Stifel v. Lac Du Flambeau Band Indians
| Decision Date | 16 May 2014 |
| Docket Number | 13-cv-372-wmc |
| Court | U.S. District Court — Western District of Wisconsin |
| Parties | STIFEL, NICOLAUS & COMPANY, INC., STIFEL FINANCIAL CORP., SAYBROOK FUND INVESTORS, LLC, LDF ACQUISITION, LLC, WELLS FARGO BANK, N.A., and GODFREY & KAHN, S.C., Plaintiffs, v. LAC DU FLAMBEAU BAND OF LAKE SUPERIOR CHIPPEWA INDIANS and LAKE OF THE TORCHES ECONOMIC DEVELOPMENT CORPORATION, Defendants. |
In what is only the latest chapter of litigation arising out of an ill-fated bond transaction executed in January of 2008 (the "Bond Transaction"), plaintiffs seek injunctive relief precluding defendants from pursuing a related lawsuit in the Tribal Court of the Lac Du Flambeau Band of Lake Superior Chippewa Indians. Plaintiffs argue that based on both federal law and on various documents executed as part of the Bond Transaction, the Tribal Court lacks jurisdiction over them. In response, defendants argue that they are immune from the current suit and that, in the alternative, the tribal court may exercise jurisdiction over plaintiffs.
Currently before this court are plaintiffs' various motions for preliminary injunctive relief. (See dkt. ##5, 17, 42.) The court held a hearing on those motions on March 14, 2014, and for the reasons discussed below, now holds that: (1) defendants waived their sovereign immunity; (2) comity does not require exhaustion of tribal court remedies; and (3) based on the record before it, defendants should be preliminary enjoined fromproceeding against plaintiffs Stifel, Nicolaus & Company and Stifel Financial Corp. (collectively, "the Stifel plaintiffs"); and Saybrook Fund Investors, LLC, LDF Acquisition, LLC and Wells Fargo Bank, N.A. (collectively, "the Saybrook plaintiffs") in Tribal Court pending a final resolution of this lawsuit. Because plaintiff Godfrey & Kahn, S.C. has not demonstrated a similar likelihood of success on the merits, however, the court will deny its motion for a preliminary injunction at this time.
The Lake of the Torches Economic Development Corporation ("the Corporation") is a wholly-owned corporation of the Lac Du Flambeau Band of Lake Superior Chippewa Indians, a federally-recognized Indian Tribe ("the Tribe"). The Corporation is chartered by the Tribe and, among other things, has the authority to issue and sell bonds for specific purposes and to pledge any revenues received from the Lake of the Torches Resort Casino as security. Pursuant to this authority, in January of 2008, the Corporation entered into a bond transaction in order to refinance and consolidate certain outstanding bank loans and loan funds to the Lake of the Torches Federal Development Corporation ("FDC"), so that the FDC could then loan funds to Grand Soleil for a gaming complex in Natchez, Mississippi. Stifel, Nicolaus & Company ("Stifel") is a financial services company that acted as initial purchaser of the bonds issued. Stifel alleges, and defendants purport to dispute, that it sold the bonds to LDF Acquisition, LLC, a special purpose vehicle created bySaybrook Tax Exempt Investors, LLC. Plaintiff Godfrey & Kahn, S.C. served as counsel to the Corporation and as Bond counsel in connection with the sale.
Pursuant to the Bond Transaction, various of the parties in this lawsuit executed a multitude of documents (collectively, the "Bond Documents"). Those documents include:
The parties agree that the Bond Documents were to be governed by and construed in accordance with Wisconsin law. There is also no dispute that plaintiffs executed the documents off-reservation. Although the documents themselves represent otherwise, defendants nevertheless maintain that they executed the documents on-reservation.
At some point in 2009, defendants failed to meet their obligations as contemplated by the Bond Documents. Acting as trustee to enforce the Indenture, Wells Fargo then filed suit in the Western District of Wisconsin. In that lawsuit, this court originally determined that: (1) the Indenture was void as an unapproved management contract; (2) the various transactional documents at issue here were merely collateral to the Indenture, making them similarly void; and (3) the bonds themselves incorporated by reference the Indenture's terms, rendering them void on those grounds as well. The court also concluded that the collateral documents were interdependent, supporting only a single transaction, and that the Indenture was a crucial part. On those grounds, the court held that the entire transaction had required the approval of the National Indian Gaming Commission ("NIGC") and that there could be no valid waiver of sovereign immunity without it. See Wells Fargo Bank., N.A. v. Lake of the Torches Econ. Dev. Corp., No. 09-cv-768, 2010 WL 1687877, at *5-7 (W.D. Wis. Apr. 23, 2010).
On appeal, the Seventh Circuit affirmed this court's conclusion that the Indenture was void based on various problematic provisions in the Indenture, including: (1) a provision requiring the Casino's gross revenues to be deposited in a trust fund, setting conditions on revenue allocation and disposition, and giving Wells Fargo ultimate controlover withdrawals, which allowed the bondholders to control the Corporation's capital expenditures; (2) a provision permitting bondholders to retain an independent consultant, whose recommendations the Corporation was required to "use its best efforts to implement," if the debt-service-coverage ratio fell below "2.00 to 1"; and (3) a provision requiring defendants to obtain the consent of the bondholders to replace the casino's management. See Wells Fargo Bank, N.A. v. Lake of the Torches Econ. Dev. Corp., 658 F.3d 684, 698 (7th Cir. 2011). "[T]aken together," the Seventh Circuit held these provisions "transfer significant management responsibility to Wells Fargo and the bondholder and therefore render the Indenture a management agreement subject to the approval of the Chairman." Id. at 699.
At the same time, the Seventh Circuit rejected the notion that the collateral documents were void simply because they referred to the Indenture. The court explained that collateral documents would require agency approval "only if [they] 'provide[] for the management of all or part of a gaming operation'" -- that is, if they, too, meet the definition of a "management contract." Id. at 701 (quoting Catskill Dev., 547 F.3d at 130) (emphasis in original). The Seventh Circuit also found the district court's conclusion that the documents were interdependent, and thus 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. Accordingly, the Seventh Circuit held that on remand, the district court should address "whether the transactional documents, taken alone or together, evince an intent on the part of the Corporation to waive sovereign immunity." Id. at 702.
Following remand, Wells Fargo made several unsuccessful attempts to amend the complaint to establish its standing to sue before voluntarily dismissing its original lawsuit. The next day, plaintiffs Saybrook and LDF Acquisition filed a new federal lawsuit in the Western District of Wisconsin, invoking federal-question jurisdiction under 28 U.S.C. § 1331, but alerting the court to a split in authority as to whether such jurisdiction existed. While the Corporation argued jurisdiction was present, this court concluded in March of 2013 that it was not and asked the parties for proof of diversity jurisdiction under 28 U.S.C. § 1332. See Saybrook Tax Exempt Investors, LLC v. Lake of the Torches Econ. Dev. Corp., 929 F. Supp. 2d 859 (W.D. Wis. 2013). In April, the court concluded that diversity jurisdiction was also lacking and dismissed that case as well. Saybrook Tax Exempt Investors, LLC v. Lake of the Torches Econ. Dev. Corp., No. 12-cv-255-wmc, 2013 WL 2300991 (W.D. Wis. Apr. 1, 2013). Plaintiffs then brought suit in Wisconsin state court.
On March 27, 2013, the Tribe amended the portion of its code governing procedures in the tribal court. The previous version of the Tribal Code read:
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