Case Title: STATE ex rel. EDMONDSON v. NATIVE WHOLESALE SUPPLY

Citation: 

Docket Number: 107241

State: oklahoma

Court: Oklahoma Supreme Court

Date: 2010-07-06T00:00:00Z

Document:
STATE ex rel. EDMONDSON v. NATIVE WHOLESALE SUPPLY  STATE ex rel. EDMONDSON v. NATIVE WHOLESALE SUPPLY 2010 OK 58 Case Number: 107241 Decided: 07/06/2010 THE SUPREME COURT OF THE STATE OF OKLAHOMA STATE OF OKLAHOMA ex rel. W. A. "DREW" EDMONDSON, ATTORNEY GENERAL OF OKLAHOMA Appellant, v. NATIVE WHOLESALE SUPPLY, a Corporation chartered by the Sac and Fox Tribe of Oklahoma, Appellee ON APPEAL FROM THE DISTRICT COURT IN OKLAHOMA COUNTY ¶0 The State of Oklahoma brought this proceeding against Native Wholesale Supply, a cigarette importer and distributor, alleging violations of the Oklahoma Master Settlement Agreement Complementary Act. Native Wholesale Supply moved to dismiss the suit for lack of personal and subject matter jurisdiction. The District Court, Bryan C. Dixon, trial judge, denied the motion as to personal jurisdiction, but entered judgment for defendant upon finding that enforcement of the Complementary Act against defendant would violate the Indian Commerce Clause, depriving the trial court of subject matter jurisdiction. Both parties appealed. Upon the State's motion, the matter stands retained for this court's disposition. THE TRIAL COURT'S JUDGMENT IS AFFIRMED IN PART AND REVERSED IN PART AND THE CAUSE IS REMANDED FOR FURTHER PROCEEDINGS TO BE CONSISTENT WITH THIS OPINION. E. Clyde Kirk, Assistant Attorney General, Oklahoma City, OK, for Appellant Robert N. Sheets and Marc Edwards, PHILLIPS MURRAH P.C., Oklahoma City, OK, for Appellee OPALA, J. ¶1 This appeal presents two dispositive issues for the court's resolution: (1) Is an Oklahoma court a constitutionally sanctioned forum for the exercise of personal jurisdiction to adjudicate an alleged violation of a state statute by Native Wholesale Supply, a nonresident corporation that claims to have no minimum contacts with Oklahoma? and (2) Does federal law bar Oklahoma from enforcing the Complementary Act against Native Wholesale Supply, a tribally-chartered corporation wholly owned by an individual of Native-American ancestry? We answer the first question in the affirmative and the second in the negative. I THE ANATOMY OF LITIGATION ¶2 On 23 November 1998 forty-six states, including Oklahoma, entered into an agreement with the four largest American tobacco product manufacturers settling litigation brought by the settling states to recoup from the manufacturers health care expenses incurred by the states as a result of cigarette smoking. The terms of this agreement (the "Master Settlement Agreement" or "MSA") require each participating tobacco product manufacturer to make an annual payment to each settling state computed in relation to that manufacturer's volume of cigarette sales in the state. In return, the MSA requires the states to release past, present and certain future claims against the manufacturers. ¶3 In order to prevent tobacco manufacturers not participating in the MSA from gaining a cost advantage over the settling manufacturers and to provide the states with a source of money from which to recover tobacco-related health care costs attributable to the sales of cigarettes by non-participating manufacturers, the MSA calls for each settling state to enact and enforce a statute (a "qualifying statute") requiring all tobacco manufacturers not participating in the MSA who sell cigarettes in a state to make annual payments into an escrow account based on the manufacturer's relative market share in such state.2 ¶5 The Complementary Act also makes it unlawful for any person to "sell or distribute . . . or acquire, hold, own, possess, transport, import, or cause to be imported cigarettes that the person knows or should know are intended for distribution or sale in the State in violation of the Complementary Act." ¶6 The Attorney General brought this proceeding against Native Wholesale Supply in the District Court, Oklahoma County, alleging that the Company violated the Complementary Act when it sold, distributed, acquired, held, owned, possessed, transported, imported, or caused to be imported for sale in Oklahoma Seneca brand cigarettes knowing (a) that they were intended for distribution or sale in the state and (b) their manufacturer was not listed on the Attorney General's Directory of manufacturers who have complied with the requirements of the Complementary Act. ¶7 Native Wholesale Supply moved for dismissal based on lack of personal and subject matter jurisdiction. The trial court ruled that Native Wholesale Supply had sufficient "minimum contacts" with the State of Oklahoma to warrant the exercise of personal jurisdiction, but dismissed the proceeding on the grounds that enforcement of the Complementary Act against Native Wholesale Supply would violate the Indian Commerce Clause