King Mountain Tobacco Co. v. McKenna
| Decision Date | 26 September 2014 |
| Docket Number | No. 13–35360.,13–35360. |
| Citation | 768 F.3d 989 |
| Parties | KING MOUNTAIN TOBACCO COMPANY, INC.; Confederated Tribes and Bands of the Yakama Indian Nation, Plaintiffs–Appellants, v. Robert McKENNA, Attorney General of the State of Washington, Defendant–Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
OPINION TEXT STARTS HERE
Randolph H. Barnhouse (argued) and Justin J. Solimon, Johnson Barnhouse & Keegan LLP, Los Ranchos de Albuquerque, NM, for Plaintiffs–Appellants.
David M. Hankins (argued), Senior Counsel; Joshua Weissman, Assistant Attorney General; Robert W. Ferguson, Attorney General of the State of Washington, Olympia, WA, for Defendant–Appellee.
Appeal from the United States District Court for the Eastern District of Washington, Lonny R. Suko, District Judge, Presiding. D.C. No. 2:11–cv–03018–LRS.
Before: JOHN T. NOONAN, SUSAN P. GRABER, and MORGAN CHRISTEN, Circuit Judges.
King Mountain Tobacco Company and the Confederated Tribes and Bands of the Yakama Indian Nation (collectively “Appellants”) sued the Attorney General of the State of Washington for declaratory and injunctive relief from Washington's escrow statute, Wash. Rev.Code §§ 70.157.005–70.157.030 (2013). The escrow statute requires King Mountain to place money into escrow to reimburse the State for health care costs related to the use of tobacco products. The amount placed in escrow is based on the number of cigarette sales made that are subject to state cigarette taxes. Appellants argue that the Yakama Treaty of 1855 is an “express federal law” that exempts the Yakama people from Washington's escrow statute. The State argues that the Treaty does not preclude it from regulating tobacco products sold nationally and that, as a nondiscriminatory state law that is not expressly preempted by federal law, the escrow statute applies to King Mountain. The district court granted summary judgment in favor of the State, and Appellants appeal. We have jurisdiction under 28 U.S.C. § 1291, and we affirm the judgment of the district court.
The Treaty between the Confederated Tribes and Bands of the Yakama Indian Nation and the United States was negotiated and signed in 1855. See Treaty with the Yakamas, 12 Stat. 951 (1855).1 Under the Treaty, the people of the Yakama Nation agreed to cede a majority of their lands to the United States in return for certain reserved rights. Id. The Yakama Nation also agreed to live on reserved lands held in trust by the United States. Id.
King Mountain Tobacco Company is owned and operated by Delbert Wheeler, an enrolled member of the Yakama Nation. King Mountain initially obtained all of its tobacco from an entity in North Carolina. Today, King Mountain grows some of its tobacco and manufactures its tobacco products, in part, on trust lands within the boundaries of the Yakama Nation. In 2009, approximately 3.1 % of the tobacco used in King Mountain's products was grown on trust lands. By 2010, that amount had risen to 9.5%. In 2011, it rose again, to 37.9%.
King Mountain ships its tobacco crop to Tennessee where it is threshed. From there, the tobacco is sent to a factory in North Carolina where more tobacco is added to the reservation tobacco. This process is called “blending.” After blending is complete, the tobacco is sent back to the reservation. King Mountain sells cigarettes and other tobacco products on the reservation, throughout Washington, and in about sixteen other states.
In 1998, forty-six states, the District of Columbia, and five United States territories settled a lawsuit against four major cigarette manufacturers, creating a Master Settlement Agreement (MSA). The MSA requires the manufacturers to make substantial annual cash payments to the settling states and territories, in perpetuity, to offset the increased cost to the health care system created by smoking. In return, the manufacturers obtained a release of specified past and future tobacco-related claims against them.
Not all cigarette manufacturers joined the MSA, either initially or later. The states feared that these non-participating manufacturers (NPMs) would become insolvent against future liability for smoking-related health care costs. Because of this concern, many states adopted escrow statutes. The escrow statutes require NPMs to either join the MSA or pay into a qualified escrow fund. See, e.g.,Wash. Rev.Code § 70.157.020(b) (2013).
