___________

No. 95-1526

___________

Reservation Telephone *

Cooperative; Consolidated *

Telephone Cooperative; *

West River Telecommunications *

Cooperative, *

*

Plaintiffs-Appellants, *

*

Mountrail-Williams Electric *

Cooperative, *

*

Plaintiff, * 

*

Jay Sandstrom; A. Neal *

Hendrickson, *

* Appeal from the United States

Plaintiffs-Intervenors, * District Court for the

* District of North Dakota.

v. *

*

Three Affiliated Tribes of the *

Fort Berthold Reservation; *

Three Affiliated Tribes Tribal *

Business Council; Three *

Affiliated Tribes Tax *

Commission; Wilbur D. *

Wilkinson, Chairman, Tribal *

Business Council; Joseph J. *

Walker, Director, Tax *

Commission, *

*

Defendants-Appellees. *

*

-------------- *

*

State of North Dakota; *

United States of America, *

*

Amicus Curiae. *

___________

 Submitted: November 16, 1995

 Filed: January 30, 1996

___________

Before BOWMAN, BEAM, and MORRIS SHEPPARD ARNOLD, Circuit Judges.

___________
 1

The Honorable Patrick A. Conmy, United States District Judge

for the District of North Dakota.

 2Section 3 of the 1901 Act provides:

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BEAM, Circuit Judge.

Three telephone cooperatives (the Cooperatives) challenge the

authority of the Three Affiliated Tribes of the Fort Berthold

Reservation (the Tribes) to impose a possessory interest tax on

their telephone lines and rights-of-way located within the

Reservation. The Cooperatives contend that federal law governing

the construction and operation of telephone lines on Indian

reservations preempts the Tribes' right to tax the Cooperatives'

telephone interests. The district court1 dismissed the action

without prejudice, holding that the Cooperatives must first exhaust

their tribal remedies before challenging the tax in federal court.

We affirm.

I. BACKGROUND

The Cooperatives, Reservation Telephone Cooperative,

Consolidated Telephone Cooperative, and West River

Telecommunications Cooperative, are organized under the laws of

North Dakota. Each Cooperative provides telephone service to the

Fort Berthold Reservation (the Reservation) through telephone

cables crossing Reservation lands by virtue of rights-of-way

granted by the Secretary of the Interior. Congress authorized the

Secretary of the Interior to grant these rights-of-way in Section

3 of its Act of March 3, 1901, 31 Stat. 1083 (codified at 25 U.S.C.

§ 319) (1901 Act). The 1901 Act further authorizes the Secretary

of the Interior to tax telephone lines for the benefit of Indian

tribes, but leaves intact the authority of state, territorial, or

municipal authorities to assess a tax on telephone lines laid

pursuant to federal rights-of-way.2
The Secretary of the Interior is authorized and empowered

to grant a right of way, in the nature of an easement,

for the construction, operation, and maintenance of

telephone and telegraph lines and offices for general

telephone and telegraph business through any Indian

reservation, through any lands held by an Indian tribe or

nation in the former Indian Territory, through any lands

reserved for an Indian agency or Indian school, or for

other purpose in connection with the Indian service, or

through any lands which have been allotted in severalty

to any individual Indian under any law or treaty, but

which have not been conveyed to the allottee with full

power of alienation, upon the terms and conditions herein

expressed. No such lines shall be constructed across

Indian lands, as above mentioned, until authority

therefor has first been obtained from the Secretary of

the Interior, and the maps of definite location of the

lines shall be subject to his approval. The compensation

to be paid the tribes in their tribal capacity and the

individual allottees for such right of way through their

lands shall be determined in such manner as the Secretary

of the Interior may direct, and shall be subject to his

final approval; and where such lines are not subject to

State or Territorial taxation the company or owner of the

line shall pay to the Secretary of the Interior, for the

use and benefit of the Indians, such annual tax as he may

designate, not exceeding $5 for each ten miles of line so

constructed and maintained; and all such lines shall be

constructed and maintained under such rules and

regulations as said Secretary may prescribe. But nothing

herein contained shall be so construed as to exempt the

owners of such lines from the payment of any tax that may

be lawfully assessed against them by either State,

Territorial, or municipal authority; and Congress hereby

expressly reserves the right to regulate the tolls or

charges for the transmission of messages over any lines

constructed under the provisions of this section:

Provided, That incorporated cities and towns into or

through which such telephone or telegraphic lines may be

constructed shall have the power to regulate the manner

of construction therein, and nothing herein contained

shall be so construed as to deny the right of municipal

taxation in such towns and cities.

