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American Bar Association

ABA Section of Business Law

Volume 12, Number 6 - July/August 2003

Getting commercial in Indian Country
That can be big business, and lawyers should be ready
    By Gabriel S. Galanda

Indian tribes are not merely casino entrepreneurs or cigarette wholesalers. In conjunction with America's largest corporations, Indians are now engaged in real estate development, banking and finance, telecommunications, wholesale and retail trade, and tourism. By 2003, U.S. tribes have become economic, legal and political forces to be reckoned with. Consider these facts:

  • Most of the Fortune 500's top 20 companies now do business in Indian Country, including Wal-Mart, Exxon, GM and Ford (the top four), Verizon, AT&T, Home Depot, Target and Bank of America.
  • Tribal businesses, although generally not subject to state and federal taxation, have annually generated more than $246 million in tax revenue for states and counties, and $4.1 billion for the federal government.
  • In 2001, gaming tribes contributed $32 billion in revenue, $12.4 billion in wages and 490,000 jobs to the U.S. economy.
  • Indian tribes occupy more than 55 million acres of land in 30 states.
Both the cause and effect of the dramatic rise in Indian economic development is the increased interaction of tribes and nontribal parties who seek business, employment or recreation on Indian reservations. Consequently, Indian tribes and non-Indians are executing billions of dollars in commercial transactions and frequently litigating those deals. Indian Country is beginning to look a lot like corporate America.

The body of tribal, state and federal law known as "Indian law" is the foundation for every transaction in Indian Country. Indian law now intersects virtually every arena of commercial practice — tax, finance, merger and acquisition, antitrust, debt collection, real estate, environmental, land use, employment, and of course litigation. Because Indian law has become so prevalent in corporate lawyering, every business lawyer should have some working knowledge of it. If you represent a nontribal party doing business in Indian Country, you must understand basic Indian law before brokering the deal.

The sovereign question — ++Indian tribes are "distinct, independent political communities, retaining their original natural rights" in matters of local self- government. Worcester v. Georgia, 31 U.S. 515 (1832). While no longer "possessed of the full attributes of sovereignty," tribes remain a "separate people, with the power of regulating their internal and social relations." U.S. v. Kagama, 118 U.S. 375 (1886). Essentially, Indians possess "the right . . . to make their own laws and be ruled by them." Williams v. Lee, 358 U.S. 217, 220 (1959).

Much like the federal and state governments, tribal governments are elaborate entities, consisting of executive, legislative and judicial branches. The office of the tribal chairperson or president (like that of the president or a governor) and the tribal council (a legislature) operate the tribe under a tribal constitution or code of laws. Tribal courts adjudicate most matters arising under tribal law.

Tribal corporations — Frequently, an Indian tribe is organized according to the Indian Reorganization Act of 1934 (IRA), 25 U.S.C. § 461. Under Section 16 of the IRA, a tribe will have adopted a constitution and bylaws that set forth the tribe's governmental framework and the authority that each facet of its government possesses.

A tribe may also be incorporated under Section 17 of the IRA, 25 U.S.C. § 477, by which the secretary of Interior issues the tribe a federal charter. Through Section 17 incorporation, the tribe creates a separate legal entity to divide its governmental and business activities. The Section 17 corporation has articles of incorporation and bylaws that identify its purpose, much like a state- chartered corporation.

Alternatively, an Indian corporation may have been organized under tribal or state law. If the entity was formed under tribal law, the tribe will have done so following its corporate code. Under federal common law, the corporation likely enjoys immunity from suit, as discussed below. If the entity was created under state law, the tribal corporation exists as a state-entity and state law governs the corporation and its activity. Thus, the state-chartered tribal corporation is generally not immune from suit and may be sued in state court.

When negotiating a tribal business transaction, you should first review the tribe's organic documents and code of laws, which taken together identify the entity with which you are dealing and your client's legal rights and remedies.

