Opposition Brief — Philip Morris USA, Inc. v. Minnesota (Nos. 06-633, 06-805)
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No. 06-633 12/7 / 06
In The
Supreme Court of the United States
e
PHILIP MORRIS USA. INC., ET AL...
Petitioners.
STATE OF MINNESOTA,
Respondent.
|
On Petition For A Writ Of Certiorari
To The Minnesota Supreme Court
a
BRIEF FOR THE RESPONDENT IN OPPOSITION
_ +
Mikk Haren
Minnesota Attorney General
BRADFORD S. DELAPENA
Assistant Attorney General
RIDA COYLE DEMEL LES
(Counsel of Record)
Assistant Attorney General
115 Minnesota Street. Suite GOO
St. Paul. MN 55101-2127
(HOLL) 296-0692
AMfforneyvs for Respondent
QUESTION PRESENTED
In 1994, the State of Minnesota brought state common
law and statutory claims against Petitioners in Minnesota
state court. On May 8, 1998, the State and Petitioners
entered into a Settlement Agreement, which contained
mutual release-of-claims provisions. Seven years later, the
Minnesota Legislature enacted legislation that imposed a
fee on all cigarettes. Petitioners invoked the continuing
jurisdiction of the state court over the Settlement Agree-
ment and brought a motion to enforce that Agreement.
Petitioners argued that the Legislature’s fee was a “re-
leased claim” under the Settlement Agreement and conse-
quently could not be enforced against them or their
products without breaching the Agreement and/or violat-
ing the Contract Clauses of the United States and Minne-
sota Constitutions. The State asserted that the fee was a
valid legislative exaction not prohibited by the Settlement
Agreement. Thus, the threshold issue before the state
court was interpretation of the Settlement Agreement. The
Minnesota Supreme Court interpreted the contract under
state law, including the state-law doctrine of unmistak-
ability, and held that it did not surrender the State’s
sovereign legislative powers in language “too clear to
admit of doubt.” Based on that construction, the court
summarily rejected Petitioners’ state Contract Clause
argument, and did not mention the analogous federal
clause. Assuming, however, that the state court resolved
Petitioners’ federal Contract Clause challenge, the ques-
tion presented is whether the Minnesota Supreme Court
properly applied the doctrine of unmistakability in har-
mony with the protecticns afforded by the federal Contract
Clause.
ii
TABLE OF CONTENTS
Page
LION PIRGCOEIN TED.....0.cccccscccscccccccccccosscssocceees i
ge.) ii
cy Ae Gye 0 lay |) Fe ili
OPPOSITION TO PETITION FOR WRIT OF CER-
SEIT OO 1
STATEMENT OF JURISDICTION ....................::0008 1
STATEMENT OF THE CASE ................cccsesecesceseeeees 1
REASONS FOR DENYING THE PETITION ............ 5
I,
II.
III.
Adequate And Independent State Grounds
Support The Minnesota Supreme Court’s De-
cision. The Petition Therefore Fails To In-
voke This Court’s Jurisdiction.....................6
The Minnesota Supreme Court’s Decision
Does Not Conflict With This Court’s Contract
RE UMIIENOD cccsccvccevesccescevensesseecsevenes
A. The Federal Unmistakability Doctrine Is
Part Of This Court’s Contract Clause
a nc ses scesewnntonsoncentees
B. The Minnesota Supreme Court’s Decision
Is Correct And Is In Harmony With This
Court’s Contract Clause Jurisprudence...
This Court Should Decline Review Because
The Present Case Does Not Provide A Vehicle
For Resolving Any Confusion That May Exist
Among The Lower Courts Concerning Appli-
cation Of The Unmistakability Doctrine And
The Meaning Of Winstar
ede laccedehncwsasdeousaccavesencensectesees
13
14
15
ill
TABLE OF AUTHORITIES
Page
CASES
Allied Structural Steel Co. v. Spannaus, 438 U.S.
234 (1978).........4. seeihtiweenielisiaeieedastiendleabtedibaiiieiasdaaidaiaaadida 14
Coleman v. Thompson, 501 U.S. 722 (1991)............eeeee 7,10
Delaware v. Frouse, 440 U.S. 648 (1979) .........cccccccseeeeeeees 10
Enter. Irrigation Dist. v. Farmers’ Mut. Canal Co.,
Ee Ss SIS CT Besvcuvsicnensndcniibtidaiiabeninapginitcctdegisis cum 10
Fox Film Corp. v. Muller, 296 U.S. 207 (1935).......... 8, 9, 10
Gen. Dynamics Corp. v. United States, 47 Fed. Cl.
i Gri incccininsccinnerviceidictslcctdesisesisabisiieniiinianipaitiestiiatiieiiahiniins 29
Gen. Motors Corp. v. Romein, 503 U.S. 181 (1992)........... 11
Herd v. Pitcairn, BB4. UB. 107 (1DEB) .cccecevesecsessevsvccvecessevees 7
Mastrobuono v. Shearson Lehman Hutton, Inc., 514
res Cr GE ccciucihesisiniceciniosssncsiesaiahacandiidethncinssiiaetdmmabibaiddiaicdacitiacanal 7
Memphis Natural Gas Co. v. Beeler, 315 U.S. 649
iii cisicsncdeneiinimnndiaa ticaicuiaseabedeassanidigamantamanlnmetaiamatdans 7,8
Merrion v. Jicarilla Apache Tribe, 453 U.S. 130
Ce cawihnisiiviisiiaitstiniatcnntnineniniiniinendenlinsapiediaiiaseial passim
Michigan v. Long, 463 U.S. 1032 (1983)........ eee 11,12
Mun. Investors Ass’n v. City of Birmingham, 316
CFs Ue CU a cicennesionnsssthideithiicicienndaetnacTbaiapeicimmenanbibammniennstell 11
Murray v. Charleston, 96 U.S. 432 (1877)....... 16, 22, 23, 24
St. Louis v. United R. Co., 210 U.S. 266 (1908)................ 21
State of Indiana ex rel. Anderson v. Brand, 303 U.S.
Ce aiciclensssiseicsineieciibaceciiaeletihidniscncianhadsaibicatnleniddicitinnlidiveiisisn 11
iv
TABLE OF AUTHORITIES - Continued
Page
State v. Great Northern Railway Co., 119 N.W. 202
(Minn. 1908), aff’d, Great Northern Railway Co.
RRs, BIG UE; BOG CI wccecccccctnirnscsvthicecmmenons passim
Tamarind Resort Assocs. v. Gov't of the Virgin
Islands, 138 F.3d 107 (3d Cir. 1998)............ 26, 27, 28, 29
United States Trust Co. v. New Jersey, 431 U.S. 1
SEs ie icdcssinacstedicianerseaed diene chile datdbseinaacana atiptaemecied ae 16
United States v. Winstar Corp., 518 U.S. 839 (1996).... passim
Volt Info. Servs., Inc. v. Bd. of Tr. of Leland Stanford
Junior University, 489 U.S. 468 (1989) 200.0... eeeeeeeeee 7
Yankee Atomic Elec. Co. v. United States, 112 F.3d
1569 (Fed. Cir. 1997), cert. denied, 524 U.S. 951
Sea aisctchchcsesninnsisiniiissiesiiaubeinisstiasatiaidacadailisabansiiasihetelaii 27, 29
STATUTES
ees UD scsccsicitediceicdnencahisnionsinailbchatadaalacines 1, 5, 7, 10
Act of July 14, 2005, ch. 4, art. 4, §§ 1-6, 2005
Minn. Laws (1st Sp. Sess.) 2541-44... eeeeeeeeeeeeeeeeee 3
iy i Oe Se tinrrtidsetiinxesecccnsenccenniecnimdantipnanedinedacens 3
CONSTITUTIONAL PROVISIONS
Rei aig HNN ac 0 Uo nesinececsdcubacdesicotineeianeeatententdeneenas 6, 14
pS | ERR eee ee I SE ES 6
OPPOSITION TO PETITION
FOR WRIT OF CERTIORARI
Respondent State of Minnesota respectfully requests
that the Court deny the Petition for Writ of Certiorari
seeking review of the Minnesota Supreme Court’s opinion
and judgment in this case. The Minnesota Supreme
Court’s opinion is published at 713 N.W.2d 350 (Minn.
2006), and is reproduced in Petitioners’ Appendix (“Pet.
App.”) at Pet. App. la-27a. The trial court’s Order on
Petitioners’ Motion for Enforcement of the Settlement
Agreement, which is unpublished, is reproduced at Pet.
App. 28a-38a.
STATEMENT OF JURISDICTION
Petitioners incorrectly invoke this Court’s jurisdiction
under 28 U.S.C. § 1257(a). The Minnesota Supreme Court
neither addressed nor resolved any federal question.
Instead, the state court applied state law to summarily
reject Petitioners’ state contract clause challenge. Thus, an
adequate and independent state ground supports the
court’s decision and precludes jurisdiction in this Court.
See infra at 6-13.
& piney
STATEMENT OF THE CASE
The State, through its attorney general, brought suit
against Petitioners and others in 1994, asserting state
common law and statutory claims in connection with Peti-
tioners’ marketing and distribution of cigarettes. Pet. App.
3a, 50a, 97a. In May 1998, after a lengthy trial but before the
jury returned a verdict, the State and Petitioners entered
into a Settlement Agreement to resolve the State’s legal
claims. Pet. App. 96a. Among other benefits, that Agree-
ment resolved “all claims” between the State and Petition-
ers. Pet. App. 107a. The term “claims” was defined as
follows:
(T]he State of Minnesota shall release and for-
ever discharge [Petitioners] ... from any and all
manner of civil claims, demands, actions, suits
and causes of action, damages whenever in-
curred, liabilities of any nature whatsoever, in-
cluding civil penalties, as well as costs, expenses
and attorneys’ fees, known or unknown, sus-
pected or unsuspected, accrued or unaccrued,
whether legal, equitable or statutory (“Claims”)
that the State of Minnesota (including any of its
past, present or future administrators, represen-
tatives, employees, officers, attorneys, agents,
representatives, officials acting in their official
capacities, agencies, departments, commissions,
and divisions, and whether or not any such per-
son or entity participates in the settlement),
whether directly, indirectly, representatively, de-
rivatively or in any other capacity, ever had, now
has or hereafter can, shall or may have, as fol-
lows:
for past conduct, as to any Claims relating
to the subject matter of this action... ; and
for future conduct, only as to monetary
Claims directly or indirectly based on, aris-
ing out of or in any way related to, in whole
or in part, the use of or exposure to Tobacco
Products manufactured in the ordinary
course of business, including without limita-
tion any future claims for reimbursement for
3
health care costs allegedly associated with
use of or exposure to Tobacco Products.
Pet. App. 107a-08a (emphasis added).
Seven years later, on July 14, 2005, Minnesota’s
governor signed into law a Tobacco Health Impact Fee
elrective August 1, 2005. See Act of July 14, 2005, ch. 4,
art. 4. §§ 1-6, 2005 Minn. Laws (lst Sp. Sess.) 2541-44
(codified at Minn. Stat. § 256.9658) (“the HIF Act”). Pet.
App. 43a-44a. The HIF Act imposes a 75-cent per-pack fee
on cigarettes. Pet. App. 43a. Minnesota law requires this
fee to be passed on to the consumer. Pet. App. 9a. In
enacting the HIF Act, the legislature stated that the
purpose of the fee was to “recover for the state health costs
related to or caused by tobacco use and to reduce tobacco
use, particularly by youths.” Pet. App. 43a.
On August 26, 2005, Petitioners moved to enforce the
Settlement Agreement in the Minnesota state district
court that retained jurisdiction over that Agreement. Pet.
App. 89a, 98a. Petitioners argued that, because the Set-
tlement Agreement released them (and their distributors)
from any and all “claims” to recover state healthcare costs
attributable to tobacco use, enforcement of the HIF
breached the Agreement and violated the Contract
Clauses of the United States and Minnesota Constitutions.
Pet. App. 9la-92a. The State opposed the Motion arguing
that, properly construed, the Agreement does not bar
collection of the HIF. Respondent’s Appendix (“Resp. App.”)
46a. The state district court found-the HIF Act barred by
the Settlement Agreement and granted Petitioners’ Mo-
tion. Pet. App. 29a-30a.
The State petitioned for review in the Minnesota
Supreme Court, arguing that the Settlement Agreement
4
released only adjudicatory claims and did not prohibit
future legislation. Resp. App. 49a-50a. Any other construc-
tion, the state argued, would limit the state’s sovereign
powers and, under state law, such a waiver would have to
be set forth in terms “too clear to admit of doubt.” Resp.
App. 49a. Once the Agreement was properly construed
under state law, the State argued, there was no violation
of the Settlement Agreement and no impairment under
the Contract Clause. Resp. App. lla-12a, 20a-22a, 50a-
51a.
In an Order dated May 16, 2006, the Minnesota
Supreme Court first found that Petitioners do not bear the
economic burden of the HIF Act, even though one of the
express purposes of the Act is recover healthcare costs of
the State. Pet. App. 8a-9a. Next, the court recognized that
construing the release language with the breadth Peti-
tioners urged would work a surrender of sovereign power.
Thus, the court concluded that the state law doctrine of
unmistakability announced in State v. Great Northern
Railway Co., 119 N.W. 202 (Minn. 1908), aff’d, Great
Northern Railway Co. v. State, 216 U.S. 206 (1910) ap-
plied. Pet. App. 14a, 21a. Concluding that the Agreement
did not surrender the State’s sovereign power in terms “too
clear to admit of doubt,” the Minnesota court summarily
rejected Petitioners’ state Contract Clause challenge. Pet.
App. 24a-25a. No other constitutional challenge, state or
federal, was considered or resolved in the Minnesota
Supreme Court’s decision.
5
REASONS FOR DENYING THE PETITION
The Petition does not present a proper occasion for
this Court to assert jurisdiction. The Minnesota Supreme
Court applied state law doctrines of contract construction
to determine that the Agreement did not preclude the
state from imposing the fee on Petitioners’ products. The
court rejected Petitioners’ broad reading of the Agreement
and then summarily rejected their state constitutional
challenge. The court neither addressed nor resolved a
federal question. Thus, the jurisdiction that Petitioners
invoke under 28 U.S.C. § 1257(a) does not exist.
Second, the Minnesota Supreme Court correctly
recognized that the unmistakability doctrine — state and
federal — protects state regulatory powers from undue
restriction by the Contract Clauses. Thus, even if the court
had applied the federal doctrine, it would have done so
correctly and in a manner that preserves the protections of
the federal Contract Clause.
Third, Petitioners inaccurately portray the lower
courts’ application of the principles drawn from the plural-
ity opinions in United States v. Winstar. As have two
federal circuit courts, the Minnesota Supreme Court
correctly recognized that on factual situations such as
those presented here, the doctrine is properly applied to
proprietary contracts. Any uncertainty that Petitioners
perceive concerning application of the unmistakability
doctrine stems from issues that are not presented by this
case; thus, any clarification urged by Petitioners would be
purely advisory as it would not apply to the facts pre-
sented.
6
I. ADEQUATE AND INDEPENDENT STATE
GROUNDS SUPPORT THE MINNESOTA SU-
PREME COURT’S DECISION. THE PETITION
THEREFORE FAILS TO INVOKE THIS COURT’S
JURISDICTION.
The Minnesota Supreme Court construed a settlement
agreement governed by Minnesota state law that was
executed to resolve Minnesota state law claims brought in
Minnesota state court. See Pet. App. 96a-97a, 119a. Once it
did so, the court summarily rejected Petitioners’ argument
that the HIF Act violated “the Contract Clause of the
Minnesota Constitution, Minn. Const. art. I, § 11.” Pet.
App. 24a." In rendering its decision, the Minnesota Su-
preme Court applied state law rules of contract construc-
tion including the rule of construction from State v. Great
Northern Railway, 119 N.W. 202 (Minn. 1908), the federal
analogue of which was explicated by this Court in United
States v. Winstar Corp., 518 U.S. 839 (1996), to reject
Petitioners’ interpretation of the Agreement. See Pet. App.
2la (noting that language of Settlement Agreement did
not meet the state law rule of Great Northern Railway). In
short, the Minnesota Supreme Court addressed and
resolved a state law question by applying state law, even
though it also discussed an analogous federal decision.
Because the Minnesota Supreme Court did not address or
decide any federal question, this Court does not have
jurisdiction.
* Petitioners also challenged the HIF Act under Article I, § 10,
clause 1 of the United States Constitution. See Pet. App. 92a. As
explained infra, however, the Minnesota Supreme Court specifically
and plainly addressed only the Minnesota Constitution’s prohibition
against contract impairment. Petitioners raised no other federal
challenges.
Section 1257 constrains this Court’s review of the final
judgment of a state court. See 28 U.S.C. § 1257(a). It is
axiomatic that this Court will not review a state court
decision unless a federal question has been raised and
decided by that court. See Coleman v. Thompson, 501 U.S.
722, 729 (1991) (“This Court will not review a question of
federal law decided by a state court if the decision of that
court rests on a state law ground that is independent of
the federal question and adequate to support the judg-
ment.”); Herb v. Pitcairn, 324 U.S. 117, 125 (1945) (“This
Court from the time of its foundation has adhered to the
principle that it will not review judgments of state courts
that rest on adequate and independent state grounds.”).
The reason for this rule is “so obvious that it has rarely
been thought to warrant statement.” Herb, 324 U.S. at
125. “Because this Court has no power to review a state
law determination that is sufficient to support the judg-
ment, resolution of any independent federal ground for the
decision could not affect the judgment and would therefore
be advisory.” Coleman, 501 U.S. at 729; see also Herb, 324
U.S. at 126 (noting that this Court’s jurisdiction is limited
to correcting state court judgments that “incorrectly
adjudge federal rights”).
The longstanding restraint on this Court’s jurisdiction
over state court judgments bars granting this Petition.
The Settlement Agreement is governed by, and was con-
strued under, Minnesota law. See Pet. App. 119a. The
“interpretation of private contracts is ordinarily a question
of state law, which this Court does not sit to review.”
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S.
52, 60, n.4 (1995) (quoting Volt Info. Servs., Inc. v. Bd. of
Tr. of Leland Stanford Junior University, 489 U.S. 468,
474 (1989)); see also Memphis Natural Gas Co. v. Beeler,
8
315 U.S. 649, 654 (1942) (noting that “meaning and effect
of contract” are “local questions” which this Court does not
review). Here, the Minnesota Supreme Court applied
state law, first to construe the HIF Act, see Pet. App. 8a-9a;
and then to construe the Settlement Agreement language.
See Pet. App. 21a (noting commonality of language used in
release provision); id. at 22a-23a (construing language in
light of Minnesota’s cigarette pricing scheme).’
The construction the Minnesota Supreme Court
reached obviated the need to reach Petitioners’ state or
federal Contract Clause arguments. See Fox Film Corp. v.
Muller, 296 U.S. 207 (1935). In Fox Film, the Minnesota
Supreme Court construed contracts that admittedly
violated federal antitrust laws to determine whether the
illegal clause could be severed from those contracts. Jd. at
208-09. After the court rejected severance, thus invalidat-
ing the contracts, the plaintiff petitioned this Court,
asserting that the federal antitrust question was decided
as part of the contract construction. Jd. at 209. This Court
disagreed:
* While the decision in Memphis Natural Gas suggested that a
state court’s decision on state law could be reviewed if that law was
used to evade federal law, 315 U.S. at 654, Petitioners do not allege, nor
could they, that the Minnesota Supreme Court addressed the state
constitutional] claim only as a means to evade the federal constitutional
claim.
