FINAL brief cover page for 2 4 11 filing · brought by Mohawk and other tribal plaintiffs, compare...

10-4265

10-4272, 10-4477, 10-4598, 10-4758, 10-4976, 10-4981

IN THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

ONEIDA NATION OF NEW YORK,

Plaintiff-Appellee,

SENECA NATION OF INDIANS, ST. REGIS MOHAWK TRIBE,

UNKECHAUGE INDIAN NATION,

Plaintiffs-Appellees-Cross-Appellants,

v.

ANDREW M. CUOMO, Governor of the State of New York, THOMAS H. MATTOX,

Acting Commissioner, New York State Department of Taxation and Finance,

RICHARD ERNST, Deputy Commissioner, Office of Tax Enforcement, New York

State Department of Taxation and Finance, each in his or her official capacity,

Defendants-Appellants,

JOHN MELVILLE, Acting Superintendent,

New York State Police, in his official capacity,

Defendant-Appellant-Cross-Appellee,

CAYUGA INDIAN NATION OF NEW YORK,

Intervenor-Appellant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURTS

FOR THE NORTHERN AND WESTERN DISTRICTS OF NEW YORK

OPPOSITION BRIEF FOR THE ST. REGIS MOHAWK TRIBE

Counsel listed on inside cover.

Case: 10-4265 Document: 170 Page: 1 02/04/2011 202716 31

Michael L. Roy

Marsha K. Schmidt

Counsel for the St. Regis Mohawk Tribe

HOBBS, STRAUS, DEAN & WALKER, LLP

2120 L Street, NW, Suite 700

Washington, DC 20037

(202) 822-8282


i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ................................................................... ii GLOSSARY ............................................................................................ v

ARGUMENT .............................................................................................. 1

I. MOHAWK IS LIKELY TO SUCCEED ON ITS

CLAIM THAT THE NEW TAX LAW INFRINGES

ON ITS SOVEREIGNTY .............................................................. 1

A. The Tribe’s As-Applied Challenge is Ripe ................................ 3

B. Attea Does Not Authorize the State To Deprive Tribal

Retailers of Their Rights to Sell to Tribal Members .................... 5

C. Uncontested Evidence Shows that the New Tax Law

Fails to Ensure that All Tribal Retailers Have Access to

Tax-Exempt Cigarettes ....................................................................... 7

D. The Harms Inherent in the New Tax Law Cannot be

Attributed to the Workings of Private Parties in a Free Market ........ 8

E. The New Tax Law Infringes on the Tribe’s Sovereignty

By Imposing Duties on the Tribe and Offering the Tribe

Coercive Choices ........................................................................... 10

1. The Coupon System Imposes Obligations on the Tribe .............. 10

2. The New Tax Law Offers the Tribe Coercive Choices ....... 14

II. MOHAWK WILL SUFFER IRREPARABLE HARM

ABSENT AN INJUNCTION ....................................................... 17

III. AN INJUNCTION TO MAINTAIN THE STATUS QUO IS IN THE PUBLIC INTEREST .............................................................. 20

CONCLUSION ............................................................................................ 23

CERTIFICATE OF COMPLIANCE


ii

TABLE OF AUTHORITIES

Cases Page(s)

Abbott Labs. v. Gardner,

387 U.S. 136 (1967) ...................................................................................... 4

American Charities for Reasonable Fundraising Regulation, Inc. v.

Pinellas Cnty.,

221 F.3d 1211 (11th Cir. 2000) ..................................................................... 4

Babbitt v. United Farm Workers National Union,

442 U.S. 289 (1979) .................................................................................. 4, 5

Board of Natural Resources v. Brown,

992 F.2d 937 (9th Cir. 1993) ....................................................................... 15

Cayuga Indian Nation of New York v. Gould,

14 N.Y.3d 614 (2010) ................................................................................. 19

County of Yakima v. Confederated Tribes & Bands of Yakima Indian Nation,

502 U.S. 251 (1992) .................................................................................... 17

Day Wholesale v. New York,

856 N.Y.S.2d 808 (4th Dept. 2008) ............................................................ 19

Dep't. of Taxation and Finance of New York v.

Milhelm Attea and Bros., Inc.,

512 U.S. 61 (1994) ............................................................ 1, 2, 3, 5, 6, 11, 16

Independent Living Center of Southern California, Inc. v.

Maxwell-Jolly,

572 F.3d 644 (9th Cir. 2009) ....................................................................... 22

McCulloch v. Maryland,

17 U.S. (4 Wheat.) 316 (1819) .................................................................... 17

Moe v. Confederated Salish and Kootenai Tribes of the

Flathead Reservation,

425 U.S. 463 (1976) .................................................................. 12, 15, 16, 17


iii

Cases Page(s)

New Motor Vehicle Bd. v. Orrin W. Fox Co.,

434 U.S. 1345 (1971) ................................................................................. 22

Oklahoma Tax Comm'n v. Sac and Fox Nation,

508 U.S. 114 (1993) .................................................................................... 14

Patton v. Dole,

806 F.2d 24 (2d Cir. 1986) .......................................................................... 23

Petersburg Cellular Partnership v. Board of Supervisors of

Nottoway County,

205 F.3d 688 (4th Cir. 2000) ....................................................................... 15

Peterson v. City of Greenville, S.C.,

373 U.S. 244 (1963) ...................................................................................... 9

Prairie Band of Potawatomi Indians v. Pierce,

253 F.3d 1234 (10th Cir. 2001) ................................................................... 18

Printz v. United States,

521 U.S. 898 (1997) .................................................................................... 13

Seneca-Cayuga Tribe of Okla.v. State of Oklahoma,

874 F.2d 709 (10th Cir. (1989) ............................................................. 18, 19

Three Affiliated Tribes of Ft. Berthold Reservation v.

