case 2:11-cv-01124-jam-kjn document 67 filed 05/07/14 page

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BOUTIN JONES INC.Robert R. Rubin, SBN 117428Michael E. Chase, SBN 214506Bruce M. Timm, SBN 199679Kimberly A. Lucia, SBN 266503555 Capitol Mall, Suite 1500Sacramento, CA 95814-4603Tel: (916) 321-4444Fax: (916) 441-7597

RAPPORT & MARSTONDavid J. Rapport, SBN 54384405 W. Perkins St.Ukiah, CA 95482Tel: (707) 462-6846Fax: (707) 462-4235

Attorneys for plaintiffs Blue Lake Rancheria, Blue Lake Rancheria EconomicDevelopment Corp. and Mainstay Business Solutions

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

SACRAMENTO DIVISION

BLUE LAKE RANCHERIA, et al., ) Case No.: 2:11-cv-01124 JAM-JFM

Plaintiffs, ) Judge: Hon. John A. Mendezvs. ~ Courtroom:6

~ Date: June 4, 2014MARTY MORGENSTERN, et al., ~ Time: 9:30 a.m.

Defendants. ~ Date of Filing: April 26, 2011Date of Trial: Not set

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS'

MOTION FOR LEAVE TO FILE FIRST AMENDED COMPLAINT

-~-MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS' MOTION FOR LEAVE TO FILE

FIRST AMENDED COMPLAINT

Case 2:11-cv-01124-JAM-KJN Document 67 Filed 05/07/14 of 10

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Plaintiffs Blue Lake Rancheria ("the Tribe"), Blue Lake Rancheria Economic

Development Corporation ("EDCo"), and Mainstay Business Solutions ("Mainstay") (collectively,

"plaintiffs") respectfully submit this memorandum of points and authorities in support of their

motion for leave to file a First Amended Complaint.

INTRODUCTION

Plaintiffs seek leave, pursuant to Federal Rule of Civil Procedure 15(a)(2),~ for leave to file

a First Amended Complaint, a copy of which is attached hereto as Exhibit "A." Defendants have

refused to stipulate to the filing of the First Amended Complaint.

By filing the First Amended Complaint, plaintiffs seek to add a Third Claim for Injunctive

Relief for violations of the Tribe and EDCo's due process rights pursuant to 42 U.S.C. § 1983

("section 1983"). The First Amended Complaint also removes two defendants, the Employment

Development Department ("EDD") and the State of California, each of which was previously

dismissed without prejudice.

The Tribe is afederally-recognized Indian tribe. EDCo is afederally-chartered corporation

wholly-owned by the Tribe. The Tribe's and EDCo's section 1983 claims are premised upon

defendants' April 2011 recordation of Notices of State Tax Lien against them in various counties

in California, including the Counties of Sacramento, Humboldt, Los Angeles, Orange, San Diego,

Alameda, Monterey, San Bernardino, Fresno, Solano, San Joaquin, Riverside and Santa Clara, and

with the California Secretary of State ("the Liens"). Defendants thereafter released the Liens in

accordance with this Court's August 2011 Order granting plaintiffs' motion for preliminary

injunction, in which this court held that their recordation contravened the federal tribal sovereign

immunity doctrine. However, if this Court ultimately were to find in defendant's favor on the

sovereign immunity issue, or an appellate court were to overturn this Court's, ruling on sovereign

immunity, defendants will undoubtedly re-record the Liens. Re-recording the Liens against the

Tribe and EDCo would violate their due process rights, because they are distinct entities from

' "The court should freely give leave when justice so requires." .Fed. R. Civ. P. 15(a)(2).The Court has not issued a scheduling order in this case, so the good-cause standard of Rule 16(b)does not apply here.

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Mainstay under federal law. The Tribe and EDCo are not liable for the unemployment benefits

reimbursements that defendants allege are owed by Mainstay.

Defendants oppose granting leave to amend to add the section 1983 claim for two reasons.

First, they argue that the Tribe and EDCo are not entitled to bring claims under section .1983.

