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Tohono O'Odham Nation v. Ducey

United States District Court, D. Arizona

March 30, 2016

Tohono O’odham Nation, Plaintiff,
Douglas A. Ducey, et al., Defendants.


David G. Campbell United States District Judge

In May 2013, this Court ruled that the Gaming Compact between the State of Arizona and the Tohono O’odham Nation did not prohibit the Nation from building a new casino in the Phoenix metropolitan area. Arizona v. Tohono O’odham Nation, 944 F.Supp.2d 748 (D. Ariz. 2013) (“Tohono O’odham II”). Subsequently, the Nation began constructing a casino known as the West Valley Resort in Glendale, Arizona, a suburb of Phoenix. In April 2015, while construction was ongoing, Daniel Bergin, Director of the Arizona Department of Gaming (“ADG”), wrote a letter to the Nation reiterating the Department’s longstanding position that the Nation engaged in fraud during the formation of the Compact, and asserting authority to withhold certification from the Resort’s vendors and employees based on this conduct. In response, the Nation brought this lawsuit, claiming that federal law preempts any state-law authority ADG might have to withhold these certifications.

The Director has asserted counterclaims against the Nation for promissory estoppel, fraudulent inducement, and material misrepresentation. Doc. 96. The Director seeks a variety of relief, including (1) a declaration that “ADG is not obligated to certify or authorize the Nation’s proposed class III gaming facility on the Glendale property or any other Nation-owned or operated class III gaming facility in the Phoenix metropolitan area”; (2) a judgment that “the Nation is estopped from opening any class III gaming facilities in the Phoenix metropolitan area”; (3) a declaration or injunction that the Nation is prohibited from conducting class III gaming activities on the Glendale property; (4) a declaration that the Compact is voidable and unenforceable and subject to rescission; and (5) reformation of the compact. Id. at 35-36.[1] The Nation moves to dismiss these counterclaims. Doc. 108. The motion has been fully briefed and the Court heard oral argument on March 9, 2016. For the reasons set forth below, the Court will grant the motion in part and deny it in part.

I. Background.

A. The Indian Gaming Regulatory Act.

In California v. Cabazon Band of Mission Indians, 480 U.S. 202 (1987), the Supreme Court held that states that permitted some form of gambling could not prohibit such gambling on Indian lands. In response, Congress passed the Indian Gaming Regulatory Act (“IGRA”), 25 U.S.C. §§ 2701-2721, to give states “some role in the regulation of Indian gaming.” Artichoke Joe’s Cal. Grand Casino v. Norton, 353 F.3d 712, 715 (9th Cir. 2003). IGRA divides gaming into three classes: Class I, which includes social games with prizes of minimum value and traditional forms of Indian gaming; Class II, which includes bingo and certain card games; and Class III, which includes all other games, including “casino-style” games. 25 U.S.C. § 2703(7)(A), (7)(B), (8). Class III gaming is permitted on Indian land only if it is authorized by a tribal ordinance, conducted in a state that permits such gaming, and “conducted in conformance with a Tribal-State compact entered into by the Indian tribe and the State.” § 2710(d)(1).

B. Arizona Department of Gaming.

Arizona created the ADG to carry out the state regulation authorized by IGRA. Among other things, ADG is charged with executing the state’s duties under tribal-state compacts, certifying persons and entities involved in gaming under tribal-state compacts, and “cooperat[ing] with appropriate law enforcement and prosecutorial agencies in the investigation and prosecution of . . . violations.” A.R.S. § 5-602. ADG is authorized to promulgate regulations and impose civil penalties, and may request that the Attorney General file a civil action to recover such penalties. § 602.01. ADG is required to discharge these duties so as to “promote the public welfare and public safety” and “prevent corrupt influences from infiltrating Indian gaming.” § 602(A).

