State court has no jurisdiction in cigarette fight

Pierre, South Dakota (AP) 10-08

The state court system has no jurisdiction over South Dakota’s fight to force a Canadian cigarette manufacturer make payments under the national settlement with tobacco companies, the state Supreme Court ruled Oct. 23.

Grand River Enterprises Six Nations Ltd., which makes cigarettes on an Indian reservation in Ontario, does not have a sufficient connection with South Dakota to give state courts authority over the company, the high court said in a unanimous ruling.

The case stems from the 1998 settlement involving 46 states that requires major cigarette manufacturers to make annual payments to help the states recover money spent on health care because of smoking-related illnesses. Tobacco companies that did not take part in the settlement are supposed to make payments to an escrow account so they do not gain an unfair advantage in pricing over major manufacturers.

Attorney General Larry Long said the high court’s ruling means the state cannot make Grand River pay into the escrow account.

“Our efforts up to this point have been for naught,” Long said. “We can’t prove that they knew in advance their cigarettes were going to end up in South Dakota and therefore they would be subject to our regulatory scheme.”

But Long said South Dakota might be able to prove in the future that Grand River expects its cigarettes will wind up in the state and be subject to South Dakota regulation. About 15-20 other states are seeking to make Grand River pay into escrow accounts, he said.

“We may have lost a battle, but I’m sure telling you we haven’t lost the war yet,” Long said.


South Dakota has been successful in making some other tobacco companies pay into the escrow account, the attorney general said.

Grand River makes Seneca brand cigarettes, which wound up being sold in South Dakota. The state filed lawsuits against Grand River alleging it violated the escrow account laws in 2000, 2001 and 2002. Grand River failed to answer the lawsuits, so default judgments were entered against the company.

But Grand River last year asked a circuit judge to vacate those judgments, arguing that the state court system lacked jurisdiction over the company. Circuit Judge Lori Wilbur of Pierre agreed, ruling that the state had not demonstrated that Grand River had taken any action to avail itself of the South Dakota market.

According to court records, Grand River makes the cigarettes under an agreement with Native Tobacco Direct and Native Wholesale Supply, two New York companies that own the rights to Seneca cigarettes. Grand River shipped the cigarettes to a foreign trade zone in western New York.

Native Tobacco Direct-Native Wholesale Supply then distributed the cigarettes to HCI Distribution Co., a Nebraska subsidiary of a Wisconsin tribe that acted as a development corporation for the Winnebago Tribe in Nebraska. HCI stamped the cigarettes for sale in South Dakota and sold them operations owned by the Yankton Sioux Tribe in South Dakota.

When South Dakota sought to make Grand River pay into the tobacco escrow account, Grand River argued the state courts had no jurisdiction because of the U.S. Constitution’s due process clause, which says a state has no authority over those who have no meaningful contacts, ties or relations with that state.

The South Dakota Supreme Court noted that the U.S. Supreme Court has discussed two standards for deciding when a company has a sufficient connection with a state to give the state’s court system jurisdiction over it. Even under the broadest standard, the state courts have no jurisdiction over Grand River, the justices said.

The state did not establish that Grand River had any expectation that its manufacturing activities would be directed to South Dakota customers, the Supreme Court said. Grand River delivered cigarettes to an independent New York importer who sold the cigarettes to an independent Nebraska distributor who sold the cigarettes to South Dakota businesses, the high court said.

Grand River did not advertise or solicit business in South Dakota, had no offices or employees in the state, and did not use a distributor who had agreed to be a sales agent in South Dakota, the justices said.