Rochelle's Daily Wire

To resolve a split of circuits and decide whether Section 106(a) waives sovereign immunity as to Native American tribes, the Supreme Court heard oral argument on April 24 in Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, 22-227 (Sup. Ct.).

To this writer’s way of thinking, the statute is opaque. Notably, the arguments by counsel on both sides and every question or comment from the justices were about textualism. There wasn’t a single statement or question exploring policy, asking what the better answer would be from the point of view of creditors, debtors or tribes, or finding the answer in the objectives of the Bankruptcy Code and federal law regarding tribes.

A ‘Hard’ Case

Sympathetically speaking, the facts couldn’t have been more compelling in favor of the debtor.

A payday lender owned by a federally recognized tribe continued attempting to collect an unsecured debt after the borrower’s bankruptcy. Two months after filing, the debtor attempted to commit suicide, blaming his action on the incessant calls that continued after notice regarding bankruptcy.

In bankruptcy court, the debtor sought an injunction to halt collection attempts, along with damages and attorneys’ fees. The bankruptcy court granted the tribe’s motion to dismiss, based on sovereign immunity.

The First Circuit accepted a direct appeal and reversed. See Coughlin v. Lac du Flambeau Band of Lake Superior Chippewa Indians (In re Coughlin), 33 F.4th 600 (1st Cir. May 6, 2022). To read ABI’s report, click here.

Over a lengthy dissent, the First Circuit deepened an existing circuit split by holding that the Bankruptcy Code waived sovereign immunity as to Native American tribes. The First Circuit sided with the Ninth Circuit, which had held in 2004 that Section 106(a) abrogates sovereign immunity for tribes. Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055, 1061 (9th Cir. 2004).

The First Circuit disagreed with the Sixth Circuit, which found no waiver in 2019. In re Greektown Holdings, LLC, 917 F.3d 451, 460- 61 (6th Cir. 2019), cert. dismissed sub nom. Buchwald Cap. Advisors LLC v. Sault Ste. Marie Tribe, 140 S. Ct. 2638 (2020). While the certiorari petition was pending in Greektown, the case settled, and the petition was dismissed. To read ABI’s report on Greektown, click here.

The Lac du Flambeau tribe filed a petition for certiorari in September. The Court granted the petition in January.

The Statute

The Court’s precedent says that Congress must “unequivocally” express an intent to abrogate sovereign immunity. Lac du Flambeau will tell us whether Section 106(a) accomplished the task.

Section 106(a) says that “sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect to” dozens of provisions in the Bankruptcy Code, including Section 362. In turn, “governmental unit” is defined in Section 101(27) to mean:

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.

Section 106 was amended in 1994 because the prior version had been held to be insufficiently clear to abrogate state and federal sovereign immunity.

For the Supreme Court, the question was whether tribes are encompassed by the words “other . . . domestic government.”

Oral Argument

The tribe conceded that it must abide by the automatic stay but contended in the Supreme Court that the tribe could not be made liable for violating the stay. The tribe said that it wasn’t a case of “rent-a-tribe.”

At the outset of oral argument, counsel for the tribe mentioned an uncontested fact that hangs over the case: Except in the Bankruptcy Code, Congress never abrogated tribal sovereign immunity without using the word “tribes.”

The decision from the Court, to come down before the term ends in late June, will tell us whether the lack of “magic words” excepted tribes from the waiver of immunity. However, the Court has said before that “magic words” are not required to achieve a waiver of immunity.

If tribes are covered by Section 106(a), it’s because Section 101(27) waives sovereign immunity as to “other . . . domestic government.”

The tribe argued that tribes are not “foreign” governments, neither are they “domestic” governments. Tribes are “sui generis” and thus do not fall under the “domestic” label, the tribe said.

The debtor took the position that tribes fall under the rubric of “other . . . domestic government” and have attributes of both foreign and domestic governments. The U.S. Solicitor General argued on the side of the debtor and espoused the same position, generally speaking.

Justice Amy Coney Barrett was among the justices who wondered whether “other . . . domestic government” was intended to “cover the waterfront.” On the other hand, Justices Elena Kagan and Brett Kavanaugh noted that Section 106 lists numerous types of governments but notably omits a reference to tribes.

This term’s fourth and last bankruptcy case, Tyler v. Hennepin County, 22-166 (Sup. Ct.), will be argued on April 26. Tyler will resolve a recently arisen circuit split and determine whether a real estate tax foreclosure can violate the Takings Clause of the Fifth Amendment when the municipality sells the property and doesn’t return sale proceeds to the owner in excess of the unpaid taxes.