Tribal courts — While generally modeled after Anglo-American courts, the 150 Indian courts in the United States are significantly different. Tribal judges, who are often tribal members, may not necessarily have law degrees. Tribal courts operate under the tribes' written and unwritten set of laws. Most tribal codes contain procedural rules specific to tribal court, as well as tribal statutes and regulations.

Increasingly, tribes are adopting commercial laws modeled after the Uniform Commercial Code. Tribal procedural laws outline the tribal court's adjudicatory authority and may set forth limitations on tribal jurisdiction. Tribal laws also include traditional practices, including commercial customs, which are based on oral history but may not be codified.

Tribal judges generally follow their own precedent and, although each tribal court and the tribal laws they follow are distinct from the next, tribal judges give significant deference to the decisions of other Indian courts. However, because there is no official tribal court reporter and not all tribal courts keep previous decisions on file, finding such case law can be difficult. While federal and state court opinions can serve as persuasive authority, particularly in business litigation, tribal judges are not bound by such precedent.

Nevertheless, many state courts extend full faith and credit to tribal court orders, and federal courts generally grant comity to tribal judges' rulings. When negotiating contractual choice-of-forum clauses, one must appreciate the character of tribal courts, understand pertinent tribal laws, and acknowledge both the differences and inter- relatedness of tribal, state and federal courts.

Tribal sovereign immunity —Like other sovereign governmental entities, tribes enjoy federal common law sovereign immunity. A tribe is subject to suit only where Congress has "unequivocally" authorized the suit or the tribe has "clearly" waived its immunity. Kiowa Tribe v. Manufacturing Technologies, 523 U.S. 757 (1998). Tribal immunity generally extends to tribal casinos and businesses, and to Section 17 and tribally chartered corporations.

Tribes and their officials, however, can be subject to suit under various exceptions recognized by courts. For example, courts have applied the Ex Parte Young doctrine to tribal officials, creating an exception to the general rule of immunity when an official acts outside of the government's authority.

Tribes retain immunity from suit when conducting business both on- and off-reservation. As a general proposition, a tribe can only be sued in contract if the parties expressly negotiated a sovereign immunity waiver into the four corners of the contract. Nonetheless, the U.S. Supreme Court held in C&L Enterprises v. Citizen Band Potawatomi Tribe of Oklahoma, 532 U.S. 411 (2001), that an agreement to arbitrate disputes constitutes a clear waiver of immunity. While the court held that a tribe's waiver must be "clear," it expressed for the first time that a waiver need not include the express terms "waiver of sovereign immunity" and that an arbitration clause was sufficient to evidence such intentional waiver.

Tribal immunity generally shields tribes from suit for damages and requests for injunctive relief. Tribes have also been held immune from subpoena enforcement to compel production of corporate witnesses or tribal documents. Last year, the Ninth Circuit Court of Appeals, in Bishop Paiute Tribe v. County of Inyo, 275 F.3d 893 (2002), certiorari granted, 123 S. Ct. 618, reaffirmed that tribes and their corporations are immune from subpoena enforcement in barring the execution of a warrant to obtain confidential payroll records for casino employees.

The Supreme Court, which heard argument on Bishop Paiute earlier this year, is expected by many tribal advocates to reverse the Ninth Circuit and, consistent with C&L and other recent Indian law opinions, further erode the tribal immunity defense.

Waiver — In this modern age of Indian commerce, many (perhaps most) tribes agree to clear limited waivers of immunity in agreements with non-Indian parties. To further encourage commercial dealing, some tribes have created state- chartered corporations or subordinate entities, with the express understanding that the assets of such institutions are not immune from suit, levy or execution. Still other tribes have specifically waived immunity for tribal businesses incorporated under the IRA.

Negotiation of limited waivers of immunity is a widely practiced prerequisite to contracting with tribal governments and their businesses. However, many lawyers fail to even spot the immunity issue when negotiating tribal contracts and thus risk finding their clients without a remedy in the event of a breach.

