United States Court of Appeals,
UNITED STATES of America, Plaintiff–Appellee,
C. Marvin WILBUR, aka Marvin Wilbur, Sr., Defendant–Appellant.
United States of America, Plaintiff–Appellee,
Joan C. Wilbur, Defendant–Appellant.
United States of America, Plaintiff–Appellee,
April M. Wilbur, Defendant–Appellant.
United States of America, Plaintiff–Appellee,
Brenda R. Wilbur, Defendant–Appellant.
Nos. 10–30185, 10–30186, 10–30187, 10–30188.
Argued and Submitted June 8, 2011.
Filed April 6, 2012.
James E. Lobsenz, Carney Badley Spellman, P.S., Seattle, WA, for the appellants.
Helen J. Brunner, Richard Edward Cohen, Mary K. Dimke, J. Tate London, Office of the United States Attorney, Seattle, WA, for the appellee.
Appeal from the United States District Court for the Western District of Washington Marsha J. Pechman, District Judge, Presiding. D.C. Nos. 2:09–cr–00191–MJP–1, 2:09–cr–00191–MJP–2, 2:09–cr–00191–MJP–3, 2:09–cr–00191–MJP–4.
Before STEPHEN REINHARDT, WILLIAM A. FLETCHER, and JOHNNIE B. RAWLINSON, Circuit Judges.
Opinion by Judge WILLIAM A. FLETCHER.
Partial Concurrence and Partial Dissent by Judge RAWLINSON.
W. FLETCHER, Circuit Judge:
*1 Marvin, Joan, April, and Brenda Wilbur (collectively”Defendants” or “the Wilburs”) were indicted for an eight-year conspiracy to violate the Contraband Cigarette Trafficking Act (“CCTA”) by trafficking in “contraband cigarettes .” They were also indicted for several substantive counts of violating the CCTA and several counts of money laundering based on transfers of their earnings from the allegedly contraband cigarettes. Contraband cigarettes, as defined in relevant part by the CCTA, are cigarettes “which bear no evidence of the payment of applicable State or local cigarette taxes in the State or locality where such cigarettes are found.” 18 U.S.C. § 2341 .
The Wilburs moved to dismiss the indictment. They argued that the state of Washington retroceded its cigarette taxation to the Swinomish Tribe during the period of a cigarette tax contract it entered into with the Swinomish Tribe. They argued that the only cigarette taxes applicable to their activities were thus tribal taxes, not the “State or local cigarette taxes” referred to in the CCTA. The Wilburs also argued that their indictment was based on ambiguous tax laws and therefore violated due process, and that their right to trade in untaxed cigarettes is guaranteed by the Treaty at Point Elliott. The district court denied the motion to dismiss the indictment. The Wilburs then pled guilty to the eight-year conspiracy to violate the CCTA, conditioned on their right to appeal the district court's denial of their motion to dismiss.
For the reasons that follow, we agree with the Wilburs that during the period from 2003 to 2005, when they were licensed to sell tobacco by the Swinomish Tribe, there were no “applicable State or local cigarette taxes” under the CCTA. We also agree with the Wilburs that the five-year statute of limitations for CCTA violations bars any charges based on activity from 1999 to 2003. We conclude, however, that after their tribal tobacco license expired in 2005, the Wilburs' activities ceased to be covered by the Swinomish cigarette tax contract (“CTC”), and that the state's retrocession therefore ceased to apply. The unstamped cigarettes the Wilburs transported and sold during this period were thus “contraband” under the CCTA. We reject the Wilburs' due process and treaty arguments.
We affirm in part, reverse in part, and remand for resentencing consistent with this opinion.
The CCTA makes it unlawful to knowingly “ship, transport, receive, possess, sell, distribute, or purchase contraband cigarettes.” 18 U.S.C. § 2342(a) . The CCTA defines contraband cigarettes as:
a quantity in excess of 10,000 cigarettes, which bear no evidence of the payment of applicable State or local cigarette taxes in the State or locality where such cigarettes are found, if the State or local government requires a stamp, impression, or other indication to be placed on packages or other containers of cigarettes to evidence payment of cigarette taxes, and which are in the possession of any person....
*2 18 U.S.C. § 2341(2) . Thus, “[a] violation of the state cigarette tax law is a predicate to a CCTA violation.” United States v. Gord, 77 F.3d 1192, 1193 (9th Cir.1996) .
The Washington cigarette tax laws at issue in this case are complicated, especially as they apply to Indian tribes. We first provide an overview of the relevant Washington cigarette tax scheme. We then describe the specific facts and procedural history of this case.
A. Washington Cigarette Tax Scheme
Washington imposes a sales tax, a use tax, and a separate cigarette tax on cigarettes. Rev.Code of Wash. (“RCW”) §§ 82.08.020 (retail sales tax), 82.12.020 (use tax), 82.24.020(1) (cigarette tax). To enforce its cigarette tax, Washington requires that cigarette packages bear a stamp demonstrating compliance with Washington law. According to RCW § 82.24.030(1) :
The stamps must be affixed on the smallest container or package that will be handled, sold, used, consumed, or distributed, to permit the department to readily ascertain by inspection, whether or not such tax has been paid or whether an exemption from the tax applies.
See also Wash. Admin. Code (“WAC”) § 458–20–186 (201)(a). The stamps must either represent that the tax has been paid or indicate that the cigarettes are exempt from the tax.FN1 RCW § 82.24.030(2) . Cigarette wholesalers are responsible for affixing stamps. Id. Wholesalers must be licensed by the state. Id. § 82.24.040(1). Various rules govern wholesalers' obligations concerning when and how to affix the stamps. See id. § 82.24.040.
Cigarette retailers are generally prohibited from possessing unstamped cigarettes within the state of Washington. Id. § 82.24.050(1). Retailers must obtain cigarettes from licensed wholesalers. Id. § 82.24.050(2). Unauthorized receipt, shipment, and sale of unstamped cigarettes by non-wholesalers is a crime under Washington law. Id. § 82.24.110.
