State of New York v. Mountain Tobacco Company et al
Filing
214
MEMORANDUM & ORDER granting in part and denying in part 195 Motion for Partial Summary Judgment; granting in part and denying in part 197 Motion for Summary Judgment; granting in part and denying in part 198 Motion for Summary Judgment. Fo r the foregoing reasons, King Mountain's motion for summary judgment (Docket Entry 195) is GRANTED IN PART AND DENIED IN PART and the State's motion for summary judgment (Docket Entries 197 and 198) is GRANTED IN PART AND DENIED IN PAR T. Summary judgment is GRANTED in favor of King Mountain on the State's first claim under the CCTA. Summary judgment on the second claim under the PACT Act is DENIED regarding the 2010 sale to Valvo Candies and GRANTED in favor of King M ountain as to the balance of the State's PACT Act claim. With respect to the State's third claim under NYTL Sections 471 and 471-e, summary judgment is GRANTED in favor of King Mountain regarding King Mountain's alleged possessio n of unstamped cigarettes in New York State and GRANTED in favor of the State regarding King Mountain's failure to sell its unstamped cigarettes to licensed stamping agents. Summary judgment is GRANTED in favor of the State on its fourth cla im pursuant to Section 480-b. With respect to the State's fifth claim, summary judgment is GRANTED in favor of the State regarding its claim that King Mountain failed to file certifications pursuant to New York Executive Law Section 156-c and DENIED as to its claim that King Mountain failed to affix the Fire Standards Compliant mark to its cigarette packages. So Ordered by Judge Joanna Seybert on 7/21/2016. C/ECF (Valle, Christine)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------X
STATE OF NEW YORK,
Plaintiff,
MEMORANDUM & ORDER
12-CV-6276(JS)(SIL)
-against–
MOUNTAIN TOBACCO COMPANY, d/b/a
KING MOUNTAIN TOBACCO COMPANY, INC.,
Defendant.
---------------------------------------X
APPEARANCES:
Plaintiff:
Christopher K. Leung, Esq.
Dana H. Biberman, Esq.
NYS Office of the Attorney General
120 Broadway, 3rd Floor
New York, NY 10271
For Defendant:
Nelson A. Boxer, Esq.
Jill C. Barnhart, Esq.
Petrillo Klein & Boxer LLP
655 3rd Avenue, 22nd Floor
New York, NY 10017
Kelli J. Keegan, Esq.
Randolph Barnhouse, Esq.
Johnson Barnhouse & Keegan LLP
7424 4th St NW
Los Ranchos De Albuq, NM 87107
SEYBERT, District Judge:
Presently
pending
before
the
Court
are
defendant
Mountain Tobacco Company’s (“King Mountain”) motion for partial
summary judgment (Docket Entry 195) and plaintiff State of New
York’s (the “State”) cross motion for summary judgment (Docket
Entries 197 and 198 1).
For following reasons, the parties’ motions
are both GRANTED IN PART and DENIED IN PART.
BACKGROUND 2
King
Mountain,
a
for-profit
corporation
formed
and
operating under the laws of the Yakama Indian Nation, manufactures
and sells its own brand of cigarettes.
Entry 195-5, ¶¶ 28, 30.) 3
(Pl.’s 56.1 Stmt., Docket
King Mountain’s principal place of
business is located on the Yakama Indian Nation Reservation.
(Pl.’s 56.1 Stmt. ¶ 32.)
Delbert Wheeler, Sr., an enrolled member
of the Yakama Nation, is the sole owner of King Mountain.
(Pl.’s
56.1 Stmt. ¶¶ 35, 39.)
The
State
alleges
that
King
Mountain
has
marketed,
distributed, and sold its cigarettes in New York since at least
1
The State filed its cross motion for summary judgment at Docket
Entry 197. However, the State also filed a motion for leave to
electronically file under seal and a motion for summary judgment
at Docket Entry 198. These two docket entries contain the same
dispositive motion.
2
The following material facts are drawn from King Mountain’s
Local Civil Rule 56.1 Statement and the State’s Local Civil Rule
56.1 Counterstatement unless otherwise noted. Any relevant
factual disputes are noted.
3
As set forth more fully in the transcript of the proceedings
held on April 8, 2016, the Court granted King Mountain’s motion
to strike the State’s Local Rule 56.1 Statement dated January
29, 2016 (the “January 56.1 Statement”). (Docket Entry 197-2.)
Accordingly, the Court will not consider the January 56.1
Statement, or the portion of the State’s memorandum of law that
relies upon additional facts set forth in the January 56.1
Statement.
2
June 1, 2010.
(Pl.’s 56.1 Stmt. ¶ 52.)
King Mountain denies that
allegation, (Def.s’ 56.1 Counterstmt., Docket Entry 195-6, ¶ 52),
but alleges that it “sells its cigarettes to Indian Nations, and
to companies owned by a member of an Indian Nation, that are
situated on Indian Nations, some of which are located within the
boundaries of the State of New York[,]” (Def.s’ Sec. 56.1 Stmt.,
Docket
Entry
195-3,
¶
13).
Nevertheless,
King
Mountain
has
conceded that it sold cigarettes to Valvo Candies, an entity that
is not owned by an Indian Nation or tribe or a member of an Indian
Nation or tribe.
(Def.’s Br., Docket Entry 195-1, at 9, n.4.)
The State alleges that Valvo Candies is not located on a qualified
Indian
reservation
and
is
Chautauqua County, New York.
instead
located
in
Silver
Creek,
(Pl.’s 56.1 Stmt. ¶¶ 53(l), 54(a).) 4
It is undisputed that King Mountain has not filed reports or
registrations with the New York State Department of Taxation and
Finance (“DTF”).
(Def.’s Sec. 56.1 Stmt. ¶ 23.)
On November 6, 2012, a New York State investigator
purchased one carton of unstamped King Mountain brand cigarettes
for twenty-five dollars at a smoke shop located on the Poospatuck
Indian Reservation in Mastic, New York.
4
(Def.’s Sec. 56.1 Stmt.
King Mountain does not deny that Valvo Candies is not located
on a qualified Indian reservation and instead asserts that this
allegation is based on evidence not produced in discovery and
constitutes a “purported legal conclusion that does not require
a factual response.” (Def.’s 56.1 Counterstmt. ¶¶ 54(a)-(b).)
3
¶ 25.)
On December 3, 2012, New York State troopers stopped a
truck in Clinton County, New York, and seized one hundred and forty
cases of unstamped King Mountain brand cigarettes.
56.1 Stmt. ¶ 26.)
(Def.’s Sec.
The cigarettes were being transported by ERW
Wholesale to the Ganienkeh Nation in Altona, New York.
(Def.’s
Sec. 56.1 Stmt. ¶ 26(a).)
On May 15, 2013, a New York State investigator purchased
cartons of unstamped King Mountain brand cigarettes at smoke shops
located on the Poospatuck Indian Reservation in Mastic, New York.
(Def.’s Sec. 56.1 Stmt. ¶ 27.)
On May 16, 2013, a New York State
investigator purchased one carton of unstamped King Mountain brand
cigarettes for twenty dollars at a smoke shop located on the Cayuga
Indian Reservation in Union Springs, New York.
Stmt. ¶ 29.)
(Def.’s Sec. 56.1
On June 5, 2013, a New York State investigator
purchased two cartons of unstamped King Mountain brand cigarettes
at smoke shops located on the Poospatuck Indian Reservation.
(Def.’s Sec. 56.1 Stmt. ¶ 30.)
The Administrative Proceeding
A.
On
December
20,
2012,
DTF
issued
a
Notice
of
Determination against King Mountain in connection with cigarettes
seized
on
December
3,
2012
(the
(Def.’s Sec. 56.1 Stmt. ¶ 26(c).)
“Notice
of
Determination”).
The Notice of Determination
alleged that King Mountain failed to pay $1,259,250.00 in state
4
taxes pursuant to New York State Tax Law Article 20.
(Def.’s Sec.
56.1 Stmt. ¶ 26(c).)
On
October
23,
2014,
DTF
filed
a
Stipulation
of
Discontinuance stating that King Mountain owed $0 in tax, penalty,
and interest in connection with the Notice of Determination (the
“Stipulation
¶ 26(d).)
of
Discontinuance”).
(Def.’s
Sec.
56.1
Stmt.
On November 19, 2014, the presiding Administrative Law
Judge issued an Order decreeing that the State’s assessment against
King Mountain was cancelled and dismissed with prejudice.
(Def.’s
Sec. 56.1 Stmt. ¶ 26(e).)
I.
The Amended Complaint
The Amended Complaint dated May 21, 2014 5 asserts claims
pursuant to the Contraband Cigarette Trafficking Act (“CCTA”),
Prevent All Cigarette Trafficking Act (“PACT Act”), New York Tax
Law §§ 471, 471-e, and 480-b, and New York Executive Law § 156-c
against King Mountain. 6
(Am. Compl., Docket Entry 96.)
The State
5
The State initially filed an unsigned Amended Complaint on
February 13, 2013. (Docket Entry 6.) The Amended Complaint was
subsequently signed and refiled on May 21, 2014. (Docket Entry
96.)
6
Mountain Tobacco Distributing Company Inc., and Delbert
Wheeler, Sr. were also named as defendants in this action. (Am.
Compl.) The State voluntarily dismissed Mountain Tobacco
Distributing Company Inc. as a defendant pursuant to an Amended
Notice of Dismissal, So Ordered on May 9, 2013. (Docket Entry
45.) Mr. Wheeler was terminated as a defendant pursuant to the
Court’s Memorandum and Order dated January 26, 2016, granting
Mr. Wheeler’s motion to dismiss. (Docket Entry 193.)
5
seeks
to
enjoin
King
Mountain
from
making
allegedly
illegal
cigarette sales and shipments into New York and also seeks civil
penalties, attorney fees, and costs.
II.
(Am. Compl. ¶ 3.)
The Pending Motions
On January 29, 2016, King Mountain filed a motion for
partial summary judgment and the State filed a cross motion for
summary judgment.
Docket Entry 197.)
(Def.’s Mot., Docket Entry 195; Pl.’s Mot.,
The State and King Mountain each filed one
brief in support of their respective motions and a separate brief
in opposition to their adversary’s motion.
