Appeal from the United States District Courtfor the District of MontanaDonald W. Molloy, District Judge, PresidingArgued September 16, 1998Submission deferred September 28, 1998Resubmitted January 8, 1999Seattle, WashingtonFiled August 19, 1999Amended September 13, 1999Second Amendment November 15, 1999Before: Mary M. Schroeder, Charles Wiggins, andM. Margaret McKeown, Circuit Judges.Opinion by Judge Schroeder
_____________________________SUMMARY The summary, which does not constitute a part of the opinion of the court, is copyrighted C 1999 by West Group.
_____________________________Civil Law and Procedure/JurisdictionThe court of appeals vacated a judgment of the districtcourt and remanded. The court held that a colorable issue oftribal court jurisdiction is created when an off-reservationinsurance company sells an auto insurance policy to an Indianresident of a reservation, and communicates with Indianclaimants following the insured's auto accident on reservationland.In a 1995 car accident, Dennis Sangray, a member of theChippewa Cree Tribe, lost control of his car, killing his twopassengers, also enrolled members of the tribe.Sangray held an Allstate liability policy that he purchasedfrom an off-reservation insurance agency. Sangray habituallypaid the premiums in cash at the insurance agency. The policybore Sangray's reservation address, and Allstate mailed thepolicy and premium statements to that address.The victims' estates filed claims with Allstate for recoveryunder Sangray's policy. Allstate denied coverage, stating thatthe accident had occurred on April 1, and that Sangray's pol-icy had expired on March 31. Off-reservation communica-tions took place between Allstate and counsel for the estates.Relatives of the dead men made inquiries from the reservationby telephone.The estates sued Allstate in tribal court for a declarationthat Sangray was covered under the policy and for damagesunder Montana's unfair claims settlement practices statute.The coverage issue was settled between the parties. Allstatebrought a federal action to challenge the tribal court's juris-diction to entertain the bad faith settlement action. The districtcourt held that the tribal court had jurisdiction because thedispute arose out of the consensual relationship between All-state and Sangray, and dismissed the case.The parties disagreed whether the lawsuit arose on thetribal road, where the accident occurred, or at Allstate's off-reservation offices, where it allegedly committed insurancebad faith.Allstate appealed, arguing that the tribal court lacked sub-ject matter and personal jurisdiction and that the estateswaived or conceded the exhaustion issue by not raising it indistrict court.[1] A party may not sue in federal court to challenge tribalcourt jurisdiction until it has first exhausted its remedies intribal court. Exhaustion of tribal remedies includes tribalappellate review on the question of jurisdiction; thus, federalcourts should not intervene until tribal review is complete.[2] A district court has no discretion to relieve a litigantfrom the duty to exhaust tribal remedies prior to proceedingin federal court. Despite appellees' failure to argue exhaus-tion, it is appropriate to examine the issue sua sponte becauseof the important comity considerations involved.[3] Analysis of Indian jurisdiction over cases involvingnon-Indians generally turns on whether the tribe controls theland on which the dispute arose. Tribes lack jurisdiction overthe activities of non-Indians on non-Indian fee land exceptwhen (1) the nonmembers have entered into consensual rela-tionships with the tribe or its members, through commercialdealing, contracts, leases, or other arrangements, or (2) thenon-Indians' conduct threatens or has some direct effect onthe political integrity, the economic security, or the health orwelfare of a tribe.[4] The insured and injured parties were tribal memberswho lived on the reservation; the accident occurred on the res-ervation; and the insurer is an off-reservation entity that solda policy to a tribal member.[5] Allstate's conduct was related to the reservation. All-state sold an automobile insurance policy and mailed monthlypremium statements to an Indian resident of the reservation.After the accident on the reservation, Allstate's agents com-municated with the Indians and their counsel.[6] Allstate not only sold a policy covering travel in the res-ervation, it sold the policy to a resident of the reservation.This sale of a policy was clearly a purposeful availment of theforum's laws.[7] Many of the parties involved were tribal members wholived on the reservation where the accident occurred. Thetribal forum was plainly more convenient for all the partiesinvolved except Allstate.[8] Because there was a colorable jurisdictional issue, thedistrict court should have stayed the action while Allstateexhausted its remedies in tribal court.
