Opinion
No. B-97-12542-PHX-GBN, Adversary No. 01-01314.
September 14, 2004
Jon S. Musial, Scottsdale, AZ, Attorney for Plaintiff Lawrence J. Warfield.
Marcelino R. Gomez, Assistant Attorney General Navajo Nation Department of Justice, Window Rock, AZ, Attorney for Defendant The Navajo Nation.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
The December 17, 2001 adversary complaint of Chapter 7 Trustee Lawrence J. Warfield ("trustee" or "plaintiff") seeking disallowance of two bankruptcy claims filed by the Navajo Nation ("Nation") and money damages for alleged violations of Navajo business preference and procurement law was tried to the court as a bench trial on April 16, 2004. Post trial briefing was completed. An interim order was entered on September 1, 2004 announcing the court's decision.
The court has considered the stipulated pretrial statement of April 6, 2004, sworn witness testimony, admitted exhibits and the facts and circumstances of this case. The following findings and conclusions are now entered:
FINDINGS OF FACT
1. Plaintiff is the appointed chapter 7 trustee for the bankruptcy estate of Davis Chevrolet, Inc., ("debtor") a non-operating automobile dealership located within the boundaries of the Navajo Nation, a federally recognized Indian tribe. Debtor's September 12, 1978 articles of incorporation list Donald and Eula Davis as its sole incorporators and directors and its place of business as Tuba City, Arizona. Admitted exhibit PP at articles of incorporation. Debtor filed a voluntary chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Arizona on September 16, 1997. The case was converted to a chapter 7 liquidation on May 15, 1998. Plaintiff was appointed trustee shortly thereafter. The Nation filed two claims against the estate, docketed as bankruptcy claims 35 and 36. Joint Pretrial Statement ("JPS") of April 6, 2004 at ¶ 82, 86 and III.A.1, p. 34; adversary docket item ("Dkt") 58.
2. Bankruptcy claim 36 in the amount of $253,283, dated April 6, 1998, is based on a $400,000 Navajo Nation Business and Industrial Development Fund Promissory Note, signed by Donald and Eula Davis, dated February 16, 1993. The note is secured by Business Site Lease TC-75-69 and other dealership assets. JPS at ¶ 31-33. Admitted exhibit ("Ex.") X. The address for Mr. and Mrs. Davis is listed as Davis Chevrolet, Inc. at the corporation's Tuba City, Arizona business address. Ex. X at unnumbered page 3. In applying for the loan, the Nation was provided with dealership business projections for 1993 through 1995 in connection with ". . . the $400,000 loan for Davis Chevrolet, Inc." Letter of CPA Mark Frost of February 11, 1993, Ex. SSSS; April 16, 2004 trial testimony ("test") of Phillip S. Scott.
Mr. and Mrs. Davis signed the security agreement for the loan on May 13, 1993, again using the Davis Chevrolet business address. Ex. W at last unnumbered page. The collateral was described as Business Site Lease TC-75-69 and the dealership showroom building, gas station and parts/service building, located on the leased premises. Id. at first page. No personal property of Mr. or Mrs. Davis is pledged as security. Ex. W.
The Nation approved the secured business loan by resolution EDCAP-33-93 of its Economic Development Committee on April 27, 1993. Ex. V. The resolution identified the borrowers as Donald and Eula Davis, ". . . d.b.a. Davis Chevrolet, Inc." Id. at unnumbered first page. Davis Chevrolet was described as ". . . a 100% Navajo-owned business, the first and only auto dealership located on the Navajo Nation . . ." Id. The purpose of the loan was to provide working capital to pay business creditors, including inter alia a General Motors Acceptance Corporation ("GMAC") showroom loan, pay GMAC repossession charges and provide equipment for the service department. Id. at last page. Debtor was identified as ". . . a recourse dealership under the General Motors Acceptance Corporation (GMAC) Retail Plan and is totally responsible for all unpaid balances to GMAC for repossessions . . ." Id. at first page. Loan collateral, consisting of equity in the dealership showroom building and the tribal business lease, are described as belonging to Davis Chevrolet, Inc. Id. Repayment of the loan was obviously contemplated to come from the corporation, as its past profitability and the viability of its business plan are discussed in the resolution. Ex. V at unnumbered page 2.
The $400,000 loan proceeds were made payable by the Nation to Davis Chevrolet, Inc. through check 448892 dated May 20, 1993. Ex. PPPP at p. 2. The loan disbursement invoice listed the payment as made to Davis Chevrolet, as well. Ex. PPPP. Scott test.
3. Bankruptcy claim 35 in the amount of $382,899.96 dated April 6, 1998, is based on a Business Site Lease arrearage. JPS at III, p. 34. The lease was approved by the Bureau of Indian Affairs on June 11, 1975, between Donald Davis and the Navajo Tribe of Indians. JPS at ¶ 1. The instrument is dated July 18, 1974. Ex. A at 1. On June 5, 1990, Donald Davis submitted a notice of his intent to transfer his interest in lease TC-75-69 to Davis Chevrolet, Inc. JPS at ¶ 19, Ex. K. On June 6, 1990, the Nation's Economic Development Committee approved the transfer and assignment in Resolution EDCJN-48-90. Ex. L. Nation Vice President Irving Billy approved the assignment and assumption on July 11, 1990. Ex. K at p. 2 of lease assignment, JPS at 19(c). Acting Bureau of Indian Affairs Area Director T.R. Tippeconnic approved the transfer on September 17, 1990. Id.
