RICHARD J. ARCARA, District Judge.
Currently before this Court are motions by the St. Regis Mohawk Tribe ("Mohawk Tribe" or "Tribe") and the Unkechauge Indian Nation ("Unkechauge Nation" or "Nation") for a preliminary injunction enjoining the implementation of certain amendments to the New York State tax law relating to the taxation of cigarettes sold by reservation retailers. In addition, the Unkechauge Nation requests that this Court order the defendants to participate in court-ordered mediation. Defendants oppose both motions and seek to opt out of this Court's mediation program.
For the reasons stated, the Court: (1) denies the motions for a preliminary injunction; (2) grants a stay pending appeal; and (3) denies the mediation-related motions without prejudice to renew after appeal.
The St. Regis Mohawk Tribe is a federally-recognized Indian tribe located in
The Tribe has adopted a regulatory system to control cigarette prices while generating income to pay for essential government services. Tobacco retailers must be tribal members licensed by the Mohawk Tribe. All cigarettes sold by licensed retailers must bear a tribal tax stamp. The cost of the stamp varies depending on the tobacco product. The Tribe has also enacted legislation that requires a certain markup over invoiced cost per carton of tobacco product. The failure to abide by this minimum pricing regime can result in fines or suspensions of the offender's license to do business on the reservation. Tribal regulations also prohibit internet sales and tobacco sales to minors.
The Tribe has established a compliance department that is responsible for enforcement of the tobacco regulations. The compliance department consists of four employees who assess and collect fees associated with taxes, fines and penalties. The Tribe does not currently regulate transactions between the reservation retailers and state wholesalers. That relationship is strictly market-based. Nor does the Tribe currently regulate transactions between retailers and consumers. The Tribe's interest is limited to ensuring that cigarettes sold by reservation retailers bear a tribal stamp and are sold at a minimum price. In 2008, the Tribe collected $2 million in fees from sales of tobacco products which were used by the Tribe to support governmental programs and services.
The Unkechauge Nation is a sovereign nation of Indians residing on a 55-acre parcel of land on eastern Long Island, New York. The Nation is governed by a Tribal Council. The Tribal Council regulates the tobacco trade through a licensing regime and by Tribal Resolutions. Before opening a tobacco retail business, Unkechauge Nation members must first obtain a license from the Tribal Counsel. Additionally, the Unkechauge Nation requires that any wholesaler doing business with tribal retailers also obtain a license to do so from the Tribal Council. The Nation's sole economic industry is retail tobacco sales. Like the Mohawk Tribe, the Unkechauge Nation levies its own tribal tax on cigarettes sold by Nation retailers. The Unkechauge levies a $1.00 per carton tribal tax. According to the Nation, there is considerable demand for their cigarettes because that $1.00 per carton tax pales in comparison to the $4.35 per pack New York State cigarette tax. The Nation notes that New York City levies its own $1.50 per pack tax, which provides New York metropolitan residents with an incentive to travel to the reservation to avoid paying City and State cigarette taxes.
The background and history of New York's effort to tax reservation tobacco retailers and the 2010 New York tax law amendments is set forth in this Court's decision in Seneca Nation of Indians v. Paterson, Dkt. No. 10-cv-687A, at Item 87, 2010 WL 4027796 (Oct. 14, 2010) (hereinafter "Seneca Nation" decision), denying a similar motion for a preliminary injunction made by the Seneca Nation of Indians and the Cayuga Indian Nation. Familiarity with the Seneca Nation decision and with the new tax scheme is assumed.
The amendments contemplate two alternative statutory mechanisms by which Indian nations and their members may obtain a limited quantity of tax-exempt (albeit New York State tax stamped) cigarettes: (1) an "Indian tax exemption coupon system" and (2) a "prior approval" system.
Plaintiffs seek to enjoin implementation of the amendments asserting that they impose an undue burden on the right of tribal sovereignty and, if permitted to take effect, the amendments will cause irreparable injury to their members. The State defendants oppose the motion for injunctive relief asserting that the majority of issues raised by the plaintiffs in this case have already been rejected by this Court in the Seneca Nation case. As to arguments not already decided, the State defendants assert that the arguments lack merit.