Defendants are wrong, as no case precedent holds an Indian tribe or its federally-chartered

corporation is barred from bringing section 1983 claims based on violations of federal law other

than tribal sovereignty rights. Second, defendants argue that the Tribe and EDCo may not

challenge the recordation of the Liens against them under section 1983 because they have

remedies under state law to challenge the Liens. Again, defendants are wrong, because, as alleged

in the First Amended Complaint, neither the Tribe nor EDCo is the "employing unit" responsible

for reimbursing the EDD for unemployment benefits properly paid to Mainstay's former

employees, and they have no plain, speedy and efficient remedy under state law to challenge the

recording of the notices of state tax lien against them.

For these reasons, plaintiffs urge this Court to grant leave to file the First Amended

Complaint. A copy of the [Proposed] First Amended Complaint is submitted herewith as Exhibit

A to the Declaration of Michael E. Chase.

I. PROCEDURAL BACKGROUND

On April 26, 2011, Plaintiffs filed this action seeking declaratory and injunctive relief

related to the defendants' enforcement of state taxes in violation of plaintiffs' tribal sovereignty.

Declaration of Michael E. Chase ("Chase Decl."), ¶ 2 & Exh. B (Complaint). Plaintiffs alleged

that defendants were engaged in ongoing collection efforts which violated Plaintiffs' federal tribal

sovereign immunity, and by those actions, defendants had unlawfully encumbered tribal lands and

other tribal assets. Id., Exh. B at pp. 3-6.

On June 1, 2011, plaintiffs filed a Motion for Preliminary Injunction. Chase Decl., ~ 3.

On June 6, 2011, defendants filed a Motion to Dismiss, which was subsequently amended on July

19 and 20, 2011. Id.

On August 11, 2011, this Court granted plaintiffs' Motion for Preliminary Injunction and

ordered that defendants "refrain .from undertaking any further efforts to collect from


FIRST AMENDED COMPLAWT


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[Plaintiffs] any unemployment contributions including without limitation (a) issuing any levies on

Plaintiffs' assets, (b) placing any liens on Plaintiffs' assets and (c) issuing any subpoenas to third

parties seeking information concerning Plaintiffs' assets." Chase Decl., ¶ 4 & Exh. C (Order) at p.

16. By that Order, this Court further ordered that defendants "(1) withdraw and release any liens

or levies placed on Plaintiffs' assets, including without limitation the liens recorded in any

Counties in California and the levies issued to Bank of America and any other financial

institution." Id., Exh. C at p. 16.

On August 25, 2011, defendants filed a Notice of Appeal regarding the Preliminary

Injunction. Chase Decl., ¶ 5. On September 7, 2011; plaintiffs dismissed their claims against the

EDD and the State of California only, with prejudice. Id. On September 12, 2011, the parties

were ordered to participate in an October 11, 2011 settlement assessment conference through the

Mediation Program of the Ninth Circuit Court of Appeals ("Mediation Program"). Id. On

December 6, 2011, this Court issued an order denying defendants' Motion to Dismiss. Id. During

the period From December 8, 2011 to June 4, 2013, the parties participated in the Mediation

Program. Id. Following unsuccessful mediation, the parties stipulated to dismiss the Appeal on

July 12, 2013. Id.

Beginning in December 2013, plaintiffs met and conferred with defendants regarding

plaintiffs' intention to file a First Amended Complaint. Chase Decl., ¶ 6 and Exh. D. On January

9, 2014, Defendants notified Plaintiffs that they would not stipulate to allow Plaintiffs to file the

First Amended Complaint. Id. Thereafter, Defendants met and conferred with Plaintiffs to set the

hearing date for this Motion. Id.

II. LEGAL STANDARD

Pursuant to Federal Rule of Civil Procedure 15(a)(2), leave to amend "shall be freely given

~ when justice so requires." Foman v. Davis, 371 U.S. 178, 182 (1962). This policy is to be applied

with "extreme liberality" with a presumption in favor of granting leave to amend. Eminence

Capital LLC v. Aspeon, 316 F.3d 1048, 1051-52 (9th Cir. 2003). Leave to amend should be

granted unless the opposing party makes a showing of undue delay, bad faith, futility of

amendment, or prejudice to the opposing party. Moore v. Kayport Package Express, Inc., 885

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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS' MOTION FOR LEAVE TO FILEFIRST AMENDED COMPLAINT


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F.2d 531, 538 (9th Cir. 1989). Although the Court may consider whether there was undue delay in

seeking leave to file an amended complaint, undue delay alone is not sufficient grounds for denial

of leave to amend. Bowles v. Reade, 198 F.3d 752, 758 (9th Cir. 1999). Instead, there must also

be a showing of prejudice, futility, or bad faith. Id.

