Grand River Enterprises v. Boughton

20-1044-cv
Grand River Enterprises v. Boughton

United States Court of Appeals
for the Second Circuit
_________________

AUGUST TERM 2020

ARGUED: OCTOBER 15, 2020 DECIDED: FEBRUARY 8, 2021

NO. 20-1044-CV
__________________

GRAND RIVER ENTERPRISES SIX NATIONS, LTD.,
Plaintiff-Appellant,

– v. –

MARK BOUGHTON, COMMISSIONER, CONNECTICUT DEPARTMENT OF
REVENUE SERVICES,
Defendant-Appellee. ∗

BEFORE:
LOHIER, WALKER, Circuit Judges, and STANCEU, Judge. ∗∗

∗
The Clerk of Court is directed to amend the caption as set forth
above.

Chief Judge Timothy C. Stanceu, of the United States Court of
∗∗

International Trade, sitting by designation.
 Plaintiff-Appellant Grand River Enterprises Six Nations, Ltd.

(“Grand River” or “GRE”) appeals from a September 27, 2018

judgment of the United States District Court for the District of

Connecticut (Warren W. Eginton, Judge) dismissing its action pursuant

to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim

on which relief can be granted and a March 3, 2019 judgment (Jeffrey

A. Meyer, Judge) denying its motion for reconsideration.

Grand River, a Canadian cigarette manufacturer, sued Defen-

dant-Appellee Mark Boughton, the Commissioner of the Connecticut

Department of Revenue Services (“DRS”), raising constitutional

challenges to a Connecticut statute (the “Reconciliation Requirement,”

Conn. Gen. Stat. § 4-28m(a)(3)) that imposes certain reporting

requirements upon Grand River as a prerequisite to the sale of

GRE’s cigarette brands in Connecticut. Grand River claimed the

Reconciliation Requirement violates its due process rights and the

Supremacy and Commerce Clauses of the United States Constitution.

2
 We agree with the District Court that Grand River’s Second

Amended Complaint fails to state a claim upon which relief can be

granted and, accordingly, AFFIRM the judgments of the District

Court.

__________________

ERICK M. SANDLER, Day Pitney LLP,
Hartford, CT (Stanley A. Twardy, Jr., Day
Pitney LLP, Stamford, CT and Matthew J.
Letten, Day Pitney LLP, Hartford, CT, on the
brief), for Plaintiff-Appellant.

HEATHER J. WILSON, Assistant Attorney
General, Hartford, CT (Joseph J. Chambers,
Assistant Attorney General, on the brief), for
Defendant-Appellee.

__________________

STANCEU, Judge:

The majority of cigarettes sold in the United States are produced

by manufacturers that have entered into a “Master Settlement

Agreement” (“Agreement”) with a coalition of state attorneys general.

Manufacturers that participate in the Agreement (“Participating

3
Manufacturers”) are subject to various requirements, including

restrictions on their advertising practices and the obligation to make

certain payments to state governments to offset harms caused by

smoking. To preserve a level playing field, the Agreement incentivizes

states that have signed the Agreement to impose by statute a slate of

restrictions and obligations on manufacturers that choose not to

participate (“Nonparticipating Manufacturers”).

Connecticut, a signatory to the Agreement, imposes upon

Nonparticipating Manufacturers a reporting requirement known as

the “Reconciliation Requirement.” Described in brief summary, the

Reconciliation Requirement directs each Nonparticipating Manufac-

turer to report annually to Connecticut’s Department of Revenue

Services its total nation-wide sales of cigarettes on which federal excise

tax is paid, its total interstate cigarette sales, and its total intrastate

cigarette sales. The Reconciliation Requirement is met if the total

nation-wide sales of a manufacturer’s cigarettes do not exceed the sum

4
of the interstate and intrastate sales by more than 2.5%. If this

threshold is exceeded, the manufacturer must explain to the State’s

satisfaction the reason for the discrepancy in order for its cigarette

brands to be sold within the State.