On June 5, 1990 Davis Chevrolet collaterally assigned its interest in lease TC-75-69 to GMAC to secure a $394,422 promissory note. Ex. M. The Davis Chevrolet collateral assignment was approved respectively by Economic Development Committee Resolution on June 6, 1990, Ex. N; Vice President Billy on October 31, 1990, Ex. M at p. 6 and Acting Bureau of Indian Affairs Area Director Wilfred D. Frazier on November 30, 1990. Id. at P. 7. Debtor warranted it was the sole owner of the lessee's interest in lease TC-75-69. Ex. M at p. 2, ¶ 2 (a).
4. Debtor became delinquent in lease payments prior to the 1993 $400,000 Nation loan. On December 2, 1992 Economic Development Committee Resolution EDCD-112-92 approved a lease modification requested by debtor. Ex. T at ¶ 10, 11. Approval by Nation Vice President Marshall Plummer on December 11, 1992 and by the Bureau of Indian Affairs on January 21, 1993 followed. Ex. U. The modification was made to cure debtor's delinquency of $251,978.73 in rental payments and interest through 74 months of payments of $3,211.37 to $4, 406.16 per month. Id. at second page. Additional assistance to debtor was rendered by adjusting rental computations and waiving charges. Ex. U at p. 1.
5. On July 30, 1985 the Nation adopted the Navajo Business Preference Law 5 N.N.C. § 201 et seq. The Act provides preference priorities to qualified Navajo owned or controlled economic entities. Sections 201 C, 204 A, supra. To be certified as eligible under the Act, the entity must demonstrate full compliance with all applicable requirements of Navajo Employment Preference Laws and the rules and regulations of the Nation. 5 N.N.C. § 204 B. No individual, corporation or partnership is eligible to do business with the Nation or receive any certification or advantage under Navajo law, if previously the entity has defaulted, conducted materially deficient business practices, failed to meet a material contractual or financial obligation to the Nation or failed to materially comply with applicable laws. 12 N.N.C. § 1505 B. See generally, The Navajo Business and Procurement Act, 12 N.N.C. § 1501 et seq.
6. On May 16, 1988, Davis Chevrolet was recertified under the Navajo Business Preference Program as a first priority, 100% Navajo owned firm by the Nation's Real Estate Management Department. Ex. J. Controversies developed and debtor sent letters of complaint to various Nation authorities in 1986, 1987, 1988 and twice in 1989 alleging unfair treatment in bidding opportunities. Ex. I. No evidence was submitted establishing how or whether debtor's complaints were addressed. JPS at ¶ 17. It is clear that debtor never sought the judicial review available in the Navajo Court system. 5 N.N.C. § 208 C. See, Warfield v. Navajo Nation (In re Davis Chevrolet, Inc.) 282 B.R. 674, 684-86 (Bankr. D. Az. 2002) (Not requiring exhaustion of judicial review remedies in tribal court).
7. Debtor's April 14, 1992 application for recertification was denied on November 5, 1992 due to delinquency on its business site lease, an unresolved labor dispute and failure to provide banking information. Ex. R.
8. On August 21, 1996 debtor submitted an application seeking expedited certification as a qualified economic entity entitled to preference, in order to submit a bid to supply goods and services to the Nation on August 23, 1996. Ex. PP. The Nation granted a priority one preference effective August 22, 1996 through August 21, 1997. Ex. QQ. Debtor was also granted preference priority effective February 22, 1997 through February 21, 1998, Ex. WW. Plaintiff complains that notwithstanding the preference certifications, debtor did not obtain awards of business opportunities including fleet purchases of vehicles in November of 1997, Ex. GGGG, and February of 1998, Ex. IIII. Plaintiff complains of additional circumstances where debtor was not the successful bidder, allegedly in violation of its preference rights. Complaint of December 17, 2001 at second cause of action. Dkt. 1.
9. As previously noted, debtor sent letters of complaint to various Nation authorities in 1986, 1987, 1988 and twice in 1989 alleging unfair treatment in bidding. Ex. I. However, plaintiff produced no evidence debtor complied with the protest or appeal requirements of the Navajo Business Preference Act. 5 N.N.C. § 208 B, C.
Appeals by non-Nation entities or individuals of final decisions of the Economic Development Committee can be made to the Navajo Nation Courts. Such appeals are limited to questions of law. The Committee's findings of fact are not to be disturbed, provided they are supported by credible evidence, even if reasonable minds could differ. If the Nation's Courts determine the Committee's findings are unsupported by any credible evidence or are arbitrary and capricious, the Court may remand the matter back to the Committee for rehearing or reconsideration. 5 N.N.C. § 211. Plaintiff produced no evidence it obtained a final order from the Economic Development Committee or appealed to the Nation's Courts.