-3-

In 1990, the Tribes enacted a tax on interests in real and

personal property located within the exterior boundaries of the

Reservation and used for business or profit. Three Affiliated

Tribes of the Fort Berthold Reservation Tribal Tax Code

(hereinafter Tribal Tax Code), Ch. 7. This possessory interest tax
 3

The Cooperatives alleged that: 1) the tribal tax was

preempted by the 1901 Act; 2) the Tribes lacked express

Congressional delegation to tax the telephone interests; and 3) the

taxing ordinance violated the Equal Protection, Due Process, and

Commerce Clauses of the United States Constitution. Only the

preemption argument has been raised on appeal.

-4-

is assessed on 100 percent of the actual value of the possessory

interest as determined by the Tribal Tax Commission (Tax

Commission). Tribal Tax Code § 706(3). According to the Tribal

Tax Code, any person or entity interested in challenging the Tax

Commission's assessment or determination of exemptions or refunds

must first initiate an administrative appeal to the Tax Commission.

Tribal Tax Code § 502. Appeals from final actions of the Tax

Commission may then be made to the tribal court, but such appeals

are conditioned upon prepayment of the taxes assessed by the Tax

Commission. Tribal Tax Code § 506(1). 

Under tribal law, the Cooperatives' property interests

situated within the Reservation are subject to the possessory

interest tax and to the Tax Code's remedies and appeal provisions.

Accordingly, in January 1992, the Tax Commission sent the

possessory interest tax forms to the Cooperatives with a letter

indicating the Tribes' intent to collect the taxes. Subsequently,

the Tribes sent a notice to the Cooperatives setting May 30, 1992,

as the deadline for filing possessory interest tax returns. 

On May 28, 1992, in an attempt to avoid paying the taxes, the

Cooperatives filed an action for declaratory judgment in the United

States District Court for the District of North Dakota. The

Cooperatives asserted various grounds for invalidation of the

tribal tax,3 and sought to enjoin the Tribes from enforcing the

tax. The district court initially stayed the action pending our

decision in Duncan Energy Co. v. Three Affiliated Tribes of the

Fort Berthold Reservation, 27 F.3d 1294 (8th Cir. 1994), cert.

denied, 115 S. Ct. 779 (1995), a case involving a challenge to the
 4

Prior to oral argument in this case, the Tribes moved to

dismiss this appeal for lack of an appealable order. An

administrative panel of this court denied the Tribes' motion. On

appeal, the Tribes renewed the arguments asserted in their motion

to dismiss. We now reaffirm our earlier administrative decision

and find that we have jurisdiction to hear an appeal from the

district court's order of dismissal.

-5-

very possessory interest tax at issue in this case. Upon

receiving our decision in Duncan Energy, the district court again

stayed the action. The district court held that Duncan Energy

required the Cooperatives to present their arguments to the tribal

court before the federal court action would be allowed to proceed.

Shortly thereafter, upon a motion by the Cooperatives, the district

court amended its stay order to provide instead that the case be

dismissed without prejudice pending exhaustion by the Cooperatives

of their tribal remedies. This appeal followed.4 

II. DISCUSSION

The Cooperatives argue that the district court erred in

requiring them to exhaust their tribal remedies. They contend that

this action falls under one of the exceptions to the exhaustion

doctrine first recognized in National Farmers Union Ins. Cos. v.

Crow Tribe of Indians, 471 U.S. 845 (1985). We disagree with the

Cooperatives' interpretation of the pertinent exception and hold

that the Cooperatives are required to exhaust their tribal remedies

before pursuing their claims in federal court.

