RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Match-E-Be-Nash-She-Wish Band v. No. 03-1267
ELECTRONIC CITATION: 2004 FED App. 0300P (6th Cir.) Kean-Argovitz Resorts, et al.
File Name: 04a0300p.06
Before: GILMAN and COOK, Circuit Judges; CLELAND,
District Judge.*
UNITED STATES COURT OF APPEALS
_________________
FOR THE SIXTH CIRCUIT
_________________ COUNSEL
MATCH -E-BE -NASH -SHE - X ARGUED: Ronald S. Lederman, SULLIVAN, WARD,
WISH BAND OF - ASHER & PATTON, Southfield, Michigan, for Appellants.
- Conly J. Schulte, MONTEAU & PEEBLES, Omaha,
POTTAWAT OMI INDIANS, a Nebraska, for Appellee. ON BRIEF: Ronald S. Lederman,
- No. 03-1267
Federally Recognized Indian - SULLIVAN, WARD, ASHER & PATTON, Southfield,
Tribe, > Michigan, for Appellants. Conly J. Schulte, Shilee T. Mullin,
,
Plaintiff-Appellee, - MONTEAU & PEEBLES, Omaha, Nebraska, for Appellee.
- GILMAN, J., delivered the opinion of the court, in which
v. - COOK, J., joined. CLELAND, D. J. (pp. 13-17), delivered a
- separate concurring opinion.
KEAN-ARGOVITZ RESORTS -
- _________________
and KEAN-ARGOVITZ
-
RESORTS, MICHIGAN , L.L.C., - OPINION
Defendants-Appellants. - _________________
-
N RONALD LEE GILMAN, Circuit Judge. In November of
Appeal from the United States District Court 1998, the Match-E-Be-Nash-She-Wish Band of Pottawatomi
for the Western District of Michigan at Grand Rapids. Indians (the Tribe) entered into two agreements with Kean-
No. 02-00194—Gordon J. Quist, District Judge. Argovitz Resorts and Kean-Argovitz Resorts, Michigan,
L.L.C. (collectively KAR) relating to the development and
Argued: June 15, 2004 management of a proposed gaming facility in Michigan.
Before the agreements had been approved by the Chairman of
Decided and Filed: September 8, 2004 the National Indian Gaming Commission (NIGC), the Tribe
unilaterally terminated its relationship with KAR. The Tribe
then filed this action in federal court, seeking both a
*
The Honorable Robert H. Cleland, United States District Judge for
the Eastern District of Michigan, sitting by designation.
1
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declaration that the agreements are void and a permanent enter into effect when executed and delivered by the
injunction to prevent KAR from attempting to enforce the parties, and be enforceable between the parties regardless
arbitration clause contained in one of the agreements. KAR of whether or not this Agreement or the Management
filed a counterclaim, seeking to compel the Tribe to submit to Agreement is approved by the Chairperson of the NIGC.
arbitration. The district court concluded that the agreements
were void under federal law and accordingly granted In January of 2000, the Tribe unilaterally terminated its
summary judgment in favor of the Tribe. For the reasons set agreements with KAR. Approximately one year later, KAR
forth below, we VACATE the judgment of the district court submitted a demand for arbitration to the American
and REMAND the case with instructions to refer the case to Arbitration Association and served a copy upon the Tribe.
arbitration. The Tribe refused to submit to arbitration on the ground that
the entire Development Agreement, and therefore the
I. BACKGROUND arbitration clause, is void under the Indian Gaming
Regulatory Act of 1988 (IGRA), 25 U.S.C. §§ 2701-21,
A. Factual background because the Agreement was never approved by the Chairman
of NIGC. IGRA and its related regulations provide that any
The Tribe is a federally recognized Indian tribe located in Indian gaming management contract, or any agreement
the Western District of Michigan. It does not presently collateral to a management contract, is void until approved by
occupy any land as part of a reservation. According to KAR, the Chairman of NIGC. See 25 U.S.C. § 2711(a)(1) and (3);
the Tribe did not become federally recognized until August of 25 C.F.R. § 533.7.
1999.
