Gaming Legal News: September 8, 2011 • Volume 4, Number 27

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Seventh Circuit to Lac Du Flambeau: "They Can't Touch You"

Lac du Flambeau can continue its casino operations without facing any liability for its $46.6 million bond default two years ago. The bondholder still has some hope of recovery if it can persuade the courts that there was an informal or implied sovereign immunity waiver in the transaction. However, the documents pursuant to which it purchased the $50 million in bonds have been determined to be void, including the formal waiver of tribal sovereignty executed in conjunction with the transaction.

On Tuesday, the United States Court of Appeals for the 7th Circuit affirmed the lower court’s ruling made 20 months ago that the Indenture under which the $50 million bond offering was issued constituted a “management contract” under the federal Indian gaming law that never had been approved by the Chairman of the National Indian Gaming Commission (“NIGC”) and was consequently void under the federal gaming law. Worse for the bondholder, the law also dictates that all documents “collateral to” the principal agreement also are void – including all loan documents and the aforementioned waiver.

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