FILED: July 24, 2018
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 17-2166
(1:17-cv-01860-MJG)
ASSOCIATION FOR ACCESSIBLE MEDICINES,
Plaintiff - Appellant,
v.
BRIAN E. FROSH, in his official capacity as Attorney General for the State of
Maryland; DENNIS R. SCHRADER, in his official capacity as Secretary of the
Maryland Department of Health,
Defendants - Appellees.
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CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA,
Amicus Supporting Appellant.
AARP; AARP FOUNDATION; KNOWLEDGE ECOLOGY INTERNATIONAL;
MARYLAND CITIZENS’ HEALTH INITIATIVE EDUCATION FUND,
INCORPORATED; PUBLIC CITIZEN; PUBLIC JUSTICE CENTER;
MARYLAND CITIZENS’ HEALTH INITIATIVE EDUCATION FUND,
INCORPORATED; DISABILITY RIGHTS MARYLAND,
Amici Supporting Appellee.
ORDER
The petition for rehearing en banc was circulated to the full court. Judge Wilkinson,
Judge Niemeyer, Judge Traxler, Judge King, Judge Duncan, Judge Agee, Judge Diaz,
Judge Floyd and Judge Thacker voted to deny rehearing en banc. Chief Judge Gregory,
Judge Wynn and Judge Harris voted to grant rehearing en banc. Judge Motz and Judge
Keenan did not participate in the poll. The court denies the petition for rehearing en banc.
Entered at the direction of Judge Thacker.
For the Court
/s/ Patricia S. Connor, Clerk
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WYNN, Circuit Judge, dissenting from the denial of rehearing en banc:
With respect, I must dissent from my colleagues’ refusal to grant en banc rehearing
in this case. The right of a State to protect the health, safety, and welfare of its citizens
should not be denied by the judicial expansion of a judge-made doctrine with a name that
aptly describes what it should be, the dormant Commerce Clause’s “extraterritoriality
doctrine.”
In expanding the extraterritoriality doctrine beyond the contexts in which the
Supreme Court and this Court previously have applied it—and in a manner that the panel
majority concedes conflicts with the approach taken by other circuits—the majority
opinion materially encroaches upon the States’ reserved powers to legislate to protect the
health, safety, and welfare of their citizens. See, e.g., L’Hote v. City of New Orleans, 177
U.S. 587, 596 (1900). By doing so, the majority opinion errantly turns the dormant
Commerce Clause into a “weapon” for federal judges to second-guess efforts by state
legislatures to protect the health and welfare of their citizens, Energy & Envtl. Legal Inst.
v. Epel (EELI), 793 F.3d 1169, 1175 (10th Cir. 2015) (Gorsuch, J.), even when such efforts
do not implicate the two concerns underlying the Supreme Court’s “[m]odern” dormant
Commerce Clause jurisprudence: state regulations that “discriminate against interstate
commerce” or “impose undue burdens on interstate commerce,” South Dakota v. Wayfair,
138 S. Ct. 2080, 2090–91 (2018). As then-Judge, now-Justice Gorsuch has explained,
federal courts should not embark on such an “audacious” and “novel lawmaking project”
absent clear instruction from the Supreme Court. EELI, 793 F.3d at 1175. At a minimum,
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the careful deliberation of this entire Court is warranted before we choose a path that
diverges from our sister circuits and raises serious federalism concerns.
At issue is a Maryland law (“HB 631”) that prohibits “unconscionable” price
increases for certain generic drugs “made available for sale” to Maryland consumers. Md.
Code Ann., Health-Gen. §§ 2-801-803 (2017). After a series of high-profile incidents in
which several generic pharmaceutical manufacturers imposed multiple-thousand-fold price
increases for single-source generic drugs that treat rare and life-threatening conditions, the
Maryland legislature enacted HB 631 to restrain what it viewed as abusive pricing practices
specifically designed to prey on the special vulnerabilities of a defenseless group of
Maryland citizens.
