As the United States economy continues to move toward an economic slowdown, many lenders, investors and developers are seeking means of diversifying their portfolios. For some, economic development opportunities in Indian country are increasingly seen as an attractive investment option. Indian tribes are highly committed to creating jobs on reservations and to creating a sound economic base for their people.
Despite this enthusiasm for developing projects on Indian lands, investors should tread carefully. Indian tribal laws and federal laws related to Indian tribes are complex and highly interconnected. For example, if the project is related to a gaming facility, gambling laws must be taken into account. Also for energy projects, new rules respecting energy project development may need to be considered.
The legal and regulatory situation is further complicated by the unique customs and tribal structures that require a sincere, dedicated effort at cultural understanding on the part of investors. The building of trust between Indian tribal leadership and outside investors or developers does not generally occur overnight.
To be sure, these and other challenges are not insurmountable. However, they must be understood in order to increase the likelihood of successful business transactions in Indian country.
A Short Economic History of "Indian Country"
"Indian country" includes all land under the supervision of the United States government and set aside permanently for the use of Indians, including Indian reservations and lands held in trust for tribes. Historically, these areas have been among the least economically developed in the U.S.
In 1988, the enactment of the Indian Gaming Regulatory Act (IGRA) changed this picture dramatically. IGRA acted as a kickstart to tribal economies throughout the nation; over the past two decades, many tribes have seen their income from gaming and casinos grow at a rapid pace. Likewise, improving tribal economies have increased opportunities for lenders and developers to work with tribes in addressing critical infrastructure, housing, commercial projects and other needs on Indian lands.
These opportunities also bring with them significant challenges. For one, "Indian country" is neither monolithic nor homogenous. There are approximately 570 federally recognized tribes, each of which has limited sovereign status and its own unique culture, language, laws and traditions. There are approximately 275 Indian reservations in the United States, ranging in size from the 16 million acre Navajo Reservation in New Mexico, Arizona and Utah, to less than 100 acres.
Doing Business In Indian Country: Unique Issues
Lenders, investors and developers should be aware of several unique issues involved in doing business in Indian Country. These include:
Federal Trust Responsibility
As early as 1831, in Cherokee Nation v. Georgia (30 U.S. (5 Pet.) 1, 17 (1831)), the U.S. Supreme Court recognized the federal government’s trust responsibility to Indian tribes and pueblos. Since then, the role of the federal government has been further refined to include, among other fiduciary duties, the responsibility to manage trust assets on behalf of tribes, including oversight of certain contracts and transactions. With this special relationship between tribes and the federal government in mind, failure to work with both parties can have serious consequences for any business transaction.
Tribes Are Dependent Sovereign Nations
Sovereignty provides Indian tribes with the inherent right to govern their affairs. With certain restrictions (e.g., tribes may not deal with foreign powers or convey land to anyone other than the U.S. government), tribes have the power to enter into contracts and to regulate non-members, they enjoy immunity from suit and they have the right to waive immunity from suit. Lenders and investors should fully understand tribal rights that have been maintained or waived in relation to a specific transaction or contract.
Apparent Authority vs. Actual Authority
Tribes may choose from a number of options and related tribal entities when contracting with outside partners. These include tribal governments or governmental instrumentalities; corporations chartered by the federal government; and tribally chartered corporations or tribal enterprises. Each of these entities provides for differing types of authority, rights, immunity and responsibility in contracting with outside parties.
Alienation and Federal Approval of Encumbrances
A number of federal laws regulate the ability of tribes to sell, lease, or grant easements on or permits for use of tribal lands held in trust by the federal government. Generally speaking, such encumbrances require approval by the Bureau of Indian Affairs and include certain restrictions (e.g., leases may be limited to a term of 25 years with one renewal option). On the other hand, non-trust, unrestricted lands owned by individual Indians is more likely to be freely leased or mortgaged. Before entering into a contract or transaction, lenders, investors and developers must ascertain ownership and status of the land, and be prepared to seek appropriate tribal and federal-government approval of the agreement.
Governing Law
There is no body of federal law that governs commercial transactions generally. Likewise, state law does not generally apply to tribal Indians on reservations except where Congress has expressly so provided. With this in mind, before entering into a business transaction, investors should ensure that tribal legislation is in force adequate to protect the investor’s rights as a matter of tribal law.
Jurisdiction to Adjudicate Disputes
A common misperception is that the federal courts have jurisdiction to adjudicate commercial disputes involving tribes or tribal entities. While this may be true in certain circumstances (e.g., the case presents a federal question, is based on the diversity of state citizenship, or is a dispute arising under IGRA), parties to a contract cannot, by agreement, confer subject matter jurisdiction. Likewise, state courts generally do not have jurisdiction over disputes arising with respect to suits brought by non-Indians against Indians. Investors are well advised to ensure a full understanding of the jurisdictional issues associated with potential disputes and their resolution.
Available Remedies
Although tribes may have jurisdiction over many disputes, tribal law does not always provide for specific, potential conflicts, nor does it always delineate specific remedies to these and other issues. Investors should consult tribal law before entering into a contract or agreement, and, if necessary, insist that new ordinances or resolutions be drafted or enacted in order to ensure that desired remedies and dispute-resolution proceedings are in place.
As with any investment, parties dealing with Indian tribes should be fully aware of the risks and opportunities that accompany such ventures. Lenders, investors and developers should seek legal counsel experienced in tribal, federal and state law as it relates to business contracts and transactions in Indian country.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
