Blue Lake Rancheria, et al v. Morgenstern, et al.,

Filing 53

ORDER signed by Judge John A. Mendez on 12/5/11 ORDERING that Defendants' MOTION TO DISMISS 26 is DENIED. (Mena-Sanchez, L)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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BLUE LAKE RANCHERIA, a federally
recognized Indian Tribe; BLUE
LAKE RANCHERIA ECONOMIC
DEVELOPMENT CORPORATION, a
federally-chartered tribal
corporation; and MAINSTAY
BUSINESS SOLUTIONS, a federally
authorized division of Blue Lake
Rancheria Economic Development
Corporation,
Plaintiffs,

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v.
MARTY MORGENSTERN, individually
and in his official capacity as
Secretary of the California
Labor and Workforce Development
Agency; PAM HARRIS, individually
and in her official capacity as
Chief Deputy Director of the
Employment Development
Department of the State of
California (“EDD”); JACK
BUDMARK, individually and in his
official capacity as a Deputy
Director of the Tax Branch of
the EDD; TALBOTT SMITH,
individually and in his official
capacity as a Deputy Director of
the Unemployment Branch of the
EDD; KATHY DUNNE, individually
and in her official capacity as
a Senior Tax Compliance
Representative of EDD; SARAH

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Case No. 2:11-CV-01124 JAM-JFM
ORDER DENYING DEFENDANTS’
MOTION TO DISMISS

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REECE, individually and in her
official capacity as an
Authorized Representative of the
EDD; THE STATE OF CALIFORNIA;
THE EMPLOYMENT DEVELOPMENT
DEPARTMENT, a department of the
State of California; and DOES 150, inclusive,
Defendants.

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This matter is before the Court on Defendants’ Marty

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Morgenstern (“Morgenstern”), Pam Harris (“Harris”), Jack Budmark

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(“Budmark”), Talbott Smith (“Smith”), Kathy Dunne (“Dunne”) and

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Sarah Reece (“Reece”), the State of California (the “State”),

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and the Employment Development Department (“EDD”) (collectively

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“Defendants”) Motion to Dismiss (Docs. #26, #36) Plaintiffs’

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Blue Lake Rancheria (“the Tribe”), Blue Lake Rancheria Economic

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Development Corporation (“EdCo”), and Mainstay Business

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Solutions (“Mainstay”) (collectively “Plaintiffs”) Complaint

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(Doc. #1).
Defendants move to dismiss the Complaint pursuant to

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Federal Rules of Civil Procedure 12(b)(1) for lack of

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jurisdiction and 12(b)(6) for failure to state a claim.

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Plaintiffs oppose the motion (Doc. #46).1

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forth below, the motion to dismiss is DENIED.

For the reasons set

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I.

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FACTUAL ALLEGATIONS AND SUMMARY OF ARGUMENTS

Plaintiffs seek to enjoin Defendants from enforcement of

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State unemployment insurance taxes.

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to collect approximately $19,285,572.67 in state unemployment

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Defendants are attempting

This matter was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). Oral argument was
scheduled for September 21, 2011.
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insurance contributions that Defendants assert are owed by

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Mainstay.

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less than the amount Defendants seek to recover.

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Plaintiffs argue that Defendants’ collection activities violate

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tribal sovereign immunity and unlawfully encumber tribal land

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and tribal assets.

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Plaintiffs have not waived sovereign immunity, nor has Congress

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abrogated the Tribe’s sovereign immunity.

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Accordingly, the Complaint seeks a declaration that Defendants’

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collection activities are violating Plaintiffs’ tribal sovereign

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immunity and unlawfully encumbering tribal assets and land, both

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on and off the reservation.

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injunction enjoining Defendants from continuing to bring levies

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and liens on Tribal assets and property, and requiring

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Defendants to cancel any existing liens and return any funds

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seized in response to the existing liens.

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Plaintiffs allege that if any money is owed, it is

Compl., ¶ 31.

Compl., ¶ 26.

The Complaint alleges that

Compl., ¶¶ 32,33.

