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Hobbs Straus attorneys successfully obtained the first Interior Board of Contract Appeals ruling entitling a tribal school to 100% of administrative cost grant funding in Alamo Navajo School Board and Miccosukee Corporation v. BIA, IBCA 3463-3466, IBCA 3560-3562 (Dec. 4, 1997).

General Memorandum 12-132

General Memorandum 12-132
U.S. Ninth Circuit Court of Appeals Upholds Tribal Immunity and Taxing Authority, and Rules that Federal Antitrust Laws Are Not Intended to Apply to Indian Tribes

On November 13, 2012, the U.S. Ninth Circuit Court of Appeals upheld the Puyallup Tribe's sovereign immunity and taxing authority and the 2009 tribal cigarette compact with the State of Washington. The court also held that the Puyallup Tribe's sovereign immunity was sufficient to withstand an antitrust suit by competing cigarette vendors. The essence of the antitrust claim was that the Tribe was colluding with the State to fix the price of cigarettes sold at tribal smokeshops in violation of federal antitrust laws. Miller v. Wright, No. 11-35850.

Plaintiff Paul Matheson, a member of the Puyallup Tribe, owns a tribally-licensed smokeshop on the Tribe's reservation near Tacoma. Under the Tribe's cigarette tax compact with Washington, smokeshop vendors must buy cigarettes from wholesalers who agree to pay a tribal tax at the wholesale level equal to state wholesale and sales taxes which would be applicable off-reservation. In other words, the goal of the compact is to ensure that taxes are roughly the same on cigarettes sold on and off reservation to non-members. The plaintiffs also had to pay a $5 fee required by the 1998 Tobacco Master Settlement Agreement between the four largest tobacco companies and 46 states. The other plaintiffs, who are non-Indian cigarette purchasers, also challenged the validity of the 2009 cigarette tax compact as well as the tobacco settlement fee. The lead plaintiff had previously sued in tribal, state, and federal courts to invalidate the tribal-state compact, but had lost those suits.

The Court of Appeals reaffirmed the Tribe's sovereign immunity and its authority to tax purchases of cigarettes by non-Indian customers from tribal and tribal member businesses on trust land. The court also held that the Tribe did not waive its sovereign immunity by entering into the tribal-state compact. The court declined to hold tribal officials who approved the tax liable under the doctrine of Ex Parte Young, which makes government officials liable when they act outside the scope of their lawful authority.

The Court of Appeals further held that federal antitrust laws do not apply to the Tribe's regulation of sales. The court examined the Sherman Antitrust Act and the Clayton Act and found that neither applied to the Tribe. Although the plaintiffs argued that the Sherman Act is a statute of general applicability and should apply to the Tribe, the court decided that Congress did not intend for it to apply to Indian tribes and thus the case fit under the third exception in Donovan v. Coeur d'Alene Tribal Farm, which is that general federal laws do not apply to Indians on their reservation when there is proof by legislative history or some other means that Congress did not intend them to apply.

The Court of Appeals held that the mediation provisions in the tribal-state compact do not trigger a waiver of sovereign immunity. The court distinguished the situation from that in C & L Enterprises v. Citizen Band Potawatomi Indian Tribe, in which the U.S. Supreme Court held that a mandatory arbitration provision waived the Tribe's sovereign immunity. The Court of Appeals pointed to the fact that the mediation provisions in the Washington compact were not binding on the tribe, because unlike arbitration, mediation is a process that leads to a voluntary agreement among the parties, not a ruling enforceable in court.

Finally, the Court of Appeals held that the plaintiffs' claims were also barred by the doctrine of res judicata, which prevents a repeat of litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment.

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Chris Stearns (cstearns@hobbsstraus.com)
Charlie Hobbs (chobbs@hobbsstraus.com)

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