Citizen Potawatomi Nation v. State of Oklahoma

FILED
United States Court of Appeals
Tenth Circuit
February 6, 2018
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
CITIZEN POTAWATOMI NATION,
Plaintiff - Appellee,
v. No. 16-6224
STATE OF OKLAHOMA,
Defendant - Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
(D.C. NO. 5:16-CV-00361-C)
Mithun Mansinghani, Assistant Solicitor General (Patrick R. Wyrick, Solicitor
General, and Jared B. Haines, Assistant Solicitor General, on the briefs),
Oklahoma Office of the Attorney General, Oklahoma City, Oklahoma, for
Defendant-Appellant.
Gregory M. Quinlan, Citizen Potawatomi Nation, Shawnee, Oklahoma, for
Plaintiff-Appellee.
Before TYMKOVICH, Chief Judge, BRISCOE, and MURPHY, Circuit Judges.
MURPHY, Circuit Judge.
I. INTRODUCTION
Oklahoma and the Citizen Potawatomi Nation (the “Nation”) entered into a
Tribal-State gaming compact (the “Compact”). See 25 U.S.C. § 2710(d)(3)
(providing for such compacts). Part 12 of the Compact contains a dispute-
resolution procedure that calls for arbitration of disagreements “arising under” the
Compact’s provisions. It also indicates that either party may, “[n]otwithstanding
any provision of law,” “bring an action against the other in a federal district court
for the de novo review of any arbitration award.” In Hall Street Associates, LLC.
v. Mattel, Inc., however, the Supreme Court held that the Federal Arbitration Act
(“FAA”) precludes parties to an arbitration agreement from contracting for de
novo review of the legal determinations in an arbitration award. 552 U.S. 576,
583-84 (2008). Instead, according to the Court, 9 U.S.C. §§ 10 and 11 provide
the exclusive grounds for a court to vacate or modify an arbitration award. Id.
This court must resolve how to treat the Compact’s de novo review
provision given the Supreme Court’s decision in Hall Street Associates. The
Nation asserts the appropriate course is to excise from the Compact the de novo
review provision, leaving intact the parties’ binding obligation to engage in
arbitration, subject only to limited judicial review under 9 U.S.C. §§ 9 and 10.
This is the approach adopted, sub silentio, by the district court. Oklahoma, in
contrast, asserts the de novo review provision is integral to the parties’ agreement
-2-
to arbitrate disputes arising under the Compact and, therefore, this court should
sever the entire arbitration provision from the Compact.
The language of the Compact demonstrates that the de novo review
provision is a material aspect of the parties’ agreement to arbitrate disputes
arising thereunder. Because Hall Street Associates clearly indicates the
Compact’s de novo review provision is legally invalid, and because the obligation
to arbitrate is contingent on the availability of de novo review, we conclude the
obligation to arbitrate set out in Compact Part 12 is unenforceable. Thus,
exercising jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1362, this matter is
remanded to the district court to enter an order vacating the arbitration award.
II. BACKGROUND
A. The Compact
The Nation’s Chairman signed the Compact on November 30, 2004. See
Okla. Stat. tit. 3A, §§ 280-281 (offering “a model tribal gaming compact” to
federally recognized tribes within Oklahoma’s borders and providing that a
compact would take effect through the “signature of the chief executive officer of
the tribal government,” with “[n]o further action by the Governor or the state”
required). The Compact was deemed approved and in effect as of February 9,
2005. See Notice of Class III Gaming Compacts Taking Effect, 70 Fed. Reg.
6903-01 (Feb. 9, 2005); see also 25 U.S.C. § 2710(d)(8)(C) (allowing a Tribal-
-3-
State gaming compact to be deemed approved if not acted on by the Secretary of
the Interior within forty-five days after the Compact’s submission).
The Compact opens with a series of recitals, specifically noting the
sovereign nature of the parties, the need for respectful government-to-government
relations, and the “long recognized . . . right” of the Nation to govern tribal lands.
It then sets forth a comprehensive structure regarding Class III gaming on the
Nation’s lands and describes the parties’ rights and responsibilities with regard to
that gaming. The Compact applies to “[f]acilit[ies],” which are defined as “any
building of the tribe in which the covered games authorized by this Compact are
conducted.” The Nation has two such facilities, the FireLake Grand Casino and
the FireLake Entertainment Center. Particularly important for understanding the
underlying arbitration proceedings that lead to this appeal, Part 5(I) of the
Compact provides that the “sale and service of alcoholic beverages in a facility
shall be in compliance with state, federal, [and] tribal law in regard to the
licensing and sale of such beverages.” The Compact contains the following
dispute resolution procedure:
In the event that either party to this Compact believes that the
other party has failed to comply with any requirement of this
Compact, or in the event of any dispute hereunder, including, but not
limited to, a dispute over the proper interpretation of the terms and
conditions of this Compact, the following procedures may be
invoked:
...;
-4-
2. Subject to the limitation set forth in paragraph 3 of this Part,
either party may refer a dispute arising under this Compact to
arbitration under the rules of the American Arbitration Association
(AAA), subject to enforcement or pursuant to review as provided by
paragraph 3 of this Part by a federal district court. The remedies
available through arbitration are limited to enforcement of the
provisions of this Compact. The parties consent to the jurisdiction of
such arbitration forum and court for such limited purposes and no
other, and each waives immunity with respect thereto. . . .
. . . ; and
3. Notwithstanding any provision of law, either party to the
Compact may bring an action against the other in a federal district
court for the de novo review of any arbitration award under
paragraph 2 of this Part. The decision of the court shall be subject to
appeal. Each of the parties hereto waives immunity and consents to
suit therein for such limited purposes, and agrees not to raise the
Eleventh Amendment to the United States Constitution or
comparable defense to the validity of such waiver.
See Okla. Stat. tit. 3A, § 281.
