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.
We reverse.
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)
One area where Congress has exercised its plenary authority is IGRA. (
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). (
IGRA created the NIGC within the Department of the Interior (
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. (
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.
When establishing the pre-approval statute for IGRA management contracts, Congress referenced section 81 of title 25 of the United States Code, an existing preapproval requirement for any contracts "relative to [Indian] land." (
The Tribe's Reservation
The Tribe is a federally recognized Indian Tribal government with a reservation situated on the Shingle Springs Rancheria in El Dorado County (the Reservation). (See 25 U.S.C. § 479a -l; 77 Fed.Reg. §§ 47868, 47871 (Aug. 10, 2012).) When the State of California realigned Highway 50 during the 1960s, the Tribe's Reservation lost access to and from public roadways. While the original plans for the realignment proposed a tunnel underneath Highway 50 connected to the Reservation, the plans for building the tunnel were ultimately cancelled and the Reservation was effectively landlocked except for access through Grassy Run Road, a private road in a residential subdivision that dead-ended at the Reservation. Owned and controlled by the Grassy Run Homeowners' Association, the Tribe was prohibited from using the road for any commercial purpose, and was only allowed to use the road for residential and limited governmental purposes. Due to its landlocked location, the Tribe was initially unable to develop commercial gaming on the Reservation.
The Disputed Agreements
In 1996, Sharp Image met with the Tribe about developing a gaming venture. At the time, Sharp Image was supplying gaming machines to approximately 25 Indian casinos in California. Despite the lack of access to the Reservation on public roads, Sharp Image and the Tribe entered agreements to develop gaming on the Reservation.
The first was the Gaming Machine Agreement (GMA), entered on May 24, 1996, which required Sharp Image to fund a casino, to be known as Crystal Mountain Casino. Pursuant to the GMA, Sharp Image agreed to advance "all funds necessary" for the "immediate construction" of a temporary casino
In addition, the GMA stated Sharp Image would provide the Tribe with up to 400 gaming machines in the new facility and further provided that Sharp Image would maintain the exclusive right to supply all gaming machines located and operated within any of the Tribe's casinos or its gaming establishments during the term of the agreement. The term of the agreement was five years, but it would be extended two years if the Tribe did not exercise the option to purchase the machines at the end of the initial five-year term. The GMA further provided that Sharp Image "shall maintain complete responsibility with regards to promotions for the Casino and provide direction for the General Manager in this department."
Under the GMA, the Tribe would pay Sharp Image 30 percent of the net revenues "derived by the Tribe from the Equipment." It defined net revenues to mean "all gross revenues received by the Tribe in connection with its operation of all Machines or Table games on the Casino premises or Reservation, minus all jackpots or payouts made through such Equipment."
Pursuant to the GMA, the Crystal Mountain Casino opened as a temporary tent structure with Sharp Image's gaming machines on October 4, 1996, but it was shut down after one night for safety reasons. The Tribe "had gotten word that there [were] problems with the operation and that the [NIGC] was going to issue an order to shut down." Among other issues, there were fire safety concerns about the temporary tent structure and furnishings, and concerns about emergency access on the narrow road to the casino.
Shortly after the casino's closure, on November 5, 1996, general counsel for the NIGC, Michael Cox, sent a letter to the Tribe's Chairman, William D. Murray, declaring the GMA "null and void." The NIGC concluded Sharp Image had supplied gaming machines, class III machines under IGRA, which were illegal without an effective tribal-state compact in place, and which the Tribe did not then have. Crystal Mountain Casino reopened in the spring of 1997, without the gaming machines, but it was unsuccessful and closed within months.
Subsequently, Anderson attended a Tribal Council meeting on November 15, 1997. The meeting minutes reflect, and Anderson confirmed in his trial testimony,
The ELA provided a lease term of five years to "commenc[e] on the date that 400 gaming devices" to be provided by Sharp Image were "installed and in operation at Lessor's [Sharp Image] Crystal Mountain Casino or any other gaming facility owned and operated by Lessee [the Tribe]." Additionally, the ELA gave Sharp Image the right to provide the "video gaming devices" to the Tribe (the Equipment), as well as the "exclusive right" to "supply additional gaming devices ... to be used at its existing or any future gaming facility or facilities." As with the GMA, the term would be automatically extended two years if at the end of the five-year term, the Tribe did not purchase the machines Sharp Image had provided. In addition to the gaming devices, the ELA stated that Sharp Image would provide progressive hardware and software, as well as signage for the gaming devices and "fiber optic signs for placement throughout any gaming facility owned and operated" by the Tribe.
Similar to the GMA, the lease payments were fixed at 30 percent of net revenues from the equipment, defined as "gross gaming revenues from all gaming activities, which are solely related to the operation of Video Gaming/Pulltab devices and card games, less all prizes, jackpots and payouts." (Italics added.) Also, the ELA gave Sharp Image the right to inspect
Different from the GMA, the ELA contained a list of "[e]vents of [d]efault" by the Tribe. The ELA did not include a list of events relative to default by Sharp Image. Also, in the event of default by the Tribe, the ELA contained a list of remedies available to Sharp Image, but no similar list of remedies is set forth for the Tribe in the event of a default by Sharp Image.
In the Note, the Tribe acknowledged the total amount previously invested to develop Crystal Mountain Casino was $3,167,692.86. The Note stated this was "the full amount owed up to September 30, 1997," and that the "principal sum" of the Note was "not to exceed" this amount. The Note further provided that the Tribe would repay sums already advanced by Sharp Image to develop the Crystal Mountain Casino, and future sums advanced for casino development, at an annual interest rate of 10 percent. Like the ELA, the Note also referenced "four hundred (400) video gaming devices," and provided that repayment was to "commence ... following the date that four hundred (400) video gaming devices ... are installed and in operation at Borrower's Gaming Facility and Enterprise."
