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

Filing 72

ORDER signed by Judge John A. Mendez on 7/22/14 DENYING 66 Motion to Amend the Complaint. (Meuleman, A)

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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 federallyauthorized division of Blue Lake
Rancheria Economic Development
Corporation,

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Plaintiffs,
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v.
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MARTY MORGENSTERN, individually )
and in his official capacity as )
Secretary of the California
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Labor and Workforce Development )
Agency; PAM HARRIS, individually )
and in her official capacity as )
Chief Deputy Director of the
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Employment Development
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Department of the State of
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California (“EDD”); JACK
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BUDMARK, individually and in his )
official capacity as a Deputy
)
Director of the Tax Branch of
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the EDD; TALBOTT SMITH,
)
individually and in his official )
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Case No. 2:11-CV-01124-JAM-KJN
ORDER DENYING PLAINTIFFS’
MOTION FOR LEAVE TO AMEND

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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
REECE, individually and in her
official capacity as an
Authorized Representative of the
EDD; and DOES 1-50, inclusive,

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Defendants,
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v.
UNITED STATES OF AMERICA,

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Intervenor
Defendant.

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This matter is before the Court on Plaintiffs Blue Lake

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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”) Motion to

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Amend (Doc. #66) the Complaint (Doc. #1). 1

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Morgenstern, Pam Harris, Jack Budmark, Talbott Smith, Kathy

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Dunne and Sarah Reece (collectively “Defendants”) filed an

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opposition (Doc. #69).

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reasons set forth below, the motion to amend is DENIED.

Defendants Marty

Plaintiffs replied (Doc. #70).

For the

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I.

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FACTUAL ALLEGATIONS AND SUMMARY OF ARGUMENTS

The Tribe is a federally-recognized Indian tribe.

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EdCo is

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a federally-chartered corporation wholly-owned by the Tribe.

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Mainstay, a division of EdCo, is an employee staffing

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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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organization.

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On April 26, 2011, Plaintiffs filed this action seeking

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declaratory and injunctive relief related to the Defendants'

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enforcement of state taxes in violation of Plaintiffs' tribal

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sovereignty.

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ongoing collection efforts which violated Plaintiffs' federal

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tribal sovereign immunity, and by those actions, Defendants had

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unlawfully encumbered tribal lands and other tribal assets.

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Plaintiffs allege that Defendants were engaged in

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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Indian tribe in California the flexibility to finance its

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liability for unemployment contributions in alternative ways.

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Cal. Unempl. Ins. Code § 802(a).

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reimbursing employer, it is allowed to reimburse the State for

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all benefits paid to former employees rather than pay the

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contributions required of other employers.

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803(b).

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FUTA, and held this designation from 2003 to 2010.

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ceased making full contribution payments as required, prompting

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Defendants to eventually begin the collection activities at

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issue in this suit.

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FUTA

This affords any

If a tribe wishes to be a

Id. §§ 802(a),

Mainstay elected to be a reimbursing employer under
Mainstay

On June 1, 2011, Plaintiffs filed a Motion for Preliminary

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Injunction (Doc. #20).

On June 15, 2011, Defendants filed a

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Motion to Dismiss (Doc. #26).

On August 11, 2011, the Court
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granted Plaintiffs' Motion for Preliminary Injunction (Doc. #40)

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and ordered that Defendants refrain from undertaking any further

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efforts to collect from Plaintiffs any unemployment

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contributions.

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(Doc. #53) denying Defendants' Motion to Dismiss.

On December 6, 2011, this Court issued an order

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II.

OPINION

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A.

Legal Standard

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“Whether leave to amend should be granted is generally

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determined by considering the following factors: (1) undue

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delay; (2) bad faith; (3) futility of amendment; and

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(4) prejudice to the opposing party.”

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Rogstad (In re Rogstad), 126 F.3d 1224, 1228 (9th Cir. 1997).

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In the absence of any of the preceding factors, leave to amend

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should be freely granted.

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Co., 785 F.2d 762, 765 (9th Cir. 1986).

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N. Slope Borough v.

See Gabrielson v. Montgomery Ward &

Defendants’ arguments in opposition concern the futility of

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Plaintiffs’ proposed amendment.

Futility alone can justify the

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denial of a motion to amend.

