Mustang Fuel Corp. v. Hatch, CIV-88-1801-A

• Citation: 890 F. Supp. 995
• Decision Date: 18 July 1995
• Docket Number: No. CIV-88-1801-A,CIV-88-1954-A.,CIV-88-1801-A
• Parties: MUSTANG FUEL CORPORATION, et al., Plaintiffs, v. Viola HATCH, et al., Defendants. WARD PETROLEUM CORPORATION, Plaintiff, v. Juanita LEARNED, et al., Defendants.
• Court: U.S. District Court — Western District of Oklahoma

890 F. Supp. 995

MUSTANG FUEL CORPORATION, et al., Plaintiffs, v. Viola HATCH, et al., Defendants.

WARD PETROLEUM CORPORATION, Plaintiff, v. Juanita LEARNED, et al., Defendants.

Nos. CIV-88-1801-A, CIV-88-1954-A.

United States District Court, W.D. Oklahoma.

July 5, 1995.

As Amended and Reissued Nunc Pro Tunc July 18, 1995.

Stanley L. Cunningham, Steven W. Bugg, McAfee & Taft, Oklahoma City, OK, for Mustang Production Co., Amoco Production Co., Anson Corp., Apache Corp., Conoco Inc., Phillips Petroleum Co., Sun Exploration and Production, Mesa Midcontinent Ltd. Partnership, Texaco Inc., Texaco Producing Inc., Union Oil Co. of California, NGC Energy Co., Bogert Oil Co., Kaiser Francis Oil Co., Seneca Oil Co., Unit Drilling and Exploration Co., Viersen & Cochran, Mustang Fuel Corp., Oryx Energy Co., Mesa Midcontinent Co., Texaco Exploration & Production Inc., PG & E Resources Co., Louis Dreyfus Nat. Gas Corp., Unit Petroleum Co., Bracken Energy Corp., Santa Fe Minerals, Inc., Kenneth W. Cory.

James R. Winnie, Oklahoma City, OK, for Juanita Learned, Edgar Heap-of-Birds, Floyd Blackbear, Jonathan Burgess, Christine George, Kris Littleraven, Marlin Hawk.

James R. Winnie, Melody L. McCoy, Yvonne T. Knight, Boulder, CO, for Alton Harrison, Viola Hatch.

Melody L. McCoy, Yvonne T. Knight, Boulder, CO, for Charles Surveyer, Archie Hoffman, Robert Tabor, Glen Starr, Sr., Eddie Wilson, Leslie Medicine Bear, John Fletcher, Sr., Barbara Koebrick, Ruby Standingwater, Millicent Youngbear.

Bradley S. Bridgewater, US Dept. of Justice, Denver, CO, for U.S.

Michael E. Smith, Barnes Smith & Lewis, Oklahoma City, OK, for Ward Petroleum Corp.

ORDER

ALLEY, District Judge.

Before the Court are cross-motions for summary judgment filed by all parties in these consolidated cases. The parties seek a ruling on the validity of a tax law enacted by the Cheyenne-Arapaho Tribes of Oklahoma (the "Tribes") in 1988 that imposes a severance tax on all oil and gas produced from lands within the Tribes' territorial jurisdiction. The principal issue is: what is that territorial jurisdiction?

Plaintiffs do not question the Tribes' power to levy the tax or to levy it on production from tribal lands, that is, lands held in trust for the Tribes by the United States. Plaintiffs claim, however, that the Tribes have exceeded the bounds of their powers by taxing production of oil and gas from allotted lands, that is, lands held in trust for individual members of the Tribes. In addition, Ward Petroleum Corporation, plaintiff in No. CIV-88-1954-A, asserts that the tax violates the Commerce Clause of the United States Constitution.

PROCEDURAL HISTORY

These cases were filed in 1988 by numerous oil companies and an individual who hold oil and gas leases or operate wells in drilling and spacing units that include allotted lands. The defendants are members of governmental bodies of the Tribes responsible for enacting and enforcing the tax law, the Business Committee and the Tax Commission. The United States appears as amicus curiae in support of the Tribes.

Both cases were stayed in 1989 to permit the plaintiffs to exhaust their tribal remedies. See National Farmers Union Ins. Cos. v. Crow Tribe of Indians, 471 U.S. 845, 856-57, 105 S.Ct. 2447, 2453-54, 85 L.Ed.2d 818 (1985). Plaintiffs first pursued administrative remedies before the Cheyenne-Arapaho Tax Commission and then sought declaratory and injunctive relief from the Cheyenne-Arapaho District Court. In January 1991, the district court granted summary judgment to the Tribes, and an appeal was taken to the Cheyenne-Arapaho Supreme Court. The supreme court affirmed the district court's decision in a published opinion filed January 3, 1994.

The cases before this Court were reopened in February 1994. Plaintiffs moved for summary judgment in October 1994 and defendants followed in November 1994. The parties reurge the same evidence and arguments that they presented to the tribal courts, except Ward, which raises its constitutional challenge only in this forum and relies on a new affidavit. The Court has denied a motion by defendants to exclude Ward's new claim and will decide the Commerce Clause claim on its merits.

