violation of any law of" the destination state. James Clark Distilling Co., 242 U.S. at 321, 37 S.Ct. 180. In both cases, the Supreme Court deemed it irrelevant that the states defined the companies' legal duties because the "will" behind the two laws was Congress's, not the states'. Ky. Whip & Collar Co., 299 U.S. at 347-52, 57 S.Ct. 277; James Clark Distilling Co., 242 U.S. at 326, 37 S.Ct. 180. The "will" behind the PACT Act is also Congress's, so the government argues that these precedents require us to disregard the role the states play in defining Gordon's legal duties. Appellants' Br. 25, 27; see also Musser's Inc. v. United States, No. 10-4355, 2011 WL 4467784, *5 (E.D.Pa. Sept. 26, 2011) ("[T]he Act's tax-payment requirement is not being imposed by a state, acting unilaterally, but by Congress, and the legislative due process analysis must reflect the federal character of the legislation."). Because Congress's "will" converts the state taxes into federal duties, the argument goes, the Due Process Clause demands minimum contacts only between Gordon and the federal government.
The government's argument overlooks an important distinction: The challenges to the federal statutes at issue in James Clark Distilling Company and Kentucky Whip & Collar Company were brought under the Commerce Clause; unlike Gordon's challenge, they raised no issue of minimum contacts under the Due Process Clause.
Sensitive to the distinctions between the Due Process and Commerce Clauses, Gordon argues that the answer to this question is found in the principles set out in Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904, 119 L.Ed.2d 91 (1992). In Quill, an out-of-state mail-order catalogue business challenged a state law that compelled "every person who engages in regular or systematic solicitation of a consumer market in" North Dakota to collect use taxes from its customers and remit them to the state. Id. at 302-03, 112 S.Ct. 1904 (internal quotation marks omitted). Even though Quill was a Delaware corporation with no physical presence in North Dakota, the state statute required the company to collect North Dakota use taxes because it engaged in "regular or systematic solicitation" in the state, as defined by the statute. Id. (internal quotation marks omitted). Quill challenged the law under the Due Process and Commerce Clauses. Id. at 303-04, 112 S.Ct. 1904. Before addressing these separate challenges, the Court discussed the differences between the clauses as they relate to the state's power to regulate an entity located in another state. Id. at 305-06, 112 S.Ct. 1904. In dicta, the Court explained: "While Congress... may authorize state actions that burden interstate commerce, it does not similarly have the power to authorize violations of the Due Process Clause." Id. at 305, 112 S.Ct. 1904 (internal citations omitted). Then, the Court set out the fundamental rule that the Due Process Clause requires minimum contacts between the taxing sovereign and the taxed entity. Id. at 306, 112 S.Ct. 1904. Taken together, Gordon argues, the legal principles set forth in Quill prohibit Congress from imposing
Even the government concedes that, after Quill, Congress may not authorize a state to impose the duty to collect state use taxes on delivery sellers lacking minimum contacts with the state. But that is not what the PACT Act does. Section 2a does not address itself to states at all. Rather than authorizing the states to impose on Gordon a state duty to collect state taxes, the PACT Act imposes on Gordon a federal duty to collect state taxes. States would enforce their own taxes if Congress merely authorized them to tax, whereas they must rely on the federal government to do so under the PACT Act. Because this distinction may make all the difference under the Due Process Clause, the precedent on which Gordon relies does not resolve our constitutional question.
Finding no conclusive precedent, we turn to first principles and there find support for Gordon's argument that due process requires minimum contacts with the state or local government that defines the tax.
