Kerr-McGee Corp. v. Navajo Tribe of Indians, KERR-M

• Decision Date: 17 April 1984
• Docket Number: 82-5736,Nos. 82-5725,KERR-M,s. 82-5725
• Citation: 731 F.2d 597
• Parties: cGEE CORPORATION, a Delaware corporation, Plaintiff-Appellee, v. NAVAJO TRIBE OF INDIANS, Defendant-Appellant.cGEE CORPORATION, a Delaware corporation, Plaintiff-Appellant, v. NAVAJO TRIBE OF INDIANS, a tribe of American Indians recognized by the United States Department of the Interior, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 597

731 F.2d 597

KERR-McGEE CORPORATION, a Delaware corporation, Plaintiff-Appellee, v. NAVAJO TRIBE OF INDIANS, Defendant-Appellant.

KERR-McGEE CORPORATION, a Delaware corporation, Plaintiff-Appellant, v. NAVAJO TRIBE OF INDIANS, a tribe of American Indians

recognized by the United States Department of the

Interior, et al., Defendants-Appellees.

Nos. 82-5725, 82-5736.

United States Court of Appeals Ninth Circuit.

Argued April 15, 1983.

Submitted Aug. 22, 1983.

Decided April 17, 1984.

Alvin H. Shrago, Fred E. Ferguson, Jr., Evans, Kitchel, Jenckes, P.C., Phoenix, Ariz., for Kerr-McGee.

Carol E. Dinkins, Asst. Atty. Gen., Dirk D. Snel, Kay L. Richman, Attys., Dept. of Justice, David Etheridge, Atty., Dept. of Interior, Washington, D.C., for amicus U.S.

George P. Vlassis, Katherine Ott, Vlassis & Ott, Phoenix, Ariz., for Navajo Tribe of Indians.

On Appeal from the United States District Court for the District of Arizona.

Before MERRILL, SKOPIL and FERGUSON, Circuit Judges.

MERRILL, Circuit Judge.

Kerr-McGee Corporation is a Delaware corporation engaged in business in New Mexico and Arizona. The Navajo Tribe of Indians is a tribe of American Indians situated upon a reservation created in part by treaty and in part by executive order in the states of Arizona, New Mexico, and Utah. The Tribe has no written constitution, but its self-governing powers are vested in the Navajo Tribal Council.

Kerr-McGee is a non-Indian mineral lessee of the Tribe. Since 1964, it has, under leases approved by the Secretary of the Interior, engaged in mining uranium and extracting oil and gas from portions of the Navajo reservation in New Mexico and Arizona. In 1978, the Tribal Council adopted two new taxes directly affecting the Kerr-McGee operations: a tax presently set at 3% on the value of mining leasehold interests on reservation lands of a value in excess of $100,000 (the Possessory Interest Tax) and a tax presently set at 5% on the gross receipts of certain business activities conducted on the reservation, including every sale within or without the reservation By this action Kerr-McGee seeks to invalidate the taxes. In its complaint it charges that for many reasons the Tribal Council was without power to impose such taxes on non-Indians. The District Court rejected most of Kerr-McGee's contentions and granted summary judgment in favor of the Tribe on the counts of the complaint on which those contentions were based. Kerr-McGee has appealed from that judgment. The Court did, however, hold that the taxes were nevertheless invalid because the Tribe had not secured the approval of the tax by the Secretary of the Interior, an action which the Court held to be a requirement. It granted summary judgment in favor of Kerr-McGee on the count asserting that ground for invalidity. The Tribe has appealed from that judgment.

of a "Navajo good or service" (the Business Activities Tax).

In its judgments the District Court in all respects followed the holding of the District Court for the District of Utah in the case of Southland Royalty Co. v. Navajo Tribe of Indians, No. 79-0140 (D.Utah, March 8, 1979). That case involved the precise questions presented here: the validity of the Tribal taxes on oil and gas leases and on gross receipts. The decision in that case was appealed to the Court of Appeals for the Tenth Circuit and that Court has now affirmed the Utah District Court on those portions of the judgment favoring the Navajo Tribe but has reversed the Utah District Court in its holding that approval of the tax by the Secretary of the Interior was required. Southland Royalty Co. v. Navajo Tribe of Indians, 715 F.2d 486 (10th Cir.1983).

KERR-McGEE APPEAL

I. Inherent Power to Tax Lessees --

In Count I of its amended complaint Kerr-McGee asserts that, as to it, the Tribe is without the inherent power to tax; that by virtue of its leasehold Kerr-McGee has a right to presence within the reservation and cannot be excluded by the Tribe and that the Tribe, having no power to exclude, has no power to tax.