Grand River, a Nonparticipating Manufacturer, brought an

action in the District Court raising constitutional challenges to the

Reconciliation Requirement, claiming it abridges GRE’s rights under

the Fourteenth Amendment Due Process Clause of the U.S. Constitu-

tion (and also under the Connecticut State Constitution) for lack of a

rational justification and also is in violation of the Commerce and

Supremacy Clauses of the U.S. Constitution. Concluding to the

contrary, we hold that the Reconciliation Requirement has a rational

relationship to the State’s legitimate interests in collecting excise taxes

and combatting cigarette smuggling that satisfies both federal and

state due process requirements. We hold, further, that Connecticut has

violated neither the Commerce Clause nor the Supremacy Clause by

5
imposing the Reconciliation Requirement on a Nonparticipating

Manufacturer as a condition of permitting that manufacturer’s brands

to be sold within the State. For these reasons, we AFFIRM the

judgments of the District Court.

I. BACKGROUND

A. The Master Settlement Agreement

In November 1998, four of the largest tobacco manufacturers in

the United States and the attorneys general of forty-six states, 1 five

territories, and the District of Columbia executed the Master

Settlement Agreement, which sought to supplant further state

lawsuits against tobacco advertising practices and to require tobacco

manufacturers to pay damages to compensate states for healthcare

costs resulting from smoking-related conditions. Beyond the four

original signatory manufacturers, other tobacco manufacturers since

1Four states, Florida, Minnesota, Mississippi, and Texas, had reached
individual state-level agreements with tobacco manufacturers prior to the
Master Settlement Agreement.

6
have signed the Agreement, and as a result the vast majority of

cigarette sales in this country are of brands owned by Participating

Manufacturers.

Participating Manufacturers agreed, inter alia, to restrict

advertising and sponsorships, to dissolve three tobacco-related trade

organizations, and to accept restrictions on lobbying and trade

association activities. They also agreed to fund a youth smoking

prevention organization and to make payments to the settling states in

perpetuity, in amounts determined by each manufacturer’s market

share (with a system for adjusting these payments based on future

sales).

To ensure that Nonparticipating Manufacturers do not gain a

competitive advantage over Participating Manufacturers, the

Agreement incentivizes signatory states such as Connecticut to impose

by statute certain obligations on Nonparticipating Manufacturers.

Among other things, signatory states require Nonparticipating

7
Manufacturers to deposit into escrow certain amounts, based on sales

figures, to satisfy potential claims for damages resulting from cigarette

smoking, as a parallel to the market share payment obligations to

which the Participating Manufacturers agreed to be bound. See Master

Settlement Agreement § IX(d)(2)(B). Some states also impose

additional requirements, such as the Reconciliation Requirement at

issue here.

B. The Reconciliation Requirement

In Connecticut, tobacco manufacturers may not sell cigarettes in

the State unless their cigarette brands are listed in a “Directory”

published by the DRS. Conn. Gen. Stat. § 4-28m. To be included in

the Directory, a Participating Manufacturer must be “generally

perform[ing] its financial obligations under the Master Settlement

Agreement.” Id. § 4-28i(a)(1)(A). In contrast, a Nonparticipating

Manufacturer must satisfy the escrow payments described above and

comply with additional statutory requirements, including the

Reconciliation Requirement. Id. § 4-28l(a), (d).

8
 The Reconciliation Requirement provides in pertinent part as

follows:

The commissioner shall not include or retain in the
directory any brand family of a nonparticipating
manufacturer if the commissioner concludes . . . a
nonparticipating manufacturer’s total nation-wide
reported sales of cigarettes on which federal excise tax is
paid exceeds the sum of (i) its total interstate sales, as
reported under 15 USC 375 et seq., as from time to time
amended, or those made by its importer, and (ii) its total
intrastate sales, by more than two and one-half per cent of
its total nation-wide sales during any calendar year,
unless the nonparticipating manufacturer cures or
satisfactorily explains the discrepancy not later than ten
days after receiving notice of the discrepancy.

Id. § 4-28m(a)(3). Connecticut asserts that the purpose of the

Reconciliation Requirement is to prevent Nonparticipating

Manufacturers from diverting cigarettes into an illicit market

that harms Connecticut residents and reduces the State’s ability

to collect taxes and escrow payments.

