Quinault Indian Nation v. Mary Pearson

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

QUINAULT INDIAN NATION, No. 15-35263

Plaintiff-Appellee,

D.C. No.

v. 3:10-cv-05345-

BHS

MARY LINDA PEARSON,

Administrator Ad Prosequendum for

the estate of Edward A. Comenout,

Defendant-Appellant.

QUINAULT INDIAN NATION, No. 15-35267

Plaintiff-Appellee,

D.C. No.

v. 3:10-cv-05345-

BHS

MARY LINDA PEARSON,

Administrator Ad Prosequendum for

the estate of Edward A. Comenout, OPINION

Defendant,

and

ROBERT R. COMENOUT, SR.,

Defendant-Appellant.

2 QUINAULT INDIAN NATION V. PEARSON

Appeal from the United States District Court

for the Western District of Washington

Benjamin H. Settle, District Judge, Presiding

Submitted June 9, 2017 *

Seattle, Washington

Filed August 29, 2017

Before: M. Margaret McKeown, Consuelo M. Callahan,

and Sandra S. Ikuta, Circuit Judges.

Opinion by Judge McKeown

SUMMARY **

Tribal Sovereign Immunity

In an action brought by the Quinault Indian Nation

alleging a scheme to defraud the Nation of cigarette taxes,

the panel affirmed the district court’s dismissal of

counterclaims as barred by the Nation’s sovereign

immunity.

The panel held that if brought in a separate suit against

the Nation, the counterclaims would be barred by sovereign

immunity. Asserting the claims as counterclaims did not

The panel unanimously concludes this case is suitable for decision

*

without oral argument. See Fed. R. App. P. 34(a)(2).

**

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

QUINAULT INDIAN NATION V. PEARSON 3

change the sovereign-immunity analysis. The panel

concluded that the Nation did not waive its sovereign

immunity because it filed the underlying suit but took no

further action that unequivocally waived its immunity to the

counterclaims, and the counterclaims did not qualify as

claims for recoupment.

COUNSEL

Robert E. Kovacevich, Spokane, Washington; Randal B.

Brown, Covington, Washington; Aaron L. Lowe, Spokane,

Washington; for Defendants-Appellants.

Rob Roy Smith, Kilpatrick Townsend & Stockton LLP,

Seattle, Washington, for Plaintiffs-Appellees.

OPINION

McKEOWN, Circuit Judge:

Once again, the issue of tribal sovereign immunity and

cigarette taxes is back in the federal courts. In this iteration,

the Quinault Indian Nation (the “Nation”) sued Edward A.

Comenout, Jr.; Robert R. Comenout, Sr.; and other

defendants for engaging in a scheme to defraud the Nation

of taxes. When the Nation later asked the district court to

dismiss its action, Edward’s estate (the “Estate”) sought to

keep the litigation alive, asserting that maintaining the suit

was necessary to litigate its counterclaims against the

Nation.

The district court dismissed the counterclaims as barred

by the Nation’s sovereign immunity. Because the court

4 QUINAULT INDIAN NATION V. PEARSON

correctly held that the Nation retains its sovereign immunity

as to the counterclaims, these claims were properly

dismissed. We agree that the Estate cannot hold up dismissal

of the suit. We affirm.

Background

Edward Comenout, now deceased, was an enrolled

member of the Quinault Indian Nation, a federally

recognized Indian tribe. Beginning in 1971, he operated a

convenience store, the Indian Country Store, on land held in

trust by the United States in Puyallup, Washington. The

store, which is now run by his brother Robert Comenout,

sells cigarettes and tobacco products.

For years, the Comenouts have been embroiled in

litigation about whether they must pay cigarette taxes. They

have contested the authority of the State of Washington and

the Nation to tax them at every turn. For example, in

criminal proceedings initiated in 2008, they contended that

they are exempt from Washington’s cigarette tax, but the

Washington Supreme Court disagreed. State v. Comenout,

267 P.3d 355, 358 (Wash. 2011). 1 Similarly, in litigation

with the Nation, including the lawsuit on appeal here, the

Comenouts have continually disputed the Nation’s ability to

collect cigarette taxes pursuant to an agreement with

Washington. See, e.g., Comenout v. Whitener, No. 15-

35261, 2017 WL 2591272 (9th Cir. June 15, 2017);

Comenout v. Wash. State Liquor Control Bd., 195 Wash.

App. 1035 (2016). The legal battles rage on.

In this round, the Nation brought suit against the

Comenouts and other defendants in May 2010 claiming that

1

Robert Comenout has since pled guilty to state criminal charges.

