Case 5:14-cv DMG-DTB Document 45 Filed 08/15/14 Page 1 of 22 Page ID #:467

Transcription

1 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 RODERICK E. WALSTON (Bar No. ) Roderick.walston@bbklaw.com STEVEN G. MARTIN (Bar No. ) Steven.martin@bbklaw.com 00 N. Main Street, Suite 0 Walnut Creek, California Telephone: () -00 Facsimile: () -0 Attorneys for Defendant-Intervenor DESERT WATER AGENCY GREGORY P. PRIAMOS, County Counsel (Bar No. ) RONAK N. PATEL, Deputy County Counsel (Bar No. ) rnpatel@co.riverside.ca.us COUNTY OF RIVERSIDE 0 Orange Street, Suite 00 Riverside, California 0 Telephone: () -00 Facsimile: () - Attorneys for Defendants COUNTY OF RIVERSIDE, LARRY W. WARD, PAUL ANGULO and DON KENT AGUA CALIENTE BAND OF CAHUILLA INDIANS, v. Plaintiff, RIVERSIDE COUNTY, LARRY W. WARD, in his official capacity as Riverside County Assessor, PAUL ANGULO, in his official capacity as Riverside County Auditor-Controller, and DON KENT, in his official capacity as Treasurer Tax Collector, UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA Defendants; and DESERT WATER AGENCY, Defendant-Intervenor. EASTERN DIVISION Case No. :-cv-0000-dmg-dtb Judge: Hon. Dolly M. Gee DEFENDANTS RESPONSE TO PLAINTIFFS OPPOSITION TO MOTION FOR JUDGMENT ON THE PLEADINGS Hearing Date: August, 0 Time: :0 a.m. Crtrm: Trial Date: TBD Action Filed: January, \0.

2 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 TABLE OF CONTENTS Page INTRODUCTION... I. BRACKER DID NOT CONSTITUTE A SIGNIFICANT CHANGE IN THE LAW, AND THE NINTH CIRCUIT DECISIONS IN AGUA CALIENTE AND FORT MOJAVE APPLIED THE ANALYSIS LATER APPLIED BY BRACKER, AND THUS ARE STILL GOOD LAW... A. Bracker Did Not Significantly Change the Law... B. Agua Caliente and Fort Mojave Applied Modern Principles Of Federal Indian Law, and Are Good Law... II. THE BUREAU OF INDIAN AFFAIRS REGULATION, C.F.R..0, PROVIDES NO BASIS FOR OVERTURNING THE NINTH CIRCUIT DECISIONS IN AGUA CALIENTE AND FORT MOJAVE, AND THUS THE DECISIONS ARE GOOD LAW... III. THE TAX LIABILITY CASES CITED BY THE TRIBE DO NOT PRECLUDE APPLICATION OF RES JUDICATA AND COLLATERAL ESTOPPEL... CONCLUSION \0. - i - :-CV-0000-DMG-DTB

3 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 CASES TABLE OF AUTHORITIES \0. - ii - Page Agua Caliente Band of Mission Indians v. Riverside County, F.d ()... Passim Board of Trustees v. Reyes, F.d (th Cir. )... Burlington Northern Santa Fe R.R. co. v. Assiniboine and Sioux Tribes, F.d (th Cir. 00)... Chemehuevi Indian Tribe v. California State Board of Equalization, 00 F.d (th Cir. )... Commissioner of Internal Revenue v. Sunnen, U.S. ()...,,, Confederated Tribes of the Chehalis Res. v. Thurston Board of Equalization, F.d (th Cir. 0)...,, 0, Cortes v. Intermedics, Inc., F.d (st Cir. 000)... Cotton Petroleum Corp. v. New Mexico, 0 U.S. ()..., Fort Mojave Tribe v. County of San Bernardino, F.d (th Cir. )... Passim Gila River Indian Community v. Waddell, F.d (th Cir. )...,, Lincoln-Dodge, Inc. v. Sullivan, F.Supp.d (D.R.I. 00)... McClanahan v. Arizona State Tax Comm n, U.S. ()...,, Mescalero Apache Tribe v. Jones, U.S. ()... Moe v. Confederated Salish & Kootenai Tribes, U.S. ()... Montana v. United States, 0 U.S. ()..., Oklahoma Tax Comm n v. Citizen Band Potawatomi Indian Tribe, U.S. 0 ()... Organized Village of Kake v. Egan, U.S. 0 ()... :-CV-0000-DMG-DTB

