United States v. King Mountain Tobacco Co.

Decision Date13 August 2018
Docket Number16-35607,Nos. 14-36055,s. 14-36055
Citation899 F.3d 954
Parties UNITED STATES of America, Plaintiff-Appellee, v. KING MOUNTAIN TOBACCO COMPANY, INC., Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

Randolph H. Barnhouse (argued) and Justin J. Solimon, Johnson Barnhouse & Keegan LLP, Los Ranchos de Alburquerque, New Mexico; Timothy J. Carlson, Carlson Boyd PLLC, Yakima, Washington; for Defendant-Appellant.

Patrick J. Urda (argued), Teresa E. McLaughlin, and Gilbert S. Rothenberg, Attorneys; David A. Hubbert, Acting Assistant Attorney General; Tax Division, United States Department of Justice, Washington, D.C.; for Plaintiff-Appellee.

Before: Ferdinand F. Fernandez, M. Margaret McKeown, and Julio M. Fuentes,* Circuit Judges.

McKEOWN, Circuit Judge:

In this case of first impression, we consider whether King Mountain Tobacco Company, Inc. ("King Mountain"), a tribal manufacturer of tobacco products located on land held in trust by the United States, is subject to the federal excise tax on manufactured tobacco products. The district court awarded the United States almost $58 million for unpaid federal excise taxes, associated penalties, and interest. Because we conclude that neither the General Allotment Act of 1887, 4 Stat. 388 (codified as amended in scattered sections of 25 U.S.C.), nor the Treaty with the Yakamas of 1855, 12 Stat. 951, entitles King Mountain to an exemption from the federal excise tax, we affirm the judgment of the district court.


In 2006 the late Delbert Wheeler, Sr., a lifelong-enrolled member of the Yakama Nation in Washington State, purchased "80 acres of trust property ... from the Yakama Nation Land Enterprise, the agency of the Yakama Nation which is charged with overseeing the maintenance of real property held in trust by the United States for the benefit of the Yakama Nation and its members." Wheeler then opened King Mountain Tobacco Company, which manufactures cigarettes and roll-your-own tobacco in a plant located on this trust land. After making significant investments to improve and develop the trust property, Wheeler transferred his interest in the property to King Mountain so that King Mountain could commence farming, agricultural, and manufacturing operations on Wheeler’s land.1

King Mountain received a federal tobacco manufacturer’s permit in February 2007. Today, King Mountain manufactures all of its tobacco products, and grows some of its own tobacco, on trust lands within the boundaries of the Yakama Nation. Some of those trust lands—including those on which King Mountain is located—are allotted to Wheeler, while others are allotted to other Yakama members.

King Mountain initially obtained all of the tobacco for its products from an entity in North Carolina. But according to King Mountain, "[t]obacco has historically grown on the Yakama Nation Reservation." Over time, King Mountain increased the proportion of tobacco grown on trust land and incorporated into its manufactured products. In 2010 the "approximately 3.1% of the tobacco used [in 2009 had] risen to 9.5%. In 2011, it rose again, to 37.9%." King Mountain Tobacco Co., Inc. v. McKenna , 768 F.3d 989, 991 (9th Cir. 2014). By the end of 2013, King Mountain’s products were composed "of at least 55 percent tobacco grown exclusively on allotted land held in trust by the United States for the beneficial use of ... Wheeler." The bulk of King Mountain’s products are now manufactured by blending "[t]rust-land grown tobacco ... with non-trust-grown tobacco." King Mountain also manufactures a small amount of " ‘traditional use tobacco’ that is intended for Indian ... ceremonial use" and consists entirely of trust land-grown tobacco.

The federal government imposes excise taxes on manufactured tobacco products, including cigars, cigarettes, and roll-your-own tobacco. See I.R.C. § 5701.2 The current tax rate for cigarettes, for example, is approximately $1 per pack, or $10 per carton. Id. § 5701(b). The current tax rate for roll-your-own tobacco is approximately $24.78 per pound. Id. § 5701(g). Administered by the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau ("TTB"), these excise taxes are assessed on the privilege of manufacturing tobacco products and determined at the time the tobacco products are removed from a factory or bonded warehouse. See id. §§ 5703(b), 5702(j).

Although King Mountain initially paid federal excise taxes on its tobacco products, it began to fall behind in 2009. The Treasury gave King Mountain statutory notice, under I.R.C. § 5703(d), of the delinquent taxes and afforded the company an opportunity to show cause why the taxes should not be assessed. King Mountain did not challenge the statutory notice. Accordingly, the Treasury delegate timely made assessments against King Mountain for unpaid excise taxes, failure-to-pay penalties, failure-to-deposit penalties, and interest for periods in October, November, and December 2009. In February 2010, the Treasury issued King Mountain a Notice and Demand for Payment pursuant to I.R.C. § 6303. King Mountain paid the assessed taxes in installments over a five-month period in 2010, but it failed to pay the associated penalties and interest. Eventually, King Mountain ceased paying federal excise taxes altogether.

