Supreme Court: Tribal sovereign immunity doesn’t extend to bankruptcy court

The Lac du Flambeau Band of Lake Superior Chippewa Indians had argued that its sovereign immunity protected the tribe from being sued in Bankruptcy Court

The U.S. Supreme Court ruled Thursday morning that tribes are like any other state or government and cannot use sovereign immunity in Bankruptcy Court.

The ruling derails an argument made by the Lac du Flambeau Band of Lake Superior Chippewa Indians, which tried to extend the reach of tribal sovereign immunity in bankruptcy proceedings.

“The Code unequivocally abrogates the sovereign immunity of all governments, categorically. Tribes are indisputably governments. Therefore, unmistakably abrogates their sovereign immunity too,” Justice Ketanji Brown Jackson said in the opinion of the court.

Sovereign immunity is a legal doctrine that basically means a government cannot be sued unless it wants to.

Last year, the Supreme Court reviewed Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, which was to determine if tribal governments fall under the bankruptcy code’s definition of governments that possess the power of sovereign immunity.

“I know the other side saying, ‘Well, Mike, now tribes are aligned with all the municipalities.’ But it doesn’t say that,” said Mike Andrews, former staff director and chief council for the Senate Indian Affairs Committee. “Just as Justice (Neil) Gorsuch said they moved tribes into foreign governments and quite frankly, we’re not. We’re tribal governments and we were here before the United States. So, (it’s) a little disingenuous, to be perfectly honest.”

Andrews added this ruling is a slippery slope and could bring forward more cases to the Supreme Court that shouldn’t be decided by the courts.

“I thought that the Supreme Court stepped in as the legislature,” he said to ICT. “You often hear about justices legislating from the bench.”

Andrews was disappointed in the ruling because the Supreme Court should have sent this issue to Congress to decide.

“Let’s be clear, it’s not like the court’s going to go out and do a consultation. No, they’re not,” Andrews said.

One form or another of the Bankruptcy Act has existed since 1800. There have been five different Bankruptcy Acts passed since its first iteration. There have been over 40 amendments made to the act.

“There’s been 46, 47 amendments to the Bankruptcy Act and not one person decided, ‘Oh, we should add tribes.’ Maybe there’s a reason for that,” Andrews said. “I think that’s up to tribes through the legislative process, not the judicial process to make those determinations. Part of me feels this was a departure in that decision today. I think it was, quite frankly, an infringement on tribal sovereignty. It was watered down today.”

History of the case

After a borrower declares bankruptcy, all creditors, including governments, are not allowed to attempt any debt collection.

The Lac du Flambeau Band of Lake Superior Chippewa Indians owns a payday loan company called Lendgreen. In July 2019, the company lended $1,100 to Brian Coughlin who declared bankruptcy before the loan was repaid.

Despite bankruptcy code, Lendgreen continued to try to collect the debt. In 2019, Coughlin sued Lendgreen and the tribe in Bankruptcy Court to force them to comply with bankruptcy code. He also sued for emotional distress and attorney fees.

The tribe argued they can’t be sued because the bankruptcy code doesn’t explicitly say tribal governments. Instead stating “other foreign or domestic government.” The tribe argued it is neither a foreign or domestic government. So, the bankruptcy code should not apply in this case. Therefore, the tribe can use sovereign immunity in Bankruptcy Court.

This argument leaned on tribal governments’ unique status in the United States.

The Bankruptcy Court agreed with the tribe.

In May 2022, the case went before the First Circuit Court of Appeals, which concluded that tribes cannot use sovereign immunity in Bankruptcy Court.

This has been upheld by the Supreme Court in an 8-1 decision by the justices. The sole dissenting opinion came from Neil Gorsuch, the only justice with extensive knowledge and experience with federal Indian law.

Justice Neil Gorsuch dissents

Gorsuch essentially argued that tribal governments should not be included in the language of “other foreign or domestic government,” saying tribes should be explicitly named in laws to avoid these generalizations.

“Respectfully, I do not think the language here does the trick. The phrase “other foreign or domestic government” could mean what the Court suggests: every government, everywhere,” Gorusch wrote in his dissenting opinion. “But it could also mean what it says: every “other foreign . . . government”; every “other . . . domestic government.” And properly understood, Tribes are neither of those things.”

Gorsuch added these language interpretations should be handled by Congress not the Supreme court.

“All this explains the now-familiar clear-statement rule that this Court has endorsed on countless occasions,” he wrote. “If Congress wishes to abrogate tribal immunity, its “decision must be clear.” And the Legislature must “unequivocally express” its decision in the text of a statute.”

He asserted that tribes are neither foreign or domestic nations, so they shouldn’t fall under that definition.

“Read in context, the term ‘domestic dependent nations’ is really a term of art meant to capture Tribes’ ‘hybrid position’ between ‘foreign and domestic states,’” Gorsuch said.

Later in his opinion he added, “And their unique character makes their brand of sovereign immunity ‘not congruent’ with the immunity other sovereigns enjoy.”

Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin is two of three federal Indian law cases in Supreme Court hands. The decision for Haaland v. Brackeen, an Indian Child Welfare Act case, was also released Thursday. Arizona v. Navajo Nation is the third case to be decided. The high court has 23 more cases to decide on by the end of the month. 

Dateline:

WASHINGTON