First Circuit Deepens Split Over Waiver of Tribal Sovereign Immunity in Bankruptcy – Insolvency/Bankruptcy
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Recognized Native American tribes generally have the inherent power to govern themselves without interference from federal or state governments. An important element of this “tribal sovereignty” is immunity from prosecution in federal, state, and tribal courts, or “tribal sovereign immunity.” Under this principle, a tribe can only be sued if the tribe consents to be sued or if Congress has authorized such a suit. Otherwise, a court has no jurisdiction in the matter over a tribe.
Whether Congress has authorized a waiver of tribal sovereign immunity in bankruptcy cases is disputed by the Federal Circuit Courts of Appeals. The United States Court of Appeals for the First Circuit recently further explored this division. In Coughlin v. Lac du Flambeau Band of Chippewa Indians of Lake Superior (In re Coughlin)33 F.4th 600 (1st Cir. 2022), a divided First Circuit panel held on its face that Section 106(a) of the Bankruptcy Code expressly provides for a waiver of tribal sovereign immunity.
In that decision, the First Circuit sided with the Ninth Circuit, which ruled in 2004 that Section 106(a) abrogates tribal sovereign immunity. See Krystal Energy Co. vs. Navajo Nation357 F.3d 1055, 1058 (9th Cir. 2004) (“[Ruling that, in sections
101(27) and 106(a),] Congress has explicitly abrogated the immunity of any “foreign or national government”. Indian tribes are national governments. Therefore, Congress expressly abrogated the immunity of Indian tribes. “). However, the First Circuit rejected the contrary opinion expressed by the Sixth Circuit in In re Greektown Holdings, LLC917 F.3d 451, 460-61 (6th Cir. 2019) (Congress has not unequivocally expressed an intention to abrogate the sovereign immunity of Indian tribes from bankruptcy litigation, even though the tribes may possess the characteristics of national governments), cert. rejected sub name. Buchwald cap. Advisors LLC v. Sault Ste. Mary Tribe, 140 S.Ct. 2638 (2020).
According to the majority of the First Circuit, “like the Ninth Circuit, we believe that the bankruptcy code unequivocally strips the tribes of their immunity.”
The broadening of the circuit division may be a compelling invitation to United States Supreme Court scrutiny.
Waiver of Sovereign Immunity in the Bankruptcy Code
Section 106(a) of the Bankruptcy Code provides that a “governmental unit” is deemed to waive sovereign immunity in litigation relating to numerous provisions of the Bankruptcy Code, including actions to enforce automatic suspension, preference and fraudulent transfer avoidance actions and the procedure for establishing the exigibility of a debt.
Further, pursuant to Section 106(b) of the Bankruptcy Code, a government unit that files a proof of claim in a bankruptcy case “shall be deemed to have waived sovereign immunity from a claim against that government unit that is owned by the estate and that arises out of the same transaction or event giving rise to that government unit’s claim.”
Section 101(27) of the Bankruptcy Code defines the term “governmental unit” as:
United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrument of the United States (but not an administrator of the United States while serving as administrator in any matter under this title), state, commonwealth, district, territory, municipality, or foreign state; or other foreign or national government.
In July 2019, Brian W. Coughlin (the “Debtor”) took out a $1,100 payday loan from Niiwin, LLC, d/b/a Lendgreen (“Lendgreen”), an indirect subsidiary of the Lac Band Of the Flambeau of the Lake Superior Chippewa Indians (the “Band”). Later that year, the debtor filed a Chapter 13 petition in the District of Massachusetts. In his bankruptcy schedules, the debtor listed his debt to Lendgreen, which had grown to nearly $1,600, as an unsecured non-priority debt, and his attorney sent Lendgreen a copy of the proposed plan under chapter 13.
Despite the automatic suspension, Lendgreen repeatedly contacted the debtor to obtain repayment of the debt. In an effort to stop these collection efforts, the debtor sought a bankruptcy court order executing the automatic stay against Lendgreen and its parent companies, including the band. In response, the band and its affiliates asserted tribal sovereign immunity and sought dismissal of the enforcement proceeding. The bankruptcy court agreed with the band and granted the motion to dismiss. The First Circuit allowed a direct appeal of this decision.
The First Circuit decision
A split panel of three First Circuit judges was overruled on appeal.
Writing on behalf of the majority, U.S. Circuit Judge Sandra L. Lynch explained that Congress can repeal tribal sovereign immunity if it “unequivocally expresses”[es] this goal.”
Coughlin, 33 F.4th at 604 (citations omitted). To determine whether the Bankruptcy Code unequivocally abrogates tribal sovereign immunity, she writes, “we start with the text” of section 106(a), whose plain language “satisfies Congress’ obligation to express unequivocally its intention to repeal immunity for all unit governments.”
Identifier. According to the majority, the question is whether lawmakers intended to repeal tribal sovereign immunity when they used the term “unity of government”.
The majority of the First Circuit concluded yes. First, Justice Lynch explained that there is no real disagreement that a tribe is a government – tribes are not expressly excluded and “come within the ordinary meaning of the term governments”.
Identifier. at 605. Second, she noted, tribes are domestic, rather than foreign, in accordance with the ordinary dictionary definition of “domestic” as “belonging to or occurring within the sphere of authority or control or the … borders of” the United States . Identifier. (quoting Webster’s Third New International Dictionary 671 (1961)). Accordingly, the majority determined that a tribe is a national government and therefore a “unit of government”. Further, he noted, based on the legislative history and historical context of the matter, “when Congress enacted §§ 101(27) [in 1978]and 106 [in 1994]he understood that tribes were national governments, and when he abrogated the sovereign immunity of national governments in § 106, he unquestionably abrogated the sovereign immunity of tribes.” Identifier. at 607.
The First Circuit majority rejected the argument that the term “national government” in Section 101(27) refers only to governments that arose under the U.S. Constitution. Instead, Justice Lynch wrote, “domestic refers to the territory in which the government exists.” Identifier. at 6. She further noted that an “interpretation of the phrase ‘national government’ that excludes Indian tribes without any textual basis for doing so is implausible”. Identifier. at 611.
The First Circuit majority therefore reversed the bankruptcy court’s decision denying the debtor’s motion to enforce the automatic stay and remanded the case below for retrial.
In a 33-page dissenting opinion, Chief Justice David A. Barron wrote that by omitting to use the word “tribes” in section 101(27), lawmakers “did not use the safer to demonstrate clearly and unequivocally that [tribes] are” governmental units. Identifier. at 613 (dissenting opinion). According to Judge Barron, “Congress has expressly named them in the abrogation of their sovereign immunity in all other cases where a federal court has found that such immunity has been abrogated.” Identifier. Judge Barron therefore wrote that he had “no choice but to conclude that s. 101(27) does not clearly and unequivocally include Indian tribes because, as I have explained, its can presumably be interpreted as not covering them”.
Identifier. at 625.
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