Bank One NA v. Vaughn

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
___________________________
Consolidated Cases Nos. 01-60228, 01-60229, 01-60230,
01-60231, 01-60232, 01-60233, 01-60234,01-60235,
01-60236, 01-60237, 01-60238
___________________________
BANK ONE, N.A.,
Plaintiff-Appellant,
VERSUS
MYRA MAE SHUMAKE, DARLENE VAUGHN, ANDIA WILLIAMSON, KARREN SAM,
VIRGINIA WILLIS, WILLIE WILLIS, LAVERN WILLIS, BRAINARD LEWIS,
a/k/a Brianard Lewis, ROBIN WILLIS, DANITA WILLIS; KIRBY WILLIS,
DINA THOMAS AND ROSE WILLIS,
Defendants-Appellees.
___________________________________________________
Appeals from the United States District Court
for the Southern District of Mississippi
____________________________________________________
February 15, 2002
Before KING, Chief Judge, and DAVIS and MAGILL,* Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Bank One challenges the district court’s dismissal of its suit
to compel arbitration. Bank One contends that the reasoning of the
U.S. Supreme Court’s decision in El Paso Natural Gas Co. v.
*
Circuit Judge, U.S. Court of Appeals for the Eighth Circuit,
sitting by designation.
1
Neztsosie1 requires us to conclude that the tribal exhaustion
doctrine should not apply to suits to compel arbitration under the
Federal Arbitration Act.2 For the reasons that follow, we
disagree. We therefore affirm the district court’s order
dismissing Bank One’s action for failure to exhaust tribal
remedies.
I.
In March 1995, a door-to-door salesman sold home satellite
systems to several members of the Choctaw Indian tribe at their
homes on the Choctaw Indian Reservation in Mississippi. The
salesmen arranged to allow the purchaser to use credit provided by
Bank One. Bank One required prospective purchasers (“Cardmembers”)
to complete and execute a Credit Application, accompanied by a
Revolving Credit Card Plan and Disclosure Statement (the
“Cardmember Agreement”), and a Security Agreement. The application
provided that extensions of credit would be deemed to occur in
Ohio.
In March 1998, Bank One contends it notified its Cardmembers
of a modification to the Cardmember Agreement that inserted an
arbitration clause requiring that all disputes be resolved by
arbitration pursuant to the Federal Arbitration Act (FAA). Some
members of the Tribe contend that they did not receive the
1
526 U.S. 473, 119 S. Ct. 1430 (1999).
2
9 U.S.C. §§ 1-16.
2
modification.
In the summer of 2000, several members of the Mississippi Band
of Choctaw Indians, including Myra Rae Shumake, sued Bank One in
the Tribal Court of the Mississippi Band of Choctaw Indians
(“Tribal Court”) seeking damages and injunctive relief. The
complaints alleged that Bank One financed the transaction through
“bogus” credit cards, and that it concealed and failed to disclose
material information regarding the credit transaction.
Upon receipt of notice of the Tribal Court actions, Bank One
promptly filed suits in the federal district court under § 4 of the
FAA against each Cardholder seeking to compel arbitration of their
Tribal Court claims, asserting that those claims are subject to a
valid and binding arbitration agreement. The Cardholders
immediately moved for dismissal of Bank One’s district court action
or remand to the Tribal Court, arguing that the tribal exhaustion
doctrine requires federal courts to allow tribal courts to have the
first opportunity to rule on the question of its jurisdiction. The
district court found that the tribal exhaustion doctrine applied to
these cases and dismissed Bank One’s suits so that the Tribal Court
could first address the question of its jurisdiction.
Bank One appeals the dismissals, contending that the district
court inappropriately applied the tribal exhaustion doctrine to
these FAA cases and that the arbitration clause in the contract
waived any right to tribal exhaustion. The cases have been
3
consolidated on appeal.
II.
The standard of review of district court decisions to stay or
dismiss proceedings on abstention grounds is abuse of discretion,
but to the extent that such a decision rests on an interpretation
of law, our review is de novo.3
III.
A.
We turn first to Bank One’s argument that the tribal
exhaustion doctrine should be inapplicable to actions to compel
arbitration under the FAA. In considering this issue, we first
review the Supreme Court cases on the tribal exhaustion doctrine.