C. The Compact.

On January 24, 2003, the U.S. Secretary of the Interior approved a tribal-state compact between the Nation and Arizona (the “Compact”). See Tohono O’odham II, 944 F.Supp.2d at 754. The Compact permits the Nation to operate four Class III gaming facilities on Nation land in Arizona. Doc. 1-2 at 24-25. The Compact requires prospective gaming employees, contractors, and vendors to obtain certification from ADG. Specifically, the Compact provides that ADG “shall conduct the necessary background investigation to ensure the Applicant is qualified for State Certification.” Doc. 1-3 at 4. Once ADG has completed its background check, it must either issue the certification or deny the application and provide the grounds for the denial. Id. ADG may refuse to certify an applicant who has been convicted of a felony, has previously violated a gaming law, or has provided false statements in his application. Id. at 5.

After the Compact was executed, the Nation purchased unincorporated land in Glendale. Several years later, the Nation announced plans to use the land for a Class III gaming facility to be known as the West Valley Resort. The State of Arizona filed suit in this Court, arguing that the Nation’s plans were not authorized by IGRA and violated the Compact’s ban on additional casinos in the Phoenix area. See Tohono O’odham II, 944 F.Supp.2d 748. The State also asserted that the Nation committed fraud by misrepresenting that the Compact would preclude the Nation from building an additional casino in the Phoenix area. The Court held that the Nation’s construction of a casino on the Glendale land was not prohibited by IGRA or the Compact. The Court also found that the State’s fraud and promissory estoppel claims were barred by the Nation’s sovereign immunity. The Ninth Circuit recently affirmed. Gila River Indian Cmty. v. Tohono O’odham Nation, No. 13-16517, ___ F.3d ___ (9th Cir., Mar. 29, 2016).

D. This Action.

The Nation began construction of the West Valley Resort in December 2014. On February 2, 2015, Director Bergin expressed concern to the Nation that the casino was “not authorized, and, as a consequence . . . ADG would not have the authority to participate in any certification or approval processes relating to the opening or operation of the casino.” Doc. 1, ¶ 75. On April 10, 2015, Bergin informed the Nation that “ADG lacks statutory authority to approve [the Nation’s] Glendale casino notwithstanding [the Court’s earlier decision].” Doc. 1-5 at 2. Bergin expressed his belief that the Nation committed fraud during the formation of the Compact and that the fraud “nullif[ied] any right that [the Nation] would otherwise have under the compact to build the Glendale casino.” Id. He referenced A.R.S. § 5-602(C), which “requires ADG to execute the State’s duties under tribal-state compacts ‘in a manner that is consistent with this state’s desire to have extensive, thorough and fair regulation of Indian gaming permitted under the tribal-state compacts.’” Id. at 3 (quoting § 5-602(C) (emphasis in Bergin letter)). Bergin stated that “the record created in [the prior litigation] includes credible and largely unrefuted evidence that [the Nation] engaged in deceptive behavior and made significant misrepresentations during the compact negotiations.” Id. at 3-4. He concluded that gaming at the casino would not qualify as “Indian gaming permitted under the Tribal-State compact.” Id.

In May 2015, ADG issued a new notice for its certification applications:

Please be advised this application for certification is valid only for authorized Arizona gaming facilities. Providing goods or services to any location considered by the State to be unauthorized, or in pending litigation with the State concerning whether it is authorized, would be outside the approval granted through State Certification. Vendors providing goods or services to unauthorized facilities may be subject to legal and/or regulatory risks.

Doc. 1, ¶ 86. The notice also stated that “based upon the fraud and misrepresentation committed” by the Nation, “[ADG] has determined that the proposed West Valley casino is not authorized.” Id., ¶ 88.

