Keweenaw Bay Indian Community v. Khouri et al
OPINION; signed by District Judge Paul L. Maloney (Judge Paul L. Maloney, cmc)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
KEWEENAW BAY INDIAN COMMUNITY,
File No: 2:16-cv-121
HON. PAUL L. MALONEY
NICK KHOURI, et al.,
Plaintiff Keweenaw Bay Indian Community (“the Community”) is a federally-recognized American
Indian tribe organized under the Indian Reorganization Act of 1934, 25 U.S.C. § 476. It has
approximately 2,625 enrolled members, and approximately 1,044 residents on its reservation. The
Community seeks declaratory and injunctive relief for Defendants’ alleged violations of federal law and
unlawful interference with the Community’s federally-sanctioned activities. (Third Am. Compl., ECF No.
58.) The Community alleges that Defendants have enforced, and continue to enforce, the Michigan Sales
Tax Act, the Michigan Use Tax Act, and the Michigan Tobacco Products Act (“Tobacco Act”) in violation
of federal law. (Id.)
The Defendants are Nick Khouri, the Treasurer of the State of Michigan, Walter Fratzke, the
Native American Affairs Specialist for the Department of Treasury (“the Department”), Ruth Johnson, the
Secretary of State for the State of Michigan, Sergeant Christopher Croley, an officer with the Michigan
State Police, Daniel Grano, an Assistant Attorney General for the State of Michigan, and Detective Timothy
Sproull, an officer with the Michigan State Police.
The matter is before the Court on Defendants’ motion for judgment on the pleadings for the officialcapacity tobacco-tax claims. (ECF No. 68.) The Community has filed a response (ECF No. 73), and
Defendants have filed a reply (ECF No. 75). Upon careful review of the record, the Court has decided
that the motion can be resolved without oral argument. See W.D. Mich. LCivR 7.3(d). For the reasons
that follow, Defendants’ motion is granted in part and denied in part.
The L’Anse band of Chippewa Indians have long occupied the area near the base of the
Keweenaw Bay in Michigan’s Upper Peninsula. Under the Treaty with the Chippewa at La Pointe (the
“1842 Treaty”), the Chippewa Indians ceded to the United States the western half of Michigan’s Upper
Peninsula, including the Keweenaw Bay area (“ceded area”). Treaty with the Chippewa, Oct. 4, 1842,
7 Stat. 591, 1842 WL 6508. This treaty provided that “[t]he Indians stipulate for the right of hunting on
the ceded territory, with the other usual privileges of occupancy, until required to remove by the President
of the United States, and that the laws of the United States shall be continued in force, in respect to their
trade and intercourse with the whites, until otherwise ordered by Congress.” Id. at art. 2. In 1854, the
United States set nearly 60,000 acres near the base of the Keweenaw Bay as an Indian reservation for the
L’Anse and Lac Vieux Desert Bands of Chippewa Indians. Treaty with the Chippewa, Sept. 30, 1854,
10 Stat. 1109, 1854 WL 9483. The Community’s reservation is located within this area.
In 1977, the Community and the State of Michigan entered into a tax agreement. As part of the
agreement, the State acknowledged the nontaxable status of the Community and its members with respect
to state sales and use taxes. In 1997, the State terminated this tax agreement, and the parties have been
unable to reach a new agreement.
The Department has established a form process that allows tribes without a tax agreement with the
State to file claims for exemption from or refund of sales and use taxes with respect to purchases, leases,
rentals, use, storage, or consumption of tangible personal property or services within Indian country. Under
this process, tribes and tribal members must either pay sales tax and use tax at the time of the transaction
or file a claim requesting an advance determination that a particular transaction is not subject to sales and
use tax. If an advance determination is not obtained, the purchaser must pay the tax at the time of sale and
then submit a claim for refund of the tax paid. This refund process also applies to the tobacco tax.
In 2003, the Community filed a lawsuit against the Treasurer of the State of Michigan, the
Administrator of the Tax Policy Division of the Michigan Department of Treasury, the United States
Postmaster General, employees of the United States Postal Service, and several Michigan State Police
officers. (Keweenaw Bay Indian Cmty. v. Rising, No. 2:03-CV-111 (W.D. Mich. May 29, 2003), ECF
No. 1) (“Rising I”). The Court granted the defendants’ motion for summary judgment on several tobaccotax claims, granted the defendants’ request to dismiss claims that would extend the Community’s
sovereignty into the area ceded under the 1842 Treaty, and dismissed part of the Community’s § 1983
claim. (Id. at ECF Nos. 96, 301.) The Sixth Circuit affirmed this decision and held that the tobacco tax
was valid because the incidence of the tax fell on non-tribal consumers; that it did not impose more than
a minimal burden on the tribe; that it comported with prior treaties; that the State’s search of packages did
not infringe the Supremacy Clause or exclusive federal authority over mail; that the tribe’s sovereign
immunity did not preclude search of the mail packages; and that the search warrants for the mail packages
met the Fourth Amendment’s particularity requirement. Keweenaw Bay Indian Cmty. v. Rising, 477
F.3d 881, 886-95 (6th Cir. 2007).
Here, the Community alleges that, since January 1, 2013, it submitted approximately 991 claims
for exemption or refund to the Department relating to purchases of tangible personal property and services.
