1994 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

11-30-1994

Pic-a-State et al. v. Commwlth of PA, et al.

Precedential or Non-Precedential:

Docket 94-7056

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Recommended Citation

"Pic-a-State et al. v. Commwlth of PA, et al." (1994). 1994 Decisions. Paper 205.

http://digitalcommons.law.villanova.edu/thirdcircuit_1994/205
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ___________ 

 NO. 94-7056 

 ___________ 

 PIC-A-STATE PA, INC.; ZACK'S FROZEN YOGURT; 

 SMITTY'S PLACE, INC.; K&J STATIONARY, INC.; JAMES RUSSELL 

v. 

 COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF REVENUE; 

 EILEEN H. MCNULTY 

 EILEEN H. MCNULTY, 

 Appellant 

 ___________ 

 On Appeal from the United States District Court 

 for the Middle District of Pennsylvania 

 (D.C. Civ. No. 93-cv-00814) 

 ___________ 

 Argued: September 14, 1994 

 Before: STAPLETON, LEWIS and ALARCÓN,* Circuit Judges

 (Filed November 30, 1994) 

 ________________ 

 

* Honorable Arthur L. Alarcon, United States Circuit Judge for 

the Ninth Circuit, sitting by designation. 

Michael A. Finio (Argued) 

Goldberg, Katzman & Shipman 

320 Market Street 

Strawberry Square 

P.O. Box 1268 

Harrisburg, PA 17108-1268 

 Attorney for Appellees 

Ernest D. Preate, Jr. 

Attorney General 

Anne K. Fiorenza (Argued) 

Deputy Attorney General 

Calvin R. Koons 

Senior Deputy Attorney General 

John G. Knorr, III 

Chief Deputy Attorney General 

Chief, Litigation Section 

Office of Attorney General of Pennsylvania 

Strawberry Square, 15th Floor 

Harrisburg, PA 17120 

 Attorneys for Appellant 

Deborah T. Poritz 

Attorney General of New Jersey 

Of Counsel: 

Joseph L. Yannotti 

Assistant Attorney General 

Patricia A. Kern 

B. Stephan Finkel 

Deputy Attorneys General 

R.J. Hughes Justice Complex 

CN 117 

Trenton, New Jersey 08625 

 Attorneys for Amicus Curiae, State of New Jersey 
Hillary Richard 

Rabinowitz, Boudin, Standard, 

 Krinsky & Lieberman, P.C. 

Of Counsel: 

Daniel R. Williams 

740 Broadway, 5th Floor 

New York, New York 10003 

 Attorneys for Amicus Curiae, C.H.A.N.C.E. 

Lee Fisher 

Attorney General of Ohio 

Jay M. Patterson 

Sheryl C. Maxfield 

Daniel A. Malkoff 

Chester T. Lyman, Jr. 

Assistant Attorneys General 

Of Counsel: 

Richard A. Cordray 

Simon B. Karas 

Assistant Attorneys General 

State Office Tower 

30 East Broad Street 

Columbus, Ohio 43215-3428 

 Attorneys for Amicus Curiae, States of Ohio, 

Arizona, California, Connecticut, Delaware, Florida, Georgia, 

Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, 

Massachusetts, Minnesota, Missouri, Montana, Nebraska, Nevada, 

New Hampshire, New York, Rhode Island, South Carolina, South 

Dakota, Utah, Texas, Vermont, Virginia, Washington D.C., West 

Virginia and Wisconsin 

 _____________ 

 OPINION OF THE COURT

 _____________ 

ALARCÓN, Circuit Judge: 

 Eileen McNulty, Secretary of the Pennsylvania Department of 

Revenue, appeals from the district court's declaration that 
section 9(c) and 9.1 of Pennsylvania's Commonwealth Act 8 of 1993 

("Act 8") is unconstitutional under the Commerce Clause and the 

order permanently enjoining its enforcement. We must decide 

whether Act 8 imposes an unconstitutional burden on interstate 

commerce in violation of the dormant Commerce Clause. We reverse 

because we conclude that since the Violent Crime Control and Law 

Enforcement Act of 1994, Pub. L. No. 103-322, 108 Stat. 1796 

("1994 Crime Control Act"), makes the conduct of a business that 

sells an interest in another state's lottery a federal crime, Act 

8 does not impose an unconstitutional burden on interstate 

commerce. 