In general, only licensed wholesalers can transport unstamped cigarettes within the state. WAC § 458–20–186 (401). Licensed wholesalers can transport unstamped cigarettes only in their own vehicles, unless they give prior notice to the liquor control board. Id. Anyone other than a licensed wholesaler who intends to transport unstamped cigarettes in the state must first give notice to the liquor control board. RCW § 82.24.250(1) ; WAC § 458–20–186 (402). Anyone other than a licensed wholesaler transporting unstamped cigarettes must be transporting them to a licensed wholesaler or to a person or organization that has given notice to the liquor control board of their intended possession of unstamped cigarettes. RCW § 82.24.250(2) -(3) , (7) .
There has been a long-standing dispute about the state's power to tax cigarette sales by tribal retailers on Indian reservations to non-Indians. In Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134, 159–60, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980) , the Supreme Court held that the state could impose a cigarette tax on cigarette sales by Indian retailers on reservations to non-Indians. The Court reasoned that the incidence of a tax on sales to non-Indians falls on the non-Indian customer, not on the Indian retailer. It held that the state can impose the “minimal burden[ ]” on the Indian retailer of only selling stamped cigarettes to non-Indians. Id. at 159.
*3 As the Court recognized in Colville, one of the underlying issues in the cigarette taxing dispute between the state and the tribes is the ability of the tribes to impose their own cigarette tax. Id. at 154–55. The tribes had argued that if the state could enforce its cigarette tax, the tribes would be forced to drop their own tax or else their tribal retailers would be forced to sell at higher prices than off-reservation sellers. The state argued that because the tribal taxes were often significantly lower than the state taxes, what the tribes really wanted was to allow tribal retailers to undercut off-reservation retailers. This would seriously undermine the state's cigarette tax regime because non-Indian cigarette purchasers could travel to the reservations in order to avoid the state tax. Id.
After Colville, in an attempt to resolve this underlying issue, Washington passed legislation authorizing the Governor to enter into cigarette tax contracts (“CTC”) with various tribes. RCW §§ 43.06.450 , 43.06.460 . A CTC is typically an agreement by the state to retrocede its cigarette taxes to the tribe for transactions covered by a CTC 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. This case concerns the state's tax retrocession under the CTC it signed with the Swinomish Tribe.
The CTC legislation provides that “[a]ll cigarette tax contracts shall meet the requirements for cigarette tax contracts under this section.” Id. § 43.06.455(1) . The tax contracts “shall be in regard to retail sales in which Indian retailers make delivery and physical transfer of possession of the cigarettes ... within Indian country.” Id. § 43.06.455(2) . For this and all other statutory provisions, there are three definitions of “Indian retailer.” These are:
(i) a retailer wholly owned and operated by an Indian tribe,
(ii) a business wholly owned and operated by a tribal member and licensed by the tribe, or
(iii) a business owned and operated by the Indian person or persons in whose name the land is held in trust[.]
Id. § 43.06.455(14)(b) .
The legislation describes conditions a tribe must accept to enter into a CTC. The CTC “shall provide that the tribal cigarette tax rate be one hundred percent of the state cigarette and state and local sales and use taxes.” Id. § 43.06.460. The Governor is authorized to allow a three-year phase-in period during which the tribal tax rate can be eighty percent of the state tax rate. Id. The contract “shall provide “ that retailers cannot sell cigarettes to people under eighteen years old. Id. § 43.06.455(2) . The contract “shall provide that all cigarettes possessed or sold by a retailer shall bear a cigarette stamp.” Id . § 43.06.455(4) . These stamps can be tribal stamps, but the tribes must establish procedures to ensure that the stamps represent tax-paid or tax-exempt status. Id. The contract “shall provide” that Indian retailers can purchase cigarettes only from licensed Washington wholesalers, tribal manufacturers, or out-of-state wholesalers or manufacturers who have agreed to comply with the terms of the CTC. Id. § 43.06.455(5) . Finally, “[t]ax revenue retained by a tribe must be used for essential government services.” Id. § 43.06.455(8) .
*4 The legislation also establishes the extent of the state's retrocession during the life of a CTC. The tribal cigarette tax “shall” be “in lieu of all state cigarette taxes and state and local sales and use taxes on sales of cigarettes in Indian country by Indian retailers.” Id. § 43.06.455(3) . The retail sales tax “does not apply to sales of cigarettes by an Indian retailer during the effective period of a cigarette tax contract.” Id. § 82.08 .0316. Similarly the use tax “shall not apply in respect to the use of cigarettes sold by an Indian retailer during the effective period of a cigarette tax contract.” Id. § 82.12.0316. Finally, the separate cigarette taxes “do not apply to the sale, use, consumption, handling, possession, or distribution of cigarettes by an Indian retailer during the effective period of a cigarette tax contract.” FN2 Id. § 82.24.295 . The same three definitions of “Indian retailer” described above apply to these sections. RCW § 43.06.455(14)(b) .
On October 3, 2003, Washington and the Swinomish Tribe (the “Tribe”) entered into a CTC pursuant to RCW §§ 43.06.455 and 43.06 .460 (the “Swinomish CTC” or the “Contract”). The Swinomish CTC applies “to the retail sale of cigarettes by Tribal retailers.” A Tribal retailer is defined in the Contract as “a cigarette retailer wholly owned by the Swinomish Tribe and located in Indian country or a member-owned smokeshop located in Indian country and licensed by the Tribe.” Thus, in defining “Tribal retailer” the Contract adopted the first two definitions of “Indian retailer” from RCW § 43.06.455(14)(b) , but not the third.
The Tribe agreed to impose cigarette taxes “on all sales by Tribal retailers” equal in amount to the state taxes. The Tribe also agreed that all cigarettes sold by Tribal retailers “shall bear a Tribal tax stamp,” and agreed on various procedures concerning the stamps. Finally, the Tribe agreed that it, as well as all member Tribal retailers, will purchase cigarettes for resale only from wholesalers licensed by the state of Washington.FN3
The state in turn agreed to “retrocede[ ] from its tax during the time this Contract is in effect.” It also agreed in the CTC:
As to all transactions that conform with the requirements of this Contract, such transactions do not violate state law, and the State agrees that it will not assert that any such transactions violate state law for the purpose of 18 U.S.C. § 2342 [the CCTA ] or other federal law specifically based on violation of state cigarette laws.
