United States District Court, D. Nebraska
HCI DISTRIBUTION, INC. and ROCK RIVER MANUFACTURING, INC., Plaintiffs,
DOUGLAS PETERSON, Nebraska Attorney General, and TONY FULTON, Nebraska Tax Commissioner, Defendants.
MEMORANDUM AND ORDER
M. Gerrard Chief United States District Judge.
plaintiffs seek a declaration of rights pursuant to 28 U.S.C.
§ 2201, and injunctive relief pursuant to 28 U.S.C.
§ 2202, regarding the enforcement of Nebraska's
statutes regulating tobacco product manufacturing and
distribution. The defendants are the duly elected state
officers whose offices are charged with enforcement of the
statutes from which the plaintiffs seek relief. The
defendants jointly filed a motion to dismiss (filing 27) the
plaintiffs' complaint for lack of subject-matter
jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1) and failure to
state a claim upon which relief can be granted pursuant to
Rule 12(b)(6). The defendants' motion will be sustained
in part and denied in part.
STANDARD OF REVIEW
motion pursuant to Rule 12(b)(1) challenges whether the court
has subject matter jurisdiction. The party asserting subject
matter jurisdiction bears the burden of proof. Great
Rivers Habitat Alliance v. FEMA, 615 F.3d 985, 988 (8th
deciding a motion under Rule 12(b)(1) must distinguish
between a "facial attack"' and a "factual
attack." Branson Label, Inc. v. City of Branson,
Mo., 793 F.3d 910, 914 (8th Cir. 2015). A facial attack
concerns a failure to allege sufficient facts to support
subject matter jurisdiction, whereas a factual attack
concerns the veracity of the pled facts supporting subject
matter jurisdiction. See Davis v. Anthony,
Inc., 886 F.3d 674, 679 (8th Cir. 2018). In a facial
attack, the Court merely needs to look and see if the
plaintiffs have sufficiently alleged a basis of subject
matter jurisdiction and accepts all factual allegations in
the pleadings as true and views them in the light most
favorable to the nonmoving party. Branson Label, 793
F.3d at 914. Here, the defendants are advancing a
"facial attack" to subject matter jurisdiction,
based on the pleadings. See Id. Accordingly, the
Court restricts itself to the pleadings and the plaintiffs
receive the same protections as they do under Rule 12(b)(6).
Hastings v. Wilson, 516 F.3d 1055, 1058 (8th Cir.
survive a Rule 12(b)(6) motion to dismiss, a complaint must
set forth a short and plain statement of the claim showing
that the pleader is entitled to relief. Fed.R.Civ.P. 8(a)(2).
This standard does not require detailed factual allegations,
but it demands more than an unadorned accusation.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). For the
purposes of a motion to dismiss a court must take all the
factual allegations in the complaint as true, but is not
bound to accept as true a legal conclusion couched as a
factual allegation. Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007).
plaintiffs, HCI Distribution, Inc., and Rock River
Manufacturing, Inc., are wholly owned subsidiaries of
Ho-Chunk, Inc. Filing 1 at 6. Ho-Chunk is the economic
development arm of the Winnebago Tribe. Both HCI and Rock
River are incorporated under Tribal law. The Tribe is a
federally recognized Indian tribe eligible to receive
services from the United States Bureau of Indian Affairs with
its reservation land sited within the boundaries of Nebraska.
Filing 1 at 6; seeIndian Entities Recognized and
Eligible To Receive Services From the United States Bureau of
Indian Affairs, 83 Fed. Reg. 4, 235 (Jan 30, 2018).
business consists of purchasing and reselling tobacco goods
exclusively in Indian country throughout the United States.
Filing 1 at 7. HCI sells to reservation-based wholesalers and
retailers exclusively in Indian country. All tobacco products
HCI ships are affixed with tax stamps in accordance with
Tribal law. HCI employs tribal members and allocates 20
percent of its net profits to support tribal welfare
programs, which in 2017 allowed HCI to contribute $157, 381
to the tribe.
River is a federally licensed cigarette manufacturer with its
facilities on the Tribe's reservation. Filing 1 at 8. All
Rock River's products are manufactured on the
reservation. Rock River's products are distributed by HCI
and other distributors, and are sold by such distributors to
retailers nationwide. All Rock River's tobacco products
bear the tribal stamp for each jurisdiction where its
products are sold.
