State Of New York v. Grand River Enterprises Six Nations, LTD. et al
Filing
110
DECISION AND ORDER declining to adopt 97 Report & Recommendations; denying 81 Grand River Enterprises' Motion to Dismiss and for a Stay of Discovery; and denying 79 Native Wholesale Supply Inc.'s Motion to Dismiss. Signed by Hon. Michael A. Telesca on 2/11/2019. (AFB)-CLERK TO FOLLOW UP-The Clerk of Court is directed to reassign this case to Hon. Richard J. Arcara, USDJ.
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
STATE OF NEW YORK,
Plaintiff,
DECISION and ORDER
No. 1:14-cv-00910-MAT-LGF
-vsGRAND RIVER ENTERPRISES SIX
NATIONS, LTD. and NATIVE
WHOLESALE SUPPLY COMPANY, INC.
Defendants.
INTRODUCTION
On
March
4,
2013,
the
State
of
New
York
(“Plaintiff”)
instituted this action against defendant Grand River Enterprises
Six Nations, Ltd. (“GRE”) and Native Wholesale Supply Company, Inc.
(“NWS”) (collectively, “Defendants”), alleging violations of the
Contraband Cigarettes Trafficking Act of 1978 (“CCTA”), as amended,
18 U.S.C. § 2341-46; the Prevent All Contraband Trafficking Act
(“PACT Act”), 18 U.S.C. §§ 375-78, Pub. L. No. 111-154, 124 Stat.
1087 (2010); and New York Tax Law (“N.Y. Tax L.”) §§ 471, 471-e,
1814 and 480-b. This matter is before the Court upon United States
Magistrate Judge Leslie G. Foschio’s August 30, 2016 Report and
Recommendation
(“the
R&R”)
(Docket
No.
97),
which
recommends
granting GRE’s Motion to Dismiss and for a Stay of Discovery
(Docket No. 81), granting NWS’s Motion to Dismiss (Docket No. 79),
and
dismissing
Plaintiff’s
Second
Amended
Complaint
(“SAC”)1
(Docket No. 76) without leave to replead.
Plaintiff filed Objections (“Pl. Obj.”) (Docket No. 100) and
a Declaration in Support (“Pl. Decl.”) (Docket No. 101). NWS filed
a Response to Plaintiff’s Objections (“NWS Resp.”) (Docket No.
102). GRE filed a Reply/Response to Plaintiff’s Objections (“GRE
Resp.”) (Docket
No.
103).
The
matter
was
transferred
to
the
undersigned on October 24, 2018 (Docket No. 108). For the reasons
discussed herein, the Court rejects the R&R in its entirety.
BACKGROUND
The following summary is based on the SAC’s allegations, which
are accepted as true for purposes of determining a motion to
dismiss pursuant to Fed. R. Civ. P. 12(b)(6).
GRE is a corporation formed under the laws of the Six Nations
of Indians and engaged in the business of manufacturing, selling,
transferring, transporting, and shipping cigarettes for profit
throughout the United States, including into and throughout New
York State.
GRE’s
principal
place
of
business
is
located
at
Ohsweken, Ontario, Canada. SAC ¶ 8.
NWS is a for-profit corporation formed under the laws of the
Sac and Fox Nation of Oklahoma. It is not controlled by the Sac and
Fox Nation of Oklahoma tribe or operated for government purposes.
1
Plaintiff has amended its original complaint twice. The first amendment,
on August 2, 2013, was required to comply with the stay order issued in NWS’s
bankruptcy proceeding in the United States Bankruptcy Court for the Western
District of New York; the second amendment occurred with Defendants’ consent upon
the transfer of the case from the Eastern District of New York to this District.
-2-
Id.
¶
9.
NWS
is
engaged
in
the
business
of
purchasing,
transporting, distributing, and reselling GRE’s tobacco products
for profit throughout the United States, including in New York. Id.
The only tobacco products NWS imports into the United States are
manufactured by GRE. Id. ¶ 10. NWS’s principal place of business is
located in Perrysburg, New York. Id. ¶ 9.
GRE manufactures Seneca® brand cigarettes in Ontario, Canada.
Id. ¶ 55. GRE then sells, transfers or assigns the cigarettes to
NWS, “FOB Canada,” at GRE’s Canada facility. Id. Title to the
cigarettes transfers from GRE to NWS in Canada. Id. NWS, holding
title for the cigarettes manufactured by GRE, then imports and
distributes the cigarettes inside the United States, including into
and throughout New York State. Id. ¶ 57.
GRE and NWS are engaged as business partners or “co-venturers”
in a joint venture for the specific purpose of manufacturing,
distributing,
shipping,
and
selling
untaxed
and
unstamped
contraband cigarettes into the State of New York. See id. ¶¶ 66-83.
Since November 22, 2011, and continuing through to the present, GRE
and NWS have knowingly shipped, transported, transferred, sold, and
distributed millions of unstamped and unreported cigarettes to
various on-reservation wholesalers in New York State, such as
Seneca Imports, Tonawanda Seneca Nation Distribution, and Tuscarora
Nation. Id. ¶ 58. None of GRE’s cigarette packages was stamped with
the required New York State cigarette excise tax stamp, and none of
those packages was reported to the New York State Department of
-3-
Taxation and Finance (“NYSDTF”). Id. ¶ 64. In addition, no New York
State-licensed stamping agent has reported any sales of GRE’s
Seneca® brand cigarettes to the NYSDTF. Id. ¶ 65.
