GM 14-091

Important Ruling for Tribal, Alaska Native Business Entities, Including Those in the 8(a) Program

On November 25, 2014, the United States District Court for the District of Maine issued a ruling that is noteworthy in its analysis of sovereign immunity issues for tribally- owned business entities that are formed under state law. The case is Rassi v. Penobscot.

The Penobscot Indian Nation established Penobscot Indian Nation Enterprises (PINE) in accordance with § 17 of the Indian Reorganization Act (IRA), 25 U.S.C. § 477. PINE, in keeping with a common feature of a federally-chartered § 17 corporation, included in the charter the power to form “subsidiaries, corporation, [and] limited liability corporations” which, according to the court, enjoy the same rights and privileges that PINE has pursuant to its charter. District Court Order on the Defendants’ Motion to Dismiss at 2; Third Amended Complaint at 11.

Pursuant to that authority in its charter, PINE formed a separate legal entity, Federal Program Integrators, LLC (FPI) under the LLC code of the State of Maine, while PINE remained the sole member of the LLC. FPI, in turn, qualified to participate in the Small Business Administration (SBA) § 8(a) Business Development Program. A former employee of FPI brought several claims against FPI, and its parent corporation PINE, including federal claims under the False Claims Act, 31 U.S.C. § 3730(h) and civil rights claims under the Civil Rights Act, 42 U.S.C. § 2000e, et. seq. Defendants PINE and FPI moved the court to dismiss the matter consistent with the Federal Rules of Civil Procedure, and alternatively argued that under the tribal exhaustion of remedies doctrine, that the court should first allow the Penobscot Nation Tribal Court to determine if it has jurisdiction over those claims, and if so, to rule on their merits.

The District Court concluded that the sovereign immunity of the Penobscot Indian Nation extends not only to PINE, the § 17 corporation, but also to the state-chartered LLC, FPI. Because the SBA requires a “sue and be sued clause” in the charter, articles of organization, and/or operating agreement of qualified 8(a) entities, pursuant to 13 C.F.R. § 124.109(c)(1), the District Court found that FPI had waived its immunity when it adopted that clause. Rather than continuing to rule on the merits, or dismiss the entire action, though, the District Court found that the tribal exhaustion doctrine applied, so the matter was ordered stayed pending the Penobscot Tribal Court’s own determination of jurisdiction and adjudication on the merits.
Noteworthy in the District Court’s analysis on the issue of sovereign immunity was its reliance on the Supreme Court Case Lebron v. National R.R. Passenger Corp., 513 U.S. 374 (1995), in making the analogy that where a tribal government creates a corporation by special law, in furthering governmental objectives such as creating tribal employment, and where the tribal government retains control to appoint the directors of the corporation, then that corporation (and by extension its subsidiaries) remain a part of the tribal government for purposes of determining the extent of sovereign immunity.

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