* Petitioners thus have no basis for their blithe assertion that, “If
the unmistakability doctrine had not been applied below, the [HIF Act)
indisputably would have been found to impair the settlement agree-
ment.” Pet. at 15. In addition to plain meaning construction, the State
and amicus provided the Court with several alternative state law
grounds on which Petitioners’ arguments to avoid the HIF could be
rejected. See Resp. App. 24a-25a, 68a-85a, 106a-115a.
9
The construction put upon the contracts did not
constitute a preliminary step which simply had
the effect of bringing forward for determination
the federal question, but was a decision which
automatically took the federal question out of the
case if otherwise it would be there. The nonfed-
eral question in respect of the construction of the
contracts and the federal question in respect of
their validity under the Anti-Trust Act were
clearly independent of one another. The case, in
effect, was disposed of before the federal question
said to be involved was reached. A decision of
that question then became unnecessary; and
whether it was decided or not, our want of juris-
diction is clear.
Id. at 211 (citations omitted).
Here, the Minnesota court’s “nonfederal” contract
construction established that the terms of the Agreement
were not implicated by the HIF Act. This construction
allowed the court to summarily reject Petitioners’ state
constitutional challenge without analysis. See Pet. App.
24a-25a (“Because we construe the settlement agreement
not to waive the legislature’s authority to enact future
legislative revenue measures to recover health care costs,
the enactment of the [HIF] did not impair that agreement
and therefore did not violate the [Minnesota] Coniract
Clause.”). The court’s construction likewise obviated any
need to address Petitioners’ federal Contract Clause
argument. Consequently, the federal constitutional chal-
lenge asserted in the trial court — which was neither
addressed nor resolved by the Minnesota Supreme Court —
was “automatically . . . out of the case if otherwise it would
10
be there” based on the nonfederal contract construction.
Fox Film Corp., 296 U.S. at 211."
For this reason, Petitioners’ assertion that the Minne-
sota Supreme Court reviewed a federal question simply
because Petitioners asserted it is wrong. See Pet. at 8, n.2
citing Delaware v. Prouse, 440 U.S. 648 (1979). In Dela-
ware, the state court began with the federal constitutional
claim, “analyzed the various decisions interpreting the
Federal constitution, concluded that the Fourth Amend-
ment [was infringed], and summarily held that the State
Constitution was therefore also infringed.” Jd. at 652-53.
The lower court’s decision thus “depended upon [its] view
of the reach of the Fourth and Fourteenth Amendments.”
Id. at 653.
Review in this Court was therefore proper. Accepting
jurisdiction in this case merely because Petitioners as-
serted a federal claim, in contrast, would disregard the
limitations of Section 1257 and undermine the adequate
and independent state grounds rule. Indeed, the Court has
already rejected this unrestricted view of federal question
jurisdiction. See Enter. Irrigation Dist. v. Farmers’ Mut.
Canal Co., 243 U.S. 157, 165 (1917) (dismissing for “want
of jurisdiction” even though federal constitutional chal-
lenges were part of case, where state law issues were
addressed separately and this Court was “not at liberty to
inquire whether the ruling is right or wrong”).
* The state and federal contracts clauses are interpreted similarly.
See Pet. at 8, n.2. Thus, the Minnesota court’s decision would not
change even if the federal claim was treated similarly, i.e., summarily
rejected. See Coleman, 501 U.S. at 729 (noting that independent federal
ground “that could not affect the judgment” does not support jurisdic-
tion).
11
Likewise, this Court has no need to determine the
contract terms to which the federal Contract Clause might
apply. This Court assumes jurisdiction to decide the
existence and terms of a contract only when a state court
addresses and resolves a federal Contract Clause claim.
See Gen. Motors Corp. v. Romein, 503 U.S. 181, 187 (1992)
(noting that existence of contract is a federal question for
purposes of contract impairment claim asserted under
federal constitution); Mun. Investors Ass’n v. City of
Birmingham, 316 U.S. 153, 157 (1942) (noting this Court’s
obligation “to determine for itself the basic assumptions
upon which interpretations of the Federal Constitution
rest”); State of Indiana ex rel. Anderson v. Brand, 303 U.S.
95, 98-99 (1938) (lower court admitted that constitutional
claim was_based on federal constitution, thus supporting
Court’s jurisdiction to determine the terms of the con-
tract). Since the Minnesota court summarily rejected only
a state constitutional challenge, an adequate and inde-
pendent state ground precludes this Court’s jurisdiction.
The Minnesota Supreme Court’s state law resolution
is also adequate and independent notwithstanding that
court’s discussion of United States v. Winstar Corp., 518
U.S. 839 (1996). The Minnesota Supreme Court relied on
Winstar “as it would on the precedents of all other jurisdic-
tions|.]” Michigan v. Long, 463 U.S. 1032, 1040 (1983). It
decided the contract construction issue, however, exclu-
sively by reference to state doctrine: “We cannot say that
the language of the settlement agreement effects such a
waiver of the state’s sovereign powers in language ‘too
clear to admit of doubt.’” Pet. App. 21a (quoting Great N.
12
Ry. Co., 119 N.W. at 205).° Thus, even if this Court were to
conclude, as Petitioners urge, that Winstar’s plurality
opinions should be clarified, such an effort would be purely
advisory as it would have no effect below. The Minnesota
Supreme Court could reach the same decision by once
again construing the contract under the state law unmis-
takability doctrine from Great Northern Railway.
Finally, there is an additional reason to decline
review. The State argued below that because the Agree-
ment resolved only common law and statutory claims the
State had asserted in its proprietary capacity, the Agree-
ment’s boilerplate release-of-claims provision was simply a
conventional promise not to sue, and could not reasonably
be construed as a surrender of sovereign power. See Resp.
App. 52a-58a. The state court adopted this reasoning in
part. See Pet. App. 19a (“we cannot help but note that the
phrase ‘liabilities of any nature whatsoever’ (or similar
language) is commonly used in general release forms in
disputes having nothing to do with any sovereign power.”).
Although this construction of the Agreement would have
been sufficient to resolve the case, the state court applied
the Minnesota unmistakability doctrine in an abundance
of caution, determining that even if the release provision
were somehow ambiguous, it could not surrender sover-
eign power. See Pet. App. 2la. The concurring Justice,
however, found no need to apply the doctrine:
* The absence of a statement disclaiming any federal basis for the
state court’s decision, see Long, 463 U.S. at 1040, does not require this
Court to assume jurisdiction. The federal constitution was not men-
tioned in the decision below. In Long, in contrast, the state court “relied
exclusively on its understanding” of federal law and “not a single state
case was cited.” Jd. at 1043.
13
I read the settlement agreement and its release
of “claims” to unambiguously cover no more than
the claims the state brought or could have
brought against [Petitioners] in the 1994 tobacco
litigation or could bring in future litigation. Im-
position of the Health Impact Fee does not create
such a “claim.” Therefore, I would hold that un-
der the unambiguous language of the settlement
agreement, imposition of the Health Impact Fee
did not violate the settlement agreement.
Pet. App. 27a (footnote omitted) (Page, J., specially concur-
ring). If this Court agreed with this reasoning, it would
have no occasion to apply the unmistakability doctrine,
federal or otherwise, and thus could not clarify federal law.
Cf. Winstar, 518 U.S. at 880, n.24 (1996) (noting that
doctrine may not be applicable where “normal rules of
construction” may dispose of proposed construction).
Because the Petition presents no federal question, it
should be dismissed.
Il, THE MINNESOTA SUPREME COURT'S DECI-
SION DOES NOT CONFLICT WITH THIS
COURT’S CONTRACT CLAUSE JURISPRU-
DENCE.
Petitioners claim that by applying the unmistakability
doctrine, the Minnesota Supreme Court deviated from this
Court’s Contract Clause jurisprudence. This is plainly
incorrect. The unmistakability doctrine developed as a
part of this Court’s Contract Clause jurisprudence, and in
no way vitiates the protection federal law affords con-
tracts. Although the state court applied Minnesota’s
version of the doctrine, that application is fully consistent
with this Court’s application of the federal doctrine.
14
A. The Federal Unmistakability Doctrine Is
Part Of This Court’s Contract Clause Ju-
risprudence.
The Contract Clause provides that, “No State shall...
pass any ... Law impairing the Obligation of Contracts.”
U.S. Const., art. I, §10. The Cleuse limits state power
“when its exercise effects substantial modifications of
private contracts.” Allied Structural Steel Co. v. Spannaus,
438 U.S. 234, 244 (1978) (emphasis added). As relevant
here, a state may not enter a contract, then use its legisla-
tive power to substantially modify contractual obligations.
The federal unmistakability doctrine developed as a
part of this Court’s Contract Clause jurisprudence “to
protect state regulatory powers.” United States v. Winstar
Corp., 518 U.S. 839, 874 (1996) (plurality opinion). “Al-
though [the Contract] Clause made it possible for state
legislatures to bind their successors by entering into
contracts, it soon became apparent that such contracts
could become a threat to the sovereign responsibilities of
state governments.” Jd. Thus, the unmistakability doctrine
is a canon of construction that rejects “implied governmen-
tal obligations in public contracts,” id. at 874, thereby
limiting the extent to which the Contract Clause curtails
state powers.
Under this rule that all public grants are strictly
construed, we have insisted that nothing can be
taken against the State by presumption or i” /er-
ence, and that neither the right of taxation, nor
any other power of sovereignty, will be held... to
have been surrendered, unless such surrender
has been expressed in terms too plain to be mis-
taken.
15
Id. at 874-75 (ellipsis in original) (internal quotation
marks and citations omitted). Because the unmistakability
doctrine construes contracts to protect state regulatory
powers, its applicability “turns on whether enforcement of
the contractual obligation alleged would block the exercise
of a sovereign power. ...” Jd. at 879.
B. The Minnesota Supreme Court’s Decision
Is Correct And Is In Harmony With This
Court’s Contract Clause Jurisprudence.
As already noted, the Minnesota Supreme Court
applied the unmistakability doctrine as a matter of state
law rather than federal law. See supra at 6-12. But even if
the state court had applied the federal doctrine, its appli-
cation would be correct and in perfect harmony with this
Court’s Contract Clause jurisprudence.
From the start, Petitioners have alleged that the
provision of the Settlement Agreement by which the State
released all of its past, present and future “claims” (the
“State’s Release”) prevents the Minnesota Legislature from
imposing on Petitioners, and the Revenue Department
from enforcing against them, the 75-cent per-pack HIF on
Petitioners’ products.’ Attempting to avoid application of
* See, e.g., Pet. App. 10a (Petitioners “argue that the imposition of
the fee violates the settlement agreement”); id. at 12a (Petitioners
assert the HIF “cannot be enforced against them, or, apparently, their
products”); id. at 18a (Petitioners “argue that the consequence of the
promise made by the state is that the exercise of sovereign power by the
legislature is unenforceable as to them and their products”); id. (“the
very relief [Petitioners] seek requires the state either to exempt
[Petitioners] from the exercise of the state’s sovereign powers to tax and
to regulate, or to surrender those powers with respect to the cigarette
industry altogether”).
16
the unmistakability doctrine, Petitioners asserted —
without authority — that the doctrine does not apply to
contracts a state enters in its proprietary capacity, such as
the Settlement Agreement. The state court rejected this
argument. See Pet. App. 16a, n.5. In line with this Court’s
cases, the state court properly held that application of the
doctrine instead turns on the nature of the government’s
obligations “and the consequences of enforcing them.” Jd.
Accordingly, the state court concluded that “to construe
the settlement agreement as [Petitioners] urge, that is, to
waive the legislature’s authority to enact revenue meas-
ures to recover tobacco-related health care costs, would be
a surrender of the legislature’s sovereign power.” Pet. App.
14a. The court correctly determined that Petitioners’
allegations implicated the doctrine. See Pet. App. 14a, 20a.
" Petitioners’ assertion that the unmistakability doctrine does not
apply to contracts a state enters in its proprietary capacity is plainly
incorrect, and is unsupported by any of the authorities Petitioners cite.
See Pet. at 11-15 & nn.4-5. First, this Court has applied the doctrine to
proprietary contracts. See infra at 19-21 (discussing Merrion v. Jicarilla
Apache Tribe, 453 U.S. 130 (1982)). Second, the two cases Petitioners
discuss at length, Murray v. Charleston, 96 U.S. 432 (1877) and United
States Trust Co. v. New Jersey, 431 U.S. 1 (1977) show only that some
Contract Clause cases involving proprietary contracts do not require
application of the unmistakability doctrine (because the plaintiff does
not allege that the disputed contract surrenders sovereign power, but
only that legislative power was used to modify a contractual obligation).
See 96 U.S. at 444-45; 431 U.S. at 23-24. These cases neither hold nor
suggest that the doctrine does not apply to proprietary contracts.
Finally, Petitioners’ assertion is not supported by cases stating the
general rule that government contracts are interpreted and construed
like private contracts. See Pet. at 14. The unmistakability doctrine is an
exception to the general rule, and applies whenever enforcement of a
government obligation would impair a state’s sovereign power. See
Winstar, 518 U.S. at 879; id. at 920-21 (Scalia, J., concurring in the
judgment).
17
The state court correctly applied the doctrine. The
court recognized that it must “examine the language of the
[State’s Release] to determine not just whether it supports
a waiver of the legislature’s power to enact future revenue
measures expressly intended to address the costs of
tobacco-related health care, but whether it does so in
unmistakable terms.” Pet. App. 20a. The court stated that
in doing so, it was
guided by the principles of construction stated in
Great Northern Railway and Winstar. We are not
to draw inferences from indefinite language or
make presumptions from uncertain language.
Great N. Ry. Co., 106 Minn. at 322, 119 N.W. at
205; Winstar, 518 U.S. at 874, 116 S.Ct. 2432.
Rather, the settlement agreement is to be strictly
construed, and any waiver of sovereign power
must be “in language and terms too clear to ad-
mit of doubt.” Great N. Ry. Co., 106 Minn. at 322,
119 N.W. at 205; see also Winstar, 518 U.S. at
874, 116 S.Ct. 2432.
Pet. App. 20a. These principles fully conform to Winstar.*
The state court applied the doctrine’s rule of strict
construction to the State’s Release and concluded that it
did not surrender the state’s sovereign police or taxing
powers. See Pet. App. 21a. The court set forth its reasoning
as follows:
Application of the unmistakability doctrine com-
pels the conclusion that the settlement agreement
* Moreover, the structure of the state court’s citations confirms that
the court was applying the state version of the unmistakability doctrine
set forth in Great Northern Railway, although it also drew support by
analogy from the federal version of the doctrine elaborated in Winstar.
18
cannov ve construed to waive the legislature’s
sovereign authority under the tax and police
powers to enact revenue measures, even if ear-
marked for payment of tobacco-related health
care costs. We cannot say that the language of
the settlement agreement effects such a waiver
of the state’s sovereign powers in language “too
clear to admit of doubt.” Great N. Ry. Co., 106
Minn. at 322, 119 N.W. at 205. Although the
phrase “liabilities of any nature whatsoever” is
broad, it is insufficiently specific to meet the re-
quirements of the unmistakability doctrine. The
language mentions neither the police nor the tax-
ing power. Nor does the language expressly
waive the state’s right to impose future taxes or
fees on [Petitioners] or their products, or ex-
pressly waive the state’s right to further regulate
the cigarette industry in the future.
Pet. App. 21la.° This reasoning is fully consistent with
Winstar. See 518 U.S. at 878-79.
Confronted with Petitioners’ claim that the Settlement
Agreement surrendered state sovereign powers, the state
court strictly construed relevant contract provisions and
determined that they worked no such surrender. The court
accordingly concluded that the Agreement did not “pre-
clude legislative enactment of revenue measures directed
at recovering future tobacco-related health care costs
generally or the Health Impact Fee in particular.” Pet.
App. 24a. The state court’s construction of the Agreement
obviated the need to reach or analyze Petitioners’ state or
* The full text of the State’s Release quoted in this excerpt (“liabili-
ties of any nature”) is in Petitioners’ appendix. See Pet. App. 10a; see
also supra at 2-3.
19
federal contract clause arguments. See Pet. App. 19a, n.6
(“the unmistakability doctrine serves the dual purposes of
limiting contractual incursions on a State’s sovereign
powers and of avoiding difficult constitutional questions
about the extent of State authority to limit the subsequent
exercise of legislative power. It serves both of those salu-
tary purposes here.... ”) (internal quotation marks and
citation omitted).”°
In addition to being manifestly correct, the state
court’s decision is fully consistent with this Court’s Con-
tract Clause jurisprudence. Most importantly, the state
court’s decision here does not — as Petitioners wrongly
assert — allow states to breach contracts that are found not
to surrender sovereign powers. See, e.g., Pet. at 10, 16 (so
alleging).
A brief discussion focusing on two of this Court’s cases
is sufficient to illustrate the point. In the first case, Mer-
rion v. Jicartila Apache Tribe, 455 U.S. 130 (1982), the
Court considered whether long-term mineral leases
between the Jicarilla Apache Tribe and non-Indian petro-
leum producers precluded the Tribe from later imposing a
severance tax on petroleum produced by the lessees. Jd. at
133. Twenty-one non-Indian petroleum producers (“les-
sees”) entered into proprietary mineral leases with the
Tribe granting them “‘the exclusive right and privilege to
"In addition to the Contract Clause challenges, the Minnesota
Supreme Court was confronted with constitutional issues involving the
separation of powers and the Minnesota Constitution’s express prohibi-
tion against contracting away the taxing power. Resp. App. 66a-69a.
The Governor, as amicus, also asserted that Petitioners’ proposed
constructions implicated state constitutional limits on the state
attorney general’s authority to contractually restrict the state’s future
exercise of sovereign powers. See Resp. App. 99a-105a.
20
drill for, mine, extract, remove, and dispose of all the oil
and natural gas deposits in or under’ the leased land.... ”
Id. at 135; see also id. at 145 (noting “the Tribe’s role as
commercial partner” in leases); id. at 146 (characterizing
the leases as “the sovereign’s commercial agreements”).
The Tribe subsequently passed an ordinance “imposing a
severance tax on oil and gas produced on tribal land.” Jd.
at 135-36. The lessees “sought to enjoin enforcement of the
tax by either the tribal authorities... .” Jd. at 136. The
federal district court permanently enjoined enforcement of
the tax, but the court of appeals reversed. Jd. This Court
affirmed.
The Court concluded that the absence of any reference
to taxation in the leases did not impair the Tribe’s taxing
authority.” The Court explained that “[clontractual ar-
rangements remain subject to subsequent legislation by
the presiding sovereign,” id. at 147 (citations omitted), and
that “sovereign power, even when unexercised, is an
enduring presence that governs all contracts subject to the
sovereign’s jurisdiction, and will remain intact unless
surrendered in unmistakable terms.” Id. at 148. The Court
emphasized that this subsisting sovereign authority is
unaffected by proprietary agreements: “Even where the
contract at issue requires payment of a royalty for a
license or franchise issued by the governmental entity, the
government’s power to tax remains unless it ‘has been
specifically surrendered in terms which admit of no other
" The Court first concluded that the Tribe’s inherent authority to
impose the severance tax was not affected by the Tribe’s status as the
lessor of mineral rights. “The mere fact that the government imposing
the tax also enjoys rents and royalties as the lessor of the mineral lands
does not undermine the government’s authority to impose the tax.” /d.
at 138.
21
reasonable interpretation.’” Jd. at 148 (quoting St. Louis v.
