Great Western Casinos, Inc. v. Morongo Band of Mission Indians

• Decision Date: 20 September 1999
• Docket Number: No. B121492,B121492
• Citation: 88 Cal.Rptr.2d 828,74 Cal.App.4th 1407
• Court: California Court of Appeals Court of Appeals
• Parties: , 99 Cal. Daily Op. Serv. 7832, 1999 Daily Journal D.A.R. 9907 GREAT WESTERN CASINOS, INC., Plaintiff and Appellant, v. MORONGO BAND OF MISSION INDIANS et al., Defendants and Respondents.

Page 828

88 Cal.Rptr.2d 828

74 Cal.App.4th 1407, 99 Cal. Daily Op. Serv. 7832,

1999 Daily Journal D.A.R. 9907

GREAT WESTERN CASINOS, INC., Plaintiff and Appellant, v. MORONGO BAND OF MISSION INDIANS et al., Defendants and Respondents.

No. B121492.

Court of Appeal, Second District, Division 7, California.

Sept. 20, 1999.

Benedon & Serlin, Douglas Benedon and Gerald M. Serlin; Richard Sherman; and, Robert E. Young, for Plaintiff and Appellant.

Alexander & Karshmer, Barbara E. Karshmer and John R. Shordike, Berleley, for Defendants and Respondents the Morongo Band of Mission Indians, Tribal Council of the Morongo Band of Mission Indians and individual tribe members.

Frampton, Williams & Little, Mary Louise Frampton, Fresno, and Scott W. Williams, for Defendants and Respondents Alexander & Karshmer, Berkeley, and Barbara E. Karshmer, Inc.

JOHNSON, J.

Plaintiff and appellant, Great Western Casinos, Inc. (GWC) is the successor-in- The trial court granted the defendants' motion to quash and dismissed the action. The trial court found GWC's action was barred by the separate and independent grounds of federal preemption and sovereign immunity. We affirm.

interest to the Morongo Band of Mission Indians' gaming manager, EC Investments, Inc. GWC filed this action against defendants and respondents the Morongo Band of Mission Indians, its tribal council, the individual tribal council members, numerous individual tribal members, counsel for the Morongo Band, the law partnership of Alexander & Karshmer, and Barbara Karshmer, Inc., a member of Alexander & Karshmer. GWC's complaint alleged claims for bad faith breach of contract, fraud, breach of fiduciary duty, constructive fraud, conversion, interference with business relations, abuse of process, civil violation of the Racketeer Influenced and Corrupt Organizations Act, money had and received, imposition of a constructive trust, accounting and dissolution of partnership.

FACTS AND PROCEEDINGS BELOW

The Morongo Band of Mission Indians (Morongo Band or tribe) is a federally recognized Indian tribe with a governing body duly recognized by the Secretary of the Interior. (See California v. Cabazon Band of Mission Indians (1987) 480 U.S. 202, 204, 107 S.Ct. 1083, 94 L.Ed.2d 244.) The Morongo Indian Reservation is located in Riverside County.

Toward the end of 1991 the Morongo Band wished to expand the gaming enterprise on its reservation. In March 1992, E.C. Investments, Inc. (ECI) and the Morongo Band entered into a written management agreement. ECI/GWC was to develop, operate and maintain a gambling enterprise on the Morongo Band Reservation known as Casino Morongo. ECI/GWC agreed to contribute at least $5,000,000 toward business, construction and operating costs. The parties agreed ECI/GWC was to recover this initial investment of $5,000,000 in the form of a management fee, namely 30 percent of the profits earned by the gaming and non-gaming operations conducted at the gaming facility Casino Morongo.

The management agreement specified the tribal council had ultimate authority and responsibility for overseeing business operations of the casino and that no individual tribal member had authority to act on behalf of the gaming enterprise without tribal authorization.

Under the terms of the management agreement ECI/GWC undertook to manage the casino operations for a period of five years. The agreement also specified the conditions under which the management agreement could be terminated with cause ¹ or without cause. In the event the tribe terminated the agreement "wrongfully, in bad faith, and without cause" ECI/GWC was only entitled to recover its presumed initial investment of $5,000,000. In the event the tribe terminated the contract prior to ECI/GWC recovering its presumed initial investment, then ECI/GWC had the right to request arbitration. Specifically, the clause of the contract regarding termination without cause provides:

"20.2 Termination without Cause by Owner. If the Owner terminates this Agreement wrongfully, in bad faith, and without cause, Manager shall have only Article 21 of the management agreement specifies ECI/GWC's rights in the event the tribe terminates the contract without cause and in bad faith. This article further specifies the extent to which the tribe agreed to waive its sovereign immunity and the conditions under which it consented to suit.

those rights set forth herein in Article 21 to recover its initial investment of not more than Five Million Dollars ($5,000,000) and shall have no further right to the use or occupancy of the premises."