QUINAULT INDIAN NATION V. PEARSON 5

the Indian Country Store was selling untaxed cigarettes and

tobacco products. The Nation’s complaint alleged that the

Comenouts violated the Racketeer Influenced and Corrupt

Organizations Act (“RICO”) by defrauding the Nation of

cigarette taxes and requested $90 million in unpaid tax

revenue. The Nation also pled a $30 million breach of

contract claim against Edward Comenout.

In December 2010, after Edward’s death, the Estate

asserted counterclaims. The Estate sought a declaratory

judgment that Edward had not violated the Cigarette Sales

and Tax Code. It also asked for an order compelling the

grant of building and business permits and for mandamus

relief, lost profits, and damages due to an alleged antitrust

and price-fixing scheme perpetrated by the Nation.

When out-of-court events sufficiently resolved the

Nation’s impetus for bringing the lawsuit in the first place,

the Nation moved to dismiss the Estate’s counterclaims and

voluntarily dismiss the entire action under Federal Rule of

Civil Procedure 41(a). The Estate opposed dismissal of its

counterclaims and moved to amend. The district court

granted the Nation’s motions to dismiss, reasoning that the

Estate’s counterclaims are barred by the Nation’s sovereign

immunity. Because the Estate’s proposed amendments did

not cure the sovereign-immunity problem, the court also

denied the motion to amend as futile.

Discussion

We start with the basics of sovereign immunity. It is well

settled that Indian tribes possess tribal sovereign immunity

because they are “domestic dependent nations that exercise

inherent sovereign authority.” Michigan v. Bay Mills Indian

Cmty., 134 S. Ct. 2024, 2030 (2014) (internal quotation

marks and citation omitted). As the name implies, that

6 QUINAULT INDIAN NATION V. PEARSON

immunity is a “common-law immunity from suit

traditionally enjoyed by sovereign powers.” Santa Clara

Pueblo v. Martinez, 436 U.S. 49, 58 (1978). Tribes are

shielded not only from suits for money damages, but from

declaratory and injunctive relief as well. Imperial Granite

Co. v. Pala Band of Mission Indians, 940 F.2d 1269, 1271

(9th Cir. 1991). Although a suit may be maintained against

tribal officers in certain circumstances, the tribes themselves

are protected. See Salt River Project Agric. Improvement &

Power Dist. v. Lee, 672 F.3d 1176, 1181 (9th Cir. 2012).

Under these simple rules, if the Estate had brought its

claims in a separate suit against the Nation, the suit could not

proceed. The Estate seeks monetary, declaratory, and

injunctive relief from the Nation itself, all of which would

be barred by the Nation’s sovereign immunity. 2 The

operative question in this appeal is whether the Estate’s

counterclaims are similarly barred. In other words, we must

determine whether asserting these claims for relief as

counterclaims changes the sovereign-immunity analysis. On

the facts of this case, we hold that it does not.

I. No Waiver of Tribal Sovereign Immunity

A tribe’s sovereign immunity is a powerful protection

from suit, but it is not impenetrable and may be surrendered.

See Kiowa Tribe of Okla. v. Mfg. Techs., Inc., 523 U.S. 751,

754 (1998). Nevertheless, a sovereign-immunity waiver is

2

For this reason, the Estate’s counterclaims could not “remain

pending for independent adjudication,” and the district court could not

simply dismiss the action “over the [Estate]’s objection.” Fed. R. Civ.

P. 41(a)(2). Instead, the district court first dismissed the counterclaims

as barred by the Nation’s sovereign immunity. At this point, no

counterclaims remained, and the action was dismissed under Rule

41(a)(2).

QUINAULT INDIAN NATION V. PEARSON 7

effective only if it is “unequivocally expressed.” Santa

Clara Pueblo, 436 U.S. at 58 (citation omitted). Here, the

Nation filed the underlying suit but took no further action

that unequivocally waived its immunity to the Estate’s

counterclaims. Nor do the Estate’s counterclaims qualify as

claims for recoupment. Accordingly, we reject the Estate’s

contention that the Nation has waived its sovereign

immunity.

A. Filing Suit Does Not Result in Wholesale

Waiver

We start with the unremarkable premise that the bare act

of filing suit does not operate as a complete, automatic

waiver that subjects a tribe to any counterclaims filed by the

defendant. McClendon v. United States, 885 F.2d 627, 630

(9th Cir. 1989). The Supreme Court has proclaimed that “a

tribe does not waive its sovereign immunity from actions

that could not otherwise be brought against it merely because

those actions were pleaded in a counterclaim to an action

filed by the tribe.” Okla. Tax Comm’n v. Citizen Band

Potawatomi Indian Tribe of Okla., 498 U.S. 505, 509 (1991).

