Pueblo of Isleta v.. Michelle Lujan Grisham Civ. No. 17-654 Kg/kk;2019 Wl 1436023,(D.n.m. March 30,2019)

1. The Pueblos' claims in this lawsuit fall outside the 2015 Compacts' arbitration clause and the Court must decide these claims in the first instance

The Court must first consider the parties' competing arguments regarding whether the 2015 Compacts' arbitration clause applies to their claims. A tribal-state gaming compact under IGRA is “a form of contract” that must be interpreted according to federal common law. Citizen Potawatomi Nation v. Oklahoma, 881 F.3d 1226, 1238–39 (10th Cir. 2018). “IGRA neither encourages nor discourages the inclusion of arbitration provisions in gaming compacts, leaving the matter entirely to the parties entering into such a compact.” Id. at 1237. “Arbitration is a matter of contract,” id., “and thus is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration[.]” Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 299 (2010) (emphasis in original) (quotation marks omitted); see Commc'n Workers of Am., 693 F.3d at 1300 (“Because arbitration is a creature of contract, a party cannot be forced to arbitrate any issue he has not agreed to submit to arbitration.”). Thus, where the parties to an agreement have specifically excepted certain types of claims from arbitration, “it is the duty of courts to enforce not only the full breadth of the arbitration clause, but its limitations as well.” State of N.Y. v. Oneida Indian Nation of N.Y., 90 F.3d 58, 62 (2d Cir. 1996).

Under Tenth Circuit law,

[t]o determine whether a particular dispute falls within the scope of an agreement's arbitration clause, a court should undertake a three-part inquiry. First, recognizing there is some range in the breadth of arbitration clauses, a court should classify the particular clause as either broad or narrow. Next, if reviewing a narrow clause, the court must determine whether the dispute is over an issue that is on its face within the purview of the clause, or over a collateral issue that is somehow connected to the main agreement that contains the arbitration clause. Where the arbitration clause is narrow, a collateral matter will generally be ruled beyond its purview. Where the arbitration clause is broad, there arises a presumption of arbitrability and arbitration of even a collateral matter will be ordered if the claim alleged implicates issues of contract construction or the parties' rights and obligations under it.

Cummings v. FedEx Ground Package Sys., Inc., 404 F.3d 1258, 1261 (10th Cir. 2005) (emphasis, citations, and quotation marks omitted); Burlington N. & Santa Fe Ry. Co. v. Pub. Serv. Co. of Okla., 636 F.3d 562, 569 (10th Cir. 2010). Nevertheless,

even narrow arbitration clauses must be interpreted under the liberal federal policy favoring arbitration agreements. We resolve doubts concerning the scope of arbitrable issues in favor of arbitration. When considering narrow arbitration clauses, this liberal policy does not create a presumption of arbitrability because the policy favoring arbitration does not have the strong effect that it would have if we were construing a broad arbitration clause.

Chelsea Family Pharmacy, PLLC v. Medco Health Sols., Inc., 567 F.3d 1191, 1197 (10th Cir. 2009) (citations and ellipses omitted).

“[I]n deciding whether the parties have agreed to submit a particular grievance to arbitration, a court is not to rule on the potential merits of the underlying claims.” AT & T Techs., Inc., 475 U.S. at 649; Local 5-857 Paper, Allied-Indus., Chem. & Energy Workers Int'l Union v. Conoco, Inc., 320 F.3d 1123, 1126 (10th Cir. 2003); but see Int'l Bhd. of Elec. Workers, Local #111 v. Pub. Serv. Co. of Colo., 773 F.3d 1100, 1110 (10th Cir. 2014) (holding that “incidental contact with the merits” was not error where trial court “devoted its entire discussion to answering the arbitrability question”).

Defendants argue that the parties' dispute must be submitted to arbitration based on Section 9 of the 2015 Compacts, which provides that “payment disputes” under the 2007 Compacts “shall be resolved through the procedures set forth in Section 7 of this Compact.” (Doc. 68-3 at 26; Doc. 55 at 4; Doc. 68 at 15; Doc. 99 at 6–7.) Subsection 7(A) of the 2015 Compacts provides: “if the State believes that, prior to the Effective Date of this Compact, the Tribe has failed to comply with or has otherwise breached any provision of a Predecessor Agreement affecting payment, the State may invoke” arbitration. (Doc. 68-3 at 22.) To invoke arbitration, the party alleging noncompliance “shall” issue a notice of noncompliance and “may” issue a notice to cease conduct, after which it “may” invoke binding arbitration, all within specified time frames. (Id. at 22–23.) Subsection 7(A) further specifies that, in the event of arbitration, the arbitrators “shall make determinations as to each issue presented by the parties, but the arbitrators shall have no authority to determine any question as to the validity or effectiveness of this Compact or of any provision hereof.” (Id. at 23.) Subsection 7(B), in turn, provides that “[n]othing in Subsection 7(A) shall be construed to waive, limit or restrict any remedy that is otherwise available to either party to enforce or resolve disputes concerning the provisions of this Compact,” and that “[n]othing in this Section shall be deemed a waiver of the Tribe's [or the State's] sovereign immunity.” (Id. at 23, 24.)

