California v. Azuma Corp.

• Jurisdiction: United States,Federal,California
• Parties: State of California, Plaintiff, v. Azuma Corporation, et al., Defendants.
• Decision Date: 24 January 2024
• Court: U.S. District Court — Eastern District of California
• Docket Number: 2:23-cv-00743-KJM-DB

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State of California, Plaintiff, v. Azuma Corporation, et al., Defendants.

No. 2:23-cv-00743-KJM-DB

United States District Court, E.D. California

January 24, 2024

ORDER

The State of California brings this action against defendantsAzuma Corporation, Phillip Del Rosa, Darren Rose and Wendy Del Rosa for declaratory relief, injunctive relief and civil damages and penalties for trafficking contraband cigarettes.Defendants move to dismiss California's claims.The courtgrants the motion in part.

I.BACKGROUND

The court has summarized some of the relevant law and background of this case in a previous order and incorporates the factual background by reference here.SeePrior Order, ECF No. 43.In summary, defendants are tribal officers of the Alturas Indian Rancheria, a federally recognized Indian Tribe, and a tribal corporation wholly owned by the Alturas Tribe.Compl.¶¶ 8-11, 24, ECF No. 1.Azuma Corporation, the tribal corporation, sells cigarettes in California without complying with state taxation and tobacco regulations.Id.¶ 8.It manufactures its own cigarettes, id.¶ 47, and sells its cigarettes to retail cigarette shops located on Indian land id.¶ 49.

Mr. Del Rosa, Mr. Rose and Ms. Del Rosa respectively are the chairperson, vice-chairperson and secretary-treasurer of the Alturas Tribe, id.¶¶ 9-11.The State sues the individual defendants in their official capacities; it also sues Mr. Rose and Mr. Del Rosa in their personal capacities.Id.

The State alleges defendants have refused to comply with the Prevent All Cigarette Trafficking (PACT) Act, have distributed contraband cigarettes in violation of the Contraband Cigarette Trafficking Act (CCTA), and have violated the State's cigarette laws since 2018Id.¶¶ 48-54, 71-73, 79, 86, 89-90.In the fall of 2022, the California Attorney General's Office sent Azuma a letter demanding it cease its “unlawful cigarette distributions and sales.”Id.¶ 60.But “Azuma continue[d] its unlawful activities.”Id.¶ 61.Mr. Rose and Mr. Del Rosa also have maintained “active participation] in Azuma's contraband cigarette trafficking activities,” id.¶ 62, and effectively control the Alturas Tribe's economic affairs, id.¶¶ 65-66.As a result, six months later, the State brought this suit to end defendants' noncompliance with federal and state law.

California brings the following five claims against defendants:

1) Violation of 15 U.S.C. §§ 376-376a(PACT Act) against all defendants;

2) Violations of 18 U.S.C. § 2342(CCTA) against all defendants;

3) Violations of 18 U.S.C. § 1962(c)(Civil Racketeer Influenced and Corrupt Organization (RICO)Act), against defendantsDarren Rose and Phillip Del Rosa;

4) Violations of California Revenue & Taxation Code section 30165.1 against all defendants; and

5) Violations of California Health & Safety Code section 104557 against all defendants.

Seeid.¶¶ 67-93.

On September 8, 2023, this court granted California's motion for a preliminary injunction against defendantDarren Rose and denied the motion without prejudice as to defendantsPhillip Del Rosa and Wendy Del Rosa.SeePrior Orderat 24.Defendants have filed a notice of appeal, ECF No. 44, and their appeal of this court's order is pending before the Ninth Circuit, seeECF Nos. 45 & 46.Separately, defendants move here to dismiss California's complaint.Mot., ECFNo. 24-1.California opposes, Opp'n, ECF No. 33, and defendants have replied, Reply, ECF No. 38.The court held a hearing on this motion on October 13, 2023.SeeMins. Hr'g, ECF No. 49.

Peter Nascenzi, Byron Miller and James Hart appeared for the State.Id.Conly Schulte and Gregory Narvaez appeared for defendants.Id.

II.SUBJECT MATTER JURISDICTION

Defendants move to dismiss plaintiffs' complaint under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction.Mot.at 8-23.^[1] When a party moves to dismiss for lack of subject matter jurisdiction, “the plaintiff bears the burden of demonstrating that the court has jurisdiction.”Boardman v. Shulman, No. 12-00639, 2012 WL 6088309, at *2(E.D. Cal.Dec. 6, 2012).Where, as here, defendants move to dismiss on the basis of tribal sovereign immunity, “the party asserting subject matter jurisdiction has the burden of proving its existence, i.e.[,] that immunity does not bar the suit.”Pistor v. Garcia, 791 F.3d 1104, 1111(9th Cir.2015)(internal citations and marks omitted).

