Seattle Tribal Lawyers Galanda & Dreveskracht Publish "Tribal Court Litigation" Deskbook Chapter

This month, a chapter on "Tribal Court Litigation" co-authored by Gabe Galanda and Ryan Dreveskracht for an authoritative commercial litigation handbook, was published by the American Bar Association Business Law Section. The chapter appears in the 2012 edition of Annual Review of Developments in Business and Corporate Litigation. The breadth of the very complex Indian law issues covered by the chapter is suggested by its Table of Contents:

§ 27.1 Introduction to Transacting in Indian Country § 27.2 The Third Sovereign § 27.2.1 The Modern Erosion of Tribal Sovereignty § 27.2.2 State Regulation and Taxation, and Federal Indian Preemption § 27.3 Tribal Sovereign Immunity § 27.3.2.1 Scope of Tribal Immunity § 27.3.2.2 Waiver of Tribal Immunity § 27.4 Tribal Structures § 27.4.1 Tribal Corporations § 27.4.2 Tribal Courts § 27.5 Tribal Assets and Federal Approval § 27.4.1 Fee-to-Trust and Carcieri § 27.4.2 Federal Approvals § 27.6 Tribal Labor and Employment § 27.7 Federal Laws of General Applicability § 27.8 Federal Court Jurisdiction § 27.9 Tribal Court Jurisdiction § 27.9.1 Tribal Authority Vis-à-vis State Authority § 27.9.2 Tribal Exhaustion Doctrine § 27.9.2.1 National Farmers Union § 27.9.2.2 Exceptions to the Exhaustion Doctrine § 27.10 Conclusion

Consider the conclusion to the chapter:

Economic growth and development throughout Indian country have spurred many businesses to engage in business dealings with tribes and tribal entities. Confusion may arise during these transactions because of the unique sovereign and jurisdictional characteristics attendant to business transactions in Indian Country. As a result, these transactions have prompted increased litigation in tribal and nontribal forums. Accordingly, counsel assisting in these transactions, or any subsequent litigation, should conduct certain due diligence with respect to the pertinent tribal organizational documents and governing laws that may collectively dictate and control the business relationship.

To maximize the client’s chances of a successful partnership with tribes and tribal entities, counsel should ensure that the transactional documents contain clear and unambiguous contractual provisions that address all rights, obligations, and remedies of the parties. Therefore, even if the deal fails, careful negotiation and drafting, and in turn thoughtful procedural and jurisdictional litigation practice, will allow the parties to more expeditiously litigate the merits of any dispute in the event that the deal fails, without jurisdictional confusion. As business between tribes and nontribal parties continues to grow, ensuring that both sides of the transaction fully understand and respect the deal will lead to a long-lasting and beneficial business relationship for all.

Gabe served as the Editor-in-Chief of Annual Review for the 2007 through 2010 editions, and has co-authored the Tribal Court Litigation chapter each year since 2006. This is Ryan's first year co-authoring the chapter.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  Ryan Dreveskracht is an associate with Galanda Broadman. Gabe and Ryan litigate various critical matters on behalf of tribal governments and businesses and individual Indians, in tribal, state and federal court.

Indian Country Must Stop the STOP Act!

Indian tribes are not engaged in illegal smuggling of tobacco.  Indian tribes oppose the STOP Act because it interferes with completely legal tobacco sales on Indian reservations, and with tribal government collection of tobacco taxes that fund critical governmental services. Tribal entrepreneurs, regulated and taxed by tribal governments, are able to sell their products at below-market prices because they are not part of the Big Tobacco market.  Big Tobacco has sought to monopolize and price-fix through state taxation and regulation, particularly through those provisions of state law that implement the Master Settlement Agreement.  The STOP Act would tip the scales towards Big Tobacco, via the states, through state tax collection and the standardization of tobacco prices before tobacco products ever reach Indian Reservations.  These revenue-controlling provisions of the STOP Act have nothing to do with public health or child welfare.

Further, the STOP Act will very likely violate U.S. Constitutionally protected Indian Treaties and upset tribal-state tax compacts; undermine the legal tribal manufacture of tobacco; and impermissibly sanction tribal commerce – exchange that is protected by the federal Constitution’s mandate that Congress regulate commerce “among the several states, and with the Indian tribes.”   It is time for Congress to stand up to its responsibilities and fully include Indian tribal regulatory and taxing authority in the laws that regulate commerce in tobacco.

