CHAPTER 15 COOPERATIVE DEVELOPMENT WITH INDIAN TRIBES: FINANCE AND LENDING IN INDIAN COUNTRY
| Jurisdiction | United States |
(Nov 2014)
COOPERATIVE DEVELOPMENT WITH INDIAN TRIBES: FINANCE AND LENDING IN INDIAN COUNTRY
Appleby Law PLLC
Alexandria, Virginia
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NANCY J. APPLEBY is the founder and Managing Member of Appleby Law PLLC, a firm specializing in federal Indian law, commercial real estate, and financing. Ms. Appleby's practice focuses on Indian law, real estate, and finance. Ms. Appleby's extensive experience in Indian law includes representation of lenders, real estate and energy developers, governmental subdivisions, contractors, leasing companies, and other business clients. Her primary areas of practice involving federal Indian law include tribal real estate and mortgage law; construction and permanent lending for commercial projects; title insurance; the Indian Financing Act Guaranteed Loan Program; commercial and retail leasing; project development and financing; traditional and alternative energy development; ground leasing; easements; land use covenants; conditions and restrictions; negotiating contracts; litigation and dispute resolution; and regulatory and agency matters. Ms. Appleby also serves as a subject matter expert in litigation. Ms. Appleby is a Fellow and member of the Board of Regents of the American College of Mortgage Attorneys, the American Bar Association's representative on the Uniform Law Committee's Drafting Committee on a Model Tribal Probate Code, an American Bar Association Fellow, and a member of the American Land Titles Association Native American Lands Committee. Ms. Appleby has achieved the highest Martindale-Hubbell rating and is highly ranked by Chambers USA and Best Lawyers.
Traditional financing secured by assets can be complex in Indian country. Among other things, obtaining a valid security interest, lien or mortgage over protected trust assets has been complicated by rules prohibiting the sale and governing the encumbrance of lands held in trust for tribes or individual Native Americans absent federal approval and by a lack of legal infrastructure.
As the U.S. and tribal economies have improved, and the Nation's energy demands have changed, opportunities for lenders and developers to work with tribes to address critical infrastructure, housing, energy and commercial projects, and other needs on Indian lands have increased. Recent changes clarifying and easing restrictions are opening the door to greater outside investment in Indian country, particularly in natural resources development on Indian lands.
A Short Explanation of "Indian Country"
"Indian country" includes all land under the supervision of the United States government that is set aside permanently for the use of Indians, including Indian reservations, lands held in trust for tribes, and Indian allotments.2 Historically, these areas have been among the least economically developed in the United States.
A "reservation" is an area designated as such by a treaty, statute or Presidential proclamation. Historically, a reservation has been comprised of land that a tribe reserved for itself when it relinquished other land areas to the United States, though additional land purchased by a tribe and taken into trust by the United States government on a tribe's behalf can be added to its reservation. That said, many tribal lands, including land held in trust by the United States, do not have "reservation" status. However, under federal law, the distinction between reservation and trust land is immaterial for the purposes of determining whether land is "Indian country."
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Doing Business in Indian Country: Unique Issues
Developing or financing a project or business with a tribe or tribal entity, or on tribal land, is not a conventional transaction with conventional terms, financing and collateral. For one, "Indian country" is neither monolithic nor homogenous. There are 566 federally recognized tribes,3 each of which is a dependent sovereign nation and its own unique culture, language, laws and traditions.4 There are approximately 275 Indian reservations in the United States, ranging in size from the 16 million acre Navajo Reservation in New Mexico, Utah and Arizona, to fewer than 100 acres.5
For another, for a project in Indian country, the legal and regulatory landscape, which consists of an overlay of federal and tribal laws, is complicated. Commercial projects in Indian country are not governed by a single body of law. Instead, projects on Indian land subject to tribal law and to a number of federal laws and regulations that do not necessarily apply on private lands. State law also may apply to transactions, either where federal law so permits6 or in Public Law 280 states.7 For instance, because Indian lands are subject to federal supervision, absent a specific exception,8 all energy projects in Indian Country must go through environmental impacts review pursuant to the National Environmental Policy Act9 ("NEPA") as well as cultural resource review under the National Historic Preservation Act.10 Most projects on private lands, unless they have some other form of federal involvement, are not subject to these requirements.
