Quinault Indian Nation v. Mary Pearson , 868 F.3d 1093 ( 2017 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
QUINAULT INDIAN NATION, No. 15-35263
Plaintiff-Appellee,
D.C. No.
v. 3:10-cv-05345-
BHS
MARY LINDA PEARSON,
Administrator Ad Prosequendum for
the estate of Edward A. Comenout,
Defendant-Appellant.
QUINAULT INDIAN NATION, No. 15-35267
Plaintiff-Appellee,
D.C. No.
v. 3:10-cv-05345-
BHS
MARY LINDA PEARSON,
Administrator Ad Prosequendum for
the estate of Edward A. Comenout, OPINION
Defendant,
and
ROBERT R. COMENOUT, SR.,
Defendant-Appellant.
2 QUINAULT INDIAN NATION V. PEARSON
Appeal from the United States District Court
for the Western District of Washington
Benjamin H. Settle, District Judge, Presiding
Submitted June 9, 2017 *
Seattle, Washington
Filed August 29, 2017
Before: M. Margaret McKeown, Consuelo M. Callahan,
and Sandra S. Ikuta, Circuit Judges.
Opinion by Judge McKeown
SUMMARY **
Tribal Sovereign Immunity
In an action brought by the Quinault Indian Nation
alleging a scheme to defraud the Nation of cigarette taxes,
the panel affirmed the district court’s dismissal of
counterclaims as barred by the Nation’s sovereign
immunity.
The panel held that if brought in a separate suit against
the Nation, the counterclaims would be barred by sovereign
immunity. Asserting the claims as counterclaims did not
The panel unanimously concludes this case is suitable for decision
*
without oral argument. See Fed. R. App. P. 34(a)(2).
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
QUINAULT INDIAN NATION V. PEARSON 3
change the sovereign-immunity analysis. The panel
concluded that the Nation did not waive its sovereign
immunity because it filed the underlying suit but took no
further action that unequivocally waived its immunity to the
counterclaims, and the counterclaims did not qualify as
claims for recoupment.
COUNSEL
Robert E. Kovacevich, Spokane, Washington; Randal B.
Brown, Covington, Washington; Aaron L. Lowe, Spokane,
Washington; for Defendants-Appellants.
Rob Roy Smith, Kilpatrick Townsend & Stockton LLP,
Seattle, Washington, for Plaintiffs-Appellees.
OPINION
McKEOWN, Circuit Judge:
Once again, the issue of tribal sovereign immunity and
cigarette taxes is back in the federal courts. In this iteration,
the Quinault Indian Nation (the “Nation”) sued Edward A.
Comenout, Jr.; Robert R. Comenout, Sr.; and other
defendants for engaging in a scheme to defraud the Nation
of taxes. When the Nation later asked the district court to
dismiss its action, Edward’s estate (the “Estate”) sought to
keep the litigation alive, asserting that maintaining the suit
was necessary to litigate its counterclaims against the
Nation.
The district court dismissed the counterclaims as barred
by the Nation’s sovereign immunity. Because the court
4 QUINAULT INDIAN NATION V. PEARSON
correctly held that the Nation retains its sovereign immunity
as to the counterclaims, these claims were properly
dismissed. We agree that the Estate cannot hold up dismissal
of the suit. We affirm.
Background
Edward Comenout, now deceased, was an enrolled
member of the Quinault Indian Nation, a federally
recognized Indian tribe. Beginning in 1971, he operated a
convenience store, the Indian Country Store, on land held in
trust by the United States in Puyallup, Washington. The
store, which is now run by his brother Robert Comenout,
sells cigarettes and tobacco products.
For years, the Comenouts have been embroiled in
litigation about whether they must pay cigarette taxes. They
have contested the authority of the State of Washington and
the Nation to tax them at every turn. For example, in
criminal proceedings initiated in 2008, they contended that
they are exempt from Washington’s cigarette tax, but the
Washington Supreme Court disagreed. State v. Comenout,
267 P.3d 355, 358 (Wash. 2011). 1 Similarly, in litigation
with the Nation, including the lawsuit on appeal here, the
Comenouts have continually disputed the Nation’s ability to
collect cigarette taxes pursuant to an agreement with
Washington. See, e.g., Comenout v. Whitener, No. 15-
35261, 2017 WL 2591272 (9th Cir. June 15, 2017);
Comenout v. Wash. State Liquor Control Bd., 195 Wash.
App. 1035 (2016). The legal battles rage on.
In this round, the Nation brought suit against the
Comenouts and other defendants in May 2010 claiming that
1
Robert Comenout has since pled guilty to state criminal charges.
