WSI v. Cherokee Services Group

                                                                            FILED
                                                                    IN THE OFFICE OF THE
                                                                 CLERK OF SUPREME COURT
                                                                      FEBRUARY 18, 2021
                                                                  STATE OF NORTH DAKOTA



                 IN THE SUPREME COURT
                 STATE OF NORTH DAKOTA

                                  

State of North Dakota, by and through
Workforce Safety and Insurance,                                  Appellee
     v.
Cherokee Services Group, LLC,
Cherokee Nation Government Solutions, LLC,
Cherokee Medical Services, LLC,
Cherokee Nation Technologies, LLC,
Steve Bilby and Hudson Insurance Company,                      Appellants



                                No. 20200166

Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable David E. Reich, Judge.

JUDGMENT REVERSED; ADMINISTRATIVE ORDER AFFIRMED AND
REINSTATED IN PART AND REMANDED IN PART.

Opinion of the Court by VandeWalle, Justice.

Lawrence E. King, Bismarck, ND, for appellants.

Jacqueline S. Anderson, Special Assistant Attorney General, Fargo, ND, for
appellees.
                     WSI v. Cherokee Services Group
                              No. 20200166

VandeWalle, Justice.

[¶1] Cherokee Services Group, LLC; Cherokee Nation Government Solutions,
LLC; Cherokee Medical Services, LLC; Cherokee Nation Technologies, LLC
(collectively referred to as the “Cherokee Entities”); Steven Bilby; and Hudson
Insurance Company (“Hudson Insurance”) appealed from district court orders
and a judgment reversing an administrative law judge’s (“ALJ”) order. The
ALJ’s order concluded the Cherokee Entities and Bilby are protected by tribal
sovereign immunity and Workforce Safety and Insurance (“WSI”) had no
authority to issue a cease and desist order to Hudson Insurance. The district
court reversed the ALJ’s determination. We reverse the district court
judgment. We affirm and reinstate the ALJ’s order related to the cease and
desist power of WSI, but we remand to the ALJ for further proceedings on the
issue of sovereign immunity.

                                      I

[¶2] The Cherokee Entities are wholly owned by the Cherokee Nation, a
federally recognized tribe. Bilby served as executive general manager of the
Cherokee Entities. Hudson Insurance provides worldwide workers’
compensation coverage to Cherokee Nation, and the Cherokee Entities are
named insureds on the policy. WSI initiated an administrative proceeding
against the Cherokee Entities, Bilby, and Hudson Insurance. WSI determined
the Cherokee Entities were employers subject to North Dakota’s workers’
compensation laws and were liable for unpaid workers’ compensation
premiums. WSI also ruled that Bilby, as executive general manager, was
personally liable for unpaid premiums. WSI ordered the Cherokee Entities to
pay the unpaid premiums. WSI also ordered Hudson Insurance to cease and
desist from writing workers’ compensation coverage in North Dakota. The
Cherokee Nation has no sovereign land in North Dakota, and the Cherokee
Entities were operating within the state but not on any tribal lands.




                                      1
[¶3] After WSI issued its order, the Cherokee Entities, Bilby, and Hudson
Insurance requested an administrative hearing. At the hearing, WSI’s
collections supervisor, Sarah Feist, did not dispute that the Cherokee Entities
acted as an “arm of the tribe.” The ALJ reversed WSI’s decision. The ALJ found
the Cherokee Entities had sovereign immunity in the area of workers’
compensation, and Bilby was not foreclosed from asserting sovereign immunity
as he was sued in his official capacity. Additionally, the ALJ held WSI had no
authority to issue cease and desist orders to insurance companies.

[¶4] WSI appealed the ALJ’s order to the district court. The Cherokee
Entities, Bilby, and Hudson Insurance removed the case to federal court, but
the federal court remanded the case back to the state district court. The state
district court held the Cherokee Entities and Bilby were not entitled to
sovereign immunity. The court also held WSI has authority to issue a cease
and desist order to Hudson Insurance.

