Case No. 08-1585 UNITED STATES COURT OF APPEALS FOR THE ... · miller, canfield, paddock and stone,...

MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

Case No. 08-1585

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

KEWEENAW BAY INDIAN COMMUNITY, named as federally-recognized Indian tribe,

on its own behalf and as parens patriae for its members, Plaintiff-Appellant

v. ROBERT J. KLEINE, Treasurer of the State of Michigan; JAY RISING,

former Treasurer of the State of Michigan; MICHAEL REYNOLDS, named as Administrator of the Collection Division of the Michigan Department of Treasury;

WALTER A. FRATZKE, named as Native American Affairs Specialist of the Michigan Department of Treasury; TERRI LYNN LAND, Secretary of State,

Defendants-Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MICHIGAN

(MARCH 27, 2008 ORDER GRANTING SUMMARY JUDGMENT)

DEFENDANTS-APPELLEES’ BRIEF ON APPEAL WITH CERTIFICATE OF SERVICE

ORAL ARGUMENT REQUESTED

Respectfully submitted, MILLER, CANFIELD, PADDOCK MICHAEL A. COX, AND STONE, P.L.C. MICHIGAN ATTORNEY GENERAL, Kevin J. Moody (P34900) B. Eric Restuccia (P49550) Jaclyn Shoshana Levine (P58938) By: /s/ B. Eric Restuccia (by consent) By: /s/ Kevin J. Moody B. Eric Restuccia, Solicitor General Kevin J. Moody Michigan Dept. of Attorney General One Michigan Avenue, Suite 900 525 West Ottawa, #405 Lansing, MI 48933-1609 Lansing, MI 48913 (517) 487-2070 (517) 373-6248 [email protected] [email protected] Counsel for Defendants-Appellees Co-counsel for Defendants-Appellees Dated: December 19, 2008

Case: 08-1585 Document: 00615330327 Filed: 12/19/2008 Page: 1

MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-i-

DISCLOSURE OF CORPORATE AFFILIATIONS AND FINANCIAL INTEREST

Pursuant to Sixth Circuit Rule 26.1, Defendants-Appellees Robert J. Kleine,

Jay Rising, Michael Reynolds, Walter A. Fratzke, and Terri Lynn Land make the

following disclosure:

1. Are said parties a subsidiary or affiliate of a publicly owned corporation?

No.

2. Is there a publicly owned corporation, not a party to the appeal, that has a

financial interest in the outcome?

No.



MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-ii-

TABLE OF CONTENTS

Page DISCLOSURE OF CORPORATE AFFILIATIONS AND FINANCIAL INTEREST.................................................................................................................i TABLE OF CONTENTS......................................................................................... ii TABLE OF AUTHORITIES ....................................................................................v STATEMENT IN SUPPORT OF ORAL ARGUMENT ........................................xi JURISDICTIONAL STATEMENT ...................................................................... xii STATEMENT OF THE ISSUES.......................................................................... xiii I. STATEMENT OF THE CASE .............................................................................1 II. STATEMENT OF FACTS...................................................................................2

A. Michigan Sales And Use Taxes ...........................................................2 B. Tax Agreement: 1977 Through 1997..................................................3 C. Renewed Negotiations Through 2002 And Hearing............................5 D. 2002 Offsets And Tax Agreements With Other Tribes .......................8 E. 2005 Offsets .......................................................................................10 F. Community’s Demands......................................................................12 G. Lawsuit And District Court Opinion..................................................16

III. SUMMARY OF ARGUMENT ........................................................................20 IV. STANDARD OF REVIEW..............................................................................22 V. DEFENDANTS WERE ENTITLED TO SUMMARY JUDGMENT OF THE USE TAX CLAIMS.................................................................................22


TABLE OF CONTENTS (continued)

Page

MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-iii-

A. Defendants Do Not Impose The Use Tax For Property

Exclusively Used Inside Indian Country............................................22 B. Federal Law Does Not Categorically Bar Imposing The Use

Tax For Property Principally Stored In Indian Country ....................24 C. Michigan’s Use Tax Is Distinguishable .............................................26 D. The Use Tax Statute Does Not Need An Apportionment

Formula ..............................................................................................29 VI. DEFENDANTS WERE ENTITLED TO SUMMARY JUDGMENT OF THE SALES TAX CLAIMS BECAUSE THE INDIAN TRADER STATUTES DO NOT CATEGORICALLY BAR IMPOSING THE SALES TAX ON NON-INDIAN RETAILERS..................................................................31 VII. THE STATE’S PROCESS TO DETERMINE TAX EXEMPTIONS OR REFUNDS IS LAWFUL..................................................................................37

A. Defendants’ Inquiry Seeks The Proper Information ..........................38 B. Defendants’ Process Imposes Only Lawful Burdens.........................40 C. Defendants Are Not Obligated To Allow The Community And

Its Members To Use Tax Exemption Certificates..............................43 VIII. THE DISTRICT COURT PROPERLY DECLINED TO ADDRESS THE ADDITIONAL TAX ISSUES .......................................................................47

A. The Additional Issues Are Not Ripe ..................................................48 B. The District Court Exercised Sound Discretion When Declining

To Rule On These Issues Because There Is No Case And Controversy ........................................................................................50

IX. THE DISTRICT COURT PROPERLY GRANTED SUMMARY JUDGMENT OF THE 1842 TREATY CLAIMS TO DEFENDANTS ................51 X. THE DISTRICT COURT CORRECTLY GRANTED DEFENDANTS SUMMARY JUDGMENT OF THE CLAIM UNDER 42 U.S.C. §1983..............53

A. The Community Is Not A “Person” Entitled To Sue .........................53


TABLE OF CONTENTS (continued)

Page

MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-iv-

B. Defendants Did Not Violate §1983....................................................56 C. The Court Should Not Reach The Arguments Regarding The

Purpose Law And Federal Program Funds ........................................59 CONCLUSION.......................................................................................................61 CERTIFICATE OF COMPLIANCE......................................................................62 CERTIFICATE OF SERVICE ...............................................................................63


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-v-

TABLE OF AUTHORITIES

Page(s) CASES

Adrian Energy Assocs. v. Michigan Pub. Serv. Comm'n., 481 F.3d 414 (6th Cir. 2007) ..............................................................................22

Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227 (1937)......................................................................................23, 50

American Federation of Government Employees, AFL-CIO, Local 1647 v. Federal Labor Relations Authority, 388 F.3d 405 (3rd Cir. 2004) ..............................................................................60

Ammex, Inc. v. Treasury, 237 Mich. App. 455; 603 N.W.2d 308 (1999) .....................................................3

Arizona Dept. of Revenue v. Blaze Const. Co., Inc., 526 U.S. 32 (1999)................................................................................................1

Banner Laundering Co. v. State Bd. of Tax Administration, 297 Mich. 419; 298 N.W. 73 (1941) ..................................................................27 Barona Band of Mission Indians v. Yee,

528 F.3d 1184 (9th Cir. 2008) ......................................................................35, 36

Bass v. Robinson, 167 F.3d 1041 (6th Cir. 1999) ............................................................................57

Central Machinery Co. v. Arizona State Tax Comm’n., 448 U.S. 160 (1980)..........................................................................31, 32, 33, 34

Chosa v. Treasury, unpublished decision of the Michigan Tax Tribunal, Docket No. 283437 (April 20, 2005)...................................................... 29-30, 39

Combustion Engineering, Inc. v. Treasury, 216 Mich. App. 465; 549 N.W.2d 364 (1996) ...............................................3, 23


TABLE OF AUTHORITIES (continued)

Page

MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-vi-

Confederated Salish and Kootenai Tribes v. Montana, 392 F.Supp. 1325 (D.C. Mont. 1975) .................................................................25

Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (1989)............................................................................................36

Dep’t. of Taxation & Finance of New York v. Milhelm Attea & Bros., Inc., 512 U.S. 61 (1994)............................................................................35, 40, 41, 47

Grand Trunk Western Railroad Co. v. Consolidated Rail Corp., 746 F.2d 323 (6th Cir. 1984) ..................................................................27, 50, 51

Guardian Industries Corp. v. Treasury, 243 Mich. App. 244; 621 N.W.2d 450 (2000) ...................................................30

Hinchman v. Moore, 312 F.3d 198 (6th Cir. 2002) ..............................................................................56

Inyo County, Cal. v. Paiute-Shoshone Indians of the Bishop Community of the Bishop Colony, 538 U.S. 701 (2003) ......................................................54, 55

Johnson v. Daniels, 769 F.Supp. 230 (E.D. Mich. 1991)........................................57

Kal-Aero, Inc. v. Treasury, 123 Mich. App. 46; 333 N.W.2d 171 (1983) .....................................................28

Kellogg Co. v. Treasury, 204 Mich. App. 489; 516 N.W.2d 108 (1994) ...............................................3, 27

Kentucky Press Ass'n, Inc. v. Kentucky, 454 F.3d 505 (6th Cir. 2006) ..............................................................................48

Keweenaw Bay Indian Comm. v. Rising, Opinion issued in No. 2:03-cv-111 (W.D. Mich. Sept. 12, 2005), available at 2005 WL 2207224) .........................56

Keweenaw Bay Indian Comm. v. Rising, 477 F.3d 881 (6th Cir. 2007) ..............................................................................12

McClanahan v. State Tax Comm’n. of Arizona, 411 U.S. 164 (1973).................................................................................... passim



Page

MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-vii-

MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007)......................................................................................24, 51

Mescalero Apache Tribe v. Jones, 411 U.S. 145 (1973).................................................................................... passim

Mescalero Apache Tribe v. O’Cheskey, 625 F.2d 967 (10th Cir. 1980) ......................................................................35, 36

Moe v. Confederated Salish & Kootenai Tribes of the Flathead Reservation, 425 U.S. 463 (1976)..........................................................................25, 26, 27, 28

Nevada v. Hicks, 533 U.S. 353 (2001)............................................................................................45

Oklahoma Tax Comm'n v. Chickasaw Nation, 515 U.S. 450 (1995).................................................................................... passim

Oklahoma Tax Comm'n. v. Jefferson Lines, Inc., 514 U.S. 175 (1995)............................................................................................30

Oklahoma Tax Comm’n. v. Sac & Fox Nation, 508 U.S. 114 (1993).................................................................................... passim

Public Service Comm’n. of Utah v. Wycoff Co., Inc., 344 U.S. 237 (1952)............................................................................................51

Radvansky v. City of Olmstead Falls, 395 F.3d 291 (6th Cir. 2005) ..............................................................................22

Ramah Navajo School Bd., Inc. v. Bureau of Revenue of New Mexico, 458 U.S. 832 (1982)............................................................................................36

Sac and Fox Nation of Missouri v. Pierce, 213 F.3d 566 (10th Cir. 2000) ................................................................34, 35, 49

United States v. Elder, 90 F.3d 1110 (6th Cir. 1996) ..............................................................................49

United States v. Munsey Trust Co., 332 U.S. 234 (1947)............................................................................................60



Page

MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-viii-

Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95 (2005)..................................................................................34, 37, 49

Warren Trading Post Co. v. Arizona State Tax Comm’n., 380 U.S. 685 (1965).................................................................................... passim

Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134 (1980).................................................................................... passim

Western Electric Co. v. Dep't. of Revenue, 312 Mich. 582; 20 N.W. 2d 734 (1945) ) ...........................................................27

Whispering Pines AFC Home, Inc. v. Treasury and Dep’t. of Mental Health, 212 Mich. App. 545; 538 N.W.2d 452 (1995) ...................................................60

White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980).................................................................................... passim

Winnebago Tribe of Nebraska v. Kline, 297 F.Supp.2d 1291 (D. Kan. 2004)...................................................................54

World Book, Inc. v. Treasury, 459 Mich. 403; 590 N.W.2d 293 (1999) ............................................................49

Zantop Intl. Airlines v. Treasury, unpublished per curiam opinion of the Michigan Court of Appeals, Docket No. 217513 (2001), available at 2001 WL 682372) ...............................................................................................27

STATUTES

25 U.S.C. §261-264............................................................................................16, 31

28 U.S.C. §1151.................................................................................................21, 52

28 U.S.C. §2201.................................................................................................22, 23

31 U.S.C. §1301...........................................................................................59, 60, 61

42 U.S.C. §1983............................................................................................... passim

M.C.L. §205.1 ..........................................................................................................45



Page

MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-ix-

M.C.L. §205.22 ..........................................................................................................8