The Community objects to the necessity of participating in the Department’s claim process in order to
exercise its immunities from state taxation under federal law. Of these claims, the Department denied
approximately 900, granted approximately 58, and has yet to rule on the 33 remaining claims. The
Community also alleges that, since July 1, 2012, four Community members have submitted approximately
254 claims for exemption or refund to the Department related to purchases of a wide variety of tangible
personal property and services. The Department has denied approximately 161 claims, and has granted
68 claims; 25 claims remain.
The Community alleges that the State has unlawfully enforced the Tobacco Act, Mich. Comp.
Laws § 205.427(1), which imposes a tax on the sale of tobacco products, including cigarettes, sold in
Michigan. The Act requires licensed wholesalers and unclassified acquirers other than a manufacturer to
remit the tobacco tax and a tax return to the Department by the twentieth day of each calendar month for
products sold during the preceding month. Mich. Comp. Laws § 205.427(2) and (3). A “wholesaler” is
a person who purchases tobacco products from a manufacturer, sells 75% or more of those products to
others for resale, and maintains an established business where substantially all of the business is the sale of
tobacco products at wholesale and a substantial stock of tobacco products is available to retailers for
resale. Mich. Comp. Laws § 204.422(cc). An “unclassified acquirer” is a person who is not a
transportation company or a purchaser at retail from a licensed retailer, and “who imports or acquires a
tobacco product from a source other than a wholesaler or secondary wholesaler licensed under this act for
use, sale, or distribution.” Mich. Comp. Laws § 205.244(z).
The Tobacco Act provides that “a person shall not purchase, possess, acquire for resale, or sell
a tobacco product as a manufacturer, wholesaler, secondary wholesaler, vending machine operator,
unclassified acquirer, transportation company, or transporter in this state unless licensed to do so.” Mich.
Comp. Laws § 205.423. A “transporter” means a person importing or transporting into the State, or
transporting in the State, a tobacco product obtained from a source located outside of the State, or from
any person not duly licensed under the Act, but does not include an interstate commerce carrier licensed
by the interstate commerce commission to carry commodities in interstate commerce. Mich. Comp. Laws
§ 205.422(y). The Act also requires a wholesaler and unclassified acquirer to affix a stamp provided by
the Department to the bottom of each individual package of cigarettes to be sold within the State before
delivery, sale, or transfer of the cigarette package to any person in the State. Mich. Comp. Laws §
205.426a(2). A retailer or any person licensed under the Act is not permitted to acquire any package of
cigarettes for resale unless the package has that stamp. Mich. Comp. Laws § 205.426a(3). Any tobacco
products that violate the Act may be seized and confiscated by the Department. Mich. Comp. Laws §
The Community sells tobacco products on the reservation or the trust lands at several locations that
are wholly owned and operated by the Community. This area is considered “Indian country” as defined
by federal law.
On December 4, 2015, the Community purchased 3,360 cartons of Seneca cigarettes for
$65,620.80 from HCI Distribution, an economic development arm of the Winnebago Tribe of Nebraska.
The Community sent a pickup truck and utility trailer, driven by John Davis, an enrolled member of the
Community, to transport the cigarettes from HCI’s facilities to the Community’s reservation. On December
11, 2015, Michigan State Trooper Lajimodiere stopped the truck in the ceded area of Marquette County
for speeding. The trooper did not issue a speeding citation. The Community alleges that the Michigan State
Police were conducting an illegal surveillance investigation into the operations on the reservation. Trooper
Lajimodiere contacted the Michigan State Police Tobacco Tax Enforcement Team for assistance, and
several members responded to his call. They seized the Community’s cigarettes, truck, and trailer.
The Community requested an administrative hearing under Mich. Comp. Laws § 205.429(3) to
contest the seizure. On January 22, 2016, the Department held a hearing to determine whether the
cigarettes, truck, and trailer were lawfully seized and subject to forfeiture to the State. The Community
alleges that it was not allowed to question the Department’s witnesses during the hearing. The hearing
referee recommended that the Department find that the cigarettes and trailer were lawfully seized and
subject to forfeiture, but that the seizure of the truck was unlawful. The Department rejected the latter
portion of the recommendation, and on February 5, 2016, it issued a decision and order of determination
that the Community’s truck, trailer, and cigarettes were lawfully seized and subject to forfeiture. The
Community brought an action in state court challenging the decision and order, but is seeking a stay of the
state-court proceedings pending the outcome of this case.
On January 28, 2016, the Community purchased 184 cartons of Seneca brand cigarettes for
$197,715 from Native Wholesale Supply. The wholesaler shipped the cigarettes in two shipments of 92
cases to the Community via XPO Logistics Freight, Inc., a common-carrier trucking company licensed by
the U.S. Department of Transportation Federal Motor Carrier Safety Administration. On February 9,
2016, the Michigan State Police stopped one of the XPO trucks in Marquette County, within the ceded
area. The Department seized the 92 cases of cigarettes based on its determination that the cigarettes were
untaxed. That same day, the Michigan State Police stopped the second XPO truck, again, within the ceded
area. The Department seized the remaining 92 cases of cigarettes after determining that they were also
The Community once again requested administrative hearings for the February 9th seizures. On
March 16, 2016, the Department held a hearing. The Community alleges that the hearing referee presumed
that the Tobacco Act was constitutional, and did not allow the Community to present argument or evidence
on whether the seizure violated the Constitution or federal law. Once again, the Community alleges that
the referee did not allow the Community to question the Department’s witnesses during the hearing. The
referee found that, when an individual package of cigarettes is located in the State without the required
tobacco tax stamp, there is a presumption that the package violates the Act. The referee also found that
the cigarettes did not contain the required stamp, were contraband, and that the Community was acting as
an unclassified acquirer without a license. The referee recommended that the Department find that the
Michigan State Police lawfully seized the cigarettes and that they were subject to forfeiture. The
Department accepted the referee’s recommendation in its decision and order of determination. The
Community also filed a lawsuit in state court to challenge this decision.