                                      II

[¶5] “Courts exercise only a limited review in appeals from administrative
agency decisions under the Administrative Agencies Practice Act, N.D.C.C. ch.
28-32.” Bergum v. N.D. Workforce Safety & Ins., 

, 

. Under N.D.C.C. §§ 28-32-46 and 28-32-49, a district court and this Court
must affirm an administrative decision unless:

      1.    The order is not in accordance with the law.
      2.    The order is in violation of the constitutional rights of the
            appellant.
      3.    The provisions of [N.D.C.C. ch. 28-32] have not been
            complied with in the proceedings before the agency.
      4.    The rules or procedure of the agency have not afforded the
            appellant a fair hearing.
      5.    The findings of fact made by the agency are not supported by
            a preponderance of the evidence.
      6.    The conclusions of law and order of the agency are not
            supported by its findings of fact.




                                      2
      7.    The findings of fact made by the agency do not sufficiently
            address the evidence presented to the agency by the
            appellant.
      8.    The conclusions of law and order of the agency do not
            sufficiently explain the agency’s rationale for not adopting
            any contrary recommendations by a hearing officer or an
            administrative law judge.

Bergum, at ¶ 8.

[¶6] This Court reviews “the administrative agency’s decision in the same
manner as the district court, giving due respect to the district court’s analysis
and review.” Bergum, 

. “We do not give deference to the ALJ’s
legal conclusions, and questions of law are fully reviewable on appeal.”
Johnson v. N.D. Workforce Safety & Ins., 

, 

.
“Regarding review of an agency’s factual findings, we have explained we do not
make independent findings or substitute our judgment for that of the agency,
but determine only whether a reasoning mind reasonably could have
determined the findings were proven by the weight of the evidence in the
record.” N.D. Sec. Comm’r v. Juran & Moody, Inc., 

, 

.

                                      III

[¶7] The Cherokee Entities argue Cherokee Nation is entitled to tribal
sovereign immunity and the sovereign immunity extends to the Cherokee
Entities as “arms of the tribe.” The Cherokee Entities claim tribal sovereign
immunity precludes WSI from enforcing workers’ compensation laws against
them. “[T]ribal sovereign immunity is a threshold jurisdictional question.”
Amerind Risk Mgmt. Corp. v. Malaterre, 

 (8th Cir. 2011).
However, “the jurisdictional nature of tribal immunity has never been
definitively settled.” People v. Miami Nation Enters., 

 (Cal.
2016) (concluding some courts treat tribal sovereign immunity as a subject
matter jurisdiction issue while others treat it as a personal jurisdiction issue);
see also In re Prairie Island Dakota Sioux, 

 (8th Cir. 1994)
(holding tribal sovereign immunity is separate from subject matter jurisdiction



                                        3
as it can be waived while subject matter jurisdiction cannot). Regardless of the
jurisdictional nature, tribal sovereign immunity bars an action against a tribe
when it is invoked. See Miami Nation Enters., at 370 (stating trial courts do
not have a sua sponte duty to raise tribal immunity).

                                       A

[¶8] Cherokee Nation must possess tribal sovereign immunity as a
prerequisite for it to extend to the Cherokee Entities. “Indian tribes have long
been recognized as possessing the common-law immunity from suit
traditionally enjoyed by sovereign powers.” Santa Clara Pueblo v. Martinez,

 (1978). “This aspect of tribal sovereignty, like all others, is
subject to the superior and plenary control of Congress. But ‘without
congressional authorization,’ the ‘Indian Nations are exempt from suit.’” 

(quoting United States v. U.S. Fid. & Guar. Co., 

 (1940)).
Congress can use its plenary power to waive tribal sovereign immunity;
however, this waiver “cannot be implied but must be unequivocally expressed.”