As did the GMA, the ELA and the Note both stated that the Tribe "expressly waives its sovereign immunity from any suit, action or proceeding," in California state or federal courts, "to enforce [the Tribe's] obligations ... for any claims arising out of this lease." Also, the ELA stated that the Tribe was "solely responsible for the management of [its] gaming facility," that the parties did not intend the ELA to "constitute a management contract," and that "nothing in [the ELA] authorizes [Sharp Image] to manage all or part of [the Tribe's] gaming facility."
Repudiation of the ELA
Due to the ongoing road access issues, the Crystal Mountain Casino never reopened, and consequently, the revenues needed to build a larger, permanent facility were never generated. Also, Sharp Image never "installed" or put "in operation" 400 gaming machines at Crystal Mountain Casino. Additionally,
In early 1999, Anderson introduced Lakes Gaming (Lakes), to the Tribe as a potential investor and manager. Anderson testified that he had heard Lakes was a "management company." During these negotiations, Sharp Image asserted an exclusive right, under the ELA, to supply gaming equipment to any future facility and sought to sell this interest to Lakes for $75 million. On June 11, 1999, the Tribe adopted a resolution to approve the development and management agreements with Kean-Argovitz Resorts (KAR), which were entered on the same date. Anderson testified that KAR offered to buy out Sharp Image's interest for $35 million, which he refused.
In June 1999, after receiving informal advice from the NIGC
On June 9, 1999, Cox sent a letter to the Tribe asserting that Anderson "expended approximately nine million dollars in a three-year effort to assist the Tribe in developing a gaming operation, fighting
On June 28, 1999, the Tribe sent Anderson another letter stating the all of the agreements were "void" because they would not receive necessary federal approvals. The Tribe stated its position was based primarily on IGRA. The Tribe asserted, "Sharp [Image] and Mr. Anderson were given wide latitude in developing a gaming operation on tribal lands, despite the fact as you have pointed out that [Sharp Image]'s agreement was a machine lease contract. Unfortunately, these actions have only [led] to further restrictions on Tribal sovereignty and increasing debt for the Tribe. [Sharp Image]'s proposed solutions to these problems seem to only result in more debt. It is these realities which have [led] the Tribe to seek other alternatives." Anderson testified that his contract was "cancelled" and he was told that the Tribe would no longer do business with him.
Lakes, KAR, and the Tribe began construction of the Red Hawk Casino in 2007. Anderson testified that he waited until 2007 to file suit-eight years after the Tribe repudiated the contract-because that is when it first appeared the Tribe would have the financial assets to pay a judgment.
Procedural History
Sharp Image's Complaints
Sharp Image filed its original complaint on March 12, 2007. It alleged that the Tribe breached the GMA, the ELA, the Note, and a series of oral agreements purportedly entered later regarding the repayment of advances made after the Note was executed. In the original complaint, Sharp Image alleged, inter alia, that while "the time for [the Tribe's] payment of monies under the contracts has not yet commenced, [the Tribe] has unequivocally repudiated its obligations under the contracts." Sharp Image subsequently filed a first amended complaint adding the allegation that the "Tribal Council" waived its sovereign immunity. A second amended complaint appears in the record
About a month after Sharp Image filed its original complaint, the Tribe asked the NIGC to review the GMA and ELA to determine the status of the agreements under federal law. On April 13, 2007, the
On June 14, 2007, the NIGC Acting General Counsel issued an advisory opinion letter (the Opinion Letter) advising the Tribe that the GMA and ELA were both management contracts pursuant to section 2711 of title 25 of the United States Code and void in the absence of approval by the NIGC's chairman. Counsel for Sharp Image was copied on this letter.
The Opinion Letter cited NIGC Bulletin No. 94-5,
Regarding the GMA, the Opinion Letter noted that it provides that Sharp Image would maintain the responsibility for promotions and provides direction to the casino general manager. The letter opined, "This alone is sufficient to find management."
Regarding the ELA, the Opinion Letter specifically cited several provisions related to the "control" Sharp Image would have over the gaming operations: the term of the lease is for five years; Sharp Image has the exclusive right to lease to the Tribe additional gaming devices to be used at any of the Tribes existing or future facilities; the Tribe is required to pay 30 percent of the net gaming revenues defined as gross gaming revenues from all gaming activities less prizes, jackpots, and payouts; Sharp Image has the right to inspect and copy casino books and records; remedies for default are only available to Sharp Image, not the Tribe; and the Tribe may purchase the machines Sharp Image provided at the end of the five-year term, but if it does not, the agreement is automatically extended two years.
As for the payment terms in the GMA and ELA, the Opinion Letter stated that those terms violated IGRA, opining that "[t]he agreements show that [Sharp Image] seeks to use the Tribe's gaming facilities as a long term venue where [Sharp Image] is the exclusive supplier of machines and derives a majority of the profit." The Opinion Letter reasoned that if the agreements were enforced, they would give Sharp Image "a fee equaling thirty percent (30%) of adjusted gross revenue because they define 'net revenue' not as IGRA does but rather as all gross revenues received by the Tribe of all machines or table games minus all jackpots or payouts." The Opinion Letter noted that "IGRA defines net revenues as: 'gross revenues of an Indian
Regarding the exclusive right to provide the gaming machines and software, the Opinion Letter stated that under both agreements, the Tribe is "beholden to [Sharp Image] for all of its machines" and that, under the circumstances here, the agreements provide Sharp Image with "de facto management ability." Under the agreements, if the Tribe desired more machines, it is dependent on Sharp Image to
The Opinion Letter further noted that the default provisions in the ELA expressly list events triggering default by the Tribe and Sharp Image's remedies, but set forth no default events that would apply to Sharp Image and no potential remedies for the Tribe. According to the Opinion Letter, "[s]uch one-sided provisions are a further indication of [Sharp Image]'s apparent ability to control the gaming activity. This level of control coupled with the term and compensation provided is indicative of a management agreement."
