Appendix — Sioux Manufacturing Corp. v. Altheimer & Gray

No. 1 a WF all

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

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SIOUX MANUFACTURING CORPORATION,

Petitioner.

ALTHEIMER & GRAY,

a partnership,

Respondent.

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

PETITIONER’S APPENDIX

DONALD V. JERNBERG ALLEN J. FLATEN

JOHN Y.E. LEE Counsel of Record

OPPENHEIMER, WOLFF P. ROBERT VAALER

& DONNELLY VAALER, WARCUP, WOUTAT,

Two Prudential Plaza ZIMNEY & FOSTER (CHARTERED)

45th Floor Sth Floor - Metro. Bldg.

180 N. Stetson Avenue 600 Demers Avenue

Chicago, IL 60601 P.O. Box 1617

(312) 616-1800 Grand Forks, ND 58206-1617

(701) 772-8111

Midwest Law Printing Co., Chicago 60611, (312) 321-0220

TABLE OF CONTENTS

OPINION OF THE SEVENTH CIRCUIT COURT

OF APPEALS SOUGHT TO BE REVIEWED ....

OPINION AND ORDER OF THE HONORABLE

SUZANNE B. CONLON, UNITED STATES DIS-

TRICT JUDGE, GRANTING SUMMARY JUDG-

MENT IN FAVOR OF SIOUX MANUFACTUR-

SUT Kad wETE RA EEEN SKE nb eeereeu nen dace,

OPINION AND ORDER OF THE HONORABLE

SUZANNE B. CONLON, UNITED STATES DIS-

TRICT JUDGE, DENYING PLAINTIFFS’ MO.-

PE WU I a eceeccnesec usu eocbaeuncs

ORDER OF SEVENTH CIRCUIT COURT OF

APPEALS DENYING PETITION FOR REHEAR-

ING WITH SUGGESTION FOR REHEARING IN

NE MN REMA RANG he cbu ae ee eoscdeeeneoeeses

JUDGMENT OF THE SEVENTH CIRCUIT COURT

OF APPEALS SOUGHT TO BE REVIEWED ....

me URAs, ME e GE van ccc wvccecuscoucucns

DEVILS LAKE SIOUX TRIBAL LAW AND OR.

DER CODE PROVISIONS ....................

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SECTION 4 OF THE ARTICLES OF INCORPO-

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APP.

PAGE

37

D6

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

SIOUX MANUFACTURING CORPORATION,

Petitioner.

ALTHEIMER & GRAY,

a partnership,

Respondent.

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

PETITIONER’S APPENDIX

App. 1

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 92-1633

ALTHEIMER & GRAY, a partnership,

Plaintiff-Appellant,

U.

SIOUX MANUFACTURING CORPORATION,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 91 C 3496—Suzanne B. Conlon, Judge

ARGUED OCTOBER 22, 1992—DeciIpED JANUARY 8, 1993

As AMENDED JANUARY 22, 1993

Before POSNER and Correy, Circuit Judges, and

Woop, JR., Senior Circuit Judge.

Woop, JR., Senior Circuit Judge. This case deals with

the modern application of a 19th century federal statute

designed to protect Indian tribes in land transactions. For

reasons explained below, we reverse the district court’s

grant of summary judgment and remand the case for fur-

ther proceedings.

I. BACKGROUND

In 1872, Congress passed what is now known as 25 U.S.C.

§ 81. The statute requires contracts concerning Indian lands

to be approved by the Secretary of the Interior. Contracts

App. 2

without the Secretary’s approval are of no effect. Accord-

ing to the Supreme Court, the statute was “intended to

protect the Indians from improvident and unconscionable

contracts.”’ In re Sanborn, 148 U.S. 222, 227 (1893); see

also Cong. Globe 1483 (1871) (law is for Indians’ “protec-

tion and to prevent them from being plundered’’). At the

time of the law’s enactment, Indians apparently were be-

ing swindled by dishonest lawyers and claims agents. See

United States ex rel. Shakopee Mdewakanton Sioux Com-

munity v. Pan Am. Management Co., 616 F. Supp. 1200,

1217 (D. Minn. 1985), appeal dismissed, 789 F.2d 632 (8th

Cir. 1986).

As this court noted in 1985, Congress has neither im-

plicitly nor explicitly overruled section 81 and the statute

continues to “govern | transactions relative to Indian land

for which Congress has not passed a specific statute.”’

Wisconsin Winnebago Business Comm. v. Koberstein, 762

F.2d 613, 619 (7th Cir. 1985). The statute, in fact, has seen

new life in recent years as Indian reservations have con-

tracted with outside firms to build and operate bingo halls

and casinos on their reservations. See id.

The case before us also features 25 U.S.C. § 81 and an

Indian tribe attempting to generate revenue for its people.

Here, though, the tribe chose to reduce its forty-five per-

cent unemployment rate through manufacturing rather than

through gambling. To do so, the Devils Lake Sioux Tribe

(“Tribe”), a federally recognized Indian tribe, created the

Sioux Manufacturing Corporation (“SMC’’) to manufacture

and market camouflage cloth and military helmets. SMC

is a wholly-owned tribal corporation and governmental

subdivision of the Sioux, organized under the Tribe’s Law

and Order Code. The corporation’s offices and sole manu-

facturing facility are located inside the boundaries of the

Devils Lake Sioux Reservation (‘‘Reservation’’) in Fort

Totten, North Dakota, on land which SMC leases from the

Tribe. The Reservation itself was established by treaty

on February 19, 1867.

Seeking to expand their business, the Tribe and SMC ne-

gotiated with Medical Supplies & Technology, Inc. (“MST”’),

App. 3

an Illinois corporation, to manufacture and market la-

tex medical products at the Reservation plant. In the

course of these negotiations, MST submitted a “Letter

of Intent” to “the Fort Totten Tribe of the Sicux Nation

and Sioux Manufacturing Corporation (‘Sioux’), to set forth

its understanding of the terms of certain proposed transac-

tions by and among MST . . . and an entity wholly-owned,

directly or indirectly, by the Sioux.” On March 7, 1990.

John Veleris, MST’s president, and Robert Manning, vice-

president and general manager of SMC, signed the nine-

page Letter of Intent (‘‘Letter’’).

According to the Letter, MST, the Tribe, and SMC would

engage in a business to produce and market various latex

medical products in facilities located on the Reservation.

The parties intended that MST would “provide its tech-

nology, know-how and expertise in relation to the produc-

tion and marketing of the Products’’ whereas SMC would

obtain all required governmental approvals, including “any

approvals required by the Bureau of Indian Affairs.” SMC

was also to provide “‘all working capital, investment capi-

tal, facilities and labor needed for the production of the

Products and the operation of the Business.”

The details of these transactions were to “be discussed

further by Seller and Buyer and agreed to in good faith

and shall be set forth in various contracts and other agree-

ments.”” One of the agreements was to be an “Asset Pur-

chase Agreement,” whereby SMC would purchase all of

MST’s assets. These assets included contracts for machines

that produce the latex products, architectural drawings

for the facility, and waste and environmental plans for

the Reservation land. Another future agreement was to be

a ‘“‘Consulting Agreement,” whereby MST would provide

consulting services to SMC for the management and oper-

ation of the latex products business. This would entail MST

supplying technical and engineering assistance, marketing

the products, and training those individuals that SMC

picked for the management and operation of the business.

The Letter also outlined various payments from SMC

(“Buyer”) to MST (“Seller”) for its consulting services and

App. 4

provided that MST would take up to thirty percent of

the latex business’s “net profits.’’ The net profit was to

be calculated as the difference between gross sales of the

latex medical products and:

(a) cost of materials; (b) wages (in an amount mutually

agreeable to Buyer and Seller); (c) utilities and main-

tenance; (d) salaries and administration (in an amount

mutually agreeable to Buyer and Seller); (e) costs paid

to Veleris for consulting under the Consulting Agree-

ment; (f) rent; (g) taxes (it being understood, however,

that the amount of taxes imposed by tribal author-

ities to be deducted from Net Profits will not exceed

1% of gross sales); (h) other operational costs (to be

agreed to by Buyer and Seller); (i) $83,334 per year;

and (j) the Applicable Percentage of depreciation of

equipment calculated on a straight line basis over 30

years.

As can be seen above, under the contemplated agreements

neither SMC nor MST would be able to unilaterally set

salaries or wages or administration costs or other opera-

tional costs.

Anticipating future lawsuits, the Letter contained a sec-

tion entitled ‘Sovereign Immunity.” This section provided

that ““Buyer and the Fort Totten Tribe of the Sioux Na-

tion (the “Tribe’) will waive all sovereign immunity in re-

gards to all contractual disputes.” The section also said

that “This agreement and all agreements contemplated

hereunder will be executed and interpreted in accordance

with the laws of the State of Illinois’ and that all par-

ties ‘agree to submit to the venue and jurisdiction of the

federal and state courts located in the State of IIlinois.”’

The closing of “the transactions contemplated” by the

Letter was to be within sixty days of ‘‘acceptance of this

Letter of Intent.’ In the interim, the parties were to ful-

fill various conditions relating to such topics as financing

and distribution. Although neither party was required, by

terms of the Letter, to enter into any future agreement

until those conditions had been met, “all parties are here-

App. 5

by bound in good faith to attempt_to fulfill all such con-

ditions.”

At the end of the Letter comes section 13, upon which

this lawsuit is based. Under the title of “Expenses,” sec-

tion 13 outlined a scheme whereby each party would pay

its own expenses if “the transactions contemplated herein

are consummated.” If, however, the transactions were not

consummated within the sixty-day period “or if the Sioux

at any time notifies any other party that they are termi-

nating negotiations” then “‘the Sioux shall promptly pay,

upon demand, all reasonable legal and accounting fees and

expenses” incurred by MST in connection with the nego-

tiation of the deal. The Tribe and SMC were relieved from

payment, however, if ‘‘actions taken in bad faith by Seller”’

prevented the consummation. In such a case, MST would

pay “all reasonable fees and expenses incurred by Buyer.”

After the Letter of Intent was signed on March 7, 1990,

MST began business operations within the SMC manufac-

turing facilities. The closing, however, did not occur within

the sixty-day period and the parties executed two sub-

sequent agreements to extend the date of closing until

November 1, 1990. Despite the extensions, none of the

contemplated contracts were ever executed, the deal was

never consummated, and MST ceased operations within

the Reservation.

Il. PROCEDURE

In Spring 1991, SMC was hit with a double-barreled at-

tack. On May 10, 1991, MST sued SMC in Illinois state

court for breach of contract. MST contended that SMC

failed to act in good faith to satisfy the contractual con-

ditions precedent to closing. On June 5, 1991, MST’s law

firm, Altheimer & Gray, filed suit against SMC in federal

district court. Altheimer is a partnership organized under

Illinois law with its principal place of business in Chicago,

Illinois; it has 82 partners, all of whom are citizens of IIli-

nois or Indiana. The firm had provided MST with legal

services in connection with the negotiations with SMC and

apace

App. 6

in its suit contended it was an intended third-party bene-

ficiary of section 13 of the Letter of Intent agreement.

Altheimer sought payment of $167,593.77 in damages plus

interest and costs.

On June 12, 1991, SMC removed MST’s action to district

court, and on SMC’s motion the district court consolidated

the two cases. The district court based its subject mat-

ter jurisdiction on the diverse citizenship of the parties,

pursuant to 28 U.S.C. § 1332. On August 20, 1991, SMC

filed a motion to dismiss or, in the alternative, for sum-

mary judgment. On November 15, 1991, the district court

granted summary judgment to SMC on the ground that

the contract was null and void under 25 U.S.C. § 81. On

November 29, 1991, Altheimer filed a motion to vacate

the judgment pursuant to Federal Rule of Civil Procedure

5&e). On February 14, 1992, the district court entered an

order denying that motion. MST did not appeal; Altheimer

did, filing its initial Notice of Appeal on March 12, 1992.

This court has jurisdiction over the appeal pursuant to

28 U.S.C. § 1291.

lil. STANDARD OF REVIEW

In reviewing a district court’s grant of summary judg-

ment, we review de novo the record and the controlling

law. Appley v. West, 929 F.2d 1176, 1179 (7th Cir. 1991).

We will uphold the entry of summary judgment if there

is no genuine issue of material fact and the moving party

is entitled to judgment as a matter of law. /d.

IV. ANALYSIS

On appeal, the Plaintiff presents these four arguments:

1) the Letter of Intent is not relative to Indian lands, and

therefore does not fall within 25 U.S.C. § 81; 2) SMC’s

obligations under the Letter do not adversely affect any

tribal land interest; 3) any ambiguity in the agreement’s

obligations relative to Indian lands establishes a genuine

issue of materia! fact which precludes summary judgment;

App. 7

and 4) the obligations of the Letter are severable from

the contemplated contracts.

The Defendant responds with these three arguments:

1) the Letter of Intent is relative to Indian lands, and

as it does not comply with 25 U.S.C. § 81 the agreement

is null and void; 2) as a sovereign, the Sioux are immune

from suit; and 3) Altheimer failed to exhaust tribal court

remedies and therefore federal court consideration of the

case is premature.

As can be seen, the principal dispute between the parties

concerns the application of 25 U.S.C. § 81 to the Letter

of Intent. It is there that we will begin our analysis.

