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To be argued by HOwARD C. ANTRON (fA1TYt IIf ApppEtl-4 STATE OF NEW YORK LONG ISLAND TOB':'-0 CO., INC., MAURICE BRON9TEIN djb%a ALLIED CIGARcTTE SALES, and ROBERT BOG.ITS d/b/a B & B VESDING CO., Plainti, ff s-rl p p ellarats, -aaftlIlst- JoaN V. LIxDSAx, as Mayor of the City of New York and RICaARD LEwlsoaN, as Finance Administrator of the City of New York, Def endan.ts-Responden.ts. BRIEF FOR PLAINTIFFS-APPELLANTS POLLAK, SWARTZ, STARS iC .<1xn.oN 1lttornegs for Plaintiffs-Appelln,nts 1133 Avenue of the Americas New York, N. Y. 10036 OX 7-3988 MERVIN C. POLLAE- HOWARD C. AbIRON ~'yILLIAM R. POLLA$ of Counsel n 0 L Fa A

2 differential for all cigarettes sold at retail in the City of New York. That differential was three or four cents a pack, depending upon tar and nicotine content. There was no exception or special treatment in the original Regulation for cigarettes sold through vending machines as distinguished from c:garettes sold over the counter. The original Regulation adopted on July 1, 1971, was never enforced in connection with cigarette sales through vending machines. (R. 41) This action was commenced in February, 1973 and sought a determination that the New York City Administrative Code and the Regulations promulgated thereunder were illegal insofar as they required a differential pricing sys- tem for cigarettes sold in the City of New York. Appel- lants also sought to enjoin respondents permanently and pendente lite from enforcing the price differential require- ment with respect to cigarettes sold through vending machines. A motion was made before Honorable Justice Samuel J. Silverman seeking a preliminary injunction. Respondents cross-moved to dismiss the complaint. Appellants' motion was denied, Respondents' cross-motion to dismiss the com- plaint was granted. The judg7nent inter alia declared that the pertinent provisions of the Administrative Code and the Cigarette Tas Law Regulations were in all respects legal, valid and constitutional. Appellants duly appealed to the Appellate Division, First Department, which, by Order dated October 4, 1973 affirmed Justice Silverman's order and judgment below, a stay pre- viously granted by the Appellate Division for a further period of ten days. (R. 77) Appellants, within that ten day period, duly served and filed a notice of appeal to this Court dated October 9, 1973. (R. 75)

TABLE OF CONTENTS PAGE Jurisdiction _--------------------------------------------- ---------------------------- 3 Statement ................................. ...------- ------------------------ --.......... 3 New York State Enabling Statute ..... ....................... 3 New York City Local Law .......................................... 3 Basic Price Differential Regulation ........................ 4 Questions Involved......................°-----------------.....--------°----- 6 Summary of Argument ........ -----....... ----------------------------------- 7 POrNT I- There Is No Reasonable Relationship Between a Differential In the Price of Cigarettes Based on Tar and Nicotine Content and the Cigarette Brand Preferences and Selection By Smokers In the City of New York -------------------------------------------------------- 9 POINT II- The Price Differential Requirement Is Not Author- ized By the State Enabling Act --------.--_....._............ 12 POINT III- The Price Differential Requirement Is Cncon- stitutionall,c Broad ------------- .............. .-------------- ------------- 17 POINT IV- The Price Differential Provision Is Barred By the Federal Public Health Smol:ing Act ........................ 20 .~ a rv ~ v1 t-~ V~

Tnixrt nf Appettts STATE OF tiTE-W YORK LONG IsLAIiD TOBACCO Co., INC., MLIIRIGE BRONSTEIN d/b/a ALLIED CIGARETTE SALES, and ROBERT BOGATS d/b/a B & B VENDING CiO., Plaintiffs-2ppellants, -against- JOHN V, LINDSAY, as Mayor of the City of New York and Rlca-sRn LEwisoax, as Finance Administrator of the City of New York, Defendands-Respondents. BRIEF FOR PLAIiNTIFFS-APPELLANTS This appeal involves the validity of an amendment to Article 2-A(c) of the Cigarette Tax Law Regulations for The New York City Administrative Code promulgated by the Finance Administrator of the Ciiy of New York. The amendment was promulgated on December iS, 1972 to be effective on January 27, 1973. The amendment in questionrequired cigarettes sold in vending machines in the City of New York to be sold at five cents differential between "low tar" cigarettes and all other cigarettes regardless of whether the latter were subject to a three or four cents additional tax. Prior to this amendment of the section of the Adminis- trative Code that Regulation originally required a price i I IR,

3 Jurisdiction This Court has jurisdiction of this appeal by reason of New York Constitution, Art. 6 Sec.. 3(b). All questions presented by this appeal are questions of law and this Court has jurisdiction j determine them pursuant to New York Constitution, Art. 6 Sec. 3(a). Statement New York State Enabling Statute Since 1952, the New York State enabling statute, L.1952, c.235, as amended, has authorized New York City to impose "taxes on cigarettes . . . such as the legislature has or would have power and authority to impose". Section 1(1). On June 9, 1971, the enabling statute was amended by L.1971, c.394 effective July 1, 1971, to authorize the City of New York to impose an additional tax of 3¢ per pack of cigarettes containing either more than 17 milligrams ("mg.") of "tar" or more than 1.1 mg. of nicotine, and an additional tax of 40 per package of cigarettes containing both more than 1.1 mg. of nicotine. Section 1(1)(a). No other changes were made in the enabling statute at that time. It is noted that neither prior or subsequent to the 1971 amendment, has the state enabling statute ever .con- tained any reference to any requirement for a differential in the retail price of cigarettes on the basis of tar and nicotine content or on any other basis. New York City Local Law Local Law No. 34 of 1971, 49 City Record 3260 (July 15, 1971), enacted June 22, 1971 effective July 1, 1971 amended the cigarette tax law provisions of the New York City Ad- ministrative Code by authorizing the imposition of the ad- F