UNDISPUTED FACTS

The relevant facts are primarily historical ones. The following recitation draws heavily from the Cheyenne-Arapaho Supreme Court's opinion. See also Cheyenne-Arapaho Tribes v. Oklahoma, 618 F.2d 665, 666 (10th Cir.1980).

The Tribes were relocated to Oklahoma from their traditional homelands through two treaties with the United States. The first treaty in 1865 set aside a reservation in an area located partly in Kansas and partly in Oklahoma. When it was ratified, Congress required that the treaty be amended to locate the reservation solely in Oklahoma. Thus, a second treaty in 1867 defined a reservation located wholly in Oklahoma north of the Cimmarron River. The Tribes apparently misunderstood the location of their 1867 reservation and never occupied it; they located farther south. When the mistake was discovered, an executive order in 1869 conformed the boundaries of the Tribes' reservation to the territory they actually occupied. The allotted lands at issue here lie within the reservation specified in the 1869 executive order.

In 1887, a federal policy shift toward assimilation resulted in passage of the General Allotment (or Dawes) Act, 24 Stat. 388. See 25 U.S.C. §§ 331-58. This act authorized negotiations with tribes designed to terminate their reservations, to allot lands to individual tribal members, and to purchase the "surplus lands" for non-Indian settlement. In 1889, the Jerome Commission was created to conduct these negotiations, and in 1890, it negotiated an Allotment and Cession Agreement with the Cheyenne-Arapaho. This Agreement was ratified by Act of March 3, 1891, 26 Stat. 989, 1022.

Through the Agreement, the Tribes ceded absolutely their interest in the reservation defined by the 1867 treaty (which they never inhabited). The Tribes ceded "subject to the allotment of land in severalty to the individual members of the Cheyenne and Arapaho tribes of Indians, as hereinafter provided for and subject to the conditions hereinafter imposed" their interest in the reservation defined by the 1869 executive order. The ensuing provisions of the Agreement gave all tribal members a right to select allotments "out of the lands" within the 1869 reservation. The statutory scheme under the Dawes Act was that allotments were to be held in trust by the United States for 25 years and then conveyed to the allottees or their heirs in fee simple. However, all allotted lands at issue here have been held in trust continuously and were never conveyed.

By 1892, all allotments required by the Agreement had been made and approved. On April 19, 1892, the remainder of the Tribes' 1869 reservation lands, except those claimed by other tribes and those reserved for certain uses under the Agreement, were opened to non-Indian settlement by presidential proclamation.

As is well known, the United States later reversed its assimilation policy. Beginning in 1930, statutes were enacted to reorganize tribal governments and regain communal land. Tribes located in Oklahoma were excluded from the Indian Reorganization Act of 1934, which specifically addressed tribes' governmental powers. See 25 U.S.C. §§ 461-79. However, Oklahoma tribes were included under the Oklahoma Indian Welfare Act of 1936. See 25 U.S.C. §§ 501-09. Consequently, the Cheyenne-Arapaho Tribes have now reacquired lands within the boundaries of the 1869 reservation. These tribal lands are also held in trust by the United States and, as noted above, tribal taxing power as to tribal lands is not at issue in this case.

Before 1929, the Tribes had a government comprising traditional chiefs. In 1929, they adopted a written constitution and established an elected, representative form of government. Under the Oklahoma Indian Welfare Act, the Tribes adopted a new tribal constitution in 1937; that constitution was replaced with the current Cheyenne-Arapaho Constitution approved by the Secretary of the Interior in 1974. Thus, the Tribes have continuously maintained a tribal government and been federally-recognized.

In 1988, the Tribes enacted the General Revenue and Taxation Act, Ordinance No. 8118033. This act created a Tax Commission and, among other things, provided for the levy and collection of taxes in order to generate revenue for tribal services. Id. §§ 2, 101. Use of tax revenues was restricted to essential services, including police and fire protection, tribal courts, roads, water and waste disposal, education, public health, economic development, acquisition of land and administration of Indian property. Id. § 3. The new law created a tobacco tax (§§ 202-03), a sales tax (§ 302), a tribal entertainment tax (§ 502), and the oil and gas severance tax at issue.

A severance tax equal to 7.085% of the gross market value was levied on all petroleum, gas and other hydrocarbons "produced, severed, saved, and removed from any land within the jurisdiction of the Cheyenne-Arapaho Tribes of Oklahoma." Id., §§ 401-02. The Tax Commission later promulgated rules defining that jurisdiction territorially to include all "Indian country" as defined by 18 U.S.C. § 1151 within the boundaries of the 1869 reservation. The incidence of the tax was imposed on mineral lessees and their successors, who are required to file reports and remit taxes monthly; these obligations can be assumed by unit operators and purchasers with the Tax Commission's approval. Specifically excluded from the tax law is "production attributable to the Indian trust royalty interest, not to exceed 20% of the gross value of such production, of all individually owned and tribally owned lands.... Pursuant to federal law and tribal constitution, no taxes shall be due or imposed on that portion of the production attributable to the Indian royalty interest." Ordinance ...