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California and the West

Business on Reservation Has Its Own Legal Terrain

Law: Two non-Indian firms that partnered with Cabazons find that their disputes with the tribe may go to a court where the tribal chairman is the judge.


MECCA, Calif. — For a handful of reasons, the notion of an outsider launching a business on an Indian reservation sounds good: cheap land, a tribal government that can speed projects along, minimal environmental restrictions, various tax incentives and federally guaranteed bank loans.

So it is with great optimism that the Cabazon Band of Mission Indians is developing its Resource Recovery Park, situated on 640 acres of desert north of the Salton Sea, to host various types of recycling businesses.

But two of the three business deals struck between the tribe and non-Indian investors have dissolved in financial disputes. And the businessmen say they are frustrated that resolution may only come in a legal venue where they feel most vulnerable: tribal court, where the judge is also the chairman of the very tribe with whom they are feuding.

Their experiences, they say, illustrate the risks of partnering with tribal governments, where litigation ultimately may be resolved by the tribe itself.

The tribe's director of legal affairs, Patrick Schoonover, says that when businesses partner with Indian tribes, they are signing contracts with sovereign government entities with unique legal systems that differ from conventional civil courts where business disputes are usually resolved.

"And that would be true if you do business with another country--Mexico or Canada, for instance," Schoonover said. "If you are going to expand your business to arenas that involve other jurisdictions, then those jurisdictional issues are matters people should contemplate."

The investors who are taking action against the Cabazon Indians say that such an analogy is disingenuous. There is a presumption, they say, that when lawsuits are filed in foreign countries, at least the judge is not a direct investor in the entity being sued. Not so in Indian country, they maintain.

The Cabazon cases involve start-up companies and disputes over issues including whether the non-Indian businessmen invested as much money and expertise in the ventures as they contractually promised, and whether the investors should be able to reclaim their investments.

One group of investors planned to manufacture fine wire for computer applications. In court papers, the group says it invested $150,000 to fund the venture and installed manufacturing equipment valued at about $400,000. The tribe was to invest 50% of the start-up costs, and be awarded 51% control of the partnership, called Specialty Alloys.

For most of 1998, the company was gearing up to make its product. But within months, the tribe filed a notice of default against the investors, claiming they should have invested an additional $150,000 in the partnership. In January 1999, the tribe closed the facility at the Resources Recovery Park.

Christopher Real, the Torrance attorney representing the two businessmen, acknowledges that his clients were obligated to invest more money, a condition he says they did not fully understand when the initially signed their contract with the advice of a different lawyer.

But still, he said, the pair should be able to recover their investment.

As agreed in a business contract, the dispute was first heard by a neutral arbitrator. She ruled that the investors were due the return of their equipment plus $300,000 (their $150,000 initial investment plus damages for the depreciation of the manufacturing devices).

Real took that ruling to U.S. District Court for approval. But there, the tribe filed a motion to reject the arbitration findings. The federal judge refused the tribe's request--but did agree with its attorneys that before any arbitration could be enforced, the tribe's own court should decide whether it also has jurisdiction in the matter.

Months after Real said he requested it, a June 29 date was set for a hearing in tribal court. At that time, tribal chairman John James will determine whether tribal court has jurisdiction to decide whether the arbitration ruling--against his own tribe--should be upheld.

If so, James would then decide if he should sit in judgment or whether a judge from another jurisdiction should be brought in, tribal officials said. Once that decision is made, the tribal court would rule on whether to honor the arbitration decision or rule in favor of the tribe.

Real says he is not confident the tribal court will be unbiased in its handling of the litigation.

"The deck is clearly stacked against us," he said. "I have no opportunity to have anyone hear this matter who is independent of the tribe."

Both Real and Schoonover say it is legally ambiguous whether Real's clients would ultimately be able to appeal a tribal court ruling to a federal court. Carole Goldberg, a law professor at UCLA specializing in Indian law, agrees, saying that federal challenges to a tribal court's jurisdiction are difficult to make.

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