Red Mountain Machinery Co. v. Grace Inv. Co., 92-16825

Decision Date18 July 1994
Docket NumberNo. 92-16825,92-16825
Citation29 F.3d 1408
PartiesRED MOUNTAIN MACHINERY COMPANY, an Arizona corporation, Plaintiff-Appellant, v. GRACE INVESTMENT COMPANY, an Arizona corporation; Canadian Imperial Bank of Commerce, a foreign corporation, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Lawrence C. Wright, Mesa, AZ, for plaintiff-appellant.

G. Gregory Eaglebuger, The Eagleburger Group, Phoenix, AZ, for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before: FLETCHER, KOZINSKI and TROTT, Circuit Judges.

FLETCHER, Circuit Judge:

Red Mountain Machinery Company ("Red Mountain") appeals the district court's order granting summary judgment in favor of Grace Investment Co. ("Grace") and the Canadian Imperial Bank ("the Bank") in Red Mountain's action seeking foreclosure of a leasehold interest in real property leased by Grace from the Yavapai-Prescott Indian Tribe ("the Tribe"). The district court held that the Arizona mechanics' lien law was preempted by federal law. We reverse and remand.

BACKGROUND

The facts are undisputed. Grace is an Arizona corporation engaged in real estate investment and development. By a lease dated October 7, 1988, Grace leased tribal lands from the Yavapai-Prescott Indian Tribe to construct and operate the Frontier Village shopping center. The Yavapai-Prescott Indian Tribe is a federally recognized and protected Indian Tribe. The lease was entered into in compliance with federal laws governing the leasing of Indian lands. See 25 U.S.C. Sec. 415(a) (Supp. IV 1992); 25 C.F.R. pt. 162 (1993). The lease has a term of sixty-five years and contains an option to renew for an additional twenty-year period. The lease was approved by the Secretary of the Interior, through the Acting Phoenix Area Director of the Bureau of Indian Affairs.

The purpose of the lease was to facilitate the development of multiple-use facilities on tribal land, including retail, office, lodging, medical, residential, and recreational buildings. The lease granted Grace continued possession of the property for the term of the lease. Grace was responsible for paying the cost of all construction on the Frontier Village project. In addition, under both federal regulations and the terms of the lease, Grace was required to provide security to guarantee completion of the project and payment in full of the claims of those who performed work on or provided materials to the project. In compliance with this requirement, Grace entered into a construction loan agreement with the Bank (the "Building Loan Agreement") under which the Bank agreed to advance an amount sufficient to cover the entire cost of construction. The Building Loan Agreement provided that all funds lent by the Bank were to be used only to pay the costs of construction and direct expenses of project development. As a condition for each construction advance, Grace was required to present evidence that it had paid for all work and materials previously supplied to the project. The Building Loan Agreement provided that Grace would be in default of the Agreement if Grace failed to discharge any mechanics' lien that might arise on the project.

After the lease was executed, Grace began construction of the Frontier Village Center. In February 1991, Grace entered into a subcontract with Tempe Trenching Company ("Tempe") for the construction of water and sewer systems. In April 1991, Tempe contracted with Red Mountain to rent equipment necessary for Tempe to carry out its subcontract with Grace.

At the conclusion of its work on the Frontier Village project, Tempe owed Red Mountain $55,872.14 in unpaid rental charges. Without paying these charges, Tempe went out of business and subsequently filed a "no asset" Chapter 7 bankruptcy. Tempe is not a party to this action.

On September 11, 1991, Red Mountain recorded a Notice and Claim of Lien pursuant to Arizona's mechanics' lien law. Ariz.Rev.Stat.Ann. Sec. 33-981 (1990). 1 It claimed $55,872.14 and listed the Tribe as the owner of the property and Grace Investment Company as lessee. The legal description of the real property was attached to the notice. The lien was claimed on the real property and improvements.

On October 22, 1991, Red Mountain filed this action in state superior court seeking to enforce the mechanics' lien against Grace's leasehold interest in the real property leased by Grace from the Tribe. The complaint named Grace and the Bank as defendants. The Bank was joined as a defendant because it holds a mortgage on Grace's leasehold estate. The complaint did not seek to foreclose upon the underlying real estate, nor did it name the Tribe as a defendant.

