Non-“Lobbyist” Lurks In Ladies Room

State Rep. Lonnie Reed thought she would get some privacy when she went to the ladies’ room during a session of the General Assembly. Instead, she ran into Tracey Scalzi — and got an earful about a pending roll-your-own tobacco bill.

Scalzi (pictured), who’s 49, owns cigarette shops in Norwalk and Orange. She’s not a registered lobbyist, according to the Connecticut Office of State Ethics. Scalzi still managed to deliver an unmistakable message to Reed and to Reed’s colleagues.

She went in and out of the ladies room off the House of Representatives chamber over a period of hours during the final three days of the session urging legislators not to enact a law to tax and license smoke shops.

Rep. Reed (D‑Branford) said Scalzi presented herself to her in the ladies room as a ​“single mom just trying to make a living.” Reed said Scalzi used ​“a hard-to-get booklet complete with legislators’ photos and contact information which she uses to call legislators at home.” 

“She ignored the lobbyist ropes that restrict their access and chased us down, even in the ladies room on one of the last days of the session,” Reed recalled in an interview. Once inside, Scalzi ​“planted herself to grab the unsuspecting. ” It’s a fairly large, airy bathroom, with a sofa, two chairs, and a coffee table. There is no other restroom for House members to use during the session on that floor.

The roll-your-own (RYO) bill, which came out of the legislature’s finance committee, is now at the center of an unfolding corruption scandal at the state Capitol. The bill would impose licensing fees and taxes at roll-your-own (RYO) cigarette stores. As it stands now, customers do not pay a tax on RYO cigarettes, and owners do not have to be licensed.

The scandal began after the FBI’s decision to go undercover as supposed roll-your-own tobacco business agents and pretend to offer disguised campaign contributions to legislators in order to derail the RYO legislation. The probe has already produced one arrest and two departures from the Congressional campaign of state House Speaker Chris Donovan, who says he was not at all involved in the bill. He does admit to poor judgment in the hiring of his finance director who was the first to be arrested by the FBI. .

The FBI is leading the Donovan investigation. Agents fanned out across the state to interview a dozen or more legislators, Democrats and Republicans, to find out what happened to the RYO bill. Click here to read about their 7 a.m. interviews.)

The RYO bill wasn’t drafted before the end of the public hearing process. It ended up on the desk of Finance Committee members on its April 3 deadline. The committee passed it 33 – 17. But the bill was not acted on by the General Assembly and died before the legislative session ended.

Gov. Dannel Malloy said he intends to resurrect it in a special session. Pat Widlitz (D‑Guilford and Branford,) the co-chair of the finance committee, told the Eagle late yesterday that ​“it is sure to come up.”

And Scalzi — backed by a powerhouse national pro-tobacco law firm — is making sure her voice is heard in the matter. She calls her crusade a matter of survival.

Reed said she first met Scalzi inside the ladies room (pictured) as the recent legislative session wound down last month.

“The ladies room has a little lounge that women legislators sometimes use to have private conversations or make phone calls or take a break,” she said.

Scalzi spent hours in there. “ When I suggested it was highly inappropriate, she told me she was a single mom again. Then she changed to her ‘ this is bad for small business’ approach. This is a very sophisticated plan of attack, ” Reed observed, adding other small businesses selling cigarettes have to play by the rules.

Reed (pictured) said that registered lobbyists “ do not lobby you in the ladies room. It’ s not done. But she was working it.”

In an interview yesterday Scalzi told the Eagle that she went to Hartford to fight for her stores. She said the state shut her down for six weeks last year, arguing she was a manufacturer and therefore subject to taxes and licensing procedures. Then the state sued her in Superior Court.

“I won my court case. I am not a manufacturer,” she said.

“This bill should not be voted on next week because of these other [corruption] allegations …They are losing sight of the issue. This bill if it becomes law will bankrupt us and put us out of business.”

Enter Troutman Sanders, LLP.

As it turns out, whatever the final outcome of the RYO bill, Tracey Scalzi will be represented by one of the most prestigious law firms in the nation. At her side during the state’s court case against her business was Anthony (Tony) F. Troy, a former attorney general of the state of Virginia and a senior partner in Troutman Sanders, LLP.

