Several years ago, the state of California filed suit against Native Wholesale Supply Company (“NWS”) for allegedly violating California’s MSA, cigarette fire safety, and unfair competition laws.  NWS, a tribally-chartered corporation headquartered in New York, sells and distributes cigarettes manufactured by the Canadian tribally-owned corporation Grand River Enterprises Six Nations.  In California, NWS primarily sells these cigarettes to Big Sandy Rancheria.  Big Sandy – or other Indian retailers in California to which Big Sandy directs NWS to transport Grand River cigarettes – then sells the cigarettes to the California general public.  Since late 2003, NWS has delivered over 325 million cigarettes, worth nearly $12 million, to California.  Early in the Lawsuit, the Superior Court of Sacramento County granted NWS’s motion to quash service for lack of personal jurisdiction.  On June 8 of this year, however, the California Court of Appeals for the Third Appellate District reversed the superior court’s ruling and remanded the case for further proceedings.  Analyzing the issue under the well-known jurisdictional principles set forth in the cases of International Shoe, Burger King Corp., and Asahi Metal,  the appellate court concluded that “NWS has purposefully derived benefit from California activities under the stream of commerce theory, sufficient to invoke personal jurisdiction.”  The court went further, stating that NWS’s conduct did not merely create a stream of commerce, “but a torrent.”  In its decision, the court emphasized the sheer volume of cigarettes NWS shipped and sold in California since late 2003 and the substantial profit the company derived from this activity.  Quoting extensively from a recent decision in Oklahoma regarding NWS’s activities in that state, the court found that NWS shipped cigarettes to Big Sandy in such quantities that the ultimate destination could only be the California general public.  Indeed, as the court pointed out, even if almost every one of Big Sandy’s 431 members smoked two packs/day, the tribe would only consume about 280,000 packs/year, not even close to the 4 million packs NWS shipped to Big Sandy in 2007 alone.

In light of the appellate court’s decision, Native American manufacturers and distributors should be aware that the sale of a substantial quantity of tobacco products to Native American retailers within a state and from which the manufacturer or distributor derives hefty profits may be sufficient for that state to assert personal jurisdiction.

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.