Waiver Of Tribal Sovereign Immunity In Bankruptcy? (At U.S. Supreme Court: Lac du Flambeau Band)

By: Donald L Swanson

On January 13, 2023, the U.S. Supreme Court grants the Petition for a writ of certiorari in Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, Supreme Court Case No. 22-227, and on January 31, 2023, the Supreme Court enters this order therein: “Set for Argument on Monday, April 24, 2023.”

The Question Presented is this: “Whether the Bankruptcy Code expresses unequivocally Congress’s intent to abrogate the sovereign immunity of Indian tribes.”

Two circuit courts of appeals have reached directly-opposite conclusions on this question as follows:

• Ninth Circuit—“it is clear from the face of [11 U.S.C.] §§ 106(a) and 101(27) that Congress did intend to abrogate the sovereign immunity of all ‘foreign and domestic governments,’ including Indian tribes”[fn. 1]; but
• Sixth Circuit—“no provision of the Bankruptcy Code mentions Indian tribes,” and “11 U.S.C. §§ 106, 101(27) lack the requisite clarity of intent to abrogate tribal sovereign immunity”[fn. 2].

The Lac du Flambeau Band case at the U.S. Supreme Court results from a split-opinion of a three-judge panel at the First Circuit Court of Appeals.  The split-opinion mirrors the prior circuit split:

• a two-judge majority follows the Ninth Circuit’s view; but
• a strong dissent follows the Sixth Circuit’s view.   

What follows are summaries of the facts and of the essential points of analysis from both the majority and dissenting opinions in the First Circuit’s Lac du Flambeau Band case.

Facts

Debtor takes out a $1,100 payday loan from a wholly owned subsidiary of the Lac du Flambeau Band of Lake Superior Chippewa Indians (“Creditor”).

Later, Debtor files a Chapter 13 bankruptcy petition in Massachusetts, listing the debt to Creditor and providing notice to Creditor of the bankruptcy.  Such filing imposes the automatic bankruptcy stay.

Despite the automatic stay and notice of the bankruptcy, Creditor repeatedly contacts Debtor, seeking repayment of the debt.

To stop Creditor’s collection efforts, Debtor moves to enforce the automatic stay against Creditor and its corporate parent—the Lac du Flambeau Band.

In response, the Lac du Flambeau Band asserts tribal sovereign immunity and moves to dismiss the stay enforcement proceeding.

The Bankruptcy Court agrees with the Lac du Flambeau Band and dismisses the enforcement proceeding, based on the language of § 106(a)[fn. 3] and § 101(27)[fn. 4] of the Bankruptcy Code. 

A direct appeal to the First Circuit Court of Appeals ensues.

Basic Rules

Both the majority and dissenting opinions start with the same basic rules:

• Congress may abrogate tribal sovereign immunity if it “unequivocally” expresses that purpose; and
• That’s because another basic rule of tribal law says this: although Congress has plenary authority over tribes, courts will not lightly assume that Congress in fact intends to undermine tribal self-government.

Majority Opinion

The majority opinion declares that the Bankruptcy Code does abrogate tribal sovereign immunity. Here are the essential points of analysis.

To abrogate sovereign immunity, Congress need not state its intent in any particular way: magic words are not required.

In determining whether the Bankruptcy Code unequivocally abrogates tribal sovereign immunity, we begin with the text.

• Section 106(a) provides in part: “sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section,” including as to the automatic bankruptcy stay [see fn. 3].  Such plain statement satisfies the obligation to unequivocally express an intent to abrogate immunity for all governmental units; and
• Section 101(27) defines “governmental unit” with a list that, (i) covers all forms of government, and (ii) concludes with “other foreign or domestic government” catch-all language [see fn.4; emphasis added].

Then, the majority opinion declares: the issue is whether a tribe is a “domestic government.” The majority resolves this issue in the affirmative.  Here’s how:

• First, a tribe is a government because it acts as the governing authority of its members;
• Second, tribes are domestic, rather than foreign, because they exist within the authority, control and boundaries of the United States;
• Third, Congress was well aware when it enacted § 101(27) and § 106(a) that tribes are “domestic dependent nations” (a form of domestic government)—thus, when Congress abrogated the sovereign immunity of domestic governments in § 106(a), it unmistakably abrogated the sovereign immunity of tribes; and
• Finally, Congress does not just strip immunity in the Bankruptcy Code—it also grants special benefits to governmental units that tribes also enjoy, such as priority for unsecured claims (see § 507(a)(8)) and exceptions to discharge (see § 523(a)).

Dissenting Opinion

The dissenting opinion reaches an exactly-opposite conclusion.  Here are the dissent’s essential points of analysis for declaring that the Bankruptcy Code does not abrogate tribal sovereign immunity.

The Bankruptcy Code addresses sovereign immunity in two provisions:

• § 106(a) expressly abrogates the immunity from suit of a “governmental unit” for violations of the automatic bankruptcy stay [see fn. 3]; and
• § 101(27) separately defines a “governmental unit” [see fn. 4]. 

Thus, the sole question is this: Did Congress clearly and unequivocally define a “governmental unit” in § 101(27) to include a tribe?

The dissent answers that sole question like this: Congress did not.  And here’s why not. 

In § 101(27) Congress:

• defines the term “governmental unit” as, “United States; State; Commonwealth; District; Territory; . . . or other foreign or domestic government” (emphasis added);
• does not specifically identify tribes—even though doing so would have been the the surest, clearest and most unequivocal way of including them; and
• specifically names many governmental types, including some that require a clear and unequivocal abrogation of sovereign immunity.

Moreover, in other instances in which the federal courts have found tribal immunity abrogated, Congress has expressly and explicitly named them:

• “there is not even one example in all of history where the Supreme Court has found that Congress abrogated tribal sovereign immunity without expressly mentioning Indian tribes somewhere in the statute”; and
• “there is only one example at the circuit court level” (i.e., Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055 (9th Cir. 2004)) [note: this is the very same opinion that helped create the circuit split that’s identified in the Lac du Flambeau Band Petition for writ of certiorari].

Further:

• Congress made express reference to “Indian Territory” in a precursor bankruptcy law (see Bankruptcy Act of July 1, 1898, 30 Stat. 544, 544 (1898)); but
• in the provision of the Bankruptcy Code addressing whether tribes would retain their sovereign immunity, Congress chose not to make any mention of tribes at all.

Conclusion

It will be interesting to see what the U.S. Supreme Court does with the Lac du Flambeau Band Petition for writ of certiorari.

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Footnote 1.  Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055, 1057 (9th Cir. 2004) (emphasis added).

Footnote 2.  In re Greektown Holdings, LLC, 917 F.3d 451, 461 (6th Cir. 2019) (emphasis added).

Footnote 3.  11 U.S.C. § 106(a) provides: “(a) Notwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect to the following: (1) Sections . . . 362 . . . of this title.”

Footnote 4.  11 U.S.C. § 101(27) provides; “The term ‘governmental unit’ means United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States (but not a United States trustee while serving as a trustee in a case under this title), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government.”

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