6 ing machines were involved and that the cost of altering these machines to conform to the requirements of the amended price differential regulation would be approxi- mately $25.00 per machine, or some $315,000. (R. 42) Aside from the heavy cost involved there are other prob- lems involved in compliance with the amerided regulation. Approximately 15% of the cigarette vending machines in New York City cannot be converted to a two-tier price system, and will have to be replaced. There is a shortage of skilled mechanics and parts necessary to make such con- versions where they can be made. The tar and nicotine content of the cigarette brands subject to the amended regulation is determined, periodically issued by Federal Trade Commission reports, the lastt of which was issued some time in February, 1973, and the next is shortly to be issued. Each time there is a reported change in the tar and nicotine content of any cigarette brands operators of vend- ing machines will be forced to make additional correspond- ing adjustments in the prices at which those brands will be sold through their machines. This, in turn, involves sub- stantial repeated conversion costs. This appeal parallels Cook, now pending before this Court. With the exception of the arguments contained in Point I this brief, the arguments herein embrace sur-!an- tailly some of the same issues raised in Cook. As to these is€ues, these arguments are for the most part identical with the arguments of Appellant's brief in Cook. Questions Involved 1. Did the defendants, by requiring a price differential, exceed the scope of the authority granted them by the State Enabling Statute L. 1971 C 394? The courts below held that it did not. A

7 2. Did the defendants violate due process by adopting a broad price differential requirement in order to advise cigarette purchasers of a differing tar and nicotine tax when a simple sign would sufflce g The courts below held that due process was not violated. 3. Is the defe ~tant's adoption of the price differential requirement barred by Section 5(b) of the Federal Public Health Cigarette Smoking Act of 1969? The courts below held that it was not. 4. W ere defendants acting within their local police power rights F The courts below held that they were. Summary of Argument 1. There is no authority granted to Respondents to legislate non-revenue health measures by requiring vari- ations in the retail purchase price of cigarettes based upon tar and nicotine content, 2. It is settled that a delegation of taxing power by the Legislature to a municipality must be express and can- not be inferred. The State enabling statute does not ex- pressly authorize the City to impose a cigarette price differential requirement. Such a requirement is not a procedural detail which may be authorized by implication; it is a literally unprecedented attempt to use the taxing power to fix prices for a non-tas purpose. 3. Constitutional due process of law requires that the State not resort to a sweeping or burdensome regulation

10 production of revenue, although these taxes, too, have been fixed for_many years at rates which vary according to alcohol content of the subject beverages [Tax Lew §424(a)- (f)]. To cite but one example of this comparable, non- ecological variance, liquors containing not more than 24% of alcohol by volume are taxed at fifty cents per gallon [Tax Law 6424(e)] while all liquors with a higher alcoholic content are taxed at one dollar and fifty cents per gallon [Tax Law §424(f)]. Similarly, authority cited below by Respondents for the proposition that smoke from cigarettes with a high tar and nicotine content is more harmful in its effect on human health is also an insufficient basis for inferring that the State Legislature must have intended to authorize, for health and not for revenue reasons, taxation of such ciga- rettes at higher rates in a limited geographic area. If this had been the legislative concern and purpose the graduated cigarette tax increase should have been imposed on the sale of cigarettes throughout the State and not confined to cigarettes sold only in the City of New York. In addition, Respondents have not shown, because they cannot show, legislative recognition and e3pActation that the ingrained brand preference of habitual cigarette smokers will or can be changed by the imposition of price differentials between brands. Respondents have ^ot established in this action, or anywhere else, that an enforced price differential of up to four cents a pack would, in fact, discourage or diminish appreciablp,in the City of New York, the use of cigarettes with higher tar and nicotine content. Respondents suggest the contrary when they cite statistics to show that despite the long national campaign to discourage cigarette smok- ing by public programs, health warning requirements on cigarette packs and the prohibition against all broadcast advertising of cigarettes, the sale of cigarettes in this 0 ... . . . . . . r

S when a narrower regulation would achieve its purpose. In this case the City's purpose-to inform customers of the additional tar and nicotine tax they are paying-could be accomplished by a simple sign-posting requirement. 4. The price differential requirement is barred by Sec- tion 5(b) of the Federal Public Health Cigarette Smoking Act of 1969, 15 U.S.C. Sec. 1334(b), which preempts any State or local regulation "based on smoking and health ... with respect to the advertising or promotion of any cigarettes" bearing the warning required by the Act. 5. The price differential i?gulation and its amendment are not within the local police power of the City of Vew York. That power cannot be used to prohibit conduct which is permitted by State law. The State permits flex- ibility in pricing cigarettes without regard to tar and nicotine content, and that statewide permissible flexibility cannot be curtailed by a purported exercise of local police power. .~ •.- a h3 ~Ll -0 ~.) O

