STATE OF NORTH CAROLINA v. VAPECO DISTRIBUTION LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

STATE OF NORTH CAROLINA, ex )

rel. JOSHUA STEIN, Attorney )

General, )

)

Plaintiff, )

)

v. ) 1:19-CV-990

)

VAPECO DISTRIBUTION LLC, )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

Catherine C. Eagles, District Judge.

The State of North Carolina filed suit against the defendant, VapeCo Distribution

LLC, in state court alleging that VapeCo was committing unfair and deceptive trade

practices by marketing its e-cigarette products to minors and seeking a temporary

restraining order to prohibit VapeCo from selling its e-cigarette products in North

Carolina. VapeCo removed the case to federal court, and the State now moves to remand

and seeks attorneys’ fees and costs.

As this Court lacks subject matter jurisdiction, the case is remanded to state court.

Because there was no objectively reasonable basis for removing this case from state

court, VapeCo must pay the State’s reasonable attorneys’ fees and costs associated with

seeking removal.

Background

VapeCo is a California-based limited liability company that sells e-liquid

products. On August 27, 2019, the State filed a complaint in Durham County Superior

Court against VapeCo asserting claims under N.C. Gen. Stat. § 75-1.1. Doc. 4. The State

alleged that the company had designed its products to appeal to younger audiences,

including minors; pursued marketing strategies that it knew would attract minors; and

failed to provide age-verification techniques for internet sales, as required by North

Carolina law, thus allowing minors to obtain its products. Id. at 15. The State sought

preliminary and permanent injunctive relief and asked for civil penalties and

disgorgement of profits pursuant to state law. Id. at 16. The complaint included no

federal causes of action.

A hearing was scheduled on the State’s motion for a temporary restraining order

for September 3, Doc. 1-4, but VapeCo agreed to cease all e-liquid product sales within

North Carolina to avoid such a hearing, pending scheduling of a preliminary injunction

hearing, and filed a stipulation to this effect. Doc. 14-1 at ¶ 7. VapeCo removed the case

on September 25, contending that the Family Smoking Prevention and Tobacco Control

Act (FSPTCA) and implementing regulations by the United States Food and Drug

Administration preempt the State’s claims so as to permit federal jurisdiction. Doc. 1 at

2–4.1 The State now seeks a remand and attorneys’ fees.

1 The Notice of Removal states “Plaintiff’s Claim for Relief also raises federal First

Amendment questions to the extent Plaintiff seeks to stifle Defendant’s ability to convey

commercial messages to the general public.” Doc. 1 at 4. VapeCo does not assert this question

Discussion

In general, a defendant may remove a civil action if a federal court would have

had original jurisdiction over one or more of the plaintiff’s claims. See 28 U.S.C.

§ 1441(a). The party seeking removal has the burden to show the case qualifies for it.

Lontz v. Tharp, 413 F.3d 435, 439 (4th Cir. 2005). District courts “construe removal

jurisdiction strictly because of the significant federalism concerns implicated by it,” and

“state law complaints usually must stay in state court when they assert what appear to be

state law claims.” Id. at 440.2

District courts have “original jurisdiction of all civil actions arising under the

Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. “The well-

pleaded-complaint rule has long governed whether a case ‘arises under’ federal law for

purposes of § 1331.” Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S.

826, 830 (2002). Under this rule, a case “arises under” federal law if “a well-pleaded

complaint establishes either that federal law creates the cause of action or that the

plaintiff’s right to relief necessarily depends on resolution of a substantial question of

federal law.” Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Tr. for S. Cal., 463

as a basis for federal jurisdiction in its Response in Opposition to Motion to Remand. Doc. 14.

VapeCo includes the First Amendment among the affirmative defenses asserted in its Answer,

Doc. 12 at 7, but, as analyzed infra, an affirmative defense cannot create federal jurisdiction. See

also CarMax Auto Superstores, Inc. v. Sibley, No. 3:16cv611, 2016 WL 7493973, at *7 (E.D.

Va. Dec. 30, 2016) (holding First Amendment defense does not confer federal question

jurisdiction); Hohal v. Tangorre, No. ELH-16-1893, 2016 WL 4889264, at *5 (D. Md. Sept. 15,

2016) (same).

2 The Court omits internal citations, alterations, and quotation marks throughout this opinion,

unless otherwise noted. See United States v. Marshall, 872 F.3d 213, 217 n.6 (4th Cir. 2017).

U.S. 1, 27–28 (1983). The federal question “must be disclosed upon the face of the

complaint,” Gully v. First Nat’l Bank, 299 U.S. 109, 113 (1936); see also Vaden v.

