Arizona Supreme Court announces a six-factor test to determine whether a tribal economic entity is an “arm of the tribe” for sovereign immunity purposes.

Indian tribes are generally immune from suit.  But what about tribal economic entities?  Are they immune too?  The answer depends on six case-specific factors, recently announced by the Arizona Supreme Court.

The facts of the case were simple.  A river rafter was injured on a boat operated by a tribal corporation.  The sole shareholder of the corporation was the Hualapai Indian Tribe.  The rafter sued the corporation and the Tribe.  The trial court dismissed the suit against the Tribe on sovereign immunity grounds, but not the suit against the corporation.  The Court of Appeals declined special action review, but the Arizona Supreme Court granted review to clarify when a tribal economic entity is an “arm of the tribe” for sovereign immunity purposes.

The Court explained:  Sovereign immunity applies to a tribe’s “subordinate economic organizations” because they are considered “arms of the tribe.”  To determine whether an entity is a tribe’s subordinate economic organization, a court should consider six non-exclusive factors:

1.  The entity’s creation and business form.  For example, if the entity was created by a tribe’s government, it is more likely an arm of the tribe.  But if the entity is a corporation, it is less likely an arm of the tribe.

2.  The entity’s purpose.  For example, if the entity assists the tribe with governmental functions, it is more likely an arm of the tribe.  But if the entity merely generates revenue for the tribe, it is less likely an arm of the tribe.

3.  The business relationship between the tribe and the entity.  For example, if the entity’s operation is directed by the tribe, it is more likely an arm of the tribe.  But if the entity’s operation is directed by a separate board, it is less likely an arm of the tribe.

4.  The tribe’s intent to share immunity with the entity.  For example, if the tribe declares that the entity has sovereign immunity, the entity is more likely an arm of the tribe.  But if the tribe expects the entity to have liability insurance protecting the tribe and the entity from the entity’s negligence, the entity is less likely an arm of the tribe.

5.  The financial relationship between the entity and the tribe.  For example, if a judgment against the entity would affect the tribe’s assets, the entity is more likely an arm of the tribe.  But if such a judgment would not affect the tribe’s assets, the entity is less likely an arm of the tribe.

6.  Whether immunizing the entity furthers federal policies underlying sovereign immunity.  For this factor, the Court simply observed:  Although policies underlying sovereign immunity are embedded in the other five factors, a court should still separately consider whether recognizing immunity for the entity would further those policies.

The entity has the burden of proving that it is a tribe’s subordinate economic organization for sovereign immunity purposes.  Here, the corporation did not provide enough evidence to carry this burden, so the trial court did not err by denying the corporation’s motion to dismiss.

Concurring, Justice Bolick urged the United States Supreme Court to fundamentally “reconsider” its tribal sovereign immunity jurisprudence, which, he explained, focuses on “what the federal government has authorized and what tribes are doing” but omits “state interests.”

Vice Chief Justice Timmer authored the opinion, in which Chief Justice Brutinel and Justices Bolick, Gould, Lopez, Beene, and Montgomery joined.  Justice Bolick filed a concurring opinion.