The parties each filed
a reply brief, as well as supplemental briefs in response to the
Court’s Electronic Order dated May 4, 2016. As the parties’ briefs
are somewhat duplicative, the Court will address the relevant
arguments by party, rather than by motion sequence.
A.
King Mountain’s Position
King
Mountain
has
moved
for
summary
judgment
with
respect to the State’s claims under the CCTA, PACT Act, and New
York Tax Law (“NYTL”) Sections 471 and 471-e.
Def.’s Br.)
(See generally
King Mountain argues that the State’s CCTA claim must
fail because, inter alia, it is exempt as an “Indian in Indian
country.”
(Def.’s Br. at 12, 14-16.)
King Mountain avers that it
is not asserting a sovereign immunity defense and the State’s focus
on tribal sovereign immunity is, accordingly, irrelevant.
Opp. Br., Docket Entry 202, at 3.)
6
(Def.’s
King Mountain alleges that it is entitled to summary
judgment on the PACT Act claim because its sale of cigarettes to
Native Americans did not take place in “interstate commerce” as
defined by the Act.
(Def.’s Br. at 17.)
King Mountain argues
that the PACT Act’s definition of “State” does not encompass
“Indian Country” and cites to the distinct definitions provided
for each term.
(Def.’s Opp. Br. at 11.)
Although King Mountain
concedes that it sold cigarettes to Valvo Candies on one occasion,
it alleges that was an isolated sale that predated the effective
date of the PACT Act.
(Def.’s Br. at 19.)
King Mountain alleges that the State’s third cause of
action is barred by res judicata based on the prior Tax Proceeding.
(Def.’s Br. at 20-25.)
With respect to the merits, King Mountain
argues that it is not liable under NYTL Sections 471 and 471-e
because: (1) it did not possess unstamped cigarettes in New York
State; and (2) Section 471 does not impose liability on a lawful
out-of-state cigarette manufacturer because it is not an “agent”
or “consumer” as defined by the statute.
(Def.’s Opp. Br. at 20.)
King Mountain alleges that “nothing in the law precludes King
Mountain from selling to Indian Nations, who could then sell those
cigarettes to licensed-stamping agents.”
(Def.’s Opp. Br. at 21.)
King Mountain also argues that summary judgment should
be denied with respect to the State’s fourth and fifth causes of
action.
(Def.’s Opp. Br. at 22-23.)
7
King Mountain avers that it
did not knowingly violate NYTL Section 480-b because its sales
were “Nation to Nation” with one exception.
22-23.)
(Def.’s Opp. Br. at
King Mountain also argues that the record demonstrates
that it affixed the requisite Fire Standard Compliant (“FSC”) stamp
to its cigarettes.
B.
(Def.’s Opp. Br. at 23.)
The State’s Position
The State moves for summary judgment on all of its
claims.
(See generally Pl.’s Br., Docket Entry 197-1.)
With
respect to the CCTA, the State argues that the “Indian in Indian
Country” exemption is not applicable to King Mountain.
Opp. Br., Docket Entry 201, at 6.)
(Pl.’s
Particularly, the State argues
that the CCTA’s use of the term “Indian” refers to an individual
member of a tribe, not an Indian-owned business.
at 6-7.)
(Pl.’s Opp. Br.
Additionally, the State alleges that even if King
Mountain is an “Indian in Indian Country,” the CCTA exemption still
does not apply because that exemption is meant to protect tribal
governments and tribal sovereignty.
The
State
argues
that
(Pl.’s Opp. Br. at 7-8.)
King
Mountain’s
arguments
regarding the PACT Act are founded in a misreading of the statute.
(Pl.’s Opp. Br. at 12.)
The State alleges that the term “state”
in the PACT Act does not exclude Indian reservations because
pursuant to federal common law, “Indian country is ordinarily
considered a part of a state’s territory.”
12.)
(Pl.’s Opp. Br. at
The State also avers that King Mountain’s interpretation of
8
the PACT Act would defeat the statutory purpose of defeating remote
sellers from selling untaxed cigarettes.
(Pl.’s Br. at 28.)
The State alleges that King Mountain is liable under
NYTL Sections 471 and 471-e for shipping unstamped cigarettes into
New York State.
(Pl.’s Br. at 30.)
The State also argues that
res judicata does not bar its claim because: (1) the underlying
facts of the Tax Proceeding do not arise out of the same series of
transactions as the underlying facts in this case; (2) the Tax
Department and Attorney General are not in privity; and (3) King
Mountain waived any res judicata defense by failing to assert it
in its Answer.
(Pl.’s Opp. Br. at 15-25.)
Further, the State
avers that the DTF rules provide that a stipulation cannot be used
against the parties in another proceeding.
The State notes that
the Tax Proceeding only addressed cigarettes seized by the State
on December 1, 2012.
(Pl.’s Br. at 32.)
The State also alleges, with respect to its fourth and
fifth
claims,
certifications
that
in
King
Mountain
violation
of
NYTL
failed
to
file
Section
480-b,
annual
and
King
Mountain has violated the fire prevention certification filing
requirement set forth in New York Executive Law Section 156-c.
(Pl.’s Br. at 33-34.)
DISCUSSION
Summary
judgment
will
be
granted
where
the
movant
demonstrates that there is “no genuine dispute as to any material
9
fact and the movant is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a).
A genuine factual issue exists where “the
evidence is such that a reasonable jury could return a verdict for
the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248, 106 S. Ct. 2505, 2510 91 L. Ed 2d 202 (1986).
In
determining whether an award of summary judgment is appropriate,
the
Court
considers
the
pleadings,
deposition
testimony,
interrogatory responses, and admissions on file, together with
other firsthand information that includes but is not limited to
affidavits.
Nnebe v. Daus, 644 F.3d 147, 156 (2d Cir. 2011).
The movant bears the burden of establishing that there
are no genuine issues of material fact.
Gallo v. Prudential
Residential Servs., L.P., 22 F.3d 1219, 1223 (2d Cir. 1994).
Once
the movant makes such a showing, the non-movant must proffer
specific facts demonstrating “a genuine issue for trial.”
Giglio
v. Buonnadonna Shoprite LLC, No. 06-CV-5191, 2009 WL 3150431, at
*4 (E.D.N.Y. Sept. 25, 2009) (internal quotation marks and citation
omitted).
Conclusory allegations or denials will not defeat
summary judgment.
Id.
However, in reviewing the summary judgment
record, “‘the court is required to resolve all ambiguities and
draw all permissible factual inferences in favor of the party
against whom summary judgment is sought.’”
Sheet Metal Workers’
Nat’l Pension Fund v. Vadaris Tech. Inc., No. 13-CV-5286, 2015 WL
10
6449420, at *2 (E.D.N.Y. Oct. 23, 2015) (quoting McLee v. Chrysler
Corp., 109 F.3d 130, 134 (2d Cir. 1997)).
I.
Federal Claims
A.
Contraband Cigarette Trafficking Act
The CCTA mandates that “[i]t shall be unlawful for any
person
knowingly
distribute,
or
to
ship,
purchase
smokeless tobacco.”
transport,
contraband
receive,
cigarettes
18 U.S.C. § 2342(a).
possess,
or
sell,
contraband
“Contraband cigarettes”
are defined as 10,000 or more cigarettes that “bear no evidence of
the payment of applicable State or local cigarette taxes in the
State or locality where the cigarettes are found, if the State or
local government requires a stamp . . . to be placed on packages
or other containers of cigarettes to evidence payment of cigarette
taxes.”
read
18 U.S.C. § 2341(2).
together
violation:
(1)
to
establish
knowingly
CCTA Sections 2341 and 2342 can be
the
following
shipping,
elements
transporting,
of
a
CCTA
receiving,
possessing, selling, distributing, or purchasing (2) in excess of
10,000 cigarettes (3) that are not stamped (4) “under circumstances
where state or local cigarette tax law requires the cigarettes to
bear such stamps.”
City of N.Y. v. Golden Feather Smoke Shop,
Inc., No. 08-CV-3966, 2009 WL 705815, at *11 (E.D.N.Y. Mar. 16,
2009) (citation omitted).
A CCTA exemption exists for “Indians in Indian Country.”
Specifically, Section 2346 provides that “[n]o civil action may be
11
commenced under this paragraph against an Indian tribe or an Indian
in Indian country.”
18 U.S.C. § 2346(b)(1).
See also City of
N.Y. v. Milhelm Attea & Bros., Inc., 550 F. Supp. 2d 332, 346
(E.D.N.Y. 2008) (noting that the 2006 amendments to the CCTA
“provide that no civil action may be commenced by a state or local
government against an Indian tribe or an Indian in Indian country
for
violations
as,
inter
of
alia,
reservation
the
CCTA”).
“all
under
land
the
Government.”
“Indian
within
the
jurisdiction
Country”
limits
of
the
18 U.S.C. § 1151(a).
of
is
defined
any
United
Indian
States
The CCTA does not
define the term “Indian.”
The
parties
do
not
dispute
that
King
Mountain
is
organized under the laws of the Yakama Nation; wholly owned by Mr.
Wheeler, a member of the Yakama Nation; and located on the Yakama
Indian Reservation.
Nevertheless, the State argues that King
Mountain is not an “Indian” and, thus, is not entitled to the
“Indian in Indian Country” exemption.
The Court disagrees.
The principles of corporate “personhood” support the
notion that King Mountain is an “Indian” for purposes of the CCTA.
In an analogous matter, the Supreme Court held that the Religious
Freedom
2000bb
Restoration
et.
seq.,
Act
which
of
1993
(“RFRA”),
prohibits
the
42
U.S.C.
government
§
from
“‘substantially burden[ing] a person’s exercise of religion,’”
applies
to
the
activities
of
12
closely-held
for-profit
corporations.
Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct.
2751, 2754, 189 L. Ed. 2d 675 (2014) (quoting 42 U.S.C. § 2000bb1(a); first alteration in original, emphasis supplied). 7
In Hobby
Lobby, for-profit closely-held corporations challenged certain
regulations promulgated by the Department of Health and Human
Services (“HHS”) that required that the corporations provide their
employees with health insurance coverage for all FDA-approved
contraceptive
methods.
