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In re HCI Distribution, Inc.

Supreme Court of New York, Third Department

October 24, 2013

In the Matter of HCI DISTRIBUTION, INC., Respondent,

Calendar Date: September 12, 2013

Eric T. Schneiderman, Attorney General, Albany (Kate Nepveu of counsel), for New York State Police, Troop B Commander and another, appellants.

Michael C. Crowe, County Attorney, Canton, for Nicole M. Duve and another, appellants.

Fredericks, Peebles & Morgan, LLP, Washington, D.C. (Joseph V. Messineo of counsel, admitted pro hac vice), for respondent.

Rupp, Baase, Pfalzgraf, Cunningham & Coppola, LLC, Buffalo (Michael T. Feeley of counsel), for Ohserhase Manufacturing and another, amici curiae.

Before: Rose, J.P., Stein, McCarthy and Garry, JJ.



Appeal from a judgment of the Supreme Court (Demerest, J.), entered June 20, 2012 in St. Lawrence County, which granted petitioner's application, in a proceeding pursuant to CPLR article 78, to direct immediate release of seized property.

Petitioner is an "economic and political subdivision" of a federally recognized Indian tribe located in Nebraska. In January 2012, petitioner purchased, among other things, more than 26, 000 cartons of cigarettes and cigars from a manufacturer located on the St. Regis Mohawk Indian Reservation in St. Lawrence County and owned by the St. Regis Mohawk Tribe. The tobacco products were then consigned to a common carrier to be delivered to petitioner in Nebraska. During transport, the truck carrying the cigarettes was stopped at a United States Border Patrol checkpoint in St. Lawrence County and the Border Patrol authorities contacted the New York State Police. After the truck driver gave his consent for the State Police to search the truck, the police discovered that the cigarettes did not have state tax stamps (see Tax Law § 471 [1], [2]) and, at the direction of the St. Lawrence District Attorney's office, seized the truck and its cargo. The District Attorney's office began an investigation and refused to return the truck and/or its contents [1]. Approximately five weeks later, petitioner commenced this CPLR article 78 proceeding seeking, among other things, an order directing respondents to return the seized cigarettes. Supreme Court determined that respondents lacked the legal authority to seize the cigarettes, granted the petition and directed that the cigarettes be returned to petitioner. Respondents now appeal and, for the reasons set forth below, we reverse. [2]

Pursuant to well-established law, a CPLR article 78 proceeding for a writ of prohibition is an extraordinary remedy (see Matter of B. T. Prods. v Barr, 44 N.Y.2d 226, 231 [1978]; Matter of New York State Health Facilities Assn., Inc. v Sheehan, 100 A.D.3d 1086, 1087 [2012], lv denied 21 N.Y.3d 853 [2013]) that "lies only where there is a clear legal right to such relief, and only when [the body or officer involved] acts or threatens to act without jurisdiction in a matter... over which it has no power over the subject matter or where it exceeds its authorized powers in a proceeding over which it has jurisdiction" (Matter of Brown v Blumenfeld, 103 A.D.3d 45, 54 [2012] [internal quotation marks and citations omitted]; see Matter of Soares v Herrick, 20 N.Y.3d 139, 144-145 [2012]; Matter of Morgenthau v Erlbaum, 59 N.Y.2d 143, 147 [1983], cert denied 464 U.S. 993 [1983]; Matter of Dondi v Jones, 40 N.Y.2d 8, 13 [1976]; Matter of McLaughlin v Eidens, 292 A.D.2d 712, 713 [2002]; see also CPLR 7803 [2]). Even where such a proceeding is permissible, the court has the discretion to deny the issuance of a writ of prohibition after considering such factors as "'the gravity of the harm caused by the excess of power, the availability or unavailability of an adequate remedy on appeal or at law or in equity and the remedial effectiveness of prohibition if such an adequate remedy does not exist'" (Matter of Soares v Herrick, 20 N.Y.3d at 145, quoting Matter of Dondi v Jones, 40 N.Y.2d at 13; accord Matter of Morgenthau v Erlbaum, 59 N.Y.2d at 147; see Cayuga Indian Nation of N.Y. v Gould, 14 N.Y.3d 614, 633 [2010], cert denied 131 S.Ct. 353 [2010]).

