The recent economic downturn has caused Foxwoods Resort Casino, one of the largest casinos in the world, to seek a restructuring of nearly $1.5 billion in debt. Ordinarily, bankruptcy proceedings are triggered when a typical commercial enterprise defaults on its debt. Under these proceedings, creditors step in and collect monies owed to them before any residual equity is dispersed amongst owners. The rub here is that Foxwoods is owned and operated by the Mashantucket Western Pequot Tribal Nation, a sovereign nation under U.S. federal law. This triggers questions of paramountcy; namely, whether tribunal sovereignty can trump federal bankruptcy law.
These concerns are hardly limited to the academic environment. The practical consequence of dealing with the bankruptcy of a sovereign nation is that creditors (specifically, unsecured bondholders) may see their claims subordinated to the ownership claims of Foxwoods’ equity holders (i.e., tribal members). This would have significant implications for investors, creditors, the native gaming industry and the Mashantucket Tribe itself. Although these parties are currently in the process of negotiation and may very well reach an agreeable solution without litigation, important legal and policy questions arise from this situation.
In this article, we argue that where a tribal corporate entity voluntarily enters into a business contract with non-tribal investors, it must be made subject both to U.S. bankruptcy law and creditors’ rights, as well as to the terms of the agreements it undertakes. Being a commercial participant entails being commercially responsible. It means paying liabilities where and as they become due, in accordance with law and the principles of equity. Three arguments are made in support of this.