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Greektown Holdings, LLC v. Sault Ste. Marie Tribe of Chippewa Indians

United States District Court, E.D. Michigan, Southern Division

January 23, 2018

BUCHWALD CAPITAL ADVISORS, LLC, Litigation Trustee for the Greektown Litigation Trust, Appellants,
v.
SAULT STE. MARIE TRIBE OF CHIPPEWA INDIANS; and KEWADIN CASINOS GAMING AUTHORITY, Appellees. IN RE GREEKTOWN HOLDINGS, LLC, Debtor, BUCHWALD CAPITAL ADVISORS, LLC, solely in its capacity as Litigation Trustee for the Greektown Litigation Trust, Plaintiff,
v.
DIMITROS (“JIM”) PAPAS, et al., Defendants. Adv. Pro. 10-05712

          OPINION AND ORDER AFFIRMING THE BANKRUPTCY COURT'S SEPTEMBER 29, 2016 OPINION AND ORDER GRANTING THE TRIBE DEFENDANTS' MOTION TO DISMISS AND DISMISSING THEM WITH PREJUDICE FROM THE ADVERSARY PROCEEDING

          Paul D. Borman United States District Judge.

         INTRODUCTION

         In this appeal, the Litigation Trustee seeks a reversal of the Bankruptcy Court's holding that the Appellees, the Sault Ste. Marie Tribe of Chippewa Indians (“the Tribe) and Kewadin Casinos Gaming Authority (“Kewadin Authority”) (Appellees or collectively “the Tribe Defendants”), did not waive their sovereign immunity to the claims asserted in the Adversary Proceeding and dismissing them from the Adversary Proceeding. For the reasons that follow, the Court AFFIRMS the Bankruptcy Court and DISMISSES the Tribe Defendants from this Adversary Proceeding.

         I. BACKGROUND

         A. Procedural History of this Adversary Proceeding

         On May 29, 2008, Greektown Holdings, LLC and certain affiliates (collectively the “Debtors”), commenced proceedings under Chapter 11 of the United States Bankruptcy Code, In re: Greektown Holdings, LLC, et al., Debtors (E. D. Mich. Bankr. No. 08-53104, ECF No. 1).[1] On or about May 28, 2010, this Adversary Proceeding was commenced, The Official Committee of Unsecured Creditors on Behalf of the Estate of Greektown Holdings, LLC[2] v. Dimitrios (“Jim”) Papas, Viola Papas, Ted Gatzaros, Maria Gatzaros, Barden Development, Inc., Lac Vieux Desert Band of Lake Superior Chippewa Indians, Sault Ste. Marie Tribe of Chippewa Indians, Kewadin Casinos Gaming Authority, and Barden Nevada Gaming, LLC, (E.D. Mich. Bankr. Adv. Pro. No. 10-05712). The Complaint in the Adversary Proceeding alleges that $177 million was fraudulently transferred by the debtor, Greektown Holdings, LLC (“Holdings”), to the Defendants for no or inadequate consideration. (Adv. Pro. ECF No. 1, Complaint.)[3] The Complaint alleges that the fraudulent transfers from Holdings may be avoided and recovered under sections 544 and 550 of the Bankruptcy Code, 11 U.S.C. § 101, et seq., and under the Michigan Uniform Fraudulent Transfers Act (“MUFTA”) (Mich. Comp. Laws § 566.31, et seq.).

         Shortly after the Adversary Proceeding was commenced, on June 25, 2010, the Tribe Defendants filed a motion to dismiss the MUFTA claims against it on the grounds of sovereign immunity. (Adv. Pro. ECF No. 8.) The parties stipulated to bifurcate the motion to dismiss to first have the Bankruptcy court decide the purely legal question of whether Congress, in Section 106(a) of the Bankruptcy Code, abrogated the Tribe's sovereign immunity and thereafter, if necessary, to decide whether the Tribe waived its sovereign immunity by participating in the Bankruptcy proceedings. The Bankruptcy Court heard oral argument on the Congressional abrogation issue on December 29, 2010, and took the matter under advisement.

