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Sponsored by -The Wisconsin Indian Business Alliance, -Godfrey & Kahn -The Wisconsin Department of Financial Institutions Mole Lake Casino, Lodge & Conference.

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Presentation on theme: "Sponsored by -The Wisconsin Indian Business Alliance, -Godfrey & Kahn -The Wisconsin Department of Financial Institutions Mole Lake Casino, Lodge & Conference."— Presentation transcript:

1 Sponsored by -The Wisconsin Indian Business Alliance, -Godfrey & Kahn -The Wisconsin Department of Financial Institutions Mole Lake Casino, Lodge & Conference Center Sokaogon Reservation, Wisconsin June 24, 2008 TRIBAL UCC WORKSHOP

2 TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

3 WHAT IS THE UCC?  Background History: Released in1952 through the combined efforts of the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI). Goal: Uniform commercial transactions Applicability: Enacted nationwide in some form Today: The UCC continues to be modified. Further, the ALI and NCCUSL have established a permanent editorial board for the Code, which issues official comments and papers.

4 TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C. WHAT IS THE UCC?  Structure: 1- General Provisions 2- Sales 2A- Leases 3- Negotiable Instruments 4- Bank Deposits and Collections 4A- Funds Transfers 5- Letters of Credit (6- Bulk Sales) 7- Documents of Title 8- Investment Securities 9- Secured Transactions

5 TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C. Example:  Bobby Builder decides to open a construction business. To do so, he’ll need some construction equipment. Builder asks Big Bank for a loan to buy the equipment. Big Bank agrees to loan the money. Several piles of documents later, Builder has the money and buys the equipment.  Now Builder needs supplies such as concrete. Builder asks Sally Supplier to sell him the supplies on credit. Supplier refuses at first but eventually, after several more piles of paperwork, relents.  Builder spent so much time signing paperwork that he never had the chance to construct anything. Deciding he’s chosen the wrong profession, Builder abandons the construction business and heads back to school. Builder’s now out of the picture, but Sally suddenly finds herself fighting Bank to get her leftover concrete back. UCC behind the scenes:  Builder has agreed to give Big Bank a security interest in everything Builder owns. This way, if Builder doesn’t repay the loan, Bank can at least take everything of value that he owns and use that to get repaid.  Bank has perfected its security interest by recording its interest in an official office. This way, Supplier can see that Builder has already pledged all of his assets to the Bank, so there is nothing left that she can take as security except for the goods she is giving Builder.  Now that Bank and Supplier have to enforce their security interests, they are arguing over who has priority in the collateral. Bank got to all of the assets first, so it will get first dibs on those, but Supplier gets special priority in the concrete because she was the one that gave it to Builder.

6 TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C. SECURITY INTEREST PERFECTION PRIORITY Tribal Business is a tribal corporation located entirely in Tribe’s reservation. Business needs a loan from Big Bank. Bank wants assurance that it can collect against Business’s assets in case Business has trouble repaying the loan. How does it take this security interest? What law controls? The state where Bank is located? The state where Business is located? Tribal law? Mark Member owns several valuable tribal artifacts. If Member goes to a bank for a loan, can he pledge the artifacts as collateral? If Member ever gets sued, can a winning party enforce judgment against the artifacts?

7 SECURITY INTEREST PERFECTION PRIORITY Pamela Producer created a new style of shoe that she wants to ship all over the country. Stan’s Store wants to sell the shoe on a trial basis. Producer and Store agree to the following arrangement: Producer will send shoes to Store, and the Store will pay Producer a portion of whatever it sells. Store will return any unsold shoes to Producer. How does Producer make sure she gets her shoes back if Store goes out of business? How does the bank that lent Store money know that the shoes in the store are really Producer’s? Tribal Business gets a loan from Big Bank in exchange for which it gives Bank a security interest in all of its inventory. Carrie Consumer buys several appliances from Business. If Business defaults on its loan, can Bank collect on its security interest in the goods purchased by Consumer? TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

8 SECURITY INTEREST PERFECTION PRIORITY Danny Debtor wants to open a gas station. To do so, he gets a loan from Tribal Bank, which takes a security interest in all of the gas station assets. Two years later, Debtor wants to add a car wash. This time he borrows money from Big Bank, which also takes a security interest in all of the gas station assets. The gas station burns down one night. The only asset left is the money in Debtor’s bank account. Who gets it? Do the banks have to share? Tribal corporation Alpha sells Tribal corporation Beta farm equipment on credit. Beta has existing loans with Big Bank. Beta goes out of business. Who gets the farm equipment? Alpha or Bank?

