97-092
No. 97-092
IN THE SUPREME COURT OF THE STATE OF MONTANA
1997
JAMES V. KRAUSE and DOLORES R. KRAUSE,
Plaintiffs and Appellants,
v.
DAN NEUMAN and RITA NEUMAN,
Defendants and Respondents.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable Douglas G. Harkin, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Jon G. Beal; Datsopoulos, MacDonald & Lind, Missoula, Montana
Michael G. Black; Lukins & Annis, Spokane, Washington
For Respondents:
William C. Watt, Sara J. Johnson; Mullendore, Tawney & Watt,
Missoula, Montana
Submitted on Briefs: August 14, 1997
Decided: September 9, 1997
Filed:
__________________________________________
Clerk
Justice W. William Leaphart delivered the Opinion of the Court.
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Appellants, James V. Krause and Delores R. Krause (the Krauses) appeal from the
December 10, 1996 order of the Montana Fourth Judicial District Court, Missoula
County, dismissing their amended complaint for lack of subject matter jurisdiction.
We
affirm.
We restate the issues raised on appeal as follows:
1) Under federal statutory law, is jurisdiction to adjudicate interests in
Indian trust
lands vested in federal courts to the exclusion of state courts?
2) Does resolution of the Krauses' claims of breach of contract, tortious
misrepresentation, and fraudulent inducement require a determination of rights
involving
Indian trust lands over which the state District Court has no subject matter
jurisdiction?
Factual and Procedural Background
Respondent Dan Neuman is an enrolled member of the Confederated Salish and
Kootenai Tribes (the Tribes). He has a beneficial interest in two tracts of Indian
allotment land located within the exterior boundaries of the Flathead Indian
Reservation.
The United States holds title to the two tracts, which cover approximately 1.46
acres, in
trust for the benefit of Mr. Neuman. Since their allotment, the two tracts have been
transferred three times: from the original allottees to the Tribes, from the Tribes
to Mr.
Neuman's mother, Josephine Neuman, and from Josephine to her son. All of these
transfers were made with the approval of the Bureau of Indian Affairs (BIA) pursuant
to
federal statute.
In May 1996, desiring to sell his land and the house situated thereon, Mr.
Neuman
sought the assistance of the Division of Lands of the Tribes, which processes all
documents for the conveyance of trust land on the Flathead Reservation, to advertise
the
sale of the trust property. In June 1996, the Division of Lands and the BIA began
working to clear title to the two tracts of land so that Mr. Neuman could transfer
his
interest outside of the Tribes. Mr. Neuman also listed the property with a Missoula
real
estate agent.
The Krauses are residents of the state of Washington. While visiting their
daughter in Missoula, Montana, they saw Mr. Neuman's listing in a Missoula real
estate
brochure. The Krauses were interested in finding a retirement home near Missoula and
contacted the listing agent. The Krauses proceeded to negotiate with the agent to
purchase Mr. Neuman's trust property and eventually signed a standard buy-sell
agreement. The handwritten portion of the agreement gave the Krauses the option of
purchasing "in trust or patented." Mrs. Krause is an enrolled member of the Turtle
Mountain Chippewa Tribe, Pembina Band, so the Krauses first sought to purchase the
land in trust. However, upon being informed by the Tribes that it would not
recognize
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Mrs. Krause as an Indian eligible to purchase the land in trust, the Krauses decided
to
purchase the land in fee. The parties dispute whether the Krauses were ever made
aware
that the federal government would have to approve the sale in fee and issue a patent
before the land could be transferred. However, in a counter-offer that amended the
buy-
sell agreement, the Krauses required that the seller "help arrange to transfer
property
from trust to deeded status."
Both parties made considerable efforts and expenditures to consummate the sale.