We demand "minimum connections" because a taxation regime that does not rest on "minimum connections" lacks democratic legitimacy. See Quill, 504 U.S. at 312, 112 S.Ct. 1904 ("[T]he due process nexus analysis requires that we ask whether an individual's connections with a State are
The demand that taxation regimes possess democratic legitimacy finds deep roots in the founding of our republic. See THE DECLARATION OF INDEPENDENCE para. 15 (U.S.1776) ("He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation: ... For imposing Taxes on us without our Consent...."); EDMUND BURKE, THE POLITICAL TRACTS AND SPEECHES OF EDMUND BURKE, ESQ. 100 (1777) ("[I]n prudence we ought not to be quite so ready with our taxes, until we can secure the desired representation in parliament."); Speech of Lord Camden on the American Declaratory Bill (1766), in 16 THE PARLIAMENTARY HISTORY OF ENGLAND, FROM THE EARLIEST PERIOD TO THE YEAR 1803 (T. Hansard ed., 1813) ("[T]he British Parliament have no right to tax the Americans.... [T]axation and representation are inseparable — this position is founded on the laws of nature; ... for whatever is a man's own, is absolutely his own; no man has a right to take it from him without his consent, either expressed by himself or representative...."); see also Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 556, 15 S.Ct. 673, 39 L.Ed. 759 (1895) ("The men who framed and adopted [the Constitution] had just emerged from the struggle for independence whose rallying cry had been that `taxation and representation go together.'... The principle was that the consent to those who were expected to pay it was essential to the validity of any tax."); Slaughter-House Cases, 16 Wall. 36, 83 U.S. 36, 115, 21 L.Ed. 394 (1873) (Bradley, J., dissenting) ("A violation of ... the principle that recognizes the property of the people as their own, and which, therefore, regards all taxes for the support of government as gifts of the people through their representatives, and regards taxation without representation as subversive of free government, was the origin of our own revolution."). Our due process jurisprudence ensures democratic legitimacy by relying on the mechanism of "fair warning." See Quill, 504 U.S. at 312, 112 S.Ct. 1904. In Quill, the Supreme Court reasoned that "if a foreign corporation purposefully avails itself of the benefits of an economic market in the forum State" and "engage[s] in continuous and widespread solicitation of business within a State," then it "clearly has `fair warning that [its] activity may subject [it] to the jurisdiction of a foreign sovereign.'" Id. at 307-08, 112 S.Ct. 1904 (quoting Shaffer v. Heitner, 433 U.S. 186, 218, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977) (Stevens, J., concurring) (alterations in original)). Fairly warned that a state might tax them, persons can participate, at least through petitioning and speech, in the political process that decides whether it will. Cf. Borough of Duryea v. Guarnieri, ___ U.S. ___, 131 S.Ct. 2488, 2499-500, 180 L.Ed.2d 408 (2011) ("Petitions allow participation in democratic governance even by groups excluded from the franchise." (citation omitted)). Fairly
These principles give strength to Gordon's argument that even a federal duty to comply with state and local tax laws may transgress due process limits on the taxation power. True enough, Gordon possesses minimum contacts with the federal government that will enforce his duty, but should we not also demand that he possess minimum contacts with the state and local governments that will define his duty? The Framers saw the legislative process — which defines rather than enforces our duties — as the bulwark against oppressive taxation.
Another "simple but controlling question" to test the lawfulness of an exercise of taxation power is "whether the state has given anything for which it can ask return." See Nat'l Bellas Hess v. Dep't of Revenue, 386 U.S. 753, 756, 87 S.Ct. 1389, 18 L.Ed.2d 505 (1967) (internal
In light of these principles, the district court did not abuse its discretion by concluding that Gordon is likely to succeed on this first step of his merits argument. In so holding, we caution that we are not deciding as a matter of law which sovereign a court must look to in completing its minimum contacts analysis. That question is one of significant moment, touching core federalism concerns. J. McIntyre Mach., Ltd., 131 S.Ct. at 2789. And as this discussion reveals, the PACT Act has been cast in a mold that has never been constitutionally tested. We are unwilling to resolve such an important and novel constitutional question without the benefit of further factual development.
Before we may affirm the preliminary injunction, however, we must address the second constitutional question that informed the district court's conclusion that Gordon is likely to succeed on the merits of his claim.
Under Section 2a of the PACT Act, Gordon's obligation to collect a given state or local tax attaches when he initiates a transaction within that jurisdiction. Gordon's due process challenge presents the question whether a single sale is enough to establish minimum contacts with that jurisdiction. The government asserts it is, providing a constitutional basis for the Act even if Gordon is correct that the Due Process Clause demands minimum contacts with the state or local taxing authority. Appellants' Br. 30-33. Once again, the question is a close one, deserving of further development at a trial on the merits, so we affirm and remand. See Red Earth, 657 F.3d at 145 (affirming a preliminary injunction against Section 2a of the PACT Act on this ground and remanding for a trial on the merits).
