STATE OF KANSAS                    )
                                                       )
                            Plaintiffs,          )
                                                       )
vs.                                                   )    Case No. 02 CR 823 &
                                                       )                 02 CR 824
DAVIES OIL COMPANY, INC.  )
GARY DAVIES                             )
                            Defendants.        )
_________________________)

This case comes before the Court on three related motions filed by the Defendants. On June 19, 2002, a Motion to Stay Proceedings and First Motion to Dismiss was filed. A Second Motion to Dismiss was filed on July 10, 2002. A separate Motion to Dismiss Gary Davies was also filed on July 10, 2002. All three motions have been fully briefed by the parties and oral argument was heard by the Court on August 21, 2002. At the conclusion of the oral argument, the Court took the motions under advisement.

On April 9, 2002, the State of Kansas filed a Complaint/Information against the Defendants. An Amended Complaint/Information was filed on June 26, 2002. Although the Defendants do not admit the allegations contained in the Amended Complaint/Information, they did not object to it being filed with the Court.

A. The Amended Complaint/Information.

The Amended Complaint/Information includes five counts. Each count alleges that the Defendants failed to pay tax for the transportation or delivery of motor fuel in violation of K.S.A. 79-3464e. The Defendants waived the entry of a plea in this case and the Court entered a plea of "not guilty" on their behalf on July 23, 2002. Although the Defendants admit that Davies Oil Company, Inc. is a distributor of motor fuel, they allege that they are not liable for the payment of the motor fuel taxes in question since the fuel was delivered to the Prairie Band of Potawatomi Indians (hereinafter "Prairie Band"). The Defendants also contend that Gary Davies should be dismissed as a party to this case since he was not the taxpayer or distributor.

B. Related Actions.

There are four other venues which currently have actions pending which are related to this case. Related actions are currently pending in federal Court, in the District Court of Doniphan County, Kansas, before the Board of Tax Appeals and before the Kansas Department of Revenue. Each of these actions deal with the imposition of State motor fuel tax on Davies Oil Company, Inc. for fuel delivered to the Prairie Band.

C. Federal Court Action.

On May 14, 1999, the Prairie Band filed a lawsuit in the United States District Court for the District of Kansas against Karla Pierce, Secretary of the Kansas Department of Revenue, in her official capacity. (See Case No. 99-4071-JAR.) In an Amended Complaint for Declaratory and Injunctive Relief filed in federal court on February 8, 2000, the Prairie Band seeks to enjoin the enforcement of the Kansas motor fuel tax "against the Nation and/or the persons from whom it obtains motor fuel including Davies Oil Company." The Prairie Band contends that "the enforcement of state motor fuel tax laws with respect to fuel obtained by the Nation and sold by it at retail on its reservation has a direct and substantial adverse impact on the Nation." Specifically, the Prairie Band alleges that "[t]he Nation's governmental system of motor fuel taxation will be rendered ineffective and of little value if the defendant's enforcement of the state motor fuel taxes is permitted to continue." The Prairie Band further contends that "such actions violate the Act for Admission § 1, the U.S. Constitution, other federal law, comity and the Nation's sovereign right of self government and self determination." A summary judgment motion has been fully briefed in the Prairie Band case and it has been submitted to the Honorable Julie A. Robinson for decision. The case has been set for trial to commence on February 11, 2003.

D. Kansas Board of Tax Appeals Action.

The State of Kansas and Davies Oil Company, Inc. are currently involved in proceedings before the Board of Tax Appeals of the State of Kansas regarding the issue of whether motor fuel taxes may be collected from Davies Oil for fuel delivered to the Prairie Band. On August 13, 2001, the Kansas Department of Revenue sustained assessment of the motor fuel tax against Davies Oil Company, Inc. In doing so, the Kansas Department of Revenue relied upon the Tenth Circuit's opinion in Sac & Fox Nation of Missouri v. LaFaver, 213 F. 3rd 580 (10th Cir. 2000). The Kansas Department of Revenue issued similar decisions upholding the assessment against Davies Oil Company, Inc. on August 14, 2001, December 10, 2001 and January 3, 2002. It appears that Davies Oil Company, Inc. has timely appealed the Written Final Determinations of the Kansas Department of Revenue to the Board of Tax Appeals. In addition, Davies Oil Company, Inc. filed a Motion for Stay Order in the Board of Tax Appeals' action on February 15, 2002. The primary basis set forth in support of the Motion to Stay is that the underlying issue involving the enforcement of the motor fuel taxes against Davies Oil Company, Inc. for fuel delivered to the Prairie Band is a federal question which is being resolved in the case of Prairie Band of Potawatomi Indians v. Karla Pierce, Secretary of Kansas Department of Revenue, 99-4071-JAR. To date, Board of Tax Appeals has not ruled on the Motion to Stay and the attorneys in this case have indicated that the Board of Tax Appeals case is currently in "limbo."

