Leasing to Native American tribes, tribal entities and tribal members presents opportunities for equipment finance companies, but these opportunities are not without specific challenges: sovereign immunity, a myriad of tribal laws and tribal court jurisdiction, to name a few. Together with reported decisions, the underlying framework of federal Indian law provides insight into these challenges, allowing a more informed decision to be made when an equipment finance company looks to the tribal marketplace for additional finance opportunities.

Sovereign Immunity & Enforceable Waivers
Native American tribes enjoy sovereign immunity from suit “on contracts, whether those contracts involve governmental or commercial activities and whether they were made on or off a reservation.” See Kiowa Tribe of Oklahoma v. Manufacturing Tech., 523 U.S. 751, 754-55 (1988). This immunity also extends to tribal enterprises. Without an effective waiver, most tribal entities cannot be sued in federal, state or tribal court to recover equipment or for a deficiency under either a lease or equipment finance agreement (EFA).

Unless the lessor believes that every payment will be made on time and for the full term, it should consider, in the case of a tribe or tribal entity, requiring a waiver of sovereign immunity. Although there has never been a requirement of any “magic language,” the waiver must be express. See, e.g., Santa Clara Pueblo v. Martinez, 436 U.S. 49, 58-59 (1978), which said: “a waiver of sovereign immunity cannot be implied but must be unequivocally expressed.” Additionally, any waiver must be obtained as required by the applicable tribal law.

For example, in World Touch Gaming, Inc. v. Massena Management, LLC, 117 F.Supp.2d 271, 273 (N.D.N.Y.2000), the lease agreement provided that the “Lessee [casino] agrees to waive its sovereign immunity from suit to enforce the provisions of this agreement and acknowledges that this waiver allows lessor the right to pursue both legal and equitable remedies as lessor deems necessary.” An officer of the casino management company signed the lease. When a dispute arose, the lessor attempted to sue in federal district court. Because tribal law, stemming from the tribal constitution, required a tribal council resolution to effectuate a valid waiver, the court held that the signature of the casino management company officer was insufficient to bind the tribe to the waiver in the lease agreement. The court further stated the lessor should have been “careful to assure that either the management company had the express authority of the tribe to waive sovereign immunity, or that the tribe itself expressly waived sovereign immunity with respect to the … lease agreements.” World Touch Gaming, 117 F.Supp.2d at 275.

Who has the authority so sign a waiver often depends on the applicable tribal law. Research is required to determine how to effectuate a valid waiver of sovereign immunity for the particular tribe or tribal entity under its tribal law. Once that determination is made, in drafting the waiver, the lessor should also define in the waiver where disputes can be brought, (i.e., state court), and whether tribal or state law would apply in resolving the dispute. Finally, the waiver should address repossession rights in the event of a default. Competent counsel can provide the operative language as well as research the applicable tribal laws prior to entering into the leasing arrangement.

Limits on Repossession Under Tribal Law
Native American tribes are distinct, independent political communities, qualified to exercise many of the powers and prerogatives of self-government. See Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316, 327 (2009). As such, tribes have the power to legislate and to tax activities on the reservation, including activities by equipment lessors. Tribes also have the power to exclude outsiders from entering tribal land, including repossession agents. Tribes do not, however, possess authority over non-Indians who come within their borders except under two well-defined exceptions.

The Montana exception most lessors should be aware of is as follows: “[a] tribe may regulate, through taxation, licensing or other means, the activities of non-members who enter consensual relationships with the tribe or its members, through commercial dealing, contracts, leases, or other arrangements.” Montana, 450 U.S. at 565–66.

By entering into a lease arrangement in Indian country, the lessor places itself under the jurisdiction of the tribe, its tribal laws and, potentially, its tribal court. As noted previously, the careful lessor will have, at least, analyzed the applicable tribal laws and tribal court procedures that will apply in the event of a default under the equipment lease or EFA. Under the first Montana exception, absent specific language to the contrary in an effective waiver of sovereign immunity, the lessor could find itself in front of a tribal judge, who may apply tribal law to interpret the lease or EFA and, perhaps even more worrisome, the lessor’s post-default conduct.

In that light, lessors should note the following aspect of tribal sovereignty: the power “to exclude outsiders from entering tribal land.” See Plains Commerce Bank, 554 U.S. at 327–28. Such a power potentially may prevent a lessor from “self-help” and/or repossession of equipment from a reservation if a tribal entity or tribal member defaults under a lease or EFA. Both state and tribal courts have upheld a tribe’s right to condition repossession on compliance with tribal law.

For example, in Babbitt Ford, Inc. v. Navajo Indian Tribe, 710 F.2d 587 9th Cir. (1984), cert. denied, 466 U.S. 926 (1984), the Ninth Circuit upheld the right of the Navajo Tribe to apply its repossession laws to non-members that were not located on the reservation and to transactions with tribal members that arose off the reservation. The Ninth Circuit noted that the Navajo Tribe has an interest in maintaining the “reservation peace and to protect the health and safety of tribal members” and that the act of repossession “clearly threatens or has some direct effect on the health and welfare of the Tribe.” Id., 710 F.2d at 592-593. Similarly, in Fredericks v. Ford, 462 N.W. 2d 164 (N.D. 1990), the North Dakota Supreme Court granted comity to a tribal court judgment against an off-reservation creditor that repossessed secured collateral in violation of a tribe’s law, which prohibited self-help repossession.

