Arrow Midstream Holdings, LLC v. 3 Bears Construction, LLC

Citations: 873 N.W.2d 16; 2015 ND 302; 2015 N.D. LEXIS 317; 2015 WL 9478056Docket: No. 20150057

Court: North Dakota Supreme Court; December 28, 2015; North Dakota; State Supreme Court

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Arrow Midstream Holdings, LLC and Arrow Pipeline, LLC (collectively “Arrow”) appealed a judgment that dismissed their breach of contract action against 3 Bears Construction, LLC (“3 Bears”) and Tesla Enterprises, LLC (“Tesla”) due to lack of jurisdiction. The Supreme Court reversed and remanded the case, asserting that the district court has jurisdiction. In 2013, Arrow hired 3 Bears as the general contractor for a pipeline on a right-of-way easement from the Bureau of Indian Affairs on the Fort Berthold Indian Reservation. The easement was designated for installing oil, gas, and water lines. 3 Bears, owned by members of the Three Affiliated Tribes and certified under the Tribal Employment Rights Ordinance (TERO), subcontracted Tesla for materials and labor. After the pipeline's completion, a payment dispute arose between 3 Bears and Tesla. In 2014, Tesla notified Arrow of a right to file a pipeline lien, which was recorded against Arrow. Arrow subsequently challenged the lien's validity and alleged a breach of contract. 3 Bears moved to dismiss the case for lack of subject matter jurisdiction, and later filed a complaint in Fort Berthold Tribal Court seeking a declaration of the lien's invalidity and damages from Arrow. The state district court concluded it lacked jurisdiction, citing potential infringement on Tribal sovereignty, and ruled that Arrow and Tesla should exhaust tribal court remedies before the state court could exercise jurisdiction. The dismissal was without prejudice, allowing parties to reopen the case if necessary.

3 Bears contends that the Court lacks jurisdiction to hear the appeal due to the district court's dismissal of the action without prejudice. Jurisdiction is a prerequisite for considering the merits of an appeal, as established in Choice Fin. Grp. v. Schellpfeffer. The circumstances parallel those in Winer v. Penny Enters. Inc., where the district court dismissed an action without prejudice for lack of subject matter jurisdiction involving a non-Indian plaintiff and Indian defendants. Typically, a dismissal without prejudice is not appealable since either party can initiate a new action; however, such a dismissal may be deemed final and appealable if it effectively ends litigation in the chosen forum, as noted in Rodenburg v. Fargo-Moorhead YMCA and Triple Quest, Inc. v. Cleveland Gear Co. In this instance, the dismissal order effectively precludes further litigation in state courts, making it appealable.

Arrow asserts that the district court erred in finding it lacked jurisdiction and that the Fort Berthold Tribal Court has exclusive jurisdiction over the pipeline lien validity and contractual disputes. The relevant jurisdictional facts are undisputed, making the subject-matter jurisdiction a question of law subject to de novo review. Tribal court jurisdiction is assessed under the Montana test, while state court jurisdiction follows the Williams test. The distinction between state and tribal jurisdiction in Indian country involves separate legal analyses. For example, if the Montana test indicates a tribe lacks jurisdiction over a non-Indian on non-Indian land, it does not automatically grant state authority to impose its laws in Indian country, which remains subject to the Williams test. The Supreme Court precedent, as seen in Three Affiliated Tribes of the Fort Berthold Reservation v. Wold Engineering, indicates that a tribe's decision not to assert jurisdiction can inform state authority in such matters.

Indian tribes generally lack civil authority over nonmembers on non-Indian land within a reservation, unless specified otherwise by Congress. The Supreme Court identified two exceptions in Montana: (1) tribes can regulate nonmembers who establish consensual relationships with the tribe or its members, and (2) tribes may exercise authority over nonmembers' conduct that directly affects the tribe's political integrity, economic security, or welfare. The district court ruled that the first exception did not apply to 3 Bears, a limited liability company (LLC) owned by tribal members, since it is organized under North Dakota law and not deemed a member of the tribe. This conclusion aligns with the precedent set in Airvator, Inc. v. Turtle Mountain Mfg. Co., where a breach of contract action involving a state-chartered corporation with majority Indian ownership was dismissed due to lack of jurisdiction. The court emphasized that a corporation is a distinct entity, independent of its shareholders. 3 Bears argues that Airvator was incorrectly decided and cites cases asserting that the business structure of a tribe or its members should not affect jurisdictional issues. It also contends that an LLC is a unique legal entity that combines features of corporations and partnerships, asserting that its citizenship is determined by its members for diversity jurisdiction purposes.

3 Bears' arguments are unconvincing for several reasons. First, cases like Mescalero and Confederated Tribes pertain specifically to tax immunity related to permanent improvements on federally owned, trust-held Indian land, while GMAC did not address Indian jurisdiction. Second, the Mescalero ruling referenced tribal incorporation under 25 U.S.C. 477, not jurisdictional issues. Third, established case law treats corporations and limited liability companies similarly regarding Indian jurisdiction. For example, in Somerlott v. Cherokee Nation Distribs. Inc., a state-organized tribal limited liability company was denied tribal immunity; similarly, in Fed. Trade Comm’n v. Payday Fin. LLC, a state-organized LLC owned by a tribal member did not satisfy the first Montana exception for consensual tribal relationships. In Am. Prop. Mgmt. Corp. v. Superior Court, the California limited liability company was deemed subject to state jurisdiction despite ties to the Sycuan tribe. Furthermore, the court in Am. Prop. Mgmt. Corp. cited the North Dakota Supreme Court’s Airvator decision, which emphasized that entities formed under state law are less likely to qualify for tribal sovereign immunity. The ruling emphasizes that the business entity's legal formation—tribal versus state law—is crucial for determining its status in relation to the tribe. Since 3 Bears is a North Dakota LLC and not a tribal member, the district court correctly found that the first Montana exception did not apply due to the lack of a consensual relationship with the tribe. The court concluded that the second Montana exception granted tribal court jurisdiction to protect tribal sovereignty, noting that the pipeline easement involved significant tribal economic interests within the Fort Berthold Indian Reservation.

