A recurring issue under the Investment Company Act of 1940 (“Investment Company Act”)[1] is whether particular types of loans are considered “securities.” If an operating company holds too many loans that are securities, that company inadvertently could become an investment company.[2] This issue arises, for example, for certain nonbank lending entities, for companies that sell merchandise on credit (the receivable created could be a note or other instrument that is a security), and for companies that make intercompany loans to affiliates.
While the U.S. Supreme Court addressed the issue of when a loan or note is a security under the Securities Act of 1933 (“Securities Act”)[3] and the Securities Exchange Act of 1934 (“Exchange Act”),[4] the Court did not expressly address the issue of when a note or loan is a security under the Investment Company Act. And, despite the fact that the definition of “security” in each of the Securities Act, the Exchange Act, and the Investment Company Act (collectively, “Acts”) includes the term “note,”[5] the U.S. Securities and Exchange Commission (“SEC”) and its staff have suggested, with at least some merit but almost no actionable guidance, that the definition of the term “note” may be broader under the Investment Company Act than it is under the Securities Act or the Exchange Act.
This article analyzes the law governing when a loan constitutes a security for purposes of the Investment Company Act. It discusses the views expressed by the SEC on the question and suggests that some of these views are overbroad (and in some cases likely wrong). It also discusses some of the challenges created by the SEC’s views, particularly with respect to intercompany loans.
Reves and the Family Resemblance Test
While none of the Acts have identical definitions of the term “security,” each definition includes “notes” as securities, and each definition is identical with respect to the inclusion of “note.” Despite the inclusion of the term “note” in each definition, however, determining whether a note, loan, or similar instrument is actually a security is not always a straightforward analysis, particularly for purposes of the Investment Company Act.
The seminal Supreme Court case of Reves v. Ernst & Young[6] sets out the core analysis of when such an instrument meets the definition of “security” for purposes of the Securities Act and the Exchange Act. However, that opinion (and subsequent case law building on Reves) did not discuss the definition in the Investment Company Act.
In Reves, the Supreme Court held that promissory notes payable on demand issued by a farmers’ cooperative were notes, and thus securities, within the meaning of the Securities Act and the Exchange Act.[7] The Court stated, however, that not all notes are necessarily securities because they “are used in a variety of settings, not all of which involve investments.”[8]
In order to determine whether a note is a security, the Court adopted the “family resemblance” test.[9] Under the family resemblance test, a note is presumed to be a security.[10] That presumption may be rebutted by a showing that the note bears a strong resemblance to one of an enumerated category of instruments that are not securities, such as consumer financing notes, mortgages, short-term notes secured by a lien on a small business or some of its assets, short-term notes secured by an assignment of accounts receivable, a note that simply formalizes an open-account debt incurred in the ordinary course of business (particularly if, as in the case of the customer of a broker, it is collateralized), or notes evidencing loans by commercial banks for current operations.[11]
In order to determine whether a note bears a strong resemblance to one of these enumerated categories, four factors should be examined.[12]
First, the motivations of both the buyer and the seller must be examined. According to the Court,
[i]f the seller’s purpose is to raise money for the general use of a business enterprise or to finance substantial investment and the buyer is interested primarily in the profit the note is expected to generate, the instrument is likely to be a “security.” If the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct for the seller’s cash-flow difficulties, or to advance some other commercial or consumer purpose, on the other hand, the note is less sensibly described as a “security.”[13]
Second, the plan of distribution is examined “to determine whether it is an instrument in which there is common trading for speculation or investment.”[14]
Third, the reasonable expectations of the investing public are examined. In this regard, the Court stated that it would “consider instruments to be ‘securities’ on the basis of such public expectations, even where an economic analysis of the circumstances of the particular transaction might suggest that the instruments are not ‘securities’ as used in that transaction.”[15]
Fourth, it is necessary to examine whether some factor such as the existence of another regulatory scheme significantly reduces the risk of the instrument, thereby rendering application of the Securities Act and the Exchange Act unnecessary.[16]
If, based upon these factors, an instrument is not sufficiently similar to an item on the list, the decision of whether another category should be added is to be made by examining the same factors.[17]
Since the Reves decision, courts have applied the family resemblance test to determine whether loans are securities for purposes of the Securities Act and the Exchange Act.[18] However, courts have generally not had occasion to determine whether the same test applies for purposes of the Investment Company Act. Furthermore, while the SEC and its staff have made several statements evidencing the view that many loans that may not be securities under Reves for purposes of the Securities Act and the Exchange Act are securities for purposes of the Investment Company Act, there has been little SEC or staff guidance regarding whether Reves should apply and how to analyze whether any particular loan, note, or similar instrument is a security for purposes of the Investment Company Act.
Analysis of the SEC’s Views
The SEC’s Position
Over the years, the SEC and its staff have tried to distance the loan/security analysis under the Investment Company Act from the test set forth by Reves and its progeny. The SEC staff has argued, for example, that
while excluding commercial [loan] instruments from the disclosure requirements of the Securities Act and the Exchange Act is consistent with the purposes of those Acts, issuers that pool these instruments nevertheless may be functionally equivalent to, and present the same investor protection concerns as, investment companies that invest in securities that are registered under those Acts.[19]
The rationale behind this view presumably is that, in the hands of an issuer, a receivable owed by another person in exchange for a loan is, from an economic and risk-based perspective, no different than owning a debt security of the other person. An investment in Issuer A, the assets of which primarily consist of loan receivables owed by other persons, presents the same risks as an investment in Issuer B, the assets of which primarily consist of debt securities of those same persons. Given that Issuer B would generally need to be registered as an investment company, it arguably makes sense from a policy and investor protection standpoint to require Issuer A to register as well.
However, this policy objective runs squarely into a legal issue, alluded to above and discussed further below—that is, the Reves Court held that certain types of notes are not securities, and Congress did not include a provision in the Investment Company Act expressly stating that notes should be deemed to be securities for purposes of the Investment Company Act even when they are not securities for purposes of the Securities Act and the Exchange Act. If certain notes are not securities under the Investment Company Act, then a company or pool holding those notes is not an investment company, regardless of the policy and investor protection considerations of concern to the SEC and its staff.
Informally, and with some merit, the SEC staff has suggested that there also is a statutory basis under the Investment Company Act to treat loans as securities even if they are not securities under Reves. As discussed below, the structure of the Investment Company Act could indicate that Congress intended to include at least some issuers in the definition of an investment company where those issuers’ assets consist primarily of loans. However, that is not the only plausible interpretation of the drafting decisions made by Congress. And even to the extent that a broader category of loans are securities under the Investment Company Act than would be under the Reves test, the structure of the Investment Company Act does not imply that all loans are securities for purposes of the Investment Company Act.
Certain Exemptions Under the Investment Company Act
The SEC’s view that a loan may be a security for purposes of the Investment Company Act, even where it is not a security for purposes of the Securities Act or the Exchange Act, likely stems from several provisions of the Investment Company Act exempting issuers that are engaged in certain lending businesses from the definition of “investment company.”
Section 3(c)(3) of the Investment Company Act, for example, exempts from the definition of “investment company,” in relevant part, “[a]ny bank or insurance company; any savings and loan association, building and loan association, cooperative bank, homestead association, or similar institution, or any receiver, conservator, liquidator, liquidating agent, or similar official or person thereof or therefor; or any common trust fund. . . .”[20]
Most categories of assets that would typically be held by a bank—cash; property, plant, and equipment; etc.—are clearly not “securities” and, therefore, would not contribute to the 40 percent limit for “investment securities” under § 3(a)(1)(C). However, in addition to these assets, banks may also hold large amounts of loan receivables. By exempting such “banks” from the definition of “investment company,” an implication could be that, absent the exemption, at least some banks could meet the “investment company” definition in § 3(a)(1)(C).
Similarly, § 3(c)(4) of the Investment Company Act exempts from the definition of investment company “[a]ny person substantially all of whose business is confined to making small loans, industrial banking, or similar businesses.”[21] The SEC staff has interpreted this provision to apply only to consumer financing agencies,[22] and like § 3(c)(3), an implication of this provision could be that absent this exemption, the loan receivables held by such entities could constitute “securities” under the Investment Company Act.
While one plausible reading of these provisions is that the loans held by these lending institutions are or could be securities, a perhaps more straightforward interpretation is that Congress thought that banks and other lending institutions were comprehensively regulated by federal and state regulators, and that the application of the Investment Company Act to those entities was therefore inappropriate, regardless of whether they held securities (whether those securities were in the form of “loans” or otherwise).
Another example that the staff often informally points to is § 3(c)(5) of the Investment Company Act, which exempts from the definition of the term “investment company”:
Any person who is not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, and who is primarily engaged in one or more of the following businesses: (A) purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services; (B) making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services; and (C) purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.[23]
As is the case for the exemptions in §§ 3(c)(3) and 3(c)(4), an implication of the exemption in § 3(c)(5) could be that the instruments described in the section—such as notes, open accounts receivable, loans, mortgages, and other liens on real estate—are or may in some instances be securities under the Investment Company Act.
Again, however, another and perhaps more likely basis for the § 3(c)(5) exceptions is that when enacting the Investment Company Act in 1940, Congress concluded that “factoring” companies (as described in clause A), “sales financing” companies (as described in clause B), and mortgage lenders (as described in clause C) are not entities that Congress thought should be regulated under the Investment Company Act, regardless of whether the instruments that those entities held were or were not securities. This interpretation is consistent with the structure of the “3(c)” exemptions (i.e., the other exemptions under § 3(c) of the Investment Company Act). Aside from §§ 3(c)(1) and 3(c)(7), each of the 3(c) exemptions exempt a specific business from the definition of “investment company,” rather than discussing which assets constitute “investment securities.” And §§ 3(c)(1) and 3(c)(7)—the exemptions primarily used by private funds—provide exemptions based on the owners of an issuer rather than the business or the nature of its assets.
Furthermore, this interpretation of Congress’s intent is supported by the identical use of the word “note” in the definition of “security” in each of the Acts. Had Congress intended that the term “note” in the Investment Company Act’s definition should mean something different than the term “note” in the Securities Act’s and Exchange Act’s definitions, it would have been a simple matter to explicitly provide for a different meaning. Opting instead to imply a different meaning for the term through the inclusion of certain exemptions in the statute seems an unlikely way for Congress to indicate a difference in the definitions.
Examination of Sections 3(c)(5)(A) and (B)
Sections 3(c)(5)(A) and (B), in particular, merit a deeper examination.
Section 3(c)(5)(A) applies to companies primarily engaged in the business of purchasing or acquiring notes, drafts, acceptances, open accounts receivable, etc. This exemption seems to indicate Congress’s belief that, in the hands of a purchaser or acquirer, such notes, drafts, acceptances, open accounts receivable, etc., could be investment securities, and therefore, a specific exemption for factoring businesses was needed to ensure that such businesses would not inadvertently become investment companies.
Section 3(c)(5)(A) does not apply to companies that originate such instruments. Take, for example, a company (“Tractor Co.”) that manufactures and sells tractors. Tractor Co. sells some of its tractors for cash and some of its tractors on credit. When selling such tractors on credit, Tractor Co. has created, depending on the terms, an open account receivable, a note, or another type of loan receivable owed by its customer. Section 3(c)(5)(A) does not apply to Tractor Co. because (i) Tractor Co. is engaged in the business of manufacturing and selling tractors, not in purchasing instruments described in the section, and (ii) it originated the instrument rather than purchasing it. However, if a factoring company (“Factoring Co.”) purchases instruments such as the one originated by Tractor Co., § 3(c)(5)(A) implies that such instruments in the hands of Factoring Co. could be investment securities, but provides that Factoring Co. may be eligible for the exemption if it meets the § 3(c)(5)(A) conditions.
As § 3(c)(5)(A) applies only to companies that purchase or acquire loans, it does not say anything about, or imply any particular treatment of, loans in the hands of the company that makes the loan, like Tractor Co.
Section 3(c)(5)(B) applies to companies primarily engaged in the businessof making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services. This exemption seems to indicate Congress’s belief that, in the hands of a company primarily engaged in the business of making such loans, the loans could be investment securities, and therefore, a specific exemption for sales financing businesses was needed to ensure that such businesses would not inadvertently become investment companies.
Section 3(c)(5)(B) also doesnot apply to companies like Tractor Co., which are primarily engaged in other businesses (e.g., manufacturing and selling tractors) and not in the business of making loans. And § 3(c)(5)(B) does not say anything about, or imply any particular treatment of, loans in the hands of a company that is not primarily engaged in the business of making loans but that nevertheless makes a loan.
As a result, neither § 3(c)(5)(A) nor § 3(c)(5)(B) would apply to a company like Tractor Co., which makes loans rather than acquiring them but is not “primarily engaged” in the business of making loans. But that does not mean that a loan extended by Tractor Co. is an investment security in the hands of Tractor Co. It is highly unlikely that Congress intended for Tractor Co. to be an investment company solely because it sells merchandise to customers on credit. The test in Reves, including whether Tractor Co. had an investment or a commercial intent when making the loan, seems to fit naturally in determining whether such an instrument should be a security in the hands of Tractor Co.
The SEC and its staff, however, have put forward a much broader analysis. In particular, the SEC and its staff have stated on multiple occasions that “notes representing the sales price of merchandise, loans to manufacturers, wholesalers, retailers and purchasers of merchandise or insurance, and mortgages and other interest in real estate are investment securities for purposes of the [Investment Company] Act.”[24] Given the specific language used (mirroring that in § 3(c)(5)), the SEC and its staff seem to be taking the position that §§ 3(c)(5)(A) and (B) provide a default position that loans are securities, and therefore, an issuer holding large enough amounts of loans must generally meet one of the exemptions in § 3(c)(5) (or another exemption) in order to avoid investment company status.
For the reasons discussed above, this analysis is almost certainly overbroad. If this analysis were correct, §§ 3(c)(5)(A) and (B) would seem to imply that Tractor Co. extending credit to its purchaser would result in Tractor Co. owning an investment security—yet being ineligible to rely on either § 3(c)(5)(A) (as the maker, rather than purchaser, of the loan) or on § 3(c)(5)(B) (as a company not primarily engaged in the business of extending loans).[25]
Applicability of Reves
As discussed above, it is not clear that Congress actually intended the definition of “security” under the Investment Company Act to be broader than the definitions under the Securities Act or the Exchange Act. But even if a broader set of loans may be securities under the Investment Company Act, that does not mean that Reves does not apply, at least in part, when determining whether a loan is a security for purposes of the Investment Company Act. Given the similarity in the definition of “security” between the Acts, it is hard to imagine that Reves is not at least relevant in the determination of when a loan is a security for purposes of the Investment Company Act.
One could envision the SEC taking Reves into consideration in any such determination. For example, a sensible approach might be to start any analysis of whether a loan is a security with the Reves family resemblance test and then, where the analysis is for purposes of the Investment Company Act, separately make a determination of whether, notwithstanding the instrument not being a security under the Reves test, the activities of the issuer indicate that the instrument should be treated as an investment security for purposes of determining whether the issuer is an investment company.
Implications for Companies with Intercompany Loans
One area of particular difficulty for many issuers, in light of the SEC’s aggressive views with respect to loans under the Investment Company Act, arises in the case of intercompany loans (i.e., a loan between two related companies). Companies with multiple subsidiaries may put intercompany loans in place for a variety of valid business reasons. For example, a company wishing to focus its resources on parts of the enterprise that the company feels could be most impacted by additional capital might establish a loan from one subsidiary to another.
While Congress’s drafting of the Investment Company Act did not obviously scope intercompany loans into the definition of “investment security,” and while the limited case law that exists on the topic seems to weigh against treating an intercompany loan as an investment security,[26] the SEC has indicated that it generally views intercompany loans as investment securities. For example, in a 2022 enforcement action, the SEC charged BlockFi Lending LLC with, among other things, acting as an illegally unregistered investment company.[27] In determining that BlockFi met the definition of an investment company in § 3(a)(1)(C), the SEC pointed to several different assets held by BlockFi that the SEC asserted were investment securities, including (without any analysis, citations, or explanation) “intercompany receivables.”[28]
The view that intercompany loans are “investment securities” can mean that a corporate subsidiary making such intercompany loans might face Investment Company Act status challenges. However, in most cases, a corporate subsidiary with a large percentage of its assets consisting of intercompany loan receivables would not raise the same risks from an investor protection standpoint as an investment company. An investor in a company that primarily invests in traditional securities, or else primarily extends loans to third parties, is relying on the ability of company management to pick the right third parties to invest in (or loan money to), and the investor’s returns will depend on the performance of those third parties. Investors in a company that has extended a large intercompany loan to a corporate affiliate have completely different considerations. The investors are not relying on company management to pick the right entity to loan to—they are relying on the ultimate parent of the company to efficiently engage in commercial activities and generate a profit from those activities. The point of most intercompany loans is not for the lender to generate returns from lending money to an affiliate, but instead to aid the overall enterprise in its commercial activities.
Additionally, the SEC’s view that intercompany loans are “investment securities” can mean that a parent of a subsidiary making such intercompany loans might face Investment Company Act status challenges as well. For example, if the subsidiary fails the test in § 3(a)(1)(C), the parent may have to treat its interest in the subsidiary as an “investment security” for purposes of its own § 3(a)(1)(C) analysis. And in this case, an investment in the corporate parent certainly does not raise the same risks from an investor protection standpoint as an investment company. Rather than looking to the performance of one party on a loan, an investor in the parent company likely would not care one way or the other that an intercompany loan exists between two of the parent’s subsidiaries. The economics of that loan cancel out at the level of the parent, and the investor’s returns are not related to the performance of the loan at all.
Due to the potential draconian consequences of transacting with an unregistered investment company,[29] lenders, underwriters, or other counterparties to a transaction often require an issuer to obtain an unqualified opinion from its counsel prior to any such transaction, which states that the issuer is not, and is not required to register as, an investment company. Given the SEC’s expressed view that intercompany loans are generally investment securities, many practitioners treat them as such for purposes of determining whether an issuer is an investment company, despite the unclear legal or policy-based reasoning behind the SEC’s view.[30] This creates unnecessary challenges for issuers that are plainly operating companies but that have large enough intercompany loans in place such that a practitioner treating intercompany loans as securities would not be able to deliver an unqualified opinion that the issuer is not an investment company.
Conclusion
The SEC should reconsider its stance on loans under the Investment Company Act and, in particular, its stance on intercompany loans. The legal basis for the SEC’s apparent position that Reves does not apply to the determination of when a loan is a security for purposes of the Investment Company Act is unclear, and in many cases the policy basis is unclear as well. Until the SEC revisits this stance, issuers that have substantial intercompany loans in place will continue to face challenges in avoiding investment company status, despite not raising the concerns that the Investment Company Act was designed to address.
Investment Company Act, 15 U.S.C. § 80a-1–a-64 (1940). ↑
Seeid. § 3(a)(1)(C) (providing that an issuer that owns or proposes to acquire “investment securities” having a value exceeding 40 percent of the issuer’s total assets may, depending on its business, be an “investment company” for purposes of the Investment Company Act). ↑
Based upon the family resemblance test articulated in the Reves decision, the Reves Court found that the notes were securities because they were sold to raise capital for the cooperative, sold to a broad segment of the public, characterized by the issuer as investments, and not regulated by any other regulatory scheme. Id. at 67–70. ↑
Id. at 62. The Court stated that “the phrase ‘any note’ should not be interpreted to mean literally ‘any note,’ but must be understood against the backdrop of what Congress was attempting to accomplish in enacting the Securities Acts.” Id. at 62–63 (footnote omitted). This statement is notable in light of the Court’s frequent statement that “[t]he starting point in every case involving construction of a statute is the language itself.” See, e.g., Landreth Timber Co. v. Landreth, 471 U.S. 681, 685 (1985). ↑
494 U.S. at 64. The Court noted that the family resemblance test and an alternative test evaluating whether a note was made for investment versus commercial purposes “are really two ways of formulating the same general approach.” Id. However, the Court adopted the family resemblance test because the Court believed that test “provides a more promising framework for analysis.” Id. at 64–65. ↑
See, e.g., Kirschner v. JP Morgan Chase Bank, N.A., 2020 U.S. Dist. LEXIS 90797 (S.D.N.Y. May 22, 2020), aff’d No. 21-2726-cv, 2023 WL 5439495 (2d Cir. Aug. 24, 2023). ↑
U.S. Sec. & Exch. Comm’n Div. of Inv. Mgmt., Protecting Investors: A Half Century of Investment Company Regulation, at n.339 (1992); see also Brief for the United States as Amicus Curiae, at *22–23, Marine Bank v. Weaver, 455 U.S. 551 (1982) (No. 80-1562), 1981 WL 390025 (SEC explaining that “[w]hile the language in the Investment Company Act’s definition of the term ‘security’ is identical to that in the Securities Act, the regulatory context under the Investment Company Act differs fundamentally from that under the Securities Act and the . . . Exchange Act”—and that, as a result, the definitions should be interpreted differently (in this case, the instrument at issue was a bank certificate of deposit)). ↑
15 U.S.C. § 80-3(c)(3). In addition, Investment Company Act Rule 3a-6 provides a similar exemption for foreign banks. 17 C.F.R. § 270.3a-6. ↑
See, e.g., GINS Cap. Corp., SEC Staff No-Action Letter (Sept. 16, 1985); Brody, Robert D., SEC Staff No-Action Letter (Nov. 22, 1979); Prudential Mortg. Bankers & Inv. Corp., SEC Staff No-Action Letter (Dec. 4, 1977); Douglass-Carver Cmty. Devs., SEC Staff No-Action Letter (July 25, 1974); Commonwealth Fund, SEC Staff No-Action Letter (July 15, 1971); see also Navidec Fin. Servs., Staff Response to Registrant’s Response to Staff Threshold Comment Letter on Registration Statement on Form 10-SB (July 13, 2006) (the mere fact that registrant is regulated by federal consumer protection regulations, such as the Truth in Lending Act and Real Estate Settlement Procedures Act, is not enough to establish that registrant can avail itself of § 3(c)(4) exception). ↑
See, e.g., U.S. Sec. & Exch. Comm’n Div. of Inv. Mgmt., supra note 19, at n.251 (emphasis added) (citing SEC Report on the Public Policy Implications of Investment Company Growth, H.R. Rep. No. 2337, at 328 (1966)). ↑
A surface-level reading of §§ 3(c)(5)(A) and (B) could give the impression that Congress intended for loan receivables to generally be considered securities for purposes of the Investment Company Act, and for an issuer holding large amounts of loan receivables to be an investment company unless (i) the issuer has purchased or acquired the loan receivables and meets the conditions of § 3(c)(5)(A) or (ii) the issuer has made the loans and meets the conditions of § 3(c)(5)(B). However, as discussed above, this analysis overlooks the fact that many entities making loans, such as Tractor Co., are not entities covered by § 3(c)(5)(B), as they are not “primarily engaged” in the business of making loans but instead are primarily engaged in their own operating activities. Given that Congress believed a sales financing company, primarily engaged in the business of making certain types of loans, does not raise investment company registration concerns, it seems inconceivable that Congress believed that an operating company, primarily engaged in a noninvestment, non-loan business and extending such loans as part of its business, somehow does raise investment company registration concerns.
Read with this understanding, it seems plain that Congress did not intend §§ 3(c)(5)(A) and (B) to imply that all loan receivables should generally be considered securities for purposes of the Investment Company Act, and that any issuer holding large amounts of loan receivables needs to fit within one of the exemptions. ↑
See, e.g., SEC v. Fifth Ave. Coach Lines, Inc., 289 F. Supp. 3, 33 (S.D.N.Y. 1968), aff’d, 435 F.2d 510 (2d Cir. 1970). In Fifth Avenue Coach Lines, the court held (among other things) that an advance by a parent company for the benefit of a subsidiary, which was a type of intercompany loan, was a cash item and not an investment security. The court noted that to treat these advances as “evidence of indebtedness,” and thus investment securities, “is an unrealistic and incorrect construction of the statutory language.” Id. at 33–36. ↑
In re BlockFi Lending LLC, SEC Release No. 33-11029, ¶ 29, at 7–8 (Feb. 14, 2022). ↑
Section 7(a) of the Investment Company Act generally prohibits illegally unregistered investment companies from, among other things, offering, selling, or purchasing any securities (including their own securities) through the use of the mails or interstate commerce, or engaging in any business in interstate commerce. Section 47(b) of the Investment Company Act provides that a contract that violates the Investment Company Act is unenforceable by any party to the contract, or by a non-party to the contract with knowledge that the contract violated the Investment Company Act, unless a court finds that enforcement of the contract would produce a more equitable result and that the result would not be inconsistent with the purposes of the Investment Company Act. As a result, underwriters, banks and other lenders, and certain other parties that contract with a company may be concerned that if that company is an illegally unregistered investment company, that company’s sale of securities or agreement to borrow money or agreement to enter into other arrangements may be illegal under § 7(a). If so, such an underwriter, bank, other lender, or other party may be concerned that any agreement it entered into with the company (such as an agreement to underwrite the sale of the company’s securities or loan the company money) could be void under § 47(b). This might lead to, for example, a purchaser of the company’s securities in an underwritten offering being able to force the underwriter to unwind the transaction in which the purchaser bought those securities, or the illegally unregistered investment company arguing that it was permitted to unwind a loan transaction notwithstanding any restrictions on termination in the lending agreement. See, e.g., Herpich v. Wallace, 430 F.2d 792, 814 (5th Cir. 1970) (“Section 7 of the [Investment Company Act] imposes the penalty of exclusion from all channels of interstate commerce of investment companies that fail to register in compliance with section 8 [of the Investment Company Act], and contracts made by unregistered companies are subject to the voiding provisions of section 47(b). . . .”). But see Saba Cap. Master Fund, Ltd. v. Blackrock ESG Cap. Allocation Tr., No. 23-8104, 2024 WL 3174971 (2d Cir. June 26, 2024), cert. granted sub nom. FS Credit Opportunities Corp. v. Saba Cap. Master Fund, Ltd., No. 24-345, 2025 WL 1787708 (U.S. June 30, 2025) (granting a writ of certiorari in a case challenging whether a private right of action exists under § 47(b)). ↑
Practitioners that treat intercompany loans as investment securities often take the position that a loan from a parent company to a majority-owned subsidiary is not an investment security because any security issued by a majority-owned subsidiary is not an investment security under § 3(a)(2). ↑
Alternative Dispute Resolution (“ADR”) can be a cost-saving alternative to litigation, but did you know that your contractual provisions designed to take advantage of ADR could likely be stronger? This article will provide succinct practical tips for drafting powerful ADR clauses for your agreements.
Parties can count on faster speed to resolution (and therefore lower costs) when using ADR to resolve their disputes. Quickly reaching a decision is often critical so that business planning can continue and long-term projects can proceed uninterrupted. For example, the average duration for a “full-length” commercial arbitration case from commencement to award is 14.5 months, according to statistics from CPR Dispute Resolution, the ADR provider arm of the International Institute for Conflict Prevention and Resolution (“CPR”). In comparison, the current median time from filing to trial in a civil case in U.S. district courts is 33.7 months[1]—without taking into consideration the additional time the trial, rendering a decision, and the possibility of a lengthy appeal may add to the process. Arbitration facilitates resolution on a faster track, with fewer steps in the process and shorter deadlines. Moreover, most institutions provide an option for expedited arbitration proceedings, such as the CPR Fast Track Arbitration Rules, which contemplate a 90- to 180-day proceeding.
Speed and savings are not the only benefits of ADR. Party control of the process is one of the tenets of ADR, allowing the parties to craft their own process to fit their needs. For example, parties may select knowledgeable neutrals with subject-matter expertise, rather than judges or juries who may not have any experience in the topic area. By using ADR, parties are also afforded greater confidentiality and privacy for sensitive matters, such as proprietary business information, trade secrets, and other intellectual property. ADR offers the possibility of selecting a venue that is neutral to the parties and logistically convenient to both sides. Arbitration offers the certainty of resolution, as awards are generally final and binding (though parties may elect to add an appellate review). Finally, parties will find greater logistical flexibility in ADR processes, which allow them to proceed on their own schedules, rather than a court’s calendar, and provide the option to conduct hearings virtually.
So what can parties do to avail themselves of these benefits? The key is drafting a strong ADR clause in their B2B contract. Arbitration agreements cannot be approached with a “one-size-fits-all” mentality; rather, parties should consider the actors involved and their particular circumstances, so that they can tailor arbitration agreements to best fit their needs.
Necessary Elements in an Arbitration Clause
Every good ADR clause starts with the necessary elements, after which the parties can include additional, optional elements as they see fit. An effective arbitration clause must do the following:
Clearly and broadly define the disputes subject to arbitration.
Commit the parties to arbitration.
Choose an arbitral institution and its rules, or ad hoc arbitration rules (and, in the latter case, an appointing authority).
Choose the seat of arbitration (in a country that has ratified the New York Convention).
Choose the language of the arbitration.
A narrow arbitration clause might only include the above necessary elements. For example, it might read:
Any dispute arising out of or relating to this contract, including the breach, termination or validity thereof, shall be finally resolved by arbitration in accordance with [the CPR Rules for Administered Arbitration (the “Rules”)]. The seat of the arbitration shall be [New York, New York]. The language of the arbitration shall be [English]. There shall be [one or three] arbitrators, [selected in accordance with the Rules].
First, the parties will want to define the disputes subject to arbitration. This is generally achieved with the broad statement “arising out of or relating to this contract” and then a statement committing those types of disputes to arbitration (“shall be finally resolved by arbitration”). However, the parties may also wish to include some carve-outs (such as IP issues, for example) that they wish to have adjudicated in court instead.
Next, parties should decide whether to choose an arbitral institution and its rules or select ad hoc arbitration. Notably, there can be drawbacks to ad hoc proceedings when parties reach a stalemate in the agreed-upon process (for example, if there are issues with arbitrator appointment or payment of fees, or a challenge to an appointed arbitrator), and there is no support or oversight by a neutral outside institution to monitor the arbitrator’s billing, assist in scheduling, or review the award before it is rendered. A solution might be to select non-administered rules that provide fallback provisions, assigning an institution to assist with any issues that might arise. For example, CPR’s Non-Administered Rules provide a safety net, providing a process in case the parties cannot agree during the non-administered proceeding but allowing them to proceed independently if there are no issues. When selecting an arbitral institution, parties should keep in mind differences between institutions on issues such as the costs of administrative fees, responsiveness of staff, etc., as well as differences in the institutional rules. Note that while most rules for domestic commercial arbitration are similar, they may differ on issues such as confidentiality; the default number of arbitrators appointed to a dispute and method of their appointment; procedural time limits; discovery; or triggers for procedures such as mediation or truncated “fast track” procedures.
Finally, the parties should consider the seat, language, and governing law for any disputes. The seat of the arbitration will be the place where the award is deemed to have been made. The governing law of an arbitration agreement is the law that will be applied to determine any dispute that may arise as to the validity, scope, or interpretation of the agreement to arbitrate. Although standard arbitration agreements do not specify the governing law of the arbitration agreement, it is good practice for the drafter to include a governing law provision in case problems arise. In the absence of a clause indicating the governing law of the arbitration, the law governing the seat of arbitration will apply. Parties contemplating international disputes may also wish to specify that English (or another language, if desired) shall be the language of the proceeding.
After including these necessary elements in an arbitration clause, parties wishing to avail themselves of the benefits of arbitration will need to consider whether to include additional components. Many of the additional elements discussed below are addressed by the arbitral rules specified in the ADR clause; however, parties should consider the types of disputes that may arise and whether they expect the rules’ default provisions to be sufficient, or whether they want to customize the process.
Neutral Selection
Parties should consider including additional information surrounding the appointment of the arbitrator. For example, the number of arbitrators may be specified in the ADR clause. Where disputes are likely to be high value and complex, a tribunal consisting of three arbitrators may be more appropriate. Since most arbitrations do not have an appeal process, a three-person tribunal is generally considered a safer option because it is seen as more “balanced” and neutral, in part because it allows for diversity in legal knowledge, culture, and experience among arbitrators, thereby reducing the risk of potential error or mistake. However, a three-person tribunal can be costly, and slower to reach a final resolution due to factors like coordinating schedules for hearings or deliberations. In fact, over the course of the arbitration, three arbitrators may cost almost five times as much as a sole arbitrator. Therefore, if the dispute is low-value and uncomplicated, a sole arbitrator may be a more cost-effective and efficient choice. Parties may specify a financial threshold amount or types of disputes that will have one or three arbitrators. Note that most arbitral institutions’ rules provide the default number of arbitrators: for example, the American Arbitration Association (“AAA”) and CPR have a $3 million threshold for three arbitrators (otherwise one is the default), while JAMS provides for a sole arbitrator by default.
Parties may also wish to specify the method of appointment or selection of the arbitrator(s), or specific qualifications or expertise of the arbitrator(s). However, it is prudent to not be too prescriptive in this area, as a complicated appointment process might greatly increase the time to appointment, and overly specific description of the neutral’s qualifications may unreasonably narrow the pool of available, competent, and qualified arbitrators. Parties should also consider adding a timing provision for arbitrator selection. By adding this provision to the arbitration agreement, parties not only have an expected timeline of when arbitrators will be chosen but also commit to a more efficient process. Yet parties should be careful not to set the time limits too short, so that the choice of neutral is not rushed or hasty.
Resolution Prior to Arbitration
Parties can insert a provision mandating or suggesting negotiation or mediation prior to initiating arbitration. These clauses are often referred to as “step clauses.” The use of mediation and/or negotiation can be helpful to parties, as it can potentially lead to an early settlement and allow the parties to save on costs. However, step clauses can also cause unnecessary delay, particularly if one side has no intention of settling. To mitigate potential drawbacks, drafters should include time limits on each “step.” Alternately, they can include concurrent processes where the mediation or negotiation proceeds in parallel with the arbitration process.
These step clauses may provide off-ramps that will allow the parties to save the time and costs they would need to devote to a full arbitration or litigation process. Negotiation between executives allows those in charge to have a frank discussion before the matter progresses. Furthermore, mediation can end in agreement 70–80 percent of the time.[2] Mediation agreements have high rates of compliance and can preserve business relationships and goodwill.
The flexibility of these processes allows the people involved to find the best path to agreement. Even if there is no settlement reached, parties can narrow the issues or resolve certain interests, thereby shortening the arbitration.
Other Considerations
Arbitrability is a threshold inquiry, asking whether there is a valid agreement to arbitrate. Generally, questions of arbitrability are decided by the court, but parties to an arbitration agreement may agree to delegate questions of arbitrability to the arbitrator. Under CPR Administered Arbitration Rule 8.1 and AAA Commercial Rule R-7(a), the tribunal has the power to hear and determine challenges to its jurisdiction, including any objections with respect to the existence, validity, or scope of the arbitration agreement.
In order for the question of arbitrability to be delegated to the tribunal, there must be “clear and unmistakable” evidence indicating that the arbitrators must decide questions of arbitrability. Most courts have held that incorporating the institutional rules is sufficient. But for those parties that wish to be overly cautious, or in certain jurisdictions, it may be best to include a delegation clause, such as the following:
The arbitrator(s), and not the court, shall have primary responsibility to hear and determine challenges to the jurisdiction of the arbitrator(s).
Or:
The court, and not the arbitrator(s), shall have primary responsibility to hear and determine challenges to the jurisdiction of the arbitrator(s).
Another detail to consider is provisional relief. Most arbitral institutions’ rules expressly authorize arbitrators to issue interim measures to preserve the status quo or to protect the interests of the parties pending the outcome of the proceeding. Drafters can also address the need for provisional relief if they do not wish to rely upon the provisions in the governing institutional arbitration rules.
Parties may also wish to include the type of award to be issued by the arbitrator(s). Institutional rules may specify whether a reasoned or simple award is the default, and parties should be cognizant of which type of award is called for under the rules. Parties might wish to see a reasoned award, as the writing process is an opportunity for the tribunal to carefully consider the evidence, arguments, and law, and it enables the parties to better understand the award. Additionally, some jurisdictions may require a reasoned award for enforcement. However, parties may also wish to consider the time and cost of the award drafting, especially if three arbitrators are involved. Notably, a more detailed award does not entail a higher possibility of challenge in court, as there is a very high threshold for overturning awards in court whether simple or detailed.
Most users of arbitration find the finality of an arbitration award to be an appealing aspect of ADR. But some parties may be concerned about the possibility of an aberrant award and would like to be able to appeal such an award. Many arbitral institutions, including CPR, AAA, and JAMS, have promulgated appellate procedures that allow parties to seek a modified or vacated award in specified circumstances. If parties wish to include an appellate process, this should be agreed to in the arbitration clause. Once the award is issued, parties will be unlikely to agree to an appeal, and it may even be too late, as most appellate processes have requirements, such as a transcript of the hearings, that may not have been fulfilled.
While a simple ADR clause might seem like the easy route, especially if it is the last part of the contract to be negotiated, parties should carefully consider the elements in their ADR clause in order to be able to utilize the benefits of arbitration to the fullest. Many ADR institutions have model clauses or interactive tools for drafting these clauses, which can help guide parties through the process.[3] It is important to consider the types of disputes that might arise, the parties’ relationships, and other factors that are important to the parties when finalizing the ADR clause. Reviewing the above considerations will allow drafters to create a stronger ADR clause for their clients.
This article is related to a CLE program that took place during the ABA Business Law Section’s 2025 Spring Meeting. To learn more about this topic, listen to a recording of the program, free for members.
This is a commonly cited statistic in the industry, and the number varies depending on the study conducted but generally remains in that range. See, e.g., Jeanne M. Brett, Zoe I. Barsness & Stephen B. Goldberg, The Effectiveness of Mediation: An Independent Analysis of Cases Handled by Four Major Service Providers, 12 Negot. J. 259 (1996). ↑
Hong Kong is among the world’s top three financial centers. It has maintained favorable economic relationships with both the United States (“U.S.”) and the People’s Republic of China (“PRC”) for decades, serving as an “economic Switzerland” of sorts between the two superpowers. Given the recent tension between the U.S., the PRC, and Hong Kong, this article explores whether Hong Kong remains a bridge for PRC and U.S. companies to do business. We also assess the advantages of secondary listings on the Hong Kong Stock Exchange (“HKSE”) and provide guidance to navigate regulatory risks across the U.S.-PRC-Hong Kong nexus.
Hong Kong–U.S. Relations
Since 1992, the U.S.-Hong Kong Policy Act has allowed the U.S. to treat Hong Kong separately from the PRC in trade and economic relations. That led to Hong Kong’s status as a distinct customs territory from the PRC, an estimated $33.8 billion in 2024 trading volumes with the U.S.,[1] and $90.6 billion of direct U.S. investment in 2023.[2] With approximately 1,300 U.S. firms operating in Hong Kong,[3] an estimated 84,000 American citizens living there,[4] and visa-free travel between the two locations, Hong Kong and the U.S. share a strong relationship.
Hong Kong–PRC Economic Integration
Since the Maritime Silk Road in the second century BCE, Hong Kong has been the world’s springboard into what is now the PRC. Today, Hong Kong also facilitates the PRC’s global access; in 2022, $1.6 trillion of the PRC’s $2.7 trillion in outward direct investment was channeled through Hong Kong.[5]
The relationship between Hong Kong and the PRC is likely to become even more important as the PRC invigorates growth by shifting from an export-oriented economy to a “dual circulation” model.[6] This model includes the PRC’s Belt and Road Initiative, a global infrastructure and economic development strategy that facilitates trade between 150 countries around the world.[7] Hong Kong’s part in the dual circulation model includes:
Renminbi (“RMB”) Hub: Hong Kong is the world’s largest offshore RMB hub, processing over 70 percent of the world’s offshore RMB payments.[8]
Dispute Resolution: As a leader in Asia-Pacific dispute resolution, Hong Kong plays a significant role in resolving disputes related to the Belt and Road Initiative.[9]
Stock Connect: The Stock Connect Program facilitates cross-border stock trading between Hong Kong and the PRC. Through it, the world can directly access PRC stock markets from Hong Kong, and PRC investors can invest directly in Hong Kong–listed companies.[10] Stock Connect has opened trading for more than 3,300 stocks, representing nearly 90 percent of the total market capitalization across the Shanghai-Shenzhen-Hong Kong markets.[11]
HKSE secondary listings (defined below) also provide critical support for the dual circulation model, enhancing PRC firms’ global profiles, brand recognition, and valuations. Secondary listings also help companies navigate complex regulatory environments in different markets.[12]
What Makes Hong Kong Special?
Hong Kong became a preeminent global financial hub between 1983 and 1997.[13] The advantages of doing business “through” Hong Kong for U.S. businesses are numerous and include the following:
Internationally Aligned Financial and Regulatory Systems: Hong Kong’s legal and financial systems, based on British common law principles, are distinct from the PRC’s. In alignment with the needs of the international business community, they provide contract and intellectual property protection, as well as transparent taxation.
Geographic and Cultural Advantages: As Hong Kong borders the PRC, professionals in Hong Kong speak English, Cantonese, and Mandarin, facilitating cultural alignment. Located at the center of the Greater Bay Area—an area that includes Macao and nine key cities in the PRC’s Guangdong Province, with a population exceeding 87 million and a GDP of more than US$1.9 trillion[14]—Hong Kong is positioned within a regional economy whose industrial prowess rivals that of San Francisco and Tokyo.
Logistical Integration: Hong Kong ports, logistical infrastructure, and talent, coupled with its free and open markets, connect countries around the world, including for the Belt and Road Initiative.[15]
Secondary Listings: Access to Global Markets
Hong Kong invites “secondary listings” where companies already publicly traded on one stock exchange can also list on the HKSE. Hong Kong has the highest stock-market-capitalization-to-GDP ratio or “Buffett Indicator” in the world at approximately 1406.42 percent as of September 3, 2025—almost seven times that of the U.S.[16] This means the HKSE provides tremendous international financial exposure. Companies are increasingly pursuing secondary listings in Hong Kong to access new capital pools and protect themselves from geopolitical and regulatory volatility.
The HKSE’s stringent listing rules mean that having a secondary listing in Hong Kong bolsters companies’ (including PRC companies’) reputation for the following:
Credibility: Investors can trust HKSE-listed companies to maintain high governance standards and not use secondary listings to evade regulatory oversight.[17] HKSE explicitly rejects applicants who attempt to circumvent primary listing rules, thereby maintaining market integrity.[18]
Compliance and Capitalization: Only well-established companies with a minimum of two to five years of regulatory compliance on a qualifying stock exchange[19] and market capitalization of HK$3 billion to HK$40 billion may be listed.[20]
U.S.-PRC Regulatory Challenges
Despite the PRC’s status as the U.S.’s third-largest trading partner,[21] with approximately 5,000 PRC companies operating in the U.S. as of the end of 2022[22] and more than 280 PRC companies listed on U.S. stock exchanges,[23] recent tension between the two countries has led regulators to erect barriers on both sides.
PRC regulations that may be thorny for U.S. businesses include the following:
Unreliable Entity List: The 2020 Unreliable Entity List allows the PRC to restrict PRC company interactions with foreign entities deemed threats to national sovereignty, security, and development. Restrictions include fines, entry restrictions, prohibitions on import/export, and investing restrictions.[24] To date, the PRC has only added U.S. firms to the Unreliable Entity List.[25]
Extraterritorial Export Controls: The PRC has traditionally restricted the export of “dual use” items (i.e., items that can be used for both civilian and military purposes),[26] but since December 2024, it has applied those restrictions extraterritorially.[27] This creates additional compliance burdens and supply chain risks.
Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures: In 2021, the PRC enacted this rule to protect PRC entities from foreign laws that infringe on PRC sovereignty or economic interests. For example, if a U.S. rule prohibited a PRC firm from doing business with Iran, this rule would, among other things, give the PRC firm standing to sue the U.S. actor in Chinese court.[28]
Anti-Foreign Sanctions Law: This law authorizes the PRC to restrict visas, freeze assets, and restrict business activities in the PRC for foreigners that break PRC rules.[29] For example, in February 2022, the Chinese government used the Anti-Foreign Sanctions Law to sanction Lockheed Martin and Raytheon Technologies for arms sales to Taiwan.[30]
The U.S.’s regulatory barriers are similarly daunting for doing business with companies in the PRC. The U.S. Office of Foreign Assets Control prohibits U.S. companies from trading PRC securities in the defense and surveillance industries.[31] It further restricts U.S. persons from engaging in transactions with PRC persons or entities on the Specially Designated Nationals and Blocked Persons List.[32] The U.S. Department of Commerce also maintains a similar list called the Commerce Control List, which restricts PRC transactions involving nuclear materials, semiconductors, and telecommunications software.[33]
As for U.S. tariffs, in 2018, the Office of the U.S. Trade Representative issued tariffs on certain PRC imports under Section 301 of the Trade Act of 1974 (“Section 301 Tariffs”), which have since been expanded multiple times.[34] Beginning in February 2025, in addition to existing tariffs (including Section 301 Tariffs), the U.S. also imposed tariffs on imports of most PRC goods pursuant to the International Emergency Economic Powers Act (“IEEPA Tariffs”), which gradually increased through March and April 2025, reaching 145 percent by April 10, 2025.[35] Subsequently, in May 2025, the U.S. and China agreed to temporarily reduce certain tariffs for ninety days, until August 12, 2025, to reach a formal trade agreement.[36] The temporary reduction has since been extended for another ninety days, until November 10, 2025.[37]
Readers should note that tariff rates and circumstances may have changed since the time of writing. Further, as of the time of writing, the legal status of IEEPA Tariffs remains unsettled.
U.S.-PRC-Hong Kong Relations: A Changing Landscape
Given the U.S.-PRC tension discussed above, it makes sense that U.S. regulators would view Hong Kong and the PRC differently and that secondary listings in Hong Kong would differentiate PRC firms. However, Hong Kong’s robust relationship with the U.S. began to change after the PRC issued the National Security Law, which covers certain acts that endanger national security, including secession, subversion, terrorism and collusion with foreign forces.[38] In response, the U.S. issued Executive Order 13936, suspending Hong Kong’s special status under the U.S.-Hong Kong Policy Act (i.e., beginning “Hong Kong normalization”);[39] modified export controls and licensing requirements on dual-use technologies, semiconductors, and technologies related to artificial intelligence from Hong Kong;[40] and required all imported goods produced in Hong Kong to show “China” as their country of origin.[41] The IEEPA Tariffs equally apply to Hong Kong, although Hong Kong–origin products are not subject to Section 301 Tariffs.[42]
So, although Hong Kong is still a critical business intermediary for the U.S. and the PRC, the complex relationships between the three entities require that U.S. and PRC companies take precautions when considering business together—even for Hong Kong–listed firms.
Accordingly, here are nine steps U.S. and PRC companies should consider taking when doing business together:
Perform due diligence on the counterparty’s beneficial owners to ensure compliance with the Unreliable Entity List (PRC) and the Specially Designated Nationals and Blocked Persons List (U.S.).
Determine whether related products or services are on either country’s restricted lists.
Determine the transaction’s reliance on exports and whether those exports are subject to extraterritorial controls.
Consider the costs of tariffs and determine alternative methods, components, and materials to reduce costs.
Perform a detailed risk assessment on geopolitical and supply chain risks for each product or service, in consultation with appropriate advisors. Analyze relevant data, including the product’s country of origin, classification, and valuation, as well as insights from supply chain mapping.
Regularly review and update contracts to manage and allocate geopolitical risks and costs. For example, consider including events such as embargoes, tariffs, and import/export restrictions in force majeure provisions.
Continuously monitor and assess changes in global trade developments, including tariffs and export controls, to facilitate timely compliance and strategic alignment.
Proactively engage in transparent communications and strategic discussions with stakeholders (including employees, suppliers, and customers), which is essential to successfully navigate the evolving complexity between Hong Kong, the PRC, and the U.S.
Work with strategic partners knowledgeable about how to navigate relationships across the three borders.
This was due to rapid, post–World War II economic growth; the Hong Kong dollar being pegged to the U.S. dollar in 1983; and the “One Country, Two Systems” principle established in 1997. ↑
See, e.g., Notice of Modification: China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property and Innovation, 89 Fed. Reg. 76581 (Sept. 18, 2024); Notice of Modification: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 89 Fed. Reg. 101682 (Dec. 16, 2024). ↑
This article is related to a Showcase CLE program titled “Yogi Berra Does Legal Ethics: An Overview of the Ethical Rules that Govern In-House and Outside Counsel as They Represent Their Entity Clients” that took place at the American Bar Association Business Law Section’s 2025 Fall Meeting. All Showcase CLE programs were recorded live and will be available for on-demand credit, free for Business Law Section members.
Hearing the name Yogi Berra conjures up different things to different people. Most people think of Yogi Berra, a stalwart of the New York Yankees baseball club during one of its golden eras, as an All-Star catcher who helped the Bronx Bombers win ten World Series championships and as the player who won three American League MVP awards. Some might think of Yogi Berra as the manager of the New York Yankees and the New York Mets. Some might even think of Yogi Berra as the World War II gunner’s mate aboard the USS Bayfield attack transport that participated in the D-Day Normandy landings. But many who hear the name Yogi Berra will smile and smirk at any number of “Yogi-isms,” like “It ain’t over ’til it’s over,” for which he is known.
If one delves deeper into these “Yogi-isms,” however, one might find that “Yogi-isms” are full of real-life truths and are an indication that, perhaps, Yogi Berra was far smarter than the general public gives him credit. Regardless of the truth of that statement, some “Yogi-isms” call to mind applications of our legal ethics rules—the ABA Model Rules of Professional Conduct—that may just be better remembered through a “Yogi-ism” mantra.
Consider the following:
“So I’m ugly. I never saw anyone hit with his face.” Lawyers must remember that in the client-lawyer relationship, “it’s not about the lawyer—it’s about the client.” It is the client who makes the big decisions (i.e., sets the objectives) in their matter, and it is the lawyer who determines how that happens (i.e., the means). This concept is embodied in Rule 1.2, “Scope of Representation and Allocation of Authority Between Client and Lawyer.” In fact, the very first sentence of Rule 1.2(a) notes: “Subject to paragraphs (c) and (d), a lawyer shall abide by a client’s decisions concerning the objectives of the representation . . . .”
