Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 1 of Broadway, 25 th Floor Attorney at Law New York, NY 10013

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1 Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 1 of 10 DANIEL NOBEL 401 Broadway, 25 th Floor Attorney at Law New York, NY Telephone: (212) Fax: (212) dan@dannobellaw.com United States District Judge Eastern District of New York 1100 Federal Plaza Central Islip, N.Y Dear Judge Hurley: Re: United States v. Morrison, 04-CR-699 (DRH) We write to request reconsideration of this Court s rulings denying Mr. Morrison s previous motions seeking dismissal of Count Two on the ground that it was a violation of due process to prosecute him under a federal statute that incorporated a violation of New York Tax Law 471 as a necessary element. 1 The changed circumstance that occasions the instant application is that a newly issued decision of the United States Court of Appeals for the Second Circuit ( Second Circuit ) rejects key findings made by this Court in the denial of the earlier motions. That decision is now controlling authority. In City of New York v. Golden Feather Smoke Shop, Inc., F.3d, 2010 WL (March 4, 2010) ( Golden Feather )(annexed), the Second Circuit certified questions regarding New York Tax Law 471 and 471-e to the New York State Court of Appeals ( Court of Appeals ). 2 The Second Circuit s published opinion is grounded on the conclusion that the applicability of the State s cigarette taxation scheme to reservation cigarette sellers is unsettled pending a definitive ruling by the Court of Appeals. That holding, and the supporting analysis of the Second Circuit, negate the central conclusions, and thus the final result, of this Court s determination that Mr. Morrison s due process rights were not violated because Tax Law 471 gave him fair notice of the illegality of his conduct. As a result, upon reconsideration we seek dismissal of Count Two. The divergence of holdings in Golden Feather from foundational elements of your Honor s decisions regarding substantive due process is all the more compelling because the 1 We specifically request reconsideration of the Court s pre-trial decisions dated November 9, 2007, now published at 521 F.Supp.2d 246 (EDNY 2009), the decision on defendant s Rule 29 motions dated February 6, 2009, now published at 596 F.Supp. 2d 661, and the decisions made following publication of Cayuga Indian Nation v. Gould, 884 N.Y.S.2d 510 (N.Y.App. Div. 2009), dated August 11, 2009 (oral decision) and December 4, 2009 (Document # 838). Mr. Morrison s motions addressing his due process arguments, sometimes in conjunction with other issues, that were decided in the referenced decisions were filed as Documents Nos. 367, 392, (pre-trial); 773 (Memo in support of Rule 29 motion); 817, 827 (motions for reconsideration following Cayuga). 2 As noted in Golden Feather, oral argument on Cayuga is scheduled for March 25, The instant application does not depend on how the Court of Appeals ultimately decides those issues, whether it does so in Cayuga or following the granting of certification.

