Court Opinion

ID: 3047486
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:21:37.199813+00
Date Added: 2024-06-11T11:49:13.983631
License: Public Domain

United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                 ___________

                                 No. 08-1436
                                 ___________

Grand River Enterprises                 *
Six Nations, Ltd.,                      *
                                        *
            Plaintiff - Appellant,      *
                                        *
Southwestern Trading Co., Inc.;         *
The Ritchie Grocer Co.,                 *
                                        *
            Plaintiffs,                 *
                                        *
Heber Springs Wholesale                 *
Grocery, Inc.,                          *
                                        *
            Plaintiff,                  *
                                        *   Appeal from the United States
      v.                                *   District Court for the
                                        *   Western District of Arkansas.
Mike Beebe, in his official capacity    *
as Attorney General, State of Arkansas, *
                                        *
            Defendant - Appellee.       *

                                 ___________

                           Submitted: January 15, 2009
                              Filed: August 4, 2009
                               ___________
Before MURPHY and SMITH, Circuit Judges, and LIMBAUGH, District Judge.1

                                    ___________

SMITH, Circuit Judge.

       Grand River Enterprises Six Nations, Ltd., and Heber Springs Wholesale
Grocery, Inc. (collectively "appellants") allege that Arkansas Code Annotated § 26-
57-261 ("Allocable Share Amendment") violates the Sherman Act and various
sections of the United States Constitution and the Arkansas Constitution. Mike Beebe,
in his official capacity as Attorney General for the State of Arkansas ("the State"),
moved to dismiss the claims for failure to state a claim upon which relief can be
granted pursuant to Federal Rule of Civil Procedure 12(b)(6). The district court2
denied the State's motion insofar as it sought dismissal of appellants' claim that
retroactive application of the Allocable Share Amendment violated their due process
rights.3 All other aspects of the State's motion were granted, and appellants brought
this appeal. For the following reasons, we affirm the district court.

                                   I. Background
      In the mid-1990s, 50 states and two territories ("settling states"), including
Arkansas, filed suit against the country's major cigarette manufacturers. The action
sought to recover Medicaid costs and other damages incurred by the states related to
cigarette smoking and to impose restrictions on the cigarette manufacturers' sales and

      1
       The Honorable Stephen N. Limbaugh, Jr., United States District Judge for the
Eastern District of Missouri, sitting by designation.
      2
      The Honorable Jimm Larry Hendren, United States District Judge for the
Western District of Arkansas.
      3
       The district court found that the retroactive application of the Allocable Share
Amendment violated appellants' substantive due process rights. The State did not
appeal that decision, and it is not relevant to this appeal.

                                         -2-
advertising practices. These lawsuits were settled by the execution of the Master
Settlement Agreement (MSA) on November 23, 1998.

                            A. Master Settlement Agreement
       The MSA was executed by the settling states and the four largest cigarette
manufacturers, known as Original Participating Manufacturers (OPMs).4 This
landmark settlement agreement banned certain advertising (particularly activities
targeted at youth), restricted other activities such as lobbying, and obligated the OPMs
to make payments to the settling states for all future cigarette sales in perpetuity. In
exchange, the settling states released pending claims and agreed to forego future
claims against the OPMs related to any recovery of healthcare costs paid by the states
as a result of smoking-induced illnesses.

       The MSA provides for annual payments by each OPM for the benefit of the
settling states. The amount of each OPM's payment is based on that OPM's relative
national market share. The settling states apportion the annual MSA payments among
themselves according to each state's preset allocable share. Any OPM losing market
share pays less to the settling states while an OPM gaining market share pays more.

        Since 1998, more than 40 other tobacco manufacturers have joined the MSA
and are known as Subsequent Participating Manufacturers (SPMs). SPMs and OPMs
are collectively referred to as Participating Manufacturers (PMs). SPMs must also
agree to abide by the MSA's restrictions in exchange for the settling states' release of
present and future claims. As an incentive to join the MSA, any SPM that joined
within 90 days after execution of the MSA is exempt from making annual payments
to the settling states unless that SPM increases its market share beyond its 1998 levels

      4
      The OPMs are Philip Morris, Inc., Lorillard Tobacco Company, Brown &
Williamson Tobacco Corporation, and R.J. Reynolds Tobacco Company.

                                          -3-
or beyond 125 percent of its 1997 market share. An SPM joining after the 90-day
period must make payments based on that SPM's national market share.

      Grand River was not a party to the MSA, has not since joined the MSA, and is
considered a Non-Participating Manufacturer (NPM). An NPM may become an SPM
simply by joining the MSA and complying with its payment provisions. To protect the
market share of all PMs, the MSA allows settling states to enact a statute which forces
NPMs to place money into escrow each year to settle future judgments. An NPM's
payments into the escrow fund are dependent on the number of cigarettes that the
NPM sells in that state in a given year.

                                   B. Escrow Statute
       The MSA is a wholly contractual agreement that requires PMs to reimburse
settling states based on the national market share of their cigarette sales. But because
NPMs are not parties to the contract, they are not obligated by the MSA. Therefore,
the settling states may not be able to collect future judgments from NPMs for harm
caused by their cigarette sales. To address this problem, the MSA allows settling states
to enact statutes requiring NPMs to place money in escrow each year based on their
relative market share. States may use these escrow funds to recover tobacco-related
healthcare costs. Arkansas originally enacted its statute ("Escrow Statute") in 1999
and amended it in February 2005. See Ark. Code Ann. §§ 26-57-260, 261.

      The original Escrow Statute required NPMs to deposit funds into escrow5 that
would not be released for 25 years unless a court ordered otherwise. 1999 Ark. Acts
1165. The original statute also included an exception provision to permit early release
of funds. Under this provision, an NPM could obtain the release of escrow funds that
were "greater than the state's allocable share of the total payments that such
manufacturer would have been required to make in that year under the [MSA]." Id.

      5
       NPMs earn interest on these escrowed funds.

                                          -4-
       Although an NPM's escrow payments to a state were based on cigarette sales
in that state, this escrow exemption provision allowed a return of the funds based on
the relevant state's allocable share of the national MSA payments. See id. This
provision, therefore, assumed that an NPM would sell its cigarettes nationally.
Creative NPMs realized that this arrangement allowed them to concentrate their sales
in a few states rather than many and thereby immediately recover most of their
escrowed funds because the provision refunded escrow funds to the extent those funds
exceeded each state's "allocable share" of the national MSA payment.

                          C. Allocable Share Amendment
      Early escrow fund releases frustrated the purposes of the Escrow Statute. States
quickly discovered the apparent hole in the statute's fabric and sought to mend it.
Consequently, the Arkansas legislature amended the statute in 2005 to address this
concern. Act 384 of 2005, known as the Allocable Share Amendment, amended
Arkansas Code Annotated § 26-57-261(a)(2)(B)(ii) to provide in relevant part as
follows:

      (B) A tobacco product manufacturer that places funds into escrow
      pursuant to subdivision (a)(2)(A) of this section shall receive the interest
      or other appreciation on such funds as earned. Such funds themselves
      shall be released from escrow only under the following circumstances:

                                          ***
      (ii) To the extent that a tobacco product manufacturer establishes that the
      amount it was required to place into escrow on account of units sold in
      the state in a particular year was greater than the Master Settlement
      Agreement payments, as determined under section IX(i) of the Master
      Settlement Agreement including after final determination of all
      adjustments, that the manufacturer would have been required to make on
      account of the units sold had it been a participating manufacturer, the
      excess shall be released from escrow and revert back to such tobacco
      product manufacturer . . . .

