Tribe v. Tribe Test For Bankruptcy Code

The oft-debated question whether Tribal casinos are eligible for bankruptcy protection may be a little clearer next month, thanks to a recent case in the U.S. Bankruptcy Court for the Southern District of California. But what makes the case intriguing is the creditor challenging tribal entity eligibility for bankruptcy is another tribe. Bankruptcy watchers were sure there would be a challenge to Santa Ysabel Resort and Casino’s bankruptcy petition. But in a strange turn, the biggest creditor of the Casino’s owner – Iipay Nation of Santa Ysabel – is the Yavapai-Apache Nation. The papers and petition are available via Turtle Talk.

Note to future tribal casino bankruptcy petitioners: be prepared to defend your eligibility under the Code, especially if your largest creditor is an Indian Tribe. Lawyers for the Yavapai-Apache Nation tuned in quickly to the problems with Santa Ysabel’s petition:

Sections 109 and 101 of the Bankruptcy Code govern who may be a bankruptcy debtor. Specifically, § 109(d) limits eligibility for chapter 11 to “a person that may be a debtor under chapter 7 of this title” and a number of other entities not relevant here.

A necessary requirement for chapter 7 eligibility is that an entity fall within the definition of “a person.” 11 U.S.C. § 109(b). Section 101(41) provides that “[t]he term ‘person’ includes individual, partnership, and corporation, but does not include governmental unit.”

Because the Iipay Nation is a “governmental unit,” it cannot be a bankruptcy debtor.

On its voluntary petition the Debtor is listed as "Santa Ysabel Resort and Casino" and for type "Corporation (includes LLC and LLP )" is checked. This is odd since in the Omnibus Declaration the Casino’s GM states "The Debtor is an unincorporated company.” This might be important since, conceivably, although Chapter 11 won't apply to governmental units, including tribes, it could apply to a formally incorporated tribal business.

Many forecasted that tribal entity bankruptcy eligibility would be tested at the bottom of the downturn. But as tribal bankruptcy petitions continue to be filed – the Southeast Alaska Native village corporation Klukwan Inc. filed for bankruptcy this week – perhaps we are seeing tribal debtors testing the waters now, as they realize there is no relief on the horizon and no hope for workouts.

Anthony Broadman is a partner with Galanda Broadman in Seattle. His practice focuses on matters critical to Indian Country. He can be reached at anthony@galandabroadman.com.

Tribes, Beware of the Federal Bankruptcy Court

The Bankruptcy Court for the District of New Mexico held this week that tribal sovereign immunity does not protect the Jicarilla Apache Nation from the impact of a Chapter 11 plan. In Re Platinum oil Properties, LLC, Case No. 09-10832 (D.NM. Bankr. Aug. 12, 2011). Because the Bankruptcy Code abrogates tribal sovereign immunity, according to the court, tribes have to abide by a reorganization plan. But weirdly, the Jicarilla Tribe does not appear to have made any argument based on its sovereign immunity. Instead, in its motion for summary judgment, the Tribe argued that the debtor’s claims interfered with the tribe’s sovereign ability to control and regulate its jurisdiction. Somebody took the word “sovereign” and ran with it, sticking his or her neck out far more than necessary and reaching the Bankruptcy Code’s definition of governmental unit, on which sovereign immunity abrogation hinges. In other words, the decision is a mess.

What can we learn from this case? Beware when using the term “sovereign.” Ensure, as the Jicarilla Tribe admirably attempted to do, that the court understands even the most elemental facets of tribal sovereignty. Here, that means distinguishing between a tribe’s broad power to regulate and control its jurisdiction, Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 140 (1982), as opposed to a tribe’s narrow ability to avoid being sued. Kiowa Tribe of Oklahoma v. Mfg. Tech., Inc., 523 U.S. 751, 754 (1998).

Tribes to should explore how and when they can govern their own affairs in the bankruptcy context. Clearly when the matter is left to federal courts, tribes will often lose.

Anthony Broadman is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  His practice focuses on company-critical business litigation and representing tribal governments. He can be reached at 206.691.3631 or anthony@galandabroadman.com, or or via galandabroadman.com.

Anthony Broadman Answers Anew the FAQ: Can a Tribe Declare Bankruptcy?

Anthony Broadman has published, Indian Self-Governance and Bankruptcy: The Case for Tribal Law in the February 2011 edition of Casino Enterprise Magazine. Anthony takes a unique look at the legal possibilities associated with tribal bankruptcy.

The current economic climate has triggered speculation regarding how tribal gaming operations would navigate the bankruptcy process. Fanned by the bankruptcy of Greektown Casino Hotel (once partially owned by a tribe) and the Wells Fargo/Lac du Flambeau debacle, that speculation, coupled with cases abrogating tribal sovereign immunity in the bankruptcy context, suggests that tribes should at least attempt to control their exposure to insolvency by (1) legislating tribal approaches to bankruptcy and (2) contracting with potential future creditors and potentially tribal debtors regarding a common treatment for bankruptcy in Indian country. If federal bankruptcy laws do not work for tribe-owned businesses, tribal bankruptcy laws should.

Anthony Broadman is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  His practice focuses on company-critical business litigation and representing tribal governments. He can be reached at 206.691.3631 or anthony@galandabroadman.com, or via galandabroadman.com.