This case has shuttled between the district court and our court on both procedural and substantive grounds. Back in 2012, the United States brought suit against King Mountain to collect the delinquent taxes. The suit was a companion to an earlier-filed action brought by King Mountain, Wheeler, and the Yakama Nation for declaratory and injunctive relief against the imposition of the federal tobacco excise tax on King Mountain’s products. See King Mountain Tobacco Co., Inc. v. Alcohol & Tobacco Tax and Trade Bureau , 996 F.Supp.2d 1061 (E.D. Wash. 2014) (the " Yakama case"), vacated and remanded sub nom. Confederated Tribes and Bands of the Yakama Indian Nation v. Alcohol & Tobacco Tax and Trade Bureau , 843 F.3d 810 (9th Cir. 2016). The district court granted the Government’s motion to dismiss as to King Mountain and Wheeler on the basis that the claims were barred by the Anti-Injunction Act, 26 U.S.C. § 7421(a). The court concluded, however, that the Yakama’s claims fell within the exception to the Anti-Injunction Act set forth in South Carolina v. Regan , 465 U.S. 367, 104 S.Ct. 1107, 79 L.Ed.2d 372 (1984). See King Mountain Tobacco Co., Inc. v. Alcohol & Tobacco Tax and Trade Bureau , No. CV-11-3038-RMP, 2012 WL 12951864, at *4 (E.D. Wash. Sept. 24, 2012).

The district court then granted summary judgment in favor of the United States on the merits, reasoning that neither the General Allotment Act nor the Treaty with the Yakamas precluded the imposition of federal excise taxes. 996 F.Supp.2d at 1067–70.

On appeal, we held that the Yakama Nation’s suit was barred by the Anti-Injunction Act. 843 F.3d at 815–16. We thus vacated the judgment and remanded with instructions to dismiss the suit for lack of subject-matter jurisdiction. Id.

Back in the district court, the court granted summary judgment to the Government on King Mountain’s liability for payment of the excise tax. Observing that the merits issues were "essentially identical" to those presented in the earlier Yakama case, the court expressly incorporated its conclusions of law from the summary judgment order. The district court reserved ruling on the amount of liabilities owed by King Mountain, however, in order to enable King Mountain to obtain additional discovery.

After further discovery, the district court granted summary judgment in favor of the government on the amount of King Mountain’s liabilities—$57,914,811.27. However, when the district court entered final judgment in favor of the government, it accidentally omitted this amount from its order. The government quickly moved to alter or amend the judgment pursuant to Federal Rule of Civil Procedure 59(e) to reflect that King Mountain owed "to the United States federal tobacco excise tax liabilities totaling $57,914,811.27 as of June 11, 2013, plus interest and other statutory additions accruing after that date until paid in full."

Before the district court could issue an amended judgment, however, King Mountain filed a timely notice of appeal. Citing Federal Rule of Civil Procedure 60(a), the district court initially ruled that it lacked jurisdiction to amend the judgment, but that it would do so if we remanded. Three months later, the district court reconsidered its ruling sua sponte , concluding that our precedent permitted it to correct the omission of the amount of judgment as a mere "clerical error." Accordingly, the district court granted the government’s motion and amended the judgment. Again, King Mountain filed a timely notice of appeal, which is now before us.


Before considering the merits, we must resolve a preliminary question of appellate jurisdiction. Sinochem Int’l Co. Ltd. v. Malaysia Int’l Shipping Corp. , 549 U.S. 422, 430–31, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007) (holding that a court "generally may not rule on the merits of a case without first determining that it has jurisdiction over the category of claim in the suit"). Under 28 U.S.C. § 1291, we have jurisdiction of appeals from all "final decisions of the district courts," except of course where a direct appeal lies to the Supreme Court. As a result, "an appeal ordinarily will not lie until after final judgment has been entered in a case."

Cunningham v. Hamilton County, Ohio , 527 U.S. 198, 203, 119 S.Ct. 1915, 144 L.Ed.2d 184 (1999). According to King Mountain, the district court’s amended judgment was not a "final judgment," and so we lack jurisdiction over the appeal of that order. We disagree.

The Supreme Court has cautioned that "no statute or rule ... specifies the essential elements of a final judgment," United States v. F. & M. Schaefer...

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