On June 22, 2015, the Nation filed this action against Arizona Governor Douglas Ducey, Arizona Attorney General Mark Brnovich, and Director Bergin, alleging that IGRA preempted Defendants’ policy of refusing to provide certifications for the West Valley Resort. Id. at 32, ¶ 1. The Nation asked the Court to enter a preliminary injunction prohibiting Defendants from carrying out this policy and Defendants filed a motion to dismiss. On September 17, 2015, the Court denied the motion for preliminary injunction, granted the motion to dismiss the Governor and Attorney General, and denied the remainder of the motion to dismiss. Doc. 82. Thereafter, the Director asserted the counterclaims at issue in this order.

The Nation argues that the Director lacks capacity under Arizona law to assert counterclaims against the Nation, and that the counterclaims are barred by the Nation’s sovereign immunity. Doc. 108 at 17-25. The Nation also argues that the Director has failed to state a claim on some counterclaims.

II. Capacity.

Capacity is “a party’s personal right to litigate in federal court.” 6A Wright, Miller, & Kane, Fed. Prac. & Proc. Juris. § 1542 at 469 (2010). Ordinarily, a state official’s capacity to sue and be sued is governed by state law. Fed.R.Civ.P. 17(b)(3). Arizona law provides that Arizona officials lack capacity to sue or be sued absent a specific statutory grant of this authority. Grande v. Casson, 72 P.2d 676, 681 (Ariz. 1937); see also Braillard v. Maricopa Cty., 232 P.3d 1263, 1269 (Ariz.Ct.App. 2010) (“a governmental entity may be sued only if the legislature has so provided”) (citing Kimball v. Shofstall, 494 P.2d 1357, 1359 (Ariz. 1972)); Skinner v. Pinal Cty., No. CV-09-00195-PHX-MHM, 2009 WL 1407363 at *2 (D. Ariz. May 20, 2009) (“the test is whether specific statutory authority authorizes the political subdivision to sue and be sued”).

The parties fail to identify any Arizona statute authorizing the Director to sue or be sued, and the Court has found none. The Director’s powers and duties are set forth in A.R.S. §§ 5-602 and 5-602.01, and neither provision empowers the Director to sue or be sued. To the contrary, § 602(J) states that the Director will “cooperate with appropriate law enforcement authorities and prosecutorial agencies in the investigation and prosecution of . . . violations, ” and § 602.01(c) provides that “the attorney general shall file an action in superior court to recover civil penalties imposed pursuant to this section” (emphasis added). Given the absence of any statutory authorization, the Court concludes that the Director lacks the capacity under state law to either sue or be sued.

The Court is not persuaded, however, that the Director’s capacity in this case should be determined by applying Arizona law. The Nation’s suit against the Director is not based on his capacity under state law, but instead is based on the doctrine established in Ex Parte Young, 209 U.S. 123 (1908). That case holds, as a matter of federal common law, that any state officer who allegedly violates federal law may be sued for injunctive relief in federal court. Id. Ex Parte Young thus appears to create an exception to Rule 17(b)’s requirement that a state officer’s amenability to suit be determined by state law. At least some courts have so held. See Cimerman v. Cook, 561 F. App’x 447, 450 (6th Cir. 2014) (“Because the doctrine of Ex parte Young preserves the suit for equitable relief from dismissal on immunity grounds, it was error to dismiss the suit in this case simply for lack of capacity to be sued under state law.”).

We thus have a situation where the Nation has haled the Director into court on the basis of federal common law, in disregard of his lack of capacity to be sued under Arizona law, and yet asks the Court to hold that his capacity to counterclaim is limited by Arizona law. Doc. 108 at 9. The Court cannot accept such an inequitable result. If the Director can be forced into court and required to defend this case, he can participate as a normal litigant in the case, including by asserting counterclaims. Capacity is concerned “with the personal qualifications of a party to litigate” and is “determined without regard to the particular claim or defense being asserted.” Fed. Prac. & Proc. Juris. § 1559 at 604-05; see also State ex rel. Montgomery v. Mathis, 290 P.3d 1226, 1234 (Ariz.Ct.App. 2012) (‚ÄúCapacity does not depend on the nature of a ...

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