The opinion of the court was delivered by: Karen E. Schreier Chief Judge
ORDER DENYING PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION
Defendant, Sioux Falls Construction Company, entered into a contract with the Flandreau Santee Sioux Tribe (the Tribe) to serve as the general contractor for the construction of an addition to the Royal River Casino and Motel near Flandreau, South Dakota. Sioux Falls Construction entered into individual subcontractor agreements with each of the plaintiffs, Fox Drywall & Plastering, Inc., S and S Builders, Inc., G&D Viking Glass, Inc., and H&R Roofing of South Dakota, Inc. (collectively plaintiffs or subcontractors). After the project was completed, the Tribe brought suit against Sioux Falls Construction in the Flandreau Santee Sioux Tribal Court (Tribal Court). Sioux Falls Construction filed a third-party indemnity and contribution action (third-party complaint) against plaintiffs in Tribal Court. Plaintiffs filed a motion to dismiss based on the Tribal Court's lack of subject matter jurisdiction.
The Tribal Court initially denied the motion to dismiss, and plaintiffs appealed. The Flandreau Santee Sioux Tribal Appellate Court (Tribal Appellate Court) remanded the case to the Tribal Court to conduct an evidentiary hearing. After conducting an evidentiary hearing, the Tribal Court denied the motion to dismiss. The Tribal Appellate Court upheld the Tribal Court's determination that it had jurisdiction over the third-party complaint.
Plaintiffs have now filed an action in federal court and seek a preliminary injunction to enjoin the Tribal Court's assertion of jurisdiction over Sioux Falls Construction's third-party complaint. Sioux Falls Construction resists. On April 24, 2012, the court held a hearing on the preliminary injunction. The motion for a preliminary injunction is denied.
BACKGROUND I. Factual History
The pertinent facts to this order are as follows: The Tribe owns the Royal River Casino and Motel, which is located on the
Tribe's trust land. On February 7, 2002, the Tribe and Sioux Falls Construction entered into a contract for Sioux Falls Construction to design and build a 60-room expansion to the Royal River Motel. To complete the project, Sioux Falls Construction entered into subcontracts with five subcontractors, including the four plaintiffs and Gene Rollinger Construction, which is not contesting the Tribal Court's jurisdiction.*fn1 The project was completed on April 1, 2004.
The Tribe discovered multiple issues with the Royal River Motel after the construction was finished. The problems included issues with the fire system, such as omitted or improperly installed draft stops, fire seals, shaft assemblies, and fire stops. Fire-rated walls and ceiling assemblies were not constructed in accordance with the specified UL listing. Several smoke detectors were installed but not wired. According to the Tribe, the issues with the fire protection system "negated the designers' means to protect occupants in case of a fire." Docket 9-1 ¶ 17.
The Tribe also contends that some of the Tribe's requested structural elements were missing, misplaced, damaged, or altered. For example, columns were not installed, shear walls were incomplete and nailed incorrectly, either too few lag bolts or incorrectly-installed lag bolts were used for ledgers, truss hangers were incorrectly installed, and the link area was too small. The elevator shaft was incorrectly located and improperly constructed. Floor joists were damaged and/or altered and not repaired according to the engineer's design. Roof truss members were cut through and left unrepaired or improperly repaired. Walls were improperly framed. The Tribe asserts that "[t]hese breaches and others negated the designers' means to enable the building to resist live loads, dead loads and wind loads." Docket 9-1 ¶ 17.
The Tribe further asserts that issues with the HVAC and plumbing have resulted in overheating in the summer, overcooling in the winter, and a high loss in water pressure. Water heaters were moved to the second floor and are not adequately supported. Moreover, an improperly installed exterior insulation finishing system (EIFS) and flashings resulted in water intrusion, mold, and rot. An improperly installed EPDM (ethylene propylene diene monomer, a type of rubber) roof resulted in overloading, poor drainage, and water intrusion in the walls. Several areas of the exterior walls had the thermal insulation omitted, which resulted in higher heating and cooling loads, condensation, and other issues. Docket 9-1 ¶ 17.