E. The Doniphan County Action.

Yet another action involving the State of Kansas and Davies Oil Company, Inc. was filed in the District Court of Doniphan County, Kansas. (See Case Nos. 02-SJ-5 and 02-SJ-6.) On April 9, 2002, the same day that this criminal action was filed in the District Court of Shawnee County, Kansas, the Kansas Department of Revenue issued an Order For Jeopardy Assessment of Motor Fuel Taxes against Davies Oil Company, Inc. based on the "large quantities of fuel" it delivered to the Prairie Band without having "paid the motor fuel tax, penalty, and interest for the periods of September 1999 through September 2001, inclusive." On that day, various items of personal property were seized from Davies Oil Company, Inc. On April 12, 2002, an Agreed Journal Entry Resolving Seizure of Business and Personal Assets Pursuant to Kansas Tax Warrants was entered by the Honorable John L. Weingart.

In the Agreed Journal Entry, the Kansas Department of Revenue, Davies Oil Company, Inc., Gary Davies and several other defendants agreed that the Doniphan County District Court "has jurisdiction over this matter and the parties submit to its jurisdiction in resolving further determinations regarding . . . the underlying tax liability." Moreover, the parties to the Doniphan County action agreed "that $696,570.54 will be deposited in escrow." The parties also agreed that this amount was "sufficient to meet any motor fuel tax liabilities owed by defendants."

The Agreed Order issued in Doniphan County provided for the release of the items seized by the State of Kansas from Davies Oil Company, Inc. in consideration for the deposit of the escrowed funds. In addition, the Defendants agreed, without admitting liability for the payment of the taxes in question, to "file all future returns reporting motor fuel tax on sales of such motor fuels delivered to retailers associated with Native American tribes within the state of Kansas and pay such taxes reported on such returns to the KDOR upon the monthly due dates of such returns." The parties further agreed that the Office of the Attorney General would continue to handle the criminal charges pending against the Defendants in this action.

Although it is not a party to the Doniphan County case, the Prairie Band Potawatomi Nation is a party to the Escrow Agreement, dated April 11, 2002, which is attached to the Agreed Journal Entry. The Escrow Agreement clearly provides that the Prairie Band has purchased "a certificate of deposit issued by the Escrow Agent (Commerce Bank and Trust) in the amount of $696,570.54 which is the entire amount currently claimed by the Kansas Department of Revenue (the 'Department') with respect to its Order for Jeopardy Assessment of Motor Fuel Taxes dated April 9, 2002." The Escrow Agreement further provides that the Prairie Band granted the Kansas Department of Revenue "a security interest in the following described property: certificate of deposit number CD73723, in the amount of $696,570.54 . . . to secure the payment of state motor fuel tax liabilities, if any, that are legally and finally determined to be due. . . . "

Moreover, the Escrow Agreement states that "[i]n the event of a final judicial determination that the State of Kansas cannot impose its taxes with respect to motor fuel delivered by Davies Oil Company, Inc. ("Davies"), to the Depositor's Nation Station at 12285 150th Rd., Mayetta, Kansas, the Escrow Agent will then be authorized to disburse all funds . . . to the [Prairie Band] for further disbursement under tribal law." Likewise, the Escrow Agreement provides that "[i]n the event of a final judicial determination that the State of Kansas can impose its taxes with respect to such motor fuel, the Escrow Agent, upon written demand from the Department, shall remit all funds with respect to this agreement, not exceeding the determined liability, to the Department or its authorized agreement." The Certificate of Deposit purchased by the Prairie Band provides for an interest rate of 3.94% with an annual percentage yield of 4.00%.

F. Kansas Department of Revenue Action.

It appears from the record that there may still be one case involving the issue of whether state motor fuel tax can be collected from Davies Oil Company for fuel delivered to the Prairie Band pending before the Kansas Department of Revenue. A Request for Informal Conference was filed with the Secretary of Revenue on April 23, 2002. The Court has not been advised regarding the current stats of the request.

