Crow Tribe of Indians v. State of Mont.

• Decision Date: 11 June 1987
• Docket Number: Nos. 86-3842,86-3845,s. 86-3842
• Citation: Crow Tribe of Indians v. State of Mont., 819 F.2d 895 (9th Cir. 1987)
• Parties: The CROW TRIBE OF INDIANS; Forest Horn, a member of the Crow Tribe and Chairman of Crow Tribal Council; Ted Hogan, a member of the Crow Tribe and Secretary of the Crow Tribal Council; Jiggs Yellowtail, a member of the Crow Tribe; Barney Old Coyote, a member of the Crow Tribe, Plaintiff-Appellant, United States of America, Plaintiff-Intervenor, v. STATE OF MONTANA, Defendant-Appellee. The CROW TRIBE OF INDIANS, Plaintiff-Appellant, and United States of America, Plaintiff-Intervenor-Appellant, v. The STATE OF MONTANA, Defendant-Appellee, and Westmoreland; Westmoreland, Westmoreland Resources, Inc., Defendant-Intervenor-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 895

819 F.2d 895

The CROW TRIBE OF INDIANS; Forest Horn, a member of the

Crow Tribe and Chairman of Crow Tribal Council; Ted Hogan,

a member of the Crow Tribe and Secretary of the Crow Tribal

Council; Jiggs Yellowtail, a member of the Crow Tribe;

Barney Old Coyote, a member of the Crow Tribe, Plaintiff-Appellant, United States of America, Plaintiff-Intervenor, v. STATE OF MONTANA, Defendant-Appellee.

The CROW TRIBE OF INDIANS, Plaintiff-Appellant, and United States of America, Plaintiff-Intervenor-Appellant, v. The STATE OF MONTANA, Defendant-Appellee, and Westmoreland; Westmoreland, Westmoreland Resources, Inc.,

Defendant-Intervenor-Appellee.

Nos. 86-3842, 86-3845.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 6, 1987.

Decided June 11, 1987.

Clay R. Smith, Helena, Mont., and John W. Ross, Billings, Mont., for defendant-appellee.

Gerald B. Murphy, Billings, Mont., and William A. White, Philadelphia, Pa., for appellees.

Daniel M. Rosenfelt, Albuquerque, N.M., for plaintiffs-appellants.

N. Jean Bearcrane, Billings, Mont., for appellant.

Laura E. Frossard, Washington, D.C., for plaintiff-intervenor-appellant.

Appeal from the United States District Court for the District of Montana.

Before BROWNING, WRIGHT, and HALL, Circuit Judges.

EUGENE A. WRIGHT, Circuit Judge:

This case, which comes before us a second time, presents two primary issues: (1) does federal action preempt the application of Montana's coal taxes to coal mined on Indian tribal property; and (2) do these taxes infringe unlawfully on the Crow Indians' tribal sovereignty? We answer both questions in the affirmative and reverse the judgment of the district court.

PROCEDURAL HISTORY

This is an appeal by the Crow Tribe, with the United States intervening on behalf of the Tribe, from a district court judgment upholding the application of Montana taxes on coal extracted from tribal land. The district court abstained from deciding whether the taxes could be imposed on revenues from coal mined on the reservation proper. It found that issue nonjusticiable.

The Crow Tribe brought action against Montana in 1978, joining three Montana counties and their treasurers. That action sought declaratory and injunctive relief against the imposition of the state's severance and gross proceeds taxes on coal mined from the reservation and what has been referred to as the "ceded strip."

The district court dismissed that action for failure to state a claim. Crow Tribe of Indians v. Montana, 469 F.Supp. 154 (D.Mont.1979). This court reversed and remanded. Crow Tribe of Indians v. Montana (Crow I ), 650 F.2d 1104 (9th Cir.1981), amended, 665 F.2d 1390 (1982). We indicated that if the Tribe could show that the Montana taxes deprived it of "a large portion of the economic benefits of its coal," Crow I, 650 F.2d at 1113, or "diminish[ed] the Tribe's own power to regulate," id. at 1114, these taxes would conflict with federal statutes that were intended to allow Crow to regulate the development of its natural resources. Our decision provided, however, that if Montana showed that these taxes were "carefully tailored to effectuate the state's legitimate interests, [they] might survive." Id.

Upon remand, the district court upheld the application of Montana taxes to coal extracted from the "ceded area" and abstained from deciding whether the taxes could be imposed on revenue from coal mined on the reservation proper, 657 F.Supp. 573.

FACTS

In 1904, Congress enacted legislation requiring the Crow Tribe to cede to the United States its interests in the surface area and underlying minerals of a portion of its reservation ("the ceded strip"). Act of April 27, 1904, Ch. 1624, 33 Stat. 352; Little Light v. Crist, 649 F.2d 682, 685, 689 (9th Cir.1981). The United States was to hold in trust for Indians the surface area and underlying mineral rights to the ceded strip. The United States was to sell the property and pay the proceeds to the Indians. Id. Approximately 98% of the surface area of the "ceded strip" was conveyed to non-Indians.