After the Contract went into effect, the Swinomish Tribe amended its tobacco tax and regulations of tobacco retailers to comply with its obligations under the Contract. See Swinomish Tribal Code §§ 15–03.010 et seq., 17–04.010 et seq. (2003).
B. Factual Background and Procedural History
Defendants Marvin Wilbur and Joan Wilbur are husband and wife and are enrolled members of the Swinomish Tribe. Defendants April and Brenda Wilbur are Marvin and Joan's daughters-in-law. Marvin Wilbur is the owner of the Trading Post, a store on the Swinomish reservation that specializes in selling various tobacco products, including cigarettes. The rest of the Wilburs have helped operate the Trading Post. In operating the Trading Post, the Wilburs used three different trusts: the Salish Trust, Skagit Trust, and Skagit Cigarette Sales Trust. Neither the Trading Post, nor any of the trusts, nor anyone associated with the Trading Post, was a licensed Washington cigarette wholesaler.
*5 Starting in approximately July 1999, Defendants began purchasing and selling to the general public untaxed and unstamped cigarettes. They continued doing so for the next eight years. Throughout the course of their sale of unstamped cigarettes, the Wilburs never pre-notified the Washington liquor control board of the shipment of unstamped cigarettes, as required by Washington law. On only one occasion did the company shipping the cigarettes to the Wilburs pre-notify the liquor control board.
After the state and the Tribe signed the Swinomish CTC on October 3, 2003, Marvin and Joan Wilbur brought a suit attempting to block the state and the Tribe from entering into the Swinomish CTC, but the suit failed, see Wilbur v. Locke, 423 F.3d 1101 (9th Cir.2005) , abrogated in part on other grounds by Levin v. Commerce Energy, Inc., ––– U.S. ––––, 130 S.Ct. 2323, 176 L.Ed.2d 1131 (2010) . According to a declaration from Allan Olson, the general manager of the Swinomish Indian Tribal Community, the Tribe knew of Defendants' sale of untaxed cigarettes at that time.
At the time the Swinomish CTC went into effect, the Trading Post was licensed by the Tribe as a tobacco retailer. On June 1, 2004, the Tribe wrote the Wilburs a letter, informing them that a “recent visit to your store has indicated that you are still selling un-stamped cigarettes contrary to “ tribal law. The letter ordered the Wilburs to “immediately cease all sales of cigarettes not bearing a Swinomish Tribal Tax Stamp.” The letter informed the Wilburs, “If you fail to come into compliance with the requirements of the law by close of business on June 8, 2004, your license to sell tobacco on the Swinomish Reservation will be revoked and the Tribe will pursue both criminal and civil penalties.” Defendants did not cease sales of unstamped cigarettes, but there is no evidence in the record that the Tribe took any action to revoke the license on June 8, 2004.
Early in 2005, the Wilburs attempted to renew the Trading Post's tribal tobacco license, which was due to expire on March 31, 2005. On March 28, 2005, the Tribe wrote to the Wilburs and informed them that they had not satisfied certain requirements for obtaining a tobacco license, including various audits and records of tax payments. The letter informed the Wilburs that until they completed these requirements, “you are not allowed to sell any tobacco products from the Trading Post or any other location on the Reservation. Violation of this prohibition could result in civil penalties including fines and could possibly prohibit you from obtaining a license for future sales.” In response, the Wilburs' attorney wrote to the Tribe arguing that the “license requirement is preempted by the State of Washington Compact and statutes implementing the compact.” We have not been made aware of the “Compact” to which the Wilburs' attorney referred. The Wilburs continued to sell unstamped cigarettes from the Trading Post. According to various members of the Tribe administration, the Trading Post never possessed a tribal license to sell cigarettes after April 1, 2005.
*6 Believing it did not have the resources to take action against the Trading Post and the Wilburs, the Tribe contacted the U.S. Attorney's Office, which began an investigation. After conducting several under-cover buys of unstamped cigarettes, federal agents executed a search warrant for the Trading Post on May 15, 2007. They were assisted by Tribal law enforcement officers. J. Mark Keller, a Lieutenant with the Washington State Liquor Control Board who was deputized as a Special Deputy U.S. Marshall, led the search. The agents confiscated approximately 3.6 million cigarettes in packaging that did not bear evidence of state or tribal taxes. The agents also seized over $100,000 in cash and bank accounts. See United States v. Approximately 3,609,820 Cigarettes of Assorted Brands, More or Less, No. C07–16032, 2009 WL 773868, at *1 (W.D.Wash., March 20, 2009) [hereinafter Cigarettes ].
On May 13, 2008, the Swinomish Tribe filed a civil forfeiture action in Swinomish Tribal Court seeking forfeiture of the seized cigarettes in the event the United States released the cigarettes from federal custody and control. The Tribe also sought over $365,000 in unpaid tribal cigarette taxes on the seized cigarettes.
On June 10, 2009, the United States filed an indictment against the Wilburs. The United States filed a Second Superseding Indictment (“SSI”) on October 29, 2009. Count 1 of the SSI charged Defendants with a conspiracy to traffic in contraband cigarettes. Specifically, Count 1 charged:
Beginning on an exact date unknown, but at least from in or about July 1999, and continuing through on or about May 15, 2007, in Skagit County, within the Western District of Washington, and elsewhere, the Defendants ... did willfully and knowingly conspire, combine, confederate and agree with each other ... to purchase, ship, transport, receive, possess, sell, and distribute contraband cigarettes, as that term is defined in Title 18, United States Code, Section 2341 , in violation of Title 18, United States Code, Section 2342(a) .