“I’m a lucky guy, and I’m happy to be with the Yankees. And I want to thank everyone for making this night necessary.” Here, Yogi recognizes that it is the team—the organization—that is important, which brings to mind the importance of Rule 1.13 when representing organizational clients. As established by Rule 1.13(a) and its Comments, when a lawyer represents an organization, it is the organization itself that is the client—not any of the individual constituents (employees, officers, departments, executives) of that organization. While a lawyer may work through an organization’s constituents, they are not the ultimate client.
“Pair up in threes.” Combining aspects of the first two “innings” above, “pairing up in threes” evokes two different tripartite arrangements. The tripartite arrangement that is most commonly thought of in legal ethics circles is that of insured, insurer, and lawyer for the insured. However, one that is just as fundamental is the working relationship between in-house counsel, retained outside counsel, and the organizational client itself. Here, it is very important for in-house counsel and outside counsel to recognize that they both represent the organizational client, even though outside counsel is often getting direction from in-house counsel.
“He hits from both sides of the plate. He’s amphibious.” While a switch hitter can hit from both the left and the right side of the plate, under our conflict rules, a lawyer (and their law firm) cannot represent opposing sides of a transaction. A lawyer may represent one side in the transaction, and, with informed consent confirmed in writing, that lawyer can represent the other side in the transaction in other, unrelated matters, but the lawyer cannot—in essence—negotiate against themself.
“Half the lies they tell about me aren’t true.” Under Rule 4.1, lawyers have an ethical obligation, in the course of representing a client, to not knowingly make false statements of material fact or law to third persons. Also, lawyers may not fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client—except when such disclosure would itself be a violation of the lawyer’s duty to maintain the confidentiality of information relating to the representation of a client, as set forth in Rule 1.6. This obligation against misrepresenting facts extends to using the statements of others, including the client. As the comment to Rule 4.1 notes, “A misrepresentation can occur if [a] lawyer incorporates or affirms a statement of another person that the lawyer knows is false”—whether that person is a client, teammate, or otherwise.
“The towels were so thick there I could hardly close my suitcase.” Contrary to the belief of some lawyers, there are Rules of Professional Conduct that apply to them even outside of the context of representing clients. Rather, some Rules apply simply because the person is a lawyer. In particular, Rule 8.4(c) regarding “Misconduct” provides: “It is professional misconduct for a lawyer to . . . engage in conduct involving dishonesty, fraud, deceit or misrepresentation.”
“It ain’t over ’til it’s over.” Properly terminating a representation or closing out a matter has both legal ethics and risk management implications. For one, when a representation is terminated, under Rule 1.16(d) a lawyer has an obligation to “take steps to the extent reasonably practicable to protect a client’s interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred.” But moreover, if the end of the representation is the result of the lawyer accomplishing the objectives for which they were retained by the client, it behooves the lawyer to send a “close out” or disengagement letter. Such letters need not be off-putting; they can even be complimentary of the client and invite the possibility of future work to address the client’s future needs. What such a letter does is (a) effectively terminate the representation on the matter and perhaps of the client, which can have ramifications on whether future conflict of interest analysis takes place under Rule 1.9 as opposed to Rule 1.7, and (b) start the clock on application of any document retention policy that the lawyer or their firm has in place.
“Yogi-isms” can be a great device to remember and understand the Rules of Professional Conduct and their application because the Rules, like many of the “Yogi-isms” above, are often grounded in common sense. Ultimately, the Rules are designed to protect our clients and the public at large.
This is the first installment in a series exploring the damages available for intellectual property (“IP”) claims. Understanding damages is essential for two reasons: it highlights the potential rewards of building a robust IP portfolio, and it offers a benchmark for assessing risk when facing an IP claim. In this article, the authors examine damages in trademark cases.
Trademark Infringement
Trademark infringement under the Lanham Act,[1] which is the controlling trademark law in the United States, occurs when an unauthorized use of a mark causes a likelihood of confusion among consumers regarding the source of the products or services. The act addresses not just direct infringement but also counterfeiting, false advertising, and even issues of trademark dilution under the Trademark Dilution Revision Act (“TDRA”) for famous marks well-known to the public.
Trademark Damages
Once a court has determined that a trademark has been infringed, the next step is to determine how to award damages to a plaintiff. The Lanham Act sets out three methods of determining damages for a successful plaintiff: (1) disgorgement of the infringer’s profits, (2) actual damages, and (3) costs of the action. Treble damages can be assessed when a defendant intentionally infringed the plaintiff’s mark. Also, in certain instances of counterfeit marks, statutory damages are available at the plaintiff’s request.
Courts have a great deal of discretion when it comes to applying the above methods and determining how much to award in damages. Nonetheless, courts have developed equitable methods in an effort to balance compensating a successful plaintiff for losses while simultaneously avoiding windfalls.
Disgorgement of Profits
Disgorgement of profits is when a successful plaintiff is awarded the defendant’s profits that are the result of the defendant’s infringement. Courts recognize three theories under which they may order disgorgement of the defendant’s profits: unjust enrichment, compensation, and deterrence.
In determining whether a disgorgement award is proper, a court must balance equitable factors. These include (1) the degree of certainty that the defendant benefited from the unlawful conduct, (2) the availability and adequacy of other remedies, (3) the role of a particular defendant in effectuating the infringement, (4) any delay by the plaintiff, and (5) the plaintiff’s clean (or unclean) hands.
The plaintiff has the burden of proving the amount of the defendant’s revenue that came from the infringing actions. Once a plaintiff establishes the dollar amount, it becomes the defendant’s burden to prove any costs or applicable deductions.
Actual Damages
For a court to award actual damages, a plaintiff must demonstrate with a degree of specificity the amount of profits lost on account of the defendant’s infringement. Courts have held that an award of actual damages under the Lanham Act must be based on a tangible evidentiary showing of loss, not sheer speculation that a plaintiff suffered a financial loss.
Actual damages can be ascertained by an examination of a plaintiff’s financials, specifically focusing on the plaintiff’s lost profits, loss of goodwill, corrective costs (costs taken to correct consumer confusion), and reasonable royalties (money that the plaintiff would have earned if the parties had contracted for the defendant to sell goods with the plaintiff’s mark).
Reasonable royalties are not expressly provided for in the Lanham Act, and they will usually not be awarded unless there is a sufficient basis on which to calculate them, often in the form of evidence of a prior licensing agreement.
Costs of the Action: Attorney Fees
The Lanham Act grants courts discretion to award reasonable attorney fees in “exceptional cases.”[2] Historically, such exceptional cases typically involve infringing acts that are willful, deliberate, fraudulent, or malicious. While the amount awarded under this method is discretionary, a judge must only award reasonable fees; unreasonable fees, such as those that provide plaintiffs windfalls, are not permissible under the law.
Treble Damages
The Lanham Act also paves the way for additional damages in a situation where a defendant willfully infringed upon the mark.[3] If a plaintiff can establish the deliberate and intentional nature of the infringement, then the court must award punitive damages totaling up to three times the defendant’s disgorged profits or the plaintiff’s actual damages, whichever is greater.
Statutory Damages
In a case involving counterfeit marks, the Lanham Act allows for a plaintiff, at any time before final judgment by the trial court, to elect to recover between $1,000 and $200,000 per counterfeit mark per type of good sold.[4] The judge will ultimately determine what that amount is on a case-by-case basis. If the counterfeit mark was willful, the maximum recovery per counterfeit mark increases to $2 million.
Summation
Ultimately, the Lanham Act grants judges relatively significant discretion for awarding damages in trademark cases, enabling them to balance compensation, deterrence, and fairness based on the nature and severity of the infringement.
* * *
Please tune in next month for part two of our series, in which we will discuss patent damages.
It is arguable that standard contracts for the provision of cloud and managed services have improved over the years, becoming more balanced and fairer to customers. However, users of cloud services should still be aware of certain time bombs concealed by some cloud vendors in their standard contracts. This article discusses a few examples of these hidden pitfalls and what can be done about them.
1. Frustrated Backups
It is not unusual for cloud computing agreements to require customers to acknowledge and agree that they, the customers, are solely responsible for ensuring that their data is backed up, including any necessary configuration, monitoring, and management of the backup and recovery process. In the same paragraph, the cloud vendor will then say that it has no responsibility or liability for backing up any data (including customer data), nor for the adequacy, completeness, or security of any backup made by the customer or the customer’s ability to successfully recover the data. All well and good, and arguably part of the “shared responsibility” model that many cloud vendors espouse.
However, from a purely practical and technical perspective, such a model is actually a bit of legal sleight of hand—or skillful deception. Unless the cloud vendor willingly provides the customer with the necessary application programming interfaces (“APIs”) or other technological means to interface with the vendor’s cloud systems, there will be no way that a customer can actually back up the data held by its cloud vendor nor return any data back into the cloud vendor’s systems to resume operations. Frustrating, to say the least—and a considerable business risk for customers who need the peace of mind of knowing that their critical data is always available. Moreover, even if the cloud vendor does back up the customer’s data for a limited period of time, there is no guarantee that such time-limited backups will comply with an individual customer’s own legally mandated data retention obligations, which will depend on the regulations applicable to the customer’s business.
Therefore, during the negotiation process, savvy cloud customers should demand that their cloud vendors make available such backup-and-restore APIs and other software necessary before agreeing to any shared-responsibility-model statements, and should document this obligation in detail in their cloud contract. Additionally, as such activity should continue during the life cycle of the contract, the client’s counsel should consider expressly drafting an additional obligation that the cloud vendor will continue to provide the necessary APIs to perform granular backups and restores from the cloud vendor’s system on an ongoing basis to permit the customer to meet its own regulatory requirements (particularly financial institutions and governmental entity customers) and any contractual obligations between the parties.
2. Who Has the Keys to Customer Data?
These days, many cloud contracts are more forthright about the fact that the cloud provider is reliant upon other third-party companies, such as Amazon, to host their cloud services (“hosting vendor”). However, the downside of such acknowledgment is that the same cloud vendors often endeavor to expressly limit (and disclaim) any liability for the actions and omissions of such hosting vendors, and any compliance by such hosting vendors with the negotiated terms of the cloud contracts (often because such vendors state that they have little practical control over such hosting vendors).
This development is more problematic in that actual cloud contracts may be silent as to the protections that are put in place between the cloud provider and its third-party hosting vendors. Such hosting vendors may not even be considered “subcontractors” for the purposes of the contract, depending on the relevant definitions. Gaps may ensue. For example, does the cloud vendor expressly state that all client data transferred to the hosting vendor is encrypted in flight, at rest, and stored encrypted by the hosting vendor? If so, does the hosting vendor have the encryption keys to decrypt data in order to provide necessary maintenance and support services? If so, this right could serve as a back door for the hosting vendor to access the customer’s data.
It may sound obvious, but cloud customers should pay special attention to cloud vendor attempts to carve out liability for their hosting vendors and should conduct additional due diligence to better understand the contractual and security protections in place between such parties.
3. AI or Not?
The use of artificial intelligence (“AI”) technology has become ubiquitous for many cloud providers, but, unfortunately, many cloud contracts are less than transparent about such usage in connection with the cloud providers’ services. Cloud vendors’ embrace of such technology may raise a host of red flags involving concerns regarding customer data protection/data security; confidentiality; the provenance of the AI systems’ training data (synthetic or customer data?); and potential copyright and legal claims relating to such data, bias considerations, and the like. Alternatively, some cloud vendors hide behind entirely separate AI-focused, hyperlinked terms that contradict the main cloud vendor agreement and that generally seek to disclaim all responsibility and liability for the AI portions of the cloud vendor solution and any output (including services) provided through such AI solutions.
A detailed review of all of the critical contractual terms necessary and required for AI contracts is unfortunately beyond the scope of this article. However, all users of cloud services should be asking pointed questions regarding the use by the vendor of AI tools and systems; and if the answer to any of these questions is yes, then customers should review and vet their contracts through an AI lens and ensure that their cloud agreement contains clear and protective contractual terms regarding data ownership, data security, and usage of customer data. At a minimum, the cloud contract should include very clear guardrails and requirements as to how the cloud vendor can collect and analyze customer data and other information in connection with the cloud vendor’s provision of the services and how the cloud provider will be using information concerning customer data and derived data to improve and enhance its services. Such guardrails should include requirements regarding the anonymization of all customer data, especially personal information and personally identifiable information.
4. “Hotel California” Exits
The lyrics contained in the classic Eagles’ song “Hotel California” that state “[y]ou can check out any time you like you like[,] [b]ut you can never leave” still apply to the treatment some cloud providers give to customers following termination of their cloud contracts. Simply put, many cloud vendors not only make it less than easy for the customer to sever its ongoing relationship but also take the opportunity to extract certain revenge.
This retribution can take many forms, assisted by the fact that most standard cloud agreements either remain resolutely silent on the exit process or devote a few insufficient sentences mainly ensuring that the cloud vendor receives its outstanding payments. Too often cloud providers merely provide clients with the opportunity to retrieve their data during a very short window of time (thirty days or less) and remain mum on everything else associated with an orderly wind-down and exit from a long-term business relationship.
For example, most contracts lack contractual commitments on the part of the cloud vendor to ensure that it continues to maintain its service levels and provide prompt support during the exit period. Most cloud providers do not commit that the data being made available for retrieval by customers is in a format accessible and useful to the client (and any replacement cloud vendor) and do not commit that the existing cloud vendor will be required to actively assist the client to securely migrate its data back to the client’s own cloud or to another third-party vendor cloud. Practically, will the customer truly be able to claw back all of its proprietary information, confidential information, and personal information from the cloud vendor—or is this technically impossible given the ingestion of such data through the vendor’s services and systems? Furthermore, if the cloud vendor is using AI tools and processes, what elements of client data, derived or otherwise, will continue to be used by the vendor post-termination? High-dollar-value-negotiated cloud agreements may contain these details, but many standard lower-value cloud agreements do not adequately address these concerns, which is problematic considering the strategic value and importance of such data to the company.
Unfortunately, experience has shown that while some forward-thinking cloud vendors will remain helpful during this sometimes-difficult transition period, it is entirely preferable (and strongly recommended) that clients seek express commitments from their cloud vendor to ensure continuity of service with no service degradation and, as required, other business requirements through a more robust transition plan (or at least the process to arrive at such a plan) in order to better protect client interests.
Takeaway
To conclude, while standard-form cloud computing agreements have definitely become more balanced during the past several years, there is still room for improvement. The client’s legal counsel, working with the company’s business and technical personnel, will continue to play a critical role in this process.
Representation and warranty provisions are critical to technology transfer transactions, such as intellectual property (“IP”) license agreements, mergers, and acquisitions. The representation and warranty provisions in a technology transfer agreement indicate guarantees or promises made by the IP proprietor (tech licensor or seller) to the receiving party (tech licensee or buyer) regarding the subject technology of the agreement. Often, the guarantees cover the functionality, performance, and IP rights of the subject technology.
IP rights clauses in representation and warranty provisions are simple on their face; however, the full depth of the copyright and patent right implications are often overlooked when the subject technology involves software.
One major issue may arise from the warranty clause of a tech transfer agreement, which typically guarantees that use of the subject technology will not infringe upon or violate the IP rights of third parties. Below is an example warranty clause:
The Transferred IP are free and clear of any liens, charges, encumbrances or rights of others to possession or use; . . . no claims have been asserted or, to Assignor’s knowledge, threatened by any Person, nor has the Assignor any knowledge of any valid grounds for any claim of any such kind . . . to the effect that the use, reproduction, modification, manufacturing, distribution, licensing, sublicensing, sale or any other exercise of rights in any of the Transferred IP infringes or will infringe on any IP of any Person . . . .
With the proliferation of open-source software (“OSS”), further consideration is warranted regarding the terms “any . . . rights of others to possession or use . . . [of] Transferred IP infringes or will infringe on any IP of any Person” (emphasis added) in such tech transfer warranties. Specifically, to the extent that one or more OSS components are employed by the subject technology, there are corresponding OSS license obligations that the IP proprietor needs to be prepared to face. Noncompliance with an OSS license means the IP proprietor is in breach of the OSS license, which can lead to loss of both copyright use rights and patent use rights of the OSS components. Without those IP use rights, the copyrights and patent rights of the OSS contributors or others may be infringed or violated by the subject technology of the tech transfer agreement.
Today, most software technologies utilize some amount of OSS in conjunction with original program code authored by the tech-licensor (or seller). Thus, most software technologies have IP rights of multiple stakeholders at play—namely, rights of the tech licensor (or seller), rights of the tech licensee (or buyer), and rights of parties to and beneficiaries of implicated OSS licenses.
As such, tech licensees (buyers) must carefully conduct due diligence before accepting IP right representations and warranties with respect to software technologies. Likewise, tech licensors (sellers) must carefully audit their software to ensure OSS compliance before setting forth IP right representations and warranties with respect to software technologies.
For tech licensees (buyers), it is essential to understand any OSS that is part of the licensed technology and the IP right implications of the OSS. This is best accomplished by relying upon software developers and third-party OSS auditing services. As part of their due diligence, tech licensees should inquire about any OSS that is delivered as part of the licensed technology and ensure that the tech licensor’s (seller’s) OSS use does not run afoul of IP rights. Further, when relying upon representations and warranties to utilize licensed technology, tech licensees (buyers) must be aware of any added OSS that they are utilizing. If, for instance, a tech licensee (buyer) utilizes some additional OSS code to implement a licensed technology, it is unlikely that the tech transfer representation and warranty provisions will indemnify the tech licensee (buyer) for any IP rights they violate by utilizing the additional OSS.
Representation and Warranty Insurance
As a replacement or alternative to the tech licensor’s (seller’s) indemnity in technology transfer transactions, representation and warranty insurance (“RWI”) is available for the tech licensee (buyer). RWI policies typically cover a wide range of issues, including IP risks and unknown or unforeseen losses. With RWI, if the representations and warrantees made in the IP license agreement (or IP purchase and sale agreement in the case of mergers and acquisitions) are breached after the deal closes, and financial loss for the tech licensee (buyer) results, then the tech licensee (buyer) can seek recourse through the insurance policy. For the tech licensor (seller), RWI shifts the risk of breach in representations and warranties to the insurance carrier. For the cost of a RWI policy, the carrier assumes the risk of the representation and warranty promises made by the tech licensor (seller), and the tech licensor (seller) is relieved of the risk of future claims of breach of such promises.
In the process of obtaining RWI, the insurance carrier expects the tech licensee (buyer) to conduct thorough and independent due diligence that includes verifying the tech licensor’s (seller’s) software assets and IP claims. Thus, RWI can make tech transfer deals less risky for both parties, but it does not alleviate the need for the tech licensee (buyer) to: (i) perform thorough due diligence and (ii) understand the far-reaching copyright and patent use rights ramifications of OSS involved in the subject technology of the tech transfer deal.
Conclusion
In summary, for software-related tech transfer deals, consider the following steps to mitigate IP risks:
Make sure IP due diligence includes an audit of software assets and any third-party or OSS code;
reduce risk by ensuring both sides understand the implications of representations and warranties; and
consider using RWI to facilitate the transaction and provide added protection.
Benjamin R. Norman Daniel L. Colston Agustin M. Martinez Gabrielle E. Supak Sabrina Y. Greer
Brooks, Pierce, McLendon, Humphrey & Leonard LLP 2000 Renaissance Plaza 230 North Elm Street Greensboro, NC 27401 336.271.3155 www.brookspierce.com
Jennifer M. Rutter
Gibbons P.C. 300 Delaware Avenue, Suite 1015 Wilmington, DE 19801 302.518.6320 www.gibbonslaw.com
Marc E. Williams Allyssa Kimbler
Nelson Mullins Riley & Scarborough LLP 949 Third Avenue, Suite 200 Huntington, WV 25701 304.526.3500 www.nelsonmullins.com
Michael J. Tuteur Jamie Steven
Foley & Lardner LLP 111 Huntington Avenue, Suite 2600 Boston, MA 02199 617.342.4000 www.foley.com
Jacqueline Bonneau Anthony J. Wong
Patterson Belknap Webb & Tyler LLP 1133 Avenue of the Americas New York, NY 10036 212.336.2000 www.pbwt.com
Tyson J. Prisbrey
Snell & Wilmer Gateway Tower West 15 West South Temple Suite 1200 Salt Lake City, UT 84101 801.257.1900 www.swlaw.com
Michael W. Tankersley
Alston & Bird LLP 2200 Ross Ave., Suite 2300 Dallas, TX 75201 214.679.2369 www.alston.com
§ 10.1. Introduction
This edition of Recent Developments describes developments in business courts in 2024 and summarizes significant cases from a number of business courts with publicly available opinions.[1] There are currently functioning business courts of some type in cities, counties, regions, or statewide in twenty-seven states: (1) Arizona; (2) Delaware; (3) Florida; (4) Georgia; (5) Illinois; (6) Indiana; (7) Iowa; (8) Kentucky; (9) Maine; (10) Maryland; (11) Massachusetts; (12) Michigan; (13) Nevada; (14) New Hampshire; (15) New Jersey; (16) New York; (17) North Carolina; (18) Ohio; (19) Pennsylvania; (20) Rhode Island; (21) South Carolina; (22) Tennessee; (23) Texas; (24) Utah; (25) West Virginia; (26) Wisconsin; and (27) Wyoming.[2] States with dedicated complex litigation programs encompassing business and commercial cases, among other types of complex cases, include California, Connecticut, Minnesota, and Oregon.[3] The California and Connecticut programs are expressly not business court programs as such.[4]
§ 10.2. Recent Developments
§ 10.2.1. Business Court Resources
American College of Business Court Judges. The American College of Business Court Judges (ACBCJ) provides judicial education and resources, in terms of information and the availability of its member judges, to those jurisdictions interested in the development of business courts.[5] The ACBCJ’s Nineteenth Annual Meeting took place in Grand Traverse, Michigan, from April 30, 2025, to May 2, 2025.[6]
Section, Committee, and Subcommittee Resources.The ABA Business Law Section provides a Diversity Clerkship Program that sponsors current first or second-year law students of diverse backgrounds in summer clerkships with business and complex court judges.[7] The ABA Business Law Section has created a pamphlet, Establishing Business Courts in Your State, which is available among other resources in the online library for the Business and Corporate Litigation Committee’s community web page.[8] The Business and Corporate Litigation Committee’s Subcommittee on Business Courts provides documents and/or hyperlinks to business court resources.[9] This includes links to public sources and legal publications, as well as business court related materials and panel discussions presented at ABA Business Law Section meetings. The Section also has established a Business Courts Representatives (BCR) program,[10] where a number of specialized business, commercial, or complex litigation judges are selected to participate in and support Section activities, committees, and subcommittees. These BCRs attend Section meetings, and many have become leaders within the Section. Judge Richard Platkin of the Supreme Court of the State of New York Commercial Division – Albany County and Judge Patricia A. Winston of the Superior Court of Delaware, serve as BCRs for the 2023–2025 term.[11] Finally, this publication has included a chapter on updates and developments in business courts every year since 2004.
Other Resources. “The National Center for State Courts (NCSC) and the Tennessee Administrative Office of the Courts (AOC) developed an innovative training curriculum[12] and faculty guide[13]—along with practical tools—to help state courts establish and manage business court dockets more efficiently and effectively.”[14] The Business Courts Blog,[15] created by Lee Applebaum and now guided by Doug Toering, aims to serve as a national library to those interested in business courts, with posts on past, present, and future developments. This includes posts on reports and studies going back twenty years, as well as recent developments in business courts.[16] In 2024, articles and reports addressed various aspects of business courts.[17] There are also various legal blogs with content relating to business courts in particular states.[18]
§ 10.2.2. Developments in Existing Business Courts
§ 10.2.2.1. Arizona Commercial Court
No 2024 Opinions. The Arizona Commercial Court did not publish any written decisions in 2024.
§ 10.2.2.2. Florida’s Complex Business Litigation Courts
Following last year’s expansion from six business court divisions to seven, little has changed in Florida’s business courts. Judge John E. Jordan continued to preside over the Ninth Judicial Circuit’ new (for 2023) business court division in Osceola County (Division 23), as well as the pre-existing business court division in Orange County (Division 43).[19] In the Eleventh Judicial Circuit, Judges Thomas Rebúll (Division 43) and Lisa Walsh (Division 44) continued to preside over the business court divisions.[20] In the Seventeenth Judicial Circuit, Judge Carol-Lisa Phillips (Division 26)[21] and Chief Judge Jack B. Tuter (Division 07) continued to preside over the business court divisions. And so too in the Thirteenth Judicial Circuit, where Judge Darren Farfante (Division L) continued in his role presiding over the business court.[22]
§ 10.2.2.3. Indiana Commercial Court
In September 2024, the Indiana Supreme Court adopted a substantial revision of the Indiana Commercial Court Rules[23] based on recommendations from the members of the Indiana Commercial Court Committee.[24] The amended Rules now employ English language throughout to be more accessible to readers. The Indiana Supreme Court also formally amended Commercial Court Rule 5 to permit Commercial Court jury trials to be held in a non-Commercial Court county for good cause shown. The Commercial Court judge would still oversee the trial, but the jurors would come from the non-Commercial Court county where the trial is held. Other revisions include renaming “special masters” under Commercial Court Rule 6 to “court-appointed neutrals” and providing further commentary on discovery pursuant to Commercial Court Rule 7.
In addition to the rule changes, the Indiana Commercial Court now has a publicly accessible online directory of court-appointed neutrals for parties to select. This list includes the names, areas of experience, and hourly rate for the court-appointed neutral.[25]
In 2024, two new judges were selected to oversee Indiana Commercial Court dockets. Judge Christina Klineman became the Commercial Court judge for Marion County, Indiana, replacing Judge Heather Welch. Judge Welch was one of the original six judges of the Indiana Commercial Court and now serves as a senior judge alongside her work in alternative dispute resolution.[26] Judge Stephanie Steele replaced Judge Cristal Brisco for the Commercial Court for St. Joseph County, Indiana[27] after Judge Brisco was nominated and confirmed to join the federal bench at the United States District Court for the Northern District of Indiana.[28] Judge Stephen Bowers, another one of the original six Indiana Commercial Court judges and key driver of the revisions to the Commercial Court Rules, retired at the end of 2024.[29] Judge Andrew Hicks takes Judge Bowers’ place in the Commercial Court for Elkhart County, Indiana.[30]
Indiana maintained ten Commercial Court courts in 2024. Starting in July 2025, Tippecanoe County, Indiana, is set to house Indiana’s 11th Commercial Court.[31]
§ 10.2.2.4. Iowa Business Specialty Court
Iowa Business Specialty Court Issues Its Biannual Review for 2022–2023.To ensure the Business Court continues to achieve its purpose and meet its goals, the Iowa Supreme Court directed the state court administrator to conduct a biannual review beginning on January 1, 2023. The Iowa Business Specialty Court Report, Calendar Years 2022–2023 (the “Report”), was released in 2024. The Report includes survey data for cases resolved in calendar years 2022 and 2023 and case data since the Business Court’s inception in 2013. The Report shows the Business Court has experienced a steady and substantial growth in case volume. After receiving a total of 12 case transfers in the first two years of operation, the Business Court’s case volume grew to a record high of 47 new case transfers in 2023. This increase in case volume has led to gradual expansion of the Business Court, which currently has eight judges. The Report also included survey data assessing the performance of and user satisfaction with the Court. The survey results indicate high levels of satisfaction with the quality of the Business Court judges and the effectiveness of the Business Court in managing and resolving complex business disputes. The vast majority of survey participants reported that they would seek assignment of qualifying cases to the Business Court in the future and moderate to high levels of satisfaction with the efficiency and fairness of the Business Court and its procedures.
§ 10.2.2.5. Massachusetts Business Litigation Session (BLS)
In 2024, the Massachusetts Business Litigation Session (BLS) implemented Superior Court Administrative Directive No. 24-1, which rescinded and replaced Administrative Directive No. 17-1, the operative directive since 2017. Alongside this change, the BLS released an updated Civil Action Cover Sheet. The key updates in Administrative Directive No. 24-1 include expanded use of video conferencing at the judge’s discretion, and a new requirement that the BLS Civil Action Cover Sheet specify the amount in controversy.
§ 10.2.2.6. Michigan Business Courts
Michigan Judicial Institute Conference on Enhancing Mediation Effectiveness. On September 12, 2024, the Michigan Judicial Institute, along with the Commercial Litigation Committee of the State Bar of Michigan’s Business Law Section, hosted a program called Creative Case Resolution: The Art of Case Scheduling and Mediation. Michigan Supreme Court Justice Brian Zahra and most of Michigan’s business court judges attended. The program included discussions on defining an effective mediation process, insights into making mediation most effective, and the benefits of a pre-mediation conference with the parties. A summary of the program may be found in the Michigan Business Law Journal’s Fall 2024 issue.[32]
Business Court Retirements and Appointments. Judge Timothy P. Connors (Washtenaw County) retired on December 31, 2024, and was replaced by Judge Carol Kuhnke. Judge Joyce Draganchuk (Ingham County) retired at the end of 2024 and was replaced by Judge James S. Jamo.
The business court legislation became effective January 1, 2013.[33] Business court judges are appointed for a six-year term.[34] The terms of all business court judges (regardless of when they were appointed) will expire April 1, 2025.[35] At the time of this writing, it is not known which judges the Michigan Supreme Court will reappoint and who will be appointed as new judges.
Other Resources. In 2024, the Michigan Business Law Journal published three Touring the Business Court columns, including interviews with business court judges Judge Curt A. Benson (Kent County), Judge Michael P. Hatty (Livingston County), Judge Brian Kirkham (Calhoun County), and Judge Michael L. West (St. Clair County). Those articles, and others, are available at https://connect.michbar.org/businesslaw/newsletter.
Additionally, the Business Court Blog regularly covers matters pertaining to business and commercial courts in Michigan and across the United States. That blog is available at www.businesscourtsblog.com.[36]
§ 10.2.2.7. New York Commercial Division
New York State Amends Rule Giving Affirmations Same Force and Effect as Affidavits. On January 1, 2024, Section 2106 of the New York Civil Practice Law & Rules (“CPLR”) was amended to give affirmations the same force and effect as affidavits. The amended CPLR 2106 concerning affirmations states: “The statement of any person wherever made, subscribed and affirmed by that person to be true under the penalties of perjury, may be used in an action in New York in lieu of and with the same force and effect as an affidavit.” Prior to this amendment, only certain non-party New York licensed professionals, such as attorneys, health-care professionals, and individuals located outside the United States could submit affirmations in lieu of affidavits.
New York Commercial Division Amends Rule to Include Technology Disputes and to Encourage the Use of Referees. On February 14, 2024, New York’s Chief Administrative Judge signed an Administrative Order amending Section 202.70(b)(1) of the Uniform Rules for the Supreme and County Courts (Rules of the Commercial Division of the Supreme Court) and adding a new Rule 9-b to Section 202.70(g). These rules reiterate that the Commercial Division is capable of handling cases relating to technology disputes and also encourages the use of referees in Commercial Division cases to increase the efficient adjudication of commercial disputes. Although these amendments did not add new authority to the scope of the Commercial Division’s existing practices, they serve to underscore some of the Commercial Division’s under-utilized capabilities.
The amendment to Rule 202.70(b)(1) further clarifies the scope of the Commercial Division’s limited jurisdiction and now emphasizes that “commercial” cases that may be heard by the Division include those resulting from “technology transactions and/or commercial disputes involving or arising out of technology.” As explained in a memo released by the Commercial Division Advisory Council (“CDAC”), this amendment does not expand the Commercial Division’s jurisdiction to include a new category of cases, but is instead intended to serve as a reminder that the Commercial Division is sophisticated enough to adjudicate disputes arising from technology, an increasingly common category of disputes.
The Administrative Order also adds Rule 9-b to Section 202.70(g). The new rule states that “Counsel should be aware that in accordance with CPLR 4301 and 4317(a), on consent of the parties, and with the agreement of the Court, any person may be appointed by the Court to act in place of the assigned Supreme Court Justice, to determine any or all issues or to perform any act, with all the powers of the Supreme Court.”
Rule 9-b is meant to encourage the use of referees in Commercial Division cases. As with the amendment to Section 202.70(b)(1), this rule does not add any new capabilities to the Division’s repertoire but instead highlights the options already available for cases in the Commercial Division. In a memo, the CDAC wrote that this amendment “hopes to bring attention to the availability of referees to adjudicate disputes with a new Commercial Division rule.” The rule is voluntary, but it is hoped that increased use of referees will further the goal of efficient adjudication of commercial matters.
New York Commercial Division Amends Rule Regarding Monetary Thresholds. On January 28, 2025, Chief Administrative Judge Joseph Zayas signed an Administrative Order amending the requisite monetary threshold necessary for a case to be assigned to the New York Supreme Court Commercial Division. The amendment requires cases seeking equitable or declaratory relief to also satisfy the monetary thresholds for each county (currently $500,000 in New York County). Prior to the amendment, a case seeking equitable or declaratory relief could qualify to be heard by the Commercial Division as long as it met the definition of a “commercial” dispute, regardless of the amount in controversy. Under the new rule, the Court will look at the “value of the object of the action” in such cases, which will be determined by the “value of the suit’s intended benefit, the value of the right being protected, or the value of the injury being averted, whichever is greatest” in determining monetary thresholds. This amendment went into effect on March 31, 2025.
§ 10.2.2.8. North Carolina Business Court
Various Changes to the North Carolina Business Court’s Composition. There were various personnel changes at the North Carolina Business Court in 2024. The most notable was the retirement of Judge Louis A. Bledsoe, III (based out of Charlotte). Judge Bledsoe served on the Business Court since 2014 and was the Chief Business Court Judge since 2018. Judge Michael L. Robinson (based out of Winston-Salem), who has served on the Business Court since 2016, was appointed to serve as the new Chief Business Court Judge. Finally, attorney A. Todd Brown was appointed to the Business Court, with chambers located in Charlotte. Judge Brown previously practiced at Hunton Andrews Kurth, including serving as the managing partner of the firm’s Charlotte office, and also served as the President of the North Carolina State Bar.
§ 10.2.2.9. South Carolina Business Court Program
Administrative Order Restructures the Business Court.The South Carolina Supreme Court issued a new administrative order on August 1, 2024, amending the state’s Business Court Program just one year after the prior amendment in July 2023. Notably, the 2024 order omits any reference to the regional structure first implemented with the court’s statewide expansion in 2014 and reaffirmed in recent administrative orders from 2019 and 2023.[37] Although the order does not expressly dissolve the regional divisions or explain the rationale for their omission, its silence may suggest a shift toward a more flexible model, affording the Chief Business Court Judge greater latitude in assigning judges without regard for regional assignments.
The 2024 order also revises the roster of Business Court judges. Judges Edward W. Miller and Clifton Newman are no longer listed, while the order designates five new judges—G.D. Morgan Jr., Courtney Clyburn Pope, Thomas William McGee III, Milton G. Kimpson, and Kristi F. Curtis.[38]
The order retains the core subject matter jurisdiction listed in the 2023 order, covering cases arising under Titles 33, 35, 36 (Chapter 8), and 39 (Chapters 3, 8, and 15) of the South Carolina Code. It also broadens the scope to include “any other matter deemed appropriate by the Chief Business Court Judge,” effectively restoring a level of discretion that had been removed in the 2023 order.[39]
One last change merits mention. The order omits the previous 180-day deadline for requesting Business Court assignment, suggesting parties may make such requests at any stage using the required SCCA BC Form 101.[40]
§ 10.2.2.10. Texas Business Court
Opening of the Texas Business Court and Fifteenth Court of Appeals—September 1, 2024, to December 31, 2024. The Texas Business Court, created by the 2023 Texas Legislature’s enactment of House Bill 19,[41] opened its doors on September 1, 2024.[42] Governor Abbott appointed ten judges to the court in June of 2024,[43] to serve in five multi-county Business Court Divisions encompassing the state’s major business and population centers.[44] Six more rural Business Court Divisions, covering the remainder of the state, were also created in 2023, but funding and the Governor’s authority to appoint judges for those divisions were deferred for confirming action by the 2025 Texas Legislature.[45] The Texas Supreme Court approved amendments to the Texas Rules of Civil Procedure applicable to the Business Court,[46] and the Business Court adopted local rules.[47]
By December 31, 2024, the Business Court had received a total of 56 case filings, 29 in the 11th Division and 15 in the 1st Division, with the remainder spread in approximately equal numbers among the other three divisions. Judges from the Third, Fourth and Eighth Business Court Divisions have been assigned to hear eight of the 29 cases filed in the 11th Division in order to balance workloads.[48] Fifteen of the filings sought to remove proceedings to the business court that had commenced in Texas district courts prior to September 1, 2024, all of which have been declined by the Business Court judges hearing the cases and remanded to the originating courts for reasons discussed below. Those cases are the subject of the eight opinions published by the Business Court in 2024, and the six appeals from Business Court decisions filed in the new Fifteenth Court of Appeals in 2024.[49]
The balance of Business Court case filings consists primarily of breach of contract claims involving damages in excess of $10 million,[50] many of them arising in the energy and real estate industries, and private company governance and control disputes where there is more than $5 million in controversy.[51] With the exception of one injunctive action seeking to protect intellectual property rights that was tried to a decision, denying the plaintiff’s request, and that is currently on appeal,[52] all of the pending 2024 Business Court cases are in early procedural stages.
Joining the Business Court in opening its doors on September 1, 2024, was the Fifteenth Court of Appeals, a new, specialized appellate court having statewide geographic reach that was created by Senate Bill 1045[53] (SB 1045) enacted by the 2023 Texas Legislature. The Fifteenth Court is the exclusive destination for appeals of orders and decisions of the Business Court.[54] It is staffed by three justices, also appointed by Governor Abbott in June, 2024.[55] Unlike the Business Court judges, who are subject to reappointment by the governor at the end of their two-year terms, the Fifteenth Court justices must stand for election in November 2026, and will thereafter serve six-year terms. The Fifteenth Court received six appeals from the Business Court between September 1, 2024, and December 31, 2024.
Is The Fifteenth Court of Appeals Limited to Hearing Appeals of Specified State Interest and Business Court Cases? In an unexpected development, the Fifteenth Court during its first four months of operation also received five appeals of business cases from district court decisions, or motions to transfer appeals of business cases from one of the other fourteen courts of appeals, seeking to take advantage of the Fifteenth Court’s developing business expertise.[56] Advocates for the Fifteenth Court during the 2023 Texas Legislature were clear in stating that its jurisdiction would be exclusively limited to specific types of state interest cases and appeals from the Business Court, and that it would not receive other appeals. Section 22.220(d) of the Texas Government Code, states: “(d) The Court of Appeals for the Fifteenth Court of Appeals District has exclusive intermediate appellate jurisdiction over the following matters arising out of or related to a civil case . . . (emphasis added).” SB 1045 made a number of other amendments to Chapter 22, Tex. Gov’t Code that are consistent with legislative intent that it have a tightly limited subject matter jurisdiction.
The district court appellants seeking to have the Fifteenth Court accept their appeals have pointed out that while SB 1045 is clear in describing the areas where the Fifteenth Court does have exclusive jurisdiction, and also in establishing that it has no criminal law jurisdiction, the statute never states in similarly clear terms that the Fifteenth Court’s general civil jurisdiction as a Texas appellate court has been limited in any way. And since the Fifteenth Court’s geographic jurisdiction covers the entire state, their argument, stated most broadly, is that every appellant from a district court decision anywhere in the state can therefore file their appeal with the Fifteenth Court.
The judges of the Fifteenth Court have split 2–1 over this issue (Chief Justice Brister dissenting), in favor of the court accepting these appeals. The First, Thirteenth and Fourteenth Courts of Appeals, which are in line to receive these appeals if the Fifteenth Court does not, have also reached diverse conclusions. In response, these courts have made the necessary filings under Rule 27a of the Texas Rules of Appellate Procedure (Transfers To and From Fifteenth Court of Appeals), to place the question in the hands of the Texas Supreme Court, which responded in a per curiam opinion on March 14, 2025.[57] The Court does note in its opinion that it retains the authority to direct cases from the regional courts of appeals to the Fifteenth Court for purpose of docket equalization and has begun to initiate such transfers.
Do the New Texas Courts Comply with the Texas Constitution? The single most important judicial decision in the young lives of the new courts was rendered by the Texas Supreme Court on August 23, 2024, before any of the judges and justices had been seated or the first case filed: In re Dallas County, Texas and Marian Brown, in her official capacity as Dallas County Sheriff (In re Dallas County). That action was filed in the Texas Supreme Court[58] on May 22, 2024, in reliance upon Section 3.02 of SB 1045, which conferred upon the Texas Supreme Court “exclusive and original jurisdiction over a challenge to the constitutionality of this Act or any part of this Act.” Section 4 of HB 19 creating the Business Court includes similar language that has not yet been acted upon for reasons discussed below.
SB 1045 required that approximately 90 pending appeals of state interest cases be transferred to the Fifteenth Court of Appeals on September 1, 2024. Dallas County, party to one of those appeals, objected to the transfer and filed suit in the Texas Supreme Court to block it. Three principal constitutional challenges were raised: (1) the geographic scope of the new court’s jurisdiction, covering the entire state, and thereby overlapping with all other courts of appeals, was impermissibly broad; (2) the exclusive subject matter jurisdiction of the new court (enumerated cases of statewide importance where the State of Texas is a party and cases appealed from the Business Court) impermissibly removed jurisdiction over those cases from the existing appellate courts; and (3) the new justices were unconstitutionally installed because they would not stand for election until November 2026, despite having been appointed in September 2024, prior to a November general election in which they should have been included.
The Texas Supreme Court artfully disposed of each of these arguments in a 9–0 opinion delivered August 23, 2024. Justice Evans, writing for the court, provided a thorough 12-page history of the many instances over the past 150 years in which the people of Texas have approved amendments of the Texas Constitution to give the Texas Legislature increasing authority to shape the structure of the Texas court system to meet the needs of the state, and where the Legislature has used that authority in creative ways. The opinion recites a long history of geographically overlapping appellate court jurisdiction (two state appeals court districts, the First and Fourteenth Courts of Appeals, cover the same counties, a complete overlap) and the long-accepted practice of moving appellate cases freely among the fourteen courts of appeals to balance workloads. The opinion notes prior actions of the Legislature having the effect of taking jurisdiction away from specific courts and bestowing it elsewhere, and confirms that the Legislature was not compelled by the Texas Constitution to force the justices appointed in June 2024 to participate in a partisan election in November 2024 that had begun with primaries in March 2024.
So, what is the significance of the In re Dallas County decision for the Business Court? The view of many observers of SB 1045 when it was enacted was that establishing the constitutionality of the Fifteenth Court of Appeals might be more of a challenge than was presented by the Business Court. The constitutionality of the Business Court received substantial support from a 1950 Texas Supreme Court case that addressed a legislatively created court, with an appointed judge and a narrow subject matter jurisdiction, possessed of all the procedural authority of a district court, but dealing with a narrow, specialized subject matter jurisdiction, Jordan v. Crudgington.[59] Further support is provided by Article V, Section 8 of the Texas Constitution, added in 1985 (and carefully avoided in commentary by critics of the Business Court): “District Court jurisdiction consists of exclusive, appellate, and original jurisdiction of all actions, proceedings, and remedies, except in cases where exclusive, appellate, or original jurisdiction may be conferred by this Constitution or other law on some other court, tribunal, or administrative body.”
The general consensus among supporters of the Business Court has been that if the Legislature can by “other law” confer district court jurisdiction upon “some other tribunal, or administrative body . . .” with no limitation that the receiving body even be a court, or that its members be elected (in fact, almost all of them in practice are appointed by the Governor), it can certainly grant concurrent jurisdiction over the matters identified in Sec. 25A.004 Tex. Gov’t Code to the Business Court.
The Dallas County opinion persuasively reviews and interprets essentially all of the older Texas cases that speak to the constitutionality of the Business Court in ways that are confirming of its validity. The opinion, while never speaking directly of the Business Court, addresses and discards interpretations of those cases relied upon by opponents of the Business Court to question its constitutionality.
The Dallas County opinion provides a strong indication that the Texas Supreme Court, in a properly presented case, would uphold the constitutionality of the Business Court. As Chief Justice (Ret.) Tom Phillips and Matthew Hilderbrand state in their October 2024 Texas Lawyer article, “In our view, there should be no doubt that the business court is well within the legislative prerogative to create.”[60] Chief Justice Phillips is among the state’s most respected appellate lawyers. It is rare for him to associate with that sort of unqualified public prediction of what the Texas Supreme Court might decide.
A secondary indicator supporting the conclusion that the Dallas County decision may have substantially diminished or foreclosed the likelihood of a constitutional challenge in the near term is that, with over 120 cases filed in the Business Court as of this writing, and vigorous resistance to litigating in the business court being demonstrated by a fair number of responding parties represented by eminent counsel, no one has initiated a proceeding in the Texas Supreme Court challenging the constitutionality of the Business Court. Lastly, Texas legal writing since the August 23, 2024, issuance date of the In re Dallas County opinion is devoid of fresh public assertions of the Business Court’s unconstitutionality or any effort to distinguish its holdings as not providing assurance of the constitutional soundness of the Business Court.
The First Procedural Controversy—Can Actions Commenced in District or County Courts Prior to September 1, 2024, Be Removed to the Business Court? Section 8 of HB 19 consists of a single sentence, intended to be succinct and clear in its meaning and effect: “The changes in law made by this Act[61] apply to civil actions commenced on or after September 1, 2024.” The implicit counter-proposition is equally succinct and clear: If your case was pending in a Texas district court or county court at law on August 31, 2024, the law creating the Business Court does not apply to your action—it should proceed under the laws of Texas that do not include Chapter 25A, Tex. Gov’t Code, or the Business Court.[62]
Provisions identical to Section 8 appeared in each of the prior versions of business court legislation filed in 2015 through 2021. The language used was consistently viewed by the authors and supporters of each of the bills as intended to prevent a potential flood of preexisting cases from overwhelming the Business Court in its earliest days. It also reflected the recognition that the pending district court cases that might be removed to the Business Court would have been filed in reliance on existing law that predated the creation of the Business Court, representing much expenditure of planning and effort in the expectation of litigating in state district court. An open door for movement of pending cases to the Business Court would inappropriately disturb that status quo and was likely to increase the level of opposition to creation of the Business Court coming from the potentially affected parties and judges.
A surprising number of litigants pursuing complex business litigation in the Texas district courts on August 31, 2024, ultimately 15 of them,[63] have taken a different view of the matter. They either failed to notice Section 8 or failed to interpret it in the manner expected by the drafters of HB 19, and as a result filed motions to remove or transfer their pre-September 1, 2024, pending cases to the Business Court. None of those efforts have succeeded at this point, although several are the subject of pending appeals to the Fifteenth Court of Appeals.[64]
Overlooking Section 8 is a surprisingly real possibility. Sections 4–9 of HB 19 are considered by the Texas Legislative Council, arbiter of proper drafting of Texas legislation, as “transitory provisions” that should not appear in the codified version of the Business Court statute, Chapter 25A, Tex. Gov’t Code, which presents the text of only Section 1 of House Bill 19. As a result, lawyers who consulted the Texas Business Court’s codified statute online would not have seen the language from Section 8 quoted above. Codified versions of Texas statutes that can be easily accessed online are not in fact the official laws of Texas. That status attaches only to the Session Laws enacted by the Texas Legislature and catalogued by the Secretary of State,[65] i.e., “Act of May 25, 2023, 88th Leg., R.S., ch. 380, §§ 8, 2023 Tex. Sess. Law Serv. 919 (H.B. 19).”[66]
Several provisions of Chapter 25A, Tex. Gov’t Code, when read alone without consideration of HB 19 Section 8, would give the impression that a party to a pre-September 1, 2024, lawsuit could remove their case to the Business Court. Many of the parties arguing that the Business Court should accept the removal of their pre-September 1, 2024, cases founded their arguments upon these provisions:
Sec. 25A. 006(d): “A party to an action filed in a district court or county court at law that is within the jurisdiction of the business court may remove the action to the business court. . . .”
Sec. 25A.006(f): “A party may file an agreed notice of removal at any time during the pendency of the action. If all parties to the action have not agreed to remove the action, the notice of removal must be filed: (1) not later than the 30th day after the date the party requesting removal of the action discovered, or reasonably should have discovered, facts establishing the business court’s jurisdiction over the action; . . .”
In any event, the lawyers arguing for the Business Court to accept these cases have brought forward and thoroughly briefed many thoughtful and ingenious arguments for the judges to consider. To this point the Business Court’s judges have accepted none of them, holding firm to the position that the Business Court is without authority to hear any action that commenced prior to September 1, 2024.
Looking Ahead. The Texas Business Court has been in existence for a little more than five months and is making strides that confirm the high expectations of its supporters in the Texas business bar and business community. At the same time, it is widely recognized that the new court is also a work in progress that will continue to develop, face challenges and implement solutions each year.
HB 19 enacted by the 2023 Texas Legislature to create the Business Court was a 30-page bill. The current draft of a 2025 Texas Business Court Improvements Act introduced in the 2025 Texas Legislature clocks in at 44 pages. The 2025 legislation amends Chapters 24 and 25A, Texas Government Code, and the Texas Civil Practice and Remedies Code, to clarify and make technical corrections and improvements in the law applicable to the existence and functioning of the Business Court as an integral part of the Texas judiciary.
The amendments, among other things:
clarify and confirm the Business Court’s subject matter jurisdiction and fill jurisdictional gaps relative to the business courts of other states;
reduce the required amount in controversy for Business Court jurisdiction over disputes relating to qualified transactions and other business and commercial disputes from $10 million to $5 million;
authorize Business Court judges to make determinations of whether a claim is within the Business Court’s supplemental jurisdiction, whereas the current law requires agreement of all parties and the Business Court judge;
direct the Texas Supreme Court to adopt rules for the Business Court that will support prompt and final determination of jurisdictional questions;
authorize the Business Court to hear cases arising out of domestic and international arbitration and proceedings under the Federal Arbitration Act; and
authorize the Governor to appoint an additional judge to each of the First and Eleventh Business Court Divisions on or after September 1, 2026.
