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 Superior 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.
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 first Circuit found that the expression an effective “political tool” as the expressed during the point 101(27) of Bankruptcy Code is recognized as generally as the humanly you’ll, namely:
When Coughlin gone to live in demand the fresh new Automated Stay under eleven U. § 362(k) facing Lendgreen and its particular business moms and dads, the Native American indian Tribe, seeking an order one another prohibiting next collection efforts together with injuries attorney’s fees and you will expenses, the fresh group and its associates said that they enjoyed “tribal sovereign immunity system” and you can transferred to dismiss the enforcement step. You.S. Bankruptcy Courtroom Frank J. Bailey conformed towards Indian Tribe’s allege from “tribal sovereign immune system”, kept your abrogation conditions of Area 106(a) don’t apply at the brand new Indian Group because it was not an effective “Governmental Tool” in Personal bankruptcy Code’s definition of an equivalent label, after which continued to offer brand new Tribe’s Action so you can Overlook the debtor’s enforcement step. Debtor’s the recommendations next grabbed the newest over the top step off trying lead appellate feedback by the Very first Routine Legal out of Appeals of the case of bankruptcy court’s choice, and so missing new intermediate appellate process of law, this new You.S. Region Judge towards the Region away from Massachusetts and the Case of bankruptcy Appellate Panel of Very first Routine, not as much as 28 You. § 158(d)(2). The You.S. Personal bankruptcy Judge into Section away from Massachusetts and United states Judge of Is attractive towards Basic Circuit supplied direct appellate review of this new personal bankruptcy court’s brand spanking new decision below.
For the a two-, most of the panel kept that the case of bankruptcy court’s choice below (you to the Case of bankruptcy Code’s “abrogation” specifications did not apply at brand new Indian Group and it is pay day lending operation) was legitimately incorrect and corrected the option of your own case of bankruptcy court lower than and you can remanded the condition straight back getting process similar to the Basic Circuit’s judgment regarding the matter. The original Routine discovered that the newest Indian Tribe are, actually , a beneficial “government” as they acted once the governing expert of the membership, and this, just like the a federal government, it was “domestic” in general because lived when you look at the You.
Us; State; Commonwealth; District; Territory; municipality; foreign county; department, company, otherwise instrumentality of one’s All of us (but not an effective All of us Trustee when you’re helping since the an excellent trustee into the an incident significantly less than which label), your state, a familiar- money, a neighborhood, an area, a local government, or a different condition; and other international or 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 UT motorcycle title loans 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.
It is not clear, as of right now, perhaps the Group could well be looking to after that appellate opinion on the Very first Circuit or seek a much deeper appeal to new United states Best Judge. not, the initial Circuit’s choice causes it to be seriously obvious you to definitely zero organization, even a keen Indian Tribe asserting the “tribal sovereign disease fighting capability” of match, is to beat the Bankruptcy proceeding Password gently. The new holding of your Earliest Routine and helps it be obvious you to not one person, not really good “political equipment” having pretensions out of somehow becoming special, titled otherwise unconstrained of the same statutes that most anybody else need certainly to go after, are, actually, perhaps not over the signal of laws you to definitely controls the us of America, especially in the room out-of consumer defenses such as those considering underneath the government Bankruptcy proceeding Code.