HCI Distribution, Inc. et al v. Peterson et al
Filing
35
ORDER granting in part and denying in part the 27 Motion to Dismiss for Failure to State a Claim. The plaintiffs' equal protection claim is dismissed. This matter is referred to the Magistrate Judge for case progression. Ordered by Chief Judge John M. Gerrard. (KMG)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
HCI DISTRIBUTION, INC. and
ROCK RIVER MANUFACTURING,
INC.,
8:18-CV-173
Plaintiffs,
MEMORANDUM AND ORDER
vs.
DOUGLAS PETERSON, Nebraska
Attorney General, and TONY
FULTON, Nebraska Tax
Commissioner,
Defendants.
The plaintiffs seek a declaration of rights pursuant to 28 U.S.C. § 2201,
and injunctive relief pursuant to 28 U.S.C. § 2202, regarding the enforcement
of Nebraska's statutes regulating tobacco product manufacturing and
distribution. The defendants are the duly elected state officers whose offices
are charged with enforcement of the statutes from which the plaintiffs seek
relief. The defendants jointly filed a motion to dismiss (filing 27) the plaintiffs'
complaint for lack of subject-matter jurisdiction pursuant to Fed. R. Civ. P.
12(b)(1) and failure to state a claim upon which relief can be granted pursuant
to Rule 12(b)(6). The defendants' motion will be sustained in part and denied
in part.
I. STANDARD OF REVIEW
A motion pursuant to Rule 12(b)(1) challenges whether the court has
subject matter jurisdiction. The party asserting subject matter jurisdiction
bears the burden of proof. Great Rivers Habitat Alliance v. FEMA, 615 F.3d
985, 988 (8th Cir. 2010).
A court deciding a motion under Rule 12(b)(1) must distinguish between
a "facial attack"’ and a "factual attack." Branson Label, Inc. v. City of Branson,
Mo., 793 F.3d 910, 914 (8th Cir. 2015). A facial attack concerns a failure to
allege sufficient facts to support subject matter jurisdiction, whereas a factual
attack concerns the veracity of the pled facts supporting subject matter
jurisdiction. See Davis v. Anthony, Inc., 886 F.3d 674, 679 (8th Cir. 2018). In a
facial attack, the Court merely needs to look and see if the plaintiffs have
sufficiently alleged a basis of subject matter jurisdiction and accepts all factual
allegations in the pleadings as true and views them in the light most favorable
to the nonmoving party. Branson Label, 793 F.3d at 914. Here, the defendants
are advancing a "facial attack" to subject matter jurisdiction, based on the
pleadings. See id. Accordingly, the Court restricts itself to the pleadings and
the plaintiffs receive the same protections as they do under Rule 12(b)(6).
Hastings v. Wilson, 516 F.3d 1055, 1058 (8th Cir. 2008).
To survive a Rule 12(b)(6) motion to dismiss, a complaint must set forth
a short and plain statement of the claim showing that the pleader is entitled
to relief. Fed. R. Civ. P. 8(a)(2). This standard does not require detailed factual
allegations, but it demands more than an unadorned accusation. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). For the purposes of a motion to dismiss a court
must take all the factual allegations in the complaint as true, but is not bound
to accept as true a legal conclusion couched as a factual allegation. Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007).
II. BACKGROUND
The plaintiffs, HCI Distribution, Inc., and Rock River Manufacturing,
Inc., are wholly owned subsidiaries of Ho-Chunk, Inc. Filing 1 at 6. Ho-Chunk
2
is the economic development arm of the Winnebago Tribe. Both HCI and Rock
River are incorporated under Tribal law. The Tribe is a federally recognized
Indian tribe eligible to receive services from the United States Bureau of
Indian Affairs with its reservation land sited within the boundaries of
Nebraska. Filing 1 at 6; see Indian Entities Recognized and Eligible To Receive
Services From the United States Bureau of Indian Affairs, 83 Fed. Reg. 4,235
(Jan 30, 2018).
HCI's business consists of purchasing and reselling tobacco goods
exclusively in Indian country throughout the United States. Filing 1 at 7. HCI
sells to reservation-based wholesalers and retailers exclusively in Indian
country. All tobacco products HCI ships are affixed with tax stamps in
accordance with Tribal law. HCI employs tribal members and allocates 20
percent of its net profits to support tribal welfare programs, which in 2017
allowed HCI to contribute $157,381 to the tribe.
