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Citizen Potawatomi Nation v. State

United States Court of Appeals, Tenth Circuit

February 6, 2018

STATE OF OKLAHOMA, Defendant-Appellant.


          Mithun Mansinghani, Assistant Solicitor General (Patrick R. Wyrick, Solicitor General, and Jared B. Haines, Assistant Solicitor General, on the briefs), Oklahoma Office of the Attorney General, Oklahoma City, Oklahoma, for Defendant-Appellant.

          Gregory M. Quinlan, Citizen Potawatomi Nation, Shawnee, Oklahoma, for Plaintiff-Appellee.

          Before TYMKOVICH, Chief Judge, BRISCOE, and MURPHY, Circuit Judges.

          MURPHY, Circuit Judge.


         Oklahoma and the Citizen Potawatomi Nation (the "Nation") entered into a Tribal-State gaming compact (the "Compact"). See 25 U.S.C. § 2710(d)(3) (providing for such compacts). Part 12 of the Compact contains a dispute-resolution procedure that calls for arbitration of disagreements "arising under" the Compact's provisions. It also indicates that either party may, "[n]otwithstanding any provision of law, " "bring an action against the other in a federal district court for the de novo review of any arbitration award." In Hall Street Associates, LLC. v. Mattel, Inc., however, the Supreme Court held that the Federal Arbitration Act ("FAA") precludes parties to an arbitration agreement from contracting for de novo review of the legal determinations in an arbitration award. 552 U.S. 576, 583-84 (2008). Instead, according to the Court, 9 U.S.C. §§ 10 and 11 provide the exclusive grounds for a court to vacate or modify an arbitration award. Id.

         This court must resolve how to treat the Compact's de novo review provision given the Supreme Court's decision in Hall Street Associates. The Nation asserts the appropriate course is to excise from the Compact the de novo review provision, leaving intact the parties' binding obligation to engage in arbitration, subject only to limited judicial review under 9 U.S.C. §§ 9 and 10. This is the approach adopted, sub silentio, by the district court. Oklahoma, in contrast, asserts the de novo review provision is integral to the parties' agreement to arbitrate disputes arising under the Compact and, therefore, this court should sever the entire arbitration provision from the Compact.

         The language of the Compact demonstrates that the de novo review provision is a material aspect of the parties' agreement to arbitrate disputes arising thereunder. Because Hall Street Associates clearly indicates the Compact's de novo review provision is legally invalid, and because the obligation to arbitrate is contingent on the availability of de novo review, we conclude the obligation to arbitrate set out in Compact Part 12 is unenforceable. Thus, exercising jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1362, this matter is remanded to the district court to enter an order vacating the arbitration award.


         A. The Compact

         The Nation's Chairman signed the Compact on November 30, 2004. See Okla. Stat. tit. 3A, §§ 280-281 (offering "a model tribal gaming compact" to federally recognized tribes within Oklahoma's borders and providing that a compact would take effect through the "signature of the chief executive officer of the tribal government, " with "[n]o further action by the Governor or the state" required). The Compact was deemed approved and in effect as of February 9, 2005. See Notice of Class III Gaming Compacts Taking Effect, 70 Fed. Reg. 6903-01 (Feb. 9, 2005); see also 25 U.S.C. § 2710(d)(8)(C) (allowing a Tribal-State gaming compact to be deemed approved if not acted on by the Secretary of the Interior within forty-five days after the Compact's submission).

         The Compact opens with a series of recitals, specifically noting the sovereign nature of the parties, the need for respectful government-to-government relations, and the "long recognized . . . right" of the Nation to govern tribal lands. It then sets forth a comprehensive structure regarding Class III gaming on the Nation's lands and describes the parties' rights and responsibilities with regard to that gaming. The Compact applies to "[f]acilit[ies], " which are defined as "any building of the tribe in which the covered games authorized by this Compact are conducted." The Nation has two such facilities, the FireLake Grand Casino and the FireLake Entertainment Center. Particularly important for understanding the underlying arbitration proceedings that lead to this appeal, Part 5(I) of the Compact provides that the "sale and service of alcoholic beverages in a facility shall be in compliance with state, federal, [and] tribal law in regard to the licensing and sale of such beverages." The Compact contains the following dispute resolution procedure:

In the event that either party to this Compact believes that the other party has failed to comply with any requirement of this Compact, or in the event of any dispute hereunder, including, but not limited to, a dispute over the proper interpretation of the terms and conditions of this Compact, the following procedures may be invoked:
. . .;
2. Subject to the limitation set forth in paragraph 3 of this Part, either party may refer a dispute arising under this Compact to arbitration under the rules of the American Arbitration Association (AAA), subject to enforcement or pursuant to review as provided by paragraph 3 of this Part by a federal district court. The remedies available through arbitration are limited to enforcement of the provisions of this Compact. The parties consent to the jurisdiction of such arbitration forum and court for such limited purposes and no other, and each waives immunity with respect thereto. . . .
. . .; and
3.Notwithstanding any provision of law, either party to the Compact may bring an action against the other in a federal district court for the de novo review of any arbitration award under paragraph 2 of this Part. The decision of the court shall be subject to appeal. Each of the parties hereto waives immunity and consents to suit therein for such limited purposes, and agrees not to raise the Eleventh Amendment to the United States Constitution or comparable defense to the validity of such waiver.