II. Motions to Dismiss.

The Defendants have filed two motions for dismissal of this action. (A separate Motion to Dismiss Gary Davies was filed on July 10, 2002, and will be discussed below.) As indicated above, dismissal was initially sought in the Motion to Stay Proceedings and First Motion to Dismiss filed on June 19, 2002. A Second Motion to Dismiss was filed on July 10, 2002. The Defendants contend that "[o]nly when a final determination of liability for taxes is made and a refusal thereafter follows may Davies Oil Company be prosecuted." Specifically, the Defendants contend that "[t]he state's actual and threatened imposition or collection of Kansas motor fuel taxes with respect to motor fuel obtained by the [Prairie Band] Nation and sold by it on the reservation infringes upon the Nation's sovereign right to impose and collect tribal motor fuel taxes, infringes upon the Nation's sovereign right to finance and provide essential government services for the reservation, infringes upon the Nation's sovereign right to self-government and self-determination and infringes upon the Nation's right to conduct business and to economically develop its reservation." In response, the State of Kansas argues that Davies Oil Company, Inc. is "a distributor of motor fuels within this state and hence the Kansas Motor fuel tax applies to them." Likewise, the State argues that "[n]o condition precedent exists in the law before the State of Kansas may enforce its criminal laws."

Based on a review of the record, the Court finds that dismissal at this stage of the proceedings would not be appropriate. As the Kansas Supreme Court found in State v. Anderson, 270 Kan. 68, 71, 12 P.3d 883 (2000), "the court must draw inferences favorable to the prosecution" when considering motions to dismiss criminal charges. To file criminal charges, "the evidence needs only to establish probable cause, not guilt beyond a reasonable doubt." Id. Even if "the possibility of a conviction is unlikely or remote," it is not the role of this Court "to determine the wisdom of the decision" of the State of Kansas in filing charges against the Defendants. Id.

It is uncontroverted that Davies Oil Company, Inc. is a distributor of motor fuel in Kansas and that it did not pay the motor fuel tax for fuel delivered to the Prairie Band. Although there are underlying legal issues regarding whether the State of Kansas can enforce the motor fuel tax on fuel delivered to the Prairie Band and whether the Defendants are entitled to claim an exemption pursuant to K.S.A. 79-3408 (d), the Court finds that the State had probable cause to file charges in this case for the alleged violations of K.S.A. 79-3464e. Moreover, the State of Kansas has made a good faith argument that the Tenth Circuit's decision in Sac and Fox Nation v. Pierce, 213 F. 3d 566 (10th Cir. 2000) and the Kansas Supreme Court's decision in Kaul v. Kansas Department of Revenue, 266 Kan. 464, 970 P.2d 60 (1998), authorize the Kansas Department of Revenue to enforce the motor fuel tax on distributors delivering fuel to tribal land. Although these cases may or may not ultimately control the Court's decision in this case, they do support the position taken by the State of Kansas.

Simultaneous criminal and civil actions involving similar issues are not prohibited. See State ex rel. Stovall v. Meneley, 271 Kan. 355, 366-371, 22 P. 3d 124 (2001). Likewise, there is no right to dismissal of a state court action simply because a similar action is pending in federal court. See Farmers Union Cooperative Elevator v. Grain Dealers Mutual Ins. Co. Kan. 181, Syl. 1, 398 P. 2d 571 (1965). Thus, drawing all inferences favorable to the prosecution as required by Kansas law, the Court hereby denies the Defendant's motions to dismiss the charges set forth in the Amended Complaint/Information filed on June 26, 2002.

III. Motion to Stay.

In their motion filed on June 19, 2002, the Defendants also seek to stay this criminal action. As indicated above, the Defendants allege that the underlying issue of whether they are "liable" for the payment of Kansas motor fuel taxes on fuel which they deliver to the Prairie Band is a question of federal law which is currently being addressed by the United States District Court for the District of Kansas in the case of Prairie Band of Potawatomi Indians v. Karla Pierce, Secretary of the Kansas Department of Revenue, 99-4071-JAR. The Defendants also point the Court's attention to the actions pending before the Kansas Board of Tax Appeals, the Kansas Department of Revenue and the District Court of Doniphan County, Kansas in support of the requested stay. They argue that "[w]hat the state is wanting this Court to do is to proceed based upon an over-simplified factual scenario and ignore constitutional issues and sovereignty issues." Further, the Defendants contend that "[t]he very real and substantial question here is not whether or not taxes have been paid, but whether taxes are required by law to be paid."

The State of Kansas contends "that a criminal charge is independent from any civil action and is wholly separate" from the cases pending in various civil forums. In oral argument, the attorney for the State argued that this Court can decide all of the underlying issues relating to this case, including the impact on the Prairie Band's sovereignty if the State of Kansas is permitted to collect motor fuel taxes from non-tribal member distributors for fuel delivered to tribal land. The State also argued that the underlying legal issue has already been decided in both the Sac and Fox Nation and Kaul cases. Moreover, the State contends that the defendant's request "to stay an independent criminal action on the notion that some other court may rule in the future regarding the defendant's claims . . . is speculative at best."

