# State Of Washington V. American Tobacco Co.

> Court of Appeals of Washington · October 16, 2023

URL: https://www.frixlaw.com/law-library/cases/11264985

## Case

- **Court:** Court of Appeals of Washington
- **Decided:** October 16, 2023
- **Precedential status:** Published
- **Opinion:** Opinion of the court
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

STATE OF WASHINGTON, No. 84265-0-I

Respondent/Cross DIVISION ONE
Appellant,

v. PUBLISHED OPINION

AMERICAN TOBACCO CO.,

Defendant,

COMMONWEALTH BRANDS INC.;
COMPANIA INDUSTRIAL de
TABACOS MONTE PAZ, SA;
DAUGHTERS & RYAN, INC.;
FARMERS TOBACCO CO.; HOUSE
OF PRINCE A/S; ITG BRANDS, LLC,
JAPAN TOBACCO INTERNATIONAL
USA, INC.; KING MAKER
MARKETING INC.; KRETEK
INTERNATIONAL; LIGGETT GROUP
LLC; P.T. DJARUM; PETER
STOKKEBYE TOBAKSFABRIK A/S;
PHILIP MORRIS USA, INC.; R.J.
REYNOLDS TOBACCO COMPANY;
REEMTSMA CIGARETTENFABRIKEN
GMBH; SANTA FE NATURAL
TOBACCO COMPANY;
SCANDINAVIAN TOBACCO GROUP
LANE LIMITED; SHERMAN’S 1400
BROADWAY NYC, LLC; TOP
TOBACCO, LP; VON EICKEN
GROUP; and WIND RIVER TOBACCO
CO. LLC,

Appellants/Cross-
Respondents.
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No. 84265-0-I/2

SMITH, C.J. — The United States Supreme Court has repeatedly

recognized Indian tribal governments’ inherent sovereign power to tax. 1 That

inherent sovereign power is at the heart of this case.

In the 1990s, several states, including Washington, sued major cigarette

manufacturers, seeking to protect the public health and gain compensation for

costs incurred from treating smoking-related illnesses. The participating

manufacturers (PMs) and the states settled their dispute in the late 1990s and

entered into a Master Settlement Agreement (MSA), which requires the

manufacturers to make annual cash payments to the states in perpetuity. To

keep non-participating manufacturers from evading liability, Washington State

(State) enacted chapter 70.157 RCW, which requires all tobacco manufacturers

1 See, e.g., Washington v. Confederated Tribes of Colville Indian
Reservation, 447 U.S. 134, 153, 100 S. Ct. 2069, 65 L. Ed. 2d 10 (1980) (“ ‘Chief
among the powers of sovereignty recognized as pertaining to an Indian tribe is
the power of taxation.’ ” (quoting Powers of Indian Tribes, 55 Interior Dec. 14, 46
(1934)); Montana v. United States, 450 U.S. 544, 565, 101 S. Ct. 1245, 67 L. Ed.
2d 493 (1981) (“To be sure, Indian tribes retain inherent sovereign power to
exercise some forms of civil jurisdiction over non-Indians on their reservations,
even on non-Indian fee lands. A tribe may regulate, through taxation, licensing,
or other means, the activities of nonmembers.”); Merrion v. Jicarilla Apache
Tribe, 455 U.S. 130, 137, 102 S. Ct. 894, 71 L. Ed. 2d 21 (1982) (“The power to
tax is an essential attribute of Indian sovereignty because it is a necessary
instrument of self-government and territorial management. . . . [I]t derives from
the tribe’s general authority, as sovereign, to control economic activity within its
jurisdiction.”); Rice v. Rehner, 463 U.S. 713, 722, 103 S. Ct. 3291, 77 L. Ed. 2d
961 (1983) (the authority to tax is “ ‘a fundamental attribute of sovereignty which
the tribes retain unless divested of it by federal law or necessary implication of
their dependent status.’ ” (quoting Colville, 447 U.S. at 152)); Iowa Mut. Ins. Co.
v. LaPlante, 480 U.S. 9, 18, 107 S. Ct. 971, 94 L. Ed. 2d 10 (1987) (“Tribal
authority over the activities of non-Indians on reservation lands is an important
part of tribal sovereignty. . . . Civil jurisdiction over such activities presumptively
lies in the tribal courts unless affirmatively limited by a specific treaty provision or
federal statute.”)

2
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No. 84265-0-I/3

selling in Washington to either join the MSA and make annual payments or

remain outside the MSA and make escrow deposits for “units sold”—measured

by excise taxes collected by the State on tobacco products bearing “the excise

tax stamp of the State.” At the end of each calendar year, the State can avoid a

downward adjustment of its annual cash payment from the PMs if it

demonstrates it “diligently enforced” chapter 70.157 RCW against the non-

participating manufacturers.

In 2001, following years of contentious litigation over cigarette tax rights,

the State enacted legislation authorizing compact agreements between the State

and Indian tribal governments. Cigarettes sold under the compacts have tribal,

rather than state, tax stamps and have not been deemed to be subject to

chapter 70.157 RCW’s required escrow deposits. Following conflicting arbitration

orders defining “units sold,” the State sought declaratory relief in King County

Superior Court to clarify its enforcement obligations and the definition of “units

sold.” The State also requested that the court vacate the 2004 arbitration panel’s

(2004 Panel) award, arguing the 2004 Panel’s interpretation of “units sold”—that

they include cigarette packs with tribal stamps—constituted facial error. The

court denied the State’s motion to vacate but agreed that tribal compact cigarette

sales were not “units sold” and granted the State’s motion for declaratory relief

on the issue. The participating tobacco manufacturers appealed the court’s

declaratory judgment. The State cross-appealed the court’s denial of its motion

to vacate. Because we agree with the trial court’s definition of “units sold” and

with its conclusion that the 2004 Panel did not exceed its powers, we affirm.