In August 2016, the Department provided the Community with a notice of intent to assess taxes
and penalties against the Community for the tobacco products seized on December 11, 2015 and February
9, 2016. In response, the Community’s Tribal Council President submitted a written demand to the State
Treasurer for an informal conference. The Community contested the entire amount of the alleged tax
liability and penalties for four reasons: (1) the Department failed to comply with the statutory requirements
under Mich. Comp. Laws § 205.21(2)(a), which are prerequisites for issuing a notice of intent to assess
taxes; (2) the Department also failed to comply with Mich. Comp. Laws § 205.21(2)(b), which describes
the required elements of a valid notice of intent to assess; (3) the notices of intent to assess are unlawful
under the Tobacco Act; and (4) the notice, if carried out, would violate the U.S. Constitution and federal
law. All of these claims are part of the state-court litigation.
On October 4, 2016, state officials signed a felony complaint and sought arrest warrants against
two of the Community’s members for violations of the Tobacco Act. In response to the criminal
investigation, the Community added two defendants in their individual and official capacities. These
individuals are Assistant Attorney General Daniel Grano, who signed a felony complaint and sought an
arrest warrant against the Community’s members, and Michigan State Police Officer Timothy Sproull, who
is responsible for enforcing the Tobacco Act and is the complaining witness to the felony complaint. The
Community requests an injunction to prevent Defendants from taking any further actions to impose or
collect Michigan’s tobacco products tax, including conducting surveillance or investigations on the
Community’s reservation and filing or pursuing criminal prosecutions against Community members or
Under Federal Rule of Civil Procedure 12(c), “a party may move for judgment on the pleadings.”
Fed. R. Civ. P. 12(c). The Court is to apply the same standard to a motion for judgment on the pleadings
that it applies to a motion to dismiss under Rule 12(b)(6). Warrior Sports, Inc. v. Nat’l Collegiate
Athletic Ass’n, 623 F.3d 281, 284 (6th Cir. 2010) (citing EEOC v. J.H. Routh Packing Co., 246 F.3d
850, 851 (6th Cir. 1973)). “For purposes of a motion for judgment on the pleadings, all well-pleaded
material allegations of the pleadings of the opposing party must be taken as true, and the motion may be
granted only if the moving party is nevertheless clearly entitled to judgment.” JP Morgan Chase Bank,
N.A. v. Winget, 510 F.3d 577, 581 (6th Cir. 2007) (quoting Ohio Bank v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 479 F.2d 478, 480 (6th Cir. 1973)). The Court, however, “need not accept as
true legal conclusions or unwarranted factual inferences.” Morgan v. Church’s Fried Chicken, 829 F.2d
10, 11 (6th Cir. 1987).
Although the decision on the motion “rests primarily upon the allegations of the complaint,” the
Court may also consider “matters of public record,” “orders,” and materials in “the record of the case,”
among other things. Barany-Snyder v. Weiner, 539 F.3d 327, 332 (6th Cir. 2008) (internal citations and
quotations omitted). For example, it “may take judicial notice of its own record of another case between
the same parties.” Harrington v. Vandalia-Butler Bd. of Educ., 649 F.2d 434, 441 (6th Cir. 1981).
Thus, the Court should grant a Rule 12(c) motion “when no material issue of fact exists and the party
making the motion is entitled to judgment as a matter of law.” Winget, 510 F.3d at 581 (quoting Paskvan
v. City of Cleveland Civil Serv. Comm’n, 946 F.2d 1233, 1235 (6th Cir. 1991)).
C. Res judicata applies
The Community argues that res judicata does not apply to tax claims unless the question of liability
for the same tax period is raised again in a subsequent action, relying upon Commissioner v. Sunnen, 333
U.S. 591, 598 (1948). Id. (“[I]f a claim of liability or non-liability relating to a particular tax year is
litigated, a judgment on the merits is res judicata as to any subsequent proceeding involving the same claim
and the same tax year.”). Defendants distinguish Sunnen: Federal Indian tax cases are different from
ordinary tax cases because federal Indian principles, not simply tax law, resolve these disputes. Defendants
also argue that the Community is not a taxpayer under the Tobacco Act and that the case does not involve
determining the amount of an annual tax liability, so Sunnen and the other cases that the Community relies
upon do not bar the application of res judicata here. The Community contends that, because the
Community is required to pay the tax to obtain tobacco products under the Defendants’ interpretation of
the Tobacco Act, Defendants cannot avoid Sunnen by arguing that the Community is not a taxpayer or is
not bringing a tax claim.
In Sunnen, the Supreme Court held that a decision concerning an annual federal tax liability bars
an action in later years for the same tax. Id. at 598 (explaining that “[e]ach year is the origin of a new
liability and of a separate cause of action”). The Court noted that, “where the second action between the
same parties is upon a different cause or demand, the principle of res judicata is applied much more
narrowly.” Id. at 597-98. Res judicata “is designed to prevent repetitious lawsuits over matters which
have once been decided and which have remained substantially static, factually and legally.” Id. at 599.