9
 C. The Proceedings in the District Court

On June 29, 2016, Grand River commenced an action in the

District of Connecticut against the Acting Commissioner of the DRS

(“Commissioner”) to challenge the Reconciliation Requirement. GRE

amended its complaint on December 1, 2016. On February 17, 2017,

the Commissioner filed a motion to dismiss the action under Federal

Rule of Civil Procedure 12(b)(6). On July 5, 2017, the District Court

denied this first motion to dismiss. After Grand River filed a second

amended complaint on September 5, 2017, the Commissioner, on

November 17, 2017, again moved to dismiss under Rule 12(b)(6). On

September 26, 2018, the District Court granted this motion, holding

that the Reconciliation Requirement does not violate the Due Process,

Supremacy, or Commerce Clauses. The District Court also denied

Grand River’s claim for a declaratory judgment that it is in compliance

with the Reconciliation Requirement. The District Court entered

judgment on September 27, 2018. On October 3, 2018, GRE moved for

10
reconsideration of the dismissal of its claims under the Commerce

Clause and the Supremacy Clause in the District Court, a motion the

District Court denied on March 3, 2020. This appeal followed.

II. DISCUSSION

We exercise appellate jurisdiction according to 28 U.S.C. § 1291.

We review de novo the granting of a motion to dismiss, accepting all

factual allegations in the Amended Complaint as true and drawing all

inferences in favor of the nonmoving party. Littlejohn v. City of New

York, 795 F.3d 297, 306 (2d Cir. 2015). “To survive a motion to dismiss,

a complaint must contain sufficient factual matter, accepted as true, to

state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (internal quotation marks and citation omitted).

Grand River argues on appeal that the District Court erred in

holding that the Reconciliation Requirement does not violate

substantive due process and is not prohibited by the Commerce or

11
Supremacy Clauses of the U.S. Constitution. 2 In the alternative, Grand

River argues that the District Court erred in denying relief on its claim

for a declaratory judgment that GRE is in compliance with the

Reconciliation Requirement. The Commissioner disputes Grand

River’s arguments and further asserts that GRE lacks standing to

pursue this appeal. We address each of these arguments below.

A. Article III Standing

The Commissioner argues that we should dismiss this appeal

for lack of Article III standing, arguing that Grand River, being

currently listed in the Directory, suffers no injury in fact. While Grand

River’s second amended complaint alleges that it has incurred

2 GRE also argues that the District Court erred in holding that the
Reconciliation Requirement does not violate substantive due process under
the Connecticut Constitution. The requirements to state a violation of
substantive due process under the Connecticut Constitution are the same as
the requirements under the U.S. Constitution, so we analyze both claims
under the same framework. See Ramos v. Town of Vernon, 254 Conn. 799, 837,
761 A.2d 705, 727 (2000) (noting the coextensive nature of state and federal
due process protections while holding open the option to expand the
Connecticut Constitution’s due process rights in the future).

12
substantial costs to comply with the Reconciliation Requirement, the

Commissioner asserts that Grand River has failed to plead these costs

with sufficient particularity to meet its burden. We disagree with the

Commissioner and conclude that Grand River has adequately pleaded

an injury in fact sufficient to confer Article III standing.

The constitutional minimum of Article III standing is well

established. To meet its burden, a plaintiff must show that it has

“(1) suffered an injury in fact, (2) that is fairly traceable to the

challenged conduct of the defendant, and (3) that is likely to be

redressed by a favorable judicial decision.” John v. Whole Foods Mkt.

Grp., Inc., 858 F.3d 732, 736 (2d Cir. 2017) (quoting Spokeo, Inc. v. Robins,

136 S. Ct. 1540, 1547 (2016)). The Supreme Court has instructed that

an “injury in fact” is an invasion of a legally protected interest that is

both “concrete and particularized” and “actual or imminent, not

conjectural or hypothetical.” Lujan v. Defenders of Wildlife, 504 U.S. 555,

560 (1992) (internal quotation marks omitted). When “a plaintiff is

13
himself an object of the action (or foregone action) at issue . . . there is

ordinarily little question that the action or inaction has caused him

injury, and that a judgment preventing or requiring the action will

redress it.” Id. at 561–62.