The Complaint also seeks an

Plaintiffs’ suit concerns the collection of unemployment

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insurance contribution payments, pursuant to the Federal

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Unemployment Tax Act, 26 U.S.C. § 3301 et seq. (“FUTA”).

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is a joint federal-state program for unemployment insurance.

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FUTA was amended in 2001 to require states to allow Indian

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tribes to elect to be a reimbursing employer.

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employer reimburses the State for all benefits paid to former

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employees.

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to be a reimbursing employer under FUTA, and held this

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designation from 2003 to 2010.

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making full contribution payments as required, prompting

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Defendants to eventually begin the collection activities at

(Cal. Unempl. Ins. Code 803(b).)

Compl., ¶ 24.

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FUTA

A reimbursing

Mainstay elected

Mainstay ceased

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issue in this suit.

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II.

PROCEDURAL BACKGROUND

Plaintiffs brought a motion for a preliminary injunction,

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which this Court heard on June 29, 2011 (see Transcript, Doc.

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#31). The Court granted the motion on August 11, 2011 (Doc.

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#40), following the submission of supplemental briefing by both

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parties.

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further collection activities, ordered them to withdraw and

The preliminary injunction enjoined Defendants from

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release any liens and levies placed on Plaintiffs’ assets and

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deposit with the Court the amount that had already been

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collected through the liens and levies.

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the required sum with the Court, and have filed a notice of

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appeal (Doc. #42) of the preliminary injunction order.

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Plaintiffs have voluntarily dismissed from the suit defendants

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the State of California and the Employment Development

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Department (Doc. #45).

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of this order refers only to the individual defendants, not the

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dismissed State and EDD defendants.

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Defendants deposited

Accordingly, “Defendants” for purposes

Defendants’ Reply brief (Doc. #47) also raised the new

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argument that only defendant Harris is a properly named

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defendant, because under California Unemployment Insurance Code

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§ 301(c) only the Director of EDD is vested with responsibility

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for filing and releasing liens.

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in the sur-Reply (Doc. #52) ordered by this Court, Defendants

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offer no legal authority for their argument.

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named Defendant is alleged to have some connection with the

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collection actions at issue in this suit, Compl., ¶ 14, as

However, as Plaintiffs’ contend

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Each individually

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required under Ex Parte Young, 209 U.S. 123 (1908) for suits

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against state officers.

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v. Eu, 979 F.2d 697, 704 (9th Cir. 1992).

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time the Court will not dismiss any of the individually named

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defendants from this suit.

See also Los Angeles County Bar Ass’n
Accordingly, at this

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III. OPINION
A.

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Legal Standard
1.

12(b)(6) Motion to Dismiss

A party may move to dismiss an action for failure to state

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a claim upon which relief can be granted pursuant to Federal

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Rule of Civil Procedure 12(b)(6).

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dismiss, the court must accept the allegations in the complaint

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as true and draw all reasonable inferences in favor of the

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plaintiff.

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overruled on other grounds by Davis v. Scherer, 468 U.S. 183

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(1984); Cruz v. Beto, 405 U.S. 319, 322 (1972).

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are mere “legal conclusions,” however, are not entitled to the

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assumption of truth.

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(2009), (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555

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(2007)).

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plead “enough facts to state a claim to relief that is plausible

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on its face.”

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appropriate where the plaintiff fails to state a claim

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supportable by a cognizable legal theory.

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Pacifica Police Department, 901 F.2d 696, 699 (9th Cir. 1990).

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In considering a motion to

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974),

Assertions that

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950

To survive a motion to dismiss, a plaintiff needs to

Twombly, 550 U.S. at 570.

Dismissal is

Balistreri v.

Upon granting a motion to dismiss for failure to state a
claim, the court has discretion to allow leave to amend the
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complaint pursuant to Federal Rule of Civil Procedure 15(a).

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“Dismissal with prejudice and without leave to amend is not

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appropriate unless it is clear . . . that the complaint could

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not be saved by amendment.”

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Inc., 316 F.3d 1048, 1052 (9th Cir. 2003).

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2.

