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GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM ©2011. All rights reserved. Tribal Lending: A Deep Dive on Risks and Limitations Jennifer Weddle,

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Presentation on theme: "GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM ©2011. All rights reserved. Tribal Lending: A Deep Dive on Risks and Limitations Jennifer Weddle,"— Presentation transcript:

1 GREENBERG TRAURIG, LLP ATTORNEYS AT LAW ©2011. All rights reserved. Tribal Lending: A Deep Dive on Risks and Limitations Jennifer Weddle, Greenberg Traurig LLP, Denver, Colorado Payday Loan Bar Association, Annual Conference, November 2, 2012

2 - 2 - Historical Context Indian tribes are governments whose status as distinct, self- governing political entities predates the United States Constitution. Indian tribes do not derive their existence, and in most respects their authority to govern or do business, from the United States. Of course, commerce among Indian tribes predated European contact. After European contact, commerce by and with Indian tribes expanded in many different modes according to needs and opportunities of the time. On behalf of the Union, Article I, Section 8 of the United States Constitution delegates to Congress exclusive authority to regulate commerce with Indian tribes. Laws enacted by Congress in the 1790s regulating sales, leases and other conveyances of tribal land and trade with Indian tribes remain substantially in effect. 25 U.S.C. §§ 177 and Many treaties between the United States and Indian tribes, which like laws enacted by Congress are the law of the land under the Supremacy Clause of the Constitution, both secure and regulate trade by and with Indian tribes. Federal laws, regulations, executive orders, and policies too numerous to list promote and regulate commerce by and with Indian tribes. 

3 - 3 - WHO ARE TRIBAL BUSINESSES ?

4 Tribal Governmental Businesses are entities created by tribal governments for the benefit of the tribe They operate as an arm of the tribe Tribal governments form businesses to fund the provision of services to its citizenry – i.e, the creation and maintenance of courts of law, police forces, fire departments, education systems, transportation systems, public utilities, healthcare, and economic assistance, domestic and social programs.

5 WHO A RE T RIBAL B USINESSES ? Tribal governments need funding for governmental programs Unlike state and local government, tribes lack a tax base. No Property Tax: cannot collect on trust lands No Income Tax: not feasible when battling >70% unemployment Tribal governments must engage in private enterprise to fund basic governmental functions

6 WHAT TYPES OF BUSINESSES DO TRIBES ENGAGE IN AND IN WHAT FORM ?

7 W HAT T YPES OF B USINESSES D O T RIBES E NGAGE I N ? Tribal existence is location-specific Therefore, a tribe’s commercial activities are generally dictated by its land base: Tribes with Mineral or Natural Resources  Oil and Gas Development, Timber, Commercial Fishing, Wind and Solar Tribes close to large populations centers  Gaming, Tourism, Recreation However, many tribes are geographically isolated and lack any mineral or natural resources to exploit. Increasingly, these tribes are turning to e-commerce to help fund their tribal governments and advance their citizenry

8 A ND I N WHAT F ORM ? Tribal Governmental Entities A tribal business created and operated pursuant to Tribal law, for the benefit of the Tribe Charted under Tribal law and generally by the Tribal Council Section 17 Corporation A federally-chartered corporation formed under Section 17 of the Indian Reorganization Act To form a Section 17 Corp, a tribe must petition the Secretary of the Interior for issuance of a corporate charter State-law Entities A corporation or LLC formed under the laws of the state

9 - 9 - Hundreds show up for every job fair

10 HOW ARE TRIBAL GOVERNMENTAL ENTITIES CREATED AND OPERATED ?

11 Potential Structures  The range of potential entities used by tribes for economic development activities includes:  The tribe acting through its General Council, Tribal Council or other tribal governing body entity  The tribe acting through a department, office, or commission of the tribe  Unincorporated tribal enterprises and economic subdivisions which are arms and instrumentalities of a tribe  Political subdivisions of a tribe, such as villages, chapters, and districts  Tribal-owned entities chartered, incorporated or organized under tribal law  Tribal government corporations  For-profit business corporations established pursuant to tribal law

12 Additional Potential Structures  Nonprofit corporations, including tribal housing authorities, health agencies, schools and colleges  Tribal utilities  Tribal-owned, federally chartered section 17  Tribal-owned entities chartered, incorporated or organized under state law □ Limited liability companies □ Limited liability partnerships  Special purpose entities (e.g., resource management commissions)

13 Choosing An Entity For A Joint Development Project  Three of the most common types of entities that can be used for creating a joint venture between a tribe and a non-tribal business partner include: a corporation, a limited liability company, or a partnership.

