In an order issued in Tacoma, U.S. District Judge Ronald Leighton said he is aware of no federal law that would prohibit the type of arrangement at issue, and he declined to issue an injunction shutting down the smokeshop.

However, Leighton also said he would not dismiss the lawsuit before the Nisqually Tribe has a chance to amend its complaint.

Frank’s Landing is a 19-acre Indian community outside the Nisqually reservation between Fort Lewis and Olympia. The community is not a federally recognized tribe, but Congress has recognized its several dozen members as an “independent Indian Community” not subject to the jurisdiction of any tribe.

The community operated a smoke shop without a state tobacco tax agreement until federal agents raided it last year. Typically, tribes that sell cigarettes have compacts with the state that allow their smokeshops to tax sales to non-Indians with the tax revenue going to the affected tribe.

Following the raid, Frank’s Landing struck a deal with the nearby Squaxin Island Tribe, which agreed to lease the smokeshop and share tax revenue for use on local pro-jects.

Gregoire amended the state’s tobacco tax compact with the Squaxins to formalize the arrangement, and the shop reopened early this year as Skookum Creek Tobacco Co.

Visitors to Frank’s Landing can save $20 or more on a carton of cigarettes, and the Nisqually Tribe argued that the shop will undercut sales at its own “legitimate” smokeshop several miles away.

The Nisquallys sued in February. Malcolm Harris, a Seattle-based lawyer for the tribe, said he was reviewing the ruling.

“The case is going to go forward,” he said. “His denial of a preliminary injunction motion is not necessarily decisive on the case. We don’t believe he’s heard all the evidence yet.”

Pearse Edwards, a spokesman for the governor, said Leighton’s ruling “supports our basic understanding of federal law, and we are hopeful for an outcome that upholds the state’s actions.”

Alexandra Smith, a lawyer for Frank’s Landing, said the ruling “sent a pretty strong message” that the agreement with the Squaxins will pass muster in court.

“We feel very positive that we’ll be able to resolve the lawsuit in a way that is favorable to Frank’s Landing,” Smith said.

There have been no negotiations for an out-of-court settlement, she added.