Transcript

IN THE SUPREME COURT OF THE UNITED STATES

J. GREGORY MERRION AND ROBERT L. BAYLESS, ETC., ET AL., Petitioners, v. JICARILLA APACHE TRIBE ET AL.; & AMOCO PRODUCTION COMPANY AND MARATHON OIL COMPANY, Petitioners, v. JICARILLA APACHE TRIBE ET AL.

No. 80-11, No. 80-15

March 30, 1981

The above-entitled matters came on for oral argument before the Supreme Court of the United States at 11:47 o'clock a.m.

APPEARANCES:

JASON W. KELLAHIN, ESQ., Kellahin & Kellahin, P.O. Box 1769, Santa Fe, New Mexico 87501; on behalf of the Petitioners Merrion and Bayless et al.

JOHN R. COONEY, ESQ., P.O. Box 2168, Albuquerque, New Mexico 87103; on behalf of the Petitioners Amoco Production Company and Marathon Oil Company.

ROBERT J. NORDHAUS, ESQ., 200 Lomas Blvd., N.W., Suite 810, Albuquerque, New Mexico 87102; on behalf of the Respondents.

LOUIS F. CLAIBORNE, ESQ., Deputy Solicitor General, U.S. Department of Justice, Washington, D.C. 20530; on behalf of the Respondents.

PROCEEDINGS

MR. CHIEF JUSTICE BURGER: We will hear arguments next in Merrion & Bayless v. Jicarella Tribe.

Mr. Kellahin, you may proceed when you are ready.

ORAL ARGUMENT OF JASON W. KELLAHIN, ESQ., ON BEHALF OF THE PETITIONERS MERRION AND BAYLESS

MR. KELLAHIN: Mr. Chief Justice, and may it please the Court:

This case is here on certiorari to the 10th Circuit and involves the power of an Indian tribe to tax non-Indians locally on the Indian Reservation.

The facts of the case are quite simple. The Jicarilla Apache Tribe is an Indian tribe occupying an Executive Order Indian reservation located in the northwestern portion of the State of New Mexico. It is organized under the Indian Reorganization Act and in 1968 it adopted a constitution which purported to confer on the Tribal Council authority to impose a tax on non-Indians.

It must be remembered that petitioners here were on the Indian Reservation under valid oil and gas leases issued pursuant to federal law, signed on behalf of the Tribe, and approved by the Secretary of the Interior. Some of these leases dated back to the early 1950s, long before the adoption of the Jicarillas' severance tax.

The petitioners brought suit in the United States district court and the district court held the tribal ordinance imposing a severance tax on oil and gas severed, saved, and removed from tribal lands, which was adopted in 1976, the district court held that ordinance unconstitutional, illegal, invalid, and void, and restrained the Tribe from enforcing it.

The court of appeals in a five-to-two decision reversed, holding that the power to tax was an attribute of inherent tribal sovereignty, since no treaty or Act of Congress authorized it. They held that it did not violate the Commerce Clause and that the power to tax had not been preempted by the Federal Government.

That raises these questions here: did the Jicarilla Apache Tribe retain as an attribute of its inherent sovereignty the power to impose a severance tax on oil and gas extracted from trust property on its reservation? Has Congress divested the Tribe of such power by permitting the state to impose a tax on this same production, and by adopting a pervasive system of federal regulation of oil and gas production and sale on reservation lands?

QUESTION: Mr. Kellahin, is the Jicarilla Tribe a treaty tribe?

MR. KELLAHIN: No, sir. There is no treaty involved.

QUESTION: And it was not within the boundaries of the United States until the Mexican cession?

MR. KELLAHIN: That is correct.

QUESTION: The Treaty of Guadalupe Hidalgo?

MR. KELLAHIN: That is correct. That is discussed at some length in Chief Judge Beth's dissent in the 10th Circuit. The State of New Mexico -- or the Territory of New Mexico, I should say, which included most of Arizona and Southern California, came into the United States under the Treaty of Guadalupe Hidalgo and under the late Corporation of Jesus Christ of Latter-Day Saints case it was held that the only sovereign that existed as of that date was the United States and that all other sovereignty was derived from that source, which -- seriously -- poses a serious question on the doctrine of inherent tribal sovereignty in this particular case. There was never any treaty entered into with the Jicarilla Apache Tribe although several efforts were made to do so; none was ever signed and approved by the Senate.

In connection with this situation I would like to discuss the issue of tribal sovereignty and my colleague will discuss federal preemption and the Commerce Clause issues in this case.

The 10th Circuit opinion recognized the case presented an issue that had not been passed upon by this Court and pointed out that this case presents the bald issue of an Indian tribe's taxing power without benefit of reservations of authority in a treaty, since no treaty or Act of Congress authorizes the exercise of such taxing power. The court then reached the conclusion that the right to tax was an inherent aspect of the tribal sovereignty, and with that background it is necessary to address the nature of this sovereignty.

As I said, these petitioners were already on the reservation under valid oil and gas leases issued pursuant to Act of Congress. The leases stated the conditions under which the petitioners could enter the reservation and the conditions that would permit them to remain. The power to tax was not reserved as a condition of the leases.

So what we have here is a unilateral modification of a contract by way of taxation which the 10th Circuit upheld. The concept of Indian sovereignty relied on by the 10th Circuit has had a long and somewhat troublesome history and an examination of the cases, especially the most recent, shows that the Court does not recognize the broad definition of inherent sovereignty that was relied on by the 10th Circuit and supported by respondents in this case. Rather, tribal sovereignty has been restricted by the tribes' dependent status, and the most recent case to address this issue was Montana v. United States, which was decided on March 24.

