Pitfalls of Commercial Litigation in Indian Country: Two Federal District Courts Dismiss Cases for Lack of Federal Jurisdiction

Two United States district courts recently dismissed cases involving the business operations of federally recognized Indian Tribes, both for lack of federal jurisdiction. These cases demonstrate the often difficult struggle litigants face in attempting to keep commercial disputes arising in Indian country in federal court.

In Shingobee Builders v. North Segment Alliance (2018 WL 4702151), the United States District Court for the District of North Dakota granted defendant’s motion to dismiss based on the lack of diversity for federal jurisdiction, holding that in the Eighth Circuit, tribally chartered business entities are not citizens of any state for diversity jurisdiction purposes. In Clark v. Harrah’s N.C. Casino Co. (2018 WL 4664136), the United States District Court for the Western District of North Carolina granted defendant’s motion to dismiss a Fair Labor Standards Act case against a non-tribal casino management company, holding that the tribal enterprise that oversaw the casino’s operations was a necessary party that could not be sued as it shared the tribe’s sovereign immunity.

Shingobee Builders v. North Segment Alliance

Case Background

North Segment Alliance (NSA) is a nonprofit corporation chartered under tribal law by the Mandan, Hidatsa and Arikara Nation (MHA Nation or Tribes), a federally recognized Indian tribe in North Dakota. Shingobee Builders (Shingobee) is a general contractor with a principal place of business in Minnesota. NSA and Shingobee entered into a construction contract to build apartment buildings on the Tribes’ reservation. Shingobee sued NSA for breach of contract claiming that it had not received payment for the work pursuant to the contract. In its complaint, Shingobee asserted federal jurisdiction based on diversity because “the action involves citizens of different states.” Shingobee argued that NSA should be deemed a citizen of North Dakota because it is a tribal corporation organized to conduct business in North Dakota.

The District Court Decision

On October 1, 2018, the court granted defendant’s motion to dismiss and found that NSA is not a citizen of any state for diversity purposes. Analogizing to cases that have found tribal agencies such as housing authorities to be arms of the chartering tribe, the court found the decisive factor in analyzing whether NSA is a citizen of the state where it conducts business is “whether NSA is a tribal agency established by the Tribe’s governing body pursuant to its powers of self-government or whether it is a separate corporate entity.” The court found that NSA was established by the tribal council pursuant to its power of self-government and that NSA, a nonprofit corporation chartered under tribal law, functioned much like a tribal housing authority. The court was not persuaded that the corporate form by which the Tribes had created NSA should dictate a different outcome. The court reasoned that if “a tribally owned and operated casino is a tribal agency and not a separate corporate entity subject to diversity jurisdiction” then the “NSA must also be a tribal agency not subject to diversity jurisdiction.” This finding defeated diversity jurisdiction and stripped the court of subject matter jurisdiction, leading to dismissal of Shingobee’s claim.

Clark v. Harrah’s N.C. Casino Co.

Background

The Eastern Band of Cherokee Indians is a federally recognized Indian tribe located in Cherokee, North Carolina. The Tribal Casino Gaming Enterprise (Enterprise) is a wholly-owned and operated enterprise of the Tribe (as it must be under the Indian Gaming Regulatory Act) conducting gaming at two casinos on the reservation. The Tribe has a management agreement with non-Indian defendant Harrah’s to oversee the management of the tribal casinos. In the management agreement, the Tribe expressly delegates its obligations and rights to Enterprise, which acts as the employer of the staff at the casinos (with the exception of one Harrah’s employee on site).

This decision represents a relatively rare recent instance of federal labor laws not being applied to tribally owned casinos, admittedly on procedural rather than substantive grounds.

Plaintiff was a table games dealer, dual rate dealer and floor supervisor at Harrah’s Cherokee Valley River Casino in Murphy, North Carolina. Under the terms of the management agreement, plaintiff was employed by the Enterprise, not Harrah’s. Plaintiff filed a class action complaint, on behalf of himself and similarly situated plaintiffs, against Harrah’s for unpaid wages, overtime compensation and statutory penalties in violation of the federal Fair Labor Standards Act (FLSA) for its willful failure to compensate gaming floor employees with proper pay.

The Magistrate Judge and District Court’s Decision

The Magistrate Judge filed a memorandum and recommendation, recommending granting Harrah’s Rule 12(b)(7) motion for failure to join a necessary party. The Magistrate Judge held that Harrah’s, a non-tribal business entity, did not share the Tribe’s immunity from suit. However, the Magistrate Judge found that the case should be dismissed under Rule 19 because, following Fourth Circuit precedent, the Enterprise (as the plaintiff’s employer) is a necessary party to an FLSA suit; and the tribally owned Enterprise shares the tribe’s sovereign immunity, so it could not be joined involuntarily. The district court accepted the Magistrate Judge’s recommendation and dismissed the FLSA case. This decision represents a relatively rare recent instance of federal labor laws not being applied to tribally owned casinos, admittedly on procedural rather than substantive grounds.

Law clerk Sarah Vandelist was a co-author on this article.