2 Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 2 of 10 Page 2 Circuit reached its conclusions after giving extensive consideration to the same statutory language, the same legislative history and many of the same relevant cases that were also considered by this Court in its earlier decisions. We deem it to be especially significant that Golden Feather includes an extensive analysis of Cayuga Indian Nation v. Gould, 884 N.Y.S.2d 510 (N.Y.App. Div. 2009). Unlike this Court, the Second Circuit concluded that the analysis of the Cayuga majority was a plausible interpretation of prevailing State law pending an as yet unissued definitive ruling by the State s highest court. The Second Circuit therefore declined to summarily reject the holding in Cayuga based on a conclusion, such as this Court has reached, that Cayuga would be overturned. That critical conclusion has additional precedential force because the Second Circuit recognized that it own rules require that certification... should be done sparingly, mindful that it is our job to predict how the New York Court of Appeals would decide the issues before us WL at *8, Slip Op. at 19, quoting, Highland Capital Mgmt., LP v.. Schneider, 460 F.3d 308, 316 (2d Cir.2006)(emphasis added). In this submission, we discuss the conclusions that led the Second Circuit to, 1) decline to predict that the Court of Appeals would reverse Cayuga and, 2) to instead find that the central question regarding the applicability of 471 to reservation vendors was an unsettled issue of State law warranting certification. Those conclusions, in the aggregate, represent the now controlling authority that must be integrated into a reconsideration of Mr. Morrison s motions for dismissal on due process grounds. Incorporation of the findings set forth in Golden Feather compels the granting of the motion for dismissal. 1. Golden Feather can only be read as having rejected a finding that 471 establishes an unambiguous requirement that reservation vendors sell only stamped cigarettes: Golden Feather came before the Circuit on the appeal from an order of the Honorable Carol B. Amon that granted the City of New York a temporary injunction against a limited number of cigarette vendors on the Poospatuck reservation, including Peace Pipe Smoke Shop and Mr. Morrison. Judge Amon s order is reported as City of New York v. Golden Feather Smoke Shop, et al., 2009 WL (E.D.N.Y. 2009). The underlying facts differ, but not in detail relevant to this application, from the evidence credited by the jury in the conviction under Count Two of the instant indictment. The Second Circuit credited evidence relied upon by Judge Amon that bootleggers who intended to resell the cigarettes off of the reservation had made large scale purchases of unstamped cigarettes at the defendants reservation outlets. Golden Feather, supra, 2010 WL at *2, Slip Op. at 5. Golden Feather recognized that the resolution of what it acknowledged to be unsettled questions of state tax law would be determinative of whether a CCTA violation could be based on a reservation vendor s sale of unstamped cigarettes. [F]or either the CMSA or CCTA to be violated, there must be an underlying tax provision that requires the reservation vendors to purchase stamped cigarettes for resale WL *5, Slip Op. at 11. Where Judge Amon, and your Honor, had found readily discernable certainty in the plain language of 471

3 Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 3 of 10 Page 3 that 471, alone, could accomplish that end, the Circuit found unresolved issues on which competing viable propositions had been presented by the parties. The Second Circuit also found, in contrast to your Honor, that the lack of a specific tax mechanism to assess and collect cigarette taxes on a qualified reservation was a potential basis on which to conclude that 471, alone, was inapplicable to reservation sellers. As a result, the Second Circuit concluded that the applicability of 471 to reservation sellers was so uncertain as to require certification: Both the smoke shop vendors and the City offer us competing interpretations of 471 and 471-e, each supported by cogent arguments and prior judicial analysis. Without in any way limiting future analysis of the issue, we observe that 471 imposes a tax on all cigarettes unless the cigarettes are sold under such circumstances that this state is without power to impose such tax. Under the Fourth Department's analysis in Day Wholesale, Inc., 856 N.Y.S.2d at 811, 471-e, which establishes the mechanism for the assessment or collection of these taxes, see Milhelm Attea & Brothers, Inc., 512 U.S. at 75, is not in effect. Nor do we divine that any other mechanism exists by which to assess and collect such taxes. Given this state of affairs does the absence of any such mechanism applicable to taxes imposed on cigarette sales on reservations give rise to circumstances that [render New York] without power to impose such tax? N.Y. Tax Law 471. Because resolution of the issue requires us to decide what is