EnErgy Law - Baker Hostetler

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EDITOR’S NOTEVictoria Prussen Spears

SHALE GAS – THE SOLUTION FOR GLOBAL ENERGY DEMANDS? John Lurie

POWER PURCHASE AGREEMENTS – KNOW THE RISKSM. Seth Ginther and Roderick W. Simmons

AN UNEVEN PROCESS: PROMULGATING RAIL CAR DESIGN STANDARDSKyle Wamstad and Jessica Fore

NINTH CIRCUIT UPHOLDS TERO REQUIREMENTS IN INDIAN COUNTRY MINERAL LEASINGMark S. Barron

TRIBAL LANDS: THE NEXT SOLAR RUSHTara S. Kaushik

DEEPWATER HORIZON OIL SPILL LEGAL UPDATE: JUDGE MAKES FINDINGS OF GROSS NEGLIGENCE AND NEGLIGENCE Martin T. Booher

IN THE COURTSSteven A. Meyerowitz

LEGISLATIVE AND REGULATORY UPDATESteven A. Meyerowitz

INDUSTRY NEWSVictoria Prussen Spears

EnErgy LawRePoRT

P r a T T ’ s

JanUary 2015

voL. 15-1

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Editor-in-Chief, Editor & Board ofEditors

EDITOR-IN-CHIEFSTEVEN A. MEYEROWITZ

President, Meyerowitz Communications Inc.

EDITORVICTORIA PRUSSEN SPEARS

Senior Vice President, Meyerowitz Communications Inc.

BOARD OF EDITORS

SAMUEL B. BOXERMAN

Partner, Sidley Austin LLP

ANDREW CALDER

Partner, Kirkland & Ellis LLP

M. SETH GINTHER

Partner, Hirschler Fleischer, P.C.

R. TODD JOHNSON

Partner, Jones Day

BARCLAY NICHOLSON

Partner, Norton Rose Fulbright

BRADLEY A. WALKER

Counsel, Buchanan Ingersoll & Rooney PC

ELAINE M. WALSH

Partner, Baker Botts L.L.P.

SEAN T. WHEELER

Partner, Latham & Watkins LLP

WANDA B. WHIGHAM

Senior Counsel, Holland & Knight LLP

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Ninth Circuit Upholds TERO Requirements inIndian Country Mineral Leasing

By Mark S. Barron*

Conducting commercial operations on tribal lands can pose significant challengesfor non-Indian companies. Among the more difficult aspects of operating ontribal lands is managing compliance with applicable tribal preference require-ments. These requirements are often expressed through a Tribal EmploymentRights Ordinance (“TERO”), which requires commercial entities doing businessin Indian Country to give preference to tribal members and member-ownedbusinesses when making employment and contracting decisions in associationwith projects conducted on Indian lands. Although TERO laws are common onIndian reservations around the country, some commentators have questioned theenforceability of TERO provisions, arguing that the preference requirementsrepresent impermissible discrimination on the basis of national origin, a practicethat Title VII of the Civil Rights Act of 1964 prohibits. The author of this articleexplains a recent United States Court of Appeals for the Ninth Circuit decisionthat addressed the merits of this question.

Conducting commercial operations on tribal lands can pose significant challenges fornon-Indian companies. Demonstrating sensitivity to the cultural nuances of NativeAmerican society and navigating the complex web of federal and tribal regulationsapplicable to Indian Country requires expertise and invariably adds time and costs toprojects. Among the more difficult aspects of operating on tribal lands is managingcompliance with applicable tribal preference requirements. These requirements, oftenexpressed through a Tribal Employment Rights Ordinance (“TERO”), requirecommercial entities doing business in Indian Country to give preference to tribalmembers and member-owned businesses when making employment and contractingdecisions in association with projects conducted on Indian lands.

Although TERO laws are common on Indian reservations around the country,some commentators have questioned the enforceability of TERO provisions, arguingthat the preference requirements represent impermissible discrimination on the basisof national origin, a practice that Title VII of the Civil Rights Act of 19641 prohibits.On September 26, 2014, the United States Court of Appeals for the Ninth Circuitbecame the first federal appellate court to address the merits of this question. InEEOC v. Peabody Western Coal Co.,2 the Ninth Circuit upheld the validity of Navajohiring preferences in coal leases issued to private companies on the Navajo Nation’sReservation. In reaching its result, the Ninth Circuit concluded that the Navajohiring preference in the leases represented a political classification, rather than a

* Mark S. Barron is an associate at Baker & Hostetler LLP, where he focuses his practice on naturalresources litigation, public lands administration, and government relations. He may be contacted [email protected].

