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Stifel, Nicholaus & Co., Inc. v. Lac DU Flambeau Band of Lake Superior Chippewa Indians

United States Court of Appeals, Seventh Circuit

November 24, 2015

STIFEL, NICHOLAUS & COMPANY, INC., et al., Plaintiffs-Appellees,
v.
LAC DU FLAMBEAU BAND OF LAKE SUPERIOR CHIPPEWA INDIANS and LAKE OF THE TORCHES ECONOMIC DEVELOPMENT CORPORATION, Defendants-Appellants/Cross-Appellees and GODFREY & KAHN, Plaintiff-Appellee/Cross-Appellant,

Argued April 9, 2015.

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Appeal from the United States District Court for the Western District of Wisconsin. No. 3:13-cv-00372-wmc -- William M. Conley, Chief Judge.

For Stifel, Nicolaus & Company, Inc., Stifel Financial Corporation, Plaintiffs - Appellees (14-2150): Brian G. Cahill, Attorney, Gass Weber Mullins LLC, Milwaukee, WI.

For Saybrook Fund Investors, LLC, Ldf Acquisition, LLC, Wells Fargo Bank, NA, Plaintiffs - Appellees (14-2150): Charles S. Bergen, Attorney, Shook, Hardy & Bacon LLP, Chicago, IL; Laura Kathleen McNally, Attorney, Loeb & Loeb LLP, Chicago, IL.

For Godfrey & Kahn, Plaintiff - Appellee (14-2150): James R. Clark, Attorney, Foley & Lardner LLP, Milwaukee, WI; Eric G. Pearson, Attorney, Foley & Lardner LLP, Milwaukee, WI.

For Lac DU Flambeau Band of Lake Superior Chippewa Indians, Lac DU Flambeau Band of Lake Superior Chippewa Indians, Defendants - Appellants (14-2150): Timothy M. Hansen, Attorney, Hansen Reynolds Dickinson Crueger, Milwaukee, WI.

For National Indian Gaming Association, Amicus Curiae (14-2150): Elizabeth L. Homer, Attorney, Homer Law Chartered, Washington, DC.

For National Congress of American Indians, Amicus Curiae (14-2150): Kurt V. BlueDog, Attorney, Bluedog, Paulson & Small P.L.L.P., Minneapolis, MN.

For Godfrey & Kahn, Plaintiff - Appellant (14-2287): James R. Clark, Attorney, Eric G. Pearson, Attorney, Foley & Lardner LLP, Milwaukee, WI.

For Lac DU Flambeau Band of Lake Superior Chippewa Indians, Lake of The Torches Economic Development Corporation, Defendants - Appellees (14-2287): Timothy M. Hansen, Attorney, Hansen Reynolds Dickinson Crueger, Milwaukee, WI.

For National Indian Gaming Association, Amicus Curiae (14-2287): Elizabeth L. Homer, Attorney, Homer Law Chartered, Washington, DC.

For National Congress of American Indians, Amicus Curiae (14-2287): Kurt V. BlueDog, Attorney, Bluedog, Paulson & Small P.L.L.P., Minneapolis, MN.

Before FLAUM, RIPPLE, and WILLIAMS, Circuit Judges.

OPINION

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RIPPLE, Circuit Judge.

The current appeal is the most recent in a series of lawsuits that have arisen over the sale of bonds by the Lake of the Torches Economic Development Corporation (" the Corporation" ), a corporation wholly owned by the Lac du Flambeau Band of Lake Superior Chippewa Indians (" the Tribe" ) (collectively " the Tribal Entities" ). In a prior action in this court, Wells Fargo Bank (" Wells Fargo" ) had alleged that the Corporation had breached a bond indenture and, as trustee for the bondholders, had sought " the appointment of a receiver to manage the trust security on behalf of the bondholder." Wells Fargo Bank v. Lake of the Torches Econ. Dev. Corp., 658 F.3d 684, 686 (7th Cir. 2011). We held that the bond indenture constituted an unapproved management contract under the Indian Gaming Regulatory Act (" the IGRA" ), 25 U.S.C. § § 2701-2721, and was therefore void. Following our decision, the validity of other bond-related documents continued to be litigated in other courts.

After more than three years of litigating in federal and state court, the Tribal Entities instituted a tribal court action in April 2013 seeking a declaration that the bonds are invalid under the IGRA as well as tribal law. The action currently before the court represents the efforts of the non-tribal parties to put an end to the tribal court action. Those non-tribal parties are: Stifel, Nicolaus & Company, Inc., the initial purchaser of the bonds; Stifel, Nicolaus & Company's parent corporation, Stifel Financial Corporation (collectively " Stifel" ); LDF Acquisition, LLC (" LDF" ), a special purpose vehicle created by the predecessor of Saybrook Fund Investors, LLC (collectively " Saybrook" ) for the purpose of purchasing the bonds; Wells Fargo; [1] and Godfrey & Kahn S.C. (" Godfrey" ), counsel to the Corporation and bond counsel to the transaction. Specifically, the Financial Entities and Godfrey sought an injunction in the Western District of Wisconsin to preclude the Tribal Entities from pursuing their tribal court action.