         While the issue of Congressional abrogation of sovereign immunity was still under advisement in the Bankruptcy Court, in 2012, the Tribe Defendants and the Litigation Trustee reached a settlement, filed a motion to have the settlement approved and requested that the Bankruptcy Court hold off issuing its ruling on the Tribe's motion to dismiss pending a decision on the Settlement Motion. This Court ultimately approved the Settlement Agreement, which contained a claims bar order that was an important aspect of the Settlement Agreement. (In re Greektown Holdings, LLC, Case No. 12-12340, ECF No. 10, Opinion and Order Granting Corrected Motion for Order Approving Settlement Agreement.)

         The non-settling Defendants in the Adversary Proceeding, Maria Gatzaros, Ted Gatzaros, Dimitrios Papas and Viola Papas (“the Papas and Gatzaros Defendants”), appealed the Court's Order approving the Settlement Agreement to the Sixth Circuit, objecting to the inclusion of the claims bar order. (In re Greektown, No. 12-12340, ECF No. 33, Notice of Appeal.) The Sixth Circuit reversed and remanded with instructions to this Court to reconsider the propriety and breadth of the claims bar order. Papas v. Buchwald Capital Advisors LLC (In re Greektown Holdings, LLC), 728 F.3d 567 (6th Cir. 2013). With the claims bar order under fire, the parties stipulated in this Court to withdraw the motion for an order approving the settlement and the proceeding before this Court was dismissed. (In re Greektown, No. 12-12340, ECF Nos. 48, 49, Stipulation and Dismissal.) The parties thereafter agreed to voluntary mediation before Bankruptcy Chief Judge Phillip Shefferly in an effort to resolve all of the claims against the all of the remaining Defendants in the MUFTA Adversary Proceeding. Despite their efforts under Judge Shefferly's guidance, the parties were unable to achieve a settlement of the Adversary Proceeding. (Adv. Pro. ECF No. 449, Mediator's Certificate, 6/2/2014).

         On June 9, 2014, with settlement negotiations at a standstill, the Tribe Defendants renewed the 2010 motion to dismiss on the grounds of sovereign immunity. (Adv. Pro. ECF No. 453, Renewed and Supplemented Motion to Dismiss Adversary Proceeding Re: Sovereign Immunity.) The parties renewed their stipulation to have the Bankruptcy Court first determine whether Congress had abrogated the Tribe Defendant's sovereign immunity in section 106 of the Bankruptcy Code and, only if no congressional abrogation was found, to then determine whether the Tribe Defendants had waived sovereign immunity for purposes of this MUFTA proceeding. On August 13, 2014, the Bankruptcy Court issued its Opinion and Order Denying the Tribe's Renewed and Supplemented Motion, concluding that “Congress sufficiently, clearly, and unequivocally intended to abrogate [the Tribe's] sovereign immunity in [section 106 of the Bankruptcy Code].” (Adv. Pro. ECF No. 474 at 36, August 12, 2014 Opinion and Order.) The Tribe Defendants appealed Bankruptcy Judge Walter Shapero's ruling and this Court reversed, holding that Congress did not unequivocally express its intent to abrogate sovereign immunity of Indian tribes in section 106 of the Bankruptcy Code. In re Greektown Holdings, LLC, 532 B.R. 680 (E.D. Mich. 2015). This Court remanded the matter to the Bankruptcy Court for further proceedings on the issue of whether the Tribe Defendants waived sovereign immunity, as outlined by the Bankruptcy Court in its December 23, 2010 Stipulated Order bifurcating the sovereign immunity issue.

         On September 29, 2016, the Bankruptcy Court issued its Opinion and Order finding that the Tribe had not waived its sovereign immunity and granting the Tribe's motion to dismiss for lack of jurisdiction on the basis of sovereign immunity. In re Greektown Holdings, LLC, 559 B.R. 842 (E.D. Mich. Bankr. 2016). The Litigation Trustee has now appealed the Bankruptcy Court's September 29, 2016 Opinion and Order. This Court heard oral argument on the waiver appeal on April 10, 2017. Following the hearing and while the matter was still under advisement, the Litigation Trustee and the Tribe Defendants participated in a global facilitation effort, along with the Papas and Gatzaros Defendants, under the direction of retired United States District Court Judge Gerald Rosen. On September 26, 2017, the parties notified the Court that those efforts were unsuccessful in resolving the matter, thus necessitating this Court's resolution of the Litigation Trustee's appeal of Judge Shapero's September 29, 2016 Opinion and Order finding no waiver of sovereign immunity by the Tribe Defendants and dismissing the Tribe Defendants from the MUFTA Adversary Proceeding.