Discover Bank, 556 U.S. 49, 59–60 (2009), and merely having a federal defense is not a

basis for federal jurisdiction. Caterpillar Inc. v. Williams, 482 U.S. 386, 392–93 (1987);

Lontz, 413 F.3d at 439.

There is an “independent corollary” to the well-pleaded complaint rule known as

the “complete preemption” doctrine. Caterpillar, 482 U.S. at 393. It applies in those rare

situations where “the pre-emptive force of a statute is so extraordinary that it converts an

ordinary state common-law complaint into one stating a federal claim for purposes of the

well-pleaded complaint rule.” Id. When an area of state law has been completely

preempted, “any claim purportedly based on that pre-empted state law is considered,

from its inception, [to be] a federal claim, and therefore arises under federal law.” Id.;

accord Franchise Tax Bd., 463 U.S. at 24 (same).

VapeCo asserts removal is justified here based on 1) the substantial question of

federal law presented,3 and 2) complete preemption.

A. Substantial Question of Federal Law

This “slim category of cases” where federal jurisdiction exists for a state-law

claim is governed by the Supreme Court’s four-pronged test, which requires that the

3 VapeCo labels one argument with the header: “Significant Federal Questions are Presented

That Give This Court Subject Matter Jurisdiction,” then focuses in relevant part on asserting

complete preemption. Doc. 14 at 6. Its Petition for Removal asserts this Court has subject

matter jurisdiction because the State’s claim “involves interpretation of federal statutes and

regulations with preemptive effect that are of broad public concern,” as well as “federal First

Amendment questions.” Doc. 1 at 4.

federal question must be (1) necessarily raised, (2) actually disputed, and (3) substantial,

“meaning that its resolution is important to the federal system as a whole,” and (4) “the

federal system must be able to hear the issue without disturbing any congressionally

approved balance of federal and state judicial responsibilities.” Burrell v. Bayer Corp.,

918 F.3d 372, 380 (4th Cir. 2019) (quoting Gunn v. Minton, 568 U.S. 251, 260 (2013);

Grable & Sons Metal Prods. v. Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005)).

VapeCo has not satisfied this test. A federal question is “necessarily raised” only

if it is a “necessary element of one of the well-pleaded state claims,” Burrell, 918 F.3d at

381, and VapeCo has not identified any element of a state Chapter 75 claim that is based

on federal law. The only federal question VapeCo has identified in non-conclusory terms

is the preemption issue, which, as an affirmative defense, is not a federal question in this

context. Id. at 386 (“[F]ederal issues that are necessarily raised by a complaint . . . [do]

not include affirmative preemption defenses.”). The State’s complaint alleges unfair or

deceptive acts or omissions in designing packaging, in marketing, and in providing age-

verification techniques, see Doc. 4 at 16, and while these claims may involve federal

standards, “the mere presence of a federal issue in a state cause of action is not enough to

confer [federal] jurisdiction.” Burrell, 918 F.3d at 380 (quoting Merrell Dow Pharms.

Inc. v. Thompson, 478 U.S. 804, 813 (1986)). VapeCo did not address the remaining

factors and has not met its burden to show this case should be removed as presenting a

substantial federal question. See Burrell, 918 F.3d at 386 (Ҥ 1331 confers jurisdiction

only if a case meets all four requirements” of the Supreme Court’s standard).

B. Complete Preemption

A complaint “purporting to rest on state law . . . can be recharacterized as one

‘arising under’ federal law if the law governing the complaint is exclusively federal.”

Vaden, 556 U.S. at 61. The complete preemption doctrine “provides that if the subject

matter of a putative state law claim has been totally subsumed by federal law—such that

state law cannot even treat on the subject matter—then removal is appropriate.” Lontz,

413 F.3d at 439–40.4 As “[f]ederalism concerns strongly counsel against imputing to

Congress an intent to displace a whole panoply of state law absent some clearly

expressed direction,” “[t]he presumption . . . is against finding complete preemption.”

Lontz, 413 F.3d at 440.

For complete preemption to apply, “the preempting statute must not only create a

federal cause of action, but must also show that Congress intended it to provide the

exclusive cause of action for claims of overwhelming national interest.” Lontz, 413 F.3d

at 441 (citing Beneficial Nat’l Bank v. Anderson, 539 U.S. 1, 9, 11 (2003)). “Most

notably, the congressional intent that state law be entirely displaced must be clear in the

text of the statute.” Lontz, 413 F.3d at 441 (citing Metro. Life Ins. Co. v. Taylor, 481 U.S.

