Citizen Potawatomi Nation v. State of Oklahoma

United States Court of Appeals, Tenth Circuit

Oklahoma and Citizen Potawatomi Nation (the Nation) entered into a Tribal-State gaming compact (the Compact). Part 12 of the Compact called for arbitration of disagreements arising under the Compact’s provisions; it also provided that either party could bring an action against the other in federal district court for de novo review of the arbitration award. When the OK Alcohol Beverage Laws Enforcement Commission (ABLE) initiated proceedings against the Nation for selling alcohol on Sundays in violation of an OK statute, the Nation asserted that arbitration was the only way to resolve this licensing dispute. OK filed a motion to dismiss, arguing that regulatory disputes should be resolved through administrative proceedings, not arbitration. The arbitrator refused to dismiss the demand, conducted a hearing, and issued an award in favor of the Nation. The Nation moved to enforce the arbitration award and OK moved to vacate, asserting that the arbitrator exceeded his authority and that it was entitled to de novo federal court adjudication on the factual and legal issues of the arbitration. The court enforced the award and concluded that OK’s argument for de novo review was foreclosed by the Supreme Court decision in Hall Street Associates, which provides that parties to an arbitration agreement cannot contract for any review other than the narrow review set out in §10 and §11 of the FAA. OK appealed. 

The United States Court of Appeals for the Tenth Circuit remanded to the U.S. District Court to vacate the arbitration award. The Court focused on how to treat the de novo provision given the decision in Hall. The Nation asserted that the provision should be excised from the Compact, leaving intact the parties’ binding obligation to arbitrate. OK asserted that the de novo review provision was integral to the parties’ agreement to arbitrate disputes arising under the Compact and that the Court should sever the entire provision. The Court looked to the language of the agreement to decide whether the provision was a material aspect of the parties’ agreement to engage in binding arbitration – and determined that it was and should be severed. First, Compact Part 12(2), the provision establishing binding arbitration, specifically limited that requirement to the availability of binding arbitration, as set out in Compact 12(3). Second, the Compact linked the parties’ waivers of sovereign immunity to the kind of judicial review available, making clear that the parties’ waiver of sovereign immunity was only for the purpose of the type of de novo review contemplated in 12(3). Given the importance of immunity as an aspect of sovereignty, the purposeful waiver made clear that the availability of de novo review was a material aspect of the agreement to arbitrate.