At least in the Sixth Circuit, a tribe does not waive tribal sovereign immunity even if it dominates, controls, and is the debtor’s alter ego.
A tribe was part owner of a casino in Michigan that filed a chapter 11 petition and confirmed a plan, setting up a creditors’ trust. The trust mounted a $180 million fraudulent transfer suit against the tribe in bankruptcy court.
Previously, the district court ruled on appeal in the adversary proceeding that Congress had not waived a tribe’s sovereign immunity in Section 106. The prior ruling left open the question of whether the tribe’s conduct waived sovereign immunity.
On the open question, the bankruptcy judge later granted the tribe’s motion to dismiss, ruling that the tribe’s conduct and participation in litigation did not waive sovereign immunity. District Judge Paul D. Borman upheld the bankruptcy judge in a Jan. 23 opinion.
Judge Borman said the question of whether alter ego or veil piercing could waive a tribe’s sovereign immunity was an issue of first impression.
The creditors’ trustee contended that the tribe exerted complete domination and control over the casino and directed the casino to file chapter 11 to protect the tribe from adverse actions by state gaming regulators. For the purposes of the motion to dismiss, the tribe allowed the court to assume that it was the casino’s alter ego and that the court would pierce the corporate veil.
The trustee also contended that the tribe waived sovereign immunity by filing a proof of claim and participating in the claims allowance process. None of the theories gained traction from Judge Borman, just as they had not persuaded the bankruptcy judge.
Judge Borman derived his conclusions from governing authority in his circuit, Memphis Biofuels LLC v. Chickasaw Nation Industries Inc., 585 F.3d 917 (6th Cir. 2009), where the Sixth Circuit held that nothing less than “express approval” will waive tribal sovereign immunity when the tribal charter requires board approval of a waiver. The parties agreed that the tribe’s board had not granted a waiver. Memphis Biofuels also held that neither unauthorized acts by tribal officials nor equitable considerations could waive immunity.
With regard to the contention that the tribe waived immunity by filing a claim, Judge Benton noted that states can waive immunity under the Eleventh Amendment by litigating. That principle is inapplicable to tribes, he said, because the Supreme Court has said that tribes have immunity from cross-claims, not just direct claims.
The only waiver, Judge Benton said, would be “adjudication of matters raised by the proofs of claim.”
On what he called the “heart of the appeal,” Judge Borman ruled that even successful claims for alter ego or veil piercing would not waive immunity because Memphis Biofuels said that equitable considerations could not result not result in waiver. The judge rejected the notion that Memphis Biofuels was inapplicable because it was a contract case where the casino was being sued in tort.