Further, the number of agencies and regulations involved in Indian energy development can result in confusion, overlap, and a lack of coordination between agencies. The Department of the Interior, Bureau of Indian Affairs (BIA) has the primary authority over the management of Indian trust assets, but other agencies are involved in related issues such as revenue flows and oversight of resource extraction.11 As a result, on Indian lands, companies must go through at least four federal agencies and as many as 49 steps to acquire a permit for energy development, compared to as few as four steps for off reservation projects.12
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Additionally, a number of federal laws regulate the ability of tribes to sell, lease, or grant easements on or permits for the use of tribal lands held in trust by the federal government. Generally speaking, such encumbrances require approval by the Secretary of the Department of the Interior (DOI), acting through the Assistant Secretary for Indian Affairs (AS-IA) or his/her authorized delegee, and include certain restrictions. Federal law also regulates the ability of individual Indians to sell, lease, or grant easements on individually-owned trust (or "allotted") land, similarly requiring BIA approval.
Projects on allotted land also can be impacted negatively by fractionated ownership. As individually-held trust lands are passed in equal shares to multiple generations of heirs, hundreds or even thousands of individuals can hold a fraction of an interest in the land, and nearly all of these owners must agree on development decisions.13 Such fractionation, and the need to appease so many different owners, increases the difficulty and cost of siting a project or developing resources on allotted Indian lands.14 Often, the lands lie idle and cannot be used for any beneficial purpose.15 On the other hand, non-trust, unrestricted land owned by individual Indians is more likely to be freely leasable or mortgageable.
In addition to federal processes and approvals that are likely to be required, tribal options for collateral may be lacking, tribal law governing the granting and perfection of security interests or for enforcement of contract remedies may be unfamiliar or non-existent. As a result, financing may be considerably more expensive than transactions with other types of domestic governments or with commercial entities.
The existence of obstacles to doing business in Indian country has been acknowledged by financial professionals, academicians, tribal leaders and the federal government for decades. While steps have been taken to ease, or eliminate certain of the obstacles, recent changes clarifying and easing federal processes and restrictions are streamlining and making doing business in Indian country easier to understand and, hence opening the door to greater outside investment in Indian country, particularly in natural resources development.
Developments Regarding the Alienability of Indian Lands
I. The Non-Intercourse Act16
In the early nineteenth century, the Supreme Court decided that the United States holds a fee interest in all Indian territory within its boundaries.17 The Court also held that Indians had
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aboriginal title, or a right of occupancy good against all but the federal government.18 These opinions created a principle of Indian property law that tribes possessing aboriginal title have a legal right to use and occupy their land, but not to transfer it without federal approval. The evolution of this principle was driven, in part, by a paternalistic federal view that tribes needed to be protected from "improvidently disposing of their lands and becoming homeless public charges."19 This principle ultimately became law in the form of the Non-Intercourse Act.
The most notable provision of the Non-Intercourse Act regulates the inalienability of aboriginal title in the United States: "No purchase, grant, lease or other conveyance of land, or of any title or claim thereto, from any Indian nation or tribe of Indians, shall be of any validity in law or in equity, unless the same be made by treaty or convention entered into pursuant to the Constitution."20
The practical effect of the Non-Intercourse Act is to prevent all transfers of tribal trust land without prior federal approval. Stated differently, absent Congressional approval, tribes cannot sell or mortgage their land as collateral for financing projects. Complicating matters further, even when there is Congressional authority, actually obtaining federal approval is heavily constrained by law and regulations of the federal agencies overseeing tribal land.21
a. Jurisprudential History
Tribes have instituted a number of lawsuits to regain lands allegedly alienated from...
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