10. Defendant produced no evidence that it formally decertified debtor as an economic entity entitled to a preference in business dealings with the Nation during the relevant time periods. Nonetheless defendant argues debtor was not entitled to a preference certification in its dealings with the Nation. An express condition of certification is that the entity demonstrate it is in full compliance with all Nation rules and regulations, as well as with the Navajo Employment Preference laws. 5 N.N.C. § 204 B. Further, defendant's fiscal law prohibits an entity from receiving any certification or advantage if it owes a valid delinquent account receivable debt to the Nation. 12 N.N.C. § 1505 A. Defendant asserts the repeated failure of Davis Chevrolet to honor its financial commitments rendered it ineligible to do business with or receive preference from the Nation.
Procedure for Business Regulatory Department preference certification, decertification, revocation, modification or suspension of certification and appeals are codified at 5 N.C.C. § 208 A-C.
11. Ms. Carnelia Owens, employed with the Nation for 28 years in account receivables identified her May 27, 1997 accounting report. Ex. AAA., Test. She testified the report calculated a $253,283.91 delinquency in the Davis Chevrolet business site lease, even after the December 11, 1992 lease modification. She reported a $13,147.12 delinquency in the $400,000 loan and a further delinquency through a lack of filed financial statements. Her report states Mr. Davis should not seek further business or advantages from the Nation until these delinquencies are cured. Although the report is captioned as "DBA Davis Chevrolet," on occasion, it uses terminology that "Mr. Davis" owes a delinquency or is in default of his lease or loan. Ex. AAA at p. 1. A similar report was made on November 6, 1997. Ex. DDD. When questioned, the witness testified that although she had handled debtor's account since 1992 or 1993, she was still treating the lease as held by Mr. Davis and was not reflecting the transfer to Davis Chevrolet in her paperwork. Test. The fact finder concludes this testimony is credible.
Frank D. Nez, Jr. testified he was the manager of the Division of Economic Development and responsible for enforcement of the preference law and Navajo business code. He identified debtor's procurement application of August 21, 1996. Ex. PP. Based on the recommendation of compliance officer Mel Sanderson, Davis Chevrolet was certified on August 22, 1996. Ex. RR, test. His division is to be informed of debts owing by applicants, as well as any deficient business practices or law violations. He recalls no such reports concerning Davis Chevrolet. He received a copy of a February 17, 1997 letter from Don Davis to the Nation's Purchasing Service Department regarding a dispute concerning a bid withdrawn by Davis Chevrolet. Ex. TT. Mr. Nez took no action on the letter, as Purchasing Services was the lead agency in the dispute. Later, Mr. Nez learned that debtor's bid for a major vehicle purchase was not considered because of disputes. He personally knows of no reason why debtor would not have been eligible as a preference bidder. Vince Bohanan of the purchasing department would be the person who would take action against Davis Chevrolet as an ineligible business. Copies of records Mr. Nez would receive concerning disputes would have been routinely destroyed by the date of his testimony. The witness had not previously seen a September 11, 1996 letter from Mr. Bohanan advising that debtor's bid for a prospective vehicle purchase would not be considered, because of debtor's 1994 withdrawal of a bid after the Nation's acceptance. Ex. SSS. Mr. Bohanan, as Director of the Purchasing Services Department, had the authority to make such a decision. Mr. Nez did not handle this dispute. He is not aware if debtor was denied other bid opportunities with the Nation as well. Test.
On cross examination the witness testified debtor's 1996 application made no mention of a pending labor dispute. Ex. PP. In Mr. Nez's opinion, a labor dispute should be brought to his attention by a certification applicant. He was not aware of a labor dispute that was resolved by a December 24, 1996 decision of the Navajo Nation Labor Commission, awarding money judgements against Davis Chevrolet in favor of eight employees for violation of the Navajo Preference in Employment Act. 15 N.N.C. § 601 et. seq. Ex. SS. Damages of $265,985.10 were ordered. JPS at ¶ 61. Had Mr. Nez known of this pending matter, he would not have certified debtor as being in compliance with the Nation's law and regulations. Test.
12. An entity owned or controlled by a non-Indian is not entitled to priority certification. See 5 N.C.C. § 204 A. (Requiring 100% to 51% Navajo ownership and control for preference priorities). Mr. Nez was unaware of allegations made by the trustee in other bankruptcy litigation that non-Navajo Marvin Hatch was in control of Davis Chevrolet and was making all significant decisions no later than January of 1996. Ex. EEEEE at p. 15, ¶ 53. Also see First amended complaint filed October 13, 1998 in Warfield v. General Motors Acceptance Corporation (In re Davis Chevrolet) adversary no. 98-00593 dkt. 11 at p. 15, ¶ 53. Had Mr. Nez known of this allegation, it would have been a material factor in determining eligibility. If true, it would be a basis for denying certification.
Paragraph 54 A, Id., alleging Mr. Hatch induced Mr. and Mrs. Davis to relinquish control of Davis Chevrolet, if true, would disqualify Davis Chevrolet. Paragraph 54 G, alleging a breach of fiduciary obligations, and allegations in paragraph 55 that Mr. Hatch controlled Davis Chevrolet revenues, if true and if known, would also be disqualifying. Debtor's 1998 application makes no mention of these matters, nor identifies delinquent obligations owed to the Nation. Ex. EEE. If the plaintiff's allegations in adversary 98-00593 are true, Mr. Nez believes debtor would have misrepresented its status as an eligible Navajo owned and controlled entity. Test.