§ 10.2.2.11. Utah Business and Chancery Court
The creation of Utah’s Business and Chancery Court represents a significant step forward in the state’s judicial system, designed to adjudicate complex business disputes and equitable claims. This specialized court serves to streamline legal processes for commercial matters, providing a dedicated forum for resolving issues such as corporate governance, contract disputes, and other business-related litigation. By focusing on these areas, the Business and Chancery Court enhances the predictability and effectiveness of legal resolutions, hopefully fostering a more business-friendly environment in Utah.
Unique Features of the Utah Business and Chancery Court.The jurisdiction of the Business and Chancery Court is limited to disputes that are seeking monetary damages of at least $300,000 or seeking solely equitable relief, like an injunction, and with a claim arising from one of several enumerated causes of action, which are all related to commercial activities such as breach of contract, breach of fiduciary duty, business governance disputes, dissolution, and derivative shareholder actions.[67] The statute also provides a list of claims for which the Business and Chancery Court does not have jurisdiction, most notably consumer contract disputes and personal injury cases.[68] Thus, the Business and Chancery Court will not have to contend with thousands of consumer debt recovery cases that currently congest the district courts’ dockets.
A few of the major goals for the Business and Chancery Court are predictability, consistency, and efficiency. The legislature wanted the Business and Chancery Court to create a body of case law that provides businesses with predictability regarding how disputes will be resolved. To that end, the Business and Chancery Court must publish every final decision and order on the Utah Courts’ website.[69] By publishing all of its decisions, the Court will be better equipped to rule consistently, which in turn helps parties make more informed decisions about their operations and legal matters. Additionally, the Business and Chancery Court must provide parties with the judge’s proposed ruling on any motion within 48 hours before the day on which oral argument is held on the motion.[70] This allows the parties to efficiently prepare for oral argument only on issues that may impact the judge’s ruling based on the initial ruling.
Like many other business courts, including the Delaware Court of Chancery, the Business and Chancery Court will not conduct jury trials, only bench trials.[71] The Business and Chancery Court can operate anywhere in the state and has state-wide jurisdiction.[72] However, if either party requests a jury, as is their guaranteed right under Utah’s Constitution, the lawsuit must be transferred to a District Court that has venue.[73]
Finally, due to the nature of the cases before this court, a prospective judge’s prior experience will likely be a significant factor for the judicial nominating commission. The Business and Chancery Court’s first judge, appointed by Governor Spencer Cox on July 26, 2024, is Judge Rita M. Cornish. Judge Cornish had been a Utah District Court Judge since January 2021. Prior to her appointment, Judge Cornish was a partner at the law firm of Parr Brown Gee & Loveless where she maintained a complex-civil litigation practice, including ADR, trial, and appellate work, focusing on construction litigation and control disputes, and breaches of fiduciary duties by officers, directors, or managers in closely-held business entities. Judge Cornish brings years of commercial litigation experience that the Business and Chancery Court needs to live up to its goals of predictability, consistency, and efficiency.
The Utah Business and Chancery Court is an innovative addition to the state’s legal system, created to address the growing demand for specialized business dispute resolution. By focusing on efficiency, predictability, and expertise, the Business and Chancery Court will hopefully streamline the litigation process and help bolster Utah’s status as a competitive hub for businesses.
No 2024 Opinions. Opening its doors in October of 2024, the Business and Chancery Court did not publish opinions in 2024.
§ 10.2.2.12. Wisconsin Commercial Docket Pilot Project
Termination of the Commercial Docket Pilot Project. In 2024, the Wisconsin Supreme Court voted 4–3 to terminate Wisconsin’s Commercial Docket Pilot Project, which began in 2017. Twenty-six Wisconsin counties participated in the program during its 5-year run: Waukesha, Dane, Racine, Kenosha, Walworth, Brown, Door, Kewaunee, Marinette, Oconto, Outagamie, Waupaca, Ashland, Barron, Bayfield, Burnett, Chippewa, Douglas, Dunn, Eau Claire, Iron, Polk, Rusk, St. Croix, Sawyer, and Washburn.
The Project was originally approved in 2017 for a three-year term and was extended in 2022 for an additional two years, with an end date of July 30, 2024. On May 30, 2024, the Business Court Advisory Committee filed a petition seeking to extend the Project until July 1, 2026. The Supreme Court voted to solicit public comments regarding the Committee’s petition and temporarily extended the Project while disposition of the petition was pending. Those comments were considered at a public hearing on September 24, 2024. Following that hearing, the Court met in an open administrative conference where they voted to deny the petition and terminate the Project. On October 7, 2024, the Court ordered that no additional cases shall be assigned to the commercial court docket, but cases already assigned to the commercial court docket shall continue under the existing interim rules pending further order of the Court. Chief Justice Annette Kingsland Ziegler, Justice Rebecca Grassl Bradley, and Justice Brian Hagedorn dissented. The Court has not since issued any orders regarding dissolution of the Project.
No 2024 Opinions. The Wisconsin Commercial Docket did not publish any written decisions in 2024.
§ 10.2.2.13. Wyoming Chancery Court
The Wyoming Chancery Court is now fully operational with selection of its first full-time judge in November of 2024. Judge Benjamin Burningham (co-editor of this publication) was sworn in on January 2, 2025, and has now assumed all chancery cases from Judges Steven Sharpe and Richard Lavery, district court judges who oversaw chancery cases on a part-time basis. Before his appointment, Judge Burningham served as Chief Legal Officer of the Wyoming Judicial Branch and Director of the Wyoming Chancery Court, where he played a key role in establishing the court. His legal career has focused on complex civil litigation, including pharmaceuticals, securities, multidistrict litigation, antitrust, and transactional matters. He previously led the Consumer Protection and Antitrust Unit at the Wyoming Attorney General’s Office and worked on securities litigation at the Washington, D.C., firm Kellogg Hansen. Judge Burningham earned his law degree with honors from George Washington University, where he served as managing editor of The George Washington International Law Review.
Even before having a full-time judge, Wyoming Chancery Court’s growth remained steady last year, with 15 cases in 2022, 31 cases in 2023, and 47 cases in 2024. The court also met its goal of resolving disputes quickly: last year’s average time to disposition was 148 days from filing.
The court’s procedural rules received two significant updates in 2024. First, the starting point for the court’s case-resolution target—found in Wyo. Stat. § 5–13–104 and W.R.C.P.Ch.C. 1—was moved to exclude the sometimes-lengthy delays caused by service of process. The court now aims for case resolution within 150 days after a case’s scheduling order (issued 14 days after any defendant appears) rather than 150 days from a case’s filing. Second, W.R.C.P.Ch.C. 3(a), which allows any defending party to object to proceeding in chancery court, was amended to change a defending party’s objection deadline from “the date its first pleading is due” to “the date its first responsive pleading or motion to dismiss is due[.]” This change sought to avoid gamesmanship of defendants testing the waters with a motion to dismiss—thereby delaying their responsive pleading’s due date—only to later object under Rule 3(a) if dissatisfied with the 12(b) order. The update also clarified that only named parties may object.
§ 10.3. 2024 Cases
§ 10.3.1. Delaware Superior Court Complex Commercial Litigation Division
Pazos v. AdaptHealth, LLC[74] (Granting motion to dismiss petition alleging independent accountant committed manifest errors).This case involves a purchase agreement which included certain post-closing purchase price adjustment calculations. The purchase agreement also contained a provision allowing the parties to dispute such calculations and a dispute resolution mechanism providing that an independent accountant’s determination would be final and binding upon the parties absent manifest error. The buyer alleged that the independent accountant committed such manifest errors. After ordering limited discovery to be completed, the Court held that the independent accountant committed no manifest errors because it weighed various documents, conducted an analysis using its subject expertise, and reached a conclusion about the parties’ intended inclusion.
The Court first concluded that the dispute resolution mechanism in the purchase agreement was an “expert determination” provision, rather than an arbitration provision subject to the Federal Arbitration Act, because the independent accountant’s authority was limited in scope to solely resolving cost adjustment disputes. Because this purchase agreement contained an expert determination provision, the Court applied Delaware rules of contract interpretation and the purchase agreement’s terms to decide whether the independent accountant committed a manifest error. The Court held that an expert commits manifest error only “if it made a plain and obvious error, and the record demonstrates strong reliance on that error.” Without such manifest error, the Court will not “overstep its bounds” to insert its own judgment or analysis. Accordingly, the Court granted the respondent’s motion to dismiss.
Huntsman Int’l, LLC v. Dow Benelux, N.V.[75] (Granting motion for sanctions for spoliation of ESI).This matter arises out of a purchase agreement between the parties in which the plaintiffs acquired certain assets of the defendants, which led to the parties entering into a supply agreement. In connection with the supply agreement, there was a dispute over invoices submitted by the defendants to the plaintiffs. The defendants filed a counterclaim alleging that the plaintiffs failed to forecast product in good faith which tied up the defendants’ product and prevented the defendants from finding alternative buyers for the product. The plaintiffs used a variety of databases to generate such forecasts.
Through the discovery process, the defendants learned that the plaintiffs had failed to preserve documents from the forecasting databases which were central to the defendants’ counterclaim and should have been preserved. The Court found that the plaintiffs had acted recklessly in failing to preserve the ESI and granted the motion for sanctions for spoliation. In particular, the Court found that the plaintiffs failed to take reasonable steps to preserve the ESI such as issuing a litigation hold to preserve relevant documents once it reasonably anticipated litigation and disallowing the automatic deletion of data. The Court further found that the plaintiffs failed to disclose timely their failure to preserve the information to both the defendants and to the Court. Accordingly, the Court awarded defendants an adverse inference as to the lost information, limited the plaintiffs’ ability to rely on certain documents, and awarded the defendants attorneys’ fees.
Matrix Parent, Inc. v. Audax Mgmt. Co., LLC[76] (Fraud claims pursuant to a stock purchase agreement survived a motion to dismiss). In Matrix Parent Inc., in connection with a stock purchase agreement, the plaintiff alleged that it overpaid hundreds of millions of dollars for the defendant and connected entities due to the defendant’s fraudulent scheme to overstate its growth of new bookings and revenue, i.e., cook its books. Under the stock purchase agreement, the defendant expressly represented that its books were accurate and complete. The parties’ stock purchase agreement only permitted claims of knowing fraud as opposed to reckless fraud, a limitation permissible under Delaware law.
The Court found that the plaintiffs raised a reasonable inference that the defendants knew of the fraud. For pleading purposes, the Court applied the “position to know” standard—if a defendant was in a position to know a knowable fact, then it is reasonably conceivable that the defendant did know that fact. The Court held that the fraud claims survived the pleading stage but noted that the defendants may be able to demonstrate the truth of the representations outside of the pleading stage’s imbalanced standards. Notably, the Court held that “the terms of a fraudulently procured contract cannot exempt from liability entities that were knowingly complicit in the fraud, including entities that aided, abetted, or conspired to commit such fraud.” Here, the Court found that there was also sufficient circumstantial evidence to infer that the defendants conspired to perpetrate a fraud, and, therefore, the claims of secondary fraud also survived the pleading stage.
§ 10.3.2. Florida’s Complex Business Litigation Courts
Gencor Industries, Inc. v. Kiel Stead (Notwithstanding the statutory presumption of irreparable harm attendant to violation of a valid restrictive covenant, a defendant may successfully rebut the presumption and avoid a temporary injunction by the presentation of evidence demonstrating that damages have yet to accrue).[77] Notwithstanding the existence of a valid agreement not to compete, within months of his separation from Plaintiff Gencor Industries, Inc. (“Gencor”), Defendant Kiel Stead (“Stead”) began working for a Gencor competitor in violation of the agreement. At the hearing on Gencor’s motion for temporary injunction, the Court heard evidence which established that Gencor was as yet unaware of any damages it had suffered, such as lost contracts or unauthorized use of Gencor’s confidential information, in connection with Stead’s breach of the agreement. In light of the evidence received, the Court found that Stead had successfully rebutted the statutory presumption of irreparable harm for violation of a non-compete created by Section 542.335(1)(j), Florida Statutes. On that basis, the Court held that Gencor had failed to establish the substantial likelihood of success required for injunctive relief, despite Stead’s undisputed and ongoing employment by a direct competitor.
§ 10.3.3. State-wide Business Court in Georgia
Ashgrove Holdings, LLC v. North Perimeter Contractors, LLC[78](Permanent injunction and stay of arbitration proceedings).The dispute giving rise to this case involved a reconstruction project for I-285 and SR 400 in Georgia. Various agreements were executed in connection with that project. As relevant, the Defendant—North Perimeter Contractors (NPC)—contracted to become the design-build-finance contractor on the project. NPC, in turn, contracted with a non-party, Potere Construction, for Potere to supply and build embankment and panel walls, among other things. Potere then entered into a Purchase Order Agreement with another non-party, Inventure, to facilitate its role. But Inventure entrusted its responsibilities to yet another non-party (a subsidiary of Plaintiff Ashgrove Holdings) who allegedly failed to perform adequately, causing significant delays, upward of 28 months, to the project. Potere then assigned its claims under the Purchase Order to NPC. In the meantime, Ashgrove bought all of the equity interest in Inventure. And after learning of that transaction, NPC sought to join Ashgrove to an arbitration it initiated for breach of the Purchase Order Agreement. The Purchase Order Agreement and the original contract for the project that NPC executed each contained arbitration provisions. But Ashgrove contended it was not bound by either. According to Ashgrove, it never entered into any arbitration agreement with NPC; did not “merge” with Inventure but, rather, purchased the equity interests of that company from its prior owners; and as a mere parent company could not be made to arbitrate with NPC based on NPC’s dealings with Ashgrove’s subsidiaries. Ashgrove thus sued NPC in the State-wide Business Court to enjoin and permanently stay the arbitration proceedings.
The court granted that relief. The court started by noting that questions of arbitrability—whether an agreement exists that requires the parties to arbitrate in the first instance—are “undeniably” for the judiciary to resolve. And Georgia’s Arbitration Code allows the courts to stay an arbitration where no valid agreement to arbitrate was made. That was the case as between NPC and Ashgrove, the court determined. Ashgrove was not a named party on either contract with an arbitration provision. Nor could Ashgrove be bound to the Purchase Order under theories of successor liability. Successor liability requires (1) an agreement to assume liabilities; (2) that the transaction was, in fact, a merger; (3) a fraudulent attempt to avoid liabilities; or (4) establishing that the successor is a mere continuation of the predecessor company. The court explained that Ashgrove’s mere acquisition of Inventure did not support successor liability, as it was not a merger, did not entail an assumption of liabilities, did not constitute a fraudulent attempt to avoid liabilities, and did not result in Ashgrove being the “mere continuation” of Inventure because the companies remained separate with no overlapping ownership (which the mere-continuation doctrine requires). Finally, the court declined NPC’s request to apply equitable estoppel to bind Ashgrove to the Purchase Order. The court explained that cases employing estoppel in that way all note clear involvement between the signatory and non-signatory at the time of contracting, which was absent in this case, since Ashgrove had not even acquired Inventure when the Purchase Order was created.
Steuer, M.D. v. Tomaras, M.D.[79] (Discoverability of audio recording involving counsel). This action centers around a neurosurgery practice made up of several LLCs, collectively called Polaris. Dr. Steuer acquired a majority stake in Polaris from Dr. Tomaras, then terminated its other member, Dr. Walkup. The operating agreements then required Polaris to buy back Dr. Walkup’s ownership interests at “Fair Market Value.” Polaris engaged a financial consultant to determine the Fair Market Value of Dr. Walkup’s interests according to a contractual framework. As part of that process, the financial consultant had a 46-minute telephone conversation with Dr. Steuer in which Dr. Steuer’s family members and two lawyers who represented Polaris also participated. The conversation was recorded, and the existence of that recording was disclosed in discovery. Defendants sought its production. Dr. Steuer moved for a protective order, invoking attorney-client privilege and the work-product doctrine. The impasse kicked off the court’s discovery-dispute procedure under Business Court Rule 7-5, after which the court entered its ruling.
The court granted in part and denied in part the motion for protective order. First, the court found that, even if portions of the recording did contain attorney-client privileged communications, the presence of a third-party—Dr. Steuer’s son—waived the privilege. No evidence showed that Dr. Steuer’s son was employed by, or an agent of, Polaris. Indeed, Dr. Steuer himself previously downplayed his son’s role to avoid him being deposed. And without facts to demonstrate why the son’s presence was critical to rendering legal services on the call, the general rule in Georgia is that disclosure of otherwise privileged matters to family members vitiates the privilege. Second, the court turned to the work-product doctrine. It held that most of the recording did not qualify as work product because it was not in response to, or in anticipation of, litigation. Rather, the financial consultant was retained in the regular course of Polaris’ business to calculate the Fair Market Value of Dr. Walkup’s ownership interest for Polaris to repurchase that interest as required under the operating agreements. Such comments were therefore discoverable. But the final 18 minutes of the call were different. The court noted an “inflection point” then, where the conversation shifted from fact-gathering for valuation purposes to focus on potential challenges to the forthcoming valuations and litigation strategy. Because that part of the recording involved mental impressions of Polaris’ counsel, it was subject to “absolute protection” from disclosure, the court held.
Cook v. Cool Air Mechanical, LLC[80] (Denial of petition to transfer to the State-wide Business Court absent consent). O.C.G.A. § 15-5A-4(a)(3) governs the process for transferring existing cases to the Georgia State-wide Business Court. It also requires both parties to consent to transfer, significantly restricting the court’s ability to hear cases. In 2020, the court, itself, interpreted Section 15-5A-4(a)(3). It held that if one party objects to a petition to transfer within 30 days, then the Court does not have authority to compel the transfer and must instead deny the petition even though jurisdiction is satisfied and the court otherwise finds a transfer would be appropriate and would advance the parties’ interests. See Sheffield v. Deloitte & Touche LLP, No. 20-GSBC-0005, 2020 WL 8918290 (Ga. Bus. Ct. Nov. 09, 2020).
That was the case here. Defendant petitioned for transfer from the State Court of Gwinnett County to the Georgia State-wide Business Court. But Plaintiff timely objected. As a result, the court denied the petition. Since an objection to transfer controls under Section 15-5A-4(a)(3), the action needed to proceed in Gwinnett County.
§ 10.3.4. Indiana Commercial Court
Safron Capital Corporation, The General Retirement System of the City of Detroit v. Goldman Sachs & Co. LLC, Elanco Animal Health Corporation, Citigroup Global Markets Inc. et al.[81](Granting motion to dismiss claims for violations of the Securities Act of 1933). The Court granted Defendants’ Motion to Dismiss Plaintiffs’ Second Amended Complaint for alleged violations of the Securities Act of 1933 (“Securities Act”) regarding statements made by Defendants prior to a public offering.
In 2019, Defendant Elanco acquired Bayer’s animal health business to expand its own Companion Animal Segment business. Defendant Elanco intended to use the net proceedings from an upcoming public offering (“Offering”) to finance the acquisition. As part of the Offering, Elanco provided prospectuses and registration statements (“Offering Documents”) containing information regarding the upcoming Bayer acquisition. The Offering Documents also discussed Elanco’s business practices, including relationships with third-party wholesale distributors, but they did not mention that Elanco shifted the distribution of its Companion Animal Segment products to fewer overall distributors. Following the Offering, Elanco experienced a 9% decline in quarterly revenue for its Companion Animal Segment. Elanco’s common stock would also fall throughout the early part of 2020.
Plaintiffs filed suit in the Indiana Commercial Court after initially filing in federal court based on the statements made in the documents associated with the Offering, including Elanco’s discussion of its distributorship relationships and inventory. Defendants moved to dismiss the action. Indiana is a notice pleading state. To succeed on a motion to dismiss under Indiana Trial Rule 12(B)(6), the moving party must establish that the complaint states a set of facts that, even if true, would not support the relief requested. Pursuant to 15 U.S.C. § 77k(a) and 77(a)(2), a defendant violates the Securities Act of 1933 (“Securities Act”) if a disclosure “contain[s] an untrue statement of material fact or omit[s] to state a material fact . . . necessary to make the statements therein not misleading.” The Court held that none of the assertions in the Offering Documents could possibly violate the Securities Act even under Indiana’s notice pleading standard. The Court found that the reduction of the number of distributors could not have been materially misleading to Plaintiffs for the purposes of the Securities Act because, among other reasons, Elanco never stated that the number or scale of its distributors was an essential driver of its business. Similarly, the Court also found that Defendants had satisfied the safe harbor[82] requirements for forward-looking statements under the Securities Act by including cautionary language regarding inventory fluctuations in the Offering Documents. The Court also determined that Plaintiffs failed to plead any factual allegations suggesting that the Defendants knowingly made any false or misleading statements in the Offering Documents. This matter is currently up on appeal.[83]
Reginald A. Bush, II v. The National Collegiate Athletic Association[84] 49D01-2308-CT-033106 (Denying motion to dismiss claim for defamation). In August 2023, former college football player Reginald Bush II (“Bush”) filed a defamation claim against the National Collegiate Athletic Association (“NCAA”) arising from statements made by an NCAA spokesperson implying that Bush had engaged in a “pay-for-play” arrangement while at the University of Southern California (“USC”). Bush filed suit against the NCAA in the Indiana Commercial Court. The NCAA filed a motion to dismiss, which was denied.
Bush starred at the University of Southern California (“USC”) from 2003 to 2005, winning the 2005 Heisman Trophy award given to the top player in college football before embarking on careers in the National Football League and as a football analyst. From 2006 to 2010, the NCAA investigated Bush’s time at USC and determined that he had, among other violations, been given impermissible benefits by an outside entity. The NCAA, however, did not find that Bush had been paid directly for participation in athletics at USC. As a result of the findings, USC’s football program suffered sanctions, and Bush was forced to relinquish his Heisman Trophy. Bush attempted to challenge the findings, but the NCAA did not reopen the matter on technical grounds.
Eleven years later, the United States Supreme Court in NCAA v. Alston[85] held that the NCAA could not limit student-athletes from receiving education-related benefits. Following the Alston decision, the NCAA issued a name, image, and likeness (“NIL”) policy to guide student-athletes and universities in the post-Alston landscape. Under this new policy, student-athletes could receive payments based on licensing their name and image but still could not receive compensation directly in exchange for playing for a university, otherwise known as a “pay-for-play” scheme.
Following Alston and the NCAA’s new NIL policy guidance, there were calls to revisit sanctions issued to players prior to the Alston ruling, including those issued to Bush that resulted in his forfeiture of the 2005 Heisman Trophy. In July 2021, a reporter from ESPN asked the NCAA’s associate director of communications if the NCAA would reconsider its sanctions against Bush. In response, an NCAA spokesperson issued a statement that the NCAA would not revisit sanctions for conduct that is still precluded, such as pay-for-play arrangements. The statement did not refer to Bush specifically. The statement was then published through several media outlets.
Bush filed a defamation claim against the NCAA, alleging that the NCAA falsely implied that Bush had engaged in a pay-for-play arrangement while at USC. In response, the NCAA argued that the statement could not be defamatory because the statement did not directly mention Bush and Bush had not otherwise pleaded the necessary facts to establish a defamation claim. The Court rejected the NCAA’s arguments and determined that Bush had adequately pleaded claims for defamation per se and per quad under Indiana’s notice pleading standard. The Court held that the NCAA could not avoid the defamation claim by not specially referring to Bush in their statement because the statement was issued in direct response to a question about Bush. The Court also found that Bush had pleaded the necessary malice element because the NCAA issued the statement after having already completed an investigation where Bush was not found to have engaged in a pay-for-play arrangement. The Court credited Bush’s allegations that he lost endorsement deals and broadcasting contracts to satisfy the damages element. Litigation is ongoing, and trial is set for 2026.
Yonggang Li v. Longview Capital SCH LLC, Longview Capital SVH GP. LLC, South Bend Homes LLC et al.[86](Order granting in part and denying in part motion to dismiss for lack of jurisdiction). The Indiana Commercial Court in St. Joseph County addressed a motion to dismiss involving a loan dispute between an international business investor and multiple Washington limited liability companies (collectively, “Longview”).
Plaintiff Yonggang Li (“Li”) loaned a substantial sum of money to Longview as a short-term cash infusion, expecting repayment within months pursuant to the terms of a loan agreement (the “Loan”). Li and Longview amended the loan agreement multiple times to allow Longview additional time to repay the Loan, and in exchange, Li received increasingly higher interest rates on the outstanding Loan amounts. The parties subsequently entered into a Final Settlement Agreement (the “Agreement”) whereby Longview agreed not to sell or dispose of any of its assets until the Loan was repaid in full. The Agreement included a forum selection clause that allowed disputes to be resolved in “any court of competent jurisdiction.” Longview’s principal owner, Lu, thereafter began dissipating Longview’s assets. Li initiated proceedings in Singapore and Hong Kong, and two months later commenced this action, naming Longview and South Bend Homes, LLC (“SBH”), an alter ego of Longview, as Defendants.
Defendants moved to dismiss the case for lack of personal jurisdiction, forum non conveniens, international comity, and pursuant to the Federal Arbitration Act. The Court rejected each of these arguments in turn.
First, with respect to personal jurisdiction, the Court determined that Indiana had general personal jurisdiction over Defendants through SBH, which maintained a continuous presence in Indiana through its real property holdings. Since SBH was an alter ego of Longview, the Court attributed SBH’s continuous contact with the State of Indiana to Longview as well. The Court also rejected Defendants’ forum non conveniens argument, determining that the Agreement permitted initiating an action in the Indiana Commercial Court because it was “a court of competent jurisdiction” and a convenient forum for the parties. The Court similarly held that international comity did not necessitate dismissal because the subject matters of the Hong Kong and Singapore cases were sufficiently distinct that the parties would not be subject to inconsistent judgments.
Finally, the Court rejected Defendants’ Federal Arbitration Act argument because the Agreement did not include an arbitration provision and instead allowed the parties to address the dispute in any court of competent jurisdiction. Notwithstanding the foregoing, the Court dismissed Li’s claim for fraudulent transfer on grounds that Li failed to adequately plead the claim under Ind. Trial Rule 12(B)(6), but it did so without prejudice to filing an amended complaint that addressed the pleading deficiency.
S&H Leasing LLC, K&K Real Estate Holdings LLC, Thomas Hagen et al. v. Keith D. Harper[87] (Order assessing liability for breach of fiduciary duty, indemnity, and Indiana Crime Victims Relief Act). In a forty-three-page decision, the Indiana Commercial Court in Elkhart County issued an order regarding claims for breach of fiduciary duty between members of closely held businesses following a substantial breakdown in their business relationships.
The underlying dispute arose when three members—Brian Brisco (“Brisco”), Thomas Hagen (“Hagen”), and Jeremy Noetzel (“Noetzel”) —of two interrelated, closely held businesses—S&H Leasing LLC and K&K Real Estate Holdings LLC (“Entity Plaintiffs”)—attempted to remove the fourth member—Keith Harper (“Harper”)—after Harper’s conduct had a materially negative impact of the operation of the businesses. Initially, Harper was the only owner and member of Entity Plaintiffs. In 2015, Harper invited Hagen and Brisco to become owners and members, issuing them nominal shares during a holiday party. Throughout 2016, Hagen, Brisco, and Harper discussed Hagen and Brisco purchasing additional ownership interests in the Entity Plaintiffs. In 2017, Hagen, Brisco, and Harper signed closing documents for such purchase, including new Operating Agreements with provisions favoring Harper. Harper was paid $20,000 per month for his services as manager of Entity Plaintiffs (the “Management Fee”), and he had a veto power over any action by Hagen and Brisco.
In 2019, Harper became less involved in the day-to-day affairs of the businesses. As a result, Hagen and Brisco proposed an amendment to the Operating Agreements to provide that both Harper and Hagen would serve as managers. However, Harper asked that (1) the Operating Agreement never be amended without his consent and (2) the Management Fee not be eliminated, even if Harper ceased to perform managerial services. Ultimately, the proposed amendment was not executed.
In 2020, Noetzel began working part-time for the Entity Plaintiffs and became interested in purchasing an ownership interest in the same after Harper stated his intention to retire and sell his shares. The members thereafter entered into a purchase agreement for Noetzel to purchase a 10% ownership interest in the Entity Plaintiffs from Harper, leaving Harper with a 24% ownership interest. When Harper caused one of the Entity Plaintiffs to engage in conduct that resulted in a criminal indictment, Brisco, Hagen, and Noetzel moved to terminate Harper’s employment with the Entity Plaintiffs and demanded that Harper sell his ownership interest pursuant to the terms of the Operating Agreements. Harper refused to sell, citing an oral agreement among the members not to amend the Operating Agreements without Harper’s consent. Brisco, Harper, and Noetzel then filed suit against Harper, personally and derivatively, for breach of fiduciary duty and violations of Indiana’s Crime Victim Relief Act. Harper counterclaimed for breach of fiduciary duty related to the termination of the Management Fee.
The ultimately Court held in favor of Brisco, Hagen, and Noetzel, determining that Harper repeatedly breached his fiduciary duties to the other members, particularly in connection with Harper’s sale of an ownership interest to Brisco and Hagen in 2017, as well as Harper’s subsequent use of company funds to satisfy personal debts while he was manager. The Court also held that Harper’s use of company funds for personal expenses violated the Indiana Crime Victim Relief Act and ordered Harper to pay treble damages on the amount misappropriated. The Court dismissed Harper’s counterclaims.
Ulysses Asset Sub II, LLC v. Logan Square, LLC and John Dugan[88] (Order granting in part and denying in part Plaintiff’s motion for summary judgment). The Indiana Commercial Court in Marion County addressed a summary judgment motion on an easement dispute. Indiana consciously employs a summary judgment standard that is more difficult to meet than the federal standard, allowing more marginal claims and defenses to create a genuine issue of material fact and allow the claims to proceed toward trial.[89]
Ulysses Asset Sub II, LLC (“Ulysses”) had an easement over portions of a building owned by Logan Square, LLC (“Logan Square”), including the roof. Pursuant to their agreement (the “Agreement”), (1) Ulysses’s telecommunications provider could access the roof of Logan Square’s building to service equipment and (2) Logan Square was obligated to maintain the property in a manner that would permit such access. Following a structural analysis, Logan Square’s roof was deemed unsafe and Ulysses’s telecommunications provider was unable to access the roof and equipment.
Ulysses sued Logan Square and its owner, alleging claims for constructive eviction, breach of the duty to maintain the property, and breach of the covenant of quiet enjoyment. Logan Square counterclaimed, arguing that Ulysses was in breach of its obligations to Logan Square under the Agreement. Ulysses moved for summary judgment on all claims and counterclaims. As evidence in opposition to the motion, Logan Square designated the Agreement, an engineering report completed prior to the one which declared Logan Square’s roof unsafe, an invoice documenting prior roof repairs, and a photograph of Ulysses’s equipment.
The Court rejected Ulysses’s claims for constructive eviction and breach of covenant of quiet enjoyment because Ulysses failed to cite any Indiana case law recognizing that an easement holder could bring such claims. However, the Court granted summary judgment on Ulysses’s claim for breach of the Agreement, determining that Logan Square failed to designate any evidence to create even a reasonable dispute over whether Logan Square had maintained the roof according to its contractual obligations. The Court also sided with Ulysses on Logan Square’s counterclaims, dismissing those claims as a matter of law.
§ 10.3.5. Iowa Business Specialty Court
Cornlan Farm, Inc. v. Gannon[90] (Buyback of corporate shares from estate). This case concerns whether a corporation was entitled to buy back the shares owned by the Estate of Michael J. Gannon (“Michael’s Estate”), following Michael J. Gannon’s (“Michael”) death.
Cornlan Farm, Inc. (“Cornlan”) was formed in 2014 for the purpose of holding land owned by siblings. Cornlan’s bylaws (the “Bylaws”) included a buy/sell provision that required a deceased shareholder’s shares to be first offered to Cornlan for purchase, and if Cornlan did not purchase such shares, then to the other shareholders, with such shares being purchased for “book value” (the “Buy/Sell Provision”). The Bylaws required Cornlan’s officers and directors to maintain balance sheets “in accordance with generally accepted accounting procedures” (“GAAP”).
Prior to Michael’s death in 2022, the siblings’ relationships had grown contentious. One of the key issues among the siblings was the Buy/Sell Provision. Some the siblings were concerned that the Buy/Sell Provision would disadvantage whoever died earliest by allowing Cornlan to purchase their shares at an unreasonably low price. The siblings generally agreed that the Buy/Sell Provision should be modified and exchanged several oral and written proposals for an amendment. However, the siblings never formally modified the Buy/Sell Provision.
Following Michael’s death, Cornlan sent a letter to Michael’s Estate exercising its option to purchase Michael’s shares for “book value,” with book value calculated using tax basis. Michael’s Estate rejected the offer. Cornlan and two of its shareholders sued Michael’s Estate seeking: (1) a declaratory judgment that Cornlan or the shareholders were entitled to purchase Michael’s shares for book value; and (2) specific performance requiring Michael’s Estate to sell the shares at the price Cornlan offered. =
Following a non-jury trial in March 2024, the Iowa Specialty Court (“Business Court”) issued findings of fact, conclusions of law, and judgment. The Business Court concluded that (1) the original Bylaws were valid and enforceable and (2) Cornlan and/or the shareholders were entitled to purchase Michael’s shares for book value. The Business Court declined, however, to grant specific performance because the Bylaws required the book value of the shares to be determined according to GAAP, not tax basis. Since a proper GAAP calculation had not occurred, the Business Court could not calculate the book value of Michael’s shares.
Clinton Cnty. v. City of Clinton[91](Contract dispute). This case involved a dispute between the City of Clinton (the “City”) and Clinton County (the “County”) regarding a Joint 28E Agreement (the “28E Agreement”).
In 2009, the City sought to develop a railport industrial park known as the “Lincolnway Railport Project.” The County agreed to contribute $6 million to be used solely for the purposes designated in an Urban Renewal Plan. The 28E Agreement provided that the City would repay the County’s contribution by selling property in the industrial park, with one-half of the proceeds from each property sold being “paid to the County,” and the remaining one-half being paid to the City. According to the 28E Agreement, if the County was not fully reimbursed within ten years from the date of the 28E Agreement, then the City “shall reimburse the County for any unpaid monies advanced by the County for this project.” The County subsequently paid the $6 million to the City in a series of installment payments between August 2010 to December 2011. While the City repaid the County $787,842.15, by the time ten years had passed, the Lincolnway Railport Project remained incomplete. The County sued for breach of contract and unjust enrichment, seeking reimbursement of all amounts paid under the 28E Agreement.
The parties filed cross-motions for summary judgment, with the County arguing that the City breached the 28E Agreement and that there were no genuine issues of material fact remaining. The City argued that (1) there was no breach of the 28E Agreement, and that even if there were a breach, the County failed to prove damages, (2) the 28E Agreement was unenforceable due to mutual mistake, and (3) the County’s unjust enrichment claim fails as a matter of law.
The Business Court granted summary judgment in favor of the County. The Business Court disposed of the City’s argument that it did not breach the 28E Agreement because the County’s contribution was a gift, holding that the plain language of the 28E Agreement demonstrated that the County did not intend to gift funds to the City. The City next argued that the term “reimbursement” was ambiguous and that the County was reimbursed because it issued general obligation bonds to obtain the funds for its $6 million contribution and collected significant property taxes in connection with the Urban Renewal Plan. The Business Court rejected this argument as well, holding that the 28E Agreement unambiguously stated that the County’s contribution “shall be repaid from the sale of property” in the industrial park and that the City would reimburse any additional unpaid monies advanced by the County within ten years. Lastly, the Business Court rejected the County’s argument that it was entitled to collect interest paid on the $6 million general obligation bonds it issued to make its contribution under the 28E Agreement. The Court ordered the City to pay $5,212,157.85 ($6,000,000.00 less the City’s $787,842.15 payment), plus recoverable court costs and interest at a 7.16% rate, to the County.
§ 10.3.6. Maine Business and Consumer Docket
In re Mount Desert Island Hospital Data Security Incident Litigation[92] (Data privacy).Data privacy is an area of growing legal importance, and concern, across the country. From April 28, 2023, through May 7, 2023, “cyberthieves” accessed Mount Desert Island Hospital’s (“MDIH”) network. MDIH became aware of the suspicious activity several weeks later and notified Plaintiffs of the data breach. The notice stated:
we determined that your information may be affected by this incident. The types of information may include your name and the following: address, date of birth, driver’s license/state identification number, Social Security number, financial account information, medical record number, Medicare or Medicaid identification number, mental or physical treatment/condition information, diagnosis code/information, date of service, admission/discharge date, prescription information, billing/claims information, personal representative or guardian name, and health insurance.
In addition, MDIH provided Plaintiffs with identity theft monitoring services for twelve months.
Plaintiffs alleged that MDIH failed to properly protect and safeguard their private information. Plaintiffs’ claim that they suffered “imminent and impending injury arising from the substantially increased risk of fraud, identity theft, and misuse” resulting from Plaintiffs’ private information being placed within the hands of unauthorized third parties. In addition, Plaintiffs claimed that the breach caused them to spend a significant amount of time responding to the breach, including verifying the legitimacy of the notice and self-monitoring their accounts. Plaintiffs’ Complaint included allegations that the private information of certain named Plaintiffs was detected on the dark web and that unauthorized purchases had been made on the credit and debit cards of another Plaintiff soon after the breach. Plaintiffs brought claims for negligence, breach of contract, breach of implied contract, unjust enrichment, breach of fiduciary duty, and sought declaratory and injunctive relief.
The BCD ultimately dismissed all claims upon MDIH’s Motion to Dismiss. In doing so, BCD first highlighted that, “[i]n Maine, a legally cognizable, actual injury, is a necessary element of negligence and breach of contract claims.” In addition, the Court noted that, “as to Plaintiffs’ other claims, a complaint must allege facts sufficient to demonstrate that a plaintiff has been injured in a legally cognizable way.”
Prior to the instant matter, In re Hannaford Bros. Co. Customer Data Security Breach Litigation,[93] was the only clear articulation of the law in Maine regarding cognizable harm in the context of data breaches. In Hannaford, a similar data breach occurred and the plaintiffs could be easily split into two categories: (1) those who had never suffered a fraudulent charge as a result of the data breach; and (2) those who had experienced a fraudulent charge that had later been reversed. There, the Court determined that the expenditure of time and effort after a data breach, taken alone, did not constitute a recoverable harm, even when there has been actual misuse because the reversal of the fraudulent charges negated any physical harm or economic loss. Accordingly, even the plaintiffs that suffered a fraudulent charge could not recover.
In an attempt to avoid dismissal based on the holding in Hannaford, Plaintiffs did not allege facts addressing whether the fraudulent credit card charges were reversed. The BCD noted that it was not reasonable to infer that the credit card charges were unreimbursed because the contrary conclusion was just as likely, if not more probable. This approach is consistent with other courts in the country, including the D.C. Circuit Court of Appeals. The BCD further noted that in 2021, the United States Supreme Court determined that the mere risk of future harm is too speculative to support Article III standing—looking specifically at the risk of future harm of dissemination of misleading information to third parties.[94] The BCD noted that while Transunion was not a direct parallel with a data breach, the specter of a future, unspecified injury was similar.
Last, the BCD highlighted that the law in Hannaford differs from that of other jurisdictions, and that elsewhere the Complaint may have alleged a cognizable injury. However, because Hannaford is the law in Maine, the Complaint must be dismissed for failure to state a claim.
§ 10.3.7. Maryland Business and Technology Courts
Cook v. Cook[95] (Motion to disqualify counsel related to a business dispute between brothers and the family business due to conflicts of interest). In Cook, Plaintiff M. Robert Cook (“Plaintiff”) filed claims against his brother, Bruce S. Cook (“Bruce”), and derivative claims on behalf of Site Residential Management Inc. (“SRM”), a family business jointly owned by Plaintiff and Bruce. Shulman Rogers, P.A. (“Shulman”) jointly represented Bruce and SRM in the case. The Maryland Business and Technology Court (“MDBT”) considered Plaintiff’s motion to disqualify Shulman as the defendants’ joint counsel.
Plaintiff alleged that (1) Plaintiff and Bruce each owned 50% of the stock in SRM through stock in Site Management Inc. (“SMI”), (2) Plaintiff and Bruce were deadlocked on whether SRM should be wound up, and (3) Bruce breached his fiduciary duty owed to SRM by preventing Plaintiff from exercising his rights to co-manage SRM, instead allowing Bruce’s sons to run SRM as officers without Plaintiff’s consent. Plaintiff also alleged that Bruce acquiesced in a lawsuit filed by Bruce’s son, Josh Cook (“Cook”), for unpaid wages.
During the litigation, Plaintiff’s counsel sent two separate letters to Shulman claiming that Md. R. Attorneys, Rule 19-301.7 prohibited Shulman from representing SRM and Bruce without the informed consent of both stockholders of SRM and due to other potential conflict of interest. Bruce and SRM ignored those letters, and Shulman did not withdraw as joint counsel. Plaintiff then moved to disqualify Shulman from representing either Bruce or SRM in the suit. Shulman opposed the motion, arguing that (a) it was untimely and (b) lacked a basis in this case.
The MDBT held that Plaintiff did not waive his right to seek disqualification based on “timeliness” and that disqualification of Shulman was warranted on the merits because Shulman should never have sought to represent both SRM and Bruce due to the inherent conflicts of interest. The timeliness factors considered by the MDBT included: (a) when the movant learned of the conflict; (b) whether the movant was represented by counsel during any period of alleged delay; (c) why the alleged delay occurred; (d) whether the motion was brought for tactical reasons; and (e) whether disqualification would prejudice the nonmoving party.[96] The MDBT noted that there was no factual basis for denying Plaintiff’s claim, as counsel for Defendants admitted at oral argument that Plaintiff was a 50% beneficial owner of SRM. The MDBT emphasized that “the mere length of delay is not dispositive, and the court should not deny a motion to disqualify based on delay alone.” The MDBT then considered the merits of the motion under the Klupt standard,[97] which provided that: (i) the movant must identify a specific violation of the rules; (ii) the court must determine whether there has been an actual violation of the rules; and (iii) the court must exercise discretion in deciding whether to impose disqualification. The MDBT rejected Bruce’s argument that this was merely a sibling dispute and that there was no basis for a derivative claim on behalf of SRM, holding that the complaint alleged serious breaches of fiduciary duties, such as the improper facilitation by Bruce of Cook’s suit against SRM. In granting the motion to disqualify counsel, the MDBT pointed to both the precedent of Tydings[98] and the Maryland Corporate Law treatise, which states that, due to inherent conflicts of interest in stockholder derivative actions, “it is commonly accepted today that the corporation and individual defendants should be represented by separate counsel.”[99] The MDBT ruled that Shulman could not continue to represent Bruce if it was disqualified from representing SRM and rejected California case law permitting a disqualified law firm to continue representing individual defendants after joint representation was severed. The MDBT stated that allowing such a continuation would violate Rules 13-3017(a)(1) and 19-301.9(a) and overlook the conflict and ethical violations that led to disqualification in the first instance. The size of the corporation and the number of stockholders did not alter the ethical rules or modify an attorney’s ethical obligations. This decision reinforces the principle that ethical rules governing conflicts of interest in corporate representation take precedence, and it ensures that parties with conflicting interests, particularly in derivative actions, are represented by separate counsel in order to maintain fairness.
§ 10.3.8. Massachusetts Business Litigation Session
Baldwin, et al. v. Connor, et al.[100] (Appraisal rights and fiduciary duties in closely held corporations). This case addressed key issues concerning appraisal rights and fiduciary duties in closely held corporations, deciding a question of first impression under the Massachusetts Incorporation Statute, Mass. Gen. Laws c. 156D, and specifically its appraisal rights provision.
The Plaintiffs—members of the Baldwin family and minority shareholders in two closely held corporations, Polyvinyl Films, Inc. and Indusol, Inc. (the “Companies”)—brought claims against the Connor family, the majority shareholders, alleging that the Baldwins were unlawfully frozen out of the Companies. The Baldwins sought declaratory relief regarding the effect of certain actual or potential amendments to the Companies’ articles of organization and bylaws on their statutory appraisal rights. Specifically, the Baldwins contended that the Connors’ 2019 votes to revise restrictions on the sale or transfer of shares were either invalid or, alternatively, imposed new restrictions on the transfer of shares that triggered the Baldwins’ statutory right to an appraisal and to sell their shares for their fair value. The Companies argued that the 2019 amendments were valid and did not trigger appraisal rights. The parties filed cross-motions for summary judgment on these issues.
The Court granted summary judgment in favor of the Baldwins, holding that the 2019 amendments to the articles of organization were valid and imposed new restrictions on the transfer of outstanding shares that were not present in the Companies’ original articles of organization or bylaws. As a result, the amendments automatically triggered the Baldwins’ statutory appraisal rights under Mass. Gen. Laws c. 156D, § 13.02. Parsing the statute, the Court determined that a shareholder’s right to appraisal is triggered if an amendment to a corporation’s articles or bylaws either (1) “adds restrictions” on a shareholder’s ability to transfer their shares or (2) “amends any pre-existing restrictions . . . in a manner which is materially adverse” to the shareholder’s ability to transfer their shares. Because the 2019 amendments imposed new restrictions, the Baldwins’ appraisal rights were triggered regardless of whether the new restrictions were materially adverse to their ability to transfer their shares. However, the Court also concluded that the new restrictions were materially adverse, further reinforcing the Baldwins’ entitlement to appraisal rights. The Court further held that, because the Companies are closely held corporations, the failure by the directors and majority shareholders to give the Baldwins notice of, and allow them to exercise, their rights of appraisal was a clear violation of the fiduciary duty owed to the minority shareholders under Donahuev. Rodd Electrotype Co. of New England, Inc.[101]
Following the Court’s ruling on summary judgment, the Connors moved for reconsideration, arguing they relied on legal counsel in connection with the amendments and should not be held personally liable for failing to notify the Baldwins. The Court denied the motion for reconsideration, emphasizing that the duty to notify minority shareholders of their appraisal rights is non-discretionary, imposed directly by statute, and cannot be excused on the basis of advice of counsel.
Schlumberger Technology Corporation v. ARE-MA Region No. 103, LLC et al.[102] (Group pleading in claims brought against a parent company and its subsidiary). This case reiterated the insufficiency of group pleading in claims brought against a parent company and its subsidiary. Schlumberger Technology Corporation (“Schlumberger”), asserted, in relevant part, claims for breach of contract and violation of Mass. Gen. Laws c. 93A, against ARE-MA Region No. 103, LLC (“Region No. 103”) arising from its alleged failure to pay $4.4 million in escrowed funds following the sale of a commercial condominium. Schlumberger also asserted a Chapter 93A claim against Region No. 103’s parent corporation, Alexandria Real Estate Equities, Inc. (“Alexandria”), despite making no specific factual allegations that Alexandria actively participated in the misconduct. Instead, the complaint referred to both defendants collectively as “ARE.”
Alexandria moved to dismiss the complaint, arguing that Schlumberger failed to plead sufficient facts specifically tying Alexandria to the alleged wrongdoing. Alexandria argued that Schlumberger’s “group pleading” approach failed to distinguish between the conduct of the parent and the subsidiary and did not meet the pleading standards required under Massachusetts law. The Court agreed, holding that such undifferentiated group pleading is insufficient to state a claim against a parent company, absent factual allegations establishing the parent’s direct involvement in the subsidiary’s alleged misconduct. The Court further emphasized that a parent-subsidiary relationship alone does not give rise to liability, and longstanding principles of corporate separateness protect parent companies from liability for the acts of their subsidiaries unless the parent is shown to have actively participated in or directed the wrongful conduct. Here, the complaint did not allege any facts showing that Alexandria had an “active role” in Region No. 103’s decision not to release the escrowed funds or any other alleged misconduct. Schlumberger’s speculative assertions that Region No. 103 was merely a “shell” for Alexandria were deemed conclusory and unsupported by factual allegations, and therefore failed to satisfy the pleading standard necessary to survive a motion to dismiss.
In granting Alexandria’s motion to dismiss, the Court provided Schlumberger leave to amend its complaint to clarify its factual allegations against Alexandria. Notably, the Court cautioned that when capable lawyers resort to group pleading, it often suggests a lack of adequate facts to implicate the less culpable parent company that they have grouped with its more culpable subsidiary, and that counsel may have named the parent for tactical reasons such as litigation leverage, increasing costs, expanding the scope of discovery, or increasing settlement pressure.
Cummings et al. v. Deloitte Tax LLP[103](Contractual damages cap). This case addresses the enforceability of a contractual damages cap in an engagement agreement between Deloitte Tax LLP (“Deloitte”) and its clients, William and Joyce Cummings. Plaintiffs alleged that Deloitte negligently provided tax consulting and preparation services in connection with a $77 million transaction involving the transfer of Mr. Cummings’ interests in a general partnership to their charitable foundation. According to Plaintiffs, Deloitte’s advice exposed them to significant federal tax liabilities, penalties, and interest following an IRS audit. Deloitte moved for partial summary judgment, seeking enforcement of the limitation of liability clause contained in its 2016 engagement agreement with Plaintiffs (the “Engagement Agreement”) and a declaration that Plaintiffs’ recovery be capped at $250,000, except to the extent the Court found that Plaintiffs’ damages resulted primarily from bad faith or intentional misconduct by Deloitte.