The Opinion Letter concluded, "After careful review, we have determined that there are sufficient indicia of control to conclude that the Agreements are management agreements that would require the approval of the Chairman. Under IGRA, a management contract is void if it has not been reviewed and approved by the Chairman of the NIGC pursuant to
Citing the Opinion Letter, the Tribe moved, on July 9, 2007, to dismiss Sharp Image's complaint based the federal doctrine of complete preemption, contending that the GMA and ELA were unapproved management contracts in violation of IGRA.
The trial court denied the motion to bifurcate, and it sustained Sharp Image's objection to the NIGC's Opinion Letter, reasoning that the letter did not have a "binding effect" and did not appear to be an "official act of the NIGC." The court further reasoned that it appeared the Tribe was seeking to introduce the Opinion Letter "to prove the truth of the matter asserted therein, that the Acting General Counsel of the NIGC was of the opinion that two of the contracts that are part of the subject litigation violate IGRA."
NIGC Chairman's Formal Review
After the trial court's ruling, on January 24, 2008, the Tribe asked the NIGC for a formal review of the agreements and to make a "final determination" on the status of the GMA and ELA under federal law. Tribal Chairman Nicholas Fonseca sought a meeting with the NIGC Chairman, which Sharp Image was not privy to. Fonseca testified that the purpose of the meeting was to see if he could "get the NIGC to make some sort of decision" on the legality of the agreements. Fonseca testified that he told Chairman Philip Hogen that he believed that the ELA was "illegal" and asked the NIGC to "please do something about it."
On July 18, 2008, the NIGC advised both parties that it would undertake a formal review of the agreements and would "give Sharp [Image] an opportunity to share [its] views on this subject." Both parties were given an opportunity to provide
On August 1, 2008, Sharp Image provided its initial written submission. Much of Sharp Image's submission argued that NIGC was acting beyond its legal authority because the agreements are not management contracts and the Tribe did not submit them for approval as management contracts.
Thereafter, Sharp Image made numerous other procedural related submissions up until December 11, 2008, when, according to the Chairman, it submitted a letter repeating the arguments it had made in it August 1, 2008, letter.
On April 23, 2009, the Chairman issued a 15-page decision letter (Decision Letter) determining that both the GMA and ELA were management contracts. The Chairman characterized the Decision Letter as a "formal determination under
As did the Opinion Letter, the Decision Letter advised that "under the 1996 GMA, Sharp [Image] has responsibility for casino promotions and provides direction to the casino's general manager. ... This directing, coordinating, and controlling alone makes the 1996 GMA a management contract under IGRA." Additionally, the Decision Letter stated, "[B]oth agreements provide Sharp [Image] with broad operational control sufficient to make them management contracts. In short, Sharp [Image] will have the exclusive right to provide gaming machines for all of the casino floor space at such facilities for five, and potentially seven, years. Freedom to configure the gaming floor, the essence of managing a casino, is not in the control of [the Tribe]. This too is sufficient to make both agreements management contracts. I therefore adopt the management analysis in the 2007 OGC opinion. The 1996 GMA and
The Decision Letter also advised that any challenge to the NIGC's formal determination is "subject to appeal to the full Commission" pursuant to former "25 C.F.R. Part 539" and thereafter to "a federal district court" pursuant to "
On July 9, 2007, the Tribe filed a motion to quash/dismiss for lack of subject matter jurisdiction, contending that the trial court lacked jurisdiction to hear Sharp Image's contractual claims because the claims were completely preempted by IGRA. On April 17, 2009, the Tribe filed an amended motion to dismiss for lack of subject matter jurisdiction on the ground of preemption. The Tribe argued that Sharp Image's claims were completely preempted because (1) if enforced, they would give Sharp Image a proprietary interest in the Tribe's gaming operation in violation of IGRA, and (2) the agreements were unapproved management contracts conferring managerial
On November 17, 2009, the trial court denied the Tribe's motions. The court reasoned that, because the GMA and ELA were "terminated and/or cancelled" by the Tribe, the NIGC lacked jurisdiction to take any action on them. The court stated, "Since the contract was not viable and had been terminated or cancelled according to the parties, it obviously was not a contract which dealt with gaming." Thus, since the agreements were terminated or cancelled, there was "no jurisdiction in the [NIGC] ... to review, regulate, approve or disapprove them. Absent such regulatory authority in the NIGC, the dispute regarding damages from any alleged breach ... rests with the State of California courts."
As "a separate and independent basis for determining the character of the action of the Chairman," the trial court reasoned that the Chairman's decision "was not a final action and must be disregarded because it was fatally flawed." The court found that the Chairman's action violated Sharp Image's due process rights and contravened various IGRA procedural requirements. The court further found that the Tribe's request to NIGC was not a request for approval of a management contract, rather it was a "request for an expression of opinion .... As such it is, in the Court's opinion, not entitled to any deference ." (Italics added.)
The trial court did not determine, as a matter of law, whether the GMA and ELA were management contracts or whether the Note was a collateral agreement to a management contract.
Motion for Discovery Sanctions
While the litigation was pending, the Tribe discovered that Sharp Image failed to produce documents during discovery concerning Sharp Image's interactions with the California Bureau of Gambling Control (the Bureau), referencing its business dealings with the Tribe. The documents included an investigative
After discovering this information, the Tribe sought sanctions against Sharp Image commensurate with the withholding of this evidence. Because the Bureau's finding of unsuitability meant that the Tribe could not accept gaming machines from Sharp Image effective November 19, 2008, about a month before Red Hawk Casino opened, the Tribe sought an issue sanction establishing that fact and prohibiting Sharp Image from rebutting the withheld evidence. The trial court denied the Tribe's motion for issue sanctions.
Motion for Summary Judgment
The Tribe moved for summary judgment on various grounds, including the following: (1) the lawsuit was time barred because Sharp Image's 2007 complaint was premised on an actual breach of its claimed right to exclusivity, which allegedly occurred in 1999; (2) alternatively, if the statute of limitations had not run, the Tribe was nevertheless entitled to summary judgment because Sharp Image could not prove its claims under the law governing anticipatory breach; and (3) under any theory of its complaint, the Tribe was not the "but for" cause of any alleged damages because under the Tribe's Compact with the State, the Tribe could not accept gaming machines from Sharp Image in December 2008, when Red Hawk
The Trial
After Sharp Image dismissed all causes of action except the breach of contract claims related to the ELA and the Note, the case proceeded to jury trial on those claims. The jury determined that the Tribe had breached both contracts and returned a verdict in favor of Sharp Image of approximately $20.4 million on the ELA and approximately $10 million on the Note.
