Bank v. Sokaogon Chippewa Cmty. (mole Lake Band of Lake Superior Chippewa Indians)andsokaogon Gaming Enter. Corp..

• Decision Date: 15 April 2011
• Docket Number: Case No. 10–C–1039.
• Citation: 787 F.Supp.2d 867
• Parties: WELLS FARGO BANK, N.A., as Trustee, Plaintiff,v.SOKAOGON CHIPPEWA COMMUNITY (Mole Lake Band of Lake Superior Chippewa Indians)andSokaogon Gaming Enterprise Corporation, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

787 F.Supp.2d 867

WELLS FARGO BANK, N.A., as Trustee, Plaintiff,

v.SOKAOGON CHIPPEWA COMMUNITY (Mole Lake Band of Lake Superior Chippewa Indians)andSokaogon Gaming Enterprise Corporation, Defendants.

Case No. 10–C–1039.

United States District Court, E.D. Wisconsin.

April 15, 2011.

Colleen E. Fielkow, Patrick J. Hodan, Rebecca Frihart Kennedy, Meredith C. Wilkerson, Reinhart Boerner Van Deuren SC, Milwaukee, WI, for Plaintiff.Glenn C. Reynolds, Wade Max Williams, Reynolds & Associates, Madison, WI, for Defendants.

MEMORANDUM AND ORDER

WILLIAM C. GRIESBACH, District Judge.

Wells Fargo Bank, N.A., acting as Trustee for the holders of over $19 million in bonds issued pursuant to a Trust Indenture between Wells Fargo and the Sokaogon Chippewa Community (Mole Lake Band of Lake Superior Chippewa Indians) (hereinafter “the Tribe”), brought this action for declaratory and other relief against the Tribe and Sokaogon Gaming Enterprise Corporation (“Sokaogon Gaming”), a wholly owned tribal entity that guaranteed the transaction. The case is before the Court on the Rule 12(b) motion of the defendants to dismiss for lack of subject matter and personal jurisdiction, and failure to state a claim. For the reasons set forth below, the motion will be denied.

BACKGROUND

A. Factual Allegations in the Complaint

The following factual allegations are taken directly from the plaintiff's complaint and are accepted as true for the purpose of this motion to dismiss. Ameritech Corp. v. McCann, 297 F.3d 582, 585 (7th Cir.2002). On or about January 20, 2006, the Tribe issued $19.165 million in bonds in order to refinance existing debt and fund improvements in tribal land (the “Series 2006 Bond Transaction”). The bonds were issued pursuant to a Trust Indenture between the Tribe and Wells Fargo Bank. (Compl. ¶ 9.) The Indenture named Wells Fargo as the Trustee for the bondholders and authorized the Trustee to act on behalf of the bondholders. In essence, “the Series 2006 Bond Transaction, as reflected in the various agreements entered into by the parties, and by the various representations and warranties offered by the Tribe, was a loan transaction whereby $19 million was loaned to the Tribe, and the Tribe promised to repay that $19 million over a period of years, with interest.” (Compl. ¶ 20.) The Bonds reflected the Tribe's obligation to repay its debt, and the Indenture, which the Tribe entered into as part of the consideration for the loan, set forth the manner in which the loan would be repaid and the consequences of the Tribe's default. (Compl. ¶ 22.) As a condition precedent to purchasing the Bonds, Wells Fargo required the Tribe to waive its sovereign immunity as it related to the Series 2006 Bond Transaction and consent to jurisdiction in both Wisconsin federal and state courts. (Compl. ¶ 12.)

Waivers of sovereign immunity were contained in two separate resolutions enacted by the Tribal Council and in various documents related to the transaction. In an initial 2005 resolution authorizing the Tribe to obtain the financing, the Tribal Council stated in part:

The Tribe hereby expressly waives its sovereign immunity from suit and any requirement for exhaustion of tribal remedies should an action be commenced on this Resolution or regarding the subject matter of this Resolution. The Tribe expressly consents to the levy of judgment or attachment of the Pledged Casino Revenues wherever located or maintained, including within the boundaries of the Tribe's Reservation, by the appropriate federal or state court.

(Compl. ¶ 18.) A separate Bond Resolution passed by the Tribal Council in 2006 stated in relevant part:

1.10 To assure the successful placement and sale of the Series 2006 Bonds, the Tribe and the Casino Enterprises will agree to various legal provisions (the “Legal Provisions”) that will provide for (a) a limited waiver of sovereign immunity with respect to suits or other legal actions or proceedings arising because of disputes related to the Series 2006 Bonds or the foregoing named documents or other agreements related thereto, (b) consent by the Tribe and Casino Enterprise to jurisdiction of state and federal courts over such disputes and the enforcement of remedies related thereto, and (c) consent by the Tribe and Casino Enterprise to apply the laws of a given state in the interpretation of the foregoing documents.

* * *

3.1 The Tribe hereby expressly waives its sovereign immunity from suit and any requirement for exhaustion of tribal remedies should an action be commenced on this Resolution or the Indenture, the Guaranty, the Tax Exemption Agreement, the Private Placement Agreement or the Limited Offering Memorandum, or regarding the subject matter thereof.