B. The Underlying Dispute and Arbitration Proceedings
The dispute underlying the arbitration award and this appeal began with
administrative proceedings before Oklahoma’s alcohol (the Alcoholic Beverage
Laws Enforcement Commission (“ABLE”)) and sales tax (the Oklahoma Tax
Commission (“OTC”)) regulators. ABLE began proceedings against the Nation
on the ground the Grand Casino was selling alcoholic beverages on Sundays, in
violation of Okla. Stat. tit. 37, § 591. 1 ABLE has authority to refuse to renew,
1
Oklahoma utilizes a “county option” for sales of liquor by the drink. Such
sales are prohibited unless authorized by the county’s voters and, even if such
(continued...)
-5-
suspend, or revoke licenses if the license holder fails to comply with license
requirements. Okla. Stat. tit. 37, §§ 527.1, 528.
While ABLE proceedings were ongoing, the OTC sent a request to the
Nation as the holder of Oklahoma licenses and permits. According to the OTC:
4. As the holder of Sales Tax Permits, [the Nation] is required
to report and remit sales tax due on transactions subject to Oklahoma
Sales Tax . . . . [The Nation] has filed Oklahoma Sales Tax Returns
on a semi-annual basis, commencing January 18, 2011 . . . .
5. . . . [E]ach return filed by [the Nation] reported total sales
and claimed exemptions in the exact amount of total sales, reporting
a “zero” sales tax liability.
6. Pursuant to [OTC regulations], all gross receipts are
presumed subject to tax, until shown to be tax exempt. The burden
of proving that a sale is an exempt sale is on the vendor.
7. [The Nation’s] returns . . . , while claiming exemptions in
the exact total amount of reported sales, fail to identify, much less
establish that all sales were exempt.
In Oklahoma, businesses selling alcoholic beverages by the drink must obtain
both an appropriate liquor license from ABLE and a matching tax permit from the
OTC. Okla. Stat. tit. 37, §§ 163.7, 577. The OTC is empowered to revoke all of
1
(...continued)
sales are authorized, county voters have the choice to restrict sales on certain
days. Okla. Const. art. XXVIII, §§ 4, 6; Okla. Stat. tit. 37, § 591. When the
voters of Pottawatomie County approved the sale of alcoholic beverages by the
drink, they provided that such sales are not authorized on Sundays.
-6-
a licensee’s tax permits and licenses upon a violation of state tax law. Id. tit. 68,
§ 212(A)(2). 2
In the ABLE proceedings, the Nation claimed it did not have to submit to
the prohibition on Sunday sales because that prohibition flowed from a county
rule, not state law. It also asserted arbitration pursuant to Compact Part 12 was
the only proper forum for resolving licensing disputes. An administrative law
judge recommended that ABLE reject the Nation’s first argument because (1) the
county option as to sales of liquor by the drink flowed directly from state law and
the Oklahoma Constitution and (2) the Nation had applied for and received state-
granted liquor licenses, and federal law establishes that states have jurisdiction
over liquor sales in “Indian Country.” 3 The administrative law judge also
reasoned that the overall structure of the Compact demonstrated the parties did
not agree to resolve licensing disputes via the mechanism set out in Compact Part
12.
2
The record reveals, however, that for years OTC representatives requested
the Nation to submit periodic reports for sales of goods by tribal businesses on
tribal lands, with the express agreement and assurance (1) the purpose of the
request was to facilitate administrative convenience to the Tax Commission and
(2) the Nation should report its sales tax collections as “0.” This historic
approach was consistent with the Nation’s practice of never collecting Oklahoma
sales tax on sales to non-tribal members. The instant OTC proceedings were the
first and only time Oklahoma has taken any enforcement action against a tribe on
the basis Oklahoma sales taxes apply to all sales by a tribe to non-tribal members.
3
Oklahoma is entitled to regulate and license tribal liquor transactions.
Rice v. Rehner, 463 U.S. 713, 723-724 (1983); Citizen Band Potawatomi Indian
Tribe of Okla. v. Okla. Tax Comm’n, 975 F.3d 1459, 1461-62 (10th Cir. 1992).
-7-
The administrative law judge issued his decision in the middle of the
Nation’s briefing schedule at the OTC. The Nation then invoked the Compact’s
arbitration provision and made Compact Part 5(I) central to its arbitration theory.4
According to the Nation, disputes involving alcohol sales and licensing that might
impact its gaming businesses were subject to arbitration under the Compact. 5 In
4
While the arbitration progressed, administrative proceedings at the OTC
continued. OTC staff and the Nation engaged in briefing separately from the
arbitration, after which the OTC concluded the Nation had applied for a state
alcohol license and, therefore, had to comply with the attendant obligations such
as responding to an audit request. The OTC rejected the Nation’s argument that
the issue before it was a gaming dispute due to the possibility the OTC’s actions
might affect the Nation’s liquor sales at its gaming facilities. The OTC
eventually revoked the Nation’s sales tax permits and liquor licenses for failure to
comply with Oklahoma law. The Nation’s appeal to the Oklahoma Supreme
Court is currently stayed pending the instant litigation over the arbitration award.
5
The Nation’s Demand for Arbitration specifically sought a determination
“whether the Dispute Resolution (including arbitration) procedures of the
Compact are the exclusive means by which Oklahoma may seek to enforce against
the Nation’s Compact facilities the Nation’s duties imposed to comply with state
laws governing sales and service of alcoholic beverages.” According to the
Nation:
Part 12 of the Compact provides unambiguous Dispute
Resolution procedures in the event of a dispute. The preamble to
Part 12 reads, in its entirety,
In the event that either party to this Compact believes
that the other party has failed to comply with any
requirement of this Compact, or in the event of any
dispute hereunder, including, but not limited to, a
dispute over the proper interpretation of the terms and
conditions of this Compact, the following procedures
may be invoked.