Rock River is a federally licensed cigarette manufacturer with its
facilities on the Tribe's reservation. Filing 1 at 8. All Rock River's products are
manufactured on the reservation. Rock River's products are distributed by HCI
and other distributors, and are sold by such distributors to retailers
nationwide. All Rock River's tobacco products bear the tribal stamp for each
jurisdiction where its products are sold.
In 1998, Nebraska and 45 other states settled lawsuits with several
tobacco manufacturers and trade organizations. The parties' Master
Settlement Agreement (MSA) required the tobacco manufacturers to place
restrictions on tobacco product advertising and marketing, as well as make
cash payments in perpetuity to the settling states. Filing 1 at 2; see also Omaha
Tribe of Nebraska v. Miller, 311 F. Supp. 2d 816, 818 (S.D. Iowa 2004). Later,
additional tobacco manufacturers signed onto the MSA. These subsequent
3
participating manufacturers, together with the original participating
manufacturers are referred to collectively as the participating manufacturers.
Filing 1 at 2.
Not all tobacco manufacturers signed onto the MSA. Those that did not
are called non-participating manufacturers. Rock River is one such nonparticipating manufacturer. Filing 1 at 8. The settling states became concerned
that the non-participating manufacturers could avoid liability for the harm
that their tobacco products could cause, and the participating manufacturers
were concerned that the non-participating manufacturers would be able to
unfairly compete in the market without incurring costs similar to the costs
associated with participation in the MSA. Miller, 311 F. Supp. 2d at 818; filing
1 at 3. In response, the participating manufacturers and the settling states
agreed to enact variations of a model statutory scheme that imposed fees and
other regulations on non-participating manufacturers. Filing 1 at 3. Those
statutes are often referred to as qualifying or escrow statutes. Filing 1 at 9.
Nebraska enacted its version of an escrow statute in 1999. Neb. Rev.
Stat. §§ 69-2701 to 69-2703.01. Section 69-2703 essentially provided that
tobacco manufacturers selling cigarettes within the state could either join the
MSA as a participating manufacturer or be required to fund an escrow account
by placing funds into an account on a quarterly basis regarding the
manufacturer's unit sales of tobacco products. Violation of the escrow
requirements could result in civil penalties and possible exclusion from selling
tobacco products in the state.
The terms of the MSA required the settling states to diligently enforce
their escrow statute. Filing 1 at 9-10. When enforcement proved difficult, the
states enacted further model legislation referred to as the directory statute.
The purpose of this legislation was to publish a list of tobacco product
4
manufacturers and tobacco products that were in full compliance with the
escrow statute and other tobacco manufacturing and licensing laws. Filing 1
at 10. Tobacco products not on the directory list could not be sold in the state.
Nebraska's directory statute, enacted in 2003, is found at §§ 69-2704 to 692707.01. Together, the escrow and directory statutes are often referred to as
the MSA laws.
Still claiming that the settling states were not diligently enforcing the
escrow requirements, the participating manufacturers initiated an arbitration
proceeding to reduce the payments owed to the settling states. Filing 1 at 12.
Of particular concern were tobacco producer sales in Indian country. Filing 1
at 13. Some of the settling states, including Nebraska, were pressured into
including new statutory provisions aimed at the tribal tobacco business. Filing
1 at 12; see also filing 1-5.
The plaintiffs and the Tribe have always maintained that their sovereign
authority precluded the state's authority to regulate their on-reservation
tobacco manufacturing and tobacco distribution business. Filing 1 at 11. In
2011, the Nebraska Attorney General's office worked with representatives of
the tobacco manufacturers to devise model legislation aimed at regulating
tribal tobacco manufacturing and distribution, and require tribes to comply
with Nebraska's MSA laws. Filing 1-1. That same year, legislation was enacted
that purportedly brought tribal tobacco product manufacturing and
distribution within the regulations imposed by the escrow statute, but also
purported to provide a release of funds for "cigarettes sold on an Indian tribe's
Indian country to its tribal members"—but only if there was an agreement with
the Governor, in which a tribe was required to accept state regulation of the
tribe's cigarette manufacturing and distribution business. See §§ 692703(2)(b)(iv) and 77-2602.06.
5
In December 2015, the Tribe, and the plaintiffs in April 2016, entered
into an agreement of their own separate from their negotiations with the State.
