Flandreau Santee Sioux Tribe v. Terwilliger, 4:17-CV-04055-KES

• Court: United States District Courts. 8th Circuit. United States District Courts. 8th Circuit. District of South Dakota
• Writing for the Court: KAREN E. SCHREIER, UNITED STATES DISTRICT JUDGE
• Citation: 496 F.Supp.3d 1307
• Decision Date: 21 October 2020
• Docket Number: 4:17-CV-04055-KES
• Parties: FLANDREAU SANTEE SIOUX TRIBE, a Federally-Recognized Indian Tribe, Plaintiff, v. James TERWILLIGER, Secretary of Revenue of the State of South Dakota, and Kristi Noem, Governor of the State of South Dakota, Defendants.

496 F.Supp.3d 1307

FLANDREAU SANTEE SIOUX TRIBE, a Federally-Recognized Indian Tribe, Plaintiff,
v.
James TERWILLIGER, Secretary of Revenue of the State of South Dakota, and Kristi Noem, Governor of the State of South Dakota, Defendants.

4:17-CV-04055-KES

United States District Court, D. South Dakota, Southern Division.

Signed October 21, 2020

496 F.Supp.3d 1309

Rebecca L. Kidder, Peebles Kidder Bergin & Robinson LLP, Rapid CIty, SD, Jami J. Bishop, Shannon R. Falon, Steven M. Johnson, Johnson, Janklow, Abdallah & Reiter, LLP, Sioux Falls, SD, John Nyhan, Pro Hac Vice, John M. Peebles, Pro Hac Vice, Steven J. Bloxham, Pro Hac Vice, Tim Hennessy, Pro Hac Vice, Peebles Kidder Bergin & Robinson LLP, Sacramento, CA, Seth C. Pearman, Flandreau Santee Sioux Tribe, Flandreau, SD, for Plaintiff.

Jeffery J. Tronvold, Yvette K. Lafrentz, Attorney General of South Dakota, John T. Richter, Department of Revenue, Stacy R. Hegge, Gunderson, Palmer, Nelson & Ashmore, LLP, Pierre, SD, for Defendants.

MEMORANDUM OPINION AND ORDER

KAREN E. SCHREIER, UNITED STATES DISTRICT JUDGE

496 F.Supp.3d 1310

TABLE OF CONTENTS

PROCEDURAL HISTORY...1310

DISCUSSION...1311

I. FINDINGS OF FACT...1311

A. Gaming Compact...1312

B. Royal River Casino Renovation...1312

C. During-Renovation Services...1313

D. Tribal, Federal, and State Project Licensing...1313

E. South Dakota Contractor's Excise Tax...1315

F. Tribal Revenue and Expenditures...1316

G. Indian Trader Statutes...1318

II. LEGAL CONCLUSIONS...1318

A. Per Se Invalidity...1318

B. Express or Implied Preemption Under IGRA...1319

C. Preemption Under Bracker Balancing Test-IGRA...1320

1. History of Tribal Sovereignty and Federal Interests...1325

a. Extent of Federal Regulation and Control: Protecting the Environment, Ensuring Public Health and Safety, and Promoting Tribal Self-Sufficiency and Strong Tribal Government...1327

b. Promoting Tribal Economic Development, Ensuring that the Tribe is the Primary Beneficiary of Gaming, and Protecting Gaming as a Means of General Tribal Revenue...1333

2. Tribal Interests...1339

a. Economic Burden of the State Tax...1339

b. Tribal Sovereignty and Self-Determination...1339

c. Tribal Economic Development...1342

3. State Interests...1342

a. Reimbursement for State Government Services...1343

b. Raising Revenue for the General Fund...1349

c. Uniform Application of South Dakota Tax Law...1351

4. Conclusion...1354

D. Express Preemption Under Indian Trader Statutes...1355

E. Preemption Under Bracker Test-Indian Trader Statutes...1361

1. Federal and Tribal Interests...1361

2. State Interests...1363

3. Conclusion...1363

CONCLUSION...1364

Plaintiff, Flandreau Santee Sioux Tribe, filed this action against defendants, Richard L. Sattgast, Andy Gerlach, and Dennis Daugaard seeking a judicial declaration that, under federal law, the State of South Dakota does not have the authority to impose the South Dakota excise tax in connection with services performed by non-Indian contractors on the Tribe's on-reservation construction project. Docket 1. James Terwilliger and Kristi Noem were substituted as defendants. Dockets 159, 165. A court trial was held beginning on June 23, 2020. Docket 167.

PROCEDURAL HISTORY

In 2018, this court granted the Tribe's motion for summary judgment on cross-motions for summary judgment and entered judgment for the Tribe. Dockets 102, 103. The court granted the Tribe's motion and entered judgment on the Tribe's federal preemption claim under the Indian Gaming Regulatory Act (IGRA). Docket 102 at 21-22. Having found in favor of the

496 F.Supp.3d 1311

Tribe "under both prongs of the Bracker analysis," the court did not analyze the Tribe's Indian Trader Statute claim. Id. The court also dismissed the Tribe's refund claim as barred by the State's Eleventh Amendment immunity. Id. Defendants filed a timely appeal to the Eighth Circuit Court of Appeals. Docket 108. On September 6, 2019, the Eighth Circuit reversed and remanded. Dockets 121, 122; see also Flandreau Santee Sioux Tribe v. Haeder , 938 F.3d 941 (8th Cir. 2019).