A. RELATIVE TO INDIAN LANDS

In pertinent part, section 81 reads:

No agreement shall be made by any person with

any tribe of Indians . . . for the payment or delivery

of any money or other thing of value, in present or

in prospective, or for the granting or procuring any

privilege to him, or any other person in considera-

tion of services for said Indians relative to their lands

. unless such contract or agreement be executed

and approved as follows:

Second. It shall bear the approval of the Secretary

of the Interior and the Commissioner of Indian Af.-

fairs indorsed upon it.

All contracts or agreements made in violation of

this section shall be null and void...

25 U.S.C. § 81.

The language of the statute mandates a three-part inquiry

into the identity of the contracting parties, the nature of

the contract, and whether the contract was approved by

the Secretary of Interior. The last inquiry is the easiest

to dispose of, as both parties admit the contract formed

ee

App. 8

by the Letter of Intent was never approved by the Secre-

tary. Our inquiry, therefore, focuses on these two issues:

1) was the disputed contract “with any tribe of Indians,”

and 2) is the contract “for the payment or delivery of any

money or other thing of value ... or for the granting

or procuring any privilege . . . in consideration of ser-

vices for said Indians relative to their lands’’?

1. The Contracting Parties

Although the Letter of Intent was signed by the presi-

dent of Medical Supplies & Technologies, Inc. and the

vice-president of Sioux Manufacturing Corporation, the

court below considered the contract to be between the

Sioux Tribe and MST. The court did not lightly ignore

SMC’s corporate status, but recognized that both plaintiff

and defendant seemingly considered the Tribe and SMC

to be interchangeable.

MST, advised by Altheimer, addressed the Letter of In-

tent to the ‘Fort Totten Tribe, Sioux Nation.’’ MST also

referred to both the Tribe and SMC collectively as the

“Sioux,” and listed the “Sioux” as participants in several

of the contemplated transactions. Section 13, for instance,

states that “if the Sioux at any time notifies any other

party that they are terminating negotiations ... the Sioux

shall promptly pay, upon demand, all reasonable legal and

accounting fees.’” MST, moreover, seemed to regard the

signature of Sioux Manufacturing as binding upon the Tribe

itself regarding the waiver of sovereign immunity, choice

of law, and forum selection clauses.

Nor does the Defendant in this case consistently distin-

guish the two entities. In its brief, SMC argues the corpo-

ration should be treated as the Tribe and notes the follow-

ing facts: SMC is located on twenty-seven acres of land

held in trust for the Tribe by the United States; under its

articles of incorporation, SMC is chartered as “a tribal

corporation and government subdivision” of the Tribe; as

a governmental subdivision, SMC enjoys federal and tribal

law with all privileges and immunities of the Tribe; SMC’s

i

App. 9

board of directors must include the six sitting members

of the Sioux Tribal Council.

Given this alleged unity between SMC and the Tribe,

Defendant contends section 81 should apply to the corpo-

ration. To support its position, SMC cites Pueblo of Santa

Ana v. Hodel, 663 F. Supp. 1300 (D.D.C. 1987). In that

case, the Pueblo created the Santa Ana Enterprise (““En-

terprise’’) to generate revenue for the tribe. The Enter-

prise was a nonprofit instrumentality of the Pueblo of Santa

Ana; it was empowered to make contracts, to sue and be

sued, but it had no power to bind or obligate the funds

of the Pueblo. The Enterprise was not a corporation, did

not hold itself out as a corporate entity, and had no share-

holders. The tribe leased 100 acres of tribal trust land

to the Enterprise and gave it full power to develop and

manage the property. The Enterprise in turn contracted

with a non-Indian businessman to construct, manage, and

maintain a greyhound racetrack on the tribal land. By

terms of the contract, neither the Enterprise nor the busi-

nessman could encumber the property without the consent

of the other. Jd. at 1302-03.

After the Secretary of Interior refused to approve the

facility, banks supporting the racetrack withdrew their

funding. This prompted the Pueblo to sue the Secretary.

In their suit, the tribe argued that the Secretary’s ap-

proval was not required since section 81 applies only to

agreements between non-Indians and Indian tribes, and

the contract was with Santa Ana Enterprise and not the

tribe. The district court rejected this argument. Accord-

ing to the court, allowing the Pueblo to evade section 81

through the formation of the Enterprise would undercut

Congressional intent: “Congress could not have mandated

that the Secretary review all leases and contracts between

Indian and non-Indian only to permit the tribes to avoid

review when they deem provident.” Jd. at 1306.

The court below accepted the analogy to Pueblo of Santa

Ana. Altheimer, however, argues that SMC’s status as a

business corporation is “more than a mere formality” and

App. 10

contends the contract is with the corporation and not the

Tribe. To support this contention, Altheimer cites /necon

Agricorp. v. Tribal Farms, Inc., 656 F.2d 498 (9th Cir.

1981). In that case, the Fort Mojave Indian Tribe created

Tribal Farms, an Arizona corporation. The corporation

contracted with Inecon, a non-Indian corporation, for ag-

ricultural land development and management. After a

dispute between the two parties, an arbitrator ruled in

[necon’s favor and awarded substantial damages. In a

three-page opinion that contained little elaboration or anal-

ysis of the disputed contracts, the Ninth Circuit said the

contracts were not covered by 25 U.S.C. § 81.

Crucial to the Ninth Circuit’s decision was that the con-

tract was with a corporation, rather than the tribe itself:

“Tribal Farms is an Arizona corporation and thus does

not fall within the protected class of ‘tribe of Indians or

individual Indians’ covered by the statute.’ 656 F.2d at

501. Altheimer points out that SMC, unlike the Enterprise

in Pueblo of Santa Ana, is a corporation with funds and

property that are separate and distinct from the Tribe.

This, it argues, places the present dispute closer to Inecon.

We disagree.

Plaintiff ignores the facts of Inecon. In Inecon, the Ninth

Circuit described the Indian tribe has having a “‘limited

role” in the contract. Inecon, 656 F.2d at 498. According

to the Ninth Circuit, the Fort Mojave Indian Tribe’s “‘sole

interest in the contract is its pledge ‘not to interfere, hin-

der, or otherwise obstruct Inecon, its officers, agents or

employees in its performance of its contract duties or re-

ceipt of its contract rights.’ ’”’ Jd. at 501. The Sioux can-

not be said to have played such a limited role in the pres-

ent contract.

We wish to make clear that we do not regard SMC as

a “mere formality,” but we also do not regard our task

as authoritatively delineating the powers of tribal corpora-

tions. Nor do we rule on whether a contract with an In-

dian corporation differs significantly from a contract with

an Indian tribe. Instead, we simply agree with the court

a |

App. 11

below that in analyzing the applicability of section 81 the

contract should be viewed as being between an Indian

tribe and MST. That being the case, the next step is to

analyze the contract to see if it relates to Indian lands.

2. Relation to Indian Land

The next question in our inquiry is whether the contract

is ‘for the payment or delivery of any money or other

thing of value .. . or for the granting or procuring any

privilege . . . in consideration of services for said Indians

relative to their lands’? The district court assumed the

Letter of Intent was a valid contract and concluded that

the agreement was relative to Indian lands.

Perhaps the determinative factor in the court’s decision

was the Letter of Intent’s first page, which stated that

“Seller and Buyer will produce and market various latex

medical products . . . in facilities located on the Sioux

Reservation located in Fort Totten, North Dakota.” The

court rejected Altheimer’s contention that since SMC leased

the land from the Tribe, the contract was outside section

81: “Regardless how one characterizes its present use, the

land remains tribal land.” Altheimer & Gray v. Sioux Mfg.

Corp., Nos. 91 C 3496 & 91 C 3653, 1991 U.S. Dist. Lexis

16,799, at **16 (N.D. Ill. Nov. 14, 1991), amended, 1992

U.S. Dist. LExiIs 1680 (N.D. Ill. Feb. 13, 1992).

This conclusion was further reinforced by the court’s

determination that the Tribe and SMC were virtually in-

distinguishable. ‘The letter of intent,’’ wrote the court,

“relates to a business venture between an Indian and a

non-Indian organization to be located on tribal land and

thus required the approval of the Secretary of Interior.”

Id. at **22. As there was no approval, the court held the -

letter to be null and void and granted summary judgment

to SMC.

We are responsible, in part, for the district court’s deci-

sion. Looking for guidance on 25 U.S.C. § 81, the court

turned to the leading Seventh Circuit opinion on this stat-

seeieeee

App. 12

ute, Wisconsin Winnebago Business Committee v. Kober-

stein, 762 F.2d 613 (7th Cir. 1985). The district court in-

terpreted Koberstein as standing for the proposition that

the phrase ‘relative to Indian lands” must be “liberally

interpreted to effectuate its purpose of protecting Indian

interests,’ and that this court interprets section 81 as

covering ‘“‘nearly all transactions relating to Indian lands.”’

Altheimer, 1991 U.S. Dist. LExis 16,799, at **14.

The district court’s interpretation of Koberstein is not

incorrect. As that case held, once a contract is found to

relate to Indian lands, section 81 continues to operate.

The district court, however, was too liberal in its inter-

pretation of when a contract actually does relate to In-

dian lands.

In Koberstein this court was faced with the validity of

a bingo management agreement between the Wisconsin

Winnebago Tribe and the non-Indian Ho-Chunk Manage-

ment Corporation. Under the agreement, Ho-Chunk would

construct a bingo hall on tribal trust land. Thereafter, Ho-

Chunk had the exclusive right to operate and maintain

the hall. The tribe, on the other hand, was forbidden by

the contract from encumbering the property without Ho-

Chunk’s consent. The tribe also could not modify, cancel,

or assign the contract. In return for Ho-Chunk’s services,

it was to receive twenty-five percent of net operating prof-

its. Koberstein, 762 F.2d at 614-15.

This court held that such an agreement was relative to

Indian lands and therefore subject to section 81’s require-

ments. Crucial to the court’s holding were the facts that:

1) the non-Indian party had an absolute right to control

the business’s operation; 2) the business was located on

tribal trust lands; and 3) the contract prohibited the ex-

ercise of the tribe’s right to encumber tribal trust prop-

erty. Id. at 619.

Koberstein is not alone in considering these facts impor-

tant. In A.K. Management Co. v. San Manuel Band of

Mission Indians, 789 F.2d 785 (9th Cir. 1986), the Ninth

Circuit also found a bingo hall management agreement to

|

App. 13

be related to the Indian land because it gave a “non-Indian

contracting party ... the exclusive right to build and con-

trol the operation of-the bingo facility located on tribal

trust lands and prohibits the Band from encumbering the

land.”” Id. at 787.

A year after A.K. Management, the Ninth Circuit found

a contract relative to Indian land even though the con-

tract did not contain a clause forbidding the Indians to

encumber their land. In Barona Group of Capitan Grande

Band of Mission Indians v. American Management &

Amusement, Inc., 840 F.2d 1394 (9th Cir. 1987), cert. dis-

missed, 487 U.S. 1247 (1988), the court held that the con-

tract was nonetheless relative to tribal land in that the

non-Indian party had the exclusive right to construct and

operate the bingo facility on Indian land. Jd. at 1404. The

Ninth Circuit reasoned that neither A.K. Management nor

Koberstein required both exclusive control and an encum-

brance clause as the “sine qua non” to finding a contract

relative to Indian lands. Jd.

In United States Shakopee Mdewakanton Sioux Com-

munity v. Pan American Management Co., 616 F. Supp.

1200 (D. Minn. 1985), appeal dismissed, 789 F.2d 632 (8th

Cir. 1986), the court also went beyond these two factors

in finding a contract relative to Indian land. In consider-

ing a contract for the construction of a bingo facility, the

court noted that unless the bingo hall was located on

tribal land, the hall could not legally operate: ‘The very

existence of the bingo operations arises from the Indian

tribe’s sovereignty over tribal trust lands which makes

state gaming laws inapplicable to games on reservations.

... But for its land, state law would not permit it.” 616

F’. Supp. at 1218. This persuaded the court that the man-

agement agreement was “inextricably tied up in the prop-

erty rights” and fell under section 81’s requirements. Jd.

Reviewing the relevant cases, it is clear that the follow-

ing factors are important in determining whether a man-

agement contract is relative to Indian lands: 1) Does the

contract relate to the management of a facility to be lo-

cated on Indian lands? 2) If so, does the non-Indian party

App. 14

have the exclusive right to operate that facility? 3) Are the

Indians forbidden from encumbering the property? 4) Does

the operation of the facility depend on the legal status

of an Indian tribe being a separate sovereign? To quote

the Ninth Circuit, none of the above factors are the “sine

qua non” of a contract which relates to Indian lands. A

review of the questions above, however, will show why

we believe this contract is not related to Indian lands.

First, the Letter of Intent admittedly envisioned that

the latex glove manufacturing operation would be located

on the Sioux Reservation. Unlike the bingo hall cases,

however, the facility was already in existence, was part

of the Tribe’s ongoing business, and was wholly owned

by the Tribe. Second, neither the Letter nor the contracts

contemplated by the Letter would give MST exclusive

control over SMC’s production of latex medical products.

As earlier outlined, MST would be heavily involved in the

venture. MST would sell manufacturing contracts and tech-

nical plans to SMC, MST would consult on every facet

of the business’s operation, including the production and

marketing, and MST would receive a substantial share of

the business’s profits. MST, however, did not have uni-

lateral power to set wages and salaries or operation and

administration costs. While it may be an understatement

to characterize MST solely as a consultant, it would be

an overstatement to say MST had exclusive control over

the SMC facility.

