in the united states court of appeals for the ninth ...jessica mae matheson, dba jess’s wholesale;...

No. 12-35479________________________________________________________________

IN THE UNITED STATES COURT OF APPEALSFOR THE NINTH CIRCUIT

________________________________________________________________JESSICA MAE MATHESON, dba JESS’S WHOLESALE;

Plaintiff-Appellant,

v.

LEE SMITH and DOYLE McMINN, Agents or Employees of the Washington State Department of Revenue, JOHN OR JANE DOE,Supervisor to Doyle McMinn, DOES 2 - 6, Other Unknown Agentsor Employees of the Washington State Department of Revenue, andthe Washington State Liquor Control Board; THE WASHINGTONSTATE DEPARTMENT OF REVENUE; THE WASHINGTON STATELIQUOR CONTROL BOARD, and THE STATE OF WASHINGTON;

Defendants-Respondents.________________________________________________________________ON APPEAL FROM THE UNITED STATES DISTRICT COURT FORTHE WESTERN DISTRICT OF WASHINGTON, NO. 3:11-cv-05946-RBL - THE HONORABLE RONALD B. LEIGHTON, UNITED STATESDISTRICT COURT JUDGE________________________________________________________________

OPENING BRIEF OF APPELLANT________________________________________________________________

Aaron L. Lowe, WSBA #15120Attorney for Appellant1403 W. Broadway AvenueSpokane, WA 99201(509) 323-9000

Case: 12-35479 09/26/2012 ID: 8338232 DktEntry: 9 Page: 1 of 59

TABLE OF CONTENTS

TABLE OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii

STATEMENT OF JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . . . .1

STATEMENT OF ISSUES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

STATEMENT OF CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

STATEMENT OF FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

SUMMARY OF ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

A. Standard of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

B. The Tax Injunction Act does not Apply to this Case. . .20

1. The Tax was Assessed to Penalize Matheson andCancel Her License, Not Raise Revenue. . . . . . . . 21

2. Regardless of the 1.4 Million Tax Assessment, theSeven Million Dollar Remedial Penalty is not a Tax.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

3. Collection of Tax from Others is Not Within 28U.S.C. § 1341. . . . . . . . . . . . . . . . . . . . . . . . . . .28

4. Matheson Never Lived in the State and Never hadMinimum Contacts. The State had No Jurisdictionfor Any Assessment. . . . . . . . . . . . . . . . . . . . . . .30

C. The Amended and Supplemental Complaint Should beAllowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

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D. The Civil Rights Issue is Properly Pled and Allows FederalCourt Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . .36

E. The Exhaustion of Remedy Issue does not Apply to thisCase Where Defendants Totally Ignored State StatutesAllowing Hearings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

F. The Tax Collection of Matheson Violates Due Process. .41

G. Matheson’s Complaint Establishes A § 1983 Case. . . . 42

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

-ii-


TABLE OF AUTHORITIES

Cases

Acosta v. City of Mesa, ___ F.3d ___, 2012 WL 3834658 (9 Cir.th

2012). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

AE ex rel Hernandez v. County of Tulare, 666 F.3d 631 (9 Cir.th

2012). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Agua Caliente Band of Cahuilla Indians v. Hardin, 223 F.3d 1041 (9th

Cir. 2000). . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .11, 25

American Civil Liberties Union v. Lomax, 471 F.3d 1010 (9 Cir.th

2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Arizona v. U.S., ___ U.S. ___, 132 S.Ct. 2492, 183 L.Ed.2d 351(2012). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Austin v. U.S., 509 U.S. 602, 113 S.Ct. 2801, 125 L.Ed.2d 488(1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Babbitt Ford Inc. v. Navajo Indian Tribe, 710 F.2d 587 (9 Cir. 1983).th

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

BMW of North America v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134L.Ed.2d 809 (1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 41

Bond v. U.S., 131 S.Ct. 2355, 180 L.Ed.2d 269 (2011). . . . . . . . . .5

Bravo v. City of Santa Maria, 665 F.3d 1076 (9 Cir. 2011). . . . . . 36th

Cabazon Band of Mission Indians v. Smith, 388 F.3d 691 (9 Cir.th

2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Cates & Erb v. Department of Revenue, Case No. C-89-690-RJM. . 21

-iii-


Cerrato v. San Francisco Community College, 26 F.3d 968, 972 (9th

Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Chapman v. Deutsche Bank, 651 F.3d 1039 (9 Cir. 2011). . . . . .19th

Chudacoff v. University Medical Center of Southern Nevada, 649 F.3d1143 (9 Cir. 2011). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12th

Comenout v. Washington, 722 F.2d 574 (9 Cir. 1983). . . . . . . . . .27th

Confederated Tribes of the Colville Reservation v. Anderson, 761F.Supp.2d 1101(E.D.Wa 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Confederated Tribes and Bands of Yakama Indian Nation v. Gregoire,658 F.3d 1078 (9 Cir. 2011). . . . . . . . . . . . . . . . . . . . . . . . . .29, 36th

Conroy v. Conroy, 575 F.2d 175 (8 Cir. 1978) . . . . . . . . . . . . . . .6th

Consolidated Coal Co. v. Porterfield, 267 N.E.2d 304 (Ohio 1971). .30

Cree v. Flores, 157 F.3d 762 (9 Cir. 1998). . . . . . . . . . . . . . . . . .10th

Crown Zellerbach v. State, 278 P.2d 305 (Wash. 1954). . . . . . . . .30

Day v. Apoliona, 496 F.3d 1027 (9 Cir. 2007). . . . . . . . . . . . . . . 5th

Dennis v. Higgins, 498 U.S. 439, 11 S.Ct. 865, 112 L.Ed.2d 969(1991). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Department of Transportation v. National Private Truck Council, 480S.E.2d 500 (Va 1997). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Direct Marketing v. Bennett, 916 F.2d 1451 (9 Cir. 1990). . . . . .39th

-iv-


Duke Energy Trading and Marketing LLC v. Davis, 267 F.3d 1042 (9th

Cir. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Elliot Park v. Manglona, 592 F.3d 1003 (9 Cir. 2010). . . . . . . . . .13th

Evans v. McKay, 869 F.2d 1341 (9 Cir. 1989). . . . . . . . . . . . . . . .6th

Ex parte Young, 209 U.S. 123, 28 S.Ct 441, 52 L.Ed 714 (1908) . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 11, 25

Fair Assessment and National Private Truck Association v. McNary,454 U.S. 100, 102 S.Ct. 177, 70 L.Ed 271 (1981). . . . . . . . . . . . .25

Franchise Tax Board v. Hyatt, 538 U.S. 488, 123 S.Ct. 1638, 155L.Ed.2d 702 (2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556(1972). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Galesburg Eby-Brown Co. v. Department of Revenue, 497 N.E.2d 874(1986). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Graham v. Deukmejian, 713 F.2d 518 (9 Cir. 1983). . . . . . . . . .39th

Harder’s Express v. State Tax Commission, 402 N.Y.S.2d 721(S.C.N.Y. 1978). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Harris v. Rand, 682 F.3d 846 (9 Cir. 2012). . . . . . . . . . . . . . . . .20th

HCI Distribution v. N.Y. State Police, 948 N.Y.S.2d 542 (N.Y. 2012). .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 33

Hemi Group LLC v. City of New York, ___ U.S. ___, 130 S.Ct. 983, 175L.Ed.2d 943 (2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

-v-


Hexom v. Oregon Department of Transportation, 177 F.3d 1134 (9th

Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19, 23

Hillsborough Township, Somerset County v. Cromwell, 326 U.S. 620,66 S.Ct 445, 90 L.Ed. 358 (1946). . . . . . . . . . . . . . . . . . . . . . . . . 40

J & M Smokehouse v. Department of Revenue, 23 ILR 5112 (1996).21

Jefferson County v. Acker, 527 U.S. 423, 119 S.Ct. 2069, 144L.Ed.2d 408 (1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26, 37, 42

