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NAVAJO NATION v. PEABODY HOLDING CO.

June 24, 2002

THE NAVAJO NATION, ET AL., PLAINTIFFS,
V.
PEABODY HOLDING COMPANY, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Sullivan, District Judge.

  MEMORANDUM OPINION AND ORDER

The parties to this action have been actively involved in its litigation for the past two and a half years. The case is in a unique procedural posture, as many of the claims asserted by Navajo Nation and the Hopi Tribe against the defendants are at issue in a lawsuit filed by the Navajo Nation in the Federal Circuit against the United States. The Supreme Court recently granted the United States' petition for writ of certiorari in the Federal Circuit case.

Three matters are presented to the Court for resolution. First, defendant Salt River Project ("SRP") asks the Court to enter final judgment in its favor. The Navajo Nation and the Hopi Tribe conversely seek to reinstate claims against SRP. Second, defendants Peabody Holding Co., Peabody Coal Co. and Peabody Western Coal ("Peabody defendants") move the Court to transfer this case to the District Court for the District of Arizona or, in the alternative, to stay this matter until litigation in that district has been resolved. Finally, the Peabody defendants and defendant Southern California Edison ("SCE") have filed motions for entry of a protective order that would stipulate that neither Peabody nor SCE waived privileges with respect to documents that were disclosed in the Court of Federal Claims case pursuant to a confidentiality agreement.

I. Procedural History

In December 1993, the Navajo Nation sued the federal government in the Court of Federal Claims for actions relating to coal leases on tribal land. Navajo Nation alleged that the government had breached its statutory and fiduciary duties by first delaying a decision on the disputed royalty rate, and then approving an inadequate rate. Specifically, the area director had recommended a 20% royalty rate, but Secretary of the Interior Donald Hodel delayed approving that rate. After the Navajo were allegedly pressured into accepting a 12.5% rate in negotiations with Peabody, Secretary Hodel approved that lower rate. The Court of Federal Claims issued an opinion highly critical of the government, but did not find a breach of fiduciary duty. See The Navajo Nation v. United States, 46 Fed.Cl. 217 (2000). The Federal Circuit reversed, holding that the United States breached its fiduciary duty by "suppressing and concealing" the Board of Indian Affairs' decision to the detriment of Navajo interests. 263 F.3d 1325, 1332 (Fed.Cir. 2001). The Supreme Court recently granted the United States' petition for certiorari, ___ U.S. ___, 122 S.Ct. 2326, 153 L.Ed.2d 158 (Mem.) (2002), and scheduled the case for oral argument in tandem with White Mountain Apache Tribe v. United States, 249 F.3d 1364 (Fed.Cir. 2001), cert. granted by ___ U.S. ___, 122 S.Ct. 1604, 152 L.Ed.2d 619 (Apr. 22, 2002).

The instant case was filed in February 1999 by Navajo Nation against the Peabody defendants, SCE and SRP. The suit claims that the defendants conspired to improperly influence the federal government's decisions regarding the coal leases. It alleges a violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and related claims such as breach of contract, interference with fiduciary relationship, conspiracy and fraudulent concealment. The core of the complaint is the revelation stemming from discovery received in the Court of Federal Claims case that defendants hired a lobbyist, Stanley Hulett, who met with Secretary Hodel ex parte and allegedly persuaded him not to approve a recommendation by the area director to raise the royalty rate to 20%.

On June 17, 1999, Navajo Nation filed its first amended complaint, naming Peabody, SCE and SRP as defendants. On September 9, 1999, all defendants filed a joint motion to dismiss the amended complaint. On the same day, SRP also filed a supplemental motion to dismiss. The defendants' joint motion was denied by the Court on March 15, 2001. On May 15, 2001, the Court issued an order granting SRP's supplemental motion to dismiss the Navajo Nation's amended complaint.

The Hopi Tribe moved to intervene in February 2000. On March 15, 2001, the Court granted the Hopi Tribe's motion to intervene. On July 3, 2001, the Court granted SRP's motion to dismiss the Hopi Tribe's claims against SRP. Thus, all claims against SRP have been dismissed.

