Protecting Lease Transactions in Indian Areas

Robert S. Bernstein
Kirk B. Burkley
Bernstein-Burkley, P.C.

This article appeared in the Equipment Leasing Newsletter , January 2003

There are over 500 nationally recognized Indian Tribes in the United States, and as a general rule, state civil laws do not apply to transactions arising in Indian country. As gaming and other profitable enterprises, such as the mining of raw materials, continue to expand in Indian Country (whether on Reservations or not), so do the tribes’ coffers. It is expected, therefore, that more business transactions will occur with Indian Tribes.

Due to the increasing amount of commerce taking place with and in Indian Nations, it is not unlikely that more equipment lessors will soon find themselves examining potential lease agreements with various types of businesses located in Indian Country, as well as with the nations, themselves. A basic premise and rule of thumb for companies seeking to do business in Indian Country is that a tribe has the sovereign power to enact and enforce civil laws regulating the conduct of its members and of non-Indians who come upon tribal land. Uniform Laws and Tribal Legislation; One Tribe’s Perspective, 26 Am. Indian L. Rev. 89, 95 (2002).

When choosing to do business in Indian Country lessors need to be aware of a couple important issues when determining how to protect their interest in property. Lessors first need to discover where (and how) to record notice of their interest in property. In most cases this means where to file UCC financing statements. Furthermore, lessors must analyze the appropriate procedure for recovering their property if a lessee defaults on the lease. The outcome of these issues varies from tribe to tribe and the specific tribal code must be examined before entering into a transaction.

Similar to a state, a tribe may regulate, through taxation, licensing, or other means, the activities of nonmembers who enter consensual relationships with the tribe or its members, through commercial dealing, contracts, leases, or other arrangements. Id. Because of this tribal autonomy, before entering into a lease agreement with an entity located in Indian Country, a lessor should examine how that particular tribe treats secured transactions. This done, if tribal law is unclear or different than the law under which the lessor normally operates, the transaction has to be fully analyzed to determine the risks and the rewards. A large value, but marginally profitable transaction may very well be discouraged.

The reality that the uncertainty of this situation is detrimental to the tribe has caused numerous Indian tribes to enact some form of common and predictable legal system. The Sac and Fox Tribe in Oklahoma, for example, adopted a version of the UCC Article 9 for its own use. The Sac and Fox Secured Transactions Code was adopted into law on November 2, 1984 and governs all security interests created by contract including, among others, pledge, assignment, chattel, mortgage, conditional sale, lien or title retention, and lease or consignment intended as security. Id. at 102. This code was recently complimented in 2000 with three new pieces of legislation dealing with private business organizations conducting commercial and business activities within the Sac and Fox Indian country. Entities doing business with the Sac and Fox Nation now have a greater range of options under the laws of the Sac and Fox Nation when doing business with the Tribe. Id. at 104.

Some tribes, including the White Mountain Apache Tribe of Arizona, completely defer to the commercial code of the state in which they sit. The White Mountain Apache Business Code § 6.3, UCC Provisions, provides that: “Insofar as there is no conflict with the provision of this chapter, the provisions of the Uniform Commercial Code dealing with secured transactions, and set forth in Title 47 of the Arizona Revised Statutes shall supplement this chapter and shall apply to disputes arising in connection with its administration and enforcement.” Due to the White Mountain’s deferral to the Arizona system, lessors doing business with the tribe file their financing statements as they would in any other transaction.

Other tribes, however, such as the Choctaw Nation in Oklahoma, have not addressed the commercial code in any meaningful way. They haven’t enacted their own form of the commercial code, nor do they refer to the state system. Lessors doing business in Indian country where there is no formal business code or method of deferring to the state need to proceed with extreme caution.

In the absence of specific rules, one suggestion for lessors doing business in Indian Country, similar to the Choctaw Nation in Oklahoma, is to file in the otherwise appropriate state system. This should give other creditors notice of the lessor’s interest in the subject equipment. At least it is better than not doing anything to “perfect” one’s interest. If litigation arises over ownership of the property, this constructive notice may carry the day in court for the filing lessor. Furthermore, even if adversarial proceedings take place in tribal court, one would hope that justice would require that filing in the state system would give the filing lessor a stronger argument as to ownership.

Another suggestion is to negotiate collateral or security located outside of the Indian Area or Tribal ownership, or the assignment of the right to receive payment of the proceeds from others types contracts. This is what a mortgage bank and real estate development company did in Rothschild v. Northwestern National Bank of Saint Paul, 309 Minn. 35, 37, 245 N.W.2d 844, 846 (1976), where Rothschild took as security the right to receive payment from construction contracts on Indian land, rather than an interest in the real property that Rothschild financed, because Rothschild could not have perfected a security interest in real property located on the Reservation.

Lessors may also run into problems when they attempt to recover property located in Indian Country. For example, the Yankton Sioux Tribal Code of Creditors’ Rights and Responsibilities, Title IX § 9-1-1 has eliminated all forms of self-help. Most Indian Tribes, including the Yankton Sioux, require that before a creditor can recover their property, the creditors must first obtain a judgment in the Tribal Court and then apply to have the appropriate tribal authorities recovery the subject property. The difficulty of repossessing property may further justify lessors negotiating a security interest in external collateral similar to that in Rothschild.

Many tribes will recognize foreign judgments. The Oglala Sioux Tribe for example, allows a creditor to enforce a final foreign court judgment after review by the Tribal Court of a written petition that must be filed with the Court. This may substantially lessen the expense of repossessing property when lessees are in default. Lessors must examine the particular tribes rules on the recovery of property when calculating risk and the cost of the subject lease.

In recognition of the uncertainty presented to companies dealing with Indian tribes, the National Conference of Commissioners on Uniform State Law (“NCCUSL”) created the Committee on Liaison with Native American Tribes. The purpose of this Committee is to encourage uniformity of laws among tribal nations and the states on appropriate subjects. The hope is that the final product will be beneficial both to tribal governments and entities wishing to do business in Indian Country, but for now lessors must settle with analyzing their transactions on a tribe-by-tribe basis.

There are several sources available to lessors who want to examine a particular tribe’s code before entering into a transaction. The University of Oklahoma School of Law maintains an excellent website at with links to numerous tribal codes and constitutions. Lessors may also contact the Bureau of Indian Affairs for the state where the tribe is located or check the website of the particular tribe with which one seeks to do business. When all else fails, contact the tribal counsel or legal department and find out how other lessors are protecting their interest when doing business with that tribe. Most tribes welcome commerce and will provide companies with the information they need to make an informed decision about doing business in Indian Country.

Remember, the various Tribes’ positions on secured transactions and leases vary widely. The issues arise when doing business with an Indian Tribe and when doing business in Indian Country. Lessors would do well to watch these issues to enhance the likelihood of recovery in the event of a default.

Comments are closed.