Tribal Immunity Case Analysis

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The court went to great lengths to emphasize the limited nature of its holding. Only if the named defendant was an existing, for-profit corporation, and a tribe buys its shares, is the corporation not entitled to sovereign immunity.

If the corporation is not for profit, or if the tribe created a for-profit corporation in the first instance, the decision in the case at bar is not dispositive of the issue.

In such a case, parties must instead look first to the nine non-exclusive factors distilled from other jurisdictions.

However, when such a case arises, and parties actually look to those factors for guidance, they will likely find that many are of dubious significance.

The first factor — whether the corporation is organized under the tribe’s laws or constitution — for instance, will almost always weigh against immunity. All the cases from other jurisdictions involved corporations organized under a state’s corporate law, and yet the courts consistently held the corporation immune anyway.

However, in Gayle v. Little Six, Inc., 555 N.W.2d 284, 295 (Minn.1996), in fact, the court actually held this factor weighs in favor of immunity, even though the corporation was organized under Minnesota corporate law, simply because the corporation was wholly owned by the tribe.

Unless tribes develop their own separate bodies of corporate law, this should be a meaningless factor, as it should always weigh against immunity.

The second, fifth, eighth, and ninth factors could be deemed essentially identical — (2) whether the corporation’s purposes are similar to or serve those of the tribal government; (5) whether the corporate entity generates its own revenue; (8) whether the corporation was established to enhance the health, education, or welfare of tribe members, a function traditionally shouldered by tribal governments; and (9) whether the corporation is analogous to a tribal governmental agency or instead more like a commercial enterprise instituted for the purpose of generating profits for its private owners.

Factors two, five, and eight could easily be deemed just poorly worded versions of factor nine.

Factor three — whether the corporation’s governing body is comprised mainly or solely of tribal officials — will generally weigh in favor of immunity. If the corporation is wholly owned by the tribe, the board of directors will be ultimately controlled by the tribal government, whether the individuals on the board are members are not.

This will also be the case, whether the purpose of the corporation is to generate profit or provide social services.

Factor four — whether the tribe’s governing body has the power to dismiss corporate officers — is wholly meaningless. If the tribal government controls the board, which it invariably will as the sole shareholder, it will also have the ultimate power to dismiss corporate officers, too.

Thus, factor four will always weigh in favor of sovereignty, not for any reason unique to the corporation at issue, but merely because of the nature of the corporate form.

Factor six — whether a suit against the corporation will affect the tribe’s fiscal resources misunderstands both the concept of tribal immunity and corporate law.

Even if the corporation lacks tribal immunity, the tribe is immune from suit. Generally, the corporate shield may be pierced, if the corporation is merely the alter ego of the shareholder. Wiebke v. Richardson & Sons, Inc., 83 Wis.2d 359, 265 N.W.2d 571 (1978). However, where the sole shareholder is an Indian tribe, tribal immunity would not permit that to occur.

Furthermore, even if the corporation is immune from suit in state court, it can still be sued in tribal court. Factor six seems to assume that tribal courts are merely kangaroo courts that will invariably rule in favor of the tribe and against the outsider, the merits notwithstanding. Principles of comity and respect for other jurisdiction’s legal systems require that this assumption be deemed unfounded, and cases not decided on the basis of such an assumption.

Finally, factor seven — whether the corporation has the power to bind or obligate the funds of the tribe — is irrelevant. No corporation has the power to obligate the funds of the shareholder(s). This is even truer in the tribal context, as the court acknowledged: "The Ho-Chunk’s own tribal immunity from the type of lawsuit brought by McNally is beyond dispute."

As noted, a corporation can be liable for the obligations of the shareholder, pursuant to Wiebke, but unless the shareholder agrees to be liable for the corporate debts, the corporation cannot bind the tribe to anything.

Effectively, therefore, the nine-factor list should be a one-factor list, limited to number nine — whether the corporation is analogous to a tribal governmental agency or instead more like a commercial enterprise instituted for the purpose of generating profits for its private owners.

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The court reached the correct result in the case at bar, but crea
ted the potential for arbitrary results by adoption of eight superfluous factors.

Unfortunately, those other eight factors can be manipulated to produce perverse results, as demonstrated by the Gayle case.

Not only did the court distort factor one in finding that a for-profit corporation — a casino in that case — organized under Minnesota law was "organized under the tribe’s laws or constitutions," it also held, "[the corporation] was created for the specific purpose of ‘improv[ing] the business, financial or general welfare of the Corporation, the Members of the Corporation, and the Community.’" Gayle, 555 N.W.2d at 294.

Regardless of the fact that casinos may create more revenue than traditional commercial enterprise, this could be said of any corporation owned by the tribe, including the one in the case at bar. The nine-factor test is meaningless if tribes can create immunity for its for-profit corporations merely by inclusion of such language in the articles of incorporation.

– David Ziemer

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David Ziemer can be reached by email.