Supreme Court Determines Section 106(a) of the Bankruptcy Code Waives Sovereign Immunity of Native American Tribes

By Heidi McNeil Staudenmaier and Jacklyn M. Branby

On June 15, 2023, the United States Supreme Court held that “the Bankruptcy Code unambiguously abrogates the sovereign immunity of all governments, including federally recognized Indian tribes.”¹ In other words, Native American Tribes' sovereign immunity does not shield them from suits brought by debtors who declare bankruptcy.

On January 13, 2023, the Supreme Court granted Lac Du Flambeau Band of Lake Superior Chippewa Indians’ (“Lac du Flambeau”) Petition for a Writ of Certiorari to resolve the split of Circuits on whether Section 106 of the Bankruptcy Code evinces Congress’ unequivocal intent to abrogate Native American Tribes’ sovereign immunity.² The Supreme Court heard oral arguments on April 24, 2023. As one author opined, “the arguments by counsel on both sides and every question or comment from the justices were about textualism. There wasn’t a single statement or question exploring policy, asking what the better answer would be from the point of view of creditors, debtors or tribes, or finding the answer in the objectives of the Bankruptcy Code and federal law regarding tribes.”³

Justice Jackson delivered the opinion of the Court (8-1), affirming the First Circuit Court of Appeals’ May 2022 ruling that “the Bankruptcy Code unequivocally strips tribes of their immunity” and opens them up to enforcement proceedings from debtors.⁴ The question presented to the Supreme Court is whether that express abrogation of sovereign immunity of “governmental unit[s]” in Section 106 of the Bankruptcy Code extends to federally recognized Indian tribes.⁵ Under the Supreme Court’s precedents, the Court will not find an abrogation of tribal sovereign immunity unless Congress has conveyed its intent to abrogate in unequivocal terms, which “[i]s a high bar.”⁶ The Court concluded “[t]hat the Bankruptcy Code unequivocally abrogates the sovereign immunity of any and every government that possesses the power to assert such immunity. Federally recognized tribes undeniably fit that description; therefore, the Code's abrogation provision plainly applies to them as well.”⁷

Several features of Sections 101(27) and 106(a)’s text and structure compelled the Court’s conclusion.⁸ The Court first reasoned that the definition of “governmental unit” in Section 101(27) of the Bankruptcy Code exudes comprehensiveness from beginning to end, and “[w]hen faced with analogously structured provisions in other contexts, we have noted their all-encompassing scope.”⁹ The Court found the “strikingly” broad scope of Section 101(27)’s definition of “governmental unit” to be significant in this context as well.¹⁰

The Court also reasoned that the coupling of “foreign” with “domestic” in the definition of “governmental unit,” and placing the pair at the end of the extensive list, “[C]ongress unmistakably intended to cover all governments in § 101(27)’s definition, whatever their location, nature, or type.”¹¹ To the Court, the analysis of whether the Bankruptcy Code abrogates sovereign immunity of federally recognized tribes is “remarkably straightforward.”¹² The Bankruptcy Code unequivocally abrogates the sovereign immunity of all governments, tribes are indisputably governments, and therefore Section 106(a) of the Bankruptcy Code unmistakably abrogates their sovereign immunity too.¹³

Justice Thomas filed an opinion concurring in the judgment, but on entirely different grounds. In citing to his own dissent in a prior case, Justice Thomas said, to the extent Native American Tribes possess sovereign immunity, “[t]hat immunity does not extend to ‘suits arising out of a tribe’s commercial activities conducted beyond its territory.’”¹⁴ Under Justice Thomas’ reasoning, because the debtor’s stay-enforcement motion arose from the Lac du Flambeau’s off-reservation commercial conduct, Lac du Flambeau lacked sovereign immunity regardless of the Bankruptcy Code’s abrogation provision.¹⁵

Justice Thomas further noted that tribal immunity is a judicial doctrine that is not mandated by the Constitution,¹⁶ and said that “[r]ather than accepting the flawed premise of tribal immunity and deciding the abrogation question beyond the looking glass, the Court should simply abandon its judicially created tribal sovereign immunity doctrine.”¹⁷

Justice Gorsuch filed the lone dissenting opinion, saying that Native American Tribes were specifically mentioned in the statute every time the Court has previously found a waiver of sovereign immunity.¹⁸ Although the majority’s interpretation was “plausible,” Justice Gorsuch said that “[p]lausible is not the standard our tribal immunity jurisprudence demands.”¹⁹ Because the Bankruptcy Code does not refer to Native American Tribes specifically, he found no waiver.²⁰ Justice Gorsuch addressed the majority’s notion that the Bankruptcy Code “exudes comprehensiveness,” saying it is “[t]rue but not obviously helpful” because the Court has never “[h]eld that a statute’s general atmospherics can satisfy the clear-statement rule when the text itself comes up short.”²¹ Quoting his own concurrence in a case from last term, Justice Gorsuch “respectfully” dissented because Congress cannot use “oblique or elliptical language.”²²