58, 65–66 (1987)).

4 Complete preemption should not be confused with “conflict” or “ordinary” preemption: the

former is a jurisdictional doctrine, but the latter may be a federal defense to the allegations and

“simply declares the primacy of federal law, regardless of the forum or the claim.” Lontz, 413

F.3d at 440. Litigation of preemption as a defense may continue in state court even if complete

preemption does not confer federal subject matter jurisdiction. In re Blackwater Sec. Consulting,

LLC, 460 F.3d 576, 589 (4th Cir. 2006).

The Family Smoking Prevention and Tobacco Control Act does not indicate such

intent, and indeed it specifically preserves a state role in regulating tobacco products and

in enforcement: “[N]othing in this subchapter shall be construed to limit the authority of

a State to enact, adopt, promulgate, and enforce any law, rule, regulation, or other

measure with respect to tobacco products that is in addition to, or more stringent than,

requirements established under this subchapter . . . .” 21 U.S.C. § 387p(a)(1) (irrelevant

words and phrases not included, for ease of reading). The preemption provision is

limited to certain subject areas that do not include marketing, 21 U.S.C. § 387p(a)(2)(A),

and it is followed by a saving provision establishing exceptions even in those areas. See

Smokeless Tobacco Mfg. Co., LLC v. City of New York, 703 F. Supp. 2d 329, 344–45

(S.D.N.Y. 2010) (listing several types of local regulations permissible under the saving

clause). Read together, the three provisions—preservation, preemption, and saving—

protect state authority to enforce some laws relating to tobacco products and in no way

indicate that Congress intended to completely preempt state involvement in tobacco

regulation.

Indeed, other federal courts analyzing questions of “ordinary,” rather than

complete, preemption, see note 4 supra, have found the FSPTCA does not preempt

certain state and local regulations. See, e.g., Colgate v. JUUL Labs, Inc., 345 F. Supp. 3d

1178, 1188–90 (N.D. Cal. 2018) (noting plaintiffs’ claim seeking to add required words

to tobacco product packaging was expressly preempted by FSPTCA and “the specificity

of the FDA Rule on labeling,” but that “no aspect of plaintiffs’ claims based on an

allegedly misleading or fraudulent advertising is preempted” by the statute); Nat’l Ass’n

of Tobacco Outlets, Inc. v. City of Providence, No. 12-96-ML, 2012 WL 6128707, at

*12–13 (D.R.I. Dec. 10, 2012) (local regulation of promotional materials was not

preempted); U.S. Smokeless Tobacco Mfg. Co., 703 F. Supp. 2d at 340–41, 347–48

(characterizing the FSPTCA as having “a limited preemptive scope”).

VapeCo points out that the FDA has authority to promulgate regulations about

labelling and package appearance. Doc. 14 at 9–11. Perhaps this fact supports its

argument that the State’s particular claims are preempted,5 but VapeCo cites no case for

the proposition that administrative authority to regulate establishes complete preemption.

And at least one court has held that state action is not necessarily preempted in areas

where the FDA has authority to promulgate regulations but has not yet done so. See U.S.

Smokeless Tobacco Mfg. Co., 703 F. Supp. 2d at 344, 346.

VapeCo has not met its burden to show that the Family Smoking Prevention and

Tobacco Control Act completely preempts all state action. The complete preemption

doctrine does not provide a basis for subject matter jurisdiction.

C. Remand

As there is no substantial federal question and no complete preemption, this Court

does not have subject matter jurisdiction over the State’s state law claims against

VapeCo. Once a district court determines it lacks subject matter jurisdiction in a

removed case, the case “shall be remanded,” and “no other fact-finding, legal analysis, or

exercise of judicial discretion is necessary in order to follow the congressional directive.”

5 The substantive question of whether the FSPTCA preempts the State’s specific claims in

this case is not before the Court, and the Court expresses no opinion on the question.

In re Blackwater Sec. Consulting, LLC, 460 F.3d at 589 (quoting 28 U.S.C. § 1447(c)).

Accordingly, this case will be remanded to North Carolina state court.

D. Attorneys’ Fees and Costs

In remanding the case, the Court “may require payment of just costs and any

actual expenses, including attorney fees, incurred as the result of the removal.” 28 U.S.C.

§ 1447(c). Whether to award such fees and costs is within the trial court’s discretion, but

absent unusual circumstances, the removing party must have “lacked an objectively

reasonable basis for seeking removal” before attorneys’ fees are appropriate. Martin v.