The Court granted Deloitte’s motion, holding that the limitation of liability provision “unambiguously applies” to cap Plaintiffs’ potential recovery. The Court reasoned that the contractual language—limiting damages for claims “relating to this engagement”—was broad enough to cover Plaintiffs’ claims, even if certain services arguably fell outside the four corners of the Engagement Agreement. The Court rejected Plaintiffs’ efforts to introduce extrinsic evidence (including negotiation history and correspondence) to narrow the provision’s scope, finding the contract language itself to be clear and unambiguous. However, the Court held that the limitation of liability provision was unenforceable insofar as it sought to limit Deloitte’s liability for gross negligence. In doing so, the Court reaffirmed the well-established principle under Massachusetts law that public policy prohibits contractual provisions from shielding parties from the consequences of their own gross negligence. Similarly, the Court held that the limitation of liability provision would not bar a Chapter 93A claim, to the extent that it was based on gross negligence or alleged knowing or intentional misconduct.
§ 10.3.9. Michigan Business Courts
Jerome Masakowski v. Kris Krstovski and K2-West Lansing Phase I, LLC[104] (LLC member oppression). Plaintiff Jerome Masakowski (“Plaintiff”) was a member of Defendant K2-West Lansing Phase I, LLC (“WL1”). WL1 was a 50% owner of K2-LIP JV West Lansing, LLC (“JV”). Defendant Kris Krstovski (“Krstovski”) was one of JV’s co-managers, acting as such on behalf of WL1. Plaintiff alleged that Krstovski (1) directed JV to sell a portion of the company’s property to a buyer for $1 million less than another verified offer and (2) improperly retained more than $600,000 that should have been distributed to Plaintiff based on the provisions of JV’s operating agreement. Plaintiff sued Defendants for member oppression.
Krstovski moved for summary disposition under Mich. Ct. R. 2.116(C)(8) (failure to state a claim). The Court held that Plaintiff failed to state a prima facie case for member oppression because Plaintiff’s complaint neither alleged that Krstovski was the manager or member in control of WL1 nor clarified Krstovski’s relationship to WL1. Krstovski argued, and the Court agreed, that the allegedly oppressive conduct related to JV, an “upstream entity,” and not WL1. While Mich. Comp. L. 450.4515 permits a member of a limited liability company to bring an oppression claim, Plaintiff was not a member of JV and therefore could not bring such a claim arising out of Krstovski’s conduct as JV’s manager.
Even if Plaintiff was able to state a claim for oppression and alleged that Krstovski was in control of WL1, the underlying claim—that Krstovski improperly retained $600,000—itself was tenuous at best. The Court concluded that Plaintiff’s allegation was unclear, pointing out two possible points of clarification: (1) if Plaintiff meant that Krstovski, as JV’s manager, retained funds that should have been distributed to JV’s members (including WL1), Plaintiff lacked standing because he was not a member of JV; and (2) if Plaintiff meant that funds flowed from JV to WL1 and Krstovski, as manager, failed to issue distributions to WL1’s members, then Plaintiff may have an actionable claim, but such allegations were not made. Ultimately, the Court granted summary disposition in Krstovski’s favor, dismissing the case in full.
Kidney Consultants of Michigan, PC v. Hilana Kaafarani, M.D., and Beta Medical Practice, PLLC[105] (Preliminary injunction; noncompete; nonsolicitation). In June 2019, Defendant Hilana Kaafarani, M.D. (“Defendant”) was hired as a nephrologist in Plaintiff Kidney Consultants of Michigan, PC’s (“Plaintiff”) medical practice and executed an employment agreement. The employment agreement had a two-year term and contained noncompete and nonsolicitation provisions. The noncompete provision prohibited Defendant from engaging in the same business as Plaintiff within a five-mile radius of Plaintiff’s office during employment and for two years after her termination. The provision also prohibited Defendant from working as a nephrologist at any hospital or patient facility where she worked while employed by Plaintiff. The nonsolicitation provision prohibited Defendant from contacting any of Plaintiff’s patients after termination. Two years later, Defendant became a shareholder of Plaintiff, and the pair executed a shareholders’ agreement.
Defendant resigned from her employment with Plaintiff effective December 31, 2023, and immediately began operating her own nephrology practice less than two miles from Plaintiff’s office. Defendant continued to see patients at the facilities where she practiced while employed by Plaintiff and contacted Plaintiff’s patients. Plaintiff filed suit and sought a preliminary injunction.
Defendant argued that Plaintiff was unlikely to succeed on the merits of Plaintiff’s claim for breach of the employment agreement because the shareholders’ agreement contained an integration clause that superseded the employment agreement. Although both agreements had provisions related to compensation and accounts receivable, the shareholders’ agreement did not contain any restrictive covenants. Thus, the Court determined that the integration clause could not reasonably be interpreted as an agreement to nullify the noncompete and nonsolicitation provisions contained in the employment agreement.
Turning to reasonableness of the restriction, the Court found the geographic scope of the noncompete reasonable because it was narrowly tailored and had limited application because the five-mile radius as measured from Plaintiff’s office. The facility-specific restrictions did not prohibit Defendant from providing services within five miles of those facilities. And regarding harm, Plaintiff’s president testified that it was difficult to calculate how much revenue Plaintiff lost from patients that left for Defendant’s new practice because appointments are scheduled so far in advance. This, and the president’s testimony that the purpose of the noncompete was to prevent Defendant from unfairly benefiting from Plaintiff’s goodwill, satisfied the Court that Plaintiff would suffer irreparable harm if the injunction was not issued.
Kenneth Spindler and William Stover v. NRL Holdings LLC, Brian Chouinard, Anthony Goff, and Adam Long[106] (Breach of contract; condition precedent; release). In 2019, the parties executed a promissory note in which Defendant William Stover (“Stover”)[107] promised to make advances to Plaintiff NRL Holdings LLC (“NRL Holdings”) of $1,000,000 (the “Note”). In 2020, the parties, including Defendant Kenneth Spindler (“Spindler”), entered into an agreement to share business opportunities for a licensed marijuana business (the “Agreement”). The Agreement prohibited the parties from participating in other marijuana businesses without first sharing the opportunity with the other parties. On March 6, 2021, the parties entered into a mutual release which terminated the Agreement. Plaintiffs alleged that in February 2021, Defendants formed a holding company with the intent to compete with NRL Holdings.
Plaintiffs alleged breach of contract claims, among others, wherein they contend that Stover refused to make advances under the Note and that Spindler breached the Agreement by engaging in prohibited activity before the mutual release was signed. Defendants moved for summary disposition of these claims pursuant to Mich. Ct. R. 2.116(C)(7)–(8), (10). The Court granted summary disposition of the breach of contract claims pursuant to Mich. Ct. R. 2.116(C)(8) (failure to state a claim) because Plaintiffs failed to attach the written agreements to their complaint. The claim for breach of the Note also failed under Mich. Ct. R. 2.116(C)(10) (no genuine issue of material fact). The Note provided that advances thereunder must be made upon written request by a representative of NRL Holdings. The Court held that the written request was a condition precedent to Stover’s requirement to pay. In an affidavit, Stover affirmed that he never received a written request for funds in accordance with the terms of Note. Plaintiffs failed to submit evidence rebutting Stover’s testimony, and therefore Plaintiffs’ claim for breach of the Note failed.
Finally, Plaintiffs’ claim for breach of the Agreement failed under Mich. Ct. R. 2.116(C)(7). The Court determined that the mutual release, which was broad and released all claims known or unknown, barred the claim. The release contained a provision in which the parties acknowledged that they were not relying on statements made in negotiations or the accuracy of representations, and further provided that no party had a right to rescind the release on the basis of a claim of misrepresentation. Thus, Plaintiffs’ argument that they relied on Spindler’s alleged misrepresentations in entering into the release did not render the release voidable and precluded their claim for breach of the Agreement.
Steven M. Brooks v. Acrisure of California, LLC and Acrisure, LLC[108] (Breach of contract). Plaintiff Steven M. Brooks (“Plaintiff”) was an employee of Acrisure of California, LLC and Acrisure, LLC (“Defendants”). The parties executed an agreement in which they agreed that Plaintiff’s employment would terminate in March 2020 (the “Agreement”), and thereafter, all matters involving the employment relationship would be governed by the Agreement. The Agreement provided that for eighteen months after the termination of Plaintiff’s employment, Defendants would pay Plaintiff compensation, COBRA premiums, and referral fees equal to five percent (5%) of the revenue generated by any entity acquired by Defendants if (1) Plaintiff referred the entity to Defendants and (2) Defendants acquired the entity between March 20, 2020, and September 21, 2021 (the “Separation Period”). The Agreement also contained an integration clause and a requirement that any modifications be in writing signed by all parties thereto.
After the Separation Period ended, from June 2023 to January 2024, Defendants communicated with Plaintiff and asked Plaintiff to introduce Defendants to Baker and assist in closing the Baker deal. In a November 2023 email to one of Defendants’ employees, Plaintiff asked about the Agreement’s referral fee and the employee indicated that there had been no change. Plaintiff alleged that, based on this communication, Plaintiff continued to assist in closing the Baker deal. After closing, Defendants told Plaintiff that they would not pay him the full five percent.
Plaintiff sued Defendants for, among other things, breach of contract and promissory estoppel. Plaintiff alleged that his communications with Defendants constituted a modification and amendment of the Agreement based on Defendants’ conduct. More specifically, Plaintiff alleged that the communications represented Defendants’ (1) intent to waive the integration and no-modification clauses and (2) agreement to pay Plaintiff a referral fee after September 21, 2021. Defendants moved for summary disposition under Mich. Ct. R. 2.116(C)(8) (failure to state a claim).
Defendants argued that Plaintiff’s allegations did not allege that the parties discussed modifying the Agreement or that they discussed the referral fee before Plaintiff began providing services related to the Baker deal. The Court determined that this argument was “too stringent” and failed to consider reasonable inferences that could be drawn in favor of Plaintiff based on the facts alleged regarding whether the Agreement was modified. According to the Court, the Court could reasonably infer that the parties discussed having Plaintiff introduce Defendants to Baker, assist with closing the deal, and in return, Plaintiff would receive the five percent referral fee. As a result, the Court reasoned that it could not hold that no factual development could justify Plaintiff’s claims. The Court denied Defendants’ motion as to the breach of contract claim.
Rose Nevada, Inc., Jonathan Rose Exempt Trust II, Jonathan Rose Distribution Trust v. Rose Cash Management II, LLC and Warren Rose[109] (LLC member oppression; fiduciary duty; fraud). This dispute involved a series of companies and trusts managed, owned, and held by or for the benefit of the Rose family. In 2016, Defendant Rose Cash Management II, LLC (“RCM II”) was formed for the purpose of loaning capital to an entity called ERC. Defendant Warren Rose (“Warren”) was the sole manager of both RCM II and ERC (the “Companies”). Warren’s brother, Jonathan Rose (“Jonathan”), was the beneficiary of the Plaintiff trusts (the “Trusts”), which were also members of RCM II. HG served as trustee of the Trusts from 2013 to 2021, and he appointed Warren as co-trustee in 2015.
Beginning in 2016, Warren, as manager of both Companies, would cause RCM II to loan funds to ERC and cause ERC to loan funds to certain Rose family companies or trusts, but not to the Trusts. This was the consistent practice of RCM II. In 2021, Plaintiff Rose Nevada, Inc. (“RNI”) replaced HG and Warren as trustee of the Trusts. In 2022, RNI, on behalf of the Trusts, sued Warren and RCM II, claiming that their failure to loan funds to Plaintiffs constituted member oppression, a breach of fiduciary duty, and fraudulent concealment. Defendants moved for summary disposition under Mich. Ct. R. 2.116(C)(7) and (C)(10), which the Court granted.
The Court determined that Plaintiffs’ claims were barred by the applicable statute of limitations, which the Court determined began running in 2016, not in 2021 when RNI became trustee of the Trusts. Plaintiffs did not dispute that the conduct began in 2016, and instead argued, without citation, that their claims did not accrue until RNI became trustee in 2021. The Court disagreed, citing both the absence of cited authority and HG’s testimony that he knew about the loans. Given that the Trusts’ agents, HG and Warren, knew of the loans, the Court held that “there can be no claim that the Plaintiffs did not know and should not have reasonably discovered” that the loans were funding other family companies.
Additionally, the Court determined that Plaintiffs failed to state a claim for oppression, breach of fiduciary duty, and fraudulent concealment. The oppression claim was based on consistently applied company practice and thus was barred by Mich. Comp. L. 450.4515(2). Even if the claim were not barred, it was sufficient that the trustees knew about the loans. Plaintiffs’ allegations that they did not receive distributions and that Warren had a potential conflict of interest by acting as trustee of the Trusts and manager of RCM II were also insufficient, particularly where the Trusts had a second trustee and both trustees had knowledge of the loans.
The Court held that the breach of fiduciary duty claim similarly failed because the Trustees owed duties to the members, not to the beneficiaries of the members. The Trusts, as members, were charged with knowledge of the loans because HG and Warren, as trustees, knew of the loans. There was no requirement to disclose the loans to Jonathan, as the beneficiary of Trusts. The fraudulent concealment claim also failed. While Plaintiffs argued that Warren had a duty to disclose the self-interested transaction to Jonathan under Mich. Comp. L. 450.4409, the Court rejected this argument because the statute does not require such disclosures or create liability where such disclosures are not made. Additionally, the statute was limited to members and managers, and Jonathan was neither. Finally, Plaintiffs failed to identify false or intentionally deceptive statements, and therefore, Plaintiffs’ allegations about impressions of discussions were inadequate.
§ 10.3.10. New Hampshire Commercial Dispute Docket
N.H. Elec. Coop., Inc. v. Consol. Commc’ns of N. New England Co., LLC[110](Condition precedent).In the context of a complex contractual arrangement, there were various for breach of contract. One party asserted that it was excused from complying with a particular provision of the contract because the other party had breached its obligation to collaborate with respect to it. The Court rejected this defense, holding that the collaboration requirement was not a condition precedent. Therefore, even if the obligation was breached, it was not material and did not provide an excuse for the other party’s obligation to perform the contract.
In seeking reconsideration of the Court’s decision,[111] the non-breaching party further argued that if a contract contains a sequence of events, each individual step is a condition precedent to the ones that follow, and thus the entire contract. The Court rejected this argument as well, noting that conditions precedent are disfavored in law, and unless required by the plain language of the contract, will not be so construed.
Vt. Tel. Co. v. FirstLight Fiber, Inc.[112](Costs/prevailing party). In this case, Plaintiff recovered a verdict in excess of $1 million, while Defendant prevailed on a counterclaim in an amount less than $50,000. Following precedent from the New Hampshire Supreme Court, the Court ruled that Plaintiff was entitled to its costs because Plaintiff recovered a verdict substantially more than Defendant’s verdict on its counterclaim, and Plaintiff was thus owed the net balance of the verdicts. In this sense, Plaintiff was the “prevailing party” for purposes of entitlement to costs.
MacDonald v. Bernardo[113](Standing to enforce note). Plaintiff, the sole shareholder of a dissolved corporation, brought suit on a promissory note owed by Defendant to the corporation. Defendant challenged the shareholder’s standing to sue on the note in the absence of a specific assignment, but the Court rejected the argument. Citing the leading treatise, the Court agreed that equitable principles required that title to the property of a dissolved corporation vests in the shareholders. There was no need for a formal assignment.
§ 10.3.11. New Jersey’s Complex Business Litigation Program
Dominick Alfieri, Michael Alfieri, individually and as Trustee of the 2001 Michael Alfieri Family Trust, et al. v. Jennifer Alfieri Frank, as Trustee of the 2001 Jennifer Alfieri Family Trust[114] (Forms of ESI discovery production). In this dispute concerning payments on multiple promissory notes, the New Jersey Superior Court clarified its rules regarding requests for and production of electronically stored information (“ESI”). Specifically, the Court confirmed a party’s right to specify the forms in which ESI is produced in discovery requests.
Defendant moved to compel Plaintiffs to provide ESI in certain formats and load files, as provided in Defendant’s discovery requests. Defendant argued, inter alia, that, because Plaintiffs did not produce ESI with the requested load files, Plaintiffs’ production was not reasonably usable and caused additional delay and costs associated with Defendant’s review. Plaintiffs responded by claiming that, inter alia, they were not required to comply with Defendant’s demand for load files because that demand imposed an undue burden on Plaintiffs and the cost of compliance was not justified by the needs of the case.
The Court, in granting Defendant’s motion to compel, noted that the New Jersey rules governing requests for document production “permit[] a party to specify the forms in which [ESI] is to be produced when requesting discovery” and “clearly provide [D]efendant the ability to request that the ESI be produce [sic] in load files.” The Court also noted that if a responding party objects to such request, it must demonstrate that compliance with such request presents an undue burden or expense. Here, the Court found that there was no such undue burden placed on Plaintiffs in complying with Defendant’s request and granted Defendant’s motion to compel.
Stonington Capital, LLC v. Benjamin Obdyke, Inc.[115] (Spoliation of evidence). In this dispute concerning an allegedly defective roof installation, the New Jersey Superior Court reaffirmed the standard for sanctioning a party for spoliation of evidence.
Plaintiff brought suit against Defendant as a result of an allegedly defective roof design and installation at Plaintiff’s property. Prior to bringing suit, Plaintiff sent Defendant a pre-suit demand letter wherein Plaintiff notified Defendant of the alleged issues with the roof and that Plaintiff had entered into an agreement to sell the property. In response, Defendant claimed that Plaintiff failed to provide Defendant an opportunity to inspect the roof prior to the replacement of the roof and Plaintiff’s sale of the property, both of which occurred before Plaintiff sent the pre-suit demand letter. Defendant then moved for summary judgment, arguing that Plaintiff spoliated evidence which permanently deprived Defendant of the opportunity to inspect and review the product and installation out of which Plaintiff’s claim arose.
The Court concluded that Plaintiff had a duty to preserve evidence (i.e., the allegedly defective roof) because, upon learning of the issues with the roof during the pre-sale inspection, Plaintiff was aware of the probability that litigation involving Defendant’s liability in connection with the roof would ensue. Further, it was foreseeable that Defendant would be prejudiced by being denied an opportunity to inspect the roof prior to the roof’s replacement, as Defendant would not have the ability to obtain evidence disproving that its product was responsible for the alleged defects. The Court sanctioned Plaintiff, barring Plaintiff from admitting any evidence at trial that Plaintiff obtained during the removal and replacement of the roof.
§ 10.3.12. New York Supreme Court Commercial Division
Investcloud, Inc. v. Siegal[116](Arbitration agreement related to discovery dispute). In April 2024, in a case captioned Investcloud v. Siegal, Justice Daniel J. Doyle of the Seventh Judicial District of New York’s Commercial Division issued a ruling that underscores the limited willingness of New York Commercial Division courts to intervene in matters that are otherwise subject to an arbitration agreement, especially as it relates to discovery disputes.
In Investcloud, the Petitioner sought judicial intervention to compel third-party discovery from Evan Siegal and Pricewaterhouse Coopers (“PWC”) in an arbitration proceeding. The underlying dispute involved a software development agreement between Petitioner and Manning & Napier Advisors, LLC (“Manning”), which contained a mandatory arbitration clause requiring that all disputes be settled via JAMS arbitration. After the underlying arbitration had commenced, the assigned JAMS arbitrator determined that the arbitration would be “governed by the JAMS comprehensive Arbitration Rules and Procedures” (“JAMS Rules”), and the Federal Arbitration Act, which Petitioner did not dispute.
During the arbitration, Manning identified Siegal and PWC as relevant witnesses to the arbitral hearing. Petitioner sought discovery from Siegal and PWC through Manning but ultimately determined that Manning’s response to these discovery requests was insufficient. Rather than raising the issue with the arbitrator, Petitioner instead served subpoenas on Siegal and PWC and subsequently sought court intervention by the Commercial Division to compel responses to those subpoenas.
Justice Doyle’s opinion makes clear that New York courts will not involve themselves in arbitration proceedings absent extraordinary circumstances, especially when it comes to discovery disputes. In particular, Justice Doyle relied on precedent from the Second Department of the New York Appellate Division holding that “an arbitrator is authorized to order non-party discovery (through subpoena) upon a showing of ‘special need or hardship,’” in addition to provisions in the relevant JAMS rules that provided for third-party discovery as well as Section 7 of the Federal Arbitration Act, which grants authority to arbitrators to issue subpoenas. Based on this authority, Justice Doyle concluded that whether or not to compel the third-party discovery at issue was a question for the arbitrator to decide and denied Petitioner’s request for judicial intervention.
1125 Morris Ave. Realty LLC v. Title Issues Agency LLC[117](General releases).1125 Morris Ave, which was decided by Justice Fidel Gomez of the Bronx County Commercial Division in December 2023, is a reminder to carefully review the language of general releases before signing such agreements. New York courts continue to enforce such releases, however broad in scope, absent any fraud or wrongful conduct. Notably, not only did the release at issue in this action result in a waiver of the asserted claims, but the Court also imposed sanctions on the party seeking to avoid the impact of the release.
In this case, 1125 Morris Ave. Realty LLC (“1125 Morris” or “Plaintiff”) filed suit against Title Issues Agency and others (collectively the “Defendants”) over a mortgage deal. Plaintiff obtained a mortgage in November 2014, and certain Defendants had agreed to hold a portion of the mortgage until certain taxes and water/sewer charges were settled with the City. Following the satisfaction of the mortgage in July 2016, Plaintiff executed a broad general release discharging the Defendants from all “claims and demands whatsoever from the beginning of the world to the day of the date of this RELEASE.”
Plaintiff filed suit asserting claims for, among other things, fraud, and that alleging that Defendants failed to use the money set aside to pay the taxes and utilities on the property subject to the mortgage. Plaintiff argued that Defendants assured Plaintiff that the loan proceeds would be used to satisfy the liens on the property, but this did not occur. Plaintiff further claimed that it had to obtain another loan in June 2016 to satisfy the taxes that Defendants failed to pay.
The Court analyzed the broad release entered into between Plaintiff and Defendants. In the analysis, the Court held that even if the alleged fraud had occurred, the claim would have accrued by June 2016 at the latest. Since the release was signed after that date, on the release was applicable to the fraud claim and required dismissal of the action.
Plaintiff tried to avoid the consequences of the release by arguing that the Plaintiff’s owner who executed the release on its behalf “did not know what he was signing, had no legal representation in connection therewith, and because the release was one of many documents he was asked to sign.” The Court, noting the incredibly high bar for a claim of fraud in the execution in New York, rejected this argument stating that a party in New York is generally presumed to have read and understood any document they sign absent extraordinary circumstances. In light of this high bar to fraud in the execution claims, the Court refused to set aside the release.
Indeed, the Court not only dismissed Plaintiff’s complaint, but also sanctioned Plaintiff’s counsel for ignoring not only that the claims were time barred, but also that the release executed would have barred the asserted claims. As a result, the Court ordered Plaintiff to reimburse Defendants for any costs and legal fees incurred in defending the action.
Mem’l Sloan Kettering Cancer Ctr. v. Bristol Myers Squibb Co.[118] (Parent corporation liability for contracts entered into by subsidiaries). In Mem’l Sloan Kettering Cancer Ctr., which was decided by Justice Robert Reed of the New York County Commercial Division in January 2024, the Court reiterated that parent corporations will not automatically be held liable for contracts entered into by their subsidiaries under New York law, except under limited, unique circumstances.
In this case, Memorial Sloan Kettering Cancer Center (“MSK”) and Eureka Therapeutics, Inc. (“Eureka”) sued Bristol Myers Squibb Co. (“BMS”), Celgene Corporation (“Celgene”), and Juno Therapeutics, Inc. (“Juno”) for alleged breach of a contract relating to the development of a blood cancer treatment. MSK and Eureka partnered with Juno, a biopharmaceutical company, to develop a blood cancer treatment. Juno was supposed to use and commercialize MSK and Eureka’s product, and Plaintiff would be entitled to certain royalties resulting from this commercialization. Juno was subsequently acquired by Celgene and BMS after the agreement was executed. MSK alleged that, as part of this acquisition, “Juno assigned its rights and obligations under the licensing agreement to BMS, and that BMS acquired and assumed Juno’s rights and obligations under the licensing agreement.” At the time of the acquisition, BMS had developed a competing blood cancer treatment called Abecma. Plaintiff alleges that BMS abandoned its efforts to pursue Plaintiffs’ technology, instead promoting Abecma. Plaintiff sued all three parties, BMS, Celgene, and Juno, all of whom moved to dismiss.
As Justice Reed explained, pursuant to binding precedent from the First Department of the New York Appellate Division, a parent company can be held liable for a subsidiary’s contractual agreements only under the following narrow circumstances:“(1) if the parent manifests an intent to be bound by the contract; or (2) if the elements of piercing the corporate veil are present” (citing Horsehead Indus., Inc. v Metallgesellschaft AG, 239 AD2d 171, 172 [1st Dept 1997]).
Ultimately, the Court opined that neither circumstance was present in the instant action because mere business overlap, including the allegations in the complaint that Celegene and Juno “were subsumed into the regular business operations of BMS” and that “Celegene and BMS took exclusive control of performing under the licenses agreement,” was insufficient to invoke parental liability. “Parent and subsidiary entities are generally considered and treated as separate legal entities, so that the contract of one does not bind the other.” (Capricorn Invs. III, L.P. v Coolbrands Int’l, Inc., 24 Misc 3d 1224 (A) [Sup. Ct. N.Y. Cnty. 2009]). The Court held that “facts must be alleged that establish an intent to be bound, which may be shown by contract negotiation, use of the subsidiary as a shell and use of the subsidiary solely for the parent’s operational purposes.” Based on the absence of any similar allegations with respect to the applicable parent entities, Justice Reed dismissed the complaint against BMS and Celgene, and severed and continued the action against Juno individually.
South32 Chile Copper Holdings Pty Ltd. v. Sumitomo Metal Mining Co.[119](International discovery).South32 Chile, another case decided by Justice Reed of the New York County Commercial Division, serves as a reminder that international discovery is available in the Commercial Division.
In this action, South32 Chile Copper Holdings Pty Ltd. (“South32”) sued Sumitomo Metal Mining Co., Ltd., and Sumitomo Corp. (“Sumitomo”). The basis of the lawsuit was to hold Sumitomo responsible for Dutch tax liabilities for a Chilean goldmine operation that South32 acquired as part of a deal between the two companies.
During discovery, Plaintiff sought to obtain documents from the U.S. affiliates of certain non-party entities in the Netherlands and the United Kingdom. Plaintiffs alleged that these entities “provided financial or tax advice regarding the Dutch tax liability at issue in this case and possess information relevant to the parties’ sale and purchase agreements which purportedly conferred liability for the tax payment.”
In considering whether to permit international discovery in this action, Justice Reed explained that courts must look to three different elements: (1) that the “documents sought are both material and necessary to the legal claims in this matter,” (2) that “the method of discovery sought will result in the disclosure of relevant evidence or is reasonably calculated to lead to the discovery of information bearing on the claims,” and (3) “that the information sought is ‘crucial to the resolution of a key issue in this case.’” Because the Court was satisfied all three prongs were met, Justice Reed issued a Letter of Request for Judicial Assistance Pursuant to the Hague Convention to compel the discovery requested.
O’Rourke v. Ballroom[120] (Discovery compliance). New York County Justice Margaret Chan’s August 2024 decision in O’Rourke v. Ballroom, underscores the importance of discovery compliance in the New York Commercial Division. In this case, Plaintiff repeatedly failed to appear for his deposition. Starting in 2022, through January 2024, the Court held eight discovery conferences with the parties and scheduled a deadline for Plaintiff’s deposition at each conference. Plaintiff nonetheless failed to appear for his court-ordered deposition each and every time. On May 1, 2024, the Court held a ninth and final discovery conference. At that ninth conference, Plaintiff’s counsel apologized for the failures and explained that “extrinsic issues” had caused him and his firm to continuously drop the ball. The Court gave counsel the benefit of doubt and provided Plaintiff with one more chance to appear for deposition on or before June 28, 2024, indicating Defendants would be permitted to seek sanctions, including preclusion, if Plaintiff again failed to appear.
Despite the Court’s warning at the May 1, 2024, conference that further discovery non-compliance would not be tolerated, Plaintiff failed to appear for a deposition three more times between May 1, 2024, and August 22, 2024, notwithstanding repeated attempts by defense counsel to confirm a date certain for the deposition. In light of these repeated failures to appear, Defendants moved for sanctions, including the dismissal of Plaintiff’s complaint.
In granting the motion, Justice Chan analyzed the standards for issuing discovery sanctions under CPLR 3126 (3), which provides that if a party “‘refuses to obey an order for disclosure or willfully fails to disclose information which the court finds ought to have been disclosed pursuant to this article, the court may make such orders with regard to the failure or refusal as are just,’ including ‘an order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or any part thereof, or rendering a judgment by default against the disobedient party.’”
The Court held that the record of repeated and largely unexplained failures to appear suggested that Plaintiff was never ready for deposition on June 28 or any date, and was never set to be prepared. The Court pointedly noted that Plaintiff’s counsel’s actions and representations “smack of gamesmanship, which this court does not condone.” Based on this record, the Court determined that sanctions were warranted, and that dismissal of the complaint in its entirety was appropriate.
§ 10.3.13. North Carolina Business Court
Biomilq, Inc. v. Guiliano[121](Gatekeeper order against pro se litigant due to misconduct). This case concerned a pro se defendant’s persistent misconduct. The defendant was initially represented by two different counsel, but eventually both withdrew from the case. After his second counsel withdrew, the Court set clear expectations for the defendant regarding his communications with opposing counsel and the Court, given disrespectful prior communications from the defendant to opposing counsel that had come to the Court’s attention.
Despite the Court’s clear expectations, additional admonitions and warnings, and subsequent issuance of a show cause order, the defendant’s misconduct continued and escalated. He repeatedly violated the Court’s orders and the local rules, submitting voluminous and duplicative filings, as well as other improper filings, many of which only served to convey his disagreement or irritation with the Court’s orders. He also “engaged in name-calling and ad hominem attacks on both the Court and opposing counsel.” And he appeared to commit the unauthorized practice of law by attempting to represent the interests of an entity defendant that had its own counsel.
Based on the defendant’s abuse of the legal process and his inability or unwillingness to comply with the Court’s directives and the local rules, the Court determined that sanctions in the form of a gatekeeper order were warranted. Under the gatekeeper order, before filing any document in this case, a related case, or any other Business Court case, the defendant must first obtain a certification signed by an attorney licensed to practice in North Carolina, stating that the attorney has read and is aware of the gatekeeper order’s requirements and that, in the attorney’s opinion, the document sought to be filed by the defendant complies with the Rules of Civil Procedure, including Rule 11.
Atl. Coast Conf. v. Bd. of Trustees of Fla. State Univ.[122] (Governmental immunity; breach of fiduciary duties; motion to stay). This case was one of a pair of cases the court dealt with involving the Atlantic Coast Conference’s Grant of Rights Agreement with member institutions concerning the conference’s television rights deal with ESPN. The ACC sued both Clemson and Florida State in the North Carolina Business Court. Clemson and Florida State also both initiated litigation in South Carolina and Florida, respectively, seeking declarations of their rights under the Grant of Rights Agreement and challenging the scope and enforceability of the agreement—in particular, the withdrawal payment provision. This action began after the Florida State Board of Governors notified the public that it would hold an emergency meeting to consider filing a lawsuit against the conference in Leon County, Florida. In response, the ACC preemptively filed in the Business Court, seeking a declaration that the Grant of Rights Agreement was a valid and enforceable contract and a declaration that Florida State was estopped or had waived any right to challenge the agreement. The Board filed its action in Leon County the next day. The ACC later amended its complaint to bring additional claims based on the Leon County litigation.
The Board first moved to dismiss the ACC’s declaratory judgment claims, arguing that the suit was filed prematurely and that it could have voted not to file the Leon County action. The court rejected this argument, as the Grant of Rights Agreement was based on member institutions not taking any action to affect the validity or enforcement of the rights. The allegations that the Board openly discussed withdrawal from the conference, began advocating for a greater share of revenue from the league, and notified the public of an emergency meeting to discuss initiating the Leon County action were sufficient to create a real judiciable controversy. For the same reasons, the court concluded that the ACC had suffered a cognizable injury, giving it standing to sue.
The ACC brought a breach of fiduciary duty claim, arguing that by seeking retroactive withdrawal from the conference in the Leon County action, Florida State has a clear, direct, and material conflict of interest with the management of the Conference. The court granted the Board’s motion with respect to this claim, determining that because the ACC was an unincorporated nonprofit association, no fiduciary duty existed as a matter of law. Additionally, the conference failed to plead facts establishing a de facto fiduciary relationship, as Florida State was just one of fifteen members of the conference.
Finally, the court rejected the Board’s motion to stay the case in favor of the Leon County action. Although the Board argued that it was the natural plaintiff, whose efforts to select its forum had been thwarted by the ACC’s preemptory filing, the court noted that the ACC, as the non-breaching party alleging a breach of the Grant of Rights Agreement, was a proper plaintiff. Thus, the deference afforded to the plaintiff’s choice of forum was appropriate. Additionally, because of the ACC’s longstanding ties to North Carolina, including having four member institutions located within the state, the court concluded that North Carolina was an appropriate forum and would not work a “substantial injustice” to the Board in litigation.
Atl. Coast Conf. v. Clemson Univ.[123] (Governmental immunity; declaratory judgment; breach of duty of good faith). Clemson University raised some similar and some unique arguments in its own litigation against the ACC. Just as in the Florida State litigation, the court first dealt with a threshold governmental immunity issue related to the “sue and be sued” clause of the North Carolina Nonprofit Corporation Act. Like Florida State, Clemson argued for dismissal on sovereign immunity grounds. However, after examining both United States and North Carolina Supreme Court precedent, the court concluded that despite Clemson being a South Carolina public institution, it had engaged in substantial commercial activity in North Carolina by traveling to state to compete in ACC-sponsored and administered athletic events, as well as engaging in other membership and governance activities. Because its activities as a member of the ACC were more commercial than governmental, it was subject to the sue and be sued clause.
Clemson also moved to dismiss the ACC’s declaratory judgment claims that the Grant of Rights contract was valid and enforceable and that the ACC owned the rights transferred by Clemson, whether or not it remained in the conference. Because Clemson did not dispute the validity of the Grant of Rights Agreement in the South Carolina litigation, the court dismissed the first claim for declaratory relief. However, the court determined that a real and judiciable controversy existed with respect to whether the ACC would own the rights transferred by Clemson if it departed the conference. The court additionally dismissed the ACC’s breach of contract claim, rejecting the conference’s argument that Clemson seeking a clarification of its rights was itself a breach of the agreement. However, the Court allowed the breach of the duty of good faith and fair dealing claim to survive, concluding that a reasonable fact finder could determine that Clemson interfered with the ACC’s right to exploit Clemson’s media rights under the agreement, either by filing the South Carolina lawsuit or by negotiating for a standstill agreement with the conference after the ACC sued the Florida State Board of Governors.
Finally, the court denied Clemson’s motion to stay in favor of the South Carolina litigation. Although Clemson filed the South Carolina action first, the court noted that it was the only body with jurisdiction over Clemson, Florida State, and the ACC—and thus the only court that could assure a consistent, uniform interpretation of the Grant of Rights Agreements and the ACC’s Constitution and Bylaws—which formed the crux of the case. This factor weighed heavily in favor of denying Clemson’s motion to stay. Both cases have since been appealed.
McClure v. Ghost Town in the Sky, LLC[124] (Dissolution).This case involves a western-themed amusement park in the North Carolina mountains called Ghost Town in the Sky. Alaska Presley and Coastal Development, LLC formed the company in 2020. After Ms. Presley died at the age of 98, her interest passed to her niece, Jill McClure. Although McClure initially expressed interest in being bought out by Coastal Development, negotiation proved futile. McClure then brought suit to dissolve Ghost Town in the Sky and wind up its affairs. In the meantime, Ghost Town in the Sky signed a contract with a studio to create a project design plan, but it was contingent on securing financing. During litigation, McClure and Coastal Development continued to quarrel, including over who was responsible for paying property taxes. McClure ultimately filed a motion for summary judgment.
The case centered on whether it was no longer practicable for Ghost Town in the Sky to conduct its business in conformance with its operating agreement. However, the court noted that absent managerial deadlock, it would not be inclined to find so. Because Coastal Development was the sole managing member, no deadlock existed. Thus, it was not unfeasible for the company to carry out its stated purpose. The court also rejected McClure’s arguments that there were insufficient income returns to continue. At only two years old at the time litigation began, the company was too young to make any such determination. Additionally, the property tax dispute was merely a common disagreement among members and did not warrant the drastic remedy of involuntary dissolution. In sum, neither the struggle to obtain financing nor the frosty relationship between members had kept Ghost Town in the Sky from fulfilling its purpose. Therefore, the Court denied McClure’s motion for summary judgment and actually entered summary judgment against her.
Hosie v. 8 Rivers Cap., LLC.[125](Attorney-client privilege in the context of disputes between a corporation and its officer or directors).The attorney-client privilege was recently examined in the North Carolina Business Court case Hosie v. 8 Rivers Capital, LLC, where the plaintiffs alleged that the corporate defendants were improperly withholding documents in response to the plaintiffs’ pending discovery requests. The individual plaintiff is the former CEO of one of the corporate defendants and was serving as a manager on the board of managers of that same corporate defendant at all relevant times. Hosie addressed two key privilege issues under North Carolina law: (1) which state’s law governs privilege matters, and (2) who controls the privilege over corporate communications when a company is in a dispute with its officers or directors.
The Court ruled that privilege is a procedural matter governed by the law of the jurisdiction where the lawsuit is filed—North Carolina in this case—and rejected the argument that the internal affairs doctrine applies to this issue. It also adopted the majority the “entity-is-the-client” approach, determining that the company controls the privilege over corporate communications, which protects privileged corporate communications from officers or directors who later become adverse to the company. The Court further addressed whether the company had waived its privilege by selectively disclosing some documents while withholding others. As a matter of fairness, it found that the company’s use of the privilege as both a “sword and shield” led to a “subject-matter waiver,” meaning the company had to produce nearly half of the withheld documents.
Howard v. IOMAXIS, LLC n/k/a MAXISIQ, Inc.[126] (Personal jurisdiction over foreign corporations under Calder test). This case involves a dispute between the co-trustees of the Ronald E. Howard Revocable Trust and a limited liability company and its members. The Trust purportedly holds a 51% economic interest in the defendant IOMAXIS, LLC.
The Court first addressed whether it had personal jurisdiction over an individual defendant and another entity defendant. The Court, applying the test set out in Calder v. Jones, 465 U.S. 783 (1984), concluded that it had personal jurisdiction over the individual defendant because he was active in, and even led, efforts the Trust alleges targeted it for harm, and the record confirmed that the individual defendant knew the Trust would feel the impact from his actions in North Carolina. With respect to the entity defendant, the Court concluded that it had personal jurisdiction for two reasons. First, the Court determined that the rationale for imposing personal jurisdiction in State ex rel. Stein v. E.I. du Pont de Nemours & Co., 382 N.C. 549 (2022), i.e., that a court will have personal jurisdiction where foreign corporations were set up in part to help a domestic corporation “avoid paying its liabilities[,]” was equally present here because each of IOMAXIS’s owners traded their ownership interest for an ownership interest in the entity defendant, effectively making the entity defendant IOMAXIS’s successor-in-interest. Second, the Court concluded that the Calder test also resulted in the Court having personal jurisdiction over the entity defendant because it exercised control of IOMAXIS’s assets and was profiting from them to the exclusion and detriment of the North Carolina based Trust.
Next, the Court addressed whether plaintiffs had standing and concluded that plaintiffs met their burden of proving the elements of standing based on the evidence then before the Court. However, the Court noted that a more complete record could change this if it was established that the Texas Operating Agreement, rather than the North Carolina Operating Agreement, controls.
Finally, the Court considered whether the Trust’s claims for breach of the buy-sell agreement, breach of the covenant of good faith and fair dealing, fraudulent concealment, and violation of the Uniform Voidable Transactions Act (“UVTA”) were subject to dismissal pursuant to Rule 12(b)(6) for failure to state a claim. The Court ruled that failure to exercise the purchase option in the North Carolina Operating Agreement ended the buy-sell provision, so the Plaintiffs could not claim a breach thereof. The Court granted the motion to dismiss this claim but denied it regarding IOMAXIS’s alleged failure to retain an accounting firm to value Mr. Howard’s interest. Next, the Court allowed the claim for breach of the implied covenant of good faith and fair dealing, finding that IOMAXIS’s failure to pay distributions to the Trust as an economic interest holder, and instead paying them to the IOMAXIS defendants, was sufficient to support the claim. The Court then rejected IOMAXIS’s argument to dismiss the Trust’s fraudulent concealment claim. It ruled that the Trust sufficiently alleged a duty to disclose, detrimental reliance, and harm, and found that the claim was direct, not derivative. Last, the Court dismissed the UVTA claim against the IOMAXIS Defendants and Five Insights, as they were not located in North Carolina when the transfer occurred, but allowed the claim to proceed against Defendant Spade, who was a North Carolina resident.
§ 10.3.14. Rhode Island Superior Court Business Calendar
Memorial Real Estate Group, LLC v. 111 Brewster Condominium Association[127] (Judicial foreclosure). This matter arises from a judicial foreclosure of the former campus of the Memorial Hospital and the subsequent acquisition of the property by Memorial Development via quitclaim. The plaintiff filed a complaint seeking a judicial foreclosure. It has been long established that RI is a title theory state, and thus, “a mortgagee not only obtains a lien upon the real estate by virtue of the grant of the mortgage deed but also obtains legal title to the property subject to defeasance upon payment of the debt.” In re D’Ellena, 640 A.2d 530, 533 (R.I. 1994).
The court found that the language contained in the mortgage originally held by Memorial Hospital was a conveyance, stating, “Borrower mortgages, grants, conveys and assigns to Lender . . . the Mortgaged Property.” The court held no ambiguity existed in the court’s Order. Plaintiff’s position that the Mortgage was not a conveyance failed at the motion-to-dismiss juncture.
Caroline Flynn, et al. v. Nappa Construction Management, LLC, et al.[128] (Binding dispute resolution by arbitration terminated by stipulation). The action arose from a dispute involving the construction of an automotive repair facility between the plaintiffs, Caroline and Vincent Flynn and their LLCs, and NAPPA Construction Management. Disputes arose concerning the flooring and foundation work performed by Nappa. Nappa argued that because § 6.2 of the construction contract mandates that the method of binding dispute resolution is arbitration, they are entitled to judgment as a matter of law on all counts. In § 6.2 of the construction contract and § 15.4 of the general conditions, the parties selected arbitration as the method of binding dispute resolution. Based on the unambiguous language of the construction contract, the sole method of dispute resolution between the parties for any claim was arbitration. However, the arbitration was dismissed by a stipulation between the parties. The question of whether binding dispute resolution provides that an arbitration terminated by stipulation is with prejudice was one of first impression for the Rhode Island courts. As the arbitration had begun, it also had been held. The court decided that arbitration was the only means by which the parties could assert their claims, and it thus granted Nappa’s motion for summary judgment despite the arbitration concluding by stipulation prior to any decision by the arbitrator.
Joseph A. Maraia v. The Alpine Country Club, Inc.[129] (Shareholder dispute). This matter arose from a shareholder dispute between Joseph A. Maraia and Alpine Country Club Inc. Mr. Maraia joined Alpine in 1993 and purchased a share for $7,500 and later resigned in May 2005. Mr. Maraia, through counsel, filed a complaint on August 21, 2015. A check was issued to Mr. Maraia on September 9, 2015. Alpine’s counsel learned of the suit on September 14, 2015, and asked for a prompt dismissal. Mr. Maraia was charged $3,700 for his attorney’s legal fees and therefore refused to cash the $7,500 check demanding that his counsel fees also be paid. In January 2015, Alpine refinanced its mortgage and in connection therewith agreed to a $100,000 limit in redeemed stock payments.
The court held that “it has been well established that there should be no judicial interference with the internal affairs, rules and by-laws of a voluntary association unless their enforcement would be arbitrary, capricious or constitute an abuse of discretion.” The court looked to Alpine’s bylaws and the circumstances surrounding the payment of shares that year and held that “it was not arbitrary or capricious for Alpine to implement a system where it is only required to pay out to no more than ten members in one calendar year and to prioritize payments to families of deceased members.”
The court also considered Mr. Maraia’s breach of contract claim. To establish a breach of contract “‘the plaintiff must prove both the existence and breach of a contract, and that the defendant’s breach thereof caused the plaintiff’s damages.’” Vicente v Pinto’s Auto & Truck Repair, LLC, 230 A.3d 588, 592 (R.I. 2020) (quoting Fogarty v. Palumbo, 163 A.3d 526, 541 (R.I. 2017)). The court found Alpine did not breach the contract with Mr. Maraia because it reasonably interpreted and applied the ten-year stock redemption provision contained in its bylaws and timely made the full payment to Mr. Maraia.
The court further considered Mr. Maraia’s breach of fiduciary duty claim. The RI Supreme court has not addressed the issue of breach of fiduciary duty owed by a corporation to its stockholders; however, it is common to look to Delaware jurisprudence. Courts in Delaware consistently have held that a corporation itself does not owe a fiduciary duty to its stockholders; only directors and officers do. The court held that based on Delaware jurisprudence, the claim against Alpine failed because as a corporation it did not owe Mr. Maraia a fiduciary duty.
Judgment was awarded to the defendant Alpine Country Club, Inc. and against the plaintiff Joseph A. Maraia on all counts.
§ 10.3.15. Texas Business Court
Energy Transfer LP et al. vs. Culberson Midstream LLC et al.[130](Business Court jurisdiction). In this case, originally filed in the 193rd District Court of Dallas County in 2022, the plaintiff sought to remove the case to the Business Court. Judge Whitehill ordered the case remanded to the district court. In his (and the Business Court’s) first published opinion, dated October 30, 2024, Judge Whitehill rejected plaintiffs’ arguments that (1) Section 8 merely affirms the Business Court’s ability to start accepting cases on September 1, 2024; (2) HB 19’s removal provisions in Sec. 25A.006, are procedural, not substantive, so the removal process could apply to pre-September 1, 2024, cases notwithstanding Section 8; and (3) when the Texas Legislature has excluded certain cases from application of a new statutory scheme, it has used language not found in Section 8, relying on careful application of textual analysis. The plaintiff appealed the court’s decision to the Fifteenth Court of Appeals on November 1, 2024. The appeal was dismissed by that court on February 6, 2025, in response to the parties’ settlement of the action.
Following close on the heels of Energy Transfer were Business Court decisions addressing two further attempts to remove pre-September 1, 2024, cases to the Business Court, both featuring the same counsel arguing for removal as in Energy Transfer: Synergy Global Outsourcing, LLC v. Hinduja Global Solutions, Inc.,[131] and Tema Oil and Gas Co. v. ETC Field Servs., LLC.[132]
Synergy Global was originally filed in the 191st Judicial District Court of Dallas County in 2019, with the plaintiff seeking to remove the case to the Business Court. Judge Whitehill’s opinion noted some expansion and refinement of arguments presented by each side when compared with Energy Transfer, but it reached the same conclusion that the case must be remanded to the district court based on careful textual analysis of HB 19. Synergy Global responded with an appeal to the Fifteenth Court of Appeals on November 12, 2024, which remains pending.
Tema was originally filed in the 236th Judicial District Court of Tarrant County in 2017. On September 11, 2024, defendant ETC filed a notice of removal to the Business Court, followed by plaintiff Tema’s motion to remand the case back to the 236th District Court, based on arguments tracking those discussed above. Judge Bullard’s opinion also relied on careful textual analysis to decline to accept the arguments offered to support removal. Tema responded with an appeal to the Fifteenth Court of Appeals on November 8, 2024.
On February 21, 2025, the Fifteenth Court issued its opinion affirming Judge Bullard’s decision and holding “that civil actions transferred to the business court by removal must be remanded if they were commenced in another court before September 1, 2024.” The court also indicated that “in these early days of business court litigation, remand and removal is subject to review by mandamus according to the same principles and rules as in any other pretrial orders.” Subsequent actions by the court in other pending cases raising these issues have followed these principles.
The Business Court’s remaining 2024 published opinions all respond to challenges to the Business Court judges’ consensus that Section 8 of House Bill 19 deprives the Business Court of jurisdiction over actions that had commenced prior to September 1, 2024. The arguments pro and con follow similar patterns, and reach similar results, with a small number of interesting wrinkles:
Seter v. Westdale Asset Management, Ltd.[133](Business Court jurisdiction). Judge Bouressa’s two-page memorandum opinion dated December 16, 2024, set a new mark for judicial efficiency by requiring only two pages to support remanding a 2022 case to the originating Dallas County Court at Law No.3, referencing the holdings in Energy Transfer, Jorrie and Winans discussed above. The defendant appealed that decision to the Fifteenth Court of Appeals on December 30, 2024, in the form of an application for a writ of mandamus and for temporary relief staying the proceeding until the Fifteenth Court of Appeals or the Texas Supreme Court issues a ruling on the question of pre-September 1, 2024, cases being removed or transferred to the Business Court. On January 24, 2025, the Fifteenth Court denied the petition, per curiam, with no explanation.[134] This was followed by defendants filing a petition for a writ of mandamus in the Texas Supreme Court on February 20, 2025, where it remains pending, the first and only Business Court case to reach the high court as of this writing.[135]
Lone Star NGL Product Services, LLC v. EagleClaw Midstream Ventures, LLC[136](Business Court jurisdiction). One of the possible solutions for parties to pre-September 1, 2024, litigation that want to move the proceeding to the Business Court is to nonsuit the case in the original district court and refile it in the Business Court as a new, post-September 1, 2024, action. In this proceeding two highly respected firms, several years into a hard-fought, high-dollar case, demonstrated in detail how to craft a Rule 11 agreement between the parties to nonsuit and refile their case on an agreed basis. All filings in the Business Court relating to the jurisdictional issues were made in agreed, joint form.
