U.S. Supreme Court says bankruptcy law overrides tribal sovereignty

NEW YORK (Reuters) – The U.S. Supreme Court ruled on Thursday that U.S. bankruptcy protections override a Native American tribe’s sovereign immunity, stopping the tribe’s effort to collect on an overdue payday loan taken out by one of its members who subsequently filed for bankruptcy.

In an 8-1 opinion written by Justice Ketanji Brown Jackson, the court ruled that U.S. bankruptcy law applies to all creditors and “abrogates the sovereign immunity of any and every government,” including tribes. Tribal governments are not entitled to an exception solely because the U.S. bankruptcy code does not specifically mention Indian tribes when describing how it applies to governments, Jackson wrote.

The Wisconsin-based Lac du Flambeau Band of Lake Superior Chippewa Indians had petitioned the Supreme Court after an appeals court rejected its effort to collect on a high-interest $1,100 payday loan extended to Brian Coughlin, a member of the tribe. Coughlin had borrowed the money from the tribe-owned business Lendgreen in 2019, but he filed for Chapter 13 bankruptcy before fully repaying it, according to the Supreme Court opinion.

Lendgreen continued to seek repayment, despite the bankruptcy law‘s so-called “automatic stay,” which stops debt collection efforts during a bankruptcy. Coughlin alleged that Lendgreen’s attempts to collect the money were so aggressive that he “suffered substantial emotional distress, and at one point, even attempted to take his own life,” Jackson wrote.

Coughlin’s attorney Gregory Rapawy said that he was pleased with the Supreme Court’s ruling that tribal governments are treated “like all other governmental units” in bankruptcy, and he looked forward to obtaining redress for Coughlin’s injuries in bankruptcy court.

An attorney for the Lac du Flambeau Band did not immediately respond to a request for comment.

The Lac du Flambeau Band had argued on appeal that Lendgreen’s debt collection effort was entitled to tribal sovereign immunity, in part because the tribe was neither a “foreign” nor “domestic” government.

Jackson rejected that argument, saying that U.S. bankruptcy law explicitly applies to the federal government, U.S. states and their subdivisions, U.S. territories, foreign states, and “other foreign or domestic government” entities.

The full definition makes clear that all governments are meant to be included, similar to the way that “rain or shine” is meant to encompass all types of weather, Jackson wrote.

Justice Neal Gorsuch dissented from Jackson’s majority opinion, writing that Indian tribes “enjoy a unique status” that is “neither politically foreign nor domestic” under U.S. law. Tribes’ rights should not be overridden without more explicit statutory language, Gorsuch wrote.

Justice Clarence Thomas wrote a concurring opinion that argued that the Supreme Court should go further and completely reject “the flawed premise of tribal immunity.” Thomas criticized tribal immunity as a “judicially created” concept that is not supported by the U.S. constitution or federal law.

The ruling was another example of recent Supreme Court opinions rejecting sweeping claims of tribal immunity, and it was notable in finding a “clear statement of congressional intent” even without the inclusion of “magic words” referring to tribes, according to Kevin King, an appellate lawyer at Covington, who was not involved in the case.

“That holding opens the door to arguments in other cases against tribal immunity, even when a statute does not refer to tribes directly,” King said.

The case is Lac du Flambeau Band of Lake Superior Chippewa Indians et al v. Brian Coughlin, Supreme Court of the United States, No. 22–227

For the Lac du Flambeau Band: Pratik Shah of Akin Gump Strauss Hauer & Feld LLP

For Coughlin: Gregory Gerber Rapawy of Kellogg, Hansen, Todd, Figel & Frederick PLLC

Read more:

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U.S. Supreme Court deems half of Oklahoma a Native American reservation

U.S. Supreme Court says bankruptcy can’t nix debts for others’ frauds

Reporting by Dietrich Knauth

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