Peabody Coal Company, et al. v. Navajo Nation

This appeal addresses whether a district court has subject
matter jurisdiction over a suit brought for enforcement of an
arbitration award by a non-Indian corporation against the
Navajo Nation (or "the Nation"), a federally recognized
Indian tribe located primarily in Arizona. The complaint filed
by Plaintiffs Peabody Coal Company, Peabody Western Coal
Company, and Peabody Holding Group, Inc., (collectively
"Peabody") seeks enforcement of an arbitration settlement
agreement made between the parties in 1998 setting royalty
rates for coal mined pursuant to a commercial lease. The lease
itself had been previously approved by the Department of the
Interior. Peabody contends that the federal question in this
case is the enforceability of commercial Indian mineral leases
approved by the Secretary of the Department of the Interior
("Secretary") under federal law. We hold that Peabody's
claim does not meet the requirements of federal question
jurisdiction under 28 U.S.C. § 1331, and we affirm the district
court's dismissal of the case.

I

In 1964, Peabody's predecessor in interest (the Sentry Royalty
Company) leased the right to mine substantial coal deposits
located on Navajo lands (lease No. 8580). In exchange for
the right to mine this coal, Peabody agreed to pay the Navajo
Nation a royalty fee (a percentage of the monthly gross revenue
obtained from sale of the coal). Under this original lease
agreement, the Secretary was authorized to make reasonable
adjustments to these royalty rates after twenty years, and
every decade thereafter. In 1966, the parties entered a second
lease for a different parcel of land (lease No. 9910), which did
not permit the Secretary to make royalty rate adjustments.
Under the Indian Mineral Leasing Act of 1938 ("IMLA"),
52 Stat. 347, 25 U.S.C. §§ 396a-396g, the Secretary must

7996 PEABODY COAL CO. v. NAVAJO NATION

approve mineral leases between Native tribes and commercial
companies to ensure that a tribe's profits are maximized and
that the lease terms are in the tribe's best interest. 25 U.S.C.
§ 396a. Leases 8580 and 9910 were accordingly approved by
the Secretary.

In 1984, after the leases had been in effect for some twenty
years, the Chairman of the Navajo Nation asked the Secretary
to readjust the royalty rates. An Interior Department Area
Director for the Bureau of Indian Affairs ("BIA"), Donald
Dodge, issued an initial decision raising the royalty rate for
lease No. 8580 to 20%, a substantial increase over the prior
level of 12.5%. Peabody challenged Dodge's decision in an
administrative appeal lodged with the Department of the Interior.
The Navajo Nation has alleged that, during the pendency
of Peabody's appeal, a lobbyist hired by Peabody made
improper ex parte contacts with then-Secretary Donald Hodel
to encourage him to reduce the royalty rate. Secretary Hodel
allegedly asked the BIA to delay issuing its decision, which
allowed Peabody more time to negotiate with the Navajo
Nation to obtain a lower rate.

Negotiations continued and eventually, in 1987, the parties
agreed to amend the original leases in several ways. First, the
1987 amendments specified a royalty rate for lease No. 8580
of 12.5% and for lease No. 9910 of 6.25%. The parties agreed
to petition the Secretary to vacate Area Director Dodge's previous
decision setting the rate at 20%.

Next, the amendments created new procedures to adjust
royalty rates in the future. Removing the provision in lease
No. 8580 that permitted the Secretary to set a reasonable royalty
rate, the parties substituted arbitration clauses in both
leases as "the sole and exclusive method for the determination
or readjustment of royalty rates . . . for periods beginning on
and after February 1, 1984." If the parties could not agree
upon new rates, they agreed in advance to submit to binding
arbitration. The Navajo Nation also agreed to waive its sover-

7997 PEABODY COAL CO. v. NAVAJO NATION

eign immunity from actions to enforce or appeal any resulting
arbitration decision:

Lessor and its officers acting in their official capacity
consent to suit in the United States District Court
for the District of Arizona for the limited purpose of
the enforcement or appeal of any arbitration decision
pursuant to this Article, and agree not to raise sovereign
immunity or exhaustion of tribal remedies as a
defense to such suit.

1987 Amendments to Lease No. 8580, 12. The 1987 lease
amendments were approved by Secretary Hodel as being in
the Navajo Nation's best interest.

