Big Sandy Rancheria Enters. v. Becerra, 1:18-cv-00958-DAD-EPG
| Decision Date | 13 August 2019 |
| Docket Number | No. 1:18-cv-00958-DAD-EPG,1:18-cv-00958-DAD-EPG |
| Citation | 395 F.Supp.3d 1314 |
| Parties | BIG SANDY RANCHERIA ENTERPRISES, a federally chartered corporation, Plaintiff, v. Xavier BECERRA, in his official capacity as Attorney General of the State of California; and Nicolas Maduros, in his official capacity as Director of the California Department of Tax and Fee Administration, Defendants. |
| Court | U.S. District Court — Eastern District of California |
John M. Peebles, Fredericks Peebles & Patterson LLP, Michael A. Robinson, Steven John Bloxham, Timothy Joseph Hennessy, Fredericks Peebles & Morgan LLP, Sacramento, CA, for Plaintiff.
Karen T. Leaf, Peter F. Nascenzi, California Attorney General's Office, James Vincent Hart, Department of Justice Office of the Attorney General, Sacramento, CA, Michael John von Loewenfeldt, Wagstaffe, von Loewenfeldt, Busch & Radwick LLP, San Francisco, CA, for Defendants.
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS
Plaintiff Big Sandy Rancheria Enterprises ("BSRE") brings this action challenging the application of California's cigarette tax and licensing statutes. On April 16, 2019, the matter came before the court for a hearing on the motion to dismiss filed by defendant Xavier Becerra, in his official capacity as Attorney General for the State of California ("Attorney General"), and the motion to dismiss for lack of jurisdiction filed by defendant Nicolas Maduros, in his official capacity as Director of the California Department of Tax and Fee Administration ("CDTFA"). (Doc. Nos. 15, 16.) Attorneys John Peebles and Michael Robinson appeared on behalf of plaintiff. Attorneys James Hart and Peter Nascenzi appeared on behalf of the Attorney General and attorney Michael von Loewenfeldt appeared on behalf of CDTFA. Having considered the parties' briefs and the arguments of counsel, and for the reasons set forth below, the court will grant defendants' motions.
The first amended complaint alleges as follows. Since 1959, California has imposed excise taxes on the distribution of cigarettes. (Doc. No. 13 ("FAC") at ¶ 69.) The State's Cigarette and Tobacco Products Tax Law ("Cigarette Tax Law"), California Revenue & Taxation Code §§ 30001 – 30483, imposes several taxes on cigarettes, currently totaling $2.87 per pack of twenty cigarettes. (Id. at ¶ 68.) Generally, the State cigarette taxes are paid by distributors through stamps or meter impressions that are affixed to each pack of cigarettes at or near the time of sale. (Id. at ¶ 74) (citing Cal. Rev. & Tax. Code § 30163 ). Only cigarettes listed in the State's tobacco directory are permitted to bear such tax stamps. (Id. ) (citing Cal. Rev. & Tax. Code § 30165.1(e)(1) ).
When the distributor is not subject to the State's taxes, the tax is "paid by the user or consumer," and is collected by a distributor "at the time of making the sale or accepting the order." (Id. at ¶¶ 75–76) (quoting Cal. Rev. & Tax. Code §§ 30107, 30108(a) ). Plaintiff BSRE contends in this action that when both the wholesale distributor and retail distributor are untaxable, California law does not require the wholesale distributor to collect and remit any taxes to the State. (Id. at ¶ 77.)
To facilitate the collection of these taxes, the State requires every distributor to hold two licenses. The Cigarette and Tobacco Products Licensing Act ("Licensing Act"), California Business & Professions Code §§ 22970 – 22991, requires manufacturers, importers, distributors, wholesalers, and retailers to obtain State-issued licenses, requires licensees to comply with various requirements, and generally prohibits the sale of cigarettes and tobacco products to, or the purchase of cigarettes and tobacco products from, such businesses that are unlicensed. (Id. at ¶ 78.) The Cigarette Tax Law also requires distributors and wholesalers of cigarettes and tobacco products to hold State-issued licenses, in addition to the licenses required under the Licensing Act, and imposes associated obligations and restrictions upon licensees. (Id. at ¶ 81) (citing Cal. Rev. & Tax. Code §§ 30140 – 30159 ). Among those obligations is the requirement that distributors file monthly reports with the California Department of Tax and Fee Administration identifying both taxable and exempt distributions. (Doc. No. 15-1 at 14; Doc. No. 20 at 11.)
In addition to the consumer-paid taxes collected on the distribution of cigarettes, the State also receives compensation from cigarette manufacturers pursuant to the 1998 Tobacco Master Settlement Agreement ("MSA"). (Id. at ¶ 29.) The MSA was the result of lawsuits brought by 46 states against major cigarette manufacturers to recover healthcare costs that the states claimed they had incurred as a direct result of smoking, and to challenge industry tactics such as targeting minors and covering up the known health impacts of smoking. (Id. at ¶¶ 22–29.)
