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Monday, August 6, 2012

Another Tribe Renegs on Loans




Nooksack Tribe's unpaid casino loans fuel complex court battle


Published: Aug. 5, 2012
 
 
Nooksack Northwood Casino is located northeast of Lynden. (PHILIP A. DWYER/THE BELLINGHAM HERALD)
The Nooksack Indian Tribe is locked in a high-stakes legal battle with the banks that provided about $39 million in loans to finance the tribe's two casinos.

Both the tribe and the lenders are playing hardball in courtroom maneuvering that may do little more than set the stage for a negotiated settlement. In Seattle, a federal judge recently postponed hearings on motions filed in that venue, on grounds that settlement talks were under way.

The outcome of the complex financial and legal battle could have a serious impact on the 2,000-member tribe headquartered in Deming, and for operation of the tribe's two Whatcom County casinos, which provide hundreds of jobs for Indians and non-Indians.

Tribal Chairman Bob Kelly, who took office after the loans were made, said he preferred not to comment on a pending legal matter.

A Minneapolis law firm representing the lenders did not respond to phone calls seeking comment.

In legal cases filed in Whatcom County Superior Court, attorneys representing a Minnesota loan servicing firm have attempted to seize tribal bank accounts and get control of casino revenues to repay the unnamed banks who say they are entitled to repayment of the loans.

So far the tribe's attorneys seem to have stalled those efforts. They argue that the tribe has sovereign immunity that protects it against lawsuits, even though the tribal council agreed to waive sovereign immunity as a condition of getting the loans before they were made in 2006 and 2007.

Attorneys for the loan servicing firm reply that the tribe has a legal obligation to repay, and that obligation should be enforceable in court.

"If (the tribe's) arguments were the law, any tribal entity would have virtually unfettered discretion as to whether it should have to repay its obligations on a casino loan," attorneys state in one document.

"Any restriction on its discretion, however slight, would relieve the borrower of any duty to pay back the loan. The result would disrupt longstanding business relationships among lenders and tribes; lenders would have no option but to stop making the loans needed for tribal enterprises that benefit their members, and Plaintiff would be wrongfully deprived of its contractual remedies in any forum."

The tribe's attorneys contend that the seeming unfairness of the situation is beside the point.
"Sovereign immunity is a doctrine whose application frequently leads to unfair results," the tribe's attorneys state in a Whatcom County Superior Court document.

In Superior Court, as well as in a federal lawsuit filed in U.S. District Court in Seattle, the tribe's attorneys contend that even though the casino loan agreements were approved by the tribal council, they surrendered too much casino management authority to the lenders. As they see it, that makes the loan agreements equivalent to a "management contract," which many tribes have used when they hire non-Indian firms to help operate their casinos.

But federal law states that all such tribal casino management contracts must get approval from the National Indian Gaming Commission. Since the Nooksack loan agreements never got that federal review, they are not valid and not enforceable, the tribe's attorneys say in court documents.

The tribe also contends that if the lenders had their way, all casino proceeds would have to be used to pay off the loans, leaving no revenue to support tribal programs. That would be contrary to the purpose of tribal casinos as spelled out in federal law: "a means of promoting tribal economic development, self-sufficiency, and strong tribal governments."

The loans at issue include $25.3 million to build and equip the Northwood Casino, and $13.7 million to refurbish the older Nooksack River Casino in Deming and pay off earlier loans.

In the federal lawsuit, the tribe's attorneys maintain that the Northwood loan agreements would have been rejected if the federal gaming commission had taken a look at them. That commission is supposed to act as a trustee protecting tribal interests, and "a trustee, exercising the skill and diligence that a trustee is commonly held to, would not have approved the loan documents ... because from the time the loans were made, Northwood would never have been able to support the monthly debt service to pay off the loans, and the loans were doomed to default."

The tribe's attorneys also have argued that the debts were incurred by two tribally chartered corporations: Nooksack Business Corp. I and Nooksack Business Corp. II, and the banks have no legal claim on the tribe itself or on other tribal revenues. They also complain that the loan servicer, Outsource Services Management, attempted to seize bank accounts without legal notice to the corporations or the tribe itself.

The tribe's legal arguments did not persuade Whatcom County Superior Court Judge Ira Uhrig, who granted a $25.3 million judgment against Nooksack Business Corp. II related to the Northwood casino loans.

In his opinion, Uhrig said evidence showed that the tribal council had approved the waiver of sovereign immunity and the rest of the loan agreements after they had been reviewed and approved by the tribe's attorneys.

Uhrig also noted that on March 29, 2010, then-tribal chairman Narz Cunanan had signed a "confession of judgment" in his dual capacity as president of Nooksack Business Corp. II, acknowledging that the tribal-controlled corporation owed $25.3 million on its Northwood loans.

In an email message, current tribal chairman Bob Kelly said at the time the confession of judgment was signed, Cunanan was serving out the final days of his term of office after Kelly had defeated him in his re-election bid. Kelly said he had been unaware of Cunanan's actions.

The tribe is appealing Uhrig's judgment. Among other things, the tribe challenges Cunanan's authority to admit to the $25.3 million debt.

In a separate case, Whatcom County Superior Court Judge Steven Mura ruled against a tribal motion to dismiss Outsource Services' $13.7 million lawsuit seeking repayment of a Nooksack River Casino loan. Mura rejected the tribe's arguments about sovereign immunity and the need for federal approval of the loan agreement, but he also agreed to forward his ruling on the underlying legal issues to the Court of Appeals for review.

"I believe this issue should be resolved at the appellate level before the parties are made to go to the expense of discovery and trial," Mura said in a letter to both parties, included in public court files.

The tribe also is seeking an injunction in federal court to block the loan servicing firm from taking any action to collect the millions of dollars in unpaid loans to build and equip the Northwood Casino, which opened in 2007.

According to court documents, Marshall Bank and a predecessor, FirstBank, loaned millions to the tribal business corporations beginning in late 2006 with a $15.3 million loan to refurbish the tribe's original Nooksack River Casino in Deming, while paying off older loans. In 2007, the bank provided another $26 million for the construction and furnishing of the tribe's second casino on Northwood Road.

Marshall Bank then sold portions of the loan to other banks but continued to serve as loan servicer.
In August 2009, Marshall Bank filed a lawsuit in Whatcom County Superior Court, alleging that the tribe had stopped making payment on the Northwood loan. In January 2010, the FDIC shut down Marshall Bank, leaving the FDIC in the role of servicer on the tribal loans.

But then, the unnamed banks who had helped finance the deal stepped in and, with FDIC approval, appointed Outsource Services to handle the unpaid debt on their behalf. The identity of those banks is nowhere revealed in court documents.
In March 2010, the tribe announced it had settled the Northwood loan lawsuit from 2009, negotiating new terms with the lender. But court documents indicate that the tribe failed to make required loan payments in January 2012, and that triggered a new round of litigation. http://www.thenewstribune.com/2012/08/05/2240807/nooksack-tribes-unpaid-casino.html

Read more here: http://www.thenewstribune.com/2012/08/05/2240807/nooksack-tribes-unpaid-casino.html#storylink=cpy

Read more here: http://www.thenewstribune.com/2012/08/05/2240807/nooksack-tribes-unpaid-casino.html#storylink=cpy

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