14 Corporations  The most desirable feature of corporate status is that corporate owners enjoy complete protection from personal liability for the activities of the corporation. However, the tax consequences of forming a corporate joint venture may make it the least attractive of the three options for a tribe. This is because unless a corporation is a wholly owned Section 17 corporation or a wholly-owned tribal corporation, it is subject to federal income tax. A non-tribal owner of a corporation may also be required to pay income taxes on any income it receives from the corporation in the form of dividends or distributions. Therefore, unless certain circumstances require the parties of the joint venture to operate as a corporation, the parties will generally be better served by forming either an LLC or a partnership. It should be noted, however, that even an LLC or partnership presents some tax issues when a tribe or other tax-exempt party participates in the ownership. A corporate joint venture can be formed under either state or tribal law and will be governed by a corporate charter.

15 Partnerships There are two types of partnerships that a tribe and non-tribal entity might consider for formation of a joint venture entity. The main difference is the extent of personal liability that each partner assumes for the activities of the partnership. In a general partnership, both the tribe and non-tribal entity assume full liability for the activities of the joint venture partnership. In a limited partnership there are both “general partners” and “limited partners.” At least one “general partner” must assume full liability for the activities of the joint venture, while the “limited partners” enjoy limited liability (limited to the amount of their contributions to or equity in the partnership). Limited partners cannot be involved in management of the partnership. Both types of partnerships enjoy the same tax status. Partnerships are not directly subject to federal income tax. Instead, each partner reports its share of the partnership’s income (or losses) as part of its own annual income. In other words, the income and tax consequences from a partnership “flow through” the partnership to the individual partners. Because the partnership itself does not pay tax, partnerships are referred to as “flow-through” or “pass-through” entities. This type of entity is especially attractive to tribes because the IRS has stated that a tribal partner in a partnership is not subject to federal income tax. See Internal Revenue Manual (Federal Tax Status of Indian Tribal Governments) (January 1, 2003). 

16 Limited Liability Companies The LLC is probably the most common entity choice for joint ventures between tribes and non-tribal businesses because it is a hybrid that combines the limited personal liability of corporate status with the “pass-through” tax feature of partnerships. If a tribe and non-tribal entity want to enter into joint development that permits the non-tribal entity to play an active management role, but allows the tribe to retain the advantages of its tax-exempt status, then the LLC will likely be the best entity for the project. The disadvantages to conducting joint development through an LLC include the potential for sovereign immunity to be questioned and that there may be some limits on financing options (e.g., an LLC is not able to issue tax-exempt bonds). In addition, tribal participation in the equity ownership of an LLC can create significant challenges for obtaining the benefit of federal tax credits and accelerated depreciation.

17 TRIBAL GOVERNMENT (Attributes of Sovereignty) CORPORATE GOVERNANCE CHARTERS TRIBAL ENTERPRISE CONSUMER/ BORROWER SENIOR LENDER REGULATORY LAWS & FRAMEWORK REGULATORY BODY OR COMMISSION tribal governance and sovereignty: limited waivers of immunity SOVEREIGNTY GOVERNS: Tribe retains sovereignty & jurisdiction POTENTIAL for LIMITED WAIVER T HE C REATION, O PERATION, & R EGULATION OF T RIBAL E NTITIES

18 Who Regulates What?  Understanding Tribal Sovereignty Under Federal Law □ What hasn’t been taken away remains!

19 WHAT R EGULATIONS A PPLY ? Tribal Law Federal Law State Law Tribal Regulations always apply. Tribal Code and Regulatory Acts Federal law applies only if expressly stated by congress Congress’s intention to abrogate Indian treaty rights must be clear and plain. State law does not apply to Indian tribes While states can create laws regulating tribes, they do not have enforcement authority

20 T RIBAL L AW : C ODES AND R EGULATIONS Tribal law always applies Each Tribe is an independent sovereign with its own sets of laws and regulations Tribal codes address criminal, civil, family, and corporate matters Tribal corporate and lending law is often heavily regulated with various acts discussing entity formation, licensing and operation, and standards of corporate conduct It is the responsibility of anyone doing business with a tribe to know and become familiar with the Tribe’s laws and code. Just as with any other state or municipality, ignorance of tribal law is not a defense

21 S TATE L AW : N OT E NFORCEABLE Although tribes are subject to non-discriminatory state laws for off-reservation conduct, they are immune from state enforcement actions with respect to those laws. Okla. Tax Comm’n v. Citizen Band of Potawatomi Indian Tribe of Oklahoma, 498 U.S. 505, (1991); see also Cash Advance v. ex. rel. Suthers, 242 P.3d 1099 (Colo. 2010). “There is a difference between the right to demand compliance with state laws and the means available to enforce them.” Kiowa Tribe of Okla. V. Mfg. Techs., Inc., 523 U.S. 751 (1998)