The SSI also charged Defendants with six counts of trafficking in contraband cigarettes in violation of the CCTA on various dates during the alleged eight-year conspiracy. Finally, the SSI charged Defendants with one count of conspiracy to launder money and thirteen counts of money laundering based on Defendants' transfer of the money obtained through the sale of the allegedly contraband cigarettes.
Defendants moved to dismiss the indictment. They argued that the cigarettes were not “contraband” under the CCTA because, at least during the time the Swinomish CTC was in effect, there were no “applicable State or local taxes.” 18 U.S.C. § 2341(2) . Specifically, they argued that during the time the Swinomish CTC was in effect, the state retroceded its taxation of cigarettes by “Indian retailers,” and that the Trading Post was an Indian retailer under both RCW § 43.06.455(14)(b) (ii) during the time it had a tobacco license from the Tribe, and RCW § 43.06.455(14)(b) (iii) during the entire period covered by the indictment. Defendants also argued that the indictment was based on ambiguous tax statutes and so violated due process, and that Washington was barred from taxing Defendants' cigarette sales by the Treaty at Point Elliott.
*7 The district court concluded that the Swinomish CTC provides only a “limited exception to the state's cigarette taxation rules” for “sales that conform to its requirements.” The Court relied primarily on the Contract's provision that”all transactions that conform with the requirements of this Contract ... do not violate state law, and the State agrees that it will not assert that any such transactions violate state law for the purpose of [the CCTA].” It concluded that “[i]mplicit in this statement is that the tax retrocession applies only to sales that conform to the Contract.” Because the cigarettes in this case were unstamped and thus did not conform to the Contract, the district court held that the state had not retroceded its taxation, and thus that the cigarettes were contraband under the CCTA. The district court had no need to address points in time at which the Trading Post might have qualified as an “Indian retailer” under Washington statute or a “Tribal retailer” under the Swinomish CTC.
The district court also rejected Defendants' other arguments. It concluded that under our decision in United States v. Baker, 63 F.3d 1478 (9th Cir.1995) , the indictment did not violate due process because the Wilburs can be presumed to have knowledge of cigarette taxing requirements, and the due process cases on which the Wilburs relied required knowledge of the criminal violation whereas the CCTA does not. The district court also rejected Defendants' treaty argument, concluding that although the members of the Swinomish Tribe who signed the Treaty at Point Elliott “would not have intended to submit to be restricted in their trade in tobacco,” our holding in Baker foreclosed any argument that the state cigarette taxes at issue constituted such a restriction. The district court therefore denied the motion to dismiss the indictment.
After the denial of their motion to dismiss the indictment, Defendants conditionally pled guilty to Count 1 of the indictment (the conspiracy count). The other counts were dismissed. The district court sentenced Marvin Wilbur to twelve months and one day of incarceration. It sentenced Joan Wilbur to five months of incarceration, followed by five months of electronic home monitoring. It sentenced April and Brenda Wilbur to ninety days of electronic home confinement. It also ordered restitution in the amount of $10.9 million, the calculated amount of tax loss for the entire eight-year conspiracy, to be paid to the state of Washington.
Defendants timely appealed.
II. Standard of Review
We review de novo the district court's decision not to dismiss an indictment based on its interpretation of a federal statute. United States v. Gomez–Rodriguez, 96 F.3d 1262, 1264 (9th Cir.1996) (en banc). We review the district court's findings of fact with regard to a motion to dismiss an indictment for clear error. See United States v. Lazarevich, 147 F.3d 1061, 1065 (9th Cir.1998) . We “presume the allegations of an indictment to be true for purposes of reviewing a district court's ruling on a motion to dismiss.” United States v. Smiskin, 487 F.3d 1260, 1263 n. 5 (9th Cir.2007) .
*8 On appeal, Defendants raise the same CCTA, due process, and treaty arguments they raised before the district court. Defendants also argue that the state did not have the power to tax Defendants under Washington law. We address these arguments in turn.
A. Conspiracy to Violate the CCTA
Defendants argue that because there were no state or local taxes applicable to the cigarettes they were selling, they could not have conspired to violate the CCTA. To analyze this claim, we divide the eight years during which the Wilburs sold unstamped cigarettes into three periods. During the first period, from July 1999 to October 2003, Washington had not entered into a CTC with the Swinomish Tribe. During the second period, from October 2003 to March 2005, the Swinomish CTC was in effect, and the Trading Post was licensed to sell tobacco by the Tribe. During the final period, from April 2005 to the time of the raid in May 2007, the Swinomish CTC was in effect, and the Trading Post was not licensed to sell tobacco by the Tribe. For the reasons that follow, we conclude that Defendants' actions violated the CCTA during the first and third period, but not the second. We then discuss the implications of our conclusion for the indictment and guilty plea.
1. Before the Swinomish CTC
The first period extends from 1999, the beginning of the alleged conspiracy, to 2003, when the Swinomish CTC was signed. During this period, none of Washington's retrocession provisions applied. During this period there clearly was an “applicable State ... cigarette tax[ ],” 18 U.S.C. § 2341(2) , and the unstamped cigarettes received, possessed, and sold by the Wilburs were therefore “contraband” under the CCTA.
There is a five-year statute of limitations on CCTA prosecutions. 18 U.S.C. § 3282(a) . The United States did not file the indictment against Defendants until June 10, 2009, more than five years after the Swinomish CTC went into effect. Criminal prosecution for any substantive violations of the CCTA that took place during the period before the Swinomish CTC fall outside the statute of limitations. The government, however, has alleged a continuing eight-year conspiracy beginning in 1999 and extending through 2007. In order for the conspiracy to have occurred during the statute of limitations period, only one overt act in furtherance of the conspiracy must have occurred during that period. See United States v. Fuchs, 218 F.3d 957, 961 (9th Cir.2000) . We discuss below the implications of the statute of limitations for Defendants' indictment for activity during this period.
United States District Court,
William S. FLETCHER, et al., Plaintiffs,
The UNITED STATES of America, et al., Defendants.
March 31, 2012.
OPINION AND ORDER
GREGORY K. FRIZZELL, Chief Judge.