13. Mr. Nez testified his division was lenient in enforcement of business rules and regulations, when infractions are known. Vincent Bohanan, Director of Purchasing Services and Ray Martin, Director of Fleet Management would be the officers making the adverse agency decisions against debtor. Mel Sanderson of Mr. Nez's office would simply monitor the matters as to bid procedures. Test. The court finds this to be credible testimony.
14. Ben R. Hatch testified he was the Davis Chevrolet Sales Manager beginning in August of 1996. His brother Marvin Hatch was a consultant for Davis Chevrolet, a business qualified to do business on Navajo Nation trust lands. The witness helped prepare debtor's 1996 application for certification as a priority bidder on Nation vehicle purchases. Ex. PP. Debtor bid on a 340-vehicle purchase by the Nation, expecting to make an average $1500 per vehicle profit. Mr. Hatch did not attend the bidding event, but was later told the bid was rejected. Exhibit PPP is a spreadsheet reflecting bid information for participants in the 340 vehicle fleet purchase. Exhibit PPP lists "Davis Chevrolet (Ford)" as the bid participant. Mr. Hatch also assisted in the preparation of the Ford bid component. The Fords were to be supplied by Ames Ford, a dealership owned by Marvin Hatch, Ben R. Hatch's brother and previous employer. Mr. Hatch reviewed a July 21, 1992 letter from CPA Mark Frost, calculating average per vehicle gross profit by debtor. Ex. QQQQ. Mr. Hatch is not acquainted with Mr. Frost. Mr. Hatch has participated in discussions concerning improving the fortunes of Davis Chevrolet by use of the Navajo Preference Law. Test.
15. Phillip S. Scott testified he has been the Chief Financial Officer for Navajo Economic Development for 16 years. He oversaw the industrial development loan fund that made a committee-approved loan to Davis Chevrolet of $400,000. Exhibit X is the February 16, 1993 promissory note signed by Mr. and Mrs. Davis as "borrowers" and listing "Davis Chevrolet Inc." as "borrower(s)' mailing address." Id. at last page. Exhibit W is the May 13, 1993 security agreement, also signed by Mr. and Mrs. Davis as "debtors" and again listed their mailing address as "Davis Chevrolet Inc." Id. at last page. Mr. Scott signed his concurrence on a July 24, 1996 statement that the Davis Chevrolet loan was current and that debtor had ". . . indicated how they will make payments on their Business Site Lease." Ex. NN. He understood debtor was trying to come into compliance with the Nation's preference law. Debtor was granted a preference in July of 1996. Test.
Mr. Scott recalls there were times when Davis Chevrolet was delinquent on its loan with the Nation. He cannot recall the loan delinquency dates. He does recall that the Nation performed offsets on moneys owed to Davis Chevrolet due to debtor's delinquencies. He also recalls meetings in 1995 or 1996 with debtor's officers and Edward S. Richards of the Small Business Development Department regarding the delinquency. At the meeting, Marvin Hatch mainly spoke on debtor's behalf. Mr. Davis was quiet and may have been recovering from a stroke. The witness identified a July 24, 1996 letter from debtor's attorney to Mr. Richards memorializing a July 23 meeting, which included Mr. Scott. Ex. NN at attached letter. Debtor's counsel asserted in the letter that by making three payments in April covering periods from 1994 to 1996, debtor became current on one obligation owed the Nation. Counsel also asserted debtor was current or had overpaid on the $400,000 loan and that the parties had agreed that debtor should receive a priority certification. Id. Test.
The parties stipulated that Davis continued to receive some business preference awards and that payments for such business were applied by the Nation towards delinquent accounts through and including 1988. JPS at ¶ 40.
The parties agree that payments on the $400,000 loan were current in December 1995 and July 1996. Defendant asserts that delinquencies on the business site lease are not included in billings on the loan. JPS at ¶ 43, 48. See e.g. Ex. HH.
The witness did not oversee delinquencies on tribal business leases. He is responsible for supervising 75 employees in ten separate office sites. Test. The fact finder views Mr. Scott as a credible witness. However, his personal knowledge concerning the dates that debtor was delinquent in its Nation obligations or under Nation law is unclear.
16. In a March 6, 1997 memorandum to Compliance Officer Mel Sanderson, Vincent Bohanan as Director of Purchasing Services asserted his department was in full compliance with the Navajo Business Preference Act in regard to dealings with Davis Chevrolet. He advised that in cooperation with the Department of Justice and the Navajo Business Regulatory Department, his department had not considered any bids from debtor based on its nonperformance on a previously awarded vehicle contract. Although he could not find reference to such a circumstance within the Nation's laws, policies and procedures, his department had suspended purchasing from debtor. Given the passage of time, Director Bohanan stated he would again work with debtor, provided debtor sent a letter assuring that nonperformance would not again occur and expressing understanding that a probationary period would be imposed. Ex. XX.