22 F EDERAL L AW : E NFORCEABLE B Y E XPRESS A CT OF C ONGRESS Federal law only applies if Congress has specifically and expressly abrogated Tribal sovereignty/treaty rights The long-standing, federal common law doctrine of tribal sovereignty is “a necessary corollary to Indian sovereignty and self-governance.” Three Affiliated Tribes of Ft. Berthold Reservation v. Wold Eng’g, 476 U.S. 877, 890 (1986) “As a matter of federal law, an Indian tribe is subject to suit only where Congress has authorized the suit of the tribe has waived its immunity.” Kiowa Tribe of Okla. V. Mfg. Techs. Inc., 523 U.S. 751, 754 (1998).

23 F EDERAL L AW : A CTS OF C ONGRESS For Indian treaty rights to be abrogated, there must be “clear evidence that Congress actually considered the conflict between its intended action on the one hand and treaty rights on the other, and chose to resolve that conflict by abrogating the treaty.” See U.S. v. Dion, 476 U.S. 734, 740 (1986) Therefore, to determine whether a federal statute or regulation applies, you must look to the actual language and legislative history of the particular statute.

24 F EDERAL L AW : A CTS OF C ONGRESS When applying a federal statute there are also important distinctions: Statute defines Tribe and tribal interest v. silent? Applying to Individual Indian v. Tribe or Tribal Enterprise Statue of general applicability v. limited applicability Therefore, to determine whether a federal statute or regulation applies, you must look to the actual language and legislative history of the particular statute.

25 A PPLYING F EDERAL L AW : C ASES Federal Power Commission v. Tuscarora Indian Nation, 362 U.S. 99 (1960 ) – statutes of general applicability apply to Individual Indians, outside of the reservation. In Tuscarora, the Supreme Court applied the Federal Power Act to Indian-owned lands outside of the reservation, finding that the statute in question specifically defined “Indian lands” and included those lands within the jurisdiction of the Federal Power Commission. Importantly, in Tuscarara, the Court was NOT addressing reservation lands or tribal enterprises.

26 A PPLYING F EDERAL L AW : P OST -T USCARORA Since its opinion in Tuscarora, the Supreme Court and circuit courts have addressed the broad sovereignty of tribes and the express support of that sovereignty by Congress, including: Self-Determination era -- began in the 1960s (directly following Tuscarara) Commercial and governmental activities of the tribe are both protected by sovereignty – see Kiowa Where statutes are silent, courts are extremely reluctant to find congressional abrogation of treaty rights. See EEOC v. Cherokee Nation, 871 F.2d 937 (10th Cir. 1989)

27 Tribal Civil Jurisdiction  Supreme Court’s implicit divestiture approach, Montana v. United States, 450 U.S. 544 (1981).  Extending its prior ruling that tribal courts lack any criminal jurisdiction over non-Indians, Montana declared that in the civil context, the “exercise of tribal power beyond what is necessary to protect tribal self-government or to control internal relations is inconsistent with the dependent status of the tribes, and so cannot survive without express congressional delegation.” 450 U.S. at

28 Territorial Limitations  “Neither Montana nor its progeny purports to allow Indian tribes to exercise civil jurisdiction over the activities or conduct of non-Indians occurring outside their reservations.” Hornell Brewing Co. v. Rosebud Sioux Tribe, 133 F.3d 1087, 1091 (8th Cir. 1998) (emphasis in original).  “The mere fact that a member of a tribe or a tribe itself has a cultural interest in conduct occurring outside a reservation does not create jurisdiction of a tribal court under its powers of limited inherent sovereignty.” Id.; see also Plains Commerce Bank v. Long Family Land & Cattle Co., 128 S. Ct. 2709, 2721 (2008) (“Montana and its progeny permit tribal regulation of nonmember conduct inside the reservation that implicates the tribe’s sovereign interests”).

29 Montana Exceptions  Montana provides two narrow exceptions to the general rule that Indian tribes lack civil jurisdiction over non-members on tribal lands: “To be sure, Indian tribes retain inherent sovereign power to exercise some forms of civil jurisdiction over non-Indians on their reservations, even on non-Indian fee lands. A tribe may regulate, through taxation, licensing, or other means, the activities of nonmembers who enter consensual relationships with the tribe or its members, through commercial dealing, contracts, leases, or other arrangements. A tribe may also retain inherent power to exercise civil authority over the conduct of non-Indians on fee lands within its reservation when that conduct threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe.” 450 U.S. at

30 Further Limitations on Tribal Civil Jurisdiction  Atkinson Trading Co. v. Shirley, 532 U.S. 645 (2001), the Court held that the Navajo Nation lacked civil jurisdiction to levy a tax on non-member guests of a hotel located on fee lands within the exterior boundaries of the Navajo Indian Reservation. This despite frequently used emergency response services, to the petitioner hotel and its guests, finding “the generalized availability of tribal services patently insufficient to sustain the Tribe’s civil authority over nonmembers on non-Indian fee land.” Id. at 655.

