F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH AUG 28 2003
PATRICK FISHER
UNITED STATES COURT OF APPEALS Clerk
TENTH CIRCUIT
WINNEBAGO TRIBE OF
NEBRASKA; SAC AND FOX
NATION OF MISSOURI, in Kansas
and Nebraska; IOWA TRIBE OF
KANSAS AND NEBRASKA;
KICKAPOO TRIBE OF INDIANS OF
THE KICKAPOO RESERVATION IN
KANSAS; HCI DISTRIBUTION;
JOHN BLACKHAWK, Chairman of
the Winnebago Tribe of Nebraska;
LANCE MORGAN; ERIN MORGAN;
EARLENE HRADEC,
Plaintiffs-Appellees,
No. 02-3301
v.
CARLA J. STOVALL, Attorney
General for the State of Kansas;
STEPHEN S. RICHARDS, Secretary
of the Kansas Department of Revenue;
STEVEN MAXWELL, Assistant
Attorney General for the State of
Kansas; JEFFREY LOCHOW,
Director of Tax Operations; JEFFREY
D. SCOTT, Designee of the Director
of Taxation, Kansas Department of
Revenue,
Defendants-Appellants.
Appeal from the United States District Court
for the District of Kansas
(D.C. No. 02-CV-4070-JTM)
Brian R. Johnson, Assistant Attorney General (Carla J. Stovall, Attorney General,
with him on the briefs), Topeka, Kansas, for Defendants/Appellants.
Vernle C. Durocher, Jr. (Michael J. Wahoske, Mary J. Streitz and Christopher R.
Duggan, of Dorsey & Whitney LLP, Minneapolis, Minnesota; Thomas E. Wright,
of Wright, Henson, Somers, Sebelius, Clark & Baker, LLP, Topeka, Kansas; and
Mark Hubble, Tribal Attorney for the Winnebago Tribe of Nebraska, Winnebago,
Nebraska, with him on the brief), of Dorsey & Whitney LLP, Minneapolis,
Minnesota, for Winnebago Tribe of Nebraska, HCI Distribution, Chairman John
Blackhawk, Lance Morgan, Erin Morgan and Earlene Hradec,
Plaintiffs/Appellees.
Charley Laman, Tribal Attorney, Topeka, Kansas, for Plaintiff/Appellee Kickapoo
Tribe of Indians of the Kickapoo Reservation in Kansas (Mark S. Gunnison, of
Payne & Jones, Chartered, Overland Park, Kansas, for Plaintiff-Appellee Iowa
Tribe of Kansas and Nebraska; and Thomas Weathers, of Alexander & Karshmer,
Berkeley, California, for Plaintiff-Appellee Sac and Fox Nation of Missouri, with
him on the brief).
Before SEYMOUR, McKAY and LUCERO, Circuit Judges.
SEYMOUR, Circuit Judge. Judge.
The State of Kansas attempted to assess fuel taxes on a corporation wholly
owned by an Indian tribe. The district court in two published orders granted
plaintiffs’ motions for a temporary restraining order, Winnebago Tribe of Neb. v.
Stovall, 205 F. Supp. 2d 1217 (D. Kan. 2002), and then for a preliminary
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injunction, Winnebago Tribe of Neb. v. Stovall, 216 F. Supp. 2d 1226 (D. Kan.
2002). The district court denied the defendants’ application for a stay pending
appeal of the preliminary injunction. Defendants appeal on three grounds: alleged
error in the disrict court’s failure to abstain from hearing the case under the
Younger doctrine; abuse of discretion in granting injunctive relief; and error in
granting the preliminary injunction over defendants’ claims of Eleventh
Amendment immunity. We affirm.
I
Plaintiff HCI Distribution is a corporation organized under the laws of the
Winnebago Tribe and wholly owned by another corporation that is wholly owned
by the Tribe. HCI manufactures motor fuel on its reservation in Nebraska and
then sells the fuel to other tribes for retail sales. HCI purchases fuel from non-
reservation pipeline stations in Nebraska and Iowa and then transports the fuel to
HCI facilities on the Nebraska reservation, where it blends in an alcohol additive.
HCI applied for a Kansas fuel importer/exporter license and a Kansas fuel
distributor license, but was informed it only needed the importer/exporter license,
which was duly issued.
The Sac & Fox, Iowa, and Kickapoo tribes (collectively “Kansas tribes”)
entered into contracts with the Winnebago tribe, through HCI, to purchase fuel.
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According to the Winnebago tribe, the fuel was sold to the Kansas tribes on the
reservation in Nebraska, and was then transported to the fuel depots on the
Kansas tribes’ reservations.
The State of Kansas imposes a fuel tax on the sale and delivery of motor
vehicle fuel within the State. The tax falls on the “distributor of first receipt.”
When Kansas attempted to impose its tax on HCI, HCI refused to remit the tax.
It claimed that as a tribal entity it enjoyed the tribe’s privileges and immunities
and that the state therefore had no power to impose the tax. After a second
unsuccessful attempt to collect the tax, the state began seizing tribal property
without notice and initiated criminal proceedings against some of the plaintiffs.