A regulated entity may plead an “injury in fact” by plausibly

alleging compliance costs associated with an increased regulatory

burden. The Third Circuit has referred to economic injury in the form

of “compliance costs” as “a classic injury-in-fact,” Am. Farm Bureau

Fed’n v. EPA, 792 F.3d 281, 293 (3d Cir. 2015), and the Fifth Circuit has

held that “[a]n increased regulatory burden typically satisfies the

injury in fact requirement,” Contender Farms, L.L.P. v. U.S. Dep’t of

Agric., 779 F.3d 258, 266 (5th Cir. 2015). The D.C. Circuit, as well, has

applied Lujan to confer Article III standing on directly regulated

entities that “must incur costs to ensure that they are properly

complying with the terms” of a new regulatory regime. State Nat’l

Bank of Big Spring v. Lew, 795 F.3d 48, 53 (D.C. Cir. 2015)

14
(Kavanaugh, J.). Although we have addressed this issue only in

passing, see Bridgeport & Port Jefferson Steamboat Co. v. Bridgeport Port

Auth., 567 F.3d 79, 86 (2d Cir. 2009), the decisions of our sister circuits

reflect a nearly uniform approach with which we agree. See, e.g., City

of Kennett v. EPA, 887 F.3d 424, 431 (8th Cir. 2018); Weaver’s Cove

Energy, LLC v. Rhode Island Coastal Res. Mgmt. Council, 589 F.3d 458, 467

(1st Cir. 2009).

Applying these standards, we have little difficulty concluding

that Grand River has standing to pursue its claims. As a

Nonparticipating Manufacturer, Grand River is the object of

Connecticut’s Reconciliation Requirement. It alleges that it “has

expended over $300,000 in seeking and obtaining approval to be listed

on the Tobacco Directory, and has invested a similar amount in

regulatory and compliance fees and payments since obtaining such

approval.” Second Am. Compl. ¶ 9; see also id. ¶¶ 35, 36. Because at

the pleading stage we “presum[e] that general allegations embrace

15
those specific facts that are necessary to support the claim,” we

reasonably infer that some of these costs were incurred to comply with

the Reconciliation Requirement and that Grand River’s compliance

costs will continue so long as it remains subject to the regulation. John,

858 F.3d at 737 (alteration in original) (quoting Lujan, 504 U.S. at 561).

These allegations suffice to plead an injury in fact that is fairly

traceable to the Commission’s enforcement of the Reconciliation

Requirement and would be redressed by a favorable judicial decision.

B. Substantive Due Process

Grand River claims that the Reconciliation Requirement violates

the substantive guarantees of the Due Process Clause, U.S. CONST.

amend. XIV, § 1. On appeal, GRE argues, first, that it has a protected

interest in maintaining its current listing in the Directory and, second,

that the Reconciliation Requirement is arbitrary and irrational and

thereby fails the rational basis test. In considering this issue, we

assume (as did the District Court), without deciding, that Grand River

16
has a constitutionally protected interest in maintaining its listing in the

Directory, which is necessary for it to continue to market cigarettes in

Connecticut. We proceed to consider, therefore, whether the

Reconciliation Requirement is “rationally related to a legitimate state

interest.” Lange-Kessler v. Dep't of Educ., 109 F.3d 137, 140 (2d Cir.

1997).

It scarcely can be argued that Connecticut lacks a legitimate state

interest in preventing smuggling and tax evasion that affects, or

potentially affects, the distribution within its borders of cigarettes, an

extensively taxed product with adverse health effects. The inquiry

relevant to GRE’s substantive due process claim is, therefore, whether

the Reconciliation Requirement is rationally related to that state

interest. Grand River offers three arguments to challenge that

conclusion: (1) that the Reconciliation Requirement is arbitrary in

affecting only Nonparticipating Manufacturers, (2) that it also is

arbitrary in pursuing a national accounting of sales while

17
Connecticut’s interest is limited to preventing illicit sales within the

State, and (3) that no evidence proves the Reconciliation Requirement

in fact reduces cigarette smuggling.

The logic of the Reconciliation Requirement is apparent from the

types of reporting it seeks. Federal excise taxes are paid when a

cigarette is manufactured in, or imported into, the United States, at

which point it enters the flow of commerce in this country, see 26 U.S.C.

