State Supreme Court takes on tobacco fee case

04/11/2006

Conrad Defiebre,
Star Tribune
Last update: April 11, 2006 – 4:35 PM

Is it a tax or a fee?

Like many Minnesotans, justices of the state Supreme Court wanted to know how to consider the 75-cents-a-pack “health impact fee” the Legislature and Gov. Tim Pawlenty put on cigarettes last year.

Lawyers for the state and tobacco companies agreed on one thing in arguments before the court today: It doesn’t matter what you call it in determining whether it violates terms of the state’s multi-billion-dollar settlement with the industry.

But that was practically the only point of accord in more than an hour of multisyllabic legal jousting over concepts such as adjudicatory claims, state sovereignty and the doctrine of unmistakeability.

Six members of the high court, with Justice Sam Hanson withdrawing for unstated reasons, will decide whether the tobacco charge, a $400 million piece of the state’s two-year budget, can remain in force.

The outcome, expected by mid-July, may affect tax relief proposals being considered in the Legislature. It also could cut the extra price smokers have continued to pay while the case is being litigated.

‘A deal is a deal’

The court is reviewing the state’s appeal of Ramsey County District Judge Michael Fetsch’s December ruling that struck down the charge as a violation of the 1998 settlement, which absolved tobacco companies of any other “civil claims, demands, actions, suits” and “liabilities of any nature whatsoever” for smoking’s health costs.

The companies have already forked over $2.2 billion under that settlement, at an estimated cost of 64 cents a pack to cigarette smokers. Further annual payments of hundreds of millions of dollars are to continue forever.

“A deal is a deal,” said Stephen Patton, attorney for the major tobacco firms that joined the settlement. “Even if you’re the state, you have to abide by your contract.”

But Assistant Attorney General Bradford Delapena said the settlement contract didn’t, and couldn’t, restrain the state’s sovereign power to impose fees and taxes. “Claims doesn’t mean legislation,” he told the court.

For the record, Delapena and his boss—Attorney General Mike Hatch, a DFL candidate to challenge the Republican Pawlenty’s reelection in November—say the health fee is really a tax because it supports a “core government service” without regard to whether individual payers receive the service.

Tobacco attorneys and Pawlenty contend that it’s a fee because the legislation was tied to the health costs of smoking. Patton said the statute contains “almost a verbatim quote of the release language” in the settlement. “So it doesn’t matter if it’s a tax or a fee,” he said. “We think it’s a fee.”

Pawlenty has said the distinction is merely a political debate not within the court’s purview. His attorney, Karen Janisch, told the court that Hubert Humphrey III, the former attorney general who entered the settlement on behalf of the state, had no power to cede the Legislature’s power to reduce smoking and cover its costs by raising fees or taxes.

After Janisch asserted that the Legislature never ratified the settlement, Patton argued that it has done so, in effect, every year, by spending the tobacco company payments.

‘Plenty of value’

Delapena, meanwhile, said the state swore off only adjudicatory claims in court against the tobacco firms, not its sovereign power to raise revenue. Any surrender of that power must be made in unmistakeable terms to stand up in court, he added.

“Basically, sovereignty was never on the table,” Delapena said. “The settlement is silent on taxes and fees.”

Patton said the settlement limited the state’s taxing power, but didn’t surrender it. Without some rein on that power, he added, the tobacco companies got nothing for the billions they’ve paid and promised.

Delapena and Janisch, however, said the firms secured an end to a long trial and an assurance that no Minnesota jury will ever exact damages from them for alleged fraud and false advertising. “They got plenty of value,” Delapena said.