Ass'n for Accessible Medicines v. James

974 F.3d 216

ASSOCIATION FOR ACCESSIBLE MEDICINES, Healthcare Distribution Alliance, SpecGx LLC, Plaintiffs-Appellees,

v.Letitia JAMES, in her Official Capacity as Attorney General of the State of New York, Howard A. Zucker, in His Official Capacity as Commissioner of Health of the State of New York, Defendants-Appellants.

Docket Nos. 19-183-cv(L)

19-199-cv(CON)

19-201-cv(CON)

August Term, 2019

United States Court of Appeals, Second Circuit.

Argued: December 12, 2019

Decided: September 14, 2020

Jay P. Lefkowitz, Kirkland & Ellis LLP, New York, NY (Matthew D. Rowen, Kirkland & Ellis LLP, Washington, DC, on the brief), for Plaintiff-Appellee Association for Accessible Medicines.

Michael B. Kimberly, McDermott Will & Emery LLP, Washington, DC (M. Miller Baker, Sarah P. Hogarth, Eric Hageman, McDermott Will & Emery LLP, Washington, DC, Andrew B. Kratenstein, M. Elias Berman, McDermott Will & Emery LLP, New York, NY, on the brief), for Plaintiff-Appellee Healthcare Distribution Alliance.

Douglas H. Hallward-Driemeier, Ropes & Gray LLP, Washington, DC, Erin R. Macgowan, Ropes & Gray LLP, Boston, MA, for Plaintiff-Appellee SpecGx LLC.

Steven C. Wu, Deputy Solicitor General (Barbara D. Underwood, Solicitor General, Caroline A. Olsen, Assistant Solicitor General, on the brief), for Letitia James, Attorney General for the State of New York, New York, NY, for Defendants-Appellants Letitia James and Howard A. Zucker.

Before: CABRANES and LOHIER, Circuit Judges, and REISS, District Judge.^*

LOHIER, Circuit Judge:

To address the substantial costs imposed by the national opioid public health crisis as it struck New York, the New York State Legislature enacted the Opioid Stewardship Act (OSA). See 2018 N.Y. Sess. Laws, ch. 57, pt. NN (codified at N.Y. Pub. Health Law § 3323 and N.Y. State Fin. Law § 97 -aaaaa). Part of the Act requires opioid manufacturers and distributors to pay an annual "opioid stewardship payment." The proceeds must be used to support statewide programs that provide opioid treatment, recovery, prevention, and education services. Another part of the Act, known as the "pass-through prohibition," bars manufacturers and distributors of opioids from passing the costs of the opioid stewardship payment through to their customers.

Healthcare Distribution Alliance (HDA) and Association for Accessible Medicines (AAM) are trade associations that represent manufacturers and distributors of pharmaceutical products, including opioids, while SpecGx develops, manufactures, and sells opioids. The three plaintiffs filed separate actions challenging the OSA and seeking declaratory and injunctive relief against the New York Attorney General and the New York Commissioner of Health in their official capacities (collectively "New York"). In a consolidated decision, the United States District Court for the Southern District of New York (Failla, J. ) concluded that the OSA's pass-through prohibition violated the dormant Commerce Clause. After determining that the prohibition was not severable from the rest of the Act, the District Court invalidated the Act in its entirety.

The New York State Legislature subsequently amended the OSA so that its provisions expired in December 2018. See 2019 N.Y. Sess. Laws ch. 59, pt. XX, § 5. It then enacted a new payment mandate, effective July 2019, that does not include a pass-through prohibition. See 2019 N.Y. Sess. Laws ch. 59, pt. XX (codified at N.Y. Tax Law §§ 497 –99) (the "2019 Act"). In light of this legislative development, the State has elected not to seek reversal of the District Court's invalidation of the pass-through prohibition. On appeal, therefore, New York asks us only to reverse the District Court's invalidation of the remainder of the Act, including the opioid stewardship payment requirement. We conclude that the payment is a tax within the meaning of the Tax Injunction Act (TIA), 28 U.S.C. § 1341, thus depriving the District Court of subject matter jurisdiction to adjudicate the plaintiffs’ challenges to the payment. We therefore REVERSE the judgment of the District Court insofar as it invalidated the stewardship payment and the remainder of the Act, with the exception of the pass-through prohibition, the legality of which is not before us on appeal.