At the end of the day, Judge Adrogué could not agree with the parties’ arguments for allowing them to transfer the case to the Business Court, intact and without nonsuiting, based upon their complete agreement on how to accomplish that. Their good faith and hard work did, however, earn them the endorsement of Judge Adrogué and the Fifteenth Court of Appeals for a permissive interlocutory appeal to gain consideration of their arguments and proposed solutions.[137] That appeal is pending.
§ 10.3.16. West Virginia Business Court Division
Axiall Corporation et al v. Great Lakes Insurance Company et al.[138](Insurance coverage and prejudgment interest). This matter concerned property damage stemming from a railroad tank car rupture and chlorine release that occurred in 2016. Plaintiffs claimed that its thirteen different insurers breached their respective insurance contracts by failing to cover the associated losses. As this matter progressed in the Business Court Division, so did a civil action in Pennsylvania. In 2021, the jury in the Pennsylvania action determined that plaintiff Axiall Corporation suffered $5.9 million in damages to its plant and equipment. In 2022, following the verdict in the Pennsylvania action, the Business Court Division granted partial summary judgment to the defendants, finding that, as a matter of law, the plaintiffs’ damages were $5.9 million prior to the application of the appropriate $3.75 million deductible.
In September 2024, plaintiffs moved the Business Court Division for summary judgment, arguing that the defendants issued all-risk insurance policies that indisputably covered the $5.9 million chlorine-rupture, despite their continued nonpayment. Plaintiffs further sought an award of prejudgment interest from the court. In considering the motion for summary judgment, the court analyzed the parties’ contract pursuant to the agreed-upon Georgia law. See Great Lakes Reinsurance (UK) PLC v. Kan-Do, Inc., 639 Fed. App’x 599, 601 (11th Cir. 2016) (employing a two-step analysis to assess whether an insurer breached its payment obligations under an all-risk policy). The court first found that the subject chlorine release was a fortuitous event. The court next found that it had already concluded the rupture was a covered event under the policies. Accordingly, the court found that damages were owed to the plaintiffs. Furthermore, the court also found that an award of prejudgment interest was appropriate due to the significant amount of time that had passed since the Pennsylvania jury found that $5.9 million in damages existed. Therefore, the court entered summary judgment in the plaintiff’s favor for $2.15 million in breach of contract plus prejudgment interest from the date the Pennsylvania court entered its judgment. After a five-year span, the action was then retired from the court’s active docket.
Ezra Schoolcraft v. Jeffrey Isner et al.[139] (Dissolution, winding up, attorneys’ fees). This matter concerned a series of business disputes stemming from various oil and gas companies that the parties had formed together. Following a trial in March 2024, the jury found that the defendant, in his capacity within a business co-owed by plaintiff, had acted “in a manner that is illegal, oppressive, fraudulent or unfairly prejudicial to” plaintiff. After the trial, each party submitted post-trial motions. Plaintiff sought an order governing the dissolution and winding up of the shared business. Defendant sought attorneys’ fees, costs, and expenses, contending that he was the substantially prevailing party in the matter.
The court first considered plaintiff’s motion for dissolution and winding up. Reviewing the verdict form, the court concluded that the jury made the requisite findings warranting a judicial decree of dissolution under West Virginia law. Additionally, due to the jury’s findings of defendant’s conduct, the court concluded that judicial supervision was necessary to accomplish the winding up. Accordingly, the court articulated a set of standards for the parties to follow, including the submission of joint status reports every thirty days until the completion and formal winding up had occurred by year end. Finally, regarding defendant’s motion for attorney fees, costs, and expenses, the court determined that he was the substantially prevailing party. Despite the jury awarding plaintiff $476,000, the court found it clear the defendant had prevailed in nearly all other respects. Therefore, the court ordered that defendant be awarded attorney fees, costs, and expenses totaling $700,261.27. Upon entry of this Order, the court removed the matter from its active docket after approximately three years.
American Bituminous Power Partners, L.P. v. Horizon Ventures of West Virginia, Inc.[140] (Bench trial on damages). This matter came back to the Business Court Division following a remand and directive from the Supreme Court of Appeals of West Virginia, which found that the case was inappropriate for disposition through summary judgment due to factual ambiguities surrounding the interplay between various lease and settlement agreements for a powerplant. Following the remand and directive, the Business Court Division conducted a three-day bench trial on damages. Based on defendant’s various witnesses, the court concluded that three relevant time periods from 2013 through 2024 determined the calculation of rent owed. The court also concluded based on the parties’ agreements that simple interest applied to these time periods. Noting that rent had not been paid to defendant from 2013 to 2023, the court analyzed the calculations offered by defendant’s witness and determined that plaintiff owed defendant $9,168,608.00 in rent. In reaching this conclusion, the court pointed out that plaintiff failed to offer any contrary calculations. After analyzing this figure against the applicable contractual interest rates, credits, and prejudgment interest owed, the court retired the matter from its active docket following its five-year path to resolution.
§ 10.3.17. Wyoming Chancery Court
Aishangyou Ltd. v. Wetrade Grp., Inc.[141] (Issue preclusion and third-party-defendant jurisdictional objection). This matter presented an unusual procedural posture after two unserved third-party defendants objected to proceeding in chancery court under W.R.C.P.Ch.C. 3(a). After the court notified the parties of its intent to dismiss the case due to the objections, the defendant dismissed all claims against the third-party objectors and argued that such dismissal mooted the objections. At that point, plaintiffs—who brought the case but had since thrown in the towel on their claims—supported dismissal based on the third-party objections, while defendants—who still had live counterclaims—opposed. The court found that Rule 3(a) did not require dismissal because it was undisputed that the third-party defendants were no longer parties following their dismissal. Their objections were therefore moot, and the case was maintained in chancery court.
Defendant later moved for summary judgment based on the voluntary dismissal of all of plaintiffs’ claims. They argued that, because the parties had pleaded inverse claims arising out of the same facts, plaintiffs’ capitulation precluded challenge to the counterclaims. The court denied the request, noting that the stipulated dismissal the parties had filed did not evidence an intent to foreclose litigation of issues raised in plaintiffs’ claims. Counterclaimants could therefore not rely on issue preclusion to establish facts material to their summary judgment motion. And having raised no evidence independent of the stipulated dismissal, counterclaimants had failed to satisfy their evidentiary burden under Rule 56.
Flying Phoenix Corporation v. Randall Sinclair[142](Consignment Relationship not a partnership). In this matter the court assessed whether two couples, acting through business entities formed by each side, undertook commercial fireworks sales as a partnership. Plaintiff distributors and defendant retailers had for decades split gross sales of fireworks 60/40 each year. Over the years, the parties’ relationship was complicated by various investments into the enterprise. At first, defendants used a traveling stand to sell the fireworks, but eventually purchased land designated for full-time fireworks sales. Five years later, plaintiffs purchased a building from which defendants could sell the fireworks and affixed that building to defendants’ land. Eventually, defendants began selling third-party fireworks from plaintiffs’ building that was still affixed to defendants’ land. One dispute between the parties was whether selling third-party fireworks breached the duty of loyalty owed to one’s partners.
The court found that no partnership existed because the parties’ relationship, though complex, lacked the core characteristics of a partnership under Wyoming law. Among the missing features were shared control, shared risks, shared community of interests, and shared profits. The parties acted as separate businesses, with plaintiffs distributing and defendants retailing the fireworks independently. Neither had a say in how the other operated, and both sides occasionally pursued their own interests at the other’s expense. Plaintiffs—who borrowed to acquire the fireworks from China—maintained exclusive ownership until sale, meaning they could reclaim any unsold fireworks and were at all times liable for actual losses. Defendants, meanwhile, were financially removed from the distribution process and only ever received a flat cut of sales income. The court concluded that the enterprise was more akin to a consignment than a partnership.
For a more detailed discussion on what may be defined as a business court, see generally A.B.A. Bus. Law Section, The Business Courts Bench Book: Procedures and Best Practices in Business and Commercial Cases (Vanessa R. Tiradentes, et al., eds., 2019) [hereinafter Business Courts Bench Book]; Mitchell L. Bach & Lee Applebaum, A History of the Creation and Jurisdiction of Business Courts in the Last Decade, 60 Bus. Law. 147 (2004) [hereinafter Business Courts History]. ↑
For an overview of business courts in the United States, see, e.g., Business Courts Bench Book, supra note 1, Business Courts History, supra note 1, Lee Applebaum & Mitchell L. Bach, Business Courts in the United States: 20 Years of Innovation, in The Improvement of the Administration of Justice (Peter M. Koelling ed., 8th ed. 2016); Joseph R. Slights, III & Elizabeth A. Powers, Delaware Courts Continue to Excel in Business Litigation with the Success of the Complex Commercial Litigation Division of the Superior Court, 70 Bus. Law. 1039 (Fall 2015); John Coyle, Business Courts and Inter-State Competition, 53 Wm. & Mary L. Rev. 1915 (2012); The Honorable Ben F. Tennille, Lee Applebaum, & Anne Tucker Nees, Getting to Yes in Specialized Courts: The Unique Role of ADR in Business Court Cases, 11 Pepp. Disp. Resol. L. J. 35 (2010); Ann Tucker Nees, Making a Case for Business Courts: A Survey of and Proposed Framework to Evaluate Business Courts, 24 Ga. St. U. L. Rev. 477 (2007); Tim Dibble & Geoff Gallas, Best Practices in U.S. Business Courts, 19 Court Manager, no. 2, 2004, at 25. Further, the Business Courts chapter of this publication has provided details on developments in business courts every year since 2004. Finally, the Business Courts Blog went online in 2019, and serves as a library for past, present and future business court developments, www.businesscourtsblog.com (last visited Apr. 7, 2025). ↑
Business Courts Bench Book, supra note 1, at xx. ↑
Business Courts History, supra note 1, at 207, 211. ↑
Douglas L. Toering, Mantese Honigman, PC partner and co-author of this section, oversees the Business Courts Blog. ↑
Administrative Order, In Re Business Court Program, ¶ (a) (S.C. Aug. 1, 2024) (omitting mention of regions and region judge assignments and authorizing the Chief Business Court Judge to “assign exclusive jurisdiction over the case to any Business Court Judge”); Administrative Order, In Re Amended Business Court Program, ¶¶ 1, 2, 4 (S.C. July 14, 2023) (noting the regions, authorizing the Chief Business Court Judge to “assign exclusive jurisdiction over the case to any business Court Judge,” and assigning judges to preside over regions); Administrative Order, In Re Amended Business Court Program, ¶¶ 1, 2, 4 (S.C. Jan. 30, 2019) (same); Administrative Order, In Re Business Court Pilot Program Expansion, ¶¶ 1, 2 (S.C. Jan. 3, 2014) (expanding the pilot program to cover the entire state, dividing the program into regions, authorizing the Chief Justice to “assign exclusive jurisdiction over the case to the Business Court Judge assigned to that region” and assigning judges by region). ↑
Administrative Order, In Re Business Court Program, ¶ (c) (S.C. Aug. 1, 2024); Administrative Order, In Re Amended Business Court Program, ¶ 4 (S.C. July 14, 2023). ↑
Administrative Order, In Re Business Court Program, ¶ (d) (S.C. Aug. 1, 2024) (allowing jurisdiction over specified titles and chapters, as well as “[a]ny other matter deemed appropriate by the Chief Business Court Judge”); Administrative Order, In Re Amended Business Court Program, ¶ 5 (S.C. July 14, 2023) (omitting reference to jurisdiction over other matters deemed appropriate by the Chief Business Court Judge); Administrative Order, In Re Amended Business Court Program, ¶ 5 (S.C. Jan. 30, 2019) (allowing jurisdiction over specified titles and chapters, as well as “such other cases as the Chief Business Court Judge may determine.”). ↑
Administrative Order, In Re Business Court Program, ¶ (e)(1) (S.C. Aug. 1, 2024); Administrative Order, In Re Amended Business Court Program, ¶ 7 (S.C. July 14, 2023). ↑
These six divisions will not be activated by the 2025 Texas Legislature but may be reconsidered in 2027. ↑
In re Final Approval of R. for Bus. Ct., Misc. Docket No. 24-9037 (Tex. S. Ct., June 28, 2024), https://www.txcourts.gov/media/1459057/249037.pdf; In re Fees Charged in S. Ct., in Civil Cases in Ct. App., Before Jud. Panel on Multi-District Lit., and in Bus. Ct., Misc. Docket No. 24-9047 (Jul. 26, 2024), https://www.txcourts.gov/media/1458913/249047.pdf (approving fees for the Business Court, which are significantly higher than for district courts). ↑
Tex. Gov’t Code § 25A.009(f) (“To promote the orderly and efficient administration of justice, the business court judges may exchange benches and sit and act for each other in any matter pending before the court.”). These cases have not been moved out of the 11th Business Court Division where they were initially filed; the assigned judges are sitting as judges of that Division. In-person hearings and any trial setting will occur in the 11th Division. ↑
TuSimple Holdings, Inc vs. BOT Auto TX Inc., No. 24-BC11A-0007 (Tex. Bus. Ct.). Business Court case numbers describe the year (24), the Division (11), the specific judge (e.g., A is Judge Adrogué, B is Judge Dorfman), and the consecutive number of cases received by that judge (7). ↑
Energy Transfer LP vs. Culberson Midstream LLC, No. 15-24-00122-CV (Tex. App. 15th, filed Nov. 5, 2024); ETC Field Servs. LLC, No. 15-24-00124-CV (Tex. App. 15th, filed Nov. 8, 2024); Synergy Global Outsourcing LLC, No. 15-24-00127-CV (Tex. App. 15th, filed Nov. 12, 2024); In re Energy Transfer LP, No. 15-24-00130-CV (Tex. App. 15th, filed Dec. 6, 2024); In re ETC Field Services, LLC, No. 15-24-00131-CV (Tex. App. 15th, filed Dec. 9, 2024); In re Westdale Asset Mgmt., Ltd., No. 15-24-00135-CV (Tex. App. 15th, filed Dec. 30, 2024). ↑
Letters from Fifteenth Court of Appeals to Supreme Court of Texas pursuant to Tex. R. App. P. 27a requesting resolution of conflicting positions of First, Thirteenth, Fourteenth and Fifteenth Courts of Appeals regarding motions to transfer appeals in the following cases: Patrick Kelley and PMK Group, LLC v. Richard Homminga and Chippewa Construction Co., LLC, No. 15-24-00123-CV (Tex. January 6, 2025) (https://search.txcourts.gov/Case.aspx?cn=15-24-00123-CV&coa=coa1); Devon Energy Production Company, L.P.; Devon Energy Corporation; BPX Operating Company; and BPX Production Company v. Robert Leon Oliver, et al., No. 15-24-00115-CV (Tex. Jan. 13, 2025) (https://search.txcourts.gov/Case.aspx?cn=15-24-00115-CV&coa=coa15). The Supreme Court’s per curiam opinion applicable to both cases can be found in the above-cited online case records. ↑
Two other transitory provisions of HB 19 also receiving significant attention in the ensuing arguments about the fine points of commencing the Business Court were Section 5: “Except as otherwise provided by this Act, the business court is created September 1, 2024” and Section 9: “This Act takes effect September 1, 2023.” ↑
See Tema Oil and Gas Company vs. ETC Field Servs., LLC, No. 24-BC08B-0001 (Tex. Bus. Ct., filed Sept. 11, 2024); James Jorrie vs. AL Global Services, LLC, No. 24-BC04B-0001 (Tex. Bus. Ct., filed Sept. 16, 2024); Lone Star NGL Product Servs. LLC (in its own capacity and as assignee) vs. CR Permian Processing, LLC et al., No. 24-BC11A-0004 (Tex. Bus. Ct., filed Sept. 17, 2024); Vendetti vs. Turner, Stone, & Co. LLP, et al., No. 24-BC01A-0003 (Tex. Bus. Ct., filed Sept. 24, 2024); Morningstar Winans vs. Berry, No. 24-BC04A-0002 (Tex. Bus. Ct., filed Sept. 27, 2024); Energy Transfer LP et al. vs. Culberson Midstream LLC et al., No. 24-BC01B-0005 (Tex. Bus. Ct., filed Sept. 30, 2024); Yadav vs. Agrawal, et al., No. 24-BC03B-0003 (Tex. Bus. Ct., filed Sept. 30, 2024); Seter vs. Westdale Asset Mgmt., Ltd., et al., No. 24-BC01A-0006 (Tex. Bus. Ct., filed Sept. 30, 2024); Enhanced Indus. Techs., LLC, et al. vs. National Oilwell Varco, L.P. et al., No. 24-BC11B-0005 (Tex. Bus. Ct., filed Sept. 30, 2024); Synergy Global Outsourcing, LLC vs. Hinduja Global Solutions, Inc. et al., No. 24-BC01B-0007 (Tex. Bus. Ct., filed Oct. 1, 2024); XTO Energy Inc. vs. Houston Pipeline Co. LP, et al., No. 24-BC11B-0008 (Tex. Bus. Ct., filed Oct. 1, 2024); Clubhouse Ventures, LLC, et al. vs. Exochos Endeavors, LLC, et al., No. 24-BC11A-0009 (Tex. Bus. Ct., filed Oct. 2, 2024); Cypress Towne Ctr., Ltd., indiv. and deriv. on behalf of Kimco 290 Houston II, L.P. vs. Kimco Realty Servs., Inc. et al., No. 24-BC11A-0013 (Tex. Bus. Ct., filed Oct. 14, 2024); Bestway Oilfield, Inc. vs. Cox, et al., No. 24-BC11A-0016 (Tex. Bus. Ct., filed Oct. 24, 2024); Osmose Utils. Servs., Inc. vs. Navarro Cnty. Electric Cooperative, No. 24-BC01A-0011 (Tex. Bus. Ct., filed Nov. 4, 2024). ↑
Energy Transfer LP vs. Culberson Midstream LLC, No. 15-24-00122-CV (Tex. App. 15th, filed Nov. 5, 2024); ETC Field Services LLC, No. 15-24-00124-CV (Tex. App. 15th, filed Nov. 8, 2024); Synergy Global Outsourcing LLC, No. 15-24-00127-CV (Tex. App. 15th, filed Nov. 12, 2024); In re Energy Transfer LP, No. 15-24-00130-CV (Tex. App. 15th, filed Dec. 6, 2024); In re ETC Field Services, LLC, No. 15-24-00131-CV (Tex. App. 15th, filed Dec. 9, 2024); and In re Westdale Asset Management, Ltd., No. 15-24-00135-CV (Tex. App. 15th, filed Dec. 30, 2024). ↑
Ass’n of Texas Pro. Educators v. Kirby, 788 S.W.2d 827, 829 (Tex. 1990); see also Tex. Gov’t Code §§ 311.029, .022. ↑
This summary deals only with the counterclaim-plaintiffs’ claims against counterclaim-defendants. For simplicity, references herein to “Defendants” are to the counterclaim-defendants, and references to “Plaintiffs” are to the counterclaim-plaintiffs. ↑
Snell & Wilmer L.L.P. One East Washington Street, Suite 2700 Phoenix, AZ 85004-2556 (602) 382-6529 [email protected] www.swlaw.com
§ 9.1. Tribal Litigation & the Third Sovereign
We have been writing this annual update of cases relevant to tribal litigation for many years. Recognizing that the average practitioner consulting this volume may not have much experience with federal Indian law, we have endeavored to provide historical context and citation to most relevant circuit and even district court cases in every volume. To target primarily those cases decided within the last year, this chapter focuses on cases decided between October 1, 2023, and October 1, 2024. The chapter begins with a Supreme Court overview and then is structured around sovereigns—Indian Tribes, the United States, and the fifty sister States.
Retired Supreme Court Justice Sandra Day O’Connor has aptly referred to tribal governments as the “third sovereign” within the United States.[2] Much like federal and state governments, tribal governments are elaborate entities often consisting of executive, legislative, and judicial branches.[3] Tribes are typically governed pursuant to a federal treaty, presidential executive order, tribal constitution and bylaws, and/or tribal code of laws, implemented by an executive authority such as a tribal chairperson, governor, chief, or president (similar to the United States’ president or a state’s governor) and a tribal council or senate (the legislative body). Tribal courts adjudicate most matters arising from their reservations or under tribal law.[4]
Indian tribes are “distinct, independent political communities, retaining their original natural rights” in matters of local self-government.[5] Thus, state laws generally “have no force” in Indian Country.[6] While in the eyes of federal and state government, tribes no longer possess “the full attributes of sovereignty,” they remain a “separate people, with the power of regulating their internal and social relations.”[7]
This chapter explores the repose of tribal sovereignty, federal plenary oversight of that sovereignty, and perennial state encroachment upon that sovereignty. Federal trial and appellate courts issue more than 650 written opinions in cases dealing with Indian law each year,[8] and settle, dismiss, or resolve without opinion countless others. This chapter introduces those cases most relevant to a business litigation focused audience.
§ 9.2. Indian Law & the Supreme Court
§ 9.2.1. The 2023–2024 Term
The U.S. Supreme Court hears an average of between one and three new Indian law cases every year.[9] During the 2023–2024 term, the Supreme Court decided one Indian law case.
Becerra v. San Carlos Apache Tribe, 144 S. Ct. 1428 (2024).
In a 5–4 decision authored by Chief Justice Roberts, the Court in Becerra held that the Indian Self-Determination and Education Assistance Act (“ISDEA”) requires the Indian Health Service (“IHS”) to pay the contract support costs that a tribe incurs when it collects and spends program income—i.e., revenue from third party payers like Medicare, Medicaid, and private insurers—to further the functions, services, activities, and programs transferred to it from IHS in a self contract.
The ISDEA gives Native American tribes the option to enter into a contract with the IHS to run their own health-care programs, which IHS would otherwise have to manage for the benefit of the tribe and its members. When a tribe chooses the option to enter into an ISDEA contract, IHS gives the tribe the money that it would have used to run those programs. In addition to this IHS funding, the tribe can also collect money from programs like Medicare, Medicaid, and from private insurers. To reimburse tribes for overhead and administrative costs that IHS does not have to pay when it runs health-care programs, Congress also requires the IHS to cover the tribes’ “contract support costs.”
Becerra was a consolidation of a Tenth Circuit case involving the Northern Arapaho Tribe and a Ninth Circuit case involving the San Carlos Apache Tribe. In both cases, the federal government took the position that while IHS must cover the contract support costs that arise from spending the amount that the IHS gives the tribes to operate their own health-care programs, the federal government claimed that ISDEA does not require IHS to reimburse the tribes for the costs that they incur when they spend money from Medicare, Medicaid, and private insurers on the health care programs. The Tribes argued that they are entitled to be paid for “support costs” regardless as to whether they are able to collect money from Medicare, Medicaid, or private insurers on the health-care programs.
Writing for himself and for Justices Sonia Sotomayor, Elena Kagan, Gorsuch, and Ketanji Brown Jackson, Roberts explained that when tribes decide to run their own health-care programs, they are required to collect income from Medicare, Medicaid, and private insurers and then spend it on those programs. The majority found that the “reasonable direct and indirect contract support costs they incurred as a result are eligible for repayment” under federal law because the expenses arose as a result of the tribes’ contract with the IHS. The majority held that if IHS did not cover contract support costs for health care funded by outside programs such as Medicare, Medicaid, or private insurance, it would “inflict[] a penalty on tribes for opting in favor of greater self-determination.”
In his dissent, Kavanaugh countered that federal law does “not support the Court’s decision.” And more broadly, he continued, “the extra federal money that the Court today green-lights does not come free.” If Congress does not increase the overall funding for Native American health-care programs, he wrote, Thursday’s ruling will shift more of that funding from less affluent tribes—which are less likely to run their own health-care programs—to wealthier ones. Congress’s other option, he added, would be to “substantially” increase funding for all Native American health-care programs, “thereby drawing money away from other vital federal programs or requiring additional taxes.”
§ 9.2.2. Preview of the 2024–2025 Term
As of December 17, 2024, there is three petitions for certiorari pending before the Supreme Court on cases involving Indian law. If any new cases are granted and decided, they will be included in next year’s volume.
§ 9.3. The Tribal Sovereign
§ 9.3.1. Tribal Courts
More than half of the 574 federally recognized tribes have created their own court systems and promulgated extensive court rules and procedures to govern criminal and civil matters involving their members, businesses, and activity conducted on their lands. Notwithstanding federal restrictions on tribal adjudicatory power, tribes have extensive judicial authority. As the complexity of life on reservations has increased, so has Congress’s willingness to enhance and aid tribal courts’ adjudicatory responsibilities.
While tribal courts are similar in structure to other courts in the United States, the approximately 400 Indian courts and justice systems currently functioning throughout the country are unique in many significant ways.[10] It cannot be overemphasized that every tribal court is different and distinct from the next.[11] For example, the qualifications of tribal court judges vary widely depending on the court.[12] Some tribes require tribal judges to be members of the tribe and to possess law degrees, while others do not.[13] Some tribal courts meet regularly and have a fairly typical court calendar, while others may meet on Saturdays or only a couple days a month in order to meet the more limited needs of a court system serving a smaller population or particularly isolated tribal community.
Tribal courts can have their own admissions rules, and counsel should not assume that because they are licensed in the state where the tribal court is located that they can automatically appear in tribal court. While many tribes allow members of the state bar to join the tribal bar, often for a nominal annual fee, the requirements vary from one tribe to another. For example, the Navajo Nation has its own bar exam that tests knowledge of Navajo tribal law as well as other requirements.[14]
Counsel should keep this uniqueness in mind when addressing a tribal court orally or in writing. If counsel has never appeared before a particular tribal court, it would be wise to solicit common court practices from persons who regularly appear before the court.
Tribal court jurisdiction depends largely on: (1) whether the defendant is a tribal member[15]; and (2) whether the dispute occurred in Indian Country,[16] particularly lands held in trust by the United States for the use and benefit of a tribe or tribal member or fee lands within the boundaries of an Indian reservation.[17] These two highly complex issues should be analyzed first in any tribal business dispute.
In the context of a tribe’s civil authority, the important distinction is between tribal members and non-members (whether or not the non-member is an Indian). Generally, tribal courts have jurisdiction over a civil suit by any party, member, or non-member against a tribal member Indian defendant for a claim arising on the reservation.[18] Even in tribal court, claims against the tribe itself require a waiver of tribal immunity.[19] Indian tribes also generally have regulatory authority over tribal member and non-member activities on Indian land.[20]
In the “path-making” decision of Montana v. United States,[21] however, the U.S. Supreme Court held that a tribal court cannot generally assert jurisdiction over a non-tribal member when the subject matter of the dispute occurs on land owned in fee by a non-member, explaining that “exercise of tribal power beyond what is necessary to protect tribal self-government or to control internal relations is inconsistent with the dependent status of tribes, and so cannot survive without express Congressional delegation.”[22] To help lower courts determine when the assertion of tribal power is necessary, the Court articulated two exceptions: (1) a tribe may have civil authority over the activities of non-tribal persons who enter into consensual relations with the tribe or its members via a commercial dealing, contract, lease, or other arrangement; or (2) the tribe has civil authority over non-Indians when their actions threaten or have a direct effect upon the “political integrity, the economic security, or the health or welfare of the tribe.”[23]
These exceptions are “limited,” and the burden rests with the tribe to establish the exception’s applicability.[24] The first exception specifically applies to the “activities of non-members,” and the second exception is extremely difficult to prove, as it must “imperil the subsistence of the tribal community.”[25] These exceptions have become known as the “Montana rule.”
There are new opinions issued every year on the limits of tribal court jurisdiction that are built upon Montana and its exceptions. This section highlights those most relevant.[26]
The court in Lexington held that, under the first Montana exception, a tribal court has civil jurisdiction over activities of nonmembers who enter consensual relationships with a tribe, regardless of whether the business relationship entailed a nonmembers’ physical presence on tribal land. Lexington, an insurance company, provided coverage to the Suquamish Tribe (“Tribe”) to provide for business and property losses on the Port Madison Reservation (“Reservation”). The court found that even though Lexington employees never physically entered tribal land, their conduct still fell within Montana’s consensual relationship exception because Lexington should have reasonably anticipated the tribe’s authority. Moreover, there was a nexus between the consensual relationship and Lexington’s challenged actions.
In 2020, the Tribe submitted claims to Lexington for coverage for business closures and other pandemic-related losses that Lexington subsequently rejected, claiming that the Tribe lacked the requisite coverage in the insurance policy. After the Tribe filed suit, Lexington filed a motion to dismiss and argued that the tribal court lacked personal and subject-matter jurisdiction. The tribal court held that jurisdiction existed based on the Tribe’s right to exclude and Montana’s consensual relationship exception, and the Suquamish Tribal Court of Appeals affirmed. Thereafter, Lexington subsequently filed suit in the Western District of Washington, and the district court agreed that the tribal court had subject matter jurisdiction.
Lexington appealed the decision, and the Ninth Circuit determined that Lexington’s conduct clearly fell within the consensual-relationship exception from Montana because Lexington “should have reasonably anticipated” that its actions would trigger tribal authority, as the program was aimed directly at tribes. The court further determined that there was a nexus between the consensual relationship and the conduct the Tribe sought to regulate as the two were directly related. Lexington further argued that Plains Commerce[27] imposed an additional limitation on the Montana exceptions by requiring that the conduct also “stem from the tribe’s inherent sovereign authority to set conditions on entry, preserve tribal self-government, or control internal relations.” The court rejected this rationale and surmised that if conduct satisfied one of the Montana exceptions, sovereign authority would inherently be implicated as a matter of law. Since the court determined that subject matter jurisdiction was proper under the first Montana exception, it did not address the applicability of the second Montana exception or the right to exclude.
Rincon Mushroom Corp. of Am. v. Mazzetti, No. 23-55111, 2024 WL 3066049 (9th Cir. June 20, 2024).
The court in Rincon Mushroom clarified that, under the second Montana exception, proof of existing harm is not required, as the threat of future harm is sufficient to effectuate tribal jurisdiction over nonmembers. The plaintiffs challenged a tribal court’s determination that the Rincon Band of Luiseño Indians (“Tribe”) had regulatory jurisdiction over their property. The court found that the Tribe had regulatory jurisdiction, in addition to the tribal court’s adjudicatory jurisdiction under the second Montana exception, because the Tribe demonstrated that the conditions and activities on the property threatened the Tribe’s economic security, health, and welfare.
Initially, the plaintiffs owned land located within the Tribe’s reservation, where the Tribe imposed regulations on the property. Subsequently, the plaintiffs sued in tribal court, but at trial, the Tribe demonstrated that the poor maintenance of the property posed a significant wildfire risk to the Tribe’s casino and that the unregulated activities could damage the Tribe’s sole water source. After the tribal court found that regulatory jurisdiction was proper under the second Montana exception, the plaintiffs unsuccessfully challenged the decision in federal district court and subsequently appealed to the Ninth Circuit.
In its ruling, the Ninth Circuit explained that, where tribes have regulatory jurisdiction, tribal courts generally will have supplementary adjudicatory jurisdiction. The court held that the possibility of wildfire damage to the Tribe’s casino threatened the Tribe’s economic security, and the risk of contamination of the Tribe’s sole water source threatened the Tribe’s health and welfare. In all, the court clarified that the second Montana exception does not require proof of existing harm, rather the threat of future harm is sufficient.
§ 9.3.2. Exhaustion of Tribal Court Review
The doctrine of exhaustion of tribal remedies reflects the ongoing tension between tribal and federal courts. If a tribal court claims jurisdiction over a non-Indian party to a civil proceeding, the party usually[28] is required to exhaust all options in the tribal court prior to challenging tribal jurisdiction in federal district court.[29] If tribal options are not exhausted prior to bringing suit in federal court, the federal court will likely dismiss[30] or stay[31] the case.
Ultimately, the question of whether a tribal court has jurisdiction over a nontribal party is one of federal law, giving rise to federal questions of subject matter jurisdiction.[32] Thus, non-Indian parties can challenge the tribal court’s jurisdiction in federal court.[33] Pursuant to this doctrine, a federal court will not hear a matter arising on tribal lands until the tribal court has determined the scope of its own jurisdiction and entered a final ruling.[34] Ordinarily, a federal court should abstain from hearing the matter “until after the tribal court has had a full opportunity to determine its own jurisdiction.”[35] And again, notwithstanding a provision that appears to vest jurisdiction with an arbitrator, several federal courts have ruled that a tribal court should be “given the first opportunity to address [its] jurisdiction and explain the basis (or lack thereof) to the parties.”[36]
After the tribal court has ruled on the merits of the case[37] and all appellate options have been exhausted,[38] the non-tribal party can file suit in federal court, whereby the question of tribal jurisdiction is reviewed under a de novo standard.[39] The federal court may look to the tribal court’s jurisdictional determination for guidance; however, that determination is not binding.[40] If the federal court affirms the tribal court ruling, the nontribal party may not relitigate issues already determined on the merits by the tribal court.[41]
There are several exceptions to the exhaustion doctrine. First, federal courts are not required to defer to tribal courts when an assertion of tribal jurisdiction is “motivated by a desire to harass or is conducted in bad faith . . . or where the action is patently violative of express jurisdictional prohibitions, or where exhaustion would be futile because of the lack of an adequate opportunity to challenge the court’s jurisdiction.”[42] Second, when “it is plain that no federal grant provides for tribal governance of non-members’ conduct on land covered by Montana’s main rule,” exhaustion “would serve no purpose other than delay.”[43] Third, where the primary issue involves an exclusively federal question, exhaustion of tribal remedies may not be mandated.[44]
Because litigation is expensive, the question of whether the defendant is required to exhaust their tribal court remedies before challenging the jurisdiction of the tribal court is regularly litigated.[45]
Brown v. Haaland, No. 321CV00344MMDCLB, 2024 WL 1330119 (D. Nev. Mar. 28, 2024).
The court in Haaland held that the exhaustion of administrative or tribal remedies is not a jurisdictional prerequisite for federal court review. The requirement can be excused in specific situations, such as when a party could suffer irreparable harm or when the administrative agency is incapable of granting effective relief. In Haaland, ten former Winnemucca Indian Colony residents (“Plaintiffs”) alleged civil rights abuses during a series of evictions and demolitions on tribal land. In this case, Plaintiffs accused federal officials (“Defendants”) of violating a judicial services contract formed under the Indian Self-Determination and Education Assistance Act of 1975, 25 U.S.C. § 5301, et seq. (“ISDEAA”).
On August 6, 2021, Plaintiffs filed the original complaint and thereafter, subsequent amended complaints. In the First Amended Complaint Plaintiffs sought injunctive relief for business and administrative violations, including ISDEAA violations. The court issued an order allowing the Plaintiffs’ claims to proceed but dismissed the ISDEAA claims with prejudice. Likewise, in the Plaintiffs’ Second Amended Complaint, the court dismissed the ISDEAA claims and limited the scope of the additional claims. Defendants responded by asserting that they were “wholly discharged [from] their statutory obligations under ISDEAA” and that Plaintiffs failed to prove “any specific trust responsibility.”
Before reaching the merits, the court addressed the threshold requirements—including tribal court exhaustion. Defendants argued the court should rule in their favor because Plaintiffs did not exhaust their tribal remedies. The court disagreed and focused on remedies. Plaintiffs sought resumption of the judicial services contract, “which is not the same as any remedy directly addressing evictions which could be obtained in Tribal Court.” The court noted that tribal court exhaustion is meant to prevent “direct competition.” It is not a “jurisdictional prerequisite” to federal review, rather many courts have held that it only applies to first-filed actions in tribal court. Therefore, the court found that it could address the Plaintiffs’ claims on the merits.
The court in Phillips reinforced the doctrine of tribal exhaustion, as federal courts will abstain from exercising jurisdiction over tribal sovereign matters. In August 2021, Melissa Phillips (“Plaintiff”) filed a pro se complaint against Choctaw Nation tribal police officers and police chief (“Defendants”). Phillips asserted that the officers mishandled a stalking and harassment dispute between her and a neighbor. She brought several state-law torts claims against Defendants for failing to enforce her protective order and allowing the neighbor’s abusive behavior to continue. The district court dismissed the Amended Complaint without prejudice because of sovereign immunity, the failure to state a claim, and comity concerns relating to the tribal exhaustion rule.
As a preliminary matter, the Tenth Circuit court reviewed the district court’s tribal exhaustion analysis and adopted it. The Tenth Circuit’s “strict view” of tribal exhaustion embodied the foundational rule for cases subject to tribal jurisdiction. The court discussed that “as a matter of comity, a federal court should not exercise jurisdiction over cases arising under its federal question or diversity jurisdiction . . . until the parties have exhausted their tribal remedies.”[46] For jurisdictional questions, the court acknowledged that federal courts should not intervene “until the tribal court has had a full opportunity to examine the issue.”
Next, the Tenth Circuit court reviewed the district court’s “reservation affairs” and abstention analyses specifically. In this case, the district court determined that there was a reservation affair because of the strong tribal nexus. The tribe had “considerable interest in protecting the rights of its members and employees” and as a result, comity concerns traditionally dictated that parties must exhaust tribal remedies before federal forums. Then, the district court held to the “abstention obligation.” Because this case involved internal policies and laws of the Choctaw Nation, allowing the Choctaw Tribal Court to develop a full record would have furthered the “orderly administration of justice.” Thus, the district court dismissed Phillips’ federal claims under the doctrine of reservation affairs and abstention.
Ultimately, the Tenth Circuit court “found no reversible error or abuse of discretion.” Ultimately, the court held the claims were properly dismissed and the tribal exhaustion rule warranted abstention.
Arocha v. Tribe, No. CV-22-115-GF-BMM, 2023 WL 7386193 (D. Mont. Nov. 8, 2023).
The court in Arocha held that tribal exhaustion is not required if exhausting tribal recourse “would be futile.” In Arocha, the court granted a petition for a writ of habeas corpus when the petitioner did not exhaust Tribal Court remedies. William Alberto Arocha Jr. was involved in an altercation with an individual who later passed away from the sustained injuries. A federal court convicted Arocha of voluntary manslaughter, and the Blackfeet Tribal Court also convicted Arocha for the same incident. Because Arocha was in federal custody, he was not present for trial or the 2017 sentencing hearing in Blackfeet Tribal Court (“2017 sentencing”). Also, Counsel was not present at the 2017 sentencing either. Within two months of his initial sentencing, the Blackfeet Tribal Court re-sentenced Arocha. However, the reason for the re-sentencing was ambiguous, prompting Arocha to file a petition for a writ of habeas corpus as a part of the Indian Civil Rights Acts (“ICRA”) to challenge the legality of his detention order. Later, he filed a subsequent petition for a writ of habeas corpus (“Amended Petition”).
Before examining the petitioner’s merits, the court first analyzed whether Arocha fulfilled the exhaustion requirement. A petitioner must exhaust claims in a tribal court before the federal court because it furthers the policy goal of “preserving and strengthening Native American cultures” ensuring Tribes can make policy and resolve disputes.[47] However, the court excused the exhaustion requirement here for two reasons. Initially, Arocha succeeded in showing cause because Arocha was denied effective assistance of counsel when Arocha’s counsel did not attend the 2017 sentencing nor supply a reason for their absence, in conjunction with other procedural inefficiencies. Secondly, the ineffective assistance of counsel caused Arocha prejudice because there was a reasonable chance that the outcome of the proceeding would be different if counsel could have shown “mitigating evidence” or “argued against the sentence imposed.”
Ultimately, Arocha was not afforded a reasonable avenue in the Blackfeet Tribal Court to bring his ineffective assistance of counsel, due process, and equal protection claims. The court noted a petitioner is not required to exhaust tribal remedies if it “would be futile,” meaning they are non-existent or inadequate at best. In Blackfeet Tribal law, petitioners can only bring writ of habeas corpus actions before a hearing on the merits. This challenge concerned sentencing—which occurs after the proceeding. Thus, Arocha did not have a meaningful tribal remedy to challenge his conviction. Therefore, the court granted his amended petition for a writ of habeas corpus, excusing the tribal exhaustion doctrine.
The court in Sellards-Reck upheld the tribal exhaustion doctrine. The dispute in Sellards-Reck arose from Cassandra Sellards-Reck’s (“Petitioner”) assault on Steve Barnett after a tribal council meeting. Sellards-Reck and Barnett were both members of the Cowlitz Tribal Council. Sellards-Reck filed a petition for a writ of habeas corpus under the Indian Civil Rights Act (“ICRA”) seeking relief from the 2023 Cowlitz Tribal Court (“Tribal Court”) judgment. Sellards-Reck named as Respondents, Barnett and several judges among others. Sellards-Reck did not claim that she exhausted her tribal court remedies but argued that the Tribal Court acted in bad faith and that exhaustion would be futile.
First, the court addressed the futility exception. Sellards-Reck argued that exhaustion would be futile because the Tribal Court had no functioning appellate court, and she argued that it was incompetent. The court analyzed the futility argument under Krempel.[48] When the Krempel plaintiff filed suit, the tribe had just started to develop its legal system by adopting a judicial code.[49] Conversely, in Sellards-Reck, the Tribal Court system already existed when Sellards-Reck filed the petition, and, thus, making the facts distinguishable. The court opined that incompetence alone is insufficient and contrary to congressional policy.
Second, the court analyzed the bad faith exception. The court noted that for the exception to apply, it must only encompass allegations of bad faith made against the Tribal Court itself, not the Respondents. Sellards-Reck claimed that the court should excuse the exhaustion rule because the Tribal Court was “going to extremes to ‘control every aspect’ of the trial.” However, the court found that this argument failed on its merits. Due to Sellards-Reck’s failure to exhaust her tribal court remedies, the court recommended dismissing the action with prejudice.
Brown v. Choctaw Resort Dev. Enter., No. 3:23-CV-127-DPJ-FKB, 2023 WL 6881815 (S.D. Miss. Oct. 18, 2023).
The court in Choctaw granted the Defendant’s Motion to Dismiss and denied the Plaintiffs’ Motion for Hearing because the Plaintiffs did not exhaust tribal remedies. Howard Brown and Brandon Sibley (“Plaintiffs”) challenged a mask mandate the Mississippi Band of Choctaw Indians (“MBCI”) enforced on Golden Moon Hotel and Casino visitors. The Plaintiffs sued MBCI and the Choctaw Resort Development Enterprise among others (collectively “Defendants”). The court dismissed the original suit (“Brown I”) without prejudice for failure to exhaust tribal court remedies. When Plaintiffs then filed a Choctaw Tort Claims Act (“CTCA”) notice with the MBCI Attorney General, the Attorney General denied the claim because the Plaintiffs never challenged that ruling in Choctaw Tribal Court (“Tribal Court”). The Defendants moved to dismiss the new suit (“Brown II”) that alleged the same cause of action as Brown I.
The Defendants argued that the Brown I holdings required dismissal of Brown II because Plaintiffs never sued in Tribal Court, but Plaintiffs argued that they satisfied the conditions for exhausting administrative remedies under the CTCA. The court held that the two exhaustion requirements were distinguishable. Tribal court exhaustion requires Plaintiffs to take claims to a tribal court before appearing in federal court. Conversely, administrative exhaustion describes what must happen under the CTCA before suing in the Choctaw Tribal Court. Under the Choctaw Tribal Code § 1-5-10, “No Court of the Mississippi Band of Choctaw Indians shall have jurisdiction . . . unless the plaintiff in such action first exhausted Tribal administrative remedies.” In this case, Plaintiffs never fully exhausted the requisite claims because Plaintiffs never filed a civil suit after the MCBI administrative review procedure, even though § 1-5-10 permitted it.
Despite Plaintiffs’ further assertions that federal court must decide the respective claims because federal questions existed, the court noted that “full exhaustion in tribal court [is required] even when federal questions create concurrent jurisdiction.” The court then addressed the final question regarding the dismissal the case. The court noted that when a plaintiff is permanently barred from asserting a claim due to the statute of limitations, the federal court should stay the federal action until tribal remedies are exhausted. Their record lacked any evidence indicating that Plaintiffs had fully exhausted tribal court remedies. Therefore, a hearing was not necessary, and the court granted the Defendant’s motion to dismiss.
§ 9.3.3. Tribal Sovereignty & Sovereign Immunity
An axiom in Indian law is that Indian tribes are considered domestic sovereigns.[50] Like other sovereigns, tribes enjoy sovereign immunity.[51] As a result, a tribe is subject to suit only where Congress has “unequivocally” authorized the suit or the tribe has “clearly” waived its immunity.[52] The U.S. Supreme Court, in a 2008 decision, pronounced that tribal sovereign immunity “is of a unique limited character.”[53] Unlike the immunity of foreign sovereigns, the immunity enjoyed by sovereign tribal governments is limited in scope and “centers on the land held by the tribe and on tribal members within the reservation.”[54]
Nontribal entities must be aware that, absent a clear and unequivocal tribal immunity waiver, tribes and tribal entities may not be subject to suit should a deal go bad. With regard to contracts, “[t]ribes retain immunity from suits . . . whether those contracts involve governmental or commercial activities and whether they were made on or off a reservation.”[55]
Tribal immunity generally shields tribes from suit for damages and requests for injunctive relief,[56] whether in tribal, state, or federal court.[57] Sovereign immunity has been held to bar claims against the tribe even when the tribe is acting in bad faith.[58]
Tribes enjoy the benefit of a “strong presumption” against a waiver of their sovereign immunity.[59] Moreover, federal courts have made clear that simply participating in litigation does not waive the tribe’s sovereign immunity.[60] Any waiver of tribal sovereign immunity “cannot be implied but must be unequivocally expressed.”[61]
Exactly what contract language constitutes a clear tribal immunity waiver is somewhat unclear.[62] The Supreme Court in C & L Enterprises, Inc. v. Citizen Band Potawatomi Indian Tribe of Oklahoma[63] ruled that the inclusion of an arbitration clause in a standard-form contract constitutes “clear” manifestation of intent to waive sovereign immunity.[64] In C & L Enterprises, the Tribe proposed that the parties use a standard-form contract that contained an arbitration clause and a state choice-of-law clause.[65] Although the contract did not clearly mention “immunity” or “waiver,” the Supreme Court believed the alternative dispute resolution (ADR) language manifested the tribe’s intent to waive immunity.[66]
Finally, waivers of immunity must come from a tribe’s governing body and not from “unapproved acts of tribal officials.”[67] Attorneys must evaluate a tribe’s structural organization to determine precisely which tribal agents have authority to properly waive tribal sovereign immunity or otherwise bind the tribal entity by contract. If attorneys do not have a working knowledge of pertinent tribal documents, they risk leaving their clients without an enforceable deal. Below are summaries from some of the most relevant sovereign immunity cases of the last year.[68]
Flying T Ranch, Inc v. Stillaguamish Tribe of Indians, 549 P.3d 727 (Wash. Ct. App. 2024).
The Washington Court of Appeals, Division 1 affirmed the lower court’s dismissal of Plaintiff’s, Flying T Ranch Inc., quiet title suit based on tribal sovereign immunity. Plaintiff agreed that Defendant, the Stillaguamish Tribe of Indians (“Tribe”), was entitled to tribal sovereign immunity, but, because the land in question was not tribal land, the Tribe should only be afforded the immunity of a foreign sovereign. Further, Plaintiff argued that Defendant’s immunity did not bar Plaintiff’s quiet title claim under the “immovable property” exception. The court held that it is Congress’s job, not the judiciary, to determine whether or how to limit the immunity of a foreign sovereign. The court stated, “[t]o hold otherwise would impermissibly lessen tribal sovereign immunity compared to the immunity afforded to foreign nations.”
Plaintiff sought quiet title to land against Defendant in November 2022 and asserted title by adverse possession. Plaintiff alleged that the adverse possession of the land dated back to 1962. Defendant came into possession of the land in question in 2021. Defendant did not controvert that this land was privately held and not part of tribal land or reservation before their ownership. The lower court granted Defendant’s motion to dismiss on tribal sovereign immunity grounds. On appeal, Plaintiff asserted that the “immovable property” exception to sovereign immunity applied accordingly. However, Defendant disputed that this exception was “universally applied” to assertions of sovereign immunity and argued that the justifications for the rule did not apply to a domestic tribe. Additionally, Defendant stated that in the absence of its waiver, only Congress may abrogate its tribal sovereign immunity.
The court noted that tribal sovereign immunity is a question of federal law, and the United States Supreme Court disavowed the interpretation of federal law upon which the precedent relied. Neither party asserted that Defendant waived tribal sovereign immunity, or Congress abrogated it in this instance. Therefore, the court held that Defendant was immune from Plaintiff’s claim because Defendant did not waive their immunity and their immunity had not been abrogated by Congress.
Plaintiff argued that under the immovable property exception, sovereigns who purchase property from another sovereign do so as a private party and do not enjoy immunity regarding questions of rights of possession or title. However, the court noted that none of Plaintiff’s arguments established that courts have the authority to adjudicate the immovable property exception without direction from the other branches of government.
Additionally, Plaintiff argued that the Foreign Sovereign Immunities Act of 1976 (“FSIA”) which allows real property claims against foreign sovereigns, applied in this case. However, the court found that the real property exception in FSIA did not support finding a similar limitation on tribal sovereign immunity exclusively by the judicial branch, without Congress’s direction. Therefore, the real property exception in FSIA did not limit tribal sovereign immunity absent Congressional direction.
Plaintiff argued for a territorial sovereign’s “primeval” interest in resolving disputes over property in its domain because “sovereignty cannot safely permit title to its land to be determined by a foreign power.” However, the court noted that this failed to justify departing from deferring to Congress for two reasons. First, because the sovereign retains the authority to determine title does not require it to do so at the request of any claimant absent action from the political branches. Second, the court noted that Defendant’s claim of immunity was subject to abrogation by Congress, meaning it posed no threat to the properly defined dual sovereignty that governed the land.
Finally, the court highlighted that the legal issue was not a question of sovereignty between states. The court centered around the notion that sovereign immunity does not extend to “land acquired by one State in another State.” Ultimately, the court acknowledged that there is a mutuality of concession between State’s surrendering immunity from suit by sister States, but the court held that this same mutuality does not exist in the context of tribal sovereigns.