Third, neither party disputes that there was no provi-

sion forbidding the Indians from encumbering their land,

either under the Letter of Intent or the contemplated con-

tracts. Finally, the business derived no special benefit

from its location on Reservation land. Unlike bingo, man-

ufacturers of latex medical products need not seek refuge

from state civil laws by locating on a reservation. As

Plaintiff notes, SMC was not obligated to perform on In-

dian lands. In short, the Tribe did not cede any right,

interest or control of Indian lands to MST.

These factors, among others, lead us to hold that neither

the Letter of Intent nor the contemplated contract relate

es

App. 15

to Indian lands, and therefore the agreement is not sub-

ject to section 81. Given our position, it is unnecessary to

address the additional arguments that Plaintiff advances.

We thus are left to consider Defendant’s arguments con-

cerning sovereign immunity and tribal exhaustion.

B. SOVEREIGN IMMUNITY

Indian tribes are considered “domestic dependent na-

tions” which “exercise inherent sovereign authority over

their members and territories.” Oklahoma Tax Comm’n

v. Citizen Band Potawatomi Indian Tribe, 111 S. Ct. 905,

909 (1991). “Suits against Indian tribes are thus barred by

sovereign immunity absent a clear waiver by the tribe or

congressional abrogation.” Jd.; accord Santa Clara Pueblo

v. Martinez, 436 U.S. 49, 58 (1978); United States v. United

States Fidelity & Guar. Co., 309 U.S. 506, 512 (1940).

As a wholly-owned governmental subdivision of the Tribe,

SMC contends it enjoys the Tribe’s sovereign immunity.

SMC points to sections 2-2-103 and 10-4-166 of the Sioux’s

Tribal Law and Order Code (“Code”) which reserve sov-

ereign status and immunity for tribal entities. While SMC

admits the Tribe may waive its sovereign immunity, SMC

contends there was no waiver in this case since SMC and

not the Tribe itseif signed the Letter of Intent. We find

this argument unpersuasive.

The Tribe itself, by passing section 10-4-106(1) of the

Code, provides that sovereign immunity may be limited

by a tribal entity’s charter. SMC’s charter does just that,

providing that sovereign immunity “is hereby expressly

waived with respect to any written contract entered into

by the Corporation.”” SMC Charter § 4.2.2. On similar facts,

several courts have considered a tribal corporation’s sov-

ereign immunity waived by a written contract. See Weeks

Constr., Inc. v. Oglala Sioux Hous. Auth., 797 F.2d 668,

671 (8th Cir. 1986); Snowbird Constr. Co. v. United States,

666 F. Supp. 1437, 1441 (D. Idaho 1987); Namekagon Dev.

Co. v. Bois Forte Reservation Hous. Auth., 395 F. Supp.

23, 28 (D. Minn. 1974), aff'd, 517 F.2d 508 (8th Cir. 1975).

App. 16

Even if we did not consider the foregoing a clear waiver

of any sovereign immunity SMC may enjoy, we find the

Letter of Intent itself forecloses argument on this point.

As we mentioned at the outset, the Letter of Intent con-

tains a provision specifically dealing with sovereign immu-

nity. Under that section, SMC and the Tribe agreed to

“waive all sovereign immunity in regards to all contrac-

tual disputes.”” Assuming the Letter is a valid contract,

we agree with the court below and conclude the Tribe

and SMC have waived sovereign immunity.

C. TRIBAL EXHAUSTION

The last issue to be dealt with is whether or not the

doctrine of ‘‘tribal exhaustion”’ bars this lawsuit. The doc-

trine requires litigants, in some instances, to exhaust their

remedies in tribal courts before seeking redress in federal

courts. The leading cases on tribal exhaustion are National

Farmers Union Insurance Cos. v. Crow Tribe of Indians,

471 U.S. 845 (1985), and Jowa Mutual Insurance Co. v.

LaPlante, 480 U.S. 9 (1987), and it is to these cases that

we now turn.

In National Farmers Union a Crow Indian minor was

hit by a motorcycle in the parking lot of a school located

within the Crow Indian Reservation, but on land owned

by the State of Montana. Through his guardian, the boy

sued the school district in the Crow Tribal Court and the

court awarded default damages to the boy. After being

notified of the award, the school district and its insurer,

National Farmers Union, alleged the existence of a federal

question and sought injunctive relief in federal district

court. The district court granted the insurance company

and school district a permanent injunction against any ex-

ecution of the tribal court judgment. The Supreme Court

found the district court’s action premature.

In the Court’s opinion, the tribal court should have had

“the first opportunity to evaluate the factual and legal

bases for the challenge”’ to its jurisdiction. 471 U.S. at 856.

This meant that the petitioners should “have exhausted

App. 17

the remedies available to them in the Tribal Court sys-

tem” before a federal court considered “‘any relief.” Id.

at 857. This rule, felt the Court, would further Congress’s

policy of “supporting tribal self-government and self-deter-

mination.” Jd. at 856. The Court remanded the case to

the district court to determine whether the federal action

should be dismissed or stayed pending exhaustion of tribal

court remedies. Jd. at 857.

Two years later, in Jowa Mutual, the Court addressed

the question of “‘whether a federal court may exercise di-

versity jurisdiction befcre the tribal court system has an

opportunity to determine its own jurisdiction.” 480 U.S.

at 11. The case started when a member of the Blackfeet

Indian Tribe filed a complaint in the Blackfeet Tribal

Court against his employer and his employer’s non-Indian

insurance company. The employer was a Montana corpora-

tion which was owned by members of the Blackfeet Tribe

and operated a ranch on the tribe’s reservation.

While the employee’s suit was pending in tribal court,

the insurance company filed an action in federal district

court against the employee and employer alleging it had

no duty to defend or indemnify. The district court dis-

missed the suit for lack of subject-matter jurisdiction,

holding that the tribal court should be given the oppor-

tunity to determine the tribal court’s jurisdiction. The

Supreme Court felt dismissal may not have been neces-

sary. As with the doctrine of abstention, the doctrine of

tribal exhaustion does not deprive a district court of sub-

ject-matter jurisdiction. Exhaustion, the Court explained,

is “not a jurisdictional prerequisite,” but rather is “a mat-

ter of comity.” Jd. at 16 n.8. In addition to dismissing

a case, therefore, a district court also has the choice of

staying the action pending further tribal court proceedings.

The latter course was the Court’s preference in Jowa

Mutual. The Court felt that the tribal appellate court

should have been given the opportunity to review the de-

termination of the lower tribal court: “Until appellate re-

view is complete, the Blackfeet Tribal Courts have not

App. 18

had a full opportunity to evaluate the claim and federal

courts should not intervene.” Jd. at 17. The exhaustion

doctrine was to apply regardless of whether the case in-

volved diversity or a federal question. Jd. at 16.

The Court’s decision in this case was motivated by: 1)

the federal policy of encouraging tribal self-government;

2) the view that tribal courts “‘play a vital role in tribal

self-government,” id. at 14-15; and 3) the recognition that

“A federal court’s exercise of jurisdiction over matters

relating to reservation affairs can . . . impair the authority

of tribal courts.” Jd. at 15. Regarding the scope of a tribal

court’s jurisdiction, the Court wrote, ‘Tribal authority

over the activities of non-Indians on reservation lands is

an important part of tribal sovereignty. Civil jurisdiction

over such activities presumptively lies in the tribal courts

unless affirmatively limited by a specific treaty provision

or federal statute.” Jd. at 18.

It is unclear as to how broadly Jowa Mutual and Na-

tional Farmers should be read. On one hand, the two Su-

preme Court cases dealt only with the situation where

a tribal court’s jurisdiction over a dispute has been chal-

lenged by a later-filed action in federal court. On the other

hand, the policies underlying the two cases seem broader

than this narrow context. Several appellate courts, con-

sequently, have applied the tribal exhaustion rule to cases

in which there existed no first-filed tribal court action.

See, e.g., Brown v. Washoe Hous. Auth., 835 F.2d 1327

(10th Cir. 1988); Weeks Constr., Inc. v. Oglala Sioux Hous.

Auth., 797 F.2d 668 (8th Cir. 1986). Indeed, the Ninth Cir-

cuit has suggested that the exhaustion rule applies man-

datorily to all cases relating to tribal or reservation af-

fairs. See, e.g., Burlington Northern R.R. v. Crow Tribal

Council, 940 F.2d 1239 (9th Cir. 1991).

The court below correctly noted; however, that even

Circuits favoring a broad reading of the tribal exhaustion

rule find it necessary to examine the factual circumstances

of each case. This must be done in order to determine

whether the issue in dispute is truly a reservation affair

App. 19

entitled to the exhaustion doctrine. The Ninth Circuit case

of Burlington Northern is an example of this individual-

ized examination. In that case the Crow Tribe passed an

ordinance establishing a tribal commission to regulate rail-

roads crossing their reservation. The only affected railroad

obtained a declaratory judgment in federal court that in-

validated the ordinance. The appellate court vacated this

judgment, ruling that the railroad was required to exhaust

Crow tribal remedies before the district court could take

action on the complaint.

Central to the court’s holding was its view of the or-

dinance as being integral to the tribe’s self-government

and self-determination. The court saw the ordinance both

as an assertion of the tribe’s sovereign authority and as

an instrument of exercising authority over services vital

to the tribe’s economic development. The court viewed

the tribe’s economic independence as the “foundation of

self-determination.”’ 940 F.2d at 1245. “Thus arises the

necessity for . . . exhaustion of tribal remedies: the Crow

Tribe must itself interpret its own ordinance and define

its own jurisdiction.” Jd. at 1246. See also Weeks Con-

struction, 797 F.2d at 673 (contract dispute ‘‘arose on the

reservation and raises questions of tribal law interpreta-

tion within the province of the tribal court”’).

In the present dispute, the district court found this case

to be “a poor candidate for a precedent-setting application

of the tribal exhaustion rule.” Altheimer & Gray v. Sioux

Mfg. Corp., Nos. 91 C 3496 & 91 C 3653, 1991 U.S. Dist.

LEXIS-16,799, at **9 (N.D. Ill. Nov. 14, 1991), amended,

1992 U.S. Dist. LExIs 1680 (N.D. Ill. Feb. 13, 1992). As

the court observed, the principal dispute between the par-

ties concerns the application of a federal statute, 25 U.S.C.

§ 81, to the Letter of Intent. The other issues in this liti-

gation concern a contract that both parties agreed would

be interpreted under Illinois law. To apply the tribal ex-

haustion rule would place before the tribal court a dispute

that must be resolved by laws of distant jurisdictions. Cf.

Myrick v. Devils Lake Sioux Mfg. Corp., 718 F. Supp.

App. 20

753 (D.N.D. 1989) (dismissal not necessary where federal

issues predominate).

The interpretation of another jurisdiction’s laws, how-

ever, does not alone foreclose application of the tribal ex-

haustion rule. A triba! court, presumably, is as competent

to interpret federal law as it is state law. See lowa Mu-

tual, 480 U.S. at 19 (alleged incompetence of tribal courts

not an exception to exhaustion requirement). The tribal

court’s potential task of interpreting unfamiliar law, how-

ever, does show the dissimilarity of the present case as

compared with National Farmers and lowa Mutual. Here,

there has been no direct attack on a tribal court’s jurisdic-

tion, there is no case pending in tribal court, and the dis-

pute does not concern a tribal ordinance as much as it

does state and federal law.

More importantly, we believe the application of the tribal

exhaustion rule would not serve the policies articulated in

lowa Mutual and National Farmers. As discussed above,

the Supreme Court was concerned with implementing Con-

gress’s policy of tribal self-government. The Court feared

that “unconditional access to the federal forum weuld place

it in direct competition with the tribal courts, thereby im-

pairing the latter’s authority over reservation affairs.” Jowa

Mutual, 480 U.S. at 16. See generally Duro v. Reina, 495

U.S. 676, 692 (1990) (history of modern tribal courts indi-

cate they embody only powers of internal self-governance).

In this case, however, the tribal entity wished to avoid

characterization of the contract as a reservation affair by

actively seeking the federal forum. In the Letter of In-

tent, Sioux Manufacturing Corporation explicitly agreed

to submit to the venue and jurisdiction of federal and

state courts located in Illinois. To refuse enforcement of

this routine contract provision would be to undercut the

Tribe’s self-government and self-determination. The Tribe

created SMC to enhance employment opportunities on the

reservation. As the Ninth Circuit recognized, economic in-

dependence is the foundation of a tribe’s self-determina-

tion. If contracting parties cannot trust the validity of

App. 21

choice of law and venue provisions, SMC may well find

itself unable to compete and the Tribe’s efforts to improve

the reservation’s economy may come to naught. We there-

fore affirm the district court’s denial of SMC’s motion for

a stay of proceedings based on the tribal exhaustion rule.

V. CONCLUSION

The judgment of the district court granting summary

judgment in SMC’s favor is reversed. We remand for pro-

ceedings consistent with this opinion. Each party shall

bear its own costs.

REVERSED AND REMANDED.

A true Copy:

Teste:

RRR

Clerk of the United States Court of

Appeals for the Seventh Circuit

App. 22

[Dated November 14, 1991]

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

ALTHEIMER & GRAY,

Plaintiff,

No. 91 C 3496

Judge Suzanne B. Conlon

Sioux MANUFACTURING

CORPORATION,

Defendant.