Section 103(a) would require that every manufacturer or importer (including tribal governments) stamp each tobacco package with a “unique identification marker.”  Although 103(b) requires that the “unique identification marker” “not interfere” with state, local or Indian tax stamps, the marker would be designed to “facilitate collection of” all currently applicable state and federal taxes and to “facilitate the enforcement” of other federal laws against tribal manufacturers, wholesalers or distributors, such as the PACT Act.  The marker must provide the “value” of the marker, a tracking code, the name and address of the stamper, the date that it was stamped, and the name and address of the “first unrelated person purchasing or otherwise receiving” the product.  Although the “marker” is couched as a tracking device, rather than a tax stamp, the statute arguably leaves room for all forms taxation at the manufacturer level.  The fact that the stamp has a “value” is especially telling.

Section 105(a) would require that every tribal manufacturer, wholesaler or importer of tobacco obtain a permit from the Secretary of Treasury (presumably).  In order to obtain the permit, the applicant must be in compliance with the PACT Act, the Jenkins Act, and numerous other tobacco-specific laws and regulations.  The applicant must also be in compliance with “all other Federal, State, and Indian tribal laws relating to the taxation, manufacture, importation, exportation, distribution, marketing, sale, or transportation of tobacco products . . . .”  In other words, it forces tribal manufacturers, wholesalers, and importers to comply with state laws (even if not expressly subject to state taxation per Section 301).  Importantly, it also forces tribal manufacturers to comply with state laws that implement the Master Settlement Agreement, something that tribes had nothing to do with.

Section 108(b) would make it illegal to ship, transport, deliver, or receive any tobacco products that are unstamped.  It also makes it illegal to sell more than 3,000 cigarettes in a single transaction or a series of related transactions.  Considering how the Department of Justice has to date construed the PACT Act and its definitions of “inter-state commerce” and “delivery seller,” Section 108(b) likely interferes with certain Indian Treaty rights to travel for purpose of commerce, including tobacco commerce, unfettered from state and federal limitations.  See, e.g., The Treaty With the Yakama, 12 Stat. 951, Art. III (1859).

Section 301 says that “[n]othing in this Act or the amendments made by this Act shall be construed to amend, modify, or otherwise affect . . . any agreements, compacts, or other intergovernmental agreements . . . relating to the collection of taxes on tobacco products sold in Indian country.”  Of course, these agreements and compacts arose in a different climate, one where federal law did not sanction the collection of state taxes and otherwise subjecting tribal governments to local restrictions.  Under the STOP Act, states no longer have an incentive to stay in compliance with these agreements because the execution of otherwise non-enforceable state regulations can now be facilitated in Indian Country by the United States and its Treasury and Justice Departments.

Section 301 does contain the following disclaimer:

Nothing in this Act or the amendments made by this Act shall be construed to amend, modify, or otherwise affect . . . any limitations under Federal or State law, including Federal common law and treaties, on State, local, and tribal tax and regulatory authority with respect to the sale, use, or distribution of tobacco products or processed tobacco by or to Indian tribes, tribal members, tribal enterprises, or in Indian country; . . . any Federal law, including Federal common law and treaties, regarding State jurisdiction, or lack thereof, over any Indian tribe, tribal member, tribal enterprise, Indian reservations, or other land held by the United States in trust for one or more Indian tribes; or . . . any State or local government authority to bring enforcement actions against persons located in Indian country.

This savings clause is similar to that of Section 5 the PACT Act.  However, as we have seen with the PACT Act, such provisions are not enough to deter states and Big Tobacco from seeking to destroy inter-tribal tobacco commerce via state regulation and taxation and federal enforcement.  In order to be effective, the savings clause should specifically integrate tribal governments as appropriate regulatory and tax collection entities on the same basis as state governments, as well disclaim any application of state regulations to tribal tobacco businesses acting in Indian Country, especially in inter-tribal or reservation-to-reservation commerce.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  Gabe helps tribes and Indian small businesses with economic diversification efforts, with an emphasis on minimizing state interference or taxation. Gabe can be reached at 206.691.3631 or gabe@galandabroadman.com.