B. Procedural background
In November of 1998, the Tribe and KAR entered into both
a Management Agreement and a Development Agreement In March of 2002, the Tribe filed this action in the district
relating to a proposed gaming facility that was to be located court, seeking a declaratory judgment and injunctive relief.
on tribal lands in Michigan. Under the Development KAR filed a counterclaim to require the Tribe to submit to
Agreement, KAR was obligated to make monthly advances to arbitration. Both parties filed motions for summary
the Tribe and agreed to loan it as much as $100,000,000 for judgment. The district court granted the Tribe’s motion and
the project. KAR advanced approximately $1,000,000 to the denied KAR’s. This timely appeal by KAR followed.
Tribe between November of 1998 and January of 2000.
II. ANALYSIS
The Development Agreement contains an arbitration clause,
which states that “[t]he parties agree that binding arbitration A. Standard of review
. . . shall be the remedy for all disputes, controversies and
claims . . . arising out of any of these agreements.” Another The Development Agreement in the present case involves
relevant provision of the Agreement states that interstate commerce and therefore falls within the ambit of the
Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-14. “This court
[t]his is intended to be a legally enforceable agreement, reviews de novo a district court’s ruling on whether to compel
independent of the Management Agreement, which shall arbitration pursuant to the FAA.” Burden v. Check Into Cash,
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267 F.3d 483, 485 (6th Cir. 2001). “Under the FAA, a district [I]f the claim is fraud in the inducement of the
court’s consideration of a motion to compel arbitration is arbitration clause itself—an issue which goes to the
limited to determining whether the parties entered into a valid ‘making’ of the agreement to arbitrate—the federal
agreement to arbitrate, and does not reach the merits of the court may proceed to adjudicate it. But the statutory
parties’ claims.” Id. language [of the FAA] does not permit the federal
court to consider claims of fraud in the inducement
B. Enforceability of the arbitration provision of the contract generally.
In Great Earth Companies, Inc. v. Simons, 288 F.3d 878 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388
(6th Cir. 2002), this court explained the application of Section U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270
4 of the FAA, 9 U.S.C. § 4, as follows: (1967). Once the district court determines that a valid
agreement to arbitrate exists, challenges to other distinct
Section 4 of the FAA sets forth the procedure to be parts of the contract are to be resolved by the arbitrator.
followed by the district court when presented with a Id.
petition to compel arbitration. That section provides, in
relevant part, that Great Earth Companies, 288 F.3d at 888-90.
[a] party aggrieved by the . . . refusal of another to Relying on Great Earth Companies and Prima Paint, KAR
arbitrate under a written agreement for arbitration contends that “Plaintiff never contested the validity of the
may petition any United States district court . . . for arbitration provision itself; the Tribe instead contested the
an order directing that such arbitration proceed in validity of the Development Agreement in its entirety. . . .
the manner provided for in such agreement. . . . The Applying controlling Supreme Court and Sixth Circuit
court shall hear the parties, and upon being satisfied authority, it was within the exclusive authority of the
that the making of the agreement for arbitration or arbitrator to resolve this issue.” The district court disagreed,
the failure to comply therewith is not in issue, the holding that the arbitration clause is unenforceable because
court shall make an order directing the parties to the Development Agreement is void under IGRA.