of the United States Constitution. ¶8 Native Wholesale Supply has appealed from the trial court's decision on personal jurisdiction; the Attorney General has appealed from the trial court's ruling on subject matter jurisdiction. On motion by the State, the appeals stand retained for this court's disposition. We now affirm the trial court's decision as to personal jurisdiction, reverse its ruling as to subject matter jurisdiction, and remand the cause for further proceedings to be consistent with this opinion. II STANDARD OF REVIEW ¶9 The dispositive issues to be decided are both questions of law. They call for a legal conclusion to be governed by a de novo standard of appellate review. III IN PERSONAM JURISDICTION OVER A NON-RESIDENT DEFENDANT ¶10 We begin by addressing whether Native Wholesale Supply has a sufficient affiliation with this State to support her courts' exercise of personal jurisdiction over it. In personam jurisdiction refers to the power of the court to render a binding judgment against a defendant.12 To establish personal jurisdiction over a non-resident defendant, both the State's long-arm statute13 and the requirements of federal due process14 must be satisfied. We have interpreted our long-arm statute as extending the jurisdiction of the Oklahoma courts to the outer limits of due process.15 The jurisdictional analysis therefore comes down to a single determination of whether the exercise of personal jurisdiction comports with federal due process. The outer limits of due process for this purpose have been established by the United States Supreme Court.16 ¶12 A court's jurisdiction to render a binding personal judgment historically required the person's physical presence within the territorial jurisdiction of the court. ¶13 Illustrative of this relaxation is the stream-of-commerce theory of personal jurisdiction, first pronounced by the Supreme Court's dictum in World-Wide Volkswagen Corp. v. Woodson. "The forum State does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State." ¶15 Four other justices in a separate writing authored by Justice Brennan saw no need to require additional conduct from a defendant once that defendant intentionally placed a product into the stream of commerce because the metaphorical notion that there is a stream in which commerce flows embodies the idea of purposefulness. "The stream of commerce refers not to unpredictable currents or eddies, but to the regular and anticipated flow of products from manufacture to distribution to retail sale." ¶17 The Asahi decision has created significant confusion in lower courts over the constitutional standard for minimum contacts under the stream-of-commerce theory. ¶18 In assessing Native Wholesale Supply's conduct under the O'Connor approach in Asahi, it is important to keep in mind that the underlying claim in Asahi was the liability of Asahi Metal, a Japanese manufacturer, for personal injuries allegedly caused by a defective motorcycle tire manufactured by a Taiwanese corporation using a part supplied by Asahi Metal. Asahi Metal had no contacts, directly or indirectly, with anyone in the forum state, it did not sell the component part in the United States apart from the finished product manufactured by another party, and it played no part in the distribution or sale of the finished product in the forum state. On these facts, Justice O'Connor indicated that there was nothing to tie Asahi Metal to the forum state beyond the mere happenstance that the stream of commerce had swept the finished product into the forum state in response to the actions of an independent third party. Justice O'Connor suggested that Asahi Metal might have had sufficient contacts with the forum state if it had created, controlled, or even just employed the distribution system that brought the product into the forum state. ¶20 According to the president and sole shareholder of Native Wholesale Supply, a sales transaction between it and Muscogee Creek Nation Wholesale begins when the latter places an order with Native Wholesale Supply. Native Wholesale Supply then releases the cigarettes from storage and participates in arranging for their shipment by truck to the business location of Muscogee Creek Nation Wholesale, who then resells the cigarettes to tribal retailers. The Attorney General does not dispute that some of these retailers are located on tribal land of the Muscogee Creek Nation, but he has alleged that large quantities of Seneca cigarettes have been found for sale at smoke shops located off the tribal land. In any event, the retailers sell Seneca cigarettes to the general public in Oklahoma. ¶21 The State alleges that over a fifteen-month period more than one hundred million cigarettes worth more than eight million dollars were sold into the Oklahoma market through this process. The evidentiary material tendered by the Attorney General supports this