Wold Engineering,

476 U.S. 877 (1986) .................................................................. 12, 13, 14, 17

United States v. Baker,

63 F.3d 1478 (9th Cir. 1995) ..................................................................... 6, 7

Washington v. Confederated Tribes of the Colville Reservation,

447 U.S. 134 (1980) ........................................................................ 12, 16, 17

White Mountain Apache Tribe v. Bracker,

448 U.S. 136 (1980) .................................................................................... 14


iv

Cases Page(s)

Williams v. Lee,

358 U.S. 217 (1959) .................................................................................... 12

Winnebago Tribe of Nebraska v. Stovall,

216 F. Supp. 2d 1226 (D. Kan. 2002) ......................................................... 19

Statutes

Prevent All Cigarette Trafficking Act Of 2009 (Pact Act), PL 111-154 §1(b)(9),

124 Stat 1087 (2010). ............................................................................................... 22

N.Y. Tax Law § 471-e (2)(a) ........................................................................... 10

2010 N.Y. Laws 134, Part D, § 26 ..................................................................... 4

Regulations

20 N.Y.C.R.R. § 74.6 (c)(2) ............................................................................. 10

20 N.Y.C.R.R. § 74.6 (e)(1) ....................................................................... 18, 19

Other Authorities

Public Hearing in the Matter to Investigate New York State’s Attempt to Collect

Taxes Generated by Native Americans both on Indian Reservations and over the

Internet to Non-Native Americans: N.Y. State Senate, Standing Commission on

Investigations & Government Operations (Oct. 27, 2009),

http://www.nysenate.gov/files/pdfs/transcript10-29-09 hearing.pdf

(last viewed Feb. 1, 2011) ............................................................................ 21, 22


v

GLOSSARY

Department New York Department of Taxation and Finance

Guidance New York Department of Taxation and Finance, Taxpayer

Guidance Division, “Amendments to the Tax Law Related to

Sales of Cigarettes on Indian Reservations Beginning September

1, 2010,” Technical Memorandum TSB-M-10(6)M/TSB-M-

10(8)S (July 29, 2010), SPA 139

JA Joint Appendix

New Tax Law The amendments to New York Tax Law §§ 471 and 471-e enacted

on June 21, 2010 and June 22, 2010, by the New York

Legislature, 2010 N.Y. Laws 134, Part D, SPA87; 2010 N.Y.

Laws 136, §1, SPA103, and the Department’s implementing

regulations, 20 N.Y.C.R.R. § 74.6, SPA 120.

Mohawk Plaintiff-Appellee-Cross-Appellant St. Regis Mohawk Tribe of

Indians

Mohawk Opening Brief of Mohawk in this appeal

Opening Br.

Oneida Memorandum Decision and Order, Oneida Nation v. Paterson,

No. 10-cv-1071 (W.D.N.Y. Oct. 14, 2010), SPA47.

SPA Special Appendix

State State of New York and collectively Defendants-Appellants-Cross-

Appellees and the Department

State Br. Opening Brief for the State in this appeal

Tribe Plaintiff-Appellee-Cross-Appellant St. Regis Mohawk Tribe of

(capitalized) Indians


ARGUMENT

I. MOHAWK IS LIKELY TO SUCCEED ON ITS CLAIM THAT THE

NEW TAX LAW INFRINGES ON ITS SOVEREIGNTY

The State acknowledges that tribal sovereignty vests with the tribal

government, and not the State, the authority to regulate tribal members. The State

does not question the rights of tribal retailers to sell tax-exempt cigarettes to tribal

members under federal and tribal law. Nor does it deny that under the New Tax

Law, the State will not allocate tax-exempt cigarettes to tribal retailers, that the

prior approval system does not contain provisions to ensure that tribal retailers can

obtain tax-exempt cigarettes to sell to tribal members, or that Mohawk would have

to agree to undertake the burden of allocating coupons to its licensed retailers if it

wanted to ensure their access to tax-exempt cigarettes. Instead, the State offers

various justifications for its New Tax Law, all of which must be rejected.

1. Mohawk is not limited to making a facial challenge based on the law as

written and without consideration of evidence. The District Court properly

considered as-applied challenges because the enforcement of the New Tax Law is

imminent.

2. The inability of tribal retailers to purchase tax-exempt cigarettes under

the prior approval system cannot be ascribed to the natural consequences of a

probable demand system approved by prior case law. Whereas the probable

demand system in Dep’t. of Taxation and Finance of New York v. Milhelm Attea


2

and Bros., Inc., 512 U.S. 61 (1994), required the State to allocate tax-exempt

cigarette coupons among tribal retailers according to their trade territories, the

State has now eschewed that task, and created a dual system under which the Tribe

must either agree to allocate coupons, or the prior approval system will be used and

no allocation will be made to retailers. The Court in Attea expressly declined to

rule on tribal sovereignty issues, or on the allocation system, which it noted “may

present significant problems to be addressed in some future proceeding.” Id. at 77.