Amend IRA Section 17 To Allow Federal Incorporation For Tribal Members

Tribal entrepreneurs frequently have only one avenue to charter a business, be it a sole proprietorship, corporation or limited liability company: state incorporation. That is because many tribal governments still do not have business structures laws or incorporation regimes in place. The problem with state incorporation of a tribal member-owned business, though, is that a state charter is the first thing a state tax collector will cite when attempting to tax the business.  An Indian business' state incorporation should not matter. The U.S. Supreme Court has rejected the notion that state taxation arises from the form in which a tribal party chooses to conduct its business. Mescalero Apache Tribe v. Jones, 411 U.S. 145, 157 n.13 (1972). In Pourier v. South Dakota Dept. of Revenue, 658 N.W.2d 395, 405 (2003), a state supreme court explained:

Congress’ primary objective in Indian law for several decades has been to encourage tribal economic independence and development. By finding that incorporation under state law deprives a business of its Indian identity, we would force economic developers on reservations to forgo the benefits of incorporation in order to maintain their guaranteed protections under federal Indian law. This could hinder economic development.

State taxation or other regulation of tribal member businesses most certainly hinders -- it is in fact anathema to -- Indian economic development. Again, though, an Indian's state business charter becomes the proverbial Exhibit A in a state's case to tax or otherwise regulate the business.  In fact, it may be all a state tax collector needs to assess the Indian business, deferring the (il)legalities until later, meaning when the business will find itself enmeshed in a costly tax litigation battle.

Section 17 of the Indian Reorganization Act, 25 U.S.C. § 461 et seq. (1934), provides that “[t]he Secretary of the Interior may, upon petition by any tribe, issue a charter of incorporation to such tribe . . . .” 25 U.S.C. § 477. Although the title of the IRA states that the statute was intended “to extend to Indians the right to form business and other organizations” (48 Stat. 984), and Section 19 defines an “Indian” as “all persons of Indian descent who are members of any recognized tribe now under Federal jurisdiction" (25 U.S.C. § 479), Interior takes the position that Section 17 itself mandates that charters only be issued to a “tribe” and not any tribal member.

That position, though technically correct perhaps, is myopic. It remains Congress’ primary objective relative to Indian Country to encourage tribal economic independence and development (at least on paper). As such, the Obama Administration, especially given its current campaign to protect the American middle class, should support legislation that would allow tribal member entrepreneurs to incorporate, while maintaining their guaranteed protections under federal Indian law to be free of state interference.

A narrow amendment to Section 17 that would allow Indian persons to federally charter businesses in fulfillment of the law's expressed intent, rather than incorporate under state law and thereby risk destruction via state taxation and other regulation -- yes, certainly easier said than done in this political moment -- should be proposed by the Obama Administration and considered by the Congress.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  He can be reached at 206.691.3631 or gabe@galandabroadman.com.

The PACT Act Violates All Tribes’ Sovereignty

Yesterday, Washington, DC U.S. District Court Judge Royce Lamberth – who played an instrumental role in Cobell – struck a blow to the PACT Act, by preliminarily enjoining federal enforcement of the Act. Judge Lamberth's decision is the second federal court ruling that the PACT Act is unconstitutional, in recent months. While the potentially positive implications of the decisions for Indian Country are still being sorted out, the PACT Act remains an imminent threat to the sovereignty of all Tribal governments, and to any notion of tax-free inter-tribal commerce and trade.

The PACT Act of 2010, as federal agencies no doubt still intend to implement it, violates the sovereignty of all Tribal governments – not only those involved in tobacco commerce. Tribal sovereignty, at its core, includes the right of Tribal Governments to be ruled by their own laws and govern their own economies. But the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), by inviting states and state law into Indian Country, has made clear its intent to enforce the Act in a way that will gut Tribes’ inherent right to self govern and chill Indian economic growth.

