Winnebago Tribe defends sovereignty in dispute with state officials

Tuesday, December 11, 2018  

By Kevin Abourezk

OMAHA, Nebraska – Attorneys for two tribal corporations owned and operated by the Winnebago Tribe of Nebraska asked a federal judge Monday to deny a motion by the Nebraska Attorney General’s Office to dismiss the corporations’ lawsuit against the state.

Ho-Chunk Inc. (HCI) – an economic development corporation run by the tribe – owns the two subsidiaries, HCI Distribution and Rock River Manufacturing. On April 20, those two companies filed a lawsuit against the state of Nebraska seeking to prevent the state from forcing them to abide by a legal agreement between the state and a variety of tobacco manufacturers.

HCI Distribution purchases tobacco products from tribal-based manufacturers and resells those products exclusively to reservation-based wholesalers and retailers. Rock River is a federally licensed cigarette manufacturer whose products are distributed by HCI Distribution and other national distributors to retailers throughout the country.

The lawsuit, filed before the U.S. District Court for the District of Nebraska in Omaha, alleges the state’s efforts to force the two corporations to abide by an agreement between the state and several major tobacco manufacturers constitutes an attack on the tribe’s status as a sovereign nation. The lawsuit names Nebraska Attorney General Doug Peterson and Tony Fulton, state tax commissioner, as defendants.

The lawsuit alleges the state of Nebraska has sought to force the Winnebago Tribe to participate in a 1998 settlement between the four largest tobacco manufacturing companies and 46 states, which had sued those tobacco companies in order to recover healthcare costs related to smoking. The resulting legal agreement, known as the Tobacco Master Settlement Agreement (MSA), required the tobacco giants to make payments to the states each year.

Other tobacco manufacturers later became participants to the agreement. The tobacco giants became concerned that the payments they were being forced to make to states would require them to increase the price of their products, and that price increase would cause them to lose market share as their product prices soared higher than those of tobacco products being manufactured by companies that weren’t required to make payments to states.

As a result, the tobacco giants renegotiated the MSA in order to require states to force all tobacco manufacturers that operate within their borders to either participate in the agreement or begin paying fees in order to sell cigarettes in the state. States that failed to do so would face the threat of losing their sizeable settlement payments. For Nebraska alone, that payment was $37.7 million in 2017.

Fees paid by tobacco manufacturers who weren’t participants in the MSA were meant to ensure price parity with manufacturers who were participating in the agreement.

To meet the requirements of the renegotiated MSA, states – including Nebraska – drafted legislation imposing fees on tobacco manufacturers who aren’t participants of the MSA.

“From the perspective of Big Tobacco, the MSA is essentially a federated agreement ensuring that Big Tobacco enjoys a level playing field across the MSA-settling states despite their previous bad actions,” the tribal corporation’s lawsuit states.

However, neither states’ attorney generals nor the big tobacco companies invited tribes to participate in the MSA, and they also failed to seek the involvement of Congress, which exercises “exclusive and plenary control over sovereign tribes within its borders independent of state jurisdiction,” according to the lawsuit.

Despite these failures, states have attempted to force tribes to abide by the requirements set forth in the MSA and the state legislation they’ve enacted to enforce that agreement.

“As a result, Big Tobacco has exerted pressure on states to continue to pursue unlawful regulation of tribal tobacco trade in Indian Country,” the lawsuit states. “Indeed, Big Tobacco has improperly withheld payments from many states alleging failure to ‘diligently enforce’ their MSA Laws with respect to the Indian Country activities of tribes.”

No federal statute currently gives states the power to regulate tobacco in Indian Country, the lawsuit states. Indeed, federal statutes that address tribal tobacco routinely reassert tribal independence from state tobacco regulatory authority, including the Prevent All Cigarette Trafficking Act of 2009, according to the lawsuit.

The Winnebago Tribe has exercised its “retained sovereignty to regulate tobacco” on its reservation, creating its own Universal Tobacco Settlement Agreement that imposes fees on participating tobacco manufacturers and distributors. In 2017 alone, that agreement generated $31,681 in fees and $122,658 in cigarette taxes for the tribe.

