Judge: NYC suit against Mastic smoke shops can proceedBY ROBERT E. KESSLER | robert.kessler@newsday.com
March 17, 2009
A federal judge ruled yesterday that New York City can continue a lawsuit seeking nearly $200 million in back cigarette taxes from eight smoke shops on the Poospatuck Indian Reservation in Mastic.

The city claims that by selling huge quantities of untaxed cigarettes in the five boroughs, the smoke shops are a major source of cheap, bootlegged cigarettes.

In her ruling rejecting arguments by the smoke shops, U.S. District Judge Carol Amon in Brooklyn said the shops are not sovereign Indian entities and might be compelled to follow state and city law on the sale of cigarettes. She further said the shops could be sued under federal law because the reservation is not recognized as Indian land.

But Amon's ruling also said that however the overall issue of tribal sovereignty might be decided in the courts, the smoke shops are not integral parts of the tribe. The profits from the smoke shops do not go to the tribe itself, but to the shops' owners, Amon said.

The city sued the eight smoke shops in 2008, claiming that the untaxed cigarettes sold by them deprived the city of $195 million in taxes and the state of $525 million. Indian residents of reservations are permitted to purchase untaxed cigarettes for their own use. In its suit the city said that the eight shops had sold almost 24 million cartons of untaxed cigarettes since 2004, or 19,200 each day for the 300 residents of the 55-acre reservation.

"The $195 million in uncollected cigarette tax revenue we are suing to collect could be used to modernize a public hospital, or hire nearly 3,000 new police officers, firefighters or teachers," Mayor Michael Bloomberg said yesterday. "As we all pull together to do more with less, it's just grossly unfair to hardworking taxpayers to allow any company to shirk their responsibilities."

Leo Barnes, lead defense attorney for the smoke shops and who represents the Smoke and Rolls shop, said yesterday he had not read the suit and could not comment. Dan Nobel, attorney for another shop being sued, the Peace Pipe, also said he could not comment because he had not read the decision.

But Harry Wallace, chief of the Unkechaug Indians who live on the reservation, yesterday called the decision "the first in a long litigious history. Ultimately, our legitimate business entities will prevail."

The next hearing in the city's suit is scheduled for May.