Thus, “[i]f the legal matters determined in the earlier case differ from those raised in the second case,” or
if “the situation is vitally altered between the time of the first judgment and the second, the prior
determination is not conclusive.” Id. (internal citations omitted). However, “where a question of fact
essential to the judgment is actually litigated and determined in the first tax proceeding, the parties are
bound by that determination in a subsequent proceeding even though the cause of action is different.” Id.
at 601 (citing Evergreens v. Nunan, 141 F.2d 927 (2d Cir. 1944)). Because the Community’s claims
rely on more than just federal tax law, res judicata applies.
B. Res judicata analysis
Defendants argue that res judicata bars the official-capacity tobacco claims against Defendants
Khouri, Fratzke, Croley, Grano, and Sproull. Res judicata, or claim preclusion, “provides that a final
judgment on the merits of an action precludes the ‘parties or their privies from relitigating issues that were
or could have been raised’ in a prior action.” Kane v. Magna Mixer Co., 71 F.3d 555, 560 (6th Cir.
1995) (quoting Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)). It has four elements:
(1) a final decision on the merits by a court of competent jurisdiction; (2) a subsequent action between the
same parties or their privies; (3) an issue in the subsequent action which was litigated or which should have
been litigated in the prior action; and (4) an identity of the causes of action. Id. (quoting Sanders
Confectionary Prods., Inc. v. Heller Fin., Inc., 973 F.2d 474, 480 (6th Cir. 1992), cert. denied, 506
U.S. 1079 (1993)). “‘The burden of proving the applicability of the doctrine of res judicata is on the party
asserting it.’” Abbott v. Michigan, 474 F.3d 324, 331 (6th Cir. 2007) (quoting Baraga Cty. v. State
Tax Comm’n, 645 N.W.2d 13, 16 (Mich. 2002)). The Court must apply the doctrine of res judicata
“with its limitations carefully in mind so as to avoid injustice.” Sunnen, 333 U.S. at 599.
1. Final decision on the merits
Defendants argue that this Court’s decision in Rising I, including two opinions granting summary
judgment and a clarifying opinion, satisfy the first element for the tobacco-tax claims. (Rising I, No. 2:03cv-111 at ECF Nos. 96, 125, 301.) A district court’s grant of summary judgment is a final decision on
the merits. Pavlovich v. Nat’l City Bank, 461 F.3d 832, 835-36 (6th Cir. 2006); Mayer v. Distel Tool
& Mach. Co., 556 F.2d 798, 798 (6th Cir. 1977). Further, in Rising I, this Court had jurisdiction under
28 U.S.C. § 1331 and § 1362, so it was also a court of competent jurisdiction. Thus, the first element
2. Subsequent action between the same parties or their privies
In the context of res judicata, courts “use the word ‘privity’ or ‘privy’ in [a] broader sense, ‘to say
that the relationship between one who is a party on the record and another is close enough to include that
other within res judicata.’” In re Montogmery Ward, LLC, 634 F.3d 732, 737-38 n.6 (3d Cir. 2011)
(quoting Nationwide Mut. Fire Ins. Co. v. Hamilton, 571 F.3d 299, 311 n.13 (3d Cir. 2009)). Privity
is a “legal conclusion ‘designating a person so identified in interest with a party to former litigation that he
represents precisely the same right in respect of the subject matter involved.’” In re Schimmels, 127 F.3d
875, 881 (9th Cir. 1997) (quoting Southwest Airlines Co. v. Texas Int’l Airlines, Inc., 546 F.2d 84, 94
(5th Cir. 1977)).
In Rising I, the Community brought suit against state officials in their official capacities, which “is
no different from a suit against the State itself.” Will v. Mich. Dep’t of State Police, 491 U.S. 58, 71
(1989). Although Defendants Khouri, Fratzke, Croley, and Sproull were not parties in Rising I, they all
are in privity with the Treasurer and members of the Michigan State Police, whom the Community sued in
their official capacity in Rising I. See Anthracite Coal Co. v. Adkins, 310 U.S. 381, 402-03 (1940)
(“There is privity between officers of the same government so that a judgment in a suit between a party and
a representative of [the government] is res judicata in relitigation of the same issue between that party and
another officer of the government.”) (citing Tait v. W. Maryland Ry. Co., 289 U.S. 620 (1933)).
The Community did not sue an assistant attorney general or the former Attorney General in Rising
I. Nonetheless, Defendant Grano is in privity with the defendants in Rising I. See Micklus v. Greer, 705
F.2d 314, 317 (8th Cir. 1983) (“A plaintiff may not sue a succession of state employees on the same claim
solely on the ground that each employee is not ‘identical’ to previously sued employees. . . . Thus, we find
there is in this case the ‘close relationship, bordering near identity’ required to apply res judicata.”) (quoting
Robbins v. Dist. Court of Worth Cty., 592 F.2d 1015, 1017 (8th Cir. 1979)). The Sixth Circuit has
applied Micklus, finding that, although the plaintiff “named different state employees in the second case,
he [was] barred from raising the same claim against them as they are in privity with the previous
defendants.” Jackson v. Pline, 974 F.2d 1338, 1992 WL 203760, at *1 (6th Cir. Aug. 20, 1992)
(unpublished table opinion). Defendant Grano, whose job is to enforce the Tobacco Act, (ECF No. 58,
PageID.794), is in privity with the defendants in Rising I who were also tasked with the Act’s enforcement;
thus, the second element for res judicata is satisfied for all of the official-capacity tobacco claims.
