State ex rel. Edmondson v. Grand River Enterprises Six Nations, Ltd.
2013 OK CIV APP 58
| Okla. Civ. App. | 2013Background
- This is the second appeal challenging the trial court’s order denying escrow obligations and penalities against GRE and Tobaccoville under Oklahoma’s Escrow Statute and Complementary Act related to the Master Settlement Agreement (MSA).
- GRE is a non-participating manufacturer (NPM) that sold cigarettes in Oklahoma; Tobaccoville is an importer connected to GRE’s distribution chain affecting Oklahoma units sold computations.
- Oklahoma enacted the Escrow Statute requiring NPMs to deposit annual escrow funds based on units sold; the Complementary Act requires annual compliance certifications and public listing of compliant NPMs.
- The trial court determined 2005 and 2006 GRE units sold in Oklahoma, calculated escrow obligations, and imposed civil penalties for deficiencies; GRE and Tobaccoville appealed for lack of finality and/or calculation errors.
- The court ultimately found that GRE’s 2005 and 2006 escrow obligations were $3,897,248.83 and $1,680,625.88 respectively, plus a 10% civil penalty of $507,786.97, and that NPM Reports, tribal sales, and Sycamore Ridge’s transactions supported the figures.
- On appeal, the Oklahoma appellate court affirmed, holding the statutory interpretation and due process challenges to be unavailing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| How is 'units sold' calculated under §600.22(10)? | GRE/Tobaccoville: units sold based on stamps purchased, not packs sold. | The State: units sold measured by packs bearing state tax stamps; NPM Reports are proper. | Units sold measured by stamps affixed to packs; NPM Reports valid. |
| Are tribal land sales included in 'units sold'? | GRE/Tobaccoville: tribal sales should be excluded since stamps may not apply on tribal lands. | State: tribal sales with in-lieu tax stamps are properly included as units sold. | Yes, tribal-land sales bearing state tax stamps are included as units sold. |
| Does Escrow Statute violate due process? | Escrow process lacks meaningful remedy or hearing regarding escrow calculations. | Statute is legislative, preconditions for sales; rationally related to health-cost recovery. | Statute satisfies due process; rationally related to legitimate state interests. |
| Is a 10% civil penalty proper for escrow deficiency? | Penalty requires willful violation; disputes exist about calculation of escrow amounts. | Statute imposes a penalty for any violation, not only willful ones. | Civil penalty provisions apply; willfulness not required. |
Key Cases Cited
- Native Wholesale Supply v. State, 237 P.3d 199 (Okla. 2010) (escrow/statutory construction; NPMs; health-cost recovery policy)
- KT & G Corp. v. Attorney Gen. of State of Okla., 535 F.3d 1114 (10th Cir. 2008) (escrow statutes rationally related to legitimate state interests)
- Grand River Enters. Six Nations, Ltd. v. Pryor, 425 F.3d 158 (2d Cir. 2005) (procedural due process and rational basis of escrow statutes)
- S&M Brands, Inc. v. Summers, 393 F. Supp. 2d 604 (M.D. Tenn. 2005) (escrow and regulatory scheme challenges under due process)