1 KAMALA D. HARRIS Attorney General of California 2 · MOLLYK. MOSLEY, State BarNo. 185483 Supervising Deputy Attorney General 3 STEVEN J. GREEN, State Bar No. 73705 Deputy Attorney General 4 JENNIFER T. HENDERSON, State Bar No. 206231 Deputy Attorney General 5 JILL BOWERS, State Bar No. 186196 Deputy Attorney General 6 1300 I Street, Suite 125 P.O. Box 944255 7 Sacramento, CA 94244-2550 Telephone: (916) 323-1948 8 Fax: (916) 323-7095 E-mail: Jill.Bowers@doj .ca.gov 9 Attorneys for Defendants Marty Morgenstern, Pam Harris, Jack Budmark, Talbott Smith, Kathy Dunne, 1 0 and Sarah Reece 11 12 13 14 15 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA CIVIL DIVISION 16 BLUE LAKE RANCHERIA, a federally- recognized Indian Tribe, et al., Case No. 2:11-CV-01124-JAM-KJN 17 18 19 20 21 22 23 24 25 26 27 28 v. DEFENDANTS' OPPOSITION TO Plaintiffs, PLAINTIFF BLUE LAKE RANCHERIA'S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF CLAIMS MARTY MORGENSTERN, individuaiiy and in his official capacity as Secretary Qf the California Labor and Workforce Development Agency, Date: Time: AprilS, 2015 9:30a.m. Defendants. UNITED STATES OF AMERICA, Intervenor. Courtroom: Judge: Trial Date: Action Filed: 6 The Hon. A. Mendez May 23,2016 4/26/2011 Defendants' Opposition to PlaintiffBlue Lake Rancheria's MSJ, or, in the Alternative, Summary Adjudication of Claims (2: 11-CV-0 1124-JAM-KJN) Case 2:11-cv-01124-JAM-KJN Document 92 Filed 03/25/15 Page 1 of 27
Transcript
1 KAMALA D. HARRIS Attorney General of California
2 · MOLLYK. MOSLEY, State BarNo. 185483 Supervising Deputy Attorney General
3 STEVEN J. GREEN, State Bar No. 73705 Deputy Attorney General
4 JENNIFER T. HENDERSON, State Bar No. 206231 Deputy Attorney General
5 JILL BOWERS, State Bar No. 186196 Deputy Attorney General
6 1300 I Street, Suite 125 P.O. Box 944255
7 Sacramento, CA 94244-2550 Telephone: (916) 323-1948
The history of the Tribe's participation in the reimbursable program is material to the question whether it waived sovereign immunity ............................ 5
A. The Tribe elected to participate in the unemployment insurance reimbursable program ................................................................................. 5
B. The Tribe successfully appealed the EDD's denial of its application to the reimbursable program ....................................................................... 5
The timing ofEDD's proof of the accuracy of its assessments, and the finality of those assessments, relative to the tribe's conversion of mainstay to a division ofEDCO and Mainstay's agreement with flexible funding, are material to the question of fraudulent transfer ........................................................ 6
A. EDD's review of the tribe's reimbursable billings ..................................... 6
B. Mainstay became a division of the Blue Lake Rancheria Economic Development Corporation ........................................................................... 7
C. Mainstay assigned its accounts receivable to flexible funding ................... 7
D. The EDD notified the Internal Revenue Service that the tribe was not FUTA compliant and terminated the Tribe's election for reimbursable financing of its unemployment insurance costs .................... 8
Mainstay's representation to the EDD that its reimbursable account fell into arrears because of an economic downturn raises material issues about the theory of irreparable harm that the Tribe advances in this motion and about whether its business model improperly exploited its tribal status ................. 8
That the United States holds 91 acres ofland in trust for the Tribe is material to whether EDD's liens may harm the Tribe's interest in that land ........... 8
That two parcels of land are owned in fee by the Tribe is material to whether the EDD may lawfully lien those parcels ofland ...................................... 9
That the Tribe's unemployment insurance reimbursable liability remains unpaid is material to whether an award of declaratory relief to the tribe is equitable .................................................................................................................. 9
I. Tribal sovereignimmunity does not bar EDD's seizure of tribal assets located off of the reservation .................................................................................. 9
II. Genuine issues of material fact preclude judgment in favor of the Tribe ............. 11
A.
B.
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A gen':ine.issue o.fmaterial fact exists on whether the Tribe waived sovereign 1mmun1ty ................................................................................... 11
Defendants' collection does not violate 25 U.S.C. § 476(e) ......... ; ........... 13
Genuine issues of material fact exist on whether the clean hands doctrine bars the Tribe's claim to equitable relief and preclude summary judgment in the Tribe's favor. ................................................... 18
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Defendants' Opposition to PlaintiffBiue Lake Rancheria's MSJ, or, in the Alternative, Summary Adjudication of Claims (2: 11-CV -0 1124-JAM-KJN)
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1 TABLE OF CONTENTS
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D.
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Genuine issues of material fact exist on whether the Tribe defrauded defendants in its application to participate in the reimbursable program and preclude summary judgment in favor of
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the Tribe .................................................................................................... 20
Genuine issues of material fact exist on the question whether the Tribe has suffered irreparable harm .......................................................... 21
Defendants' Opposition to Plaintiff Blue Lake Rancheria's MSJ, or, in the Alternative, Summary Adjudication of Claims (2: 11-CV -0 1124-JAM-KJN)
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TABLE OF AUTHORITIES
CASES
C & L, Enterprises, Inc. v. Citizen Band Potawatomi Indian Tribe of Oklahoma 532 u.s. 411 (2001) .................................................................................................................. 12
Chemehuevi Indian Tribe v. California State Board of Equalization 492 F.Supp.2d 55 (N.D. Cal. 1979) ...................................................................................... 9, 10
City of Sherrill, NY., v. Oneida Indian Nation of New York 544 u.s. 197 (2005) .................................................................................................................. 21
Confederated Tribes and Bands of the Yakima Nation v. Yakima County 903 F.2d 1207 (9th Cir. 1990) ...................................................................... : ............................ 13
Fort Mojave Tribe v. San Bernardino County 543 F.2d 1253 (9thCir. 1976) ................................................................ : ........................... 14,21
Kerr., McGee Corp. v. Navajo Tribe of Indians 471 U.S. 195 (1985) .................................................................................................................. 13
Kiowa Tribe of Oklahoma v. Manufacturing Technologies, Inc. 523 u.s. 751 (1998) ........................................................................................................... 11, 19
Maryland Casualty Company v. Citizens National Bank of West Hollywood 361 F.2d 517 (5th Cir. 1966) ............................................................................................ : ....... 11
Mescalero Apache Tribe v. Jones 411 U.S. 145 (1973) ................................ ; .................................. ; ................................. 16, 17, 21
Michigan v. Bay Mills Indian Community -u.s.- (2014) ..................... : ............................................................................................. 10, 17
Oklahoma Tax Commission v. Citizen Band of Potawatomi Indian Tribe of Oklahoma 498 u.s. 505 (1991) .............. : ............................................................................................ 10, 16
Otoe-Missouria Tribe of Indians v. New York State Dept. of Financial Services 769 F.3d. 105 (2nd Cir. 2014) ..................................................................................... .14, 20,21
Wagnon v. Prairie Band Potawatomi Nation 546 u.s. 95 (2006) ................................................................................................................... 10
Washington Capitols Basketball Club, Inc. v. Barry 419 F.2d 472 (9th Cir. 1969) ................................................................................ : .................... 18 ·
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TABLE OF AUTHORITIES (continued)
Washington v. Confederated Tribes of the Colville Indian Reservation 447 U.S. 134 (1980) ......................................................................................................... passim
Williams v. Lee 358 U.S. 217 (1958) ....................................................................................................... 14, 15, 16
STATUTES
California Civil Code (Uniform Fraudulant Transfer Act) § 3439.04(b) ....................................................................................... ~ ....................................... 18
2 and Sarah Reece submit this memorandum of points and authorities in opposition to Plaintiff Blue
3 Lake Rancheria Tribe's motion for summary judgment or, in the alternative summary
4 adjudication of claims.