M.C.L. §205.30 ........................................................................................................11

M.C.L. §205.30a ......................................................................................................11

M.C.L. §205.30c ......................................................................................................46

M.C.L. §205.51 ..........................................................................................................2

M.C.L. §205.52 ..........................................................................................................2

M.C.L. §205.54a ......................................................................................................43

M.C.L. §205.54aa ....................................................................................................43

M.C.L. §205.69 ........................................................................................................44

M.C.L. §205.91 ..........................................................................................................3

M.C.L. §205.92 ..........................................................................................................3

M.C.L. §205.93 ....................................................................................................3, 27

M.C.L. §205.94 ................................................................................................ passim

M.C.L. §205.94x ......................................................................................................43

M.C.L. §205.95 ..........................................................................................................3

M.C.L. §205.97 ..........................................................................................................3

M.C.L. §205.106 ......................................................................................................28

M.C.L §205.108 .......................................................................................................28

M.C.L. §205.110 ......................................................................................................44

M.C.L. §205.171. .....................................................................................................44

M.C.L. §205.765 ......................................................................................................30

M.C.L. §211.47 ........................................................................................................28



Page

MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-x-

M.C.L. §257.814 ......................................................................................................45

M.C.L. §257.815 ......................................................................................................45

COURT RULES

Fed. R. App. P. 32(a)(7)(B) .....................................................................................62

Fed. R. App. P. 34(a)(1)..............................................................................................i

CONSTITUTIONAL PROVISIONS

Article III of the United States Constitution............................................................23

OTHER AUTHORITIES

2004 PA 172, 173.....................................................................................................44


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-xi-

STATEMENT IN SUPPORT OF ORAL ARGUMENT

In accordance with Fed. R. App. P. 34(a)(1), Defendants-Appellees request

oral argument in this appeal. This case concerns a treaty, complex issues of federal

Indian law doctrine, Defendants’ implementation of the State of Michigan’s

lawful, non-discriminatory taxes on activities and transactions that occur within its

borders, and allegations involving claimed individual liability for Defendants

Rising, Reynolds, and Fratzke. In addition, this case involves a voluminous

district court record that reflects facts dating back decades. Defendants-Appellees

respectfully ask that oral argument be granted because it will assist the Court in

understanding both the facts and law at issue in this appeal.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-xii-

JURISDICTIONAL STATEMENT

Defendants-Appellees do not challenge this Court’s jurisdiction.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-xiii-

STATEMENT OF THE ISSUES

I. Were Defendants entitled to summary judgment of the use tax claims

because the use tax is not imposed for using property exclusively within Indian

Country, federal law does not bar imposing the use tax for property “principally

stored” in Indian Country, and the use tax does not require apportionment?

II. Were Defendants entitled to summary judgment of the sales tax claims

because the Indian Trader Statutes do not bar imposing a tax on non-Indian

retailers who sell to the Community or its members and the taxability of those

transactions are determined by a case-by-case balancing test?

III. Did the district court correctly hold that the process Defendants use to

determine whether tax exemptions or refunds are due to the Community, its

members, or their retailers is lawful?

IV. Did the district court properly decline to address when purchasing a motor

vehicle occurs in Indian Country and how to apportion the use tax because neither

issue is ripe and because there is no controversy to decide?

V. Did the district court properly grant summary judgment to Defendants

because the Sixth Circuit has already correctly decided that the 1842 Treaty does

not preempt state law in the Ceded Area?


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-xiv-

VI. Did the district court properly grant summary judgment of the 42 U.S.C.

§1983 claim to Defendants because the Community is not a “person” entitled to

sue and there was no evidence that Defendants had personally violated §1983?


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-1-

I. STATEMENT OF THE CASE

Defendants are current or past State of Michigan officials. The Keweenaw

Bay Indian Community (Community) filed suit against Defendants in 2005

challenging Defendants’ administration and collection of state sales and use taxes

in transactions involving the Community, its members,1 and their non-Indian

retailers. (Complaint (9/16/05), R1, ROAp.1.) The Community and Defendants

each brought two motions for summary judgment. (Community’s First Motion for

Partial Summary Judgment (9/29/06), R44, ROAp.133; Defendants’ First Motion

for Summary Judgment (1/8/07), R63, ROAp.486; Defendants’ Second Motion for

Summary Judgment (10/31/07), R98, ROAp.646; Community’s Second Motion for

Partial Summary Judgment (12/14/07), R113, ROAp.1384.) The district court

heard argument and ruled on all the motions at the same time, granting summary

judgment to Defendants and dismissing the action in its entirety in March 2008.

(Opinion (3/27/08), R144, ROAp.1819; Order and Judgment, (3/27/08), R145,

ROAp.1819.)

1 “Members” refers to enrolled members of a federally recognized Indian tribe residing within that tribe’s Indian Country, i.e., “reservation Indians.” See McClanahan v. State Tax Comm’n. of Arizona, 411 U.S. 164, 165 (1973). Indian tribes and their members living/acting outside of their Indian Country are subject to non-discriminatory laws like other state citizens and do not have the tax immunities at issue in this case. See Arizona Dept. of Revenue v. Blaze Const. Co., Inc., 526 U.S. 32, 34 (1999).


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-2-

II. STATEMENT OF FACTS

This lawsuit is only the most recent effort by the Community to exert

pressure on the State to make concessions not required by federal law in tax

agreement negotiations that have been ongoing since around 1994. The

Community seeks to create and market tax shelters both inside and outside of

Indian Country. Additionally, it attempts to obtain judicial protection for its

refusal to make payments required under a 2001 federal consent judgment with the

State concerning gaming.

Unless otherwise stated, all documents referenced below were attached to

the Brief In Support Of Defendants’ Second Motion for Summary Judgment

(11/1/07), R104, ROAp.1010 et seq., and the Reply Brief In Support of

Defendants’ Second Motion for Summary Judgment (12/28/07), R124,

ROAp.1716 et seq.

A. Michigan Sales And Use Taxes

The Michigan General Sales Tax Act, M.C.L. §205.51 et seq., imposes a tax

equal to 6% of the gross proceeds on “persons engaged in the business of making

sales at retail, by which ownership of tangible personal property is transferred for

consideration….” M.C.L. §205.52. Retailers bear the legal incidence of the sales

tax and may pass along its economic effect to purchasers, but are not required to do


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-3-

so. See Ammex, Inc. v. Treasury, 237 Mich. App. 455, 460; 603 N.W.2d 308

(1999).

The Michigan Use Tax Act, M.C.L. §205.91 et seq., imposes a one-time tax

in lieu of the sales tax “for the privilege of using, storing, or consuming tangible

personal property in this state at a rate equal to 6% of the price of the property or

services.” M.C.L. §205.93(1) (emphasis added). “Use” is “the exercise of a right

or power over tangible personal property incident to the ownership of that property

including transfer of the property in a transaction where possession is given.”

M.C.L. §205.92(b). The purchaser bears the legal incidence of the use tax, M.C.L.

§205.97, but the tax is usually collected by the retailer, M.C.L. §205.95(1). See

Combustion Engineering, Inc. v. Treasury, 216 Mich. App. 465, 468; 549 N.W.2d

364 (1996). The use tax is complementary to the sales tax, making it payable only

for transactions not subject to the sales tax. See M.C.L. §205.94(1)(a); Kellogg

Co. v. Treasury, 204 Mich. App. 489, 492; 516 N.W.2d 108 (1994).

B. Tax Agreement: 1977 Through 1997

In 1977, the State and the Community entered into a comprehensive

agreement (the Agreement) concerning payment and collection of state taxes by

the Community and its members, including sales and use taxes. (Agreement,

Exhibit A to Second Amended Complaint (5/25/06) (hereinafter Complaint), R30.)

In 1994, Community President Fred Dakota wrote to State Treasurer Douglas


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-4-

Roberts to inform him that the Agreement had “expired” and that the Community

“intend[ed] to re-negotiate its terms,” but subsequently agreed that the State and

the Community should “continue to adhere to the terms and conditions of the

previous [tax] agreement ... until a final accord can be reached on a new

agreement.” (Dakota Letters (4/20/94 and 9/29/94), ROAp.1058-1061.)

In 1995, the Department of Treasury (Treasury) audited the Community’s

sales and use taxes for the 1993 and 1994 fiscal years. (1993 and 1994 Sales and

Use Tax Audits (filed under seal).) The audits revealed that the Community owed

the State $59,498 in sales tax and $18,214 in use tax for 1993, plus $82,587 in

sales tax and $25,978 in use tax for 1994 for its commercial operations at its casino

gaming facility, motel, restaurant, bar, bowling center, and gift shop on the L’Anse

Reservation. (Sales and Use Tax Audits, p.4-5.) In total, the Community had

failed to pay or collect taxes amounting to $186,277.00 for transactions that were

taxable under the Agreement. (Complaint, ¶32, 34, ROAp.30.) The Community’s

accountant and chief financial officer did not contest that the taxes were owed, but

explained to a Treasury auditor that the Tribal Council and Tribal Chairman Fred

Dakota had “decided to withhold payment until there is [sic] meaningful

discussions between the tribe and the Department with respect to a new [tax]

agreement.” (Sales and Use Tax Audits, p.3-6.)


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-5-

In 1996 the State offset state tax refunds for the Community in the amount

of $87,839. (Complaint, ¶33, ROAp.30.) Still, the State and Community

continued to negotiate a new tax agreement even as the Community requested a

hearing to contest the sales and use tax assessments. (Dakota Letter (1/26/95),

ROAp.1066-1067; Tax Bills (filed under seal); Bittorf Letter (2/12/97),

ROAp.1069-1070; Kirvan Letter (2/26/97), ROAp.1071-1072.)

In 1997 Treasury terminated its tax agreements with the Community and all

other Michigan tribes as part of an effort to negotiate new and substantially

identical agreements to make administering taxes for so many different tribes

possible. (Weaver Letter (4/29/97), ROAp.1073-1084; Fratzke Letter (6/19/97),

ROAp.1087-1089.) In response, Tribal Attorney Joseph O’Leary wrote to

Defendant Walter Fratzke to protest the State’s decision to end the Agreement.

(O’Leary Letter (5/12/97), ROAp.1084-1086.) O’Leary added that “[a]ny amounts

owing under the existing agreement will be calculated through the date [May 29,

1997] and thereafter the Community will cease its efforts to cooperate with you in

collecting legitimate state taxes which arise on this Reservation.” (Id. at 2,

ROAp.1086.)

C. Renewed Negotiations Through 2002 And Hearing

Tax agreement negotiations between the State and Community continued

after 1997, but were unsuccessful. Given the ongoing negotiations with the


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-6-

Community and other Indian tribes, Treasury continued to assess “any tax liability

that Indian Tribes/Communities may occur [sic: incur],” but as of December 1999,

“[a]ny collection activity or enforcement action is delayed on these types of

accounts until the new agreements are in place or until the Collection Division is

directed to take action in these accounts.” (Reynolds Memorandum (12/21/99),

ROAp.1146-1147.)

The year 2002 was a turning point in the tax agreement negotiations with the

Michigan tribes. In anticipation of having a new tax agreement between the State

and the Community, Fratzke communicated with Tribal Attorney Chad DePetro to

confirm the Community’s position that it “did not disagree with the amount of the

[tax] liability” and to ask if it would pay the amount due or whether it wanted the

hearing to dispute the taxes. (Fratzke Email (undated), ROAp.1148-1149.)

DePetro did not reply to Fratzke’s email. (Id.)

On March 25, 2002, Treasury sent a notice to DePetro informing the

Community that the sales and use tax assessments had been set for an informal

conference, i.e., a hearing, because those taxes remained unpaid. (Hearing

Assignment (3/25/02), ROAp.1150-1158.) Over the next several weeks the

Community and Treasury prepared for the hearing, but the Community ultimately

did not participate in it. (Meyer Letter (4/4/02), ROAp.1160-1161; Community

Correspondence (4/16/02), ROAp. 1162-1166; Notice of Conference (4/17/02),


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-7-

ROAp.1168-1189; Neaves Email (4/17/02), ROAp.1170-1171; Recommendation,

ROAp.1172-1178; Fratzke Deposition, p.150-151, ROAp.1301.)

