In a matter of first impression, the US Court of Appeals for the First Circuit has held that the provisions of the Bankruptcy Code that abrogate and set aside the derican Tribes and their “payday lender” subsidiaries, so that such creditors can no longer ignore the fact a borrower has filed for federal bankruptcy protection. In the case of Lac Du Flambeau Band of Lake Advanced Chippewa Indians, mais aussi al., _____ F.4 th _____, Case No. 21-1153 (), in a 2-1 decision, the First Circuit found that the abrogation provisions of Section 106(a) of the Bankruptcy Code, which eliminates the defense of “sovereign immunity” for “governmental units” as defined by Section 101(27) of the Code, encompasses and explicitly applies to Native American Indian Tribes and the “arms of the tribe” that conduct online “payday lending” operations.
In Coughlin, the borrower had taken out and $1,100 “payday loan” from Lendgreen in 2019, a wholly-owned online “payday lending” subsidiary of the Appellee Indian Tribe, charging more than 500% interest per annum on each loan made. Later that year, the debtor filed a Chapter 13 bankruptcy case in Massachusetts. Lendgreen was listed in the debtor’s bankruptcy filing and mailing matrix. By the time of the debtor’s bankruptcy filing his debt to Lendgreen had grown to nearly $1600 with the accrual of interest. Mr. Coughlin submitted a Chapter 13 Plan provided that all creditors would receive a 100% “dividend”, paying all creditors that filed proofs of claim 100% in full. The debtor, by his attorney, Richard N Gottlieb, Esq. of Boston, served a copy of the debtor’s Chapter 13 Plan on Lendgreen. Notwithstanding the fact that the bankruptcy code imposed an “automatic stay” barring all creditors from taking any further debt-collection activity without first obtaining bankruptcy court approval for the same, Lendgreen nonetheless repeatedly “dunned” Mr. Coughlin seeking repayment of its debt through numerous and repetitive debt collection letters, emails and voicemail messages to the debtor. 2 months after he filed his Chapter 13 bankruptcy case, Coughlin attempted to take his own life, based upon his belief that, notwithstanding his bankruptcy filing, his “mental and financial agony would never end” and blamed such agony on Lendgreen’s “ regular and incessant telephone calls, emails and voicemails.”
The initial Circuit discovered that the word a beneficial “governmental product” once the shown from inside the section 101(27) of the Personal bankruptcy Password is actually defined as broadly just like the humanly you can, namely:
When Coughlin transferred to impose new Automatic Stay lower than 11 You. § 362(k) facing Lendgreen and its own corporate parents, new Indigenous American indian Group, looking to an order both prohibiting then collection perform in addition to damages attorney’s fees and you may expenses, this new group and its own associates mentioned that they enjoyed “tribal sovereign immune system” and you will gone to live in overlook the administration action. U.S. Bankruptcy proceeding Judge Honest J. Bailey concurred towards the Indian Tribe’s claim of “tribal sovereign immunity system”, stored that abrogation arrangements out-of Part 106(a) didn’t apply to brand new Indian Group as it was not good “Political Equipment” within the Bankruptcy Code’s definition of the same term, right after which went on to give new Tribe’s Activity to Disregard the debtor’s enforcement action. Debtor’s the recommendations up coming took the over the top action from looking to direct appellate feedback by the First Routine Courtroom out-of Appeals of bankruptcy proceeding court’s decision, and so skipping the intermediate appellate courts, the fresh You.S. Area Court towards the Area off Massachusetts plus the Bankruptcy Appellate Committee of the First Routine, less than 28 U. § 158(d)(2). Both the U.S. Personal bankruptcy Courtroom into the District out-of Massachusetts additionally the United states Courtroom off Appeals on the Earliest Routine supplied lead appellate breakdown of the latest personal bankruptcy court’s fresh decision lower than.
Inside the a 2-, a lot of committee stored your bankruptcy proceeding court’s decision below (you to definitely your Case of bankruptcy Code’s “abrogation” conditions did not apply at brand new Indian Tribe and it is pay check financing procedure) was lawfully erroneous and you will stopped the selection of bankruptcy courtroom lower than and you may remanded the condition straight back to have proceedings similar to the Basic Circuit’s view about matter. The first Routine unearthed that the fresh Indian Tribe is, in fact , a “government” while they acted since the governing power of their membership, and this, once the a federal government, it absolutely was “domestic” in general whilst stayed inside the United states.
Us; State; Commonwealth; District; Territory; municipality; foreign county; company, company, otherwise instrumentality of one’s Us (but not an effective You Trustee when you find yourself serving because good trustee during the an incident around it label), your state, a common- wide range, a local, an area, good local government, or a foreign county; and other international otherwise home-based bodies.
It was this last “catch-all” definition that the First Circuit held explicitly covered Indian Tribes, finding that not only did the text of the definition clearly encompass Indian Tribes, but the conclusion was also supported by the historical context so that when Congress abrogated sovereign immunity in 1994, it did so “against the pre-existing backdrop of § 101(27).” The court adopted the debtor’s reasoning, stating “[a]s Coughlin argues, Congress was aware of the existing definition of “governmental unit“ when it incorporated it into § 106.” The majority of the panel rejected the Indian tribes attempt to argue that, notwithstanding both the broad original definition of “governmental unit” and the historical context underlying the enactment of that definition and the later-enacted § 106, that Congress did not “unequivocally express” its intent to abrogate “tribal sovereign immunity”. The tribe contended that, because neither the bankruptcy code nor the legislative history of the same used the phrase “Indian Tribe“, Congress did not mean to abrogate the tribe’s rights of sovereign immunity unequivocally and expressly. The First Circuit rejected this approach as a requirement to use of “magic words” in order to expressed congressional intent. The court had no difficulty in finding recent Supreme Court precedent that explicitly rejected such an approach in the case of Cooper v. FAA, 566 U.S. 291 (2012) when Congress seeks to affect an abrogation of sovereign immunity in a federal statute. The Tribe was similarly unsuccessful in persuading the First Circuit that they were entitled to “special” treatment because of the fact that they were an Indian tribe.
This is not clear, at this point in time, perhaps the Group was looking to then appellate comment regarding First Circuit otherwise seek a much deeper appeal to the brand new All of us Supreme Court. Yet not, the initial Circuit’s decision helps it be absolutely clear you to definitely zero entity, also an enthusiastic Indian Group saying their “tribal sovereign immunity” out of fit, should treat the new Bankruptcy Code carefully. This new holding of one’s Earliest Circuit and additionally helps it be obvious you to no one, not even an excellent “governmental unit” that have pretensions away from somehow being special, titled or else unconstrained because of the same statutes that every someone else need to follow, is actually, in reality, perhaps not above the rule of laws you to governs the usa from The payday loan places in Stephens City VA usa, particularly in the bedroom away from individual protections such as those offered beneath the government Personal bankruptcy Password.