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Flandreau Santee Sioux Tribe v. Gerlach

United States District Court, D. South Dakota, Southern Division

February 11, 2016

FLANDREAU SANTEE SIOUX TRIBE, a federally recognized Indian Tribe Plaintiff,
ANDY GERLACH, Secretary of the State of South Dakota Department of Revenue; and DENNIS DAUGAARD, Governor of the State of South Dakota, Defendants.



Before the Court is the Flandreau Santee Sioux Tribe's (the Tribe) motion for judgment on the pleadings. In its motion, the Tribe asks the Court to declare that the Indian Gaming Regulatory Act (the IGRA) is broad enough in scope to cover sales of goods and services beyond that of just pure gameplay on a casino floor. In addition, the Tribe moves to dismiss the State's counterclaim related to a 1994 deposit agreement (the "Deposit Agreement") that the Tribe and State are parties to. The Deposit Agreement established an escrow account into which the Tribe was to pay a disputed tax amount pending the final resolution of a federal action pending in South Dakota District Court at the time. For the following reasons, the Tribe's motion is granted. The facts laid out below are primarily taken from a previous Memorandum Opinion and Order this Court issued on the State's own motion for judgment on the pleadings, Doc. 59.


The Tribe is federally recognized. It operates Royal River Casino on the Flandreau Indian Reservation in Moody County in eastern South Dakota. Operating as a single business enterprise under the Royal River name, the Tribe owns and operates the Royal River Casino, the Royal River Bowling Center, and the First American Mart (collectively, the "Casino"). Within these three businesses, the Casino is divided further into various departments: gaming, hotel/hospitality, gift shops, restaurants, entertainment venues, bowling alley, and a convenience store. As a unitary business, the entire enterprise is overseen by the Tribe's elected governing body, the Flandreau Santee Sioux Executive Committee. Revenue, including that from casino gaming activities, is calculated in the aggregate as "net revenues." Of that sum, 45% is disbursed to tribal members.

Pursuant to the IGRA, the Tribe and the State have in place a Tribal-State gaming compact (the "Compact"), which controls the Tribe's gaming operations. The Compact contemplates neither explicitly nor impliedly the State's authority to apply its alcohol regulatory laws to the Tribe's "gaming facility, " nor does it contemplate a State's authority to impose its use taxes on nonmember activity made at the Casino, nor does it contemplate the State's requirement that the Tribe collect and remit the use taxes from nonmember activities or purchases.

The Casino's patron base is approximately 60% South Dakota residents. Irrespective of residential or tribal status, the Tribe offers its patrons "goods and services, " which include "bowling, shows and other live entertainment, lodging, food, beverages, package cigarettes, and other sundry items." Consequently, it is undisputed that the Tribe sold these various goods and services to nonmembers at the Casino. It is also undisputed that the Tribe has not remitted the relevant use taxes on nonmember sales to the State.

The State has issued the Tribe three alcohol licenses, one for each of the three Casino-encompassed businesses. These licenses are, however, conditioned on the Tribe's remittance of the State use tax pursuant to S.D.C.L. § 35-2-24. The South Dakota statute does not differentiate between alcohol tax and use tax on other goods and services. In 2009 and 2010, the Tribe sought from the State a renewal of its three alcohol licenses. Based on S.D.C.L. § 35-2-24, both requests were denied by the State as the statute directs that licenses are not to be reissued until use taxes incurred by nonmembers have been remitted. S.D.C.L. § 35-2-24 was enacted in 2007.

As a result, the Tribe, pursuant to S.D.C.L. § 1-26-16, requested a hearing before the South Dakota Office of Hearing Examiners to review the State's alcohol license denial.[1] At the hearing, the Hearing Examiner concluded that all nonmember purchases at the Casino are subject to the use tax scheme, that the Tribe failed to remit the use taxes, and, therefore, the Tribe was not entitled to alcohol license renewal. Prior to the Hearing Examiner's decision becoming final, the Tribe filed this action in federal court on November 18, 2014. The Tribe simultaneously moved the Court for preliminary injunction enjoining state action pursuant to the Hearing Examiner's decision. The Tribe and State made the motion for preliminary injunction moot by entering into a stipulation whereby the State recognized the three alcohol licenses' continuing validity pending a decision on the merits in this case. The Tribe did not appeal the Hearing Examiner's decision to South Dakota state court.