Kathrein v. City of Evanston, Illinois, 636 F.3d 906 (7 Cir. 2011) .26th

Keniston v. Roberts, 717 F.2d 1295 (9 Cir. 1983). . . . . . . . . . . .35th

Kilgore v. Key Bank, 673 F.3d 947 (9 Cir. 2012). . . . . . . . . . . . . .7th

Louisville & N.R. Co. v. F.W. Cook Brewing Co., 223 U.S. 70, 32 S.Ct.189, 56 L.Ed. 355 (1912). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Lujan v. Defenders of Wildlife, 504 U.S. 555, 112 S.Ct 2130, 119L.Ed.2d 351 (1992). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Mahoney v. State Tax Commission, 524 P.2d 187 (Idaho 1973). . .27

Maya v. Centrex Corp., 658 F.3d 1060 (9 Cir. 2011). . . . . . . . . . .20th

M’Colloch v. State of Maryland, 17 U.S. 316, 4 L.Ed 579 (1819). . 7

McClanahan v. State Tax Commission of Arizona, 411 U.S. 164, 93S.Ct 1257, 36 L.Ed.2d 129 (1973) . . . . . . . . . . . . . . . . . . . . . . . . .6

Meredith v. Oregon, 321 F.3d 807 (9 Cir. 2003). . . . . . . . . . . . . .39th

-vi-


Miller Bros. v. Maryland, 347 U.S. 340, 74 S.Ct 535, 98 L.Ed 744(1954). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Moe v. Salish and Kootenai Tribes of the Flathead Reservation, 425U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976). . . . . . . . . . . . . . .7

Monell v. Department of Social Services of City of New York, 436 U.S.658, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978). . . . . . . . . . . . . . . . . . 12

Morongo Band of Mission Indians v. Rose, 893 F.2d 1074 (9 Cir.th

1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Moss v. U.S. Secret Service, 572 F.3d 962 (9 Cir. 2009). . . . . . . .37th

Movsesian v. Victoria Versicherung, 670 F.3d 1067 (9 Cir. 2012). 20th

National Federation of Independent Businesses v. Sebelius, ___ U.S.___, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012). . . . . . . . . . . . . . . .22

Neeld v. Giroux, 131 A.2d 508 (N.J. 1957). . . . . . . . . . . . . . . . . . . 31

North Georgia Finishing v. DiChem Inc., 419 U.S. 601, 95 S.Ct. 719,421 L.Ed.2d 751 (1975). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Patel v. City of San Bernadino, 310 F.3d 1138 (9 Cir. 2002) . 25, 28th

Paul v. Department of Revenue, 110 Wash.App 387, 40 P.3d 1203(2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Pfieffer v. State, 295 S.W.2d 365 (Ark. 1956). . . . . . . . . . . . . . . . .32

Philip Morris USA v. Williams, 549 U.S. 346, 127 S.Ct. 1057, 166L.Ed.2d 940 (2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Pioneer Packing v. Winslow, 294 P. 557 (Wash. 1930). . . . . . . . . . 27

-vii-


Polykoff v. Collins, 816 F.2d 1326 (9 Cir. 1987). . . . . . . . . . . . . .38th

Prairie Band Potawatomi Nation v. Wagnon, 476 F.3d 818 (10 Cir.th

2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Quill Corp v. North Dakota By and Through Heitkamp, 504 U.S. 298,112 S.Ct 1904, 119 L.Ed.2d 91 (1992). . . . . . . . . . . . . . . . . . . . . .9

Red Earth LLC v. United States, 657 F.3d 138, (2 Cir. 2011). . . . .nd

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 28, 29

RK Ventures Inc. v. City of Seattle, 307 F.3d 1045 (9 Cir. 2002) . .8th

Romero v. Kitsap County, 931 F.2d 624 (9 Cir. 1991). . . . . . . . . .5th

Rosewell v. LaSalle National Bank, 450 U.S. 503, 101 S.Ct. 1221, 67L.Ed.2d 464 (1981). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Rowe v. New Hampshire Motor Transport Ass’n, 552 U.S. 364, 128S.Ct. 989, 169 L.Ed.2d 933 (2008). . . . . . . . . . . . . . . . . . . . . . . . .8

Salmon Spawning & Recovery Alliance v. Guiterrez, 545 F.3d 1220(9 Cir. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5th

Sniadach v. Family Finance Corp. of Bayview, 395 U.S. 337, 89 S.Ct.1820, 23 L.Ed.2d 349 (1969). . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Soranno’s Gasco Inc. v. Morgan, 874 F.2d 1310 (9 Cir. 1989). . . 9th

State v. 483 Cases More of Less of Assorted Brands of Cigarettes, 96A.2d 568 (N.H. 1953). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Stivers v. Pierce, 71 F.3d 732 (9 Cir. 1995). . . . . . . . . . . . . . . .4, 37th

Thomas v. County of Los Angeles, 978 F.2d 504 (9 Cir. 1992). . . 12th

-viii-


Trailer Marine Transport Corp. v. Riveria Vazquez, 977 F.2d 1 (1 Cir.st

1992). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Ulrich v. City and County of San Francisco, 308 F.3d 968 (9 Cir.th

2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

United Egg Products v. Department of Agriculture of Puerto Rico, 77F.3d 567 (1 Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29st

U.S. v. 3814 N.W. Thurman Street, 164 F.3d 1191 (9 Cir. 1999). .11th

U.S. v. Bajakajian, 542 U.S. 321, 118 S.Ct 2028, 141 L.Ed.2d 314(1998). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

U.S. v. Corinthian Colleges, 655 F.3d 984 (9 Cir. 2011). . . . . . .34-5th

U.S. v. Henry, 688 F.3d 637, 642 N.5 (9 Cir. 2012). . . . . . . . . . .23th

U.S. v. Locke, 529 U.S. 89, 120 S.Ct 1135, 146 L.Ed.2d 69 (2000).7

U.S. v. Washington, 935 F.2d 1059 (9 Cir. 1991). . . . . . . . . . . . . .5th

U.S. v. Wilbur, 674 F.3d 1160 (9 Cir. 2011). . . . . . . . . . . . . . . . .32th

Viewteck Inc. v. U.S., 653 F.3d 1102 (9 Cir. 2011). . . . . . . . . . . .19th

Ward v. New York, 291 F.Supp.2d 188 (D.C.NY 2003). . . . . . . . . .24

Wells v. Mulloy, 510 F.2d 74 (2 Cir. 1975). . . . . . . . . . . . . . .26, 28nd

Western Coach Corp. v. Shreve, 475 F.2d 754 (9 Cir. 1973). . . .40th

Williams v. Lee, 358 U.S. 217, 79 S.Ct. 269, 3 L.Ed.2d 251 (1959) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6, 8, 41

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Wilson v. Marchington, 127 F.3d 805 (9 Cir. 1997). . . . . . . . .13, 37th

Wood v. Ostrander, 879 F.2d 583 (9 Cir. 1989) . . . . . . . . . . . . . .11th

Wright v. Riveland, 219 F.3d 905 (9 Cir. 2000). . . . . . . . . . . . . . .24th

Statutes

4 U.S.C. § 109. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7, 3218 U.S.C. § 1162. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3218 U.S.C. § 1622. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .725 U.S.C. § 1322. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .728 U.S.C. § 1291. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1428 U.S.C. § 1331 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .828 U.S.C. §1341 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .passim28 U.S.C. § 1343 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 628 U.S.C. § 1738 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 1528 U.S.C. § 2201 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .342 U.S.C. § 1983. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .passim42 U.S.C. § 1985. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Treaty of Medicine Creek, 10 Stat 1132 (1854) . . . . . . . . . . . . . . .7

Federal Constitution

U.S.Const Art I § 8 cl. 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 6, 8U.S.Const Art I § 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8U.S.Const Art III § 2, cl 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8U.S.Const Art IV § 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13, 15U.S.Const Art VI cl.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

State Statutes

Wash.Rev.Code 82.24.040. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31Wash.Rev.Code 82.24.080. . . . . . . . . . . . . . . . . . . . . . . . . . . .11, 42Wash.Rev.Code 82.24.120. . . . . . . . . . . . . . . . . . . . . . . . . .passimWash.Rev.Code 82.24.260. . . . . . . . . . . . . . . . . . . . . . . . . . . .11, 32

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Wash.Rev.Code 82.24.300. . . . . . . . . . . . . . . . . . . . . . . . .11, 32, 39Wash.Rev.Code 82.24.500. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7, 9Wash.Rev.Code 82.24.550. . . . . . . . . . . . . . . . . . . . . . . . . . . .21, 38Wash.Rev.Code 82.24.900. . . . . . . . . . . . . . . . . . . . . . . . . . . .30, 39Wash.Rev.Code 82.32.160. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39Wash.Rev.Code 82.32A.020. . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 38

State Constitution

Wash.Const. art. 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Other Sources

Coeur d’Alene Tribal Code, 4-20.01, 4-25.03. . . . . . . . . . . . . . . . .41

-xi-


No. 12-35479________________________________________________________________

IN THE UNITED STATES COURT OF APPEALSFOR THE NINTH CIRCUIT

________________________________________________________________JESSICA MAE MATHESON, dba JESS’S WHOLESALE;

Plaintiff-Appellant,

v.

