Case 5:14-cv DMG-DTB Document 153 Filed 01/30/17 Page 1 of 31 Page ID #:2291

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1 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 DAVID J. MASUTANI (CA Bar No. 0) dmasutani@alvaradosmith.com ALVARADOSMITH, A Professional Corporation W. Fifth Street, Suite 00 Los Angeles, CA 00 Tel: () -00; Fax: () - LLP ROB ROY SMITH (WA Bar No. ) (Admitted Pro Hac Vice) 0 Fifth Avenue, Suite 00 Seattle, WA 0 Tel.: (0) -00; Fax: (0) - CATHERINE MUNSON, (D.C. Bar No. ) (Admitted Pro Hac Vice) MARK H. REEVES, (GA Bar No. ) (Admitted Pro Hac Vice) 0 th Street, NW, Suite 00 Washington, DC Tel.: (0) 0-00 Fax: (0) 0- Attorneys for Plaintiff AGUA CALIENTE BAND OF CAHUILLA INDIANS AGUA CALIENTE BAND OF CAHUILLA INDIANS, v. Plaintiff, RIVERSIDE COUNTY, et al., Defendants, DESERT WATER AGENCY, Defendant-Intervenor. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA EASTERN DIVISION Case No.: ED CV DMG (DTBx) AGUA CALIENTE BAND OF CAHUILLA INDIANS REPLY IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT AND CONSOLIDATED RESPONSE TO DEFENDANTS MOTIONS FOR SUMMARY JUDGMENT Trial Date: June, 0 Hearing Date: March, 0, :00 pm Action Filed: January, 0 00V.

2 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 TABLE OF CONTENTS Page FACTUAL BACKGROUND... ARGUMENT & ANALYSIS... I. The law of the case doctrine applies.... II. U.S.C. expressly preempts the PIT.... A. The tax exemption codified in applies to the Agua Caliente Reservation.... B. Because Congress has explicitly forbidden state and local taxation of Indian trust lands or rights in such lands, default rules regarding the applicability of state and local taxes in the absence of such legislation are irrelevant.... C. Defendants efforts to distinguish Mescalero are unavailing and their reliance on case law addressing preemption on grounds other than cannot overcome Mescalero s interpretation and application of that statute.... III. The PIT is preempted under the Bracker balancing analysis.... A. Agua Caliente and Fort Mojave do not control the Bracker analysis.... B. The federal Indian land leasing regulations are comprehensive and pervasive.... C. Particularly where, as here, strong federal and tribal interests are present, the state must establish a direct and narrowly tailored nexus between its tax and the regulated activity in order to avoid preemption.... D. The Defendants have failed to establish state interests that are sufficient to overcome the strong federal and tribal interests at stake E. DWA s effort to justify its share of the unitary PIT is unavailing.... IV. The PIT unlawfully infringes on Agua Caliente s tribal sovereignty.... CONCLUSION... 00V.

3 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 TABLE OF AUTHORITIES Page Cases Agua Caliente Band of Mission Indians v. Riverside County F.d (th Cir. )...,, Barona Band of Mission Indians v. Yee F.d (th Cir. 00)... Brown v. United States F.d (Fed. Cir. )..., Burbank-Glendale-Pasadena Airport Auth. v. City of Burbank F.d 0 (th Cir. )... 0 Cabazon Band of Mission Indians v. Wilson F.d 0 (th Cir. )...,, 0, Chase v. McMasters F.d 0 (th Cir. )... Confederated Tribes of the Chehalis Reservation v. Thurston County Board of Equalization F.d (th Cir. 0)... Cotton Petroleum Corporation v. New Mexico 0 U.S. (0)... Crow Tribe of Indians v. Montana F.d (th Cir. )... passim Fort Mojave Tribe v. County of San Bernardino F.d (th Cir. )... Gila River Indian Community v. Waddell F.d (th Cir. )... Hoopa Valley Tribe v. Nevins F.d (th Cir. )...,,, 0 Mescalero Apache Tribe v. Jones U.S. ()... passim Morales-Garcia v. Holder 00V.

4 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 F.d 0 (th Cir. 00)... 0 Okla. Tax Comm n v. Chickasaw Nation U.S. 0 ()..., Ramah Navajo Sch. Bd., Inc. v. Bureau of Revenue of N.M. U.S. ()...,, 0, Santa Rosa Band of Indians v. Kings Cnty. F.d (th Cir. )... Segundo v. City of Rancho Mirage F.d (th Cir. )... Seminole Tribe of Florida v. Stranburg F.d (th Cir. 0)... passim Tulalip Tribes v. Washington 0 WL (W.D. Wash. Jan., 0)..., United States v. Cnty. of Fresno U.S. ()... United States v. Johnson F.d (th Cir. 00)... Wagnon v. Prairie Band Potawatomi Nation U.S. (00)... White Earth Band of Chippewa Indians v. County of Mahnomen 0 F.Supp.d 0 (D. Minn. 00)... White Mountain Apache Tribe v. Bracker U.S. (0)...,, 0, Yavapai-Prescott Indian Tribe v. Scott F.d 0 (th Cir. )... Regulations U.S.C...., California Revenue and Tax Code, Section V.

