Bank v. Lake of The Torches Econ. Dev. Corp..

658 F.3d 684

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee, Plaintiff–Appellant,

v.LAKE OF THE TORCHES ECONOMIC DEVELOPMENT CORPORATION, Defendant–Appellee.

No. 10–2069.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 20, 2010.Decided Sept. 6, 2011.Rehearing En Banc Denied Oct. 28, 2011.*

James A. Klenk (argued), Attorney, SNR Denton US LLP, Chicago, IL, Bryan K. Nowicki, Attorney, Reinhart, Boerner, Van Deuren, Madison, WI, for Plaintiff–Appellant.Monica Riederer (argued), Attorney, Hansen Riederer Dickinson Crueger, Milwaukee, WI, Vanya S. Hogen, Jacobson, Buffalo, Magnuson, Anderson & Hogen, P.C., St. Paul, MN, for Defendant–Appellee.Leonard Weiser–Varon, Attorney, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, Boston, MA, for Amicus Curiae, National Federation of Municipal Analysts.Steven J. Gunn, Attorney, Washington University School of Law, Interdisciplinary Environmental Clinic, St. Louis, MO, for Amicus Curiae, National Indian Gaming Association.Before FLAUM, RIPPLE and EVANS.^**, Circuit Judges.RIPPLE, Circuit Judge.

Wells Fargo Bank, N.A. brought this action in the United States District Court for the Western District of Wisconsin against Lake of the Torches Economic Development Corporation (“Lake of the Torches” or “the Corporation”), a tribal corporation wholly owned by a federally recognized Indian tribe. Acting in its capacity as Wells Fargo alleged that Lake of the Torches had breached a bond indenture and filed a motion seeking the appointment of a receiver to manage the trust security on behalf of the bondholder. The district court held that the indenture was void because it was a gaming facility management contract unapproved by the National Indian Gaming Commission (“NIGC” or “the Commission”). See 25 U.S.C. §§ 2710(d)(9), 2711(a)(1); 25 C.F.R. § 533.7. Reasoning that the waiver of the Corporation's sovereign immunity in the indenture was consequently also void, the district court dismissed the case for lack of subject matter jurisdiction. Wells Fargo then filed motions to alter or amend the judgment and for leave to file an amended complaint to assert claims on its own behalf and on behalf of the bondholder. The court denied both motions, and Wells Fargo appealed.

We agree with the district court that the indenture constitutes an unapproved management contract within the meaning of the statute and is therefore void. Consequently, Lake of the Torches' waiver of sovereign immunity contained in that document is also void and cannot serve as a predicate for the district court's jurisdiction. We further believe that the district court prematurely denied Wells Fargo's motion to file an amended complaint asserting claims for legal and equitable relief in connection with the bond transaction. Assuming that Wells Fargo has standing to assert the claims of the bondholder, it is an open issue whether other documents connected to the bond offering, exclusive of the indenture, evince an intent on the part of the Corporation to waive sovereign immunity with respect to claims in connection with the bond offering filed by Wells Fargo on behalf of the bondholder or on its own behalf. Accordingly, we affirm in part and reverse in part the judgment of the district court.

IBACKGROUND

A.

Because the task before us is primarily one of statutory and regulatory interpretation, we begin by setting forth the basic statutory and regulatory framework established by Congress and by NIGC, the agency acting under the authority of the governing statute.

During the 1970s and 1980s, many Native American tribes began to take advantage of their exemptions from certain state regulatory laws to conduct gaming operations on tribal land, thereby providing a much-needed source of revenue for the tribes and their members. See California v. Cabazon Band of Mission Indians, 480 U.S. 202, 218–20 & n. 21, 107 S.Ct. 1083, 94 L.Ed.2d 244 (1987). Many states had serious concerns about the rise of Indian gaming establishments, however, and Congress attempted to develop a compromise that would limit federal or state intervention into the sovereignty of Indian tribes while furthering legitimate state policy goals regulating or prohibiting gambling. See S.Rep. No. 100–446, at 1–6 (1988), reprinted in 1988 U.S.C.C.A.N. 3071, 3071–76.

At the same time, many members of Congress expressed concern about the private gaming management companies that often contracted with Indian tribes to develop and operate gaming facilities on tribal land. In the view of these lawmakers, these management companies posed two concerns: first, that they would take advantage of the tribes and bilk them out of gambling revenues and, second, that they would allow organized crime to infiltrate Indian gaming operations.