The Court denied the remaining defendants' joint motion to dismiss the Hopi Tribe's complaint for failure to state a claim. See Order, Oct. 31, 2001.

II. Plaintiffs' Motions for Restoration of Claims against SRP and SRP's Motion for Entry of Judgment

Pursuant to Fed.R.Civ.P. 54(b), "[w]hen more than one claim for relief is presented in an action, . . . or when multiple parties are involved, the court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment."

The Navajo Nation suggests that new Arizona case law should persuade the Court to reinstate the claims against SRP. Specifically, the Navajo Nation claims restoration of its claims against SRP is "appropriate because, as applied to the facts of this case, the notice of claims statute violates the equal protection and anti-abrogation clauses of the Arizona Constitution." Pl.'s Mot. for Restoration of Claims against SRP at 1. The Navajo Nation argues that the Arizona Supreme Court's decision in Clouse v. State, 199 Ariz. 196, 16 P.3d 757 (2001), and the "depublication" of Hendel v. Salt River Project Agric. Improvement & Power Dist., No. 1 CA-CV 97-0329, 1998 WL 404489 (Ariz.Ct. App. July 21, 1998), may be read to suggest that the notice of claims statute is unconstitutional when it is extended to cover claims arising out of proprietary conduct of a political subdivision of the State. However, the Navajo Nation argued these authorities to the Court at oral argument and in their briefs prior to the Court's decision to dismiss the Nation's claims motion to "restore" claims against SRP is, in essence, a motion for reconsideration.

Navajo Nation contends that the Court failed to address whether plaintiffs' complaints arose out of SRP's proprietary activities and whether application of the statute to actions arising out of proprietary activities would violate the Arizona Constitution. However, in granting SRP's motions to dismiss, the Court held that the notice of claims statute applied to SRP, citing Stulce v. Salt River Project Agric. Improvement & Power Dist., 197 Ariz. 87, 3 P.3d 1007 (App. 1999). Stulce, in addition to recognizing SRP as a political subdivision of the State, held that "the Arizona Constitution specifically empowers the legislature to enact statutes of limitations and procedures that may treat lawsuits against the state differently from other lawsuits." Id. at 1013. The Arizona Constitution, Arizona statutes and case law all establish that municipal entities such as SRP are entitled to notice of claims in conformance with the statute prior to filing suit. See Ariz.Rev.Stat. § 12-821.01(C).

No court has suggested that the Arizona notice of claims requirement is unconstitutional, or may be dependent on the type of conduct that gives rise to suit. Navajo Nation relies on Clouse, a case that considered the constitutionality of governmental immunity statutes under the Arizona Constitution. In Clouse, the plaintiffs argued that a law granting immunity to public employees acting within the scope of their employment violated the State's constitutional provision of "open courts." 16 P.3d at 758; see Ariz. Const. art. IV, pt. 2, § 18 ("The Legislature shall direct by law in what manner and in what courts suits may be brought against the state."). Defendants argued that the so-called "immunity clause" of the State Constitution permitted the legislature to limit the liability of public employees. 16 P.3d at 763-64. The court held that the "immunity clause" "confers upon the legislature a power to control actions against the state that it does not possess with regard to actions against or between private parties." Id. at 764. Therefore, the court concluded, the legislature was acting within its authority when it enacted a law limiting the liability of public employees acting within the scope of their employment. Id. However, the court limited its holding to the scope of the contested legislative enactment, noting that it did "not address the liability of public entities for proprietary activity." Id. at 765. Nevertheless, in a recent decision of the Court of Appeals of Arizona, Clouse was cited for the broad proposition that the Arizona Constitution grants the legislature authority to define instances in which public entities and employees are entitled to immunity. See Flood Control Dist. of Maricopa County v. Gaines, 202 Ariz. 248, 43 P.3d 196, 201 (App. 2002).