Due process jurisprudence on "minimum contacts" has evolved significantly over the past half-century. In National Bellas Hess v. Department of Revenue, the Supreme Court held that minimum contacts do not exist between a state and a seller "whose only connection with customers in the State is by common carrier or the United States mail." 386 U.S. at 758, 87 S.Ct. 1389; see also Miller Bros. Co., 347 U.S. at 344-45, 74 S.Ct. 535. National Bellas Hess was commonly understood to require that the seller have some "physical presence" in the taxing state. Quill, 504 U.S. at 306-07, 112 S.Ct. 1904. Thirty years later, in Quill, the Supreme Court overruled that holding. Id. at 308, 112 S.Ct. 1904. Relying on "comparable" reasoning
But "[t]he Supreme Court has never found `that a single isolated sale ... is sufficient'" to establish minimum contacts. Red Earth, 657 F.3d at 145 (quoting J. McIntyre Mach., Ltd., 131 S.Ct. at 2792 (Breyer, J., concurring)). While it may prove to be the case that, in the Internet age, a single sale establishes "minimum contacts" as a matter of law, this seems like precisely the sort of difficult constitutional question on which our analysis would benefit from factual development. For example, how difficult is it for a delivery seller to identify and calculate applicable taxes at the point of sale? What sorts of services do states provide to delivery sellers (e.g., a forum for collecting debts from buyers, trash disposal for shipping cartons)? Without this knowledge, we find no reason to upset the district court's reasonable conclusion that Gordon has demonstrated a likelihood of success on the merits of his due process challenge to the tax provisions of the PACT Act. We underscore that our analysis is preliminary; we make no final determination on the merits of Gordon's due process challenge.
We likewise hold that the district court did not abuse its discretion in determining where the public interest lies when it concluded that "enforcement of a potentially unconstitutional law that would also have severe economic effects is not in the public interest." Gordon, 826 F.Supp.2d at 297.
Relying upon United States v. Oakland Cannabis Buyers' Coop., 532 U.S. 483, 497, 121 S.Ct. 1711, 149 L.Ed.2d 722 (2001), the government argues that the court erred as a matter of law "by failing to give any deference to Congress's assessment of where the public interest lies." Appellants' Br. 39.
The district court did not transgress the limits on its discretion here. Oakland prohibits a district court from second-guessing
Finally, we hold that the district court did not abuse its discretion when it concluded that Gordon was likely to suffer irreparable harm and that the balance of the equities tips in his favor.
Gordon argued that the PACT Act would cause him irreparable harm because it threatened the existence of his business and violated his constitutional rights. "[S]uits for declaratory and injunctive relief against the threatened invasion of a constitutional right do not ordinarily require proof of any injury other than the threatened constitutional deprivation itself." Davis v. District of Columbia, 158 F.3d 1342, 1346 (D.C.Cir.1998). Thus, "[a]lthough a plaintiff seeking equitable relief must show a threat of substantial and immediate irreparable injury, a prospective violation of a constitutional right constitutes irreparable injury for these purposes." Id. (internal citation omitted). The district court did not abuse its discretion by concluding that Gordon had demonstrated such a threat: when he was in business, the Act required Gordon to pay what he alleges are unconstitutional taxes or else risk criminal and civil penalties.
Similarly, the district court concluded that "a potential deprivation of [Gordon's] constitutional right to due process ... outweighs the possible injury to defendants from enjoining enforcement until the merits of Gordon's claim can be determined." Gordon, 826 F.Supp.2d at 297. Although the preliminary injunction might temporarily frustrate the federal government's interest in enforcing state and local tax laws, the district court permissibly gave greater weight to the possibility that Gordon could suffer an ongoing constitutional violation while this litigation proceeds.