1 42 U.S.C. § 2000e-2.2 No. 12-17780 (9th Cir.).

NINTH CIRCUIT UPHOLDS TERO REQUIREMENTS IN INDIAN COUNTRY MINERAL LEASING

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classification based on national origin, and therefore did not violate Title VII. Whilethe question remains open in other circuits, most notably in the Eighth and TenthCircuits (where significant private mineral development is occurring on tribal lands),the decision in Peabody Western is likely to be influential in how tribes apply, andcourts interpret, tribal TERO requirements in the future.

BACKGROUND

Those not familiar with federal Indian law might be surprised to learn thatcommon constitutional prohibitions against discrimination either do not apply, orapply in modified form in the context of Indian Country. Most notably, neither theBill of Rights nor the Fourteenth Amendment apply to tribal governments.3

Accordingly, the concepts of equal protection and due process lack constitutionalforce in limiting tribal power.

Tribes are subject, however, to “certain restrictions . . . similar, but not identical,to those contained in the Bill of Rights and the Fourteenth Amendment.”4 In 1968,Congress passed the Indian Civil Rights Act (“ICRA”).5 Among other protections,ICRA provides that “[n]o Indian tribe in exercising powers of self-government shall. . . deny to any person within its jurisdiction the equal protection of its laws.”6

Whether a TERO Ordinance would violate ICRA’s equal protection clause is anopen question. The federal courts have acknowledged that “the standards of analysisdeveloped under the Fourteenth Amendment’s Equal Protection Clause [are] notnecessarily controlling in the interpretation of the [ICRA],” recognizing thatinterpretation of ICRA must account for the unique cultural, historical, andsocio-political circumstances of individual tribes.7 Equally important, the statuteitself is not enforceable in federal court; the Supreme Court has held expressly “thatsuits against the tribe under the ICRA are barred by [the tribe’s] sovereign immunityfrom suit.”8

Nor is it clear that generally applicable statutory limitations on discriminatorybusiness practices apply to Indian tribes or tribal members. “Since 1834, Congresshas incorporated employment preferences for Indians into legislation governing

3 See, e.g., Talton v. Mayes, 163 U.S. 376, 384, 16 S. Ct. 986, 41 L. Ed. 196 (1897) (holding thatthe Fifth Amendment did not restrict the power of local tribal governments); Barta v. Oglala Sioux Tribeof Pine Ridge Reservation of S.D., 259 F.2d 553, 556 (8th Cir. 1958) (concluding that the FourteenthAmendment did not restrict Indian tribes).

4 Santa Clara Pueblo v. Martinez, 436 U.S. 49, 57 (1978).5 25 U.S.C. §§ 1301–03.6 25 U.S.C. § 1302(8).7 Santa Clara, 436 U.S. at 55; see also Tom v. Sutton, 533 F.2d 1101, 1104 n.5 (9th Cir. 1976)

(“[C]ourts have been careful to construe the terms ‘due process’ and ‘equal protection’ as used in theIndian Bill of Rights with due regard for the historical, governmental and cultural values of an Indiantribe.”).

8 Santa Clara, 436 U.S. at 59.

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Indian programs and services.”9 Qualified Indians enjoy “the preference to appoint-ment to vacancies” in the Bureau of Indian Affairs and the Indian Health Service.10

Federal law requires Indian preference—in hiring, training, and subcontracting—onall government contracts “to Indian organizations or for the benefit of Indians.”11

Title VII itself includes an exception, allowing employers “on or near a reservation”to grant Indians “preferential treatment,” provided the preferential treatment policyhas been publicly announced.12 And in Morton v. Mancari,13 the United StatesSupreme Court upheld the constitutionality of Indian preference holding that suchpreference is premised on a political, rather than racial, distinction and that thisdistinction was “reasonably designed to further the cause of Indian self-govern-ment[,] . . . a legitimate, nonracially based goal.”14

