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July 12, 1995

AG ORGANIC, INC., Plaintiff, -vs- DANIEL JOHN, JR., Defendant.

The opinion of the court was delivered by: JOHN T. CURTIN

 CURTIN, District Judge

 This case involves a vitriolic dispute over the right to the possession and use of a parcel of land in the Congressional Village of Carrollton, New York. Currently before the court are (1) plaintiff's motion to compel arbitration, and to permanently stay proceedings in the Seneca Nation of Indians Peacemakers' Court in an action entitled John v. Mid-America Waste Systems, Inc. and AG Organic, Inc., Civil Action No. 414-94 (Item 37; see also, Item 36, pp. 21-24, and Items 8 and 39); and (2) defendant's motion to dismiss and for sanctions under Fed. R. Civ. P. 11 (Item 22; see also, Item 30, pp. 67 and 70, and Items 21, 23, and 40). Also outstanding is the court's February 2, 1995, order to the plaintiff to file an amended complaint for the purpose of joining the Seneca Nation of Indians as a defendant (Item 23; see also, Item 30, pp. 66-67). The plaintiff has submitted papers arguing that the Seneca Nation is not a proper party to this action (Item 39, pp. 7-9). The court will regard the plaintiff's submission as a motion to reconsider that part of the court's February 2, 1995, order that pertains to joinder of the Seneca Nation.

 The issue of whether the court should take jurisdiction over the subject matter of this dispute remains in contention. In support of its argument that the court should exercise jurisdiction and intercede in an action currently before the courts of the Seneca Nation, the plaintiff has alleged, inter alia, (1) that during the course of the proceedings in John v. Mid-America Waste Systems, Inc. and AG Organic, Inc., Civil Action No. 414-94, and in a December 30, 1994, Memorandum Opinion and Order in that case, the Peacemakers' Court has acted in bad faith and with a desire to harass the plaintiff; (2) that in its December 30, 1994, Opinion and Order, the Peacemakers' Court exceeded the limits of its jurisdiction; and (3) that the plaintiff has been afforded no adequate opportunity in the tribal courts to challenge the exercise of jurisdiction by the Peacemakers' Court. Because of the nature of these allegations, both the substance of the dispute and the procedural history of the litigation between the parties must be reviewed in some detail.


 This dispute centers on the claim by the plaintiff, AG Organic, Inc. ("AG"), that it has a right as a leaseholder to the possession and use, for a municipal sludge processing facility, of a parcel of land in the Congressional Village of Carrollton, New York.

 On December 2, 1991, pursuant to the Seneca Nation Settlement Act of 1990, 25 U.S.C. §§ 1774-1774h, the Seneca Nation of Indians and Ann Boser entered into a lease, as lessor and lessee, respectively, covering the parcel of land at issue. Item 8, Ex. A. The lease, designated "Lease No. CA-04040" ("the CA-04040 lease"), was for a term of forty years from February 20, 1992, with an option to renew for a further forty year period (a "40/40 lease"). Id. at 3-4. Section 19 of the lease provided that under certain conditions, the lessee had the right to assign the lease or sublet the property. Id. at 12-13.

 On March 30, 1992, Ann Boser assigned the CA-04040 lease to the defendant in this action, Daniel John, Jr. Item 8, Ex. C. On the same day, Mr. John, who had apparently been engaged as a consultant by the Arrow Corporation ("Arrow"), id., Ex. B, sublet the property to Arrow for a thirty year period commencing April 1, 1992. Id., Ex. D. Under the terms of the sublease ("the Arrow sublease"), Arrow, as lessee, was granted the right to operate a sludge processing or composting facility on the premises. Id. at 1. As lessor, Mr. John was to receive payments specified in an agreement between himself and Arrow dated January 23, 1992 (Item 8, Ex. B). Id. Section 8 of the sublease provided for immediate termination of the sublease and all obligations thereunder in the event that any law, ordinance, or regulation barred the operation of such a facility. Under such circumstances, however, the lessee, in its sole discretion, could make reasonable efforts to obtain abatement of the conflicting law, ordinance, or regulation. Id. at 2. The lessee was granted the right to assign the sublease, or to sublet further, without the permission of the lessor. Id.