lll PAGE Papachristoia v. City of Jacksonville, 405 U.S. 156 (1972) 17 ----................................................... --------••----- ------ .. Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947) .... 21 Robin v. Incorporated Pillage o] Hempstead, 30 N.Y. 2d 347, 285 N.E.2d 285, 334 N.Y.S.2d 129 (1972) ........ 26 S. H. Kress d^ Co. v. Department of Health, 283 N.Y. 55, 27 N.E.2d 431 (1940) --°---- ...................................... 24 Society of the Plastics Inda,stry, Inc. v. City of New York, 68 Misc. 2d 366, 326 \T.Y.S.2d 788 (Sup. Ct. N.Y. County 1971) ---------------------- -------- ---------------------- 12 Trio Distrib. Corp. v. City of Albamy, 2 N.Y.2d 690, 143 N.E.2d 329, 163 N.Y.S.2d 585 (195T) .................... 17 .T'inited States Steel Corp. v. Gerosa, 7 N.Y.2d 454, 166 N.E.2d 459, 199 N.Y.S2d 475 (1960) ............................ 12 Western Elec. Co. v. Taylor, 276 N.Y. 309, 12 N.E.2d 309 (1938) -------------------------- .---------------- -------------- ----------- .-...- 13 _ Statutes and Rules: Federal Public Health Cigarette Smoking Act of 1969, Section 5(b), 15 U.S.C. § 1334(b) ........................ 7, 8, 20, 21 N.Y. Const., Art. 6, § 3.............. ...----------------- .------------------ ... 3 N.Y. Const., Art, 16, § 1-------------------------- ...------------------- .... 12 N.Y. Tas Law §§ 470-82 ------- ................. ------------------------ -...... 25 N.Y. Tax Law § 471(3) --------------- ------------------------------ -11,15, 25n L. 1952, c. 235 ------------------------------------------------------------------------- 11 L. 1971, e. 394 -- ---- ........................ ----------------------- --------- 3, 6, 9,11 N.Y. City Admin. Code § D46-2.0 ........ ......................... ..... 4,15

14 measure enacted for broad policy reasons. Under the con- stitutional stricture established by the New York State Constitution, such a broad extension of the municipal tax- ing power must be authorized by the Legislature. Price regulation is by its nature an extreme remedy, to be resorted to only in extreme circumstances. Price regiila- tion is the kind of power that not only the State Legis- lature but those to be affected by it should be made fully aware of before it is delegated to the City. It is far too important a restriction on our freedom to be delegated silently or by implication. There is no evidence that the Legislature ever contem- plated that the City could impose a price differential requirement. Even if the Legislature had in fact intended the additional tax to reduce the sale of "high tar" cig- arettes, it does not follow that it must have intended this to be brought about by increasing the selling prices of "high tar" cigarettes. It is just as likely that the Legislature intended the additional tax to reduce the profitability to sellers of selling "high tar" brands, and thereby to give them an incentive to sell "low tar" rather than "high tar" brands. This is precisely what the Mc- Binsey researchers who designed the additional tax antici- pated would occur. See Drayton, The mor and _1ricotine Tax: Pursuing Public Health Through Tax Tncenatives; 81 Yale L.J. 1487, 1498-99 (1972). Any suggestion that the Legislature must have assumed that the City would impose a price differential requirement is simply contrary to fact. In the Court's memorandum below. Justice Silverman suggested that the City price differential requirement is simply one of the provisions, which are common in sales tax statutes, prohibiting a seller from advertising that

11 country has continuously increased and per capita con- sumption of cigarettes, since 1961, has declined by only a de minimis fraction of one percent. Actually, despite all of the recent data on the harmful effects of cigarette smoking, the notice that smoking is hazardous on each pack and the ban on television and radio advertising, the total number of cigarettes sold in the United States has increased from o16.5 billion in 1963 to 561.7 billion in 1972, and the per capita consumption has decreased in the same period from 4,286 to 4,018. However, such per capita consumption has increased from 3,986 in 1969 to 4,018 in 1972, that increase occurring dur- ing the period when the knowledge of its harmful effect and the restraints on advertising have progressivelyy be- come come more widespread. (See Statistical Supplementt of Federal Trade Commission Tables 1 and 2 set forth in App endia. ) Whatever the Court's view may be in respect of the sagacity of the American people, it is obvious that their consumption of cigarettes is not diminished by widespread knowledge of attendant health impairment risks, and cer- tainly not by the steady increase in the prices and taxes on cigarettes over past years. Respondents cannot demonstrate any reasonable relation between the deterrent effect of thq graduated tar and nico- tine tax and the cigarette brand selection of smokers in the City of New York. Respondents can find no support for their price differen- tial contentions in the fact that the State enabling act places ultimate liability for payment of the cigarette tax on the consumer (Tax Law §471). This has been a feature of the cigarette tax enabling actt since the time of its adoption (L.1952 ch. 235). It is not a requirement intro- r' l ) 0 . .. . rM J7 Q tQ •i7 w h) ~

4 ditional tax. N.Y. City Aduin. Code Sec. D46-2.0(a). In contrast to the State enabling statute, enacted less than two weeks before, the Local Law expressly purported to authorize the Finance Administrator to promulgate a regu- lation requiring the maintenance of retail price differentials for cigarettes "to reflect the amounts of tax [additional] attributable to the tar and nicotine content of cigarettes sold". In the absence of any corresponding authorizations in the contemporaneous State enabling statute, a major issue of this case is whether these locally authorized retail price differentials are valid. Basic Price Differential Regulation Article 2-A of the Cigarette Tax Law Regulations of the Finance Administrator, was promulgated on August 18, 1971, and became effective on September 1S, 1971 49 City Record 3737 (Aug. 18, 1971). The price differential require- ment contained in Article 2-A(c) is as follows: In furtherance of the purpose of the additional tax to direct attention to the cigarette containing excessive tar and nicotine and thereby to promote the health and welfare of the people of the City, the prices of all cigarettes subject to the additional tax sold in the City by vendors other than manufacturers, shall reflect a difference in price eruivalent to the amount of the additional tax imposed, and such difference in price must be clearly marked in all price lists, bills, adver- tisements, catalogs or publications pertaining to the sale of such cigarettes. The City, since the adoption of this price differential regulation until the spring of this year, took no steps to enforce the price differential reryuirement, with respect to sales of cigarettes through vending machines, admittedly recognizing the hardship, if not the impossibility, of re-  r n