Eminence Capital, L.L.C. v. Aspeon,

12(b)(1)Motion to Dismiss

Dismissal is appropriate under Rule 12(b)(1) when the
District Court lacks subject matter jurisdiction over
the claim. Fed. R. Civ. P. 12(b)(1). A Rule 12(b)(1)
motion may either attack the sufficiency of the
pleadings to establish federal jurisdiction, or allege
an actual lack of jurisdiction which exists despite
the formal sufficiency of the complaint. Because
challenges to standing implicate a federal court’s
subject matter jurisdiction under Article III of the
United States Constitution, they are properly raised
in a motion to dismiss under Rule 12(b)(1).

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Meaunrit v. ConAgra Foods Inc., 2010 WL 2867393, *3 (N.D. Cal.

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July 20, 2010) (internal citations omitted).

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brings a motion to dismiss for lack of subject matter

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jurisdiction pursuant to Rule 12(b)(1), the plaintiff has the

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burden of establishing subject matter jurisdiction.

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Rattlesnake Coalition v. United States Envtl. Protection Agency,

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509 F.3d 1095, 1102, FN 1 (9th Cir. 2007).

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When a defendant

See

There are two permissible jurisdictional attacks under Rule

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12(b)(1): a facial attack, where the court’s inquiry is limited

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to the allegations in the complaint; or a factual attack, which

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permits the court to look beyond the complaint at affidavits or

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other evidence.

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1036, 1039 n.2 (9th Cir. 2003).

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challenger asserts that the allegations contained in a complaint

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are insufficient on their face to invoke federal jurisdiction,

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whereas in a factual attack, the challenger disputes the truth

Savage v. Glendale Union High School, 343 F.3d
“In a facial attack, the

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of the allegations that, by themselves, would otherwise invoke

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federal jurisdiction.”

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(S.D. Cal. 2007) (internal citations omitted).

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party asserts a facial challenge, the court must assume that the

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factual allegations asserted in the complaint are true and

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construe those allegations in the light most favorable to the

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plaintiff.

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Inc., 328 F. 3d 1136, 1139 (9th Cir. 2003).

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asserts a factual attack, the court may resolve the factual

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disputes, looking beyond the Complaint to matters of public

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record, without presuming the truthfulness of the plaintiff’s

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allegations.

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Li v. Chertoff, 482 F.Supp.2d 1172, 1175
If the moving

Id. at 1175, citing Warren v. Fox Family Worldwide,
If the moving party

White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000).

Here, Defendants ask the Court to take judicial notice of

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several affidavits and request an evidentiary hearing as to any

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disputed facts concerning the Court’s jurisdiction, implying a

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factual attack.2

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affidavits on the docket that were previously submitted in

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opposition to Plaintiffs’ motion for a preliminary injunction.

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The affidavits address factual disputes surrounding whether or

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not any of the tax assessments were in error, whether Plaintiffs

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may have the money to repay delinquent assessments, and what

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procedures were followed to review Plaintiffs’ account.

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Documents attached to two of the affidavits that were submitted

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show the form Plaintiffs filled out to become a reimbursing

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employer, the information that was sent to Indian tribes in

The affidavits (Doc. #25, exhibits 1-5), are

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The Court did not hold an evidentiary hearing in relation to
this motion, but did hold an extensive hearing reviewing all
evidence presented in connection with the preliminary
injunction; the same evidence which Defendants now ask the Court
to consider.
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California regarding the option to be a reimbursing employer,

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and internal information about the reimbursing employer option

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to which Defendants were privy.

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relevant to the question of the Court’s jurisdiction, as they do

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not address the jurisdictional challenges brought by Defendants

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concerning Eleventh Amendment immunity, Ex Parte Young, or the

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Tax Injunction Act.

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submitted by Defendants is not relevant to the jurisdictional

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challenge, the Court will view Defendants’ challenge as a facial

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attack, limiting review to the allegations of the Complaint and

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taking the allegations of the Complaint as true.

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3.

These documents are not

Accordingly, because the extrinsic evidence

Judicial Notice

Defendants incorporate by reference their brief in

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opposition to the motion for preliminary injunction (Doc. #25),

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and ask the Court to take judicial notice of several affidavits

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that were submitted in conjunction with the opposition to the

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motion to dismiss.

