Bankruptcy Court Upholds Indian Tribe's Sovereign Immunity
November 9, 2020
In a decision published October 19, 2020, Judge Frank J. Bailey of the U.S. Bankruptcy Court for the District of Massachusetts found that an Indian tribe was not subject to the Bankruptcy Code’s automatic stay. This decision was a matter of first impression in the First Circuit and adds to a growing conflict among the federal circuits on the issue of Indian tribal sovereign immunity under Section 106 of the Bankruptcy Code, which provides that “sovereign immunity is abrogated as to a governmental unit,” with respect to key provisions of the Bankruptcy Code (including Section 362, pertaining to the automatic stay). The Bankruptcy Court joined the majority of courts recognizing that Section 106(a) of the Bankruptcy Code is not a waiver of an Indian tribe’s sovereign immunity because Section 106 lacks sufficient clarity necessary to manifest Congressional intent.
The issue arose when a chapter 13 debtor alleged the Lac du Flambeau Band of Lake Superior Chippewa Indians (the “Tribe”) and a number of its affiliated business entities violated the automatic stay by contacting the debtor after the filing of his bankruptcy case in an attempt to collect on a $1,600 payday loan. The Tribe moved to dismiss, arguing the Tribe is a sovereign nation and, therefore, the Tribe and its affiliates are immune from suit in bankruptcy courts. (Importantly, the Tribe had asserted, and the debtor had conceded, that its affiliated business entities are arms of the Tribe, and thus entitled to enjoy the same degree of sovereign immunity as the Tribe.)