In addition, many federal courts had held that management contracts related to tribal land required approval from the Secretary of the Interior under 25 U.S.C. § 81.¹See United States ex rel. Mosay v. Buffalo Bros. Mgmt., Inc., 20 F.3d 739, 740 (7th Cir.1994). The Secretary, however, lacked clear statutory standards to apply in evaluating management agreements. See 25 U.S.C. § 2701(2) (finding that “[f]ederal courts have held that section 81 of this title requires Secretarial review of management contracts dealing with Indian gaming, but does not provide standards for approval of such contracts”). Congress again sought to develop a solution that would protect tribes from unscrupulous contractors and criminals but would not unnecessarily interfere with the tribes' sovereignty or economic self-sufficiency.²

In 1988, Congress addressed these issues by enacting the Indian Gaming Regulatory Act (“the IGRA” or “the Act”). Pub.L. No. 100–497, 102 Stat. 2467 (codified at 25 U.S.C. §§ 2701 to 2721). Its stated goals were to create a comprehensive regulatory framework “for the operation of gaming by Indian tribes as a means of promoting tribal economic development, self-sufficiency, and strong tribal governments,” to “shield [tribes] from organized crime and other corrupting influences, to ensure that the Indian tribe is the primary beneficiary of the gaming operation, and to assure that gaming is conducted fairly and honestly by both the operator and players.” 25 U.S.C. § 2702(1)-(2).

The Act, which represents the fulfillment of many years of congressional compromise over Indian gaming, see S.Rep. No. 100–446, at 1–2, divides gaming operations into three classes and imposes different regulatory requirements on each.

First, “class I gaming,” which refers to social games conducted for minimal value and traditional Indian games connected to tribal ceremonies, 25 U.S.C. § 2703(6), is left entirely “within the exclusive jurisdiction of the Indian tribes” and remains unregulated by state or federal law. Id. § 2710(a)(1).

Second, “class II gaming,” which encompasses bingo, lotteries and card games in which gamblers play against one another rather than against the house (poker, for example), see id. § 2703(7), is subject to a more extensive set of conditions and regulations. It is permitted only on tribal lands in states that do not entirely prohibit such gaming and only where the tribal resolution authorizing the operation is approved by the Chairman of the Commission. Id. § 2710(b)(1)(A)-(B). The Chairman's approval is contingent on the resolution's satisfaction of several conditions, including that it vests the sole proprietary interest in the operation in the tribe, that it sets up auditing systems and that it prohibits the tribe from spending profits other than for certain, enumerated purposes. Id. § 2710(b)(2).

Finally, “class III gaming,” which includes all other types of gambling, id. § 2703(8), regulates such activities as casino games played against the house (e.g., blackjack and roulette), slot machines and pari-mutuel betting (e.g., horse racing). Class III gaming is permitted only if it is “conducted in conformance with a Tribal–State compact entered into by the Indian tribe and the State” in which the tribal lands are located. Id. § 2710(d)(1)(C); see also Seminole Tribe of Florida v. Florida, 517 U.S. 44, 48–50, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996) (describing the tribal-state compact scheme).

The Act vests in the Commission the power to promulgate regulations. 25 U.S.C. § 2706(b)(10). In addition, it provides the Chairman of the Commission with the authority to review and approve management contracts entered into by an Indian tribe “for the operation and management,” id. § 2711(a)(1), of a class II or class III gaming facility. See id. §§ 2710(d)(9), 2711(a)(1).³ Under Commission regulations, unapproved management con tracts “are void.” 25 C.F.R. § 533.7.⁴ The Chairman's review of management contracts is subject to standards set out in the Act and in regulations promulgated by the Commission. Those standards include background checks of those involved with the management contractor, provisions setting out responsibility over the operations of the facility and substantive limits on the duration of the contract and the amount of compensation the management contractor may receive for its services. See 25 U.S.C. § 2711; 25 C.F.R. §§ 531, 533, 537.

B.

Lake of the Torches is a corporation chartered under tribal law by the Lac du Flambeau Band of Lake Superior Chippewa Indians (“the Tribe”) to own and operate the Lake of the Torches Resort Casino (“the Casino”). The Casino is a class II and class III gaming facility located on tribal lands in northern Wisconsin and is operated pursuant to a tribal-state compact with the State of Wisconsin.⁵

Several years ago, the Tribe decided to diversify its operations by investing in a project to build a riverboat casino, hotel and bed and breakfast in Natchez, Mississippi. In order to secure funding for that investment and to refinance $27.8 million of existing debt, Lake of the Torches issued $50 million in taxable gaming revenue bonds. The bonds, which were secured by the revenues...