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INDIAN LAW AND BANKRUPTCY

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US Supreme Court decides there is no sovereign immunity under the Bankruptcy Code

Lac Du Flambeau Band v Coughlin, United States Supreme Court, (No 22-227, 6/15/23) finds that the Bankruptcy Code unambiguously abrogates the sovereign immunity of all governments, including federally recognized Indian tribes. The court ruled that Native American tribes are subject to the automatic stay and discharge injunction of the Bankruptcy Code.


Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055 (9th Cir. 2004) Because Indian tribes are domestic governments, their sovereign immunity is congressionally abrogated (abolished or annulled) by Bankruptcy Code sections 106(a) and 101(27).

Contribution by Gary Stickell, Arizona bankruptcy attorney.  “It is a tribe by tribe analysis of their respective Ordinance.”

It appears the issue turns on the respective Tribe’s Gaming Revenue Allocation Ordinance.  To the extent that the there is an anti-alienation/spendthrift provision in the Ordinance, then the income should be listed as not property of the Bankruptcy Estate.  Below are two cases which reflect that the Trial per capita checks are not property of the estate because of anti-alienation/spendthrift provisions in the respective ordinances, and an unpublished 9th BAP which confirms this approach where there was no such provision.

Brown v. Locke (In re Brown), 2006WL 6810938
In re Barth (Bk. Minn 2013)
Meier ( Bk. NC 2013)

(Note – most likely the potential debtor is using federal exemptions, but counsel needs to consider the circumstances.)

In re Musel, 10-42761 (Bankr.D.Minn, July 7, 2021)“The Pokagon Band followed all of the requirements outlined in IGRA – a federal statute – to achieve federal approval for its Gaming Revenue Allocation Plan. Once that RAP was approved, the Band’s sovereignty ensured that it became the sole and exclusive authority for creating and defining property rights for payments it authorized. The RAP’s plain language prevented the creation of any vested property right or interest, and any intangible right to payment was unique to the individual tribal member. As a consequence, the debtor had no property interests that would be considered property of the estate under § 541(a). Additionally, even outside of the Pokagon Band’s sovereign authority to create and define property rights, 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.