United States District Court, N.D. California.
SONOMA FALLS DEVELOPERS, LLC, Sonoma Falls Lender, LLC, and Sonoma Falls Manager, LLC, PlaintiffS,
DRY CREEK RANCHERIA BAND OF POMO INDIANS OF CALIFORNIA, Defendant.
No. C–01–4125 VRW.
Dec. 26, 2002.
David M. Balabanian, Robert A. Brundage, Bingham McCutchen LLP, J. Leah Castella, Claudia Yvette Sanchez, Holly A. House, Mccutchen, Doyle, Brown, & Enersen LLP, San Francisco, CA, Jerold S. Solovy, Ronald L. Marmer, Timohty J. Chorvat, Jenner & Block, Chicago, IL, for Plaintiffs.
David M. Gonden, Matthew P. Vafidis, Frank Ronald Lawrence, Jerome L. Levine, Holland & Knight LLP, San Francisco, CA, H. Larry Elam, III, Venardi-Elam LLP, Oakland, CA, for Defendant.
VAUGHN R. WALKER, District Judge.
*1 Before the court is defendant's motion to dismiss (Doc # 45) and motion to strike (Doc # 48) portions of plaintiffs' second amended complaint (SAC). For the reasons set forth below, the court GRANTS in part and DENIES in part defendant's motion to dismiss and DENIES defendant's motion to strike.
The following factual summary comes from plaintiffs' (collectively, Sonoma Falls) SAC. The Tribe is a federally recognized Indian tribe with a reservation in Sonoma County. See SAC (Doc # 43), ¶¶ 1, 5. Sonoma Falls and the Tribe entered into several agreements related to developing and managing potential casinos on the Tribe's reservation. See id, ¶¶ 1, 6–10. In summer 1999, Advent Communications & Entertainment Co, LLC (ACE) negotiated and entered into a letter of intent and an exclusive negotiating agreement with the Tribe. See id, ¶ 6. ACE later brought in, with the Tribe's knowledge and consent, High Creek. See id, ¶ 8. ACE and High Creek together formed each of the Sonoma Falls plaintiffs: Sonoma Falls Developers, LLC, Sonoma Falls Lender, LLC, and Sonoma Falls Manager, LLC. See id. ACE assigned its rights under the letter of intent and the exclusive negotiating agreement to Sonoma Falls. See id. As negotiations progressed, the parties focused on two stages of the project: first, an interim casino (Canyon Casino) that would be operating by May 15, 2001, and second, the more elaborate casinos (Falls Casino) that did not have a strict deadline for completion. See id, ¶¶ 9, 10.
On November 1, 2000, Sonoma Falls and the Tribe completed negotiations regarding these interim and permanent casinos, which culminated in a series of seven written agreements:
(1) the Sonoma Canyon Development Services Agreement (Canyon Development Agreement), between Sonoma Falls Developer and the Tribe, providing the terms governing development and construction of an initial casino on the reservation;
(2) the Sonoma Canyon Loan Agreement (Canyon Loan Agreement), between Sonoma Falls Lender and the Tribe, governing the amounts lent to the Tribe as well as financing for the initial casino;
(3) the Sonoma Falls Development Services and Financing Agreement (Development Agreement), between Sonoma Falls Developer and the Tribe, governing the development of a more elaborate gaming facility;
(4) the Sonoma Falls Management Agreement (Management Agreement), between Sonoma Falls Manager and the Tribe, providing for the management of the Falls Casino;
(5) the Sonoma Falls Loan Agreement (Loan Agreement), between Sonoma Falls Lender and the Tribe, providing financing for Falls Casino;
(6) the Letter Agreement on Seeking Approval of Management and Development Agreements (Letter Agreement), among Sonoma Falls Manager, Sonoma Falls Developer and the Tribe, providing that the parties would use commercially reasonable efforts to obtain National Indian Gaming Commission (NIGC) approval of the Sonoma Falls Management and Development agreements as soon as possible; and
*2 (7) the Option Agreement for Purchase and Sale of Real Property (Option Agreement), between Sonoma Falls Developer and the Tribe, providing the Tribe an option to buy certain land if Sonoma Falls terminated the casino project.