3. Issues that were actually litigated or that could have been litigated in the prior action
Res judicata prohibits not only the relitigation of all claims or issues which were actually litigated
in a prior proceeding, but also those that could have been litigated in the prior action. Bragg v. Flint Bd.
of Educ., 570 F.3d 775, 777 (6th Cir. 2009). Defendants argue that all of the official-capacity tobacco
tax claims were actually litigated or could have been litigated in Rising I.
Here, Counts IX, X, XI, XII, XIII, XIV, and XVII relate to the tobacco tax. (ECF No. 58.)
Although some of the Community’s legal arguments either actually were litigated or could have been
litigated in Rising I, the facts underlying the Community’s claims were not available until nearly 10 years
after the Sixth Circuit’s decision. Thus, the Community did not and could not have raised these claims in
4. Identity of the causes of action
The fourth and final element of res judicata requires that there be an identity of claims. “Identity
of causes of actions means an ‘identity of the facts creating the right of the action and of the evidence
necessary to sustain each action.’” Sanders Confectionary Products, Inc v. Heller Financial, Inc., 973
F.2d 474, 484 (6th Cir. 1992) (quoting Westwood Chemical Co. v. Kulick, 656 F.2d 1224, 1227 (6th
Cir. 1981)). “The now-accepted test in preclusion law for determining whether two suits involve the same
claim or cause of action depends on factual overlap, barring ‘claims arising from the same transaction.’”
United States v. Tohono O’Odham Nation, 563 U.S. 307, 316 (2011) (quoting Kremer v. Chemical
Constr. Corp., 456 U.S. 461, 482 n.22 (1982)); see also Browning v. Levy, 283 F.3d 761, 773-74 (6th
Cir. 2002) (citation omitted) (explaining that identity of claims “is satisfied if ‘the claims arose out of the
same transaction or series of transactions, or whether the claims arose out of the same core of operative
Although Rising I consisted of similar facts, here, the facts underlying the complaint did not arise
until nearly 10 years after the Sixth Circuit’s decision in Rising I. Indeed, the two cases have different
factual bases, arising years apart from one another, and do not rely on the same evidence in order for the
Community to prove its claims. See Butler v. FCA US, LLC, 119 F. Supp. 3d 699, 708 (E.D. Mich.
2015) (explaining that where two causes of actions have different factual bases and evidence, they did not
share an identity of cause of action).
Defendants argue that the Court only needs two facts to determine whether the seizures and other
sanctions were lawful: (1) whether the tobacco products were contraband; and (2) whether the seizures
occurred outside of Indian Country. Washington v. Confederated Tribes of Colville Indian
Reservation, 447 U.S. 134, 161-62 (1980). Although this is true, the seizures and sanctions at issue here
occurred years after the litigation in Rising I finished. The claims are not related in time, space, origin, or
motive. The Community’s claims address seizures of different tobacco products, in different places, under
different circumstances, during different years, and in different tax periods than those at issue in Rising I.
Thus, this case does not “involve the same set of events or documents [or] the same bundle of legal
principles that contributed to the rendering of the first judgment.” Sunnen, 333 U.S. at 601-02 (citing Tait,
289 U.S. at 620).
B. Collateral estoppel
Defendants do not explicitly raise an argument for collateral estoppel in their brief in support of their
motion for judgment on the pleadings. Rather, Defendants generally discuss the application of res judicata,
arguing “Rising I litigated or could have litigated each of these claims.” (ECF No. 69, PageID.1029.)
Defendants also argue that “[r]es judicata does not permit the Community to re-litigate the same legal to
achieve a different and better outcome for seizures presenting the same essential facts.” (Id. at
PageID.1044.) Nonetheless, in its response brief, the Community argues that collateral estoppel, or issue
preclusion, also does not bar the Community’s claims. (ECF No. 72, PageID.1067.) Defendants respond
to this argument in their reply brief, but also include a footnote requesting that, if the Court denies its motion,
Defendants be allowed to brief the collateral estoppel issue fully and reserve the right to challenge the claims
on their merits and assert other defenses. (ECF No. 75, PageID.1142.)
“Raising a new argument in a reply brief is patently improper.” Swartz v. Comm’r of Social Sec.,
No. 1:07-cv-771, 2008 WL 2952021, at *5 (W.D. Mich. July 29, 2008). A party cannot wait until the
reply brief to make new arguments, thus effectively depriving the opposing party of the opportunity to
expose the weaknesses of the argument. Id. (quoting Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 553
(6th Cir. 2008)). But that is not what happened here; the Community first raised the issue in its response
brief, so the Sixth Circuit’s concerns underlying Scottsdale do not apply. Further, Defendants raised the
affirmative defense of collateral estoppel in their answer to the Community’s amended complaint. (ECF
No. 63, PageID.1008.) Thus, the Court will assess the merits of the argument.
“Once an issue is actually and necessarily determined by a court of competent jurisdiction, that
determination is conclusive in subsequent suits based on a different cause of action involving a party to the
prior litigation.” Montana v. United States, 440 U.S. 147, 153 (1979) (internal citations omitted). For
issue preclusion to apply, Defendants must show that (1) the issue in the subsequent litigation is identical
to that resolved in the earlier litigation; (2) the issue must have been actually litigated and decided in the
prior action; (3) the issue must have been necessary and essential to a judgment on the merits in the prior
litigation; and (4) the party to be estopped was a party to the prior litigation or in privity with such a party.