LEE SMITH and DOYLE McMINN, Agents or Employees of the Washington State Department of Revenue, JOHN OR JANE DOE,Supervisor to Doyle McMinn, DOES 2 - 6, Other Unknown Agentsor Employees of the Washington State Department of Revenue, andthe Washington State Liquor Control Board; THE WASHINGTONSTATE DEPARTMENT OF REVENUE; THE WASHINGTON STATELIQUOR CONTROL BOARD, and THE STATE OF WASHINGTON;

Defendants-Respondents.________________________________________________________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FORTHE WESTERN DISTRICT OF WASHINGTON, NO. 3:11-cv-05946-RBL, THE HONORABLE RONALD B. LEIGHTON, UNITED STATESDISTRICT COURT JUDGE________________________________________________________________

STATEMENT OF JURISDICTION

Jurisdictional facts are established in the Complaint (Excerpts

-1-


of Record hereafter “ER”) 168, 176-7. It alleges that Matheson is1

a Native American Indian, a state wholesale tobacco licensed

wholesaler and a fully enrolled member of the Puyallup Tribe of

Indians. She qualifies as both a Puyallup and Coeur d’Alene Indian

and lives on the Coeur d’Alene Indian Reservation. She only

transported cigarettes to her Indian relatives on Indian reservations.

ER 179-80, 191. She was never in active business. ER 179. The

trips start and end on the Coeur d’Alene Indian Reservation. ER

179.

The Complaint at ER 180-3, 190-1, alleges that the

Defendants State Department of Revenue and Washington State

Liquor Control Board employees singled Matheson out for

harassment by ignoring her properly filed state tax returns. Instead,

they assessed an illegal tax and huge remedial penalty. They

willfully ignored the fact that she was tax exempt and that no tax

was due, interfered with her deliveries to her close Indian relatives,

Excerpts are referred to as ER. An addendum of rules and statutes 1

including the tribal code is included by separate section.

-2-


violated her interstate and Indian to Indian travel rights and tried

to destroy her valid state tobacco wholesaler’s license and right to

do business in Washington. They also collected beyond their

jurisdiction (ER 184-5) and refused to allow her to contest

constitutionality as required by Wash.Rev.Code 82.32A.020(3) or

reduce the penalties, Wash.Rev.Code 82.24.120(2). ER 184, 190-2.

The Anti-Injunction Act, 28 U.S.C. § 1341, does not prevent

federal court jurisdiction in this case. This seminal jurisdictional

issue is reviewed herein at the Argument, pages 20-30.

Interference with interstate commerce by state officials confers

federal jurisdiction under 42 U.S.C. § 1983. 28 U.S.C. §

1343(a)(3),(4), U.S.Const. art. 1 § 8 cl. 3. Dennis v. Higgins, 498

U.S. 439, 451, 111 S.Ct. 865, 112 L.Ed.2d 969 (1991).

Plaintiff seeks prospective relief allowing her to transport in

interstate and Indian commerce without state interference. ER 195.

Pursuant to Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed

714 (1908) and 28 U.S.C. § 2201(a) as an action for prospective

relief seeking a declaratory judgment that state statutes are

-3-


unconstitutional, thereby violating the U.S. Constitution. ER 197.

The Eleventh Amendment does not bar prospective relief against

state officials acting beyond their jurisdiction and authority. Cerrato

v. San Francisco Community College, 26 F.3d 968, 972 (9 Cir.th

1994); Hason v. Medical Board of California, 279 F.3d 1167, 1171

(9 Cir. 2002); Stivers v. Pierce, 71 F.3d 732, 749 (9th Cir. 1995). th

Federal jurisdiction exists for injunctions against state agents

who force an on-reservation American Indian to report travel off

reservation where the Indian has no minimum contacts in the State.

Prairie Band Potawatomi Nation v. Wagnon, 476 F.3d 818, 829 (10th

Cir. 2007).

Article III jurisdiction exists as Plaintiff seeks damages for an

injury in fact to her legally protected rights against discrimination

of her gender and Indian ancestry. ER 174-5, 180-4, 196. The

violation includes an ongoing attempt to prevent Plaintiff from doing

any business in the state. ER 180, 183-5, 190-1. The injury is

actual and imminent. It is directly traceable to the Defendants’

conduct. It will be redressed by a favorable decision in this case.

-4-


American Civil Liberties Union of Nevada v. Lomax, 471 F.3d 1010,

1015 (9 Cir. 2006); Lujan v. Defenders of Wildlife, 504 U.S. 555,th

560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992); Salmon Spawning &

Recovery Alliance v. Guiterrez, 545 F.3d 1220, 1230 (9 Cir. 2008);th

Bond v. U.S., 131 S.Ct. 2355, 2364, 180 L.Ed.2d 269 (2011). When

an admissions act grants benefits, destruction by state actors grant

beneficiaries Article III civil rights standing. Day v. Apoliona, 496

F.3d 1027, 1029 (9 Cir. 2007). To gain entrance into the Union,th

the state agreed to accept the premise that Congress had exclusive

control of reservation Indians. Wash.Const art. 26, Second.

Confederated Tribes of the Colville Reservation v. Anderson, 761

F.Supp.2d 1101, 1107 amended by 2011 WL 8948779, § 1983

action allowed p. 4 (E.D.Wa 2011); Romero v. Kitsap County, 931

F.2d 624, 627 (9 Cir. 1991).th

A clearly established treaty right supports a federal court

standing for a tribal member to bring suit for a treaty based civil

rights action under 42 U.S.C. § 1983. 28 U.S.C. § 1343(a)(3). U.S.

v. Washington, 935 F.2d 1059, 1062 (9 Cir. 1991). Applicableth

-5-


treaties define the limits of state power, especially taxation. It also

is derived from the federal responsibility to regulate Indian

commerce. U.S.Const. art. 1 § 8 cl. 3, and Williams v. Lee, 358 U.S.

217, 219, 79 S.Ct 269, 3 L.Ed.2d 251 (1959); McClanahan v. State

Tax Commission of Arizona, 411 U.S. 164, 172, 93 S.Ct. 1257, 36

L.Ed.2d 129 (1973).

A conspiracy directed against Matheson by Defendants confers

sex and ethnicity discrimination rights and jurisdiction. 28 U.S.C.

§ 1343(a)(3); 42 U.S.C. §§ 1983, 1985(3). Conroy v. Conroy, 575

F.2d 175, 176 (8 Cir. 1978); Evans v. McKay, 869 F.2d 1341,th

1348-9 (9 Cir. 1989).th

When state laws conflict with the pervasive power of Congress

and is so complete, comprehensive and unified that it precludes

state enforcement, the Supremacy Clause, U.S.Const art. VI cl. 2,

allows federal jurisdiction. Arizona v. U.S., __U.S.__,132 S.Ct. 2492,

2501, 183 L.Ed.2d 351 (June 25, 2012).

The basic issue in Arizona is the right to exclude. Id. at 2511.

(Justice Scalia concurring in part and dissenting in part). The

-6-


Treaty of Medicine Creek signed December 26, 1854, 10 Stat. 1132,

in its Section 2, retained the right of Puyallup Indians to exclude all

persons who did not receive tribal permission. The treaty rights of

Medicine Creek allow exclusion of the State and freedom from state

tobacco licensing. Moe v. Salish and Kootenai Tribes of the Flathead

Reservation, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976)

recognized that individual Indians have standing for state cigarette

tax imposition. The state has no jurisdiction. Id. at 474, n. 14.

The Supremacy Clause also grants federal jurisdiction to

invalidate state law and regulations contrary to federal law. U.S. v.

