Liggett Group, which has put more than $3.5 million into fighting Proposition EE, on Thursday filed a lawsuit in federal court against the state, alleging that the General Assembly's legislation calling for higher minimum prices on certain kinds of cigarettes was unconstitutional.
The lawsuit also claimed that House Bill 20-1427 and Proposition EE, which resulted from it, violated the Commerce Clause of the U.S. Constitution and that it was rushed through the Colorado General Assembly and presented to the voters without complying with Colorado’s constitutional requirements.
In the filing, the plaintiffs said the General Assembly made a "backroom deal" with Phillip Morris (aka Altria) to ward off opposition on Proposition EE. Altria spent $12.4 million in 2016 to successfully defeat Amendment 72, which would have increased the taxes on tobacco by $1.75 per 20-pack of cigarettes. The measure failed, 53% to 47%.
The plaintiffs claimed by adding section 10 in the bill, which fixes the price of a pack of cigarettes at $7 from 2021 to 2024 and $7.50 thereafter, would "severely damage the ability of discount cigarette manufacturers to compete with Philip Morris and would solidify Philip Morris’s market dominance in Colorado."
The filing claimed that by fixing a minimum price for all cigarettes that discount manufacturers, such as Liggett, lose their competitive advantage. The filing said other states have instead raised prices by a percentage rather than establishing a fixed price.
"Section 10 will cost the discount brand smoker as much as $800 per year, more than twice as much as premium brand users, many of whom will see no price increase," and it will disproportionately impact "price sensitive" low-income and senior smokers, the lawsuit claimed.
HB 20-1427 was introduced on June 11 and received final passage just four days later, barely above the minimum three days for a legislative proposal to clear both chambers of the General Assembly. Its sponsors are Democratic Reps. Yadira Caraveo of Thornton, Julie McCluskie of Dillon, and Sens. Rhonda Fields of Aurora and Dominick Moreno of Commerce City.
The plaintiffs seized on that rapid passage in their filing, pointing out that the bill's Section 10 is void also because it was passed by the Colorado General Assembly "in violation of procedural and substantive requirements of Colorado’s Constitution, including, among others, requirements for full and fair debate in legislative committees and the General Assembly before passage. The Bill was rushed through the legislative process to avoid opposition by the Plaintiffs and the other parties who would have been able to point out the patent constitutional and other injustices of the Bill."
The lawsuit pointed out comments on the rush to pass the bill by several lawmakers, including Democratic Rep. Shannon Bird of Westminster, who said during the House Finance Committee hearing on June 11 that she hadn't read the bill but loved the policy, and voted for it just minutes later. However, Republican Janice Rich of Grand Junction said she could not vote for it because she hadn't read it.
"We got this bill after we even sat down in here," Rich said during the hearing. Because of the rush, "I can't support it right now."
The lawsuit also takes aim at what it called several violations of the state's single subject law. In one claim, the lawsuit said that if a bill title does not clearly express certain content in a bill, that omitted content is void. The bill's title does not include any provision related to Section 10. In addition, the bill's title says the bill is about cigarette and tobacco taxes, but the price fixing of a pack of cigarettes is not a tax, the lawsuit said.
The plaintiffs claimed that they were unaware of the bill until after it was passed. According to the Secretary of State's lobbyist database, Altria was represented on the bill by Doug Friednash of Brownstein Hyatt Farber Schreck. Liggett did not have a lobbyist at the Capitol during the 2020 session, according to the database.
In addition, the lawsuit pointed out that Section 10 is not included in the language of Proposition EE. While a description of Section 10 is in the Blue Book, the lawsuit claimed the Blue Book's information does not explain the "anti-competitive effects" on cigarette manufacturers, nor the impact on price-sensitive consumers. Liggett did submit that kind of language for inclusion in the Blue Book but it was rejected by the Legislative Council, which the plaintiffs claimed was a violation of its First Amendment rights of free speech.
The Wall Street Journal reported in May that Altria's market share has been impacted by COVID-19, with price-sensitive consumers turning to discount cigarettes.
Liggett was joined in the lawsuit by two other discount cigarette manufacturers, Vector Tobacco Inc. and Xcaliber International Ltd., LLC. They are seeking both a temporary and permanent injunction against enforcement of Section 10.
Proposition EE seeks to increase both taxes and prices on tobacco products, and a first-ever tax on vaping products. The revenue raised would backfill state budget cuts in K-12 education and eventually pay for early childhood education. The ballot measure's fiscal impact statements said it will raise "$87 million in state budget year 2020-21 and $176 million in state budget year 2021-22, the first full year under the measure. The amount of new revenue will increase as the measure is phased in, with $276 million expected to be generated in state budget year 2027-28."