Ninth and Tenth Circuits Uphold Tribal Sovereign Immunity Application to Tribal Business Enterprises

Ninth Circuit Upholds Sovereign Immunity for Tribal Casino Corporation In Cook v. Avi Casino Enterprises, Inc.

In Cook v. Avi Casino Enterprises, Inc., No. 07-15088 (November 14, 2008), the U.S. Court of Appeals for the Ninth Circuit upheld the application of tribal sovereign immunity to a tribal corporation that operated a casino enterprise.

Christopher Cook was injured in 2003 by a drunk driver on the Fort Mojave Indian reservation and sued alleging negligence and dram shop liability. The driver was an employee of the main defendant, Avi Casino Enterprises, Inc. (ACE).

Prior to the accident, the driver (also a defendant) had been served alcohol at an Avi Casino employee event by other Avi Casino employees after she was obviously intoxicated. The fellow employees put the intoxicated would-be driver onto an Avi Casino parking lot shuttle that delivered her to her car. She then drove head-on into Cook, who suffered catastrophic injuries, including the loss of a leg and over $1 million in medical expenses.

Avi Casino is owned and operated by ACE, a corporation organized under the Fort Mojave Tribe's Business Corporation Ordinance—a law of the Tribe. The Tribe's reservation spans California (location of the Tribal government headquarters), Arizona and Nevada (location of Avi Casino and ACE headquarters).

Defendants Challenge Immunity for Tribal Corporations

Defendants challenged the federal court's jurisdiction. First, they argued a lack of "diversity citizenship" since both Cook and the Tribe were California citizens. Affirming the district court below, the Ninth Circuit reasoned that while a tribe or an unincorporated arm of a tribe is not a citizen of any state, a corporation created under tribal law, such as ACE, should be analyzed for diversity purposes as if it were a state or federal corporation. The court found diversity.

Losing on that argument, the defendants next argued that the court had no jurisdiction because the Fort Mojave Tribe had not waived its sovereign immunity that, they argued, extended to ACE, Avi Casino and Casino employees.

Court: Matter of Tribal Corporation Immunity an Issue for Congress

The plaintiff argued that "tribal corporations competing in the economic mainstream should not enjoy the same immunity from suit given to Indian tribes themselves." Case at 15391. Further, the plaintiff claimed that it was "unfair to allow tribes to create commercial corporations that can compete in the marketplace while enjoying immunity from the legal liability that all other corporations must face, and . . . that granting tribal corporations immunity is unnecessary to protect tribal autonomy and self-government." Id.

Although sympathetic to the plaintiff's arguments, the Ninth Circuit held that whether or not tribal corporations ought to be immune from liability is a matter exclusively for Congress, not the courts, citing the U.S. Supreme Court in Kiowa Tribe of Oklahoma v. Manufacturing Technologies, Inc., 523 U.S. 751 754 (1998).

Court Notes Close Tie Between Tribe and Corporation

In upholding the application of the Tribe's sovereign immunity to the tribal corporation's business enterprise, the Ninth Circuit did, however, note the close tie between the Tribe and the corporation. First, ACE was created under a tribal ordinance, not as a corporation under state or federal law. Second, the Tribe wholly owned and managed ACE. A majority of ACE's board of directors were required to be tribal members and the Tribe's governing body, its tribal council, were required to perform corporate shareholder functions for the Tribe's benefit. And third, the Casino's economic benefits were required to inure to the Tribe.

ACE's articles of incorporation required all capital surplus from the Casino to be deposited into the Tribe's general treasury account. Similarly, as ACE's sole shareholder, the Tribe was required to enjoy all of the benefits of an increase in the Casino's value. It is not known how the Ninth Circuit would have ruled if this close relationship between the Tribe and the tribal corporation had not existed.

In making its ruling, the court also looked at cases affirming immunity for tribal employees, as well as provisions of the ACE enabling ordinance.

