Rincon Band of Luiseno Mission Indians v. California

Filed 10/1/07 Rincon Band of Luiseno Mission Indians v. California CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

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Plaintiff, Rincon Band of Luiseno Mission Indians of the Rincon Reservation (Rincon), appeals from a judgment of dismissal following an order sustaining without leave to amend the demurrers of defendants State of California (the State), the California Gambling Control Commission (the Commission), Governor Arnold Schwarzenegger, and former Attorney General William Lockyer. The complaint alleges breach of a compact between the State and Rincon and seeks an award of monetary damages. The trial court sustained the demurrers on the ground of sovereign immunity.

Rincon contends on appeal that the State waived sovereign immunity. We do not resolve that issue. Instead, we conclude the demurrers should have been sustained for a more fundamental reason--the complaint fails to state a claim for breach of contract. We therefore affirm the judgment of dismissal.

Legal Background

California has a long history of prohibiting or regulating gambling within its borders. (See generally Hotel Employees & Restaurant Employees Internat. Union v. Davis (1999) 21 Cal.4th 585, 591-594 (Hotel Employees).) In 1984, the people of the State added article IV, section 19, subdivision (e), to the State Constitution. It reads: The Legislature has no power to authorize, and shall prohibit, casinos of the type currently operating in Nevada and New Jersey.

However, in 1987, the United States Supreme Court ruled in California v. Cabazon Band of Mission Indians (1987) 480 U.S. 202, 211-212 [94 L.Ed.2d 244, 256], that the State cannot regulate gambling activities on Indian reservations. The following year, Congress enacted the Indian Gaming Regulatory Act (IGRA) (25 U.S.C.  2701 et seq. and 18 U.S.C.  1166 et seq.) to provide a statutory basis for the operation of gaming by Indian tribes as a means of promoting tribal economic development, self-sufficiency, and strong tribal governments (25 U.S.C.  2702(1)) while also providing a basis for regulating Indian gaming. (25 U.S.C.  2702(1),(2).)

The IGRA divides gaming into three categories. Class I covers social games solely for prizes of minimal value or traditional forms of Indian gaming engaged in by individuals as a part of, or in connection with, tribal ceremonies or celebrations. (25 U.S.C.  2703(6).) Class II includes (i) the game of chance commonly known as bingo and (ii) card games authorized by the State if played in conformity with state law regarding hours and limitations on pot size. (25 U.S.C.  2703(7)(A).) Specifically excluded from class II are (i) any banking card games, including baccarat, chemin de fer, or blackjack (21) and (ii) electronic or electromechanical facsimiles of any game of chance or slot machines or any kind. (25 U.S.C.  2703(7)(B).) Class III gaming includes all other forms not included in classes I or II. (25 U.S.C.  2703(8).)

Under the IGRA, class I gaming is regulated by tribal action alone, class II gaming is regulated by federal and tribal participation, and class III gaming is regulated through state-tribal compacts and federal oversight. (25 U.S.C.  2710.) The IGRA describes the process by which an Indian tribe and the State may negotiate toward a tribal-state compact. The tribe must first request negotiations and, upon receipt of such request, the State must negotiate in good faith. (25 U.S.C.  2710(d)(3)(A).) Any compact entered into will not take effect until approved by the Secretary of the Interior. (25 U.S.C.  2710(d)(3)(B).)

Following enactment of the IGRA, several conflicts arose between the State and Indian tribes regarding class III gaming. (Hotel Employees, supra, 21 Cal.4th at pp. 596-597.) In 1998, the people of the State approved a ballot initiative, designated Proposition 5, purporting to authorize various forms of gaming in tribal casinos. (Id. at p. 589.) Proposition 5 added a single title to the Government Code, title 16, and a single chapter within that title, chapter 1, The Tribal Government Gaming and Economic Self-Sufficiency Act of 1998, composed of sections 98000 through 98012. (Hotel Employees, supra, 21 Cal.4th at p. 598.)

