If tribal law is written correctly, a tribe member’s share of gaming revenue is not estate property under Section 541(a), even if state law might give a different result, according to Chief Bankruptcy Judge Michael E. Ridgway of Minneapolis.
Judge Ridgway’s July 7 opinion is a brilliant analysis of the intersection between bankruptcy law and tribal law. Because the tribe is a sovereignty, he held that the law of a tribe creates and defines a tribe member’s property interest in his or her share of gaming revenue.
“It was a thoughtful and careful opinion which demonstrated a nuanced understanding of both bankruptcy and American Indian (both federal and tribal) law,” Prof. Jack F. Williams told ABI. “It is also a needed reminder that the Orion of ‘applicable nonbankruptcy law’ that runs through many facets of the Code doesn’t simply mean state law.”
In the absence of appellate authority, Judge Ridgway explained how the “few courts” to discuss the issue “have varied widely” in their approaches to deciding whether a tribe member’s share of gaming revenue is an estate asset. He politely eviscerated decisions that do not base the outcome on tribal law.
In that regard, Prof. Williams said that the opinion “is a lesson in how we all should treat arguments or analyze what we ultimately reject, with dignity and honor. After all, we are all trying to get it right even when we are wrong.”
Prof. Williams is a professor at Georgia State University College of Law and the university’s Middle East Studies Center. He is a leading authority on both bankruptcy law and tribal law.
Shared Gaming Revenue
The chapter 7 debtor was a member of a federally recognized tribe. Regularly, he had been receiving about $750 a month as his share of the tribe’s gaming revenue.
The trustee claimed that the right to payment of gaming revenue was an estate asset. The trustee filed a turnover motion, asking Judge Ridgway to compel the debtor to turn over all gaming revenue received during and after the bankruptcy case, presumably until claims were paid in full.
The trustee’s proposition resembled an involuntary chapter 13 plan that could extend longer than the maximum five years permitted in chapter 13. The trustee’s theory was based on the idea that the tribe member’s interest in gaming income was akin to the ownership interest in a business to be administered by the trustee.
There was a problem with the trustee’s theory: tribal law.
Tribal Law
As Judge Ridgway artfully explained, the “federal government recognizes tribal nations as sovereign nations, subject only to the authority of the federal government except where Congress expressly provides that state laws apply.” With regard to gaming, federal law permits states to regulate certain aspects of the business.
More to the point for the issue before the court, federal law also requires tribes to adopt tribal law providing for net gaming revenue to be used for specific purposes, including the promotion of the welfare of the tribe and its members. As Judge Ridgway said, “[o]ne method a tribe can use to meet this requirement is making per capita payments to members.”
In compliance with the federal mandate, the tribe (in this case, the Pokagon Band of Potawatomi Indians) adopted a law directing 57% of net gaming revenue to tribe members monthly. Crucial to the outcome of the case, the tribal law provided as follows:
Nothing contained in this Code shall be construed to give any person a vested property right or interest in [tribal] gaming revenues. All [tribe] gaming revenues shall be held by the [tribe] until disbursed pursuant to [tribal] law and this Code.
How Courts Treat Gaming Revenue
Judge Ridgway found no “definitive appellate guidance” and fewer than a dozen decisions about the treatment of per capita tribal payments. So, he began with the familiar proposition that state law creates and defines property interests, while the Bankruptcy Code determines whether a property interest is estate property.
From there, however, the cases differ. Judge Ridgway laid out three approaches taken by courts.
Six courts, Judge Ridgeway said, saw per capita distributions as being equivalent to stock in a company, which a trustee could sell. Two courts decided that payments were nontransferable. Several other courts looked to tribal law to determine whether there is a property interest that becomes estate property.
Judge Ridgway then began his own analysis of whether the per capita payments were estate property under Section 541(a). Federal law, he said, authorizes the tribe to distribute per capita distributions. Therefore, “the tribe’s sovereignty gives it the authority to define the parameters of property rights” and define “whether a property interest exists at all.”
Next, Judge Ridgway turned to the question of how the tribe defined property interests in per capita payments. In that regard, tribal law is “clear,” he said.
The language of the tribal law “speaks for itself,” Judge Ridgway said. “[U]ntil payment occurs, [tribe] members do not have a vested right or interest in gaming revenues.” That being the case, the expectation of gaming revenue would not be estate property.
Even so, the trustee argued that the debtor had a property interest akin to an interest in a business or partnership. Judge Ridgway disagreed, because an interest in a business can be sold, transferred or liquidated, while the future interest in payments from the tribe cannot be alienated.
“Further,” Judge Ridgway said, “a mere expectancy of payment does not equate to a right to payment,” and the “explicit language” of tribal law “prevents the creation of a vested property right.”
Dissecting Contrary Decisions
When similar questions have arisen, Judge Ridgway said “that courts have routinely favored whatever law was not created by Indigenous Peoples.” For example, he said:
[B]ankruptcy courts have largely favored state property definitions of per capita payments over those legitimately created and defined through tribal sovereignty and authority. In favoring state law, however, courts have not only ignored the rights and authority of Indigenous Peoples, but have also, by proximity, flouted the underlying premises of the federal statutes that grant that authority. Therefore, it is unfortunate, but abundantly clear, that this inquiry cannot end, as it should, with the Pokagon Band’s definition of the property interest parameters of the per capita payments.
Other Considerations Inform the Same Result
Judge Ridgeway therefore examined whether the payments are estate property as a matter of policy, logic or equity. First, he said that finding the payments to be estate property “contradicts Congress’s specific mandate” prescribing that gaming revenue must be used for the general welfare of the tribe and its members.
If there were a right to payment, Judge Ridgway said, it “would require a debtor’s case to remain open indefinitely, and potentially in perpetuity,” turning the chapter 7 case into “an involuntary chapter 13 plan” that could run longer than five years.
If all future income belonged to creditors for an indeterminate time, Judge Ridgway said that the result would be “unconscionable in the context of the underlying tenets of the Bankruptcy Code.”
In conclusion, Judge Ridgway ruled that the debtor had no property interest in the per capita payments that could be construed as estate property under Section 541(a). Even if tribal law did not define property rights, he said that “the per capita payments are not property of the estate in policy, logic, or equity.”
If tribal law is written correctly, a tribe member’s share of gaming revenue is not estate property under Section 541(a), even if state law might give a different result, according to Chief Bankruptcy Judge Michael E. Ridgway of Minneapolis.
Judge Ridgway’s July 7 opinion is a brilliant analysis of the intersection between bankruptcy law and tribal law. Because the tribe is a sovereignty, he held that the law of a tribe creates and defines a tribe member’s property interest in his or her share of gaming revenue.
“It was a thoughtful and careful opinion which demonstrated a nuanced understanding of both bankruptcy and American Indian (both federal and tribal) law,” Prof. Jack F. Williams told ABI. “It is also a needed reminder that the Orion of ‘applicable nonbankruptcy law’ that runs through many facets of the Code doesn’t simply mean state law.”
In the absence of appellate authority, Judge Ridgway explained how the “few courts” to discuss the issue “have varied widely” in their approaches to deciding whether a tribe member’s share of gaming revenue is an estate asset. He politely eviscerated decisions that do not base the outcome on tribal law.