CROSS-BORDER INSOLVENCY & THE ELIGIBILITY OF INDIAN TRIBES TO USE CHAPTER 15 OF THE BANKRUPTCY CODE

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1 CROSS-BORDER INSOLVENCY & THE ELIGIBILITY OF INDIAN TRIBES TO USE CHAPTER 15 OF THE BANKRUPTCY CODE BLAKE F. QUACKENBUSH * TABLE OF CONTENTS INTRODUCTION I. ARE INDIAN TRIBES ELIGIBLE FOR RELIEF UNDER THE BANKRUPTCY CODE? A. The Majority of Bankruptcy Scholars Interpret the Bankruptcy Code in a Way that Renders Indian Tribes Ineligible for Relief Under Chapters 7 and B. Bankruptcy Courts Are Beginning to Interpret the Bankruptcy Code in a Manner that Renders Indian Tribes Ineligible for Relief Under Chapters 7 and II. DOES CHAPTER 15 OF THE BANKRUPTCY CODE PROVIDE A SOURCE OF RELIEF TO INDIAN TRIBES? A. Tribes Have Inherent Power to Regulate and Adjudicate Insolvency Matters B. Chapter 15 Circumvents Provisions Under Chapters 7 and 11 of the Bankruptcy Code C. Statutory Construction Illustrates that Indian Tribes Are Likely Governmental Units D. A Majority of Courts Have Held that Indian Tribes Are Governmental Units for Purposes of Applying the Sovereign- Immunity Provisions III. WHY HAVEN T INDIAN TRIBES USED CHAPTER 15? A. Courts Are Only Now Taking a Decisive Stance on Tribal Eligibility Under Chapters 7 and B. Chapter 15 May Be Unfamiliar to Indian Tribes and Bankruptcy Practitioners C. Chapter 15 May Not Be an Economically Feasible Option CONCLUSION * Blake F. Quackenbush studied at the University of Nevada, Las Vegas William S. Boyd School of Law and currently engages bankruptcy litigation with the civil defense firm of Walker & Eakes, LLC in Anchorage, Alaska.

2 62 THOMAS M. COOLEY LAW REVIEW [Vol. 29:1 INTRODUCTION The [Mashantucket Pequot Tribal Nation] misjudged the market, borrowed too much and expanded unwisely. Foxwoods s debt is on a scale befitting the size of the property $2.3 billion. [ ] The fact that Foxwoods is on sovereign tribal land complicates everything. It means the lenders cannot foreclose and take control of the gambling operation but also that Foxwoods probably doesn t qualify for Chapter 11 a conundrum [ ] sort of like being stuck in no man s land and one that financial backers of Indian casinos apparently did not foresee until Foxwoods tanked. 1 Defaulting corporate debtors, sullied by unmanageable debt, often seek relief in federal bankruptcy court under 11 U.S.C. 101, et seq. of the United States Code (Bankruptcy Code). Yet bankruptcy courts and scholars seem to agree that Indian tribes, like the Mashantucket Pequot Tribal Nation, cannot seek the same protection commonly afforded to individuals, entities, and municipalities under chapters 7 and 11 of the Bankruptcy Code. This places Indian tribes in a type of no man s land and makes them vulnerable to great financial loss. But chapter 15 is largely overlooked as an invaluable source of bankruptcy relief to insolvent Indian tribes. I. ARE INDIAN TRIBES ELIGIBLE FOR RELIEF UNDER THE BANKRUPTCY CODE? Indian tribes appear ineligible for relief under chapters 7, 9, 11, 12, and 13 of the Bankruptcy Code. To reach this conclusion, a string of code definitions must be placed in a syllogistic framework. An individual or entity must qualify as a debtor before it seeks bankruptcy relief. 2 A debtor is a person or a municipality under 101(13). A person is defined as an individual, partnership, and corporation, but does not include governmental unit. 3 A municipality is a political subdivision or public agency or 1. Michael Sokolove, Foxwoods is Fighting for Its Life, N.Y. TIMES (Mar. 14, 2012), U.S.C.A. 109 (Westlaw 2013) (41).