Ultimately, the Navajo Nation's argument rests on its mischaracterization of the notice of claims statute as an immunity statute. Navajo Nation would have this Court read Clouse to mean that the Arizona Supreme Court has expressed doubt that any regulation of liability arising from a public entity's proprietary activities would be constitutional. However, Clouse concerned the scope of a public entity's immunity from liability. 16 P.3d at 764. Here, the issue facing the Court is compliance with Arizona's notice of claims statute. This statute is more akin to a statute of limitations on claims against public entities than it is analogous to a law immunizing public entities from suit. Plaintiffs have cited no authority for the proposition that a requirement that public entities be given notice within a certain period of time may be unconstitutional under the Arizona Constitution. It is undisputed that SRP did not receive notice within the meaning of the statute. Consequently, the Court finds no reason to revisit its decision to grant SRP's motions to dismiss.

Navajo Nation argues, in the alternative, that the Court should certify these "unsettled questions" of Arizona state law to the Arizona Supreme Court. The Court is not convinced that this matter presents an unsettled question of Arizona law. Navajo Nation's argument is based on the premise that the Arizona Supreme Court has "demonstrated reluctance to decide whether the Arizona Legislature may enact statutes limiting the circumstances under which municipal corporations may be liable for torts arising out of their proprietary activities." Pl.'s Mot. for Restoration at 2. However, the Nation points only to the Arizona Supreme Court's decision in Clouse to support this proposition. For the reasons stated above, the Court does not believe that Clouse raises significant doubts as to the constitutionality of Arizona's notice of claims statute.

SRP asks the Court to enter final judgment as to plaintiffs' claims against it. Pursuant to Fed.R.Civ.P. 54(b), the Court may enter final judgment as to an individual defendant when claims against other defendants are still pending. However, the entry of final judgment is appropriate as to "one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment." Fed.R.Civ.P. 54(b).

SRP argues that, because the basis for the Court's dismissal of claims against SRP is inapplicable to the other defendants, the Court should enter final judgment for SRP on all claims. However, an entry of final judgment is inappropriate where, as here, issues may be raised on appeal that are common to the remaining parties and claims, See Curtiss-Wright Corp. v. General Elec. Co., 446 U.S. 1, 8, 100 S.Ct. 1460, 64 L.Ed.2d 1 (1980) (noting as factors for considering whether final judgment on one of multiple claims is appropriate "judicial administrative interests" and "whether the nature of the claims already determined was such that no appellate court would have to decide the same issues more than once even if there were subsequent appeals"). While this Court has dismissed the claims against SRP on the grounds that SRP is a public entity and the plaintiffs were therefore required to comply with Arizona's notice of claims statute, SRP admits that it would not be limited to defending the dismissal on this basis. Indeed, SRP might be deemed to waive other defenses, such as those asserted in defendants' joint motion to dismiss, if it were not to raise them on appeal. Thus, while this Court has dismissed SRP from the instant litigation on grounds separate and apart from the joint defenses raised by SRP together with Peabody and CSE, SRP is likely to defend an appeal, at least in part, with arguments that are common to the remaining defendants. Consequently, the Court denies SRP's motion to enter final judgment.

III. Motion to Transfer or Stay

The Peabody defendants request that the Court transfer this case to the District Court for the District of Arizona or, in the alternative, stay proceedings in the instant matter until the Arizona court has resolved litigation pending before it.

The lawsuit filed in the Arizona District Court concerns an arbitration clause contained in Coal Lease No. 8580 between Navajo Nation and Peabody. In 1984, an Area Director of the Bureau of Indian Affairs ("BIA"), Donald Dodge, unilaterally adjusted the royalty rate on Lease No. 8580 to a 20% rate, which was in excess of the 12.5% and lesser rates applied in other coal leases during the period of 1985 to 1996. Peabody and the operators of the two power plants, SCE and SRP, challenged the Dodge decision before the Interior Department. The rate dispute was resolved by way of negotiations that led to the amendment of the 8580 lease in 1987. The Navajo Nation Lease No. 9910 and the Hopi Tribe Lease No. 5743 were also amended in 1987.

The 1987 amendments to the three leases, No. 8580, No. 9910 and No. 5743, raised the royalty rates to 12.5%. The 1987 amendments to No. 8580 also addressed the Dodge rate determination, and the parties agreed to petition the Interior Secretary to vacate the Dodge determination and render that royalty adjustment decision to be without legal force or effect.