When initiating a tribal contract, you should first consider practical remedies to any problems that may arise from the deal — such as bonding, insurance or lines of credit. If no practical solutions exist, you should ask the tribe for a limited waiver and stand prepared to negotiate explicit waiver, dispute resolution and choice-of-law clauses.

Tribal lands — The secretary of Interior must approve any contract providing for payment or grants of benefits by a tribe, in consideration of services for tribal people "relative to their lands." 25 U.S.C. § 81. Leaseholds for Indian lands, which typically run for 25 years, also require approval by Interior. 25 U.S.C. § 415. If the transaction implicates tribal lands, most of which do, counsel should analyze whether the secretary of Interior must approve the underlying contract or lease. Failure to secure the approval could render the agreement null and void.

Labor and employment — Labor and employment matters affect the possibility and practicability of every tribal contract. Both Title VII, 42 U.S.C. § 2000e(b), and the Americans with Disabilities Act, 42 U.S.C. §§ 12101-12213, expressly exclude Indian tribes. Likewise, state discrimination laws usually do not apply to tribal employers. For example, Arizona Revised Statute § 41-1464 expressly exempts tribes from the state's discrimination laws. Tribal officials are also immune from suit arising from alleged discriminatory behavior, so long as they acted within the scope of the tribe's authority.

The circuits, however, are split regarding whether federal regulatory employment laws apply to reservation employers. The Tenth and Eight circuits have refused to apply to tribes such laws as the Occupational Safety and Health Act (OSHA), Employee Retirement Income Security Act (ERISA), Fair Labor Standards Act (FLSA), and National Labor Relations Act (NLRA), because doing so would encroach on well-established principles of tribal sovereignty and tribal self-governance. Conversely, the Ninth, Seventh and Second circuits have applied OSHA, ERISA and NLRA to tribes, reasoning that such statutes of general applicability govern tribal employment activity because Indian tribes are not explicitly exempted from the laws. Nevertheless, state labor laws and workers' compensation statutes generally remain inapplicable to tribal businesses.

Given that U.S. tribes now employ nearly half a million Americans, it will not be long before the Supreme Court is asked to resolve the conflicting circuit court decisions. Until then, a business lawyer should evaluate pertinent federal precedent at the outset of any tribal negotiation and determine to what extent labor and employment issues will affect the deal.

Tribal court jurisdiction —Tribal jurisdiction depends largely on (1) whether the defendant is Indian or non-Indian; and (2) whether the events at issue occurred in Indian Country, particularly tribal or non-Indian lands within the boundaries of a tribal community. These two highly complex issues should be the first area of inquiry for any jurisdictional question involving a business dispute arising on a reservation.

A third threshold determination is whether Public Law 280, 28 U.S.C. § 1360(a), grants the state civil authority to adjudicate the deal. P.L. 280 applies fully in California, Minnesota, Nebraska, Oregon, Wisconsin and Alaska.

Generally speaking, tribal courts have jurisdiction over a suit by any party — Indian or non-Indian — against an Indian defendant for a claim arising on the reservation. However, under Montana v. U.S., 450 U.S. 544 (1981), a tribal court can only assert jurisdiction over a claim against a non-Indian defendant when "necessary to protect tribal self-government or to control internal relations."

Essentially, an Indian court only has jurisdiction over non- Indian parties "who enter consensual relationships with the tribe . . . through commercial dealing, contract, leases or other arrangements." The Supreme Court has made clear that a private contract qualifies as a consensual relationship under the so-called "Montana rule," thus affirming that tribal courts have jurisdiction over non-Indian parties to tribal contracts.

However, parties to a tribal contract should not be required to litigate in tribal court so long as the agreement includes an express waiver and specific dispute resolution provisions permitting adjudication in another forum.

State courts may exercise jurisdiction over noncontract claims against a non-Indian party that arises in Indian Country, or contract disputes involving a state-chartered tribal corporation or a tribal entity for which the tribe has waived immunity. Federal courts can assert jurisdiction over claims arising from reservation business activities if there is a federal question under 28 U.S.C. §§ 1131, 1343, or diversity under § 1332. While tribes generally destroy diversity because they are not state citizens, a state-chartered tribal enterprise can be sued in diversity.