Montana v. United States clarifies the scope and extent of tribal sovereignty and makes it abundantly clear that sovereignty extends only to the right of Indian tribes to make their own laws and be governed by them, to protect the integrity of their tribal lands from encroachment, and to protect their tribal government from outside interference. That is the tenor of all of the cases that have been ruled on by this Court. Tribal sovereignty does not extend to nonmembers of the tribes. In Montana v. United States it was held that the exercise of tribal power beyond what is necessary to control the internal relations of the tribe is inconsistent with their dependent status, and so cannot survive without the express delegation of authority by Congress. The case clearly holds that the same lack of tribal authority to try non-Indians for criminal offenses as was found in Oliphant extends as well to the civil jurisdiction, and in discussing the extent of civil jurisdiction retained by the tribes, this Court touched on the very issue that is raised in this case.

It pointed out that the Indian tribes retained inherent sovereign power to exercise some forms of civil jurisdiction over non-Indians. The Court then explained, however, that a tribe may regulate through taxation, licensing, or other means the activities of nonmembers who enter into consensual relationships with the tribe or its members through commercial dealings, contracts, leases or other arrangements.

In support of this conclusion the Court cited Williams v. Lee, Morris v. Hitchcock, Buster v. Wright, and Washington v. the Confederated Tribes of the Colville Indian Reservation. Both Morris v. Hitchcock and Buster v. Wright were relied on by the 10th Circuit in its conclusion that the tribe had inherent sovereignty to impose this tax. However, these were both clearly cases based on the right of the tribes to exclude nonmembers and to attach conditions on their right to enter onto the reservations.

This was reasserted in the Court's decision in Colville. In the recent Montana opinion it was pointed out that the tribe can impose conditions on those who might choose to enter the reservation lands, the Indian-owned lands, and hunt and fish by imposing fees or establishing bag limits. The analysis of tribal rights over non-members in the tribe was discussed in Montana v. United States and is applicable to our case. Petitioners entered into a consensual relationship with the tribe. A contract which imposed the conditions of their entry and fixed the conditions for them to remain, that the royalties would be paid and provided that the rents and royalties could never be increased.

Taxation was no part of that contract, nor did the petitioners ever consent to taxation of that production. In Colville the Court in upholding the right of the tribe to impose a tax on nonmembers coming onto the reservation to purchase cigarettes cited an opinion by Solicitor Marigold in 1934 where the Solicitor pointed out that except where Congress has provided otherwise the power of taxation may be exercised over nonmembers so far as such nonmembers may accept privileges of trade, residence, and so forth, to which taxes may be attached as conditions.

QUESTION: Colville dealt with a treaty tribe, did it not?

MR. KELLAHIN: Yes, sir. That is correct. And the Court found in the Colville case that the treaty did permit the tribe to exclude non-Indians. In an Executive Order Indian reservation, however, under the Indian Reorganization Act, it has the same right to exclude nonmembers from tribal lands so long as they are held in trust for that tribe. They have control over their tribal lands although they do not own them. In Colville this Court also pointed out that those who come onto the reservation to buy cigarettes are free to go elsewhere and avoid the taxation.

Here, in this case, we cannot go elsewhere, we cannot pick up our mineral interests and move away. The Court in Colville recognized that the relevant treaties can be read to recognize inherent tribal power to exclude non-Indians and it upheld the tax on that ground. This is wholly consistent with the prior cases relating to Indian taxation and relied on in Colville and in Montana v. United States. The result does not require a finding of governmental sovereignty such as is sought to be asserted here. Under the ruling in Colville it is argued here that the tribe has a significant interest -- the language used in the Colville decision -- in the subject matter enabling it to impose the tax. We do not deny, of course, that the tribe has a significant interest in its tribal lands and what occurs there.

But the tribe's interest, insofar as this case is concerned, has been assigned for the term of the lease and the conditions under which the petitioners are entitled to remain was spelled out in both leases, and the tribe retains no significant interest which would justify the tax in this case as was the situation in Colville. Any remaining interest would not support that conclusion.

Now, in Oliphant, which is discussed at some length in our brief, the pattern for assessment of Indian tribal sovereignty was established. As shown in Wheeler, Montana v. United States, Oliphant, the Indian tribes have lost a portion of their sovereignty by virtue of their dependent status. Under Oliphant the tribes may not try non-Indians in tribal courts. Under Montana tribes cannot exercise civil jurisdiction over non-Indians in the same sense as the Oliphant case. And Oliphant reasserts the limitation of Indian sovereignty as applying only to the tribe and its members and not to non-Indians. This was followed in Colville and in Montana.

Oliphant, as interpreted in Montana v. United States --

MR. CHIEF JUSTICE BURGER: You may resume there, counsel, at one o'clock.

(Recess)

MR. CHIEF JUSTICE BURGER: Mr. Kellahin, you may continue.

MR. KELLAHIN: Mr. Chief Justice, and may it please the Court:

In response to questioning I may have left the inference that I considered the Colville Tribe a treaty reservation, as occupying a treaty reservation. That of course is not the case. They reside on an Executive Order Indian reservation. But as I tried to explain, in my opinion that does not affect the right of the tribe to exclude non-members from tribal property and that is the sole right that they have to enforce a tax against non-Indians.

Now, very briefly, I would say that after a tribe has negotiated for, obtained, and its guardian has approved oil and gas leases which set forth the rents and the royalties to be paid to the tribe, it cannot rationally be contended that the tribe reserves thereafter the right to retroactively impose a tax on those non-Indians who are there under the provisions of that lease. I say retroactively only in the sense that the contract had already been negotiated and the imposition of the tax is a change in that contract.

To allow the tribe to take a captive lessee, one who cannot pick up his mineral interests and move them off the reservation is to allow it to rewrite the terms of entry by imposing potentially prohibitive taxes on that lessee. For that reason we submit that the opinion of the court of appeals should be reversed. If I have any remaining time, I would reserve it for rebuttal. Thank you.