The Court finds that the relevant provisions of the 2015 Compacts constitute a narrow arbitration clause, because they limit arbitrable disputes under the 2007 Compacts to “payment disputes” premised on a breach of compact theory and exclude from arbitration “any question as to the validity or effectiveness” of the 2015 Compact provisions. (Id. at 22–24, 26.) Thus, though the Court must resolve doubts concerning the arbitration clause's scope in favor of arbitration, it may not find that a party's claim is arbitrable unless on its face the claim falls within the clause's purview. Cummings, 404 F.3d at 1261.

Clearly, Defendants allege that the Pueblos have “failed to comply with or otherwise breached” provisions of the 2007 Compacts “affecting payment,” i.e., the 2007 Compacts' revenue sharing provisions, and the Pueblos disagree. Thus, on its face, the parties' dispute is a payment dispute premised on a breach of compact theory within the meaning of the 2015 Compacts' arbitration clause.

However, this is not the end of the inquiry in light of the additional language in the arbitration clause limiting its scope. As explained below, this language removes the Pueblos' claims under both the 2015 and 2007 Compacts from the arbitration clause's purview. First, regarding the 2015 Compacts, the Pueblos claim that the 2015 Compact provisions preserving Defendants' claims for additional revenue sharing payments are invalid and ineffective because Defendants' claims violate IGRA and other federal law. As such, though they do relate to the parties' payment dispute, these claims fall squarely within the 2015 Compacts' exclusion from arbitration, in Subsection 7(A), of questions regarding the validity or effectiveness of the 2015 Compacts or any of their provisions. (See Doc. 68-3 at 23 (“[T]he arbitrators shall have no authority to determine any question as the validity or effectiveness of this Compact or any provision hereof. … ”).) The Court therefore finds that, on their face and as a matter of law, the Pueblos' claims challenging the validity and effectiveness of the 2015 Compact provisions preserving Defendants' claims fall outside the purview of the 2015 Compacts' arbitration clause.

Second, regarding the 2007 Compacts, the Pueblos claim that the 2007 Compacts' revenue sharing provisions are also invalid and ineffective under IGRA and other federal law if they mean what Defendants say they mean. The Pueblos' claims regarding the validity and effectiveness of the 2007 Compacts' revenue sharing provisions also relate to the parties' payment dispute; and, the 2015 Compacts' exclusion from arbitration of questions regarding the validity or effectiveness of the 2015 Compacts does not apply to these claims. (Id.) Nevertheless, for the following reasons, the Court finds that these claims fall outside the purview of the 2015 Compacts' arbitration clause as well.

As previously noted, Subsection 9(A) of the 2015 Compacts provides that the 2015 Compacts “fully supplant[ ] and replac[e]” the 2007 Compacts, except that under Subsection 9(B), the terms of the 2007 Compacts

(including, without limitation, any limited waiver of sovereign immunity and jurisdictional waivers and consents set forth therein) shall survive to permit the resolution of payment disputes. … This survival provision is intended to provide for the reasonable resolution of past disputes without hindering a Tribe's ability to obtain a new compact.

(Doc. 68-3 at 26 (emphases added).) Because rights that never existed cannot “survive,” Subsection 9(B) of the 2015 Compacts only preserved rights that existed under the 2007 Compacts. See, e.g., Merriam-Webster Online Dictionary, https://www.merriam-webster.com/dictionary/survive (to “survive” means “to remain alive or in existence” or “to continue to function or prosper”) (last visited Mar. 29, 2019). Thus, because Section 7 of the 2007 Compacts expressly limited the parties' waiver of sovereign immunity ¹⁷ and expressly excluded from arbitration “questions as to the validity or effectiveness of [the 2007 Compacts] or of any provision [t]hereof,” (Doc. 67-3 at 15), Subsection 9(B) of the 2015 Compacts is likewise limited in scope. Then, Sections 7 and 9 of the 2015 Compacts further limit the scope of arbitrable disputes under the 2007 Compacts to the resolution of “payment disputes” premised on the State's belief that “the Tribe has failed to comply with or has otherwise breached any provision of a Predecessor Agreement affecting payment.” (Doc. 68-3 at 22.)