                                          -5-
       The Allocable Share Amendment calculates escrow releases by comparing the
escrow payment for an NPM's cigarettes sold in Arkansas against its hypothetical
MSA payment for those same cigarettes. The original statute calculated escrow
releases based on Arkansas's share of the NPM's national cigarette sales. Because of
appellants' regional sales strategy, they were able to take advantage of the original
escrow statute and obtain early escrow releases. After the Allocable Share
Amendment was enacted, appellants' regional sales concentration lost the potential
advantage of accelerated escrow releases. Aggrieved by this statutory amendment,
appellants challenged the legality of the legislative action on various federal statutory
and constitutional grounds.

                                 D. Procedural History
       Appellants brought suit against the State to permanently enjoin enforcement of
the Allocable Share Amendment. They claimed that the Allocable Share Amendment
violated federal and state antitrust law; Article 2, § 19 of the Arkansas Constitution;
the First Amendment of the United States Constitution; Article 2, §§ 4 and 6 of the
Arkansas Constitution; the Equal Protection Clause of the Fourteenth Amendment of
the United States Constitution; Article 2, § 21 of the Arkansas Constitution; and the
Commerce and Supremacy Clauses of the United States Constitution.

       The State filed a motion to dismiss, alleging that appellants failed to state a
claim for relief and that Heber Springs Wholesale Grocery, Inc. lacked standing to
sue. The district court denied the motion objecting to standing. The district court
granted the State's motion to dismiss on all claims, except those relating to the alleged
retroactive effect of the Allocable Share Amendment.

      Concurrently with the filing of its complaint, appellants also filed a motion for
preliminary injunction, seeking to enjoin the application of the Allocable Share
Amendment. The district court entered an agreed order maintaining the status quo

                                          -6-
between the parties. Given that all claims for prospective relief had been dismissed
and that the status quo would remain in effect pending resolution of the issue of
retroactivity, the motion for preliminary injunction was denied as moot. Grand River
seeks review of the district court's order.

                                       II. Discussion
        We review a grant of a motion to dismiss under a de novo standard of review.
Taxi Connection v. Dakota, Minn. & E. R.R. Corp., 513 F.3d 823, 825 (8th Cir. 2008).
We assume all factual allegations in the complaint are true. Id. at 826. But "the
complaint must contain sufficient facts, as opposed to mere conclusions, to satisfy the
legal requirements of the claim to avoid dismissal." Id. The motion should be granted
if "it appears beyond doubt that the plaintiff can prove no set of facts which would
entitle him to relief." Id. (internal quotation marks omitted).

                                   A. Sherman Act
       Appellants' complaint alleged that the Allocable Share Amendment violated
state and federal antitrust law because it forces NPMs to raise their prices to prevent
them from gaining a competitive advantage over PMs. The district court dismissed
this claim, finding that the Allocable Share Amendment was not preempted by the
Sherman Act. The district court found that because the statute did not mandate or
authorize price-setting or output-fixing by private parties, it did not violate antitrust
laws. On appeal, appellants contend that because the MSA, along with the Allocable
Share Amendment, confers upon PMs complete discretion through pricing decisions
to drive appellants out of the market, it amounts to a cartelization of the market.
Moreover, appellants assert that because the Allocable Share Amendment imposes on
NPMs a parallel cost or pricing structure, it amounts to a hybrid restraint of trade and
is preempted by the Sherman Act. We must determine whether an actual antitrust
violation occurred, and, if so, whether immunity applies.

                                          -7-
                              1. Per Se Antitrust Analysis
       The Sherman Act provides in relevant part: "Every contract, combination in the
form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the
several states, or with foreign nations, is hereby declared to be illegal." 15 U.S.C. § 1.
To violate the Sherman Act, there must be "an irreconcilable conflict between the
federal and state regulatory schemes." Rice v. Norman Williams Co., 458 U.S. 654,
659 (1982). A "hypothetical or potential conflict is insufficient to warrant the
preemption of the state statute." Id. A state statute is not preempted merely "because
the state scheme might have an anticompetitive effect." Id. It may be preempted "only
if it mandates or authorizes conduct that necessarily constitutes a violation of the
antitrust laws in all cases, or if it places irresistible pressure on a private party to
violate the antitrust laws in order to comply with the statute." Id. at 661.

       Appellants argue that they are faced with two equally anticompetitive choices:
either (1) join the MSA and incur costs that are a function of and dependent upon the
pricing decisions and output of appellants' competitors or (2) place a minimum
amount into escrow based on the MSA, an agreement made by appellants' competitors
and based on their market shares. This statutory framework, appellants allege, compels
NPMs to incur a cost burden that is parallel (or identical) to that agreed to by and
among competitors under the MSA.

       We first inquire whether this statutory framework "is in all cases a per se
violation" of the Sherman Act. Id. In Rice, respondents obtained a writ prohibiting the
California legislature from enforcing California's liquor statutes. Id. at 656. The
California Court of Appeals granted the writ, holding that the statute in question was
per se illegal under the Sherman Act. Id. The Supreme Court reversed. Id. The statute
required that alcohol may be brought into the state for delivery or use within the state
"only if the beverages are consigned to a licensed importer" and provided that a
licensed importer may not purchase or accept delivery of alcohol "unless he is
designated as an authorized importer of such brand by the brand owner." Id. at

                                           -8-
656–57. The California Court of Appeals held that this statutory scheme was a
violation of the Sherman Act because it gave brand owners "unfettered power to
restrain competition . . . by merely deciding who may and who may not compete." Id.
at 658. The Court held that preemption cases require that there be an "irreconcilable
conflict between the federal and state regulatory schemes." Id. at 659. "The existence
of a hypothetical or potential conflict is insufficient to warrant pre-emption of the state
statute." Id. A statute would not violate the Sherman Act "simply because the state
scheme might have an anticompetitive effect." Id. The Court found it "irrelevant" that
the distiller was granted the ability to restrict intrabrand competition and that this
ability had the "imprimatur of a state statute." Id. at 662. The Court held, therefore,
that the state statute did not violate the Sherman Act. Id.

