A.K. Management Co. v. San Manuel Band of Mission Indians

• Citation: 789 F.2d 785
• Decision Date: 13 May 1986
• Docket Number: No. 84-6632,84-6632
• Parties: A.K. MANAGEMENT COMPANY, a Michigan Corporation, Plaintiff-Appellant, v. The SAN MANUEL BAND OF MISSION INDIANS, a Federally recognized Indian Tribe, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 785

789 F.2d 785

A.K. MANAGEMENT COMPANY, a Michigan Corporation, Plaintiff-Appellant, v. The SAN MANUEL BAND OF MISSION INDIANS, a Federally

recognized Indian Tribe, Defendant-Appellee.

No. 84-6632.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 5, 1985.

Decided May 13, 1986.

Lesley M. Vaughn, Smith & Holland, Los Angeles, Cal., for plaintiff-appellant.

Jerome L. Levine, Neiman, Billet, Albala & Levine, Los Angeles, Cal., for defendant-appellee.

An Appeal From the United States District Court For the Central District of California.

Before: FLETCHER, PREGERSON, and CANBY, Circuit Judges.

PREGERSON, Circuit Judge.

A.K. Management Company ("AK") appeals the district court's dismissal of its action for declaratory relief. The district court found that AK's Management Agreement ("Agreement") entered into with the

San Manuel Band of Mission Indians ("the Band") without the approval of the Secretary of the Interior and the Commissioner of Indian Affairs was void under 25 U.S.C. Sec. 81 (1982) ¹ and therefore unenforceable. We affirm the district court's decision.

FACTS

Plaintiff-Appellant, AK, manages bingo projects on Indian reservations. Defendant-Appellee, the Band, is a federally recognized Indian tribe that resides on its reservation in the County of San Bernardino, California.

On January 7, 1984, AK and the Band entered into an agreement, which gave AK the exclusive right to construct a bingo facility and operate bingo games on the Band's reservation for twenty years. Net profits from the games were to be divided between them, sixty percent to the Band and forty percent to AK.

In section 10(a) of the Agreement, the Band covenants to "act in good faith and take all necessary steps and execute ... [the] agreements required of it pursuant to the provisions of this Agreement, and shall not unreasonably withhold its approval of any act or thing for which such approval may be required hereby." Section 19(a) provides that the "Agreement, and the obligations of Manager [AK] described herein, are expressly conditioned upon ... [a]pproval of this Agreement by the United States Department of the Interior, Bureau of Indian Affairs, and the receipt by Manager of written approval of such agreement." Section 23 provides that "[b]oth parties hereto shall devote their best efforts to the fulfillment of their respective duties and obligations hereunder in accordance with the provisions of this Agreement."

Further, in section 10(e), the Band "waives sovereign immunity with respect to any action which may be brought by Manager to enforce or interpret this Agreement...." Section 25 provides that "[i]n the event that any portion of this Agreement is determined null, void or unenforceable, then the remaining provisions of this Agreement shall remain in full force and effect."

On January 10, 1984, three days after signing the Agreement, the Band notified AK that it would not recognize the Agreement. The Agreement was never signed or approved by the Bureau of Indian Affairs.

On September 13, 1984, AK filed this diversity suit in district court seeking a declaratory judgment that the Agreement is fully valid, binding, and enforceable. In response, the Band filed a motion to dismiss for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). On November 28, 1984, the district court dismissed AK's First Amended Complaint for Declaratory Relief with prejudice. The district court ruled that the contract upon which AK based its claim for relief was null and void under 25 U.S.C. Sec. 81 (1982), and was, therefore, unenforceable.

On December 21, 1984, AK timely filed an appeal to this court. AK challenges the district court's order of dismissal asserting that: (1) 25 U.S.C. Sec. 81 (1982) does not apply to the Agreement; (2) even if 25 U.S.C. Sec. 81 (1982) applied to the Agreement, general contract principles impose a duty on the Band to seek BIA approval;

and (3) the Band has waived its sovereign immunity to suit.

STANDARD OF REVIEW

An order granting a motion to dismiss is reviewed de novo. Miller v. Oregon Liquor Control Commission, 688 F.2d 1222, 1223 (9th Cir.1982).

DISCUSSION

I. Application of 25 U.S.C. Sec. 81 to the Agreement.

Initially, AK contends that its bingo management agreement does not fall within the scope of 25 U.S.C. Sec. 81 (1982). AK argues that section 81 cannot apply to bingo management agreements because it applies only to contracts that convey tribal lands or involve tribal funds. AK contends that the instant Agreement involves neither, because the Band is not conveying any portion of the reservation nor investing any tribal funds under the Agreement.