In the late 1990s, the parties attempted to renegotiate the
royalty rates. When negotiations failed, the Navajo Nation
requested arbitration in 1998 under the procedures created by
the 1987 lease amendments. Although an arbitration panel
was convened, the parties were able to reach a negotiated settlement.

The settlement was memorialized in an arbitration
award. The 1998 award retained the 1987 royalty rates
(12.5% on lease No. 8580, 6.25% on lease No. 9910). Unlike
the underlying mineral leases and their amendments, the arbitration
award did not require approval by the Secretary. The
parties agreed that "no action of the . . . Secretary is necessary
to give full and final effect to the arbitration award."
In addition, the parties executed a brief amendment to the
leases. Under this amendment, Peabody agreed to pay the
Navajo Nation a lump sum bonus payment of $4,500,000 in
exchange for "the covenants, promises, terms and conditions
contained herein and in the separate Settlement Agreement
between the parties[.]" Bruce Babbitt, the new Secretary of
the Interior, approved this 1998 lease amendment on March
29, 1999.

7998 PEABODY COAL CO. v. NAVAJO NATION

These events nonetheless spawned several lawsuits in different
jurisdictions.1 In 1999, the Navajo Nation sued Peabody
and several other defendants in the United States District
Court for the District of Columbia ("D.C. action"). The
Nation alleges violations of the Racketeer Influenced and
Corrupt Organizations Act ("RICO") and other related claims
stemming from Peabody's alleged ex parte contacts with former
Secretary Hodel. The relief sought by the tribe includes
reformation of lease No. 8580 to incorporate the 20% royalty
rate proposed by Area Director Dodge in 1987.

At issue in this appeal is the complaint Peabody filed on
February 21, 2002, in the United States District Court for the
District of Arizona ("Arizona action"), seeking to enforce the
1998 final arbitration award between the parties. Peabody's
complaint contends that because the 1998 arbitration settlement
agreement was entered by the arbitration panel as a final
award, and because the Navajo Nation did not appeal the
award, it is enforceable in the District of Arizona under the
Navajo Nation's waiver of sovereign immunity in the 1987
lease amendments.2

1Not at issue in this appeal is the Navajo Nation's 1993 suit against the
Secretary in the Court of Federal Claims, alleging that former Secretary
Hodel breached his fiduciary duty to the tribe by meeting ex parte with a
Peabody lobbyist during the royalty rate dispute in 1984, and by failing
to approve the 20% royalty rate that the BIA initially recommended. The
United States Supreme Court recently rejected the Nation's claim for compensation
because it did not derive from any liability-imposing provision
of the IMLA or its implementing regulations. United States v. Navajo
Nation, 537 U.S. 488, 493 (2003), rev'g 263 F.3d 1325 (Fed. Cir. 2001),
rev'g 46 Fed. Cl. 217 (2000). That case is currently on remand to the
Court of Federal Claims. See Navajo Nation v. United States, 347 F.3d
1327, 1332 (Fed. Cir. 2003).

2Peabody has repeatedly tried to consolidate the two actions pending in
the District of Columbia and in Arizona. In March 2002, Peabody
requested the United States District Court for the District of Columbia to
stay the D.C. action or transfer it to Arizona. The court declined to do so,
noting that the Navajo Nation's waiver of sovereign immunity in the 1987
Amendments applies only to actions that challenge an arbitration decision,

7999 PEABODY COAL CO. v. NAVAJO NATION

On March 29, 2002, the Navajo Nation filed a motion to
dismiss Peabody's Arizona action for lack of subject matter
jurisdiction due to Peabody's failure to present a federal question.
Arizona District Judge Robert C. Broomfield held a brief
hearing on the motion, during which counsel for the Navajo
Nation was asked where Peabody could bring suit to enforce
the arbitration award if not in the District of Arizona. The
Navajo Nation suggested that the only court with jurisdiction
would be a Navajo tribal court. Judge Broomfield granted the
Navajo Nation's motion to dismiss, finding no federal question
jurisdiction under 28 U.S.C. § 1331 because enforcement
of the arbitration award did not raise any question about the
leases or the Secretarial approval process under federal law.

II

A

We review de novo a district court's dismissal of a complaint
for lack of subject matter jurisdiction. Arizona Pub.
Serv. Co. v. Aspaas, 77 F.3d 1128, 1132 (9th Cir. 1996) (as
amended). We will accept the district court's factual findings
on jurisdictional issues unless they are clearly erroneous. Id.