4 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #:0 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 CASES TABLE OF AUTHORITIES \0. - iii - Page Palm Springs Spa v. County of Riverside, Cal.App.d ()...,, Parker v. Westover, F.d 0 (th Cir. )... Peck v. Commissioner of Internal Revenue, 0 F.d (th Cir. 0)... ReadyLink Healthcare, Inc. v. State Compensation Ins. Fund, F.d, 0 U.S. App. Lexis 0 (th Cir. 0)..., Rice v. Rehner, U.S. ()... Salt River Pima-Maricopa Indian Community v. State of Arizona, 0 F.d (th Cir. )... Solid Waste Agency of N. Cook Co. v. U.S. Army Corps of Engineers, U.S. (00)..., 0 United States v. Mead Corp, U.S. (00)...0 United States v. Short, 0 F.d (th Cir. )... Washington v. Confederated Tibes of the Colville Indian Reservation, U.S. (0)... White Mountain Apache Tribe v. Bracker, U.S. (0)... Passim Williams v. Lee, U.S. ()..., Worcester v. Georgia, Pet. ()... Wyeth v. Levine, U.S. (00)..., 0 Yavapai-Prescott Indian Tribe v. Scott, F.d 0 (th Cir. )... CODES AND STATUTES U.S.C. 0()(A), ()(C)... C.F.R..0, -(a), -(b), -(c)...,, 0, U.S.C....,, 0 :-CV-0000-DMG-DTB

5 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 INTRODUCTION Plaintiff Agua Caliente Band of Cahuilla Indians ( Tribe ) makes two overarching arguments that apply to all three claims that the defendants assert in their motion for judgment on the pleadings, that is, the claims that the Tribe s action is barred by res judicata, collateral estoppel and stare decisis. First, the Tribe argues that the Ninth Circuit decisions in Agua Caliente Band of Mission Indians v. County of Riverside, F.d (), and Fort Mojave Tribe v. County of San Bernardino, F.d (th Cir. ), which are the primary basis for the defendants claims, are no longer good law because of the Supreme Court s decision in White Mountain Apache Tribe v. Bracker, U.S. (0). Plaintiff s Opp. to Defendants and Defendant-Intervenor s Motion for Judgment on the Pleadings ( Tribe Opp. ) -, -0, -. The Tribe argues that Bracker caused a significant change in the law and a significant change in the legal climate, Tribe Opp. ; that Bracker dramatically departed from the legal standard applied by Agua Caliente and Fort Mojave, id. at ; and that Bracker effectively abrogated Fort Mojave and Agua Caliente by creating an entirely new preemption test, id. at 0. Second, the Tribe argues that the U.S. Bureau of Indian Affairs regulation, C.F.R..0, is another change in the law and represents a shift in the legal principles controlling taxes against possessory interests arising from Indian lands, and therefore the doctrines of res judicata, collateral estoppel and stare decisis do not apply for this additional reason. Tribe Opp., -. In addition, the Tribe argues that the Supreme Court s decision in Commissioner of Internal Revenue v. Sunnen, U.S., (), precludes application of res judicata and collateral estoppel in tax liability cases, such as the instant case. Tribe Opp. -. As we explain, the Tribe s arguments are misplaced and the defendants motion for judgment on the pleadings should be granted \ :-CV-0000-DMG-DTB

6 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 I. BRACKER DID NOT CONSTITUTE A SIGNIFICANT CHANGE IN THE LAW, AND THE NINTH CIRCUIT DECISIONS IN AGUA CALIENTE AND FORT MOJAVE APPLIED THE ANALYSIS LATER APPLIED BY BRACKER, AND THUS ARE STILL GOOD LAW. A. Bracker Did Not Significantly Change the Law. In Bracker, the Supreme Court held that whether federal law preempts state law as applied to non-indians on Indian reservations depends upon a particularized inquiry into the nature of federal, state and tribal interests. Bracker, U.S. at. Contrary to the Tribe s argument, the Supreme Court s particularized inquiry approach did not originate with Bracker. Rather, the Supreme Court has applied a particularized inquiry approach in earlier cases in determining whether state laws apply on Indian reservations, some of which predated Fort Mojave, which was decided in, and some of which even predated Agua Caliente and Palm Springs Spa v. County of Riverside, Cal.App.d (), which were decided in. As the Ninth Circuit noted in Fort Mojave, the Supreme Court in McClanahan v. Arizona State Tax Comm n, U.S. (), stated that the trend has been away from the idea of inherent Indian sovereignty as a bar to state jurisdiction and towards reliance on federal preemption, and we must carefully analyze the applicable federal statutes to determine whether the state action has Although the Tribe argues that the California Court of Appeal decision in Palm Springs Spa has no stare decisis effect, Tribe Opp. -, the decision is relevant in explaining that federal law does not preempt state possessory interest taxes as applied to non-indian lessees on an Indian reservation, and thus supports the defendants argument that the Tribe s complaint should be dismissed. Further, state court decisions that federal law does not preempt state law are given res judicata and collateral estoppel effect in the federal courts. ReadyLink Healthcare, Inc. v. State Compensation Ins. Fund, F.d, 0 U.S. App. Lexis 0, **- 0 (th Cir. 0) (collateral estoppel bars claim previously adjudicated in state court that Internal Revenue Service regulation preempts state law) \ :-CV-0000-DMG-DTB