The record reveals that this action is far from a normal misdemeanor case. As indicated above, the underlying legal issue regarding the right of the State of Kansas to enforce a motor fuel tax upon Davies Oil Company, Inc. for the delivery of fuel to the Prairie Band is currently pending in federal court as well as in various other forums. Clearly, this criminal action is but one "battle" in a "war" which is being fought on multiple "fronts."

If this criminal action had been filed prior to the federal lawsuit between the Prairie Band and the State of Kansas or if the federal lawsuit was not moving toward conclusion, this Court would be reluctant to grant the Defendants' request for a stay. However, the State's summary judgment motion in the federal lawsuit directly addresses the underlying legal question which is presented in this criminal action. Moreover, the motion has already been submitted to the Honorable Julie A. Robinson for decision and Moreover, the federal case has been set for trial to commence in February of 2003. Thus, this action would not be unduly delayed should a stay be granted pending a decision by Judge Robinson in the federal lawsuit.

In both this criminal action and in the federal lawsuit, the State of Kansas relies heavily upon the Tenth Circuit's decision in Sac and Fox Nation v. Pierce, 213 F. 3d 566 (10th Cir. 2000), in support of its argument that it has the authority to enforce its motor fuel tax on a non-tribal member distributor which delivers fuel to the Prairie Band. Of course, Sac and Fox Nation is a federal case and deals with significant federal issues regarding the sovereignty of tribal nations. Just as Kansas courts are best suited to decide state law issues, federal courts are best suited to decide questions of federal law. The federal law issues intertwined with this criminal action include interpretation of the Indian Commerce Clause, the Kansas Act for Admission and other laws related to the extent of the sovereign governmental power which may be exercised by the Prairie Band of Potawatomi Indians. It would be appropriate to yield to the federal court to resolve such issues.

There is no reason for this Court to believe that the Honorable Julie A. Robinson will not give the State of Kansas due consideration in balancing its right to collect motor fuel taxes with the rights of the Prairie Band to sovereignty. Clearly, state, federal and tribal interests can all be balanced in the federal lawsuit. Moreover, although Davies Oil Company, Inc. is not a named party in the federal lawsuit, the Amended Complaint for Declaratory and Injunctive Relief filed in that case specifically identifies Davies Oil as the distributor from which the Prairie Band is attempting to prevent the State of Kansas from taxing for fuel delivered to tribal land. Hence, both the facts and the underlying legal issues in this criminal action are also present in the federal action.

Although the State of Kansas is correct in arguing that this criminal action is legally "independent" of the federal lawsuit, it is not realistic to conclude that the Prairie Band has no interest in this action. As indicated above, the Prairie Band deposited nearly $700,000 in an Escrow Account to protect the State of Kansas in the event that Davies Oil Company, Inc. is found liable for the payment of the motor fuel taxes which are at the heart of both this criminal action and the federal lawsuit. Proceeding with this criminal action would effectively undermine the Prairie Band's federal lawsuit which has been on file against the State of Kansas since 1999. Thus, it is appropriate for this Court to yield to the federal court for a determination of whether the "legal incidence" of the motor fuel tax which is the subject of this case unlawfully infringes upon the Prairie Band's tribal interests.

There is persuasive authority for staying criminal proceedings brought by the State of Kansas for alleged violations of K.S.A. 79-3464e and related statutes. On August 2, 2002, the United States District Judge J. Thomas Marten issued a preliminary injunction against the State of Kansas in the case of Winnebago Tribe et.al. v. Carla J. Stovall, Attorney General for the State of Kansas, et. al., Case No. 02-4070-JTM. As part of his order, Judge Marten enjoined the State of Kansas "from proceeding with the criminal actions pending against plaintiffs HCI, John Blackhawk and Lance Morgan and HCI Employee, James Knox" relating to the failure to pay state motor fuel taxes on fuel delivered to various tribes located within Kansas. Id. at p. 28.

Although the facts of the Winnebago Tribe case are not identical to those in this action, many of the legal issues presented in that case are similar to the underlying legal issues presented in this criminal action. In his decision, Judge Marten found that the underlying issue "concern[s] the scope of tribal sovereignty, an issue that cannot be measured in dollars." Id. at p. 12. He further found that while "the issuance of the injunction will not affect the defendants in any appreciable way," the impact on the tribes could be tremendous" if the prosecutions were allowed to go forward during the pendency of the federal court case. Id. at p. 13. In staying the criminal proceedings pending in state court against both tribal members and non-tribal members, Judge Marten found that the underlying issue "is not only about economics" but is also about "state and tribal sovereignty." Id. at pp.14-15. Judge Marten further found that the issue of tribal sovereignty is a matter of federal law. Id. at p. 25.