1998, Nebraska and 45 other states settled lawsuits with
several tobacco manufacturers and trade organizations. The
parties' Master Settlement Agreement (MSA) required the
tobacco manufacturers to place restrictions on tobacco
product advertising and marketing, as well as make cash
payments in perpetuity to the settling states. Filing 1 at 2;
see also Omaha Tribe of Nebraska v. Miller,
311 F.Supp.2d 816, 818 (S.D. Iowa 2004). Later, additional
tobacco manufacturers signed onto the MSA. These subsequent
participating manufacturers, together with the original
participating manufacturers are referred to collectively as
the participating manufacturers. Filing 1 at 2.
tobacco manufacturers signed onto the MSA. Those that did not
are called non-participating manufacturers. Rock River is one
such non-participating manufacturer. Filing 1 at 8. The
settling states became concerned that the non-participating
manufacturers could avoid liability for the harm that their
tobacco products could cause, and the participating
manufacturers were concerned that the non-participating
manufacturers would be able to unfairly compete in the market
without incurring costs similar to the costs associated with
participation in the MSA. Miller, 311 F.Supp.2d at
818; filing 1 at 3. In response, the participating
manufacturers and the settling states agreed to enact
variations of a model statutory scheme that imposed fees and
other regulations on non-participating manufacturers. Filing
1 at 3. Those statutes are often referred to as qualifying or
escrow statutes. Filing 1 at 9.
enacted its version of an escrow statute in 1999. Neb. Rev.
Stat. §§ 69-2701 to 69-2703.01. Section 69-2703
essentially provided that tobacco manufacturers selling
cigarettes within the state could either join the MSA as a
participating manufacturer or be required to fund an escrow
account by placing funds into an account on a quarterly basis
regarding the manufacturer's unit sales of tobacco
products. Violation of the escrow requirements could result
in civil penalties and possible exclusion from selling
tobacco products in the state.
terms of the MSA required the settling states to diligently
enforce their escrow statute. Filing 1 at 9-10. When
enforcement proved difficult, the states enacted further
model legislation referred to as the directory statute. The
purpose of this legislation was to publish a list of tobacco
product manufacturers and tobacco products that were in full
compliance with the escrow statute and other tobacco
manufacturing and licensing laws. Filing 1 at 10. Tobacco
products not on the directory list could not be sold in the
state. Nebraska's directory statute, enacted in 2003, is
found at §§ 69-2704 to 69-2707.01. Together, the
escrow and directory statutes are often referred to as the
claiming that the settling states were not diligently
enforcing the escrow requirements, the participating
manufacturers initiated an arbitration proceeding to reduce
the payments owed to the settling states. Filing 1 at 12. Of
particular concern were tobacco producer sales in Indian
country. Filing 1 at 13. Some of the settling states,
including Nebraska, were pressured into including new
statutory provisions aimed at the tribal tobacco business.
Filing 1 at 12; see alsofiling 1-5.
plaintiffs and the Tribe have always maintained that their
sovereign authority precluded the state's authority to
regulate their on-reservation tobacco manufacturing and
tobacco distribution business. Filing 1 at 11. In 2011, the
Nebraska Attorney General's office worked with
representatives of the tobacco manufacturers to devise model
legislation aimed at regulating tribal tobacco manufacturing
and distribution, and require tribes to comply with
Nebraska's MSA laws. Filing 1-1. That same year,
legislation was enacted that purportedly brought tribal
tobacco product manufacturing and distribution within the
regulations imposed by the escrow statute, but also purported
to provide a release of funds for "cigarettes sold on an
Indian tribe's Indian country to its tribal
members"-but only if there was an agreement with the
Governor, in which a tribe was required to accept state
regulation of the tribe's cigarette manufacturing and
distribution business. See §§
69-2703(2)(b)(iv) and 77-2602.06.
December 2015, the Tribe, and the plaintiffs in April 2016,
entered into an agreement of their own separate from their
negotiations with the State. This agreement is called the
"Universal Tobacco Settlement Agreement." The
agreement purported to regulate cigarette sales in Indian
country, as well as create a fund that would allow the
tobacco product manufacturers participating in this new
agreement to obtain a release of all claims that may arise
out of the sale of their products. Filing 1 at 11-12; filing
1-2. In addition to regulating cigarette marketing, the
agreement required the participating tobacco product
manufacturers to make quarterly payments to a settling tribe
regarding the number of cigarettes sold in that tribe's
jurisdiction. Filing 1-2 at 6-7. In 2017, the Tribe received
fees pursuant to the agreement totaling $31, 681.00. Filing 1
at 11-12. In addition, the Tribe imposes a tax on the sale of
cigarettes within its jurisdiction. In 2017 the Tribe
collected $122, 658 in cigarette tax revenue. Id.
2014, at approximately the same time the Tribe was
considering participation in the Universal Tobacco Settlement
Agreement, the Nebraska Department of Revenue issued tax
statements to several reservation-based cigarette retailers.
Filing 1 at 14. According to the plaintiffs, the issuance of
tax statements prompted them to engage in negotiations with
the defendants to settle their disagreement regarding whether
their tobacco manufacturing and distribution business was
subject to Nebraska's MSA laws. The plaintiffs contend
that the negotiations were unsuccessful due to the
defendants' insistence that the plaintiffs were not
excused from strict compliance with Nebraska's MSA laws.
The plaintiffs represent that since March 2014, they have
operated under a cloud of uncertainty regarding the threat of
penalties and retaliation by the defendants, which has
created an impediment to their business operations and
ability to expand economically. Filing 1 at 15.