First Circuit Deepens Split on Waiver of Tribal Sovereign Immunity in Bankruptcy

Recognized Native American tribes generally have inherent authority to govern themselves without interference by federal or state governments. An important element of this "tribal sovereignty" is immunity from lawsuits in federal, state, and tribal courts, or "tribal sovereign immunity." Under this principle, a tribe may be sued only if the tribe consents to being sued or if Congress has authorized such a suit. Otherwise, a court lacks subject matter jurisdiction over a tribe.

Whether Congress has authorized a waiver of tribal sovereign immunity in bankruptcy cases is disputed among the federal circuit courts of appeals. The U.S. Court of Appeals for the First Circuit recently deepened this split. In Coughlin v. Lac du Flambeau Band of Lake Superior Chippewa Indians (In re Coughlin), 33 F.4th 600 (1st Cir. 2022), a divided First Circuit panel ruled as a matter of first impression that section 106(a) of the Bankruptcy Code expressly provides for a waiver of tribal sovereign immunity.

In so ruling, the First Circuit sided with the Ninth Circuit, which held in 2004 that section 106(a) abrogates tribal sovereign immunity. See Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055, 1058 (9th Cir. 2004) ("[Ruling that, in sections 101(27) and 106(a),] Congress explicitly abrogated the immunity of any 'foreign or domestic government.' Indian tribes are domestic governments. Therefore, Congress expressly abrogated the immunity of Indian tribes."). However, the First Circuit rejected the contrary view expressed by the Sixth Circuit in In re Greektown Holdings, LLC, 917 F.3d 451, 460-61 (6th Cir. 2019) (Congress did not unequivocally express an intent to abrogate Indian tribes' sovereign immunity from bankruptcy avoidance litigation even though tribes might possess the characteristics of domestic governments), cert. dismissed sub nom. Buchwald Cap. Advisors LLC v. Sault Ste. Marie Tribe, 140 S. Ct. 2638 (2020).

According to the First Circuit majority, "Like the Ninth Circuit, we hold that the Bankruptcy Code unequivocally strips tribes of their immunity."

The widening circuit split may be a compelling invitation to U.S. Supreme Court review.

Waiver of Sovereign Immunity in the Bankruptcy Code 

Section 106(a) of the Bankruptcy Code provides that a "governmental unit" is deemed to waive sovereign immunity in connection with disputes relating to many provisions of the Bankruptcy Code, including actions to enforce the automatic stay, preference, and fraudulent transfer avoidance actions and proceedings seeking to establish the dischargeability of a debt.

Furthermore, pursuant to section 106(b) of the Bankruptcy Code, a governmental unit that files a proof of claim in a bankruptcy case "is deemed to have waived sovereign immunity with respect to a claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which the claim of such governmental unit arose."

Section 101(27) of the Bankruptcy Code defines the term "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.

Coughlin

In July 2019, Brian W. Coughlin (the "debtor") took out a $1,100 payday loan from Niiwin, LLC, d/b/a Lendgreen ("Lendgreen"), an indirect subsidiary of the Lac Du Flambeau Band of Lake Superior Chippewa Indians (the "Band"). Later that year, the debtor filed a chapter 13 petition in the District of Massachusetts. In his bankruptcy schedules, the debtor listed his debt to Lendgreen, which had grown to nearly $1,600, as a nonpriority unsecured claim, and his attorney mailed Lendgreen a copy of the proposed chapter 13 plan.

Despite the automatic stay, Lendgreen repeatedly contacted the debtor seeking repayment of the debt. In an effort to stop those collection efforts, the debtor sought an order from the bankruptcy court enforcing the automatic stay against both Lendgreen and its corporate parents, including the Band. In response, the Band and its affiliates asserted tribal sovereign immunity and moved to dismiss the enforcement proceeding. The bankruptcy court agreed with the Band and granted the motion to dismiss. The First Circuit permitted a direct appeal from that decision.

The First Circuit's Ruling

A divided three-judge panel of the First Circuit reversed on appeal.

Writing for the majority, U.S. Circuit Judge Sandra L. Lynch explained that Congress may abrogate tribal sovereign immunity if it "'unequivocally' express[es] that purpose." Coughlin, 33 F.4th at 604 (citations omitted). In determining whether the Bankruptcy Code unequivocally abrogates tribal sovereign immunity, she wrote, "we begin with the text" of section 106(a), the plain language of which "satisfies Congress' obligation to unequivocally express its intent to abrogate immunity for all governmental units." Id. According to the majority, the question is whether lawmakers intended to abrogate tribal sovereign immunity when they used the phrase "governmental unit."

The First Circuit majority concluded that they did. First, Judge Lynch explained that there is no real disagreement that a tribe is a government—tribes are not expressly excluded and "fall within the plain meaning of the term governments." Id. at 605. Second, she noted, tribes are domestic, rather than foreign, in accordance with the ordinary dictionary definition of "domestic" as "belonging or occurring within the sphere of authority or control or the … boundaries of" the United States. Id. (quoting Webster's Third New International Dictionary 671 (1961)). Accordingly, the majority determined that a tribe is a domestic government and therefore a "governmental unit." Moreover, it noted, based on the legislative history and historical context of the issue, "when Congress enacted §§ 101(27) [in 1978] and 106 [in 1994], it understood tribes to be domestic governments, and when it abrogated the sovereign immunity of domestic governments in § 106, it unmistakably abrogated the sovereign immunity of tribes." Id. at 607.

The First Circuit majority rejected the argument that the term "domestic government" in section 101(27) refers only to governments that arose under the U.S. Constitution. Rather, Judge Lynch wrote, "domestic refers to the territory in which the government exists." Id. at *6. She further noted that an "interpretation of the phrase 'domestic government' that excludes Indian tribes with no textual basis for so doing is implausible." Id. at 611.

The First Circuit majority therefore reversed the decision of the bankruptcy court dismissing the debtor's motion to enforce the automatic stay and remanded the case below for further proceedings.

In a 33-page dissenting opinion, Chief Judge David A. Barron wrote that, by failing to use the word "tribes" in section 101(27), lawmakers "did not use the surest means of clearly and unequivocally demonstrating that [tribes] are" governmental units. Id. at 613 (dissenting opinion). According to Judge Barron, "Congress has expressly named them when abrogating their sovereign immunity in every other instance in which a federal court has found that immunity to have been abrogated." Id. Judge Barron accordingly wrote that he had "no choice but to conclude that § 101(27) does not clearly and unequivocally include Indian tribes, because, as I have explained, its text plausibly may be read not to cover them." Id. at 625.