Sharp Image Gaming, Inc. v. Shingle Springs Band Indians

• Decision Date: 15 September 2017
• Docket Number: C070512
• Citation: 15 Cal.App.5th 391,223 Cal.Rptr.3d 362
• Court: California Court of Appeals Court of Appeals
• Parties: SHARP IMAGE GAMING, INC., Plaintiff and Respondent, v. SHINGLE SPRINGS BAND OF MIWOK INDIANS, Defendant and Appellant.

15 Cal.App.5th 391

223 Cal.Rptr.3d 362

SHARP IMAGE GAMING, INC., Plaintiff and Respondent,

v.SHINGLE SPRINGS BAND OF MIWOK INDIANS, Defendant and Appellant.

C070512

Court of Appeal, Third District, California.

Filed September 15, 2017

Dentons US, Paula M. Yost and Ian R. Barker ; Kerr & Wagstaffe , James M. Wagstaffe, Daniel A. Zaheer and Kevin B. Clune ; and Mary Kay Lacey for Defendant and Appellant.

Robert G. Dreher, Assistant Attorney General, John L. Smeltzer, Aaron P. Avila

and Avi M. Kupfer for United States Department of Justice as Amicus Curiae on behalf of Defendant and Appellant.

DLA Piper , Matthew R. Jacobs, Steven S. Kimball and Todd M. Noonan for Plaintiff and Respondent.

MURRAY, J.

In this case, we reverse a judgment related to contractual claims that are preempted by the Indian Gaming Regulatory Act (IGRA).

Defendant Shingle Springs Band of Miwok Indians (the Tribe) appeals from a judgment after trial in favor of plaintiff Sharp Image Gaming, Inc. (Sharp Image), in plaintiff's breach of contract action stemming from a deal to develop a casino on the Tribe's land. On appeal, the Tribe argues: (1) the trial court lacked subject matter jurisdiction because Sharp Image's action in state court was preempted by IGRA; (2) the trial court erred in failing to defer to the National Indian Gaming Commission's (NIGC) determination that the disputed Equipment Lease Agreement (ELA) and a promissory note (the Note) were management contracts requiring the NIGC's approval; (3) Sharp Image's claims were barred by the Tribe's sovereign immunity; (4) the trial court erred in denying the Tribe's motion for summary judgment; (5) the jury's finding that the ELA was an enforceable contract was inconsistent with its finding that the ELA left essential terms for future determination; and (6) substantial evidence does not support the jury's verdict on the Note.

After the parties completed briefing in this case, we granted permission to the United States to submit an amicus curiae brief in partial support of the Tribe on the questions of preemption and lack of subject matter jurisdiction. The United States asserted that the trial court could only exercise jurisdiction over Sharp Image's breach of contract claim "upon a determination that the unapproved ELA was not a management contract, a legal determination that the [trial court] never made." The United States further argues that based on the NIGC's legal determination that the ELA was an unapproved management contract and therefore void, the trial court should have dismissed this case under the doctrine of preemption. The United States urges us to defer to the NIGC's interpretation of its own regulations, contending that the agency's reasonable interpretation is entitled to "substantial deference." Lastly, the United States contends that the Note was an unapproved collateral agreement to a management contract subject to IGRA and as such, Sharp Image's claims related to the Note are also preempted.

We conclude that IGRA preempts state contract actions based on unapproved "management contracts" and "collateral agreements to management contracts" as such agreements are defined in the IGRA regulatory scheme.

Thus, the trial court erred by failing to determine whether the ELA and the Note were agreements subject to IGRA regulation, a necessary determination related to the question of preemption and the court's subject matter jurisdiction. We further conclude that the ELA is a management contract and the Note is a collateral agreement to a management contract subject to IGRA regulation. Because these agreements were never approved by the NIGC Chairman as required by the IGRA and were thus void, Sharp Image's action is preempted by IGRA. Consequently, the trial court did not have subject matter jurisdiction.¹

We reverse.

BACKGROUND

Indian Gaming Regulatory Act

The Supreme Court has consistently "recognized Indian tribes as ‘distinct, independent political communities,’ [citation], qualified to exercise many of the powers and prerogatives of self-government." ( Plains Commerce Bank v. Long Family Land & Cattle Co. (2008) 554 U.S. 316, 327, 128 S.Ct. 2709, 2718, 171 L.Ed.2d 457, 471.) Accordingly, the tribes may establish their own law with respect to "internal and social relations." ( Ackerman v. Edwards (2004) 121 Cal.App.4th 946, 951, 17 Cal.Rptr.3d 517.) "This aspect of tribal sovereignty, like all others, is subject to the superior and plenary control of Congress. ... ‘[W]ithout congressional authorization,’ the ‘Indian Nations are exempt from suit.’ " ( Santa Clara Pueblo v. Martinez (1978) 436 U.S. 49, 58, 98 S.Ct. 1670, 1677, 56 L.Ed.2d 106, 115.)