5 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 The California % possessory interest tax (PIT) cannot be lawfully assessed on Indian trust lands or interests in those lands for at least three reasons. First, the PIT violates U.S.C. s express prohibition of state and local taxation of lands [or] interests in lands held in trust by the United States for the benefit of Indians. Second, the PIT is preempted under the common law balancing analysis adopted by the Supreme Court in White Mountain Apache Tribe v. Bracker, U.S. (0), because the strong federal and tribal interests implicated by the leasing of Indian trust lands outweigh Defendants interest in generating revenue for the provision of generalized governmental services. Third, the PIT is unlawful because it interferes with the right and ability of the Agua Caliente Band of Cahuilla Indians (Agua Caliente or the Tribe) to have its land governed by laws of its own making and to enforce those laws free of state interference. 00V. Defendants arguments in support of summary judgment and in opposition to Agua Caliente s motion both fail to create a genuine issue of material fact for trial and fail to overcome any of the three reasons the PIT is preempted. They cannot avoid the facts that () PIT taxes the right to use and possess Indian trust lands; () the revenues it generates are not directly linked to the leasing of Indian lands; () the leasing of Indian trust lands is comprehensively regulated by the federal government; or () the assessment and collection of the PIT interferes with the implementation of Agua Caliente s own tribal tax. The PIT is preempted, and the Court should grant Agua Caliente s motion for summary judgment and deny Defendants motions. FACTUAL BACKGROUND The relevant facts are set forth in Agua Caliente s principal brief in support of summary judgment and its accompanying Statement of Undisputed Facts. See Since the filing of this case, has been recodified as U.S.C. 0. The statutory text is unchanged. To avoid confusion and maintain consistency with prior filings and court decisions, the brief continues to refer to the provision as.

6 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 Dkt. at -; Dkt.. The following summary is intended only to clarify and reemphasize a handful of key, undisputed facts. The United States holds the Agua Caliente Reservation in trust for the benefit of Agua Caliente and its members, many of whom are the beneficial owners of individually allotted trust lands within the Reservation. AC Resp. to County Disp. ; AC Resp. to DWA SF. The United States regulates the leasing of both tribal and allotted trust land. Id. -. Significant portions of the Agua Caliente Reservation, including both tribal and allotted trust lands, are under long-term commercial leases. Id. -. Revenues from the leasing of tribal trust lands helps fund the Agua Caliente government and its provision of governmental services. Id.. Riverside County (the County) assesses and collects its PIT from lessees of tribal and allotted lands. Id. 0,. Agua Caliente has enacted its own Tribal PIT, but that tax is not being collected at present. Id. -. That is because tribal law provides that the Tribal PIT will be suspended until the PIT is invalidated, the County voluntary suspends its assessment and collection, or the Tribe and the County enter into an intergovernmental agreement resolving the issue. See id., -. 00V. The PIT is a single tax assessed, as relevant to this case, in the amount of % of the full cash value of a lessee s possessory interest in i.e., its right to possess Indian trust lands and permanent improvements thereon. Id.,. The County assesses and collects the PIT, retains some of the revenues, and distributes other revenues to various governmental entities pursuant to state law. Id. 0, ; see also, e.g., AC Resp. to County SF, -,. The County and the other recipients of Agua Caliente cites its responses to DWA s combined Statement of Genuine Disputes of Material Fact and Separate Statement of Uncontroverted Material Facts [Dkt. -] as AC Resp. to DWA SF. Because Riverside County filed a separate Statement of Undisputed Facts [Dkt. 0-] and Statement of Genuine Disputes [Dkt. 0-], Agua Caliente cites its response to the former as AC Resp. to County SF and its response to the latter as AC Resp. to County Disp.

7 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 PIT revenues use those revenues to fund various governmental services that they provide throughout their service areas, which may include portions of the Agua Caliente Reservation. See, e.g., AC Resp. to County SF,, -0. PIT assessments and revenues are not tied to particular governmental services provided by the County, do not fund services provided exclusively to the Agua Caliente Reservation or to lessees of Indian trust lands, and are based on the value of a lessee s right to possess Indian trust land and improvements rather than any use of governmental services. AC Resp. to County Disp., -, -; AC Resp. to DWA SF, -, -. DWA is one of the governmental entities that receives a portion of the PIT revenues. AC Resp. to DWA SF. In addition to receiving PIT revenues, DWA imposes other taxes, fees, and/or charges on landowners, lessees, and water users within its service area. See generally Dkt. 0 at. DWA has testified that these charges, specifically including its ad valorem property tax, are separate and apart from the percent PIT. See AC Resp. to DWA SF 0. As affirmed by the Court in its order granting Agua Caliente s motion for partial dismissal, this lawsuit does not challenge or otherwise involve the validity of any taxes, fees, and/or charges imposed by DWA separate and apart from the PIT. See Dkt. 0 at. The only issue in this case is whether a single tax the % PIT is preempted by federal law as applied to lessees of Indian trust land within the Agua Caliente Reservation. Id. ARGUMENT & ANALYSIS I. The law of the case doctrine applies. As set forth in Agua Caliente s principal brief in support of its motion for summary judgment, the law of the case doctrine applies to a number of holdings that the Court has already made in the course of this litigation. Dkt. at -. Defendants object to Agua Caliente s invocation of the law of the case doctrine, Pin citations to filed documents are to the ECF page number atop each page. 00V.