Hickman v. Comm’r, 183 F.3d 535, 537 (6th Cir. 1999).
Collateral estoppel is generally appropriate if both the first and second action involve application
of the same principles of law to a historic fact setting that was complete by the time of the first adjudication.
18 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure
Jurisdiction and Related Matters § 4425 (3d ed. 2017) (citing Steen v. John Hancock Mut. Life Ins.
Co., 106 F.3d 904, 913 (9th Cir. 1997) and Jarvis v. Nobel/Sysco Food Servs. Co., 985 F.2d 1419,
1425 (10th Cir. 1993)). Substantial uncertainty is encountered, however, in dealing with preclusion on
issues of applying law to facts that seem indistinguishable but were not closed at the time of the first
adjudication. Id. Such facts are often called “separable,” and preclusion may be denied simply because
of factual separability. Id; see also Sunnen, 333 U.S. at 601 (“But if the relevant facts in the two cases
are separable, even though they be similar or identical, collateral estoppel does not govern the legal issues
which recur in the second case.”).
The relevant facts from Rising I and the present matter are similar, and in some respects, nearly
identical. Nonetheless, they are separable because the facts at issue here were not closed at the time of
Rising I’s adjudication. Thus, collateral estoppel does not govern the recurring legal issues.
C. Rising I as binding precedent
Defendants also contend that if neither res judicata or collateral estoppel apply, Defendants are still
entitled to judgment on the pleadings based on Rising I. Indeed, the Court is bound by the decisions in
Rising I. Although the Michigan legislature has amended the Tobacco Act since Rising I was decided, the
relevant provisions are substantively the same. Thus, Rising I controls.
Here, the Community’s tobacco-tax claims include: (1) preemption under the Bracker balancing
test; (2) infringement of rights of tribal self-government and sovereign immunity; (3) preemption under the
Indian Commerce Clause; (4) violations of the Interstate Commerce Clause; (5) violations of the 1842
Treaty; (6) violations of the Community’s sovereign immunity; and (7) requests for preliminary and
1. Count IX - Bracker balancing test
In White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980), the Supreme Court
introduced a balancing test for preemption of state taxation of an activity on an Indian reservation. Under
the Bracker test, a court must determine whether the legal incidence of a state tax falls on a nontribal entity
engaged in a transaction with tribes or tribal members. Arizona Dep’t of Revenue v. Blaze Constr. Co.,
526 U.S. 32, 37 (1999) (discussing when to apply the Bracker test). In Bracker, the Supreme Court
opined that, where “a State asserts authority over the conduct of non-Indians engaging in activity on the
reservation . . . we have examined the language of the relevant federal treaties and statutes in terms of both
the broad polices that underlie them and the notions of sovereignty that have developed from historical
traditions of tribal independence.” Bracker, 488 U.S. at 144-45. It requires that a court conduct “a
particularized inquiry into the nature of the state, federal, and tribal interests at stake, an inquiry designed
to determine whether, in the specific context, the exercise of state authority would violate federal law.” Id.
The Community notes that it raised a Bracker balancing claim with respect to the January 2002
seizures in Rising I, but voluntarily dismissed the claim before it was litigated. (Rising I, No. 20:03-cv-111,
ECF No. 144, PageID.1430.) In connection to other claims, the Community noted that the Bracker
balancing analysis controlled the legality of the tax “[w]hen the legal incidence of a state tax falls upon a
non-Indian for transactions within Indian country” and if the State was permitted to impose the tax under
Bracker, that the State “may impose . . . ‘minimal burdens’ [on Indian retailers] . . . to collect and remit
. . . taxes collected from non-Indian customers.” (Id. at ECF No. 187, PageID.2736.)
In the Community’s memorandum in support of its motion to file a second amended complaint, it
explained that its amended complaint narrowed the claim to whether the refund process provided by the
Michigan Department of Treasury satisfies the principles of Moe v. Confederated Salish & Kootenai
Tribes of the Flathead Reservation, 425 U.S. 463 (1976), Colville, 447 U.S. at 141, Dep’t of
Taxation & Finance of New York v. Milhelm Attea & Bros., Inc., 512 U.S. 61, 64-65 (1994), and
similar cases regarding minimal burdens. (Id. at ECF No. 144, PageID.1430.) The Court weighed the
interests at stake and concluded that “there is no real dispute that the balance of interests favors the State.”
(Id. at ECF No. 300, PageID.6611.) The Court also held that the State’s refund system did not impose
more than minimal burdens on the tribe because the legal incidence of the tobacco tax fell on non-member
purchasers and did not present a significant interference with the Community’s self-government or run afoul
of any congressional enactment dealing with the affairs of Indian reservations. (Id. at PageID.6611;
PageID.6617-18.) To reach this holding, the Court conducted “a particularized inquiry into the nature of
the state, federal, and tribal interests at stake.” Bracker, 448 U.S. at 145. But the Court did not
specifically address whether Bracker preempted the tobacco tax. The Sixth Circuit also explained that,
on appeal, the Community “[did] not appear to challenge the conclusion that the state may impose a
minimal burden on the tribe in collecting taxes from non-tribal members based on the balancing of interests,
but instead argue[d] that the Tobacco Act impermissibly impose[d] more than a minimal burden.” Rising
I, 477 F.3d at 890 n.3. Thus, in Rising I, neither this Court nor the Sixth Circuit analyzed the preemption
2. Counts X, XI, XII - infringement of rights of tribal self-government and sovereign
immunity, the Indian Commerce Clause of the United States Constitution, and the Commerce
Clause of the United States Constitution
Here, the Community claims that the tobacco tax infringes on its sovereign immunity and right to
self-government for both its tobacco sales in Indian country and in connection with the seizures and
forfeitures used to enforce the Act. (Third Am. Compl. ¶ 151, ECF No. 58, PageID.839.) The
Community also alleges that the Indian Commerce Clause preempts the Tobacco Act.
