FSS Dev. Co. v. Apache Tribe of Okla.

• Decision Date: 16 May 2018
• Docket Number: Case No. CIV-17-661-R
• Parties: FSS DEVELOPMENT CO., LLC, a Delaware limited liability company, Plaintiff, v. APACHE TRIBE OF OKLAHOMA, a federally recognized Indian tribe, et al., Defendants.
• Court: U.S. District Court — Western District of Oklahoma

FSS DEVELOPMENT CO., LLC,a Delaware limited liability company, Plaintiff, v. APACHE TRIBE OF OKLAHOMA,a federally recognized Indian tribe, et al., Defendants.

Case No. CIV-17-661-R

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA

May 16, 2018

ORDER

Before the Court are Defendants' Motion to Stay Pending Exhaustion of Tribal Court Remedies (Doc. 21) and Defendants' Motion to Dismiss (Doc. 22). Plaintiff FSS alleges that on December 20, 2010, it (1) entered into an agreement with Defendant Apache Tribe of Oklahoma ("the Tribe") to develop a casino called the Red River Project on Apache land, and (2) loaned the Tribe $2.2 million to cover development expenses in exchange for a promissory note. In the summer of 2017, Plaintiff sued the Tribe, the Apache Business Committee ("ABC") that allegedly negotiated the contracts for the Tribe, four individual ABC members, and a Tribe consultant for tortious interference with contract, breach of contract, and declaratory judgment. The Tribe then sued FSS in Apache tribal court for declaratory judgment that the agreements are void under federal and tribal law and, alternatively, for breach of contract. The Court, concerned about subject matter jurisdiction, ordered a hearing on three issues to determine whether to dismiss or stay the case.

The main issue is complete preemption initiated by Defendants' Indian Gaming Regulatory Act ("IGRA") defenses—the parties agree that the Tribe defeats diversity jurisdiction, but dispute whether the IGRA's completely preemptive scope provides the Court with federal question jurisdiction. For the following reasons, the Court dismisses Plaintiff's claims against the Tribe and ABC and stays Plaintiff's tortious interference claim against the individual Defendants pending exhaustion of tribal remedies.

I. Background

The Court takes as true the following allegations contained in the Amended Complaint, Doc. 8. The Apache Tribe vested the ABC with authority to engage FSS to assist the Tribe in developing the Red River Project, a Class II and III gaming facility on Apache land near the Oklahoma-Texas border. Doc. 8, at 3-4; Doc. 8-3. On December 20, 2010, FSS allegedly entered into a development agreement (Doc. 8-1) and executed a promissory note (Doc. 8-2) with the Tribe through its representative, ABC Chairman Louis Maynahonah. Doc. 8-3, at 2.

The development agreement provided FSS with exclusive development rights, a "Construction Management Fee" equal to 4% of the total amount of the Red River Project's construction and development costs, and 12% of the net winnings from the Project, among other benefits. See Doc. 8-1, at 19-20. In return, FSS promised to make an interim loan of $2.2 million and to "obtain financing for the design, development, construction and initial equipping of the Gaming Facility, and to furnish technical experience and expertise . . . ." Id. at 2. The agreement contained a limited waiver of sovereign immunity, consent to jurisdiction in the U.S. District Court for the Western District of Oklahoma, and guaranteethat the Tribe will not revoke or limit its sovereign immunity waiver. Id. at 30-32. It also contained various representations, warranties, and covenants intended to ensure enforceability of the contract under tribal and federal law. See generally id. One provision states that the agreement "shall not be construed as a management contract" under the IGRA and the parties agree that nothing in the agreement "is intended to grant" FSS "management authority or responsibilities" with respect to the Red River Project. Id. at 9. The parties also "agree[d] that nothing [in the development agreement or interim promissory note] is intended to grant or may be construed to grant [FSS] . . . any proprietary interest whatsoever" in the Project. Id. at 9.

Needless to say, the agreement did not work out as planned. After allegedly devoting substantial resources to successfully meeting its development obligations, FSS claims that Defendants failed to obtain required approval for title and heirship issues, submit a lease to the Bureau of Indian Affairs, or review term sheets for financing. Doc. 8, at 9-11. The dispute appears to originate from turnover in ABC leadership and an agreement between a third-party management group and individual members of the ABC, Defendants herein, to sabotage the Red River Project for the benefit of a competing gaming venture. Id. at 10-14; Doc. 8-5, at 1-2. On October 4, 2016, a lawyer for the Tribe wrote to FSS, claiming that the development agreement is invalid and unenforceable and, alternatively, providing notice of FSS's default per the agreement's terms. Doc. 8-4 (citing Doc. 8-1, at 25-26). FSS responded in kind later that month with notice of the Tribe's default. Doc. 8-5 (citing Doc. 8-1, at 23-25).