The following year, the State Supreme Court struck down nearly all of Proposition 5. In Hotel Employees, supra, 21 Cal.4th 585, the court concluded the statutory authorization of gaming in tribal casinos conflicts with the prohibition against Nevada and New Jersey style casinos contained in article IV, section 19, subdivision (e), of the State Constitution. (Id. at p. 589.)

Facts and Proceedings

Because this is an appeal from a judgment of dismissal following an order sustaining demurrers, we summarize and accept as true all material factual allegations of the complaint. (Hensler v. City of Glendale (1994) 8 Cal.4th 1, 8, fn. 3; Shoemaker v. Myers (1990) 52 Cal.3d 1, 7.)

Rincon is a federally recognized Indian tribe with gaming facilities located in San Diego County.

Immediately following the State Supreme Courts decision in Hotel Employees, supra, 21 Cal.4th 585, then Governor Gray Davis summoned several interested gaming tribes to Sacramento to negotiate compacts. Over the next three weeks, several draft compacts were submitted to the tribes, but no formal negotiations occurred. On September 9, 1999, Governor Daviss representatives delivered a form compact to the Tribal representatives present in Sacramento, providing an ultimatum of take-it-or-leave-it and told them they had until 11:00 P.M. to review and accept the States offer. Rincon and 56 other tribes accepted the form compact.

The compacts to which the various tribes agreed are materially identical to each other and are effective until December 31, 2020. They impose a per-tribe cap on the number of gaming devices, and a state-wide cap on the number of gaming device licenses from an allocation pool that all Tribes are required to use to expand beyond their base allocations of gaming devices. The compacts were conditioned on voter approval, which occurred on March 7, 2000, and on approval by the Secretary of the Interior, which occurred on May 5, 2000.

Under the terms of the compacts, [l]icenses drawn from the pool must be put into commercial operation within one year from the date they are drawn or they will be returned to the pool.

In February 2000, several Tribes announced that they intended to proceed unilaterally with the first draw of gaming device licenses from the pool without waiting for the State to take a position. Those Tribes selected a company named Sides Accountancy to conduct the initial draw of gaming device licenses from the license pool, to occur on the later of May 15, 2000 or immediately after the Department of Interior published its approval of the compacts. The State endorsed Sides Accountancy as the valid administrator of the draw and issuer of the licenses.

In light of the foregoing, Rincon was left with a difficult choice. If it drew licenses from the pool, it would be required to put them into commercial operation within one year. However, the facility Rincon planned for operation of a casino would not be finished in that time. If, on the other hand, it did not draw licenses from the pool, the pool might be exhausted before Rincon was ready to put the licenses into commercial operation.

Rincon chose to draw licenses from the pool. In order to put any licenses awarded from the pool into commercial operation within one year, Rincon negotiated an addendum to its contract for construction of a temporary facility to accommodate the additional gaming devices. The overall cost of the temporary facility was $40 million, of which $12,750,000 could not be recovered for use in Rincons permanent facility.

Rincon submitted a request to Sides Accountancy for 1,650 gaming device licenses. The licenses were issued before exhaustion of the statewide license pool. Rincon constructed its expanded temporary facility and put those licenses into commercial operation on May 11, 2000.

On February 23, 2001, the State Attorney General issued an opinion that only the Commission could administer the draws and issue device licenses from the statewide pool. Accordingly, the State reversed its position regarding the licenses issued by Sides Accountancy and determined such licenses to be invalid. On May 10, 2001, the Commission announced that, because the Sides Accountancy licenses were invalid, the one-year deadline for putting those licenses into commercial operation had not yet begun to run.

On December 1, 2004, the Commission determined that licenses would be considered placed into commercial operation within one year even if a group of drawn licenses was simply rotated through a smaller number of available machines, so that each license drawn was, at some point in time, assigned to an operating machine, even if not all of the drawn licenses were ever simultaneously in operation.

If the Commissions interpretation had been adopted from the beginning, Rincon would not have been required to expend $12,750,000 expanding its temporary facility in order to put its pool licenses into simultaneous operation.