Following the submission of evidence and a hearing, the district court preliminarily enjoined the Tribal Entities from proceeding against the Financial Entities, but allowed the tribal action to proceed against Godfrey. The Tribal Entities appealed the district court's grant of the injunction, and Godfrey cross-appealed the district court's denial of the same.

We now affirm in part, and reverse and remand in part. We agree with the district court that tribal court exhaustion was not required. We also concur that the Tribal Entities effectuated a valid waiver of their sovereign immunity, and, therefore, the action against them may proceed. Finally, we agree that the Financial Entities have established a substantial likelihood of succeeding in their challenge to the tribal court's jurisdiction; we conclude, therefore, that the district court did not abuse its discretion in enjoining the tribal court action against the Financial Entities.

With respect to Godfrey's cross-appeal, we conclude that the district court made several errors of law in assessing whether Godfrey had established a likelihood of success on the merits. With respect to

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Godfrey's cross-appeal, therefore, we reverse the judgment of the district court and remand for further proceedings.

I

BACKGROUND

A. Facts

1.

The Corporation is chartered under tribal law to own and operate the Lake of the Torches Resort Casino (" the Casino" ). The Casino is a gaming facility located on tribal lands in northern Wisconsin and is operated pursuant to a tribalstate compact with the State of Wisconsin.

In 2007, " the Tribe decided to diversify its operations by investing in a project to build a riverboat casino, hotel and bed and breakfast in Natchez, Mississippi. In order to secure funding for that investment and to refinance $27.8 million of existing debt, [the Corporation] issued $50 million in taxable gaming revenue bonds" in January 2008. Wells Fargo Bank, 658 F.3d at 688-89. Godfrey, in its capacity as counsel to the Corporation and bond counsel for the transaction, issued two opinion letters as to the meaning of several bond-related documents and the legality of the bond transaction.

The bonds were sold to a brokerage firm, Stifel, and then resold to LDF. " The bonds, which were secured by the revenues and related assets of the Casino, were accompanied by a trust indenture ('the Indenture') naming Wells Fargo as trustee." Id. at 689 (footnote omitted). The Indenture included numerous provisions " that vested in Wells Fargo and the bondholder the power to ensure that [the Corporation] satisfied its repayment obligations." Id. This power included oversight of Casino revenues, which the Corporation was required to deposit in an account controlled by Wells Fargo.

Along with the Indenture, there were several other documents relevant to the transaction: the Specimen Bond,[2] a Bond Purchase Agreement,[3] a resolution related to the issuance of the bonds (" the Bond Resolution" ),[4] a Tribal Resolution,[5] and opinion letters by Godfrey[6] (collectively " the Bond Documents" ). Several of these documents contain (1) waivers of sovereign immunity on behalf of the Tribal Entities; (2) forum selection clauses designating the United States District Court for the Western District of Wisconsin (or, alternatively, the courts of Wisconsin) as the exclusive forum for disputes concerning the bond transaction; and (3) choice-of-law clauses designating the law of Wisconsin as the law according to which the documents were to be construed and disputes were to be resolved.

The Natchez investment proved to be less lucrative than expected, and the Tribe had trouble meeting its bond obligations. In October 2009, the Tribe elected a new governing council that had campaigned on a pledge to repudiate the bonds. The Corporation eventually repudiated its obligations under the bonds and refused to repay the $46,615,000 remaining principal or the interest.

2.

When the Corporation repudiated the bonds, Wells Fargo brought an initial action

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in federal district court to enforce the Indenture. The district court, however, dismissed the action for lack of subject matter jurisdiction. It believed that several provisions of the Indenture " provide[d] Wells Fargo and Saybrook with significant authority to set up working policy for the Casino's operations." Id. at 690. As such, the Indenture constituted a management contract under the IGRA and was void because it had not been submitted to the Indian Gaming Regulatory Commission (" Commission" ) for approval. See id. at 691. Moreover, " [b]ecause unapproved management contracts are void, the waiver of sovereign immunity contained in the Indenture also was void and the district court was without jurisdiction. Consequently, it dismissed the case." Id.

The district court subsequently denied Wells Fargo's motion to amend its complaint to assert claims based on other documents in the bond transaction, such as the bond itself. According to the district court, the other documents on which Wells Fargo sought to rely were " collateral agreements within the meaning of Commission regulations and, in the view of the district court, [we]re therefore also void." Id. at 692 (internal quotation marks omitted).

On appeal, we affirmed the district court's judgment that the Indenture was void as an unapproved management contract. We determined, however, that the district court's conclusion--that the other documents related to the bond transaction also were void--was premature:

It is not immediately apparent that the waivers contained in the documents attached to the proffered amended complaint, when read separately or together, ought to be construed as dependent on the validity of the waiver in the Indenture and that they do not make clear the Corporation's intent to render itself amenable to suit for legal and equitable claims in connection with the bond transaction.