Applying these standards, leave to amend is appropriate and the Court should grant

plaintiffs leave to file the First Amended Complaint.

III.ARGUMENTS

A. There Is No Undue Delay

The original complaint in this action was filed on April 26, 2011. Immediately after

plaintiffs obtained a preliminary injunction on August 8, 2011, defendants appealed to the Ninth

Circuit Court of Appeals. The parties were then ordered to participate in mediation, which

occurred during the period from December 8, 2011, to June 4, 2013. Chase Decl., ¶ 5. When

mediation proved unsuccessful, the parties began working diligently toward moving this case

forward. Indeed, in advising plaintiffs of their opposition to Plaintiffs First Amended Complaint,

defendants did not raise the issue of delay. Id., ¶ 6, Exh. D. Instead, Defendants stated that they

did "not object in principle" to the Plaintiffs filing an amended complaint, but opposed the

amendment solely on grounds of futility. Id., ¶ 6, Exh. D.

B. There is No Undue Prejudice

The Ninth Circuit'Court of Appeals has stated that "[u]ndue prejudice means substantial prejudice

or substantial negative effect." Conte v. Jakks, --- F.2d --- at * 10 (2013 WL 5934352) (E.D. Cal.

2013). Substantial prejudice has been found where a party seeks to add claims which would have

"greatly altered the nature of the litigation" and where it would require defendants to undertake "an

entirely new course of defense." Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079

(9th Cir. 1990).

Here, defendants will suffer no prejudice under this standard. Plaintiffs' amendment

merely adds a claim for relief based upon the same set of facts set forth in the original complaint.

Moreover, although this Motion is being filed more than two years after the original complaint was

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filed, it is very early in this proceeding. No scheduling order has been issued, no Rule 26

conference has occurred, and discovery has not yet begun. See Docket No. 32 (extending time for

the parties' joint status report, joint discovery plan, and initial disclosure pending further order of

the Court). Therefore, there will be no undue prejudice caused to defendants by the filing of

plaintiffs' First Amended Complaint.

C. There is No Bad Faith

In considering whether leave to amend has been sought in bad faith, courts typically

examine the purpose of the amendment. See Owens v. Kaiser Found. Health Plan, Inc., 244' F.3d

708, 712 (9th Cir. 2001) (considering whether the defendant provided a credible reason for

amending its answer). Plaintiffs merely seek to add an additional claim for relief based upon the

same set of facts set forth in the original complaint. There is no evidence of bad faith, nor have the

defendants argued that plaintiffs are seeking leave to amend in bad faith.

D. The Amendment is Not Futile

In refusing to stipulate to allow plaintiffs to file the First Amended Complaint, defendants'

sole objection was based upon their belief that such amendment would be futile. Chase Decl., ¶ 6,

Exh. D (Plaintiffs' letter of December 16, 2013, stating that Defendants did "not object in

principle" to the amendment but that they objected based upon two "fatal defects" in the proposed

third case of action). Defendants stated belief is that plaintiffs' proposed Third Claim for

Injunctive Relief for violations of the Tribe and EDCo's due process rights pursuant to 42 U.S.C. §

1983 is defective for two reasons. First, defendants argue that the Tribe and EDCo cannot

maintain a section 1983 claim because Indian tribes are not "persons" capable of bringing claims

under section 1983 for violation of sovereign immunity under Inyo County, California v. Paiute-

Shoshone Indians of the Bishop Community of the Bishop Colony ("Inyo"), 538 U.S. 701, 708-712

(2003). Second, defendants argue that the Tribe and EDCo cannot maintain a section 1983 action

because taxpayer remedies provided by California's Unemployment Insurance Code satisfy the

requirements of due process. California v. Grace Brethren Church ("Grace Brethren "), 457 U.S.