3 2012] CROSS-BORDER INSOLVENCY 63 instrumentality of a State. 4 Because Indian Tribes are neither persons nor municipalities, 5 they do not qualify for relief under chapters 7 and 11. The only term that may include Indian tribes is governmental unit, which is a foreign or domestic government. 6 Even so, a governmental unit cannot seek relief as a debtor under chapters 7 or A. The Majority of Bankruptcy Scholars Interpret the Bankruptcy Code in a Way that Renders Indian Tribes Ineligible for Relief Under Chapters 7 and 11 Steven T. Waterman characterizes the general consensus among bankruptcy scholars as excluding Indian tribes from relief under chapters 7 and He maintains that Indian tribes are sovereign domestic governments ineligible to file petitions for relief under the Bankruptcy Code. 9 Without discussing the eligibility of tribally chartered corporations or corporations organized under the Alaska Native Claims Settlement Act, 10 Waterman supports his conclusion by analyzing the definition of debtor under 101(13). From that definition, he concludes that Indian tribes are neither persons nor municipalities: Tribes do not fit within the Code definitions or common-sense definitions of individual, partnership or (40). 5. See Atkin v. Kansas, 191 U.S. 207, (1903) (discussing municipal corporations as auxiliaries of a state); cf. Talton v. Mayes, 163 U.S. 376, (1896); Worcester v. Georgia, 31 U.S. (6 Pet.) 515, (1832) (27) (Westlaw 2013). The term governmental unit means United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency or instrumentality of the United States (but not a United States trustee while serving as a trustee in a case under this title), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government. Id. 7. See 109(b) (f). But cf. 109(c) (applying only to municipalities as subdivisions of states); 109(e) (applying only to individuals owing certain amounts of debt); 109(f) (applying only to family farmers or family fishermen). 8. Steven T. Waterman, Tribal Troubles Without Bankruptcy Relief, DORSEY (Jan. 2010), 9. Id. 10. See 43 U.S.C.A h (Westlaw 2013).

4 64 THOMAS M. COOLEY LAW REVIEW [Vol. 29:1 corporation. 11 He cites the legislative history of 109, which reveals congressional intent to interpret the term governmental unit in the broadest sense, and he concludes that such breadth extends to Indian tribes. 12 Waterman also argues that the Bankruptcy Code expressly excludes Indian tribes as governmental units under 101(27); 13 he bolsters his argument by citing two cases: Krystal Energy Co. v. Navajo Nation 14 and Cherokee Nation v. Georgia. 15 Krystal Energy examines tribal waiver of sovereign immunity, and Cherokee Nation describes the inherent sovereign authority of tribes and their status as domestic dependent nations. 16 While he states that no court decision examines whether a federally-recognized Indian tribe is a governmental unit for purposes of eligibility for relief, Waterman still holds to his conclusion that tribes are ineligible for relief under the Bankruptcy Code. 17 The majority of bankruptcy scholars share Waterman s belief that tribes are ineligible for relief under chapters 7 or 11. Like Waterman, these scholars turn to the definitions of debtor and governmental unit to conclude that tribes fail to qualify as debtors within the definitional and plain meaning of the term Waterman, supra note Id. (quoting H. COMM. ON THE JUDICIARY, BANKRUPTCY LAW REVISION, H.R. REP. NO , at 311 (1977)). 13. Id F.3d 1055, 1061 (9th Cir. 2004) ( Indian tribes are domestic governments. ) U.S. (5 Pet.) 1, 17 (1831) (describing tribes as domestic dependent nations ). 16. Waterman, supra note Id. 18. See, e.g., Shmuel Vasser & Janet Bollinger, Casino Creditors, Heads Up: American Indian Tribes may be ineligible for bankruptcy, 244 N.Y. L.J. 113, S8 9 (2010); Anthony S. Broadman, Indian Self-Governance and Bankruptcy: The Case for Tribal Law, CASINO ENTERPRISE MANAGEMENT (Feb. 1, 2011), (stating Waterman's conclusion that tribes are ineligible for bankruptcy relief). But see Corina Rocha Pandeli, When the Chips are Down: Do Indian Tribes with Insolvent Gaming Operations Have the Ability to File for Bankruptcy Under the Federal Code?, 2 UNLV GAMING L.J. 255, 271, 273, (2011) (concluding that while tribes likely fail to qualify as persons under 101(41) within the definition of debtor under 101(13), it remains unclear whether Indian tribes are excluded as governmental units).