In his written recommendation following the hearing, Referee Meyer

summarized the history surrounding the tax audits and assessments, their

relationship to the Agreement, and the Community’s apparent agreement that the

audits were accurate. (Recommendation, p.1-3, ROAp.1173-1175.) He also

reviewed the applicable law, including those instances when federal law preempts

state tax law. (Id.) He concluded that the Agreement was in effect for the 1993

and 1994 tax years and that the Community did not contest that the taxes were

payable, but was attempting to “‘hold hostage’ payment of taxes legitimately owed

until the department accedes to negotiating an agreement apparently more

favorable to the tribal community.” (Id. at 5, ROAp.1177.) Referee Meyer

recommended that the assessments for the 1993 and 1994 sales and use taxes “be

finalized as originally determined[.]” (Id.) On September 20, 2002, Treasury

issued a Decision and Order of Determination (ROAp.1179-1181) accepting his

recommendation and ordered the sales and use taxes for 1993 and 1994 be

assessed.

When Treasury sent a copy of the Decision and Order of Determination to

the Community, it included a letter stating that final tax assessments would be

issued within thirty days and transferred to the Collection Division, but the


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-8-

Community could appeal. (Appeal Procedures Letter, ROAp.1182-1183.) On

September 27, 2002, Treasury sent the Community final bills for the unpaid sales

and use taxes, which explained how to file an appeal and the time allowed for

doing so, but the Community did not appeal. (Final Assessments (filed under

seal), p.5.) As a result, the tax assessments for the 1993 and 1994 sales and use

taxes became “final and ... not reviewable in any court by mandamus, appeal, or

other method of direct or collateral attack.” M.C.L. §205.22(4). As of 2002, the

Community began receiving monthly account statements for its tax liabilities.

(Account Statements (filed under seal).)

D. 2002 Offsets And Tax Agreements With Other Tribes

In November 2002, less than a month before the signing ceremony for the

tax agreements with the majority of Michigan’s Indian tribes, the “State

Treasurer’s Accounts Receivable” (STAR) computer system automatically offset

money payable to the Community against the sales and use tax liabilities. (STAR

Key Events (filed under seal), p.2-3.) DePetro contacted Fratzke and asked for the

offsets to be refunded, but did not challenge the basis for the assessments or the

offset. (Fratzke Email (11/26/02), ROAp.1186-1187; Defendants’ Answer to

Interrogatory 2 (hereinafter Interrogatory 2) (11/1/07), ROAp.1340-1341.) Fratzke

arranged for the offsets to be refunded and for the Community’s account to be

placed temporarily on “bypass” so that no further offsets would take place while


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-9-

negotiating the Community’s tax agreement, which was intended to include

payment of the tax liabilities. (STAR Key Events, p.5; Fratzke Deposition, p.175-

176, ROAp.1303; Reynolds Deposition, p.63-66, ROAp.1325-1326; Interrogatory

2, ROAp.1340-1341.) As Fratzke wrote to DePetro, “[I]t is my hope that the

[Community’s Tribal] Council sees this as a good faith gesture as to our original

intent and that a ‘voluntary’ payment for the tax will be forthcoming.” (Fratzke

Email (11/26/02), ROAp.1186-1187; Fratzke Deposition, p.122, 176, ROAp.1287,

1303.) Treasury processed the refund on November 27, 2002. (STAR Key Events,

p.5.)

Two days before the December 20, 2002 signing ceremony for the new tax

agreements, Fratzke emailed DePetro to finalize the Community’s tax agreement

and ask again about the payment of the sales and use tax assessments. (Fratzke

Email (12/18/02), ROAp.1189.) After talking to DePetro, Fratzke believed that

DePetro “was going to go to the tribal council and they were looking into it

[payment of the tax assessments], and [DePetro] was expecting Keweenaw Bay to

show up for the signing and have the tax agreement[.]” (Fratzke Deposition,

p.122, ROAp.1287.) Though a Community representative attended the tax

agreement signing ceremony, the Community refused to sign the new agreement.

(Complaint, ¶25, ROAp.29-30.) Nor did the Community pay its sales and use tax

assessments.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-10-

The State was ultimately able to enter into new tax agreements with nine of

twelve tribes. See State/Tribal Tax Agreements and Amendments (visited

November 9, 2008) <http://www.michigan.gov/taxes/0,1607,7-238-43513_43517--

-,00.html>. These agreements ended the need for the 1999 blanket stay on

collection and enforcement actions involving Native American accounts that

Treasury had instituted to facilitate the tax agreement negotiations. (Reynolds

Memorandum (12/21/99), ROAp.1146-1147.) Still, none of the Defendants nor

anyone else employed at Treasury made any decision, issued any directive, or took

any action to remove the Community’s account from bypass status or direct an

offset to satisfy the Community’s tax liability. (STAR Key Events, p.5;

Defendants’ Answer to Interrogatory 3 and Document Request 10 (11/1/07),

ROAp.1341-1342, 1348; Rising Affidavit, ¶3, ROAp.1351.)

E. 2005 Offsets

On several days in May 2005, the State of Michigan’s MAIN computer

prepared to issue warrants (payments) to taxpayers. (Reynolds Deposition, p.30-

36, ROAp.1319-1320). The MAIN computer automatically compared taxpayer

accounts scheduled to receive payments against the accounts listed in the STAR

computer as owing money to the State. (Id.) The STAR computer accurately

determined that the Community had a tax liability for the still-unpaid sales and use

taxes and it offset the funds that would have otherwise been paid to the


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-11-

Community by the MAIN computer. (STAR Key Events, p.1-2; Account

Statements, p.11.) Roughly 38% of the funds offset were federal payments being

routed to the Community through the State’s computer system and about 62% of

the funds offset were state tax refunds that would have otherwise been paid to the

Community. Id.; M.C.L. §205.30(2) and M.C.L. §205.30a (requiring offset of

state tax refunds).

These offsets were routine and automatic processes solely between the two

computers that occurred without knowledge of the source of funds being offset and

without advance notice to anyone in Treasury. (STAR Key Events, p.5, Offsets

Policy BT-23028 (1/100), p.5, ROAp.1264; Warrant Offset Process (1/1/06), p.16,

ROAp.1281; Vendor Payable/Receivable Match (10/1/00), ROAp.1286-1288;

Fratzke Deposition, p.102-103, ROAp.1294; Reynolds Deposition, p.10, 28, 30-36,

60, 112, ROAp.1317-1320, 1324, 1335; Rising Affidavit, ¶4, ROAp.1351.)

Treasury is not required to flag taxpayer accounts for all Indian tribes to prevent

offsets or to exempt federal funds from offsets. (STAR/GAL SAI Code Bypass

(filed under seal); Fratzke Deposition, p.49, ROAp.1293; Reynolds Deposition,

p.38-40, 47-48, 60-61, 82-85, ROAp.1321-1322, 1324.) Rather a bypass code is

available only for a “TA,” an account for an Indian tribe with a “tax agreement”

with the State, which the Community does not have. (STAR/GAL SAI Code

Bypass.)


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-12-

F. Community’s Demands

The May 2005 offsets prompted Tribal Attorney John Baker to contact

Fratzke to request a refund because, in the Community’s view, the offsets involved

federal funds that could not be offset and because the Community was in litigation

with the State. (Baker Fax (5/25/05), ROAp.1193-1194.) See Keweenaw Bay

Indian Comm. v. Rising, 477 F.3d 881 (6th Cir. 2007) (Rising I). A second set of

offsets occurred in June 2005 involving both federal funds and state tax refunds,

bringing the total offset in 2005 to $103,504.90, which Baker asked Fratzke to

refund for the same reasons. (Baker Letter (6/15/05), ROAp.1195-1198; Offset

Notices (5/05 and 6/05) (filed under seal); Complaint, ¶42, ROAp.33.) Fratzke

immediately began investigating the May and June offsets and the funds affected

after Baker’s first contact, also speaking to other Treasury staff, counsel at the

Department of Attorney General, and the Governor’s Office. (Fratzke Emails

(6/05), ROAp.1199-1203; Fratzke Deposition, p.174, 180-184, 188, ROAp.1303-

1306; Interrogatory 2, ROAp.1340-1341.)

On June 28, 2005, Fratzke wrote to Baker explaining that the State has the

common law right to offset funds payable to taxpayers in order to satisfy unpaid

liabilities and clarifying that the pending litigation Baker had referenced involved

tobacco taxes, not sales and use taxes. (Fratzke Letter (6/28/05), ROAp.1204-

1205; Offset Policy BT-23030 (10/1/00), ROAp.1257-1258.) Fratzke asked Baker


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-13-

if the Community was relying “on any particular federal or Michigan law in

determining that such offsets were inappropriate,” and if so, asked him to provide

that information. (Id.) Fratzke added that, “[u]pon receiving the Tribe’s reasoning

and support for its position the State will further evaluate the situation and refund

any offsets where warranted.” (Id.)

On August 10, 2005, Tribal Counsel Christopher Geiger wrote to Fratzke to

explain the Community’s position concerning the use of federal funds for offsets

against tax liabilities. (Geiger Letter (8/10/05), ROAp.1208-1219.) For the first

time ever, the Community contended that the tax assessments themselves were

unlawful. (Id. at 2, ROAp.1210.) The Community also contended that the State

had no common law right to offset federal funds. (Id. at 2-3, ROAp.1210-1211.)

The Community was notably silent on the State’s right to offset state funds, which

were all of the dollars offset in 1996 and the majority of dollars offset in 2005.

Though the Community had been receiving monthly invoices listing interest on the

assessment for three years, it also asserted for the first time that the interest could

not be assessed. (Id. at 2, ROAp.1210.) The Community demanded a full refund

of all money offset within seven days. (Id. at 3-4, ROAp.1211-1212.)

As soon as Fratzke received the August 10, 2005 letter from Geiger, he and

other Treasury officials sought privileged advice from the Department of Attorney

General concerning the basis for the Community’s position cited in the letter, and


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-14-

once again involved the Governor’s Office. (Fratzke Deposition, p.154-157, 178-

184, 195-202, ROAp.1302-1305.) Though the Departments of Treasury,

Community Health, and Attorney General had previously discussed whether

federal funds could be used to offset state liabilities as a matter of general policy,

as of August and September 2005 that issue had not been resolved. (Fratzke

Deposition, p. 205-206, ROAp.1309-1310; Reynolds Deposition, p.46-51,

ROAp.1322-1323.)

In September 2005, the Community began aggressively pushing its alleged

“tax-free” status by filing hundreds of refund claims at Treasury for taxes paid on

tribal members’ vehicles purchases dating back several years. (LaFernier Letter

(9/8/05), Exhibit E to Defendants’ Reply Brief (3/12/07), R74, ROAp.616-619;

Fratzke Deposition, p.257, 280, ROAp.1311, 1313.) Before then, Treasury had

received only occasional requests for tax exemptions, almost all of which related to

vehicle purchases by the Community itself and not by tribal members. (Fratzke

Affidavit (11/22/06), ¶23, Exhibit A to Defendants’ Brief In Opposition to

Plaintiff’s First Partial Motion for Summary Judgment (11/22/06), R53,

ROAp.338-339.)

At the same time it sought these tax refunds, the Community also began

using these 1993 and 1994 tax assessments and offsets and the taxes imposed on

past vehicle transactions as an excuse to withhold payments under a 2001 federal


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-15-

consent judgment with the State concerning gaming. (LaFernier Letter,

ROAp.616-619; Misegan Letter (12/2/05), Exhibit F to Defendants’ Reply Brief

(3/12/07), R74, ROAp.620-627; Misegan Letter (12/19/05), ROAp.1228-1235;

Minton Letter (6/5/06), ROAp.1236-1241; 2001 Consent Judgment, Exhibit A to

Brief In Support of Defendants’ First Motion to Summary Judgment (1/8/07), R64,

ROAp.516-535.) The Community withheld $476,300.97 from its payment to the

Michigan Economic Development Corporation (MEDC) for a period that ended on

March 31, 2005 and $28,388.35 for a period that ended on September 30, 2005, for

a total of $504,689.32. (LaFernier Letter, ROAp.616-619; Misegan Letter

(12/2/05), ROAp.620-627.) In other words, in 2005 alone, the Community setoff

more than 2.6 times the $191,343.90 that it alleged that the State offset for the

sales and use tax liabilities in 1996 and 2005. (Complaint, ¶ 33, 42, ROAp.30, 33.)

In mid-September 2005, just a month after Geiger’s letter, Fratzke was

coordinating the tax refund demand with the Governor’s Office and the MEDC,

and was waiting to be informed by higher-level Treasury officials and the Assistant

Attorneys General involved whether the State’s offsets were somehow lawful.

