First Circuit Deepens Split On Waiver Of Tribal Sovereign Immunity In Bankruptcy

• Published date: 01 August 2022
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Sovereign Immunity: Public Sector Government
• Law Firm: Jones Day
• Author: Mr Mark Douglas

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...