17. As previously noted, Nation accountant Carnelia Owens (Tsinajinnie) has testifed she prepared a May 27, 1997 accounting memorandum reporting Davis was in default of the business lease repayment plan in the amount of $253,283.91 and $13,147.12 on the business loan. She asserted Davis could not depend on the Nation to offset small payables due from the Nation to the business loan. Further, he must become current before seeking business advantages from the Nation. Finding of fact ("finding") 11. Also see JPS at ¶ 77.
18. In an August 25, 1997 memorandum, Ms. Genevieve Keetso-Bighorse of the Tuba City Regional Business Development Office asked the accounts receivable section of the Nation's Finance Department to provide information under the Navajo Business Procurement Act whether Davis Chevrolet was current in its obligations. The purpose of the clearance request was to determine if the Nation and the Bureau of Indian Affairs would approve an encumbrance on business site lease TC-75-69. Attorneys for Davis' accounting firm wanted to secure a promissory note for accounting fees signed by Donald Davis. Ex. BBB. No formal action or response was made to this request. JPS at ¶ 81.
19. In 1996 through 1998, Davis Chevrolet engaged in business with the Nation and its entities. In 1996 through the conversion of debtor's case to a Chapter 7 liquidation on May 15, 1998, debtor attempted to solicit or submit bids for vehicle sales and service as an eligible preferred vendor. The Nation offered business opportunities in the aggregate amount of $7,673,469.76 in 1996 through 1998 to non preference entities, including one or more non-Native American enterprises. The parties are unable to submit any additional documents establishing whether a formal or informal determination was made concerning debtor's preference eligibility, other than exhibits currently in evidence. JPS at ¶ 87-90.
20. To the extent any of the following conclusions of law should be considered findings of fact, they are hereby incorporated by reference.
CONCLUSIONS OF LAW
1. To the extent any of the above findings of fact should be considered conclusions of law, they are hereby incorporated by reference.
2. Pursuant to 28 U.S.C. § 1334 (a) (1994), jurisdiction of debtor's bankruptcy case is vested in the United States District Court for the District of Arizona. That Court has referred all cases under Title 11 of the United States Code and all adversary proceedings arising under Title 11 or related to a bankruptcy case to this Court. 28 U.S.C. § 157 (a) (1994); Amended District Court General Order 01-15. This proceeding having been appropriately referred, this court has core bankruptcy jurisdiction to enter a final judgment regarding the trustee's objections to the Nation's claims and the trustee's complaint. 28 U.S.C. § 157 (b) (2) (B), (C). See also JPT at ¶ I. (stipulating to jurisdiction as a core proceeding); Warfield v. Navajo Nation (In re Davis Chevrolet) 282 B.R. 674, 676-86 (Bankr.D.Az. 2002) (rejecting Nation's sovereign immunity and exhaustion of tribal remedies argument).
3. This Court's conclusions of law are reviewed de novo and its factual findings for clear error. Hanf v. Summers (In re Summers) 332 F. 3d 1240, 1242 (9th Cir. 2003). The appellate court accepts the bankruptcy court's findings, unless upon review, it is left with the definite and firm conviction that a mistake has been committed. Ganis Credit Corp. v. Anderson (In re Jan Weilert RV, Inc.) 315 F. 3d 1192, 1196 (9th Cir.) amended by 326 F.3d 1028 (9th Cir. 2003).
4. A proof of claim filed in bankruptcy is prima facie valid. 11 U.S.C. § 502 (a) (1994). Federal Bankruptcy Rule 3001 (c) requires a creditor to attach a writing to its claim, if the claim is based on a writing. An executed claim filed in conformity with the bankruptcy rules constitutes prima facie evidence of the validity and amount of the claim. Rule 3001 (f), F.R.B.P. A claim that alleges facts sufficient to support a legal liability to the claimant satisfies the creditor's initial obligation to go forward. The claim's allegations are taken as true. If the allegations set forth all necessary facts to establish a claim and are not self-contradictory, they prima facie establish the claim. Should an objection be made, the objector must produce evidence and facts to defeat the claim by probative force equal to that of the claim's allegations. Hardin v. Gianni (In re King Street Investments Inc.), 219 B.R. 848, 858 (9th Cir. Bankr. 1998) (citing cases). The Court concludes that Nation bankruptcy claims 35 and 36 are properly filed and supported, as required by the Federal Bankruptcy Rules. Accordingly, they are entitled to prima facie validity.
5. Plaintiff argues claim 35, alleging a business lease arrearage of $382,899.96 is not a valid claim against the estate of this corporate debtor. Trustee first questions the July 11, 1990 approval of the transfer of business site lease TC-75-69 from Donald Davis to Davis Chevrolet Inc. by the Nation's Vice President, rather than its President, complaining defendant produced no evidence that the President was absent or otherwise unable to approve the transfer. Tribal law authorizes the Nation's Vice President to execute the powers and duties of the President, during the latter's absence. 2 N.N.C. § 1005 (D). Creditor is not required to produce further evidence until objector properly rebuts the prima facie claim. Hardin id. Plaintiff produced no evidence the Nation's President was personally available to approve the transfer in 1990.
