Court Opinion

ID: 26639
Source: CourtListenerOpinion
Date Created: 2010-04-25 08:57:02+00
Date Added: 2024-06-11T14:56:04.205976
License: Public Domain

UNITED STATES COURT OF APPEALS
                        For the Fifth Circuit

                     ___________________________

      Consolidated Cases Nos. 01-60228, 01-60229, 01-60230,
         01-60231, 01-60232, 01-60233, 01-60234,01-60235,
                    01-60236, 01-60237, 01-60238
                     ___________________________

BANK ONE, N.A.,
                                               Plaintiff-Appellant,

                               VERSUS

MYRA MAE SHUMAKE, DARLENE VAUGHN, ANDIA WILLIAMSON, KARREN SAM,
VIRGINIA WILLIS, WILLIE WILLIS, LAVERN WILLIS, BRAINARD LEWIS,
a/k/a Brianard Lewis, ROBIN WILLIS, DANITA WILLIS; KIRBY WILLIS,
DINA THOMAS AND ROSE WILLIS,

                                               Defendants-Appellees.

         ___________________________________________________

            Appeals from the United States District Court
              for the Southern District of Mississippi
         ____________________________________________________
                          February 15, 2002

Before KING, Chief Judge, and DAVIS and MAGILL,* Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

     Bank One challenges the district court’s dismissal of its suit

to compel arbitration. Bank One contends that the reasoning of the

U.S. Supreme Court’s decision in El Paso Natural Gas Co. v.

     *
      Circuit Judge, U.S. Court of Appeals for the Eighth Circuit,
sitting by designation.

                                  1
Neztsosie1 requires us to conclude that the tribal exhaustion

doctrine should not apply to suits to compel arbitration under the

Federal    Arbitration      Act.2      For      the    reasons      that   follow,     we

disagree.        We    therefore     affirm      the    district      court’s     order

dismissing      Bank     One’s   action    for     failure     to    exhaust     tribal

remedies.

                                           I.

     In March 1995, a door-to-door salesman sold home satellite

systems to several members of the Choctaw Indian tribe at their

homes on the Choctaw Indian Reservation in Mississippi.                              The

salesmen arranged to allow the purchaser to use credit provided by

Bank One. Bank One required prospective purchasers (“Cardmembers”)

to complete and execute a Credit Application, accompanied by a

Revolving       Credit    Card     Plan    and     Disclosure        Statement       (the

“Cardmember Agreement”), and a Security Agreement. The application

provided that extensions of credit would be deemed to occur in

Ohio.

     In March 1998, Bank One contends it notified its Cardmembers

of a modification to the Cardmember Agreement that inserted an

arbitration clause requiring that all disputes be resolved by

arbitration pursuant to the Federal Arbitration Act (FAA).                           Some

members    of    the   Tribe     contend    that      they   did    not    receive    the

     1
         526 U.S. 473, 119 S. Ct. 1430 (1999).
     2
         9 U.S.C. §§ 1-16.

                                           2
modification.

     In the summer of 2000, several members of the Mississippi Band

of Choctaw Indians, including Myra Rae Shumake, sued Bank One in

the Tribal    Court   of    the   Mississippi   Band    of   Choctaw   Indians

(“Tribal Court”) seeking damages and injunctive relief.                   The

complaints alleged that Bank One financed the transaction through

“bogus” credit cards, and that it concealed and failed to disclose

material information regarding the credit transaction.

     Upon receipt of notice of the Tribal Court actions, Bank One

promptly filed suits in the federal district court under § 4 of the

FAA against each Cardholder seeking to compel arbitration of their

Tribal Court claims, asserting that those claims are subject to a

valid   and   binding      arbitration    agreement.         The   Cardholders

immediately moved for dismissal of Bank One’s district court action

or remand to the Tribal Court, arguing that the tribal exhaustion

doctrine requires federal courts to allow tribal courts to have the

first opportunity to rule on the question of its jurisdiction.             The

district court found that the tribal exhaustion doctrine applied to

these cases and dismissed Bank One’s suits so that the Tribal Court

could first address the question of its jurisdiction.

     Bank One appeals the dismissals, contending that the district

court inappropriately applied the tribal exhaustion doctrine to

these FAA cases and that the arbitration clause in the contract

waived any right to tribal exhaustion.                 The cases have been

                                      3
consolidated on appeal.

                                       II.

     The standard of review of district court decisions to stay or

dismiss proceedings on abstention grounds is abuse of discretion,

but to the extent that such a decision rests on an interpretation

of law, our review is de novo.3

                                      III.

                                       A.

