Opinion ID: 1413920
Heading Depth: 2
Heading Rank: 1

Heading: Tribal Immunity

Text: Before we can apply legal principles, we must first examine Picopa's relationship with the Indian Community. The Community incorporated Picopa pursuant to art. III, § 5(f) of the Community's constitution. Community Ordinance No. SRO-85-84 establishes Picopa's existence as a corporation under Community law and also functions as Picopa's corporate charter. It defines Picopa as an organization established for general business purposes and confers it with very broad corporate powers. [6] The charter establishes the Community as the corporation's sole stockholder. A clause exempts the stockholder, officers, and directors from any liability for corporate debts. The charter creates a board of directors to control the corporation's operations. This board, like any other board of directors, is elected annually by the stockholder. Each board member serves until his successor is elected and qualified. The charter has no director removal provision. The board has the usual broad general powers over the corporation. For example, the board elects the corporate officers, determines the terms of stock subscriptions, has discretion to issue new classes of stock, and has authority to establish a pension plan and invest it as the board deems best. The charter does not require that either board members or corporate officers be selected from among Community officers or even members. Picopa also holds title to any acquired property in its own name and not in the Community's. The only express limitation the ordinance places on the board's discretion is on the board's ability to exceed the ordinance's corporate debt ceiling. Thus, the corporate board of directors, and not the Community Council, controls Picopa.
We recognized the subordinate economic organization doctrine in White Mountain Apache. There, we held that the Fort Apache Timber Co. (FATCO) was a subordinate economic organization and actually a part of the tribe per se, and, thus, clothed with tribal immunity. 107 Ariz. at 7, 480 P.2d at 657. We pointed out that the tribe's constitution gave it the authority to create `subordinate organizations for economic and other purposes,' id. at 5, 480 P.2d at 655 (quoting Amended Constitution and By-laws of the White Mountain Apache Tribe of the Fort Apache Indian Reservation Arizona (1958)), and that it was apparent that FATCO was such an organization directly subordinate to the tribal government. Id. at 5-6, 480 P.2d at 655-56. FATCO's corporate charter, the Plan of Operation, supported this conclusion by revealing the multitude of ways the tribal government was intimately involved in FATCO's daily operations. For example, the tribal council qua council directly selected FATCO's board members; the council could suspend board members for cause; the board acted for and on behalf of the tribe; FATCO made all of its purchases through the tribe; and FATCO held title to all property, with limited exceptions, in the tribe's name. Id. at 6, 480 P.2d at 656. Thus, in White Mountain Apache, there was abundant evidence that FATCO was merely an extension of the tribal government  a method of doing the tribe's economic business. [7] Subsequently, in S. Unique, our court of appeals addressed the issue of Indian subordinate economic organizations. In that case, the plaintiff filed an action against Gila River Farms (GRF), an unincorporated entity, and the Gila River Pima-Maricopa Indian Community, a corporation established pursuant to 25 U.S.C. § 477. [8] The court held that if it found GRF to be a subordinate economic organization of the Indian government, rather than an instrumentality of the Indian corporation, GRF was beyond the superior court's jurisdictional reach. 138 Ariz. at 380, 674 P.2d at 1378. Finding that GRF was a subordinate economic organization of the community government, the court held that GRF could rightfully assert the immunity defense. Id. at 381, 674 P.2d at 1379. The court relied on the following facts in determining that GRF was the community's subordinate economic organization: GRF was managed by a Farm Board, which functioned `as an extension of the [Community] Council'; the Farm Board was a `technical advisory board' that represented the Indian community; the Farm Board performed duties and obligations `as delegated by the [Community] Council'; GRF's plan of operation provided that any of GRF's financial arrangements must be made satisfactorily to the community council; GRF's records and files were community property; and GRF held property in the community's name. Id. (quoting GRF Plan of Operation). The court found that GRF's Plan of Operation was similar to FATCO's and, accordingly, followed White Mountain Apache by holding that GRF was a subordinate economic organization. Id. In short, the subordinate economic organization doctrine allows Indian tribes to conduct their economic affairs through subordinate governmental agencies without fear of an unintended waiver of immunity. Although this court does not favor bestowing immunities from tort liability for negligence on preferred classes of defendants, Ontiveros v. Borak, 136 Ariz. 500, 512, 667 P.2d 200, 212 (1983); see Stone v. Arizona Highway Commission, 93 Ariz. 384, 381 P.2d 107 (1963), substantial policy considerations militate in favor of recognizing immunity when a tribe conducts tribal business through a tribal economic entity. However, the doctrine was never meant to protect entities conducting non-tribal business. We do not, at this time, attempt to define tribal business or distinguish it from non-tribal business. Suffice it to say that for all this record shows, Picopa's off-reservation activities at the time of the accident were independent of any activity connected with tribal self-government or the promotion of tribal interests. The court of appeals relied on White Mountain Apache, S. Unique, and Graves v. White Mountain Apache Tribe of Fort Apache Indian Reservation, 117 Ariz. 32, 570 P.2d 803 (Ct.App. 1977), cert. denied, 436 U.S. 931, 98 S.Ct. 2831, 56 L.Ed.2d 776 (1978). [9] It found the Picopa charter too similar to those in the cited cases and believed itself constrained to hold that... Picopa enjoys the community's immunity from suit. Dixon, 157 Ariz. at 121, 755 P.2d at 426. The court of appeals reasoned that the only appreciable difference between the Picopa ordinance and the FATCO/GRF plans of operation was that Picopa was incorporated. Id. Furthermore, in consideration of the unique status of Indian tribes as dependent sovereigns, that court would not apply the usual rules of corporate law and presume a corporate waiver of immunity from suit. Id. We believe the court of appeals incorrectly applied the rule of subordinate economic organizations.
