Court Opinion

ID: 9599664
Source: CourtListenerOpinion
Date Created: 2023-08-22 01:20:34.970183+00
Date Added: 2024-06-11T09:02:16.632247
License: Public Domain

ROSSMAN, J.,
dissenting.
Because I am troubled by the ease with which the majority holds that the semi-sovereign Indian tribes of the Warm Springs Reservation have contracted to be governed by a complex Oregon law which thoroughly defeats the tribes’ goals, I dissent.1 My difficulties with holding that the tribes consciously chose that the Oregon Insurance Code should govern their contract are of two sorts. First, I believe that the holding fails to take proper account of Indian law principles and denigrates the tribes’ sovereignty. Second, I think the majority’s conclusion that the parties executed a choice-of-law provision is strained and illogical.
Because the insurance policy was issued in Warm Springs2 to a federally recognized Indian tribe, this case was remanded for the express and limited purpose of applying Indian Law principles. In its haste to affirm the dismissal of plaintiff s claims, the majority virtually ignores that fact and *433adopts a rationale which is contrary to established legal principles and unsupported by the record. An analysis of Indian law principles is essential to resolve this case properly and to comply with the Supreme Court’s mandate.
Under federal Indian law, the Warm Springs tribes, like other federally recognized tribes, are a distinct community. Although their reservation is within the exterior boundaries of Oregon, it is not fully part of the state. The tribes occupy their own territory, within particular boundaries, in which the laws of Oregon have no force, and into which the citizens of Oregon have no right to enter, except with the assent of the Indians themselves, or in conformity with treaties and acts of Congress. See McClanahan v. Arizona Tax Comm’n, 411 US 164, 168-69, 93 S Ct 1257, 36 L Ed 2d 129 (1973). Indian tribes were once fully sovereign, and they still retain a semi-sovereignty. Their claims to sovereignty predate that of our own government. The federal government has acquired a broad constitutional power over Indian affairs, often described as plenary. Cohen, Handbook of Federal Indian Laws 207 (1982 ed). Yet, there still exists a deeply rooted, longstanding policy of leaving Indians free from state jurisdiction and control; although the federal government may limit tribal sovereignty, the states on their own may not do so. McClanahan v. Arizona Tax Comm’n, supra; Worcester v. Georgia, 31 US (6 Pet) 515, 8 L Ed 483 (1832); see also Cohen, supra, at 232-35. As the Supreme Court has stated:
“[Indian tribes] were and always have been regarded as having a semi-independent position when they preserved their tribal relations; not as states, not as nations, not as possessed of the full attributes of sovereignty, but as a separate people, with the power of regulating their internal and social relations and thus far not brought under the laws of the Union or of the State within whose limits they reside.” United States v. Kagama, 118 US 375, 381-82,6 S Ct 1109, 30 LEd 228 (1886).
In Washington v. Yakima Indian Nation, 439 US 463, 470, 99 S Ct 740, 58 L Ed 2d 740 (1979), the court stated a basic principle:
“* * * [S]tate law reaches within the exterior boundaries of an Indian reservation only if it would not ‘infringe on the right of reservation Indians to make their own laws and be ruled by *434them.’ Williams v. Lee, 358 US 217, 219-20, 3 L Ed 2d 251, 79 S Ct 269. * * *”
The rights of reservation tribes include “the sovereign power of determining the conditions upon which persons shall be permitted to enter [their] domain, to reside therein and to do business.” 55 Interior Decisions 14, 50 (1934); Cohen, supra, at 254. Because the state may protect its interests only “up to the point where tribal self-government would be affected,” McClanahan v. Arizona Tax Comm’n, supra, 411 US at 179, tribal power would appear to exclude state power to regulate a contract with a tribal entity entered into on a reservation. Furthermore, state laws generally do not apply on a reservation, except as expressly provided by Congress. McClanahan v. Arizona Tax Comm’n, supra, 411 US at 171.