Although reported tribal court decisions are limited, in one leasing-related decision, Delorme v. Stearns Bank, Equipment Finance Div., 2002 NATM 001 (Turtle Mountain 07/02/02), Stearns financed the lease of a belly-dump trailer to two tribal members. The transaction took place off the reservation but, on default of the lease, the bank’s agents entered the reservation and repossessed the trailer. The lessees sued in tribal court and the bank moved to dismiss for lack of subject matter jurisdiction. The tribal court denied the motion and the tribal court of appeals affirmed. The tribal court of appeals reasoned that the bank had entered into a consensual relationship with tribal members and its self-help repossession on the reservation subjected it to tribal court jurisdiction for its illegal repossession.

Because the first Montana exception clearly applies to leasing arrangements, the prudent lessor, having researched the applicable tribal law, should include in its lease agreement or EFA a clear direction to state court and state law in the event of a dispute and include a waiver of recourse to tribal court. It may be that business decisions dictate what forum the lessor might agree to if the potential tribal customer refuses to agree to state court jurisdiction and/or the application of state law. Knowledge of the potential outcomes in tribal court under tribal law allows the lessor to evaluate whether to proceed.

Another Potential Challenge: Who is the Actual Lessee?
Tribes and their subordinate tribal entities often lack the traditional forms of corporations and limited liability companies. Subordinate tribal entities can incorporate under tribal or state law, or not incorporate at all. Instead, tribal entities are often formed simply by tribal council resolution. Determining who has the authority to sign for such an entity, see, e.g., World Touch Gaming, supra, and whether the leasing entity has any available assets, presents an additional challenge to the finance company as it contemplates the transaction. This commonly encountered situation is demonstrated in a case from Arizona, S. Unique, Ltd. v. Gila River Pima-Maricopa Indian Community, 138 Ariz. 378, 674 P.2d 1376 (App. 1983).

In that case, S. Unique, Ltd. contracted with Gila River Farms (GRF), a subordinate tribal enterprise of the Gila River Indian Community (the tribe). A related tribal corporation, Gila River Pima-Maricopa Indian Community (the tribal corporation) worked with GRF to broker the deal and appeared to be one of the parties to the transaction. When GRF failed to pay S. Unique, it sued GRF, the tribal corporation and the tribe. On appeal, the court found although GRF was a separate subordinate organization created solely for business purposes of the tribe, the tribe’s sovereign immunity extended to GRF as a subordinate entity of the tribe and dismissed that entity. The court allowed the suit to proceed against the tribal corporation, which had no assets. The court concluded its opinion as follows:

Because of the doctrine of tribal immunity, businesses that deal with Indian tribes do so at great financial risk. In this case, the appellant could only have protected itself by investigating the [tribe’s] Constitution and Bylaws, by investigating GRF’s Plan of Operation and by investigating the [tribal] corporation’s Corporate Charter. This investigation would have revealed that GRF was not a subsidiary of the [tribal] corporation but, rather, was a subordinate organization of the [tribe] acting under its … tribal immunity. Confronted with this fact, appellant only then could have taken steps to protect its interests. S. Unique, 138 Ariz. at 387, 674 P.2d at 1375.

Although not a lease-related decision, the lessons from S. Unique certainly apply to equipment finance companies looking to transact business with tribal entities. Subordinate tribal entities often enjoy the tribe’s sovereign immunity. Without a waiver of sovereign immunity, an order of repossession can be difficult to obtain. If the leased equipment is located on the reservation, tribal law may not provide a remedy or may not allow self-help repossession. Investigating the governing documents of the leasing entity, whether a tribe or a subordinate entity, may be critical if the lessee defaults and retains the equipment. The prudent lessor, armed with information obtained prior to entering the lease or EFA, can act to protect its interests in case of default by obtaining appropriate signatures on the waiver of sovereign immunity for the identified leasing entity.

Conclusion
There have been many successful finance transactions in Indian country. However, many of these transactions were formed without the finance company being aware of the potential challenges concerning such transactions. Only in the event of a default is the lack recourse against the tribal entity readily apparent. A lessor contemplating a finance transaction in Indian country should exercise due diligence by consulting with counsel familiar with tribes and tribal law, waivers of sovereign immunity, and their effect on the finance transaction. Ultimately, it is a business decision whether to lease or finance equipment to a tribe, tribal entity or tribal member where the equipment will be on a reservation. Understanding the issues surrounding such a decision is the first step toward a successful transaction.

Edward Rubacha (left) and John Sinodis (right) are partners with the Phoenix-based law firm Jennings, Haug & Cunningham. Sidonis represents numerous lessors in Arizona and throughout the southwest U.S. Rubacha represents numerous clients across the United States in transactions with tribes and tribal entities, in and outside of Indian Country. They may be reached at 602-234.7800 or via email at: [email protected] for Sinodis, or [email protected] for Rubacha.