proceed to arbitration in accordance with the terms
of the agreement. . . . If the making of the We have found no federal case that has squarely addressed
arbitration agreement . . . be in issue, the court shall whether a court must enforce an arbitration clause that is part
proceed summarily to the trial thereof. . . . of an agreement subject to IGRA that has not been approved
by the Chairman of the NIGC. This court addressed an
* * * analogous set of facts, however, in Burden v. Check Into Cash
of Kentucky, L.L.C., 267 F.3d 483 (6th Cir. 2001), where the
The Supreme Court has explained that in deciding plaintiffs claimed that Check Into Cash, a check-cashing
whether a valid agreement to arbitrate exists, district company, had violated both federal and Kentucky law by
courts may consider only claims concerning the validity lending money to hundreds of Kentucky consumers at
of the arbitration clause itself, as opposed to challenges usurious interest rates. Id. at 485-87. Check Into Cash
to the validity of the contract as a whole: requested that the district court compel arbitration based upon
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an arbitration clause contained in the loan agreements. Id. at The operative facts in the present case are quite similar to
486-87. In response, the plaintiffs alleged that the arbitration those in Burden. In both cases, the parties seeking to avoid
clause was unenforceable because the loan agreements were arbitration contend that the arbitration clause is unenforceable
void ab initio. Check Into Cash was not licensed by the state, because the agreement as a whole is void pursuant to a
contrary to Kentucky statutes that require finance companies statute. As in Burden, the Tribe does not deny that it entered
to obtain a license from the state and declare that any loan into the agreement in question. Nor does it claim that the
made by an unlicensed company is void. See Ky. Rev. Stat. agreement was executed by someone who lacked signatory
§§ 288.420, 288.991(1). power. Because the material facts of these cases are legally
indistinguishable, Burden compels us to conclude that the
The district court in Burden concluded that the plaintiffs’ Tribe’s allegation that the Development Agreement is void
allegation—that the loan agreements containing the under federal law “challenge[s] the substance, rather than the
arbitration clause were void ab initio—must be determined by existence,” of the Development Agreement. The district court
a court rather than an arbitrator. 267 F.3d at 487. This court therefore should have granted KAR’s motion to compel
vacated the judgment of the district court, reasoning as arbitration.
follows:
Our conclusion is consistent with the case of Bruce H. Lien
Plaintiffs’ allegations primarily concern the substance of v. Sokaogon Gaming Enterprise Corp. v. Tushie-Montgomery
the loan agreements, which Plaintiffs then argue are Assoc. Inc., 86 F.3d 656 (7th Cir. 1996), where the Seventh
“void” under [Kentucky law]. However, . . . Plaintiffs[’] Circuit considered whether a tribe’s agreement to an
allegations . . . do not concern their failure to assent to arbitration clause contained in a management contract
the loan agreements, and do not concern signatory power. constituted a waiver of sovereign immunity. In Sokaogon
Accordingly, because Plaintiffs’ allegations . . . challenge Gaming, the tribe contended that the entire contract, which
the substance, rather than the existence, of the loan was executed prior to the effective date of IGRA, was illegal
agreements, we vacate the district court’s [decision that because it had not been approved by the Bureau of Indian
those allegations must be decided by the court rather than Affairs (BIA) as required by pre-IGRA law. Id. at 658.
the arbitrator]. Before reaching the merits of the dispute, the court noted that
“[a]lthough the arbitration clause is contained in a contract
Id. at 490. The case was then remanded for the district court that the tribe contends is illegal, the tribe rightly does not
to consider several of the plaintiffs’ remaining arguments argue that the illegality of the contract infects the arbitration
against the enforceability of the arbitration clause. Id. at 493 clause.” Id. at 659. This comment supports KAR’s position
(“[W]e vacate the district court’s order and remand for further in the present case, despite the fact that it was not further
consideration of Defendants’ motion to compel arbitration in developed because the parties, as the court conceded, did not
light of Plaintiffs’ allegations that the arbitration agreements raise the issue. Id.; see also Iowa Mgmt. & Consultants, Inc.
are unenforceable on grounds that the agreements would v. Sac & Fox Tribe, 656 N.W.2d 167, 172 n.1 (Iowa 2003)
impose burdensome costs, deny statutory rights, and (characterizing the statement in Sokaogon Gaming as a
constitute an uninformed waiver of jury trial rights.”). suggestion rather than a holding).