(continued...)
-8-
response, Oklahoma disputed the Nation’s assertion arbitration was the proper
forum for determining disputes that arise because of the Nation’s failure to
comply with laws and regulations governing sales tax and liquor licenses. 6
Ultimately, for that very reason, Oklahoma filed a motion to dismiss the Nation’s
demand for arbitration, arguing regulatory disputes between the parties must be
resolved through administrative proceedings, not arbitration. The arbitrator
refused to dismiss the Nation’s arbitration demand, reasoning that the Nation’s
theory (i.e., that Part 12 of the Compact was the exclusive means of enforcing the
Nation’s obligations under Part 5(I)) was substantively arbitrable. 7
5
(...continued)
Any violation of any term of the Compact or disagreement about the
scope or interpretation of the Compact engages Part 12.
Finally, the Nation asserted the parties’ dispute over liquor licenses and/or
permits arose under the Compact: “The Compact expressly covers a Compact
facility’s duties with respect to sale and service of alcoholic beverages. Part 5(I)
states: ‘The sale and service of alcoholic beverages in a facility shall be in
compliance with state, federal and tribal law in regard to the licensing and sale of
such beverages.’”
6
In its first response to the Nation’s demand for arbitration, Oklahoma filed
an “Answering Statement.” In that answer, Oklahoma repeatedly denied “that the
administrative actions brought by ABLE and OTC arise from any rights, duties, or
obligations of either [the Nation] or [Oklahoma] under the Compact.” Instead,
according to Oklahoma, “both administrative actions are based upon the duties
and obligations imposed upon [the Nation] by the various permits and licenses at
issue in those proceedings.” For that reason, Oklahoma asserted the licensing
disputes were not arbitrable.
7
Oklahoma also filed a motion for summary judgment. In that motion,
Oklahoma argued the Compact does not subsume every licensing issue that arises
(continued...)
-9-
The arbitrator conducted a hearing. The Nation’s Vice-Chairman, Linda
Capps, and Tribal Counsel, Gregory Quinlan, testified as to the history of the
interaction between the OTC and the Nation. As to the parties’ intended meaning
of the Compact, the Nation presented the testimony of Oklahoma’s ex-Governor,
Brad Henry, and the Nation’s Chairman, John A. Barrett. Governor Henry
testified he directed and oversaw the model gaming compact negotiations. He
testified the Compact provided for arbitration: (1) to resolve disputes more
quickly and with less expense; and (2) to maintain each party’s sovereignty by
preventing Oklahoma from attempting to pull Native American tribes into state
court to resolve claims. Governor Henry testified the Compact was authored by
7
(...continued)
between the Nation and the State’s administrative licensing bodies. Oklahoma
also asserted it has preexisting authority to regulate liquor transactions in Indian
Country under federal statutory law and binding United States Supreme Court
precedent. Thus, Oklahoma argued, Part 5 of the Compact does not alter the
parties’ jurisdiction regarding alcohol sales but, instead, conditions the
availability of gaming on compliance with Oklahoma’s preexisting authority. The
arbitrator refused to grant Oklahoma summary judgment, concluding as follows:
The underlying dispute centers primarily on the Nation’s contention
that they have no obligation to accede to the State’s demand for all of
the Nation’s businesses to collect, report and remit sales taxes on
sales to non tribal members. The Nation’s claim is arbitrable. The
arbitration agreement in question is extremely broad. It is governed
by the Federal Arbitration Act which embodies a strong presumption
that an arbitration clause applies and resolves any doubt arising from
the contract language to favor arbitration.
The arbitration then progressed through discovery and an evidentiary hearing.
-10-
the state and offered to the Nation as a “take it or leave it” proposition. He
further testified the Compact was not intended to subject the Nation to the
taxation urged by Oklahoma. 8
As to economic aspects of a federal preemption analysis, 9 the Nation
presented the testimony of, inter alia, Dr. Joseph P. Kalt, Professor Emeritus at
the John F. Kennedy School of Government at Harvard University. Dr. Kalt
testified there is an explicit federal policy regarding Native American
self-determination and that:
[T]he federal government has been on a quite consistent path in
which it is seeking to fulfill its trust responsibilities to tribes by
letting the tribes hold the reins of self-government in order to
hopefully make better decisions and begin to move tribes, both
culturally and economically, politically forward under their own
decision-making as tribal nations under self-rules of self-governance.
As to the Nation’s provision of governmental functions and services, Dr. Kalt
testified that: “[The Nation] is extremely well-known, actually, for its going well
beyond its provision of services and performance of governmental functions than
8
Governor Henry testified Compact Part 5(I) was intended to ensure minors
had no access to alcohol, not as leverage to enforce other laws outside of the
Compact. He explained model-compact negotiations were delicate and
Oklahoma’s primary goal was to obtain a portion of tribal gaming revenues to
supplement funding for education. According to Governor Henry, “the last thing
(the State) would have wanted to do, in my opinion, is try to backdoor in some
language to require these Tribes that we’re trying to get a deal with, to pay other
taxes that they weren’t paying.”
9
This preemption analysis is derived from the Supreme Court’s decision in
White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980).
-11-
what would have been allowed by just the level of federal funding.” Dr. Kalt
testified that given the Nation’s millions of dollars of payments in Compact
exclusivity fees and mixed beverage taxes, the incremental burdens on Oklahoma
caused by the Nation’s economy were not uncompensated, stating:
[T]he State of Oklahoma does not have any uncompensated burden.
In fact, it’s benefitting from a wealthy neighbor, or getting wealthier
neighbor, that is producing its own GDP now, the [Nation], that
benefits the State of Oklahoma. And there’s no evidence that I can
find that indicates that the State is suffering some uncompensated
burden as a result of the Tribe’s success in developing its own
economy . . . .