strictly an issue of statutory interpretation under New York law, we will now examine whether it is appropriate to certify that issue to the New York Court of Appeals. Golden Feather, 2010 WL * 8, Slip Op. at 18, (emphasis added). The final section of Golden Feather, in which certification was discussed, emphasized that local rules, as well as New York law, allow this Court to certify questions of state law to the New York Court of Appeals where no controlling precedent exists. Slip Op. at 18, 2010 WL *8, citing, 2d Cir. R. 27.2, 22 N.Y.C.R.R (a) (emphasis added). The Court reiterated that its criteria for using its certification authority under 2d Cir. R was to seek resolution of only unsettled legal questions involving state law WL *9, Slip Op. at 19. The phrasing of the second certified question provides further confirmation that the Second Circuit s determination that the demanding criteria of certification, i.e., unsettled legal question, extends to the core issue of whether 471, alone, imposes a tax on cigarettes sold on reservations. That status, i.e., unsettled legal question, by definition means that the

4 Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 4 of 10 Page 4 applicability of 471 to reservation vendors lacks sufficient clarity to meet due process standards. The two questions certified in Golden Feather are: (1) Does N.Y. Tax Law 471-e, either by itself or in combination with the provisions of 471, impose a tax on cigarettes sold on Native American reservations when some or all of those cigarettes may be sold to persons other than members of the reservation's nation or tribe? (2) If the answer to Question 1 is no, does N.Y. Tax Law 471 alone impose a tax on cigarettes sold on Native American reservations when some or all of those cigarettes may be sold to persons other than members of the reservation's nation or tribe? Slip Op. at 22; 2010 WL *11. Golden Feather makes clear that the act of certification necessarily means the Second Circuit has found that the answer to the second question is unsettled rather than unambiguous. 2. Reconsideration is required under the applicable law: Reconsideration is appropriate because Golden Feather is a decision by the United States Court of Appeals and, as such, is controlling authority for this Court. This Court has previously held that a motion for reconsideration is appropriate where there has been an intervening change of controlling law. United States v. Morrison, 521 F.Supp.2d 246, 252 (E.D.N.Y. 11/9/07), citing, Virgin Atl. Airways, Ltd v. National Mediation Bd., I956 F.2d 1245, 1255 (2d Cir. 1992)(quoting, 18 C. Wright A. Miller & E. Cooper, Federal Practice & Procedure 4478 at 790). The opinion in Golden Feather, indisputably controlling authority in this circuit, is at odds with the key legal finding of this Court s earlier decisions that 471 is so unambiguously applicable to Mr. Morrison that fair notice is provided. Reconsideration is therefore the appropriate course of action. 3. Dismissal of Count Two is warranted because the analysis on which Golden Feather supports its conclusion that the certified questions constitute unresolved questions of State law both conflict with the conclusions on which this Court supported the denial of the prior applications and establish that dismissal is required: The defense has argued that: 1) Tax Law 471, alone, under a broader analysis of statutory construction, legislative history, executive policy and Indian sovereignty, as noted in Day Wholesale and Cayuga, is inapplicable to reservation cigarette sellers because it did not, by its own terms, provide both for tax free intra-tribal sales and for taxable sales to the general public; or, 2) in the alternative, until such time as there is a controlling decision by the Court of Appeals, the uncertainty of the applicability 471, alone, to reservation vendors is such that a person of ordinary intelligence would be misled as to whether on-reservation sales of unstamped

5 Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 5 of 10 Page 5 cigarettes to the general public violates the statute. It was argued that this latter position was supported by the fact that the decision in Cayuga demonstrated that the four appellate judges in the Cayuga majority had reached the conclusion that Tax 471, alone, could not be the basis of a criminal prosecution of a reservation vendor. 