_____________________________COUNSEL Mikel L. Moore, Christensen, Moore, Cockrell & Cummings,Kalispell, Montana, for the plaintiff-appellant.Gary Zadick, Ugrin, Alexander, Zadick, & Higgins, GreatFalls, Montana; Daniel Belcourt, Tribal Attorney, ChippewaCree Tribe, Box Elder, Montana, and Patrick J. Flaherty,Great Falls, Montana, for the defendants-appellees.Maylinn Smith, Indian Law Clinic, The University of Mon-tana, Missoula, Montana, for the amicus curiae.
_____________________________ORDER The opinion filed August 19, 1999, amended September 13,1999, is further amended as follows:At slip opinion page 9461, lines 9-14, delete "the SupremeCourt there affirmed . . . only if the Strate futility exceptionapplies." Substitute "the Supreme Court there held thatexhaustion was not required where it is evident that the tribalcourt lacks jurisdiction, not that the exhaustion requirementhas been abolished altogether."Page 9461, line 18, delete "Exhaustion, however, cannot bewaived."Page 9463, lines 9-13: delete "Generally speaking. . . beenunnecessary."
_____________________________OPINION SCHROEDER, Circuit Judge:This is a dispute between the estates of deceased membersof an Indian tribe and an off-reservation insurer over theinsurer's allegedly bad faith denial of insurance coverage fora fatal automobile accident. The accident occurred on a roadmaintained by the tribe and located on tribal land. The insurer,Allstate, filed this declaratory judgment action in district courtto challenge tribal court jurisdiction over the estates' suitagainst Allstate for failure to settle. The district court held thatthe tribal court had jurisdiction and entered judgment for thedefendant estates.We hold that there is a genuine dispute over whether theestates' claim arose on the reservation, where the accidentoccurred and the insureds resided, or off the reservation,where the insurer was located. Because it is not plain that thetribal court lacks jurisdiction, we conclude that the insurer isrequired to exhaust its remedies in tribal court before chal-lenging tribal jurisdiction in federal court, and we order thedistrict court to stay this declaratory judgment action. SeeStrate v. A-1 Contractors,
520 U.S. 438
(1997); Iowa Mut.Ins. Co. v. LaPlante,
480 U.S. 9
(1987).I. FactsThis dispute stems from a 1995 car accident on a tribal roadin the Rocky Boy Reservation in Montana. The accidentoccurred when Dennis Sangray, a member of the ChippewaCree Tribe, lost control of his vehicle, killing his two passen-gers, Harold Stump and Vernon The Boy, who were alsoenrolled members of the Tribe. Sangray held an Allstate lia-bility policy that he had purchased from the independentErickson-Baldwin Insurance Agency in Havre, Montana,which is outside the Rocky Boy Reservation. Sangray habitu-ally paid the insurance premiums in cash at the Erickson-Baldwin office. The policy itself bore Sangray's reservationaddress, and Allstate mailed the policy and premium state-ments to that address.The representatives of the victims' estates filed claims withAllstate for recovery under Sangray's liability policy. Allstatedenied coverage, taking the position that the accidentoccurred on the early morning hours of April 1 and that San-gray's policy had expired on midnight on March 31. Variousoff-reservation communications took place between Allstateand counsel for the estates of the deceased. Relatives of thedeceased made inquiries from the reservation by telephone.The estates sued Allstate in tribal court for a declarationthat Sangray was covered under the Allstate policy and fordamages under Montana's unfair claims settlement practicesstatute, Mont. Code Ann. S 33-18-101 et seq. The parties set-tled the issue of coverage but the unfair settlement actionremains pending before the tribal court. Allstate brought thisfederal action to challenge the tribal court's jurisdiction toentertain the bad faith settlement action. The district courtheld that the tribal court had jurisdiction under the"consensual relationship" exception to the rule of Montana v.United States,
450 U.S. 544
