U.S. Supreme Court Turns down King Mountain Tobacco Case

Source from:  Yakima Herald-Republic 03/16/2015

The U.S. Supreme Court has declined to hear arguments that the Yakama Nation's treaty rights should exempt a tribal member's cigarette manufacturing business from paying state tobacco fees.

In September, the 9th Circuit Court of Appeals ruled against the tribe and manufacturer King Mountain Tobacco and sided with the state of Washington, which argued that the tribe's 1855 treaty doesn't prevent the state from regulating tobacco products that it sells off-reservation, including imposing fees.

The Yakama Nation petitioned the high court to review the case on Feb. 2 but the petition was denied Monday.

It's a dead end in a series of court rulings that have so far all gone against the tribal cigarette manufacturer, and it doesn't bode well for another tobacco taxes and treaty rights case still under appeal over a federal excise tax bill of $58 million.

King Mountain Tobacco is a private company on the Yakama Nation Reservation owned by Yakama businessman Delbert Wheeler, who has pushed the legal question of how treaty rights apply to tobacco manufacturing in several high-profile court cases.

The Yakama Nation joined the company in these lawsuits because it saw an opportunity to defend its treaty rights and because it had legal standing on some treaty issues that King Mountain does not, the company's attorney, Randolph Barnhouse, told the Yakima Herald-Republic last fall.

Calls to the Yakama Nation Tribal Council and Barnhouse were not returned Tuesday.

While cigarettes manufactured on the Yakama reservation and sold to tribal members are not subject to taxes, state and federal governments say King Mountain owes taxes on all cigarettes sold off its reservation. As of 2014, the company was licensed to distribute in nine states. That includes New York, where the state is suing King Mountain over cigarettes it sold on Indian reservations there without paying state taxes.

In the case just denied by the Supreme Court, the state law in contention requires cigarette manufacturers to pay 2 cents for each cigarette sold in Washington into an escrow account, so that the funds are available to cover the costs of future lawsuits over smoking-related health care costs.

The system arose after a 1998 settlement between most states, including Washington, and four major cigarette manufacturers that resulted in manufacturers paying states to run health care programs in exchange for waiving future legal liability. Under a state law that followed the settlement, manufacturers that did not sign the agreement, such as King Mountain, have to pay into the escrow account annually.

It's not technically a tax; the funds will be returned to each company after 25 years if no judgments are filed against it. The state Attorney General's Office can sue any manufacturer that fails to comply or prohibit that company from selling cigarettes in the state.

King Mountain paid into the escrow account as required until 2011, when it filed a lawsuit arguing that it should not have to comply. The amount of money it owes at this time is unclear.

To challenge the law, King Mountain and the Yakama Nation argued that the treaty's protections that allow tribal members to travel freely without restrictions implicitly included the right to free trade as well. But, in 2013, Judge Lonny Suko of the U.S. Eastern Washington District Court ruled that the treaty does not protect free trade.

In the petition to the Supreme Court, Barnhouse, an Arizona-based treaty law expert, argued that the lower court mistakenly relied on the specific language in the treaty in its rulings, rather than looking at the context of what the Yakama leaders who signed the treaty in 1855 understood it to mean.

In other cases involving the Yakama treaty, the Supreme Court has upheld that argument, because the treaty was negotiated through tenuous translation.

The court found in a 1979 fishing rights case that "the treaty must therefore be construed, not according to the technical meaning of its words to learned lawyers, but in the sense it which they would naturally be understood by the Indians," and Barnhouse cited that language in his petition.

But in the case of the cigarette escrow payments, the appellate court found that considering the treaty's historical context was not necessary because the language is clear that it does not provide an exemption to the state law. With the Supreme Court's decision not to the review the case, that's the final ruling.

In the separate case over federal excise taxes, U.S. District Judge Rosanna Petersen in Spokane ruled against King Mountain last year, finding that as a manufactured product, not an agricultural product, its cigarettes are subject to taxes.

The tribe has appealed that ruling to the 9th Circuit Court of Appeals, also arguing that the District Court judge failed to consider the context and implicit meaning of both the treaty and the General Allotment Act of 1887. It is unclear how the federal excise tax case could be affected by the Supreme Court's decision not to review the escrow payment case. Enditem