 (quoting United States v. Testan, 

 (1976)). Additionally, a
tribe can waive its sovereign immunity on its own accord. Kiowa Tribe of Okla.
v. Mfg. Techs., Inc., 

, 754 (1998).

[¶9] Tribal sovereign immunity “applies no less to suits brought by States
(including in their own courts) than to those by individuals.” Michigan v. Bay
Mills Indian Cmty., 

 (2014). The United States Supreme
Court has made clear on more than one occasion that tribes are entitled to
sovereign immunity even when they engage in off-reservation commercial
activity. 

; see also Kiowa, 523 U.S. at 760 (analyzing a contract
dispute). The Court deferred to Congress on whether such exceptions for off-reservation commercial activity should be made. Bay Mills, at 790, 800-01.

[¶10] A state may apply its substantive law to tribal activities occurring within
the state. Kiowa, 523 U.S. at 755. However, the state has no remedy to enforce
the law against a tribe without a waiver of tribal sovereign immunity. Id. The
United States Supreme Court has said:




                                       4
      To say substantive state laws apply to off-reservation conduct,
      however, is not to say that a tribe no longer enjoys immunity from
      suit. In Potawatomi, for example, we reaffirmed that while
      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.

Id. (citations omitted) (citing Okla. Tax Comm’n v. Citizen Band Potawatomi
Indian Tribe of Okla., 

 (1991)).

[¶11] WSI and the district court conflate the defense of sovereign immunity
with a tribe’s sovereignty to adjudicate certain disputes occurring on tribal
lands, but these two concepts are different. For purposes of sovereign
immunity, it is immaterial where the conduct by the tribe took place, unless
an act of Congress or waiver says otherwise. Kiowa, 523 U.S. at 754-55. A tribe
is entitled to invoke sovereign immunity as a defense in a lawsuit. Id. Here,
Cherokee Nation is entitled to invoke its tribal sovereign immunity against a
lawsuit—even one brought by the State.

[¶12] WSI points to no act of Congress waiving Cherokee Nation’s sovereign
immunity. Additionally, WSI does not assert Cherokee Nation waived its
sovereign immunity on its own accord. The ALJ and the district court made no
findings that a waiver exists here. The State can apply its laws to Cherokee
Nation. See Kiowa, 523 U.S. at 755. However, Cherokee Nation can assert
sovereign immunity as a defense. See id. Therefore, the State has no means to
enforce its laws against Cherokee Nation absent a waiver of tribal sovereign
immunity. The analysis then turns to whether Cherokee Nation’s tribal
sovereign immunity extends to the Cherokee Entities.

                                      B

[¶13] Determining whether a business entity shares a tribe’s sovereign
immunity involves a mixed question of fact and law. Somerlott v. Cherokee
Nation Distribs., Inc., 

 (10th Cir. 2012); see also Miami
Nation Enters., 

 (placing the burden of proof on the entity


                                      5
claiming tribal sovereign immunity by a preponderance of the evidence).
Extending tribal sovereign immunity from Cherokee Nation to the Cherokee
Entities requires analyzing the characteristics of the businesses. See State ex
rel. Workforce Safety & Ins. v. JFK Raingutters, 

, 

 (holding sovereign immunity does not extend to a business when
it is owned by a member of the tribe and not the tribe itself); cf. Leadbetter v.
Rose, 

 (N.D. 1991) (applying a test to analyze whether
the University of North Dakota qualified as an arm of the State for the purpose
of sovereign immunity in a tort action), overruled by Bulman v. Hulstrand
Constr. Co., Inc., 

 (N.D. 1994) (holding the State of North
Dakota’s sovereign immunity for tort actions was a common-law protection,
not a constitutional one, and judicially abolishing it except for discretionary
tortious acts).