The
corporations
argued
that
these
regulations compromised their religious belief that human life
begins at conception because four FDA-approved contraceptives “may
operate after the fertilization of an egg.”
Id., 134 S. Ct. at
2764-66.
The Supreme Court looked to the Dictionary Act, 1 U.S.C.
Section 1, to determine whether the subject provision of the RFRA-which addresses a “‘person’s’ exercise of religion . . . [but]
does not define the term ‘person’”--is applicable to for-profit
corporations.
Id. at 2768 (quoting 42 U.S.C. ¶ 2000bb-1(a)).
The
Court held that there was no evidence of congressional intent to
depart from the Dictionary Act’s definition of “person,” which
7
The RFRA further provides that “[i]f the Government
substantially burdens a person’s exercise of religion . . .
that person is entitled to an exemption from the rule unless
the Government ‘demonstrates that application of the burden to
the person--(1) is in furtherance of a compelling governmental
interest; and (2) is the least restrictive means of furthering
that compelling governmental interest.’” Hobby Lobby, 134 S.
Ct. at 2761 (quoting 42 U.S.C. § 2000bb-1(b)).
13
“‘include[s]
corporations,
companies,
associations,
firms,
partnerships, societies, and joint stock companies, as well as
individuals.’”
original).
Id.
(quoting
1.
U.S.C.
§
1;
alteration
in
In concluding that a federal regulation’s restriction
on a for-profit closely held corporation is subject to the RFRA,
the
Court
noted
that
“[a]
corporation
is
simply
a
form
of
organization used by human beings to achieve desired ends. . .
[and] [w]hen rights, whether constitutional or statutory, are
extended to corporations, the purpose is to protect the rights of
these people.” 8
Id. at 2768, 2774.
Here, the CCTA neither defines “Indian” nor limits the
term
“Indian”
to
individual
Native
Americans.
The
State
essentially argues that if Congress wanted to include Indian-owned
businesses within the purview of the CCTA’s “Indian in Indian
Country” exemption it would have expressly done so.
Br. at 6-7.)
(Pl.’s Opp.
The State notes that other statutes provide distinct
definitions for “Indian” and “Indian-owned business,” or define
“Indian” as “‘a person who is a member of an Indian tribe.’”
(See
Pl.’s Opp. Br. at 6-7 (quoting 20 U.S.C. § 80q-14(7)).)
However,
the converse of the State’s argument is more persuasive.
Congress
did
not
limit
the
“Indian
in
8
Indian
Country”
exemption
Ultimately, the Hobby Lobby Court held that the contraceptive
mandate violated the RFRA as applied to closely-held
corporations. Id. at 2785.
14
to
individuals.
Further, while the Dictionary Act does not define
the term “Indian,” that term is akin to the term “person,” which,
as previously noted, encompasses corporations and companies as
well as individuals.
1 U.S.C. § 1.
As King Mountain is organized
under the laws of the Yakama Nation, it is an “Indian” just as a
corporation organized under the laws of the State of Delaware is
a “citizen” of Delaware.
Parenthetically, the “personhood” rights that have been
conferred to corporations--i.e., the protections of the First
Amendment, see Citizens United v. Fed. Election Comm’n, 558 U.S.
310, 130 S. Ct. 876, 175 L. Ed. 2d 753 (2010)--lend support to the
notion that an Indian-owned corporation organized under Indian law
qualifies as an “Indian” for the purposes of the CCTA’s “Indian in
Indian Country” exemption.
The State’s argument that “Congress simply intended this
[CCTA] exemption to protect only ‘tribal sovereignty’ and the
limited interests implicated under the doctrine,” is founded in a
misreading of the statute.
(Pl.’s Br. at 17.)
This District has
rejected an attempt to conflate the “Indian in Indian country”
exemption with the concept of sovereign immunity, holding that the
question of whether a non-party Indian Nation may assert sovereign
immunity has no relation to “whether the[ ] defendants fall within
the
statutory
exemption
applicable
15
to
‘Indian[s]
in
Indian
country.’”
Golden
Feather,
2009
WL
705815,
at
*12
(second
alteration in original).
Further,
the
State’s
assertion
that
the
legislative
history of the 2006 amendment that included the “Indian in Indian
Country” exemption indicates that “Congress’ intention in creating
this exemption was to protect only ‘tribal governments and tribal
sovereignty’” is equally misplaced.
(Pl.’s Opp. Br. at 9.)
The legislative history of the 2006 amendments to the
CCTA indicates that Congress sought to strengthen the statute with
modifications that included lowering the violation threshold from
60,000 cigarettes to 10,000 cigarettes in order to prevent criminal
organizations and terrorist groups from funding their activities
by purchasing cigarettes in a low excise-tax state and selling
them in a high excise-tax state. 9
151 CONG. REC. H6273-04, (daily
ed. July 21, 2005) (Statement of Rep. Coble), 2005 WL 1703380, at
*H6284.
The legislative history notes that the amendment, as
initially
drafted,
“could
have
had
the
unintended
effect
of
targeting tribal governments who are legitimately involved in the
retailing of tobacco products.”
Id.
However, Congressman Conyers
stated that the amendment was modified to include “a provision
9
Congressman Coble specifically cited Hezbollah operatives who
were convicted in 2003 for buying cigarettes in North Carolina,
selling them in Michigan, and using the proceeds to fund
Hezbollah activities.
151 CONG. REC. H6273-04, at *H6284.
16
stipulating that enforcement against tribes or in Indian country,
as defined in Title 18 Section 1151, will not be authorized by the
pending bill has been incorporated.”
Id. (emphasis supplied).
Accordingly,
indicates
the
legislative
history
that
Congress
differentiated between enforcement against tribes and enforcement
in Indian country and, thus, intended for the exemption to apply
in both circumstances.
Indeed, that distinction is express in the
statute which, again, prohibits the commencement of a civil action
by a state against “an Indian tribe or an Indian in Indian
country.”
18 U.S.C. § 2346(b)(1) (emphasis supplied).
The Court is also unpersuaded by the State’s seemingly
policy-driven argument that if King Mountain is entitled to the
CCTA’s “Indian in Indian Country” exemption, the result would be
“a new loophole by which other non-New York Native Americans and
tribes
would
flood
New
York’s
quantities of unstamped cigarettes.”
reservations
with
(Pl.’s Br. at 23.)
enormous
As noted
by King Mountain, the “Indian in Indian country” exemption is only
applicable to state enforcement of the CCTA.
5.)
See also 18 U.S.C. § 2346(b)(1).
(Def.’s Opp. Br. at
Thus, the federal government
is permitted to enforce the CCTA without regard to whether the
action is against an “Indian in Indian country,” which renders it
unlikely that Indian reservations will be “flooded” with unstamped
cigarettes.
17
Finally, the Court rejects the State’s argument that the
“Indian in Indian country” exemption does not apply because King
Mountain’s
cigarettes
are
delivered
outside
of
the
Yakama
reservation, i.e., to destinations within the boundaries of the
State of New York.
(Pl.’s Reply Br., Docket Entry 206, at 4-5.)
The Court declines to take such a quantum leap.
King Mountain is
undisputedly located on the Yakama Indian reservation; it is beyond
cavil that the Yakama reservation is “land within the limits of
any Indian reservation under the jurisdiction of the United States
Government” and thus constitutes “Indian country” as defined by
the CCTA.
18 U.S.C. § 1151(a).
There is nothing in the CCTA to
support the State’s apparent position that the “Indian in Indian
country” exemption is not applicable to cigarette sales to persons
or entities outside of a given Indian reservation.
The Court is keenly aware of the significant harms to
public health and welfare that result from cigarette smoking and
cigarette trafficking.
However, the Court is not empowered to
legislate; its sole charge is to interpret and apply the CCTA as
drafted by Congress.
Accordingly, the Court finds that King
Mountain is an “Indian” in the context of the CCTA.
Court’s
determination
is
limited
to
However, the
Indian-owned
companies
organized under the laws of an Indian Nation or tribe.
The Court
makes no determination as to whether an Indian-owned corporation
organized under state law is an “Indian” pursuant to the CCTA.
18
Accordingly, King Mountain’s motion for summary judgment
on the State’s CCTA claim is GRANTED based on King Mountain’s
status as an “Indian in Indian country.”
The Court need not
address the parties’ other arguments regarding the applicability
of the CCTA to King Mountain.
B.
Prevent All Cigarette Trafficking Act
On March 31, 2010, Congress enacted the PACT Act.
Act., Pub. L. No. 111-154, 124 Stat. 1087 (2010).
PACT
The PACT Act
requires that certain filings be made by “[a]ny person who sells,
transfers, or ships for profit cigarettes or smokeless tobacco in
interstate commerce, whereby such cigarettes or smokeless tobacco
are shipped into a State, locality, or Indian country of an Indian
tribe taxing the sale or use of cigarettes or smokeless tobacco[.]”
15 U.S.C. § 376(a).
The PACT Act defines “interstate commerce”
as: (1) “commerce between a State and any place outside the State,”
(2) “commerce between a State and any Indian country in the State,”
or (3) “commerce between points in the same State but through any
place outside the State or through any Indian country.”
15 U.S.C.
§ 375(9)(A). 10
10
With respect to the definition of “interstate commerce,” the
PACT Act further provides that “[a] sale, shipment, or transfer
of cigarettes or smokeless tobacco that is made in interstate
commerce, as defined in this paragraph, shall be deemed to have
been made into the State, place, or locality in which such
cigarettes or smokeless tobacco are delivered.” 15 U.S.C.
§ 375(9)(B).
19
The parties’ dispute regarding the PACT Act centers on
whether
King
commerce.”
Mountain
cigarettes
were
shipped
in
“interstate
With the exception of one sale to Valvo Candies that
is discussed below, the State does not dispute that King Mountain’s
shipments were made to “Indian country.”
(See Pl.’s Br. at 26
(noting that King Mountain delivered cigarettes “to the certain
persons largely located on Indian reservations within the State of
New York”); Pl.’s 56.1 Stmt. ¶¶ 53(1), 54(a) (asserting that Valvo
Candies
is
not
located
on
a
qualified
Indian
reservation).)
