United States: Connecticut Supreme Court Holds Lender Entitled To Tribal Sovereign Immunity As An "Arm Of The Tribe"

In a case of first impression, the Connecticut Supreme Court recently held that that (1) an entity claiming "arm of the tribe" status for purposes of tribal sovereign immunity bears the burden of proving entitlement to that status; and (2) tribal immunity extends to an officer of the entity, so long as the officer acted within the scope of his or her authority and the tribe, rather than the individual officer, is the real party in interest. See Great Plains Lending, LLC v. Dep't of Banking, 2021 WL 2021823 (Conn. May 20, 2021). In the case, the Connecticut Department of Banking issued temporary cease and desist orders, orders that restitution be paid to Connecticut residents, and a notice of intent to impose civil penalties to two lenders after an investigation by the Department revealed that the lenders issued consumer loans via the Internet without a license and with interest rates that exceeded Connecticut's usury and banking laws. Great Plains Lending, LLC ("Great Plains") and American Web Loan, Inc., doing business as Clear Creek Lending ("Clear Creek") (collectively, the "lenders") were created under tribal law, namely, the Otoe-Missouria Tribe of Indians Limited Liability Company Act and the Otoe-Missouria Tribe of Indians Corporation Act. Thus, the lenders asserted that (1) they were arms of the Otoe-Missouria Tribe of Indians (the "Tribe") and entitled to tribal sovereign immunity, and (2) the Tribe's Chairman who served as secretary and treasurer of both lenders was also entitled to sovereign immunity because he was acting within his official capacity.  The Commissioner denied the lenders' motion to dismiss, concluding that "the administrative action of the department was not a 'suit' from which the plaintiffs enjoyed trial sovereign immunity."

On appeal, the Connecticut Supreme Court reversed and remanded. As an initial matter, the Court held that an entity claiming to be an arm of that tribe bears the burden of demonstrating the existence of that relationship and that it is entitled to share in tribal sovereign immunity. However, "once the entity proves by a preponderance of the evidence that it is an arm of the tribe, the burden shifts back to the party seeking to overcome tribal sovereign immunity to prove that such immunity has been waived or abrogated as a matter of law." Next, the Court determined that the proper standard to determine whether the lenders were arms of the tribe was the Breakthrough test. In Breakthrough Mgmt. Grp., Inc. v. Chukchansi Gold Casino & Resort, the Tenth Circuit held that to determine whether an entity may share a tribe's sovereign immunity, the court must consider: (1) the method of creation of the economic entities, (2) the purpose of those entities, (3) the structure, ownership, and management of the entities, including the amount of control the tribe has over them, (4) the tribe's intent with respect to sharing its sovereign immunity, (5) "the financial relationship between the tribe and the entities," and (6) 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." See Breakthrough Mgmt. Grp., Inc. v. Chukchansi Gold Casino & Resort, 629 F.3d 1173 (10th Cir. 2010).  However, like the Fourth, Ninth, and Tenth Circuits, the Court here adopted only the first five factors. The Court concluded that Great Plains was an arm of the tribe as a matter of law and was entitled to sovereign immunity, but that there was not enough evidence to conclude the same with regard to Clear Creek. Specifically, the record did not contain evidence of Clear Creek's stated purposes, the Tribe's control of Clear Creek or of its structure or management or intent to extend immunity, or whether any profits or funds from Clear Creek were directed towards the Tribe. With regard to the Tribe's Chairman, the Court found that because the Tribe was the real party in interest and the Chairman acted within the scope of his authority, he was also entitled to sovereign immunity solely as an official of Great Plains.

Given the foregoing, the Connecticut Supreme Court reversed and remanded with direction to dismiss the administrative proceedings against Great Plains and vacate the civil penalties imposed against the Chairman in his capacity as an officer of Great Plains. However, with regard to Clear Creek, the Court remanded the case to determine whether Clear Creek is an arm of the tribe and whether the Chairman was entitled to sovereign immunity concerning his actions as an official of Clear Creek.

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