The government conveyed ceded strip properties in different forms: (1) rights to both the surface area and underlying minerals and (2) rights to the surface area only. A portion of the ceded strip was never conveyed, leaving both the surface area and underlying mineral interests in a trust held by the United States for the benefit of the Crow Tribe.

In 1934, Congress enacted the Indian Reorganization Act (IRA), 25 U.S.C. Secs. 461-479 (1982), which returned to the various tribes previously ceded lands and underlying minerals. The Act transferred ownership rights from the United States back to the Indians. The tribes involved could choose to accept or decline the arrangement. Crow declined.

In 1958, Congress passed another Indian Restoration Act, which required Indians to accept ownership of vacant lands ceded previously. It restored the previously undisposed minerals to the full beneficial ownership of the Crow Tribe. This terminated the United States' right to lease or sell these minerals for the Tribe. The parties agree that the Tribe owns these minerals underlying the ceded area, but whether they are now part of the Crow reservation is disputed.

In 1972, the Tribe leased to Westmoreland Resources the rights to mine coal underlying the ceded strip. The surface area of the leased land had been sold to non-Indians. Rights to the underlying minerals had not been conveyed. Such leasing activity is governed by the Mineral Leasing Act of 1938, 25 U.S.C. Secs. 396a-g (1982), and regulations promulgated thereunder.

In 1975, Montana imposed two taxes on all coal producers. The first was a severance tax, "imposed on each ton of coal produced in the state." Mont.Code Ann. Sec. 15-35-103 (1985). The rate varies from three to 30% of the coal's value, depending on quality and whether the mining is on the surface or underground.

The second tax is the gross proceeds tax, imposed on each person engaged in coal mining. Mont.Code Ann. Sec. 15-23-701. The rate is determined by applying the relevant county's property tax to the assessed value of the coal producer's gross yield from coal contract sales. The amount varies by county and year.

Between 1975 and 1982, Westmoreland paid $53,800,000 in severance taxes and $8,100,000 in gross proceeds taxes for its ceded strip mining operations. Westmoreland has since paid $20,000,000 on these taxes to the district court registry.

In 1976, the Tribe imposed its own severance tax of 25% for coal mined on the reservation. In 1982, it enacted a similar tax for coal mined on the ceded strip. The Department of Interior rejected the latter tax because the Crow constitution disclaimed tribal jurisdiction over the ceded strip. In 1982, Westmoreland agreed to pay the tribal tax, but received credit for the coal taxes paid to Montana. Hence, it has paid no severance tax to Crow.

Interior approved the application of Crow severance taxes to coal produced on the reservation proper. In 1980, Shell Oil and Crow agreed to a lease contract for mining coal on the reservation. It required Shell to pay Crow an amount equal to the Montana coal taxes less whatever was required to be paid to the state.

Shell never began to mine, being unwilling to begin digging because it was unable to find a buyer for its coal. It surrendered its rights to the mine in December 1985.

DISCUSSION

I. Preemption

The district court found that the minerals underlying the ceded strip were technically outside the reservation boundaries. It held that tribal activities conducted outside the reservation "present different considerations" than do activities conducted within. " 'Absent express federal law to the contrary, Indians going beyond reservation boundaries have generally been held subject to nondiscriminatory state law otherwise applicable to all citizens of the State.' " (Quoting, Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148-49, 93 S.Ct. 1267, 1270, 36 L.Ed.2d 114 (1973)). The district court stated also that, in order for the taxes to be preempted, there would have to exist federal legislation that "expressly bars ... Montana ... from imposing its coal taxes." It found no express federal prohibition against the taxes and, therefore, held they were not preempted.

The court erred in these findings and in the conclusions of law, which we review de novo. United States v. McConney, 728 F.2d 1195 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984). The district court's legal conclusions deviate from this court's 1981 opinion and misapply recent Supreme Court cases that establish the relevant preemption analysis. We found, contrary to the district court, that the underlying minerals are a "component of the reservation land itself." Crow I, 650 F.2d at 1117. This follows the plain meaning of the 1958 Act, which restored to reservation status all lands returned to tribal ownership under the Act.

Title to the lands restored to tribal ownership by this Act shall be held by the United States in trust for the respective tribe or tribes, and such lands are hereby added to and made part of the existing reservations for such tribe or tribes.

Act of May 19, 1958, 72 Stat. 121. ¹

The law of the case as expressed in our previous opinion has been ignored. We held in Crow I that, irrespective of the location of the tribal coal on or off the reservation, the Mineral Leasing Act of 1938, 25 U.S.C. Secs. 396a-396g (1982), applied to the Tribe's coal leases. Crow I, 650 F.2d at 1114 n. 16.

The preemption analysis in Indian tribal cases differs from that used in other circumstances. Crow I, 650 F.2d at 1109 (citing White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 140, 149, 100 S.Ct. 2578, 2581, 2586, 65 L.Ed.2d 665 (1980)); see also Ramah Navajo School Board v. Bureau of Revenue, 458 U.S. 832, 838, 102 S.Ct. 3394, 3398, 73 L.Ed.2d 1174 (1982). Congress attaches great significance to the ...