Extension of Immunity to Tribal Employees. Importantly, prior to Cook v. Avi, the Ninth Circuit apparently had not addressed whether a tribe's sovereign immunity extends to tribal employees acting within the scope of their employment. It was already clear that such immunity does extend to tribal officials acting within the scope of their duties. Here, the Ninth Circuit reasoned that it earlier had extended federal sovereign immunity to federal employees in Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9^th Cir. 1985). It also noted a similar ruling by the Second Circuit in Chayoon v. Chao, 355 F.3d 141, 143 (2^nd Cir. 2004), and held that "[t]he principles that motivate the immunizing of tribal officials from suit—protecting an Indian tribe's treasury and preventing a plaintiff from bypassing tribal immunity merely by naming a tribal official—apply just as much to tribal employees when they are sued in their official capacity." Case at 15395. Here, the plaintiff had sued the individual employee defendants in name but sought recovery from the Tribe by alleging that ACE was vicariously liable for its employees' actions. Accordingly, the Ninth Circuit held that tribal immunity protects tribal employees acting in their official capacity and within the scope of their authority (which the plaintiffs admitted).

Sue and Be Sued Clause. ACE's enabling ordinance stated that tribal corporations may "sue and be sued" in their corporate name—a provision that appears in many tribal charters and in the federal tribal charter statute, Section 17 of the Indian Reorganization Act. Recently, increased attention has been devoted to the issue of whether a sue and be sued provision itself waives sovereign immunity or whether it merely provides authority to waive immunity. Currently, the latter view holds. Here, the issue had not been raised by Cook at either the trial or appellate stages, and so neither court decided the issue. Even so, the Ninth Circuit went out of its way to include a lengthy footnote on the topic, explaining that a sue and be sued clause "may" waive tribal immunity and that this is very much a "live issue" for the Ninth Circuit—perhaps foreshadowing that that the Ninth Circuit believes such a clause by itself does waive sovereign immunity. Case at footnote 6. This is a topic to be watched closely, as splits amongst the U.S. Courts of Appeal on important questions can help advance a case to the U.S. Supreme Court.

Tenth Circuit Upholds Sovereign Immunity for Tribal Tobacco Corporation in Native American Distributing V. Seneca-Cayuga Tobacco Company

In Native American Distributing v. Seneca-Cayuga Tobacco Company, No. 07-5104 (November 17, 2008), the Tenth Circuit upheld application of tribal sovereign immunity to a tobacco products manufacturer owned by the Seneca-Cayuga Indian tribe of Oklahoma.

The plaintiff, Native American Distributing (NAD), had entered into a contract with the Seneca-Cayuga Tobacco Company (SCTC) to distribute tobacco products that SCTC manufactured. At the time the parties executed the agreement, NAD's representative (a member of the Tribe) inquired into whether NAD should seek an immunity waiver. SCTC officials reportedly replied that no waiver was required because SCTC was subject to the sue and be sued clause of the Tribe's "corporate charter."

After four years, the relationship soured and NAD sued SCTC and certain tribal officials for breach of contract. SCTC moved to dismiss the claims, arguing that the "sued and be sued" clause did not operate as an automatic waiver and, even if it did, it would not apply to SCTC because SCTC was created under the Tribe and not under the corporate charter.

SCTC Found to Be Entity of Tribe, Not Corporate Charter

In 1936, Congress passed the Oklahoma Indian Welfare Act (much like the 1934 Indian Reorganization Act, but exclusively for Oklahoma tribes), which authorized the Tribe to organize and operate through two different entities—a tribal government organized under a constitution or a corporation organized under a corporate charter. The Tribe enacted its constitution in May 1937 and its corporate charter in June 1937. The constitution created a tribal business committee and gave to it broad powers to act on the Tribe's behalf. But the business committee was also charged by the corporate charter with managing the corporate entity and further had the power to "sue and be sued."

In 1999, purporting to exercise its constitutional powers, the business committee enacted a resolution creating SCTC as an "operating division" of the Tribe and as a "Tribal enterprise" to engage in "essential governmental functions" of the Tribe. The main issue at trial was whether SCTC was a tribal or a corporate entity. If the latter, the trial court said, SCTC's immunity had been waived by the "sue and be sued" provision in the corporate charter. But if SCTC was a tribal entity, its immunity had not been waived. Relying primarily on the business committee resolution that created SCTC, the trial court found and the Tenth Circuit agreed that SCTC was an entity of the Tribe, not of the corporate charter.

