A recent ruling in United States District Court has upheld Congressional legislation aimed at encouraging companies to enter into business relationships with Indian tribes by freeing contracts from cumbersome and potentially costly review by the Bureau of Indian Affairs (BIA).
On September 6, 2007, in GasPlus v. Bureau of Indian Affairs, the first case to consider which contracts require BIA approval under 25 U.S.C. § 81 (2000), the United States District Court for the District of Columbia granted Summary Judgment in favor of GasPlus. The Court held that GasPlus' contract with the Nambe Pueblo, an Indian tribe, to manage a gas distribution business on tribal lands did not require approval from the BIA; and consequently, the BIA did not have the power to invalidate the contract. The Court then affirmed which contracts do require BIA approval under Section 81.
Background of the GasPlus Case
In January 2001, GasPlus and the Nambe Pueblo signed a Management Agreement whereby GasPlus would "manage, supervise, and operate [Nambe Pueblo's] gasoline distribution business" in exchange for 30% of the business' net income. The Agreement had a five-year term, with two five-year renewals, but the Nambe Pueblo had a change of heart roughly one year into the relationship. Even though the Agreement had been signed by Nambe Pueblo's Governor and four members of its tribal council, a newly elected Governor disliked the Agreement, and asked the BIA to review it pursuant to 25 U.S.C. § 81. The BIA declared the Agreement invalid for failure to obtain its approval, and GasPlus was ordered to vacate the property, turn over all of its books and records, and disgorge all proceeds it had received under the Agreement. On appeal by GasPlus, BIA upheld most of its decision, though it did issue a final determination that it had no authority to order companies to disgorge all their income under unapproved contracts. Unhappy with this minor concession, GasPlus pressed its case in U.S. District Court, arguing that the Management Agreement did not require BIA approval under Section 81.
Section 81: A Source of Confusion for Businesses Contracting with Indian Tribes
Historically, Section 81 has been a source of confusion for businesses interested in contracting with Indian tribes, with heavy penalties for error. It is a catch-all provision that requires the BIA, in its capacity as trustee of Indian lands, to approve certain contracts. Years of broad case law allowed BIA to have authority, pursuant to Section 81, over any contracts wherein businesses derived a special benefit from contracting on Indian land, or where the BIA determined that the contract was somehow "tied to the land." A contract requiring approval under Section 81 was void if approval was not obtained, and contractors could be required to give back all money paid to them (not just profits).
In 2000, Congress amended Section 81 to clarify and reduce its scope and penalties, in an attempt to encourage companies to enter into business relationships with tribes. As revised, Section 81 now only applies to contracts
- with an Indian Tribe,
- that encumber Indian land, and
- that last at least seven years.
Contracts that do not meet all three requirements do not need BIA approval, and, consequently, the BIA cannot invalidate them. While the amendments were intended to reign in the old Section 81, GasPlus is the first case to interpret the new statute and definitively say as much.
Court Ruling Supports an Improved Business Climate on Indian Lands
In its decision to invalidate the Management Agreement, the BIA acted as if Section 81 had never been amended, claiming that because GasPlus operated a business on Indian land and was deriving a special benefit from the business, it was "encumbering" the land; and, therefore, the BIA needed to approve the Agreement. The District Court dismissed what it called BIA's "paternalistic" approach, noting that Congress intended the new Section 81 to apply only to transactions that actually affect rights to Indian land. The Court further noted that "Section 81 is not an escape hatch for Indian tribes who enter into unfavorable business arrangements; it is a safeguard that protects Indian lands from being alienated or encumbered by legal claims that could interfere with Indian tribes' ability to use the land to their benefit."
The Court then explained that, under the Management Agreement, the tribe could do whatever it wanted to the land on which GasPlus was operating, and there was nothing GasPlus could do to stop them because GasPlus had no rights in the land. Any effect the Agreement had on tribal lands was incidental to its managerial purpose. Finally, the Court said that the fact that GasPlus was benefiting from operating a business on Indian Land was irrelevant under the new Section 81. Instead, the Court clarified the new Section 81 test: "to come within the ambit of Section 81, a [business'] right to use tribal land must be in the nature of a legal interest that interferes with a tribe's proprietary control over the land." Because GasPlus had no control over the land on which it operated, the Agreement did not fall within Section 81, and therefore, did not require BIA approval.
In sum, after GasPlus, the reach of Section 81 has been significantly narrowed. While approval may be required under other statutes, contracts that do not interfere with a tribe's proprietary control over its land do not require Section 81 approval. It should be noted, however, that because the 2000 amendments are not expressly retroactive, agreements entered into before 2000 may still require BIA approval if they are merely tied to Indian land.
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