In January, the U.S. Supreme Court agreed to hear Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin after the First Circuit barred the Lac du Flambeau Band from seeking to collect on a $1,600 debt obligation to the tribe’s lending arm, Lendgreen, after the debtor filed for Chapter 13 bankruptcy.
The Supreme Court’s decision to grant the petition for certiorari was unsurprising given the circuit split that pitted the federal policy of encouraging tribal independence against the federal policy of affording debtors breathing room from creditors, including governments. The First, Second, Ninth, and Tenth Circuits had found that tribes fall within the definition of a governmental unit under the Bankruptcy Code and thus — like other governmental units — were stripped of their immunity with respect to certain provisions of the Code. Conversely, the Third, Sixth, and Eighth Circuits had held that tribes are not governmental units within the meaning of the Bankruptcy Code and the Code thus does not waive tribal sovereign immunity. On June 15, the Supreme Court issued an opinion holding that “the Bankruptcy Code unambiguously abrogates the sovereign immunity of all governments, including federally recognized Indian tribes.”
The Supreme Court based its holding on two provisions of the Bankruptcy Code. First, § 106(a) abrogates the sovereign immunity of “governmental unit[s]” for certain enumerated purposes. Second, § 101(27) defines a “governmental unit” as the:
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.
First, the Supreme Court found that “the definition of ‘governmental unit’ exudes comprehensiveness from beginning to end” indicating Congress’ intent to abrogate the sovereign immunity of any governmental unit that might attempt to assert it. Second, the Supreme Court found it indisputable that tribes qualify as governments since they have the power to make their own substantive law in internal matters, enforce that law in their own forums, and tax activities on the reservation.
Putting the pieces together, our analysis of the question whether the Code abrogates the sovereign immunity of federally recognized tribes is remarkably straightforward. The Code unequivocally abrogates the sovereign immunity of all governments, categorically. Tribes are indisputably governments. Therefore, §106(a) unmistakably abrogates their sovereign immunity too.
It is important to note that tribal sovereign immunity (just like all governmental immunity) is abrogated only for the limited purposes set forth in § 106 of the Bankruptcy Code. In fact, the Supreme Court’s recognition that a tribe is a governmental unit for purposes of the Bankruptcy Code may in some respects enhance tribal independence in light of the special benefits afforded to governmental units under the Code, such as the ability to exercise police and regulatory powers notwithstanding the automatic stay and the enhanced priority of certain claims of governmental units against debtors.