State of Okl. ex rel. Oklahoma Tax Com'n v. Graham

• Decision Date: 26 June 1987
• Docket Number: No. 86-1655,86-1655
• Citation: 822 F.2d 951
• Parties: STATE OF OKLAHOMA ex rel. OKLAHOMA TAX COMMISSION, Plaintiff-Appellant, v. Jan GRAHAM and Chickasaw Nation, By and Through Overton James, Governor of the Chickasaw Nation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 951

822 F.2d 951

STATE OF OKLAHOMA ex rel. OKLAHOMA TAX COMMISSION, Plaintiff-Appellant, v. Jan GRAHAM and Chickasaw Nation, By and Through Overton James, Governor of the Chickasaw Nation Defendants-Appellees.

No. 86-1655.

United States Court of Appeals Tenth Circuit.

June 26, 1987.

Robert C. Jenkins (J. Lawrence Blankenship with him on the briefs), Oklahoma City, Okl., for plaintiff-appellant.

Bob Rabon of Kile and Rabon, Hugo, Okl., for defendants-appellees.

Before SEYMOUR, MOORE and TACHA, Circuit Judges.

JOHN P. MOORE, Circuit Judge.

The State of Oklahoma ex rel. Oklahoma Tax Commission (State or appellant) appeals the district court's denial of its motion to remand and subsequent granting of the motion to dismiss filed by defendants Jan Graham and the Chickasaw Nation (Chickasaw Nation collectively or the Tribe). In its first order, the United States District Court for the Eastern District of Oklahoma held that removal was proper because the Constitution vests the Federal Government with exclusive authority over Indian tribes which is not limited or prohibited by 28 U.S.C. Sec. 1343, the Tax Injunction Act. The district court, in a second order, then dismissed the State's action on the basis of the Chickasaw Nation's sovereign immunity from unconsented suit. The State now urges removal was improper because the action was based on state law alone as revealed plainly on the face of its complaint. Alternatively, if removal is affirmed, the State argues that sovereign immunity cannot bar a state's legitimate power to levy and collect taxes. We disagree with both contentions and affirm the orders of the district court.

I.

The Chickasaw Nation, one of the Five Civilized Tribes early removed to Indian Territory, is a federally recognized Indian tribe which owns and operates the Chickasaw Motor Inn (the motel) in Sulfur, Oklahoma. The motel was purchased by the Chickasaw Nation as part of a tribal economic development project. The tribal legislature authorized the operation of a tobacco shop and bingo game at the motel. Jan Graham, an employee of the Chickasaw Nation, manages the motel, the tobacco shop, and the game.

The State filed its complaint in the District Court of Murray County, Oklahoma, alleging that large quantities of cigarettes not bearing state excise and tax stamps were sold at retail to the general public from the motel. The absence of these tax stamps as well as the Chickasaw Nation's failure to file reports of its sales allegedly violated Okla.Stat. tit. 68, Secs. 306, 312, 316, 1354, 1361, and 1362. The State further alleged that state sales taxes had not been paid on gross receipts from the operation of the bingo game at the motel, and the required reports had not been filed. The State sought an order permanently enjoining and restraining the Chickasaw Nation from conducting these activities and all business at the motel until all taxes, penalties, and interest were paid in full. The state court immediately granted a temporary restraining order to enjoin the Chickasaw Nation from selling unstamped cigarettes and operating the bingo games.

Subsequently, the Chickasaw Nation removed the action to the United States District Court for the Eastern District of Oklahoma. The State moved to remand the action. Citing Montana v. Blackfeet Tribe of Indians, 471 U.S. 759, 105 S.Ct. 2399, 85 L.Ed.2d 753 (1985), and Moe v. Confederated Salish & Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976), the district court denied the State's motion. The Chickasaw Nation then moved to dismiss the action pursuant to Fed.R.Civ.P. 12(b) for lack of subject matter jurisdiction. Granting the Tribe's motion, the district court noted that although neither this court nor the United States Supreme Court had laid a clear precedent for the determination of whether the Tribe's sovereign immunity from unconsented suits barred the present action, federal case law, particularly Santa Clara Pueblo v. Martinez, 436 U.S. 49, 98 S.Ct. 1670, 56 L.Ed.2d 106 (1978), and Chemehuevi Indian Tribe v. California State Bd. of Equalization, 757 F.2d 1047 (9th Cir.), rev'd in part on other grounds, 474 U.S. 9, 106 S.Ct. 289, 88 L.Ed.2d 9 (1985), dictated that the doctrine of sovereign immunity bars suit against the Tribe.

We agree with the conclusion reached by the trial court, but we emphasize the issues are subject to two separate inquiries. First, we must determine whether removal jurisdiction was present. Second, if removal is proper, we must determine whether substantive jurisdiction exists.

II.

A.

