Outsource Servs. Mgmt., LLC v. Nooksack Bus. Corp.

• Citation: 292 P.3d 147
• Decision Date: 14 January 2013
• Docket Number: No. 67050–6–I.,67050–6–I.
• Court: Washington Court of Appeals
• Parties: OUTSOURCE SERVICES MANAGEMENT, LLC, Respondent, v. NOOKSACK BUSINESS CORPORATION, Appellant.

292 P.3d 147

OUTSOURCE SERVICES MANAGEMENT, LLC, Respondent,

v.NOOKSACK BUSINESS CORPORATION, Appellant.

No. 67050–6–I.

Court of Appeals of Washington,

Division 1.

Jan. 14, 2013.

Averil Budge Rothrock, Richard Gale Birinyi, Connie Sue M. Martin, Schwabe, Williamson & Wyatt, Seattle, WA, for Appellant.

Lori Lynn Phillips, David S. Keenan, Orrick Herrington & Sutcliffe, Seattle, WA, for Respondent.

COX, J.

¶ 1 This is a breach of contract action by Outsource Services Management, LLC (OSM) against Nooksack Business Corporation (NBC), a tribal corporation of the Nooksack Indian Tribe.¹ The Whatcom County Superior Court denied NBC's omnibus motion to dismiss based on CR 12(b)(1), (2), and (6).

¶ 2 Because NBC expressly waived its sovereign immunity in this action on contract, we hold that the superior court has subject matter jurisdiction of this case. Moreover, the loan and other agreements between these parties are not “management contracts,” which are void and unenforceable under the provisions of the Indian Gaming Regulatory Act. Accordingly, the superior court has personal jurisdiction over NBC. Finally, NBC has not met its burden to show that OSM has “fail[ed] to state a claim upon which relief can be granted.” We affirm.

¶ 3 The material facts are not in dispute. NBC is a tribally-chartered corporation of the Nooksack Tribe. NBC operates the Nooksack River Casino in Deming, Whatcom County, Washington. The casino is within the boundaries of the Nooksack Reservation.

¶ 4 In December 2006, NBC obtained a loan of $15,315,856 from BankFirst, a bank located in South Dakota. The loan agreement and other documents evidencing the transaction are dated December 21, 2006. The loan proceeds were used to retire a $8,129,694 construction loan, pay for the $1,895,019 purchase of refurbished gaming equipment for the casino, and finance improvements to the casino building.

¶ 5 The loan is a limited recourse obligation of NBC, enforceable against certain security that NBC pledged to the bank. The security includes all of the gaming equipment in the casino and certain proceeds from gaming at the casino. The loan agreement contained an explicit waiver of sovereign immunity.

¶ 6 In January 2009, NBC failed to make a monthly payment then due under the terms of the loan agreement. BankFirst declared that failure an event of default. But it did not immediately enforce its rights under the loan and other agreements.

¶ 7 Instead, NBC, BankFirst, and the Nooksack Tribe executed the first of three, successive forbearance agreements, the first of which is dated January 30, 2009. After execution of the first forbearance agreement by the parties, BankFirst was placed in receivership by the Federal Depository Insurance Corporation. Thereafter, OSM succeeded to the interest of BankFirst. NBC, OSM, and the Nooksack Tribe executed the next two forbearance agreements.

¶ 8 Under the forbearance agreements, NBC acknowledged that it was in default under the terms of the loan agreement. It again expressly waived its sovereign immunity from suit. BankFirst and, later, OSM agreed to forbear exercising the lender's rights under the loan agreement, subject to certain terms and conditions. NBC failed to make the payments required under each of the forbearance agreements.

¶ 9 In February 2011, OSM commenced this action against NBC for breach of the loan agreement. NBC moved for dismissal of all claims under Civil Rule (CR) 12(b)(1), (b)(2), and (b)(6). NBC argued that the superior court lacked subject matter and personal jurisdiction to hear the claim. NBC also claimed that OSM failed to state a claim upon which relief could be granted.

¶ 10 The trial court denied NBC's motion. In its amended written order on the motion, the court also certified its order for interlocutory review under CR 54(b) and stayed this action, pending resolution of any appeal.

¶ 11 NBC's timely amended notice of appeal followed.²

STANDARD OF REVIEW

¶ 12 A CR 12(b)(1) motion to dismiss challenges the court's subject matter jurisdiction over the case. When a Washington Court Rule is substantially similar to a present Federal Rule of Civil Procedure, we may look to the interpretation of these federal rules for guidance.³ We do so here.

