West Virginia fined a wholesale cigarette distributor, Ashland, for selling delisted cigarette brands. The fine of $159,398 was assessed on 12,230 packs sold, which comes out to 500% of the cigarette’s value.
Ashland claims that the penalty violates the Eighth Amendment prohibition on excessive fines.
The state Court of Appeals held that the penalty was reasonable because Ashland’s maximum penalty could have been $5,000 per pack sold, resulting in $61 million in fines. The court also noted that Ashland had violated the law twice previously.
The West Virginia Penalty Statute
The statute allows the West Virginia State Tax Commissioner to automatically assess a civil monetary penalty for sale of cigarette brands in West Virginia that have been removed from the West Virginia Approved Brands List for Non-Participating Manufacturers.
Should a person sell cigarettes not found on the List, W. Va. Code § 16-9D-8(a) permits the Commissioner to impose a variety of penalties, including imposing a “civil penalty in an amount not to exceed the greater of five hundred percent of the retail value of the cigarettes or five thousand dollars.”
Excessive Fine Clause of the Eighth Amendment
Ashland does not dispute that it sold non-approved cigarette brands. However, it argues that it was inadvertent and that they were sold for a brief period following that brand’s removal from W. Va’s cigarette manufacturer’s list.
Despite the clear inadvertent nature of Ashland Specialty’s sale of off-List cigarettes and the fact that Ashland Specialty reported the sales to the Commissioner and discovered and corrected its mistake on its own, the Commissioner considered none of these mitigating factors and instead automatically imposed the civil monetary penalty at the maximum rate of 500%.
The civil penalty equates to forfeiting the involved cigarettes more than five times over, sixty-four times the profit on the sales, and thirty-five times the escrow payment under the Master Settlement Agreement.
The the most prominent case, US. v. Bajakajian, dealt with a civil forfeiture, and the Supreme Court specifically declined to articulate particular standards for lower courts to look to in determining whether a particular fine was excessive, leading to a proliferation of disparate tests and factors across the United States.
There have been almost 200 federal circuit court decisions that have relied on Bajakajian to determine where a fine is excessive, but only 4 of them have found excessive forfeiture. This is possibly due to lower courts applying Bajakajian too rigidly.
Ashland argues that to leave the Excessive Fines Clause incorporated in theory but standard-less in practice would be to relegate its protected right to second-class status.
The Supreme Court has not decided whether to grant certiorari to review the case.