In a case that may have significant ramifications on the Ninth Circuit's application of Montana v. United States[1] to environmental regulation and natural resource management in Indian country, the court held that the Crow Tribe lacked regulatory authority to impose an ad valorem tax on a non-Indian owned electric cooperative. The court reasoned that a congressionally granted right-of-way was the equivalent of non-Indian fee land for the purpose of determining tribal regulatory jurisdiction and that the Crow Tribe did not have jurisdiction under either of the two exceptions to the main rule in Montana.[2]

In 1993, the Crow Tribal Council enacted the Railroad and Utility Tax Code ("RUTC" or "utility tax"),[3] which assesses a three percent tax on all utility property located on tribal or trust lands inside the Crow Reservation. The RUTC prohibits a taxpayer from passing the utility tax along to Crow customers and requires utilities to treat the tax as an imbedded cost. Any attempt to charge customers a higher fee because of the utility tax is deemed discriminatory and allows the tribal court to enjoin the utility from charging that fee. Big Horn Electric Cooperative, Inc. (Big Horn) provides electricity to its members in Montana and northern Wyoming and is the primary provider of electricity on the Crow Reservation, serving more than 1700 customers within the Reservation's boundaries. With the Tribe's permission, the Secretary of Interior granted rights-of-way across tribal lands for Big Horn's transmission and distribution systems.[4]

The Tribe taxed Big Horn in December 1993, and Big Horn passed the utility tax on to Crow customers, in violation of the RUTC. The Tribe sued Big Horn in tribal court to enjoin Big Horn from passing the tax through to Crow customers. Big Horn counterclaimed that the Tribe lacked jurisdiction to tax property on non-Indian fee land. The tribal court granted summary judgment to the Tribe and dismissed Big Horn's counterclaim, holding that there was no case or controversy because the Tribe did not attempt to tax non-Indian fee lands. The Crow Court of Appeals affirmed.[5]

Having exhausted its remedies in tribal court, Big Horn sued tribal officers in federal court, seeking injunctive and declaratory relief, including a refund of all unlawfully collected utility taxes. The District Court for the District of Montana granted summary judgment for Big Horn, holding that the Tribe exceeded its jurisdiction by taxing Big Horn's property located on congressionally granted rights-of-way,[6] which are the equivalent of non-Indian fee lands under Strate v. A-1 Contractors.[7] The district court enjoined the Tribe from future assessment on Big Horn's property and ordered the Tribe to refund all utility taxes previously paid by Big Horn. The Tribe appealed. The Ninth Circuit affirmed in part and reversed in part.[8]

The Ninth Circuit applied the Strate analysis to determine the Crow Tribe's authority--even though Strate considered the scope of a tribe's adjudicative jurisdiction--because the Supreme Court made clear that "a tribe's adjudicative jurisdiction does not exceed its legislative jurisdiction."[9] The court examined five factors under Strate to determine if Big Horn's rights-of-way were the equivalent of non-Indian fee lands: 1) the legislation creating the right-of-way; 2) whether the Tribe consented to the right-of-way; 3) whether the Tribe reserved the right to control the right-of-way; 4) whether the land was open to the public; and 5) whether the right-of-way was under state control.[10]

The Ninth Circuit cited Burlington Northern Railroad Co. v. Red Wolf,[11] in which the court applied the Strate analysis to a congressionally granted right-of-way for a railroad. As in Red Wolf, the Ninth Circuit in this case rejected the Crow Tribe's attempt to distinguish Strate on the basis that the rights-of-way are not open to the public or under state control. Instead, the court found the third Strate factor dispositive, holding that the rights-of-way were the equivalent of non-Indian fee land because the tribe failed to reserve its right to control the right-of-way.[12] Having determined that Big Horn's rights-of-way were the equivalent of fee lands, the Ninth Circuit turned to the Montana analysis to determine if the Tribe retained jurisdiction under either of the Montana court's two exceptions.[13]

Under the first Montana exception, the court noted that Big Horn's voluntary provision of electricity on the reservation created a consensual relationship. However, the court reasoned that even with a consensual relationship, the first Montana exception does not grant a tribe unlimited jurisdiction over nonmembers, but rather limits tribal jurisdiction to regulation of the activities of nonmembers. The court distinguished the Tribe's ad valorem tax as a tax on the property owned by nonmembers--not a tax of nonmember activities--therefore, the tax did not fall within the first exception. The court also rejected the tribal tax under the second Montana exception, noting that the second exception only allows a tribe to do "what is necessary to protect tribal self-government or to control internal relations."[14] The Ninth Circuit reasoned that allowing the tax to fall under the second Montana exception would swallow the main rule in Montana because any tribal tax would be upheld--a result the Supreme Court has never endorsed and one that conflicts with the Court's limited view of tribal sovereignty. The court was not persuaded by the Tribe's argument that essential tribal services would be scaled back, noting that "the Tribe is free to adopt a different tax scheme that complies with Montana."[15] The court also rejected the Tribe's assertion that its taxing power derived from its inherent sovereignty and should be upheld, notwithstanding the limitations of Montana. The court distinguished two Supreme Court cases[16] that upheld tribal taxing powers, on the basis that in this case the Crow Tribe was taxing non-Indian property and must be governed by Montana. The Ninth Circuit stated that it was following Strate, and in the process, it overruled Burlington Northern Railroad Co. v. Blackfeet Tribe,[17] a previous tax case.

Finally, the Ninth Circuit reversed the district court's order requiring the Tribe to refund past utility taxes to Big Horn. The court found this violates the Crow Tribe's sovereign immunity because the Supreme Court held that a retrospective award of taxes is barred by sovereign immunity.[18] The court rejected Big Horn's argument that the Crow Tribe waived its immunity by consenting to suit in tribal court. The Ninth Circuit reasoned that waivers of sovereign immunity must be express and here the Tribe only consented to suit in tribal court, not in federal court.