STANDARD OF REVIEW
Recommendations made by a magistrate judge pursuant to 28
U.S.C. § 636(b)(1)(B) “need not be automatically accepted by the
district court.” Grassia v. Scully, 892 F.2d 16, 19 (2d Cir. 1989).
Should either party object to a magistrate judge’s report and
recommendation, “[a] judge of the court shall make a de novo
determination of those portions of the report or specified proposed
findings or recommendations to which objection is made.” 28 U.S.C.
§ 636(b)(1). The Second Circuit has clarified that “[e]ven if
neither party objects to the magistrate’s recommendation, the
district
court
is
not
bound
by
the
recommendation
of
the
magistrate.” Grassia, 892 F.2d at 19. Rather, “‘[a] judge of the
court may accept, reject, or modify, in whole or in part, the
findings or recommendations made by the magistrate. The judge may
also receive
further
evidence
or
recommit the
matter
to
the
magistrate with instructions.’” Id. (quoting 28 U.S.C. § 636(b)(1);
citing Mathews v. Weber, 423 U.S. 261, 271 (1976); McCarthy v.
Manson, 714 F.2d 234, 237 n. 2 (2d Cir. 1983)).
DISCUSSION
I.
Plaintiff’s Objections to the R&R’s Recommendation Regarding
the PACT Act Claim (Pl.’s Obj. at 3-9)
A.
Overview of the PACT Act
-4-
The PACT Act provides that “[a]ny person who sells, transfers,
or
ships
for
profit
cigarettes
or
smokeless
tobacco
in
[1]
interstate commerce, whereby such cigarettes or smokeless tobacco
are shipped [2] into a State, locality, or Indian country of an
Indian tribe taxing the sale or use of cigarettes or smokeless
tobacco, or who advertises or offers cigarettes or smokeless
tobacco for such a sale, transfer, or shipment, shall” comply with
certain filing and reporting requirements. 15 U.S.C. § 376(a) (“§
376(a)”) (emphases supplied).
“[I]nterstate commerce” is defined in the PACT Act 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).
In the PACT Act, “State” is defined as “each of the several
States
of
the
United
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). The statute defines “Indian
country” by cross-referencing the definition of that term found at
18 U.S.C. § 1151, which provides that Indian country includes “all
land
within
the
limits
of
any
Indian
reservation
under
the
jurisdiction of the United States Government,” “all dependent
Indian communities within the borders of the United States . . .
whether within or without the limits of a state,” and “all Indian
-5-
allotments, the Indian titles to which have not been extinguished.”
18 U.S.C. § 1151 (cross-referenced in 15 U.S.C. § 375(7)(A)).
B.
The R&R Erred in Finding That Plaintiff Failed to Plead
the Elements of a “Destination” Covered by the Act and
“Interstate Commerce”
In the SAC, Plaintiff alleges that GRE and NWS are engaged in
a joint venture whereby GRE manufactures cigarettes in Ontario,
Canada; GRE sells the untaxed cigarettes to NWS, who takes custody
of them FOB at GRE’s manufacturing facility in Canada; and NWS then
ships the untaxed cigarettes “into New York State,” a jurisdiction
which “tax[es] the sale . . . of cigarettes,” from Ontario, Canada,
a “place outside the State”; NWS then sells and distributes the
untaxed cigarettes to buyers, including “to various on-reservation
wholesalers in New York State.” SAC ¶¶ 55-58, 125-32. Plaintiff
asserts that it therefore has fulfilled all of the elements of a
PACT Act claim against NWS and GRE, under a joint venture theory of
liability as to GRE.
The R&R concluded that § 376(a)’s requirements do not apply to
Defendants
because
(1)
Plaintiff
does
not
allege
that
the
cigarettes were shipped “into” one of the three “destinational
elements,” R&R at 34, set forth in § 376(a), which the R&R
interprets disjunctively as “State”, “locality”, or “Indian country
of an Indian tribe taxing the sale or use of cigarettes,” see R&R
at
32-34;
and
(2)
Plaintiff
does
not
sufficiently
allege
“interstate commerce” as defined in the PACT Act, see R&R at 33-38.
The Court considers these findings in turn below.
-6-
According to the R&R’s construction of § 376(a), if the
termination point of a tobacco shipment is in Indian country, it
must be alleged that the tribe of that reservation taxes the sale
or use of cigarettes because, under § 376(a), the shipment will not
also be considered to be into the State in which the Indian country
is located. See Pl. Obj. at 5 (citing R&R at 32-33). The R&R thus
essentially interpreted the terms “State” and “Indian country of an
Indian tribe taxing the sale or use of cigarettes” as mutually
exclusive. See Pl. Obj. at 4-9 (citing R&R at 32-35). Plaintiff
disputes this conclusion, urging that the proper construction of §
376(a) is that “Indian reservations, such as those associated with
the Seneca Indian Nation, are considered not only as ‘Indian
country,’ but also as being within New York State, as well as a
‘place’ and a ‘locality’ under the reporting requirements.” Pl.
