Navigating Sovereign Immunity in Employment Termination Case

By Heidi McNeil Staudenmaier and Kelsey Haake

In the recent Arizona federal court case, Xia v. Harrah’s Arizona Corp.,¹ five individuals, Jie Xia, Necy Sundquist, Mary Grace Abon, Susan Samons, and Maria Henry (Plaintiffs), brought wrongful termination, discrimination, and other legal challenges against their former employer, Harrah’s Arizona Casino (Harrah’s). Harrah’s sought dismissal of the claims on the basis that it was entitled to sovereign immunity due to its management agreement of the tribal casino owned and operated by the Ak-Chin Indian Community (Community). The court disagreed and determined that Harrah’s was not entitled to sovereign immunity, notwithstanding its relationship to the Community. 

Harrah’s introduced an electronic craps game called Roll To Win in 2022. Believing that Roll To Win required less training due to automation, Harrah’s occasionally assigned employees, including the Plaintiffs, to operate the game, despite it not being part of their regular duties. 

Subsequently, Harrah’s discovered vulnerabilities in the Roll To Win tables, allowing various cheating strategies. An investigation ensued and identified several employees allegedly involved in cheating, leading to the suspension and termination of the Plaintiffs’ employment. Despite that no criminal charges were filed, all five Plaintiffs were terminated without prior disciplinary action, raising questions about the fairness and legality of their dismissal since other employees were not terminated under similar circumstances.

Harrah’s argued that the federal court did not have subject matter jurisdiction based upon the Community’s inherent right to sovereign immunity and Harrah’s managing the tribal casino for the Community. Sovereign immunity shields Indian tribes from lawsuits unless there are explicit sovereign immunity waivers or an abrogation by Congress. The immunity also extends to tribal businesses and entities when they operate as an “arm of the tribe.”

In determining whether sovereign immunity was available to Harrah’s, the court examined the relationship between Harrah’s and the Community, using factors found in White v. Univ. of California² derived from a previous case, Breakthrough Mgmt. Grp., Inc. v. Chukchansi Gold Casino & Resort,³  to determine if Harrah’s was an “arm of the tribe.” These factors include: (1) purpose of the entity, (2) method of forming the entity, (3) structure, ownership, management, and control of the entity, (4) intent of the tribe to share the tribe’s sovereign immunity, and (5) the financial relationship between the tribal entity and the tribe.

Here, the court determined that Harrah’s was not an arm of the Community, noting that Harrah’s is formed under Nevada law rather than tribal law. The court also emphasized that, while Harrah’s operations benefit the Community financially, it is a for-profit corporation, not owned or managed by the Community, and the profits are shared with Harrah’s shareholders rather than wholly with the Community. Lastly, the court indicated the Community lacks direct control over Harrah’s since the management agreement can be terminated, and there is no evidence of an intent to share sovereign immunity. There were no tribal ordinances, declarations, or sections within the management agreement that the Community Council consented to or stated their intention to share in their sovereign immunity with Harrah’s.

Based on the foregoing, the court concluded that Harrah’s did not qualify as an “arm of the tribe,” and thus it cannot claim sovereign immunity. Therefore, the Plaintiffs are permitted to move forward with their claims against Harrah’s. This case underscores the complexities of jurisdictional challenges involving tribal entities and their partnerships with non-tribal businesses. This ruling further highlights the delicate balance between tribal sovereignty and individual rights. Most importantly, the court’s determination stresses the need for non-tribal business partners to review their agreements with the tribe or tribal entities to verify their standing and examine whether sovereign immunity would extend to their organization. 
 

Footnotes

1. No. CV-23-02086-PHX-GMS, 2024 WL 2110349 (D. Ariz. May 10, 2024). [Back]
2. 765 F.3d 1010 (9th Cir. 2014). [Back]
3. 629 F.3d 1173 (10th Cir. 2010). [Back]