¶ 13 A challenge to FRCP 12(b)(1), may be either facial or factual. ⁴ In the former case, the sufficiency of the pleadings is at issue. ⁵ In the latter, the trial court must weigh evidence to resolve disputed jurisdictional facts.⁶ Once challenged, the party asserting subject matter jurisdiction bears the burden of proof on its existence. ⁷

¶ 14 Where a court dismisses a 12(b)(1) motion “based on a factual challenge ... the appellate court will accept the factual determination that underpins the decision unless it is clearly erroneous.” ⁸ But, “[w]hen the court [denies] a facial challenge, based on the complaint alone or the complaint supplemented by undisputed facts gleaned from the record, the existence of subject matter jurisdiction is a question of law that the appellate court reviews de novo.” ⁹

¶ 15 A CR 12(b)(2) motion to dismiss challenges a court's personal jurisdiction. The trial court, in making its determination as to the existence of personal jurisdiction, has discretion to rely on written submissions, or it may hold a full evidentiary hearing.¹⁰ Once challenged, the party asserting personal jurisdiction bears the burden of proof to establish its existence.¹¹

¶ 16 If the trial court has ruled on personal jurisdiction based on the pleadings and the undisputed facts before it, its determination is a question of law that this court reviews de novo.¹²

¶ 17 A CR 12(b)(6) motion to dismiss, claims the opposing party has failed to state a claim upon which relief can be granted. We treat such a motion as a motion for summary judgment “when matters outside the pleading are presented to and not excluded by the court.” ¹³ When reviewing an order of summary judgment, we engage in the same inquiry as the trial court.¹⁴ Thus, we consider the facts in the light most favorable to the nonmoving party.¹⁵ Summary judgment is only appropriate if there is no genuine issue of material fact.¹⁶

¶ 18 Here, the trial court relied on the pleadings, loan agreement, forbearance agreements, and other loan documents when it denied NBC's CR 12(b)(1), (b)(2) and (b)(6) motions. Thus, de novo review of both the 12(b)(1) and (b)(2) decisions is appropriate. Because the court relied on documents outside of the pleadings when it denied the 12(b)(6) motion, we review the denial of this motion as a denial of summary judgment.

SUBJECT MATTER JURISDICTION

Constitutional Authority

¶ 19 NBC argues that the trial court erroneously concluded that it has subject matter jurisdiction of this breach of contract case. We disagree and hold that the superior court has subject matter jurisdiction of this action.

¶ 20 Whether Whatcom County Superior Court has subject matter jurisdiction of this action is generally a question whether the superior court has authority to decide this type of case.¹⁷ The supreme court recently considered the question of subject matter jurisdiction in ZDI Gaming, Inc. v. State ex rel. Washington State Gambling Commission.¹⁸

¶ 21 Jurisdiction, as the ZDI court explained, “describe[s] the fundamental power of courts to act.” ¹⁹ Article IV of the Washington Constitution vests Washington's superior courts with “ ‘original jurisdiction in all cases and of all proceedings in which jurisdiction shall not have been by law vested exclusively in some other court.’ ” ²⁰ This jurisdiction is a matter of law.²¹

¶ 22 As ZDI made clear, however, “jurisdiction” is “often used to mean something other than the fundamental power of courts to act.” ²² Thus, “Sometimes ‘jurisdiction’ means simply the place or location where a judicial proceeding shall occur. Where jurisdiction describes the forum or location of the hearing, it is generally understood to mean venue.” ²³

¶ 23 In contrast to venue or other meanings of “jurisdiction,” subject matter jurisdiction “is a particular type of jurisdiction, and it critically turns on ‘the type of controversy.’ ‘If the type of controversy is within the [court's] subject matter jurisdiction, then all other defects or errors go to something other than subject matter jurisdiction.’ ” ²⁴

¶ 24 Here, NBC does not dispute that the superior court generally has subject matter jurisdiction to decide a breach of contract case. The state constitution generally provides such authority to the superior courts of this state.²⁵

¶ 25 Rather, NBC argues that the court lacks subject matter jurisdiction here because NBC is a tribal corporation of the Nooksack Indian Tribe and the breach of contract cause of action arose on the Nooksack Reservation.²⁶ We now turn to that argument.

Tribal Sovereign immunity

¶ 26 NBC's subject matter jurisdiction argument is premised on the assertion that, even if a tribal entity waives sovereign immunity, such a waiver does not provide jurisdiction to a state court. We disagree.

¶ 27 We first note that both parties concede that the sovereign immunity of the Nooksack Indian Tribe extends to NBC, its tribally-chartered corporation. ²⁷ This mutual concession is consistent with federal law.

¶ 28 Under federal law, Indian tribes have sovereign immunity. ²⁸ This immunity also extends to “tribal agencies and instrumentalities as extensions of tribal government.” ²⁹ Such sovereign immunity is meant to protect the tribes as “ ‘distinct, independent political communities' ” and allows them to retain their “ ‘original natural rights' in matters of local self-government.” ³⁰ Thus, a state may not assert authority in Indian country if that would infringe “on the right of reservation Indians to make their own laws and be ruled by them.” ³¹ This immunity consequently touches on the jurisdiction of a court to hear a case, though whether it actually affects a court's subject matter or personal jurisdiction is not clear.³²Nor is this...