Solis v. Matheson

• Decision Date: 20 April 2009
• Docket Number: No. 07-35633.,07-35633.
• Parties: Hilda L. SOLIS, Secretary of Labor, United States Department of Labor, Plaintiff-Appellee, v. Paul MATHESON, an individual doing business as Baby Zack's Smoke Shop; Nick Matheson, an individual, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

563 F.3d 425

Hilda L. SOLIS, Secretary of Labor, United States Department of Labor, Plaintiff-Appellee, v. Paul MATHESON, an individual doing business as Baby Zack's Smoke Shop; Nick Matheson, an individual, Defendants-Appellants.

No. 07-35633.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 21, 2008.

Filed April 20, 2009.

Robert E. Kovacevich, Spokane, WA, for the appellants.

Jonathan L. Snare, Acting Solicitor of Labor, Steven J. Mandel, Associate Solicitor, Paul L. Frieden, Counsel for Appellate Litigation, Mary J. Rieser, Attorney, Gregory F. Jacob, Attorney (argued), Washington, D.C., for the appellee.

Appeal from the United States District Court for the Western District of Washington, Ronald B. Leighton, District Judge, Presiding. D.C. No. 3:06-cv-05361.

Before: B. FLETCHER and JOHNNIE B. RAWLINSON, Circuit Judges, and DAVID ALAN EZRA,^* District Judge.

EZRA, District Judge:

In this opinion we resolve whether the overtime provisions of the Fair Labor Standards Act ("FLSA") apply to a retail business located on an Indian reservation and owned by Indian tribal members. We also resolve whether Appellee the Secretary of Labor for the United States Department of Labor (the "Secretary") has the authority to enter the Indian reservation to inspect the books of that business. Finally, we resolve whether it was an abuse of discretion for the district court to appoint a receiver for the retail business in the event the overtime payments were not made.

We conclude that the overtime requirements of the FLSA apply to the retail business at issue in this case. Because the FLSA applies to the retail business, we conclude that the Secretary had the authority to enter the Indian reservation to audit the books of the business, as she would regularly do with respect to any private business. We therefore affirm the decision of the district court on these two issues.

We conclude that the district court's decision with respect to the automatic appointment of a receiver over the retail business in the event the overtime payments were not made was premature. We therefore vacate that portion of the judgment.

I. BACKGROUND

The parties stipulated to the underlying facts of this case.

A. Baby Zack's Smoke Shop

Appellant Paul Matheson is a member of the Puyallup Tribe. The Puyallup Tribe is a Pacific Northwest Indian tribe that has a reservation in the State of Washington. Paul Matheson owns and operates a retail store known as Baby Zack's Smoke Shop ("Baby Zack's")¹, located on trust land within the Puyallup Indian Reservation. Appellant Baby Zack's sells tobacco products and sundries to Indians and non-Indians. Some of the goods sold by Baby Zack's have been shipped in from locations outside the State of Washington. Baby Zack's accepts credit card and debit card payments and uses electronic or telephonic means of communication to banks and credit card companies located outside of the State of Washington. Baby Zack's regularly employs both Indian and non-Indian workers.

In 2004 and 2005, Baby Zack's had an annual gross volume of sales of not less than $500,000. Paul and Nick Matheson are employers within the meaning of the FLSA. If the FLSA applies, the amount of wages due to employees and former employees is $31,354.87.

B. The Medicine Creek Treaty

The Puyallup Tribe entered into a treaty in the 1850s known as the Treaty of Medicine Creek. The Treaty of Medicine Creek provides that the "tribes and bands agree to free all slaves now held by them, and not to purchase or acquire others hereafter." The Treaty of Medicine Creek also provides that certain lands are for "exclusive use" of the Indians, "nor shall any white man be permitted to reside upon the same without permission of the tribe and the superintendent or agent."

C. Procedural History

The Secretary subpoenaed the books of Baby Zack's and determined that the Mathesons had failed to pay overtime wages to its employees, as required by the FLSA. The Secretary filed suit and a motion for summary judgment. The district court granted the Secretary's motion for summary judgment, finding that the FLSA applied to the Mathesons.

The district court later entered judgment (the "Judgment") concluding that the FLSA applied to the Mathesons, and their failure to pay overtime wages violated the FLSA. The Judgment provided that the Mathesons were enjoined from violating the FLSA, they must pay $31,339.27² in overtime wages, and if they failed to do so, the court would appoint a receiver from a list of potential receivers provided by the Secretary or one of its own choosing, and the Mathesons would be required to pay the costs of the receiver. In addition, the Judgment stated that the receiver would have full authority to collect assets and report findings, redeem or liquidate assets, turn over proceeds, and prevent waste or fraud.