Washington adopted an escrow statute to offset smoking-related health care costs caused by NPMs. Id.§ 70.157.005. For each qualifying unit of tobacco sold, NPMs must make a flat-fee payment into an escrow fund. Id. § 70.157.020(b)(1). The NPMs earn interest on the escrow account balances. Id. § 70.157.020(b)(2). The money in the escrow account may be released only: (1) to pay a judgment or settlement; (2) as a refund to the NPM for overpayment to the account; or (3) as a refund to the NPM after the funds have been in the account for 25 years. Id.
King Mountain initially complied with Washington's escrow statute; but in 2011, it filed this lawsuit to contest its obligation to comply.
Appellants and the State filed cross-motions for summary judgment in district court. Appellants offered evidence of the Yakama people's understanding of the 1855 Treaty to support their claim that the Treaty is an express federal law that exempts King Mountain's activities from state economic regulation. The district court made findings regarding how Washington's escrow statute operates and regarding King Mountain's business.
The district court began its analysis by observing: “It is well-settled that a state can regulate (i) off-reservation transactions conducted by Native Americans; (ii) on-reservation sales to persons other than Native Americans; and (iii) impose certain requirements upon Native Americans in regulating those sales.” It also explained, quoting Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148–49, 93 S.Ct. 1267, 36 L.Ed.2d 114 (1973): “Absent express federal law to the contrary, Indians going beyond reservation boundaries have generally been held subject to nondiscriminatory state law otherwise applicable to all citizens of the State.”
The district court found that “King Mountain's operations involve extensive off-reservation activity” and that “the cigarettes and roll-your-own tobacco products produced by King Mountain are not principally generated from the use of reservation land and resources.” Rejecting King Mountain's argument to the contrary, the district court concluded: “Washington['s] escrow statutes are non-discriminatory state laws of general application.” Applying Mescalero, the court ruled that “King Mountain ha[d] not met its burden of showing express federal law exempting its business from state regulation nor [did] it offer case authority invalidating application of any state's escrow statute based on an Indian Treaty or any other federal law.” The district court granted the State's motion for summary judgment and denied Appellants' motion.
This court reviews a district court's order granting summary judgment de novo. Ramsey v. United States, 302 F.3d 1074, 1077 (9th Cir.2002). Viewing the evidence in the light most favorable to the nonmoving party, we determine “whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law.” Id. We also review de novo the interpretation and application of treaty text. Cree v. Flores, 157 F.3d 762, 768 (9th Cir.1998) ( Cree II ). “Underlying factual findings, including findings of historical fact, are reviewed for clear error.” Id.
Appellants argue that summary judgment in favor of the State was improper because the district court failed to consider evidence showing how the Yakama people understood the Treaty in 1855. They also argue that the Yakama Treaty is express federal law exempting the Yakama people from the Washington escrow statute. In response, the State counters that its escrow statute is a nondiscriminatory law that applies to the Yakama people's off-reservation activities because there is no express federal law that prevents its application.
The Supreme Court has explained: “Absent express federal law to the contrary, Indians going beyond reservation boundaries have generally been held subject to nondiscriminatory state law otherwise applicable to all citizens of the State.” Mescalero, 411 U.S. at 148–49, 93 S.Ct. 1267. Accordingly, our court has explained: “[A] state's authority to tax tribal members is limited depending on the subject and location of the tax.” Ramsey, 302 F.3d at 1078. We also have explained that federal laws, such as treaties, ordinarily must be interpreted in the light most favorable to Indians:
When a court interprets a state's taxation of Indians' off-reservation activities, the court determines if there is an express federal law prohibiting the tax. The federal law must be interpreted in the light most favorable to the Indians, and extrinsic evidence may be used to show the federal government's and Indians' intent. Unlike the federal standard, there is no requirement to find express exemptive language before employing the canon of construction favoring Indians.
Id. at 1079. But “even though legal ambiguities are resolved to the benefit of the Indians, courts cannot ignore plain language that, viewed in historical context and given a fair appraisal, clearly runs counter to a tribe's later claims.” Or. Dep't of Fish & Wildlife v. Klamath Indian Tribe, 473 U.S. 753, 774, 105 S.Ct. 3420, 87 L.Ed.2d 542 (1985) (citations and internal quotation marks omitted).
As an initial matter, Mescalero requires that we determine whether Washington's escrow statute is...
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