On March 18, 2008, the Tribe brought suit against Sioux Falls Construction in the Tribal Court alleging breach of warranty, deceit, bad faith, and breach of the independent duty of habitability. The Tribe seeks compensatory and punitive damages. Docket 9-1. Sioux Falls Construction has not objected to the Tribal Court's jurisdiction over the Tribe's complaint.
On August 22, 2008, Sioux Falls Construction filed its third-party complaint against plaintiffs and Gene Rollinger. Docket 9-3. On March 11, 2009, S and S Builders moved the Tribal Court to dismiss the third-party complaint for lack of subject matter jurisdiction pursuant to Flandreau Sioux Tribal Code ¶ 4-4-2(1). Docket 9-4. On March 12, 2008, Fox Drywall joined S and S Builders' motion to dismiss. Docket 9-5.
On July 9, 2009, Tribal Court Judge Sherman Marshall denied the motion to dismiss and found that the Tribal Court had jurisdiction over the action. Docket 9-6. The subcontractors filed a discretionary (interlocutory) appeal with the Tribal Appellate Court on whether the Tribal Court had subject matter jurisdiction over the third-party complaint. Docket 9-7.
The Tribal Appellate Court found that an insufficient evidentiary basis existed to determine whether the Tribal Court had jurisdiction:
In the course of the quite able oral argument presented to the Court, it became clear that there was an insufficient record developed in the trial court from which to confidently ascertain the precise relationship of the subcontractors to the Flandreau Santee Sioux Tribe. The nature of that relationship is, of course, the bedrock inquiry which is necessary to determine whether the jurisdictional test established in the 'pathmarking' case of Montana v. United States, 450 U.S. 544 (1981) is satisfied.
Docket 9-7 at 3-4. After providing a number of issues for the Tribal Court to clarify on remand, the Tribal Appellate Court remanded the case to the Tribal Court to conduct an evidentiary hearing: What is not adequately present in the current record before this Court, as noted elsewhere, is sufficient evidence-documentary and testimonial-with which to reach a reliable conclusion as to the nature and extent of "commercial dealing" between the parties, especially between the Flandreau Santee Sioux Tribe and the subcontractors. It is this deficiency, which provides the basis of this remand to the trial court to conduct the necessary evidentiary hearing in accordance with the guidelines described above.
Docket 9-7 at 7. The Tribal Appellate Court remanded the action to the Tribal Court and reasoned that the subcontractors had not yet exhausted their tribal court remedies. Docket 9-7 at 7.
The Tribal Court conducted an evidentiary hearing on April 29, 2010. Representatives from each of the subcontractors testified, but neither an official from the Tribe nor a representative from Sioux Falls Construction was called to testify. Docket 9-8 at 3. After receiving the additional evidence, the Tribal Court found that sufficient "commercial dealings" existed between the Tribe and Sioux Falls Construction to confer jurisdiction on the Tribal Court over the third-party complaint. Docket 9-8 at 7. The subcontractors filed a second intermediate appeal with the Tribal Appellate Court.
The Tribal Appellate Court heard oral argument on May 23, 2011, and all three parties, the Tribe, Sioux Falls Construction, and the subcontractors, participated in the oral argument. Docket 9-9 at 3.
The Tribal Appellate Court held that the Tribal Court had jurisdiction over the third-party complaint under Montana. The Tribal Appellate Court found that nine key factors supported the application of Montana: (1) the project was performed on Tribal trust land located within the reservation's boundaries; (2) the project involved the Tribe as the project's owner; (3) the subcontracts recognized the regulatory authority of the Owner/Tribe to order subcontractors to suspend and/or terminate work on the project; (4) the subcontracts referenced and incorporated the agreement between the Tribe and Sioux Falls Construction; (5) Sioux Falls Construction and subcontractors are named parties in the Tribe's lawsuit against Sioux Falls Construction for work performed for the Tribe on Tribal trust land; (6) all defendants, including the subcontractors, knew that they were performing work for the Tribe on Tribal land; (7) the subcontracts expressly identified the direct liability of the subcontractors to the Tribe; (8) the subcontractors manifested written consent and willingness for disputes to be resolved in a single forum; and, (9) only the Tribal Court would have authority over all of the disputes involved in this lawsuit. Docket 9-9 at 11-12.