I. 

 Pic-A-State PA., Inc. ("Pic-A-State"), a Pennsylvania 

corporation, characterizes itself as a "messenger business . . . 

[operated] as a service to Pennsylvania citizens . . . where 

orders are received from persons who wish to participate in 

legalized and authorized lotteries of other states." Pic-A-State 

conducts its business in Pennsylvania through retail stores, at 

which customers place orders for lottery tickets from other 

states. The retail stores transmit the orders to purchasing 

agents in other states. The retail stores charge the customers 

one dollar for each lottery ticket purchased. The purchaser does 

not receive a ticket for his money. Instead, the purchaser 

receives a receipt showing the numbers he selected. 
 In response to Pic-A-State's business activities in 

Pennsylvania, that state's legislature enacted Commonwealth Act 8 

of 1993. Section 9(c) of Act 8 provides: 

 Except as provided in this act, no 

person shall engage in the sale or offering 

for sale within this Commonwealth of any 

interest in a lottery of another state or 

government whether or not such interest is an 

actual lottery ticket, receipt, contingent 

promise to pay, order to purchase or other 

record of such interest. 

Pa. Stat. Ann. tit. 72, § 3761-9(c) (Supp. 1994). Section 9(d) 

provides that "[a]ny person convicted of violating this section 

shall be guilty of a misdemeanor and upon conviction thereof, 

shall be sentenced to pay a fine not exceeding two thousand 

dollars ($2,000)." Pa. Stat. Ann. tit. 72, § 3761-9(d) (Supp. 

1994). Section 9.1 of Act 8 directs "[t]he secretary [to] enter 

into a compact with any other states that permit sale of 

Pennsylvania lottery tickets within their borders to sell those 

states' lottery tickets within this Commonwealth." Pa. Stat. 

Ann. tit. 72, § 3761-9.1 (Supp. 1994). Act 8 was signed into law 

on May 20, 1993. 

 Anticipating that Act 8 would render its business illegal in 

Pennsylvania, Pic-A-State filed a complaint in the United States 

District Court for the Middle District of Pennsylvania on June 1, 

1993, alleging, inter alia, that Act 8 violates the Commerce 

Clause. Pic-A-State requested that the district court (1) issue 

a stay of the July 19, 1993 effective date of Act 8 pending 

resolution of this matter, (2) declare that Act 8 violates the 
Commerce Clause of the United States Constitution, and (3) issue 

an injunction prohibiting the enforcement of Act 8. 
 The district court consolidated the proceedings for a 

preliminary and permanent injunction pursuant to Rule 65(a)(2) of 

the Federal Rules of Civil Procedure1 and ordered that the matter 

be tried on July 9, 1993. The parties filed briefs and the 

district court heard oral argument on July 9, 1993. On July 15, 

1993 the district court issued a stay barring indictments or 

prosecutions under Act 8 pending the entry of its final order and 

judgment. 

 On July 23, 1993, the district court entered an order 

declaring sections 9(c) and 9.1 of Act 8 unconstitutional and 

permanently enjoining their enforcement. The district court also 

filed a memorandum decision setting forth its rationale. It 

concluded that Act 8 was unconstitutional under the Commerce 

Clause because it placed an impermissibly discriminatory burden 

on interstate commerce. The court noted that because Act 8 

facially discriminates against interstate commerce, it was 

subject to heightened scrutiny pursuant to Norfolk Southern Corp. 

v. Oberly, 822 F.2d 388, 398 (3d Cir. 1987) ("[S]tate actions 

that purposefully . . . discriminate against interstate commerce 

. . . are given heightened scrutiny."). The district court 

determined that the state's purpose in enacting Act 8 was to 

control fraud and theft in out-of-state lottery sales, and 

protect the interests of the state's senior citizens who benefit 

 

 1 Rule 65(a)(2) provides, in pertinent part: "Before or after 

the commencement of the hearing of an application for a 

preliminary injunction, the court may order the trial of the 

action on the merits to be advanced and consolidated with the 

hearing of the application." Fed. R. Civ. P. 65(a)(2). 
from the profits realized from the sale of Pennsylvania lottery 

tickets. The district court concluded that Act 8 could not 

withstand heightened scrutiny because the state could enact less 

discriminatory regulation to accomplish its goals. Secretary 

McNulty filed a timely appeal from the district court's order. 