In considering "the Attorney General's argument that the federal court is imposing on her right to initiate prosecution," Judge Marten found as follows:

The Attorney General is being asked to stay the state proceedings, not terminate them. If indeed the final outcome of this case is favorable to defendants, the Attorney General may proceed with her actions. If, however, the injunction does not issue, the individual plaintiffs were prosecuted and convicted, and the result of the litigation was ultimately favorable to plaintiffs, plaintiffs would needlessly have been put through the personal and financial toll of an unwarranted criminal prosecution. While the defendants assert individual plaintiffs could raise the issues presented here as defenses in state court, the court reaffirms its position that whether or not the state may properly collect fuel tax from plaintiffs is a matter of federal law that is properly decided in federal court.

Id. at pp. 25 - 26.

Although the State of Kansas argues in this action that it is questionable whether a United States District Court Judge has the authority to stay state criminal actions, that issue is not before this Court. It is undisputed by the parties that this Court does have the authority to stay this action. Although the Court should not abuse its discretion, "[a] state court is empowered to stay proceedings . . . until determination of an action pending in a federal court sitting in the same state." Henry, Administrator v. Stewart 203 Kan. 289, Syl. 1, 292-93, 454 P.2d, (1969). In reviewing this criminal action in light of the "determinative factors" set forth in the Henry, Administrator decision, the Court finds that these cases should be stayed pending the outcome of the previously filed federal lawsuit.

The Court finds that a decision by the Honorable Julie A. Robinson would likely affect the outcome of this case. In particular, in light of the federal court's expertise in issues involving tribal sovereignty, a decision by Judge Robinson would assist this Court in resolving the underlying legal question of involving whether the enforcement of the motor fuel tax against Davies Oil Company, Inc. would significantly interfere with the rights of the Prairie Band. As the Kansas Supreme Court found in the Henry, Administrator case, stays are "frequently granted where the action in federal court has been commenced prior to the State court proceeding, and the decision in the federal case will be determinative of all or some of the issues in the state court action." 203 Kan. at 294. Since the federal lawsuit was filed in 1999 and it is now nearing completion, it would not unduly prejudice the State of Kansas to wait for Judge Robinson's decision.

It is also quite likely that the decision in federal court will be helpful in bringing this criminal action to a conclusion one way or the other. If Judge Robinson grants the State's motion for summary judgment, there should be little dispute remaining regarding the issue of Davies Oil's liability for the motor fuel tax. If, however, Judge Robinson denies the State's summary judgment and grants the Prairie Band's request for a permanent injunction, it is unlikely that this Court would find that Davies Oil Company, Inc. is liable for payment of the state motor fuel tax for the fuel it delivered to the Prairie Band.

In light of the various cases pending in this court, in federal court, in the District Court of Doniphan County, Kansas, before the Board of Tax Appeals and before the Kansas Department of Revenue, the State of Kansas was well aware of the underlying legal issues long before it decided to seek criminal prosecution. If the final outcome of the federal lawsuit pending before Judge Robinson is favorable to the State of Kansas, the Attorney General can certainly move forward with this criminal action. However, if the outcome of the federal lawsuit is favorable to the Prairie Band, the entry of a stay order will protect the Defendants from being required to defend this criminal action. In light of the nearly $700,000 placed by the Prairie Band in an interest-bearing Certificate of Deposit in the Doniphan County case as security for the motor fuel taxes which are the subject of this criminal action, the State of Kansas should be adequately protected while the stay is in place. Therefore, the Court finds that this criminal action should be stayed until final resolution of the case of Prairie Band of Potawatomi Indians v. Karla Pierce, 99-4071-JAR.

IT IS THEREFORE ORDERED BY THE COURT that Case Nos. 02-CR-823 and 02-CR-824 are hereby stayed until such time as there has been a final determination on the merits of the legal issues presented in Prairie Band of Potawatomi Indians v. Karla Pierce, 99-4071-JAR or until further order of this Court.

Entered on this day of August, 2002.

CERTIFICATE OF SERVICE

The undersigned hereby certifies that on the day of , 2002, she served a true and correct copy of the above and foregoing pleading by United States mail, first class postage prepaid; telefax, and that the transmission was reported as complete and without error and the telefax machine complied with Supreme Court Rule 119(b)(3); or hand delivery; addressed as follows:

 
Stephen D. Maxwell
Assistant Attorney General
120 SW 10th, 2nd Fl.
Topeka, KS 66612

 
_________________________
Felicia M. Theel
Administrative Assistant