By: Lester Gulitz Published: January 2018

Be Aware of Sovereign Immunity

When the average person hears the expression “sovereign immunity” they may think of situations where foreign diplomats are immune to civil suits and criminal law because of their “foreign diplomate” status. A wise contractor in the construction industry, however, also knows that throughout the state of New York and other states, sovereign nations exist with whom they may transact business. Whether known as “First Nations”, “Indian Nations” or “Indian Tribes”, doing business with them requires the astute contractor to be aware that he or she is dealing with a sovereign nation, who is not be subject to state judicial dispute resolution proceedings.

Such a situation was faced by Aron Security, Inc. when it performed security service work for the Unkechaug Indian Nation, located in Suffolk County, New York. When the Unkechaug’s failed to pay for the services performed, Aron sued them in the Supreme Court in Suffolk County. Judgement was entered in favor of Aron on May 22, 2014, and Aron served an information subpoena on a member of the Unkechaug’s. The Unkechaug’s made a post-judgment motion to dismiss the action based upon the Supreme Court’s lack of subject matter jurisdiction over the Unkechaug’s who are sovereign Indian Tribe. Aron also made a post-judgment motion to hold the Unkechaug person served with the information subpoena in contempt of court for failing to respond. The Supreme Court denied the Unkechaug’s motion to dismiss and it also denied Aron’s motion for contempt, with leave to renew. Both parties appealed to the Appellate Division, Second Department1.

The Appellate Court reversed and dismissed Aron’s action (including its motion for contempt).

In reaching a determination, the Appellate Court referred to U.S. Supreme Court and other federal court decisions, which held: “[T]hat Indian tribes possess common-law sovereign immunity from suit akin to that enjoyed by other sovereigns is part of this Nation’s long-standing tradition”; that, [T]his immunity extends to ‘suits on contracts, whether those contracts involve governmental or commercial activities and whether they were made on or off a reservation”; that, “[A]lthough a tribe may waive its sovereign immunity, such a waiver, while it need not use the words ‘sovereign immunity’, ‘cannot be implied by must be unequivocally expressed’”; and that, “[W]aivers of immunity are to be strictly construed in favor of the Tribe”.

The Appellate Court also noted (citing U.S. Supreme Court and other federal court cases) that unambiguous arbitration clauses in a contract with a tribe, requiring resolution of all contract-related disputes by arbitration and incorporating arbitration rules and state law for enforcement of arbitration awards in a court of competent jurisdiction, are considered as clear waivers of tribal sovereign immunity.

Aron tried to argue that the Unkechaug’s waived their sovereign immunity because the contract contained a choice-of-law provision that required the contract to be governed by New York law and, that the contract contained a venue provision that required any claim or controversy under the contract to be resolved in Suffolk County and no other jurisdiction.

The Appellate Court rejected Aron’s contentions. As to the contract’s venue provision the court held that the “any claim or controversy” language did not require resolution only by a state court. A party could bring a claim before a mediator, an arbitrator, a tribal court, a state or federal court said the Appellate Court.

With respect to the contract’s New York choice of law provision, the Appellate Court said that New York law could be applied in other forums besides a state of federal court. To the extent this provision is ambiguous, said the Appellate Court, the ambiguity must be resolved against Aron, who drafted the contract, and against waiver of immunity.

Under these circumstances the Unkechaug’s cannot be said to have expressed an unequivocal waiver of sovereign immunity said the Appellate Court.

When doing work for Indian Tribes or other sovereign nations, wise contractors recognize that they are in a situation where the rules of engagement may not be what they are used to operating under. A proposed contract, regardless of who drafted it, should be reviewed by an experienced attorney to provide guidance to the contractor regarding the rules that will have to be followed in the event a dispute arises requiring resolution.

1Aron Security, Inc. v. Unkechaug Indian Nation, 2017 NY Slip Op 04413, (2nd Dept. June 7, 2017)

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