5 INTRODUCTION AND SUMMARY OF ARGUMENT
6 This case arises from the Tribe's and non-moving Plaintiff Mainstay Business Solution's
7 voluntary election for reimbursable financing of the Tribe's unemployment insurance (UI) costs
8 through California's Reimbursable Program. Under the Reimbursable Program, governmental
9 entities, certain nonprofit employers, and Indian tribes may elect a reimbursable method of
10 financing their UI costs by which they reimburse the UI Fund on a dollar-for-dollar basis for all
11 benefits paid to their former employees. By contrast, tax-rated employers- employers who are
12 not in the Reimbursable Program- pay a percentage on the first $7,000 of each employees'
13 wages as a contribution, analogous to an insurance premium. EDD initially denied the Tribe's
14 application to participate in the Reimbursable Program, on the grounds that Mainstay's
15 employees were not the Tribe's employees, and thus Mainstay was not eligible to participate. But
16 the Tribe administratively appealed this denial and won.
17 Subsequently, the Tribe paid some, but not all, of its quarterly reimbursable billings,
18 challenging the accuracy ofEDD's assessments, and developing significant delinquency,
19 presently totaling $23,661,157.38 (including penalties and interest to date) for its UI liability. All
20 of the assessments at issue in this case are final under state law.
21 In a reasonable effort to ensure collection of the Tribe's UI liability, EDD lawfully recorded
22 state liens in all 58 California counties, including Humboldt County where the United States
23 holds 91 acres ofland in trust for the Tribe (trust land) and the Tribe owns, in fee, two parcels of
24 land (fee land). EDD alsolevied against Mainstay's off-reservation accounts receivable and bank
25 accounts and collected $493,277.34. Doc. No. 40: Order at p. 17:2.
26 In response to the EDD's reasonable collection action, the Tribe and its non-moving co-
27 Plaintiffs Mainstay and Blue Lake Rancheria Economic Development Corporation (EDCO) filed
28 a Complaint for Declaratory Relief and Injunctive Relief (Doc. No. 1), claiming that tribal 1
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sovereign immunity bars the EDD's liens and levies, that the Tribe has been irreparably harmed
by these liens and levies, and that it is therefore entitled to declaratory relief as to their
unlawfulness and permanent injunctive relief against their enforcement. This Court granted the
Tribe's motion for preliminary injunction against EDD's collection, directed EDD to deposit the
funds seized with the Clerk ofthe Court, and denied Defendants' motion to dismiss. 1 Doc. No.
40: Order at pp. 16:27-17:2. The Tribe now brings its motion for summary judgment or, in the
alternative, summary adjudication of claims, contending that it is entitled to judgment for the
foregoing reasons.
The Tribe's motion should be denied. The State may assert its authority over off-
reservation assets without implicating tribal sovereign immunity. The levied property in this case
consists of Mainstay's off-reservation bank accounts and accounts receivable. EDD's levies
against these assets are lawful, even if Mainstay is - as the Tribe claims and Defendants deny-
an arm of the Tribe and thus protected by tribal sovereign immunity. Thus the Tribe is not
entitled to judgment as a matter of law. Further, the record in this case shows that Mainstay
assigned its accounts receivable to Flexible Funding, LLC, a factoring company. The fact of this
assignment raises genuine issues of material fact going to the ownership of the accounts
receivable portion of the levied property, questions which preclude summary judgment in the
Tribe's favor. Fed. R. Civ. P. 56(a).
The Supreme Court has held that§ 465 of the Indian Reorganization Act of 1934 (IRA)
protects the Tribe's trust land from state and local taxation. Thus, contrary to the Tribe's claim in
this motion, as a matter of law the Tribe's interest in its trust lands cannot be harmed by the
EDD's liens. But the Supreme Court examined the legislative history of§ 476 ofthe IRA and
expressly refused to imply an exemption from state taxation with respect to a tribe's fee land,
stating that the state's exercise of jurisdiction over fee lands was lawful if the land was acquired
for a business purpose. Genuine issues of material fact exist, precluding judgment in the Tribe's
1 Defendants appealed the preliminary injunction order. The Ninth Circuit referred the appeal to its mediation program. When the mediation proved unsuccessful, the Parties agreed that the appeal would be withdrawn, and the case was remanded back to the district court for further proceedings.
2 Defendants' Opposition to Plaintiff Blue Lake Rancheria's MSJ or, in the
Alternative, Summary Adjudication of Claims (2:11-CV-01124-JAM-KJN)
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favor against enforcement of the EDD's liens, concerning the purposes for which the Tribe
acquired its fee land. Fed. R. Civ. P. 56( a). Further, the Tribe errs in its contention that IRA§
476 is a source of substantive right that the EDD's liens and levies can violate. The Supreme
Court has ruled that the IRA authorizes a tribe to adopt a constitution and bylaws, subject to the
approval ofthe Secretary of the Interior. It does not create a substantive right; rather, it defines
what provisions and powers a tribe may retain in its constitution. For this reason, the EDD's liens
and levies cannot violate § 476.
Genuine issues of material fact, precluding summary judgment in the Tribe's favor, also
exist going to.the question whether the Tribe waived sovereign immunity when it applied to the
Reimbursable Program and/or when it appealed EDD's initial denial of its application. The
Supreme Court has held that the question whether tribal sovereign immunity is waived with the
requisite clarity turns on the circumstances of the particular case. The question whether the Tribe
waived sovereign immunity in this particular cas~ is a question of the first impression under the
Federal Unemployment Tax Act,§ 3309 of which requires states with re~mbursable programs to
permit Indian tribes to elect reimbursable financing of their UI costs. 26 U.S.C. § 3309(a)(2). In
this aspect, the collection challenged here differs from every other federal court tax case to date,
because it resulted not from the State's imposition of a tax but from the Tribe's voluntary election
for reimbursable financing of its UI costs, and corresponding promise to repay the State for
benefits actually paid to its former employees.