The rule requiring exhaustion of tribal remedies in matters

related to reservation affairs is an important aspect of the

federal government's longstanding policy of supporting tribal selfgovernment. See, e.g., National Farmers Union, 471 U.S. at 856;

Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9, 14 (1987). Tribal

courts play a vital role in tribal self-government, and respect for

that role requires, as a matter of comity, that examination of

issues of tribal sovereignty and jurisdiction be conducted in the
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first instance by the tribal court itself. See National Farmers

Union, 471 U.S. at 856; Duncan Energy, 27 F.3d at 1299. 

In accordance with these principles, the United States Supreme

Court has recognized few exceptions to the general requirement of

exhaustion of tribal remedies. In National Farmers Union, the

Supreme Court enumerated these exceptions, stating that exhaustion

would not be required "where an assertion of tribal jurisdiction

`is motivated by a desire to harass or is conducted in bad faith,'

or where the action is patently violative of express jurisdictional

prohibitions, or where exhaustion would be futile because of the

lack of an adequate opportunity to challenge the court's

jurisdiction." National Farmers Union, 471 U.S. at 856 n.21.

(internal citations omitted). Barring the presence of one of these

exceptions, a federal court should stay its hand in order to give

tribal forums the initial opportunity to determine cases involving

questions of tribal authority. Iowa Mutual, 480 U.S. at 15-16.

 We recently followed the rule of exhaustion in Duncan

Energy. There, oil and gas companies brought a federal action to

challenge the Three Affiliated Tribes' power to enforce their

possessory interest tax and certain employment regulations against

nontribal members on non-Indian fee lands. The companies asserted

that exhaustion of tribal remedies was not required in their case,

claiming that the Supreme Court's decisions in National Farmers

Union and Iowa Mutual were inapplicable to cases involving fee

lands. Duncan Energy, 27 F.3d at 1300. We rejected the companies'

narrow interpretation of the exhaustion doctrine and held that the

companies were required to exhaust their tribal remedies before

challenging the validity of the tax and employment ordinances in a

federal action. Id. at 1300.

 The Cooperatives do not dispute the general contours of the

exhaustion doctrine, but argue that the doctrine is inapplicable in

this case. The Cooperatives contend that the language of the 1901
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Act preempts tribal authority to tax telephone interests on Indian

reservations, and therefore the Tribes' endeavor to tax the

Cooperatives' telephone lines and rights-of-way is an "action"

violative of an "express jurisdictional prohibition[]" which,

under National Farmers Union, exempts the Cooperatives from the

requirement of exhaustion. The Cooperatives further assert that

Duncan Energy is distinguishable from this case, since the

plaintiffs in Duncan Energy did not present a preemption argument

or attempt to position their case under one of the exceptions to

exhaustion. The Cooperatives instead seek to align their case with

Blue Legs v. United States Bureau of Indian Affairs, 867 F.2d 1094

(8th Cir. 1989), and Northern States Power Co. v. Prairie Island

Mdewakanton Sioux Indian Community, 991 F.2d 458 (8th Cir. 1993).

In both of these cases, the plaintiffs claimed that certain tribal

actions were preempted by federal law, and we held that the suits

could proceed without exhaustion of tribal remedies. These cases,

the Cooperatives contend, support the conclusion that federal

preemption of tribal authority to tax telephone interests places

their claim squarely within the second exception to the exhaustion

doctrine.

