GNS, INC. v. Winnebago Tribe of Nebraska

• Decision Date: 03 May 1994
• Docket Number: No. C 94-4021.,C 94-4021.
• Citation: 866 F. Supp. 1185
• Parties: GNS, INC. and Slot, Inc., South Dakota Corporations, Plaintiffs, v. The WINNEBAGO TRIBE OF NEBRASKA, a Federally Chartered Indian Tribe and February Corporation under 25 U.S.C. § 476, Defendant.
• Court: U.S. District Court — Northern District of West Virginia

866 F. Supp. 1185

GNS, INC. and Slot, Inc., South Dakota Corporations, Plaintiffs, v. The WINNEBAGO TRIBE OF NEBRASKA, a Federally Chartered Indian Tribe and February Corporation under 25 U.S.C. § 476, Defendant.

No. C 94-4021.

United States District Court, N.D. Iowa, Western Division.

May 3, 1994.

Timothy A. Clausen, William K. Stoos, Klass Hanks Stoos Stoik Villone, Sioux City, IA, for plaintiffs.

Charles T. Patterson, Margaret M. Prahl, Eidsmoe Heidman Redmond Fredregill, Sioux City, IA, James E. Townsend, Vernle C. Durocher, Michael E. Florey, Dorsey & Whitney, Minneapolis, MN, for defendant.

ORDER

JARVEY, United States Magistrate Judge.

This matter comes before the court pursuant to defendant's April 18, 1994, motion to dismiss application for temporary and permanent injunction (docket number 11). Plaintiffs resisted the motion to dismiss on April 22, 1994. Also on April 22, 1994, upon consent of the parties, this matter was referred to the undersigned United States Magistrate Judge for all further proceedings. The court held oral argument on the motion on April 28, 1994. The motion to dismiss is granted.

In this lawsuit, plaintiffs GNS, Inc., and SLOT, Inc. (collectively, the Managers), complain that the defendant Winnebago Tribe of Nebraska (the Tribe) is attempting in bad faith to eject the managers of the Tribe's gambling enterprise in breach of a management agreement and without pursuing arbitration as required by the agreement. The Managers have applied for a temporary and permanent injunction to compel the Tribe to submit to arbitration of this dispute, and to prevent expulsion of the Managers from the casino, interference in the Managers' management of the casino, or interference with income distribution from the casino during the pendency of the arbitration. The Tribe asserts that it has recently taken actions against the Managers for failure to comply with applicable gaming regulations and that actions pursuant to the gaming regulations are not subject to arbitration under the Agreement.

In the present motion, the Tribe argues that this court lacks jurisdiction to entertain the application for preliminary and permanent injunction because the Tribe has sovereign immunity from suit in federal court. The Managers argue that the Tribe has waived sovereign immunity by entering into the contract requiring arbitration and that sovereign immunity does not bar this action for equitable relief.

The Managers entered into the management agreement with the Tribe in the wake of the Tribe's ejection of the prior management company, Investment Finance Management Co., Inc. (IFM). In litigation between IFM and the Tribe in this court, Investment Finance Management Co., Inc. v. Schmit Indus., Inc., et al., No. C86-4234, 1991 WL 635929 (N.D.Iowa; filed July 3, 1991), The Honorable Donald E. O'Brien ruled that this district court had federal question jurisdiction pursuant to 28 U.S.C. § 1331 to consider whether the contract between IFM and the Tribe had been approved by the Bureau of Indian Affairs as required by 25 U.S.C. § 81. The court also found that the Tribe, by entering into the contract with IFM in its capacity as a federal corporation pursuant to Section 17 of the Indian Reorganization Act (IRA) of June 18, 1934, 25 U.S.C. § 477, and not as a governmental entity pursuant to Section 16 of the IRA, 25 U.S.C. § 476, had waived its sovereign immunity. The court therefore granted IFM's motion for an injunction barring the Tribe from using for any purpose premises built by IFM at the Tribe's gambling enterprise near Sloan, Iowa. In a previous order in the IFM case, the court had concluded that further attempts to exhaust tribal court remedies would be futile. IFM and the Tribe subsequently settled IFM's lawsuit, clearing the way for the Tribe to reopen its gambling enterprise under new management.

On May 15, 1991, the Managers entered into a Management Agreement with the Tribe under which the Managers were to manage the Tribe's gambling enterprise, called Winn-A-Vegas Casino, near Sloan, Iowa. The May 1991 agreement was subsequently amended and restated on July 15, 1991 (the Agreement). Plaintiffs' Exhibit 1 attached to Application for Temporary and Permanent Injunction (hereinafter, Plaintiffs' Exhibit 1). The Agreement states that it is between the Managers and the Tribe in its capacity as "a federally recognized Indian tribe pursuant to Section 16 of the Indian Reorganization Act (IRA) of June 18, 1934, codified as amended at 25 U.S.C. Section 476." Id.