Consolidated With

H®ALTH CARE SERVICES,

LTp. and JOHN VELERIS,

Plaintiffs, No. 91 C 3653

Judge Suzanne B. Conlon

Sioux MANUFACTURING

CORPORATION,

ee ee ee ee ee a ee ee ee ee ee ee ee ee ee ee ee ee ee

Defendant.

MEMORANDUM OPINION AND ORDER

In this consolidated diversity action for breach of con-

tract, plaintiff Health Care Services, Ltd. (“Health Care’),

its president, John Veleris (‘‘Veleris’’), and the law firm

of Altheimer & Gray (collectively “plaintiffs’’) sue defen-

dant Sioux Manufacturing Corporation (‘Sioux Manufac-

—————

App. 23

turing’’).! Health Care and Veleris allege that a March

7, 1990 letter of intent between Sioux Manufacturing and

Health Care constituted a binding contract under which

Health Care would develop and manage a manufacturing

facility within the borders of the Devils Lake Sioux Tribal

Reservation in Fort Totten, North Dakota. Altheimer &

Gray seeks legal fees it is allegedly due as a purported

third party beneficiary under the same March 7 letter of

intent. Alternatively, Sioux Manufacturing moves for dis-

missal or summary judgment. Sioux Manufacturing con-

tends that the tribal court exhaustion rule counsels that

the court decline to exercise its diversity jurisdiction un-

til plaintiffs exhaust available tribal court remedies. Alter.

natively, Sioux Manufacturing asserts that the letter of

intent is void, as a matter of law, because it does not

bear the approval of the Secretary of the Interior, as re-

quired under 25 U.S.C. § 81.

BACKGROUND

Health Care is an Illinois corporation with its principal

place of business in Cook County, Illinois. Health Care

complaint 41; Sioux Manufacturing 12(m) Statement of

Material Facts (‘Sioux Manufacturing facts”) ¢6. Sioux

Manufacturing is a tribally chartered corporation and gov-

ernmental subdivision of the Devils Lake Sioux Tribe

(“the Tribe”), organized under the Tribe’s Law and Order

Code, § 10, ch. 4. Id. 42; Sioux Manufacturing facts 4 1.

' At the time of the events at issue, plaintiff Health Care oper-

ated under the name Medical Supplies & Technology, Inc. Plain-

tiff Veleris was president of Medical Supplies & Technology, Inc.

Medical Supplies recently changed its name to Health Care Ser-

vices, Limited. For the sake of clarity, the corporate plaintiff will

be referred to as Health Care, the name under which it brings

this action.

App. 24

Sioux Manufacturing’s offices and sole facility is located

within the exterior boundaries of the Devils Lake Sioux

Tribal Reservation in Fort Totten, North Dakota. /d.;

Sioux Manufacturing facts 45. Sioux Manufacturing is the

largest employer and source of government revenue on

the Devils Lake Sioux Tribal Reservation. Sioux Manufac-

turing facts ¢¢ 12-14; Altheimer & Gray 12(n) Statement

of Material Facts (‘‘Altheimer & Gray facts’) 44 12-14.

On March 7, 1990, Veleris, acting in his capacity as

president of Health Care, entered into an agreement des-

ignated as a “letter of intent” with Sioux Manufacturing.

Id. (3; Exh. B. The agreement contemplated a relation-

ship in which Health Care would sell to Sioux Manufac-

turing the necessary industrial equipment for and provide

its expertise in the production and marketing of various

latex medical products in facilities to be located on the

tribal reservation. Letter of intent at 1. The letter of in-

tent stated that Health Care would act as exclusive man-

agement consultant to Sioux Manufacturing regarding the

operation of the business, in return for which Health Care

would receive a consulting fee and a significant share of

net profits for as long as six and one-half years. Id. §§ 3-8.

The agreement further stated an understanding that Health

Care and Sioux Manufacturing subsequently would enter

into a series of contractual agreements setting out in

greater cetail the nature of their respective obligations.

Id. at 1. Additionally, the terms of the agreement express-

ly stated that neither party was obligated to enter the

futiwre agreements unless certain express conditions prece-

dent had been met. Id. § 1.

The letter of intent contained an expenses clause oblig-

ing “the Sioux’’ to pay “all reasonable legal and account-

ing fees and expenses” incurred by Veleris and Health

Care in the negotiation of the letter of intent and any

App. 25

of the contemplated subsequent contracts in the event

that the parties did not consummate the contracts by the

designated closing date. Jd. § 13. Altheimer & Gray, a

Chicago-based law firm, provided Health Care with legal

services in connection with the negotiation of the letter

of intent.

The agreement contemplated the closing of all subse-

quent contracts within sixty days of the acceptance of the

letter of intent. Jd. However, Sioux Manufacturing and

Health Care executed two subsequent agreements that

extended the closing deadline until November 1, 1990.

Health Care complaint ¢ 6; Sioux Manufacturing facts { 23.

Following the execution of the letter of intent, but prior

to the consummation of any of the contracts contemplated

under the letter of intent, Health Care and Veleris began

operations on the Devils Lake Sioux Reservation. Sioux

Manufacturing facts 4421, 22; Altheimer & Gray facts

94 21, 22.

Health Care contends that Sioux Manufacturing failed

to act in good faith to satisfy contractual conditions prece-

dent, and in particular, failed to arrange project financ-

ing. Health Care complaint 47. Sioux Manufacturing’s

failure to meet its obligations precluded a November 1,

1990 closing. Jd. ¢ 8. After November 1, 1990, Sioux Manu-

facturing refused to undertake further efforts satisfy the

terms of the letter of intent. Jd. 49. Health Care con-

tends that Sioux Manufacturing’s conduct constitutes a

unilateral breach of contract and a breach of the express

and implied covenant of good faith governing the agree-

ment. /d. 4 10. Health Care seeks over $7,000,000 in dam-

ages for expenses and loss of earnings. Altheimer & Gray,

filing a claim as a purported third party beneficiary to

the letter of intent, seeks payment for legal services it

provided in connection with the Health Care-Sioux Manu-

facturing venture.

App. 26

DISCUSSION

Sioux Manufacturing characterizes its motions as alter-

native motions for dismissal or summary judgment. Both

Sioux Manufacturing and plaintiffs extensively rely upon

affidavits and exhibits submitted in connection with the

present motions. Consequently, Sioux Manufacturing’s mo-

tions are treated as summary judgment motions. See Fed.

R. Civ. P. 12(c).

Summary judgment must be granted when the record

shows that there is no genuine issue of material fact and

the moving party is entitled to judgment as a matter of

law. Fed. R. Civ. P. 56(c); Marcial v. Coronet Ins. Co.,

880 F.2d 954, 959 (7th Cir. 1989). A party opposing a

properly supported motion for summary judgment may

not rest upon mere allegations or denials in the pleadings,

but must set forth specific facts showing that there is a

genuine issue for trial. Fed.R.Civ.P. 56(e); Celotex Corp. v.

Catrett, 477 U.S. 317, 324 (1986); Schroeder v. Lufthansa

German Airlines, 875 F.2d 6138, 620 (7th Cir. 1989). The

nonmoving party must present affirmative evidence in

order to defeat a properly supported motion for summary

judgment. Renovitch v. Kaufman, 905 F.2d 1040, 1044 (7th

Cir. 1990). All reasonable inferences must be viewed in

favor of the nonmoving party. Holland v. Jefferson Nat'l

Life Ins. Co., 883 F.2d 13807, 1312 (7th Cir. 1989).

I. Tribal Exhaustion

Sioux Manufacturing contends that the tribal exhaus-

tion rule articulated in Jowa Mutual Ins. Co. v. LaPlante,

480 U.S. 9 (1987), and National Farmers Union Ins. Cos.

v. Crow Tribe, 471 U.S. 845 (1985), warrants dismissal or

a stay of federal court proceedings until Health Care and

Altheimer & Gray exhaust their tribal remedies. Under

App. 27

the rule, exhaustion of tribal remedies is regarded as a

prerequisite to a federal court's exercise of diversity juris-

diction in certain cases related to reservation affairs. Id.

In both Jowa Mutual and National Farmers Union, a

non-Indian challenged a tribal court’s exercise or claim

of jurisdiction in a prior-filed tribal court action. The Su-

preme Court, noting the federal government’s longstand-

ing policy of encouraging tribal self-government and self.

determination, held that a federal court, as a matter of

comity, should defer the exercise of its jurisdiction in a

case “relating to reservation affairs’ to give a tribal court

a full opportunity to determine and exercise its own juris-

diction. Jowa Mutual, 480 U.S. at 15.

In the present action, there is no competing tribal court

case to bring this case directly within the facts of Na-

tional Farmers Union and Iowa Mutual. The scope of

the tribal exhaustion rule is a question of first impres-

sion in this circuit. The courts of appeal in other circuits,

however, have applied the tribal exhaustion rule to cases

in which there existed no first-filed tribal court action

competing with the federal action. See, e.g., Brown v.

Washoe Housing Authority, 835 F.2d 1327 (10th Cir.

1988); Weeks Construction, Inc. v. Oglalla Sioux Hous-

ing Authority, 797 F.2d 668 (&th Cir. 1986). But even in

extending the application of the rule, circuit courts ap-

pear internally divided over the full extent of its scope.

Within the Ninth Circuit, for example, some decisions

suggest that the rule applies mandatorily to all cases

relating to tribal or reservation affairs, see, e.g., Burl-

ington Northern R. Co. v. Crow Tribal Council, 940 F.2d

1239 (9th Cir. 1991); see also Weeks Constr., Inc., 797 F.2d

668 (8th Cir. 1986). Yet, in cases within the same circuit,

the court expressly held that the rule does not apply man-

datorily, but instead “countenance{s] an examination of the

App. 28

circumstances of the action before a decision to defer is

made.” Stock West Corp. v. Taylor, 942 F.2d 655, 660-61

(9th Cir. 1991); see also United States ex rel. Kishell v.

Turtle Mountain Housing Authority, 816 F.2d 1273 (8th

Cir. 1987); Myrick v. Devils Lake Sioux Manufacturing

Corporation, 718 F. Supp. 753 (D.N.D. 1989). The limited

circumstances where the Supreme Court has applied the

tribal exhaustion rule suggest the latter measured and

contextual application of the rule.

The present case offers truly unique circumstances that

make it a poor candidate for a precedent-setting applica-

tion of the tribal exhaustion rule. However, in deference

to the considerations of comity animating the rule, the

following observations are appropriate.

The principal dispute between the parties concerns the

validity of the letter of intent. Sioux Manufacturing as-

serts that the letter of intent is invalid because it does

not bear the approval of the Secretary of Interior, re-

quired under 25 U.S.C. § 81. Health Care contends that

the letter of intent is not subject to § 81 protection. The

application of the tribal exhaustion rule with respect to

this potentially determinative issue would place before the

tribal court a dispute essentially dependent upon the con-

struction and application of federal law.

The second observation assumes that the letter of in-

tent is valid. Section 9 of the letter of intent reads:

[Sioux Manufacturing] and the Fort Totten Tribe of

the Sioux Nation (the “Tribe’’) will waive all sovereign

immunity in regards to all contractual disputes. This

agreement and all agreements contemplated hereunder

will be executed and interpreted in accordance with

the laws of the State of Illinois. [Sioux Manufactur-

ing], [Health Care] and the Tribe agree to submit to

the venue and jurisdiction of the federal and state

a

App. 29

courts located in the State of Illinois and agree to

be bound by final and unappealable judgments ren-

dered by such courts. [Sioux Manufacturing] and the

Tribe appoint [a named designee] to accept service

of process in any such dispute. [Sioux Manufactur-

ing], (Health Care] and the Tribe hereby waive their

respective rights to demand a jury trial.

This language manifests an unambiguous intent that all

disputes be resolved under Illinois law in the federal and

state courts located in Illinois. Sioux Manufacturing takes

issue with any construction of the letter of intent that

regards the forum selection clause as constituting a waiver

of exhaustion. Sioux Manufacturing’s position is plainly

contrary to the clear import of the forum selection lan-

guage. Its position arguably raises the specter of a bad

faith assertion of tribal jurisdiction, which the Supreme

Court has recognized as an exception to the tribal exhaus-

tion rule. National Farmers Union, 471 U.S. at 856 n.21.

However, the court need not address the issue of Sioux

Manufacturing’s good faith in asserting tribal jurisdiction.

It is irrefutable that Illinois law governs the execution

and interpretation of the letter of intent, regardless of

venue. In this respect, application of the tribal exhaus-

tion rule would place before the tribal court a dispute that

must be resolved by application of the law of a distant

state.

Because these consolidated cases raise issues that prin-

cipally depend upon application of federal law on the § 81

issue and Illinois law on the merits of the contractual

dispute, many reported exhaustion rule cases in which the

disputes principally involved issues of tribal law are in-

apposite. In Burlington Northern, for example, the valid-

ity of a tribal ordinance regulating common carriers oper-

ating on reservation land was challenged. The ordinance

had yet to be construed because Burlington Northern had

App. 30

not challenged the new ordinance in either the tribal ad-

ministrative or judicial court system. The Ninth Circuit

held that deferring the exercise of jurisdiction would allow

the tribal court to interpret its own ordinance and thus

“provide other courts with the benefit of their exper-

tise in such matters.’ ”’ 940 F.2d at 1246, quoting National

Farmers Union, 471 U.S. at 857; see also Weeks Constr.,

Inc., 787 F.2d at 673 (exhaustion required where facts

show that contract dispute “raises questions of tribal law

interpretation within the province of the tribal court’).