The state’s inability to impose its regulatory power on the reservation has been recognized by the Oregon Attorney General as to the Workers’ Compensation Board and the Mental Health Division. 41 Op Att’y Gen 48 (1980); 40 Op Att’y Gen 31 (1979); 37 Op Att’y Gen 412 (1975). That inability is a natural consequence of Congress’ express decision to exempt the Warm Springs reservation from its grant of civil jurisdiction to the states in Public Law 280, 28 USC § 1360(a).
Federal preemption principles also disfavor the application of state regulations to contracts made on a reservation with Indians. Areas that have been fully occupied by federal law and are relevant to this transaction include regulation of federally financed tribal enterprises, control of economic development on the reservation, trading by non-Indians with Indians on the reservation, the management of Indian timber resources, and business contracts entered into on the reservation. New Mexico v. Mescalero Apache Tribe, 462 US 324, 103 S Ct 2378, 76 L Ed 2d 611 (1983); Ramah Navajo School Bd. v. Bureau of Revenue, 458 US 832, 844, 102 S Ct 3394, 73 L Ed 2d 1174 (1982); Merrion v. Jicarilla Apache Tribe, 455 US 130, 137, 102 S Ct 894, 71 L Ed 2d 21 (1982); Central Machinery Co. v. Arizona Tax Comm’n, 448 US 160, 164-65, 100 S Ct 2592, 65 L Ed 2d 684 (1980); White Mountain Apache Tribe v. Bracker, 448 US 136, 145-49, 100 S Ct 2578, 65 L Ed 2d 665 (1980); Warren Trading Post v. Arizona Tax Com., 380 US 685, 690, 691 n 18, 85 S Ct 1242, 14 L Ed 2d 165 (1965). *435Federal law specifically preempts any state action which would burden a tribal enterprise operating in an area covered by federal law. Federal law covers the operation of a tribal timber enterprise. Ramah Navajo School Bd. v. Bureau of Revenue, supra, 458 US at 838-39; White Mountain Apache Tribe v. Bracker, supra, 448 US at 145, 148.
The Bureau of Indian Affairs’ regulations comprehensively cover the field of Indian timber harvesting, and the Bureau must approve all contracts entered into by tribal timber industries. White Mountain Apache Tribe v. Bracker, supra, 448 US at 147. In White Mountain, the United States Supreme Court noted that federal agents “in reviewing or writing the terms of the contracts” entered into by the tribal industry “must predict the amount and determine the proper allocation of all business expenses, including fuel costs. The assessment of state taxes would throw additional factors into the federal calculus, reducing tribal revenues and diminishing the profitability of the enterprise for potential contractors.” 448 US at 149. Here, the application of state regulation would impose a similar burden. Because the tribe and federal agencies would not be able to rely on the terms of agreements made with non-Indians, they would be subject to changes in plaintiffs rights by the application of Oregon regulations. When that is the case, the burden on a tribal enterprise is not permitted. Ramah Navajo School Bd. v. Bureau of Revenue, supra (state not allowed to impose transaction tax on gross receipts of non-Indian contractor which built school for tribe); White Mountain Apache Tribe v. Bracker, supra (non-Indian corporation hauling timber under contract with tribal enterprise on reservation may not be burdened by state motor carrier license tax or fuel tax); Central Machinery Co. v. Arizona Tax Comm’n, supra (non-Indian corporation which sold tractors to tribal enterprise on reservation could not be burdened with state transaction tax).
In each of those cases a corporation based in the state which sought to impose its tax or regulation was freed from that burden, because the incidence of the burden would fall upon the tribe or tribal agency. In this matter, the burden of losing the benefit of the alleged rebate agreement would be on the tribal agency itself. The connection to the tribes’ sovereignty and ability to govern themselves is thus much closer *436in this case than in the others. It would violate that sovereignty for Oregon to impose its insurance regulatory statues on a tribal contract made on the reservation. In view of federally mandated tribal power to regulate business transactions on the reservation, the state’s inability to extend its regulations into the reservation, and federal preemption in areas governing this contract, Oregon’s Insurance Code may not apply to this transaction without the tribe’s consent.
