This week, we take a look at a Ninth Circuit decision navigating the intricacies of appellate review of interlocutory arbitration orders, and another exploring the difference between a federally chartered tribal corporation and the tribe itself.
HANSEN v. LMB MORTGAGE SERVICES, INC.The Court holds that when a district court identifies a genuine dispute of material fact about the formation of an arbitration agreement, the court must proceed to a trial on arbitrability rather than denying a motion to compel arbitration. If the district court denies the motion, that order is immediately appealable—but the appellate court will not review the district court’s determination that a factual dispute exists.
The panel: Judges Ikuta, Nguyen, and Eaton (Court of International Trade), with Judge Ikuta writing the opinion.
Key highlight: “Because the district court mistakenly issued a nonfinal order denying LMB’s motion to compel arbitration, while stating its intent to schedule a trial to resolve the factual issues, we have jurisdiction to consider this appeal. But in order to ensure consistency with the procedures required by 9 U.S.C. § 4, we vacate the district court’s order and remand for further proceedings.”
Faced with LMB’s motion to compel arbitration and evidence from both parties, the district court held that there were genuine disputes of material fact over whether Hansen was bound by any arbitration agreement. The court concluded that a jury trial was required to resolve those disputes and denied the motion to compel arbitration.
Result: The Ninth Circuit vacated the denial of the motion and remanded for the district court to proceed to trial on arbitrability.
The Court first held that it had appellate jurisdiction over the district court’s order. That was so even though the denial of the motion to compel arbitration was nonfinal—the district court did not resolve whether arbitration was warranted, instead deferring that issue to trial. The Court held that even nonfinal orders fall within 9 U.S.C. § 16(a)(1)(B), the provision of the Federal Arbitration Act (FAA) allowing interlocutory appeal of orders denying motions to compel arbitration. In taking that view, the Ninth Circuit joined five other circuits and disagreed with the Sixth Circuit.
The Court then held that the district court should not have entered a nonfinal order denying LMB’s motion. The FAA provides in 9 U.S.C. § 4 that, if the formation or performance of the arbitration agreement is “in issue, the court shall proceed summarily to the trial thereof.” The Ninth Circuit held that this means the district court, upon identifying “genuine disputes of material fact as to whether the parties formed an arbitration agreement (. . .) must proceed without delay to a trial on arbitrability.” And the district court should not deny the motion to compel arbitration; it must instead “hold any motion to compel arbitration in abeyance until the factual issues have been resolved.” The Court thus vacated the denial of LMB’s motion and remanded for trial.
But the Court declined to reach another issue LMB pressed on appeal: whether the district court was correct that genuine disputes of material fact existed. The Court held that it could not review that determination because doing so would be “an end-run around” the requirement that the court “proceed summarily to the trial.” Thus, while the Court allowed LMB to appeal, it limited the scope of the appeal. Rather than reviewing the merits of the district court’s decision, the Ninth Circuit addressed only the district court’s procedural error in entering a denial order rather than proceeding summarily to trial.
BIG SANDY RANCHERIA ENTERPRISES v. BONTAThe Court holds that the Tax Injunction Act precludes a federally chartered tribal corporation’s attempt to enjoin the imposition of California’s cigarette tax, and that the state can impose related licensing and recordkeeping requirements on the tribal corporation.
The panel: Judges Thomas, Schroeder, and Berzon, with Chief Judge Thomas writing for the panel and Judge Berzon issuing an opinion concurring in part and acquiescing dubitante in part.
Key Highlight: “As the Corporation acknowledges, the Tribe, not the Corporation, appears on the Federally Recognized Indian Tribes List as a tribe entitled to receive benefits and services from the Department of the Interior. Even more significantly, the Corporation does not allege that the federal government, in issuing the Tribe a section 17 charter, recognized the Corporation as a distinct political entity or a government. Nor does the Corporation allege that it may exercise governmental functions, such as imposing taxes or establishing a judiciary—powers that Congress has expressly associated with tribal status.” (Citations omitted)
Background: California imposes an excise tax on the distribution of cigarettes. As part of its excise tax scheme, the State imposes related licensing, reporting, and recordkeeping requirements.