In their Answer to the Complaint for Declaratory Relief and Injunctive Relief, the
Defendants asserted the affirmative defenses of the clean hands doctrine and fraud in the
inducement against Plaintiffs' claims that they are entitled to equitable relief. Doc. No. 54,
pp. 5:21-6:15. A plaintiffhas unclean hands and can be barred from relief if it has engaged in
inequitable conduct that relates to the subject matter of the claims that it brings against the
defendants. The Tribe's breaking its promise to reimburse the state for UI benefits actually paid
to the Tribe's former employees is itself inequitable. Further, the conduct ofthe Tribe and
Mainstay suggests that the Tribe and/or Mainstay may have transferred assets or assumed
obligations, in particular to the factoring companJ Flexible Funding, with the intent to hinder,
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1 delay, or defraud EDD in its collection. Genuine issues of material fact, going to the conduct of
2 the Tribe and/or Mainstay with respect to asset transfers and assumptions of obligations
3 inconsistent with outstanding obligations to the EDD, exist in this case, precluding an award of
4 equitable relief to the Tribe.
5 Further, Plaintiffs, including the Tribe, operated under a business plan that improperly
6. exploited tribal status as a business advantage to their non-tribal high risk contractual partners
7 with respect to their UI reimbursable billings, and may have also done so with respect to other
8 state agencies. Genuine issues of material fact concerning the Tribe's participation in the
9 possibly fraudulent transfers of assets to Flexible Funding and false UCC filings preclude an
1 0 award of equitable relief to the Tribe.
11 Finally, the Tribe's motion should be denied because it cannot show that the EDD liens and
12 levies proximately caused the economic harm of which it complains. Had the Tribe appropriately
13 valued and capitalized its UI risk when it contracted with Mainstay's clients to make their
14 employees its own, it would have mitigated the harm it now seeks to blame·- adding insult to
15 injury- on the EDD. It is difficult to see how the State, having paid out millions of dollars on
16 the Tribe's behalf, can now be further legally burdened by an adverse declaratory judgment with
17 responsibility for the consequences of the Tribe's own bad business judgment. These genuine
18 issues of material fact exist, concerning the Tribe's valuation and capitalization of the contracts
19 with Mainstay's clients, speaking to its claim of irreparable injury and also preclude an award of
20 permanent injunctive relief to the Tribe on this motion.
21 For these reasons, as explained more fully below, the Tribe's motion should be denied.
22 Fed. R. Civ. P. 56(a). Alternatively, the Tribe's motion should be denied or its consideration
23 deferred until the close of discovery in this case, because the EDD requires discovery from the
24 Tribe to fully present the facts essential to justify its Opposition. Fed. R. Civ. P. 56( d);
25 Declaration of Jill Bowers in Support of Request for Denial or Continuance of Plaintiff Blue Lake
26 Rancheria's Motion for Summary Judgment or, in the Alternative, Summary Adjudication of
27 Claims (Mar. 23, 2015) (Rule 56( d) Dec.) Discovery does not close in this case until
28 November 6, 2015. Doc. No. 79: Amended Status (Pre-trial Scheduling) Order, p. 3:9. 4
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STATEMENT OF FACTS
THE HISTORY OF THE TRIBE'S PARTICIPATION IN THE REIMBURSABLE PROGRAM IS MATERIAL TO THE QUESTION WHETHER IT WAIVED SOVEREIGN IMMUNITY.
4 A. The Tribe Elected to Participate in the Unemployment Insurance Reimbursable Program.
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6 Congress amended the FUT A to require states to permit Indian tribes, like other
7 governmental entities, to elect to participate in a state's reimbursable program. 26 U.S.C. §
8 3309(a)(2). Defendants' Counter Statement of Disputed Material Facts (DMF), No. 1. California
9 adopted conforming legislation in 2001, now codified as Unemployment Insurance Code sections
10 802 and 803. DMF No.2. Under the Reimbursable Program, governmental entities, certain
11 nonprofit employers, and Indian tribes may elect a reimbursable method of financing their
12 unemployment insurance, in which they reimburse the Unemployment Insurance (UI) Fund on a
13 dollar-for-dollar basis for all benefits paid to their former employees. By contrast, tax-rated
14 ·employers- employers not in the Reimbursable Program- pay a percentage on the first $7,000 in
15 wages paid to each employee in the calendar year. The Tribe and Mainstay jointly submitted to
16 EDD a registration form, electing to participate in the Reimbursable Program, naming itself as the
17 "organization or tribe" and Mainstay as the "business name." DMF No. 3, Plaintiffs Statement
18 of Undisputed Facts (UMF), ~ 11.
19 B. The Tribe Successfully Appealed The ED D's Denial Of Its Application To The Reimbursable Program.
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21 EDD notified the Tribe and Mainstay that Mainstay could not participate in the
22 Reimbursable Program because Mainstay was a Professional Employer Organization (PEO), and
23 none of the individuals it reported as employees were actually performing services for the Tribe.
24 DMF No.4. EDD thereafter issued an estimated assessment against Mainstay as a tax-rated
25 employer, in the amount of$1,250,585.58. DMF No.5. The Tribe and Mainstay filed a petition
26 for administrative review of the assessment. DMF No.6. In their petition, the Tribe did not
27 claim that sovereign immunity barred EDD's collection but argued that it was entitled to elect
28 participation in the Reimbursable Program. DMF No. 7. 5
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1 Five more EDD assessments followed and were consolidated for hearing with the
2 assessment described above. DMF No. 8. After the hearing the Parties stipulated to the inclusion
3 of an additional assessment. DMF No. 9. The administrative law judge (ALJ) found that
4 Mainstay was a temporary staffing agency wholly owned by the Tribe and that it came under the
5 direction and control ofthe Tribe. DMF No. 10. On December 2, 2005, the ALJ concluded that
6 Mainstay was an employer under California Unemployment Insurance Code section 802(a) and
7 was allowed to elect reimbursable financing. DMF No. 11. EDD subsequently placed Mainstay
8 back in the Reimbursable Program, and on May 5, 2006, issued a billing to the Tribe and
9 Mainstay for the period of January 1, 2004 through March 31,2006 in the amount $8,257,481.
10 DMF No. 13. The Tribe questioned this assessment, although it did not file a petition for
11 administrative review under California Unemployment Insurance Code sections 803(f) and 1222,
12 and paid it in full. DMF No. 14; Cal. Unemp. Ins. Code§ 803(f) and 1222.
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II. THE TIMING OF ED D'S PROOF OF THE ACCURACY OF ITS ASSESSMENTS, AND THE FINALITY OF THOSE ASSESSMENTS, RELATIVE TO THE TRIBE'S CONVERSION OF MAINSTAY TO A DIVISION OF EDCO AND MAINSTAY'S AGREEMENT WITH FLEXIBLE FUNDING, ARE MATERIAL TO THE QUESTION OF FRAUDULENT TRANSFER.