Where ‘“‘[t]here is no pending tribal court proceeding, the

principal issues presented are of state or federal law, and

the tribal court possesses no special expertise in the sub-

ject matter,” comity does not suffice as a basis for de-

ferral of the exercise of federal jurisdiction. Stock West,

942 F.2d at 663; see also Myrick v. Devils Lake Sioux

Manufacturing Corp., 718 F. Supp. 753 (D.N.D. 1989)

(tribal exhaustion not required in age and race discrimina-

tion suit brought by Indian living on reservation against

corporation of which tribe was majority owner because

federal law issues predominated). Accordingly, Sioux Manu-

facturing’s motion for a stay of proceedings based on tribal

exhaustion rule is denied.

II. Failure to Obtain Approval of Secretary of Interior

Under 25 U.S.C. § 81

Sioux Manufacturing asserts that the letter of intent

creates no enforceable contractual obligations because it

does not bear the approval of the Secretary of the In-

terior required under 25 U.S.C. § 81. Section 81 provides

in relevant part:

No agreement shall be made by any person with any

tribe of Indians, or individual Indians not citizens of

the United States, for the payment or delivery of any

—

App. 31

money or other thing of value, in present or in pro-

spective, or for the granting or procuring any privi-

lege to him, or any other person in consideration of

services for said Indians relative to their lands, or

to any claims growing out of, or in reference to, an-

nuities, installments, or other moneys, claims, de-

mands, or thing, under laws or officers thereof, or

in any way connected with or due from the United

States, unless such contract or agreement be ex.

ecuted and approved as follows: .. . . It shall bear

the approval of the Secretary of the Interior and the

Commissioner of Indian Affairs indorsed upon it.

The Seventh Circuit, in Wisconsin Winnebago Business

Committee v. Koberstein, 762 F.2d 613 (7th Cir. 1985),

after thorough examination of the history of § 81, con-

cluded that the broad statutory language extending pro-

tection to transactions “relative to [Indian] lands’”’ must

be liberally interpreted to effectuate its purpose of pro-

tecting Indian interests. /d. at 617-18. The Court thus re-

garded § 81 as covering nearly all transactions relating to

Indian land. /d.

Health Care and Veleris effectively contend that the let-

ter of intent bound Sioux Manufacturing to enter into the

contemplated venture of developing and operating a manu-

facturing facility to produce latex products. Altheimer &

Gray characterizes the letter of intent as merely an agree-

ment for the allocation of negotiation costs relating to the

contemplated business venture between Health Care and

Sioux Manufacturing. The differing constructions of the

letter of intent are of no significance to the question of

the applicability of § 81 in the present case.

The letter of intent is expressly directed toward the

development and management of a manufacturing facility

to be located “on the Sioux Reservation.” Exh. B. at 1.

Sioux Manufacturing contends that this language clearly

demonstrates that the letter of intent relates to Indian

App. 32

lands and thus is governed by § 8&1. Plaintiffs do not

dispute the import of this language as indicating that the

contemplated facility would be located within the exterior

boundaries of the Fort Totten Sioux tribal reservation.

Instead, plaintiffs respond that the contemplated opera-

tion is not relative to Indian land because the facility was

to be located on land that has been assigned by the Devils

Lake Sioux Tribal! Council to Sioux Manufacturing. There-

fore, plaintiffs argue, the land should be regarded as

private corporate land beyond the scope of § 81 protec-

tion rather than tribal land. The application of § 81 thus

depends on the proper characterization of land that is in-

disputably located on the Sioux Reservation.

Significantly, plaintiffs fail to justify their position in

light of the fact that Sioux Manufacturing does not own

the land in question, but merely leases trust land from

the tribe. McKay Aff. § 5. Regardless how one character-

izes its present use, the land remains tribal land. More-

over, plaintiffs’ argument also fails to address the signifi-

cance of Sioux Manufacturing’s status as an arm of the

Sioux tribal government.

Under its articles of incorporation, Sioux Manufactur-

ing is chartered expressly as ‘a tribal corporation and

government subdivision of the Devils Lake Sioux Tribe

pursuant to Title 10, Chapter Four of the Devils Lake

Sioux Law and Order Code.”’ Sioux Manufacturing Corp.

Articles of Confederation §§ 1.2, 4.1 (“Articles’’) (appended

to Altheimer & Gray memorandum in opposition to Sioux

Manufacturing’s motion for summary judgment) (emphasis

added). As a governmental subdivision, Sioux Manufac-

turing is ‘“‘clothed by federal and tribal law with all privi-

leges and immunities of the Tribe.” Jd. § 4.21. Additional-

ly, despite its corporate designation, Sioux Manufactur-

ing is “owned in its entirety by the Devils Lake Sioux

Tribe,” Jd. § 1.5; McKay Aff. § 3; see Exh. B. at p.1.

App. 33

In determining the significance of Sioux Manufacturing’s

status as an arm of the tribal government, Pueblo of

Santa Ana v. Hodel, 653 F. Supp. 1300 (D.D.C. 1987), is

instructive. In Pueblo of Santa Ana, the Pueblo tribal

governing body created a non-profit enterprise whose

stated purpose was to provide for the health, education,

and welfare of the Pueblo through the creation of busi-

ness opportunities and utilization of tribal resources. To

this end, the tribal enterprise was empowered to en-

cumber its interests in specifically assigned or leased tribal

lands, and to make contracts and sue and be sued in its

organizational name. Any agreements made by the tribal

enterprise were binding on the corporation alone, with the

Pueblo tribe and its officers protected from any resulting

hability.

The tribal enterprise executed a long-term contract with

a non-Indian consultant for the development, management

and operation of a greyhound racing track on tribal prop-

erty leased to the enterprise. The Secretary of the In-

terior was not favorably disposed to the project. The

tribal enterprise, in conjunction with the tribe, filed an

action in federal court contesting whether § 81 governed

the contract between the tribal enterprise and the non-

Indian management consultant. The tribal enterprise con-

tended that it was not a tribal entity for purposes of the

contract with the non-Indian consultant. It argued that

its contract with the non-Indian consultant was not sub-

ject to § 81 review. The district court rejected this argu-

ment, concluding that “Congress could not have mandated

that the Secretary review all leases and contracts between

Indian and non-Indian only to permit tribes to avoid

review when they deem provident.” 663 F. Supp. at 1306.

Thus, the district court held that § 81 review and approvai

applied.

App. 34

Sioux Manufacturing bears many of the same attributes

of the tribal enterprise in Pueblo of Santa Ana. The

stated purposes of Sioux Manufacturing include providing

general and specific “revenue to the Tribe to fund pro-

grams regarding public health, safety, welfare and for

other tribal purposes,” Articles §§ 3.2, 3.11-.20; McKay

Aff. § 3. The letter of intent between Health Care and

Sioux Manufacturing itself reflects another of Sioux Manu-

facturing’s enumerated governmental purposes by express-

ly stating that Health Care will aid Sioux Manufacturing

in implementing hiring guidelines that accord with Sioux

Manufacturing’s “desire that the Business be operated in

a manner which reduces unemployment among the people

of the Fort Totten Tribe of the Sioux Nation.” Letter

of Intent §3; see Articles § 3.1.

That the purposes of Sioux Manufacturing are closely

tied to the advancement of core tribal governmental con-

cerns is not surprising in light of the fact that Sioux

Manufacturing is the ‘chief source of tribal income and

employment.”” Devils Lake Sioux Tribe Resolution No.

A05-89-191; McKay Aff. § 7. The interrelationship of Sioux

Manufacturing and the Tribe is further reflected in the

organizational structure of Sioux Manufacturing. As in

Pueblo of Santa Ana, the Tribal Council, the governing

body of the Sioux Tribe, controls all appointments to the

Sioux Manufacturing board of directors. McKay Aff. § 4.

Moreover, half of the Sioux Manufacturing board must be

comprised of the six sitting members of the Sioux Tribal

Council, with the Tribal Council Chairman sitting as the

chairman of the Sioux Manufacturing board. /d.

Finally, the letter of intent strongly suggests that plain-

tiffs themselves viewed the Tribe and Sioux Manufactur-

ing as closely interrelated. According to plaintiffs, the par-

ties to the letter of intent were Health Care, its officers,

and Sioux Manufacturing. Yet the language of the letter

App. 35

of intent clearly suggests that plaintiffs regarded the Tribe

as an active participant in the contemplated transactions.

Various provisions of the letter of intent, including the

allocation of expenses clause upon which Altheimer &

Gray bases its claim, are directed to both the Tribe and

Sioux Manufacturing, referring to them collectively as

“the Sioux.’’? Letter of intent § 13.

The letter of intent does refer to the Tribe individual-

ly, as distinct from Sioux Manufacturing. For instance,

the provision containing the waiver of sovereign immuni-

ty, choice of law and forum selection clauses is directed

individually to the Tribe, as well as to Sioux Manufac-

turing. Letter of intent §9. Yet the letter of intent con-

tains only signature blocks for representatives of Health

Care and Sioux Manufacturing. Jd. at p. 9. Thus, plain-

tiffs appear to have regarded the signature of Sioux Manu-

facturing as generally binding the Tribe itself to the terms

of the letter of intent.

Sioux Manufacturing’s enumerated purposes, organiza-

tional structure, and impact on the tribal community are

fully consistent with its express designation as an arm

of the tribal government. The plaintiffs, as drafters of the

letter of intent, also appear to have regarded Sioux Manu-

facturing and the Tribe as essentially the same entity.

? The shifting designation of the Tribe and Sioux Manufacturing

arguably creates some ambiguity in the meaning of the expenses

clause allocating to “the Sioux” the costs of legal fees incurred

in negotiations. Under Illinois law, ambiguous contract language

is generally construed against the drafter of the language. Here,

Altheimer & Gray drafted the agreements as counsel for Health

Care. Duldulao v. St. Mary of Nazareth Hospital Center, 115 Ill.

2d 482, 505 N.E.2d 314, 319 (1987). Thus, Altheimer & Gray’s

claim, though based on a more narrowly tailored construction of

the letter of intent than that asserted by Health Care, also ap-

pears to be based on language that directly binds the Tribe as

well as Sioux Manufacturing.

App. 36

Under these circumstances, the tribal law designation of

Sioux Manufacturing as a corporation for the apparent

purpose of protecting the Tribe’s larger trust holdings

should not be viewed as removing Sioux Manufacturing

and the leased tribal land on which its facilities are located

from the broad scope of § 81 review. The letter of intent

relates to a business venture between an Indian and a

non-Indian organization to be located on tribal land and

thus required the approval of the Secretary of Interior.

Absent that approval, the letter of intent is null and void

under § 81. Sioux Manufacturing is entitled to judgment

as a matter of law because plaintiffs’ breach of contract

claims are based upon an invalid contract.®

CONCLUSION

Sioux Manufacturing’s motion to stay proceedings under

the tribal exhaustion rule is denied. Sioux Manufacturing’s

motion for summary judgment on the grounds that the

letter of intent is null and void under 25 U.S.C. § 81 is

granted. Judgment is entered for defendant Sioux Manu-

facturing Corporation and against plaintiff Altheimer &

Gray (Case No. 91 C 3496), and for defendant Sioux Manu-

facturing Corporation and against plaintiffs Health Care

Services, Ltd. and John Veleris (Case No. 91 C 3653).

ENTER:

/s/ SUZANNE B. CONLON

Suzanne B. Conlon

United States District Judge

November 14, 1991

3 Because the court finds the letter of intent void under § 81,

there is no need to reach the issue whether the letter of intent

is void under other statutory provisions advanced by Sioux Manu-

facturing.

App. 37

{Dated February 13, 1992]

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

ALTHEIMER & GRAY,

Plaintiff,

No. 91 C 3496

Judge Suzanne B. Conlon

Sioux MANUFACTURING

CORPORATION,

Defendant.

Consolidated With

HEALTH CARE SERVICES,

LTp. and JOHN VELERIS,

Plaintiffs, No. 91 C 3653

Judge Suzanne B. Conlon

S1oux MANUFACTURING

CORPORATION,

ee ee ee ee ee ee ee ee

Defendant.

MEMORANDUM OPINION AND ORDER

Plaintiffs Altheimer & Gray and Health Care Services,

Inc. (“Health Care’’) (collectively “‘plaintiffs’’) move pur-

suant to Fed. R. Civ. P. 59(e) to vacate this court’s grant

of summary judgment to defendant Sioux Manufacturing

Corporation (“Sioux Manufacturing”’) on plaintiffs’ consoli-

App. 38

dated breach of contract claims. See Memorandum Opin-

ion and Order of November 14, 1992. Summary judgment

was granted in favor of Sioux Manufacturing because the

agreement at issue had not been approved by the United

States Department of the Interior as required by 25

U.S.C. § 81 for agreements for services to Indians relative

to Indian lands.

DISCUSSION

Plaintiffs respectfully move to vacate this court’s grant

of summary judgment in favor of defendant Sioux Manu-

facturing to the extent that judgment applied to a negoti-

ation cost allocation provision contained in the letter of

intent between Health Care and Sioux Manufacturing. As

an initial matter, the court must address Sioux Manufac-

turing’s contention that Health Care’s motion is untimely.

