Today the Second Circuit upheld a judgment against cigarette makers who claimed that two New York statutes violated section 1 of the Sherman Act and the commerce clause of the U.S. Constitution. Freedom Holdings, Inc. v. Cuomo, No. 09-0547-cv (2d Cir. Oct. 18, 2010).
The Empire State passed the laws — which the court called the Escrow Statute and the Contraband Statute — to enforce a 1998 Master Settlement Agreement between New York and other states, on the one hand, and more than 50 producers of smokes, on the other. The MSA resolved the states' claims to recover billions and billions in health care costs resulting from the ill effects of smoking by their residents.
A renegage group — the plaintiffs — refused to join the MSA. They alleged that the New York statutes created a cigarette cartel and enabled its members to make up for the billions they paid under the MSA by increasing prices. They also asserted that the statutes penalized them by forcing them to pay to the states more than they would have if they had accepted the MSA's terms and hurt interstate commerce by controlling prices outside New York.
They lost after a three-day bench trial.
The Second Circuit panel affirmed. It held that the renegades couldn't complain about higher prices, from which they benefited, because they suffered no "antitrust injury".
The panel also found no clear error in the district court's findings that the statutes didn't coerce the plaintiffs into joining the MSA by forcing them to pay more per carton than the MSA signatories did (the district court found they actually paid less) and didn't delegate cartelish price-setting authority to the signatories.
The panel further concluded that the state action immunity doctrine protected the statutory scheme and that the New York laws didn't inhibit interstate commerce by dictating prices outside the state.