Tenth Circuit Clips Sovereign Immunity Again

      The Tenth Circuit Court of Appeals decided Sommerlot v. Cherokee Nation Distributors, Inc., et al, on July 27, 2012 (Case No. 10-6157).  In a surprising turn of events, the Circuit held that because one of the defendants was formed under state law (rather than tribal law) - that it could not possibly hold the tribe’s sovereign immunity - even if the Indian tribe were the sole owner.  The Circuit plainly held that its recently announced subordinate economic entity doctrine was wholly inapplicable to any tribal entity formed under state law. Breakthrough Management Group, Inc. v. Chuckansi Gold Casino & Resort, 629 F.3d 1173 (10th Cir. 2010) (setting forth subordinate economic entity test).  The result, is that any tribal entity formed under  federal law, state law, or the law of another tribe, or a foreign nation, will not hold the tribe’s sovereign immunity from suit.   The most interesting part of the case, though, is why the Tenth Circuit issued its holding regarding the inapplicability of the economic entity doctrine at all. The Circuit ended up ruling in favor of the tribally-owned entities - because the issue was not preserved properly for appeal.  But, if the issue was not preserved for appeal - then why didn’t the court simply decline to issue an opinion as to the merits? Answer, the panel wanted to use this opportunity to send a message. It has been a difficult few years for tribal entities at the Tenth Circuit, and this opinion appears to be further indication that it is only going to get tougher.

Are Indian Tribes immune to suits brought under section 1926(b)?

    In Oklahoma at least one Indian tribe owns a rural water district. And several other Indian tribes may seek to expand water service in their tribal lands or get into the business. In Freemanville Water Systems v. Poarch Band of Creek Indians, et al., (07-CV-688) the U.S. District Court for the Southern District of Alabama held that Indian tribes are immune to claims brought under 7 U.S.C. § 1926(b).  Section 1926(b) provides monopoly protection for rural water districts’ territories, if the rural water district is indebted to the federal government. There are exceptions, and overlaps, and uncertainty as to where rural water districts are often physically able to supply water, resulting in a large amount of litigation over the past thirty years, which shows no signs of abating.

    In the Freemanville case, the Tribe intended to develop its own water system on and off of tribal lands in the same territory presently served by the rural water district. There was no question, on the motion to dismiss phase that Freemanville Water was entitled to monopoly protection.  And the monopoly protection emanates from a federal statute of general applicability. However, the Court quoted the U.S. Supreme Court, in that there is a difference between a law’s application and the ability to enforce the law through the Courts. And there is. Just because a law exists does not mean there is a corresponding legal remedy. And that is the situation with 1926(b), as Congress in the Rural Development Act has not waived tribal sovereign immunity.  And clearly, the Tribe at issue in the case had not waived its sovereign immunity. Therefore, while the monopoly law applies (at least outside of tribal lands), a rural water district has no method to enforce it.  I do not believe this would be the result under present Tenth Circuit law in Oklahoma.

    The Freemanville motion to dismiss was decided on January 7, 2008. Since that date the federal appellate courts are exploring more carefully whether equitable claims, such as the ones in Freemanville for injunctive relief can proceed absent a waiver of tribal sovereign immunity.  The Freemanville court cited Puyallup Tribe, Inc. v. Department of Game, 433 U.S. 165, 172 (1977) wherein the U.S. Supreme Court held that an injunction against a Tribe to enforce fishing restrictions on and off its reservation violated tribal sovereign immunity. However, that case, which went to the Supreme Court several times (the cited case is actually Puyallup III) involved treaty rights. But more importantly, the Tribe itself was the defendant in the Washington state court system.  Under the doctrine of Ex Parte Young and the Tenth Circuit’s application of that doctrine to Indian tribes in Crowe & Dunlevy v. Stidham, Freemanville could have sued the tribal chairman or other office-holders in their official capacities to enforce their federal statutory rights for prospective injunctive relief. The reasoning is that a waiver of sovereign immunity is not necessary at all for a suit which is limited to prospective injunctive relief to stop an on-going violation of a federal law. Money damages are not available under Ex Parte Young. But, if a rural water district in Oklahoma seeks to avoid tribal encroachment, it will likely make use of Crowe & Dunlevy v. Stidham.