§ 5701(b), while state tobacco taxes typically are charged when

cigarettes enter retail sale and thereby leave the flow of commerce, see,

e.g., Conn. Gen. Stat. § 12-430(8). The Reconciliation Requirement

directs a Nonparticipating Manufacturer to report how many of its

cigarettes entered the flow of commerce, when federal excise tax was

charged, and then how many left the flow of commerce with,

presumably, state taxes properly paid. We do not view it as irrational

or arbitrary for a state legislature to conclude that data allowing a

comparison of the quantities of a manufacturer’s cigarettes entering

18
U.S. commerce with the quantities leaving U.S. commerce can reveal

possible smuggling activity. A discrepancy between a manufacturer’s

data sets, unless explained, is a potential indicator of state tax evasion

involving cigarettes diverted from the legitimate flow of commerce for

eventual untaxed sale. In combatting cigarette smuggling, federal law

employs a similar logic as to the use of data on quantities of cigarettes

in commerce. The Prevent All Cigarette Trafficking Act (“PACT Act”),

15 U.S.C. § 375 et seq., directs that reports of the quantities of cigarettes

shipped into each state be reported to that state’s tobacco tax

administrator (as well as to localities and Indian tribes that charge

tobacco taxes) for comparison with state and local records.

Grand River’s argument that the Reconciliation Requirement

fails rational basis review for arbitrarily affecting only Nonpartici-

pating Manufacturers is not convincing. Participating Manufacturers

are subject to information collection under the Agreement. See Master

Settlement Agreement § II(jj). This causes us to conclude that limiting

19
the effect of the Reconciliation Requirement to Nonparticipating

Manufacturers does not invalidate it for arbitrariness.

Nor are we persuaded by GRE’s argument that Connecticut

improperly collects nationwide information from a manufacturer

when its interest is confined to illicit sales within its own borders. If a

manufacturer’s cigarettes are diverted from the stream of legitimate

commerce anywhere in the United States, it is rational, and not

arbitrary, for a state legislature to anticipate that the diverted

cigarettes may cause harm in that state.

Finally, Grand River’s argument that the Reconciliation

Requirement has not been demonstrated to prevent smuggling is

unavailing. Rational basis review is not a post-hoc test of the

effectiveness of a legislative policy. See Beatie v. City of New York, 123

F.3d 707, 712 (2d Cir. 1997) (“We will not strike down a law as

irrational simply because it may not succeed in bringing about the

result it seeks to accomplish.” (citing Seagram & Sons, Inc. v. Hostetter,

20
384 U.S. 35, 50 (1966)). Rather, we examine whether, at enactment,

there is a rational link between the harm a statute is intended to

remedy and the method by which a legislature chooses to address it.

See F.C.C. v. Beach Commc’ns, Inc., 508 U.S. 307, 313–14, (1993)

(requiring only “’plausible reasons’” for legislative action under

rational basis review (quoting U.S. R.R. Ret. Bd. v. Fritz, 449 U.S. 166,

179 (1980))). Grand River cannot demonstrate that it is irrational or

arbitrary for a state legislature to regard unexplained discrepancies

between quantities of cigarettes entering, and leaving, U.S. commerce

as a potential subject of investigation that could uncover illegal activity

affecting that state.

Of course, there are legitimate reasons why reporting under the

Reconciliation Requirement that exceeds the 2.5% threshold might not

indicate smuggling activity. Among other things, the number of

cigarettes reported on federal excise tax forms may conflict with the

number of cigarettes reported pursuant to the PACT Act because

21
PACT Act filings exclude intrastate sales, cigarette inventory, and—as

Grand River argues—sales within “Indian Country.” But notably, the

Reconciliation Requirement affords a Nonparticipating Manufacturer

the opportunity to explain any discrepancies before imposing the

sanction of de-listing from the Directory. Conn. Gen. Stat. § 4-28(m)(3).

Even for manufacturers that routinely report a discrepancy of greater

than 2.5%, the expectation that the Commissioner will scrutinize the

discrepancy may encourage accurate record-keeping practices that

could reduce the number of cigarettes diverted to an illicit market.

In summary, we find no error in the District Court’s dismissal

of Grand River’s claim that the Reconciliation Requirement is

constitutionally impermissible on substantive due process grounds.

C. The Dormant Commerce Clause

Grand River argues that the Reconciliation Requirement

violates the “dormant” (or “negative”) Commerce Clause, which is an

implied limitation on a state’s power to regulate commerce outside its

22
borders stemming from the grant to the federal government of the

power to “regulate commerce . . . among the several states.” U.S.

