Xcaliber Intl Ltd v. Foti

United States Court of Appeals
Fifth Circuit
F I L E D
March 1, 2006
Charles R. Fulbruge III
Clerk
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 05-30323
XCALIBER INTERNATIONAL LIMITED LLC; ET AL,
Plaintiffs,
XCALIBER INTERNATIONAL LIMITED, LLC,
Plaintiff-Appellant,
VERSUS
CHARLES C. FOTI, JR., IN HIS OFFICIAL CAPACITY AS ATTORNEY
GENERAL, STATE OF LOUISIANA,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
Before JONES, DeMOSS, and CLEMENT, Circuit Judges.
PER CURIAM:
Plaintiff-Appellant Xcaliber International Limited, LLC
(“Appellant or “Xcaliber””) appeals the district court’s order
dismissing under Federal Rule of Civil Procedure 12(b)(6)
Appellant’s federal and state free speech, equal protection, and
procedural due process claims. We vacate and remand.
Since 2003, Appellant has manufactured tobacco products and
distributed them primarily in Louisiana, Kansas, and Oklahoma.
Louisiana is one of many states that during the mid-1990s, sued the

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country’s largest tobacco manufacturers to recover health care
costs related to smoking. In 1998 these states signed the Master
Settlement Agreement (the “Agreement”), which settled the
litigation between them and four major tobacco manufacturers. The
original four manufacturers are referred to as Original
Participating Manufacturers (“OPMs”). Xcaliber is not an OPM.
The Agreement released OPMs from all tobacco-related legal
claims initiated by the states. In return, each OPM agreed to make
annual payments into a collective fund with each OPM’s contribution
determined primarily by multiplying an agreed sum that increased
each year by each OPM’s respective cigarette market share. The
total of all payments was then to be allocated among the states
based on a fixed formula, with Louisiana receiving approximately
2.26% of the total as its “allocable share.” The Agreement also
placed various restrictions on each OPM. For example, it (1)
banned political lobbying; (2) restricted trade association
activities; (3) prevented legal challenges to various state tobacco
laws; and, (4) prohibited some forms of advertising.
Other tobacco manufacturers were later given the opportunity
to join the Agreement. Many did and are referred to as Subsequent
Participating Manufacturers (“SPMs”). OPMs and SPMs are
collectively referred to as PMs. Xcaliber is not an SPM. Tobacco
manufacturers that are not OPMs or SPMs are referred to as Non-
Participating Manufacturers (“NPMs”). Xcaliber is a NPM.
Standing alone, the Agreement should put PMs at a cost

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disadvantage in comparison to NPMs. PMs inevitably must raise
prices in order to stay profitable at a rate similar to the pre-
Agreement rate and at the same time satisfy their payments under
the Agreement. Thus, NPMs like Xcaliber could sell at lower prices
and potentially increase their market share.
To neutralize this effect, the Agreement requires each state
to enact legislation, which in Louisiana is codified at LA. REV.
STAT. ANN. §§ 13:5061-5063. The statute requires every NPM selling
cigarettes in Louisiana to either (1) become a PM under the
Agreement’s terms, or (2) deposit money annually into an escrow
account. See § 13:5063. The amount to be deposited is calculated
by multiplying the numbers of cigarettes sold in the state by a
fixed charge listed in the amended statute that increases over
time. See § 13:5063 C.(1). The interest accrued on the escrowed
funds is paid out to the NPM, and the principle is either paid to
the state to satisfy a judgement entered against such NPM, or
returned to the NPM if twenty-five years pass without such a
judgment. See § 13:5063 C.(2).
Until 2003, the statute also contained the following
provision:
(b) To the extent that a [NPM] establishes that the
amount it was required to place into escrow in a
particular year was greater than the state’s allocable
share of the total payments that such manufacturer would
have been required to make in that year under the
[Agreement] ... had it been a [PM], the excess shall be
released from escrow and revert back to such [NPM].

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§ 13:5063 C.(2)(b)(LEXIS through 2005 Sess.)(emphasis added).
This provision created what Appellee refers to as a “loophole in
the statute.” That is, an NPM distributing tobacco in all states
had an escrow obligation approximately the same as if it were a PM
under the Agreement; but, an NPM distributing in only one or a few
states could have recouped some of its escrow payments for all but
those states’ allocable percentages under the Agreement.
Therefore, in 2003, Louisiana amended § 13:5063 C.(2)(b) to read:
(b) To the extent that a [NPM] establishes that the
amount it was required to place into escrow on account of
units sold in the state in a particular year was greater
than the [Agreement] payments ... that such [NPM] would
have been required to make on account of such units sold
had it been a [PM], the excess shall be released from
escrow and revert back to such [NPM].
LA. REV. STAT. ANN. § 13:5063 C.(2)(b) (LEXIS through 2005 Sess.)
(emphasis added); see also 2003 La. ALS 925.
Because Appellant distributes products in only a few states,
it formerly utilized the “loophole” in the original statute but can
no longer do so post-amendment. Thus, Appellant challenges the
statute in its amended form.
Xcaliber filed suit against Appellee, seeking a declaratory
judgment that the amended statute is unconstitutional. Xcaliber
alleged that the statute (1) violates the First Amendment,
Fourteenth Amendment, and Commerce Clause of the United States
Constitution, and (2) violates its rights under corresponding
sections of the Louisiana Constitution. The district court

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dismissed each claim pursuant to Rule 12(b)(6) See FED. R. CIV. P.
12(b)(6). This timely appeal followed. Appellant does not
challenge the dismissal of its Commerce Clause claim, but does
challenge the dismissal of each of its other claims.
This Court reviews de novo a district court’s decision to
dismiss a complaint pursuant to Rule 12(b)(6). R2 Invs. LDC v.
Phillips, 401 F.3d 638, 642 (5th Cir. 2005) Appellant’s argument
on appeal is that the amended version of § 13:5063 violates its
federal and state constitutional rights to (1) free speech because
it financially coerces Appellant into signing the speech-
restrictive Agreement; (2) equal protection because it places a
higher financial burden on Appellant than it does on other
similarly situated tobacco companies; and (3) procedural due
process because it fails to provide Appellants with a pre-
deprivation hearing.
After a thorough review of the briefs, oral arguments of the
parties, and relevant portions of the record, paying particularly
close attention to Appellant’s complaint, we conclude the district
court erred in granting Appellee’s motion to dismiss under Rule
12(b)(6). We VACATE the district court’s order dismissing
Appellant’s claims and REMAND the case for further proceedings.
VACATED AND REMANDED.

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