Pulling all of these limitations together, only claims for breach of a 2007 Compact provision affecting payment that do not raise questions regarding the validity or effectiveness of the 2007 Compacts or any of its provisions fall within the purview of the 2015 Compacts' arbitration clause insofar as it preserves claims under the 2007 Compacts. On their face and as a matter of law, the Pueblos' claims that the 2007 Compacts' revenue sharing provisions are invalid and ineffective under federal law fall outside the scope of the 2015 Compacts' arbitration clause because they raise questions regarding the validity and effectiveness of 2007 Compact provisions.

If further proof were needed that the 2015 Compacts do not restrict the Pueblos' ability to press in this forum their claims challenging the validity and effectiveness of the 2007 Compacts' revenue sharing provisions, one need only look at the one-sided nature of the 2015 Compacts' arbitration clause as it pertains to “payment disputes” under the 2007 Compacts. Specifically, under the 2015 Compacts, only the State may initiate the arbitration procedure to pursue payment disputes, based only on the State's belief that the Pueblos breached a 2007 Compact provision affecting payment. ¹⁸ (Id. at 22.) On its face, this procedure does not even apply to the Pueblos' claims challenging the validity and effectiveness of the 2007 Compacts' revenue sharing provisions, much less restrict them to arbitration.

Defendants attempt to avoid this outcome by arguing that

[i]f the arbitrators find in the Pueblos' favor on the interpretation of the revenue sharing provisions of the Compact, no additional payments would be owed to the State and there would therefore be no issue with respect to any impermissible tax against the Pueblos, no violation of IGRA, and no validity concerns with respect to the Compact provisions. Similarly, if the arbitrators find in the State's favor, the payments that the Pueblos owe the State under the revenue-sharing provision of the 2007 Compact would not be an illegal tax against the Pueblos (and therefore would neither violate IGRA nor invalidate the Compact) because they would be a payment that the Pueblos voluntarily agreed to under the terms of the 2007 Compact.

(Doc. 62 at 6.) Either way, Defendants conclude, the Compact provisions at issue would be valid. (Id.)

The Court declines to adopt Defendants' argument because it is a gross oversimplification of the parties' dispute and fails to address all of the reasons the Pueblos allege that the 2015 Compact provisions preserving Defendants' claims and the 2007 Compacts' revenue sharing provisions are invalid and ineffective. It is true that one of the theories on which the Pueblos rely is that Defendants' claims for additional revenue sharing payments violate federal law because the Pueblos did not agree to make these payments in the 2007 Compacts. (See, e.g., Doc. 67-1 at 17–20.) However, the Pueblos offer other theories in support of their claims as well. Thus, for example, the Pueblos also allege that the 2015 Compact provisions preserving Defendants' claims for additional revenue sharing payments are invalid because Defendants' claims seek to force the Pueblos to calculate their net win in a manner contrary to federal regulations. (See, e.g., id.) In addition, the Pueblos assert that the 2015 Compact provisions preserving Defendants' claims—and the 2007 Compacts' revenue sharing provisions, as well, if they mean what Defendants say they mean—are invalid because the additional payments Defendants claim are an illegal tax, rather than permissible revenue sharing, under IGRA. (See, e.g., Doc. 68 at 20–22.) Even if an arbitration panel were to find that the Pueblos agreed to the 2007 Compacts' revenue sharing provisions as Defendants interpret them, the finding would not save the 2007 Compacts' revenue sharing provisions or the 2015 Compact provisions preserving Defendants' claims from invalidation under the latter theory. “[T]he negotiated terms of the Compact cannot exceed what is authorized by the IGRA.” Navajo Nation v. Dalley, 896 F.3d 1196, 1205 n.4 (10th Cir. 2018).

Moreover, the Court agrees with the Pueblos that their claims regarding the validity and effectiveness of Compact provisions under federal law must be resolved in this forum before Defendants' claims, if they survive, may be resolved by arbitration or otherwise. (Doc. 68 at 18–20.) As discussed above, the Pueblos challenge the validity and effectiveness of the 2015 Compact provisions preserving Defendants' claims and the 2007 Compacts' revenue sharing provisions based on federal law; and, the arbitration clause at issue does not allow the parties to arbitrate such challenges, so they must be decided here. If the Pueblos are correct, and these Compact provisions are invalid and ineffective because their enforcement would violate federal law, then Defendants have no right to pursue such enforcement through arbitration or otherwise. Thus, to preserve the Pueblos' rights under federal law, the Court must decide their claims before arbitration—if any—occurs. ¹⁹