This case was properly removed to federal court pursuant to 28 U.S.C. Sec. 1441. On August 24, 1992, the district court entered summary judgment for Grace, ruling that the Arizona lien law is preempted by federal statutory and regulatory control of leases involving Indian land. Red Mountain filed a motion to amend the judgment on September 4, 1992. This motion was denied on September 11, 1992. Red Mountain timely appealed to this court.

JURISDICTION AND STANDARD OF REVIEW

The district court had jurisdiction over this claim pursuant to 28 U.S.C. Sec. 1331. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291.

A grant of summary judgment is reviewed de novo. Jones v. Union Pac. R.R., 968 F.2d 937, 940 (9th Cir.1992); T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 629 (9th Cir.1987). Because there is no dispute with respect to the underlying facts, we must determine whether the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire & Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989).

DISCUSSION

This case raises the question of whether a state law of general applicability, the Arizona mechanics' lien statute, may be applied to allow foreclosure of a leasehold interest in tribal land held by a non-Indian. On a number of occasions the Supreme Court has addressed whether state laws apply to regulate non-Indians conducting business on Indian reservations. The Court has repeatedly emphasized that "no rigid rule" governs such an exercise of state authority. White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 142, 100 S.Ct. 2578, 2583, 65 L.Ed.2d 665 (1980). Instead, the Court has stated that we must assess on a case-by-case basis "two independent but related barriers to the assertion of state regulatory authority over tribal reservations": (1) federal preemption, and (2) tribal self-government. Id. at 142-43, 100 S.Ct. at 2583. Either barrier standing alone can be "a sufficient basis for holding state law inapplicable to activity undertaken on the reservation." Id. at 143, 100 S.Ct. at 2583.

At the outset, the parties disagree about the proper standard to apply to determine if the Arizona mechanics' lien law is preempted. Red Mountain argues that the principles of federal preemption in the area of Indian law are sui generis and that traditional standards of preemption do not apply. 2 In contrast, appellees argue that federal preemption is appropriate under either the traditional standards for federal preemption or under those standards that have developed in Indian law cases.

Interesting as this dialogue may be, we need not enter the fray. Although we ordinarily would apply a fact-specific balancing test among federal, state, and tribal interests to determine if a state law applies in a given case, see White Mountain Apache Tribe, 448 U.S. 136, 100 S.Ct. 2578, in this case we conclude that we need not engage in such a balancing test because the Secretary, pursuant to his statutory authority, has already engaged in such an analysis and has authorized the application of the mechanics' lien law under the terms of the lease between Grace and the Tribe.

Leases of tribal land are governed by a complex federal statutory and regulatory scheme. Federal law permits the Yavapai-Prescott Tribe to enter into long-term leases of their land, and to renew those leases once, as prescribed, for a number of years. 25 U.S.C. Sec. 415(a) (Supp. IV 1992). All leases and renewals must be made according to detailed regulations promulgated by the Secretary of the Interior, and each lease or renewal requires the Secretary's approval. Id. Pursuant to this statutory grant of authority, the Secretary has promulgated detailed The extensive regulatory scheme governing leases of tribal land explicitly permits leases of tribal land to be encumbered if the lease contains a provision authorizing such an encumbrance. 25 C.F.R. Sec. 162.12(a) & (c) (1993). 3 In accordance with this regulatory provision, the lease between Grace and the Tribe, which was approved by the Secretary, specifically adopts the Arizona mechanics' lien provision by providing that Arizona law would apply to controversies related to the Frontier Village project:

regulations governing the leasing of tribal lands. 25 C.F.R. pt. 162 (1993).

Lessor agrees that this lease ... and any encumbrances thereof, and any subleases, assignments or other contracted agreements with respect thereto ... shall be construed in accordance with the substantive law of the State of Arizona....

Lease at 42 (emphasis added). The lease also provides that disputes between Grace and other non-Indian parties that might affect Grace's leasehold interest may be subject to state law:

Lessor agrees that any encumbrancer of Lessee's interest or that of any sublessee or assignee and the rights of any encumbrancer with respect thereto (including, without limitation, any rights dealing with any sale, foreclosure or other enforcement of (or under) any security instrument, or executed and delivered in connection therewith) may be governed by the laws of the State of Arizona or, to the extent applicable, the laws of the United States.

Lease at 43-44 (emphasis added).

As noted above,...

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