The Supreme Court established the doctrine in National Farmers
Union Insurance Co. v. Crow Tribe.4 In that case, a Crow Indian
minor was struck by a motorcycle in the parking lot of a school
owned by the state, but located on the Crow Indian Reservation.
The minor’s parents sued the school district in tribal court and
obtained a default judgment. The school district and its insurer
then filed suit in federal court seeking an injunction against
3
See, e.g., Safety National Casualty Corp. v. Bristol-Myers
Squibb Co., 214 F.3d 562, 564 (5th Cir. 2000); citing Black Sea
Inv. Ltd. v. United Heritage Corp, 204 F.3d 647, 649-50 (5th Cir.
2000); Murphy v. Uncle Ben's, Inc., 168 F.3d 734, 737 (5th Cir.
1999); Sutter Corp. v. P & P Indus., Inc., 125 F.3d 914, 917 (5th
Cir. 1997).
4
471 U.S. 845, 105 S. Ct. 2447 (1985).
4
execution of the judgment and further proceedings in tribal court
on the theory that the tribal court lacked subject matter
jurisdiction in civil actions against non-tribe members under 28
U.S.C. § 1331. The district court granted the injunction, but a
divided panel of the Ninth Circuit reversed.
The Supreme Court held that as a threshold matter, federal
courts may determine whether a tribal court has exceeded its lawful
jurisdiction because the extent of tribal sovereignty is a matter
of federal law for the purposes of § 1331.5 The Supreme Court
held, however, that so long as “the action is not patently
violative of express jurisdictional prohibitions,”6 the first
examination of tribal court jurisdiction should take place in the
tribal court rather than in federal court.
We believe that examination should be conducted in the
first instance in the Tribal Court itself. Our cases have
often recognized that Congress is committed to a policy
of supporting tribal self-government and self-
determination. That policy favors a rule that will
provide the forum whose jurisdiction is being challenged
the first opportunity to evaluate the factual and legal
bases for the challenge. Moreover the orderly
administration of justice in the federal court will be
served by allowing a full record to be developed in the
Tribal Court before either the merits or any question
concerning appropriate relief is addressed. The risks of
... [a] “procedural nightmare" ... will be minimized if
the federal court stays its hand until after the Tribal
Court has had a full opportunity to determine its own
5
See id. at 852-53.
6
Id. at 857 n.21. The other two exceptions--bad faith or lack
of opportunity to challenge the tribal court’s jurisdiction--do not
apply here.
5
jurisdiction and to rectify any errors it may have made.7
The next important Supreme Court decision on the tribal
exhaustion doctrine is Iowa Mutual Insurance Co. v LaPlante,8 in
which the Court extended the doctrine to diversity cases. In that
case, LaPlante, a member of the Blackfeet Indian Tribe filed suit
for personal injuries in tribal court against his employer, a ranch
located on the Reservation. He also sued the ranch’s insurer for
bad faith refusal to settle. The tribal court ruled that once
LaPlante amended his complaint to allege facts on which to base
jurisdiction, it would entertain jurisdiction over the action.
Iowa Mutual then sued the LaPlantes, the ranch, and its owners, in
federal district court alleging diversity of citizenship under 28
U.S.C. § 1332 as the basis of jurisdiction, and seeking a
declaration that it had no duty to defend or indemnify the ranch or
its owners because the injuries fell outside the policy. The
district court dismissed the action, holding that it lacked
jurisdiction because the tribal court must be given the first
opportunity to determine its own jurisdiction. The Ninth Circuit
affirmed.
The Supreme Court concluded that the district court did not
lack subject matter jurisdiction but that “the federal policy
supporting tribal self-government directs a federal court to stay
7
Id. at 856-57.
8
480 U.S. 9, 107 S. Ct. 981 (1987).
6
its hand in order to give the tribal court a ‘full opportunity to
determine its own jurisdiction.’”9 The Court noted that it had
“repeatedly recognized the Federal Government’s longstanding policy
of encouraging tribal self-government.... Tribal courts play a
vital role in tribal self-government, and the Federal Government
has consistently encouraged their development.”10 The Court
extended the doctrine to diversity cases because when “state-court
jurisdiction over Indians or activities on Indian lands would
interfere with tribal sovereignty and self-government, state courts
are generally divested of jurisdiction as a matter of federal
law.”11
The Court held that the sovereignty of tribal courts can only
be impaired by an express indication of Congressional intent.