Two hundred and fifty million dollars spending by the [Nation] will
generate five hundred million dollars, a little more than five hundred
million dollars, of economic activity overall in the region. Well, that
level of economic activity will far outweigh any uncompensated
burden that we could imagine. It’s implausible to imagine that
there’s, you know, a quarter of a billion or half a billion dollars’
worth of uncompensated burden.
Oklahoma’s only witness was former gubernatorial General Counsel, Steve
Mullins. He maintained Oklahoma could attach any condition whatsoever,
including taxation of activities unrelated to the sale of alcoholic beverages, to the
Nation’s alcoholic beverage sales license. Mullins testified he did not believe
Oklahoma was seeking to compel the Nation to pay taxes, but that it sought to
compel the Nation to file tax reports as a condition of maintaining alcoholic
beverage permits at the facilities covered by the Compact. Oklahoma offered no
testimony or other evidence material to a preemption analysis derived from White
-12-
Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980), or to the parties’
intended meaning of the Compact terms at issue.
The arbitrator issued an award in favor of the Nation. The award began by
reiterating that the dispute between Oklahoma and the Nation was arbitrable. The
arbitration award went on to declare that, under the test set out in Bracker, federal
law preempts Oklahoma’s ability to levy a tax on sales made within tribal
jurisdiction by the nation to individuals that are not members of the Nation. 10
10
The arbitration award simply provides as follows:
The Nation contends that even if the State’s Sales Tax Code
purported to apply to the Nation’s sales of goods and services to
nontribal members, it would be preempted under the federal
balancing test applied in Indian Country, U.S.A. v. State of
Oklahoma, 829 F.2d 967 (10th Cir. 1987) and White Mountain
Apache Tribe v Bracker, 448 U.S. 136 (1980) . . . . [W]hen the legal
incidence of a tax falls on non-Indians, as it does here, no categorical
bar prevents enforcement of the tax. Federal and tribal interests must
be weighed against state interests. At the hearing, the Nation
established (i) significant federal and tribal interests in the Nation’s
self-governance, economic self-sufficiency, and self-determination;
(ii) the Nation alone invests value in the goods and services that it
sells, does not derive such value through an exemption from State
sales taxes, and imposes its own equivalent tribal sales tax on the
sales; (iii) the State possesses no economic interest beyond a general
quest for additional revenue in imposing a sales tax on the Nation’s
transactions and suffers no uncompensated economic burden arising
therefrom; and (iv) the federal and tribal interests at stake
predominate significantly over any possible State interest in the
transactions upon which the State seeks to impose its sales tax.
Accordingly, federal law protecting tribal sovereignty interests
preempts and invalidates the State’s sales tax on the Nation’s sales in
question. . . .
-13-
Finally, the award enjoined Oklahoma from (1) taking any action to divest
Compact facilities of the right to sell and serve alcoholic beverages or (2)
“threaten[ing] other enforcement actions” against the Nation on the ground the
Nation does not comply with Oklahoma’s sales tax laws.
C. Confirmation Proceedings in the Federal District Court
The Nation moved to enforce the arbitration award by filing an action in
the United States District Court for the Western District of Oklahoma. 9 U.S.C.
§ 9. It argued that, pursuant to the extraordinarily narrow review provisions set
out in 9 U.S.C. § 10, the arbitrator properly determined the dispute was arbitrable
and correctly concluded the Nation has no legal duty to report, collect, or remit
the state sales taxes at issue in the state administrative proceedings. Oklahoma
filed a motion to vacate the arbitration award. Id. § 10(a)(4). It asserted it was
entitled to have the award vacated because the arbitrator (1) exceeded his powers
by failing to limit the award to enforcement of the Compact’s provisions 11 and
(2) “so imperfectly executed [his powers] that a mutual, final, and definite award
upon the subject matter submitted was not made.” 12 See id. In any event,
11
Oklahoma claimed the arbitrator failed to interpret and enforce the
Compact. Instead, according to Oklahoma, the arbitrator opted to make public
policy by invalidating Oklahoma’s sales tax laws as they relate to Compact
gaming facilities and conferring upon the Nation a right to sell and serve alcohol
that does not exist in the law and is not created by the Compact.
12
Oklahoma claimed the award was so indefinite or ambiguous that
enforcement of the award was problematic and failed to resolve all issues
(continued...)
-14-
Oklahoma asserted it was entitled to de novo federal court adjudication of the
factual and legal issues involved in the arbitration.
After the parties engaged in further briefing, the district court entered an
order enforcing the arbitration award. The district court began its analysis by
recognizing that review of arbitration awards is among the narrowest known to
the law. Cf. Litvak Packing Co. v. United Food & Commercial Workers, Local
Union No. 7, 886 F.2d 275, 276 (10th Cir. 1989). With that standard in mind, the
district court concluded the arbitrator’s determination—that Oklahoma could not
force the Nation to collect, record, or remit sales taxes for transactions on tribal
lands involving individuals who are not members of the Nation—at least arguably
drew its essence from the Compact. The district court also rejected Oklahoma’s
assertion the arbitrator recognized a right to serve alcoholic beverages that is not
conferred by the Compact. According to the district court, “it is clear that the
arbitrator was not suggesting or implying that some unfettered right exists to sell
alcohol. Rather, it is clear from that surrounding language in the portions of the
award where the term ‘right’ is used, that the arbitrator’s intent was simply a
manner of expressing the [Nation’s] entitlement to sell alcohol without improper
enforcement actions against it by [Oklahoma].” As to Oklahoma’s asserted
entitlement to de novo review, the district court concluded as follows:
12
(...continued)
submitted for arbitration.
-15-
[Oklahoma] requests that the Court conduct de novo review of the
award, relying upon Part 12(3) of the Compact. As [the Nation]
notes, [Oklahoma’s] argument in this regard is foreclosed by the
Supreme Court’s ruling in Hall Street Assocs. . . . There, the
Supreme Court noted that the parties may not expand the grounds of
review of an award beyond those set forth by the . . . [FAA]. . . .