A. ED D's Review of the Tribe's Reimbursable Billings.
18 After the above-described payment was received, in response to the Tribe's expressed
19 concerns with its reimbursable billings, EDD conducted a line by line review of the entire billing,
20 which included a spreadsheet of the 18,000 claims from that billing. DMF No. 15. At the
21 conclusion of the review, EDD determined that no significant errors had been made and so
22 notified the Tribe and Mainstay. DMF No. 16. Plaintiffs did not file a petition for review under
23 California Unemployment Insurance Code section 1222. DMF No. 17.
24 Beginning in 2009, EDD's Reimbursable Accounting Group reviewed individual benefit
25 charges of Tribe and Mainstay under the Reimbursable Program, and determined that 99 percent
26 of the benefit charges were correct. DMF No. 26. Despite this determination, without filing a
27 petition for administrative review, the Tribe and Mainstay continued to question EDD's quarterly
28 billings. DMF No. 27. EDD therefore asked the Tribe and Mainstay to select a quarter-year for . 6
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1 EDD to review, and they chose the second quarter of2009. DMF No. 28. EDD shared the
2 information gathered for the analysis with Mainstay and the Tribe. DMF No. 29. Based on the
3 second quarter of2009, Mainstay admitted that EDD's error rate was approximately 3 percent.
4 DMF Nos. 30, 31, 32. Mainstay failed to pay its reimbursable billings in full for UI benefits paid
5 out to its former employees during the period April 1, 2009 to December 31, 2010. DMF No. 33.
6 Mainstay had the right to bring an administrative challenge to the entirety ofEDD's assessments
7 for the period April1, 2009 through September 30, 2010, but chose not exercise it, and those
8 assessments became final under state law. DMF No. 34.
9 From 2008 until this lawsuit was filed, EDD committed resources to Plaintiffs'
1 0 unemployment insurance claims and benefit eligibility far beyond the resources devoted to other
11 employers during this period. DMF No. 24. Numerous EDD employees from the Unemployment
12 Insurance Integrity and Accounting Division were assigned as single points of contact (SPOC) for
13 the Tribe and Mainstay. DMF No. 25.
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B. Mainstay Became a Division of the Blue Lake Rancheria Economic Development Corporation.
16 On December 11, 2006, the Tribe converted Mainstay into a division ofEDCO, "with
17 separate assets and liabilities from those ofthe Tribe and EDCO." DMF Nos. 18-19.
18 Mainstay stopped doing business in California in 2011. UMF ~ 10. Defendants do not
19 know whether Mainstay continues to operate and to generate revenues in other states and if those
20 operations have produced property or revenue that could satisfy the obligation to the EDD. Doc.
21 No. 82-1 at p. 3:5-7. A genuine issue of material fact exists as to the Tribe's and Mainstay's
22 operations outside of California.
23 C. Mainstay Assigned its Accounts Receivable to Flexible Funding.
24 On May 26, 2010, Mainstay entered into an agreement with Flexible Funding, a factoring
26 35. The Agreement states that "[a]ll taxes of any governmental or taxing authority due or payable
27 by, or imposed or assessed against, Mainstay have been paid and will be paid in full before
28 delinquency[.]" DMF No. 39. The Tribe and Mainstay also filed false UCC financing 7
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1 agreements expressly noticing this Agreement. DMF No. 36, 37. Prior to and shortly after the
2 execution of this Agreement, EDD issued notices of assessment against the Tribe and Mainstay
3 for taxes delinquent under the UI Reimbursable Program. DMF Nos. 38, 40.
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D. The EDD Notified the Internal Revenue Service that the Tribe Was Not FUTA Compliant and Terminated the Tribe's Election for Reimbursable Financing of its Unemployment Insurance Costs.
6 In August 2010, EDD notified the Internal Revenue Service (IRS) that the Tribe was not
7 FUTA compliant because it had failed to fully pay an unemployment insurance liability. DMF
8 No. 41. For this reason, "[i]n accordance with the provisions of the federal Consolidated
rev'd in part, 474 U.S. 9 (1986) (per curiam) (Chemehuevi); Doc. No. 82-1 at p. 8:14-16. The
Ninth Circuit's Chemehuevi decision addressed only the Board's impermissible counterclaim, not
its underlying liens and levies. Indeed, that decision assumes that the Board's administrative
collection procedures are not barred by tribal sovereign immunity. 757 F.2d at p. 1052, fn. 6. On
review of the Ninth Circuit decision, the Supreme Court held per curiam that the Board was
entitled to enforce the challenged sales tax against on-reservation sales of cigarettes by tribal
members to non tribal purchasers, and reversed the part of the Ninth Circuit decision that ruled
differently. 474 U.S. at 12.
In Oklahoma Tax Commission v. Citizen Band of Potawatomi Indian Tribe of Oklahoma,
the Supreme Court held that state tax collectors may seize tribal assets located off the reservation.
Oklahoma Tax Commission v. Citizen Band ofPotawatomi Indian Tribe of Oklahoma, 498 U.S.
505, 514 (1991) (Okla. Tax Comm.) In the recent Michigan v. Bay Mills Indian Community
decision, the United States Supreme Court ruled that "[u]nless federal law provides differently,
'Indians going beyond reservation boundaries' are subject to any generally applicable state law."
Michigan v. Bay Mills Indian Community,_ U.S._, 134 S.Ct; 2024, 2035 (2014) (Bay Mills),
citing Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95, 113 (2006) (Wagnon). Thus,
states may lawfully assert their taxing authority against off-reservation tribal assets without
implicating tribal sovereign immunity. Wagnon, 546 U.S. at 113 (discussing and quoting
Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148-149 (1973) (Mescalero Apache Tribe).
In Washington v. Confederated Tribes of the Colville Indian Reservation, the Supreme
Court found "that Washington's interest in enforcing its valid taxes [was] sufficient to justify" the
off-reservation seizure of cigarettes owned by the tribes:
We find that Washington's interest in enforcing its valid taxes is sufficient to justify these seizures. Although the cigarettes in transit are as yet exempt from state taxation, they are not immune from seizure when the Tribes, as here, have refused to fulfill collection and remittance obligations which the State has validly imposed. It is significant that these seizures take place outside the reservation, in locations where state power over Indian affairs is considerably more expansive than it is within reservation boundaries .... By seizing cigarettes en route to the reservation, the State polices against wholesale evasion of its own valid taxes without unnecessarily intruding on core tribal interests.
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1 Washington v. Confederated Tribes ofthe Colville Indian Reservation, 447 U.S. 134, 162 (1980)
2 (Confederated Tribes).
3 Similarly, the State of California has the power to enforce its own valid UI assessments
4 where, as here, the Tribe refuses to fulfill its payment obligations as a reimbursing employer in
5 the Reimbursable Program. Further, in this significant aspect, the case at bar differs from every
6 other tax case involving competing tribal and state jurisdiction considered by the federal courts to
7 date: the Tribe voluntarily assumed the liability to reimburse the State for UI payments made to
8 the Tribe's employees by the State. For this reason, the Tribe's reliance on Maryland Casualty
9 Company v. Citizens National Bank of West Hollywood is misplaced. Maryland Casualty
10 Company v. Citizens National Bank of West Hollywood, 361 F.2d 517 (5th Cir. 1966) (Maryland
11 Casualty Co.); Doc. No. 82-1 at p. 8:16-19. The significance of this case is limited to its holding
12 that a tribe's "sue or be sued" clause in a charter of organization issued under the IRA, 25 U.S.C.