3. That the New Tax Law will harm tribal retailers is not based on

speculation. By design, the prior approval system does not require the State to

allocate tax-exempt cigarettes to tribal retailers. Uncontested evidence—including

admissions of Department officials—shows that the prior approval system will

allow and in fact incentivize wholesalers to acquire as much of the quota for a

reservation as they can, and that wholesalers can in turn sell the quota to a minority

of the tribal retailers.

4. Once the quota is purchased and sold in this manner by the wholesalers, a

tribal retailer will be unable to purchase any tax-exempt products from a

wholesaler until the next quarter—not because of free market forces, but because

the wholesaler is constrained under the New Tax Law from making any further

sales of tax-exempt product. The harms caused by the prior approval system

cannot be attributed to the actions of participants in a free market.


3

5. The coupon system clearly imposes burdens on the Tribe. It would

require the Tribe to allocate coupons, which would require adoption of a costly and

burdensome scheme that provides for tribal retailer input and due process. This is

more than a minimal burden, and clearly infringes on tribal sovereignty in that it

requires the tribal government to implement and enforce State law.

6. Contrary to the State’s assertion, the Tribe does not seek to have State

law provide protection from every harm that might befall it or its retailers. Rather,

the Tribe seeks to protect its retailers’ right to sell tax-exempt cigarettes to tribal

members, to limit the burdens imposed on retailers to “minimal burdens reasonably

tailored to the collection of valid taxes from non-Indians,” Attea, 512 U.S. at 73,

and to protect its own sovereignty from a coercive tax collection scheme that

essentially forces the Tribe to act to avert the harm that the prior approval system

will cause to its tribally-licensed retailers should the Tribe fail to act.

A. The Tribe’s As-Applied Challenge is Ripe

Although the District Court properly considered as-applied challenges

brought by Mohawk and other tribal plaintiffs, compare SPA20 (discussing facial

challenge), with SPA28 (as-applied challenge), on evidentiary materials submitted

by the parties, the State claims that because the suits were filed before the New

Tax Law went into effect, they must be limited to facial challenges. State Br. 29-

30. This argument must be rejected because enforcement is imminent without an


4

injunction in place, and the Tribe’s as-applied challenge is ripe. The New Tax

Law was to take effect on September 1, 2010, 2010 N.Y. Laws 134, Part D, § 26

(SPA101); see SPA139, and would be in effect but for the temporary restraining

orders and the injunctions pending appeal issued by the District Court. The

Department adopted final regulations, and issued the Guidance. SPA139. The

State filed motions in this Court to vacate the injunctions pending appeal issued by

the District Court so that the State could immediately enforce the New Tax Law.

Under well-recognized precedent, the Tribe need not wait until it sustains

injury to bring its claim:

A plaintiff who challenges a statute must demonstrate a realistic

danger of sustaining a direct injury as a result of the statute's

operation or enforcement. But one does not have to await the

consummation of threatened injury to obtain preventive relief. If

the injury is certainly impending, that is enough.

Babbitt v. United Farm Workers National Union, 442 U.S. 289, 298 (1979)

(quotations and citations omitted). “Where the legal issue presented is fit for

judicial resolution, and where a regulation requires an immediate and significant

change in the plaintiff’s conduct of their affairs with serious penalties attached to

noncompliance,” a claim is ripe for adjudication. Abbott Labs. v. Gardner, 387

U.S. 136, 153 (1967); see American Charities for Reasonable Fundraising

Regulation, Inc. v. Pinellas Cnty., 221 F.3d 1211, 1214 (11th Cir. 2000) (plaintiff

had standing to bring pre-enforcement as-applied challenge where there was


5

credible threat of prosecution) (citing Babbitt, 442 U.S. 289 (1979)).

B. Attea Does Not Authorize the State To Deprive Tribal Retailers of

Their Rights to Sell to Tribal Members

Much of the State’s argument depends upon the false premise that under

Attea, “[t]he legality of New York’s probable-demand limitation is thus settled,”

State Br. 40, and that if it becomes “more difficult” for tribal retailers and tribal

member consumers to obtain tax-exempt cigarettes, that is a “natural consequence”

of the probable demand calculations that is permissible under Attea. State Br. 41.

Attea cannot be read so broadly however. There, the Court considered

wholesalers’ facial challenge to a law under which the State limited tax-exempt

cigarettes for sale to tribal members according to a probable demand calculation,

but which required the State to allocate coupons to tribal retailers based on its

calculation of the demand for tax-exempt cigarettes in the retailer’s trade territory.

Attea, 512 at 66. Because the case was brought as a limited facial challenge by

non-Indian wholesalers, Attea did not “require [the Court] to assess for all purposes

each feature of New York’s tax enforcement scheme that might affect tribal self-

government.” Id. at 69. The Court declined to rule on the provisions of the law

under which the State was to allocate coupons to reservation retailers, because how

the cigarettes were allocated to retailers was irrelevant to the claims of the

wholesalers, Id. at 77-78, but it noted that “depending upon how they are applied in

particular circumstances, [the allocation] provisions may present significant


6

problems to be addressed in some future proceeding.” Id. at 77. The Court also

stated its assumption that the State would not “stultify tribal economies by refusing

certification”—and therefore coupons—“to new reservation retailers.” Id.

