Stifel, Nicolaus & Co. v. Lac Du Flambeau Band of Lake Superior Chippewa Indians

• Decision Date: 24 November 2015
• Docket Number: 14–2287.,Nos. 14–2150,s. 14–2150
• Citation: 807 F.3d 184
• Court: U.S. Court of Appeals — Seventh Circuit
• Parties: STIFEL, NICOLAUS & COMPANY, INC., et al., Plaintiffs–Appellees, and Godfrey & Kahn, Plaintiff–Appellee/Cross–Appellant, v. LAC DU FLAMBEAU BAND OF LAKE SUPERIOR CHIPPEWA INDIANS and Lake of The Torches Economic Development Corporation, Defendants–Appellants/Cross–Appellees.

807 F.3d 184

STIFEL, NICOLAUS & COMPANY, INC., et al., Plaintiffs–Appellees,

and

Godfrey & Kahn, Plaintiff–Appellee/Cross–Appellant,

v.LAC DU FLAMBEAU BAND OF LAKE SUPERIOR CHIPPEWA INDIANS and Lake of The Torches Economic Development Corporation, Defendants–Appellants/Cross–Appellees.

Nos. 14–2150

14–2287.

United States Court of Appeals, Seventh Circuit.

Argued April 9, 2015.

Decided Nov. 24, 2015.

Amended Dec. 14, 2015.

Brian G. Cahill, Attorney, Gass Weber Mullins LLC, Milwaukee, WI, Charles S. Bergen, Attorney, Shook, Hardy & Bacon LLP, Laura Kathleen McNally, Attorney, Loeb & Loeb LLP, Chicago, IL, for Plaintiffs–Appellees.

James R. Clark, Attorney, Eric G. Pearson, Attorney, Foley & Lardner LLP, Milwaukee, WI, for Plaintiff–Appellee/Cross–Appellant.

Timothy M. Hansen, Attorney, Hansen Reynolds Dickinson Crueger, Milwaukee, WI, for Defendants–Appellants/Cross–Appellees.

Before FLAUM, RIPPLE, and WILLIAMS, Circuit Judges.

RIPPLE, Circuit Judge.

The current appeal is the most recent in a series of lawsuits that have arisen over the sale of bonds by the Lake of the Torches Economic Development Corporation ("the Corporation"), a corporation wholly owned by the Lac du Flambeau Band of Lake Superior Chippewa Indians ("the Tribe") (collectively "the Tribal Entities"). In a prior action in this court, Wells Fargo Bank ("Wells Fargo") had alleged that the Corporation had breached a bond indenture and, as trustee for the bondholders, had sought "the appointment of a receiver to manage the trust security on behalf of the bondholder." Wells Fargo Bank v. Lake of the Torches Econ. Dev. Corp., 658 F.3d 684, 686 (7th Cir.2011). We held that the bond indenture constituted an unapproved management contract under the Indian Gaming Regulatory Act ("the IGRA"), 25 U.S.C. §§ 2701 –2721, and was therefore void. Following our decision, the validity of other bond-related documents continued to be litigated in other courts.

After more than three years of litigating in federal and state court, the Tribal Entities instituted a tribal court action in April 2013 seeking a declaration that the bonds are invalid under the IGRA as well as tribal law. The action currently before the court represents the efforts of the non-tribal parties to put an end to the tribal court action. Those non-tribal parties are: Stifel, Nicolaus & Company, Inc., the initial purchaser of the bonds; Stifel, Nicolaus & Company's parent corporation, Stifel Financial Corporation (collectively "Stifel"); LDF Acquisition, LLC ("LDF"), a special purpose vehicle created by the predecessor of Saybrook Fund Investors, LLC (collectively "Saybrook") for the purpose of purchasing the bonds; Wells Fargo;¹ and Godfrey & Kahn S.C. ("Godfrey"), counsel to the Corporation and bond counsel to the transaction. Specifically, the Financial Entities and Godfrey sought an injunction in the Western District of Wisconsin to preclude the Tribal Entities from pursuing their tribal court action.

Following the submission of evidence and a hearing, the district court preliminarily enjoined the Tribal Entities from proceeding against the Financial Entities, but allowed the tribal action to proceed against Godfrey. The Tribal Entities appealed the district court's grant of the injunction, and Godfrey cross-appealed the district court's denial of the same.

We now affirm in part, and reverse and remand in part. We agree with the district court that tribal court exhaustion was not required. We also concur that the Tribal Entities effectuated a valid waiver of their sovereign immunity, and, therefore, the action against them may proceed. Finally, we agree that the Financial Entities have established a substantial likelihood of succeeding in their challenge to the tribal court's jurisdiction; we conclude, therefore, that the district court did not abuse its discretion in enjoining the tribal court action against the Financial Entities.