23 The legislative history of Section 5(b) makes clear that it bars "not only action taken by State statute but by all other administrative actions or local ordinances or regula- tions by any political subdivision of any State." S.Rep.No. 91-566, 91st Cong., 2d Sess. (1970), in 1970 (2) U.S. Code Cong. & Admin. News 2652, 2663. The Supreme Court, New York County concluded in 1971 that the Federal Act appeared to prohibit regulation by the New York City Department of Health of cigarette advertising on Long Island Railroad trains, which is intrastate rather than in- terstate advertising. In re Nicklin (Dep't of Health of N.P.), N.Y.L.J., March 3, 1971, p. 2, col. 4. Section 4 of the Federal Public Health Cigarette Smoldng Act, 15 U.S.C. Section 1333, requires a standard warning on the packages of all cigarettes manufactured, imported, or pack- aged for sale in the United States, whether or not they enter interstate commerce, and Section 5(b) makes this warning exclusive of any other federal. State, or local requirement based on smoking and health, agoin without any limitation to interstate commerce. There can be no argument that the regulation is not "based on smoking and health, since the whole purpose of the requirement is to force sellers of cigarettes to convey to the consumer, through the price differential, a message based on smoking and health. The regulation itself states that its purpose is "to promote the health and welfare of the people of the City". Article 2-A(c) (3a). It has been argued that the entire Federal Act is limited by Section 2 of the Act, 15 U.S.C. Section 1331, which declares a Con- gressional purpose to inform the public and to protec{. "commerce and the national economy". Section 2, however, is plainly intended as a declaration of purpose, not as a limitation on the scope of the Act. See, e.g., H.R. Rep. No. 449, 89th Cong., 1st Sess. (1965), in 1965 (2) U.S. Code I A

21 "As is the ease in regard to labeling of cigarette packages, the committee bill preempts all Federal, State, and local authorities from requiring any state- ment relating to smoking and health in the advertising of cigarettes properly labeled under the terms of the committee bill." Id. at 2353. In the 1969 Act, Section 5(b) was broadened to foreclose State or local regulation of "advertising or promotion" of cigarettes bearing the warning required by the Act, and Congress once again stressed its desire to avoid "the chaos created by a multiplicity of conflicting regulations". S. Rep. No. 91-566, 91st. Cong., 2d Ses,- (1970), in 1970 (2) U.S. Code Cong. & Admin. News 2652, 2663. The plain Congressional purpose in enacting Section 5(b) is to bar conflicting State and local regulations "based on smoking and health", on the ground that the Congres- sionally prescribed warning on cigarette packages is fully adequate to alert consumers to the health controversy concerning cigarettes, and on the ground that any addi- tional requirements "based on smoking and health" place an unwarranted burden on the sale of cigarettes. More- over, the strong emphasis whicn Congress placed upon the need for uniformity of regulation indicates that it intended to preclude not only conflicting State and local regulations but also State and lcctl regulations which arguably do no more than supplement federal re,mitation. Cf., e.g., Campbell v. Hussey, 368 II.S. 297, 300-302 (1961) ; Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 232-36 (1947). The New York City price differential requirements is inconsistent with these Congressional aims. The premise of the price differential requirement is that the Con- gressionally prescribed warning must be supplemented with

15 he will absorb the sales tax ("anti-advertising provisions"), and from failing to state the sales tax as a separate ele- ment of the charge to the customer ("anti-absorption pro- visions"). This view is mistaken. Both the New York State and New York City cigarette taxes already have anti- absorption provisions, see \.Y. Tax Law §471(3), N.Y. City Admin. Code §D46.2.0(a)(3) (9a), but neither these taxes nor any other tax of which we are aware has ever contained a price differential requirement. The price dif- ferential requirement, unlike anti-advertising and anti- absorption provisions, mandates fixed differentials in after- tax prices. Anti-advertising and anti-absorption provisions never mandate any given relationship between the prices or different items. The price differential requirement is a price-fixing provision, mandating a certain minimum differential between after-tax selling prices, while anti- advertising and auti-absorption provisions in no way limit a seller's pricing flexibility. The City points to no precedent whatever for the imposition of a price-fixing requirement as part of a taxing statute. Price-fixing is much too drastic and important a governmental power to be delegated by incidental implication as part of a taxing statute. Indeed, the New York State Department of Taxation and Finance has expressly ruled that the anti-advertising and anti-absorption provisions leave a seller free to reduce his price to offset the sales tax, o long as he does not advertise that he is doing so. New York State De't. of Taxation and Finance, Rel. No. 40-ST ( 3ug. 9, 1965), 2 CCH New York State Tax Rep. W-028.70. This is the universal rule. See, e.g., J.F. Due, State and Local Sales Taxation: Structure and Administration 27-28 (1971) ; Tax Foundation, Inc., State and Local Sales Taxes 15 (1970). In short, anti-absorption and anti-advertising provisions in no way limit the seller's pricing flexibility. The price IN m 0 w L5 ca

