Creating a Split, Sixth Circuit Holds: No Waiver of Immunity for Indian Tribes

In a 2/1 decision, the Sixth Circuit created a split of circuits by holding that Sections 106 and 101(27) do not waive sovereign immunity with respect to Indian tribes.

The majority on the appeals court also held that the tribe’s filing of a bankruptcy petition for one of its businesses did not waive sovereign immunity when creditors later filed a fraudulent transfer suit against the tribe.

The opinion appears to mean that a tribe can loot a business it owns, put the business in bankruptcy, then escape liability for its pre-bankruptcy conduct, unless the tribe has waived immunity under the tribe’s internal governing rules.

The Facts

A tribe was part owner of a casino in Michigan that filed a chapter 11 petition and confirmed a plan, creating a creditors’ trust. In bankruptcy court, the trust sued the tribe for $180 million, contending that the tribe had been the recipient of a pre-bankruptcy fraudulent transfer.

In a prior appeal, the district court ruled that Congress had not waived a tribe’s sovereign immunity in Section 106. However, the district court remanded the case for the bankruptcy court to determine whether the tribe’s conduct waived sovereign immunity.

The bankruptcy court found no waiver by conduct. District Judge Paul D. Borman upheld dismissal of the suit in January 2018, ruling that the tribe had not waived sovereign immunity. The trustee appealed to the Sixth Circuit. To read ABI’s report on the district court opinion, click here.

The Circuit’s Opinion

Writing for himself and Circuit Judge Richard A. Griffin, Circuit Judge Eric L. Clay recited black letter law for the notion that Congress must “unequivocally” express intent to waive sovereign immunity. Do Sections 106 and 101(27) “express such an intent,” he asked?

Section 106(a) abrogates sovereign immunity “as to a governmental unit” with respect to enumerated sections of the Bankruptcy Code, including Sections 544 and 550, under which the trustee was suing the tribe.

In turn, Section 101(27) defines “government unit” to “mean” (not “include”), among other things, the U.S., states, municipalities, foreign states or “other foreign or domestic government.”

Waiver by Statute

Judge Clay said that only two circuits have dealt with tribal sovereign immunity under the Bankruptcy Code. The Ninth Circuit found a waiver in Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055 (9th Cir. 2004), holding that Congress did express an unequivocal intent to waive immunity.

On the other hand, Judge Clay cited Meyers v. Oneida Tribe of Indians of Wisconsin, 836 F.3d 818 (7th Cir. 2016), where the Seventh Circuit found no waiver under a different statute. In dicta, the Seventh Circuit said its reasoning would apply to Section 106.

Judge Clay was persuaded by Meyers, not by the Ninth Circuit. Although a tribe is both “domestic” and a “government,” “that is not the real question,” he said.

For Judge Clay, the “real question” is “whether Congress . . . unequivocally expressed an intent to abrogate tribal sovereign immunity.”

Judge Clay said there was not one instance where the Supreme Court had found a waiver of tribal immunity when the statute did not expressly mention “Indian tribes somewhere in the statute.” He found only one instance at the circuit level, and that was the Ninth Circuit in Krystal.

Judge Clay did not hold that Congress can only waive immunity by specific reference to tribes. Rather, he held that Sections 106 and 101(27) “lack the requisite clarity of intent to abrogate tribal sovereign immunity.

Waiver by Conduct

Next, Judge Clay dealt with the question of whether the tribe had waived immunity by conduct.

The tribe’s casino had waived immunity by contract. However, the tribe’s board had not authorized the waiver of immunity. Consequently, the waiver was not binding on the tribe.

Still, could the tribe waive immunity by litigation conduct? Although the Supreme Court has held that litigation conduct can be a waiver for non-tribal governments, Judge Clay said that only a few courts had found a litigation waiver by tribes.

Judge Clay cited two circuit courts holding that intervention in a lawsuit constitutes waiver and three that found a waiver by filing a lawsuit. He therefore held that “Indian tribes can waive their tribal sovereign immunity through sufficiently clear litigation conduct, including by filing a lawsuit.”

However, he went on to hold on the next page that “litigation conduct by alter egos or agents of Indian tribes cannot be attributed to the tribes for the purpose of waiving tribal sovereign immunity.”

Therefore, the majority upheld dismissal, ruling that “the filing of a bankruptcy petition does not waive tribal sovereign immunity as to separate, adversarial fraudulent transfer claims.”

The Dissent

Sitting by designation from the Northern District of Ohio, District Judge Jack Zouhary dissented.

In Section 101(27), Judge Zouhary said that Congress “chose to speak broadly” by abrogating immunity “of any government, of any type, anywhere in the world.” For him, the statute was a “clear” waiver. Next, he said that a tribe is a “domestic government.”

Judge Zouhary concluded that the Bankruptcy Code waived sovereign immunity as to tribes because immunity is abrogated “as to all governments[, and] Indian tribes are governments.”

Judge Zouhary disputed the idea that there is an extant circuit split. The Seventh Circuit, he said, dealt with a different statute where the waiver as to tribes was “ambiguous.” The statute before the Seventh Circuit made “no mention of sovereign immunity, [while] the [Bankruptcy] Code targets it directly,” he said.

Judge Zouhary criticized the idea that a statutory waiver must mention Indian tribes. He pointed to Justice Antonin Scalia, who provided the fifth vote in an immunity case and said that a congressional waiver is not required to make explicit reference to any particular terms.

Courts could also look to the “larger statutory scheme,” Judge Zouhary said. To enforce an equitable distribution, he said that Sections 106 and 101(27) have a broad abrogation of sovereign immunity, where “all governments must play by the rules.”