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U.S. bankruptcy law governs Indian tribes, 1st Circuit rules

An Indian tribe accused of abusive debt-collection practices so severe that they led to an attempted suicide can be sued for thumbing its nose at the rules of bankruptcy law, the First Circuit held Friday.  

But the ruling, a split decision on an issue that has divided other federal appeals courts, could prompt the U.S. Supreme Court to take up the matter and resolve it once and for all. 

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

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

But the Chippewa never filed a claim; instead they bombarded Coughlin with collection calls and emails nearly every day, ignoring his pleas that they contact his lawyer instead because he had filed bankruptcy. 

Coughlin, who suffers from clinical depression, tried to kill himself and was hospitalized. 

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

A bankruptcy court rejected the suit, however, finding that the tribe was exempt from the rules that apply to everyone else. 

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

But since the list didn’t specifically mention Indian tribes, the bankruptcy court ruled that they’re not included. 

The Sixth Circuit displayed similar logic in 2019 when it found that the tribe-owned Greektown Casino in Detroit couldn’t be sued for fraudulently transferring $177 million worth of casino assets to itself when it went belly-up. 

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

The First Circuit case drew an amicus brief from 10 noted Indian law professors, including ones from Harvard and Stanford, who said a 2001 Supreme Court case requires Congress to be “unequivocal” when allowing tribes to be sued and the laundry list in the 1994 law wasn’t 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 judge, David Barron.  

Joined by U.S. District Judge Alice Burroughs, sitting on the panel by designation, the majority opinion by U.S. Circuit Judge Sandra Lynch says it was obvious that the phrase “domestic 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 within 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.’”

This “boils down to a magic-words requirement,” and Congress needn’t use any magic words if its intent is otherwise clear. 

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Barron, who was appointed by President Obama, objected that the language was “hardly intuitive” and that, “even if Congress need not use magic words … it must at least use words that clearly and unequivocally refer to Indian tribes.”  

Lynch lashed back and said that Barron “proposes a radical new rule of construction — one never previously adopted by any court, never briefed by the parties, and certainly never within Congress’ contemplation …  

“The lack of discussion of tribes in the legislative history cannot introduce ambiguity into an unambiguous statute,” she insisted. 

Lynch also emphasized that Indian tribes benefited in other ways from being treated as a government under bankruptcy law, including priority treatment of certain claims, exceptions to discharge and the ability to collect tax revenue. This had been a bone of contention at oral argument when the tribe’s lawyer, 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 Friday whether the tribe has plans to appeal, saying he has been authorized to comment on the case.

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