     We    turn   first   to   Bank    One’s   argument   that   the   tribal

exhaustion doctrine should be inapplicable to actions to compel

arbitration under the FAA.        In considering this issue, we first

review the Supreme Court cases on the tribal exhaustion doctrine.

     The Supreme Court established the doctrine in National Farmers

Union Insurance Co. v. Crow Tribe.4            In that case, a Crow Indian

minor was struck by a motorcycle in the parking lot of a school

owned by the state, but located on the Crow Indian Reservation.

The minor’s parents sued the school district in tribal court and

obtained a default judgment.          The school district and its insurer

then filed suit in federal court seeking an injunction against

     3
      See, e.g., Safety National Casualty Corp. v. Bristol-Myers
Squibb Co., 214 F.3d 562, 564 (5th Cir. 2000); citing Black Sea
Inv. Ltd. v. United Heritage Corp, 204 F.3d 647, 649-50 (5th Cir.
2000); Murphy v. Uncle Ben's, Inc., 168 F.3d 734, 737 (5th Cir.
1999); Sutter Corp. v. P & P Indus., Inc., 125 F.3d 914, 917 (5th
Cir. 1997).
     4
         471 U.S. 845, 105 S. Ct. 2447 (1985).

                                        4
execution of the judgment and further proceedings in tribal court

on   the    theory   that    the    tribal     court    lacked    subject     matter

jurisdiction in civil actions against non-tribe members under 28

U.S.C. § 1331.       The district court granted the injunction, but a

divided panel of the Ninth Circuit reversed.

      The Supreme Court held that as a threshold matter, federal

courts may determine whether a tribal court has exceeded its lawful

jurisdiction because the extent of tribal sovereignty is a matter

of federal law for the purposes of § 1331.5                     The Supreme Court

held,     however,   that    so    long   as   “the    action    is   not   patently

violative     of   express    jurisdictional      prohibitions,”6       the    first

examination of tribal court jurisdiction should take place in the

tribal court rather than in federal court.

      We believe that examination should be conducted in the
      first instance in the Tribal Court itself. Our cases have
      often recognized that Congress is committed to a policy
      of   supporting   tribal   self-government    and   self-
      determination. That policy favors a rule that will
      provide the forum whose jurisdiction is being challenged
      the first opportunity to evaluate the factual and legal
      bases   for   the   challenge.   Moreover   the   orderly
      administration of justice in the federal court will be
      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. The risks of
      ... [a] “procedural nightmare" ... will be minimized if
      the federal court stays its hand until after the Tribal
      Court has had a full opportunity to determine its own

      5
          See id. at 852-53.
      6
      Id. at 857 n.21. The other two exceptions--bad faith or lack
of opportunity to challenge the tribal court’s jurisdiction--do not
apply here.

                                          5
     jurisdiction and to rectify any errors it may have made.7

     The next important Supreme Court decision on the tribal

exhaustion doctrine is Iowa Mutual Insurance Co. v LaPlante,8 in

which the Court extended the doctrine to diversity cases.                 In that

case, LaPlante, a member of the Blackfeet Indian Tribe filed suit

for personal injuries in tribal court against his employer, a ranch

located on the Reservation.         He also sued the ranch’s insurer for

bad faith refusal to settle.             The tribal court ruled that once

LaPlante amended his complaint to allege facts on which to base

jurisdiction, it would entertain jurisdiction over the action.

Iowa Mutual then sued the LaPlantes, the ranch, and its owners, in

federal district court alleging diversity of citizenship under 28

U.S.C.    §   1332    as   the   basis   of   jurisdiction,    and   seeking   a

declaration that it had no duty to defend or indemnify the ranch or

its owners because the injuries fell outside the policy.                     The

district      court   dismissed    the   action,   holding    that   it   lacked

jurisdiction because the tribal court must be given the first

opportunity to determine its own jurisdiction.               The Ninth Circuit

affirmed.

     The Supreme Court concluded that the district court did not

lack subject matter jurisdiction but that “the federal policy

supporting tribal self-government directs a federal court to stay

     7
         Id. at 856-57.
     8
         480 U.S. 9, 107 S. Ct. 981 (1987).

                                         6
its hand in order to give the tribal court a ‘full opportunity to

determine its own jurisdiction.’”9 The Court noted that it had

“repeatedly recognized the Federal Government’s longstanding policy

of encouraging tribal self-government....           Tribal courts play a

vital role in tribal self-government, and the Federal Government

has   consistently      encouraged   their   development.”10   The   Court

extended the doctrine to diversity cases because when “state-court

jurisdiction over Indians or activities on Indian lands would

interfere with tribal sovereignty and self-government, state courts

are generally divested of jurisdiction as a matter of federal

law.”11

      The Court held that the sovereignty of tribal courts can only

be impaired by an express indication of Congressional intent.