         B. The Bankruptcy Court's September 29, 2016 Opinion and Order

         The Bankruptcy Court concluded that Memphis Biofuels, LLC v. Chickasaw Nation Indus., Inc., 585 F.3d 917 (6th Cir. 2009), in which the Sixth Circuit held that where a tribal charter requires board approval to waive sovereign immunity, nothing short of such an express approval will operate to waive tribal immunity, foreclosed the Litigation Trustee's MUFTA proceeding against the Tribe Defendants. 559 B.R. at 846-48. Judge Shapero reasoned that because it is undisputed that the governing charter here required a board resolution waiving sovereign immunity as to the MUFTA claims, and it is also undisputed that no such resolution was adopted, and because it is likewise undisputed that the Tribe did not enter into any contract or agreement by which it expressly agreed to waive sovereign immunity as to the MUFTA claims, Memphis Biofuels precluded any suit against the Tribe Defendants to which the Tribe's board had not expressly consented by board resolution. Id. Judge Shapero reasoned that because Memphis Biofuels held that “unauthorized acts of tribal officials are insufficient to waive tribal sovereign immunity, ” no conduct of the Tribe short of an express board resolution could serve to waive the Tribe Defendant's sovereign immunity.

         Judge Shapero further held, rejecting the Litigation Trustee's alternative argument that the Tribe Defendants waived sovereign immunity by participating in the underlying Bankruptcy proceeding, that the “Tribe Defendants' participation in the claims allowance and confirmation process has not, as a matter of law, constituted a waiver of sovereign immunity that is broad enough to encompass this entire adversary proceeding against them, which seeks to recover alleged fraudulent transfers.” 559 B.R. at 849-50. The Bankruptcy Court extended this holding and found that even if, as alleged by the Litigation Trustee, the Tribe Defendants caused the Debtors to file the Bankruptcy Petition in this action, the Tribe did not thereby waive its sovereign immunity to the MUFTA adversary proceeding filed against them. Id. at 851-52.

         C. Factual Background as Relevant to This Appeal

         It is undisputed, as alleged in the Complaint in this Adversary Proceeding, that the Tribe Defendants have appeared and participated in the claims allowance process in the underlying Greektown Bankruptcy proceedings (Bankr. Case No. 08-53104) by filing certain proofs of claim (see, e.g., Bankr. ECF Nos. 263, 280, 282, 325, 2314) and by filing appearances and objections in that proceeding (see, e.g., Bankr. ECF Nos. 706, 751, 1404, 1654, 1990, 2236).[4] Each of the Notices of Appearance filed by the Tribe Defendants in the underlying Greektown Bankruptcy proceedings expressly stated that the Tribe Defendants did not thereby consent to the exercise of jurisdiction over them and specifically reserved the right to assert all affirmative defenses, including lack of subject matter jurisdiction. (See ibid; Adv. Pro. ECF No. 649-1, Tribe Defs.' Mot. to Dismiss at 13.) Likewise, the Tribe Defendants' Objections filed in the underlying Greektown Bankruptcy proceedings also expressly sought to preserve the Tribe Defendants' right to assert all available affirmative defenses, resulting in the final Plan Confirmation Order acknowledging that the Tribe Defendants are not deemed to have waived or released their right to assert all available defenses in any potential avoidance claim filed against them. (Bankr. ECF No. 2046, Order Confirming Second Amended Joint Plans; Adv. Pro. ECF No. 649-1, Tribe Defs.' Mot. to Dismiss at 13.)

         Also undisputed is the fact that the Tribe's governing Tribal Code (which applies equally to the Kewadin Gaming Authority, an instrumentality of the Tribe established pursuant to the Gaming Authority Charter and defined as a “Tribal Entity” pursuant to the Tribal Code) expressly defines the limited conditions under which the Tribe Defendants may waive their sovereign immunity. (Adv. Pro. ECF No. 649-1, Ex. A, Affidavit of Candace Blocher, Exs. B, C, Chapters 44 and 94 respectively of the Tribal Code.)[5] The Tribal Code provides in relevant part that “[t]he sovereign immunity of the Tribe, including sovereign immunity from suit in any state, federal or tribal court, is hereby expressly reaffirmed unless such immunity is waived in accordance with ‘44.105 or ‘44.108.” (Id. § 44.104.) Section 44.105 provides in relevant part that the sovereign immunity of the Tribe may be waived “(a) by resolution of the Board of Directors expressly waiving the sovereign immunity of the Tribe and consenting to suit against the Tribe in any forum designated in the resolution; provided, that any such waiver shall not be general but shall be specific and limited as to duration, grantee, transaction, property or funds of the Tribe subject to the waiver, court having jurisdiction and applicable law . . . or (b) by a Tribal entity exercising authority expressly delegated to such entity in its charter or specially by resolution of the Board of Directors . . . .” (Tribal Code § 44.105(1)(a)(b).) Section 44.108 provides a waiver of sovereign immunity “for any claim sounding in contract” arising from an express, written, and signed contract involving a proprietary function of the Tribe.”