13 § 477, cannot be construed as a consent to suit, waiving sovereign immunity. The court in
14 Maryland Casualty Co. did not address the issue of a state taxing authority's liens and levies.
15 For these reasons, the Tribe's motion should be denied.
16 II. GENUINE ISSUES OF MATERIAL FACT PRECLUDE JUDGMENT IN FAVOR OF THE TRIBE.
17 A. A Genuine Issue of Material Fact Exists on Whether the Tribe Waived
18 Sovereign Immunity.
19 Defendants claim that the Tribe waived sovereign immunity against enforcement of its
20 voluntarily assumed liability as a reimbursing employer in the Reimbursable Program. A genuine
21 · issue of material fact exists as to this question. Defendants agree that sovereign immunity can
22 only be abrogated by Congress or waived by the Tribe. However, under the circumstances of this
23 particular case, sovereign immunity has been waived with the "requisite clarity."
24 The question whether sovereign immunity has been waived is a factual question. See, e.g.,
25 Kiowa Tribe of Oklahoma v. Manufacturing Technologies, Inc., 523 U.S. 751, 753-754 (1998)
26 (Kiowa Tribe) (reviewing the factual record adduced at the trial court on the question whether a
27 tribe waived sovereign immunity); Defendants' Request for Judicial Notice in Opposition to
28 Plaintiff Blue Lake Rancheria's Motion for Summary Judgment or, in the Alternative, Summary 11 .
Defendants' Opposition to Plaintiff Blue Lake Rancheria's MSJ or, in the Alternative, Summary Adjudication of Claims (2: 11-CV -0 1124-JAM-KJN)
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1 Adjudication (Def. RJN), Ex. B, pp. 12:1-15:2 (showing that court held a two-day trial to
2 determine whether the Tribe waived SQvereign immunity); and Ex. C (showing types of
3 documents the Tribe was ordered to produce on question whether it had waived sovereign
4 immunity). This genuine issue of material fact precludes judgment in the Tribe's favor. The
5 Tribe's motion should be denied, or the court's ruling thereon deferred, until discovery is
6 complete and the factual issue of the Tribe's waiver has been fully briefed.
7 Although the Tribe denies that it waived sovereign immunity when it applied for
8 reimbursable financing of its UI costs and subsequently administratively appealed the EDD's
9 denial of that application, the records concerning this question are in the possession, custody or
10 control of the Tribe, and Defendants have the right to conduct discovery in order to prove their
11 defense to this claim. Fed. R. Civ. P. 56( d). The only evidence proffered by the Tribe going to
12 the question of waiver are two identical statements in the Declaration of Eric Ramos, not a tribal
13 leader, that "[n]either the [Tribe's] General Council nor the Business Council of the Tribe has
14 passed a resolution or taken any other action ... waiving the sovereign immunity of the Tribe in
15 favor ofthe EDD or any ofthe defendants in this action." Doc. No. 82-5, pp. 2:9-12, 20-23. No
16 supporting documentation, such as meeting minutes of the General Council and the Business
17 Council, signature matrixes for the Tribe, the General Council, and the Business Council, etc.,
18 regarding the election and appeal is attached. Cf Def. RJN at Ex. C (example of document
19 production order related to question whether sovereign immunity has been waived) with Doc. No.
20 82-5 at~~ 2, 6 (no supporting documents). Defendants should be permitted the opportunity to
21 depose tribal leaders concerning the election to participate in the reimbursable program and to
22 appeal the initial denial of entry into the program.
23 Whether sovereign immunity has been waived with "requisite clarity" turns on the
24 circumstances of the particular case. See, e.g., C & L, Enterprises, Inc. v. Citizen Band
25 Potawatomi Indian TribeofOklahoma, 532 U.S. 411, 418-419 (2001) (holding that tribe clearly
26 waived sovereign immunity based on examination of an arbitration clause in an off reservation
27 commercial contract). Defendants are entitled to conduct discovery into those circumstances and
28 should be allowed to avail themselves of that right. The record in this case shows that Defendants 12
Defendants' Opposition to Plaintiff Blue Lake Rancheria's MSJ or, in the Alternative, Summary Adjudication of Claims (2: 11-CV -0 1124-J AM-KJN)
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1 have not been dilatory in their defense ofthis case. The Amended Status Order issued on January
2 5, 2015, Plaintiffs moved to amend their complaint on January 6, 2015, raising a question of the
3 operative complaint, and filed the motion for summary judgment here opposed on February 10,
4 2015. Doc. No. 82. The Tribe's motion should therefore be denied or its consideration deferred
5 until discovery is complete. Fed. R. Civ. P. 56(a), (d). (See Rule 56( d) Declaration of Jill Bower,
6 filed concurrently.)
7 B. Defendants' Collection Does Not Violate 25 U.S.C. § 476(e).
8 The IRA allows tribes to organize their governments by adopting a constitution approved
9 by the Secretary of the Interior (Secretary). See 25 U.S.C. § 476. The Tribe claims that the
10 EDD's collection actions violate the IRA "because they unlawfully encumbered tribal lands and
11 assets without the Tribe's consent." Doc. No. 82-1 at 2:4-5. The IRA "authorizes any tribe ... to
12 adopt a constitution and bylaws, subject to the approval of the Secretary of the Interior." Kerr-
13 McGee Corp. v. Navajo Tribe of Indians, 471 U.S. 195, 198 (1985). The IRA does not create a
14 substantive right; rather, it defines what provisions and powers a tribe may retain in its
15 constitution. "The provisions of the Indian Reorganization Act determine whether a particular
16 parcel of land is to be considered fee or trust land, but they do not deal with whether fee land may
17 be taxed." Confederated Tribes and Bands of the Yakima Nation v. Yakima County, 903 F.2d
18 1207, 1214 (9th Cir. 1990), citing 25 U.S.C. § 461 et seq., a.ff'd 502 U.S. 251 (1992). Therefore,
19 Defendants' collections cannot violate 25 U.S.C. § 476(e). As noted above, Defendants also deny
20 that the collection was undertaken without the Tribe's consent- a question as to which genuine
21 issues of material fact exist, precluding judgment in the Tribe's favor.
