Indian Country: Franchising's Latest Frontier

Much like the Federal and state governments, tribal governments are elaborate entities, consisting of executive, legislative, and judicial branches. The office of the tribal chairperson or president (like that of the president or a governor) and the tribal council (a legislature) operate the tribe under a tribal constitution and/or code of laws, and tribal courts adjudicate most matters arising in Indian Country.

Federal and State Franchise Laws. Federal Trade Commission (FTC) franchising regulations and the legislative history for those laws do not affirmatively contemplate the inclusion of Indian tribes. (This lack of attention in federal regulations is not unique to franchising.)

Most federal laws of general applicability do not make any mention of Indian Country, either. As Ninth Circuit Court of Appeals Judge William Canby observed: “In most cases, Congress does not state whether it intends its legislation to tribes or Indians in Indian Country … [C]ourts are consequently called upon to decide that question.” William C. Canby, Jr., American Indian Law in a Nutshell, p. 265 (3d ed. 1998).

While it is highly doubtful that a federal court would hold that FTC franchising regulations apply to a tribal franchisee (Cf. Multimedia Games, Inc. v. WLGC Acquisition Corp., 214 F. Supp. 2d. 1131 (Dist. Ok. 2001) (federal Copyright Act of 1976 held inapplicable to tribes)), a non-Indian franchisor is likely subject to the jurisdiction of the Commission and thus should comply with its regulations. The U.S. Supreme Court's decision in Federal Power Commission v. Tuscarora Indian Nation, 362 U.S. 99, 116 (1960), which stated in dicta that “a general statute in terms applying to all persons includes Indians and their property interests,” has since been abrogated by numerous federal courts. See Multimedia, 214 F. Supp. 2d at 1136, supra. However, that principle ' the “Tuscarora rule” ' can still be read to suggest that federal general statutes apply to non-Indians doing business with tribes.

Notwithstanding, state franchise laws do not apply to either party to a reservation-based franchise deal. See generally Felix S. Cohen, Cohen's Handbook of Federal Indian Law (1982 ed.), at 259 (state civil laws are “generally not applicable to Indian affairs within the territory of an Indian tribe, absent the consent of Congress”). However, the parties to a franchise agreement can include a covenant under which both must abide by federal and/or state franchise laws and a provision that such authorities will govern any dispute arising from the franchise.

Tribal Court Jurisdiction. Generally speaking, tribal courts have jurisdiction over a lawsuit by any party ' Indian or non-Indian ' against an Indian defendant for a claim arising on the reservation, which would include tribal (or tribal member) franchisee defendants. However, under Montana v. U.S., 450 U.S. 544 (1981), a tribal court can only assert jurisdiction over a claim against non-Indians when “necessary to protect tribal self-government or to control internal relations.” Essentially, an Indian court only has jurisdiction over non-Indian parties “who enter consensual relationships with the tribe … through commercial dealing, contract, leases, or other arrangements.” The Supreme Court has made clear that a private contract (eg, franchise agreement) qualifies as a consensual relationship under the so-called “Montana rule,” thus affirming that tribal courts have jurisdiction over non-Indian parties to tribal contracts. However, a franchisor should not be required to litigate in tribal court so long as the franchise agreement includes specific dispute resolution provisions permitting adjudication in a state or arbitration forum.

Conclusion

High-powered franchisors like Burger King are already doing business with America's 567 federally recognized tribes, and opportunities abound. Notwithstanding, Indian law defies boilerplate contract language, standard business negotiations, and common understandings of civil procedure and jurisdiction. Thus, it is vital that today's franchise lawyer understand basic Indian law when franchising in Indian Country.

Is your franchise looking to penetrate new or emerging domestic markets? If so, your company should consider franchising in Indian Country. The $18-billion Indian gaming industry is rapidly transforming the face of tribal lands and drawing millions of people to the reservation for business, employment, or recreation. It is that enormous influx of people onto tribal land ' a “captive audience” of reservation consumers ' and a relaxed regulatory environment that make Indian Country ripe for franchising.

“Indian law” ' a hodgepodge of tribal, state, and federal law ' is the foundation for every transaction in Indian Country. Whether you represent a franchisor that is considering expanding onto the reservation for the first time or you are an experienced international franchise lawyer, you must, at a minimum, understand the following fundamental Indian legal notions before consummating a tribal franchise.

