Stathis v. Marty Indian Sch. Bd. Inc., 4:20-CV-04174-RAL

• Court: United States District Courts. 8th Circuit. United States District Courts. 8th Circuit. District of South Dakota
• Writing for the Court: ROBERTO A. LANGE, CHIEF JUDGE
• Citation: 560 F.Supp.3d 1283
• Parties: Timothy STATHIS, Plaintiff, v. MARTY INDIAN SCHOOL BOARD INC., a South Dakota Nonprofit Corporation, Defendant.
• Docket Number: 4:20-CV-04174-RAL
• Decision Date: 17 September 2021

560 F.Supp.3d 1283

Timothy STATHIS, Plaintiff,
v.
MARTY INDIAN SCHOOL BOARD INC., a South Dakota Nonprofit Corporation, Defendant.

4:20-CV-04174-RAL

United States District Court, D. South Dakota, Southern Division.

Signed September 17, 2021

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James D. Taylor, James D. Taylor PC, Mitchell, SD, for Plaintiff.

Rebecca L. Kidder, Peebles Kidder Bergin & Robinson LLP, for Defendant.

OPINION AND ORDER GRANTING MOTION TO DISMISS

ROBERTO A. LANGE, CHIEF JUDGE

Plaintiff Timothy Stathis was the high school principal at the Marty Indian School (MIS), an entity of the Yankton Sioux Indian Tribe (Tribe). The Marty Indian

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School Board (the Board) terminated Stathis in late 2017 after a dispute over Stathis's administration of federal grant funds. Stathis sued the Board in this Court, alleging unlawful retaliation under 42 U.S.C. § 1981, wrongful termination, breach of employment contract, and breach of settlement agreement. Doc. 1. The Board moved to dismiss, arguing that it enjoys sovereign immunity and that Stathis failed to state a claim. Doc. 6. Because tribal sovereign immunity applies to the Board, this Court grants the Board's motion to dismiss.

I. Facts

The Tribe is a federally recognized Indian tribe located in South Dakota. Acting through its governing body, the Yankton Sioux Tribe Business and Claims Committee, the Tribe chartered MIS by approving the MIS Constitution and Bylaws in November 2013. Doc. 8-1. The MIS Constitution describes MIS as a "legal entity of the Yankton Sioux Tribe, from whom Marty Indian School, Inc., has been delegated authority to operate and maintain the Marty Indian School." Doc. 8-1 at 2. The MIS Bylaws identify Marty Indian School, Inc. as "a legal entity of the Yankton Business and Claims Committee." Doc. 8-1 at 14. The Bureau of Indian Education funds MIS via federal grants, Doc. 1 at ¶ 5, and MIS is located on trust land within the Yankton Sioux Indian Reservation, Marty Indian Sch. Bd., Inc. v. South Dakota, 824 F.2d 684, 685 (8th Cir. 1987) ; Doc. 1 at ¶ 4. According to a grant application Stathis attached to his complaint, MIS "has been a tribally owned and operated school since" 1975. Doc. 1-2 at 4.

The MIS Constitution names the Board as the governing body of Marty Indian School, Inc. Doc. 8-1 at 2. The Board has the "sole and exclusive right to the management and administrative control of the Marty Indian School System" and "establish[es] policy for" MIS. Doc. 8-1 at 14. Eligibility to serve on the five-member Board is "limited to enrolled Yankton Sioux Tribal members and any Native American person living within the exterior boundaries of the Yankton Sioux Reservation." Doc. 8-1 at 3. Voting in Board elections is limited to Tribal members living within "the area known as the 1858 Boundaries." Doc. 8-1 at 5.

In May 2017, Stathis signed a contract to serve as MIS's high school principal for the 2017–2018 school year. Doc. 1 at ¶ 6; Doc. 8-3.¹ The contract states that it is between Stathis and "Marty Indian School Board, Inc., a non-profit South Dakota corporation." 8-3 at 1. However, while "Marty Indian School Board, Inc." was previously incorporated as a nonprofit under the laws of South Dakota,² the South Dakota Secretary of State administratively dissolved that corporation on April 20, 2015. Doc. 8 at ¶ 2; Doc. 8-2. Stathis claims the Board held itself out as a South Dakota nonprofit corporation "at all times relevant to this action." Doc. 1 at ¶ 4.

Stathis was to receive a $70,000 salary under the contract, with his term of employment beginning in August 2017 and ending on June 30, 2018. Doc. 8-3 at 1. If the contract was "terminated for any cause or reason," Stathis was to be paid "a pro rata amount" of his salary "that the time employed bears to the employment term." Doc. 8-3 at 2. The contract included the

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following figures under the heading "BUY OUT CLAUSE:"

$500.00 thru June 2017

$1,000.00 thru July 2017

$1,500.00 from August 2017 thru school year.

Doc. 8-3 at 3.