“Because the Tribe retains all inherent attributes of sovereignty

that have not been divested by the Federal government, the proper

inference from silence ... is that the sovereign power ... remains

intact.”12      In response to the argument that the tribe lacked

authority over non-members on the reservation, the Court responded

that “[t]ribal authority over the activities of non-Indians on

      9
          Id. at 16, quoting National Farmers at 857.
      10
           Id. at 14, 107 S.Ct. at 975 (citations omitted).
      11
           Id. at 15.
      12
       Id. at 18, quoting Merrion v. Ticarilla Apache Tribe, 455
U.S. 130, 149 n.14 (1982).

                                      7
reservation lands is an important part of tribal sovereignty.”13

                                        B.

      This brings us to the most recent Supreme Court case, the

primary basis of Bank One’s argument.            In El Paso Natural Gas v.

Neztsosie,14 two members of the Navajo Nation sued El Paso in tribal

court for compensatory and punitive damages under Navajo tort law

for   injuries     arising     from   exposure   to   radioactive   and   other

hazardous materials.         El Paso sued in the district court to enjoin

the Neztsosies from pursuing their claims in tribal court.                  The

district court denied the injunctions under the tribal exhaustion

doctrine except to the extent that the claims fell under the Price-

Anderson Act,15 but allowed the tribal court to determine in the

first instance whether the claims fell under Price-Anderson.                The

Ninth Circuit modified the order to permit the Tribal Court to

resolve all issues.

      13
       Id., citing Montana v. U.S., 450 U.S. 544, 565-66 (1981).
Although tribes usually do not have jurisdiction over non-Indians
for activities off the reservation or Indian-fee land, Montana
noted several exceptions. As a threshold inquiry under the tribal
exhaustion doctrine, we must determine whether the tribal court’s
jurisdiction is explicitly limited.    Montana limits it in many
situations. One of its exceptions, however, applies here: “A tribe
may regulate, through taxation, licensing, or other means, the
activities of nonmembers who enter into consensual relationships
with the tribe or its members, through commercial dealing,
contracts, leases, or other arrangements.” Montana at 565; see
also TTEA v. Ysleta del Sur Pueblo, 181 F.3d 676, 684 (5th Cir.
1999).
      14
           526 U.S. 473 (1999).
      15
           42 U.S.C. § 2210.

                                         8
     The Supreme Court reversed as to the claims under the Price-

Anderson Act and concluded that petitioners were not entitled to

pursue their Price-Anderson Act claims in Tribal Court.   The Court

found that the case differed from National Farmers and Iowa Mutual

because “[b]y its unusual preemption provision,

     the Price-Anderson Act transforms into a federal action
     "any public liability action arising out of or resulting
     from a nuclear incident[.]" The Act not only gives a
     district court original jurisdiction over such a claim
     but provides for removal to a federal court as of right
     if a putative Price-Anderson action is brought in a state
     court. Congress thus expressed an unmistakable preference
     for a federal forum, at the behest of the defending
     party, both for litigating a Price-Anderson claim on the
     merits and for determining whether a claim falls under
     Price-Anderson when removal is contested.16

Given the preemptive scope of the Price-Anderson Act, the Court

held that “[a]ny generalized sense of comity toward nonfederal

courts is obviously displaced by the provisions for preemption and

removal from state courts, which are thus accorded neither jot nor

tittle of deference.”17     Accordingly, the Court found that “the

comity rationale for tribal exhaustion normally appropriate to a

tribal court’s determination of its jurisdiction stops short of the

Price-Anderson Act.”18

     Bank One contends that this decision significantly altered the

legal landscape by severely restricting the tribal exhaustion

     16
          Id. at 484 (internal citations omitted).
     17
          Id. at 485-86.
     18
          Neztsosie, 526 U.S. at 487.

                                   9
doctrine.       We disagree.      The Supreme Court noted in Neztsosie that

its ruling does not say

       that the existence of a federal preemption defense in the
       more usual sense would affect the logic of tribal
       exhaustion. Under normal circumstances, tribal courts,
       like state courts, can and do decide questions of federal
       law, and there is no reason to think that questions of
       federal preemption are any different. The situation here
       is the rare one in which statutory provisions for
       conversion of state claims to federal ones and removal to
       federal courts express congressional preference for a
       federal forum.19

       Neztsosie therefore teaches that a federal court need not stay

its hand pending tribal court adjudication under the Price-Anderson

Act.        This brings us to the question we must decide: Does the FAA

have the pre-emptive force of the Price-Anderson Act, thereby

displacing comity considerations underlying the tribal exhaustion

doctrine?