CONST. art. I, § 8, cl. 3. GRE maintains that the Reconciliation Require-

ment impermissibly regulates its out-of-state commercial business

decisions by forcing it to choose importers and distributors that will

provide it with their business records, including federal excise tax

records and PACT Act reports, so that Grand River can comply with

the reporting demanded by the Reconciliation Requirement.

A state law may run afoul of the dormant Commerce Clause if

it “clearly discriminates against interstate commerce in favor of

intrastate commerce[,] . . . if it imposes a burden on interstate

commerce incommensurate with the local benefits secured” when

viewed according to the balancing test of Pike v. Bruce Church, Inc., 397

U.S. 137, 142 (1970), or “if it has the practical effect of extraterritorial

control of commerce occurring entirely outside the boundaries of the

state in question.” Grand River Enters. Six Nations, Ltd. v. Pryor, 425

23
F.3d 158, 168 (2d Cir. 2005) (quoting Freedom Holdings, Inc. v. Spitzer,

357 F.3d 205, 216 (2d Cir. 2004)). Of these three possible grounds,

Grand River confines its arguments to the third, extraterritoriality.

Relying on Healy v. Beer Institute, Inc., 491 U.S. 324 (1989), GRE argues

that the statute must be invalidated as impermissibly extraterritorial

because its practical effect is to control conduct outside the borders of

Connecticut. Specifically, Grand River contends that the “practical

effect” of the Reconciliation Requirement is to require each of its U.S.

importers, including those who do no business in Connecticut, to

provide the State with records on the number of cigarettes on which

the importers paid federal excise tax and the number of cigarettes each

importer sold into interstate and intrastate commerce for each year.

Grand River thus grounds its theory of extraterritoriality in the

effect Connecticut’s Reconciliation Requirement has upon its

importers, even though the directly regulated party is Grand River

itself. The practical effect of the Reconciliation Requirement on

24
interstate commerce, being indirect as well as incidental to the purpose

of the statute, is not analogous to that of the economic regulation held

to violate the dormant Commerce Clause in Healy, the principal case

Grand River cites as authority for its position. Healy invalidated a

Connecticut statute requiring out-of-state shippers of beer to affirm

that their prices for beer sold to Connecticut wholesalers, at the time

of posting, were no higher than the prices at which the products were

sold in bordering states. 491 U.S. at 337. The pricing decisions of out-

of-state wholesalers were directly controlled by this price-regulating

provision, which the Supreme Court held to have had the

impermissible effect of controlling the wholesalers’ commercial

pricing and marketing activity that occurred outside of Connecticut.

Id. “Moreover, the practical effect of this affirmation law, 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

25
that the Commerce Clause was meant to preclude.” Id. Here, the

Reconciliation Requirement does not have, and is not intended to

have, a controlling effect on the cigarette sales transactions involving

the importers. Its reach is to the post-sale reporting of transactions.

The effect on the importers, if any, is only incidental to the purpose of

the Reconciliation Requirement, which is to allow for investigation of

cigarette smuggling with the potential to affect adversely the State of

Connecticut. Moreover, the adoption of this or similar reporting by

other states would not constitute the “competing and interlocking

local economic regulation” of a kind found objectionable by the

Supreme Court in Healy. Id.; see also id. at 336 (considering “what effect

would arise if not one, but many or every, State adopted similar

legislation”). To the contrary, it is akin to the very sort of regulation

that we have previously permitted. See VIZIO, Inc. v. Klee, 886 F.3d

249, 256 (2d Cir. 2018) (holding that Connecticut’s E-Waste law, which

calculates fees based on national market share data, “does nothing to

26
control interstate commerce, but rather merely considers out-of-state

activity in imposing in-state charges”).

Grand River also cites American Booksellers Foundation v. Dean,

342 F.3d 96 (2d Cir. 2003), but that decision too is inapposite. In

American Booksellers Foundation, we held that a Vermont statute

prohibiting internet dissemination of sexually explicit materials

harmful to minors had an extraterritorial effect prohibited by the

dormant Commerce Clause. We reasoned that Vermont had projected

“onto the rest of the nation” its prohibition on the dissemination of that

material through the internet. 342 F.3d at 103. “Although Vermont

aims to protect only Vermont minors, the rest of the nation is forced to

comply with its regulation or risk prosecution.” Id. Connecticut’s

Reconciliation Requirement does not seek to, and in practical effect

does not, project onto the rest of the nation a scheme to prohibit

cigarette sales or regulate the commercial terms of them and instead

requires reporting of those sales, regardless of the terms, after the fact.

