News

Tobacco retailers sue Palo Alto over new ban

Plaintiffs are seeking more than $5.2M for 'irreparable harm' and financial hardship caused by the recently adopted ordinance

A case of cigars that contains both flavored and non-flavored tobacco products at Mac's Smoke Shop in downtown Palo Alto on June 17. Photo by Magali Gauthier.

Four Palo Alto tobacco-shop owners, including Neil Khoury of the longstanding Mac's Smoke Shop, are suing the city, claiming its new ban on vape and flavored tobacco products violates the retailers' rights to conduct lawful business.

The lawsuit, filed July 28, seeks more than $5.2 million for four business owners — David Zoumut of Hookah Nights Lounge on University Avenue, Mohammad Hammad of Raw Smoke Shop on California Avenue, Khoury of Mac's Smoke Shop and Jaswinder Singh, who owns Smokes & More on El Camino Real and Smokes & Vapes, a block away — as a result of the citywide ban.

"We were forced to seek legal counsel," Khoury said. "It's not something we want."

The lawsuit is the culmination of a monthslong battle between the city and sellers of flavored tobacco — mainly Khoury, who, along with his wife and shop co-owner, Lori Khoury, has urged the council on many occasions to reconsider the city's ban on vaping devices and flavored tobacco.

The ban was prompted by concerns over high school students' increasing use of vaping products, including flavored nicotine cartridges. Though the restriction aimed to curb youth smoking, a slew of health advocates and parents requested the City Council not make any exceptions for adult-only stores or any flavored tobacco.

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In May, the council voted 4-3 for the ban on both products without including exemptions for either adult-only stores such as Mac's Smoke Shop or flavored tobacco products that aren't necessarily used with vaping devices and electronic cigarettes such as cigars, chewing tobacco, paper cigarettes, etc. The ban was reaffirmed in June and approved in a second reading this week.

As a result, the ban directly impacts retailers like Mac's but not tobacco stores such as Hemingway Cigars and Tobacco on University Avenue, which does not sell flavored tobacco.

A jar of vanilla-flavored tobacco that Mac's Smoke Shop will no longer be able to sell due to new restrictions in Palo Alto on June 17. Photo by Magali Gauthier.

Khoury has said before that he is willing to comply with the ban on vaping devices but pleaded to the council not to ban all flavored tobacco products. Doing so would put Mac's out of business, he said, since flavored tobacco makes up around 70% of the store's sales. (In addition to flavored cigars and chewing tobacco, Mac's sells its own blend of flavored pipe tobacco.)

With the ban, Khoury said he was given until the end of August to clear out his store of vaping and flavored tobacco items.

"We feel that we've been targeted," Khoury said. "Being called a smoke shop, I guess we don't fit the new Palo Alto look. I guarantee you Mac's has been there longer than anybody (on the council) who voted on it in Palo Alto."

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Part of the lawsuit claims the city violated the Takings Clause of the Fifth Amendment, which essentially states that owners of private property are entitled to "just compensation" whenever a government body, like a city council, confiscates that property. The lawsuit equates the city's new ban to the taking of property without proper compensation.

The lawsuit also states the city's ordinance causes financial hardship and "irreparable harm" to the retail owners' constitutional rights as U.S. and state citizens to conduct lawful businesses.

"Mohammad Hammad, who operates Raw Smoke Shop, will have his income significantly reduced to the point where he will have to close his business, but he will still owe over $264,000 in rent pursuant to his lease agreement," the lawsuit claims. "The city's new ordinance will permanently shut down the plaintiffs' businesses and cause extreme financial hardship as the plaintiffs' must still pay rent, utilities, wages, insurance, etc."

The lawsuit requests that a judge declare the city's ordinance void and restrain the city from enforcing the ban until the court "decides the merits of this lawsuit."

City Attorney Molly Stump said the city does not comment on pending litigation.

David Finkelstein, the attorney representing the four business owners, did not return requests for comment in time before the story was published.

