# Opposition Brief — Philip Morris USA, Inc. v. Minnesota (Nos. 06-633, 06-805) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_1705%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 2007 ## Text 2 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 betwe [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_1705%3A2. Public record. Not legal advice.