See id, ¶ 10(a)-(g). Sonoma Falls alleges that it met all of its responsibilities under these agreements but that the Tribe disregarded the agreements. See id, ¶¶ 17–20, 21–25. In particular, the Tribe began to negotiate with other development partners. In August 2001, the Tribe entered into an agreement with Nevada Gold Group to develop a casino on the reservation. See id, ¶¶ 22–26.
On October 9, 2001, Sonoma Falls brought this breach of contract and unfair business practices action in state court. The Tribe removed the action, asserting federal preemption under the Indian Gaming Regulatory Act (IGRA), 25 USC §§ 2701 et seq. See Notice of Removal (Doc # 1). On June 7, 2002, the Tribe moved to dismiss the first amended complaint (FAC) (Doc # 14). The court denied in part and declined to rule in part the Tribe's motion to dismiss. See 7/24/02 Order (Doc # 40). In particular, the court found that the Tribe clearly waived its sovereign immunity in two of the agreements, the Canyon Loan and the Canyon Development agreements, as to claims by Sonoma Falls Developer, LLC and Sonoma Falls Lender, LLC. See id. at 5–6. The court, however, declined to rule on whether the waivers applied to Sonoma Falls Manager, LLC as neither party discussed the issue. Accordingly, the court declined to rule on the sovereign immunity issue concerning Sonoma Falls Manager, LLC. Id. at 6.
On August 14, 2002, Sonoma Falls again amended its complaint. See SAC (Doc # 43). In the SAC, Sonoma Falls added allegations regarding two additional agreements not mentioned in its FAC: the Letter Agreement and the Option Agreement, as described above. In addition, Sonoma Falls alleges that the waivers of immunity contained in the agreements applies specifically to Sonoma Falls Manager, LLC.
Subsequently, the Tribe moved to dismiss and to strike portions of the SAC. In particular, the Tribe contends that the court did not analytically distinguish between agreements which required approval by the NIGC to have legal force and those which did not, in part due to the parties' failure to develop and discuss that issue. The Tribe also explains that it had anticipated filing a motion to reconsider but once Sonoma Falls served its SAC, the Tribe decided to pursue the argument in the context of a motion to dismiss. The Tribe argues that several of the agreements which required approval by the NIGC are void because they were never approved by the NIGC. The Tribe further argues that because tribal sovereign immunity waiver as to Sonoma Falls Manager, LLC is contained only in one of those agreements, the Tribe did not waive its immunity as to Sonoma Falls Manager, LLC. Finally, the Tribe contends that such references to void agreements and Sonoma Falls Manager, LLC should be stricken under FRCP 12(f).
*3 Under FRCP 12(b)(6), dismissal is proper only when it “appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45–46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). All material allegations in the complaint must be taken as true and construed in the light most favorable to the plaintiff. See In re Silicon Graphics Inc. Sec Lit., 183 F.3d 970, 980 n10 (9th Cir1999). The court may also consider documents attached to the complaint in connection with a FRCP 12(b)(6) motion to dismiss. Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995).
As noted earlier, Sonoma Falls failed to file the exhibits referenced by the SAC. Nevertheless, the court may consider these documents, which were submitted by the Tribe in connection with the previous motion to dismiss Sonoma Falls' FAC. See Nathan Decl (Doc # 32). The Ninth Circuit has held that “documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss * * *.” Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994). The court also need not accept as true allegations that contradict facts that may be judicially noticed, including matters of public record, such as papers in the court's record. See Mullis v. United States Bankruptcy Court, 828 F.2d 1385, 1388 (9th Cir.1987); Mack v. South Bay Beer Distributors, Inc., 798 F.2d 1279, 1282 (9th Cir.1986). As none of the parties disputed the authenticity of the documents attached to the Nathan Declaration, the court may properly consider them in the context of this motion.
If a complaint is dismissed for failure to state a claim, “leave to amend should be granted unless the court determines that the allegation of other facts consistent with the pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv–Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir.1986).