9 TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C. WHAT IS THE UCC?  Where does the UCC apply? Arises in: Financing Sales Collections Mergers & Acquisitions Applicable to transactions between: Businesses Businesses and Banks Businesses and Customers Enforceable in: Tribal Court State Court Federal Court

10 WHY ENACT A UCC?  Benefits to Tribe Tribal Sovereignty Predictability Increased Borrowing Potential Control Consumer Protections TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

11 WHY ENACT A UCC?  Benefits to Tribe Is a tribal member living in Indian country under state jurisdiction or tribal jurisdiction? In other words… With respect to a secured transaction in Indian country involving a tribal member, will the Tribe’s law apply or the State’s law? If there’s a lawsuit, e.g., by a seller of goods or a lender, will the suit be in tribal court or state court? If there’s a court order, e.g., to repossess collateral owned by a tribal member, will tribal law enforcement show up or the county deputy sheriff? UCC Section 9-301: “Except as otherwise provided in Sections through , the following rules determine the law governing perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral: (1) Except as otherwise provided in this section, while a debtor is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral. (2) While collateral is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral.” TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

12 WHY ENACT A UCC?  Benefits to Tribe Controlling Legal Principles The presumption against the exercise of state authority over Indians in Indian country: “When on-reservation conduct involving only Indians is at issue, state law is generally inapplicable, for the State’s regulatory interest is likely to be minimal and the federal interest in encouraging tribal self- government is at its strongest.” White Mountain Apache Tribe v. Bracker, (1980). Tribal jurisdiction over non-Indians limited to situations in which a claim arises from a nonmember’s “consensual relationship with the Tribe or its members,” including a contractual relationship, or (2) the nonmember’s conduct threatens the political integrity, economic security or health or welfare” of the Tribe. Montana v. U.S (1981) TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

13 WHY ENACT A UCC?  Benefits to Tribe Controlling Legal Principles Public Law 280 gives the state jurisdiction over “private civil litigation involving reservation Indians in state court,” including “laws of contract, tort, marriage, divorce, insanity, etc.” Bryan v. Itasca County (1976) The exercise of state court jurisdiction permitted by P.L. 280 may nonetheless be barred by federal law where such exercise would “infringe upon the rights of the tribe to establish and maintain its tribal government,” as when the tribe has its owns laws addressing a certain subject and its own courts to enforce those laws. St. Germaine v. Chapman (Wis. App. 1993). Under the Wisconsin Supreme Court’s 2003 Teague decision and the jurisdictional protocols based on Teague, allocating jurisdiction between tribal and state courts in civil matters where both have jurisdiction, the courts are to take into account, among other factors, which substantive law applies to the case TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

14 WHY ENACT A UCC?  Benefits to Tribe What Do the Controlling Legal Principles Mean? Members living in Indian country of a tribe that has no UCC:  …may have a harder time borrowing money because of the uncertainty of lenders about the law that applies (What lender wants to litigate the fine points of the Bracker case?)  …will likely be governed by the Wisconsin UCC  …will likely have their disputes heard by a county circuit court judge  …will likely be subject to enforcement by the county deputy sheriff Members living in Indian country of a tribe that has adopted a UCC  …may have an easier time borrower because of the certainty that tribal law applies  …will likely be subject to tribal law  …will likely have their disputes heard in tribal court  …will likely be subject to enforcement by tribal authorities TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

15 WHY ENACT A UCC?  Benefits to Tribe The UCC and Tribal Per Caps: Cautionary Tales Johnson v. Cottonport Bank Case (Louisiana federal bankruptcy court 2000), 259 B.R. 125 (W.D. La. 2000)  Bank loans Johnson money, takes a security interest in “any and all accounts receivable including but not limited to any per capita payments and or any funds to be received from the Tunica Buloxi Tribe or La.”  Bank files UCC – 1 Financing statement with the State to “perfect” its security interest  Johnson files for bankruptcy to discharge all debts  Bank moves to lift automatic stay  Johnson argues that the future per caps weren’t in existence when he filed the bankruptcy action  Court grants the bank’s motion, holding that  Bank can continue to receive payments from the per cap  Debtor’s right to receive future monthly per caps from tribe was a property right in existence when the debtor filed his bankruptcy petition  The right to was freely transferable and assignable to others to secure debts  The excess must be paid into court to satisfy other creditor claims TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

16 WHY ENACT A UCC?  Benefits to Tribe The UCC and Tribal Per Caps: Cautionary Tales Kedrowski Case (Wisconsin federal bankruptcy court 2002). Ho- Chunk member files bankruptcy action to obtain discharge of debts  Bankruptcy trustee seeks turn over of per capita  Kedrowski argues that per cap is not “property” includible in the bankruptcy estate because there is no assurance she will receive it or because the per capita payments are like funds held in trust by the federal government or because tribal law provides that creditors cannot compel the making of a per capita payment  The court disagrees, holding that the right to receive per capitas is like corporate stock, there is no assurance of a dividend but if a dividend is issued, the stockholder is entitled to it – that’s property. TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

