The Oglala Sioux Tribe will borrow $1.1 million from a Gordon, Neb., bank to pay off a $1.5 million arbitration award it owes to a Sioux Falls road contractor, the tribal council decided this week.

The OST council voted 16-1 on Monday to end its longstanding dispute with C&W Enterprises that was threatening the tribe's ability to meet its bi-weekly payroll.

The original $1.25 million settlement, plus 10 percent annual interest that accrues daily, will be paid in full by Thursday or today, according to George Patton, legal counsel for the OST council. As of Thursday, that amount was $1,539,136.

Recently, the tribal payroll account at First National Bank of Gordon had been frozen by court order until the legal judgment against the tribe is paid, according to Russ Janklow, the Sioux Falls attorney representing C&W. To meet its $2.4 million monthly payroll, the tribe had no choice but to pay the settlement quickly, Janklow said.

"The tribe's now in a situation, financially, they have no choice," Janklow said. To delay payment of the award any longer would create "financial disarray" for OST, he said. "It's in the best interest of the tribe to get this done."

Patton declined to provide details of the loan from First National or specifics about repayment. OST President Theresa Two Bulls will issue a statement when she returns from a trip to Washington, D.C., he said.

Proceeds from the tribe's share of the state motor fuels tax that's collected on the reservation will be used as collateral for the loan, the ordinance states. In 2008, the state returned $1,027,092, or 96 percent of the motor fuels tax it collects on the reservation, to the tribe, according to the state Department of Revenue.

Jeff Whalen, OST Transportation Department director, disagrees with Janklow and was disappointed by the council's action.

He called the decision to settle the dispute premature and said the loan payments will decimate the tribe's motor fuels program and the road projects it funds.

"I think the council acted very hastily on this action," Whalen said. "It effectively shuts down the entire program. As I understand it, they wiped out the account."

The tribe's transportation department relies on between $80,000 to $120,000 per month in motor fuels tax to do road projects and repairs that are not paid for by federal funds. "That money all went to the road system, to cover road work that wasn't financed by federal transit funds," he said.

Whalen said the council's action forced him to layoff seven employees and will eliminate the maintenance of roads on private and trust properties that are essential for public safety. Sometimes, the tribe constructs gravel roads where only a dirt trail led to a private home, he said. "These are roads leading to homes of the elderly, to people who need to get in and out of their homes for medical reasons," Whalen said. "As I understand it, they wiped out the account."

Whalen argues the motor fuels tax paid for "essential services" and, as such, under state law is not available for garnishment to pay the arbitration settlement. He said another circuit court hearing that had been scheduled for Tuesday might have declared garnishment of those funds unlawful.

"Jeff Whalen is totally wrong and he's been wrong all along," Janklow said. Every court that has ruled on the award since it was levied in 2006 by American Arbitration Association has ruled in favor of Warren Barse, the owner of the now-defunct C&W Enterprises, a Native American-owned construction firm.

Janklow said Barse is happy to have the long legal battle resolved but frustrated that the case cost "hundreds of thousands of dollars" in legal fees for both parties. It also cost him his business, which at one time employed 70 workers.

"This effectively shut down his business," Janklow said. Barse is currently employed by another construction company.

The legal case involved four road construction contracts on the reservation, three of which had arbitration clauses built in. When payment disputes arose, the tribe also agreed to have the fourth contract arbitrated outside of tribal courts.

Janklow said he fears the 3 1/2-year dispute, which began in January 2006 when Burse filed for arbitration and was awarded a settlement of slightly more than $1.25 million, could affect the quality of road construction on Native American reservations. "I think you'll always find contractors, but I'm afraid it might not necessarily be quality contractors because of their fear of what happened here."

Contact Mary Garrigan at 394-8424 or mary.garrigan@rapidcityjournal.com.