       Although       the   FAA   reflects       a   strong   policy    favoring   the

enforcement of arbitration clauses,20 unlike the Price-Anderson Act,

the    FAA     does   not    provide   an    independent       ground    of   federal

jurisdiction.         To sue in federal court to enforce an arbitration

claim, a petitioner must demonstrate the existence of federal

       19
            Id. at 485 n.7 (internal citation omitted).
       20
      See, e.g., Grigson v. Creative Artists Agency, 210 F.3d 524,
526 (5th Cir. 2000) (“Arbitration is favored in the law.”), citing
Moses H. Cone Memorial Hospital v. Mercury Construction, 460 U.S.
1, 24-25 (1983).

                                            10
subject matter jurisdiction on the underlying contract claim.21               As

a result, suits to compel arbitration may only be brought in

federal court if diversity of citizenship or a federal question

exists.22

      Also, federal substantive law under the FAA only applies to

contracts involving three types of transactions: (1) transactions

in interstate commerce, (2) transactions in foreign commerce, or

(3)   maritime       transactions.     Otherwise    state      substantive   law

applies.23 Even if FAA substantive law applies, federal courts must

still use state contract law to fill the gaps not covered by

federal     law.24      If   a   plaintiff   can   find   no   subject   matter

jurisdiction in federal court to enforce his right to arbitrate

      21
        “A party aggrieved ... may petition any United States
district court which, save for such agreement, would have
jurisdiction under Title 28, in a civil action or in admiralty of
the subject matter of a suit arising out of the controversy between
the parties, for an order directing that such arbitration proceed
in the manner provided for in such agreement.” 9 U.S.C. § 4.
      22
       Diversity of citizenship is the most common basis of
jurisdiction. See Wright & Miller, 13B FEDERAL PRACTICE AND PROCEDURE
172 (1984).
      23
           9 U.S.C. § 2.
      24
       See Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681
(1996) (state contract law and defenses); Volt Information
Sciences, Inc. v. Board of Trustees of Leland Stanford Junior
University, 489 U.S. 468 (1989) (state procedural rules). In the
application of state law, however, “due regard must be given to the
federal policy favoring arbitration, and ambiguities as to the
scope of the arbitration clause itself must be resolved in favor of
arbitration.” Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th
Cir. 1996), quoting Volt, 489 U.S. at 488.

                                        11
under the FAA, he must rely on the state court to enforce these

rights.25   The Supreme Court commented on this arrangement in Moses

H. Cone Memorial Hosp. v. Mercury Const. Corp.:

     The Arbitration Act is something of an anomaly in the
     field of federal-court jurisdiction. It creates a body of
     federal substantive law establishing and regulating the
     duty to honor an agreement to arbitrate, yet it does not
     create any independent federal-question jurisdiction....
     Section 4 provides for an order compelling arbitration
     only when the federal district court would have
     jurisdiction over a suit on the underlying dispute....
     [A]lthough enforcement of the Act is left in large part
     to the state courts, it nevertheless represents federal
     policy to be vindicated by the federal courts where
     otherwise appropriate.26

     The FAA may be further distinguished from Price-Anderson

because, as Neztsosie observes, Price-Anderson provides for a

federal forum to decide the merits of a controversy, whereas under

the FAA, the merits will be decided by arbitration.

     In sum, while the FAA does reflect a policy strongly favoring

the enforcement of arbitration clauses, it does not reflect a

congressional intent for federal courts to occupy the entire field

of arbitration law.27

     After examining the two statutes, we agree with the district

     25
       Commercial Metals Co. v. Balfour, Guthrie, & Co., 577 F.2d
264, 269 (5th Cir. 1978) (“It is clear that the state courts are
entirely able, as well as required, to apply the United States
Arbitration Act and compel arbitration pursuant to the Act if the
statutory requisites are present.”)
     26
       460 U.S. 1, 26 n. 32, 103 S. Ct. 927, 942 n. 32 (1983)
(internal citations omitted).
     27
          See Volt, 489 U.S. 468.

                                    12
court that

     Congress has not expressed an intent to provide a federal
     forum for all suits to compel arbitration, but has
     instead extended a federal forum only to those suits for
     which there is otherwise an independent basis for federal
     jurisdiction; the FAA itself confers no jurisdiction on
     the federal courts.... In this case, then, in contrast
     to the “rare” situation presented in Neztsosie, Bank One
     would have no “right” to a federal forum in the absence
     of diversity jurisdiction.... Here the jurisdictional
     basis for Bank One’s complaint is not the FAA at all, but
     diversity of citizenship jurisdiction, which alone is not
     a sufficient basis to override the federal policy of
     deference to tribal courts.