allegation, at least up to several million cigarettes, and Native Wholesale Supply does not dispute that it markets a high volume of Seneca cigarettes to Muscogee Creek Nation Wholesale as part of an on-going business relationship between the two entities. The expected demand for cigarettes by members of the Muscogee Creek Nation, according to national statistics provided by the Attorney General in the petition, is a small fraction of the number of cigarettes sold by Native Wholesale Supply to Muscogee Creek Nation Wholesale. Native Wholesale Supply does not dispute the veracity of these statistics. ¶22 Native Wholesale Supply claims it is not directing these millions of cigarettes at the Oklahoma market at all. It argues that it intends for all the cigarettes it sells to the tribal wholesaler to be sold only to reservation Indians and that it demonstrates this intent by placing a stamp on each package of Seneca cigarettes that says "for reservation sales only." If cigarettes happen to be sold by the tribal wholesaler to off-reservation retailers or if cigarettes are made available by tribal retailers to the general public in Oklahoma, those acts are not attributable to Native Wholesale Supply as acts by it purposefully directed at the Oklahoma cigarette market. ¶23 Whereas Justice O'Connor in Asahi was evaluating the contacts of a component parts manufacturer whose only relevant relationship was with another manufacturer in Taiwan, we are looking here at a distributor of a finished product - cigarettes - who causes the product to be delivered to an entity in this state in such quantities that its ultimate destination can only be the general public in this state. While the entity with which Native Wholesale Supply directly deals may operate on tribal land, that tribal land is not located in some parallel universe. It is geographically within the State of Oklahoma. Both entities are engaged in an enterprise whose purpose is to serve the Oklahoma market for cigarettes. ¶24 This is not a case where the defendant is merely aware that its product might be swept into this State and sold to Oklahoma consumers. The sheer volume of cigarettes sold by Native Wholesale Supply to wholesalers in this State shows the Company to be part of a distribution channel for Seneca cigarettes that intentionally brings that product into the Oklahoma marketplace. Native Wholesale Supply is not a passive bystander in this process. It reaps a hefty financial reward for delivering its products into the stream of commerce that brings it into Oklahoma. To claim, as Native Wholesale Supply does, that it does not know, expect, or intend that the cigarettes it sells to Muscogee Creek Nation Wholesale are intended for distribution and resale in Oklahoma is simply disingenuous. ¶25 In short, Native Wholesale Supply does not "merely set its products adrift on a stormy sea of commerce which randomly [sweeps] the products into" Oklahoma. ¶26 The presence of minimum contacts does not end the due process inquiry. "Once it has been decided that a defendant purposefully established minimum contacts within the forum State, these contacts may be considered in light of other factors to determine whether the assertion of personal jurisdiction would comport with 'fair play and substantial justice.'" ¶27 First, the interest of the State in adjudicating this matter in Oklahoma is obviously very strong. The integrity of the Master Settlement Agreement depends on the ability of the State to enforce its terms. A decision adverse to the state on this issue would permit cigarette manufacturers and wholesalers to evade the MSA by setting up distribution networks whose participants pose as fully independent entities engaging in carefully structured transactions that ostensibly take place outside of the State. In this way, tobacco manufacturers and merchants could purposefully, albeit indirectly, target cigarettes at Oklahoma, reaping the economic benefit of engaging in the tobacco industry while evading the public policy embodied in the MSA and the Complementary Act of shifting the burden of tobacco-related health care costs from the State to the entities who profit from the smoking enterprise. ¶28 Second, defending this suit in Oklahoma does not present an undue burden on Native Wholesale Supply. Any burden upon Native Wholesale Supply from mounting a defense in Oklahoma is clearly minimal in light of the State's uncontroverted allegation that the Company reaps millions of dollars from the sale of Seneca cigarettes to Oklahoma consumers. ¶29 Finally, the states have a collective interest in the efficient resolution of controversies and in furthering fundamental substantive social policies. The courts of this State and only the courts of this State offer the most efficient and rational forum for the resolution of a controversy over the meaning and effect of State statutes governing the