2. The Pueblos' claims challenging the validity and effectiveness of the 2015 Compact provisions preserving Defendants' claims are not subject to arbitration because the 2015 Compacts' arbitration clause is permissive and the Pueblos have not consented to arbitration

In opposition to Defendants' Summary Judgment Motion, the Pueblos also argue that the parties' dispute is not subject to arbitration because the arbitration clause in the 2015 Compacts is permissive and they have not consented to arbitration. “[A] party cannot be forced to arbitrate against its will if the arbitration clause permits, but does not require, arbitration.” Summit Packaging Sys., Inc. v. Kenyon & Kenyon, 273 F.3d 9, 12 (1st Cir. 2001). The use of the term “may” in a document generally indicates that an action is permissive. PCH Mut. Ins. Co. v. Cas. & Sur., Inc., 750 F. Supp. 2d 125, 144 (D.D.C. 2010). Nevertheless, the use of this term in an arbitration clause does not, standing alone, indicate that arbitration is permissive. Id. at 143–44. Rather, many courts have held that it simply means the party may either pursue arbitration or abandon its claim, United States v. Bankers Ins. Co., 245 F.3d 315, 320–21 (4th Cir. 2001); Austin v. Owens-Brockway Glass Container, Inc., 78 F.3d 875, 879 (4th Cir. 1996); Am. Italian Pasta Co. v. Austin Co., 914 F.2d 1103, 1104 (8th Cir. 1990); Bonnot v. Cong. of Indep. Unions, Local No. 14, 331 F.2d 355, 359 (8th Cir. 1964); Block 175 Corp. v. Fairmont Hotel Mgmt. Co., 648 F. Supp. 450, 452 (D. Colo. 1986), or that arbitration, though not an exclusive remedy, is mandatory once either party invokes it. See, e.g., Deaton Truck Line, Inc. v. Local Union 612, Affiliated with Int'l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am., 314 F.2d 418, 422 (5th Cir. 1962); Benihana of Tokyo, LLC v. Benihana Inc., 73 F. Supp. 3d 238, 251 (S.D.N.Y. 2014); Conax Fla. Corp. v. Astrium Ltd., 499 F. Supp. 2d 1287, 1297–98 (M.D. Fla. 2007); see also Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 204 n.1 (1985) (“The use of the permissive ‘may’ is not sufficient to overcome the presumption that parties are not free to avoid the contract's arbitration procedures.”); MEI Techs., Inc. v. Detector Networks Int'l, LLC, Civ. No. 09-425 RB/LFG, 2009 WL 10665141, at *9 (D.N.M. Jul. 6, 2009) (collecting cases).

However, courts have construed arbitration clauses to be permissive when they used the term “may” and also included other language supporting that construction. Thus, for example, in Independent Oil Workers at Paulsboro, New Jersey v. Mobil Oil Corp., the Third Circuit held that an arbitration clause was optional where it used the term “may” and provided that “[n]othing in this agreement shall prevent either [party] … from applying, during the term of this agreement to a court of competent jurisdiction for the relief to which such party may be entitled[.]” 441 F.2d 651, 653 (3d Cir. 1971). As the Third Circuit noted, “the qualification … that ‘nothing in the agreement shall prevent’ application to a court of competent jurisdiction takes away the mandatory aspect of the contractual grievance procedures.” Id. “This is an ‘escape’ clause which nullifies the mandatory terms of the earlier language and makes arbitration optional.” Id. at 654; see also Quam Constr. Co. v. City of Redfield, 770 F.3d 706, 708–09 (8th Cir. 2014) (holding that arbitration clause was permissive where it used the term “may” and indicated that arbitration procedure applied “if the parties agree to arbitration”). In recognizing the existence of permissive arbitration clauses, these cases undercut the theory that an arbitration clause can never be permissive because then it would be superfluous, as parties to a contract can always consent to arbitration. ²⁰ See, e.g., Bankers Ins. Co., 245 F.3d 320–21; Austin, 78 F.3d at 879.

Here, the Court finds that, as a matter of law, the arbitration clause in the 2015 Compacts is not mandatory as to claims to enforce or resolve disputes concerning 2015 Compact provisions. Initially, Subsection 7(A) of the 2015 Compacts provides that either party “may” invoke arbitration if it believes the other party has breached the Compact. (Doc. 68-3 at 22.) Further, Subsection 7(B) expressly states that “[n]othing in Subsection 7(A),” which describes the arbitration procedure, “shall be construed to waive, limit or restrict any remedy that is otherwise available to either party to enforce or resolve disputes concerning the provisions of this Compact.” (Id. at 23.) Subsection 7(B) also provides that nothing in Section 7 should be deemed a waiver of either the Pueblos' or the State's sovereign immunity. (Id. at 23–24.)

