State of New York v. Mountain Tobacco Co., 110719 FED2, 17-3198 (L)

Docket Nº:17-3198 (L), 17-3222 (XAP)
Opinion Judge:Dennis Jacobs, Circuit Judge
Party Name:State of New York, Plaintiff-Appellee-Cross-Appellant, v. Mountain Tobacco Company, DBA King Mountain Tobacco Company Inc., Defendant-Appellant-Cross-Appellee, Mountain Tobacco Distributing Company Inc., Delbert Wheeler, Sr., Defendants.
Attorney:NELSON BOXER, Petrillo Klein & Boxer LLP, New York, NY (Philip Pilmar, Petrillo Klein & Boxer LLP, New York, NY; Randolph H. Barnhouse, Barnhouse Keegan Solimon & West LLP, Los Ranchos de Albuquerque, NM, on the brief), for Defendant-Appellant-Cross-Appellee Mountain Tobacco Company. JUDITH VALE ...
Judge Panel:Before: KEARSE, JACOBS, SACK, Circuit Judges.
Case Date:November 07, 2019
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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State of New York, Plaintiff-Appellee-Cross-Appellant,

v.

Mountain Tobacco Company, DBA King Mountain Tobacco Company Inc., Defendant-Appellant-Cross-Appellee,

Mountain Tobacco Distributing Company Inc., Delbert Wheeler, Sr., Defendants.

Nos. 17-3198 (L), 17-3222 (XAP)

United States Court of Appeals, Second Circuit

November 7, 2019

Argued: January 24, 2019

Mountain Tobacco Company ("King Mountain") appeals from a judgment of the United States District Court for the Eastern District of New York granting partial summary judgment for the State of New York on its claims that King Mountain violated state laws on cigarette sales, and enjoining future violations. King Mountain argues on appeal that the State's enforcement practices violate the dormant Commerce Clause; that one state claim is barred by res judicata and in any event fails on the merits; and that the State's regulation of commerce between Indian nations violates federal Indian protections.

The State cross-appeals from the district court's dismissal on summary judgment of its claims under two federal statutes, the Contraband Cigarette Trafficking Act ("CCTA") and the Prevent All Cigarette Trafficking Act ("PACT" Act). The State argues that King Mountain's cigarette deliveries constitute "interstate commerce" actionable under the PACT Act, and that King Mountain does not enjoy the CCTA's exemption for "an Indian in Indian country."

Affirmed in part, reversed in part, and remanded.

NELSON BOXER, Petrillo Klein & Boxer LLP, New York, NY (Philip Pilmar, Petrillo Klein & Boxer LLP, New York, NY; Randolph H. Barnhouse, Barnhouse Keegan Solimon & West LLP, Los Ranchos de Albuquerque, NM, on the brief), for Defendant-Appellant-Cross-Appellee Mountain Tobacco Company.

JUDITH VALE (Andrew D. Bing, Steven C. Wu, Eric Del Pozo, on the brief), for Letitia James, Attorney General for the State of New York, New York, NY, for Plaintiff-Appellee-Cross-Appellant State of New York.

COURTNEY DIXON (Hashim M. Mooppan, Mark B. Stern, William E. Havemann, Charles R. Gross, Jeffrey A. Cohen, on the brief), United States Department of Justice, Washington, DC, for Amicus Curiae United States of America in support of New York State.

JOHN M. PEEBLES (Steven J. Bloxham, Tim Hennessy, Peter D. Lepsch, on the brief), Fredericks Peebles & Morgan LLP, Sacramento, CA, for Amicus Curiae National Congress of American Indians in support of King Mountain Tobacco Company Inc. (on submission).

Before: KEARSE, JACOBS, SACK, Circuit Judges.

Dennis Jacobs, Circuit Judge

Mountain Tobacco Company ("King Mountain") ships unstamped (and therefore untaxed) cigarettes from the Yakama Indian Reservation in Washington State to certain Indian reservations in the State of New York. The State, which thereby loses tax revenue, brought this action to enjoin King Mountain from making such shipments, which it claims violate state and federal law, and to obtain additional relief including civil penalties and damages.

King Mountain appeals from a judgment of the United States District Court for the Eastern District of New York (Seybert, J.) granting partial summary judgment for the State of New York on its claims that King Mountain violated state laws on cigarette sales, and enjoining future violations. The district court ruled in relevant part that King Mountain violated state law by selling unstamped cigarettes to Indian nations or reservation cigarette sellers, that the relevant state claim was not barred by res judicata, and that the injunction withstands the dormant Commerce Clause. On appeal, King Mountain argues that the State's enforcement practices violate the dormant Commerce Clause; that one state claim is barred by res judicata and in any event fails on the merits; and that the injunction amounts to state regulation of commerce between Indian nations in violation of federal Indian protections.

