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November 14, 1991;

ALTHEIMER & GRAY, Plaintiff,

Suzanne B. Conlon, United States District Judge.

The opinion of the court was delivered by: CONLON

In this consolidated diversity action for breach of contract, plaintiff Health Care Services, Ltd. ("Health Care"), its president, John Veleris ("Veleris"), and the law firm of Altheimer & Gray (collectively "plaintiffs") sue defendant Sioux Manufacturing Corporation ("Sioux Manufacturing"). *fn1" Health Care and Veleris allege that a March 7, 1990 letter of intent between Sioux Manufacturing and Health Care constituted a binding contract under which Health Care would develop and manage a manufacturing facility within the borders of the Devils Lake Sioux Tribal Reservation in Fort Totten, North Dakota. Altheimer & Gray seeks legal fees it is allegedly due as a purported third party beneficiary under the same March 7 letter of intent. Alternatively, Sioux Manufacturing moves for dismissal or summary judgment. Sioux Manufacturing contends that the tribal court exhaustion rule counsels that the court decline to exercise its diversity jurisdiction until plaintiffs exhaust available tribal court remedies. Alternatively, Sioux Manufacturing asserts that the letter of intent is void, as a matter of law, because it does not bear the approval of the Secretary of the Interior, as required under 25 U.S.C. § 81.


 Health Care is an Illinois corporation with its principal place of business in Cook County, Illinois. Health Care complaint para. 1; Sioux Manufacturing 12(m) Statement of Material Facts ("Sioux Manufacturing facts") para. 6. Sioux Manufacturing is a tribally chartered corporation and governmental subdivision of the Devils Lake Sioux Tribe ("the Tribe"), organized under the Tribe's Law and Order Code, § 10, ch. 4. Id. para. 2; Sioux Manufacturing facts para. 1. Sioux Manufacturing's offices and sole facility is located within the exterior boundaries of the Devils Lake Sioux Tribal Reservation in Fort Totten, North Dakota. Id.; Sioux Manufacturing facts para. 5. Sioux Manufacturing is the largest employer and source of government revenue on the Devils Lake Sioux Tribal Reservation. Sioux Manufacturing facts paras. 12-14; Altheimer & Gray 12(n) Statement of Material Facts ("Altheimer & Gray facts") paras. 12-14.

 On March 7, 1990, Veleris, acting in his capacity as president of Health Care, entered into an agreement designated as a "letter of intent" with Sioux Manufacturing. Id. para. 3; Exh. B. The agreement contemplated a relationship in which Health Care would sell to Sioux Manufacturing the necessary industrial equipment for and provide its expertise in the production and marketing of various latex medical products in facilities to be located on the tribal reservation. Letter of intent at 1. The letter of intent stated that Health Care would act as exclusive management consultant to Sioux Manufacturing regarding the operation of the business, in return for which Health Care would receive a consulting fee and a significant share of net profits for as long as six and one-half years. Id. §§ 3-8. The agreement further stated an understanding that Health Care and Sioux Manufacturing subsequently would enter into a series of contractual agreements setting out in greater detail the nature of their respective obligations. Id. at 1. Additionally, the terms of the agreement expressly stated that neither party was obligated to enter the future agreements unless certain express conditions precedent had been met. Id. § 1.

 The letter of intent contained an expenses clause obliging "the Sioux" to Pay "all reasonable legal and accounting fees and expenses" incurred by Veleris and Health Care in the negotiation of the letter of intent and any of the contemplated subsequent contracts in the event that the parties did not consummate the contracts by the designated closing date. Id. § 13. Altheimer & Gray, a Chicago-based law firm, provided Health Care with legal services in connection with the negotiation of the letter of intent.

