Altheimer & Gray v. Sioux Mfg. Corp.

• Decision Date: 22 January 1993
• Docket Number: No. 92-1633,92-1633
• Citation: 983 F.2d 803
• Parties: ALTHEIMER & GRAY, a partnership, Plaintiff-Appellant, v. SIOUX MANUFACTURING CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 803

983 F.2d 803

61 USLW 2442

ALTHEIMER & GRAY, a partnership, Plaintiff-Appellant, v. SIOUX MANUFACTURING CORPORATION, Defendant-Appellee.

No. 92-1633.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 22, 1992.

Decided Jan. 8, 1993.

As Amended Jan. 22, 1993.

Daniel S. Hefter (argued), Maureen A. Gorman, John R. Heine, Hefter & Radke, Chicago, IL, for plaintiff-appellant.

John Y.E. Lee, Donald V. Jernberg, Oppenheimer, Wolff & Donnelly, Chicago, IL, Robert Vaaler, Allen J. Flaten (argued) Vaaler, Warcup, Woutat, Zimney & Foster, Grand Forks, ND, for defendant-appellee.

Before POSNER and COFFEY, Circuit Judges, and WOOD, Jr., Senior Circuit Judge.

HARLINGTON WOOD, Jr., Senior Circuit Judge.

This case deals with the modern application of a 19th century federal statute designed to protect Indian tribes in land transactions. For reasons explained below, we reverse the district court's grant of summary judgment and remand the case for further proceedings.

I. BACKGROUND

In 1872, Congress passed what is now known as 25 U.S.C. § 81. The statute requires contracts concerning Indian lands to be approved by the Secretary of the Interior. Contracts without the Secretary's approval are of no effect. According to the Supreme Court, the statute was "intended to protect the Indians from improvident and unconscionable contracts." In re Sanborn, 148 U.S. 222, 227, 13 S.Ct. 577, 579, 37 L.Ed. 429 (1893); see also Cong.Globe 1483 (1871) (law is for Indians' "protection and to prevent them from being plundered"). At the time of the law's enactment, Indians apparently were being swindled by dishonest lawyers and claims agents. See United States ex rel. Shakopee Mdewakanton Sioux Community v. Pan Am. Management Co., 616 F.Supp. 1200, 1217 (D.Minn.1985), appeal dismissed, 789 F.2d 632 (8th Cir.1986).

As this court noted in 1985, Congress has neither implicitly nor explicitly overruled section 81 and the statute continues to "govern[ ] transactions relative to Indian land for which Congress has not passed a specific statute." Wisconsin Winnebago Business Comm. v. Koberstein, 762 F.2d 613, 619 (7th Cir.1985). The statute, in fact, has seen new life in recent years as Indian reservations have contracted with outside firms to build and operate bingo halls and casinos on their reservations. See id.

The case before us also features 25 U.S.C. § 81 and an Indian tribe attempting to generate revenue for its people. Here, though, the tribe chose to reduce its forty-five percent unemployment rate through manufacturing rather than through gambling. To do so, the Devils Lake Sioux Tribe ("Tribe"), a federally recognized Indian tribe, created the Sioux Manufacturing Corporation ("SMC") to manufacture and market camouflage cloth and military helmets. SMC is a wholly-owned tribal corporation and governmental subdivision of the Sioux, organized under the Tribe's Law and Order Code. The corporation's offices and sole manufacturing facility are located inside the boundaries of the Devils Lake Sioux Reservation ("Reservation") in Fort Totten, North Dakota, on land which SMC leases from the Tribe. The Reservation itself was established by treaty on February 19, 1867.

Seeking to expand their business, the Tribe and SMC negotiated with Medical Supplies & Technology, Inc. ("MST"), an Illinois corporation, to manufacture and market latex medical products at the Reservation plant. In the course of these negotiations, MST submitted a "Letter of Intent" to "the Fort Totten Tribe of the Sioux Nation and Sioux Manufacturing Corporation ('Sioux'), to set forth its understanding of the terms of certain proposed transactions by and among MST ... and an entity wholly-owned, directly or indirectly, by the Sioux." On March 7, 1990, John Veleris, MST's president, and Robert Manning, vice-president and general manager of SMC, signed the nine-page Letter of Intent ("Letter").

According to the Letter, MST, the Tribe, and SMC would engage in a business to produce and market various latex medical products in facilities located on the Reservation. The parties intended that MST would "provide its technology, know-how and expertise in relation to the production and marketing of the Products" whereas SMC would obtain all required governmental approvals, including "any approvals required by the Bureau of Indian Affairs." SMC was also to provide "all working capital, investment capital, facilities and labor needed for the production of the Products and the operation of the Business."