                                        C.

     Bank One also argues that courts must apply the abstention

principles included in Colorado River28 when considering tribal

exhaustion.     We disagree.    The tribal exhaustion doctrine is in no

way based      on   Colorado   River.   Iowa   Mutual’s   reference   to   the

Colorado River doctrine as another comity-based abstention doctrine

does not suggest that the Colorado River principles apply to a

tribal      exhaustion    case.29       The    district   court   correctly

distinguished the two abstention doctrines, on the ground that the

Colorado River doctrine “proceeds from the premise that ‘the

federal courts have a “virtually unflagging obligation ... to

exercise the jurisdiction given them”’ and that therefore, the

pendency of litigation in state court is not a bar to proceedings

     28
      Colorado River Water Conservation District v. U.S., 424 U.S.
800, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976).
     29
          See Iowa Mutual, 480 U.S. at 16 n.8.

                                        13
in federal court involving the same subject matter in the absence

of "exceptional circumstances."30 The policy which animates the

tribal exhaustion doctrine, however, “subordinates the federal

court's obligation to exercise its jurisdiction to the greater

policy of promoting tribal self-government.”31                     Colorado River

abstention is thus the exception to the rule, whereas tribal

exhaustion is the rule rather than the exception.                      The latter is

the appropriate doctrine to apply here.

                                          IV.

                                          A.

      Relying on C&L Enterprises, Inc. v. Citizen Band Potawatomi

Indian      Tribe    of   Oklahoma,32    Bank    One    also   contends     that   the

arbitration         clause   waives     tribal    exhaustion.          In   C&L,   the

Potawatomi Indian Tribe contracted with C&L to install a roof on a

building owned by the Tribe off the reservation.                   The contract at

issue in the case included an arbitration clause and a choice of

law clause.         When the Tribe decided to change the roofing material

and sought new bids, C&L submitted an arbitration demand claiming

that the Tribe had breached the contract.                      The Tribe asserted

sovereign immunity and refused to participate in the arbitration.

The   arbitrator          awarded   damages      to    C&L,    which    then   sought

      30
           Bank One, 144 F. Supp. 2d at 649.
      31
           Id.
      32
           532 U.S. 411, 121 S. Ct. 1589 (2001).

                                          14
enforcement in state court. The tribe asserted its immunity again.

The state court denied the motion and confirmed the award and the

state appellate court affirmed.

      The Supreme Court vacated and remanded the case to the state

court.       The Court held that when a tribe consents to dispute

resolution by arbitration, it waives its sovereign immunity.33

      Bank One argues that if a tribe, by agreeing to an arbitration

clause waives sovereign immunity, such an agreement must also waive

tribal exhaustion.       We need not decide this issue because in the

instant case the Tribe was not a party to the contract.                    The

litigation in C&L involved a contract between a bank and a tribe,

rather than a contract between a bank and individual members of a

tribe.      We decline to extend C&L to contracts between commercial

entities and individual tribe members which would have the effect

of   allowing     individual   members    of   a   tribe   to   waive   tribal

exhaustion.

                                    B.

      Bank One further argues that decisions by other circuits that

find forum selection clauses to waive tribal exhaustion should

extend to arbitration clauses.34          The arbitration clause at issue

      33
           Id. at 1594-95.
      34
      See, e.g., Altheimer & Gray v. Sioux Mfg. Corp., 983 F.2d 803
(7th Cir. 1993); F.G.S. Constructors, Inc. v. Carlow, 64 F.3d 1230
(8th Cir. 1995). For the opposite approach, see, e.g., Ninigret
Dev. Corp. v. Narragansett Indian Wetuomuck Housing Auth., 207 F.3d
21, 33 (1st Cir.2000); Basil Cook Enterprises, Inc. v. St. Regis

                                     15
in this case does not select a judicial forum for resolution of

disputes. An arbitration clause that attempts to foreclose any and

all access to courts bears little resemblance to a forum selection

clause, and the cases appellant relies upon have no application to

this case.

                               V.

     For the reasons stated above, the district court’s order

dismissing Bank One’s suit to compel arbitration for failure to

exhaust tribal remedies is

     AFFIRMED.

Mohawk Tribe, 117 F.3d 61 (2nd Cir. 1997). Altheimer & Gray may be
distinguishable from the instant case at least insofar as its
decision that tribal exhaustion was not necessary was based on the
lack of a pending tribal action or a challenge to tribal court
jurisdiction. See, Altheimer & Gray, 983 F.2d at 814.

                                16