“Because the Tribe retains all inherent attributes of sovereignty
that have not been divested by the Federal government, the proper
inference from silence ... is that the sovereign power ... remains
intact.”12 In response to the argument that the tribe lacked
authority over non-members on the reservation, the Court responded
that “[t]ribal authority over the activities of non-Indians on
9
Id. at 16, quoting National Farmers at 857.
10
Id. at 14, 107 S.Ct. at 975 (citations omitted).
11
Id. at 15.
12
Id. at 18, quoting Merrion v. Ticarilla Apache Tribe, 455
U.S. 130, 149 n.14 (1982).
7
reservation lands is an important part of tribal sovereignty.”13
B.
This brings us to the most recent Supreme Court case, the
primary basis of Bank One’s argument. In El Paso Natural Gas v.
Neztsosie,14 two members of the Navajo Nation sued El Paso in tribal
court for compensatory and punitive damages under Navajo tort law
for injuries arising from exposure to radioactive and other
hazardous materials. El Paso sued in the district court to enjoin
the Neztsosies from pursuing their claims in tribal court. The
district court denied the injunctions under the tribal exhaustion
doctrine except to the extent that the claims fell under the Price-
Anderson Act,15 but allowed the tribal court to determine in the
first instance whether the claims fell under Price-Anderson. The
Ninth Circuit modified the order to permit the Tribal Court to
resolve all issues.
13
Id., citing Montana v. U.S., 450 U.S. 544, 565-66 (1981).
Although tribes usually do not have jurisdiction over non-Indians
for activities off the reservation or Indian-fee land, Montana
noted several exceptions. As a threshold inquiry under the tribal
exhaustion doctrine, we must determine whether the tribal court’s
jurisdiction is explicitly limited. Montana limits it in many
situations. One of its exceptions, however, applies here: “A tribe
may regulate, through taxation, licensing, or other means, the
activities of nonmembers who enter into consensual relationships
with the tribe or its members, through commercial dealing,
contracts, leases, or other arrangements.” Montana at 565; see
also TTEA v. Ysleta del Sur Pueblo, 181 F.3d 676, 684 (5th Cir.
1999).
14
526 U.S. 473 (1999).
15
42 U.S.C. § 2210.
8
The Supreme Court reversed as to the claims under the Price-
Anderson Act and concluded that petitioners were not entitled to
pursue their Price-Anderson Act claims in Tribal Court. The Court
found that the case differed from National Farmers and Iowa Mutual
because “[b]y its unusual preemption provision,
the Price-Anderson Act transforms into a federal action
"any public liability action arising out of or resulting
from a nuclear incident[.]" The Act not only gives a
district court original jurisdiction over such a claim
but provides for removal to a federal court as of right
if a putative Price-Anderson action is brought in a state
court. Congress thus expressed an unmistakable preference
for a federal forum, at the behest of the defending
party, both for litigating a Price-Anderson claim on the
merits and for determining whether a claim falls under
Price-Anderson when removal is contested.16
Given the preemptive scope of the Price-Anderson Act, the Court
held that “[a]ny generalized sense of comity toward nonfederal
courts is obviously displaced by the provisions for preemption and
removal from state courts, which are thus accorded neither jot nor
tittle of deference.”17 Accordingly, the Court found that “the
comity rationale for tribal exhaustion normally appropriate to a
tribal court’s determination of its jurisdiction stops short of the
Price-Anderson Act.”18
Bank One contends that this decision significantly altered the
legal landscape by severely restricting the tribal exhaustion
16
Id. at 484 (internal citations omitted).
17
Id. at 485-86.
18
Neztsosie, 526 U.S. at 487.
9
doctrine. We disagree. The Supreme Court noted in Neztsosie that
its ruling does not say
that the existence of a federal preemption defense in the
more usual sense would affect the logic of tribal
exhaustion. Under normal circumstances, tribal courts,
like state courts, can and do decide questions of federal
law, and there is no reason to think that questions of
federal preemption are any different. The situation here
is the rare one in which statutory provisions for
conversion of state claims to federal ones and removal to
federal courts express congressional preference for a
federal forum.19
Neztsosie therefore teaches that a federal court need not stay
its hand pending tribal court adjudication under the Price-Anderson
Act. This brings us to the question we must decide: Does the FAA
have the pre-emptive force of the Price-Anderson Act, thereby
displacing comity considerations underlying the tribal exhaustion
doctrine?