17 WHY ENACT A UCC?  Benefits to Tribe The UCC and Tribal Per Caps: Cautionary Tales Latest Case: DeCora v. HoCak March 2008 Wisconsin Bankruptcy Court  Ho-Cak Federal, a Ho-Chunk tribal lending agency makes a car loan to DeCora  DeCora signs security agreements and an “irrevocable partial assignment of right to payments” of the borrower’s per capita in the event of default, which Ho- Cak does NOT file with the Wisconsin Department of Financial Institutions but files instead with the Tribe  DeCora files for bankruptcy, seeking discharge of the $21,597 balance  Ho-Cak, relying on its rights under the partial assignment, collects $9, from DeCora’s per cap TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

18 WHY ENACT A UCC?  Benefits to Tribe The UCC and Tribal Per Caps: Cautionary Tales Latest Case: DeCora v. HoCak March 2008 Wisconsin Bankruptcy Court continued…  Bankruptcy trustee, on behalf of all the other creditors, requests that the court compel Ho-Cak to turn over the $9, to be shared with the other creditors  Court grants the bankruptcy trustee’s request, ruling that  The Wisconsin UCC applies to any transaction that creates a security interest in personal property  Under the UCC, the right to receive a per capita was an “intangible property right” and that, in order to “perfect” its security interest in it, Ho-Cak should have filed a financing statement with Wisconsin Department of Financial Institutions.  According to the court, “the tribal per capita ordinances cannot serve as a substitute for perfection under Wisconsin law.”  Ho-Cak has to stand in line with the other creditors TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

19 WHY ENACT A UCC?  Benefits to Tribe BOTTOM LINE: IN JOHNSON V. COTTONPORT CASE,  THE BANK PERFECTED ITS SECURITY INTEREST BY FILING A UCC 1 FINANCING STATEMENT AND WAS PROTECTED.  IT GOT TO CONTINUE TO COLLECT FROM THE TRIBAL MEMBER’S PER CAP AND  OTHER CREDITORS HAD TO STAND IN LINE BEHIND THE BANK IN DECORA V. HOCAK,  THE TRIBE’S LENDING AGENCY DIDN’T FILE A UCC 1 TO PERFECT ITS SECURITY INTEREST  THE TRIBE’S UCC DIDN’T COVER THE TRANSACTION.  THE PER CAP WAS TURNED OVER TO THE BANKRUPTCY TRUSTEE TO BE SPLIT AMONG ALL CREDITORS THE TRIBAL LENDER ENDED UP WITH NO SPECIAL PROTECTION TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

20 WHY ENACT A UCC?  Benefits to Tribe QUESTIONS TO CONSIDER DOES YOUR TRIBE MAKE LOANS TO MEMBERS? DO YOU HAVE A SECURITY INTEREST IN YOUR BORROWER’S PER CAP? DO YOU FILE UCC 1 FINANCING STATEMENTS TO PERFECT YOUR SECURITY INTEREST IN THE PER CAP? HAS ANY OTHER LENDER FILED A UCC 1 TO PERFECT A SECURITY INTEREST IN YOUR BORROWER’S PER CAP? IF YOUR BORROWER FILES FOR BANKRUPTCY PROTECTION, WILL YOU BE ABLE TO CONTINUE TO DEDUCT THE PER CAP TO GET REPAYMENT OF THE LOAN? OR WILL YOU HAVE TO STAND IN LINE WITH THE OTHER CREDITORS AND SHARE THE PER CAP? TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

21 WHY ENACT A UCC?  Benefits to Lenders Predictability Choice of Law Choice of Jurisdiction  Benefits to Borrowers Predictability Control TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

22 HOW TO ENACT A TRIBAL UCC  What is the best model? UCC Model Tribal Secured Transactions Act Modified UCC Adopt article-by-article Modify areas of key concern Consumer Code Federal protections  Procedure Committee Filing System TRIBAL UCC WORKSHOP Adopting Uniform Commercial Code Legislation Brian Pierson & Jennifer Herzog Godfrey & Kahn, S.C.

23 Sponsored by -The Wisconsin Indian Business Alliance, -Godfrey & Kahn -The Wisconsin Department of Financial Institutions Mole Lake Casino, Lodge & Conference Center Sokaogon Reservation, Wisconsin June 24, 2008 TRIBAL UCC WORKSHOP


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