B

[1] Federal courts have original jurisdiction over civil
actions "arising under the Constitution, laws, or treaties of the
United States." 28 U.S.C. § 1331. For a case to "arise under"
not to RICO or fraud claims. Navajo Nation v. Peabody Holding Co., 209
F. Supp. 2d 269, 277-78 (D.D.C. 2002), aff'd, 64 Fed. Appx. 783, 784
(D.C. Cir. 2003).

Count Two of Peabody's complaint in the District of Arizona sought to
compel arbitration of "all matters that are the subject of the Navajo
Nation's [D.C. action]." Because Peabody's complaint was dismissed for
lack of jurisdiction, the court below did not reach this request.

8000 PEABODY COAL CO. v. NAVAJO NATION

federal law, a plaintiff's well-pleaded complaint must establish
either (1) that federal law creates the cause of action or
(2) that the plaintiff's asserted right to relief depends on the
resolution of a substantial question of federal law. Franchise
Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S.
Cal., 463 U.S. 1, 27-28 (1983). The fact that the defendant is
a Native sovereign is not, by itself, sufficient to raise a federal
question. Gila River Indian Cmty. v. Henningson, Durham &
Richardson, 626 F.2d 708, 714 (9th Cir. 1980).

[2] Peabody is not bringing a cause of action created by
federal law. See Gen. Atomic Co. v. United Nuclear Corp.,
655 F.2d 968, 969 (9th Cir. 1981) (holding that 9 U.S.C. § 9
does not create federal question jurisdiction in an action to
confirm an arbitration award). Thus, the company must establish
that its "right to relief necessarily depends on resolution
of a substantial question of federal law." See Franchise Tax
Bd., 463 U.S. at 27-28. Peabody asserts in its opening brief
that the federal question in its complaint is "the enforceability
of commercial Indian mineral leases the Interior Secretary
approved under federal law." Peabody's actual complaint
seeks enforcement of the final arbitration award, not the
underlying leases or lease amendments, but Peabody argues
that the Secretary's approval of the 1997 lease amendments,
together with the general federal regulatory scheme governing
such mineral leases, raises an issue of federal law. Peabody
also contends that the Navajo Nation's assertion of exclusive
tribal jurisdiction at the hearing before Judge Broomfield
raises a federal question. We disagree.

We have previously considered whether the federal regulation
and approval of a contract or lease gives rise to a significant
federal question that will establish jurisdiction under 28
U.S.C. § 1331. In Littell v. Nakai, 344 F.2d 486 (9th Cir.
1965), we examined a complaint brought by the General
Counsel of the Navajo Nation against the Chairman of the
Navajo Tribal Council for tortious interference with a contract.

Even though the contract between the parties had been

8001 PEABODY COAL CO. v. NAVAJO NATION

authorized by federal law and approved by federal officials,
we held that we had to examine the particular facts of the
claim asserted before determining whether a federal question
was present. Id. at 488-90. The gist of the dispute between
Littell and Nakai involved a straightforward interpretation of
the employment contract itself; the fact that the contract was
approved by federal officials was not relevant to the resolution
of the parties' dispute. Id. Therefore, we held that Littell's
complaint did not present a federal question. Id.
More recently in Arizona Pub. Serv. Co. v. Aspaas, the
main case upon which Peabody relies, we considered a dispute
between the Navajo Nation and the Arizona Public Service
Company ("APS"), a non-Native party operating a power
plant on Navajo land pursuant to a lease approved by the Secretary.
77 F.3d at 1129-30. The Navajo Nation agreed in the
lease that it would not regulate APS's operation of the power
plant. Id. at 1130. APS enforced an anti-nepotism policy at
the power plant, and the tribe initiated proceedings in a tribal
forum to enjoin the policy and enforce tribal law. Id. at 1131.

APS invoked the arbitration provisions in the parties' lease,
but the Navajo Nation declined to participate. Id. After the
Navajo Supreme Court decided that APS's policy violated the
Navajo Nation's tribal employment laws, APS sued in federal
court to enjoin the Navajo Nation from regulating APS's
employment policies in light of the provisions in the lease
agreement. Id. We held that a federal question was presented
because the case involved a determination of whether the
Navajo Nation had exceeded its authority by regulating the
employment policies of a commercial entity doing business
on tribal lands. Id. at 1134.