QUINAULT INDIAN NATION V. PEARSON 5
the Indian Country Store was selling untaxed cigarettes and
tobacco products. The Nation’s complaint alleged that the
Comenouts violated the Racketeer Influenced and Corrupt
Organizations Act (“RICO”) by defrauding the Nation of
cigarette taxes and requested $90 million in unpaid tax
revenue. The Nation also pled a $30 million breach of
contract claim against Edward Comenout.
In December 2010, after Edward’s death, the Estate
asserted counterclaims. The Estate sought a declaratory
judgment that Edward had not violated the Cigarette Sales
and Tax Code. It also asked for an order compelling the
grant of building and business permits and for mandamus
relief, lost profits, and damages due to an alleged antitrust
and price-fixing scheme perpetrated by the Nation.
When out-of-court events sufficiently resolved the
Nation’s impetus for bringing the lawsuit in the first place,
the Nation moved to dismiss the Estate’s counterclaims and
voluntarily dismiss the entire action under Federal Rule of
Civil Procedure 41(a). The Estate opposed dismissal of its
counterclaims and moved to amend. The district court
granted the Nation’s motions to dismiss, reasoning that the
Estate’s counterclaims are barred by the Nation’s sovereign
immunity. Because the Estate’s proposed amendments did
not cure the sovereign-immunity problem, the court also
denied the motion to amend as futile.
Discussion
We start with the basics of sovereign immunity. It is well
settled that Indian tribes possess tribal sovereign immunity
because they are “domestic dependent nations that exercise
inherent sovereign authority.” Michigan v. Bay Mills Indian
Cmty., 134 S. Ct. 2024, 2030 (2014) (internal quotation
marks and citation omitted). As the name implies, that
6 QUINAULT INDIAN NATION V. PEARSON
immunity is a “common-law immunity from suit
traditionally enjoyed by sovereign powers.” Santa Clara
Pueblo v. Martinez, 436 U.S. 49, 58 (1978). Tribes are
shielded not only from suits for money damages, but from
declaratory and injunctive relief as well. Imperial Granite
Co. v. Pala Band of Mission Indians, 940 F.2d 1269, 1271
(9th Cir. 1991). Although a suit may be maintained against
tribal officers in certain circumstances, the tribes themselves
are protected. See Salt River Project Agric. Improvement &
Power Dist. v. Lee, 672 F.3d 1176, 1181 (9th Cir. 2012).
Under these simple rules, if the Estate had brought its
claims in a separate suit against the Nation, the suit could not
proceed. The Estate seeks monetary, declaratory, and
injunctive relief from the Nation itself, all of which would
be barred by the Nation’s sovereign immunity. 2 The
operative question in this appeal is whether the Estate’s
counterclaims are similarly barred. In other words, we must
determine whether asserting these claims for relief as
counterclaims changes the sovereign-immunity analysis. On
the facts of this case, we hold that it does not.
I. No Waiver of Tribal Sovereign Immunity
A tribe’s sovereign immunity is a powerful protection
from suit, but it is not impenetrable and may be surrendered.
See Kiowa Tribe of Okla. v. Mfg. Techs., Inc., 523 U.S. 751,
754 (1998). Nevertheless, a sovereign-immunity waiver is
2
For this reason, the Estate’s counterclaims could not “remain
pending for independent adjudication,” and the district court could not
simply dismiss the action “over the [Estate]’s objection.” Fed. R. Civ.
P. 41(a)(2). Instead, the district court first dismissed the counterclaims
as barred by the Nation’s sovereign immunity. At this point, no
counterclaims remained, and the action was dismissed under Rule
41(a)(2).
QUINAULT INDIAN NATION V. PEARSON 7
effective only if it is “unequivocally expressed.” Santa
Clara Pueblo, 436 U.S. at 58 (citation omitted). Here, the
Nation filed the underlying suit but took no further action
that unequivocally waived its immunity to the Estate’s
counterclaims. Nor do the Estate’s counterclaims qualify as
claims for recoupment. Accordingly, we reject the Estate’s
contention that the Nation has waived its sovereign
immunity.
A. Filing Suit Does Not Result in Wholesale
Waiver
We start with the unremarkable premise that the bare act
of filing suit does not operate as a complete, automatic
waiver that subjects a tribe to any counterclaims filed by the
defendant. McClendon v. United States, 885 F.2d 627, 630
(9th Cir. 1989). The Supreme Court has proclaimed that “a
tribe does not waive its sovereign immunity from actions
that could not otherwise be brought against it merely because
those actions were pleaded in a counterclaim to an action
filed by the tribe.” Okla. Tax Comm’n v. Citizen Band
Potawatomi Indian Tribe of Okla., 498 U.S. 505, 509 (1991).