However, the State argues that King Mountain’s sales were made in
“interstate
commerce,”
as
defined
by
the
PACT
Act,
because
“[o]rdinarily, ‘an Indian reservation is considered part of the
territory of the State.’”
(Pl.’s Br. at 27 (quoting Nevada v.
Hicks, 533 U.S. 353, 361-62, 121 S. Ct. 2304, 2311, 150 L. Ed. 2d
398 (2001).)
The Court disagrees.
The PACT Act includes separate definitions for “State”
and “Indian country.”
States
of
the
United
“State” is defined as “each of the several
States,
the
District
of
Columbia,
the
Commonwealth of Puerto Rico, or any territory or possession of the
United States.”
15 U.S.C. § 375(11).
“Indian Country” is defined
as including “all land within the limits of any Indian reservation
under the jurisdiction of the United States Government [.]”
U.S.C. § 375(7); 18 U.S.C. § 1151.
15
The notion that a qualified
Indian reservation--which falls squarely within the definition of
20
“Indian Country”--is somehow subsumed within the definition of
“state” is belied by a plain reading of the statute.
Parenthetically,
the
Court
is
not
persuaded
by
the
State’s argument that Congress did not intend to “change[ ] the
common law rule that Indian country is ordinarily considered a
part of a state’s territory.”
(Pl.’s Opp. Br. at 12 (citing Hicks,
533 U.S. at 361-62, 121 S. Ct. at 2311; Chemehuevi Indian Tribe v.
California Bd. of Equalization, 800 F.2d 1446, 1450 (9th Cir.
1986); State ex. rel. Edmondson v. Native Wholesale Supply, 237
P.3d 199, 208 (Okla. 2010).)
The cases cited by the State in
support of this notion do not address the PACT Act.
Moreover, any
purported general rule that Indian reservations are a part of the
states in which they are located is not applicable given the PACT
Act’s
distinct
definitions
of
“state,”
“Indian
country,”
and
“interstate commerce.”
In light of the undisputed fact that with the exception
of the sale to Valvo Candies, all of the King Mountain sales were
made from King Mountain’s location on the Yakama reservation to
Indian reservations within the boundaries of the State of New York,
it is clear that these sales do not fall within the PACT Act’s
definition of “interstate commerce.”
As previously noted, the
PACT Act defines “interstate commerce” as implicating one of three
different commerce scenarios.
The first two scenarios, “commerce
between a State and any place outside the State” and “commerce
21
between a State and any Indian country in the State,” expressly
require that one point of commerce be in a “state.”
15 U.S.C.
§ 375(9)(A). As King Mountain’s subject sales were from one Indian
reservation to other Indian reservations, they do not fall within
the first two methods of interstate commerce because the sales did
not originate or conclude in a “state.”
The third interstate
commerce scenario is “commerce between points in the same State
but through any place outside the State or through any Indian
country.”
Since the subject transactions did not take place in a
“state”--and undisputedly did not take place in the same state-this third scenario also does not apply.
Finally,
in
a
footnote,
the
State
argues
that
its
position is supported by two documents prepared by the Department
of Justice’s Bureau of Alcohol, Tobacco, Firearms, and Explosives
(“ATF”).
(Pl.’s Opp. Br. at 14-15, n.16.)
The first document is
correspondence sent from ATF to King Mountain in response to King
Mountain’s opposition to California’s nomination to place King
Mountain on the PACT Act non-compliant list (the “ATF Letter”).
(ATF Ltr., Pl.’s Opp. Ex. A, Docket Entry 201-2.)
The ATF Letter
states, in relevant part, that the definition of “interstate
commerce” set forth in the PACT Act “encompasses shipments from
King Mountain to California, regardless that the final destination
in California may be located in Indian Country.”
(ATF Ltr. at 8.)
The second document, in which ATF summarizes comments received in
22
response to an open letter to tribal leaders regarding the PACT
Act and responds to those comments (the “ATF Summary”), states
that “as defined by the [PACT Act], intrastate transportation
between
two
commerce.”
separate
reservations
would
be
in
interstate
(ATF Summary, Pl.’s Opp. Ex. B., Docket Entry 201-3,
at 1-2.)
Notably,
the
State
does
not
argue
that
ATF’s
interpretation of the PACT Act as set forth in the ATF Letter and
ATF Summary is entitled to deference under Chevron U.S.A., Inc. v.
Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S. Ct. 2778, 81
L. Ed. 2d 694 (1984).
King Mountain argues that these documents
should not even be afforded respect pursuant to Skidmore v. Swift
& Co., 323 U.S. 134, 65 S. Ct. 161, 89 L. Ed. 124 (1944).
Reply Br., Docket Entry 205, at 5.)
(Def.’s
The Court agrees.
Pursuant to Skidmore, the Court affords respect to an
informal agency interpretation “‘depend[ing] upon the thoroughness
evident in its consideration, the validity of its reasoning, its
consistency with earlier and later pronouncements, and all those
factors which give it power to persuade, if lacking power to
control.’”
De La Mota v. U.S. Dep’t of Educ., 412 F.3d 71, 78-80
(2d Cir. 2005) (alteration in original) (quoting Skidmore, 323
U.S. at 140, 65 S. Ct. at 164).
The Second Circuit has held that
an agency position adopted during the course of litigation “lack[s]
23
the thoroughness required for Skidmore respect.”
De La Mota, 412
F.3d at 80.
Here, the ATF Letter is akin to a document prepared
(See also Def.’s Reply Br. at 5
during the course of litigation.
(characterizing
the
pronouncement[ ]”).)
ATF
Letter
as
a
“litigation-related
The ATF Letter states that after the State
of California informed it that King Mountain should be added to
the PACT Act “non-compliant list,” ATF offered King Mountain the
opportunity to submit a response.
(ATF Ltr. at 1.)
The ATF Letter
responds to King Mountain’s position and sets forth the basis for
ATF’s determination that King Mountain failed to comply with the
PACT Act.
(See generally ATF Ltr.)
The Court finds that the ATF
Letter is essentially an advocacy piece that lacks the requisite
thoroughness for Skidmore respect.
Similarly, the ATF Summary fails to warrant Skidmore
respect based on its lack of demonstrated validity.
response
in
between
two
the
ATF
Summary--that
separate
reservations
“intrastate
would
be
ATF’s salient
transportation
in
interstate
commerce”--does not include any substantiation or evidence of
ATF’s rationale.
(ATF Summary at 1-2.)
See Boykin v. KeyCorp,
521 F.3d 202, 208-209 (2d Cir. 2008) (“We have explained that the
‘validity’ inquiry looks to whether an agency interpretation is
‘well-reasoned,
substantiated,
Mota, 412 F.3d at 80).
and
logical.’”)
(quoting
De
La
Additionally, this document expressly
24
contemplates
position.
further
review
and
consideration
regarding
ATF’s
The ATF Summary states that “[i]n the near future, ATF
will issue an Interpretive Rule that will set forth the Bureau’s
views on the [PACT] Act’s requirements . . . [c]omments received
on or before the closing date. . . will be carefully considered
and revisions to the rule will be made if they are determined to
be appropriate.”
(ATF Summary at 1.)
Accordingly, the Court
declines to afford Skidmore respect to the ATF Letter or ATF
Summary.
1. Valvo Candies
As previously noted, King Mountain concedes that Valvo
Candies is not owned by an Indian Nation or a member of an Indian
Nation.
(Def.’s Br. at 9, n.4.)
While King Mountain has not
expressly conceded that Valvo Candies is not located on an Indian
reservation, it has neither alleged that Valvo Candies is located
on an Indian reservation nor produced evidence refuting the State’s
claim that Valvo Candies is located in Silver Creek, Chautauqua
County, New York.
(See Pl.’s 56.1 Stmt. ¶¶ 53(l), 54(a).)
Indeed,
by arguing that its sale to Valvo Candies predated the PACT Act’s
effective date, see Def.’s Br. at 19, King Mountain implicitly
concedes that the sale to Valvo Candies took place between the
Yakama Nation reservation and the State of New York--namely, “a
State and any place outside the State”--and thus occurred in
25
“interstate commerce” as defined by the PACT Act.
See 15 U.S.C.
§ 375(9)(A).
The PACT Act provides that “not later than the 10th day
of
each
calendar
month,”
any
entity
shipping
cigarettes
in
smokeless tobacco in interstate commerce shall “file with the
tobacco tax administrator of the State into which such shipment is
made, a memorandum or a copy of the invoice covering each and every
shipment
of
previous
calendar
§ 376(a)(2).
means
an
cigarettes
month
or
smokeless
into
the
tobacco
state.
.
made
.
.”
during
15
the
U.S.C.
See also 15 U.S.C. § 375(10) (“The term ‘person’
individual,
corporation,
partnership, society . . . .”)
was June 29, 2010.
company,
association,
firm,
The effective date of the PACT Act
See PL 111-154, 124 Stat. 1087 (Mar. 31, 2010)
(“this Act shall take effect on the date that is 90 days after the
date of enactment of this Act”).
Accordingly, the first filing
date was July 10, 2010, at which time entities shipping tobacco in
interstate commerce were required to file a memorandum or invoice
copy for each shipment that took place during June 2010.
King Mountain alleges that the Valvo Candies shipment
occurred in May 2010 and the State conceded this fact in its brief.
(Pl.’s Opp. Br. at 15, n.17 (“[t]hus, because the PACT Act’s
reporting requirements took effect in June 2010, King Mountain was
required to report its May 2010 shipment of cigarettes to Valvo
26
Candies”).) 11
However, at oral argument, the State argued that the
shipment to Valvo Candies occurred on June 29, 2010, and is thus
subject to the PACT Act’s reporting requirements.
The Court finds that there are genuine issues of material
fact as to whether King Mountain was required to make PACT Act
filings in connection with its 2010 shipment to Valvo Candies.
The only documentary evidence produced by either party with respect
to this sale is an invoice dated June 29, 2010 that references a
“paid” date of May 20, 2010 and a “ship” date of June 29, 2010.
(See Def.’s Mot. Ex. 19, Docket Entry 195-21.)
produced
any
additional
documentary
Neither party has
evidence
that
would
definitively establish the shipment date of this sale to Valvo
Candies.