Id. at 701. We " conclude[d] that the district court should have permitted Wells Fargo leave to file an amended complaint to the extent that it presented claims for legal and equitable relief in connection with the bond transaction on its own behalf and on behalf of the bondholder." Id. at 702. We also were mindful, however, that there was a question whether Wells Fargo could seek that relief now that the Indenture was void. Thus, the district court would have to " address whether Wells Fargo's standing to seek such relief on behalf of the bondholder survives the voiding of the Indenture." Id. We instructed that, after determining the standing issue, the district court " should proceed to address whether the transactional documents, taken alone or together, evince an intent on the part of the Corporation to waive sovereign immunity with respect to claims by Wells Fargo on its own behalf and, if it has standing to do so, on behalf of the bondholder." Id.

On remand, Wells Fargo was unsuccessful in crafting a complaint that named all of the real parties in interest and also preserved diversity of citizenship. It therefore moved to dismiss its complaint voluntarily on April 9, 2012.

3.

Prior to Wells Fargo's voluntary dismissal of the remanded action, Saybrook had filed a twenty-four-count complaint against the Corporation, Stifel, and Godfrey in Waukesha County Circuit Court, in which it asserted a breach of bond claim against the Corporation and various alternative claims against the other defendants. The language of the Bond Documents, however, allowed the parties to bring suit against the Tribal Entities in state court

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only in the event that the District Court for the Western District of Wisconsin failed to exercise jurisdiction.[7] Consequently, on the same day that Wells Fargo voluntarily dismissed the remanded federal action, Saybrook filed a complaint in federal district court (" Saybrook federal action" ) for the purpose of obtaining the court's ruling on its subject matter jurisdiction. See Saybrook Tax Exempt Investors v. Lake of the Torches Econ. Dev. Corp., 929 F.Supp.2d 859, 860 (W.D. Wis. 2013). The state action was stayed pending the federal court's determination of its jurisdiction, and the state court entered an order (agreed upon by the parties) extending the defendants' deadlines for answering or responding to the state court complaint until forty-five days after the district court made a determination as to its jurisdiction in the Saybrook federal action.

On March 11, 2013, the District Court for the Western District of Wisconsin determined that Saybrook's claims were for breach of the bond and therefore did not raise a federal question. The court also believed that it was unlikely that there was diversity of citizenship, but it required proof of the plaintiffs' citizenship in order to completely rule out diversity of citizenship as a basis for subject matter jurisdiction. Id. Following the submission of supplemental affidavits establishing a lack of complete diversity, the district court dismissed the Saybrook federal action without prejudice on April 1, 2013.

4.

Following the district court's March 11 ruling in the Saybrook federal action, the Tribe amended its tribal code to expand the jurisdiction of its own tribal court. Prior to the amendment, the tribal code provided that the tribal court had jurisdiction over " [a]ll matters which the Tribal Council of the Lac du Flambeau Band of Lake Superior Chippewa invests, by appropriate ordinance, the Court with jurisdiction; [and] [a]ll actions brought under the provisions of this Code." [8] After the amendment, the tribal court's jurisdiction extended to " all cases and controversies, both criminal and civil, in law or in equity, arising under the Constitution, laws, customs, and traditions of the Lac du Flambeau Band of Lake Superior Ojibwe, including...cases in which the Tribe, or its officials and employees shall be a party... ." [9] The code was further amended to provide for the selection of a " Judge Pro Tempore" under certain circumstances.[10] Most pertinent to the present action, the amendment allowed " [t]he Lac du Flambeau Tribal Council [to] appoint Judges Pro Tempore by majority vote...[t]o fill the role of a standing Trial Judge in any case to which the Tribe or any agency or enterprise of the Tribe is a party and an opposing party is a non-member of the Tribe." [11]

5.

On April 25, 2013, the Tribal Entities filed suit in tribal court against Saybrook, Wells Fargo, Stifel, and Godfrey seeking a

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declaration that all bond-related documents were void under the IGRA and under tribal law. The Tribe appointed as Judge Pro Tempore Professor Matthew L.M. Fletcher, a professor of Indian law from Michigan State University College of Law. The Financial Entities and Godfrey responded to the action on May 24, 2013, by filing motions to dismiss, which contested the jurisdiction of the tribal court. These motions were denied by the tribal court in an opinion issued on August 27, 2013.

Following the filing of their tribal court action, the Tribal Entities moved to stay the state action in Waukesha County Circuit Court and to hold an inter-jurisdictional conference with the tribal court under Teague v. Bad River Band of Lake Superior Tribe of the Chippewa Indians, 2000 WI 79, 236 Wis.2d 384, 612 N.W.2d 709 (Wis. 2000).[12] The state court denied that motion, and the state appellate court denied the Tribal Entities an interlocutory appeal.

B. District Court Proceedings

On the same day that the Financial Entities and Godfrey filed their motions to dismiss the tribal court action, they also instituted this action in the District Court for the Western District of Wisconsin. They sought a ruling that the tribal court did not have jurisdiction over them and moved for a preliminary injunction to prevent the tribal court action from proceeding.

Following extensive briefing and a hearing, the district court ruled on the Financial Entities' and Godfrey's motion. Before it turned to the four-factor analysis for preliminary injunctions, however, the court addressed two threshold issues raised ...


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