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Bankruptcy Court Upholds Indian Tribe’s Sovereign Immunity Blog Bankruptcy & Restructuring Viewpoints

Bankruptcy Court Upholds Indian Tribe’s Sovereign Immunity Blog Bankruptcy & Restructuring Viewpoints

In a choice posted October 19, 2020, Judge Frank J. Bailey associated with U.S. Bankruptcy Court for the District of Massachusetts discovered that an Indian tribe had not been susceptible to the Bankruptcy Code’s automatic stay. This choice ended up being a case of first impression in the 1st Circuit and contributes to a growing conflict among the list of federal circuits in the dilemma of Indian tribal sovereign resistance under Section 106 of this Bankruptcy Code, which supplies that “sovereign immunity is abrogated as to a government unit,” with respect to key conditions associated with Bankruptcy Code (including part 362, with respect to the automated stay). The Bankruptcy Court joined nearly all courts recognizing that area 106(a) for the Bankruptcy Code is certainly not a waiver of a Indian tribe’s sovereign resistance because Section 106 does not have adequate clarity required to manifest Congressional intent.

The problem arose whenever a chapter 13 debtor alleged the Lac du Flambeau Band of Lake Superior Chippewa Indians (the “Tribe”) and lots of its affiliated company entities violated the automated stay by calling the debtor following the filing of their bankruptcy situation so that they can gather for a $1,600 loan that is payday. The Tribe relocated to dismiss, arguing the Tribe is really a sovereign country and, consequently, the Tribe and its own affiliates are resistant from suit in bankruptcy courts. (significantly, the Tribe had asserted, and also the debtor had conceded, that its affiliated company entities are hands associated with the Tribe, and therefore eligible to benefit from the degree that is same of resistance since the Tribe.)

In making their choice, Judge Bailey respected the abrogation that is broad of resistance beneath the Bankruptcy Code, but reasoned that “governmental unit,” as defined in Section 101(27) for the Bankruptcy Code, will not add federally recognized Indian tribes. Further, the debtor’s effort to claim that Indian tribes are subsumed in to the concept of government device as an “other . . . domestic federal government” ended up being rejected because this type of phrase” that is“catch-all make the total amount for the part 101(27) surplusage.

Judge Bailey observed that Indian tribes occupy a “special place” in American jurisprudence and, citing a couple of leading Supreme Court instances, that the “baseline position” favors tribal resistance, with “ambiguities in federal legislation construed generously to be able to comport with . conventional notions of sovereignty along with the federal policy of motivating tribal self-reliance.”

Judge Bailey’s dismissal associated with situation for not enough topic matter jurisdiction aligns the Bankruptcy Court aided by the Courts of Appeal for the Sixth, Seventh and Eighth Circuits and squarely rejects a decision through the Ninth Circuit Court of Appeals, which ruled that Congress indicated an intent that is unequivocal waive immunity for Indian tribes. It stays to be noticed whether or not the debtor might attract the Bankruptcy Court’s ruling, and possibly leading to quality for the circuit split by the Supreme Court or Congress.

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