Accordingly, King Mountain’s motion for summary judgment
regarding the PACT Act claim is GRANTED IN PART and DENIED IN PART
and the State’s motion for summary judgment is DENIED.
respect
to
King
Mountain’s
motion,
11
the
Court
DENIES
With
summary
Parenthetically, the Amended Complaint asserts both that King
Mountain has “knowingly shipped, transported, transferred, sold
and distributed large quantities of unstamped and unreported
cigarettes to on-reservation wholesalers in New York State” and
that King Mountain “sell[s], transfer[s], and otherwise ship[s]
such cigarettes to tribal wholesalers and/or retailers in New
York State for profit.” (Am. Compl. ¶¶ 56, 81.) The Amended
Complaint does not assert that King Mountain sold cigarettes to
a company located outside of an Indian reservation or a company
that is not Indian-owned.
27
judgment regarding the 2010 sale to Valvo Candies and GRANTS
summary judgment to King Mountain as to the balance of the State’s
PACT Act claim.
II.
State Claims
A.
New York Tax Law §§ 471 and 471-e
The State argues that King Mountain waived its res
judicata defense by failing to amend its Answer to plead res
judicata
as
an
affirmative
defense.
(Pl.’s
Br.
at
32-33.)
However, it is within this Court’s discretion to entertain a res
judicata defense asserted in a motion for summary judgment by
construing the motion as a motion to amend the answer.
Ernest
Codelia,
P.C.,
No.
(S.D.N.Y. Jul. 30, 2001).
98-CV-5548,
2001
WL
Cowan v.
856606,
at
*5
See also Schwind v. EW & Assocs., Inc.,
357 F. Supp. 2d 691, 698 (S.D.N.Y. 2005) (Noting that the Second
Circuit
has
held
that
the
district
court
may
consider
an
affirmative defense asserted for the first time on a summary
judgment motion “so long as the plaintiff has had an opportunity
to respond.”) (internal quotation marks and citations omitted).
Indeed, “[c]ourts have been especially flexible where the defense
of res judicata was not available at the pleading stage because
the other action had not yet been concluded.”
Cowan, 2001 WL
856606 at *5 (citations omitted).
Here, it is undisputed that King Mountain’s res judicata
defense was not available at the pleading stage because the Tax
28
Proceeding did not conclude until November 2014, well after the
filing of King Mountain’s Answer and the completion of discovery.
(See Def.’s Opp. Br. at 14.)
The State has been on notice of King
Mountain’s res judicata defense since at least October 27, 2015,
when King Mountain requested leave to move for summary judgment
based, in part, on its argument that the State’s third cause of
action is precluded by res judicata.
173.)
(Def.’s Ltr., Docket Entry
Moreover, the extensive briefing on the parties’ summary
judgment motions has provided the State with ample opportunity to
respond to King Mountain’s res judicata argument.
The Court is not persuaded by the State’s argument, in
a footnote, that King Mountain’s request to amend its Answer to
include a res judicata defense must be denied based on “undue delay
or dilatory motive in failing to raise this affirmative defense
sooner.”
(Pl.’s Reply Br. at 9, n.8.)
Again, it is beyond cavil
that the Tax Proceeding concluded after King Mountain’s Answer was
filed and at a point when this action had already been pending for
years.
The State has not established that King Mountain’s delay
in asserting a res judicata defense was founded in bad faith.
Moreover, the State cannot demonstrate prejudice when it has been
on notice of King Mountain’s asserted defense prior to the filing
of the parties’ dispositive motions. Accordingly, the Court GRANTS
King Mountain leave to amend its Answer to assert a res judicata
29
affirmative defense with respect to the third cause of action in
the Amended Complaint.
1.
Res Judicata
The doctrine of res judicata 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
that
litigated.”
action,’
not
just
those
that
were
actually
Caldwell v. Gutman, Mintz, Baker & Sonnenfeldt, P.C.,
701 F. Supp. 2d 340, 351 (E.D.N.Y. 2010) (quoting Flaherty v. Lang,
199 F.3d 607, 612 (2d Cir. 1999)).
“A federal court must give the
same preclusive effect to a state court decision as a state court
would give it.”
Cowan, 2001 WL 856606, at *6.
Accordingly, the
“binding effect” of the Stipulation of Discontinuance filed in the
Tax Proceeding is governed by New York law.
Id. at *4.
In New York, res judicata is applicable where there is:
“(1) a final, prior adjudication on the merits, (2) that involved
the party against whom res judicata is to be invoked, and (3) the
claims involved in the current case were, or could have been,
raised in the prior case.”
Marcelin v. Cortes-Vazquez, No. 09-
CV-2303, 2010 WL 5665037, at *3 (E.D.N.Y. Dec. 9, 2010), report
and recommendation adopted, 2011 WL 346682 (E.D.N.Y. Jan. 28, 2011)
(citations omitted).
a. Final Adjudication on the Merits
30
The
State
argues
that
pursuant
to
DTF
rules,
the
Stipulation of Discontinuance does not have any binding effect on
a subsequent proceeding.
(Pl.’s Br. at 32 (“‘A stipulation and
the admissions therein shall be binding and have effect only in
the pending proceeding and not for any other purpose, and cannot
be
used
against
any
of
the
parties
thereto
in
proceeding.’” (quoting 20 N.Y.C.R.R. 3000.11(e)).)
any
other
First, the
Court notes that the State’s cited statutory provision addresses
“[s]tipulations for hearing,” in which the parties stipulate to
“all
facts
not
controversy.”
not
address
privileged
which
are
relevant
20 N.Y.C.R.R. 3000.11(1)(i).
the
discontinuance.
binding
effect
of
a
to
the
pending
This provision does
final
stipulation
of
Second, “a stipulation of discontinuance ‘with
prejudice’ is afforded res judicata effect and will bar litigation
of the discontinued causes of action.”
Pawling Lake Prop. Owners
Ass’n, Inc. v. Greiner, 72 A.D.3d 665, 667, 897 N.Y.S.2d 729 (2d
Dep’t 2010) (citation omitted). While, as addressed infra, whether
the State is bound by the Stipulation of Discontinuance is a
separate
inquiry,
the
Court
finds
that
the
Stipulation
of
Discontinuance constitutes a final adjudication on the merits.
b. Privity
“A judgment on the merits in a prior action is binding
not only on the parties to that action, but on those in privity
with them.”
City of N.Y. v. Beretta U.S.A. Corp., 315 F. Supp. 2d
31
256,
265
(E.D.N.Y.
2004)
(citation
omitted).
Privity
is
an
“amorphous concept” that requires a determination on a case-bycase basis.
Id. (quoting Juan C. v. Cortines, 89 N.Y.2d 659, 667,
679 N.E.2d 1061, 1065, 657 N.Y.S. 2d 581 (N.Y. 1997)).
In general,
privity requires that “the connection between the parties must be
such that the interest of the nonparty can be said to have been
represented in the prior proceeding.”
Green v. Santa Fe Indus.,
Inc., 70 N.Y.2d 244, 253, 514 N.E.2d 105, 108, 519 N.Y.S.2d 793
(N.Y. 1987).
In
analyzing
whether
privity
between
two
government
agencies exists for purposes of collateral estoppel, the New York
State Court of Appeals has looked to the Restatement Second of
Judgments, which provides that:
If the second action involves an agency or
official whose functions and responsibilities
are so distinct from those of the agency or
official in the first action that applying
preclusion would interfere with the proper
allocation of authority between them, the
earlier
judgment
should
not
be
given
preclusive effect in the second action.
Cortines, 89 N.Y.2d at 669, 679 N.E.2d at 1066 (quoting Restatement
(Second) of Judgments § 36, cmt. f).
Accordingly, in certain
situations,
a
merits
government
agency
agency.
final
decision
may
not
on
the
bind
a
that
different
binds
one
government
Berretta, 315 F. Supp. 2d at 266 (holding that New York
City was not in privity with New York State).
32
This District has
noted that “New York courts have largely refused to find two
functionally independent governmental entities in privity with
each
other
cases).
for
purposes
of
preclusion.”
Id.
(collecting
But see People ex. rel. Dowdy v. Smith, 48 N.Y.2d 477,
482, 399 N.E.2d 894, 896, 423 N.Y.S.2d 862 (N.Y. 1979) (“[T]he
People as prosecutors in the criminal action stood in sufficient
relationship with the Division of Parole in the parole proceeding
to meet the requirements of the [collateral estoppel] doctrine in
this respect.”)
The Beretta Court cited four cases in which New York
courts found that governmental entities were not in privity for
collateral estoppel purposes.
Beretta, 315 F. Supp. 2d at 267
(citing Brown v. City of N.Y., 60 N.Y.2d 897, 458 N.E.2d 1250, 470
N.Y.S.2d 573 (N.Y. 1983); Saccoccio v. Lange, 194 A.D.2d 794, 599
N.Y.S.2d 306 (2d Dep’t 1993); Doe v. City of Mount Vernon, 156
A.D.2d 329, 547 N.Y.S.2d 272 (2d Dep’t 1989); People v. Morgan,
111 A.D.2d 771, 490 N.Y.S.2d 30 (2d Dep’t 1985).
With the
exception of Morgan, each of these cases addressed the effect of
a prior criminal proceeding on a subsequent civil matter and held
that the application of collateral estoppel was not warranted based
on the lack of privity between the district attorney in the prior
criminal proceeding and the city or county defendants in the civil
matter.
In Morgan, the Appellate Division, Second Department held
that the prosecution of a criminal assault charge was not precluded
33
by the determination of a prior administrative proceeding before
the New York City Housing Authority.
Morgan, 111 A.D.2d at 772.
Here, the Court is not persuaded by the State’s argument
that
DTF’s
“sole
charge”
of
collecting
tax
revenues
and
the
Attorney General’s broader mission and authority weighs against a
finding of privity between these two agencies.
22.)
(Pl.’s Opp. Br. at
A district attorney is not empowered to address the civil
claims that a City or County may assert.
Conversely, DTF and the
Attorney General clearly have overlapping authority with respect
to civil claims as DTF commenced an administrative proceeding to
obtain alleged taxes owed by King Mountain under Article 20 of the
NYTL and the Attorney General commenced this proceeding asserting
claims
under
Article
20
of
the
NYTL.