Subsection 7(B) is very like the “escape clause” in Independent Oil Workers that, according to the Third Circuit, “ma[de] arbitration optional.” 441 F.2d at 654. Its broad language expressly preserves, wholly intact, the parties' right to pursue remedies other than arbitration to enforce provisions of and resolve disputes under the 2015 Compacts. ²¹ The Court would necessarily nullify this subsection if it were to hold that Subsection 7(A) makes arbitration mandatory. Requiring either party to submit to arbitration would unquestionably waive, limit, or restrict the remedies otherwise available to that party to resolve disputes under the 2015 Compacts; “review of arbitration awards is among the narrowest known to the law.” Citizen Potawatomi Nation, 881 F.3d at 1234, 1236–38.

Nullifying Subsection 7(B) would, in turn, violate the “cardinal principle of contract construction … that a document should be read to give effect to all its provisions and to render them consistent with each other.” Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 63 (1995); see Citizen Potawatomi Nation, 881 F.3d at 1239 (“[T]his court will construe the [tribal-state gaming c]ompact [at issue] to give meaning to every word or phrase.”). The Court declines to read Subsection 7(B) out of the Compacts, especially in light of the fact that Defendants do not actually contest the permissive nature of the 2015 Compacts' arbitration clause in their reply. (See Doc. 62 at 2 (“[W]hether arbitration is the exclusive or one of many permissible avenues available for the parties to resolve their dispute is immaterial. … [A]rbitration is at least one forum in which the parties are permitted to bring claims related to payment disputes arising out of the 2007 Compact.”).)

In addition, the Court will not order arbitration under Subsection 7(A) “at the expense of a specific provision[,]” i.e., Subsection 7(B), “meant to maintain critical aspects of the parties' sovereign immunity.” Citizen Potawatomi Nation, 881 F.3d at 1240–41. Reading Section 7 to provide for permissive but binding arbitration of disputes concerning 2015 Compact provisions best gives meaning and purpose to both of its parts in this sense as well: Subsection 7(B) preserves the parties' sovereign immunity, while Subsection 7(A) provides for its limited waiver if both parties agree to it by consenting to arbitration. (See Doc. 68-3 at 23 (providing that results of arbitration are “enforceable by an action for … mandatory injunctive relief against the State and the Tribe in any court of competent jurisdiction,” and that any official's act contrary to an arbitration decision is “not protected by … sovereign immunity”). Because the 2015 Compacts' arbitration clause is permissive as to disputes regarding the 2015 Compacts, and the Pueblos brought this action in lieu of arbitration (and, incidentally, before Defendants invoked arbitration), the Court finds that, as a matter of law, the parties' claims to enforce or resolve disputes concerning the provisions of the 2015 Compacts are not subject to arbitration.

In spite of all of the foregoing, Defendants argue that the Court should require the Pueblos to arbitrate Defendants' claims for additional revenue sharing payments, because the Pueblos' sovereign immunity has prevented the State from pursuing these claims in federal court. (Doc. 55 at 9); see State of N.M. v. Pueblo of Isleta et al., Civ. No. 17-995 JB/KK (Notice of Dismissal, Doc. 13, D.N.M. filed Nov. 14, 2017). However, if, as the Pueblos allege, Defendants' claims violate federal law, then the lack of a forum in which to pursue them is of no consequence, because they would be unenforceable regardless. Moreover, while the Pueblos' sovereign immunity may prevent the State from pursuing the remedies it prefers, the Court is “not persuaded that [the State] lacks any adequate alternatives.” Okla. Tax Comm'n v. Citizen Band Potawatomi Indian Tribe of Okla., 498 U.S. 505, 514 (1991). For example, the Supreme Court has “never held that individual agents or officers of a tribe are not liable for damages in actions brought by the State.” Id. Also, the State is free to negotiate with the Pueblos to modify the dispute resolution procedures in the 2015 Compacts; and, if the State “find[s] that none of these alternatives produce the revenues to which [it believes it is] entitled, [it] may of course seek appropriate legislation from Congress.” Id.

In sum, the Court must resolve the Pueblos' claims regarding the validity and effectiveness of Compact provisions in the first instance to preserve the Pueblos' rights under federal law; and, the parties' claims to enforce or resolve disputes concerning the 2015 Compacts are not arbitrable because the 2015 Compacts' arbitration clause is permissive as to these claims and the Pueblos have not consented to arbitration. In these circumstances, Defendants have failed to show their entitlement to judgment as a matter of law on Plaintiffs' arbitrability claims, and the Court will deny Defendants' Summary Judgment Motion.