Federal Indian law also requires states to allow Indian plaintiffs access to state courts to sue non-Indian defendants without giving up the peculiarly Indian law nature of their claims. Bryan v. Itasca County, 426 US 373, 384, 389, 96 S Ct 2102, 48 L Ed 2d 710 (1976); Williams v. Lee, 358 US 217, 219-20, 79 S Ct 269, 3 L Ed 2d 251 (1959). That is so because of limitations of procedure and remedy in tribal courts and because the public policy of a state may not be the public policy of the reservation.
Based on this wealth of irrefutable authority, I believe, beyond any doubt, that the law of the Warm Springs Reservation and not that of Oregon must govern the transaction entered into between plaintiff and defendant. I accept that, in almost any business transaction, the parties can contractually agree that some other law will govern a part of their relationship. It is undisputed that the parties contracted to have Oregon workers’ compensation law apply. However, EBI does not claim in its brief that the tribes chose Oregon insurance law; that argument suddenly appears for the first time in the majority opinion. The provisions which the majority cites in support of that proposition are such slender reeds that they break in the process of examining them. The majority first quotes Condition 1 of the policy:
“[I]f any change in classifications, or rating plans is or becomes applicable to this policy under any law regulating this insurance or because of any amendments effecting [sic] the benefits provided by the Workmen’s Compensation Law, such change with the effective date thereof shall be stated in an endorsement issued to form a part of this policy.” (Emphasis supplied by the majority.)
The references in that provision to “any law regulating this insurance” are not a statement that there is any such law. They could refer to a future insurance code which the tribes *437might adopt as easily as to the present, but otherwise inapplicable, Oregon code. Nothing in this provision can be a decision by the tribe that the Oregon Insurance Code applies to the policy.
The majority then reads the following endorsement to the policy as an indication that Condition 1 of the policy adopts the Oregon Insurance Code:

“PARTICIPATING PROVISION

“IT IS AGREED THAT THE PARTICIPATING PROVISION OF THE CONDITIONS OF THIS POLICY ARE [sic] HEREBY AMENDED TO READ AS FOLLOWS:
“EXCEPT AS PROVIDED, THIS POLICY SHALL PARTICIPATE IN PROFITS AS APPORTIONED BY THE BOARD OF DIRECTORS.
“IT IS UNLAWFUL IN OREGON FOR AN INSURER TO PROMISE TO PAY POLICYHOLDER DIVIDENDS FOR ANY UNEXPIRED PORTION OF THE POLICY TERM OR TO MISREPRESENT THE CONDITONS FOR DIVIDEND PAYMENTS. DIVIDENDS WILL BE DUE AND PAYABLE ONLY FOR A POLICY PERIOD THAT HAS EXPIRED, AND ONLY IF DECLARED BY AND UNDER CONDITIONS PRESCRIBED BY THE BOARD OF DIRECTORS OF THE INSURER.” (Emphasis supplied by the majority.)
This endorsement discusses policy dividends from general company profits, not rebates on policy premiums such as those at issue here. Even if it does apply to such rebates, it merely gives information about Oregon law; it does not make that law applicable when it would not otherwise be so. The information could just as well have been about the insurance codes of California, New Jersey or British Columbia. These provisions do not adopt any law for the purposes of the contract. The majority has strained mightily to make them do so but has produced only a terminally ill mouse. It should not make so weak an animal to carry so heavy a load.