Although the FAA reflects a strong policy favoring the
enforcement of arbitration clauses,20 unlike the Price-Anderson Act,
the FAA does not provide an independent ground of federal
jurisdiction. To sue in federal court to enforce an arbitration
claim, a petitioner must demonstrate the existence of federal
19
Id. at 485 n.7 (internal citation omitted).
20
See, e.g., Grigson v. Creative Artists Agency, 210 F.3d 524,
526 (5th Cir. 2000) (“Arbitration is favored in the law.”), citing
Moses H. Cone Memorial Hospital v. Mercury Construction, 460 U.S.
1, 24-25 (1983).
10
subject matter jurisdiction on the underlying contract claim.21 As
a result, suits to compel arbitration may only be brought in
federal court if diversity of citizenship or a federal question
exists.22
Also, federal substantive law under the FAA only applies to
contracts involving three types of transactions: (1) transactions
in interstate commerce, (2) transactions in foreign commerce, or
(3) maritime transactions. Otherwise state substantive law
applies.23 Even if FAA substantive law applies, federal courts must
still use state contract law to fill the gaps not covered by
federal law.24 If a plaintiff can find no subject matter
jurisdiction in federal court to enforce his right to arbitrate
21
“A party aggrieved ... may petition any United States
district court which, save for such agreement, would have
jurisdiction under Title 28, in a civil action or in admiralty of
the subject matter of a suit arising out of the controversy between
the parties, for an order directing that such arbitration proceed
in the manner provided for in such agreement.” 9 U.S.C. § 4.
22
Diversity of citizenship is the most common basis of
jurisdiction. See Wright & Miller, 13B FEDERAL PRACTICE AND PROCEDURE
172 (1984).
23
9 U.S.C. § 2.
24
See Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681
(1996) (state contract law and defenses); Volt Information
Sciences, Inc. v. Board of Trustees of Leland Stanford Junior
University, 489 U.S. 468 (1989) (state procedural rules). In the
application of state law, however, “due regard must be given to the
federal policy favoring arbitration, and ambiguities as to the
scope of the arbitration clause itself must be resolved in favor of
arbitration.” Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th
Cir. 1996), quoting Volt, 489 U.S. at 488.
11
under the FAA, he must rely on the state court to enforce these
rights.25 The Supreme Court commented on this arrangement in Moses
H. Cone Memorial Hosp. v. Mercury Const. Corp.:
The Arbitration Act is something of an anomaly in the
field of federal-court jurisdiction. It creates a body of
federal substantive law establishing and regulating the
duty to honor an agreement to arbitrate, yet it does not
create any independent federal-question jurisdiction....
Section 4 provides for an order compelling arbitration
only when the federal district court would have
jurisdiction over a suit on the underlying dispute....
[A]lthough enforcement of the Act is left in large part
to the state courts, it nevertheless represents federal
policy to be vindicated by the federal courts where
otherwise appropriate.26
The FAA may be further distinguished from Price-Anderson
because, as Neztsosie observes, Price-Anderson provides for a
federal forum to decide the merits of a controversy, whereas under
the FAA, the merits will be decided by arbitration.
In sum, while the FAA does reflect a policy strongly favoring
the enforcement of arbitration clauses, it does not reflect a
congressional intent for federal courts to occupy the entire field
of arbitration law.27
After examining the two statutes, we agree with the district
25
Commercial Metals Co. v. Balfour, Guthrie, & Co., 577 F.2d
264, 269 (5th Cir. 1978) (“It is clear that the state courts are
entirely able, as well as required, to apply the United States
Arbitration Act and compel arbitration pursuant to the Act if the
statutory requisites are present.”)
26
460 U.S. 1, 26 n. 32, 103 S. Ct. 927, 942 n. 32 (1983)
(internal citations omitted).
27
See Volt, 489 U.S. 468.
12
court that
Congress has not expressed an intent to provide a federal
forum for all suits to compel arbitration, but has
instead extended a federal forum only to those suits for
which there is otherwise an independent basis for federal
jurisdiction; the FAA itself confers no jurisdiction on
the federal courts.... In this case, then, in contrast
to the “rare” situation presented in Neztsosie, Bank One
would have no “right” to a federal forum in the absence
of diversity jurisdiction.... Here the jurisdictional
basis for Bank One’s complaint is not the FAA at all, but
diversity of citizenship jurisdiction, which alone is not
a sufficient basis to override the federal policy of
deference to tribal courts.