The details of these transactions were to "be discussed further by Seller and Buyer and agreed to in good faith and shall be set forth in various contracts and other agreements." One of the agreements was to be an "Asset Purchase Agreement," whereby SMC would purchase all of MST's assets. These assets included contracts for machines that produce the latex products, architectural drawings for the facility, and waste and environmental plans for the Reservation land. Another future agreement was to be a "Consulting Agreement," whereby MST would provide consulting services to SMC for the management and operation of the latex products business. This would entail MST supplying technical and engineering assistance, marketing the products, and training those individuals that SMC picked for the management and operation of the business.

The Letter also outlined various payments from SMC ("Buyer") to MST ("Seller") for its consulting services and provided that MST would take up to thirty percent of the latex business's "net profits." The net profit was to be calculated as the difference between gross sales of the latex medical products and:

(a) cost of materials; (b) wages (in an amount mutually agreeable to Buyer and Seller); (c) utilities and maintenance; (d) salaries and administration (in an amount mutually agreeable to Buyer and Seller); (e) costs paid to Veleris for consulting under the Consulting Agreement; (f) rent; (g) taxes (it being understood, however, that the amount of taxes imposed by tribal authorities to be deducted from Net Profits will not exceed 1% of gross sales); (h) other operational costs (to be agreed to by Buyer and Seller); (i) $83,334 per year; and (j) the Applicable Percentage of depreciation of equipment calculated on a straight line basis over 30 years.

As can be seen above, under the contemplated agreements neither SMC nor MST would be able to unilaterally set salaries or wages or administration costs or other operational costs.

Anticipating future lawsuits, the Letter contained a section entitled "Sovereign Immunity." This section provided that "Buyer and the Fort Totten Tribe of the Sioux Nation (the 'Tribe') will waive all sovereign immunity in regards to all contractual disputes." The section also said that "This agreement and all agreements contemplated hereunder will be executed and interpreted in accordance with the laws of the State of Illinois" and that all parties "agree to submit to the venue and jurisdiction of the federal and state courts located in the State of Illinois."

The closing of "the transactions contemplated" by the Letter was to be within sixty days of "acceptance of this Letter of Intent." In the interim, the parties were to fulfill various conditions relating to such topics as financing and distribution. Although neither party was required, by terms of the Letter, to enter into any future agreement until those conditions had been met, "all parties are hereby bound in good faith to attempt to fulfill all such conditions."

At the end of the Letter comes section 13, upon which this lawsuit is based. Under the title of "Expenses," section 13 outlined a scheme whereby each party would pay its own expenses if "the transactions contemplated herein are consummated." If, however, the transactions were not consummated within the sixty-day period "or if the Sioux at any time notifies any other party that they are terminating negotiations" then "the Sioux shall promptly pay, upon demand, all reasonable legal and accounting fees and expenses" incurred by MST in connection with the negotiation of the deal. The Tribe and SMC were relieved from payment, however, if "actions taken in bad faith by Seller" prevented the consummation. In such a case, MST would pay "all reasonable fees and expenses incurred by Buyer."

After the Letter of Intent was signed on March 7, 1990, MST began business operations within the SMC manufacturing facilities. The closing, however, did not occur within the sixty-day period and the parties executed two subsequent agreements to extend the date of closing until November 1, 1990. Despite the extensions, none of the contemplated contracts were ever executed, the deal was never consummated, and MST ceased operations within the Reservation.

II. PROCEDURE

In Spring 1991, SMC was hit with a double-barreled attack. On May 10, 1991, MST sued SMC in Illinois state court for breach of contract. MST contended that SMC failed to act in good faith to satisfy the contractual conditions precedent to closing. On June 5, 1991, MST's law firm, Altheimer & Gray, filed suit against SMC in federal district court. Altheimer is a partnership organized under Illinois law with its principal place of business in Chicago, Illinois; it has 82 partners, all of whom are citizens of Illinois or Indiana. The firm had provided MST with legal services in connection with the negotiations with SMC and in its suit contended it was an intended third-party beneficiary of section 13 of the Letter of Intent agreement. Altheimer sought payment of $167,593.77 in damages plus interest and costs.

On June 12, 1991, SMC removed MST's action to district court, and on SMC's motion the district court consolidated the two cases. The district court based its subject matter jurisdiction on the diverse citizenship of the parties, pursuant to 28 U.S.C. § 1332. On August 20, 1991, SMC filed a motion to dismiss or, in the alternative, for summary judgment. O...