Sovereign immunity extent is tested

Carol Berry, Today correspondent
1/7/11

LONGMONT, Colo. – A California tribe has gained the upper hand in a sovereignty conflict with a consulting business based in northern Colorado.

Breakthrough Management Group Inc. charged that an enterprise of the Picayune Rancheria of the Chukchansi Indians bought a single-user online training program but used portions of it to train other employees. BMG alleged copyright and trademark infringement, breach of contract, violation of the Racketeer Influenced and Corrupt Organizations Act, among other infractions.

The 10th U.S. Circuit Court of Appeals Dec. 27 reversed a lower court and said the Chukchansi Gold Resort & Casino in the Sierra Nevada foothills and the Chukchansi Economic Development Authority, which owns and operates the casino, are included under the sovereign immunity shield of the tribe. The authority was created under tribal law and constitution, the court found.

A Colorado district court had granted the tribe’s motion to dismiss the charges in 2007 on the basis of its sovereign immunity, but later said the authority and casino were non-Indian entities that did not share tribal immunity “because any judgment imposed against them would not imperil the tribe’s monetary assets” and the current appeal ensued.

The federal appeals court said the financial impact on a tribe of a judgment against its economic entities is the incorrect legal standard to apply, advocating instead an analysis of the business’ creation, their purpose, structure and control, financial relationship, and a tribe’s intentions concerning the entities’ sharing its immunity, among other factors.

The three-judge panel of the 10th Circuit was asked in the appeal “to explore the relationship between an Indian tribe and the economic entities created by the tribe, and to determine how close the relationship must be in order for those entities to share in the tribe’s sovereign immunity,” they said of an issue that has arisen in other courts and circuits.

The analysis involves tribal sovereignty, tribal sovereign immunity and tribal economic development, the justices said, and it was also guided by “the policies underlying tribal sovereign immunity and its connection to tribal economic development, and whether those policies are served by granting immunity to the economic entities.”

The general interpretation of tribal sovereign immunity stems from Congress’ desire to promote the “goal of Indian self-government, including its ‘overriding goal’ of encouraging tribal self-sufficiency and economic development,’” the court said.

“One of the ways that Congress has promoted tribal sovereignty through economic development is particularly relevant to this case – the authorization of Indian gaming,” the court noted.

The casino operation “clearly benefits the tribe,” because 50 percent of its revenue goes to such governmental functions as education, health care, the tribal legal system, and related programs; 15 percent is allocated for tribal economic development and diversification; 10 percent goes to a tribal trust fund, and 25 percent is distributed per capita to tribal members.

The tribe “clearly expressed its belief that (the authority) was a division of the tribe that was entitled to its immunity from suit,” the court said.

Because the casino and authority were found to be subordinate economic entities to the tribe, the appeals court found they and an employee are protected by tribal sovereign immunity and the lower court’s denial of a motion to dismiss was reversed.

The court dismissed BMG’s cross-appeal contending that the casino, the authority and an employee had waived any immunity they might otherwise have had by entering into BMG’s licensing agreements. It asked the lower court to address the question of waiver of immunity through licensing agreements with BMG.

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