         It is also undisputed that: (1) there is no Board resolution waiving the Tribe Defendants' tribal immunity and consenting to suit on the claims asserted in this MUFTA Adversary Proceeding; and (2) there is no contract containing a provision purporting to waive the Tribe Defendants' tribal immunity as to the claims asserted in this MUFTA Adversary Proceeding.

         In addition to these undisputed facts, the Litigation Trustee asserts that certain conduct of the Tribe Defendants establishes that the Tribe Defendants exerted complete dominion and control of the Debtors, used the Debtors as their agents in connection with the fraudulent transfers alleged in this Adversary Proceeding and directed the Debtors to initiate the underlying Bankruptcy proceedings in order to forestall an action by the Michigan Gaming Control Board (“MGCB”) against the Tribe Defendants, thereby becoming one with the Debtors under principles of agency and alter ego/piercing the corporate veil. While the Tribe Defendants do not concede the truth of these allegations they do accept them, as did Judge Shapero, solely for purposes of resolving the legal waiver issues presented in this appeal. Judge Shapero accepted “as true, ” and so does this Court in reviewing his Opinion and Order, that “the Tribe Defendants' pre-petition and post-petition conduct as relates to the Debtors amounts to pervasive dominion and control and went well beyond filing proofs of claim or other litigation conduct.” (In re Greektown Holdings, 559 B.R. at 852-53.)

         II. JURISDICTION AND STANDARD OF REVIEW

         The parties do not dispute this Court's jurisdiction to entertain the Litigation Trustee's appeal. Under 28 U.S.C. § 158(a)(1), this Court has jurisdiction to hear appeals “from final judgments, orders, and decrees” issued by the Bankruptcy Court. Judge Shapero's Order granting the Tribe Defendants' Motion to Dismiss results in the Bankruptcy Court's dismissal of the remaining Defendants in the underlying Adversary Proceeding. In a separate Opinion and Order issued this same day, the Court addresses an appeal of the Bankruptcy Court's earlier dismissal of the Papas and Gatzaros Defendants. A ruling on a motion to dismiss a bankruptcy court adversary proceeding is reviewed de novo. In re Grenier, 430 B.R. 446, 449 (E.D. Mich. 2010) (citing Mezibov v. Allen, 411 F.3d 712, 716 (6th Cir. 2005)).

         The Tribe moves under Fed.R.Civ.P. 12(b)(1) to dismiss the Complaint in the Adversary Proceeding for lack of subject matter jurisdiction based on sovereign immunity. See Memphis Biofuels, 585 F.3d at 919-20 (noting that a motion to dismiss on the basis of sovereign immunity tests the Court's subject matter jurisdiction to entertain the action). The party invoking federal subject matter jurisdiction, here the Litigation Trustee, bears the burden of proving it. Dismas Charities, Inc. v. U.S. Dept of Justice, 401 F.3d 666, 671 (6th Cir. 2005); 3D Systems, Inc. v. Envisiontec, Inc., 575 F.Supp.2d 799, 803 (E.D. Mich. 2008) (observing that plaintiff bears the burden of proving jurisdiction in order to defeat a motion by defendant challenging the court's subject matter jurisdiction).

         Challenges to subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) “come in two varieties: a facial attack or a factual attack.” Gentek Bldg. Prod., Inc. v. Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir. 2007). Under a facial attack, all of the allegations in the complaint must be taken as true, much as with a Rule 12(b)(6) motion. Gentek, 491 F.3d at 330 (citing Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir. 1990)). Under a factual attack, however, the court can actually weigh evidence to confirm the existence of the factual predicates for subject-matter jurisdiction. “Where. . . there is a factual attack on the subject-matter jurisdiction alleged in the complaint, no presumptive ...


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