3
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No. 84265-0-I/4

FACTS
The Master Settlement Agreement

In 1998, forty-six states, the District of Columbia, and five United States

territories (collectively referred to as the States) settled a lawsuit against four

major cigarette manufacturers, the “Original Participating Manufacturers”,

resulting in a Master Settlement Agreement (MSA). Other cigarette

manufacturers signed onto the MSA later and are referred to as “Subsequent

Participating Manufacturers.” Collectively, manufacturers that are party to the

MSA are called “Participating Manufacturers,” or PMs.

The MSA has been referred to as a “landmark” public health agreement.

State v. R.J. Reynolds Tobacco Co., 151 Wn. App. 775, 778, 211 P.3d 448

(2009). The MSA requires the PMs make substantial annual cash payments to

the States in perpetuity, based on their annual nationwide cigarette sales, to

offset increased costs to the States’ healthcare systems caused by smoking. In

exchange, the States agreed to settle and release all past and future tobacco-

related claims against the PMs.

The NPM Adjustment

Since the MSA’s execution, over 50 tobacco manufacturers have agreed

to be bound by its terms. Manufacturers that have not joined the MSA or agreed

to its terms are referred to as “Non-Participating Manufacturers” (NPMs). During

settlement negotiations, the PMs and the States recognized the need to impose

corresponding financial obligations on these NPMs. The States feared the NPMs

would become insolvent against future liability, and the PMs wanted to remain

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No. 84265-0-I/5

competitive in the market. To that end, the MSA provides the States an incentive

to enact and diligently enforce a “Qualifying Statute” that requires NPMs to

deposit funds in escrow on qualifying units of tobacco sold within a State’s

borders.2 This incentive is the “NPM Adjustment.”

The NPM Adjustment provides for a potential reduction in the PMs’

settlement payments in the event of an MSA-related market share shift to the

NPMs above a specified threshold.3 But a State can avoid a reduction in its

annual payment if it demonstrates that it “diligently enforced” its Qualifying

Statute for that calendar year. If an individual State diligently enforced the

provisions of its Qualifying Statute during the year in question, the NPM

Adjustment still applies to the PMs’ collective MSA payments for that year, but

that adjustment is reallocated to the States who failed to diligently enforce their

Qualifying Statutes.4 The diligent enforcement exception thus operates as a

heavy incentive to the States to enact and enforce the provisions of their

Qualifying Statutes.

2 Unlike the PMs’ annual cash payments, the NPM deposits remain in
escrow and are released back to the NPM after 25 years without a judgment or
settlement. The NPM deposit burden is meant to be similar to the PMs’ MSA
burden.
3 An independent auditor, PricewaterhouseCoopers LLP, calculates the

amounts of the PMs’ annual payment and of the NPM Adjustment.
4 Therefore, if a large number of States fail to diligently enforce their

Qualifying Statute, the burden of the NPM Adjustment is more widely spread,
reducing the share of the adjustment that each State bears. Conversely, if only a
few States fail to diligently enforce their Qualifying Statutes, those States face a
concentrated application of the NPM Adjustment and a greater reduction of their
payments for that year, subject only to the limitation that the adjustment cannot
be more than the total MSA payment received.

5
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No. 84265-0-I/6

The MSA contains a “Model Statute” that, if enacted, constitutes a

Qualifying Statute. The Model Statute requires tobacco manufacturers operating

in a State to either join the MSA or make escrow deposits on “units sold.” The

Model Statute defines “units sold” as
the number of individual cigarettes sold in the State by the
applicable tobacco product manufacturer (whether directly or
through a distributor, retailer or similar intermediary or
intermediaries) during the year in question, as measured by excise
taxes collected by the state on packs (or ‘roll-your-own’ tobacco
containers) bearing the excise tax stamp of the State.

Washington’s Qualifying Statute conforms to the Model Statute and was

enacted in 1999, codified as chapter 70.157 RCW. See RCW 70.157.010(j)

(defining “units sold”).

Despite the enactment of Qualifying Statutes, the NPMs’ market share

continues to increase at significant rates. This shift in market share from PMs to

NPMs has triggered the NPM Adjustment provision of the MSA for multiple years.

Under the MSA, disputes over calculations of the NPM Adjustment for any given

year are subject to arbitration.5

Compact Litigation

While most cigarettes sold in Washington are taxed by the State, some

are exempt from state tax, such as sales on tribal reservations. RCW 82.24.295;

RCW 43.06.455(3). Attempts by the State to impose and collect cigarette tax on

cigarettes sold by tribal retailers to non-tribal consumers has a long and

contentious history of litigation. Litigation and hostility between the State and

5 The MSA does not define the term “diligent enforcement.”

6
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No. 84265-0-I/7

tribes continued following the United States Supreme Court’s decision in

Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134,

100 S. Ct. 2069, 65 L. Ed. 2d 10 (1980), in which the Court concluded that both

the State and the tribes had taxing authority over non-tribal consumers on

reservations. While Colville provided some clarity surrounding taxation of

cigarette sales on reservations, it did not address practical problems over who

would enforce and collect taxes on cigarettes sold to non-tribal consumers. The

tribes viewed the decision as unfair, given that overlapping taxes by both the

State and the tribes would put cigarette sales on reservations at a competitive

disadvantage as compared to non-tribal retailers.

In 2001, the Washington Legislature authorized the governor to negotiate

and enter into cigarette tax compacts with Washington tribes. RCW 43.06.455.

Under the compact system, cigarettes sold on reservations are subject to a tribal

excise tax—equal to that of the State—in lieu of the State excise tax. RCW

43.06.460. These cigarettes do not bear excise tax stamps of the State, but do

bear tribal excise tax stamps. RCW 43.06.455(4).

NPM Adjustment Arbitrations

1. 2003 NPM Adjustment Arbitration

In 2003, the States and the PMs disputed whether an NPM Adjustment

should be applied to the PMs’ annual payment. The parties engaged in a lengthy

multi-state arbitration spanning several years. Some states settled, but others

faced contested hearings on whether they had diligently enforced their Qualifying

Statutes during the 2003 sales year. A panel of three retired federal judges

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No. 84265-0-I/8

(2003 Panel) made findings for both a common case and for each individual

state.

