Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, 143 S. Ct. 1689 (2023).

The following is a case update written by Uzzi O. Raanan, a partner at Danning, Gill, Israel & Krasnoff, LLP, analyzing a recent decision of interest:

SUMMARY

United States Supreme Court held that Congress unambiguously abrogated tribal sovereign immunity in the Bankruptcy Code because federally recognized Indian tribes are covered under the Code’s definition of a “governmental unit.”  Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, 143 S. Ct. 1689 (2023).

To view the opinion, click here.

FACTS

Lac du Flambeau Band of Lake Superior Chippewa Indians[1] is a federally recognized Indian tribe that owns multiple business entities, including Lendgreen, a payday loan company.  In July 2019, Brian Coughlin borrowed $1,100 [sic] from Lendgreen in the form of a high-interest short-term loan (the “Loan”).  Later that year he filed for bankruptcy under Chapter 13 before “fully” repaying the Loan, triggering the automatic bankruptcy stay against creditor collection efforts.  Subsequently, Coughlin filed a motion in the bankruptcy case alleging that the Lac du Flambeau Band of Lake Superior Chippewa Indians and its affiliates (collectively, the “Band”) attempted to collect on the Loan post-petition, despite being informed about the automatic stay.  He sought damages for emotional distress, attorneys’ fees, and costs of litigation under 11 U.S.C. section 362(k).

The Band moved to dismiss, arguing that the bankruptcy court lacked subject matter jurisdiction to consider Coughlin’s motion because the Band was protected by tribal sovereign immunity.  The lower court granted the motion to dismiss, holding that the Bankruptcy Code (the “Code”) did not clearly express congressional intent to abrogate tribal sovereign immunity, a requirement for abrogation of the immunity afforded to any sovereign.

A divided First Circuit Court of Appeals reversed the trial court, finding that the Code “unequivocally strips tribes of their immunity,” because the definition of “governmental unit” in Section 101(27) “covers essentially all forms of government.”  The ruling was the latest in a series of decisions reflecting a split among the circuits.

The Supreme Court granted certiorari to resolve the inconsistent circuit rulings.

REASONING

Joined by six justices and a concurrence by Justice Thomas, Justice Jackson wrote the majority opinion.  She acknowledged that Indian tribes possess common law sovereign immunity, subject to Congress’ right to abrogate the immunity through legislation.

The opinion focused on two statutes governing abrogation of sovereign immunity under the Code.  Section 106(a) states that, “sovereign immunity is abrogated as to a governmental unit” regarding application of over 50 Code sections.

The Code defines “governmental unit” as, 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. 11 U.S.C. § 101(27) (emphasis added).

To abrogate the sovereign immunity of a governmental entity, including Indian tribes, Congress must make its intent “unmistakably clear.”  This is a “demanding standard,” to be sure, as Congress is not deemed to have abrogated sovereign immunity if “there is a plausible interpretation of the statute” where sovereign immunity could be preserved.

However, Congress is not expected to use “magic words” to express its intent.  Thus, courts must apply tools of statutory interpretation to determine whether abrogation is “clearly discernible” from the statute in question.

Analyzing the language in Section 101(27), the Court found that Congress “unequivocally” intended to abrogate the sovereign immunity “of any and every government that possesses the power to assert such immunity.”  As federally recognized Indian tribes come under the definition of “governmental unit,” the Code’s abrogation of sovereign immunity applies to them.

While on its face the ruling seems straight forward, the Court engaged in a complicated legal analysis to explain the ultimate result.  Initially, Justice Jackson noted that the definition of “governmental unit” “exudes comprehensiveness from beginning to end.”  In fact, the definition includes many types of government that vary in geographic location, size and nature, and concludes with a “broad catchall phrase” that sweeps in “other foreign or domestic government[s].”  The majority found the broad scope of the definition significant.

The Court further noted that the reference to “foreign or domestic” evoked a pairing of two extreme opposites on a spectrum, suggesting the intent to cover all possible governmental units on the spectrum.  It reasoned that government entities can only be either foreign or domestic.  It was also impressed that Section 106(a) refers to all governmental units as defined by Section 101(27), though Congress could have limited the abrogation to only certain governmental units.

The Court further noted that the Code seeks to provide debtors with a fresh start through an orderly and unified process.  To succeed, though, bankruptcy laws must apply uniformly to all creditors.  This does not mean that governments do not receive some dispensation, including from the automatic stay to enforce their police and regulatory powers or for certain tax collection activities, among others.  However, the default is that all governmental entities are generally subject to the jurisdiction of the bankruptcy courts.