As this Court has recently held in Seneca Nation and in Red Earth, LLC v. United States, 728 F.Supp.2d 238 (W.D.N.Y.2010), injunctive relief is an extraordinary remedy that should not be granted unless the movant has made a clear showing that he is entitled to such relief. To obtain a preliminary injunction, the moving party must establish: (1) irreparable harm and (2) either (a) a likelihood of success on the merits, or (b) sufficiently serious questions going to the merits of its claims to make them fair ground for litigation, plus a balance of the hardships tipping decidedly in favor of the moving party. Id. at 243 (citing Monserrate v. New York State Senate, 599 F.3d 148, 154 (2d Cir.2010)). However, where, as here, the moving party is seeking to enjoin application of a governmental statute or regulation, the movant must demonstrate a "likelihood of success on the merits" to obtain injunctive relief. Monserrate, 599 F.3d at
To obtain the relief they seek, plaintiffs must demonstrate a likelihood of success on the merits of their claims. Plaintiffs assert that the tax law amendments impose an impermissible burden on their right of tribal sovereignty and will deny individual tribal members their right to obtain tax-free cigarettes. Many of the arguments raised by the plaintiffs are arguments that were raised in the Seneca Nation case and rejected by this Court. For example, plaintiffs argue that the coupon and prior approval systems impermissibly burden their right of sovereignty because they require tribes to become involved in the business of allocating tax-exempt cigarettes (in the case of the prior approval system) or allocating coupons (in the case of the coupon system). For the reasons stated in this Court's Seneca Nation decision, this Court finds that the prior approval system does not require the plaintiffs to become involved in the allocation of tax-exempt cigarettes. Tribes have the option of doing nothing and permitting the allocation of tax-exempt cigarettes to be governed by free-market forces.
Plaintiff Mohawk Tribe argues that even if the prior approval system does not impose an undue burden on the right of tribal sovereignty, the coupon system does do so and therefore the statute is invalid because the provisions are not severable. Assuming arguendo that the coupon system does impose an impermissible burden on the right of tribal sovereignty, the statute is not invalid. Tribes desiring to avoid that burden have the option to decline participating in the coupon system in favor of the prior approval system which, for the reasons stated in Seneca Nation, does not impose an impermissible burden. Contrary to the plaintiffs' position, the provisions are severable because the statute expressly contemplates that the two systems are mutually exclusive. In any given year, a tribe can either participate in the coupon system or the prior approval system, but not both. If a tribe feels that the burden imposed under the coupon system is unacceptable, it has the option to avoid that burden completely by choosing the prior approval system. In other words, the fact that the statute provides the plaintiffs with the option to participate in a system (i.e., the coupon system) that may impose a burden on the right of tribal sovereignty does not render the statute invalid where, as here, the statute also provides the tribes with an avenue to avoid that burden completely—the prior approval system. Because the statute provides a means for tribes to avoid any burden on their right to tribal sovereignty, the statute is valid.
Plaintiffs argue that the economic consequences that they will suffer under the tax law amendments will interfere with their ability to provide governmental services to their members. For example, the Unkechauge Nation asserts that tobacco retail sales represent the Nation's sole economic activity and if that industry is taken away, members will suffer dire economic consequences. However, as this Court noted in Seneca Nation:
The Unkechague Nation argues that the tax law amendments are tantamount to a taking of its property in violation of the Fifth Amendment. The Nation argues that the tax law amendments will cause it to lose its $1.00 per carton tribal tax and that interference with the tribal tax amounts to a taking in violation of the Fifth Amendment. Additionally, the Nation argues that the prepayment obligation of the new tax amendments (i.e., requiring the Nation's retailers to prepay the state tax imposed upon the non-members via a tax stamp) also amounts to a Fifth Amendment taking because it constitutes an "interest free" loan to the State. These arguments are the same arguments previously rejected by this Court in Seneca Nation, merely restated as Fifth Amendment claims. For the reasons previously stated in Seneca Nation, those argument are rejected.