Troy’s litigation and legislative law experience runs deep when it comes to tobacco companies and a famous tobacco settlement agreed to by 46 Attorneys General in 1998. Troy was involved in that settlement and knows its history and evolution. It was after the settlement, he said, that his firm stopped representing the major tobacco manufacturers in the country.

Now, he said, his firm represents various components of the tobacco world, including representing RYO’s nationally. ​“We are in litigation on this in Ohio, Wisconsin, Minnesota, obviously Connecticut. We were involved subsequently after the fact in West Va., and New Hampshire, the only cases that were lost. We have those on appeals and in various other stages.

“The roll your own market has been around for years and it is not a big percentage of the overall tobacco market today. But it is the fastest growing share of the market, not because of our RYO’s but because of our economic times. Congress increased the tax on cigarettes and is rolling tobacco so high that people who want to smoke are looking for alternatives.”

He said there are RYO stores in 35 to 40 states in the nation, and the numbers are growing.

Troutman Sanders uses public relations firms on cases, sometimes one within the firm, Troy said. When the CT News Junkie sought comment from five tobacco shop owners in recent months, all the owners referred the press to Capital Results, the Virginia-based public relations and government affairs firm. Capital Results is also based in Richmond.

“I was wondering who was bankrolling this,” Reed said. ​“And who was orchestrating it because this was a very sophisticated plan of attack. I knew it was bigger than Tracy Scalzi. This is somebody beyond her who created this approach. It is way too skillful. ”

From Scalzi’s point of view, she is doing her form of legislative persuasion on her own.

Scalzi’ s crusade has taken various forms of communication. She has met with legislators in their offices. She has buttonholed them in hallways.She calls them at home. Tuesday she sent a long e‑mail to the state’ s legislators, again pleading “ for my cause.” She asked lawmakers ​“for your support and to ask you to spread the word and get more support for my cause with all of your constituents.” It went out just before 6 p.m. Tuesday.

Her email is entitled ​“Please Help Me! ” In it, she said that 140 people would lose jobs across the state if the bill became law to license and tax RYO stores. In addition, she said the state would lose $1.455 million in taxes from the15 existing RYO stores. 

She told the legislators that in February she won ​“a court ruling in Superior Court by Judge (William H.) Bright, that ​‘I was NOT A CIGARETTE MANUFACTURER,’” she said using capital letter for emphasis. In March, she went on, ​“a bill was underhandedly slipped into the finance committee by the DRS (Department of Revenue Services) with no public hearing, except for the DRS showing up, to undermine the ruling made by Judge Bright.”

Unmentioned in the email: Judge Bright also issued an injunction barring her store from having employees help customers roll the cigarettes. He enjoined them as well from offering for sale cartons or packs of cigarettes manufactured on the premises, and he stopped them from advertising for sale cartons or packs of cigarettes manufactured within their stores. In short, he agreed with the state’s Attorney General’s Office, which brought the case and with the Commissioner of Revenue Services that the store had acted illegally. Scalzi claims she had implemented the judge’s requirements long before he ordered them.

However, once the stores made these changes, they won the right to say they were not manufacturing cigarettes. Sullivan said the department was surprised by the judge’s decision. He was left with the option of changing the law via legislation. And that is what he and the State Attorney General, George Jepson, are still trying to do.

Tobacco Team

What Scalzi also did not say in her email to legislators was that as a small business owner with limited money, she is being represented by Troutman Sanders.

Troutman Sanders’ website in Virginia even has a ​“Tobacco Law Blog”, which it says ​“offers timely updates regarding the tobacco industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business.”

On its website, the law firm also describes a ​“Troutman Sanders Tobacco Team,” which consists of partners, attorneys, of counsel and associates.

“The Team includes a former state Attorney General [Troy] and Deputy Attorney General who have the ​‘inside’ experience, legal skills and business savvy to best service our tobacco clients in particular. Most team members have experience as former state Assistant Attorneys General.”

The Tobacco Team, it continues, ” works closely together and with clients to develop business strategies; to maneuver through the complicated regulatory process; and to handle branding, transactional and litigation matters.” Troy, the site says, ​“formed and headed the Tobacco practice group as well as an Attorney General practice group which is now the Regulatory Compliance group.”