The Supreme Court made clear that the only grounds for vacating or
modifying an arbitration award were those set forth in §§ 10 or 11 of
the FAA. As [the Nation] notes, to engage in de novo review as
requested by [Oklahoma] would improperly broaden the permissible
grounds for setting aside the award. Thus, [Oklahoma’s] argument is
foreclosed by Supreme Court precedent.
The district court’s decision does not contain a discussion of Oklahoma’s properly
raised assertion that the arbitration provision of Compact Part 12 was invalid if
the de novo review provision was rendered unenforceable by Hall Street
Associates.
III. ANALYSIS
On appeal, Oklahoma challenges, on two independent bases, the order of
the district court confirming the arbitration award. Oklahoma asserts the district
court erred in confirming the award because the award did not finally resolve all
submitted issues, suffers from fatal vagueness, and exceeds the arbitrator’s
powers. See 9 U.S.C. § 10(a)(4). Oklahoma also asserts the district court erred in
failing to conduct de novo review of the merits of the parties’ dispute, as
contemplated by Compact Part 12(3). And, if such de novo review is unavailable,
Oklahoma asserts the district court erred in failing to sever the obligation to
-16-
engage in binding arbitration from the Compact, as de novo review was a material
aspect of the parties’ agreement to arbitrate disputes arising under the Compact.
Prudential concerns counsel in favor of resolving Oklahoma’s appeal by
reference to the validity of the Compact’s requirement to engage in binding
arbitration. As set out below, the decision in Hall Street Associates leaves no
doubt that an attempt to alter the review standards set out in the FAA is legally
invalid. Furthermore, the text of the Compact demonstrates the materiality of
Part 12(3) to the parties’ agreement to engage in binding arbitration, leaving
resolution of the appeal straight forward and providing Oklahoma with all the
relief sought. Addressing this issue also has the salutary effect of resolving legal
uncertainty. Oklahoma has entered into gaming compacts with many tribes,
https://www.bia.gov/as-ia/oig/gaming-compacts (last visited Jan. 9, 2018).
Because those compacts are all derived from Oklahoma’s “model tribal gaming
compact,” Okla. Stat. tit. 3A, § 281, resolving the issue of the validity of
Compact Part 12’s arbitration provision will allow the parties to those compacts
to develop roadmaps for how to proceed when gaming-related disputes arise
between Oklahoma and a tribe with a compact.
On the other hand, beginning the analysis with an FAA § 10(a)(4) merits
review of the arbitrator’s award is not particularly productive. It is uncertain,
although we do not offer any definitive resolution of the question, whether
Oklahoma could obtain all the relief it seeks under the limited review of an
-17-
arbitration award set out in § 10(a)(4). That being the case, this court would
likely need to resolve the validity of the Compact’s arbitration provision anyway.
See Oklahoma’s Reply Brief at 2 (“The critical issue raised by this appeal is
whether the district court was correct in holding that the parties are bound by an
arbitration agreement that has been fundamentally altered by a Supreme Court
decision that rendered one of its material terms unenforceable.”). Nor does it
seem proper, given the Supreme Court’s decision in Hall Street Associates, to
engage in some type of shadow de novo review to determine whether Oklahoma
would prevail even were this court to apply the review advocated for by
Oklahoma on appeal. In any event, even if this court were inclined to engage in
such a review, it is not clear we are properly equipped for such a task. In its
motion to vacate the arbitration award in the district court, Oklahoma asserted the
de novo review provision entitled it to de novo review of the arbitrator’s factual
findings and legal determinations. 13 On appeal, however, neither party has
briefed whether the Compact’s de novo review provision only applies to the
arbitrator’s legal conclusions or to both legal conclusions and factual findings.
And, if Oklahoma is correct that the Compact requires de novo review of the
13
For an example of what such a system of de novo review might resemble,
see generally United States v. Raddatz, 447 U.S. 667 (1980) (describing district
court review of recommendations made by magistrate judges under the provisions
of 28 U.S.C. § 636(b)(1)(B)).
-18-
arbitrator’s factual findings, such a task would necessarily have to occur in the
district court. 14
For all of the reasons set out above, the prudent course is for this court to
resolve this appeal by reference to Oklahoma’s argument that Compact Part
12(3)’s de novo review provision is a material aspect of Part 12’s requirement
that the parties engage in binding arbitration and, assuming the legal invalidity of
that provision, the arbitration provision must be severed from the Compact.
A. Compact Part 12(3)’s De Novo Review Provision is Legally Invalid
This court can quickly dispose of Oklahoma’s argument that even given the
Supreme Court’s decision in Hall Street Associates, the de novo review provision
in Compact Part 12(3) is still valid and enforceable. Oklahoma concedes Hall
Street Associates held that parties to an arbitration agreement cannot contract for
any review other than the narrow review set out in 9 U.S.C. §§ 10 and 11. 15 It
14
Compact Part 12(3) provides as follows: “Notwithstanding any provision
of law, either party to the Compact may bring an action against the other in a
federal district court for the de novo review of any arbitration award under
paragraph 2 of this Part. The decision of the court shall be subject to appeal.”
Okla. Stat. tit. 3A, § 281.
15
Hall Street Associates provides as follows:
The [FAA] . . . supplies mechanisms for enforcing arbitration
awards: a judicial decree confirming an award, an order vacating it,
or an order modifying or correcting it. [9 U.S.C. §§ 9–11]. An
application for any of these orders will get streamlined treatment as a
motion, obviating the separate contract action that would usually be
necessary to enforce or tinker with an arbitral award in court. [Id.
(continued...)