However, at the time of contracting, neither party, the Tribes' Division of Lands,
nor the
BIA knew that title to the two tracts was seriously clouded. The Tribes had
acquired the
land through an order issued by the Secretary of the Interior, which transferred the
land
from the non-consenting heirs of the original allottee, and the validity of the
order was
being questioned. In an affidavit dated January 26, 1996, the Superintendent of the
Flathead Agency of the BIA stated that the Agency had been working to clear the title
defect since July 1994, "and efforts to clear title continue." Three months after
the
agreement was signed, Mr. Neuman informed the listing agent that he wished to
terminate the sale as it was apparent that the federal government would not approve
the
transfer of the trust property anytime soon.
The Krauses filed a complaint in the Montana Fourth Judicial District alleging
breach of contract, constructive fraud, and fraudulent inducement. The Krauses
prayed
for specific performance or contract damages. The Neumans filed a motion to dismiss
and supporting brief arguing that the District Court lacked subject matter
jurisdiction over
a contract action involving the sale of land located on the Flathead Indian
Reservation and
that the Tribes assert exclusive jurisdiction over trust land disputes. The next
day, the
Krauses filed an amended complaint adding fraud and negligent misrepresentation
claims
and deleting any prayer for specific performance. The Neumans renewed their motion
to dismiss.
Subsequently, the District Court converted the Neumans' motion to dismiss into
a motion for summary judgment pursuant to Rule 56, M.R.Civ.P. Both parties were
allowed to submit proof of additional facts. The District Court referred the
matter to a
special master for oral argument on the following issues:
1) Whether the District Court lacks subject matter jurisdiction to hear the
issues presented in the complaint;
2) Whether the contract claims presented by the Krauses are null and void
as a matter of law; and
3) Whether the Krauses failed to name the United States as an indispensable
party to the action in their complaint.
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After hearing oral argument, the special master found that the claims alleged by the
Krauses had a substantial nexus to Mr. Neuman's allotment of Indian trust land and
that,
therefore, federal law precluded the District Court from exercising jurisdiction.
The
special master further found that state court jurisdiction would interfere with the
Tribes'
right to self-governance.
The Krauses filed an objection to the special master's report; however, on
December 10, 1996, the District Court issued an order affirming the special master's
report and dismissing the action without prejudice for lack of subject matter
jurisdiction.
The court applied the test laid out in State ex rel. Iron Bear v. District Court of
the
Fifteenth Judicial Dist. (1973), 162 Mont. 335, 512 P.2d 1292, and determined it was
precluded by federal law, specifically 28 U.S.C. 1353 and 1360, from exercising
jurisdiction. The court reasoned that it could not decide the Krauses' breach of
contract
and tort claims without determining whether Mr. Neuman owned the land in fee or in
trust and whether he had the ability to transfer his interest.
Standard of Review
We review a district court's grant of summary judgment de novo. Motarie v.
Northern Montana Joint Refuse Disposal Dist. (1995), 274 Mont. 239, 242, 907 P.2d
154, 156. Thus, we apply the standards set forth in Rule 56, M.R.Civ.P., to
determine
that no material issues of fact exist and that the movant is entitled to summary
judgment
as a matter of law. Bruner v. Yellowstone County (1995), 272 Mont. 261, 264, 900
P.2d 901, 903.
Discussion
Because Congress has plenary and exclusive powers to regulate Indian affairs, a
state court's subject matter jurisdiction over such affairs is limited to that
explicitly
allowed by Congress. Bryan v. Itasca County (1976), 426 U.S. 373, 96 S.Ct. 2102, 48
L.Ed.2d 710. Further, the U.S. Supreme Court has recognized that Indian tribes are
self-
governing entities and, "until Congress acts, the tribes retain their existing
sovereign
powers." U.S. v. Wheeler (1978), 435 U.S. 313, 323, 98 S.Ct. 1079, 1086, 55
L.Ed.2d 303, 313. Thus, in determining whether the District Court properly dismissed
for lack of subject matter jurisdiction, we must consider the interests of the
federal and
tribal courts in adjudicating disputes involving Indian affairs.