5 2012] CROSS-BORDER INSOLVENCY 65 A recently authored Client Alert, 19 which received attention in Bankruptcy Law and Federal Indian Law fields, addresses tribal eligibility from a different approach. Like Waterman, the Client Alert authors agree that Indian tribal status falls outside the definition of debtor. But they argue that tribally chartered corporations may still be eligible for relief in bankruptcy. 20 They posit that bankruptcy eligibility of a tribal casino may depend on whether the tribe has set up a corporation with respect to its gaming business. 21 They conclude that [i]f a tribe has a chartered corporation (whether tribal, federal or state) for its casino business and borrowed funds through that entity, then arguably the corporation would be an eligible debtor under In support, these authors cite examples of nontraditional corporate entities organized under the Alaska Native Claims Settlement Act, 23 as well as a tribally chartered university, to illustrate how tribal entities have sought relief in bankruptcy. 24 In sum, they believe that a tribe may charter a federal, state, or tribal corporation and seek relief as a debtor in bankruptcy within the meaning of 109. Thus, the only possible exception under chapters 7 or 11 seems to be corporations chartered under tribal, state, or federal law. Still, the conclusions reached by the majority of bankruptcy scholars indicate that Indian tribes, as governmental units, are ineligible for relief under chapters 7 and 11 because they fail to qualify as debtors under 109. B. Bankruptcy Courts Are Beginning to Interpret the Bankruptcy Code in a Manner that Renders Indian Tribes Ineligible for Relief Under Chapters 7 and 11 A recent bankruptcy court ruling illustrates how courts are beginning to interpret the debtor-eligibility requirement in 109 to exclude Indian tribes from seeking relief under chapters 7 and Craig A. Barbarosh et al., Is Corporate Bankruptcy an Option for Tribal Casinos?, PILLSBURYLAW (Feb. 28, 2011), Publications/InsolvencyIndianLawAlertCorporateBankruptcy _final.pdf. 20. Id. at Id. at Id. at See generally 43 U.S.C.A h (Westlaw 2013) (creating Alaska Native Regional Corporations to settle land-right claims). 24. Barbarosh et al., supra note 19, at 3.

6 66 THOMAS M. COOLEY LAW REVIEW [Vol. 29:1 The Bankruptcy Court for the Southern District of California dismissed a chapter 11 case filed by the Santa Ysabel Resort and Casino 25 for the Casino s failure to prove its eligibility as a debtor under The Casino argued that it qualified as an unincorporated entity. 27 The Casino s creditors contended that the Casino was wholly owned and operated by the Santa Ysabel tribe, and as such, the Casino was neither an unincorporated company nor a separate legal entity. 28 Accordingly, the creditors argued that the Casino constituted part of a domestic government; therefore, the Casino s petition should be dismissed because it failed to qualify as a debtor under 109 since the Bankruptcy Code excludes domestic governments as governmental units according to 101(27). 29 In rendering its decision, the Court considered the evidence of the Casino s employees acting in concert under a common name. But it found such evidence insufficient to show that the Casino created an unincorporated company because nothing in the Casino s structure provided the employees with limited liability. 30 In addition, the Casino had not engaged in any specific activity that would put other employees or creditors on notice that it was a separate entity. 31 As a result, the court held that the Casino had not established it was an unincorporated company, and the Court declared the Casino ineligible for relief under chapter Order at 2, In re Santa Ysabel Resort and Casino, No CL11, Doc. 98 (Bankr. S.D. Cal. Sept. 11, 2012) (regarding Yavapai-Apache Nation's Motion to Dismiss Bankruptcy Case For Lack Of Eligibility And Authority). 26. See Scott J. Greenberg et al., Tribal Gaming Enterprise Held Ineligible to File for Chapter 11, CADWALADER RESTRUCTURING REV. (Sept. 24, 2012), Opposition to Motion to Dismiss Bankr. Case for Lack of Eligibility and Auth. at 2 3, In re Santa Ysabel Resort and Casino, No CL11, Doc. 76 (Bankr. S.D. Cal. Aug. 20, 2012) (relying on case law from the Second, Third, and Seventh Circuits to argue for an expansive interpretation of unincorporated company to include any entity where many people engaged in a business under a common name). 28. Greenberg et al., supra note 26 (citing Opposition to Motion to Dismiss Bankr. Case for Lack of Eligibility and Auth. at 2, In re Santa Ysabel Resort and Casino, No CL11, Doc. 57 (Bankr. S.D. Cal. Aug. 2, 2012)). 29. Id. 30. Id. 31. Id. 32. Id.