First, the Tenth Circuit noted that, in the resolution creating SCTC, the business committee specifically exercised its powers under the Tribal Constitution. The business committee had previously referenced its corporate charter powers in taking certain other actions, which indicates the business committee recognized the important distinction. Second, the resolution expressly stated that SCTC was being created to generate employment and revenues "for the Tribe." And third, the resolution approved a management agreement with an outside company and explicitly offered a waiver to that company. The Tenth Circuit interpreted this to mean that the business committee believed SCTC was a division of the Tribe that was entitled to the Tribe's immunity and that a waiver of that immunity would need to be affirmatively expressed.

Unlike the Ninth Circuit in Cook v. Avi Casino Enterprises, Inc. above, the Tenth Circuit does not appear to have looked into who was required to sit on SCTC's governing board, where SCTC's revenues were required to flow, and other such factors.

Finally, as did Ninth Circuit, the Tenth Circuit echoed the U.S. Supreme Court's admonitions that only Congress can change the law in this area. In other words, until Congress acts, the law is that tribal sovereign immunity applies to tribes and arms of tribes and to governmental as well as business enterprise functions of tribes and tribal arms.

Misrepresentations Cannot Waive Tribe's Immunity

In making its ruling, the court looked at the issue of immunity for Tribal employees, as well as the sue and be sued provision in the corporate charter.

Extension of Immunity to Tribal Employees. The Tenth Circuit's approach to resolving this issue was in asking who the "real party in interest" was when NAD sued the tribal officials. If NAD sought recovery from the officials in their individual capacity, then sovereign immunity did not operate. However, if NAD really sought recovery from the Tribe's treasury, then sovereign immunity extended to immunize the tribal officials from suit. Here, NAD did not seek recovery from the tribal officials in their individual capacity, and the Tenth Circuit found that sovereign immunity barred the suit against the officials.

Sue and Be Sued Clause. As SCTC was found to be a division of the tribal government and not of the corporate charter, whether or not the sue and be sued provision in that charter amounted to an automatic sovereign immunity waiver was, technically speaking, not relevant. However, similar to the Ninth Circuit's unprompted raising of the matter in Cook v. Avi Casino Enterprises, Inc., the Tenth Circuit made a point to address the concern here.

First, the Tenth Circuit determined that the statements made by SCTC officials concerning the effect of the sue and be sued clause could have no effect. Misrepresentations cannot waive a tribe's immunity from suit. Further, after deciding that the Tribe's immunity had not been waived as to SCTC, the Tenth Circuit declared that "It is also undisputed that the [Tribe] has unequivocally waived its own immunity via the ‘sue and be sued' clause in the Corporate Charter—but only with respect to the actions of the Tribal Corporation." As support for this "unequivocal" waiver, the Tenth Circuit included a footnote explaining that, while the issue is "arguable" (footnote 2), the defendants had "apparently concede[d]" the issue by not raising it on appeal (they had raised it at trial). Consequently, the court wrote, "we need not address the typical effect of such clauses here." Id.

Even so, the Tenth Circuit discussed the matter when doing so wasn't required to decide the case. Further, it concluded that the sue and be sued provision of the corporate charter constituted an "unequivocal" waiver (although that conclusion perhaps should not be given value as precedent because it wasn't necessary to the court's decision and wasn't litigated). Similarly, the Tenth Circuit chose not to correct the trial court's litigated finding that the corporate charter's sue and be sued provision amounts to a waiver. Finally, by concluding that the defendants' failure to raise the issue on appeal amounts to an unequivocal waiver, the Tenth Circuit impliedly agreed with the trial court that a sue and be sued clause, by itself, does amount to a waiver, although it stopped short of declaring that principal explicitly.

Summary: Tribal Sovereign Immunity Could Be Tested

Both the Ninth and Tenth Circuits upheld tribal sovereign immunity's application to tribal business enterprises performing what some have called traditionally non-governmental (i.e., profit making) functions. And both courts noted that any change in law here should come from Congress, not the judiciary. However, in (reluctantly) protecting the current broad reach of tribal sovereign immunity, the Ninth and Tenth Circuits explained that a sue and be sued provision of a corporate charter may, on its own, operate to waive sovereign immunity—even though such explanations weren't required to resolve the matters actually pending before those courts.

Thus, while sovereign immunity stands unchanged for now, these decisions indicate that courts are growing increasingly uncomfortable with the concept and may be looking to new areas, such as sue and be sued clauses, to find a way around the seemingly strict rule.