Case 2:12-cv TSZ Document 33 Filed 05/29/12 Page 1 of 14

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1 Case :-cv-00-tsz Document Filed 0// Page of The Honorable Thomas S. Zilly UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 0 0 THE NOOKSACK INDIAN TRIBE OF WASHINGTON and the NOOKSACK BUSINESS CORPORATION II, v. Plaintiff, OUTSOURCE SERVICES MANAGEMENT, LLC, Defendant. FAC: CASE NO. - Case No. - DEFENDANT S MOTION TO DISMISS PLAINTIFFS FIRST AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF NOTE ON MOTION CALENDAR: JUNE, 0 ORAL ARGUMENT REQUESTED 0 Fifth Avenue, Suite 00 Seattle, Washington

2 Case :-cv-00-tsz Document Filed 0// Page of TABLE OF CONTENTS 0 Page I. INTRODUCTION... II. STATEMENT OF FACTS... III. DISCUSSION... A. This Court Should Not Exercise Jurisdiction Over the Action..... Dismissal Is Required for Lack of Federal Question Jurisdiction..... The Rooker-Feldman Doctrine Requires Dismissal..... The Younger Abstention Doctrine Requires Dismissal..... Alternatively, the Court Should Exercise Its Statutory Discretion to Abstain From Hearing the Claims for Declaratory and Injunctive Relief.... B. The Complaint Fails to State a Claim Under Fed. R. Civ. P. (b)()..... Res Judicata Requires Dismissal..... The Loan Documents and the Judgment Are Valid and Enforceable..... The Reserved-Powers Doctrine Does Not Render Void Any Provisions of the Loan Documents..... The Judgment Is Not Void As the Product of Unapproved Management Contracts..... Plaintiffs Are Not Entitled to a Declaration That Any Efforts by OSM to Seek or Obtain the Appointment of a Receiver Violate IGRA..... The Anti-Injunction Act Requires Dismissal.... IV. CONCLUSION... 0 FAC: CASE NO. - - i - 0 Fifth Avenue, Suite 00 Seattle, Washington

3 Case :-cv-00-tsz Document Filed 0// Page of 0 0 CASES TABLE OF AUTHORITIES Page(s) Ashcroft v. Iqbal, U.S., S. Ct. (00)... Bias v. Moynihan, 0 F.d (th Cir. 00)... Brillhart v. Excess Ins. Co. of Am., U.S. ()... C & L Enters., Inc. v. Citizen Band of Potawatomi Indian Tribe of Okla., U.S., S. Ct., L. Ed. d (00)... Exxon Mobil Corp. v. Saudi Basic Indus. Corp., U.S. 0 (00)... Gregoire v. Rumsfeld, F. Supp. d 0 (W.D. Wash. 00)... Khanna v. State Bar of Cal., 0 F. Supp. d (N.D. Cal. 00), aff d, 0 F. App x (th Cir. 00)... Kougasian v. TMSL, Inc., F.d (th Cir. 00)... Loveridge v. Fred Meyer, Inc., Wn.d, P.d ()... New Hampshire v. Maine, U.S. (00)... Noel v. Hall, F.d (th Cir. 00)... Oneida Indian Nation of N.Y. v. Madison County, F.d 0 (d Cir. 0)... Rhodes v. HSBC Bank USA N.A., 0 WL 00 (W.D. Wash. July, 0)... Travelers Indem. Co. v. Bailey, U.S. (00)... FAC: CASE NO. - - ii - 0 Fifth Avenue, Suite 00 Seattle, Washington

4 Case :-cv-00-tsz Document Filed 0// Page of 0 Wells Fargo Bank, N.A. v. Lake of the Torches Econ. Dev. Corp., F.d (th Cir. 0), refused... Wells Fargo Bank, N.A. v. Sokaogon Chippewa Cmty., F. Supp. d (E.D. Wis. 0)... Wilton v. Seven Falls Co., U.S. ()... STATUTES Anti-Injunction Act, U.S.C.... Indian Gaming Regulatory Act, U.S.C. 0 et seq....,, OTHER AUTHORITIES Fed. R. Civ. P. (b)()... Fed. R. Civ. P. (b)()... 0 FAC: CASE NO. - - iii - 0 Fifth Avenue, Suite 00 Seattle, Washington