I. Timeliness of Health Care’s Rule 59(e) motion

Rule 5%e) motions must be filed ‘‘not later than 10 days

after entry of the judgment.”’ Fed. R. Civ. P. 59e); Ma-

rane, Inc. v. McDonald’s Corp., 755 F.2d 106, 110 (7th

Cir. 1985). Judgment was entered in the present action

on November 15, 1991, at the time this court’s November

14, 1991 order was docketed with the clerk of court. Health

Care filed its present Rule 59e) motion on December 3,

1991.

Health Care asserts that its December 3, 1991 filing

meets the ten day statutory period, excluding holidays and

weekends. Health Care’s calculation is erroneous. Decem-

ber 3, 1991 was the eleventh working day to follow the

November 15, 1991 entry of order. Health Care erred in

calculating the day after Thanksgiving as a court holiday.

In support of its contention that the day following Thanks-

giving was a holiday, Health Care submits a legal notice

App. 39

showing the day after Thanksgiving to be a legal holiday

of the Illinois state court system. State court holidays,

of course, have no bearing on the operation of the fed-

eral court system. District courts lack the authority to

extend the mandatory ten day period for filing Rule 59(e)

motions. Marane, Inc., 755 F.2d at 111. Accordingly,

Health Care’s motion is denied as untimely.

Il. Altheimer & Gray’s Motion

Altheimer & Gray raises two arguments in support of

its motion to vacate. First, Altheimer & Gray contends

the March 7, 1990 agreement between Health Care and

Sioux Manufacturing did not impose any obligation regard-

ing the use of Indian land and was therefore not subject

to the approval of the Secretary of the Interior pursuant

to 25 U.S.C. §81. Altheimer & Gray asserts that each

signatory to the agreement intended to obligate itself only

to bear the negotiation costs of the other under certain

specified conditions.

Altheimer & Gray argument merely reasserts issues ad-

dressed by the court in granting Sioux Manufacturing’s

motion for summary judgment. Under 25 U.S.C. § 81, the

Secretary of the Interior’s approval is required not only

for agreements regarding the use of Indian land, as Althe-

imer & Gray argues. Rather, § 81 requires the Secretary

of the Interior’s approval of all agreements “‘relative’’ to

Indian land. 25 U.S.C. § 81. Altheimer & Gray’s argument

tying the application of § 81 to agreements for the actuai

use of Indian lands runs counter to the federal court’s

unfailingly expansive construction of the term “relative

to [Indian] lands” as providing § 81 with an extraordinarily

broad scope. Indeed, the Seventh Circuit in Wisconsin

Winnebago Business Committee v. Koberstein, 762 F.2d

613 (7th Cir. 1985), recently reviewed a frontal attack on

App. 40

the broad scope of § 81 afforded under the “relative to

[Indian] land” provision. After a thorough examination of

the history and application of § 81, the Seventh Circuit

concluded that the statutory language requiring approval

of agreements “‘relative to [Indian] lands’’ must be inter-

preted liberally to cover nearly all transactions relating

to Indian lands. See Koberstein, 762 F.2d at 617-18.

Altheimer & Gray’s attempt to avoid the pervasive

scope of §81 by asserting that the signatories to the

agreement did not intend to commit themselves to obliga-

tions that would bring the agreement within the scope

of § 81 serutiny does not deflect from the fact that the

agreement was inextricably rooted in a planned transac-

tion regarding Indian land. Moreover, if the intent of sig-

natories to an agreement relative to Indian land dictated

when § 81 scrutiny applies, contracting parties could readi-

ly thwart Congress’ clear intent to protect Indians from

‘“Gmprovident and unconscionable contracts,’ ’’ Koberstein,

762 F.2d at 617, quoting Jn re Sanborn, 148 U.S. 222,

227 (1893).

Altheimer & Gray advances a second argument in which

it contends that the negotiation cost allocation provision

is separable from the remainder of the agreement and

thus, standing alone, did not require the approval of the

Secretary of the Interior pursuant to 25 U.S.C. § 81. Ac-

ceptance of Altheimer & Gray’s separability argument

would also undermine Congress’ broad protective purpose

in enacting § 81. Jd. Parties could effectively enforce in-

dividual provisions of an agreement relating to Indian

lands that had not been approved by the Secretary of In-

terior merely by artfully drafting the provisions in a man-

ner permitting separability.

App. 41

Altheimer & Gray cites Rollins and Presbrey v. United

States, 23 Ct. Cl. 106 (1888) as supporting its separabili-

ty argument. However, Rollins and Presbrey is factual-

ly distinguishable from the present case. Rollins and Pres-

brey involved a claim by attorneys for an Indian tribe to

enforce a single contractual provision that had been sepa-

rately approved by the Secretary of the Interior, even

though it was part of a contract that the Secretary of

the Interior had not approved in its entirety. The court

held that the individually approved provision was separa-

ble and separately enforceable. 23 Ct. Cl. at 124-125. In

the present action, the negotiation cost allocation provi-

sion that provides the purported basis of Altheimer &

Gray’s claim was not approved by the Secretary of the

Interior, unlike the provision the court in Rollins and

Presbrey held to be separable. Thus, Rollins and Pres-

brey is inapposite.

Finally, in the course of presenting its arguments in sup-

port of its motion to vacate, Altheimer & Gray highlights

certain evidence that calls into question the factual ac-

curacy of a footnote comment in the November 14, 1991

memorandum opinion. The court suggested that any am-

biguity in the language of the agreement should be con-

strued against Altheimer & Gray as the drafter of the

agreement. See November 14, 1991 Memorandum Opinion

and Order at 15 n.2 & 16. Altheimer & Gray correctly

notes that the affidavit of attorney Martha Haines, ap-

pended as Exhibit A to Altheimer & Gray’s response to

Sioux Manufacturing’s motion for summary judgment,

states that the agreement incorporates language jointly

drafted by both parties. Haines Aff. ¢ 10. Accordingly, any

ambiguities that might exist in the language of the agree-

ment should not necessarily be construed against Altheimer

& Gray. Accordingly, the November 14, 1991 memorandum

shall be amended to exclude the challenged dicta.

ile

App. 42

CONCLUSION

Plaintiff Health Care’s Fed. R. Civ. P. 59%e) motion to

vacate is denied as untimely. Plaintiff Altheimer & Gray’s

motion to vacate is denied. The court’s memorandum opin-

ion of November 14, 1991 is amended by deletion of foot-

note 2 on pages 15-16.

ENTER:

/s/ SUZANNE B. CONLON

Suzanne B. Conlon

United States District Judge

February 13, 1992

App. 43

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

April 27, 1993

Before

Hon. RicHARD A. POSNER, Circuit Judge

Hon. JoHN L. Correy, Circuit Judge

Hon. HARLINGTON Woop, Jr., Senior Circuit Judge

No. 92-1633

ALTHEIMER & GRAY, a partnership,

Plaintiff-Appellant,

Uv.

Sioux MANUFACTURING CORPORATION,

Defendant-Appellee.

Appeals from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 91 C 3496—Suzanne B. Conlon, Judge.

ORDER

On consideration of the petition for rehearing with sug-

gestion for rehearing in banc filed in the above-entitled

cause by defendant-appellee Sioux Manufacturing Corpora-

tion on January 22, 1993, no judge in active service has

requested a vote thereon, and all of the judges on the

original panel have voted to deny a rehearing. Accord-

ingly,

IT IS ORDERED that the aforesaid petition for rehear-

ing with suggestion for rehearing in banc be, and the

same is hereby, DENIED.

App. 44

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

JUDGMENT — WITH ORAL ARGUMENT

Date: January &, 1993

BEFORE:

Honorable Richard A. Posner, Circuit Judge

Honorable John L. Coffey, Circuit Judge

Honorable Harlington Wood, Jr., Senior Circuit Judge

No. 92-1633

ALTHEIMER & GRay, a partnership,

Plaintiff-Appellant

Ve

Sioux MANUFACTURING CORPORATION,

Defendant-Appellee

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division

No. 91 C 3496, Judge Suzanne Conlon

This cause was heard on the record from the above

mentioned District Court, and was argued by counsel.

On consideration whereof, IT IS ORDERED AND AD.-

JUDGED by this court that the judgment of the District

Court is REVERSED and this cause is REMANDED, in

accordance with the decision of this court entered this

date. Each party is to bear its own costs.

App. 45

25 U.S.C. § 81

§ 81. Contracts with Indian tribes or Indians

No agreement shall be made by any person with any

tribe of Indians, or individual Indians not citizens of the

United States, for the payment or delivery of any money

or other thing of value, in present or in prospective, or

for the granting or procuring any privilege to him, or any

other person in consideration of services for said Indians

relative to their lands, or to any claims growing out of,

or in reference to, annuities, installments, or other moneys,

claims, demands, or thing, under laws or treaties with the

United States, or official acts of any officers thereof, or

in any way connected with or due from the United States,

unless such contract or agreement be executed and ap-

proved as follows:

First. Such agreement shall be in writing, and a dupli-

cate of it delivered to each party.

Second. It shall bear the approval of the Secretary of

the Interior and the Commissioner of Indian Affairs in-

dorsed upon it.

Third. It shall contain the names of all parties in in-

terest, their residence and occupation; and if made with

a tribe, by their tribal authorities, the scope of authority

and the reason for exercising that authority, shall be given

specifically.

Fourth. It shall state the time when and place where

made, the particular purpose for which made, the special

thing or things to be done under it, and, if for the collec-

tion of money, the basis of the claim, the source from

which it is to be collected, the disposition to be made of

it when collected, the amount or rate per centum of the

fee in all cases; and if any contingent matter or condi-

tion constitutes a part of the contract or agreement, it

shall be specifically set forth.

Fifth. It shall have a fixed limited time to run, which

shall be distinctly stated.

App. 46

All contracts or agreements made in violation of this

section shall be null and void, and all money or other

thing of value paid to any person by any Indian or tribe,

or any one else, for or on his or their behalf, on account

of such services, in excess of the amount approved by the

Commissioner and Secretary for such services, may be

recovered by suit in the name of the United States in

any court of the United States, regardless of the amount

in controversy; and one-half thereof shall be paid to the

person suing for the same, and the other half shall be

paid into the Treasury for the use of the Indian or tribe

by or for whom it was so paid.

(R.S. § 2103; Pub.L. 85-770, Aug. 27, 1958, 72 Stat. 927.)

App. 47

28 U.S.C. § 1332

§ 1332. Diversity of citizenship; amount in controversy;

costs

(a) The district courts shall have original jurisdiction

of all civil actions where the matter in controversy ex-

ceeds the sum or value of $50,000, exclusive of interest

and costs, and is between—

(1) citizens of different States;

(2) citizens of a State and citizens or subjects of

a foreign state;

(3) citizens of different States and in which citizens

or subjects of a foreign state are additional parties;

and

(4) a foreign state, defined in section 1603(a) of this

title, as plaintiff and citizens of a State or of different

States.

For the purposes of this section, section 1335, and sec-

tion 1441, an alien admitted to the United States for per-

manent residence shall be deemed a citizen of the State

in which such alien is domiciled.

(b) Except when express provision therefor is other-

wise made in a statute of the United States, where the

plaintiff who files the case originally in the Federal courts

is finally adjudged to be entitled to recover less than the

sum or value of $50,000, computed without regard to any

setoff or counterclaim to which the defendant may be ad-

judged to be entitled, and exciusive of interest and costs,

the district court may deny costs to the plaintiff and, in

addition, may impose costs on the plaintiff.

(c) For the purposes of this section and section 1441

of this title—

(1) a corporation shall be deemed to be a citizen

of any State by which it has been incorporated and

of the State where it has its principal place of busi-

ness, except that in any direct action against the in-

App. 48

surer of a policy or contract of liability insurance,

whether incorporated or unincorporated, to which ac-

tion the insured is not joined as a party-defendant,

such insurer shall be deemed a citizen of the State

of which the insured is a citizen, as well as of any

State by which the insurer has been incorporated and

of the State where it has its principal place of busi-

ness; and

(2) the legal representative of the estate of a dece-

dent shall be deemed to be a citizen only of the same

State as the decedent, and the legal representative

of an infant or incompetent shall be deemed to be

a citizen only of the same State as the infant or in-

competent.

(d) The word “States”, as used in this section, includes

the Territories, the District of Columbia, and the Common-

wealth of Puerto Rico.

(As amended July 26, 1956, c. 740, 70 Stat. 658; July 25,

1958, Pub.L. 85-554, § 2, 72 Stat. 415; Aug. 14, 1964, Pub.

L. 88-439, § 1, 78 Stat. 445; Oct. 21, 1976, Pub.L. 94-583,

§ 3, 90 Stat. 2891; Nov. 19, 1988, Pub.L. 100-702, Title II,

§§ 201(a), 202(a), 203(a), 102 Stat. 4646.)

App. 49

Devils Lake Sioux Tribal Law and Order Code

* * * * *

Title 2: Courts

* * K K *

§2-2-103. Suits Against the Tribe.

(1)

(3)

Sovereign Immunity of Tribe. The sovereign im-

munity of the Tribe and every elected Tribal Coun-

cil member or tribal official with respect to any ac-

tion taken in an official capacity or in the exercise

of the official powers of any such office, against suit

in any court, federal, state or tribal is hereby af-

firmed, and nothing contained within this Code shall

be deemed to constitute a waiver of such sovereign

immunity. The Tribal Court shall have no jurisdic-

tion over any suit brought against the Tribe with-

out the consent of the Tribe.