Trustee also notes the Nation's approval of the transfer to Davis Chevrolet contemplated a new lease would be created. Debtor's former employee Mary K. Bradley testified this did not occur. Direct test. The new lease was to include the same term as the original transferred lease. Ex. K at ¶ 6. Nation accountant Carnelia Owens credibly testified that, in her experience, when a business is delinquent on debts to the Tribe, it will not be issued a new business site lease until the accounts are brought current. Direct test. Plaintiff did not establish how, under applicable law, the parties' failure to create a new lease for the same term voids the transfer approval given to debtor. Trustee has not carried his burden on this issue. Hardin id.
Trustee argues that any assignment of the lease contractually required the approval of a surety. The original lease required Donald Davis as lessee, to guarantee his performance by obtaining a $3,000 corporate surety bond. Ex. A at p. 7, ¶ 10. The surety was to consent in writing to any subsequent transfer for the assignment to be valid. Id. at ¶ 11. No evidence was submitted by any party establishing that Mr. Davis originally obtained the requisite $3,000 surety bond in 1974, much less that there was a valid bond in place requiring a surety's consent for the 1990 transfer to Davis Chevrolet. Objector did not establish the identity of the allegedly missing signatory, assuming one exists. Clearly the bonding is for the protection of the Nation and the United States. Id. at p. 17, ¶ 25. Just as clearly, the requirement of a surety's written consent to transfers is to keep the protection in place for these parties. It is unclear whether the government entities waived such protections or if they were resolved in other documents not in evidence. It is sufficient to conclude the protected parties chose to approve the lease transfers, through the Nation's Vice President and the Area Director of the Bureau of Indian Affairs, without the inclusion of a surety's consent. Plaintiff presented no legal authorities establishing those parties cannot legally waive such protection in approving the transfer. Plaintiff has not carried his burden.
A surety's approval does appear on a December 11, 1992 modification of Lease TC-75-69. Ex. U. The modification identifies the lessee as Davis Chevrolet, Inc., not Mr. and Mrs. Davis. See Legal Conclusion 6., infra.
6. Plaintiff's additional objection is that business site lease TC-75-69 was not validly encumbered as an obligation of the debtor. Objector cites no legal authorities in support of this argument. The security agreement is signed by Mr. and Mrs. Davis as "debtors," without indication if they are signing in their individual or corporate capacities as debtor's only officers. Ex. W at last page. Throughout the instrument, Mr. and Mrs. Davis are referred to in the singular as "debtor," except at the signature line, where they are referred to as "Debtor(s)." Their mailing address and physical location list only debtor's business location. Id. Collateral for the May 13, 1993 security agreement was the business lease, (which Mr. Davis had requested be transferred to Davis Chevrolet, Inc. on June 5, 1990) and the dealership buildings belonging to Davis Chevrolet, Inc. on the lease site. Ex. W at ¶ I., Ex. K. No personal property of Mr. and Mrs. Davis was pledged as security. Ex. W, Id.
The security agreement granted the Nation all the rights of a secured party under the Uniform Commercial Code of the Navajo Nation. Ex. W at ¶ III, p. 4. The secured promissory note states it is governed by the laws of the Navajo Nation. Ex. X at p. 2.
The parties' conduct clearly indicates the corporation held the lease. A lease modification, signed by Mr. Davis on December 11, 1992, identifies the lessee as Davis Chevrolet, Inc. Ex. U. Earlier on June 5, 1990, Davis signed as president of Davis Chevrolet, Inc. a collateral assignment of debtor's interest in lease TC-75-69 as security for a corporate debt of $394,422 owed to GMAC. Ex. M. The collateral assignment by debtor was approved by the Nation's Economic Development Committee the next day. Ex. N. Approval by the Nation's Vice President and the Bureau of Indian Affairs for the Davis Chevrolet transaction subsequently occurred. Ex. M at 6-7. When debtor became delinquent on lease payments, a restructuring agreement was created for debtor, not Mr. and Mrs. Davis individually. Ex. T. The modification request was made by the corporate debtor. Id. at ¶ 10, 11.
Occasionally officers dealing with debtor carelessly referred to Mr. Davis, rather than his corporation in internal communications. See, e.g., Ex.AAA (Internal Nation accounting report dealing with debtor's subsequent default in restructuring payments, but reporting: "Mr. Davis is in default of his repayment plan toward his delinquent Business Site lease . . ." Id. at p. 1. The report itself is captioned as dealing with "Davis Chevrolet." Id. The report's author credibly testified the lease obligation was held by debtor. Cross and redirect test. of Carnelia Owens. The Court concludes plaintiff did not meet his burden in objecting to claim 35.
7. Plaintiff's case against claim 36, an arrearage claim of $253, $283 based on a promissory note dated February 16, 1993, asserts similar issues of non corporate liability. The loan is secured by inter alia, business site lease TC-75-69. Ex. W at ¶ I. The Nation approved a $400,000 business loan for applicants Donald Davis and Eula Davis ". . . dba Davis Chevrolet Inc . . ." by resolution of its Economic Development Committee on April 27, 1993. Ex. V at 1. Paragraphs 5 through 10 of the resolution exclusively discuss the corporation's business operations, assets, its business lease TC-75-69, its debts owing to GMAC, profitability, proposed repayment plan and use of loan proceeds to pay debtor's GMAC debt and creditors. Id. There is no discussion of Mr. Mrs. Davis' personal assets, income or a proposed use of funds to pay their individual debts.