       Here, the Allocable Share Amendment does produce "an anticompetitive
effect." But this effect is insufficient to constitute an antitrust violation. See id. at 659.
Although the statute in question places some pressure on NPMs to charge higher
prices to offset the escrow payments, this pressure does not force NPMs to raise prices
"in all cases." Id. at 661. Indeed, NPMs are free to maintain their pricing structure
despite the Allocable Share Amendment. Cf. Cal. Retail Liquor Dealers Ass'n v.
Midcal Aluminum, Inc., 445 U.S. 97, 99–100, 102–03 (1980) (holding that where the
statute expressly required members of the wine industry to set price schedules for
wine sales it amounted to a per se Sherman Act violation). The Allocable Share
Amendment does not expressly allow price-fixing or output-fixing or other illegal
behavior, nor does it place "irresistible pressure" on appellants to violate antitrust
laws. Rice, 458 U.S. at 661. Therefore, the "irreconcilable conflict" required for
preemption is not met. Id. at 659.

     Appellants rely on Freedom Holdings, Inc. v. Spitzer for the proposition that the
MSA was an "express market-sharing agreement among private tobacco
manufacturers" and, therefore, the New York plaintiffs could establish Sherman Act
preemption because the statute "allow[ed] OPMs to set supracompetitive prices that

                                             -9-
effectively cause[d] other manufacturers either to charge similar prices or to cease
selling." 357 F.3d 205, 224, 226 (2d Cir. 2004). But, on remand, the district court
found that "the MSA does not 'mandate[] or authorize[] conduct that necessarily
constitutes a violation of the antitrust laws in all cases, or . . . place[] irresistible
pressure on a party to violate the antitrust laws in order to comply with the statute."
Freedom Holdings, Inc. v. Cuomo, 592 F. Supp. 2d 684, 700 (S.D. N.Y. 2009)
(quoting Rice, 458 U.S. at 661) (alterations in Cuomo). That court relied on updated
data showing that NPMs have actually gained market share since implementation of
the MSA and pay less per carton of cigarettes than PMs. Id. at 692.6 The district court
expressly rejected the Second Circuit's conclusion that "the MSA discourages growth
and natural competition." Id. at 697. Relying on the aforementioned data, the district
court found that "neither NPMs nor SPMs have acted as if discouraged." Id. The
district court also cited testimony of the Chief Financial Officer of Freedom Holdings,
who conceded that "their pricing decisions are made independently and that they are
not compelled to follow price leadership by their larger competitors." Id. at 698. The
court found that the plaintiffs had not been forced or mandated to fix their prices to
OPM prices. Id. at 699. Therefore, the district court found that no cartel existed and
that the plaintiffs failed to prove their antitrust allegations. Id. at 700.7

       Moreover, Spitzer does not satisfy Rice's preemption requirements. A state
statute is preempted "only if it mandates or authorizes conduct that necessarily
constitutes a violation of the antitrust laws in all cases." Rice, 458 U.S. at 661

       6
      Specifically, NPMs controlled 0.4 percent of the cigarette market in 1997 but
now control 5.4 percent of the market. And in 2007, NPMs paid $5.02/carton while
OPMs paid $5.31/carton and SPMs paid $5.07/carton. Cuomo, 592 F. Supp. 2d at 692.
       7
        The district court in Cuomo noted that, in Spitzer, the Second Circuit "accepted
Plaintiffs' allegations as if proved, for it was reviewing a motion to dismiss pursuant
to Fed. R. Civ. P. 12(b)." Cuomo, 592 F. Supp. 2d at 700. Because the district court
found that the plaintiffs failed to prove their antitrust allegations, that court stated that
"the foundation for the [Second Circuit's] rulings does not exist." Id.

                                            -10-
(emphasis added). The Second Circuit in Spitzer held only that the statute "allowed"
a violation. 357 F.3d at 226. Spitzer did not hold that the state statute at issue
mandated or authorized violative conduct in all cases. We decline to follow it.

       Additionally, appellants cite A.D. Bedell Wholesale Co., Inc. v. Philip Morris
Inc., 263 F.3d 239 (3d Cir. 2001), in support of their preemption argument. The Third
Circuit in A.D. Bedell held that the plaintiffs "properly pleaded an antitrust violation
by alleging defendants agreed to form an output cartel." Id. at 249. The Third Circuit
held that the states and the OPMs purposefully created a scheme that "creates
powerful disincentives to increase cigarette production." Id. at 248. Under the MSA,
PMs who increase production must increase their proportionate MSA payments. Id.
Because lowering prices can increase market share, the increased MSA payments
discourages price reductions. Id. To avoid gaining market share and thereby increasing
proportionate MSA payments, PMs have an incentive to raise prices to match NPM's
price increases. Id. This scheme, the court held, leads to an antitrust violation. Id. at
249. We disagree with the Third Circuit's conclusion that powerful disincentives are
sufficient to constitute an antitrust violation under controlling Supreme Court
precedent. Powerful disincentives may not produce the "irresistible pressure" which
is required for an antitrust violation. Rice, 458 U.S. at 661. In addition, as outlined by
the district court in Cuomo, we note that NPMs have actually increased their market
share since the inception of the MSA. 592 F. Supp. 2d at 692.

      The Sixth Circuit's decision in Tritent International Corp. v. Kentucky, 467 F.3d
547 (6th Cir. 2006), and the Ninth Circuit's decision in Sanders v. Brown, 504 F.3d
903 (9th Cir. 2007), are more persuasive. In Tritent, the Sixth Circuit denied
preemption, holding that "the facilitation, or even encouragement, of anticompetitive
behavior is not sufficient to warrant federal preemption." 467 F.3d at 557. The court
went on to state expressly that "in order to be preempted, [the legislation at issue]
must 'mandate or authorize' illegal behavior 'in all cases.'" Id. (quoting McNeilus
Truck & Mfg. Co. v. Ohio, 226 F.3d 429, 440 (6th Cir.2000)). Likewise, in Sanders,

                                          -11-
the Ninth Circuit held that the statutes at issue did not "explicitly allow price fixing,
market division, or other per se illegal monopolistic behavior." 504 F.3d at 911. It
refused to find a Sherman Act violation because "[n]othing . . . forces the NPMs to
either peg their prices to those of participating manufacturers, or to refrain altogether
from entering the market." Id.

       Although the Arkansas statutory framework at issue in our case may have an
anticompetitive effect, it does not mandate or authorize antitrust conduct in all cases.
Essentially, appellants allege that the Sherman Act is violated because they are
compelled to make payments into the state's escrow fund. Although these payments
may increase the cost of doing business in Arkansas, they do not amount to an
antitrust injury in violation of the Sherman Act. Appellants, therefore, have not proven
that the Allocable Share Amendment amounts to a per se violation of the Sherman
Act.

                                  2. Hybrid Analysis
       Appellants also argue that the "parallel" cost or pricing structure created by the
MSA creates a hybrid restraint of trade in violation of the Sherman Act. A "hybrid"
restraint of trade is a "nonmarket mechanism[]" that "merely enforce[s] private
marketing decisions." Fisher v. City of Berkeley, 475 U.S. 260, 267–68 (1986). In
other words, a hybrid restraint of trade occurs when the state passes a law that
reinforces a decision by multiple companies to set a pricing scheme in violation of the
Sherman Act.