The Tribe argues that five agreements related to the management of the planned Falls Casino—the Development Agreement, the Management Agreement, the Loan Agreement, the Letter Agreement and the Option Agreement—are void as legal nullities because they were never approved by the NIGC, whose approval is required for agreements to manage Class II and III gaming casinos. As Sonoma Falls Manager relies upon the sovereign immunity waivers contained in one of these purportedly invalid documents to assert its claims, the Tribe argues that Sonoma Falls Manager's claims must be dismissed. Because this argument depends on a finding by the court that the agreements at issue are legal nullities, the court considers that aspect first.
Sonoma Falls does not dispute that the Sonoma Falls Development Services and Financing Agreement or that the Sonoma Falls Management Agreement are management contracts or collateral contracts within the meaning of 25 USC §§ 2710 et seq and therefore must be approved by the NIGC before they can be valid contracts. But Sonoma Falls contends that the remaining three agreements—the Option Agreement, the Loan Agreement and the Letter Agreement—did not require NIGC approval because they do not “relate to the gaming activity.” See Pls Opp Mem (Doc # 60).
*4 Pursuant to the IGRA, Indian tribes may enter into agreements for the management of Class II or III gaming activity. Such management contracts must be approved by the NIGC to be legally valid and binding. 25 USC §§ 2710 et seq. This includes “all collateral agreements to such [management] contract that relate to the gaming activity.” 25 USC § 2711(a)(3). Management contract is defined as:
any contract, subcontract, or collateral agreement between an Indian tribe and a contractor or between a contractor and a subcontractor if such contract or agreement provides for the management of all or part of a gaming operation.
25 CFR § 502.15.
A collateral agreement to a management contract is defined as:
any contract, whether or not in writing, that is related, either directly or indirectly, to a management contract, or to any rights, duties or obligations created between a tribe * * * and a management contractor or subcontractor * * *.
25 CFR § 502.5.
Sonoma Falls' narrow definition of collateral agreement, premised on the view that such agreements must directly and literally deal with gaming, as opposed to the planning and management of such activity, does not appear warranted. As the NIGC has pointed out in a letter sent to the parties regarding their Canyon casino agreements:
Management encompasses activities such as planning, organizing, directing, coordinating, and controlling. See NIGC Bulletin No 94–5. In the view of the NIGC, the performance of any one of these activities with respect to all or part of a gaming operation constitutes management for the purpose of determining whether an agreement for the performance of such activities is a management contract requiring NIGC approval.
NIGC Letter (Doc # 32, Exh 14), at 2.
The court now turns to the three agreements in dispute and considers whether they are collateral to a management agreement. Sonoma Falls argues that the Option Agreement “merely gives the Tribe an option to buy real estate near the reservation.” Pls Opp Mem (Doc # 60), at 4. But the Option Agreement and the Management Agreement are clearly intertwined: The Management Agreement on its face provides that the Tribe shall buy from Sonoma Falls the real property in question upon approval of the Management Agreement by the NIGC chairman, pursuant to 25 USC § 2711, while the Options Agreement provides that “[a]s more particularly described in the Sonoma Falls Management Agreement, upon the occurrence of [NIGC approval], the [property] shall be transferred to the Tribe.” It is clear that the Option Agreement directly relates both to a management contract and to the “rights, duties and obligations created between a tribe * * * and a management contractor.” Accordingly, it is a collateral agreement to a management contract and is void without NIGC approval.
The same is true also for the Loan Agreement. While Sonoma Falls argues that the Loan Agreement “does not provide for gaming or management[; i]t is just a loan agreement,” Pls Opp Mem (Doc # 60), at 5, the Loan Agreement on its face provides that it is subject to the approval and “full force” of the Management Agreement. See Loan Agrmt (Doc # 32, Exh 9), at 2. As such, it is directly related to the parties' management contract.