allocation of the financial and health-care costs associated with smoking between the public and private sectors. IV THE INDIAN COMMERCE CLAUSE DOES NOT BAR ENFORCEMENT OF THE COMPLEMENTARY ACT AGAINST NATIVE WHOLESALE SUPPLY ¶30 Native Wholesale Supply is a corporation chartered by the Sac and Fox Nation. Its president and sole shareholder is a person of Native-American ancestry. The trial court ruled that the Indian Commerce Clause bars the relief sought by the State against this company. That decision could rest on the doctrine of tribal immunity from suit or, alternatively, it could rest on the Indian Commerce Clause as a bar to the application of the state's substantive law to Native Wholesale Supply. The former goes to whether the state has a remedy against Native Wholesale Supply for violation of the Complementary Act; the latter goes to whether the state has a right to enforce Native Wholesale Supply's compliance with state law. ¶31 Suits against Indian tribes are barred by sovereign immunity absent a clear waiver by the tribe or congressional abrogation. ¶32 We find persuasive the reasoning of those authorities that would restrict tribal immunity from suit to tribal entities that operate as an arm of the tribe. Individual Native Americans acting for their own purposes are no more entitled to the immunity from suit afforded a tribe than a private state citizen engaging in his or her own business is entitled to the State's sovereign immunity. Tribal freedom from suit is an attribute of Indian sovereignty and may not and should not be extended to cover private entities operating for private gain based solely on the ethnicity of their owners. ¶33 Having so decided, we hold that Native Wholesale Supply is not clothed with tribal immunity from suit. Although Native Wholesale Supply is chartered by the Sac and Fox Nation, it does business on the tribal land of a different tribe; it is not managed by tribal officials of either tribe; and it is not operated to further the governmental objectives of any tribe. It operates solely as a private business for the personal profit of its owner who happens to be a Native American belonging to the Seneca Nation. The Company simply does not have a sufficiently close affiliation with any tribe to share in that tribe's sovereign immunity from suit. ¶34 Just because Native Wholesale Supply is not entitled to tribal immunity from suit does not automatically mean that it is subject to the State's substantive law. Indian sovereignty rights are broader than just immunity from suit. In suits where Native-American tribes and individuals have initiated the litigation, thereby removing from consideration the question of tribal immunity from suit, a body of law has developed governing the conditions under which the principle of Indian Sovereignty bars the application of substantive state law to tribes and individual Indians. ¶35 The Indian Commerce Clause invests in Congress the power to "regulate Commerce . . . with the Indian tribes." ¶36 In the early nineteenth century, the notion of Indian communities as semi-independent nations led the Court to deny to the states the right to play any role within a reservation's boundaries. ¶37 While either barrier standing alone may be "a sufficient basis for holding state law inapplicable to activity undertaken on the reservation or by tribal members," ¶38 The conflict between Indian sovereignty and state authority has most often been played out in the area of state taxation of tribes and tribal members. Applying the foregoing principles to state taxation of on-reservation conduct involving only Indians, the Court has held that, absent congressional consent, there is a "categorical bar" to state tax levies whose legal incidence falls directly upon tribes or tribal members for conduct that takes place wholly on tribal land. "[I]n the special area of state taxation, absent cession of jurisdiction or other federal statutes permitting it, there has been no satisfactory authority for taxing Indian reservation lands or Indian income from activities carried on within the boundaries of the reservation, and . . . such taxation is not permissible." This is so, the Court has explained, because the federal interest in encouraging tribal self-government in such cases is at its strongest and any state interest is correspondingly weak. ¶40 Also valid under the Bracker balancing test are regulations imposed on tribal wholesalers and retailers that are reasonably necessary to assess and collect a valid tax imposed on others. Thus, a tribal retailer can be required to pre-collect a valid state tax imposed on non-tribal members for sales made on the reservation, ¶42 Finally, unless expressly prohibited by federal law, activities conducted by Native Americans off the reservation or the off-reservation activities of non-Indians or nonmember Indians doing business with reservation Indians