At the heart of Washington’s case was the dispute over treatment of tribal

sales. The 2003 Panel concluded that the Model Statute definition of “units sold”

was unambiguous and that Washington tribal compact cigarettes were not “units

sold” within the plain language of the statute. The 2003 Panel also found that

Washington’s decision to enter into compacts with the tribes was not done in a

bad faith effort to avoid NPM escrow enforcement, but rather a legitimate effort to

ameliorate State and tribal relations.

2. 2004 NPM Adjustment Arbitration

In 2004, the States and the PMs again disputed application of the NPM

Adjustment. The dominant issue in the 2004 proceedings was whether each of

the States diligently enforced its Qualifying Statute. Washington’s case again

focused on the question of whether tribal sales constituted “units sold” under its

Qualifying Statute.

The 2004 Panel also concluded in its common findings that there was “no

ambiguity in the definition of ‘units sold’ set forth in the MSA.”6 Despite the

Panel’s conclusion that the definition of “units sold” was unambiguous, it

proceeded to consider an internal policy debate at the Washington Attorney

6 The 2004 Panel also noted that the PMs’ proposed interpretation of

“units sold”—which would include all sales made via the internet, all tribal sales,
and all sales that may otherwise constitute contraband—would “turn the meaning
of ‘Units sold’ on its head by requiring the term to include cigarettes and [roll-
your-own] containers not bearing the excise tax stamp of the State.” The panel
remarked that “[s]uch a reading would also render cigarette excise taxes
collected by the State useless as a measure of ‘units sold’ in the State.”

8
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No. 84265-0-I/9

General’s Office as relevant in interpreting the meaning of the term. The Panel

then concluded in its Washington State-specific findings that compact cigarettes

meet the statutory definition of units sold. The Panel noted that Washington did

not simply repeal its cigarette tax by enacting the compact legislation, rather,

Washington’s legislation led compact tribes to collect the same tax the State

imposed. The Panel reasoned that “[t]here [was] no evidence that absent the

authorizing statutes, the state would have permitted the Tribes to impose and

collect cigarette taxes.” Therefore, the Panel concluded that “the tribal tax is a

tax of the state and that the tribal stamp is a stamp of the state.”

The Panel also determined that Washington failed to diligently enforce its

Qualifying Statute during 2004. The Panel concluded that the following

constituted lapses in diligent enforcement:
• Failure to “devote sufficient resources to escrow enforcement in 2004,
and that the efforts of the three departments that played an
enforcement role ([Department of Revenue], [Liquor and Cannabis
Board], and [Office of the Attorney General]) were poorly coordinated.”
• Failure to “make effective use of retail inspections as an escrow
enforcement tool in 2004,” including a failure to leverage Washington’s
minimum pricing law to enhance escrow enforcement.
• Failure to “create and execute an effective data collection and audit
regimen.”
• Failure to adequately detect widespread escrow avoidance schemes.

The Panel also found that the State failed to enforce escrow on compact

cigarette sales but noted that this failure “was not determinative of the Panel’s

decision on diligent enforcement.” The Panel explained that the State’s “other

lapses, independent of [its] ruling on compact sales, were determinative of the

issue of diligence.”

9
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No. 84265-0-I/10

Present Case

Following the 2004 Panel’s ruling, the State moved in King County

Superior Court to vacate the Panel’s ruling and for a declaratory judgment

defining “units sold.” The superior court denied the State’s motion to vacate, but

granted its motion for declaratory judgment. The court concluded that “units

sold” did not include compact cigarettes and that its ruling “constitute[d] a binding

declaration of the rights of the parties . . . under the MSA and Washington law

pursuant to the Declaratory Judgment[s] Act and the Consent Decree.”

The PMs appeal the declaratory judgment. The State appeals the order

denying its motion to vacate.
ANALYSIS

We are presented with five questions on appeal. First, whether the issues

in this case are subject to arbitration. We conclude that they are not. The MSA

explicitly provides that either party may seek a declaratory order from the court

defining any disputed term. Second, whether this matter presents a justiciable

dispute. We conclude that it does. The State’s interests are actual, genuine and

opposing, direct and substantial, and a judicial determination would be final.

Third, whether the State has standing under the Uniform Declaratory Judgments

Act (UDJA), chapter 7.24 RCW, to seek declaratory relief. Because the UDJA is

a remedial statute meant to be construed liberally, we conclude that the State

has standing. Fourth, whether the court erred in its interpretation of “units sold.”

We conclude that it did not. The definition of “units sold” in the statute is

unambiguous and the court properly concluded that it does not include compact

10
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No. 84265-0-I/11

cigarettes. Finally, whether the court erred in denying the State’s motion to

vacate. We conclude that it did not. Though the 2004 Panel committed error in

its interpretation of “units sold,” its award is not subject to vacatur because the

Panel did not exceed its authority.

Standing

We must determine two threshold matters before reaching the merits of

the parties’ justiciability and standing arguments. First, whether the present

matter is subject to arbitration under the MSA. We conclude that it is not. The

MSA provides that NPM Adjustment disputes are subject to arbitration but the

State’s claim for declaratory relief concerning the meaning of a statute does not

fall within the MSA’s arbitration provisions. Second, whether the State is a

“person” under the UDJA. We conclude that it is. The UDJA defines a “person”

as, among other things, a “person,” and RCW 1.16.080 provides that a “person,”

wherever used in the Code, can mean the State.

We are next presented with three questions related to standing. First,

whether interpretation of “units sold” presents a justiciable controversy. Second,

whether the State has standing to seek declaratory relief under the UDJA. And

third, whether the State waived reliance on its alternative standing argument—

the major public importance exception—by not raising it below. We conclude

that this is a justiciable controversy and that the State has standing to seek

declaratory relief under the UDJA. Because the State has standing, we do not

reach whether the State has standing under the major public importance

exception.

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No. 84265-0-I/12

1. Interpretation of the MSA’s Arbitration Clause

The PMs assert that the language, “any dispute concerning the operation

or application of any of the adjustments,” encompasses the present dispute over

the interpretation of “units sold,” and therefore, this matter must be arbitrated.

But this interpretation ignores the unambiguous, plain language of the arbitration

clause.