19 versy concerning cigarettes. Since the declared purpose of the price differential requirement is "to direct attention to the cigarettes containing excessive tar and nicotine and thereby to promote the health and welfare of the people of the City", Article 2-A(c) (3a), the Congressional finding that the package warning required by the Federal Act is adequate to alert consumers to the health controversy con- cerning cigarettes establishes that the package warning is a less restrictive alternative to the City's price differential requirement. In the Court below: "The City tax authorities iaere within their powers in rejecting a suggestion of signs, etc., to notify the consumer of the tax differential because (a) a sign is not nearly as forceful or effective a reminder as a price differential; (b) without the price differential the sign will only mean that the dealer pays a differential in tax, but the consumer pays the same whichever type of cigarette he buys." Justice Silverman's holding is in error for several reasons. In the first place, Justice Silverman dealt only with the sign-posting alternative, and did not consider the warning required by the Federal Act. In the second place, even as applied to the sign-posting alternative, Justice Silverman's reasons are inadequate. The first of Justice Silverman's reasons-that. a sign is supposedly ineffective-is squarely contrary to the Court of Appeals holding in Defcance Milk Products that, as a matter of law, a sufficiently prominent label or sign will convey the necessary information to the consumer. Justice Silverman's second reason is based on the assumption that the \ ew York City Finance Adminis- trator required the price differential for its own sake, rather than to inform consumers of the additional tax. CY ^

iv N.Y. City Admin. Code § D46-8.0(1) -------------- ------------- ----- N.Y. City Admin. Code § D46-8.0(11) ------------------------------ PAGE 16 16 New York City Local Law No. 34 of 1971, 49 City Record 3'..60 (July 15, 1971) -------------------------------------------- 3 Cigarette Tax Law Regulations of the Finance Ad- ministrator, Article 2-A ................................................1, 2, 4 N.Y. Tax Law §§ 420-138 .... ............ --.............. -.............. .-... 9 Other Authorities: H.R. Rep. No. 449, 89th Cong., 1st Sess. (1965), in 1965(2) U.S. Code Cong. & Admin. News 2350 ....--20,23 S. Rep. No. 91-566, 91st Cong., 2d Sess. (1970), in 1970(2) U.S. Code Cong. & Admin. News 2652 ........ 21, 23 New York State Dep't of Taxation and Finance, Rel. No. 40-ST (Aug. 9, 1965), 2 CCH New York State Tax Rep. 7 63-028.70 ...... .................... -------------- -...... -...... 15 Drayton, The Tar and Nicotine Tax: Persuing Public Health Through 2ax Incentives, 81 Yale L.J. 1487 (1972) .............. -------- ........... ---.............. .------------------- --....... 14 J. F. Due, State and Local Sales Taxation: Structure and Administration (1971) .............................. ------------ -- 15 Struve, The Less-Restrictive-Alternative Principle and Economic Due Process, 80 Harv. L. Rev. 1463 (1967) 17 Tax Foundation, Inc., State and Local Sales Taxes 15 (1970) ....... ----------------- - °................................. _............ -.... 15 Statistical Supplement to Federal Trade Commission Report to Congress dated December 31, 1972 .......... Al

27 CONCLUSION The order of the Appellate Division of the State of New York, First Department, entered October 4, 1973, should be reversed as well as the order and judgment of the Supreme Court of the State of New York entered on or about June 5, 1973. Respectfully submitted, POLILdE:, SwARTZ, STARIL & AMROX Attorneys for Plwinttifs-Respondents jV1ER4IN C. POLLAB HOwARD C. 11MRON ti6'ILLxant R. Por,r.Aa of Cownsel

22 further consumer education measures, including price dif- ferentials. But Congress definitely found that a less re- strictive alternativ^ was adequate. It prescribed a stan- dard warning for ciyarette packages, and enacted Section 5(b) for the precise purpose of foreclosing independent and possibly inconsistent consumer education measures by States and localities. There can be no serious question that the New York City price differential requirement is "based on smoking and health" within the meaning of Section 5(b). The price differential requirement states that it was promulgated: "In furtherance of `.he purpose of the additional tax to direct attention to the cigarettes containing exces- sive tar and nicotine and thereby to promote the health and welfare of the people of the Citv. ..." Article 2-A(c) (3a). It is also clear that the price differential requirement is "imposed ... with respect to the advertising or promotion of .., cigarettes". The stated purpose of the price differ- ential requirement, as quoted above, is "to direct attention to the cigarettes containing escessive tar and nicotine" (emphasis supplied). Its purpose, in other words, is to pro- mote "low tar" cigarettes. This is underscored by the fact that the price differential regulation also requires that the price differentials be "clearly marked" in all price lists, bills, advertisements, catalogs, and other publications. Arti- cle 2-A(c) (3a). Thus the price differential requirement is undeniably a promotional requirement. It is therefore barred by the Federal Act. Section 5(b) bars any State or local requirement with respect to advertising or promotion, not merely require- ments with respect to interstate advertising or promotion.

16 differential regulation, however, does drastically limit a seller's pricing flexibility. Anti-advertising and anti-ab- sorption requirements are no bar to defendant charging 50¢ per pack for high tar and low tar cigarettes. The City's price differential made it a crime. tiVhen New York City passed Local Law No. 34 on Juile 22, 1971, it did not leave this question to implication; instead, it expressly authorized the New York City Finance Administrator to promulgate such a requirement. N.Y. City Admin. Code §D46.S,0(11)(13a). The Finance Ad- ministrator already had broad power "to make, adopt and amend rules and regulations appropriate to the carrying out of this title and the parposes thereof", N.Y. City Admin. Code ,.D46-S.0(1) (lla-12a), but the City obviously concluded that this power, broad as it might be, was not enough to support a price differential requirement. The City's own conduct clearly demonstrates that the power to impose a price differential requirement cannot be left to implication. The general language of the State enabling statute furnishes even less support for such a requirement, especially in view of the fundamental New York constitu- tional principle that delegations of the taxing power to municipalities must be sspress and strictly construed. 1 11