BACKGROUND

Opioids are a class of drugs that include prescription pain relievers, synthetic opioids like fentanyl, and heroin. While prescription opioid medications can treat and manage pain when properly prescribed by a physician, they also pose serious risks of addiction and abuse. Starting in 1999, the United States experienced a rapid rise in prescription opioid overdose deaths, followed by spikes in heroin and synthetic opioid overdose deaths. The death toll was accompanied by steep economic costs estimated to total $78.5 billion each year. In 2017 the United States Department of Health and Human Services declared the opioid epidemic a nationwide public health emergency.¹ That same year, the New York State Department of Health reported that the rate of overdose deaths involving opioids in New York had doubled between 2010 and 2015.² The associated financial cost to New York of addressing the opioid crisis was over $200 million in 2017 alone—a twofold increase from the amount spent in 2011.

The New York State Legislature enacted the OSA to raise $600 million over six years to address the costs of dealing with the crisis. See N.Y. Pub. Health Law § 3323(3) ; N.Y. State Fin. Law § 97 -aaaaa(4); 2018 N.Y. Sess. Laws, ch. 57, pt. NN, § 5. The OSA thus imposes an annual fixed $100 million "opioid stewardship payment" collectively on all licensed opioid manufacturers and distributors that sell or distribute opioids in the State ("licensees"). N.Y. Pub. Health Law § 3323(2)-(3). Each licensee is responsible for paying a portion of the $100 million total based on its market share of opioid sales in New York. Id. § 3323(5). The Department of Health, which collects the funds, annually calculates the amount of each licensee's payment based on reported opioid sales from the previous year. Id. § 3323(4)–(6). Based on 2017 reports, the Department determined that 97 licensees owed stewardship payments in 2018.³

The revenues from the opioid stewardship payments are deposited into the "opioid stewardship fund," a special revenue fund established in the joint custody of the State Comptroller and the Commissioner of Taxation and Finance. Id. § 3323(2); N.Y. State Fin. Law § 97 -aaaaa(1). New York law requires that "[m]oneys in [the] opioid stewardship fund shall be kept separate and shall not be commingled with" New York State's general fund or "any other moneys" in the custody of the Comptroller or the Commissioner. N.Y. State Fin. Law § 97 -aaaaa(2). New York law also strictly limits how money in the sequestered fund can be used. It may only support programs sanctioned by the State Office of Alcoholism and Substance Abuse Services (OASAS)⁴ to "provide opioid treatment, recovery and prevention and education services," and to "provide support for the prescription monitoring program registry" that doctors must consult before prescribing opioids and certain other controlled substances. See id. § 97 -aaaaa(4); N.Y. Pub. Health Law § 3343-a(2) ; see also id. § 3306.

The OSA contains two other provisions of significance to our resolution of this appeal. First, it has a "pass-through prohibition" that bars licensees from passing the costs of their opioid stewardship payments on to purchasers, including the ultimate consumers of opioids. Id. § 3323(2). Licensees that violate the Act's pass-through prohibition are subject to a penalty of up to $1 million for each violation. Id. § 3323(10)(c). Second, the Legislature added a severability clause, which provides that the invalidation of any part of the Act will not "affect, impair, or invalidate" the remainder of the Act. 2018 N.Y. Sess. Laws, ch. 57, pt. NN, § 4 ("If any ... section of this act shall be adjudged by any court ... to be invalid, such judgment shall not affect, impair, or invalidate the remainder thereof, but shall be confined in its operation to the ... section directly involved in the controversy in which such judgment shall have been rendered. It is hereby declared to be the intent of the legislature that this act would have been enacted even if such invalid provisions had not been included herein.").

HDA and SpecGx challenged both the opioid stewardship payment and the pass-through prohibition, while AAM challenged only the pass-through prohibition. As relevant here, the plaintiffs argued that the pass-through prohibition violates the dormant Commerce Clause. HDA moved for summary judgment of its claims, while AAM and SpecGx both moved for preliminary injunctions. New York moved to dismiss each case on jurisdictional grounds, arguing, as relevant here, that the TIA, 28 U.S.C. § 1341, barred the District Court from hearing the plaintiffs’ claims because the opioid stewardship payment is a tax. New York also defended both the stewardship payment and the pass-through prohibition on the merits.

In a consolidated Opinion and Order, the District Court denied New York's motions to dismiss, granted HDA's motion for summary judgment, and granted AAM's and SpecGx's motions for preliminary injunctions. The District Court concluded that the TIA did not apply to plaintiffs’ claims because neither the opioid stewardship payment nor the pass-through prohibition is a tax that triggers the TIA. The District Court also concluded that the separate pass-through prohibition violates the dormant Commerce Clause. Relying on the legislative history rather than the text of the OSA, the District Court held that the stewardship payment requirement could not survive without the pass-through prohibition. Accordingly, the District Court declared the OSA invalid in its entirety and enjoined its enforcement.⁵

This appeal followed.

DISCUSSION

On appeal, New York asks us to reverse the District Court's invalidation of the OSA,...