8 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 arguing that the Court may revisit earlier decisions that were clearly erroneous and that the doctrine does not preclude a court from granting summary judgment based on evidence after denying a motion to dismiss based only on the plaintiff s allegations. Dkt. - at ; Dkt. 0 at (internal quotation omitted). While these are correct statements of the law, they are irrelevant. The Court s prior legal rulings that: () the Ninth Circuit s decisions in Agua Caliente Band of Mission Indians v. Riverside County, F.d, (th Cir. ) and Fort Mojave Tribe v. County of San Bernardino, F.d (th Cir. ), do not control the outcome of this case; () the federal leasing regulations set forth in C.F.R. Part are comprehensive; () footnote of the Ninth Circuit s decision in Confederated Tribes of the Chehalis Reservation v. Thurston County Board of Equalization, F.d (th Cir. 0), is non-binding dicta; and () Defendants must establish a direct connection between the PIT and services that they provide to the Tribe in order to avoid preemption are not clearly erroneous. On the contrary, they are correct and well supported by existing law. Nor are those determinations, which involve pure issues of law, subject to change to avoid manifest injustice based on the submission of evidence, as the County impliedly argues. The Court s prior legal rulings are sound, and they are the law of the case. II. U.S.C. expressly preempts the PIT. The analysis supporting the express statutory preemption of the PIT is straightforward. Section bars state and local taxation of lands or rights in land held in trust by the United States for the benefit of Indians. U.S.C.. The Supreme Court has held that s bar encompasses state and local taxes on the use of Indian trust lands because use is among the bundle of privileges that make up property or ownership of property, and, in this sense, at least, a tax upon use is a tax upon the property itself. Mescalero Apache Tribe v. Jones, U.S., () (internal quotations omitted). As explained in Agua Caliente s prior filings and as plainly set forth in the California code, the PIT taxes the right to possess Indian trust 00V.

9 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 land. See, e.g., Cal. Rev. & Tax Code 0(a) (defining a taxable possessory interest as [p]ossession of, claim to, or right to the possession of land or improvements ). The right to possess property is a part of the bundle of privileges comprising property ownership, and possession of property is a form of property use. See, e.g., Agua Caliente, F.d at (referring to the PIT as a tax upon the use of property). Because the PIT taxes the use in the form of possession of Indian trust lands, Mescalero mandates the conclusion that expressly preempts the PIT. The most recent and analogous federal appellate decision analyzing s applicability to a state tax on the use of Indian trust land fully supports this result. See Seminole Tribe of Florida v. Stranburg, F.d (th Cir. 0). Stranburg involved a tax on rent or lease payments made by non-indian lessees of Indian trust lands. Id. at. Similar to the PIT, any unpaid Florida tax constituted a lien on the personal property of the lessee, not the trust land of the property or the Indian lessor. Id. The Eleventh Circuit held that the right to lease land is a privilege of ownership just like the right to use land at issue in Mescalero. Id. at 0. Accordingly, it held that taxes on lease payments that secure a lessee s possessory interest in the land are materially indistinguishable from the use taxes that the Mescalero Court held unlawful. Id. at (bold added, italics in original). Like Florida s rental tax, California s PIT is a tax on a right in land the right to possess it. Id. at (emphasis in original). And like Florida s rental tax, the PIT is expressly preempted by as interpreted by the Mescalero Court. Defendants offer several unavailing arguments in an effort to avoid the result compelled by Mescalero and supported by Stranburg. Riverside County first contends that does not apply to the Agua Caliente Reservation at all, then proceeds to argue that Mescalero and Stranburg are distinguishable and that this case is actually controlled by the Supreme Court s decision in United States v. County of Fresno, U.S. (), and a trio of Ninth Circuit decisions. See Dkt. 0 at -. DWA also emphasizes the Ninth Circuit trio of cases in its effort to distinguish Mescalero, 00V.

10 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page 0 of Page ID #: and it adds an extended, albeit irrelevant, argument regarding the general applicability of state taxes on Indian reservations. None of these arguments change or evade Mescalero s holding that expressly preempts any state or local tax that, like the PIT, taxes the bundle of privileges that make up property or ownership of Indian trust property. Mescalero, U.S. at. A. The tax exemption codified in applies to the Agua Caliente Reservation. Riverside County briefly and erroneously contends that does not apply to the Agua Caliente Reservation because the Reservation was established by executive orders prior to the enactment of. See Dkt. 0 at -. While it is true that the Agua Caliente Reservation was first established in the 0s, that does not render the tax exemption codified in inapplicable. 00V. Section provides that title to lands or rights acquired pursuant to this Act... shall be taken in the name of the United States in trust for the Indian tribe or individual Indian for which the land is acquired, and such lands or rights shall be exempt from State and local taxation. Id. Riverside County interprets this language as limiting the tax exempt status of Indian trust lands to those lands acquired pursuant to, leaving all Indian lands acquired pursuant to other statutes or prior to the enactment of susceptible to state or local taxation even when they are held in trust by the United States for the benefit of Indians. The County s reading of is inequitable and unworkable as a matter of law and policy, and it unsurprisingly has found no traction in the courts. The Court need go no further than the Supreme Court s decision in Mescalero to reject the County s narrow interpretation of. In the course of holding New Mexico s use tax preempted by, the Supreme Court noted that the land in Indeed, the County s reading of the statute likely would run afoul of U.S.C. (f)-(g), which bars non-uniform treatment of federally recognized tribes.

