Quantum Entertainment Limited v. Acting Southwest Regional Director, Bureau of Indian Affairs, 52 IBIA 289 (2010)

Docket NumberIBIA 04-021-1

INTERIOR BOARD OF INDIAN APPEALS Quantum Entertainment Limited v. Acting Southwest Regional Director, Bureau of Indian Affairs 52 IBIA 289 (12/07/2010) Related Board case: 44 IBIA 178

United States Department of the Interior



Order Affirming Regional Director’s Decision in Remaining Part and Reaffirming Board’s Decision on Remand

Docket No. IBIA 04-021-1

December 7, 2010

Introduction This appeal by Quantum Entertainment Limited (Quantum) is on remand to the Board of Indian Appeals (Board) from the U.S. District Court for the District of Columbia to address one issue not previously considered on the merits and to explain in greater detail our reasoning with respect to a second issue. The court found both issues to be central to the case. See Quantum Entertainment, Ltd. v. U.S. Department of the Interior, 597 F. Supp. 2d 146 (D.D.C. 2009) (“Quantum II”), remanding Quantum Entertainment Ltd. v. Acting Southwest Regional Director, 44 IBIA 178 (2007) (“Quantum I”). At issue in the case is the position of the Department of the Interior (Department) on the validity of a long-term — potentially 30 years — management agreement (Agreement), executed in 1996 by Quantum, on the one hand, and the Santo Domingo Pueblo (Pueblo) and Kewa Gas, Ltd. (Kewa), a tribally-chartered and tribally-owned entity, on the other. The parties to the Agreement agreed to have Quantum manage Kewa’s gasoline distribution business, located on the Pueblo’s lands, and intended to benefit from a tax exemption available to Indian tribal gasoline distributors operating on Indian reservation lands. See Quantum II, 597 F. Supp. 2d at 148; Quantum I, 44 IBIA at 179-80 & n.1. For Quantum’s services, Kewa agreed to pay Quantum a percentage share of the business’ net income, an additional fee for each gallon of fuel sold to the Pueblo’s gas station, and a performance bonus based on sales volume. The Agreement was not approved by the Bureau of Indian Affairs (BIA), and the validity of the Agreement depends on whether such approval is a prerequisite to its validity. That issue, in turn, may depend upon which of two versions of the relevant statute applies. 52 IBIA 289

The relevant statute is 25 U.S.C. § 81, and when the parties executed the Agreement in 1996, the statute declared “null and void” agreements with Indian tribes for services “relative to” their lands, unless approved by BIA. See 25 U.S.C. § 81 (1994) (“Old Section 81”). At the time the Agreement was executed, neither party sought a determination from BIA on whether BIA considered the Agreement to be subject to Old Section 81, and if so, whether to approve it. Instead, the parties chose to proceed with the business arrangement. Nearly seven years into operating under the Agreement — and 3 years after Congress replaced Old Section 81 with a new version, which eliminated the “relative to” language and significantly reduced the scope of agreements requiring BIA approval,1 — the Pueblo presented the Agreement to BIA for review, contending that the Agreement was too lucrative for Quantum. Quantum’s appeal to the Board arose from an October 23, 2003, decision (Decision) of the Acting Southwest Regional Director (Regional Director) of BIA. In that Decision, the Regional Director applied Old Section 81 to the Agreement, found that the Agreement was subject to Secretarial approval under Old Section 81, declined to approve it, and declared it null and void. See 44 IBIA at 178, 186-88.2 In Quantum I, we concluded that it was proper for the Regional Director to apply Old Section 81. We found that it would be impermissible to apply New Section 81 retroactively because if the Agreement were valid without Secretarial approval under New Section 81, but had been invalid and void under Old Section 81, applying New Section 811