are generally held to be subject to non-discriminatory state laws. ¶43 Native Wholesale Supply argues that transactions between Native Americans - "tribal to tribal transactions" - are beyond the reach of state regulatory power. ¶44 Even accepting for the sake of argument that Native Wholesale Supply's transactions with Muscogee Creek Nation Wholesale take place on the Seneca Cattaraugus Indian Territory in New York because the business is located and accepts orders there, the Company's argument that enforcement of the Complementary Act against it violates the Indian Commerce Clause is clearly wrong. There is no blanket ban on state regulation of inter-tribal commerce even on a reservation. The Supreme Court has ruled precisely on that point by allowing state taxation of retail sales made on-reservation by tribal retailers to Native Americans who are not members of the governing tribe. ¶45 In reality, Native Wholesale Supply's transactions with Muscogee Creek Nation Wholesale extend beyond the boundaries of any single "reservation." The cigarettes at issue are manufactured in Canada, shipped into the United States, and stored in a Free Trade Zone in Nevada. Muscogee Creek Nation Wholesale places orders for cigarettes from its "reservation" located within the territorial boundaries of this State to Native Wholesale Supply at the latter's principal place of business on another "reservation" in another State. Delivery of the cigarettes to Muscogee Creek Nation Wholesale requires shipment of the cigarettes from Nevada to the purchaser's tribal land in Oklahoma. The entire process comprising these sales thus takes place in multiple locations both on and off different tribal lands. This is not on-reservation conduct for purposes of Indian Commerce Clause jurisprudence, but rather off-reservation conduct by members of different tribes. Therefore, Oklahoma's enforcement of the Complementary Act against Native Wholesale Supply passes muster without even evaluating it under the Bracker interest balancing test. "Absent express federal law to the contrary, Indians going beyond reservation boundaries have generally been held subject to non-discriminatory state law otherwise applicable to all citizens of the State." ¶46 Even if we were required to apply the Bracker interest balancing test for on-reservation activity by tribal members, the State's interest in enforcing the MSA through the Complementary Act would outweigh any interest the tribe or federal government might have in prohibiting its enforcement against Native Wholesale Supply. Neither the underlying MSA-imposed escrow obligation of the tobacco manufacturer nor the equitable relief sought against Native Wholesale Supply is a tax. The latter is a method adopted by the State to regulate the distribution and sale of tobacco products in the Oklahoma market. Native Wholesale Supply has failed to cite any federal enactment that expressly prevents the State of Oklahoma from regulating tobacco product distribution and sales in Oklahoma for the protection of the public treasury, defense of public health, and in the interest of maintaining the integrity of the Master Settlement Agreement. ¶47 Native Wholesale Supply relies instead on the general policy of the federal government to encourage economic development and self-sufficiency on the part of Indian tribes and tribal members ¶48 The State of Oklahoma, on the other hand, has an exceedingly strong interest in enforcing compliance with the terms of the MSA. These interests have been set out by the legislature in the MSA and the Complementary Act. They include (a) shifting the costs of medical care for Oklahomans with smoking-related health care issues from the state to those in the business of manufacturing tobacco products and (b) preventing tobacco manufacturers who are not part of the MSA from gaining a cost advantage over their MSA-participating competitors. V SUMMARY ¶49 Native Wholesale Supply, a tribally-chartered, Native-American owned corporation that distributes cigarettes to tribal entities in the United States seeks to avoid the strictures and incidence of state law regulating the distribution and sale of cigarettes. We hold that the State has personal jurisdiction over the defendant based on the Company's purposeful availment of the Oklahoma cigarette marketplace and has jurisdiction over the subject matter of this suit, the Native-American identity of the participants in the distribution channel notwithstanding. ¶50 THE TRIAL COURT'S JUDGMENT IS AFFIRMED IN PART AND REVERSED IN PART AND THE CAUSE IS REMANDED FOR FURTHER PROCEEDINGS TO BE CONSISTENT WITH THIS OPINION. ¶51 EDMONDSON, C.J., TAYLOR, V.C.J., HARGRAVE, OPALA, WATT, WINCHESTER and COLBERT, JJ., concur ¶52 KAUGER, J., concurs in the court's answer to the first question and concurs in result in the court's answer to the second question ¶53 REIF, J., concurs in result FOOT