11 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #:0 0 0 question was not technically acquired in trust for the Indian tribe under. Mescalero, U.S. at n.. Indeed, the land at issue in Mescalero was not even held in trust for the benefit of the tribe; it was federally owned land that tribe leased from the United States Forest Service. See id. at. Yet the Supreme Court had no difficulty finding that arrangement sufficient to bring the Tribe s interest in the land within the immunity afforded by. Id. at, n.. In light of the Mescalero Court s application of s tax exemption to federally owned land that was not held in trust for the benefit of Indians, it cannot be seriously contended that land actually held in trust by the United States for the benefit of a tribe or its members is not covered by merely because the land was designated as an Indian reservation before the statute s enactment. The history of federal trusteeship over Indian lands further supports this conclusion. Long before Congress enacted, judicial decisions had established that lands held in trust by the United States for Indians were exempt from local taxation. Chase v. McMasters, F.d 0, 0 (th Cir. ). Rather than establishing a new tax exemption applicable only to future Indian land acquisitions, Congress intended for to codify the legal condition in which land acquired for Indians would be held[;] it doubtless understood that the Indians for whom the land was acquired would be able to use the land free from taxation. Id.; see also Santa Rosa Band of Indians v. Kings Cnty., F.d, (th Cir. ) ( [W]hen Congress in authorized the Secretary to purchase and hold title to lands for the purpose of providing land for Indians, it understood and intended such lands to be held in the legal manner and condition in which trust lands were held under prior common law.); White Earth Band of Chippewa Indians v. County of Mahnomen, 0 F.Supp.d 0 (D. Minn. 00) (holding that Indian trust lands acquired under a statute other than are nonetheless exempt from state and local taxes). That the United States designated the land at issue as the Agua Caliente Reservation prior to has no bearing on the law applicable to nor the outcome of this case. 00V.

12 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #:0 0 0 B. Because Congress has explicitly forbidden state and local taxation of Indian trust lands or rights in such lands, default rules regarding the applicability of state and local taxes in the absence of such legislation are irrelevant. Defendants argue at length that non-discriminatory state laws apply on Indian reservations as a general rule and that this includes laws pertaining to the taxation of non-indians. See, e.g., Dkt. - at -. DWA particularly relies on the Supreme Court s decision in Cotton Petroleum Corporation v. New Mexico, 0 U.S. (0), for the proposition that current doctrine allows states to impose nondiscriminatory taxes 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. Dkt. - at & -0 (quoting Cotton Petroleum, 0 U.S. at ). The notion that non-discriminatory state laws potentially can apply to non- Indians on Indian reservations is as unremarkable as it is unhelpful to the Defendants. The language relied upon by DWA addressed the repudiated doctrine of intergovernmental tax immunity, which automatically invalidated any state or local tax that could have even an indirect economic effect on the United States or an Indian tribe. See Cotton Petroleum, 0 U.S. at -; Stranburg, F.d at n.. Agua Caliente has never relied upon the doctrine of intergovernmental tax immunity, however, and that doctrine has no relevance to the question of whether a tax is preempted by an explicit federal statute such as. This is obvious from Cotton Petroleum itself; immediately after the statement quoted by DWA, the Court goes on to say that Congress does, of course, retain the power to grant such immunity. Cotton Petroleum, 0 U.S. at. That is exactly what Congress did in it affirmatively codified the tax exempt status of land held in trust by the United States for Indians and interests in such land. While state or local governments sometimes may tax non-indians doing business on Indian reservations in certain circumstances, a controlling federal statute forbids them from taxing the bundle of privileges that make up property or ownership of Indian trust property. Mescalero, U.S. at. 00V.

13 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #:0 0 0 Neither default rules regarding on-reservation taxation nor the irrelevant doctrine of intergovernmental tax immunity have any bearing on s preemption of the PIT. C. Defendants efforts to distinguish Mescalero are unavailing and their reliance on case law addressing preemption on grounds other than cannot overcome Mescalero s interpretation and application of that statute. When forced to confront Mescalero, Defendants make several attempts to distinguish it. None succeed. Defendants first contend that Mescalero is inapposite because the tax at issue there was assessed against the tribe s use of property, not against a non-indian. See Dkt. - at ; Dkt. 0 at. This is a distinction without difference. Section turns on the status of the property being taxed, not on the identity of the taxpayer. This is clear from Stranburg, which likewise involved a tax assessed against a non-indian lessee rather than Indian lessors. Stranburg, F.d at ( The tax is assessed against the lessee based on the total amount of rent paid. ). Where, as here, the state seeks to tax a right in land, applies regardless of whom the tax is assessed against. Id. at (emphasis in original). Mescalero s statement that [l]essees of otherwise exempt Indian lands are... subject to taxation, quoted as dispositive in DWA s brief, is not to the contrary. See Dkt. - at (quoting Mescalero, U.S. at ). Both Mescalero and the case that it cites refer to the taxation of income that lessees derive from leased Indian lands. The taxability of non-indian income from activities carried out on leased Indian lands is not at issue here. The PIT runs afoul of s exemption not because it taxes non-indian activity on Indian lands, but because it taxes the right to lease and possess Indian trust lands themselves. See Stranburg, F.d at n. (noting that the quoted language from Mescalero does not have the reach [the defendant] attributes to it and stands for the now uncontroversial position that non-indian lessees of Indian land may be subject to some state taxation ). 00V.