While Palo Alto's ordinance follows the footsteps of many city- and county-wide restrictions such as San Francisco, Santa Clara and San Mateo County, so does the civil suit that promptly followed the bans on flavored tobacco.

Last year, in Arden Hills — a small city north of St. Paul, Minnesota — tobacco shop owner Ibrahim Aquel sued the city council for banning flavored tobacco without providing any exemptions for adult-only stores, according to St. Paul Pioneer Press. The attorney similarly accused the council for targeting Aquel's store.

More recently, three tobacco companies filed a lawsuit in June against Los Angeles County, the county's Board of Supervisors and individual members of the board for their flavored tobacco ordinance that was passed in September 2019, calling it "one of the most draconian bans on tobacco products of any county in the nation."

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Tobacco retailers sue Palo Alto over new ban

Plaintiffs are seeking more than $5.2M for 'irreparable harm' and financial hardship caused by the recently adopted ordinance

by / Palo Alto Weekly

Uploaded: Thu, Aug 6, 2020, 9:41 am

Four Palo Alto tobacco-shop owners, including Neil Khoury of the longstanding Mac's Smoke Shop, are suing the city, claiming its new ban on vape and flavored tobacco products violates the retailers' rights to conduct lawful business.

The lawsuit, filed July 28, seeks more than $5.2 million for four business owners — David Zoumut of Hookah Nights Lounge on University Avenue, Mohammad Hammad of Raw Smoke Shop on California Avenue, Khoury of Mac's Smoke Shop and Jaswinder Singh, who owns Smokes & More on El Camino Real and Smokes & Vapes, a block away — as a result of the citywide ban.

"We were forced to seek legal counsel," Khoury said. "It's not something we want."

The lawsuit is the culmination of a monthslong battle between the city and sellers of flavored tobacco — mainly Khoury, who, along with his wife and shop co-owner, Lori Khoury, has urged the council on many occasions to reconsider the city's ban on vaping devices and flavored tobacco.

The ban was prompted by concerns over high school students' increasing use of vaping products, including flavored nicotine cartridges. Though the restriction aimed to curb youth smoking, a slew of health advocates and parents requested the City Council not make any exceptions for adult-only stores or any flavored tobacco.

In May, the council voted 4-3 for the ban on both products without including exemptions for either adult-only stores such as Mac's Smoke Shop or flavored tobacco products that aren't necessarily used with vaping devices and electronic cigarettes such as cigars, chewing tobacco, paper cigarettes, etc. The ban was reaffirmed in June and approved in a second reading this week.

As a result, the ban directly impacts retailers like Mac's but not tobacco stores such as Hemingway Cigars and Tobacco on University Avenue, which does not sell flavored tobacco.

Khoury has said before that he is willing to comply with the ban on vaping devices but pleaded to the council not to ban all flavored tobacco products. Doing so would put Mac's out of business, he said, since flavored tobacco makes up around 70% of the store's sales. (In addition to flavored cigars and chewing tobacco, Mac's sells its own blend of flavored pipe tobacco.)

With the ban, Khoury said he was given until the end of August to clear out his store of vaping and flavored tobacco items.

"We feel that we've been targeted," Khoury said. "Being called a smoke shop, I guess we don't fit the new Palo Alto look. I guarantee you Mac's has been there longer than anybody (on the council) who voted on it in Palo Alto."

Part of the lawsuit claims the city violated the Takings Clause of the Fifth Amendment, which essentially states that owners of private property are entitled to "just compensation" whenever a government body, like a city council, confiscates that property. The lawsuit equates the city's new ban to the taking of property without proper compensation.

The lawsuit also states the city's ordinance causes financial hardship and "irreparable harm" to the retail owners' constitutional rights as U.S. and state citizens to conduct lawful businesses.

"Mohammad Hammad, who operates Raw Smoke Shop, will have his income significantly reduced to the point where he will have to close his business, but he will still owe over $264,000 in rent pursuant to his lease agreement," the lawsuit claims. "The city's new ordinance will permanently shut down the plaintiffs' businesses and cause extreme financial hardship as the plaintiffs' must still pay rent, utilities, wages, insurance, etc."