This agreement is called the "Universal Tobacco Settlement Agreement." The
agreement purported to regulate cigarette sales in Indian country, as well as
create a fund that would allow the tobacco product manufacturers
participating in this new agreement to obtain a release of all claims that may
arise out of the sale of their products. Filing 1 at 11-12; filing 1-2. In addition
to regulating cigarette marketing, the agreement required the participating
tobacco product manufacturers to make quarterly payments to a settling tribe
regarding the number of cigarettes sold in that tribe's jurisdiction. Filing 1-2
at 6-7. In 2017, the Tribe received fees pursuant to the agreement totaling
$31,681.00. Filing 1 at 11-12. In addition, the Tribe imposes a tax on the sale
of cigarettes within its jurisdiction. In 2017 the Tribe collected $122,658 in
cigarette tax revenue. Id.
In 2014, at approximately the same time the Tribe was considering
participation in the Universal Tobacco Settlement Agreement, the Nebraska
Department of Revenue issued tax statements to several reservation-based
cigarette retailers. Filing 1 at 14. According to the plaintiffs, the issuance of
tax statements prompted them to engage in negotiations with the defendants
to settle their disagreement regarding whether their tobacco manufacturing
and distribution business was subject to Nebraska's MSA laws. The plaintiffs
contend that the negotiations were unsuccessful due to the defendants'
insistence that the plaintiffs were not excused from strict compliance with
Nebraska's MSA laws. The plaintiffs represent that since March 2014, they
have operated under a cloud of uncertainty regarding the threat of penalties
and retaliation by the defendants, which has created an impediment to their
business operations and ability to expand economically. Filing 1 at 15.
6
III. DISCUSSION
1. SUBJECT-MATTER JURISDICTION
The plaintiffs rely on 28 U.S.C. § 1362 and § 1331 for subject matter
jurisdiction. Section 1362 specifically pertains to Indian tribes and gives the
district courts "original jurisdiction of all civil actions brought by any Indian
tribe or band with a governing body duly recognized by the Secretary of the
Interior, wherein the matter in controversy arises under the Constitution,
laws, or treaties of the United States." Similarly, § 1331 pertains to all civil
actions and gives district courts original jurisdiction for "actions arising under
the Constitution, laws, or treaties of the United States."
There is no dispute that the plaintiffs' claims constitute a civil action
arising under the Constitution. The plaintiffs alleged that the defendants'
regulatory scheme violates both the Supremacy Clause (art. VI, cl. 2) and the
Indian Commerce Clause (art. 1 § 8, cl. 3) of the Constitution. As such, subject
matter jurisdiction pursuant to § 1331 was sufficiently pled.1
The Court finds that at a minimum, there is subject matter jurisdiction
pursuant to § 1331. Accordingly, the Court will deny the defendants' motion to
1
Regarding § 1362 subject matter jurisdiction, the defendants argue that the plaintiffs are
not "an Indian tribe or band" within the meaning of § 1362. Filing 28 at 44. However, the
defendants do not dispute that the plaintiffs are tribal businesses and that the Tribe is
federally recognized. So, the defendants' assertion that the plaintiffs are not an Indian band
or tribe is contrary to the pled facts. The plaintiffs alleged that they are incorporated under
Tribal law, are wholly owned by Ho-Chunk, and that Ho-Chunk is the economic development
arm of the Tribe. To argue that the economic arm of the Tribe is not part of the Tribe is like
arguing that the defendants, as the law enforcement arms of the State, are not the State. See
United Keetoowah Band of Cherokee Indians v. State of Okla. ex rel. Moss, 927 F.2d 1170,
1173 (10th Cir. 1991).
7
dismiss pursuant to Rule 12(b)(1) regarding a lack of subject matter
jurisdiction.
2. STANDING AND RIPENESS.
Standing is essential regarding the Article III requirement of case or
controversy. McDaniel v. Precythe, 897 F.3d 946, 950 (8th Cir. 2018). "To
demonstrate Article III standing, a plaintiff 'must have (1) suffered an injury
in fact, (2) that is fairly traceable to the challenged conduct of the defendant,
and (3) that is likely to be redressed by a favorable judicial decision.'" Id.
(quoting Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016)).
