The opinion of the court was delivered by: David N. Hurd United States District Judge
MEMORANDUM-DECISION & ORDER and PRELIMINARY INJUNCTION
On September 17, 2010, an Order to Show Cause and Temporary Restraining Order ("TRO") was issued. Plaintiff Oneida Nation of New York's ("Oneida Nation") motion for a preliminary injunction was set down for a hearing on October 1, 2010. The parties agreed that it would not be necessary to present evidence at the hearing.
Defendants cross moved to transfer and/or consolidate, and plaintiff moved to refer the action to mediation. Defendants opposed plaintiff's motions, as did amici curiae New York Association of Convenience Stores and New York State Association of Counties.
Amicus curiae American Cancer Society opposed the Oneida Nation's motion for a preliminary injunction. Plaintiff opposed defendants' motion to transfer and/or consolidate.
Oral argument was heard on October 1, 2010, in Utica, New York. The TRO was extended until October 15, 2010. Decision on the motions was reserved. The following are findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52.
It is well settled that a state cannot impose a tax upon cigarettes sold on a reservation to members of an Indian tribe ("member"). Dep't of Tax. & Fin. v. Milhelm Attea & Bros., Inc., 512 U.S. 61, 64, 114 S.Ct. 2028, 2030 (1994). A state may impose a tax upon cigarettes sold on a reservation to non-members of the tribe ("non-member"). Id.
New York State ("New York" or "the State") has long had laws requiring collection of state taxes on cigarettes sold on reservations to non-members. However, the State had a policy of forbearance, that is, it did not enforce taxation of on-reservation sales of cigarettes to non-members. Following is a general, non-technical description of the regulatory scheme devised by New York in early 2010 following revocation of its forbearance policy.
On June 21, 2010, the State enacted amendments to its Tax Law ("the new law") to provide for taxation of cigarettes sold on a reservation to non-members, and the Governor signed it into law. Under the new law, which was to become effective September 1, 2010, wholesalers and tax stamp agents (collectively "wholesalers") are required to tax stamp all cigarettes whether or not they are bound for on-reservation sales. The wholesaler purchases stamps from the State at the rate of $4.35 for each pack of cigarettes, which amounts to $43.50 per carton. The new law forbids wholesalers from selling any unstamped cigarettes.
Because a state cannot tax cigarettes sold on reservation to members, the new law provides that a tribe can opt in to a coupon system for obtaining tax free cigarettes for its members, or obtain such cigarettes from wholesalers who have prior approval from the State to sell a certain amount of tax exempt cigarettes to a particular tribe.
The new law directs that a "probable demand" of cigarette consumption by members and the tribe be calculated, as prescribed by regulation. The new law also provides that specifics regarding prior approval would be prescribed by regulations. An amendment passed on June 22, 2010, directed that within sixty days the tax department promulgate rules and regulations to fully implement the new law. The tax department adopted an emergency rule, also on June 22, 2010, directing that probable demand for a tribe be calculated using, inter alia, census figures for the tribe and the nationwide average cigarette consumption per capita. A tribe would be able to obtain the number of packs determined to be its probable demand*fn1 for tax-free sale to its members, by means of either the elective coupon system or with prior approval. The emergency rule required tribes opting in to the coupon system do so by August 15.
The June 22, 2010, emergency rule described the exemption coupon system. However, it did not provide specifics of the prior approval scheme. Rather, it provided that "[t]he manner and form of prior approval will be determined by the department, and may include the use of an interactive Web application." Carmen Aff. Ex. 5, Doc. No. 12-5, § 74.6(d)(3).
On July 29, 2010, the tax department guidance division issued a technical memorandum ("July TSB-M") regarding the exemption coupon and prior approval schemes, as well as probable demand. "A TSB-M is an informational statement explaining existing Department policies and/or outlining changes in the law, regulations, or Department policies." Smirlock Aff. ¶ 21, Doc. No. 46-5.
The July TSB-M set probable demand quotas for nine qualified Indian nations and tribes, including plaintiff. The Oneida Nation's quota was set at 31,200 packs of tax-free cigarettes each quarter for quarters occurring September 1, 2010, to August 31, 2011. Carmen Aff. Ex. 7, Doc. No. 12-7.