Tribal immunity even extends to compulsory counterclaims

in excess of the original claims—despite the fact that

compulsory counterclaims by definition arise out of the same

transaction or occurrence. See id. at 509–10; United States

v. U.S. Fid. & Guar. Co., 309 U.S. 506, 513 (1940). On this

point, “Supreme Court precedent couldn’t be clearer . . . : a

tribe’s decision to go to court doesn’t automatically open it

up to counterclaims—even compulsory ones.” Ute Indian

Tribe of the Uintah & Ouray Reservation v. Utah, 790 F.3d

1000, 1011 (10th Cir. 2015), cert. denied, 136 S. Ct. 1451

(2016).

Thus, the mere fact that the Nation initiated this action is

not enough for the Estate to assert its barrage of

8 QUINAULT INDIAN NATION V. PEARSON

counterclaims without offending the Nation’s sovereign

immunity. Unless the Estate can identify something that the

Nation has done to waive its immunity as to one or all of the

counterclaims, the Nation’s immunity from suit remains

intact.

B. The Nation Has Not Waived Immunity to

Individual Counterclaims

In rare instances, a tribe’s participation in a lawsuit can

“effect a waiver for limited purposes.” Cohen’s Handbook

of Federal Indian Law § 7.05[1][c], at 645 (Nell Jessup

Newton ed., 2012). The scope of the waiver depends on the

particular circumstances, including the tribe’s actions and

statements as well as the nature and bounds of the dispute

that the tribe put before the court. See McClendon, 885 F.2d

at 630–31. We demand clarity that the tribe gave up its

immunity. See United States v. Nordic Vill. Inc., 503 U.S.

30, 34 (1992) (stating that ambiguity in the waiver of

sovereign immunity should be construed in favor of

immunity). Proceeding through the Estate’s counterclaims,

we conclude that the Nation has not expressly waived its

immunity to any of them.

The Nation’s only relevant conduct is that it brought suit

against the Comenouts for RICO violations and breach of

contract, alleging that the Comenouts defrauded the Nation

of cigarette taxes. The Estate’s four counterclaims seek:

(1) building and business permits and a declaratory

judgment that Edward Comenout did not violate the tax

code, (2) lost profits and other damages resulting from the

Nation’s refusal to grant permits and related to the filing of

the suit, (3) mandamus relief in the form of a building

permit, and (4) treble damages for loss of income based on

an alleged price-fixing scheme between the Nation and the

State of Washington.

QUINAULT INDIAN NATION V. PEARSON 9

The Estate requests some affirmative relief distinct from

what the Nation seeks. Counterclaims (1) and (3) ask the

court to order the Nation to issue building and business

permits, and counterclaim (2) seeks lost profits and other

damages for the refusal to issue permits and for the filing of

the suit. In counterclaim (4), the Estate requests money

damages based on facts that are even more far-flung from

the Nation’s RICO and contract claims, alleging that the

Nation conspired with the State of Washington to fix

cigarette prices. The entirety of counterclaims (2), (3), and

(4) and part of counterclaim (1) go beyond the contours of

the Nation’s suit, so the Nation cannot be said to have

unequivocally consented to their adjudication. See

McClendon, 885 F.2d at 630.

Sovereign immunity also bars the remainder of

counterclaim (1), which seeks a declaration that the Estate

obeyed the tax code, though that claim admittedly presents a

closer call. In particular, the Nation’s “[i]nitiation of [the]

lawsuit necessarily establishe[d] consent to the court’s

adjudication of the merits of that particular controversy,”

and the declaratory judgment mirrors the merits of the RICO

controversy that the Nation asked the court to resolve. See

id. But while the Nation took the risk that the court would

rule for the Estate on the merits and deny the Nation’s

requested legal relief, the Nation did not waive its immunity

because it did not consent to any counterclaims. See id. The

Estate could assert affirmative defenses against the Nation’s

claims, but it could not bring counterclaims absent waiver of

sovereign immunity.