With respect to Godfrey's cross-appeal, we conclude that the district court made several errors of law in assessing whether Godfrey had established a likelihood of success on the merits. With respect to Godfrey's cross-appeal, therefore, we reverse the judgment of the district court and remand for further proceedings.

IBACKGROUND

A. Facts

1.

The Corporation is chartered under tribal law to own and operate the Lake of the Torches Resort Casino ("the Casino"). The Casino is a gaming facility located on tribal lands in northern Wisconsin and is operated pursuant to a tribal-state compact with the State of Wisconsin.

In 2007, "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, [the Corporation] issued $50 million in taxable gaming revenue bonds" in January 2008. Wells Fargo Bank, 658 F.3d at 688–89. Godfrey, in its capacity as counsel to the Corporation and bond counsel for the transaction, issued two opinion letters as to the meaning of several bond-related documents and the legality of the bond transaction.

The bonds were sold to a brokerage firm, Stifel, and then resold to LDF. "The bonds, which were secured by the revenues and related assets of the Casino, were accompanied by a trust indenture (‘the Indenture’) naming Wells Fargo as trustee." Id. at 689 (footnote omitted). The Indenture included numerous provisions "that vested in Wells Fargo and the bondholder the power to ensure that [the Corporation] satisfied its repayment obligations." Id. This power included oversight of Casino revenues, which the Corporation was required to deposit in an account controlled by Wells Fargo.

Along with the Indenture, there were several other documents relevant to the transaction: the Specimen Bond,² a Bond Purchase Agreement,³ a resolution related to the issuance of the bonds ("the Bond Resolution"),⁴ a Tribal Resolution,⁵ and opinion letters by Godfrey⁶ (collectively "the Bond Documents"). Several of these documents contain (1) waivers of sovereign immunity on behalf of the Tribal Entities; (2) forum selection clauses designating the United States District Court for the Western District of Wisconsin (or, alternatively, the courts of Wisconsin) as the exclusive forum for disputes concerning the bond transaction; and (3) choice-of-law clauses designating the law of Wisconsin as the law according to which the documents were to be construed and disputes were to be resolved.

The Natchez investment proved to be less lucrative than expected, and the Tribe had trouble meeting its bond obligations. In October 2009, the Tribe elected a new governing council that had campaigned on a pledge to repudiate the bonds. The Corporation eventually repudiated its obligations under the bonds and refused to repay the $46,615,000 remaining principal or the interest.

2.

When the Corporation repudiated the bonds, Wells Fargo brought an initial action in federal district court to enforce the Indenture. The district court, however, dismissed the action for lack of subject matter jurisdiction. It believed that several provisions of the Indenture "provide[d] Wells Fargo and Saybrook with significant authority to set up working policy for the Casino's operations." Id. at 690. As such, the Indenture constituted a management contract under the IGRA and was void because it had not been submitted to the Indian Gaming Regulatory Commission ("Commission") for approval. See id. at 691. Moreover, "[b]ecause unapproved management contracts are void, the waiver of sovereign immunity contained in the Indenture also was void and the district court was without jurisdiction. Consequently, it dismissed the case." Id.

The district court subsequently denied Wells Fargo's motion to amend its complaint to assert claims based on other documents in the bond transaction, such as the bond itself. According to the district court, the other documents on which Wells Fargo sought to rely were "collateral agreements within the meaning of Commission regulations and, in the view of the district court, [we]re therefore also void." Id. at 692 (internal quotation marks omitted).

On appeal, we affirmed the district court's judgment that the Indenture was void as an unapproved management contract. We determined, however, that the district court's conclusion—that the other documents related to the bond transaction also were void—was premature:

It is not immediately apparent that the waivers contained in the documents attached to the proffered amended complaint, when read separately or together, ought to be construed as dependent on the validity of the waiver in the Indenture and that they do not make clear the Corporation's intent to render itself amenable to suit for legal and equitable claims in connection with the bond transaction.

Id. at 701. We "conclude[d] that the district court should have permitted Wells Fargo leave to file an amended complaint to the extent that it presented claims for legal and equitable relief in connection with the bond transaction on its own behalf and on behalf of the bondholder." Id. at 702. We also were mindful, however, that there was a question whether Wells Fargo could seek that relief now that the Indenture was void. Thus, the district court would have to "address whether Wells Fargo's standing to seek such relief on behalf of the bondholder survives the voiding of the Indenture." Id. We instructed that, after determining the standing issue, the district court "should proceed to address whether the transactional documents, taken alone or together, evince an intent on the part of the Corporation to waive sovereign immunity with respect to claims by Wells Fargo on its own behalf and, if it has standing to do so, on behalf of the bondholder." Id.

On remand, Wells Fargo was unsuccessful in crafting a complaint that named all of the real parties in interest and also preserved diversity of citizenship. It therefore moved to dismiss its...