Locke, 529 U.S. 89, 117, 120 S.Ct. 1135, 146 L.Ed.2d 69 (2000);

Duke Energy Trading and Marketing LLC v. Davis, 267 F.3d 1042,

1055 (9 Cir. 2001). Federal law prohibits state taxation onth

reservation Indians. 18 U.S.C. § 1622(b), 25 U.S.C. § 1322(b), 4

U.S.C. § 109. Kilgore v. Key Bank, 673 F.3d 947, 956 (9 Cir.th

2012). It also prevents taxation of federally protected

instrumentalities. M’Colloch v. State of Maryland, 17 U.S. 316, 432,

4 L.Ed 579 (1819).

-7-


28 U.S.C. § 1331 supports federal preemption jurisdiction.

The federal law has created this action as it arises under U.S. Const

art. I § 8 cl. 3, art. I § 10, art. III § 2 cl. 1, and Amendment VIII; 42

U.S.C. § 1983 and Title VII of the Civil Rights Act of 1964.

28 U.S.C. § 1331 jurisdiction also exists when on-reservation

collection against a reservation Indian is at issue. Babbitt Ford Inc.

v. Navajo Indian Tribe, 710 F.2d 587, 591 (9 Cir. 1983). Williamsth

v. Lee, 358 U.S. 217, 219, 79 S.Ct. 269, 3 L.Ed.2d 251 (1959).

State law preempted by the federal law of cigarette

transportation confers federal district court jurisdiction. Rowe v.

New Hampshire Motor Transport Ass’n, 552 U.S. 364, 369, 128 S.Ct.

989, 169 L.Ed.2d 933 (2008). State laws applying differently to

Indians than others are preempted. Cabazon Band of Mission

Indians v. Smith, 388 F.3d 691, 699 (9 Cir. 2004).th

Failure to allow a license hearing and penalty of abatement

pursuant to Wash.Rev.Code 82.24.120(2) alone is sufficient to bring

a civil rights action and also raise a genuine issue of fact precluding

dismissal. RK Ventures Inc. v. City of Seattle, 307 F.3d 1045, 1063

-8-


(9 Cir. 2002) requires a factual determination where raciallyth

motivated harassment by failure to settle is pled. Failure to follow

due process and denying a hearing on a penalty for alleged remedial

penalty and tobacco license violations, Wash.Rev.Code 82.24.120

and 82.24.500, confers Fourteenth Amendment civil rights

jurisdiction. Soranno’s Gasco Inc. v. Morgan, 874 F.2d 1310 (9 Cir.th

1989) holds that motivation to suspend permits to maximize harm

to a protected right are allocations sufficient to establish federal §

1983 jurisdiction. The Fourteenth Amendment confers jurisdiction

to review excessive economic sanctions designed to change conduct

beyond jurisdiction. BMW of North America v. Gore, 517 U.S. 559,

572, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996).

The U.S. Constitution’s Fourteenth Amendment grants

declaratory relief against state tax that interferes with Indian and

interstate commerce. Red Earth LLC v. U.S., 657 F.3d 138, 145 (2nd

Cir. 2011); Quill Corp v. North Dakota, 504 U.S. 298, 313, 112 S.Ct.

1904, 119 L.Ed.2d 91 (1992). Miller Bros v. Maryland, 347 U.S. 340,

344-45, 74 S.Ct. 535, 98 L.Ed 744 (1954) allows shipments into a

-9-


state to be exempt from state taxation. Indian cigarette and other

hauling is exempt from state interference. Cree v. Flores, 157 F.3d

762 (9 Cir. 1998); HCI Distribution v. N.Y. State Police, 948 N.Y.S.2dth

542 (N.Y. 2012).

Unconstitutional state regulation of interstate transportation

allows federal court injunctive relief. Louisville & N.R. Co. v.

F.W.Cook Brewing Co., 223 U.S. 70, 72, 32 S.Ct. 189, 56 L.Ed 355

(1912).

Defendants are within federal jurisdiction for violating the

excessive fines clause of the U.S.Const. Amendment VIII and XIV by

imposing a 7 million dollar remedial penalty without good cause and

for refusing a pre or post assessment review. Austin v. U.S., 509

U.S. 602, 622, 113 S.Ct. 2801 125 L.Ed.2d 488 (1993); U.S. v.

Bajakajian, 524 U.S. 321, 337, 118 S.Ct. 2028, 141 L.Ed.2d 314

(1998); Wash.Rev.Code 82.24.120. North Georgia Finishing v.

DiChem Inc., 419 U.S. 601, 95 S.Ct. 719, 421 L.Ed.2d 751 (1975);

Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556

(1972).

-10-


Defendants intentionally ignored good cause in failing to

reduce penalties. Wash.Rev.Code 82.24.120(2) and the state

cigarette tax code exempting Indians and wholesalers from the state

cigarette tax. Wash.Rev.Code 82.24.260(c); 82.24.080(2); 82.24.300;

82.24.080(1) and (2). Since Defendants lost no revenue, the fine

was excessive. U.S. v. 3814 N.W. Thurman Street, 164 F.3d 1191,

1198 (9 Cir. 1999) as amended by 172 F.3d 689. th

The Defendants, acting under state law, deliberately deprived

Matheson of her federal constitutional rights. Wood v. Ostrander,

879 F.2d 583, 590 (9 Cir. 1989). th

Agua Caliente Band of Cahuilla Indians v. Hardin, 223 F.3d

1041, 1050 (9 Cir. 2000) completely rejects the Tax Injunction Actth

and the Eleventh Amendment. The court held, “we conclude that

the existence of a remedy at law in state court is not a bar to the

Young exception.” The holding was that Ex Parte Young, 209, U.S.

123, 28 S.Ct. 441, 52 L.Ed. 714 (1908) does not prevent declaratory

relief against state officials.

-11-


Intentional failure to find good cause to relieve penalties under

Wash.Rev.Code 82.24.120(2) and deprivation of tobacco and

business license rights by state actors under color of state law is

sufficient for the maintenance of a federal 42 U.S.C. § 1983 action.

Matheson alleges this conduct by Defendants. ER 172-3, 186, 190-

3. Chudacoff v. University Medical Center of Southern Nevada, 649

F.3d 1143, 1149 (9 Cir. 2011) establishes federal jurisdiction of ath

§ 1983 case for intentional deprivation of state licenses. The policy

of a government to harass the Matheson family allows a civil rights

suit in federal court. Monell v. Department of Social Services of City

of New York, 436 U.S. 658, 692, 98 S.Ct. 2018, 56 L.Ed.2d 611

(1978). § 1983, “plainly imposes liability on a government that,

under color of some official policy, causes an employee to violate

another’s constitutional rights.” Real and immediate threat of

injury by pattern of misconduct against the Matheson family allows

a § 1983 federal suit. Thomas v. County of Los Angeles, 978 F.2d

504, 508 (9 Cir. 1992).th

-12-


Intentional failure to determine whether Jessica Matheson sold

cigarettes to any taxable person, failure to determine whether the

cigarettes had any tax paid and intentional failure to accord her the

Indian constitutional right to be free of state tax gives federal

jurisdiction of a 42 U.S.C. § 1983 action. Elliot Park v. Manglona,

592 F.3d 1003, 1007 (9 Cir. 2010), “The government may notth

racially discriminate in the administration of its services.”

Matheson was refused hearings. ER 173.

Federal jurisdiction exists for failure to recognize collection

rights and to collect in tribal court. U.S.Const. art. IV § 1, Franchise

Tax Board of California v. Hyatt, 538 U.S. 488, 499, 123 S.Ct. 1683,

155 L.Ed.2d 702 (2003) recognizes that California could collect its

income taxes in Nevada from a former state resident but is not

entitled to Eleventh Amendment immunity in the sister state. The

State and state officials are collecting from a foreign resident. Tribal

court proceedings were not recognized as required by 28 U.S.C. §

1738, nor were principles of comity. Wilson v. Marchington, 127 F.3d

805, 811 (9 Cir. 1997) requires comity principles for reciprocalth

-13-


jurisdiction of tribal courts. The activity confers federal jurisdiction.

Defendants are not entitled to the defense of the Anti-Injunction Act

or Eleventh Amendment immunity.

This Court has jurisdiction pursuant to 28 U.S.C. § 1291. The

District Court entered the Order Granting Defendants’ Motion to

Dismiss and Denying Plaintiff’s Motion for Preliminary Injunction on

May 22, 2012. A timely appeal was filed on June 8, 2012. The

Appellant’s Opening Brief is due October 1, 2012.