PEABODY WESTERN

Notwithstanding the exceptions referenced above, the federal Equal EmploymentOpportunity Commission (“EEOC”) has adopted the position that a preference formembers of a particular tribe—as opposed to a preference for “Indians” generally—falls outside the exemption of Title VII and constitutes unlawful national origindiscrimination.15 In Dawavendewa v. Salt River Project Agricultural Improvement &Power District,16 the Ninth Circuit adopted a version of EEOC’s position in a casein which members of the Hopi tribe contended that the Navajo Nation’s tribalpreference policy resulted in impermissible discrimination against members of othertribes who wished to work on the Navajo Reservation. The Ninth Circuitacknowledged the possibility, holding that “differential employment treatment basedon tribal affiliation is actionable as ‘national origin’ discrimination under Title VII.”17

The Ninth Circuit distinguished Dawavendewa from the Supreme Court’s holdingin Morton, explaining that Morton did not involve a challenge under Title VII, andcharacterized the holding in Morton as limited—in the Ninth Circuit’s view, theSupreme Court in Morton held only that “the employment preference at issue,though based on a racial classification, did not violate the Due Process clause becausethere was a legitimate non-racial purpose underlying the preference.”18

9 Cohen’s Handbook of Federal Indian Law § 21.02[5][c][ii], at 1344 (Nell Jessup Newton ed.,2012) (“Cohen’s Handbook”).

10 25 U.S.C. § 472.11 25 U.S.C. § 450e(b).12 42 U.S.C. § 2000e-2(i). Indian Tribes themselves are also exempted from the definition of

“employer” for purposes of Title VII. 25 U.S.C. § 2000e(b).13 417 U.S. 535 (1974).14 Id. at 554.15 See Cohen’s Handbook § 21.02[5][c][ii].16 154 F.3d 1117 (9th Cir. 1998).17 Id. at 1120.18 Id. The subsequent history in Dawavendewa is nevertheless notable because it reflects the


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The Peabody Western suit followed Dawavendewa. Peabody Western involves asimilar contest to the validity of hiring and contracting preference requirementsapplicable to Peabody’s operations on coal leases Peabody owns on the NavajoReservation. Unlike Dawavendewa, where the plaintiffs were Hopi workers who feltthat they had been discriminated against, the EEOC is the plaintiff in PeabodyWestern; the EEOC contends that Peabody’s compliance with the Navajo’s tribalpreference requirements violates Title VII.19

On October 18, 2012, the United States District Court for the District of Arizonadismissed the EEOC’s claim in Peabody Western, upholding the validity of theNavajo’s tribal preference statute. The district court first explained that Dawavendewawas not controlling, observing that, while the Ninth Circuit had ruled in Dawav-endewa that discrimination on the basis of tribal membership represented actionablenational origin discrimination under the terms of Title VII, the Ninth Circuit hadnot actually decided the case on the merits and determined that the application of atribal preference violated Title VII.20 The district court went on to conclude thatwhile discriminatory, the Navajo’s tribal preference statute was reasonably tailored to“benefit the members of the tribe—a political entity—and to foster tribal self-government and self-sufficiency.”21 The district court reasoned that, because it is“tribal membership, not status as an Indian, that is the touchstone” of the tribalpreference, “[l]ike the general Indian preference in Mancari, the tribe-specificpreference . . . is a political classification.”22

On September 26, 2014, the Ninth Circuit affirmed the district court. The NinthCircuit observed that the coal leases at issue in Peabody Western—like virtually allmineral leases executed with tribal entities—were issued under the Indian MineralLeasing Act of 1938 (“IMLA”),23 a statute designed “to foster tribal self-determination by giving Indians a greater say in the use and disposition of the

procedural hurdles a party wishing to contest the validity of tribal preferences must overcome (inaddition to the substantive challenge of proving the law invalid on the merits). Although the NinthCircuit ruled that a plaintiff could challenge the Navajo tribal preference policy under Title VII, theplaintiffs’ action in Dawavendewa ultimately failed on a procedural ground. In a later opinion, theNinth Circuit dismissed the matter after determining that the Navajo Nation would be an indispensableparty in the plaintiffs’ suit against the private employer, but that the Nation could not be joined becauseit had not waived its sovereign immunity. See Dawavendewa v. Salt River Project Agric. Improvement &Power Dist., 276 F.3d 1150, 1153 (9th Cir. 2002).