The tribes and various tribal officials then filed this suit in federal court for
injunctive and declaratory relief against various state officials (hereinafter
referred to collectively as “the state”), which the district court granted. We
address in turn the state’s arguments on appeal.
II
The state’s first argument on appeal concerns the district court’s refusal to
abstain from hearing the case in light of the pending state criminal proceedings.
When it granted the temporary restraining order, the district court ordered the
parties to address in their briefs at the preliminary injunction stage the
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applicability of the abstention doctrine from Younger v. Harris, 401 U.S. 37
(1971). The Younger doctrine requires a federal court to abstain from hearing a
case where three criteria are met. These criteria are: (1) state judicial proceedings
are ongoing; (2) state proceedings implicate an important state interest; and (3)
the state proceedings offer an adequate opportunity to litigate federal
constitutional issues. Seneca-Cayuga Tribe of Okla. v. Okla. ex rel. Thompson,
874 F.2d 709, 711 (10th Cir. 1989).
In its order granting the preliminary injunction, the district court found that
the first of these requirements – existence of pending state proceedings – was
met. It concluded the second requirement – implication of an important state
interest – had not been met. Characterizing the central question in the case as
whether the state can tax the sale of fuel between the Winnebago Tribe and the
Kansas tribes, the court determined that this issue was a matter of federal, not
state, law. The district court listed the following authority for this
characterization: Kiowa Tribe of Okla. v. Mfg. Techs., Inc., 523 U.S. 751, 756
(1998) (finding that tribal immunity is matter of federal law); Sycuan Band of
Mission Indians v. Roache, 54 F.3d 535 (9th Cir. 1995) (finding Younger
abstention inappropriate where threshold issue was whether state had jurisdiction
to prosecute Indians pursuant to state gaming laws); Fort Belknap Indian Cmty. v.
Mazurek, 43 F.3d 428, 432 (9th Cir. 1994) (refraining from abstention and
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holding that whether Montana has jurisdiction to prosecute Indians in state court
for violations of state liquor laws is issue of federal law); Seneca-Cayuga, 874
F.2d at 714 (finding that when state court is asked to decide issues of federal law
in area in which federal interests predominate, state’s interest in litigation is not
sufficiently important to warrant Younger abstention.) See Winnebago Tribe, 216
F. Supp. 2d at 1238.
The district court made clear that it was staying rather than terminating the
state criminal proceedings. Its rationale for doing so was that the federal issues
were antecedent to the state prosecutions. Federal law determines whether there
is in fact any violation to prosecute, or any tax to collect. The district court noted
the need to raise these issues in federal court, rather than as defenses in state
court where not all aspects of the issues could be properly heard. The court also
rejected the state’s argument that the seized property must be retained as evidence
in the state criminal proceedings, pointing out that the property served no purpose
as evidence.
In this appeal, the state argues that the district court’s analysis too
drastically narrowed the issue in determining whether the second Younger
requirement was met. The state maintains the question is not whether the state
can tax the sale at issue in this case, but whether the state has an interest in
enforcing its criminal laws. It is immediately apparent, however, that if the state
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were to prevail in this argument it would swallow the entire analysis because any
ongoing state criminal proceeding would no longer be just a factor in the analysis,
it would end the analysis. The district court therefore did not err in considering
the issue more narrowly than the state advocates. The central and threshold issues
in the case are federal Indian law issues, i.e. whether federal law bars the state
from imposing the tax, whether federal law preempts the state tax scheme as
applied to plaintiff Indian tribes, and whether the state’s enforcement violates
tribal sovereign immunity, issues which must be resolved before the state criminal
proceedings can go forward. The state prosecutions are based on allegations that
assume the state can apply its law to these parties.
Abstention is meant to be a rare exception to the court’s “virtually
unflagging obligation” to exercise jurisdiction. See Seneca-Cayuga, 874 F.2d at
711. Because at least one of the three Younger requirements was not met in this
case, the district court was correct in refusing to abstain. 1
III
1
The tribes maintain that even if this case satisfied the Younger
requirements, it would fall within two exceptions. The first exception is for those
situations in which the state proceedings are motivated by a desire to harass and
are conducted in bad faith. The second exception is for situations in which
plaintiffs will suffer irreparable harm in the absence of federal intervention.
Because we have found the Younger requirements are not satisfied, however, we
do not reach the applicability of these exceptions.
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The state’s second argument on appeal is that the district court abused its
discretion in granting both the temporary restraining order and the preliminary
injunction. The standard for abuse of discretion is high. The state must show
that the district court committed an error of law (for example, by applying the
wrong legal standard) or committed clear error in its factual findings. See Kiowa
Indian Tribe of Okla. v. Hoover, 150 F.3d 1163, 1165 (10th Cir. 1998). We have
previously described abuse of discretion as “an arbitrary, capricious, whimsical,
or manifestly unreasonable judgment.” Coletti v. Cudd Pressure Control, 165
F.3d 767, 777 (10th Cir. 1999) (quotation omitted).