Moreover,
unlike
the
previously noted cases cited by the Beretta Court, the prior
proceeding at issue in this matter was not a criminal case.
Additionally, the State’s attempt to distinguish this
matter from State of N.Y. v. Seaport Manor A.C.F., 19 A.D.3d 609,
797 N.Y.S.2d 538 (2d Dep’t 2005), is misplaced.
at
24,
n.25.)
In
Seaport
Manor,
the
(Pl.’s Opp. Br.
Attorney
General
and
Commissioner of the Department of Health (“DOH”) commenced an
action alleging that an adult care facility engaged in fraudulent
and
deceptive
business
practices.
The
adult
home’s
alleged
violations were the subject of two earlier DOH administrative
enforcement proceedings that were both discontinued with prejudice
34
pursuant to stipulations of settlement. Id. at 610. The Appellate
Division, Second Department affirmed the trial court’s dismissal
of the first four claims to the extent that they were based on
violations that occurred prior to the execution of the second
stipulation of settlement in the earlier DOH proceeding, holding
that “the underlying facts and statutory scheme establish that the
Attorney General, who was not a party to the prior enforcement
proceedings, was in privity with the DOH.”
Id.
The State alleges that Seaport Manor is not analogous
because in the case at bar, the Attorney General’s participation
was
not
“initiated”
by
DTF
and
the
Attorney
General
instead
“independently initiated this action under a ‘public interest’
determination.”
(Pl.’s Opp. Br. at 24, n.25.)
However, the fact
that DTF is not named as a co-plaintiff in this action does not
eradicate the privity between these two governmental entities.
As
previously noted, both the DTF and Attorney General filed claims
under Article 20 of the NYTL--albeit seeking different relief under
different legal theories.
Moreover, it cannot be said that the
Attorney General’s responsibility for, inter alia, “prosecut[ing]
and defend[ing] all actions and proceedings in which the State is
interested,” New York Executive Law § 63, is so distinct from the
responsibilities of DTF that the application of claim preclusion
would
them.
disrupt
the
allocation
See Cortinez, 89 N.Y. 2d at 669.
35
of
authority
between
Additionally, the Court is not persuaded that the Tax
Proceeding did not permit the Attorney General to “enjoy[ ] a
vicarious day in court.”
(Pl.’s Opp. Br. at 23 (quoting Delamater
v. Schweiker, 721 F.2d 50, 54 (2d Cir. 1983)).)
Courts have not
hesitated to deem a claim barred by res judicata “‘[w]hen an
administrative agency is acting in a judicial capacity and resolved
disputed issues of fact properly before it which the parties have
had an adequate opportunity to litigate.’”
U.S. v. Town of Bolton
Landing, N.Y., 946 F. Supp. 162, 167 (N.D.N.Y. 1996) (quoting U.S.
v. Utah Constr. & Mining Co., 384 U.S. 394, 422, 86 S. Ct. 1545,
1560, 16 L. Ed. 2d 642 (1966)).
the
context
of
collateral
The Second Circuit has held, in
estoppel,
that
an
administrative
determination cannot be the basis for preclusion unless it was an
“adjudicative decision,” in which the agency decided to grant or
deny a privilege “using procedures substantially similar to those
employed by the courts.”
Metromedia Co. v. Fugazy, 983 F.2d 350,
366 (2d Cir. 1992), abrogated on other grounds as recognized by
Yung
v.
2005).
judicata
Lee,
432
F.3d
142,
147-48
(2d
Cir.
Compare Delamater, 721 F.2d at 53 (holding that res
was
Administration
not
applicable
benefits
to
a
prior
Social
determination
where
“[t]here
Security
was
no
hearing, no testimony, no subpoenaed evidence, no argument, no
opportunity to test any contention by confrontation”) with Bolton
Landing, 946 F. Supp. at 169 (“[a]lthough the parties did not call
36
witnesses, the full participation of the parties, the briefing,
the oral testimony, the submission of the affidavits, and the
substantial documentary support upon which the [administrative]
determination largely rests demonstrate that the parties had an
adequate opportunity to litigate the issues”).
Here, DTF issued a Notice of Determination stating that
an audit revealed that King Mountain owed $1,259,250 in taxes.
(Def.’s Mot. Ex. 13, Docket Entry 195-15.)
In response, King
Mountain filed a Petition for Redetermination of Deficiency, which
was answered by DTF.
(Pl.’s Opp. Ex. C, Docket Entry 203-1; Def.’s
Mot. Ex. 14, Docket Entry 195-16.)
King Mountain’s Petition was
presided over by an Administrative Law Judge (the “ALJ”) who
conducted at least one pre-hearing conference call with DTF and
King Mountain.
(Def.’s Mot. Ex. 15, Docket Entry 195-17.)
While
DTF and King Mountain ultimately settled rather than proceeding to
a hearing, the ALJ issued an Order of Discontinuance which stated
that the DTF’s assessment was cancelled and discontinued with
prejudice.
(Def.’s Mot. Ex. 17, Docket Entry 195-19.)
The Court
finds that the proceedings before the ALJ provided DTF and King
Mountain with a “full and fair opportunity to litigate their
claims” such as to constitute an adjudicatory process and that the
Order
of
Discontinuance
“is
analogous
to
a
withdrawal
with
prejudice entered into during the course of litigation in a court
of law.”
Hughes v. Lillian Goldman Family, LLC, 153 F. Supp. 2d
37
435, 448-49 (S.D.N.Y. 2001) (Holding that certain claims were
barred by res judicata based on a conciliation agreement settling
the
plaintiff’s
New
York
State
Department
of
Human
Rights
complaint.).
Finally, the State’s argument that it did not have a
“vicarious day in court” because the administrative rules do not
provide for discovery procedures as set forth in the CPLR and
“[t]hus,
the
Tax
Department
had
no
means
for
testing
Mountain’s petition allegations,” is not persuasive.
Br. at 23.)
King
(Pl.’s Opp.
The previously noted case law does not mandate that
relevant administrative proceeding implement identical procedures
to those employed by the courts but merely that the relevant
procedures are “substantially similar.”
See Metromedia Co., 983
F.2d at 366.
c.
Claims Raised in the Prior Case
New York employs a transactional approach in which a
later claim is precluded if it “aris[es] out of the same factual
grouping as an earlier litigated claim even if the later claim is
based
on
relief.”
legal
theories
or
seeks
dissimilar
or
additional
Marcelin, 2010 WL 5665037, at *3 (internal quotation
marks and citation omitted).
Pursuant to this approach, “parties
are prevented ‘from raising in a subsequent proceeding any claim
they could have raised in the prior one, where all of the claims
arise from the same underlying transaction.’”
38
Falardo v. N.Y.
City Police Dep’t, 566 F. Supp. 2d 283, 285-86 (S.D.N.Y. 2008)
(quoting Schulz v. Williams, 44 F.3d 48, 53 (2d Cir. 1994)).
In determining the “factual grouping” that should be
considered a “transaction” the Court analyzes “how ‘the facts are
related in time, space, origin, or motivation, whether they form
a convenient trial unit, and whether . . . their treatment as a
unit
conforms
to
the
parties’
understandings or usage.’”
expectations
or
business
Union St. Tower, LLC v. Richmond, 84
A.D.3d 784, 785 (2d Dep’t 2011) (quoting Smith v. Russel Sage
Coll., 54 N.Y. 2d 185, 192-93 (N.Y. 1981) (ellipsis in original)).
This doctrine is not to be mechanically employed as the Court’s
analysis
“requires
consideration
of
the
realities
of
litigation.” Hughes, 153 F. Supp. at 447 (internal quotation marks
and citations omitted).
It is well-settled that the doctrine of res judicata
cannot be avoided by “splitting” a claim into multiple lawsuits
“based
on
different
legal
‘necessary’ to each suit).”
theories
(with
different
evidence
Waldman v. Village of Kiryas Joel,
207 F.3d 105, 110 (2d Cir. 2000) (alteration in original; citation
omitted).
Indeed, “the facts essential to the barred second suit
need not be the same as the facts that were necessary to the first
suit” and it suffices that “‘the facts essential to the second
were [already] present in the first.’”
Id. at 110-11 (internal
quotation marks and citation omitted; alteration in original).
39
As previously noted, the Amended Complaint asserts a
claim under NYTL Sections 471 and 471-e and alleges that King
Mountain violated and continues to violate these provisions by
“possessing cigarettes for sale in New York State . . . upon which
no state excise tax has been paid, and the packages of which have
no tax stamps affixed” and by “failing to ship their unstamped
cigarettes from outside New York directly to a New York-licensed
stamping agent so that excise tax can be paid and tax stamps
properly affixed.”
Amended
Complaint
(Am. Compl. ¶¶ 87-88.)
details
the
November
6,
Specifically, the
2012,
purchase
of
unstamped King Mountain cigarettes by a State investigator (the
“November 6th Purchase”) as well as the December 3, 2012, discovery
of unstamped King Mountain cigarettes by the state police (the
“December 3rd Inspection”). 12
(Am. Compl. ¶¶ 61-65, 67.)
The Court finds that the December 3rd Inspection arises
out of the same factual grouping as the facts underlying the Tax
Proceeding.
DTF’s Notice of Determination states, in relevant
12
While the State alleges that “none of the cigarettes at issue
in this case were seized by the State Police or any other state
agency,” (Pl.’s Opp. Br. at 18), the record does not contain
specific information as to the particular cigarettes seized on
December 3, 2012, and the Court is unable to definitively
conclude that the seized cigarettes are excluded from the
extensive list of cigarette sales set forth in the State’s 56.1
Statement. (Pl.’s 56.1 Stmt. ¶¶ 66-79.) Accordingly, in an
abundance of caution, the Court will determine whether any claim
regarding the cigarettes seized on December 3, 2012, is barred
by res judicata.
40
part, “[o]n 12/03/12, you were found to be in possession and/or
control of unstamped or unlawfully stamped cigarettes, and/or
untaxed tobacco products.
Therefore, penalty is imposed under
Article 20 of the New York State Tax Law.” 13
at 3.)