In Iron Bear, this Court held that before a district court can assume
jurisdiction
over any matters involving Indian affairs, "it must find subject matter jurisdiction
by
determining: (1) whether the federal treaties and statutes applicable have preempted
state
jurisdiction; (2) whether the exercise of state jurisdiction would interfere with
reservation
self-government; and (3) whether the Tribal Court is currently exercising
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jurisdiction or
has exercised jurisdiction in such a manner as to preempt state jurisdiction." Iron
Bear,
512 P.2d at 1299. If the court finds that assuming jurisdiction over a dispute
involving
Indian affairs is preempted by federal law or that assuming jurisdiction will
interfere with
the Tribes' right to govern or to resolve the dispute, it has no subject matter
jurisdiction
over the dispute. Geiger v. Pierce (1988), 233 Mont. 18, 758 P.2d 279.
In its order, the District Court found that two federal statutes, 28 U.S.C.
1360
and 1353, preempt state court jurisdiction in this case. The Neumans also argue
that state
court jurisdiction over this action would impermissibly interfere with tribal self-
government. However, because we agree with the District Court's finding that federal
statutes preclude state subject matter jurisdiction, we will limit discussion to the
first part
of the Iron Bear test.
1. Under federal statutory law, is jurisdiction to adjudicate interests in
Indian trust lands vested in federal courts to the exclusion of state courts?
The General Allotment Act of 1887, ch. 119, 1, 24 Stat. 388 (1887), provided
the statutory framework by which certain Indian lands were first designated for
allotment.
Each allotment had to be approved by the Secretary of the Interior and would then be
held in trust by the United States for the benefit of the individual Indian
allottee. The
1887 Act provided that at the expiration of the trust period, the United States would
convey the trust land by patent in fee to the allottee. General Allotment Act, ch.
119,
1, 24 Stat. 388 (1887).
Today, the General Allotment Act is codified at 25 U.S.C. 331-58. Under the
Act, an allottee wishing to transfer his or her interest in Indian trust land before
the
expiration of the trust period must have the approval of the Secretary of the
Interior, 25
U.S.C. 405, 483, and any conveyance of land, or contract concerning the same,
without this approval is "null and void." 25 U.S.C. 348. The Allotment Act also
creates a cause of action in the federal district court for those claiming an
interest under
the Act. 25 U.S.C. 345. This section states:
All persons who are in whole or in part of Indian blood or descent who are
entitled to an allotment of land under any law of Congress, or who claim
to be so entitled to land under any allotment Act or under any grant made
by Congress, or who claim to have been unlawfully denied or excluded
from any allotment or any parcel of land to which they claim to be lawfully
entitled by virtue of any Act of Congress, may commence and prosecute or
defend any action, suit, or proceeding in relation to their right thereto in the
proper district court of the United States.
25 U.S.C. 345.
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The Supreme Court has held that this language vests exclusive jurisdiction in
federal courts to determine disputes involving allotments. See U.S. v. Mottaz
(1986),
476 U.S. 834, 106 S.Ct. 2224, 90 L.Ed.2d 841; McKay v. Kalyton (1907), 204 U.S.
458, 27 S.Ct. 346, 51 L.Ed. 566 (interpreting the predecessor statute to 25 U.S.C.
345). In Mottaz, the Court stated that 345 grants federal district courts subject
matter
jurisdiction over two types of cases: (1) suits seeking the issuance of an
allotment; and
(2) suits involving "the interest and rights of the Indian in his allotment or
patent after
he has acquired it." Mottaz, 476 U.S. at 845 (quoting Scholder v. U.S. (9th Cir.
1970),
428 F.2d 1123, 1129, cert. denied (1970), 400 U.S. 942, 91 S.Ct. 240, 27 L.Ed.2d
246).
The Ninth Circuit has also interpreted this statute as giving federal district
courts subject
matter jurisdiction over suits involving ownership, title, or other rights
appurtenant to title
in allotted land. Pinkham v. Lewiston Orchards Irr. Dist. (1988), 862 F.2d 184;
Christensen v. U.S. (9th Cir. 1985), 755 F.2d 705; Loring v. U.S. (9th Cir. 1979),
610
F.2d 649.
Another statutory basis for federal court jurisdiction over disputes involving
allotted lands is found in Title 28, which encompasses district court jurisdiction.
