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Pic-A-State PA, Inc. v. Com. of Pa.

filed: November 30, 1994.

PIC-A-STATE PA, INC.; ZACK'S FROZEN YOGURT; SMITTY'S PLACE, INC.; K&J STATIONARY, INC.; JAMES RUSSELL
v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF REVENUE; EILEEN H. MCNULTY EILEEN H. MCNULTY, APPELLANT



On Appeal from the United States District Court for the Middle District of Pennsylvania. (D.C. Civ. No. 93-cv-00814).

Before: Stapleton, Lewis and Alarcon,*fn* Circuit Judges

Author: Alarcon

Opinion OF THE COURT

ALARCON, Circuit Judge:

Eileen McNulty, Secretary of the Pennsylvania Department of Revenue, appeals from the district court's declaration that section 9(c) and 9.1 of Pennsylvania's Commonwealth Act 8 of 1993 ("Act 8") is unconstitutional under the Commerce Clause and the order permanently enjoining its enforcement. We must decide whether Act 8 imposes an unconstitutional burden on interstate commerce in violation of the dormant Commerce Clause. We reverse because we conclude that since the Violent Crime Control and Law Enforcement Act of 1994, Pub. L. No. 103-322, 108 Stat. 1796 ("1994 Crime Control Act"), makes the conduct of a business that sells an interest in another state's lottery a federal crime, Act 8 does not impose an unconstitutional burden on interstate commerce.

I.

Pic-A-State PA., Inc. ("Pic-A-State"), a Pennsylvania corporation, characterizes itself as a "messenger business . . . [operated] as a service to Pennsylvania citizens . . . where orders are received from persons who wish to participate in legalized and authorized lotteries of other states." Pic-A-State conducts its business in Pennsylvania through retail stores, at which customers place orders for lottery tickets from other states. The retail stores transmit the orders to purchasing agents in other states. The retail stores charge the customers one dollar for each lottery ticket purchased. The purchaser does not receive a ticket for his money. Instead, the purchaser receives a receipt showing the numbers he selected.

In response to Pic-A-State's business activities in Pennsylvania, that state's legislature enacted Commonwealth Act 8 of 1993. Section 9(c) of Act 8 provides:

Except as provided in this act, no person shall engage in the sale or offering for sale within this Commonwealth of any interest in a lottery of another state or government whether or not such interest is an actual lottery ticket, receipt, contingent promise to pay, order to purchase or other record of such interest.

Pa. Stat. Ann. tit. 72, § 3761-9(c) (Supp. 1994). Section 9(d) provides that "any person convicted of violating this section shall be guilty of a misdemeanor and upon conviction thereof, shall be sentenced to pay a fine not exceeding two thousand dollars ($2,000)." Pa. Stat. Ann. tit. 72, § 3761-9(d) (Supp. 1994). Section 9.1 of Act 8 directs "the secretary [to] enter into a compact with any other states that permit sale of Pennsylvania lottery tickets within their borders to sell those states' lottery tickets within this Commonwealth." Pa. Stat. Ann. tit. 72, § 3761-9.1 (Supp. 1994). Act 8 was signed into law on May 20, 1993.

Anticipating that Act 8 would render its business illegal in Pennsylvania, Pic-A-State filed a complaint in the United States District Court for the Middle District of Pennsylvania on June 1, 1993, alleging, inter alia, that Act 8 violates the Commerce Clause. Pic-A-State requested that the district court (1) issue a stay of the July 19, 1993 effective date of Act 8 pending resolution of this matter, (2) declare that Act 8 violates the Commerce Clause of the United States Constitution, and (3) issue an injunction prohibiting the enforcement of Act 8. The district court consolidated the proceedings for a preliminary and permanent injunction pursuant to Rule 65(a)(2) of the Federal Rules of Civil Procedure*fn1 and ordered that the matter be tried on July 9, 1993. The parties filed briefs and the district court heard oral argument on July 9, 1993. On July 15, 1993 the district court issued a stay barring indictments or prosecutions under Act 8 pending the entry of its final order and judgment.

On July 23, 1993, the district court entered an order declaring sections 9(c) and 9.1 of Act 8 unconstitutional and permanently enjoining their enforcement. The district court also filed a memorandum decision setting forth its rationale. It concluded that Act 8 was unconstitutional under the Commerce Clause because it placed an impermissibly discriminatory burden on interstate commerce. The court noted that because Act 8 facially discriminates against interstate commerce, it was subject to heightened scrutiny pursuant to Norfolk Southern Corp. v. Oberly, 822 F.2d 388, 398 (3d Cir. 1987) ("State actions that purposefully . . . discriminate against interstate commerce . . . are given heightened scrutiny."). The district court determined that the state's purpose in enacting Act 8 was to control fraud and theft in out-of-state lottery sales, and protect the interests of the state's senior citizens who benefit from the profits realized from the sale of Pennsylvania lottery tickets. The district court concluded that Act 8 could not withstand heightened scrutiny because the state could enact less discriminatory regulation to accomplish its goals. Secretary McNulty filed a timely appeal from the district court's order.

Prior to the date scheduled for the oral argument of this matter before this court, Congress enacted the 1994 Crime Control Act on August 25, 1994. The 1994 Crime Control Act was signed into law on September 13, 1994. One portion of the 1994 Crime Control Act makes it a federal crime knowingly to transmit in interstate commerce information for the purpose of procuring interests in an out-of-state lottery if one is "engaged in the business of procuring for a person in 1 State such a ticket, chance, share, or interest in a lottery . . . conducted by another State (unless that business is permitted under an agreement between the States in question or appropriate authorities of those States)." Violent Crime Control and Law Enforcement Act of 1994, Pub. L. No. 103-322, § 320905, 108 Stat. 1796, 2126. In resolving the issues raised in this appeal, we must assess the effect the 1994 Crime Control Act has upon the constitutionality of Act 8. "Our standard of review is plenary." Juzwin v. Asbestos Corp., 900 F.2d 686, 689 (3d Cir.), cert. denied, 498 U.S. 896, 112 L. Ed. 2d 204, 111 S. Ct. 246 (1990). II.

As an initial matter, Pic-A-State argues that it would be manifestly unjust for this court to apply the 1994 Crime Control Act in assessing the constitutionality of Act 8. Supp. Letter Memo. at 3-5. In support of this argument, Pic-A-State relies upon a line of Supreme Court cases addressing the question whether a newly-enacted law should be retroactively applied to matters pending on appeal. Pic-A-State's reliance on this principle of retroactivity law ...


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