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King Mountain Tobacco Co., Inc. v. McKenna

United States Court of Appeals, Ninth Circuit

September 26, 2014

KING MOUNTAIN TOBACCO COMPANY, INC.; CONFEDERATED TRIBES AND BANDS OF THE YAKAMA INDIAN NATION, Plaintiffs-Appellants,
v.
ROBERT MCKENNA, Attorney General of the State of Washington, Defendant-Appellee

Argued and Submitted, Seattle, Washington: August 27, 2014.

Appeal from the United States District Court for the Eastern District of Washington. D.C. No. 2:11-cv-03018-LRS. Lonny R. Suko, District Judge, Presiding.

SUMMARY[*]

Indian Law

Affirming the district court's summary judgment, the panel held that the Yakama Treaty of 1855 did not preclude enforcement of the State of Washington's escrow statute, which requires tobacco companies to place money from cigarette sales into escrow to reimburse the State for health care costs related to the use of tobacco products.

The panel held that Washington's escrow statute was a nondiscriminatory law and that the activities of King Mountain Tobacco Co., a company owned and operated by an enrolled member of the Yakama Indian Nation, were largely off-reservation. Accordingly, absent express federal law to the contrary, King Mountain was subject to the escrow statute. The panel held that the plain text of the Yakama Treaty did not create a federal exemption from the escrow statute. Specifically, Article II of the Treaty, which established the boundaries of the Yakama reservation and reserved it for Yakama use and benefit, was not an express federal law that exempted King Mountain from the escrow statute. Nor was Article III, which reserved to the tribe the right to travel on public highways and the right to hunt and fish. The panel held that the district court did not err by declining to make findings regarding the Treaty's meaning to the Yakama people at the time of its signing because the meaning to the Yakama people could not overcome the clear words of the Treaty.

Randolph H. Barnhouse (argued) and Justin J. Solimon, Johnson Barnhouse & Keegan LLP, Los Ranchos de Albuquerque, New Mexico, for Plaintiffs-Appellants.

David M. Hankins (argued), Senior Counsel; Joshua Weissman, Assistant Attorney General; Robert W. Ferguson, Attorney General of the State of Washington, Olympia, Washington, for Defendant-Appellee.

Before: John T. Noonan, Susan P. Graber, and Morgan Christen, Circuit Judges. Opinion by Judge Christen.

OPINION

Page 990

CHRISTEN, Circuit Judge:

King Mountain Tobacco Company and the Confederated Tribes and Bands of the Yakama Indian Nation (collectively " Appellants" ) sued the Attorney General of the State of Washington for declaratory and injunctive relief from Washington's escrow statute, Wash. Rev. Code § § 70.157.005-70.157.030 (2013). The escrow statute requires King Mountain to place money into escrow to reimburse the State for health care costs related to the use of tobacco products. The amount

Page 991

placed in escrow is based on the number of cigarette sales made that are subject to state cigarette taxes. Appellants argue that the Yakama Treaty of 1855 is an " express federal law" that exempts the Yakama people from Washington's escrow statute. The State argues that the Treaty does not preclude it from regulating tobacco products sold nationally and that, as a nondiscriminatory state law that is not expressly preempted by federal law, the escrow statute applies to King Mountain. The district court granted summary judgment in favor of the State, and Appellants appeal. We have jurisdiction under 28 U.S.C. § 1291, and we affirm the judgment of the district court.

BACKGROUND

The Treaty between the Confederated Tribes and Bands of the Yakama Indian Nation and the United States was negotiated and signed in 1855. See Treaty with the Yakamas, 12 Stat. 951 (1855).[1] Under the Treaty, the people of the Yakama Nation agreed to cede a majority of their lands to the United States in return for certain reserved rights. Id. The Yakama Nation also agreed to live on reserved lands held in trust by the United States. Id.

A. King Mountain Tobacco Company

King Mountain Tobacco Company is owned and operated by Delbert Wheeler, an enrolled member of the Yakama Nation. King Mountain initially obtained all of its tobacco from an entity in North Carolina. Today, King Mountain grows some of its tobacco and manufactures its tobacco products, in part, on trust lands within the boundaries of the Yakama Nation. In 2009, approximately 3.1% of the tobacco used in King Mountain's products was grown on trust lands. By 2010, that amount had risen to 9.5%. In 2011, it rose again, to 37.9%.

King Mountain ships its tobacco crop to Tennessee where it is threshed. From there, the tobacco is sent to a factory in North Carolina where more tobacco is added to the reservation tobacco. This process is called " blending." After blending is complete, the tobacco is sent back to the reservation. King Mountain sells cigarettes and other tobacco products on the reservation, throughout Washington, and in about sixteen other states.

B. Washington's Escrow Statute

In 1998, forty-six states, the District of Columbia, and five United States territories settled a lawsuit against four major cigarette manufacturers, creating a Master Settlement Agreement (MSA). The MSA requires the manufacturers to make substantial annual cash payments to the settling states and territories, in perpetuity, to offset the increased cost to the health care system created by smoking. In return, the manufacturers obtained a release of specified past and future tobacco-related claims against them.

Not all cigarette manufacturers joined the MSA, either initially or later. The states feared that these nonparticipating manufacturers (NPMs) would become insolvent against future liability for smoking-related health care costs. Because of this concern, many states adopted escrow statutes. The escrow statutes require NPMs to either join the MSA ...


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