The State cross-appeals from the district court's dismissal on summary judgment of its claims under two federal statutes, the Prevent All Cigarette Trafficking Act ("PACT" Act) and the Contraband Cigarette Trafficking Act ("CCTA"). The district court ruled that King Mountain's cigarette shipments were not "interstate commerce" actionable under the PACT Act, and that King Mountain is an "Indian in Indian country" that is exempt from CCTA liability. On appeal, the State argues that King Mountain's cigarette shipments were "interstate commerce" as defined by the PACT Act, and that King Mountain does not enjoy the CCTA's exemption for "an Indian in Indian country."

For the reasons set out below, the judgment of the district court is affirmed in part and reversed in part, and the case is remanded for further proceedings consistent with this opinion.

BACKGROUND

The New York State Department of Taxation and Finance ("DTF") uses a "stamping" system to precollect certain state and local cigarette taxes. New York law requires that all cigarettes "possessed" for sale in the state bear a stamp evidencing payment of the applicable taxes, and that all cigarettes delivered into the state be sent initially to state-licensed stamping agents. See N.Y. Tax L. ("NYTL") § 471. Stamping agents purchase tax stamps, affix them to cigarette packages, and pass on the taxes to consumers by incorporating the stamps' value into cigarette resale prices. See id.

King Mountain, a manufacturer and seller of cigarettes, is organized under the laws of the Yakama Nation, with its principal place of business on the Yakama reservation, which is situated within the boundaries of Washington State. In November 2012, May 2013, and June 2013, state investigators purchased unstamped cartons of King Mountain cigarettes from smoke shops on the Poospatuck Indian Reservation in Mastic, New York. Also in May 2013, a state investigator purchased a carton of unstamped King Mountain cigarettes from a smoke shop on the Cayuga Nation reservation in Union Springs, New York. In December 2012, state troopers seized 140 cases of unstamped King Mountain cigarettes from a truck in Clinton County, New York, which was en route to the Ganienkeh Nation in Altona, New York.

The State's Amended Complaint, filed in May 2014, alleges that King Mountain unlawfully delivered millions of unstamped cigarettes into New York since 2010, and asserts claims under various provisions of the NYTL and New York Executive Law ("NYEL") (dealing with tax collection, public health, and fire safety), as well as the CCTA and the PACT Act. King Mountain, which denies the State's allegations, does not contest that it sells its cigarettes to Indian nations and to companies owned by tribe members and situated on Indian reservations, some of which are within the borders of the State of New York.

In January 2016, King Mountain and the State cross-moved for summary judgment. The district court granted summary judgment for King Mountain on the CCTA and PACT Act claims (except as to the PACT Act claim premised on a sale to Valvo Candies, which is not Indian-owned or on a reservation). As for the State's claim under NYTL § 471, the district court granted summary judgment for King Mountain with respect to its alleged possession of unstamped cigarettes, and granted summary judgment for the State with respect to King Mountain's failure to sell its unstamped cigarettes to licensed stamping agents. Finally, the court granted summary judgment for the State with respect to its NYTL claim relating to public health certifications, and granted in part and denied in part summary judgment for the State on its NYEL claim relating to fire safety certifications.

In November 2016, the State informed the district court that it was declining to prosecute the portions of its PACT Act and NYEL claims for which summary judgment was denied, meaning that no claims remained to be tried.

The State declined to seek penalties or costs for the claims on which it prevailed, and instead filed a motion for injunctive relief seeking to enjoin King Mountain from: (1) "Selling unstamped cigarettes directly to Indian nations or tribes and/or reservation cigarette sellers or entities that are not licensed stamping agents, in violation of [NYTL] Section 471"; (2) "Continuing to sell cigarettes into the State of New York, without first complying with [NYTL] Section 480-b's [public health] certification requirements"; and (3) "Continuing to sell or offer cigarettes for sale, without first complying with [NYEL] Section 156-c's [fire safety] certification requirements." State of New York v. Mountain Tobacco Co., No. 12-CV-6276(JS)(SIL), 2017 WL 6419148, at *2 (E.D.N.Y. Aug. 29, 2017) (brackets omitted). The State also unsuccessfully sought authority to seize any unstamped King Mountain cigarettes found in New York that are being delivered to unauthorized persons or are in their...

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