The plaintiffs allege that the defendants threaten to enforce the escrow
and directory statutes against the plaintiffs, which the plaintiffs argue
represent an unconstitutional—and therefore unlawful—interference with
their tribal sovereignty. And, violation of the escrow and directory statutes
would subject the plaintiffs to civil penalties. Pre-enforcement challenges to
governmental action may constitute an injury in fact sufficient for Article III
standing. Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334, 2342 (2014) ("[A]
plaintiff satisfies the injury-in-fact requirement where he alleges 'an intention
to engage in a course of conduct arguably affected with a constitutional
interest, but proscribed by a statute, and there exists a credible threat of
prosecution thereunder.'" (quoting Babbitt v. Farm Workers, 442 U.S. 289, 298
(1979)).
The plaintiffs sufficiently alleged facts showing a credible threat that the
defendants will seek to enforce the escrow and directory statutes if not enjoined
from so doing. The plaintiffs alleged that issuance of tax assessments to
reservation-based cigarette retailers prompted the plaintiffs to engage in
settlement discussions with the defendants, but that the discussions were
8
unsuccessful due to the defendants' insistence that the plaintiffs were not
excused from strict compliance with Nebraska's MSA laws. Filing 1 at 14.
Finally, "when a plaintiff brings a pre-enforcement challenge to the
constitutionality of a particular statutory provision, the causation element of
standing requires the named defendants to possess authority to enforce the
complained of provision." Dig. Recognition Network v. Hutchinson, 803 F.3d
952, 957-58 (8th Cir. 2015); see also Calzone v. Hawley, 866 F.3d 866, 869
(2017). The defendants are the elected officials whose offices are charged with
enforcing the escrow and directory statutes. Moreover, a decision by this Court
that the statutes violate the plaintiffs' constitutional rights would certainly
favorably redress the plaintiffs' claims. The Court finds that the plaintiffs have
Article III standing in this matter.
As a matter of completeness, the defendants' ripeness argument
concerns what is referred to as the "term sheet." The Court understands the
allegations in the plaintiffs' complaint regarding the term sheet to be that it is
evidence that Indian tribes were targets of the revisions to the MSA laws. The
term sheet does not present a claim or cause of action in and of itself. See filing
1 at 13-14, 17; see also filing 29 at 20 n.12.
3. ELEVENTH AMENDMENT SOVEREIGN IMMUNITY.
The defendants, two state officials, assert that they are immune from
suit under the Eleventh Amendment. Filing 28 at 11-12. The Eleventh
Amendment bars suits brought by private individuals against a State.
McDaniel, 897 F.3d at 951 (citing Idaho v. Coeur d'Alene Tribe of Idaho, 521
U.S. 261, 267-68 (1997)). "Under the exception established in Ex parte Young,
however, a private party may sue state officials in their official capacities for
prospective injunctive relief." McDaniel, 897 F.3d at 951-52 (citing Verizon Md.
Inc. v. Pub. Serv. Comm'n of Md., 535 U.S. 635, 645 (2002)). In assessing
9
application of the doctrine in Ex parte Young, a court should conduct a
"straightforward inquiry into whether [the] complaint alleges an ongoing
violation of federal law and seeks relief properly characterized as prospective."
Id.
The plaintiffs' complaint does not specifically identify whether the
defendants are sued in their official or individual capacity. However, the
general rule is a complaint that is silent regarding the capacity in which the
defendant is sued is interpreted as including only official-capacity claims.
Baker v. Chisom, 501 F.3d 920, 923 (8th Cir. 2007). "If the complaint does not
specifically name the defendant in his individual capacity, it is presumed he is
sued only in his official capacity." Id.
Even without application of the general rule, it is clear the plaintiffs
intended to sue the defendants in their official capacity. In the section of the
plaintiffs' complaint where the parties are identified, defendant Peterson was
not identified as an individual but identified as the Nebraska Attorney
General. Filing 1 at 6. Defendant Fulton was also not identified as an
individual but identified as the Nebraska Tax Commissioner. Id. Both
defendants are alleged to be "charged with enforcing Nebraska's MSA laws."
Filing 1 at 6. Importantly, the plaintiffs only seek prospective injunctive relief
from the defendants' enforcement of Nebraska's MSA laws.
