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BY JOHN CAHER
New York Law Journal
Friday, August 4, 2000
ALBANY — In an extraordinary extension of Indian tribal immunity, an appellate panel yesterday rejected an effort to compel New York State to enforce its tax laws pertaining to sales of motor fuel and tobacco products on reservations.
The Appellate Division, Third Department, unanimously held that New York's tax statutes cannot be effectively enforced without the cooperation of Indian tribes, and found that there is essentially nothing New York can do to get the Indians to cooperate. Significantly, the court found that immunity extends to retailers.
"Because of tribal immunity, the retailers cannot be sued for their failure to collect the taxes in question, and State auditors cannot go on the reservations to examine the retailers' records," Justice D. Bruce Crew III wrote for the court in Matter of New York Association of Convenience Stores v. Urbach, 86684.
Justice Crew noted that the Pataki Administration's attempt to negotiate a settlement failed, and its effort to interdict shipments of cigarettes and gasoline to impose a tax prior to delivery to a reservation resulted only in "civil unrest, personal injuries and significant interference with public transportation."
Consequently, the court said, there is a "rational basis for the differential treatment" afforded Indians and non Indians.
Yesterday's ruling is another setback for business owners, who claim they are perpetually undercut by Indians who do not charge sales and excise taxes on tobacco and motor fuel.
Convenience store owners have long complained that they cannot compete with the Indians because they have to collect sales and excise taxes. They say the situation has only grown worse in recent months, since the cigarette tax was raised March 1 from 56 cents to $1.11 per pack.
"We are disappointed with the result and are in the process of exploring our options, which would include an appeal to the Court of Appeals," said David M. Cherubin, of Crane, Greene & Parente in Albany, counsel for the Association of Convenience Stores.
It is also a setback for New York State, which apparently will continue to lose out on an estimated $100 million in annual tax revenues.
But the attorney for St. Regis Mohawk Tribunal and other Indian interests filing as amici curie said the extension of immunity to tribal retailers is crucial and groundbreaking. Joseph F. Crangle, of Block & Colucci in Buffalo, said the decision upholds the concept of Indian sovereignty and is supported by case law that says New York's civil laws do not extend to reservations.
"This is not a question of an exemption," said Mr. Crangle, "this is a question of immunity. The tax cannot be levied."
Series of Tax Rulings
The decision is the latest in a series of rulings relating to the imposition of sales and excise taxes on fuel and cigarettes sold on Indian reservations to non-Indians.
Federal law forbids the collection of such taxes on goods sold on Indian reservations to members of the tribe. However, under Washington v. Confederated Tribes, 447 U.S. 134 (1980), taxes can be collected when sales are made to non-Indian customers.
The dispute giving rise to Thursday's ruling is rooted in a regulation adopted by the State Department of Taxation and Finance a dozen years ago.
In 1988, the Department adopted a regulation that allowed Indians to purchase a limited amount of untaxed fuel and tobacco, based upon use estimates, while subjecting the remaining allotments to state taxes. Under the regulation, the tax would be imposed on non-Indians, off the reservation and would not require Native Americans to function as state tax collectors. Rather, the tax would be collected from traders.
Native Americans challenged the regulation all the way to the U.S. Supreme Court.
The Justices in Washington ruled against the Indians in the 1994 case of Department of Taxation & Finance v. Milhelm Attea & Bros., 512 U.S. 61, a Commerce Clause decision that said the State could impose on Indian traders the burden of collecting a tax. But the Tax Department made no effort to enforce the law.
Settlement Tried
Convenience store owners attempted to require New York to either enforce the tax law equally or not at all, and won a favorable decision in 1996 from now-deceased Supreme Court Justice Joseph Harris in Albany. After Justice Harris's decision, the State attempted to negotiate a settlement.
In 1997, some Native American nations agreed to a proposal that would have led to minimum pricing of tobacco sold at reservation stores, and would have curtailed gasoline sales at some Indian outlets. However, the proposal split the Indian nations, with several refusing to take part, and that plan fell through.