United R. Co., 210 U.S. 266, 280 (1908)). Applying the
unmistakability doctrine, the Court pointedly refused to
infer waiver of the Tribe’s taxing power from silence. “To
presume that a sovereign forever waives the right to exercise
one of its sovereign powers unless it expressly reserves the
right to exercise that power in a commercial agreement
turns the concept of sovereignty on its head.... ” Id. at
148.”
Merrion confirms that the Minnesota court’s decision
is consistent with this Court’s application of the unmis-
takability doctrine. See Winstar, 518 U.S. at 876-77 (dis-
cussing this Court’s cases applying the doctrine, including
Merrion). Here, as in Merrion, a government entity en-
tered into a proprietary agreement with private parties.
Like the leases in Merrion, the Settlement Agreement in
this case is silent about the state’s taxing power. As did
this Court in Merrion, the state court in this case applied
the unmistakability doctrine and refused to infer a waiver
of sovereign power from silence or ambiguity. In both
cases, the unmistakability doctrine served its intended
purposes of protecting government regulatory authority
“and of avoiding difficult constitutional questions about
” Petitioners seek this very inversion, for they suggest that a state
must — even when entering proprietary agreements — expressly reserve
the power to legislate. See Pet. at 10 (challenging state’s right to enact
legislation “that is not expressly and specifically barred by the con-
tract”). As Winstar noted, however, the dispositive question for unmis-
takability purposes is not whether the contract reserves sovereign
power; it is instead whether the contract unmistakably waives such
power. See 518 U.S. at 877-78.
22
the extent of state authority to limit the subsequent
exercise of legislative power.” Winstar, 518 U.S. at 875.”
Murray v. Charleston demonstrates the more general
proposition that a state never has the power to breach its
contracts, proprietary or otherwise. This Court held in
Murray that the Contract Clause prohibited the City of
Charleston from using legislative power to reduce the
interest rate it had previously promised to pay to holders
of municipal stock certificates. 96 U.S. 432, 444 (1877)
In Murray, the City of Charleston issued municipal
- stock certificates that provided for payment by the city of
principal plus six percent interest. Jd. at 439. The city
later passed ordinances: (a) imposing a two-percent tax on
real and personal property, and (b) ordering the city
treasurer to pay four rather than six percent interest to
stockholders, purportedly as a means of colle.ving the two-
percent tax. Jd. Plaintiff Murray brought an action under
the Contract Clause complaining “that the city has not
fully performed its contracts according to their terms, that
it has paid only four per cent interest instead of six per
cent, which it promised to pay....” Jd. at 442. The city
responded that it “possessed the power of taxation when
the contracts were made, that by the contracts the city did
not surrender this power, that, therefore, the contracts
were subject to its possible exercise, and that the city
ordinances were only an exertion of it.” Id. at 444.
" Although the original purpose of the unmistakability doctrine
was “avoidance” of Contract Clause issues, the Court has since applied
‘the doctrine to avoid addressing limitations on government authority
“jndependent of the Contract Clause.” See Winstar, 518 U.S. at 875-76.
23
The Court framed the issue as whether the ordinances
“did impair the obligation of the city’s contract with the
plaintiff.” Jd. at 443. The Court noted that “[t]he sclution
of this question depends upon a correct understanding of
what that obligation was.” Jd. The Court found that the
city had undertaken to pay plaintiff six percent interest,
and that the contract “contained no reservation or restric-
tion of the duty described.” Jd. The ordinances, however,
purported to reduce the interest rate payable by the city
from six to four percent. Jd. Finding a “manifest” impair-
ment of the city’s payment obligation, id., the Court
invalidated the ordinances under the Contract Clause. Jd.
at 448.
Importantly, the Court did not “question the existence
of {the city’s] power to levy taxes as claimed, nor the
subordination of contracts to it....” Id. at 444. The issue,
however, was not whether the city could levy the property
tax, but was instead whether it could use legislative
authority to alter its contractual obligation to pay stock-
holders six percent interest. The Court strongly affirmed
the citys power to levy the property tax and collect it in
the normal manner, holding that the city
may undoubtedly tax any of its creditors within
its jurisdiction for the debt due to him, and regu-
late the amount of the tax by the rate of interest
the debt bears, if its promise be left unchanged. A
tax thus laid impairs no obligation assumed. It
leaves the contract untouched.
Id. at 445. The city could not, however, use its taxing
power to “convert its undertaking to pay a debt bearing six
per cent interest into one bearing only four.” Id. at 447.
Under the Contract Clause, the city could not “by its own
ordinances, under the guise of taxation, relieve itself from
24
performing to the letter all that it has expressly promised
to its creditors.” Jd. at 448."
The state court’s decision in this case is consistent
with Murray, and does not allow states to breach con-
tracts, proprietary or otherwise. As in Murray, the state
court began its state Contract Clause analysis by deter-
mining the exact nature of the contractual obligation in
question. See Pet. App. 9a. As in Murray, the state court
recognized that contracts generally remain subject to a
sovereign’s taxing and police powers. See Pet. App. 14a-
16a. And as in Murray, the court determined whether the
state’s obligation had been impaired by the subsequent
exercise of legislative power. See Pet. App. 24a-25a. Al-
though this Court invalidated the ordinances in Murray,
whereas the state court upheld the HIF, this does not
mean that the state court was unwilling to enforce the
Contract Clause. It shows only that no contractual obliga-
tion undertaken by the state was impaired by imposition
of the HIF.
Petitioners’ assertion that this decision “conflicts with
nearly 130 years of this Court’s Contract Clause prece-
dent,” Pet. at 10, reflects a misunderstanding of both that
precedent and the unmistakability doctrine’s part therein.
Although the states in both Merrion and Murray retained
all of their sovereign powers, neither state was allowed to
use those powers to breach contracts. Here, likewise, the
State’s retention of sovereign powers does not confer
“ Petitioners wrongly assert that the City of Charleston breached
its contract “by levying a tax.” See Pet. at 12. This is plainly incorrect.
The Murray Court made clear that the city could levy and collect the
tax without violating its contract, so long as the city honored its
contractual obligation to pay stockholders six percent interest before
attempting to collect the tax. See 96 U.S. at 445-46.
25
authority to breach the Agreement. In any event, Petition-
ers’ claim rests firmly on the erroneous theory that the
State of Minnesota failed to retain its sovereign powers, a
theory expressly rejected by the unmistakability doctrine.
The Contract Clause prevents states from using
legislative power to substantially modify contracts to
which they are parties. The unmistakability doctrine does
not in any way vitiate this protection. Instead, the doc-
trine is a rule of contract construction requiring that
government obligations be strictly construed so as to limit
the extent to which the Contract Clause curtails state
regulatory powers. Government contracts — once properly
construed — receive the full measure of Contract Clause
protection. Petitioners’ assertion that the state court’s
decision allows states to impair contracts is incorrect, and
should be rejected.
Ill. THIS COURT SHOULD DECLINE REVIEW
BECAUSE THE PRESENT CASE DOES NOT
PROVIDE A VEHICLE FOR RESOLVING ANY
CONFUSION THAT MAY EXIST AMONG THE
LOWER COURTS CONCERNING APPLICA-
TION OF THE UNMISTAKABILITY DOCTRINE
AND THE MEANING OF WINSTAR.
The Court should decline review because the present
case plainly implicates the unmistakability doctrine and
therefore does not provide a vehicle for resolving any
confusion that might exist among the lower courts con-
cerning its proper application. As was shown above, this
case is quite similar to Merrion. See supra at 18-21. In
both cases, non-governmental contracting parties specifi-
cally alleged that a disputed contract prevented a sover-
eign from enacting or enforcing laws. Merrion, 455 U.S. at
26
136; Pet. App. 10a, 12a, 18a. There is simply no question
that the doctrine applies under these circumstances. See
Winstar, 518 U.S. at 880; see also id. at 878-79 (doctrine
applies “when the Government is subject either to a claim
that its contract has surrendered a sovereign power... or
to a claim that cannot be recognized without creating an
exception from the exercise of such a power... .”).”°
The Court should decline review for additional rea-
sons as well. First, Petitioners perceive confusion among
the lower courts principally because Petitioners them-
selves misread the plurality opinion in Winstar. The
plurality does not, as Petitioners assert, make application
of the unmistakability doctrine turn on a “two-step in-
quiry” that begins with whether the disputed contract is
“proprietary.” See Pet. at 16-17 (positing two-step inquiry).
As an initial matter, the plurality specifically held that
“application of the doctrine ... turns on whether enforce-
ment of the contractual obligation alleged would block the
exercise of a sovereign power of the Government.” Winstar,
518 U.S. at 879. The plurality noted that, “[s]ince the
criterion looks to the effect of a contract’s enforcement, the
particular remedy sought is not dispositive .... ” /d.
* One lower court, although noting some uncertainty about how
the doctrine might apply in particular circumstances, commented: “It is
clear, however, that one of the basic principles underlying the doctrine
is the concern that it would be unreasonable to presume, in the absence
of an express contractual provision, that a sovereign intended a
contractual waiver of a basic sovereign power.” Tamarind Resort Assocs.
v. Gov't of the Virgin Islands, 138 F.3d 107, 112 (3d Cir. 1998) (citing
Winstar, 518 U.S. at 920-21 and Merrion, 455 U.S. at 148). The
Tamarind court’s citation to Merrion demonstrates that the lower
courts have no doubt about the doctrine’s application to paradigmatic
situations like the one presented in this case.
27
Application of the doctrine “will therefore differ according
to the different kinds of obligations the Government may
assume and the consequences of enforcing them.” Jd. at
880. After setting forth examples in which the doctrine
clearly would and would not apply, the plurality noted:
“Between these extremes lies an enormous variety of
contracts including those under which performance will
require exercise (or not) of a power peculiar to the Gov-
ernment.” Jd. Rather than establishing the “two-step
inquiry” perceived by Petitioners, the plurality articulated
governing principles, then illustrated that application of
those principles to “an enormous variety of contracts”
would require a sensitive case-by-case adjudication. /d.
More importantly, Petitioners are simply incorrect in
asserting that application of the doctrine turns on whether
a contract is proprietary. See, e.g., Pet. at 16. As was
discussed above, this Court has itself applied the doctrine
to a proprietary contract. See, e.g., Merrion, 455 U.S. at
145-48. Moreover, as Petitioners themselves note, two
Circuit Courts have applied the doctrine to proprietary
contracts since the Court decided Winstar. See Pet. at 18
(citing Tamarind Resort Assocs. v. Gov't of the Virgin
Islands, 138 F.3d 107, 109, 112 (8d Cir. 1998) and Yankee
Atomic Elec. Co. v. United States, 112 F.3d 1569, 1579
(Fed. Cir. 1997), cert. denied, 524 U.S. 951 (1998)). The
state court’s application of the doctrine here is consistent
with these authorities. The lower courts plainly under-
stand that, under the proper circumstances, the doctrine
applies to proprietary contracts. There is no confusion on
this point; Petitioners are simply wrong.
Second, even if there is some confusion among the
lower courts concerning how Winstar or the unmistakability
doctrine should apply to factual situations not presented
28
here, this case obviously provides no occasion to address
such confusion. Petitioners cite a handful of cases in which
lower courts indicate some uncertainty about how either
Winstar or the unmistakability doctrine should apply to
certain classes of contracts. See Pet. at 18-19 & n.7; see
also Tamarind Resort Assocs., 138 F.3d at 112 (“It is
somewhat unclear ... as to the type of contract to which
the unmistakability doctrine applies.”). They cite academic
authorities to the same effect. See Pet. at 19-20. Given the
absence of a majority opinion in Winstar and the fact that
the Court was somewhat fragmented, it is not surprising
that some lower courts feel some uncertainty. This case,
however, which involves a paradigm application of the
unmistakability doctrine, furnishes no occasion to clarify
how the doctrine should apply to non-paradigmatic facts.
An example may be useful. In Winstar a four-justice
plurality determined that the unmistakability doctrine
does not apply where, as in Winstar, the disputed contract
could be “reasonably construed to include a risk-shifting
component that may be enforced without effectively
barring the exercise of” government power. Winstar, 518
U.S. at 880. Three justices who concurred in the judg-
ment disagreed with the latter restriction, and would
have held the doctrine applicable even to so-called risk-
shifting agreements. See id. at 919-20 (Scalia, J., concur-
ring in the judgment).” The two dissenting justices would
have held the doctrine applicable to all government
'* Justice Souter, joined by Justices Stevens, O’Connor and Breyer.
" Joined by Justices Kennedy and Thomas.
29
contracts including risk-shifting agreements. See id. at
926-27 (Rehnquist, C.J., dissenting)."
A principal point of disagreement in Winstar, then,
was whether the unmistakability doctrine applies to risk-
shifting agreements.” The concurring and dissenting
justices would have held in the affirmative, and would
thus have given the doctrine broader application than did
the plurality. It is therefore to be expected that lower
courts are somewhat uncertain about the doctrine’s appli-
cation to risk-shifting agreements. That issue is not
presented here, however. The state court correctly deter-
mined that the Settlement Agreement in this case is not a
risk-shifting agreement, and that Petitioners’ proposed
construction of the Agreement would directly limit state
sovereign powers. See Pet. App. 10a, 12a, 18a. Under the
circumstances, it appears that all nine Winstar justices
would have applied the unmistakability doctrine to the
present case. Plainly, this case does not provide a suitable
vehicle for clarifying the law, even assuming such clarifi-
cation is necessary.
* Joined by Justice Ginsburg.
* The lower courts plainly perceive this disagreement. See, e.g.,
Tamarind Resort Assocs., 138 F.3d at 112; Yankee Atomic Elec. Co.,112
F.3d at 1578-79; Gen. Dynamics Corp. v. United States, 47 Fed. Cl. 514,
535-36 (2000).
30
CONCLUSION
For all the foregoing reasons, the Petition of Philip
Morris USA, Inc. and the joining Petitioners should be
denied.
Dated December 7, 2006
Respectfully submitted,
MIKE HATCH
Attorney General
State of Minnesota
BRADFORD S. DELAPENA
Assistant Attorney General
RITA COYLE DEMEULES
(Counsel of Record)
Assistant Attorney General
445 Minnesota Street, Suite 900
St. Paul, MN 55101-2127
(651) 296-0692
Attorneys for Respondent
The State of Minnesota
Resp. App. la
No. A05-2540
STATE OF MINNESOTA
IN SUPREME COURT
The State of Minnesota,
by Hubert H. Humphrey III,
its then Attorney General, et al.,
Petitioner,
vs.
Philip Morris USA, Inc., et al.,
Respondents.
STATE’S REPLY BRIEF
EDWARD B. MAGARIAN MIKE HATCH
PETER SIPKINS Attorney General
Dorsey & Whitney LLP State of Minnesota
“—_aa BRADFORD S. DELAPENA
Assistant Attorney General
Minneapolis, MN 55402-1498
(612) 340-7873
DAVID F. HERR
MARY R. VASALY
Maslon Edeman Borman
Atty. Reg. No. 219046
MICHAEL J. VANSELOW
Deputy Attorney General
Atty. Reg. No. 152754
& Brand, LLP 445 Minnesota Street,
3300 Wells Fargo Center Suite 900
90 South Seventh Street St. Paul, Minnesota
Minneapolis, Mn 55402 55101-2127 |
(612) 672-8200 (651) 296-0987
Attorneys for Petitioner
Resp. App. 2a
MURRAY GARNICK
GEOFFREY J. MICHAEL
Arnold & Porter LLP
555 Twelfth Street, NW
Washington, DC 20004-1206
(202) 942-5000
Counsel for Respondent
Philip Morris USA, Inc.
ANAND AGNESHWAR
Arnold & Porter LLP
399 Park Avenue
New York, NY 10022-4690
(212) 715-1000
Counsel for Respondent
Philip Morris USA, Inc.
ANDREW J. HAILE
JENNIFER K. VAN ZANT
Brooks, Pierce, McLendon,
Humphrey & Leonard LLP
PO Box 26000
Greensboro, NC 27420
(336) 373-8850
Counsel for Respondent
Lorillard Tobacco
Company
SCOTT G. KNUDSON
BRENT R. LINDAHL
Briggs and Morgan
2200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
(612) 977-8400
KAREN A. JANISCH
130 State Capitol
75 Constitution Avenue
St. Paul, MN 55155
(651) 282-3705
Counsel for Amicus
Curiae Governor
Tim Pawlenty
WALTER A. PICKHARDT
DANIEL J. CONNOLLY
Faegre & Benson, LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402
(612) 766-8622
Counsel for Respondents
R.J. Reynolds Tobacco
Company & Lorillard
Tobacco Company
STEPHEN R,. PATTON
ELLI LEIBENSTEIN
JONATHAN E. MOORE
Kirkland & Ellis, LLP
200 East Randolph
Chicago, IL 60601
(312) 861-2000
Counsel for Respondent
R.J. Reynolds Tobacco
Company
Resp. App. 3a
ROBERT J. BROOKHISER
RANDY G. GULLICKSON
ELIZABETH B. MCCALLUM JANEL M. DRESSEN
Howrey, LLP
Anthony Ostlund &
1299 Pennsylvania Avenue NW Baer, P.A.
Washington DC 20004
(202) 783-0800
(612) 339-4295
Counsel for Respondent
Commonwealth Brands,
Inc.
THOMAS H. BOYD
KARL E. ROBINSON
Winthrop & Weinstine, PA
Suite 3500
225 South Sixth Street
Minneapolis, MN 55402-4629
(612) 604-6400
Counsel for Respondent
Council of Independent
Tobacco Manufacturers
of America
90 South Seventh Street,
Suite 3600
Minneapolis, MN 55402
(612) 349-6969
Counsel for Respondents
A.H. Hermel Candy
& Tobacco Co.;
Henry’s Foods, Inc.;
Sandstrom’s, Inc.,
Johnson Candy and
Tobacco Co. of
Brainerd, Inc.,
M. Amundson Cigar
& Candy Co., LLP;
The Watson
Companies, Inc.;
Granite City Jobbing
Company, Inc.;
Minter-Weisman Co.;
Segal Wholesale, Inc.;
and Tyler Wholesale,
Inc.
TABLE OF CONTENTS
Page
EES GPE FAW LESWELL LAGGED ccccovecccccccsccccoveccorosesceeveess il
STITT e Tusibcisanscubnisessdbeboueddertarenesctecucsedsntesesere at
I. THE LANGUAGE AND CONTEXT OF THE
AGREEMENT DEMONSTRATE THAT THE PARTIES
INTENDED IT To BE A MUTUAL RELEASE OF
ADJUDICATORY CLAIMS ONLY........... vhiilaesiaitetaidaia 1
Resp. App. 4a
A. The Court Should Reject As Unsound
Defendants’ Construction Of The State’s
| NE eae OE a Tae OE ETA
B. Proper Construction Of The State’s Release
Undercuts Defendants’ Subsidiary Argu-
RGEEEB, cveveoversrvervsereecevceeneneseoneresevevensevensvsvevseoveon
C. Because The Agreement Does Not
Surrender The Legislature’s Power To
Impose An Exaction On The Distribution
Of Cigarettes, Imposing The HIF Does Not
Breach Or Impair The Agreement. .............
D. The Scope Of The State’s Release Must Be
Construed Consistent With The State’s
Status As A Private Party. .............:cceseeceeeees
II. THE TERM “CLAIM” CANNOT BE INTERPRETED
To INCLUDE LEGISLATIVE EXACTIONS BECAUSE
THE STATE’S RELEASE OF CLAIMS DOES NOT
SURRENDER THE STATE’S SOVEREIGN POLICE
AND TAXING POWERS “IN LANGUAGE AND TERMS
Too CLEAR TO ADMIT OF DOUBT.”.............0.0+00
A. The Unmistakability Doctrine Is A Canon
Of Strict Contract Construction Rather
Than A Contract Defense, And It Plainly
Applies To The Facts Presented...............