MR. CHIEF JUSTICE BURGER: Mr. Cooney.

ORAL ARGUMENT OF JOHN R. COONEY, ESQ., ON BEHALF OF THE PETITIONERS AMOCO AND MARATHON

MR. COONEY: Mr. Chief Justice, and may it please the Court:

I represent the petitioners in No. 80-15. Our argument will be that the Commerce Clause will not permit this new tribal severance tax and that Congress in 1927 by enacting 25 United States Code Section 398(c) preempted any power of the tribe to impose the tax.

QUESTION: In your Commerce Clause argument, the first part of your argument, counsel, I take it that would apply to a state as well as to a tribe?

MR. COONEY: Yes, Your Honor, we submit that the negative implications of the Commerce Clause restrain the powers of Indian tribes who would attempt to impose the powers of taxation or regulation over commerce similar to those currently imposed by states or municipalities.

QUESTION: Haven't severance taxes on extraction of minerals from the ground long been a source of income for states?

MR. COONEY: Severance taxes have been, and particularly with reference to Executive Order Indian reservations and other Indian reservations.

QUESTION: Quite apart from Indians -- ?

MR. COONEY: Yes. New Mexico, for example, has imposed severance taxes.

QUESTION: Don't most of the western states?

MR. COONEY: Most of the western states. Our Commerce Clause argument, Your Honor, rests not so much on the fact that a severance tax exists but that this Jicarilla severance tax is discriminatory, that it is imposed by the fashion in which it is drafted directly upon commerce, and that it imposes in addition with the tax imposed by the state a multiple burden upon commerce. We do not attack the validity of a severance tax per se, but simply submit that the Jicarilla Tribe may not impose such a tax in this case because Congress has divested that power, and that in addition when added to the state tax it creates a multiple burden.

QUESTION: Isn't the tribe the lessor in these cases?

MR. COONEY: Yes, Your Honor, it is.

QUESTION: And it's collecting the royalty that's reserved?

MR. COONEY: The royalty and the bonus and the rental, all of which produce considerable income to the tribe.

QUESTION: And does it get paid in money or in kind or both?

MR. COONEY: It may take its royalty in kind, it may elect to do that; or it may take the money. To date it has taken the money.

QUESTION: When they negotiated the lease, COULD THE tribe have written in the provision for the functional equivalent of this tax, in other words, call it whatever you want?

MR. COONEY: Mr. Chief Justice, but for the provisions of 25 United States Code 398(c), which we say divests the tribe of any power to impose a tax on production, they could.

QUESTION: Well, let's say they didn't call it a tax. I didn't make my question very clear. They called it something else: bonus, profit-sharing -- they could have written any provision they wanted in terms of dollars, couldn't they?

MR. COONEY: Any provision that they wanted in terms of dollars that would be acceptable in the marketplace to a potential lessee and that would be approvable by the Secretary of Interior. But any tax that is imposed on the production or on the assets or equipment or activities of the lessee would be preempted by Section 398(c).

QUESTION: What you're suggesting is, the tribe is trying to collect a royalty and these other factors and then another royalty in the guise or the form of the tax?

MR. COONEY: Precisely, Mr. Chief Justice. That is exactly what the tribe is attempting here to do.

QUESTION: Well, what's the discriminatory -- give me your discrimination argument, who does it discriminate against?

MR. COONEY: It discriminates against any oil and gas production which is not transported or sold off the Jicarilla Reservation.

QUESTION: Is there any?

MR. COONEY: There is none at the present. There is the announced intention of the tribe to use gas retained on the reservation for industrial and agricultural purposes.

QUESTION: You mean, it might take its royalty in kind?

MR. COONEY: It might take its --

QUESTION: And then use the gas for its own purposes, maybe?

MR. COONEY: Or it might sell that gas to other industries, such as it plans to do on the reservation. And it might also permit producers to locate on the reservation --

QUESTION: But right now there's no discrimination, no actual discrimination that you can identify?

MR. COONEY: None at the present time. Under the Nipper case, Your Honor, we believe that the potential for discrimination is certainly to be considered by the Court in passing upon the merits of the tax. We also admit quite freely that the tax ordinance here could be amended easily to apply only to severance of all oil and gas which is produced on the reservation --

QUESTION: And I suppose that if the tribe wanted to take its royalty in kind and sell it or use it and it cost any money, they might get some, they could even get congressional approval for it, in which event you wouldn't have any case on discrimination.

MR. COONEY: None on discrimination.

QUESTION: But I agree, maybe on some other ground.

MR. COONEY: As it's presently drafted, we have a case on discrimination, and as the tax is presently drafted we have a strong case on the tax being a direct tax on commerce under Michigan, Wisconsin. This tax is not a tax on severance of the oil and gas. It is a tax only on transportation or sale of the gas off the reservation. It is not apportioned according to the length of the pipeline facilities on the [ILLEGIBLE WORD] nor to the volume of business conducted there. And under the precise test of Michigan, Wisconsin, very clearly this tax taxes directly an integral portion of commerce and therefore cannot be sustained. But that, like the discrimination problem, can be amended away by the ordinance being amended to apply only to the severance of all oil and gas which is severed on the reservation.

QUESTION: Then you're saying that in effect the state could not impose this tax either?

MR. COONEY: No, Mr. Justice Rehnquist, we're saying that the state has the power granted by Congress to impose the tax that it now imposes, which applies to the severance of all oil and gas within the State of New Mexico and not just to oil and gas within the State of New Mexico that is then transported or sold off the state --

QUESTION: What authorization is that that the State of New Mexico must rely on to impose a tax of -- ?

MR. COONEY: Your Honor, the state might have that authorization absent specific congressional authorization but by the 1927 Act, 25 United States Code, Section 398(c), the states specifically were granted the authority to tax the entire production of oil and gas on Executive Order reservations, including even the Indians' royalty share.