In 1914, the U.S. Supreme Court held that Old Section 81 applied to an agreement between a Federally licensed Indian trader and the Menominee Tribe, in which the trader agreed to furnish equipment and supplies to tribal members to enable them to engage in logging operations on the Menominee Reservation. Payment for the equipment and supplies was to be made with proceeds from the sale of logs. The agreement, which was not in writing, was approved by the local Indian agent, as well as a special Indian agent sent by the Commissioner of Indian Affairs. The trader sought recovery against the Tribe, the lower court declared the agreement void and unenforceable under Old Section 81, and the Supreme Court affirmed, finding the matter simple to resolve. [W]e think that the conclusion of the court on this subject is so clearly within the text of the statute that it suffices to direct attention to such text without going further. But if it be conceded for argument’s sake that there is ambiguity involved in determining from the text whether the statute is applicable, we are of the opinion that the case as made is so within the spirit of the statute, and so exemplifies the wrong which it was intended to prevent and the evils which it was intended to remedy as to dispel any doubt otherwise engendered. Green v. Menominee Tribe of Indians in Wisconsin, 233 U.S. 558, 569 (1914). In 1942, amid significant changes in Federal Indian policy as evidenced by the Indian Reorganization Act of 1934 (IRA), see 25 U.S.C. § 461 et seq., the author of the first Handbook of Federal Indian Law, Felix S. Cohen, described Old Section 81 as “withdraw[ing] from noncitizen Indians and from Indian tribes [the] power to make contracts involving the payment of money for services relative to Indian lands or claims against the United States, unless such contracts should be approved by the Commissioner of Indian Affairs and the Secretary of the Interior.” Handbook of Federal Indian Law 77 (Cohen ed. 1942); see also id. at 164. In 1952, the Solicitor of the Department concluded that despite the dramatic changes brought by the IRA to foster tribal governments and restore their authority, the IRA had not effected an implied and general repeal of Old Section 81. The Solicitor concluded that the Salt River Indian Tribe, which voted to accept the IRA, nevertheless could not engage a manager for a tribal farming enterprise without complying with Old Section 81 and obtaining the approval of the Secretary. See Contracts for the Employment of Managers of Indian Tribal Enterprises (M-36119), II Op. Sol. (Indian Affairs) 1563 (Feb. 14, 1952). It did not matter to the Solicitor that employment of a manager for the tribal farming enterprise was a Federal condition that had been placed on the Tribe as part

of a Revolving Credit Fund loan under the IRA. The parties to the agreement still had to comply with Old Section 81 for the employment contract to be valid.9 III. Application of Old Section 81 to Bingo and Gaming-Related Management Agreements

In the early 1980s, as Indian tribes began developing bingo operations, several bingo management agreements between tribes and operators were presented to the Department for review under Old Section 81. In various cases, the tribes engaged another party to construct a tribal bingo hall on tribal land, and gave that party exclusive rights to operate, manage, and maintain it, with the parties sharing the net profits. The courts uniformly concluded that Old Section 81, by its broad and unmistakably clear language, applied. In most of those cases, the courts directly addressed the relative-to-their-lands language of Old Section 81, finding that the language was extremely broad and that it was “obvious” that Congress intended to cover almost all land transactions in Indian property. See, e.g., Wisconsin Winnebago Business Committee v. Koberstein, 762 F.2d 613, 618 (7th Cir. 1985).10 In finding Old Section 81 applicable to the various gaming-related agreements, the courts cited a variety of facts to support their conclusions that the agreements were “relative to” Indian lands. See, e.g., Koberstein, 762 F.2d at 619 (the bingo facility was located on tribal trust lands; the agreement gave the non-Indian party an exclusive right to operate and maintain the bingo facility and to control all business, management, and maintenance of the bingo facility; the non-Indian party was allowed to record the agreement in any public record; and the tribe was prohibited from allowing a third party to encumber the bingo facility). In United States ex rel. Shakopee Mdewakanton Sioux Community v. Pan American Mgmt Co., 616 F. Supp. 1200 (D. Minn. 1985), the court concluded that the bingo

On the other hand, the Solicitor also concluded that a tribal organization operating under a charter of incorporation approved by the Secretary under section 17 of the IRA, 25 U.S.C. 477, was exempt from the restrictions of Old Section 81. The Salt River Tribe was not operating under a section 17 charter.9

The court characterized the Supreme Court’s decision in Green, see supra at 297, as “not particularly instructive,” and construed the legislative history of Old Section 81 as indicating that the law’s supporters were particularly concerned with claims agents and lawyers “who routinely swindled Indians out of their land, accepting it as payment for prosecuting dubious claims against the Federal Government.” Turn Key Gaming, 260 F.3d at 976 (emphasis added). The court then reviewed the gaming-related Old Section 81 cases, as well as the Altheimer decision, and the “four-question test” posed by the Seventh Circuit in that case. The court in Turn Key Gaming characterized the “common element to these holdings [as] whether by an agreement a tribe transferred a property interest in tribal lands.” Id. at 978 (emphasis added). According to the court, the contracts that the courts found to fall within the...

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