5 Case :-cv-00-tsz Document Filed 0// Page of 0 0 I. INTRODUCTION Five years ago, Nooksack Business Corporation II, an arm of the Nooksack Indian Tribe, borrowed more than $ million to build the Northwood Crossing Casino. Today, the aggregate outstanding principal stands at $. million. Despite the casino s positive cash flow, in January the Tribe unilaterally chose to stop making payments altogether. OSM obtained entry of a judgment in Whatcom County Superior Court on a $ million Confession of Judgment previously executed by NBC II. The State Court then denied NBC II s motion to vacate the Judgment. NBC II and the Tribe now want this Court to negate the Judgment that was entered, and then upheld, by the State Court, and to put a stop to the supplemental proceedings. Plaintiffs have already moved for two preliminary injunctions that have produced extensive briefing and will be heard on June, 0. For many of the same reasons that injunctive relief should be denied, this action should be dismissed for lack of jurisdiction and failure to state a claim. The Complaint should be dismissed, and the parties dispute should be resolved in state court. II. STATEMENT OF FACTS The Court is by now acquainted with the facts in this matter, which were addressed in briefing on the Tribe and NBC II s motions for a preliminary injunction. (See Dkt. No. at -; Dkt. No. at -; Dkt. No. at -.) For purposes of this Motion to Dismiss, the allegations in the Complaint are sufficient to show that dismissal is appropriate. See Ashcroft v. Iqbal, U.S., S. Ct., (00) (complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face). The Tribe and NBC II amended the Complaint on May, 0, in part to update the factual allegations. The Complaint alleges that on April 0, 0, the State Court denied NBC Unless specified otherwise, abbreviated and capitalized terms have the same meaning as in OSM s prior briefing. OSM does not admit any of the facts alleged in the Complaint except where expressly stated. FAC: CASE NO Fifth Avenue, Suite 00 Seattle, Washington

6 Case :-cv-00-tsz Document Filed 0// Page of 0 0 II s motion to vacate the Judgment. (Compl. 0.) It alleges that, in response, the Tribe caused NBC II to dissolve and to transfer certain unspecified assets to The Woods, Inc. ( Woods ), a newly-charted tribal corporation that has not waived its sovereign immunity. (Id. 0-.) According to the Complaint, Woods has been operating the Crossing Casino since May. (Id..) The Complaint does not allege that Woods owns the Casino and does not identify the Casino s owner. As amended, the Complaint contains two primary sets of allegations both of which could have been asserted as defenses in the 00 Litigation and actually were asserted (unsuccessfully) as grounds to vacate the Judgment in the State Action. First, it alleges that the Loan Documents are void under the Indian Gaming Regulatory Act, U.S.C. 0 et seq. ( IGRA ) because they are unapproved management contracts and violate IGRA s sole proprietary interest rule. (Id., -.) Accordingly, plaintiffs contend that they are not bound by their contractual obligations, including the waivers of immunity that subject them to suit in state court. (Id. -.) Second, the Complaint alleges that the Loan Documents wrongly limit the Tribe s ability to impose taxes and to impair the Lender s contractual rights. (Id., -, -.) In particular, the Tribe reports that on February, 0, it adopted three resolutions that authorize conduct prohibited by the Loan Documents. First, in an act the Tribe s counsel has described as preparing for war, the Tribe purported to revoke the irrevocable waivers of sovereign immunity on behalf of itself and NBC II. (Compl. 0, 0, ; Ex. II at :.) Second, the Tribe imposed a tax on the Crossing Casino s revenue. (Compl. 0.) Finally, the Tribe barred OSM and its agents from the Reservation, rescinding the right of access granted in the Loan Documents. (Id. 0.) The Complaint brings two causes of action for declaratory relief and one for injunctive relief. Count One requests a declaration that the Loan Documents are void and unenforceable under IGRA, and that IGRA would be violated if the state court were to appoint a receiver to FAC: CASE NO Fifth Avenue, Suite 00 Seattle, Washington