We disagree with the court of appeals' view that Picopa's corporate status is the only appreciable difference between Picopa and the subordinate economic organizations found in White Mountain Apache and S. Unique. We further disagree with the court's belief that the fact of incorporation makes little difference in determining whether an Indian commercial enterprise is a subordinate economic organization. We address these issues in turn.
Besides the corporate status, significant differences exist between Picopa and FATCO/GRF. Picopa has a board of directors, separate from the tribal government, which exercises full managerial control over the corporation. Thus, unlike FATCO and GRF, the tribal government does not manage the corporation. See Smith Plumbing Co., Inc. v. Aetna Casualty & Surety Co., 149 Ariz. 524, 533 n. 1, 720 P.2d 499, 508 n. 1 (Feldman, J., dissenting) (recognizing distinction between commercial entities that are part of tribal government and those that are not). Further, the purchase of general liability insurance covering Picopa's negligence and the limited liability clause found in Picopa's charter insulate the Community's assets from Picopa's debts. This counsels against a finding that Picopa is a subordinate economic organization. Although we have held that the presence of liability insurance is irrelevant to determining whether a tribe has waived its immunity, Graves, 117 Ariz. at 34, 570 P.2d at 805, we believe the presence of liability insurance is relevant to the question of whether an Indian commercial entity is a subordinate economic organization under White Mountain Apache. The purchase of liability insurance is some evidence that the Community expected its corporation to be liable for its torts. [10] We also believe that the ordinance's express declaration that the Community formed Picopa solely for business purposes and without any declared objective of promoting the Community's general tribal or economic development further evidences Picopa's independence from the Community. This is an additional factor weighing against a finding that Picopa is a subordinate economic organization. [11] Cf. White Mountain Apache, 107 Ariz. at 6, 480 P.2d at 656 (plan of operation contained express declaration of tribe's general economic development as purpose of commercial entity), and S. Unique, 138 Ariz. at 381, 674 P.2d at 1379 (same).
Most importantly, unlike FATCO and GRF, Picopa was not formed to aid the Community in carrying out tribal governmental functions. [12] So far as its articles or any extrinsic evidence show, Picopa was simply a for-profit corporation involved in construction projects. The present record offers no evidence that Picopa had limited itself to tribal projects. [13] Nor does the record even establish the nature of the business being carried out when the off-reservation accident occurred. We are unwilling to speculate or assume on a silent record whether Picopa, or any other non-tribal entity, can assert the Community's immunity.
