BANKRUPTCY BULLETIN
Contributing Author:
Chen Di Xu
Benjamin N. Cardozo School of Law
Juris Doctor Candidate, 2024
Judicial Extern to U.S. Bankruptcy Judge Kesha Tanabe
In Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, 2023 WL 4002952 (U.S. June 15, 2023), the United States Supreme Court held that the Bankruptcy Code (“Code”) unambiguously abrogates the sovereign immunity of all governments, including federally recognized Indian tribes. The Supreme Court reaffirms that Congress does not need to use any particular words to make its abrogation intent clear in addition to the First Circuit’s conclusion that the Bankruptcy Code “unequivocally stripes tribes of their immunity.” In re Coughlin, 33 F.4th 600, 603 (1st Cir. 2022).
Lac Du Flambeau Band of Lake Superior Chippewa Indians (the “Band”) is a federally recognized tribe that lent Brian Coughlin $1,100 as a high-interest short-term loan under one of the Band’s business entities, Lendgreen. Coughlin filed for Chapter 13 bankruptcy before fully repaying the loan, triggering an automatic stay against collection efforts by creditors including Lendgreen. Lendgreen, however, continued its efforts to collect despite being reminded of the pending bankruptcy petition. Coughlin filed a motion in Bankruptcy Court, seeking to enforce the stay against Lendgreen and damages for emotional distress, along with costs and attorney’s fees.
The Band moved to dismiss Coughlin’s complaint arguing that the Bankruptcy Court lacked subject-matter jurisdiction over Coughlin’s enforcement proceedings, as the Band and its subsidiaries enjoyed tribal sovereign immunity from suit. 11 U.S.C. § 101(27) defines “governmental unit” for the purpose of the Code while 11 U.S.C. § 106(a) abrogates the sovereign immunity of “governmental unit[s].” The Band attempted to sow doubt into the ambiguity of the statutory provisions by arguing that the catchall phrase “other foreign or domestic government” does not apply to Indian tribes as they are not purely foreign or domestic and that Congress has historically treated various types of government differently for purposes of bankruptcy law.
In its analysis on the issue, the Supreme Court notes that the language in § 101(27) for the definition of “governmental unit” to be “all-encompassing” in scope and that such catchall phrase used by Congress express all-inclusiveness in addition to the pairing of the two extremes. The Court provides “[t]he pairing of ‘foreign’ with ‘domestic’” as a piece of those other common expressions as car manufacturers would be inclusive of any and all manufacturers that comes to mind under the phrase “foreign or domestic.” Alongside the Court’s analysis of Congress’ repeated characterization of tribes as governments, the Court finds that tribes are indisputably governments and § 106(a) unmistakably abrogates their sovereign immunity. The Supreme Court also notes that the Code’s purpose was meant to facilitate an “orderly and centralized” debt-resolution process in their analysis.
The Supreme Court denies the Band’s two arguments that the statutory provisions can be plausible read in a way that preserves their immunity. The Court explains that Congress has expressly instructed that the word “or” as used in the Code, “is not exclusive,” rejecting the Band’s argument that the catchall phrase was meant to capture entities created through “interstate compacts.” The Court further explains that if such argument was applied as law, then the distinguishing between the definition of government would become skeptical. The Court also rejects the Band’s argument that their immunity exists because of Congress’ historical differential treatment of various types of governments on the basis that Congress has clearly altered their views on treating various types of governments differently. “Both § 101(27)’s definition of ‘governmental unit’ and § 106(a)’s abrogation of sovereign immunity were some of the changes Congress made.”
The Supreme Court held that the First Circuit applied the law correctly by affirming that the Bankruptcy Code unequivocally abrogates the sovereign immunity of Indian tribes. To read the Supreme Court’s decision, click here.
Editors-in-Chief:
C.J. Harayda, Stinson LLP
David M. Tanabe, Winthrop & Weinstine, P.A.