U.S. Supreme Court Holds Tribal Sovereign Immunity Expressly Abrogated By U.S. Bankruptcy Code

• Published date: 23 June 2023
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Sovereign Immunity: Public Sector Government, Trials & Appeals & Compensation
• Law Firm: Holland & Knight
• Author: Prof. Lynne Xerras, Barbra Parlin, James Meggesto and Randolph DelFranco

Highlights

• Section 106(a) of the U.S. Bankruptcy Code expressly abrogates the sovereign immunity of "governmental units" for purposes of certain bankruptcy-related litigation. A split of authority concerning whether that abrogation applies to Native American tribes as sovereigns widened in 2022 when the U.S. Court of Appeals for the First Circuit held that tribes are "governmental units" that lack sovereign immunity from suit in proceedings initiated under the Bankruptcy Code.
• The U.S. Supreme Court recently agreed with the First Circuit as well as the U.S. Court of Appeals for the Ninth Circuit, in holding that the Bankruptcy Code evinces Congress' clear intent to abrogate the sovereign immunity of any and every type of government, including tribes.
• As a result of the Supreme Court's holding, Native American tribes and their business units are subject to suit before the U.S Bankruptcy Courts, although the holding supports the presumption that tribes and their businesses are ineligible to file for relief as debtors and likely has broader implications.

The U.S. Supreme Court recently issued a decision of great importance to Native American tribes and their attorneys in the otherwise innocuous case of Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin.¹ In the 8-1 opinion delivered by Justice Ketanji Jackson, the Supreme Court found that the U.S. Bankruptcy Code² "unambiguously abrogates tribal immunity," thereby affirming the decision of the U.S. Court of Appeals for the First Circuit in the underlying case of In re Coughlin, discussed below.³ In doing so, the Supreme Court adopted the reasoning of Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055, 1057 (9th Cir. 2004) and rejected the holding of In re Greektown Holdings, LLC, 917 F.3d 451, (6th Cir. 2019), cert. dismissed sub nom. As with the circuit courts, the Supreme Court's analysis and holding involved interpretation of two separate, but interrelated, provisions of the Bankruptcy Code: 1) Section 101(27), defining the term "governmental unit,"⁴ and 2) Section 106,⁵ abrogating the sovereign immunity of those governmental units in a wide variety of proceedings invoking various Bankruptcy Code provisions. While the full impact of this decision has yet to be determined, the Supreme Court has, at a minimum, eliminated the uncertainty regarding whether Native American tribes will be considered "governmental units" for purposes of the Bankruptcy Code regardless of the jurisdiction involved; the Supreme Court has answered this question in the affirmative.

The Path to the Supreme Court

As a contrast to the significance of the ruling, the financial value at stake when the parties were litigating before the U.S. Bankruptcy Court, District of Massachusetts (Bankruptcy Court) in 2019 was relatively nominal. Petitioners are the Lac du Flambeau Band of Lake Superior Chippewa Indians, a federally recognized Indian tribe (Lac du Flambeau Band), together with several directly and indirectly owned corporate entities (collectively, Petitioners).⁶ One of those entities, Niiwin LLC (Niiwin), conducted business as an internet "payday" lender by the name of "Lendgreen," providing small, high-interest loans to individuals online. In July 2019, Brian W. Coughlin, a resident of the Commonwealth of Massachusetts, obtained a $1,100 "payday" loan from Lendgreen. He subsequently filed a Chapter 13 bankruptcy case before the Bankruptcy Court. After that filing, Lendgreen continued to...