STATEMENT OF ISSUES

A. Whether the review of the 7 million state remedial penalty

assessed in this case is beyond the scope of 28 U.S.C. § 1341 and

does not bar federal court jurisdiction.

B. Whether the $1,424,385 tax in the case was actually a

tax or a penalty, since it was assessed to cancel Matheson’s state

tax licenses.

C. Whether the collection of the taxes by filing a lien and

proceeding to intentionally deprive Matheson of her right to do

business in the state violates constitutional principles conferring

-14-


civil rights and Article III jurisdiction.

D. Whether the State had nexus jurisdiction to tax

Matheson.

E. Whether the State’s refusal to recognize tribal court

collection jurisdiction allows federal court jurisdiction pursuant to

the U.S.Const. art. IV § 1 and 28 U.S.C. § 1738.

F. Whether the Eighth Amendment excess penalty

protection grants Matheson access to the federal court.

G. Whether the interstate commerce clause and Indian

commerce clause provide Matheson a federal civil rights remedy.

H. Whether the Complaint alleged facts of prospective relief

allowing the Court to hear an injunction against continued

collection in the State and against Matheson, who lives on the

Coeur d’Alene Indian Reservation.

I. Whether abstention applies.

J. Whether the trial court erred in failing to allow the

Amended and Supplemental Complaint based on law and factual

events occurring after the original Complaint was filed.

-15-


K. Whether the Complaint states a claim allowing relief.

STATEMENT OF THE CASE

Plaintiff-Appellant filed her Complaint in the District Court on

November 17, 2011. ER 167. She moved for a preliminary

injunction to prohibit continuing collection of the judgment on

December 31, 2011. ER 162. On December 19, 2011, all

Defendants moved to dismiss the case pursuant to Fed.R.Civ.P.

12(b)(1) and (6). ER 8.

On May 17, 2012, the Court granted the Defendants’ Motion

to Dismiss and denied the Motion for Preliminary Injunction. ER 5.

The judgment of dismissal was filed on May 22, 2012. ER 4.

On June 4, 2012, Plaintiff moved to file an amended complaint

(ER 19) supported by a declaration. ER 77.

On June 14, 2012, Plaintiff filed a Fed.R.App. 12.1 Motion for

Remand to District Court to remand to District Court. The District

Court denied the Motion on July 17, 2012, on the basis that the

Amended Complaint did not raise a substantial issue.

The Notice of Appeal was timely filed on June 8, 2012. ER 1.

-16-


STATEMENT OF FACTS

The basic fact is that Jessica Matheson is an enrolled Indian

who has a Washington State wholesaler’s licence to transport

unstamped cigarettes. She has lived on Indian reservations all her

life. ER 177. In 2006, she obtained a Washington State tobacco

license allowing her to transport commercial cigarettes in her own

vehicle that do not have Washington state tax paid stamps on them.

ER 163, 168, 176-7. Even though she can transport untaxed

cigarettes, she has been assessed a 9 million dollar assessment by

the Defendant State of Washington employees for cigarette tax,

remedial penalties and interest for transporting cigarettes without

tax. ER 168. She has never engaged in business anywhere. ER 159,

179-80.

In the proceeding before the Washington State Board of Tax

Appeals, as quoted at page 6 of the Complaint. ER 172. Matheson

proved that the State had no evidence of unstamped cigarettes or

sale to any non-exempt persons.

-17-


The Complaint (ER 181-184) also alleges that the Defendants

admitted they have no proof of any taxable sales. The Defendants

know that Matheson was exempt from the state cigarette tax.

Nevertheless, they proceeded to collect the tax judgment. ER 181-3.

Defendants were furnished Washington State excise tax

returns in which tax exempt cases were referenced stating that

tribal Indians did not owe Business and Occupation tax. Despite

this knowledge, they insisted that the tax returns be filed every

quarter. ER 180-1.

Matheson, in addition to a tobacco license, was issued a

general business license. ER 168, 183. Matheson never did any

business in Washington or anywhere else. ER 159. The activity

was only family activity and only to or from Indian reservations as

all trips were roundtrips. ER 158-9, 179.

Military shipments of cigarettes onto military bases were not

required to give notice. ER 191. This legislation is discriminatory

against Indians. Matheson seeks a declaratory judgment

invalidating these laws to allow her free transportation to and from

-18-


Indian reservations. ER 194-5. She also seeks damages for civil

rights violations. ER 201.

SUMMARY OF ARGUMENT

The Complaint alleges ongoing intentional violations by state

employees of Matheson’s federal rights to interstate travel, disregard

of her on-reservation Indian status, her licenses and exemption

from state tax and tax collection. Federal jurisdiction under § 1983

exists.

ARGUMENT

A. Standard for Review.

Review of a motion to dismiss for lack of subject matter

jurisdiction under Federal Rule of Civil Procedure 12(b)(6) is de

novo. Viewteck Inc. v. U.S., 653 F.3d 1102, 1004 (9 Cir. 2011). th

Determinations of state law are reviewed de novo. Chapman v.

Deutsche Bank, 651 F.3d 1039, 1043 (9 Cir. 2011). Whether a taxth

is a penalty supports de novo review. Hexom v. Oregon Dept. of

Transportation, 177 F.3d 1134, 1135 (9 Cir. 1999). th

-19-


In determining constitutional standing, under Fed.R.Civ.P

12(b)(1), affidavits may be considered. The constitutional standing

issue requires focus on jurisprudence. On failure to state a claim,

plausible facts must be accepted as true. Matheson’s Declaration

(ER 157-9) establishes that she was not in business in Washington.

In this case, Matheson alleges lifetime Indian reservation residence.

ER 177, 179, 191-3. Due process was violated. The Complaint

must be construed in favor of Matheson. Maya v. Centrex Corp., 658

F.3d 1060, 1068 (9 Cir. 2011). The Complaint does not requireth

heightened pleading to prove lack of jurisdiction. Harris v. Rand,

682 F.3d 846, 851 (9 Cir. 2012). th

B. The Tax Injunction Act does not Apply to this Case.

This case was dismissed on the basis of the Anti-Injunction

Act, 28 U.S.C. § 1341, stating, “The district courts shall not enjoin,

suspend or restrain the assessment, levy or collection of any tax

under state law where a plain, speedy and efficient remedy may be

had in the courts of such state.” This is a question of law reviewable

de novo. Movsesian v. Victoria Versicherung, 670 F.3d 1067, 1071

-20-


(9 Cir. 2012).th

1. The Tax Was Assessed to Penalize Matheson and Cancel Her License, Not Raise Revenue.

The Defendants Liquor Control Board and Department of

Revenue employees knew Matheson was tax exempt. ER 181. They

wanted to cancel her bond so her tobacco license could not be

renewed. ER 183. They were furnished the tax exemption cases of

J & M Smokehouse v. Department of Revenue, 23 ILR 5112 (1996)

and Cates & Erb v. Department of Revenue, Case No. C-89-690-RJM

with the filed income tax returns filed with Defendants. ER 181.

The state actors did not base the tax assessment on the tax returns,

instead, they based it on reports of transportation that have nothing

to do with tax. ER 180. If the reports were wrong, they could only

support a maximum 30 day license suspension. Wash.Rev.Code

82.24.550(3). A statute that allows for notice and hearing.

Defendants never followed this law.

The Tax Injunction Act was intended to allow a state to collect

a constant stream of revenue. Here, Matheson was tax exempt and

the tax was used to run her out of a right to do business in

-21-


Washington.

National Federation of Independent Businesses v. Sebelius, ___

U.S. ___, 132 S.Ct. 2566, 2582, 183 L.Ed.2d 450 (2012) applies.

This case alone supplies grounds for reversal. It holds that

penalties and taxes enforced as penalties are not within the Tax

Injunction Act, for the reason that 28 U.S.C. § 1341 does not

contain the word penalty, only tax. It held, “there is no immediate

reason to think that a statute applying to ‘any tax’ would apply to

a penalty.” The court, (Id. at 2584) also states, “The Affordable Care

Act does not require that the penalty for failing to comply with the

individual mandate be treated as a tax for purposes of the Anti-

Injunction Act.” On 2582, the Tax Injunction Act ...“protects the

government’s ability to collect a constant stream of revenue.”