[¶14] WSI claims the Cherokee Entities can only assert sovereign immunity
when they operate on tribal lands and qualify as Indian persons under the law
or employ tribal citizens. Again, these distinctions are important when
analyzing whether the proper jurisdiction over a dispute rests with the state
or the tribal courts. See generally Airvator, Inc. v. Turtle Mountain Mfg. Co.,

 (N.D. 1983) (examining a corporation incorporated under
North Dakota law operating on the Turtle Mountain Indian Reservation);
Arrow Midstream Holdings, LLC v. 3 Bears Constr., LLC, 

, 

 (examining a North Dakota limited liability company operating on
the Fort Berthold Indian Reservation); see also JFK Raingutters, 

 (holding the state courts had jurisdiction over a corporation organized
under state law operating on tribal lands). However, the law makes no similar
requirements for an arm of the tribe to assert the sovereign immunity defense
in a state court action. Only Congress, through use of its plenary power, or a
waiver by the arm of the tribe can confine tribal sovereign immunity to actions
occurring on tribal lands. See Kiowa, 523 U.S. at 754-55. WSI points to no act
of Congress or tribal waiver that would confine the sovereign immunity defense
asserted by the Cherokee Entities to conduct occurring on tribal lands.




                                       6
[¶15] We have previously concluded state chartered corporations and
businesses owned by tribal members are not arms of the tribe. See JFK
Raingutters, 

 (holding a limited liability company organized
under North Dakota law and owned by a tribal member was not an arm of the
tribe and sovereign immunity did not extend to it). As indicated by this Court
and the Tenth Circuit, a court should first look to where a business was created
and under what sovereign’s laws. See Arrow, 

 (quoting Am.
Prop. Mgmt. Corp. v. Superior Court, 141 Cal. Rprt. 3d 802, 810-11 (Cal. Ct.
App. 2012), abrogated by Miami Nation Enters., 

) (“creation of a
separate legal entity pursuant to state law, rather than tribal law, weighs
heavily against a finding that an entity related to an Indian tribe is an arm of
the tribe protected by sovereign immunity”); see also Somerlott, 

. When a tribal entity subjects itself to a state by organizing under the
state’s laws, it waives sovereign immunity. Somerlott, at 1149-50; see also
N.D.R.Civ.P. 4(b)(1) (granting personal jurisdiction to North Dakota courts
over persons organized under North Dakota law). However, WSI concedes the
Cherokee Entities are not organized under North Dakota law. Instead, WSI
stated the Cherokee Entities are organized under the laws of Cherokee Nation.
As a result, a detailed analysis to determine whether an entity qualifies as an
arm of the tribe becomes necessary.

[¶16] An analysis to determine if the Cherokee Entities qualify as arms of
Cherokee Nation requires examining the entities in more detail. Breakthrough
Mgmt. Grp., Inc. v. Chuckchansi Gold Casino & Resort, 

(10th Cir. 2010). Beyond analyzing where a business is organized, we have not
previously adopted a test to determine whether a business is acting as an arm
of the tribe. See Arrow, 

.

[¶17] The Eighth Circuit Court of Appeals has held corporations created and
controlled by Indian tribes are subject to sovereign immunity when they act
“as an arm of the tribe and not as a mere business.” Hagen v. Sisseton-Wahpeton Cmty. Coll., 

 (8th Cir. 2000). In Hagen, the
Eighth Circuit examined whether a community college was an arm of a tribe.

 The court considered whether the college was chartered, funded, and



                                       7
controlled by the tribe when it concluded the college acted as an arm of the
tribe. 

 However, the court did not adopt a comprehensive test to determine
whether an entity qualifies as an arm of the tribe. See id.; see also Amerind
Risk Mgmt. Corp., 

 (holding, without creating a test, that a
tribal agency created as an “incorporated tribe” under federal law is an arm of
the tribe).

[¶18] Other courts have adopted extensive tests to determine if routine types
of businesses qualify as arms of the tribe. These tests are typically referred to
as variations on the “subordinate economic entity” analysis, which originated
in Arizona state courts. Somerlott v. Cherokee Nation Distribs., Inc., No. CIV-
08-429-D, 

, at *3 n. 1 (W.D. Okla. Apr. 16, 2010).