According to the U.S. Department of Justice (DOJ), the PACT Act requires Indian tobacco enterprises to comply with state tobacco laws – even within Indian Country. For two centuries, courts have generally barred states from applying their laws to Tribes and Indian businesses within Indian Country. But federal agency interpretation of the Act threatens to change the tribal-state status quo. It requires no close analysis of the law to see that the federal government is shepherding state tax agencies into Indian Country. Although today’s state-federal attacks focus on tobacco, DOJ is establishing a dangerous precedent; one under which the federal government will pass federal laws allowing states to extract previously unavailable value from Tribal economies and causing DOJ to become the states’ enforcement arm in Indian Country.

DOJ’s interpretation of the PACT Act is inconsistent with the law itself, which on its face prohibits the Act from being used to confer states regulatory authority over Indian Country commerce. As the DOJ and ATF read the law, however, the PACT Act widely opens an unprecedented avenue for states to regulate and tax Tribal and inter-Tribal commerce and trade.

The United States has stated that the Act’s definition of “interstate commerce” includes sales within or between Indian reservations. Legal nuances aside, DOJ’s application of the PACT Act’s “interstate commerce” to inter-Tribal tobacco trade – meaning trade between Tribes situated in different states – is a recipe for Tribal economic disaster. Tribes freely traded between and among themselves long before state governments or taxation existed. To now allow state taxation of inter-Tribal commerce and state regulation of the budding Tribal private sector, under color of federal law and law enforcement, threatens to set Tribal economies back nearly two centuries – to when states destroyed Indian Country’s original economies.

Again, the PACT Act expresses Congress’ clear intent that the law not adversely effect Tribal sovereignty. Indeed a pro-Tribal interpretation clause of the Act requires ambiguities in the new law to be resolved in favor of preserving Tribal sovereignty and immunity from state authority. Incredibly, though, the Executive Branch’s interpretations of the law have taken the very opposite approach, with the Act being construed to favor state regulation and taxation in Indian Country. States have already seized the DOJ’s written interpretation of the PACT Act to regulate and tax – the proverbial power to destroy – Tribal and inter-Tribal economies.

Notwithstanding yesterday's court ruling, all of Indian Country must stand together now, united in vocal opposition to the PACT Act.

Gabriel "Gabe" Galanda, a partner at Galanda Broadman PLLC, is an enrolled member of the Round Valley Indian Tribes of Covelo, California.

Tribal Media Outlets Post Gabe Galanda's "Attack on the Tribal Middle Class, Part III"

The Indian Country Today Media Network has published Part Three of Gabe Galanda's three-part series, "Attack on the Tribal Middle Class." The column was reposted by pechanga.net and Indianz.com.

Make no mistake, tribal sovereignty, and the vast economic benefit it brings to Indian and non-Indian America, is under siege. Non-tribal governments are once again speaking the language of assimilation and termination in an attempt to impede or extract value from any tribal economic endeavor that they perceive does not benefit the non-tribal middle class or private sector. Instead of brute physical force, they now deploy the power to tax, legislate, litigate and otherwise exploit sovereignty-based revenue from everything Indian Country and its tribal middle class have worked so hard to rebuild over the last 200 years.

Indian Country must now recognize this growing state and federal attack for what it is – an attack on Indian sovereignty. Then, only by taking preemptive legal and political steps to expose, confront and countervail those insurgent non-tribal forces that threaten American Indian economies, will we deter the termination of the new tribal middle class.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  He can be reached at 206.691.3631 or gabe@galandabroadman.com, or via galandabroadman.com.

Tax-Free Inter-Tribal Commerce Upheld By U.S. District Court

On October 18, the U.S. District Court for the Southern District of California issued a preliminary injunction ruling that affirmed the tax-free distribution and discount sale of tribal fuel. A quick overview of the facts: -- The Torres-Martinez Tribe developed the Red Earth Travel Center on tribal trust lands; -- A Yakama-member-owned business, First American Petroleum, provides tax-free fuel to the Red Earth Travel Center; -- The Torres-Martinez Tribe has delegated certain fuel management authority to First American Petroleum for purpose of obtaining tax-free fuel for the Red Earth Travel Center; -- First American Petroleum transports tax-free fuel to Red Earth Travel Center; -- The Torres-Martinez Tribe "sells fuel and convenience stores items at the travel center to help support the tribal economy"; and -- Ultimately, state fuel or travel-related taxes are not imposed on the Torres-Martinez Tribe or First American Petroleum and those tax savings are passed on to non-Indian patrons of Red Earth Travel Center.

