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Precedential or Non-Precedential: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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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.