(Fratzke Deposition, p.203-204, ROAp.1309.) If the offsets were determined to be

unlawful, Fratzke would have contacted Chief Deputy Treasurer Julie Croll to “get

the refunds refunded back. (Id.) But [he] never received word, and the research

was being conduct[ed] to ... set[] up meetings to try and discuss Mr. Baker’s


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-16-

response and try to get conclusions.” (Id.; Interrogatory 2, ROAp.1340-1341.)

Likewise, Reynolds was waiting for the issue to be resolved and for instructions to

process a refund, had that been the decision by Treasury on the advice of their

attorneys. (Reynolds Deposition, p.137-138, ROAp.1336-1337.) However, on

September 16, 2005, before the State could decide whether to refund any or all of

the 2005 offsets, the Community cut-off any further consideration of its position by

filing this lawsuit, leaving the resolution of substantive issues to the courts. In all

events, it must be remembered that the Community offset approximately 2.6 times

the amount it claimed was improperly offset by Defendants and that it had made

itself whole . . . and then some.

G. Lawsuit And District Court Opinion

The core allegation in the Complaint was that Defendants acting in their

official capacities had enforced the Michigan sales and use taxes against the

Community, its members, and non-Indian retailers for transactions that were

immune from taxation under federal law, including the Indian Trader Statutes, 25

U.S.C. §261-264. (Complaint, Counts I-IV, X-XIX.) In actuality, the lawsuit

sought blanket approval of the ongoing efforts by the Community, its members,

and its retailers to evade the State’s lawful, non-discriminatory taxes that are

allowed by federal law for: (a) activities and transactions outside of Indian

Country; and (b) for activities and transactions by non-Indian retailers inside


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-17-

Indian Country that are taxable under the Supreme Court’s interest-balancing test

in White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980).

To extend this tax shelter, the Community claimed that the area between

Marquette, Michigan and Duluth, Minnesota ceded to the United States in the 1842

Treaty with the Chippewa at La Pointe (1842 Treaty) must be treated as if it is

Indian Country and therefore immune from state taxation. (Complaint, Counts

XX-XXI.) The lawsuit also sought to bar Defendants from administering the sales

and use taxes by preventing them from collecting information needed to determine

whether to grant a state tax exemption or refund. (Complaint, Counts XXII-XVI.)

The Complaint brought claims against Rising, Reynolds, and Fratzke in their

individual capacities for the 2005 Offsets even though those offsets were taken

solely by operation of the State’s computer system and not by any action of any

individual, let alone by Defendants. (Complaint, Count VI.) It also sought a

declaration that the Community’s decision to withhold its payments to the MEDC

was lawful. (Complaint, Count XXXI.)

On March 27, 2008, the district court granted summary judgment to

Defendants, dismissing the case in its entirety. The district court began the opinion

by addressing a number of issues unrelated to the taxes, including its holding that

the Community lacked standing to sue Defendants over the money it refused to pay

to the MEDC. (Opinion, p.12-13.) The district court also held that summary


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-18-

judgment of the claim under 42 U.S.C. §1983 involving the 2005 Offsets was

proper because the Community was a sovereign and not a “person” entitled to sue

under that statute. (Id. at 14-17.)

Turning to the tax issues, the district court preliminarily concluded that the

1842 Treaty would not change its analysis of the tax issues as applied in the area

ceded under that treaty because “the 1842 treaty simply makes federal law

applicable to the area governed by the treaty.” (Id. at 18, n.4 (citation omitted).)

With respect to the Michigan sales tax, the district court held that its legal

incidence falls on the retailer, so it may be imposed on transactions that occur

outside of Indian Country even if an Indian tribe or it member ultimately bears the

economic burden of the tax. (Opinion, p.20.) The court concluded that if the event

triggering the sales tax occurred in Indian Country, then whether the tax could be

imposed on a non-Indian retailer was subject to the Bracker interest-balancing test.

(Id.)

The district court also examined the Michigan use tax and concluded that the

legal incidence of the use tax falls on the user, so

if the use tax arises within Indian country, it is categorically barred. If it arises outside of Indian country, the tax is valid. Moreover ... if the tax arises from use outside of Indian country, but some of the use also occurs within Indian country, then the State must tailor the tax only to the off-reservation use. [Id.]


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-19-

The court did not conclude that the use tax is imposed on the use of property by an

Indian tribe or its members inside and outside of Indian Country and, therefore, it

did not hold that the use tax must be apportioned.

Additionally, the district court analyzed the process that the State uses to

collect information regarding claims for tax exemptions or refunds, holding that it

was “relevant and reasonably tailored” to the inquiry needed to identify which

transactions are taxable. (Opinion, p.20-21.) The court also compared the minimal

burdens of this process to the more onerous requirement that the Community pre-

pay cigarette taxes and seek a refund from the State, which had been upheld as

lawful in Rising I, supra. (Id. at 20.)

Finally, the district court acknowledged that the Community had raised

additional issues, including when a motor vehicle purchase occurs in Indian

Country and how the Michigan use tax must be apportioned to reflect use outside

of Indian Country. (Opinion, p.22.) The court declined to address either of these

issues because they were not ripe given that the Community had not sought an

exemption or refund for the transactions or submitted other relevant information,

making these “hypothetical transactions.” (Id. at 23.) The court found that there

would be no hardship to the parties if it did not address these issues. (Id.) Even if

these additional issues were ripe, the court said it would exercise its discretion to

decline to address them in the absence of a case and controversy, noting that it is


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-20-

“not a regulatory or administrative body equipped to formulate regulations

regarding the myriad of issues that might arise between these sides of the dispute.”

(Id. at 24.)

III. SUMMARY OF ARGUMENT

There are only two “per se” or categorical rules concerning state taxes

imposed on federally recognized Indian tribes and their members. First, a state

may not impose a tax when its legal incidence falls on a tribe or its members for

activities or transactions that occur within Indian Country unless Congress has

authorized the tax. Second, a state may impose a non-discriminatory tax even

when its legal incidence falls on a tribe or its members for activities and

transactions outside of Indian Country. Whether a state tax may be imposed on

any activities or transactions involving Indian tribes or their members that do not

fall neatly under one of these two per se rules must be determined on a case-by-

case basis using a balancing test. Only the legal incidence of the tax is relevant to

these tests, not the tax’s economic effect.

The taxability of a given transaction can be determined by the following

matrix:


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-21-

Legal incidence of state tax falls on a federally recognized Indian tribe or its member

Legal incidence of state tax falls on a non-Indian in a transaction with an Indian tribe or tribal member

Event triggering tax occurs inside Indian Country

Not Taxable without Congressional authorization

Subject to Interest-Balancing Test

Event triggering tax occurs outside of Indian Country

Taxable Taxable

Federal law does not bar imposing the Michigan sales and use taxes on

property “principally stored” in Indian Country because the taxes are imposed only

for the activity, transaction, or use outside of Indian Country. The area the

Community ceded to the United States in the 1842 Treaty is not part of Indian

Country as defined in 28 U.S.C. §1151 and is subject to state taxation pursuant to

clear federal law. The process Defendants use to gather information to determine

whether an activity or transaction involving the Community or its members is

taxable does not impose an unlawful burden.

The district court properly declined to address when a motor vehicle

transaction occurs in Indian Country or if the Michigan use tax must have an

apportionment formula because those issues are not ripe for review. Even if ripe,

the court had the discretion not to decide those issues because there is no case and

controversy.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-22-

The Community is not a “person” entitled to sue under 42 U.S.C. §1983.

Further, summary judgment was properly granted to Defendants for the §1983

claim against Rising, Reynolds, and Fratzke because it was brought under a

respondeat superior theory, which is not legally cognizable.

IV. STANDARD OF REVIEW

The Court affords review de novo to a district court’s decision to grant

summary judgment. See Radvansky v. City of Olmstead Falls, 395 F.3d 291, 301

(6th Cir. 2005). However, the district court’s decision not to issue a declaration

under the Declaratory Judgment Act, 28 U.S.C. §2201(a), is reviewed for an abuse

of discretion. See Adrian Energy Assocs. v. Michigan Pub. Serv. Comm'n., 481

F.3d 414, 421 (6th Cir. 2007).

V. DEFENDANTS WERE ENTITLED TO SUMMARY JUDGMENT OF THE USE TAX CLAIMS

A. Defendants Do Not Impose The Use Tax For Property Exclusively Used Inside Indian Country

McClanahan v. State Tax Comm’n. of Arizona, 411 U.S. 164, 170-171

(1973), held that states may not impose a tax if its legal incidence falls on an

Indian tribe or its members for transactions or activities inside Indian Country

without Congressional authorization. The legal incidence of the Michigan use tax

falls on the purchasers or consumers. See Combustion, supra at 468. Therefore, it

may not be imposed for the use of property exclusively inside Indian Country. The


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-23-

Community argues that because all parties agree on this principle the court should

have formalized it in a declaration. However, before the district court may grant a

declaration under the Declaratory Judgment Act, 28 U.S.C. §2201(a), it must first

be presented with a case and controversy meeting the requirements of Article III of

the United States Constitution. See Aetna Life Ins. Co. of Hartford, Conn. v.

Haworth, 300 U.S. 227, 239-240 (1937).

There was no controversy to be resolved with a declaration because

Defendants concede that the use tax may not be imposed for exclusive use of

property inside Indian Country. The only reason that the Community or its

members have allegedly paid the use tax for this exclusive use of property inside

Indian Country is because they have failed or refused to seek tax exemptions, not

because Defendants enforced the use tax improperly. (Opinion, p.23; LaFernier

Affidavit (9/28/06), ¶9-13, and Misegan Affidavit (9/6/06), ¶5-13, both attached to

Brief in Support of Plaintiff’s First Motion for Partial Summary Judgment

(9/29/06), R45, ROAp.163-164, 205-208; Fratzke Affidavit, ¶29). The State has

granted tax exemptions or refunds when due. (Attachment 3 to Fratzke Affidavit,

ROAp.355-358.) In some transactions the Community and/or its members have

withheld payment of the use tax, meaning that they suffered no harm from the

state’s taxes in those transactions even when they failed to seek an exemption or

refund. (Misegan Affidavit (9/6/06), ¶9, ROAp.206-207.) In other words, in some


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-24-

instances no exemption or refund request was ever made to the State and in other

instances the State granted the refund or exemption request. Consequently, the

district court properly exercised its discretion not to grant a declaration concerning

only a hypothetical instance in which Defendants might not recognize this tax

immunity. See MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)

(declaration based on hypothetical facts not proper).

B. Federal Law Does Not Categorically Bar Imposing The Use Tax For Property Principally Stored In Indian Country

The Community asserts that federal law bars imposing a tax on a tribe or its

members if the property being taxed is “principally stored” in Indian Country.

(Community Brief, p.24-27.) What the Community truly argues here is that the

use of property outside of Indian Country may not be taxed by a state if the

property allegedly has been or will be used to some unknown degree inside of

Indian Country. This proposition is directly contrary to the Supreme Court’s

holding in Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148-149 (1973)

(Mescalero) that “[a]bsent express federal law to the contrary, Indians going

beyond reservation boundaries have generally been held subject to

nondiscriminatory state law otherwise applicable to all citizens of the State.”

The Community cites three Supreme Court cases for this supposed

categorical bar against imposing state taxes on property “principally stored” in


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-25-

Indian Country. Moe v. Confederated Salish & Kootenai Tribes of the Flathead

Reservation, 425 U.S. 463, 481-483 (1976), involved Montana’s annual personal

property tax on vehicles that was calculated as a percentage of the vehicle’s market

value. See also Confederated Salish and Kootenai Tribes v. Montana, 392 F.Supp.

1325, 1328-1329 (D.C. Mont. 1975) (Smith, J., concurring in part and dissenting in

part). Washington v. Confederated Tribes of the Colville Indian Reservation, 447

U.S. 134, 142-143, 162 (1980), addressed the State of Washington’s annual excise

tax on the use of vehicles in the state equivalent to a percentage of the fair market

value of the tax. Oklahoma Tax Comm’n. v. Sac & Fox Nation, 508 U.S. 114, 119-

121 (1993), concerned Oklahoma’s requirement that tribal members residing in

Indian Country register their motor vehicles with the state regardless of where they

used the vehicles, its annual registration fee calculated partly on the basis of the

value of the vehicle, and the excise tax that applied at the time of a vehicle sale.

