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U.S. Supreme
Court Makes a Creditor-Friendly Decision
By Nancy
J. Appleby, Esq.
Rodey, Dickason, Sloan, Akin
& Robb, P.A.
njappleb@rodey.com
On April 30, 2001, the United
States Supreme Court published its decision in C&L
Enterprises Inc. v. Citizen Band of Potawatomi Indian
Band of Oklahoma, No. 00-292 (U.S. Supreme Ct. April
30, 2001). This decision signals the Court’s first retreat
in many years from what otherwise has been an expansion
of the doctrine of sovereign immunity. It is a decision
that will be welcomed by lenders and other creditors
of tribes and tribal enterprises.
In the Potawatomi case,
the tribe proposed and entered into with C&L Enterprises
a standard form construction contract for the installation
of a roof on a tribally-owned commercial building. The
building is in Oklahoma – off reservation and not on
land held by the federal government for the Potawatomi
tribe.
The construction contract contained
two key provisions.
First, it provided that all disputes
arising out of the contract would be decided by arbitration
in accordance with the Construction Industry Arbitration
Rules of the American Arbitration Association. Under
this provision the award rendered by the arbitrator
would be final, and judgement could be entered upon
it in accordance with applicable law of any court having
jurisdiction thereof.1
Second, the contract provided
that it was governed by Oklahoma law. Oklahoma has adopted
a Uniform Arbitration Act, which conferred jurisdiction
on the Oklahoma state court to enforce an arbitration
agreement and to enter a judgment on an arbitration
award.
After executing the contract,
but before C&L began performance, the tribe decided
to change the roofing material specified on the contract.
The tribe solicited new bids and retained another company
to install the roof. C&L complained that the tribe
had dishonored the contract, and it submitted an arbitration
demand. The tribe asserted sovereign immunity and declined
to participate in the arbitration proceeding. It notified
the arbitrator, however, that it had several substantive
defenses to C&L’s claims. The arbitrator received
evidence and rendered an award in favor of C&L.
The contractor filed suit to enforce the award in the
District Court of Oklahoma County. The tribe appeared
in court for the limited purpose of moving to dismiss
the action on the grounds that, as a sovereign, it is
immune from suit. The District Court denied the motion
and entered a judgment confirming the award. The Oklahoma
Court of Civil Appeals confirmed. However, on remand
for reconsideration, the Oklahoma Court of Civil Appeals
held that the Potawatomi tribe was immune from suit
on its contract with C&L. The Court of Civil Appeals
noted that the arbitration agreement and the contract
language as to judicial enforcement seemed to indicate
the tribe’s willingness to subject itself to suit on
the contract, but the Court of Civil Appeals concluded
that the tribe had not waived its sovereign immunity
with the requisite clarity. The Court of Civil Appeals
therefore instructed the trial court to dismiss the
case.
The U.S. Supreme Court reversed
the Oklahoma Court of Civil Appeals, holding that, by
the clear import of the arbitration clause, the tribe
is amenable to a state court suit to enforce an arbitral
award in favor of C&L. The question before the Supreme
Court was whether the tribe had waived its sovereign
immunity. In deciding the Potawatomi case, the
Supreme Court acknowledged that current law supports
the proposition that to relinquish its immunity, a tribe’s
waiver must be clear. However, in this case, the court
did not require that the waiver be expressly stated.
Instead, the court found that the arbitration provision
in the construction contract and related provisions
lead to the conclusion that the tribe waived with the
requisite clarity its sovereign immunity.
The court’s analysis focuses
on the language of the arbitration clause and related
contract provisions. Specifically, the arbitration clause
provided resolution of all contract related disputes
between the parties by binding arbitration and reduction
to judgment of such awards, in accordance with applicable
law in any court having jurisdiction thereof. In this
instance by the terms of the contract, Oklahoma law
governed. As a result, the Oklahoma state court had
jurisdiction to award judgment on the arbitration award.
The Supreme Court rejected the
tribe’s argument that an arbitration clause is not a
waiver of immunity from suit, but simply a waiver of
the parties’ rights to a court trial of contractual
disputes. The Court concluded instead that the arbitration
clause memorialized the parties’ commitment to adhere
to contract’s dispute resolution regime. In the Court’s
words "[the contract’s dispute resolution regime] is
not designed for regulation of the game lacking practical
consequences. And to the real world end, the contract
specifically authorizes judicial enforcement of the
resolution arrived at through arbitration."
The Court also rejected the tribe’s
assertion that a form contract, designed principally
for private parties who have no immunity to waive, cannot
establish a clear waiver of tribal immunity. The Court
conclusion was based in large part on the fact that
the tribe proposed and prepared the contract and the
fact that the contract was not ambiguous.
Briefly then, by concluding that
the arbitration clause in the C&L construction contract
implied the tribe’s waiver, the Potawatomi case
marks a departure from prior law, which required all
waivers of sovereign immunity to be expressed, unequivocal,
and unambiguous.
The Potawatomi case certainly
should not be read or relied upon for the proposition
that the doctrine of sovereign immunity is not alive
and well. However, it does afford hope that courts may
be willing to more liberally enforce waiver provisions
and arbitration provisions in the face of claims by
tribes that they are immune from suit and to conclude
that state courts have jurisdiction over certain disputes
in which a tribe is a party.
1 The applicable
American Arbitration Association Rules provide that
the parties shall be deemed to have consented that judgment
upon the arbitration award may be entered in any federal
or state court having jurisdiction thereof.
Nancy
J. Appleby is
a director in the Albuquerque office
of
Rodey, Dickason, Sloan, Akin & Robb, P.A.
Her primary areas of practice include real estate and
commercial lending, real property and mortgage law,
banking and creditors' rights. Additionally, she has
extensive experience in economic development of Indian
lands, including gaming activities on Indian lands.
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