Later, the State attempted interdiction, seizing untaxed cigarettes destined for reservations and blocking deliveries. Governor Pataki abandoned that attempt after it provoked a violent confrontation between Indians and authorities, leading to one death, numerous demonstrations, tire-burnings and other disturbances.
Mr. Cherubin then initiated a proceeding under Article 78 of the Civil Practice Law and Rules to compel the State to enforce its tax laws. His petition was rejected by acting Supreme Court Justice Conrad H. Lang Jr. in a decision upheld yesterday.
The Third Department held, in essence, that New York is powerless to enforce its tax laws with regard to Indian sales of motor fuel and cigarettes, even though there seems to be little disagreement that a taxable event occurs with those sales.
"The record here...makes plain that the statutes cannot effectively be enforced without the cooperation of the Indian tribes," Justice Crew wrote.
In addition to Justice Crew, the panel included Justices Karen K. Peters, Carl J. Mugglin, Robert S. Rose and John A. Lahtinen.
The State was represented in the case by Assistant Solicitor General Andrew D. Bing.
Other Cases
In other cases decided yesterday, the Third Department:
• Upheld sanctions and a judgment against a prominent upstate attorney embroiled in a fee sharing dispute with a former colleague. Matter of Ronald R. Benjamin v. Material Damage Adjustment Corp. et al., 86705.
The case arises over the representation by the Binghamton Law Offices of Ronald R. Benjamin of a couple pursuing a personal injury action.
An associate in Mr. Benjamin's firm, Wayne M. Chariff, was assigned primary responsibility for the action. Mr. Chariff left Mr. Benjamin's employ in June 1999, and two months later settled the personal injury action for $75,000. After the settlement was paid by an insurance carrier, Material Damage Adjustment Corp., Mr. Chariff paid Mr. Benjamin $12,936.43 — a 50 percent share of the one-third contingent fee.
Mr. Benjamin then sued Mr. Chariff, demanding the balance of the contingent fee. However, Supreme Court Justice Patrick D. Monserrate found that Mr. Benjamin and Mr. Chariff had agreed to an equal division of the fee. Additionally, Justice Monserrate found Mr. Benjamin's claim frivolous under 22 NYCRR 130-1.1 and awarded Mr. Chariff costs and imposed sanctions of $2,000.
Yesterday, the Third Department unanimously affirmed in an opinion by Justice Thomas E. Mercure.
"Although the amount of the settlement and the apparent ease with which Chariff was able to secure it may have led petitioner to believe that he had made a poor bargain, his resulting disappointment provided no legal basis for this proceeding," Justice Mercure wrote in an opinion joined by Justices Crew, Mugglin, Rose and Lahtinen.
Appearing were Sharon A. McDermott of Mr. Benjamin's office for the appellant; Valarie M. Jeffers of Bohl, Della Rocca & Dorfman PC in Albany for Material Damage Adjustment Corp.; and Mr. Chariff.
• Declined in an ineffective assistance case to apply the federal test under Strickland v. Washington, 466 U.S. 668 (1984), and opted instead for the more "flexible standard" articulated under New York case law. People v. John S. Sowizdral Jr., 11281.
At the heart of the decision is the ineffective assistance claim of a man, John S. Sowizdral Jr., who was convicted in Montgomery County Court of two counts of driving while intoxicated. Mr. Sowizdral claimed that his attorney failed to prepare effectively for trial and undermined his own trial strategy by neglecting to adequately challenge a witness's damaging testimony.
Applying the "meaningful representation" standard referenced in a series of Court of Appeals opinions, the Third Department upheld the conviction. It, like other appellate courts, declined to adopt the Strickland test, which requires a showing that defense counsel's performance was deficient to the point that there was a reasonable probability that the result was affected.
"Unsuccessful strategic determinations do not form a basis for a claim of ineffective assistance of counsel," the panel said through Justice Lahtinen. He was joined by Presiding Justice Anthony V. Cardona and Justices Mercure, Crew and Edward O. Spain.
Carol M. Dillon of Amsterdam argued for Mr. Sowizdral. Assistant District Attorney John N. Clo appeared for the prosecution.
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