The Ninth Circuit held that Defendant, the Choctaw Nation, validly formed contracts with a pharmacy benefit manager which expressly waived Defendant’s tribal immunity to arbitration proceedings. Defendant and several pharmacies it owned and operated appealed a district court order compelling arbitration between Defendant and Plaintiff, Caremark, LLC. For several years, Defendant and Plaintiff had an agreement to facilitate insurance payouts to Defendant for pharmacy services for its members. This controversy began when Defendant sued Plaintiff for denied reimbursements under the Recovery Act and the Indian Health Care Improvement Act. In response, Plaintiff petitioned to compel arbitration in the District of Arizona, and the district court granted the petition to compel arbitration. Most of Defendant’s arguments challenging the arbitration petition were addressed in a prior decision, Caremark.[69] On appeal, Defendant’s argued that the District of Arizona lacked subject-matter jurisdiction. However, the court found that Defendant agreed to arbitrate claims in Arizona via contract and, thus, expressly waived its tribal sovereign immunity.
In this case, Defendant asked the court to decide whether it waived its sovereign immunity to suit in the District Court of Arizona to compel arbitration. This court concluded that by entering contracts with arbitration provisions and agreeing to jurisdiction of that arbitration, Defendant expressly waived its sovereign immunity to suit in Arizona to compel arbitration. The court found that the District of Arizona did have the subject-matter jurisdiction required to decide the petition to compel arbitration.
The Ninth Circuit utilized a three-step analysis to determine whether Defendant clearly and unequivocally waived its tribal sovereign immunity. First, the court determined whether the contracts between the parties were validly formed. The Ninth Circuit found that the contracts were validly formed. Defendant did not disavow the contracts entirely, rather Defendant believed the arbitration provision was invalid because it was not contained within the agreements, rather the provision was contained in the provider manuals. The provider manuals were incorporated but not signed by the parties. However, the court rejected this argument because the agreements expressly incorporated the provider manuals.
Second, the court analyzed whether the Defendant’s representatives who signed the contracts had the authority to waive sovereign immunity. Defendant argued that Choctaw law required the tribal council to approve every decision to waive sovereign immunity, and the signatories of the provider agreements lacked the authority to bind Defendant. The court rejected this argument because Defendant cited cases that turned on specific facts that were not relevant here and attempted to rely on a declaration from its Executive Director of Legal Operations. The court further reasoned that allowing Defendant to rely on such declaration would allow tribes to effectively invalidate any contract provision with a declaration that effectively cited no tribal law.
Third, the court determined whether the terms of the contracts clearly and unequivocally waived sovereign immunity for arbitration proceedings such that the District of Arizona had jurisdiction. The court found that the arbitration provision at issue was effectively the same provision at issue in C & L Enterprise, Inc. v. Citizen Band Potawatomi Indian Tribe of Oklahoma,[70] where the court found that the Potawatomi Nation clearly consented to arbitration. In the C & L Enterprises provision, the American Arbitration Association (AAA) rules were adopted, providing that an arbitration award may be entered in any federal or state court having jurisdiction.[71] Defendant contended that C & L Enterprises was different from the case at hand because the tribe drafted the contract in that case. However, the court rejected this argument because there was no contention that the contracts were ambiguous, and Defendant did not claim that they were forced into adhesion contracts.
Conway v. Oyate Health Ctr., No. 5:23-CV-05053-CBK, 2024 WL 1639221 (D.S.D. Apr. 16, 2024).
In Conway, the District of South Dakota held that tribal sovereign immunity extended to Defendant, Oyate Health Center, because Defendant had not waived sovereign immunity, and Congress did not abrogate tribal sovereignty to allow for suits under the Age Discrimination in Employment Act (“ADEA”). In this case, Plaintiff, DeAun Conway, alleged claims under the ADEA after the Equal Employment Opportunity Office (“EEOC”) decided to make no determination on her claim. Plaintiff was employed at Defendant’s health center as a billing coordinator from March 14, 2022, to August 31, 2022. Defendant asserted that Plaintiff was discharged due to an altercation with a member of the housekeeping staff. After the EEOC failed to make a determination on the matter, plaintiff decided to file suit in federal district court and proceed pro se.
The court determined that tribal sovereign immunity applied in this case because Defendant had not waived it, and Congress had not abrogated it under the ADEA. For the application of tribal sovereign immunity, this court relied on binding precedent. The court noted that its precedent held that Defendant was entitled to share in the sovereign immunity of its governing tribal nations as an arm of the tribal government in the past. The court noted that pro se litigants are “to be given lenient interpretation of their pleadings,” but nothing existed in the record that could have been construed as an argument against following the court’s precedent. The court then found that no waiver had been made, and Congress had not abrogated tribal sovereign immunity under the ADEA.
Windham v. Medestar Locum Tenens, LLC, No. E078518, 2024 WL 830287 (Cal. Ct. App. Feb. 28, 2024).
This case is classified as “unpublished/noncitable.”
In Windham, the California Court of Appeals held that Defendants, Medstar Locum Tenens, LLC and MACT Health Board, Inc., were entitled to tribal sovereign immunity as arms of the tribe. As a preliminary measure, the court applied the six-factor test to determine whether MACT was entitled to tribal immunity as an “arm of the tribe” and found that MACT was entitled to immunity. Secondly, the court found that Medstar was entitled to immunity by virtue of a joint employment relationship. Finally, the court determined that because Plaintiff failed to raise the claim that Medstar waived its immunity by answering the complaint at trial, Medstar was not given an opportunity to demonstrate how it was an affiliated entity and entitled to the protection of sovereign immunity. Therefore, the court found that the issue was forfeited.
To determine if an entity qualifies as an “arm of the tribe” the Ninth Circuit devised a five-factor test: “(1) the entity’s method of creation, (2) whether the tribe intended the entity to share in its immunity, (3) the entity’s purpose, (4) the tribe’s control over the entity, and (5) the financial relationship between the tribe and the entity.” A sixth factor was also identified—“whether the purposes of tribal sovereign immunity are served by granting [the entity] immunity.”
For the first factor, the court found that MACT’s creation as a nonprofit corporation weighed in favor of finding that it was an arm of the tribe. The court noted that the express purpose of the corporation was to provide healthcare service to tribal members. For the second factor, the court noted that the resolution designated MACT as a tribal organization and authorized it to contract with IHS to provide health services to member and other eligible Indians in the service area. For the third factor, the court noted that the entities’ stated purpose was to provide health care services to Central California tribal members. For the fourth factor, the court noted that the tribe-maintained control over the entity by naming delegates to the board and membership was limited to Federally Recognized Indian Tribes. MACT was entirely subject to the oversight and control of its member tribes and tribal organizations. For the fifth factor, the court noted that the financial relationship between the entity and board demonstrated a tribal function. For the sixth factor, the court noted that the purposes of tribal sovereign immunity were served by granting MACT immunity, stemming from the tribes’ duty to provide health care services for their members. Ultimately, the court concluded that the record demonstrated MACT met its burden by proving that it was an arm of the tribe, and thus was entitled to tribal immunity.
Moreover, the court found that Plaintiff’s work for MACT and Medstar were intimately intertwined, and, therefore, the joint employment relationship extended immunity to Plaintiffs.
Thlopthlocco Tribal Town v. Wiley, No. 409CV00527JCGCDL, 2023 WL 8813866 (N.D. Okla. Dec. 20, 2023).
The Northern District of Oklahoma determined that Plaintiff, Thlopthlocco Tribal Town (“Tribe”), possessed sovereign immunity as a federally recognized tribe and may voluntarily waive its sovereign immunity to submit to the jurisdiction of the courts of a different sovereign. Additionally, the court held that the Tribe could withdraw its waiver of sovereign immunity if the Muscogee (Creek) Nation Courts exercise of jurisdiction exceeded the terms and conditions of the initial waiver by the Tribe. The court articulated the rule that tribes are only subject to suit when the tribe has waived immunity unambiguously or Congress has authorized the suit. The court further indicated that the same principle applied to counter claims and compulsory counter claims brought against a tribe. If a tribe waived immunity for any counterclaim, the waiver must have been clear and unequivocal. The court highlighted an exception to the general rule—recoupment.[72] However, recoupment was not raised in this case, and, therefore, not relevant.
Tule Lake Comm. v. Follis, No. C098505, 2024 WL 2827178 (Cal. Ct. App. June 4, 2024).
In Tule Lake, the California Court of Appeals affirmed the lower court’s holding that the doctrine of tribal sovereign immunity applied to the challenged sale of the Tulelake Municipal Airport. Plaintiff, Tule Lake Committee, sought to void the sale of an airport by the City of Tulelake and its city council to the Modoc Nation (collectively “Defendants”). Ruling on a motion to dismiss, the trial court found that (1) tribes have sovereign immunity unless waived or abrogated by Congress, (2) current law regarding tribal sovereign immunity does not recognize an “immovable property exception,” (3) the trial court was not inclined to make an exception in this case, and (4) the Modoc Nation, as the airport’s owner, was an indispensable party, which barred the entire action.
On appeal, the court found that the purchase of an airport via contract was clearly a commercial activity. Therefore, Defendants were immune from any lawsuit arising out of the purchase of the airport. The court also refused to recognize an immovable property exception to the doctrine of tribal sovereign immunity and articulated three reasons to explain why it chose not to recognize the exception to the application of tribal sovereign immunity. First, recognizing the exception would have gone against the California Supreme Court. Second, the court could not anticipate a decision from the United States Supreme Court that would go against the current law. Third, the decisions of Supreme Courts in different states were immaterial.
Next, Plaintiff proffered that the immovable property exception should be recognized in this instance, but the court disagreed with this position for two reasons. First, the court held that there was no case law or federal legislation around the issue, and the court saw no reason to depart from the standard practice of deferring to Congress with questions of tribal land acquisition. Secondly, the court was bound to follow the decisions of the Supreme Court.
Finally, the court held that the Ex parte Young doctrine was inapplicable in this case. This doctrine “permits actions for prospective non-monetary relief against state or tribal officials in their official capacity to enjoin them from violating federal law, without presence of the immune State or tribe.” The court noted that the Ex parte Young doctrine did not apply to the second and third causes of action in the complaint because these causes of actions were brought under state law. Additionally, the first cause of action alleged a violation of federal law, but it was not an ongoing violation at the time of the decision. Therefore, the court found that the Ex parte Young doctrine did not apply to the first cause of action.
Seamon v. Navajo Nation Gaming Enter., No. CV-23-08523-PCT-MTL, 2024 WL 3183133 (D. Ariz. June 26, 2024).
In Seamon, the District of Arizona granted Defendants’—Navajo Nation Gaming Enterprise (NNGE) and Colleen Davis—motion to dismiss. The court found that NNGE was immune from Plaintiff’s, Alberta Seamon, claims as an arm of the Navajo Nation. The court applied the Ninth Circuit’s five-factor test from White v. Lee[73] to evaluate whether NNGE was an arm of the Navajo Nation. In order to be considered an “arm of the tribe” and be entitled to share in the tribe’s immunity, the court evaluated: (1) the method of creation of the economic entities; (2) their purpose; (3) their structure, ownership, and management, including the amount of control the tribe has over the entities; (4) the tribe’s intent with respect to the sharing of its sovereign immunity; and (5) the financial relationship between the tribe and the entities. The court found that all five White factors favored NNGE’s position as an arm of the Navajo Nation. Therefore, NNGE was entitled to share in the sovereign immunity.
§ 9.3.4. Tribal Corporations
A majority of non-Alaskan tribes are organized pursuant to the Indian Reorganization Act of 1934 (IRA).[74] Under Section 16 of the IRA, a tribe may adopt a constitution and bylaws that set forth the tribe’s governmental framework and the authority given to each branch of its governing structure.[75] A tribe may also incorporate under Section 17 of the IRA, under which the Secretary of the U.S. Department of the Interior issues the tribe a federal commercial charter.[76]
Through Section 17 incorporation, the tribe creates a separate legal entity to divide its governmental and business activities.[77] The Section 17 corporation has a federal charter and articles of incorporation, as well as bylaws that identify its purpose, much like a state-chartered corporation.[78] Section 17 incorporation results in an entity that largely acts like any state-chartered corporation.[79]
An Indian corporation may also be organized under tribal or state law.[80] If the entity was formed under tribal law, formation likely occurred pursuant to its corporate code; but it could have also occurred by tribal resolution (i.e., specific legislation chartering the entity).[81] Under federal common law, the corporation likely enjoys immunity from suit.[82] However, it is unclear whether a tribal corporation’s sovereign immunity is waived through state incorporation such that the entity may be sued in state court.[83]
Therefore, when negotiating a tribal business transaction, counsel should consult the tribe’s governmental and corporate information—for example, treaty or constitution, federal or corporate charters, tribal corporate code—which, taken together, identify the entity with which you are dealing, the authority of that entity, and any applicable legal rights and remedies.
There are comparatively few cases decided on the basis of tribal corporate formation, but tribal corporations are often able to claim immunity from suit. In addition to IRA Section 17 entities, Native Alaskan communities are organized as corporations under some unique provisions within the Alaska Native Claims Settlement Act. Below find a discussion of recent cases dealing with tribal corporations.[84]
Ito v. Copper River Native Ass’n, 547 P.3d 1003 (Alaska 2024).
In Ito, the Supreme Court of Alaska adopted a multi-factor inquiry as established by the Ninth and Tenth Circuits to determine whether a tribal corporation is an arm of the member tribe and entitled to sovereign immunity.[85] Yvonne Ito, a former employee of Copper River Native Association (CRNA), sued the company alleging a breach of the implied covenant of good faith and fair dealing in her employment contract. CRNA claimed that it was entitled to sovereign immunity as an arm of its member tribe.
In assessing whether CRNA was entitled to sovereign immunity, the Ito court overruled its previous decision in Runyon ex rel. B.R. v. Association of Village Council Presidents,[86] which treated financial insulation as dispositive in determining whether a tribal corporation is entitled to sovereign immunity. The court found that substantial developments in the sovereign immunity doctrine had changed the conditions of the legal landscape such that their decision in Runyon was no longer well-founded. Further, the court concluded that the benefit of overruling Runyon outweighed the potential harm.
The court instead concluded that a multi-factor inquiry was more appropriate for determining whether a tribal corporation is entitled to sovereign immunity. Adopting the tests used by the Ninth and Tenth Circuits, the court implemented the following five factors into its test: (a) purpose, (b) method of creation, (c) control, (d) tribal intent, and (e) financial relationship. Applying these factors, the court concluded that defendant CRNA, an inter-tribal consortium created for the purpose of providing medical services, was entitled to sovereign immunity because it served a core tribal government function associated with tribal self-governance and autonomy. Further, the court concluded that CRNA did not unequivocally express a waiver of sovereign immunity in any clearly articulable manner. The court ultimately held that CRNA was entitled to sovereign immunity, and the court dismissed the case.
CHR Sols., Inc. v. Gila River Telecommunications, Inc., No. 4:23-CV-01901, 2024 WL 346526 (S.D. Tex. Jan. 30, 2024).
In CHR, the court granted Gila River Telecommunications, Inc.’s (GRTI) motion to dismiss for lack of subject matter jurisdiction over plaintiff’s contract claims against GRTI. Initially, GRTI, a telecommunications provider owned by the Gila River Indian Community, a federally recognized tribe in Arizona, was sued by CHR, a provider of business support software solutions, for purportedly halting the requisite payments pursuant to the contract. Plaintiffs sued under several causes of action including breach of contract, anticipatory breach/repudiation of a contract, and quantum meruit. GTRI filed a motion to dismiss under a tribal sovereign immunity rationale, arguing that the court lacked subject matter jurisdiction because the tribe retained sovereign immunity.
As a preliminary matter, GRTI asserted that because it was a tribal corporation, it was a stateless entity and could not be considered a citizen of any state for diversity purposes. In the absence of guidance from the Fifth Circuit, the court adopted the Ninth Circuit’s interpretation of a tribal corporation’s citizenship, concluding that a tribal corporation is a citizen of the state in which its principal place of business is located. The court acknowledged that in the Eighth Circuit, tribal corporations are considered stateless entities, which precludes diversity jurisdiction, but ultimately rejected this interpretation. GRTI’s principal place of business was Arizona, the court concluded that it was a citizen of Arizona for diversity purposes. Therefore, diversity of citizenship existed under 28 U.S.C. § 1332.
Next, GRTI asserted a lack of subject matter jurisdiction because the corporation was entitled to sovereign immunity. The court found that GRTI met its burden of demonstrating that it functioned as an arm of the tribe entitled to sovereign immunity and noted that a prior case in the Fifth Circuit concluded that GRTI was entitled to sovereign immunity as an arm of the tribe because of GRTI’s creation, purpose, ownership of control, governance, and economic benefit it possessed in relation to the tribe itself. Further, the court found that CHR failed to demonstrate that congress had abrogated GRTI’s sovereign immunity in any way nor did GRTI expressly waive its entitlement to immunity in the Master Services Agreement. The court concluded that GRTI was entitled to sovereign immunity, and the court dismissed the case without prejudice.
Howson v. Similk Inc., 28 Wash. App. 2d 1054 (2023).
In Howson, the court found that a tribal corporation was entitled to sovereign immunity and affirmed the lower court decision to dismiss the suit against it. Plaintiff sued Similk, Inc. after an injury on a golf course owned by Similk. Similk was incorporated under Washington state law for business purposes but was later purchased by the Swinomish tribe. The court used the following five factors in White v. University of California[87] to determine that Similk was entitled to sovereign immunity: “(1) the method of creation of the economic entities; (2) their purpose; (3) their structure, ownership, and management, including the amount of control the tribe has over the entities; (4) the tribe’s intent with respect to the sharing of its sovereign immunity; and (5) the financial relationship between the tribe and the entities.”
The court found that the first factor was neutral and did not weigh in favor of either party. Although Similk was originally formed as a corporation under state law, the court found that the tribe’s actions after the purchase of the company relevant because after acquisition, the tribe established that the new purpose of the entity was to benefit and carry out the purposes of the tribe. The court noted that although Similk operated solely for the benefit of the tribe, it was still a Washington corporation with the right to sue and be sued. Therefore, this factor was neutral. Second, the court found that the purposes of the company were consistent with a finding of sovereign immunity. The court found that because Similk had helped to develop the tribe’s economy, fund its government services, and render the tribe more self-sufficient, the finding that it was acting as an arm of the tribe was supported. The court held that the third factor supported a finding of sovereign immunity because Similk was solely owned by the tribe and the tribe’s senate had the power to manage all economic affairs and appoint members to Similk’s board. The court found that the fourth factor weighed against sovereign immunity because the tribe had not demonstrated enough for the court to infer its intent to confer sovereign immunity to Similk. The court noted that neither the articles of incorporation nor the purchasing documents explicitly mentioned an intention to share sovereign immunity. Further, Similk remained a Washington corporation after the acquisition and the tribe did nothing to change its corporate form. Finally, the court concluded that although the tribe may have been protected from direct liability, the fifth factor supported a finding of sovereign immunity because there were several ways in which the tribe and Similk were financially intertwined.
The court concluded that because three factors supported sovereign immunity, one was neutral, and another weighed against it, Similk acted as an arm of the tribe and was entitled to immunity. The court further concluded that granting sovereign immunity in this case was consistent with the purposes of sovereign immunity.
California v. Azuma Corp., No. 2:23-CV-00743-KJM-DB, 2024 WL 266121 (E.D. Cal. Jan. 24, 2024).
In Azuma, the court dismissed California’s action against Azuma Corporation, a tribal corporation, for distributing contraband cigarettes in California in violation of state and federal cigarette laws. The court held that under the five-factor test in White v. University of California,[88] Azuma, was entitled to sovereign immunity. Defendants were comprised of tribal officers of the Alturas Indian Rancheria (“Tribe”), a federally recognized Indian tribe.
Generally, federally recognized Indian tribes are immune from suit and the immunity “also extends to arms of the tribe acting on behalf of the tribe.” See White v. Univ. of Cal., 765 F.3d 1010, 1025 (9th Cir. 2014). In this case, Defendants argued that Azuma was an arm of the Tribe, and, therefore, Azuma enjoyed qualified tribal immunity. The analysis determining whether a corporation is entitled to qualified immunity is: “(1) the method of creation of the economic entities; (2) their purpose; (3) their structure, ownership, and management, including the amount of control the tribe has over the entities; (4) the tribe’s intent with respect to the sharing of its sovereign immunity; and (5) the financial relationship between the tribe and the entities.”
First, the court held that the method of creation favored Azuma because the tribal corporation was established by the Business Committee of the Alturas Tribe’s Governing Body. Second, the court held that the purpose of the corporation weighed in favor of Azuma because its purpose was to manufacture tobacco products in the best interests of the tribe. The court held that the creation of economic development opportunities weighed in favor of sovereign immunity. Third, the court held that the structure, ownership, and management of Azuma was a neutral factor towards sovereign immunity. Although the tribe was the sole owner of Azuma, the court found that it was unclear how much influence non-tribal members had over the operation of the corporation. Fourth, the court found that it was clear that the tribe intended to share its sovereign immunity with Azuma. Finally, the court held that the financial relationship between Azuma and the tribe supported a finding of sovereign immunity. The court found that because Azuma used its revenues to fund other tribal ventures, such as the expansion of Altura’s casino, the tribe controlled Azuma, and its revenues directly benefited the tribe.
These factors led the court to conclude that Azuma was entitled to sovereign immunity, and, consequently, the court dismissed the claims against the corporation.
§ 9.4. The Federal Sovereign
§ 9.4.1. Indian Country & Land into Trust
The Indian Reorganization Act (“IRA”) authorizes the Secretary of the Interior to take land into trust for the benefit of an Indian tribe’s reservation.[89] In 2009, however, the U.S. Supreme Court issued a landmark ruling reversing the Interior’s prior interpretation of the IRA, 25 U.S.C. § 465, now located at 25 U.S.C. § 5108, and limiting the Secretary’s ability to take land into trust on behalf of tribes.[90]Carcieri held that the Secretary may only acquire land in trust for tribes that (1) were “under federal jurisdiction” in 1934, and (2) currently enjoy federal recognition.[91] This effectively precludes certain tribes from avoiding state tax and regulatory compliance, or conducting gaming or other economic development activities on newly acquired or reacquired lands.
Despite the Carcieri ruling, the Interior seems willing to issue final decisions on fee-to-trust applications by tribes that were recognized, restored, or reaffirmed after June 1934 on the basis that the tribe may have been under the jurisdiction of the United States in 1934 even if that recognition was not formally documented.[92] The Interior will continue processing applications for tribes that have enjoyed uninterrupted, formal recognition since June 1934 and for tribes that can point to a non-IRA statute granting the Secretary acquisition authority.[93] In sum, any non-Indian party looking to enter into a joint venture with a tribe to develop Indian lands not yet in trust status must pause to consider the implications of Carcieri.[94]
In response to the Carcieri decision, in 2014, the Interior Department issued a Memorandum that provided guidance on the meaning of “under federal jurisdiction.”[95] The Solicitor’s M-37029 Memorandum outlined a two-part test for interpreting the phrase “under federal jurisdiction.” The first part of this inquiry examines whether, before June 18, 1934, the federal government took an action or series of actions through a course of dealings or other relevant acts reflecting its obligation to, responsibility for, or authority over, an Indian tribe, bringing such tribe under federal jurisdiction.[96] The second prong examines whether this jurisdictional status remained intact in 1934.[97] Satisfying either prong will suffice to establish that the tribe was “under federal jurisdiction.” In a more recent decision, Confederated Tribes of Grand Ronde Community of Oregon v. Jewell, the D.C. Circuit Court of Appeals upheld the Interior’s application of the two-part test outlined in M-37029.[98] M-37029 appears to be a non-statutory Carcieri fix.
As if Carcieri were not complicated enough, in 2012, the U.S. Supreme Court issued its opinion in Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak.[99] In that case, a local landowner by the name of David Patchak launched a legal challenge against the Interior Secretary’s decision to take the tribe’s land into trust for the purpose of gaming. Importantly, Patchak did not allege that he had a legal interest in the land to be taken into trust. Rather, Patchak brought an action under the APA[100] asserting that the IRA did not authorize the Department of Interior to take land into trust for the tribe. The remedy Patchak sought was for the issuance of an injunction prohibiting the Interior from taking the land into trust. The basis for the injunction, in Patchak’s opinion, was that the requirements of the IRA were to be satisfied per the Supreme Court’s opinion in Carcieri. Both the federal government and the tribe argued that only the Quiet Title Act (QTA)[101] could grant the waiver of sovereign immunity. Under the theory advanced by the defendants, the APA waiver of sovereign immunity was negated.
The Court determined that the QTA only applies to quiet title actions where a person claims an interest in the property that conflicts with, or is superior to, the government’s claim in the property.[102] In addition, because the exception causing the APA waiver of sovereign immunity to be negated did not apply, the Court held Patchak had standing under the APA to pursue his challenge.
The result of this decision is that any party claiming harm to property nearby proposed trust land, even damage to an “aesthetic” interest, has legal standing under the APA to bring a lawsuit. This creates considerable risk for casino developers because the statute of limitations under the APA is considerably longer than that of the QTA, creating much more time for a party to challenge Interior’s trust transaction.[103]
The Interior Department revised its land-into-trust regulations at Part 151 in response to the Patchak decision during the Obama Administration, in late 2013.[104] This “Patchak Patch” provides that if the Interior Secretary or Assistant Secretary approves a trust acquisition, the decision represents a “final” agency determination subject immediately to judicial review.[105] If a Bureau of Indian Affairs (“BIA”) official issues the decision, however, the decision is subject to administrative exhaustion requirements[106] before it becomes a “final agency action.”[107] In this instance, parties must file an appeal of the BIA official’s decision within 30 days of its issue.[108] If no appeal is filed within the 30-day administrative appeal period, the BIA official’s decision becomes a “final agency action.”
More recently, the BIA, to improve and streamline the tribal land acquisition application process, announced changes to land-into-trust regulations (at Part 151).[109] Under the new rule, the BIA will now have to meet a 120-day deadline. Prior to the change, the average land acquisition application took an average of 985 days.
A brief discussion of this past year’s cases involving the taking of land into trust follow.[110]
Sault Ste. Marie Tribe of Chippewa Indians v. Haaland, No. 23-5076, 2024 WL 3219481 (D.C. Cir. June 28, 2024).
The court in Sault affirmed the District of Columbia’s finding that the Department of the Interior (“Interior”) was neither arbitrary nor capricious when it denied the Sault Ste. Marie Tribe’s (“Tribe”) land into trust application. The court upheld the Interior’s authority to scrutinize land into trust applications to ensure that such applications demonstrated a clear and direct connection to the statutory purposes of the land into trust acquisition.
In 2014, the Tribe applied to have a parcel of land (“Sibley Parcel”) taken into trust for the benefit of the Tribe under the Michigan Indian Land Claims Settlement Act (“Act”). The Tribe intended to use the Sibley Parcel to build a casino near Detroit, Michigan. The Act, passed in 1997, established a Self Sufficiency Fund (“Fund”) for the Tribe, specifying that the interest from the Fund could be used for purposes such as education, welfare, health, cultural programs, or to acquire land that would be held in trust for the Tribe’s benefit. The Tribe claimed that the purchase and construction of a casino on the Sibley Parcel qualified under Section 108(c) of the Act. The Tribe’s plan was to use five percent of the casino’s future profits for tribal welfare programs. The Interior denied the Tribe’s application, finding that the purchase and future use of the Sibley Parcel did not meet the statutory requirements of the Act. The Tribe sued, and after initial proceedings and a remand from the appeals court, the district court ruled in favor of the Interior. The Tribe then appealed to the D.C. Circuit, arguing that the district court’s rejection of their application was contrary to law because (1) the district court misinterpreted Section 108(c)(4), which imposed a mandatory duty to grant such an application when a Tribe purchases land with Fund interest; and (2) the acquisition of the Sibley Parcel qualified as an “enhancement of tribal lands” under Section 108(c)(5).
The D.C. Circuit rejected the Tribe’s arguments on two grounds. First, the court found that the Interior’s interpretation of Section 108(c)(4) of the Act was not contrary to law. The court reasoned that the Tribe’s proposal to channel five percent of hypothetical future casino profits into approved Fund uses was too attenuated and uncertain to meet the requirements of the statute, emphasizing the remoteness between the purchase of the Sibley Parcel and the accomplishment of any statutory purpose. The court also noted the significant regulatory and legal uncertainties facing the Tribe’s casino plans, further weakening its claim that a land into trust acquisition would fulfill an approved statutory purpose.
Second, the court rejected the Tribe’s argument that the Interior arbitrarily failed to consider evidence that purchasing the Sibley Parcel and building a casino directly supported educational, social welfare, health, cultural, or charitable purposes, or qualified as an enhancement of tribal lands. The court found that the Interior addressed the Tribe’s claims about securing a land base for social services and job creation in its evaluation of whether the Tribe’s acquisition satisfied Section 108(c)(5), to which the Interior concluded that the acquisition did not meet the requirements. The court deemed the Interior’s rejection of these arguments reasonable, noting the Tribe’s evidence consisted mainly of conclusory statements about its intentions for the Sibley Parcel without concrete plans for specific services. The court also pointed out that the Tribe had multiple opportunities to provide additional evidence to support its application but failed to do so, most notably after the Interior issued an interim determination allowing the Tribe to submit more evidence.
The court found the Interior’s rejection of the Tribe’s arguments and denial of their application reasonable in light of the available evidence. The court affirmed the District Court’s finding that the Tribe’s plan to allocate a small portion of potential future casino profits for tribal welfare programs was insufficient to qualify the Tribe for a land into trust acquisition.
Alaska v. Newland, No. 3:23-CV-00007-SLG, 2024 WL 3178000 (D. Alaska June 26, 2024).
The court in Newland held that the Secretary of the United States Department of the Interior (“Secretary”) had the authority to take land into trust on behalf of Alaska Native tribes, a decision that could enable tribes to create “Indian Country” in the state of Alaska. In November 2022, the Secretary approved an application to take a 787-square-foot parcel of land in Juneau, Alaska into trust for the Tlingit and Haida Indian Tribes of Alaska (“Tribes”). The Tribes—which are federally recognized—purchased the parcel in fee simple in 2007 and applied for the trust acquisition in 2009. Subsequently, the State of Alaska filed suit in the District of Alaska, challenging the Secretary’s authority to take land into trust in Alaska post-enactment of the Alaska Native Claims Settlement Act (“ANCSA”) in 1971.
The court first examined several key pieces of legislation at issue in the case: the Indian Reorganization Act of 1934 (“IRA”), which authorized the Secretary to make land into trust acquisitions; the Alaska Indian Reorganization Act of 1936 (“Alaska IRA”), which extended the IRA’s authority to Alaska; the ANSCA, which settled land claims and extinguished aboriginal titles; and the Federal Land Policy and Management Act of 1976. The court also considered the Interior’s fluctuating stance on its post-ANCSA authority to take land into trust, referencing the various Solicitor of the Department of the Interior opinions between 1978 and 2022. Additionally, the court looked to the Supreme Court’s decisions in Akiachak Native Community v. Salazar[111] and Carcieri v. Salazar,[112] which both interpreted the IRA’s definition of “Indian.” The legal framework established in those cases, combined with the relevant legislation on the issue, formed the basis of the court’s examination of the Interior’s authority to take land into trust in Alaska and its decision regarding the Tribes’ parcel.
The court’s analysis addressed four issues: (1) the applicability of the major questions doctrine to the Secretary’s decision to take the parcel of land into trust; (2) whether the ANCSA impliedly repealed the Secretary’s land into trust authority; (3) the Secretary’s reasoning for taking the land into trust for the Tribes; and (4) the appropriate remedy.
The court determined that the major questions doctrine was inapplicable to the case because this case involved a voluntary transfer of private land to federal trust status, which does not carry nationwide repercussions or significant financial impacts that typically accompany major question doctrine cases. The court then analyzed whether the ANCSA implicitly repealed the Secretary’s authority to take land into trust in Alaska. The court determined that while the ANCSA sought to end certain aspects of federal supervision over Indian affairs in Alaska, it did not explicitly revoke the Secretary’s discretionary authority to take land into trust and thus, did not rise to an irreconcilable conflict. However, the court found two significant issues with the Secretary’s reasoning in their decision to take the Tribes’ parcel into trust. First, the court found the Secretary’s justification for doing so as a “restoration of Indian lands” was arbitrary and capricious. The court found that the Secretary’s reasoning improperly relied upon aboriginal title, which was extinguished by the ANCSA. Finally, the court also concluded that the Secretary failed to determine whether the Tribes met one of those three definitions of the term “Indian” in Section 19 of the IRA, which was a prerequisite for the Secretary’s authority to take land into trust for the Tribes.
The court concluded that the appropriate remedy was to remand the case with vacatur to the Secretary to determine whether the Tribes met one of the three definitions of the term “Indian” under the IRA. The court reasoned that vacatur was appropriate given that there were no equity reasons to leave the agency’s decision in place.
Navajo Nation, et al., Plaintiffs, v. United States Dep’t of the Interior, et al., Defendants, No. CV-19-08340-PCT-JJT, 2024 WL 3299986 (D. Ariz. June 18, 2024).
The court in Navajo Nation denied the Hopi Tribe’s motion to intervene in a dispute between the Navajo Nation and the United States Department of the Interior (“Interior”) over an easement on land owned by the Hopi Tribe. The court held that the Hopi Tribe’s motion to intervene was untimely and, therefore, had to be denied.
In 2010, the Navajo Nation Gaming Enterprise (“Enterprise”) purchased 435 acres of land east of Flagstaff, Arizona, where the Navajo Nation planned to build a casino. To ensure access to the casino from Interstate 40, the Enterprise entered into an easement agreement with the previous owners of the adjacent property. This agreement granted the Enterprise and the public a perpetual, nonexclusive right to use a portion of the adjacent property for access to the casino. In 2012, the Hopi Tribe purchased the adjacent property, including the easement area, and applied to have the land taken into trust by the Department of the Interior’s Bureau of Indian Affairs (“BIA”). When the Hopi Tribe applied to have the land taken into trust, it acknowledged the existence of the Navajo Nation’s easement on their application. However, when the BIA approved the application and placed the land into trust in 2014, the trust’s deed did not explicitly mention the Navajo Nation’s easement. This led to a jurisdictional dispute between the Navajo Nation and the Hopi Tribe over the easement. In 2019, after unsuccessful administrative appeals, the Navajo Nation filed suit against the Interior and related federal agencies, alleging violations of due process and the Administrative Procedure Act (“APA”) for failing to provide proper notice of the BIA’s 2013 decision approving the Hopi Tribe’s application to convert their land into trust.
The court’s analysis focused on the timeliness of the Hopi Tribe’s motion to intervene. The Hopi Tribe filed the motion in September 2023, nearly four years after the Navajo Nation filed its suit against the Interior. The Hopi Tribe argued its motion was timely because it was responding to a new remedy sought by the Navajo Nation in a July 2023 damages disclosure. However, the court found that the Hopi Tribe’s interest in the case had been apparent since the lawsuit’s inception in 2019, and even earlier when the easement dispute first arose.
The court considered three factors in evaluating the timeliness of the Hopi Tribe’s motion: the stage of the proceedings, the prejudice to other parties, and the reason for the length of delay. It found that all factors weighed against the Hopi Tribe. The court found that the case was well beyond its inception stages and if not for the stay on the proceedings pending the ruling on the Hopi Tribe’s motion, the parties would have been well into discovery. The court concluded that any further delay in the proceedings would prejudice the parties, particularly the Navajo Nation, who had been seeking resolution since 2014. Most importantly, the court found no legitimate reason for the Hopi Tribe’s delay in seeking to intervene, as its interest in the case had been clear from the beginning of the litigation. As a result, the court denied the Hopi Tribe’s motion to intervene and lifted the stay on the case, ordering the parties to submit a proposed schedule for the remaining aspects of the litigation.
Berry v. United States, No. 2022-2031, 2024 WL 852819 (Fed. Cir. Feb. 29, 2024).
The court in Berry affirmed the dismissal of a takings claim against the United States, finding that the plaintiff failed to state a viable Fifth Amendment takings claim. Holly Berry (“Berry”) owned land in Oklahoma adjacent to land that the Cherokee Nation (“Nation”) applied to acquire in trust to build a gaming facility (“Cherokee Springs Site”). In January 2017, the United States Department of the Interior’s Bureau of Indian Affairs (“BIA”) approved the Nation’s application to acquire the land. In March 2021, Berry filed suit against the United States, alleging that after the Nation began construction at the Cherokee Springs Site, her land experienced severe flooding and erosion due to improper water runoff management. Berry claimed that because the United States took the Cherokee Springs Site into trust for the Nation and approved the construction plans that led to the damage of her property, the United States’ actions constituted a taking of a flowage easement on her property. In May 2022, the Court of Federal Claims granted the United States’ motion to dismiss, and Berry appealed to the Federal Circuit.
The court held that Berry failed to allege any direct governmental action by the United States that caused the flooding on her property, as required by both caselaw and the Fifth Amendment for takings claims. The Federal Circuit’s caselaw in St. Bernard Par Gov’t v. United States addressed the requirements for viable takings claims in the flooding context, requiring a plaintiff to prove that the taking of a flowage easement was the “direct, natural, or probable result” of the government’s actions.[113] The court reasoned that Berry’s complaint exclusively identified the Nation’s actions as the direct cause of the flooding.
Berry cited two cases—Treaty All. of Descendants of Texas Land Grants v. United States[114]and Navajo Nation v. United States[115]—to support her assertion that the United States’ taking of the Cherokee Springs Site into trust and approval of the Nation’s construction plans was sufficient to establish liability. However, the court rejected Berry’s argument, finding her case distinguishable because she failed to allege that the United States’ taking of the land into trust deprived her of all or most of her property interest. Instead, Berry only alleged that it was upon the Nation’s development of the Cherokee Springs Site that the flooding occurred, and any alleged taking occurred on her property.
The court also rejected Berry’s contention that the United States was liable for the Nation’s acts regardless of whether the government was directly involved in the design or construction of the gaming facility because the Nation acted as a quasi-agent of the United States. The court noted that Berry did not allege any agency relationship or coercion by the government in her complaint. Accordingly, the court concluded that Berry had no viable takings claims and affirmed the lower court’s dismissal of the complaint.
Legend Lake Prop. Owners Ass’n Inc. v. United States Dep’t of the Interior, No. 23-C-480, 2024 WL 449287 (E.D. Wis. Feb. 6, 2024).
The court in Legend granted the Defendants’ motion to dismiss, upholding a decision by the Department of the Interior’s Bureau of Indian Affairs (“BIA”) to accept land into trust for the Menominee Indian Tribe of Wisconsin (“Tribe”). The Tribe is a federally recognized Indian Tribe. In 1973, Congress passed the Menominee Restoration Act (“MRA”) to repeal previous legislation that ended federal supervision over the Tribe’s property and members. The MRA required the Secretary of the Department of the Interior (“Secretary”) to accept real property of the Tribe into trust so long as the property was transferred by the Tribe owner or owners. In 1972, the Legend Lake Property Owners Association (“Association”) filed articles of incorporation with the State of Wisconsin and the Menominee County Register of Deeds. In 2009, the Association adopted restrictive covenants prohibiting the transfer of property without express consent of the Association or transfers that would remove properties from county tax rolls or local and state jurisdiction. Sometime after 2017, Guy F. Keshena acquired title to forty parcels of land (“Parcels”) within the Legend Lake development. Although Keshena was aware of the restrictive covenants on the Parcels at the time he acquired title, he took title of the Parcels with the express purpose of requesting that the BIA take the Parcels into trust for the Tribe.
In 2018, the BIA’s Midwest Regional Director (“Director”) accepted the Parcels into trust and on December 11, 2018, the Association filed a notice of appeal with the Interior Board of Indian Appeals (“IBIA”) seeking review of the Director’s decision. On March 24, 2023, the IBIA affirmed the Director’s decision to take the Parcels into trust, concluding that the restrictive covenants were preempted by federal law and unenforceable against the Secretary because they directly conflicted with the terms of the MRA. The Association appealed the IBIA’s decision, arguing that the Parcels were subject to the Association’s restrictive covenants and thus, could not be accepted into trust for the Tribe. The Defendants, consisting of the United States Department of the Interior’ s BIA, Secretary, Director, and IBIA, subsequently filed a motion to dismiss the case for lack of subject matter jurisdiction and for failure to state a claim.
In its analysis, the court determined that the Association had standing to bring the suit, having alleged actual harm from the potential loss of dues and assessments. The court then addressed the scope of the IBIA’s authority, ruling that the agency acted within its purview in considering whether federal law preempted the Association’s restrictive covenants. On the issue of preemption, the court concurred with the IBIA’s determination that the MRA preempted the Association’s restrictive covenants. The Association argued that additional conditions within the MRA—including the subjection of transfers to any property and contractual rights or obligations—were broad enough to encompass the restrictive covenants such that the MRA did not preempt them. However, the court rejected this argument, concluding that the additional conditions in the MRA did not impact the preemption analysis. The court found that the BIA could not simultaneously comply with both the MRA and the Association’s restrictive covenants and ultimately concluded that the MRA controlled.
The court declined to address the Association’s alternative argument regarding the severability of non-conflicting portions of the restrictive covenants, noting that the matter was not part of the underlying BIA or IBIA decision. The court found no evidence that the BIA acted arbitrarily or capriciously in its determination of federal preemption and dismissed the case.
Littlefield v. U.S. Dep’t of the Interior, 85 F.4th 635 (1st Cir. 2023).
In Littlefield, the court upheld the Interior’s Bureau of Indian Affairs’ (“BIA”) determination and concluded that the verdict was reasonably supported by the administrative record. Initially, the BIA determined that the Mashpee Wampanoag Tribe (“Tribe”) was under federal jurisdiction in 1934 and eligible to have land taken into trust under the Indian Reorganization Act (“IRA”). The court in Littlefield affirmed the District of Massachusetts’ holding that the BIA’s determination was supported by a rational review of the record and was neither arbitrary nor capricious.
In 2015, the BIA approved the Tribe’s request to take two parcels of land in Massachusetts—one in Mashpee and one in Taunton—into trust for the benefit of the Tribe. A group of Taunton residents challenged the decision, initiating a series of legal proceedings and subsequent agency decisions. The process ultimately resulted in the BIA’s 2021 Record of Decision (“ROD”), which found that the Tribe was under federal jurisdiction in 1934 and was thus eligible for the 321 acres of land taken into trust on its behalf in 2015. The appellants challenged the ROD as arbitrary, capricious, an abuse of discretion, and contrary to law. The case went before the District of Massachusetts, and the district court granted summary judgment in favor of the BIA. The appellants appealed the decision to the First Circuit.
The court analyzed the BIA’s application of the M-Opinion to determine the Tribe’s eligibility for land into trust acquisitions under the IRA. The M-Opinion, issued by the Solicitor of the Department of the Interior in 2014, established a two-step inquiry for determining whether a tribe was “under Federal jurisdiction” in 1934 for the purposes of the IRA. The first step of the inquiry determined whether there was sufficient evidence in the tribe’s history, at or before 1934, showing that the tribe was under federal jurisdiction. If substantiated, the second step of the inquiry determined whether the tribe’s jurisdictional status remained intact in 1934.
The court examined the BIA’s analysis for the two-step M-Opinion inquiry. For the first step of the analysis, the BIA considered four categories of evidence: (1) The federal government’s decision not to remove the tribe from their lands in the 1820s; (2) the attendance of Tribe children at the federally operated Carlisle Indian School every year between 1905 and 1918; (3) federal reports about the Tribe; and (4) the inclusion of the Tribe in federal census records. The court rejected the appellants’ claims that the BIA gave undue weight to certain evidence or failed to properly apply the standards from the M-Opinion. For each category, the court found that the BIA’s analysis was not arbitrary, capricious, an abuse of discretion, or contrary to law. The court emphasized that the BIA appropriately considered the evidence “in concert” rather than requiring any single piece of evidence to definitively establish federal jurisdiction. The court then reviewed the BIA’s determination that the Tribe’s jurisdictional status remained intact in 1934, finding the agency’s evaluation of letters, correspondences, and other evidence from the 1930s reasonable and not arbitrary or capricious.
Ultimately, the court affirmed the district court’s conclusion that the BIA did not act arbitrarily, capriciously, in an abusive manner, or contrary to law by taking the land into trust for the benefit of the Tribe.
§ 9.4.2. Federal Approval for Reservation Activity
Due to the unique trust status of Indian lands, contracts involving those lands are subject to various forms of federal oversight. The Secretary of the Interior must approve any contract or agreement that “encumbers Indian lands for a period of seven or more years,” unless the Secretary determines that approval is not required.[116] Federal regulations explain that “[e]ncumber means to attach a claim, lien, charge, right of entry, or liability to real property.”[117] Encumbrances may include leasehold mortgages, easements, and other contracts or agreements that, by their terms, could give to a third party “exclusive or nearly exclusive proprietary control over tribal land.”[118]
Per revisions to Section 81 in 2000, the Interior Secretary will not approve any contract or agreement if the document does not (1) set forth the parties’ remedies in the event of a breach; (2) disclose that the tribe can assert sovereign immunity as a defense in any action brought against it; and (3) include an express waiver of tribal immunity.[119] Leaseholds for Indian lands, which typically run 25 years, also require secretarial approval.[120] Failure to secure secretarial approval could render the agreement null and void.[121] Therefore, if the transaction implicates tribal lands, counsel should analyze whether the Secretary must approve the underlying contract or lease.[122] Regardless of whether Secretary approval is necessary, all parties should be careful as to how they draft agreements which may encumber the land.[123] If the contract pertains to a tribal casino, the parties must also consider whether the contract should be submitted to the National Indian Gaming Commission (“NIGC”) for approval pursuant to the Indian Gaming Regulatory Act (“IGRA).”[124] Any “management agreement” for a tribal casino or “contract collateral to such agreement” requires NIGC approval to be valid and enforceable.[125] The NIGC has recently found that certain consulting, development, lease, and financing documents that confer management authority to the consultant, developer, landlord, or lender thereby constitute a management contract that is void unless approved by the NIGC.
Non-Indian contractors must also consider whether they need to obtain an Indian Traders License from the Bureau of Indian Affairs (“BIA”) and/or a tribal business license to properly do business with a tribe.[126] Federal regulations do not preclude certain tribes from imposing additional fees on non-Indian contractors. Failure to obtain appropriate licenses could subject the contractor to a fine or forfeiture, if not tribal qui tam litigation.[127]
With much tribal and media fanfare, in 2012, President Obama signed into law the Helping Expedite and Advance Responsible Tribal Homeownership (“HEARTH”) Act.[128] As noted above, prior to the passage of this bill, under 25 U.S.C. § 415, every lease of a tribe’s lands must undergo federal review and approval by the Secretary of the Interior under a sprawling, burdensome set of regulations.[129] The HEARTH Act changes that scheme of Indian land leasing by allowing tribes to lease their own land. The Act gives tribal governments the discretion to lease restricted lands for business, agricultural, public, religious, educational, recreational, or residential purposes without the approval of the Secretary of the Interior. Tribes are able to do so with a primary term of 25 years, and up to two renewal terms of 25 years each (or a primary term of up to 75 years if the lease is for residential, recreational, religious, or educational purposes).
There are some caveats, though. First, before any tribal government can approve a lease, the Secretary must approve the tribal regulations under which those leases are executed (and mining leases will still require the Secretary’s approval). Second, before the Secretary can approve those tribal regulations, the tribe must have implemented an environmental review process—a “tribal,” or “mini” National Environmental Policy Act—that identifies and evaluates any significant effects a proposed lease may have on the environment and allows public comment on those effects. The HEARTH Act authorizes the Interior Secretary to provide a tribe, upon the tribe’s request, with technical assistance in developing this regulatory environmental review process. HEARTH Act implementing regulations went into effect in 2013.[130] As of January 6, 2024, the BIA lists 92 tribes whose regulations have been approved to exercise the enhanced rights of sovereignty associated with taking control over the leasing of tribal land.[131]
The following highlights several of the more relevant cases decided in the last year.[132]
Sault Ste. Marie Tribe of Chippewa Indians v. Haaland, No. 23-5076, 2024 U.S. App. LEXIS 15855 (D.C. Cir. June 28, 2024).
The Sault Ste. Marie Tribe of Chippewa Indians (the “Plaintiffs” or “Tribe”) appealed a decision in favor of the Secretary of the Interior, Debra Haaland, and the U.S. Department of the Interior (the “DOI”). The DC Circuit affirmed the lower court’s decision for the DOI.
The Tribe purchased land near Detroit, Michigan (the “Sibley Parcel”) with the intent to build a casino on it. The Tribe then asked the DOI to take the land into trust pursuant to the Michigan Indian Land Claims Settlement Act (the “Michigan Act”) of 1997. Congress meant for the Michigan Act “to remedy historic injustice resulting from unconscionable treaties between certain Indian tribes and the United States government.” In one such treaty, the 1836 Treaty, the Tribe ceded land to the US government. In 1946 the Indian Claims Commission found the treaty unconscionable and ordered the US to pay more than $10 million dollars to the affected tribes, including the Sault Ste. Marie Tribe. The tribes could not independently work out allocation of the $10 million judgment funds, which is where the Michigan Act comes into play.
Section 108 of the Michigan Act governs how the Tribe can use its funds.[133] In subsection 108(a) the Tribe is directed to set up a trust fund (the “Self-Sufficiency Fund”) to receive the settlement funds. Subsection 108(b) concerns what the Tribe can use the Fund’s principal for. Permitted uses include economic development and other financial investments or expenditures beneficial to the Tribe and its members. Of relevance, subsection 108(c) limits how the Tribe can use the Fund’s interest. One permitted use is “for educational, social welfare, health, cultural, or charitable purposes” beneficial to the Tribe and its members, under Section108(c)(4). Another is for the “consolidation or enhancement of tribal lands,” under Section 108(c)(5).