3 This Court has rejected the motions for dismissal based on three suppositions: 1) The applicability of 471 to all cigarette sellers in the State, including reservation vendors, is easily determined by a plain language reading of its provisions, which cannot be diluted by executive acts or limitations emanating from Indian sovereignty; 2) the potential of any impact on that applicability derived from the failure of the State to provide a specific collection mechanism permitting untaxed intra-tribal sales is obviated by the ability of a reservation vendor to formulate an ad hoc means of compliance; therefore, 3) no basis exists on which to claim that the applicability of the State s taxation scheme to reservation sellers is so unclear as to implicate due process standards. Although Golden Feather does not resolve the final question of applicability, it does reject the core conclusions on which this Court has held that there is no ambiguity as to the applicability of the statute to reservation vendors. a. Golden Feather s finding that the applicability of 471 to reservation vendors was an unsettled question was based on an analysis of what it considered to be relevant factors that went beyond the plain language reading of 471 that this Court has held to be dispositive: The conclusions reached by the Second Circuit in Golden Feather were based on a broad review that recognized that different elements of the State s polity had reached different conclusions based on relevant factors beyond the words contained in 471: 3 Your Honor has recently stated that defendant heretofore has not claimed that 471 does not impose a tax on onreservation sales. Memorandum and Order of 12/4/2009 at 7. There was also a reference to defendant s reconfigured due process argument premised on Cayuga. Id. at 9. We note that Mr. Morrison s original pre-trial application for dismissal of the CCTA related racketeering acts in the first pre-trial motion to dismiss, (Document # 331), averred that cigarettes sold on Indian reservation to non-indians did not require a tax stamp, (Document # 331 at 3), and also alleged that [t]he courts, the New York Attorney General and the Department of Taxation and Finance have made it clear that the New York State cigarette taxing scheme does not apply to sales on Indian reservations. (Id. at 5). We readily concede that your Honor s observation of changes in the supporting analysis of the subsequent motions is, in substance, correct. The later defense applications responded to two factors. First, the government s theory of prosecution changed from the time of the pre-trial motions to the submission of the post trial Rule 29 motions. Second, significant developments in the decisions by the Appellate Division Fourth Department in Day Wholesale and Cayuga, which we regarded as then controlling authority, added impetus to the underlying contentions as to both the assertions supporting our argument as to inapplicability and to the grounds for the motion for dismissal based on the lack of fair notice as required under due process principles. The shift in analysis noted by your Honor was first presented in the application for bail pending appeal filed on May 21, 2009, (Document # 806), prior to the issuance of the Cayuga decision but subsequent to the Fourth Department s decision to grant a preliminary injunction of a criminal prosecution of the Cayuga Indian Nation vendors. See, Cayuga Indian Nation v. Gould, (2009 NY Slip Op (U)).

6 Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 6 of 10 Page 6 [T]he question of taxing cigarette sales on reservation lands is one that has been addressed by the New York State courts, the New York Legislature, the Department of Taxation and Finance, and even New York s Governor, all with varying outcomes. We recognize that the New York Court of Appeals is in a far better position to interpret the variety of laws, regulations and state case law by which the issue will be determined. Thus certification on this issue will address an important issue of state law that to this point remains unresolved WL at *10, Slip Op. at 21(emphasis added). The fact that the Second Circuit deemed that resolution of the relevant questions required a broader analysis, best conducted by the Court of Appeals, is additionally significant because the Second Circuit recognized that it had been asked to follow the findings of Judge Amon and of this Court. Not surprisingly, the City argues that 471-e merely sets up a system to collect a tax that is imposed by 471. In support of its position, the City cites to the Cayuga dissent and the district court's adoption of that dissent. According to the City, the Cayuga majority failed to address the plain language of 471, which the district court determined unambiguously imposed a tax upon all cigarettes possessed by vendors that the state has the power to tax. Section 471-e only supports this conclusion as it sets up the collection mechanism for the tax; whether it is in effect following Day Wholesale does not remove the underlying obligation imposed by 471. The City argues that this position is further supported by United States v. Morrison, 596 F.Supp.2d 661 (E.D.N.Y.2009), and its determination that 471 does not need regulations governing collection of taxes in order for statutory liability to attach. Id. at WL at *7; Slip Op. at 16 (emphasis added). Rather than conclude that, in regard to reservation vendors, an unambiguous determination could be made solely on the plain language of 471, the Second Circuit concluded that applicability would be determined by a variety of laws, regulations and state case law and that the outcome of that determination was unsettled.