On 2584, “The Anti-Injunction Act, by contrast, says nothing

about the procedures to be used in assessing and collecting taxes.”

On 2582-3, “The text of the pertinent statutes suggests otherwise.

The Anti-Injunction Act applies to suits for the purpose of

restraining the assessment or collection of any tax.” Congress,

-22-


however, chose to describe the [s]hared responsibility payment

imposed on those who forego health insurance not as a ‘tax’ but as

a ‘penalty.’ §§ 5000A(b),(g)(2). There is no immediate reason to

think that a statute apply to ‘any tax’ would apply to a ‘penalty’.”

The clear and recent controlling precedent of National

Federation, supra, completely rejects penalties from application of

the Anti-Injunction Act. On-reservation Indians do not pay taxes.

There is no stream of commerce. Sebelius, 132 S.Ct. at 2587,

changed the reach of the commerce clause on local power. U.S. v.

Henry, 688 F.3d 637, 642 N.5 (9 Cir. 2012). th

Trailer Marine Transport Corp v. Riveria Vazquez, 977 F.2d 1,

6 (1 Cir. 1992) holds that unless the tax is within the centralst

stream of revenue and to regulate conduct. Here, the State was

trying to regulate Matheson’s conduct.

Hexom v. Oregon Department of Transportation, 177 F.3d 1134,

1138 (9 Cir. 1999) held that a four dollar fee to apply for a disabledth

parking permit was not a tax but a regulatory fee, regardless of

where the money is deposited. “It is what the purpose or use of the

-23-


assessment truly is.” The issue is why the money is taken.

Matheson was assessed a 7 million dollar penalty specifically

defined in Wash.Rev.Code 82.24.120 as “a remedial penalty.” It had

to be a penalty as all the tax that could possibly be assessed, 1.4

million, was assessed at the same time.

Where funds are seized by the state from incoming prisoner

funds by Washington statute is on a narrow class, the application

to defray costs is not a tax but an excessive penalty. If the

assessment is not a tax § 1983 jurisdiction exists. Wright v.

Riveland, 219 F.3d 905, 916 (9 Cir. 2000). th

On-reservation cigarette transactions between Indians are not

subject to state regulation and allow injunctive relief against a state.

Ward v. New York, 291 F.Supp.2d 188, 206-7 (D.C.N.Y. 2003).

A second reason is that all of these principles prove that the

State has no basis to collect the tax. Indians transporting out-of-

state do not have to pay state taxes. Paul v. Department of Revenue,

110 Wash.App 387, 40 P.3d 1203 (2002). The continued collection

of an unconstitutional tax is not within the Anti-Injunction Act.

-24-


This Court upheld this issue in Patel v. City of San Bernadino, 310

F.3d 1138, 1142 (9 Cir. 2002). Patel distinguished Fair Assessmentth

and National Private Truck Association v. McNary, 454 U.S. 100, 102

S.Ct. 177, 70 L.Ed.271 (1981) on the basis that an attempt to

collect a tax already declared unconstitutional is not intrusive to a

constant stream of revenue. Patel applies.

A third reason is that Auga Caliente Band of Cahuilla Indians

v. Hardin, 223 F.3d 1041,1046 (9 Cir. 2000) holds that a civilth

rights action for injunction against a state sales tax assessment on

businesses within an Indian reservation confers jurisdiction against

the state officers for future transactions. The Ex parte Young, 209

U.S. 123, 28 S.Ct. 441, 52 L.Ed 714 (1908) exception prevailed over

Eleventh Amendment immunity.

2. Regardless of the 1.4 Million TaxAssessment, the Seven Million Dollar RemedialPenalty is not a Tax.

The maximum tax was assessed and cannot be a tax penalty.

The remedial penalty ostensibly must be for failure to follow the

entire chapter. Wash.Rev.Code 82.24. ER 206, 213-4.

-25-


A fourth reason is that the allegations include the State’s

attempt to cancel existing licenses for non-payment of the tax and

penalties. Kathrein v. City of Evanston, Illinois, 636 F.3d 906, 911

(7 Cir. 2011) held that a tax to regulate and support affordableth

housing is a penalty, not a tax, and therefore not within the Anti-

Injunction Act of 28 U.S.C. § 1341. The court found standing and

jurisdiction for the civil rights suit since the individual, as here,

suffered direct injury traceable to the actions of the Defendant that

will be redressed by a favorable decision. Id. at 914.

Wells v. Mulloy, 510 F.2d 74, 77 (2 Cir. 1975) held that thend

coercive power used to deprive a driver’s license for non-payment of

taxes violates equal protection and prevents the application of 28

U.S.C. § 1341.

The fifth reason is that Matheson seeks an injunction against

collection of the penalty and tax judgment. The lien filing is ongoing.

ER 203. Jefferson County v. Acker, 527 U.S. 423, 119 S.Ct. 2069,

144 L.Ed.2d 408 (1999) held that 28 U.S.C. § 1341 does not apply

to collection suits or defenses to collection.

-26-


Jefferson County was decided years after Comenout v.

Washington, 722 F.2d 574 (9 Cir. 1983). It unequivocally holdsth

that, “In sum, we hold that the Tax Injunction Act, as indicated by

its terms and purpose, does not bar collection suits, nor does it

prevent taxpayers from urging defenses in such suits that the tax

for which collection is sought is invalid.” Id. at 435.

A sixth reason is that the Defendants did not intend to collect

the normal stream of taxes. The Complaint alleges at ER 183 that

Matheson could not post a bond. She listed her assets which were

minimal. ER 157. Defendants knew they could never collect the

amount. No on-reservation Indian of the Coeur d’Alene Reservation

could post an eight million dollar bond. The Defendant had no

evidence of taxable sales. They did not care about taxes since no

taxable sales occurred.

A state cannot impose cigarette tax on cigarettes in Indian

commerce. Mahoney v. State Tax Commission, 524 P.2d 187, 192

(Idaho 1973). Shipment of Indian goods by shipper in interstate

commerce cannot be regulated by the state. Pioneer Packing v.

-27-


Winslow, 294 P. 557, 560 (Wash. 1930).

The Tax Injunction Act does not apply to tax collection. Wells

v. Mulloy, 510 F.2d 74, 77 (2 Cir. 1975) refused to apply 28 U.S.C.nd

§ 1341 to a license suspension for non-payment of taxes. Red Earth

LLC v. U.S., 678 F.3d 138, 145 (2 Cir. 2011) upheld an injunctionnd

against a statute that cigarette tax stamps must be placed on a

delivery of cigarettes destined to an Indian reservation based on due

process grounds. The anti injunction act did not apply as the act

was imposed to “produce money or other property directly, rather

than indirectly through a more general use of coercive power.”

3. Collection of Tax from Others is Not Within 28U.S.C. § 1341.

Patel v. City of San Bernadino, 310 F.3d 1138, 1141-2 (9 Cir.th

2002) notes that the hotel owners were not the taxpayers, but only

were collecting the tax from their hotel guests. Here, Matheson is

not a taxpayer and did not owe the tax. Her only liability would be

for failure to collect from taxable persons. This alone would not be

within 1341 as it applies to “taxpayers.” The allegations of this

case, (ER 169), prove that Defendants knew Matheson was a tax

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exempt Indian, but collected the tax held unconstitutional by Moe

and McClanahan by preemption and the federal instrumentality

doctrine.

The out-of-state seller was not the person who had the duty to

collect the tax. There is no doubt that the reasoning applies here as

Confederated Tribes and Bands of the Yakama Nation v. Gregoire,

668 F.3d 1078, 1089 (9 Cir. 2011) clearly holds that the cigaretteth

consumer is legally obligated to pay the Washington State cigarette

tax. Red Earth LLC v. U.S., 657 F.3d 138, 145 (2 Cir. 2011) heldnd

that an out-of-state shipper of cigarettes to an Indian reservation

retailer cannot be forced to put cigarette stamps on the packages as

there was no jurisdiction and the due process clause of the

Fourteenth Amendment was violated.

United Egg Products v. Department of Agriculture of Puerto Rico,

77 F.3d 567, 571 (1 Cir. 1996) requiring eggs imported to Puertost

Rico to be labeled with the state of origin violates the dormant

commerce clause. Transportation from an Indian reservation out-of-

state cannot be regulated by the State of Washington.