The Tribe alerted the DOI of its intentions to use Fund income to purchase the Sibley Parcel so it could build a casino. According to the Tribe, the casino would benefit it and its members pursuant to Sections 108(c)(4) and (5) of the Michigan Act. The DOI continued to request further information from the Tribe for several years before it made an interim decision in early 2017. The DOI decided the Tribe’s plan would not satisfy the statute but told the Tribe its application would stay open so the Tribe could submit further evidence that its plan falls within the Michigan Act. The Tribe did not submit any additional evidence, and the DOI issued a final denial of the Tribe’s application.
The Tribe brought this lawsuit under the Administrative Procedures Act (the “APA”). The district court originally found in favor of the Tribe. First, the court found the DOI erred in rejecting the Tribe’s application because “the Michigan Act imposes a mandatory duty to grant such an application when a Tribe purchases land with Fund interest.” Additionally, the court found the Tribe met the Michigan Act’s requirements under Section 108(c)(5). The court did not determine whether the Tribe satisfied 108(c)(4).
On appeal, the DC Circuit reversed. In reversing, the court upheld the DOI’s independent approval authority under the Michigan Act. Additionally, the court held the Tribe did not satisfy Section 108(c)(5) because their casino plan would not “improve the quality or value of the Tribe’s existing lands.”[134] The court then remanded for further proceedings regarding Section 108(c)(4).
On remand, the District Court granted summary judgment for the DOI. The court believed the portion of the profits set to improve the Tribe’s welfare was too small to make the expenditure satisfy the statute. The Tribe then appealed the decision to the DC Circuit.
The DC Circuit considered two questions. First, whether the Michigan Act permits an indirect relationship between the Tribe’s spending and the benefits it will receive. Second, whether the DOI’s decision that the Tribe did not satisfy Section 108(c)(4) was arbitrary and capricious. The court answered both questions in the negative. The court took particular issue with the fact that the Tribe planned to use just 5% of casino profits for the benefit of the Tribe (with 3% going to tribal elders and 2% set to create a college scholarship program). The court found the Tribe’s position further weakened due to additional obstacles it would run into having the casino approved under the Indian Gaming Regulatory Act (“IGRA”). Accordingly, the DC Circuit upheld the lower court’s decision against the Tribe.
Rancheria v. Newsom, No. 2:22-cv-01486-KJM-DMC, 2024 U.S. Dist. LEXIS 34344 (E.D. Cal. Feb. 27, 2024).
The court in Rancheria granted the plaintiff’s motion for summary judgment and denied the defendants’ motion for summary judgment. The plaintiff, Alturas Indian Rancheria (“Alturas”), sued Governor Gavin Newsom and the State of California (the “State”) for negotiating in bad faith while the parties tried to work out a new gaming compact as required by IGRA.[135]
The court noted that when negotiating these Class III gaming compacts, states must negotiate with both procedural and substantive good faith. Procedural good faith requires the states to be available and willing to have and continue discussions with the tribe. Substantive good faith refers to what topics the states negotiate. The states are limited by IGRA to only discussing “those [topics] directly related to the operation of gaming activities.”[136] IGRA contains an exhaustive list of what topics states can negotiate. It is a per se violation of the substantive good faith duty for a state to raise any topics not listed. These protections are meant to make bargaining between the tribes and states more level and prevent tribes from being “at the potential mercy of the states.”[137]
Alturas claimed the State engaged in negotiations with substantive bad faith by attempting to include provisions pertaining to “off-list” topics in the compact. These provisions dealt with environmental law and tort law. As discussing such topics is a per se violation of the state’s good faith duty, the court found the State violated its duty. Accordingly, the court granted Altura’s motion for summary judgment and instructed the parties to move forward under IGRA’s remedial framework.
Eagle Bear, Inc. v. Indep. Bank, No. CV-22-93-GF-BMM, 2023 U.S. Dist. LEXIS 219142 (D. Mont. Dec. 8, 2023).
Eagle Bear, Inc. (“Eagle Bear”) rented reservation land held in trust by the U.S. Department of Interior Bureau of Indian Affairs (the “BIA”) from Blackfeet Indian Nation (the “Tribe”) to operate a campground. The question before the court was whether the BIA ended the lease in 2008 due to significant breaches by Eagle Bear. The court determined the BIA did end the lease in 2008. Accordingly, the court granted summary judgment to the Tribe.
The lease at issue began in 1997 and was for a period of 25 years. Eagle Bear frequently failed to make timely payments. In 2007, Eagle Bear got a $500,000 loan from Independence Bank, secured by a mortgage on Eagle Bear’s leasehold interest, to make further improvements to the campground. In 2008, the BIA began sending notices to Eagle Bear, advising them to make their delinquent payments or let the BIA know why they should not cancel the lease. Independence Bank also received the third notice letter and communicated with Eagle Bear about it. However, Eagle Bear did not take any actions in response to any of the notices. The BIA then canceled the lease, which Eagle Bear appealed but then later withdrew its appeal. The BIA never rescinded its cancelation, but all parties continued to operate as if the lease was still in effect.
In 2017, the Tribe complained to the BIA of new breaches and sought cancellation of the lease. During subsequent proceedings and as Eagle Bear sought to renew the lease, the Tribe discovered new information, leading it to believe the BIA had ended the lease in 2008. The Tribe then sought relief in Blackfeet Tribal Court. Eagle Bear brought suit seeking a preliminary injunction to enjoin any consideration or resolution of the Tribe’s claims in tribal court.
The court denied the injunction, making a preliminary finding that the lease had been cancelled in 2008. However, the court put off making a final decision until the record was fully developed. Ultimately, informed by the full record, the court determined the BIA ended the lease in 2008 and granted the Tribe’s motion for summary judgment. At the end of its opinion, the court noted the importance of the BIA’s mandate and its failures in this case, which were “to the detriment of all parties involved.”
Berry Creek Rancheria of Maidu Indians of Cal. v. California, No. 2:21-cv-02284-ADA-SKO, 2023 U.S. Dist. LEXIS 194494 (E.D. Cal. Oct. 25, 2023).
Berry Creek Rancheria of Maidu Indians of California (the “Plaintiff”), a federally recognized tribe, successfully sued the State of California and Gavin Newsom, as Governor of California (the “State”). The Plaintiff claimed the State engaged in gaming compact negotiations with bad faith.
As previously noted, in gaming compact negotiations with tribes, the states are limited by IGRA to only discussing “those [topics] directly related to the operation of gaming activities.” IGRA contains an exhaustive list of what topics states can negotiate. It is a per se violation of their good faith duty for a state to raise any topics not on the list. This system is meant to protect the tribes and their interests when dealing with the states, as the states have a better bargaining position by being in control of compact approval.
In this case, the State sought “compact provisions concerning broad tort claims coverage, employment spousal and child support orders, and environmental review and mitigation.” These topics fall outside the scope of what states are allowed to negotiate under IGRA because they are not directly related to the operation of gaming activities. Accordingly, the court found the State negotiated in bad faith and ordered the parties to proceed with IGRA’s remedial process.
§ 9.4.3. Labor and Employment Law & Indian Tribes
When Indian tribes act as commercial entities and hire employees, they are not subject to the same labor and employment laws as nontribal employers. For example, state labor laws and workers’ compensation statutes are inapplicable to tribal businesses.[138] Moreover, tribal employers may not be subject to certain federal labor and employment laws.[139]
Tribal employers are ordinarily exempt from antidiscrimination laws. Both Title VII of the Civil Rights Act of 1964[140] and the Americans with Disabilities Act[141] expressly exclude Indian tribes,[142] and state anti-discrimination laws usually do not apply to tribal employers.[143] In addition, tribal officials are generally immune from suits arising from alleged discriminatory behavior.[144]
The circuits remain severely split regarding the application of federal regulatory employment laws to tribal employers. The Eighth and Tenth Circuits have refused to apply to tribes such laws as the Occupational Safety and Health Act (OSHA),[145] the Employee Retirement Income Security Act (ERISA),[146] the Fair Labor Standards Act (FLSA),[147] the National Labor Relations Act (NLRA),[148] and the Age Discrimination in Employment Act (ADEA),[149] because doing so would encroach upon well-established principles of tribal sovereignty and tribal self-governance.[150]
Conversely, the Second, Seventh, and Ninth Circuits have applied OSHA and ERISA to tribes.[151] Moreover, the Seventh and Ninth Circuits lean toward application of FLSA to tribes.[152] These circuits reason that, because Indian tribes are not explicitly exempted from these statutes of general applicability, the laws accordingly govern tribal employment activity.[153] Following this reasoning, the Department of Labor has stated that the FMLA[154] applies to tribal employers.[155] However, aggrieved employees may experience difficulty enforcing federal employment rights due to the doctrine of sovereign immunity.[156] For example, the Second Circuit has held that, because Congress did not explicitly authorize suits against tribes in the language of the FMLA or the ADEA, tribal employers cannot be sued for money damages in federal court by employees under these statutes.[157]
Questions remain concerning whether federal statutes of general applicability extend beyond the labor and employment arena where they do not affirmatively contemplate whether Indian tribes govern tribal or reservation-based activities. For example, do federal franchise laws apply in Indian Country? What about the federal Copyright Act or other federal intellectual property statutes? What about Sarbanes-Oxley? While subject to the split in circuits discussed immediately above, it is unclear in which federal jurisdictions a court would hold that such federal laws apply to tribes.[158]
Federal courts have continued to decide cases involving the application of federal labor and employment rules to tribal employers. More generally, courts have grappled with how to apply statutes of general applicability to tribal sovereigns.[159]
Faris v. S. Ute Indian Tribe, No. 23-CV-00245-NYW-STV, 2023 WL 7386870 (D. Colo. Nov. 8, 2023).
The Court in Faris held that the Long Term Incentive Plan (“LTIP”) is not covered under the Employee Retirement Income Security Act of 1974 (“ERISA”).[160]
The LTIP was an employee benefits plan for the Red Willow Production Company (“Red Willow”) employees. It offered annual distribution payments based on age and years of experience at the Red Willow. Red Willow is a private oil and gas company and is part of the Southern Ute Indian Tribe Growth Fund (“Growth Fund”), which is an internal component of the Southern Ute Indian Tribe (“Tribe”).
Michele Faris was employed by Red Willow, initially as a contract employee from 1995 to 1996, and then as a full-time employee from December 13, 1996, until her termination on November 18, 2021. During this time, Ms. Faris participated in the LTIP. In 2020, Ms. Faris began discussing her plans to retire at the end of 2022, coinciding with her 55th birthday and 25 years of service, which would increase her LTIP distribution to 50% of her account balance. However, on November 18, 2021, she was terminated.
Ms. Faris claimed that the termination was fabricated to avoid paying the increased LTIP distribution in 2022. She initiated a lawsuit on January 27, 2023, asserting that the LTIP is an ERISA-covered Employee Benefits Pension Plan. Defendants then moved to Dismiss, arguing that the Court lacked subject matter jurisdiction because (1) the LTIP is a bonus program, excluded from ERISA and (2) the Tribe’s sovereign immunity bars claims related to terminations affecting non-ERISA incentive bonuses.
The Court granted the Motion to Dismiss reasoning that the LTIP is a bonus or incentive plan because its express purpose is to “reward and retain eligible employees.” Further, the Court opined that because LTIP increases distribution amounts with seniority and requires continued employment for eligibility, it should be categorized as a bonus plan rather than a pension plan.
Finally, the Court stated that the LTIP would not be subject to ERISA under 29 C.F.R. § 2510.3-2(c). Under this statute, employment plans whose payments are systematically deferred to the termination of the covered employment or beyond are subject to ERISA. The Court found that because LTIP does not condition payments on a participants’ retirement or termination of employment, it is not subject to ERISA. Additionally, the Court found that the presence of other annual bonuses did not preclude the LTIP from being a bonus plan. The Court also found that the LTIP’s exclusion from the company’s written bonus policies does not alter its nature as a bonus plan.
AQuate II LLC v. Myers, 100 F.4th 1316 (11th Cir. 2024).
The Court allowed AQuate II, LLC (“AQuate”), a government contractor under the Alabama-Quassarte Tribal Town, to proceed with its legal action against former employee Jessica Myers and competitor, Kituwah Services, LLC. AQuate alleged breach of employment agreements and violations of the Defend Trade Secrets Act and Alabama Trade Secrets Act. The central dispute was Ms. Myers’s alleged misappropriation of AQuate’s confidential information to benefit Kituwah’s bid for a federal contract under the Small Business Administration’s (“SBA”) 8(a) Program.[161]
Initially, the U.S. District Court for the Northern District of Alabama dismissed AQuate’s claims against Kituwah due to sovereign immunity. It also dismissed the breach of contract claims against Ms. Myers, citing a forum-selection clause in Myer’s employment contract designating the Alabama-Quassarte Tribal Town court as the venue. On appeal, the court addressed two main issues.
First, regarding sovereign immunity, the court analyzed whether Kituwah had waived its immunity under federal regulations governing tribal participation in federal contracts. It found that Kituwah’s articles of organization expressly waived sovereign immunity for disputes related to its involvement in the SBA’s 8(a) program. The court emphasized that Kituwah’s participation in the bidding for the contract and the alleged misappropriation of AQuate’s trade secrets were sufficiently connected to fall within the scope of the waiver.
Second, the court scrutinized the enforceability of the forum-selection clause in Ms. Myer’s employment contract. The court noted significant discrepancies in the evidence regarding the existence and legitimacy of the Alabama-Quassarte Tribal Town Court, which was the designated forum. In support of this, AQuate presented an affidavit from “Famous Marshall, the Chairman of Economic Development for the Tribal Town, which stated that the tribe’s constitution did not provide for a court system and the supposed tribal court was fictitious.” This further cast a doubt on the enforceability of the forum-selection clause.
The court stressed the importance of evaluating the validity of such clauses under Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) before applying the forum non conveniens doctrine. The factors that render a forum-selection clause invalid are: (1) its formation was induced by fraud or overreaching; (2) the plaintiff would be deprived of its day in court because of inconvenience or unfairness; (3) the chosen law would deprive the plaintiff of a remedy; or (4) enforcement of the clause would contravene public policy.[162] The court concluded that the trial court erred by dismissing Myer’s breach of contract claim without first determining the authenticity and enforceability of the designated tribal forum.
The court held that the Plaintiff’s claims against Sycuan Tribal Police Officers failed to meet the threshold for liability under 42 U.S.C. §1983.
Tyrell Ferguson, while incarcerated at California City Correctional Facility, filed a civil rights Complaint under §1983 on June 9, 2023. He alleged that Sycuan Tribal Police Officers conducted an illegal search and arrest at the Sycuan Hotel and Casino. Ferguson claimed that he was approached, searched, and arrested for drug possession by Officer Brandon Hittle and another unnamed officer. He claimed that these actions violated his constitutional rights.
First, the court emphasized the principle of sovereign immunity, which seeks to shield tribal entities from suits seeking monetary damages in federal court, unless explicitly waived. The immunity extends to tribal employees acting within their official capacities, thereby precluding Ferguson’s claims for compensatory and punitive damages against the Sycuan Tribe and its officers.
Second, the court scrutinized whether the actions of the tribal officers constituted “state action,” a prerequisite under §1983. It concluded that the plaintiff’s allegations pertained primarily to tribal law, not state or federal law, thus failing to establish that the officers acted under the color of state law. This deficiency undermined Ferguson’s attempt to hold the officers accountable under the federal civil rights law.
§ 9.4.4. Federal Court Jurisdiction
Federal court jurisdiction is limited to cases that invoke a federal court’s limited subject matter jurisdiction. Such cases may involve a federal question[163] or claims that are brought involving diversity of citizenship.[164] Litigation that arises from a deal with a federally-recognized tribe, or otherwise has federal overtones, does not necessarily present a federal question that will allow a federal district court to assume jurisdiction,[165] nor does the possibility that a tribe may invoke a federal statute in its defense confer federal court jurisdiction.[166] Moreover, courts have generally held that a tribe is not a citizen of any state for diversity purposes and, therefore, cannot sue or be sued in federal court based on diversity jurisdiction.[167] However courts are split on whether a business incorporated under federal statute, state law, or tribal law can qualify for diversity jurisdiction.[168] Because the potential judicial forums for commercial litigation arising out of Indian Country are likely restricted to state or tribal court, choosing federal court as the choice of venue may not make sense.
The following highlights several of the more relevant cases decided in the last year.[169]
The court dismissed this case for lack of subject matter jurisdiction because the statutes the Tamarisk Rd. Trust (“Plaintiff”) relied on did not provide a basis for federal jurisdiction and there was no substantial question of federal law.
In 1972, Prieto’s (“Defendant”) mother acquired twenty acres of real property that was part of Native American land, including the property at issue here. She and Defendant entered into a long-term lease agreement that allowed Defendant to make certain changes and improvements to the property and otherwise use it for residential purposes (“Leasehold Interest”). After Defendant’s mother passed away, Defendant obtained a loan and used the Leasehold Interest as security. Defendant defaulted, and Plaintiff bought the Leasehold Interest at the foreclosure auction. In October 2020, Plaintiff served Defendant, informing him that Plaintiff sought to enforce its rights under the Leasehold Interest, and in February 2021, Plaintiff filed a civil action against Defendant for quiet title, among other things. Plaintiff also filed an unlawful detainer action against Defendant in December 2021.
Defendant removed both cases to federal court in April 2022, and the court granted Plaintiff’s motion to remand because Defendant untimely removed the case. Then, the superior court granted Defendant’s motion for judgment on the pleadings based on lack of subject matter jurisdiction, and Plaintiff appealed. The appellate court held that because the dispute concerned Indian trust property, the superior court did not have subject matter jurisdiction over it. Then, Plaintiff commenced an action in federal court, alleging ejectment and trespass and unpaid rents, and argued the court had subject matter jurisdiction because the land at issue was Native American land and the superior court did not have jurisdiction. Defendant moved to dismiss the complaint based on lack of subject matter jurisdiction.
Federal courts are courts of limited jurisdiction and have original jurisdiction over actions arising under federal law or where diversity jurisdiction exists.[170] Defendant argued the complaint should be dismissed because the asserted causes of action arose under state law and did not pose a federal question. However, Plaintiff argued the court had jurisdiction pursuant to two federal statutes and because the dispute raised a substantial question of federal law.
The first statute, 28 U.S.C. § 1346, provides that district courts have jurisdiction over some claims against the United States. The court determined this statute did not confer jurisdiction because the United States was not a named defendant. Additionally, the Plaintiff argued that the second statute, 25 U.S.C. § 349, conferred jurisdiction because no fee-simple patent regarding the property had been issued, and the statute says, “until the issuance of fee-simple patents all allottees to whom trust patents shall be issued shall be subject to the exclusive jurisdiction of the United States.” The court found that § 349 did not address whether district courts have jurisdiction over allotment actions because the language appeared “‘almost purely regulatory, invoking Congress’s plenary power over Indians.’”[171] Therefore, the court determined that neither statute gave it jurisdiction over this action.
The court also held that there was no substantial federal question. To “arise under” a federal law pursuant to 28 U.S.C. § 1331, the cause of action must be created by federal law or require a substantial question of federal law to be resolved. The Plaintiff argued that there was a substantial federal question because the dispute concerned possessory rights to Indian trust property. However, the court pointed out that courts have consistently determined that when state-law disputes over interest in Indian land do not require courts to interpret any federal right, there is no federal subject matter jurisdiction. Rather, “[t]he critical distinction ‘hinges on whether the claimed right of possession sought to be enforced arises from state law or federal law.’”[172] Here, Plaintiff argued its right to possession was based on state law, not federal law. Further, the deed of trust did not raise any federal issue because Plaintiff did not seek to enforce its rights based on Defendant’s identity as a tribe member, nor did Plaintiff allege problems with the original lease. Therefore, the court held that the Plaintiff failed to meet its burden of establishing the court’s jurisdiction.
The court dismissed LaDeaux’s (“Plaintiff”) complaint for lack of subject matter jurisdiction because the complaint did not implicate diversity of citizenship or federal questions.
Plaintiff was part of the Housing Choice Voucher Program (“Program”)[173] and rented housing from the company Utterback managed, Metastone Properties, LLC (“Defendant”). The Program paid Defendant over half of Plaintiff’s monthly rent, but Defendant did not give Plaintiff the credit for the Program’s payment. Therefore, Plaintiff alleged Defendant committed fraud when he received the Program’s payment without crediting her account and she was wrongfully evicted. Plaintiff also raised several other concerns with the housing, and her civil cover sheet alleged causes of action under the False Claims Act, Americans with Disabilities Act, and the civil rights provisions. In Plaintiff’s complaint, she alleged state law claims, such as slander and deceit, and Plaintiff moved to set aside the state court’s order of eviction.
The court determined whether Plaintiff’s complaint met the jurisdictional requirements. If the parties are completely diverse and the amount in controversy is over $75,000, diversity jurisdiction exists.[174] Here, Plaintiff was a South Dakota resident, and while she did not specify all the defendants’ citizenships, she provided South Dakota addresses for each defendant. Further, plaintiff did not allege that the amount in controversy exceeded $75,000. Thus, the court determined Plaintiff did not establish diversity jurisdiction.
Federal courts also have jurisdiction over cases involving federal questions arising under the Constitution, laws, or treaties of the United States.[175] Plaintiff’s claims under the False Claims Act, Americans with Disabilities Act, and other civil rights provisions were dismissed. Plaintiff alleged her Housing Choice Voucher was part of a federal housing program and she received funding from the tribe’s rental assistance program, but the court determined Congress did not intend for either of the programs to create a private right of action to establish federal jurisdiction. Additionally, district court cases holding that claims arise under state, not federal law, when federal statutes are implicated in breach of contract claims persuaded the court. Therefore, Plaintiff did not establish federal question jurisdiction.
The Rooker-Feldman doctrine bars parties attempting to undermine decisions from state court, and the doctrine was implicated here because Plaintiff moved to set aside and appeal her state court eviction lawsuit. The Rooker-Feldman doctrine states that except for habeas corpus petitions, district courts do not have subject matter jurisdiction over challenges to state court judgments.[176] Therefore, the court held that Plaintiff’s claim was barred by the Rooker-Feldman doctrine to the extent she sought monetary damages and appeal of the state court eviction proceeding.
Machin v. Choctaw Casino, No. 22-CV-00729, 2024 WL 1841654 (E.D. Tex. Mar. 14, 2024).
Because tribal sovereign immunity was not waived, Machin’s (“Plaintiff”) Americans with Disabilities Act (“ADA”) and Genetic Information Nondiscrimination Act (“GINA”) claims did not establish federal court jurisdiction. Further, the court held there was no diversity jurisdiction.
Plaintiff’s complaint alleged she was at Choctaw Casino (“Defendant”) for employment onboarding, and despite multiple requests, she was not allowed to use the restroom. Then, when Plaintiff was finally able to use the restroom, three employees physically removed her from the stall, allegedly causing physical injuries and incontinence. Plaintiff alleged Defendant violated her rights under the ADA and GINA. Defendant moved to dismiss the case for a few reasons, including the court’s lack of subject matter jurisdiction.
The court analyzed whether Plaintiff’s ADA and GINA claims were barred by Defendant’s sovereign immunity. The ADA expressly waives sovereign immunity for states,[177] but it does not expressly waive sovereign immunity for tribes. The court reasoned that this demonstrated that where Congress intended its legislation to waive sovereign immunity, it understood it needed to be expressly and unambiguously set out. Because Defendant was a federally recognized tribe and Congress had not expressed contrary legislative intent, Plaintiff’s ADA claim was barred by Defendant’s sovereign immunity. For the same reasons, the court determined Plaintiff’s GINA claim was barred.
Plaintiff’s claim that she was entitled to relief under 42 U.S.C. § 1983 also failed because such actions could not be brought in federal court when Defendant’s alleged conduct was done under color of tribal law. Lastly, because courts typically hold tribes are not citizens of any state for diversity jurisdiction purposes,[178] and Defendant is a federally recognized tribe, diversity jurisdiction did not exist in this case. Since the court determined it lacked subject matter jurisdiction, it recommended that Defendant’s motion to dismiss be granted.
United States v. Smith, No. 22-CR-387, 2024 WL 2193343 (N.D. Okla. May 15, 2024).
The court dismissed Smith’s (“Defendant”) Motion for Return of Property (“Motion”) because he failed to establish any of the exceptions that would allow him to invoke Federal Rule of Criminal Procedure 41(g) for the return of property seized by state or tribal officials. Further, Defendant could seek relief in state or tribal court. Thus, Defendant’s Motion was dismissed for lack of subject matter jurisdiction.
In September 2022, the Glenpool Police Department officers arrested Defendant for stalking, and seized two iPhones, two computers, and seven zip drives (“Devices”). The next month, the United States filed a federal complaint against Defendant for stalking, and Defendant was indicted for stalking and evidence tampering. Defendant filed the Motion, hoping to recover the Devices. When property is seized by state or tribal officials, Rule 41(g) can be used when there is actual or constructive federal possession of the property or where state officials seized the property at the federal authorities’ direction.[179] If a case is not within those three circumstances, federal courts do not have subject matter jurisdiction.
The court ruled out actual federal possession and federally directed seizure as ways to invoke Rule 41(g) then turned to determining whether constructive federal possession existed. To determine whether constructive federal possession existed, the court considered whether the property was being held for potential use as, or was considered, evidence in a federal prosecution.[180] Because Defendant pled guilty, the property was not held for a “present potential use as evidence,” and because the Devices never served a meaningful evidentiary role in the federal prosecution, the court determined Defendant could not show constructive federal possession. As Defendant was unable to demonstrate his case fell into any of the three circumstances required to invoke Rule 41(g), the court did not have subject matter jurisdiction.
Additionally, Defendant did not show he made an informal request from the police department, nor did he file any formal actions for relief in state or tribal court. Thus, he had available avenues for relief from the seizing entities and had an adequate remedy at law.
Ramos v. San Diego Am. Indian Health Ctr., No. 23-cv-570, 2024 WL 1117093 (S.D. Cal. Mar. 14, 2024).
The court in Ramos remanded the action to state court because it did not find that Defendant had immunity, the government was not substituted, removal was untimely, and there was no basis for jurisdiction under the federal officer removal statute.
San Diego American Indian Health Center (“Defendant”) investigated unusual network activity and discovered an unauthorized third-party accessed its network. Ramos (“Plaintiff”) was a patient who received a letter from Defendant notifying him he was affected by this incident. Plaintiff brought a state court action alleging eight causes of action including negligence, breach of confidence and implied contract, and unjust enrichment. Defendant then went back and forth with the Department of Justice and Department of Health and Human Services, requesting the United States be substituted in its place. Defendant was unsuccessful and eventually filed a petition in state court requesting the substitution and later removed the action to federal court. Plaintiff and the United States, as an interested third party, moved to remand. Later, the parties filed a joint status report indicating they settled after attending a mediation, and they moved for preliminary approval of the class settlement.
The court could not approve the proposed class settlement without jurisdiction over the dispute, so the court analyzed its jurisdiction under the Class Action Fairness Act (“CAFA”)[181] and Defendant’s bases for removal. CAFA jurisdiction requires the putative class action to involve minimal diversity, at least 100 putative members, and amount in controversy over $5,000,000. CAFA also sets out exceptions to federal jurisdiction, which seek to ensure intrastate class actions are heard in state court. Here, Plaintiff resided in California, Defendant’s principal place of business was in California, and the class was defined as “individuals within the State of California” affected by the incident, so the court determined there was no basis for finding the required minimal diversity. Further, the court stated that even if minimal diversity existed, the home state controversy exception would apply because two-thirds or more of the relevant parties were citizens of California, where the action was originally filed.[182] Therefore, the court concluded that it lacked subject matter jurisdiction under CAFA.
Defendant’s removal cited a variety of statutes providing jurisdiction, which all “trace[d] back to the exclusive remedy and jurisdiction provision of the Federal Tort Claims Act” (“FTCA”). Defendant asserted that it had immunity and the FTCA was Plaintiff’s exclusive remedy based on a chain of several statutes. However, Defendant no longer sought immunity, and the government was not part of the settlement, so the court found remand was appropriate. Additionally, Defendant’s removal was untimely. Even without the untimeliness, the court still determined it lacked subject matter jurisdiction because there was “no federal question, original, or federal officer removal jurisdiction under the FTCA absent substitution.”
The court determined Plaintiff’s complaint alleged only state law causes of action, so the face of the complaint failed to allege any federal question sufficient for federal court jurisdiction. Additionally, the court disagreed that it had original subject matter jurisdiction under the FTCA or Westfall Act because the Defendant was not certified as acting within the scope of his office or employment, and the government was not substituted as the defendant.[183] The Westfall Act does not permit defendants to remove the case to federal court solely by claiming FTCA coverage. Under the Westfall Act, cases shall be remanded to state court if the district court determines the employee was not acting within the required scope. Because Defendant abandoned its motion to substitute the government, the court found Defendant essentially conceded that it was not acting within the required scope. Lastly, the Defendant did not allege it was a “person” as defined and required by the statute for federal officer removal.[184] Rather, Defendant presented legal conclusions to support its argument for removal under the statute. Also, Defendant abandoned its motion to substitute the government and no longer sought immunity, which was fatal for its reliance on the federal officer removal statute. Therefore, the court remanded the action.
Townsend Ranch LLC v. United States, No. 23-CV-0170, 2024 WL 2852190 (E.D. Wash. June 5, 2024).
The court granted the United States’ (“Defendant”) motion to dismiss because Townsend Ranch LLC and the other plaintiffs (“Plaintiffs”) did not establish the facts required for subject matter jurisdiction.
Plaintiffs owned property near the Omak Mill (“Mill”), and they claimed that a fire from the Mill spread and destroyed their property. Plaintiffs claimed tribal employees left burn piles smoldering, and, because of high winds, they flared up and caused the wildfire. Plaintiffs alleged that city officials warned the Colville Tribal Federal Corporation (“CTFC”) and the Bureau of Indian Affairs (“BIA”) numerous times, and neither organization acted to prevent the fire. However, Defendant argued a different fire caused the damage to Plaintiffs’ property.
Plaintiffs’ second amended complaint stated the court had subject matter jurisdiction under the Federal Tort Claims Act (“FTCA”) and the Indian Self-Determination and Education Assistance Act (“ISDEAA”).[185] The ISDEAA allows tribes to enter 638 contracts to operate programs and receive the money the BIA would have otherwise spent on the program. Plaintiffs claimed Defendant was under two 638 contracts when their properties were destroyed, and the 638 contracts made Defendant liable for the tribal employees’ alleged negligence in failing to suppress the smoldering fire. Defendant moved to dismiss, claiming the actions were not performed under 638 contracts.
Defendant factually challenged the court’s jurisdiction and argued that the 638 contracts did not cover the actions at issue. When there is a factual challenge to jurisdiction, courts can look beyond the complaint to public records to confirm the facts required for subject matter jurisdiction.[186] However, if the jurisdictional and substantive issues are so intertwined, such as when a statute is the basis for both jurisdiction and the substantive claim for relief, it is inappropriate for the court to make jurisdictional findings of genuinely disputed facts.[187] Plaintiffs argued that such intertwinement existed.
The court determined that the jurisdictional and substantive issues were not so intertwined that it would be wrong to make jurisdictional findings of the facts. The jurisdictional issue was whether the tribal employees had a duty to take care of the smoldering slash pile under the 638 contracts. The substantive issue was whether the smoldering slash pile or the other fire destroyed Plaintiff’s properties. Thus, the court went on to rule on the jurisdictional challenge.
Plaintiffs did not show that CTFC ever entered a 638 contract with BIA to administer any program, so as a threshold matter, the court stated Plaintiffs claims were deficient. Defendant submitted copies of contracts between the BIA and Confederated Tribes titled Forest Management Program and Fire Protection Services. First, CTFC was not mentioned in either contract, but because CTFC owned the Mill, it would typically be mentioned in the contract or a related subcontract if it was a party to the contract. Second, Plaintiffs never showed the Mill was held in trust by BIA for the Confederated Tribes, so the BIA never had responsibility to manage the Mill property. Thus, Plaintiffs could not show the CTFC or Confederated Tribes took over any responsibility from BIA to manage the Mill.
Further, the court determined that even if the claims did not fail at the threshold, they would fail because the 638 contracts between the BIA and Confederated Tribes had scope of work sections that did not include tribal employees protecting the Mill property from wildfires. Rather, the Forest Management Program’s scope of work included a general requirement that the Confederated Tribes maintain and protect forestland. Additionally, there was a different agreement confirming another party had responsibility for suppressing the Mill’s smoldering fires. While the Fire Protection Services contract required the Confederated Tribes to provide essential firefighting and protection services within its jurisdictional boundary, the city where the Mill was located was outside the relevant jurisdictional boundary. Therefore, neither contract provided the court with subject matter jurisdiction.
Lastly, Plaintiffs requested the court’s permission to continue jurisdictional discovery. The court denied Plaintiffs’ request because it believed the parties would have already produced any relevant and existing 638 contract. For the above reasons, the court dismissed Plaintiffs’ second amended complaint.
Ute Indian Tribe of the Uintah & Ouray Indian Rsrv. v. United States, 99 F.4th 1353 (Fed. Cir. 2024).
The court affirmed the Court of Federal Claims’ (“Claims Court”) dismissal of one category of the Ute Indian Tribe of the Uintah and Ouray Indian Reservation’s (“Plaintiff”) breach of trust claims and vacated the dismissal of the second category of Plaintiff’s breach of trust claims based on its subject matter jurisdiction analysis.
Plaintiff alleged the United States mismanaged water rights and infrastructure operated for Plaintiff, and therefore breached its duties of trust. To establish jurisdiction of breach of trust claims under the Indian Trucker Act, a plaintiff must pass two steps.[188] First, the plaintiff “must identify a substantive source of law that establishes specific fiduciary or other duties.” If the plaintiff passes step one, the court must determine whether such substantive law mandates compensation for damages from a breach of the duties. The Claims Court dismissed all of Plaintiff’s breach of trust claims, but the court here considered the claims in two categories.
The first category encompassed Plaintiff’s allegations that the United States had “duties in trust to secure new water for [Plaintiff].” Under the Winters Doctrine,[189] the United States is not required to affirmatively secure water for tribes without a treaty, statute, or regulation that imposes such a duty. Plaintiff primarily relied on the 1899 Act to show the United States had a specific duty to secure it new water.[190] However, under the 1899 Act, while the Secretary had a duty to establish rules and regulations necessary to ensure the Indians had the water they needed, this duty did not create a trust duty related to a specific property. Therefore, the United States did not expressly accept the duty to secure new water for Plaintiff. The court determined Plaintiff could not pass the first step in establishing jurisdiction and affirmed the Claims Court’s dismissal of this first category of claims.
The second category included Plaintiff’s allegations that the United States had mismanaged specific infrastructure and water rights appropriated to Plaintiff and held in trust for Plaintiff’s benefit. For this category of claims, Plaintiff relied on the 1906 Act.[191] Plaintiff alleged that under the 1906 Act, there were several hundred miles of irrigation systems constructed to irrigate 88,000 acres. However, the United States allegedly allowed the irrigation systems to be in such disrepair that only 61,000 acres received water. The court contrasted the 1906 Act with the 1899 Act and noted that the 1906 Act expressly described this 88,000-acre property and set out specific duties. Therefore, the court held that the United States expressly accepted a duty to hold and operate such irrigation systems in trust for Plaintiff, and Plaintiff passed step one of the jurisdictional test. The court held Plaintiff also satisfied the second step because the 1906 Act could be fairly interpreted as money-mandating. Thus, the court vacated and remanded the Claims Court’s dismissal of the claims in this second category.
§ 9.5. The State Sovereign
With billions of dollars being exchanged in Indian Country, state government is naturally looking for a piece of the action, giving rise to tax clashes between tribes and their business partners, and states and counties. These conflicts are primarily decided under the “federal preemption doctrine,” which asks whether a state’s attempted regulation or taxation of non-Indian activities in Indian Country is preempted by federal statutes or treaties, taking into account overarching notions of tribal sovereignty.[192]
Generally, state taxes apply to everyone “outside a tribe’s reservation” and are “federally preempted only where the state law is contrary to express federal law.”[193] Within Indian Country, on the other hand, “the initial and frequently dispositive question in Indian tax cases is who bears the legal incidence of the tax.”[194] When the legal incidence falls on tribes, tribal members, or tribal corporations,[195] “[s]tates are categorically barred” from implementing the tax.[196]
When the legal incidence falls on non-Indians, however, a more nuanced analysis applies. Although, historically, the U.S. Supreme Court asked whether any assertion of state power on Indian land would impinge on the tribal right to make its own laws and be ruled by them, in recent years, the High Court has moved away from that inherent tribal sovereignty analysis in favor of a federal preemption regime.[197] Because Congress does not often explicitly preempt state law,[198] the Supreme Court and the lower federal courts engage in a balancing act to determine whether tribal self-governance rights, bolstered by federal laws, preempt state laws.[199] This balancing act weighs a state’s interest in policing non-Indian conduct against combined federal and tribal interests in regulating affairs that arise out of tribal lands within the state’s boundaries.[200]
In New Mexico v. Mescalero Apache Tribe,[201] the Supreme Court explained that “state jurisdiction is preempted by the operation of federal law if it interferes or is incompatible with federal and tribal interests embodied in federal law, unless the state interests at stake are sufficient to justify the assertion of state authority.”[202] In Mescalero, the Court held that New Mexico could not impose its own fishing and hunting regulations on non-Indians on the reservation because of strong federal interests in “tribal self-sufficiency and economic development” and a lack of state interests.[203]
When non-Indian parties operate in Indian Country, lawyers must proactively evaluate whether, or to what extent, a state or local government’s interest in policing or taxing conduct that relates to neighboring tribal lands outweighs relevant federal and tribal interests pertaining to that same conduct arising within those lands. The issues of preemption and infringement are regularly litigated in the federal courts.[204]
S. Point Energy Ctr. LLC v. Arizona Dep’t of Revenue, 546 P.3d 1130 (Ariz. Ct. App. 2024).
The Court of Appeals of Arizona held that a power plant, owned and operated by non-Indian lessees of land held in trust for the benefit of an Indian tribe, was not impliedly exempt from a county ad valorem property tax.
South Point Energy Center LLC (“South Point”), a non-Indian entity, leased land from the Fort Mojave Indian Tribe (the “Tribe”). On this land existed a power plant owned and controlled entirely by South Point. While this power plant (the “Plant”) resided on the Tribe’s land, the Plant supplied no power to the Tribe or its members. Mohave County assessed ad valorem property taxes on the Plant. Subsequently, South Point initiated a lawsuit seeking a refund of payments on these taxes, arguing the Tribe’s role as lessor exempts the Plant from state taxation.
The Arizona Supreme Court had previously decided that there was not express preemption of states ability to tax permanent improvements constructed on tribal lands when the improvements are owned by non-Indians.[205] The Supreme Court further remanded the case to the court of appeals to decide whether the Plant was impliedly exempt from the County’s taxation under the standard established by White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980).
Bracker established a balancing test applicable when a state attempts to assert authority over non-Indians for activity on the reservation. Under this test, preemption occurs when the state law interferes with or is incompatible with “federal and tribal interests” unless the State has a strong enough interest to justify the regulation. Courts applying Bracker must weigh three factors, “(1) the extent of the federal and tribal regulations governing the taxed activity; (2) whether the ‘economic burden’ of the tax falls on the tribe or the non-Indian individual or entity; and (3) the extent of the state interest in justifying the imposition of the taxes.”[206]
The court first found that the extent of federal regulations governing this subject did not require a finding that the state had been preempted from assessing this tax on the Plant. To begin with, federal regulations of power plants were no more extensive for plants located on tribal lands than those located anywhere else. In addition, the fact that the federal government regulated tribal leases extensively was not relevant, as the lease in this case was not taxed, only the structure the lessee built.
Additionally, the tax’s burden fell not on the Tribe, but rather on South Point, a non-Indian entity. As the terms of the agreement made clear, the Plant was entirely owned by South Point. The land beneath the Plant remained owned by the Tribe, but this land was not subject to the tax assessment, only the Plant above it. While the tax indirectly affected the Tribe by implicating their interest in economic development on the reservation, the court found this to be an insufficient basis to preempt the tax. Further, even if the tax was not paid, the court found that a lien would not be placed on tribal land, as Arizona law makes clear that a tax levied on real or personal property is a lien on the assessed property. Since the county never included any portion of the Tribe’s property when assessing this tax, the Tribe’s property had never been assessed.
Finally, regarding the State’s interest in imposing the tax, the court found there to be a substantial interest in collecting these taxes. Specifically, the court found that South Point, its employees, the Tribe, and its members all benefitted from the services the tax revenue provided. Therefore, in balancing these interests, the court found that Bracker did not preempt the assessment of taxes in this case.
Kwate v. Reece Constr. Co., No. 2:23-CV-00570-BAT, 2024 WL 1185565 (W.D. Wash. Mar. 1, 2024).
The court, in remanding the case to state court due to a lack of a federal question, held that Washington state wage laws were not preempted by tribal or federal law.
The Plaintiff, a former employee, sued Reece Construction and Steven Reece (“Defendants”), alleging failure on the part of the company to abide by Washington’s wage and hour laws. While not owned by any Tribe, Reece Construction was a corporation with its principal office located on the Tulalip Reservation. Further, Defendant Steven Reece, the sole director and shareholder of Reece Construction, was a member of the Tulalip Tribe. Reece Construction conducted business both on and off the reservation, with the corporation’s revenue from off reservation work being as high as 72.73% in the recent years at the time. Further, the Plaintiff performed 95% of his work off the reservation.
Because state law created the cause of action at issue in this case, the court could only allow the action to proceed in federal court if the Plaintiff’s right to relief depended on resolution of a substantial question of federal law.[207] The Defendants produced three theories that they argued justified the federal forum. First, Defendants argued that, as a tribal corporation, they retained sovereign immunity. However, the court found there to be no evidence of tribal title or ownership, nor even tribal control over the corporation. Rather, Steven Reece was the sole owner and governing body of Reece Construction. The Defendants also argued that a federal question existed over whether the plaintiff was first required to exhaust tribal remedies before the proceeding could move forward. The court found that since no aspect of the Tribe’s civil code governs wage issues, hour issues, or civil actions brought against a corporation created under the tribe’s civil code, that Plaintiff had no remedies to pursue in a tribal court. Therefore, neither of these arguments raised a federal question that would permit the federal forum.
Defendants additionally argued that there was a federal question over whether tribal or federal law had preempted the application of Washington’s laws on wages and hours. The court found that Washington’s laws were not preempted. In answering this question, the court had to analyze whether state assumption of jurisdiction would interfere with reservation self-government.[208] The answer to this question required examining first two provisions of the Tribe’s civil code, as well as the Fair Labor Standards Act (“FLSA”) to see if the state’s laws had been preempted by these tribal or federal laws. Regarding the two provisions of the Tribe’s civil code, the court found that neither provision regulated the issues of the case directly, and, therefore, did not preempt the state from regulating in that area. The fact that the tribe “has not acted on its right of self-governance to enact wage and hours laws” allowed for the state to do so. The FLSA also did not preempt the state from regulating in this area, because the court found that the state’s laws provided more protection for workers than the FLSA. The FLSA has been found to only act as a floor, rather than a ceiling for protective laws.[209]
The court also examined the “strong interest” that Washington had in enacting these laws to protect Washington based workers. Finally, the court found the fact that Reece Construction registered, conducted business, employed Washington citizens, and performed work in the state demonstrated that it was required to comply with the state’s laws protecting these workers. These considerations allowed the court to find that Washington’s laws were not preempted, and that they therefore applied to Defendants in this case. The fact that the burden of these laws fell on a tribal member was not of consequence. Therefore, there were no federal questions permitting a federal forum in this case, thus requiring the court to remand the issue to the state court from which it arose.
State v. Fuller, 547 P.3d 149 (Okla. Crim. App. 2024).
The Court of Criminal Appeals of Oklahoma upheld the dismissal of a criminal case prosecuting a member of the Cherokee Tribe for driving under the influence, driving with a suspended license, failure to wear a seatbelt, and transporting an open container of alcohol. While the only issue which was before the court was whether the Wyandotte Reservation had been disestablished, the court also reiterated that the Bracker balancing test must apply even after a finding that a crime had been committed in Indian country.[210]
In the case below, the State argued that under the Bracker balancing test, it had the prosecutorial authority over the crimes charged against Fuller. However, on appeal the State abandoned this argument, and therefore it was not before the court. However, the court did take the opportunity to clarify that in cases “falling under the General Crimes Act” Bracker does apply. Specifically, the court made clear that “a State has jurisdiction to prosecute crimes committed in Indian Country unless state jurisdiction is preempted.”[211] The court stated that to determine whether any authority preempted state jurisdiction required considering tribal, state, and federal interests to determine “whether the exercise of state criminal jurisdiction would infringe upon tribal self-government.” Despite this clarification regarding when the Bracker test would apply, the court did not have occasion to apply this test to the facts at issue in the case.
State ex rel. Ballard v. Crosson, 540 P.3d 16 (Okla. Crim. App. 2023).
The Court of Criminal Appeals of Oklahoma issued a writ of mandamus to compel a magistrate judge to issue an arrest warrant for a tribal member who allegedly manufactured child pornography within the bounds of the Cherokee Nation. The court, while not reaching the issue of whether the state has authority to regulate tribal members on tribal land in this manner, held that this question must be answered at the trial court level, not by a magistrate judge issuing an arrest warrant.
In this case, the state charged a tribal member “with manufacturing, possessing, and distributing child pornography.” The magistrate judge declined to issue the warrant for this member’s arrest, finding that the state lacked jurisdiction to issue the arrest warrant, as the crime occurred on the Cherokee Nation and by a member of the tribe. The State then filed for a writ of mandamus to require the magistrate judge to order the arrest warrant.
The court found that the magistrate judge’s inquiry should not have gone further than simply determining whether there was probable cause that the defendant committed the offense. Once probable cause was found, the magistrate judge had a duty to issue the arrest warrant. Arguments regarding whether the state had the authority to criminally regulate the crimes committed by the defendant in this case, while important, must be resolved in the trial court, not at this stage in the proceeding. Importantly, the court found the adversarial system was the proper venue for resolving the State’s jurisdiction over the defendant, not the magistrate judge’s limited review.
§ 9.6. Conclusion
Economic growth and development throughout Indian Country have spurred many businesses to engage in business dealings with tribes and tribal entities. Confusion may arise during these transactions because of the unique sovereign and jurisdictional characteristics attendant to business transactions in Indian Country. As a result, these transactions have prompted increased litigation in tribal and nontribal forums. Accordingly, counsel assisting in these transactions, or any subsequent litigation, should conduct certain due diligence with respect to the pertinent tribal organizational documents and governing laws that may collectively dictate and control the business relationship.
To maximize the client’s chances of a successful partnership with tribes and tribal entities, counsel should ensure that the transactional documents contain clear and unambiguous contractual provisions that address all rights, obligations, and remedies of the parties. Therefore, even if the deal fails, careful negotiation and drafting, and, in turn, thoughtful procedural and jurisdictional litigation practice, will allow the parties to more expeditiously litigate the merits of any dispute, without jurisdictional confusion. As business between tribes and nontribal parties continues to grow, ensuring that both sides of the transaction fully understand and respect the deal will lead to a long-lasting and beneficial business relationship for all.