B. The State Invokes The Separation Of
Powers Not As A Contract Defense, But
As Circumstantial Evidence That The
Attorney General Did Not Surrender
Legislative Authority. ..........ccscccssccsssssesees
Ill. IN THE ALTERNATIVE, THE AGREEMENT DOES Nor
BAR IMPOSITION AND ENFORCEMENT OF THE HIF
BECAUSE THE AGREEMENT INCORPORATES THE
MINNESOTA CONSTITUTION’S EXPRESS PROHIBI-TION
AGAINST CONTRACTING AWAY THE TAXING POWER.....
COU LAJIUIS cocvccvsescecevereronsonevecsvenscessesesounenecanpeentane
13
13
16
17
30
-
Resp. App. 5a
TABLE OF AUTHORITIES
Page
FEDERAL CASES
Deming v. United States, 1 Ct. Cl. 190 (1865).................. 10
Horwitz-Matthews, Inc. v. City of Chicago, 78 F.3d
ee Be rilntecthinsntitieiaininbiseidascieesesensclnadeesaeig ialatreneeca 9
Jarecki v. G.D. Searle & Co., 367 U.S. 303 (1961) ............. 3
Jones v. United States, 1 Ct. Cl. 383 (1865) ..............ceeeeee 10
Murray v. Charleston, 96 U.S. 432 (1877) ..........ecceceeeeeeeeees 8
Thompson v. Amoco Oil Co., 903 F.2d 1118 (7th Cir.
SUIT luisciscssalishsiedetidishdeaaepapaduninpaliadagsdidieinindbeibaaiadbikiiimiianiainandia 13
United States Trust Co. v. New Jersey, 431 U.S. 1
re ubidietisaciinteldh ies cetaiiaseanibilepatvahinaistbscanidigilvebdsiibierstiaaidadaaadaddiaih 8
United States v. Winstar Corp., 518 U.S. 839 (1996)...14, 15
Utility Elec. Supply, Inc. v. ABB Power T & D Co.,
ae FEE Ce I Be recrtescncesccensescennsesenrntnnenessensvcen 3
Wayte v. United States, 47° U.S. 598 (1985)............: eee 13
MINNESOTAL CASES
Amoco Corp. v. Comm’r of Revenue, 658 N.W.2d 859
Nhs SEITE cicesciicinnonsenannucsecdunnsianed =< tT 19
Employers Liability Assur. Corp. v. Morse, 111
Be I: IIIED sc:icsvasecudebecsommbetoestuesebaniinctosduueceds 2
Fletcher v. Scott, 277 N.W. 270 (Minn. 1938) ............ccc00e00 3
Gillam v. Sioux City & St. PR. Co., 3 N.W. 353
SEIN, SITIE sncicshdntesuckibesanisuensitienicideapiedbaeamummniovenedantiin 14
In re Minnehaha Parkway, 209 N.W. 939 (Minn.
Say sisiisier sideestiudedaaitiniepedtaatdinnidesiiindidelichoandeenaninaainntineedinnee 18
Resp. App. 6a
Ketterer v. Indep. Sch. Dist. No. 1, 79 N.W.2d 428
(Minn. 1956)...........00 ansonshasionuiemimennsbastiebeniynivedinuaneneeneess 17
Mienes v. Lucker Sales Co., 246 N.W. 667 (Minn.
SEITE stenessiilcisinadesnisalinsndishieshidiiinhaisitalvaabbcetieisibésiinhwanaibwaiestasoaveviewie 3
Motorsports Racing Plus, Inc. v. Arctic Cat Sales,
Inc., 666 N.W.2d 320 (Minn. 20038) ............ccssseccceseesesseees 2
Naftalin v. King, 90 N.W.2d 185 (Minn. 1958)................. 17
State by Humphrey v. Philip Morris Inc., 551
ee Ne Ie I BID ersitascacusinivsecscavecinssvncnceesenersavines 11
State ex rel. Decker v. Montague, 262 N.W. 684
SNe SEIT chiindinisibnituhanditsiaieiinunineshinsaussteteieveniekuewiiienes 12
State v. Suess, 52 N.W.2d 409 (Minn, 1952).......... eee 3
OTHER STATE CASES
421 Corp. v. Metro. Gov't of Nashville, 36 S.W.3d
Is TT ins cccaiteisntindslinustisasinietnsuniaiiiiansaaanaunniase 13
Okeson v. City of Seattle, 78 P.3d 1279 (Wash. 2003)....... 18
CONSTITUTIONAL PROVISIONS
I said ea uaeniinoanigeds 19
i I OI I On sine aduaseanennbdotevanenentenienl 19
MINNESOTA STATUTES AND LAWS
Minn. Stat. § 270C.03 (Supp. 2005)...........ccsccccccececeeerereees 12
Minn. Stat. § 271.06, subd. 1 (Supp. 2005)...........ccceeeees 12
Minn. Stat. § 289A.35 (2004 & Supp. 2005)... eee 12
ID, GNI, Wy RANGA? vccevesscccesncsrorssoncsnsvensestsnvonseconesccanents 2
Resp. App. 7a
OTHER AUTHORITIES
Minnesota Def. Lawyers Ass’n Release Deskbook
(Eric J. Magnuson & Stephen O. Plunkett eds.
SPIED cxsirtesaradupiensinisneniciininiiniainiialadieadammmadammnain 7
ARGUMENT
I. THE LANGUAGE AND CONTEXT OF THE AGREEMENT
DEMONSTRATE THAT THE PARTIES INTENDED IT To
BE A MUTUAL RELEASE OF ADJUDICATORY CLAIMS
ONLY.
The parties propose two very different readings of the
State’s Release. This shows that the provision requires
judicial construction. In its de novo review of the Agree-
ment, the Court should prefer the State’s construction,
which will completely resolve this case. The State’s read-
ing preserves the plain meaning of the Agreement’s terms,
honors the context in which those terms appear, comports
with settled rules of contract construction, and harmonizes
the State’s Release with the balance of the Agreement. As
will be shown, Defendants’ reading of the Release does
none of these things.
A. The Court Should Reject As Unsound De-
fendants’ Construction Of The State’s Re-
lease.
Defendants begin their rather cursory construction
argument with an excerpt of the State’s Release that is
both truncated and elliptical. The truncation isolates the
phrase “liabilities of any nature whatsoever” (the “Liabili-
ties Phrase”), see Defs.’ Br. at 19, and allows Defendants to
assign it an expansive meaning starkly incompatible with
context. Jd. at 22 & n.7. The ellipsis artificially places the
Resp. App. 8a
Liability Phrase alongside the word “statutory,” allowing —
Defendants to assert that the conjoined terms mean
“legislation.” Jd. at 20, 22-23.
Defendants rely on this exaggerated version of the
Liability Phrase throughout the rest of their brief. See,
e.g., Defs.’ Br. at 28, 33, 34. Most importantly, Defendants
assert that the State’s Release “expressly releases the
precise liability that the Health Impact Fee seeks to
impose,” id. at 19, and they argue that it “definles] ‘claims’
in the broadest possible terms to include not just judicial
liability, but ‘liabilities of any nature whatsoever’ includ-
ing ‘statutory’ liability.” Jd. at 19-20.
By isolating the Liabilities Phrase, Defendants im-
properly suppress context. See Motorsports Racing Plus,
Inc. v. Arctic Cat Sales, Inc., 666 N.W.2d 320, 324 (Minn.
2003) (holding that words or phrases should not be “iso-
lated from their context”). The Liabilities Phrase is just
one item in a list of “claims” in the State’s Release. That
list reads, in full, as follows:
civil claims, demands, actions, suits and causes
of action, damages whenever incurred, liabilities
of any nature whatsoever, including civil penal-
ties, as well as costs, expenses and attorneys’
fees, known or unknown, suspected or unsus-
pected, accrued or unaccrued, whether legal, eq-
uitable or statutory (“Claims”)... .
App. at 50-51. Settled rules of construction make clear
why context is critical.
The most important term here is the one defined —
“claims” — since it is used throughout the balance of the
Agreement. Under the rule of ejusdem generis, the term
“claims” must be interpreted to include only the sorts of
Resp. App. 9a
items that precede it. See Minn. Stat. § 645.08(3) (2004)
(“general words are construed to be restricted in their
meaning by preceding particular words”); Employers
Liability Assur. Corp. v. Morse, 111 N.W.2d 620, 624-25
(Minn. 1961) (applying rule of ejusdem generis to interpret
contract). As the State has already shown, the preceding
items all relate to adjudication. See State’s Br. at 15-16.
Although Defendants correctly note that the Agreement
does not use the term “adjudicatory claims,” see Defs.’ Br.
at 19, proper attention to linguistic context reveals that
this is an accurate interpretation of the term “claims” as it
appears in the State’s Release. It is also consistent with the
common and established meaning of the term “claims.” See
State’s Br. at 15-17 & n.9.
Context is equally important for properly construing
the Liabilities Phrase, which Defendants assign the
broadest possible meaning. See Defs.’ Br. at 22 & n.7.
Under the doctrine of noscitur a sociis, a phrase capable of
several meanings is defined by the words with which the
phrase is associated. See, e.g., Fletcher v. Scott, 277 N.W.
270, 272-73 (Minn. 1938); accord Jarecki v. G.D. Searle &
Co., 367 U.S. 303, 307 (1961). Because the terms sur-
rounding the Liabilities Phrase all pertain to adjudication,
the Liabilities Phrase does so as well. See State’s Br. at 19.
“[Wlhen two or more words are grouped together and
ordinarily have a similar meaning, but are not equally
comprehensive, the general word will be limited and
qualified by the special word|s].” State v. Suess, 52 N.W.2d
409, 415 (Minn. 1952). This rule should be applied here to
give the Liabilities Phrase its intended scope. See Utility
Elec. Supply, Inc. v. ABB Power T & D Co., 36 F.3d 737,
740 (8th Cir. 1994) (noting that doctrine of noscitur a sociis
is wisely applied to avoid giving statutes unintended
Resp. App. 10a
breadth); Mienes v. Lucker Sales Co., 246 N.W. 667, 668
(Minn. 1933) (applying doctrine to limit contract provision
to intended scope).
In addition to violating these rules of construction,
Defendants’ overly expansive interpretation of the Liabili-
ties Phrase is inconsistent with the parties’ drafting
practice. As the State has already observed, the parties
included an additional term - “civil penalties” — in the
State’s Release. See State’s Br. at 27. If Defendants were
correct that the parties intended “liabilities” as used in the
State’s Release to have its broadest possible meaning, the
addition of “civil penalties” would have been entirely
unnecessary. Such penalties would plainly have been
embraced by the Liabilities Phrase. Because the parties
added this extra provision, they clearly did not have in
mind Defendants’ expansive construction.
In direct contravention of these rules of construction,
Defendants combine the disparate terms “liabilities” and
“statutory” in an attempt to make “claims” mean “legisla-
tion.” See Defs.’ Br. at 22-23. The Court should reject this
attempt to expand the State’s Release.
First, it requires the improbable inference that, in a
section releasing “claims,” these sophisticated parties
sought to create an exemption from future “legislation,”
and did so obliquely by using two other words, “liabilities”
and “statutory,” that reside is two separate clauses. Sec-
ond, since the Agreement frequently used the word “legis-
lation,” see State’s Br. at 17-18, it requires the conclusion
that the parties — without any apparent reason — referred
to “legislation” in different ways in different parts of the
Agreement. Finally, it is inconsistent with the obvious
conclusion that “statutory” claims refers to the very sort of
Resp. App. lla
statutory causes of action asserted in the State Tobacco
Lawsuit. See App. at 28-36 (State’s common law and
statutory claims).
When the parties actually addressed legislation in the
Agreement, they used that very word. See State’s Br. at
17-18. Moreover, had the parties wished to provide that
Defendants would be exempt from legislation imposing
taxes or fees, they would simply have said so. They did
not. This Court should conclude that the parties intended
the Agreement to work a mutual release of adjudicatory
claims only. See id. at 13-22.’
B. Proper Construction Of The State’s Release
Undercuts Defendants’ Subsidiary Argu-
ments. :
1. Because Legislation Falls Outside The
Scope Of The Agreement, The Legislature
Did Not Unilaterally Alter The Agreement
Or Nullify Any Benefit By Imposing The
HIF.
Because the Agreement applies exclusively to adjudi-
catory claims — and not to legislation — the Legislature did
not unilaterally alter the Agreement by imposing the HIF.
See Defs.’ Br. at 17, 20-21. Defendants themselves empha-
size that “any legislation that raises revenue will help
offset State health care costs from tobacco.” Id. at 30
(emphasis in original). It is undisputed that on the very
‘ Each use of the term “claims” in the Agreement and Consent
Judgment, again when considered in context, confirms that “claims”
refers to adjudicatory claims. See, e.g., App. at 37, 39, 43 (§ II.A), 50
(§ ITI.A), 80 (§ X).
Resp. App. 12a
day the Agreement was executed, the Legislature could
have quadrupled the cigarette excise tax to offset state
healthcare costs. The district court specifically noted that
“the Legislature is free to raise revenue by means of a
[cigarette] tax, and all parties agree that there would be
no basis to override such a tax....” App. at 15.
Defendants thus understood when they executed the
Agreement that their products remained subject to legisla-
tive exactions. They also appreciated then what they say
today — that the revenue the State raised could be used by
the State to offset healthcare costs. This conclusively
demonstrates that Defendants assumed the risk that the
Legislature would impose additional exactions upon their
products.’ Their argument thus amounts to this: (a) the
Legislature is free to impose additional exactions upon
their products; (b) the State can use any revenue gener-
ated to offset state healthcare costs; but (c) the Legislature
cannot declare that the exaction is imposed for this pur-
pose. This cannot be correct. If the Agreement left the
Legislature free to tax Defendants’ products to offset state
healthcare costs, it left the Legislature free to declare its
purpose.
Nor does imposing the HIF on Defendants’ Distribu-
tors nullify the only tangible benefit Defendants received
under the Agreement. See Defs.’ Br. at 15-16, 21, 26. When
negotiating and securing a waiver of all state “claims,”
Defendants fully appreciated that their products would
remain subject to legislative exactions. They willingly
* Defendants’ contrary assertion that the State assumed the risk
that future legislation would be unenforceable is addressed below. See
infra at 15.
Resp. App. l3a
accepted this risk, however, because they perceived that
their very existence was threatened by State-initiated
lawsuits, and Minnesota’s in particular. A release of
adjudicatory claims eliminated this risk, and left Defen-
dants free to oppose legislative impositions in the political
arena as they had done so successfully in the past.’
2. The HIF Is Not A “Claim” For State
Healthcare Costs.
The Legislature placed the incidence of the HIF, like
that of the cigarette excise tax, upon the distribution and
sale of cigarettes. See State’s Br. at 40 & n.24. Thus, the
HIF, like the excise tax, is a legislative exaction upon a
commercial activity. The Legislature’s declaration that the
purpose of the HIF is to recover state healthcare costs
associated with smoking does not convert the HIF into a
“claim” for healthcare costs, “statutory” or otherwise. See
Defs.’ Br. at 30. As Defendants themselves note, all state
revenues defray state healthcare costs. The HIF is no
* An R.J. Reynolds press release issued the day the Agreement was
signed perfectly illustrates the value Defendants placed on receiving a
release of legal claims: “This country has to decide whether one court,
like Minnesota, should have the power to bring the industry to the
brink of bankruptcy with all the negative implications of such a
decision.” See R.J. Reynolds, “R.J. Reynolds Issues Minnesota State-
ment,” May 8, 1998, http://www.rjrt.com/newsroom/resourcesRJ RT view.
asp?postI D=884 (last visited March 9, 2006).
* There is no merit to Defendants’ assertion that the Agreement is
somehow special because it was not “conditioned on a single payment”
and released future claims. See Defs.’ Br. at 20. Many settlement
agreements provide for multiple payments. See Minnesota Def. Lawyers
Ass’n Release Deskbook 235-51 (Eric J. Magnuson & Stephen O.
Plunkett eds. 1998) (discussing structured settlements). Moreover,
many agreements contain provisions releasing future claims. See, e.g.,
id., App. of Forms at F-49, F-54.
Resp. App. 14a
more a “claim” for healthcare costs than is the excise tax.
Each is a legislative exaction upon the commercial activity
of distributing cigarettes, and a distributor’s liability for
each is measured exclusively by the extent to which the
distributor engages in that activity.
If a distributor failed to pay the HIF, were assessed by
the Commissioner, appealed, and thus compelled the State
to litigate unpaid amounts, the State would proceed
exclusively by proving how many packs of cigarettes the
distributor had received, just as it would in pursuing
unpaid excise tax amounts. The State would not offer
evidence of state healthcare costs, which would be utterly
irrelevant. In either case, the State would be pursuing
unpaid taxes or fees. It would not be asserting a “claim” for
state healthcare costs.
C. Because The Agreement Does Not Surren-
der The Legislature’s Power To Impose An
Exaction On The Distribution Of Ciga-
rettes, Imposing The HIF Does Not Breach
Or Impair The Agreement.
This case does not involve a Contracts Clause viola-
tion because the Act does not attempt to alter the obliga-
tions of the Agreement. See State’s Br. at 21 (essence of
impairment is alteration). Indeed, the United States
Supreme Court found Contracts Clause violations in the
two cases discussed by Defendants specifically because
legislation changed the obligations of existing contracts.
See Defs.’ Br. at 26; United States Trust Co. v. New Jersey,
431 U.S. 1, 25-27 (1977) (finding violation where legisla-
ture repealed statutory covenant with bondholders);
Murray v. Charleston, 96 U.S. 432, 443 (1877) (finding
violation where city stock certificates promised payment of
Resp. App. 15a
six percent interest, but where subsequent ordinance
commanded city clerk to withhold, rather than pay, one-
third of said interest).
Even if this Court were to conclude that the HIF
qualifies as a released “claim” under the Agreement (it
does not), this would mean only that the Legislature
breached the Agreement by imposing the HIF. It would
show a violation - rather than an attempted alteration — of
the Agreement. Thus, it would not establish a Contracts
Clause violation. As the United States Court of Appeals for
the Seventh Circuit has explained: “[WJhen a state repu-
diates a contract to which it is a party it is doing nothing
different from what a private party does when the party
repudiates a contract; it is committing a breach of con-
tract. It would be absurd to turn every breach of contract
by a state or municipality into a violation of the federal
Constitution.” Horwitz-Matthews, Inc. v. City of Chicago,
78 F.3d 1248, 1250 (7th Cir. 1996) (Posner, J.). Because the
Act does not alter the Agreement, there is no impairment.
There is no breach, moreover, because the HIF is not a
released “claim” under the Agreement.
D. The Scope Of The State’s Release Must Be Con-
strued Consistent With The State’s Status As A Pri-
vate Party.
Defendants urge the Court to treat the State “the
same way it treats any other contracting party.” Defs.’ Br.
at 18. They note that the State Tobacco Lawsuit was
initiated “to vindicate a proprietary interest,” id. at 6, and
they observe that “[a] state may lay aside its sovereignty”
when contracting with private parties. Jd. at 18 n.6.
Defendants actually treat the State as a private party in
name only, however.