1. Defendants' claims for additional revenue sharing payments constitute an attempt to impose an illegal tax under IGRA and the per se rule, and the 2015 Compact provisions preserving these claims are invalid and ineffective

In their motions, the Pueblos first assert that the 2015 Compact provisions preserving Defendants' claims for additional revenue sharing payments under the 2007 Compacts are invalid and ineffective, because Defendants' claims constitute an attempt to impose a tax on the Pueblos in violation of IGRA and the per se rule prohibiting state taxation of Indian tribes without express Congressional authorization. The Pueblos offer two arguments in support of this assertion, i.e., that (1) the Pueblos did not, in the 2007 Compacts, agree to make the additional payments Defendants seek, and (2) the additional payments are not permissible revenue sharing payments under IGRA. The Court will address these related arguments in turn.

2. The Court need not decide whether federal regulations required the Pueblos to calculate their Net Win according to GAAP

The Pueblos also argue that Defendants' claims for additional revenue sharing payments are inconsistent with federal regulations that require the accounting records of the Pueblos' gaming operations to comply with GAAP. (Doc. 67-1 at 12, Doc. 68 at 26.) In support of this argument, the Pueblos rely on three federal regulations. First, they cite to 25 C.F.R. § 542.19(b), which provides that

[e]ach gaming operation shall prepare general accounting records according to [GAAP] on a double-entry system of accounting, maintaining detailed, supporting, subsidiary records, including, but not limited to … [d]etailed records identifying revenues, expenses, assets, liabilities, and equity for each gaming operation[.]

25 C.F.R. § 542.19(b). Second, they cite to 25 C.F.R. § 549.19(d), which defines gross gaming revenue from gaming machines in accordance with GAAP, i.e., “[f]or gaming machines, gross [gaming] revenue equals drop, ³² less fills, ³³ jackpot payouts and personal property awarded to patrons as gambling winnings.” 25 C.F.R. § 542.19(d)(2); see also 25 C.F.R. § 542.2 (“Gross gaming revenue means annual total amount of cash wagered on … class III games … less any amounts paid out as prizes or paid for prizes awarded.”). Finally, they cite to 25 C.F.R. § 571.12, which provides that

[a] tribe shall engage an independent certified public accountant to provide an annual audit of the financial statements of each … class III gaming operation on the tribe's Indian lands for each fiscal year. … Financial statements prepared by the certified public accountant shall conform to generally accepted accounting principles[.]

25 C.F.R. § 571.12(b).

According to the Pueblos, these federal regulations require them to calculate their net win in accordance with GAAP. Thus, the Pueblos continue, Defendants' demands that they calculate their Net Win in a manner contrary to GAAP for purposes of revenue sharing under the 2007 Compacts contravene these regulations. Defendants counter that: (1) the regulations do not prohibit the Pueblos from creating financial records in addition to their general accounting records and annual financial statements; (2) the regulations do not require these other financial records to comply with GAAP, and, (3) discrepancies between the net win in the Pueblos' GAAP-compliant records and the Net Win in their revenue sharing calculations can be addressed by “a simple footnote … explaining that the [r]evenue [s]haring calculation was performed in the format set forth in Section 11 of the 2007 Compact[s].” (Doc. 99 at 27.)

Neither side cites any caselaw discussing whether the regulations on which the Pueblos rely require all of their financial records, including their Net Win calculations under the 2007 Compacts, to comply with GAAP, and the Court's research has not uncovered any such cases. But see Sault Ste. Marie Tribe of Chippewa Indians, 475 F.3d at 813 (citing 25 C.F.R. § 571.12 for the proposition that the plaintiff tribe was “federally required to comply” with the Gaming Guide). Also, the Court notes that there is some doubt regarding whether the National Indian Gaming Commission had the authority to promulgate the regulations on which the Pueblos rely, Colo. River Indian Tribes v. Nat'l Indian Gaming Comm'n, 466 F.3d 134, 137–39 (D.C. Cir. 2006); and, Section 542.19 was stayed effective September 27, 2018 and is not currently enforceable. 83 Fed. Reg. 39,877-01, 2018 WL 3818191, at *39,879 (Aug. 13, 2018).

The Court need not decide whether complying with Defendants' demands for additional revenue sharing payments would require the Pueblos to violate 25 C.F.R. §§ 542.19, 542.2, and 571.12, in light of its determination that these claims constitute an attempt to impose a tax on the Pueblos in violation of IGRA and the per se rule. In addition, the lack of authority addressing these regulations and their uncertain validity and status make the Court reluctant to attempt to interpret them. The Court will therefore decline to decide whether these regulations required the Pueblos to calculate their Net Win under the 2007 Compacts in accordance with GAAP. However, the Court notes that the regulations are at least consistent with the 2007 Compact provisions that required the Pueblos to calculate their Net Win in accordance with GAAP. See Walsh v. Schlecht, 429 U.S. 401, 408 (1977) (“[A] general rule of construction presumes the legality and enforceability of contracts.”).