Obj. at 6. Consequently, Plaintiff argues, whether the Seneca
Nation has its own regulatory scheme for taxing the sale or use of
cigarettes is immaterial; cigarette shipments to any New York State
Indian reservations also constitute shipments “into a State” for
purposes of § 376(a). Id.
at 6-7.
NWS and GRE counter that “to trigger § 376(a)’s reporting
requirements, NWS must ship tobacco into a State, locality, or
Indian country of an Indian tribe that taxes such tobacco.” NWS
Resp. at 7 (emphasis in original). NWS and GRE urge that the R&R’s
interpretation of the statute is correct, and that Plaintiff’s
claim fails because it “does not allege that the destination of the
-7-
shipments, the Seneca Nation, is a tribe that taxes the sale of
tobacco.” Id. (footnote omitted).2
According to Defendants, §
376(a)’s “taxes the sale” language only modifies “Indian country,”
and does not modify “State” or “locality.” Id. at 8; see also id.
at 10-11.
There is a dearth of case law on this specific issue. However,
the cases
seem
to
assume that
Plaintiff’s
construction
of §
376(a)’s destination requirement is the correct one. See City of
New York v. Wolfpack Tobacco, No. 13 CIV. 1889 DLC, 2013 WL
5312542, at *3 (S.D.N.Y. Sept. 9, 2013) (“[T]he [PACT Act] requires
sellers of cigarettes who ship them to states or localities that
impose taxes on them to file with those states and localities each
month ‘a memorandum or a copy of the invoice covering each and
every shipment of cigarettes . . . made during the previous
calendar month.’”) (quoting 15 U.S.C. § 376(a); emphasis supplied;
ellipsis in original); City of New York v. Gordon, 1 F. Supp.3d 94,
100–01 (S.D.N.Y. 2013) (“[T]he PACT Act requires ‘[a]ny person who
sells,
transfers,
or
ships
for
profit
cigarettes
.
.
.
in
interstate commerce’ into a state or city that taxes ‘the sale or
use of cigarettes’ to file ‘a memorandum or a copy of the invoice
2
Plaintiff points out that contrary to the R&R’s implicit assertion that the
Seneca Nation of Indians does not tax the sale of cigarettes within its
reservation’s borders, see R&R at 42, it does impose a tax on imported
cigarettes. Pl. Obj. at 7 n. 4 (citing Seneca Nation of Indians v. Paterson, No.
10-CV-687A, 2010 WL 4027796, at *1 (W.D.N.Y. Oct. 14, 2010) (noting that in 2006,
the plaintiff enacted its own import-export law to combat cigarette trafficking
and to create a tax stamp system, under which it assesses a 7.5 cents-per-pack
tax on all imported cigarettes sold on its property), aff’d sub nom. Oneida
Nation of New York v. Cuomo, 645 F.3d 154 (2d Cir. 2011).
-8-
covering each and every shipment of cigarettes’ with the “chief law
enforcement officers of the local governments . . . that apply
their own local . . . taxes on cigarettes.’ 15 U.S.C. § 376(a). All
Of Our Butts shipped cigarettes from an Indian reservation to New
York City residents, thus selling cigarettes in interstate commerce
to a locality that taxes cigarette sales. The Gordon Defendants do
not dispute that under the PACT Act, they are required to report
these sales to the chief law enforcement officer of New York
City.”) (emphasis supplied; ellipses in original).
Thus, courts have assumed that the “taxes the sale” language
not only modifies “Indian country,” but also modifies “State” or
“locality.” The Court agrees that based on common rules of English
grammar, this is the correct reading of the statute. Defendants
argue that if Congress intended such a meaning, it would have
placed a comma between “tribe” and “that.” However, that comma
placement not only would be grammatically incorrect, it would be
entirely gratuitous. In short, it would have no effect whatever on
the meaning of the phrase.
Moreover, in this Court’s view, Plaintiff’s interpretation is
the only one that harmonizes with the purpose of the statute. If,
as Defendants argue and the R&R found, the “taxes the sale”
language only applies to an “Indian in Indian country,” this would
mean that any “State” or any “locality”—regardless of whether it
“taxes the sale” of cigarettes—is subject to § 376(a)’s reporting
requirements. That simply does not make sense. The purpose of the
-9-
PACT Act’s reporting requirements is to ensure that cigarettes
shipped by sellers to destinations that do levy cigarette taxes are
accounted for.
In sum, the Court rejects the notion that “Indian country” and
“State” are mutually exclusive for purposes of the PACT Act. To the
contrary, the Court finds that Indian reservations can be both
located in “Indian country” and in “a State” for purposes of the
PACT Act. Nothing about the statute’s separate definitions of
“State” and “Indian country” indicates that the two terms are
mutually exclusive. Cf. Ho-Chunk, Inc. v. Sessions, 253 F. Supp.3d
303, 307-08 (D. D.C. 2017) (rejecting the argument that the term
“State” excludes “Indian country” under the CCTA, which defines
both terms similarly to the PACT Act; noting that “courts have
unanimously held that these provisions apply to Indian country,
meaning that for purposes of the CCTA, ‘State’ has been impliedly
read to include tribal territory”) (emphasis in original), aff’d,
894 F.3d 365 (D.C. Cir. 2018).
C.