(1981), agreeing with the estatesthat the dispute arose out of the consensual relationshipbetween Allstate and its insured, Dennis Sangray. Allstateappealed the dismissal of the case. We deferred deciding theappeal pending the decision of the en banc court in County ofLewis v. Allen, 141 F.3d 1385 (9th Cir.), withdrawn andrevised en banc, 163 F.3d 509 (1998).II. Analysis[1] We begin with the general rule that a party may not suein federal court to challenge tribal court jurisdiction until ithas first exhausted its remedies in tribal court. See Iowa Mut.Ins. Co. v. LaPlante,
480 U.S. 9, 16
(1987). Exhaustion oftribal remedies includes tribal appellate review on the ques-tion of jurisdiction; thus, federal courts should not interveneuntil tribal appellate review is complete. See id. at 17.Although Allstate contends that the Supreme Court's latestpronouncement on tribal jurisdiction, Strate v. A-1Contractors,
520 U.S. 438
(1997), has done away with theexhaustion requirement, the Supreme Court there held thatexhaustion was not required where it is evident that the tribalcourt lacks jurisdiction, not that the exhaustion requirementhas been abolished altogether.[2] Allstate argues that appellees have waived or effectivelyconceded the exhaustion issue by not raising it in the districtcourt, which did not even address exhaustion in its order. Adistrict court has no discretion to relieve a litigant from theduty to exhaust tribal remedies prior to proceeding in federalcourt. See Burlington Northern R.R. Co. v. Crow TribalCouncil, 940 F.2d 1239, 1245 (9th Cir. 1991). Despite appel-lees' failure to argue exhaustion, it is appropriate to examinethe issue sua sponte because of the important comity consid-erations involved. See United States v. Tsosie , 92 F.3d 1037,1041 (10th Cir 1996) (raising issue of exhaustion sua sponteand remanding to district court); see also Stone v. SanFrancisco, 968 F.2d 850, 855-56 (9th Cir. 1992) (court mayconsider sua sponte issue touching on comity).El Paso Natural Gas Co. v. Neztsosie, 119 S. Ct. 1430(1999), does not prevent us from considering the exhaustionissue. There, the Supreme Court vacated our decision to con-sider sua sponte a partial injunction against tribal court juris-diction that the plaintiffs had failed to appeal. See id. at 1434.The Court reasoned that the comity considerations surround-ing the exhaustion doctrine did not justify an exception to therule requiring cross-appeals. See id. at 1435. By contrast, inthis case there was no reason for the plaintiff estates to cross-appeal the exhaustion issue, for the district court had not ruledon exhaustion, but had granted the estates a greater remedy bydefinitively ruling that the tribal court had jurisdiction.Neztsosie therefore does not apply.[3] Analysis of Indian jurisdiction over cases involvingnon-Indians generally turns on whether the tribe controls theland on which the dispute arose. The leading case on Indianjurisdiction is Montana v. United States,
450 U.S. 544
(1981),in which the Supreme Court held that an Indian tribe couldnot regulate hunting by non-Indians on non-Indian-owned feeland within the reservation. Although tribes may regulatehunting on land owned by the tribe or held in trust by theUnited States for the tribe, tribes lack jurisdiction over theactivities of non-Indians on non-Indian fee land except when(1) the nonmembers have entered into "consensual relation-ships with the tribe or its members, through commercial deal-ing, contracts, leases, or other arrangements," or (2) the non-Indians' conduct "threatens or has some direct effect on thepolitical integrity, the economic security, or the health or wel-fare of a tribe." Id. at 565-66.The Supreme Court recently expanded the Montana rule inStrate. There, the Court considered whether a tribe couldexercise jurisdiction over an accident injury claim where theaccident involved non-Indians and occurred on a state high-way that ran through a reservation. The United States hadgranted North Dakota a right-of-way across the reservationfor maintenance of a highway. The right-of-way was open tothe public and the traffic on it subject to state control. Thetribe had forfeited the right to control the highway and toexclude others from the land. Thus, the Court held that thehighway right-of-way was "equivalent, for nonmember gover-nance purposes, to alienated, non-Indian land." Strate, 520U.S. at 454.As the Supreme Court stated in Strate, "tribes retain con-siderable control over nonmember conduct on tribal land." Id.Although the Court in Montana endorsed "the general propo-sition that the inherent sovereign powers of an Indian tribe donot extend to the activities of nonmembers of the tribe," theCourt also stated that "Indian tribes retain inherent sovereignpower to exercise some forms of civil jurisdiction over non-Indians on their reservations." Montana,
