Questions of Tribal Sovereign Immunity and For-Profit Businesses

Last term, the Supreme Court addressed the application of tribal sovereign immunity in bankruptcy proceedings. The decision, which held that the bankruptcy code waived tribal sovereign immunity, followed passionate debate raising crucial questions about the intersection of modern business law and the rights of Native American tribes. And more debate is sure to come on when tribal business activities – as opposed to governmental activities – are entitled to sovereign immunity.

At the core of the matter lies the conflict between the fundamental principle of tribal sovereign immunity, which shields Native American tribes from certain lawsuits, and the practical necessity of ensuring a fair bankruptcy process for all stakeholders. The issue arose from a payday loan extended by the Lac du Flambeau Band of Lake Superior Chippewa Indians through their business entity, Lendgreen, to Brian Coughlin. Coughlin filed for Chapter 13 bankruptcy, which generally triggers an automatic stay on further collection efforts by creditors. Lendgreen, however, continued attempting to collect the debt. This effort led Coughlin to sue the Tribe in bankruptcy court to enforce the automatic stay. Tribes, however, enjoy the common-law immunity from suit traditionally enjoyed by other sovereign powers. Tribal sovereign immunity remains intact unless abrogated by Congress or waived by the tribe. Coughlin’s suit was dismissed by the bankruptcy court on tribal sovereign immunity grounds.

The Supreme Court disagreed, stating that the bankruptcy code – an act of Congress – unequivocally strips tribes of their immunity. It did so under what it called a “remarkably straightforward” syllogism: The bankruptcy code unequivocally abrogates the sovereign immunity of all governments, “categorically.” Tribes are indisputably governments. Therefore, the code unmistakably abrogates tribal sovereign immunity. The court thus recognized a waiver of sovereign immunity in this instance. But, in doing so, the court also firmly reestablished that Indian tribes are distinct political communities retaining their original natural rights in matters of local self-government. Just like the court did in Haaland v. Brackeen – the case that upheld the Indian Child Welfare Act against challenges opposing tribal sovereignty.

Left open, however, was the question of under what circumstances a for-profit company associated with a tribal government is entitled to invoke the tribe’s sovereign immunity in a civil lawsuit. This question turns on whether the company can be considered an “arm of the tribe.” When it comes to tribes, the yardstick is not the characterization of the tribal activity as commercial or governmental, but rather whether the entity truly functions as an extension of the tribe itself. While the Supreme Court has acknowledged the potential for wholly owned tribal corporations to possess arm-of-the-tribe status, it has not yet furnished a definitive framework for assessing such classification. In Solomon v. American Web Loans, a federal court recently held that a tribal payday lender was not an arm of the tribe due to insufficient tribal-business connection, including control and profit-sharing, with the Otoe-Missouria Tribe. In Coughlin, the Supreme Court couldn’t reach that question because the parties stipulated early in the proceedings that Lendgreen was an arm of the tribe.

This article first appeared in The Journal Record on September 23, 2023, and is reproduced with permission from the publisher.