*5 The Letter Agreement presents a more complicated analysis. Under that agreement, the parties agreed to use “all commercially reasonable efforts” to obtain NIGC approval for the Management and Development Agreements “as soon as possible.” See Letter Agrmt (Doc # 32, Exh 15). Under the Tribe's reasoning, however, if the Letter Agreement were a collateral agreement and therefore not binding until approved by the NIGC, the raison d'etre for the Letter Agreement would be moot upon becoming a valid contract. While the Letter Agreement might appear to fall within the literal language of the definition of a collateral agreement, this result seems anomalous and illogical. The court notes that the Letter Agreement does not substantively relate to the terms of the Management Agreement and thus would not appear to be salient to the actual duties and obligations created by the Management Agreement. Even though this agreement does not provide for waiver of sovereign immunity against claims by Sonoma Falls Manager, Sonoma Falls Developer is a party to this agreement.
On their face, the Option and Loan Agreements fall within the scope of 25 USC §§ 2710 et seq and are therefore void without NIGC approval. While the NIGC decided, without specific explanation, that the Sonoma Canyon Development and Loan Agreements did not constitute a management contract under the terms of 25 USC § 2711, the court notes that those agreements dealt with developing and financing an interim casino; apparently, NIGC did not find that they provided for management of the casino. By contrast, the parties do not dispute that they executed a management contract, the Management Agreement, with respect to the Falls Casino, along with several other agreements related directly to the duties thereunder.
Because the Option and Loan Agreements are void, Sonoma Falls may not pursue any claims to the extent they are based on their force as valid, binding contracts. While this affects portions of Sonoma Falls' claims for declaratory relief, breach of contract and breach of the covenant of good faith and fair dealing, it is not clear whether its unfair business practices claim under Cal B & P § 17200 is necessarily barred. As neither party discussed this issue, the court declines to rule on this portion of the Tribe's motion to dismiss. Accordingly, the court GRANTS the Tribe's motion to dismiss Sonoma Falls' claims based on the Loan and Option Agreements with the exception of its unfair business practices claim and DENIES its motion as to the Letter Agreement.
Having determined that these agreements are void, the court turns to the Tribe's argument that Sonoma Falls Managers' claims fail because its only waiver from the Tribe's sovereign immunity is under those void documents.
The SAC reads, in relevant part:
The Tribe waived sovereign immunity and exhaustion of tribal-court and tribal administrative remedies for this action. The waivers include but are not limited to the following:
*6 * * *
d. The Option Agreement waived sovereign immunity and exhaustion of tribal-court and tribal administrative remedies, with respect to any claim by any Sonoma Falls entity arising out of it or any related agreement.
SAC (Doc # 43), ¶ 34. In light of the court's finding earlier in this order, Sonoma Falls cannot rely on the validity of the Option Agreement to establish waiver.
Sonoma Falls also argues that the Tribe waived its sovereign immunity by removing this action. See Pls Opp Mem (Doc # 60), at 5. Sonoma Falls equates tribal sovereign immunity with that of a state's Eleventh Amendment immunity and relies on cases which hold that removal of suits to federal court constitutes waiver of Eleventh Amendment immunity. Id. In opposition, the Tribe contends that the cases cited by Sonoma Falls are inapposite and that removal, far from constituting a waiver, “was consistent with the Tribes' [sic] right as a sovereign nation to have its sovereign immunity claim and other disputes decided in federal court.” Def Repl (Doc # 62), at 8.
As a matter of federal law, an Indian tribe is subject to suit only if Congress has authorized the suit or the tribe has waived its immunity. Kiowa Tribe of Oklahoma v. Manufacturing Technologies, Inc., 523 U.S. 751, 754, 118 S.Ct. 1700, 140 L.Ed.2d 981 (1998). “To relinquish its immunity, a tribe's waiver must be ‘clear.’ ” C & L Enterprises, Inc. v. Citizen Band Potawatomi Indian Tribe of Oklahoma, 532 U.S. 411, 418, 121 S.Ct. 1589, 149 L.Ed.2d 623 (2001).
“Tribes are, foremost, sovereign nations.” American Vantage Companies, Inc. v. Table Mountain Rancheria, 292 F.3d 1091, 1096 (9th Cir.2002). Even though Indian tribes are not foreign sovereigns, id, the Supreme Court has nevertheless found that in determining whether an Indian tribe has waived its sovereign immunity, “[i]nstructive here is the law governing waivers of immunity by foreign sovereigns.” Id. at 421 n3; see also Kiowa Tribe, 523 U.S. at 759 (“[W]e find instructive the problems of sovereign immunity for foreign countries.”).