DISCUSSION
I. Arguments on Appeal
On appeal, the Tribe argues that IGRA completely preempts Sharp Image's contractual claims and the superior court lacked subject matter jurisdiction as a result. The Tribe contends that the NIGC issued a final agency determination that Sharp Image's contracts violated IGRA and were invalid management contracts and that we should defer to this determination. Thus, the Tribe argues, "[b]ecause the NIGC has determined the agreements fall within 'IGRA's protective structure,' [Sharp Image]'s claims predicated upon the agreements are preempted." Sharp Image responds that the trial court correctly declined to defer to the NIGC Decision Letter because it does not constitute a final agency action and the Tribe failed to carry its burden of establishing preemption.
Amicus United States provided extensive argument on preemption. First, amicus contends that the trial court erred in rejecting the Tribe's preemption argument before first determining whether the agreements were management contracts or collateral agreements of management contracts under IGRA. If the agreements are unapproved management contracts or unapproved collateral agreements of management contracts, then Sharp Image's
For the reasons we shall discuss, we hold that the trial court was obligated to determine whether the agreements were management contracts or collateral agreements to management contracts under IGRA, a necessary determination related to the question of whether Sharp Image's action was preempted by IGRA. We further hold that the ELA is a management contract and that the Note is a collateral agreement to a management contract. Thus, these agreements are within the protective scope of IGRA. Because these agreements were not approved by the NIGC Chairman as required by IGRA and are consequently void under federal law, Sharp Image's action is preempted by IGRA and thus, the trial court did not have subject matter jurisdiction.
II. Analysis
A. Preemption and IGRA
In general, a plaintiff can avoid federal subject matter jurisdiction by pleading claims relying exclusively on state law, such as contractual claims. ( Caterpillar Inc. v. Williams (1987)
"One of IGRA's principal purposes is to ensure that the tribes retain control of gaming facilities set up under the protection of IGRA and of the revenue from these facilities." ( Wells Fargo, supra ,
In the context of federal removal jurisdiction, courts have applied the doctrine of complete preemption to IGRA. For example, in Gaming Corp. of America v. Dorsey & Whitney (8th Cir. 1996)
In Great Western Casinos, Inc. v. Morongo Band of Mission Indians (1999)
In American Vantage , our sister court in the Fifth Appellate District noted that application of the doctrine of complete preemption is not limited to the determination of federal removal jurisdiction. ( American Vantage, supra ,
Similar observations were made by the court in American Vantage . That court has observed that "[b]ased on its text and structure, legislative history and jurisdictional framework, the IGRA has been construed as having the requisite extraordinary preemptive force necessary to satisfy the complete preemption exception to the well-pleaded complaint rule. [Citation.] Thus, claims that fall within the preemptive scope of the IGRA, i.e., those that concern the regulation of Indian gaming activities, are considered to be federal questions. [¶] However, not every contract between a tribe and a non-Indian contractor is subject to the IGRA. [Citations.] Rather, IGRA regulation of contracts is limited to management contracts and collateral agreements to management contracts ." ( American Vantage, supra ,
Sharp Image argues that for purposes of preemption, it does not matter whether
To begin with, the agreement ultimately at issue in American Vantage was not a management contract and the NIGC said so. In that case, the Table Mountain Rancheria retained American Vantage Companies for the development and operation of a casino and initially entered into various management contracts. ( American Vantage, supra ,
The second contract executed pursuant to the settlement, the consulting agreement, obligated American Advantage to provide technical assistance, training and advice to Table Mountain in the operation of its gaming activities in exchange for a monthly fee. The NIGC reviewed both agreements and determined that they did not require NIGC approval. ( American Vantage, supra ,
Several years after executing the termination and consulting agreements, after a change in tribal leadership, Table Mountain notified American Vantage that it was cancelling these agreements and would make no further payments. ( American Vantage, supra ,
Even though the NIGC had essentially determined there was nothing for it to approve by determining that the termination and consulting contracts were not management contracts, the American Vantage court went on to address Table Mountain's argument that the consulting agreement was actually an unapproved management contract and thus void. ( American Vantage, supra ,
Our disagreement begins with the case the American Vantage court cited for this proposition, Gallegos,
While the American Vantage court cited Gallegos for the proposition that unapproved management contracts are not subject to IGRA regulation, it did not reference what the district court in Gallegos actually said on this point. ( American Vantage, supra ,
The American Vantage court also missed this point, and indeed its statement that an unapproved management contract is "not subject to IGRA regulation" is inconsistent with its earlier observation concerning NIGC's regulatory authority. Earlier in the opinion, the court stated, "When, based on an examination of the relationship of the parties and the IGRA, the NIGC finds de facto management under an unapproved agreement , it has the authority to institute an enforcement action." ( American Vantage, supra ,
Despite the pronouncement that an unapproved management contract is not subject to IGRA regulation, the court in American Vantage still saw the
The factual backdrop in Dorsey was unusual. Prior to the litigation, Dorsey had represented Gaming Corp., but then accepted representation of the tribe after obtaining the consent of Gaming Corp. and the other management company. ( Gaming Corp., supra ,
As we have noted, the Gaming Corp . court held that IGRA completely preempts state law. ( Gaming Corp., supra , 88 F.3d at pp. 544, 547.) The court went on to reason that a claim is preempted if it "interferes or is incompatible with federal and tribal interests reflected in federal law, unless the state interests at stake are sufficient to justify the assertion of state authority." ( Id . at p. 548.) The court noted that the line of cases upon which this rule was based "demonstrates a continuing federal concern for tribal economic development, self-sufficiency, and self-government which Congress reaffirmed in the text of IGRA." ( Ibid. ) It was in this context-a case involving a dispute
In our view, in citing the Gaming Corp . court's language that "[p]otentially valid claims under state law are those which would not interfere with the [tribe]'s governance," ( Gaming Corp., supra ,
However, unlike the termination and consulting contracts in American Vantage , management contracts, by their nature, impact a tribe's control of its gaming enterprise. That is why they must be preapproved. And as we discuss post , the control given to Sharp Image over the Tribe's gaming operations here is what makes the ELA a management contract. Furthermore, the threat of a state court lawsuit and judgment grounded on a breach of an unapproved and void management contract gives the contractor leverage over the tribe and in that way, impacts the tribe's control of its gaming operations. Moreover, a judgment on a void contract requiring the payment of money damages, would necessarily interfere with Tribe's ability to govern its gaming operation to the extent it could not use the monies necessary to pay the judgment for its operation. As a consequence, IGRA's goals of ensuring that tribes are the primary beneficiary of gaming operations and advancing tribal economic development would be undermined. (See
However, our approach is much more straight forward. We conclude that a state court claim cannot go forward based on an agreement that is an unapproved management contract or an unapproved collateral agreement to a management contract under IGRA. Such actions are preempted by IGRA. Accordingly, the threshold question that must be answered is whether the agreements underlying this litigation are management contracts or collateral agreements to management contracts, bringing them within IGRA's protective scope. If not, Sharp Image's action was not preempted. If so and the agreements were not approved, Sharp Image's action to enforce the agreements is preempted by IGRA and the trial court did not have subject matter jurisdiction. As we next discuss, the trial court erred when it failed to answer this legal question critical to the preemption determination and its subject matter jurisdiction.
