Flandreau Santee Sioux Tribe v. Gerlach

• Citation: 269 F.Supp.3d 910
• Decision Date: 15 September 2017
• Docket Number: CIV 14–4171
• Parties: FLANDREAU SANTEE SIOUX TRIBE, a federally-recognized Indian Tribe, Plaintiff, v. Andy GERLACH, Secretary of the State of South Dakota Department of Revenue; and Dennis Daugaard, Governor of the State of South Dakota, Defendants.
• Court: U.S. District Court — District of South Dakota

269 F.Supp.3d 910

FLANDREAU SANTEE SIOUX TRIBE, a federally-recognized Indian Tribe, Plaintiff,

v.Andy GERLACH, Secretary of the State of South Dakota Department of Revenue; and Dennis Daugaard, Governor of the State of South Dakota, Defendants.

CIV 14–4171

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

Signed September 15, 2017

Ronald A. Parsons, Jr., Shannon R. Falon, Steven M. Johnson, Johnson, Janklow, Abdallah, Reiter & Parsons LLP, Sioux Falls, SD, John Nyhan, John M. Peebles, Pro Hac Vice, Steven J. Bloxham, Pro Hac Vice, Tim Hennessy, Pro Hac Vice, Fredericks Peebles & Morgan LLP, Sacramento, CA, Rebecca L. Kidder, Fredericks, Peebles & Morgan LLP, Rapid City, SD, for Plaintiff.

Kirsten E. Jasper, Matthew E. Naasz, Attorney General of South Dakota, Pierre, SD, Stacy R. Hegge, Madison, SD, for Defendants.

MEMORANDUM OPINION AND ORDER ON PARTIES' MOTIONS FOR SUMMARY JUDGMENT, DOCS. 78 & 115

Lawrence L. Piersol, United States District Judge

Pending before the Court is the Flandreau Santee Sioux Tribe's ("the Tribe") Motion for Summary Judgment on Claims for Relief One, Three, and Four of the First Amended Complaint. Doc. 115. In its motion, the Tribe asserts that the State of South Dakota's ("the State") imposition of a state use tax on nonmember purchases of goods and services throughout the Royal River enterprise is unlawful under the Indian Gaming Regulation Act ("IGRA") and interferes with and frustrates federal and tribal interests.

Also before the Court is Defendants' Motion for Summary Judgment on all claims in the First Amended Complaint. Doc. 78. In their motion, the Defendants argue that the imposition of a state use tax on nonmember consumers' purchases of goods and services throughout the Royal River enterprise is not expressly or impliedly preempted by IGRA nor does it interfere with or frustrate federal and tribal interests. Further, Defendants assert that the State may permissibly condition reissuance of a liquor license to the Tribe on the collection and remittance by the Tribe of the nonmember consumers' use tax liability.

The Court has considered all filings and for the following reasons, the Tribe's motion is granted in part and denied in part. The Defendants' motion is similarly granted in part and denied in part.

FACTUAL BACKGROUND

The Tribe is a federally-recognized Indian tribe located in Flandreau, South Dakota. The Tribe owns and operates the Royal River Casino & Hotel ("the Casino") and the First American Mart ("the Store") (collectively, the "Licensed Premises") on the Flandreau Indian Reservation.¹ These two businesses operate as a single business enterprise under the Royal River name and, irrespective of patrons' tribal or residential status, provide a wide variety of goods and services, including: overnight hotel stays, recreational vehicle accommodation, food and beverage services (alcoholic and non-alcoholic), gifts and sundries, tobacco products, fuel, services for catering, meetings, conferences, and special events, live entertainment, snacks, video arcade games, transportation services, health and fitness services, and gambling.² As a unitary business, the entire enterprise is overseen by the Tribe's elected governing body, the Flandreau Santee Sioux Executive Committee. The Licensed Premises' patron base is approximately 60% South Dakota residents. Revenue, including that from gambling, hotel stays, food, the bar, the gift shop, the RV park, and the Store, is calculated in the aggregate as "net revenues." Of that sum, 35% is distributed toward tribal economic development, 40% via individual per capita payments to tribal members, 5% into a minors' trust fund, 15% toward tribal government operations, 4% into a community assistance fund, and 1% into a local government revenue sharing fund. The Tribe also imposes a 6% sales tax. Over 90% of the Tribe's sales tax revenue is generated by transactions at the Licensed Premises.

Pursuant to IGRA, the Tribe and the State have in place a Tribal–State gaming compact ("the Compact"), which controls the Tribe's gaming operations at the Casino. The Compact allows the Casino to participate in Class III gaming.³ The Compact is silent in regard to the State's authority to apply its alcohol regulatory laws, the State's imposition of its use tax on nonmember⁴ activity at the Casino, and the State's requirement that the Tribe collect and remit the use taxes from nonmember activities or purchases. It is undisputed that the Tribe sold the above-listed goods and services to nonmembers at the Casino. It is also undisputed that the Tribe has not remitted to the State the relevant use taxes on nonmember sales.