*1 This matter comes before the court on the Motion to Dismiss plaintiffs' Third Amended Complaint, filed by defendants the United States of America, the Department of the Interior, Kenneth Salazar in his official capacity as Secretary of the Interior, the Bureau of Indian Affairs, and Larry EchoHawk in his official capacity as Assistant Secretary of the Interior–Indian Affairs (collectively, the “Federal Defendants”). For the reasons set forth below, the Motion to Dismiss [Dkt. # 1126] is granted.
I. Procedural History
Plaintiffs filed this case on May 31, 2002. Their complaint asserted four causes of action: (1) a claim that the Federal Defendants violated their right to political association and participation in the Osage government; (2) a claim that the Federal Defendants breached their trust responsibilities by (a) eliminating the plaintiffs' right to participate or vote in Osage tribal elections, and (b) allowing mineral royalties to be alienated to persons and entities not of Osage blood; (3) a Fifth Amendment takings claim; and (4) a claim that the federal regulations regarding the Osage Tribe violated their right to participate in their government and the defendants' trust responsibilities.
The Federal Defendants moved to dismiss the complaint for failure to join the principal governing body of the Osage Tribe,FN1 the Osage Tribal Council, as a necessary and indispensable party. The Court granted the motion and dismissed the complaint. Plaintiffs appealed, but during the appeal, Congress passed the Reaffirmation of Certain Rights of the Osage Tribe, Public Law 108–431, 118 Stat. 2609. That statute maintains the system for assigning mineral interests but granted the Osage Tribe the right to determine membership for other purposes. Accordingly, the plaintiffs obtained their first request—that they obtain the right to participate in the affairs of the Osage Nation as members. The Tenth Circuit held that the district court had jurisdiction over plaintiffs' breach of trust and takings claims for violation of a statutory duty to pay royalties only to tribal members, as plaintiffs did not seek “money damages” under 5 U.S.C. § 702. The panel vacated the dismissal and remanded to determine whether the Osage Tribal Council was a necessary and indispensable party with regard to the breach of trust and takings claims.
FN1. At the time, the tribe was known as the Osage Tribe. Since then, it adopted a new Constitution and is now known as the Osage Nation.
On remand, the plaintiffs filed a First Amended Complaint. Federal Defendants moved to dismiss on the following grounds: (a) failure to join other indispensable parties, including the Osage Nation and non-Osage owners of headrights FN2; (b) lack of jurisdiction for failure to comply with the final agency action prerequisites to judicial review under the Administrative Procedure Act, 5 U.S.C. § 701; and (c) failure to challenge an actionable final agency action within the applicable statute of limitations. The Court granted the motion in part and denied it in part, holding that: (a) the Osage Nation was not a required party under Rule 19(a); (b) non-Osage headright owners were required parties because plaintiffs sought to terminate their headright interests in royalty income; and (c) it was impossible to discern from the face of the First Amended Complaint the specific agency actions and/or inactions the plaintiffs were challenging. The Court directed plaintiffs to file a Second Amended Complaint adding all non-Osage headright owners as defendants and identifying with specificity the challenged agency actions and/or inactions.
FN2. A headright is statutorily defined as “any right of any person to share in any royalties, rents, sales, or bonuses arising from the Osage mineral estate.” Pub.L. No. 98–605, § 11(2), 98 Stat. 3163 (the “1984 Act”); Shelton's Estate v. Okla. Tax Comm'n, 544 P.2d 495, 497 (10th Cir.1975) (“headrights are interests in unaccrued royalties arising from mineral interests.”).
*2 Plaintiffs filed their Second Amended Complaint, which joined approximately 1,700 additional defendants FN3 to the lawsuit. However, because plaintiffs again failed to specify the agency actions being challenged, the Court directed plaintiffs to file yet another amended complaint. [Dkt. # 213 & # 231 at pp. 16, 27, 48]. Plaintiffs filed their Third Amended Complaint on May 6, 2010. [Dkt. # 985]. Plaintiffs also filed a Motion to Certify a plaintiffs' class, and a group of defendants filed a Motion to Certify Class of Defendants on Limited Issues and for Appointment of Class Counsel.
FN3. The 1,700 defendant non-Osage headright owners included churches, universities, charities, and foundations, as well as individuals.
Many of the non-Osage headright owner defendants filed motions to dismiss. In an Opinion and Order filed March 31, 2011 [Dkt. # 1122], the Court granted the Motion to Dismiss filed by defendant Ben T. Benedum for failure of the Third Amended Complaint to state a claim upon which relief can be granted. The Court concluded that Congress has always permitted non-Indian ownership of headrights, and therefore plaintiffs are mistaken as a matter of law when they contend that a non-Indian cannot hold legal or equitable title. In a subsequent order, the Court dismissed the remaining 1,700 non-Osage headright owners for failure to state a claim upon which relief can be granted. [Dkt. # 1143]. In addition, the Court held they were not required parties pursuant to Rule 19.
II. Historical Background
In 1872, Congress established a reservation of approximately one and a half million acres for the Osage Tribe of Indians in north central Indian Territory. See Act of June 5, 1872, ch. 310, 17 Stat. 228 (An Act to Confirm to the Great and Little Osage Indians a Reservation in the Indian Territory). The first oil and gas lease of the reservation was made in 1896, followed by substantial discoveries of oil and gas in 1904 and 1905. Cohen's Handbook of Federal Indian Law § 4.07[d][ii], p. 311 (2005 ed.). “The Osage Nation quickly accumulated a large tribal trust fund in the Treasury from oil and gas leases, sales of townsite lots, permit taxes, and sale of an earlier tribal reservation in Kansas.” Id. (citing McCurdy v. U.S., 246 U.S. 263 (1918)). Tribal wealth made the Osages targets of various forms of fraud and overreaching. Id.