In Rising I, the Court explained that the Community’s second amended complaint did not include
its claims based on infringement of tribal self-government and the Indian Commerce Clause. (Rising I, No.
2:03-cv-111, ECF No. 300, PageID.6606.) Therefore, Rising I did not establish binding precedent on
these issues because neither this Court nor the Sixth Circuit evaluated the merits of either claim.
Similarly, the Community did not raise a commerce clause claim in Rising I. Defendants argue that
the Court determined that the tobacco products seized in transit to the reservation are immune from seizure,
and that the Community could have raised and litigated a commerce clause theory. But unlike res judicata,
stare decisis does not apply to issues that could have been litigated in a prior proceeding.
3. Count XIII - Seizures of Community’s property, violations of Art. II of 1842 Treaty
This Court has already ruled that the Act “does not conflict with federal laws governing Indian
trade” and that the “1842 Treaty does not limit the State’s ability to impose minimal burdens on the
Community to assist in the collection of the State’s cigarette taxes.” (Rising I, No. 2:03-cv-111, ECF No.
300, PageID.6620.) Taking the Community’s well-pleaded factual allegations as true, the Community
raises the same legal argument as in Rising I, which the Court has previously rejected, id., and the Sixth
Circuit has affirmed, Rising I, 477 F.3d at 893. The 1842 Treaty does not preempt the tobacco tax.
Rather, the Act is consistent with federal law and the treaty provisions. Therefore, the Court will dismiss
6. Count XIV - Seizures of Community’s property, violations of sovereign immunity
The Community seeks a declaration that the past seizures of its property violate its sovereign
immunity. The Community raised this claim in Rising I, and this Court concluded that state officials may
seize untaxed, unstamped tobacco products outside of Indian country and that the seizures were not barred
by sovereign immunity. (Rising I, No. 2:03-cv-111, ECF No. 300, PageID.6629-31.)
Here, the Community alleges that the Sixth Circuit panel in Rising I misapplied Colville, 447 U.S.
at 134, and Oklahoma Tax Comm’n v. Citizen Band Potawatomi Indian Tribe of Okla., 498 U.S. 505
(1991), to hold that the seizures did not violate the Community’s sovereign immunity. (ECF No. 58,
PageID.845.) The Community urges this Court to overturn the panel decision to the extent that it might
be interpreted to apply to the seizures at issue in this case. (Id.) But that is not the proper way to attack
a prior judgment, particularly one that is binding on this Court. The Community had the opportunity to
request a rehearing en banc or to petition for certiorari at the Supreme Court. See Baltimore S.S. Co. v.
Phillips, 274 U.S. 316, 325 (1927) (“A judgment merely voidable because based upon an erroneous view
of the law is not open to collateral attack, but can be corrected only by a direct review and not by brining
another action upon the same cause [of action].”). Rising I remains good law. Taking the factual
allegations as true, Defendants are also entitled to relief on this claim.
7. Count XVII - Preliminary and permanent injunction
A preliminary injunction requires a likelihood of success on the merits. Am. Civil Liberties Union
of Ky. v. McCreary Cty., Ky., 607 F.3d 439, 445 (6th Cir. 2010). Similarly, a permanent injunction
requires actual success on the merits and “continuing irreparable injury for which there is no adequate
remedy at law.” Id. (citing Women’s Med. Prof’l Corp. v. Baird, 438 F.3d 595, 602 (6th Cir. 2006)).
Defendants argue that Rising I shows that the Community is not likely to succeed on the merits of
the legal claims that it previously lost, and the fact that the claims were actually litigated in Rising I means
that the Community cannot actually prevail because they are barred by res judicata. The Community
argues that, because Defendants cannot show that they are entitled to judgment on the pleadings for any
of its tobacco tax claims, they also are not entitled to judgment on the pleadings on the accompanying claim
for injunctive relief. Because the Court has dismissed the Community’s claims for Counts XIII and XIV
supra, the accompanying claims for injunctive relief are also dismissed.
Further, Younger abstention requires a federal court to abstain from granting injunctive or
declaratory relief that would interfere with pending state judicial proceedings. O’Neill v. Coughlan, 511
F.3d 638, 643 (6th Cir. 2008) (citing Younger v. Harris, 401 U.S. 37, 40-41 (1971)). Younger reflects
“a system in which there is sensitivity to the legitimate interests of both State and National Governments,
and in which the National Government, anxious though it may be to vindicate and protect federal rights and
federal interests, always endeavors to do so in ways that will not unduly interfere with the legitimate
activities of the States.” Id. at 44. It “express[es] equitable principles of comity and federalism” and is
“designed to allow the State an opportunity to ‘set its own house in order’ when the federal issue is already
before a state tribunal.” Ohio Bureau of Empl. Servs. v. Hodory, 431 U.S. 471, 479-80 (1977).