But for the States representations during compact negotiations about the Sides Accountancy licenses and the need to put licenses into commercial operation, Rincon would not have taken those actions necessary to secure 1,650 purported gaming device licenses issued by Sides Accountancy and would not have taken those actions necessary to have gaming devices purportedly authorized by such licenses placed in commercial operation by May 15, 2001.

Based on the foregoing, Rincon filed this action against defendants alleging a single cause of action for breach of contract. Rincon alleged defendants represented that licenses issued by Sides Accountancy were valid and that such licenses would have to be placed into simultaneous commercial operation (i.e., all licenses assigned to a separate device at the same time) within one year. Rincon further alleged it relied on those representations to expend millions of dollars in constructing a temporary facility that would allow the licenses to be placed into simultaneous commercial operation within one year. Finally, Rincon alleged the States subsequent change in position on these matters damaged Rincon because it independently rendered the construction of the temporary facility unnecessary.

Defendants demurred asserting, among other things, the complaint fails to state a claim for breach of contract because it does not allege any promise that had been breached or damages suffered as a result of a breach. Defendants further asserted sovereign immunity from any suit seeking an award of damages and failure to exhaust administrative remedies.

The trial court sustained the demurrers without leave to amend on the ground of sovereign immunity. The court concluded neither the compact entered into by the State and Rincon (hereafter the Compact) nor any statutory waiver of sovereign immunity applies to actions seeking an award of damages. The court entered judgment of dismissal.

Discussion

I

Sovereign Immunity

Rincon contends the trial court erred in sustaining defendants demurrers on the basis of sovereign immunity. Rincon argues that while the Compact may not waive immunity for claims seeking an award of monetary damages, such waiver can be found outside the Compact.

The doctrine of sovereign immunity provides that a state may not be sued in its own courts without its consent. (Will v. Michigan Dept. of State Police (1989) 491 U.S. 58, 67 [105 L.Ed.2d 45, 55].)

Section 9.4, subdivision (a), of the Compact contains a limited waiver of sovereign immunity. It reads: In the event that a dispute is to be resolved in federal court or a state court of competent jurisdiction as provided in this Section 9.0, the State and the Tribe expressly consent to be sued therein and waive any immunity therefrom that they may have provided that: [] . . . [] (2) Neither side makes any claim for monetary damages (that is, only injunctive, specific performance, including enforcement of a provision of this Compact requiring payment of money to one or another of the parties, or declaratory relief is sought) . . . .

Rincons complaint seeks an award of monetary damages. Therefore, it does not fall within the terms of the foregoing waiver. Rincon does not contend otherwise. Rather, Rincon contends section 9.4 is not the only waiver of sovereign immunity at issue. Rincon cites section 9.3 of the Compact, which reads in relevant part: This Section 9.0 may not be construed to waive, limit, or restrict any remedy that is otherwise available to either party . . . . Rincon argues this provision preserves any other waiver of sovereign immunity that exists outside the Compact.

Rincon cites two statutory provisions which, it argues, waive sovereign immunity for suits seeking damages. The second sentence of Government Code section 98005, which was the only part of Proposition 5 to survive constitutional challenge (see Hotel Employees, supra, 21 Cal.4th at pp. 612-615), reads in relevant part: Without limiting the foregoing, the State of California also submits to the jurisdiction of the courts of the United States in any action brought against the state by any federally recognized California Indian tribe asserting any cause of action arising from . . . the states violation of the terms of any Tribal-State compact to which the state is or may become a party. Rincon also relies on Government Code section 814, which reads: Nothing in this part affects liability based on contract or the right to obtain relief other than money or damages against a public entity or public employee.

Defendants raise a number of arguments as to why Government Code section 98005 does not waive sovereign immunity for a claim seeking damages. They argue, for example, that waivers of sovereign immunity should be narrowly construed and Government Code section 98005 says nothing about actions seeking damages. They further argue Government Code section 98005 should be read in conjunction with former Government Code section 98004, which contained a model compact that included a limited waiver similar to that in section 9.4. Inexplicably, defendants fail to address Government Code section 814, although that section does not appear on its face to authorize an action for damages.

