US bankruptcy laws governing Native American tribes, 1st Circuit Rules


Thomas F Harrison

Courthouse Intelligence Service

A Native American tribe accused of abusive collection practices serious enough to result in a suicide attempt may be sued for flouting bankruptcy law rules, the first circuit was held on Friday.

But the Verdicta divided decision on an issue that has divided other federal appeals courts could prompt the US Supreme Court to take up the matter and resolve it once and for all.

The case stems from a payday loan deal run by the Lac du Flambeau Band of Lake Superior Chippewa Indians in northern Wisconsin. In July 2019, the tribe’s company, Lendgreen, loaned a man named Brian Coughlin $1,100. Because the Chippewa were charging him an exorbitant interest rate of 108% per year, Coughlin owed $1,594.91 through December.

Coughlin filed for bankruptcy. Normally this would trigger an automatic stay sending all creditors to bankruptcy court if they try to collect anything. In Coughlin’s case, the court approved a plan to pay off all of his debts over a five-year period.

But the Chippewa never filed a claim; Instead, they bombarded Coughlin with debt collection calls and emails almost every day, ignoring his requests that he contact his attorney instead because he had filed for bankruptcy.

Coughlin, suffering from clinical depression, attempted suicide and was hospitalized.

After he recovered, he sued the tribe for violating automatic residency, demanding that he pay his medical bills, lost sick leave and vacation time, and $87,000 in emotional damages.

However, a bankruptcy court dismissed the lawsuit, noting that the tribe was exempt from the rules that apply to everyone else.

In a 1994 law, Congress declared that government entities are subject to bankruptcy rules. This included the US and state governments, commonwealths, districts, territories, municipalities and any other “domestic government”.

But because the list didn’t specifically mention Native American tribes, the bankruptcy court ruled that they weren’t included.

The Sixth Circuit demonstrated similar logic in 2019 when he found that the tribal-owned Greektown Casino in Detroit could not be sued for fraudulently transferring $177 million worth of casino assets to itself when it went bankrupt.

However, this is in contrast to what the Ninth Circle held in 2004 It allows the Navajo Nation is being sued by a company that was drilling oil wells on its property.

The First Circuit case moved in amicus short by 10 prominent Indian law professors, including those from Harvard and Stanford, who said a 2001 Supreme Court case
requires Congress to be “unambiguous” in allowing tribes to be sued, and the laundry list in the 1994 law was not specific enough.

But the court rejected that view in a 22-page ruling that drew a spirited 34-page dissent from the court’s chief justice, David Barron.

Along with US District Judge Alice Burroughs, who is due on the panel, US District Judge Sandra Lynch’s majority opinion says it is obvious that the term “domestic government” includes Native American tribes.

“First, there is no real disagreement that a tribe is a government,” the Clinton appointee wrote. “Second, it is also clear that tribes are native” because they exist within the United States.

Lynch disagreed with the tribe’s argument that “because it never uses the word ‘tribe,’ the bankruptcy statute cannot remove tribal immunity.”

This “is tantamount to a demand for magic words,” and Congress need not use magic words if its intent is otherwise clear.

Barron, who was appointed by President Obama, objected that the language was “hardly intuitive” and that “even if Congress doesn’t have to use magic words … it must at least use words that clearly and unequivocally refer to Native American tribes.”

Lynch hit back, saying that Barron “proposes a radically new construction rule – one that has never before been adopted by a court, never briefed by the parties, and certainly never contemplated…

“The lack of discussion of tribes in legislative history cannot introduce ambiguity into an unambiguous law,” she stressed.

Lynch also noted that Native American tribes benefited from government treatment under bankruptcy law in other ways, including priority treatment for certain claims, exemptions from relief, and the ability to collect tax revenue. This had been a stumbling block at oral hearing when the tribe’s attorney, Andrew Adams III of Hogen Adams in St. Paul, Minnesota, admitted that the tribe wanted to be considered government for some purposes and not for others, and therefore “to have their cake and eat it too.”

Adams didn’t say Friday whether the tribe would appeal and said he has the authority to comment on the case.

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