 AG has placed in the record a copy of a document entitled "Partial Assignment of Lease," dated April 15, 1992, under which Richard E. Wells, d/b/a Arrow Compost and Arrow Corporation, agreed to "partially assign Arrow's sublease with Daniel John dated March 30, 1992" to Tully Construction Co., Inc. ("Tully") and AG, "insofar as it covers up to eighty (80) contiguous acres of the land covered by [the Arrow sublease] . . ." Item 8, Ex. E. Tully and AG agreed to "assume all duties, liabilities, and obligations of Arrow with respect to [the Arrow sublease]." Id. By its own terms, the partial assignment was made pursuant to an agreement between Tully, AG, and Arrow, dated March 24, 1992 ("the Tully/AG-Arrow agreement"). Id.

 A copy of the Tully/AG-Arrow agreement is attached to Item 18, Declaration of S. Mac Gutman, as Ex. H. AG maintains, and the agreement appears to confirm, that AG and Tully contracted with Arrow to finance Mr. John's acquisition of the CA-04040 lease. Id.; see also, Item 13, PP 4-7. According to Dana Taylor, the President of AG, an essential condition of AG's investment was Mr. John's representation that the Seneca Nation approved of the facility and would require no permits. Item 13, P 8. AG has placed in the record a copy of a letter dated April 15, 1992, from Stephen A. Gordon, a Councillor of the Seneca Nation, to Tully, indicating that Mr. Gordon believed that the facility would be acceptable to the Nation, if run in accordance with New York State Department of Environmental Conservation and Federal Environmental Protection Agency guidelines. Id. at P 9 and Ex. B.

 According to AG, it entered the property in April 1992, improved the land with a road and drainage, constructed a waste processing facility, including a 30,000 square foot concrete pad, and installed sludge processing equipment. Construction was completed in May 1992, at a cost of $ 500,000. Item 13, PP 10-11. On June 25, 1992, however, the Council of the Seneca Nation determined that the facility was operating without Nation consent, in direct violation of the Nation's Waste Disposal Ordinance. Item 18, Gutman Declaration, Ex. M. The Council resolved to cancel the CA-04040 lease, for breach by Mr. John, and to authorize the Nation's President to take such actions as might be necessary to close the facility. Id.

 AG maintains that Tully/AG subsequently spent $ 100,000 in engineering fees to satisfy the Nation that the facility and its product were safe. Item 13, P 13; see also, Item 18, Gutman Declaration, P 24(k). On June 23, 1993, the Seneca Nation Council rescinded its June 25, 1992, resolution and authorized the operation of the facility "located on lands owned by or leased by Daniel John, Jr.," provided that the facility underwent "regular environmental audits to ensure compliance with Seneca Nation laws, applicable federal laws and regulations." Item 18, Gutman Declaration, Ex. L.

 AG claims that soon after issuance of the Seneca Nation Council's June 23, 1993, resolution, Mr. John opened negotiations with AG's competitor, Wheelabrator Waste Systems, to take over and operate AG's facility. Item 13, P 15. According to AG, Mr. John took the position that the June 1992 resolution of the Seneca Nation Council had terminated the Tully/AG tenancy on the property at issue, and that he had become the owner of AG's equipment. Id., P 16.

 On or about April 27, 1994, Mr. John filed a complaint in the Seneca Nation Peacemakers' Court, against AG and Mid-American Waste Systems, Inc. ("Mid-American"). Item 8, Ex. F. The complaint alleged that AG and Mid-American had failed to make payments due to Mr. John under a verbal agreement made on April 3, 1993, pursuant to which Mr. John had allowed the two companies to use his property as a sludge processing facility, and had performed various services for the companies. The relief requested included $ 90,000 for rental of Mr. John's property, and $ 180,000 for services rendered. Id.

