Cite as: Seaport Loan Products, LLC v. Lower Brule Community Development Enterprise LLC, 651492/12, NYLJ 1202584505251, at *1 (Sup., NY, Decided December 14, 2012)

Justice Eileen Bransten

Decided: December 14, 2012

ATTORNEYS

 

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Plaintiffs Seaport Loan Products, LLC ("Seaport") and Aldwych Capital Partners, LLC ("ACP") (collectively, "Plaintiffs") move to compel defendant Lower Brule Community Development Enterprises LLC ("LCBDE") to produce discovery materials they deem necessary to Plaintiffs' opposition to LBCDE's motion to dismiss on the grounds of sovereign immunity. LBCDE opposes.

I. BACKGROUND

On October 20, 2010, LBCDE loaned LBC Western Holdings, LLC $22,519,638 (the "Loan"). Affirmation of Ronald G. Blum in Support of Plaintiffs' Order to Show Cause ("Blum Affirm."), Ex. 1 ("Compl."), ¶5. The US Department of the Interior guaranteed 90 percent of the Loan's principal and interest. Id. at ¶6.

In the fall of 2011, LBCDE sought Eagle Private Equity, LLC's ("Eagle") assistance selling the Loan. Id. at ¶7. On September 13, 2011, Eagle contracted with

 

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ACP to market the Loan. Id. at ¶ 8. ACP then hired Seaport to find a purchaser for the Loan. Id. at ¶9.

In September of 2011, Seaport located a buyer for the guaranteed portion of the Loan. Id. at ¶11. On January 20, 2012, Seaport and LBCDE entered into a contract by which LBCDE agreed to sell Seaport a "participation interest" in the guaranteed portion of the Loan at a purchase price equal to 95 percent of the guaranteed portion. Id. at ¶¶14-15. The parties agreed to use their best efforts to complete the sale of the Loan within "5-10 days after January 26, 2012." Id. at ¶16.

On March 19, 2012, LBCDE allegedly contracted to sell the entire Loan to Great American Insurance Group ("GAIG"). Id. at ¶28. Two weeks later, after it had already sold the Loan to GAIG, LBCDE informed Plaintiffs that LBCDE no longer intended to sell the guaranteed portion of the Loan to Plaintiffs. Id. at ¶24.

On May 12, 2012, Plaintiffs commenced the instant action against LBCDE, asserting causes of action for breach of contract and unjust enrichment. On July 17, 2012, LBCDE moved to dismiss on the grounds that LBCDE is an arm of the Lower Brule Indian Tribe, and is therefore entitled to sovereign immunity. Plaintiffs now seek discovery pursuant to CPLR 3211(d) solely on the issue of LBCDE's claimed immunity from suit.

II. ANALYSIS

CPLR 3211(d) permits the party opposing a motion to dismiss to conduct limited discovery when "facts essential to justify opposition [to a motion to dismiss] may exist but cannot then be stated." Id. CPLR 3211(d) "protects the party to whom essential

 

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jurisdictional facts are not presently known, especially where those facts are within the exclusive control of the moving party. The opposing party need only demonstrate that facts may exist whereby to defeat the motion. It need not be demonstrated that they do exist." Peterson v. Spartan Indus., Inc., 33 N.Y.2d 463, 466 (1974).

Plaintiffs now seek nine categories of documents and the deposition of Gavin Clarkson, LBCDE's CEO. Plaintiffs assert that the information they request is otherwise unavailable to them and necessary to oppose LBCDE's motion to dismiss.

LBCDE asserts that Plaintiffs may not obtain discovery regarding LCBDE's claim of sovereign immunity because LCBDE has conclusively established that it is immune from suit as a matter of law. LBCDE posits that discovery is therefore not essential to Plaintiffs' opposition to LBCDE's claim of sovereign immunity.

A. Sovereign Immunity of Tribal Corporations

"Indian tribes enjoy the same immunity from suit enjoyed by sovereign powers and are 'subject to suit only where Congress has authorized the suit or the tribe has waived its immunity.'" Chayoon v. Chao, 355 F.3d 141, 143 (2d Cir. 2004) (quoting Kiowa Tribe of Okla. v. Mfg. Techs., Inc., 523 U.S. 751, 754 (1998)).

