| State of New York v Philip Morris Inc. |
| 2009 NY Slip Op 03105 [61 AD3d 575] |
| April 23, 2009 |
| Appellate Division, First Department |
| State of New York et al., Plaintiffs, v Philip MorrisIncorporated et al., Respondents, and Carolina Tobacco Company et al., Appellants, et al.,Defendants. |
—[*1] Jones Garneau, LLP, Scarsdale (Michael K. Stanton, Jr. of counsel), for Dosal TobaccoCorporation, appellant. Law Offices of Lisa M. Solomon, New York (Lisa M. Solomon of counsel), forSeneca-Cayuga Tribal Tobacco Corporation, appellant. Fredericks, Peebles & Morgan LLP, Omaha, Neb. (Ben Fenner of counsel), for Smokin Joes,appellant. Kirkland & Ellis LLP, New York (Mark W. Rasmussen of counsel), for R.J. ReynoldsTobacco Company, Philip Morris USA and Lorillard Tobacco Company, respondents. Leader & Berkon LLP, New York (Joshua K. Leader of counsel), for CommonwealthBrands, Inc.; Liggett Group LLC; P.T. Djarum; Sherman 1400 Broadway N.Y.C., Inc.; TopTobacco L.P.; Daughters & Ryan, Inc.; House of Prince A/S; Japan Tobacco InternationalU.S.A., Inc.; King Maker Marketing; Kretek International, Inc.; Lignum-2, Inc.; Lane Limited; CompaÑía Industrial de Tabacos; Monte PazS.A.; Von Eicken Group; Sante Fe Natural Tobacco Co; Vector Tobacco, Inc.; Vibo Corporationand Farmers Tobacco Company of Cynthiana, Inc., respondents.
Appeal from order, Supreme Court, New York County (Charles E. Ramos, J.), enteredJanuary 22, 2008, which, to the extent appealed from, granted motions to compel arbitration,unanimously dismissed, without costs.
This declaratory judgment action was commenced by the State against numerous cigarettemanufacturers and relates to the tobacco settlement reached between, among others, the Stateand certain cigarette manufacturers. In another appeal concerning the settlement, the Court ofAppeals provided the following narrative regarding the settlement:
"In 1998, the Attorneys General of 46 states (including New York) and five island territoriesand the Corporation Counsel of the District of Columbia signed a Master Settlement Agreement(MSA) with counsel for the largest tobacco manufacturers in the United States. The MSA wasapproved, as to New York State, by Supreme Court. The claims brought against the tobaccomanufacturers included wrongful marketing and advertising of cigarettes and other tobaccoproducts. Various states sought damages based on the costs of treating smoking-related illnesses.In exchange for a release of liability, the tobacco manufacturers agreed to make annualpayments, to be allocated among the Settling States. They also agreed to extensive marketingand advertising restrictions. The Original Participating Manufacturers, as they are known, werelater joined by more than 40 smaller tobacco companies, referred to as the SubsequentParticipating Manufacturers (SPMs) . . . .
"Not all U.S. tobacco manufacturers have joined the MSA. In order to neutralize costdisadvantages suffered by the Participating Manufacturers (PMs) relative to Non-ParticipatingManufacturers (NPMs), the MSA provides the Settling States with a strong incentive to enactstatutes requiring NPMs to make annual payments toward the costs of treating smoking-relatedillnesses equivalent to those made by the PMs. The MSA sets out a Model Statute, which, ifappropriately enacted, 'shall constitute a Qualifying Statute.' If a Settling State fails to enact, ordoes not diligently enforce, a Qualifying Statute, PM payments to that state may be subject to theNon-Participating Manufacturer adjustment (NPM adjustment).
"In brief, NPM adjustment can be applied to reduce PM payments to a Settling State if (1)PMs collectively lost market share to NPMs in the preceding year and (2) disadvantagesresulting from the MSA were a 'significant factor' contributing to that loss. But payment to aSettling State is not subject to the NPM adjustment 'if such Settling State continuouslyhad a Qualifying Statute . . . in full force and effect during the entire calendar yearimmediately preceding the year in which the payment in question is due, and diligently enforcedthe provisions of such statute during such entire calendar year.'
