- There is a growing controversy over tribal sovereign immunity in Bankruptcy cases.
- A New Jersey Bankruptcy Court holds that, unless waived, the Bankruptcy Code does not abrogate sovereign immunity for Indian Tribes because Congress must make clear and unequivocal its intent to abrogate an Indian Nation’s immunity.
- A dispute grows as lower court decisions reject the Ninth Circuit’s reasoning that tribal nations are "governmental units" whose sovereign immunity is abrogated by § 106 of the Bankruptcy Code.
- Careful drafting of tribal council resolutions and consideration of many factors are essential in order to extend tribal sovereign immunity to a tribal business.
On April 29, 2016, a New Jersey Bankruptcy Court held that the Navajo Times Publishing Company, an economic entity of the Navajo Nation, was entitled to rely on the tribe’s sovereign immunity to defeat a bankruptcy trustee’s "strong arm" action to avoid and recover preferential transfers brought under sections 547 and 550 of the Bankruptcy Code. Subranni v. Navajo Times Publishing Company, Inc. (In re Star Group Communications, Inc.), Adv. Pro. no. 15-02497-ABA (Bankr. D.N.J. April 29, 2016). While the opinion is unpublished, the decision expands a growing split over whether § 106 of the Bankruptcy Code abrogates sovereign immunity for tribes and their business entities.
The leading case cited in favor of abrogation of Tribal immunity in Bankruptcy cases is Krystal Energy Company v. Navajo Nation, 357 F.3d 1055 (9th Cir. 2004). In Krystal, the Ninth Circuit reasoned that Bankruptcy Code § 106(a) explicitly abrogates the sovereign immunity of all "governmental units," which is defined in Code § 101(27) to mean "United States; State; Commonwealth; District; Territory; municipality; foreign state" any "department, agency or instrumentality" of the foregoing "or other foreign or domestic government." The Krystal court concluded that Indian tribes fall within the catch-all phrase "domestic governments" because they have been described by the Supreme Court as "domestic dependent nations." As governmental units, Indian Nations may find their sovereign immunity is abrogated in Bankruptcy.
However, recent decisions by courts outside the Ninth Circuit have rejected Krystal Energy’s conclusion that the term "governmental unit" includes Indian tribes. See In re Whitaker, 474 B.R. 687 (B.A.P. 8th Cir. 2012) and In re Greektown Holdings, LLC, 532 B.R. 680 (E.D. Mich. 2015). Those courts focus on the Supreme Court’s guidance that abrogation of Tribal immunity cannot be implied but must be "unequivocally expressed" in "explicit legislation." Those courts conclude that the Bankruptcy Code’s definition of "governmental unit" does not explicitly refer to Indian tribes and thus cannot be used to abrogate tribal immunity. Whitaker, 474 B.R. at 695; Greektown, 532 B.R. at 694.
Tribal immunity may be extended to both business and governmental activities of a tribe, however, various courts have employed differing tests to determine whether tribal sovereign immunity is possessed by a tribal business. Finding "most helpful" the 10-factor test employed in Johnson v. Harrah’s Kansas Casino Corp., No. 04-4142-JAR, 2006 WL 463138, at *4 (D.Kan. Feb. 23, 2006), the Subranni court closely examined the Navajo Tribal Council’s resolutions establishing the Tribal Times and, after extensive analysis, concluded that the Navajo Times is a "subordinate economic entity deserving of tribal sovereign immunity."
With the Subranni decision, New Jersey joins a growing list of jurisdictions that do not require Indian Nations and their business entities to subject themselves to the bankruptcy laws of the United States. Indian Nations and their attorneys should be aware of these decisions when they, or their business entities, enter into agreements with non-tribal parties.