B. The Trial Court's Failure to Determine the Status of Agreements
When questions of preemption are raised, "state courts retain jurisdiction" to resolve the preemption question and determine their own subject matter jurisdiction. ( Mack v. Kuckenmeister (9th Cir. 2010)
The trial court avoided ruling on the management contract issue in its ruling on preemption by reasoning that because the Tribe repudiated the agreements, there were no agreements for the NIGC to approve or disapprove. The court reasoned, "Since the [Tribe] asserts the GMA[ ], ELA and Note herein are terminated and/or cancelled, there is no jurisdiction in the NIGC with regard to said instruments, either to review, regulate, approve or disapprove them." This reasoning puts the cart before the horse. An unapproved management contract is void ab initio because it is not approved by the NIGC, regardless of whether it is subsequently repudiated. Indeed, the tribe expressly repudiated these agreements after learning they would not be approved by the NIGC. Moreover, it is the content of these agreements-the respective rights and obligations contained therein-that triggers the IGRA protective scheme, not how the parties treat such agreements. Under the statutory and regulatory scheme, management contracts must be approved by the NIGC Chairman (
C. Deference to NIGC Letters
1. Additional Background
As noted, the trial court ruled that the Decision Letter was "not entitled to any deference," because it "was not final [agency] action and must be disregarded because it was fatally flawed." The court reasoned that the Decision Letter violated Sharp Image's due process rights because of ex parte communications between the NIGC Chairman, the Tribe's Chairman, and their attorneys. Additionally, the trial court found that the Tribe failed to submit items required for request to approve management contracts under part 533.3 of 25 Code of Federal Regulations, and the NIGC failed to comply with the time limits set forth in section 2711(d) of title 25 of the United States Code.
Because of the NIGC's authority to promulgate regulations and preapprove agreements under IGRA, the trial court should not have simply ignored the NIGC interpretations of the statute and its own governing regulations or its application of those rules in concluding that the GMA and ELA are management contracts. As we shall explain, this does not mean that the trial court was required to accord full deference to the NIGC's opinions and conclusions. We will first consider what deference, if any, should have been given to the NIGC's interpretation of its own regulations. We next look to what deference, if any, should have been given to the opinions and reasoning in the Opinion Letter and the Decision Letter as to the management nature of the GMA and ELA.
2. NIGC Bulletin No. 94-5
As noted, IGRA requires that management contracts be approved by the Chairman of NIGC. (
In Auer v. Robbins (1997)
Bulletin No. 94-5 provides guidance on the meaning of "management" as that term applies to "management contracts." The specific purpose of the bulletin was to
Amicus United States and the Tribe contend we must afford Auer deference to the NIGC's interpretation of its own regulations. If such were the case, we would accord wide deference to the interpretation of the word management in Bulletin No. 94-5 and conclude that the bulletin is controlling because it is not plainly erroneous or inconsistent with the regulation. However, the discussion in Bulletin No. 94-5 is not strictly an interpretation of the NIGC regulations. "[M]anagement contract[s]" is a term in the IGRA statutes (
Sharp Image points out that the federal courts have spoken as to the level of deference afforded to Bulletin No. 94-5. We shall follow the lead of these federal courts because we find the reasoning persuasive. (
3. The Opinion and Decision Letters
Amicus United States argues that Auer deference should also be afforded to the Opinion Letter and Decision Letter determination that the GMA and ELA are management contracts. Again, we disagree. In writing those letters, NIGC was not interpreting its own regulations; rather it was applying its regulations and interpretation thereof to a particular set of circumstances.