3. Defendants are not entitled to additional time to conduct discovery and respond to the Pueblos' Summary Judgment Motions under Rule 56(d)

Defendants argue that the Court should grant them more time to conduct discovery and respond to the Pueblos' Summary Judgment Motions under Rule 56(d) because they cannot currently present facts essential to justify their opposition to the motions. (Doc. 99 at 30); Fed. R. Civ. P. 56(d). Rule 56(d) provides that

[i]f a nonmovant shows by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its opposition, the court may: (1) defer considering the motion or deny it; (2) allow time to obtain affidavits or declarations or to take discovery; or (3) issue any other appropriate order.

Fed. R. Civ. P. 56(d).

Universal Money Ctrs., Inc. v. Am. Tel. & Tel. Co., 22 F.3d 1527, 1536 (10th Cir. 1994) (brackets omitted).

In its affidavit,

a non-movant requesting additional discovery under Rule 56(d) must specify (1) the probable facts not available, (2) why those facts cannot be presented currently, (3) what steps have been taken to obtain these facts, and (4) how additional time will enable the party to obtain those facts and rebut the motion for summary judgment.

Gutierrez, 841 F.3d at 908 (quotation marks and brackets omitted); Hackworth v. Progressive Cas. Ins. Co., 468 F.3d 722, 732 (10th Cir. 2006). It is within the Court's discretion to deny a Rule 56(d) request based solely on a party's failure to present an affidavit that complies with the rule. McKissick v. Yuen, 618 F.3d 1177, 1190 (10th Cir. 2010). Also, if the information sought is irrelevant or cumulative, the nonmoving party is not entitled to relief under Rule 56(d). Jensen v. Redevelopment Agency of Sandy City, 998 F.2d 1550, 1554 (10th Cir. 1993).

In support of their Rule 56(d) request, Defendants argue that they require additional time to conduct discovery regarding: (a) whether the Pueblos actually applied GAAP to their revenue sharing calculations under the Compacts; (b) the parties' negotiations regarding the revenue sharing provisions in the 2007 Compacts ³⁵ ; (c) who decided to implement free play at the Pueblos' casinos and who decided how to account for it; (d) the accuracy of Defendants' calculation of the additional revenue sharing payments they claim the Pueblos owe under the 2007 Compacts; (e) when the Pueblos began offering patrons free play; (f) how the Pueblos determined the appropriate method for calculating their net win once they started offering free play; and, (g) whether the Pueblos ever intended to comply with GAAP or the 2007 Compacts. (Doc. 99 at 30–33.)

Initially, the Court notes that, except regarding one probable fact, Defendants have failed to present an affidavit that satisfies the Gutierrez requirements. 841 F.3d at 908. Defendants attach two affidavits to their response to the Pueblos' Summary Judgment Motions, those of Mr. Telle and Rainier Kamplain. (Docs. 99-11, 99-12.) Mr. Telle's affidavit contains only one sentence that even remotely supports Defendants' Rule 56(d) request, i.e., “[t]he Pueblos have not been forthcoming with the data needed to assess the proper Net Win calculation, further delaying the State's actual notice of the accounting discrepancies.” (Doc. 99-12 at 7.) This one sentence is too vague and conclusory to comply with Rule 56(d)'s requirements and concerns information that is irrelevant to the issues raised in the Pueblos' Summary Judgment Motions. Gutierrez, 841 F.3d at 908; Birch, 812 F.3d at 1249–50.

Mr. Kamplain's affidavit is more detailed, but only regarding one probable fact, i.e., “whether the Pueblos have complied with the correct Net Win and revenue sharing calculations, regardless of which format or formula they are applying in determining Net Win.” (Doc. 99-11 at 4.) In his affidavit, Mr. Kamplain explained why Defendants question whether the Pueblos correctly calculated their revenue sharing obligations under the 2007 Compacts regardless of which formula they used. (Id. at 2–4.) He also stated in general terms what steps Defendants have taken to obtain additional information on this point, and why additional time could allow them to do so. (Id. at 4–5.) However, Mr. Kamplain made no attempt to address any of the other probable facts Defendants listed in support of their Rule 56(d) request. (See generally id.) Thus, with the one exception noted, the Court could in its discretion deny Defendants' Rule 56(d) request based solely on their failure to present an affidavit that complies with the rule. McKissick, 618 F.3d at 1190.