-19-
argues, however, that “the policies behind the Indian Gaming Regulatory Act
[(“IGRA”)] have substantially more importance than the policies behind the
Federal Arbitration Act.” Oklahoma’s Opening Br. at 42. But see Hall Street
Assocs., 552 U.S. at 588 (“[I]t makes more sense to see [9 U.S.C. §§ 9-11] as
substantiating a national policy favoring arbitration with just the limited review
needed to maintain arbitration’s essential virtue of resolving disputes
straightaway. Any other reading opens the door to the full-bore legal and
evidentiary appeals that can render informal arbitration merely a prelude to a
more cumbersome and time-consuming judicial review process, and bring
arbitration theory to grief in post arbitration process.” (citation, quotation, and
alteration omitted)). Oklahoma goes on to argue that IGRA favors federal court
litigation to resolve disputes between sovereign Indian tribes and sovereign states.
15
(...continued)
§ 6]. Under the terms of § 9, a court ‘must’ confirm an arbitration
award ‘unless’ it is vacated, modified, or corrected ‘as prescribed’ in
§§ 10 and 11. Section 10 lists grounds for vacating an award, while
§ 11 names those for modifying or correcting one.
. . . . We now hold that §§ 10 and 11 respectively provide the FAA’s
exclusive grounds for expedited vacatur and modification.
552 U.S. at 582-84 (footnote omitted). To be clear, both the Nation’s motion to
confirm the arbitration award and Oklahoma’s motion to vacate that award were
predicated on the provisions of the FAA. See id. at 590 (noting that the holding
applies only to motions to confirm or vacate an award under the FAA and
declining to consider whether a party to an arbitration agreement can obtain
“more searching review” “under state statutory or common law”).
-20-
Apparently, Oklahoma infers from this supposed IGRA “policy” in favor of
federal court litigation, a parallel, though unstated, IGRA preference for de novo
review in federal court of arbitration awards flowing from Compact-based
arbitration agreements. Finally, Oklahoma notes a gaming compact must be
approved or deemed approved by the Secretary of the Interior before it can go in
to effect, 25 U.S.C. § 2710(d)(1)(C), and that the Compact was deemed approved.
Notice of Class III Gaming Compacts Taking Effect, 70 Fed. Reg. 6903-01 (Feb.
9, 2005). From all this, Oklahoma argues Compact Part 12(3) survives the
Supreme Court’s decision in Hall Street Associates. Oklahoma’s Opening Br. at
43-44 (“Given [IGRA’s] reliance on federal court litigation to resolve disputes
between states and tribes, it is unsurprising that the Bureau of Indian Affairs has
not objected to the de novo review clause in Oklahoma’s state-tribal gaming
compacts. Preventing federal court review under the [FAA] would actually
undermine [IGRA’s] reliance on federal courts to protect tribal and state
interests.” (footnote omitted)).
Oklahoma’s arguments in support of the application of de novo review are
unconvincing. It does not provide a single citation to authority in support of its
contention that the policies underlying IGRA are more important than the policies
underlying the FAA. Nor has this court found any such authorities. Furthermore,
although it is true that IGRA provides a federal forum to litigate and vindicate
interests related to gaming and gaming compacts, 25 U.S.C. § 2710(d)(7)(A),
-21-
arbitration is not mentioned in IGRA and no provision of IGRA purports to alter
the FAA review provisions. Given that Hall Street Associates makes clear de
novo review is entirely incompatible with the expedited process envisioned in the
FAA, 552 U.S. at 588, this court is unwilling to treat the mere provision of a
federal forum in IGRA as some implicit rejection of the applicability of the FAA
review standards to arbitrations involving gaming compacts. After all, IGRA
neither encourages nor discourages the inclusion of arbitration provisions in
gaming compacts, leaving the matter entirely to the parties entering into such a
compact. 16 See Michigan v. Bay Mills Indian Cmty., 134 S. Ct. 2024, 2035 (2014)
(noting the parties had agreed to arbitrate disputes related to the gaming compact,
16
To the extent Oklahoma’s brief could be read as asserting this court
should enforce its right to de novo review because the liberal policy in favor of
arbitration is based on freedom of contract, that argument was specifically
rejected by the Court in Hall Street Associates:
Hall Street says that the agreement to review for legal error
ought to prevail simply because arbitration is a creature of contract,
and the FAA is motivated, first and foremost, by a congressional
desire to enforce agreements into which parties have entered. But,
again, we think the argument comes up short. Hall Street is certainly
right that the FAA lets parties tailor some, even many, features of
arbitration by contract, including the way arbitrators are chosen,
what their qualifications should be, which issues are arbitrable, along
with procedure and choice of substantive law. But to rest this case
on the general policy of treating arbitration agreements as
enforceable as such would be to beg the question, which is whether
the FAA has textual features at odds with enforcing a contract to
expand judicial review following the arbitration.
552 U.S. at 585-86 (quotation, alteration, and citations omitted).
-22-
but specifically recognizing IGRA gave Michigan the leverage necessary to obtain
from the tribe a waiver of sovereign immunity so that such disputes would be
dealt with in litigation). Finally, Oklahoma has not identified, and this court has
not found, any support for the notion it is entitled to have the de novo review
provision of the arbitration agreement enforced because the Secretary of the
Interior deemed the compact approved pursuant to 25 U.S.C. § 2710(d)(3)(B),
(d)(8). Although the Secretary is obligated to reject any gaming compact that
“violates . . . any other provision of Federal law,” id. § 2710(d)(8)(B)(ii), in so
doing, the Secretary is not empowered to unilaterally alter the provisions of the
FAA (or, for that matter, the provisions of any other federal statute). See Pueblo
of Santa Ana v. Kelly, 104 F.3d 1546, 1557 (10th Cir. 1997) (rejecting contention
that Secretary of the Interior can, by simple act of approving gaming compacts,
“ratify or authorize” otherwise unauthorized conduct).
