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Indian Tribe Accused of Abusive Collection Practices Claims They Don't Have to Honor Bankruptcy Protection

  • Written by Steel Rose

An Indian tribe accused of abusive collection practices told the First Circuit Thursday that they do not have to honor bankruptcy protection. Tribes have a “unique status” under American law, and a bankruptcy court can’t tell them what to do, said Andrew Adams III of Hogen Adams in St. Paul, Minnesota, representing a Chippewa tribe before the Boston-based federal appeals court. The judges seemed highly skeptical of this argument, however, because tribes routinely try to take advantage of bankruptcy law when it works to their advantage.

“You’re proposing a two-way ratchet operating differently depending on whether there’s a benefit to the tribe,” U.S. Circuit Judge Sandra Lynch told Adams. U.S. Circuit Judge David Barron agreed and said, “You’re asking us to read the law to include them for some purposes and not for others.” Adams struggled repeatedly for a response and finally conceded that his argument would mean that tribes could “have their cake and eat it, too.”

Adams' clients, the Lac du Flambeau Band of Lake Superior Chippewa Indians in northern Wisconsin, are under fire in the case over their payday-lending business where small loans are made at exorbitant interest rates. In 2019 the tribe’s company, Lendgreen, loaned $1,100 to a man named Brian Coughlin. By that December, Coughlin owed $1,594.91 because the Chippewa were charging him interest of 108% a year.

Coughlin filed bankruptcy. Ordinarily, this would trigger an automatic stay that sends any creditors to bankruptcy court if they seek to collect anything. In Coughlin’s case, the court approved a plan for him to pay off all his debts over five years.

But the Chippewa never filed a claim; instead they bombarded Coughlin with collection calls and emails nearly every day, ignoring his urge that they contact his lawyer instead because he had filed bankruptcy.

Coughlin, who suffers from clinical depression, tried to kill himself and was hospitalized. After he recovered, he sued the tribe for violating the automatic stay, demanding that it pay his medical bills, his lost sick leave and vacation time, and $87,000 in emotional damages.

But the bankruptcy court rejected the suit, finding that the tribe was exempt from the rules that apply to everyone else.

In a 1994 law, Congress said that government units are subject to the bankruptcy rules. This included the U.S. and state governments, commonwealths, districts, territories, municipalities, foreign countries, and any “other foreign or domestic government.”

But since the list didn’t specifically mention Indian tribes, they’re not included, the bankruptcy court ruled.

The Sixth Circuit agreed with this logic in 2019, finding that when the tribe-owned Greektown Casino in Detroit went belly-up, it couldn’t be sued for fraudulently transferring $177 million worth of casino assets to itself.

This is contrary, however to what the Ninth Circuit held in 2004, allowing the Navajo Nation to be sued by a company that operated oil wells on its property.

The First Circuit case drew an amicus brief from 10 noted Indian law professors, including ones from Harvard and Stanford, who said a 2001 Supreme Court case requires Congress to be “unequivocal” when allowing tribes to be sued and the laundry list in the 1994 law wasn’t specific enough.To read more click here.