Now that Gordon's business has ceased operations, he arguably no longer faces the dilemma on which the district court based its finding of irreparable injury. Neither does the government face the prospect of watching Gordon's cigarette sales go untaxed. As the administrator of the injunction, the district court is better placed than we are to judge its ongoing necessity. Our charge in a § 1292(a)(1) appeal is limited to determining whether the district court acted within its discretion by issuing the preliminary injunction in the first instance. Finding no abuse of discretion, we decline the government's invitation to vacate the injunction. In reaching that decision, we are sensitive to the gravity of enjoining an act of Congress, even temporarily. The government remains free to petition the district court for relief from the preliminary injunction in light of the changed circumstances. See FED. R. CIV. P. 60(b)
Before we turn to the claims the district court dismissed, we must consider the government's argument that the preliminary injunction is overbroad. The government argues that the injunction, which bars it from enforcing the tax provisions against Gordon at all, should have prohibited it only from enforcing the provisions against Gordon's sales into jurisdictions with which he lacks minimum contacts. We hold that the district court adequately fulfilled its duty to "maintain the act in so far as it is valid." Red Earth, 657 F.3d at 145 (quoting Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 684, 107 S.Ct. 1476, 94 L.Ed.2d 661 (1987)). By demanding that the injunction be narrower, the government asks the district court to put the cart before the horse. To accede to the government's argument, the district court would not only have to define the much-disputed concept of "minimum contacts," but would also have to engage in significant fact-finding to determine where around the country Gordon has established minimum contacts. See Marcia Gordon Second Decl. ¶ 13 ("There are several states in which we have made zero or very few sales. In addition, there are many local jurisdictions in which we have never made a sale."). Preliminary injunction hearings are illsuited for such fine tailoring.
More fundamentally, we are not convinced by the government's premise: that Gordon may challenge the PACT Act only "as applied" against his sales into jurisdictions with which he lacks minimum contacts. The government points out that a court may find a statute to be invalid on its face only if a plaintiff has shown that the Act has no "plainly legitimate sweep." Wash. State Grange v. Wash. State Repub. Party, 552 U.S. 442, 449, 128 S.Ct. 1184, 170 L.Ed.2d 151 (2008) (citation omitted); see also United States v. Salerno, 481 U.S. 739, 745, 107 S.Ct. 2095, 95 L.Ed.2d 697 (1987) (holding that facial challenges will be sustained only if "no set of circumstances exist under which the Act would be valid"). The government argues that any facial challenge to the PACT Act must fail because there is no dispute that the federal government may compel a delivery seller to collect taxes for at least those state and local governments with which it has minimum contacts. Thus, the Act has a "plainly legitimate sweep," even if it sweeps too broadly.
But when a statute erases the boundaries that define a sovereign's jurisdiction, as the PACT Act does to the boundaries of state and local taxing jurisdictions, any legitimate application is pure happenstance. It is perhaps this consideration that has led the Supreme Court to sustain facial challenges to laws that omit constitutionally-required jurisdictional elements, even though all such laws necessarily have a "plainly legitimate sweep." For example, in United States v. Lopez, the Supreme Court struck down the Gun-Free School Zones Act of 1990, a federal law that prohibited individuals from knowingly possessing firearms within school zones. 514 U.S. 549, 551, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995). The text of the statute "contain[ed] no jurisdictional element which would ensure, through case-by-case inquiry, that the firearm possession in question affects interstate commerce." Id. at 561, 115 S.Ct. 1624; see also United States v. Morrison, 529 U.S. 598, 613, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000) (relying on Lopez to sustain a facial challenge to the Violence Against Women Act). Similarly, if Gordon's due process analysis is correct, the PACT Act contains "no jurisdictional element which would ensure" that the taxes it imposes comport with the Due Process Clause. It permits state and local taxing powers to bleed over from legitimate
We review de novo the district court's dismissal of Gordon's remaining claims. See Schrader v. Holder, 704 F.3d 980, 984 (D.C.Cir.2013).
Gordon argues that Section 2a violates the Tenth Amendment by commandeering states to administer a federal taxation scheme.