7 Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 7 of 10 Page 7 b. Golden Feather holds that the absence of a specified collection mechanism in the State s tax scheme could be the basis for a finding by the Court of Appeals that such a scheme is inapplicable to reservation vendors: Your Honor has repeatedly declined to assign significance to the lack of implementing regulations or statutory provisions that specify a prescribed means in the State s tax scheme by which reservation vendors can obtain unstamped cigarettes for resale to Tribal members and stamped cigarettes for resale to the general public. This Court s prior opinions hold that this void in the tax scheme is without significance because the vendors themselves can structure a mechanism even though one is missing in the tax scheme. As a representative example, in deciding the Rule 29 motion your Honor issued a decision on February 26, 2009, (Document #792, reported at 596 F.Supp. 661), that opined that the reservation sellers could fashion their own means to both sell stamped cigarettes to the general public and unstamped cigarettes to Tribal members: And, again, the stamping requirement may easily be satisfied by onreservation retailers doing exactly what their off-reservation counterparts have done all along, viz. ordering stamped cigarettes from a state licensed wholesaler/stamping agent. 596 F.Supp. at 699;Document # 792 at 76. Golden Feather is clearly inconsistent with the assertion that such an ad hoc collection mechanism would suffice to enable 471, alone, to be applied to reservation vendors. Golden Feather found that the absence of an explicit collection mechanism could be a possible basis on which it could be held that the State was without power to impose any tax on reservation vendors: Nor do we divine that any other mechanism [other than 471-e] exists by which to assess and collect such taxes. Given this state of affairs does the absence of any mechanism applicable to taxes imposed on cigarette sales on reservations give rise to circumstances that [render New York] without power to impose such tax? 2010 WL at *8, Slip Op. at 18. The Second Circuit later noted that the Supreme Court, in Department of Taxation and Finance of New York, et al. v. Milhelm Attea & Bros., Inc., 512 U.S. 61 (1993), had sustained the legality of a tax scheme that included the 1988 regulations precisely because that regulatory addon included a defined mechanism for the required tax-exemption for intra-tribal sales:

8 Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 8 of 10 Page 8 In its only case addressing taxation of cigarette sales on Native American reservations, Milhelm Attea & Bros., Inc. v. Department of Taxation and Finance of New York, 615 N.E.2d 994 (N.Y.1993), the Court of Appeals addressed the validity of the 1988 regulations enacted to work in concert with 471 to impose a tax collection scheme. At that time the Court of Appeals determined the regulations impose[d] significant burdens on the wholesaler, a burden not to be suffered in the field of regulating Indian traders. Id. at 424, 427. That field, reasoned the court, was preempted by Congress through the Indian trader statutes thus disallowing state laws that impose additional burdens upon traders. Id. at 424 (internal quotation marks omitted). The United States Supreme Court disagreed, determining instead that states may impose reasonable regulatory burdens upon Indian traders in order to enforce valid state taxes. Milhelm Attea & Bros., Inc., 512 U.S. at 74. The Court cautioned that ample room for legitimately tax-exempt sales must be left in determining probable demand, room that the New York regulations contained. Id. at 76. The New York Court of Appeals has not since addressed taxation of sales of cigarettes on reservations. Id. at 76. Golden Feather, supra, 2010 WL at *9, Slip Op. at (emphasis added). The selected quote confirms that the Second Circuit concluded that the Supreme Court had held that there was a mandatory requirement for the tax scheme itself to preclude unwarranted prepayment of the tax on exempt cigarettes by providing a specific means to accomplish that end. Stated another way, the Second Circuit properly concluded that the inclusion of that mechanism was, based on Supreme Court precedent, a necessary prerequisite to a clearly applicable tax scheme. c) Due process standards are not met: Following Cayuga your Honor denied the renewed motion for dismissal on due process grounds as follows: Due process, for present purposes, has to do with fair notice. Fair notice is determined by looking at the statute. If the statute indicates to an individual of average intelligence who has reviewed the statute that no tax is due; and, yet, the state takes a position that it is, that's a problem. Which is to say, if the statute doesn't clearly indicate that the tax is due, in other words the statute is sufficiently muddled so that a person who purportedly is required to abide by the statute could not understand what conduct was dictated by the statute, that's a substantive due process violation.... The question is whether the statute itself provides adequate