7 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 been preempted. McClanahan, U.S. at ; Fort Mojave, F.d at -. Fort Mojave also described the Supreme Court s decision in Mescalero Apache Tribe v. Jones, U.S. (), a companion decision to McClanahan, which examined federal, state and tribal interests in determining whether state taxes apply on Indian reservations. Mescalero, -; Fort Mojave, F.d at. In Mescalero, the Supreme Court stated: The conceptual clarity of Mr. Chief Justice Marshall s view in Worcester v. Georgia, Pet., - (), has given way to more individualized treatment of particular treaties and specific federal statutes,... as they, taken together, affect the respective rights of States, Indians, and the Federal Government. Mescalero, U.S. at (citations omitted) (emphasis added). Even before Agua Caliente, the Supreme Court had held that even on [Indian] reservations state laws may be applied to Indians unless such application would interfere with reservation self-government or impair a right granted or reserved by federal law, thus requiring an examination of state, federal and tribal interests. Organized Village of Kake v. Egan, U.S. 0, (). Even earlier, the Supreme Court had held that [e]ssentially, absent governing acts of Congress, the question has always been whether the state action infringed on the right of reservation Indians to make their own laws and be ruled by them, again requiring an examination of federal, state and tribal interests. Williams v. Lee, U.S., 0 (). Thus, the Supreme Court held long before Bracker that the applicability of state laws on Indian reservations does not depend on notions of Indian sovereignty, but instead depends on whether federal law preempts state law, which in turn requires an examination of federal, state and tribal interests. Bracker is merely one of several Supreme Court cases that have analyzed federal, state and tribal interests in determining whether federal law preempts state law as applied on Indian reservations. Bracker was not the progenitor of the particularized inquiry approach, \ :-CV-0000-DMG-DTB

8 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 but instead articulated and applied the approach that the Supreme Court had adopted and applied in pre-backer cases and continued to apply in post-bracker cases. B. Agua Caliente and Fort Mojave Applied Modern Principles of Federal Indian Law, and Are Good Law. The Ninth Circuit in Agua Caliente and Fort Mojave analyzed federal, state and tribal interests in concluding that federal law does not preempt county possessory interest taxes as applied to non-indian lessees, thus applying modern principles of federal Indian law rather than outmoded principles, as the Tribe claims. The dominant factor that guided the Ninth Circuit s decisions was that county possessory interest taxes were applied to non-indians and not to the Indian tribe or its land or its members. In Agua Caliente, the Ninth Circuit held that federal law does not preempt the County s possessory interest tax because the tax does not purport to tax the land as such, but rather taxes the full cash value of the lessee s interest in it, and thus the Indian lessor is not liable for payment of it. Agua Caliente, F.d at. In Fort Mojave, the Ninth Circuit held that while a possessory interest tax on the leasehold interest will have an economic effect on the Indian lessors, the legal incidence of the tax clearly falls on the lessee and [t]he lessor will never be personally liable for any delinquent taxes arising under the taxing statute. Fort Mojave, F.d at. The Ninth Circuit in Fort Mojave also considered additional factors, such as () the applicability and effect of federal statutes (the Indian Reorganization Act of and Public Law 0), F.d at -; and () the Supreme Court s earlier decisions in McClanahan, Mescalero and Williams v. Lee, which, as noted above, had examined federal, state and tribal interests in determining whether state laws apply on Indian reservations. Fort Mojave, F.d at -. Since Agua Caliente and Fort Mojave analyzed federal, state and tribal interests in concluding that federal law does not preempt county possessory interest taxes as applied to non-indian lessees, the \ :-CV-0000-DMG-DTB

