Peabody Coal Co. v. Navajo Nation

• Decision Date: 15 June 2004
• Docket Number: No. 03-15272.,03-15272.
• Citation: 373 F.3d 945
• Parties: PEABODY COAL COMPANY; Peabody Western Coal Company; Peabody Holding Group, Inc., Plaintiffs-Appellants, v. NAVAJO NATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

373 F.3d 945

PEABODY COAL COMPANY; Peabody Western Coal Company; Peabody Holding Group, Inc., Plaintiffs-Appellants, v. NAVAJO NATION, Defendant-Appellee.

No. 03-15272.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 9, 2004.

Filed June 15, 2004.

Terrance G. Reed, Reed Law Firm, Alexandria, VA, for the Plaintiffs-Appellants.

Terry E. Fenzl, Brown & Bain, Phoenix, AZ, for the Defendant-Appellee.

Appeal from the United States District Court for the District of Arizona; Robert C. Broomfield, District Judge, Presiding. D.C. No. CV-02-00318-RCB.

Before: SCHROEDER, Chief Judge, TALLMAN and CALLAHAN, Circuit Judges.

TALLMAN, Circuit Judge:

This appeal addresses whether a district court has subject matter jurisdiction over a suit brought for enforcement of an arbitration award by a non-Indian corporation against the Navajo Nation (or "the Nation"), a federally recognized Indian tribe located primarily in Arizona. The complaint filed by Plaintiffs Peabody Coal Company, Peabody Western Coal Company, and Peabody Holding Group, Inc., (collectively "Peabody") seeks enforcement of an arbitration settlement agreement made between the parties in 1998 setting royalty rates for coal mined pursuant to a commercial lease. The lease itself had been previously approved by the Department of the Interior. Peabody contends that the federal question in this case is the enforceability of commercial Indian mineral leases approved by the Secretary of the Department of the Interior ("Secretary") under federal law. We hold that Peabody's claim does not meet the requirements of federal question jurisdiction under 28 U.S.C. § 1331, and we affirm the district court's dismissal of the case.

I

In 1964, Peabody's predecessor in interest (the Sentry Royalty Company) leased the right to mine substantial coal deposits located on Navajo lands (lease No. 8580). In exchange for the right to mine this coal, Peabody agreed to pay the Navajo Nation a royalty fee (a percentage of the monthly gross revenue obtained from sale of the coal). Under this original lease agreement, the Secretary was authorized to make reasonable adjustments to these royalty rates after twenty years, and every decade thereafter. In 1966, the parties entered a second lease for a different parcel of land (lease No. 9910), which did not permit the Secretary to make royalty rate adjustments.

Under the Indian Mineral Leasing Act of 1938 ("IMLA"), 52 Stat. 347, 25 U.S.C. §§ 396a-396g, the Secretary must approve mineral leases between Native tribes and commercial companies to ensure that a tribe's profits are maximized and that the lease terms are in the tribe's best interest. 25 U.S.C. § 396a. Leases 8580 and 9910 were accordingly approved by the Secretary.

In 1984, after the leases had been in effect for some twenty years, the Chairman of the Navajo Nation asked the Secretary to readjust the royalty rates. An Interior Department Area Director for the Bureau of Indian Affairs ("BIA"), Donald Dodge, issued an initial decision raising the royalty rate for lease No. 8580 to 20%, a substantial increase over the prior level of 12.5%. Peabody challenged Dodge's decision in an administrative appeal lodged with the Department of the Interior. The Navajo Nation has alleged that, during the pendency of Peabody's appeal, a lobbyist hired by Peabody made improper ex parte contacts with then-Secretary Donald Hodel to encourage him to reduce the royalty rate. Secretary Hodel allegedly asked the BIA to delay issuing its decision, which allowed Peabody more time to negotiate with the Navajo Nation to obtain a lower rate.

Negotiations continued and eventually, in 1987, the parties agreed to amend the original leases in several ways. First, the 1987 amendments specified a royalty rate for lease No. 8580 of 12.5% and for lease No. 9910 of 6.25%. The parties agreed to petition the Secretary to vacate Area Director Dodge's previous decision setting the rate at 20%.

Next, the amendments created new procedures to adjust royalty rates in the future. Removing the provision in lease No. 8580 that permitted the Secretary to set a reasonable royalty rate, the parties substituted arbitration clauses in both leases as "the sole and exclusive method for the determination or readjustment of royalty rates ... for periods beginning on and after February 1, 1984." If the parties could not agree upon new rates, they agreed in advance to submit to binding arbitration. The Navajo Nation also agreed to waive its sovereign immunity from actions to enforce or appeal any resulting arbitration decision:

Lessor and its officers acting in their official capacity consent to suit in the United States District Court for the District of Arizona for the limited purpose of the enforcement or appeal of any arbitration decision pursuant to this Article, and agree not to raise sovereign immunity or exhaustion of tribal remedies as a defense to such suit.

