Tribal Manufacturer Loses Bid to Avoid Escrow Payments Based on Treaty

On April 5, 2013, the United States District Court for the Eastern District of Washington held that King Mountain Tobacco Company is not exempt from making escrow payments. King Mountain filed a complaint against the Attorney General of Washington in April 2011 claiming that it is not required to make escrow payments pursuant to Washington state law.

King Mountain and the Washington Attorney General filed cross motions for summary judgment. In its motion for summary judgment, King Mountain argued that it is exempt from making escrow payments under Articles II and III of the Yakama Treaty of 1855. In support of its argument, King Mountain relied on: (1) the historical significance of the Yakama growing tobacco and trading it with others; (2) representations by U.S. representatives to the Yakama tribe during the negotiations of the Treaty in 1855; and (3) the language of the Treaty. In response, the Attorney General relied on United States Supreme Court precedent, which provides that absent express federal law to the contrary, tribes exceeding reservation boundaries generally are subject to non-discriminatory state law applying to all citizens of the state.

The District Court found that, in 2010, less than 10 percent of the tobacco used by King Mountain to manufacture its products was grown on tribal land. That number increased to roughly 38 percent in 2011. The District Court also found that much of the manufacturing process does not occur on tribal lands. Based on the amount of non-trust-land tobacco and the manufacturing process, the District Court concluded that much of King Mountain’s operations involve “extensive off-reservation activity.” Consequently, the District Court held that King Mountain Tobacco Company is not exempt from making escrow payments.

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.