27
 Grand River also cites, unavailingly, Edgar v. MITE Corp., 457

U.S. 624, 642–43 (1982), which, unlike the Reconciliation Requirement,

involved a state statute that directly regulated interstate commerce. In

Edgar, the Supreme Court invalidated an Illinois statute that granted

state officials authority to block corporate takeovers by regulating

tender offers and that applied even where all the shareholders were

residents of other states. Stating that the Commerce Clause “permits

only incidental regulation of interstate commerce by the States” and

that “direct regulation is prohibited,” the Supreme Court held that the

Illinois statute violated the Commerce Clause because it “directly

regulates and prevents, unless its terms are satisfied, interstate tender

offers which in turn would generate interstate transactions.” 3 457 U.S.

3 The Supreme Court concluded that the Illinois statute also was
precluded by the Commerce Clause under the balancing test of Pike because
it imposed burdens on interstate commerce that were excessive in light of
the local interests of the Act in protecting resident security holders and
regulating the corporate affairs of companies incorporated under Illinois
law. See Edgar v. MITE Corp., 457 U.S. 624, 643–46 (1982). Grand River makes
no argument invoking the Pike balancing test.

28
at 640. While it requires reporting of interstate transactions, the

Reconciliation Requirement neither regulates nor precludes them.

In summary, we conclude that the District Court correctly held

that the Reconciliation Requirement is not prohibited by the dormant

Commerce Clause.

D. Supremacy Clause

Grand River also claims that the Reconciliation Requirement

violates the Supremacy Clause, U.S. CONST. art. VI, cl. 2, because the

Reconciliation Requirement is preempted by the PACT Act and it is

impossible for Grand River to comply with both statutes. Specifically,

Grand River contends that this impossibility arises because (1) Grand

River cannot reconcile its nationwide sales of cigarettes against

interstate sales reported pursuant to the PACT Act, and (2) the

Reconciliation Requirement uses PACT Act reports for purposes that

are prohibited by federal law. According to GRE, this is a case in

which “state law penalizes what federal law requires.” Appellant’s Br.

29
53 (quoting In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab. Litig.,

725 F. 3d 65, 97 (2d Cir. 2013) (“MTBE”)).

We review a district court’s application of preemption prin-

ciples de novo. New York SMSA Ltd. P’ship v. Town of Clarkstown, 612

F.3d 97, 103 (2d Cir. 2010) (per curiam) (“SMSA”). The doctrine of

federal preemption provides that “[u]nder the Supremacy Clause of

the Constitution, state and local laws that conflict with federal law are

without effect.” Id. (internal quotation marks omitted). In SMSA, we

described the three general types of preemption:

(1) express preemption, where Congress has expressly
preempted local law; (2) field preemption, where
Congress has legislated so comprehensively that federal
law occupies an entire field of regulation and leaves no
room for state law; and (3) conflict preemption, where
local law conflicts with federal law such that it is
impossible for a party to comply with both or the local
law is an obstacle to the achievement of federal
objectives.

Id. at 104 (internal quotation marks omitted). Grand River’s argument

is, essentially, that the Reconciliation Requirement violates the

30
Supremacy Clause due to “impossibility” preemption, the first of two

types of conflict preemption, which is where “local law conflicts with

federal law such that it is impossible for a party to comply with both.”

Id. For a plaintiff to establish impossibility preemption, “it must show

that federal and state laws ‘directly conflict.’” MTBE, 725 F.3d at 99

(quoting Am. Tel. & Tel. Co. v. Cent. Office Tel., Inc., 524 U.S. 214, 227

(1998)).

We do not find merit in plaintiff-appellant’s preemption argu-

ment. As is pertinent here, the PACT Act requires reporting by “[a]ny

person who sells, transfers, or ships for profit cigarettes or smokeless

tobacco in interstate commerce . . . or who advertises or offers cigar-

ettes or smokeless tobacco for such a sale, transfer, or shipment.”