We find the Cooperatives' reading of the National Farmers

Union language exempting from exhaustion "action[s] . . . patently

violative of express jurisdictional prohibitions" both incongruous

and inconsistent with the policy of tribal self-governance

underlying the exhaustion doctrine. A plain reading of National

Farmers Union demonstrates that this exception refers to specific

prohibitions on designated tribal remedies or to prohibitions on a

tribal forum's assertion of jurisdiction over a dispute. The

exception does not, as the Cooperatives contend, address express

jurisdictional prohibitions on the underlying tribal enactment

which forms the basis of the plaintiff's challenge in federal

court. The Cooperatives' interpretation of the express

jurisdictional prohibition exception would render the exhaustion

requirement virtually meaningless, allowing a tribal court to
-8-

assert jurisdiction over an action only after a federal court had

effectively determined the merits of the case. Such an

interpretation runs contrary to the Supreme Court's admonition in

National Farmers Union that the orderly administration of justice

in the federal courts is best served by "allowing a full record to

be developed in the Tribal Court before either the merits or any

question concerning appropriate relief is addressed." 471 U.S. at

856. As the district court in this case aptly observed, if a

federal court "accepts the reasoning that a party does not have to

exhaust tribal remedies in a case where the party says the

underlying tribal action is preempted, there will never be an

exhaustion rule." Reservation Telephone Coop. v. The Three

Affiliated Tribes of the Fort Berthold Reservation, No. A1-92-111,

mem. op. at 3 (D.N.D. Feb. 1, 1995). Rather than accept that

reasoning, we find, as other courts have, that the appropriate

inquiry at this stage of the litigation is whether a tribal forum's

assertion of jurisdiction, or any other designated remedy, violates

an express jurisdictional prohibition and thus precludes

exhaustion. See, e.g., Texaco, Inc. v. Zah, 5 F.3d 1374 (10th Cir.

1993).

Contrary to the Cooperatives' assertion, our decisions in Blue

Legs and Northern States Power support this approach. In those

cases, this court excused the plaintiffs from exhaustion not

because a tribe's exercise of authority over an activity was

preempted by federal law--although it might have been--but because

the very tribal remedies which the plaintiffs would have had to

exhaust before challenging tribal authority in federal court were

preempted by express statutory provisions. In Blue Legs, for

example, tribal members sued their tribe and the Bureau of Indian

Affairs in federal court for failing to maintain Reservation

garbage dumps in conformity with the federal Resource Conservation

and Recovery Act of 1976 (RCRA). We rejected the tribe's argument

that the plaintiffs must first bring suit in tribal court, noting

that the RCRA placed exclusive jurisdiction for suits brought under
 5

We also disagree with the Cooperatives' suggestion that the

1901 Act so obviously preempts a tribal tax on telephone interests

that exhaustion in tribal court would be futile or a waste of

resources. We note, however, that even if the tax itself were

clearly preempted, nothing in Supreme Court precedent indicates

that such a case would be exempt from exhaustion. Even in an

instance of clear preemption of an underlying tribal enactment,

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the RCRA in the federal courts. Blue Legs, 867 F.2d at 1097-98.

In Northern States Power, the operators of a nuclear plant brought

suit against the tribe arguing that tribal ordinances regulating

nuclear materials were preempted by the Hazardous Materials

Transportation Act (HMTA). The tribal ordinances required that

nuclear transporters file an application for a tribal transporting

license within 180 days of each nuclear shipment, and set forth a

licensing review process. Northern States Power, 991 F.2d at 459.

The HMTA, however, contained a provision which specifically

preempted tribal requirements creating "an obstacle to the

accomplishment" of the goals of the HMTA. Id. at 460-61. We held

that the remedies set forth in the tribe's license application

process created such obstacles and were therefore preempted.

Because these remedies were preempted, we found nothing left for

Northern States Power to exhaust. Id. at 463. 

The federal acts at issue in both Blue Legs and Northern

States Power, therefore, expressly addressed conflicts between

tribal remedies governing particular subject areas and

corresponding federal policies governing those areas. Because both

Acts expressly prohibited the particular tribal remedies,

exhaustion of those remedies was not required. In contrast, the

1901 Act contains no provisions which prohibit designated tribal

remedies or reflect a preference for initial adjudication of

telephone interest tax disputes in a federal forum. Nothing in the

1901 Act places an "express jurisdictional prohibition[]" on

assertion of jurisdiction in this case by either the Tribal Tax

Commission or the tribal court. Thus, this action cannot fall

within the second exception to the exhaustion doctrine.5 We hold
principles of comity would arguably support a rule which gives a

tribal court the first opportunity to declare the law invalid.

Nevertheless, we need not decide this issue at this juncture

because we do not find the 1901 Act to present such a case.

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that Duncan Energy controls this action and requires the

Cooperatives to exhaust the administrative and adjudicative

remedies outlined in the Tribal Tax Code before presenting their

preemption arguments to a federal court.

III. CONCLUSION

For the reasons stated above, we affirm the decision of the

district court dismissing this case pending exhaustion of tribal

remedies by the Cooperatives.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.