November 28, 2008

Tribal Sovereign Immunity

Some weeks back I mentioned one of the “stack the deck” provisions that is often included in business contracts. This time I want to focus on a critical “unstack" the deck provision that is mandatory in certain types of transactions. What I’m referring to is a waiver of sovereign immunity when doing business with any tribe or tribal entity.

48_black_pan.jpgBy “tribe” I don’t mean a group of people with similar interests, such as the coterie of fine gentlemen who own classic Harley-Davidson motorcycles with Panhead engines. No, I’m talking about Native American tribes. Or more specifically, Native Alaskan tribes. The federal gummint has explicitly recognized literally hundreds of different tribes and tribal entities in Alaska, any one of which might enter into a business transaction for one reason or another.

Alaskans sometimes overlook the importance of tribes in the Last Frontier. The tribes play a critical role in Alaska life. The Native Alaskan tribes often deliver services that no one else can provide or is willing to provide -- like, for example, health care in the Bush.

But Native Alaskan tribes have another attribute that figures into commercial transactions. They are recognized under the law as being their own sovereign nations. They enjoy immunity from suit in much the same way the State of Alaska or the U.S. of A. does. Even in Alaska where there is no Indian Country north of Metlakatla (at least the federal courts have not yet been able to find any), the tribes enjoy sovereign immunity. The tribes, and some tribal entities they establish, cannot be sued in either state or federal court without the tribe’s own permission.

So the lawyers handling commercial transactions in Alaska have to be alert to who exactly is involved in the deal. Any contract with a tribe or a tribal entity simply must include an express waiver of sovereign immunity. And the waiver has to be precise in order to be effective. If there is no effective waiver of immunity, then the options for enforcing the contract are going to be either very limited (tribal court, perhaps) or entirely nonexistent. (For more on tribal sovereign immunity in business transactions, I recommend reading this article in the most recent edition of Business Law Today.)

A November 14 decision of the Ninth Circuit illustrates the strength of tribal sovereign immunity. In Cook v. Avi Casino Enterprises, Inc., the employees of a tribal corporation operating a casino in Nevada got together in the casino after work to celebrate a birthday. The manager on-duty announced that drinks were "on the house” for the employees. One of the employees became obviously drunk. The drunk got on the casino's shuttle bus and the driver delivered her to the employee parking lot, where she promptly got into her car to drive home. Just a few miles down the road, she swerved into on-coming traffic and collided with Mr. Cook on his motorcycle. (I doubt the bike was a Harley Panhead, but the court’s opinion does not give the make or model.) Mr. Cook suffered catastrophic injuries, including the loss of a leg. The drunk employee, who had a blood/alcohol level of over three times the legal limit, pled guilty to aggravated assault and DUI. She was packed off for a four-year stretch in the Stripey Hole.

When Mr. Cook sue the tribal entity running the casino for serving alcohol to an intoxicated person and letting her get into a car to drive, both the trial court and the Ninth Circuit said: “No dice.” The tribal entity was protected by sovereign immunity and could not be sued. Every argument Mr. Cook’s lawyer made for finding an implied waiver of immunity came up snake eyes. The courts even extended immunity to the fellow employees of the casino who had served up the liquor.

The Cook case, of course, was a tort lawsuit, not one involving a business deal. But if the courts aren’t going to help out poor Mr. Cook in overcoming sovereign immunity -- when all he did was ride his motorcycle down the road -- how much help are they are going to be to a businessperson who willingly enters into a deal with an immune tribal entity? Not much, I’m afraid, which is why an explicit waiver of sovereign immunity is required in these transactions.

By the way, did you know that the Harley Panhead engine was preceded by the Knucklehead engine of the 1930s and 1940s? The name came from the protruding “knuckles” on the sides of the valve covers that accommodated Harley’s first overhead valve design for the V-twin engine. The Knucklehead bikes are prized collectors' items today. I suppose the Harley enthusiasts who have motorcycles with these old engines are, in one sense, members of the Knucklehead tribe. Perhaps they would accept an honorary member?

November 21, 2008

Ghost Bike In Anchorage

I saw my first ghost bike in Anchorage this morning. It was a somber shock for a Friday morning commute.

The ghost was leaning against a sign, in the median strip of C Street, at the intersection with 40th. It was a true apparition. The headlights from the passing traffic swept across it in the morning dark. The stark white bicycle gleamed back at the motorists, standing as a silent witness to the transgression of one of them.

