Supreme Court: The Bankruptcy Code Waived Tribes’ Sovereign Immunity
The Supreme Court resolved a split of circuits in an opinion that could give support to the notion that arbitration agreements are not enforceable in bankruptcy.
Over a dissent by Justice Neil M. Gorsuch, Justice Ketanji Brown Jackson held for herself and six other justices that Section 106(a) of the Bankruptcy Code waives sovereign immunity as to tribes of Native Americans.
Justice Clarence Thomas concurred in the judgment, believing that tribes never had sovereign immunity to begin with.
Compelling Facts for the Debtor
The debtor borrowed $1,100 from a corporate payday lender before filing bankruptcy. The lender was owned by a federally recognized tribe. By the time the debtor filed a chapter 13 petition, the debt had grown to almost $1,600 as an unsecured, nonpriority claim.
Despite the automatic stay and despite being told about the bankruptcy, the tribal lender continually called the debtor demanding payment. Two months after bankruptcy, the debtor attempted suicide, blaming his action on the incessant calls.
In bankruptcy court, the debtor sought an injunction to halt collections attempts, along with damages and attorneys’ fees. The bankruptcy court granted the tribe’s motion to dismiss, based on sovereign immunity. The First Circuit accepted a direct appeal and reversed over a vigorous dissent.
For the majority, First Circuit Judge Sandra L. Lynch took sides with the Ninth Circuit, which had held in 2004 that Section 106(a) abrogated sovereign immunity for tribes. Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055, 1061 (9th Cir. 2004). She disagreed with the Sixth Circuit, which found no waiver in 2019. In re Greektown Holdings, LLC, 917 F.3d 451, 460- 61 (6th Cir. 2019), cert. dismissed sub nom. Buchwald Cap. Advisors LLC v. Sault Ste. Marie Tribe, 140 S. Ct. 2638 (2020). While the certiorari petition was pending in Greektown, the case settled, and the petition was dismissed. To read ABI’s report on Greektown, click here.
The debtor in the First Circuit filed a petition for certiorari, which the Court granted in September. Oral argument was held in January. To read ABI’s report on argument, click here.
The Majority’s Rationale
Justice Jackson began her June 15 opinion by laying out the law on waivers of sovereign immunity. Congressional intent to waive immunity must be made in “unequivocal terms.” Although the Court does not oblige Congress to use “magic words,” the intent to waive must be “unmistakably clear” or “clearly discernable” from the statute.
The circuits were split because the statute arguably leaves something to be desired. For “governmental units,” Section 106(a) waives sovereign immunity as to a long list of sections in the Bankruptcy Code. The Section 362 automatic stay is on the list.
Section 101(27) defines “governmental unit.” Regarding waiver as to tribes, the question for the Supreme Court was whether tribes come under the rubric of “other foreign or domestic government,” as used in Section 101(27).
Justice Jackson did not leave the reader in doubt. After laying out general law, she said:
[T]he Bankruptcy Code unequivocally abrogates the sovereign immunity of any and every government that possesses the power to assert such immunity. Federally recognized tribes undeniably fit that description; therefore, the Code’s abrogation provision plainly applies to them as well.
To justify the conclusion, Justice Jackson wrote a 16-page opinion, one page shorter than the dissent. She said that the statutory “definition of ‘governmental unit’ exudes comprehensiveness from beginning to end.” By “coupling foreign and domestic together, and placing the pair at the end of an extensive list, Congress unmistakably intended to cover all governments in §101(27)’s definition, whatever their location, nature, or type,” she said.
Justice Jackson found reinforcement in other aspects of the Bankruptcy Code, such as the application of the Code’s “requirements generally . . . to all creditors. “
Finding no “indication” that Congress “categorically” excluded “certain governments” from the Code’s “enforcement mechanisms and exceptions,” Judge Jackson identified the “one remaining question” as whether federally recognized tribes “qualify as governments.”
Justice Jackson said that Congress “repeatedly characterizes tribes as governments.” Given that the “Code unequivocally abrogates the sovereign immunity of all governments, categorically,” and that “Tribes are indisputably governments,” she held that “§106(a) unmistakably abrogates their sovereign immunity too.”
The Tribe’s Arguments Rejected
Justice Jackson devoted the final six pages of her opinion to rebutting the tribe’s arguments, such as the fact that every other case finding a waiver involved a statute that specifically mentioned tribes.
Justice Jackson said that “the universe of cases . . . is exceedingly slim,” and the fact that Congress had mentioned tribes specifically “does not foreclose it from using different language to accomplish that same goal in other statutory contexts.”
Justice Jackson addressed the dissent by Justice Gorsuch, who described tribes as a “hybrid” that is neither “foreign” nor “domestic.” She found it “hard to see why the Code would subject purely foreign or domestic governments to enforcement proceedings while at the same time immunizing government creditors that have both foreign and domestic attributes.”
Finally, Justice Jackson said that the definition of “governmental unit” is “undeniably broader” in the Bankruptcy Code than it was under the former Bankruptcy Act. “[H]owever Congress may have treated governmental entities in bankruptcy law prior to 1978,” she said, “it had clearly altered its view about the scope of coverage relative to governments by the time it enacted §101(27) and §106(a).”
Justice Jackson affirmed the First Circuit.
Justice Thomas concurred in the judgment, but on entirely different grounds. He said that “the Court should simply abandon its judicially created tribal sovereign immunity doctrine.”
Citing his own dissent in a prior case, Justice Thomas said that tribal sovereign immunity was not mandated by the Constitution but was a common law doctrine. “Because no federal law accords tribes sovereign immunity in federal court,” he said, the tribe “lack[s] immunity in this federal case.”
Furthermore, Justice Thomas said that governments protected by sovereign immunity have no protection for their “commercial acts.”
“Accordingly,” Justice Thomas said, “any common-law immunity that [the tribe] possess[es] cannot support [its] claim to immunity in federal court for their off-reservation commercial conduct.”
The Dissent by Justice Gorsuch
Justice Gorsuch opened his 17-page dissent by saying that tribes were specifically mentioned in the statute every time the Court has previously found a waiver of sovereign immunity. Although the majority’s interpretation was “plausible,” he said that “plausible is not the standard our tribal immunity jurisprudence demands.”
From “two centuries of history and precedent,” Justice Gorsuch said, “Tribes [have enjoyed] a unique status in our law,” meaning that they are neither “foreign” nor “domestic.” Because the Bankruptcy Code does not refer to tribes specifically, he found no waiver.
Justice Gorsuch addressed the majority’s notion that the Bankruptcy Code “exudes comprehensiveness.” He said it’s “true but not obviously helpful,” because the Court has never “held that a statute’s general atmospherics can satisfy the clear-statement rule when the text itself comes up short.”
Quoting his own concurrence in a case last term, Justice Gorsuch “respectfully” dissented because Congress cannot use “oblique or elliptical language.”
Policy arguments typically gain little or no traction in textualist decisions by the Supreme Court.
It is therefore noteworthy that Justice Jackson found support for her conclusion in “[o]ther aspects of the Bankruptcy Code” and “the Code’s ‘orderly and centralized’ debt-resolution process,” which, she said, “generally apply to all creditors.” [Emphasis in original.]
At least when it comes to decisions involving the Bankruptcy Code, the Supreme Court might be amenable to interpreting a confusing provision in light of the larger principles undergirding the Code.
If a case one day asks the Supreme Court to decide whether arbitration agreements are enforceable in bankruptcy, the statement by Justice Jackson that the Code’s provisions “generally apply to all creditors” suggests that arbitration agreements are unenforceable in bankruptcy, given the Code’s “orderly and centralized” processes.