9 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 decisions applied modern principles of federal Indian law and are still good law. The Ninth Circuit s recent decision in Confederated Tribes of the Chehalis Reservation v. Thurston Board of Equalization, F.d (th Cir. 0), removes any doubt concerning whether Agua Caliente and Fort Mojave are still good law. There, the Ninth Circuit cited and quoted Agua Caliente and Fort Mojave in stating that federal law does not preempt possessory interest taxes on non-indian lessees of property held in trust by the United States Government for reservation Indians.... Chehalis, F.d at, citing and quoting Fort Mojave, F.d at, and Agua Caliente, F.d at -. Quoting Agua Caliente, Chehalis stated that a [t]he California tax on possessory interests does not purport to tax the land as such, which would be barred by, but rather taxes the full cash value of the lessee s interest in it, which is not covered by. Id. at n., quoting Agua Caliente, F.d at. Chehalis distinguished between a tax on rights of possession, as in Fort Mojave and Agua Caliente, and a tax on improvements, as in Chehalis, stating that the distinction is critical in determining the preemptive effect of section. Chehalis, F.d 0 Similarly, the California Court of Appeal in Palm Springs Spa considered federal, state and tribal interests in upholding the County s possessory interest tax, stating that the preemption issue cannot be judged by reference to broad statements about the comprehensive nature of federal regulation of Indian affairs, but instead must be answered by a judgment upon the facts of the particular case. Palm Springs Spa, Cal.App.d at. In weighing these interests, the court concluded that [i]t cannot be said that the taxation of the possessory interest of non-indians on federal land held in trust for Indians is an area inherently requiring uniform national regulation, and that, on the contrary, the United States Supreme Court has recognized the ability of local authorities to impose taxes of certain types on the activities of private persons conducted on Indian trust or other federal land. Id. at - (citations omitted). U.S.C. authorizes the United States to take lands into trust for an Indian tribe, and provides that such lands or rights shall be exempt from State or local taxation \ :-CV-0000-DMG-DTB

10 Case :-cv-0000-dmg-dtb Document Filed 0// Page 0 of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 at n.. By citing and quoting Agua Caliente and Fort Mojave, Chehalis made clear that both decisions are still good law. Chehalis directly contradicts the Tribe s contention that Agua Caliente and Fort Mojave are no longer good law because they did not balance federal, state and tribal interests as required by Bracker. Chehalis stated that [w]e have applied the Bracker balancing test in a variety of circumstances involving the imposition of state and local taxes on non-indians, and that [e]ven prior to Bracker, we applied a similar mode of analysis in holding that possessory interest taxes on non-indian lessees of property held in trust by the United States Government for reservation Indians are not per se preempted, citing and quoting Fort Mojave and Agua Caliente. Chehalis, F.d at (emphasis added). Thus, Chehalis stated that Agua Caliente and Fort Mojave even though decided before Bracker employed a similar mode of analysis to that required by Bracker, contrary to the Tribe s argument that Agua Caliente and Fort Mojave applied an outmoded analysis. The Tribe argues that Chehalis held only that a Washington county could not apply a tax on permanent improvements directly on a tribal business entity, and thus Chehalis analysis of Agua Caliente and Fort Mojave which involved a possessory interest tax on non-indian lessees was dictum. Tribe Opp. -. Regardless of whether Chehalis analysis of Agua Caliente and Fort Mojave was dictum, Chehalis analysis plainly refutes the Tribe s contention that Agua Caliente and Fort Mojave are no longer good law. If Agua Caliente and Fort Mojave are no longer good law, as the Tribe contends, Chehalis would have stated that the decisions are no longer good law and need not be followed, rather than distinguishing the decisions as the court did. Agua Caliente and Fort Mojave are fully consistent with the modern trend of federal Indian law, which has been to authorize the states to apply their nondiscriminatory taxes on non-indians on Indian reservations. As the Supreme Court has stated: \ :-CV-0000-DMG-DTB