(Def.’s Mot. Ex. 13,
Thus, the Tax Proceeding resolved the State’s claim that
King Mountain was liable under the NYTL for possession of the
unstamped cigarettes discovered in the December 3rd Inspection.
The State’s claim that King Mountain violated Article 20 by failing
to ship their cigarettes to a licensed stamping agent could have
been raised in the Tax Proceeding with respect to the cigarettes
discovered during the December 3rd Inspection.
Accordingly, the
State’s cause of action under Sections 471 and 471-e is barred by
res
judicata
to
the
extent
that
it
addresses
the
unstamped
cigarettes discovered during the December 3rd Inspection.
Whether the cigarettes implicated in the November 6th
Purchase are barred by res judicata presents a closer issue. There
appears to be no dispute that the November 6th Purchase was not
addressed in the Tax Proceeding.
Instead, King Mountain argues
that all of the State’s claims under Article 20—including its
claims regarding the November 6th Purchase--are precluded because
they could have been raised in the Tax Proceeding.
Br. at 13-14.)
(Def.’s Opp.
However, the Court declines to characterize the
13
The Court notes that Article 20 of the New York State Tax Law
includes Sections 471 and 471-e.
41
Tax Proceeding as an umbrella that encompasses all claims regarding
untaxed cigarettes prior to December 2012.
The November 6th
Purchase arises out of a different underlying factual transaction
than
the
December
3rd
Inspection--namely,
the
purchase
of
unstamped cigarettes at a smoke shop on the Poospatuck Reservation
in Suffolk County rather than the search and seizure of a truck of
unstamped cigarettes in Clinton County.
Accordingly, the State’s
third claim is not barred to the extent it addresses the November
6th Purchase.
2.
Merits
As previously noted, the Amended Complaint alleges that
King Mountain has “violated, and continue[s] to violate, New York
Tax Law §§ 471 and 471-e by possessing cigarettes for sale in New
York State . . . upon which no state excise tax has been paid, and
the packages of which have no tax stamps affixed.” 14
¶ 87.)
(Am. Compl.
The Amended Complaint also alleges that King Mountain
violated Section 471 by “failing to ship their unstamped cigarettes
from outside New York directly to a New York-licensed stamping
agent so that the excise tax can be paid and tax stamps properly
affixed.”
(Am. Compl. ¶ 88.)
The Court will address each alleged
violation of Section 471 in turn.
14
The Court notes that the State is not requesting that King
Mountain satisfy the taxes allegedly owed with respect to these
cigarette shipments. (Am. Compl. at 25-26.)
42
a. Possession of Cigarettes for Sale
Section 471 provides that “[t]here is hereby imposed and
shall be paid a tax on all cigarettes possessed in the state by
any person for sale[.]”
N.Y. Tax L. § 471(1) (emphasis supplied).
There is a presumption that all cigarettes in New York State are
subject to tax and the “person in possession thereof” bears the
burden of establishing that any cigarettes are not taxable.
Id.
Article 20 of the NYTL does not define the term “possession.”
See
N.Y. Tax L. § 470.
NYTL Section 471-e establishes an “Indian tax
exemption coupon system” regarding the purchase of tax exempt
cigarettes by Indian nations or tribes for members’ personal
consumption.
N.Y. Tax L. ¶ 471.e.
The State does not allege that King Mountain physically
possessed unstamped cigarettes in New York State. It is undisputed
that King Mountain utilized a common carrier to transport its
cigarettes to Indian reservations and/or Indian-owned businesses
in New York State.
(Pl.’s 56.1 Counterstmt., Docket Entry 195-4
¶ 14.) However, the State argues that an out-of-state manufacturer
such as King Mountain “possesses” the cigarettes that its common
carrier transports within New York State, relying on Harder’s
Express, Inc. v. State Tax Comm., 70 A.D.2d 1010, 1011 (3d Dep’t
1979), aff’d, 50 N.Y.2d 1050.
at 8.)
(Pl.’s Supp. Br., Docket Entry 213,
The Court disagrees.
43
As previously noted, Article 20 of the New York Tax Law
does
not
principles
define
of
the
term
construction
“possession.”
dictate
that
“Well-established
statutory
analysis
necessarily begins with the plain meaning of a law’s text and,
absent ambiguity, will generally end there.”
U.S. v. Sabhnani,
599 F.3d 215, 255 (2d Cir. 2010) (internal quotation marks and
citation omitted).
“Possession” is defined as “the act of having
or taking into control” or “control or occupancy of property
without regard to ownership.”
(11th Ed. 2006).
MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY
It is undisputed that King Mountain did not
exercise control over the King Mountain brand cigarettes that
entered New York State; the common carrier exercised control over
the King Mountain cigarettes it was transporting in New York State.
Thus, King Mountain was not in “possession” of cigarettes as
contemplated by Section 471.
The State’s reliance on the Appellate Division, Third
Department’s decision in Harder’s Express is misplaced. 15
In that
case, after unstamped cigarettes were stolen from a common carrier
prior to delivery, the State Tax Commission demanded that the
15
King Mountain argues that the Court should not consider the
State’s argument regarding Harder’s Express as it was raised for
the first time on reply. (Def.’s Supp. Br., Docket Entry 212,
at 4.) However, the Court finds that the State’s argument
regarding Harder’s Express relates to its initial argument
asserted in its moving brief that King Mountain was in
“possession” of cigarettes pursuant to Section 471.
44
common carrier pay the cigarette tax and an assessment.
Express, 70 A.D.2d at 1010.
Harder’s
The Third Department rejected the
State Tax Commission’s argument that the theft of the cigarettes
constituted a sale as defined by the NYTL, which thereby required
the common carrier to pay a tax based on its possession of the
unstamped cigarettes.
Id.
The court concluded that: (1) a “mere
change of physical custody” is not a “sale” of cigarettes, and (2)
a common carrier only possesses cigarettes “for the purpose of
facilitating a sale.”
Id. at 1011.
The Court held that Article
20 of the Tax Law was not applicable to the “transfer of cigarettes
by theft.”
Id.
The State argues that since a common carrier does not
“possess” cigarettes for sale pursuant to Harder’s Express, it
follows
that
the
cigarettes
remained
in
King
Mountain’s
“possession” while the common carrier was transporting them into
New York State.
(Pl.’s Reply Br. at 6.)
The Court declines to
adopt the State’s creative inversion of the Harder’s Express
holding.
The fact that a common carrier does not “possess”
cigarettes under Section 471 does not automatically result in the
manufacturer maintaining “possession” during the transportation
process.
The Court is also not persuaded by the State’s reliance
on 20 N.Y.C.R.R. Section 74.3, which provides that cigarettes may
be introduced into New York State without the presumption that a
45
taxable event occurred where the cigarettes are transported by
common
carrier,
stored
in
a
bonded
or
public
warehouse,
exclusively sold to licensed cigarette agents.
and
20 N.Y.C.R.R.
§ 74.3(a)(1).
That provision also states that “[d]ealers and
manufacturers,
other
than
agents,
in
possession
of
unstamped
packages of cigarettes . . . may be held liable for the cigarette
tax and for violation of the Tax Law and this Title.”
Id.
This
statute echoes Section 471 in that manufacturers are liable for
taxes
to
the
extent
they
are
in
“possession”
of
unstamped
cigarettes.
Once again, the Court declines to go beyond the plain
meaning
the
of
manufacturer
is
word
in
“possession”
“possession”
of
and
expand
cigarettes
it
so
that
transported
a
by
common carrier.
In the absence of express direction from the New York
State legislature, the Court will not rewrite Section 471 and
expand the definition of “possession” to encompass an out-of-state
manufacturer utilizing a common carrier to transport cigarettes
within New York State.
Accordingly, King Mountain is not liable
for cigarette taxes pursuant to Section 471.
b. Failure to Ship Unstamped Cigarettes to Agent
King Mountain concedes that: (1) it it is a “wholesale
dealer,” 16 as defined by Section 471, (2) it is not a licensed
16
“Wholesale dealer” is defined as “[a]ny person who (a) sells
cigarettes or tobacco products to retail dealers or other
46
stamping agent, 17 and (3) it “did not sell its cigarettes to
stamping agents licensed by the State of New York (because it sold
cigarettes directly to Indian tribes and companies owned by members
of Indian tribes).”
(Def.’s Opp. Br. at 20.)
While Section 471
permits the sale of unstamped cigarettes to licensed stamping
agents who provide certifications that the cigarettes will not be
resold in violation of Article 20, New York Tax Law § 471(4)(a)(b),
it
requires
that
“[a]ll
cigarettes
sold
by
agents
and
wholesalers to Indian nations or tribes or reservation cigarette
sellers located on an Indian reservation must bear a tax stamp,”
N.Y. Tax Law § 471(2).
Thus, King Mountain violated Section 471
by admittedly failing to sell its unstamped cigarettes to licensed
stamping agents.
See City of N.Y. v. Golden Feather Smoke Shop,
Inc., No. 08-CV-3966, 2013 WL 3187049, at *27 (E.D.N.Y. Jun. 20,
2013) (Noting that agents are meant to be the sole point of entry
for cigarettes and “[a]s a result, reservation retailers should
theoretically no longer be able to obtain unstamped cigarettes.”).
persons for purposes of resale, or (b) owns, operates or
maintains one or more cigarette or tobacco product vending
machines in, at or upon premises owned or occupied by another
person, or (c) sells cigarettes or tobacco products to an Indian
nation or to a reservation cigarette seller on a qualified
reservation. N.Y. Tax Law § 470(8).
17
“Agent” is defined as “[a]ny person licensed by the
commissioner of taxation and finance to purchase and affix
adhesive or meter stamps on packages or cigarettes under this
article.” N.Y. Tax Law § 470(11).
47
Accordingly, the State’s motion for summary judgment is
GRANTED IN PART and DENIED IN PART.
The State’s motion is GRANTED
with respect to its claim that King Mountain violated Section 471
by selling unstamped cigarettes directly to Indian nations or
tribes and/or reservation cigarette sellers or entities that are
not licensed stamping agents.
The State’s motion is DENIED with
respect to its claim that King Mountain is liable under Section
471 for its “possession” of cigarettes.