14 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #:0 0 0 Riverside County s claim that Mescalero was concerned only with whether Indians going beyond reservation boundaries were subject to state taxes also falls flat. Dkt. 0 at. As noted supra, the Court dealt with the off-reservation status of the property at issue in Mescalero summarily in a footnote. See U.S. at n.. The issue that focused the Court s attention with respect to the state use tax was whether a tax on the use of property as opposed to a tax directly levied on the value of the property itself could pass muster under. See id. at -. The Court concluded that such a tax is unlawful, as a tax upon use is a tax upon the property itself. Id. at. 00V. Defendants next turn to a series of cases that they contend limit Mescalero or contradict Agua Caliente s reading of it. See Dkt. - at -0; Dkt. 0 at -. The critical flaw in this line of argument is that, with one exception, the cases that Defendants cite do not involve. This Court and the Eleventh Circuit have noted this problem when confronted with challenges to s applicability based on the Ninth Circuit s decades-old decisions in Agua Caliente and Fort Mojave. See Stranburg, F.d at ( Significantly, neither the Agua Caliente nor Fort Mojave decisions mentioned or apparently considered at all. ); Dkt. at ( Neither Agua Caliente nor Fort Mojave addressed section in any way. ). The same problem applies to the County of Fresno and Wagnon cases. Fresno addressed whether a possessory interest tax on housing provided to Forest Service employees violated the Supremacy Clause or otherwise ran afoul of constitutional Despite the fact that they do not address, DWA erroneously asserts that Agua Caliente and Fort Mojave are binding on this Court on the question of the statute s applicability. See Dkt. - at. It is axiomatic that a prior decision cannot be binding precedent on an issue that it did not address. See, e.g., Morales-Garcia v. Holder, F.d 0, 0 (th Cir. 00) ( Unstated assumptions on non-litigated issues are not precedential holdings binding future decisions. (internal quotation and punctuation omitted)); see also Burbank-Glendale-Pasadena Airport Auth. v. City of Burbank, F.d 0, (th Cir. ). 0

15 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #:0 0 0 intergovernmental tax immunity. See United States v. Cnty. of Fresno, U.S., () ( The rule is that the economic burden on a federal function of a state tax imposed on those who deal with the Federal Government does not render the tax unconstitutional. (emphasis added)). As discussed supra, the fact that a particular tax may pass constitutional muster does not mean that it avoids preemption under a specific, congressionally enacted statute barring state and local taxation of certain lands or rights in lands. U.S.C.. As for Wagnon, it addressed whether an excise tax imposed off-reservation on a non-indian fuel distributor was subject to Bracker balancing when the taxed fuel was eventually supplied to an on-reservation gas station an issue wholly irrelevant to preemption. Wagnon v. Prairie Band Potawatomi Nation, U.S. (00). Like Agua Caliente and Fort Mojave, Fresno and Wagnon do not address at all. Stripping away the irrelevant case law leaves Defendants with a single, arguably relevant case ostensibly supporting their position: the Ninth Circuit s 0 Chehalis opinion. Based on dicta in that case dicta that relied without further analysis on the readily distinguishable opinions from Agua Caliente and Fort Mojave Defendants argue that this Court should disregard the Supreme Court s edict in Mescalero and the persuasive, directly relevant recent analysis from the Eleventh Circuit s Stranburg opinion. Agua Caliente s opening brief explains why this Court should not do so, and nothing in Defendants briefs alters that analysis. See Dkt. at -. The County s passing assertion that this Court is bound by what the County characterizes as reasoned dicta from Chehalis merits a brief rebuttal. See Dkt. 0 at (citing Northstar Fin. Advisors Inc. v. Schwab Invs., F.d 0, 0 (th Cir. 0) (citing United States v. Johnson, F.d, (th Cir. 00) (en banc)). While the en banc Ninth Circuit in Johnson held that subsequent courts are bound by reasoned analysis that could arguably be characterized as dicta, it explained that this rule does not apply where it is clear that a statement is made casually and without 00V.

16 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #:0 0 0 analysis, where the statement is uttered in passing without due consideration, or where it is merely a prelude to another issue that commands the panel s full attention. F.d at. The Chehalis panel s passing reference to Agua Caliente in a footnote regarding a statute that was not addressed at all in the prior panel s decision cannot be characterized as anything other than a statement made casually and without analysis in passing without due consideration. Id. It therefore does not even rise to the level of reasoned dicta, and it is not binding on the question of s applicability to the PIT. See Dkt. at (noting that this Court is not bound by dicta from an appellate court decision). Defendants offer no substantive, reasoned basis for distinguishing the PIT from the use tax struck down in Mescalero. It is indisputable that the PIT, an ad valorem tax based on the full cash value of the property, Dkt. - at, is a tax on the use and possession of Indian trust lands. Mescalero explicitly holds that a tax upon use is a tax upon the property itself in contravention of. U.S. at. Mescalero thus compels the conclusion that the PIT is statutorily preempted. III. The PIT is preempted under the Bracker balancing analysis. In addition to being statutorily prohibited by, the PIT is also preempted under the common law balancing analysis adopted by the Supreme Court in Bracker. Bracker provides that where a state attempts to tax non-indians engaging in activity on an Indian reservation, courts must conduct a particularized inquiry into the nature of the state, federal, and tribal interests at stake in order to determine whether federal law preempts the tax. U.S. at. This particularized inquiry is commonly referred to as Bracker balancing. Factors relevant to Bracker balancing include, inter alia, the comprehensiveness of federal regulation of the activity or transaction[s] being taxed, who bears the legal and economic burden of the tax, and the nexus or direct relationship between the tax and any services provided to the taxpayer by the taxing entity. See, e.g., id. at -; Ramah Navajo Sch. Bd., Inc. v. Bureau of Revenue of 00V.