11 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 Under current doctrine, a State can impose a nondiscriminatory tax on private parties with whom the United States or an Indian tribe does business, even though the financial burden of the tax may fall on the United States or tribe. Cotton Petroleum Corp. v. New Mexico, 0 U.S., (). This trend of modern federal Indian law is exemplified in numerous Supreme Court decisions upholding the validity of state taxes as applied to non-indians on Indian reservations, both before and after Bracker. Cotton Petroleum, 0 U.S. at - (upholding state taxes as applied to oil and gas production by non-indian lessees on an Indian reservation); Rice v. Rehner, U.S., () (upholding state taxes as applied to liquor sales by a non-indian on an Indian reservation); Moe v. Confederated Salish & Kootenai Tribes, U.S., - () (upholding state tax as applied to sales to non-indians by Indian smokeshops on an Indian reservation, but not as applied to sales to Indians); Washington v. Confederated Tribes of the Colville Indian Reservation, U.S., 0- (0) (upholding state tax as applied to sales of cigarettes to non-indians on an Indian reservation); Oklahoma Tax Comm n v. Citizen Band Potawatomi Indian Tribe, U.S. 0, - () (upholding state tax as applied to sales to non-indians on an Indian reservation, but not as applied to sales to Indians). This trend of modern federal Indian law is also exemplified in several Ninth Circuit post-bracker decisions that have upheld state taxes as applied to non- Indians on Indian reservations, and that in some instances have pointedly relied on and reaffirmed Agua Caliente and Fort Mojave. Gila River Indian Community v. Waddell, F.d, (th Cir. ) (holding that state tax applied to ticket sales on Indian reservations not preempted, citing Agua Caliente for proposition that the mere fact that a tax upon a non-indian may ultimately have an economic impact on a tribe is not sufficient to defeat the tax ); Chemehuevi Indian Tribe v. California State Board of Equalization, 00 F.d, - (th Cir. ) \ :-CV-0000-DMG-DTB

12 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 (holding that state cigarette sales tax as applied to non-indians on Indian reservation is not preempted by federal law); Salt River Pima-Maricopa Indian Community v. State of Arizona, 0 F.d, (th Cir. ) (holding that state sales tax applied to non-indian seller of goods to non-indians is not preempted, because legal incidence of tax falls on non-indian sellers); Yavapai-Prescott Indian Tribe v. Scott, F.d 0, (th Cir. ) (holding that state tax on hotel rentals and food and beverage sales as applied to non-indian lessees on Indian reservations is not preempted, because legal incidence of tax fell on non-indian lessees). Therefore, Agua Caliente and Fort Mojave are fully consistent with the principles of modern federal Indian law and are still good law. II. THE BUREAU OF INDIAN AFFAIRS REGULATION, C.F.R..0, PROVIDES NO BASIS FOR OVERTURNING THE NINTH CIRCUIT DECISIONS IN AGUA CALIENTE AND FORT MOJAVE, AND THUS THE DECISIONS ARE GOOD LAW. The Tribe argues that the recent regulation adopted by the U.S. Bureau of Indian Affairs ( BIA ), C.F.R..0, provides another change in the law and fundamentally altered the landscape for assessing taxes imposed in Indian country, and that Agua Caliente and Fort Mojave are outmoded for this additional reason. Tribe Opp.. The BIA regulation, in subsection (c), provides that [s]ubject only to applicable Federal law, the leasehold or possessory interest is not subject to any fee, tax, assessment, levy, or other charge imposed by any State or political subdivision of a State. C.F.R..0(c). The Tribe argues that the regulation demonstrates that the Federal and tribal interests are very strong in regulating non-indian lessees on Indian reservations, and that the regulation provides evidence of the federal interest that must be considered as part of the Bracker balancing test. Tribe Opp.. In effect, the Tribe argues that the BIA regulation tips the scales in favor of preemption of county possessory interest taxes as applied to non-indian lessees, and thus that Agua Caliente and Fort Mojave, in \ :-CV-0000-DMG-DTB