17 POINT III The Price Differential kequirement Is Unconstitu- tionally Broad. The City price differential regulation itself states that the purpose of the additionalta% as being "to direct atten- tion to the cigarettes containing excessive tar and nicotine and thereby to promote the health and welfare of the people of the City". Article 2-A(c) (3a). It is plain that the City's declared purpose of informing customers of the amount of the additional tax can be ac- complished in a much less sweepir,; and burdensome way than the price differential requirement: the City need only require the posting of a prominent sign furnishing this information.* It is a fundamental principle of constitutional due pro- cess that the State cannot resort to a sweeping regulation when a less restrictive alternative regulation would ac- complish its purpose. See, e.g., Trio Distrib. Corp. v. City of Albany, 2 N.Y.2d 690, 143 N.E.2d 329, 163 N.Y.S.2d 585 (1957) 2d 690, 693-96, 143 N.E.2d 329, 330-32, 163 N.Y.S.2d 585, 587-89 (1957); Defao,nce 3Zilk Prods. Co. v. DulYlond,, 309 N.Y. 537, 541, 543, 132 N.E.2d 829, 830-31 (1956); Oil City Discount Center, Inc. v. City of Ponkers, 53 Mise. 2d 191, 194, 227 N.Y.S.2d 945, 948 (Sup. Ct. Westchester County 1967) ; cf. Papachristou v. City of Jacksonville, 405 U.S. 156, 164-70 (1972) (overbroad vagrancy ordinance invalid). See generally Struve, The Less-Restrictive-Alter- native. Principle and Economdc Due Process, 80 Harv. L. Rev. 1463-64, 1472-73 (1967). Under this principle the * Such a sign has been required by the price differential regula- tion since its amendment effective January 28, 1972, 49 City Rec- ord 5804 (Dec. 28, 1971), Article 2-A(c) (4a). .,~ 0 N 43 ~ G] tn

9 POINT I There Is No Reasonable Relationship Between a Dif- ferential In the Price of Cigarettes Based on Tar and Nicotine Content and the Cigarette Brand Preferences and Selection By Smokers In the City of New York. The Respondents have argued t.hroughout this litigation that their price differential regulation, while not in fur- therance of revenue production, is sustainable for reasons of the health and welfare of the people of the City. Respondents have,in their Cigarette Tax Law (Admin- istrative Code of the City of New York, Title D. Chapter 46), and their Cigarette Tax Regulations (Article 2-A), added a health protection purpose although there is no such purpose in the enabling Legislation (L. 1971 Ch. 394). Now, armed with this self-created purpose, Respondents seek to sustain their price differential regulation on eco- logical grounds (under their police power). Respondents have attempted to read into the amendment this ecological, non-revenue purpose solely from the fact that the amount of the authorized tax increase graduates from zero to four cents depending )n the tar and nicotine content of cigarettes sold subject to the tax increase. This graduation, alone, is a spe^ious basis for such a reading. Probability of an unexpressed ecological legis- lative purpose based on these differentials in the authorized tax disappears when the 1971 cigarette tax enabling act amendment is construed with parallel provisions of the same State Tax Law applicable to the imposition and col- lection of taxes on alcoholic beverages (Tax Law Article 18, Sections 420-438). There never has been a claim or impli- cation that State taxes on beers, wines and liquors sold in New York were enacted for any purpose other than the ~ 0 nr ~ w r.~ v

20 Since the purpose of informing consumers can be met just as well by a sign-posting requirement, the Defiance Milk Products principle requires that it be met in this less restrictive and burdensome manner. POINT IV The P-ace Differential Provision Is Barred By the Federal Public Health Smoking Act. Section 5(b) of the Federal Public Health Cigarette Smoking Act of 1969, 15 U.S.C. §1334(b), provides: "No requirement or prohibition based on smoking and health shall be imposed under State law with respect to the advertising or promotion of any cig- arettes the packages of which are labeled in conformity with the provisions of this chapter." All cigarettes sold by the plaintiffs bear the warning required by the Act. When the predecessor of Section 5(b) was first enacted in 1965, Congress made it clear that it intended the re- quired warning on ~igarette packages to be exclusive of any other federal, state, or local regulation of cigarette labeling or advertising on health grounds: "There was general agreement among the witnesses appearing before the committee, whether or not they favored a warning requirement on cigarette packages, that if the committee took any action in this field, such a requirement as to labeling should be uniform; other- wise, a multiplicity of State and local regulations per- taining to the labeling of cigarette packages could create chaotic marketing conditions and consumer con- fusion." H.R. Rep. No. 499, 89th Cong., 1st Sess. (1965) in 1965 (2) U.S. Code Cong. & Admin. News 2350, 2352.

24 Cong. & Admin. News 2350, 2354. The fact that one of the purposes of the Act is Lo safeguard interstate commerce in no way establishes that its application is limited to interstate commerce. When all is said and done, this Court cannot shut :ts eyes to the obvious fact that the whole purpose of the New York City price differential requirement is to drive home to consumers a promotional message based on smoking and health. This is exactly what Congress has forbidden localities to do in Section 5(b) of the Federal Public Health Cigarette Smoking Act. POINT V The Price Differential Requirement Is Not Within the City's Local Police Power. Justice Silverman's statement that "this appears to be a valid exercise of the City's police power" is not in accord with the applicable law on the subject. Authorities show that the New York City price differential requirement exceeds for two distinct reasons: (1) it deprives sellers of cigarettes of the pricing fle°ibilitn which is expressly per- mitted by New York State law; and (2) it is not a response to any local problem unique to New York City. It is well established thac the local police power does nott permit a locality to enact a local law which prohibits con- duct which is permitted by State law. E.g., F.T.B. Rea7.ty Corp. v. Goodman, 300 N.Y. 140, 147-48, 89 N.E.2d 865, 268-69 (1949); S. H. Kress R Co. v. Department of Health, 283 N.Y. 55, 59-60, 27 N.E,2d 431, 432 (1940) ; gindermann Fireproof Storage Warehouses Inc. v. City of Neaa York, 39 A.D.2d 266, 269, 333 N.Y.S.2d 854, 856-57 (1st Dep't 1972). In an opinion adopted by the Court of Appeals, this Court held