Tribal immunity even extends to compulsory counterclaims
in excess of the original claims—despite the fact that
compulsory counterclaims by definition arise out of the same
transaction or occurrence. See id. at 509–10; United States
v. U.S. Fid. & Guar. Co., 309 U.S. 506, 513 (1940). On this
point, “Supreme Court precedent couldn’t be clearer . . . : a
tribe’s decision to go to court doesn’t automatically open it
up to counterclaims—even compulsory ones.” Ute Indian
Tribe of the Uintah & Ouray Reservation v. Utah, 790 F.3d
1000, 1011 (10th Cir. 2015), cert. denied, 136 S. Ct. 1451
(2016).
Thus, the mere fact that the Nation initiated this action is
not enough for the Estate to assert its barrage of
8 QUINAULT INDIAN NATION V. PEARSON
counterclaims without offending the Nation’s sovereign
immunity. Unless the Estate can identify something that the
Nation has done to waive its immunity as to one or all of the
counterclaims, the Nation’s immunity from suit remains
intact.
B. The Nation Has Not Waived Immunity to
Individual Counterclaims
In rare instances, a tribe’s participation in a lawsuit can
“effect a waiver for limited purposes.” Cohen’s Handbook
of Federal Indian Law § 7.05[1][c], at 645 (Nell Jessup
Newton ed., 2012). The scope of the waiver depends on the
particular circumstances, including the tribe’s actions and
statements as well as the nature and bounds of the dispute
that the tribe put before the court. See McClendon, 885 F.2d
at 630–31. We demand clarity that the tribe gave up its
immunity. See United States v. Nordic Vill. Inc., 503 U.S.
30, 34 (1992) (stating that ambiguity in the waiver of
sovereign immunity should be construed in favor of
immunity). Proceeding through the Estate’s counterclaims,
we conclude that the Nation has not expressly waived its
immunity to any of them.
The Nation’s only relevant conduct is that it brought suit
against the Comenouts for RICO violations and breach of
contract, alleging that the Comenouts defrauded the Nation
of cigarette taxes. The Estate’s four counterclaims seek:
(1) building and business permits and a declaratory
judgment that Edward Comenout did not violate the tax
code, (2) lost profits and other damages resulting from the
Nation’s refusal to grant permits and related to the filing of
the suit, (3) mandamus relief in the form of a building
permit, and (4) treble damages for loss of income based on
an alleged price-fixing scheme between the Nation and the
State of Washington.
QUINAULT INDIAN NATION V. PEARSON 9
The Estate requests some affirmative relief distinct from
what the Nation seeks. Counterclaims (1) and (3) ask the
court to order the Nation to issue building and business
permits, and counterclaim (2) seeks lost profits and other
damages for the refusal to issue permits and for the filing of
the suit. In counterclaim (4), the Estate requests money
damages based on facts that are even more far-flung from
the Nation’s RICO and contract claims, alleging that the
Nation conspired with the State of Washington to fix
cigarette prices. The entirety of counterclaims (2), (3), and
(4) and part of counterclaim (1) go beyond the contours of
the Nation’s suit, so the Nation cannot be said to have
unequivocally consented to their adjudication. See
McClendon, 885 F.2d at 630.
Sovereign immunity also bars the remainder of
counterclaim (1), which seeks a declaration that the Estate
obeyed the tax code, though that claim admittedly presents a
closer call. In particular, the Nation’s “[i]nitiation of [the]
lawsuit necessarily establishe[d] consent to the court’s
adjudication of the merits of that particular controversy,”
and the declaratory judgment mirrors the merits of the RICO
controversy that the Nation asked the court to resolve. See
id. But while the Nation took the risk that the court would
rule for the Estate on the merits and deny the Nation’s
requested legal relief, the Nation did not waive its immunity
because it did not consent to any counterclaims. See id. The
Estate could assert affirmative defenses against the Nation’s
claims, but it could not bring counterclaims absent waiver of
sovereign immunity.
