Sovereign Immunity and Liability Issues

The Indian Reorganization Act (IRA) was intended to allow tribes to enter and compete in the business world. Understanding that sovereign immunity could be an impediment to enabling tribal governments to successfully compete in the business world by hampering the ability of tribes to obtain credit or attract investors, Congress authorized tribes to form a separate legal entity to engage in business activities: Under the IRA, a tribe may form a constitutional governing body pursuant to Section 16 and a tribal corporation to engage in business transactions pursuant to Section 17. Typically, a Section 17 corporate charter will vest the corporation with the same privileges and immunities of the tribe, including the tribe’s immunity from suit. The charter will describe the authorized purpose of the corporation and whether the corporation is permitted to borrow money, encumber corporate assets, and whether it can waive sovereign immunity for certain transactions. The corporate charter usually describes the corporation’s power to act, who can act on the corporation’s behalf, the Section 17 Corporation Wholly-owned by Tribe Section 17 Subsidiary Tribal Corporation Subsidiary Tribal LLC Subsidiary Section 17 Corporation Board of Directors III-14 ability of the corporation to waive sovereign immunity, to what extent corporate assets can be encumbered and what corporate actions can be undertaken without the approval of the tribe.

Section 17 corporate charters often contain a "sue and be sued clause." This clause usually permits the corporation to be sued in its corporate name. Some courts have held that this language constitutes a waiver of sovereign immunity of the corporation. However, other courts have indicated that the inclusion of a "sue and be sued clause" does not constitute a waiver unless it is both unrestricted in scope and explicit in its intent to waive immunity. The execution of a judgment against the corporation is limited to the business activities of the corporation and to "assets specifically pledged or assigned" to the corporation

The BIA has drafted a model corporate Section 17 charter which provides that the "sue and be sued clause" of the charter is subject to limitations contained in the charter which restrict the scope of the waiver that can be granted pursuant to the "sue and be sued clause." Waivers of sovereign immunity pursuant to the "sue and be sue clause" in the corporate charter should be limited to a waiver of only the corporation’s sovereign immunity and transactions of the corporation. These limitations include restricting the waiver to specific transactions or claims or classes of claims for which the waiver is granted, and that the waiver extends only to the property and income of the corporation and not to the tribe itself.

Even where there is a limited waiver, the IRA protects the assets of the tribal government from execution to satisfy a money judgment. Control over tribal assets is retained by the tribal governing body except where the tribal government specifically transfers assets or property to the Section 17 corporation.64 A Section 17 Corporation has authority to convey or lease tribal lands that are assigned to the corporation for a period of 25 years. This permits the tribal government to pledge or assign specific assets to the corporation. This limitation allows a Section 17 corporation to enter into business transactions and to pledge a security interest in corporate assets. The property of the corporation is at risk in the amount necessary to satisfy creditors and developers. However, property owned by the tribal governmental body is still protected by sovereign immunity and is safe from the execution of a judgment against the corporation.

There are several court decisions concerning waiver of tribal sovereign immunity of a Section 17 corporation. Many of these decisions arise from the confusion created when a tribe has not clearly separated the business activities of its Section 16 governing body from the business activities of its Section 17 corporation. In these instances, the court is usually trying to determine in which capacity a tribe is acting. The court will look at who controls the decisions of the business, if the corporation has a separate bank account and its own liabilities, and if assets or property have been assigned to the corporation. If a court determines that tribe is acting in its governmental capacity, then the activities will likely be found to be beyond the scope of the Section 17 "sue and sued" waiver.