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1077 (9th Cir. 2004); Davis v. Powell, 901 F. Supp. 2d 1196,

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1211 (S.D. Cal. 2012).

Johnson v. Buckley, 356 F.3d 1067,

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B.

Discussion

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Plaintiffs seek leave pursuant to Federal Rule of Civil

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Procedure 15(a)(2) to amend the Complaint by adding a claim

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under 42 U.S.C. § 1983 (“§ 1983”) for injunctive relief for

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violations of the Tribe and EdCo’s due process rights.

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p. 2.

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undue delay or prejudice.

MTA at

Defendants do not oppose amendment based on bad faith,
However, they argue the Court should
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deny the motion because the proposed amendment is futile.

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at pp. 3-4.

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as a “person” under § 1983 for the purposes of this claim.

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Opp.

Defendants’ contend that the Tribe does not qualify

The Supreme Court expressly addressed whether a Native

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American tribe qualifies as a “person” for the purpose of

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bringing suit pursuant to § 1983 in Inyo County, California v.

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Paiute-Shoshone Indians of the Bishop Community of the Bishop

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Colony, 538 U.S. 701, 712 (2003) (“Inyo County”).

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County, the Court found a tribe may not sue under § 1983 to

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vindicate its sovereign rights.

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was “designed to secure private rights against government

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encroachment . . . not to advance a sovereign’s prerogative

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. . . .”

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Id.

In Inyo

It reasoned that § 1983

Id.

As we have recognized in other contexts, qualification
of a sovereign as a “person” who may maintain a
particular claim for relief depends not “upon a bare
analysis of the word ‘person,’” Pfizer Inc. v.
Government of India, 434 U.S. 308, 317 (1978), but on
the “legislative environment” in which the word
appears, Georgia v. Evans, 316 U.S. 159, 161 (1942).

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Id. at 711.

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claim for relief was based on rights it possessed only as a

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result of its status as a sovereign and concluded that it

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therefore could not bring the § 1983 claim.

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The Supreme Court reasoned that the plaintiff’s

Id. at 711-12.

The Ninth Circuit addressed the issue in Skokomish Indian

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Tribe v. United States, 410 F.3d 506, 514 (9th Cir. 2005)

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(“Skokomish”).

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tribe was not suing in any capacity resembling a private person.

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Id.

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function of its status as a sovereign, specifically fishing

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rights obtained through a treaty entered into with the United

In Skokomish, the Court found that the plaintiff

Rather, it sought to enforce rights granted to it as a

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States.

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individual tribe members did not have cognizable § 1983 claims

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because they sought to vindicate communal as opposed to

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individual rights.

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Id. at 514-15.

The Court also found that the

Id. at 515-16.

Here, Plaintiffs were specially granted the right to become

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a reimbursable employer as a function of their status as a

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federally-recognized tribe pursuant to FUTA and the California

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Unemployment Insurance Code.

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3309 (a)(2) & (d); Cal. Unemp. Ins. Code §§ 802, 803.

See 26 U.S.C. §§ 3306(c)(7) & (u),
It was as

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a result of this status that they incurred the tax debt

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underlying the present matter.

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argue that a sovereign may assert claims under § 1983 in a

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capacity which resembles a private person, the proposed cause of

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action arises only as a function of rights granted to Plaintiffs

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as a sovereign entity.

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to the plaintiffs in Skokomish through a federal treaty with the

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United States, Plaintiffs were only given the right to become a

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reimbursable employer and establish this financial relationship

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with the State of California as a result of specific provisions

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in a federal statute, FUTA, which affords Indian tribes special

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rights regarding the financing of their unemployment liability.

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Although Plaintiffs rightly

Similar to the fishing rights afforded

Plaintiffs are not seeking to protect individual rights

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from government encroachment, but to protect the communal

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interests of the Tribe in a financial relationship with the

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State of California.

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result of Plaintiffs exercising their “prerogative” to become a

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reimbursable employer, a choice afforded to them as a federally-

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recognized Indian tribe.

This special relationship is the direct

See Inyo County, 538 U.S. at 712.
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Accordingly, the Court DENIES Plaintiffs’ Motion to Amend the

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Complaint.

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III. ORDER
For the reasons set forth above, Plaintiffs’ motion to
amend is DENIED.
IT IS SO ORDERED.
Dated: July 22, 2014

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