This is not a case in which "the Federal Government [is] compel[ing] the States to implement, by legislation or executive action, federal regulatory programs." Printz, 521 U.S. at 925, 117 S.Ct. 2365. Instead of drafting states to enforce federal law, the PACT Act pledges the federal government to enforce state law. See 15 U.S.C. § 377 (imposing federal criminal penalties for violating the delivery sale provisions of the PACT Act). States may still craft their tax codes to accomplish their own policy goals. If a state wishes to increase tobacco consumption or to promote its use among minors, it retains the discretion to do so.
In fact, the challenged provisions of the PACT Act do not direct the states to do anything. Any administrative burden that results is merely incidental to Congress's lawful exercise of its power to regulate the private participants in interstate commerce. In New York, the Court left open the possibility that Congress could pursue permissible policy goals by directly regulating private parties rather than states. 505 U.S. at 159-60, 112 S.Ct. 2408. That is what Congress has done here.
The affirmative burdens placed on the states in Printz and New York were unavoidable. By contrast, states may avoid any burdens imposed by the PACT Act — a distinction the Supreme Court has treated as constitutionally significant. In FERC v. Mississippi, for example, the Court rejected a Tenth Amendment challenge to a federal statute that called for states to consider federal standards in regulating public utilities. 456 U.S. 742, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982). The Court emphasized that "if a State has no utilities commission, or simply stops regulating in the field, it need not even entertain the federal proposals." Id. at 764, 102 S.Ct. 2126; see also Hodel v. Va. Surface Mining & Reclamation Ass'n, Inc., 452 U.S. 264, 288, 101 S.Ct. 2352, 69 L.Ed.2d 1 (1981) (affirming a federal statute with similar reasoning). The Court in New York distinguished FERC v. Mississippi on these grounds, noting that there was nothing in the law at issue in FERC "directly compelling" the state to participate in the federal regulatory program. New York, 505 U.S. at 161-62, 112 S.Ct. 2408; see also Printz, 521 U.S. at 925-26, 117 S.Ct. 2365. This case is much more like FERC
Additionally, the PACT Act does not blur the lines of political accountability as did the statute challenged in New York, 505 U.S. at 169, 112 S.Ct. 2408. Here, states still freely set the tax rates for which they may be held accountable. And because the Act applies directly to the sellers, it is clear that Congress is the source of the new duty, not the states. See United States v. Morrison, 529 U.S. 598, 654 n. 21, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000) (Souter, J., dissenting) ("Had Congress chosen ... to proceed instead by regulating the States, rather than private individuals, this accountability would be far less plain.").
The PACT Act regulates individuals, not states; its only incidental effect on the states is to require them to collect additional tax revenue if they choose to join Congress in regulating interstate commerce in tobacco products. This sort of burden is constitutionally permissible.
The district court also properly dismissed Gordon's Fifth Amendment challenge to the PACT Act's ban on shipping tobacco products in the U.S. mail. Gordon argues that the ban deprives him of due process and the equal protection of the laws.
There is no dispute that the district court properly applied rational basis review to the mail ban. Accordingly, Gordon has a claim only if he can show that there is no "rational relationship between [the ban] and some legitimate governmental purpose." Am. Bus. Ass'n v. Rogoff, 649 F.3d 734, 742 (D.C.Cir.2011) (citation omitted). This burden "to negative every conceivable basis which might support" the law is especially difficult to meet. FCC v. Beach Commc'ns, Inc., 508 U.S. 307, 315, 113 S.Ct. 2096, 124 L.Ed.2d 211 (1993). Rational basis review "is not a license for courts to judge the wisdom, fairness, or logic of legislative choices." Id. at 313, 113 S.Ct. 2096. Courts must uphold legislation "[e]ven if the classification involved ... is to some extent both underinclusive and overinclusive...." Vance v. Bradley, 440 U.S. 93, 108, 99 S.Ct. 939, 59 L.Ed.2d 171 (1979). In the ordinary case, "a law will be sustained if it can be said to advance a legitimate government interest, even if the law seems unwise or works to the disadvantage of a particular group, or if the rationale for it seems tenuous." Romer v. Evans, 517 U.S. 620, 632, 116 S.Ct. 1620, 134 L.Ed.2d 855 (1996).
