Federal judge tosses Unkechaug motion to dismiss Bloomberg’s lawsuit

MASTIC, N.Y. – The Unkechaug Indian Nation will appeal a federal judge’s ruling that reservation smoke shops can’t sell unstamped cigarettes to non-tribal customers.

On Aug. 25, Judge Carol Bagley Amon of the U.S. District Court for the Eastern District of New York tossed out the Unkechaug Nation’s motion to dismiss a lawsuit filed by New York City Mayor Michael Bloomberg last September. The lawsuit seeks to collect taxes from cigarette sales to non-tribal customers on the nation’s Poospatuck Reservation.

Amon also granted the city’s request for a temporary injunction against the cigarette sales until her court rules on the lawsuit.

The injunction has been stayed for 30 days to give the nation time to appeal.

Unkechaug Chief Harry Wallace said an appeal will be taken to the 2nd Circuit Court of Appeals in New York City as soon as possible.

“This decision by this court is totally result-oriented. Rather than looking at the evidence and coming to a result based on what the evidence shows, it reached a result and looked for evidence to support that result. It ignores all precedent, it ignores all legal theory; it ignores all established rules of construction in order to reach that result. It is difficult for us to find justice in these courts and we’re hoping there’s a court where we can find true justice,” Wallace said.

Bloomberg posted a triumphant statement announcing “a victory” on his Web site. “The City will go after every dollar that is owed to City taxpayers.”

Smoke shop raids follow judge’s ruling Law enforcement officers raided three smoke shops on the Unkechaug Indian Nation’s Poospatuck Reservation and confiscated 300 cartons of cigarettes that tobacco giant Philip Morris alleged were counterfeit. The raid happened Aug. 27, a day after U.S. District Court Judge Carol Amon denied the nation’s motion to dismiss New York City’s lawsuit, which attempts to collect taxes from reservation cigarette sales to non-tribal customers. Amon also ordered an injunction against reservation sales to non-tribal customers and stayed the injunction for 30 days to allow the tribe to appeal. Unkechaug Chief Harry Wallace said the raid and Amon’s ruling the previous day were connected and part of an ongoing campaign of discrimination against the tribe. “I’m concerned that we’re once again being targeted by outside sources in order to demonize us as smugglers and counterfeiters and so on.” The raid on the smoke shops was carried out after U.S. District Judge Leonard Wexler granted Philip Morris’ request for a seizure order. David Sutton, a spokesman for Philip Morris, told Newsday that “fake” Marlboro cigarettes are often made in unauthorized Chinese factories using “processes and tobacco and non-tobacco materials that are not familiar to us.” Sutton is well-acquainted with the ongoing cigarette tax war between New York state legislators and the Indian nations that sell cigarettes on sovereign tribal lands. Last year he helped draft legislation intended to enforce the collection of taxes on tobacco products sold to non-Indians. Philip Morris filed the civil suit Aug. 25 in federal court in Central Islip against three smoke shops and individual shop owners in connection with the alleged counterfeiting. The shops are Smoking Arrow Smoke Shop, Belle Belle Smoke Shop and Flying Arrows Smoke Shop. No arrests were made. A hearing on a temporary restraining order was scheduled for Sept. 3. Wallace said the raid was overblown. “Philip Morris is trying to make us look like the evil empire. They came in with three massive trucks to do this massive seizure and took away a case and a half of cigarettes that could fit on the back of my motorcycle. They said it was 300 cartons but people here only counted 90 cartons.” He said the smoke shops don’t sell Philip Morris products because under former Gov. Eliot Spitzer’s administration the big tobacco company blocked the nation’s wholesalers from carrying its products. “All Philip Morris has to do is communicate with us to get the same results, but they want us to look bad and so there has to be a raid,” Wallace said. But, he is puzzled by their motive. “Why are people coming around here trying to sell to people who have no knowledge of what an illegitimate Philip Morris product looks like? From what I understand, the illegitimate product was mixed in with legitimate products. Who’s making that effort and expending all that energy and why? Are we such a threat to Philip Morris?”

