In a per curiam opinion, the Second Circuit has set the stage for a showdown on county foreclosure for failure to pay ad valorum taxes on reservation property once alienated but now returned to reservation control. (Cayuga Indian Nation v. Seneca County, No. 12‐3723 (2d Cir. 07/31/14))

Seneca County was enjoined by the District Court from foreclosing upon certain parcels of the Cayuga Nation’s real property to satisfy unpaid ad valorem property taxes. The Second Circuit upheld the injunction, stating that tribal sovereign immunity from suit barred the County’s attempt to collect the taxes via foreclosure. The decision was squarely based on a Supreme Court decision issued this year, Michigan v. Bay Mills Indian Community, 134 S. Ct. 2024 (2014).

Bay Mills holds that tribes retain, as “a necessary corollary to Indian sovereignty and self‐governance,” a common‐law immunity from suit. Courts must dismiss any suit against a tribe absent congressional authorization or a waiver of immunity.

A public debtor must therefore point to a Congressional statute authorizing recovery through foreclosure for non-payment of taxes owed by the Nation. A court will not carve out exceptions to that immunity.

Deference to the plenary power of Congress to define and abrogate tribal sovereign immunity from suit is the rule. In particular, the Second Circuit refused to consider City of Sherrill v. Oneida Indian Nation, 544 U.S. 197 (2005), as proving that an exception did exist.

In Sherrill, the Supreme Court rejected the Oneida Indian Nation’s claim to have sovereign authority, in the form of exemption from property taxation, over real property which had been part of the Oneida’s reservation but had been alienated to third parties and repurchased by the Nation. The Nation, the Court concluded, had waited too long to claim its immunity and the Nation’s new property was subject to taxation and local zoning or other regulatory controls. However, Sherrill did not explicitly hold that the City could sue the Oneidas to collect unpaid taxes.

Reference to the underlying District Court opinion in this case shows that the discussion of Sherrill probably warranted more thorough treatment. (Cayuga Indian Nation v. Seneca County, No. 11-CV-6004 CJS (WDNY 2012)) The land in question was formerly part of the 64,000-acre Cayuga Reservation acknowledged by the Treaty of Canandaigua in 1794. Shortly after 1794, the Cayuga Nation sold large portions of the Reservation land to the State of New York and for over 200 years the land was in the hands of third parties.

The Nation then began purchasing parcels of property on the open market that lie within the geographic area of the Reservation. The Nation claims that the purchases caused the alienated land to become Indian country and therefore exempt from local taxation.

The Second Circuit had ruled for the Nation in a similar case, Oneida Indian Nation v. Madison County, 605 F.3d 149 (2d Cir. 2010), but the decision was vacated by the Supreme Court. (131 S. Ct. 704 (2011)) While the opinion could not technically serve as precedent, the County argued that it was wrongly decided anyway. Specifically, the County advanced Sherrill as holding that an Indian tribe cannot revive its sovereign authority over land by purchasing it after years of inaction.

The District Court, in recognition of the practical reality of the situation, relied on the Oneida logic in distinguishing Sherrill:

“Even assuming that Seneca County has the right to impose property taxes on the subject parcels owned by the Cayuga Indian Nation, it does not have the right to collect those taxes by suing to foreclose on the properties, unless Congress authorizes it to do so, or unless the Cayuga Indian Nation waives its sovereign immunity from suit.”

A key distinction emphasized in Oklahoma Tax Comm’n v. Citizen Band Potawatomi Indian Tribe, 498 U.S. 505 (1991) was used to explain Sherrill away and reinforce the Oneida logic:
“[W]hile Oklahoma may tax cigarette sales by a Tribe’s store to nonmembers, the Tribe enjoys immunity from a suit to collect unpaid state taxes. There is a difference between the right to demand compliance with state laws and the means available to enforce them.”

Sherrill merely authorized the imposition of taxes on the Oneida’s properties but did not authorize their collection. The Oneida court stated “that the notion that they may tax but not foreclose is inconsistent and contradictory,” but concluded that the foreclosure actions had to be enjoined because Congress had not authorized them.

A concurring opinion elaborated the issue.

“The holding in this case comes down to this: an Indian tribe can purchase land (including land that was never part of a reservation); refuse to pay lawfully-owed taxes; and suffer no consequences because the taxing authority cannot sue to collect the taxes owed. This rule of decision defies common sense. But absent action by our highest Court, or by Congress, it is the law.”

The Oneida decision was subsequently vacated because the Nation agreed to waive sovereign immunity. The case was remanded to the Second Circuit and then to the District Court on grounds unrelated to sovereign immunity. Otherwise, the Second Circuit could have summarily disposed of the Cayuga case based on the Oneida decision.

In retrospect, the Cayuga Nation might have had more confidence than the Oneidas in the Oneida opinion. The Bay Mills case, at first glance, seems to reinforce Oneida.  The Bay Mills Indian Community had bought land outside the Reservation and had opened a casino on the site. The relevant gaming control law provided that Michigan could dispute the placement of a casino on the Reservation, but no law permitted Michigan’s lawsuit to enjoin an Indian casino on non-Reservation land.

Upon closer analysis, it is clear that Bay Mills has nothing to do with Sherrill or Oneida because it does not deal with the effect of intervening private ownership of Indian-alienated land repurchased from third parties and the status of that land when repurchased.

While Bay Mills deals with the general principle of Indian sovereign immunity, it has nothing to do with the laches-like effect of failing to claim such alienated land as Indian country for centuries.

Thus, the Second Circuit, in its per curiam opinion, has done little to explain why its own vacated Oneida opinion should trump the clearly-applicable holding in Sherrill. After all, Sherrill is an 8-1 decision authored by Justice Ginsburg. Moreover, the utilization of Bay Mills is summary and something of a red herring under the circumstances of the case.

It remains to be seen what the outcome of a petition for certiorari might be. The County has no incentive not to appeal, since the opinion prevents for all time any possibility of receiving tax revenue on once-alienated property.

However, the Nation might well wish to repeat the action in Oneida and seek to avoid review, based on the failure of the per curiam opinion and Oneida to differentiate Sherrill and to explain its odd conclusion there can be a right but no remedy in cases such as this.