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Bankruptcy Court Upholds Indian Tribe’s Sovereign Immunity

          In a decision published October 19, 2020, Judge Frank J. Bailey of the U.S. Bankruptcy Court for the District of Massachusetts found that an Indian tribe was not subject to the Bankruptcy Code’s automatic stay.  This decision was a matter of first impression in the First Circuit and adds to a growing conflict among the federal circuits on the issue of Indian tribal sovereign immunity under Section 106 of the Bankruptcy Code, which provides that “sovereign immunity is abrogated as to a governmental unit,” with respect to key provisions of the Bankruptcy Code (including Section 362, pertaining to the automatic stay). The Bankruptcy Court joined the majority of courts recognizing that Section 106(a) of the Bankruptcy Code is not a waiver of an Indian tribe’s sovereign immunity because Section 106 lacks sufficient clarity necessary to manifest Congressional intent.

            The issue arose when a chapter 13 debtor alleged the Lac du Flambeau Band of Lake Superior Chippewa Indians (the “Tribe”) and a number of its affiliated business entities violated the automatic stay by contacting the debtor after the filing of his bankruptcy case in an attempt to collect on a $1,600 payday loan.  The Tribe moved to dismiss, arguing the Tribe is a sovereign nation and, therefore, the Tribe and its affiliates are immune from suit in bankruptcy courts.  (Importantly, the Tribe had asserted, and the debtor had conceded, that its affiliated business entities are arms of the Tribe, and thus entitled to enjoy the same degree of sovereign immunity as the Tribe.)

            In rendering his decision, Judge Bailey recognized the broad abrogation of sovereign immunity under the Bankruptcy Code, but reasoned that “governmental unit,” as defined in Section 101(27) of the Bankruptcy Code, does not include federally recognized Indian tribes.  Further, the debtor’s attempt to claim that Indian tribes are subsumed into the definition of governmental unit as an “other . . . domestic government” was rejected because such a “catch-all phrase” would render the balance of the Section 101(27) surplusage.

         Judge Bailey observed that Indian tribes occupy a “special place” in American jurisprudence and, citing a pair of leading Supreme Court cases, that the “baseline position” favors tribal immunity, with “ambiguities in federal law construed generously in order to comport with ... traditional notions of sovereignty and with the federal policy of encouraging tribal independence.”

        Judge Bailey’s dismissal of the case for lack of subject matter jurisdiction aligns the Bankruptcy Court with the Courts of Appeal for the Sixth, Seventh and Eighth Circuits and squarely rejects a decision from the Ninth Circuit Court of Appeals, which ruled that Congress expressed an unequivocal intent to waive immunity for Indian tribes.  It remains to be seen whether the debtor might appeal the Bankruptcy Court’s ruling, and potentially resulting in resolution of the circuit split by the Supreme Court or Congress.

            Mintz acted as Massachusetts counsel to the Lac du Flambeau Band of Lake Superior Chippewa Indians and its business affiliates Niiwin, LLC d/b/a Lendgreen, L.D.F Business Development Corporation and L.D.F. Holdings, LLC.  Primary counsel for the Tribe were Andrew Adams III and Peter Rademacher of Hogen Adams.  Primary counsel for the business affiliates of the Tribe were Zachary Fairlie and Scott Goldstein of Spencer Fane.

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Authors

Adrienne K. Walker is a restructuring and commercial finance attorney at Mintz. Adrienne uses her bankruptcy litigation experience to advance creditors' rights and represent debtholders in Chapter 9 municipal bankruptcies. She handles bankruptcy matters and workouts in state and federal courts.
Aaron M. Williams is a Mintz Associate whose practice focuses primarily on commercial law, corporate reorganization, and public finance.