Article IV and VI, as amended by the 1987 Lease Amendments, set out the method for readjustment of royalty rates under Lease No. 8580 for periods beginning on and after February 1, 1984 and require that the parties engage in negotiation and then arbitration of disputes regarding the proper royalty rates. Article XXXVII, created by the 1987 amendments, describes the arbitration procedures. A three-member arbitration panel is to be created, with one member selected by each of the parties and a third member to be jointly selected by the parties. If the parties are unable to agree on a third member, they may request the Chief Judge of the Arizona District Court to appoint the third member and, if the Chief Judge is unable or unwilling to do so, the article provides that the Regional Vice-President of the American Arbitration Association for Arizona will select the third panel member.

In 1997, the Navajo Nation commenced negotiations with Peabody seeking an increase in the royalty rate. These negotiations were unsuccessful and, on February 2, 1998, the Navajo Nation tendered a formal demand for arbitration in compliance with the procedures mandated by the 1987 amendments. The parties petitioned the Chief Judge of the Arizona District Court to select the neutral presiding arbitrator. In September 1998, the parties entered into an Arbitration Settlement Agreement and a final arbitration award was approved by the panel.

On February 21, 2002, Peabody filed a lawsuit in the Arizona District Court seeking to enforce the prior award or to compel further arbitration. Peabody Coal Co. v. The Navajo Nation, Civ. Action No. 020318 PCT RCB. Judge Broomfield has scheduled oral argument on a motion to dismiss filed by Navajo Nation.

Peabody suggests that the Court should transfer this case to the District Court for the District of Arizona for the following reasons: (1) that both Navajo Nation and Hopi have binding agreements with Peabody to arbitrate and litigate royalty rate disputes in the District of Arizona; (2) the pendency of royalty rate litigation before the Arizona District Court; (3) the applicability of Arizona law to "material issues"; and (4) "the predominance of Arizona connections, witnesses, and evidence in this case, including the ancestral home of plaintiffs." Reply at 7.

A. Motion for Transfer

Defendants concede that venue in this District is proper. Accordingly, a transfer is appropriate only if it is more convenient for the parties and the witnesses and otherwise in the interests of justice. See 28 U.S.C. § 1404(a). The party seeking a transfer bears the burden of persuasion. SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1154 (D.C.Cir. 1978).

1. Effect of Forum Selection Clause

Peabody defendants argue that this Court must enforce valid forum selection clauses. Marra v. Papandreou, 216 F.3d 1119, 1123 (D.C.Cir. 2000). In arguing that this case is within the purview of Article XXXVII — the lease agreements' arbitration clause — Peabody defendants essentially contend that the issues presented by this litigation were resolved by the 1998 arbitration award. See Defs.' Reply at 18 ("during the 1998 arbitration proceedings, the Navajo Nation raised all of the facts and allegations that it would later sweep into the June 1999 amended complaint in this Court against Peabody"). Nevertheless, defendants concede that venue is proper in this Court, and, moreover, have not asserted the defense of arbitration and award in this matter. Indeed, pursuant to Fed.R.Civ.P. 8(c), a defendant must set forth affirmatively the defense of "arbitration and award." Neither Peabody nor SCE asserted this defense. Thus, while the Peabody defendants do not assert the arbitration award as a defense to this litigation, they essentially argue that the arbitration award concerns the matters before this Court, warranting a transfer or a stay of proceedings.

Most significantly, defendants are not arguing that the Court is required to enforce the purported forum selection clause by transferring this case to the District of Arizona. See Defs.' Mot. to Transfer at 6 (citing Stewart Org., Inc., 487 U.S. at 29, 108 S.Ct. 2239 for proposition that forum selection clause is "significant factor" in district court's consideration of motion to transfer). Yet, a choice of forum clause that governs the subject matter being litigated is a heavy factor in favor of transfer. See, e.g., In re Ricoh Corp., 870 F.2d 570, 573 (11th Cir. 1989); National Micrographics Sys., ...


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