Federal courts apply the same level of deference given to an agency's informal interpretations of statute to informal advisory letters of NIGC; they apply limited Skidmore deference. ( Catskill, supra ,
We reject Sharp Image's argument that we should essentially ignore the NIGC letters. First, as we have noted, both the General Counsel and the
For example, in Gallegos,
New Gaming, supra ,
The specific lease provisions are not set forth in detail in the New Gaming opinion. However, in addressing New Gaming's void for vagueness claim related to the failure of the regulations to define " 'management,' " the court indicated that the main reason NIGC had concluded the combination of the lease and note in that case was a management contract was because under the lease, New Gaming had the right to determine the type or mix of the gaming machines on the casino floor. ( New Gaming, supra ,
Gallegos and New Gaming demonstrate that the NIGC has applied the same analysis to arrive at similar opinions in similar cases that predated the litigation in this case. While the NIGC's pronouncements in informal opinions are not controlling, they do constitute "a body of experience and informed judgment" to which "courts ... may properly resort for guidance." ( Skidmore, supra ,
Citing Bulletin No. 94-5, the Opinion Letter opined that the GMA and ELA gave Sharp Image exclusive control over the gaming equipment to be provided at the casino and a high rate of compensation-both indicia of a management contract. It further opined that "[t]he agreements show that [Sharp Image] seeks to use the Tribe's gaming facilities as a long term venue where [Sharp Image] is the exclusive supplier of machines and derives a majority of the profit." It further reasoned that if the agreements were enforced, they would give Sharp Image "a fee equaling thirty percent (30%) of adjusted gross revenue because they define 'net revenue' not as IGRA does
After both parties provided written arguments that were considered by the NIGC Chairman, he issued a formal opinion in the Decision Letter. In the Decision Letter, the Chairman determined that the GMA and ELA individually are management contracts. The Decision Letter expressly referenced Bulletin No. 94-5 and adopted the analysis of the Opinion Letter, concluding that both the ELA and GMA provided Sharp "broad operational control sufficient to make them management contracts." Specifically, the Decision Letter noted that the ELA and GMA gave Sharp Image "the exclusive right to provide gaming machines for all of the casino floor space," observing that "[f]reedom to configure the gaming floor, the essence of managing a casino, is not in the control of the [Tribe]."
We conclude that the Opinion Letter and Decision Letter are persuasive and consider the opinions and reasoning therein in our determination as to whether the agreements at issue are a management contract and a collateral agreement to a management contract.
D. The Status of the Agreements under IGRA
1. The GMA and ELA-Management Contracts
Before we set forth the reasoning for our independent determination that the GMA
We recognize that in the ELA, the parties disclaimed any intent to enter into a management contract. "However, the parties' expressed intent is not controlling when the agreement they executed, due to the rights and obligations it created is a management contract. An agreement's status as a 'management contract,' or not, is determined by the substance of the agreement, not the label the parties attach to it." ( New Gaming, supra ,
As we have noted, Bulletin No. 94-5 defines management broadly to include
In addition to defining management, "The Bulletin singles out seven management activities as especially probative of the question whether an agreement is a management contract. [Citation.] An agreement need not include all seven activities to be a management contract; the 'presence of all or part of these activities in a contract with a tribe strongly suggests that the contract or agreement is a management contract requiring [NIGC] approval.' " ( First Amer. Kickapoo, supra ,
Our decision is reinforced by the analysis in New Gaming, supra ,
We also note, as did the NIGC in this case, that the ELA gave Sharp Image the right to inspect the books. In addition, we further note that in the event of an audit, Sharp could select the auditor if the parties could not agree on who would conduct the audit. This was further indicia of control over the Tribe's gaming operations.
The level of control, the term of the agreement, and the amount of and percentage formula for compensation lead us to conclude that the GMA and ELA were unapproved management contracts subject to IGRA. While Bulletin No. 94-5, the Opinion Letter and the Decision Letter "do not compel our deference, they do offer confirmation of our conclusion." ( First Amer. Kickapoo, supra ,
"Congress wrote in broad strokes in crafting [IGRA]," to "ensure that the tribes retain control of gaming facilities set up under the protection of IGRA and of the revenue from these facilities." ( Wells Fargo, supra , 658 F.3d at pp. 695, 700.) Giving full effect to congressional intent further compels the conclusion that the GMA and ELA are unapproved management contracts subject to the preemptive force of IGRA.
2. The Note-Collateral Agreement to a Management Contract
Having concluded that the GMA and ELA are unapproved management contracts, we must address whether the Note is a collateral agreement to a management contract and thereby also subject to IGRA regulation. The tribe never submitted the Note to NIGC. Consequently, the Opinion Letter and Decision Letter did not address the Note executed contemporaneously with the ELA.
IGRA provides that management contracts "shall be considered to include all collateral agreements to such contract that relate to the gaming activity ." (
As we have noted, Anderson explained the ELA and Note to the Tribe in his letter of June 18, 1997. There, he wrote, "These instruments ... represent a more complete agreement between Sharp Image Gaming, Inc. and the Shingle Springs Rancheria." (Italics added.) His reference to the word "agreement" (singular) indicates the intent that the ELA and Note be viewed together. Anderson further explained, "These instruments incorporate the points of the original agreement, but further address some points that benefit both parties in having formalized. The promissory note ... incorporates the total amount owed as of May 31, 1997." The GMA had expressly stated that the repayment terms for monies advanced would be "set forth at a later date." Thus, the Note related to liabilities previously incurred under the GMA and liabilities to be incurred in the future in connection with the ELA, both of which we have determined are management contracts.
As the Wells Fargo court noted, neither the statutory nor the regulatory scheme provide an exemption for financing agreements that contain provisions related to management of a gaming facility. ( Wells Fargo, supra ,
The Note also expressly references the 400 video gaming devices in the ELA twice. First, the Note states that the initial payment on the Note was to be made two months after delivery and installation of the machines. Second, the Note provides that if the Tribe is unable to make the monthly payments on the Note, but is able to continue to operate the casino without operating at a loss, "the [Tribe] shall then be allowed to make a minimum payment equal to 25% of the gross net revenues it receives from the operation of the video gaming devices ... until the note is paid in full." Similar to, but not the same as the GMA and ELA, gross net revenue is defined in the Note as "all monies paid in by players less jackpots and payouts."