Resp. App. 16a
Although Defendants deny claiming that the State
“contracted away’ its power to legislate,” Defs.’ Br. at 31,
they later insist that the Agreement binds the State “in all
of its manifestations.” Jd. at 36. These assertions are
plainly inconsistent, since binding the entire State surely
encompasses the State’s “power to legislate.” In addition,
Defendants expressly allege that the Agreement bars the
State from enforcing its laws. Id. at 36-37. Defendants
thus stretch the State’s Release to bind the State in its
sovereign capacity. Defendants’ entire approach is incor-
rect because the State proceeded in its proprietary capac-
ity throughout the State Tobacco Lawsuit. The State qua
private party cannot bind the State qua sovereign.
1. The State Acted In Its Proprietary Capac-
ity When Executing The Agreement.
The State agrees that it acted in its proprietary
capacity when bringing and settling the State Tobacco
Lawsuit. See Supp. App. at 56-57. The State’s private-
party status must therefore be respected when construing
the scope of its release. This principle of consistency is
reflected in longstanding Supreme Court precedent:
[T]he government entering into a contract stands
not in the attitude of the government exercising
its sovereign power of providing laws for the wel-
fare of the State. The United States as a contrac-
tor are not responsible for the United States as a
lawgiver.... In this court, the United States can
be held to no greater liability than other contrac-
tors in other courts.
Deming v. United States, 1 Ct. Cl. 190, 191 (1865) (empha-
sis added). See also United States Trust Co. v. New Jersey,
Resp. App. 17a
431 U.S. 1, 25 n.23 (1977) (concluding that when govern-
ments act as private parties rather than as sovereigns,
“{tIhey come down to the level of ordinary individuals.
Their contracts have the same meaning as that of similar
contracts between private persons.”); Jones v. United
States, 1 Ct. Cl. 383, 384-85 (1865) (“In this court the
United States appear simply as contractors; and they are
to be held liable only within the same limits that any other
defendant would be in any other court.”).
Because the State must, like Defendants, be treated
as a private party, the Agreement’s two release provisions
must be construed as coextensive. More specifically, the
State’s Release cannot be read as surrendering sovereign
legislative authority not possessed by the State in its
proprietary capacity. See Jones, 1 Ct. Cl. at 384 (“The two
characters which the government possesses as a contractor
and as a sovereign cannot be thus fused.”).
This same principle of consistent party status defeats
Defendants’ argument that the Liabilities Phrase gener-
ally covers civil claims, but in the State’s Release covers
more. See Defs.’ Br. at 21. The Court should reject Defen-
dants’ attempt to expand that phrase (or the term
“claims”) to cover the State’s sovereign enforcement
authority.
2. Because The State Executed The Agreement
In Its Proprietary Capacity, It Released
Through The Agreement Only The Legal
Claims It Held In That Capacity.
Acting in its proprietary capacity, the State com-
menced the State Tobacco Lawsuit, which asserted com-
mon law and statutory claims. All of these claims involved
Resp. App. 18a
the invocation of common law or statutory rights equally
available to private parties.”
Acting again in its proprietary capacity, the State
later settled its lawsuit and entered the Agreement. As
might any private party, the State made a binding contrac-
tual promise to never again assert specified “claims”
against Defendants for healthcare costs. In releasing these
claims, the State reasoned, as might any private party,
that its proprietary interest would be better served by
entering the Agreement than by preserving its claims.
Like any private party, then, the State promised that it
would never again assert “claims” based on rights it
possessed in its proprietary capacity (such as a right
derived, for example, from the Deceptive Practices Act).
When the State acts in its sovereign capacity, it does
not invoke rights and assert “claims.” Instead, it exercises
the sovereign power to enact and enforce laws. Such power
is possessed by neither private parties nor the State
acting in its proprietary capacity. The State as sovereign,
for example, enforces the tax laws administratively by
* In State by Humphrey v. Philip Morris Inc., 551 N.W.2d 490
(Minn. 1996), this Court specifically noted that a private right of action
existed for each of the statutory claims the State asserted in the
present case:
In their joint complaint, the State and Blue Cross allege
violations of Minnesota’s antitrust statute as well as con-
sumer protection statutes relating to consumer fraud,
unlawful and deceptive trade practices, and false advertis-
ing. Each of these statutes contains specific authorizations
for suit and each creates a private cause of action for any
party injured directly or indirectly by a violation of the stat-
ute.
Id. at 495 (emphasis added); see also id. at 495-97 (discussing statutory
basis for private right of action for each enumerated statutory claim).
Resp. App. 19a
auditing taxpayers and assessing sums owed. And, if
taxpayers appeal, the State defends its enforcement
actions in a judicial setting. See, e.g., Minn. Stat.
§§ 270C.03 (Supp. 2005) (Commissioner’s powers gener-
ally), 289A.35 (2004 & Supp. 2005) (Commissioner’s power
to assess), 271.06, subd. 1 (Supp. 2005) (taxpayer may
appeal orders of Commissioner to tax court).
The State qua sovereign has an affirmative duty to
enforce the laws. See, e.g., State ex rel. Decker v. Montague,
262 N.W. 684, 689 (Minn. 1935) (“The Governor, under his
oath of office, is bound to enforce the law.... ”). Although
the Executive has substantial enforcement discretion, the
exercise of such discretion involves a calculus completely
different from that the State uses when acting in its
proprietary capacity. The question is not whether a given
“claim” should be exchanged for some consideration.
Enforcement decisions instead turn on such factors as “the
strength of the case, the prosecution’s general deterrence
value, the Government’s enforcement priorities, and the
case’s relationship to the Government’s overall enforce-
ment plan.” Wayte v. United States, 470 U.S. 598, 607
(1985). See also 421 Corp. v. Metro. Gov't of Nashville, 36
S.W.3d 469, 480 (Tenn. 2000) (recognizing in context of
civil enforcement that “practical realities require the
allocation of limited public resources.”).
When the State released its “claims” through the
Agreement, it did not surrender its entirely separate
sovereign power to enact and enforce laws. Because the
State must be treated as one of two private parties to the
Agreement, then, absent a clear indication otherwise, the
Agreement’s two release provisions must be construed to
have equal meaning. See, e.g., Thompson v. Amoco Oil Co.,
903 F.2d 1118, 1121 (7th Cir. 1990) (“Unless a contrary
Resp. App. 20a
intent is evident, words used in one sense in one part of a
contract are deemed of like significance in another part.”).
Treating the State as a private party compels the conclu-
sion that the State released no more than did Defendants
— the option to pursue rights-based legal claims.
Il. THE TERM “CLAIM” CANNOT BE INTERPRETED TO
INCLUDE LEGISLATIVE EXACTIONS BECAUSE THE
STATE’S RELEASE OF CLAIMS DOES NOT SURREN-
DER THE STATE’S SOVEREIGN POLICE AND TAXING
PowERs “IN LANGUAGE AND TERMS TOO CLEAR TO
ADMIT OF DOUBT.”
A. The Unmistakability Doctrine Is A Canon Of
Strict Contract Construction Rather Than A
Contract Defense, And It Plainly Applies To
The Facts Presented.
Defendants assert that the State invokes the unmis-
takability doctrine as a defense to its alleged breach of the
Agreement. See, e.g., Defs.’ Br. at 31-33. As the State’s
principal brief makes plain, however, the unmistakability
doctrine is a canon of strict construction that courts use to
determine what government contracts mean — to deter-
mine what they actually promise. See State’s Br. at 22-25.
The doctrine is not a justification or excuse for a breach of
promises clearly made, and is not invoked by the State for
that purpose.
Defendants next assert that the doctrine does not
apply here, purportedly because their construction of the
Agreement does not involve the surrender of sovereign
power. See Defs.’ Br. at 16, 31, 33, 35. This is incorrect. The
United States Supreme Court has explained that applica-
tion of the doctrine “turns on whether enforcement of the
contractual obligation alleged would block the exercise of a
Resp. App. 2la
sovereign power of the Government.” See United States v.
Winstar Corp., 518 U.S. 839, 879 (1996) (plurality opinion).
Invoking the Agreement, Defendants obtained a lower
court Order enjoining the Commissioner from enforcing
against Defendants’ Distributors a valid Act of the Legisla-
ture. Defendants now ask this Court to affirm. Because
Defendants assert that the Agreement bars the enforce-
ment of a valid law, the doctrine unquestionably applies.
Id. at 876-79 (discussing Court’s own applications of
doctrine); cf. id. at 881 (doctrine not applicable where all
post-contract Congressional measures were fully enforced);
see also Gillam v. Sioux City & St. PR. Co., 3 N.W. 353,
355 (Minn. 1879) (applying doctrine where railroad alleged
that its charter prevented Legislature from passing law
requiring railroad to build cattle fences). And, as shown in
the State’s principal brief, the doctrine plainly defeats
Defendants’ claim that the Agreement surrenders the
Legislature’s police or taxing powers. See State’s Br. at 25-
26.
Rather than admitting that their construction of the
Agreement bars the Legislature from imposing, and the
Commissioner from enforcing, the Act, Defendants at-
tempt to reframe the issue. They thus contend that the
State “assumed the risk that future legislation would ...
be unenforceable as to the Settling Defendants’ products,”
Defs.’ Br. at 33, and that “[s]uch an assumption of risk
occurs whenever the State enters into a contract.” Jd. at
31. This is truly a distinction without a difference. As
Winstar recognized, if a party contends that a contract
bars the enforcement of a valid law, then that party is
arguing that the contract surrenders sovereign power. See
Winstar, 518 U.S. at 879. Tellingly, Defendants feel com-
pelled to assert that the Agreement binds “the State in all
Resp. App. 22a
of its manifestations.” See Defs.’ Br. at 36 (emphasis
added).
Defendants’ assumption of risk argument stands the
unmistakability doctrine on its head. Although the doc-
trine recognizes that the Contracts Clause limits a state’s
power to impair contracts through legislation, see Winstar,
518 U.S. at 874, it also requires that the surrender of
sovereign power be stated in “unmistakable terms.” Jd. at
872. Defendants, in contrast, construe a conventional
release of claims as creating a broad bar to future legisla-
tive and executive action, see Defs.’ Br. at 15, 19-20, and
they assert — without any authority - that contracts
prevail over the enforcement of valid laws. See id. at 31,
33-34. The Court should reject this attempt to reverse the
unmistakability doctrine.
B. The State Invokes The Separation Of Powers
Not As A Contract Defense, But As Circum-
stantial Evidence That The Attorney General
Did Not Surrender Legislative Authority.
As with the unmistakability doctrine, Defendants
incorrectly assert that the State invokes the separation of
powers as a defense to justify an alleged breach of the
Agreement. See Defs.’ Br. at 31, 32, 35-39. Instead, the
State discusses the separation of powers because it is
relevant to proper construction of the Agreement. See
State’s Br. at 27-30. Specifically, this constitutional princi-
ple furnishes circumstantial evidence that then-Attorney
General Humphrey did not, as Defendants suggest, grant
Defendants a prospective exemption from all legislative
exactions on cigarettes that are used to fund state health-
care costs. Jd. The Attorney General simply would not
have entered a contract surrendering legislative authority
Resp. App. 23a
in direct contravention of the Minnesota Constitution. /d.
Consequently, the Agreement should not be construed as
though he did.
The parties themselves recognized that the Attorney
General could not speak for the Legislature. or promise
legislative results. Section II.C of the Agreement provides
in part that, “[t]he Attorney General will propose ... that
the Legislature appropriate to a foundation” certain listed
funds. App. at 46. Although the Attorney General had the
authority to bind the State “in all of its manifestations” as
to the assertion of claims, the Agreement recognizes he
could not bind the Legislature concerning legislation.
In addition, there is no substance to Defendants’
argument that, even if the Attorney General lacked
authority to surrender sovereign power, the Legislature
acquiesced in the Agreement. See Defs.’ Br. at 37-38. As an
initial matter, the Legislature likely cannot acquiesce in a
surrender of its powers. See State’s Br. at 29 n.13; Ketterer
v. Indep. Sch. Dist. No. 1, 79 N.W.2d 428, 436 (Minn. 1956)
(no ratification where initial action lies outside scope of
governmental body in first instance). In any event, this
argument entirely begs the question. Even if evidence of
acquiescence existed, Defendants could not show that the
Legislature acquiesced in their construction of the Agree-
ment. The State does not dispute that the Agreement is
“binding and enforceable” as to the State’s proprietary
rights. Defs.’ Br. at 38. It simply contends that Defendants
misconstrue the Agreement .» bind the State in its sover-
eign capacity.
Resp. App. 24a
Il. IN THE ALTERNATIVE, THE AGREEMENT DoEs Nor
BAR IMPOSITION AND ENFORCEMENT OF THE HIF
BECAUSE THE AGREEMENT INCORPORATES THE MIN-
NESOTA CONSTITUTION’S EXPRESS PROHIBITION
AGAINST CONTRACTING AWAY THE TAXING POWER.
Defendants try to finesse the tax/fee issue by repeat-
ing the claim that, under their interpretation of the
Agreement, the State is not really surrendering its sover-
eign taxing power. See Defs.’ Br. at 39. For the reasons set
forth above, this claim should be rejected. See supra at 14.
Defendants next cite Naftalin for the proposition that
a contract can have an “indirect effect” on the taxing
power without violating Article X, Section 1 of the Minne-
sota Constitution (the “1906 Amendment”). See Defs.’ Br.
at 39 (emphasis in original) (citing Naftalin v. King, 90
N.W.2d 185, 191 (Minn. 1958)). Naftalin is inapposite,
however. That case involved whether the State could
contractually promise to fund bond payments, and thereby
bind itself to exercise its taxing power. Naftalin, 90 N.W.2d
at 190-91. This Court specifically distinguished that
situation from a contract surrendering the taxing power,
which it noted is expressly prohibited by the 1906
Amendment. Jd. at 191. There is simply no support for
Defendants’ “indirect effect” argument. See In re Minne-
haha Parkway, 209 N.W. 939, 940 (Minn. 1926) (holding
that 1906 Amendment “was intended to prevent any
impairment of the taxing power in any manner what-
ever”).
The parties appear to agree, for the most part, on the
standards relevant to determining whether a legislative
imposition is a tax or a fee. Compare State’s Br. at 33-36
with Defs.’ Br. at 40. They disagree mostly on the applica-
tion of those standards.
Resp. App. 25a
Defendants are wrong to assert that the HIF is a fee
because there is a “direct relationship” between the HIF
and state healthcare costs. See Defs.’ Br. at 41-42. As an
initial matter, distributors rather than smokers pay the
HIF. Distributors, however, do not receive the state
healthcare services the HIF allegedly funds. True fees are
paid by those who receive services. See Okeson v. City of
Seattle, 78 P.3d 1279, 1286 (Wash. 2003).
Defendants’ claim fares no better even if economic
burden rather than legal incidence is considered. Many
people who smoke — perhaps the majority of them - will
never cost the state a cent in healthcare expenditures.
Many smokers, for example, have private employers and
private insurers, etc. Consequently, there is no relation-
ship at all, direct or otherwise, between the 75 cents a
particular smoker pays on a pack of cigarettes and state
healthcare costs.
In reality, the HIF is simply an excise tax on all
smokers to fund the expenses that some smokers impose
on the State. It is administered identically to the cigarette
excise tax, and has no true regulatory purpose. See State’s
Br. at 38-40. The Legislature’s twin expedients of includ-
ing the HIF in the Ominbus Health and Human Services
Bill and placing HIF proceeds into a special fund cannot
convert the HIF into a fee for judicial purposes,” just as
labeling the imposition a “fee” cannot. See id. at 33.
* Segregating the proceeds of a tax into a special fund and ear-
marking them for a particular purpose do not convert a tax into a fee.
See State’s Br. at 41-42. All proceeds of Minnesota’s gasoline excise tax,
for example, must be placed into the Highway User Tax Distribution
Fund. See Minn. Const. art. XIV, § 10. Those proceeds must be used
“solely for highway purposes.” Minn. Const. art. XIV, § 5. Nevertheless,
(Continued on following page)
Resp. App. 26a
CONCLUSION
For the above stated reasons, the State respectfully
requests that this Court reverse the December 20, 2005
decision of the district court in its entirety.
Dated: Respectfully submitted,
MIKE HATCH
Attorney General
State of Minnesota
BRADFORD S. DELAPENA
Assistant Attorney General
Atty. Reg. No. 219046
MICHAEL J. VANSELOW
Deputy Attorney General
Atty. Reg. No. 152754
445 Minnesota Street, Suite 900
St. Paul, MN 55101-2127
(651) 296-0987
ATTORNEYS FOR APPELLANT
STATE OF MINNESOTA
this Court has held that the gasoline excise tax is a “special tax” on
gasoline to fund state roadbuilding expenses. See Amoco Corp. v.
Comm’r of Revenue, 658 N.W.2d 859, 872 & n.4 (Minn. 2003).
Resp. App. 27a
No. A05-2540
STATE OF MINNESOTA
IN SUPREME COURT
The State of Minnesota,
by Hubert H. Humphrey III,
its then Attorney General, et al.,
Petitioner,
VS.
Philip Morris USA, Inc., e¢ al.,
and
A.H. Hermel Candy & Tobacco Co., et al.
Respondents.
STATE’S BRIEF & APPENDIX
EDWARD B. MAGARIAN, ESQ. MIKE HATCH
PETER SIPKINS, ESQ. Attorney General
Dorsey & Whitney LLP State of Minnesota
Ste. 1500 Assistant Attorney General
Minneapolis, MN 55402-1498 Atty. Reg. No. 219046
saseacetatiani MICHAEL J. VANSELOW
BRENT R. LINDAHL, ESQ. —_peputy Attorney General
SCOTT G. KNUDSON, ESQ. Atty. Reg. No. 152754
Briggs and Morgan
2200 IDS Center 445 Minnesota Street,
80 South Eighth Street Suite 1100
Minneapolis, MN 55402 St. Paul, Minnesota
(612) 977-8400 55101-2128
(651) 296-0987
ATTORNEYS FOR
PETITIONER
Resp. App. 28a
WALTER A. PICKHARDT, ESQ. KAREN A. JANISCH, ESQ.
Faegre & Benson, LLP 130 State Capitol
2200 Wells Fargo Center 75 Constitution Avenue
90 South Seventh Street St. Paul, MN 55155
Minneapolis, MN 55402 (651) 282-3705
THOMAS H. BOYD, ESQ. COUNSEL
KARL E. ROBINSON, ESQ.
Winthrop & Weinstine, PA
Suite 3500
225 South Sixth Street
Minneapolis, MN 55402-4629
(612) 604-6400
RANDY G. GULLICKSON ESQ.
Anthony Ostlund & Baer, P.A.
90 South Seventh Street,
Suite 3600
Minneapolis, MN 55402
(612) 349-6969
ATTORNEYS FOR
RESPONDENTS
TABLE OF CONTENTS
Page
pF gt Pty 8 cy _ en iii
SETI TTITITE TIED ncinditsdadennsdénussunmseteannionighiinenstiemioebiimmdetess 1
STATEMENT OF THE CASE ........ccccccoscsccscssssesssoerereees 2
Se NTTE GAY BENNETT citcitcasccsesccecenneccentnevenesvorenstioonts 4
TREE? GEE TREY EEE ET ceecenccesenssversceseccosensoresbeoenecties 11
SUMMARY OF ARGUMENT. ...............sssssscsssssssssrrereeeees 11
SET Fr erecntesceteesvsntnvernesnnieneqneyeeenesesnenononeteesesnereeine 13
I.
Il.
Resp. App. 29a
THE LANGUAGE AND CONTEXT OF THE AGREEMENT
DEMONSTRATE THAT THE PARTIES INTENDED IT To
Bre A MUTUAL RELEASE OF ADJUDICATORY CLAIMS
A. The Settlement Agreement And Consent
Judgment Must Be Construed As A Contract. ..