The State has issued three alcoholic beverage licenses to the Tribe—one for the casino, one for the store, and one for the Royal River Family Entertainment Center ("Bowling Center").⁵ These licenses, however, are conditioned on the Tribe's remittance of the State use tax pursuant to S.D.C.L. § 35–2–24. The South Dakota statute does not differentiate between alcohol tax and use tax on other goods and services. Id. In 2009 and 2010, the Tribe sought from the State a renewal of its three alcohol licenses. Based on S.D.C.L. § 35–2–24, both requests were denied by the State as the statute directs that licenses are not to be reissued until the Tribe remits use taxes incurred by nonmembers.⁶

As a result, the Tribe, pursuant to S.D.C.L. § 1–26–16, requested a hearing before the South Dakota Office of Hearing Examiners to review the State's alcohol license denial. At the hearing, the Hearing Examiner concluded that all nonmember purchases at the Casino are subject to the use tax scheme, that the Tribe failed to remit the use taxes, and, therefore, the Tribe was not entitled to alcohol license renewal. Prior to the Hearing Examiner's decision becoming final, the Tribe filed this action in federal court on November 18, 2014. The Tribe simultaneously moved the Court for preliminary injunction enjoining state action pursuant to the Hearing Examiner's decision. The Tribe and State ultimately made the motion for preliminary injunction moot by entering into a stipulation whereby the State recognized the three alcohol licenses' continuing validity pending a decision on the merits in this case. The Tribe did not appeal the Hearing Examiner's decision to South Dakota state court.

Specific to this federal action, the Tribe alleges that the State lacks authority to impose its use tax scheme on reservation land against nonmember patrons of the Licensed Premises. In its Complaint, the Tribe alleges that IGRA preempts the field of taxation thereby barring the State's imposition. To that end, the Tribe argues that all activity engaged in under the Royal River Casino name is "gaming activity" untaxable by the State by virtue of IGRA (Claims for Relief One, Two, and Six). Outside of IGRA, the tribe maintains that the use tax and remittance requirements are preempted by the Indian Commerce Clause of the Federal Constitution and federal common law and that they infringe on inherent tribal sovereignty (Claims for Relief Three and Five); that the State's tax imposition is unlawfully discriminatory as applied to the Tribe (Claim for Relief Four); that, as a predicate to funds contained in an escrow account pursuant to a 1994 Deposit Agreement between the Tribe and the State being disbursed to the Tribe, the State is without power to impose its taxation scheme on the Tribe's Casino (Claim for Relief Seven);⁷ and that conditioning the alcohol licenses on the S.D.C.L. § 35–2–24 tax remittance requirement violates 18 U.S.C. § 1161 (Claim for Relief Eight).

The Tribe has moved the Court for summary judgment pursuant to Fed. R. Civ. P. 56(a) as to Claims for Relief One, Three, and Four. The Defendants have moved the Court for summary judgment on all Claims for Relief. For reasons explained herein, both motions are granted in part and denied in part.

LEGAL STANDARD

Pursuant to Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."

FED. R. CIV. P.56(a). "A party asserting that a fact cannot be ... disputed must support the assertion" either by "citing to particular parts of materials in the record," or by "showing that the materials cited do not establish the ... presence of a genuine dispute[.]" FED. R. CIV. P. 56(c)(1)(A)-(B). "The movant can also establish the absence of a disputed material fact by showing ‘that an adverse party cannot produce admissible evidence to support the fact.’ " Jensen v. Hy–Vee Corp., 2011 WL 1832997, at *1 (D.S.D. May 13, 2011) (quoting FED. R. CIV. P. 56(c)(1)(B) ).

In a motion for summary judgment, the moving party bears the initial burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotations omitted). Once this burden is met, the burden then shifts to the non-moving party to demonstrate "that a fact... is genuinely disputed" either by "citing to particular parts of materials in the record," or by "showing that the materials cited do not establish the absence ... of a genuine dispute." FED. R. CIV. P. 56(C)(1)(A)-(B). "For purposes of summary judgment, the facts, and inferences drawn from those facts, are ‘viewed in the light most favorable to the party opposing the motion.’ " Jensen, 2011 WL 1832997, at *2 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ).

DISCUSSION

I. Preemption of the Tax Itself

The Tribe asserts that the imposition of the State use tax on nonmember consumers of the Licensed Premises is preempted under IGRA. Further, to the extent it is not otherwise preempted by IGRA itself, the Tribe argues that the tax is incompatible with Federal and Tribal interests in protecting tribal...