450 U.S. at 565
.In this case, the parties disagree as to whether the lawsuitarose on the tribal road, where the auto accident occurred, orat Allstate's off-reservation offices, where it allegedly com-mitted insurance bad faith. Allstate's position, that the courtmust look to the off-reservation settlement activities, is fore-closed by the Supreme Court's holding in Iowa Mut. Ins. Co.v. LaPlante,
480 U.S. 9
(1987), in which a tribal court actionwas allowed to continue under nearly identical circumstances.LaPlante, a member of the Blackfeet Tribe, had beeninjured in an automobile accident on the Blackfeet reservationin the course of his employment for the Wellman Ranch, acompany owned by Blackfeet Indians. After unsuccessfulattempts to settle his claim for injuries, LaPlante sued Well-man's off-reservation insurer, Iowa Mutual, in tribal court forbad faith refusal to settle. Iowa Mutual sued in federal districtcourt for a declaration that LaPlante's injuries were not cov-ered by the policy in question. See id. at 11-13. Following itsearlier decision in National Farmers Union Ins. Cos. v. CrowTribe,
471 U.S. 845
(1985), the Court held that the federalcourt should dismiss or stay the action until Iowa Mutual hadexhausted its tribal court remedies. See LaPlante at 19-20.[4] Allstate stands in the same position as Iowa Mutual. Asin LaPlante, the insured and injured parties in this case weretribal members who lived on the reservation; the accidentoccurred on the reservation; and the insurer is an off-reservation entity that sold a policy to a tribal member.LaPlante thus indicates that exhaustion is required here.We followed LaPlante in Stock West Corp. v. Taylor, 964F.2d 912 (9th Cir. 1992). Stock West, a non-Indian companythat operated a sawmill on a reservation, became involved ina protracted contractual dispute with the tribe. Stock Westsued the tribe's attorney in federal court, alleging that theattorney had committed malpractice and misrepresentation bydelivering a false and misleading letter to a Portland bank thathad considered a loan to Stock West for the construction ofthe sawmill. The attorney moved for dismissal on the groundthat exhaustion was required under LaPlante and NationalFarmers because the dispute arose on the reservation, wherehe wrote the letter and where the sawmill was built. StockWest argued that the dispute arose off the reservation becausethe letter was delivered outside the reservation. We held, enbanc, that Taylor had raised a colorable issue as to whetherthe dispute arose from the on-reservation contractual relationsof the tribe and Stock West. See Stock West, at 919. Becausethe assertion of tribal jurisdiction was "plausible," werequired abstention in favor of tribal court. See id. at 919-20.This case should reach the same result.[5] Allstate attempts to distinguish this case from LaPlanteand its progeny, arguing that this case is more analogous tothe facts underlying the Eighth Circuit's decision in HornellBrewing Co. v. Rosebud Sioux Tribal Court, 133 F.3d 1087(8th Cir. 1998), a case in which the non-Indian defendant hadnot conducted any activities on the reservation or communi-cated with anyone there. In that case, the estate of CrazyHorse brought suit against a brewery that marketed a bever-age called "The Original Crazy Horse Malt Liquor. " Theestate sued in tribal court for defamation, invasion of privacy,and infliction of emotional distress. The Eighth Circuit con-cluded that tribal jurisdiction did not exist because the brew-ery had not conducted any activities