Atkinson Trading Co. v. Navajo Nation, Civ. No. 93-1029 JP/DJS.

• Decision Date: 17 June 1994
• Docket Number: Civ. No. 93-1029 JP/DJS.
• Citation: 866 F. Supp. 506
• Parties: ATKINSON TRADING COMPANY, Plaintiff, v. The NAVAJO NATION and Ronnye Etcitty, Defendants.
• Court: U.S. District Court — District of New Mexico

866 F. Supp. 506

ATKINSON TRADING COMPANY, Plaintiff, v. The NAVAJO NATION and Ronnye Etcitty, Defendants.

Civ. No. 93-1029 JP/DJS.

United States District Court, D. New Mexico.

June 17, 1994.

Margaret P. Armijo, William J. Darling, Darling & Associates, Albuquerque, NM, for plaintiff Atkinson Trading Co., Inc., a New Mexico Corp.

Marcelino R. Gomez, Navajo Nation Dept. of Justice, Window Rock, AZ, for defendants Navajo Nation and Ronnye Etcitty.

MEMORANDUM OPINION AND ORDER

PARKER, District Judge.

The subject of this memorandum opinion and order is defendants' "Motion to Dismiss" filed November 19, 1993. After careful consideration of the applicable pleadings, facts and law and arguments of counsel at a hearing held on April 7, 1994, I conclude that defendants' motion should be granted.¹

I. Background

This is a Declaratory Judgment Action in which plaintiff seeks relief from the Navajo Hotel Occupancy Tax. Navajo Trib. Code tit. 24, §§ 700-741 (1992). This provision of the Tribal Code imposes a tax of 5% on all persons who pay for the use or possession of a room or space which costs $2.00 or more per day in a hotel which is located "within the exterior boundaries of the Navajo Nation."²

Plaintiff is a New Mexico corporation which owns and operates a hotel, restaurant and store on land owned by plaintiff in fee simple in Cameron, Arizona. The real property on which the businesses are located is surrounded by Navajo reservation land. Plaintiff as the proprietor of a business whose customers are subject to the Hotel Occupancy Tax has collected, transmitted and reported the tax to the Office of the Executive Director of the Navajo Tax Commission. The statute which established the tax includes an administrative refund claim procedure for taxpayers claiming they are entitled to a refund. A claimant can appeal an adverse administrative ruling to the Supreme Court of the Navajo Nation. The Supreme Court of the Navajo Nation is empowered to hear any kind of legal challenge to the tax at issue including a challenge based on federal law.³ Plaintiff did not avail itself of any of these remedies prior to seeking relief in federal court. Defendants contend that I should abstain from addressing plaintiff's claim until plaintiff exhausts its remedies within the administrative and judicial systems of the Navajo Nation.

II. Sovereign Immunity

As a preliminary matter I address the argument that the Navajo Nation is immune from suit in federal court. This proposition is beyond debate. See, e.g., Tenneco Oil Co. v. Sac and Fox Tribe of Indians of Oklahoma, 725 F.2d 572, 574 (10th Cir.1984). Plaintiff originally sued only the Navajo Nation. However, subsequent to the filing of defendants' motion to dismiss, plaintiff amended its complaint to add defendant Ronnye Etcitty, an individual tribal officer. Tribal officials alleged to be acting outside the scope of their lawful authority are not immune from suit. Tenneco, 725 F.2d at 574.⁴ Accordingly, I have jurisdiction to determine the second issue raised by defendants' motion to dismiss — whether principles of comity require plaintiff to exhaust its administrative and judicial remedies under tribal law prior to seeking relief in federal court.

III. Exhaustion

There are two separate issues which I must analyze in determining the exhaustion issue: (1) whether there is an exception to the exhaustion doctrine which bars its application in this case; and (2) if there is no bar to applying the exhaustion doctrine, the propriety of requiring plaintiff to exhaust tribal law remedies under the facts of this case.

The controlling cases on the issue of exhaustion of tribal remedies are National Farmers Union Insurance Cos. v. Crow Tribe of Indians, 471 U.S. 845, 105 S.Ct. 2447, 85 L.Ed.2d 818 (1985) and Iowa Mutual Ins. Co. v. La Plante, 480 U.S. 9, 107 S.Ct. 971, 94 L.Ed.2d 10 (1987). In both these cases the Supreme Court held that the federal court plaintiffs were required to exhaust their tribal court remedies prior to filing suit in federal court. The Supreme Court stated that exhaustion of remedies in tribal court should be encouraged in certain cases, as a matter of comity.