The Supreme Court in Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 102 S.Ct. 894, 71 L.Ed.2d 21 (1982), has held otherwise. It has made it clear that Indian tribes do have the inherent power to tax mining activities carried on within the reservation under lease from the tribes; that the power to tax is an essential attribute of Indian sovereignty and a necessary instrument of self-government. "[The power to tax] derives from the tribe's general authority, as sovereign, to control economic activity within its jurisdiction, and to defray the cost of providing governmental services by requiring contributions from persons or enterprises engaged in economic activities within that jurisdiction." 455 U.S. at 137, 102 S.Ct. at 901. The Court makes it clear that Kerr-McGee's status as lessee does not deprive the Tribe of power to tax it; that such power is inherent in sovereignty and does not stem exclusively from the power to exclude one from tribal lands. Moreover, as the Court acknowledged in Merrion, the Tribe's interest in levying taxes for essential governmental programs on nonmembers " 'is strongest when the revenues are derived from value generated on the reservation by activities involving the Tribes and when the taxpayer is the recipient of tribal services.' " 455 U.S. at 138, 102 S.Ct. at 902, quoting Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134, 156-57, 100 S.Ct. 2069, 2082-83, 65 L.Ed.2d 10 (1980). If the Tribe's interest was found sufficiently strong in the case of the oil and gas severance taxes in Merrion, they can be no less strong here. ¹

Since Merrion there can be no question that the Navajo Tribe has the inherent power to tax the mineral leases and operation of Kerr-McGee.

II. Treaties of 1850 and 1868 --

In Count II of its amended complaint Kerr-McGee alleges that both the Treaty of 1850, 9 Stat. 974, and the Treaty of 1868, 15 Stat. 667, bar the Navajo Tribe from taxing non-Indians.

With respect to the Treaty of 1850, Kerr-McGee asserts that Article III surrenders all civil jurisdiction to the United States. That provision states in relevant part:

The government of the said States having the sole and exclusive right of regulating the trade and intercourse with the said Navajos...

9 Stat. at 974. Yet this language does no more than recite that it is the federal government, and not the states, that possesses regulatory power over commerce and trade with the Tribe. That federal exclusivity of power as to the states does not undermine the ability of the Tribes to legislate in areas of retained sovereignty, unless Congress legislates to the contrary. See Santa Clara Pueblo v. Martinez, 436 U.S. 49, 98 S.Ct. 1670, 56 L.Ed.2d 106 (1978). In that context, there is nothing in the quoted Treaty language which would inhibit the Navajo's taxation of non-Indians. See United States v. Wheeler, 435 U.S. 313, 98 S.Ct. 1079, 55 L.Ed.2d 303 (1978); McClanahan v. Arizona State Tax Commission, 411 U.S. 164, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973); Babbitt Ford v. Navajo Indian Tribe, 710 F.2d 587 (9th Cir.1983).

With respect to the Treaty of 1868, Kerr-McGee asserts that Article IX expressly prohibits Tribe interference with its oil and gas operations. That provision states:

[The Tribe] will not in future oppose the construction of railroads, wagonroads, mail stations, or other works of utility or necessity which may be ordered or permitted by the laws of the United States.

15 Stat. at 670. Kerr-McGee argues that its oil and gas operations are works of utility and that by taxing its operations, the Tribe "opposes" them. We find this argument wholly without merit. Placed in context, it becomes clear that this portion of the Treaty was concerned with a cessation of armed hostility on the part of the Tribe, and not with its power to tax. ²

III. The Mineral Leasing Act of 1938 --

In Count III of its amended complaint, Kerr-McGee asserts that the Mineral Leasing Act of 1938 has preempted all power of the Navajo Tribe to tax non-Indians. The Act, 25 U.S.C. Sec. 396 et seq., provides in part at Sec. 396d: "All operations under any oil, gas, or other mineral lease issued pursuant to the terms [of any act affecting restricted Indian lands] shall be subject to the rules and regulations promulgated by the Secretary of the Interior." The regulatory procedure set up pursuant to the Act is set forth at 25 C.F.R. Part 171 (now Part 211 (1982)). Kerr-McGee argues that the regulatory scheme is so pervasive that it preempts all power on the part of the Tribe to deal with mineral leases, including the power to tax. It notes that the regulations allow for a lone exception: 25 C.F.R. Sec. 171.29 provides that the provisions of the We reject this argument for several reasons. First, Kerr-McGee misinterprets the purpose of the 1938 Act. Its purpose was not to generate distinctions between tribes organized under the IRA and tribes not so organized, but rather was to "bring all mineral leasing matters in harmony with the Indian Reorganization Act." S.Rep. No. 985, 75th Cong., 1st Sess., at 3 (1937); H.R.Rep. No. 1872, 75th Cong., 3d Sess., at 3 (1938). At the time the 1938 Act was proposed, there was no statutory authority to lease lands on Indian Reservations created by executive order for mineral development (except oil and gas) in many states, unless a tribe had organized pursuant to Section 17 of the IRA, 25 U.S.C. Sec. 477. See S.Rep. No. 985, supra, at 1-2. Tribes organized under Section 17 were empowered to lease their lands for periods of not more than ten years. Id. The purpose of the 1938 Act was to abolish these distinctions by enabling all tribes to lease for mineral development. See S.Rep. No. 985, supra, at 2; H.R.Rep. No. 1872, supra, at 1.

                regulations "may be superseded by the provisions of any tribal constitution, bylaw, or charter issued pursuant to the Indian Reorganization Act."    The Navajo

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