Where a contract is unambiguous, contract interpretation is a question of

law that we review de novo. Thomas Ctr. Owners Assoc. v. Robert E. Thomas

Tr., 20 Wn. App. 2d 690, 699, 501 P.3d 608 (2022). Words in a contract are

given their ordinary, usual, and popular meaning unless the agreement as a

whole clearly demonstrates a contrary intent. Bellevue Square, LLC v. Whole

Foods Market Pac. Nw., Inc., 6 Wn. App. 2d 709, 716, 432 P.3d 426 (2018). “An

interpretation of a contract that gives effect to all provisions is favored over an

interpretation that renders a provision ineffective.” Snohomish County Pub.

Transp. Benefit Area Corp. v. FirstGroup Am., Inc., 173 Wn.2d 829, 840, 271

P.3d 850 (2012). “Where one construction would make a contract unreasonable,

and another, equally consistent with its language, would make it reasonable, the

latter more rational construction must prevail.” Byrne v. Ackerlund, 108 Wn.2d

445, 453-54, 739 P.2d 1138 (1987).

Section XI of the MSA contains the arbitration clause at issue and is

entitled “Calculation and Disbursement of Payments.” It provides:
(c) Resolution of Disputes. Any dispute, controversy or
claim arising out of or relating to calculations performed by, or any
determinations made by, the Independent Auditor (including . . .

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No. 84265-0-I/13

any dispute concerning the operation or application of any of the
adjustments . . . ) shall be submitted to binding arbitration before a
panel of three neutral arbitrators, each of whom shall be a former
Article III federal judge.

The PMs assert that the language “any dispute concerning the operation or

application of any of the adjustments” encompasses the present dispute over the

interpretation of “units sold,” and therefore, this matter must be arbitrated. But

this interpretation ignores the unambiguous, plain language of the arbitration

clause. The arbitration clause states that it applies to disputes arising out of the

calculations and determinations made by the “Independent Auditor”—not the

legal meaning of the Qualifying Statute. And the language singled out by the

PMs is not as broad as they suggest. Read in context, it confines to arbitration

determinations made by the Independent Auditor concerning the operation or

application of the adjustments. Again, the State’s declaratory judgment claim

does not concern review of the arbitrators’ determination of diligent enforcement.

The PMs’ interpretation also renders superfluous section VII, entitled

“ENFORCEMENT.” Section VII(c)(1) provides that
any Settling State or Participating Manufacturer may bring an action
in the Court to enforce the terms of this Agreement (or for a
declaration construing any such term (‘Declaratory Order’)) with
respect to disputes, alleged violations or alleged breaches within
such Settling State.”
(Emphasis added).

And section VII(a) states that
[e]ach Participating Manufacturer and each Settling State
acknowledge that the Court . . . shall retain exclusive jurisdiction for

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No. 84265-0-I/14

the purposes of implementing and enforcing this Agreement and
the Consent Decree to such Settling State.”7

When read together, the plain language of section VII further informs the scope

of section XI’s arbitration clause. Section VII(c)(1) explicitly authorizes either

party to seek a declaratory order from the court defining any disputed term in the

MSA. Because the State adopted the language from the Model Statute as its

Qualifying Statute, section VII(c)(1) necessarily extends to the State’s Qualifying

Statute. Moreover, under section VII(a), the superior court has exclusive

jurisdiction over MSA enforcement.8 Because sections VII(a) and (c)(1) permit

the State to seek a declaratory judgment, this issue is not confined to arbitration.

2. Definition of “Person” Under UDJA

The PMs contend that “person” as used in the UDJA must be construed

strictly to only mean a “person” in the literal sense. But this interpretation runs

contrary to the purpose of the UDJA.

The UDJA permits any “person” with affected interests to seek a

declaratory judgment. RCW 7.24.020. It defines a “person” as “any person,

partnership, joint stock company, unincorporated association or society, or

municipal or other corporation of any character whatsoever.” RCW 7.24.130

(emphasis added). The Code’s general definitions section provides that the term

“person,” wherever it is used within the Code, may be construed to include

7 “Court” is defined by the MSA as “the respective court in each Settling

State to which th[e] [MSA] and the Consent Decree are presented for approval
and/or entry as to that Settling State.” Here, that court is King County Superior
Court.
8 Indeed, the PMs do not dispute that the court’s previous rulings in 2006

and 2016 are binding on the parties.

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No. 84265-0-I/15

Washington State. RCW 1.16.080. As a remedial statute, the UDJA is meant to

be “liberally construed and administered.” RCW 7.24.120; see also State v.

Seattle Gas & Elec. Co., 28 Wash. 488, 68 P. 946 (1902) (“person” as used in

remedial statute must be liberally construed to include corporation); Gontmakher

v. City of Bellevue, 120 Wn. App. 365, 85 P.3d 926 (2004) (city was a “person”

under anti-SLAPP statute even though statute mentioned “citizens”); State v.

Jeffries, 42 Wn. App. 142, 145, 709 P.2d 819 (1985) (Department of Corrections

was a “person” under the criminal restitution statute). Absent an express

indication otherwise, we presume that the Legislature is aware of prior statutes

and that any new legislation is consistent with prior legislation. Wright v. Miller,

93 Wn. App. 189, 197-98, 963 P.2d 934 (1998).

Here, the UDJA defines a “person” as a “person.” It logically follows that

the State can rely on the general definition of a “person” found in the RCW’s

general definitions. RCW 1.16.080(1) (“The term ‘person’ may be construed to

include . . . this state.”). The PMs’ arguments in support of a narrow

interpretation are unavailing. They assert that using the definition of “person”

from RCW 1.16.080 violates the “general-specific rule” and the canon of

expressio unius est exclusio alterius (express mention of one thing excludes all

others). We disagree. First, the “general-specific rule” applies only where two

statutes cannot be harmonized. Residents Opposed to Kittitas Turbines v.