The Mathesons appealed both the decision regarding the applicability of the FLSA and the automatic appointment of a receiver upon the failure to pay, which was set forth for the first time in the Secretary's proposed judgment.

II. STANDARDS OF REVIEW

We review a district court's grant of summary judgment de novo. Golden Gate Rest. Ass'n v. City & County of San Francisco, 512 F.3d 1112, 1116 (9th Cir. 2008) (citing Aguilera v. Baca, 510 F.3d 1161, 1165-67 (9th Cir.2007)).

We review the district court's appointment of a receiver upon failure to pay for abuse of discretion. See View Crest Garden Apartments, Inc. v. United States, 281 F.2d 844, 849 (9th Cir.1960) (holding that "the [district] Court acted well within the discretionary powers a court of equity exercises in appointing a receiver"); see also SEC v. Hardy, 803 F.2d 1034, 1037 (9th Cir.1986) (reviewing for abuse of discretion the district court's decision involving supervision of receivership).

III. DISCUSSION

A. The Application of the FLSA to the Mathesons

The Mathesons argue that the FLSA does not apply in this instance because they qualify for either or both the intramural affairs exception set forth in Donovan v. Coeur d'Alene Tribal Farm, 751 F.2d 1113, 1115-16 (9th Cir.1985), or the treaty rights exception. We disagree.

The central aim of the FLSA is to achieve certain minimum labor standards, such as overtime requirements, with respect to industries engaged in commerce. 29 U.S.C. § 202. "The FLSA is a statute of general applicability," Snyder v. Navajo Nation, 382 F.3d 892, 894 (9th Cir.2004) (citation omitted), that is to be construed liberally. Klem v. County of Santa Clara, 208 F.3d 1085, 1089 (9th Cir.2000). Congress did not expressly make the FLSA applicable to Indian tribes. Reich v. Great Lakes Indian Fish & Wildlife Comm'n, 4 F.3d 490, 493 (7th Cir.1993). The issue in this case is whether, as a statute of general applicability, the FLSA applies to the Mathesons' business, which is owned and run by tribal members and located on the tribe's reservation.

Indian tribes have a special status as sovereigns with limited powers. Indian tribes are dependent on, and subordinate to the federal government, yet retain powers of self-government. See Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134, 154, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980); MacArthur v. San Juan County, 497 F.3d 1057, 1067 (10th Cir.2007), cert. denied, ___ U.S. ___, 128 S.Ct. 1229, 170 L.Ed.2d 62 (2008). However, those powers may be limited, modified, or eliminated by Congress. Santa Clara Pueblo v. Martinez, 436 U.S. 49, 56, 98 S.Ct. 1670, 56 L.Ed.2d 106 (1978).

The tribes' retained sovereignty reaches only that power needed to control internal relations, preserve their own unique customs and social order, and prescribe and enforce rules of conduct for their own members. Toward this end, the Supreme Court has recognized that a tribe may regulate any internal conduct which threatens the political integrity, the economic security, or the health or welfare of the tribe.

Reich v. Mashantucket Sand & Gravel, 95 F.3d 174, 178-79 (2nd Cir.1996) (citations, quotation marks, brackets, and ellipses omitted).

Indians and their tribes are equally subject to statutes of general applicability, just as any other United States citizen. Coeur d'Alene, 751 F.2d at 1115; Fed. Power Comm'n v. Tuscarora Indian Nation, 362 U.S. 99, 116, 80 S.Ct. 543, 4 L.Ed.2d 584 (1960). However, a statute of general applicability that is silent on the issue of applicability to Indian tribes, like the FLSA, does not apply to Indian tribes if:

(1) the law touches exclusive rights of self-governance in purely intramural matters; (2) the application of the law to the tribe would abrogate rights guaranteed by Indian treaties; or (3) there is proof by legislative history or some other means that Congress intended the law not to apply to Indians on their reservations. In any of these three situations, Congress must expressly apply a statute to Indians before we will hold that it reaches them.

Coeur d'Alene, 751 F.2d at 1116 (citations, quotation marks, brackets, and ellipses omitted). The Mathesons assert that the first exception known as the intramural affairs exception, or the second exception known as the treaty rights exception, applies in this case.

1. Self-Government and Intramural Affairs Exception

"[T]he tribal self-government exception is designed to except purely intramural matters such as conditions of tribal membership, inheritance rules, and domestic relations from the general rule that otherwise applicable federal statutes apply to Indian tribes." Coeur d'Alene, 751 F.2d at 1116 (citation omitted). Although these are not the only matters which could be covered by this exception, exemptions have been allowed "only in those rare circumstances where the immediate ramifications of the conduct are felt primarily within the reservation by members of the tribe and where self-government is clearly implicated." Snyder, 382 F.3d at 895.

The only case in this Circuit regarding...