CHAPTER 14 FINANCING AND SECURING INDIAN ECONOMIC DEVELOPMENT PROJECTS
| Jurisdiction | United States |
(May 1999)
FINANCING AND SECURING INDIAN ECONOMIC DEVELOPMENT PROJECTS
Dorsey & Whitney LLP
Minneapolis, Minnesota
INTRODUCTION
The increase in economic development in Indian country 1 has given rise to a concomitant increase in the need for capital financing, on the part of both the tribes
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themselves and private businesses operating in Indian country.2 Financing takes place in a legal environment establishing the rights and obligations of parties to a contract, the ability of a party to obtain and perfect a lien on collateral to secure an obligation, and methods to enforce contractual obligations and foreclose upon collateral. Outside of Indian country, that legal environment is established primarily by a body of state civil law. However, state civil laws generally do not apply within Indian country absent the consent of Congress.3 Therefore, in order for financing to proceed in Indian country, there must be a separate body of law creating the requisite legal environment. That body of law will usually consist of a combination of federal law, tribal law and state law (the latter applying by its own force in some cases, and applying by virtue of its adoption as tribal law in others).
The nature of the law applicable to financing transactions in Indian country, its adequacy and completeness, and some specifics as to its application are the subjects of Part I of this paper. Part II speaks to the issue of federal approval of contracts. Part III addresses some specific matters relating to the perfection of liens on collateral. The enforcement of obligations, in particular the issue of court jurisdiction, is the subject of Part IV. Finally, Part V discusses the state of financing in Indian country as of early 1999 and some issues currently facing borrowers and lenders.
I. LAW APPLICABLE TO INDIAN COUNTRY FINANCING
A. Governing Federal Law.
The federal government has laid down a few overriding rules concerning financing, and the taking of security for financing, in Indian country. Those most relevant to the present discussion are:
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1. No lien on underlying fee. Fee title to tribal or individual Indian trust land is held by the United States of America; the tribe or individual Indian has beneficial title. Therefore, it is not possible for a tribe, or an individual beneficial owner, to grant a lien on the underlying fee to trust land. That can only be done by the United States.4
2. Contracts "relative to" land require federal approval. Any contract with a tribe or individual Indian "in consideration of services ... relative to their lands" must have the written approval of the Secretary of the Interior and the Commissioner of Indian Affairs5 in order to be valid.6 Failure to obtain this approval renders the contract void and any money paid by the tribe or individual Indian under the contract may be recovered upon suit in federal court in the name of the United States.7
3. A lease of trust lands or an Indian Mineral Development Act agreement requires the consent of the United States; compliance with NEPA is required. A tribe or individual Indian may lease (as lessor) its trust lands, but any such lease must be approved by the Secretary of the Interior.8 The statute sets
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term limits and limitations on renewals of such leases. Generally, the limitation for business leases is 25 years with one renewal term of up to an additional 25 years; for lands of certain tribes named in the statute the term limitation is as long as 99 years.
Under the Indian Mineral Development Act ("IMDA"),9 a tribe may, with the approval of the Secretary, enter into a minerals agreement for the exploration for, extraction, processing or other development of mineral resources in which the tribe owns a beneficial or restricted interest.10 An individual Indian owning a beneficial or restricted interest in mineral resources may include such resources in a tribal minerals agreement upon the agreement of the parties.11
The leasing statute requires that the Secretary "satisfy himself that adequate consideration has been given to ... the effect on the environment of the uses to which the leased lands will be subject."12 Language similar in nature appears in the IMDA.13 The federal approval of a lease has been held14 to be a "major federal action" with the potential to "significantly affect[] the quality of the human environment" so as to require compliance with the National Environmental Policy Act ("NEPA").15 The IMDA contemplates that NEPA applies to
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approvals of minerals agreements.16 NEPA review will trigger, at a minium, an Environmental Assessment ("EA"), followed by either a Finding of No Significant Impact ("FONSI") or an Environmental Impact Statement ("EIS"). In connection with controversial projects, opponents have used challenges based on the alleged failure of the Bureau of Indian Affairs to comply with NEPA as a means of attacking the approval of leases of trust lands, thereby slowing, or blocking, the projects in question.