7 2012] CROSS-BORDER INSOLVENCY 67 This Bankruptcy Court appears to follow the same interpretation of the Bankruptcy Code as most bankruptcy scholars. The Court turns to the definition of debtor in 101(13) and either finds that the tribe is excluded as a governmental unit, based on the definition of governmental unit in 101(27) or finds that the tribe is neither a person nor municipality. In either scenario, the Court concludes that the tribe is ineligible for relief because it fails to satisfy the debtor requirement under 109. But it remains uncertain whether the Court finds that the tribe is ineligible for relief because (1) it is a governmental unit, not a person or municipality; or (2) the tribe merely fails to qualify as a person or municipality. In any event, this case and the bankruptcy scholars that predicted its outcome clearly indicate that tribes will face many perils as they seek relief under chapters 7 and 11. The question remains whether the Bankruptcy Code provides tribes with other avenues for bankruptcy relief. If chapters 7, 9, 11, 12, and 13 provide no relief to Indian tribes in bankruptcy, the only remaining hope for relief is chapter 15. II. DOES CHAPTER 15 OF THE BANKRUPTCY CODE PROVIDE A SOURCE OF RELIEF TO INDIAN TRIBES? Chapter 15 incorporates substantial portions of the Model Law on Cross-Border Insolvency (Model Law), which was drafted by the U.N. Commission on International Trade Law (UNCITRAL). 33 Fifteen countries 34 have adopted the Model Law to curb territorialism. 35 Territorialism occurs when foreign courts favor local creditors over foreign creditors by granting foreign creditors next to nothing following the liquidation of a debtor s assets. 36 Territorialism U.S.C.A. 1501(a) (Westlaw 2013); see also Model Law on Cross- Border Insolvency with Guide to Enactment, U.N. Comm n on Int l Trade Law, G.A. Res. 52/158, U.N. GAOR, 30th Sess., Supp. No. 17, U.N. Doc. A/52/17 (1997), available at Hon. Samuel L. Bufford, Tertiary and Other Excluded Foreign Proceedings Under Bankruptcy Code Chapter 15, 83 AM. BANKR. L.J. 165, 165 (2009) (including Japan, Canada, Mexico, United Kingdom, Australia, and Spain). 35. See G.A. Res. 52/158, supra note See Edward S. Adams & Jason K. Fincke, Coordinating Cross-Border Bankruptcy: How Territorialism Saves Universalism, 15 COLUM. J. EUR. L. 43, 55, ( ). Territorialism is the view that a bankruptcy case should be used only to administer the domestic assets of a multinational debtor

8 68 THOMAS M. COOLEY LAW REVIEW [Vol. 29:1 seldom results in a restructuring or reorganization and most often terminates in a liquidation of the debtor s estate. 37 The Model Law and chapter 15 intend to discourage territorialism by providing effective mechanisms for dealing with cases of cross-border insolvency. 38 Congress adopted chapter 15 as part of the 2005 Bankruptcy Code amendments. 39 The purpose of chapter 15 is to provide effective mechanisms for dealing with cases of cross-border insolvency. 40 The purpose is met if five objectives are achieved: (1) create universal procedures to facilitate cross-border cooperation with both U.S. bankruptcy courts and the courts at the debtor s center of main interest (the debtor s registered office or habitual residence); 41 (2) provide greater legal certainty for trade and investment; (3) provide fair administration of chapter 15 cases; (4) protect and maximize the value of the debtors assets; and (5) rescue troubled businesses to protect investments and preserve jobs. 42 Congress seeks to achieve these objectives by provid[ing] for the recognition of a foreign proceeding and an ancillary proceeding to assist the foreign proceedings. 43 According to the Hon. Samuel L. Bufford, Chapter 15 provides for the filing in the United States of an ancillary case to provide assistance to a foreign insolvency proceeding, and the recognition of the foreign proceeding as a foreign main proceeding or a foreign nonmain proceeding. 44 Thus, chapter 15 prevents territorialism when both the foreign court and the U.S. under domestic law for the benefit of domestic creditors, whether through reorganization or liquidation. According to this view, assets located abroad should be administered in their own cases in the countries where they are located, without much regard for the enterprise as a whole. (citation omitted). Id. at See id (a). 39. H. COMM. ON THE JUDICIARY, BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005, H.R. REP. NO , pt. 1, at 105 (2005) (a) (4); 1516(c) (a)(1) (5). 43. In re Condor Ins. Ltd., 601 F.3d 319, 322 (5th Cir. 2010). 44. Bufford, supra note 34, at 165.