9 Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 9 of 10 Page 9 Tr. 8/11/09 at notice. If it does, then it passes constitutional muster. If it doesn't, then obviously the conclusion is otherwise. With respect to the four of five Appellate Justices, they rendered their decision in the context of 471 and 471-e being considered together. In the language of the decision 471-e and its underlying legislative intent was viewed by the Fourth Department as an effort to overhaul the statutory scheme. This formulation conflicts with that of the Second Circuit s on two critical points. First, the Second Circuit clearly understood Cayuga to have both analyzed the current impact of 471- e -- alone or in conjunction with and to have considered whether 471, alone, provided an independent basis for the imposition of an enforceable obligation against reservation vendors. Second, Golden Feather clearly does not accept the contention that the words of the statute itself are necessarily the only element the Court of Appeals might reasonably consider in determining the applicability of the provision to reservation sellers. The analysis of Cayuga in Golden Feather reflects the Second Circuit s recognition that the Fourth Department had held that 471, alone, did not provide a statutory basis by which an obligation to sell unstamped cigarettes to the general public had been imposed on reservation vendors. Golden Feather s selected quotes from Cayuga emphasize that the Second Circuit also viewed the dissent in Cayuga to have recognized this to be true. The Second Circuit s analysis was presented as follows: The [Cayuga] majority concluded that in light of the sovereignty considerations attendant upon imposing and collecting a state cigarette tax on reservation sales under 471, as well as the non-effect of 471-e under Day Wholesale, there is no statutory basis for the imposition of a cigarette tax on a qualified reservation. The Cayuga dissent took the contrary position, reasoning that the Day Wholesale decision did not disturb the underlying obligation to pay the taxes imposed by section 471. To the contrary, we recognized that the tax obligation on cigarettes stems from section 471, not 471-e... Id. at 523 (Peradotto, J., dissenting) WL at *6, Slip op at 15 (emphasis added). The Second Circuit clearly concluded that the dissent in Cayuga adopted a contrary position, from the majority, when the dissent held that the underlying obligation to pay the taxes [was] imposed by section 471. The Second Circuit recognized that position as contrary to that of the majority because it recognized the position of the Cayuga majority to be that under there is no statutory basis for the imposition of a cigarette tax on a qualified reservation.

10 Case 2:04-cr DRH -AKT Document 894 Filed 03/17/10 Page 10 of 10 Page 10 The Second Circuit left no room to argue, as your Honor found, that it saw Cayuga as being limited to the impact 471 had in the context of 471 and 471-e being considered together. Golden Feather plainly interpreted Cayuga as firmly standing for the position that 471, alone, did not apply to reservation vendors. Golden Feather s analysis of the holding in Cayuga also shows that the Second Circuit saw that Cayuga had considered sovereignty considerations as part of the necessary calculus to be used in determining whether 471, alone, was applicable to reservation sellers. The Second Circuit itself anticipated that such a broader analysis, one that went beyond the mere reading of the words in 471, was required and that for that reason the New York Court of Appeals is in a far better position to interpret the variety of laws, regulations and state case law by which the issue will be determined WL *10, Slip Op. at 21 (emphasis added). Your Honor s own standards of when due process requires dismissal, when applied after incorporation of the holdings in Golden Feather, dictate that dismissal of Count Two is required. A total of seven appellate jurists have now held that the applicability of 471 to reservation vendors is either nonexistent or unsettled. In this light, it cannot be said that Mr. Morrison had fair notice that 471 applied to reservation vendors. The charges under Court Two should therefore be dismissed. Respectfully submitted, cc: All counsel via ECF Daniel Nobel [DN 7579] 401 Broadway, 25 th Floor New York, NY Attorney for Rodney Morrison