See Okla. Stat. tit. 3A, § 281.

         B. The Underlying Dispute and Arbitration Proceedings

         The dispute underlying the arbitration award and this appeal began with administrative proceedings before Oklahoma's alcohol (the Alcoholic Beverage Laws Enforcement Commission ("ABLE")) and sales tax (the Oklahoma Tax Commission ("OTC")) regulators. ABLE began proceedings against the Nation on the ground the Grand Casino was selling alcoholic beverages on Sundays, in violation of Okla. Stat. tit. 37, § 591.[1] ABLE has authority to refuse to renew, suspend, or revoke licenses if the license holder fails to comply with license requirements. Okla. Stat. tit. 37, §§ 527.1, 528.

         While ABLE proceedings were ongoing, the OTC sent a request to the Nation as the holder of Oklahoma licenses and permits. According to the OTC:

4. As the holder of Sales Tax Permits, [the Nation] is required to report and remit sales tax due on transactions subject to Oklahoma Sales Tax . . . . [The Nation] has filed Oklahoma Sales Tax Returns on a semi-annual basis, commencing January 18, 2011 . . . .
5.. . . [E]ach return filed by [the Nation] reported total sales and claimed exemptions in the exact amount of total sales, reporting a "zero" sales tax liability.
6. Pursuant to [OTC regulations], all gross receipts are presumed subject to tax, until shown to be tax exempt. The burden of proving that a sale is an exempt sale is on the vendor.
7. [The Nation's] returns . . ., while claiming exemptions in the exact total amount of reported sales, fail to identify, much less establish that all sales were exempt.

         In Oklahoma, businesses selling alcoholic beverages by the drink must obtain both an appropriate liquor license from ABLE and a matching tax permit from the OTC. Okla. Stat. tit. 37, §§ 163.7, 577. The OTC is empowered to revoke all of a licensee's tax permits and licenses upon a violation of state tax law. Id. tit. 68, § 212(A)(2).[2]

         In the ABLE proceedings, the Nation claimed it did not have to submit to the prohibition on Sunday sales because that prohibition flowed from a county rule, not state law. It also asserted arbitration pursuant to Compact Part 12 was the only proper forum for resolving licensing disputes. An administrative law judge recommended that ABLE reject the Nation's first argument because (1) the county option as to sales of liquor by the drink flowed directly from state law and the Oklahoma Constitution and (2) the Nation had applied for and received state-granted liquor licenses, and federal law establishes that states have jurisdiction over liquor sales in "Indian Country."[3] The administrative law judge also reasoned that the overall structure of the Compact demonstrated the parties did not agree to resolve licensing disputes via the mechanism set out in Compact Part 12.

         The administrative law judge issued his decision in the middle of the Nation's briefing schedule at the OTC. The Nation then invoked the Compact's arbitration provision and made Compact Part 5(I) central to its arbitration theory.[4]According to the Nation, disputes involving alcohol sales and licensing that might impact its gaming businesses were subject to arbitration under the Compact.[5] In response, Oklahoma disputed the Nation's assertion arbitration was the proper forum for determining disputes that arise because of the Nation's failure to comply with laws and regulations governing sales tax and liquor licenses.[6]Ultimately, for that very reason, Oklahoma filed a motion to dismiss the Nation's demand for arbitration, arguing regulatory disputes between the parties must be resolved through administrative proceedings, not arbitration. The arbitrator refused to dismiss the Nation's arbitration demand, reasoning that the Nation's theory (i.e., that Part 12 of the Compact was the exclusive means of enforcing the Nation's obligations under Part 5(I)) was substantively arbitrable.[7]

         The arbitrator conducted a hearing. The Nation's Vice-Chairman, Linda Capps, and Tribal Counsel, Gregory Quinlan, testified as to the history of the interaction between the OTC and the Nation. As to the parties' intended meaning of the Compact, the Nation presented the testimony of Oklahoma's ex-Governor, Brad Henry, and the Nation's Chairman, John A. Barrett. Governor Henry testified he directed and oversaw the model gaming compact negotiations. He testified the Compact provided for arbitration: (1) to resolve disputes more quickly and with less expense; and (2) to maintain each party's sovereignty by preventing Oklahoma from attempting to pull Native American tribes into state court to resolve claims. Governor Henry testified the Compact was authored by the state and offered to the Nation as a "take it or leave it" proposition. He further testified the Compact was not intended to subject the Nation to the taxation urged by Oklahoma.[8]

         As to economic aspects of a federal preemption analysis, [9] the Nation presented the testimony of, inter alia, Dr. Joseph P. Kalt, Professor Emeritus at the John F. Kennedy School of Government at Harvard University. Dr. Kalt testified there is an ...

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