Foreign sovereigns do not waive their sovereign immunity merely by removing to federal court. See Rodriguez v. Transnave Inc., 8 F.3d 284, 289 (5th Cir.1993). Otherwise, a foreign sovereign would be forced to “choose between asserting removal or the immunity defense, but not both.” Id. Among the reasons cited for this legal principle are the need for a “uniform body of law in this area” and the distinctly federal nature of foreign policy and relations. Id. Similarly, because “Congress possesses plenary power over Indian affairs,” South Dakota v. Yankton Sioux Tribe, 522 U.S. 329, 343, 118 S.Ct. 789, 139 L.Ed.2d 773 (1998), “Indian tribes fall under nearly exclusive federal, rather than state, control.” American Vantage Companies, 292 F.3d at 1096. Tribal sovereignty “exists only at the sufferance of Congress and is subject to complete defeasance.” United States v. Wheller, 435 U.S. 313, 323, 98 S.Ct. 1079, 55 L.Ed.2d 303 (1978). Given the distinctly federal nature of Indian tribal sovereignty, the court finds the Supreme Court's analogy with foreign sovereigns persuasive in this setting. Forcing Indian tribes sued in state court to choose between removal or waiver of sovereign immunity would interfere with federal plenary power and interests in this arena. See Kiowa Tribe, 523 U.S. at 759 (“Like foreign sovereign immunity, tribal immunity is a matter of federal law.”). Cf Maynard v. Narrangasett Indian Tribe, 984 F.2d 14, 15–16 (1st Cir.1993) (relying on Indian tribe's sovereign immunity against claims after removal).
*7 Sonoma Falls urges that the court equate sovereign immunity with Eleventh Amendment and apply cases finding waiver of Eleventh Amendment immunity by the mere act of removal. For this proposition, Sonoma Falls relies primarily on Lapides v. Board of Regents, 535 U.S. 613, 122 S.Ct. 1640, 1646, 152 L.Ed.2d 806 (2002). Eleventh Amendment immunity serves to “avoid the indignity of subjecting a State to the coercive process of judicial tribunals at the instance of private parties,” Puerto Rico Aqueduct and Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 146, 113 S.Ct. 684, 121 L.Ed.2d 605 (1993), and is distinct from a state's underlying sovereign immunity from suit. See Ortiz–Feliciano v. Toledo–Davila, 175 F.3d 37, 40 n2 (1st Cir1999). The Court in Lapides makes a similar distinction and limits its holding accordingly. See 122 S Ct at 1643 (“Nor need we address the scope of waiver [of Eleventh Amendment immunity] by removal in a situation where the State's underlying sovereign immunity from suit has not been waived or abrogated in state court.”). Indeed, throughout the opinion, the Court in Lapides is careful to refer to Eleventh Amendment immunity and sovereign immunity as distinct and separate doctrines.
Sonoma Falls cites a Nevada district court case which held that a tribe had waived its sovereign immunity by removal. See State Engineer v. South Fork Band of the Te–Moak Tribe of Western Shoshone Indians, 66 F Supp 2d 1163 (D.Nev.1999). That order, which was vacated in part and its ruling reversed upon reconsideration by the district court, 114 F Supp 2d 1046 (D.Nev.2000), explicitly equated tribal immunity with Eleventh Amendment immunity. 66 F Supp 2d at 1173 (“We see no reason to treat the Tribes differently.”). Notably, the district court in that case conflated Eleventh Amendment immunity and sovereign immunity and found “no reason to treat the Tribe['s removal] any differently [from a state's waiver of sovereign immunity]” vis-a-vis the Eleventh Amendment. Id. In addition, the court did not consider the analogousness of waiver by foreign sovereigns.
As discussed above, it is clear that, at least in the context of finding waiver, Indian tribes are more akin to foreign sovereigns than to states. As the Supreme Court has held, “the immunity possessed by Indian tribes is not coextensive with that of the States.” Kiowa Tribe, 523 U.S. at 756.