QUESTION: Well, then we're not talking about taxes levied by states that are not on Indian reservations?

MR. COONEY: We're talking about here the validity of the Jicarilla tax that is levied on production on the reservation when added to the state tax that is also imposed on the severance of oil and gas on the reservation.

QUESTION: But 398(c) doesn't purport to bear on the simple state-producer relationship independent of its relationship to the Indians, does it?

MR. COONEY: Yes, Your Honor, we believe that 398(c) by its express terms gives the states the power to tax the producer on the reservation. That's the purpose of the legislation. And when that tax is added to the Jicarilla tax it creates, we believe, an impermissible multiple burden.

QUESTION: Well, what if you had no reservation?

MR. COONEY: If we had no reservation there would be no case here today, because there would only be one tax. There would be a state tax imposed on the severance of oil and gas --

QUESTION: Yes, but if the state tax were in the words of the Jicarilla tax, it would be invalid under your submission. Namely --

MR. COONEY: Yes, it would.

QUESTION: Taxing only gas and oil that left the state?

MR. COONEY: That's correct. Under the most elementary Commerce Clause analysis, this Jicarilla tax ordinance as drafted violates the Commerce Clause.

QUESTION: And your argument might be that because a state couldn't do it, neither can the Indian tribe.

MR. COONEY: That brings us to the contention of the Jicarillas and the Solicitor here which we believe somewhat astounding, that the negative restraints of the Commerce Clause do not apply to the actions of tribes when they seek to tax or regulate commerce, when they seek to tax or regulate production of oil and gas on Indian reservations. We think that notion is rooted in 19th century concepts of Indian tribes as separate nations wholly removed from the Union and not subject to the restraints which curbed the powers of the lesser sovereigns, the states and the municipalities within the federal system. And we don't think that these assertions can be accepted by this Court. That would allow 287 tribal governments, we submit, to hold commerce hostage by the fortuitous location of urgently needed energy resources under their reservations.

The Solicitor tells us that the answer to this problem is that Congress may act to curb tribal taxing powers if Congress feels they're being unjustly exercised or place a burden on commerce.

QUESTION: Well, if the Jicarilla Tribe taxed all the oil and gas extracted, without reference to where it was going, you wouldn't be here arguing the Commerce Clause case, would you?

MR. COONEY: Yes, we would, Mr. Chief Justice.

QUESTION: On what grounds, then?

MR. COONEY: Because if you remove the --

QUESTION: You're arguing the discrimination point?

MR. COONEY: The discrimination argument would not apply. The direct burden on commerce under Michigan, Wisconsin would not apply, but there would still remain a multiple burden. The state would tax, unapportioned, the entire volume, and does tax unapportioned the entire volume of production on the reservation, and the Jicarilla claim the right to tax unapportioned the entire volume of production on the reservation.

We believe that that kind of multiple burden is impermissible under the Commerce Clause and has been precluded by Congress in the 1927 Act. There are two points that are critical to this issue. The first is that the tribe and the state are not hierarchical sovereigns attempting to tax the same event. One cannot control the taxing policy of the other as the United States can that of the states or the states that of the municipalities.

A second critical point here is that a severance tax on oil and gas production impacts the amount of production. A tribal severance tax makes the activity of production on the reservation. It affects the ability of the producers to produce in paying quantities and it renders marginally economic wells subject to early abandonment, as found by the district court.

The tribal tax, therefore, implicates the state tax by affecting the amount of production on the reservation against which the congressionally permitted state tax is assessed. The multiple burden, we submit, could be solved only in one of two fashions. First, by determining which of those two jurisdictions, the tribe or the state, has the better claim to tax, or by this Court devising some as yet hitherto unknown method of applying the apportionment test to such taxation of concentric sovereigns both of whom claim that the entire event, the entire local event, as it were, of severance takes place entirely within their borders.

QUESTION: Well, ordinarily, the state doesn't need any authority from Congress to impose a severance tax, does it?

MR. COONEY: Your Honor, ordinarily I don't think that question is present here. I think that as a matter of fact the --

QUESTION: Well, could you answer it, whether it's present or not?

MR. COONEY: I don't think the state does need authority to impose a severance tax on an Indian reservation, just as it doesn't need specific authority to impose a tax on other activities of non-Indians on the reservations unless that tax interferes with rights of self-government or is divested by congressional action. But we have here specific congressional grants to the states to tax this production without any apportionment whatsoever. The legislative history of the 1927 Act we think shows quite clearly that Congress intended to give to the tribe the benefits of the royalty, the bonus, and the rental income from leasing for oil and gas these Executive Order reservations, but to give to the states the right to tax the entire production of the oil and gas. This construction of the 1927 Act is reinforced by Congress's own agency, the American Indian Policy Review Commission, which in 1977 recommended that 25 USC Section 398(c) and its counterpart, Section 398, be repealed for the specific purpose of allowing tribal severance taxation of production on reservations. We think history enforces this conclusion.

QUESTION: Was that repealer ever enacted?

MR. COONEY: Pardon?

QUESTION: Was that repealer ever enacted?

MR. COONEY: It was never enacted. 25 USC Section 398(c) is still on the books, still allows unapportioned taxation of severance by states on Executive Order reservations, and we think thereby precludes the tribal severance tax.

QUESTION: When -- I take it, however, that the first opportunity for an agency, the bureau or the Department of Interior, or the United States, if you want to call it that, to address the question you've just talked about, was the Jicarilla tax, wasn't it?

MR. COONEY: To address the question of severance taxes which are a new phenomena?

QUESTION: Yes.

MR. COONEY: Yes, Your Honor.

QUESTION: And that they approved this tax?

MR. COONEY: The Secretary Delegate in the field approved the tax with the specific proviso that there would be consent to jurisdiction in the United States district court to determine the validity of the tax.

