New York v. Mountain Tobacco Co.

• Decision Date: 21 July 2016
• Docket Number: 12-CV-6276(JS)(SIL)
• Parties: STATE OF NEW YORK, Plaintiff, v. MOUNTAIN TOBACCO COMPANY, d/b/a KING MOUNTAIN TOBACCO COMPANY, INC., Defendant.
• Court: U.S. District Court — Eastern District of New York

STATE OF NEW YORK, Plaintiff, v. MOUNTAIN TOBACCO COMPANY, d/b/aKING MOUNTAIN TOBACCO COMPANY, INC., Defendant.

12-CV-6276(JS)(SIL)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

July 21, 2016

MEMORANDUM & ORDER

APPEARANCES:

Plaintiff:

Christopher K. Leung, Esq.

Dana H. Biberman, Esq.

NYS Office of the Attorney General

120 Broadway, 3rd Floor

New York, NY 10271

For Defendant:

Nelson A. Boxer, Esq.

Jill C. Barnhart, Esq.

Petrillo Klein & Boxer LLP

655 3rd Avenue, 22nd Floor

New York, NY 10017

Kelli J. Keegan, Esq.

Randolph Barnhouse, Esq.

Johnson Barnhouse & Keegan LLP

7424 4th St NW

Los Ranchos De Albuq, NM 87107

SEYBERT, District Judge:

Presently pending before the Court are defendant Mountain Tobacco Company's ("King Mountain") motion for partial summary judgment (Docket Entry 195) and plaintiff State of New York's (the "State") cross motion for summary judgment (Docket Entries 197 and 198¹). For following reasons, the parties' motions are both GRANTED IN PART and DENIED IN PART.

BACKGROUND²

King Mountain, a for-profit corporation formed and operating under the laws of the Yakama Indian Nation, manufactures and sells its own brand of cigarettes. (Pl.'s 56.1 Stmt., Docket Entry 195-5, ¶¶ 28, 30.)³ King Mountain's principal place of business is located on the Yakama Indian Nation Reservation. (Pl.'s 56.1 Stmt. ¶ 32.) Delbert Wheeler, Sr., an enrolled member of the Yakama Nation, is the sole owner of King Mountain. (Pl.'s 56.1 Stmt. ¶¶ 35, 39.)

The State alleges that King Mountain has marketed, distributed, and sold its cigarettes in New York since at leastJune 1, 2010. (Pl.'s 56.1 Stmt. ¶ 52.) King Mountain denies that allegation, (Def.s' 56.1 Counterstmt., Docket Entry 195-6, ¶ 52), but alleges that it "sells its cigarettes to Indian Nations, and to companies owned by a member of an Indian Nation, that are situated on Indian Nations, some of which are located within the boundaries of the State of New York[,]" (Def.s' Sec. 56.1 Stmt., Docket Entry 195-3, ¶ 13). Nevertheless, King Mountain has conceded that it sold cigarettes to Valvo Candies, an entity that is not owned by an Indian Nation or tribe or a member of an Indian Nation or tribe. (Def.'s Br., Docket Entry 195-1, at 9, n.4.) The State alleges that Valvo Candies is not located on a qualified Indian reservation and is instead located in Silver Creek, Chautauqua County, New York. (Pl.'s 56.1 Stmt. ¶¶ 53(l), 54(a).)⁴ It is undisputed that King Mountain has not filed reports or registrations with the New York State Department of Taxation and Finance ("DTF"). (Def.'s Sec. 56.1 Stmt. ¶ 23.)

On November 6, 2012, a New York State investigator purchased one carton of unstamped King Mountain brand cigarettes for twenty-five dollars at a smoke shop located on the Poospatuck Indian Reservation in Mastic, New York. (Def.'s Sec. 56.1 Stmt.¶ 25.) On December 3, 2012, New York State troopers stopped a truck in Clinton County, New York, and seized one hundred and forty cases of unstamped King Mountain brand cigarettes. (Def.'s Sec. 56.1 Stmt. ¶ 26.) The cigarettes were being transported by ERW Wholesale to the Ganienkeh Nation in Altona, New York. (Def.'s Sec. 56.1 Stmt. ¶ 26(a).)

On May 15, 2013, a New York State investigator purchased cartons of unstamped King Mountain brand cigarettes at smoke shops located on the Poospatuck Indian Reservation in Mastic, New York. (Def.'s Sec. 56.1 Stmt. ¶ 27.) On May 16, 2013, a New York State investigator purchased one carton of unstamped King Mountain brand cigarettes for twenty dollars at a smoke shop located on the Cayuga Indian Reservation in Union Springs, New York. (Def.'s Sec. 56.1 Stmt. ¶ 29.) On June 5, 2013, a New York State investigator purchased two cartons of unstamped King Mountain brand cigarettes at smoke shops located on the Poospatuck Indian Reservation. (Def.'s Sec. 56.1 Stmt. ¶ 30.)

A. The Administrative Proceeding

On December 20, 2012, DTF issued a Notice of Determination against King Mountain in connection with cigarettes seized on December 3, 2012 (the "Notice of Determination"). (Def.'s Sec. 56.1 Stmt. ¶ 26(c).) The Notice of Determination alleged that King Mountain failed to pay $1,259,250.00 in statetaxes pursuant to New York State Tax Law Article 20. (Def.'s Sec. 56.1 Stmt. ¶ 26(c).)