22 In addition, this case presents a question of the first impression under 26 U.S.C. § 3309,
23 that is, whether tribal sovereign immunity permits an Indian tribe- which voluntarily elected to
24 participate as a reimbursing employer in a state unemployment insurance reimbursable program
25 -to simply walk away from its promise to reimburse the state for UI benefits by the State to that
26 tribe's former employees pursuant to the Reimbursable Program. Such an outcome would be
27 unjust, not only to the EDD, but to other employers and self-employed individuals throughout
28 California because unpaid UI liability is socialized across the fund-when an employer defaults . 13
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on its reimbursements, the contribution rate increases for other employers and self-insured
individuals. CaL Unemp. Ins. Code,§ 984.5(a). Nor does such an outcome serve the purpose of
sovereign immunity- protecting the Tribe's sovereign ability to control its governmental
operations. See, Confederated Tribes, supra, 447 U.S. at 155-156; see also Otoe-Missouria Tribe
of Indians v. New York State Dept. of Financial Services, 769 F.3d: 105, 114 (2nd Cir. 2014)
(Otoe-Missouria Tribe) (stating that "a tribe has no legitimate interest in selling an opportunity to
evade state law"). For this reason, the Tribe is wrong in its contention that the public interest
would be served by a permanent injunction. Doc. No. 82-1 at p. 14:15-24. A permanent
injunction would be detrimental to the public interest.
In analyzing whether sovereign immunity bars state tax collection "the trend has been away
from the idea of inherent Indian sovereignty as a bar to state jurisdiction and toward reliance on
federal pre-emption." Fort Mojave Tribe v. San Bernardino County, 543 F.2d 1253, 1255 (9th
Cir. 1976) (Fort Mojave Tribe). "Although the Indian sovereignty doctrine is still relevant,
because it provides a backdrop against which the applicable treaties and federal statutes must be
read, it is no longer the proper major focus of analysis." !d. at 1256, quoting McClanahan v.
State Tax Commission of Arizona, 411 U.S. 164, 172 ( 1973) (internal quotation marks omitted).
"Instead we must carefully analyze the applicable federal statutes to determine whether the state
action has been pre-empted[,]" and "[i]f not, the state statute need only satisfy the test laid down
in Williams v. Lee ... that it not infringe on the rights of reservation Indians to make their own
laws and be ruled by them." Fort Mojave Tribe, 543 F.2d at 1255-1256,citing Williams v. Lee,
358 u.s. 217 (1958).
FUTA section 3309, which requires the States to permit Indian tribes to elect voluntarily to
participate in State reimbursable programs, does not pre-:empt State unemployment insurance law:
The State law shall provide that a governmental entity, including 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 my be provided by State law, to pay (in lieu of such contributions) into the State unemployment fund amounts equal to the amounts of compensation 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 Nder such elections.
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26 U.S.C. § 3309(a)(2) (emphasis supplied). The text ofthe federal statute expressly
contemplates a joint state-federal scheme that includes state enforcement of a tribe's liability
under state law:
The State law shall provide that an Indian tribe may make contributions for employment as if the employment is within the meaning of section 3306 or make payments in lieu of contributions under this section, and shall provide that an Indian tribe may make separate elections for itself and each subdivision, subsidiary, or business enterprise wholly owned by such Indian tribe. State law may require a tribe to post a payment bond or take other reasonable measures to assure the making of payments in lieu of contributions under this section. Notwithstanding the requirements of section 3306(a)(6), if within 90 days of having received a notice of delinquency, a tribe fails to make contributions, payments in lieu of contributions, or payment of penalties or interest (at amounts or rates comparable to those applied to all other employers covered under the State law) assessed with respect to such failure, or if the tribe fails to post a required payment bond, then service for the tribe shall not be excepted from employment under section 3306(c)(7) until any such failure is corrected. This subsection shall apply to an Indian tribe within the meaning of section 4(3) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450(b)(e).)
26 U.S.C. § 3309(d). Section 3306(c)(7) excepts "service performed ... in the employ of an
Indian tribe, or any instrumentality ... which is wholly owned by ... Indian tribes" from FUTA
taxes. 26 U.S.C. § 3306(c)(7). But tribes which remain delinquent in their state UI taxes more
than 90 days lose this immunity "until any such failure is corrected." 26 US.C. § 3309(d).
In Williams v. Lee, the Supreme Court considered state jurisdiction over a dispute between
tribal members operating a store on the tribal reservation and their nonmember creditor. Williams
v. Lee, supra, 358 U.S. 217. The Supreme Court established the test to determine whether the
state exercise of jurisdiction was permissible. !d. at 271. The Court held "[e]ssentially, absent
governing Acts of Congress, the question has always been whether the state action infringed on
the right of reservation Indians to make their own laws and be ruled by them." Ibid.
Application of the Williams v. Lee test to the case at bar shows that the State's exercise of
jurisdiction did not infringe on the rights of the Tribe to make their own laws and be governed by
them. Accordingly, the Tribe's motion for summary judgment should be denied because the
Tribe chose to participate in the Reimbursable Program, over the EDD's objection (expressed in
its denial of the Tribe's application to the Reimbursable Program), with full knowledge of its
obligations thereunder to reimburse the State for the State's UI benefit payments to the Tribe's 15
Defendants' Opposition to Plaintiff Blue Lake Rancheria's MSJ or, in the Alternative, Summary Adjudication of Claims (2:11-CV-01124-JAM-KJN)
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1 former employees. Williams v. Lee, supra, 358 U.S. 217; DMF No. 12. The Tribe's voluntary
2 election to participate precludes a finding that the collection infringes on the Tribe's right to be
3 self-governing.
4 As noted above, all the facts going to what the Tribe knew about the obligations it assumed
5 under the Reimbursable Program, when it learned it, and from whom, are within the possession,
6 custody and control of the Tribe. Genuine issues of material fact exist, going to the question
7 whether the Tribe waived sovereign immunity. As noted above, discovery in this case does not
8 close until November 6, 2015. Doc. No. 79 at p. 3:9. For this reason, the Tribe's motion should be
9 denied or a deCision thereon deferred until discovery is completed. Fed. R. Civ. P. 56(a), (d).
10 The Tribe's reliance on Oklahoma Tax Commission v. Citizen Band Potawatomi Indian
11 Tribe of Oklahoma to support its contention that sovereign immunity bars EDD's administrative
12 collection is misplaced. Okla. Tax Comm., supra, 498 U.S. 505. The Court in Oklahoma Tax
13 Commission considered the question whether a state may validly impose a tax on "the sales of
14 goods to both tribesmen and nonmembers occurring on land held in trust for a federally
15 recognized Indian tribe[,]" and held that only sales to nonmembers could be taxed. 498 U.S. at
16 507. But the collection activity challenged here resulted not from the imposition of a tax, but
17 from the Tribe's voluntary election for reimbursable financing of its UI costs, and corresponding
18 promise to repay the State for the State's UI benefits payments to its former employees.
19 The Supreme Court in Oklahoma Tax Commission rejected the state's argument that it
20 should be permitted to subject a tribe's cigarette sales to state tax laws because the sales occurred
21 not on a reservation but on trust land, and declined Oklahoma's invitation to change the test for
22 determining whether land is "Indian country," an issue not relevant to the case at bar. Okla. Tax
23 Comm., supra, 498 U.S. at 511, construing Mescalero Apache Tribe, supra, 411 U.S. 145. But in
24 doing so, the Supreme Court reiterated the well-established rule that "[a]bsent express federal law
25 to the contrary, Indians going beyond reservation boundaries have generally been held subject to
26 nondiscriminatory state law otherwise applicable to all citiz~ns ofthe State." Okla. Tax Comm.,
27 498 U.S. at 511, quoting Mescalero, 411 U.S. at 148-149. Mescalero supports Defendants'
28 position in this case, i.e., that the EDD's liens are lawful, and that 25 U.S.C. § 476(e) is not 16
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"express federal law to the contrary." This is so because the EDD's lien cannot harm the Tribe's
interest in its statutorily protected trust land (i.e., the 91 acres located in Humboldt County that
are held in trust for the Tribe) and attaches only to the two parcels of land owned by the Tribe in
fee (i.e., the Manila property and the City of Blue Lake property).