Because Hall Street Associates makes clear the de novo review provision
set out in Compact Part 12(3) is legally invalid, this court must turn to the
question whether that provision is a material aspect of the parties’ agreement to
engage in binding arbitration.
B. Materiality of Compact Part 12(3) to the Parties’ Agreement to Arbitrate
1. Hall Street Associates
Before turning to the language of the Compact and, at least potentially, the
record evidence regarding the intent of the parties, it is necessary to resolve a
-23-
predicate assertion on the part of the Nation. The Nation’s brief on appeal could
be read to suggest the decision in Hall Street Associates forecloses the relief
sought by Oklahoma. See The Nation’s Br. at 23 (“The Hall Street Court did not
find that the infirm standard of review provision worked to invalidate the entire
arbitration clause at issue in that matter. The District Court correctly found that
the invalidity of the non-FAA standard of review provision likewise does not
work to invalidate any other portion of the Compact.” (footnote omitted)). In so
arguing, the Nation fails to recognize that the Court in Hall Street Associates
made clear it was not passing on the question whether severability of the
obligation to engage in binding arbitration was an appropriate response to the
invalidity of a de novo review provision. 552 U.S. at 587 n.6 (noting the Ninth
Circuit ruled against Hall Street Associates on the issue of severability and Hall
Street Associates did not seek certiorari on the issue, so the issue was not before
the Court); see also Hall Street Assocs., LLC v. Mattel Inc., 113 F. App’x 272,
273 (9th Cir. 2004) (holding its decision in Kyocera Corp. v. Prudential-Bache
Trade Services, Inc., 341 F.3d 987, 1000-02 (9th Cir. 2003) (en banc) mandated a
determination that “terms of the arbitration agreement controlling the mode of
judicial review are unenforceable and severable”); Kyocera, 341 F.3d at 1000-02
(en banc) (holding, as a matter of California state contract law, that invalid de
novo review provisions in arbitration agreements would not render invalid the
-24-
agreement to engage in binding arbitration). Thus, the decision in Hall Street
Associates does not speak to the severability question currently before this court.
2. Severability Analysis
“[A]rbitration is a matter of contract.” Rent-A-Center, West, Inc. v.
Jackson, 561 U.S. 63, 67 (2010). “The FAA . . . places arbitration agreements on
an equal footing with other contracts and requires courts to enforce them
according to their terms. Like other contracts, however, they may be invalidated
by generally applicable contract defenses . . . .” Id. at 67-68 (citations and
quotation omitted). “A compact is a form of contract.” Pueblo of Santa Ana, 104
F.3d at 1556. It is a creation of IGRA, which determines a gaming compact’s
effectiveness and permissible scope. See Seminole Tribe of Fla. v. Florida, 517
U.S. 44, 48-49 (1996); 25 U.S.C. § 2710(d)(3). For that reason, a gaming
compact is similar to a “congressionally sanctioned interstate compact the
interpretation of which presents a question of federal law.” Cuyler v. Adams, 449
U.S. 433, 442 (1981); see also Gaming Corp. of Am. v. Dorsey & Whitney, 88
F.3d 536, 546 (8th Cir. 1996) (“Tribal-state compacts are at the core of the
scheme Congress developed to balance the interests of the federal government,
the states, and the tribes. They are a creation of federal law, and IGRA prescribes
the permissible scope of a Tribal–State compact . . . .” (quotation omitted)). 17
17
It is for this very reason that this court has jurisdiction over the instant
(continued...)
-25-
Accordingly, in interpreting the Compact, including whether the de novo review
provision is material to the parties’ agreement to engage in binding arbitration,
we look to the federal common law. See Puma Band of Luiseno Mission Indians
v. California, 813 F.3d 1155, 1163 (9th Cir. 2015) (“General principles of federal
contract law govern . . . Compacts, which were entered pursuant to IGRA.”
(quotation omitted)). 18
Under federal contract principles, if the terms of a contract are not
ambiguous, this court determines the parties’ intent from the language of the
agreement itself. See Anthony v. United States, 987 F.2d 670, 673 (10th Cir.
17
(...continued)
appeal. See Cabazon Band of Mission Indians v. Wilson, 124 F.3d 1050, 1056
(9th Cir. 1997) (“The State’s obligation to the Bands thus originates in the
Compacts. The Compacts quite clearly are a creation of federal law; moreover,
IGRA prescribes the permissible scope of the Compacts. We conclude that the
Bands’ claim to enforce the Compacts arises under federal law and thus that we
have jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1362.”); see also Forest
Cnty. Potawatomi Cmty. of Wisc v. Norquist, 45 F.3d 1079, 1082 (7th Cir. 1995)
(holding federal jurisdiction was proper and noting rights flowing from a gaming
compact are federal rights).
18
This court’s opinion in Pueblo of Santa Ana v. Kelly, 104 F.3d 1546,
1557-59 (10th Cir. 1997), is not to the contrary. In that case, we examined
whether a gaming compact purportedly entered into by New Mexico was valid ab
initio. Id. at 1548. This court recognized that as a general matter “the validity of
a compact necessitates an interpretation of both federal and state law.” Id. at
1557. As to the narrow question “whether a state has validly bound itself to a
compact,” the court determined state law controlled. Id. Here, on the other hand,
the materiality of Compact Part 12(3) to the parties’ agreement to engage in
binding arbitration turns on routine matters of contract law (the intent of the
parties), not on some particular or peculiar aspect of the laws of Oklahoma or the
Nation. As set out above, the federal common law of contracts provides a ready
vehicle for resolving that question.
-26-
1993); see also Arizona v. Tohono O’odham Nation, 818 F.3d 549, 560-61 (9th
Cir. 2016) (“Federal common law follows the traditional approach for the parol
evidence rule: A contract must be discerned within its four corners, extrinsic
evidence being relevant only to resolve ambiguity in the contract.” (quotation and
alterations omitted)). 19 Further, this court will construe the Compact to give
meaning to every word or phrase. See United States v. Brye, 146 F.3d 1207, 1211
(10th Cir. 1998).