 Prior to the date scheduled for the oral argument of this 

matter before this court, Congress enacted the 1994 Crime Control 

Act on August 25, 1994. The 1994 Crime Control Act was signed 

into law on September 13, 1994. One portion of the 1994 Crime 

Control Act makes it a federal crime knowingly to transmit in 

interstate commerce information for the purpose of procuring 

interests in an out-of-state lottery if one is "engaged in the 

business of procuring for a person in 1 State such a ticket, 

chance, share, or interest in a lottery . . . conducted by 

another State (unless that business is permitted under an 

agreement between the States in question or appropriate 

authorities of those States)." Violent Crime Control and Law 

Enforcement Act of 1994, Pub. L. No. 103-322, § 320905, 108 Stat. 

1796, 2126. In resolving the issues raised in this appeal, we 

must assess the effect the 1994 Crime Control Act has upon the 

constitutionality of Act 8. "Our standard of review is plenary." 

Juzwin v. Asbestos Corp., 900 F.2d 686, 689 (3d Cir.), cert. 

denied, 498 U.S. 896 (1990). 
II. 

 As an initial matter, Pic-A-State argues that it would be 

manifestly unjust for this court to apply the 1994 Crime Control 

Act in assessing the constitutionality of Act 8. Supp. Letter 

Memo. at 3-5. In support of this argument, Pic-A-State relies 

upon a line of Supreme Court cases addressing the question 

whether a newly-enacted law should be retroactively applied to 

matters pending on appeal. Pic-A-State's reliance on this 

principle of retroactivity law is misplaced because a 

determination by this court will not have a retroactive effect on 

Pic-A-State's past conduct. 

 "A statute does not operate 'retrospectively' merely because 

it is applied in a case arising from conduct antedating the 

statute's enactment or upsets expectations based in prior law." 

Landgraf v. USI Film Prods., 114 S. Ct. 1483, 1499 (1994) 

(citation omitted). Rather, we "must ask whether the new 

provision attaches new legal consequences to events completed 

before its enactment." Id. 

 In the matter before us, application of the 1994 Crime 

Control Act to the issue presented to this court attaches no new 

legal consequences to the activity engaged in by Pic-A-State 

prior to the enactment of the 1994 Crime Control Act. In its 

complaint, Pic-A-State sought an injunction to bar the 

prospective enforcement of Act 8 following its July 19, 1993 

effective date. As the Supreme Court has noted, "relief by 

injunction operates in futuro." Id. at 1501 (internal quotation 

omitted). "When the intervening statute authorizes or affects 
the propriety of prospective relief, application of the new 

provision is not retroactive." Id. Accordingly, we must 

consider the impact of the 1994 Crime Control Act on the 

constitutionality of Act 8. 

III. 

 During oral argument before this court, Pic-A-State stated 

"it appears, upon our initial analysis, that the [1994 Crime 

Control Act] pre-empt[s] the field and . . . may be another way 

to affirm the district court." We disagree. 

 The "ultimate touchstone" of pre-emption analysis is the 

congressional intent underlying a statute. Cipollone v. Liggett 

Group, Inc., 112 S. Ct. 2608, 2617 (1992) (internal quotation 

omitted). As the Supreme Court explained, 

 Congress' intent may be explicitly 

stated in the statute's language or 

implicitly contained in its structure and 

purpose. In the absence of an express 

congressional command, state law is 

pre-empted if that law actually conflicts 

with federal law, or if federal law so 

thoroughly occupies a legislative field as to 

make reasonable the inference that Congress 

left no room for the States to supplement it. 