We need not decide whether defendants are entitled to sovereign immunity under the circumstances of this case. As we shall explain, defendants demurrers could have been sustained for the more fundamental reason that the complaint fails to state a claim for breach of contract.

II

Failure to State a Claim

A judgment of dismissal following an order sustaining general demurrers shall be affirmed if supported on any ground stated in the demurrers, whether or not relied upon by the trial court. (Carman v. Alvord (1982) 31 Cal.3d 318, 324.)

Defendants demurrers asserted a number of grounds in addition to sovereign immunity. The first two grounds stated were: (1) the complaint fails to identify any express promise in the Compact that defendants breached; and (2) the complaint fails to allege how Rincon was damaged by defendants alleged breach. As we shall explain, these grounds were an appropriate basis for sustaining defendants demurrers.

In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed. [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context." (Blank v.Kirwan (1985) 39 Cal.3d 311, 318.)

Rincons complaint contains a single cause of action purporting to allege breach of contract. The contract in question is the Compact. The complaint seeks an award of damages equal to the expenses incurred by Rincon to expand its temporary facility in light of two representations by defendants: (1) the licenses issued by Sides Accountancy were valid, and (2) the devices authorized by those licenses had to be placed into simultaneous commercial operation within one year of issuance. The complaint alleges defendants later reversed themselves on these representations, thereby rendering the expenses incurred by Rincon unnecessary.

Defendants argue the complaint fails to allege any express promise in the Compact that has been breached. According to defendants, none of the issues upon which Rincon sues is contained in any term in the [C]ompact. Therefore, defendants argue, the demurrers should have been sustained on this ground. Defendants further argue the complaint fails to allege how Rincon was damaged by any change in the States position on the two representations. As we shall explain, we find these arguments well taken.

The complaint alleges Rincon reasonably relied on the Defendants representations that the Sides Accountancy draw of licenses was valid. It further alleges Rincon reasonably relied on the Defendants representations that Section 4.3.3.2(e) [of the Compact] required drawn licenses to be placed into simultaneous commercial operation within one year in order for the drawing Tribe to retain those licenses. In reliance on these two representations, Rincon expended millions of dollars on a temporary facility in order to put 1,650 licenses into simultaneous commercial operation. Finally, the complaint alleges defendants subsequent change in position on these two matters rendered construction of the temporary facility unnecessary.

Regarding the Sides Accountancy matter, the complaint elsewhere alleges that, after entering into the compacts, several tribes announced their intent to proceed with the first draw of gaming device licenses and selected Sides Accountancy to conduct the initial draw. According to the complaint, the State endorsed Sides Accountancy as the valid administrator of the draw and issuer of the licenses.

Inasmuch as the States endorsement of Sides Accountancy allegedly occurred after the compacts were created, it could not have been part of the original Compact. Nor is it alleged such endorsement became part of the Compact thereafter. It was, at most, an after-the-fact representation that licenses issued by Sides Accountancy would be honored. It was not a promise or covenant of the Compact.

As for the representation that licenses would have to be placed in simultaneous commercial operation within one year, section 4.3.2.2(e) of the Compact reads: As a condition of acquiring licenses to operate Gaming Devices, a non-refundable one-time pre-payment fee shall be required in the amount of $1,250 per Gaming Device being licensed, which fee shall be deposited in the Revenue Sharing Trust Fund. The license for any Gaming Device shall be canceled if the Gaming Device authorized by the license is not in commercial operation within twelve months of issuance of the license.

This provision says nothing about the devices being in simultaneous commercial operation. The complaint does not contain any direct allegation of representations by defendants to this effect. However, it does contain an indirect allegation. Paragraph 57 of the complaint reads: But for the Defendants representations, during the negotiation of the compact, that the commercial operation provision of section 4.3.2.2(e) required simultaneous commercial operation of machines using the drawn licenses, [Rincon] would not have taken the actions necessary to have 1,650 gaming devices in simultaneous commercial operation by May 15, 2001 . . . .