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We are cognizant of the fact that the Iowa Supreme Court to act on behalf of the tribes. The Eighth Circuit stated that
reached a contrary result in Sac & Fox Tribe, holding that “if “[t]his challenge to the document itself therefore calls into
the entire [management] agreement is invalid under federal question all provisions contained therein (including
law [because of a lack of NIGC approval], this would also provisions relating to arbitration, sovereign immunity, and
invalidate the provision in the agreement for arbitration of federal district court jurisdiction).” Id. at 1417. Three
disputes.” 656 N.W.2d at 171. But the Iowa court’s entire Affiliated Tribes is clearly distinguishable from the present
analysis of the issue consisted of the following statement in case, however, because in that case the tribe argued that the
a footnote: contract was invalid because of a lack of signatory power. In
that regard Three Affiliated Tribes is consistent with Burden,
We note that the federal court in Sokaogon Gaming, 86 where this court recognized that an allegation of a lack of
F.3d at 661, suggests that, under the holding of Prima signatory power constitutes a challenge to the very existence
Paint Corp. v. Flood & Conklin Manufacturing Co., 388 of the contract, which under Prima Paint must be resolved by
U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), a the court rather than an arbitrator. 267 F.3d at 489-90. Here,
finding of invalidity as to the main contract will not by contrast, there is no question regarding the proper
necessarily invalidate the arbitration clause. We do not execution of the Development Agreement.
believe that the Prima Paint decision supports that result
in the present case. If the agreement was a management The other federal case relied on by the Tribe is the Ninth
contract, all provisions thereof, including the arbitration Circuit’s decision in AK Management Co. v. San Manuel
clause, required NIGC approval pursuant to 25 U.S.C. Band of Mission Indians, 789 F.2d 785 (9th Cir. 1986), which
§ 2711. considered the enforceability of a pre-IGRA management
contract that had not been approved by the BIA. Like IGRA,
Sac & Fox Tribe, 656 N.W.2d at 172 n.1. the relevant statute at that time provided that management
contracts that had not received BIA approval were “null and
With all due respect, we do not believe that the Iowa void.” Id. at 786 n.1. The Ninth Circuit held that the district
Supreme Court persuasively distinguished Prima Paint. We court had properly dismissed the complaint because “the
are bound, moreover, by our own decision in Burden waiver of sovereign immunity is clearly part of the
regardless of the contrary decision in Sac & Fox Tribe. See Agreement, and is not operable except as part of that
Rule 206(c) of the Sixth Circuit Rules (“Reported panel Agreement. Since the entire contract is inoperable without
opinions are binding on subsequent panels. Thus, no BIA approval, the waiver is inoperable and, therefore, the
subsequent panel overrules a published opinion of a previous tribe remains immune from suit.” Id. at 789. The Ninth
panel. Court en banc consideration is required to overrule a Circuit explained its reasoning as follows:
published opinion of the court.”).
[The statute] explicitly provides that a contract is “null
Nor are we persuaded by the two federal cases relied on by and void” without written approval from the BIA.
the Tribe. One is Bruce H. Lien Co. v. Three Affiliated Therefore it is logical to conclude that an agreement
Tribes, 93 F.3d 1412 (8th Cir. 1996), where the tribes without BIA approval must be null and void in its
contended that a purported management contract was invalid entirety. No part of it may be enforced or relied upon
because the contract was signed by a person without authority unless and until BIA approval is given. BIA approval is
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an absolute prerequisite to the enforceability of the delivered by the parties, and be enforceable between the
contract. To give piecemeal effect to a contract as urged parties regardless of whether or not this Agreement or the
by AK, would hobble the statute. The plain words of Management Agreement is approved by the Chairperson of
[the statute] simply render this contract void in the the NIGC.”
absence of BIA approval. Since it is void, it cannot be
relied upon to give rise to any obligation by the Under these circumstances, the Tribe cannot attack the
Band. . . . validity of the arbitration clause simply by claiming that the
entire agreement is too ephemeral to deserve recognition.
Id. (emphasis in original). Both Prima Paint and Burden therefore require that the
Agreement’s enforceability be determined in the first instance
But AK Management is distinguishable from the present by an arbitrator.
case because the management contract at issue there did not
contain an arbitration clause. Where a contract contains an III. CONCLUSION
arbitration clause, and the parties do not challenge either the
existence of the contract or the making of the clause, the For all of the reasons set forth above, we VACATE the
controlling precedent of both the Supreme Court and this judgment of the district court and REMAND the case with
court require that the validity of the contract be first instructions to refer the case to arbitration.
determined by an arbitrator rather than by a district court.
