Law Article: Santa Ysabel Band can't seek bankruptcy at casino

"Under the unique and somewhat unclear legal landscape in which tribal casinos operate, many tribes have wielded the threat of sovereign immunity or have rested on the leverage inherent in the limited remedy-enforcement options available to their creditors. Despite such assertions of leverage, nearly all tribal gaming issuers have reached consensual restructuring agreements with their bondholders in recent years. Notable deals include, not only Mohegan Sun, but also smaller tribal casinos such as the Chukchansi Gold Resort and Casino, the River Rock Casino and the Buffalo Thunder Casino Resort.

However, the case of the Santa Ysabel Resort and Casino (the “Casino”), operated by the Iipay Nation of Santa Ysabel (the “Tribe”) is an exception to this trend. While the Casino sought to consensually resolve the modest debt on its balance sheet, in the absence of a deal, the Casino ultimately filed for bankruptcy under chapter 11.

In a significant development that provides some clarity on the legal issues pertaining to tribal gaming enterprises, on September 4, 2012, Chief Judge Peter W. Bowie of the Bankruptcy Court for the Southern District of California dismissed the Casino’s chapter 11 case , holding that the Casino was not eligible to be a debtor under the Bankruptcy Code. The court rejected the Casino’s argument that it was an eligible debtor because it was an unincorporated company that falls within the Bankruptcy Code’s definition of corporation and held that the Casino did not bear the characteristics of an unincorporated company because it could not identify when the entity was created. Instead, the court noted that under the Casino’s theory the unincorporated company would have “just sort of [come] up as vapors from the ground after the mist lifts.”"

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Scott J. Greenberg, Michael J. Cohen, Jeffrey H. Taub: Tribal Gaming Enterprise Held Ineligible to File for Chapter 11 (JD Supra 9/25)

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