The Court notes that the Amended Complaint does not
expressly specify the relief that the State is seeking with respect
to its third cause of action.
26.)
(See generally Am. Compl. at 25-
The Court will address the issue of the particular relief
the State is seeking in connection with the third cause of action
after the completion of the trial in this matter.
B.
New York Tax Law § 480-b
New York Tax Law Section 480-b provides, in relevant
part that:
Every tobacco product manufacturer . . . whose
cigarettes are sold for consumption in this
state shall annually certify under penalty of
perjury that, as of the date of such
certification,
such
tobacco
product
manufacturer:
(a)
is
a
participating
manufacturer as defined in [the Public Health
Law]; or (b) is in full compliance with
[Public Health Law Section 1399-pp(2)] . . .
N.Y. Tax L. § 480-b(1).
certification
by
tobacco
Additionally, the submission of such
product
48
manufacturers
“shall
be
accompanied by a list setting forth each of the cigarette brands
of such tobacco product manufacturer sold for consumption in New
York state.”
N.Y. Tax L. § 480-b(1).
The New York Public Health
Law defines “tobacco product manufacturer” as including an entity
that “manufactur[es] cigarettes anywhere that such manufacturer
intends to be sold in the United States[.]”
§ 1399-oo(9)(a).
N.Y. Pub. Health L.
Public Health Law Section 1399-pp(2) provides
that any tobacco manufacturer selling cigarettes to consumers in
New York State must either: (1) become a participating manufacturer
pursuant to the Master Settlement Agreement 18; or (2) place a
proscribed amount of funds per unit sold into a qualified escrow
fund each year.
N.Y. Pub. Health L. § 1399-pp(2)(a).
The State alleges that King Mountain has failed to
provide the certifications required under Section 480-b and “has
not joined the 1998 Tobacco Master Settlement Agreement, and has
not otherwise complied with the State’s escrow requirements.”
(Pl.’s Br. at 34.)
of
Peter
Spitzer
In support, the State submits the Declaration
dated
February
18
21,
2013,
(“Spitzer
Decl.”)
In November 1998, four cigarette manufacturers settled
litigation with states that included New York by entering into a
Master Settlement Agreement in which “[i]n return for releases
from liability, these manufacturers agreed to make substantial
annual payments to compensate the states for health care
expenses incurred in the past and expected to be incurred in the
future as a result of their populations’ smoking-related
ailments.” Freedom Holdings, Inc. v. Cuomo, 624 F.3d 38, 42 (2d
Cir. 2010).
49
originally submitted in support of the State’s application for a
preliminary injunction.
(Pl.’s Mot. Ex. 33, Docket Entry 197-40.)
Mr. Spitzer, an Excise Tax Technician with DTF, asserts that a
search of the agency’s records revealed that King Mountain did not
certify “that it is either a participating manufacturer under the
MSA and has generally performed its obligations thereunder, or is
in full compliance with New York Public Health Law § 1399-pp(2) by
having deposited the required amount of escrow per cigarette sold
in the state.”
(Spitzer Decl. ¶¶ 1, 6.)
Mr. Spitzer also avers
that DTF records reveal that King Mountain did not submit a list
of the cigarette brands it sells in New York State pursuant to
Section 480-b(1).
(Spitzer Decl. ¶ 7.)
Further, King Mountain
admits in its Answer that it has not filed certifications or a
list of the cigarette brands it sells in New York State pursuant
to Section 480-b.
(See Am. Compl. ¶¶ 75, 92; Ans., Docket Entry
47, ¶ 20.)
In opposition, King Mountain argues that “there is no
evidence in the record that King Mountain knowingly violated New
York Tax Law § 480-b, because King Mountain only engaged in Nationto-Nation sales within the boundaries of New York State.”
Opp. Br. at 22.)
to
Indian
(Def.’s
King Mountain avers that it only sold cigarettes
Nations
and
Indian-owned
companies
with
a
“single
exception;” the Court Assumes this “single exception” is its sale
to Valvo Candies in which it sold to a non-Native American owned
50
corporation.
(Def.’s Opp. Br. at 22-23.)
Notably, King Mountain
does not proffer any proof that it complied with Section 480-b.
First, King Mountain concedes that it made its infamous
sale to Valvo Candies, a New York State company that is not owned
by an Indian Nation or tribe or a member of an Indian Nation or
tribe.
Accordingly,
King
Mountain
is
a
“tobacco
product
manufacturer . . . whose cigarettes are sold for consumption in
this
b.
state,”
and
was
required
to
comply
with
Section
480-
Second, there is no exception in Section 480-b for cigarette
sales to Indian Nations or Indian-owned companies located on
qualified reservations.
Unlike the PACT Act, which, as previously
noted, includes definitions of “state,” “Indian country,” and
“interstate commerce,” neither Section 480-b nor the definitions
set forth in NYTL Section 470 define the term “state.”
The Court
declines to hold that Section 480-b is inapplicable to cigarettes
sales to Indian Nations and/or Indian-owned companies located on
reservations in the absence of any statutory support for the
creation of such an exception.
Accordingly, the State’s motion
for summary judgment is GRANTED with respect to its claim under
Section 480-b.
C.
New York Executive Law § 156-c
1.
Failure to File Certifications
New York Executive Law Section 156-c (“Section 156-c”)
provides that “no cigarettes shall be sold or offered for sale in
51
this state unless the manufacturer thereof has certified in writing
to the office of fire prevention and control that such cigarettes
meet the performance standards prescribed by the office of fire
prevention
section.”
and
control
pursuant
to
N.Y. EXEC. L. § 156-c(3).
subdivision
two
of
this
The State argues that King
Mountain has failed to certify in writing to the New York State
Office of Fire Prevention and Control that its cigarettes meet the
relevant performance standards.
(Pl.’s Br. at 34.)
King Mountain
has failed to respond to this argument or proffer any evidence
that it has submitted the requisite certifications.
(See Def.’s
Opp. Br. at 22-23.)
King Mountain admitted that it has not submitted such
certifications in its Responses to Plaintiff’s First Request for
Admissions under Rule 36 dated November 20, 2013.
Ex. 18, Docket Entry 197-25, ¶ 6.)
(Pl.’s Mot.
To the extent that King
Mountain’s opposition brief could be construed as asserting that
it need not file certifications because it does not sell cigarettes
in New York State based on its “Nation to Nation” sales, Section
156-c contains no such exception.
Accordingly, the State’s motion
for summary judgment is GRANTED with respect to its claim that
King Mountain failed to file certifications in violation of Section
156-c.
52
2.
“FSC” Labeling
Section 156-c also provides that “[n]o cigarettes shall
be distributed, sold or offered for sale in this state unless the
manufacturer has placed on each individual package the letters
‘FSC’ which signifies Fire Standards Compliant.”
§ 156-c(6).
N.Y. EXEC. L.
It is unclear whether the State has abandoned an
additional aspect of its Section 156-c claim--that King Mountain
has failed to affix the required Fire Standards Compliant mark on
its packaging--based on its failure to include such argument in
its moving brief.
(See Am. Compl. ¶ 96 (“Defendant King Mountain
has similarly failed to place the required ‘FSC’ (Fire Standards
Compliant) mark on the packages of cigarettes it manufactures which
are distributed, sold, or offered for sale in New York.”); Pl.’s
Br. at 34.)
In any event, the Court finds that King Mountain has
raised genuine issues of material fact as to whether it affixed
the letters “FSC” to its cigarettes in accordance with Section
156-c.
King Mountain has produced a photograph of a box of its
cigarettes that contains the letters “FSC” on its packaging.
(Def.’s Opp. Ex. A, Docket Entry 202-2.)
Additionally, King
Mountain cites to the deposition testimony of State Investigator
Andrew Scala in which Mr. Scala states that the letters “FSC” on
the King Mountain package of cigarettes signifies compliance with
the relevant state fire safety code requirement.
Ex. 10, Docket Entry 195-12, 83:4-84:14.)
53
(Def.’s Mot.
While the Court concurs with the State that King Mountain
has
not
established
that
it
meets
the
“fire-safe”
standards
specific to New York, (see Pl.’s Reply Br. at 10), the submission
of evidence of a King Mountain cigarette box bearing the letters
“FSC” raises issues of fact as to whether King Mountain complied
with the packaging requirements set forth in Section 156-c(6).
Parenthetically, the Court notes that the Amended Complaint only
asserts
that
King
Mountain
failed
to
file
the
requisite
certifications and failed to place the required “FSC” mark on its
packaging; it does not allege that King Mountain Cigarettes do not
meet fire-safe standards.
(See generally Am. Compl. ¶¶ 94-98.)
Accordingly, summary judgment is DENIED with respect to the State’s
claim that King Mountain failed to affix the fire safety compliant
mark to its cigarettes in violation of Section 156-c.
CONCLUSION
For the foregoing reasons, King Mountain’s motion for
summary judgment (Docket Entry 195) is GRANTED IN PART AND DENIED
IN PART and the State’s motion for summary judgment (Docket Entries
197 and 198) is GRANTED IN PART AND DENIED IN PART.
Summary
judgment is GRANTED in favor of King Mountain on the State’s first
claim under the CCTA.
Summary judgment on the second claim under
the PACT Act is DENIED regarding the 2010 sale to Valvo Candies
and GRANTED in favor of King Mountain as to the balance of the
State’s PACT Act claim.
With respect to the State’s third claim
54
under NYTL Sections 471 and 471-e, summary judgment is GRANTED in
favor
of
King
Mountain
regarding
King
Mountain’s
alleged
possession of unstamped cigarettes in New York State and GRANTED
in favor of the State regarding King Mountain’s failure to sell
its unstamped cigarettes to licensed stamping agents.
Summary
judgment is GRANTED in favor of the State on its fourth claim
pursuant to Section 480-b.
With respect to the State’s fifth
claim, summary judgment is GRANTED in favor of the State regarding
its claim that King Mountain failed to file certifications pursuant
to New York Executive Law Section 156-c and DENIED as to its claim
that King Mountain failed to affix the Fire Standards Compliant
mark to its cigarette packages.
SO ORDERED.
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
DATED:
July _21_, 2016
Central Islip, New York
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