15 U.S.C. § 376(a). A party regulated thereunder must file with the

tobacco tax administrator of the state into which a shipment was made

(and to the administrators and law enforcement officers of local

governments and Indian tribes that apply their own tobacco taxes)

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a memorandum listing the recipient’s name and address, the brands

and quantities of cigarettes (or smokeless tobacco) shipped, and the

information of the shipper acting on behalf of the delivery seller. Id.

Grand River argues that even if its importers file all reports

required by the PACT Act, the figures Grand River submits to

Connecticut’s Department of Revenue Services to comply with the

Reconciliation Requirement inevitably will not reconcile within the

2.5% margin. GRE explains that the PACT Act reporting does not

apply, for example, to sales taking place within a single state and to

sales of cigarettes distributed exclusively within Indian Country. This

argument is unconvincing because a Nonparticipating Manufacturer

need not achieve actual, numerical reconciliation within the 2.5%

variance in order to achieve compliance with the Reconciliation

Requirement; the statute affords the Nonparticipating Manufacturer

the opportunity to “satisfactorily explain[] the discrepancy.” Conn.

Gen. Stat. § 4-28(m)(3). Grand River in fact has maintained its listing

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in the Directory during the pendency of this litigation. Therefore, we

do not agree with Grand River’s view that the federal and state statutes

“directly conflict” or that the Reconciliation Requirement “penalizes

what federal law requires.” MTBE, 725 F.3d at 97, 99. Instead, the

Reconciliation Requirement and the PACT Act can “stand together” as

reporting requirements. Id. at 102.

As a second argument under the Supremacy Clause, Grand

River maintains that the Reconciliation Requirement violates the

PACT Act by using PACT Act reports for impermissible purposes. We

are unconvinced by this argument as well. PACT Act reports may be

used “solely for the purposes of the enforcement of this chapter and

the collection of any taxes owed on related sales of cigarettes and

smokeless tobacco.” 15 U.S.C. § 376(c) (emphasis added). The

Reconciliation Requirement uses PACT Act reporting for a purpose—

the investigation of possible tax evasion involving cigarettes—

expressly contemplated by the PACT Act.

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 E. Grand River’s Request for a Declaratory Judgment

Grand River sought a declaratory judgment that it is in compli-

ance with the Reconciliation Requirement in the District Court, in the

event the Reconciliation Requirement is upheld as constitutional. On

appeal, Grand River argues that the District Court erred in dismissing

its request for a declaratory judgment as moot. We review a District

Court’s decision to refuse to issue a declaratory judgment for abuse of

discretion. Dow Jones & Co. v. Harrods Ltd., 346 F.3d 357, 359 (2d Cir.

2003).

Grand River seeks a declaratory judgment on the ground that it

has provided adequate reasons why it cannot reconcile its federal

excise tax and state sales figures and, therefore, is entitled to a decision

that it is in compliance with the Reconciliation Requirement. GRE

currently is listed in the Directory and so has complied with the

Reconciliation Requirement for the most recent year. In the future,

should the State of Connecticut rule that Grand River is no longer in

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compliance with the Reconciliation Requirement, Grand River might

be in a position to pursue its potential administrative and judicial

remedies in contesting that determination. The administrative

determination of whether GRE has “satisfactorily explained” any

discrepancies is for the DRS to make in the first instance for each year

for which Grand River seeks listing in the Directory. It was not an

abuse of discretion for the District Court to decline to make this

determination.

III. CONCLUSION

We hold that Connecticut’s Reconciliation Requirement is

rationally related to the State’s legitimate interest in preventing

evasion of state tobacco taxes and, therefore, does not violate GRE’s

due process rights, that any incidental burdens the Reconciliation

Requirement imposes on interstate commerce do not have an

impermissible extraterritorial reach inconsistent with the dormant

Commerce Clause, and that the Reconciliation Requirement is not

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preempted by federal law so as to violate the Supremacy Clause. We

further hold that the District Court’s decision to not issue Grand River

a declaratory judgment was a permissible exercise of its discretion.

For the foregoing reasons, we AFFIRM the September 27, 2018

and March 3, 2019 judgments of the District Court.

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