In March 2014, Nebraska issued tax assessment against several reservation-based cigarette retailers, prompting HCI Distribution and Rock River Manufacturing to begin negotiating a possible tobacco compact.

But those negotiations ended in June 2016 when the two sides failed to agree on a compact that would protect the Winnebago Tribe’s right to regulate tobacco sales on its own reservation, the lawsuit states.

HCI Distribution and Rock River Manufacturing have operated under a cloud of uncertainty since March 2014, the lawsuit alleges.

“This uncertainty and threat of penalty and retaliation has created a serious impediment to their business operations and, thus, the ability to expand economically,” the lawsuit states.

Daniel J. Muelleman, assistant attorney general for the state of Nebraska, told U.S. District Court Judge John M. Gerrard on Monday that case law dictates that federal laws that prohibit states from regulating commerce on federal Indians lands don’t apply to tribal corporations. He said the two companies should be considered private citizens.

“Plaintiffs are not a tribe, nor are they a tribal member,” Muelleman said. “We again ask for dismissal in this matter.”

Joseph Messineo, who represents HCI Distribution and Rock River Manufacturing, said the state’s motion to dismiss the companies’ lawsuit was based on a failed understanding of federal case law. He said the U.S. Supreme Court has repeatedly ruled against efforts by states to regulate tribes in any way. And he argued that the two tribal corporations clearly should be considered tribal entities as they are wholly owned by the Winnebago Tribe.

“The state doesn’t have any power to regulate us,” he said.

Gerrard did not rule on the state’s motion to dismiss the tribal corporations’ lawsuit on Monday. He said he planned to issue a ruling by the end of December.

After the court hearing, Nicole Ducheneaux, an attorney for the two tribal corporations, said HCI Distribution and Rock River Manufacturing provide necessary financial support to the Winnebago people.

“HCID and Rock River exist solely to generate revenue for the Winnebago Tribe of Nebraska,” she said. “The United State Supreme Court and the United States Congress have been clear that a primary goal of tribes in the 20th and the 21st century should be to generate revenue to become self-determining and self-sufficient.”

“The Winnebago Tribe of Nebraska has taken that very seriously and through Ho-Chunk Inc., its economic development corporation, has made enormous strides and has been a leader in the United States in tribal economic development.”

Ho-Chunk Inc. was launched in 1994 to spur economic development activity on the Winnebago Tribe’s reservation, and Indianz.Com is one of its subsidiaries. Tobacco sales and regulation have helped generate significant revenue for the tribe, which has struggled for decades to establish a healthy economy.

The tribe’s tobacco sales and tax revenue have provided funding to community development efforts, scholarships, internships and educational endowments. Tribal institutions such as Little Priest Tribal College, the Community Development Fund, Tribal Health Department and Language Revitalization Department, as well as the tribe’s roads, have benefited from those revenues.

On January 30, nearly 50 armed agents of the Bureau of Alcohol, Tobacco, and Explosives raided Ho-Chunk Inc.’s offices in Winnebago and confiscated dozens of boxes of documents, office equipment and cigarettes.

Ducheneaux said the lawsuit by HCI Distribution and Rock River Manufacturing is focused on trying to prevent the state from forcing them from abiding by the Master Settlement Agreement and isn’t directly related to the January 30 raid by the ATF.

“These are two separate but related issues,” she said.

Ho-Chunk Inc. owns Indianz.Com. The website is not involved with the tobacco operations or the activities at issue in the lawsuit.

Federal authorities seized more than $1 million in property in Winnebago raid (July 19, 2018)
Appeals court rules against Winnebago tribal corporation in tobacco case (July 5, 2018)
Winnebago Tribe takes advantage of new 'Opportunity Zone' designation (April 27, 2018)
Winnebago Tribe fights back in court after 'attack on sovereignty' (April 24, 2018)
Frank LaMere: Native people are still fighting for our own rights (February 12, 2018)
Winnebago Tribe slams raid on businesses as attack on sovereignty (January 31, 2018)
Winnebago Tribe corporation cooperates with federal tobacco investigation (January 30, 2018)