Corporate entities formed by a tribe may also enjoy sovereign immunity if those corporations are "created by the Indian Nation to further governmental objectives, such as providing housing, health and welfare services." In the Matter of Ransom v. St. Regis Mohawk Educ. and Cmty. Fund, Inc., 86 N.Y.2d 553, 558 (1995) (internal citations omitted). Tribal corporations that are formed to further government objectives are considered "arms of the tribe," and cannot be sued absent a waiver of sovereign

 

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immunity. Id.

Although no set formula is dispositive, in determining whether a particular tribal organization is an 'arm' of the tribe entitled to share the tribe's immunity from suit, courts generally consider such factors as whether: the entity is organized under the tribe's laws or constitution rather than Federal law; the organization's purposes are similar to or serve those of the tribal government; the organization's governing body is comprised mainly of tribal officials; the tribe has legal title or ownership of property used by the organization; tribal officials exercise control over the administration or accounting activities of the organization; and the tribe's governing body has power to dismiss members of the organization's governing body. More importantly, courts will consider whether the corporate entity generates its own revenue, whether a suit against the corporation will impact the tribe's fiscal resources.

Id.

Once the court has determined that the corporate entity has sovereign immunity under the multi-factor Ransom test, "the pivotal inquiry is whether the [company] has waived its sovereign immunity and submitted to suit in our courts." Id. at 560. "The sovereignty of an Indian Nation may be waived by the tribe itself or by an act of Congress…. [A] waiver of tribal sovereign immunity cannot be implied but must be unequivocally expressed…. Additionally, waivers of immunity are to be strictly construed in favor of the Tribe." Id. at 560-61 (internal quotations and citations omitted).

LBCDE asserts that the court need not undertake this comprehensive, fact-based Ransom analysis to determine whether LBCDE enjoys sovereign immunity. Rather, LBCDE claims that it is immune from suit as a matter of law because it is "a tribal entity, created under a Federal grant of power to incorporate pursuant to Section 17 of the Indian [Reorganization] Act [("IRA")], 25 USC §477." Defendant's Memorandum of Law in Opposition to Plaintiffs' Order to Show Cause Seeking Limited Discovery ("Def. Memo"), p. 2.

 

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Section 17 provides that "[t]he Secretary of the Interior may, upon petition by any tribe, issue a charter of incorporation to such tribe." 25 USC §477.

Congress, in enacting the ["IRA"] provided for the creation of two separate tribal entities. The entity created by §16 of the Act, the governmental organization, was allowed the protection of sovereign immunity traditionally afforded Indian tribes. Recognizing that the protection of sovereign immunity would put the Indian tribe at a competitive disadvantage in obtaining credit and entering into business transactions Congress provided for the separate and distinct Indian corporation in §17. This corporation has the ability to waive the protection of sovereign immunity.

Parker Drilling Co. v. Metlakatla Indian Cmty., 451 F. Supp. 1127, 1131 (D. Alaska 1978).

Cases involving tribal corporations under Section 17 have generally considered whether incorporation under that section automatically waives, rather than confers, sovereign immunity. See, e.g. Memphis Biofuels, LLC v. Chicksaw Nation Indus., Inc., F.3d 917 (6th Cir. 2009) (holding that "Section 17…creates 'arms of the tribe' that do not automatically forfeit tribal-sovereign immunity.") The case law is unclear, however, on the question of whether incorporation under Section 17 of the IRA confers immunity from suit upon a tribal corporation as a matter of law.

The court need not, however, endeavor to clarify the issue of sovereign immunity under Section 17 because LBCDE has not demonstrated that it was incorporated under the IRA. Rather, Plaintiffs have shown, and LBCDE admits, that LBCDE is a Delaware limited liability company. Affirmation of Ronald G. Blum in Support of Plaintiff's Order to Show Cause ("Blum Affirm."), Ex. 10, p. 1.