Tribal Action Not Waiver of Sovereign Immunity.

Nothing in this Code, and no enforcement action

taken pursuant to it, including the filing of an ac-

tion by the Tribe or any agency of the Tribe in the

Tribal Court, shall constitute a waiver of sovereign

immunity of the Tribe, or any elected Tribal Council

member or tribal official with respect to any action

taken in an official capacity, or in the exercise of

the official powers of any such office, either as to

any counterclaim, regardless of whether the counter-

claim arises out of the same transaction or occur-

rence, or in any other respect.

Waiver of Sovereign Immunity. Sovereign immuni-

ty of the Tribe and any elected Tribal Council

member or tribal official with respect to any action

taken in an official capacity or in the exercise of

the official powers of any such office, in any action

filed in the Tribal Court with respect thereto, may

be waived only by express resolution of the Tribal

Council after consultation with its attorneys. All

waivers of sovereign immunity must be preserved

App. 50

with the resolutions of the Tribal Council of conti-

nuing force and effect. Waivers of sovereign im-

munity are disfavored and shall be granted only

when necessary to insure that substantial justice

can be done by the Tribal Court in any such ac-

tion. Waivers of sovereign immunity shall not be

general but shall be specific and limited as to dura-

tion, grantee, action, and property or funds, if any,

of the Tribe or any agency of the Tribe subject

thereto. No express waiver of sovereign immunity

by resolution of the Tribal Council shall be deemed

a consent to the levy of any judgment, lien or at-

tachment upon property of the Tribe or any agency

of the Tribe other than property specifically pledged

or assigned.

§2-2-104. Concurrent Jurisdiction; Exhaustion of Tribal

Remedies.

The jurisdiction invoked by this Code over any person,

cause or subject shall be concurrent with any valid federal

jurisdiction by the courts of the United States, provided,

however, this Code does not recognize, grant, or cede

jurisdiction to any other political or governmental entity

which does already have such jurisdiction under existing

law. Nothing in this Code waives the requirement of ex-

haustion of tribal remedies, both administrative and judi-

cial, which may only be waived by the Tribal Council in

the same manner as it may waive sovereign immunity.

* * * K *

Title 10: Corporations and Tribal Entities

* * * *K *

§10-4-104. Status of a Tribal Entity.

(1) For purposes of taxation, regulatory jurisdiction and

civil jurisdiction, a tribal entity created pursuant

to the sovereign powers of the Tribe shall be deemed

to be a subordinate arm of the government of the

Tribe and shall be entitled to all of the privileges

and immunities of the Tribe.

(2)

App. 51

The Tribal Court shall have jurisdiction to decide

all questions with respect to the status of a tribal

entity formed pursuant to the sovereign powers of

the Tribe.

* * * * *

§10-4-106. Sovereign Immunity and Waiver.

(1)

(2)

Sovereign Immunity of the Tribal Entity. A tribal

entity is clothed by federal law with all the privi-

leges and immunities of the Tribe, except as specifi-

cally limited by the tribal entity Charter, including

sovereign immunity from suit in any state, federal

or tribal court. Nothing in this Chapter shall be

deemed or construed to be a waiver of sovereign

immunity of a tribal entity from suit or to be a con-

sent of the tribal entity or the Tribe, to the juris-

diction of the United States or of any state with

regard to the business or affairs of the tribal en-

tity or to any cause of action, case or controversy,

except as provided herein.

Waiver of Sovereign Immunity of the Tribal Entity.

Sovereign immunity of the tribal entity may be

waived only by express resolution of the govern-

ing body of the tribal entity after consultation with

its attorneys. All waivers of sovereign immunity

must be preserved with the resolutions of the gov-

erning body of the tribal entity of continuing force

and effect. Waivers of sovereign immunity are dis-

favored and shall be granted only when necessary

to secure a substantial advantage or benefit to the

tribal entity. Waivers of sovereign immunity shall

not be general but shall be specific and limited as

to duration, grantee, transaction, property or funds,

if any, of the tribal entity subject thereto, court

having jurisdiction pursuant thereto and law appli-

cable thereunder. Neither the power to sue and be

sued provided in the charter of the tribal entity,

nor any express waiver of sovereign immunity by

resolution of the tribal entity shall be deemed a con-

sent to the levy of any judgment, lien or attach-

(3)

(4)

App. 52

ment upon property of the tribal entity other than

property specifically pledged or assigned, or any

property of the Tribe, or a consent to suit in re-

spect of any land within the exterior boundaries of

the Reservation or a consent to the alienation, at-

tachment or encumbrance of any such land.

Sovereign Immunity of the Tribe. All inherent

sovereign rights of the Tribe as a federally-recog-

nized Indian tribe with respect to the existence and

activities of the tribal entity are hereby expressly

reserved, including sovereign immunity from suit

in any state, federal or tribal court. Nothing in a

tribal entity charter shall be deemed or construed

to be a waiver of sovereign immunity from suit of

the Tribe or to be a consent of the Tribe to the

jurisdiction of the United States or of any state

with regard to the business or affairs of the tribal

entity or the Tribe or to any cause of action, case

or controversy, except as provided herein.

Credit of the Tribe. Nothing in a tribal entity

charter, nor any activity of any tribal entity, shall

implicate or in any way involve the credit of the

Tribe.

Inclusion in Charter. The provisions of Subsection

(1) through (4) of this Section shall be included in

the charter of each tribal entity.

App. 53

Articles Of Incorporation

Of Sioux Manufacturing Corporation

xk * kK kK *

Section 4. - Attributes.

4.1 - Governmental Subdivision. The Sioux Manufactur-

ing Corporation is a tribal corporatior. and a governmen-

tal subdivision or subordinate board of the Tribe.

4.2 - Sovereign Immunity and Waiver.

4.2.1 - Sovereign Immunity of the Corporation. The

Corporation is clothed by federal and tribal law with all

the privileges and immunities of the Tribe, except as spe-

cifically limited by these Articles of Incorporation, includ-

ing sovereign immunity from suit in any state, federal or

tribal court. Except as provided in Subsection 4.2.2 below,

nothing in these Articles of Incorporation shall be deemed

or construed to be a waiver of sovereign immunity of the

Corporation from suit, which may only be waived pur-

suant to Subsection 4.2.3. Except as provided in Subsec-

tion 4.2.2 below, nothing in these Articles of Incorpora-

tion shall be deemed or construed to be a consent of the

Corporation to the jurisdiction of the United States or

of any state or of any tribe other than the Devils Lake

Sioux Tribe with regard to the business or affairs of the

Corporation. :

4.2.2 - Waiver of Sovereign Immunity of the Corpora-

tion-Contracts. Sovereign immunity of the Corporation is

hereby expressly waived with respect to any written con-

tract entered into by the Corporation, and the Corpora-

tion hereby expressly consents to the jurisdiction of any

court which would have jurisdiction but for the sovereign

immunity of the Corporation, including courts of the United

States or of any state or of any tribe, with regard to »ny

written contract entered into by the Corporation.

4.2.3 - Waiver of Sovereign Immunity of the Corpora-

tion-Other. Sovereign immunity of the Corporation with

respect to any matter other than a written contract may

App. 54

be waived only by »xpress resolution of the Board after

consultation with its actorneys. All waivers of sovereign

immunity must be preserved with the resolutions of the

Board of continuing force and effect. Waivers of sover-

eign immunity are disfavored and shall be granted only

when necessary to secure a substantial advantage or bene-

fit to the Corporation. Waivers of sovereign immunity

shall not be general but shall be specific and limited as

to duration, grantee, transaction, property or funds, if any,

of the Corporation subject thereto, court having jurisdic-

tion pursuant thereto and law applicable thereto. Neither

the power to sue and be sued provided in Subsection 7.6,

nor any express waiver of sovereign immunity by resolu-

tion of the Board, shall be deemed a consent to the levy

of any judgment, lien or attachment upon property of the

Corporation other than property specifically pledged or

assigned, or a consent to suit in respect of any land within

the exterior boundaries of the Reservation or a consent

to the alienation, attachment or encumbrance of any such

land.

4.2.4 - Sovereign Immunity of the Tribe. All inherent

sovereign rights of the Tribe as a federally recognized In-

dian tribe with respect to the existence and activities of

the Corporation are hereby expressly reserved, including

sovereign immunity from suit in any state, federal or

tribal court. Nothing in these Articles of Incorporation

nor any action of the Corporation shall be deemed or con-

strued to be a waiver of sovereign immunity from suit

of the Tribe, or to be a consent of the Tribe to the

jurisdiction of the United States or of any state or any

tribe other than the Devils Lake Sioux Tribe with regard

to the business or affairs of the Corporation or the Tribe,

or to be a consent of the Tribe to any cause of action,

case or controversy, or to the levy of any judgment, lien

or attachment upon any property of the Tribe; or a con-

sent to suit in respect of any land within the exterior

boundaries of the Reservation, or a consent to the aliena-

tion, attachment or encumbrance of any such land.

ed

App. 55

4.2.5 - Credit of the Tribe. Nothing in these Articles

of Incorporation nor any activity of the Corporation shall

implicate or in any way involve the credit of the Tribe.

4.3 - Assets of the Corporation. The Corporation shall

have only those assets specifically assigned to it by the

Council or acquired in its name by the Tribe or by it on

its own behalf. No activity of the Corporation nor any

indebtedness incurred by it shall implicate or in any way

involve any assets of tribal members or the Tribe not as

signed in writing to the Corporation.

App. 56

March 7, 1990

Fort Totten Tribe, Sioux Nation

c/o Robert E. Manning

P.O. Box 400

Fort Totten, ND 58335

Gentlemen:

Medical Supplies & Technologies, Inc., an Illinois cor-

poration (“MST”), hereby submits this Letter of Intent

to the Fort Totten Tribe of the Sioux Nation and Sioux

Manufacturing Corporation (‘‘Sioux’’), to set forth its

understanding of the terms of certain proposed transactions

by and among MST, John Veleris (‘‘Veleris’’), Thomas

Klamet (““Klamet”) (MST, Veleris and/or Klamet, as appro-

priate, are referred to as “‘Seller’’) and an entity wholly-

owned, directly or indirectly, by the Sioux (“Buyer’’).

Seller and Buyer will produce and market various latex

medical products (the “‘Products’’) (the production of the

Products is referred to as the ‘‘Business’’), including but

not limited to, surgical, specialty and examination gloves,

in facilities located on the Sioux Reservation located in

Fort Totten, North Dakota. Seller and Buyer will enter

into several agreements with each other to perform cer-

tain services in relation to the production of the Products.

Seller will provide its technology, know-how and exper-

tise in relation to the production and marketing of the

Products. Buyer will obtain all government approvals re-

quired for these transactions, including any approvals re-

—quired by the Bureau of Indian Affairs. Buyer will also

provide all working capital, investment capital, facilities

and labor needed for the production of the Products and

the operation of the Business. The details of these pro-

posed transactions will be discussed further by Seller and

Buyer and agreed to in good faith and shall be set forth

in various contracts and other agreements deemed neces-

sary to implement performance of these transactions. The

various contracts shall obligate the Seller and Buyer to

eerie

App. 57

work diligently and in good faith toward completing Phase

5 (as hereinafter defined).

1. Asset Purchase Agreement. Seller will sell or cause

to be sold to Buyer all of the assets of MST (the ‘As-

sets’), tangible and intangible, including but not limited

to, Seller’s equipment manufacturer contract (and the

specifications thereto) with ACC Automation Co., L.P.

(the ““ACC Contract’’) for that certain machine (the ‘Ma-

chine”) to be used in the production of the Products; com-

puter model manufacturing plans; engineering and equip-

ment specifications; waste and environmental plans; dip

form mold specifications; raw materials specifications;

marketing and sales plans; architectural and engineering

drawings and specifications for the building in which the

Products will be produced; organizational plans; financial

projection models; management information systems plans;

specifications and laboratory tests for the Products; bro-

chures relating to the Products; confidentiality agreements

relating to the Products; any trade secrets related to the

Products or the Business; and all other assets of MST

pursuant to an Asset Purchase Agreement to be entered

into by Seller and Buyer (the “‘Asset Purchase Agree-

ment’’). Prior to the execution of the Asset Purchase

Agreement, Buyer and Seller will renegotiate the ACC

Contract with ACC Automation Co., L.P. on terms mutual-

ly agreeable to Buyer and Seller. After the renegotiation

of the ACC Contract, Seller will assign all its rights under

the ACC Contract to Buyer. All of the Assets to be sold

by Seller to Buyer at Closing will be owned by Seller

free of any claims of third parties except as disclosed by

Seller to Buyer prior to Closing and will be clearly iden-

tified and defined in the Asset Purchase Agreement. It

is understood by Buyer and Seller that neither party will

be required to enter into the Asset Purchase Agreement,

or any other agreement contemplated by this Letter of

Intent, unless and until all of the conditions to Closing

(as defined below) specified in Section 10 of this Letter

of Intent are fulfilled though all parties are hereby bound

in good faith to attempt to fulfill all such conditions.