Because the court finds that the Tribe did not waive tribal immunity by virtue of removing this action and that the Option Agreement is void, the court grants the Tribe's motion to dismiss all claims by Sonoma Falls Manager. While paragraph 34 of the SAC alleges that the Tribe waived immunity for the agreements and that such waivers “includ[e], but [are] not limited to” the specific examples listed in the subsequent subparagraphs, the court finds it appropriate to dismiss Sonoma Falls Manager's claims. The court need not accept as true mere legal conclusions, such as that the Tribe waived its tribal immunity. In re Delorean Motor Co., 991 F.2d 1236, 1240 (6th Cir.1993); Schwarzer et al, California Practice Guide: Federal Civil Procedure Before Trial § 9:221 (2002). Moreover, Sonoma Falls does not contend that any of the other alleged instances of waiver listed in paragraph 34 constituted waiver as to Sonoma Falls Manager. Accordingly, the court GRANTS the Tribe's motion to dismiss as to claims by Sonoma Falls Manager, LLC.
*8 The Tribe also moves to strike from the SAC all references to Sonoma Falls Manager and to the five agreements that were the subject of its motion to dismiss. See Doc # 48. As the court declines to dismiss Sonoma Falls' claims regarding the Letter Agreement, the court shall consider the Tribe's motion to strike the remaining four agreements. The Tribe contends that allegations involving these agreements are immaterial and that striking them would help “streamline” the case. In opposition, Sonoma Falls contends that the allegations are relevant to determine damages and to set the background of events surrounding the other agreements and the parties' course of conduct. See Pls Opp Mem (Doc # 60), at 8–11.
FRCP 12(f) authorizes a court to strike “from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter,” which includes “any part of the prayer for relief when the relief sought is not recoverable as a matter of law.” Rosales v. Citibank, 133 F Supp 2d 1177, 1180 (N.D.Cal.2001), citing Bureerong v. Uvawas, 922 F.Supp. 1450, 1479 n34 (CD Cal 1996). Motions to strike are designed to “avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial.” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir.1993).
Because of the limited role of pleadings in federal practice, as well as the potential for FRCP 12(f) motions to serve as delaying tactics, FRCP 12(f) motions are generally disfavored. See Bureerong, 922 F.Supp. at 1478. When considering a motion to strike, the pleading at issue must be viewed in a light most favorable to the pleader and treat “as admitted all material facts alleged and all reasonable presumptions that can be drawn therefrom.” Rosales, 133 F.Supp. at 1180. If the allegations in dispute give a full understanding of the complaint as a whole, they should not be stricken. Thomas LeDuc v. Kentucky Cent. Life Ins. Co., 814 F.Supp. 820, 830 (N.D.Cal.1992).
The SAC alleges that “[o]n November 1, 2000, the negotiations between Sonoma Falls and the Tribe culminated in a series of seven written agreements,” five of which are the agreements at issue. SAC (Doc # 43), ¶ 10. As alleged, these four agreements were intimately related to other agreements as to which Sonoma Falls' claims continue to be viable. As such, references to these agreements provide a full understanding of the parties' dealing and the larger project which included the legally cognizable contracts. Similarly, allegations concerning Sonoma Falls Manager supply a full understanding of the interactions between ACE and High Creek on one hand, as the constituent members of each of the Sonoma Falls entities, and the Tribe on the other. As some of the agreements involved Sonoma Falls Manager, its inclusion provides a fuller picture of what occurred.
Nor would striking from the complaint references to Sonoma Falls Manager and the agreements streamline the issues in the case any more than the court's ruling to grant the Tribe's motion to dismiss. The Tribe does not articulate how such streamlining would occur.
*9 Accordingly, the court DENIES the Tribe's motion to strike (Doc # 48).
In sum, the court GRANTS in part and DENIES in part defendant's motion to dismiss (Doc # 45) and DENIES defendant's motion to strike (Doc # 48). The court GRANTS plaintiffs leave to serve and file a third amended complaint in accordance with this order on or before January 31, 2003; if plaintiffs decline to file a third amended complaint, this action will proceed on the basis of the remaining claims alleged in the SAC.
IT IS SO ORDERED.