The Big Sandy Rancheria of Western Mono Indians Tribe owns and controls Big Sandy Rancheria Enterprises (“Big Sandy”), a federally chartered tribal corporation that engages in tobacco distribution. Big Sandy purchases cigarettes from tribal manufacturers, then resells them to “Indian tribal governmental, and Indian tribal-member, reservation-based retailers operating within their own Indian reservations (or) Indian Country within the geographical limits of the State of California.” Over a period of years, the State raised concerns that Big Sandy was violating state law by selling cigarettes without paying the required taxes or securing the necessary licenses.
In response, Big Sandy sued the State, claiming that federal law preempted application of California’s taxation scheme and seeking declaratory and injunction relief. The district court dismissed Big Sandy’s claim challenging imposition of the tax itself as barred by the Tax Injunction Act, and it dismissed the remainder of Big Sandy’s counts for failure to state a claim.
Result: The Ninth Circuit affirmed. First, the majority agreed that Big Sandy’s challenge to the application of California’s excise tax was barred by the Tax Injunction Act, which generally precludes any suit seeking to restrain the collection of state taxes. Big Sandy claimed that it was entitled to invoke the statutory exception for suits “brought by any Indian tribe or band with a governing body duly recognized by the Secretary of the Interior.” 28 U.S.C. § 1362. The majority rejected that argument, holding that a federally chartered tribal corporation is distinct from the “Indian tribe or band” covered by this exception. As the Court explained, Congress had enacted the statute authorizing tribes to create tribal corporations as a way of “enabl(ing) tribes to waive sovereign immunity, thereby facilitating business transactions,” and it would “be odd to allow (such a) corporation to selectively claim the benefits of sovereignty in order to challenge a tax.” Section 1362, the Court continued, was intended to be “limited to the Tribe in its constitutional form, as distinct from its corporate form.” As the Ninth Circuit had previously concluded, while “there may be circumstances in which a tribal corporation’s interests are ‘identi(cal)’ to the tribe’s, (. . .) ‘the Tribe itself will be able to protect those interests’ if it decides to do so.”
The Court then affirmed dismissal of Big Sandy’s remaining claims, which challenged the State’s licensing, reporting, and recordkeeping requirements. First, the Court rejected the contention that it violated “principles of Indian tribal self-governance” for California to apply its regulations to Big Sandy’s sales to tribal retailers on other reservations. As the majority explained, “when a tribe or tribal members act outside their reservation, they are subject to ‘non‑discriminatory state law otherwise applicable to all citizens of the State.’” The Ninth Circuit joined the Tenth Circuit in holding that sales on other reservations are “off reservation” for purposes of this doctrine.
Second, the Court rejected Big Sandy’s argument that federal regulation of “trade with Indians within Indian county” preempted application of California law. As the majority reasoned, such preemption arguments have been accepted only where the federal government has exercised oversight over the particular trade at issue. And Big Sandy did “not allege that the federal government has licensed it as an Indian trader or otherwise approved its cigarette sales to tribal retailers on other reservations.” In any event, the majority continued, none of the challenged requirements would impermissibly dictate the price or quantity at which Big Sandy sold goods, or otherwise impose an excessive burden.
Judge Berzon wrote separately to express her doubt as to whether the Tax Injunction Act applied. As she explained, it was possible that Big Sandy Rancheria, the federally recognized tribe, should be viewed as “identical” to Big Sandy Rancheria Enterprises, the tribal corporation. She declared herself “dubious as to the majority’s assertion that an entity that waives sovereign immunity may not at the same time selectively claim the benefits of sovereignty in other contexts.” Nevertheless, she “join(e)d the majority’s conclusion,” explaining: “with the exceptions noted, its reasoning is persuasive, and I cannot be certain, faced with an ambiguous statutory text, a thin legislative history, and sparse case law, that the majority’s conclusion is incorrect.”