United States Bankruptcy Court,
In re Curtis Vale Womelsdorf and Lavonne Mae Womelsdorf, Debtors.
Bankruptcy Case No. 12–62075–fra7 | Filed June 11, 2015.
Attorneys and Law Firms
John Blackhurst, Melisa Button, Hornecker, Cowling, Hassen & Heysell, Joseph E. Kellerman, Medford, OR, Eric A. Marshack, Portland, OR, for Creditor.
Keith Y. Boyd, Medford, OR, for Debtor. Anthony S. Broadman, Gabriel S. Galanda, Galanda Broadman PLLC, for Interested Party.
Kendell H. Ferguson, Sorenson, Ransom & Ferguson, LLP, Justin D. Leonard, Portland, OR, Willard L. Ransom, Sorenson, Ransom & Ferguson, LLP, Grants Pass, OR, for Trustee.
MEMORANDUM RE: MOTION TO RECONSIDER 2004 EXAMINATION ORDER
FRANK R. ALLEY, III, Chief Bankruptcy Judge
*1 The Court previously approved the Chapter 7 Trustee's ex parte application for an order requiring the Seven Feathers Casino Resort to provide specified information. In response, the Umpqua Indian Development Corporation (UIDC) specially appeared, asserting that it was the real party in interest, and that the order should be vacated on grounds of tribal immunity. After a hearing, the Court ruled from the bench that the objection should be overruled. UIDC then moved for reconsideration, and the Court, after a second hearing, agreed to take the matter under advisement. Having thoroughly considered the issues raised by the parties, the Court now determines that neither the tribe nor its corporations may refuse to comply with the Trustee's examination requests on the grounds of tribal sovereign immunity.
Given the procedural posture of this case, it is not surprising that there is little concrete evidence illuminating the facts of the matter. However, the Court may rely on its own record, and the declarations and arguments made in the legal memoranda of the parties. The Court takes judicial notice of the corporate charter of the UIDC, the Tribal–State Compact regarding the Tribe's gaming activities, and the Constitution of the Cow Creek Band of Umpqua Tribe. FRE 201.
The above-captioned case was filed under Chapter 11 of the Bankruptcy Code on May 11, 2012. On April 3, 2014, the Court ordered that the case be converted from Chapter 11 to Chapter 7. Joseph M. Charter was appointed Trustee (docket # 173).
UIDC is a corporation established by a charter issued by the Secretary of the Interior pursuant to 25 U.S.C. § 477, also known as the Indian Reorganization Act of 1934. Corporations established under this authority are commonly referred to as "Section 17" corporations. UIDC is solely owned by the Cow Creek Band of Umpqua Tribe of Indians, a federally recognized Indian tribe. The corporation operates a number of businesses, which it describes as "divisions," including a casino in Canyonville, Oregon, which operates under the name of "Seven Feathers Casino Resort." It is clear from the terms of the charter issued by the Secretary of the Interior that the corporation is an entity owned by, but separate from, the tribe itself.
The corporation's charter contains the following provisions that bear on the question before the Court:
Article IV, paragraph C:
The corporation shall have the same rights, privileges and immunities with respect to federal, state and local law as the tribe but shall be subject to tribal law.
Article VII—Corporate Purposes:
The purposes for which the corporation is organized are:
a. To engage in any type of lawful business, enterprise or venture;
b. To provide for the efficient and effective utilization of the resources of the tribe in a manner which protects the long term interest of the tribe;
c. To promote the economic development of the tribe;
d. To accomplish the segregation of tribal governmental assets and liabilities from tribal business assets and liabilities; and
*2 e. To provide a vehicle for the tribe to accomplish the financing of projects used in the provision by the tribe of essential governmental services in the circumstances and to the extent specified in Section VIII.F [concerning the corporation's authority to borrow].
Based on his examination of the Debtors' financial condition, the Trustee determined that Mrs. Womelsdorf has expended a considerable amount of money in gaming activities at the Seven Feathers Casino. He asserts that Mrs. Womelsdorf's gaming activities constitute a "gross mismanagement of estate assets," and that it is reasonable to believe that the estate suffered significant cash losses as a result of her gaming activity. In order to further his inquiry, the Trustee sought and received the Court's order requiring the casino to provide documents and records relating to Mrs. Womelsdorf's gaming activity at the casino since January 1, 2011.
As noted, UIDC appeared after the ex parte entry of the order, asserting that it is the real party in interest, since the casino is one of its operating divisions. The Court originally overruled the corporation's objection, based on 11 U.S.C. § 106, which waives governmental immunity in bankruptcy matters, and the holding of the Court of Appeals for the Ninth Circuit in Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055 (2003), which held that the waiver of immunity extended to Indian tribes. The corporation then urged the Court to reconsider its decision, asserting that, while § 106 might extend to the tribe itself under the Krystal Energy holding, it does not extend to the tribe's separate corporations, since such corporations are not themselves "governmental units." After a second hearing, the Court took the matter under submission.