In 1906, Congress passed the Osage Allotment Act in an attempt to individualize much of the Osage tribal property and to provide some protection for tribal members. See Act of June 28, 1906, ch. 3572, 34 Stat. 539 (An Act for the Division of the Lands and Funds of the Osage Indians in Oklahoma Territory and for Other Purposes) (the “1906 Act”). The 1906 Act directed the preparation of a tribal membership roll composed of persons whose names were on the roll maintained by the United States Indian agent at the Osage Agency, as it existed on January 1, 1906, and their children born by July 1, 1907. See 1906 Act, § 1. The mineral estate underlying the Osage lands was “reserved to the Osage tribe.” 1906 Act, § 3. The royalties received from the mineral estate, less certain amounts retained for tribal purposes, is paid per capita on a quarterly basis to the 2,229 persons on the tribal roll, their heirs, devisees, and assigns. See 1906 Act, § 4. Most persons of Osage Indian ancestry own no headrights, and thus receive no royalty income. Cohen, p. 313. Some persons own more than one headright, or own fractional shares of headrights, and some headrights are owned by non-Osages. Id. The trust period was originally set at twenty-five years, but has been extended several times. In 1978, Congress extended the tribal trust “in perpetuity” and severly limited succession to headrights by non-Indians. See Pub.L. No. 95–496, §§ 2(a), 5(c), and 7, 92 Stat. 1660 (1978).
III. The Third Amended Complaint
*3 Plaintiffs allege the Federal Defendants have breached their trust obligations “by failing to distribute Osage mineral royalties only to persons who are Osage Indians by blood, and those who may by statute be allowed to receive distributions of trust property .” Third Amended Complaint, ¶ 3 (emphasis in original). Plaintiffs “make no claim against the Osage Nation or the Osage Mineral Estate itself; nor is there any dispute regarding the amounts which the Osage Nation has obtained from the Osage Mineral Estate. Instead, the Plaintiffs' claims relate to the Federal Defendants' Section 4 Royalty Payments made during the pendency of this litigation, and those to be made in the future.” Third Amended Complaint, ¶ 30.
The Third Amended Complaint asserts three causes of action. In their First Claim for Relief—Breach of the Federal Trust Responsibility—plaintiffs allege the Federal Defendants have breached their trust obligations by improperly distributing trust assets to persons who are not Osage Indians or their lawful heirs, and by failing to account to plaintiffs for all funds held in trust, including all royalty distributions. In their Second Claim for Relief—entitled Failure to Account and Deprivation of Property—plaintiffs allege that, because the Federal Defendants have allowed royalty payments to be distributed to non-Osage persons, and because the Federal Defendants have failed to account for and audit their actions, the plaintiffs have been deprived of property in violation of the Fifth Amendment. In their Third Claim for Relief—entitled Administrative Action Not in Accordance with Law and Violative or in Contravention of the Plaintiffs' Rights—plaintiffs allege, upon information and belief, that the Federal Defendants have taken administrative actions, or have failed to take action, in ways that are not in accordance with law, including: (a) approving “family settlement agreements” in the course of contested probates contrary to the explicit directives in Osage Indian wills, which has resulted in the alienation of Section 4 royalty interests in favor of non-Indians and the diminishment of the Osage mineral estate; (b) facilitating and encouraging the “legal” adoption of adult non-Indians by Osage Indians as a means of ostensibly complying with the 1978 Act and its explicit prohibitions against alienation to non-Indians; (c) permitting the sale of Section 4 Royalty Interests by non-Indians in derogation of the right of repurchase specifically reserved to Osage remaindermen of the original allottees by the 1978 Act; (d) making quarterly Section 4 royalty payments in violation of the law; and (e) refusing “to provide the accounting and audits required by law.” Third Amended Complaint, ¶ 65.
Each of plaintiffs' three claims for relief contain two central elements: First, that the Federal Defendants have improperly paid royalties to non-Osage persons and entities, and second, that the Federal Defendants have failed to provide a required accounting and audits.
*4 Plaintiffs seek the following relief: (1) an order compelling the Federal Defendants to provide an accounting and audit of the Section 4 Royalty Payments distributed from the Osage Mineral Estate “showing the amounts actually paid to each person and the basis for each payment;” (2) an order requiring that the accounting and audit “determine whether Section 4 Royalty Payments distributed from the Osage Mineral Estate have been distributed only to Osage Indians (and their heirs);” (3) a reformation of the Plaintiffs and class members' entitlement to Section 4 royalty payments; and (4) an order compelling the Federal Defendants to prospectively distribute the Section 4 royalty payments only to Osage Indians and their heirs. Id. at pp. 85–86.
IV. The Motion to Dismiss
The Federal Defendants seek dismissal on the following grounds:
First, they contend the parts of the Third Amended Complaint based upon plaintiffs' “overarching legal argument” that a non-Osage cannot hold legal or equitable title to a headright should be dismissed for (a) failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6); (b) lack of subject matter jurisdiction pursuant to Rule 12(b)(1); and (c) failure to obey an order for more definite statement pursuant to Rule 12(e).
Second, the Federal Defendants contend that the portions of the Third Amended Complaint claiming the right to an accounting should be dismissed because (a) there is no trust relationship between the Federal Defendants and headright owners; and (b) the statutes upon which plaintiffs rely do not afford the plaintiffs a right to an accounting.
V. The Allegations of Improper Distributions to Non–Osage Headright Owners
A complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). The plausibility requirement does “not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal [conduct].” Id. at 556. “[A] plaintiff's obligation to provide the ‘grounds' of his ‘entitle [ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 555 (citations omitted). The court must determine “whether the complaint sufficiently alleges facts supporting all the elements necessary to establish an entitlement to relief under the legal theory proposed.” Lane v. Simon, 495 F.3d 1182, 1186 (10th Cir.2007).
In an Opinion and Order dated March 31, 2011 (Dkt.# 1122) and an Order dated May 16, 2011 (Dkt.# 1143), this court rejected plaintiffs' “overarching legal argument” that the Osage Allotment Act (as amended) does not permit a non-Osage person or entity the right to receive quarterly income payments from the Osage mineral estate. Plaintiffs have failed to plead any specific facts supporting their allegation that any specific headright was transferred illegally. The claims as alleged are merely speculative. The plaintiffs' allegations against the Federal Defendants for improper distribution to non-Osage headright owners, contained in each of plaintiffs' claims for relief, must be dismissed without prejudice for failure to state a claim upon which relief can be granted.