App. 58

2. Certified Expenses; Manner of Payment. Buyer

shall pay to Seller, pursuant to the Asset Purchase Agree-

ment, the aggregrate amount of those certified expenses

of Seller incurred previously (the ‘Certified Incurred

Start-up Expenses’’). In addition to these expenses are

expenses incurred for legal, accounting and other profes-

sional services relating to these transactions (the ‘‘Certi-

fied Incurred Professional Expenses’’). The Certified In-

curred Start-up Expenses are estimated to be $645,247

as of the date hereof, and the Certified Incurred Profes-

sional Expenses are estimated to be $225,000 as of the

date hereof. The Certified Incurred Start-up Expenses and

the Certified Incurred Professional Expenses (collective-

ly, the “‘Certifted Expenses”’) will be agreed to by Seller

and Buyer prior to the execution of the Asset Purchase

Agreement, but in no event shal] exceed $870,000 (the ex-

ecution of the Asset Purchase Agreement and all other

documents necessary to start the Business will be referred

to as the “‘Closing’’ and the date of the Closing as the

“Closing Date’’). On the Closing Date, Buyer agrees to

pay to Seller, in cash, an amount equal to the Certified

Expenses and Buyer and Seller also agree to enter into

a Consulting Agreement (as defined below). The Closing

shall take place at 9:00 a.m., local time, on April 4, 1990

at the offices of Altheimer & Gray, 10 S. Wacker Drive,

Suite 4000, Chicago, Illinois, or at such other place and

time as shall be mutually agreeable to Buyer and Seller.

3. Consulting Agreement. Seller, on the Closing Date,

will enter into an agreement with Buyer whereby Seller

will provide consulting services to Buyer for the manage-

ment and operation of the Business (the “Consulting

Agreement’’). Seller will supply technical and engineer-

ing assistance, market the Products and train certain indi-

viduals designated by Buyer in the management and oper-

ation of the Business. Seller will also agree to comply with

mutually agreed upon standards of performance such as

production efficiency rates, scrap material rates and the

like. In accordance with Buyer’s desire that the Business

be operated in a manner which reduces unemployment

App. 59

among the people of the Fort Totten Tribe of the Sioux

Nation while continuing toward optimum profitability,

Buyer will implement appropriate guidelines, developed

after consultation with Seller, with respect to employee

hiring.

Pursuant to the Consulting Agreement, Seller will pay

all reasonable and appropriate expenses incurred in the

employment of four consultants (the ‘Production Consult-

ants’’). Buyer will reimburse Seller for all certified ex-

penses incurred by Seller in the employment of the Pro-

duction Consultants (‘‘Certified Consultant Expenses’’)

as follows: Buyer will pay to Seller eight payments of

$125,000, one every three months until eight payments

are made unless those conditions constituting Phase 5 (as

defined below) are fulfilled. If Phase 5 is completed prior

to the conclusion of the eight three month periods in

which Buyer is required to reimburse Seller under this

Section 3, only those Certified Consultant Expenses in-

curred prior to the achievement of Phase 5 will be reim-

bursed; in no event will Buyer be required to reimburse

Seller for any Certified Consultant Expenses incurred

after the attaining of Phase 5. The Certified Consultant

Expenses will be determined as soon as practicable at the

end of every three months in a manner mutually agree-

able to Buyer and Seller. Buyer will pay the first $125,000

on the Closing Date. If, for any three month period, the

Certified Consultant Expenses are less than $125,000, such

excess (“Available Excess’’) will be held by Seller and ap-

plied towards the next reimbursement payments due from

Buyer for the Certified Consultant Expenses in excess

of $125,000 for any subsequent three month period. If,

for any three month period, the Certified Consultant Ex-

penses exceed the sum of $125,000 and the Available Ex-

cess (if any), Buyer will further reimburse Seller for such

excess expenses up to an amount equal to $12,500 per

three month period (‘“Overage Payment’) during which

such excess exists. The maximum allowable Overage Pay-

ments, if not used, shall be cumulative. In the event Seller

incurs Certified Consultant Expenses in any three month

App. 60

period in excess of the $125,000 reimbursement payment,

all of the Available Excess and all accumulated Overage

Payments, Seller will be allowed to carry forward such

excess Certified Consultant Expenses into the succeeding

three month period(s). Buyer’s total reimbursement of

Seller will not, under any circumstances, exceed the lesser

of the Certified Consultant Expenses or $1,100,000. The

example attached as Exhibit A shall be used to demon-

strate this intent of the parties in applying this paragraph.

4. Minimum Participation. In addition to the reim-

bursement payments, Seller, upon the attaining of Phase

5, has the right to receive from the Buyer the gross sales

of the Products, subject to an appropriate adjustment for

sales returns (“Gross Sales’), multiplied by 4.00% (the

“Minimum Participation Fee”) until Termination. The Min-

imum Participation Fee will be payable at least quarter-

ly to Seller within sixty days (60) after the end of each

quarter of the fiscal year of the Business.

5. Net Profit Percentage Fee. In addition to the reim-

bursements by Buyer under Section 3 and the Minimum

Participation Fee, the Consulting Agreement will provide

that Seller will also be entitled to a percentage of the

Net Profits (as defined below) of the Business upon com-

pletion of Phase 5 (the “‘NPP Fee’’). The NPP Fee is in

addition to, and not in lieu of, all other fees due Seller

contemplated by this Letter of Intent until Termination.

The NPP Fee will be determined as follows: (a) the Ap-

plicable Percentage (as defined below) multiplied by Net

Profits (as defined below) minus (b) the Minimum Partici-

pation Fee. The NPP Fee will be payable annually within

sixty (60) days after the end of the fiscal year of the Busi-

ness. The Applicable Percentage will be determined as

follows (subject to any revision mutually agreed upon by

Buyer and Seller): if Phase 5 is completed within 28

months of the conclusion of the renegotiation of the terms

of the ACC Contract the Applicable Percentage—wili be

30%; if Phase 5 is completed in more than 28 months but

within 34 months, the Applicable Percentage will be 25%;

App. 61

and if Phase 5 is completed in more than 34 months but

within 40 months, the Applicable Percentage will be 20%.

If Phase 5 is not completed within 40 months, the Con-

sulting Agreement may be terminated by the Buyer. For

purposes of the Consulting Agreement, Net Profits will

equal the difference between Gross Sales and (a) cost of

materials; (b) wages (in an amount mutually agreeable to

Buyer and Seller); (c) utilities and maintenance; (d) salaries

and administration (in-an amount mutually agreeable to

Buyer and Seller); (e) costs paid to Veleris for consulting

under the Consulting Agreement; (f) rent; (g) taxes (it be-

ing understood, however, that the amount of taxes imposed

by tribal authorities to be deducted from Net Profits will

not exceed 1% of gross sales); (h) other operational costs

(to be agreed to by Buyer and Seller); (i) $83,334 per year;

and (j) the Applicable Percentage of depreciation of equip-

ment calculated on a straight line basis over 30 years.

There will be no deduction from Net Profits for debt ser-

vice expenses (including, but not limited to, any interest

payments). In the event the Business has incurred losses

for prior years, the NPP Fee shall be reduced by the pro-

duct of the Applicable Percentage multiplied by the losses

of such prior year(s). However, losses incurred prior to

the actual commencement of the production of the Prod-

ucts shall not reduce the NPP Fee. Losses for the year

in which such production begins shall be prorated begin-

ning with the month in which production begins. In order

to facilitate the Closing, Buyer will provide an analysis

of manufacturing costs to be incurred.

6. Retention Amount. Buyer will retain from the NPP

Fee an amount equal to the Applicable Percentage of the

NPP Fee (the “Retention Amount’’).

7. Termination Fee. Seller has the right to put (the

“Put Right’’), and Buyer has the right to call (the ‘Call

Right’”’), all of Seller’s rights to receive the NPP Fee and

the Minimum Participation Fee (“Termination’’) beginning

on the day which is six and one half years after the Clos-

ing Date. Notice of the exercise of such Termination shall

App. 62

be given to the other party not less than one year in ad-

vance and shall specify a termination date (the ‘“Termina-

tion Date’’). In the event of Termination, Seller will be

entitled to a termination fee determined according to the

appropriate formula set forth in Exhibit B; the Put Fee

is applicable in the event of exercise of a Put Right and

the Call Fee is applicable in the event of exercise of a

Call Right (the ‘Termination Fee’’). The choice of an inde-

pendent appraiser, as necessary per the formula in Exhibit

B, will be mutually agreed upon by Buyer and Seller.

Fees of the appraiser shall be paid by Buyer. The Termi-

nation Fee will be payable over five years from the Ter-

mination Date and will be subject to market interest (such

interest rate will be the prime rate announced by a bank

mutually agreeable to Buyer and Seller). Upon Termina-

tion, Seller will not be entitled to a Minimum Participa-

tion Fee or NPP Fee, but will be entitled to a fee (the

“Reduced Minimum Participation Fee’’) equal to 2% of

Gross Sales of the Business for each of the three years

ending upon the third anniversary of the Termination

Date and 1.5% of Gross Sales of the Business for each

of the next seven years thereafter. In no event will Gross

Sales of the Business subject to the Reduced Minimum

Participation Fee exceed, for any year, the average of

Gross Sales of the year preceding Termination Date, the

year of the Termination Date, and the year following Ter-

mination Date.

8. Exclusivity. The Seller retains the exclusive rights

to serve as consultant to the Business and is entitled to

the Minimum Participation Fee and the NPP Fee prior

to Termination and to the Reduced Minimum Participa-

tion Fee and the Termination Fee thereafter for all latex

products and polymer gloves produced by the Business,

whenever and however developed, in a manner to be agreed

upon by the parties hereto.

G Sovereign Immunity. Buyer and the Fort Totten

Tribe of the Sioux Nation (the “‘Tribe’’) will waive all

sovereign immunity in regards to all contractual disputes.

App. 63

This agreement and all agreements contemplated here-

under will be executed and interpreted in accordance with

the laws of the State of Illinois. The Buyer, the Seller

and the Tribe agree to submit to the venue and jurisdic-

tion of the federal and state courts located in the State

of Illinois and agree to be bound by final and unappeal-

able judgments rendered bv such courts. Buyer and the

Tribe appoint Mark J. Jacubs to accept service of proc-

ess in any such dispute. The Buyer, the Seller and the

Tribe hereby waive their respective rights to demand a

jury trial.

10. Closing. The Closing of the transactions contem-

plated by this Letter of Intent will take place within sixty

(60) days following acceptance of this Letter of Intent.

The Closing is contingent upon the satisfaction of the

following conditions:

(a) Buyer secures a commitment foi adequate financ-

ing to complete Buyer’s obligations as contemplated

in this Letter of Intent on terms acceptable to Buyer.

(b) Seller is able to deliver, to Buyer’s satisfaction,

adequate sales and marketing contracts.

(c) Substantially all distributors and marketing

representatives are ready, able and willing to perform

their obligations under their contracts with Seller.

(d) Seller and Buyer have successfully renegotiated

the ACC Contract and Buyer has secured a letter

of credit for ACC agreeable to ACC.

(e) Delivery of appropriate releases or indemnifica-

tion concerning the previous investor in M.S.T.

ll. Confidentiality. The parties to this letter reaffirm

their Confidentiality Agreement.

12. Definition of Phase 5. When used in this Letter

of Intent, the term “Phase 5” will mean that period in

time in which the Business has fulfilled, based on the

mutual, good faith efforts of Buyer and Seller, the follow-

ing targets:

App. 64

(a) complete installation of the production line and

packaging equipment necessary for the production of

the Products;

(b) successful completion of the Production Line

Final Acceptance Test (as specified and defined in the

ACC Contract);

(c) a product on line speed of 25 ft./min. (18,000

gloves per hour);

(d) an on-line rejection rate of a maximum of 4%

(720 gloves per hour);

(e) the Products meeting all FDA specifications;

(f) installation of three shifts (day, evening and

night);

(g) completion of a quality assurance program (as

per FDA requirements); and

(h) training of labor, supervisors and production

management (based on a mutually agreed pre-submitted

plan).

13. Expenses. If the transactions contemplated herein

are consummated, each party hereto (or an entity con-

trolled by or affiliated with any of them) will pay all of

its own fees and expenses incurred in connection with the

formation of the Business, including all promotional, print-

ing, postage and travel expenses and all expenses of legal

counsel and accountants. If the transactions contemplated

hereby are not consummated within 60 days from the date

hereof or if the Sioux at any time notifies any other par-

ty that they are terminating negotiations with respect to

the matters described herein, the Sioux shall promptly

pay, upon demand, all reasonable legal and accounting fees

and expenses incurred by Veleris, Klamet or MST (or an

entity controlled by or affiliated with any of them) in con-

nection with the negotiation of this Letter of Intent, the

negotiation of any agreements or contracts contemplated

hereby and the promotion of the Business after the date

hereof, including all printing, postage and travel expenses

App. 65

but before receipt of such notice; provided, however, that

if the transactions contemplated hereby are not consum-

mated within 60 days from the date hereof due to actions

taken in bad faith by Seller, all reasonable fees and ex-

penses incurred by Buyer shall be paid by Seller.

If you desire to pursue this matter on the terms con-

tained in this Letter of Intent, please so indicate by sign-

ing and returning a copy of this Letter of Intent enclosed

for that purpose.

Very truly yours,

MEDICAL SUPPLIES AND

TECHNOLOGIES, INC.

By: /s/ JOHN VELERIS

President

The above is hereby agreed to

and accepted this seventh day of

March, 1990.

SIOUX MANUFACTURING CORPORATION

By: /s/ ROBERT MANNING

Title: V.P. & Gen. Mgr.

ee: Thomas Klamet

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