The majority opinion holds that the statute when applied to any sale of covered
drugs consummated outside of Maryland—even when the drugs are later resold to
Maryland consumers—violates the extraterritoriality doctrine by regulating “commerce
occurring wholly outside [Maryland’s] boundaries.” Ass’n for Accessible Meds. v. Frosh,
887 F.3d 664, 681 (4th Cir. 2018) (quoting Healy v. Beer Inst., 491 U.S. 324, 336 (1989)).
That doctrine—which the Supreme Court has not applied in nearly 30 years—has been
characterized by our sister circuits as the “the most dormant” of the Supreme Court’s
dormant Commerce Clause jurisprudence. See, e.g., EELI, 793 F.3d at 1172. More
significantly, to date, the extraterritoriality doctrine has been applied “only [to] price
control or price affirmation statutes that link in-state prices with those charged elsewhere
and discriminate against out-of-staters,” id. at 1174 (emphasis added), and there never has
been “a single Supreme Court dormant Commerce Clause holding that relied exclusively
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on the extraterritoriality doctrine to invalidate a state law,” Am. Beverage Ass’n v. Snyder,
735 F.3d 362, 381 (6th Cir. 2013) (Sutton, J., concurring), as the majority opinion does
here.
My dissenting opinion details several ways in which the majority opinion errs in
adopting and applying its novel approach to the extraterritoriality doctrine. To begin, the
majority opinion ignores basic principles of federalism and judicial restraint to reject the
State’s own interpretation of the statute’s extraterritorial reach before the State had sought
to enforce the statute against any generic manufacturer. Frosh, 887 F.3d at 678–80
(Wynn, J., dissenting). Then, relying on its own expansive interpretation of HB 631’s
reach, the majority opinion extends the extraterritoriality doctrine beyond the contexts in
which the Supreme Court and this Court previously have applied it. Id. at 680–87.
Notably, the majority opinion concedes that its expansive construction of the
extraterritoriality doctrine conflicts with the approach taken by other circuits. See Frosh,
887 F.3d at 670 (majority op.); see also EELI, 793 F.3d at 1174; Ass’n des Eleveurs de
Canards et d’Oies du Quebec v. Harris, 729 F.3d 937, 951 (9th Cir. 2013); IMS Health,
Inc. v. Mills, 616 F.3d 7, 30 (1st Cir. 2010).
The Maryland statute’s constitutionality finds further support in the Supreme
Court’s most recent opinion dealing with the dormant Commerce Clause—South Dakota
v. Wayfair, 138 S. Ct. 2080 (2018)—which the Court issued after the panel decided this
case. In Wayfair, the Court considered a South Dakota statute that requires out-of-state
sellers who deliver, on an annual basis, “more than $100,000 of goods or services into the
State or engage in 200 or more separate transactions for the delivery of goods into the state”
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to collect and remit sales tax, regardless of whether the seller has a physical presence in
South Dakota. Id. at 2088–89. South Dakota sought to collect sales taxes from Wayfair,
an online retailer who made substantial sales to South Dakota residents but lacked a
physical presence in the state. Id. at 2089. The South Dakota Supreme Court held that the
statute was unconstitutional as-applied to out-of-state sellers who lacked a physical
presence in the state, like Wayfair, under the Supreme Court’s decisions in Quill Corp. v.
North Dakota, 504 U.S. 298 (1992), and National Bellas Hess, Inc. v. Department of
Revenue of Ill., 386 U.S. 753 (1967). Those decisions held that a State could not require a
seller to collect and remit sales tax unless it had a “physical presence such as ‘retail outlets,
solicitors, or property within the State.’” Wayfair, 138 S. Ct. at 2091 (quoting Bellas Hess,
386 U.S. at 758).
Wayfair overruled the “physical presence” rule set forth in Quill and Bellas Hess.
Id. at 2099. The Court reached this conclusion for several reasons relevant to the dormant
Commerce Clause challenge to the Maryland price-gouging statute. To begin, the Court
reaffirmed both Justice Marshall’s “broad definition of commerce” as “‘the interchange of
commodities’ and ‘commercial intercourse’ . . . and the concurrent regulatory power of the
States.” Id. at 2090 (emphasis added) (quoting Gibbons v. Ogden, 9 Wheat. 1, 6 (1824)).
As my dissenting opinion more fully explains, the majority opinion fails to adhere to that
“broad” definition of commerce by equating “commerce” with a single “transaction” and
usurps the States’ concurrent regulatory authority. Frosh, 887 F.3d at 683 (Wynn, J.,
dissenting).