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Crown Zellerbach v. State, 278 P.2d 305, 309 (Wash.1954)

holds that a state tax on interstate wholesaling is a federal

constitutional violation. It states, “Appellant is not subject to a tax

with respect to its interstate wholesaling activities. Basically, this is

because the federal constitution prohibits the state from taxing

such sales.” Matheson delivered to a tax exempt area on the

Puyallup Reservation (ER 187) or to Idaho. ER 158-9, 179.

Wash.Rev.Code 82.24.900 rejects the cigarette tax if the federal

constitution is violated.

4. Matheson Never Lived in the State and Neverhad Minimum Contacts. The State had noJurisdiction for Any Assessment.

Consolidated Coal Co v. Porterfield, 267 N.E.2d 304, 307-8

(Ohio 1971) is factually in point. Coal cars sat empty in Ohio for

several days. They were on a roundtrip from Pennsylvania to a coal

mine in Ohio for loading and delivering the coal to a Michigan

destination. The excise tax of Ohio did not apply as there was no

taxable moment to interrupt interstate commerce. The court held

that the loading in Ohio did not end the roundtrip in interstate

-30-


commerce.

Goods shipped in their original containers including cigarettes

for shipment out-of-state, cannot be taxed Union Oil Co v. State, 216

P. 22 (Wash. 1923).

Galesburg Eby-Brown Company v. Department of Revenue, 497

N.E.2d 874, 876 (1986) holds that the commerce clause is violated

if cigarettes destined for another state must be stamped with

cigarette stamps where located. Here, the pickup from another

wholesaler did not impose a state tax since it was wholesaler to

wholesaler. Wash.Rev.Code 82.24.040(1), 080(2).

Cargo stolen en route is not taxable since the liability for the

tax is on the consumer. Harder’s Express v. State Tax Commission,

402 N.Y.S.2d 721, 722 (S.C.N.Y. 1978).

A long line of cases on cigarette tax transportation holds that

cigarettes can be transported without stamps or cigarette tax when

they are interstate or not intended to be sold in the state. These

include Neeld v. Giroux, 131 A.2d 508 (N.J. 1957) holding that

interstate transportation even without documents, cannot require

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a state cigarette tax to be paid. Sealed cartons of cigarettes of

cigarettes could not be seized where there was no proof they were

to be consumed in the state. State v. 483 Cases More or Less of

Assorted Brands of Cigarettes, 96 A.2d 568 (N.H. 1953).

Pfieffer v. State, 295 S.W.2d 365, 368 (Ark. 1956) holds, “the

State had no authority to levy a tax on property while it was being

transported in interstate commerce.”

A statute that applies only to common carriers and not the

retailer’s own transportation is invalid as violating federal law.

Department of Transportation v. National Private Truck Council, 480

S.E.2d 500, 502 (Va 1997) Here, military transportation is exempt,

but not Indians as they have to notify the state. Wash.Rev.Code

82.24.260(1)(b),(c) violates 18 U.S.C. § 1162 and 4 U.S.C. § 109.

U.S. v. Wilbur, 674 F.3d 1160, 1171 (9 Cir. 2011) establishesth

that a licensed retailer doing business on an Indian reservation that

has compacted with the State is not liable for the state cigarette tax.

Paul Matheson is a Puyallup Reservation retailer. Wash.Rev.Code

82.24.300 applies, so his customers are not liable for the state

-32-


cigarette tax.

HCI Distribution Inc. v. New York State Police, 948 N.Y.S.2d 542,

548 (S.C.N.Y. 2012) held that a common carrier transporting in

interstate Indian commerce is not liable for state cigarette tax. The

grounds for the decision was that, like here, it was “pure

speculation” that the cigarettes would be sold of reservation.

Matheson’s exemption is far greater than any of the above

cited cases for the obvious reason that she had a valid cigarette

wholesalers license allowing her to transport unstamped cigarettes

anywhere in the state, that she never did business in the state, that

she was an Indian who was exempt from state tax and that she was

delivering to licensed Indians, neither of which needed to collect the

state cigarette tax.

C. The Amended and Supplemental Complaint ShouldBe Allowed.

Denial of leave to amend a § 1983 claim is reviewed for abuse

of discretion. AE ex rel Hernandez v. County of Tulare, 666 F.3d

631, 636 (9 Cir. 2012). “A district court abuses its discretion byth

denying leave to amend unless amendment would be futile or the

-33-


Plaintiff has failed to cure the complaint’s deficiencies despite

repeated opportunities.” The case also upholds amendment when

intervening law has changed. The original Complaint in this case

is dated September 9, 2011, and was filed November 17, 2011. The

Amended Supplemental Complaint was lodged June 4, 2012. In the

interim, the Defendants attempted to revoke Matheson’s business

license based on failure to pay $9,235,634. Matheson’s bank

account in Spokane was levied on by Defendants on November 9,

2011, and Matheson was charged with a seventy five dollar fee. (ER

158). The Declaration of Robert E. Kovacevich (ER 79) verifies that

Defendant McMinn on March 21, 2012, is trying to cancel

Matheson’s general business license. The Amended and

Supplemental Complaint alleged that Defendants, after the

Complaint was filed, continued in bad faith to collect against and

harassed Matheson. ER 43-44.

U.S. v. Corinthian Colleges, 655 F.3d 984, 995 (9 Cir. 2011)th

establishes the standards for leave to amend, stating:

‘The standard for granting leave to amend is generous.’

-34-


Balisteri, 901 F.2d at 701. The court considers fivefactors in assessing the propriety of leave to amend-badfaith, undue delay, prejudice to the opposing party,futility of amendment, and whether the Plaintiff haspreviously amended the complaint.

Like Corinthian, the case contains no evidence of delay,

prejudice, bad faith or prior amendments. “Therefore, leave to

amend turns on whether the amendment would be futile”. Id at

955. To determine futility, a de novo review of the complaint is

required. Applying the Corinthian standards, the ongoing collection

action of Defendant Doyle McMinn to attempt to revoke Matheson’s

business license, harassment by still insisting that tax forms be

filed even after the case was filed, refusal to acknowledge or transfer

collection to the tribal court, and other ongoing civil rights violations

occurring after the date of the first complaint, including business

license revocation, are alleged in the Amended Complaint. ER 43.

Matheson’s Complaint alleges 14 Amendment hearingth

violations. ER 173, 184-5, 189. This allegation allows § 1983 case

amendment. Keniston v. Roberts, 717 F.2d 1295 (9 Cir. 1983). th

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D. The Civil Rights Issue Is Properly Pled and Allows Federal Court Jurisdiction.

This issue is reviewed de novo. Bravo v. City of Santa Maria,

665 F.3d 1076, 1083 (9 Cir. 2011). th

The allegations of Complaint, which must be taken use true

establish far more civil rights violation, is unrelated to the cigarette

tax assessment. The seven million dollar remedial penalty was

assessed. ER 207. Matheson was in interstate or Indian commerce.

ER 179, 180, 191. Failure to file transportation reports cannot

sustain a cigarette tax as the duty to pay is on the purchaser. Hemi

Group LLC v. City of New York, ___ U.S. ___, 130 S.Ct 983, 994, 175

L.Ed.2d 943 (2010); Confederated Tribes of the Yakama Indian

Reservation v. Gregoire, 658 F.3d 1078, 10891 (9 Cir. 2011). th

Matheson never sold to a taxable person. Her right to do

business in Washington is challenged. Collection beyond

jurisdiction and intentional interference with transportation, Indian

relative to Indian relative, violates tobacco wholesale licensing and

due process. Excessive fines and racial discrimination are also

alleged. ER 168-9. All of these allegations easily establish a civil

-36-


rights case allowing injunctive relief and damages. These allegations

clearly establish subject matter jurisdiction.

The unlawful suspension of licensing privileges is a § 1983

violation. Chudakoff v. University Medical Center of Southern Nevada,

649 F.3d 1143, 1150-1 (9 Cir. 2011). “They cannot now escapeth

liability for their direct and personal participation in Chudaloff’s

unlawful suspension. ...”

