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7th Circuit strikes down portions of Indiana vaping law

January 30, 2017

A federal court has struck down portions of Indiana’s controversial vaping law, holding that the “astoundingly specific provisions” related to regulations of security, cleanliness and other physical requirements imposed on out-of-state manufacturers violates federal law and seems to imply a state attempt to create a monopoly for an Indiana security firm.

After Indiana lawmakers passed the Vapor Pens and E-Liquids Act in 2015, three out-of-state manufacturers – Legato Vapors, Rocky Mountain E Cigs and Derb E Cigs, sued members of the Indiana Alcohol and Tobacco Commission in the U.S. District Court for the Southern District of Indiana, seeking injunctive and declaratory relief against the out-of-state provisions. The act required out-of-state manufacturers to meet highly specific security standards, including the requirement that they contract with independent security firms, and imposed additional regulations related to cleanliness and audits.

The parties filed cross-motions for summary judgment, and district court Judge Sarah Evans Barker awarded summary judgment to the state. However, the 7th Circuit Court of Appeals reversed that decision Monday, holding that the 2015 legislation violated the dormant Commerce Clause of the U.S. Constitution, which prohibits extraterritorial state regulation of commerce.  

Looking specifically at the act’s “remarkably specific” security requirements, Judge David Hamilton, writing for the unanimous panel, noted that only one company, “located not so coincidentally in Indiana,” met the criteria of the vaping legislation and would get the approval of the ATC.

According to Indianapolis Business Journal, the rules gave a single security company—Lafayette-based Mulhaupt’s—the ability to choose which firms could operate in Indiana. And the law change was championed by a Lafayette lawmaker, Sen. Ron Alting.

Further, before the provisions of the act, Hamilton wrote that 99 percent of e-liquid revenue in Indiana came from out-of-state production. But now, only six manufacturers meet the security requirements to sell in Indiana, with four of those manufacturers based in the Hoosier state.

“These circumstances raise obvious concerns about protectionist purposes and what looks very much like a legislative grant of a monopoly to one favored in-state company in the security business,” the judge wrote.

But looking beyond the potential of a state-created monopoly, Hamilton further wrote that
the state may not try to achieve its security and safety goals “by direct extraterritorial regulation of the manufacturing processes …”
Further, the 7th Circuit held that the “clean room” requirements in the 2015 vaping legislation, which regulates the environment for all mixing and bottling activity, also violate the Commerce Clause. The court noted the requirements “(go) so far as to order out-of-state e-liquid manufacturers to wash their equipment with specific cleansers in specific sinks.”

Finally, the appellate court ruled that requirements subjecting out-of-state manufacturers to random audits by the ATC “are invalid direct regulations of interstate commerce insofar as they relate to enforcement of Indiana’s requirements for facility design and production operations.”

The case is Legato Vapors, LLC, et al, and Right to be Smoke-Free Coalition, Inc. v. David Cook, et al, 16-3071.
 

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