Under the MSA, settling states receive annual payments from participating manufacturers in perpetuity. (Id. at ¶ 33.) Other cigarette manufacturers that are not signatories to the MSA are known as non-participating manufacturers. Participating manufacturers to the MSA negotiated protections against competition from non-participating manufacturers, including, most notably, the Non-Participating Manufacturer Adjustment. (Id. at ¶¶ 36–37.) The Non-Participating Manufacturer Adjustment provides that if participating manufacturers lose market share within a state as a result of competition from non-participating manufacturers, the administrative body created under the MSA can significantly decrease payments to that state. (Id. at ¶ 37.) The only way a state may avoid losing some or all of its MSA payments is if it has enacted and diligently enforced a "qualifying statute," which requires non-participating manufacturers to deposit money into an escrow account based on the number of cigarettes the non-participating manufacturers sold in the state the prior year. (Id. )
California's qualifying statute is the California Reserve Fund Statute ("Escrow Statute"), which requires non-participating manufacturers to either join the MSA or to place funds in escrow at a specified rate for each cigarette sold in California during the previous year. (Id. at ¶ 39) (citing Cal. Health & Safety Code § 104557(a) ). The amount of the escrow payment required is roughly equal to the per-cigarette-sold amount that participating manufacturers must pay to the states annually under the MSA. (Id. at ¶ 37.) In this way, non-participating manufacturers have roughly equivalent obligations to pay under the MSA, preventing non-participating manufacturers from receiving a competitive advantage over participating manufacturers. (Id. at ¶ 38.)
To ensure that non-participating manufacturers comply with their obligations to make escrow payments, California enacted the California Complementary Statute ("Complementary Statute"), also known as the Directory Statute. (Id. at ¶ 41) (citing Cal. Rev. and Tax. Code § 30165.1 ). The Complementary Statute requires the California Attorney General to maintain and publish a list ("Tobacco Directory") of tobacco product manufacturers and tobacco brand families that have been approved for sale in California. (Id. ) To be included in the Tobacco Directory, a tobacco manufacturer must certify that it is either a participating manufacturer, or that it is a non-participating manufacturer that is in full compliance with the Escrow Statute and all of California's tobacco product, licensing, and manufacturing laws. (Id. ) (citing Cal. Rev. and Tax. Code § 30165.1(b) ). The Complementary Statute prohibits any person from selling, offering for sale, possessing for sale, shipping, or otherwise distributing into California or within California, or importing for personal consumption in California, any cigarettes of a tobacco manufacturer or brand family that is not included in the Tobacco Directory. (Id. at ¶ 42) (citing Cal. Rev. and Tax. Code § 30165.1(e)(2) ).
The Big Sandy Rancheria Band of Western Mono Indians (the "Tribe") is a federally-recognized Indian tribe with offices located on the Big Sandy Rancheria in Auberry, California. (Id. at ¶ 17.) BSRE is a tribal corporation incorporated under section 17 of the Indian Reorganization Act, 25 U.S.C. § 5124 ("IRA"), which authorizes the Secretary of the Interior to issue a charter of incorporation to any Indian tribe upon petition by such tribe. (Id. at ¶ 92.) Although only BSRE, and not the Tribe, is a plaintiff to the instant action, BSRE alleges that corporations created pursuant to section 17 of the IRA are "essentially alter egos of the tribal government." (Id. at ¶ 13) (quotation omitted).
In July 2012, in accordance with its charter, BSRE established four subdivisions: (1) Big Sandy Distributing, which is organized to engage in the wholesale distribution of tobacco products to Indian tribes and Indian-owned entities in Indian Country; (2) Big Sandy Distribution,1 which is organized to engage in the distribution of tobacco products to non-Indian owned entities in the United States; (3) Big Sandy Manufacturing, which is organized to engage in the manufacture of tobacco products on the Big Sandy Rancheria; and (4) Big Sandy Importing, which is organized to engage in the importation of tobacco and tobacco products onto the Big Sandy Rancheria. (Id. at ¶¶ 97–115.) Plaintiff alleges that Big Sandy Distribution has not made any sales of tobacco products, and that Big Sandy Manufacturing does not currently manufacture tobacco products, but intends to do so upon issuance and receipt of the Manufacturer of Tobacco Products permit. (Id. at ¶¶ 105, 121.)
Through Big Sandy Importing and Big Sandy Distributing, BSRE purchases tobacco products for non-retail sale exclusively from Indian manufacturers in Indian Country. (Id. at ¶¶ 117, 119, 120.) At the time of the...
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