Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-02160/USCOURTS-ca10-88-02160-0/pdf.json

Parties Involved:
Don Kilpatrick
Appellee
Cindy Rambo
Appellee
The Citizen Band Potawatomi Indian Tribe of Oklahoma
Appellant
The Oklahoma Tax Commission
Appellee
Robert L. Wadley
Appellee

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

THE CITIZEN BAND POTAWATOMI 

INDIAN TRIBE OF OKLAHOMA, 

Plaintiff-Appellant/ 

Cross-Appellee, 

NOV O 3 ·1989 

v. 

) 

) 

) 

) 

) 

) 

) 

) 

Nos. 88-2160 

88-2172 

THE OKLAHOMA TAX COMMISSION; ) 

CINDY RAMBO, Chairman of the Tax) 

Commission; ROBERT L. WADLEY, ) 

Vice Chairman of the Tax ) 

Commission; and DON KILPATRICK, ) 

Secretary of the Tax Commission, ) 

Defendants-Appellees/ 

Cross-Appellants. 

) 

) 

) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No. CIV-87-0338-W) 

Michael Minnis (David McCullough with him on the briefs) of 

Michael Minnis & Associates, P.C., Oklahoma City, Oklahoma, for 

Plaintiff-Appellant/Cross-Appellee. 

David Allen Miley, Assistant General Counsel, Oklahoma Tax 

Commission, Oklahoma City, Oklahoma, for Defendant-Appellee/CrossAppellant. 

Before McKAY, BARRETT, and SEYMOUR, Circuit Judges. 

McKAY, Circuit Judge. 

Appellate Case: 88-2160 Document: 010110063780 Date Filed: 11/03/1989 Page: 1 
This case revolves around an attempt by Oklahoma to tax cigarettes sold by the Citizen Band Potawatomi Indian Tribe of 

Oklahoma (the "Potawatomis" or the ''Tribe") in a convenience store 

which the Tribe wholly owns and operates. The store was 

constructed with federal funds and located on land held in trust 

by the federal government which is "exempt from State and local 

taxation." 25 u.s.c.A. § 465. In February of 1987 the Oklahoma 

Tax Commission sought to collect state cigarette taxes from the 

Indian tribes and their licensees. In moving against the 

Potawatomis, Oklahoma served a $2.7 million assessment letter on 

the Potawatomis' Business Committee Chairman, who would be 

personally liable if Oklahoma prevailed. The Potawatomis 

immediately sought an injunction in the district court of Oklahoma 

to prevent this. Oklahoma then revoked the assessment against the 

Chairman and proceeded against the Tribe itself. 

The trial court granted the Potawatomis a preliminary injunction and enjoined Oklahoma from enforcing the cigarette tax 

against the Tribe, pending this suit. 

terclaim asking the trial court to: 

Oklahoma asserted a coun-

(1) assume jurisdiction over 

all matters; (2) issue declaratory relief setting forth the rights 

and jurisdiction of the parties; (3) declare that Oklahoma had 

jurisdiction to tax the Potawatomis' sales; (4) declare that 

Oklahoma may enforce its tax laws against the Potawatomis by way 

of assessments and injunctions; and (5) enjoin the Potawatomis 

from selling cigarettes on which no state excise or sales taxes 

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Appellate Case: 88-2160 Document: 010110063780 Date Filed: 11/03/1989 Page: 2 
are collected or remitted. 

In response, the Potawatomis moved to dismiss Oklahoma's 

counterclaim, arguing that the trial court lacked subject matter 

jurisdiction over the claims raised in the counterclaim. The 

Potawatomis argued further that the court lacked jurisdiction over 

the Tribe because the Tribe enjoys sovereign immunity and cannot 

be sued unless the Tribe consents. The trial court denied the 

Potawatomis' motion to dismiss on the ground that the counterclaim 

was a compulsory counterclaim under Fed. R. Civ. P. 13(a) and that 

it ''needs no independent jurisdictional basis." Moreover, the 

court held that the Potawatomis had waived their sovereign 

immunity noting that- the "relief sought by the defendants 

[Oklahoma] is so intertwined with the relief sought by the 

plaintiff [Potawatomis] that the counterclaim falls within the 

scope of waiver contained in the plaintiff's complaint." Document 

No. 32, Order, filed May 29, 1987, at 3-4. 