QUESTION: Well, I know, but the official position of the Department of Interior apparently is that this -- that 398(c) does not foreclose such a tax.

MR. COONEY: Apparently so, Your Honor, but it is up to this Court and the federal judiciary --

QUESTION: I agree with that. I'm just asking whether the Executive Branch has taken a position on it.

MR. COONEY: They have taken that position which reversed a 50-year-long position that states could tax severance of minerals on Indian reservations and that Indians did not.

QUESTION: How was that prior construction evidenced with respect to the lack of power of the Indian tribe?

MR. COONEY: Your Honor, there is evidence --

QUESTION: Was it ever made express?

MR. COONEY: No, sir. There is no --

QUESTION: Why do you say that it was for 50 years the policy was to the contrary?

MR. COONEY: The 50-year policy was to permit state taxation and recognized the taxation --

QUESTION: But it wasn't a 50-year policy to forbid Indian taxation?

MR. COONEY: Your Honor, I think that is best explained by the fact that the Indian severance taxes were never heard of or thought of by the Indian tribes until the late '70s. And similarly, in the Montana case, last week, where the Court said that the Crows' long accommodation to game and fish regulation by the State of Montana on that reservation foreclosed any contention that that sort of tribal regulation was essential to the functioning of tribal self-government. We think it's highly dubious that the Jicarilla self-government suddenly requires in the midst of the energy crisis this new tribal severance tax.

QUESTION: Let me ask a question about the breadth of the power of the tribe. Could the tribe here have said that we're going to extract all of these valuables ourselves and so we'll make a contract with Amoco to do the work, and could they then in your view write any ticket they wanted in an arm's-length negotiation? And it might amount to the same number of dollars as they're getting by royalty plus tax plus other things here?

MR COONEY: Yes, Your Honor, but for -- if they attempted to impose a tax, we think it's preempted by 398(c).

QUESTION: It would be just like, this would be getting the same amount of dollars but by a negotiated contract?

MR. COONEY: Yes, Your Honor, as to new contracts, I believe they could instead of exacting a 12-1/2 percent royalty, demand a 20 percent royalty and thereby increase the take. But all of these --

QUESTION: I suppose they could demand a 90 percent royalty but they just wouldn't -- no one would contract with them.

MR COONEY: That's the point, Your Honor.

QUESTION: So there would be a marketplace.

MR. COONEY: And we think the Congress intended the royalty to be received by the tribe to be determined by the marketplace, by the auction and bidding proposals, and approval of the royalty rate set forth in the statute, and that they intended the rates of taxation to be applied by the states to that production.

QUESTION: Would that contract require the approval of the Department of Interior?

MR COONEY: Yes, it would, Your Honor.

QUESTION: Very well.

MR. COONEY: Thank you, Mr. Chief Justice.

MR. CHIEF JUSTICE BURGER: Mr. Nordhaus.

ORAL ARGUMENT OF ROBERT J. NORDHAUS, ESQ., ON BEHALF OF THE RESPONDENTS

MR. NORDHAUS: Mr. Chief Justice, and may it please the Court:

We believe that this tribal tax is within the doctrine of this Court in the Colville case, Washington v. Confederated Tribes of the Colville Reservation. We think that it falls within the statements made that tribal taxes are valid where a tribe has a significant interest in the subject matter and that the interest is the strongest where revenues are derived from values generated on the reservation by activities involving the tribes and the taxpayer is the recipient of the tribal services.

QUESTION: The Colville case did not involve minerals extracted from the --

MR. NORDHAUS: No, Your Honor, but it pertains to the general sovereign power of the tribes to tax, which is --

QUESTION: Dealing with what kind of -- what was the subject of the tax?

MR. NORDHAUS: That was a tax on cigarette sales; yes, Your Honor.

QUESTION: You don't draw any distinction between treaty Indian reservations and Executive Order reservations?

MR. NORDHAUS: No, Your Honor, I think this Court has never drawn the distinction between the powers and rights of tribes on Executive Order reservations -- on reservations which are created by Act of Congress, or by Executive Order reservations. There has never been a distinction except in debates in the Congress before the enactment of the '27 Act; and I'll go into this.

But this tax pertains only to production on tribal lands. It does not pertain to any production on non-Indian fee lands or -- in fact, there are essentially no non-Indian fee lands on the Jicarilla Apache Reservation. There can be no question that the tribe is deeply involved in this activity. The reservation contains approximately three-quarter million acres. Over 500,000 acres are leased for oil and gas, many of these leases essentially negotiated by the Bureau of Indian Affairs at a time when the tribe did not really understand oil and gas matters.

These leases last for as long as 30, 40, 50 years. The leases in this case were issued in 1953 when conditions were quite different from the conditions prevailing at this time. The impact of the activity related to oil and gas impacts the tribe on a daily basis. There are 1,400 wells; there are more than 400 of them drilled in the last five years. The companies lay pipelines. They denude the surface of the ground for roads.

QUESTION: Well, Mr. Nordhaus, 398(c) itself confines itself to Executive Order reservations, does it not?

MR. NORDHAUS: That's right. But our contention is, Mr. Justice Rehnquist, that 398(c) does not apply to these leases. They were issued under the 1933 act, which is 25 USC 396(a) to (e). And that was an act to bring, that was a comprehensive leasing act whose express purpose was to bring Indian leasing into conformity with the Indian Reorganization Act. That Act made no mention of state taxes; there was no authorization for state taxes.

QUESTION: Would you say 398(c) then was repealed by implication?

MR. NORDHAUS: We say that 398(c), the taxing provision of 398(c), was repealed by implication with respect to taxes to leases issued after the effective date of the 1938 act. But we don't make an issue of the power of the states to tax non-Indian production on Indian lands. I think that's not at issue in this case. What we do say, that there was no divestiture or no preemption by this act of the Indian right to tax. There was nothing mentioned in the 1927 act as to the Indian right to tax.