 On June 6, 1994, Mr. John served a response to AG's answer, in which he asserted various affirmative defenses to AG's counterclaims. Item 8, Ex. H. These affirmative defenses included allegations that AG and Mid-American had engaged in a course of tortious conduct, as a result of which Mr. John had been damaged in the amount of some $ 12,000,000. Mr. John requested relief in the form of a money judgment of more than $ 12,000,000 in compensatory damages, plus tenfold punitive damages. Id. at 8. AG subsequently filed an answer to the counterclaims contained in Mr. John's June 6, 1994, submission, essentially re-pleading its original answer. Item 8, Ex. I.

 On June 10, 1994, counsel for the parties appeared at a status conference before the Peacemakers' Court, at which counsel for AG and Mid-American informed the court that they intended to move to dismiss on grounds of lack of jurisdiction. Item 4, P 15. According to AG, the court summarily determined, by oral decision, that it had both personal jurisdiction over the defendants and subject matter jurisdiction, without the benefit of affidavits or memoranda of law addressing the jurisdictional issues, and without an evidentiary hearing or oral argument. Id. at PP 16-17. On June 23, 1994, the court issued a written Order of Jurisdiction, finding that the Seneca Nation had personal, territorial, and subject matter jurisdiction in the action. It provided a detailed legal analysis of its reasons for doing so. Id. at P 19 and Ex. G.

 The June 23, 1994, Order of Jurisdiction expressly stated that the defendants had the right to appeal the decision within thirty days of receipt of the order. Accordingly, on July 8, 1994, AG and Mid-American filed a joint appeal with Seneca Nation Court of Appeals. Item 4, PP 19-20 and Ex. H. By letter dated July 14, 1994, however, the Peacemakers' Court informed AG that the language in the June 23, 1994, order concerning the defendants' right of appeal had been inserted in error. The order was intended to be an interlocutory decision and was not appealable at that time. A hearing on the merits of the action would proceed on July 20, 1994, as scheduled. Id. at P 22 and Ex. I.

 On July 15, 1994, AG and Mid-American filed a motion in the Seneca Nation Court of Appeals, for an order confirming that proceedings in the Peacemakers' Court should be stayed pending the Court of Appeals' ruling on the appeal of the June 23, 1994, Order of Jurisdiction. Item 4, P 23 and Ex. J. Five days later, the Peacemaker's Court issued a revised Order of Jurisdiction in which the language referring to the defendants' right of immediate appeal was deleted, and an order rescheduling the hearing on the merits from July 20, 1994, to August 18, 1994. Id., P 24 and Exs. K and L.

 On July 29, 1994, the Seneca Nation Court of Appeals issued an order dismissing the AG/Mid-American appeal of the Order of Jurisdiction as premature, since the order was an intermediate one and no final judgment on the merits of the case had been rendered by the Peacemakers' Court. Item 4, P 25 and Ex. M.

 AG's complaint was accompanied by a motion for a temporary restraining order ("TRO") and a preliminary injunction enjoining Mr. John from proceeding with his action in the Peacemakers' Court. Items 3 and 4. AG argued that on its face, the complaint filed by Mr. John in the Peacemakers' Court action was governed by the 1875 Act, which, according to AG, "expressly provides that exclusive jurisdiction of actions for rent such as that brought by Mr. John is vested in the courts of the State of New York and the federal district courts." Item 3, pp. 5-6. The proceedings in the Peacemakers' Court were therefore improper. AG acknowledged that the general rule is that a tribal court whose jurisdiction is being challenged is, in the first instance, entitled to determine the extent of its own jurisdiction, and that under most circumstances federal courts should not intervene until the party challenging the tribal court's jurisdiction has exhausted its tribal remedies through appellate review. Id. at 11-12 (citing National Farmers Union Insurance Cos. v. Crow Tribe of Indians, 471 U.S. 845, 85 L. Ed. 2d 818, 105 S. Ct. 2447 (1985), and Iowa Mutual Life Insurance Co. v. LaPlante, 480 U.S. 9, 94 L. Ed. 2d 10, 107 S. Ct. 971 (1987)). It maintained, however, that Mr. John's action in the Peacemakers' Court was "patently violative of express jurisdictional prohibitions," and therefore fit one of three exceptions to the ...

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