7 Case :-cv-00-tsz Document Filed 0// Page of control the gross proceeds of Casino operations, and control the Casino s operating expenses, although OSM has not proposed the appointment of a such a receiver. Count Two seeks a declaration that the Loan Documents restrictions on the Tribe s authority to tax and impair the Lender s rights are unenforceable and a declaration ratifying the revocation of the waivers of immunity. Count Three asks to enjoin OSM from enforcing the Judgment and Loan Documents. III. DISCUSSION A. This Court Should Not Exercise Jurisdiction over the Action. This Action should be dismissed pursuant to Fed. R. Civ. P. (b)() for lack of subject 0 0 matter jurisdiction. On a motion to dismiss, the Plaintiff bears the burden of establishing that the court has subject matter jurisdiction. Gregoire v. Rumsfeld, F. Supp. d 0, - (W.D. Wash. 00). Subject matter jurisdiction does not exist here for lack of a federal question under the well-pleaded complaint rule and because the Tribe and OSM complain of an injury caused by a state court judgment. Even if jurisdiction were present, this Court should exercise its discretion to abstain in favor of the ongoing state proceedings under the Younger and Brillhart/Wilton doctrines.. Dismissal Is Required for Lack of Federal Question Jurisdiction. The Court lacks jurisdiction because the Tribe and NBC II s claims for declaratory and injunctive relief are, at most, purported federal defenses to state law claims that were made in the 00 Litigation and that underlie the Judgment. As such, they do not give rise to federal question jurisdiction under the well-pleaded complaint rule. OSM respectfully refers the Court to and incorporates by reference previous arguments regarding federal-question jurisdiction made in its Opposition to Motion For Preliminary Injunction filed May, 0 ( PI The underlying document on which the Tribe relies makes clear that OSM did not suggest that it ever would seek a receiver to control the Casino s gross proceeds and operating expenses. (Compare Compl., with Tribe s Ex. to Dkt. No..) FAC: CASE NO Fifth Avenue, Suite 00 Seattle, Washington

8 Case :-cv-00-tsz Document Filed 0// Page of 0 0 Opposition Brief ). (See Dkt. No. at -.). The Rooker-Feldman Doctrine Requires Dismissal. The Court should dismiss this case because, under the Rooker-Feldman doctrine, federal district courts lack jurisdiction over cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments. Exxon Mobil Corp. v. Saudi Basic Indus. Corp., U.S. 0, (00). OSM respectfully refers the Court to and incorporates by reference previous arguments regarding Rooker-Feldman made in its PI Opposition Brief. (See Dt. No. at -.) NBC II and the Tribe are now in federal court because they complain of a legal injury caused by a state court judgment, and not an injury caused by OSM which did no more than loan NBC II $ million that has not been repaid. Noel v. Hall, F.d, (th Cir. 00). They have petitioned this Court to permanently enjoin the enforcement and execution orders of the State Court because they believe the State Court has exceeded its jurisdiction, notwithstanding the State Court s own ruling that it has not. (Compl. -.) Indeed, the Tribe s motion for an injunction asks to directly enjoin the State Court itself, and the Complaint specifically requests an order permanently enjoining OSM from seeking any remedy through Supplemental Proceedings in Whatcom County Superior Court to execute upon NBC II s real and personal property. (Id..) NBC II and the Tribe are thus inviting this Court to review and ultimately reverse the Judgment and the subsequent orders in aid of the Judgment. They are asking this Court to exercise appellate review in fact, precisely the same review now being undertaken in the Washington Court of Appeals. (See OSM s Supplemental Brief Re Plaintiffs Motions to Enjoin filed May, 0 ( Supplemental Brief ), Dkt. No., at.) Their claims should therefore be dismissed under the Rooker-Feldman doctrine. With their appearance in federal court, NBC II and the Tribe have launched a frontal, FAC: CASE NO Fifth Avenue, Suite 00 Seattle, Washington

9 Case :-cv-00-tsz Document Filed 0// Page of 0 0 not collateral, attack upon the state court judgment. Khanna v. State Bar of Cal., 0 F. Supp. d, (N.D. Cal. 00), aff d, 0 F. App x (th Cir. 00) (synthesizing Ninth Circuit and Supreme Court precedent). This is precisely the kind of legal injury caused by a state court judgment that the Ninth Circuit has proscribed because plaintiffs seek relief from the order of the State Court. Khanna, 0 F. Supp. d at. The Tribe and NBC II nowhere assert as a legal wrong an allegedly illegal act or omission by an adverse party. Kougasian v. TMSL, Inc., F.d, 0 (th Cir. 00) (quoting Noel, F.d at ). They cannot allege such an illegal act because OSM has done nothing other than enforce its rights as a judgment creditor under the procedure established by Washington State. Instead, their complaint lies with the State Court because what plaintiffs assert as a legal wrong [is] an erroneous decision of the State Court. Khanna, 0 F. Supp. d at. Dismissal is thus warranted because Rooker-Feldman applies only when the federal plaintiff both asserts as her injury legal error or errors by the state court and seeks as her remedy relief from the state court judgment. Kougasian, F.d at 0.. The Younger Abstention Doctrine Requires Dismissal. Dismissal is separately, and independently, warranted under the Younger abstention doctrine, as OSM demonstrated in the PI Opposition Brief and in its Supplemental Brief. (See Dkt. No. at -; Dkt. No. at -.). Alternatively, the Court Should Exercise Its Statutory Discretion to Abstain From Hearing the Claims for Declaratory and Injunctive Relief. This action should also be dismissed pursuant to Brillhart v. Excess Insurance Co. of America, U.S. (), and Wilton v. Seven Falls Co., U.S. (), which guide the Court s discretion in deciding whether to exercise jurisdiction over actions under the Declaratory Judgment Act. (See Supplemental Brief, Dkt. No. at -.) Abstention would avoid duplicative litigation and the needless determination of state law issues, and it would discourage forum shopping. FAC: CASE NO Fifth Avenue, Suite 00 Seattle, Washington