The plaintiffs' claims fit the analysis required for application of the Ex
parte Young doctrine. The plaintiffs pray to enjoin the defendants from
enforcing state laws that interfere with the Tribe's constitutionally protected
sovereignty. "The prayer for injunctive relief—that state officials be restrained
from enforcing an order in contravention of controlling federal law—clearly
satisfies our 'straightforward inquiry.'" Verizon Md. Inc., 535 U.S. at 645. The
10
Court finds that the defendants are not shielded by Eleventh Amendment
immunity.
4. SUPREMACY CLAUSE AND INDIAN COMMERCE CLAUSE.
Although the plaintiffs' complaint references separate Supremacy
Clause and Indian Commerce Clause causes of action, the claims as pled
bootstrap each other. Essentially, the plaintiffs allege that the defendants'
regulatory scheme violates the Supremacy Clause because the scheme violates
the Indian Commerce Clause. Filing 1 at 15-16. Thus, analysis of the
defendant's motion to dismiss the plaintiffs' Indian Commerce Clause claims
will resolve both constitutional claims.
Pursuant to the Indian Commerce Clause,2 Congress has broad powers
to regulate tribal affairs.
This congressional authority and the semi-independent position of
Indian tribes have given rise to two independent but related
barriers to the assertion of state regulatory authority over tribal
reservations and members. First, the exercise of such authority
may be pre-empted by federal law. Second, it may unlawfully
infringe on the right of reservation Indians to make their own laws
and be ruled by them.
White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 142 (1980) (quotations
omitted). The parties appear to agree, as does the Court, that Congress has not
enacted comprehensive cigarette manufacturing and distribution legislation
2
"Congress shall have Power . . . To regulate Commerce with foreign Nations, and among the
several States and with the Indian Tribes." U.S. Const. art 1, § 8, cl. 3.
11
that would preempt state regulations. Thus, the issue is whether the state
regulatory scheme in this matter constitutes an unlawful infringement on the
right of the tribe to make and be ruled by its own laws.
In considering whether a state enactment represents an unlawful
infringement of a tribe's sovereignty, a distinction is drawn between state
regulation of tribal activities and taxation of a tribe or tribe member.
Oklahoma Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 458 (1995).
Additionally, when the challenge involves a tax, "the 'who' and the 'where' of
the challenged tax have significant consequences." Wagon v. Prairie Band
Potawatomi Nation, 546 U.S. 95, 101 (2005).
When the issue is state regulation of tribal affairs, a balance of federal,
state and tribal interests is engaged. "Under certain circumstances a State
may validly assert authority over the activities of non-members on a
reservation, and in exceptional circumstances a State may assert jurisdiction
over the on-reservation activities of tribal members." California v. Cabazon
Band of Mission Indians, 480 U.S. 202, 215 (1987) (quoting New Mexico v.
Mescalero Apache Tribe, 462 U.S. 324, 331-32 (1983)). States generally have
the authority to require tribes to collect lawful taxes, such as sales taxes, from
non-tribal members' activities on tribal lands. See Moe v. Confederated Salish
& Kootenai Tribes, 425 U.S. 463, 483 (1976); Washington v. Confederated
Tribes of the Colville Indian Reservation, 447 U.S. 134, 150-51 (1980); Dep't of
Taxation & Fin. of N.Y. v. Milhelm Attea & Bros., Inc., 512 U.S. 61, 68 (1994).
In these situations, the legal incidence of the tax is on the consumer to pay the
sales tax, and the tribal business is merely collecting the tax for the state.
States may also impose a regulatory burden on a tribe to keep extensive
records of cigarette sales, as a state has a valid interest in ensuring compliance
12
with lawful taxes that might otherwise be evaded. Milhelm Attea, 512 U.S. at
62.
Regarding regulations pertaining to tribal members on the reservation,
"[w]hen on-reservation conduct involving only Indians is at issue, state law is
generally inapplicable, for the State's regulatory interest is likely to be
minimal and the federal interest in encouraging tribal self-government is at
its strongest." Bracker, 448 U.S. at 144. However, "when Indians ('who') act
outside of their own Indian country ('where'), including within the Indian
country of another tribe, they are subject to non-discriminatory state laws
otherwise applicable to all citizens of the state." Muscogee (Creek) Nation v.
Pruitt, 669 F.3d 1159, 1172 (10th Cir. 2012).
State taxation levied on a tribe or tribe member on the tribe's reservation
is more categorical. "[A] State is without power to tax reservation lands and
reservation Indians. Taking this categorical approach, we have held
unenforceable a number of state taxes whose legal incidence rested on a tribe
or on tribal members inside Indian country." Chickasaw Nation, 515 U.S. at
458 (citation omitted).