The Supreme Court in Mescalero looked to the legislative history of the IRA and declined
to imply from its exemption of Indian trust land from state and local taxation an exemption for the
use tax assessed by the state ofNew Mexico in that case. Mescalero, supra, 411 U.S. at 157-158.
The Supreme Court's analysis of the legislative history should also guide this Court in
considering whether § 4 7 6( e) of the IRA is a source of substantive rights that a tribe may enforce
against a state in the context of the Tribe's 26 U.S.C. § 3309 election to participate in a state
Reimbursable Program:
As we have noted, several explicit provisions encompassing a broad tax immunity for chartered Indian communities were dropped from the bills that preceded the WheelerHoward Bill [enacted as the Indian Reorganization Act of1934]. Similarly, the predecessor to the exemption embodied in section 465 dealt only with lands acquired for new reservations or for additions to existing reservations. Here, the rights and land were required by the Tribe beyond its reservation borders for the purpose of carrying on a business enterprise as anticipated by§§ 476 and 477 of the Act.
These provisions were designed to encourage tribal enterprises 'to enter the white world on a footing of equal competition.' In this context we will not imply an expansive immunity from ordinary income taxes that businesses throughout the State are subject to. We therefore hold that the exemption in§ 465 does not encompass or bar the collection ofNew Mexico's nondiscriminatory gross receipts tax and that the Tribe's ski resort is subject to that tax.
411 US at 157-158. Thus, while 25 U.S.C. § 465 exempts the Tribe's trust lands from EDD's
liens, the legislative history of§ 476 as analyzed by the Mescalero court shows that the EDD's
lien against the Tribe's properties in the City of Manila and City of Blue Lake is not barred if
those fee lands were "acquired for the purpose of carrying on a business enterprise as anticipated
by§§ 476 and 477 of the Act." Bay Mills, supra, 134 S.Ct. at 2034 (quoting Mescalero). A
genuine issue of material fact exists concerning the purposes for which the Tribe acquired its
Manila and City of Blue Lake properties, and this question precludes judgment in favor of the
Tribe. Fed. R. Civ. P. 56(a).
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1 C. Genuine Issues Of Material Fact Exist On Whether The Clean Hands Doctrine Bars The Tribe's Claim To Equitable Relief and Preclude
2 Summary Judgment In The Tribe's Favor.
3 The Tribe's motion for summary judgment seeks issuance of a permanent injunction against
4 EDD's collection of the Tribe's unpaid reimbursements. The Tribe, however, is not entitled to
5 equitable relief because its claims are barred by the doctrine of clean hands, as alleged in
6 Defendants' Answer to Complaint for Declaratory Relief and Injunctive Relief. Doc. No. 54, pp.
7 5:22-6:7. A plaintiffhas 1-mclean hands and can be barred from relief, if it has engaged in
8 inequitable conduct that relates to the subject matter of the claims that it brings against the
9 defendants. "Inequitable conduct" means conduct that is unfair, unjust or unconscionable. "The
10 application or rejection of the clean hands doctrine in a given case is equitable in nature and
11 within the discretion ofthe trial court." Washington Capitols Basketball Club, Inc. v. Barry, 419
12 F.2d 472,478 (9th Cir. 1969). "Moreover, the bad conduct must pertain to the subject matter
13 involved and affect the equitable relations between the litigants." Ibid
14 The Tribe's breaking of its promise to repay the State for benefits advanced to terminated
15 Mainstay employees under the Reimbursable Program is, in itself, inequitable. Further, the
16 conduct of the Tribe and Mainstay in this case suggest that the Tribe and/or Mainstay may have
17 transferred assets or assumed obligations, in particular to the factoring company Flexible
18 Funding, with the intent to hinder, delay, or defraud creditor EDD in its collection. Among the
19 non-exclusive badges of fraud listed in the Uniform Fraudulent Transfer Act are "whether the
20 transfer or obligation was to an insider," "whether before the transfer was made or obligation
21 incurred, the debtor had been sued or threatened with suit[,]" "whether the debtor removed or
22 concealed assets[,]" and "whether the debtor was insolvent or became insolvent shortly after the
23 transfer was made[.]" Cal. Civ. Code§ 3439.04(b).
24 In 2006, in the middle of its dispute with EDD over its quarterly reimbursable billings, the
25 Tribe transferred by conversion Mainstay's assets and liabilities into Mainstay's separate
26 property. DMF No. 20. On May 26, 2010, the Tribe and Mainstay assigned 100 percent of
27 Mainstay's accounts receivable to Flexible Funding, a factoring company, under a false
28 representation that they owed no tax liability. DMF No. 35. The Tribe and Mainstay filed UCC-18
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1 financing statements purporting to give Flexible Funding priority over the EDD's prior final
assessments. DMF No. 36. The filing of the incorrect UCC-1 financing statement interfered with
EDD's ability to collect the tax liability. DMF No. 37. On September 16, 2010, Mainstay
General Counsel Michael Peart responded as follows to EDD's request for "an explanation of
how its account with the Department came to be in arrears":
As a result of the severe, unforeseen downturn experienced by the U.S. economy in general, and California's economy in particular, unemployment rates 'skyrocketed' while business revenues declined precipitously. This decline devastated both public and private employers driving some to the brink of bankruptcy - and in some cases, outright bankruptcy, further compounding the strain on the unemployment insurance system. Mainstay, unfortunately was not excepted, and Mainstay as a reimbursing employer experienced a commensurate increase in the charges to its account.
DMF No. 43. This explanation of harm to the Tribe cause by an economic downturn differs from
the theory of injury flowing from the EDD's collection that the Tribe advances in this motion.
Doc. No. 82-1 at pp. 12:24-13:1. Further, the Tribe's reliance on Kiowa Tribe of Oklahoma v.
Manufacturing Technologies, Inc., is misplaced because no federal statute in that case required
the nonmember against whom the tribe defaulted to enter into a business relationship with the
Tribe. Kiowa Tribe, supra, 523 U.S. 751. But in this case, FUTA § 3309 required EDD to permit
the Tribe to elect reimbursable financing of its UI costs.
Mainstay failed to pay its reimbursable billings in full for UI benefits paid out to forrrier
Mainstay employees during the period of April1, 2009 to December 31, 2010. DMF No. 33.
Additional assessments issued against the Tribe and Mainstay became final prior to and shortly
after the time that Mainstay assigned its accounts receivable to Flexible Funding. DMF No. 38.
