United States District Court, D. Arizona
G. Campbell United States District Judge
2013, this Court ruled that the 2003 Gaming Compact between
the State of Arizona and the Tohono O'odham Nation (the
“Compact”) 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). Subsequently, the Nation began
constructing a casino known as the West Valley Resort
(“WVR”) 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 alleging
that the Nation engaged in fraud during the formation of the
Compact and asserting authority to withhold certification
from the WVR's vendors and employees based on this
conduct. In response, the Nation brought this lawsuit against
the Arizona Governor and Attorney General, as well as
Director Bergin, claiming that federal law preempts any
state-law authority to withhold these certifications.
Court dismissed claims against the Governor and Attorney
General, leaving Director Bergin as the sole Defendant. Doc.
82. The Director has asserted counterclaims against the
Nation. Doc. 93. In an order dated March 30, 2016, the Court
dismissed the Director's counterclaim for promissory
estoppel, but left in place his counterclaims for fraudulent
inducement and material misrepresentation. Doc. 127.
completion of discovery, the Nation moved for summary
judgment against the Director on the remaining counterclaims.
Doc. 253. The Nation also seeks summary judgment on its
preemption claim. Id. The Court heard oral argument
on December 14, 2016. Ruling from the bench, the Court found
that disputed issues of fact prevent summary judgment on
several of the Nation's arguments: that the Nation had no
definite plans to game in the Phoenix area before the Compact
was signed, that the Nation made no actionable omissions,
that the State did not actually or justifiably rely on any
alleged misrepresentations or omissions in entering into the
Compact, and that sovereign immunity bars the counterclaims.
The Court took three of the Nation's arguments under
advisement: that the State ratified the Compact after it
learned of the alleged fraud and cannot now seek partial
rescission, that the alleged misrepresentations and omissions
were not made with the authority of the Nation, and that the
Nation is entitled to summary judgment on preemption. This
order will address those issues. The Court will also address
the Nation's pending motion for spoliation sanctions.
Summary Judgment Standard.
must grant summary judgment “if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
Fed.R.Civ.P. 56(a); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986). Under summary
judgment practice, the movant bears the initial
responsibility of presenting the basis for its motion and
identifying those portions of the record that it believes
demonstrate the absence of a genuine issue of material fact.
Celotex, 477 U.S. at 323. If the movant meets this
initial responsibility, the burden shifts to the nonmovant to
demonstrate the existence of a genuine dispute of material
fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248, 250 (1986). The Court's function is not to weigh the
evidence and determine the truth, but to determine whether
there is a genuine issue for trial. Id. at 249. The
Court must believe the nonmovant's evidence and draw all
inferences in its favor. Id. at 255.
Nation argues that the Court should grant summary judgment on
the Director's fraud and misrepresentation counterclaims
because “the State has ratified the Compact by
continuing to accept contractual benefits and exercise
contractual rights since learning in 2009 of the Nation's
alleged fraud.” Doc. 253 at 10. In support of this argument,
the Nation relies primarily on the Restatement (Second) of
Contracts. Indeed, the Nation cites to the Restatement at
least ten times in its four-page argument. Id. at
14-18. The Director also cites the Restatement on this issue.
Doc. 273 at 18.
Court agrees that the Restatement provides the relevant law.
In a related case, the Ninth Circuit held that the Compact in
this case is governed by general principles of “federal
contract law.” Arizona v. Tohono O'odham
Nation, 818 F.3d 549, 560 (9th Cir. 2016). Federal
contract law, in turn, looks to the Restatement. See
Pauma Band of Luiseno Mission Indians of Pauma & Yuima
Reservation v. California, 813 F.3d 1155, 1163 (9th Cir.
2015) (“We ‘often look to the . . . Restatement
when deciding questions of federal common law.'”)
(quoting Curtin v. United Airlines, Inc., 275 F.3d
88, 93 n.6 (D.C. Cir. 2001)); Cty. of Santa Clara v.
Astra USA, Inc., 588 F.3d 1237, 1244 (9th Cir. 2009)
(looking to Restatement to define federal common law of
contracts), reversed on other grounds, Astra USA, Inc. v.
Santa Clara Cty., 563 U.S. 110 (2011); Wallach v.
Eaton Corp., 837 F.3d 356, 368 (3d Cir. 2016)
(explaining that Restatement (Second) of Contracts carries
persuasive force in defining federal common law); Bowden
v. United States, 106 F.3d 433, 439 (D.C. Cir. 1997)
(explaining that the principles of the Restatement (Second)
of Contracts are those “from which we would be inclined
to fashion a federal common-law rule”); Turner v.
American Fed'n of Teachers Local 1565, 138 F.3d 878,
882 (11th Cir. 1998) (similar).