Sharp Image argues that the Note is not subject to IGRA's approval requirement because the Note does not itself provide for the management of all or part of the gaming operation. In support of its position, Sharp Image cites Catskill, supra ,
Beyond the language of the definition of management contract in the regulation,
We disagree with the interpretation of the regulations originating in the Jena Band cases, because it would render the term "collateral agreement" in both the statute and the regulation defining collateral agreement mere surplusage. (See People v. Hudson (2006)
Further, the Jena Band interpretation ignores the regulatory context and the plain meaning of the term "collateral" as used in section 2711(a)(3) of title 25 of the United States Code. By authorizing the NIGC to regulate management agreements inclusive of all collateral agreements that relate to the gaming activity , we conclude from this plain language that Congress intended to extend IGRA's reach to all instruments and agreements that become subject to regulation by virtue of their relationship to management contracts or management contractors when all relevant agreements are read together.
As for the Jena Band court's separate reason for its reading of the regulatory text-the notion that the policy of advancing
As we have noted, the ELA and the Note were proposed together, considered together, and executed together. The ELA and Note were both entered on the day of the Tribal Council meeting, November 15, 1997, with Anderson's express purpose of replacing the prior GMA. Significantly, the Note both references the prior debt apparently accrued under the defunct GMA and is expressly contingent upon the installation of gaming machines under the ELA. Thus, the key terms of the Note are expressly dependent on the gaming activity under the unapproved management contracts. These factors demonstrate that the Note is indeed a collateral agreement to a management contract that "relate[s] to the gaming activity." (
Our rejection of the regulatory interpretation in Jena Band does not mean that all unapproved agreements collateral to unapproved management contracts are necessarily void. (See Catskill, supra ,
III. Conclusion
The federal circuit court in First American Kickapoo noted that, "[n]on-tribal parties who enter into contracts relating to tribal gaming undertake, in addition to ordinary business risks, certain regulatory risks as well." ( First Amer. Kickapoo, supra , 412 F.3d at pp. 1178-1179.) As in New Gaming , the instant case "illustrates the accuracy of that observation." ( New Gaming, supra ,
Accordingly, we reverse.
The judgment is reversed, and the trial court is directed to dismiss the action on remand. Sharp Image shall pay the Tribe's costs on appeal. (See Cal. Rules of Court, rule 8.278(a)(1), (5).)
We concur:
NICHOLSON, Acting P.J.
DUARTE, J.
Notes
Because we agree with the Tribe and the United States that federal law preempts Sharp Image's state law claims and the trial court thus lacked subject matter jurisdiction, we need not reach the Tribe's other claims on appeal.
In full, 25 Code of Federal Regulations part 533.7 reads: "Management contracts and changes in persons with a financial interest in or management responsibility for a management contract, that have not been approved by the Secretary of the Interior or the Chairman in accordance with the requirements of this part, are void."
Section 2714 of title 25 of the United States Code provides in pertinent part: "Decisions made by the Commission pursuant to sections 2710 [and] 2711 ... of this title shall be final agency decisions for purposes of appeal to the appropriate Federal district court." We discuss relevant provisions in sections 2710 and 2711, post.
At a later point in time, a neighborhood association sued in federal court, obtaining a ruling that the road is a private road and prohibiting its use for commercial purposes.
Inexplicably, the ELA refers to Crystal Mountain Casino as the "Lessor's Crystal Mountain Casino" and defines "Lessor" as Sharp Image, yet the Note refers to "Borrower's Gaming Facility and Enterprise" and defines "Borrower" as the Tribe. We assume the reference to "Lessor 's Crystal Mountain Casino" in the ELA is a typographical error because neither the Tribe, nor amicus make anything of it. (Italics added.)
The Tribe's May 15, 1999, meeting minutes make reference to a meeting tribal representatives had in Washington, D.C., with "NIGC and BIA gaming management" at which they were informed the agency would not approve the "[c]ontract as written."
The letter attached to the June 1, 1999, letter to Anderson is not in the record.
The letter referred to the agreements in the plural, but did not specifically reference the ELA or the Note.
It is unclear from the record whether this document was filed.
NIGC Bulletin No. 93-3, entitled "Submission of Gaming-Related Contracts and Agreements for Review," reads in pertinent part: "The NIGC has received several requests for guidance on whether particular gaming-related agreements require the approval of the NIGC or the Bureau of Indian Affairs (BIA). [¶] Certain gaming-related agreements require the approval of either the National Indian Gaming Commission (NIGC) pursuant to
The purpose of NGIC Bulletin No. 94-5 is stated therein: "Questions have been raised as to what distinguishes a management contract from a consulting agreement. The answers to these questions depend upon the specific facts of each case. The Commission stands ready to make a decision as to whether or not a particular contract or agreement is a 'management contract' under Commission regulations. However, before doing so, the Commission must see the entire document including any collateral agreements and referenced instruments." (NIGC Bulletin No. 94-5 (Oct. 14, 1994) at < https://www.nigc.gov/compliance/detail/approved-management-contracts-v.-consulting-agreements-unapproved-managemen> [as of Sept. 13, 2017] (Bulletin No. 94-5 ).) The Bulletin goes on to offer "information and observations" (ibid. ) about management contracts and other gaming related contracts, some of which we discuss post.
The Tribe also sought dismissal based on the doctrine of sovereign immunity.
Contrary to Sharp Image's argument, the NIGC "has broad power to determine what does and does not require approval." (Saint,
The December 11, 2008, letter is not part of the record on appeal.