The majority’s conclusion that the parties chose Oregon law also contradicts traditional conflict of laws principles. Under section 187 of Restatement (Second) Conflict of Laws, the law of the jurisdiction chosen by the parties to govern their contractual rights will generally be applied. *438However, there are exceptions to the general rule. Comment b to section 187 explains:
“A choice-of-law provision, like any other contractual provision, will not be given effect if the consent of one of the parties to its inclusion in the contract was obtained by improper means, such as by misrepresentation, duress, or undue influence, or by mistake. Whether such consent was in fact obtained y improper means or by mistake will be determined by the forum in accordance with its own legal principles. * * *”
Many insurers offer workers’ compensation coverage. Presumably, very few offer rebates. Plaintiff has alleged that it materially relied on the promise of a rebate when it entered into the contract. It seems inconceivable that plaintiff would have voluntarily chosen also to execute a choice-of-law agreement which invalidated what was arguably the only reason defendant was chosen as its insurance provider. Moreover, defendant’s failure to argue that the parties chose Oregon law is strong evidence that no choice was intended. After all, why would defendant have failed in its motions, appellate brief and petition for review to point out the existence of a choice-of-law provision? The only logical explanation is that the parties never intended to include such a provision. On this record, we cannot tell how or whether consent to the supposed choice-of-law provisions was obtained. Those issues deserve full attention before plaintiff’s suit can be summarily dismissed.
In addition, comment e to section 187 provides a corollary to the rule.
“On occasion, the parties may choose a law that would declare the contract invalid. In such situations, the chosen law will not be applied by reason of the parties’ choice. To do so would defeat the expectations of the parties which it is the purpose of the present rule to protect. The parties can be assumed to have intended that the provisions of the contract would be binding upon them (cf. § 188, Comment b). If the parties have chosen a law that would invalidate the contract, it can be assumed that they did so by mistake. If, however, the chosen law is that of the state of the otherwise applicable law under the rule of § 188, this law will be applied even when it invalidates the contract. Such application will be by reason of the rule of § 188, and not by reason of the fact that this was the law chosen by the parties.”
*439Oregon law is not the law that would apply in the absence of a choice of law by the parties. Therefore, if application of Oregon law invalidates the contract, it can be assumed that it was chosen erroneously. Arguably, invalidating the rebate agreement does not invalidate the entire contract, but the rebate agreement is a separate side agreement and is, in effect, a discrete contract. The purported choice-of-law provision relates only to that side agreement and totally invalidates it. In the process, it completely defeats plaintiffs expectation of receiving a rebate. Accordingly, we should not apply Oregon law.
Perhaps recognizing the weakness of its conclusion that the contract expressly chooses Oregon law, the majority attempts to buttress its holding:
“Our conclusion is reinforced by other facts surrounding the contract. Because of its semi-sovereign status and its control over economic activity on its reservation, * * * and because the state has no regulatory control over the reservation, * * * the tribe was not required to procure workers’ compensation insurance for its enterprises within the reservation. However, the tribe did choose to be insured within the framework of Oregon’s Workers’ Compensation system to compensate its injured workers, and chose an Oregon-qualified insurance company to provide that protection. Because the policy incorporates Oregon Workers’ Compensation Law, it is heavily dependent on Oregon law for its administration and enforcement. Indeed, a significant portion of its performance must take place in Oregon.
* * * *
“Given the interdependence of the policy provisions, the Oregon Workers’ Compensation statutes and the anti-rebate provisions of the Oregon Insurance Code, we perceive no basis for applying foreign law to a small portion of the parties’ contract without some express indication that that was intended, especially when the anti-rebate principle is expressly referred to in the policy. Also, having availed itself of the Oregon workers’ compensation system, one element of which is the increased security and solvency of insurance companies intended to be assured by the insurance code provisions at issue, the tribal agency may not now pick and choose between various benefits offered by the Oregon workers’ compensation system. Presumably, plaintiff has benefited from the increased likelihood of solvency provided by the Oregon statutes.” (Footnotes omitted.) 74 Or App at 428-29.
*440The majority’s reasoning is fundamentally flawed. It vastly overemphasizes the significance of the tribe’s decision to provide workers’ compensation coverage under the Oregon workers’ compensation system. It also looses track of our initial starting point in this case when it suggests that the law of Warm Springs is “foreign law.”