The note is signed by Mr. and Mrs. Davis, with no indication either that they are married individuals, or that they are corporate officers. Ex. X at p. 3. Their mailing address is listed as the Davis Chevrolet, Inc. address. Id. While the note recites it is governed by Navajo Nation law and is to be litigated in Navajo Nation courts, trustee provides no legal authorities for his argument the note is an individual obligation only of the Davis signatories. Id. at p. 2. Again there is loose language by officers in internal Nation communications suggesting Mr. Davis is the debtor. See, e.g., February 8, 1996 financial analyst memorandum: ". . . Davis has been making irregular payments . . ." Ex. II. Yet the document is titled "Davis Chevrolet Loan Payment Analysis." Id. Other documents clearly indicate the loan is a corporate liability. See, e.g., Invoice of February 22, 1996 (addressed only to Davis Chevrolet and requiring a $5,591.78 payment). Ex. HH. Accountant Owens credibly testified the obligation was owed by Davis Chevrolet. Test. Mr. and Mrs. Davis were not presented by plaintiff as witnesses to affirm the debt was their personal obligation alone. Plaintiff has failed to meet his burden in objecting to the claim.
8. Count two of plaintiff's complaint seeks money damages of not less than $5,000,000 under the Navajo Business Preference Act and the Navajo Business and Procurement Act. ("The Acts"). Dkt. 1 at pgs. 4-8. Generally plaintiff alleges debtor submitted bids for sales of individual and fleet vehicles and service as an eligible business under the Acts. Despite eligibility, the Nation allegedly denied business opportunities. Further, on information and belief, trustee alleges the Nation violated its own statutory law by tendering automobile rental and repair service business to non-Indian enterprises, to debtor's economic detriment. Id.
The parties attempted to resolve the litigation through extensive briefing of cross motions for partial summary judgment. At the July 28, 2003 oral argument, the court denied the cross motions, finding disputed issues of material fact. Minutes of July 28, 2003, dkt. 43. Nonetheless, it was possible to reach some conclusions. First, then as now, the trustee argued debtor was not liable for defaults in the business lease, suggesting the lease obligation was the individual responsibility of Mr. and Mrs. Davis. At the hearing, the court rejected that contention based on Navajo law prohibiting transacting business with any entity ". . . either in its present form or in any identifiable capacity as an individual, business, corporation, partnership or any other entity . . ." that defaulted on an account receivable, had a money judgment against it in favor of the Nation, had materially deficient business practices, failed to meet a material contractual or financial obligation to the Nation, failed to comply with applicable laws or engaged in illegal conduct. Navajo Business and Procurement Act at § 1505 (A)-(C). 12 N.N.C. § 1505 (A)-(C). Clearly Mr. and Mrs. Davis, as the only officers and stockholders of debtor, would act in an identifiable capacity to the extent they previously engaged in the proscribed activities. Following trial, the court now additionally finds and concludes that the lease and promissory note were the debts of debtor. See findings at 2-4, 11, 17-18, conclusions at 5-7.
Second, the court was able to find at the summary judgment hearing that the Navajo Nation Labor Commission ruled that debtor violated the Navajo Preference in Employment Act and that debtor's appeal was dismissed on April 30, 1997. To be certified as eligible for any business preference, debtor must demonstrate full compliance with all applicable Navajo employment preference laws. 5 N.N.C. § 204 B. While it appeared clear debtor was in violation of the Employment Preference Act and had defaulted previously on its lease and note payments, the court could not grant summary judgment to defendant. This was because, based on the parties' evidence submittals, the court found the facts jumbled and complex, requiring an evidentiary hearing. Minutes, Id.
9. Plaintiff does not propose an evidentiary standard for evaluating his damage suit against the Nation. The Navajo Business and Procurement Act, cited as jurisdiction for his complaint, provides that judicial review is limited to questions of law and that administrative findings of fact are to be sustained, provided there is some basis in the evidence for such findings. 12 N.N.C. § 1509, Complaint at ¶¶ 2, 11-17. Also see 5 N.N.C. § 211 (Judicial review of decisions under the Navajo Nation Business Preference Law limited to questions of law, administrative findings of fact will not be disturbed, provided they are supported by any credible evidence, upon which reasonable minds may differ). If, for some reason, state tort law would be applicable, the evidentiary burden would be a preponderance of the evidence. Harvest v. Craig, 195 Ariz. 521, 990 P. 2d 1080, 1082 (Ariz.App. 1999). The stringent review standard established in the Acts invoked by plaintiff provides the appropriate legal standard. However, the court will review plaintiff's evidence under the more lenient preponderance of the evidence test as well.