The Tribal Appellate Court found that these facts supported the application of Montana because the project would not have occurred without all three of the interlocking parties. Docket 9-9 at 4 (citations to the Tribal Court record omitted). The Tribal Appellate Court, citing Paragraphs 2.3, 3.1, 3.2, 8.3.1, 11.4, and 12.1 of the subcontracts, reasoned that the subcontracts "expressly reflect the tri-partite nature of th[e] construction undertaking. . . . These provisions, individually and collectively indicate the pervasive presence and reliance on the interlocking rights and responsibilities of all three parties." Docket 9-9 at 5 (emphasis in original). The Tribal Appellate Court further reasoned that "it appears from the record . . . that the Tribe expected all legal matters relative to this three way commercial endeavor to be settled in Tribal court." Docket 9-9 at 8.
In its reasoning, the Tribal Appellate Court relied not only on Montana but also on Williams v. Lee, 358 U.S. 217 (1959). " 'There can be no doubt that to allow the exercise of state jurisdiction here would undermine the authority of tribal courts over Reservation affairs and hence would infringe on the right of Indians to govern themselves. It is immaterial that respondent is not an Indian.' " Docket 9-9 at 10 (quoting Williams, 358 U.S. at 223). Relying on all of these factors, the Tribal Appellate Court concluded that the Tribal Court had jurisdiction under Montana and, additionally, on non-Montana grounds based on Williams. Docket 9-9 at 10.
The Tribal Appellate Court remanded the case back to the Tribal Court. Plaintiffs then filed this action in federal court and seek to enjoin further Tribal Court action over the third-party complaint. Only the preliminary injunction is at issue here.
Before a federal court grants preliminary relief, it must have jurisdiction over the matter. Bruce H. Lien Co. v. Three Affiliated Tribes, 93 F.3d 1412, 1422 (8th Cir. 1996). Whether a tribal court has adjudicative authority over a non-tribal member presents a federal question. Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316, 324 (2008)(citing Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9, 15 (1987)). Federal law governs the outcome. Nat'l Farmers Union Ins. Cos. v. Crow Tribe of Indians, 471 U.S. 845, 852 (1985). Accordingly, the question falls under this court's "arising under federal law" jurisdiction in 28 U.S.C. § 1331. El Paso Natural Gas Co. v. Neztsosie, 526 U.S. 473, 483 (1999).
The doctrine of tribal exhaustion, subject to limited exceptions, requires a party to exhaust its case in tribal court before seeking relief in a federal court, including questions of jurisdiction. Nevada v. Hicks, 533 U.S. 353, 369 (2001); Nat'l Farmers, 471 U.S. at 856-57.Here, the parties have exhausted their tribal court remedies, and the court has jurisdiction to review plaintiffs' preliminary injunction motion.
"A preliminary injunction is an extraordinary remedy, and the burden of establishing the propriety of an injunction is on the movant." Watkins Inc. v. Lewis, 346 F.3d 841, 845 (8th Cir. 2003) (citing Goff v. Harper, 60 F.3d 518, 520 (8th Cir. 1995); Calvin Klein Cosmetics Corp. v. Lenox Labs., Inc., 815 F.2d 500, 503 (8th Cir. 1987)). The moving party must make the familiar four-part showing before the court issues a preliminary injunction: (1) the threat of irreparable harm by the movant; (2) the balance between this harm and the injury that granting the injunction will inflict on the other parties; (3) the probability that the movant will succeed on the merits; and, (4) the public interest. Dataphase Sys., Inc. v. C L ...