Tribal Governments Can Maximize Their Economic Development Opportunities and Affirm Their Self-Governance by Updating Tribal Commercial Codes

By: Sandra L. Shippey | Partner | sandra.shippey@procopio.com
Stephanie Conduff | Law Clerk | stephanie.conduff@procopio.com
Theodore J. Griswold | Partner | ted.griswold@procopio.com

Tribes and their members are regularly engaging in commercial transactions by ever increasing numbers. Also increasing are commercial financing transactions to support the tribe’s commercial activities. Sometimes, tribes or tribal members need to borrow money to support their commercial activities from lenders who will require that personal property collateral be pledged to the lender to secure the borrower’s obligations under the loan documents. One of the biggest impediments to gaining such loans is a lender’s unfamiliarity in dealing in Indian Country. Tribes have a useful tool that can both minimize this lender concern and allow the tribal government to exert is own control over financial dealings.

The Uniform Commercial Code is a set of legal rules covering many important business and commercial activities. It was proposed for the purpose of making commercial business transactions more predictable and efficient by making commercial laws consistent across all 50 states. Article 1 provides definitions and general principles that apply to the entire Uniform Commercial Code and Article 9 of the Uniform Commercial Code covers security interests in personal property. A security interest is the creditor’s claim to the personal property to secure the performance of an obligation, usually the payment of a debt. A secured transaction is an agreement where one party gives to another party a lien on property, other than real estate, as collateral for a loan or other financing transaction.

Lenders are familiar with the rules in the Uniform Commercial Code and they know what to do in all 50 states to create an enforceable security interest and to make sure they have first priority in their collateral in relation to other creditors. Therefore, lenders making loans in Indian Country have often included language in their loan documents requiring tribes to adopt, as their own law, all or part of Article 1 and Article 9 of the Uniform Commercial Code of the applicable state where the tribal lands are located, and for the tribe and its business entities to consent to the jurisdictions of the courts in that state rather than tribal courts. However, that law may not adequately reflect the tribe’s culture and values.

There is an alternative. Tribes can adopt their own version of the Uniform Commercial Code. If the legal concepts in the tribal law are familiar to lenders, it should make lenders more comfortable making loans to the tribe and its businesses. This will help the tribe attract more lenders to finance new tribal projects. In 2005, the Uniform Law Commission (ULC), with support from the Federal Reserve Bank of Minneapolis published the Model Tribal Secured Transactions Act (the Model Tribal UCC) and proposed that it be adopted by Indian tribes to create a relatively uniform system of commercial laws in Indian Country that are similar to the commercial laws found in Article 1 and Article 9 of the Uniform Commercial Code. The Model Tribal UCC contains similar core principles, terminology and procedures as those contained in Uniform Commercial Code. However, each tribe can adopt a customized version of the Model Tribal UCC which will give each tribe the ability to affirm its own sovereign immunity and self governance and incorporate its own tribal customs and traditions into the law.

With 567 federally recognized tribal governments in the United States, there are many opportunities for business transactions between tribal governments and tribal business entities and outside lenders. If a tribe has not adopted any form of the Uniform Commercial Code, lenders are likely to require the tribe to adopt the local state’s Uniform Commercial Code and that may not be consistent with the tribe’s needs. By adopting a customized version of the Model Tribal UCC to fit its specific tribal culture, values and needs, a tribal government can be proactive, transparent and choose tribal courts to enforce any disputes. This will encourage lenders to provide capital for tribal projects and continue to grow the opportunities in tribal communities to encourage business development and self governance in Indian Country.

For a more extensive discussion of this issue, click here.

Sandy Shippey is a member of the Native American Practice Group and the State Bar of California – Business Law Section Uniform Commercial Code Committee.

Stephanie Conduff is a citizen of the Cherokee Nation and a former Procopio Native American Intern. She graduated from the University of Oklahoma College of Law and is currently preparing to sit for the Oklahoma Bar Exam before returning to Procopio.

Ted is head of the Native American Law practice group and primary editor for the Blogging Circle. Connect with Ted at ted.griswold@procopio.com and 619.515.3277.