That conclusion is reinforced by what is required for an
unequivocal waiver of tribal sovereign immunity. Our
situation involves far less than Rupp v. Omaha Indian Tribe,
45 F.3d 1241 (8th Cir. 1995). There, the Eighth Circuit
10 QUINAULT INDIAN NATION V. PEARSON
allowed counterclaims to quiet title and for damages to be
asserted against a tribe that filed a quiet-title action. Id. at
1244–45. However, the tribe there did more than file a
lawsuit: it invoked the district court’s equitable power to
determine the status of land and explicitly asked that the
court order the defendants to “assert any claims in the
disputed lands they possessed against the Tribe.” Id. at
1244. The Nation’s actions do not rise to that level of
unequivocal consent to the declaratory judgment
counterclaim.
A decision from our circuit, United States v. Oregon,
657 F.2d 1009 (9th Cir. 1981), requires more discussion, but
leaves us in the same place: the tribe there demonstrated its
unequivocal consent. The United States initiated an action
to apportion a fishery among competing sovereigns, and the
Yakima Tribe intervened. Id. at 1011. The parties
(including the tribe) reached a suitable agreement, which
provided for continuing jurisdiction in the district court over
future disputes. Id. Years later, the State of Washington
intervened and argued that the district court needed to enjoin
the tribe’s fishing so that the fish would not die out. Id. The
question was whether the district court could enter such an
injunction consistent with the tribe’s sovereign immunity.
Id. at 1012.
We said that the injunction was allowed. We analogized
the underlying suit to an equitable in rem action whose
purpose was to preserve the res—the fishery—by keeping
the fish alive. Id. at 1015–16. In that respect, the district
court could enjoin any interference with the res. Id. at 1016.
Because the tribe intervened in the equitable action and
expressly agreed to submit later-arising issues to federal
court, it “assumed the risk that any equitable judgment
secured could be modified if warranted by changed
QUINAULT INDIAN NATION V. PEARSON 11
circumstances” and “that [it] would be bound by an order it
deemed adverse.” Id. at 1015. We were cognizant of the
risk of “transform[ing] [tribal immunity] into a rule that
tribes may never lose a lawsuit.” Id. at 1014.
Oregon “tests the outer limits of [the Supreme Court]’s
admonition against implied waivers.” Pan Am. Co. v.
Sycuan Band of Mission Indians, 884 F.2d 416, 420 (9th Cir.
1989); see also Am. Indian Agric. Credit Consortium, Inc. v.
Standing Rock Sioux Tribe, 780 F.2d 1374, 1380 (8th Cir.
1985) (disapproving of Oregon as “press[ing] the outer
boundary” of what constitutes an unequivocal waiver). And
there are materially relevant differences between that
situation and our situation. Unlike the Nation, the tribe in
Oregon entered an agreement expressing its unequivocal
consent to submit issues to federal court. Further, the suit in
Oregon was akin to an equitable in rem action, whereas the
Nation’s suit is legal, not equitable, in nature. That
distinction matters because the court in Oregon relied on the
equitable nature of the action to distinguish the scenario we
have here—namely, an action involving a compulsory
counterclaim asserted against the tribe. 657 F.2d at 1015.
We have previously distinguished Oregon on these same
grounds. See Squaxin Island Tribe v. Washington, 781 F.2d
715, 723 n.11 (9th Cir. 1986); Chemehuevi Indian Tribe v.
Cal. State Bd. of Equalization, 757 F.2d 1047, 1053 n.7 (9th
Cir.), rev’d on other grounds, 474 U.S. 9 (1985).
Oregon’s broader concern about tribes employing
sovereign immunity offensively to prevent a loss in court is
not present here because, even without its counterclaim, the
Estate could still defend against the Nation’s RICO claim.
In fact, the Estate’s counterclaim is duplicative because the
Estate separately pled an affirmative defense that it had not
violated RICO. Therefore, the district court properly
12 QUINAULT INDIAN NATION V. PEARSON
dismissed the Estate’s counterclaims, and they cannot act as
life support for a lawsuit that the Nation is ready to put to
rest. The Estate’s asserted ability to drag out the proceedings
and hold the Nation hostage in its own litigation is a direct
affront to the Nation’s sovereign immunity when there has
been no unequivocal waiver.
C. The Estate Has Not Asserted a Counterclaim
for Recoupment
The Estate offers one other justification for maintaining
its counterclaims against the Nation: it contends that the
counterclaims count as claims for recoupment. We agree
that counterclaims to recoup damages arising from the same
transaction or occurrence as a tribe’s claims do not violate
the tribe’s sovereign immunity. Nevertheless, the Estate’s
argument still falters because its counterclaims do not sound
in recoupment.
