Does Bankruptcy Code Waive Tribal Sovereign Immunity? (Lac Du Flabeau Band v. Coughlin—Oral Arguments At U.S. Supreme Court)

By: Donald L Swanson

Oral arguments occur on April 24, 2023, before the U.S. Supreme Court in Lac Du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, Case No 22-227.  Here is a link to the oral arguments transcript.

What follows is an attempt to, (i) summarize the facts and issue in the case, and (ii) provide a sampling of questions and comments from the justices during oral arguments.

Facts

Here’s what happened:

• 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”);
• Then, Debtor files a Chapter 13 bankruptcy, listing the debt to Creditor and providing notice to Creditor of the bankruptcy;
• Despite the automatic stay and notice of the bankruptcy, Creditor repeatedly contacts Debtor, seeking repayment of the debt;
• 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; and
• The Bankruptcy Court agrees with the Lac du Flambeau Band and dismisses the enforcement proceeding, based on the language of § 106(a)[fn. 1] and § 101(27)[fn. 2] of the Bankruptcy Code. 

Question Presented

The Question upon which the U.S. Supreme Court granted certiorari is this:

• “Whether the Bankruptcy Code expresses unequivocally Congress’s intent to abrogate the sovereign immunity of Indian tribes.”

This is a difficult question, from a policy perspective, because:

• Respect for tribal sovereign immunity is a high priority in these United States; but
• How can our bankruptcy system allow any creditor to be exempt from the Bankruptcy Code and do such things as ignore the automatic bankruptcy stay and ignore a discharge injunction?

Legal Standard

Everyone seems to agree that the legal standard on whether Congress abrogates tribal sovereign immunity in a particular statute is this:

• Congress may abrogate tribal sovereign immunity by “unequivocally” expressing that intention; but
• Congress must clearly express its intention to do so.

From the questions and comments of the various justices during oral arguments, it seems the justices are leaning in favor of the Debtor’s position and against the Tribe’s position.

What follows are a smattering of questions and comments from various justices during the first portion of oral arguments.

Questions/Comments from Justices

JUSTICE THOMAS: . . . in your thinking and argument, Congress would actually have to say “tribe”?  . . . can you think of any other governmental unit that would be required to be named specifically, as you seem to suggest the tribes would have to be? . . . states are different — they have sovereign immunity that has a constitutional basis. . . . can you give me an example of any other government that falls outside of the catch-all phrase?  . . . It seems to capture all governments. [at 6-8]

CHIEF JUSTICE ROBERTS: What if the statute said “every government” . . . it just said “every government”? [at 9]

JUSTICE BARRETT: . . . Mr. Chief Justice’s hypothetical said “every government.” Would state sovereign immunity be abrogated? Is that a hard question? . . .  It seems to me like you’re . . . carving out an extra-special super-super clear rule for Indian tribes. . . . Is it that you have to be more explicit for Indian tribes than for other governments that have a clear statement rule? [at 10-11]

JUSTICE KAGAN: . . . this is not a magic words requirement. . . . aren’t you really making it into a magic words requirement? . . . [After a catch-all clause], wouldn’t you have something that says but not Indian tribes? Or at least wouldn’t you have said to yourself: You know, if we put in a catch-all clause after we list all these governments, somebody is going to think that includes Indian tribes. . . . If you were really meaning to exclude Indian tribes, you wouldn’t have said here are the governments, dah-dah, dah-dah, dah-dah, and everything else that we can think of. [at 13-16]

JUSTICE ALITO: Well, what percentage of the people who are actually running this business are tribal members? . . . Do you dispute the facts that are set out in Respondent’s brief about what was done to his client that even after he filed the bankruptcy petition and notified Lendgreen that he had done so, they continued to contact him, and he attempted to commit suicide, and even when he was in the hospital after this unsuccessful attempt, they were calling him at the hospital to collect this loan?  . . . It doesn’t think it’s obligated to abide by the automatic stay? [at 20-21]

JUSTICE SOTOMAYOR: . . . If they retain tribal immunity, they would be immune from avoidance actions seeking to undo fraudulent transfers of money. . . . Why would Congress want to try to keep fraudulent transfers of millions of dollars? . . . Tell me why Congress would want to leave that unclear. . . .  That is clearly perplexing in this statute because you’re absolutely right, in every other situation, it has listed Indian tribes when intended. So that is very, very puzzling. . . . is the structure of this so clear that it was meant to include them? [at 23-25]

JUSTICE GORSUCH: . . . I think the gist of some of the questions is, while prevailing here would advantage the tribe, obviously, in terms of monetary claims against it, that it would also mean that you’d lose certain benefits for tribes.  And on a net basis, could Congress have been concerned that, you know, the rule you’re asking for will hurt rather than help tribes? . . . [All the amici briefs] are lined up on your side. I don’t see any amici on the other side for the tribes.  [at 28-29]

JUSTICE JACKSON: And the other governments have sovereign immunity as well. I mean, the thing that I’m struggling with is that all of the passion about sovereign immunity and not abrogating lightly, I think, would make more sense at least to me if we didn’t have a clear statement that Congress was interested in abrogating sovereign immunity. It sort of goes back to Justice Barrett’s original point, which was it sounds like you’re asking for a special, separate rule that preserves the sovereign immunity of tribes in a circumstance in which Congress has clearly indicated that it wants to abrogate the sovereign immunity of governments. [at 32]

Conclusion

The U.S. Supreme Court has a tough call to make here.

It will be interesting to see what they do.

——————–

Footnote 1.  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 2.  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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