On March 4, 2013, 'SA' NYU WA, Inc., a
tribally-chartered corporation wholly owned by the Hualapai Indian
Tribe, filed a Chapter 11 bankruptcy petition in the United States
Bankruptcy Court, District of Arizona. This is a very important
case for tribes and any party conducting business with tribes
because the petition will raise a question of first impression for
the Bankruptcy Court. The Bankruptcy Court will have to decide
whether a tribal corporation is eligible to be a debtor under the
Bankruptcy Code. Federally recognized tribes likely are not
eligible for bankruptcy protection. This is because Section 109 of
the Bankruptcy Code provides direction as to who may be a debtor:
only a "person" or a "municipality" may file a
bankruptcy petition for relief. Neither "person" or
"municipality," as defined by the Bankruptcy Code,
expressly includes or excludes an Indian tribe, and no reported
court decisions have expressly addressed whether an Indian tribe is
eligible to file for bankruptcy as person, municipality, or
otherwise. The definition of "person" under the
Bankruptcy Code excludes "governmental units" from being
eligible debtors. The Bankruptcy Code defines a "governmental
unit" as, among other things, an "other foreign or
domestic government." A number of courts have examined whether
an Indian tribe is a "governmental unit" for purposes of
applying the sovereign immunity provisions contained in Section 106
of the Bankruptcy Code. The majority of cases (including cases
decided in the United States Bankruptcy Court for the District of
Arizona) examining Section 106 of the Bankruptcy Code have found
that an Indian tribe is a "governmental unit" within the
meaning of the Bankruptcy Code. See In re Platinum Oil Properties,
LLC, 465 B.R. 621 (Bankr. D.N.M. 2011) reconsideration denied,
11-09-10832 JA, 2011 WL 6293132 (Bankr. D.N.M. Dec. 12, 2011);
Russell v. Ft. McDowell Yavapai Nation, 293 B.R. 34
(Bankr. D. Ariz. 2003); Davis Chevrolet Inc. v. Navajo
Nation, 282 B.R. 674 (Bankr. D. Ariz. 2002); Turning Stone
Casino v. Vianese, 195 B.R. 572 (Bankr. N.D.N.Y. 1995);
Gilbert v. Shape, 25 B.R. 356 (Bankr. D. Mont. 1982); In
re Sandmar Corp., 12 B.R. 910 (Bankr. N.M. 1981). Additionally,
last year the United States Bankruptcy Court, Southern District of
California dismissed a Chapter 11 petition filed by the Santa
Ysabel Resort and Casino, a gaming enterprise of the Iipay Nation
of Santa Ysabel, a federally recognized Indian tribe. The dismissal
order of the Court simply granted the creditors' motions to
dismiss the petition. However, in this case, the debtor alleges that it is a chartered
tribal corporation, separate from the Hualapai Indian Tribe which
owns it. The Bankruptcy Code allows a "corporation" to
file for bankruptcy protection. The United States Bankruptcy Court,
District of Arizona will have to decide whether a corporation
organized under tribal law is a "corporation" for
purposes of the Bankruptcy Code. In the non-bankruptcy context, the
Seventh Circuit, in a case interpreting the federal Indian Gaming
Regulatory Act and the federal diversity statute, 28 U.S.C. §
1332, held in Wells Fargo v. Lake of the Torches, 658 F.3d 684 (7th
Cir. 2011), that a tribal corporation was a "corporation"
and a citizen of the state of Wisconsin for purposes of determining
federal diversity jurisdiction. Outside of the bankruptcy context, federal and tribal law
applicable to Indian tribes extends to a tribe's wholly-owned
instrumentalities and entities; however, whether the relief and
remedies typically available with respect to non-tribal corporate
debtors under the Bankruptcy Code is available to tribal corporate
debtors, likely will be addressed by the Arizona bankruptcy court.
For example, just as in the case of a tribe, land used or
beneficially owned by a tribal corporation may actually be owned by
the United States in trust for the tribe and therefore cannot be
subject to sale or alienation in a bankruptcy case. Similarly,
federal approvals may need to be obtained with respect to use or
disposition of assets owned by a tribal corporation. If a tribal
corporation is engaged in Indian gaming operations, which the
debtor in the present case is not engaged in, federal law restricts
the ownership of such gaming operations to the tribe on whose lands
the tribal casino is located and requires third party managers to
obtain federal approval. The petition has the potential to make new law in other
respects. For example, if a tribal corporation is found to be
eligible as a debtor under the Bankruptcy Code, can creditors in
future cases force tribal corporations into involuntary bankruptcy,
despite the potential sovereign immunity of tribal corporations? If
a tribal corporation is eligible as a debtor, can creditors
"pierce" the corporate veil of the tribal corporation and
reach assets of the shareholder tribe, or will the Bankruptcy Court
follow non-recourse provisions that may be found in the tribal
corporation's organic documents or in its business contracts?
Outside the context of bankruptcy, courts considering whether suits
against a tribal corporate entity may also proceed against the
parent tribe have declined to apply veil-piercing principles. See,
e.g., Morgan Buildings & Spas, Inc. v. Iowa Tribe of Oklahoma
d/b/a BKJ Solutions et al., Case No. CIV-09-730-M, 2011 WL 308889,
*1 (Jan. 26, 2011 W.D. Okla.). Given recent tribal defaults and restructurings, the outcome of
this case will no doubt be watched by tribes and lenders to
tribes. The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
ARTICLE
15 March 2013
Tribal Corporate Bankruptcy Petition Raises Issues Of First Impression For Bankruptcy Court
On March 4, 2013, ‘SA’ NYU WA, Inc., a tribally-chartered corporation wholly owned by the Hualapai Indian Tribe, filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court, District of Arizona.