 The agreement contemplated the closing of all subsequent contracts within sixty days of the acceptance of the letter of intent. Id. However, Sioux Manufacturing and Health Care executed two subsequent agreements that extended the closing deadline until November 1, 1990. Health Care complaint para. 6; Sioux Manufacturing facts para. 23. Following the execution of the letter of intent, but prior to the consummation of any of the contracts contemplated under the letter of intent, Health Care and Veleris began operations on the Devils Lake Sioux Reservation. Sioux Manufacturing facts paras. 21, 22; Altheimer & Gray facts paras. 21, 22.

 Health Care contends that Sioux Manufacturing failed to act in good faith to satisfy contractual conditions precedent, and in particular, failed to arrange project financing. Health Care complaint para. 7. Sioux Manufacturing's failure to meet its obligations precluded a November 1, 1990 closing. Id. para. 8. After November 1, 1990, Sioux Manufacturing refused to undertake further efforts satisfy the terms of the letter of intent. Id. para. 9. Health Care contends that Sioux Manufacturing's conduct constitutes a unilateral breach of contract and a breach of the express and implied covenant of good faith governing the agreement. Id. para. 10. Health Care seeks over $ 7,000,000 in damages for expenses and loss of earnings. Altheimer & Gray, filing a claim as a purported third party beneficiary to the letter of intent, seeks payment for legal services it provided in connection with the Health Care-Sioux Manufacturing venture.


 Sioux Manufacturing characterizes its motions as alternative motions for dismissal or summary judgment. Both Sioux Manufacturing and plaintiffs extensively rely upon affidavits and exhibits submitted in connection with the present motions. Consequently, Sioux Manufacturing's motions are treated as summary judgment motions. See Fed. R. Civ. P. 12(c).

 Summary judgment must be granted when the record shows that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Marcial v. Coronet Ins. Co., 880 F.2d 954, 959 (7th Cir. 1989). A party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials in the pleadings, but must set forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 324, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Schroeder v. Lufthansa German Airlines, 875 F.2d 613, 620 (7th Cir. 1989). The nonmoving party must present affirmative evidence in order to defeat a properly supported motion for summary judgment. Renovitch v. Kaufman, 905 F.2d 1040, 1044 (7th Cir. 1990). All reasonable inferences must be viewed in favor of the nonmoving party. Holland v. Jefferson Nat'l Life Ins. Co., 883 F.2d 1307, 1312 (7th Cir. 1989).

 I. Tribal Exhaustion

 Sioux Manufacturing contends that the tribal exhaustion rule articulated in Iowa Mutual Ins. Co. v. LaPlante, 480 U.S. 9, 94 L. Ed. 2d 10 , 107 S. Ct. 971 (1987), and National Farmers Union Ins. Cos. v. Crow Tribe, 471 U.S 845, 85 L. Ed. 2d 818 , 105 S. Ct. 2447 (1985), warrants dismissal or a stay of federal court proceedings until Health Care and Altheimer & Gray exhaust their tribal remedies. Under the rule, exhaustion of tribal remedies is regarded as a prerequisite to a federal court's exercise of diversity jurisdiction in certain cases related to reservation affairs. Id. In both Iowa Mutual and National Farmers Union, a non-Indian challenged a tribal court's exercise or claim of jurisdiction in a prior-filed tribal court action. The Supreme Court, noting the federal government's longstanding policy of encouraging tribal self-government and self-determination, held that a federal court, as a matter of comity, should defer the exercise of its jurisdiction in a case "relating to reservation affairs" to give a tribal court a full opportunity to determine and exercise its own jurisdiction. Iowa Mutual, 480 U.S. at 15.

 In the present action, there is no competing tribal court case to bring this case directly within the facts of National Farmers Union and Iowa Mutual. The scope of the tribal exhaustion rule is a question of first impression in this circuit. The courts of appeal in other circuits, however, have applied the tribal exhaustion rule to cases in which there existed no first-filed tribal court action competing with the federal action. See, e.g., Brown v. Washoe Housing Authority, 835 F.2d 1327 (10th Cir. 1988); Weeks Construction, Inc. v. Oglala Sioux Housing Authority, 797 F.2d ...

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