QUESTION: Well, is the argument that Congress compromised, in effect, and said the Indians would get the royalties and the state would get the taxes?

MR. NORDHAUS: That isn't a valid argument, Your Honor. The compromise pertained to permits that had been issued on Indian reservations under the 1920 leasing act, at a time when there was no authority, according to the Attorney General, to lease Executive Order lands for minerals or oil and gas. So Secretary Fall issued about some 475 permits under the 1920 act.

QUESTION: Any of them to himself?

MR. NORDHAUS: Pardon?

QUESTION: Any of them to himself?

MR. NORDHAUS: That doesn't appear in the record, but when Attorney General Stone took office he issued an opinion which invalidated these leases. In the 1927 act the compromise which petitioners make a great deal of to-do about was a compromise which validated permits where the permittees had expended considerable sums. There was again no question of state versus Indian taxes. There was really no argument about state taxes because from 1919 until 1938 all of Indian leasing acts had permitted state taxation.

In respect to the tribal power to tax these activities, we maintain -- and it is clear from the record that we tried to make in the district court and succeeded to some extent -- although the district court held that the tribal services furnished to these petitioners were irrelevant, nevertheless, it is clear that the Jicarilla Apache Tribal Government, which is an Indian Reorganization Act government, and a very strong government, is the only effective area covering this three-quarters of a million acres.

The tribal government furnishes police, it furnishes fire protection, it has a road department, it expends for governmental services ten times what the State of New Mexico spends in that area. In other words, it is clear from the record that we tried to make and were successful in some respects that the tribe was the only effective government.

It is clear that these companies demand and receive tribal services. The companies' argument is that the tribe should provide these government services out of the royalties, which is the tribe's compensation for the resource which the energy companies are extracting, and they say, we should have the revenues from these royalties used for our benefit and government services should be provided from these royalties, not from taxes.

QUESTION: What's the source of that definition of the severance tax? That there's compensation to a sovereign for the extraction of a mineral? That's on the assumption that --

MR. NORDHAUS: Well, that's their definition. Our --

QUESTION: Who? Whose definition?

MR. NORDHAUS: I think a royalty is -- I don't say the severance tax is the compensation, I say that --

QUESTION: I see.

MR. NORDHAUS: -- the royalty is the compensation. I'm saying that their argument is that the royalties should be used --

QUESTION: What's the severance tax?

MR. NORDHAUS: That the tribe does not have the power to tax them because they were there for 30 years under a contract which is frozen, which is inflexible, which can't be changed. And they may be there for 60 years. They say the tribe has no power to regulate their activities for the entire period of the lease. They say that the tribe's compensation is fixed, which is correct. But it is not correct to say that the tribe cannot tax them to provide essential government services which these people, which benefit these people.

The companies acknowledged at oral argument in the court of appeals, and the court of appeals mentioned that, that a state receives royalties from its state lands, there is no argument that they will make that a state cannot add a tax to production on state lands.

QUESTION: Well, you're saying that Amoco, the lessee should have known under Colville that in addition to paying a royalty and all other charges they were going to be subject to an Indian tax as well?

MR. NORDHAUS: Well, I think from the old cases of this Court and of the courts since 1902, they could anticipate that Indian governments that were required to furnish government services would have to tax, otherwise Indian governments can't survive.

QUESTION: Well, the Indian government in negotiating the contract could certainly have taken that into account in fixing the royalty, could it not?

MR. HORDAUS: On that argument, Your Honor, that is premised on the point that taxes are consensual, that taxes may not be levied by a sovereign government unless the taxpayer consents to the imposition of the tax and the rate of the tax, and that would indicate that a sovereign government -- and I'm saying that the tribes have this sovereignty -- that a sovereign government needs the consent of each taxpayer to levy a tax. And that is not what this Court and other courts have held with respect to Indian taxes.

In Buster v. Wright, a tax was imposed on business lots where the owners already had a fee interest. In Morris v. Hitchcock there were cattle on the reservation prior to the imposition of the tax. This Court upheld the tax.

QUESTION: But this Court has in recent years retreated from the notion that Indians are independent sovereigns, has it not?

MR. NORDHAUS: Your Honor, that again is, doesn't really reach the question of the sovereign power to tax. I am saying that until that power is divested, and unless that power to tax is inconsistent with the status of the tribe -- which we say it is not, because it has been recognized over a long period of years -- then the tribe has this power. And then from here we get on to the point that the question whether Congress has divested the tribe of the power to tax. Mr. Claiborne will go into the question of the 1927 act, but I do want to mention. Section 110 of the Natural Gas Policy Act of 1978. Congress in that act specifically recognized tribal severance taxes by permitting them to be added to the ceiling price. And secondly, it recognized the possibility, and apparently accepted the possibility of the coexistence of state and tribal taxes.

QUESTION: You mean, just because all the states had them, so they must have known about it?

MR. NORDHAUS: Yes, Your Honor, and also I cannot believe that it could be said that Congress divested the tribes of the power to tax and levy these severance taxes, or that these are inconsistent with any federal policy or energy policy if Congress permitted these taxes to be passed on to the consumer by legislation enacted in 1978.

QUESTION: Mr. Nordhaus, before you sit down, just as a matter of history, is your opponent correct in saying that this particular tax was never imposed by the Indians until a few years ago?

MR. NORHAUS: This particular tax?

QUESTION: Kind of tax; the severance.

MR. NORDHAUS: This particular tax has not been imposed.

QUESTION: How do you explain that, as a matter of history? Why did it take the Indians so long to realize that they had this power?

MR. NORDHAUS: I think that you have to go back to the history of the development of Indian tribes in the last few years. Congress has expressed policy to effect self-determination and the tribes' desire to --

QUESTION: Do you rely on the change of policy since 1927 then?