10 Case :-cv-00-tsz Document Filed 0// Page 0 of 0 B. The Complaint Fails to State a Claim Under Fed. R. Civ. P. (b)(). Even if jurisdiction exists and were exercised, the Complaint fails to state a claim under Rule (b)() for a variety of reasons.. Res Judicata Requires Dismissal. The doctrine of res judicata bars the Tribe and NBC II from relitigating claims that have been now twice resolved in Whatcom County. (See PI Opposition Brief, Dkt. No. at -.) The Judgment is binding and preclusive as to the Tribe because it stood in privity with NBC II. It is irrelevant that the Tribe did not execute the Confession of Judgment on its own behalf. Res judicata binds parties and those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose. Travelers Indem. Co. v. Bailey, U.S.,, (00) (emphasis added; quotations and citations omitted). Under Washington law, privity exists where a party is in actual control of the litigation, or substantially participates in it even though not in actual control. Loveridge v. Fred Meyer, Inc., Wn.d,, P.d (). The Tribe was in privity with NBC II as to the Confession of Judgment because the Tribe was in control of the litigation and substantially participated in it. The Tribe owns and controls NBC II, which is a subordinate arm of the government of the Tribe. (Compl. ; Ex. 0 In moving to dismiss under Rule (b)(), OSM relies only on material which is properly submitted as part of the complaint on a motion to dismiss without converting into a motion for summary judgment. Rhodes v. HSBC Bank USA N.A., 0 WL 00, at * (W.D. Wash. July, 0). Where the documents are not physically attached to the complaint, they may be considered if the documents authenticity... is not contested and the plaintiff s complaint necessarily relies on them. Id. (quotations omitted.) A court also may take judicial notice of matters of public record on a motion to dismiss, including proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to the matters at issue. Bias v. Moynihan, 0 F.d, (th Cir. 00). Accordingly, OSM s motion to dismiss for failure to state a claim relies on: () the Complaint s allegations; () the Loan Documents; () filings in the State Action; and () any other document expressly referred to in the Complaint. For Rule (b)() purposes, OSM does not rely on its previously filed Exhibits A, G, H, I, J, N, and MM. FAC: CASE NO Fifth Avenue, Suite 00 Seattle, Washington

11 Case :-cv-00-tsz Document Filed 0// Page of Q.) NBC II s Corporate Board is the Tribal Council, which is the Tribe s governing body, 0 0 and its president is the Tribal Chairman. (Ex. P.) The Tribal Council, acting on behalf of the Tribe, specifically directed and authorized NBC II s authorized representative to execute the Confession of Judgment and related Forbearance Agreements. (Ex. DD.) Indeed, the Tribal Chairman himself executed the Confession of Judgment on behalf of NBC II. (Ex. M.) The Tribe was also a party to the Second Forbearance Agreement that authorized the Confession of Judgment, as well as the related stipulation of dismissal that resolved the original state litigation against the Tribe and NBC II. (Compl. ; Exs. K & L.) At each step, NBC II acted at the Tribe s direction and under its control, and the Tribe itself directly participated in the litigation. The res judicata effect of the Judgment is binding on the Tribe.. The Loan Documents and the Judgment Are Valid and Enforceable. In any event, NBC II and the Tribe fail to state a claim for the same reasons that the State Court refused to vacate the Judgment. As Judge Uhrig concluded, NBC II s waiver of sovereign immunity is irrevocable, and NBC II may not void the Judgment by claiming that the underlying Loan Documents are management contracts. (See PI Opposition Brief, Dkt. No. at -.) What is more, even if NBC II s irrevocable waiver of immunity by contract were not sufficient, NBC II would be judicially estopped from asserting that the waivers have been revoked. Judicial estoppel precludes one party from taking shifting positions in a legal proceeding, especially to the prejudice of the other party. New Hampshire v. Maine, U.S., (00). Having waived its immunity in the Confession of Judgment on which OSM relied in dismissing the 00 Litigation, NBC II is estopped from asserting immunity. Oneida Indian Nation of N.Y. v. Madison County, F.d 0, - (d Cir. 0) (holding that OSM s Exhibits A to OO are attached to the Declaration of Michael M. Krauss dated May, 0 (Dkt. No. ), and Exhibits PP to YY are attached to the Supplemental Declaration of Michael M. Krauss dated May, 0, (Dkt. No. 0). FAC: CASE NO Fifth Avenue, Suite 00 Seattle, Washington