Prima Paint, 388 U.S. at 403 (a “federal court [must] order
arbitration to proceed once it is satisfied that the making of
the agreement for arbitration or the failure to comply (with
the arbitration agreement) is not in issue”) (quotation marks
omitted); Burden, 267 F.3d at 490 (stating that arbitration is
appropriate where the claim challenges the substance of the
contract rather than its existence).
We recognize that remanding this case so that it can be sent
to arbitration might seem like an inefficient result. IGRA,
after all, provides that any management contract or collateral
agreement not approved by the Chairman of the NIGC is
void. But the Tribe does not challenge either the making of
the arbitration clause or the existence of the contract.
Evidence of the parties’ intent to enter into a binding
agreement, moreover, is supplied by the fact that KAR has
advanced nearly $1,000,000 to the Tribe under the
Development Agreement and by the clause in the Agreement
that states that “[t]his is intended to be a legally enforceable
agreement . . . which shall enter into effect when executed and
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___________________ plaintiffs in Burden and the Indian Tribe in this case, which
allege that the entire contract is void under state or federal
CONCURRENCE law, do not amount to void ab initio allegations.
___________________
The analysis in Burden, in my view, is incomplete and
CLELAND, District Judge, CONCURRING. I am seems to be at odds with the conclusion ultimately reached in
compelled to agree that this case cannot legitimately be that case. First, the court extensively discussed why it
distinguished from Burden v. Check Into Cash of Kentucky, thought that the void/voidable distinction mattered for the
L.L.C., 267 F.3d 483 (6th Cir. 2001), and I note that the severance doctrine, and stated that it tended to agree with
majority’s decision is written clearly and concisely to that other circuits that have found that Prima Paint does not apply
end. I write separately only because I believe Burden defined to allegations of nonexistent (i.e., void) contracts.1 It stated:
“void” too narrowly and consequently left a gap in the
discourse concerning the void/voidable distinction for The void/voidable distinction is relevant for Prima Paint
purposes of the severance doctrine. analysis because a void contract, unlike a voidable
contract, was never a contract at all. Thus, a valid
The plaintiffs in Burden challenged a contract where a state arbitration agreement "cannot arise out of a broader
statute pronounced loan agreements made by unlicensed contract if no broader contract ever existed." Sandvik,
lenders to be “void.” Similarly, our instant case involves a 220 F.3d at 108. Accordingly, Prima Paint "presumes an
challenge to a contract where a federal statute requires the underlying, existent, agreement." Id. at 106.
Chairman of the National Indian Gaming Commission’s
signature on casino management agreements and in its Burden, 267 F.3d at 488 (citing Sandvik AB v. Advent Int’l
absence holds any such contract “void.” Corp., 220 F.3d 99, 107 (3d Cir. 2000)). After discussing this
circuit’s precedent, the court stated that it was inclined to
In Burden, the court suggested that void, or void ab initio, follow the reasoning of several sister circuits that have held
agreements should not be subject to the severance doctrine. that Prima Paint does not apply to allegations of a
Burden, 267 F.3d at 488-89. In other words, if an entire nonexistent (void) contract. Id. at 489 (“Indeed, if anything,
contract were deemed void, or void ab initio, the arbitration
clause could not be enforced and the district court could
1
adjudicate the underlying claims. Burden, however, Under Prim a Paint, a court, rather than an arbitrator, can decide a
concluded that a voidness challenge to a contract based upon claim o f fraud in the inducement, but only if the claim of fraud concerns
statutory authority (as in this case) should not be construed as the inducement of the arbitration clause itself, not the inducement of the
contract as a whole. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388
a void ab initio allegation. Rather, Burden held a void ab U.S. 395, 403 -04 (1967). T he Court in Prima Paint found that arbitration
initio challenge requires more than an allegation of a statutory clauses were "separable" from the contracts in which they were included,
violation. Id. at 490. According to Burden, void ab initio and that "a broad arbitration clause will be held to encompass arbitration
allegations, for purposes of the severance doctrine, must be of the claim that the contract itself was induced from fraud." Id. at 402.
based upon one of only two challenges: (1) allegations of a "If the arbitration clause is not at issue, then the arbitrator will decide
challenges to the contract containing the arbitration clause." C.B.S.
failure to assent to the contract, and (2) challenges to Employees Fed. Credit Union v. Donaldson, Lufkin & Jenrette Sec. Co rp.,
signatory power. Accordingly, the challenge raised by the 912 F.2d 1563, 15 67 (6th Cir. 1990).