Energy Facility Site Evaluation Council, 165 Wn.2d 275, 309, 197 P.3d 1153

(2008). But the statutes here do not conflict and can be read together. And

second, defining “person” as a “person” does not expressly exclude the State

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No. 84265-0-I/16

where another statute defines a “person” as the State. Absent an express

exclusion of the State, we presume that the Legislature is aware of the definition

in RCW 1.16.080 and that the UDJA is consistent with prior legislation. Wright,

93 Wn. App. at 197-98. The term “person” as used in the UDJA includes the

State.

3. Justiciability

The PMs contend that the present matter is not a justiciable dispute

because the State does not have an “actual interest” and because this case is

not subject to a final and conclusive judicial determination. We disagree.

We review orders, judgments, and decrees under the UDJA de novo.

Borton & Sons, Inc. v. Burbank Props., LLC, 196 Wn.2d 199, 205, 471 P.3d 871

(2020). To bring an action for declaratory relief under the UDJA, a party must

present a justiciable controversy and establish standing. To-Ro Trade Shows v.

Collins, 144 Wn.2d 403, 411, 27 P.3d 1149 (2001). RCW 7.24.020 confers

standing to seek a declaratory judgment on any person “whose rights, status or

other legal relations are affected by a statute.” The UDJA “is designed to settle

and afford relief from insecurity and uncertainty with respect to rights, status and

other legal relations.” DiNino v. State, 102 Wn.2d 327, 330, 684 P.2d 1297

(1984). “But ‘before the jurisdiction of a court may be invoked under the act,

there must be a justiciable controversy.’ ” Aji P. v. State, 16 Wn. App. 2d 177,

198, 480 P.3d 438 (2021) (internal quotation marks omitted) (quoting To-Ro

Trade Shows, 144 Wn.2d at 411). A justiciable controversy is (1) an actual,

present, and existing dispute, (2) between parties having genuine and opposing

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interests, (3) which involves interests that are direct and substantial, rather than

potential, theoretical, abstract, or academic, and (4) a judicial determination of

which will be final and conclusive. To-Ro Trade Shows, 144 Wn.2d at 411 (citing

Diversified Indus. Dev. Corp. v. Ripley, 82 Wn.2d 811, 815, 514 P.2d 137

(1973)). Because the UDJA is a remedial statute, it is meant to be “liberally

construed and administered.” RCW 7.24.120.

Actual, present, and existing dispute. The PMs contend that the only

actual dispute between the State and the PMs is a contractual dispute under the

MSA over whether the State diligently enforced its Qualifying Statute. They also

claim that this dispute cannot be “actual and present” because it is “an ongoing

and potential future arbitrated dispute.”9 (Emphasis omitted.) This argument

misses the mark. The State is not seeking a declaratory judgment that it

diligently enforced its Qualifying Statute; it is seeking a declaratory judgment

clarifying a disputed term in the MSA. That the parties disagree as to the

meaning of “units sold” and are actively litigating this issue is sufficient to show

an actual, present, and existing dispute.

Genuine and opposing interests. The PMs assert that the parties do not

have genuine and opposing interests because any dispute over “units sold” is

committed exclusively to arbitration. Again, this argument is unpersuasive. The

parties clearly have opposing interests—the State has an interest in showing it

9 The PMs also claim that “it is unclear whether or when future arbitrations

will even take place.” This argument does not survive close scrutiny. Given the
interests at stake, the history of litigation, and ongoing litigation, it is almost
certain that future arbitrations will take place.

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No. 84265-0-I/18

was diligent to avoid a lower annual payment and the PMs have an interest in

paying less money to the State. No scenario exists in which both parties prevail

in an NPM adjustment.

Direct and substantial interests. The PMs claim that the State’s interest in

correctly enforcing the Qualifying Statute is insufficient to confer a right under the

UDJA. They also assert that the State has no cognizable interest in a

declaratory judgment against them because they are not subject to the provisions

of the statute. Finally, the PMs contend that any interest in the interpretation of

“units sold” would be speculative. But contrary to the PMs’ assertions, this

dispute plainly involves direct and substantial interests, rather than potential,

theoretical, or abstract interests.

First, the State has a direct interest in enforcement of the Qualifying

Statute—failing to properly enforce it would cost the State millions of dollars. The

cases the PMs cite on this point are unpersuasive. Two are from other

jurisdictions10 and the PMs misconstrue the two Washington cases. In Stevens

County v. Stevens County Sheriff’s Department, the County challenged the

constitutionality of the “Involuntary Treatment Act” (ITA), RCW 71.05.182,

claiming it violated the Second Amendment to the United States Constitution and

10 The PMs cite State ex rel. Edmisten v. Tucker, 312 N.C. 326, 323,
S.E.2d 294 (1984) (judicial defendants—state court judges—and attorney
general did not have opposing interests because judicial defendants “stand
completely neutral to all legal claims and arguments brought before them.”) and
Foote v. State, 364 Or. 558, 563, 437 P.3d 221 (2019) (holding that “ ‘an abstract
interest in the correct application or the validity of a law’ ” is insufficient to confer
standing (quoting Morgan v. Sisters Sch. Dist. No. 6, 353 Or. 189, 195, 301 P.3d
419 (2013))).

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due process rights. 20 Wn. App. 2d 34, 42, 499 P.3d 917 (2021). The court

concluded that the County’s interest in protecting the rights of unidentified

individuals who were not named parties to the suit was not an interest protected

or regulated by the ITA. Stevens, 20 Wn. App. 2d at 42-43. But here, the State

is seeking a declaratory judgment to define its own rights—not the rights of

others.

The PMs’ reliance on Pasado’s Safe Haven v. State, 162 Wn. App. 746,

259 P.3d 280 (2011) is similarly misplaced. In Pasado’s, plaintiffs sought a

judicial declaration invalidating a statute only in part. 162 Wn. App. at 749. The

court declined to do so because partial invalidation of the statute would broaden

its scope beyond that intended by the legislature. Pasado’s, 162 Wn. App. at

761-62. The court reasoned that it could not rule on whether only part of the

statute was constitutional because doing so would constitute an advisory opinion.

Pasado’s, 162 Wn. App. at 749.

Second, though the PMs are not explicitly named in the statute, the

statutory scheme contemplates the MSA and enforcement of the scheme

necessarily implicates the PMs. The PMs’ argument that this suit is more

properly brought against the NPMs is unconvincing.