On October 23, 2014, DTF filed a Stipulation of Discontinuance stating that King Mountain owed $0 in tax, penalty, and interest in connection with the Notice of Determination (the "Stipulation of Discontinuance"). (Def.'s Sec. 56.1 Stmt. ¶ 26(d).) On November 19, 2014, the presiding Administrative Law Judge issued an Order decreeing that the State's assessment against King Mountain was cancelled and dismissed with prejudice. (Def.'s Sec. 56.1 Stmt. ¶ 26(e).)

I. The Amended Complaint

The Amended Complaint dated May 21, 2014⁵ asserts claims pursuant to the Contraband Cigarette Trafficking Act ("CCTA"), Prevent All Cigarette Trafficking Act ("PACT Act"), New York Tax Law §§ 471, 471-e, and 480-b, and New York Executive Law § 156-c against King Mountain.⁶ (Am. Compl., Docket Entry 96.) The Stateseeks to enjoin King Mountain from making allegedly illegal cigarette sales and shipments into New York and also seeks civil penalties, attorney fees, and costs. (Am. Compl. ¶ 3.)

II. The Pending Motions

On January 29, 2016, King Mountain filed a motion for partial summary judgment and the State filed a cross motion for summary judgment. (Def.'s Mot., Docket Entry 195; Pl.'s Mot., Docket Entry 197.) The State and King Mountain each filed one brief in support of their respective motions and a separate brief in opposition to their adversary's motion. The parties each filed a reply brief, as well as supplemental briefs in response to the Court's Electronic Order dated May 4, 2016. As the parties' briefs are somewhat duplicative, the Court will address the relevant arguments by party, rather than by motion sequence.

A. King Mountain's Position

King Mountain has moved for summary judgment with respect to the State's claims under the CCTA, PACT Act, and New York Tax Law ("NYTL") Sections 471 and 471-e. (See generally Def.'s Br.) King Mountain argues that the State's CCTA claim must fail because, inter alia, it is exempt as an "Indian in Indian country." (Def.'s Br. at 12, 14-16.) King Mountain avers that it is not asserting a sovereign immunity defense and the State's focus on tribal sovereign immunity is, accordingly, irrelevant. (Def.'s Opp. Br., Docket Entry 202, at 3.)

King Mountain alleges that it is entitled to summary judgment on the PACT Act claim because its sale of cigarettes to Native Americans did not take place in "interstate commerce" as defined by the Act. (Def.'s Br. at 17.) King Mountain argues that the PACT Act's definition of "State" does not encompass "Indian Country" and cites to the distinct definitions provided for each term. (Def.'s Opp. Br. at 11.) Although King Mountain concedes that it sold cigarettes to Valvo Candies on one occasion, it alleges that was an isolated sale that predated the effective date of the PACT Act. (Def.'s Br. at 19.)

King Mountain alleges that the State's third cause of action is barred by res judicata based on the prior Tax Proceeding. (Def.'s Br. at 20-25.) With respect to the merits, King Mountain argues that it is not liable under NYTL Sections 471 and 471-e because: (1) it did not possess unstamped cigarettes in New York State; and (2) Section 471 does not impose liability on a lawful out-of-state cigarette manufacturer because it is not an "agent" or "consumer" as defined by the statute. (Def.'s Opp. Br. at 20.) King Mountain alleges that "nothing in the law precludes King Mountain from selling to Indian Nations, who could then sell those cigarettes to licensed-stamping agents." (Def.'s Opp. Br. at 21.)

King Mountain also argues that summary judgment should be denied with respect to the State's fourth and fifth causes of action. (Def.'s Opp. Br. at 22-23.) King Mountain avers that itdid not knowingly violate NYTL Section 480-b because its sales were "Nation to Nation" with one exception. (Def.'s Opp. Br. at 22-23.) King Mountain also argues that the record demonstrates that it affixed the requisite Fire Standard Compliant ("FSC") stamp to its cigarettes. (Def.'s Opp. Br. at 23.)

B. The State's Position

The State moves for summary judgment on all of its claims. (See generally Pl.'s Br., Docket Entry 197-1.) With respect to the CCTA, the State argues that the "Indian in Indian Country" exemption is not applicable to King Mountain. (Pl.'s Opp. Br., Docket Entry 201, at 6.) Particularly, the State argues that the CCTA's use of the term "Indian" refers to an individual member of a tribe, not an Indian-owned business. (Pl.'s Opp. Br. at 6-7.) Additionally, the State alleges that even if King Mountain is an "Indian in Indian Country," the CCTA exemption still does not apply because that exemption is meant to protect tribal governments and tribal sovereignty. (Pl.'s Opp. Br. at 7-8.)

The State argues that King Mountain's arguments regarding the PACT Act are founded in a misreading of the statute. (Pl.'s Opp. Br. at 12.) The State alleges that the term "state" in the PACT Act does not exclude Indian reservations because pursuant to federal common law, "Indian country is ordinarily considered a part of a state's territory." (Pl.'s Opp. Br. at 12.) The State also avers that King Mountain's interpretation ofthe PACT Act would defeat the statutory purpose of defeating remote sellers from selling untaxed cigarettes. (Pl.'s Br. at 28.)

The State alleges that King Mountain is liable under NYTL Sections 471 and 471-e for shipping unstamped cigarettes into New York State. (Pl.'s Br. at 30.) The State also argues that res judicata does not bar its claim because: (1) the underlying facts of the Tax Proceeding do not arise out of the same series of transactions as the underlying facts in this case; (2) the Tax Department and Attorney General are not in privity; and (3) King Mountain waived any res judicata defense...