      The Supreme Court held that New York's liquor distribution statute was a
"hybrid restraint" in 324 Liquor Corp. v. Duffy, 479 U.S. 335, 345 n.8 (1987). In 324
Liquor, a New York statute required liquor retailers to charge at least 112 percent of
the "posted" wholesale price for liquor. Id. at 337. This price was set by liquor
wholesalers that are private parties. Id. Appellants brought suit challenging the statute
under the Sherman Act. Id. at 340. The Court noted that "industrywide resale price

                                          -12-
maintenance . . . may facilitate cartelization." Id. at 341. The Court held that the New
York statute was preempted because private parties set minimum prices for retailers
which was then enforced by the state statute. Id. at 342. This statutory scheme
amounted to a hybrid restraint on trade because the statute in question expressly
granted authority to private actors to set prices. Id. at 345 n.8.

       The Allocable Share Amendment operates differently than did New York's
liquor distribution statute at issue in 324 Liquor Corp. The Allocable Share
Amendment does not mandate a minimum price or cost requirement for NPMs.
Moreover, PMs have not been granted any regulatory power to set prices. The
Allocable Share Amendment merely sets an amount that NPMs must contribute to the
state fund as a cost of doing business in Arkansas. This escrow amount is set by
multiplying the number of cigarettes the NPM sells in Arkansas by a per-cigarette
amount set solely by the Arkansas legislature. This amount is not tied to PMs nor is
it authorized by PMs. Therefore, the Allocable Share Amendment does not establish
a hybrid restraint of trade.

                           3. State Action Immunity Analysis
       The State contends that it is immune from liability under the doctrine
announced in Parker v. Brown, 317 U.S. 341 (1943). In Parker, the Supreme Court
held that antitrust laws were not intended to apply to states acting in their capacities
as sovereigns. Id. at 352. To establish Parker immunity, the alleged restraint must be
"clearly articulated and affirmatively expressed as state policy" and must be "actively
supervised by the State itself." 324 Liquor Corp., 479 U.S. at 343.

      The MSA was reviewed and approved by Arkansas's attorney general, properly
enacted by the state's legislation, and duly signed by the governor. The MSA can thus
be readily characterized as "state action" for Parker purposes. The Allocable Share
Amendment was also enacted by the Arkansas legislature. As a legislative act, the
amendment is not subject to the Parker requirements outlined in 324 Liquor. See

                                         -13-
Hoover v. Ronwin, 466 U.S. 558, 568–69 (1984) (holding that "[w]here the conduct
at issue is in fact that of the state legislature . . . we need not address the issues of
'clear articulation' and 'active supervision'").

       There are two distinct lines of cases flowing from the Supreme Court
addressing Parker immunity. In Midcal, the Supreme Court held that, to invoke
Parker immunity, the statute must be "one clearly articulated and affirmatively
expressed as state policy" and must be "'actively supervised' by the State itself." 445
U.S. at 105. Later, in Hoover v. Ronwin, the Supreme Court established that all State
statutes automatically receive the Parker cloak of immunity. 466 U.S. 558, 568–69
(1984).

        In Midcal, the Supreme Court held that to grant antitrust immunity under
Parker, the "challenged restraint must be 'one clearly articulated and affirmatively
expressed as state policy'" and "the policy must be 'actively supervised' by the State
itself." Midcal, 445 U.S. at 105. In that case, under California's wine selling scheme,
wine producers set prices and wholesalers posted a resale price schedule. Id. at 99.
The wine prices set by a single wholesaler within a trading area bound all wholesalers
in that area, and anyone selling below that level faced fines or license revocation. Id.
at 100–01. Midcal, facing sanctions for a violation of the statute, brought a writ of
mandate asking for an injunction against California's wine pricing system. Id. at 100.
The Court held that because the statutory scheme plainly constituted resale price
maintenance, it violated the Sherman Act. Id. at 103. The next question for the Court
was to determine whether there was enough state involvement in the scheme to
establish Parker antitrust immunity. Id. The Court held that more must be shown than
that "anticompetitive conduct is prompted by state action; rather, anticompetitive
activities must be compelled by direction of the State acting as a sovereign." Id. at
104. The Court held that because California did not "actively supervise" the policy,
the scheme did not have antitrust immunity. Id. at 105. The Court noted that California
(1) "simply authorizes price setting and enforces the prices established by private

                                          -14-
parties"; (2) "neither establishes prices nor reviews the reasonableness of the price
schedules"; (3) does not "regulate the terms of fair trade contracts"; (4) and does not
"monitor market conditions or engage in any 'pointed reexamination' of the program."
Id. at 105–06. The Court famously stated that "[t]he national policy in favor of
competition cannot be thwarted by casting such a gauzy cloak of state involvement
over what is essentially a private price-fixing arrangement." Id. at 106. According to
the Court, "a state does not give 'immunity to those who violate the Sherman Act by
authorizing them to violate it, or by declaring that their action is lawful . . . .'" Id.
(quoting Parker, 317 U.S. at 351).

       A few years later, in Hoover, the Court held that "the state action doctrine of
immunity from actions under the Sherman Act" does not apply "to the grading of bar
examinations by the Committee [on Examinations and Admissions] appointed by, and
according to the Rules of, the Arizona Supreme Court." Hoover, 466 U.S. at 560. In
Hoover, an unsuccessful candidate for the bar exam brought an action alleging that the
Committee, as appointed by the Arizona Supreme Court to grade bar exams, had
violated the Sherman Act by "artificially reducing the numbers of competing attorneys
in the State of Arizona." Id. at 564–65. The Committee alleged that they were immune
from antitrust liability under Parker. Id. at 566. The Court stated that "under the
Court's rationale in Parker, when a state legislature adopts legislation, its actions
constitute those of the State, . . . and ipso facto are exempt from the operation of the
antitrust laws." Id. at 567–68. A decision by the state supreme court acting
legislatively rather than judicially is immune from Sherman Act liability. Id. at 568.
Because the action at issue was carried out by a committee rather than the state
supreme court itself, the Court had "to ensure that the anticompetitive conduct of the
State's representative was contemplated by the State." Id. "[I]n cases involving the
anticompetitive conduct of a nonsovereign state representative the Court has required
a showing that the conduct is pursuant to a 'clearly articulated and affirmatively
expressed state policy' to replace competition with regulation." Id. at 568–69. The
Court concluded that if the action is that of the state legislature or the supreme court,

                                          -15-
then the danger of unauthorized restraint of trade does not arise and Parker immunity
applies. Id. at 569. The Court held that because the Arizona Supreme Court merely
delegated administration of the bar exam grading but retained final authority to grant
admission to the bar, the conduct was solely that of the court. Id. at 572. Therefore,
Parker immunity applied and the court was exempt from Sherman Act liability. Id.
The Court stated that "[t]he reason that state action is immune from Sherman Act
liability is not that the State has chosen to act in an anticompetitive fashion, but that
the State itself has chosen to act." Id. at 574. Notably, the Court stated that "[t]he
action at issue here, whether anticompetitive or not, clearly was that of the Arizona
Supreme Court." Id.