(Compl. 17.) Similar language was included in each Series 2006 Bond, the Indenture, and the Offering Memorandum. The Tribe's counsel, Michael Best & Friedrich, LLP, confirmed that the Tribe and Sokaogon Gaming waived their sovereign immunity and that such waiver was valid and enforceable against the Tribe and Casino Enterprise. (Compl. ¶¶ 13–16.)

The Indenture required the Tribe to pay the Trustee a portion of the principal and interest on the Bonds on the 25th of each month. It also required the Tribe to spend at least $1 million every two years for capital improvements to the Casino Facility operated by Sokaogon Gaming. To insure compliance with this provision, the Indenture required the Tribe to deposit $41,667 into a Capital Expenditure Fund each month. (Compl. ¶¶ 23, 26.) Failure to make the required payments or deposits constituted a default under the Indenture.

“To secure its obligations under the Indenture and Bonds, and as a material inducement for the issuance and purchase of the Bonds, the Tribe granted the Trustee a “first priority lien on and pledge of all right, title and interest in and to the Gross Revenue of the Casino Facility remaining after payment of Operating Expenses of the Casino Facility (the ‘Pledged Casino Revenues').” (Compl. ¶ 31.) The Pledged Casino Revenues also included investment earnings on Gross Revenues. The Trustee perfected its first priority lien on the Pledged Casino Revenue by filing a CCC–1 financing statement with both the Wisconsin Secretary of State and the Washington, D.C., Recorder of Deeds. (Compl. ¶ 32–33.)

Sokaogon Gaming, the business arm of the Tribe, agreed to guarantee the Tribe's performance under the Indenture and Bonds. (Compl. ¶ 34.) Sokaogon Gaming gave the Trustee an absolute and unconditional guaranty, and likewise waived its sovereign immunity and granted the Trustee a first priority lien on and pledge of all right, title and interest it held in the Pledged Casino Revenues. (Compl. ¶¶ 35–40.) The Trustee perfected the first priority lien on the Pledged Casino Revenues given by Sokaogon Gaming by likewise filing a UCC–1 financing statement with the Wisconsin Secretary of State and the Washington, D.C., Recorder of Deeds. (Compl. ¶ 41.)

The Tribe's Bonds were purchased on or about January 20, 2006, and the $19 million was deposited with the Trustee. The Trustee then distributed the funds to the Tribe, which accepted and utilized the funds for various purposes, including acquisition of land and mineral rights, construction of a facility for youth programs, expansion of the Tribe's Casino Facility, acquisition of equipment and other improvements, and refinancing of existing indebtedness. (Compl. ¶¶ 46–47.)

From January 2006 to October 2008, the Tribe complied with the terms of its agreements and representations. In November and December 2008, however, the Tribe failed to make its principal and interest payments on the Bonds and the required deposits into the Capital Expenditure Account. (Compl. ¶¶ 49–50.) The Trustee provided written notice to the Tribe of these defaults, but the Tribe made only a few partial payments of debt service for the Bonds thereafter. Since October of 2009, the Tribe has not made a single payment. (Compl. ¶¶ 52–54.) Since November of 2008 the Tribe has failed to make the required deposits to the Capital Expenditure account. Despite its guaranty, Sokaogon Gaming has also failed to make any payments. (Compl. ¶ 59.) During the course of conversations about its failure to make the required payments, the Tribe and Sokaogon Gaming, through counsel, have explained to the Trustee that they have chosen to apply Pledged Casino Revenues to other purposes instead of fulfilling their debt obligations. (Compl. ¶ 60.) On July 23, 2009, the Trustee notified the Tribe that it was exercising its right under the Indenture to accelerate the maturity of the Bonds and declare all principal and interest immediately due and owing, making the entire $19 million due and owing. (Compl. ¶ 61–64.)

The entire amount remains outstanding, and neither the Tribe nor Sokaogon Gaming have made any payments to the Trustee. Instead of paying the Tribe's obligations, Sokaogon Gaming is using the Pledged Casino Revenues to pay off a business note it gave Chippewa Valley Bank to fund the construction of a hotel near the casino (the “Hotel Loan”) in violation of the Indenture. The Hotel Loan is secured by a mortgage in various properties owned by the Tribe and grants Chippewa Valley Bank a security interest in various Tribal accounts, including an account at the Chippewa Valley Bank where the Pledged Casino Revenues are deposited. (Compl. ¶¶ 71–75.) In addition, Sokaogon Gaming has transferred at least $1.5 million to the Tribe for no consideration in the form of what it characterizes as dividends, even though Sokaogon Gaming is legally insolvent. (Compl. ¶¶ 90–93.)

On August 4, 2009, in the face of the Tribe and Sokaogon Gaming's repeated defaults, the Trustee filed suit in Forest County, Wisconsin alleging breach of the Indenture, breach of the Guaranty, right to collateral pursuant to Wis. Stat. § 409.609 and asking for the appointment of a receiver pursuant to the agreements and Wis. Stat. § 813.16(1). The...