A.Tribal Sovereign Immunity

Absent congressional abrogation or explicit waiver, sovereign immunity bars suit against a federally recognized Indian tribe in federal court.Burlington N. & Santa Fe Ry. Co. v. Vaughn, 509 F.3d 1085, 1091(9th Cir.2007).The Alturas Tribe is a federally recognized Indian tribe and therefore is immune from suit.In addition to protecting tribes, tribal sovereign immunity “also extends to arms of the tribe acting on behalf of the tribe.”White v. Univ. of Cal., 765 F.3d 1010, 1025(9th Cir.2014).Thus, when a tribe “establishes an entity to conduct certain activities,” regardless of whether it is business activities or governmental activities, “the entity is immune if it functions as an arm of the tribe.”Allen v. Gold Country Casino, 464 F.3d 1044, 1046(9th Cir.2006)(citations omitted).The relevant question “is not whether the activity may be characterized as a business . . ., but whether the entity acts as an arm of the tribe so that its activities are properly deemed to be those of the tribe.”Id.Defendants argue Azuma is an arm of the tribe and as a result is shielded by tribal sovereign immunity.SeeMot.at 10.

To determine whether Azuma is entitled to sovereign immunity as an “arm of the tribe,”the court examines the following factors:

(1) the method of creation of the economic entities; (2) their purpose; (3) their structure, ownership, and management, including the amount of control the tribe has over the entities; (4) the tribe's intent with respect to the sharing of its sovereign immunity; and (5) the financial relationship between the tribe and the entities.

White, 765 F.3d at 1025(quotingBreakthrough Mgmt. Grp., Inc. v. Chukchansi Gold Casino & Resort, 629 F.3d 1173, 1187(10th Cir.2010)).

The first factor weighs in favor of Azuma.The Alturas Indian Rancheria Business Committee established Azuma Corporation in accordance with its Governmental Corporation Ordinance.SeeOrdinance§ 2.1, Del Rosa Decl. Ex. B, ECFNo. 23-2(noting the Ordinance establishes authority to “regulate the incorporation . . . of governmental corporations as distinct arms of the Tribal government”);Am. Articles of Incorp., Rose Decl. Ex. A, ECFNo. 23-3.The Business Committee is part of the Alturas Tribe's Governing Body and comprises members of the Tribe.Alturas Const.art. IV, §§ 1-3, Del Rosa Decl. Ex. A, ECFNo. 23-2.Under the Tribe's Constitution, the Business Committee has the power to “manage all economic affairs and enterprises of the Alturas Indian Rancheria[.]”Alturas Const.art. VII, § 2(e).Here, the method of creation weighs in favor of Azuma.See, e.g., Cadet v. Snoqualmie Casino, 469 F.Supp.3d 1011, 1015(W.D. Wash.2020)(considering similar facts).

The second factor also weighs in favor of Azuma.Corporations established under the Tribe's Ordinance are “created to carry out Tribal economic development and the advancement of Tribal members.”Ordinance§ 3.1.The specific purpose of Azuma is to “manufacture tobacco products as the corporation may deem advisable in Modoc County, California in the best interests of the Tribe.”Am. Articles of Incorp. art. II.The purpose of Azuma weighs in its favor.See, e.g., Min Zhang v. Grand Canyon Resort Corp., No. 19-00124, 2020 WL 1000608, at *2(C.D. Cal.Jan. 15, 2020)(purpose of “creating economic development opportunities” weighed in favor of extending sovereign immunity to a tribal entity).

Third, the structure, ownership, and management of Azuma, is neutral.The State disputed this factor during hearing.Here, defendants have shown the Alturas Tribe is the sole owner and shareholder of the corporation.Am. Articles of Incorp. art. VI;Governmental Corporation Ordinance § 4(“At all times one hundred percent (100%) of each corporation's ownership interest shall be held by the Tribe, and it shall be considered an entity of the Tribe.”).While it is unclear whether the directors and officers must be members of the Tribe, the members of the governing board are appointed by the Business Committee.Am. Articles of Incorp. art. V.The initial directors were defendantsPhillip Del Rosa, Darren Rose and Wendy Del Rosa, all members of the Tribe.Articles of Incorp.Ex.A;seeCompl.¶¶ 9-11.Darren Rose is the current President/Secretary of Azuma.RoseDecl. ¶ 3, ECF No. 23-3.Additionally, the Alturas Tribe's Governmental Corporation Ordinance specially notes tribal corporations are “distinct arms of the Tribal government[.]”Ordinance§ 2.1.However, because it is unclear who all the directors and officers of the Tribe are, and how much control non-tribal members have over Azuma's operation, the structure, ownership and management of Azuma is neutral.See, e.g., Dine Citizens Against Ruining Our Env't v. Bureau of Indian Affs., 932 F.3d 843, 856(9th Cir.2019)(affirming wholly-owned corporation is an arm of the tribe).

Fourth, it is clear the Tribe intended to share its sovereign immunity.See Am. Articles of Incorp. art. III(“The Azuma Corporation is entitled to all of the privileges and immunities enjoyed by the Tribe.”);Ordinance§ 3.1.This factor also weighs in favor of Azuma.

Finally the fifth factor also weighs in favor of Azuma.California does not dispute Azuma's evidence regarding factors one, two and four, but argues Azuma has not pointed to evidence relevant to the...