MR. NORDHAUS: In the Federal Government, absolutely. The Indian Reorganization Act, the Self-Determination Act, the Indian Financing Act, all of which -- the expressed policy of all of these acts was to strengthen tribal governments, to make them self-sufficient.

QUESTION: But if I understand your argument, none of those were really necessary to justify this tax.

MR. NORDHAUS: None of these --?

QUESTION: None of these subsequent congressional holdings -- they've all existed since 1930 --

MR. NORDHAUS: No, Your Honor. All they do is reaffirm the existence of the power and reaffirm the fact that Congress did not intend to divest the tribes of this power.

QUESTION: Did the energy crisis have something to do with this too?

MR. NORDHAUS: Possibly, possibly, but --

QUESTION: An economic impact.

MR. NORDHAUS: Right.

MR. CHIEF JUSTICE BURGER: Very well, Mr. Claiborne.

ORAL ARGUMENT OF LOUIS F. CLAIBORNE, ESQ., ON BEHALF OF THE RESPONDENTS

MR. CLAIBORNE: Mr. Chief Justice, and may it please the Court:

If I may begin at the end, and by the end I mean last week's decision in the Montana Crow Tribe case, the teaching of that case, as we understand it, is that the territorial sovereignty of Indian tribes is somewhat more limited than that of states, that Indian tribes cannot regulate the activities of non-Indians on non-Indian land when there is no involvement of Indians and when there is no substantial effect on vital tribal interests.

But the Court was at pains to point out that on the other hand, so much is left of the inherent sovereignty of Indian tribes that they may regulate through taxation and other means those activities of non-Indians even on non-Indian land, the Court expressly pointed out, when there is a relationship with the Indians through contract or commercial dealings or in other ways; or when, independently of such consensual dealings between Indians and non-Indians, the activity of the non-Indians on the non-Indian land substantially affects vital tribal interests.

This case, it seems to us squarely falls under both of these principles, indicating what still survives of Indian sovereignty. Here we're dealing with a continuing relationship between non-Indians and the tribe itself, leases for a long term, and operations which continue over a long term.

The operations take place on tribal lands. The activities there affect that land, in a permanent way, as well, obviously, as surrounding land through environmental effects. The operations are conducted under leases which require, and which in practice do involve a local work force, so there is a direct involvement of tribal members with the operations of the lessees. The operations involve the use of tribal roads and the activities of the lessees implicate tribal services not only for the maintenance of such roads but also police and fire protection and all the other benefits of an established government within the reservation within which these activities take place.

QUESTION: Have you ever been in Rio Arriba County?

MR. CLAIBORNE: I have not, Your Honor.

QUESTION: I daresay there are probably more Jicarilla Indians that non-Jicarilla Indians in the County.

MR. CLAIBORNE: I am unaware of the figures with respect to the number of members who live within this reservation, Mr. Justice.

QUESTION: But only Indian land's involved, isn't it?

MR. CLAIBORNE: Only -- all of the land, as I appreciate it, within the Jicarilla Reservation, is tribal --

QUESTION: So your reference to the Montana case about non-Indian land just isn't implicated in this case?

MR CLAIBORNE: No, but it does indicate a very important fact which is that the power to impose the taxes which were mentioned in that case are sovereign powers and not landowners' powers or a power to forbid entry or to condition entry. Because obviously -- I'm sorry, Mr. Justice White?

QUESTION: That wasn't the holding of the case?

MR. CLAIBORNE: No, but I take it it was a considered dictum in the case. It very plainly holds that even on non-Indian land, on fee-owned land, there in proper circumstances is the tribal power of taxation. That can only be a sovereign power since by definition the tribe is not the landlord and by definition the tribe cannot prevent access to a man's privately owned land even though within the reservation. Any power of taxation with respect to activities there must be a sovereign power. Being a sovereign power it is not without express words contracted away when the tribe, who happened to be also the landlord in this case, makes an arrangement with the lessees. Sovereigns do not commonly agree that they will waive any right in future to impose regulations or taxes, which rights they hold as sovereigns, even though they have contracted for a specific royalty or other price with the person with whom they deal. And that principle surely is applicable here to the Jicarillas.

QUESTION: Do you think that 393(c) was impliedly repealed by later Indian legislation by Congress?

MR. CLAIBORNE: Mr. Justice Rehnquist, we have taken no position with respect to the argument that the 1938 Act impliedly repealed the state power to tax under the '27 Act. The court of appeal expressly avoided any decision on that issue and it is not presented to this Court. It is fair to say that the Government has argued for implied repeal in other cases in other courts but we have no occasion to take a firm position on that matter here. We certainly do not rely in our argument today on any implied repeal of the '27 Act. On the contrary, we concede for the purposes of the case that the State of New Mexico does have power pursuant to this '27 Act to impose its own severance tax, but it hardly follows that the '27 Act sub silentio withdrew any power which the tribe had as a matter of its own sovereignty to impose a like tax on activities which are plainly sufficiently connected with its interest to be justified.

I might say in passing that the '27 Act does not indicate a congressional intent to treat Executive Orders reservations differently; quite the contrary. The 1927 Act is the Act which forbids the President henceforth to diminish or abolish Executive Order reservations, thereby putting them on the same permanent and secure footing of treaty and congressionally recognized reservations, and it is also the Act which places vis-a-vis royalty in oil and gas the Executive Order reservation Indians on exactly the same footing as an act passed in 1924 had done for those who held their lands by treaty. The purpose of the 1927 Act was to fill a gap, the '24 Act having dealt only with treaty reservations, or so it had been construed. Congress now said it is only right and proper that the same rule should apply on Executive Order reservations and we make that clear by imposing the identical scheme.