Arrow argues that the district court mistakenly determined that its right-of-way easement from the Bureau of Indian Affairs is not equivalent to non-Indian fee land. Arrow references the Supreme Court case Strate, which involved a civil action between two non-Indians on a state highway that traversed trust land on the Fort Berthold Indian Reservation. The Supreme Court found that the right-of-way granted to the state for highway use rendered the land equivalent to alienated non-Indian land for governance purposes. The Court noted that the highway is publicly accessible, under the State's control, and that the Tribes had consented to and received compensation for the State's use, thereby relinquishing any landowner rights. The Court compared this situation to South Dakota v. Bourland, where the loss of exclusive use of land also implied a loss of regulatory jurisdiction. Consequently, the Court ruled that the Montana rule governs this case, rejecting the applicability of the consensual relationship exception and asserting that tribal court jurisdiction over the highway accident was not essential to the tribe's political, economic, or welfare interests. The conclusion affirmed that the tribal court lacked jurisdiction in this matter.

The Supreme Court has clarified that land ownership status is just one aspect in evaluating whether tribal regulation of nonmembers is essential for protecting tribal self-government or controlling internal relations, as established in Nevada v. Hicks. No case has specifically addressed the ownership status of a pipeline right-of-way easement on trust property for Indian jurisdictional purposes. However, courts have ruled that rights-of-way easements can be treated as equivalent to non-Indian fee land for jurisdictional matters, referencing the Supreme Court's decision in Strate, which considered several criteria: the nature of the legislation creating the easement, tribal consent for the easement, tribal dominion over the easement, public access, and state control. 

In Big Horn Cty. Elec. Coop. Inc. v. Adams, the court found that despite the electric cooperative's easements satisfying only three of Strate's criteria, the rights-of-way were treated as non-Indian fee land regarding the tribe's regulatory authority. Similarly, in Burlington N. R.R. Co. v. Red Wolf, the court ruled that a railroad right-of-way was also equivalent to non-Indian fee land, thus denying tribal civil jurisdiction over a related tort claim. 

The courts emphasized that Congress has the authority to grant rights-of-way over Indian lands, which limits tribal rights. In this context, 3 Bears does not claim that the Tribe opposed the pipeline easement or that the Tribe retained dominion over it. Even if the easement is not under state control and the land is publicly accessible, it is concluded that the pipeline easement held by Arrow is equivalent to non-Indian fee land. The district court's conclusion that the parties’ actions jeopardize the Tribe’s political integrity and economic security is disputed, as the Tribe's interest in the easement is not deemed sufficiently significant.

The Tribe has neither intervened nor appeared in the current legal action, which affects the standing of private parties to represent the Tribe's interests, as established in Baker Elec. Coop. Inc. v. Pub. Serv. Comm’n. The court must assess whether the conduct at issue threatens the Tribe's political integrity, economic security, or health and welfare by examining the lawsuit's subject matter. In this case, the lawsuit pertains to the validity of a pipeline construction lien resulting from a payment dispute between non-tribal members and involves non-Indian fee land, not the physical integrity of the pipeline or any easement violations. Consequently, the subject matter is too remote to pose a threat to the Tribe's interests.

The court also determined that it erred in ruling that the tribal court had jurisdiction over the case, referencing the United States Supreme Court's decision in Williams, which restricts state court jurisdiction over claims involving non-Indians against Indians on reservations. The Williams decision asserts that state jurisdiction could only be exercised when tribal relations are not essential and the rights of Indians are not jeopardized. Thus, state jurisdiction is barred if it conflicts with federal law or undermines the self-governance rights of reservation Indians, as further clarified in McKenzie Cty. Soc. Servs. Bd. v. V.G.

3 Bears invokes the Indian Reorganization Act of 1934, specifically citing 25 U.S.C. 461 et seq. and 25 U.S.C. 476(e), which empower tribes to adopt constitutions and manage tribal lands with consent. The Constitution of the Three Affiliated Tribes outlines tribal court jurisdiction and management powers over tribal lands. Additionally, the TERO ordinance and Fort Berthold Tribal Code affirm tribal court jurisdiction over lands and individuals within reservation boundaries. Despite this, the federal statutes do not preempt state district courts from hearing the case, which concerns a pipeline lien under state law—a matter not addressed by the Fort Berthold Tribal Code. The lawsuit stems from a contractual dispute involving non-tribal members concerning construction on non-Indian fee land, leading to a conclusion that the tribal court lacks jurisdiction. The state court's jurisdiction is intact and does not infringe upon the Tribe’s rights. The district court's alternative ruling requiring parties Arrow and Tesla to exhaust tribal remedies was rejected, as the Supreme Court precedents cited do not apply to this scenario. Consequently, the district court is confirmed to have subject matter jurisdiction, leading to a reversal of its prior judgment and a remand for further proceedings.