Interim New York Appellate Court Rejects Sovereign Immunity Defense by Subsidiary Tribal Corporation

On June 17, 2013, the Fourth Judicial Department of the New York State Appellate Division issued its decision in Sue/Perior Concrete & Paving, Inc., v. Lewiston Golf Course Corporation, et al., holding that the Lewiston Golf Course Corporation – a wholly-owned subsidiary of the Seneca Niagara Falls Gaming Corporation – was not entitled to the protection of the Seneca Nation’s sovereign immunity. At issue in this case was the court’s application of the multi-factor test established by the New York Court of Appeals for determining whether a tribal instrumentality is protected by the tribe’s sovereign immunity. Matter of Ransom v. St. Regis Mohawk Educ. & Community Fund, 86 NY2d 553, 558-560 (N.Y. Court of Appeals 1996).

The Lewiston Golf Course Corporation (LGCC) case involved a construction contract dispute over development of a golf course by LGCC, which operates the course as an amenity to the Seneca Niagara Falls Casino, in Niagara Falls, NY. LGCC was chartered by the Seneca Nation to be a subsidiary of the Seneca Niagara Falls Gaming Corporation (SNFGC), itself chartered by the Nation as a subsidiary of the Seneca Gaming Corporation (SGC), which is a wholly-owned Seneca Nation corporate entity. All three entities were established under Seneca Nation law for the purpose of enhancing economic development and employment for the Nation. The boards of all three entities are comprised of the same officials, all appointed by the Seneca Nation. The income generated by each of these entities ultimately is transferred to the Nation. SGC and SNFGC were actually named as co-defendants in this action, but after they were dismissed in a related action on sovereign immunity grounds, Plaintiff dismissed its claims against these entities and elected to proceed against LGCC only.

LGCC moved for dismissal on sovereign immunity grounds in the lower court. Plaintiff opposed, arguing that LGCC was not entitled to immunity because it was not an “arm” of the Nation under the multi-factor test described by the Court of Appeals in Ransom. In a decision issued February 6, 2012, the Supreme Court of the State of New York, Niagara County (the trial court) agreed with Plaintiff, noting that while LGCC did meet a number of the Ransom factors, it did not share the “purposes” of the Nation because LGCC was established to operate a championship golf course, which, according to the court, was not a governmental purpose. LGCC was “not specifically established to enhance the health, education, and welfare of the Nation.” The court also found that the financial interdependence factors of the Ransom analysis had “greater significance” than the other factors, and that since LGCC could not – according to the court – bind the funds of the Nation, it did not meet these factors. The court also found, as an independent ground for avoiding sovereign immunity, that the posture of the action – to enforce a mechanics lien – was in rem, that therefore sovereign immunity was not a bar in any event, “since personal jurisdiction over the owners of the golf course (LGCC) is not necessary in the context of such relief.”

LGCC appealed the decision. The Fourth Judicial Department Appellate Division, in a unanimous decision, upheld the lower court’s holding that LGCC was not entitled to the protection of the Nation’s sovereign immunity. The Appellate Division noted that “several of the Ransom factors weigh in favor of extending sovereign immunity to LGCC:” it was organized under the Nation’s laws and constitution; its governing body was comprised mainly of Nation officials; the Nation governing body has the power to appoint and dismiss the Board members; the Nation exercises control over administration and accounting activities. Yet the court went on to note that “[o]ther factors, however, including what the Court of Appeals has characterized as the “[m]ore important[]” financial factors, weigh in favor of a determination that LGCC does not share in the Nation’s sovereign immunity.” In particular, the court focused on an application for tax exemption and credits that LGCC submitted to the Niagara County Industrial Development Agency, which the court interpreted to mean that LGCC was established “to serve as a regional economic engine” rather than serving ends specific to the Nation. Further, the Appellate Division focused on the lack of documentation in the record showing that the funds of LGCC ultimately went to the benefit of the Nation:
With respect to the Ransom financial factors, we note that: (1) LGCC generates its own revenue; (2) there is no evidence in the record (and there is significant evidence to the contrary) that a suit against LGCC would impact the Nation’s fiscal resources; and (3) LGCC does not have binding authority over the Nation’s funds.

The Appellate Division concluded its discussion of sovereign immunity issues by asserting that its decision would not undermine the policy of sovereign immunity. Rather, the court felt that a successful defense of sovereign immunity in these circumstances would adversely impact the Seneca Nation and its business entities:
Here, permitting LGCC to retreat behind the Nation’s cloak of sovereign immunity after it held itself out as an independent, market participating entity subject to the jurisdiction of the State of New York, including its courts, would discourage non-Indians from entering into business relationships with the Nation’s corporations, which “may well retard [the Nation’s] economic growth” and undermine one of the purposes of its sovereign immunity.

The court did not address the in rem issue and its applicability to a sovereign immunity defense.

Because the decision was unanimous, LGCC does not have an automatic right of appeal, but rather must ask for leave to appeal to the New York Court of Appeals, the top appellate court in the state. LGCC filed its motion for leave to appeal on July 23, 2013.

A copy of the Fourth Judicial Department of the New York State Appellate Division’s decision in Sue/Perior Concrete & Paving, Inc., v. Lewiston Golf Course Corporation, et al. is attached. Please let us know if we may provide additional information regarding the decision.