[¶19] In Breakthrough Management Group, Inc. v. Chuckchansi Gold Casino
and Resort, the Tenth Circuit Court of Appeals adopted a non-exhaustive sixpart test to determine whether a tribal entity qualifies as an arm of the tribe.

; see also Williams v. Big Picture Loans, LLC, 

 (4th Cir. 2019). The test examines:

      (1) the method of creation of the economic entities; (2) their
      purpose; (3) their structure, ownership, and management,
      including the amount of control the tribe has over the entities; (4)
      the tribe’s intent with respect to the sharing of its sovereign
      immunity; . . . (5) the financial relationship between the tribe and
      the entities . . . [(6)] the policies underlying tribal sovereign
      immunity and its connection to tribal economic development, and
      whether these policies are served by granting immunity to the
      economic entities.

Breakthrough, at 1187. The Fourth and Ninth Circuit Courts of Appeal have
also adopted this test in whole or part. White v. Univ. of Cal., 

 (9th Cir. 2014) (adopting the first five criteria); Williams, at 177 (adopting
all six criteria).

[¶20] The test articulated by the Tenth Circuit Court of Appeals allows a
comprehensive examination to determine whether the nature of a business
qualifies it as an arm of the tribe. We adopt it to analyze this issue. The ALJ


                                        8
found the Cherokee Entities are wholly owned by Cherokee Nation. This
finding addresses only the first step of the test. However, we are left without
findings to address the remaining five criteria. Therefore, we reverse the
judgment of the district court on this issue. We remand to the ALJ to make
further findings, consider the factors given in the test, and determine whether
the Cherokee Entities qualify as an arm of Cherokee Nation entitled to
sovereign immunity.

                                       IV

[¶21] WSI sought to hold Bilby personally liable under N.D.C.C. § 65-04-26.1
for unpaid workers’ compensation premiums, penalties, interest, and costs.
Bilby argues under Lewis v. Clarke sovereign immunity extends to him as an
employee of the Cherokee Entities because he was acting in his official
capacity. 

, 1290-91 (2017) (holding “[L]awsuits brought against
employees in their official capacity ‘represent only another way of pleading an
action against an entity of which an officer is an agent,’ and they may also be
barred by sovereign immunity.” (quoting Kentucky v. Graham, 

 (1985))). WSI argues Bilby can be held liable under N.D.C.C. § 65-04-
26.1 because the statute explicitly states the lawsuit can be brought against
Bilby in his personal capacity. But see Lewis, 137 S.Ct. at 1290 (“[C]ourts may
not simply rely on the characterization of the parties in the complaint, but
rather must determine in the first instance whether the remedy sought is truly
against the sovereign.”); Wright v. Prairie Chicken, 

, 

 (“The defense of sovereign immunity may not be evaded simply by
suing officers in their individual capacity.”).

[¶22] “Words in a statute are given their plain, ordinary, and commonly
understood meaning, unless defined by statute or unless a contrary intention
plainly appears.” Zajac v. Traill Cty. Water Res. Dist., 

, 

 (citing N.D.C.C. § 1-02-02). “If the language of the statute is clear
and unambiguous, ‘the letter of [the statute] is not to be disregarded under the
pretext of pursuing its spirit.’” Id. (quoting N.D.C.C. § 1-02-05). Section 65-04-
26.1(1), N.D.C.C., states:




                                        9
      [A] manager or governor of a limited liability company . . . who has
      control of or supervision over the filing of and responsibility for
      filing premium reports or making payment of premiums or
      reimbursements under this title and who fails to file the reports or
      to make payments as required, is personally liable for premiums
      under this chapter and reimbursement under section 65-04-04.4,
      including interest, penalties, and costs if the corporation or limited
      liability company does not pay to the organization those amounts
      for which the corporation or limited liability company is liable.