Both district court orders at issue here are clearly written and painstakingly
explain the court’s reasoning on each point. The district court applied the proper
legal standards. While the state raises numerous arguments on various points in
support of its assertion that the district court abused its discretion, none of its
arguments rises to the standard for an abuse of discretion. For example, the
contention that the district court “failed to particularize in any meaningful way”
the significant interference with tribal self-government simply ignores the district
court’s consideration of evidence of loss of business, reputation, future viability,
and access to credit, all of which interfered with the tribes’ self-sufficiency and
economic development. See Seneca-Cayuga, 874 F.2d at 713. The state further
ignores the district court’s explicit recognition that more than economic damages
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were at stake. See Winnebago Tribe, 216 F. Supp. 2d at 1233. Hence, the state
has failed to persuade us the district court abused its discretion in granting the
injunctive orders in favor of the tribe.
The state’s argument concerning the balance of harms likewise lacks merit,
effectively raising only a difference of opinion as to outcome. The district court
made specific findings to support its conclusion on this point, none of which rises
to the level of clear error. See id. The court was therefore well within the bounds
of its discretion. Similarly, as to the arguments concerning public interest, the
district court made specific findings to support its determination that this factor
weighed in favor of plaintiffs. Id. at 1233-34. We find neither legal error nor
clearly erroneous factual findings in the court’s well-reasoned discussion.
Arguing that the district court abused its discretion in analyzing the factor
of likelihood of success on the merits, the state discusses only a single count of
plaintiffs’ complaint, which the state alleges does not present a fair ground for
litigation. The district court, on the other hand, discussed in detail six separate
counts that present fair grounds for litigation. Id. at 1234-38. Furthermore, as
plaintiffs point out, they did not rely in the district court on the single count
defendants attack on appeal. It is thus clear the district court did not abuse its
discretion in assessing the likelihood of success on the merits.
The state also contends the district court erred as a matter of law by failing
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to require plaintiffs to post a bond. However, we have previously held that a trial
court has “wide discretion” under Rule 65(c) in determining whether to require
security. See Continental Oil Co. v. Frontier Refining Co., 338 F.2d 780, 782
(10th Cir. 1964) (per curiam). The district court here considered the possibility of
a bond, made specific findings of fact, and concluded there was “an absence of
proof showing a likelihood of harm.” Winnebago Tribe, 216 F. Supp. 2d at 1239-
40 (quoting Coquina Oil Corp. v. Transwestern Pipeline Co., 825 F.2d 1461,
1462 (10th Cir. 1987) (quoting Continental Oil, 338 F.2d at 782)). We find no
abuse of discretion in the district court’s treatment of this issue.
IV
The state’s third and final argument on appeal is that the district court erred
in granting the preliminary injunction over the state’s Eleventh Amendment
immunity claims. This issue is easily disposed of. First, the state did not raise an
Eleventh Amendment immunity claim in the district court until well after the
issuance of the orders at issue in this case, so to say the court granted the
injunctive relief “over” the state’s Eleventh Amendment claims is wholly
incorrect. Even had these claims been properly raised, Eleventh Amendment
immunity would not be available to the state in this case.
In Sac & Fox Nation of Missouri v. Pierce, 213 F.3d 566 (10th Cir. 2000),
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we addressed whether the Eleventh Amendment barred a suit in federal court
brought by Indian tribes to enjoin the State of Kansas from collecting taxes on
motor fuel distributed to the tribes’ retail stations. Looking closely at the
legislative history of 28 U.S.C. § 1362 2 and the Supreme Court’s opinions in Moe
v. Confederated Salish & Kootenai Tribes, 425 U.S. 463 (1976) and Blatchford v.
Native Village of Noatak, 501 U.S. 775 (1991), we held that the Eleventh
Amendment did not bar the suit. See Sac & Fox, 213 F.3d at 572-73.
We determined that our decision regarding § 1362 obviated the need to
discuss the doctrine of Ex Parte Young, 209 U.S. 123 (1908). Sac & Fox, 213
F.3d at 573 n.3. However, to the extent it is relevant here, we note the Supreme
Court has held that in making the determination whether Ex Parte Young avoids
an Eleventh Amendment bar to suit, a court need only conduct a straightforward
inquiry into whether the complaint alleges an ongoing violation of federal law and
seeks relief properly characterized as prospective. Verizon Md., Inc. v. Publ.
Serv. Comm’n of Md., 535 U.S. 635, 645 (2002). The district court properly
determined in the course of its several orders that this case presents those two
characteristics – the plaintiffs seek injunctive and declaratory relief that is
prospective in nature and the complaint alleges an ongoing violation of federal
2
28 U.S.C. § 1362 states that district courts have original jurisdiction of all
civil actions brought by an Indian tribe where the matter arises under the
Constitution, laws, or treaties of the United States.
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law. Accordingly the Eleventh Amendment does not bar the claims in the
plaintiffs’ complaint.
We AFFIRM.
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