Article 21.1 grants to ECI/GWC the right to request arbitration in the event it has not recovered its initial investment at the time of the tribe's bad faith breach. This clause provides: "If the Owner wrongfully terminates this Agreement in bad faith and without cause prior to the Manager having recovered its initial investment in an amount not to exceed Five Million Dollars ($5,000,000), the Manager may call for non-binding arbitration" but only after informal efforts to resolve the situation have failed.

Section 21.5 of Article 21 of the parties' agreement lists the conditions precedent to suit against the tribe: "21.5 Conditions Precedent to Suit: Owner does not consent to be sued and Manager shall not initiate any action against Owner unless the Arbitration Board has expressly determined that (1) Owner has wrongfully, in bad faith, and without just cause, terminated this Management Agreement; (2) Manager has fulfilled all of its obligations under this Agreement; and (3) Manager has complied with all the pre-arbitration and claim procedures set forth herein. Prior to initiating any action against Owner hereunder, manager shall deliver to owner a true copy of said award, and Owner shall have ten (10) days in which to comply therewith."

However, the tribe did not consent to suit regarding issues or under other conditions beyond those specified in the contract. Clause 21.8 of the parties' contract states: "Express Limitations on Consent to Suit. Owner consents only to an action for Owner's wrongful termination of this Agreement in bad faith and without cause being brought only by the Manager for moneys in an amount not to exceed the manager's unreimbursed initial capital contribution not to exceed $5,000,000. Owner's limited waiver of sovereign immunity is conditioned upon satisfaction of each and every one of the following conditions prior to the initiation of any action permitted herein [i.e., informal negotiations and arbitration]."

The United States Department of the Interior, Bureau of Indian Affairs, approved the management agreement in September 1992.

According to GWC the gaming enterprise proved to be tremendously profitable, earning gross profits of approximately $100 million per year.

In the meantime the former principals of ECI/GWC began negotiations to provide similar gaming management services for the Santa Inez Band of Mission Indians in Santa Barbara County. According to GWC's complaint, the parties reached an agreement and entered into a written management contract in August 1992.

In 1993 ECI assigned its rights and interests in its management agreement with the Morongo Band to GWC.

GWC's complaint alleges when the tribe realized the profit potential of the gaming enterprise the tribe, its council, and the individual members of the tribal council and tribe, acting through their general counsel, decided to concoct a fraudulent scheme to cancel the management contract and oust ECI/GWC from the gaming enterprise. To accomplish this goal, GWC's complaint alleges Indian informants contacted governmental authorities, including the National Indian Gaming Commission, the Federal Bureau of Investigation and the United States Attorney to falsely report ECI/GWC and its former principals had engaged in racketeering, self-dealing GWC candidly admits in its complaint ECI and its principals were investigated, indicted and convicted of gaming violations. Its complaint alleges "[b]ased on the false and fabricated charges made by said Native American informant(s), the FBI and U.S. Attorney's Office did undertake an investigation of the Morongo gaming operations and GWC's management of same and U.S. Attorney did, in May 1994, obtain a criminal indictment against GWC and its former principals and proceeded against them in the United States District Court ... charging them with 23 felony counts of violations of gaming and other laws...." After the Ninth Circuit reversed the District Court's dismissal of 22 of the 23 counts of the indictment, ECI/GWC and its former principals pled guilty to a charge of possession of illegal gaming devices and the district court dismissed the other 22 counts of the indictment. (See United States v. E.C. Investments, Inc. (9th Cir.1996) 77 F.3d 327.)

and was operating illegal gaming devices on the reservation.

The Morongo Band suspended its management contract with ECI/GWC for cause in May 1994 based on the allegations of the felony indictment for undisclosed self-dealing. GWC alleges the defendants thereafter wrongfully induced the Santa Inez Band of Mission Indians to cancel its management contract with ECI/GWC as well. In April 1995 the Morongo Band formally terminated the management contract, without cause, on the ground ECI/GWC had at that point more than fully recouped its initial investment.

As noted, GWC filed its first amended complaint for bad faith breach of contract, fraud, breach of fiduciary duty, constructive fraud, conversion, interference with business relations, abuse of process, civil RICO, money had and received, imposition of a constructive trust, accounting and dissolution of partnership against the tribe, its council, its individual council members, individual members of the tribe and the tribe's general counsel. GWC seeks over $1 billion in damages, subject to trebling under the count for the alleged civil RICO violation.

Defendan...