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we are inclined to find that Prima Paint supports, rather than (perhaps unintentionally) determined that only those
prohibits, excluding nonexistent contracts from the challenges that met the narrow void ab initio definition set
severability doctrine, because an allegation of a void contract forth therein could be adjudicated by the court. I can find no
raises exactly the same question as an allegation of a principled distinction between contracts void and contracts
fraudulently induced arbitration agreement: whether the void ab initio.2 The Burden court, therefore, essentially
arbitrator has any power at all.”). The court approvingly rewrote the definition of void. According to Burden, a void,
quoted the Seventh Circuit’s common sense approach: “No or nonexistent contract entails only those agreements where
contract, no power.” Id. (citing Sphere Drake Ins. Ltd. v. All one party lacked assent or where the signatory power is
Am. Ins. Co., 256 F.3d 587, 591 (7th Cir. 2001)). challenged. This too-narrow definition of void (or void ab
initio, it makes no difference), runs contrary to the clear-
But then, despite its apparent endorsement of the headed and, in my view, correct obiter dicta earlier in Burden
void/voidable distinction, the Burden court took a sharp turn, discussing the unenforceable nature of void contracts,
leaving that distinction by the wayside, and went on to including the arbitration provisions contained in such
conclude without any substantial explanation that the contracts. Id. at 488-89.
void/voidable principles just discussed did not apply to the
contract at issue simply because it had been challenged as Void and void ab initio agreements, as opposed to voidable
void under a state statute. The court cited a Ninth Circuit case agreements, are agreements that never existed. Confining
and discussed its general illustrations of agreements that void (or void ab initio) contracts to a narrow set of
Circuit had found to be void ab initio. The Burden court circumstances, as the court did in Burden, abrogates long-
concluded that void ab initio challenges must involve standing principles defining void contracts and holds as of no
allegations of either a failure to assent or an absence of effect any legislature’s decision to deem certain agreements
signatory power. Id. at 490 (discussing Three Valleys Mun. void when they fail to comply with statutory requirements,
Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136 (9th Cir. such as those found in the Indian Gaming Regulatory Act. In
1991)). The Burden court found that the challenge presented this case, it allows a portion of a nonexistent contract to be
to the contract’s existence did not constitute a void ab initio animated and enforced in direct contravention of an entirely
challenge (as that concept was, in Burden, now defined). To clear federal statute.
the Burden court, it followed directly from that conclusion
that the contract must be subject to the severability doctrine. The Federal Arbitration Act’s policy favoring arbitration
cannot compel an agreement to arbitrate where no contract
Unfortunately, the Burden court said only what the exists. A void contract is simply nonexistent and a provision
challenge was not, and not what it was. It was not either of of a contract that does not exist should not be separately
the two varieties of “void ab initio” illustrated in Three enforceable. This includes an arbitration clause. Mitsubishi
Valleys; it was, however, a challenge based precisely upon Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 614,
something else entirely: statutory voidness. The question not 625 (1985) ("[L]iberal federal policy favoring arbitration
addressed was whether an arbitration clause in a statutorily
void contract must be enforced; it was as though there existed
an underlying assumption that a claim of statutory voidness 2
A review of written decisions across all federal courts shows that
was per se illegitimate. The Burden court therefore implicitly courts consistently use the terms interchangeab ly.
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agreements . . . is at bottom a policy guaranteeing the
enforcement of private contractual arrangements.") (citation
and quotation omitted).
Constrained as we are by the Burden court’s narrow
definition of void, which I believe should be reexamined at
some point by this Circuit, I concur in the majority’s decision.