The Potawatomis filed a motion for a new trial, contending 

that Fed. R. Civ. P. 13(a) was not a congressional waiver of the 

Potawatomis' sovereign immunity. The trial court denied the 

Tribe's motion, and they appeal both the denial of their motion to 

dismiss and their motion for a new trial. The Potawatomis also 

claim error in the trial court's ruling that sales of cigarettes 

to nontribal members may be taxed. Oklahoma cross-appeals 

claiming that the court erred in holding that the Tribe and its 

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Appellate Case: 88-2160 Document: 010110063780 Date Filed: 11/03/1989 Page: 3 
members who purchase cigarettes are tax-exempt. 

Here, the district court's denial of the Potawatomis' motions 

to dismiss and for a new trial present primarily questions of law. 

As an appellate court, therefore, we review de novo the district 

court's rulings on those motions. See,~, Morgan v. City of 

Rawlins, 792 F.2d 975, 978 (10th Cir. 1986); In Re Tri-State 

Equipment, Inc., 792 F.2d 967, 970 (10th Cir. 1986); Supre v. 

Ricketts, 792 F.2d 958, 961 (10th Cir. 1986). 

I. Tribe's Motion to Dismiss Counterclaim 

Indian tribes have sovereign immunity from suits to which 

they do not consent, subject to the plenary control of Congress. 

See United States v. United States Fidelity and Guaranty Co., 309 

U.S. 506, 512 (1940); Puyallup Tribe, Inc. v. Dept. of Game, 433 

U.S. 165, 172-73 (1977). The S_upreme Court has held that an 

Indian tribe does not consent to suit on a counterclaim merely by 

filing as a plaintiff. See Fidelity and Guaranty Co., 309 U.S. at 

513. "Although the precise limits of this tribal immunity are not 

clear, •.• it is generally coextensive with that of the United 

States." Jicarilla Apache Tribe v. Andrus, 687 F.2d 1324, 1344 

(10th Cir. 1982). 

In Chemeheuevi Indian Tribe v. California Bd. of Equalization, 757 F.2d 1047 (9th Cir.), rev'd on other grounds, 474 U.S. 9 

(1985), the Ninth Circuit held: 

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Appellate Case: 88-2160 Document: 010110063780 Date Filed: 11/03/1989 Page: 4 
[T]he compulsory counterclaim requirement of Rule 13(a} 

of the Federal Rules of Civil Procedure cannot ·be viewed 

as a congressional waiver of the Tribe's immunity •••• 

• . • Rule 13(a} is explicitly intended to require 

joinder of only those claims that might otherwise be 

brought separately. The authorizing statute for the 

Federal Rules of Civil Procedure specifies that the 

rules "shall not abridge, enlarge or modify any substantive right.'' 28 u.s.c. § 2072 (1982). We cannot find 

that a rule promulgated pursuant to this statute was 

intended impermissibly to abridge the Indian tribes' 

substantive right to immunity from suit. Nor can we 

read Rule 13(a} in isolation and extend federal jurisdiction despite the repeated specification that the 

rules are not intended to have such an effect. 

Chemeheuevi Indian Tribe, 757 F.2d at 1053. 

Relying on Jicarilla Apache Tribe v. Andrus, 687 F.2d 1324 

(10th Cir. 1982), the trial court believed it also had jurisdiction based on the principle of ''recoupment." Recoupment, however, 

is an equitable defense that applies only to suits for money damages. "[R]ecoupment is purely defensive and not offensive . 

[and applies] only to the abatement, reduction, or mitigation of 

the damages claimed by plaintiff." 80 C.J.S. Set-Off and Counterclaim§ 2 (1953} (emphasis added}. 

The Potawatomis sought only injunctive relief in this suit. 