In its opinion, the Eighth Circuit concluded that this court erred in ruling that the imposition of the South Dakota excise tax was expressly preempted under IGRA. Haeder , 938 F.3d at 945 ; see also Docket 121. The Eighth Circuit also held that based on the evidence before the court at the summary judgment stage, this court erred in concluding that the Bracker balancing factors tipped in favor of preempting the State excise tax. Haeder , 938 F.3d at 945-47. The Eighth Circuit granted defendants’ motion to dismiss the State Treasurer and remanded the case for further proceedings consistent with the opinion. Id. at 947.

At a status conference on November 25, 2019, defendants argued that following the Eighth Circuit opinion there were no material facts in dispute. Docket 126. The Tribe disagreed, arguing that there were material facts still at issue, notably the economic impact the State excise tax had on the Royal River Casino's ability to operate Class III gaming under IGRA and generate revenue. Id. The Tribe also argued that material issues of fact and law remained on the Indian Trader Statutes’ issue that was not decided at the summary judgment stage or on appeal. Id. The court agreed with the Tribe, finding that at the summary judgment stage, the court weighed the evidence in the light most favorable to the non-moving party, but at trial the court does not weigh the evidence in a light favorable to either party. Id. Thus, a court trial was scheduled to proceed consistent with the Eighth Circuit opinion.

DISCUSSION

I. FINDINGS OF FACT

The following constitutes the court's findings of fact under Federal Rule of Civil Procedure 52(a)(1), which were found by a preponderance of the evidence:

The Flandreau Santee Sioux Tribe is a federally recognized Indian tribe. Docket 149-1 ¶ 1. The Flandreau Indian Reservation is wholly located in Moody County, South Dakota. See Scott Anderson Testimony.¹ The Tribe owns and operates the Royal River Casino on the reservation. Docket 149-1 ¶ 2; Docket 149-2 at 1. The Tribe has adopted a Class II and Class III Gaming Ordinance that was approved by the National Gaming Commission. Docket 149-1 ¶¶ 3-4; see also Ex. 1-4. The Tribe's Class II Gaming Ordinance provides that "the Tribe shall issue a separate license to each place, facility, or location on Indian lands where Class II gaming is conducted under this Ordinance." Docket 149-1 ¶ 9. This Class II Gaming Ordinance requires that "Class II gaming facilities shall be constructed, maintained, and operated in a manner that adequately protects the environment and the health and safety of the public." Id. ¶ 11. The Tribe's Class III Gaming Ordinance requires that "[n]o facility will be granted a license unless such facility is constructed, maintained and operated in a manner that adequately protects the environment and the public health and safety." Id. ¶ 10.

496 F.Supp.3d 1312

A. Gaming Compact

As required by IGRA, the State and the Tribe entered into a Tribal-State Gaming Compact that was approved by the United States Department of Interior and took effect on September 14, 2016. Docket 149-1 ¶¶ 23-24; see also Ex. 5, 17-18. IGRA regulates Class III gaming activities at the Royal River Casino. Haeder , 938 F.3d at 943 ; see 25 U.S.C. § 2710(d). The compact made certain changes from the Gaming Compact previously in effect, including increasing the number of slot machines the Tribe is authorized to operate from 500 machines to 1,000 machines. Docket 149-1 ¶ 25. The Compact does not contain provisions specifically relating to state regulation of construction or renovation at the casino. Id. ¶ 26. Article 11.2 of the Gaming Compact requires the Tribe to make an annual contribution to Moody County "due to the possibility of increased governmental demand ... for government services" in increasing amounts according to the number of Class III slot machines in operation during the previous year: $75,000.00 for 500-699 machines; $150,000.00 for 700-849 machines; $250,000.00 for 850-999 machines; and $350,000 for 1,000 machines. Id. ¶ 27.

B. Royal River Casino Renovation

The Tribe first opened the Casino in 1990 and relocated it to the present building in 1997. Haeder , 938 F.3d at 943. The Tribe decided to invest over $18 million into the renovation and expansion of the Casino. Reider Testimony. This was in part due to the need to compete with a newer, larger, nearby casino in Larchwood, Iowa that opened in 2011. Morrissey and McDermott Testimony. The renovation project planned to include the following improvements: (a) expand the gaming floor; (b) upgrade the Casino's overall electrical system to accommodate additional slot machines; (c) replace the Casino roof; (d) replace the Casino's HVAC system; (e) renovate and update the Casino's finishes and fixtures; (f) relocate and replace the Casino's bar and lounge to the middle of the gaming floor; (g) add a VIP gaming lounge with gaming and food, beverage, and bar service; (h) renovate the casino cage area, snack bar,...