    In Freemanville, the rural water district appealed to the Eleventh Circuit Court of Appeals. The Eleventh Circuit affirmed the judgment of the District Court in all respects on April 28, 2009. The Circuit court carefully examined the Rural Water Development Act to find a waiver of sovereign immunity, and like the trial court, it did not find one in 1926(b). The rural water district never sought leave to amend to sue the tribal government officials under Ex Parte Young.  As a result, that issue was never raised.

Freemanville District Court Opinion

Are Construction Liens Available in Indian Country?

Oklahoma provides significant protection for contractors and material providers for construction projects.  An unpaid contractor may file what is known as a mechanics and materialman’s lien. 42 O.S. § 141 et seq. The lien then provides that when the property is sold (or-refinanced) that the lien-holder will be paid depending upon the priority of the lien and the availability of funds. A lien holder may also foreclose upon the lien and force a judicial sale of the property.  The lien provides priority, not from the date of filing, but from the date that the first material was provided or service performed. Fourth Nat’l. Bank of Tulsa v. Appleby, 1993 OK 53, ¶ 9, 864 P.2d 827. And naturally, the lien holder also retains all rights to an in personam judgment against whoever contracted to pay for the work and material.

But in Indian Country, a right created by Oklahoma statutes to a construction lien, does not apply.  Indian Country lies within the jurisdiction of a sovereign tribal government a state’s law will only apply with specific Congressional authorization. Congress has not stated that state-law lien rights apply. There is nothing, however, to prevent a Tribe from legislating its own lien process and rights. In such a scenario, the Tribe would have to provide a method to file the lien with the tribal government or court to provide a central place for interested parties to research lien filings. But, even if a Tribe did legislate and create a registry for lien flings there would be two additional hurdles. First, all land within the jurisdiction of the an Indian tribe is restricted in some fashion. Much of it is trust land where title is held by the United States for the benefit of the  Tribe. If the Tribe were to allow a lien-filing on its own land, the contract approving that lien would likely have to be approved by the Bureau of Indian Affairs under 25 U.S.C. § 81 which requires the U.S. to approve of mortgages on Indian lands. Second, if it is owned by an Indian tribal member and not the Tribe or the United States, it is likely still restricted against alienation to non-Indians, meaning that Bureau of Indian Affairs would again have to approve.  Finally, even if the Tribe and Bureau of Indian Affairs approved of the creation of a lien on land owned by the Tribe (or the U.S. for benefit of the Tribe), a lien itself is not likely a clear waiver of sovereign immunity by the Tribe.  Meaning, that judicial foreclosure in tribal court may not be available, depending upon how the tribal court interprets a tribal statute providing for lien rights.

The end-result. When entering into contracts to perform construction on Indian Country, a construction company or material provider should understand that state-law lien rights do not apply. The contractor should further endeavor to determine what rights, if any, exist under tribal law, and ensure that its contracts provide for remedies in the proper tribal forum.

Investors sue Law Firm over Unapproved Management Contract

As you will recall, the Seventh Circuit, in its recent Lake of the Torches decision, affirmed the federal district court's  holding that a bond indenture worth $50 million was an unapproved management contract. While the Circuit remanded for consideration of certain equitable claims, the fact remains that the contract remains void and there is no apparent method for the investors to obtain redress on $46 million of unpaid bonds. In late January, the investors took action, and sued the Law Firm for allegedly giving assurances that the bond indenture was a valid and enforceable contract.

The news coverage can be found at: http://www.jsonline.com/business/suit-filed-in-tribal-bond-deal-5d3sj17-137801053.html