Weighing the trial evidence, the court finds itself where it was when evaluating the parties' summary judgment evidence. The facts are again jumbled and complex. Clearly there were repeated instances when the debtor, a troubled business, was in extended default in payments to the Nation under both the business lease and promissory note. Additionally, it was formally in violation of the Navajo Employment Preference Act, as found by the Nation's labor board. All these incidents formally disqualify debtor from the business preferences and opportunities for which damages are sought. Evidence failed to establish whether these periods of ineligibility corresponded with periods in which debtor was actively seeking business opportunities as a preferred business. It is likewise difficult to judge the quality of the Nation's response to debtor's bidding requests and complaints. Some of the Nation's officers, who may or may not have been in a position to know, could not recall a reason why debtor would be disqualified for a continued preference. Others, responsible for maintaining financial records, definitively indicated otherwise.
No clear administrative record documenting the Nation's official actions was presented. Was debtor wronged in some of the administrative decisions made by tribal officers? Possibly. Was the Nation too informal in its determinations of ineligibility? Possibly. Would the record have greatly benefited by formal invocation by debtor of its administrative and tribal judicial review rights? Undoubtedly. Did Plaintiff carry its burden of proof? Not to the satisfaction of this fact finder. Under either the stringent evidentiary burden established in the Nation's law, invoked by plaintiff or even the more generous standard of preponderance of the evidence, plaintiff did not prove his case.
10. There is a final legal difficulty with plaintiff's liability case. He sues under the Navajo Business and Procurement Act. Complaint Id. Whether this act creates an implied private right of action is traditionally determined by a four-part test: (1) Plaintiff must belong to the class for whose special benefit the statute was created; (2) the legislature must have demonstrated an explicit or implicit intent to create a private remedy; (3) finding an implied cause of action must be consistent with the underlying purpose of the statute and (4) the cause of action must not be one traditionally left to (tribal) law. Cort v. Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 2087 (1975), Stupy v. U.S. Postal Service, 951 F.2d 1079, 1081 (9th Cir. 1991) (Declining to find a private right of action in employee promotion and transfer section of the Postal Reorganization Act). See also Fisher v. City of Tucson, 663 F.2d 861, 863-67 (9th Cir. 1981) (Even though Congress intended to create federal rights on behalf of disabled individuals in the Rehabilitation Act of 1973, it did not create an implied private action right).
An evaluation of the other elements is not necessary if the court finds the legislature did not intend to create a private action right. California v. Sierra Club, 451 U.S. 287, 298, 101 S.Ct. 1775, 1781 (1981), Stupy, 951 F.2d at 1081. Of the four factors, the most important by far is Congressional intent. Because the issue is one of statutory construction, it is appropriate to begin with the language of the statute itself. East v. Bullock's Inc., 34 F.Supp.2d 1176, 1182 (D. Ariz. 1998) (Employee record keeping requirements of the Fair Labor Standards Act does not create a private right of action). Unless legislative intent can be inferred from the statute's language, the statutory structure or some other source, the essential predicate for implication of a private remedy does not exist. Thompson v. Thompson, 484 U.S. 174, 179, 108 S.Ct. 513, 516 (1988) (Parental Kidnapping Prevention Act does not provide an implied cause of action).
The Navajo Business and Procurement Act is intended ". . . to protect the resources and financial integrity of the Navajo Nation and to promote sound governmental practices." 12 N.N.C. § 1502. (Statement of purpose). Compliance with the Act is a condition precedent to transacting or granting any business opportunity, contract, processing any lease or considering any loan application by or from the Nation to any individual or entity other than the Nation. Id. Given this direct statement of purpose, it is clear it is the Nation itself, not debtor, for whose benefit the Act was created. This explains the stringent evidentiary standard imposed for judicial review of the Nation's administrative decisions. Cf. First Pacific Bancorp, Inc. v. Helfer, 224 F. 3d 1117, 1122 (9th Cir. 2000) (Shareholders granted private accounting remedy under Federal Deposit Insurance Act when they are specifically listed as beneficiaries in the statute).
Further, the Act is a comprehensive business regulatory scheme that provides an administrative review process, utilizing short time lines, by a hearing officer appointed by the Nation's President. § 1508. A final appeal may be taken from the hearing officer's decision to the Nation's Courts. § 1509. Appeals are limited to questions of law. The hearing officer's findings are to be sustained if there is "some basis" in the evidence for such findings. Id. There is no provision for a private damage action in the statute. Given these express administrative remedies for a limited review and expressed purpose to benefit the Nation, not contracting businesses, it would be improper to hold that the Nation's law makers intended to confer a private right of action for damages under the Act. See Stupy, 951 F.2d at 1082. The court concludes plaintiff has no standing to prosecute a private action under the invoked statute.
The presence of statutory enforcement provisions provides evidence that private means of enforcement are not intended. First Pacific Bancorp, Inc., 224 F.3d at 1126, citing Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 139-44, 105 S.Ct. 3085, 3088-91 (1985) (Statutory provisions allowing plan beneficiaries to bring a civil suit, but making no mention of a damages remedy, indicate no private damage cause of action was intended).
ORDER
The court finds for defendant and against plaintiff. Plaintiff's complaint and causes of action are dismissed with prejudice. A judgment will be issued forthwith. Each party will bear its own costs and fees.