We further believe that Picopa's status as a corporation also weighs heavily against a finding that Picopa is a subordinate economic organization. In White Mountain Apache, we stated: In the court below respondent judge also ruled that FATCO was a de facto corporation [and therefore not immune from suit]. In order for a de facto corporation to exist there must be (1) a valid law under which a corporation with the powers assumed might be incorporated; (2) a bona fide attempt to organize a corporation under such law; and (3) an actual exercise of corporate powers. 18 Am.Jur.2d, Corporations § 51, p. 595. In the instant case there is no allegation nor is there any evidence that there was any attempt to incorporate FATCO; therefore, there is no basis for the finding that FATCO is a de facto corporation. 107 Ariz. at 7, 480 P.2d at 657. Thus, we alluded to the materiality of corporate status in our subordinate economic organization analysis. We cannot agree with the court of appeals' opinion that Picopa's incorporation is insignificant in determining the outcome of this case. See Namekagon Development Co. v. Bois Forte Reservation Housing Authority, 395 F. Supp. 23, 26-27 (D.Minn. 1974) (analogizing Indian corporations to corporations created by the United States government and suggesting in dicta that corporate status implies a waiver of immunity), judgment aff'd, 517 F.2d 508 (8th Cir.1975). Tribal sovereign immunity does not apply to individual Indians, but only to Indian tribes and their subordinate economic organizations. Puyallup Tribe, Inc. v. Department of Game, 433 U.S. 165, 172, 97 S.Ct. 2616, 2621, 53 L.Ed.2d 667 (1977) (immunity not extended to individual Indians); United States v. United States Fidelity & Guaranty Co., 309 U.S. 506, 60 S.Ct. 653, 84 L.Ed. 894 (1940) (recognition of tribal immunity); White Mountain Apache (immunity of subordinate economic organizations). Here the Community created an artificial individual, a corporation, and charged it with all the power to act to the same extent as natural persons might or could do.... SRO-85-84 ¶ C. No extrinsic evidence shows that this corporation was intended to act or did act as an extension of tribal government. This artificial individual is not, therefore, a subordinate economic organization and is not entitled to assert the tribal immunity defense. See Puyallup, 433 U.S. at 172, 97 S.Ct. at 2621.
Further, an examination of the federal policies underlying the immunity doctrine convinces us that we should not grant immunity here. Tribal immunity should only apply when doing so furthers the federal policies behind the immunity doctrine. Note, Tribal Sovereign Immunity: Searching for Sensible Limits, 88 COLUM. L.REV. 173, 183, 186 (1988). Several of those federal policies are implicated here: Protection of tribal assets, preservation of tribal cultural autonomy, preservation of tribal self-determination, and promotion of commercial dealings between Indians and non-Indians. Id. at 179, 186-91. Extending immunity to Picopa would not further the federal policy seeking to protect tribal assets. Insurance protects the corporate liability, and the corporate charter exonerates the Community from corporate liability. Therefore, the Community's assets are not threatened by refusing to recognize immunity for an Indian corporation that does not meet the law's definition of subordinate economic organization. Cf. Smith Plumbing, 149 Ariz. at 536, 720 P.2d at 511 (Feldman, J., dissenting) (if tribal assets are threatened, tribal immunity policies are implicated). Policies protective of tribal cultural autonomy and self-determination also remain unhindered by permitting jurisdiction here. Picopa's charter shows that it was established for purely commercial reasons and not in any effort to promote, develop, or protect the Community's culture. Cultural autonomy survives. See Note, supra, 88 COLUM.L.REV., at 186-87. Neither is the Community's self-determination imperiled by our assertion of jurisdiction. This private action based on an off-reservation tort does not in any fashion limit the Community's powers nor the manner in which it exercises those powers. See id. at 187-88. In contrast, the federal government's policy promoting commercial dealings between Indian tribes and non-Indians is furthered by withholding immunity in this case. We realize that, here, Dixon did not voluntarily become involved with Picopa, but we believe that an Indian corporation's successful assertion of immunity, even in a negligence case, may deter persons or entities from entering into contractual relationships with that Indian corporation or any other Indian corporation. Non-Indians will undoubtedly think long and hard before entering into business relationships with Indian corporations that are immune from suit. Note, supra, 88 COLUM.L.REV., at 189 (citing Atkinson v. Haldane, 569 P.2d 151, 174 (Alaska 1977)). This may well retard a tribe's economic growth. Id. Further, Congress's provision for allowing Indian tribes to segregate themselves into governmental and commercial corporate units, see note 8, supra, arguably implies that Congress did not intend all commercial activity undertaken by Indian entities be immune from suit. Note, supra, 88 COLUM.L.REV., at 190. Thus Congress itself recognized that immunity may have deleterious effects on a tribe's economic development. The court of appeals held that the mere act of incorporation did not waive tribal immunity. Although that statement is correct, in this instance it overlooks the real issue. The waiver issue does not arise until Picopa first establishes that it has immunity to waive. We hold that Picopa is not a subordinate economic organization within the meaning of White Mountain Apache and S. Unique, and hence may not assert the Community's tribal immunity. Further, on this record, as a separate corporate entity, Picopa is not entitled to assert immunity in its own right for its off-reservation commercial activities. See Puyallup and Namekagon. We turn, therefore, to the process issues.