Court Opinion

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Opinions of the United
1994 Decisions                                                                                                             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Precedential or Non-Precedential: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

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                 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.