Gordon argues that this is no ordinary case because Congress has never before banned the shipment of a product that is legal in all fifty states and does not present a danger to the mail or mail carriers. Appellee's Br. 47. Unprecedented laws, he asserts, are subject to more "careful" rational basis review under Romer v. Evans. Appellee's Br. 50; see also Romer, 517 U.S. at 633, 116 S.Ct. 1620 (discussing the unprecedented nature of the law under review). We need not decide whether Romer announced such a rule because the mail ban is not unprecedented. The government provides — and Gordon fails to distinguish — several examples of articles Congress has banned from the U.S. mail that are legal in all fifty states and do not present a danger to the mail or mail carriers. See, e.g., 39 U.S.C. § 3002 (making vehicle master keys nonmailable); id. § 3002a (making locksmithing devices nonmailable).
Although we are by no means restricted to the stated reasons for passing a law in our search for a "rational basis," Beach Commc'ns, 508 U.S. at 315, 113 S.Ct. 2096, we need look no further than the statute itself to discern three rational bases for the mail ban. As we observed in Gordon I, Section 1 of the Act reveals that it was "aimed primarily at combating three evils: tobacco sales to minors, [illicit] cigarette trafficking, and circumvention of state taxation requirements." 632 F.3d at 723 (citing Pub.L. No. 111-154, § 1(b)). Gordon does not dispute that these purposes are "legitimate governmental purposes," but argues that the mail ban fails to advance them because it is duplicative, overinclusive in some ways, and underinclusive in others. His arguments ask us to engage in a higher level of scrutiny than rational basis review allows.
For example, Gordon argues that Congress could have accomplished the goal of preventing illicit cigarette trafficking by enhancing penalties for violations of existing laws, rather than broadly excluding both licit and illicit tobacco deliveries from the mail. Once again, the legislative record reveals a rational basis for choosing one path over the other: delivery sellers "have been very successful at eluding traditional enforcement measures, by making their cigarette and smokeless tobacco deliveries by mail." H.R.Rep. No. 111-117, at 19 (2009). Our standard of review does not permit us to second-guess the wisdom of that choice.
With respect to sales to minors, Gordon argues that the mail ban is duplicative because Congress promulgated age verification requirements in 15 U.S.C. § 376a(b)(4). Yet his next argument betrays an awareness that age verification requirements are only partially effective. He claims that the mail ban is underinclusive because it does not cover underage sales that occur at brick and mortar stores, which are also subject to age verification requirements. See Appellee's Br. 54 n. 14 (citing Tobacco Free Kids Org., Where Do Youth Smokers Get Their Cigarettes?, http://www.tobaccofreekids.org/research/factsheets/pdf/0073.pdf (last accessed June 7, 2013)). But Congress "must be allowed leeway to approach a perceived problem incrementally." Beach Commc'ns, 508 U.S. at 316, 113 S.Ct. 2096. Congress's judgment that the existing enforcement mechanisms must be supplemented by the partial solution of a mail ban is entirely rational.
Finally, Gordon argues that the mail ban is duplicative because the tax provisions already effectively prevent circumvention of state taxes. But as we note above, Congress concluded that the mail enables determined sellers to evade the law — including, presumably, the PACT Act's command that sellers pay state and local taxes in advance of the sale. It is entirely rational for Congress to buttress other legal provisions by closing a popular channel for noncompliant commerce.
Because Gordon has not met his high burden "to negative every conceivable basis" for the Act, Beach Commc'ns, 508 U.S at 315, 113 S.Ct. 2096, the district court was correct to dismiss Gordon's claim. And because the only challenge to the mail ban was properly dismissed, we need not decide whether the district court should have granted a preliminary injunction against the mail ban.
For the foregoing reasons, the district court's decision is affirmed and the case is
KAVANAUGH, Circuit Judge, concurring in the judgment in part and dissenting in part:
The majority opinion holds that key tax-related provisions of the Prevent All Cigarette Trafficking Act may be unconstitutional under the Due Process Clause's minimum contacts principle. The majority opinion therefore affirms the District Court's preliminary injunction barring the Federal Government from enforcing those provisions of the statute. I respectfully disagree. To obtain a preliminary injunction, a plaintiff must show, among other things, a likelihood of success on the merits. In my view, Gordon's Due Process Clause claim lacks merit. I would therefore vacate the preliminary injunction entered by the District Court.