The Agreement contains the following arbitration clause:

Any dispute arising out of the interpretation of language in this Agreement shall be submitted to the American Arbitration Association under its rules then in force. Both parties shall be bound by the arbitrator's decision, and judgment upon such decision may be entered in the Winnebago Tribal Court.

Id. at § 11.06. The Agreement also contains the following clause:

MANAGER hereby agrees to and shall at all times comply with all terms and conditions of this Agreement, the Gaming Ordinance and the Indian Gaming Regulatory Act, 25 U.S.C. § 2701, et seq., and regulations promulgated thereunder in carrying out its responsibilities. In addition, the MANAGER agrees to comply with the licensing and bonding requirements of the Gaming Ordinance.

Id. at § 6.02. In § 3.01 of the Agreement, the Managers agreed to provide all necessary information and to bear the costs of any background investigations required under the Act. Finally, the Agreement provides in § 11.09 that

by entering into this Agreement, the TRIBE does not waive, limit or modify its sovereign immunity from unconsented suit.

Id. at § 11.09.

The Bureau of Indian Affairs approved the Agreement between the Managers and the Tribe on October 15, 1991, and the Managers began to operate the Tribe's gambling enterprise in April of 1992. Pursuant to the Agreement, the Managers have successfully operated the Tribe's casino, often distributing in excess of $1 million a month to the Tribe as its share of the profits from the casino. The casino employs over six hundred people, of whom almost one-third are members of the Winnebago tribe and an additional one-sixth or more are non-Winnebago Native Americans.

The Managers allege that between April 1992 and the present, the Tribe has undertaken a series of bad faith actions to interfere with the Managers' operation of the casino, culminating in forcible ejection of the Managers and their employees from the casino in March of 1994. These actions allegedly include a resolution of the Tribal Council requiring the concurrence of tribal member Cecilia Earth in all hiring and firing decisions for the casino and another Tribal Council resolution requiring the Managers to hire Mike Bonner as Controller of the casino, both actions the Managers claim violate their right to make hiring and firing decisions. The Managers allege that the Tribal Gaming Commission passed new rules and regulations intended to punish the Managers and to violate the Management Agreement by imposing unlawful taxes and fees. Finally, the Managers allege that the Tribe directed them to pay $150,000 upon a few days notice for background checks which the Managers claim were duplicative of background checks by the Iowa Division of Criminal Investigation required under the gambling compact with the State of Iowa for which the Managers had already paid $20,000.

The Tribe asserts that it has taken actions to comply with the Indian Gaming Regulatory Act (IGRA), 25 U.S.C. § 2701 et seq., including passage of the Winnebago Tribe of Nebraska Gaming Ordinance of 1992 (Gaming Ordinance). In September of 1993, pursuant to IGRA, the Gaming Ordinance was submitted to the National Indian Gaming Commission (NIGC) for approval. On December 10, 1993, the Chairman of NIGC notified the Tribe that provisions of the Gaming Ordinance concerning procedures for background investigations of key casino employees were inadequate. The Tribe therefore adopted an Amended and Restated Gaming Code (Gaming Code) on January 17, 1994, which was amended on February 7, 1994, and approved by NIGC on March 23, 1994.

Pursuant to the Gaming Code and its predecessor Gaming Ordinance, the Tribe asserts, the Tribal Gaming Commission began regulating the Tribe's gaming operation. Key personnel of the Managers had been granted temporary gaming licenses on April 14, 1993, which were to expire October 14, 1993. These licenses were extended to April 14, 1994. On February 15, 1994, the Gaming Commission directed the Managers to submit an operator license application, application forms and fees, to the Gaming Commission by February 25, 1994, and to submit a check for the estimated cost of the necessary background checks. The Managers were granted a one-week extension of the deadline to submit their applications and fees. The Managers did not submit applications, but instead demanded arbitration on February 22, 1994. On March 3, 1994, the Gaming Commission sent a notice of non-compliance with the licensing application directives which gave the Managers five days to cure or ten days to request a hearing. On March 3, 1994, the Managers filed the present application for injunctions and have not complied with the licensing directives. The Managers did not appear at an April 1, 1994, hearing before the Gaming Commission and their temporary gaming licenses expired on April 14, 1994. On April 16, 1994, the Gaming Commission voted to expel the Managers from the gaming facility pursuant to the Gaming Code, the gaming compact with the State of Iowa, and IGRA. On April 18, 1994, by order of the Gaming Commission, the Tribe removed the Managers from the Tribe's casino.

CONCLUSIONS OF LAW

Indian tribes are "domestic dependent nations," which exercise inherent sovereign authority over their members and territories. Oklahoma Tax Comm'n v. Potawatomi Indian Tribe, 498 U.S. 505, 509, 111 S.Ct. 905,...