The Court’s statements regarding the allocation provisions reflected the

importance to the Court that all tribal retailers be provided access to tax-exempt

cigarettes for sale to their tribal member customers. Nothing in Attea can be read

to allow a state to foreclose the rights of tribal members and tribal retailers with

regard to the purchase and sale of tax-exempt cigarettes. Except with respect to the

“minimal burdens” that are permitted to collect valid taxes from non-Indians,

commerce between tribal retailers and tribal members is within the sphere of tribal

regulation, and not state regulation, and is protected from state infringement, as

acknowledged by the State. See State Br. 49 (“tribal sovereignty principally vests

tribal governments, and not the States, with the authority to regulate on the

reservation—particularly when, as here, the matter being regulated concerns the

Tribes’ own members”). See Mohawk Opening Br. 22-24.

The State’s reliance upon United States v. Baker, 63 F.3d 1478 (9th Cir.

1995), a criminal prosecution of cigarette wholesalers, is misplaced. State Br. 52-

53. While the court in Baker did uphold the state’s preapproval system against a

claim of tribal sovereignty, 63 F.3d at 1489, the tribe was not a party to the case,

and the court did not discuss the allocation of cigarettes to retailers, or any coupon


7

system like that at issue here. The Court’s statement that the system imposed no

burden on tribes was dictum in a section discussing defendants’ equal protection

argument. Id. at 1490, n.15.

C. Uncontested Evidence Shows that the New Tax Law Fails to Ensure

that All Tribal Retailers Have Access to Tax-Exempt Cigarettes

The State’s assertion that the Tribe’s argument is based on “speculation”

about “hypothetical abuses,” State Br. 53-54, must be rejected. The District Court

found that that “the system creates incentive for a single wholesaler to acquire as

much of the quota as possible,” SPA32, and that the prior approval system allows

one wholesaler and one retailer to monopolize the tax-exempt cigarettes on the

reservation, id., based on the language of the New Tax Law, the undisputed

testimony of Peter Day, a State-licensed stamping agent and wholesaler, and the

admissions of Departmental officials. See Mohawk Opening Br. 30-31. The State

now argues that Mr. Day’s affidavit is unreliable because he has a vested interest in

this litigation, State Br. 56, but the State made no such argument in the District

Court, and submitted no evidence to counter Mr. Day’s affidavit.

The State also argues that even if a single retailer were able to monopolize

the quota for the Mohawk Reservation, no harm would result, because “tax-free

cigarettes would be available to qualified Indians on the reservation in the full

amount of the tribe’s probable-demand allocation.” State Br. 56. This ignores, of

course, the harm to those tribal retailers who are unable to obtain any tax-exempt


8

cigarettes, who will be unable to sell tax-exempt cigarettes to tribal members

notwithstanding that they have a right to do so under federal and tribal law, and the

coercive nature of such a scheme—coercive in that it essentially forces the Tribe to

act to avert the harm to the tribal retailers. See Mohawk Opening Br. 31-45.1 It

also ignores the difficulties that tribal members will face in exercising their rights

to obtain tax-exempt cigarettes on the Mohawk reservation should such cigarettes

not be broadly available, including a “premium” price that “eviscerates any tax

savings to the individual member.” SPA34.

D. The Harms Inherent in the New Tax Law Cannot be Attributed to

the Workings of Private Parties in a Free Market

The harms inherent in the New Tax Law cannot be dismissed as the “result

of behavior of private parties in the free market,” as the State argues, State Br. 57,

because the New Tax Law highly regulates the supply of tax-exempt cigarettes and

constrains the actions of private parties in the purchase of the same. The

Department limits the quantity of tax-exempt cigarettes that can be sold legally,

and must approve of any sale of the same to a tribal retailer. Once the quota for a

reservation has been acquired in a quarter, the Department will not approve any

1 The State claims that Mohawk “has not explained” this harm, but Mohawk fully

briefed this in the District Court. Plts. Reply to Defs. Opp. To Motion for Prelim.

Inj. at 15-19, St. Regis Mohawk Tribe v. Paterson, No. 10-811 (W.D.N.Y. Sept. 28,

2010); Pltf. St. Regis Mohawk Tribe’s Supp. Br. on Req. for Prelim. Inj. at 15-20

Unkechauge Indian Nation v. Paterson, No. 10-711 (W.D.N.Y. Nov. 5, 2010).

Further, Mohawk addressed it in oral argument. Transcript of Oral Argument at 43,

Unkechauge Nation of Indians v. Paterson, No. 10-711 (W.D.N.Y. Oct. 26, 2010).


9

further sales. Thus, a retailer who needs to purchase tax-exempt cigarettes for his

tribal customers and who tries to order tax-exempt cigarettes from a wholesaler

once the quota has been exhausted will be refused, not because of market forces—

after all, it is in the interests of both the wholesaler and the retailer to consummate

the sale, and in a free market they would do so—but because the Department will

not permit the sale. The wholesaler’s refusal to consummate such sale cannot be

said to be the act of a private actor in a free market because the prior approval

system “has commanded a particular result . . . and, in fact, has removed that

decision from the sphere of private choice.” Peterson v. City of Greenville, S. C.,

373 U.S. 244, 247 (1963) (where city ordinance mandated segregation, action of

restaurant in segregating could not be attributed to private action by restaurant).