on the reservation relatedto its product. See id. at 1091. Allstate's conduct in this case,unlike the brewery's in Hornell, is related to the reservation.Allstate sold an automobile insurance policy and mailedmonthly premium statements to an Indian resident of the res-ervation. After the accident on the reservation, Allstate'sagents communicated with the Indians and their counsel.Hornell is not on point.This case is on all fours with LaPlante, where an off-reservation insurer was sued for refusal to settle a claim aris-ing in Indian country. The authorities thus suggest that theestates' bad faith claim should probably be considered to havearisen on the reservation. At the least, they make it impossibleto say that the claim plainly arose off the reservation.[6] In addition to its challenge on subject matter jurisdic-tion, Allstate contends that the tribal court lacks personaljurisdiction in this case. This argument is foreclosed entirelyby Farmers Ins. Exchange v. Portage La Prarie Mut. Ins. Co.,907 F.2d 911 (9th Cir. 1990), in which we held that a Mon-tana state court, for purposes of an accident injury claim aris-ing in Montana, had personal jurisdiction over Portage, aCanadian insurer that sold a policy covering travel in Mon-tana. Here, Allstate not only sold a policy covering travel inthe Rocky Boy Reservation, it sold the policy to a resident ofthe reservation. This sale of a policy is more clearly a"purposeful availment" of the forum's laws than was Por-tage's inclusion of Montana within its coverage territory. Seeid. at 913. As in Portage, this dispute arose out of the insur-ance coverage. See id. at 914-15. Finally, it is difficult to seewhy Allstate's amenability to suit in tribal court is any less"reasonable" than a state's exercise of jurisdiction over a for-eign insurance company.[7] Allstate argues that a more rigorous test for personaljurisdiction should apply to tribal courts because of the dimin-ished sovereignty of the tribes. Allstate fails to cite a singlecase suggesting that the tribes' dependent status within thiscountry affects the exercise of personal jurisdiction by theircourts. Montana and Strate address the effect of the tribes'limited sovereignty on tribal courts' subject matter jurisdic-tion. Wilson v. Marchington, 127 F.3d 805 (9th Cir. 1997),which notes that a tribal court must have personal jurisdictionfor its judgment to be enforceable, see id. at 811, does notimply that a more rigorous test of personal jurisdiction appliesto tribal courts. Allstate argues that it would be unreasonableto subject an insurer to personal jurisdiction in tribal courtbecause tribal members are United States citizens and caneasily avail themselves of federal and state courts. This argu-ment overlooks the fact that many of the parties involved aretribal members and live on the reservation, where the accidentoccurred. The tribal forum is thus plainly more convenient forall the parties involved, except Allstate. Allstate also arguesthat the exercise of tribal jurisdiction would interfere withMontana's ability to regulate insurance. However, the tribealso has a strong interest in adjudicating liability for an acci-dent involving tribal members on the reservation. Finally, All-state's objections to the legitimacy of process in the tribalcourt may not be considered as a basis for depriving tribalcourts of jurisdiction. See LaPlante,
480 U.S. at 18
-19.[8] The district court dismissed this case because it affirma-tively concluded that the tribal court had jurisdiction. Wedecline to go so far, for it appears to us that the dispute arisesnot from the parties' contractual relationship, as the firstMontana exception requires, but from alleged conduct gov-erned by the Montana Unfair Claims Settlement PracticesAct, MCA S 33-18-242(3). See Tynes v. Bankers Life Co., 224Mont. 350, 357 (1987) (action for breach of implied covenantof good faith and fair dealing is separate tort action indepen-dent of underlying insurance contract). Because we hold onlythat there is a colorable jurisdictional issue, the district courtshould stay the action while Allstate exhausts its remedies intribal court.VACATED and REMANDED.