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Leasing Law

Leasing with Native American Tribes

March/April 2019

Providing equipment lease financing to Native American Tribes raises some unique concerns. This remains true notwithstanding the increased level of commercial activities taking place on tribal grounds in the past two decades, including the number of casinos, hotels and other businesses constructed on tribal properties. This article will explore some of the key issues to consider and some practical documentation drafting suggestions. 

Absent an enforceable waiver, a lessor needs to understand that Native American Tribes have sovereign immunity from suits to enforce equipment leases or recover the underlying equipment, whether brought in a federal, state or tribal court. Further there are many variations in tribal law. Therefore, providing lease financing to Native American Tribes inherently involves increased risk. Unfortunately, simply having a successful track record with a given Native American Tribe does not mean that all the issues have been properly addressed. As lessors know from the larger context of equipment finance generally, the underlying weaknesses in documentation or processes often do not appear unless and until the deal goes sideways. At that point, it is usually too late to fix the problem. This observation is especially true in the context of leasing to Native American Tribes. The only way to ensure that a lease and waiver of sovereign immunity are enforceable is to thoroughly review the applicable tribal constitution, organizational documents and local procedures. For most equipment lessors in a fast-paced environment, this is often not feasible. Instead, many lessors rely on many of the below approaches. Just remember that there is risk in doing so. 

Tribal Resolution
Applicable tribal law will typically require some form of tribal council resolution to explicitly authorize the lease and waiver of sovereign immunity. Different tribes have different requirements for who must authorize the waiver and who must sign same. The exact requirements will vary among Native American Tribes. Absent researching such requirements, many lessors instead opt to use a generic template resolution (i.e., a one-size-fits-all approach). If this is the approach a lessor chooses, some of the key components to include in a template resolution include provisions expressly authorizing: (i) the lease, (ii) the waiver of the tribe’s inherent sovereign immunity (many tribes will require that this be limited to the extent necessary to make the lease enforceable) and (iii) a specified person or designated title holder to sign the lease and the waiver of sovereign immunity. A good practice is for the resolution to also recite that the council approving the resolution is the duly governing body of the tribe. 

Waiver of Sovereign Immunity
Because many lessors do not perceive it to be commercially practical to conduct the requisite local research, in addition to employing a template form of resolution, many lessors also employ a template form of sovereign immunity waiver. This is not necessarily a bad approach but of course does not ensure that all requirements have been met for an effective waiver. If the waiver is not effective, a lessor will not be able to bring a suit to enforce its lease or to get access to its equipment. That said, template forms of waivers are viewed by many lessors as a practical solution to be used, especially in a volume driven, small ticket environment. 

Some of the key components to include in a waiver are provisions expressly agreeing:

i. to waive the tribe’s sovereign immunity (again, it is generally advisable to provide that the waiver is limited to the extent necessary to make the lease enforceable);

ii. to submit any dispute between the lessor and the tribe to the jurisdiction of the state court of a given state rather than a tribal court. Ideally, the state court where the lessor is located should be used. Agreeing to submit to a state court and not a tribal court is important for a number of reasons, even if the tribal court is staffed with former federal or state judges and/or has adopted a given state’s procedural rules. These reasons include the ability to appeal state court judgments and a possible perception of greater objectivity by state judges. Note that many lessors would ultimately be amenable to using the state court in the state where the tribe is located. Often this is more palatable to Native American Tribes than using the lessor’s home state court; 

iii. that the lease and the waiver will be interpreted and enforced in accordance with the lessor’s state laws and not tribal law. This is important even if a tribe has incorporated the law of such state into its own code. State laws change over time and the tribal law may or may not keep pace with same. Further even seemingly minor tribal variations may result in an unpredictable or adverse result for a lessor. As noted in the above state jurisdiction discussion, many lessors would ultimately be amenable to using the state law in the state where the tribe is located; 

iv. that the tribe waives any requirements of exhaustion of any required tribal remedies and that the tribe agrees not to present any affirmative defenses based on any alleged failure of the lessor to exhaust such remedies; and 

v. not to take (or attempt to take) any action to amend or revoke the waiver of sovereign immunity given how critical such waiver is for the enforceability of the transaction.

Many equipment lessors have been providing equipment financing to their long-standing Native American Tribal clients for many years without researching tribal requirements and have not faced any payment issues whatsoever. Other lessors are reluctant to offer financing to Native American Tribes in the first place because of unfamiliarity with tribal requirements. This niche can clearly be an added value that lessors can bring to their vendors and also their direct end-users. The best approach is for a lessor to fully understand the requirements in its geographic footprint by either conducting its own research or consulting a local expert. This should include a review of any special requirements that may arise regarding the leasing of gambling equipment, if applicable. Admittedly, this is easier and less expensive the smaller the number of states in which a lessor operates. If local expertise is not obtained, a lessor runs the risk of not being able to enforce its lease and potentially not being able to recover its equipment if the deal goes bad. In any event, when preparing forms of Native American Tribal resolutions and sovereign immunity waiver, and again subject to specific tribal requirements, at the very least, a lessor should consider including the above provisions.

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  • LEGAL RESOURCES