Initially, we agree with respondents' argument that petitioner failed to prove the absence of other avenues of relief that would adequately address the challenged seizure of the cigarettes. Notably, the petition seeking the writ was brought only five weeks after the seizure, which was not an unreasonable length of time to hold the cigarettes (see Matter of Moss v Spitzer, 19 A.D.3d 599, 600 [2005], lv denied 5 N.Y.3d 714 [2005]). In this regard, the possibility that criminal proceedings — in which the seizure could be challenged — would be commenced could not be foreclosed (see generally Matter of Agresta v Roberts, 66 A.D.2d 929, 930 [1978]). In fact, while Supreme Court correctly found that no search warrant had been issued and no criminal action had been commenced at the time the writ was sought (compare Matter of Marra v Hynes, 221 A.D.2d 539, 540 [1995]), there was an open and continuing investigation surrounding the sale and alleged trafficking of non-taxed cigarettes and it was contemplated that, upon completion of such investigation, the matter would be presented to a grand jury (see Matter of Whitehead v District Attorney of Columbia County, 289 A.D.2d 728 [2001]; Matter of Marra v Hynes, 221 A.D.2d at 540) [3]. Moreover, inasmuch as the harm caused by the alleged excess of power by respondents is primarily economic, and considering the nature of the property seized, petitioner has not established that it could not be made whole by way of a civil claim for monetary damages. Nor has petitioner demonstrated that an "ordinary" action for a declaratory judgment would have been ineffective (see Cayuga Indian Nation of N.Y. v Gould, 14 N.Y.3d at 633-634; Morgenthau v Erlbaum, 59 N.Y.2d at 148). Under these circumstances, we conclude that petitioner failed to prove the unavailability of an adequate alternative remedy for the challenged seizure.

We also agree with respondents that petitioner failed to establish a clear entitlement to a writ of prohibition. As relevant here, Tax Law § 471 (1) imposes "a tax on all cigarettes possessed in the state by any person for sale, " except under circumstances where "this state is without power to impose such tax" (Tax Law § 471 [1]; see 20 NYCRR 74.1 [a] [1]) [4]. All cigarettes within the state are presumed to be subject to tax unless "the contrary is established, " with the burden of proof of nontaxibility falling upon the person in possession of the cigarettes (Tax Law § 471 [1]). In claiming that the sale here was not a taxable event, petitioner relies upon regulations which provide that no tax may be imposed on cigarettes sold to an out-of-state purchaser (see 20 NYCRR 74.1 [c] [4]; 76.1 [a] [1]). However, the same regulations that establish such exemption also require that all out-of-state sales be made by a duly licensed cigarette agent and that a certificate be obtained from the out-of-state purchaser showing that the cigarettes "will be immediately removed from the State to an identified location for such purposes and that such cigarettes shall not be returned to the State for sale or use herein " (20 NYCRR 76.3 [b] [emphasis added]).

Here, petitioner points to the bill of lading, a legally defined document under state law (see General Business Law § 90; 17 NYCRR 810.3), which accompanied the cigarettes and set forth the quantity and source of the cigarettes and that their destination was out-of-state. However, petitioner has produced no evidence that the cigarettes would not be reintroduced into the state [5]. In fact, respondents submitted evidence in the form of, among other things, petitioner's corporate shipment records and a statement by the driver of the truck, which suggest that petitioner regularly transports back into the state cigarettes purchased from the same manufacturer involved here. As a result, we agree with respondents that petitioner failed to establish that this transaction was a genuine out-of-state transaction that was exempt from taxes in order to overcome the presumption of taxability.

Nor are we persuaded by petitioner's claim that a writ of prohibition was appropriate because the seizure is unlawful under federal law. The state is permitted under federal law to seize unstamped cigarettes outside the reservation where there is noncompliance with a state's tax law (see Washington v Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 [1980]). Further, petitioner has not proven that the seizure would violate the Commerce Clause, because such argument depends upon a finding that this sale was a genuine out-of-state transaction, which, ...

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