The Navajo-Hopi Settlement Act of 1974 (Act) provides that Navajo and Hopi Tribes will maintain joint ownership of all minerals within or underlying joint-use lands. This is true even if the lands have been partitioned pursuant to the Act. The Act provides specifically that any proceeds from the minerals shall be divided between the Navajo and Hopi Tribes.
Peabody Coal Company has operated two coal mines in the Joint Use Area since 1970. After the partition mandated by the Act, ninety percent of the land leased to Peabody was Navajo land. In 1978, the Navajos imposed two taxes on Peabody: a possessory interest tax (PIT) and a business activity tax (BAT). Peabody claimed the taxes were invalid because the Navajos did not have the right to impose taxes on joint-use land without Hopi approval. The Hopi Tribe filed a cross claim, agreeing with Peabody. In the alternative, the Hopi alleged the PIT and BAT are "proceeds" from the minerals and, therefore, the Hopi are entitled to a share.
The district court denied Peabody's motion for summary judgment, ruling the Navajos have exclusive sovereignty over NavajoPartitionedLand. However, to the extent the taxes constitute value, they must be shared by the Hopi.
The Hopi Tribe then moved for summary judgment to obtain their share of the taxes already collected. The district court denied the motion, stating there was a genuine issue of material fact as to the extent the taxes equaled value derived from the minerals rather than from Peabody's surface activity. At trial, the district court ruled the definition of "proceeds" is value derived from a commercial transaction. It then determined taxation is not a commercial transaction. Therefore, the court reasoned, the revenue from the taxes does not constitute proceeds and the Hopi Tribe is not entitled to any portion. The Hopi appealed the decision.
The Ninth Circuit looked to the plain language of the statute and the legislative history of the Act to settle this dispute. Based on this evidence, the court determined the Navajos have exclusive sovereign power over both the surface and subsurface of the Navajo Partitioned Lands. Congress's purpose when it passed the Act was to partition the land between the Navajo and Hopi Tribes to avoid further conflict over which tribe held sovereignty. If both tribes could hold sovereignty over the subsurface, the Act's purpose would be defeated. The court determined this is not contradicted by the tribes' engaging in joint management of the minerals and the division of proceeds from the minerals because those are ownership interests, not governmental interests. Therefore, the Ninth Circuit held the Navajo Tribe has both a governmental interest and an ownership interest in the subsurface while the Hopi Tribe has only an ownership interest.
Peabody had challenged the PIT tax because the Hopi had not approved of the tax. However, the Ninth Circuit held the imposition of a tax is not a function of management of the minerals, but rather it is a governmental function that is held by the Navajo Tribe. Therefore, the Ninth Circuit held the Navajos can unilaterally impose a tax on Peabody.
The court then went on to discuss whether the taxes could be labeled "proceeds." It found most dictionary definitions of "proceeds" include taxes. The U.S. Supreme Court has interpreted the word "proceeds" broadly. The legislative history of the Act suggests Congress intended both tribes to share in all economic value derived from the minerals. The PIT is a tax on the right to use the land and the BAT is a tax on profits from use of the land. The Ninth Circuit determined both are benefits derived from and are entirely related to the coal. Therefore, the court held that "proceeds" as used under the Act does include these two taxes.
The Ninth Circuit affirmed in part, reversed in part, and remanded for a determination of the amount of revenue from past taxes to which the Hopi Tribe is entitled.