 

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LBCDE contends that it is immune from suit because LBCDE's parent company, the Lower Brule Corporation ("LBC"), was incorporated under Section 17. Section XXI of LBC's corporate charter provides that each wholly-owned subsidiary of LBC "is a federal corporation within the meaning of 25 USC §477,…and possesses all of the rights, privileges and immunities possessed by such corporations, including sovereign immunity." Affirmation of Lanie E. Cohen in Support of Defendant's Opposition to Plaintiffs' Order to Show Cause ("Cohen Affirm."), Ex. A, p. 20. Nonetheless, LBCDE does not provide, and the court was unable to locate, any authority permitting LBC to bestow its status as a Section 17 corporation upon its subsidiaries. Nor has LBCDE established that it may simultaneously incorporate under both Section 17 and under Delaware law.

LBCDE has not shown that it is entitled to sovereign immunity as a matter of law. Consequently, in considering LBCDE's motion to dismiss on the grounds of sovereign immunity, the court will analyze the question of whether LBCDE is entitled to sovereign immunity under the multi-factor Ransom test. Ransom, 86 N.Y.2d at 558.

"[P]laintiffs have made a sufficient start, and shown their position not to be frivolous." Peterson, 33 N.Y.2d at 467. Plaintiffs are therefore entitled to limited discovery of facts, the knowledge of which is necessary to undergo a Ransom analysis of LBCDE's sovereign immunity, but which are otherwise unavailable to Plaintiffs. CPLR 3211(d).

B. Plaintiffs' Document Requests

LBCDE argues in the alternative that, even if Plaintiffs are entitled to limited

 

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discovery pursuant to CPLR 3211(d), Plaintiffs' discovery requests are overly broad and unrelated to the issue of LBCDE's sovereign immunity.

Plaintiffs' first document request seeks all documents related to the formation, structure, ownership, management and governance of LBCDE. This request relates directly to several Ransom factors the court must apply when deciding LBCDE's motion to dismiss. For example, Plaintiffs' request is pertinent to the questions of whether

the entity is organized under the tribe's laws or constitution rather than Federal law; the organization's purposes are similar to or serve those of the tribal government; the organization's governing body is comprised mainly of tribal officials; the tribe has legal title or ownership of property used by the organization; tribal officials exercise control over the administration or accounting activities of the organization; and the tribe's governing body has power to dismiss members of the organization's governing body.

Ransom, 86 N.Y.2d at 558. Such information is unavailable to Plaintiffs, and it is essential to Plaintiffs' opposition to Defendant's motion to dismiss. CPLR 3211(d). Plaintiffs' motion to compel is thus granted as to their first document request.

Plaintiffs' second and third document requests seek information related to LBCDE's assets and tax returns. Both of these requests are relevant to two important Ransom factors: whether "the tribe has legal title or ownership of property used by [LBCDE]"; and "whether the corporate entity generates its own revenue [and] whether a suit against the corporation will impact the tribe's fiscal resources." Id. Again, to the extent that these facts are essential to Plaintiffs' opposition to Defendant's motion to dismiss. CPLR 3211(d). Plaintiffs' motion to compel is granted as to document requests two and three.

Plaintiff's fourth document request asks for documents showing "all financial

 

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transactions between LBC or any of its affiliates, on the one hand, and LBCDE on the other, including, without limitation, contributions and distributions." Blum Affirm., Ex. 8, p. 5. Document requests one, two and three will provide sufficient information concerning LBCDE's assets and revenue. Plaintiffs' fourth document request is thus not essential to Plaintiffs' opposition of LBCDE's motion to dismiss. CPLR 3211(d). Plaintiffs' motion to compel is denied as to document request four.

Plaintiffs' fifth document request demands "[a]ll resolutions adopted by the Board of Directors of LBC related to LBCDE." Blum Affirm., Ex. 8, p. 5. Plaintiffs do not offer any explanation as to why this information pertains to LBCDE's sovereign immunity. Nor do Plaintiffs refute LBCDE's contention that this request is overbroad and irrelevant given that LBCDE has already produced LBC's corporate charter, which purports to confer sovereign immunity upon LBCDE. Plaintiffs' motion to compel is denied as to its fifth document request.