As principal, Stathis administered school improvement grants issued by the Bureau of Indian Education. Doc. 1 at ¶ 10. According to Stathis, the grants were to be used as performance bonuses for teachers whose students showed academic improvement. Doc. 1 at ¶ 11; Doc. 1-2. Stathis designed a system under which higher-performing faculty received larger bonuses than lower-performing faculty. Doc. 1 at ¶ 12. Stathis's system, and his refusal to alter it, led to an escalating dispute with those deemed to be lower-performing MIS faculty, the Board, and members of the local community. Doc. 1 at ¶¶ 13–15, 17.

This dispute boiled over on November 15, 2017, when those opposed to Stathis's actions held a sit-in demonstration in the school library. Doc. 1 at ¶¶ 18–19. The Board attended the demonstration and, later that day, held an executive session during which it questioned Stathis. Doc. 1 at ¶¶ 19–20. The following evening, the MIS superintendent informed Stathis that he was suspended from work for ten days. Doc. 1 at ¶ 21. The suspension was to be unpaid, but the Board later agreed to pay Stathis for these ten days after he filed a grievance. Doc. 1 at ¶¶ 22–23, 31.

Stathis resumed work at the end of November but only for one day. Doc. 1 at ¶¶ 24–26. On December 1, 2017, the Board met and decided to terminate Stathis's employment. Doc. 1 at ¶ 26. Stathis alleges that the Board offered to pay out the salary he had remaining under his contract and that he accepted this offer. Doc. 1 at ¶ 26. Stathis returned to the school later that month and was given a check for the remainder of his contract. Doc. 1 at ¶¶ 27–29. Before Stathis could leave the building, however, the MIS superintendent ordered him to return the check or a stop payment order would be entered. Doc. 1 at ¶¶ 29–30. Stathis surrendered the check and tribal police escorted him off school property. Doc. 1 at ¶ 30. Stathis claims that the Board eventually offered him $1,500 as a "full and final settlement," but he rejected this offer. Doc. 1 at ¶ 32.

According to Stathis, he remained unemployed until August 13, 2018, when he started teaching school in California. Doc. 1 at ¶¶ 33–36. Stathis had looked for work as a school administrator or principal but was unsuccessful. Doc. 1 at ¶¶ 34–36.

Stathis ultimately sued MIS and four members of the Board in South Dakota state court, alleging breach of contract, breach of settlement agreement, wrongful termination, libel, and slander. Stathis v. Marty Indian Sch., 930 N.W.2d 653, 655, 657 (S.D. 2019). A state trial court dismissed Stathis's suit based on tribal sovereign immunity, immunity of tribal officials and employees, federal preemption, and infringement of tribal sovereignty. Id. at 658. The Supreme Court of South Dakota affirmed solely on the ground that federal law preempted state court jurisdiction over Stathis's suit. Id. at 659–61. The court found that the Self-Determination Act and the Tribally Controlled Schools Act—both of which expressly call for more tribal and community control over the education of Indian children—"show a clear intent of Congress to preempt state court entanglement into the education of Indians living on the reservation." Id. at 660–61.

Stathis then filed this action against the Board. Doc. 1. He alleged claims for retaliation under 42 U.S.C. § 1981 (Count One), wrongful termination (Count Two), breach of employment contract (Count Three), and breach of settlement agreement (Count Four). Doc. 1. He sought damages

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for "an amount equivalent to the remainder" of his contract when he was terminated, lost wages for the time between his termination and his new job in California, attorney's fees and punitive damages under Count One, and prejudgment interest. Doc. 1.

The Board moved to dismiss Stathis's complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Doc. 6. The Board argued that tribal sovereign immunity bars Stathis's complaint, that all of the counts in the complaint fail to state a claim, that Stathis has not exhausted available tribal court remedies, and that neither diversity of citizenship nor supplemental jurisdiction provide a basis to hear Stathis's nonfederal claims. Docs. 6, 7.

II. Standard of Review

Federal Rule of Civil Procedure 12(b)(1) concerns dismissal of a suit for lack of subject matter jurisdiction whereas Rule 12(b)(6) addresses dismissal for failure to state a claim. As explained more fully below, this Court elects to decide this case based on tribal sovereign immunity.³ In the Eighth Circuit, motions to dismiss on sovereign immunity grounds may be analyzed under Rule 12(b)(1), Hagen v. Sisseton-Wahpeton Cmty. Coll., 205 F.3d 1040, 1042–43 (8th Cir. 2000), although such motions raise a jurisdictional issue separate from subject matter jurisdiction, Johnson v. Prairie Island Dakota Sioux (In re Prairie Island Dakota Sioux), 21 F.3d 302, 304–05 (8th Cir. 1994) (per curiam). The Board makes a factual attack on Stathis's complaint, challenging the jurisdictional facts Stathis alleged and submitting an affidavit and exhibits to...