Antitrust Law Daily Wrap Up, TOP STORY—9thCir: Western Tribe Protected by Sovereign Immunity from Antitrust Challenge to Cigarette Taxes, (Nov 14, 2012)

By E. Darius Sturmer, J.D.

Cigarette vendors could not maintain a suit alleging that the Puyallup Tribe and a pair of officers of the tribe had violated federal antitrust law through their imposition of certain taxes, the U.S. Court of Appeals in San Francisco has ruled (Miller v. Wright, November 13, 2012, Rawlinson, J.). The trial court below had properly concluded that it lacked subject matter jurisdiction over the case in light of the tribe’s sovereign immunity, the appellate court stated. Moreover, the action was barred by res judicata in light of prior litigation in state and tribal courts. Therefore, dismissal of the suit was affirmed.

The taxes being challenged were fees tacked on to the price of each carton of cigarettes sold at stores on the tribe’s reservation. Among these were a $30 fee stemming from a cigarette tax contract between the tribe and the State of Washington and a $5 fee for the benefit of Washington’s health fund—the latter a collection required under the provisions of the Master Settlement Agreement, which resolved litigation between the tobacco industry and numerous states, including Washington. The tribe had agreed to impose these taxes as part of a compact with the State of Washington whereby the tribe promised that tribal retailers would purchase only from Washington State Tobacco Wholesalers or state certified wholesalers.

The Puyallup Tribe did not implicitly waive its sovereign immunity by agreeing to dispute resolution procedures or by ceding its authority to Washington State when entering into the cigarette tax contract, the appellate court held. The nature of the contract did not reflect a waiver of tribal sovereign immunity. It was simply an agreement by the state to retrocede its cigarette taxes to the tribe for transactions covered by the contract in exchange for the tribe’s agreement to impose a cigarette tax equal to the state’s and to use the proceeds to fund essential tribal government services.

While agreeing to a contractual arbitration clause had been held to establish a waiver of tribal sovereign immunity, the inclusion of mediation provision to resolve disputes between the State of Washington and the tribe did not evidence a clear and explicit waiver, the court decided. Mediation was generally not binding and did not “reflect an intent to submit to adjudication by a non-tribal party,” the court explained.

Federal antitrust law did not explicitly abrogate tribal immunity, the appellate court added. Abrogation of tribal immunity by Congress had to be expressed in explicit legislation, the court explained. It could not be implied. Neither the Sherman Act nor the Clayton Act unequivocally expressed such abrogation. Nowhere did either statute employ the sort of language held at the federal appellate level to unequivocally abrogate tribal sovereign immunity, the court noted.

The court rejected an argument by the plaintiffs that federal antitrust law abrogated tribal immunity on the basis that the Sherman Act was a law of general applicability vis-à-vis the tribe. The federal antitrust laws were not intended to apply to Indian tribes, the court reiterated.

Moreover, the two defending tribal officials—the tribe’s tax enforcement officer and its tribal chairman—were protected by the tribe’s sovereign immunity from antitrust liability for allegedly assessing unconstitutional taxes. The officials were acting pursuant to the tribe’s authority in collecting the taxes, the court said.

Finally, even if the tribe’s sovereign immunity had not provided a basis for dismissal, the district court correctly concluded that the doctrine of res judicata barred the action, the appellate court stated. An identity of claims existed with other suits in state court and tribal court involving allegedly unlawful cigarette taxes arising from the sales at the same tribal store on the Puyallup reservation. Likewise, those courts reached final judgments and the plaintiffs were in privity with each other given the substantial commonality of their interests, in the appellate court’s view.

The case is No. 11-35850.

Robert Kovacevich for Daniel Miller. James H. Jordan, Jr. (Miller Nash LLP) for Chad Wright.

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