4. Leasehold Mortgage. A lease of trust lands may, with the consent of the Secretary, provide the lessee the right to grant a mortgage on the leasehold estate created under the lease.17
5. Rights-of-way. Rights-of-way and easements across Indian trust lands are granted directly by the Secretary.18 The applicable regulations require the consent of the tribe for the grant of a right-of-way over tribal trust lands and similarly, in most cases, for the grant of a right-of-way over individual Indian trust lands.19
6. Sovereign Immunity. Indian tribes enjoy sovereign immunity from suit. That means that they cannot be sued — in federal court, state court or tribal court — unless they voluntarily waive that immunity or their immunity is waived by Congress.20 In financing transactions, a lender to a tribe will almost always
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require, as a condition of entering into the transaction, that the tribe waive its immunity so as to permit the lender to bring suit if necessary in order to enforce the tribe's contractual obligations.21
Waivers of sovereign immunity are generally "limited," in the sense that they usually speak to the courts in which the tribe can be sued, who can bring the suit and the assets or revenues of the tribe that can be subjected to judgment (thus establishing a form of limited recourse as to the tribe's obligations). The terms of these waivers are usually the subject of specific negotiation in each individual transaction.
A tribal business corporation incorporated under tribal law is a separate legal entity which may have broader power to sue and be sued. If the corporation is owned entirely by the tribe, the tribe's sovereign immunity may or may not extend to that entity.22 An examination of the organizational law and instruments of the entity would be necessary in order to determine the extent of the entity's immunity and its power to sue and be sued. If the entity does enjoy sovereign immunity, the organizational instruments will generally speak to whether that immunity can be waived and the method for doing so.23
B. State Law.
As noted above, state civil law generally does not, absent the consent of Congress, apply to transactions within Indian country. Most laws of interest to lenders, including laws governing the formation and enforcement of contracts; the creation, perfection and enforcement of liens on property (such as the Uniform Commercial Code); and the exercise of remedies upon contract default; are state civil laws. Leasing, rights-of-way,
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the granting of interests in trust lands, zoning and land use,24 environmental regulation and similar matters are also civil matters and, in Indian country, not subject to the law of the state.25
Although, as discussed in Part IV.B, below, some state courts may exercise civil jurisdiction over suits with respect to those areas of Indian country made subject to Public Law 280, 26 that statute expressly provides that it does not confer jurisdiction upon state courts "to adjudicate, in probate proceedings or otherwise, the ownership or right to possession of [trust] property or any interest therein."27
C. Tribal Law.
Subject to any applicable requirements of federal law, the primary source of law governing commercial transactions in Indian country is the law of the tribe. By itself, this should not be an impediment to financing activity. The fact that the law governing an activity is tribal as opposed to state, and that it may differ from the law of the surrounding state, should be no more of a hindrance to lenders than the fact that the law of Minnesota differs from that of it neighboring state, Wisconsin. The importance to lenders is that there be law on matters of relevance and that that law be known.28
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However, while a tribe has the legal ability to create and enforce a comprehensive body of commercial law equivalent to that of a state, the tribes face at least three significant, practical hurdles in doing so.
1. Evolution of the Law. Law is created in response to a need. State commercial law has evolved over decades—in some cases, centuries—as the needs of the business community and the citizens of the states have themselves evolved. The present body of statutory commercial law in any state likely has historical precedents that go back to the initial legislative session following the organization of the state. Laws were enacted and repealed, modified and expanded, in response to the growth and development of commercial activity. Thus, the present body of a state's commercial law is only the present state of a continually growing, evolving process.
Indian tribes do not, for the most part, have the advantage of this evolutionary process. The historically low level of economic activity in much of Indian country—at least...
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