Id. (citations and internal quotation omitted). An examination 

of the 1994 Crime Control Act demonstrates that it does not 

pre-empt Act 8. 

 In amending 18 U.S.C. § 1301, Congress did not explicitly 

state that its intention was to pre-empt any state legislation. 

Moreover, Act 8 is not in conflict with the 1994 Crime Control 

Act. As amended, section 1301 prohibits the business of 
procuring for persons in one state an interest in a lottery 

conducted in another state. Act 8 also proscribes the sale 

within the state of Pennsylvania of an interest in another 

state's lottery. The crime defined in Act 8 is totally 

consistent with the conduct prohibited by the 1994 Crime Control 

Act. 

 Contrary to Pic-A-State's contention, Congress has not 

indicated an intention to preclude all state legislation 

concerning the interstate sale of an interest in a lottery. 

Rather, the 1994 Crime Control Act expressly authorizes 

interstate compacts regarding the sale of interests in 

out-of-state lotteries. Accordingly, we must reject 

Pic-A-State's contention that the 1994 Crime Control Act 

pre-empts Act 8. 

IV. 

 The purpose of the Commerce Clause is to protect the 

national interest in facilitating commerce between the states and 

with foreign nations. To implement this purpose, the Commerce 

Clause gives Congress the authority to define the national 

interest. The Supreme Court has implemented this purpose with a 

number of Commerce Clause doctrines: 

 (a) Where Congress has acted in a particular area of 

interstate commerce, inconsistent state regulation is barred, 

Cloverleaf Butter Co. v. Patterson, 315 U.S. 148, 155-56 (1942) 

(collecting cases); 
 (b) Where Congress has acted to pre-empt state regulation of 

a particular area of interstate commerce, state regulation, 

consistent or inconsistent, is precluded, Jones v. Rath Packing 

Co., 430 U.S. 519, 525 (1977) (inconsistent food labeling 

requirements) Pennsylvania v. Nelson, 350 U.S. 497, 502 (1956) 

(striking down a consistent state sedition law that would hamper 

federal enforcement at a time when the federal government had 

chosen to occupy the field); Southern Ry. Co. v. Reid, 222 U.S. 

424, 440 (1912) (ratemaking and regulation of interstate 

transportation of goods by rail service); 

 (c) Even where Congress has not acted, there are areas where 

the national interest in uniformity is so important that no state 

regulation is permitted, Leisy v. Hardin, 135 U.S. 100, 119 

(1890) (importation of intoxicating liquors); Cooley v. Board of 

Wardens, 53 U.S. 299, 315 (1851) (regulation of navigable 

waters); and 

 (d) Even where Congress has not acted to regulate a 

particular area of interstate commerce, states are precluded by 

the "dormant Commerce Clause" from enacting regulation that 

discriminates against interstate commerce or unduly burdens that 

commerce, Maine v. Taylor, 477 U.S. 131, 151-52 (1986) (upholding 

state ban on importation of fish bait where necessary to protect 

the public health); Sporhase v. Nebraska, 458 U.S. 941, 954 

(1982) (finding reciprocity agreement in state ground water 

regulation unconstitutional because it imposes a burden on 

interstate commerce that outweighs any local interests served), 

unless such discrimination is expressly authorized by Congress, 
Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 431 (1946) 

(holding that the McCarran Act expressly authorizes states to 

regulate and tax the business of insurance, even where such 

regulation and taxation might burden interstate commerce); 

Northeast Bancorp, Inc. v. Board of Governors, 472 U.S. 159, 174 

(1985) (holding that federal law authorized states to decide 

whether to allow in-state banks to be purchased by out-of-state 

holding companies). 

