Late 2016 and early 2017 have seen four significant sovereign immunity decisions from the federal courts, two of them involving employment disputes. We think they warrant attention for our clients, colleagues, and friends working in Indian Country.
Tribal corporations: Are they immune from suit? Courts have grappled with this issue for decades, and their decisions are all over the place. Two noteworthy opinions were handed down in the last couple of months, one from a federal court in Wisconsin and the other from the California Supreme Court.
In a decision issued last week, the U.S. District Court for the Western District of Wisconsin addressed whether a corporation formed under section 17 of the Indian Reorganization Act (IRA) has sovereign immunity from suit. Former employees of the Lac Du Flambeau Band of Lake Superior Chippewa Indians sued the Band and its section 17 IRA corporation, the LDF Business Development Corporation (LDF), for employment discrimination. The Court found that the employees had been employed by the Band, not by LDF. The Band obviously had sovereign immunity from suit. The Court went on to explain, however, that LDF likewise had sovereign immunity.
LDF's corporate charter provides that it can "sue and be sued in courts of competent jurisdiction within the United States." On its face, that looks like a waiver of sovereign immunity, and a number of courts have held that such clauses waive the sovereign immunity of section 17 IRA corporations. Others, however, have held that the clause does nothing more than authorize the corporation to sue or to subject itself to suit. The District Court agreed with the second line of cases. In so doing, it provided an excellent exposition of the case law on this subject. See Bruguier v. Lac du Flambeau Band of Lake Superior Chippewa Indians, No. 16-CV-604-JDP, 2017 WL 684230 (W.D. Wis. Feb. 21, 2017).
In December, the California Supreme Court surveyed the case law across five states and two federal appeals courts, spanning over twenty years, to develop a five-factor test for determining when a corporation formed by an Indian tribe has the sovereign immunity of the tribe that creates it. California sued tribal corporations formed by the Miami Tribe of Oklahoma and by the Santee Sioux Nation engaged in payday lending. Two brothers, nontribal members, managed the lending activities, and a federal investigation found that funds from the checking account of one of the corporations appeared related to personal expenses for "a private residence in Aspen, Colorado, chartered flights to auto racing events, and several luxury automobiles." The only evidence of the Tribes' financial share of the profits showed they received one percent of the gross revenues.
The California high court unanimously held that (a) the burden of proof for showing that a tribal corporation is an "arm of the tribe" creating it so as to give it the tribe's sovereign immunity rests with the corporation, and (b) this "arm of the tribe" status turns on weighing the following five factors: (i) the tribe's method of creating the corporation, (ii) the tribe's intent as to whether the corporation has sovereign immunity, (iii) the stated purpose of the corporation to serve the tribe's governmental interests and whether the corporation's activities actually serve that purpose, (iv) the tribe's control over the corporation's operations, and (v) the financial relationship between the tribe and the corporation. The California Supreme Court held that the corporations failed to meet their burden on the facts presented. See People v. Miami Nation Enterprises, 386 P.3d 357 (Cal. 2016).
Do federal employment laws that fail to mention Indian nations waive tribal sovereign immunity?
One would think that this is easy to answer. If a named defendant is an Indian tribe or an arm of a tribe enjoying its sovereign immunity, that immunity bars the suit unless there is a clear waiver of immunity by the tribe or by Congress.
In October, the Eleventh Circuit Court of Appeals addressed whether a plaintiff's age discrimination claim under the federal Age Discrimination in Employment Act (ADEA) against the Poarch Band of Creek Indians was barred by sovereign immunity. The ADEA fails to address Indian tribes. Thus, it says nothing about any waiver of tribal sovereign immunity; the requisite clear waiver by Congress cannot be found in the ADEA. The Eleventh Circuit nevertheless issued a lengthy decision to examine the question, even including a scholarly account of the role of Alexander McGillivray, the principal chief of the "Upper Creek" confederation, in promoting principles of tribal sovereignty in the late eighteenth century.
Finding no clear waiver of sovereign immunity in the ADEA, the Court concluded that the plaintiff's suit was barred by that immunity. But the Court took an odd tangent to address a separate question - whether the ADEA might apply to the Band - and it suggested that it might. That question would arise only if sovereign immunity did not bar suit in the first instance, and that would happen only if the Equal Employment Opportunity Commission (EEOC), which administers the ADEA, sued the Band. (Tribes can't assert sovereign immunity to bar suits brought by agencies of the US.) That was not the case before the Eleventh Circuit, so it is strange that the Court decided to address whether the ADEA might apply to the Band.
Indeed, that question is controversial; courts have developed varying tests for whether the ADEA or other federal laws of general application that are silent with respect to Indian tribes can be applied to tribes in a setting where sovereign immunity does not otherwise bar suit. See EEOC v. Fond du Lac Heavy Equipment and Construction Co., 986 F.2d 246 (8th Cir. 1993); EEOC v. Cherokee Nation, 871 F.2d 937 (10th Cir. 1989). The Eleventh Circuit mistakenly referred to those cases as addressing tribal sovereign immunity. See Williams v. Poarch Band of Creek Indians, 839 F.3d 1312 (11th Cir. 2016).
Does the federal bankruptcy code waive sovereign immunity?
Three days ago, on February 28, a federal bankruptcy court held that that the Quapaw Casino Authority (QCA), the governmental subdivision of the Quapaw Tribe of Oklahoma that operates that Tribe's IGRA gaming facility, and Thunderbird Entertainment Center, Inc. (Thunderbird), a corporation formed under the laws of the Absentee Shawnee Tribe of Oklahoma and wholly-owned by that Tribe, both were arms of the respective tribe creating them and, therefore, had sovereign immunity from suit. It also held that the federal bankruptcy code did not waive their immunity.
QCA and Thunderbird filed proofs of claims in the federal bankruptcy court against debtors in bankruptcy to recover amounts on contract related services provided to patrons at the Tribes' gaming facilities. The bankruptcy trustee filed counterclaims against QCA and Thunderbird to recover monetary transfers made to them by the debtors, which the federal bankruptcy code allows the trustee to recover. The trustee claimed that the bankruptcy code waived tribal sovereign immunity by (a) providing that "sovereign immunity is abrogated as to a governmental unit" and (b) defining a governmental unit as a "domestic government."
The federal bankruptcy court carefully examined the federal courts' differing views on the question and sided with those concluding that Indian tribes are not clearly "domestic governments." Thus, the Court held that Congress had not clearly waived the sovereign immunity of QCA and Thunderbird with respect to the asserted counterclaims. See In re Money Center of America, Inc., No. 14-10603(CSS), 2017 WL 775780 (Bankr. D. Del. Feb. 28, 2017).