393, 413-417 (1982). As set forth more fully below, defendants' claim of futility on each of these

grounds lacks merit.




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1. The Tribe and EDCo Can Maintain a Section 1983 Action based on Victims of theirDue Process rights.

The Tribe and EDCo seek to add a claim pursuant to section 1983 to enforce their rights

under the Due Process Clause of the United States Constitution. Because the Tribe and EDCo are

not suing under section 1983 to enforce any rights based upon their sovereign status, they are

"persons" within the meaning of section 1983. See Chase Decl., ¶ 2, Exh. A ([Proposed] First

Amended Complaint).

Section 1983 permits private parties to enforce their federal constitutional rights against

defendants who act under color of state law. 42 U.S.C. § 1983. In determining who is a "person"

entitled to bring an action under section 1983, the Supreme Court has interpreted the term broadly.

"Persons" include not only United States citizens, but also legal and illegal aliens. See Graham v.

Richardson, 403 U.S. 365, 371 (1971) (legal aliens); Plyler v. Doe, 457 U.S. 202, 212 (illegal

aliens). "Persons" also include corporations. Cal. DiveNsified Promotions, Inc. v. Musick, 505

F.2d 278, 283 (9th Cir. 1974) (citing Pierce v. Society of Sisters, 268 U.S. 510, 535 (1925)).

However, in Inyo, United States Supreme Court held that an Indian tribe does not qualify

as a "person" entitled to bring suit under section 1983 where the tribe is seeking to vindicate

injuries arising solely from their status as a sovereign. Inyo, 528 U.S. at 708-712. Inyo arose from

a challenge by the Bishop Paiute Tribe and its wholly owned corporation to Inyo County's

authority to search the premises of, and seize records belonging to the tribe and its corporation.

The Court noted that the tribe and its corporation had not brought the section 1983 claim on

grounds that the County lacked probable cause, or that the warrant was defective. Id. at 711.

Instead, the tribe and its corporation were relying solely upon their sovereign status to bring the

claim. Id.

In examining the purpose of section 1983, the Court noted that "Section 1983 was designed

to secure private rights against government encroachment .not to advance a sovereign's

prerogative to withhold evidence relevant to a criminal investigation." Id. at 712. The Court did

not, however, foreclose the possibility that an Indian tribe could bring a claim under section 1983

where the tribe was seeking to vindicate non-sovereign rights. In fact, Justice Stevens in

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concurrence opined that an Indian tribe could be a "person" under section 1983 where the tribe

was bringing a claim that would be available to any non-sovereign whose constitutional rights

were violated by persons acting under color of state law. Id. at 713. In other words, had the

tribe's claim in Inyo been based upon a challenge for lack of probable cause in issuing the warrant,

a challenge that would have been available to any person regardless of sovereign status, the tribe

could have brought a claim under section 1983.

Indeed, since Inyo, several federal courts have recognized that Inyo did not hold that an

Indian tribe can never bring a section 1983 claim. See, e.g., Skokomish Indian Tribe v. United

States, 410 F.3d 506, 514-15 (9th Cir. 2005) (suggesting that sovereigns could assert claims under

section 1983 in a capacity which resembles a private person); Muscogee Creek Nation v.

Oklahoma Tax Comm 'n, 611 F.3d 1222, 1234 (10th Cir. 2010) (stating that the viability of a

tribe's section 1983 suit depended upon whether the tribe's asserted right was of a sovereign

nature); Keweenaw Bay Indian Community v. Rising, 569 F.3d 589, 596 n. 5 (6th Cir. 2009)

(rejecting the argument that under Inyo Indian tribes can never bring claims under section 1983);

see also South Fork Band v. U.S. Dept. of Interior, 643 F.Supp.2d 1192, 1201 n.4 (D. Nevada

2009), reversed in part on other grounds by South Fork Band v. U.S. Dept. of Interior, 588 F.3d

718 (9th Cir. 2009) (stating that the holdings in Inyo and Skokomish turned on the tribes' assertion

of sovereign rights).