       After Hoover, it appeared that action by a state legislature was automatically
granted Parker immunity without reviewing the Midcal factors. Hoover, 466 U.S. at
569. But it is not clear whether Hoover overruled Midcal or whether Midcal exists in
limited contexts. See Sanders v. Brown, 504 F.3d 903, 916 (9th Cir. 2007) (stating that
it is "unclear whether Hoover and Midcal are coexisting 'live' precedents"). Not
surprisingly, the State argues that Midcal is inapposite and Hoover controls, a
conclusion that would automatically shield the state statute at issue with state action
immunity. See Hoover, 466 U.S. at 572. Appellants advocate the Midcal analysis as
set out by the Supreme Court in 324 Liquor, requiring a showing that "the challenged
restraint must be 'one clearly articulated and affirmatively expressed as state policy'"
and that "the policy must be 'actively supervised' by the State itself." 324 Liquor, 479
U.S. at 343.

       Although we have never had occasion to follow Hoover, it appears to be
apposite to the instant facts. The State of Arkansas entered into the MSA and
legislatively enacted the Allocable Share Amendment. Thus, we hold that Parker
"state action" immunity applies. Parker, 317 U.S. at 350–51.

                                          -16-
                                 B. Commerce Clause
       Appellants next argue that the MSA violates the Commerce Clause because it
requires NPMs to make payments to the State based on nationwide sales. Appellants
assert that they must either enter the MSA and base their payments on national sales
volume or annually fund an escrow account based on a national payment schedule.
Appellants contend that this scheme violates the dormant Commerce Clause because
it directly applies to commerce outside Arkansas.

        The Commerce Clause grants to Congress the power "to regulate commerce
. . . among the several states." U.S. Const. art. I, § 8, cl. 3. Where Congress fails to
legislate on a matter concerning interstate commerce, the courts recognize "that a
dormant implication of the Commerce Clause prohibits state . . . regulation . . . that
discriminates against or unduly burdens interstate commerce and thereby imped[es]
free private trade in the national marketplace." R&M Oil & Supply, Inc. v. Saunders,
307 F.3d 731, 734 (8th Cir. 2002) (internal citations and quotations omitted).

       A statute may violate the dormant Commerce Clause in one of three ways: (1)
the statute clearly discriminates against interstate commerce in favor of in-state
commerce, Jones v. Gale, 470 F.3d 1261, 1267 (8th Cir. 2006); (2) it imposes a
burden on interstate commerce that outweighs any benefits received, Pike v. Bruce
Church, Inc., 397 U.S. 137, 142 (1970); or (3) it has the practical effect of
extraterritorial control of interstate commerce, see Healy v. Beer Inst., 491 U.S. 324,
336 (1989).

       The district court determined that the statute did not make a distinction between
interstate commerce and intrastate commerce. The district court also found that any
impact on interstate commerce was incidental. But the court did not address whether
the statute's burdens on interstate commerce outweighed its benefits. We will address
each aspect of the dormant Commerce Clause to determine if a violation has occurred.

                                         -17-
                   1. Discrimination Against Interstate Commerce
       When considering a dormant Commerce Clause violation, we must first
determine "whether the challenged law discriminates against interstate commerce."
Jones, 470 F.3d at 1267. A state statute discriminates against interstate commerce if
it accords "differential treatment of in-state and out-of-state economic interests that
benefits the former and burdens the latter." Id.

       Appellants contend that the Allocable Share Amendment directly regulates
commerce occurring outside Arkansas's borders. But this argument is not persuasive.
The Allocable Share Amendment does not make any distinction between in-state and
out-of-state NPMs. The Amendment grants no "differential treatment" to in-state
NPMs over out-of-state NPMs, thus avoiding violation of the dormant Commerce
Clause. Id.; see also Grand River Enter. Six Nations, Ltd. v. Pryor, 425 F.3d 158,
168–69 (2d Cir. 2005) (holding that New York's Allocable Share Amendment does
not discriminate in favor of in-state manufacturers over out-of-state manufacturers).

                                 2. Pike Balancing Test
       State legislation is valid under the Pike balancing test if "the statute regulates
even-handedly to effectuate a legitimate local public interest, and its effects on
interstate commerce are only incidental." Pike v. Bruce Church, Inc., 397 U.S. 137,
142 (1970). The statute will be upheld "unless the burden imposed on such commerce
is clearly excessive in relation to the putative local benefits." Id.; R&M Oil, 307 F.3d
at 735.

       The intended benefit conferred to the State by the MSA and the Allocable Share
Amendment is readily apparent. States negotiated the MSA with the PMs to ensure
reimbursement of future medical costs incurred by a state as a result of cigarette-
related healthcare expenditures. Unquestionably, the State possesses a legitimate
public interest in the health of its citizens. The Allocable Share Amendment allows
recovery of projected medical costs caused by cigarette smoking incident to sales by

                                          -18-
NPMs within Arkansas. NPMs pay no greater share than PMs. Any excess collected
above the amount paid by PMs is returned to the NPM. Therefore, the statute regulates
even-handedly to PMs and NPMs. See Star Scientific, Inc. v. Beales, 278 F.3d 339,
357 (4th Cir. 2002) (holding that Virginia's escrow statute serves a legitimate and
important interest). Moreover, the statute applies evenly to both in-state NPMs and
out-of-state NPMs. See Spitzer, 357 F.3d at 219 (holding that New York's escrow
statute does not impose "unequal burdens on interstate and intrastate commerce").
Because the statute is not clearly excessive in relation to the legitimate interest
received, it does not violate the Commerce Clause.

                              3. Extraterritorial Effect
       Appellants assert that by requiring manufacturers to make payments to
Arkansas based on nationwide sales, the Allocable Share Amendment supports an
interconnecting system of regulation that effectively sets uniform higher prices
nationwide in violation of the Commerce Clause. This argument also lacks merit.

       In Healy, the Supreme Court held that a Connecticut law requiring out-of-state
beer shippers to affirm that the prices at which their products were sold to wholesalers
were no higher than the prices at which those same products were sold in neighboring
states violated the Commerce Clause. 491 U.S. at 337–38 . The Court held this law
violative of the Commerce Clause because it would create the "kind of competing and
interlocking local economic regulation that the commerce clause was meant to
preclude." Id. at 337. The Court considered the "price gridlock" that could occur if
multiple states enacted "essentially identical" statutes. Id. at 339. Because the law had
the practical effect of controlling liquor prices in other states and interfered with the
regulatory schemes in those states, the statute violated the Commerce Clause. Id. at
338–39.

