YAKIMA, Wash. (AP) -- A tobacco company owned by a Yakama Nation tribal member must pay into an escrow account established under a 1998 settlement with big tobacco companies, a federal judge has ruled.
The 1998 settlement requires big tobacco companies to pay money to 46 states each year to offset public health costs from their products. Smaller companies are required to pay into an escrow account each year, but that money can be returned to each company after 25 years if no health claims are made, under the settlement.
King Mountain Tobacco claimed it should be exempt from paying into the account under the Yakama Nation's 1855 treaty with the federal government. U.S District Judge Lonny Suko ruled against the company on Friday, granting Washington state's motion to dismiss the case.
King Mountain, owned by Yakama tribal member Delbert Wheeler, grows tobacco and manufactures cigarettes and roll-your-own tobacco on the tribe's reservation south of Yakima in south-central Washington. That tobacco is shipped to Tennessee, where it is threshed, and to North Carolina to be blended with tobacco there.
In 2009, about 3 percent of the tobacco used in King Mountain's cigarettes was grown on the reservation, rising to nearly 38 percent in 2011.
"Based on the finding above that the finished cigarettes and roll-your-own tobacco are not directly derived from trust land, King Mountain can prove no set of facts in support of the claim that Washington's escrow statutes are in conflict with the Treaty or federal law," Suko wrote.
In a statement Monday, Wheeler said the ruling was a disappointment, but not a surprise.
"Our Treaty guarantees us the exclusive use and benefit of our land. It also guarantees us the right to travel and trade off our reservation, without government conditions and restrictions that apply to tribes that don't have our Treaty," he said.
King Mountain has been registered as a tobacco manufacturer and has paid into the escrow each year since 2007 — more than $5 per carton sold to nontribal members, both on and off the reservation.
"We're very pleased," said David Hankins, senior counsel for the Washington state Attorney General's Office. "At no time did they stop paying. They just challenged that they had to. We were kind of surprised that we got sued."
Earlier this year, a federal judge ruled that King Mountain products are subject to federal taxes after the company, along with the tribe, sought a court order to block the Alcohol, Tobacco and Trade Bureau from assessing federal excise taxes on cigarettes manufactured on tribal land.
The FBI had raided the business in February of 2011, and the federal government sued for taxes unpaid since 2009. That could amount to $30 million.