The Supreme Court struck down the taxes in Moe, supra at 480, Colville,

supra at 162-164, and Sac & Fox, supra at 127-128, as applied to vehicles owned

by Indians because they were imposed for use of the vehicles inside Indian

Country. However, not one of these opinions attempted to bar a state from

imposing a tax triggered by events or transactions that occurred outside of Indian

Country, regardless of where the property might be “principally stored.” To the

contrary, Colville, supra at 163, reaffirmed that non-discriminatory state taxes may


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-26-

be levied on use that occurs outside of Indian Country. The Supreme Court also

later cited its decision in Sac & Fox as support for this Mescalero principle that

Indian tribes and their members do not have a general immunity from state taxation

because the tax immunity discussed in McClanahan “does not operate outside

Indian country.” Oklahoma Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 464

(1995) (citing Sac & Fox, supra at 123-124). Therefore, the cases that the

Community cites do not support its proposition that federal law categorically

precludes imposing a state tax on property “principally stored” in Indian Country.

C. Michigan’s Use Tax Is Distinguishable

Michigan’s use tax is distinguishable from the taxes struck down in the Moe-

Colville-Sac & Fox trilogy. In Sac & Fox, supra at 127, the Supreme Court

expressly identified the three factors that persuaded it that the taxes in Moe and

Colville were each barred by federal law. In each instance, the tax was “imposed

in addition to a sales tax”; it was “imposed for use both on and off Indian country”;

and it was “assessed annually based on a percentage of the value of the vehicle.”

Id. The Supreme Court observed that the differences between these taxes were

merely in their “nomenclature.” See id. at 128 (quoting Colville, supra at 163-

164). Where there are differences other than in mere nomenclature, taxability is

treated differently than in these opinions. See id.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-27-

Unlike the taxes in these other cases, the Michigan use tax is not imposed in

addition to the sales tax; it is imposed only when the sales tax does not apply. See

M.C.L. §205.94(1)(a); Kellogg, supra at 492. The use tax is also imposed only for

use “in this state,” not use in Indian Country. See M.C.L. §205.93(1). Michigan’s

airplane cases demonstrate that the activities in Michigan that trigger the use tax do

not have to be exclusive, continuous, or of long duration. See, e.g., Kellogg, supra

at 491, 495; Zantop Int’l. Airlines, Inc. v. Treasury, unpublished per curiam

opinion of the Michigan Court of Appeals, Docket No. 217513 (2001), available at

2001 WL 682372, *1, Defendants’ Addendum A. The use tax is even calculated

differently than the taxes in these other cases because it is not based on an annual

market value of the property, but is calculated as 6% of the purchase price. See

M.C.L. §205.93(1).

Further, the Michigan use tax is a privilege tax, not a personal property tax

like those at issue in Moe, Colville, and Sac & Fox. See Western Electric Co. v.

Dep't. of Revenue, 312 Mich. 582, 595-596; 20 N.W.2d 734 (1945) (citing Banner

Laundering Co. v. State Bd. of Tax Administration, 297 Mich. 419; 298 N.W. 73

(1941) (The “use tax ... is not a property tax. It is an excise or privilege tax.”)).

Fundamentally, a use tax and a personal property tax address different things. The

personal property taxes in Moe and Colville were contingent on the continued

ownership of the property within the state assessed yearly. See Colville, supra at


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-28-

142-143, 163; Confederated Salish, supra at 1327. But the Michigan use tax is a

one-time tax, not an annual tax. See M.C.L. §205.94; see, generally, Kal-Aero,

Inc. v. Treasury, 123 Mich. App. 46, 54; 333 N.W.2d 171 (1983) (use tax can be

imposed only once).

The use and personal property taxes are also enforced differently under

Michigan law. When a taxpayer fails to pay a personal property tax, the State has

the power to seize the property on which the tax was imposed. See M.C.L.

§211.47. But failure to comply with the use tax constitutes a misdemeanor

punishable by a monetary fine and a potential jail sentence. M.C.L. §205.106,

§205.108. This distinction demonstrates that the personal property tax is imposed

on the property itself, while the use tax is imposed on the purchaser for the act or

privilege of using the property. This distinction makes the place where the

property is stored on a continuous basis a factor relevant to the personal property

tax, but not relevant to whether that property is actually used in Michigan and,

therefore, subject to the use tax.

In sum, Moe, Colville, and Sac & Fox do not apply to or govern the

Michigan use tax. The Supreme Court has never addressed a tax like Michigan’s

use tax and, therefore, this Court should go back to the bedrock principles in

McClanahan and Mescalero to determine if it may be imposed. The Michigan use


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-29-

tax is clearly a non-discriminatory tax on activities or transactions outside of

Indian Country and may therefore be imposed pursuant to Mescalero.

D. The Use Tax Statute Does Not Need An Apportionment Formula

The Community contends that the Michigan use tax is fatally flawed because

the State has not adopted a formula that apportions the tax so that it applies only to

the use of property outside of Indian Country. (Community Brief, p.27.) The

Community adds that it is inadequate to develop administrative rules or guidance

on apportionment because the Supreme Court requires statutory apportionment, an

issue not raised in the district court. Id. at 28. The Community is wrong.

First, the State merely exercises its right to tax the use of property in

Michigan, outside of Indian Country. Therefore, there is no need to adopt an

apportionment formula because the use tax is narrowly tailored so that it never

applies for the use of tangible personal property inside Indian Country. Second,

even if there were a need to apportion the Michigan use tax, Colville and Sac &

Fox simply do not hold that the use tax must be struck down as applied to the

Community and its members in the absence of a statutory apportionment formula.

The Community argues that the use tax must also be struck down in the

absence of a statutory apportionment formula because Treasury has taken the

position that the Michigan use tax cannot be apportioned, citing Chosa v. Treasury,


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-30-

unpublished decision of the Michigan Tax Tribunal, Docket No. 283437 (April 20,

2005). (Addendum B to Community’s Brief.) Under M.C.L. §205.765, the Small

Claims Division decision in Chosa “is not precedent” and should not be followed

because it incorrectly interpreted the case law concerning federal tax immunities.

The remark in Chosa, supra at 2, that the use tax cannot be apportioned was a

misstatement of Treasury’s position that the use tax need not be apportioned

because it does not tax use that occurs in Indian Country. See Defendants’

Addendum B, Treasury’s Pre-trial Brief on Rehearing in Chosa, p.3-4. In any

event, the use tax already implements statutory credits, which demonstrates it can

be apportioned if that were necessary. See Oklahoma Tax Comm'n. v. Jefferson

Lines, Inc., 514 U.S. 175, 190-191, 195-196 (1995) and Guardian Industries Corp.

v. Treasury, 243 Mich. App. 244, 258; 621 N.W.2d 450 (2000) (credits are

apportionment).

Furthermore, Defendants already have the statutory authority to implement

holdings by this Court because the Use Tax Act provides an exemption for use that

“this state is prohibited from taxing under the constitution or laws of the United

States, or under the constitution of this state.” M.C.L. §205.94(1)(b). Thus, even

if this Court were to disagree with the current administration of the use tax, it

would not need to strike down the use tax as applied to the Community and its

members under all circumstances.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-31-

VI. DEFENDANTS WERE ENTITLED TO SUMMARY JUDGMENT OF THE SALES TAX CLAIMS BECAUSE THE INDIAN TRADER STATUTES DO NOT CATEGORICALLY BAR IMPOSING THE SALES TAX ON NON-INDIAN RETAILERS

According to the Community, the district court erred when it did not hold

that the antiquated Indian Trader Statutes, 25 U.S.C. §§261-264, categorically bar

Defendants from imposing the sales tax on retailers for sales to the Community and

its members on their reservation. (Community Brief, p.29.) This issue relates

solely to non-Indian retailers because Defendants do not impose the sales tax on

Indians who make retail sales in their own Indian Country. The Community asks

this Court to overrule the interest-balancing test the Supreme Court adopted in

Bracker, supra at 144-145, in favor of a rule that would bar all state sales taxes for

sales by non-Indians in Indian Country.

The Community’s argument is based on a misreading of Warren Trading

Post Co. v. Arizona State Tax Comm’n., 380 U.S. 685 (1965), and Central

Machinery Co. v. Arizona State Tax Comm’n., 448 U.S. 160 (1980). On appeal,

the Community has finally agreed that Warren Trading used an interest-balancing

test, but now claims that Central Machinery interpreted Warren Trading to be the

one and only time when interest balancing was necessary and that all other state

tax cases must be judged under the balance of interests already determined in

Warren Trading. (Community Brief, p.33-34.)


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-32-

In Warren Trading, supra at 685-686, Arizona sought to tax the gross

proceeds the Warren Trading Post earned from its sales to Navajos on the Navajo

Reservation pursuant to an Indian Trader license. Arizona provided no services to

the Navajo Reservation at all, having disavowed any control over the Reservation

as a condition of statehood. See id. at 687 n.3, 690-691. In contrast, the federal

government not only regulated the Indian traders on the Navajo Reservation, it

“provided for roads, education and other services needed by the Indians.” Id. at

690-691. The Court looked at the impact the state tax would have on the Navajo

and the regulation of Indian traders on the reservation, comparing that impact to

the benefit Arizona would reap from the tax despite offering nothing to the Navajo.

See id. These factors were so unbalanced – and weighed so heavily in favor of the

federal and tribal interests against state taxation – the Court barred Arizona from

imposing the tax. See id. at 691-692.

Central Machinery, supra at 161, involved the sale of farm equipment to a

tribal enterprise on the Gila River Indian Tribe Reservation. Arizona sought to

impose a tax on the seller of the farm equipment. See id. The Supreme Court

referenced Warren Trading and Arizona’s abandonment of reservation Indians,

noting that there were only two differences in the Arizona cases: (a) unlike in

Warren Trading, the retailer subject to the tax in Central Machinery did not

maintain a place of business on the Reservation and (b) the retailer did not have an


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-33-

Indian trader license. See id. at 163-164. However, a divided Court found these

distinctions unpersuasive because the transactions took place on the Reservation

and would be governed by the Indian Trader Statutes. See id. at 164-165. As a

result, the Court concluded that the tax was preempted. See id. at 165-166. The

Court did not repeat all of the state’s history with respect to its Indian populations

that was relevant to the balancing test because Central Machinery involved

Arizona and the Court had already recited those state-specific facts in Warren

Trading.

Nothing in Central Machinery indicated that the Supreme Court intended to

impute Arizona’s poor history or the actual location of the transaction to other

states that treated Indians differently when balancing the interests in connection

with a state tax. Instead, the Supreme Court issued Bracker the very same day it

issued its decision in Central Machinery and explained that when

on-reservation conduct involving only Indians is at issue, state law is generally inapplicable, for the State's regulatory interest is likely to be minimal and the federal interest in encouraging tribal self-government is at its strongest. More difficult questions arise where ... a State asserts authority over the conduct of non-Indians engaging in activity on the reservation. In such cases we have examined the language of the relevant federal treaties and statutes in terms of both the broad policies that underlie them and the notions of sovereignty that have developed from historical traditions of tribal independence. This inquiry is not dependent on mechanical or absolute conceptions of state or tribal sovereignty, but has called for a particularized inquiry into the nature of the state, federal, and tribal interests at stake, an inquiry designed to determine whether, in the specific context, the


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-34-

exercise of state authority would violate federal law. [Bracker, supra at 144 (emphasis added).]

There would be no need for a “particularized inquiry” into the various interests

implicated by a state tax, nor a need to examine the “specific context” surrounding

the tax, if Warren Trading and Central Machinery had preempted all state taxes on

non-Indian retailers for activities or transactions that occur in Indian Country.