13 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 holding that such taxes are not preempted, are no longer good law. The Tribe flatly alleges in its complaint that the BIA regulation and a federal statute, U.S.C., leave no room for the taxation or other regulation of Reservation trust land leases by state or local governments. Compl. (Doc. No. ). Contrary to the Tribe s argument, a federal agency does not have authority to adopt a regulation that preempts state law in contravention of federal appellate case authority holding that federal law does not preempt state law. As the Supreme Court has said, agencies have no special authority to pronounce on pre-emption absent delegation by Congress, and when reviewing such preemption language the Court has performed its own conflict determination, relying on the substance of state and federal law and not on agency proclamations of pre-emption nor an agency s mere assertion that state law is an obstacle to achieving its statutory objectives. Wyeth v. Levine, U.S., - (00). As the Ninth Circuit has stated, [a]n administrative regulation... has the force of law and will be given full effect by the courts, but only if promulgated within the authority granted by statute. United States v. Short, 0 F.d, (th Cir. ). Thus, if a federal agency adopts a regulation that preempts state law in contravention of federal appellate case authority holding that state law is not preempted, the agency has exceeded its authority under federal law and its regulation is invalid. Under the Administrative Procedure Act, a federal regulation is invalid if it exceeds the agency s authority under federal law. U.S.C. 0()(A) (agency action unlawful if arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law ), 0()(C) (agency action unlawful if in excess of statutory jurisdiction, authority, or limitations, or short of statutory right ). The Supreme Court has invalidated federal regulations that exceeded the authority of federal agencies under federal law. Solid Waste Agency of N. Cook Co. v. U.S. Army Corps of Engineers, U.S., - (00) (invalidating U.S. Army Corps of Engineers regulation because it exceeded Corps authority under Clean \ :-CV-0000-DMG-DTB

14 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #:0 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 Water Act); United States v. Mead Corp., U.S., -0 (00) (invalidating U.S. Custom Service tariff rule because it exceeded agency s authority under Harmonized Tariffs Schedule of the United States). Since the Ninth Circuit in Agua Caliente and Fort Mojave held that federal law does not preempt county possessory interest taxes as applied to non-indian lessees, the BIA does not have authority to adopt a regulation that preempts such taxes and effectively overturns the Ninth Circuit decisions. See Levine, U.S. at -; Solid Waste Agency, U.S. at -; Mead, U.S. at -0. Therefore, the Tribe s argument that the BIA regulation is a change in the law and represents a shift in the legal principles, Tribe Opp., -, is inherently incorrect, because if the regulation purports to preempt state possessory interest taxes and overturn the Ninth Circuit decisions the regulation exceeds the BIA s authority under federal law and is invalid. Conceivably, the BIA regulation may be interpreted as not preempting county possessory interest taxes and thus as not being invalid. The regulation s preamble states that the regulation is subject only to applicable Federal law. U.S.C..0(a), -(b), -(c). Since applicable Federal law, as interpreted by the Ninth Circuit in Agua Caliente and Fort Mojave, provides that county possessory interest taxes are not preempted, the preamble may be construed as not preempting such taxes. So construed, the regulation would not overturn Agua Caliente and Fort Mojave and thus would be valid. This construction, however, would contradict the Tribe s argument that the regulation is a change in the law and represents a shift in the legal principles. This construction might be supported by the Ninth Circuit s recent decision in Confederated Tribes of the Chehalis Reservation v. Thurston Board of Equalization, F.d (th Cir. 0), which stated that subsection (a) of the BIA regulation which applies to permanent improvements on Indian leased lands, C.F.R..0(a) merely clarifies and confirms what already conveys.... Chehalis, F.d at n. (internal quotation marks and \ :-CV-0000-DMG-DTB

15 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 Although the Tribe argues that it would be treated differently from other Indian tribes if it could not assert that the Bracker balancing test and the BIA regulation preempt the County s possessory interest tax, Tribe Opp., the Tribe would be treated exactly the same way that other tribes are treated. Any Indian tribe that brings an action alleging that federal law preempts a county s possessory interest tax would face the same stare decisis argument that the Tribe faces here, namely that Agua Caliente and Fort Mojave hold that federal law does not preempt such a tax. Thus, the Tribe faces the same argument here that any Indian tribe would face in alleging that the possessory interest tax is preempted. To the extent that the Tribe s action is barred by res judicata and collateral estoppel, these doctrines preclude a party or its privy from re-litigating claims and issues that they have previously litigated, and necessarily do not preclude non-parties and nonprivies in the prior action from pursuing their own claims and issues. In sum, the BIA regulation does not provide a basis for overturning the Ninth Circuit s decisions in Agua Caliente and Fort Mojave, and the decisions remain good law notwithstanding the regulation. 0 citation omitted). If subsection (a), which applies to permanent improvements, merely clarifies and confirms existing law, then perhaps subsection (c), which applies to the leasehold or possessory interest and is involved here, may also merely clarify[y] and confirm[] existing law as interpreted in Agua Caliente and Fort Mojave. The Tribe argues that defendant-intervenor Desert Water Agency s ( DWA ) action against the Department of the Interior challenging the BIA regulation recognized that the regulation fundamentally altered the legal landscape for assessing taxes in Indian country. Tribe Opp.. On the contrary, DWA s complaint alleged in the alternative that () the regulation did not preempt DWA s charges as applied to non-indian lessees on the Tribe s reservation (Compl. p. (First Claim for Relief)), and () if the regulation did preempt DWA s charges, the regulation exceeded the BIA s authority under federal law and is invalid (Compl. p. (Second Claim for Relief)). DWA s Complaint for Dec. and Inj. Relief, No. CV-0 DMG OPx \ :-CV-0000-DMG-DTB