One area where Congress has exercised its plenary authority is IGRA. ( 25 U.S.C. § 2701 et seq. ) When enacting IGRA, Congress recognized that "numerous Indian tribes [had] become engaged in ... gaming activities ... as a means of generating tribal governmental revenue." ( 25 U.S.C. § 2701(1).) Congress further observed that "Indian tribes have the exclusive right to regulate gaming activity on Indian lands if the gaming activity is not specifically prohibited by Federal law and is conducted within a State which does not, as a matter of criminal law and public policy, prohibit such gaming activity." ( 25 U.S.C. § 2701(5).) Congress enacted IGRA to "provide a statutory basis for the operation of [Indian] gaming" as a means to "promot[e] tribal economic development, self-sufficiency, and strong tribal governments" ( 25 U.S.C. § 2702(1) ), but also to "shield [tribes] from organized crime and other corrupting influences, to ensure that [tribes are] the primary beneficiary of ... gaming operation[s], and to assure that gaming is conducted fairly and honestly by both the operator and the players." ( 25 U.S.C. § 2702(2).)

IGRA divides Indian gaming into three classes. Here we are concerned with class III gaming, which includes casino games played against the house such as blackjack and roulette, slot machines, and pari-mutuel betting such as horse racing and all other forms of gaming that are not class I gaming ("social games solely for prizes of minimal value" or traditional games associated with tribal ceremonies) or class II gaming (bingo and card games in which gamblers play against one another rather than against the house). ( 25 U.S.C. § 2703(6) - (8) ; Wells Fargo Bank v. Lake of the Torches (7th Cir. 2011) 658 F.3d 684, 687-688 ( Wells Fargo ).) Tribes are permitted to have class III gaming under the following conditions: (1) the gaming is conducted under a tribal ordinance that meets specified statutory requirements and that has been approved by the chairman of the NIGC ( 25 U.S.C. § 2710(d)(1)(A) ); (2) the gaming is located in a state that otherwise permits such gaming ( 25 U.S.C. § 2710(d)(l)(B) ); and (3) the gaming is conducted in "conformance with a Tribal-state compact" between the tribe and the state where the gaming will occur ( 25 U.S.C. § 2710(d)(1)(C) ).

IGRA created the NIGC within the Department of the Interior ( 25 U.S.C. § 2704(a) ), and granted the NIGC broad regulatory powers to implement and enforce IGRA ( 25 U.S.C. § 2706(a)(b) ), including the power to promulgate "appropriate" regulations ( 25 U.S.C. § 2706(b)(10) ). The NIGC "oversees regulation, licensing, background checks of key employees, and other facets of gaming. [Citation.] It is the NIGC that must approve license applications, management contracts, and tribal gaming ordinances." ( American Vantage Companies v. Table Mountain Rancheria (2002) 103 Cal.App.4th 590, 595-596, 126 Cal.Rptr.2d 849 ( American Vantage ).)

Among its various powers, the NIGC has full authority over "management contracts." Under IGRA, an Indian tribe may enter into a management contract for the operation of class II or class III gaming activity if such contract has been submitted to, and approved by, the Chairman. ( 25 U.S.C. §§ 2710(d)(9), 2711(a)(1).) Under IGRA regulations promulgated by the NIGC, "[m]anagement contract means any contract, subcontract, or collateral agreement between an Indian tribe and a contractor or between a contractor and a subcontractor if such contract or agreement provides for the management of all or part of a gaming operation." ( 25 C.F.R. § 502.15.) Further, a "management contract ... shall be considered to include all collateral agreements to [the management contract] that relate to the gaming activity." ( 25 U.S.C. § 2711(a)(3).) The term "[c]ollateral agreement means any contract, whether or not in writing, that is related, either directly or indirectly, to a management contract, or to any rights, duties or obligations created between a tribe (or any of its members, entities, or organizations) and a management contractor or subcontractor (or any person or entity related to a management contractor or subcontractor)." ( 25 C.F.R. § 502.5.) Management contracts "shall become effective upon approval by the Chairman" of the NIGC (25 C.F.R. § 533.l(a)), and "[m]anagement contracts ... that have not been approved by the ... Chairman ... are void" ( 25 C.F.R. § 533.7 ).²

Once the NIGC determines, in a final agency action, that it possesses authority over a particular Indian gaming contract, that decision is entitled to binding and preclusive legal effect "unless and until" it is successfully challenged in a federal district court pursuant to section 2714.³ ( AT & T Corp. v. Coeur d'Alene Tribe (9th Cir. 2002) 295 F.3d 899, 905, 908 ( AT&T ), boldface omitted [NIGC approval of a management contract and tribal resolution are final agency actions subject to review only in federal court under the Administrative Procedures Act].) Because the NIGC determination is a federal administrative action, judicial review of the NIGC's determination of whether a contract is subject to its authority is within the exclusive jurisdiction of the federal courts. ( 25 U.S.C. § 2714 ; U.S. ex rel. Saint v. President (2d Cir. 2006) 451 F.3d 44, 51 ( Saint ).)

When establishing...