17 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #:0 0 0 N.M., U.S., - (); Hoopa Valley Tribe v. Nevins, F.d, (th Cir. ). Courts also consider whether the transaction or activity being taxed involves value generated on the reservation, distinguishing such cases from those in which a tribe merely imports an off-reservation product onto its reservation for resale in an attempt to market a tax exemption. See, e.g., Cabazon Band of Mission Indians v. Wilson, F.d 0, - (th Cir. ); Hoopa Valley, F.d at -0 (indicating that preemption is more likely where the state attempts to tax goods produced on the reservation ); Crow Tribe of Indians v. Montana, F.d, (th Cir. ). Finally, Bracker balancing must be inform[ed] by the traditional notions of tribal sovereignty, and the recognition and encouragement of this sovereignty in congressional Acts promoting tribal sovereignty and economic development, with any ambiguities construed generously in favor of preemption. Ramah, U.S. at. As explained below and in Agua Caliente s initial brief, Dkt. at -, the proper application of the Bracker balancing test inescapably leads to the conclusion that the PIT is preempted. Defendants general interest in raising revenue to support a panoply of general governmental services, while legitimate, is not substantial enough to justify the taxation of Indian land leasing, an activity that is comprehensively regulated by the federal government, inextricably tied to tribal economic selfsufficiency, and that occurs and involves value generated exclusively on the Agua Caliente Reservation. A. Agua Caliente and Fort Mojave do not control the Bracker analysis. Before turning to the substance of the Bracker balancing analysis, it is necessary to once again address Defendants recurrent insistence that the Ninth Circuit s prior decisions in Agua Caliente and Fort Mojave control its outcome. Of course, the Court has already held that those decisions do not dictate the result of this case, see Dkt. at -, but Defendants nevertheless persist in arguing to the contrary. See Dkt. - at -; Dkt. 0 at. 00V.

18 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #:0 0 0 As discussed in Agua Caliente s opposition to the Defendants Rule (c) motions, and as held by this Court, the law regarding preemption of state taxation of activity in Indian country has changed substantially since the Ninth Circuit decided Agua Caliente and Fort Mojave. See Dkt. at - & -0. Those cases applied then-traditional principles of preemption analysis to uphold the PIT on the grounds that no federal statute specifically forbade its imposition. See Agua Caliente, F.d at - (citing United States v. City of Detroit, U.S. ()); see also Fort Mojave, F.d at (indicating that the preemption analysis hinged on careful analysis of the applicable federal statutes ). Bracker and subsequent case law squarely repudiated the proposition that in order to find a particular state law to have been preempted by operation of federal law, an express congressional statement to that effect is required. U.S. at ; see also Ramah, U.S. at ( [F]ederal pre-emption is not limited to those situations where Congress has explicitly announced an intention to pre-empt state activity. ). Subsequent case law has uniformly recognized that [t]he preemption analysis in Indian tribal cases differs from that used in other circumstances. Crow Tribe, F.d at ; see also Cabazon, F.d at ( In determining whether federal law preempts a state s authority to regulate activities on tribal lands, courts must apply standards different from those applied in other areas of federal preemption. ); Dkt. at -. In sum, the legal framework applied by the Ninth Circuit in Agua Caliente and Fort Mojave has been resoundingly rejected in the context of state taxation of activity on Indian lands, and those decisions do not control the outcome of the case at bar. Far from mandating a different result, the Ninth Circuit s remark in Chehalis that Agua Caliente and Fort Mojave applied a similar mode of analysis to Bracker balancing, F.d at, serves only to highlight the passing nature of the Chehalis panel s review of those decisions, which explicitly and unmistakably turned on the absence of express statutory preemption. See Fort Mojave, at - (indicating that it would be inappropriate to imply tax exemptions absent clear statutory guidelines ); Agua Caliente, F.d at ( [A]bsent a congressional 00V.

19 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #:0 0 0 B. The federal Indian land leasing regulations are comprehensive and pervasive. Despite this Court s prior holding that the body of federal statutes and regulations governing the leasing of Indian trust lands is both detailed and pervasive, Dkt. at 0, and DWA s concession of the point, Dkt. - at, the County devotes several pages of its brief to arguing just the opposite. See Dkt. 0 at -. The County is incorrect. 00V. A litany of federal statutes and regulations govern the leasing of Indian trust lands. See generally C.F.R. Part Preamble (Preamble), Fed. Reg. 0-0, - (Dec., 0) (discussing the relevant statutes and regulations). The Preamble to the current version of C.F.R. Part, the entirety of which is devoted to the regulation of Indian land leasing, states that [t]he Federal statutory scheme for Indian land leasing is comprehensive [and] pervasive and leaves no room for state law. Federal regulations cover all aspects of leasing. Id. at. The Preamble lists no fewer than aspects of Indian trust land leasing that are controlled by federal law and regulations, including whether a lease is necessary, the permissible duration of a lease, mandatory terms that must be included in a lease, timelines and criteria for federal approval of leases, and the circumstances under which a lease may be terminated. See id. In arguing that the Preamble is not entitled to deference, the County misperceives Agua Caliente s position. See Dkt. 0 at -. Agua Caliente does not contend that the Preamble is dispositive of the validity, vel non, of the PIT. Rather, the Tribe contends that the Preamble identifies the considerable federal interest that the action forbidding the tax, then it is clear that the tax here imposed is valid. ); see also Dkt. at - (examining the bases of the holdings in Fort Mojave and Agua Caliente and holding that they are irreconcilable with Bracker). With due respect to the Chehalis panel s dicta, those cases insistence on an express congressional mandate in order to find a tax exemption for on-reservation activity is antithetical to Bracker balancing.

