Seventh Circuit Holds that Indian Tribe Agreed to Waive Sovereign Immunity

Sokaogon Gaming Enterprise Corp. v. Tushie-Montgomery Assocs, Inc.,
86 F.3d 656, 1996 U.S. App.LEXIS 13399 (7th Cir. June 5, 1996)

District Court erred in granting summary judgment in favor of Indian tribe on grounds of tribe’s sovereign immunity; by signing contract with explicit arbitration clause, tribe agreed that it could be sued.

An Indian tribe building a casino entered into a contract for design services with Tushie-Montgomery Associates, Inc. (“TMI”). TMI had done considerable work on the project and had received a partial payment of $150,000, when new tribe leadership decided to repudiate the contract. TMI claimed that it was still owed more than $400,000 for services rendered, and attempted to invoke the arbitration provisions of the contract to resolve the dispute.

The tribe claimed that it could not be forced to arbitrate because it had not waived its sovereign immunity. In addition, the tribe claimed that the contract was illegal because it had not been approved by the Bureau of Indian Affairs, and that the tribe was therefore entitled to the return of the $150,000 already paid. TMI went forward with the arbitration without the tribe present, and obtained an award of $500,000, which it sought to have affirmed in state court. Meanwhile, the tribe brought an action in federal court seeking to recover its $150,000.

The district court granted partial summary judgment in favor of the tribe, finding that the tribe had not waived its sovereign immunity and therefore could not be forced to arbitrate. Before addressing the issue of whether the tribe was also entitled to repayment of the $150,000, the district court certified the sovereign immunity question for an immediate appeal to the Seventh Circuit.

TMI based its argument that the tribe had waived its sovereign immunity on the language of the contract’s arbitration clause, which stated, in relevant part, that “claims, disputes or other matters [arising out of or related to the contract] shall be subject to and decided by arbitration in accordance with the [rules] . . . of the American Arbitration Association,” that the agreement to arbitrate “shall be specifically enforceable in accordance with applicable law in any court having jurisdiction,” and that “judgment may be entered upon [the arbitration award] in accordance with applicable law in any court having jurisdiction thereof.”

In addressing the effect of the arbitration clause, the court first noted that although the law requires an “explicit” waiver of sovereign immunity before finding that an act of Congress was intended to override tribal sovereign immunity, the same considerations do not apply when considering whether the tribe itself has waived its immunity by entering into a contract. Rather, in the contractual context, it would be paternalistic to assume that, in the absence of an “explicit” waiver, Indians entering into contracts cannot understand whether or not they are waiving their sovereign immunity rights.

Nevertheless, the court found that even if the proper inquiry was “whether the language of the arbitration clause might have hoodwinked an unsophisticated Indian negotiator into giving up the tribe’s immunity from suit without realizing he was doing so,” it would be “implausible” and “condescending” to find that the tribe did not realize the import of the arbitration clause in this case. “The arbitration clause could not be much clearer. It says that if there is a dispute under the contract it must be submitted to arbitration and that the arbitrator’s decision is final and is enforceable in court. No one reading this clause could doubt that the effect was to make the tribe suable.” The court rejected the tribe’s contention that the only acceptable waiver would be one stating that “The tribe will not assert the defense of sovereign immunity if sued for breach of contract,” noting that the United States regularly waives its sovereign immunity by creating a right to sue, rather than making an affirmative statement that it will not raise a sovereign immuity defense.

Finally, the court distinguished cases considering the question of whether a mere reference to the American Arbitration Association Rules is sufficient to constitute a waiver of sovereign immunity because the Rules provide for judicial enforcement of arbitration awards. Here, the arbitration clause itself conferred the right to sue and to enforce arbitration awards in court, and no reference to any source outside the contract was necessary. Accordingly, the partial summary judgment in favor of the tribe was reversed on the ground that the tribe had waived its sovereign immunity by agreeing to the arbitration clause.

 

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