Opinion ID: 1226463
Heading Depth: 3
Heading Rank: 2

Heading: Operative Versus Precursory Obligations

Text: We also reject the Catskill Group's assertion that the federal voiding provisions apply at most to the operative provisions of the contracts at issue, but not the precursory obligation of the Tribe to use reasonable best efforts in obtaining the requisite government approvals. The same argument was rejected by the Ninth Circuit in A.K. Mgmt. Co. v. San Manuel Band of Mission Indians, 789 F.2d 785, 788-89 (9th Cir.1986). In A.K., a bingo contractor entered into an agreement to construct a bingo facility and operate bingo games on the Indian tribe's reservation. Id. at 786. The agreement was never signed or approved by the BIA, which, prior to the establishment of the NIGC, was the agency responsible for overseeing gaming contracts under 25 U.S.C. § 81. Id. Three days after the agreement was signed, the contractor was notified that the Indian tribe would not recognize the agreement. Id. The contractor filed a suit in district court seeking a declaration that the agreement was valid, binding, and enforceable, but the district court dismissed the contractor's complaint. Id. On appeal, the contractor argued, inter alia, that the tribe was subject to both an express and implied duty of good faith and fair dealing to seek the BIA's approval. Id. at 788. The contractor further argued that the tribe should not be allowed to escape contractual liability by its own failure to act. The Ninth Circuit rejected these arguments, explaining: Whatever the persuasive force of these arguments, it is doubtful that general contract principles apply to an agreement subject to 25 U.S.C. § 81 (1982). Section 81 explicitly provides that a contract is null and void without written approval from the BIA. Therefore it is logical to conclude that an agreement without BIA approval must be null and void in its entirety. No part of it may be enforced or relied upon unless and until BIA approval is given. BIA approval is an absolute prerequisite to the enforceability of the contract. To give piecemeal effect to a contract as urged by [appellant], would hobble the statute. The plain words of section 81 simply render this contract void in the absence of BIA approval. Since it is void, it cannot be relied upon to give rise to any obligation by the [tribe], including an obligation of good faith and fair dealing. Accordingly, we find that general contract principles do not impose a duty on the [tribe] to seek BIA approval of the Agreement. Id. at 789 (footnote omitted). We are persuaded by both the reasoning and holding of A.K. Like § 81, the federal review provisions at issue in our case are broadly worded, are designed to protect the best interests of Indian tribes, and do not draw the distinction between operational and precursory obligations urged upon us by the Catskill Group. Moreover, we are unmoved by the Catskill Group's broader policy argument that the enforcement of good faith obligations is, on balance, in the best interest of Indian tribes. Specifically, the Catskill Group argues that it hardly serves tribal interests to have `freedom' to walk away from a bargained-for obligation to seek approval after its contracting partner has spent much time and money doing the arduous legwork involved in the approval process; rather, this will only imperil a tribe's ability in the first instance to find worthy partners prepared to contract on favorable terms. While in theory it is possible that investors may be less inclined to deal with Indians who are free to disregard obligations to perform in good faith, we are aware of no empirical evidence that supports this concern. Indeed, to allow tribes the ability to walk away from a deal prior to agency approval seems at least equally likely to promote the ends of IRGA: an investor who fears losing a tribe's partnership to a competitor can protect itself by offering a more attractive deal to a tribe, which is in that tribes's best interest. Finally, the Catskill Group's reliance on Vanadium Corp. of Am. v. Fidelity & Deposit Co., 159 F.2d 105 (2d Cir.1947), is unavailing. In Vanadium, two non-Indian parties contracted for a variety of mining lease assignments. Id. at 106. Because the land underlying the leases belonged to the Navajo tribe of Indians, a federal statute was triggered, requiring pre-approval by the Secretary of the Interior for any transfer or assignment of a mining lease on Indian land. Id. (citing 25 U.S.C. § 396a). Additionally, the parties separately contracted for a provision providing that in the event the assignments were not approved . . . the agreement would be deemed cancelled. Id. Thereafter, the plaintiff determined that the assignments were unfavorable, refused to cooperate in seeking federal approval (which consequently was denied), and sought return of his deposit, arguing that the contracts were dead without approval. Id. at 107-08. This Court disagreed, explaining that [i]t was surely not the intent of the parties when they made an apparently binding assignment that the plaintiff should have the power to invalidate the assignment by not filing it for approval. On the contrary, it must have been assumed that plaintiff would reasonably file it and in good faith seek its approval. Id. at 108. While the above-quoted language from Vanadium offers some support for the Catskill Group's theory that agreements to act in good faith are enforceable even prior to receipt of government approval, Vanadium did not establish a per se rule to that effect. Moreover, Vanadium is distinguishable from this case in two crucial respects. First and foremost, in Vanadium the plaintiff's argument that the agreement was void absent federal approval had a contractual genesis; neither the statute nor regulation at issue, 25 U.S.C. § 396a and 25 C.F.R. § 186.26, contained a voiding provision. Accordingly, this Court applied the general contract principle of good faith to decide the case. See id. at 108 (noting plaintiff's breach of a condition precedentgood faithto the contract and citing to the Restatement (Second) of Contracts § 395). Here, however, we confront a voiding provision entrenched within a federal regulation, 25 C.F.R. § 533.7, suggesting a federal intent that, lacking the Secretary's approval, contracts subject to IGRA are void ab initio, notwithstanding general contract principles to the contrary, like good faith. Second, unlike in this case, the parties in Vanadium were not Indian, thus the underlying policy of promoting Indian interests was not upset by the invocation of general contract principles. Indeed, such policy concerns did not appear to have been given any consideration by the panel in that case. [18] Accordingly, we reject the Catskill Group's contention that the purported good-faith obligations in the contracts somehow bound the Tribe to use reasonable best efforts in obtaining the requisite government approvals. [19]