Lastly, the State has a substantial interest in the interpretation of “units

sold.” If “units sold” is interpreted to include tribally tax stamped cigarettes,

conflict between the State and tribes over tax regulation would surely ensue.

Final and conclusive judicial determination. The PMs maintain that a final

and conclusive judicial determination is impossible because this dispute is

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subject to arbitration. But as previously addressed, the issues in this case are

not subject to arbitration. Moreover, the MSA specifically permits the State to

seek a declaratory judgment defining any disputed term. A declaratory judgment

would end this recurring dispute11 over whether “units sold” includes an obligation

by the State to enforce the Qualifying Statute on tribally tax stamped cigarettes.

The interpretation of “units sold” presents a justiciable dispute.

4. Standing

Having determined that the State satisfies the justiciability requirements,

we turn now to standing. Neither party specifically addresses the test for UDJA

standing. The PMs maintain that the State is not a “person” and is therefore

precluded from seeking declaratory relief. The State contends that because the

PMs do not address the standing factors, they have waived this argument. We

disagree with both parties’ contentions and conclude that the State does have

standing under the UDJA.

Standing is a legal question that we review de novo. Wash. Bankers

Assoc. v. State, 198 Wn.2d 418, 455, 495 P.3d 808 (2021). The justiciability

requirements tend to overlap with the standing requirements under the UDJA.

Lakehaven Water and Sewer Dist. v. City of Federal Way, 195 Wn.2d 742, 769,

466 P.3d 213 (2020); Wash. State Council of County and City Emps. v. City of

Spokane, 200 Wn.2d 678, 685, 520 P.3d 991 (2022) (“ ‘Inherent in these four

requirements are the traditional limiting doctrines of standing, mootness, and

11 The first two arbitrations resulted in two opposing views of the definition

of “units sold.”

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No. 84265-0-I/21

ripeness, as well as the federal case-or-controversy requirement.’ ” (quoting To-

Ro Trade Shows, 144 Wn.2d at 411)); To-Ro Trade Shows, 144 Wn.2d at 414

(the third justiciability requirement of a direct and substantial interest in the

dispute encompasses the traditional doctrine of standing).

To establish standing under the UDJA, a party must demonstrate that:

(1) the interest they seek to protect is within the zone of interests regulated by

the statute in question, and (2) they have suffered or will suffer an injury in fact.

Alim v. City of Seattle, 14 Wn. App. 2d 838, 852, 474 P.3d 589 (2020). Standing

under the UDJA “ ‘is not intended to be a particularly high bar.’ ” Bass v. City of

Edmonds, 199 Wn.2d 403, 409, 508 P.3d 172 (2022) (quoting Wash. State Hous.

Fin. Comm’n v. Nat’l Homebuyers Fund, Inc., 193 Wn.2d 704, 712, 445 P.3d 533

(2019)).

The State easily satisfies the zone of interest inquiry. The State is tasked

with diligently enforcing its Qualifying Statute, chapter 70.157 RCW. If the State

diligently enforces the statute, it will recoup a larger annual payment from the

PMs and accrue in escrow funds from the NPMs to use for future settlements.

This interest is squarely within the zone of interests protected by the statute,

which aims to offset the “financial burdens imposed on the State by cigarette

smoking” and for those burdens to “be borne by tobacco product manufacturers

rather than by the State.” RCW 70.157.005.

The State also meets the second part of the standing test, whether the

challenged action has or will cause injury in fact. Because the State’s annual

payment from the PMs will be impacted if it must enforce its Qualifying Statute on

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No. 84265-0-I/22

compact sales, it has proven an injury. The State satisfies the UDJA’s standing

requirements.

5. Major Public Importance

On appeal, the State contends that even if it cannot satisfy UDJA

standing, we should still reach the merits of its case because it is a matter of

major public importance. The PMs counter that the State waived reliance on this

argument by not raising it below. Because we conclude that the State has

standing, we decline to address whether this case raises an issue of major public

importance.

Interpretation of “Units Sold”

Having concluded that this matter is justiciable, we must next decide

whether the court erred in interpreting “units sold” to exclude tribal compact sales

not bearing a stamp of the State. As an initial matter, the State contends that the

PMs waived their challenge to the court’s interpretation of “units sold” because it

is not identified in the PMs’ issue statements. We disagree.

The parties’ main dispute in this matter is whether “units sold” includes

cigarettes sold under the tribal compact system. The PMs contend that defining

“units sold” implicates some sort of fact finding or factual consideration

appropriate only for the arbitration panel. They assert that the court erred by

engaging in “abstract and advisory statutory construction.” We conclude that the

court correctly interpreted “units sold.”

We review de novo a trial court’s entry of declaratory judgment where the

court made no findings of fact and its conclusions of law involve interpretation of

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No. 84265-0-I/23

statutes. Nollette v. Christianson, 115 Wn.2d 594, 600, 800 P.2d 359 (1990).

When interpreting a statute, “ ‘[t]he court’s fundamental objective is to ascertain

and carry out the Legislature’s intent, and if the statute’s meaning is plain on its

face, then the court must give effect to the plain meaning as an expression of

legislative intent.’ ” Hanson v. Carmona, 1 Wn.3d 362, 373, 525 P.3d 940 (2023)

(alteration in original) (quoting Dep’t of Ecology v. Campbell & Gwinn, LLC, 146

Wn.2d 1, 9-10, 43 P.3d 4 (2002)). “ ‘Statutes must be interpreted and construed

so that all the language used is given effect, with no portion rendered

meaningless or superfluous.’ ” Assoc. Press v. Wash. State Leg., 194 Wn.2d

915, 920, 454 P.3d 93 (2019) (quoting Whatcom County v. City of Bellingham,

128 Wn.2d 537, 546, 909 P.2d 1303 (1996)). If a statute is clear on its face, “we

are ‘required to assume the Legislature meant exactly what it said and apply the

statute as written.’ ” Hobbs v. Hankerson, 21 Wn. App. 2d 628, 632, 507 P.3d

422 (2022) (internal quotation marks omitted) (quoting HomeStreet, Inc. v. Dep’t

of Revenue, 166 Wn.2d 444, 452, 210 P.3d 297 (2009)).