Although neither party has raised the issue of abstention, “the Supreme Court has indicated that
‘abstention may be raised by the court sua sponte.’” Federal Exp. Corp. v. Tenn. Public Service
Comm’n, 925 F.3d 962, 966 (6th Cir. 1991) (quoting Bellotti v. Baird, 428 U.S. 132, 143 n.10 (1976));
see also Louisiana Power & Light v. Thibodaux, 360 U.S. 25 (1959). A state can also waive the
application of Younger abstention. Sosna v. Iowa, 419 U.S. 393, 396-97 n.3 (1975); Hodory, 431 U.S.
at 479-80. But Defendants’ failure to assert Younger abstention before arguing for dismissal of the claims
on the merits does not constitute waiver of the right to seek dismissal of the complaint on the grounds of
Younger abstention. O’Neill, 511 F.3d at 643.
The Court must look at three factors to determine whether it should “abstain from hearing a case
under the Younger doctrine: ‘(1) there must be on-going state judicial proceedings; (2) those proceedings
must implicate important state interests; and (3) there must be an adequate opportunity in the state
proceedings to raise constitutional challenges.’” Id. (quoting Sun Refining & Mktg. Co v. Brennan, 921
F.2d 635, 639 (6th Cir. 1990)).
Although a court may issue an injunction against the enforcement of certain state criminal statutes,
Dombrowski v. Pfister, 380 U.S. 479 (1965), the Community’s complaint does not allege substantial
allegations of bad faith or harassment. Likewise, the complaint’s allegations do not “depict a situation in
which defense of the State’s criminal prosecution will not assure adequate vindication of constitutional
rights.” Id. at 485-86. Thus, without allegations of bad faith or harassment, the Court will abstain from
issuing declaratory or injunctive relief against the enforcement of criminal liability for violations of the
D. The Court cannot properly determine whether Defendants are entitled to qualified
immunity at this stage
Qualified immunity is an affirmative defense that extends to government officials performing
discretionary functions. See Harlow v. Fitzgerald, 457 U.S. 800, 817-18 (1982). Government officials
acting within the scope of their authority are entitled to qualified immunity as long as their conduct does “not
violate clearly established statutory or constitutional rights of which a reasonable person would have
known.” Id. at 818. It protects “all but the plainly incompetent or those who knowingly violate the law.”
Humphrey v. Mabry, 482 F.3d 840, 847 (6th Cir. 2007).
The Sixth Circuit applies a two-part test to determine whether a government official is entitled to
the defense of qualified immunity: (1) whether the plaintiff has shown a violation of a constitutionallyprotected right; and, if so, (2) whether that right was clearly established such that a reasonable official
would have understood that his behavior violated that right. Shehee v. Luttrell, 199 F.3d 295, 299-300
(6th Cir. 1999). The purpose of the clearly-established prong is to ensure that officials are on notice that
their alleged conduct was unconstitutional. Baynes v. Cleveland, 799 F.3d 600, 610 (6th Cir. 2015)
(citing Hope v. Pelzer, 536 U.S. 730, 739 (2002)). The salient question is “‘whether the state of the law
[at the time of the action giving rise to the claim] gave respondents fair warning that their alleged treatment
of [the plaintiff] was unconstitutional.’” Id. (quoting Hope, 536 U.S. at 741). In other words, “in the light
of pre-existing law the unlawfulness must be apparent.” Hope, 536 U.S. at 739 (citing Anderson v.
Creighton, 483 U.S. 635, 640 (1987)).
After a defendant raises a qualified-immunity defense, the burden shifts to the plaintiff to
demonstrate that the government official violated a right that was so clearly established “that every
‘reasonable official would have understood that was he [was] doing violate[d] that right.’” Ashcroft v. alKidd, 563 U.S. 731, 741 (2011) (quoting Anderson, 483 U.S. at 640). At a minimum, to survive a
motion to dismiss on qualified-immunity grounds, a plaintiff “must allege facts that ‘plausibly mak[e] out a
claim that the defendant’s conduct violated a constitutional right that was clearly established at the time,
such that a reasonable officer would have known that his conduct violated that right.” Courtright v. City
of Battle Creek, 839 F.3d 513, 518 (6th Cir. 2016). “Although an officer’s entitlement to qualified
immunity is a threshold question to be resolved at the earliest possible point, that point is usually summary
judgment and not dismissal under Rule 12.” Wesley v. Campbell, 779 F.3d 421, 433-34 (6th Cir. 2015);
see also Evans-Marshall v. Bd. of Educ. of Tipp City Exempted Village Sch. Dist., 428 F.3d 223, 235
(6th Cir. 2005) (Sutton, J., concurring) (observing that the fact-intensive nature of qualified immunity makes
it “difficult for a defendant to claim qualified immunity on the pleadings before discovery” (emphasis in
original)). Given the fact-intensive nature of the qualified-immunity analysis here, the Court cannot conduct
such analysis prior to the start of discovery.
In sum, the doctrines of res judicata and collateral estoppel do not preclude the Community’s
claims. However, applying stare decisis, the Court will dismiss Counts XIII and XIV and the
accompanying requests for declaratory or injunctive relief because, taking the factual allegations in the
complaint as true, Rising I controls and Defendants are clearly entitled to relief.
An order will enter in accordance with this opinion.
DATE: June 30, 2017
/s/ Paul L. Maloney
Paul L. Maloney
United States District Court Judge
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