Commerce Clause – Extraterritorial Reach

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7^th Circuit Court of Appeals

Case Name: Legato Vapors, LLC, et al v. David Cook, et al 

Case No.: 16-3071

Officials: MANION, KANNE, and HAMILTON, Circuit Judges.

Focus: Commerce Clause – Extraterritorial Reach

In 2015 the State of Indiana enacted the Vapor Pens and E-Liquid Act to regulate the manufacture and distribution of vapor pens and the liquids used in so-called e-cigarettes. 2015 Ind. Acts 1870, Ind. Code §§ 7.1-7- 1-1 et seq. The Act is written so as to have extraterritorial reach that is unprecedented, imposing detailed requirements of Indiana law on out-of-state manufacturing operations. The Act regulates the design and operation of out-of-state production facilities, including requirements for sinks, cleaning products, and even the details of contracts with outside security firms and the qualifications of those firms’ personnel. Imposing these Indiana laws on out-of-state manufacturers violates the dormant Commerce Clause of the United States Constitution. The federal Constitution leaves Indiana ample authority to regulate in-state commerce in vapor pens, e-liquids, and e-cigarettes to protect the health and safety of its residents. For example, the Act’s prohibitions on sales to minors, its requirements for child-proof packaging, ingredient labeling, and purity, and requirements for in-state production facilities pose no inherent constitutional problems. Indiana may not, however, try to achieve those health and safety goals by directly regulating out-of-state factories and commercial transactions. As applied to out-of-state manufacturers, the challenged provisions of the Act violate the dormant Commerce Clause prohibition against extraterritorial legislation. We reverse the judgment of the district court dismissing this case and remand with instructions to enjoin enforcement of the challenged provisions against the plaintiffs and to declare the challenged provisions unenforceable against out-of-state manufacturers. To explain our reasons, we first review the statutory provisions and procedural history of the case. Then we apply the Commerce Clause analysis to three categories of challenged provisions: security terms, clean room specifications, and audit requirements.

Reversed and remanded

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.