Picture%20003.jpgI’m not sure how many folks in Anchorage know what a ghost bike is. A ghost bike appears at the location where a bicyclist has been killed or seriously injured. According to ghostbikes.org, ghost bikes first began to be seen in St. Louis in 2003. They are memorials to a life that has been lost or damaged, and they are protests against the sometimes terrible dominance of the internal combustion engine. Their numbers have been increasing across the country and now the world. But I’ve never seen one in Alaska. That is, not until today.

This particular ghost has appeared for a young man who is no longer riding his bicycle among us. On the morning of October 20, 2008, 19-year-old Jonathan Johnson was riding across C Street at 40th when an SUV struck him. He was seriously injured in the accident and died from his injuries a few days later.

I did not know Jonathan Johnson. But during my drive to work on October 20, I saw the accident scene. The police and paramedics were still in the intersection when I drove by that day. The flashing lights of the emergency vehicles raked through the dark. Traffic was completely stopped in the southbound lane of C Street; it was crawling in the northbound lane.

I did not know Jonathan Johnson. So I cannot tell you what the aftermath of his accident and death will be. There may be legal issues to sort out, such as liability questions, insurance issues, etc. I'm not sure. The Anchorage Daily News reported that the police did not cite the driver of the SUV in the accident.

I did not know Jonathan Johnson. But I ride the same bike routes he did. When I can squeeze a bike commute in, I ride the bike trail along C Street to my office downtown, summer and winter alike. For all I know, I could have passed Jonathan Johnson going the other way on the bike trail one day as I was making my way to work. I have a connection to Jonathan Johnson because I know that what happened to him could also happen to any other bike commuter, myself included.

I did not know Jonathan Johnson. But I know what it is like to ride bikes in Anchorage. There was a recent article in the paper about Anchorage being called a “bike friendly” city. The author of the article did not agree with that characterization, saying Anchorage was a "city with no shortage of dangerous places to ride." I also think that calling Anchorage a “bike friendly” city is a dubious description, although I can say that it is a whole lot friendlier to bikes than it used to be.

I did not know Jonathan Johnson. But I drive the streets of Anchorage the same as the young woman who ran her SUV into him. I know the challenge of coming upon a bicyclist in the dark when you are not keeping an eye out for one. After Jonathan’s accident, the Bicycle Commuters of Anchorage posted a notice on their website reminding cyclists to use lights and reflectors for winter rides.

I did not know Jonathan Johnson. But I feel sympathy for his family. A life cut short at 19 years of age is a thing impossible to ever fully accept.

I did not know Jonathan Johnson. But I am a fellow citizen and cyclist of Anchorage. I can feel his passing, and I am sad there is one less cyclist in my city.

I did not know Jonathan Johnson. But I know the ghost that stands for him now.

November 4, 2008

A Novation Is Not A Car

“You need a novation,” I say.

I can hear the client literally scratching his head on the other end of the line.

“You mean I need an crappy old Chevy?” He asks, clearly puzzled.

“No, no, no,” I say. “You're thinking of a Nova, or maybe a Citation. I’m talking about a novation. It’s an agreement in which a new party is substituted in for another.”

Because we are discussing a real estate lease in this case, I go on to explain the nuances of the law about privity of contract and privity of estate. I tell the guy that an assignment of the lease to another party gets his business out of “privity of estate” but it does not get him out of “privity of contract.”

“Since your business made a contract with the landlord, you are in privity of contract with the guy," I tell him.

"You promised the landlord you would do certain things, like pay the rent every month and keep the premises insured. You can’t get out those obligations just by assigning the lease to someone else, even if the landlord approves of the assignment. The transfer of possession breaks the privity of estate you have but not the privity of contract. You have to get the landlord to let you out of privity of contract through a novation.”

He asks: “What if I skip that part and just let the new company move in? As long as the landlord gets his rent he will be happy, I think.”

“Well, the landlord could claim a breach of the assignment provision in your lease and evict the new guys.” I caution him. “More importantly, you could face liability down the line. How many more years does your lease have to run?”

“Another seven years,” he says. “But we need a bigger space, which is why I had my real estate gal find this new company to take over.”

“Well, you are on the hook for the next seven years, whether you want to be or not, unless you do a novation,” I say. “If the new company defaults on the lease anytime in the next seven years, the landlord can come after you. So down the road, this lease that you thought you were all done with could come back to haunt you.”

“OK, OK,” he concedes. “You talked me into it. Write up your crappy old Chevy agreement.”

275redchevy.jpg“I’ll be glad to.” I say. “But you’ve got to talk your landlord into accepting it along with the new company.”

“Besides,” I add. “A mid-sixties Chevy Nova SS with a small block V8 shoehorned under the hood and four on the floor was a legitimate muscle car. It was a thing of beauty, as long as you were going in a straight line.”

“Spare me the history lesson,” he tells me. “Just get me out of this lease!”