      Appellants rely on the Second Circuit's decision in Grand River Enterprises Six
Nations, Ltd. v. Pryor, 425 F.3d 158 (2d Cir. 2005). In Grand River, the plaintiffs

                                          -19-
asserted that "the aggregate effect of the [statutes at issue] is to create a uniform
system of regulation that results in higher prices nationwide." Id. at 171. The Second
Circuit agreed, concluding that both the SPM settlement payments and the NPM
escrow payments are tied to the national market share. Id. at 171–72. The court
emphasized that the amount an NPM pays into the state's escrow fund is "keyed to the
amount an NPM would have paid if it had joined the MSA as an SPM—a national-
market-share-dependent amount—because the [NPM] is refunded any excess over
what it would have paid under the MSA." Id. at 172. Therefore, the Second Circuit
held that the plaintiffs "successfully stated a possible claim that the practical effect of
the challenged statutes and the MSA is to control prices outside of the enacting states
by tying both the SPM settlement and NPM escrow payments to national market
share, which in turn affects interstate pricing decisions." Id. at 173. The court also
stated that "we take no position as to the ultimate viability of the dormant commerce
clause claim." Id.

        But on remand the district court denied the plaintiffs' request for an injunction,
finding that they were unlikely to succeed on their dormant Commerce Clause claim.
Grand River Enters. Six Nations, Ltd. v. Pryor, No. 02 Civ. 5068 (JFK), 2006 WL
1517603, at *9–10 (S.D. N.Y. June 1, 2006). The court stated that "[e]ven if, as the
Circuit recognized, the amount of an escrow refund is, in part, keyed to the amount
an NPM would have paid if it joined the MSA as an SPM—a national-market-share-
dependent amount, Grand River has not shown that this scheme may result in
interstate price control." Id. at *9 (internal quotations and citation omitted). Because
the escrow statute at issue did not have any effect on cigarette prices or escrow
payments by NPMs in other states, the dormant Commerce Clause was not violated.
Id. at *9–10.

      Likewise, the Allocable Share Amendment at issue here is not based on
cigarette sales outside of Arkansas. NPM escrow payments are entirely a function of
an NPM's sales in Arkansas. The payments are not based on nationwide sales. Nor has

                                           -20-
there been a showing by appellants that escrow payments by NPMs in Arkansas have
any effect, either directly or indirectly, on cigarette prices in other states. NPMs must
make escrow payments to Arkansas based on that NPM's cigarette sales in Arkansas.
Arkansas has no control over cigarette prices in other states. See Star Scientific, 278
F.3d at 356 (holding that Virginia's escrow statute does not have the "'practical effect'
of controlling prices or transactions occurring wholly outside the boundaries of
Virginia"). The MSA calculates an NPM's hypothetical MSA payment in order to
refund the excess back to that NPM, but it does not allow Arkansas to control
commerce in other states. See KT&G Corp. v. Attorney Gen. of Okla., 535 F.3d 1114,
1144 (10th Cir. 2008) (disagreeing with the Second Circuit's decision in Pryor, 425
F.3d at 171–72, which found a "possible" dormant Commerce Clause violation based
on the hypothetical refund). Because the statute does not affect interstate commerce,
it does not violate the Commerce Clause.

                            C. Equal Protection Clause
      Appellants make two arguments that the Allocable Share Amendment violates
the Equal Protection Clause by favoring PMs. First, appellants contend that Arkansas
does not have a legitimate interest in providing benefits to PMs that are not also
granted to NPMs. Where a social or economic policy is challenged on equal protection
grounds and no fundamental constitutional right has been infringed, rational basis
review applies. FCC v. Beach Commc'ns, Inc., 508 U.S. 307, 313 (1993); Minn.
Senior Fed'n v. United States, 273 F.3d 805, 808 (8th Cir. 2001). The challenger must
"negative every conceivable basis which might support" the legislation. Beach
Commc'ns, 508 U.S. at 315. Therefore, appellants have the burden of proving that the
Allocable Share Statute has no rational basis.

       The Allocable Share Amendment does treat PMs and NPMs differently. PMs
that enter the MSA are required to deposit nonrefundable payments in perpetuity. The
payments are dedicated to defraying the cost of future medical care that may be
incurred by the state due to smoking-related illnesses. PMs also must adhere to

                                          -21-
conduct limitations, such as advertising restrictions. In contrast, NPMs are not subject
to the stricter conduct limitations, and their payments are only held for 25 years absent
a judgment against them. This difference in treatment is rationally related to the state's
legitimate interest in collecting future medical costs related to tobacco use. See Star
Scientific, 278 F.3d at 352 (holding that NPMs essentially pay a surety bond for future
liability in order to retain their ability to market as they see fit). Therefore, Arkansas's
Allocable Share Amendment passes equal protection muster.

       Second, Appellants argue that because the MSA exempted SPMs as an
incentive to relinquish certain First Amendment rights, the statute deserves heightened
scrutiny rather than the more deferential rational basis review. Appellant cites Speiser
v. Randall, in which the Supreme Court held that where legislation affects free speech
rights on a discriminatory basis, the state has the burden to show a compelling reason
to sustain the legislation. 357 U.S. 513, 528–29 (1958). The granting of preferential
exemptions to the SPMs for voluntarily limiting their advertising is not comparable
to the legislative measures found suspect in Speiser. Speiser dealt with a California
statute that denied tax exemptions to individuals unwilling to subscribe to a loyalty
oath. Id. at 525. The statute here neither compels nor abridges free speech rights. In
fact, because appellants are not parties to the MSA, they sell their products without
state interference in their advertising choices. Appellants have not shown the SPM
exemptions violate their right to equal protection of the law.

                                D. Due Process Clause
       Appellants argue that they have been denied due process because (1) Arkansas
has no legitimate interest in mandating that appellants enter into a settlement with 51
other jurisdictions; (2) the Allocable Share Amendment has no rational relation to the
purported State interest; and (3) the Allocable Share Amendment provides no notice
or hearing or any judicial review for the lawfulness of the escrow payment.

                                           -22-
       Appellants' argument includes both a substantive due process component and
a procedural due process component. We must determine (1) whether appellants have
a substantive due process claim; (2) whether procedural due process requires that
appellants be granted a pre-deprivation hearing before the State can take appellants'
escrow funds; and (3) whether appellants' available post-deprivation remedy is
constitutionally sound or runs afoul of procedural due process requirements.

                              1. Substantive Due Process
       Appellants summarily state that the Allocable Share Amendment has no rational
relation to the purported state interest it serves. But as we held in relation to the Equal
Protection Clause, the State has a legitimate interest in collecting future medical costs
related to tobacco. See supra Part II.C. Therefore, appellants' substantive due process
claim likewise fails.

                               2. Procedural Due Process
       Appellants next argue that the Allocable Share Amendment violates the Due
Process Clause because they are not provided notice prior to the escrow payment's
imposition. Appellants emphasize that the Allocable Share Amendment contains no
mechanism for judicial review. Appellants also argue that giving up funds for
potentially 25 years without the benefit of a hearing is overly burdensome. Procedural
due process analysis follows the standards set forth in Mathews v. Eldridge, 424 U.S.
319 (1976). Eldridge requires that we analyze the following factors: (1) private
interest; (2) risk of wrongful deprivation; and (3) the government's interest. Id. at 335.
After examining the Eldridge factors, we hold that Arkansas's interest in reducing
smoking-related healthcare costs outweighs any private interest appellants assert.