B. The Language And Context Of The Agree-
ment Demonstrate That The Parties Intended
To Release Only Adjudicatory Claims..............
C. The District Court Improperly Expanded The
State’s Release By Ruling That It Applied To
— And Prohibited — Legislative Enactments. ...
D. Because The Agreement Does Not Surrender
The Legislature’s Power To Impose An Exac-
tion On The Distribution Of Cigarettes, Im-
posing The HIF Does Not Breach Or Impair
inca citeiiecieiiiabacsenididaicatiaainadiiaiinnn
THE TERM “CLAIM” CANNOT BE INTERPRETED TO
INCLUDE LEGISLATIVE EXACTIONS BECAUSE THE
STATE’S RELEASE OF CLAIMS DOES NOT SURRENDER
THE STATE’S SOVEREIGN POLICE AND TAXING Pow-
ERS “IN LANGUAGE Too CLEAR To ADMIT OF
A. The Unmistakability Doctrine Requires That
Government Contracts Be Strictly Construed
Against The Surrender of Sovereign Powers. ..
B. The Agreement Does Not Surrender The Leg-
islature’s Police And Taxing Powers “In Lan-
guage And Terms Too Clear To Admit Of
SUNT schissciisadchenieienceissicsaatasdinlensimaeletcaencesianaaaaaaial
13
13
14
18
21
22
23
Ill.
.&
Resp. App. 30a
The Construction Required By The Unmis-
takability Doctrine Is Confirmed By The Par-
thee’ Deredtlnee Prastien. ...<.ccccescsvseseseesesessomsnsmons
The Construction Required By The Unmis-
takability Doctrine Is Also Required By The
Constitutional Separation Of Powers, Under
Which The Term “Claim” Cannot Be Inter-
preted To Include Legislative Exactions. ..........
IN THE ALTERNATIVE, THE AGREEMENT DOES Not
BAR IMPOSITION AND ENFORCEMENT OF THE HIF
BECAUSE THE AGREEMENT INCORPORATES THE
MINNESOTA CONSTITUTION’S EXPRESS PROHIBITION
AGAINST CONTRACTING AWAY THE TAXING POWER....
A.
The Agreement Incorporates The Minnesota
Constitution’s Express Prohibition Against
Contracting Away The Taxing Power And
Does Not Surrender That Power. .................0068
The HIF Is A Tax Rather Than A Fee Because
Its Express Purpose Is To Raise Revenue And
Because That Revenue Is Ultimately Trans-
ferred To The General Fund To Finance Cus-
tomary Governmental Functions. .............0:00+
EVEN IF THE DISTRICT COURT PROPERLY ENJOINED
THE COMMISSIONER FROM ENFORCING THE HIF
AGAINST DEFENDANTS’ DISTRIBUTORS, IT ERRED BY
RULING THAT CONTINUED ENFORCEMENT AGAINST
INTERVENORS VIOLATES EQUAL PROTECTION GUAR-
SETI, secccricsncliaiisstattaniabiiiibiaiaiacindmiglaeeeeen
A.
The Standard Of Review Under Relevant
27
27
30
30
33
Resp. App. 3la
B. Because Continued Enforcement Of The HIF
Against Intervenors Satisfies Minnesota’s
Three-Factor Rational Basis Test, It Com-
ports With State And Federal Equal Protec-
ETT RE ee aN 48
Ea 51
APPENDIX
TABLE OF AUTHORITIES
FEDERAL CASES
Bannum, Inc. v. Town of Ashland, 922 F.2d 197 (4th
ssa iorneeitiibocnesentennes 21
Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001).... 1, 49
Mississippi Power & Light Co. v. United States
Nuclear Regulatory Comm’n, 601 F.2d 223 (5th
IIIT ETE isis icin ndsiscednbenasesuenenenneneoapsonedopeeteoetont 41
PTI, Inc. v. Philip Morris, Inc., 100 F. Supp. 2d
ITIL, SEIT 0. scr cedeohepeenedededouttoneseoneneseeneesesnies 49
R.J. Reynolds Tobacco Co. v. Shewry, 423 F.3d 906
IE RE 43
San Juan Cellular Tele. Co. v. Pub. Serv. Comm’n,
967 F.26 GBS (Tet Civ, 1992) ....cccccccscecoccccescescooses 35, 40, 41
Springer v. Philippine Islands, 277 U.S. 189 (1928)........ 29
Star Scientific, Inc. v. Beales, 278 F.3d 339 (4th Cir.
SIT Tiida tains ccsmeenneniadecteneeesndseseesentosereeenesetos 1, 48
Sultan Chemists, Inc. v. EPA, 281 F.3d 73 (3d Cir.
TTT nant iodc cca arecieneechendepboussenetepweseuvebooosnieeen 18
Thompson v. Amoco Oil Co., 903 F.2d 1118 (7th Cir.
IIIT nite, cc tcadadaveobegbusincssonstueuereseeouorereneeoneasnes 20
Resp. App. 32a
Union Bank & Trust Co. v. Phelps, 288 U.S. 181
(Fiera csnscinceaniineneiecininiediieliagiigieidanentataitaialadaeaarasdiaiiaiiiiinatiaiaaidal 49
United States v. Armour Co., 402 U.S. 673 (1971)........... 14
United States v. ITT Contl Baking Co., 420 U.S.
AED CTO srcevessccinesicnisngsitiianssiediedicduieeliaadalaiaiaiieiiailaesibdiiaiiae 13
United States v. Winstar Corp., 518 U.S. 839 (1996).... passim
Winthrop Res. Corp. v Stanley Works, 259 F.3d 901
Ns __: RR eT a PO a ns 18
MINNESOTAL CASES
AFSCME Councils 6, 14, 65 & 96 v. Sundquist, 338
See SE ee CONE, TNTIID ececeinistsesctdncernciotnenteniniinnseninins 47
Albrecht v. Sell, 110 N.W.2d 895 (Minn. 1961)................. 31
Amoco Corp. v. Comm’r of Revenue, 658 N.W.2d 859
SL: SITE? wacecendecivsineccencdesendndsdeinecsstbabpasticimansimmnmubaeainiateds 44
Anderson v. State, 435 N.W.2d 74 (Minn. Ct. App.
ae cssecsiciinsiscsipsoecsasiessecticutanitiseniscibamntaseabldadiialeiadiaadiaaetsaiiiaaial 32, 33
Associated Cinemas of Am. v. World Amusement
eR fk A ee vee 21
Barron v. City of Minneapolis, 4 N.W.2d 622 (Minn.
ED sccsicoseiniicientasnesntinhaiiiaiieteaepeainiitiiidiiaiaieahaiiiaidaaieiianiiaeas 35
Carl Bolander & Sons, Inc. v. United Stockyards
Corp., 215 N.W.2d 473 (Minn. 1974)...............cccee000s 13, 14
Cherokee State Bank of St. Paul v. Wallace, 279
Fes ie Se CEE, IED wekasencsvicctaininrinibienantidiininannainaliis 49
City of Duluth v. Marsh, 73 N.W. 962 (Minn. 1898)......... 41
City of Mankato v. Fowler, 20 N.W. 361 (Minn.
DUPED crescenpemseceannerennennenensininendectebidinininedaaieniaiie 41
Resp. App. 33a
Country Joe, Inc. v. City of Eagan, 560 N.W.2d 681
hs SeUMETID csapsisserinicceseiseldinasinslinncciitaisanndineiiniecienntnensainte passim
Despatch Oven Co. v. Rauenhorst, 40 N.W.2d 73
I: SD cesicidincitiaieieiealventindlareninditinniadinninsitiiniibaiiiabicanesedéden 27
Eveleth Taconite Co. v. Minnesota Power & Light
Co., 221 N.W.2d 157 (Minn. 1974) ...........cceeccesseeseeeeeeees 32
Farmers Ins. Group v. Comm’r of Taxation, 153
Fac CE ED GREED: BONUS D sevevecesesceesvencosorsersseecencs 33, 34, 35
Hauschildt v. Beckingham, 686 N.W.2d 829 (Minn.
Spare aitivssnscctesoeeicssadinehedaehieseethesbinierbaesbeiadarecedbabidnienieaiaisaa 17
In re Minnehaha Parkway, 209 N.W. 939 (Minn.
STE vicitcesscccnepiischiesntaniariiicsnsicesadipuandsiaicileasaemadataraaniadaeiliaiiiies, 29, 31
In re Tveten, 402 N.W.2d 551 (Minn. 1987)...........ccccceeeees 47
J.L. Shiely Co. v. County of Stearns, 395 N.W.2d
See CII: SINE Annis sessiciicnnlasectnshueidllacabasdiebmeniiauiesenedies 46
Jacobsen v. Anheuser-Busch, Inc., 392 N.W.2d 868
STEED: : SIU corisnsephsochashnniopsashelioiiehdssetccncppaibvnneiccietiaeedaslebeibdioaloieaiehiguie 21
John Hancock Mut. Life Ins. Co. v. Comm’r of
Revenue, 497 N.W.2d 250 (Minn. 1993)...............000 46, 48
Kolton v. County of Anoka, 645 N.W.2d 403 (Minn.
Ti aciiiisisiieodaiiniiacahandiiniitedesalnianiuinininaadniabeiat 1, 46, 47, 50
Lake Superior Paper Industries v. State, 624
Gt __. : ner EON OE 11
Martin ex rel. Hoff v. City of Rochester, 642 N.W.2d
ls Bee isceistedinsiieninnticcitntdebiniesiadedicciebiaeicbnigunininaiens 17
Metro. Sports Facilities Comm’n v. County of
Hennepin, 478 N.W.2d 487 (Minn. 1991)...........cceceeeeees 48
Minneapolis Gas Co. v. Zimmerman, 91 N.W.2d 642
ST, TIT ichinphitsitieesibdaniosinsiitiinblinianebianaciemecnnennbidel 1, 25, 29
Motorsports Racing Plus, Inc. v. Arctic Cat Sales,
Inc., 666 N.W.2d 320 (Minn. 2003) ............cccceceeesereee 1,14
Resp. App. 34a
Nelson v. Am. Family Ins. Group, 651 N.W.2d 499
Ss SII staivahieiiadasi oi La iid hbind ne hcabnbiiinladiaouaeeeiaiiaiarcmpnenien 11
Progressive Specialty Ins. Co. v. Widness ex rel.
Widness, 635 N.W.2d 516 (Minn. 2001)... eeeeeeee 11
Propp v. Johnson, 300 N.W. 615 (Minn. 1941)............ 31, 32
Pullman Co. v. Comm’r of Taxation, 25 N.W.2d 838
NL INT scaceuiadiahaniiecicahibnieceinianiniaiebeanidabdesaiuaiknecuiiasins 43
Ramaley v. City of St. Paul, 33 N.W.2d 19 (Minn.
SITU ics dabidiinddinibidadicnibtahabin ta binialilertasacannvivsiiiainianannives passim
Rio Vista Non-Profit Housing Corp. v. County of
Ramsey, 335 N.W.2d 242 (Minn. 1983)..............c:seeeeee 48
Slezak v. Ousdigian, 110 N.W.2d 1 (Minn. 1961)............. 28
State ex rel. Hahn v. Young, 9 N.W. 737 (Minn.
SRSA RE AEs i nee eet aN EOE De 24, 31
State ex rel. Schmidt v. Youngquist, 227 N.W. 891
SIS III sisi cialis listoslaseidbdiddlinmenhedneveesabadeniiawainiah tienen 28
State v. Great N. Ry., 119 N.W. 202 (Minn.
Ri iid idaslasnsahicentisainiviiccanscdnbianbneatiacsbeisieniien 1, 22, 25, 26
State v. Hovorka, 110 N.W. 870 (Minn, 1907).................6 34
State v. Labo’s Direct Serv., 44 N.W.2d 823 (Minn.
ITT sidookdntelicen ibaciciadaeintat tidal atancncas sitoaditveadnansinsaned eoeaiveamieniads 4l
State v. N. Raceway Corp., 381 N.W.2d 526 (Minn.
Sais UII IEE ictineasdnioensensiiendasebpoanedddanssoensennsabeiesdtnenipedasvens 41
Village of Minneota v. Martin, 145 N.W. 383 (Minn.
STITT ceshitehbisliibnciatidieusiceipieninnsedatieouineniniseubiihaiaudindeenteueinsaveial 34, 41
W. States Util. Co. v. City of Waseca, 65 N.W.2d 255
Nt: SD iincedintabiensinnnnsiasadeenntidapenbdinbidedabnniiimieniiete 32
Resp. App. 35a
Westling v. County of Mille Lacs, 581 N.W.2d 815
nA, PE cies sscapnieclccecesteachanisiasitpsanialipucdsatscanelatad ab ibiaibdinahas 48
William Lindeke Land Co. v. Kalman, 252 N.W. 650
ei: IENUUIE cinsuccctusickengunabdeouaneiesddeiiudianddiniadaiiadinndiaaeientata 32
OTHER STATE CASES
City of North Little Rock v. Graham, 647 S.W.2d
Fe is: See icvscsincnscbininseseisiienseliatnisngitiinineeiaaidilaniansts 38
Denice v. Spotswood I. Quinby, Inc., 237 A.2d 4 (Md.
Sia icsiesieinincictaiasshaasiniintdagtihiasidasicaienapatidniaudariiadiadaaamieasiaeds 31, 32
Globe v. Cent. Sec. Mut. Ins. Co., 260 N.E.2d 860
CEs ean SUN, PUNO wikecsesieentnsevennnsiiabiaieeducocneincebddaansinase 31, 32
Hixon v. City of Philadelphia, 32 Pa. D. & C. 436
6s Bs | ee See EO 49
Okeson v. City of Seattle, 78 P.3d 1279 (Wash.
MOET cocisdahisniniinisttideladiceniietbcihianiaapilmadiamidiamasaaaiie 34, 40, 41, 42
People v. Bd. of Managers - New City Condo., 474
N.Y.S.2d 376 (N.Y. Sup. Ct. 1984)........cccrccsosesseeveocrcevers 35
President Riverboat Casino-Missouri v. Missouri
Gaming Comm’n, 13 S.W.3d 635 (Mo. 2000)........... 35, 36
Radio Common Carriers v. State, 601 N.Y.S.2d 513
Cte SN erly PUNE Pvcenestntensusdetiniemnegneimenenininnnintnnniensinnd 34
River Falls v. St. Bridget’s Catholic Church of River
Falls, 513 N.W.2d 673 (Wis. Ct. App. 1994).................. 34
Sch. Dist. No. One of Pima County v. Hastings, 472
ee Cs inca cocensiceinickstaectidecvademiannucciecnpianaaintnia’ 32
State ex rel. Petrol. Underground Storage Tank
Release Comp. Bd. v. Withrow, 579 N.E.2d 705
SEEN SUNITA) aciscistidtunsinupsshintcinsnveiaedotiaducsiienelavmnmamiianeniiessats 34
Wetzel County Solid Waste Auth. v. West Virginia
Div. of Nat. Res., 462 S.E.2d 349 (W.Va. 1995)............. 39
Resp. App. 36a
CONSTITUTIONAL PROVISIONS
I a I 21
I Ets IIs Us OF Ui iiacteesesnsnnscccniiceisnntouioniecnasaiatiéaianbbdenaanias 46
hy A TINE Sila TP Raccectseseucneisencdenimoneiseciacduicanieiis 28, 29
ls MIs MIE, TUTE Th ni csccncictctnsciusetnsnaimiinieniuenumssaibedéaueaiiias 28
Pens SIs MIs: Bilin: UE Bcccsncnccevnenekictencenciutstenesnionianinine passim
I ee 47
ey ee, SI EI Oo camseemmnenaoiaiaa 46
A a I i eens 21
MINNESOTA STATUTES AND LAWS
Act of April 28, 1947, ch. 619, §§ 1-2, 1947 Minn.
ES Ti cis ceihhucchdenpbimcunidetadiiscendadatesddadamddamnamelenbini 6, 38
Act of Dec. 27, 1906, 1907 Minn. Laws ix...............ceece00e 31
Act of July 14, 2005, ch. 4, art. 4, §§ 1-6, 2005
Minn. Laws (1st Sp. Sess.) 2541-44... eee eees passim
hc Se ae ET cicchicticiscincuidencsgoininnoiabdeinatbapunencediin 38
NE rele Se CPi inciscidan'scsdnicemneynntnanatichsbnsntetiisovedandoncaiavinuancs ame
I, SUNG OF SIL UTE saisiceciveesssrncecicseinsbbniniseienitiasssiadcdatmnnnbentil 8, 39
Minn. Stat. § 297F.05, subd. 1 (2004)... eeeeeeeeeee 37
Minn. Stat. § 297F.05, subd. 1 (Supp. 1997)... eee 6
Bs Cis Oe UA i cacichivsssisinnericiinsatcenicabsaguseniaeniicurideietencomanssenians 28
Se Se WP tsi ccanceusdnsekoiesanceitanncincilicnbinsinaidinidhuindalaseiinaiaueaatias 28
BL PUI: OP Ut ail cicssenesibacinseiucceesemiebdennbacotedsasiiesianmsnsinaeubadens 28
Resp. App. 37a
OTHER AUTHORITIES
71 Am.Jur.2d State and Local Taxation § 21 (1973)........ 44
Bill Salisbury, Pawlenty Battered, Unbowed at
Capitol, St. Paul Pioneer Press, July 17, 2005......... 7, 38
Black’s Law Dictionary (8th ed. 2004)...............0004 17, 43, 44
Bob Geiger, MN Marketing Briefs: June 11, 2005,
Finance & Commerce (Minneapolis, MN).................6 38
Dan Browning, The Budget Deal, Minneapolis Star
FEGUS, FUT 18, BOOS cericrncevemninetomnnanan 33
Minnesota Def: Lawyers Ass’n Release Deskbook,
App. of Forms (Eric J. Magnuson & Stephen O.
PemOEE CR. BD ccviiecsnnckstsstnckeatesteddigtoviansataedaladuen 19
Minnesota Dep’t of Human Services, About DHS,
Department Overview, http:/Awww.dhs.state.mn.
us/main/groups/agencywide/documents/pub/DHS
J DOGBI OU vc crissisrisccssssstcstenictniaenieddieiiaaaa 37
Minnesota Department of Finance, Minnesota
State Budget, General Fund Piecharts, http://
www.budget.state.mn.us/budget/summary/charts/
QEOBIG. hCG ver itedacneveincccscteriviteenpnn 37
Minnesota House of Representatives, Fiscal
Analysts, Minnesota General Fund Forecasted
Revenues, Fiscal Years 2006 & 2007, http://www.
house.leg.state.mn.us/fiscal/files/067fromt.pdf ............ 37
Minnesota State Senate, 2005 State Fair Poll,
http://www.senate.leg.state.mn.us/departments/
secretary/info/statefair/2005/fair_survey. pdf................ 41
Il.
Resp. App. 38a
LEGAL ISSUES
Does the language and context of the 1998
Settlement Agreement demonstrate that the
parties intended the Agreement to provide a
mutual release of adjudicatory claims only?
¢ The district court ruled that the Agreement sur-
rendered legislative powers as well as adjudica-
tory claims.
Motorsports Racing Plus, Inc. v. Arctic Cat
Sales, Inc., 666 N.W.2d 320 (Minn. 2003).
Did the State’s release of “claims” in the
Agreement surrender the Legislature’s sover-
eign police and taxing powers “in language
and terms too clear to admit of doubt”?
¢ The district court implicitly ruled in the affirma-
tive.