Not only did the District Court hold that fuel or travel-related taxes could not be assessed on First American Petroleum (at least preliminarily) but it acknowledged that the Torres-Martinez Tribe could not be sued for tax collection due to its sovereign immunity. In other words, any California right to collect excise taxes on the fuel sold at the Red Earth Travel Center cannot, as a practical matter, be collected.

The Southern District of California's decision currently stands as a wonderful affirmation of tax-free inter-tribal commerce.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  He can be reached at 206.691.3631 or gabe@galandabroadman.com, or via galandabroadman.com.

How States' "Amazon" Tax Policy Impacts Indian Country Taxation

In a battle over sales tax collection between Amazon.com and California that could have had implications for Indian Country taxation, the online retailer backed down last month. Amazon cut a similar deal with Tennessee on Thursday.  For years, Amazon has refused to collect sales taxes in states where it claims it is not physically present. Amazon’s argument will have familiar elements for those of us in the tribal tax world.

In fact, the undergirding of Amazon’s argument is the 1992 Supreme Court decision Quill Corporation v. North Dakota, in which the Court held that states cannot require vendors to collect sales taxes if they do not have a physical presence in the state.

The case was recently relied upon in Red Earth LLC v. United States by the Second Circuit in striking down part of the PACT Act.

As predicted early and often here, states today (like all governments) are tax starved and leaving no stone unturned in their quest for novel revenue sources.

Amazon, like Tribal entrepreneurs, with billions of alleged uncollected sales taxes nationwide, stood right in states’ path.  For years, Amazon collected taxes in a few states, like Washington, where it’s based. Other states like California argued that Amazon was physically in those states through the presence of facilities and affiliates. Obviously, Amazon disagreed.  The case was headed for high places, and, if the Supreme Court got a hold of it, we could certainly have found ourselves with new rules about sales tax, due process, and taxing nexus.

Then, last month Amazon backed down and agreed that, in a year, it will start collecting sales tax in California.  The year grace period may give the company time to lobby for a federal fix. In the meantime, it has started the dominos elsewhere, including Tennessee’s deal with Amazon on Thursday. Tennesee’s deal starts in 2014.

States aren’t giving away revenue they believe they are entitled to for free.  Amazon has promised to add thousands of jobs and invest several hundred million dollars in the states with whom it has deals.  And for its part, Amazon is presumably spending less on jobs and investment than it would be on collecting sales taxes in California, for instance, in the near term.  The company is probably waiting to see whether federal legislation introduced by Senator Durbin (D-Ill.) will create a uniform national internet retail tax (state taxes, supported by big business, enforced by federal government – sound familiar?)

What’s should be most disturbing to Tribes is states’ willingness to forego tax collection in exchange for capital investment, jobs, and general economic development. When Tribes offer the same, and simply expect to be treated as a government, rather than a corporate entity, states often balk.  The argument for predictable Tribal-state (or -local) taxing agreements is at least as compelling as the case for Amazon’s deal with a growing number of states.

In addition, furthering the double standard of Indian Country taxation, Amazon has made it easy for many customers to not pay sales tax – even though sales tax is probably due – tribal members in Washington Indian Country have to go through a comparably intricate process to avoid paying taxes that are not due.

Anthony Broadman is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  His practice focuses on company-critical business litigation and representing tribal governments. He can be reached at 206.691.3631 or anthony@galandabroadman.com, or or via galandabroadman.com.

Tribal-County Payment In Lieu of Taxes Is Good Governance

An Idaho state official has expressed concern about a potential agreement between an Idaho county and neighboring tribal government for tribal payment of monies in lieu of property taxes. The official's concern is old hat. He needs a new hat. As Mark Trahant rightly observes, tribes and counties are better off working together than fighting each other over property taxation. That is especially true because any county effort to enforce property taxes against a tribal government presents a "rights without remedy" dilemma for the county, given the doctrine of tribal sovereign immunity. See Oklahoma Tax Commission v. Citizen Band of Potawatomi Tribe of Oklahoma, 498 U.S. 505, 515 (1991). In other words, property tax controversy with tribes is a zero sum game for county government.