If the legal incidence of an excise tax rests on a tribe or on tribal
members for sales made inside Indian country, the tax cannot be
enforced absent clear congressional authorization. But if the legal
incidence of the tax rests on non-Indians, no categorical bar
prevents enforcement of the tax; if the balance of federal, state and
tribal interests favors the State, and federal law is not to the
contrary, the State may impose its levy[.]
Id. at 459 (citation omitted).
13
On a motion to dismiss pursuant to Rule 12(b)(6), the non-moving party
is entitled to all inferences in fact and law. Gallagher v. City of Clayton, 699
F.3d 1013, 1016 (8th Cir. 2012). With the requisite standard of review in mind,
the Court finds that the escrow requirement found in § 69-2703 could be viewed
as imposing a tax. The Court acknowledges that both parties argue the MSA
laws, and specifically the escrow requirement, is not a tax. But, the Court
concludes, that determination can only be made upon a full and complete
evidentiary record. As this matter currently stands, on the plaintiffs' complaint
alone, the Court finds that the escrow requirement could be viewed as a tax,
the legal incidence of which rests, at least in part, on the plaintiffs in tribal
territory and therefore cannot be enforced absent clear congressional
authorization. See Chickasaw Nation, 515 U.S. at 458. Moreover, to the extent
that the legal incidence of the tax is on a non-Indian or non-tribal member,
"the tax may nonetheless be pre-empted if the transaction giving rise to tax
liability occurs on the reservation and the imposition of the tax fails the
[Bracker interest-balancing test]." Prairie Band Potawatomi Nation, 546 U.S.
at 102.
"A 'tax' is an enforced contribution to provide for the support of
government." United States v. La Franca, 282 U.S. 568, 572 (1931). "[A]n
involuntary exaction, levied for a governmental or public purpose, can be held
to be nothing other than a tax within the purview of the Federal bankruptcy
act." Michigan Emp't Sec. Comm'n v. Patt, 144 N.W.2d 663, 665 (Mich. Ct. App.
1966) (contributions to a fund required by Employment Security Act deemed a
tax). "[A] shared responsibility payment may for constitutional purposes be
considered a tax, not a penalty." Nat. Fed'n. of Indep. Bus. v. Sebelius, 567 U.S.
519, 566 (2012) (concluding that the Affordable Care Act's individual mandate
was a tax).
14
Arguably, the escrow statute requires non-participating manufacturers
to make a "shared responsibility payment" into a qualified escrow fund. "Any
tobacco product manufacturer selling cigarettes to consumers within the state"
are required to become a participating member of the MSA or "[p]lace into a
qualified escrow fund on a quarterly basis" a statutorily mandated monetary
contribution based on the number of cigarette "units sold." §§ 69-2703(1) &
(2)(a). The purpose for the qualified escrow fund is "[t]o pay a judgment or
settlement on any released claim brought against such tobacco product
manufacturer by the state or any releasing party located or residing in the
state." § 69-2703(2)(b)(i).
Not only may the escrowed funds inure to the benefit of the state or
residents of the state, but the non-participating manufacturer is denied access
to the escrowed funds' principal,3 with certain limited exceptions.
Qualified escrow fund means an escrow arrangement with a
federally or state-chartered financial institution . . . where such
arrangement requires that such financial institution hold the
escrowed funds' principal for the benefit of releasing parties and
prohibits the tobacco product manufacturer that places such funds
into escrow from using, accessing, or directing the use of the funds'
principal.
§ 69-2702(10).
3
Funds are released to satisfy judgments or settlements "in the order in which they were
placed into escrow." § 69-2703(2)(b)(i). After a quarterly contribution has been in escrow for
25 years, if not released due to satisfaction of a judgment or settlement, that quarterly
contribution will revert-back to the tobacco product manufacturer. § 69-2703(2)(b)(iii).
15
One of the limited exceptions allowing access to an escrow funds'
principal concerns Indian tribes. A tribe "may seek release of escrow deposited
pursuant to this section on cigarettes sold on an Indian tribe's Indian country
to its tribal members." § 69-2703(2)(b)(iv). However, the release is conditioned
on the existence of an agreement with the state in which the tribe agrees to
significant state regulatory control and a limited waiver of the tribe's sovereign
immunity. See § 77-2602.06.