See 28
U.S.C. 1353. Section 1353 states that "[t]he district courts shall have original
jurisdiction of any civil action involving the right of any person, in whole or in
part of
Indian blood or descent, to any allotment of land. . . ." 28 U.S.C. 1353. One
circuit
has held that this statute was enacted for the limited purpose of giving district
courts
jurisdiction over any claims of right of original allotments or allotments in the
first
instance. Dry Creek Lodge, Inc. v. U.S. (10th Cir. 1975), 515 F.2d 926. However,
the special master found this interpretation inconsistent with the U.S. Supreme
Court's
holding in McKay, 204 U.S. at 458. In that case, the Court held that state courts
have
no jurisdiction over "controversies necessarily involving a determination of the
title and
incidentally of the right to the possession, of Indian allotments while the same
were held
in trust by the United States." McKay, 204 U.S. at 468. We recognize that 25 U.S.C.
345 and 28 U.S.C. 1353 both provide for federal jurisdiction over disputes
involving
claims of right or title to allotted lands to the exclusion of state courts.
The District Court also held that 28 U.S.C. 1360 preempted its jurisdiction.
The
land at issue is located on the Flathead Indian Reservation, the only reservation
over
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which the state of Montana has subject matter jurisdiction in "civil causes of action
between Indians or to which Indians are parties which arise in the areas of Indian
country." Pub. L. No. 280, 7, 67 Stat. 588, 590 (1953), codified as amended at 28
U.S.C. 1360. Though 28 U.S.C. 1360 allows state courts to exercise jurisdiction
over certain civil causes of action arising in Indian country, it provides:
Nothing in this section shall authorize the alienation, encumbrance, or
taxation of any real or personal property. . . belonging to any Indian or any
Indian tribe, band, or community that is held in trust by the United States
. . . ; or shall confer jurisdiction upon the State to adjudicate, in probate
proceedings or otherwise, the ownership or right to possession of such
property or any interest therein.
28 U.S.C. 1360.
This Court has stated that "[a]ny state action that affects
ownership
of Indian trust land is closely circumscribed by 28 U.S.C. 1360(b), even where
state
jurisdiction has been acquired pursuant to P.L. 280." In re Marriage of Wellman
(1993),
258 Mont. 131, 138, 852 P.2d 559, 563. We determine that "[o]n its face, this
statute
precludes state jurisdiction to adjudicate any interest in Indian trust land."
Marriage of
Wellman, 852 P.2d at 563.
2. Does resolution of the Krauses' claims of breach of contract, tortious
misrepresentation, and fraudulent inducement require a determination of
rights involving Indian trust lands over which the state District Court has
no subject matter jurisdiction?
Having determined that federal statutory law preempts state subject matter
jurisdiction over actions involving title to an allotment, it is necessary to decide
whether
a contract claim or a tort claim arising out of a contract for sale of allotted land
is such
an action. The Ninth Circuit has held that in determining whether 25 U.S.C. 345 or
28 U.S.C. 1353 preempt state subject matter jurisdiction, "of critical
importance . . .
are the claims advanced by plaintiffs." Pinkham, 862 F.2d at 187. The Krauses argue
that, as amended, their complaint states a simple contract and tort action arising
off of
the reservation. They argue that "where the claims of the complaint are properly
characterized as one for damages sounding in tort, they are not related to the
ownership
of title, or any rights appurtenant to an allotment, and subject matter jurisdiction
cannot
exist in federal court."
The U.S. Supreme Court, however, has held that state courts have no jurisdiction
over "controversies necessarily involving a determination of the title and
incidentally
of the right to the possession" of Indian trust land. McKay, 204 U.S. at 468
(emphasis
added). The District Court found that the Krauses' breach of contract and tort
claims
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necessarily hinge on a determination of title to Indian trust land. The District
Court
stated that:
[e]ssential to proving Plaintiffs' [claims] . . . is a requirement that the
district court determine that the Defendants owned the land in fee simple
and thus resolve the claim to land as an Indian allotment. The right of
possession of land, as well as the right to sell said land, necessarily involves
a question of the existence of title. Plaintiffs' aforementioned claims of
action cannot be separated from the issues of title to this property.