As to the issue of waiver, the PMs devote much of their briefing to

explaining why they disagree with the court’s interpretation of “units sold.”

Though the PMs’ issue statements could have been more clearly phrased, the

State cannot justly argue that it was not aware of the PMs’ arguments. This

issue is not waived.

As to the statute, neither party disputes—and the court and the 2004

Panel concluded—that the statute is unambiguous. The statute provides that

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“[u]nits sold” means the number of individual cigarettes sold in the
State by the applicable tobacco product manufacturer (whether
directly or through a distributor, retailer or similar intermediary or
intermediaries) during the year in question, as measured by excise
taxes collected by the State on packs bearing the excise tax stamp
of the State or “roll-your-own” tobacco containers.

RCW 70.157.010(j) (emphasis added).

Because the statute is unambiguous, we apply it as written. As written,

“units sold” under the statute means either (1) packs of cigarettes bearing an

excise tax stamp of the State on which the State collects excise tax, or (2) “roll-

your-own” tobacco containers on which the State collects excise tax. Cigarettes

sold under the tribal compact system and bearing the excise tax stamp of a tribe

are not “units sold” as they do not bear an excise tax stamp of the State and the

State does not collect excise tax on those sales. See RCW 43.06.455(3), (5)

(tribal tax is in lieu of state tax, compact cigarettes bear a tribal tax stamp, and

the tribe collects tax revenue).

This case involves a fundamental misunderstanding of tribal sovereignty

and the tribes’ independent authority to tax. The PMs contend that there is no

material difference, as a matter of statutory construction, between how the court

and the 2004 Panel interpreted “units sold.” They are wrong. Though the Panel

initially determined that “units sold” meant cigarettes “bearing the excise tax

stamp of the State,” it later elaborated that it believed tribal stamps were State

stamps because, the 2004 Panel said, “Washington authorized compact tribes to

collect the same tax that the state imposes.” It further explained that “[t]here is

no evidence that absent the authorizing statutes, the state would have permitted

the tribes to impose and collect cigarette taxes.” The Panel’s interpretation

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No. 84265-0-I/25

grossly misunderstands Indian law and ignores basic principles of tribal

sovereignty. The State cannot “authorize” the tribes to impose taxes—the tribes

possess the inherent authority to do so. Merrion v. Jicarilla Apache Tribe, 455

U.S. 130, 137, 102 S. Ct. 894, 71 L. Ed. 2d 21 (1982) (“The power to tax is an

essential attribute of Indian sovereignty because it is a necessary instrument of

self-government and territorial management. . . . [I]t derives from the tribe’s

general authority, sovereign, to control economic activity within its jurisdiction.”).

Contrary to the PMs’ belief, the tribes are separate sovereigns independently

collecting their own tax—they are not the State’s tax collector.

The PMs also contend that the court erred in disregarding the “factual

context” of the Panel’s interpretation. But this argument ignores a central tenet of

statutory interpretation. After the Panel concluded that there was “no ambiguity”

in the definition of “units sold,” it should not have looked to an internal policy

debate at the AG’s office to shape its interpretation. That internal debate was

wholly irrelevant to the issue of statutory interpretation. The plain language of

the statute is clear and determinative of this issue—the court did not err in its

interpretation of “units sold.”

Vacatur

The parties disagree whether the Federal Arbitration Act (FAA), 9 U.S.C.

§§ 1-14, or the Washington uniform arbitration act (WUAA), chapter 7.04A RCW,

applies here. We need not determine which law applies to settle this issue.

Regardless of which law applies, the court did not err in declining to vacate the

award because it correctly concluded that the Panel did not exceed its authority.

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Under Washington law, “[c]ourts will review an arbitration decision only in

certain limited circumstances, such as when an arbitrator has exceeded [their]

legal authority.” Int’l Union of Operating Eng’rs v. Port of Seattle, 176 Wn.2d

712, 720, 295 P.3d 736 (2013). “To do otherwise would call into question the

finality of arbitration decisions and undermine alternative dispute resolution.” Int’l

Union of Operating Eng’rs, 176 Wn.2d at 720. Our review of an arbitrator’s

award is “limited to the same standard applicable in the court which confirmed,

vacated, modified, or corrected that award.” Salewski v. Pilchuck Veterinary

Hosp., Inc., 189 Wn. App. 898, 903, 359 P.3d 884 (2015). We review only

whether one of the statutory grounds to vacate an award exists. Salewski, 189

Wn. App. at 903-04. The party challenging the award bears the burden of

showing such grounds exist. Cummings v. Budget Tank Removal & Env’t Servs.,

LLC, 163 Wn. App. 379, 388, 260 P.3d 220 (2011).

RCW 7.04A.230 prescribes narrow circumstances for vacatur of an arbitral

award. One of those circumstances is where the “arbitrator exceeded the

arbitrator’s powers.” RCW 7.04A.230(1)(d). In considering a motion to vacate on

this ground, we examine whether there is an error of law “ ‘on the face of the

award’ ” that goes to the arbitrator’s decision. Salewski, 189 Wn. App. at 904

(quoting Federated Servs. Ins. Co. v. Pers. Representative of Estate of Norberg,

101 Wn. App. 119, 123, 4 P.3d 844 (2000)). But “the facial legal error standard

is a very narrow ground for vacating an arbitral award.” Broom v. Morgan

Stanley DW Inc., 169 Wn.2d 231, 239, 236 P.3d 182 (2010). “Limiting judicial

review to the face of the award is a shorthand description for the policy that

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No. 84265-0-I/27

courts should accord substantial finality to arbitrator decisions.” Estate of

Norberg, 101 Wn. App. at 123. “ ‘The error should be recognizable from the

language of the award, as, for instance, where the arbitrator identifies a portion of

the award as punitive damages in a jurisdiction that does not allow punitive

damages.’ ” Salewski, 189 Wn. App. at 904 (quoting Cummings, 163 Wn. App.

