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Tough Tactics: NYC Wins Injunction Against Seneca Tobacco Wholesalers

A federal district court has granted New York City’s request for a preliminary injunction against Seneca Indian Nation-based tobacco wholesalers.

In the latest clampdown on the Indian tobacco economy, a federal district court has granted New York City’s request for a preliminary injunction against Seneca Indian Nation-based tobacco wholesalers that stops them from advertising, selling or shipping cigarettes without tax stamps or monthly reports of sales.

The U.S. District Court for the Southern District of New York issued its opinion and order September 9 against Wolfpack Tobacco, Cloud and Company, Allegany Sales and Marketing, PM Delivery and individuals employed by or associated with those companies regarding the sale and distribution of cigarettes from a place on the Seneca Indian Nation’s Alleghany Reservation to customers in New York City and elsewhere.

The case involves allegations of violations of the Prevent All Cigarette Trafficking Act (PACT), the Cigarette Marketing Standards Act (CMSA), the Racketeer Influenced and Corrupt Organizations Act (RICO), and the Contraband Cigarette Trafficking Act (CCTA).

The New York City lawsuit alleges that the Wolfpack defendants violated the PACT Act by failing to report their cigarette sales to the city, failing to properly label their shipments or verify the age of those receiving the cigarettes, and exceeding the maximum weight allowed for individual shipments. It alleges the Wolfpack defendants violated the CMSA by selling unstamped, and therefore untaxed, cigarettes to city residents “for vastly less than the price of a New York state tax stamp, let alone the price of the joint New York City and state taxes.”

It alleges that PM Delivery violated the CCTA by contracting carriers to deliver more than the limit of 10,000 cigarettes in a single shipment and transporting, distributing and shipping them to city customers and elsewhere. And the lawsuit puts forward a RICO claim against both PM Delivery and the Wolfpack defendants for the CCTA violation even though it doesn’t allege a CCTA violation against the Wolfpack defendants directly.

The lawsuit was filed in March. The Office of the New York City Sheriff conducted a sting operation last December and in January 2013 in which an investigator placed orders with Wolfpack for several cartons of cigarettes by filling out a mail order form and attaching a money order. The cartons cost less that $35 each “meaning that the cigarettes were not taxed,” the lawsuit says.

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The Wolfpack defendants made several arguments against the allegations including that the PACT Act violates the Constitution’s “due process” clause, citing the case of Red Earth LLC v. United States in which the 2nd Circuit Court of Appeals upheld an injunction of the PACT Act’s provision requiring cigarette delivery sellers to pre-pay state taxes. But the district court dismissed that argument on the ground that the City has not sued Wolfpack on any of the PACT Act’s provisions that have injunctions placed against them.

The defendants also argued that New York State lacks the power to regulate the affairs of members of a sovereign Indian nation on an Indian reservation. The district court acknowledged that the state could not tax cigarettes sold to Indians on the reservation, but could tax sales of cigarettes to non-Indians.

In weighing “the balance of equities and the public interest,” the district court concluded that an injunction is in order because the off reservation sales of cigarette “are a serious public health threat, deprive governments of significant tax revenue, harm competition, and increase the likelihood that cigarettes will wind up in the hands of children.”

The injunction bars the Wolfpack defendants from advertising or selling cigarettes to New York State residents at prices that do not include state taxes; sales to city residents must also include city taxes. They must file monthly report of sales and/or shipments, including names, dates, addresses, quantities, prices and brands for each sale or shipment, organized by city, town or zip code) to New York City departments and tax administrators in states where cigarettes are sold. They must identify the contents of shipments as cigarettes and adopt an age verification procedure in line with the PACT Act and limit single sales or deliveries to 10 pounds.

The ruling against the Wolfpact defendants is the latest of a series of recent laws and lawsuits to control the once robust Indian tobacco economy. Turtle Talk, the Indigenous Law and Policy Center Blog at Michigan State University College of Law, posted a list of recent cases.

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