The lawsuit requests that a judge declare the city's ordinance void and restrain the city from enforcing the ban until the court "decides the merits of this lawsuit."

City Attorney Molly Stump said the city does not comment on pending litigation.

David Finkelstein, the attorney representing the four business owners, did not return requests for comment in time before the story was published.

While Palo Alto's ordinance follows the footsteps of many city- and county-wide restrictions such as San Francisco, Santa Clara and San Mateo County, so does the civil suit that promptly followed the bans on flavored tobacco.

Last year, in Arden Hills — a small city north of St. Paul, Minnesota — tobacco shop owner Ibrahim Aquel sued the city council for banning flavored tobacco without providing any exemptions for adult-only stores, according to St. Paul Pioneer Press. The attorney similarly accused the council for targeting Aquel's store.

More recently, three tobacco companies filed a lawsuit in June against Los Angeles County, the county's Board of Supervisors and individual members of the board for their flavored tobacco ordinance that was passed in September 2019, calling it "one of the most draconian bans on tobacco products of any county in the nation."

Comments

Keep the ban!
Registered user
Downtown North
on Aug 6, 2020 at 11:13 am
Keep the ban!, Downtown North
Registered user
on Aug 6, 2020 at 11:13 am
37 people like this

Boo-Hoo. They don't get to pedal their life destroying merchandise anymore. Cry me a river.

I hope they lose big time in court.

We need to keep pushing forward to get rid of addictive cigarettes and tobacco products that cost taxpayers money when the users fall ill and also are a danger to those with respiratory issues.


Online Name
Registered user
Embarcadero Oaks/Leland
on Aug 6, 2020 at 11:51 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Aug 6, 2020 at 11:51 am
57 people like this

Good for the retailers. Shame on the CC for not following Los Altos' more nuanced example and exempting the LEGAL flavored pipe tobaccos used by ADULTS.

Are you also going to shut down every bar and restaurant because kids MIGHT use fake ids there?

I still laugh at PA's deliberation over marijuana dispensaries after a huge PA majority voted to legalize it. First PA refused to let residents grow it outside because kids might break into your back yard and steal it, Then they proposed only allowing growth inside. Then they decided it could only be grown inside a LOCKED room regardless of whether you had kids because kids MIGHT BREAK INTO YOUR HOUSE!

Let parents teach their kids NOT to use fake ids and NOT to rob their neighbors. Enough with playing nanny to adults.



Tom
Registered user
Downtown North
on Aug 6, 2020 at 12:11 pm
Tom, Downtown North
Registered user
on Aug 6, 2020 at 12:11 pm
50 people like this

Dear Keep the Ban.
Do you promote banning adults from buying anything that you may not think is healthy for them? Close all bars? Hamburgers are full of cholesterol, shut down Gotts and Kirks?

Also, you would have much more credibility if you could spell Peddle.
As long as they are not selling to underage customers, MYOB!


Annette
Registered user
College Terrace
on Aug 6, 2020 at 4:08 pm
Annette, College Terrace
Registered user
on Aug 6, 2020 at 4:08 pm
38 people like this

Don't smoke; consider it an unhealthy, smelly addiction but also think this was a wrong move by CC, particularly since there was a willingness to stop selling vaping products. I hope the retailers win.


Support for Council
Registered user
Menlo Park
on Aug 6, 2020 at 7:46 pm
Support for Council, Menlo Park
Registered user
on Aug 6, 2020 at 7:46 pm
28 people like this

Dear City Council, thank you for leveling the playing field for all tobacco retailers instead of allowing exemptions / loopholes for certain retailers.

Dear Retailers, you were not "forced to seek legal counsel"; you chose to. Just as you chose to sell addictive tobacco products. Sell something else.


