March 29, 2019, Eastern District of Michigan – Last week, Buchwald Capital Advisors LLC, the Litigation Trustee to the Greektown Litigation Trust urged the U.S. Supreme Court to hear its case seeking to claw back $177 million transferred from a tribe-owned casino in Detroit before it went bankrupt. The litigation trustee petitioned for a writ of certiorari to review the judgment of the United States Court of Appeals for the Sixth Circuit entered on February 26, 2019 – Buchwald Capital Advisors, LLC v. Sault Ste Marie Tribe of Chippewa Indians; Kewadin Gaming Authority, Nos. 18-1165/1166 (February 26, 2019).
In its decision issued last month, the split Sixth Circuit affirmed the lower court ruling holding that sovereign immunity applies to the Sault Ste. Marie Tribe of Chippewa Indians and the Kewadin Tribal Gaming Authority concerning an attempt by the litigation trustee who was seeking avoidance and recovery related to conveyances made by the Tribe and Kewadin in 2005 totaling $177 Million.
The key issue in the case was the interpretation of Section 106 of the Bankruptcy Code, which states that “sovereign immunity is abrogated as to a governmental unit. . .” Section 101(27) of the Code defines “governmental unit” to include a long list of governmental entities “or other foreign or domestic government”. The Trustee claimed that these provisions abrogated sovereign immunity for a tribe. The Court analyzed the case and stated that the real question is whether Congress — when it employed the phrase ‘other foreign or domestic government’ —unequivocally expressed an intent to abrogate tribal sovereign immunity”. The Court found that merely finding that Tribes are “domestic” and “governments” is not enough to say that Congress clearly, unequivocally, and unmistakably expressed its intent to include Indian tribes.
The Trustee now urges the Supreme Court to review the Sixth Circuit decision, stating that the Sixth Circuit acknowledged the conflict with the Ninth Circuit on the question presented, i.e., whether the Bankruptcy Code abrogates tribal sovereign immunity. The Trustee contended that the issue is important both because it frequently recurs in the bankruptcy courts and because it involves two weighty, competing interests: the uniformity and integrity of the federal bankruptcy system on the one hand, and the autonomy of tribal governments on the other. According to the litigation trustee, the court of appeals erred in suggesting that disagreement among courts was ostensibly evidencing that Congress has left doubt about its intent. The Trustee asserted that the review is warranted to resolve the dispute among the circuits.
By way of background, the Sixth Circuit Court of Appeals had upheld the decision of a federal court in Michigan which ruled that Congress did not clearly and unequivocally abrogate Native American tribes’ sovereign immunity from the Bankruptcy Code. As a result, that immunity still applied and the litigation trustee for the Greektown Casino’s Chapter 11 bankruptcy case was not able to seek to recover nearly $177 million. This amount had been transferred from the casino to several entities as part of an ownership restructuring three years before the casino declared bankruptcy.