AK's argument fails to recognize the specific language of section 81 which refers to "agreements ... relative to [Indian] lands." (Emphasis added.) Thus, it is not necessary that Indian lands actually be conveyed. "Until Congress repeals or amends the Indian ... statutes ... we must give them a 'sweep as broad as [their] language' and interpret them in light of the intent of the Congress that enacted them." Central Machinery Co. v. Arizona State Tax Commission, 448 U.S. 160, 166, 100 S.Ct. 2592, 2596, 64 L.Ed.2d 684 (1980) (analyzing Indian Trader statutes) (citations omitted). The broad language of section 81 expresses congressional intent to cover almost all Indian land transactions.

This literal reading of the statute is supported by the longstanding policy of the federal government to regulate Indian land transactions. See generally F. Cohen, Handbook of Federal Indian Law, 508-10 (1982 ed.). Section 81 was enacted by Congress with the intent to protect the Indians from "improvident and unconscionable contracts." In re Sanborn, 148 U.S. 222, 227, 13 S.Ct. 577, 579, 37 L.Ed. 429 (1893). Because of this policy, we conclude that there is no reason to disregard the plain language of the statute in this case. See Wisconsin Winnebago Business Committee v. Koberstein, 762 F.2d 613, 618 (7th Cir.1985). ²

Because the Agreement gives the non-Indian contracting party, AK, the exclusive right to build and control the operation of the bingo facility located on tribal trust lands and prohibits the Band from encumbering the land, we hold that the instant Agreement is "relative to [Indian] lands" under 25 U.S.C. Sec. 81 (1982). ³ See Wisconsin Winnebago, 762 F.2d at 619.

Next, AK argues that section 81 should not apply to bingo management agreements because to do so would be inconsistent with current federal policy of encouraging Indian self-determination and ending paternalism. In support of this argument, AK points to President Reagan's 1983 statement on Indian policy and several letters of the BIA discussing bingo management contracts. AK's reliance on BIA letters and President Reagan's statement as representing current federal policy on bingo management contracts is misplaced. One BIA letter stated that its approval of the Barona Group Bingo Agreement was not required because neither tribal trust land nor funds were involved. Further, the letter was "limited only to the question of the need of Bureau approval of the Barona Group Bingo Agreement" and "in no way represents the Bureau or the Department of Interior's policy or position regarding the Indian Operation of bingo games in the State of California." ⁴ Another BIA letter, although stating that the BIA routinely applies section 81 only to contracts for attorney services, concludes that the section is ripe for legislative revision because its language does support broader applications of section 81. ⁵ Finally, President Reagan's policy address is unrelated to the Agreement in the instant case. ⁶

Finally, AK asserts that applying section 81 to bingo management contracts creates uncertainty as to whether other contracts fall under section 81. AK argues that it would be impractical and nearly impossible to subject all contracts made by Indians with non-Indians to section 81 scrutiny. AK suggests that subjecting the instant Agreement to section 81 scrutiny may cause systematic renunciation by Indians of any contract made without BIA approval, and thus no one will want to enter into routine contracts with Indians.

Section 81 plainly puts all parties on notice that any contract that relates to tribal lands or funds is null and void without BIA approval. AK is charged with knowledge of this statute, and in fact, the terms of the Agreement itself recognize this prerequisite. Thus, AK conducted business with the Band at its own risk pending BIA approval of the Agreement.

II. Duty to seek BIA approval.

AK asserts that even if section 81 applies to the Agreement, this court should find that the Band is nonetheless obligated under general contract principles to seek BIA approval of the Agreement. Specifically, AK contends that the Band has both an express and implied duty of good faith and fair dealing to seek BIA approval of the Agreement. ⁷

First, AK points to sections 10(a) and 23 of the Agreement wherein the Band expressly covenanted to act in good faith and use its best efforts to fulfill its obligations under the Agreement. Section 19 of the Agreement expressly provides that the Agreement is conditioned upon its approval by the BIA. Second, AK asserts that all contracts contain an implied covenant of good faith and fair dealing that requires each contracting party to refrain from injuring the right of the other to receive the benefits of the agreement. ⁸

Further, AK asserts that a party who prevents fulfillment of a condition of his own obligation cannot rely on the condition to defeat his own liability. AK contends that the Band is attempting to avoid its own contractual obligation by refusing to seek BIA approval when BIA approval is a condition precedent to the Band's performance under the Agreement. AK argues that the Band cannot be allowed to escape contractual liability by its own failure to act. ⁹

Whatever the persuasive force of...