The R&R Erred in Finding That Plaintiff Did Not
Sufficiently Plead the Element of “Interstate Commerce”
The R&R concluded that the SAC’s allegations do not fulfill
the PACT Act’s definition of interstate commerce because the
alleged
shipments,
which
originate
in
Canada,
subsequently
terminate on the Cattaraugus reservations, i.e., “Indian country.”
According to the R&R, “State” and “Indian country” must be treated
as being mutually exclusive because the PACT Act supplies two
-10-
separate definitions for the terms “State” and “Indian country.”
The R&R
reasons
that
a
termination point
on
the
Cattaraugus
reservations cannot also be considered to be in a State. Therefore,
it
concludes
that
shipments
from
Canada
to
the
Cattaraugus
reservations cannot be said to be commerce between a State and any
place outside the State. See R&R at 33-36. Defendants agree that
Plaintiff confuses “into” with “through,” and that “‘into’ means
the destination to which ‘cigarettes . . . are delivered,’ not a
jurisdiction through which shipments travel.” NWS Resp. at 11
(ellipsis and emphasis in original).
This Court disagrees with the R&R’s conclusion based on the
plain language of the PACT Act, as discussed further below. To the
contrary, the Court finds that Plaintiff’s allegations regarding
Defendants’ shipments of cigarettes plausibly allege “interstate
commerce” within the meaning of the statute.
As noted above in Section I.A, one of the definitions of
“interstate commerce” in the PACT Act includes “commerce between a
State and any place outside the State.” 15 U.S.C. § 375(9)(A). And
Congress defined “State” in the PACT Act to mean “each of the
several States of the United States, the District of Columbia, the
Commonwealth of Puerto Rico, or any territory or possession of the
United States.” Id. § 375(11). There is no doubt that New York is
one of the “several States of the United States.” Id. In light of
these
terms’
“interstate
ordinary
commerce”
meaning,
because
it
-11-
the
SAC
alleges
plausibly
that
the
alleges
cigarette
shipments initially occur between Canada, a “place outside the
State,” and “a State,” i.e., New York State (as well as Indian
reservations within the State).
In contending that its cigarette shipments do not constitute
“interstate commerce,” GRE argues that Indian country is not part
of any “State,” as that term is defined under the PACT Act, and
that GRE’s cigarettes thus went from Indian country in Canada to
Indian country in New York, without actually arriving “into” any
State at all. In other words, Defendants contend, interstate
reservation-to-reservation transactions do not constitute commerce
“between a State and any place outside of the State.”
The Court finds that this argument improperly ignores the
commonsense meaning of the PACT Act’s definition of “State,” i.e.,
each State, the District of Columbia, Puerto Rico, and all other
territories of the United States. 15 U.S.C. § 375(11). Ordinarily,
as Supreme Court precedent illustrates, an “Indian reservation is
considered part of the territory of the State” in which it is
located. Nevada v. Hicks, 533 U.S. 353, 361-62 (2001) (quotation
marks omitted); see also Organized Vill. of Kake v. Egan, 369 U.S.
60, 72 (1962) (“[B]y 1880 the [Supreme] Court no longer viewed
reservations ad [sic] distinct nations. On the contrary, it was
said that a reservation was in many cases a part of the surrounding
State or Territory, and subject to its jurisdiction except as
forbidden
by
federal
law.”)
(citation
omitted).
Under
a
straightforward application of this general rule, transactions
-12-
between Indian reservations located within different States would
qualify as transactions between
States.
When interpreting statutory text, “the words to be interpreted
are not considered in isolation; rather, [the court] ‘look[s] to
the
statutory
scheme
as
a
whole
and
plac[e]
the
particular
provision within the context of that statute.’” King v. Time Warner
Cable Inc., 894 F.3d 473, 477 (2d Cir. 2018) (quotation omitted).
With this precept in mind, reading the sections at issue in the
context of the PACT Act demonstrates that Congress intended to
adhere to the common understanding, as expressed in Nevada v.
Hicks, supra, that Indian country is a territorial part of the
State in which it is located. For example, Congress provided that
the term “Indian country” includes two specific Indian communities
“within the State of Alaska,” 15 U.S.C. § 375(7)(A) (emphasis
added), as well as dependent Indian communities “within or without
the limits of a state,” 18 U.S.C. § 1151 (emphasis added). The PACT
Act requires cigarette sellers to provide reports to both the State
into
which
“operating
cigarettes
within
the
are
shipped
borders
of
and
[the]
certain
State.”
Indian
15
tribes
U.S.C.
§
376(a)(3) (emphasis added).
Notably, the PACT Act defines “interstate commerce” in part to
include “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) (emphasis added). Thus, the PACT Act expands the
definition of “interstate commerce” to include intrastate shipments
-13-
of cigarettes that travel through Indian country, which shows
Congress’ recognition that Indian country is located “in a State.”
15
U.S.C.
§
375(9).
And,
by
using
the
disjunctive
“or”
to
distinguish “any place outside of the State” from “Indian country”
in § 375(9), Congress indicated its understanding that Indian
country may exist within a State. Under Defendants’ contrary
interpretation, the latter clause of this definition—“or through
any Indian country”—would be extraneous, because Indian country
would already be encompassed by the former clause—“any place
outside
the
State.”