Indeed, the better approach is for neighbor counties and tribal governments to negotiate (or at least consult and attempt to negotiate) some cash or in-kind payment in lieu of taxes to any inter-local property tax dispute. Such an outcome a win win situation.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  He can be reached at 206.691.3631 or gabe@galandabroadman.com, or via galandabroadman.com.

[Also tagged under "mixed metaphors."]

AUTO v. Washington: An Imminent Threat to Washington Tribes’ Sovereignty

Make no mistake, the lawsuit brought by the Washington Automotive United Trades Organization (AUTO) seeks to eviscerate Washington tribes’ intergovernmental sovereign immunity and expose Tribal governments to suit by third parties based on agreements Tribes have entered into with the state. This month, the Supreme Court of the State of Washington agreed to hear the appeal of AUTO v. Washington, or as AUTO calls it, “AUTO v. Governor Gregoire.” A more accurate title might be AUTO v. Washington Indian Country. AUTO is targeting state-Tribal compacts, presumably because Tribal fuel enterprises are competitors. AUTO argues that the state and Governor are violating the Washington Constitution by entering into the fuel compacts with Tribes and that the legislative system surrounding the compacts itself is illegal. Never mind that Washington’s approach to the tribal fuel tax conundrum is the state’s attempt to comply with binding federal law related to taxation in Indian Country.

The state Supreme Court accepted review of the Gray’s Harbor Superior Court order dismissing AUTO’s case based on the indispensability of several Washington Indian Tribes, who are necessary parties to the case. The procedural concept of indispensability requires a case to be dismissed if there is a party who should be a part of the case but cannot be joined due to, for instance, sovereign immunity. It can be a muddy procedural doctrine, but it’s one that often protects Tribal interests, since those interests should not be adjudicated unless Tribal sovereigns agree on the forum.

What can we expect? There are several reasons for Washington Indian Country (and Indian Country at large) to be concerned. First, the state Supreme Court decided to review the case. That decision itself can probably be accurately viewed as negative for Tribes since the trial court’s decision appears to have been correct under the Washington Civil Rules and cases interpreting them.

Second, the core of the anti-Tribal dissent in Wright v. CTEC, the last significant Washington Supreme Court on tribal sovereign immunity, remains on the Court. The Justices who will likely participate in AUTO and voted in Wright, are split 3-3 (Justices Chambers, C. Johnson, and J. Johnson against tribal interests v. Justices Madsen, Owens and Fairhurst for them). The addition of Justices Stephens, and Wiggins, possibly with Justice Alexander’s replacement, make this one tough to handicap.

Add the Court’s recent frenetic approach in State v. Eriksen to the mix (affirmation of conviction; reconsideration; withdrawal of opinion; affirmation of conviction; reconsideration; withdrawal of opinion; reversal) and things become even more muddled. Although Eriksen was not a sovereign immunity case, the Court was forced -- or chose -- to examine tribal sovereignty relative to the state in the criminal context. The Court was again well split, this time with Justices Owens, C. Johnson, and Chambers finding, correctly, that the Lummi Nation’s inherent authority justified the detention of a dangerously intoxicated non-Indian driver.

More recent arrivals Justices Stephens and Wiggins made a majority with Justices Fairhurst, Madsen, and J. Johnson, holding that the Lummi Nation could not stop and detain a drunk driver off the Reservation until non-Tribal cops could arrive. Again, Eriksen shares little with AUTO, but taking a simplistic pro- or anti-tribal snapshot of the court suggests that if Justice Alexander, set for mandatory retirement this year, does not participate in AUTO, the court could split as follows, depending on whether Wright or Eriksen describes the voting lines:

AUTO is far more analogous to Wright, as procedural issues of sovereign immunity are at play. And it’s certainly not fair or accurate at this point to cast any justice as anti- or pro-Tribal based on these two cases. Indeed, outside the Tribal bar Wright and AUTO might be viewed as cases more about civil procedure (Rule 19 for AUTO and the CR 12(b) standard for Wright) than Tribal sovereignty. At least the results of AUTO will provide court-watchers with more data for guessing at results.

Still, it’s clear what AUTO is targeting legally. As set forth clearly in its brief, AUTO argues that (1) it can join Tribes in the suit by suing tribal officials in their official capacity and (2) Tribes waived their sovereign immunity, apparently as to AUTO, by entering into the fuel compacts. While these claims seem patently wrong, they are the very type of procedural formalisms anti-Tribal jurists can hide behind in fashioning novel expansions of the law related to Tribal sovereign immunity. Stay tuned.