20 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page 0 of Page ID #:0 0 0 Court must take into account in conducting Bracker balancing. As the Eleventh Circuit explained in Stranburg, the analysis set forth in the Preamble is thorough, consistent, and persuasive, and, in conjunction with the regulations and statutes that it discusses, it provides substantial evidence of the extensive federal regulation of Indian land leasing to inform the Bracker balancing inquiry. F.d at. That the Preamble may not be entitled to dispositive weight does not mean that it is worthless, nor does it undermine its reasoned analysis. Numerous federal appellate courts have joined this Court in agreeing with the Preamble s declaration that federal regulation of Indian trust land leasing is comprehensive and pervasive. Most importantly for this Court, the Ninth Circuit has explicitly rejected the argu[ment] that the federal statutes authorizing the leasing of trust lands and the regulations governing such leasing do not constitute a comprehensive regulatory scheme with preemptive effect on state and local laws. Segundo v. City of Rancho Mirage, F.d, (th Cir. ). The Eleventh Circuit reached the same conclusion in Stranburg, holding that the extensive and exclusive federal regulation of Indian leasing as evidenced by federal law and regulations precludes the imposition of state taxes on that activity. F. at. The Federal Circuit held likewise in Brown v. United States, F.d (Fed. Cir. ), holding that the regulations make it clear beyond any doubt that the Secretary exercises control overt commercial leasing on allotted lands. Id. at. 00V. While Stranburg, once again, is the most directly on point case, the Federal Circuit s opinion in Brown merits special comment. There, the Court went into some detail in describing the federal control of Indian land leasing, noting that: It is plain that Indian allottees do not control the leasing of their lands. First, they can only grant those leases of which the Secretary approves. Second, they can grant leases only on terms that the Secretary dictates. Third, an allottee cannot cancel a lease without the Secretary s prior approval. Fourth, the Secretary can cancel a lease without the allottee-lessor s consent. Nor may the

21 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: V. Secretary s power be considered a mere oversight power, inasmuch as its exercise is a necessary prerequisite to the execution of a valid and binding lease. F.d at - (internal cits. omitted). The Brown Court determined that federal control over Indian land leasing is so comprehensive that it gives rise to a fiduciary duty on the part of the United States to Indian lessors, the breach of which supports an award of money damages against the federal government. Id. at. Incredibly, the County cites Brown as ostensibly supporting its argument that the federal regulation of Indian land leasing is not comprehensive. See Dkt. 0 at - 0. To support this plainly erroneous position, the County relies on a combination of misleading quotations from the Federal Circuit s opinion emphasizing its conclusion that the United States lacks ongoing management responsibility over the day-to-day administration of commercial leases of Indian lands while ignoring language in the same paragraph affirming the government s extensive control over Indian land leasing and quotations to the underlying district court decision, which are included without any reference to the fact that it was reversed by the Federal Circuit. See Dkt. 0 at (quoting Brown, F.d at ) & 0 (quoting Brown v. United States, Fed. Cl. 0, (), rev d by F.d ). The Federal Circuit s decision, read in full, supports this Court s prior determination that the federal regulation of Indian trust land leasing is comprehensive. The other cases that the County relies upon also fall short. See Dkt. 0 at -. Neither Yavapai-Prescott Indian Tribe v. Scott, F.d 0 (th Cir. ) nor Gila River Indian Community v. Waddell, F.d (th Cir. ), involve taxes or taxed activity comparable to the PIT. Yavapai-Prescott involved the preemption of state taxes imposed on sales by non-indians to non-indians on an Indian reservation. While Brown refers to lands leased by allottees rather than tribal leasing, many of the leases within the Agua Caliente Reservation also involve tribal member allotteelessors. See, e.g., Dkt. 0 at ; AC Resp. to County SF.

22 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 See F.d at 0. Similarly, Gila River involved a state sales tax on non-indian entertainment events offered by non-indian entities on leased Indian lands. See F.d at -; see also Stranburg, F.d at -0 ( [Gila River] did not make the a broad pronouncement that the federal leasing regulations were insufficient to preempt all state taxes. Instead, the court found the leasing regulations insufficient to preempt a state sales tax on non-indians (emphasis in original)). Both Yavapai- Prescott and Gila River, like many cases cited by Defendants, involved transactions that were essentially non-indian in character and could have taken place anywhere i.e., the value at issue was not generated on or derived from the leasing of reservation land. Such cases are not relevant here, where the Court must determine the federal leasing regulations preemptive effect on state taxation of the right to use or possess Indian trust land itself the very subject of the comprehensive federal regulatory scheme. The cases that the County cites are readily distinguishable, and its efforts to portray the federal regulation of Indian trust land leasing as anything less than comprehensive are unavailing. C. Particularly where, as here, strong federal and tribal interests are present, the state must establish a direct and narrowly tailored nexus between its tax and the regulated activity in order to avoid preemption. Agua Caliente s principal brief in support of its motion discusses the requirement that the state, in order to overcome strong federal and tribal interests in the course of Bracker balancing, demonstrate a nexus between the tax it seeks to impose, the activity being taxed, and governmental services that the tax supports. See Dkt. at -. This requirement is evident in both Supreme Court law and in numerous Ninth Circuit decisions, which sometimes characterize it as a need to prove a direct connection between the tax revenues and services or that a tax is narrowly tailored to support the taxed activity. See, e.g., Hoopa, F.d at ; Crow Tribe, F.d at 0-0. Just this month, a federal court in Washington reaffirmed that when the transaction is comprehensively regulated by the federal government or 00V.

