Court Denies Indian Entity's Claims of Sovereign Immunity

, New York Law Journal

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A financial services company associated with the Lower Brule Indian tribe is not protected by sovereign immunity, a Manhattan state judge has ruled, allowing a lawsuit against the company over a failed loan purchase deal to go forward.

Supreme Court Justice Eileen Bransten (See Profile) ruled on Oct. 22 in Seaport Loan Products v. LBCDE, 651492/12, that the company, Lower Brule Community Development Enterprise, or LBCDE, is effectively a private, for-profit entity despite its association with the tribe.

LBCDE is being sued by Seaport Loan Products, which claims that LBCDE failed to close on a loan purchase deal arranged by Seaport.

LBCDE is a subsidiary of Lower Brule Corporation, which was incorporated by the Lower Brule Sioux tribe of South Dakota pursuant to Section 17 of the Indian Reorganization Act. Section 17 allows tribes to create corporate entities that are, like the tribes themselves, protected by sovereign immunity.

Lower Brule Corporation's corporate charter states that all of its subsidiaries also have sovereign immunity. However, LBCDE is incorporated in Delaware, and not under Section 17.

In 2010, LBCDE loaned $22.5 million to one of its own affiliates, LBC Western Holdings. LBC Western Holdings acted as a holding company for financial services firm Westrock Group Inc., which it bought in 2009.

At the time, Westrock was "struggling," according to Bransten's decision, and the loan was an effort to save it. The U.S. Department of the Interior guaranteed 90 percent of the loan and interest.

In 2011, LBCDE sought to sell the loan. It entered into an agreement with Seaport to help find a buyer. In January 2012, according to Seaport's lawsuit, Seaport had found a buyer for the secured portion of the loan, Farm Credit Services of America, and LBCDE agreed to close on the deal.

However, according to the suit, LBCDE did not close, and announced in March 2012 that it was selling the loan to Great American Insurance Group at a higher price instead. The lawsuit includes claims for breach of contract and unjust enrichment.

LBCDE moved to dismiss the suit on the grounds that it is shielded by sovereign immunity. Seaport countered that it needed discovery on that issue; LBCDE argued that sovereign immunity shielded it even from discovery.

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