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Cigarette tax appeal involves tens of millions of dollars

Arthur Montour owes the State of Oklahoma $47 million, and, so far, three different courts have told the Gowanda businessman and former Seneca Tribal Council member to pay up.

Just three weeks after losing his latest legal battle – this one in federal Bankruptcy Court in Buffalo – Montour is again appealing, this time to a U.S. district judge.

The appeal is the latest chapter in an eight-year court fight between Montour’s cigarette wholesale company and states as far away as California and Idaho.

At stake are tens of millions of dollars in uncollected taxes.

Oklahoma isn’t the only state suing Montour’s company, Native Wholesale Supply; New York also has sued. But Oklahoma was one of the first when it filed suit in 2008, accusing the company of knowingly distributing contraband “Seneca” cigarettes in the state.

Five years later, Oklahoma’s highest court awarded the state $47 million, but, by then, Native Wholesale Supply was in bankruptcy.

Since then, the company has sought to reduce its obligation to Oklahoma, even though it agreed to it as part of a bankruptcy reorganization plan. The court said no.

“The confirmed reorganization expressly acknowledges the outstanding judgment of Oklahoma in the principal amount of $47 million,” Carl L. Bucki, a Bankruptcy Court judge in Buffalo, said in his decision.

At the heart of the legal battle is the allegation that Native Wholesale Supply, owned by a member of the Seneca Nation but chartered by the Sac and Fox Nation of Oklahoma, operated a nationwide distribution system that illegally sold tax-free cigarettes in several states.

Since 2000, Native Wholesale Supply has imported “Seneca” brand cigarettes from Ontario and sold them to Indian tribes and other entities operating on Native American lands.

Bucki’s ruling applies to Oklahoma, but there are other governments waiting to enforce judgments that were vacated when Native Wholesale Supply sought bankruptcy protection.

The U.S. Department of Agriculture won a $43 million judgment against the company in 2011 but has yet to collect. The judgment covers the amount of money that the company failed to pay into a federal tobacco trust fund.

New York is also going after National Wholesale Supply and, in a 2013 lawsuit filed in Buffalo, sought to end the company’s purchase of tax-free cigarettes from Grand River Enterprises, a plant on the Six Nations of the Grand River Indian Reservation near Hamilton, Ont.

The cigarettes, according to court papers, are shipped across the border near Buffalo and eventually sold to tribes here in New York and across the country. The tribes then sell them tax-free.

Unhappy with Bucki’s ruling, Native Wholesale Supply appealed to U.S. District Court in Buffalo and argued that the judgment, given the company’s profits in Oklahoma, was unfair. The company also blamed the lawyers handling its case.

“The debtor realized less than $6.6 million of profit from its Oklahoma operations,” the company’s lawyers said in court papers. “The debtor believes, therefore, that an award in excess of $47 million is grossly unfair and disproportionately punitive.”

When Native Wholesale Supply first filed for bankruptcy, it listed $50 million in liabilities, but that was five years ago, before Oklahoma and the Agriculture Department won their judgments. The company, at the time it filed, also estimated its assets at between $50 million and $100 million.

Lawyers for Native Wholesale Supply and the State of Oklahoma declined to comment.


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