The Bracker interest-balancing test appears time and again in case law since

the Supreme Court decided Warren Trading and Central Machinery,

demonstrating that there is no per se rule against imposing a state sales tax on a

non-Indian trader for sales made in Indian Country. In Chickasaw, supra at 458-

459, the Court reiterated that “if the legal incidence of the tax rests on non-Indians,

no categorical bar prevents enforcement of the tax; if the balance of federal, state,

and tribal interests favors the State, and federal law is not to the contrary, the State

may impose its levy ....” Citations omitted, emphasis added; see also Sac and Fox

Nation of Missouri v. Pierce, 213 F.3d 566, 583 (10th Cir. 2000) (Pierce)

(recognizing Indian Trader Statutes do not create categorical bar, applying

balancing test). This was the same concept restated even more plainly in Wagnon

v. Prairie Band Potawatomi Nation, 546 U.S. 95, 102 (2005), where the Supreme

Court explained that “even when a State imposes the legal incidence of its tax on a

non-Indian seller, the tax may nonetheless be pre-empted if the transaction giving

rise to tax liability occurs on the reservation and the imposition of the tax fails to


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-35-

satisfy the Bracker interest-balancing test.” Most recently, the Ninth Circuit in a

strongly worded opinion rejected the argument that there is any categorical bar

against imposing a state tax on a non-Indian, saying that it was “declin[ing] to

extend the per se test, rooted in due respect for Indian autonomy, to provide tax

shelters for non-Indian businesses.” Barona Band of Mission Indians v. Yee, 528

F.3d 1184, 1190 (9th Cir. 2008).

The Supreme Court even made clear that Warren Trading’s interpretation of

the Indian Trader Statutes is not as broad as it might seem in Dep’t. of Taxation &

Finance of New York v. Milhelm Attea & Bros., Inc., 512 U.S. 61, 75 (1994).

There the Court said, “Although broad language in our opinion in Warren Trading

Post lends support to a contrary conclusion, we now hold that Indian traders are

not wholly immune from state regulation that is reasonably necessary to the

assessment or collection of lawful state taxes.” Id. Other federal courts have

recognized that the Indian Trader Statutes discussed in Warren Trading are no

longer considered to have a preemptive effect on state taxes. See, e.g., Pierce,

supra at 581-582 (“More recently, in Milhelm Attea, the Court narrowed its

interpretation of the trader statutes.”); see also Mescalero Apache Tribe v.

O’Cheskey, 625 F.2d 967, 971-972 (10th Cir. 1980) (distinguishing Warren

Trading and holding tax could be imposed on non-Indian contractors).


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-36-

Because the interest-balancing test is conducted on a case-by-case basis,

Bracker dictates different results depending on the nature of the state tax and the

interests involved. Federal courts have upheld state taxes imposed on non-Indian

retailers acting in Indian Country when the states in question have provided

substantial services in Indian Country. See Cotton Petroleum Corp. v. New

Mexico, 490 U.S. 163, 183-187 (1989); Barona, supra at 1190-1193; O’Cheskey,

supra at 971. The courts have also prevented states from taxing non-Indian

retailers acting in Indian Country when the states have completely abandoned their

Indian populations and have very little interest in raising tax revenue from

transactions involving those populations. See Ramah Navajo School Bd., Inc. v.

Bureau of Revenue of New Mexico, 458 U.S. 832, 843-844 (1982). But see id. at

844, n. 7 (result of preemption analysis “would be different” if state sought to help

Indians). Summary judgment of this issue was proper because there is no per se

rule preventing states from taxing non-Indian retailers.

The Community does not ask this Court to apply the Bracker test to the

Michigan sales tax. Defendants maintain that the State has not abdicated its

responsibilities like Arizona; it offers substantial services costing millions of

dollars annually to the Community and its members for roads, schools, and other

services. (Defendants’ Brief In Opposition to Plaintiff’s First Partial Motion for

Summary Judgment (11/22/06), p.22-23, R53, ROAp.316-317.) Those state


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-37-

interests outweigh federal and tribal interests when it comes to taxing non-Indian

retailers for sales made to the Community and its members in Indian Country.

However, Defendants respectfully ask that the Court not go beyond the

Community’s arguments to address that issue.

VII. THE STATE’S PROCESS TO DETERMINE TAX EXEMPTIONS OR REFUNDS IS LAWFUL

Nine of twelve Michigan Indian tribes have a tax agreement with the State

that specifies how the tribes and their members can seek tax refunds and

exemptions, including whether they may use exemption certificates. (Fratzke

Affidavit, ¶7-10, ROAp.334-335.) For the few tribes without tax agreements,

Defendants ask the tribe or tribal member seeking the refund or exemption to

provide information regarding the retailer, purchaser, the location of the

transaction, and intended use of the property being sold/purchased. (Id. at ¶11-20,

ROAp.335-338.) This information is intended to answer the critical “who,”

“where,” and other questions that decide when federal law bars a state from taxing

a transaction. See Wagnon, supra at 101. The district court concluded that “the

process Defendants have implemented to determine whether a transaction or use

should be tax-exempt is reasonably tailored to the collection of taxes for those

scenarios that are taxable.” (Opinion, p.21.)


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-38-

A. Defendants’ Inquiry Seeks The Proper Information

The Community argues that Defendants’ inquiry seeks irrelevant

information. (Community Brief, p.35-36.) In the Community’s view, the only

factors relevant to a state tax exemption or refund are (1) whether a purchaser is an

enrolled member of a federally recognized Indian tribe and (2) whether that

purchaser lives in Indian Country. (Community Brief, p.35.) The Community

completely ignores critical factors, such as the type of tax involved, whether the

retailer is an Indian, whether the sale at retail occurs in Indian Country, and where

and how the property will be used. Without the additional facts, Defendants

cannot apply the tests in McClanahan, Mescalero, and Bracker.

The Community would limit the inquiry to these two criteria because they

reflect the supposed per se rules against taxing Indian traders and property used

“principally” in Indian Country. However, there are no such per se rules of

taxation. The Community even concedes that the questions Defendants ask are

relevant to the Bracker test and determining whether property will be used

exclusively in Indian Country. (Community Brief, p.36.) The information

Defendants request is proper.

The Community also contends that this inquiry leads to arbitrary and

capricious results because it has not been formalized in administrative rules or

guidance. However, the formal guidance is Supreme Court precedent. Treasury


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-39-

has not yet promulgated administrative rules or other guidance because, until the

Community filed this lawsuit, there have been only a handful of requests for tax

exemptions at any given time and virtually all of those requests for exemptions

were by the tribes (not tribal members) when purchasing vehicles. (Fratzke

Affidavit, ¶22-27, ROAp.338-339.) Those few requests for exemptions did not

require rulemaking because they could be handled consistently, fairly, and

accurately with the individualized process that Defendants use.

The Community has not presented the Courts with any evidence that

Defendants have declined to grant even a single tax exemption when one was due,

much less evidence that Defendants do so regularly.2 To the contrary, the

Community and its members have sought only a few exemptions or refunds

outside the context of the present dispute. (Fratzke Affidavit, ¶23, ROAp.338-

339.) The Community has no factual basis to argue that Defendants arbitrarily or

capriciously deny proper requests for tax exemptions or refunds, even in the

absence of administrative rules that formalize their inquiry into individual

transactions. The lack of an administrative rule does not automatically make

Treasury’s process arbitrary and capricious.

2 Under Mescalero, the petitioner in Chosa was not entitled to a use tax refund or exemption for a vehicle purchased in Wisconsin and used outside of Indian Country in Michigan.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-40-

B. Defendants’ Process Imposes Only Lawful Burdens

The Community argues that this inquiry regarding the facts of a transaction

are also impermissible because the transactions at issue are not subject to the

“minimal burdens” allowed under Milhelm, supra. The Community is wrong

because the Supreme Court has sanctioned this type of protocol.

First, the Supreme Court has held that states may impose reasonable

administrative and other regulatory burdens on Indian tribes, their members, and

their retailers (Indian traders) in order to collect lawful taxes not preempted by

federal law. See Milhelm, supra at 75. The Supreme Court has allowed “minimal”

burdens, but has not held that these reasonable burdens must be “minimal” in every

case. See id.

Second, the Community improperly contends that the burdens permitted by

Milhelm cannot be allowed in this instance because the sales and use tax are not

imposed on a non-Indian and they are otherwise invalid. However, Defendants

have demonstrated that the taxes being collected are (a) sales tax on retailers

outside of Indian Country, (b) sales tax on non-Indian retailers inside of Indian

Country, or (c) use tax on Indian tribes or members for use outside of Indian


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-41-

Country.3 All three types of taxes are permitted under relevant federal case law

and, therefore, fall within the types of burdens allowed under Milhelm.

Third, this process imposes only reasonable burdens, which are minimal.

Indian tribes and their members are able to ask the State for a tax exemption

whenever they believe one is due. (Fratzke Affidavit, ¶11-29, ROAp.335-340.)

They have not been required to pre-pay the tax and seek a refund. Nor have they

had to go through a complex and lengthy process to get the exemption.4 The

Community and its members have known about this process for many years and

have used it to obtain exemptions for that time, including while this case has been

litigated. (Id.) This process is less burdensome than the process that this Court

approved in Rising I, supra, in which Michigan required the Community to pre-pay

cigarette taxes imposed on non-Indians purchasing cigarettes and then seek a

refund of those pre-paid taxes. Accordingly, the process that Defendants use to

make these exemption and refund determinations is lawful.

3 To the extent the Community would argue that Indians are forced to bear the economic burden of these taxes on non-Indian retailers, only the legal incidence and not the economic effect of the tax is relevant. See Chickasaw, supra at 459-460. 4 The Community submitted hundreds of tax refunds claims to Treasury at the beginning of this litigation without including relevant information regarding the transactions to determine whether a tax refund was due. The Community immediately setoff payments it was required to make to the MEDC as compensation for these taxes and is not due any money as refunds even if the transactions were tax exempt. These claims for refunds are irrelevant to this issue.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-42-

The Community also argues that Defendants should not be able to use this

process because of the hundreds of thousands of tax exemption claims the

Community and its members are entitled to make each year. The Community says

it would be impossible for Defendant Fratzke to process all of those claims and the

delays experienced from processing the claims would effectively eliminate their

tax immunities. This argument is meritless because the Community has sued

Fratzke in his official capacity, which is equivalent to suing the State. There can

be no doubt that the State will allocate the resources necessary to address tax

issues.

The transactions that the Community describes also likely involve the sales

tax with the legal incidence of the tax falling on the retailers, such as when its

members go shopping for everyday items at Walmart. These transactions are

likely to be taxable under Mescalero or Bracker. Thus, the Community’s implied

threat to flood Treasury with unfounded claims for tax exemptions or refunds in

transactions that are taxable is not a legitimate basis on which to undermine the

simple, effective, and legally permissible process that Defendants use to address

these claims.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-43-

C. Defendants Are Not Obligated To Allow The Community And Its Members To Use Tax Exemption Certificates

The Community argues that Defendants should not be able to ask for

information regarding these transactions and, instead, they should be able to use

the “Standard Procedure” for tax exemptions used in Michigan and other states.

(Community Brief, p.41.) According to the Community, this “Standard

Procedure” allows purchasers to fill out Treasury Form 3372 (attached to

Community’s Brief) and submit it to a retailer, without any individual analysis by

Defendants. However, Form 3372 is only used for statutory tax exemptions, which

the Community and its members are entitled to like any other individuals and

entities in Michigan. See M.C.L. §205.54a et seq. and §205.94 et seq. (exemptions

named on form); (Fratzke Affidavit, ¶35, ROAp.341-342.) Michigan law does not

have statutory tax exemptions for federal tax immunities granted to Indian tribes

and their members. The only statutory tax exemptions that apply specifically to

members of Indian tribes require that the individual be a member of a tribe that has

a tax agreement with the State. See M.C.L. §205.54aa(3)(b) and §205.94x(3)(b).

The Community does not have a tax agreement with the State and, therefore,

cannot use this form to seek exemptions based on federal Indian tax immunities.

Form 3372 also fails to collect the information needed to determine whether

a transaction is exempt from taxes under federal Indian law, such as where the

property is being purchased or will be used. As the Community admits, the form


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-44-

does not identify whether the transaction takes place in Indian Country.

(Community Brief, p.42.) The Community would merely have the retailers apply

Michigan’s inapplicable sourcing statutes and use a map to determine whether the

transaction takes place in Indian Country. See M.C.L. §205.69 and §205.110.

However, the sourcing statutes and a map will not provide a definitive

answer regarding whether a transaction occurs in Indian Country. Treasury has the

most definitive maps and lists of property comprising Indian Country, including

the trust lands that change frequently. Retailers will not necessarily be able to

determine whether a transaction takes place in Indian Country with maps that are

likely to be quickly outdated.

Also, Michigan enacted the sourcing statutes when it adopted the

Streamlined Sales and Use Tax Revenue Equalization Act, M.C.L. §205.171 et

seq., to participate in the multi-state sales tax streamlining project. See 2004 PA

172, 173. The sourcing statutes identify the state in which a transaction occurs

when the transaction involves interstate and foreign commerce, giving priority to

one state taxing jurisdiction over another state taxing jurisdiction; the sourcing

statutes never determine whether any particular transaction is taxable. See M.C.L.