That conclusion is reinforced by what is required for an

unequivocal waiver of tribal sovereign immunity. Our

situation involves far less than Rupp v. Omaha Indian Tribe,

45 F.3d 1241 (8th Cir. 1995). There, the Eighth Circuit

10 QUINAULT INDIAN NATION V. PEARSON

allowed counterclaims to quiet title and for damages to be

asserted against a tribe that filed a quiet-title action. Id. at

1244–45. However, the tribe there did more than file a

lawsuit: it invoked the district court’s equitable power to

determine the status of land and explicitly asked that the

court order the defendants to “assert any claims in the

disputed lands they possessed against the Tribe.” Id. at

1244. The Nation’s actions do not rise to that level of

unequivocal consent to the declaratory judgment

counterclaim.

A decision from our circuit, United States v. Oregon,

657 F.2d 1009 (9th Cir. 1981), requires more discussion, but

leaves us in the same place: the tribe there demonstrated its

unequivocal consent. The United States initiated an action

to apportion a fishery among competing sovereigns, and the

Yakima Tribe intervened. Id. at 1011. The parties

(including the tribe) reached a suitable agreement, which

provided for continuing jurisdiction in the district court over

future disputes. Id. Years later, the State of Washington

intervened and argued that the district court needed to enjoin

the tribe’s fishing so that the fish would not die out. Id. The

question was whether the district court could enter such an

injunction consistent with the tribe’s sovereign immunity.

Id. at 1012.

We said that the injunction was allowed. We analogized

the underlying suit to an equitable in rem action whose

purpose was to preserve the res—the fishery—by keeping

the fish alive. Id. at 1015–16. In that respect, the district

court could enjoin any interference with the res. Id. at 1016.

Because the tribe intervened in the equitable action and

expressly agreed to submit later-arising issues to federal

court, it “assumed the risk that any equitable judgment

secured could be modified if warranted by changed

QUINAULT INDIAN NATION V. PEARSON 11

circumstances” and “that [it] would be bound by an order it

deemed adverse.” Id. at 1015. We were cognizant of the

risk of “transform[ing] [tribal immunity] into a rule that

tribes may never lose a lawsuit.” Id. at 1014.

Oregon “tests the outer limits of [the Supreme Court]’s

admonition against implied waivers.” Pan Am. Co. v.

Sycuan Band of Mission Indians, 884 F.2d 416, 420 (9th Cir.

1989); see also Am. Indian Agric. Credit Consortium, Inc. v.

Standing Rock Sioux Tribe, 780 F.2d 1374, 1380 (8th Cir.

1985) (disapproving of Oregon as “press[ing] the outer

boundary” of what constitutes an unequivocal waiver). And

there are materially relevant differences between that

situation and our situation. Unlike the Nation, the tribe in

Oregon entered an agreement expressing its unequivocal

consent to submit issues to federal court. Further, the suit in

Oregon was akin to an equitable in rem action, whereas the

Nation’s suit is legal, not equitable, in nature. That

distinction matters because the court in Oregon relied on the

equitable nature of the action to distinguish the scenario we

have here—namely, an action involving a compulsory

counterclaim asserted against the tribe. 657 F.2d at 1015.

We have previously distinguished Oregon on these same

grounds. See Squaxin Island Tribe v. Washington, 781 F.2d

715, 723 n.11 (9th Cir. 1986); Chemehuevi Indian Tribe v.

Cal. State Bd. of Equalization, 757 F.2d 1047, 1053 n.7 (9th

Cir.), rev’d on other grounds, 474 U.S. 9 (1985).

Oregon’s broader concern about tribes employing

sovereign immunity offensively to prevent a loss in court is

not present here because, even without its counterclaim, the

Estate could still defend against the Nation’s RICO claim.

In fact, the Estate’s counterclaim is duplicative because the

Estate separately pled an affirmative defense that it had not

violated RICO. Therefore, the district court properly

12 QUINAULT INDIAN NATION V. PEARSON

dismissed the Estate’s counterclaims, and they cannot act as

life support for a lawsuit that the Nation is ready to put to

rest. The Estate’s asserted ability to drag out the proceedings

and hold the Nation hostage in its own litigation is a direct

affront to the Nation’s sovereign immunity when there has

been no unequivocal waiver.

C. The Estate Has Not Asserted a Counterclaim

for Recoupment

The Estate offers one other justification for maintaining

its counterclaims against the Nation: it contends that the

counterclaims count as claims for recoupment. We agree

that counterclaims to recoup damages arising from the same

transaction or occurrence as a tribe’s claims do not violate

the tribe’s sovereign immunity. Nevertheless, the Estate’s

argument still falters because its counterclaims do not sound

in recoupment.