The Court need not do so, however, because Defendants' Rule 56(d) request is also subject to denial for the substantive reason that all of the information Defendants seek additional time to discover is irrelevant to the issues raised in the Pueblos' Summary Judgment Motions. The Court's decision on the Pueblos' motions turns on the meaning of certain Compact provisions and whether Defendants' claims for additional revenue sharing payments comport with federal law. As discussed in Section III.B.1.a., the Compact provisions at issue are unambiguous except regarding the identification and definition of the applicable GAAP. As such, extrinsic evidence is irrelevant to the Court's decision except to the extent it relates to the applicable GAAP; the interpretation of the Compacts and the federal law applicable to Defendants' claims are otherwise questions of law. Citizen Potawatomi Nation, 881 F.3d at 1239; Sault Ste. Marie Tribe of Chippewa Indians, 475 F.3d at 810, 812, 815; Bank of Okla., 972 F.2d at 1171.

Yet, all of the probable facts on which Defendants rely in seeking additional time for discovery under Rule 56(d) are extrinsic to the Compacts, and none have any tendency to identify or define the applicable GAAP. Consequently, none are relevant to the Court's decision on the Pueblos' Summary Judgment Motions. Garcia, 232 F.3d at 768. Because the information Defendants seek is irrelevant, they are not entitled to relief under Rule 56(d). Jensen, 998 F.2d at 1554. The Court will therefore deny Defendants' Rule 56(d) request for additional time to conduct discovery and respond to the Pueblos' motions.

4. Defendants' remaining arguments are unsupported and immaterial

Finally, the Court must address Defendants' assertion that the Court should deny the Pueblos' Summary Judgment Motions because the Pueblos have breached the covenant of good faith and fair dealing and should not be unjustly enriched. (Doc. 99 at 27.) In support of this assertion, Defendants allege that the Pueblos failed to: (a) inform the State of their decision to offer patrons electronic free play credits rather than coupons to be exchanged for cash or tokens; (b) provide the State with documents regarding how they accounted for free play despite many requests; and, (c) attempt to renegotiate the 2007 Compacts when they began offering free play. (Doc. 99 at 28.)

Defendants fail to cite to any provision of law, equity, or contract that required the Pueblos to either inform the State of their decision to offer free play or try to renegotiate the Compacts when they did so. Defendants also fail to cite to any legal authority in support of their argument that the Pueblos' alleged failure to produce documents under the 2007 Compacts invalidates their current claims for declaratory and injunctive relief under federal law. Interestingly, Defendants' evidence tends to show that the Pueblos and the State have been debating the proper treatment of free play in calculating the Pueblos' Net Win for revenue sharing purposes under various compacts off and on since June 2005, and neither side appears to have changed its position in all that time. (See, e.g., Doc. 99-1 at 27–41; Doc. 99-2 at 4–21; Doc. 99-3 at 33–34, 47–58; Doc. 99-4 at 46–55; Doc. 99-5 at 39–46; Doc. 99-6 at 48–68.) This evidence casts some doubt on Defendants' claim of unfair surprise. However, even if Defendants' characterization of the Pueblos' past conduct is accurate, in the Court's view it is simply not relevant to the issues the Pueblos raised in their Summary Judgment Motions. Moreover, the Court declines to speculate about whether Defendants could have made a properly supported legal argument regarding the Pueblos' alleged past misconduct, or what this argument might have been. It is not the Court's role to construct the parties' arguments for them. Smith v. United States, 561 F.3d 1090, 1096 (10th Cir. 2009); Brown v. City of Las Cruces Police Dep't, 347 F. Supp. 3d 792, 811 (D.N.M. 2018). In short, the Court finds that Defendants' arguments regarding the Pueblos' alleged bad faith and inequitable conduct are unsupported and immaterial.

5. The Pueblos are entitled to declaratory and injunctive relief

To summarize, the Court finds that Defendants' claims for additional revenue sharing payments from the Pueblos constitute an attempt to impose a tax, fee, charge, or other assessment in violation of IGRA and the per se rule barring state taxation of Indian tribes without express Congressional authorization. The Court further finds that the 2015 Compact provisions preserving Defendants' claims under the 2007 Compacts are invalid and ineffective. The Court so finds both because the Pueblos did not, in the 2007 Compacts, agree to make the additional payments Defendants seek, and because the payments are not permissible revenue sharing payments consistent with IGRA's requirements and purposes. The Court also finds that Defendants are not entitled to more time to conduct discovery under Rule 56(d), and that their arguments regarding the covenant of good faith and fair dealing and unjust enrichment are unsupported and immaterial. The Court therefore concludes that, as a matter of law, the Pueblos are entitled to declaratory and injunctive relief and it will grant their Summary Judgment Motions as set forth below.