[3] Aspaas is not dispositive in this appeal. Peabody's
complaint below does not allege that the Navajo Nation has
attempted to regulate Peabody's coal mines. Aspaas involved
APS's claim that the Navajo Nation had directly breached a
term of a federally approved lease by regulating APS's internal
operations at the power plant. See id. In contrast, Pea-

8002 PEABODY COAL CO. v. NAVAJO NATION

body's complaint in the Arizona action does not allege that
the Navajo Nation is currently in breach of any provision of
a lease or lease amendment; Peabody seeks enforcement of
the arbitration royalty award, not the lease. Peabody relies
heavily on our statement in Aspaas that the fact that a contract
is subject to federal approval is "highly probative" of whether
a federal question is present. Yet the final arbitration award
for which Peabody seeks enforcement was not federally
approved. Instead, the parties agreed that "no action of . . . the
Secretary [was] necessary to give full and final effect to the
arbitration award."

In cases from other jurisdictions involving contracts
between Native sovereigns and non-Natives, the federal question
in each case was either a tribal government's authority to
apply tribal law to the commercial activities of non-Indian
companies, or the validity of mineral leases themselves,
which are both questions that can be answered only by reference
to federal statutory or common law.3 For example, in
Comstock Oil & Gas, Inc. v. Alabama & Coushatta Indian
Tribes of Texas, 261 F.3d 567 (5th Cir. 2001), the Fifth Circuit
considered a dispute between a tribe, which sought to
have mineral leases declared void in its new tribal court, and
an oil company, which sought a declaratory judgment in federal
court that the leases were valid. Id. at 569. Noting that
"[t]he question whether an Indian tribe retains the power to
compel a non-Indian . . . to submit to the civil jurisdiction of
a tribal court is one that must be answered by reference to federal
law and is a ‘federal question' under § 1331," id. at 572
(quoting Nat'l Farmers Union Ins. Cos. v. Crow Tribe of
3In a letter brief filed pursuant to Federal Rule of Appellate Procedure
28(j), Peabody directs our attention to Gaming World Int'l v. Chippewa
Indians, 317 F.3d 840 (8th Cir. 2003), in which the Eighth Circuit held
that a dispute over whether an Indian gaming contract received valid
approval was a proper basis for federal jurisdiction. Id. at 848. We agree
with the Navajo Nation that because this case does not involve the validity
of the coal leases, Gaming World Int'l does not help Peabody's position.

8003 PEABODY COAL CO. v. NAVAJO NATION

Indians, 471 U.S. 845, 852 (1985)), the Comstock Oil court
concluded that it also had jurisdiction to determine whether
the oil and gas leases were valid due to the extensive federal
regulation of these types of leases. Id. at 573-75; see also
Morongo Band of Mission Indians v. Rose, 893 F.2d 1074,
1077-78 (9th Cir. 1990) (holding that whether a tribe had the
authority to enforce a tribal ordinance against a non-Native
was a federal question); Superior Oil Co. v. United States,
798 F.2d 1324, 1328-29 (10th Cir. 1986) (holding that
whether the Navajo Nation exceeded its authority by withholding
approval of oil and gas lease assignments under the
IMLA was a federal question); accord Chilkat Indian Vill. v.
Johnson, 870 F.2d 1469, 1474 (9th Cir. 1989); Tenneco Oil
Co. v. Sac & Fox Tribe of Indians of Okla., 725 F.2d 572,
575-76 (10th Cir. 1984).

Peabody relies on Comstock Oil, Superior Oil, and Tenneco
Oil for the proposition that oil and gas leases on tribal lands
are not mere contracts. Instead, many courts have noted that
these leases "represent a very specialized subset of contracts"
because of the extensive federal regulatory scheme governing
them. Comstock Oil, 261 F.3d at 574-75. While that is certainly
true, Peabody's claim here does not allege any problem
with the underlying leases or their amendments. The only
contract at issue in Peabody's claim is the arbitration settlement
agreement, which is not a specialized type of contract
that is subject to extensive federal regulation.