       First, appellants clearly have a private interest in any escrow payments that the
statute requires them to forego for as many as 25 years. But we note that NPMs are
paid interest on these payments. Second, because the escrow payments are tied
directly to the number of cigarettes an NPM sells in Arkansas, there is minimal risk

                                           -23-
of wrongful deprivation. Finally, we have previously held that Arkansas has a
legitimate interest in reducing smoking-related healthcare costs. On balance, these
factors weigh in favor of the State's interest. Additionally, before any escrow funds
are permanently retained, the State must seek and be granted a court judgment or enter
into a settlement with appellants. See Ark. Code Ann. § 26-57-261(a)(2)(B)(i). Based
on these considerations, we hold that appellants' procedural due process rights have
not been violated. See KT&G Corp. v. Edmondson, 535 F.3d 1114, 1142 (10th Cir.
2008) (denying appellants' procedural due process challenge to Kansas's and
Oklahoma's allocable share amendments).

                                  E. First Amendment
       Finally, appellants argue that the Allocable Share Amendment violates the First
Amendment. In this cursory argument, they merely assert the undisputed existence of
First Amendment rights to market their wares but fail to set forth any authority or
persuasive legal argument that the Allocable Share Amendment violates their First
Amendment rights. It is essentially an argument that, under the Allocable Share
Amendment, they do not receive something received by companies that were willing
to accept the State's terms. As the district court noted, what appellants are really
complaining about is the loss of the competitive advantage that previously existed
before enactment of the Allocable Share Amendment under the original Escrow
Statute. Loss of a competitive advantage does not equate to an unlawful burden for
appellants. See Dos Santos, S.A. v. Beebe, 418 F. Supp. 2d 1064, 1075 (W.D. Ark.
2006) (concluding that Arkansas's Allocable Share Amendment does not
unconstitutionally burden free speech).

                                  III. Conclusion
      Appellants' challenges to the Allocable Share Amendment were dismissed by
the district court. After thorough review of their five arguments for reversal, we
conclude that the judgment of the district court should be affirmed.

                                        -24-
LIMBAUGH, District Judge, concurring in part and dissenting in part.

       I respectfully dissent from the majority's holding that plaintiffs failed to state
a cause of action on their Sherman Act claim. However, I would not reach the merits
of that claim because I agree with the majority that even if plaintiffs stated a cause of
action, the Attorney General of Arkansas is immune from Sherman Act liability
(though not Commerce Clause liability) under the state action immunity doctrine
announced in Parker v. Brown, 317 U.S. 341 (1943). Additionally, I respectfully
dissent from that part of the majority opinion dismissing the Commerce Clause claim.

       This is a difficult case, indeed, as seen by the conflicting holdings of the Circuit
Courts in similar cases, and the principal opinion does an admirable job in outlining
the respective positions. But all in all, I am persuaded more by the analysis in the
cases that the majority acknowledges but rejects, than by the cases on which the
majority relies.

                                          A.
       If I were to reach the Sherman Act claim, I would hold that the plaintiffs have
stated a cause of action. The central allegations in their complaint are these:

      The Allocable Share Amendment's . . . design and purpose is to coerce
      Grand River and plaintiffs to raise the price of Grand River's cigarettes
      in Arkansas, thereby preventing Grand River's products from competing
      in the Arkansas market against Participating Manufacturers, particularly
      Subsequent Participating Manufacturers who have been granted payment
      exemptions that amount to hundreds of millions of dollars annually. The
      Allocable Share Amendment achieves this result by denying Grand River
      refunds on escrow payments that exceed the amount it would have paid
      Arkansas under the terms of the MSA.

                                          ***

                                           -25-
      If Grand River is deprived of its allocable share refund under the
      Amended Escrow Statute, its escrow costs relative to 2004 sales in
      Arkansas will far exceed the revenue Grand River received relative to
      those sales, thus placing Grand River at a financial hardship which
      threatens its future viability. In short, the Allocable Share Amendment
      effectively raises Grand River's escrow expense for 2004 by over
      $3,000,000,000 [presumably the amount of additional escrow expense
      nationwide from all states' allocable share amendments8]. In addition for
      2005, Grand River will be forced to raise its prices, by more than $3.00
      per carton, resulting in similar price increase to the remaining plaintiffs.
      This will result in significant loss of sales and market share for Plaintiffs
      and a loss of their trade relationships with retailers and distributors,
      particularly in comparison to grandfathered Subsequent Participating
      Manufactures.

       The issue here, as framed by the majority, is whether the Allocable Share
Amendment "places irresistible pressure on a private party [the plaintiffs herein] to
violate the antitrust laws [the Sherman Act] in order to comply with the state statute
[the Amendment]." This test is one of the standards under Rice v. Norman Williams
Co., 458 U.S. 654, 661 (1982), for determining whether there is "an irreconcilable
conflict between the federal and state regulatory schemes," id. at 659, and whether the
state statute is thus preempted, id. at 659-61. The Sherman Act, of course, prohibits
"restraint of trade or commerce among the several states." But as the majority
correctly notes, again citing Rice, "[a] state statute is not preempted merely 'because
the state scheme might have an anti-competitive effect,'" and it is for that reason that
the "pressure" put on private parties to become anti-competitive in order to comply
with the statute must be "irresistible." The ultimate question, then, is the degree to
which the Allocable Share Amendment -- the state statute -- places "pressure" on
plaintiffs to engage in restraint of trade in order to comply with the Amendment.

      8
        Plaintiffs later alleged that "the amendment increased Grand River's escrow
payment obligation in Arkansas from approximately $600,000, to over $6,000,000,
for sales in 2005 alone."

                                          -26-
Although the majority concedes that the Amendment has an anti-competitive effect,
it holds as a matter of law that the pressure on plaintiffs to succumb to that anti-
competitive effect is not "irresistible." I would give the plaintiffs the opportunity to
prove otherwise.

       My concern is that the Amendment may well operate, consistent with plaintiff's
allegations, to place irresistible pressure on plaintiffs to increase their cigarette prices
to match those of the OPMs and SPMs which will correspondingly reduce plaintiffs'
current market share. A statutory penalty -- the additional overall escrow expense
caused by the reduction in refunds from their escrow payments -- is imposed against
them if they refuse to do so. That is an expense they allegedly cannot bear and that
will soon drive them out of business.

         In my view, this statutory scheme is in the nature of a so-called "hybrid"
restraint of trade, another form of state law that is per se illegal under the Sherman
Act. Fisher v. City of Berkeley, 475 U.S. 260, 267-68 (1986) As the majority notes,
a hybrid restraint of trade is a "nonmarket mechanism" (a state statute, for example)
that "merely enforce[s] private marketing decisions." Id. In this case, the apparent
effect of the Amendment is to enforce a parallel pricing structure dictated by the
OPMs and SPMs that will in turn fix the relative market shares between the OPMs,
SPMs and the NPMs for the duration of the MSA. The scheme thus deprives NPMs
of the competitive advantage they held based on their choice not to enter into the MSA
and clearly interferes with the market forces that establish cigarette prices. As such,
it is illegal per se under the Sherman Act. See Nat'l Elec. Contractors Ass'n, Inc. v.
Nat'l Constructors Ass'n, 678 F.2d 492, 501 (4th Cir. 1982).