1987 Amendments to Lease No. 8580, ¶ 12. The 1987 lease amendments were approved by Secretary Hodel as being in the Navajo Nation's best interest.

In the late 1990s, the parties attempted to renegotiate the royalty rates. When negotiations failed, the Navajo Nation requested arbitration in 1998 under the procedures created by the 1987 lease amendments. Although an arbitration panel was convened, the parties were able to reach a negotiated settlement. The settlement was memorialized in an arbitration award. The 1998 award retained the 1987 royalty rates (12.5% on lease No. 8580, 6.25% on lease No. 9910). Unlike the underlying mineral leases and their amendments, the arbitration award did not require approval by the Secretary. The parties agreed that "no action of the ... Secretary is necessary to give full and final effect to the arbitration award."

In addition, the parties executed a brief amendment to the leases. Under this amendment, Peabody agreed to pay the Navajo Nation a lump sum bonus payment of $4,500,000 in exchange for "the covenants, promises, terms and conditions contained herein and in the separate Settlement Agreement between the parties [.]" Bruce Babbitt, the new Secretary of the Interior, approved this 1998 lease amendment on March 29, 1999.

These events nonetheless spawned several lawsuits in different jurisdictions.¹ In 1999, the Navajo Nation sued Peabody and several other defendants in the United States District Court for the District of Columbia ("D.C.action"). The Nation alleges violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") and other related claims stemming from Peabody's alleged ex parte contacts with former Secretary Hodel. The relief sought by the tribe includes reformation of lease No. 8580 to incorporate the 20% royalty rate proposed by Area Director Dodge in 1987. At issue in this appeal is the complaint Peabody filed on February 21, 2002, in the United States District Court for the District of Arizona ("Arizona action"), seeking to enforce the 1998 final arbitration award between the parties. Peabody's complaint contends that because the 1998 arbitration settlement agreement was entered by the arbitration panel as a final award, and because the Navajo Nation did not appeal the award, it is enforceable in the District of Arizona under the Navajo Nation's waiver of sovereign immunity in the 1987 lease amendments.²

On March 29, 2002, the Navajo Nation filed a motion to dismiss Peabody's Arizona action for lack of subject matter jurisdiction due to Peabody's failure to present a federal question. Arizona District Judge Robert C. Broomfield held a brief hearing on the motion, during which counsel for the Navajo Nation was asked where Peabody could bring suit to enforce the arbitration award if not in the District of Arizona. The Navajo Nation suggested that the only court with jurisdiction would be a Navajo tribal court. Judge Broomfield granted the Navajo Nation's motion to dismiss, finding no federal question jurisdiction under 28 U.S.C. § 1331 because enforcement of the arbitration award did not raise any question about the leases or the Secretarial approval process under federal law.

II

A

We review de novo a district court's dismissal of a complaint for lack of subject matter jurisdiction. Arizona Pub. Serv. Co. v. Aspaas, 77 F.3d 1128, 1132 (9th Cir.1995) (as amended). We will accept the district court's factual findings on jurisdictional issues unless they are clearly erroneous. Id.

B

Federal courts have original jurisdiction over civil actions "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. For a case to "arise under" federal law, a plaintiff's well-pleaded complaint must establish either (1) that federal law creates the cause of action or (2) that the plaintiff's asserted right to relief depends on the resolution of a substantial question of federal law. Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 27-28, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). The fact that the defendant is a Native sovereign is not, by itself, sufficient to raise a federal question. Gila River Indian Cmty. v. Henningson, Durham & Richardson, 626 F.2d 708, 714 (9th Cir.1980).

Peabody is not bringing a cause of action created by federal law. See Gen. Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 969 (9th Cir.1981) (holding that 9 U.S.C. § 9 does not create federal question jurisdiction in an action to confirm an arbitration award). Thus, the company must establish that its "right to relief necessarily depends on resolution of a substantial question of federal law." See Franchise Tax Bd., 463 U.S. at 27-28, 103 S.Ct. 2841. Peabody asserts in its opening brief that the federal question in its complaint is "the enforceability of commercial Indian mineral leases the Interior Secretary approved under federal law." Peabody's actual complaint seeks enforcement of the final arbitration award, not the underlying leases or...