Thursday, August 23rd, 2012

Up In Smoke

United States v. Morrison, No. 10-1926(L) (2d Cir. July 16, 2012) (Calabresi, Chin, Carney, CJJ)

After a jury convicted Morrison of violating the Contraband Cigarette Trafficking Act (here, “the Act”), Morrison persuaded the district court to vacate the conviction and dismiss the charges.  On this, the government’s appeal, the circuit reversed.


Morrison managed a tobacco shop on the Unkechauge Indian Nation’s reservation on Long Island. Mostly, the shop sold untaxed cigarettes,  both in small over-the-counter sales and large wholesale transactions to “Big Customers,” whom Morrison knew were reselling the smokes off reservation.  The government ultimately charged him racketeering offenses predicated on his sale of contraband cigarettes. Morrison filed multiple motions for judgments of acquittal and dismissal, and ultimately persuaded the district court that Section 471 of New York’s Tax Law, which served as the legal predicate for the claimed violation of the Act, was void for vagueness as applied to him. The court agreed and vacated Morrison’s RICO conviction. 

The Convoluted Statutory Background 

The Act functions by incorporating the tax law of the state in which the contraband cigarettes are found, making it unlawful to traffic in contraband cigarettes that “bear no evidence of the payment of applicable State cigarette taxes” if the state requires some indication, such as a stamp, on the cigarette packages to show that the taxes have been paid.  N.Y. Tax Law § 471(1) contains such a requirement: a tax “shall be paid” on “all cigarettes possessed in the state by any person” who sells them, except in circumstances where the New York is “without power to impose such tax.”  All cigarettes that New York has the power to tax are supposed to be stamped.

Section 471 has been the subject of decades of political and legal controversy since at least 1988, when the state tax authorities discovered that non-Native Americans were buying large quantities of cigarettes from on-reservation stores, and promulgated regulations to collect taxes on those sales.   The retailers’ objection to this ended up in the Supreme Court which, in 1994, in a case known as Mithelm Attea, upheld the tax.

Even after this, however, the state had a “forbearance” policy, in which it did not enforce its regulations governing on-reservation sales to non-Native Americans. In 1996, Governor Pataki said he would start enforcing the regulations, but a year later he changed his mind. In 1998, the regulations were repealed and, although Pataki supported legislation that would permit on-reservation retailers to sell untaxed cigarettes, it never passed, and § 471 remained in effect.

A 2005 amendment to § 471-e provided that cigarettes sold on “an Indian reservation to non-members of the nation or tribe or to non-Indians shall be taxed” and affixed with a tax stamp. The law was to take effect in 2006 pending the promulgation of regulations, but those regs never emerged. Instead, the state decided that, pursuant to its “forbearance policy,” it would not enforce § 471-e. A 2008 Fourth Department decision then held that this section was “not presently in effect.” A year later, that same court held that given this, there was “no statutory basis for the imposition of a cigarette tax on a qualified reservation,” and thus that “possession or sales of untaxed cigarettes on qualified reservations” could not “subject the seller or possessor to criminal prosecution.” 

Around the same time, litigation in federal court went the other way. In a case called Golden Feather, the Eastern District concluded that the New York Court of Appeals would likely reject the reasoning of the Fourth Department and conclude that § 471 “imposes a tax on reservation sales of cigarettes to non-Tribe members.” Under Golden Feather, criminal prosecutions against Native American retailers who sold untaxed cigarettes on-reservation to non-tribe members could proceed. The Golden Feather case went to the Second Circuit, which instead of deciding it, certified two questions to the New York Court of Appeals, which was at that time hearing the appeal in the Fourth Department case.

In 2010, the New York Court of Appeals held that there was “no question” that § 471 imposes a sales tax on cigarettes sold in New York but that § 471-e was not “in effect,” so that there was no method for New York to adapt its tax scheme to “the unique context of qualified reservation sales.”  Even so, however, large-scale cigarette bootleggers could still be prosecuted in New York, if the prosecutions were undertaken under § 471 only. The court noted that the kind of conduct involved in Golden Feather and here would qualify for such prosecutions.  After this, the Second Circuit recalled as moot the questions it certified in Golden Feather

The Circuit’s Decision

1. Vagueness

The district court had held primarily that the circuit’s certification of questions to the New York Court of Appeals in Golden Feather rendered § 471 vague in that it “did not give constitutionally sufficient notice to potential criminal defendants.” And, since Morrison’s conviction under the Act required a violation of § 471, his conviction could not stand.

But the circuit held that this was an “erroneous interpretation” of Golden Feather. Golden Feather’s decision to certify questions to the New York Court of Appeals was prudential, and did not “raise the specter of vagueness with respect to Section 471.” Rather, the court merely recognized that the New York Court of Appeals had not “spoken directly” on the question, and that it was not “strictly bound” by the Fourth Department’s views, even though the Fourth Department case presented the same issues. Moreover, Golden Feather also predicted – “correctly, as it turns out” – that the New York Court of Appeals would decide the case differently from the Fourth Department, a prediction that “substantially undercut Morrison’s contention” that the decision to certify “reflected concerns about the statute’s vagueness.” Conflicts between courts over the interpretation of a criminal statute do not “in and of themselves render that statute unconstitutionally vague.”

Golden Feather also noted that the complicated political history of § 471 within New York State put the New York Court of Appeals in a “far better position” to resolve the conflict. Thus, the circuit’s deferring to the state court did not suggest that the questions were vague or hard to resolve, only that the state’s highest court was the “optimal body to settle state law questions.”  

2. Forbearance

Morrison continued to press his claim that he could not be prosecuted under the Act because that statute criminalizes the the sale of cigarettes lacking a tax stamp in states that “require” such indications.  New York was refraining from enforcing taxes on on-reservation sales at the time of Morrison’s conduct; to him that “forbearance” policy was, by definition, the absence of the mandated “requirement.”

The circuit disagreed. “Requires” has its normal meaning – “what is mandated by the state statute (Section 471), and not what is enforced by the state executive.” Morrison’s conduct was clearly unlawful under the terms of New York’s tax law; New York’s decision, at that time, to refrain from enforcing § 471 for “political and practical reasons” did not grant him “leave to sell massive quantities of untaxed cigarettes to non-Native Americans.”

Moreover, even if the forbearance policy might have created some ambiguity over the scope of Native American cigarette retailers’ tax liability, Morrison’s actions went “far beyond the sort of conduct that might be in” any gray area. He had a substantial wholesale business that sold $138 million in untaxed cigarettes in a five-year period, encouraged those sales by distributing fliers in New York City, and knew that at least some of his “Big Customers” were re-selling the cigarettes off-reservation.

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