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Defendants request judicial notice of previously submitted

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declarations of Stanley M. Adge, Robert T. Brewer, Loretta

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Paullin-Delaney, Michelle Sutton-Riggs and Martin Swindell (Doc.

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#25, exhibits 1-5).

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(See FN 1 of Defendants’ Motion to Dismiss).

Generally, the court may not consider material beyond the

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pleadings in ruling on a motion to dismiss for failure to state

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a claim.

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the complaint or relied on by the complaint, or when the court

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takes judicial notice of matters of public record, provided the

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facts are not subject to reasonable dispute.

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Corp., 2009 WL 2241664 at *2 (C.D. Cal. Mar. 30, 2009) (internal

There are two exceptions: when material is attached to

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Sherman v. Stryker

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citations omitted).

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“plaintiff's claim depends on the contents of a document, the

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defendant attaches the document to its motion to dismiss, and

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the parties do not dispute the authenticity of the document.

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. . .”

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Further, as discussed above, the court may consider extrinsic

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evidence when deciding factual challenges to jurisdiction under

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Rule 12(b)(1).

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Courts may consider extrinsic evidence when

Knievel v. ESPN, 393 F.3d 1069, 1076 (9th Cir. 2005).

Plaintiffs attached to the Complaint EdCo’s Federal Charter

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of Incorporation (Doc. #1, ex. #1), and notices of levies and

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liens from EDD (Doc. #1, ex. #2).

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documents, as they are attached to the Complaint.

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also note that should the Court consider matters outside the

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pleadings as requested by Defendants, this will convert the Rule

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12(b)(6) motion into Rule 56 motion for summary judgment.

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Keams v. Tempe Technical Institute, Inc., 110 F.3d 44, 46 (9th

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Cir. 1997), and that if converted, all parties must be given a

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reasonable opportunity to present all material that is pertinent

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to the motions.

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The Court will consider these
Plaintiffs

See

See Fed. R. Civ. P. 12(d).

The Court will not convert the 12(b)(6) motion to dismiss

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into a motion for summary judgment by considering matters

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outside the pleadings.

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the Complaint, and are not matters of public record, thus the

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Court will not take judicial notice as requested by Defendants.

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See Dao v. University of California, et al., 2004 WL 1824129, *4

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(N.D. Cal. Aug. 13, 2004) (noting that affidavits are not

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pleading exhibits unless they form the basis of the complaint,

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and the Ninth Circuit has found reversible error where a court

The affidavits do not form the basis of

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took judicial notice of an affidavit outside of the pleadings

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without converting the motion to dismiss into a motion for

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summary judgment).

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B.

Jurisdictional Challenges
1.

Eleventh Amendment Immunity

Defendants argue that the Court should dismiss the

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Complaint for lack of jurisdiction.

The Eleventh Amendment

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grants states sovereign immunity from suit.

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Caliente Band of Cahuilla Indians v. Hardin, 223 F.3d 1041, 1045

See, e.g., Agua

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(9th Cir. 2000).

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parte Young, 209 U.S. 123 (1908), Courts have recognized an

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exception to the Eleventh Amendment bar for suits for

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prospective declaratory and injunctive relief against state

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officers, sued in their official capacities, to enjoin an

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alleged ongoing violation of federal law.”

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“Since the Supreme Court’s decision in Ex

Id.

In Idaho v. Coeur d’Alene Tribe of Idaho, 521 U.S. 261

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(1997), a tribe’s claim to submerged lands located within the

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boundaries of the Coeur d’Alene Reservation was not found to be

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within the Ex Parte Young exception.

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1046 (citing Coeur d’ Alene, 521 U.S. at 282.

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Couer D’Alene brought land title claims and sought declaratory

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and injunctive relief establishing its exclusive right to use

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and enjoy the submerged lands and prohibiting defendants from

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regulating the lands.

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Parte Young did not apply because of the unique nature of the

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tribe’s claims, which the Court determined were the functional

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equivalent of a quiet title action that would have divested the

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state of substantially all regulatory power over the land at

Agua Caliente, 223 F.3d at
The tribe in

The Supreme Court determined that Ex

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issue.