In 2010, Congress passed and President Obama signed the Prevent All Cigarette Trafficking Act. That law requires cigarette sellers to comply with various state tax laws. The law was prompted by Congress's finding that Internet cigarette sellers were not complying with federal, state, and local tax laws, resulting in billions of dollars in lost tax revenue each year. Importantly for present purposes, violations of the Act are subject to federal criminal prosecution or federal civil suit. In such federal lawsuits, the United States is the relevant sovereign and jurisdiction. As I will explain, when the Federal Government (not a State) regulates a U.S. seller such as Gordon, there is no Due Process Clause minimum contacts issue.
To begin, it is well-settled that Congress may enact federal laws that require sellers of a product to comply with certain state laws. So long as the federal law is otherwise justified under the Constitution — for example, as a Commerce Clause regulation of commercial activity — the fact that the federal law piggy-backs on state law in this fashion is irrelevant. The Supreme Court has long upheld federal laws of that sort. See Kentucky Whip & Collar Co. v. Illinois Central Railroad Co., 299 U.S. 334, 57 S.Ct. 277, 81 L.Ed. 270 (1937); Clark Distilling Co. v. Western Maryland Railway Co., 242 U.S. 311, 37 S.Ct. 180, 61 L.Ed. 326 (1917). A number of federal laws follow that model. See, e.g., 7 U.S.C. §§ 1571, 1573 (no transfer of agricultural seeds into a State in violation of state law); 16 U.S.C. § 3372(a)(2) (no transfer of wildlife taken in violation of any state law); 18 U.S.C. §§ 842(c) (no transfer of explosives into a State where they are illegal under state law); 18 U.S.C. § 922(b)(2) (no transfer of firearms into a State where they are illegal under state law); 21 U.S.C. § 831(b) (online pharmacies must comply with the law of any State in which they do business or offer to do business); 31 U.S.C. § 5362(10)(A) (no online bets can be accepted where the bet is illegal in the State in which it is made); see also United States v. Kimbell Foods, Inc., 440 U.S. 715, 728, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979) ("state law may be incorporated as the federal rule of decision"); Board of County Commissioners of the County of Jackson, Kansas v. United States, 308 U.S. 343, 351-52, 60 S.Ct. 285, 84 L.Ed. 313 (1939) ("the state law has been absorbed, as it were, as the governing federal rule not because state law was the source of the right but because recognition of state interests was not deemed inconsistent with federal policy"); Henry M. Hart, Jr., The Relations Between State and Federal Law, 54 COLUM. L.REV. 489, 498 (1954) ("Congress rarely enacts a complete and self-sufficient body of federal law. The federal statutes are full of references, both explicit and implicit, to the law of some state.") (footnote omitted).
When Congress enacts a federal law of this kind and renders violators of that law subject to federal criminal prosecution or federal civil suit, the law does not violate the minimum contacts principle of the Due Process Clause. The reason is quite simple: In such federal-law cases, the relevant sovereign and jurisdiction is the United States, not one of the individual States. There is no Due Process minimum contacts issue raised by a federal-law suit against a seller located in the United States. That was the conclusion reached by a three-judge District Court in this Circuit when it rejected a similar Due Process Clause minimum contacts challenge to the Jenkins Act. That Act required cigarette shippers to report out-of-state sales to the buyer's state tobacco administrator. The Supreme Court summarily affirmed the Court's decision. See Consumer Mail Order Association of America v. McGrath, 94 F.Supp. 705, 712 (D.D.C.1950), aff'd, 340 U.S. 925, 71 S.Ct. 500, 95 L.Ed. 668 (1951). I would reach the same conclusion here. See Musser's Inc. v. United States, 2011 WL 4467784, at *5 (E.D.Pa.2011) (denying preliminary injunction in Due Process Clause challenge to Prevent All Cigarette Trafficking Act).