If a tribe elected to participate in the exemption coupon scheme, the tax department would provide it with tax exemption coupons for an appropriate number of packs determined by probable demand. The tribe (or cigarette sellers to whom the tribe distributed its coupons) could then purchase tax exempt cigarettes from wholesalers with the tax exemption coupons. The wholesalers would then submit the coupons to the State to claim a refund of the appropriate amount.
The prior approval scheme requires wholesalers to obtain approval of a tax free sale before consummating such sale. If the wholesaler does not obtain prior approval, it will be unable to recoup the amount it paid for tax stamps. According to the July TSB-M, wholesalers wishing to make tax-free sales to Indian tribes are required to have an online services account on the tax department's website. The tax department will post each tribe's quota at the beginning of each quarter. A wholesaler may claim part or all of a tribe's quota of untaxed cigarettes. The number of cigarettes claimed is automatically subtracted from the tribe's quota, and an authorization code is generated. If there is no actual sale to a tribe within 48 hours, the "claim" disappears. However, the wholesaler may go back to the website and again claim the tribe's allotment of tax exempt cigarettes. If the cigarettes are actually sold to a tribe, the wholesaler must report that on the website. When the sale is reported, a confirmation number is issued to the wholesaler so that it can obtain a refund of the prepaid tax. According to the July TSB-M specific instructions and updates will be provided on the tax department website.
The Oneida Nation did not opt in to the coupon system, so it must use the prior approval system to obtain tax free cigarettes for its members.
According to the Oneida Nation, it keeps in inventory 80,000 cartons in order to maintain its business. The tax on this inventory amounts to about $3.5 million. Further, the cost of borrowing the cash to pay the tax on cartons in inventory will be at least $208,000 per year.
Various State and federal law suits were filed challenging the new law on a variety of grounds. Among them are Seneca Nation of Indians v. Paterson, No. 1:10-CV-687, and Unkechauge Indian Nation v. Paterson, No. 1:10-CV-711 ("Seneca & Cayuga*fn2 cases"), before Hon. Richard J. Arcara in the Western District of New York ("Western District"), and before Hon. Lawrence Kahn in the Northern District of New York ("Northern District"), St. Regis Mohawk Tribe v. Paterson, 8:10-CV-1026 ("St. Regis case"). Like this action, a TRO was issued in these three cases on motion of plaintiff. A two-day hearing was held on plaintiffs' motion for a preliminary injunction in the Seneca & Cayuga cases, and decision was reserved. In those three cases, as in this case, the TROs were extended to October 15, 2010. On October 7, 2010, the St. Regis case was transferred to the Western District.
A. Defendants' Motion to Transfer or Consolidate
A change of venue may be ordered, at the discretion of the court, "[f]or the convenience of parties and witnesses, in the interest of justice," to any district where it might have been brought. 28 U.S.C. § 1404(a); Golconda Mining Corp. v. Herlands, 365 F.2d 856, 857 (2d Cir. 1966); Lappe v. American Honda Motor Co., Inc., 857 F. Supp. 222, 229 (N.D.N.Y. 1994), aff'd, 101 F.3d 682 (2d Cir. 1996). A case may only be brought in:
(1) a judicial district where any defendant resides, if all defendants reside in the same State;
(2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or
(3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought. 28 U.S.C. § 1391(b).
In determining whether to transfer an action, the court must consider "[T]he convenience of the parties; the convenience of the witnesses; the relative ease of access to the sources of proof; the availability of the process to compel attendance of unwilling witnesses; the cost of obtaining willing witnesses; practical problems that make trial of a case easy, expeditious, and inexpensive; and the interest of justice."
Lappe, 857 F. Supp. at 229 (quoting Aquatic Amusement Assocs., Ltd. v. Walt Disney World Co., 734 F. Supp. 54, 56 (N.D.N.Y. 1990)). Plaintiff's choice of forum is ordinarily given deference, unless there is little connection between the forum and the operative facts. Lappe, 857 F. Supp. at 229. The moving party bears the heavy burden of establishing that the motion to transfer should be ...