JOINT DEVELOPMENT WITH INDIAN TRIBES: CONTRACT FUNDAMENTALS
| Jurisdiction | United States |
(Mar 2011)
JOINT DEVELOPMENT WITH INDIAN TRIBES: CONTRACT FUNDAMENTALS
Ater Wynne LLP
Portland, Oregon
DOUGLAS C. MACCOURT is a partner at Ater Wynne LLP in Portland who concentrates his practice on environmental and natural resources law, energy development, land use, and property transactions. For the past 20 years he has represented private and public sector clients to permit, construct and operate energy, industrial and economic development projects. Doug is chair of the firm's Indian Law Group, co-chair of the Sustainable Practices Advisory Group, and advises tribal governments and enterprises on environmental, energy, federal Indian law and property transactions. He is listed in Best Lawyers in America in the Native American and Natural Resources Law categories. He has also been listed in Chambers USA: America's Leading Lawyers for Business. Doug has extensive experience with state and federal cleanup and hazardous waste laws, natural resources restoration and damages, endangered species, water rights and water quality issues associated with contaminated properties and spills. He advises client/consultant teams in all phases of local, state, and federal cleanup, development and natural resources permitting. Doug represents clients before state legislative bodies and Congress on appropriations and project matters, and has successfully defended clients' rights on appeal before the Oregon Land Use Board of Appeals, Oregon Court of Appeals, U.S. District Court and U.S. Ninth Circuit Court of Appeals.
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[Why partner with Non-Tribal Business Entities?]
There are a number of reasons why a tribe might decide to partner with a non-tribal business entity for development of a project. In general, tribes are motivated to partner for three primary reasons: (1) to acquire project development expertise that the tribal project would otherwise lack; (2) to secure project financing; and (3) to get the benefit of federal incentives (e.g., tax credits). The following discussion illustrates some of the fundamental contracting issues faced by tribes and non-tribal parties in joint project development.
[Issues for the Tribe to Consider Before Negotiations]
Contracts for energy projects are not simple. Before engaging in negotiations, the tribe should evaluate the following issues:
? What is a realistic preconstruction development budget?
? What cash contributions will be expected from each party and when?
? What is the project timeline? What are the critical milestones?
? Which party is responsible for each development activity?
? How will development costs be allocated between the parties?
? How will profits and losses be shared? Will one party have priority on returns?
? Will the tribe be compensated for use of tribal lands? If so, will the tribe tax the joint venture entity?
? How will development of the project be managed and by whom?
? Will there be a requirement to employ a certain percentage of tribal members, to employ certain tribal members or to contract with certain tribally-owned businesses?
? Will the non-tribal partner take advantage of a tax credit? The agreement should allocate value of tax credit.
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? If the tribe will be a minority shareholder in the joint venture, it should consider negotiating terms to protect its minority interest in the project, including, for example:
o Rights to approve certain material matters, such as a sale of the project, admission of an additional joint venture partner, or dissolution of the joint venture;
o Rights to participate in issuances of additional equity interests in the joint venture;
o Caps on required capital contributions to the joint venture;
o Rights to participate in material decisions regarding the project;
o Rights for use of tribal members in project workforce; and
o Rights to approve public statements regarding the project.
? How will the parties resolve any disputes that arise from the joint development agreement? In particular, the parties need to reach agreement on:
o The nature and extent of the tribal partner's waiver of sovereign immunity, which is often essential. The tribe may be able to limit its waiver to specific assets and include protections for tribal officials;
o Arbitration v. litigation of disputes. Ideally, the agreement will require binding arbitration and give a competent court (one with clear jurisdiction over the dispute) authority to compel arbitration and enforce binding awards; and
o Tribal court v. state court. The tribe should try to include clear terms preserving tribal jurisdiction, such as a covenant not to contest tribal jurisdiction and requiring exhaustion of remedies in tribal court before going to a state or federal court.
? How will the parties handle dissolution of the joint venture if it becomes necessary?
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The above list is not intended to be exclusive; every project will have a unique set of issues and terms that drive the terms of the Joint Development Agreement or other project agreements.
[Choosing an Entity for Joint Project Development]
One of the first topics that should be considered is what type of entity the parties should form to undertake joint development of the project. Three of the most common types of entities that can be used for creating a joint venture between a tribe and a non-tribal business partner include: a corporation, a limited liability company, or a partnership. Regardless of which of these entities are used, both the tribe and the other party likely will have an equity interest in the joint venture entity. Thus, determining which type of entity to use will depend on which set of advantages and disadvantages best fit the particular project.
?
The most desirable feature of corporate status is that corporate owners enjoy complete protection from personal liability for the activities of the corporation. However, the tax consequences of forming a corporate joint venture may make it the least attractive of the three options for a tribe. This is because unless a corporation is a wholly owned Section 17 corporation or a wholly owned tribal corporation,1 it is subject to federal income tax. A non-tribal owner of a corporation may also be required to pay income taxes on any income it receives from the corporation in the form of dividends or distributions. Therefore, unless certain circumstances require the parties of the joint venture to operate as a corporation, the parties will generally be better served by forming either an LLC or a partnership. It should be noted, however, that even an LLC or partnership presents some tax issues when a tribe or other tax-exempt party
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participates in the ownership.2 A corporate joint venture can be formed under either state or tribal law and will be governed by a corporate charter.
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There are two types of partnerships that a tribe and non-tribal entity might consider for formation of a joint venture entity. The main difference is the extent of personal liability that each partner assumes for the activities of the partnership. In a general partnership, both the tribe and non-tribal entity assume full liability for the activities of the joint venture partnership. In a limited partnership there are both "general partners" and "limited partners." At least one "general partner" must assume full liability for the activities of the joint venture, while the "limited partners" enjoy limited liability (limited to the amount of their contributions to or equity in the...
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