Here, the section 1983 claim asserted by the Tribe and EDCo does not in any way relate to

their status as sovereign entities. Rather, they seek to enforce their rights under the Due Process

Clause for deprivation of property without due process. See Connecticut v. Doehr, 501 U.S. 1, 12

(1991) (temporary or partial impairments to property rights that liens entail are sufficient to merit

due process protection). By serving Notices of Levy and recording tax liens against property of

the Tribe and EDCo without due process, the defendants violated rights of the type which belong

to any other private person whose property was unlawfully encumbered. The Tribe and EDCo

through this section 1983 claim do not seek to vindicate any special rights because their claims are

entirely unrelated to their status as sovereign entities. Accordingly, an amendment to add a section

1983 claim is not futile and leave should be granted for Plaintiffs to amend their complaint.

-s-MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS' MOTION FOR LEAVE TO FILE

FII2ST AMENDED COMPLAIlVT


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2. Grace Brethren is Inapplicable to the Tribe's and EDCo's Section 1983 Claim.

Defendants argue that Grace Brethren bars the proposed section 1983 claim because the

taxpayer remedies provided by California's Unemployment Insurance Code satisfy the

requirements of due process. However, Grace Brethren is inapplicable to the proposed claim for

relief because neither the Tribe nor EDCo are the taxpayers to whom a plain, speedy, effective

remedy is available.

In Grace Brethren, the United States Supreme Court held that the Tax Injunction Act

barred taxpayers' constitutional challenge to California's unemployment insurance laws and that

Unemployment Insurance Code sections 1176-1185 and 1241 provided taxpayers with a "plain,

speedy, and efficient" state remedy for their constitutional claims. Grace Brethren, 457 U.S. at

415. However, the Ninth Circuit Court of Appeals has held that the Tax Injunction Act does not

bar federal court actions where the party bringing suit is not the taxpayer because a nontaxpayer

does not have an adequate state law remedy. Capitol Indus. -EMI, Inc. v. Bennett (Capitol-EMS,

681 F.2d 1107, 1118-19 (9th Cir. 1982).2 In Capitol-EMI, the Ninth Circuit noted that there was

no authority for the proposition that a nontaxpayer, who is without administrative or judicial

remedies, was precluded from maintaining an action in federal court because it had similar

interests to those of a taxpayer which has such remedies. Id. at 1119. As the Ninth Circuit stated,

"[a] nontaxpayer that has stated a claim with respect to an assessment or collection is entitled to a

judicial remedy in which they can participate as a party." Id.

Here, the unemployment contributions, penalties, and interest the EDD asserts are due and

owing were the subject of notices of assessment issued to Mainstay as the employing unit. Neither

the Tribe nor EDCo are the employing unit. Nor were the Tribe and EDCo served with notices of

assessment, or in any way advised by the EDD that it believed they were liable for the

unemployment contributions, penalties, and interest that the EDD asserts are owed by Mainstay.

Z On remand, the case was dismissed on grounds that Capitol-EMI did not have standing because ithad not suffered injuries independent of those suffered by its subsidiary. EMI Ltd. v. Bennett, 738F.2d 994 (9th Cir. 1984). Here, the Tribe and EDCo allege injuries separate and apart from thosesuffered by Mainstay as the defendant recorded liens on property belonging solely to the Tribe andEDCo.




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Instead, the EDD just proceeded, without notice or an opportunity to be heard, to levy. the Tribe's

and EDCo's accounts and record liens on their property. Accordingly, neither the Tribe nor EDCo

had any plain, speedy and efficient remedy under state law to challenge the recording the notices

of state tax lien against them and Grace Brethren in inapposite. Therefore, Plaintiffs' proposed

amendment is not futile and leave to amend should be granted.

CONCLUSION

For all of the foregoing reasons, Plaintiffs respectfully request that the Court grant

Plaintiffs' Motion for Leave to File First Amended Complaint.

Dated: May 7, 2014.

BOUTIN JONES INC.

By: /s/Robert R. RubinRobert R. Rubin

Attorneys for Plaintiffs Blue Lake Rancheria, BlueLake Rancheria Economic Development Corp. andMainstay Business Solutions

-io-MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS' MOTION FOR LEAVE TO FILE



case 2:11-cv-01124-jam-kjn document 67 filed 05/07/14 page

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