Tribe Has Sovereign Immunity from Stay Violation Suit

Posted by NCBRC - February 16, 2021

Payday lenders belonging to a Native American Tribe enjoy sovereign immunity from suit under section 362 for violation of the automatic stay. In re Coughlin, No. 19-14142 (Bankr. D. Mass. Oct. 19, 2020).

The chapter 13 debtor filed a motion seeking a finding that a group of payday lenders violated the automatic stay when they continued to dun him for payments after he filed his bankruptcy petition. The creditors, all members of a Native American Tribe, moved to dismiss the complaint, arguing that they were entitled to sovereign immunity for their conduct.

The bankruptcy court considered section 106(a) which abrogates sovereign immunity for a “governmental unit.” Section 101(27) defines a governmental unit, in part, as: “a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government.” The court noted that circuits are split as to whether Native American tribes fall under the category of “domestic government,” and it agreed with the Sixth Circuit in Buchwald Capital Advisors, LLC. v. Sault Ste. Marie Tribe of Chippewa Indians (In re Creektown Holdings), LLC, 917 F.3d 451 (6th Cir. 2019), which held that they do not.

Citing various Supreme Court cases that have touched on the subject, the court stressed that abrogation of tribal immunity must be clear and unequivocal. The court noted that where Congress has explicitly abrogated sovereign immunity with respect to Tribes in other statutes, it did not do so in either section 106(a) or in section 101(27).

The court addressed the case of Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055 (9th Cir. 2004), where the Ninth Circuit found that “domestic government” included Native American Tribes. That court relied on the fact that the Supreme Court had used the phrase “domestic dependent government” to refer to Tribes, and Congress’s use of a similar phrase met the unequivocality test.

The Coughlin court disagreed, noting that the Supreme Court has never applied sovereign immunity to Tribes where Congress has not expressly mentioned Tribes in the legislation. The court also disagreed with the debtor’s argument that “domestic government” could refer only to Tribes, finding that, had Congress intended to include Tribes in the abrogation of sovereign immunity it would have done so explicitly. The court further found that deeming the phrase to be a “catch-all” would render “all the other words in that section . . . surplusage.” Finally, the court noted the unique place Native American Tribes hold in Supreme Court jurisprudence, where the baseline position is tribal immunity.

The court granted the creditors’ motion to dismiss.

The debtor has petitioned for leave to appeal to the First Circuit, No. 20-8026.

Coughlin Bankr D Mass Oct 2020

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