Brian
Registered user
another community
on Aug 6, 2020 at 9:19 pm
Brian, another community
Registered user
on Aug 6, 2020 at 9:19 pm
29 people like this

I support the Smoke Shops on this and I hope they not only win but end up getting a lot of money from the city of Palo Alto. Smoking, while certainly not healthy, is not illegal and people who choose should have the right to purchase these products. What is next, the city council decides that alcohol can't be sold in the city and forces liquor stores out of business? Let's face it alcohol is toxic, it not only causes diseases like cirrhosis of the liver, but is addictive and leads to drunk driving that not only kills the drinker but innocent people.

Why not just have the PA City Council declare Palo Alto a Nanny City and force everyone to stop drinking alcohol, consuming sugary beverages, stop eating red meat and stop doing anything that they consider to be unhealthy.


Rebecca Eisenberg
Registered user
Old Palo Alto
on Aug 6, 2020 at 10:33 pm
Rebecca Eisenberg, Old Palo Alto
Registered user
on Aug 6, 2020 at 10:33 pm
15 people like this

I read the complaint. The adults-only stores are alleging an argument under the takings clauses of the United States and California Constitutions. Takings applies to when the government takes private property without compensation.

Takings also can apply in cases where government newly infringes in markets where it has not been present. In this case, the tobacco industry has been strongly regulated for decades, so there is no taking. Regulation of a tobacco product for public health reasons has been legal under state and federal law for decades now. I can't imagine that this lawsuit would succeed.

Nor should it.

For those unaware of the context, in the past few years, our (relatively non-regulated) federal trade, consumer, and communications agencies - as well as those of numerous states - has established based on overwhelming evidence that tobacco companies designed certain flavored tobacco products in order to be maximally addictive, in direct contradiction to the messages delivered by the marketing and advertising of the tobacco companies.

Regulators also established based on overwhelming evidence that these same tobacco companies engaged in international, extensive, and highly targeted campaigns of marketing to reach underage individuals (e.g. via Instagram, Twitter, Snapchat, TikTok, etc) and convince the underage individuals that the vaping products were neither dangerous nor addictive. The tobacco companies knew that these products were, in fact, extremely addicting, and most likely dangerous, at the time that they marketed these products to children - all of whom were too young to use these products legally. You can read all sorts of stories about this in the media.

Regardless of whether you sympathize with the tobacco company's unethical and likely illegal marketing practices, or whether you sympathize with the children who became addicted after being subject to these messages -- many of whom actually DIED as a result -- there is one thing you cannot deny, and that is timing.

All of these smoke shops, including the one that situated itself about a year ago approximately half-way between Greene Middle School and Paly High School (and the City Council allowed this, distressingly), knew for YEARS that the government - the federal, state, and numerous local governments - were coming down hard on vaping and flavored tobacco products for the past several years.

To choose to open a vaping store a couple years into well-known local, state, and federal campaigns to regulate and restrict vaping products more strictly does not reflect good business (apart from moral) sense in my opinion. Then, to file a lawsuit against the city that never should have allowed you to open in the first place, given the uncertain legal status of the store's most profitable products, claiming that you somehow have an intrinsic right to sell products that literally thousands of doctors, scientists, researchers, and governmental entities have determined to be too dangerous to exist, is pure hubris.

I regret that the City Council did not take this opportunity to send a stronger message, in line with more forward-thinking local governments across the country (and world). Hopefully it will do the right thing and stand up to these heartless, greedy bullies who claim the right to enrich themselves by putting our families' children potentially in life-threatening danger. We cannot stand for this.


Online Name
Registered user
Embarcadero Oaks/Leland
on Aug 7, 2020 at 2:30 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Aug 7, 2020 at 2:30 am
21 people like this

The keyword in all of that is "underage" and you seem to have forgotten about the rights of ADULTS to indulge in LEGAL and heavily taxed tobacco products with those tax revenues funding anti-smoking education for MINORS and other government programs like cops enforcing existing anti-smoking ordinances.