12 Case :-cv-00-tsz Document Filed 0// Page of 0 0 judicial estoppel bound the tribe to its litigation position that it had waived immunity).. The Reserved-Powers Doctrine Does Not Render Void Any Provisions of the Loan Documents. The Tribe wrongly asserts that the reserved-powers doctrine renders void those provisions of the Loan Documents in which the Tribe waived certain of its sovereign powers, therefore nullifying the Judgment. (Compl. -.) But even if that doctrine were applicable to tribes, which it is not, it would not be implicated here. (See Supplemental Brief, Dkt. No. at -.). The Judgment Is Not Void As the Product of Unapproved Management Contracts. Likewise, NBC II and the Tribe s claim cannot proceed based on an assertion that the Loan Documents are void as unapproved management contracts under federal law, thus nullifying the waivers of sovereign immunity therein. (Compl. at -.) As OSM explained in its PI Opposition Brief (Dkt. No. at -), the Tribe s arguments are inconsistent with Supreme Court authority and decisions interpreting the management contract provisions of IGRA. See, e.g., C & L Enters., Inc. v. Citizen Band of Potawatomi Indian Tribe of Okla., U.S.,, S. Ct., L. Ed. d (00) (holding that tribe s consent to arbitration waived sovereign immunity); Wells Fargo Bank, N.A. v. Sokaogon Chippewa Cmty., F. Supp. d, - (E.D. Wis. 0) (holding that agreement that leaves management of the casino to tribe while providing lender with security interest in revenues does not constitute a management contract).. Plaintiffs Are Not Entitled to a Declaration That Any Efforts by OSM to Seek or Obtain the Appointment of a Receiver Violate IGRA. The Complaint requests a declaration that IGRA would be violated if OSM seeks or obtains the appointment of a receiver. (Compl. -.) As explained in OSM s Opposition to the Tribe s Emergency Preliminary Injunction Motion, the Tribe and NBC II fail to state a claim for relief as a matter of law. (Dkt. No. at -.) The Seventh Circuit FAC: CASE NO Fifth Avenue, Suite 00 Seattle, Washington

13 Case :-cv-00-tsz Document Filed 0// Page of Court of Appeals in Wells Fargo Bank, N.A. v. Lake of the Torches Economic Development Corp., F.d, n. (th Cir. 0), refused to hold that the appointment of a receiver to manage a casino violated IGRA.. The Anti-Injunction Act Requires Dismissal. The Anti-Injunction Act, U.S.C. (the Act ), is yet another independent basis to dismiss the Complaint. As OSM explained in the PI Opposition Brief (Dkt. No. at -), an injunction is not necessary to aid jurisdiction and has not been expressly authorized by Congress. Accordingly, the Anti-Injunction Act applies. 0 IV. CONCLUSION The Complaint should be dismissed in its entirety, and the parties dispute should be 0 resolved in the Washington state courts. Dated: May, 0 By s/lori Lynn Phillips Lori Lynn Phillips (WSBA No. ) lphillips@orrick.com David Keenan (WSBA No. ) dkeenan@orrick.com 0 Fifth Avenue, Suite 00 Seattle, Washington 0-0 Telephone: Facsimile: ATTORNEYS FOR DEFENDANT FAEGRE BAKER DANIELS LLP Jerome Miranowski (MN Bar No. ) (Pro hac vice) Jerome.miranowski@faegrebd.com Michael Krauss (MN Bar No. 000) (Pro hac vice) michael.krauss@faegrebd.com 00 Wells Fargo Center LLP 0 S. Seventh Street Minneapolis, Minnesota 0-0 Telephone: Facsimile: FAC: CASE NO Fifth Avenue, Suite 00 Seattle, Washington

14 Case :-cv-00-tsz Document Filed 0// Page of 0 CERTIFICATE OF SERVICE I hereby certify that on May, 0 I electronically filed the foregoing document with the Clerk of the Court using the CM/ECF system which will send notification of the filing to all counsel of record. DATED this th day of May 0. By s/lori Lynn Phillips Lori Lynn Phillips (WSBA No. ) lphillips@orrick.com David Keenan (WSBA No. ) dkeenan@orrick.com 0 Fifth Avenue, Suite 00 Seattle, Washington 0-0 Telephone: Facsimile: FAC: CASE NO Fifth Avenue, Suite 00 Seattle, Washington