To be sure, a seller like Gordon may raise a Due Process Clause minimum contacts objection in any state-law proceeding. See Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904, 119 L.Ed.2d 91 (1992). But the Prevent All Cigarette Trafficking Act does not negate a seller's ability to raise a Due Process Clause minimum contacts objection in state-law cases.
In my view, therefore, Gordon's Due Process Clause claim is entirely without merit.
When, as here, a District Court incorrectly finds a likelihood of success on the merits, that legal error constitutes an abuse of discretion, and we must vacate
Because Gordon's Due Process Clause claim is meritless, I would vacate the District Court's preliminary injunction against enforcement of the tax-related provisions of the Act. As to Gordon's cross-appeal challenging the District Court's denial of a preliminary injunction to enjoin enforcement of the Act's mailing ban on Fifth Amendment grounds, I would affirm the District Court because Gordon has not shown a likelihood of success on the merits of that claim, for reasons the majority opinion explains.
SENTELLE, Senior Circuit Judge, concurring in part and concurring in the judgment:
I reluctantly concur in the result announced in Judge Griffith's opinion. While this case may not be moot, it is not entirely clear what it is the parties are still litigating about, and I hope that the district court re-examines the mootness question with the benefit of a more full record.
I do not join fully in Judge Griffith's opinion because I think it opines on matters far beyond the issues before the court, and I do not wish to elevate those opinions to circuit law.
First, footnote 1 of Judge Griffith's opinion indulges, I think quite gratuitously, in a discussion of the effect of the so-called "Dormant Commerce Clause." So far as I can tell, no party in this case relies upon the Dormant Commerce Clause, the Dormant Commerce Clause is not relied upon in the briefs, the Dormant Commerce Clause has nothing to do with the result, and this case has nothing to do with the Dormant Commerce Clause.
Further, I cannot support Judge Griffith's opinion in its test of "democratic legitimacy" for the minimum contacts necessary to provide due process for taxation. Griffith op. at 19-21. The search for democratic underpinnings for constitutional provisions may be academically interesting, but I find no case in which this court, the Supreme Court, or any other federal court has undertaken that search before affirming the legitimacy of a tax. Because Judge Griffith's opinion supplies sufficient indicia of minimum contacts without relying on this novel approach, I join the result, indeed I join most of the opinion, but I cannot fully join the elevation to circuit law of a new test for minimum contacts, or of the discussion of the attributes of the "Dormant Commerce Clause."
My concurring colleague criticizes this footnote as "gratuitous." Post, at 658 (Sentelle, J., concurring). I disclaim any attempt to opine on the effect of the Dormant Commerce Clause, which, as my colleague correctly points out, is not at issue in this case. I include this incontrovertible description of the Supreme Court's Dormant Commerce Clause doctrine only to clarify that the Due Process Clause is not the only provision that restricts a state's power to tax out-of-state retailers.
The government and the dissent, post, at 659 (Kavanaugh, J., dissenting), identify several other federal statutes that subject out-of-state sellers to state regulation. These statutes likewise have never been scrutinized under the Due Process Clause. The one exception is the Jenkins Act, which a three judge district court once upheld against a due process challenge. See Consumer Mail Order Ass'n of Am. v. McGrath, 94 F.Supp. 705 (D.D.C.1950). But that Act is distinguishable because the federal government imposed, defined, and enforced the duty, rather than incorporating a duty created by state law. See 15 U.S.C. § 376 (setting out detailed requirements for the report the seller must submit to the state).
All of these federal laws are distinguishable from the PACT Act for an additional reason: the state laws they incorporate do not impose a duty to collect taxes; they regulate commercial activity instead. The Court has long held that mere contact through the U.S. mail provides the "minimum contact" required for a state to assert regulatory, as distinguished from taxation, jurisdiction. See Travelers Health Ass'n v. Virginia ex rel. State Corp. Comm'n, 339 U.S. 643, 646-50, 70 S.Ct. 927, 94 L.Ed. 1154 (1950). For that reason, the laws cited by the government and the dissent arguably satisfy the Due Process Clause even if Gordon is correct that the Clause requires minimum contacts between the seller and the state or locality.