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Perkins v. United States

United States District Court, W.D. New York

August 4, 2017

FREDRICK PERKINS and ALICE J. PERKINS, Plaintiffs,
v.
UNITED STATES OF AMERICA, Defendant.

          DECISION AND ORDER

          LAWRENCE J. VILARDO United States District Judge

         INTRODUCTION

         This case presents what appears to be an issue of first impression: whether a treaty between the United States and Native Americans ensuring the free use and enjoyment of tribal land bars taxes on income derived directly from the land-here, the sale of gravel mined on the land. Although at least two circuit courts have suggested in dicta that “income derived directly from the land” might be exempt from taxation under such treaties, they did so to distinguish that scenario from cases where an exemption was sought for income earned in ways that do not relate to the land itself. See Lazore v. Comm'r, 11 F.3d 1180 (3d Cir. 1993); Hoptowit v. Comm'r, 709 F.2d 564 (9th Cir. 1983). This case presents the very issue about which those courts speculated. And for the reasons that follow, this Court agrees with their speculation and finds that the plaintiffs have plausibly stated a claim for relief under two treaties with the Native American Seneca Nation.

         BACKGROUND

         On June 16, 2016, Fredrick and Alice Perkins commenced this action against the United States of America. See Docket Item 1; see also Docket Item 7 (Verified Amended Complaint). The plaintiffs, one of whom is “an enrolled member of the Seneca Nation, ” removed gravel, with permission, from the Seneca Nation Allegany Territory and later sold it. See Docket Item 7 ¶¶ 1, 22-25. After receiving a “notice of deficiency” from the Internal Revenue Service, the plaintiffs paid taxes on the income from the sale. See Id. ¶¶ 5-7. In the amended complaint, [1] they have alleged that they are owed a tax refund, interest, and penalties-totaling $9, 863.68-because their income from the sale of gravel is not taxable under the Treaty with the Six Nations at Canandaigua of November 11, 1794 (“Canandaigua Treaty”), and the Treaty with the Seneca of May 20, 1842 (“1842 Treaty”). See Id. ¶¶ 8, 10-15, 26-29. The United States has moved to dismiss the amended complaint. See Docket Item 9.

         On September 16, 2016, this Court referred this action to Magistrate Judge Hugh B. Scott for all pre-trial matters, pursuant to 28 U.S.C. § 636(b)(1)(A) and (B). See Docket Item 10. On January 27, 2017, Judge Scott issued a Report and Recommendation, concluding that the motion to dismiss should be denied with respect to claims under the Canandaigua Treaty but granted with respect to claims under the 1842 Treaty. See Docket Item 14 (Report and Recommendation). Both parties objected, and after the objections were fully briefed, see Docket Items 15, 16, 19, 20, 21 & 22, this Court heard oral argument.

         Based on the analysis below, this Court adopts the recommendation of Judge Scott regarding the claims under the Canandaigua Treaty but rejects the recommendation regarding the claims under the 1842 Treaty. Accordingly, the government's Motion to Dismiss (Docket Item 9) is denied.

         DISCUSSION

         I. REVIEW OF REPORT AND RECOMMENDATION

         This Court “must determine de novo any part of the magistrate judge's disposition that has been properly objected to” and “may accept, reject, or modify the recommended disposition.” Fed.R.Civ.P. 72(b)(3); see 28 U.S.C. § 636(b)(1).

         II. MOTION TO DISMISS STANDARD

         “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citation omitted). “The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. Courts assess Rule 12(b)(6) motions “accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor.” Peter F. Gaito Architecture, LLC v. Simone Dev. Corp., 602 F.3d 57, 61 (2d Cir. 2010) (internal quotation marks and citation omitted). “On a motion to dismiss, the court may consider any written instrument attached to the complaint as an exhibit or any statements or documents incorporated in it by reference.” Yak v. Bank Brussels Lambert, 252 F.3d 127, 130 (2d Cir. 2001) (internal quotation marks and citation omitted).

         III. ANALYSIS OF THE PLAINTIFFS' CLAIMS

         A. Principles of ...


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