*5 In the alternative, the portions of plaintiff's Third Claim for Relief alleging administrative action not in accordance with law in connection with permitting royalty payments to non-Indians must be dismissed. Plaintiffs who rely on the APA for jurisdiction must “satisfy the ‘statutory standing’ requirements of the APA.” Colorado Farm Bureau v. U.S. Forest Serv., 220 F.3d 1171, 1173 (10th Cir.2000). The plaintiffs “have the burden of identifying specific federal conduct and explaining how it is ‘final agency action,’ “ which is defined as an “agency rule, order, license, sanction, relief, or the equivalent or denial thereof, or failure to act.” Id. (citing 5 U.S.C. § 551(13)). “[W]here an agency is under an unequivocal statutory duty to act, failure so to act constitutes, in effect, an affirmative act that triggers ‘final agency action’ review.” Cobell v. Norton, 240 F.3d 1081, 1095 (D.C.Cir.2001). Plaintiffs may demonstrate a failure to act if they can show “that an agency failed to take a discrete agency action that it is required to take.” Otoe–Missouria Tribe of Oklahoma v. Kempthorne, 542 U.S. 55, 64 (2004) (emphasis in original).
But for the claim that the Federal Defendants have failed to provide the accounting and audits required by law, discussed below, the plaintiffs have failed to sufficiently specify any challenged agency actions or inactions, despite having been given repeated opportunities to do so. Plaintiffs' allegations of agency actions and inactions, made “[u]pon information and belief.” are general, speculative, and unspecific.FN4 As such, the allegations fail to provide a sufficient focus for judicial review. Insofar as the Court ordered a more definite statement on two previous occasions and plaintiffs have failed to do so sufficiently, the plaintiffs' Third Claim for Relief (but for the claim that the Federal Defendants have failed to provide accounting and audits required by law) is stricken pursuant to Rule 12(e).
FN4. For instance, plaintiffs allege, upon information and belief, that the Federal Defendants have “[a]pproved certain ‘family settlement agreements' in the course of contested probates contrary to the explicit directives in Osage Indian wills, which has resulted in the alienation of Section 4 royalty interests in favor of non-Indians and the diminishment of the Osage mineral estate.” Plaintiffs have not alleged any specific circumstance in which such conduct allegedly took place. Moreover, Section 5 of the 1978 Act requires public notice of hearings as to the validity of the will of any Osage Indian and a method of appeal. The plaintiffs' “catch-all collateral attack” on such decisions is not the proper mechanism by which to challenge such unspecified actions.
VI. The Accounting Claims
A. Trust Relationship
The Federal Defendants argue plaintiffs have not stated a claim for an accounting because there is no trust relationship between headright owners and the Federal Defendants. This Court rejects the Government's argument for the following reasons:
First, the 1906 Act clearly establishes a trust relationship between the United States and members of the Osage tribe:
“the royalty received from oil, gas, coal, and other mineral leases upon the lands ... shall be placed in the Treasury of the United States to the credit of the members of the Osage tribe of Indians as other moneys of said tribe are to be deposited under the provisions of this Act, and the same shall be distributed to the individual members of said Osage tribe FN5 according to the roll provided for herein, in the manner and at the same time that payments are made of interest on other moneys held in trust for the Osages by the United States.”
FN5. The “members of the Osage tribe” referenced in the 1906 Act are the members listed on the tribal roll mandated by the Act. Today, headright owners have succeeded to the interests of the original “members of said Osage tribe” referenced in the 1906 Act.
*6 Act of June 28, 1906, ch. 3572, 34 Stat. 539, Sec. 4 (Second). Congress expressly accepted a trust relationship with headright owners because headright payments are to be made “in the manner and at the same time that payments are made of interest on other moneys held in trust for the Osages by the United States.”
Second, the Tenth Circuit recognized long ago that a trust relationship exists between the United States Government and members of the Osage Tribe. In Chouteau v. Comm'r of Int. Revenue, 38 F.2d 976, 978 (10th Cir.1930), the Court stated: “The mineral reserves under the [Osage] lands are held in trust by the United States for the tribe and its members, and are being developed under its control and direction as an instrumentality for the best interests and advancement of the members of the tribe who are still recognized as dependents on Governmental care.” (emphasis added).
Third, the United States Court of Federal Claims has recognized that the 1906 Act creates a trust fund for the Tribe and “obliges the United States to hold mineral royalties in trust for ‘members of the Osage tribe.’ “ Osage Nation v. U.S., 57 Fed. Cl. 392, 395 (2003) ( Osage I ) FN6, citing §§ 4(1) and 4(2) of the 1906 Act.
FN6. It should be noted that the trust relationship between the federal government and Osage headright owners differs from the trust relationship between the federal government and the Osage Nation. In Osage I, the Federal Court of Claims found that the Osage Nation has both an interest in and a claim to the mineral royalty funds “when those funds are within the tribal trust account that was established by the 1906 Act.” Osage I, 57 Fed. Cl. at 395. In contrast with the claims made in this case, the mismanagement alleged by the Osage Nation was not alleged to have taken place at the point of distribution to the individual headright holders. Id .
The nature of the trust relationship between the United States Government and headright owners is defined by the Osage Allotment Act and amendments thereto. In a recent case involving the Jicarilla Apache Nation, the U.S. Supreme Court stated:
“[T]he applicable statutes and regulations ‘establish [the] fiduciary relationship and define the contours of the United States' fiduciary responsibilities.’ When ‘the Tribe cannot identify a specific, applicable, trust-creating statute or regulation that the Government violated, ... neither the Government's ‘control’ over [Indian assets] nor common-law trust principles matter.' The Government assumes Indian trust responsibilities only to the extent it expressly accepts those responsibilities by statute.”