16 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0 III. THE TAX LIABILITY CASES CITED BY THE TRIBE DO NOT PRECLUDE APPLICATION OF RES JUDICATA AND COLLATERAL ESTOPPEL. In their motion for judgment on the pleadings, the defendants argued that the Tribe s action is barred by res judicata and collateral estoppel because of the Ninth Circuit s decision in Agua Caliente. The Tribe argues that res judicata and collateral estoppel do not apply in tax liability cases, such as the instant case, citing the Supreme Court s decision in Commissioner of Internal Revenue v. Sunnen, U.S., (), and its Ninth Circuit progeny, Burlington Northern Santa Fe R.R. Co. v. Assiniboine and Sioux Tribes, F.d, (th Cir. 00), and Parker v. Westover, F.d 0, 0 (th Cir. ). Tribe Opp. -. This court need not reach the res judicata and collateral estoppel issues, of course, if it rules that stare decisis precludes the Tribe from asserting its preemption claims. In their stare decisis argument, the defendants argue that federal law, as interpreted by the Ninth Circuit in Agua Caliente, Fort Mojave and Chehalis and the California Court of Appeal in Palm Springs Spa, does not preempt the County s possessory interest tax as applied here. Sunnen held that res judicata does not bar re-litigation of tax liability claims in different tax years, because [e]ach year is the origin of a new liability and of a separate cause of action. Sunnen, U.S. at ; Tribe Opp.. Sunnen also held, however, that collateral estoppel bars re-litigation of factual issues that were resolved in adjudication of tax liability claims in different tax years, unless there has been a subsequent modification of the significant facts or a change or development in the controlling legal principles [that] may make that determination It is ironic that although the Tribe asserts that the defendants rely on outdated case law, Tribe Opp., consisting of a -year-old case and a -year-old case, id. at the Tribe relies on the Supreme Court s -year-old decision in Sunnen for its res judicata argument \ :-CV-0000-DMG-DTB

17 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 obsolete or erroneous, at least for future purposes. Sunnen, U.S. at. The Tribe argues that Sunnen precludes application of collateral estoppel here because the BIA regulation, U.S.C..0, has caused an intervening change in law and a significant change in the legal climate since Agua Caliente was decided, Tribe Opp.,,, and thus Agua Caliente is obsolete or erroneous. Tribe Opp.. The Tribe also argues that Agua Caliente is not binding under the Supreme Court s decision in Montana v. United States, 0 U.S. (), which interpreted Sunnen as holding that res judicata does not apply if there has been a change in controlling legal principles and a significant change in the legal climate such that the prior decision is inconsistent with prevailing doctrine. Montana, 0 U.S. at ; Tribe Opp. ; see note, supra. Contrary to the Tribe s argument, Sunnen, even as interpreted in Montana, does not preclude application of res judicata and collateral estoppel here for two reasons. First, the Tribe s action asserts claims of federal preemption and tribal sovereignty rather than issues of taxpayer liability. The Tribe s complaint contains two counts, the first entitled Federal Preemption and the second entitled Injury to Sovereign Interests, Compl. pp., ; these counts allege that federal law preempts the County s possessory interest tax as applied to non-indian lessees, and that the County s tax impairs the Tribe s sovereign interests. Compl. - 0 Sunnen also held that collateral estoppel bars re-litigation of actually-adjudicated factual issues even if in different years if the relevant facts in the two cases are separable, even though they be similar or identical.... Sunnen, U.S. at 0. This conclusion is sometimes referred to as the separable facts doctrine. Peck v. Commissioner of Internal Revenue, 0 F.d, (th Cir. 0). As the Tribe notes, the Ninth Circuit has stated that the Supreme Court s decision in Montana v. United States, 0 U.S. (), calls Sunnen s separable facts doctrine into question. Peck, 0 F.d at ; Tribe Opp. n.. In Montana, the Supreme Court interpreted Sunnen as holding only that res judicata does not apply if there has been a change in controlling legal principles, and a significant change in the legal climate such that the prior decision is inconsistent with prevailing doctrine. Montana, 0 U.S. at \ :-CV-0000-DMG-DTB

