Flandreau Santee Sioux Tribe v. Gerlach
155 F. Supp. 3d 972
D.S.D.2015Background
- The Flandreau Santee Sioux Tribe operates the Royal River Casino complex on reservation land, selling gaming and non-gaming goods/services (alcohol, food, lodging, entertainment) to many nonmember patrons and not remitting South Dakota use taxes on nonmember sales.
- South Dakota conditioned renewal of three state alcohol licenses (one per business unit) on remittance of use taxes under S.D.C.L. § 35-2-24; the State denied renewals in 2009–2010 for failure to remit.
- The Tribe sought and lost an administrative hearing before the South Dakota Office of Hearing Examiners (which concluded the State tax applied); the Tribe did not appeal that decision in state court but filed this federal suit before the administrative decision became final and sought injunctive relief (later moot by stipulation preserving licenses pending this litigation).
- The Tribe sued under federal question jurisdiction and 28 U.S.C. § 1362, alleging IGRA preemption and other federal-law and sovereignty-based claims: IGRA preemption of state taxation/regulation of casino-related activity (Claims 1,2,6); federal common law/Commerce Clause/inherent sovereignty preemption (Claim 3,5); discriminatory taxation (Claim 4); escrow/deposit-agreement issue (Claim 7); and that conditioning license renewal on tax remittance violates 18 U.S.C. § 1161 (Claim 8).
- The State moved to dismiss or enter judgment on the pleadings based on res judicata/claim preclusion (administrative decision), Younger abstention, and failure to state/other procedural defenses; the Court denied dismissal on those grounds and denied the Rule 12(c) motion as to the principal claims, finding material factual issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Res judicata (administrative final order) | Tribe: federal IGRA claims and broader federal preemption/sovereignty issues were not adjudicated at the limited licensing hearing; federal forum proper | State: the unappealed administrative final order should preclude relitigation in federal court | Court: denied preclusion — administrative hearing was limited in scope and IGRA/constitutional claims not fully litigated; claim preclusion inappropriate here |
| Younger abstention / comity | Tribe: strong federal interest in IGRA and tribal challenges to state tax; federal forum appropriate | State: state administrative/judicial process is ongoing and federal court should abstain under Younger/comity | Court: denied Younger abstention — proceedings here not the type of civil enforcement Younger protects and federal interests weigh against dismissal |
| IGRA preemption and authority to tax casino-related sales (Claims 1,2,6) | Tribe: IGRA and §2710(d)(3)(C)(vii)/(d)(4) preempt state taxation/regulation of activities "directly related" to class III gaming (alcohol on casino floor qualifies) | State: IGRA does not reach these sales/services; compact/IGRA do not preempt the use tax application | Court: denied judgment — plausible that alcohol (and possibly other services) are "directly related" to gaming and factual inquiry (use of funds, incidence) precludes resolution on pleadings |
| Discrimination/on-reservation tax preemption (Colville/Mescalero line) | Tribe: on-reservation taxes trigger flexible preemption balancing (federal/tribal vs state interests); state tax may be preempted or discriminatory | State: Mescalero/Wagnon show nondiscriminatory state taxes apply and preemption analysis differs for off-reservation activity | Court: denied judgment — because tax is imposed on reservation activity, Colville-style interest-balancing is required and factual development is necessary |
| Ripeness of challenge to remittance scheme (Claim 5) | Tribe: licensing denial and conditioning made the dispute concrete; withholding review causes practical harm | State: remittance mechanism ill-defined; claim speculative | Court: denied judgment — dispute is ripe: Tribe was denied license renewal for failure to remit under existing statute |
| Consent/conditioning licenses under 18 U.S.C. § 1161 (Claim 8) | Tribe: §1161 does not allow a state to condition liquor licensure on payment of unrelated or invalid taxes; conditioning on invalid taxes is improper | State: by seeking state liquor licenses Tribe consented to compliance with state law including licensing conditions | Court: denied judgment — Tribe plausibly alleges state cannot validly condition licensure on payment of allegedly invalid on-reservation taxes; factual and legal issues remain |
Key Cases Cited
- Ex parte Young, 209 U.S. 123 (federal courts may enjoin state officers for ongoing violations of federal law)
- Seminole Tribe of Fla. v. Florida, 517 U.S. 44 (IGRA remedial scheme and limits on suits against states)
- Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134 (on-reservation taxes on nonmembers require balancing federal, tribal, state interests)
- White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (interest-balancing test for state regulation/taxation on reservations)
- Mescalero Apache Tribe v. Jones, 411 U.S. 145 (state taxation of tribal business outside reservation generally permissible)
- Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95 (distinguishing off-reservation taxation and legal incidence inquiry)
- In re Indian Gaming Related Cases, 331 F.3d 1094 (9th Cir.) (compact provisions and payments "directly related" to gaming)
- Rincon Band of Luiseno Mission Indians v. Schwarzenegger, 602 F.3d 1019 (9th Cir.) (revenue-sharing demands may be taxes and IGRA limits state-imposed taxation/payments)
- Michigan v. Bay Mills Indian Community, 134 S. Ct. 2024 (definition of class III gaming activities and scope under IGRA)