This
goes
against
the
“‘most
basic
of
interpretative canons’” that “statutes should be read to avoid
superfluity.” Marx v. Gen. Revenue Corp., 568 U.S. 371, 392–93
(2013) (quoting Corley v. United States, 556 U.S. 303, 314 (2009);
further quotation omitted).
Additionally, the fact that the PACT Act’s definition of
interstate commerce also encompasses “commerce between a State and
any Indian country in the State,” 15 U.S.C. § 375(9)(A) (emphasis
added), further
reflects
country is
located
Congress’s
decision
Congress’s
within
to
the
define
understanding
territory
“State”
of
and
a
that
State.
“Indian
Indian
Indeed,
country”
separately in the PACT Act, and to include distinct references to
“States” and “Indian country” in the statute’s definition of
“interstate
commerce,”
evidences
the
intent
to
expand
the
traditional understanding of interstate commerce rather than to
narrow it. The references to Indian country in the definition of
-14-
“interstate commerce” are intended to distinguish between a State
and Indian country within the same State, and to specify that even
some intrastate shipments of cigarettes (i.e., those between a
State and Indian country within the State’s own borders) qualify as
interstate commerce. See 15 U.S.C. § 375(9). It was unnecessary for
Congress to specify that transactions between Indian country in
different States similarly qualify as interstate commerce, because
such transactions constitute “interstate commerce” under the plain
meaning of that term. It would make no sense for the PACT Act to
apply to wholly intrastate shipments that travel through Indian
country,
while
exempting
genuinely
interstate
shipments
that
similarly travel through Indian country.
In sum, the Court finds that for purposes of the PACT Act’s
definition of “interstate commerce,” Indian reservations can be
both located in “Indian country” and in “a State.” Therefore, the
Court rejects the R&R’s finding that the SAC did not sufficiently
allege
that
the
cigarette
shipments
at
issue
occurred
in
“interstate commerce.”
II.
Plaintiff’s Objections to the R&R’s Recommendation Regarding
Dismissal of the CCTA Claim (Pl. Obj. at 11-17)
A.
Overview of the CCTA
Congress enacted the CCTA in 1978 “to remedy ‘the serious
problem of organized crime and other large scale operations of
interstate
cigarette
bootlegging’—i.e.,
untaxed
cigarette
trafficking—and to ‘provide law enforcement assistance and relief
-15-
to cities and states’ in support of that effort.” Ho-Chunk, Inc.,
253 F. Supp.3d at 304–05 (quoting Rep. 95–962, at 3, reprinted in
1978 U.S.C.C.A.N. 5518, 5518; other citation omitted). The CCTA
makes it a crime for “any person knowingly to ship, transport,
receive,
possess,
sell,
distribute,
or
purchase
contraband
cigarettes or contraband smokeless tobacco.” 18 U.S.C. § 2342(a).
“[C]ontraband cigarettes” are “a quantity in excess of 10,000
cigarettes, which bear no evidence of the payment of applicable
State or local cigarette taxes in the State or locality where such
cigarettes are found, if the State or local government requires a
stamp, impression, or other indication . . . [of] payment of
cigarette taxes.” 18 U.S.C. § 2341(2).
In 2006, Congress enacted the USA PATRIOT Improvement and
Reauthorization Act of 2005, see Pub. L. No. 109-177, Mar. 9, 2006,
120 Stat. 192, which amended the CCTA to, among other things, add
reporting
requirements
to
federal
and
state
authorities
for
non-face-to-face “delivery” sales and provide for State, local, and
private civil enforcement of the CCTA. Id. To mitigate concerns
regarding tribal sovereignty, Congress added an explicit tribal
government exemption from the reporting requirement. 18 U.S.C. §
2343(b).
Congress
also
exempted
Indian
tribes
from
private
enforcement actions. See 18 U.S.C. § 2346(b)(1) (“No civil action
may be commenced under this paragraph against an Indian tribe or an
Indian in Indian country (as defined in section 1151 [of Title 18
U.S.C.]).”).
“Congress has intended the definition of ‘person’ in
-16-
1 U.S.C. § 1 to apply in [the CCTA]. Government agencies and
instrumentalities are not included in that definition.” 45 Fed.
Reg. 48,612. See also H.R. CONF. REP. 95-1778, 1978 U.S.C.C.A.N.
5535 at 5538 (deleting the definition of “person” from the CCTA
“because ‘person’ is defined in 1 U.S.C. 1 for all act [sic] of
Congress”).
B.
The R&R Erred in Finding That NWS Is Exempted From a
Civil Suit Under the CCTA
Defendants argue that NWS falls within the “Indian in Indian
country”
exemption
set
forth
in
18
U.S.C.
§
2346(b)(1)
(Ҥ
2346(b)(1)”). The R&R agreed, relying on a decision from the
Eastern District of New York on a summary judgment motion, State of
New York v. Mountain Tobacco, No. 12-CV-6276(JS)(SIL), 2016 WL
3962992 (E.D.N.Y. July 21, 2016) (“Mountain Tobacco”). The district
court in Mountain Tobacco applied § 2346(b)(1)’s prohibition on
“civil action[s]” brought by States or localities against an
“Indian tribe or an Indian in Indian country” in granting summary
judgment for a tribal corporation against the State of New York.