Curious about your position on the legalization and taxation of marijuana whose sales -- like those of liquor -- are clearly and strictly limited to LEGAL ADULTS aged 21 and older keeping in mind that not all marijuana is smoked and hence doesn't violate anti-smoking laws.


CGPA
Registered user
Downtown North
on Aug 7, 2020 at 6:23 am
CGPA, Downtown North
Registered user
on Aug 7, 2020 at 6:23 am
14 people like this

So the argument is: parents will buy this stuff for their kids. If the argument was that the kids were buying it themselves, which is illegal, no such ordinance would have been required, the police could nab kids outside who bought it there and then shut down the place for violating existing laws. But that didn't happen, so I assume the shops were selling it to adults only.

I too am anti smoking, I've never smoked and find it repulsive, but that's irrelevant. What's at issue here is a business signing a 5 year lease, who complies with all the laws then in effect and then has their business shut down, not because of any wrongdoing by the business owner, who now has to suffer 5 years of losses when they've done nothing wrong, because it's easier to regulate them than to regulate the parents who buy the stuff and give it to their kids.

Fortunately, we have a constitution that doesn't allow the city to force the business owners to privately shoulder this burned themselves. Instead, our laws have to be applied fairly. The proper way to do this, which I strongly support, by the way, is to forbid new smoke shops and provide a ban that takes place in a few years, to give the business owners warning so that they can plan whether a lease should be signed.

I also have no problem whatsoever if the city decides this is a public health emergency and needs to act immediately. But if that's the case, then the city needs to step up and pay for the losses suffered to provide this public benefit, rather than magnanimously providing a benefit to the public while sticking the costs all onto the business owner, who was never really the problem here and had been complying with all laws. Fortunately, the constitution requires government to act fairly towards its citizens. And that's what the lawsuit appears to be about.


Palo Alto Resident
Registered user
Downtown North
on Aug 8, 2020 at 7:44 am
Palo Alto Resident, Downtown North
Registered user
on Aug 8, 2020 at 7:44 am
2 people like this

To favor Mac's Smoke Shop and allow ONLY Mac's smoke shop to hold a very special retail license to sell vaping products while other smoke shops could not means City of Palo Alto was illegally favoring just Mac's Smoke Shop over all the other small mom and pop smoke shop retailers that could not sell vapes. That's illegal. That's called favoritism by the City of Palo Alto. When did the city of Palo Alto favor one or two businesses over all the rest of the businesses?

Ed Shakida should be fired for allowing such favoritism ordinances to continue this long.

Now with this new ordinance, fixed the favoritism. Now all smoke shops equally across the city of Palo Alto have the same advantages, meaning a lot more small mom and pop businesses and retail stores in Palo Alto can survive this pandemic.


Palo Alto Resident
Registered user
Downtown North
on Aug 8, 2020 at 7:59 am
Palo Alto Resident, Downtown North
Registered user
on Aug 8, 2020 at 7:59 am
2 people like this

Article says: Lawsuit seeks more than $5.2 million for four business owners — David Zoumut of Hookah Nights Lounge on University Avenue, Mohammad Hammad of Raw Smoke Shop on California Avenue, Khoury of Mac's Smoke Shop and Jaswinder Singh, who owns Smokes & More on El Camino Real and Smokes & Vapes, a block away — as a result of the citywide ban.

So in a time of pandemic, while the city is under deficit...and City Council leveled the playing field for all smoke shops (are there are 15 smoke shops in Palo Alto?? There is a lot of smoke shops in Palo Alto), just because City council made it fair for all smoke shops, suddenly, these 4 businesses think our city should reimburse them over 1 million dollars each?

So the paper says "Palo Alto's ordinance follows the footsteps of many city- and county-wide restrictions such as San Francisco, Santa Clara and San Mateo County" and we know the ordinance levels the playing field for all smoke retailers (instead of favoring Mac's Smokes Shop)... they want to sue us?

Such wonderful businesses aren't they? So clear Mac's Smoke shop cares for our children, our city and our community.


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