FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN
DISTRICT OF OKLAHOMA (D.C. NO. 5:16-CV-00361-C)
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.
TYMKOVICH, Chief Judge, BRISCOE, and MURPHY, Circuit Judges.
MURPHY, Circuit Judge.
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.
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
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.
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
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.
The Underlying Dispute and Arbitration Proceedings
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. 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.
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
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.
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, §
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." 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.
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.According to the Nation, disputes involving
alcohol sales and licensing that might impact its gaming
businesses were subject to arbitration under the
Compact. 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.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.
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
economic aspects of a federal preemption analysis,
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