 Where Congress has proscribed certain interstate commerce, 

Congress has determined that that commerce is not in the national 

interest. Where such a determination has been made by Congress, 

it does not offend the purpose of the Commerce Clause for states 

to discriminate or burden that commerce. As a result, in those 

instances where Commerce Clause challenges to state regulation 

have been mounted in an area where Congress has made it a crime 

to conduct such commerce, the courts have conducted only a 

two-fold inquiry, asking (1) whether federal law precludes all 

state legislation in that area, and (2) if state regulation is 

not precluded, whether the state statute conflicts with the 

federal provision. California v. Zook, 336 U.S. 725, 733 (1949); 

Asbell v. Kansas, 209 U.S. 251, 255-56 (1908) (upholding state 

cattle inspection requirements which did not conflict with 

existing federal requirements). In situations much like that 

before us, the Supreme Court has sustained the validity of state 

statutes found to be consistent with the federal criminal 

proscription. 
 In California v. Zook, the Supreme Court was faced with a 

Commerce Clause challenge to a California statute that made it a 

crime to sell or arrange transportation over the state's public 

highways with carriers that did not hold a permit from the 

Interstate Commerce Commission. Zook, 336 U.S. at 726 & n.1. 

The federal Motor Carrier Act contained a similar prohibition 

with regard to carriers operating in interstate commerce. Id. at 

726-27 & n.2. After enunciating the principles of the dormant 

Commerce Clause applicable when Congress has failed to act, the 

Court stated: 

 There is no longer any question that 

Congress can redefine the areas of local and 

national predominance . . . . When Congress 

enters the field by legislation, we try to 

discover to what extent it intended to 

exercise its power of redefinition . . . . 

 But whether Congress has or has not 

expressed itself, the fundamental inquiry, 

broadly stated, is the same: does the state 

action conflict with national policy? The 

[rules applicable when Congress has not 

acted], the question of congressional 

"occupation of the field," and the search for 

conflict in the very terms of state and 

federal statutes are but three separate 

particularizations of this initial principle. 

Id. at 728-29 (citations omitted). The Court then resoundingly 

rejected the rule urged upon it by the respondents, "that when 

Congress has made specified activity unlawful, . . . state laws 

'aiding' enforcement are invalid." Id. at 729; see also Taylor 

v. State, 516 P.2d 1351, 1354 (Okla. Crim. App. 1973) (upholding 

state pandering law where its prohibition on procuring women for 

transportation for immoral purposes is consistent with the Mann 
Act's ban on the interstate transportation of women for such 

purposes). The touchstone of the test is whether the state 

prohibition conflicts with the scope of the federal law. This 

has been the general principle expressed for state legislation 
governing prostitution,2 monopolies,3 and lotteries.4 By amending 

18 U.S.C. § 1301, Congress prohibited the interstate sale of 

lottery interests. Act 8 complements the federal statute by 

prohibiting the sale of lottery interests within the borders of 

 

 

2 In accordance with the well-settled 

principle that, in the event of conflict 

between federal legislation regulating 

interstate commerce and a state statute, the 

federal legislation prevails and the state 

legislation is of no effect insofar as it 

impinges upon the field of interstate 

commerce occupied by the federal enactment, 

state legislation relating to the 

transportation of females for purposes of 

immorality is valid only insofar as it does 

not conflict with federal legislation on the 

subject. 

63 Am. Jur. 2d Prostitution § 22, at 365 (1984) (footnotes 

omitted). 

 

3 "[T]he fact that Congress has acted to prevent restraints 

on trade in interstate commerce does not necessarily invalidate 

state legislation effecting substantially the same result, and 

the fundamental inquiry in such instances is whether the state 

legislation is in conflict with the national policy." 15 C.J.S. 

Commerce § 133, at 869 (1967). 

 

4 A gambling transaction involving an 

instrumentality of interstate commerce 

appears to be the subject of both federal and 

state regulation or prohibition, if there is 

no conflict between the state and federal 

legislation on the subject. Lottery tickets 

are the subjects of commerce insofar as the 

carriage of such tickets from one state to 

another is interstate commerce which Congress 

may prohibit. 

38 Am. Jur. 3d Gambling § 11 (1968) (citing The Lottery Case

(Campion v. Ames), 188 U.S. 321 (1903) (rejecting a Commerce 

Clause challenge to the federal lottery ban)). 
the Commonwealth of Pennsylvania. Accordingly, we conclude that 

Act 8 does not violate the dormant Commerce Clause. The judgment 

of the district court will be reversed.