The majority is correct that the parties expressly agreed, as a term of their contract, that coverage under the policy would be pursuant to and in compliance with Oregon workers’ compensation law.3 That choice is not difficult to understand. Rather than set up its own system to cover a relatively small number of workers, the tribes decided to avail themselves of an existing system. Theoretically, they could have chosen Idaho, California or Hawaii; they chose Oregon, presumably because it was convenient. The express choice of Oregon workers’ compensation law bound the tribes contractually to the letter of that law. For example, they would be hard pressed to argue that an injury which is not compensable under Oregon law should be covered under the contract. Similarly, if defendant failed to honor a claim which is clearly valid under Oregon workers’ compensation law, it would be in breach of contract but the breach would be under Warm Springs law for failing to comply, as it had agreed to, with the chosen workers’ compensation law.
In other words, virtually every aspect of the transaction, including offer, acceptance, adequacy of the consideration, breach and any contractual defenses, is governed by Warm Springs law. Whether a particular injury is compensable would be decided in accordance with the Oregon workers’ compensation system, but only because the parties so agreed under Warm Springs law. The adoption of Oregon workers’ compensation law is not an adoption of all other Oregon laws which might regulate EBI’s activities in some fashion and *441thus tangentially affect its performance under the contract. The adoption of Oregon workers’ compensation law was necessary to achieve the tribes’ purposes; the adoption of the Oregon insurance code was not.
Although we should not hold that this agreement contains a choice-of-law provision even if it were an agreement between two private parties, the tribes’ semi-sovereign status provides an additional basis for questioning the majority’s result. The majority holds, in effect, that by two ambiguous provisions the semi-sovereign tribes have adopted a complex insurance code as the law of the Warm Springs Reservation for at least some significant aspects of the reservation’s functioning. It necessarily holds that the tribes did so without going through the normal tribal law-making procedures. We should hesitate long before undercutting tribal self-government in this fashion.
The situation is analogous to those where federal treaties and statutes have been advanced as placing limits on tribal sovereignty. Before holding that treaties or statutes limit tribal powers, courts have insisted on a clear and specific expression of congressional intent to extinguish sovereignty. See, e.g., Santa Clara Pueblo v. Martinez, 436 US 49, 98 S Ct 1670, 56 L Ed 2d 106 (1978); Bryan v. Itasca County, supra. Treaties and statutes have been consistently construed to reserve the right of self-government to the tribes, and the Supreme Court has held that this “tradition of sovereignty” is the “backdrop against which the applicable treaties and federal statutes must be read.” McClanahan v. Arizona Tax Comm’n, supra, 411 US at 172-73.
The rule of strict construction has also been applied to- nullify a tribe’s attempt to waive its own sovereignty. In Kennerly v. District Court of Montana, 400 US 423, 91 S Ct 480, 27 L Ed 2d 507 (1971), the Supreme Court refused to find that the Blackfeet Tribe had waived its right to exclusive jurisdiction over civil matters arising on the reservation, even though the tribal council had adopted a resolution vesting concurrent jurisdiction in the Montana state courts. 400 US at 425. The tribal council’s attempt fell short, because it failed to submit the matter to a general election within the reservation. 400 US at 429.
Although Kennerly is factually distinguishable from *442this case, it is a vivid application of the general rule requiring strict scrutiny of both tribal and congressional attempts to limit tribal sovereignty. Because defendant drafted the contract and because the alleged choice-of-law provision would divest some of the tribes’ sovereignty, that provision must be subjected to the same kind of scrutiny. As the foregoing discussion indicates, it cannot withstand that type of review.