No one could reasonably argue that Indians on treaty reservations had no power to impose this sort of tax, and yet the '27 Act is in every relevant respect identical to the '24 Act. There is, of course, no anomaly in having a right to exact royalty from your own land, and if you're a sovereign also to impose a severance tax. New Mexico, Louisiana, and every other state does that without question.

Nor is there any anomaly in having two taxes bear on the same activity when one has concentric territorial sovereigns. That is familiar enough in the federal-state context but in the Indian context it's resolved by the Colville case itself in which two taxes, though in that situation they were found to impair the viability of the cigarette business, were nevertheless held to be both sustainable.

One final word on the 1927 legislation. It is said that there was a carefully crafted compromise in which the Indians somehow without it being mentioned lost their power of taxation.

There is not a word in that history to suggest that that was the intent or result of the legislation. Mr. Justice Stevens wondered why the tribes had not before very recent times imposed such taxes, although their reservations had been mined for some years before. I would answer that the tribes were not alerted to their prerogatives in the '20s and '30s -- and, indeed, in the '40s and '50s -- and only recently have come to recognize what was rightly theirs.

The same remark could be made of the cigarette taxes which were sustained in the Colville case. That is also a relatively new idea but it's not a brand new idea, it's a revival of an idea that was prevalent at the turn of the century. One has to recognize that the Cherokee imposed a tax on the exportation of hay whether or not from private or tribal lands. It was sustained by the Attorney General of the United States, and it was cited with approval in this Court's opinion in Morris v. Hitchcock.

Morris v. Hitchcock of course itself involved a tribal tax on cattle grazing on an Indian reservation. Buster v. Wright, cited with approval in the two most recent decisions of this Court, involved a tax on the privilege of doing business by lot owners in towns who owned their own land and whose town government had expressly been given the power to tax as well, to tax that very privilege. Buster v. Wright, therefore, is a case in which there was a town tax and an Indian tax, and no power to remove, and yet the court of appeal sustained the tax and this Court has in both Colville and Montana cited that decision.

QUESTION: Mr. Claiborne, do you think there's any limit to the rate of tax that the tribe can impose?

MR. CLAIBORNE: I don't know, Mr. Justice Blackmun, how one calculates that limit. I think there are assurances that that the tax will not be oppressive. There is, first of all, economic self-incentive not to drive away potential lessees or to have them cancel their leases as they are free to do in this case.

QUESTION: Aren't all tax ordinances like others subject to the approval of the --?

MR. CLAIBORNE: Well, then, subject to the approval of the Secretary, and that approval is a serious insurance that the tax rate will not be out of all bounds with the benefits conferred with the interests of the tribe and with what the traffic will bear.

And finally, of course, there is a congressional oversight over tribal taxation, as we say there is with respect to state severance taxes. We have argued, or filed a brief in the next case in which we suggest that there is no occasion for a court to determine what a maximum rate of a severance tax is, but that Congress is free, and should the privilege be abused, no doubt will intervene to set a limit. So here.

QUESTION: Mr. Claiborne, do you know, on whom is this tax placed? Who pays it?

MR. CLAIBORNE: Mr. Justice White, I'm told that it's paid on whoever is the owner of the minerals at the moment of severance.

QUESTION: And so it's -- and do you know if the gas is sold at the wellhead to the pipeline or not?

MR. CLAIBORNE: It is in most instances. Now, let me explain the reason for the wording of the ordinance as construed by the court of appeal, and without any contrary guidance --

QUESTION: So they construe it as a severance tax, don't they?

MR. CLAIBORNE: They construe it as a severance tax, and they construe the words "sold or transported off the reservation" to mean sold on the reservation, or transported without sale, when the pipeline is also the extractor, or sold by the Indians themselves with respect to any portion they might take in kind. The only exemption is not for the Indian royalty in kind, no matter what happens to it, but only if it is used by them on the reservation. If it's sold by them on the reservation -- they pay the tax.

QUESTION: Do you think the court of appeals construed the ordinance that way?

MR. CLAIBORNE: It's clear that they --

QUESTION: At least they didn't think it was paid -- it certainly wasn't paid by a pipeline, and they didn't think it was paid for transportation or for sale?

MR. CLAIBORNE: I refer Your Honor to page 155 of the Joint Appendix, which makes clear how the court of appeals construed this act.

QUESTION: And that, I take it, is your answer to at least one of the arguments of your opposition?

MR. CLAIBORNE: Yes. And I would say that the tribe is in the best position to construe its own ordinance and they have so construed it in all courts.

MR. CHIEF JUSTICE BURGER: Do you have anything further, counsel? There is one minute remaining.

ORAL ARGUMENT OF JOHN R. COONEY, ESQ., ON BEHALF OF THE PETITIONERS AMOCO AND MARATHON -- REBUTTAL

MR. COONEY: Thank you. Mr. Chief Justice, and may it please the Court:

Your Honors, we think the significance of Section 110 of the Natural Gas Policy Act is merely in recognizing the impact of severance taxes on production, and that if those severance taxes are not allowed to be passed through production is impacted. That's precisely our point of the impact of the tribal tax on the state severance tax. Congress specifically left the question of validity of this tribal severance tax to this Court.

There is no record to support Mr. Nordhaus's claims concerning the cost of tribal services to the lessees. As a matter of fact, the record that is before the Court shows that the royalty revenue to the tribe more than supports the entire tribal government.

Thirdly, while there was no mention of tribal severance taxation in the debates preceding the '27 Act, likewise there was no mention of tribal authority over purchasers of alienated lands in the allotment acts considered by this Court in the Montana case last week. But we think just as that authority could not have survived the allotment acts, likewise tribal severance taxation could not have survived the 1927 statute. Thank you.

MR. CHIEF JUSTICE BURGER: Thank you, gentlemen. The case is submitted.

(Whereupon, at 1:52 o'clock p.m. the case in the above-entitled matter as submitted.)