State v. Great N. Ry., 119 N.W. 202 (Minn.
1908).
United States v. Winstar Corp., 518 U.S. 839
(1996).
Minneapolis Gas Co. v. Zimmerman, 91
N.W.2d 642 (Minn. 1958).
III. Does the Agreement bar enforcement of the
Health Impact Fee (“HIF”) when the Agree-
ment incorporates by operation of law the
Minnesota Constitution’s express prohibition
against contracting away the Legislature’s
taxing power?
¢ The district court did not reach this issue.
Minn. Const. art. X, § 1.
Country Joe, Inc. v. City of Eagan, 560
N.W.2d 681 (Minn. 1997).
Resp. App. 39a
Ramaley v. City of St. Paul, 33 N.W.2d 19
(Minn. 1948).
IV. If the HIF cannot be enforced against Defen-
dants’ Distributors, does continued enforce-
ment of the HIF against the Intervenors
violate the Intervenors’ equal protection
rights?
e The district court ruled that continued enforce-
ment of the HIF against Intervenors violates
their equal protection rights.
Kolton v. County of Anoka, 645 N.W.2d 403
(Minn. 2002).
Lorillard Tobacco Co. v. Reilly, 533 U.S. 525
(2001).
Star Scientific, Inc. v. Beales, 278 F.3d 339
(4th Cir. 2002).
STATEMENT OF THE CASE
On May 8, 1998, the country’s four largest tobacco
manufacturers (“Settling Defendants” or “Defendants”)’
entered a Settlement Agreement with the State to resolve
— before an empanelled jury could — the State’s pending
litigation. See generally Appendix (“App.”) at 37-71 (Set-
tlement Agreement dated May 8, 1998). On August 26,
2005, Defendants brought a motion in Ramsey County
District Court to enforce that Agreement. See App. at 1-5’
’ “Settling Defendants” include Phillip Morris USA, Inc., R.J.
Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation
and Lorillard Tobacco Company.
* Defendants proceeded by motion because the Consent Judgment
accompanying the Settlement Agreement provides that “[j]urisdiction of
(Continued on following page)
Resp. App. 40a
Nine of their distributors (“Defendants’ Distributors”)
intervened without objection. Together, Defendants and
their distributors asserted that the 2005 Health Impact
Fee (“HIF”) — a legislatively imposed exaction on the
distribution of cigarettes — is a “released claim” under the
Agreement and, consequently, could not be enforced
against them.
The Council of Independent Tobacco Manufacturers of
America and Commonwealth Brands, Inc. (“Intervenors”)
separately moved to intervene. Intervenors are tobacco
manufacturers and distributors that are not parties to, or
beneficiaries of, the Settlement Agreement. Intervenors
alleged that the HIF could not be enforced against them if
the district court invalidated the HIF as to the Settling
Defendants and their distributors.
The State asserted that the HIF is a valid legislative
exaction not prohibited by the Settlement Agreement and,
consequently, that requiring Defendants’ Distributors to
pay the HIF does not violate the Agreement. The State
further argued that, even if the district court prohibited
enforcement of the HIF against Defendants’ Distributors,
continued enforcement against Intervenors would not
violate equal protection principles.
In an Order dated December 20, 2005, the district
court, the Honorable Michael F. Fetsch presiding, held
that imposing the HIF on Defendants’ Distributors
breached the Settlement Agreement and violated the
Contracts Clauses of the state and federal constitutions.
App. at 14, 16. The court then concluded that imposing the
this case is retained [in the Ramsey Count District Court] for the
purpose of enforcement. . . .” See App. at 80.
Resp. App. 41a
HIF on Intervenors alone would deprive them “of equal
protection under the Uniform Taxation Clause of the
Minnesota Constituuion,” and “would be the functional
equivalent of a special legislation” favoring Defendants.
Id. 16-18. The district court subsequently stayed enforce-
ment of its Order pending resolution of this appeal. See id.
at 20-21.
STATEMENT OF FACTS
A. The Minnesota Tobacco Litigation and
Settlement
On August 17, 1994, the State, through then-Attorney
General Hubert H. Humphrey III, commenced suit (the
“State Tobacco Lawsuit”) against Defendants and others.
The State alleged, among other things, that Defendants,
through deceit, misrepresentation and active concealment,
profited from a product they knew to be deadly and addic-
tive even as they marketed it to children. See generally
Defs.’ Mem. Supp. Mot. Enforcmnt. Settlmt. Agrmt. (“Defs.’
Mem.”), Affidavit of Edward B. Magarian (“Magarian
Aff.”), Ex. B., (State Tobacco Lawsuit, Second Amended
Complaint dated Jan. 6, 1998).
The State asserted nine causes of action against
Defendants, including both common law claims (e.g.,
unjust enrichment) and statutory claims (e.g., consumer
fraud, false advertising, unlawful and deceptive trade
practices and antitrust). Jd. at 30-37. The State sought an
award of substantial compensatory, punitive and treble
damages, civil penalties, and equitable and injunctive
relief. Id. at 37-40.
In May 1998, after a lengthy trial, but before the jury
returned a verdict in the State Tobacco Lawsuit, the State
Resp. App. 42a
and Defendants entered into the Settlement Agreement
and jointly obtained entry of a Consent Judgment (to-
gether, the “Agreement”). The Agreement lies at the center
of the current dispute between the parties.
The parties entered the Agreement to resolve the legal
claims made by Minnesota: “to settle and resolve with
finality all claims... relating to the subject matter of this
action which have been or could have been asserted by the
State of Minnesota.” App. at 37; see id. at 50-52 (State’s
release of claims). Defendants likewise released all of their
“claims” against the State, see id. at 52-53, and they
agreed to make specified payments in exchange for the
“dismissal and release of claims by the State of Minne-
sota.” Id. at 39. The term “claims” is defined in relevant
part as follows:
[T]he State of Minnesota shall release and for-
ever discharge all Defendants and their... dis-
tributors ... from any and all manner of civil
claims, demands, actions, suits and causes of ac-
tion, damages whenever incurred, liabilities of
any nature whatsoever, including civil penalties,
as well as costs, expenses and attorneys’ fees,
known or unknown, suspected or unsuspected,
accred or unaccrued, whether legal, equitable or
statutory (“Claims”) that the State of Minnesota
(including any of its past, present or future ad-
ministrators, representatives, employees, offi-
cers, attorneys, agents, representatives, officials
acting in their official capacities, agencies, de-
partments, commissions, and divisions, and
whether or not any such person or entity partici-
pates in the settlement), whether directly, indi-
rectly, representatively, derivatively or in any
other capacity, ever had, now has or hereafter
can, shall or may have, as follows:
Resp. App. 43a
for past conduct, as to any Claims relating
to the subject matter of this action... ; and
for future conduct, only as to monetary
Claims directly or indirectly based on, aris-
ing out of or in any way related to, in whole
or in part, the use of or exposure to Tobacco
Products manufactured in the ordinary
course of business, including without limita-
tion any future claims for reimbursement for
health care costs allegedly associated with
use of or exposure to Tobacco Products.
App. at 50-51 (emphasis added).
As part of its release, the State covenanted and agreed
that it would not “hereafter sue or seek to establish civil
liability against any person or entity covered by the
release ... based, in whole or in part, upon any of the
Released Claims.” App. at 52. The State further agreed
that “this covenant and agreement shall be a complete
defense to any such civil action or proceeding.” Id. (empha-
sis added).
Attorney General Humphrey was the sole elected
state official to sign the Agreement. App.. at 20. The
Agreement was never presented to or ratified by the
Legislature.
The Settlement Agreement and an accompanying
Consent Judgment were submitted by the parties to the
Court, and the Honorable Kenneth J. Fitzpatrick approved
and entered the Consent Judgment. See App. at 72-82. The
Consent Judgment resolved “all claims set forth in the
State’s Second Amended Complaint against Defendants,
which are hereby dismissed with prejudice, and shall
constitute the final disposition of this action.” Jd. at 80.
Resp. App. 44a
‘B. The Minnesota Cigarette Excise Tax
When Minnesota’s Settlement Agreement was negoti-
ated and executed, the State imposed an excise tax of 48
cents per pack upon the sale of cigarettes. See Minn. Stat.
§ 297F.05, subd. 1 (Supp. 1997).’ The State has continued
to collect from distributors, without objection, the excise
tax for cigarettes manufactured by the Settling Defen-
dants.
C. The Minnesota Health Impact Fee
On July 14, 2005, Governor Pawlenty signed into law
a Tobacco Health Impact Fee effective August 1, 2005. See
Act of July 14, 2005, ch. 4, art. 4, §§ 1-6, 2005 Minn. Laws
(Ist Sp. Sess.) 2541-44 (the “Act”) (App. at 33-36). The Act
was introduced during a special legislative session and
produced the political compromise that enabled Minnesota
to balance its budget.’ The Act declares that “[a] tobacco
use health impact fee is imposed on and collected from
cigarette distributors,” and it specifies two purposes: “to
recover for the state health costs related to or caused by
tobacco use and to reduce tobacco use, particularly by
* Minnesota began taxing the sale of cigarettes in 1947. See Act of
April 28, 1947, ch. 619, §§ 1-2, 1947 Minn. Laws 1122-24 (codified as
amended at Minn. Stat. § 297.01-02 (1549)).
* See, e.g., Bill Salisbury, Pawlenty Battered, Unbowed at Capitol,
St. Paul Pioneer Press, July 17, 2005, at 1A (“The tobacco charge,
Pawlenty said this week, is what it took to broker the deal that ended
the partisan dogfight at the Capitol and pass a balanced budget that
provides a big infusion of new cash for K-12 schools.”).
Resp. App. 45a
youths.” Act § 2, subd. 1. The HIF was imposed at the rate
of 75 cents per pack. Id. § 2, subd. 3(a).°
The HIF is administered by the Commissioner of
Revenue (“Commissioner”), who also administers the
State’s cigarette excise tax imposed by Minn. Stat.
§ 297F.05. Indeed, the Act provides that “[a] distributor
must pay the fee at the same time and in the same man-
ner as provided for payment of [the cigarette excise] tax
under chapter 297F.” Jd. at § 2, subd. 4. Failure to pay
either of these exactions can lead to the revocation of a
distributor’s license.’ See id. § 2, subd. 8; Minn. Stat.
§ 297F.04, subd. 1 (2004).
The Act also “created in the state treasury a health
impact fund to which must be credited all revenue from
the health impact fee.” Act § 1, subd. 1; see also id. § 2,
subd. 9 (directing that fee revenue be credited to fund).
The Act requires the Commissioner of Human Services to
certify to the Commissioner of Finance each year “the
state share, by fund, of tobacco use attributable costs for
the previous fiscal year in Minnesota health care pro-
grams, including medical assistance, general assistance
medical care, and MinnesotaCare, or other applicable
expenditures.” Jd. §1, subd. 2. The Commissioner of
Fimance must then transfer “to the general fund an
amount sufficient to offset the general fund cost of the
* The Act also imposed a floor stocks fee at the same rate to
account for cigarettes already in stock or on the shelves. Act § 5,
subd. 2.
* By selling cigarette stamps for $1.485 each, the Commissioner
actually collects three charges at once: (a) the 75-cent HIF; (b) the 48-
cent cigarette excise tax; and (c) the State’s 25.5-cent cigarette sales
tax.
Resp. App. 46a
certified expenditures ... or the balance of the fund,
whichever is less.” Jd. §1, subd. 3(a). If a balance remains,
the Finance Commissioner must then transfer “to the
health care access fund the amount sufficient to offset the
health care access fund cost of the certified expenditures.”
Id. § 1, subd. 3{b).
D. Motion to Enforce Settlement Agreement
On August 26, 2005, Defendants moved to enforce the
Agreement. Defendants noted that the Agreement released
Defendants and their distributors from any “claims” to
recover State healthcare costs attributable to tobacco use,
and they asserted that the HIF qualifies as a released
“claim.” Defendants argued that imposing the HIF on their
distributors therefore breached the Agreement and vio-
lated the Contracts Clauses of the United States and
Minnesota Constitutions. Intervenors asserted that if the
district court invalidated the HIF as to Defendants and
their distributors, continued enforcement of the HIF
against Intervenors would violate equal protection.
The State responded that the HIF is a legislative
exaction rather than a released “claim” under the Agree-
ment and, consequently, that the Agreement does not bar
collection of the HIF from Defendants’ Distributors. The
State also argued that the Agreement incorporates the
Minnesota Constitution’s express prohibition against
contracting away the State’s taxing power, and therefore
cannot bar collection of the HIF, which is in substance a
tax upon the distribution and sale of cigarettes. Finally,
the State argued that, even if the district court prohibited
enforcement of the HIF against Defendants’ Distributors,
Resp. App. 47a
continued enforcement against Intervenors would not
violate equal protection.
By Order dated December 20, 2005, the district court
enjoined the Commissioner from enforcing the HIF against
both Defendants’ Distributors and Intervenors. App. at 9.
The court rejected the State’s argument that the Agree-
ment’s release of “claims” did not apply to legislative
exactions. The court reasoned that this “reading of the
release, which would limit its operating effect only to
‘judicial claims,’ ignores definition [sic] of claims within
the settlement agreement, which is much broader, and
includes ‘. . . liabilities of any nature whatsoever’ including
those of a ‘statutory nature.” Jd. at 14. The court found
that “[t]he H.I.F. is statutory in nature and directly im-
poses that from which the defendants are protected by the
Settlement Agreement.” Jd. The court further concluded
that the HIF is a “fee” rather than a tax, and that it
violates the State’s release. Jd. at 13.
The court further determined that “defendants have
proven a ‘contracts clause’ violation.” App. at 16. “Here the
state seeks to abrogate that which what [sic] it has prom-
ised but offers neither to forego future payments or to
refund past payments.” Jd. The court considered it “impos-
sible to find that the [HIF] legislation is a reasonable
device which serves the end of protecting the vital inter-
ests of the community.” Jd. For these reasons, the court
enjoined the Commissioner from enforcing the HIF against
Defendants’ Distributors.
The court next concluded that “[t/he resultant situa-
tion creates an anomoly [sic] in the marketplace by which
the settling defendants’ products will have a distinct
marketplace advantage in price.” App. at 16-17.
Resp. App. 48a
In light of my decision above, the H.I.F., as ap-
plied to the distributors of nonsettling defen-
dants, who comprise approximately ten percent
of the market, will be selectively enforced only as
to the remaining ten percent. None of the stat-
ute’s stated statutory goals will be fulfilled. The
nonsettling defendants will be singled out and
deprived of equal protection under the Uniform
Taxation Ciause of the Minnesota Constitution.
App. at 17. The court thus enjoined the Commissioner
from enforcing the HIF against Intervenors. Jd. at 9. The
court subsequently stayed enforcement of its Order pend-
ing resolution of this appeal. See id. at 20-21.
STANDARD OF REVIEW
Because the facts in this case are undisputed, “only
questions of statutory and contract interpretation remain.”
Progressive Specialty Ins. Co. v. Widness ex rel. Widness,
635 N.W.2d 516, 518 (Minn. 2001). These are legal issues
subject to de novo review. Id.; Lake Superior Paper Indus-
tries v. State, 624 N.W.2d 254, 258 (Minn. 2001). Cf. also
Nelson v. Am. Family Ins. Group, 651 N.W.2d 499, 503
(Minn. 2002) (holding that where district court grants
summary judgment based on application of statute to
undisputed facts, result is legal conclusion that appellate
court reviews de novo). The decisional standards governing
particular issues are discussed below.
Resp. App. 49a
SUMMARY OF ARGUMENT
This case involves an attempt by tobacco manufactur-
ers to advance an implausible construction of an agree-
ment settling litigation claims to block the valid exercise of
the Legislature’s sovereign police and taxing powers.
Imposing the HIF upon Defendants’ Distributors does
not violate the 1998 Settlement Agreement. The Agree-
ment is a mutual release of adjudicatory claims only. The
State promised that it would never “sue or seek to estab-
lish civil liability against any person . . . based, in whole or
in part, upon any of the Released Claims.” App. at 52. The
language and context of the Agreement demonstrate that
it does not surrender the Legislature’s sovereign power to
impose a tax or fee upon the distribution of cigarettes.
Moreover, even if there were some question about
whether the term “claims” in the Agreement encompasses
legislative exactions, any doubt over the construction of
the Agreement must be resolved in the State’s favor.
Courts have long held that government contracts must be
strictly construed against the surrender of the State’s
sovereign police and taxing powers. In fact, under the
“unmistakability doctrine,” any contractual relinquish-
ment of these powers must be stated “in language and
terms too clear to admit of doubt.” For these reasons —
regardless of whether it is a tax or a fee — the HIF is a
legislative exaction rather than a released “claim” under
the Agreement. Therefore, imposing the HIF does not
breach or impair the Agreement.
In the alternative, the Minnesota Constitution pro-
vides that “t]he power of taxation shall never be surren-
dered, suspended or contracted away.” Minn. Const. art. X,
§ 1. Consequently, the Agreement could not, as a matter of
Resp. App. 50a
law, contract away the State’s power to tax the distribu-
tion of cigarettes. Despite its label as a “fee,” the HIF is
really a tax on cigarette distribution. As such, the HIF is
not a released “claim” and could not possibly breach or
impair the Agreement.
Finally, even if the district court properly enjoined the
Commissioner from enforcing the HIF against Defendants’
Distributors, it erred by ruling that continued enforcement
of the HIF against Intervenors violates equal protection
guarantees. Equal protection is not offended when the
State enforces a law of general application against all
parties over whom it has lawful enforcement authority.
ARGUMENT
I. THE LANGUAGE AND CONTEXT OF THE AGREEMENT
DEMONSTRATE THAT THE PARTIES INTENDED IT TO
BE A MUTUAL RELEASE OF ADJUDICATORY CLAIMS
ONLY.
The HIF is not a released “claim” under the Agree-
ment. The language and context of the Agreement demon-
strate that the parties drafted and executed a mutual
release of adjudicatory claims only. This construction of
the Agreement is further compelled by application of the
well-established “unmistakability doctrine” discussed in
Argument II below. Accordingly, the State’s release of
claims in the Agreement does not apply to, or prohibit,
future legislative exactions such as the HIF. Because the
Resp. App. 5la
district court erred in its cursory analysis of this issue,
this Court should reverse.’
A. The Settlement Agreement And Consent
Judgment Must Be Construed As A Con-
tract.
Consent judgments are entered into by parties after
careful negotiations concerning precise terms, and must be
“construed for enforcement purposes basically as a con-
tract.” United States v. ITT Cont’l Baking Co., 420 U.S.
223, 238 (1975). Accordingly, the Agreement must be
interpreted to “give effect to the mutual intention of the
parties at the time of contracting.” Carl Bolander & Sons,
Inc. v. United Stockyards Corp., 215 N.W.2d 473, 476
(Minn. 1974) (internal quotation marks and citation
omitted). “[T]he scope of a consent decree must be dis-
cerned within its ‘our corners.” United States v. Armour
Co., 402 U.S. 673, 681 (1971).
The Court’s duty is “to declare the meaning of what is
written in the instrument.” Carl Bolander & Sons, 215
N.W.2d at 476. To arrive at that meaning, courts must
construe contract terms in the context of the entire docu-
ment, reading together and harmonizing terms where
possible. See Motorsports Racing Plus, Inc. v. Arctic Cat
Sales, Inc., 666 N.W.2d 320, 324 (Minn. 2003) (“Intent is
ascertained... from a process of synthesis in which the
words and phrases are given a meaning in accordance
’ The Court need not reach the issues addressed in Arguments II,
III and IV below if it rules, based on the language and context of the
Agreement, that the State’s release of “claims” did not surrender
legislative authority.