U.S. v. Jicarilla Apache Nation, 131 S.Ct. 2313, 2325 (2011) (internal citations omitted). “Throughout the history of the Indian trust relationship, [the Supreme Court has] recognized that the organization and management of [a statutory Indian] trust is a sovereign function subject to the plenary authority of Congress.” U.S. v. Jicarilla Apache Nation, 131 S.Ct. 2313, 2323 (2011). “[T]he Government has often structured the trust relationship to pursue its own policy goals. Thus, while trust administration ‘relat[es] to the welfare of the Indians, the maintenance of the limitations which Congress has prescribed as a part of its plan of distribution is distinctly an interest of the United States.’ “ Id. at 2324. The Supreme Court recognizes that, “[i]n some cases, Congress established only a limited trust relationship to serve a narrow purpose.” Id. at 2324–25.
The 1906 Act requires the Government to make royalty payments “in the manner and at the same time that payments are made of interest on other moneys held in trust for the Osages by the United States.” At the least, the 1906 Act imposes a trust obligation upon the Federal Defendants to distribute royalty payments to headright owners in a timely and proper manner. This Court must therefore reject the Federal Defendants' contention that they have no trust obligations to headright owners.FN7
FN7. Plaintiffs allege they “are descendants of individuals who were listed on the rolls of the Osage Tribe, and are Osage Indians.” See Third Amended Complaint, ¶ 34. The allegation is ambiguous as to whether the plaintiffs are headright owners or not. The Court must assume for the purposes of this motion that plaintiffs are headright owners. If they are not, the Federal Defendants owe no trust responsibilities to them relative to headright distributions, and their claims would have to be dismissed.
B. Statutory Bases for an Accounting
*7 To establish that an agency was required to provide the plaintiffs with an accounting, plaintiffs must “identify a legal obligation imposed on Defendants to account for the funds held in trust.” Otoe–Missouria Tribe of Oklahoma v. Kempthorne, 2008 WL 5205191, *2 (W.D.Okla.2008).
In the Third Amended Complaint, plaintiffs allege they are entitled to an accounting pursuant to 25 U.S.C. §§ 162a and 4011.FN8 (Dkt. # 985–1, p. 26, ¶ 46. By its explicit terms, Section 162a(a) applies “to the funds of the Osage Tribe of Indians, and the individual members thereof, only with respect to the deposit of such funds in banks.” None of the failures to account alleged by plaintiffs relate to the deposit of funds in banks. Rather, the alleged failures to properly manage and account for monies relate to distributions from the Osage Mineral Estate, not deposits. Moreover, allegations pertaining to alleged mismanagement of deposits in the Osage Mineral Estate have been resolved between the Osage Nation and the federal government in the Federal Court of Claims.
FN8. Plaintiffs argue in their response brief that they are also entitled to an accounting pursuant to 25 U.S.C. § 4044. Because this alleged violation was not pleaded, the court does not consider it. In the alternative, the court has examined § 4044 and holds that it applies only to Indian trust fund accounts, not to individual headright payments.
Similarly, Section 4011 imposes a requirement to account only for funds “deposited or invested pursuant to section 162a.” No such funds are implicated in this lawsuit. Plaintiffs' allegations of mismanagement focus on distributions. Section 4011 does not impose an obligation upon the Federal Defendants to account to the plaintiffs.
Insofar as plaintiffs allege in Paragraph 59 of the Third Amended Complaint that the Federal Defendants bear certain accounting and administrative responsibilities pursuant to Section 4 of the 1906 Act and Section 162a(d), the Court addresses those alleged responsibilities. Due to the nature of the trust relationship between the federal government and headright owners, plaintiffs' demands for an accounting or audit are misplaced. Headright owners receive quarterly payments in proportion to their fractional ownership of headrights. Plaintiffs do not allege the headright payment amounts have ever been miscalculated (as opposed to their claims that the headrights have been passed to improper individuals). Unlike the trust account held for the Osage tribe, there is no underlying trust account with a balance for headright owners to examine. Because headright owners do not have headright “accounts,” it is impossible for the Government to give them access to a daily balance of an account. Headright owners are simply paid a percentage of the funds from the tribal trust account at the end of each quarter. As previously discussed, the more complex trust responsibilities such as collecting royalty payments, investing proceeds, collecting interest, and calculating disbursement amounts are all part of the federal government's trust relationship with the Osage Nation, not with the individual headright owners.FN9 Osage I, 57 Fed. Cl. at 395. Simply put, the accounting obligations set forth in Section 162a(d) (e.g. trust fund balances, timely reconciliations, accurate cash balances, periodic statements to account holders of account performance) have no application to the unique relationship between the federal government and headright owners.
FN9. The revenues generated from the Osage Mineral Estate are “deposited first in the tribal trust fund account where they remain for ‘approximately one calendar quarter’ before being distributed to the headright owners.” Osage I, 57 Fed. Cl. at 395. “[T]he funds that are distributed to the headright owners from the tribal trust fund are ‘net of a small portion retained for the Osage Tribal operations and a portion paid for the Oklahoma gross receipts tax’ ... the additional step of determining what amount is owed to each headright holder also takes place while the funds are in the tribal trust fund.” Id. “The responsibility of the government is to the tribal trust fund account. The tribal trust fund is then responsible for the ultimate distribution to the individual headright owners.” Id.
*8 The court dismisses the portions of plaintiffs' claims for relief that allege improper distributions to non-Osage headright owners for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6). The dismissal is without prejudice. In the alternative, and pursuant to Rule 12(e), the Court strikes all of plaintiffs' Third Claim for Relief but for the claim that the Federal Defendants have failed to provide accounting and audits required by law. The plaintiffs' accounting claims are dismissed for the reasons set forth above.
WHEREFORE, the Motion to Dismiss of defendants the United States of America, the Department of the Interior, Kenneth Salazar in his official capacity as Secretary of the Interior, the Bureau of Indian Affairs, and Larry EchoHawk in his official capacity as Assistant Secretary of the Interior–Indian Affairs [Dkt. # 1126] is granted.
Fletcher v. U.S.
Slip Copy, 2012 WL 1109090 (N.D.Okla.)