The only case which the majority cites in support of finding tribal consent to state regulation of an individual activity is Inecon Agricorporation v. Tribal Farms, Inc., 656 F2d 498 (9th Cir 1981). Inecon is so different from this case that it has little significance. The issue there was not tribal consent to state jurisdiction but whether a contract was valid without Interior Department approval. The entity being sued was not the tribe itself but a tribally-owned corporation, organized under Arizona law at the insistence of lenders who wanted a borrower subject to state and federal court jurisdiction. The Warm Springs Forest Products Industries is not an Oregon corporation, it is an agency of the tribes created under Warm Springs law. There is no indication that any lender or other entity insisted that it give up its sovereign immunity from suit in Oregon courts. Inecon is at best weak authority for the proposition that the tribes may consent by contract rather than by tribal vote to have their activities as sovereigns regulated by the state.
Lastly, the majority apparently assumes that, if the parties executed a choice-of-law provision adopting Oregon law, then plaintiff must necessarily lose on its fraud claim as well. That would appear to be the holding in Mountain Fir Lbr Co. v. EBI Co., 296 Or 639, 679 P2d 296 (1984). The plaintiff there could not maintain a fraud action because “one does not have the right to rely on a promise made in violation of a statute.” 296 Or at 646. However, that holding is not necessarily binding here. The only reason a rebate would be illegal in this case would be if the parties executed a choice-of-law provision adopting Oregon law. If that choice was intentional, plaintiff obviously cannot circumvent the effect of the choice by suing in fraud. However, if that decision to enter into the choice-of-law provision was induced by fraud, then the Mountain Fir holding is inapposite. Because the notion of a choice of law has not previously been raised, plaintiff had no reason *443to allege fraud in the inducement. If the majority position prevails, plaintiff should be given that opportunity now.
In summary, I disagree with the majority’s conclusion that two provisions in the contract constitute a choice of law as a matter of law. The provisions are ambiguous at best, and the circumstances under which they were executed are virtually unknown. A choice-of-law provision must be entered into deliberately and voluntarily. Because no one has raised the possibility of a choice of law until now, plaintiff has never had any reason or opportunity to present its version of what the provisions mean and how they became a part of thé contract. Given the strict scrutiny to which any waiver of tribal sovereignty must be subjected, the availability of that opportunity is absolutely vital.4
For all of these reasons, I would reverse.
Warden, J., joins in this dissent.

My trouble with the majority approach is all the greater, given the apparently reprehensible nature of defendant’s conduct in this case. I concede that the Supreme Court has decided that defendant is not liable to anyone under Oregon Law. Nevertheless, I am disturbed by defendant’s conduct, the full extent of which becomes apparent from a perusal of its appellate brief. In support of the trial court’s dismissal of this case, defendant points to 26 other cases cited in the appendix (by trial court numbers), all of which held that illegal contracts are unenforceable. Defendant had no trouble finding those cases inasmuch as in every one it was being sued to enforce a rebate agreement.

The majority claims that the policy was issued in Oregon, 74 Or App at 427. That is simply not true. Plaintiff received and relied on defendant’s representations at Warm Springs. Defendant’s original letter offering insurance coverage was sent from California to the reservation. Later proposals were also made to plaintiff on the reservation. In July, 1976, plaintiff formally agreed to purchase insurance from defendant and it appears that the final decision was made by the tribal council at Warm Springs. Finally, the contract was executed at Warm Springs, although it was later countersigned in Portland.

The majority would be well advised to examine the workers’ compensation choice-of-law provision for an example of what an express choice of law looks like. It is contained in the definitions section of the policy and provides:
“[III](a) The unqualified term ‘workmen’s compensation law’ means the workmen’s compensation law and any occupational disease law of a state designated in Item 3 of the declarations, but does not include those provisions of any such law which provide non-occupational disability benefits.”
In Item 3 of the declarations, Oregon is designated.

Because one of plaintiffs facilities is located off the reservation, the majority summarily concludes that, if plaintiff were to prevail, we would have to apportion the rebate. Although I would not concede the point, I do not respond to it here. Like the choice-of-law provision, the apportionment argument has never been raised by the parties. If it ever is, we would, of course, be obliged to address it, not before.