2016
WL
3962992,
at
*4-*7.
Plaintiff
objects
to
the
R&R’s
conclusion on this issue and argues that Mountain Tobacco was
incorrectly decided. The Court has reviewed Mountain Tobacco, a
non-binding and unpublished decision, and respectfully disagrees
with the district court’s analysis. Instead, the Court finds
persuasive the analysis by the Circuit Court of Appeals for the
District
of
Columbia
(“D.C.
Circuit”)
-17-
in
Ho-Chunk,
Inc.
v.
Sessions, 894 F.3d 365, 367-69 (D.C. Cir. 2018) (holding that the
CCTA and its implementing regulations do not exempt wholly-owned
corporations of a federally-recognized Indian tribe from coverage),
aff’g 253 F. Supp.3d 303 (D. D.C. 2017).
Similarly to Defendants here, the plaintiff corporations’
“main
argument”
in
Ho-Chunk,
Inc.
was
that
Ҥ
2343(a)—the
recordkeeping provision—applies only to ‘[a]ny person’ and they are
not ‘persons.’ They are not ‘persons’ . . . because they are
‘tribal
instrumentalities,’
which
assumes
that
a
tribal
instrumentality—and for that matter, a tribe itself—cannot be a
‘person.’” Ho-Chunk, Inc., 894 F.3d at 368. The D.C. Circuit found
both “assumptions” to be “mistaken.” Id. The D.C. Circuit found
“several flaws” in the corporations’ argument, “[t]he most obvious
[of which] is that the [CCTA]’s recordkeeping requirements do not
turn on any territorial determination.” Ho-Chunk, Inc., 894 F.3d at
367 (citing 18 U.S.C. § 2343(a)). Whether the corporations had
their principal place of business on a tribal reservation “sa[id]
nothing about whether federal law requires them to keep records.”
Id. Moreover, the D.C. Circuit explained, “if the corporations were
correct that the [CCTA]’s regulation of contraband cigarettes does
not apply to sales to non-Indians in Indian country, this would not
only be senseless but would also contravene decades of settled law
upholding
enforcement
of
the
[CCTA]
against
individuals
and
entities operating on reservations.” Id. at 367-68 (collecting
cases).
-18-
The D.C. Circuit also noted that since the CCTA does not
define
“person,”
the
Dictionary
Act,
1
U.S.C.
§
1
must
be
consulted, “as the Conference Committee on the [CCTA] acknowledged,
H.R. Rep. No. 95-1778, at 10 (1978) (Conf. Rep.).” Ho-Chunk, Inc.,
894 F.3d at 368. The Dictionary Act provides that “[i]n determining
the meaning of any Act of Congress, unless the context indicates
otherwise
.
.
corporations,
.
the
words
companies,
‘person’
associations,
and
‘whoever’
firms,
include
partnerships,
societies, and joint stock companies, as well as individuals.” 18
U.S.C. § 1. “[T]he obvious progression,” based on the Dictionary
Act, was that “the [CCTA]’s § 2343(a) recordkeeping requirements
apply to ‘[a]ny person’; under federal law, ‘person’ includes
‘corporations’;
these
appellants
are
‘corporations’;
they are
therefore ‘persons’ and the [CCTA]’s recordkeeping requirements
apply to them.” Ho-Chunk, Inc., 89 F.3d at 368 (quoting 18 U.S.C.
§ 1).
Statutory context supplied an additional reason for concluding
that Congress did not exempt the corporate appellants from the
CCTA’s recordkeeping requirement. Ho-Chunk, Inc., 894 F.3d at 369
(citing United States v. Persichilli, 608 F.3d 34, 37 (1st Cir.
2010) (“But with or without a presumption, [statutory] context
still controls.”); other citations omitted). Subsection (a) of §
2343 specifies the recordkeeping requirements applicable to “[a]ny
person.” 18 U.S.C. § 2343(a). Subsection (b) of § 2343 “requires
periodic reports to the United States Attorney General of large
-19-
cigarette transactions.” Ho-Chunk, 894 F.3d at 369. Subsection (b)
applies to “[a]ny person, except for a tribal government” who
distributes cigarettes. 18 U.S.C. § 2343(b). The D.C. Circuit
“[a]ssume[d]
the
corporate
appellants
.
.
.
are
‘a
tribal
government’ even though they seem to be exclusively involved in
commercial transactions[,]” Ho-Chunk, Inc., 894 F.3d at 369, an
assumption that would exempt them from 18 U.S.C. § 2343(b)’s
reporting requirements. Id. However, as in the case before this
Court, the issue in Ho-Chunk, Inc., revolved around 18 U.S.C. §
2343(a)’s recordkeeping requirements. “Subsection (a) contains no
exception for ‘a tribal government,’ let alone for a corporation
formed under tribal law and engaged in the cigarette business.” HoChunk, 894 F.3d at 369. Therefore, the D.C. Circuit concluded, the
“exception in [§ 2343](b) for tribal governments would have been
unnecessary if ‘persons’ in § 2343 did not include tribes.” HoChunk, 894 F.3d at 369 (citing Ho-Chunk, Inc., 253 F. Supp.3d at
311). Based on
the reasoning articulated by the courts in the Ho-
Chunk, Inc. case, the Court finds that Plaintiff here has plausibly
alleged that Defendants are “persons” within the meaning of the
CCTA, and therefore Plaintiff has plausibly alleged a violation of
the CCTA.
