WICHITA, Kan. ? The Winnebago Tribe continued its winning streak against the state of Kansas as a federal judge ordered a halt to state civil and criminal actions against tribal officials and the return of confiscated fuel delivery trucks.
The preliminary restraining order issued by U.S. District Court Judge J. Thomas Marten upheld tribal sovereignty against attempts by Kansas revenue officers to collect state taxes. The order allows the Winnebago Tribe and its business corporation, Ho-Chunk Inc., to operate without interference from the state of Kansas.
"We have always been confident in our legal right to trade between tribes without interference from the states, and this ruling is a strong affirmation of that authority," said John Blackhawk, chairman of the Winnebago Tribe.
The Kansas Department of Revenue and Attorney General's office had confiscated two motor fuel transport trucks owned by Ho-Chunk Distribution for what the state claimed was non-payment of $1.25 million in motor fuel taxes. The state issued criminal and civil charges against tribal officials. In response, the Winnebago Tribe and Ho-Chunk Inc. filed a federal lawsuit that asked for a preliminary restraining order and up to million in punitive damages.
HCI Distribution delivered motor fuel from its Nebraska location to the Sac and Fox, Kickapoo and Iowa Tribes of Kansas for resale at tribal facilities. Criminal and civil charges were issued against Chairman Blackhawk and Lance Morgan, executive director of Ho-Chunk Inc. owners of HCI Distribution, by the state of Kansas for alleged non-payment of the taxes.
"We are very excited about the outcome," Morgan said. "The judge asked some tough questions of the state. The temporary restraining order was redefined and he added that the trucks be given back to us."
The tribe continued to argue that it was undertaking business transactions between tribal governments, which is allowed by the U.S. Constitution and supported by case law. The tribe has an agreement with the state of Nebraska to manufacture, sell and distribute motor fuels within the state boundaries with some tax collection that benefits the state and the tribe. A similar agreement is in the works with the state of Iowa, Morgan said.
"The Kansas Department of Revenue seems to have no concept at all of the applicable case law, the precedents set in other states nor the appropriate way to have a government-to-government relationship with tribes," Morgan said.
Judge Marten issued a verbal order on July 8 preventing the state from pursuing all charges against Morgan and Blackhawk and demanding the return of the confiscated motor fuel transport trucks to HCI Distribution.
Morgan's wife, Erin, and Earlene Hradec were also named in civil charges as the state attempted to recapture the $1.25 million through personal assets of the Morgan family and from Blackhawk's personal assets.
"It's a shame the state of Kansas had to act so recklessly but this court ruling is an important victory for tribal sovereignty," Blackhawk said.
A Temporary Restraining Order was previously awarded by U.S. District Court Judge Dale Saffels, who, because of health reasons was removed from the case. Judge Marten restated Judge Saffels' earlier order, said Vernle C. "Skip" Durocher, Jr., attorney for Dorsey and Whitney, law firm for the Winnebago Tribe.
Durocher said Judge Marten didn't go any further than he needed to when he issued the restraint against the state. He said Judge Marten made no comments on the merits of the case because three essential criteria were met to rule in favor of the restraining order; as it was in the issuance of the earlier Temporary order.
"The judge indicated he had trouble with the statute and it was hard to follow," Durocher said. The state statute was a source of argument in the lawsuit against the state.
The state of Kansas submitted a 100-page motion to dismiss the entire case, which will be dealt with at a later time. The tribe has yet to respond to the motion, Durocher said. The two sides will meet to agree on a briefing time limit and another court date will be scheduled.
It is expected the state will appeal this recent ruling; state officials did not respond to phone calls on the matter. If an appeal is pursued that process will delay further court action and the dismissal motion would be heard at a later date.
The case is expected to go all the way to the U.S. Supreme Court before it is entirely resolved.
Further litigation will seek to determine whether a state can tax motor fuel that is allegedly manufactured on tribal land and sold to other tribes if the dismissal is not accepted by the court. Judge Saffels raised the questions at the earlier hearing. He also said litigation was in order to determine whether a tax might fall on the Winnebago tribe or whether a tax is assessed inside or outside Indian country.
Four other Kansas tribes, in addition to the Winnebago tribe, filed the lawsuits that asked for the restraining order against the state.
Case law appears to favor the Winnebagos. Various tax cases have been decided in favor of tribes and courts have struck down the taxation of products created on Indian lands. No tax is ever charged on products sold on Indian reservations to tribal members.
The state initially charged Blackhawk and Morgan with six counts of tax violation representing six months of non-payment of motor fuel taxes. The amount $1.25 million represents one-third of one percent of the entire motor fuel tax revenue collected by the state from all sources of gasoline, gasohol and diesel, the same fuels distributed by HCI Distribution.