Nevertheless, assuming the representation about simultaneous operation became part of section 4.3.2.2(e) of the Compact, as the foregoing allegation suggests, Rincon cannot allege any damage for breach of contract flowing from the States change in course on this point. Rincon alleges it expended $12,750,000 to expand its temporary facility in order to place device licenses into simultaneous commercial operation within one year. However, if the State had adhered to the contract terms in this regard, that is, if the State had continued to require that the gaming devices be placed in simultaneous commercial operation within one year of the issuance of the license, the money would have been spent as it was with no cause for complaint from Rincon. The fact that the State later did not insist on this contractual requirement, while understandably frustrating for Rincon, did not convert its $12,750,000 expenditure into damages arising from a breach of the contract. Simply put, at the time Rincon spent the money, there had been no breach of the contract and the States later change of mind did not cause the expenditure.

The crux of Rincons claim is that, but for the representations at the time of contracting that device licenses issue by Sides Accountancy were valid and would have to be placed into simultaneous commercial operation within one year, Rincon would not have expended $12,750,000. This suggests a claim sounding more in tort, for either fraudulent or negligent misrepresentation, rather than contract. In effect, Rincon was misled into spending $12,750,000 by false representations. However, there is no allegation that any representation made by defendants at the time of contracting was untrue when that representation was made. In other words, there is no suggestion that, at the time of contracting, defendants knew or should have known that licenses would not have to be placed into simultaneous commercial operation within one year. Instead, the complaint alleges defendants simply changed the rules after the fact.

Rincon argues its claim for breach of contract is premised on promises expressly contained in the Compact, to wit: (1) the duty of good faith and fair dealing; (2) the promise that all Tribes would be held to the requirement, identical in the contemporaneously signed Compacts, that they place drawn licenses in commercial operation within one year; and (3) the promise that all Tribes would have equal access to more favorable, subsequently available Compact terms.

However, Rincon cites nothing in the Compact to support these assertions. Although the Compact, like any contract, contains an implied covenant of good faith and fair dealing, that covenant is circumscribed by the express terms of the Compact. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 373.) In other words, the covenant only requires good faith performance of the express terms of an agreement. Rincon points to no express term that defendants failed to perform in good faith.

As for an alleged promise that all tribes will be held to the requirement of placing device licenses into simultaneous commercial operation in one year, Rincon cites nothing in the Compact to this effect. Furthermore, Rincon does not allege how it was harmed by defendants failure to hold other tribes to this requirement. The fact that other tribes may have benefited from being relieved of the obligation to put device licenses into commercial operation within one year does not necessarily translate into any harm to Rincon.

Finally, as to a promise that all tribes will have equal access to more favorable, subsequent compact terms, Rincon again fails to cite any such provision in the Compact. Furthermore, the complaint does not allege any failure on the part of defendants to make more favorable, subsequent compact terms available to all tribes.

On the issue of damages, Rincon argues: [B]ut for the States initial representation and subsequent change of course, Rincon would have had 12.75 million additional dollars. That money, which Rincon only had to spend because of the States initial representations, could have been used to build roads, provide public services, shelter and care for the elderly, or feed and educate children. Instead, because the State breached its Compact promises and changed direction mid-course, those funds so essential to Tribal self-sufficiency and members quality of life were wasted on an unnecessary temporary facility.

This argument does not address the primary defect in Rincons claim--that the $12,750,000 was not spent because of a breach of the Compact. It was spent long before any alleged breach. Rincon fails to allege any damages resulting from defendants decision to nullify the Sides Accountancy licenses or eliminate the requirement that licenses be placed into simultaneous commercial operation within one year. Those mid-course changes in direction did not adversely impact Rincon. They simply came too late to help Rincon.

Because the complaint does not state a claim for breach of the Compact for which damages may be recovered, the trial court properly sustained defendants demurrers. Furthermore, because Rincon does not assert how the complaint could be amended to state a claim, the demurrers were properly sustained without leave to amend. (See Campbell v. Regents of University of California (2005) 35 Cal.4th 311, 320.)

Disposition

The judgment is affirmed. Defendants are awarded their costs on appeal.

HULL, J.

We concur:

BLEASE , Acting P.J.

RAYE , J.

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