The timing ofthe Agreement with Flexible Funding, relative to the EDD's notices of assessment
against the Tribe and Mainstay, raises a genuine issue of material fact as to whether the Tribe's
claims for equitable relief are barred by the clean hands doctrine.
Plaintiffs - including the Tribe - operated under a business plan that improperly
exploited tribal status as a business advantage to their non-tribal high risk contractual partners
with respect to their unemployment insurance tax contributions, and may have also done so with
respect to other state agencies. Doc. No. 54 (Answer) at pp. 5:27-6:1; Def. RJN, Ex. H. Genuine
issues of material fact exist concerning the Tribe's participation in the possibly fraudulent 19 .
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1 transfers of assets to Flexible Funding and false UCC filings, and the extent ofthe Tribe's
2 operation and control of Mainstay. For this reason, the Tribe's motion should be denied or its
3 consideration deferred until after the close of discovery. Fed. R. Civ. P. 54( a), (d).
4
5
D. Genuine Issues of Material Fact Exist On Whether the Tribe Defrauded Defendants in its Application to Participate in the Reimbursable Program and Preclude Summary Judgment in Favor of the Tribe.
6 The Tribe is not entitled to equitable relief. Genuine issues of material fact exist on
7 whether the Tribe committed fraud in its application to participate in the Reimbursable Program.
8 The questions speak to whether 1) the Tribe made a false promise to reimburse the State for the
9 State's UI benefits payments to the Tribe's former employees, 2) with knowledge of its falsity, 3)
10 intending to defraud EDD by causing EDD to pay the unemployment insurance claims of
11 Plaintiffs' clients while operating a business, Mainstay, that continued to generate income, and 4)
12 EDD relied on Plaintiffs' false promise and paid the claims of Plaintiffs' employees 5) to the
13 detriment ofEDD and the State Unemployment Insurance Fund. Doc. No. 54 (Answer) at p.5:9-
14 15.
15 In addition, genuine issues of material fact exist on the question whether the Tribe used
16 Mainstay to improperly exploit its tribal status as a business advantage to non-tribal high risk
17 contractual partners with respect to their unemployment insurance tax contributions, and perhaps
18 with respect to other state agencies as well. Doc. No. 54, pp. 5:27-6:1; Def. RJN, Ex. H.
19 Permitting the Tribe to thus evade its voluntarily assumed UI reimbursement liability does not
20 serve the purposes of sovereign immunity. Confederated Tribes, supra, 447 U.S. at 155-156;
21 Otoe-Missouria Tribe, supra, 769 F.3d at 114.
22 All the facts concerning what the Tribe contemplated in electing to participate in the
23 Reimbursable Program are within the possession, custody or control of the Tribe and must be
24 obtained through discovery. For this reason, the Tribe's motion should be denied or its
25 consideration deferred until after the close of discovery. Fed. R. Civ. P. 54( a), (d).
26 Ill
27 I I I
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1 E. Genuine Issues of Material Fact Exist on the Question Whether the Tribe Has Suffered Irreparable Harm.
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3 The Tribe cannot show irreparable injury or any legally cognizable harm proximately
4 caused by the EDD's liens and levies because the economic impact of the Tribe's UI
5 reimbursement liability in this case -like the possessory interest tax in Fort Mojave Tribe-
6 falls not on the Tribe but on Mainstay's PEO and staffing clients. Fort Mojave Tribe, supra, 543
7 F.2d 1253. The Tribe's alleged economic interest is not sufficient to invalidate the
8 reimbursement obligation which it voluntary elected to assume. An appropriate valuation and
9 capitalization of its unemployment insurance risk at the time it contracted with Mainstay's PEO
10 and staffing clients to make their employees its own would have mitigated the harm that the Tribe
11 now seeks to blame on the EDD. For this reason, the Tribe's own business judgment in failing to
12 properly capitalize its contracts with Mainstay's PEO and staffing clients was the proximate cause
13 ofthe harm claimed in its motion, and not the EDD's collection. Doc. 82-1 at pp. 12:24-14:14.
14 Any other conclusion permits the Tribe to use its tribal status for the purpose of evading state and
15 federally prescribed UI obligations voluntarily assumed, an impermissible result and conduct that
16 is not protected by sovereign immunity. Confederated Tribes, supra, 447 U.S. 155-156; Otoe-
17 Missouria Tribe, supra, 769 F.3d at 114. Further, all the information concerning harm to the
18 Tribe, if any, caused by the challenged collection is within the possession, custody and control of
19 the Tribe and Defendants are entitled to discovery on this quc;stion of fact.
20 As a matter oflaw, the EDD's collection cannot harm the land held in trust for the Tribe by
21 the United States because IRA§ 465 immunizes that land from state and local taxation. 25
22 U.S.C. § 476. As construed by the Supreme Court in Mescalero, IRA§ 476 does not preclude the
23 attachment ofthe Tribe's fee land. Mescalero, supra, 411 U.S. at 157-158. The Supreme Court
24 has also held that the regulations implementing IRA § 465 provide the mechanism by which a
25 tribe may "seek[ ] to regain sovereign control over territory[,]" to the exclusion of state and local
26 taxing authority. City ofSherrill, NY, v. Oneida Indian Nation ofNew York, 544 U.S. 197,220-
27 221 (2005) (construing 25 U.S.C. § 465 and holding that equitable considerations may preclude a
28 tribe's claim of sovereignty over land purchased in fee). The Tribe does not show that it has 21
Defendants' Opposition to Plaintiff Blue Lake Rancheria's MSJ or, in the Alternative, Summary Adjudication of Claims (2: 11-CV -0 1124-JAM-KJN)
Case 2:11-cv-01124-JAM-KJN Document 92 Filed 03/25/15 Page 26 of 27
1 availed itself of this mechanism with respect to the Manila and City of Blue Lake properties. As
2 a matter of federal law, the EDD may lawfully lien these properties.
3 Genuine issue's of material fact exist on the question whether the Tribe has suffered legally
4 cognizable harm proximately caused the challenged collection. For this reason, the Tribe's
5 motion must be denied or its consideration deferred until after discovery is complete. Fed. R.
6 Civ. P. 56(a), (d).
7 CONCLUSION
8 For the foregoing reasons, the Tribe's motion for summary judgment should be denied. In
9 the alternative, the court should defer ruling on the Tribe's motion until discovery is complete.
10 Dated: March 25, 2015
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Respectfully Submitted,
KAMALA D. HARRIS Attorney General of California MOLLY K MOSLEY Supervising Deputy Attorney General STEVEN J. GREEN Deputy Attorney General JENNIFER T. HENDERSON Deputy Attorney General
Is/ JILL BOWERS
JILL BOWERS Deputy Attorneys General Attorneys for Defendants Marty Morgenstern, Pam Harris, Jack Budmark, Talbott Smith, Kathy Dunne, and Sarah Reece
Defendants' Opposition to Plaintiff Blue Lake Rancheria's MSJ or, in the Alternative, Summary Adjudication of Claims (2:11-CV-01124-JAM-KJN)
Case 2:11-cv-01124-JAM-KJN Document 92 Filed 03/25/15 Page 27 of 27
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