The Tribe’s challenge is to the New Tax Law and the flaws inherent in it.

The flaws cannot be attributed to private actors where their conduct is constrained

by the New Tax Law, which itself infringes on tribal sovereignty. The State

cannot insulate its law from judicial review on the grounds that sales are made by

State-licensed wholesalers rather than by the State. What is at issue here is the

legality of a State law and Departmental regulations and procedures.2

2 There is no need to decide whether the wholesalers are “state actors” under the

“state action doctrine,” as suggested by amicus New York Association of

Convenience Stores, NYACS Br. 23-24, because the Tribe is challenging the New

Tax Law and its inherent flaws.


10

E. The New Tax Law Infringes on the Tribe’s Sovereignty By Imposing

Duties on the Tribe and Offering the Tribe Coercive Choices

1. The Coupon System Imposes Obligations on the Tribe

The State’s argument that the coupon system is permissible because it

“imposes no specific, affirmative duties” on tribes and “permits tribal governments

to decide for themselves” how to allocate tax-exempt cigarettes, State Br. 47, n.3,

is not supported by the District Court’s ruling and is contrary to the law and the

facts.

First, the State’s argument that the coupon system imposes no burden

because a tribe is free not to distribute them “at all,” State Br. 46, is contradicted

by the State’s earlier acknowledgment that “[u]nder the coupon system, the Tribes

would be responsible for distributing coupons,” State Br. 24, and is contrary to the

the New Tax Law, which provides explicitly that “It is intended that the . . . tribes

will retain the amount of Indian tax exemption coupons they will need each quarter

to purchase cigarettes for official nation or tribal use, and will distribute the

remaining Indian tax exemption coupons to reservation cigarette sellers . . . .” N.Y.

Tax Law § 471-e (2)(a), SPA108; see also 20 N.Y.C.R.R. § 74.6 (c)(2), SPA122

(same); SPA141-142 (same). The District Court properly rejected this argument,

stating: “In order for the coupon system to work, the Nation must distribute the

coupons.” SPA29.


11

Second, the Tribe’s implementation of the coupon system would be

extremely burdensome, both as a practical matter, and as a matter of tribal

sovereignty. Uncontested evidence shows that to allocate the coupons, Mohawk

would have to promulgate, administer and enforce a comprehensive new tribal

regulatory scheme. JA984-985, ¶ 4. The scheme would have to provide a process

for determining how to allocate coupons, which would necessarily include

procedures for input by tribally-licensed retailers, a determination by a tribal

official/agency on the evidence submitted, and due process and appeal rights to the

retailers. Id. It would have to provide procedures to monitor and safeguard the

coupons, and for enforcement of the coupon system. Id. The Tribe would need to

hire personnel, at tribal expense, to administer the scheme. Id.

The implementation, administration and enforcement of a coupon allocation

scheme would be far more burdensome, and intrusive of tribal sovereignty, than

any burdens previously permitted by the cigarette tax cases. To begin with, while

a tribe is subject to the minimal burdens test when it acts as a retailer, there is no

precedent for requiring a tribal government to assist the State in collecting taxes on

sales made to non-Indians by retailers other than the tribe. Although “States may

impose on reservation retailers minimal burdens reasonably tailored to the

collection of valid taxes from non-Indians,” Attea, 512 U.S. at 73 (emphasis

added), the coupon system does not impose burdens on the Tribe as a retailer, but


12

as a sovereign government. See Washington v. Confederated Tribes of the Colville

Reservation, 447 U.S. 134, 144-145 (1980) (tribe was a retailer). The State could

not unilaterally require the Tribe to implement the coupon system, because to do so

would “infringe upon the right of reservation Indians to make their own laws and

be ruled by them.” Williams v. Lee, 358 U.S. 217, 220 (1959); see also Three

Affiliated Tribes of Ft. Berthold Reservation v. Wold Engineering 476 U.S. 877,

889 (1986) (“Wold II”). As the State acknowledges, “tribal sovereignty principally

vests tribal governments, and not the States, with the authority to regulate on the

reservation—particularly when, as here, the matter being regulated concerns the

Tribes’ own members.” State Br. 49.

Even if the State could impose minimal burdens on a tribal government that

were reasonably related to the collection of the excise tax on sales to non-tribal

members, the coupon system imposes more than minimal burdens. As discussed

above, allocating coupons is not simply a matter of doling them out. Arriving at

the proper allocations of the limited quantities of coupons would require the Tribe,

at some expense, to implement a new regulatory system that includes input by

tribal retailers and due process. It is more onerous than any of the tax collection or

record-keeping burdens on retailers previously approved by the Supreme Court.

See Moe v. Confederated Salish and Kootenai Tribes of the Flathead Reservation,

425 U.S. 463, 483 (1976) (requiring retailer to collect and remit the tax); Colville,


13

447 U.S. at 159 (requiring retailer to affix tax stamps on cigarettes sold to non-

tribal members, to keep records of tax-exempt and taxable sales, and to require that

Indian purchasers not known to the retailer present a tribal identification card).