       In short, I agree with the opinion of the 3rd Circuit in A.D. Bedell Wholesale
Co., Inc. v. Philip Morris Inc., 263 F.3d 239 (3rd Cir. 2001) which held that the state-
by-state escrow scheme for NPMs -- even before the advent of the states' allocable
share amendments -- was indeed an "output cartel" and thus a Sherman Act violation.

                                           -27-
Id. at 249-50. This, in essence, was also the holding in Freedom Holdings, Inc. v.
Spitzer, 357 F.3d 205 (2d Cir. 2004), a case that deals directly with allocable share
amendments. Although the majority, here, disparages the circuit opinion in Spitzer
for the reason that the district court on remand found no facts to support the antitrust
violation, that fact finding has no relation to the legal issue on which the circuit court
based its ruling, which was that the plaintiff alleged facts sufficient to state a cause of
action and thereby survive a motion to dismiss. And of course, the determination that
the plaintiff failed in its proof in the Spitzer case is of no event because the facts in the
case at hand may well be altogether different.

        And finally, as I have noted, there is no need to decide the merits of the
Sherman Act claim because in any event, the state of Arkansas is immune from
liability.

                                           B.
       I would find a dormant Commerce Clause violation for essentially the same
reasons that I would find a Sherman Act violation, as extrapolated to the national
market. It appears to me that the operation of the MSA and its enabling statutes, in
conjunction with the Allocable Share Amendment, creates a parallel pricing scheme
in restraint of trade that applies not only in Arkansas, but all other states that have
adopted the same or similar versions of those various statutes.

      In Healy v. The Beer Inst., 491 U.S. 324 (1989), the Supreme Court
summarized the "cases concerning the extraterritorial effects of state economic
regulation," stating:

       [A] State may not adopt legislation that has the practical effect of
       establishing "a scale of prices for use in other states,". . . . The critical
       inquiry is whether the practical effect of the regulation is to control
       conduct beyond the boundaries of the State. . . . [T]he practical effect of
       the statute must be evaluated not only by considering the consequences

                                            -28-
      of the statute itself, but also by considering how the challenged statute
      may interact with the legitimate regulatory regimes of other States and
      what effect would arise if not one, but many or every, State adopted
      similar legislation. Id. at 336 (citations omitted).

Although the Commerce Clause violation in Healy was clear cut because it involved
a beer-pricing scheme that expressly applied to out-of-state shippers, the Healy court
also was concerned that,

      the practical effect of this [beer-pricing statute], in conjunction with the
      many other beer-pricing and affirmation laws that have been or might
      be enacted throughout the country, is to create just the kind of competing
      and interlocking local economic regulation that the Commerce Clause
      was meant to preclude.

Id. at 337. The court further warned against the "price gridlock" that could occur if
multiple states enacted "essentially identical" statutes. Id. at 339-40.

       Applying the Healy principles, the Second Circuit held that a Commerce Clause
violation was properly pled in a similar Grand River case brought in New York. That
case, Grand River Enters. Six Nations, Ltd. v. Pryor, 425 F.3d 158 (2d Cir. 2005) was
accurately summarized in the majority opinion here, and that summary bears
repetition:

      In Grand River, the plaintiffs asserted that "the aggregate effect of the
      [statutes at issue] is to create a uniform system of regulation that results
      in higher prices nationwide." Id. at 171. The Second Circuit agreed,
      concluding that both the SPM settlement payments and the NPM escrow
      payments are tied to the national market share. Id. at 171-72. The court
      emphasized that the amount an NPM pays into the state's escrow fund is
      "keyed to the amount an NPM would have paid if it had joined the MSA
      as an SPM – a national-market-share-dependent amount – because the
      [NPM] is refunded any excess over what it would have paid under the
      MSA." Id. at 172. Therefore, the Second Circuit held that the plaintiffs

                                         -29-
      "successfully stated a possible claim that the practical effect of the
      challenged statutes and the MSA is to control prices outside of the
      enacting states by tying both the SPM settlement and NPM escrow
      payments to national market share, which is turn affects interstate pricing
      decisions." Id. at 173.

        The Second Circuit's analysis in Pryor applies no less to the case at hand.
Unfortunately, the majority's primary response to that analysis, like its similar
treatment of the Second Circuit analysis in the Freedom Holdings case, is to criticize
the opinion on the ground that the district court on remand found no violation. But
again, the district court's fact finding has no relation to the legal issue on which the
circuit court based its ruling, and the facts in the case at hand may well be different.
Furthermore, the findings of the district court in Pryor (now King) are all the more
insignificant because they were made pursuant to a request for preliminary injunctive
relief, and in fact, the case is still in the discovery stage, see Grand River Enters. Six
Nations, Ltd. v. King, No. 2 Civ. 5068 (S.D.N.Y. June 16, 2009), and has not
proceeded to trial on the merits.

       In dismissing the Commerce Clause claim, the majority also maintains that the
Allocable Share Amendment "is not based on cigarette sales outside of Arkansas," that
"NPM escrow payments are entirely a function of an NPM's sales in Arkansas," and
that "[t]he payments are not based on nationwide sales." All this, however, is to
discount the real basis of plaintiffs' claim, which, under Healy, is that the MSA and
its implementing statutes, in conjunction with the Allocable Share Amendments, have
created an interconnecting and interdependent system of regulation in the participating
states. And the practical effect of this system, they allege, is that it requires NPMs to
increase their prices both in Arkansas and nationwide so to avoid increasing market
share that would in turn increase their escrow costs to a level that would be impossible
for them to meet. In this way, the claim is indeed based, at least in part, on cigarette
sales outside of Arkansas, and the escrow payment are not entirely a function of an
NPM's sales in Arkansas, but instead are based, in part, on nationwide sales. Though

                                          -30-
the majority also finds that "there has been [no] showing by appellants that escrow
payments by NPMs in Arkansas have any effect, either directly or indirectly, on
cigarette prices in other states," that finding ignores that the case is still in the pleading
stage and that plaintiffs have not yet been given the opportunity to make such a
showing.

       In a way, plaintiffs' Commerce Clause challenge is really to the entire scheme
of the MSA. The escrow obligations of NPMs under the Allocable Share
Amendments are merely a small component of the larger MSA scheme -- a
component that is designed to reign in non-MSA cigarette producers in order to
perfect the goals of the MSA. Essentially, then, plaintiffs' position is that any statute
that serves to implement or enforce the MSA is no less a Commerce Clause violation
than the MSA itself. Regardless, I would hold that plaintiffs have made sufficient
allegations in their complaint to establish that the "practical effect" of the Allocable
Share Amendments (and the MSA) is to directly regulate interstate commerce, and for
that reason, plaintiffs have stated a cause of action for a Commerce Clause violation.
                         ______________________________

                                            -31-