The imposition of the Health Impact Fee under Minn. Stat. § 256.9658 (Supp. 2005) does not violate the 1998 settlement agreement between respondent tobacco companies and the state because the terms of the settlement agreement do not unmistakably relinquish the state legislature's sovereign authority to impose such an exaction on tobacco products in order to recover health care costs related to the use of tobacco products and to discourage smoking.
The opinion of the court was delivered by: Anderson, Russell A., Chief Justice.
Concurring specially, Page, J.
Heard, considered, and decided by the court en banc.
We are asked to determine whether the appellant State of Minnesota can impose a 75-cent Health Impact Fee on the cigarettes of manufacturers that are parties to the 1998 settlement of the state's tobacco suit, State by Humphrey v. Philip Morris USA, Inc., No. C1-94-8565 (Ramsey Cty. Dist Ct.). Respondents Philip Morris USA, Inc., R.J. Reynolds Tobacco Company, and Lorillard Tobacco Company, Inc., challenge the imposition of the fee on their products. The Ramsey County District Court concluded that the Health Impact Fee violates the settlement agreement and is unconstitutional. The district court also concluded that if the Health Impact Fee cannot be imposed on respondents' products, continued imposition of the Health Impact Fee on the products of the intervenors, a cigarette manufacturer and an industry trade association of cigarette manufacturers that are not parties to the settlement agreement, would constitute selective enforcement and violate those intervenors' right to equal protection. We granted accelerated review and now reverse the district court. We conclude that the imposition of the Health Impact Fee does not violate the settlement agreement because the terms of the settlement agreement do not unmistakably relinquish the state legislature's sovereign authority to impose such an exaction on tobacco products in order to recover health care costs related to the use of tobacco products and to discourage smoking.
In 1994, the state and co-plaintiff Blue Cross and Blue Shield of Minnesota sued certain major cigarette manufacturers and trade organizations, asserting claims for monetary, equitable, and injunctive relief. The state settled with one of the defendant manufacturers, Liggett Group, Inc., in 1997, and in May 1998 settled with the remaining defendants (settlement agreement). The terms of the settlement agreement required the manufacturers to make six payments to the state of specified amounts through January 2003, as well as additional annual payments to the state beginning on December 31, 1998, and continuing in perpetuity. The settlement agreement provided that each of the payments to the state were in satisfaction of the state's claim for damages incurred in the year of such payment or earlier years "relat[ing] to the subject matter of this action." The settlement agreement also included mutual releases and a covenant not to sue by the state. In addition, the terms of the settlement required the settling manufacturers to restrict their advertising, lobbying, and litigation activities. The Ramsey County District Court retained jurisdiction to enforce the settlement agreement.
In July 2005, the legislature enacted legislation imposing a "Health Impact Fee" of 75 cents on each pack of cigarettes sold in Minnesota after July 31, 2005. Act of July 14, 2005, ch. 4, art. 4, § 2, 2005 Minn. Laws 1st Spec. Sess. 2454, 2541-42 (codified at Minn. Stat. § 256.9658 (Supp. 2005)). The legislature expressly stated that the purposes of the Health Impact Fee were "to recover for the state health costs related to or caused by tobacco use and to reduce tobacco use, particularly by youths." Minn. Stat. § 256.9658, subd. 1. The Health Impact Fee "is imposed on and collected from" cigarette distributors. Id. Cigarette distributors pay the fee "at the same time and in the same manner" as they pay cigarette taxes under Minn. Stat. ch. 297F (2004 & Supp. 2005), that is, by purchase of a tax stamp that must be affixed to each pack of cigarettes. Minn. Stat. § 256.9658, subds. 4, 7. In the same legislation, the legislature amended the Unfair Cigarette Sales Act to specifically include "fees," such as the Health Impact Fee, in the definition of the "basic cost of cigarettes." Act of July 14, 2005, ch. 4, art. 4, § 4, 2005 Minn. Laws 1st Spec. Sess. at 2543 (codified as amended at Minn. Stat. § 325D.32, subd. 9 (Supp. 2005)); see Minn. Stat. § 325D.31 (2004).
Finally, the legislation also created a Health Impact Fund in the state treasury, to which revenue from the Health Impact Fee is credited. Act of July 14, 2005, ch. 4, art. 4, § 1, 2005 Minn. Laws 1st Spec. Sess. at 2541 (codified at Minn. Stat. § 16A.725 (Supp. 2005)). The Commissioner of Human Services is required to certify annually the health care costs incurred by the state for the previous fiscal year attributable to tobacco use, and the Commissioner of Finance must transfer funds from the Health Impact Fund to the general fund to offset those certified health care expenditures. Minn. Stat. § 16A.725, subds. 2, 3(a).
