February 19, 2011 - An ongoing dispute between the King Mountain Tobacco Co. and state and federal authorities over jurisdiction and treaty rights flared up this week in the form of a lawsuit Tuesday and a federal raid Wednesday, February 16th. Details about the raid were scant. King Mountain is owned and operated by Delbert Wheeler Sr., a Yakama tribal member who started the company in 2005 on reservation land off Fort Simcoe Road.
In 2006, cigarette giant Philip Morris sued over allegations King Mountain labels looked too similar to Marlboro. (PHILIP MORRIS USA INC v. KING MOUNTAIN TOBACCO COMPANY INC, United States Court of Appeals,Ninth Circuit, Findlaw.com) And in December, the city of New York accused the company of illegally selling and distributing untaxed smokes in New York state. (December 16, 2010 - New York City - suing tobacco company in Washington State..).
A lawyer for King Mountain declined comment except to say FBI and Bureau of Alcohol, Tobacco, Firearms and Explosives agents were "swarming" the Yakama cigarette maker's facilities in White Swan. Neither the FBI nor the ATF returned phone calls seeking comment.
A copy of the search warrant, signed by federal Magistrate James Hutton and anonymously faxed to the Yakima Herald-Republic, was also short on details. Hutton gave agents permission to seize company records and computer equipment, but an affidavit explaining the purpose of the raid was not included.
Coincidental or not, the raid came a day after lawyers for King Mountain sued the state of Washington and Attorney General Rob McKenna, alleging violations of the Yakama Nation's 1855 treaty rights.
The company says its cigarettes are made from tobacco grown on the reservation and that roughly 65 percent of the company's employees -- currently about 100 people -- are tribal members. According to the lawsuit, filed in U.S. District Court in Yakima, lawyers for the company accused the state of illegally collecting a penalty stemming from the 46-state Big Tobacco settlements in 1998. Per the terms of the settlement agreements, smaller tobacco companies that were not part of the deal must pay penalties into "qualified escrow accounts" that are collected by individual states and held for 25 years as a hedge against cigarette-related litigation. Lawyers for King Mountain argue the company is protected by the Yakama Treaty of 1855, which guaranteed Yakamas could get their goods to market "free of any fees, tolls, or other impediments."
Under a settlement states reached with major tobacco companies over health care expenses in the 1990s, states adopted statutes requiring companies that didn't participate in the settlement to pay into holding accounts. The accounts would cover the states' claims if they sued the companies within 25 years. (Tobacco manufacturers not part of the 1998 master settlement are still required to pay into escrow accounts held for the benefit of the states that they market their tobacco products in. The escrow money may be used to satisfy future judgments against tobacco firms that weren’t part of the original agreement.)The company said the Yakama National Tribal Council last year formally passed a resolution supporting King Mountain and saying, "No state government can impose its revenue-generating laws ... on King Mountain for it engaging in an historic right of trade and travel with respect to tobacco products."
A damage figure was not cited, however the company is seeking court orders declaring King Mountain is not subject to the Big Tobacco penalty and directing the state to refund all penalties paid to date. The company also wants a court order directing the state to "list King Mountain as an approved manufacturer of tobacco products in the State of Washington."
In a statement late Wednesday, Dan Sytman, a spokesman for the Attorney General's Office, accused King Mountain of reneging on a previous agreement to pay the Big Tobacco penalty. "We do not agree that the treaty (of 1855) grants the exemptions King Mountain claims," he said.
The company has previously been in the news as a defendant in a lawsuit rather than a plaintiff.
Reference: Feds raid tobacco company on reservation by Chris Bristol, Yakima Herald-Republic, 2/16/2011.