The Third Sovereign. Under established legal precedent, Indian tribes are “distinct, independent political communities, retaining their original natural rights” in matters of local self-government. Worcester v. Georgia , 31 U.S. 515 (1832). While no longer “possessed of the full attributes of sovereignty,” tribes remain a “separate people, with the power of regulating their internal and social relations.” U.S. v. Kagama , 118 U.S. 375 (1886). Essentially, Indians possess “the right … to make their own laws and be ruled by them.” Williams v. Lee , 358 U.S. 217, 220 (1959).

Much like the Federal and state governments, tribal governments are elaborate entities, consisting of executive, legislative, and judicial branches. The office of the tribal chairperson or president (like that of the president or a governor) and the tribal council (a legislature) operate the tribe under a tribal constitution and/or code of laws, and tribal courts adjudicate most matters arising in Indian Country.

Federal and State Franchise Laws. Federal Trade Commission (FTC) franchising regulations and the legislative history for those laws do not affirmatively contemplate the inclusion of Indian tribes. (This lack of attention in federal regulations is not unique to franchising.)

Most federal laws of general applicability do not make any mention of Indian Country, either. As Ninth Circuit Court of Appeals Judge William Canby observed: “In most cases, Congress does not state whether it intends its legislation to tribes or Indians in Indian Country … [C]ourts are consequently called upon to decide that question.” William C. Canby, Jr., American Indian Law in a Nutshell, p. 265 (3d ed. 1998).

While it is highly doubtful that a federal court would hold that FTC franchising regulations apply to a tribal franchisee (Cf. Multimedia Games, Inc. v. WLGC Acquisition Corp., 214 F. Supp. 2d. 1131 (Dist. Ok. 2001) (federal Copyright Act of 1976 held inapplicable to tribes)), a non-Indian franchisor is likely subject to the jurisdiction of the Commission and thus should comply with its regulations. The U.S. Supreme Court's decision in Federal Power Commission v. Tuscarora Indian Nation , 362 U.S. 99, 116 (1960), which stated in dicta that “a general statute in terms applying to all persons includes Indians and their property interests,” has since been abrogated by numerous federal courts. See Multimedia, 214 F. Supp. 2d at 1136, supra. However, that principle ' the “Tuscarora rule” ' can still be read to suggest that federal general statutes apply to non-Indians doing business with tribes.

Notwithstanding, state franchise laws do not apply to either party to a reservation-based franchise deal. See generally Felix S. Cohen, Cohen's Handbook of Federal Indian Law (1982 ed.), at 259 (state civil laws are “generally not applicable to Indian affairs within the territory of an Indian tribe, absent the consent of Congress”). However, the parties to a franchise agreement can include a covenant under which both must abide by federal and/or state franchise laws and a provision that such authorities will govern any dispute arising from the franchise.

Tribal Court Jurisdiction. Generally speaking, tribal courts have jurisdiction over a lawsuit by any party ' Indian or non-Indian ' against an Indian defendant for a claim arising on the reservation, which would include tribal (or tribal member) franchisee defendants. However, under Montana v. U.S., 450 U.S. 544 (1981), a tribal court can only assert jurisdiction over a claim against non-Indians when “necessary to protect tribal self-government or to control internal relations.” Essentially, an Indian court only has jurisdiction over non-Indian parties “who enter consensual relationships with the tribe … through commercial dealing, contract, leases, or other arrangements.” The Supreme Court has made clear that a private contract ( eg , franchise agreement) qualifies as a consensual relationship under the so-called “ Montana rule,” thus affirming that tribal courts have jurisdiction over non-Indian parties to tribal contracts. However, a franchisor should not be required to litigate in tribal court so long as the franchise agreement includes specific dispute resolution provisions permitting adjudication in a state or arbitration forum.

Conclusion

High-powered franchisors like Burger King are already doing business with America's 567 federally recognized tribes, and opportunities abound. Notwithstanding, Indian law defies boilerplate contract language, standard business negotiations, and common understandings of civil procedure and jurisdiction. Thus, it is vital that today's franchise lawyer understand basic Indian law when franchising in Indian Country.