III. Plaintiff’s Objections to the R&R’s Recommendation Regarding
the “Joint Venture” Allegations (Pl. Obj. at 17-24)
A.
The R&R Improperly Drew an Adverse Inference Against
Plaintiff Based on the Failure to Specify Choice of Law
-20-
The R&R found that Plaintiff’s allegations were weakened by
its failure to state under which State’s law it was attempting to
plead a joint venture claim. This Court finds that the parties have
impliedly consented to the application of New York law. First, in
its memorandum of law in support of its motion to dismiss, GRE
analyzed the elements of a joint venture under New York law.
Second, Plaintiff analyzed the issue under New York law in its
opposition brief. Third, NWS did not contest that New York law
applies in either of its briefs in support of its motion to
dismiss. Therefore, the Court finds that the parties have impliedly
consented
to
the
application
T e h r a n -Be r k e le y
C i vil
of
New
&
York
See,
e.g.,
Engineers
Envtl.
law.
v.
Tippetts-Abbett-McCarthy-Stratton, 888 F.2d 239, 242 (2d Cir. 1989)
(“The parties’ briefs . . . rely on New York law. Under the
principle that implied consent to use a forum’s law is sufficient
to establish choice of law, we will apply New York law to this
case.”) (internal citation omitted).
B.
The R&R Erred in Finding That Plaintiff Failed to State
a Joint Venture Claim
1.
Elements of Joint Venture Claim Under New York Law
“Under New York law, a joint venture is formed when [1] two or
more persons enter into an agreement to carry on a venture for
profit;
[2]
venturers;
the
[3]
agreement
each
evinces
contributes
their
intent
property,
to
be
financing,
joint
skill,
knowledge, or effort; [4] each has some degree of joint control over
-21-
the venture; and [5] provision is made for the sharing of both
profits and losses.” SCS Commc’ns, Inc. v. Herrick Co., 360 F.3d
329, 341 (2d Cir. 2004) (citing Itel Containers Int’l Corp. v.
Atlanttrafik Express Serv., Ltd., 909 F.2d 698, 701 (2d Cir. 1990)).
“All
of
these
elements
must
be
present
before
joint
venture
liability may be imposed.” Itel Containers Int’l Corp., 909 F.2d at
701.
2.
The R&R’s Findings
The R&R found that the “joint venture theory fail[ed] at the
threshold,” R&R at 22, because the SAC alleges that GRE sells the
Seneca® brand cigarettes to NWS “FOB Canada,” SAC ¶¶ 55-56, and a
“joint venture cannot be predicated on a buyer-seller relationship
as it is contrary to the requirement that the putative jointventurers contribute property to the joint venture over which the
venturers have joint control.” R&R at 22-23 (citing Slip-N-Slide
Records, Inc. v. Island Def Jam Music Group, No. 13-cv-04450(ALC),
2014 WL 2119857, at *2 (S.D.N.Y. May 21, 2014); Wagner v. Derecktor,
306 N.Y. 386 (1954)). The Court finds that neither of these cases
forecloses a finding that Plaintiff has plausibly pleaded a joint
venture. Slip-N-Slide Records, Inc., supra is in apposite insofar
as the agreement there was “a product of an arm’s length commercial
transaction between the parties” which “expressly disavow[ed] a
joint venture.” 2014 WL 2119857, at *2 (emphasis supplied). In
Wagner, the
New York Court of Appeals simply disagreed with the
Appellate Division’s finding that, contrary to a jury’s verdict, the
-22-
agreement at issue was, as a matter of law, a joint venture. Wagner,
306 N.Y. at 390. Rather, the Court of Appeals found, the agreement’s
character, “[a]t best,” was “a question of fact for the jury. . .
.” Id. This holding underscores the inappropriateness of determining
the joint venture question on a motion to dismiss for failure to
state a claim, where the standard is “facial plausibility[.]”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The R&R also found that, at most, Plaintiff’s allegations
suggest that the individual principals of GRE and NWS, rather than
the corporate defendants themselves, agreed to share in the profits
of any joint business enterprise. R&R at 22. “[W]hile a joint
venture may not be carried on by individuals through a corporate
form, corporations clearly may be parties to a joint venture
agreement.” In re Roxy Roller Rink Joint Venture, 67 B.R. 479, 484
(S.D.N.Y. 1986) (citing NY Jur2d, Business Relationships, § 1580 at
256 (1981)). And, it is also well settled that “a corporation cannot
act for itself,” and thus “the acts of the corporate officers on
behalf
of
the
corporation
are
deemed
to
be
the
acts
of
the
corporation itself.” Cinema N. Corp. v. Plaza at Latham Assocs., 867
F.2d 135, 140 (2d Cir. 1989). Plaintiff argues, and the Court
agrees, that this reasoning elevates form over substance.
As to first and second elements of a joint venture claim, the
R&R faulted Plaintiff for failing to allege that the putative joint
venture formed by GRE and NWS was pursuant to a written agreement.