23 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 when the value of the taxed resources is derived almost exclusively on the reservation the State may be required to demonstrate that its services maintain a close nexus with the taxed transaction itself. Tulalip Tribes v. Washington, 0 WL at * (W.D. Wash. Jan., 0) (holding that this requirement did not apply to various taxes imposed on shopping malls on leased Indian land). Defendants briefs misunderstand or mischaracterize the Tribe s argument on this point. They contend that case law does not require that taxes assessed on onreservation activity be proportionate to the governmental services provided. See Dkt. - at -; Dkt. 0 at n.0. This is a straw man. While it may be true that proportionality between state taxes and services is unnecessary i.e., the state need not prove that its services match its revenues dollar-for-dollar Agua Caliente has not argued to the contrary. Rather, the Tribe contends and a substantial body of case law holds that at least where the United States has extensively regulated an activity on Indian lands, the state must establish a nexus between the tax at issue and the activity being taxed in order to avoid preemption. See, e.g., Stranburg, F.d at ( Both Bracker and Ramah note that the state tax must be sufficiently connected to the particular activity taxed to amount to more than just a generalized interest in raising revenue. ); Cabazon, F.d at ( [T]his court has required that the State demonstrate a close relationship between the taxed imposed on the on-reservation activity and the state interest asserted to justify such tax. ); Hoopa, F.d at ( To be valid, the California tax must bear some relationship to the activity being taxed. (emphasis added)); Crow Tribe, F.d at 0 ( Even if Montana s interests are sufficiently legitimate the coal taxes are not narrowly tailored to support them. ). Defendants have not established and cannot establish any relationship, much less a substantial nexus, between the leasing of Indian reservation lands the federally regulated activity at issue and the general governmental services that they provide to everyone within their respective jurisdictions and fund in part through PIT revenues. 00V.

24 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: 0 0 Proportionality and connection are distinct concepts, and Defendants argument as to the former is wholly irrelevant to Agua Caliente s claim. D. The Defendants have failed to establish state interests that are sufficient to overcome the strong federal and tribal interests at stake. Bracker balancing tips heavily in favor of preemption of the PIT as assessed against leasehold interests in Agua Caliente Reservation trust lands based on multiple strong tribal and federal interests: () the taxed activity is subject to comprehensive federal regulation (see supra; Dkt. at -); () the economic effects of the tax adversely impact Agua Caliente and undermine the strong, well-established federal interest in the Indian economic self-sufficiency and the maximization of Indian revenue from Indian trust assets (see Dkt. at -0); and () the value being taxed the right to use and possess Indian trust lands is inextricably tied to the Reservation, not imported for marketing purposes. See, e.g., Bracker, U.S. at, ; Ramah, U.S. at ; Stranburg, F.d at -; Cabazon, F.d at -; Hoopa, F.d at -0. Crow Tribe, F.d at. Against these strong federal and tribal interests, Defendants offer only a general interest in raising revenue to support a broad array of governmental services provided to all people in their respective jurisdictions. See Dkt. 0 at - (describing the numerous services funded in part by the PIT that benefit everyone living in Riverside County ); Dkt. - at - (detailing how DWA uses PIT revenues to defray its costs of importing water for the benefit of its entire service area). As courts have repeatedly recognized, such an interest, while legitimate, is not enough to justify state taxation in the face of comprehensive federal regulation of a particular activity or when the value being taxed is substantially derived from the reservation. See, e.g., Stranburg, F.d at -; Cabazon, F.d at ; Hoopa, F.d at - (finding a timber tax preempted when the state services that it funded were provided to all residents and benefit[ted] both tribal and non-tribal members ); Crow, at 00V. 0

25 Case :-cv-0000-dmg-dtb Document Filed 0/0/ Page of Page ID #: It certainly is not enough here, when both comprehensive federal regulation and reservation-derived value are present. None of Defendants contrary arguments are persuasive. They rely heavily on judicial declarations that the federal interest in Indian economic development is not a sufficient grounds for invalidating every state tax that has [a]ny effect on the Tribe s finances. Dkt. 0 at (quoting Cotton, 0 U.S. at ). If Agua Caliente asserted no federal or tribal interest beyond maximizing Indian income, this argument might carry some weight. That is not the case, however. As in Bracker and Ramah, the Tribe is not relying solely on adverse economic impact here; the extensive and exclusive federal regulation of Indian land leasing provides the special factor absent in Cotton Petroleum. Stranburg, F.d at. While the federal and tribal interests in Indian economic development and self-sufficiency are very strong, they are not the only interests on that side of the balance. See, e.g., Dkt. at -0; Stranburg, F.d at 0 ( Indian economic well-being is one of the many federal interests embodied in the extensive federal regulation of leasing activity, and it is a valid interest weighing in favor of preemption. ); Crow Tribe, F.d at. DWA takes the argument a step further, alleging that the economic effect of state taxes on Indian economic interests is immaterial for preemption purposes. Dkt. - at -. No court has ever so held. Courts have held that Indian economic interests alone may not suffice to find preemption of a state tax, but Agua Caliente is not aware of a single decision holding that such interests are immaterial to the Bracker analysis. The cases that DWA cites certainly do not do so. DWA s contention that tribal interests are minimal because the legal incidence of the tax falls on non-indians is also easily discredited. See Dkt. - at & -. When the legal incidence of a state tax falls on Indians or Indian land, there is a bright line rule that the tax is preempted; no balancing of interests is required. Barona Band of Mission Indians v. Yee, F.d, -0 (th Cir. 00); see also Okla. Tax Comm n v. Chickasaw Nation, U.S. 0, () ( If the legal 00V.