Franklin Capital Corp., 546 U.S. 132, 136, 141 (2005). “The appropriate test for

awarding fees under § 1447(c) should recognize the desire to deter removals sought for

the purpose of prolonging litigation and imposing costs on the opposing party, while not

undermining Congress’ basic decision to afford defendants a right to remove as a general

matter, when the statutory criteria are satisfied.” Id. at 140.

There was no reasonable basis for removal here. The State’s cause of action “does

not involve or depend upon the resolution of a federal question.” Texas, 2016 WL

4718434, at *3. VapeCo asserted two potential federal questions in its Notice of

Removal—federal preemption and the First Amendment—both of which were included

as affirmative defenses in its Answer. Doc. 12. Long-established precedent indicates

affirmative defenses are not “substantial federal questions” that confer federal

jurisdiction. Caterpillar, 482 U.S. at 393 (“[I]t is now settled law that a case may not be

removed to federal court on the basis of a federal defense, including the defense of pre-

emption.”); Burrell, 918 F.3d at 386. Cf. Martin, 546 U.S. at 134, 141 (denying fees

since defendant “relied in part on precedent suggesting” that federal diversity jurisdiction

was satisfied, and lower courts found removal was reasonable). Moreover, the FSPTCA

text—including the preemption provision within a section titled “Preservation of State

and local authority” and sandwiching preemption between two provisions protecting such

authority—indicates that Congress did not intend to remove tobacco regulation entirely

from state enforcement authority; there are numerous cases finding state or local

regulation is not preempted in particular circumstances; and VapeCo cites no case finding

complete preemption by the FSPTCA.

The Court will retain jurisdiction over this matter only as necessary to determine

the amount of fees and costs that VapeCo owes to the State as a result of removal.6 See

Watson v. Charleston Hous. Auth., 83 F. Supp. 2d 709, 711 (S.D. W. Va. 2000) (“a

federal court may consider collateral issues after an action is no longer pending,” such as

awarding fees and costs after the case has been remanded to state court) (quoting Cooter

& Gell v. Hartmax Corp., 496 U.S. 384, 395–96 (1990)); see also Sheppard v. Conway,

No. 3:14-25039, 2015 WL 12839167, at *2 & n.2 (S.D. W. Va. Feb. 10, 2015)

(remanding case to state court and directing plaintiff to file a memorandum and affidavit

specifying costs and expenses incurred as a result of removal).

6 The State may not recover fees and costs that were “incurred coincidentally in conjunction

with the removal of the action” to federal court and would have been incurred anyway in state

court proceedings. Carden v. Wal-Mart Stores, Inc., No. 5:08–0063, 2009 WL 2915075, at *3

(S.D. W. Va. Sept. 4, 2009).

Conclusion

VapeCo has not met its burden to demonstrate removal is justified in this case,

either as a substantial federal question or through complete preemption. This case is

indistinguishable from one in which a defendant asserts preemption as a defense, and

North Carolina state courts are capable of deciding issues of preemption should VapeCo

continue to assert them. As no objectively reasonable basis existed for VapeCo to

remove this case to federal court, the Court will exercise its discretion to award to the

plaintiff reasonable attorneys’ fees and costs associated with the removal.

It is ORDERED that:

1. The State’s motion for remand and for reasonable attorneys’ fees and costs,

Doc. 9, is GRANTED.

2. This matter is hereby REMANDED to the Superior Court of Durham County.

The Clerk shall transmit this Order to the Clerk of Superior Court in Durham

County.

3. If the State wishes to proceed with its request for attorneys’ fees under 28

U.S.C. § 1447(c), the State shall, within 14 days of entry of this Order, provide

information about the time spent on the motion and the expected amount of the

attorneys’ fee request to the defendant, and the parties shall thereafter meet and

confer as to the amount of attorneys’ fees and costs. See L.R. 54.2. If they

agree as to the amount, they are to file an appropriate stipulation and request

for an order no later than December 6, 2019. If they are unable to agree, then

no later than December 6, 2019, the State shall file a separate motion for

attorneys’ fees, accompanied by the written statement of consultation and

motion required by L.R. 54.2, and supported by a declaration or affidavit, time

records, or other evidence documenting costs and expenses incurred as a result

of removal. VapeCo may then file a response and supporting evidence within

7 days after the State’s filing.

4. Remand shall not await disposition of the attorneys’ fee issue. If nothing is

filed on December 6, 2019, the Clerk shall terminate and close the case.

This the 7th day of November, 2019.

Lt oe

UNITED STATES DIS JUDGE

12