The Court found no indication that Congress intended to obligate certain governments to comply with bankruptcy enforcement proceedings, while excusing others.  It confirmed that Indian tribes are governments, based on their exercises of basic governmental functions, including establishing their own substantive laws and taxing tribal members.

In sum, the Court found that the Code is clear; it “categorically” abrogates the sovereign immunity of all governments.  As Indian tribes are governments, Section 106(a) “unmistakably” abrogates their sovereign immunity.

Concurrence:  Justice Thomas concurred in the judgment.  However, he would have held that Indian Tribes do not possess sovereign immunity at the level enjoyed by the States.  To the extent Indian tribes are entitled to a limited immunity, it does not extend to “suits arising out of a tribe’s commercial activities conducted beyond its territory.”

According to Justice Thomas, tribal immunity is a judicial construct developed “almost by accident” with “little analysis.”  Thus, to the extent tribes have any immunity, it is based on common law and not the U.S. Constitution.  Unlike the constitutional sovereign immunity accorded to the States, common law immunity is not afforded as a matter of right when one sovereign gets sued in another sovereign’s courts.  Rather, such immunity depends on the second sovereign’s laws of comity.  According to Justice Thomas, no federal law affords tribes sovereign immunity in federal courts, including bankruptcy courts.

The concurrence further noted that allowing tribes a unique and “unjustified” immunity from state and federal jurisdictions “for commercial acts committed on a State’s territory,” would aggravate relationships between Indian tribes and the States.

Justice Thomas concluded by inviting the Court to “abandon its judicially created tribal sovereign immunity doctrine.”

Dissent:  Justice Gorsuch, the lone dissenter, agreed that the majority’s interpretation of “governmental unit” is plausible.  However, he noted that the requirement that Congress “unequivocally” express its intent to abrogate tribal sovereign immunity means that the statute in question can have no plausible meaning other than abrogation.  According to Justice Gorsuch, the language used by Congress in Section 101(27) does not do the trick.

The dissent appeared to agree that Congress need not comply with a magic word test.  However, in his first sentence, Justice Gorsuch noted that the Court had never found congressional intent to abrogate tribal sovereign immunity unless it expressly mentioned the words Indian tribes somewhere in the statute.

The dissent disagreed that the term “other foreign or domestic government” is synonymous with “any and every government.”  Rather, Indian tribes have a unique standing in the United States, one in which they are neither foreign nor fully domestic.  They appear to hold a hybrid position between these two terms; they are treated as sui generis.

Justice Gorsuch thus disagreed that “foreign or domestic” was intended to cover all forms of government, concluding that because there are other plausible interpretations of these words it is not clear that Congress intended to abrogate tribal sovereign immunity. 

AUTHOR’S COMMENTS

The ruling in this case is straight forward; the Bankruptcy Code indeed abrogates tribal sovereign immunity.  This ruling is likely what Congress intended when it codified Section 106(a).

While it is unclear whether Congress specifically considered tribal sovereign immunity when it codified the statutes in question, the language in Sections 106(a) and 101(27) strongly suggests that Congress intended to bind all governmental entities.  Otherwise, certain governments would receive more favorable treatment under the Code than others.  It is unlikely that Congress intended to favor Indian Tribes over all other governments, especially when many tribes these days operate private commercial enterprises that could negatively impact bankruptcy cases if the tribes were not bound by bankruptcy laws.

While Congress may have reason to limit the Code’s reach to Indian tribes and there are risks that the Code could be abused by debtors and creditors seeking an end-around Indian laws, these are issues that Congress must address definitively in the Code.  As the judiciary’s role is limited to interpreting the law, the Court properly limited its ruling to the reach of Section 106(a) to Indian tribes rather than whether tribes could suffer prejudice as a result of the ruling.

This review was written by Uzzi O. Raanan, a partner at Danning, Gill, Israel & Krasnoff, LLP, located in Los Angeles, California, who is a member of the ad hoc group and the representative from the Business Law Section (BLS) to the CLA’s Board of Representatives.  Editorial contributions were made by the Honorable Meredith Jury (United States Bankruptcy Judge, C.D. Cal, Ret.), also a member of the ad hoc group.   Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.

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[1] According to the Wisconsin Department of Public Instruction, the Band “acquired the name Lac du Flambeau from its gathering practice of harvesting fish at night by torchlight.  The name Lac du Flambeau or Lake of the Torches refers to this practice and was given to the band by the French traders and trappers who visited the area.”  https://dpi.wi.gov/amind/tribalnationswi/ldf#:~:text=The%20band%20acquired%20the%20name,trappers%20who%20visited%20the%20area.