In National Farmers a member of the Crow Tribe of Indians filed suit for personal injuries against a school district in Crow Tribal Court and obtained a default judgment based on the district's failure to answer. Soon thereafter the school district and its insurer, National Farmers, filed suit in federal court seeking to enjoin the tribal court from asserting jurisdiction over the district. The place where the tribal member had been injured was on land owned by the state, but located within reservation boundaries. In Iowa Mutual, a liability insurance carrier sought a declaration in federal court that it had no duty to defend or indemnify its insured, a Ranch Company located on the Blackfeet Indian Reservation and owned by members of the Blackfeet tribe. An employee of the ranch, also a member of the tribe, had filed suit in tribal court for personal injuries sustained in the course of his employment. Iowa Mutual was also named in the tribal court suit.

In National Farmers the Court concluded that:

in a case of this kind.... the existence and extent of a tribal court's jurisdiction will require a careful examination of tribal sovereignty, the extent to which that sovereignty has been altered, divested, or diminished, as well as a detailed study of relevant statutes, Executive Branch policy as embodied in treaties and elsewhere, and administrative or judicial decisions.

We believe that examination should be conducted in the first instance in the Tribal Court itself. Our cases have often recognized that Congress is committed to a policy of supporting tribal self-government and self-determination. That policy favors a rule that will provide the forum whose jurisdiction is being challenged the first opportunity to evaluate the factual and legal bases for the challenge. Moreover, the orderly process of justice in the federal court will be served by allowing a full record to be developed in the Tribal Court before either the merits or any question concerning the appropriate relief is addressed. ... Exhaustion of tribal court remedies, moreover, will encourage tribal courts to explain to the parties the precise basis for accepting jurisdiction, and will also provide other courts with the benefit of their expertise in the event of further judicial review.

National Farmers, 471 U.S. at 856-857, 105 S.Ct. at 2454 (footnotes omitted). In summary, the National Farmers Court established three factors relevant to the propriety of exhaustion: (1) support of tribal self-determination and tribal self-government; (2) serving the orderly administration of justice; and (3) obtaining the benefit of tribal expertise.

The National Farmers Court also articulated three exceptions to the exhaustion requirement:

We do not suggest that exhaustion would be required where an assertion of tribal jurisdiction `is motivated by a desire to harass or is conducted in bad faith', ... or where the action is patently violative of express jurisdictional prohibitions, or where exhaustion would be futile because of the lack of an adequate opportunity to challenge the court's jurisdiction.

National Farmers, 471 U.S. at 856, n. 21, 105 S.Ct. at 2454, n. 21 (citations omitted).

I will first discuss the exceptions to the exhaustion requirement and will explain why they do not apply to this action.

A. Exceptions to Exhaustion

Relying on Montana v. United States, 450 U.S. 544, 101 S.Ct. 1245, 67 L.Ed.2d 493 (1981), plaintiff argues that exhaustion is inappropriate because the imposition of the occupancy tax on plaintiff's hotel is "patently violative of an express jurisdictional prohibition."

In Montana the Court held that:

A tribe may regulate, through taxation, licensing, or other means, the activities of nonmembers who enter consensual relationships with the tribe or its members, through commercial dealing, contracts, leases, or other arrangements.... A tribe may also retain inherent power to exercise civil authority over the conduct of non-Indians on fee lands within its reservation when that conduct threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe.

Montana, 450 U.S. at 565-566, 101 S.Ct. at 1258 (citations omitted).⁵

Based on a plain reading of the "exceptions" as articulated in National Farmers and recent Tenth Circuit law, I conclude that applying Montana to preclude exhaustion is not the correct analysis. See Texaco v. Zah, 5 F.3d 1374 (10th Cir.1993). Rather, Montana should be applied only to determine ultimately the validity of the tax itself. Whether Montana helps to resolve the exhaustion question depends on the meaning of "where the action is patently violative of express jurisdictional prohibitions" — i.e. does this refer to the "action" of asserting tribal court jurisdiction over the dispute or the "action" of the tribe in enacting the challenged tax. I believe the former interpretation is the correct one.

Plaintiff contends that the question is not whether the Navajo courts have jurisdiction to hear the case (and determine their jurisdiction), but whether the Navajo Nation exceeded its jurisdiction by taxing plaintiff's operations. If I were to accept plaintiff's interpretation it would be tantamount to my deciding the validity of the tax itself. Plaintiff's analysis skirts the exhaustion issue and ignores the Supreme Court's instruction that "the forum whose jurisdiction is being challenged should have the first opportunity to evaluate the factual and legal bases for the challenge." National Farmers, 471 U.S. at 856-857, 105 S.Ct. at 2454; see also National Farmers, 471 U.S. at 856, 105 S.Ct. at 2454 ("the orderly administration of justice in the federal court will be served by allowing a full record to be developed in the Tribal Court before...