The State urges us to scrutinize the face of its complaint and hold that no federal question is present to permit removal. Bisecting this argument, the State contends, first, that the action involves solely the interpretation of state tax and revenue laws and, second, that removal is prohibited by 28 U.S.C. Sec. 1341, the Tax Injunction Act.

We are unswayed by either assertion, mindful instead that our inquiry into whether a federal court has removal jurisdiction and whether it may exercise its limited substantive jurisdiction is not perforce bounded by the face of a complaint. Indeed, when the state plaintiff couches his "necessarily federal cause of action solely in state law terms ... the federal removal court will look beyond the letter of the complaint to the substance of the claim in order to assert jurisdiction." 14A Wright, Miller & Cooper, Federal Practice & Procedure Sec. 3722, at 243 (1985).

The substance of the State's claim embraces the central jurisdictional issue we must decide in this appeal. Indeed, when we strip the State's complaint of its statutory baggage, we are left with an action in which the State is attempting to enforce an essential element of its sovereignty, the power to tax, over an Indian tribe.

This recognition underscores the implicit federal question lodged in the State's complaint and focuses our inquiry. National Farmers Union Ins. Cos. v. Crow Tribe of Indians, 471 U.S. 845, 105 S.Ct. 2447, 85 L.Ed.2d 818 (1985); Superior Oil Co. v. United States, 798 F.2d 1324, 1328 (10th Cir.1986). "The Constitution vests the Federal Government with exclusive authority over relations with Indian tribes." Montana v. Blackfeet Tribe of Indians, 471 U.S. at 764, 105 S.Ct. at 2402 (citations omitted). See also Williams v. Lee, 358 U.S. 217, 220, 79 S.Ct. 269, 270, 3 L.Ed.2d 251 (1959). The corollary of this principle is clear. "Absent an effective waiver or consent, it is settled that a state court may not exercise jurisdiction over a recognized Indian tribe." Puyallup Tribe, Inc. v. Department of Game of Wash., 433 U.S. 165, 172, 97 S.Ct. 2616, 2621, 53 L.Ed.2d 667 (1977). Moreover, it must "affirmatively appear [ ] that there has been a congressional or tribal waiver of immunity." Ramey Constr. Co. v. Apache Tribe, 673 F.2d 315, 318 (10th Cir.1982) (emphasis added); see also Weeks Constr., Inc. v. Oglala Sioux Housing Auth., 797 F.2d 668 (8th Cir.1986). Thus, an alleged waiver or consent to suit is a necessary element of the well-pleaded complaint. See also North Davis Bank v. First Nat'l Bank of Layton, 457 F.2d 820, 822 (10th Cir.1972) (action necessarily presented threshold question of federal law); Madsen v. Prudential Federal Savings & Loan Ass'n, 635 F.2d 797, 801 (10th Cir.1980), cert. denied, 451 U.S. 1018, 101 S.Ct. 3007, 69 L.Ed.2d 389 (1981) (distinguishing North Davis Bank ). Thus, removal jurisdiction as to our first inquiry was correctly asserted.

Furthermore, the State can direct us to no contrary precedent or principle to require remanding this action to the state court. The State's citations to authority are limited and distinguishable. ¹ In fact, appellant is unable to provide us with any authority in which a state, absent a tribe's valid waiver or consent to suit, has succeeded in retaining state court jurisdiction in circumstances similar to our case.

Nevertheless, during oral argument, the State refocused its argument and cited Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983), for the proposition that a federal defense will not deprive a state court of jurisdiction. Appellant contends Franchise Tax prohibits our going beyond the face of the complaint to fashion its cause of action to the Tribe's federal defense.

In Franchise Tax, the Court addressed the issue of whether a state's suit to collect state taxes against a welfare benefit trust is removable to a federal district court because of ERISA preemption of a state's power to levy on trust funds. The Supreme Court held that a suit filed by state tax authorities to enforce state levies against funds held in an ERISA employee benefit plan is neither a creature of ERISA nor a suit of which the federal courts would take jurisdiction because of a question of federal law. Id. at 28, 103 S.Ct. at 2856. The Court applied the well-pleaded complaint rule to circumscribe the presence of federal question jurisdiction in plaintiff's complaint and found that the ERISA defense did not completely preempt the state cause of action. Appellant urges the same analysis is appropriate here.

Franchise Tax Board does not defeat federal removal jurisdiction in this case because the defendants are asserting the absence of jurisdiction and not federal preemption. Tribal sovereign immunity is jurisdictional, Ramey Constr. Co. v. Apache Tribe of Mescalero Reservation, 673 F.2d 315, 318 (10th Cir.1982), and, as we shall discuss later, places a different spin upon our inquiry. At this juncture, however, we find that removal was proper because of the constitutional grant of federal jurisdiction over Indian affairs. 28 U.S.C. Sec. 1331.

B.

This initial holding recognizes that when removal was effected automatically in this case, the federal district court instantly acquired the threshold jurisdiction to decide whether it had the...