On June 16, 2017, Plaintiff FSS sued Defendants the Tribe, the ABC, and Bobby Komardley, an ABC member, in this court. Doc. 1. Plaintiff amended its complaint on September 5 to add ABC members Cheryl Wetselline, Justus Perry, and Donald Komardley, as well as Tom Julian, a consultant for the Tribe. Doc. 8. The Amended Complaint alleges:

• Count 1: Defendants Julian and individual ABC members tortiously interfered with the development agreement;¹

• Count 2: FSS is entitled to declaratory judgment that:

? (a) the development agreement is valid and enforceable;

? (b) FSS is not in default of the agreement;

? (c) the development agreement can only be rescinded in accordance with its terms;

? (d) the Tribe and the ABC are contractually prohibited from taking action, except as prescribed by the development agreement, that directly or indirectly modifies or terminates the agreement;

? (e) the Tribe and the ABC are contractually required to "take all actions necessary to ensure that [the] Agreement shall remain in full force and effect at all time";• Count 3: the Tribe breached the development agreement

Id. at 14-19.

Then on September 25, 2017, the Tribe sued FSS in the Court of Indian Offenses for the Apache Tribe of Oklahoma in Anadarko, Oklahoma ("Tribal Court").² Doc. 21-1. The Tribe seeks a declaratory judgment from the Tribal Court that the development agreement is void or unenforceable because (1) the Tribe did not validly waive sovereign immunity or delegate authority to execute the agreement under the Apache Tribe Constitution, nor did Chairman Maynahonah actually sign the development agreement; (2) the U.S. Secretary of the Interior did not approve the development agreement as required under federal law; (3) the development agreement is an unapproved management contract under the IGRA; (4) the development agreement violates the IGRA's requirement that the Tribe retain sole proprietary interest in any gaming facility; (5) FSS has not and cannot obtain a gaming license from the Apache Gaming Commission. Id. at 5-11. Alternatively, if the Tribal Court does find the agreement valid under federal and tribal law, the Tribe claims that FSS breached the contract. Id. at 12.

Defendants move to dismiss Plaintiff's suit under Federal Rules of Civil Procedure 12(b)(1) (for lack of subject matter jurisdiction), 12(b)(6) (for failure to state a claim), and 12(b)(7) (for failure to join a party who cannot be joined). Doc. 22. Alternatively, if the Court finds there is subject matter jurisdiction, Defendants move to dismiss or stay the case due to the tribal exhaustion rule, pending a final decision by the Tribal Court. Doc. 21.

On May 7, 2018, the parties argued the following three issues before the Court:

(1) Given that each of Plaintiff's three state law claims requires the Court to decide whether the development agreement violates the IGRA, do Plaintiff's claims "intrude on the tribe's regulation of gaming," such that the IGRA completely preempts them? Gaming Corp. of America v. Dorsey & Whitney, 88 F.3d 536, 550 (8th Cir. 1996). Accord particular attention to whether any claim is more intrusive than the others.

(2) If the IGRA completely preempts all of Plaintiff's claims, must the Court dismiss the case outright, or does the IGRA provide Plaintiff a private right of action? See Hartman v. Kickapoo Tribe Gaming Comm'n, 176 F. Supp. 2d 1168, 1175 (D. Kan. 2001), aff'd, 319 F.3d 1230 (10th Cir. 2003) (citing various authorities rejecting an IGRA private right of action).

(3) If none of Plaintiff's claims are completely preempted and the Court lacks federal question jurisdiction, should the Court exercise its Rule 21 discretion, dismiss the non-diverse Tribe and Apache Business Committee ("ABC"), and proceed with Plaintiff's remaining claim for tortious interference with contract against Defendants Julian and the ABC members in their individual capacities, or are the Tribe and the ABC indispensable parties under Rule 19(b)? See Lenon v. St. Paul Mercury Ins. Co., 136 F.3d 1365, 1371 (10th Cir. 1998).

Doc. 27. See Hearing Transcript, Doc. 30.

II. Discussion

The Court has subject matter jurisdiction over diversity cases under 28 U.S.C. § 1332 and causes of action "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. The parties agree that the Tribe's presence in this suit defeats diversity jurisdiction. See Doc. 22, at 10-13; Doc. 25, at 10. Federal question jurisdiction depends on the "well-pleaded complaint" rule—does "'the plaintiff's statement of his own cause of action show[] that it is based' on federal law"? Devon Energy Prod. Co., L.P. v. Mosaic Potash Carlsbad, Inc., 693 F.3d 1195, 1202 (10th Cir. 2012) (quoting Schmeling v. NORDAM, 97 F.3d 1336, 1339 (10th Cir. 1996)). Plaintiff brings claims based on strictlystate law: tortious interference with contract, declaratory judgment, and breach of contract. See Mosaic, 97 F.3d at 1339 (quoting Cardtoons, L.C. v. Major League Baseball Players Ass'n, 95 F.3d 959, 964 (10th Cir.1996)); ("[T]he Declaratory Judgment Act 'does not confer jurisdiction upon federal courts, so the power to issue declaratory judgments must...