We agree with the District Court's analysis. Count I of the Krauses' amended
complaint states that the Neumans failed to honor a contract to convey real
property.
They also claim that the Neumans "misrepresented their ability to offer for sale and
convey deeded property to the Krauses . . . and admittedly committed torts with
respect
to their misrepresentations as to the status of the property and their ability to
convey the
same."
The Krauses' pleadings therefore put at issue the Neumans' "ability to offer for
sale" and the "status" of the land. Further, the Neumans argue that under the
Allotment
Act, they could not transfer an interest in Indian trust lands without the approval
of the
Secretary of the Interior and that any contract to convey the same without such
approval
is null and void. Thus, whether Mr. Neuman properly offered his land for sale,
whether
a contract was formed, or whether the Neumans were justified in not performing the
contract are all issues that cannot be separated from questions of title to Indian
trust
property. In the context of the claims advanced by the Krauses, the District Court
correctly found that it had no subject matter jurisdiction.
The Krauses also argue that because they amended their original complaint to
delete the prayer for specific performance, no interest in the trust property would
be
affected by the District Court's adjudicating their claims. However, the state does
not
acquire subject matter jurisdiction over Indian trust property simply because the
plaintiff
seeks only money damages. In Marriage of Wellman, 852 P.2d at 559, the parties were
a married couple who lived on the Blackfeet Reservation and had accumulated
approximately 4,000 acres of Indian trust land. The legal title to the land was
held by
the United States in trust for the benefit of Mrs. Wellman, a member of the Blackfeet
Tribe. Mrs. Wellman filed a petition for dissolution in state district court, and
Mr.
Wellman sought an equitable distribution of real and personal property or, if the
property
could not be distributed, a monthly award for his support, care, and maintenance from
the income produced by the property. Marriage of Wellman, 852 P.2d at 561. The
district court found that it had no jurisdiction to adjudicate the disposition of
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the Indian
trust land.
On appeal to this Court, Mr. Wellman recognized that "the District Court has no
authority to transfer title to the trust land to a non-Indian," but argued that the
relief he
sought was a monetary share of the trust lands. Marriage of Wellman, 852 P.2d at
564.
This Court stated:
[W]e are urged to assert state court jurisdiction over Indian trust land by
figuratively bringing it into state court for valuation prior to an ordered sale
and division of proceeds or a monetary award equal to Robert's equitable
share of the value of the land. Based on our discussion of 28 U.S.C.
1360(b) . . . we conclude that any of these actions would result in a
prohibited adjudication of interests in Indian trust land.
Marriage of Wellman, 852 P.2d at 564.
Similarly, here, the Krauses assert in their brief to this Court that "the
express
terms of the amended complaint, which controls this matter, seek compensatory and
punitive damages, as well as attorney fees but do not seek an interest in Indian
trust
land." Regardless of whether the Krauses pray for specific performance of the
contract
or for money damages for its breach, the District Court must decide the issues of
liability
which, as stated above, it cannot do without impermissibly asserting jurisdiction
over
Indian trust land.
The Neumans also ask this Court to sanction the Krauses for filing a frivolous
appeal and to award the Neumans attorneys' fees, costs, and other appropriate
damages.
This Court, when satisfied that an appeal "was taken without substantial or
reasonable
grounds," may assess such damages as we deem proper. Rule 32, M.R.App.P.; CNA
Ins. Co. v. Dunn (1995), 273 Mont. 295, 902 P.2d 1014. We find that the Krauses had
reasonable grounds for filing this appeal; thus, we decline to impose sanctions
under Rule
32.
For the foregoing reasons, we affirm the decision of the District Court.
/S/ W. WILLIAM LEAPHART
We concur:
/S/ J. A. TURNAGE
/S/ JAMES C. NELSON
/S/ KARLA M. GRAY
/S/ JIM REGNIER
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