Although it did not decide the issue, the District Court noted that the allocation of

coupons “may be somewhat more onerous than the ‘minimal burden’ approved by

the Supreme Court.” SPA30.

It matters not that, as the State argues, Mohawk has a tobacco licensing

system in place. State Br. 47-48, 61-62. Mohawk does not now regulate the

distribution of cigarettes, and has chosen not to do so, JA984-985, ¶ 4, and

requiring it to regulate in an area it has chosen not to would infringe on its

sovereignty. See SPA30 (District Court acknowledged that distributing coupons

“may require [Seneca] to become involved in matters that it claims to have

consciously avoided delving into, namely, decisions concerning which of the

Nation’s 172 tobacco retailers should be given coupons and, if so, how many

coupons to give that retailer.”); see Wold II, 476 U.S. at 889 (requiring tribe to

agree that state law applied to resolution of disputes arising on reservation would

constitute a “severe intrusion on the Indians’ ability to govern themselves

according to their own laws”); cf. Printz v. United States, 521 U.S. 898, 930 (1997)

(federal law requiring state law enforcement officers to conduct background

checks on prospective handgun purchasers infringes on state sovereignty


14

notwithstanding that state has law enforcement program; noting that imposing

burden on the state shifts to the state the cost and accountability for the federal

program).

The State’s argument that imposing the allocation burden on the Tribe is

“respectful” of tribal sovereignty, State Br. 24; see also id. at 48, turns tribal

sovereignty on its head. Tribal sovereignty protects the tribe from the imposition

of state law. Okla. Tax Comm'n v. Sac and Fox Nation, 508 U.S. 114, 123-24

(1993) (absent an act of Congress, state law has “no role to play” on a reservation);

Wold II, 476 U.S. at 889; White Mountain Apache Tribe v. Bracker, 448 U.S. 136,

144 (1980) (“When on-reservation conduct involving only Indians is at issue, state

law is generally inapplicable….”); see Mohawk Opening Br. 22-24. If tribal

sovereignty meant that a state could impose on the Tribe the burden of regulating

its own members in the Tribe’s sphere of regulation, then there would be nothing

left of tribal sovereignty, and tribes would be reduced to state instrumentalities.

2. The New Tax Law Offers the Tribe Coercive Choices

The State adopts the District Court’s holding that the prior approval system

does not infringe on tribal sovereignty because it does not compel tribal action.

State Br. 59. The State’s argument, like the District Court’s ruling, is contrary to

cases that hold that where a government—tribal or state—cannot be forced to

regulate, neither can it be forced to choose between two coercive choices offered to


15

it, or to give up one right in order to protect another right. See Wold II, 476 U.S. at

889 (state could not compel or coerce a tribe to agree to waive its sovereign

immunity and to have state law govern the resolution of all suits in which the tribe

was a party, by depriving a tribe of the right to bring suit in a state court unless it

did so.); Board of Natural Resources v. Brown, 992 F.2d 937, 947 (9th Cir. 1993)

(federal law could not give state the choice between applying federal timber sales

standards or halting all timber sales); Petersburg Cellular Partnership v. Board of

Supervisors of Nottoway County, 205 F.3d 688, 703 (4th Cir. 2000) (Niemeyer, J.,

concurring) (federal law could not give county government the choice between

employing federal standards in a zoning procedure or abandoning the regulation of

cellular towers). See Mohawk Opening Br. 34-45.

The State’s answer to the coercive nature of the New Tax Law must be

rejected. First, the State claims that Tenth Amendment cases cited by the Tribe by

way of analogy do not apply because tribal sovereignty differs from state

sovereignty. State Br. 47, n.3. While tribal sovereignty may differ from state

sovereignty in some ways, tribal sovereignty is protected from infringement by the

states in the same way that state sovereignty is protected from “commandeering”

by the federal government; as the State acknowledges “tribal sovereignty

principally vests tribal governments, and not the States, with the authority to

regulate on the reservation.” Id. at 49. The State claims that Moe authorizes the


16

imposition of “tax collection duties on tribal governments,” Id. at 47, n.3, but as

noted above, see supra at 10-15, the cigarette cases only allow the imposition of

minimal burdens on the tribe acting as a retailer, but not in its capacity as a

government.

Second, the State asserts that the Tribe argues that “tribal sovereignty

precludes a state tax law unless the State protects tribes from every conceivable

consequence of the law,” State Br. 57, and it conjures up a plethora of wrongs that

could happen to the tribe or its retailers over which the State has no control, such

as a wholesaler’s failure to make a delivery. Id. at 58-59. This of course grossly

mischaracterizes the Tribe’s argument. The Tribe does not seek protection as to

every harm that might befall it or its retailers. Rather, it seeks to limit the burdens

imposed on retailers by state law to “minimal burdens reasonably tailored to the

collection of valid taxes from non-Indians,” Attea, 512 U.S. at 73, to protect tribal

retailers’ access to tax-exempt cigarettes for sale to tribal members, and to protect

its own sovereignty from a coercive tax collection scheme that essentially forces

the Tribe to act to avert the harm that the prior approval system will cause to its

tribally-licensed retailers should the Tribe fail to act.