The legal basis for permitting adjudication of matters in

recoupment is straightforward. In the analogous scenario

where the United States brings suit, the Supreme Court has

held that the United States impliedly waives its immunity to

counterclaims for recoupment. Bull v. United States,

295 U.S. 247, 260–63 (1935). Those claims do not directly

implicate sovereignty interests because they seek merely an

offset to the sovereign’s requested relief instead of

affirmative relief from the sovereign. See id. at 262

(“[R]ecoupment is in the nature of a defense arising out of

some feature of the transaction upon which the plaintiff’s

action is grounded.”); United States v. Agnew, 423 F.2d 513,

514 (9th Cir. 1970) (stating that claims for recoupment

“defeat or diminish the sovereign’s recovery” but provide no

“affirmative relief”). That rule and rationale holds for tribes.

See Hamilton v. Nakai, 453 F.2d 152, 158 (9th Cir. 1971)

(explaining that a tribe’s sovereign immunity is generally

QUINAULT INDIAN NATION V. PEARSON 13

coextensive with that of the United States). Thus, we join

the two other circuits that have held that claims arising out

of the same transaction or occurrence and sounding in

recoupment can be sustained as counterclaims against a

tribe. See Berrey v. Asarco Inc., 439 F.3d 636, 644–45 (10th

Cir. 2006); Rosebud Sioux Tribe v. A & P Steel, Inc.,

874 F.2d 550, 552–53 (8th Cir. 1989).

That conclusion does not end our analysis, as we must

determine whether the Estate’s counterclaims constitute

claims for recoupment. A recoupment claim “must (1) arise

from the same transaction or occurrence as the plaintiff’s

suit; (2) seek relief of the same kind or nature as the

plaintiff’s suit; and (3) seek an amount not in excess of the

plaintiff’s claim.” United States v. Washington, 853 F.3d

946, 968 (9th Cir. 2017) (citation omitted). As that

definition suggests, recoupment claims must be monetary,

not injunctive or declaratory. Id. Under these standards,

none of the Estate’s counterclaims are for recoupment.

As a reminder, the Estate wants (1) a declaration that the

tax code was not violated and building and business permits,

(2) lost profits and other damages associated with the

Nation’s refusal to issue permits and filing of the suit,

(3) mandamus relief in the form of a building permit, and

(4) treble damages for lost income resulting from an alleged

price-fixing scheme. Right off the bat, the requests for

anything other than monetary relief are excluded. That

leaves on the table the lost profits, damages for filing suit,

and the lost income for alleged price fixing. Those claims

fall outside the definition too. The Estate declares injury

based on the Nation’s denying permits, filing the lawsuit,

and engaging in a price-fixing scheme, none of which

logically relates to the occurrence that underlies the Nation’s

claims—namely, the Estate’s alleged enterprise to withhold

14 QUINAULT INDIAN NATION V. PEARSON

taxes due. And the damages claimed by the Estate are not

bounded by the amount sought by the Nation because they

are tied to the Estate’s lost profits and loss of income, the

latter multiplied by three. The Estate cannot shoehorn its

counterclaims into the definition of recoupment. We

conclude that the counterclaims as pled are barred by the

Nation’s sovereign immunity.

II. Denial of Motion for Leave to Amend

The Estate’s efforts to overcome the sovereign immunity

hurdle through amendment are equally unavailing. We have

no difficulty concluding that the district court did not abuse

its discretion in denying the Estate leave to amend its answer

and counterclaims. See Telesaurus VPC, LLC v. Power,

623 F.3d 998, 1003 (9th Cir. 2010) (reviewing for abuse of

discretion). The court correctly explained that “the Estate’s

proposed amendments would be futile in light of the

Nation’s sovereign immunity.” We agree because the

proposed amendments failed to include allegations that

would cure the defects in the original pleading. See Loos v.

Immersion Corp., 762 F.3d 880, 890–91 (9th Cir. 2014).

In its motion to amend, the Estate sought to add more

specific facts to support its already-pled claims and describe

events related to abuse of process and tortious interference.

Alleging further facts as to the events that occurred does not

take the Estate’s claims outside the sovereign-immunity bar.

The Nation would also be immune from suit on claims for

abuse of process and tortious interference, see Arizona v.

Tohono O’odham Nation, 818 F.3d 549, 563 n.8 (9th Cir.

2016) (“[T]ribal sovereign immunity bars tort claims against

an Indian tribe . . . .”), and there is no stronger basis for

waiver on these claims than on the Estate’s other

counterclaims. Because the Estate’s amendments do not get

around the Nation’s sovereign immunity, the district court

QUINAULT INDIAN NATION V. PEARSON 15

properly rebuffed this final attempt to protract the litigation

and dismissed the entire action.

AFFIRMED.