The legal basis for permitting adjudication of matters in
recoupment is straightforward. In the analogous scenario
where the United States brings suit, the Supreme Court has
held that the United States impliedly waives its immunity to
counterclaims for recoupment. Bull v. United States,
295 U.S. 247, 260–63 (1935). Those claims do not directly
implicate sovereignty interests because they seek merely an
offset to the sovereign’s requested relief instead of
affirmative relief from the sovereign. See id. at 262
(“[R]ecoupment is in the nature of a defense arising out of
some feature of the transaction upon which the plaintiff’s
action is grounded.”); United States v. Agnew, 423 F.2d 513,
514 (9th Cir. 1970) (stating that claims for recoupment
“defeat or diminish the sovereign’s recovery” but provide no
“affirmative relief”). That rule and rationale holds for tribes.
See Hamilton v. Nakai, 453 F.2d 152, 158 (9th Cir. 1971)
(explaining that a tribe’s sovereign immunity is generally
QUINAULT INDIAN NATION V. PEARSON 13
coextensive with that of the United States). Thus, we join
the two other circuits that have held that claims arising out
of the same transaction or occurrence and sounding in
recoupment can be sustained as counterclaims against a
tribe. See Berrey v. Asarco Inc., 439 F.3d 636, 644–45 (10th
Cir. 2006); Rosebud Sioux Tribe v. A & P Steel, Inc.,
874 F.2d 550, 552–53 (8th Cir. 1989).
That conclusion does not end our analysis, as we must
determine whether the Estate’s counterclaims constitute
claims for recoupment. A recoupment claim “must (1) arise
from the same transaction or occurrence as the plaintiff’s
suit; (2) seek relief of the same kind or nature as the
plaintiff’s suit; and (3) seek an amount not in excess of the
plaintiff’s claim.” United States v. Washington, 853 F.3d
946, 968 (9th Cir. 2017) (citation omitted). As that
definition suggests, recoupment claims must be monetary,
not injunctive or declaratory. Id. Under these standards,
none of the Estate’s counterclaims are for recoupment.
As a reminder, the Estate wants (1) a declaration that the
tax code was not violated and building and business permits,
(2) lost profits and other damages associated with the
Nation’s refusal to issue permits and filing of the suit,
(3) mandamus relief in the form of a building permit, and
(4) treble damages for lost income resulting from an alleged
price-fixing scheme. Right off the bat, the requests for
anything other than monetary relief are excluded. That
leaves on the table the lost profits, damages for filing suit,
and the lost income for alleged price fixing. Those claims
fall outside the definition too. The Estate declares injury
based on the Nation’s denying permits, filing the lawsuit,
and engaging in a price-fixing scheme, none of which
logically relates to the occurrence that underlies the Nation’s
claims—namely, the Estate’s alleged enterprise to withhold
14 QUINAULT INDIAN NATION V. PEARSON
taxes due. And the damages claimed by the Estate are not
bounded by the amount sought by the Nation because they
are tied to the Estate’s lost profits and loss of income, the
latter multiplied by three. The Estate cannot shoehorn its
counterclaims into the definition of recoupment. We
conclude that the counterclaims as pled are barred by the
Nation’s sovereign immunity.
II. Denial of Motion for Leave to Amend
The Estate’s efforts to overcome the sovereign immunity
hurdle through amendment are equally unavailing. We have
no difficulty concluding that the district court did not abuse
its discretion in denying the Estate leave to amend its answer
and counterclaims. See Telesaurus VPC, LLC v. Power,
623 F.3d 998, 1003 (9th Cir. 2010) (reviewing for abuse of
discretion). The court correctly explained that “the Estate’s
proposed amendments would be futile in light of the
Nation’s sovereign immunity.” We agree because the
proposed amendments failed to include allegations that
would cure the defects in the original pleading. See Loos v.
Immersion Corp., 762 F.3d 880, 890–91 (9th Cir. 2014).
In its motion to amend, the Estate sought to add more
specific facts to support its already-pled claims and describe
events related to abuse of process and tortious interference.
Alleging further facts as to the events that occurred does not
take the Estate’s claims outside the sovereign-immunity bar.
The Nation would also be immune from suit on claims for
abuse of process and tortious interference, see Arizona v.
Tohono O’odham Nation, 818 F.3d 549, 563 n.8 (9th Cir.
2016) (“[T]ribal sovereign immunity bars tort claims against
an Indian tribe . . . .”), and there is no stronger basis for
waiver on these claims than on the Estate’s other
counterclaims. Because the Estate’s amendments do not get
around the Nation’s sovereign immunity, the district court
QUINAULT INDIAN NATION V. PEARSON 15
properly rebuffed this final attempt to protract the litigation
and dismissed the entire action.
AFFIRMED.