The State claims that Moe and Colville “recognized that tribal sovereignty is

not infringed simply because a tribe may feel the need to respond to a collateral

consequence of a state law.” State Br. 59-60. Moe and Colville establish no such


17

principal. They merely recognize that a tribe may face economic consequences

from the imposition of a state tax on sales of cigarettes to non-tribal members. See

e.g,. Colville, 447 U.S. at 151. They do not allow any loss of sales to tribal

members nor do they establish the broad principal argued by the state, which is

contrary to principles of tribal sovereignty recognized in numerous other cases,

such as Wold II. 476 U.S. at 892-893. It is also contrary to the reasoning behind

the categorical bar against state taxation of tribes and individual Indians, which is

“counseled” by “Chief Justice Marshall’s observation that ‘the power to tax

involves the power to destroy.’” County of Yakima v. Confederated Tribes &

Bands of Yakima Indian Nation, 502 U.S. 251, 258 (1992) (quoting McCulloch v.

Maryland, 17 U.S. (4 Wheat.) 316, 431(1819)). The state cannot even impose a

nondiscriminatory vendor license fee on a tribal retailer. See Moe, 425 U.S. at

467-468.

Finally, the State’s claims that the Tribe can protect itself from any adverse

consequences of the New Tax Law by “asserting [its own] regulatory jurisdiction,”

State Br. 61, misses the mark because putting the Tribe in a position where it has to

do so infringes its sovereignty, for the reasons already stated. See supra at 13-14.

II. MOHAWK WILL SUFFER IRREPARABLE HARM ABSENT AN

INJUNCTION

The Tribe has demonstrated irreparable harm. First, for the reasons stated in

the Tribe’s Opening Brief and above, the New Tax Law infringes on its


18

sovereignty. The District Court correctly observed that infringement on tribal

sovereignty constitutes irreparable harm. SPA 41-42 (citing Prairie Band of

Potawatomi Indians v. Pierce, 253 F.3d 1234, 1250 (10th Cir. 2001) (finding

irreparable injury where state’s conduct created the “prospect of significant

interference with [tribal] self-government”); Seneca-Cayuga Tribe of Okla. v. State

of Oklahoma, 874 F.2d 709, 716 (10th Cir. 1989) (finding irreparable injury where

threatened loss of revenues and jobs created the “prospect of significant

interference with [tribal] self-government”)).

Second, the District Court also found that the Tax Amendments would

“almost certainly have an adverse impact upon the Nations’ existing tobacco

economies. The amendments will curtail the Nations’ existing tobacco business

with nonmembers. . . . [M]any retailers will lay off employees or close their

businesses.” SPA42. The court followed this ruling with respect to Mohawk, SPA

85, based on record evidence.3 In addition to the economic harm to the retailers,

the Tax Amendments will result in a severe reduction in tobacco fees received by

the Tribe, which are used to support essential tribal programs. JA983-984, ¶ 3;

JA1036-1037, ¶¶ 6-8. This reduction of tribal revenues is also irreparable. See

3 If the New Tax Law takes effect, the Department will allow Mohawk retailers to

sell approximately 1.2 million packs of tax-exempt cigarettes per year. 20

N.Y.C.R.R. §74.6(e)(1)[table], SPA126. By comparison, Mohawk retailers sold

approximately 7.2 million packs in 2009 according to a tribal official, JA983-984,

¶ 3, or about 10 million packs according to the State. JA1075, ¶ 20.


19

Seneca-Cayuga 874 F.2d at 716; Winnebago Tribe of Nebraska v. Stovall, 216 F.

Supp. 2d 1226, 1233 (D. Kan. 2002).

The State’s argument that these injuries are not cognizable because they are

based on a loss of tax-free sales that tribal retailers have no right to make, State Br.

69, fails for two reasons. First, tribal retailers have every right to make these sales

unless and until the State imposes a tax collection scheme that lawfully imposes a

requirement on tribal retailers to collect and remit the tax. Due to the

Department’s long-standing forbearance policy, and the failure of the Department

to issue the coupons under prior law, state courts agreed that the statute was not in

effect, and that tribal retailers were not required to collect and remit the tax on

sales to non-Indians. Day Wholesale v. New York, 856 N.Y.S.2d 808, 812 (4th

Dept. 2008); Cayuga Indian Nation of N.Y. v. Gould, 14 N.Y.3d 614, 647-48 (N.Y.

2010).

Second, the State’s argument ignores that the New Tax Law will harm sales

by tribal retailers to tribal members. As noted above and in Mohawk’s Opening

Brief, due to the allocation problems inherent in the prior approval system,

individual Mohawk tribal retailers will not be able to obtain their fair share of the

1.2 million packs made available to wholesalers for sale to Mohawk tribal retailers

under the State’s probable demand calculation, 20 N.Y.C.R.R. §74.6(e)(1)[table],

SPA126, and so will lose those sales (as well as collateral sales such as milk and


20

bread) to tribal member customers, who will go elsewhere to purchase their

cigarettes. See Br. Amicus Curiae Akwesasne Convenience Store Association in

Supp. of Appellee St. Regis Mohawk Tribe 18 (loss of collateral sales if retailers

do not have tax-exempt cigarettes).

III. AN INJUNCTION TO MAINTAIN THE STATUS QUO IS IN THE

PUBLIC INTEREST

As the District Court noted, the State “voluntarily chose to forebear

collection of cigarette taxes from Indian retailers for many years.” SPA43; see

Mohawk Opening Br. 6-7 (discussing State’s forbearance policy). In light of this

long-standing forbearance policy, “the Court does not believe that the minimal,

additional delay pending appeal will cause substantial injury, particularly when

weighed against the potential irreparable harm to the Nations’ tobacco economies.”