Bloomberg’s lawsuit alleges that eight reservation cigarette retailers violate state and federal law by selling cigarettes in bulk to bootleggers who resell them in the city.

With its lawsuit, the city jumped into a battle the state has been waging for years to force reservation smoke shops to collect taxes on cigarettes sold to non-Indians. The nations say that as sovereigns they are not obliged to act as tax collectors for the state.

Bloomberg claimed that “unpaid taxes” from the eight retailers amounted to $420 million from 2004 to 2008 and that total tax losses to city and state taxpayers for “illegal cigarette sales on Indian reservations across the entire state total over $1 billion a year.”

Wallace said Bloomberg’s statement reveals the real motive behind the targeting of Unkechaug retailers. “I have no evidence, but I believe they want to see if they can be successful with us and then they’ll go after everybody else.”

He alluded to the famous statement attributed to the World War II-era Pastor Martin Niemöller about the silence of German intellectuals after the Nazis rose to power and began purging groups: “First they came for the Communists, and I didn’t speak up, because I wasn’t a Communist. Then they came for the Jews, and I didn’t speak up, because I wasn’t a Jew. Then they came for the Catholics, and I didn’t speak up, because I was a Protestant. Then they came for me, and by that time there was no one left to speak up for me.”

“Maybe everybody else feels that it’s okay for them to go after us, because we’re just a bunch of Negroes anyway,” Wallace said, referring to the Unkechaugs’ mixed ancestry, “or because we aren’t federally recognized, or we aren’t a treaty tribe, or we aren’t land based.” The nation’s more than 1,500-acre territory at the time of the European invasion has been reduced to 65 acres.

Amon’s decision includes an abundance of information about investigators’ sting operations at the reservation smoke shops, the pricing and taxing of cigarettes, expert testimony about the percentages of smokers who quit or cut back according to the price of cigarettes, and New York’s efforts to get people to quit smoking.

But the allegation that reservation retailers violate the federal Contraband Cigarette Trafficking Act and the state Cigarette Marketing Standards Act rests on a belief that Section 471 of the state tax laws apply to Indian reservations, rather than Section 471e.

Section 471, “Imposition of cigarette tax,” says in part: “There is hereby imposed and shall be paid a tax on all cigarettes possessed in the state by any person for sale, except that no tax shall be imposed on cigarettes sold under such circumstances that this state is without power to impose.”

Section 471e, “Taxes imposed on qualified reservations,” says the state has to provide the nations with tax exempt coupons in a system meant to collect taxes on cigarettes sold to non-Indians. Although the law is on the books, it has never gone into effect because the state has not figured out an effective legal coupon system.

The 471 versus 471e battle has been fought in numerous courts.

Last January, a state Supreme Court judge issued an injunction against enforcing 471e until a viable system to distribute tax exempt coupons to tribal members is established.

On July 10, the state’s Appellate Division, Fourth Department issued a 4-1 majority decision that Section 471e is the governing law for reservations and that the Cayuga Indian Nation’s two trading stores are on qualified reservations and therefore can sell untaxed cigarettes.

Amon ignored that ruling, predicting that the state appeals court would agree.

“This court believes that the New York Court of Appeals would reject the majority’s reasoning in Cayuga and conclude that 471 imposes a tax on reservation sales of cigarettes to non-tribe members,” Amon wrote.

The dissenting opinion in the Cayuga decision had cited Amon’s earlier ruling in the Unkechaug case that Section 471 is the applicable law on reservations.

“And now Judge Amon cited the dissent in Cayuga, which cited her ruling. So, they’re basically citing each other for a proposition that is completely opposite anything the Appellate decision or Court of Appeals has ever considered. It’s hysterical, but it’s truly unprecedented. They’re going back and forth using their own opinions as a precedent regardless of the fact that one of the opinions is a significantly minority ruling,” Wallace said.

The nation will ask the 2nd Circuit Court to extend the stay against Amon’s injunction pending the appeal.