The full Commission consists of three full-time members. Two members are necessary for a quorum. (
Former part 539.2 of 25 Code of Federal Regulations provided: "A party may appeal the Chairman's disapproval of a management contract or modification under parts 533 or 535 of this chapter to the Commission. Such an appeal shall be filed with the Commission within thirty (30) days after the Chairman serves his or her determination pursuant to part 519 of this chapter. Failure to file an appeal within the time provided by this section shall result in a waiver of the opportunity for an appeal. An appeal under this section shall specify the reasons why the person believes the Chairman's determination to be erroneous, and shall include supporting documentation, if any. Within thirty (30) days after receipt of the appeal, the Commission shall render a decision unless the appellant elects to provide the Commission additional time, not to exceed an additional thirty (30) days, to render a decision. In the absence of a decision within the time provided, the Chairman's decision shall constitute the final decision of the Commission." (Italics added.) This provision was later replaced with two regulations. Part 583.6 of 25 Code of Federal Regulations, effective October 25, 2012, provides that the Commission "shall issue its final decision within 90 days after service of the appeal brief or within 90 days after the conclusion of briefing by the parties, whichever is later." (
The trial court did not, as Sharp Image claims, instruct the jury to determine whether the ELA and the Note were management contracts. Rather, as a defense to Sharp Image's breach of implied covenant of good faith claim, the Tribe presented evidence that it had repudiated the ELA and the Note based on the good faith belief that the agreements were void under IGRA. At the Tribe's request, the trial court instructed the jury on the definition of the term "management contract" and advised the jury that unapproved management contracts are void. The instruction read as follows: "A management contract is any contract between an Indian tribe and a contractor that provides for any management activity with respect to all or part of a gaming operation. Management encompasses activities such as planning, organizing, directing, coordinating and controlling. [¶] When multiple agreements, read together, provide for management of an Indian gaming operation, each of the agreements requires federal approval. Management contracts that have not been approved by the [NIGC] Chairman are void." The instruction did not explain that "[t]he performance of any one of such activities with respect to all or part of a gaming operation constitutes management" as set forth in Bulletin No. 94-5, which we discuss in more detail, post. (Italics added.) Nor did the instructions list the specific "activities" set forth in the bulletin that are suggestive of management contract, which we also discuss post. In any event, contrary to Sharp Image's contention about what the jury was asked to decide, the verdict forms asked the jury to make a number of specific findings, but not whether the ELA is a management contract or whether the Note is a collateral agreement to a management contract. Moreover, as we discuss post, these were questions of law for the trial court.
At oral argument, Sharp Image contended that whether the agreement here is a void management contract was a question of contract illegality and an affirmative defense that could be determined by the jury if there is a factual dispute. Sharp Image cited the above discussion in American Vantage in support of this procedure. Additionally, in its response to the amicus brief, Sharp Image cited Civil Code section 1667, subdivision (1), which provides that a contract is not lawful if it is "[c]ontrary to an express provision of law" and Civil Code section 1598, which provides, "Where a contract has but a single object, and such object is unlawful, whether in whole or in part, or wholly impossible of performance, or so vaguely expressed as to be wholly unascertainable, the entire contract is void." However, citing Jackson v. Rogers & Wells (1989)
In American Vantage, Table Mountain argued that money damages would adversely impact its operations of its only economic asset. The American Vantage court dismissed this argument as conflating "control" with "profitability." According to the court, while money damages might decrease Table Mountain's net profits, "Table Mountain's ability to autonomously govern its gaming operation would remain intact." (American Vantage, supra, 103 Cal.App.4th at pp. 597-598,
For example, one of the items that must be submitted along with a request for approval of new contracts for new operations is a three-year business plan setting forth "the parties' goals, objectives, budgets, financial plans, and related matters." (25 C.F.R. 533.3(e)(1).) In our view, the failure to adhere to these procedural matters-which are required when a tribe submits management contracts for formal approval -had no impact on the Chairman's ultimate conclusion that the GMA and ELA are management contracts requiring approval or his underlying reasoning. Indeed, NIGC Bulletin No. 93-3, which encourages tribes and contractors to submit agreements for review and determination by the NIGC as to whether NIGC approval is required instruct that if the NIGC determines approval is required, "the NIGC will notify the tribe to formally submit the agreement." (See fn. 10, ante.) It is the formal submission of the agreement for approval that triggers the requirements upon which the trial court erroneously focused, not the submission for review contemplated in NIGC Bulletin 93-3.
"Regulations properly promulgated by the agency charged with administration of a federal statute are as much a part of federal law as the statute itself." (Dean W. Knight & Sons, supra,
Concerning "consulting contract[s]," Bulletin No. 94-5 notes, "An agreement that identifies finite tasks or assignments to be performed, specifies the dates by which such tasks are to be completed, and provides for compensation based on an hourly or daily rate or a fixed fee, may very well be determined to be a consulting agreement. On the other hand, a contract that does not provide for finite tasks or assignments to be performed, is open-ended as to the dates by which the work is to be completed, and provides for compensation that is not tied to specific work performed is more likely to be construed as a management contract." (Bulletin No. 94-5, supra. )
Sharp Image cites Citizens Action League v. Kizer (9th Cir. 1989)
We also note that NIGC has solicited inquiries like the one made by the Tribe here for a long time. Bulletin 93-3, published while the general counsel was Cox, who later provided legal representation for Sharp Image, tells tribes and contractors that consulting and leasing agreements should be submitted to NIGC for review. (See fn. 10, ante.) We also note that in a letter dated June 1, 1999, the Tribe told Sharp Image it intended to "formally request a written opinion from the [BIA]." And in his letter of June 9, 1999, Cox, while counsel for Sharp essentially invited the Tribe to consult with NIGC when he wrote, "The Tribe is, of course, free to submit these Agreements for review by the NIGC and the BIA."
Two provisions in the Gallegos agreement were different from the agreements in the instant case. Under the lease in that case, Gallegos's business was allowed to set the payout rate and maintain the books and records for the machines. (Gallegos,
Even though Sharp Image elected not to pursue claims related to the GMA, that agreement is still relevant to our discussion because of its connection to the ELA and Note.
The three other activities from the bulletin are: access to the gaming operation by tribal officials (which we understand to mean a specific provision in the agreement requiring such access); payment of a minimum guaranteed amount to the tribe; and provision for assignments or subcontracting of responsibilities. (See Bulletin No. 94-5, supra. )
Sharp Image contends that on its face the ELA is a lease for gaming equipment and leases for equipment are not management contracts. It relies on In re U.S. ex rel. Hall (1993)
IGRA also covers leases and promissory notes that combined, constitute one management contract. (See New Gaming,
The note did not limit the "monies paid in by players" to players on the machines Sharp Image provided and thus appears to also include players of any gambling activities offered at the casino, including card and table games.
See Wells Fargo, supra,