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498 U.S. 505.

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Agua Caliente , 223 F.3d at 1046, citing Coeur d’Alene,

However, in Agua Caliente, an Indian tribe challenged the

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state’s application California’s sales tax on purchases made by

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non-Indians at a hotel located on a reservation as a violation

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of federal law prohibiting state taxation of value generating

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activities on reservation land.

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this case was distinguishable from Couer d’Alene, and that the

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Ex Parte Young doctrine applied.

The Ninth Circuit held that

The Agua Caliente Court held

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that action was properly characterized as a suit for declaratory

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relief against state officers to enjoin an ongoing violation of

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federal law, rather than a suit against the state itself, thus

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it came under the Ex Parte Young exception to Eleventh Amendment

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immunity, even though the tribe had an available remedy under

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state law.

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forum in state court in which the Tribe could raise its claims

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neither divested the district court of jurisdiction nor removed

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the case from the Young exception for Eleventh Amendment

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purposes.”

Agua Caliente, 223 F.3d at 1049 (emphasis in

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original).

The Court noted that the Supreme Court’s decision in

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Coeur d’Alene supported this conclusion, as Justice Kennedy

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stated in the principal opinion that even if there is a prompt

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and effective remedy in a state forum, a second instance in

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which Young may serve an important interest is when the case

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calls for the interpretation of federal law.

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The Court stated that “there existed an alternate

Id.

Defendants contend that Plaintiffs’ claims are barred by

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sovereign immunity and the Eleventh Amendment, as the Ex parte

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Young fiction does not lift the sovereign immunity bar to
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Plaintiffs’ claims for prospective relief against the individual

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Defendants.

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defendants the State of California and EDD, the sovereign

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immunity arguments are no longer relevant as to the State and

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EDD.

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contend that the Ex Parte Young exception to Eleventh Amendment

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immunity applies to this suit.

Plaintiffs argue that since they dismissed

With respect to the remaining Defendants, Plaintiffs

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The Court finds Plaintiffs’ argument persuasive that this

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suit for declaratory and injunctive relief falls within the Ex

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Parte Young exception to the Eleventh Amendment.

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the Court finds that Eleventh Amendment immunity is not a bar to

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Plaintiffs’ Complaint.

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2.

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Accordingly,

Tax Injunction Act

Defendants next contend that Plaintiffs’ claims are barred

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by the Tax Injunction Act.

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the Tax Injunction Act does not apply to this suit, as it is a

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suit brought by an Indian tribe under 28 U.S.C. § 1362.

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Plaintiffs argue in opposition that

The Tax Injunction Act, 28 U.S.C. § 1341 states that “the

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district courts shall not enjoin, suspend or restrain the

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assessment, levy, or collection of any tax under State law where

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a plain, speedy and efficient remedy may be had in the courts of

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such State.”

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bar does not apply to Indian tribes bringing suit under 28

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U.S.C. § 1362.

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Confederated Tribes of the Colville Indian Reservation, 425 US

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463, 472-474 (1976)).

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U.S. 393 (1982), the case relied on by Defendants to argue that

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the Tax Injunction Act bars this Court’s jurisdiction is

However, the Tax Injunction Act’s jurisdictional

Agua Caliente, 223 F.3d at FN 5 (citing Moe v.

California v. Grace Brethren Church, 457

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inapplicable, as it was not a suit brought by an Indian tribe

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under 28 U.S.C. § 1362.

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jurisdiction over Plaintiffs’ suit is barred by the Tax

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Injunction Act.

Thus, this Court does not find that its

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C.

Claims for Relief

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Plaintiffs bring two claims for relief: (1) a claim for

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declaratory relief, seeking a declaratory judgment that

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Defendants’ collection actions violate Plaintiffs’ tribal

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sovereign immunity; and (2) a claim for injunctive relief

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enjoining Defendants from continuing to serve notices of levy

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and liens on Plaintiffs’ assets.

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Plaintiffs’ claims for declaratory and injunctive relief should

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be dismissed for failure to state a claim, under several

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theories.