C.
Bank One also argues that courts must apply the abstention
principles included in Colorado River28 when considering tribal
exhaustion. We disagree. The tribal exhaustion doctrine is in no
way based on Colorado River. Iowa Mutual’s reference to the
Colorado River doctrine as another comity-based abstention doctrine
does not suggest that the Colorado River principles apply to a
tribal exhaustion case.29 The district court correctly
distinguished the two abstention doctrines, on the ground that the
Colorado River doctrine “proceeds from the premise that ‘the
federal courts have a “virtually unflagging obligation ... to
exercise the jurisdiction given them”’ and that therefore, the
pendency of litigation in state court is not a bar to proceedings
28
Colorado River Water Conservation District v. U.S., 424 U.S.
800, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976).
29
See Iowa Mutual, 480 U.S. at 16 n.8.
13
in federal court involving the same subject matter in the absence
of "exceptional circumstances."30 The policy which animates the
tribal exhaustion doctrine, however, “subordinates the federal
court's obligation to exercise its jurisdiction to the greater
policy of promoting tribal self-government.”31 Colorado River
abstention is thus the exception to the rule, whereas tribal
exhaustion is the rule rather than the exception. The latter is
the appropriate doctrine to apply here.
IV.
A.
Relying on C&L Enterprises, Inc. v. Citizen Band Potawatomi
Indian Tribe of Oklahoma,32 Bank One also contends that the
arbitration clause waives tribal exhaustion. In C&L, the
Potawatomi Indian Tribe contracted with C&L to install a roof on a
building owned by the Tribe off the reservation. The contract at
issue in the case included an arbitration clause and a choice of
law clause. When the Tribe decided to change the roofing material
and sought new bids, C&L submitted an arbitration demand claiming
that the Tribe had breached the contract. The Tribe asserted
sovereign immunity and refused to participate in the arbitration.
The arbitrator awarded damages to C&L, which then sought
30
Bank One, 144 F. Supp. 2d at 649.
31
Id.
32
532 U.S. 411, 121 S. Ct. 1589 (2001).
14
enforcement in state court. The tribe asserted its immunity again.
The state court denied the motion and confirmed the award and the
state appellate court affirmed.
The Supreme Court vacated and remanded the case to the state
court. The Court held that when a tribe consents to dispute
resolution by arbitration, it waives its sovereign immunity.33
Bank One argues that if a tribe, by agreeing to an arbitration
clause waives sovereign immunity, such an agreement must also waive
tribal exhaustion. We need not decide this issue because in the
instant case the Tribe was not a party to the contract. The
litigation in C&L involved a contract between a bank and a tribe,
rather than a contract between a bank and individual members of a
tribe. We decline to extend C&L to contracts between commercial
entities and individual tribe members which would have the effect
of allowing individual members of a tribe to waive tribal
exhaustion.
B.
Bank One further argues that decisions by other circuits that
find forum selection clauses to waive tribal exhaustion should
extend to arbitration clauses.34 The arbitration clause at issue
33
Id. at 1594-95.
34
See, e.g., Altheimer & Gray v. Sioux Mfg. Corp., 983 F.2d 803
(7th Cir. 1993); F.G.S. Constructors, Inc. v. Carlow, 64 F.3d 1230
(8th Cir. 1995). For the opposite approach, see, e.g., Ninigret
Dev. Corp. v. Narragansett Indian Wetuomuck Housing Auth., 207 F.3d
21, 33 (1st Cir.2000); Basil Cook Enterprises, Inc. v. St. Regis
15
in this case does not select a judicial forum for resolution of
disputes. An arbitration clause that attempts to foreclose any and
all access to courts bears little resemblance to a forum selection
clause, and the cases appellant relies upon have no application to
this case.
V.
For the reasons stated above, the district court’s order
dismissing Bank One’s suit to compel arbitration for failure to
exhaust tribal remedies is
AFFIRMED.
Mohawk Tribe, 117 F.3d 61 (2nd Cir. 1997). Altheimer & Gray may be
distinguishable from the instant case at least insofar as its
decision that tribal exhaustion was not necessary was based on the
lack of a pending tribal action or a challenge to tribal court
jurisdiction. See, Altheimer & Gray, 983 F.2d at 814.
16