at 389). The example provided in Salewski was indeed more than an ordinary

legal error, but one contrary to the long established public policy of Washington

that “recovery of punitive damages is contrary to the public policy of the State

and will not be allowed unless expressly authorized by statute.” Kennewick

Educ. Ass’n v. Kennewick Sch. Dist. No. 17, 35 Wn. App. 280, 282, 666 P.2d 928

(1983) (citing Spokane Truck & Dray Co. v. Hoefer, 2 Wash. 45, 25 P. 1072

(1891)). Barring a statutory basis for vacating an arbitration award, the general

rule is that “[a]rbitrators, when acting under the broad authority granted them by

both the agreement of the parties and the statutes, become the judges of both

the law and the facts . . . .” N. State Const. Co. v. Banchero, 63 Wn.2d 245, 249,

386 P.2d 625 (1963).

The FAA permits similarly narrow grounds for vacatur. Compare RCW

7.04A.230 with 9 U.S.C. § 10(a). One ground is “where the arbitrators exceeded

their powers, or so imperfectly executed them that a mutual, final, and definite

award upon the subject matter submitted was not made.” 9 U.S.C. § 10(a)(4). In

determining whether the arbitrators “ ‘exceeded [their] powers,’ ” the party

seeking relief bears “a heavy burden.” Oxford Health Plans LLC v. Sutter, 569

U.S. 564, 569, 133 S. Ct. 2064, 186 L. Ed. 2d 113 (2013) (quoting 9 U.S.C.

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§ 10(a)(4)). “It is not enough for petitioners to show that the Panel committed an

error—or even a serious error.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,

559 U.S. 662, 671, 130 S. Ct. 1758, 176 L. Ed. 2d 605 (2010). “Because the

parties ‘bargained for the arbitrator’s construction of their agreement,’ an arbitral

decision ‘even arguably construing or applying the contract’ must stand,

regardless of a court’s view of its (de)merits.” Oxford Health, 569 U.S. at 569

(quoting E. Associated Coal Corp. v. Mine Workers, 531 U.S. 57, 62, 121 S. Ct.

462, 148 L. Ed. 2d 354 (2000)).

“It is only when [an] arbitrator strays from interpretation and application of

the agreement and effectively ‘dispense[s] [their] own brand of industrial justice’

that [their] decision may be unenforceable.” Stolt-Nielsen S.A., 559 U.S. at 671

(some alterations in original) (quoting Major League Baseball Players Ass’n v.

Garvey, 532 U.S. 504, 509, 121 S. Ct. 1724, 149 L. Ed. 2d 740 (2001)). “ ‘[I]t

must be clear from the record that the arbitrators recognized the applicable law

and then ignored it.’ ” Biller v. Toyota Motor Corp., 668 F.3d 655, 665 (9th Cir.

2012) (quoting Lagstein v. Certain Underwriters at Lloyd’s, London, 607 F.3d

634, 641 (9th Cir. 2010)). If a reviewing court concludes that the arbitrator

exceeded their authority, they have discretion over whether to vacate the award.

9 U.S.C. § 10(a) (stating the court “may” vacate an award).

The test for whether the arbitrator exceeded their power is similar under

both the WUAA and the FAA. Both are intended to be narrow means of vacating

an arbitration award, though the FAA appears to impose a stricter standard.

Rather than requiring error “on the face of the award,” the FAA requires a party to

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show that the arbitrator understood the law and then ignored it in favor of

dispensing their own brand of justice.

Here, the 2004 Panel did not exceed its power under either test. Although

the Panel committed an error of law in misinterpreting the Qualifying Statute, it

does not amount to the sort of legal error justifying vacatur of an arbitration

award. The 2004 Panel reached its conclusion based on its interpretation of

evidence of a debate within the AG’s office. This is precisely the sort of decision

by an arbitrator that a court may not revisit because it goes beyond the face of

the award. “In deciding a motion to vacate, a court will not review the merits of

the case, and ordinarily will not consider the evidence weighed by the

arbitrators.” Estate of Norberg, 101 Wn. App. at 123-24. Moreover, this error did

not underpin the Panel’s final decision; the Panel stated that its interpretation

was “not determinative” of its decision that Washington State did not diligently

enforce its Qualifying Statute and that other lapses in enforcement efforts formed

the basis of the decision. Under the state standard, an erroneous interpretation

based on arbitration evidence that was not determinative of the Panel’s ultimate

decision is not facial error and does not support a conclusion that the arbitrators

exceeded their powers. And under the federal standard, the same holds true: a

nondeterminative error is insufficient to show the arbitrator exceeded their power.

The State makes no other challenges to the Panel’s other findings supporting its

decision—likely because the evidence of its failure to diligently enforce was so

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overwhelming. Thus, under either the state or federal standard, the Panel did not

exceed its power.12

As an alternative argument, the PMs contend that to the extent the WUAA

and FAA dictate different results, the FAA preempts the WUAA. “Determination

of whether the FAA preempts a state statute that otherwise applies to a

transaction generally requires a two-part analysis in which we consider

(1) whether the FAA applies to the transaction and if so, (2) whether the state

statute conflicts with the FAA.” Satomi Owners Ass’n v. Satomi, LLC, 167 Wn.2d

781, 797, 225 P.3d 213 (2009).

Because the FAA and the WUAA do not conflict, and the analysis under

either yields the same result, we decline to consider the PMs’ preemption

argument.

Affirm.

WE CONCUR:

12 Because the Panel did not exceed its power, we need not address the
PMs’ argument that a party “must show prejudice as a condition of relief from [an]
arbitration award.” However, we note that the PMs misquote the standard
introduced in Saleemi v. Doctor’s Assocs., Inc., 176 Wn.2d 368, 292 P.3d 108
(2013). In Saleemi, our Supreme Court concluded that “a party who fails to seek
discretionary review of an order compelling arbitration[] must show prejudice as a
condition of relief from the arbitration award.” 176 Wn.2d at 380 (emphasis
added). Contrary to the PMs’ assertion, this authority does not support that this
standard applies any time a party seeks relief from an arbitration award.

30

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11264985. Public record. Not legal advice.
