SCOTUS wrestles with tribal sovereign immunity and whether the US bankruptcy code waives it

The U.S. Supreme Court heard oral argument yesterday in Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, No. 22-227, a case arising in the first circuit court of appeals concerning waivers of sovereign immunity and whether the bankruptcy code's Section 106 waived tribal immunity. The case stems from a loan made by the tribe's lending business, Lendgreen, to Coughlin for $1,100.00. After taking the loan, Coughlin filed for federal bankruptcy protection. Lendgreen continued to attempt to collect the debt and in response Coughlin filed a motion for sanctions for Lendgreen and the Tribe's breach of the bankruptcy court's automatic stay provision, which prohibits creditor collection actions on debts while bankruptcy cases are pending.

In May 2022, the first circuit court of appeals held that the Bankruptcy Code's section 106, reference to governmental units, does indeed waive tribal sovereign immunity. The court held that tribes, while not expressly named, are included, by default, in the sections phrases related to governmental units, domestic or foreign governments. The court relied primarily on a Ninth Circuit court of appeals case, Krystal Energy v Navajo Nation, 357 F3rd 355 (2012), finding a waiver of Navajo Nation's sovereign immunity in the Code.

In 2019, the sixth circuit court of appeals heard a similar case in Ste Sault Marie Tribe (In Re Greektown Holdings), 140 S. Ct. 2638 (2020), specifically stating that Congress, in drafting the bankruptcy code, did not intend to include Indian tribes because they were not expressly named and that in the history of federal precedent tribal immunity has not been waived in absence of specifically naming tribes. In finding that tribal immunity had not been waived, the Sixth circuit held that Krystal Energy failed to consider federal precedent specific to tribal sovereign immunity and only analyzed it from the position of traditional governments, which tribes are not. Further, the court held that the Code did not clearly and unambiguously waive tribal sovereign immunity.

The Supreme Court seemed genuinely perplexed as to why the Code was absent any language referencing Indians or Tribes. Further, Justice Elena Kagen pointed out that the Code specifically named governments where sovereign immunity was waived, such as the United States Government, inferring that the absence of tribes being specifically named made the statute ambiguous. Kagan also showed concern about a "magic words" requirement, which the Court does not follow. In response, Appellant Counsel, Pratik A Shah, responded that the 1938 bankruptcy treated tribes differently by excluding tax recovery from the Code and that tribe's also collect taxes - inferring that the Code did not extend these benefits to the Tribes resulting in disparate treatment.

Kagan then asked "if Congress excluded tribes by accident does the framework of the code allow for the inclusion of tribes?" Counsel responded "No, that under ordinary statutory construction we prevail, because tribes are not named, and under the clear statement rule we also prevail because there is no clear waiver of tribal immunity."

Appellee's Counsel, Gregory G. Rapaway, argued that the Code does include tribes in Section 106's waiver of immunity and that the focus should be on the words Congress did use and not on words it could have used. When asked by Justice Clarence Thomas about whether the tribes were included in the Code Counsel, Rapaway conceded they were not.

Chief Justice John Roberts suggested that the terms foreign and domestic nations do not include tribes because Chief Justice Marshall in Worcester v Georgia held them to be dependent sovereigns and tribes are neither domestic or foreign. Justice Neil Gorsuch, when questioning counsel Rapaway about the Code's construction, used a simple analogy using ice cream to supplement Justice Robert's point, asking Counsel "What if it was ok to take the vanilla or chocolate, but the vanilla-chocolate swirl was off limits" to which, Counsel Rapaway conceded that taking the latter would not be ok. Justice Ketaji Brown Jackson asked Counsel Rapaway "Why can't we decide the case for Appellant because tribes are not named?" Raynor responded "that doing so would require an interpretation that Congress has not made concerning waivers of immunity."

Appellant Counsel Shah was asked numerous pointed questions about the Code's use of the terms governmental unit and domestic and foreign governments, and why that was not sufficient to include Indian tribes in Code section 106's waiver provision. Counsel responded that the code was passed by Congress after the court issued its Santa Clara Pueblo v. Martinez decision, a 1978 Supreme Court case holding that the Indian Civil Rights Act did not waive tribal immunity, and that tribal immunity waivers must be clear and unambiguous. Counsel also pointed out that federal precedent in other statutes expressly name the focus of waivers of immunity and that conversely statutes specifically state that tribes are excluded or exempt from a statute. Justice Clarence Thomas asked whether Congress was required to specifically name tribes. Counsel responded that other entities such as the International Monetary Fund are not governmental entities, domestic or foreign, and that Congress specifically dealt with that problem in subsequent legislation.

On rebuttal, Appellant's counsel Shah made two points: First, that nowhere has Congress ever waived tribal immunity without naming Indian tribes. Second, that when Congress waives immunity it names the subject of waiver and does not use a "catch-all" phrase. Shah closed by stating "this is not a "magic words" test, the test is what has Congress done in the past and when Congress uses lists, it lists everything. Here they (Congress) did not unequivocally include Indian tribes."