It is well established that an Indian tribe is subject to suit or other legal process only where the Congress has authorized the process or the tribe has waived its immunity. Kiowa Tribe of Oklahoma v. Manufacturing Technologies, Inc., 523 U.S. 751, 188 S.Ct. 1700 (1998). In Kiowa the Supreme Court upheld the doctrine of tribal immunity in an action in federal court where the tribe had been sued on a promissory note made and delivered by the tribe. The court noted that the tribe's immunity was applicable notwithstanding that the note was related to the tribe's commercial, non-governmental activities.
The Court of Appeals for the Ninth Circuit has followed the Kiowa doctrine in several cases relating to tribal casinos. In Allen v. Gold Country Casino, 464 F.3d 1044 (2006), a disaffected employee brought an action against a tribal casino and the tribe that operated it, alleging unlawful employment discrimination. The Court of Appeals upheld the tribe's assertion of immunity, noting that
The question is not whether the activity may be characterized as a business, which is irrelevant under Kiowa, but whether the entity acts an arm of the tribe so that its activities are properly deemed to be those of the tribe.
464 F.3d at 1046.
In Cook v. AVI Casino Enterprises, Inc., 548 F.3d 718 (9th Cir.2008), a motorcyclist injured in a traffic accident with an employee of a tribal corporation sued the corporation and several of its employees, asserting claims of negligence and dram shop liability under Arizona law. Specifically, the complaint alleged that the defendant driver was an employee of Avi Casino Enterprises (ACE), a tribal corporation, and that she became intoxicated at an ACE function before attempting to drive home. The Court of Appeals found that tribal immunity extended to the tribe, the casino, and its employees. The court noted that "the settled law of our circuit is that tribal corporations acting as an arm of the tribe enjoy the same sovereign immunity granted to a tribe itself." 548 F.3d at 725. Citing to Allen, the court reiterated that whether tribal immunity extends to a tribe's business entity depends not on the character of the entity's business, but whether the entity acts as an arm of the tribe "so that its activities are properly deemed to be those of the tribe." In a footnote, the court stated that "we see no importance in the distinction that here ACE is a tribal corporation while the casino in Allen may have been unincorporated." Cook at 726 n.5. Further, the Cook decision establishes that an analysis of whether tribal immunity extends to a corporation must consider the structure and purpose of the corporation, and not the particular activity complained of.
*3 UIDC argues that its immunity is based on its charter, granted by the Secretary of the Interior under 25 U.S.C. § 477. However, there is no language in the Act suggesting that it creates immunity where none existed before. The approach of the Court of Appeals is entirely different: recognizing that tribal immunity is the law of the land, the court reasons that it extends to the tribe's business and commercial activities, so long as the business entity acts as an arm of the tribe. The fact that the acting entity may be separately incorporated or maintain a separate existence is irrelevant, so long as its activities are directed toward benefitting the tribe or carrying out tribal policy.
The provisions of the corporation's charter recited above establish that the corporation's purpose and activities bring it within the scope of tribal immunity recognized by the Court of Appeals in Allen and Cook. It follows that, while the corporation may benefit from tribal immunity, its right is based on its status as an arm of the tribe, rather than on any independent source. As such, the immunity is subject to waiver, either by the Congress or the tribe, as discussed below.
B. Waiver of Immunity
Section 106 of the Bankruptcy Code (11 U.S.C. § 106) provides that
(a) Notwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section....
The Code goes on to enumerate those sections of the Code subject to the waiver of immunity. It further provides that
(a)(3) The court may issue against a governmental unit an order, process or a judgment under such sections or the Federal Rules of Bankruptcy Procedure....
Code § 101(27) provides that:
The term "governmental unit" means United States; State; Commonwealth; District; Territory; municipality; foreign state; department; agency, or instrumentality of the United States (but not a United States trustee while serving as a trustee in a case under this title), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government.
Governmental units are therefore subject to the bankruptcy court's directives pursuant to Bankruptcy Rule 2004, which provides that "on motion of any party in interest, the court may order the examination of any entity."
The Court of Appeals held that § 106 applies to Indian tribes, and operates as a valid abrogation of the tribe's immunity. Krystal Energy Co., 357 F.3d at 1058: "Congress explicitly abrogated the immunity of any 'foreign or domestic government.' Indian tribes are domestic governments. Therefore, Congress explicitly abrogated the immunity of Indian tribes." [emphasis in original] The language of Code § 101(27) extends the waiver of immunity not only to governments themselves, but to their "agencies" and "instrumentalities," terms which include the UIDC.
The UIDC's argument that it and its divisions have and retain immunity fails because its immunity—which is undoubted—is derived solely from the corporation's status and purpose as an arm of the tribe. The immunity was explicitly abrogated by Code § 106, which applies to the tribe and its instrumentalities.
The Congress has abrogated tribal immunity with respect to pertinent provisions of the Bankruptcy Code and Rules, including Rule 2004. It follows that the tribe, its wholly-owned corporation, and the corporation's divisions, including the Seven Feathers Casino and Resort, are subject to the Court's order under Rule 2004, and are required to comply with the order. The motion to reconsider is therefore denied. In addition, the Respondents should be required to comply with the Trustee's inquiry without further delay. A separate order to that effect will be entered contemporaneously with this Memorandum.