However, the SAC states that in 1999, GRE and NWS entered into an
-23-
agreement pursuant to which GRE was designated by NWS as the
exclusive manufacturer and packager of Seneca® branded products and
NWS was designated by GRE as the (then) exclusive importer and
distributor of Seneca® products in the United States, with NWS as
the exclusive distributor per the agreement until the end of 2002.
SAC ¶ 71 (citations omitted). In addition, there is authority for
the proposition that “[a]n agreement between parties to engage in
a joint venture is what is outside the scope of the statute of
frauds.” Yonofsky v. Wernick, 362 F. Supp. 1005, 1026 (S.D.N.Y.
1973) (citing Clyde v. Schaller, 31 N.Y.S.2d 686 (2d Dept. 1941)
(oral joint venture agreement to divide profits from a contract for
the alteration of a building); Montenegro v. Roxas, 141 N.Y.S.2d
681, 684-86 (Sup. Ct. 1955) (oral agreement to purchase goods and
sell
them
to
customers
solicited
by
a
coadventurer
held
to
constitute a joint venture)); see also Nameh v. Muratex Corp., 34
F. App’x 808, 810 (2d Cir. 2002) (unpublished opn.) (parties formed
a joint venture by an oral agreement).
The
Court
also
finds
that
Plaintiff
plausibly
alleged
Defendants’ intent to become coadventurers. The Court notes that the
absence of the term “joint venture” to describe an agreement “is not
fatal . . . as the intent of the parties can be express or implied.”
Shore Parkway Assocs. v. United Artists Theater Circuit, Inc., No.
92 CIV 8252 (JFK), 1993 WL 361646, at *2 (S.D.N.Y. Sept. 14, 1993)
(citing McGhan v. Ebersol, 608 F. Supp. 277, 282 (S.D.N.Y. 1985);
other citation omitted). The SAC asserts, among other things, that
-24-
Defendants negotiated a corporate structure that included two
legally distinct corporate branches (GRE for manufacturing and NWS
for distribution) in order to minimize their tax liability and to
clarify their respective primary responsibilities. SAC ¶ 71(a). The
SAC alleges that Defendants have shared a common interest in the
establishment and growth of the Seneca® brand and have reinvested
significant amounts of the profits earned into the enterprise so as
to
increase its profitability. Id. ¶ 75(b).
As to the third element of a joint venture, the R&R found that
Plaintiff failed to allege that both parties contributed “property”
because the SAC merely alleged a buyer-seller relationship. However,
the plain language of the caselaw illustrates that a party’s
contribution
to
the
joint
venture
be
in
a
form
other
than
“property.” See, e.g., Yonofsky, 362 F. Supp. at 1031 (a joint
venture requires “some combination of property, financial resources,
effort, skill or knowledge”) (citations omitted; emphasis supplied).
The SAC alleges, as noted above, that GRE and NWS agreed to the
assignment of defined roles that capitalized on each company’s area
of expertise; that the companies invested large amounts capital into
the enterprise; and reinvested profits earned into growing the
venture.
As to the fourth element, the R&R found that Plaintiff did not
plausibly allege that Defendants had joint management control over
the venture. However, the SAC alleges that Defendants were required
to
consult
with
each
other
before
-25-
making
important
strategic
decisions about marketing and distribution of Seneca® brand tobacco
products. SAC ¶ 74(c).
As to the fifth element, the R&R also concluded that there was
no plausible allegation that GRE and NWS agreed to submit to the
burden of making good the losses of the venture. See R&R at 21.
However, Defendants’ “agreement clearly anticipated a sharing of the
profits; and, under established law, a sharing of losses is implied,
absent fixed terms, in the same proportion as the sharing of
profits.” Shore Parkway Assocs., 1993 WL 361646, at *3 (citing
Mariani v. Summers, 52 N.Y.S.2d 750, 754 (Sup. Ct. 1944) (“[E]very
party to a joint venture is bound by his relation to his associates
to share with them the losses sustained. . . .”) (citing Matter of
Marvin,
168
N.Y.S.
555,
562
(3d
Dept.
1917);
other
citation
omitted), aff’d, 56 N.Y.S.2d 537 (1st Dept. 1945). In addition, the
SAC alleges that GRE extended inventory and credit to NWS that
effectively consisted a continuous loan of $1 million over a period
of years. SAC ¶ 76(a). The SAC further alleges that when NWS
initially filed bankruptcy in 2011, it owed a debt of approximately
$19.2 million to GRE. Id. ¶ 82.
In sum, the Court finds that if the SAC’s allegations are taken
as true and construed in the light most favorable to Plaintiff—as
the applicable law requires—the SAC plausibly alleges the existence
of joint venture between Defendants, which plausibly implicates GRE
under a theory of vicarious liability.
CONCLUSION
-26-
For the reasons discussed above, the Court rejects the R&R
(Docket No. 97) in its entirety. Accordingly, GRE’s Motion to
Dismiss and for a Stay of Discovery (Docket No. 81) is denied, and
NWS’s Motion to Dismiss (Docket No. 79) is denied. Plaintiff may
proceed on the SAC (Docket No. 76). This matter is reassigned to
Hon. Richard J. Arcara, United States District Judge, for further
proceedings.
SO ORDERED.
s/ Michael A. Telesca
HON. MICHAEL A. TELESCA
United States District Judge
Dated:
February 11, 2019
Rochester, New York.
-27-
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