When considered as a whole, Compact Part 12 makes clear that the parties’
agreement to engage in binding arbitration was specifically conditioned on, and
inextricably linked to, the availability of de novo review in federal court. The
Compact contains a specific severability provision. 20 This provision requires a
19
Even if this court’s decision in Pueblo of Santa Ana could plausibly be
read for the proposition that Oklahoma law plays some part in the interpretation
of the Compact, such a conclusion would not have any impact on the resolution of
this case because Oklahoma’s law of contract interpretation mirrors the federal
common law. See Gamble, Simmons & Co. v. Kerr-McGee Corp., 175 F.3d 762,
767 (10th Cir. 1999) (acknowledging that, in Oklahoma, “[i]f the contract is
unambiguous its language is the only legitimate evidence of what the parties
intended, and [courts] will not rely on extrinsic evidence to vary or alter the plain
meaning” (citation omitted)); see also Okla. Stat. tit. 15, § 154 (“The language of
a contract is to govern its interpretation, if the language is clear and explicit, and
does not involve absurdity.”)
20
Compact Part 13(A) provides as follows:
Each provision, section, and subsection of this Compact shall
stand separate and independent of every other provision, section, or
subsection. In the event that a federal district court shall find any
provision, section, or subsection of this Compact to be invalid, the
(continued...)
-27-
materiality analysis to determine whether the parties would have agreed to engage
in binding arbitration if they had known de novo review of an arbitration award
was unavailable. Compact Part 12(2), the provision establishing binding
arbitration, specifically limits that requirement to the availability of de novo
review as set out in Compact Part 12(3). Okla. Stat. tit. 3A, § 281 (“Subject to
the limitation set forth in paragraph 3 of this Part, either party may refer a
dispute arising under this Compact to arbitration under the rules of the American
Arbitration Association (AAA), subject to enforcement or pursuant to review as
provided by paragraph 3 of this Part by a federal district court.” (emphasis
added)). Compact Part 12(3) makes clear that federal district court review
includes de novo review and that the district court’s de novo review is subject to
appeal to this court.
Importantly, the Compact links the parties’ waivers of sovereign immunity
to the kind of judicial review available. Part 12(2) of the Compact authorizes
arbitration subject to de novo review in federal court as provided in Part 12(3),
while Part 12(3) states that the parties “waive[] immunity and consent[] to suit [in
federal court] for such limited purposes.” Id. That is, the language of the
20
(...continued)
remaining provisions, sections, and subsections of this Compact shall
remain in full force and effect, unless the invalidated provision,
section or subsection is material.
Okla. Stat. tit. 3A, § 281.
-28-
Compact makes clear that the parties’ waiver of sovereign immunity is only for
purposes of the type of de novo review contemplated in Part 12(3), not for suits to
enforce an arbitration award under the limited review procedures set out in
9 U.S.C. §§ 9-11. Given the importance of immunity as an aspect of sovereignty,
Alden v. Maine, 527 U.S. 706, 713 (1999), the narrow and purposeful waiver in
Part 12(3) makes clear that the availability of de novo review was a material
aspect of the parties’ agreement to arbitrate.
In response to all this, the Nation does not argue Compact Part 12(3) or, for
that matter, any portion of Compact Part 12 is ambiguous. Thus, its reliance on
extrinsic evidence is inappropriate because, absent such ambiguity, there is no
need to look beyond the four corners of the Compact to resolve the question of
materiality. Anthony, 987 F.2d at 673. Even if extrinsic evidence were
admissible, however, the extrinsic evidence offered by the Nation is simply not
meaningfully relevant to the question of materiality. The Nation relies solely on
Governor Henry’s statement during arbitration proceedings that “the arbitration
clause was included to resolve disputes straightaway and to preserve each party’s
sovereignty.” According to the Nation, this bare snippet of testimony “is
harmonious with Hall Street’s primary basis for declining to permit expansion of
the FAA standard of review.” The Nation’s Br. at 24. That the arbitration clause
was included to “resolve disputes straightaway” says almost nothing about the
parties’ insistence on including a de novo review provision in Part 12. We are
-29-
unwilling to infer from the parties’ apparent desire to resolve disputes
expeditiously a desire to arbitrate disputes at the expense of a specific provision
meant to maintain critical aspects of the parties’ sovereign immunity.
Finally, the Nation speculates that invalidating the arbitration clause might
result in enforcement problems when future disputes arise between it and
Oklahoma. It is far from clear this is a viable consideration in assessing the
materiality of Part 12(3) of the Compact. The Nation has not identified, and this
court has not found, any precedent indicating federal courts are empowered to
overlook material provisions of a contract, especially when those material
provisions are intended to protect the sovereign interests of a tribe and a State, on
the basis of what this court might perceive to be sound public policy. 21
Because the availability of de novo review is a material aspect of the
parties’ agreement to engage in binding arbitration, and because Hall Street
Associates renders the de novo review provision legally unenforceable, the
district court erred in refusing to sever Compact Part 12(2) from the Compact.
21
In any event, the Nation’s assertion is only true if it is now taking the
position it will invoke its sovereign immunity to avoid federal-court adjudication
of any future dispute. In its brief on appeal, Oklahoma solemnly states it will
readily litigate such disputes in federal court. Given that in the Compact,
Oklahoma and the Nation explicitly agreed to waive sovereign immunity in
federal court for the purpose of de novo review of arbitration decisions, it is
difficult for the Nation to creditably argue submitting disputes related to gaming
or gaming compacts to federal courts for resolution as an initial matter is not a
viable option.
-30-
IV. CONCLUSION
For those reason set out above, the matter is REMANDED to the United
States District Court for the Western District of Oklahoma to enter an order
VACATING the arbitration award.
-31-