§205.69 and §205.110; Sourcing Issue Paper (visited November 23, 2008), p.1

<http://www.streamlinedsalestax.org/issue_papers.html>. The sourcing statutes

also provide no way to determine when a transaction takes place in Indian Country


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-45-

and cannot be twisted to treat Indian Country like a foreign country or another state

because the Community’s Indian Country is part of Michigan. See Nevada v.

Hicks, 533 U.S. 353, 361-362 (2001) (“[A]n Indian reservation is considered part

of the territory of the State.”) (citation and quote marks omitted). Further, the

Community does not participate in the multi-state sales tax streamlining project

and cannot benefit from it. See Participating States (visited November 23, 2008)

<http://www.streamlinedsalestax.org/govbrdstates.htm>.

Even if an exemption form were developed that collected all the information

needed to determine tax exemptions, it must be done under a process Defendants

develop and implement because they have a statutory duty to administer these

taxes that they cannot relinquish to retailers or the Community. See M.C.L.

§205.1, §257.814, §257.815. There is no reason to believe that retailers want to be

placed in the middle of a tax dispute for every transaction involving an Indian tribe

or member, nor that they could adequately handle that role.

Defendants also have no basis to trust that the Community and its members

will use this exemption form only when an exemption is truly due. As Defendants

discovered during this litigation, the Community and its members have been

representing to retailers that transactions with them are essentially always tax free.

(Fratzke Affidavit, ¶30-40, ROAp.340-345; Selected Examples of Community


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-46-

Certification of Non-taxable Status, ROAp.1090-1138.) They have even

misrepresented that they have a state tax exemption number. (Id.)

Defendants have virtually no opportunity to discover improper

representations that a transaction is tax-free unless it is reported to Treasury.

(Fratzke Affidavit, ¶32, ROAp.341-342.) Even when Defendants learn that tax

was not paid on a transaction, it often has no recourse because of good-faith

exceptions available to retailers and because of the Community’s sovereign

immunity from suit in Michigan. (Id.) When tribes enter into tax agreements with

the state, these risks are controlled by requiring the tribe’s cooperation in collecting

taxes and a limited waiver of its sovereign immunity to enforce the collection of

taxes. See M.C.L. §205.30c(12). The Community has no such agreement with the

State, has not offered to grant a limited waiver of sovereign immunity, and has not

offered to assist the State in the collection of lawful taxes.

The only way that Defendants can ensure that Treasury is collecting the

taxes that are due in the absence of other safeguards is to require the Community

and its members to seek an exemption from Defendants before a transaction, or

pay the tax and seek a refund after the transaction. No authority compels

Defendants to use an exemption form simply because it is used in other tax

contexts or by other states when they have other methods for giving effect to

federal tax immunities. Nor is there any authority that requires Defendants to use


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-47-

the exemption form when it presents a real risk of tax evasion; it is lawful for states

to implement systems to prevent the avoidance of lawful taxes. See Milhelm,

supra at 71-72; Colville, supra at 160. Indeed, the Community simply has no basis

or authority for dictating what method Defendants (the State) will employ to

collect its taxes. Accordingly, the district court did not err when it upheld the

process that Defendants use to determine whether to grant tax exemptions or

refunds.

VIII. THE DISTRICT COURT PROPERLY DECLINED TO ADDRESS THE ADDITIONAL TAX ISSUES

The Community contends that the district court should have addressed two

additional issues raised in this lawsuit. (Community Brief, p.43.) The first issue

asked the district court to state the circumstances under which the purchase of a

vehicle occurs inside of Indian Country, which the Community claims can be fully

resolved by the Michigan sales tax sourcing statute and by imposing a per se rule

against imposing any sales or use tax for purchases that occur on the Community’s

reservation. Id. The second issue concerns when and how Defendants must

apportion the Michigan use tax for property “principally stored” in Indian Country,

but used outside of Indian Country. Id. at 44. These issues have no substantive

merit, as explained elsewhere in this brief. The district court also properly

declined to address these issues because they are not ripe and do not present a case

and controversy.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-48-

A. The Additional Issues Are Not Ripe

“Ripeness is a justiciability doctrine designed to prevent the courts, through

premature adjudication, from entangling themselves in abstract disagreements.”

Kentucky Press Ass'n, Inc. v. Kentucky, 454 F.3d 505, 509 (6th Cir. 2006) (internal

quote marks omitted). Courts consider three factors when deciding whether claims

are ripe:

1) the likelihood that the harm alleged by the plaintiffs will ever come to pass; 2) whether the factual record is sufficiently developed to produce a fair adjudication of the merits of the parties’ respective claims; and 3) the hardship to the parties if judicial relief is denied at this stage in the proceedings. [Id. (internal quote marks omitted).]

The district court determined that these additional tax issues failed all elements of

this test.5 In particular, the district court noted that whether a transaction is taxable

depends on a “case-by-case fact-specific analysis,” such as under the Bracker test,

but the record was inadequate to allow that. (Opinion, p.23.) Further, the district

court concluded that the parties would not be harmed if it declined to address the

issue because the Community and its members would be free to seek a tax

exemption from Defendants for a particular transaction and, if denied, they could

sue at that time. (Id.)

5 Contrary to the Community’s argument, Defendants have never conceded that these issues are ripe. Further, the district court was entitled to raise the ripeness issue sua sponte. Opinion, p.22 (citing Nat’l Park Hospitality Ass’n v. Dep’t. of Interior, 538 U.S. 803, 808 (2003)).


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-49-

The Community does not explain how the district court misapplied this test

or drew an incorrect conclusion regarding any of the elements, merely stating that

these two additional tax issues “satisfy all three” of the elements of this test and

that they are questions of law that do not require any facts. (Community Brief,

p.43-44.) Failing to brief this issue amounts to abandoning it on appeal. See

United States v. Elder, 90 F.3d 1110, 1118 (6th Cir. 1996).

The district court correctly understood that whether a state tax applies to a

transaction involving an Indian depends significantly on the transaction-specific

facts to be used in the relevant legal test. See Wagnon, supra at 101; see

Chickasaw, supra at 458. In Sac & Fox, supra at 124-126, the Supreme Court

concluded that the Court of Appeals had erred when it ruled on an Indian tax issue

without gathering the specific facts necessary to decide the issue. See also Pierce,

supra at 583-586 (reversing and remanding because record was inadequate to

balance interests); World Book, Inc. v. Treasury, 459 Mich. 403, 405, 410-412; 590

N.W.2d 293 (1999) (examining multiple facts to determine where transaction takes

place for purpose of sales tax). There is no evidence suggesting that Defendants

will ever improperly deny a tax exemption or refund, nor under what

circumstances that might happen. Those (unknown) factors will dictate the other

evidence presented concerning the test to be applied and any interests to be


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-50-

balanced. The absence of those facts make any ruling hypothetical. (Opinion,

p.23.)

Additionally, the Community does not dispute that they will be able to sue to

address any exemption or refund allegedly denied on an improper basis and so are

not harmed by the decision to allow the dispute to be decided in the context of a

specific claim that presents a controversy. Therefore, the district court did not

abuse its discretion when it declined to address these issues.

B. The District Court Exercised Sound Discretion When Declining To Rule On These Issues Because There Is No Case And Controversy

The Community asserts that the district court erred when it did not apply the

five-part test announced in Grand Trunk Western Railroad Co. v. Consolidated

Rail Corp., 746 F.2d 323 (6th Cir. 1984), to determine whether to address the two

additional tax issues. The district court concluded that the Community had failed

to present the necessary case and controversy that is a prerequisite to issuing a

declaration. See Aetna, supra at 239-240. The court declined to exercise its

jurisdiction to issue the declarations on these additional tax issues because they are

“abstract,” and “hypothetical” and lack “a specific factual situation in which either

the Community or one of its members has sought and been denied a tax

exemption.” Opinion, p.23, 24.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-51-

Without a controversy, this test for whether to decline to issue the

declaration is irrelevant and a declaration itself is premature. See, generally,

MedImmune, supra at 127 (controversy must be concrete, not hypothetical); Public

Service Comm’n. of Utah v. Wycoff Co., Inc., 344 U.S. 237, 243 (1952) (Courts

“must be alert to avoid imposition upon their jurisdiction through obtaining futile

or premature interventions, especially in the field of public law.”) (emphasis

added). Even the first prong of Grand Trunk requires the existence of a

controversy for it to be applied. See Grand Trunk, supra at 326 (asking whether

declaratory action would “settle the controversy”). Consequently, the district court

did not abuse its discretion when it declined to issue the declarations on the two

additional issues.

IX. THE DISTRICT COURT PROPERLY GRANTED SUMMARY JUDGMENT OF THE 1842 TREATY CLAIMS TO DEFENDANTS

In 1842, the Community and other Indian tribes entered into a treaty with the

United States to cede the western half of the Upper Peninsula of Michigan (the

Ceded Area). Article II of the 1842 Treaty states that “the laws of the United

States shall be continued in force, in respect to their trade and intercourse with the

whites, until otherwise ordered by Congress.” The district court concluded that

this provision merely meant what it said: federal law applies inside the Ceded

Area. (Opinion, p.18, n.4.) Accordingly, the court said that “if taxation is


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-52-

permissible under federal law, it is likewise permissible under the terms of the

1842 treaty.” Id.

The Community does not argue that the Ceded Area meets the definition of

Indian Country under 28 U.S.C. §1151 – and it is not Indian Country, having been

ceded to the United States more than 160 years ago. The Community, however,

contends that the 1842 Treaty requires that the Ceded Area must be treated as if it

were Indian Country under federal law and all tax immunities for Indian tribes,

tribal members, and Indian traders be extended to the Ceded Area even though it is

not Indian Country. (Community Brief, p.48.) In the Community’s view, the 1842

Treaty preempted all state laws in the Ceded Area that could apply to the

Community, its members, and Indian traders. The net effect of this argument is to

grant tax shelters outside of Indian Country for transactions involving the

Community and its members, even for non-Indian retailers.6

This Court considered this same issue in Rising I, supra at 893, where the

Community argued that the 1842 Treaty preempted Michigan’s tobacco tax in the

Ceded Area. The Rising I district court concluded that the 1842 Treaty merely

imposed federal law in the Ceded Area and federal law allowed Michigan to

impose its tobacco tax there. See id. This Court agreed, saying that the 6 The Community’s arguments regarding the Ceded Area and 1842 Treaty have implications beyond the sales and use taxes.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-53-

“Community presents little basis for us to reject this reasoning.” Id. The same

reasoning holds true in this case. Federal law permits Defendants to apply and

enforce the sales and use taxes in the Ceded Area because it is not Indian Country.

See Chickasaw, supra at 464; Mescalero, supra at 148-149. There is no need to

remand this case to the district court to gather evidence regarding the intent of the

treaty signatories, as the Community requests, because this issue is res judicata.

(Brief in Support of Defendants’ First Motion for Summary Judgment (1/8/07),

p.18-21, R64, ROAp.508-510.)

X. THE DISTRICT COURT CORRECTLY GRANTED DEFENDANTS SUMMARY JUDGMENT OF THE CLAIM UNDER 42 U.S.C. §1983

The Community sued Defendants Rising, Reynolds, and Fratzke in their

individual capacities under 42 U.S.C. §1983 for the offsets of federal funds taken

by the State in 2005. (Complaint, ¶33-44, ROAp.30-33.) The district court

properly agreed with Defendants’ argument that the Community is not a “person”

entitled to sue under §1983 because it is vindicating sovereign, not private, rights.

(Opinion, p.14-16.)

A. The Community Is Not A “Person” Entitled To Sue

Section 1983 provides in relevant part:

Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-54-

United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress .... [Emphasis added.]

Inyo County, Cal. v. Paiute-Shoshone Indians of the Bishop Community of the

Bishop Colony, 538 U.S. 701 (2003), held that Indian tribes cannot be considered a

“person” within the meaning of §1983 and, therefore, cannot be claimants under

this statute.

The Community contends that Inyo only applies to those cases involving a

claim that a tribe’s sovereign rights were violated. (Community Brief, p.50.)