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1.

Defendants argue that

Abrogation and Waiver of Sovereign Immunity

First, Defendants contend that Congress abrogated tribal

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sovereign immunity against the State’s collection of taxes under

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the UI program.

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electing to participate in California’s reimbursable program,

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Plaintiffs expressly waived tribal sovereign immunity to the

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State’s collection of Plaintiffs’ tax delinquency.

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have alleged that Congress did not abrogate sovereign immunity,

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nor did the tribe waive immunity.

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Alternatively, Defendants assert that by

Plaintiffs

Federally recognized Indian tribes are immune from suit by

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any entity, including state governmental agencies, absent a

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clear waiver by the tribe or congressional abrogation.

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Tax Comm’n v. Citizen Band Potawatomi Indian Tribe of Okla., 498

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U.S. 505, 509 (1991) (citing Santa Clara Pueblo v. Martinez, 436
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Okla.

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U.S. 49, 58 (1978).

Waiver cannot be implied or imputed, it

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must be unequivocally expressed.

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at 58. Tribal sovereign immunity is a matter of federal law, and

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cannot be diminished by the States.

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Mfg. Technologies, Inc., 523 U.S. 751, 756 (1998).

Santa Clara Pueblo, 436 U.S.

Kiowa Tribe of Okla. v.

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“There is a difference between the right to demand

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compliance with state laws and the means available to enforce

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them.”

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U.S. at 514 (noting that while sovereign immunity bars the Sate

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from pursing the most efficient remedy, adequate alternatives,

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such as lobbying Congress for legislation, exist).

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Kiowa, 523 U.S. at 755; see also Okla. Tax Comm’n, 498

Further, tribal sovereign immunity also extends to entities

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that are arms of the tribe.

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F.3d 1044, 1046 (9th Cir. 2006).

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establishes an entity to conduct business activities, that

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entity is immune if it functions as an arm of the tribe.

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Further, “like foreign sovereign immunity, tribal immunity is a

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matter of federal law.”

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Defendants assert that Congress clearly abrogated tribal

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sovereign immunity when it amended FUTA to require states to

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permit Indian tribes to participate in state reimbursable

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programs, the Court is not persuaded by this argument.

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FUTA Amendments at issue state that:

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Allen v. Gold Country Casino, 464
When an Indian tribe

Kiowa, at 523 U.S. 759.

Id.

Though

The 2001

The State law shall provide that a governmental
entity, included an Indian tribe, or any other
organization (or group of governmental entities or
other organizations) which, but for the requirements
of this paragraph, would be liable for contributions
with respect to service to which paragraph (1) applies
may elect, for such minimum period and at such time as
may be provided by State law, to pay (in lieu of such
contributions) into the State unemployment fund
amounts equal to the amounts of compensation
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attributable under the State law to such service. The
State law may provide safeguards to ensure that
governmental entities or other organizations so
electing will make the payments required under such
elections.

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26 U.S.C. § 3309(a)(2).

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The statute goes on to state that

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states may take “reasonable measures” to ensure that Indian

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tribes electing the reimbursable program pay their unemployment

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insurance tax, such as requiring a tribe to post a payment bond.

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26 U.S.C. § 3309(d).

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clearly state that tribal sovereign immunity is abrogated.

However, the 2001 Amendments do not

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Because abrogation of tribal sovereign immunity must be express

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and may not be implied, the Court does not find that the 2001

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FUTA Amendments expressly abrogate tribal immunity.

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Plaintiffs have alleged that the tribe did not waive its

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immunity, and Defendants’ argument that Plaintiffs’ did so

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simply by electing to become a reimbursable employer is not

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persuasive.

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2.

Likewise,

Immunity for Individual Indians

Defendants argue that tribal sovereign immunity neither

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bars collection activities against individual Indian’s serving

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as Plaintiff’s agents or officers, nor prohibits the seizure of

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tribal assets located off the reservation.

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Plaintiffs, none of the plaintiffs are individual Indians,

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therefore arguments regarding the sovereign immunity of

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individual Indians are not relevant to the motion to dismiss.