26 The price differential requirement is outside the City's local police power for a further reason, which the Court of Appeals explained in Robin v. Incorporated Village of Hempstead, 30 N.Y.2d 347, 351, 285 N.E.2d 285, 287, 334 N.Y.S.2d 129, 132 (1972) : "The village does, it is true, have the general power to `enact any ordinances, not inconsistentt with existing law which shall be deemed expedient or desirable for the *"* health of its inhabitants' (Village Law, Sec- tion 89, subd. 59) but such a general grant 'is not a delegation to a municipal corporation of the entire police power of the state and is limited to matters of an inherently local nature.' (6 .licQuillin, Municipal Corporations [1969 rev. ed.], Section 24.45, p. 568; see, also, Matter of Kress c6 Co. v. Department of Health, 283 N.Y. 55, 59 supra; -Acdler v. Deegan, 251 N.Y. 467, 489-491, per CAnDozo, Ch. J., concurring.) The Court of Appeals has expressly declared that local health regulations-relating, for instance, to the manufacture and sale of food-may be enacted by a municipality, in spite of general State regulation, only if there exists `a real distinction betmeen the city and oti= parts of the State. They [local l-egulations] must be based upon special conditions existing in the city.' (Matter of Kress & Co. v. Depmrtment of Health, 283 N.Y. 55, 59, supra.)" There is no suggestion-nor could there be-that the purpose of the regulation is "based upon special conditions effisting in the city", or reflects any "real distinction be- tween the city and other parts of the State." It follows that any such health purpose is not within the City's local police power. ~ .. 0 ~ ~ A -0

25 "However, where the extension of the principle of the State law by means of the local law results in a situa- tion where what would be permissible under the State law becomes a violation of the local law, the latter law is unauthorized (Jewish Consunaptives' Relief Soc. v. Town of Waterbury, 230 App. Div. 228, affd. 256 N.Y. 619). Here, that is plainly the case. The local law forbids the hiring at a wage which the State law permits and so prohibits what the State law allows. Semantic exercises in this connection cannot change the concept." (Wholesade Lawndry Bd. of Trade Inc. v. City of New York, 17 A.D.2d 327, 330, 234 N.Y.S.2d 862, 865 1st Dep't 1962) (footnote omitted), af'd on opinion below, 12 N.Y.2d 998, 1S9 N.E.2d 623, 239 N.Y.S.2d 128 (1963). This principle governs the present case. The State of New York has enacted its own cigarette tax, in addition to authorizing the City to enact one. See N.Y. Tax Law Sections 470-82. The State cigarette tax law leaves sellers of cigarettes entirely free to set price differentials between cigarettes without regard to the tax.* In other words, nothing in the State law prohibits the plaintiffs from sell- ing all cigarettes at the same price reaardless of the taxes they pay on them. Accordingly, in purporting to impose a price differential requirement, the City is attempting to prohibit the freedom in pricing of cigarettes which the State law permits. This is exactly what the courts have uniformly held the City cannot do under its local police power. *The state cigarette tax law has an anti-absorption provision, N.Y. Tax Law Section 471(3), but the New York State Depart- ment of Taxation and Finance has ruled that such a provision leaves a seller free to reduce his price to offset the tax. ~ ~. 0 tJ `0 ~ A W

5 quiring a three-tier price system in cigarette vending ma- chines. (R. 41) In December of 1972, however, the defendant Lewisohn amended subparagraph C of Article 2-A of the price dif- ferential regulation to require cigarette vending machines to provide a two tier five cent differential between the price for "low tar" cigarettes and the price for all other ,ciga- rettes. This two tier price system was scheduled to take effect on January 27, 1973. However, as indicated above, no steps were taken to enforce even this two tier system for vending machine sales of cigarettes until the spring of this year. An examination into the facts of a companion case, Peo- ple of the State of New York v. David Cook, now pending before this Court, gives some insight into why defendants suddenly acted to amend the price differential regulation and to start belated enforcement of the amended regulation against the cigarette machine vendors, In April of 1972 one David Cook, a retailer (over-the- counter) of cigarettes, moved to dismiss on information charging him with violating the original price differential regulation. In July he was found g~lilty and. fined ten dol- lars. An appeal was taken from this conviction to the Appellate Term, First Department. One of the defenses raised by Cook before the Criminal Conrt and before the Appellate Term was that the cigarette vending machine in- dustry was being granted special treatment with respect to price differential enforcement and that this special treat- ment was proof that the price differential requirement was not authorized by the State Enabling Act. Apparently in response to this argmnent by Cook the City amended its regulation and proceeded to enforce it against the vending machine industry. In so acting, the City disregarded the fact that some 14,000 cigarette vend- I