While Inyo did involve the tribe’s sovereign rights, id. at 711-712, the Court did

not suggest that its ruling was limited to cases involving sovereign rights or that

tribes can vindicate private rights under §1983. The Supreme Court rejected the

broad reading of the statute the tribe advocated and apparently gave the word

“person” the same meaning for both claimants and defendants under §1983 to hold

that a tribe, like a state, is a sovereign and does not fit within §1983. See id. at

710-711 and 712 n.6.

Even if Inyo does not bar a sovereign from suing in all situations, it bars this

§1983 claim because the Community is pressing its sovereign rights. See

Winnebago Tribe of Nebraska v. Kline, 297 F.Supp.2d 1291, 1297-1298 (D. Kan.

2004) (§1983 claims that substantively involve an injury to a tribe’s sovereignty


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-55-

are barred). The Community claimed that the 2005 offsets violated the Agreement,

which was entered into between two sovereigns. The alleged affront to the

Community’s sovereignty led Community President Susan LaFernier to inform

Governor Granholm that the Community would be taking its own setoff even

though “the Community had hoped that these [Treasury offset] issues could have

been resolved on a government to government basis ....” (LaFernier Letter, p.2,

ROAp.618.)

The Community could have only a sovereign interest in the money that

Treasury offset in 2005 because those federal funds were only available to the

Community in its governmental capacity to spend for public programs, not to use

in a private capacity. (Complaint, ¶42, ROAp. 34.) The Complaint alleges that the

2005 offsets violated the Community’s “sovereignty,” its “government

operations,” and the “essential governmental services” it provides to its members

and others. (Complaint, ¶59, ROAp.42.) It is clear that the federal government

was giving this money to the Community so that it could act as a sovereign and

provide services to its members, not so that it could spend the money in any way it

chose as an individual with a private right to money might do. Even if Inyo were

limited to cases involving a tribe’s sovereignty, the Community cannot sue to

defend its sovereign interests under §1983.

In Rising I, supra at 894, n.6, this Court suggested that the Community


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-56-

could have a cause of action under §1983. This statement was classic nonbinding

dictum because it was unnecessary to the Sixth Circuit’s decision, and was also

made without any analysis or authority. See Hinchman v. Moore, 312 F.3d 198,

203-204 (6th Cir. 2002) (defining dicta). Not even the district court in Rising I

considered whether the Community is a “person” entitled to file under §1983.

Keweenaw Bay Indian Community v. Rising, Opinion issued in No. 2:03-CV-111

(W.D. Mich. Sept. 12, 2005), available at 2005 WL 2207224, at *12-16,

Defendants’ Addendum C. There is no binding precedent holding that a tribe has

the right to be a claimant under §1983 when it is claiming that its sovereign rights

were violated and, as a result, summary judgment was proper.

B. Defendants Did Not Violate §1983

Summary judgment in Defendants’ favor was also proper because the

Community does not have a cognizable legal theory and evidence in support of a

§1983 claim. The Community’s theory of §1983 liability is that Defendants all

had some “overall responsibility,” “specific responsibility for administration,” or

“responsibility for overseeing” the Department of Treasury (Rising), Native

American affairs at Treasury (Fratzke), or the computer systems used for offsets

(Reynolds) and that they failed to take some unspecified action to prevent the 2005

offsets or order a refund. (Community’s Response to Interrogatories (5/11/07),

p.27, 29, 30, 32, 33, 44, ROAp.1246, 1248-1249, 1251-1252, 1254.) The


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-57-

Community claims that Defendants each had a supervisory role in connection with

the offsets, but failed to act or direct others to act to prevent the 2005 offsets or

refund those monies. This is not an actionable theory.

The Community must provide evidence of Defendants’ “active

unconstitutional behavior” and cannot allege supervisory liability “based upon a

mere failure to act.” Bass v. Robinson, 167 F.3d 1041, 1048 (6th Cir. 1999)

(internal citations omitted); see also Johnson v. Daniels, 769 F.Supp. 230 (E.D.

Mich. 1991) (“Personal participation is a sine qua non of individual capacity §1983

suits; respondeat superior is not within the purview of §1983 liability.”). But the

Community has no evidence that Defendants took the 2005 offsets or directed

them to be taken. In May and June 2005, the State’s computer system accurately

determined that the Community had an unpaid liability for the 1993 and 1994 sales

and use tax assessments and that money was being routed to the Community

through Treasury. Defendants did not know about the 2005 offsets before they

happened. (Fratzke Deposition, p.103, 174, ROAp.1294, 1303; Reynolds

Deposition, p.137, ROAp.1336; Rising Affidavit, ¶4, ROAp.1351.) The offsets

were solely a computer process without Defendants’ involvement. (Offsets Policy

BT-23028, p.5, ROAp.1264.) Once the offsets were taken, the money was

deposited directly into the State Treasury without ever being possessed by any of


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-58-

these Defendants. (Giron Affidavit (3/9/07), Exhibit D to Defendants’ Reply Brief

(3/12/07), R74, ROAp.612-615.)

Defendants are not liable for allowing the offsets to occur because they had

no obligation to continue the Community’s account on bypass given that the

Community was unwilling to pay the tax assessments voluntarily and did not

challenge their validity. Still, Defendants took no action to remove the

Community’s account from bypass after 2002, nor did they know that the bypass

status had been removed. (STAR Key Events; Reynolds Deposition, p.69-94,

ROAp.1326-1333; Document Response 10, ROAp.1348). Furthermore, the

Community has failed to present any theory or evidence demonstrating that

Defendants had a responsibility to place the Community’s account on bypass while

the questions about the offsets were being considered.

Rising, Reynolds, and Fratzke cannot be held liable for failing to order a

refund of the 2005 offsets. Whether to grant a refund was actively being discussed

at Treasury in June and July 2005. (Fratzke Emails, ROAp.1200-1203; Rising

Affidavit, ¶6, ROAp.1351.) Fratzke acted reasonably by asking the Community to

provide a legal basis for its refund claim. (Fratzke Letter, ROAp.1205.) The

Community provided that explanation in August 2005, and claimed at least six

bases for a refund. (Geiger Letter, ROAp.1209-1219.) Over the next month

Treasury personnel discussed whether there should be a refund and consulted with


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-59-

the Department of Attorney General to obtain privileged legal advice on these

issues, including the effect of the Community’s own (continuing) setoffs of funds.

They also worked with the Governor’s Office and MEDC because of the setoffs

that the Community was taking. Defendants would have complied with the law if

they had been given an opportunity to resolve the complex issues that the

Community raised and if the law required refunding the 2005 offsets. (Fratzke

Letter, ROAp.1205; Fratzke Deposition, p.203-204, ROAp.1309; Reynolds

Deposition, p.91, 137-138, ROAp.1332, 1336-1337.) However, before the refund

issue was decided, the Community sued.

Summary judgment was proper because the Community neither has an

actionable theory of §1983 liability nor evidence that raises material questions of

fact concerning Defendants’ personal liability. Remand for further discovery is not

warranted because the Community had more than two years to develop a theory

and record that would survive summary judgment, but did not.

C. The Court Should Not Reach The Arguments Regarding The Purpose Law And Federal Program Funds

The Community contends that it is “premature to address the merits” of its

§1983 claim and whether the 2005 Offset violated the Purpose Law, 31 U.S.C.

§1301(a). (Community Brief, p.53.) This Court should not reach this issue, which


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-60-

is unnecessary because the §1983 claim was improper. This argument is also

meritless.

The Purpose Law states, “Appropriations shall be applied only to the objects

for which the appropriations were made except as otherwise provided by law.” 31

U.S.C. §1301(a). Congress did not appropriate these funds to Defendants and,

therefore, they are not bound to follow the Purpose Law. Moreover, the primary

goal of 31 U.S.C. §1301(a) is to prevent power struggles over money and the

budget process within the federal government. See, generally, American

Federation of Government Employees, AFL-CIO, Local 1647 v. Federal Labor

Relations Authority, 388 F.3d 405, 408-409 (3rd Cir. 2004). The State exercised

its common law rights as a creditor to take the 2005 Offsets. See Whispering Pines

AFC Home, Inc. v. Treasury and Dep’t. of Mental Health, 212 Mich. App. 545;

538 N.W.2d 452 (1995). (Offset Policy BT-23030 (10/1/00), ROAp.1257-1258.)

This common law offset right is recognized in long-standing precedent that follows

United States v. Munsey Trust Co., 332 U.S. 234, 239 (1947). (See Brief in

Support of Defendants’ Second Motion for Summary Judgment (11/1/07), p.24-25,

R104, ROAp.1035-1036, and Reply Brief (12/28/07), p.3, R124, ROAp.1721.)

Allowing a state to enforce its common-law right to offset debts (just as federal

agencies are permitted to do) does not interfere with the obedience Congress

requires of the agencies that receive earmarked appropriations.


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-61-

The Purpose Law does not mention offsets and the Community does not cite

a single case holding that a common-law offset of federal funds by a state to satisfy

a tax debt violates 31 U.S.C. §1301(a). Therefore, the Purpose Law is not even a

potential basis to reverse summary judgment of the §1983 claim.

CONCLUSION

WHEREFORE Defendants-Appellees respectfully ask that this Court affirm

the district court’s decision.

Respectfully submitted,

MILLER, CANFIELD, PADDOCK MICHAEL A. COX, AND STONE, P.L.C. MICHIGAN ATTORNEY GENERAL, By: /s/ Kevin J. Moody By: /s/ B. Eric Restuccia (by consent) Kevin J. Moody B. Eric Restuccia, Solicitor General One Michigan Avenue, Suite 900 Michigan Dept. of Attorney General Lansing, MI 48933-1609 525 West Ottawa, #405 (517) 487-2070 Lansing, MI 48913 [email protected] (517) 373-6248 [email protected] Dated: December 19, 2008


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-62-

CERTIFICATE OF COMPLIANCE

I hereby certify that the foregoing brief complies with the type-volume

limitation provided in Fed. R. App. P. 32(a)(7)(B). The foregoing brief contains

13,936 words of Times New Roman (14 point) proportional type. Microsoft Word

2002 was the word processing software used to prepare this brief and count the

number of words in it.



MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-63-

Case No. 08-1585

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

KEWEENAW BAY INDIAN COMMUNITY, named as federally-recognized Indian tribe,

on its own behalf and as parens patriae for its members,

Plaintiff/Appellant

v.

ROBERT J. KLEINE, Treasurer of the State of Michigan; JAY RISING, former Treasurer of the State of Michigan; MICHAEL REYNOLDS, named as

Administrator of the Collection Division of the Michigan Department of Treasury; WALTER A. FRATZKE, named as Native American Affairs Specialist of the Michigan Department of Treasury; TERRI LYNN LAND, Secretary of State,

Defendants/Appellees.

CERTIFICATE OF SERVICE

I hereby certify that on December 19, 2008 I electronically filed Defendants-Appellees’ Brief on Appeal by using the United States Court of Appeals for the Sixth Circuit’s CM/ECF system, which will send a notice of electronic filing to the following attorneys of record in this case: Dorsey & Whitney LLP Vernle (Skip) C. Durocher, Jr.

50 South 6th Street, Suite 1500 Minneapolis, Minnesota 55402-1498 Tel: (612) 340-2600 Attorneys for Plaintiff-Appellant


MIL

LER

, CAN

FIEL

D, P

ADD

OC

K AN

D S

TON

E, P

.L.C

.

-64-

Keweenaw Bay Indian Community Tribal Attorney John R. Baker 16429 Bear Town Rd

Baraga, MI 49908 Tel: (906) 353-7031 Attorney for Plaintiff-Appellant

Respectfully submitted, MILLER, CANFIELD, PADDOCK MICHAEL A. COX, AND STONE, P.L.C. MICHIGAN ATTORNEY GENERAL, Kevin J. Moody (P34900) B. Eric Restuccia (P49550) Jaclyn Shoshana Levine (P58938) By: /s/ B. Eric Restuccia (by consent) By: /s/ Kevin J. Moody B. Eric Restuccia, Solicitor General Kevin J. Moody Michigan Dept. of Attorney General One Michigan Avenue, Suite 900 525 West Ottawa, #405 Lansing, MI 48933-1609 Lansing, MI 48913 (517) 487-2070 (517) 373-6248 [email protected] [email protected] Counsel for Defendants-Appellees Co-counsel for Defendants-Appellees Dated: December 19, 2008 LALIB:177066.7\060531-00068


Date post:	02-Aug-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

Case No. 08-1585 UNITED STATES COURT OF APPEALS FOR THE ... · miller, canfield, paddock and stone,...

Documents