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 Set of River Premium Chippewa Indians, et 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.
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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 bad credit payday loans Oneida.”
The original Circuit discovered that the phrase good “political device” due to the fact indicated into the point 101(27) of one’s Personal bankruptcy Password try identified as broadly because humanly you’ll be able to, namely:
Whenever Coughlin relocated to impose the fresh Automatic Stay not as much as 11 You. § 362(k) up against Lendgreen and its particular business mothers, brand new Native Indian native Tribe, seeking to your order each other prohibiting subsequent range efforts and additionally damage attorney’s charge and you may expenditures, new group and its affiliates mentioned that it enjoyed “tribal sovereign immune system” and you can relocated to disregard the enforcement action. You.S. Personal bankruptcy Judge Frank J. Bailey conformed to the Indian Tribe’s allege from “tribal sovereign immune protection system”, kept your abrogation specifications from Section 106(a) failed to apply to the newest Indian Group since it was not a “Governmental Unit” underneath the Bankruptcy Code’s definition of a comparable label, right after which went on to produce the brand new Tribe’s Activity to Dismiss the debtor’s administration step. Debtor’s counsel upcoming grabbed the fresh over the top action out-of trying head appellate review of the Earliest Routine Legal out-of Is attractive of your own personal bankruptcy court’s choice, and so skipping the new advanced appellate courts, new U.S. Section Judge with the Region out of Massachusetts plus the Bankruptcy Appellate Committee of the First Routine, under 28 U. § 158(d)(2). The U.S. Case of bankruptcy Judge on Section out of Massachusetts and the All of us Courtroom off Is attractive for the Basic Routine supplied direct appellate writeup on the latest bankruptcy proceeding court’s modern decision less than.
From inside the a two-, the vast majority of committee held the bankruptcy proceeding court’s decision lower than (that the Case of bankruptcy Code’s “abrogation” arrangements did not apply to the latest Indian Group and it’s pay-day lending operation) was legally erroneous and you will reversed the selection of one’s personal bankruptcy judge less than and you will remanded the matter back getting process consistent with the Very first Circuit’s judgment regarding matter. The initial Circuit unearthed that new Indian Tribe is, actually , an effective “government” while they acted as governing authority of its subscription, hence, because a government, it was “domestic” in general since it resided in All of us.
United states; State; Commonwealth; District; Territory; municipality; foreign state; agencies, service, or instrumentality of one’s All of us (but not a great United states Trustee whenever you are helping since the a trustee within the a situation not as much as it label), your state, a common- riches, an area, a region, a beneficial municipality, or a foreign condition; or other foreign otherwise residential government.
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.
That isn’t clear, as of right now, perhaps the Group could be looking to after that appellate feedback throughout the Very first Routine or look for a deeper interest brand new Us Ultimate Judge. Yet not, the first Circuit’s choice makes it surely obvious you to no organization, even a keen Indian Tribe saying the “tribal sovereign immune protection system” out of fit, should beat the Bankruptcy proceeding Password softly. The latest carrying of one’s Very first Circuit and helps it be clear you to no-one, not even a beneficial “governmental equipment” that have pretensions from in some way becoming unique, titled if not unconstrained by same guidelines that all anybody else need certainly to pursue, is, actually, not over the code from legislation one governs the united states regarding The usa, particularly in the room out of consumer protections like those given according to the government Case of bankruptcy Password.