The Mohawk Tribe argues that the State cannot impose any cigarette tax collection system on Indian tribes when it has not imposed a similar system on other tax-exempt entities, such as the U.S. military and diplomatic missions. The tax law amendments specifically exclude taxes for "cigarettes sold to or by the United States of America or any of its agencies or instrumentalities," including the military. See 20 N.Y.C.R.R. § 76.2(a)(1). The regulations also exclude "[diplomatic missions and diplomatic personnel" from the cigarette
To survive equal protection scrutiny, there must be a "rational basis" for the differential treatment. See FCC v. Beach Communications, Inc., 508 U.S. 307, 313, 113 S.Ct. 2096, 124 L.Ed.2d 211 (1993) (stating that a classification "must be upheld against [an] equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification"). Rational-basis review applies here because fundamental rights are not implicated. See City of Cleburne v. Cleburne Living Center, Inc., 473 U.S. 432, 439-40, 105 S.Ct. 3249, 87 L.Ed.2d 313 (1985); Decatur Liquors, Inc. v. District of Columbia, 478 F.3d 360, 363 (D.C.Cir.2007).
When legislation is reviewed for a rational basis, "courts are quite reluctant to overturn governmental action on the ground that it denies equal protection of the laws." Gregory v. Ashcroft, 501 U.S. 452, 470-71, 111 S.Ct. 2395, 115 L.Ed.2d 410 (1991) (internal quotation marks omitted). The Supreme Court has stated that courts should "not overturn such a [law] unless the varying treatment of different groups or persons is so unrelated to the achievement of any combination of legitimate purposes that we can only conclude that the legislature's actions were irrational." Vance v. Bradley, 440 U.S. 93, 97, 99 S.Ct. 939, 59 L.Ed.2d 171 (1979). Furthermore, the Supreme Court has emphasized that under rational basis review, legislatures are allowed to act incrementally: the Equal Protection Clause "does not compel . . . [l]egislatures to prohibit all like evils, or none. A legislature may hit at an abuse which it has found, even though it has failed to strike at another." United States v. Carolene Prods. Co., 304 U.S. 144, 151, 58 S.Ct. 778, 82 L.Ed. 1234 (1938). Rational-basis review in equal protection analysis "is not a license for courts to judge the wisdom, fairness, or logic of legislative choices." FCC v. Beach Communications, Inc., 508 U.S. 307, 313, 113 S.Ct. 2096, 124 L.Ed.2d 211 (1993). Nor does it authorize "the judiciary [to] sit as a superlegislature to judge the wisdom or desirability of legislative policy determinations made in areas that neither affect fundamental rights nor proceed along suspect lines." New Orleans v. Dukes, 427 U.S. 297, 303, 96 S.Ct. 2513, 49 L.Ed.2d 511 (1976) (per curiam). For these reasons, a classification neither involving fundamental rights nor proceeding along suspect lines is accorded "a strong presumption of validity." Heller v. Doe by Doe, 509 U.S. 312, 319, 113 S.Ct. 2637, 125 L.Ed.2d 257 (1993). "A classification must be upheld against [an] equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification." Id. at 320, 113 S.Ct. 2637.
The State has articulated a rational basis for the differential treatment. There is little dispute that millions of cartons of untaxed cigarettes are sold each year by tribal reservation retailers—well in excess of the number of cartons purchased solely by tribal members. The Tribe's own cigarette sales data supports that conclusion. The Supreme Court has recognized that States have a legitimate interest in taxing nonmembers who purchase cigarettes at reservation tobacco shops. See Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134, 161, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980). The fact that most of the untaxed cigarettes sold in New York to non-exempt purchasers are sold by tribal retailers provides a rational
For the reasons stated herein and in this Court's Seneca Nation decision, the Court finds that plaintiffs have failed to demonstrate a likelihood of success on the merits of their claims.
In sum, (1) plaintiffs' motions for a preliminary injunction are denied, (2) enforcement of the New York tax law amendments is stayed pending appeal, and (3) the motions for court-ordered mediation and to opt out of court-ordered mediation are denied without prejudice to renew after appeal.
SO ORDERED.