Customers in the RYO shops typically purchase loose tobacco and pour it into a machine that rolls 200 cigarettes in less than 10 minutes. These cigarettes are made with so-called ​“pipe tobacco,’’ which is usually half the price of the major brands. Without taxes and licensing fees, customers pay far less than the usual cost at a local convenience store, a cost that hovers in the ten dollars a pack range in some states in part because of state and local taxes.

Master Settlement Fallout 

Troutman Sanders represents all 15 RYO shops in Connecticut. These RYO’s do not fall under the massive 1998 Tobacco Master Settlement Agreement (MSA) between the four largest United States tobacco companies and the attorneys general of 46 states. 

DRS Commissioner Kevin Sullivan told CTNewsJunkie in April that the RYO operation created three sets of concerns, including a product safety issue that jeopardizes the state’s ability to receive money from the major tobacco settlement fund, he said.

In 2012 the state received nearly $1 billion from the fund. And the funds go higher with each year.

The massive MSA agreement settled Medicaid lawsuits against the tobacco industry for recovery of their tobacco-related, health-care costs, and also exempted the companies from private lawsuits regarding the serious harm caused by tobacco use.

In exchange, the companies agreed to curtail or stop their marketing practices, especially to the young. They also agreed to pay, in perpetuity, various annual payments to the 46 states, including Connecticut, to compensate them for the high medical costs associated with caring for patients with smoke-related illnesses.

Rep. Reed said the Connecticut Attorney General’ s Office as well as the Commissioner of Revenue Services’ office have told legislators that if these smoke shops are allowed to exist “ without taxes and without seals, that creates a two-tier system and will evidently jeopardize the MSA funds that go to Connecticut.

“By helping the RYO shops to legally win exemption from taxes in a court case, and perhaps to eliminate health oversight of cigarettes, the tobacco companies can win big by finding a way to reduce Connecticut’s share in the MSA settlement. That is what we are being told, ” she said.

Troy agreed.

“Every time there is a loss of market shares now, the majors [the big cigarette companies] are pounding on the states to help them put these things [RYOs] out of business or they will say that is ​“failure to diligently enforce” and the state won’t get all its money. So effectively the states through money are fearful of fighting the four majors and have come to the aid of the tobacco companies,” Troy said.

What has happened, said Troy, is ironic. The states are now helping the tobacco industry because they fear loss of MSA funds.

The legislature will meet in special session Tuesday and is expected to consider the RYO bill at that time. If it adopts a law that changes RYO stores from retailers to manufacturers, would Troy sue the state?

Troy, who was born and raised in Farmington and said he thinks of himself as a Nutmegger, called that ​“an interesting question. And there is no clear answer. We have the same issue in Virginia. We are looking into it. To simplify it, when they pass a law knowing the law cannot be complied with, what they are doing is declaring these retailers to be a duck when they know that they cannot walk or talk like a duck. Then there is an issue of whether that is a valid law. There are some cases that have held it is not.”

As far as Commissioner Sullivan is concerned, ​“this really is a manufacturing process. It’s not the same as an individual rolling one on his back porch for a smoke,” he said.

Troy said he disagrees with the concept that RYO merchants are manufacturers ​“and more importantly can never become manufacturers. And that is because if you are a manufacturer you have to meet certain federal requirements. You have to have a brand, packaging, rotating warnings about the dangers of smoking. None of these, common sense tells you, can exist for a consumer who uses a machine to produce one cigarette at a time.”

He compared it to a grocery store requiring a dollar from a consumer to use a coffee grinder to grind one pound of coffee beans. ​“That doesn’t make the store a manufacturer,” he said.

Meanwhile, Scalzi keeps pounding away at the legislators she contacts. In her email Tuesday night, she wrote a detailed version of a tax break down on Other Tobacco Products (OTP) taxes, ending with the statement that: “ I feel that I have provided you with enough information on how damaging this bill would be if passed.”

She said she wrote the letter herself. This experience, she added, has made her extremely knowledgeable.

Christine Stuart contributed to this story.

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