Moreover, the directory statute incorporates the taxation features of the
escrow statute by requiring "[e]very tobacco product manufacturer whose
cigarettes are sold in this state" and who is a non-participating manufacturer
to certify that it has "established and continues to maintain a qualified escrow
fund that has been reviewed and approved by the Attorney General." And, each
such non-participating manufacturer must certify it "is in full compliance" with
the requisite quarterly contributions to its qualified escrow fund. § 692706(1)(d)(iii).
It is true that the MSA laws on the whole are regulatory. Indeed, the
directory statute incorporates participation in the escrow statutory scheme by
reference, but otherwise, on its own, does not impose payment into a fund
available for the state to use as it sees fit. But that does not exclude the
possibility that the escrow provision effects a tax on the tribal tobacco products
manufacturers. "'Every tax is in some measure regulatory. To some extent it
interposes an economic impediment to the activity taxed as compared with
others not taxed.'" Nat. Fed'n. of Indep. Business, 567 U.S. at 567.
Again, both parties argue that the MSA laws do not impose a tax. But
even if the MSA laws better fit the paradigm of a regulatory scheme, the laws
would be subject to review pursuant to the Bracker interest-balancing test. See
Cabazon Band of Mission Indians, 480 U.S. at 215. Thus, whether framed as
16
taxation or as regulatory, the facts alleged in the complaint would allow the
Court to conclude that Nebraska's MSA laws infringe on "the right of
reservation Indians to make their own laws and be ruled by them." Bracker,
448 U.S. at 142. What is clear is that the plaintiffs' Indian Commerce Clause
claims may not be resolved on a summary basis. Resolution of the issues
concerning Indian country and tribal member taxation and regulation are
exceedingly complex and context-dependent. The Court cannot determine
whether the MSA laws impose a tax or regulation, or both, or the extent to
which the tax or regulations interfere with a tribe's right to make and be ruled
by its own laws, on the plaintiffs' complaint standing alone. The Court
anticipates that a full evidentiary record will be required before it may
undertake a complete resolution of the parties' claims and contentions
pursuant to the Indian Commerce Clause. Accordingly, the Court finds that
the plaintiffs have alleged a plausible factual basis to give rise to a claim
pursuant to the Indian Commerce Clause.
5. EQUAL PROTECTION
Plaintiffs allege that the "State of Nebraska" has "targeted Indian tribes
and reservation Indians for increased scrutiny and increased legal burdens
under its MSA laws." Filing 1 at 17. The Equal Protection Clause generally
requires the government to treat similarly situated people alike. City of
Cleburne v. Cleburne Living Ctr., Inc. 473 U.S. 432, 439 (1985). Accordingly,
the first step in an equal protection analysis in this matter is determining
whether the plaintiffs have alleged facts showing they are treated differently
than other tobacco product manufacturers. See Klinger v. Dept. of Corrections,
31 F.3d 727, 731 (8th Cir. 1994).
The plaintiffs allege that Indian tribal sovereignty requires that they
must be treated differently from all other tobacco product manufacturers. As
17
such, the plaintiffs' claim is the exact opposite of an equal protection claim.
The plaintiffs claim that the Indian Commerce Clause and Indian tribal
sovereign immunity require their disparate treatment from all other tobacco
product manufacturers, and that they are entitled to have this disparate
treatment continue.
Although dissimilar to the model MSA statutes enacted by other states,
Nebraska's MSA laws—in the same manner as other State's MSA laws—seeks
to treat all tobacco product manufacturers alike, yet give some degree of
deference to an Indian tribe's tobacco product manufacturing business. The
deference is due to an Indian tribe's sovereignty. Because the plaintiffs'
complaint seeks to achieve greater disparate treatment from other tobacco
product manufacturers by enjoining the application of Nebraska's MSA laws
with respect to its tobacco product manufacturing, the Court finds that
plaintiffs failed to allege an equal protection violation. That claim will be
dismissed.
IT IS ORDERED:
1.
The defendants' motion to dismiss (filing 27) is granted in
part and in part denied.
2.
The plaintiffs' equal protection claim is dismissed.
3.
This matter is referred to the Magistrate Judge for case
progression.
18
Dated this 19th day of December, 2018.
BY THE COURT:
John M. Gerrard
Chief United States District Judge
19
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