US Bankruptcy Law Governs Indian Tribes, 1st Circuit Rules

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Thomas F. Harrison

Courthouse News Service

An Indian tribe accused of abusive debt collection practices so severe they led to a suicide attempt may be prosecuted for flouting bankruptcy law rules, the First Circuit heard on Friday.

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

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

Coughlin filed for bankruptcy. Normally, this would trigger an automatic stay that would send all creditors to bankruptcy court if they seek to recover anything. In Coughlin’s case, the court approved a plan to pay off all of his debts over five years.

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

Coughlin, who suffers from clinical depression, attempted suicide and was hospitalized.

After recovering, he sued the tribe for breach of automatic suspension, demanding that it pay his medical bills, lost sick and vacation time, and $87,000 in emotional damages.

A bankruptcy court, however, dismissed the suit, finding that the tribe was exempt from the rules that apply to all others.

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

But since the list did not specifically mention Indian tribes, the bankruptcy court ruled that they were not included.

The sixth circuit displayed similar logic in 2019 when it found that the Tribe-owned Greektown Casino in Detroit could not be sued for fraudulently transferring $177 million in casino assets to itself when it went bankrupt.

This, however, is contrary to what the Ninth Circuit held in 2004, when it allowed the Navajo Nation from being sued by a company that operated oil wells on their property.

The First Circuit case has drawn attention amicus brief of 10 renowned Indian law professors, including those from Harvard and Stanford, who said a 2001 Supreme Court case
requires Congress to be “unequivocal” when authorizing lawsuits against tribes and the 1994 law’s laundry list was not specific enough.

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

Joined by U.S. District Judge Alice Burroughs, sitting on the panel by designation, the majority opinion of U.S. Circuit Judge Sandra Lynch said it was clear that the term “national government” included Indian 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 domestic” because they exist in the United States.

Lynch took issue with the tribe’s argument “that the Bankruptcy Code cannot abrogate tribal sovereign immunity because it never uses the word ‘tribe’.”

It “comes down to a requirement 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 “unintuitive” and that, “even if Congress doesn’t need to use magic words…it must at least use words which clearly and unequivocally refer to the Indian tribes”.

Lynch fired back and said Barron “proposes a sweeping new building rule — one never before passed by a court, never informed by the parties, and certainly never considered by Congress…

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

Lynch also pointed out that Indian tribes benefited in other ways from being treated like a government under bankruptcy law, including priority treatment of certain debts, exceptions to discharge, and the ability to collect tax revenue. It had been a bone of contention at the pleading when the tribe’s attorney, Andrew Adams III of Hogen Adams in St. Paul, Minnesota, admitted that the tribe wanted to be considered a government for some purposes and not others and thus “have their cake and eat it too”.

Adams did not reveal on Friday whether the tribe was considering appealing, saying he was allowed to comment on the matter.

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