18 City's decision to impose a resale price differential require- ment rather than a much less sweeping and burdensome sign-posting requirement is unconstitutional. The leading case of Defaance Milk Prods. Co. v. DuMond, 309, N.Y. 537, 132 N.E.2d 829 (1956), is squarely in point. The Court of Appeals overturned a statute which forbade the sale of evaporated skimmed milk except in containers weight ten pounds or more, holding: "The ostensible legislative purpose was to see to it that customers did not get evaporated skimmed milk when they were trying to buy evaporated whole milk. But plaintiff's h.bels plainly said: 'Evaporated Skimmed Milk'. If more distinctive marking was thought necessary, the Legislature could have de- manded other kinds of labels or special sizes, shapes or colors of containers. Instead, it issued its fiat that these household-size quantities could not be sold at all. Such a prohibition was, as matter of law, not a reason- able way of dealing with such confusion or possibility of confusion as the legislators might have found to exist." 309 N.Y. at 541, 132 N.E.2d at 831 (emphasis supplied). In the present case, for exactly the same reasons, the price differential requirement is, as a matter of law, an unnecessary restrictive and therefore unconstitutional way to deal with any consumer confusion that may have existed regarding the New York additional tax. A sign-posting requirement is not the only less restric- tive alternative to the City's price differential requirement. Congress has made the factual determination, in enacting the Federal Public Health Cigarette Smoking Act of 1969, that the warning which the Act requires on cigarette pack- ages is adequate to warn consumers of the health contro-

13 The New York City price differential requirement col- lides head-on with the County Securities principle. Noth- ing in the State enabling statute authorizing the tax au- thorities, or even suggests, a City price differential require- ment. The fact is decisive, because under County Securities a delegation of the power to impose a price differential requirement "must be made in express terms. It cannot be inferred." There is no evidence that the Legislature even had an unegpressed, subjective intent to authorize a price differential requirement. This Court has held, as an exception to the general principle against implied delegation of the taxing power, that a general grant of the p(-~,- to impose a tax carries with it the power to prescribe the details of tax assessment and procedure. See Western Elec. Co. v. Taylor, 276 N.Y. 309, 312, 12 N.E.2d 309, 311 (193?) (per curiam) ; Gautier v. Ditm.ar, 204 N.Y. 20, 29, 97 N.E. 464, 468 (1912). But this exception has been applied only to aspects of tax assessment and procedure which are reasonably incidental to the imposition of a tax, and unless the exception is limited to snch details it would swallow the general rule prohibiting the delegation of the taxing power by implica- tion. The price differential requirement does not come within this exception, because it is not an incidental procedural or administrative provision. Neither New York State nor any other jurisdiction-ineluding New York City-has ever before enacted a price differential requirement as part of a taxing statute. The price differential require- ment has no relation to raising revenue, but is based on concepts of smoking and its relation to health. Thus the New York City price differential requirement was not an incidental and foreseeable incident of the enactment of the additional City tax; instead, it was an unprecedented I

.....i PAGE POINT `t- The Price Differential Requirement Is Not Within the City's Local Police Power .................................... 24 CONCLIISION .............................................................................. 27 ~ Statement Pursuant to CPLR 5531 .................................. 28 i1.PPEnmrg -----------------------------------------------------------_........... .......... TABLE OF AIITHORTTLES Cases: Campbell v. Hussey, 368 U.S. 2971 (1961) ........................ la 21 County Securities, Inc. v. Seacord, 278 N.Y. 34, 15 N.E.2d 179 (1938) ................................... _.................... --- 12 Defiance Milk Prods. Co. v. DuMond, 309 N.Y. 537, 132 N.E.2d 829 (1956) ...... ............... ................... 17,18,19, 20 F.T.B. Realty Corp. v. Goodman, 300 N.Y. 140, 89 N.E.2d 865 (1949) ------------ ------ ----------------------- ......... -........ 24 Gautier v. Ditmar, 204 N.Y. 20, 97 N.E. 464 (1912) .... 13 N In re Niekd7ra (Dep't of HealtTa of N.Y.), N.Y.L.J., March 3, 1971, p. 2, col. 4................................... -............ 23 gindermann Fireproof Storage Warehouses Inc. v. City of New York, 39 A.D.2d 266, 333 N.Y.S.2d 854 (1st Dep't 1972) ---------------------------------------------------°---------- 24 Oil City Discount Center, Inc. v. City o f Yonkers, 53 Misc. 2d 191, 277, N.Y.S.2d 945 (Sup. Ct. Westchester County 1967) ......... -.......................................... ................. 17 M

12 duced in the 1971 amendment (L.1971 ch. 394) for any of the health educational reasons claimed by Respondents. It has no more relation to such an educational purpose than any of the general sales taxes referred to by Respon- dents which are likewise ultimately payable by consumers under a variety of anti-absorption provisions. Respondents have failed wholly to establish their claim that the State Legislative scheme for the taxation of ciga- rettes sold in the City of New York contemplated a theo- retical reduction in the purchase of brands with higher tar and nicotine content to be effected through an enforced imposition of retail price differentials. They have failed wholly to establish that their local regulations could, in fact, have any such effect. POINT II The Price Differential Requirement Is Not Authorized By the State Enabling Act. Munic.ipalities in New York State, including the City of New York, have no inherent power to tax. Any such power must be derived by deiegation from the State :.egis- lature. Article 16, c1 of the D:ew York State Constitution mandates that "[a]ny laws which delegate the taxing power shall specify the types of taxes which may be imposed thereunder . . ." In accordance with this mandate, this Court has held that a delegation of taxing power to a municipality "must be made in egpress terms. It cannot be inferred." Cowaty Securities, Tue. v. Seacord, 278 N.Y. 34, 37, 1.5 N.E.2d 179, 180 (1938). This principle is firmly established. See, e.g., United States Steel Corp. v. Gerosa, 7 N.Y.2d 454, 459, 166 N.E.2d 489, 491, 199 N.Y.S.2d 475, 478 (1960); Society of the Plastics Industry, Inc. v. City of New York, 68 Misc. 2d 466, 370-71, 326 N.Y.S.2d 788, 793-94 (Sup. Ct. N.Y. County, 1971). I