Ed J. Hermes is a Partner at Snell & Wilmer L.L.P. and is based in the firm’s Phoenix, Arizona office. Ed is a litigator whose practice is focused on complex commercial, tax, and property disputes, and disputes involving Federal Indian Law. Ed regularly appears on behalf of his clients in state, federal, and tribal courts and administrative tribunals throughout the Southwest. Having previously lived and worked in Indian Country, Ed also advises companies and economic development entities in conducting business and creating job opportunities in Indian Country. Ed is a member of the Native American Bar Association of Arizona, as well as admitted to practice law on the Navajo Nation. Special thanks to Snell & Wilmer L.L.P. Commercial Litigation attorneys Courtney Moore and Zachary Smith for their assistance in drafting this chapter, as well as Snell & Wilmer L.L.P.’s 2024 summer associate class. ↑
The Honorable Sandra Day O’Connor, Lessons from the Third Sovereign: Indian Tribal Courts, 33 Tulsa L.J. 1 (1997). ↑
Jack F. Williams, Integrating American Indian Law into the Commercial Law and Bankruptcy Curriculum, 37 Tulsa L. Rev. 557, 560 (2001). See also Frank Pommersheim, What Must Be Done to Achieve the Vision of the Twenty-First Century Tribal Judiciary, 7 Kan. J.L. & Pub. Pol’y 8, 11–12 (1997). ↑
Frank Pommersheim, What Must Be Done to Achieve the Vision of the Twenty-First Century Tribal Judiciary, 7 Kan. J.L. & Pub. Pol’y 8, 17 (1997). ↑
Worcester v. Georgia, 31 U.S. (1 Pet.) 515, 559 (1832). ↑
Id.; Steven J. Gunn, Compacts, Confederacies, and Comity: Intertribal Enforcement of Tribal Court Orders, 34 N.M. L. Rev. 297, 306 (2004). ↑
Kristen Carpenter and Eli Wald, Lawyering for Groups: The Case of American Indian Tribal Attorneys, 81 Fordham L. Rev. 3085, 3159 (2013). ↑
SeeMontana v. United States, 450 U.S. 544, 566 (1981) (“Indian tribes retain inherent sovereign power to exercise some forms of civil jurisdiction over non-Indians on their reservations . . . .” (emphasis added)); Means v. Navajo Nation, 432 F.3d 924, 930 (9th Cir. 2005) (holding that the tribe had jurisdiction over defendant because he was an Indian by political affiliation). ↑
Indian Country includes: (1) all land within the limits of any Indian reservation; (2) “dependent Indian communities” within the borders of the United States; and (3) all Indian allotments, including rights-of-way. 28 U.S.C. § 1151 (2000). “Although [that] definition by its terms relates only to . . . criminal jurisdiction . . . it also generally applies to questions of civil jurisdiction . . . .” Alaska v. Native Vill. of Venetie Tribal Gov’t, 522 U.S. 520, 527 (1998). ↑
“The ownership status of land . . . is only one factor to consider in determining whether [tribal courts have jurisdiction over non-members]. It may sometimes be a dispositive factor.” Nevada v. Hicks, 533 U.S. 353, 360 (2001) (emphasis added). ↑
Water Wheel Camp Recreational Area, Inc. v. LaRance, 642 F.3d 802 (9th Cir. 2011); see also Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9, 14 (1987) (“We have repeatedly recognized the Federal Government’s longstanding policy of encouraging tribal self-government. . . . This policy reflects the fact that Indian tribes retain ‘attributes of sovereignty over both their members and their territory . . . .’”) (quotingUnited States v. Mazurie, 419 U.S. 544, 557 (1975)). ↑
Lesperance v. Sault Ste. Marie Tribe of Chippewa Indians, 259 F. Supp. 3d 713, 716 (W.D. Mich. 2017) (a non-Indian sued the tribe in tribal court but provided notice in a letter to a customer representative and not to the tribal Secretary as required under the tribe’s waiver authority. The tribal trial court and appellate court upheld dismissal and the federal district court affirmed.). ↑
Water Wheel, 642 F.3d 802; Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134 (1980) (power to tax transactions on trust lands). Indian land in this context includes land owned by the tribe or its members as well as land owned in fee by the United States but held in trust for the benefit of the tribe or its members. Notably, the land beneath a navigable waterway is not “Indian land,” Montana v. United States, 450 U.S. 544 (1981); neither is land owned by the United States but with a right-of-way granted to a state for the purposes of the construction and use of a state highway, Strate v. A-1 Contractors, 520 U.S. 438 (1997). ↑
Plains Commerce, 554 U.S. 316 (2008). Although Montana originally pertained to civil jurisdiction over non-Indians on non-Indian fee lands within reservation boundaries (450 U.S. at 564), the Ninth Circuit Court of Appeals has previously maintained “that the general rule of Montana applies to both Indian and non-Indian lands.” Ford Motor Company v. Todeecheene, 394 F.3d 1170, 1178–79 (9th Cir. 2005), overruled on other grounds, 488 F.3d 1215 (9th Cir. 2007). More recently, however, the Ninth Circuit has indicated a reversion to its original rule. SeeWater Wheel, 642 F.3d 802. ↑
Id. It appears, however, that courts have become more sympathetic to the second exception as of late. See, e.g., Knighton v. Cedarville Rancheria of N. Paiute Indians, 922 F.3d 892, 905 (9th Cir.), cert. denied, 140 S. Ct. 513 (2019); Norton v. Ute Indian Tribe of the Uintah & Ouray Reservation, 862 F.3d 1236, 1246 (10th Cir. 2017). ↑
Lian Ascher helped to research and summarize the cases in this section. Lian is a rising third-year law student at the James E. Rogers College of Law, University of Arizona, and expects to graduate in May 2025. ↑
Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316, 337 (2008). ↑
Exhaustion is not always required. SeeNat’l Farmers Union Ins. Co. v. Crow Tribe of Indians, 471 U.S. 845, 857 n.21 (1985) (“We do not suggest that exhaustion would be required where an assertion of tribal jurisdiction is motivated by a desire to harass or is conducted in bad faith, or where the action is patently violative of express jurisdictional prohibitions, or where exhaustion would be futile because of the lack of an adequate opportunity to challenge the court’s jurisdiction.”). ↑
Id. at 857. (“Until petitioners have exhausted the remedies available to them in the Tribal Court system . . . it would be premature for a federal court to consider any relief.”); Progressive Advanced Ins. Co. v. Worker, No. CV-16-08107-PCT-DJH, 2017 U.S. Dist. LEXIS 19283 (D. Ariz. February 8, 2017) (“Progressive issued an insurance policy that listed a tribal member as a named insured and covered vehicles that were kept on tribal lands . . . however Progressive never mailed anything to an address on tribal lands. To the extent that factor is dispositive, it may be that the tribal court lacks jurisdiction. But this is a question that must be answered first by the tribal courts of the Navajo Nation.”). ↑
Whitetail v. Spirit Lake Tribal Ct., Civ. No. 07-0042, 2007 U.S. Dist. LEXIS 87312, at *4–5 (N.D. Nov. 28, 2007). The doctrine applies even to federal habeas corpus actions filed under 25 U.S.C. § 1303. See, e.g., Valenzuela v. Silversmith, No. 11-2212, 2012 WL 5507249 (10th Cir. Nov. 14, 2012). ↑
SeeRincon Mushroom, 490 Fed. Appx. 11, 13 (9th Cir. 2012) (“[H]old[ing] that the district court abused its discretion in dismissing the case rather than staying it.”); but seeProgressive Advanced Ins. Co. v. Worker, No. CV-16-08107-PCT-DJH, 2017 U.S. Dist. LEXIS 19283 (D. Ariz. February 8, 2017) (dismissing the case); Window Rock Unified School District v. Reeves, 2017 U.S. App. LEXIS 14254 (9th Cir. August 3, 2017) (same). ↑
Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9, 19 (1987) (“If the Tribal Appeals Court upholds the lower court’s determination that the tribal courts have jurisdiction, petitioner may challenge that ruling in the District Court.”). ↑
SeeFord Motor Co. v. Todecheene, 474 F.3d 1196, 1197 (9th Cir. 2007), amended and superseded by 488 F.3d 1215, 1216 (9th Cir. 2007); Duncan Energy Co., Inc. v. Three Affiliated Tribes of the Fort Berthold Reservation, 27 F.3d 1294, 1300 (8th Cir. 1993); Plains Commerce Bank, 128 S. Ct. at 2726. It is unclear whether state courts must likewise abstain from hearing a matter arising on tribal lands until the tribal court has determined the scope of its own jurisdiction and entered a final ruling. In Drumm v. Brown, 245 Conn. 657, 716 A.2d 50 (Conn. 1998), the Connecticut Supreme Court held that “[o]ur analysis, which is based primarily on the three United States Supreme Court exhaustion cases, persuades us that the courts of this state must apply the exhaustion of tribal remedies doctrine.” 245 Conn. at 659. However, the Drumm Court found that exhaustion was not required in the absence of a pending action in tribal court. Id. at 684. ↑
Nat’l Farmers Union, 471 U.S. at 857; see,e.g., Evans v. Shoshone-Bannock Land Use Policy Comm’n, 4:12-CV-417-BLW, 2012 WL 6651194 (D. Idaho Dec. 20, 2012) (requiring plaintiff to exhaust its tribal court remedies). ↑
See, e.g., Bruce H. Lien Co. v. Three Affiliated Tribes, 93 F.3d 1412, 1421 (8th Cir. 1996). ↑
See id. at 17 (“At a minimum, exhaustion of tribal remedies means that tribal appellate courts must have the opportunity to review the determinations of the lower tribal courts.”); see alsoWhitetail v. Spirit Lake Tribal Ct., No. 07-0042, 2007 U.S. Dist. LEXIS 87312, at *4 (D.N.D. Nov. 28, 2007) (declining review of the case because the plaintiff had failed to exhaust his tribal court remedies). ↑
See Nat’l Farmers Union, 471 U.S. at 853 (reasoning that “a federal court may determine under § 1331 whether a tribal court has exceeded the lawful limits of its jurisdiction”). ↑
Id. (“Unless a federal court determines that the Tribal Court lacked jurisdiction . . . proper deference to the tribal court system precludes relitigation of issues raised . . . and resolved in the Tribal Courts.”). A thorough analysis of post-judgment proceedings is beyond the scope of this chapter, but there is case law on the issue. See, e.g., AT&T Corp. v. Coeur d’Alene Tribe, 295 F.3d 899, 903–04 (9th Cir. 2002); Burrell v. Armijo, 456 F.3d 1159, 1168 (10th Cir. 2006), cert.denied, 549 U.S. 1167 (2007); Brenner v. Bendigo, No. 13-0005, 2013 WL 5652457 (D.S.D. Oct. 15, 2013); Bank of America, N.A. v. Bills, No. 00-0450, 2008 WL 682399, at *5 (D. Nev. Mar. 6, 2008); First Specialty Ins. Corp. v. Confederated Tribes of Grand Ronde Community of Oregon, No. 07-0005, 2007 WL 3283699, at *4 (D. Or. Nov. 2, 2007); U.S. ex rel. Auginaush v. Medure, No. 12-0256, 2012 WL 5990274 (Minn. Ct. App. Dec. 3, 2012). ↑
Nevada v. Hicks, 533 U.S. 353, 369 (2001); Strate v. A-1 Contractors, 520 U.S. 438, 459 n. 14 (1997). ↑
El Paso Natural Gas v. Neztsosie, 526 U.S. 473 (1999). ↑
Kylie Cochrane helped to research and summarize the cases in this section. Kylie is a rising second-year law student at the Sandra Day O’Connor College of Law, Arizona State University, and expects to graduate in May 2026. ↑
United States v. Tsosie, 92 F.3d 1037, 1041 (10th Cir. 1996). ↑
Brisbois v. Tulalip Tribal Ct., No. 218CV01677TSZBAT, 2019 WL 1522540, at *2 (W.D. Wash. Feb. 27, 2019). ↑
SeeKrempel v. Prairie Island Indian Cmty., 125 F.3d 621 (8th Cir. 1997). ↑
SeeSanta Clara Pueblo v. Martinez, 436 U.S. 49, 57–58 (1978). ↑
Tribal immunity can be abolished via federal statute. Alvarado v. Table Mountain Rancheria, 509 F.3d 1008, 1015–16 (9th Cir. 2007) (“[The] cornerstone of federal subject matter jurisdiction is statutory authorization.”); E.F.W. v. St. Stephen’s Indian High School, 264 F.3d 1297, 1302 (10th Cir. 2001) (“Tribal sovereign immunity is a matter of subject matter jurisdiction.”); McClendon v. United States, 885 F.2d 627, 629 (9th Cir. 1989) (“The issue of sovereign immunity is jurisdictional in nature.”). Tribal immunity can be voluntarily waived. Kiowa Tribe of Okla. v. Mfg. Techs., 523 U.S. 751, 755–56 (1998); Filer v. Tohono O’odham Nation Gaming Enters., 129 P.3d 78, 83 (Ariz. Ct. App. 2006) (applying for a liquor license did not waive the tribe’s sovereign immunity); Seminole Tribe of Fla. v. McCor, 903 So. 2d 353, 359–60 (Fla. Dist. Ct. App. 2005) (purchasing liability insurance is not a clear waiver of a tribe’s sovereign immunity); Furry v. Miccosukee Tribe of Indians of Fla., 685 F.3d 1224, 1234 (11th Cir. 2012) cert. denied, 133 S. Ct. 663, 184 L. Ed. 2d 462 (U.S. 2012) (tribe did not waive its immunity from private tort actions by applying for a state liquor license). ↑
Plains Commerce Bank v. Long Family Land & Cattle, 554 U.S. 316 (2008). ↑
Kiowa Tribe, 523 U.S. at 760. The U.S. Constitution provides a basis for suits to enforce state election and campaign finance laws. The U.S. Supreme Court has yet to take a position on this matter. ↑
Santa Clara Pueblo v. Martinez, 436 U.S. 49, 58 (1978).↑
Id.; United States v. Oregon, 657 F.2d 1009, 1013 (9th Cir. 1981); Filer, 129 P.3d at 86; Bellue v. Puyallup Tribe of Indians, No. 94-3045 (Puyallup 1994); Colville Tribal Enter. v. Orr, 5 CCAR 1 (Colville Confed. 1998). ↑
Miccosukee Tribe of Indians v. Tein, 2017 Fla. App. LEXIS 11442 (Fla. App. August 9, 2017) (holding that evidence of vexatious and bad faith litigation did not amount to a waiver of immunity “even where the results are deeply troubling, unjust, unfair, and inequitable”). ↑
In re Greektown Holdings, LLC, No. 12-12340, 2012 WL 4484933 (E.D. Mich. Sept. 27, 2012), aff’d, 728 F.3d 567 (6th Cir. 2013) (holding that for Congress to waive the tribe’s immunity the waiver must be “express, unequivocal, unmistakable, unambiguous, clearly evident in statutory language, and allow the Court to conclude with perfect confidence that Congress intended to waive sovereign immunity”). See alsoDemontiney v. United States ex rel. Bureau of Indian Affairs, 255 F.3d 801, 811 (9th Cir. 2001); Sanchez v. Santa Ana Golf Club, Inc., 104 P.3d 548, 551 (N.M. Ct. App. 2004) (reasoning that ambiguity within an immunity waiver should be interpreted in favor of the Tribe). ↑
Contour Spa at the Hard Rock, Inc. v. Seminole Tribe of Fla., 692 F.3d 1200, 1206 (11th Cir. 2012) cert. denied, 133 S. Ct. 843 (2013) (holding Indian tribe’s removal of action to federal court did not waive its sovereign immunity). But seeGuidiville Rancheria of California v. United States, 2017 U.S. App. LEXIS 14394 (9th Cir. August 4, 2017) (holding that raising the issue of attorneys’ fees in the first instance was sufficient to constitute a waiver of the Tribe’s right to claim sovereign immunity when defendant subsequently claimed for fees against the tribe). ↑
Santa Clara Pueblo v. Martinez, 436 U.S. 49, 58 (1978) (internal quotation marks and citations omitted); see alsoGilbertson v. Quinault Indian Nation, 495 F. App’x 779 (9th Cir. 2012) (holding language in the Quinault Indian Nation’s employee handbook indicating that employees were protected by Title VII was not a sufficiently clear waiver of the Nation’s sovereign immunity). ↑
See, e.g., Memphis Biofuels, L.L.C. v. Chickasaw Nation Indus., Inc., 585 F.3d 917 (6th Cir. 2009) (holding that the presence of a sue-and-be-sued clause in the charter of a tribal corporation, alone, was “insufficient” to waive the corporation’s immunity because it made approval by the corporation’s board of directors a prerequisite to legal action by the corporation); accord Ninigret Dev. Corp v. Narragansett Indian Wetuomuck Hous. Auth, 201 F.3d 21, 30 (1st Cir. 2000) (holding that “the enactment of such an ordinance . . . does not waive a tribe’s sovereign immunity [where the ordinance] authorize[d] the [tribal corporation] to shed its immunity ‘by contract’” because “these words would be utter surplusage if the enactment of the ordinance itself served to perfect the waiver”); cf.Rosebud Sioux Tribe v. Val-U Constr. Co., 50 F.3d 560, 562 (8th Cir. 1995) (holding that the mere presence of an arbitration provision in the agreement represented a waiver of immunity from a judgment being enforced in federal court). ↑
Id. at 418; seeTrump Hotels and Casino Resorts Dev. Co. v. Rosow, No. X03CV034000160S, 2005 Conn. Super. LEXIS 1224, at *41 (Conn. Super. Ct. May 2, 2005) (concluding that the tribe “clearly and unequivocally waived sovereign immunity” in its contract). ↑
Calvello v. Yankton Sioux Tribe, 584 N.W.2d 108, 114 (S.D. 1998) (holding that the chairman of the tribal business committee did not have authority to waive immunity); see alsoSandlerin v. Seminole Tribe of Fla., 243 F.3d 1282, 1286–87 (11th Cir. 2001) (reasoning that the tribal chief did not have authority to waive the tribe’s immunity through contract where the tribal code provided procedure for effecting a waiver); Chance v. Coquille Indian Tribe, 963 P.2d 638, 639 (Or. 1998) (reasoning that the tribal corporation president did not have authority to bind the corporation to a contract waiving tribal immunity); Harris v. Lake of the Torches Resort and Casino, 363 Wis. 2d 656 (2015) (holding that a third-party workers compensation administrator lacked the authority to waive the tribe’s immunity). But seeRush Creek Solutions, Inc. v. Ute Mountain Ute Tribe, 107 P.3d 402, 407 (Colo. App. 2004) (holding that the tribal chief financial officer had apparent authority to waive immunity when the tribal law was silent). ↑
Bennett Houck helped to research and summarize the cases in this section. Bennett is a rising third-year law student at the Sandra Day O’Connor College of Law, Arizona State University, and expects to graduate in May 2025. ↑
If a defendant countersued in an action and asserted a defense claim that “(1) [arose] out of the same transaction or occurrence; (2) [sought] the same kind of relief as a plaintiff; and (3) [did] not seek damages exceeding what a plaintiff [sought],” then the plaintiff is not entitled to withdraw waiver and invoke sovereign immunity against the recoupment claims. Thlopthlocco Tribal Town v. Wiley, No. 409CV00527JCGCDL, 2023 WL 8813866 (N.D. Okla. Dec. 20, 2023). ↑
White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). ↑
Native American Distrib. v. Seneca-Cayuga Tobacco Co., 546 F.3d 1288, 1295 (10th Cir. 2008) (holding that, because the tribal enterprise was not a corporation with a “sue-and-be-sued clause,” the tribal enterprise was immune from suit, as it did not explicitly waive its sovereign immunity); c.f. Grand Canyon Skywalk Dev. LLC v. Cieslak, 2015 U.S. Dist. LEXIS 73186 (D. Nev. June 5, 2015) (holding that, while sovereign immunity may protect the tribal corporation, it does not extend to an employee of the tribal corporation to allow the employee to refuse to comply with a federal subpoena). ↑
SeeSeaport Loan Products v. Lower Brule Community Development Enterprise LLC, 2013 NY slip op. 651492/12 [Sup Ct. NY County 2013] (concluding that an independent, state-incorporated, for-profit tribal enterprise that was principally operating in the financial services markets, with separate assets, liabilities, purposes, and goals could not claim immunity); Arrow Midstream Holdings v. 3 Bears Construction LLC, 873 N.W.2d 16 (N.D. 2015) (holding that a corporation wholly owned by tribal members but incorporated under state law was a non-member entity for the purposes of litigation and therefore subject to state jurisdiction). ↑
Connor O’Loughlin helped to research and summarize the cases in this section. Connor is a rising second-year law student at Georgetown University Law Center and expects to graduate in May 2026. ↑
See White v. Univ. of Cal., 765 F.3d 1010, 1025 (9th Cir. 2014); see alsoBreakthrough Mgmt. Grp., Inc. v. Chukchansi Gold Casino and Resort, 629 F.3d 1173, 1187 (10th Cir. 2010). ↑
Runyon ex rel. B.R. v. Association of Village Council Presidents, 84 P.3d 437, 440–41 (Alaska 2004). ↑
See White v. Univ. of Cal., 765 F.3d 1010, 1025 (9th Cir. 2014). ↑
25 U.S.C. § 463 (2000) (transferred to 25 U.S.C. § 5103); seeTOMAC v. Norton, 433 F.3d 852, 866–67 (D.C. Cir. 2006) (upholding Congress’s delegation of power to the Secretary to acquire land in trust for the tribe under § 1300j-5). ↑
Record of Decision, Trust Acquisition of, and Reservation Proclamation for the 151.87-acre Cowlitz Parcel in Clark County, Washington, for the Cowlitz Indian Tribe (Dec. 2010). The Cowlitz Indian Tribe was not federally recognized until 2002, but, in 2010, the BIA nonetheless approved a fee-to-trust application, determining that the tribe was “under Federal Jurisdiction” in 1934, even though the federal government did not believe so at that time. Id. The D.C. District Court upheld the BIA’s Record of Decision, Confederated Tribes of Grand Ronde Cmty. of Or. v. Jewell, 75 F. Supp. 3d 387 (D.D.C. 2014), and the D.C. Circuit upheld the District Court, Confederated Tribes of Grand Ronde Cmty. of Or. v. Jewell, 830 F.3d 552 (D.C. Cir. 2016); see also Record of Decision, Trust Acquisition and Reservation Proclamation for 151 Acres in the City of Taunton, Massachusetts, and 170 Acres in the Town of Mashpee, Massachusetts, for the Mashpee Wampanoag Tribe (Sept. 2015). Although the Interior Department did not federally acknowledge the Mashpee Wampanoag Tribe until 2007, Interior applied M-37029 Memorandum’s two-part test to determine that the Tribe was “under federal jurisdiction” in 1934, which provided the legal basis for the trust acquisition outlined in the 2015 Record of Decision and circumvented the Tribe’s Carcieri issues. However, the District Court of Massachusetts rejected the Secretary’s interpretation and has returned the decision to take land into trust on behalf of the Mashpee to the Secretary of Interior. Littlefield v. U.S. Dept. of Interior, 2016 U.S. Dist. LEXIS 98732 (D. Mass. July 28, 2016). ↑
See, e.g.,Stand Up for California! v. U.S. Dep’t of the Interior, 204 F. Supp. 3d 212 (D.D.C. 2016) (challenging the Department’s fee-to-trust decision for the benefit of the North Fork Rancheria of Mono Indians on the basis that the tribe wasn’t a “federally-recognized tribe under jurisdiction” in 1934 as required under Carcieri). ↑
The decision thus did not upset the rule that the “QTA provides the exclusive remedy for claims involving adverse title disputes with the government.” McMaster v. United States, 731 F.3d 881, 899 (9th Cir. 2013). ↑
The statute of limitations under the APA is six years. See, e.g., Cachil Dehe Band of Wintun Indians of Colusa Indian Cmty. v. Salazar, No. 12-3021, 2013 WL 417813, at *4 (E.D. Cal. Jan. 30, 2013) (holding that under Patchak, “federal district courts do have the power to strip the federal government of title to land taken into trust for an Indian tribe under the APA so long as the claimant does not assert an interest in the land.”). ↑
Land Acquisitions: Appeals of Land Acquisitions, 78 Fed. Reg. 67,928, 67,929 (Nov. 13, 2013) (codified at 25 C.F.R. pt. 151). ↑
Department of the Interior Bureau of Indian Affairs, Land Acquisitions (last visited Jan. 6, 2024). ↑
Heather Reed helped to research and summarize the cases in this section. Heather is a rising third-year law student at the James E. Rogers College of Law, University of Arizona, and expects to graduate in May 2025. ↑
Akiachak Native Cmty. v. Salazar, 935 F. Supp. 2d 195, 211 (D.D.C.). ↑
The approval process for alternative energy projects on tribal lands has been particularly burdensome. See Ryan Dreveskracht, The Road to Alternative Energy in Indian Country: Is It a Dead End?, 19 Indian L. Newsl. 3 (2011). For a jurisdictional analysis of the complications created by real property transactions in Indian Country see Grant Christensen, Creating Brightline Rules for Tribal Court Jurisdiction Over Non-Indians: The Case of Trespass to Real Property, 35 Am. Indian L. Rev. 527 (2011). ↑
Outsource Servs. Mgmt., LLC. v. Nooksack Bus. Corp., 198 Wash. App. 1032 (2017) (tribal business defaulted on a $15 million loan secured by future profits generated from tribal land on which the tribe intended to build a casino. When the tribe subsequently used the land—not for a casino but for other revenue raising operations—the creditor sought those profits to satisfy the loan obligation. The tribe claimed that the Creditor’s attempt would unlawfully encumber their lands in violation of 25 U.S.C. 81. The court disagreed, holding that “[t]he pledged security is not a legal interest in the land itself. Nor does [creditor]’s right interfere with the tribe’s exclusive proprietary control over the land” and that “[b]ecause the tribe retains complete control over the casino building and property and can use the facilities for any purpose, there is no encumbrance for purposes of Section 81, and thus the agreements did not require preapproval.”). ↑
25 U.S.C. §§ 2701–21 (1988). The jurisdictional and regulatory powers of the NIGC have received criticism in several court decisions. In October 2006, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the IGRA did not confer authority upon the NIGC to promulgate operational control regulations for Class III gaming operations. SeeColo. River Indian Tribes v. Nat’l Indian Gaming Comm’n, 466 F.3d 134, 140 (D.C. Cir. 2006); Colo. River Indian Tribes v. Nat’l Indian Gaming Comm’n, 383 F. Supp. 2d 123, 137 (D.D.C. 2005). The Colorado River Indian Tribes cases are significant because some Indian tribes have interpreted the trial court’s decision to mean that the NIGC has no regulatory authority whatsoever over Class III gaming. Indeed, in the wake of the decision, several tribes advised the NIGC that they believe the decision strips the NIGC of all regulatory power over Class III gaming and therefore will not permit any NIGC auditors or other oversight into their casinos. As a result, the NIGC filed a petition for a panel rehearing in late December 2006. This petition was denied per curiam on Dec. 27, 2007. Colo. River Indian Tribes, 466 F.3d 134 (denying the motion for rehearing). ↑
25 U.S.C. § 2711; First Am. Kickapoo Oper. v. Multimedia Games, Inc., 412 F.3d 1166, 1172 (10th Cir. 2005); United States v. President, 451 F.3d 44, 50 n.5 (2d Cir. 2006). ↑
25 U.S.C. § 264 (1882); 25 C.F.R. §§ 140–41 (1996). “Trading” is broadly defined as “buying, selling, bartering, renting, leasing, permitting and any other transaction involving the acquisition of property or services.” 25 C.F.R. § 140.5(a)(6) (1984). For an example of tribal business license requirements, seeNavajo Nation Code, 5 N.N.C. § 401, et seq. (2005). ↑
See 25 C.F.R. § 140.3. Dahlstrom v. Sauk-Suiattle Indian Tribe, NO. C16-0052JLR, 2017 U.S. Dist. LEXIS 40654 (W.D. Wash. March 21, 2017) (a former employee brought a qui tam action against the tribe and against a medical clinic for filing false claims through the Indian Health Service (IHS)). The court barred the action against the tribe; “Like a state, a Native American tribe ‘is a sovereign that does not fall within the definition of a ‘person’ under the FCA.’” However, the court held that the medical clinic was not “an arm of the tribe” and so it was ineligible to claim sovereign immunity. ↑
Any failure of a federal agency to complete its obligations in relation to Indian lands can be catastrophic to businesses operating under federal permits. See, e.g., Tribe v. U.S. Forest Serv., No. 13-0348, 2013 WL 5212317 (D. Idaho Sept. 12, 2013). ↑
Hadley Sayers helped to research and summarize the cases in this section. Hadley is a rising second-year law student at the University of Kansas School of Law and expects to graduate in May 2026. ↑
See, e.g., Middletown Rancheria of Pomo Indians v. Workers’ Comp. Appeals Bd., 71 Cal. Rptr. 2d 105, 114–15 (Cal. Ct. App. 1998) (holding that the Workers’ Compensation Board has no jurisdiction over tribe); Tibbets v. Leech Lake Reservation Bus. Comm’n, 397 N.W.2d 883, 890 (Minn. 1986) (holding Minnesota workers’ compensation law inapplicable to tribal employer); see generallyNew Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 332–33 (1983) (discussing applicability of state laws to tribes). ↑
Seegenerally Steven G. Biddle, Indian Law Theme Issue: Labor and Employment Issues for Tribal Employers, 34 Ariz. Att’y 16 (1998) (discussing the applicability of federal labor and employment laws to tribal employers); but seeState ex rel. Indus. Comm’n v. Indian Country Enters., Inc., 944 P.2d 117 (Idaho 1997) (applying 40 U.S.C. § 290 to require the application of state workers’ compensation laws to tribal companies incorporated under state law); State i Workforce Safety & Ins. v. J.F.K. Raingutters, 733 N.W.2d 248, 253–54 (N.D. 2007) (same); Martinez v. Cities of Gold Casino, Pojoaque Pueblo, and Food Industries Self-Insurance Fund, No. 28,762, slip op. at ¶ 27 (N.M. Ct. App. filed Apr. 24, 2009) (holding that a tribal corporation waived immunity from claims brought under the Workers’ Compensation Act by voluntarily complying with other provisions of the act and submitting to the jurisdiction of the Workers’ Compensation Administration). ↑
42 U.S.C. §§ 2000e–2000e-17 (1991). Bruguier v. Lac du Flambeau Band of Lake Superior Chippewa Indians, 237 F. Supp. 3d 867 (W.D. Wis. 2017) (“Title VII expressly does not authorize suits against tribes; “the term employer . . . does not include . . . an Indian tribe . . . .”). ↑
Id. §§ 2000e(b)(1), 12111(5). Additionally, discrimination based on tribal affiliation is often not considered unlawful national origin discrimination. See, e.g., E.E.O.C. v. Peabody W. Coal Co., No. 12-17780, 2014 WL 6463162 (9th Cir. Nov. 19, 2014) (discrimination based on tribal affiliation as it relates to lease agreements containing a Navajo reference in hiring provision does not constitute unlawful national origin discrimination but is a political classification and, thus, not within the scope of Title VII of the Civil Rights Act). See alsoMorton v. Mancari, 417 U.S. 535 (1974) (holding that the United States Department of Interior may affirmatively hire and promote American Indians because the preference is based on a political classification (membership in a federally recognized tribe) and not a racial classification and is, therefore, subject only to rational basis scrutiny to avoid constitutional challenge). ↑
See, e.g., Ariz. Rev. Stat. Ann. § 41-1464 (2005) (exempting tribes from Arizona’s discrimination laws). Even if a state’s antidiscrimination laws do not provide an express exemption, the doctrine of sovereign immunity will ordinarily operate to achieve the same effect. SeeSanchez v. Santa Ana Golf Club, Inc., 104 P.3d 548, 554 (N.M. Ct. App. 2004) (affirming dismissal of employee’s state law discrimination claim based on tribal employer’s sovereign immunity); see alsoAroostook Band of Micmacs v. Ryan, 404 F.3d 48, 67–68 (1st Cir. 2005) (discussing the probable inapplicability of state antidiscrimination laws to a tribal employer). ↑
SeeHardin v. White Mountain Apache Tribe, 779 F.2d 476, 479 (9th Cir. 1985) (extending the tribe’s sovereign immunity to tribal officials acting in a representative capacity). ↑
N.L.R.B. v. Pueblo of San Juan, 276 F.3d 1186, 1200 (10th Cir. 2002) (holding NLRA inapplicable to tribes); E.E.O.C. v. Fond du Lac Heavy Equip. & Const. Co., 986 F.2d 246, 248 (8th Cir. 1993) (refusing to apply the ADEA to an Indian employed by the tribe); Donovan v. Navajo Forest Prods. Indus., 692 F.2d 709, 712 (10th Cir. 1982) (holding OSHA inapplicable to the tribe partly because enforcement “would dilute the principles of tribal sovereignty and self-government recognized in the treaty”). ↑
Menominee Tribal Enter. v. Solis, 601 F.3d 669 (7th Cir. 2010) (applying OSHA); Lumber Indus. Pension Fund v. Warm Springs Forest Prods. Indus., 939 F.2d 683, 683 (9th Cir. 1991) (applying ERISA); U.S. Dep’t of Labor v. OSHA Rev. Comm’n, 935 F.2d 182, 182 (9th Cir. 1991) (applying OSHA); Smart v. State Farm Ins., 868 F.2d 929, 935 (7th Cir. 1989) (stating the “argument that ERISA will interfere with the tribe’s right of self-government is over-broad,” and applying ERISA); Donovan v. Coeur d’Alene Tribal Farm, 751 F.2d 1113, 1116–17 (9th Cir. 1985) (right of self-government is too broad to defeat applicability of OSHA); see alsoReich v. Mashantucket Sand & Gravel, 95 F.3d 174 (2d Cir. 1996) (following Ninth and Seventh Circuits to apply OSHA). ↑
See,Reich v. Great Lakes Indian Fish and Wildlife Comm’n, 4 F.3d 490, 493–94 (7th Cir. 1993) (holding that the tribe’s law enforcement officers were exempt from FLSA, but noting that not all employees of tribes are exempt); Solis v. Matheson, 563 F.3d 425, 434–35 (9th Cir. 2009) (applying FLSA to retail business on tribal land because business did not involve tribal self-governance and was not protected by treaty rights). ↑
Reich, 4 F.3d at 493–94; Lumber Indus. Pension Fund, 939 F.2d at 683; U.S. Dept. of Labor, 935 F.2d at 182; Smart, 868 F.2d at 935; Donovan, 751 F.2d at 1113; see alsoMashantucket Sand & Gravel, 95 F.3d at 174. ↑
Cf.Multimedia Games, Inc. v. WLGC Acquisition Corp., 214 F. Supp. 2d 1131, 1131 (N.D. Okla. 2001) (holding that the federal Copyright Act of 1976 was inapplicable to tribes). ↑
Mia Sen helped to research and summarize the cases in this section. Mia is a rising second-year law student at the Sandra Day O’Connor College of Law, Arizona State University, and expects to graduate in May 2026. ↑
28 U.S.C. § 1331 (“Federal Question: The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.”). ↑
Id. § 1332 (“Diversity of Citizenship: The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between—(1) citizens of different states . . . .”). ↑
SeePeabody Coal Co. v. Navajo Nation, 373 F.3d 945, 945 (9th Cir. 2004) (dismissing a complaint against the Navajo Nation that sought enforcement of an arbitration agreement for lack of federal question jurisdiction); accordTTEA v. Ysleta Del Sur Pueblo, 181 F.3d 676, 681 (5th Cir. 1999) (“The federal courts do not have jurisdiction to entertain routine contract actions involving Indian tribes.”); Gila River Indian Cmty. v. Henningson, Durham & Richardson, 626 F.2d 708, 714–15 (9th Cir. 1980) (finding “no reason to extend the reach of the federal common law to cover all contracts entered into by Indian tribes”). See alsoBurlington N. & Santa Fe Ry. Co. v. Vaughn, 509 F.3d 1085, 1089 (9th Cir. 2007) (holding that a federal court may review a denial of sovereign immunity by interlocutory appeal). ↑
SeeYsleta Del Sur Pueblo, 181 F.3d at 681 (holding that “an anticipatory federal defense is insufficient for federal jurisdiction”). ↑
SeePayne v. Miss. Band of Choctaw Indians, 159 F. Supp. 3d 724, 726–27 (S.D. Miss. 2015); Am. Vantage Cos. v. Table Mountain Rancheria, 292 F.3d 1091, 1095 (9th Cir. 2002); Akins v. Penobscot Nation, 130 F.3d 482, 485 (1st Cir. 1997); Romanella v. Hayward, 114 F.3d 15, 16 (2d Cir. 1997); Gaines v. Ski Apache, 8 F.3d 726, 728–29 (10th Cir. 1993); Oneida Indian Nation v. Cnty. of Oneida, 464 F.2d 916, 923 (2d Cir. 1972), rev’d and remanded on other grounds, 414 U.S. 661 (1974); Standing Rock Sioux Indian Tribe v. Dorgan, 505 F.2d 1135, 1040–41 (8th Cir. 1974); Tenney v. Iowa Tribe of Kan., 243 F. Supp. 2d 1196, 1198 (D. Kan. 2003); Victor v. Grand Casino-Coushatta, No. 02-2348, 2003 U.S. Dist. LEXIS 24770, at *4 (D. La. Jan. 21, 2003); Worrall v. Mashantucket Pequot Gaming Enter., 131 F. Supp. 2d 328, 329–30 (D. Conn. 2001); Barker-Hatch v. Viejas Group Baron Long Capitan Grande Band of Digueno Mission Indians of the Viejas Group Reservation, 83 F. Supp. 2d 1155, 1157 (D. Cal. 2000); Abdo v. Fort Randall Casino, 957 F. Supp. 1111, 1112 (D.S.D. 1997); Calvello v. Yankton Sioux Tribe, 899 F. Supp. 431, 435 (D.S.D. 1995); Whiteco Metrocom Div. v. Yankton Sioux Tribe, 902 F. Supp. 199, 201 (D.S.D. 1995); Weeder v. Omaha Tribe of Neb., 864 F. Supp. 889, 898–99 (N.D. Iowa 1994); GNS, Inc. v. Winnebago Tribe, 866 F. Supp. 1185, 1191 (D. Iowa 1994). But seeCook, 548 F.3d at 723 (holding that, for diversity purposes, a tribal corporation is “a citizen of the state where it has its principal place of business”). Cf.R.J. Williams Co. v. Fort Belknap Hous. Auth., 719 F.2d 979, 982 (9th Cir. 1983) (stating that the tribal corporation had its principal place of business in Montana); R.C. Hedreen Co. v. Crow Tribal Hous. Auth., 521 F. Supp. 599, 602–03 (D. Mont. 1981) (stating that a tribal corporation had its principal place of business in Montana and “[a]ccordingly, it is a citizen of the state for purposes of diversity jurisdiction”); Parker Drilling Co. v. Metlakatla Indian Cmty., 451 F. Supp. 1127, 1138 (D. Alaska 1978) (“As [the tribal corporation’s] only major business activities, and situs, are located in Alaska, it is an Alaskan corporation for diversity purposes.”). ↑
See Inglish Interests LLC v. Seminole Tribe of Florida, 2011 U.S. Dist. LEXIS 6123 (M.D. Fla. January 21, 2011) (describing this split). ↑
Kaitlyn Vance helped to research and summarize the cases in this section. Kaitlyn is a rising third-year law student at the Sandra Day O’Connor College of Law, Arizona State University, and expects to graduate in May 2025. ↑
Ace Constr. v. City of St. Louis, 263 F.3d 831, 832–33 (8th Cir. 2001) (citing D.C. Court of Appeals v. Feldman, 460 U.S. 462, 476 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413, 416 (1923)). ↑
Act of March 1, 55 Cong. Ch. 324, 30 Stat. 924, 941 (1899). ↑
Act of June 21, 59 Cong. Ch. 3504, 34 Stat. 325, 375 (1906). ↑
White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 143 (1980). ↑
Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148–49 (1973); Cabazon Band of Mission Indians v. Smith, 388 F.3d 691, 694–95 (9th Cir. 2004). ↑
Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95, 101 (2005). ↑
There has been some question as to what exactly constitutes a tribally owned corporation. The general rule is that “[a] subdivision of tribal government or a corporation attached to a tribe may be so closely allied with and dependent upon the tribe that it is effectively an arm of the tribe. It is then actually a part of the tribe per se” and is nontaxable. Uniband, Inc. v. C.I.R., 140 T.C. 230, 252 (U.S. Tax Ct. 2013) (quotation omitted). Although preemption of state taxes “is most assured for tribal corporations organized pursuant to federal or tribal law,” Cohen’s Handbook of Federal Indian Law § 8.06 (2012 ed.), “the mere organization of such an entity under state law does not preclude its characterization as a tribal organization as well.” Duke v. Absentee Shawnee Tribe of Okla. Housing Auth., 199 F.3d 1123, 1125 (10th Cir. 1999). ↑
Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95, 101 (2005); see also Bercier v. Kiga, 103 P.3d 232, 236 (Wash. Ct. App. 2004) (“[T]he State may not tax Indians or Indian tribes in Indian country . . . .”) (citing Wash. Admin. Code § 458-20-192(5)); Pourier v. S. D. Dept. of Revenue, 658 N.W.2d 395, 403 (S.D. 2003), aff’d in relevant part and rev’d in part on other grounds on reh’g, 674 N.W.2d 314 (S.D. 2004) (“If the legal incidence of a tax falls upon a Tribe or its members . . . the tax is unenforceable.”). See also Seminole Tribe of Florida v. Stranburg, 799 F.3d 1324, 1345–46 (11th Cir. 2015) (reaffirming the legal incidence test but determining that a gross receipts tax more properly fell on utility companies instead of the tribe and, therefore, the tax was not preempted). ↑
SeeMcClanahan v. Ariz. State Tax Comm’n, 411 U.S. 164, 172-–73 (1973). ↑
Williams v. Lee, 358 U.S. 217, 220 (1959); but see 25 C.F.R. § 162.415(c) (“Any permanent improvements” on business leased Indian land “shall not be subject to any fee, tax, assessment, levy, or other such charge imposed by any State or political subdivision of a State, without regard to ownership of those improvements.”). See alsoCalifornia v. Cabazon Band of Mission Indians, 480 U.S. 202, 216 (1987) (“Decision in this case turns on whether state authority is pre-empted by the operation of federal law; and “[state] jurisdiction is pre-empted . . . if it interferes or is incompatible with federal and tribal interests reflected in federal law, unless the state interests at stake are sufficient to justify the assertion of state authority.”). ↑
Id. at 144; see alsoAroostook Band of Micmacs v. Ryan, No. 03-0024, 2007 WL 2816183, at *4, *9–11 (D. Me. Sept. 27, 2007) (discussing whether federal law or state law affects the Aroostook Band, even though the tribe is exempt from state civil and criminal laws). ↑
New Mexico v. Mescalero Apache Tribe, 462 U.S. 324 (1983). ↑
Matthew Racioppo helped to research and summarize the cases in this section. Matthew is a rising third-year law student at Washington University in St. Louis School of Law, and expects to graduate in May 2025. ↑
S. Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue (South Point II), 253 Ariz. 30, 39, ¶¶ 37–38 (2022). ↑
Attorneys may not always consider whether their clients, and in fact all the parties, would be better off arbitrating their disputes rather than litigating them in traditional courts of law. Once traditional litigation has started, court deadlines approach. Then, no matter how long and drawn out the proceedings get, attorneys often do not take a step back and assess whether their matters might be better handled in arbitration. They would, however, be well served to think about whether traditional litigation is truly in their clients’ best interests.
Arbitration is an underused alternative to traditional courtroom litigation for commercial disputes that can be highly valuable for a number of reasons.
1. Arbitrations Are Generally Faster
In fact, arbitrations are generally far faster than traditional trials. Consider the 2017 study “Efficiency and Economic Benefits of Dispute Resolution through Arbitration Compared with U.S. District Court Proceedings,” by Roy Weinstein, Cullen Edes, Joe Hale, and Nels Pearsall of the economic research firm Micronomics. They found that U.S. district court cases took far longer to get to trial than cases decided by arbitration by the American Arbitration Association (the “AAA”). According to the study, “[t]hese differences are systematic across almost all states and sections of the country.”
The study found that, as compared to arbitrations through the AAA, which on average took under a year (11.6 months) to be fully resolved, federal district court cases took an average of a little over two years (24.2 months) just to get to trial, and federal court cases that underwent appellate review took an average of nearly three years (33.6 months) to conclude. Thus, lawyers who choose arbitration can generally expect to save their clients about a year of pretrial litigation. For cases that go through appellate review, they can expect to save their clients another ten months or so in appeals.
This study was undertaken of matters before the AAA on whose Commercial Disputes Panel I serve, in addition to handling arbitrations privately, upon direct retention by parties. I am not aware of an entity that would have more data about the length of arbitrations than the AAA, and the Micronomics’ team’s findings align with my experience. During the over thirty years I spent representing parties in litigation, I have never seen matters get to trial faster than I have seen them reach final hearings in arbitration.
2. Arbitrations Are Generally Less Costly
The longer cases drag on through the court system, the more expensive they become. The aforementioned Micronomics team calculated the economic impact of the parties not being able to use the resources that were dedicated to their disputes between 2011 and 2015. The team examined what it referred to as the “direct losses associated with additional time to trial,” i.e., the lost opportunity cost associated with litigating the cases in district courts rather than arbitrating them. These costs were estimated to total a stunning $10.9–13.6 billion, or more than $180 million per month, and that was just for federal court cases that were not appealed. For federal court cases that were appealed during this time period, the estimated direct losses associated with the additional time required were higher: a staggering $20.0–22.9 billion, or more than $330 million per month.
The data included in the Micronomics study ended in 2015. The costs saved from arbitrating cases are probably even greater today. Law firms, particularly large firms, have generally been implementing substantial increases in their billing rates. According to a Wolters Kluwer report on late 2024 billing data reviewed in the Law360 article “Attorney Billing Rates Continue To Climb In 2024,” the average billing rates for litigation partners at law firms with over 750 attorneys exceeded $1,122 per hour in 2024, while the average rates for associates reached $726 per hour. Partner rates in such law firms rose by 7.5 percent and associate rates by 10.8 percent, and these rates are projected to continue rising. Moreover, the trend of increasing attorney rates is not limited to large law firms. According to LawVision’s 2024 Strategic Pricing Survey, approximately 60 percent of respondent law firms raised rates by 6 percent or more in 2024, with the trend expected to continue in 2025.
While skilled commercial litigation lawyers may charge the same rates for handling arbitrations as handling traditional litigation, higher rates impact the cost differential between the two, since arbitrations generally take so much less time. As reported by the United States Courts in “The Need for Additional Judgeships: Litigants Suffer When Cases Linger”:
Nationally, the average time between filing a [federal court] civil case and trial is a little over two years. In many of these overworked courts, the average time between filing and trial is much longer, often three to four years. The delays increase costs for civil litigants, who have to spend more on attorneys’ fees, expert witnesses, and depositions, often with no clear end in sight.
3. Discovery Is Generally Far More Streamlined
In traditional courtroom litigation, it is common for parties in commercial cases to get mired in discovery disputes. It is not uncommon for there to be so many discovery disputes that a special master / court-appointed neutral must be appointed.
In arbitrations, in contrast, discovery is limited. The parties seeking discovery must request it. The arbitrator will normally hold a conference, speak with the parties about their discovery needs, and, based on what they hear, restrict discovery accordingly. In arbitrations, special masters may be appointed, but that is rare. When they are appointed, it is most often to determine whether the arbitrators should see certain documents or whether the documents have been properly marked as privileged.
4. The Parties May Seek Privacy
In courts of law, the public and press generally have the right to access the proceedings. Some companies have been embroiled in commercial litigation disputes that garnered nightmarish media attention. Such coverage can harm their operations, reputation, revenues, and even viability.
Arbitration proceedings, in contrast to court proceedings, are generally not open to the public. Arbitrations are generally private, and the parties can seek to use arbitration rules that require confidentiality to ensure it. Thus, another benefit of arbitrating commercial disputes is that the parties can keep sensitive information shared in the proceedings confidential.
5. Arbitrators Can Be Far More Flexible
While it is rare to find a commercial litigation lawyer who has not received a notice scheduling a court conference on an inconvenient date, arbitration offers the parties greater scheduling control. For instance, in traditional litigation, the initial case conference is generally set by an autogenerated scheduling order. The parties are rarely consulted before it is issued. In arbitrations, in contrast, the parties generally get the chance to confer and propose the conference dates.
Likewise, in traditional courts of law, case deadlines are generally issued with little to no party input. That is not the case with arbitrations. In arbitrations, before deadlines are set, the parties can typically confer and propose the deadlines they would like. The parties may even propose the final hearing dates. This is not the case in traditional courts of law, in which trial dates are set by the court, often with the parties having little to no real opportunity to check their witnesses’ schedules. Courts of law can also put parties into trial pools in which they are on call for trial upon short, even twenty-four-hour, notice.
Arbitration’s additional flexibility goes beyond choosing deadlines and dates. In arbitration proceedings, the parties may propose whether there will be pre-hearing briefs and if so, how long they may be. The parties may also propose such things as how many witnesses may be deposed and how long the depositions may be.
In traditional courts of law, trials take place in the courthouse in which the matter is being litigated. In arbitrations, the parties can choose where the final hearings will be held. In arbitrations, unlike traditional court proceedings, the parties may also propose their desired trial schedule. They may have their final hearing days start earlier than 9 a.m., go past 5 p.m., have specified breaks during the day, and/or have scheduled days off in between. There are countless ways in which arbitrators can offer the parties flexibility that is unheard of in traditional litigation.
6. The Parties Can Choose Their Judges
Another advantage to choosing to arbitrate commercial disputes is the ability to select the decision-makers, the arbitrators. In particular, the parties may select arbitrators with a deep understanding of the issues in their dispute.
Commercial disputes may be quite complex. For example, a case with a breach of contract claim by a law firm seeking to recover legal fees and counterclaims by its former client-company for legal malpractice may seem straightforward. However, the underlying case could involve claims and counterclaims worth millions of dollars, and extensive fact and expert witness discovery. There could be complex issues of fact and law to mull over to decide the dispute.
If such a case is arbitrated, the parties may select arbitrators with experience deciding fee and legal malpractice disputes. They may select arbitrators with experience in the area of law at issue in the parties’ underlying dispute. Whatever the claims, in an arbitration, the parties may select the arbitrators who have the very experience they seek.
In traditional courts of law, that is not the case. The judge is selected for the parties in federal court, often by a random drawing or rotation in order. The judge may have little to no experience with the issues in the case.
7. Arbitration Offers Immediate Finality
In traditional litigation, if a case goes to trial, after the jury or judge in a non-jury case issues the verdict, the verdict is not initially binding. There is a time period during which the losing side can appeal the decision, and appeals can take years to resolve.
In arbitrations, the parties get finality with virtually no risk of appellate review. After the final hearing, the arbitrator makes their final decision, the arbitration award, and it is immediately binding. With limited exceptions (such as for fraud or corruption), arbitration awards generally may not be vacated or overturned. Thus, once the award is issued, it becomes final, and after the losing party’s time to satisfy the award has passed, the parties can enforce it and move on.
8. Arbitrating Cases Lessens Court Congestion
According to the Administrative Office of the U.S. Courts’ report Federal Judicial Caseload Statistics 2024, the number of civil cases filed in U.S. district courts has risen from 281,608 in 2015 to 347,991 in 2024. That represents an increase of approximately 23.6 percent, meaning that the number of cases filed between 2015 and 2024 has risen by nearly a quarter. Over the same nine-year period, the number of cases pending has risen from 340,925 to 633,066, an increase of 85.69 percent, or over three-quarters.
Our courts are clogged. The reason arbitrations are generally far quicker than traditional litigation is in large part because of that congestion. When attorneys choose to arbitrate cases, rather than litigating them, they remove cases from our courts’ overcrowded dockets and help minimize the amount of disputes our courts have to manage.
Conclusion
Attorneys would be wise to consider whether their clients and adversaries might be better off arbitrating their commercial disputes. Doing so can generally save them over a year in litigation and thousands of dollars per case. They can avoid protracted discovery and the risk of having their internal business affairs made public. They can offer the scheduling and final hearing dates they wish, as well as select arbitrators with the very experience they want. When their arbitration awards are issued, there is little to no chance they will be subject to review, and arbitrating their cases helps minimize court congestion.
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