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3.

As noted by

Seizure of Assets Outside the Reservation

With respect to seizure of tribal assets off the

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reservation, Plaintiffs assert that sovereign immunity applies

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to tribal assets and property, regardless of whether it is
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located on or off of a reservation.

The Complaint alleges that

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Defendants’ collection actions unlawfully encumber tribal lands

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and other tribal assets, both on and off reservation.

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¶ 31.

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more expansive outside the reservation than within reservation

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boundaries, Washington v. Confederated Tribes of Colville Indian

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Reservation, 447 U.S. 134, 162 (1980), tribal immunity does

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extend to activities off the reservation.

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Nebraska v. Stovall, 216 F.Supp.2d 1226, 1235-36 (D. Kan., 2002)

Compl.,

While the state power over Indian affairs is considerably

Winnebago Tribe of

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(citing Kiowa, 523 U.S. 751); aff’d 314 F.3d 1202 (10th Cir.

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2003).

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early stage to overcome the argument that Defendants may have

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some authority over tribal assets outside the reservation.

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15

The allegations of the Complaint are sufficient at this

4.

Tax Refund Suit

Defendants contend that Plaintiffs fail to state a claim

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for a tax refund because the time to petition for reassessment

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of their taxes has expired and they are not entitled to a refund

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as they have failed to pay the tax.

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not bring a claim for a tax refund nor contain allegations that

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Plaintiffs are entitled to a tax refund.

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allegations of the Complaint are that Mainstay has been working

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with Defendants to determine how much money Mainstay owes, and

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has paid Defendants a partial refund on money owed.

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¶ 26.

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refund argument, and will not dismiss the suit on the grounds

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that it is actually a tax refund case.

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However, the Complaint does

On the contrary, the

Compl.,

Thus, the Court does not find merit in Defendants’ tax

5.

Nonjudicial Collection

In Defendants’ Reply brief, they attempt to distinguish
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1

nonjudicial collection from judicial suits, arguing that the

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doctrine of sovereign immunity does not bar nonjudicial

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collection activity.

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Indian tribes have sovereign immunity, it is only immunity

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against suit, and not immunity against nonjudicial collection

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activities such as the liens and levies at issue in this case.

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Plaintiffs address this argument in the Sur-Reply, arguing that

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the doctrine of tribal sovereign immunity is broader than simply

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immunity from suit, and extends to immunity from state

Defendants contend that to the extent that

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administrative proceedings such as Defendants’ nonjudicial

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collection activity.

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cite any authority supporting the theory that tribal sovereign

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immunity from state jurisdiction applies only to court

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proceedings and not to state administrative processes.

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Plaintiffs note that Defendants fail to

Tribal sovereign immunity is based on Congress’ recognition

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that Indian tribes possess the attributes of a common law

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sovereign.

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Plaintiffs contend that there is no meaningful distinction

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between a sovereign being involuntarily subjected to state court

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proceedings, including the court’s authority to enforce its

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decision, and a sovereign being involuntarily subjected to a

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state administrative process, including the state agency’s

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authority to administratively enforce its decision.

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with this reasoning, courts have recognized tribal immunity from

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state administrative processes.

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Indians v. Workers’ Comp. Appeals Bd., 60 Cal.App.4th 1340,

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1347-48 (1998), the court ruled that the tribe had sovereign

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immunity from the workers’ compensation process and that the

See In re Greene, 980 F.2d 590, 596 (9th Cir. 1992).

Consistent

In Middletown Rancheria of Pomo

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Worker’s Compensation Appeals Board had no jurisdiction over the

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tribe to enforce its laws, based on sovereign immunity.

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In Winnebago Tribe, the District Court issued a preliminary

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injunction, affirmed by the Tenth Circuit, barring the State of

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Kansas from enforcing its Motor Vehicle Fuel Tax Act against a

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tribal corporation.

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tribal corporation’s property, entering orders for jeopardy

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assessments, and issuing tax warrants.

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tribe’s motions for a temporary restraining order and a

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preliminary injunction, finding that these nonjudicial

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collection activities to violate the tribe’s sovereign immunity.