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Second, Wayfair emphasized the “significant parallels” between the Due Process
Clause “minimum contacts” standard for personal jurisdiction and the restrictions on state
regulation imposed by the Commerce Clause. Wayfair, 138 S. Ct. at 2093. Noting that
“physical presence” is not required to satisfy the minimum contacts test, the Court stated
that physical presence is likewise a “poor proxy” in the dormant Commerce Clause context.
Id. The Court further explained that the physical presence rule is particularly inappropriate
when considered in light of the “day-to-day functions of marketing and distribution in the
modern economy.” Id. at 2095. Here, the majority opinion strikes down the Maryland
price-gouging statute because it “controls the prices of transactions that occur outside the
state,” regardless of whether the drugs conveyed by those out-of-state transactions are later
resold in Maryland. Frosh, 887 F.3d at 670 (majority op.). The majority’s myopic focus
on the location of the transaction is precisely the “physical presence” approach Wayfair
rejected as “artificial in its entirety.” Wayfair, 138 S. Ct. at 2095. Likewise, just as e-
commerce and nationwide distribution chains rendered the physical presence rule
outmoded, so too do the modern nationwide distribution and reimbursement systems for
generic pharmaceuticals counsel against the location-focused approach of the majority
opinion.
Third, Wayfair held that the bright-line physical presence rule ran contrary to the
Court’s dormant Commerce Clause jurisprudence, which has “eschewed formalism for a
sensitive, case-by-case analysis of purposes and effects.” Id. at 2094 (quoting West Lynn
Creamery, Inc. v. Healy, 512 U.S. 186, 201 (1994)). The majority opinion’s rule—that a
State is categorically barred from regulating any transaction consummated outside of the
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State’s borders regardless of whether the subject of that transaction is ultimately sold or
resold in the State—embraces the same formalism that Wayfair rejected, rather than
following the case-by-case approach the Court has prescribed. Thus, the majority
opinion’s pre-enforcement invalidation of the Maryland statute is antithetical to the Court’s
case-by-case approach to dormant Commerce Clause questions.
Fourth, Wayfair stated that the physical presence rule amounted to “an extraordinary
imposition by the Judiciary on States’ authority to collect taxes and perform critical public
functions.” Id. at 2095. As explained more fully in my dissent, “the majority opinion’s
expansive interpretation of the extraterritoriality doctrine substantially intrudes on the
States’ reserved powers to legislate to protect the health, safety, and welfare of their
citizens,” calling into question the constitutionality of numerous state antitrust and
consumer protection statutes. Frosh, 887 F.3d at 687-88 (Wynn, J., dissenting).
Accordingly, like the physical presence rule overruled in Wayfair, the majority opinion’s
expansive interpretation of the extraterritoriality doctrine—an interpretation that the
majority opinion concedes is in conflict with that of other circuits—interferes with “States’
authority to . . . perform critical public functions.” Wayfair, 138 S. Ct. at 2095.
Finally, Wayfair replaced Bellas Hess and Quill’s physical presence rule with a
“substantial nexus” test that has its genesis in Due Process Clause jurisprudence. Id. at
2091. Applying that test, the Court held that North Dakota could require Wayfair and the
other defendant on-line retailers to collect and remit sales tax because of their “economic
and virtual contacts” with the State. Id. at 2099. Likewise, under governing Due Process
Clause jurisprudence, at a minimum, generic drug manufacturers that “targeted” Maryland
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consumers—by, for example, marketing their drugs to Maryland consumers or
physicians—lawfully would be subject to the Maryland statute, even if they sold their drugs
through out-of-state intermediaries, see J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S.
873, 882 (2011) (opinion of Kennedy, J.), meaning that the majority’s pre-enforcement
invalidation of the Maryland statute was all-the-more improper.
In sum, the majority opinion’s expansive (re)interpretation of the extraterritoriality
doctrine expressly diverges from the approach taken by the other circuits and is in
significant tension—if not outright conflict—with the Supreme Court’s most recent
exposition of the limitations on state action imposed by the dormant Commerce Clause.
More significantly, the majority opinion’s expansive interpretation of the extraterritoriality
doctrine significantly incurs on the States’ reserved powers to enact legislation to protect
the health, safety, and welfare of their citizens. The division between this Court and our
sister circuits and the significant federalism concerns posed by the majority opinion’s
expansion of the long-dormant extraterritoriality doctrine make this a case ripe for
rehearing en banc as a matter of exceptional importance.
With respect, I dissent.
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