A federal court voided a tribe's $50 million bond debt, a controversial and significant development in the unmapped area of tribal finance and federal law.  The Lac du Flambeau Chippewa Tribe in Wisconsin, through its Lake of the Torches Economic Development Corporation, in 2008 had entered into a deal -- a trust indenture -- with Wells Fargo Bank to refinance and expand the Tribe's Grand Soleil casino project in Natchez, Mississippi.  The Grand Soleil project, in the works since 2005, hit hard times.  As a result, the Tribe wasn't able to make the promised bond payments due under the trust indenture.  The bond was secured by the Tribe's revenue at its Lake of the Torches Resort Casino in Vilas County, Wisconsin.  Wells Fargo sued the Tribe for breach of the deal, and asked the court to put the Tribe's Lake of the Torches casino in receivership.  The Tribe argued that the trust indenture was, in fact, a management contract under IGRA.  Provisions included Wells Fargo's right to hire and fire key personnel, including the casino manager.  Since the deal had not been approved by the NIGC as a management contract, the Tribe's argument continued, it was void.  The federal court agreed.

In January 2010, Judge Randa, sitting in the Western District of Wisconsin, dismissed Wells Fargo's suit.  "The bonds are void merely because they are collateral to an unapproved management contract," wrote Randa.  Wells Fargo plans to appeal.

Good outcome for Lac du Flambeau, but some are fearful that the ruling will give investors cold feet about doing business with tribes.  As tribal casinos experience the effects of the recession, the financial and legal ramifications are less certain, simply because there is very little precedent for what happens when a tribal casino goes bankrupt or a tribe defaults on a loan.  It remains unclear how federal law -- IGRA, bankruptcy law, federal Indian law -- will operate under those circumstances, which is what makes this court decision significant.  Does Judge Randa's ruling mean that any trust indenture with a tribe would be voided?  Not necessarily.  The ruling took into account the specific provisions of the agreement that made it look like a management contract.  While the NIGC's treatment of collateral agreements (IGRA employs an "anti-loophole" definition of "management contract" as including all collateral agreements) has been somewhat controversial, it is meant to prevent lenders -- and tribes -- from avoiding the management contract requirements by simply putting prohibited provisions in side deals.

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