They did not ask for a declaratory judgment or damages. The Ninth 

Circuit has held that "[a]lthough a counterclaim may be asserted 

against a sovereign by way of set off or recoupment to defeat or 

diminish the sovereign's recovery, no affirmative relief may be 

given against a sovereign in the absence of consent." United 

States v. Agnew, 423 F.2d 513, 514 (9th Cir. 1970). The judgment 

of the district court gave Oklahoma affirmative relief. Oklahoma 

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Appellate Case: 88-2160 Document: 010110063780 Date Filed: 11/03/1989 Page: 5 
obtained a declaratory judgment for part of the relief they sought 

in their counterclaim. This is contrary to the sovereign immunity 

doctrine and is an impermissible exercise of the trial court's 

jurisdiction under Schaumburg v. United States, 103 U.S. 667 

(1881). 

Because the Tribe is immune from suit, the district court 

lacked jurisdiction to adjudicate the counterclaim. We therefore 

reverse the trial court's denial of the Potawatomis' motion to 

dismiss Oklahoma's counterclaims and remand with directions to 

dismiss the counterclaims. 

II. Tribe's Request for Injunction 

The Potawatomis sought an injunction that "[p]ermanently 

enjoins defendants, their officers, agents, servants, employees, 

attorneys, and all those in active concern or participation with 

them from entering plaintiff's Indian Country and from enforcing 

or attempting to enforce its regulatory and taxing authority to 

assess a cigarette tax against plaintiff, plaintiff's officers, 

agents or employees ...• " We conclude that the trial court 

erroneously denied the Potawatomis' request for injunction. The 

trial court correctly held that the phrase ''Indian Country" refers 

to the territory over which an Indian tribe exercises its 

sovereign powers; it is "those lands which Congress intended to 

reserve for a tribe and over which Congress intended primary 

jurisdiction to rest in the federal and tribal governments." 

Indian Country, U.S.A., Inc. v. Oklahoma, 829 F.2d 967, 973 (10th 

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Appellate Case: 88-2160 Document: 010110063780 Date Filed: 11/03/1989 Page: 6 
Cir. 1987), cert. denied, U.S. , 108 S. Ct. 2870 (1988). 

The test is whether the land has "been validly set apart for the 

use of the Indians as such, under the superintendence of the 

Government." United States v. Pelican, 232 U.S. 442, 449 (1914), 

quoted in United States v. McGowan, 302 U.S. 535, 539 (1938), 

United States v. John, 437 U.S. 634, 649 (1978), cert. denied, 441 

U.S. 925 (1979). The tribal convenience store is located on land 

which, during all relevant periods of time, was held in trust by 

the federal government for the Potawatomis. Congress specifically 

authorized the Tribe to convey this land, located within the original Potawatomi reservation boundaries, to the United States in 

trust. See Act of January 2, 1975, Pub. L. No,. 93-591, 88 Stat. 

1922 (1975). "[L]ands held in trust by the United States for the 

Tribes are Indian Country within the meaning of§ 115l(a)." 

Cheyenne-Arapaho Tribe v. Oklahoma, 618 F.2d 665, 668 (10th Cir. 

1980). It has long been the law that land purchased in a state by 

the federal government and held in trust for Indians is "Indian 

Country." See United States v. McGowan, 302 U.S. 535, 538-39 

(1938). As set forth by the Supreme Court, section 1151 was 

intended to designate as Indian Country all lands set aside by 

whatever means for a tribe under federal protection together with 

trust and restricted Indian allotments. See United States v. 

John, 437 U.S. 634, 648-49 (1978). 

Oklahoma argues before us that (1) the convenience store land 

is not a "dependent Indian community," and (2) that the tribal 

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convenience store is not located on an "Indian allotment." Neither the trial court nor the Tribe has ever asserted that the 

tribal convenience store was on an Indian allotment or a dependent 

Indian community. 

Oklahoma contends, through a statistical analysis (based on 

Dawes Commission reports) that no "Indian Country" exists in 

Oklahoma. They argue that "the Tribe has not developed a living 

tribal community apart from the general community of the state and 

have in fact been assimilated into the general community of the 

state." This is irrelevant. The Tribe does not dispute that its 

members are citizens of Oklahoma or of other states and have been 

"assimilated" into society. This assimilation, however, does not 

justify the conclusion that the Tribe has no existence apart from 

the state or that the Tribe has been assimilated into the state. 