19 The Ninth Circuit permitted the Peabody Western suit to proceed on the theory that tribalsovereign immunity was inapplicable when a federal agency’s suit did not seek to hold the tribe liable,but was merely seeking to join the tribe to provide complete and effective relief to a party. See EEOCv. Peabody W. Coal Co, 400 F.3d 774, 778 (9th Cir. 2005). It remains unclear whether a private partycould pursue such a lawsuit without the participation of the EEOC or some other federal entity.

20 EEOC v. Peabody W. Coal Co., No. 2:01-CV-01050-JWS (D. Ariz. Oct. 18, 2012), Dist. Ct. SlipOp. at 14.

21 Id. at 18.22 Id.23 25 U.S.C. §§396a–396g.


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resources found on Indian lands.”24 The Ninth Circuit acknowledged that theDepartment of the Interior has a long history of approving mineral leases that requirethe tribe’s lessee to give preference in hiring to tribal members and reasoned that“[t]his long-established practice serves to ensure that the economic value of themineral leases on tribal lands inures to the benefit of the tribe and its members,consistent with the purpose of the IMLA.”25

With the IMLA providing the contextual background, the Ninth Circuit explainedthat, although discrimination based on tribal membership could implicate rulesagainst national origin discrimination, “[i]n appropriate situations, federal law yieldsout of respect for treaty rights or the federal policy fostering tribal self-governance.”26

The Ninth Circuit concluded that the Navajo mineral leasing program was such asituation—the Navajo preference rules advanced the federal policy of promotingIndian self-government and affording the tribe the maximum amount of control overits own natural resources.

That the Navajo preference statute discriminated against members of other Indiantribes was not dispositive, because “[w]here the exploitation of mineral resources ona particular tribe’s reservation is concerned, the federal government’s responsibilitynecessarily runs to that tribe, not to all Indians.”27 The Ninth Circuit characterizedthe preferential hiring provisions in Peabody’s leases as “useful in ensuring that theeconomic benefits flowing from the ‘most important resource’ on the Navajoreservation accrued to the tribe and its members” and summarized that “[m]easuresintended to preserve for the Nation and its members the fruits of the resources foundon the tribe’s own land are ‘rationally designed’ to fulfill the federal government’strust obligations to the tribe.”28

CONCLUSION

Although the Ninth Circuit’s opinion in Peabody Western appears to grant broadsupport for the enforceability of TERO statutes, several essential questions stillremain to be resolved. First, although all mineral leases executed on tribal lands aregranted under the IMLA, leases executed with individual allottees are not. Thoseleases are typically executed under the authority of 25 U.S.C. § 396, a statute thatcourts may not interpret to reflect the same underlying objectives related to tribalself-determination and sovereignty that the IMLA advances. Whether the NinthCircuit’s rationale in Peabody Western can be applied to allottee lands thereforeremains to be decided.

24 EEOC v. Peabody W. Coal. Co., 768 F.3d 962 (9th Cir. Sept. 26, 2014), amended, 2014 U.S.App. LEXIS 21944 (9th Cir. Ariz. Nov. 19, 2014), at *10 (quoting Navajo Nation v. United States, 537U.S. 488, 494 (2003)).

25 Id. at *12.26 Id. at *20 (quoting Dawavendewa v. Salt River Project Agricultural Improvement & Power Dist.,

276 F.3d 1150, 1158 (9th Cir. 2002)).27 Id. at *25.28 Id.


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It is also unclear what influence that the Ninth Circuit’s decision will have oncourts that might address similar questions in the next few years. While coalcontinues to dominate on the Navajo Reservation, significant oil and gas activitycontinues to proliferate on tribal lands in, among other places, North Dakota, Utah,Colorado, New Mexico, and Oklahoma. The Peabody Western decision is notcontrolling in any of those locations. In the end, prudent companies will continue tocomply with all federal and tribal preference restrictions, but important questionsabout the long term enforceability of TERO programs remain.


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