By Jeremy K. Robinson – published in the Daily Journal
Tribal sovereign immunity has confounded and frustrated many a lawyer and jurist. It has gotten so bad that in Michigan v. Bay Mills Indian Community, 134 S. Ct. 2024 (2014), four justices of the U.S. Supreme Court appeared ready to toss the doctrine altogether, or at least severely restrict it. Of course, that is easy for them to argue since their discussion does not carry the weight of law. But the dissent’s vigor exposes the undercurrent of dissatisfaction with the state of tribal immunity.
Federal law recognizes Native American tribes as “domestic dependent nations” that exercise inherent sovereign authority. Oklahoma Tax Comm’n v. Citizen Band Potawatomi Tribe of Okla., 498 U.S. 505, 509 (1991). The “dependent” qualifier means that tribes are subject to control by Congress but otherwise retain their historic sovereign authority. That authority carries with it an “immunity from suit traditionally enjoyed by sovereign powers.” Santa Clara Pueblo v. Martinez,436 U.S. 49, 58. (1978). Although as Justice Clarence Thomas points out in his Bay Mills dissent, sovereign immunity traditionally means the sovereign is immune from suit in its own courts, not those of other nations.
Here it means Native American tribes cannot be sued in state or federal court except as allowed by Congress or by a waiver of sovereign immunity. American Property Management Corp. v. Superior Court, 206 Cal. App. 4th 491, 499-500 (2012). Hurt at a tribal casino? Stiffed in a business deal with a tribe? State and federal courts are closed to you. This immunity extends even to off-reservation commercial activity — at least currently. Kiowa Tribe of Okla. v. Manufacturing Technologies Inc., 523 U.S. 751, 756 (1998). And although the Supreme Court was encouraged to reconsider that holding in Bay Mills, it declined to do so.
Despite philosophical divides among jurists, the basic tribal immunity analysis is still clear sailing compared to the tar pit created when business entities become entwined with tribal corporations at various levels. Colloquially known as the “arm of the tribe” analysis (named after the “arm of the state” doctrine under the 11th Amendment), disentangling those immunity issues can be near impossible.
A perfect example is the ongoing fight over online “pay day” loans; i.e., short term loans made at often usurious interest rates. In general, state regulations either severely restrict or prohibit altogether high-interest short-terms loans. California falls in the former category.
To avoid this, enterprising businesses — both tribal and not — have set up business models where a tribe shares in some part of the revenue generated by the pay day lenders. Generally, the actual lending organizations are tied to the tribes through a Byzantine series of shell corporations that eventually trace back to a tribal corporation or entity. The loans are made over the Internet, and the level of tribal involvement can vary widely. It has been reported—although not confirmed, since tribes typically are secretive about their financial dealings—that tribes generally receive little if any of the revenue from the lending operations.
The theory is that by using this “rent-a-tribe” arrangement, the lenders can cloak themselves in tribal immunity and avoid those meddlesome state consumer protections and remedies. And to date it has worked. Though not uniform, tribe-affiliated lenders have successfully fended off a fair number of regulatory enforcement suits and tort actions.
But the tide may be shifting. Two tribes that attempted to prevent the New York Department of Financial Services from cracking down on online pay day loans have abandoned their efforts after suffering defeat in the 2nd U.S. Circuit Court of Appeals. And, here in California, the attorney general has taken on tribe-affiliated lenders as well, although so far with less success.
In People v. Miami Nation Enterprises, S216878, the state sued five lenders for violations of several provisions of the Deferred Deposit Transaction Law. But the lenders succeeded in quashing service of summons for lack of jurisdiction, arguing they were entitled to the tribe’s immunity.
The case is now before the California Supreme Court and is fully briefed. At issue is the proper formulation of the “arm of the tribe” doctrine. State and federal courts have developed several different formulations for the test, so guidance from the Supreme Court should prove beneficial.
Until the court’s ruling, we must look to the somewhat mixed approaches used by the California appellate courts. See Trudgeon v. Fantasy Springs Casino, 71 Cal. App. 4th 632 (1999) (emphasizing three factors: (1) whether the business entity is organized for a purpose that is governmental in nature, rather than commercial; (2) whether the tribe and the business entity are closely linked in governing structure and other characteristics; and (3) whether federal policies intended to promote Native American tribal autonomy are furthered by the extension of immunity to the business entity); Redding Rancheria v. Superior Court, 88 Cal. App. 4th 384 (2001) (followingTrudgeon); American Property Management (dispositive factor was that the corporation was formed under California law, rather than tribal law); Miami Nation (tribes’ “method and purpose” in creating the entities were the “most significant”).
Courts outside California also have failed to arrive at uniformity. See, e.g., Ransom v. St. Regis Mohawk Education & Community Fund, 86 N.Y.2d 553, 558-60 (N.Y. 1995) (considering nine relevant factors); Runyon ex rel. B.R. v. Association of Village Council Presidents, 84 P.3d 437, 441 (Alaska 2004) (business cannot be an “arm of the tribe” if the tribe is not legally liable for the entity’s debts);Breakthrough Management Group Inc. v. Chukchansi Gold Casino and Resort, 629 F.3d 1173 (10th Cir. 2010) (rejecting Runyon approach and setting out six factors).
Even after our Supreme Court weighs in, expect to see tribal sovereign immunity to become an increasingly public concern. Savvy businesses will look to exploit the tribes for immunity and the tribes will continue to expand their business operations outside of tribal territories. While the outcome of that is impossible to predict, Justice Ruth Bader Ginsburg in her dissent in Bay Millssaid of both 11th Amendment immunity and tribal immunity for off-reservation activities: “Neither brand of immoderate, judicially confirmed immunity, I anticipate, will have staying power.”
Jeremy K. Robinson is a longtime attorney at the San Diego law offices of Casey Gerry Schenk Francavilla Blatt & Penfield LLP, and chair of the firm’s Motion and Appellate Practice.