Specific to this federal action, the Tribe alleges that the State lacks authority to impose its use tax scheme on reservation land against nonmember Casino patrons. In its Complaint, the Tribe alleges that the IGRA preempts the field of taxation thereby barring the State's imposition. To that end, the Tribe argues that all activity engaged in under the Royal River Casino name is "gaming activity" untaxable by the State by virtue of the IGRA (Claims for Relief One, Two and Six). In addition, the Tribe asserts that, as a predicate to the funds contained in the escrow account being disbursed to the Tribe, the State is without power to impose its taxation scheme on the Tribe's Casino (Claim for Relief Seven).[2] Specifically, the Tribe seeks a declaratory judgment from this Court holding that the State does not have the authority to tax purchases of goods and services made by nonmembers at the Casino.


A motion for judgment on the pleadings is appropriately granted "where no material issue of fact remains to be resolved and the movant is entitled to judgment as a matter of law." demons v. Crawford, 585 F.3d 1119, 1124 (8th Cir. 2009). In considering a motion under Federal Rule of Civil Procedure 12(c), it is analyzed under the same rubric as that of a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted. See Id. See also E.E.O.C. v. Northwest Airlines, Inc., 216 F.Supp.2d 935, 937 (D. Minn. 2002). Under Rule 12(b)(6), the factual allegations of a complaint are assumed true and construed in favor of the plaintiff, "even if it strikes a savvy judge that actual proof of those facts is improbable." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007), cited in Data Mfg., Inc. v. United Parcel Serv., Inc., 557 F.3d 849, 851 (8th Cir. 2009). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the 'grounds' of his 'entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal citations omitted). The complaint must allege facts, which, when taken as true, raise more than a speculative right to relief. Id. (internal citations omitted); Benton v. Merrill Lynch & Co., Inc., 524 F.3d 866, 870 (8th Cir. 2008). Although a plaintiff in defending a motion under Rule 12(b)(6) need not provide specific facts in support of its allegations, see Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam), it must include sufficient factual information to provide the grounds on which her claim rests, and to raise a right to relief above a speculative level. Twombly, 550 U.S. at 555-556 & n. 3. Although Federal Rule of Civil Procedure 8 may not require "detailed factual allegations, " it "demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim must have facial plausibility to survive a motion to dismiss. Id. Determining whether a claim has facial plausibility is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Ashcroft, 556 U.S. at 679.


The IGRA's Scope

In a previous Memorandum Opinion and Order, Doc. 59, this Court denied the State's motion for judgment on the pleadings. In the motion, the State sought to dismiss parts of the Tribe's Complaint insofar as, it argued, the IGRA is not applicable to the Tribe's action. Finding in favor of the Tribe, the Court ruled that alcohol sales to nonmember patrons at the Casino can be directly related to class III gaming and taxes on the sales are, therefore, preempted by the IGRA. As discussed in the Memorandum Opinion, "Congress indicated that its intent upon passing IGRA was 'to provide a statutory basis for the regulation of gaming by an Indian tribe adequate ... to ensure that the Indian tribe is the primary beneficiary of the gaming operation.'" City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, 785 F.3d 1207, 1211 (8th Cir. 2015) (quoting 25 U.S.C. ยง 2702(2)). Allowing a Tribe to be the primary beneficiary of alcohol sales made on a casino floor is consistent with congressional intent. Having so ruled in the Memorandum Opinion and Order, the Court now grants the Tribe's motion for judgment on the pleadings and a declaration that the IGRA may encompass more than pure gameplay. As the Memorandum Opinion and Order states, at the least, there is a factual issue that remains to be resolved relative to which goods and ...

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