[4] This case is thus markedly different from the decisions
cited above. Peabody does not contest the validity of the coal
mining leases or their amendments, nor does it allege that the
Navajo Nation has breached a lease or lease amendment.4 The

4Peabody has submitted, pursuant to Federal Rule of Appellate Procedure
28(j), a copy of a complaint the Navajo Nation filed against Peabody
in an unrelated action in the United States District Court for the District
of Arizona. In that complaint, the Navajo Nation contends that the coal
mining leases are invalid because the Nation must share a portion of its

8004 PEABODY COAL CO. v. NAVAJO NATION

Navajo Nation has not attempted to exceed its authority by
regulating any aspect of Peabody's commercial enterprise
under tribal law. Navajo tribal courts have not attempted to
subject Peabody to their jurisdiction. In cases where a Native
sovereign has not tried to assert authority over a non-Native
party, and where the validity of a federally-regulated contract
is not at issue, courts have not found a substantial federal
question to be present. See, e.g., Niagara Mohawk Power
Corp. v. Tonawanda Band of Seneca Indians, 94 F.3d 747,
752-53 (2d Cir. 1996) (holding that where the validity of a
contract was not disputed, the fact of federal review and
approval did not convert a simple breach of contract claim
into a federal cause of action); Tamiami Partners, Ltd. v. Miccosukee
Tribe of Indians, 999 F.2d 503, 507 (11th Cir. 1993)
(finding no federal question jurisdiction where plaintiff only
presented facts establishing a breach of contract claim);
Littell, 344 F.2d at 487-88 (holding that there is no federal
question where the main dispute is centered on a contract and
its construction, rather than the validity of the federal
approval of the contract); accord Gila River Indian Cmty.,
626 F.2d at 714-15. As in these cases, Peabody's claim for
enforcement of an arbitration award sounds in general contract
law and does not require the resolution of a substantial
question of federal law.

[5] Although Peabody's claim is titled "Enforcement of an
Arbitration Award," the company has not alleged that either
party is failing to comply with the award. As Peabody conceded
at oral argument, coal is being mined and sold. Peabody
is paying royalties to the Navajo Nation at the rates found in
proceeds with the Hopi Tribe. See Peabody Coal v. Navajo Nation, 75
F.3d 457 (9th Cir. 1996). Peabody contends that the Navajo Nation's complaint
is an "admission" that federal jurisdiction arises under the IMLA
and that this admission supports Peabody's position. We disagree. Unlike
the separate action the Navajo Nation has filed, Peabody's complaint does
not allege any problem with the validity of the underlying coal mining
leases.

8005 PEABODY COAL CO. v. NAVAJO NATION

the arbitration award. There is simply no need for the award
to be "confirmed," as Peabody suggests in its reply brief.

Whether the Navajo Nation is somehow in breach of this
award is an issue that can be resolved by the common law of
contracts. Federal approval of the underlying leases or amendments
has no material bearing on whether this award requires
confirmation or enforcement. Therefore, Peabody's complaint
does not present a federal question.5

C

[6] Peabody's second asserted basis for federal question
jurisdiction is the statement made by the Navajo Nation's
counsel at the motion hearing before Judge Broomfield
regarding the proper court where Peabody may bring an
action to enforce the award. The Navajo Nation's attorney
stated that because Peabody's claim for enforcement of the
arbitration award did not raise a federal question, the proper
forum for such an action would be the Navajo Nation's tribal
courts instead of federal court. Whether a tribal court may
assert jurisdiction over non-Natives is certainly a question of
federal law, see United States ex rel. Morongo Band of Mission
Indians v. Rose, 34 F.3d 901, 905 (9th Cir. 1994), but the
Navajo Nation has not hailed Peabody before its tribal courts.

Because Peabody's complaint makes no reference to any
existing dispute about asserted tribal court jurisdiction or
authority, no federal question is present. See Aetna Life Ins.
Co. v. Haworth, 300 U.S. 227, 241 (1937) (federal courts may
only resolve real or substantial controversies, "admitting of
specific relief through a decree of a conclusive character as
5It is well-settled that the provisions of 9 U.S.C. § 9 do not by themselves
confer subject matter jurisdiction. Gen. Atomic Co., 655 F.2d at
969. In this case, we do not decide whether the existence of a federal question
in an arbitrated dispute would confer subject matter jurisdiction under
28 U.S.C. § 1331 to confirm or enforce the resulting arbitration award pursuant
to 9 U.S.C. § 9. Rather, we simply hold that no substantial federal
question was arbitrated or implicated here.

8006 PEABODY COAL CO. v. NAVAJO NATION

distinguished from an opinion advising what the law would be
upon a hypothetical state of facts").