Jefferson County v. Acker, 527 U.S. 423, 435, 119 S.Ct. 2069,

144 L.Ed.2d 408 (1999) also applies as defenses to collection

including the limitations imposed by removal and tribal court law

apply. Refusal to recognize the tribal court jurisdiction and

exemption is alleged. ER 184. Wilson v. Marchington, 127 F.3d 805,

812 (9 Cir. 1997) recognizes reciprocal comity of tribal courts. Theth

Washington Court Rule, CR 82.5, mandates that collection be

transferred. Due process is violated. When justice so requires,

amendment is to be applied with extreme liberality. Morongo Band

of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9 Cir. 1990); Mossth

v. U.S. Secret Service, 572 F.3d 962, 972 (9 Cir. 2009). Stivers v.th

-37-


Pierce, 71 F.3d 732, 753 (9 Cir. 1995) allows injunctive reliefth

against a state board for state license denial where no fair hearing

was held.

E. The Exhaustion of Remedy Issue does not Apply tothis Case Where the Defendants Totally Ignored StateStatutes Allowing Hearings.

This issue is reviewed de novo. Polykoff v. Collins, 816 F.2d

1326, 1332 (9 Cir. 1987). De novo applies to review whether theth

complaint states a claim. Acosta v. City of Mesa, __ F.3d __, 2012

WL 3834658, p. 3 (9 Cir. 2012).th

Wash.Rev.Code 82.24.120 contains no provision for a pre-

assessment hearing. The Department of Revenue “for good reason

shown” can waive or cancel the penalty. Wash.Rev.Code

82.24.120(2). Wash.Rev.Code 82.24.550(3) allows a pre-penalty

hearing to a licensed wholesaler and at most, a 30 day suspension.

No hearing was offered and the 9 million penalty, not suspension,

was assessed.

Unrelated to the penalty, the taxpayer rights section of the

state law, Wash.Rev.Code 82.32A.020(2) and (3) allow a taxpayer

-38-


relief if the taxpayer relied on case law to her detriment or alleged

unconstitutionality defenses. Wash.Rev.Code 82.24.900 specifically

prohibits unconstitutional taxing as does Wash.Rev.Code 82.24.300

to Paul Matheson’s deliveries.

The Defendants admit that they were notified of due process

violations. ER 182. The meeting required by Wash.Rev.Code

82.32.160 was denied. The cigarette tax was not assessed on the

tax returns of Matheson, but on the reports of shipments. ER 208.

Where no opportunity was provided by state law for a stay of

the penalty assessment, the abstention rule to ongoing litigation in

state court does not apply. Meredith v. Oregon, 321 F.3d 807, 820

(9 Cir. 2003).th

Harassment of licensed physicians infringing on constitutional

rights allowed federal court civil rights suit and denied abstention.

Graham v. Deukmejian, 713 F.2d 518, 520 (9 Cir. 1983). If theth

statute is uncertainty on collection, the abstention rule does not

apply. Direct Marketing v. Bennett, 916 F.2d 1451 (9 Cir. 1990). th

-39-


Matheson’s Complaint alleges discriminatory treatment. ER

168, 172-3, 178-185. Hillsborough Township, Somerset County v.

Cromwell, 326 U.S. 620, 624, 66 S.Ct. 445, 90 L.Ed 358 (1946)

holds that if the discriminatory treatment violates federal

constitutional rights, the state remedy is inadequate and the

exhaustion of state remedies does not prevent federal jurisdiction.

The state procedure must meet minimal procedural criteria.

Uncertainty of a state remedy lifts the bar against federal

jurisdiction. Rosewell v. LaSalle National Bank, 450 U.S. 503, 515,

101 S.Ct. 1221, 67 L.Ed.2d 464 (1981).

Sniadach v. Family Finance Corp of Bayview, 395 U.S. 337,

341, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1967) requires a judgment

before a collection in order to satisfy constitutional due process. If

due process does not allow a state law an opportunity to be heard,

federal court injunctive relief is allowable. Western Coach Corp v.

Shreve, 475 F.2d 754, 755 (9 Cir. 1973). The due process clauseth

also requires an opportunity to a hearing before any award is made.

Philip Morris USA v. Williams, 549 U.S. 346, 354, 127 S.Ct. 1057,

-40-


166 L.Ed.2d 940 (2007).

The severity of the penalty, especially when it can be reduced

by good cause shown, is reviewable in federal court, especially if it

occurred beyond the court’s jurisdiction. BMW of North America v.

Gore, 517 U.S. 559, 572, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996).

F. The Tax Collection of Matheson Violates Due Process.

Williams v. Lee, 358 U.S. 217, 221, 79 S.Ct. 269, 3 L.Ed.2d

269 (1959) held that collection against tribal Indians must be

undertaken in tribal, not state court. The Coeur d’Alene Tribal

Code, Sections 4-20.01 and 4-25.03 (Addendum A-16) require

subject matter jurisdiction limit collection to 25% of wages and

require a determination of comity jurisdiction. Matheson is deprived

of these remedies. ER 184. The conclusion in use is, “There can be

no doubt that to allow the exercise of state jurisdiction here would

undermine the authority of the tribal courts over Reservation affairs

and hence would infringe on the right of the Indians to govern

themselves.” Id. at 223.

-41-


Jefferson County v. Acker, 527 U.S. 423, 435, 119 S.Ct. 2069,

144 L.Ed.2d 408 (1999) holds:

It was not the design of these provisions to prohibittaxpayers from defending suits brought by a governmentto obtain collection of a tax. . .The Tax Injunction Act . .does not bar collection suits, nor does it preventtaxpayers from urging defenses to such suits that the taxfor which collection is sought is invalid.

The case applies here in two ways. Matheson does not owe the tax,

the consumer does. Moe, 425 U.S. at 480; Wash.Rev.Code

82.24.080(2). The tax collection also ignores the tribal code.

G. Matheson’s Complaint Establishes a § 1983 Case.

To prevail on a § 1983 due process claim, the claimant must

prove a property interest protected by the Constitution, deprivation

of that interest by the government and lack of due process. Ulrich v.

City and County of San Francisco, 308 F.3d 968, 974 (9 Cir. 2002).th

All three are present here as the Defendants were told and

reminded that Matheson now lives in Idaho on the Coeur d’Alene

Indian Reservation and that the Coeur d’Alene Tribal Code grants

rights of recognition of the jurisdiction to enter foreign judgments

and the right to limit the amount of collection. ER 184-5, 193. They

-42-


ignored these rights and continued to use collection methods within

the state.

The continued collection and intentional refusal to recognize

her rights is a clear civil rights violation.

CONCLUSION.

The remedial penalty is not within the Anti-Injunction Act,

Matheson, at most, was only to collect another’s tax. She has

constitutional rights to defend tax collection in Tribal Court. The

tax was assessed only for the purpose of license deprivation. All of

these allegations prevent the imposition of the Anti-Injunction Act.

The U.S. Supreme Court in 2012 clarified the TIA standards in

Matheson’s favor. Matheson pled several causes of action

supporting a § 1983 action. She is entitled to amendment and her

day in court. The case must be reversed.

-43-


DATED this 26 day of September 2012.th

Respectfully Submitted,

s/ Aaron L. Lowe AARON L. LOWE, #15120Attorney for Appellant1403 W. Broadway AveSpokane, Washington 99201(509) 323-9000

-44-


STATEMENT OF RELATED CASES

Pursuant to Circuit Rule 28-2.6, counsel hereby certifies that,

to the best of his knowledge and belief, that there is one case that

has issues related to this case.


s/ Aaron L. Lowe AARON L. LOWE, #15120Attorney for Appellant1403 W. Broadway Ave.Spokane, Washington 99201(509) 323-9000

-45-


BRIEF FORMAT CERTIFICATION PURSUANT TOCIRCUIT RULE 32(a)(7)

Pursuant to Fed.R.App.P. 32(a)(7), I hereby certify that the

OPENING BRIEF OF APPELLANT is: proportionately spaced, has a

typeface of 14 point or more, and contains 7,929 words.



-46-


CERTIFICATE OF SERVICE

I certify that a copy of Appellant’s Opening Brief and Excerpts

were served on Counsel for Appellee, by ECF and mailing the same

by regular mail on September 26, 2012, in a postage-paid envelope

addressed as follows:

David HankinsAssistant Attorney GeneralP.O. Box 401237151 Cleanwater Dr. Olympia, WA 98504-0123

Dated this 26 day of September 2012.th


-47-


in the united states court of appeals for the ninth ...jessica mae matheson, dba jess’s wholesale;...

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