April 19, 2018 Articles

Be Aware of Sovereign Immunity

When doing work for Indian tribes or other sovereign nations, wise contractors recognize that they are in a situation where the rules of engagement may not be what they are used to operating under

by Lester Gulitz

When hearing the expression “sovereign immunity,” the average person may think of situations where foreign diplomats are immune to civil suits and criminal law because of their “foreign diplomat” status. A wise contractor in the construction industry, however, also knows that throughout the state of New York and other states, sovereign nations exist with whom they may transact business. Whether known as “First Nations,” “Indian Nations,” or “Indian tribes,” doing business with them requires the contractor to be aware that he or she is dealing with a sovereign nation, which, as such, will not be subject to state judicial dispute resolution proceedings except under limited circumstances.

Such a situation was faced by Aron Security, Inc., when it performed security service work for the Unkechaug Indian Nation, located in Suffolk County, New York. When the Unkechaugs failed to pay for the services performed, Aron sued them in the Supreme Court in Suffolk County. The state court entered a judgment in favor of Aron on May 22, 2014, and Aron served an information subpoena on a member of the Unkechaugs. The Unkechaugs made a post-judgment motion to dismiss the action based on the court’s lack of subject matter jurisdiction over the Unkechaugs, a sovereign Indian tribe. Aron also made a post-judgment motion to hold the Unkechaug person served with the information subpoena in contempt of court for failing to respond. The court denied the Unkechaugs’ motion to dismiss, and it also denied Aron’s motion for contempt, with leave to renew. Both parties appealed to the New York Appellate Division, Second Department. Aron Sec., Inc. v. Unkechaug Indian Nation, 2017 NY Slip Op 04413 (2d Dep’t June 7, 2017).

The appellate court reversed and dismissed Aron’s action (including its motion for contempt). In reaching a determination, the appellate court referred to U.S. Supreme Court and other federal court decisions, which held “that Indian tribes possess common-law sovereign immunity from suit akin to that enjoyed by other sovereigns is part of this Nation’s long-standing tradition”; that “this immunity extends to ‘suits on contracts, whether those contracts involve governmental or commercial activities and whether they were made on or off a reservation’”; that “although a tribe may waive its sovereign immunity, such a waiver, while it need not use the words ‘sovereign immunity’, ‘cannot be implied but must be unequivocally expressed’”; and that “waivers of immunity are to be strictly construed in favor of the Tribe.”

The appellate court also noted (citing U.S. Supreme Court and other federal court cases) that unambiguous arbitration clauses in a contract with a tribe, requiring resolution of all contract-related disputes by arbitration and incorporating arbitration rules and state law for enforcement of arbitration awards in a court of competent jurisdiction, are considered as clear waivers of tribal sovereign immunity.

Aron tried to argue that the Unkechaugs waived their sovereign immunity because the contract contained a choice-of-law provision requiring the contract to be governed by New York law and the contract contained a venue provision requiring any claim or controversy under the contract to be resolved in Suffolk County and no other jurisdiction.

The appellate court rejected Aron’s contentions. As to the contract’s venue provision, the court held that the “any claim or controversy” language did not require resolution only by a state court. A party could bring a claim before a mediator, an arbitrator, a tribal court, a state court, or a federal court, said the appellate court.

With respect to the contract’s New York choice-of-law provision, the appellate court said that New York law could be applied in other forums besides a state or federal court. To the extent this provision is ambiguous, said the appellate court, the ambiguity must be resolved against Aron, who drafted the contract, and against waiver of immunity.

Under these circumstances the Unkechaugs cannot be said to have expressed an unequivocal waiver of sovereign immunity, said the appellate court.

When doing work for Indian tribes or other sovereign nations, wise contractors recognize that they are in a situation where the rules of engagement may not be what they are used to operating under. Contractors should have a proposed contract reviewed, regardless of who drafted it, by an experienced attorney to provide guidance on the rules that will have to be followed in the event a dispute arises requiring resolution.

Lester Gulitz is counsel to Welby, Brady & Greenblatt, LLP.


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