SPA43; see also SPA65 (Oneida Order) (“Although New York may have an

interest in obtaining revenue, injunctive relief will maintain the status quo, not

reduce the State’s revenue.”). Because of the long-standing forbearance, the stay

maintains the status quo. SPA43-44. As the District Court stated in Oneida, “the

State’s policy of forbearance . . . was its own choice and has been in effect for

many years . . . . The State has been depriving itself of these revenues for many

years and cannot now use revenues as a ‘public interest weapon’ to prevent

injunctive relief where it is otherwise deserved.” SPA65-66.


21

The State’s claim that it is losing $500,000 for every day that the New Tax

Law is not in effect, State Br. 72, is unproven and doubtful. Although the State

submitted an affidavit stating that the State financial plan (a document not

submitted into evidence) “anticipated” revenues of $110 million in the current

fiscal year, JA201, ¶23, no documentation or explanation was submitted to support

or explain this estimate, and the District Court made no finding that such amount

was being lost. William Comiskey, then the Department’s Deputy Commissioner,

testified before a New York Senate committee in October 2009 that the

Department’s estimate as to the quantity of cigarettes sold by tribal retailers “is

really a guess,” and that it included voluminous out-of-state internet sales by tribal

retailers (which are not subject to the state tax, SPA25).4 N.Y. State Senate,

Standing Commission on Investigations & Government Operations, Public Hearing

in the Matter to Investigate New York State’s Attempt to Collect Taxes Generated

by Native Americans both on Indian Reservations and over the Internet to Non-

Native Americans, 62:23-24, 64:2-9, 64:17 (2009) available at

http://www.nysenate.gov/files/pdfs/transcript10-29-09 hearing.pdf, JA924-926.

The State’s revenue estimate also does not make any offset for the substantial costs

of enforcing the tax collection scheme, which by one estimate will exceed the

4 The District Court noted that out-of-state internet sales may constitute “as many

as half of the 10 million cartons of cigarettes” sold by Seneca retailers. SPA26.


22

projected revenues. Id. at 117:1-118:1, JA927-928 (testimony of Peter J. Kiernan,

Counsel to the Governor).5

The State’s argument that enjoining a state law always constitutes

irreparable harm to the State, State Br. 71 (citing to New Motor Vehicle Bd. v.

Orrin W. Fox Co., 434 U.S. 1345, 1351 (1971) (Rehnquist Circuit Justice in

chambers)), is contrary to law. Although “a state may suffer an abstract form of

harm whenever one of its acts is enjoined,” courts may nonetheless enjoin state

laws that violate federal law, and may balance the competing harms. See e.g.

Independent Living Center of Southern California, Inc. v. Maxwell-Jolly, 572 F.3d

644, 658 (9th Cir. 2009) (distinguishing New Motor Vehicle Bd., 434 U.S. 1345).

The State asserts that the public health is at issue. State Br. 71-72. But “the

stated purpose of the legislation is to raise revenue. Public health is not

mentioned.” Oneida, SPA66, n.6; see also JA242-243.

Finally, the State argues that the “broad” injunction the tribal plaintiffs seek

exceeds the tribes’ “narrow legal claims,” State Br. 73, but the State has not

offered any alternative injunction.

5 Enforcement of the tax law will not lead to collection of the tax on all sales of

cigarettes to non-Indians, as cigarette purchasers can turn to other sources of

untaxed cigarettes, such as internet sellers, hundreds of whom sell cigarettes over

the internet. See Prevent All Cigarette Trafficking Act Of 2009 (Pact Act), PL

111-154 §1(b)(9), 124 Stat 1087 (2010).


23

CONCLUSION

The Court should reverse the District Court’s order, and remand the case to

the District Court with instructions that the preliminary injunction be issued.

Patton v. Dole, 806 F.2d 24, 31 (2d Cir. 1986).

Respectfully submitted,

/s/

Michael L. Roy

Marsha Schmidt

Hobbs Straus, Dean & Walker, LLP

2120 L Street, NW, Suite 700

Washington, D.C. 20037

(202) 822-8282

Dated: February 4, 2011


-

-

Federal Rules of Appellate Procedure Form 6:

Certificate of Compliance With Rules 28.1(e)(3) and 32(a)(7)(C)(i)

Certificate of Compliance With Type-Volume Limitation,

Typeface Requirements and Type Style Requirements

1. This brief complies with the type-volume limitation of Fed. R. App. P.

28.1(e)(2)(c) because:

X this brief contains 5615 words, excluding the

parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii),

or

__ this brief uses a monospaced typeface and contains [state the

number of] lines of text, excluding the parts of the brief ex

empted by Fed. R. App. P. 32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6)

because:

X this brief has been prepared in a proportionally spaced typeface

using Microsoft Word 2007 in 14 point Times New Roman,

or

__ this brief has been prepared in a monospaced typeface using

[state name and version of word processing program] with

[state number of characters per inch and name of type style].

/s/ Michael L. Roy

Attorney for St. Regis Mohawk Tribe

Dated: February 4, 2011


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