18 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 0. Thus, the Tribe s action challenges the validity of the County s tax on preemption and sovereignty grounds, and does not challenge the determination of the lessees annually-calculated tax liability. The lessees tax liability is merely incidental, at most, to the Tribe s claim that the tax is invalid on preemption and sovereignty grounds. The Ninth Circuit has held that the question whether federal law preempts state taxes as applied to non-indians does not turn on whether the state taxes have incidental effects on the tribe. Gila River Indian Community v. Waddell, F.d, (th Cir. ) ( [T]he mere fact that a tax upon a non-indian may ultimately have an economic impact on a tribe is not sufficient to defeat the tax. ). The res judicata and collateral estoppel doctrines fully apply to federal preemption claims, just as they apply to other claims. Board of Trustees v. Reyes, F.d, (th Cir. ); ReadyLink Healthcare, Inc. v. State Compensation Ins. Fund, F.d, 0 U.S. App. 0, **-0 (th Cir. 0); Cortes v. Intermedics, Inc., F.d, (st. Cir. 000); Lincoln-Dodge, Inc. v. Sullivan, F.Supp.d, (D.R.I. 00). The Tribe s argument would lead to the absurd result that the Tribe would be able to challenge the validity of the County s tax on preemption and sovereignty grounds each year, simply because the lessees are assessed a new tax liability each year. Such a result would defeat the purpose of the res judicata doctrine by allowing the Tribe to annually re-litigate its preemption and sovereignty claims, even though the claims might have been fully adjudicated in the prior year, or in years before that. Although the tax liability cases cited by the Tribe allow the taxpayer to annually challenge the annual determination of his tax liability, they do not allow a non-taxpayer, the Tribe, to annually challenge the validity of the County s possessory interest tax on preemption and sovereignty grounds. Second, there has been no subsequent modification of the significant facts or change or development in the controlling legal principles [that] may make that determination [the Ninth Circuit s decision in Agua Caliente] obsolete or \ :-CV-0000-DMG-DTB

19 Case :-cv-0000-dmg-dtb Document Filed 0// Page of Page ID #: 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA 0 erroneous, Sunnen, U.S. at, nor a change in controlling legal principles and a significant change in the legal climate such that Agua Caliente is inconsistent with prevailing doctrine. Montana, 0 U.S. at. As explained earlier, Agua Caliente applied modern principles of federal Indian law rather than outmoded principles in concluding that the County s possessory interest tax is valid as applied to the non-indian lessees. See pages -0, supra. Subsequently to Agua Caliente, the Ninth Circuit has followed and reaffirmed Agua Caliente in holding that nondiscriminatory state taxes are applicable to non-indians on Indian reservations. Chehalis, F.d at, & n. ; Gila River Indian Community v. Waddell, F.d, (th Cir. ). Agua Caliente is consistent with the modern trend of federal Indian law, which recognizes that the states have the right to apply their nondiscriminatory taxes on non-indians on Indian reservations. Cotton Petroleum Corp. v. New Mexico, 0 U.S., () ( Under current doctrine,... a State can impose a nondiscriminatory tax on private parties... even though the financial burden of the tax may fall on the United States or tribe. ) The Tribe s argument that Agua Caliente applied outmoded principles of federal Indian law rather than modern principles, and that there has been a significant change in the law since Agua Caliente, misconstrues modern federal Indian law \ :-CV-0000-DMG-DTB

20 Case :-cv-0000-dmg-dtb Document Filed 0// Page 0 of Page ID #: CONCLUSION For the foregoing reasons, the defendants motion for judgment on the pleadings should be granted. 0 Dated: August, 0 Dated: August, 0 By: /s/ Roderick E. Walston RODERICK E. WALSTON STEVEN G. MARTIN Attorneys for Defendant Desert Water Agency COUNTY OF RIVERSIDE 00 N. MAIN STREET, SUITE 0 WALNUT CREEK, CA By: /s/ Gregory P. Priamos GREGORY P. PRIAMOS County Counsel, Riverside County RONAK N. PATEL Deputy County Counsel Attorneys for Defendants Riverside County, et al \ :-CV-0000-DMG-DTB