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Federal appeals court overturns parts of vaping law, granting win to out-of-state manufacturers

January 30, 2017

The Indiana Seventh Circuit Court of Appeals on Monday overturned a lower court’s ruling regarding Indiana’s controversial vaping law, granting a major victory to critics of the law.

The decision in Legato Vapors LLC and Right to be Smoke-Free Coalition Inc. vs David Cook found that the strict requirements in the law—including the security firm language and rules regulating cleanliness standards—were unenforceable against out-of-state manufacturers because they are a violation of the dormant commerce clause of the U.S. Constitution.

The rules “operate as extraterritorial legislation, governing the services and commercial relationships between out-of-state manufacturers and their employees and contractors," the ruling said.

"We understand the state’s arguments that good security for manufacturing facilities is vital to protect vaping products from contamination. The Commerce Clause does not prohibit Indiana from imposing reasonable and even-handed purity requirements on vaping products sold in Indiana. It may not try to achieve that goal by direct extraterritorial regulation of the manufacturing processes and facilities of out-of-state manufacturers."

The ruling also had some pointed words about the “astoundingly specific" controversial security firm requirements in the original law, which was passed in 2015 and amended in 2016. 

Lawmakers have said the law was meant to protect manufactured vaping products—e-liquids for use in electronic cigarettes—from tampering. That includes a rule that required every manufacturer to sign a deal with a security firm that met unusually strict requirements.

In practice, the rules gave a single security company—Lafayette-based Mulhaupt’s—the ability to choose which firms could operate in Indiana. And the law change was championed by a Lafayette lawmaker, Sen. Ron Alting.

“At the most basic level, one might wonder why Indiana cares whether an out-of-state manufacturer provides for security at its facilities through a contract with an independent company rather than through its own employees,” the ruling states. 

“These circumstances raise obvious concerns about protectionist purposes and what looks very much like a legislative grant of a monopoly to one favored in-state company in the security business,” according to the ruling.

Critics of the law cheered the ruling. But they pointed out that the ruling only applies to out-of-state manufacturers, so many small businesses are still hoping for legislative relief this year.

“I think it’s common-sense,” said Evan McMahon of Hoosier Vapers, an advocacy group representing small businesses. “The court has reaffirmed what we’ve been saying for the past two years.”

Lawmakers are again working on a fix to the law, through Senate Bill 1, which is slated to be voted on this week in a Senate committee. That bill removes the private security firm requirements.

“My hope is that the Legislature may move even faster to get this new law in place to help the small businesses in Indiana that want to return to their own state,” McMahon said. “If anything, [the ruling] reaffirms the work being on Senate Bill 1."

IBJ reported in August that the FBI was probing for possible corruption in the vaping law. Legislative leaders have vowed to fix it.

Senate President Pro Tem David Long has said the monopoly for Mulhaupt’s was “inadvertent.”

“We’re going to change that, and hopefully open the door to a fair and open market,” Long said. “That’s what we want to see.”

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