31 Atkinson Trading Continued: “Montana’s consensual relationship exception requires that the tax or regulation imposed by the Indian tribe have a nexus to the consensual relationship itself. In Strate, for example, even though respondent A-1 Contractors was on the reservation to perform landscaping work for the Three Affiliated Tribes at the time of the accident, we nonetheless held that the Tribes lacked adjudicatory authority because the other nonmember “was not a party to the subcontract, and the Tribes were strangers to the accident.” 520 U.S. at 457 (internal quotation marks and citation omitted). A nonmember’s consensual relationship in one area thus does not trigger tribal civil authority in another -- it is not “in for a penny, in for a Pound.” E. Ravenscroft, The Canterbury Guests; Or A Bargain Broken, act v, sc. 1.” 532 U.S. at 656. The quoted reference to “Strate” refers to Strate v. A-1 Contractors, 520 U.S. 438 (1997) (Indian tribes lack civil jurisdiction over non-Indians on state highway right- of-way).

32 Atkinson’s Limitations Continued...  The Atkinson Court also held the Navajo Nation’s hotel occupancy tax as applied to non-members on non-Indian fee lands within the reservation boundaries was not justified under Montana’s second exception. Acknowledging that the hotel was located within a part of the Navajo Reservation that possessed “an overwhelmingly Indian character,” the Court stated that it nevertheless “fail[ed] to see how petitioner’s operation of a hotel on non-Indian fee land ‘threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe.’” 532 U.S. at 657 (quoting Montana, 450 U.S. at 566). The Court ruled that “unless the drain of the nonmember’s conduct upon tribal services and resources is so severe that it actually ‘imperil[s]’ the political integrity of the Indian tribe, there can be no assertion of civil authority beyond tribal lands.” 532 U.S. at n.12 (quoting Montana, 450 U.S. at 566).

33  Plains Commerce Bank, further limits the applicability of the second Montana exception to extreme circumstances:  The second exception authorizes the tribe to exercise civil jurisdiction when non-Indians’ “conduct” menaces the “political integrity, the economic security, or the health or welfare of the tribe.” Montana, 450 U.S, at 566, 101 S. Ct. 1245, 67 L. Ed. 2d 493. The conduct must do more than injure the tribe, it must “imperil the subsistence” of the tribal community. 128 S.Ct. at 2726

34 It’s a lot easier to beg forgiveness than ask the U.S. Supreme Court’s permission  While per se regulation may not be available, cultivating mutually-beneficial consensual relationships certainly is.

35 Sources of Authority for Tribal Consultation / Negotiation  Inherent Tribal Sovereignty  Presidential Memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments”  Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments” (Nov. 6, 2000)  Presidential Memorandum of November 5, 2009, “Memorandum for the Heads of Executive Departments and Agencies”  Executive Order 13604, “Improving Performance of Federal Permitting and Review of Infrastructure Projects ” (Mar. 22, 2012)

36 Another Authority: Executive Order “Improving Performance of Federal Permitting and Review of Infrastructure Projects ” (Mar. 22, 2012)  Establishes a federal agency steering committee to recommend permitting improvements  Requires compilation of a list of nationally- important infrastructure projects to be tracked on Federal Infrastructure Projects Dashboard  Directs development of inter-agency dispute resolution measures and performance reviews and plans for performance improvement  Mandates its implementation consistent with Executive Order of November 6, 2000 (Consultation and Coordination with Indian Tribal Governments) and President Obama’s memorandum of November 5, 2009 (Tribal Consultation)

37 If the Tribe is a business partner, how can a non-Indian protect its investment? What are the remedies in the event of a contract default? Can we get a security interest in tribal assets? If so, how do we perfect that interest? Creative options: set-off provisions, revenue obligations, asset-backed obligations, encumbrance of lease-hold interests, damages accounts How do we value our investment? Can we lock in a formula? Does the Tribe have a UCC? Does the Tribe have an eminent domain ordinance?

38 Thank you! Jennifer Weddle GREENBERG TRAURIG, LLP 1200 Seventeenth Street, Suite 2400 Denver, Colorado Telephone:


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