The Tribe exists apart from its individual members. Moreover, the 

fact that individual members of an Indian tribe have been "assimilated" or have become citizens does not change the status of the 

land held by the United States in trust for the Tribe. It does 

not transform the land from "Indian Country" to land totally 

subject to state jurisdiction. Mescalero Apache Tribe v. Jones, 

411 U.S. 145 (1973), is not contrary. In Mescalero, the land at 

issue was "located outside the boundaries of the Tribe's reservation" and was not owned by the Mescaleros but rather was "leased 

from the United States Forest Service for a term of 30 years". 

Mescalero, 411 U.S. at 146. Mescalero, therefore, is distinguishable from the case at hand; and the Court's holding that the 

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Appellate Case: 88-2160 Document: 010110063780 Date Filed: 11/03/1989 Page: 8 
Mescalero land was not "Indian Country" has no application to this 

case. 

Because the convenience store is located in Indian Country, 

the Potawatomis possess sovereign powers with respect to the land 

and the store. See United States v. Wheeler, 435 U.S. 313, 323 

(1978). In Wheeler, the Court recognized that: "The sovereignty 

that the Indian tribes retain is of a unique and limited character. It exists only at the sufferance of Congress and is subject 

to complete defeasance. But until Congress acts, the tribes 

retain their existing sovereign powers." Id. at 323. Thus, 

because the convenience store is located on land over which the 

Potawatomis retain sovereign powers, Oklahoma has no authority to 

tax the store's transactions unless Oklahoma has received an 

independent jurisdictional grant of authority from Congress. See 

Bryan v. Itasca County, 426 U.S. 373, 376-77 (1976); Moe v. 

Confederated Salish and Kootenai Tribes, 425 U.S. 463, 475-76 

(1976); Mcclanahan v. Arizona Tax Cornrn'n, 411 U.S. 164, 175-77 

(1973); United States v. Barquin, 799 F.2d 619, 621 (10th Cir. 

1986). Oklahoma cites no federal law granting such jurisdiction. 

Moreover, Oklahoma disclaimed jurisdiction over Indian lands upon 

entering the Union, did not assert jurisdiction under Public Law 

280, and can point to no voluntary grant of jurisdiction by the 

Tribe. Oklahoma's lack of jurisdiction points out the critical 

distinction between this case and the cases on which Oklahoma 

relies. For example, Oklahoma relies on Washington v. Confederated Tribes of Colville, 447 U.S. 134 (1980), for the proposition 

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that Indian retailers are subject to state taxation--at least with 

respect to sales made to tribal nonmembers. In Colville, however, 

the Indian tribe had opted to come under state jurisdiction pursuant to Pub. L. No. 83-280, 67 Stat. 588 (1953) and Wash. Rev. Code 

§ 37.12.010 (1957). See Confederated Tribes of Colville v. 

Washington, 446 F. Supp. 1339, 1348-49 (E.D. Wash. 1978), rev'd, 

447 U.S. 134 (1980). Because no such jurisdiction exists in this 

case, Oklahoma's reliance on Colville is misplaced. 

We conclude that the district court improperly denied the 

Potawatomis' request to enjoin Oklahoma from collecting state 

sales tax on the Potawatomis' sales of cigarettes. Accordingly, 

we remand to the district court for a reinstatement of a permanent 

injunction on behalf of the Potawatomis. 

V. Costs 

This is a federal action. Unless otherwise provided, costs 

shall be awarded as a matter of course. Fed. R. Civ. P. 54(d) 

provides: 

(d) Costs. Except when express provision therefor is 

made either in a statute of the United States or in 

these rules, costs shall be allowed as of course to the 

prevailing party unless the court otherwise directs; but 

costs against the United States, its officers, and agencies shall be imposed only to the extent permitted by 

law. Costs may be taxed by the clerk on one day's 

notice. On motion served within 5 days thereafter, the 

action of the clerk may be reviewed by the court. 

Contrary to Oklahoma's assertion, Oklahoma can be held liable for 

costs. See,~' State ex rel. Grigsby v. Silvers, 180 P.2d 657 

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(Okla. 1947). 

REVERSED and REMANDED for dismissal of Oklahoma's counterclaim and entry of an injunction as prayed for by the Potawatomis. 

We also REMAND for consideration of the Potawatomis' motion 

for costs. 

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✓ 

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