While tribal courts retain personal jurisdiction over non- Indian parties to tribal contracts and subject matter jurisdiction over disputes concerning the agreement, a series of recent Supreme Court cases casts serious doubt as to whether tribal authority over non-Indian business reservation activity remains "necessary to protect tribal self-government or to control internal relations."

In Nevada v. Hicks, 533 U.S. 353 (2001), the court held that tribes lack adjudicatory jurisdiction to hear claims under 42. U.S.C. 1983 arising from the activities of state officials on reservation land but expressly left open "the question of tribal court jurisdiction over nonmember defendants in general." The court explained, however, that "we have never held that a tribal court had jurisdiction over a nonmember defendant," observing that it had previously dodged the question of whether tribes may generally adjudicate claims against non-Indians arising from on-reservation transactions.

As a result of Hicks, many tribal lawyers are now counseling their clients to consider settlement of business disputes with non-Indians, rather than litigation, for fear that the next appellate or high court decision will outright foreclose tribal adjudicatory jurisdiction over non- Indians.

Tribal exhaustion doctrine —When sued in tribal court, non-Indian parties can challenge tribal jurisdiction in federal court. The question of whether a tribe has jurisdiction over a non-Indian party must be answered by federal law and thus poses a federal question under Section 1331. National Farmers Union v. Crow Tribe, 471 U.S. 845 (1985). Ordinarily, however, "a federal court should stay its hand ‘until after the tribal court has had a full opportunity to determine its own jurisdiction.'" Strate v. A-1 Contractors, 520 U.S. 438 (1997). If the tribal court determines it has jurisdiction, it will proceed to rule on the merits of the case.

The non-Indian party can then file suit in federal court, where the district court will review de novo the federal question of tribal jurisdiction. The district court is guided but not controlled by the tribal court's jurisdictional determination. If the federal court decides the tribal court had jurisdiction, it will not relitigate issues already determined on the merits. Iowa Mutual. v. LaPlante, 480 U.S. 9 (1987).

There are several exceptions to the requirement that a federal court should stay its hand — where "an assertion of tribal jurisdiction is motivated by a desire to harass or is conducted in bad faith . . . or where the action is patently violative of express jurisdictional prohibitions, or where exhaustion would be futile because of the lack of an adequate opportunity to challenge the court's jurisdiction." National Farmers, supra. Moreover, "when . . . it is plain that no federal grant provides for tribal governance of nonmembers' conduct on land covered by Montana's main rule," exhaustion "would serve no purpose other than delay." Strate, supra.

While these exceptions to the exhaustion rule can assist non- Indian defendants in getting into federal court, they offer little assistance to non-Indian parties to tribal contracts, who, absent negotiated choice-of-forum or dispute-resolution provisions, remain subject to tribal jurisdiction under Montana. Because a tribal court could be the only trier of fact in a contractual dispute, a non-Indian party should thoroughly present the merits of its case to the tribal judge, being ever mindful of the unique aspects of tribal courts described above.

Corporate America is witnessing firsthand both the tremendous rise in Indian economic development and an array of business dealings and commercial litigation matters arising in Indian Country. With Fortune 500 companies increasingly doing business on reservations, Indian law has been transformed from a niche practice to a body of law intersecting every area of practice and engaging lawyers and clients of all types.

Indian law, however, defies boilerplate contract language, standard business negotiations, and common understandings of civil procedure and jurisdiction in the commercial litigation arena. For these reasons, it is vital that today's business lawyers have some understanding of basic Indian law, particularly those whose clients are doing business and seek to do business in Indian Country.

Galanda is an associate at Williams, Kastner & Gibbs, PLLC, in Seattle. He is a descendant of the Nomlaki and Concow tribes, and an enrolled member of the Round Valley Indian Confederation in Northern California. His e-mail is ggalanda@wkg.com.

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