Anthony Broadman is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  His practice focuses on company-critical business litigation and representing tribal governments. He can be reached at 206.691.3631 or anthony@galandabroadman.com, or or via galandabroadman.com.

PACT Act Provision Likely Unconstitutional

The Second Circuit Court of Appeals held today that a provision of the Prevent All Cigarette Trafficking (“PACT”) Act is likely unconstitutional and upheld an injunction halting enforcement of the new law against Red Earth.  The Second Circuit’s decision in Red Earth v. USA signals federal courts’ willingness to scrutinize the federal governments’ scorched-earth approach to tribal tobacco economies.  Critically, it was not a tribal tax rule that halted enforcement, but rather the most basic tenet of Constitutional law: due process.  Putting it even more simply, the PACT Act wasn’t fair. Red Earth d/b/a Seneca Smokeshop (“Red Earth”), a tribal-member owned tobacco retailer on Seneca’s Cattaraugus Indian Reservation in New York, prevailed against the United States at the trial court level earlier this year.  The U.S. District Court for the Western District of New York held in July that the PACT Act’s provision requiring out-of-state tobacco sellers to pay state excise taxes regardless of their contact with that state violated due process.  The court explained clearly, and not controversially, that due process requires an out-of-state seller to maintain minimum contacts with a state before the state can subject it to taxation.  This isn’t even basic Indian tax law, but basic tax law – even basic Constitutional law.  The district court found that the PACT Act’s mandate that delivery sellers pay state taxes without regard to their contact with that state effectively “legislate[d] the due process requirement out of the equation.”  Red Earth LLC v. United States, 728 F. Supp. 2d 238, 252 (W.D.N.Y. 2010).  Today, the Second Circuit agreed, noting that Congress does not have the power to authorize violations of the Due Process Clause of the U.S. Constitution.  If the case goes forward, expect it to hinge on whether a single sale into a taxing forum is sufficient to satisfy the requirements of due process.

Regrettably, the Second Circuit rejected Red Earth’s claims that the PACT Act was motivated by discriminatory animus toward Native Americans and that its application results in a discriminatory effect.  Red Earth’s claim was not a throwaway discrimination argument.  As the district court observed, the PACT Act would have a grossly disproportionate effect on Tribal business, which comprises at least 80 percent of delivery sellers targeted by the PACT Act. In addition, Red Earth has presented evidence that when a letter from the Seneca Nation was introduced into the PACT Act congressional record, there was laughter in the gallery.  The Second Circuit was nearly as dismissive, relying on the black letter of the law to find that “Congress’s intent in passing the PACT Act was to curtail what it believed to be improper assertions of Native American sovereignty, not to purposefully discriminate against Native Americans as a group.”  It’s difficult to discern the distinction.

In a portion of the Second Circuit’s decision that may have no role in the case itself, the court confirmed a potentially significant channel for challenging federal involvement in state taxes.  The trial court had rejected Red Earth’s argument that by attempting to levy state and local taxes, Congress is acting outside its enumerated powers in violation of the Tenth Amendment.  But while the case was pending, the U.S. Supreme Court made clear that an individual business can have standing to pursue a Tenth Amendment claim.  Again, although Tenth Amendment standing may play no role in the outcome of Red Earth, it remains absolutely critical as states and the federal government join forces to fight tribal economic development.  As cash-starved states know, they lack plenary taxing authority in Indian Country.  Their solution, all too often, is to come to Indian Country in sheep’s (federal) clothing, and take the taxes they believe they are owed through federal might.  Now, at least the Second Circuit will entertain challenges to this practice.  When tested Congress’s attempts to apply state and local taxes in Indian Country, especially without Tribal consultation and approval, should be rejected.

In all, Red Earth v. USA presents a significant if preliminary win for tribal sovereignty and the ability of tribal governments to sustain economic development absent state and federal interference.

Anthony Broadman is a partner at Galanda Broadman PLLC.  He can be reached at 206.321.2672, anthony@galandabroadman.com, or via www.galandabroadman.com.