Plaintiffs' sixth document request seeks "[a]ll communications with Eagle, ACP, and/or Seaport in which LBCDE made reference in any way to its status as an arm of the Lower Brule nation and/or its alleged immunity from suit." Blum Affirm., Ex. 8, p. 5. In the event that the court finds that LCBDE has immunity from suit, such communications may be relevant to the question of waiver. Plaintiffs have not, however, shown why communications from LBCDE to themselves would be "within the exclusive control of the moving party." Peterson, 33 N.Y.2d 463 at 466. Plaintiffs motion to compel is therefore denied.

Plaintiffs' seventh document request seeks "[a]ll documents [related] to LBCDE's

 

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appointment and retention of a registered agent in the state of Delaware." Id. Plaintiffs provide no justification for this request. Nor can the court discern any reason why this information is essential to Plaintiffs' opposition to LBCDE's motion to dismiss. CPLR 3211(d). Plaintiffs' motion to compel is denied as to their seventh document request.

Plaintiffs' eighth document request asks for the identity of "all entities formed pursuant to Article XXI.A of the Lower Brule Corporation's corporate charter, as well as the jurisdiction in which those entities were formed." LBC's formation of non-party entities has no bearing upon the question of whether LBCDE functioned as an arm of the tribe or whether LBCDE waived its sovereign immunity. Plaintiffs' motion to compel is thus denied as to their eighth document request.

Plaintiffs' final document request "[a]ll contracts entered into by LBCDE containing provisions related to choice of law, proper venue of disputes, and jurisdiction." Blum Affirm., Ex. 8, p. 5. Plaintiffs have not shown how contracts LBCDE entered into with entities other than the Plaintiff corporations are relevant, let alone essential, to its opposition to LBCDE's motion to dismiss. Plaitiffs' ninth document request is stricken.

C. Depositon of Gavin Clarkson

Gavin Clarkson ("Clarkson") is LBCDE's chief executive officer. Plaintiffs assert that they are entitled to depose Clarkson solely on questions related to LBCDE's sovereign immunity. Defendants argue that Clarkson need not provide any additional information beyond the sworn affidavit offered on this motion which states that LBCDE never passed a resolution waiving sovereign immunity.

 

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LBCDE's argument is premised on its erroneous contention that it is entitled to sovereign immunity as a matter of law under Section 17 of the IRA. As previously explained, the court must undertake the fact-intensive Ransom test to determine whether LBCDE is immune from suit in New York courts. As CEO of LBCDE, Mr. Clarkson is in a position to know information related to all of the Ransom factors. This information is necessary to Plaintiffs' ability to establish their opposition to LBCDE's motion to dismiss. CPLR 3211(d). Plaintiffs are thus entitled to depose Clarkson solely on the issue of LBCDE's sovereign immunity. However, Plaintiffs may only depose Clarkson to obtain information that is not otherwise available through the document discovery sought in Plaintiffs first, second and third document requests.

III. CONCLUSION

For the reasons set forth above, it is hereby

ORDERED plaintiffs Seaport Loan Products, LLC and Aldwych Capital Partner, LLC's motion to compel is granted as to Plaintiffs' first, second and third document requests and as to Plaintiffs' demand to take the deposition of Gavin Clarkson. Plaintiffs' motion is denied as to its fourth, fifth, sixth, seventh and eighth document requests; and it is further

ORDERED that defendant Lower Brule Community Development Enterprise LLC shall produce to Plaintiffs on or before December 31, 2012 the documents requested in Plaintiffs' first, second and third document request; and it is further

ORDERED that defendant shall, within 30 days from production of the aforesaid documents, produce Gavin Clarkson for deposition, at the office of counsel for Plaintiffs,

 

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on a date and at a time convenient for the parties, and it is further

ORDERED that counsel are directed to appear for a status conference in Room 442, 60 Centre Street, on February 19, 2012, at 10 a.m.