Nation notes that “fraud in the inducement and
misrepresentation do not void a contract; they merely render
the contract ‘voidable' at the election of the
purportedly defrauded party.” Doc. 253 at 15 (citing
Restatement §7 & cmt. b). The defrauded party then
has a choice: it can either rescind or affirm the contract.
Id. If the defrauded party “acts in a manner
‘inconsistent with disaffirmance' after the alleged
misrepresentation is known - such as by accepting benefits or
performing under the contract - it no longer has any right to
rescind.” Id. (citing Restatement §
on these principles, the Nation contends that the State
ratified the Compact by accepting benefits and performing
obligations under the Compact for some 27 months after it
learned of the Nation's alleged fraud, and thereby lost
its right to rescind. The Court might agree, except that the
Nation has not established the first step in this argument -
when the State learned of the Nation's fraud.
380(2) of the Restatement, which is the primary provision on
which the Nation relies, makes clear that actual knowledge of
fraud is required. It states:
The power of a party to avoid a contract for mistake or
misrepresentation is lost if after he knows or has reason to
know of the mistake or of the misrepresentation if it is
non-fraudulent or knows of the misrepresentation if it is
fraudulent, he manifests to the other party his
intention to affirm it or acts with respect to anything that
he has received in a manner inconsistent with disaffirmance.
Restatement (Second) of Contracts § 380(2) (1981)
(emphasis added). Thus, constructive knowledge - “knows
or has reason to know” - is sufficient to trigger the
election obligation only for non-fraudulent
misrepresentation. Actual knowledge is required for
fraudulent misrepresentation. Because the Director claims
fraudulent misrepresentation, the State's duty to act
arose only when it actually knew of the Nation's
Nation's motion does not establish when the State knew of
the alleged fraud. The Nation asserts that it met with the
Governor in January 2009 to discuss its plans to build the
WVR, and announced the plans publicly on January 27, 2009.
Doc. 254, ¶¶ 3-4. The Director does not dispute
that the WVR plans became public at this time. Doc. 274 at
12. But the Nation makes no attempt to show that a 2009
disclosure of plans to build the WVR was tantamount to
disclosure that the Nation (as the Director alleges) was
planning in 2001 and 2002 to open a casino in the Phoenix
area. The Director's allegation of fraud focuses on the
2001-2002 time period when the Compact was being negotiated:
“the Nation had a secret plan at the time it was
negotiating the Compact to build a gaming facility in
the Phoenix metropolitan area and to assert the right to do
so under IGRA and the Gila Bend Act, notwithstanding its
contrary, false, representations to the State, the public and
the Arizona voters.” Doc. 96 at 32-33 (emphasis added).
The Nation's disclosure in 2009 of plans to open the WVR
said nothing about when those plans were formed or the
truthfulness of representations made during negotiation of
the Compact. It was quite possible that the plans were formed
well after the Compact was signed, in which case they would
not support a claim of fraudulent inducement.
Director does not address this issue. He disputes the
Nation's factual assertion that the State “knew or
should have known” of the fraud no later than January
2009. See Doc. 254, ¶ 5; Doc. 274 at 12, ¶
5. But he makes no argument on this point. The Court cannot
act as counsel for the Director, and normally would not raise
an issue his lawyers have failed to address, but, as shown
above, the Nation bears the initial responsibility of
presenting the basis for its motion and identifying those
portions of the record that demonstrate the absence of a
genuine issue of material fact. See Fed. R. Civ. P.
56(a) (summary judgment warranted “if the movant
shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a
matter of law”) (emphasis added); Celotex, 477
U.S. at 323 (“Of course, a party seeking summary
judgment always bears the initial responsibility of informing
the district court of the basis for its motion, and
identifying those portions of “the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, ” which it
believes demonstrate the absence of a genuine issue of
material fact.”). If the Nation fails to discharge this
duty, the Court cannot grant summary judgment.
Nation cites only one item of evidence in support of its
assertion that the State knew of the fraud in January 2009 -
a January 19, 2010 letter from Governor Brewer to the
Nation's chairman. Doc. 256-1. But that letter, which was
written one year after plans for the WVR were disclosed, says
nothing about fraud. The letter does assert that the State
and others understood that “casino style gambling would
be limited to existing tribal communities and would not
become part of off-reservation neighborhoods” under the
Compact. Id. at 2. But this assertion could be
nothing more than an allegation that the Nation was breaching
the Compact, as the State later asserted in court. It does
not suggest that the Nation had plans for the WVR during
negotiation of the Compact. The letter also asserts that the
WVR would produce an imbalance by placing an urban gaming
facility “within the markets of several other tribes,
” would not ...