(Emphasis added.)

[¶23] The plain language of N.D.C.C. § 65-04-26.1(1) requires a corporation or
limited liability company to be liable in the first instance in order for that
liability to extend to a manager or governor of the limited liability company.
As a result, Bilby’s liability under N.D.C.C. § 65-04-26.1(1) is dependent on
whether the Cherokee Entities are liable for “those amounts” to WSI. If the
Cherokee Entities are arms of the tribe and immune from WSI’s claim, they
cannot be held liable for the premiums or reimbursements.

[¶24] Although Bilby argues he is also entitled to sovereign immunity under
Lewis v. Clarke, the text of N.D.C.C. § 65-04-26.1 shields him from liability if
the Cherokee Entities are not liable. Bilby’s personal liability relies on the
outcome of the analysis to determine if the Cherokee Entities qualify as arms
of the tribe. If the Cherokee Entities are acting as arms of the tribe entitled to
sovereign immunity, they cannot be held liable under the statute and would
not be liable for “those amounts.” By extension, Bilby could not be held
personally liable for an amount the Cherokee Entities are not liable for under
the statute. Alternatively, if the Cherokee Entities are not protected by
sovereign immunity, they can be held liable and Bilby can be held liable under
this statute. Therefore, we reverse the district court judgment on this issue.
We remand to the ALJ to reach a determination on Bilby’s liability under
N.D.C.C. § 65-04-26.1 once the analysis of the Cherokee Entities is completed.




                                       10
                                        V

[¶25] WSI argues it has the authority to issue a cease and desist order to
Hudson Insurance. An employer’s participation in North Dakota’s workers’
compensation program is mandatory. N.D.C.C. § 65-04-33(1). However, Title
65 only grants WSI the ability to issue cease and desist orders to employers
when they operate without workers’ compensation coverage or are in an
uninsured status. N.D.C.C. § 65-04-27.2(1); see generally N.D.C.C. tit. 65.

[¶26] Section 65-04-27.2(1), N.D.C.C., states, “If it appears to the organization
an employer is without workers compensation coverage or is in an uninsured
status in violation of this title, by registered mail the director may issue to the
employer an order to cease and desist and a notice of opportunity for hearing.”
(Emphasis added.) The language of N.D.C.C. § 65-04-27.2(1) does not allow
WSI to issue cease and desist orders to insurance companies because they
provided coverage to an employer.

[¶27] WSI ordered Hudson Insurance to “cease and desist from writing
workers compensation coverage in the state of North Dakota.” However, this
action exceeds the scope of the cease and desist authority granted to WSI by
statute. WSI has provided no statutory authority allowing it to order insurance
companies to cease and desist from writing coverage. Therefore, we reverse the
district court judgment on this issue. We affirm and reinstate that part of the
ALJ’s order finding WSI had no authority to issue a cease and desist order to
Hudson Insurance.

                                       VI

[¶28] Cherokee Nation is entitled to sovereign immunity. Whether this
sovereign immunity extends to the Cherokee Entities and shields them from
liability for the unpaid premiums relies on an analysis determining if the
entities are arms of the tribe. If the Cherokee Entities are liable, WSI can hold
Bilby personally liable under N.D.C.C. § 65-04-26.1. If the Cherokee Entities
are not liable due to sovereign immunity, WSI cannot hold Bilby personally
liable for the unpaid premiums. Additionally, WSI does not have the statutory
authority to issue a cease and desist order to Hudson Insurance. We reverse


                                        11
the district court judgment. We affirm and reinstate the ALJ’s order related to
the cease and desist power of WSI. We remand to the ALJ for further
proceedings on the sovereign immunity and personal liability of Bilby issues.

[¶29] Jon J. Jensen, C.J.
      Gerald W. VandeWalle
      Daniel J. Crothers
      Lisa Fair McEvers
      Jerod E. Tufte




                                      12