"Settling States that have diligently enforced their respective Qualifying Statutes are notsubject to the NPM adjustment; instead, the adjustment is to be reallocated pro rata amongSettling States that are subject to the NPM adjustment, reducing the payments they receive. Adecision regarding one Settling State's enforcement of its Qualifying Statute could thereforepotentially affect the calculation of amounts due to all other Settling States" (State of New York v Philip MorrisInc., 8 NY3d 574, 577-578 [2007] [footnotes omitted]).[*2]
New York State's "qualifying statute" is codified inarticle 13-G of the Public Health Law. Pursuant to the statute, NPMs selling cigarettes in NewYork must make annual escrow deposits. The amount of money a particular NPM must depositannually is based on the number of "units sold" by that manufacturer. "Units sold," in turn, isdetermined by the amount of excise tax collected by the State on packs of the manufacturer'sproducts. The State, however, has maintained a policy, both before and after the State enteredinto the MSA, that cigarettes sold on tribal lands within the State are exempt from taxation.Because of both the manner in which "units sold" is calculated and the State's policy regardingcigarettes sold on tribal lands, NPMs who sell cigarettes on tribal lands are not required to makeannual escrow deposits.
PMs complained to the State that it "does not diligently enforce" the qualifying statute asrequired by the MSA because of the State's policy regarding cigarettes sold on tribal lands. ThePMs believe that the State is required under the MSA to collect escrow deposits on sales ofcigarettes on tribal lands, and that the State's failure to do so has triggered the NPM adjustment.If the PMs are correct and the State is required to collect escrow deposits on cigarettes sold ontribal lands, then the State, consistent with the phrase "units sold" in the qualifying statute, wouldhave to impose excise taxes on those cigarettes. Certain Native American tribes and NPMsobject to the taxation of cigarettes sold on tribal lands.
The State commenced this action seeking a declaration that "units sold" excludes cigarettesales on which excise taxes have not been collected as a matter of public policy. Certain PMsmoved to compel arbitration of the issues raised in the declaratory judgment action. The motionswere based on terms of the MSA requiring that disputes over whether New York enacted anddiligently enforced its "qualifying statute" be resolved by arbitration. The State opposed themotions, as did NPMs Carolina Tobacco Co., Dosal Tobacco Corp. and Smokin Joes. NPMSeneca-Cayuga Tribal Tobacco Corporation moved for leave to intervene as a party plaintiff andopposed the motion and cross motion to compel arbitration. Supreme Court granted the motionand cross motion to compel arbitration, stayed the action, and, in effect, denied Seneca-Cayuga'smotion to intervene pending the outcome of the arbitration proceeding. The only entities thathave appealed from the order and filed appellants' briefs are NPMs Carolina Tobacco Co., DosalTobacco Corp., Smokin Joes and Seneca-Cayuga (appellant NPMs).
We agree with respondent PMs that appellant NPMs are not "aggrieved" by the order and wetherefore dismiss this appeal. Only an "aggrieved" party may appeal from an order (CPLR 5511).A party is "aggrieved" by an order where the party "has a direct interest in the controversy whichis affected by the result and . . . the adjudication has a binding force against therights, person or property of the party . . . seeking to appeal" (Matter ofRichmond County Socy. for Prevention of Cruelty to Children, 11 AD2d 236, 239 [1960],affd 9 NY2d 913 [1961]; see Matter of DeLong, 89 AD2d 368, 370 [1982]; see also Schwartzberg v Kingsbridge Hgts.Care Ctr., Inc., 28 AD3d 465 [2006]). That "the adjudication 'may remotely orcontingently affect interests which the party represents does not give it a right to appeal' "(DeLong, 89 AD2d at 370, quoting Ross v Wigg, 100 NY 243, 246 [1885][brackets omitted]). Thus, that a party "may be disappointed or even have been deprived of afinancial benefit by the adjudication does not, without more, make [the] party 'aggrieved'. It mustbe shown that the party had some legal right or interest in the subject of the determination whichwas adversely affected thereby" (id.).
Appellant NPMs are not parties to the MSA and therefore not parties to the arbitration. Theyare NPMs, and, as all parties on this appeal acknowledge, NPMs cannot be bound by the [*3]determinations, if any, of the arbitration panel. Thus, these entitieshave no direct interest in the arbitration proceeding compelled by Supreme Court's order and theoutcome of that proceeding will not have binding force against them. Appellant NPMs argue thatthe arbitration panel "could . . . effectively overrule the State'sinterpretation of its own laws and its longstanding public policy against collecting state taxesrelated to cigarette sales on tribal lands" (emphasis added), which could lead the State toseek escrow payments from the NPMs for cigarette sales on tribal lands, and that these potentialevents "could immensely affect" (emphasis added) the NPMs' interests. This argumentsimply highlights that the arbitration proceeding " 'may remotely or contingently affect' "(DeLong, 89 AD2d at 370, quoting Ross, 100 NY at 246) the NPMs' interests,but neither those remote or contingent effects nor any disappointment that the NPMs mayexperience as a result of the outcome of that proceeding are sufficient to confer on the NPMs theright to appeal from the order compelling arbitration between the State and the PMs.Concur—Andrias, J.P., Friedman, McGuire and Moskowitz, JJ.