Resp. App. 52a
with the obvious purpose of the contract... as a whole.”).
“Where the parties express their intent in unambiguous
words, those words are to be given their plain and ordi-
nary meaning.” /d. at 323.
B. The Language And Context Of The
Agreement Demonstrate That The Parties
Intended To Release Only Adjudicatory
Claims.
The familiar principles of construction set forth above
make clear that the “claims” released by Minnesota did
not encompass future legislative enactments of taxes or
fees, but instead were limited to adjudicatory claims.
1. The Purpose of the Agreement was to
Resolve Particular Adjudicatory Claims.
The purpose of the Agreement was to resolve the
particular legal claims made by Minnesota in its underly-
ing lawsuit. The Settlement Agreement states, for exam-
ple, that it “resolve[s] with finality all claims ... relating
to the subject matter of this action which have been or
could have been asserted by the State of Minnesota.” App.
at 37 (emphasis added)." Defendants agreed to make
specified payments in exchange for the “dismissal and
release of claims by the State of Minnesota.” Jd. at 39
(emphasis added). The Consent Judgment likewise recites
that it “resolves all claims set forth in the State’s Second
* See also App. at 50 (stating that Settlement Agreement “resolves
all claims between State and Defendants” and that upon approval by
Court, final judgment shall enter “dismissing with prejudice all claims
as to all Defendants”) (emphasis added).
Resp. App. 53a
Amended Complaint ... and shall constitute the final
disposition of this action.” Jd. at 80 (emphasis added). The
purpose of the Settlement Agreement and Consent Judg-
ment — resolving 9n active lawsuit involving specific
pending legal claims - demonstrates that the released
“claims” were likewise legal claims.
2. The Parties’ Definition of “Claims” Re-
fers to Adjudicatory Claims.
The parties’ definition of “claims” clearly refers to
adjudicatory claims. The Agreement defines “claims” in
the State’s release as “any and all manner of civil claims,
demands, actions, suits and causes of action, damages
whenever incurred, liabilities of any nature whatsoever,
including civil penalties, as well as costs, expenses and
attorneys’ fees, known or unknown, suspected or unsus-
pected, accrued or unaccrued, whether legal, equitable or
statutory (‘Claims’)... .” App. at 50-51. By means of almost
identical language contained in a separate provision,
Defendants released their “claims” against the State. See
id. at 52-53. The Agreement is thus, in part, a mutual
release of claims.
The adjudicatory context is apparent when the lan-
guage of the Agreement’s release provisions is read to
harmonize rather than fragment their words and phrases.
The term “claims” used in both provisions ceptures three
general categories. The opening group of terms in the
definition — “civil claims, demands, actions, suits and
causes of action” — are all variants of adjudicatory proceed-
ings and the causes of action asserted therein. The next
group — “damages whenever incurred, liabilities of any
nature whatsoever, including civil penalties” — ar» expenses
Resp. App. 54a
that can result from the adjudication of claims. The final
group — “costs, expenses and attorneys’ fees” — are ex-
penses associated with pursuing judicial claims. In draft-
ing their settlement agreement, the parties used the term
“claims” in its ordinary sense, to refer to lawsuits and the
liabilities and costs incident to such suits, whether the
basis of the suits was “legal, equitable or statutory.”
This typical meaning is confirmed by the covenant in
the State’s release, which refers exclusively to the adjudi-
catory context:
The State of Minnesota hereby covenants
and agrees that it shall not hereafter sue or seek
to establish civil liability against any person or
entity covered by the release ... based, in whole
or in part, upon any of the Released Claims, and
the State of Minnesota agrees that this covenant
and agreement shall be a complete defense to any
such civil action or proceeding.
App. at 52 (emphasis added). The parties did not, as
Defendants assert, use the term “claims” in a strained and
unnatural way, to encompass legislative acts.”
* The terms “claim” and “cause of action” are virtually synonymous
and both pertain to the adjudicatory context. Black’s Law Dictionary,
for example, defines “claim” in relevant part as follows:
1. The aggregate of operative facts giving rise to a
right enforceable by a court. .. . 2. The assertion of an exist-
ing right; any right to payment or to an equitable remedy,
even if contingent or provisional. . . . 3. A demand for money,
property, or a legal remedy to which one asserts a right;
esp., the part of a complaint in a civil action specifying what
relief the plaintiff asks for. ... 4. An interest or remedy rec-
ognized at law; the means by which a person can obtain a
privilege, possession or enjoyment of a right or thing; cause
of action. ...
(Continued on following page)
Resp. App. 55a
3. When the Parties Referred to Future
Legislative Action in the Agreement,
They Expressly Used the Term “Legis-
lation.”
Defendants are highly sophisticated entities that have
for decades been subject to a myriad of state and federal
legislative regulation and taxation. Had the parties
actually intended the State’s release to surrender the
Minnesota Legislature’s sovereign authority to impose
either a regulatory fee or a tax upon the distribution of
cigarettes, they would have used suitable language to
indicate this intention. Indeed, the parties consistently
used the word “legislation” in the Agreement to identify
future action by either Congress or the Minnesota Legisla-
ture, and they referred to these legislative assemblies by
name. The parties specified, for example:
¢ How “[t]he enactment of federal tobacco-related
legislation” will affect the Agreement. See gener-
ally App. at 48.
¢ That Defendants shall not “[s]upport in Congress
or any forum, /egislation, rules or policies which
would preempt, override, or abrogate or diminish
the State’s rights or recoveries under this
Agreement.” Jd. at 54.
¢ That Defendants shall not “[o]ppose the passage
of those future Minnesota legislative proposals or
administrative rules intended by their terms to
Black’s Law Dictionary 264 (8th ed. 2004). See alse Hauschildt v.
Beckingham, 686 N.W.2d 829, 840 (Minn. 2004) (stating that “claim”
and “cause of action” “can »e used interchangeably”), Marvin ex rel. Hoff
uv. City of Rochester, 642 N.W.2d 1, 9 (Minn. 2002) (stating that a claim
or cause of action is “a group of operative facts giving rise to one or
more bases for suing”).
Resp. App. 56a
reduce tobacco use by children listed on Schedule
B. (The foregoing does not prohibit Settling De-
fendants from resisting enforcement of, or suing
for declaratory or injunctive relief with respect to
any such /egislation or rule on any grounds.)” Jd.
¢ That “the parties recognize that Congress is con-
sidering national tobacco legislation and have
agreed to settle this case on a basis which ac-
knowledges possible federal legislation, but
which guarantees to the people of Minnesota the
relief granted herein.” Jd. at 69.
Had the parties intended a surrender of State legislative
powers in addition to the legal claims identified in the
State’s release, they would have made their intention
plain by using the term “legislation” as they frequently did
elsewhere in the Agreement. The terms “claims” and
“legislation” are distinct, have different meanings, and
cannot be used interchangeably. See, e.g., Winthrop Res.
Corp. v. Stanley Works, 259 F.3d 901, 905 (8th Cir. 2001)
(refusing to equate two separate contract terms and
holding that distinct terms have separate meanings);
Sultan Chemists, Inc. v. EPA, 281 F.3d 73, 79-80 (3d Cir.
2002) (same).
C. The District Court Improperly Expanded
The State’s Release By Ruling That It Ap-
plied To - And Prohibited - Legislative En-
actments.
The district court reasoned that the State’s release
encompasses legislative impositions merely because it
includes the phrase: “liabilities of any nature whatsoever.”
App. at 14. This ruling is incorrect for several reasons.
First, some broad mention of “all liabilities” is boilerplate
Resp. App. 57a
language routinely used in release-of-claims provisions
resolving adjudicatory disputes. See, e.g., Minnesota Def.
Lawyers Ass’n Release Deskbook, App. of Forms at F-1
(Eric J. Magnuson & Stephen O. Plunkett eds. 1998). For
example, the model version of a “Full and Final Release of
All Claims” states:
IN CONSIDERATION of the payment of... ,
I/we do hereby release and forever discharge
[DEFENDANT] .. . from any and all liability, ac-
tions, causes of action, claims and demands,
known and unknown, upon and by reason of any
damage, loss or injury which heretofore have
been or which hereafter may be sustained by
me....
Id. (emphasis added). In the settlement context, “liability”
is a subset of judicial “claims.” It is unreasonable to
attribute a broader meaning to that term here simply
because one of the parties is a government entity. Indeed,
nothing indicates that the term “liabilities” in this particu-
lar release was intended to encompass future state legisla-
tive enactments. Rather, the only reasonable conclusion is
that the parties used boilerplate — customary language —
for its customary purpose. If this Court were to adopt the
See id. at F-11 (“The term ‘claims or causes of action’ includes,
but is not limited to, all liability, actions, causes of action, claims and
demands... .”) (emphasis added), F-48 (“Employee hereby .. . releases
... Company from any and all federal, state or local charges, claims,
controversies, causes of action, damages, costs, attorneys’ fees, or
liabilities of any nature....”) (emphasis added); and F-65 (“ABC
Corporation ... and the Settling Defendants ... do hereby release .. .
each other ... from and for any and all existing or potential demands,
causes of action, equitable or legal claims, obligations, damages, losses,
penalties and liabilities of any nature whatsoever... .”) (emphasis
added).
Resp. App. 58a
district court’s reasoning, every State settlement agree-
ment that includes a boilerplate release referring to “all
liabilities” would actually work a broad surrender of
legislative power. This result is both unreasonable and
contrary to well established precedent. See infra, Arg. § II
(discussing unmistakability doctrine).
Second, the phrase “liabilities of any nature whatso-
ever” appears in the Defendants’ release as well as the
State’s. See App. at 52-53. Plainly, however, Defendants
had no legislative authority to surrender. Courts disfavor
reading the same term to mean different things in differ-
ent parts of a contract. See, e.g., Thompson v. Amoco Oil
Co., 903 F.2d 1118, 1121 (7th Cir. 1990) (“Unless a contrary
intent is evident, words used in one sense in one part of a
contract are deemed of like significance in another part.”).
Third, the district court erred by concluding that the
HIF is a released “statutory claim” under the Agreement.
See App. at 14. Both release provisions in the Agreement —
the State’s and the Defendants’ -— surrender claims
“whether legal, equitable, or statutory.” The term “statu-
tory claims” refers to legal causes of action provided by
statute rather than common law. The State, for example,
asserted several “statutory claims” in the State Tobacco
Lawsuit, including consumer fraud, false advertising and
antitrust. See Defs.’ Mem., Magarian Aff., Ex. B. at 31-36.
Nothing in the context or language of the Agreement
suggests that “statutory claims” encompasses future
legislative enactments of self-executing fees or taxes,
particularly where this same meaning cannot be applied to
the same language in Defendants’ release.
In negotiating the Agreement, the parties used com-
mon and well defined legal terms. When interpreting the
Resp. App. 59a
Agreement, the Court should give such terms their com-
mon meaning and find that “claims” refers exclusively to
adjudicatory claims or causes of action that Minnesota
agreed never again to pursue. The Court should not
broaden these terms to cover future legislative acts.
D. Because The Agreement Does Not Surren-
der The Legislature’s Power To Impose An
Exaction On The Distribution Of Ciga-
rettes, Imposing The HIF Does Not Breach
Or Impair The Agreement.
The district court ruled that imposing the HIF on
Defendants’ Distributors breaches and impairs the Agree-
ment. App. at 14, 16. Because the State did not convey
away its sovereign authority to impose legislative exac-
tions upon the distribution of cigarettes, these legal
conclusions were erroneous.
Breach of contract occurs when a party totally or
partially fails to perform its obligations under a contract.
See, e.g., Associated Cinemas of Am. v. World Amusement
Co., 276 N.W. 7, 10 (Minn. 1937). Impairment of contract
in violation of the federal and state contracts clauses”
occurs when a state law substantially disrupts a party’s
reasonable contractual expectations. Jacobsen v. An-
heuser-Busch, Inc., 392 N.W.2d 868, 872 (Minn. 1986).
Impairment occurs, that is, where legislation “alters the
terms of a contract by effectively imposing on one of
the parties an obligation which it had not reasonably
" U.S. Const. art. I, § 10 states: “No state shall ... pass any...
law impairing the obligation of Contracts.” Minn. Const. art. I, § 11
states: “No ... law impairing the obligation of contracts shall be
passed.”
Resp. App. 60a
anticipated or relieving a party of a contractual obliga-
tion.” Bannum, Inc. v. Town of Ashland, 922 F.2d 197, 202
(4th Cir. 1990) (citing Allied Structural Steel Co. v. Span-
naus, 438 U.S. 234, 244-46 & n.16 (1978)).
The district court ruled that enforcing the HIF against
Defendants’ Distributors breaches the Agreement because
it “directly imposes that from which the defendants are
protected.” App. at 14. The court likewise found impair-
ment of the Agreement concluding that “the state seeks to
abrogate that which what [sic] it has promised but offers
neither to forego future payments or to refund past pay-
ments.” Jd. at 16. This, however, is just another way of
saying that imposition of the HIF breaches the State’s
release.
As discussed above, imposition of the HIF does not
breach the Agreement. Consequently, it also does not
impair the Agreement. Although the State promised it
would never again sue Defendants to recover State health-
care costs, it never promised Defendants that their prod-
ucts would be immune to future legislative impositions.
Il. THe TERM “CLAM” CANNOT BE INTERPRETED TO
INCLUDE LEGISLATIVE EXACTIONS BECAUSE THE
STATE’S RELEASE OF CLAIMS DOES NOT SURREN-
DER THE STATE’S SOVEREIGN POLICE AND TAXING
PowERS “IN LANGUAGE AND TERMS TOO CLEAR TO
ADMIT OF DOUBT.”
Even if there were some question about whether the
term “claims” encompasses legislative exactions like the
HIF, any doubt must be resolved in the State’s favor. As a
sovereign, the State possesses both the police and taxing
powers. Courts have long disfavored construing government
Resp. App. 6la
contracts as relinquishing a state’s sovereign powers.
Courts thus hold that any such relinquishment must be
stated “in language and terms too clear to admit of doubt.”
State v. Great N. Ry., 119 N.W. 202, 205 (Minn. 190¢ ,
aff'd, Great N. Ry. v. State, 216 U.S. 206 (1910). The
district court erred by failing to apply this well-established
principle when construing the Agreement.
A. The Unmistakability Doctrine Requires
That Government Contracts Be Strictly
Construed Against The Surrender of Sover-
eign Powers.
The canon of construction requiring that government
contracts be strictly construed against the relinquishment
of sovereign powers is known as the “unmistakability
doctrine.” As formulated by the United States Supreme
Court, “sovereign power ... governs all contracts subject
to the sovereign’s jurisdiction, and will remain intact
unless surrendered in unmistakable terms.” United States
v. Winstar Corp., 518 U.S. 839, 872 (1996) (plurality
opinion) (ellipsis in original) (internal quotation marks
omitted) (quoting Bowen v. Pub. Agencies Opposed to Soc.
Sec. Entrapment, 477 U.S. 41, 52 (1986)). The doctrine
recognizes that the sovereign power of a state can be
limited by the Contracts Clause of the United States
Constitution, but that any such limitation is potentially
problematic. Jd. at 873-74. “Although [the Contracts]
Clause made it. possible for state legislatures to bind their
successors by entering into contracts, it soon became
apparent that such contracts could become a threat to the
sovereign responsibilities of state governments.” Jd. at 874
(emphasis added).
Resp. App. 62a
The unmistakability doctrine was developed by courts
“to protect state regulatory powers.” Jd. As explained in
Winstar:
Under this rule that all public grants are strictly
construed, we have insisted that nothing can be
taken against the State by presumption or infer-
ence, and that neither the right of taxation, nor
any other power of sovereignty, will be held .. . to
have been surrendered, unless such surrender
has been expressed in terms too plain to be mis-
taken.
Id. at 874-75 (ellipsis in original) (internal quotation
marks and citations omitted). In addition to stating the
doctrine’s affirmative requirements, Winstar also de-
scribed its negative implications:
a contract with a sovereign government will not
be read to include an unstated term exempting
the other contracting party from the application
of a subsequent sovereign act (including an Act of
Congress), nor will an ambiguous term of a grant
or contract be construed as a conveyance or sur-
render of sovereign power.
Id. at 878. The Court explained that application of the
doctrine “turns on whether enforcement of the contractual
obligation alleged would block the exercise of a sovereign
power of the Government.” Jd. at 879.
This Court has likewise applied the unmistakability
doctrine to resist construing contracts as abrogating the
State’s sovereign power. Before an amendment to the
Minmaesota Constitution in 1906, for example, it was
settled law that the State “may, by contract, irrevocably
bind aelf not to exercise, or may irrevocably limit the
exercise of, its power of taxation.” State ex rel. Hahn v.
Resp. App. 63a
Young, 9 N.W. 737, 747 (Minn. 1881). Despite the State’s
clear authority to abrogate its own power of taxation, the
Court nevertheless resisted finding that this authority had
been exercised.
The right of a state government ... by con-
tract to limit its power of taxation, is a doctrine
too firmly established to admit of discussion at
this time ... The contract to be irrepealable,
however, must clearly and conclusively appear.
The power of taxation is a sovereign prerogative;
its exercise is indispensable to the maintenance
of the state and its institutions, and no infer-
ences or presumptions arising from indefinite
and uncertain language that it has relinquished,
limited, or abandoned the right as to any particu-
lar person or corporation should be indulged by
the court in support of an immunity not enjoyed
by all taxpayers alike. Therefore the contract is
strictly to be construed, and must be in language
and terms too clear to admit of doubt.
Great N. Ry., 119 N.W. at 205 (emphasis added). Thus,
even when the Minnesota Constitution permitted surren-
der of the taxing power, this Court resisted construing
contracts to effect that purpose. All ambiguity was re-
solved in favor of reserving the State’s sovereign power.
Id.; see also Minneapolis Gas Co. v. Zimmerman, 91
N.W.2d 642, 656 (Minn. 1958) (“[A]ll contracts made by the
state are entered into subject to the implied condition that
they are ever subordinate to a reasonable and proper
exercise of the state’s inalienable police power.”).
Resp. App. 64a
B. The Agreement Does Not Surrender The
Legislature’s Police And Taxing Powers
“In Language And Terms Too Clear To
Admit Of Doubt.”
The unmistakability doctrine defeats Defendants’
claim that the Agreement surrenders the State’s police and
taxing powers and bars enforcement of the HIF. For such a
bar plainly “would block the exercise of a sovereign power
of the [State].” Winstar, 518 U.S. at 879. First, it would
abridge the Legislature’s power to impose a fee or tax on
the distribution of cigarettes by limiting the exaction to
only some cigarettes. Second, as the district court’s Order
makes clear, it would prevent the Commissioner from
enforcing existing law. The doctrine was developed to
avoid precisely such results.”
The district court’s construction of the Agreement does
not satisfy the strict requirements of the unmistakability
doctrine. The State’s release-of-claims provision does not
even mention the State’s taxing or police powers. Cf.
Winstar, 518 U.S. at 877-78 (waiver of sovereign power
will not be inferred from silence). Moreover, that provision
contains no language even equivocally suggesting that the
State was — in addition to releasing legal claims — surren-
dering sovereign authority. Even if the State’s release were
“ The district court did not appiy the unmistakability doctrine to
construe the State’s release — to determine its scope in the first in-
stance. Instead, the court interpreted the release as surrendering
sovereign powers without applying the doctrine, and then declared that
this surrender was unproblematic because “the State has consented t
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