In August 2005, Philip Morris USA, R.J. Reynolds Tobacco Company, and Lorillard Tobacco Company (collectively the "settling manufacturers") and their distributors*fn1 filed motions in Ramsey County District Court under the caption of the 1994 tobacco case seeking to enforce the terms of the settlement agreement and to prevent the imposition of the Health Impact Fee on their products. The respondents alleged that the state's release in the settlement agreement "serves as a complete bar and defense to any attempt by the State to collect the [Health Impact Fee] with respect" to their products. Commonwealth Brands, Inc., a cigarette manufacturer that was not a party to the state's tobacco litigation, intervened, as did the Council of Independent Tobacco Manufacturers of America, whose cigarette manufacturer members also were not parties to the state's tobacco litigation. The intervenors alleged that, if the court ruled the Health Impact Fee could not be imposed on the products of the settling manufacturers, it could not be imposed on the intervenors' products*fn2 without violating the intervenors' rights under the First Amendment and the Equal Protection Clause of the U.S. Constitution, as well as the Uniformity Clause of the state constitution. Governor Tim Pawlenty, by his counsel, participated as an amicus curiae.
By order dated December 20, 2005, the Ramsey County District Court granted the respondents' motion to enforce the settlement agreement, ordering that "the Health Impact Fee violates the Settlement Agreement and is unconstitutional." The court noted that the "essential benefits" of the settlement agreement to respondents were that it "reduced to liquidated form, those damages which the state sought to collect by its lawsuit." The court also noted that by enacting the Health Impact Fee the legislature sought "to recover those costs from the settling defendants which are prohibited by the settlement agreement." The court stated that by seeking reimbursement of tobacco-related health care costs the state had violated the settlement agreement.
The district court also granted the intervenors' motion to bar the imposition of the Health Impact Fee on their products, ordering that "the Health Impact Fee cannot be enforced against [the intervenors] because it constitutes a selective enforcement and deprives them of equal protection under the law." Having barred the imposition of the Health Impact Fee on the products of the settling manufacturers, the court noted that imposing the Health Impact Fee on other cigarettes would give the settling manufacturers' products "a distinct marketplace advantage in price" that would only encourage underage smokers to switch to those products, rather than to quit altogether. As a result, the district court stated, the purposes of the legislation--to recover tobacco-related health care costs and discourage smoking--would not be met if the Health Impact Fee were imposed on only some cigarettes.
Finally, the district court ordered that "[t]he defendants and the intervenors are [entitled] to credit or refunds, to the extent paid." The court stayed its order pending appeal, and the state continues to collect the Health Impact Fee. However, the state must keep any funds collected in the Health Impact Fund until all appeals are exhausted and the district court has determined how those funds will be disbursed.
By order dated January 19, 2006, we granted the state's petition for accelerated review and set an expedited schedule for briefing and oral argument.
Because the facts are undisputed, the only issues before us on appeal from the district court's order enforcing the settlement agreement are questions of contractual, statutory, and constitutional interpretation. These are legal issues subject to de novo review. See, e.g., Employers Mut. Cas. Co. v. A.C.C.T., Inc.,580 N.W.2d 490, 493 (Minn. 1998) (contract interpretation); Vlahos v. R & I Constr. of Bloomington, Inc., 676 N.W.2d 672, 679 (Minn. 2004) (statutory interpretation); State v. Brooks, 604 N.W.2d 345, 348 (Minn. 2000) (constitutional interpretation).
We consider the settlement agreement as a contract. Ryan v. Ryan, 292 Minn. 52, 55, 193 N.W.2d 295, 297 (1971). Unambiguous language in the settlement agreement is to be given its plain and ordinary meaning. See Minneapolis Pub. Hous. Auth. v. Lor,591 N.W.2d 700, 704 (Minn. 1999). In construing ambiguous contract language, we consider the contract as a whole in light of the circumstances surrounding its formation, and strive to arrive at the parties' real understanding. See Donnay v. Boulware,275 Minn. 37, 43, 144 N.W.2d 711, 715 (1966).
Respondents and intervenors also urge us to declare the Health Impact Fee unconstitutional. We will uphold a statute unless the challenging party demonstrates that it is unconstitutional beyond a reasonable doubt, and every presumption is invoked in favor of the constitutionality of a statute. E.g., Hutchinson Tech., Inc. v. Comm'r of Revenue, 698 N.W.2d 1, 14 (Minn. 2005). Moreover, we do not reach constitutional issues if the matter can be resolved otherwise. In re Senty-Haugen,583 N.W.2d 266, 269 n.3 (Minn. 1998) (citing Ashwander v. Tenn. Valley Auth.,297 U.S. 288, 346-48 (1936) (Brandeis, J., concurring)). Accordingly, we first evaluate the parties' arguments as to the construction of the settlement agreement.
There is no dispute that in the settlement agreement the state agreed to release respondents from a range of potential future claims in return for the required settlement payments and restrictions on future conduct. We must decide whether any obligations created by the Health Impact Fee legislation are within the scope of those released. To do this, we first examine the nature of the obligations the Health Impact Fee legislation imposed on respondents. Second, we look to the settlement agreement ...