Automatic stay of bankruptcy: tribal sovereign immunity repealed | Dorsey & Whitney LLP
First Circuit – Coughlin v. Lac Du Flambeau Band of Chippewa Indians of Lake Superior
The question was whether tribal sovereign immunity protected the tribal lender from automatic suspension. On May 6, 2022, the First Circuit ruled that Tribal Sovereign Immunity was repealed by Section 106 of the Bankruptcy Code. Coughlin v. Lac Du Flambeau Band of Chippewa Indians of Lake Superior33 F.4th 600 (1st Cir. 2022) [hereinafter Coughlin].
Congress can repeal Tribal Sovereign Immunity so long as it is “expressed unequivocally[ed]”. The question was whether Section 106 of the Bankruptcy Code “expressed unequivocally” the intention to abrogate sovereign tribal immunity. Section 106 expressly repeals the sovereign immunity of governmental units, with respect to various provisions of the Bankruptcy Code, including the automatic stay. The sub-question for the Court was whether the tribes fell within the definition of governmental unit in the Bankruptcy Code.
The First Circuit agreed with the Ninth Circuit in deciding that the term unit government covers essentially all forms of government, including tribes. Although tribes are not specifically listed in Section 101(27) of the Bankruptcy Code, the First Circuit held that tribes fell within the catch-all of “other foreign or domestic governments” in that section. Thus, the tribal lender was not immune to the Bankruptcy Code’s automatic stay against collections and was liable for damages due to breach thereof.
The dissent in Coughlin, like the Sixth Circuit previously, argues for a higher standard of clarity in determining whether Congress intended to repeal sovereign immunity in statute. The dissent argues that national governments are only those who can trace their origins to the US Constitution, which tribes cannot. In other words, it is not enough to conclude that “national government” could be interpreted as including Indian tribes; Congress must directly name Indian tribes or at least make very clear its intention to repeal tribal sovereign immunity. After Coughlin there is no doubt that the tribes are subject to the automatic stay which prohibits any collection activity once the debtors have filed for bankruptcy.
The First Circuit’s decision in Coughlin supplements other rulings that tribes fall within the Bankruptcy Code’s definition of a governmental unit. Therefore, application of the definition in Section 109 of the Bankruptcy Code means that tribes are not eligible for bankruptcy relief. See, Steven T. Waterman, Tribal Disorders – Without Bankruptcy Recovery, 24h. INST. BANKRUPTCY J. 44 (2010).
The Court’s decision is available here. We plan to complete this electronic update in case a petition for certiorari in the U.S. Supreme Court is granted, which is possible given the circuit’s split on the issue.