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Winnebago Tribe, 216 F.Supp.2d at 1235-1240.

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Kansas was, among other things, seizing the

The court granted the

Tribal immunity is a matter of federal law and not subject

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to diminution by the states.

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absence of countervailing authority, the Court finds persuasive

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Plaintiffs’ argument that sovereign immunity bars nonjudicial

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collection activities, as the state cannot circumvent tribal

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immunity by obtaining through administrative procedures what

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could not be obtained through the judicial process.

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stage in the proceedings, the Court will not dismiss the

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Complaint on the basis of Defendants’ argument that the

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distinction between liens and levies obtained through a state

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administrative procedure and those obtained through a judicial

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process is sufficient to overcome the protections of tribal

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sovereign immunity.

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6.

Kiowa, 523 U.S. at 756. In the

At this

25 U.S.C. § 476

Lastly, Defendants’ Reply brief raised the argument that
“Plaintiffs allege in their Complaint, but do not brief in
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1

opposition to EDD’s motion, that Defendants’ nonjudicial

2

collection activity violates 25 U.S.C. section 476.”

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p. 11.

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of substantive rights, and that the Complaint should be

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dismissed for that reason.

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argument against 25 U.S.C. § 476 in their Motion to Dismiss,

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thus the Court asked Plaintiffs to address this new argument in

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the Sur-Reply.

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Reply,

Defendants contend that 25 U.S.C. § 476 is not a source

Defendants did not raise any

The Indian Reorganization Act of 1934 (“IRA”) provides that

10

an Indian tribe may elect to organize (pursuant to its terms)

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and to adopt a constitution, which shall become effective upon

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ratification by the tribe and approval of the Secretary of the

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Interior.

14

Lake Rancheria is governed by a Constitution, adopted under the

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Indian Reorganization Act, 25 U.S.C. § 476, and approved by the

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Secretary of the United States Department of Interior.” Compl.,

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¶ 17.

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constitution:

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25 U.S.C. § 476(a).

The Complaint alleges that “Blue

Section 476(e) provides that, upon approval of the

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In addition to all powers vested in any Indian tribe
or tribal council by existing law, the constitution
adopted by said tribe shall also vest in such tribe or
its tribal council the following rights and powers: To
employ legal counsel; to prevent the sale,
disposition, lease or encumbrance of tribal lands,
interests in lands or other tribal assets without the
consent of the tribe; and to negotiate with the
Federal, State, and local governments.

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Plaintiffs point out that Defendants offer no authority to

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21
22

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support their argument that Section 476 is not a source of

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substantive rights and mandates dismissal of the complaint.

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Further, Plaintiffs argue that the Supreme Court has directed

28

that statutes are to be construed liberally in favor of Indian
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1

tribes, with ambiguous provisions interpreted in their benefit.

2

County of Yakima v. Confederated Tribes and Bands of the Yakima

3

Indian Nation, 502 US 251, 269 (1992).

4

viewed Section 476 as endowing tribes with the right to lease

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tribal land only with the tribes’ consent.

6

Tribe v. County of San Bernardino, 543 F.2d 1253, 1259 (9th Cir.

7

1976) (noting that Section 476 “explicitly gives the tribe the

8

right to prevent the lease of tribal lands.”).

9

Plaintiffs’ contend that Section 476 has been recognized as a

The Ninth Circuit has

See Fort Mojave

Thus,

10

source of substantive rights regarding a tribes’ control of its

11

property.

12

extensively briefed, the Court at this time is not persuaded by

13

Defendants’ unsupported argument that Plaintiffs’ Complaint must

14

be dismissed for failure to state a claim as to which relief may

15

be granted under 25 U.S.C. § 476.

While the impact of Section 476 has not been

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17
18

IV.

ORDER

For the reasons set forth above, Defendants’ motion to

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dismiss is DENIED.

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to the Complaint within twenty (20) days of the date of this

21

Order.

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23

Defendants are ordered to file their Answer

IT IS SO ORDERED.
Dated: December 5, 2011

____________________________
JOHN A. MENDEZ,
UNITED STATES DISTRICT JUDGE

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