9 2012] CROSS-BORDER INSOLVENCY 69 Bankruptcy Court cooperate to ensure a successful liquidation or reorganization of the debtor s assets. 45 To illustrate, assume a Canadian debtor has its center of main interests in Canada but also has assets and subsidiaries in the United States. Under chapter 15 in Canada, this debtor could initiate a foreign main proceeding (insolvency proceeding). 46 Using chapter 15, the debtor or other representative could subsequently file a petition for recognition 47 with the U.S. Bankruptcy Court to start a foreign nonmain proceeding (ancillary proceeding). 48 After a petition is recognized as a foreign main or nonmain proceeding, many options become available to the petitioning representative. The following example addresses the options: The petitioning foreign representative of the debtor is typically authorized to carry out the stated purpose of the debtor s chapter 15 case, including liquidation of the debtor s assets, giving effect to a foreign plan of liquidation or reorganization or approving a foreign debtor s sale of its assets and/or assignment of its leases located in the United States. 49 Just as chapter 15 bridges the jurisdictional gap between foreign and domestic bankruptcy courts, it may likewise bridge the jurisdictional gap between tribal courts and U.S. Bankruptcy Courts. Chapter 15 provides a means of bankruptcy relief to Indian tribes because tribes have the power to regulate and adjudicate insolvency matters. Additionally, Tribes are not barred by the debtor requirement in 109. Statutory construction also reveals the likelihood that Congress intended to include Indian tribes as other foreign or domestic governments under the definition of governmental unit. Indian tribes have also been deemed governmental units by a 45. Id (4) (7) , 1509(a), Bruce Nathan & Eric Horn, Demystifying Chapter 15 of the Bankruptcy Code, NAT L ASS N OF CREDIT MGMT. BUS. CREDIT, June 2009, at 1, 3, available at 164a7a63/Presentation/PublicationAttachment/9cfde23b-4dd8-46be-92b3-81a7bd97716c/Demystifying%20Chapter%2015_Business%20Credit_Nathan% pdf.

10 70 THOMAS M. COOLEY LAW REVIEW [Vol. 29:1 majority of courts for purposes of applying the sovereign-immunity provisions under 106. A. Tribes Have Inherent Power to Regulate and Adjudicate Insolvency Matters Congress has not limited Indian tribes ability to regulate and adjudicate insolvency matters, but tribes must enact insolvency laws and establish insolvency courts to use chapter 15. Through the tribal insolvency court, a tribe may initiate a foreign main proceeding and petition the U.S. Bankruptcy Court to recognize the proceeding using chapter 15. This allows a tribe to maintain the stated purpose of its case beyond the Indian tribal court s jurisdiction. Tribes are sovereign and have inherent regulatory and adjudicative power over tribal land and affairs. Unlike a city or other subdivision of a state, which derives power from the state, a tribe is its own source of power. 50 Nevertheless, Congress retains plenary power to limit tribal sovereignty. 51 No statute or treaty limits a tribe from enacting insolvency laws, as the current Bankruptcy Code provides no reference to Indian tribes or Indian Territory. 52 Insolvency law is civil law. In civil matters involving nonmembers, 53 Montana v. United States 54 announced two exceptions to the general rule that tribes have regulatory and 50. See Talton v. Mayes, 163 U.S. 376 (1896); United States v. Wheeler, 435 U.S. 313 (1978); United States v. Lara, 541 U.S. 193 (2004). Two major consequences arise from this: the Bill of Rights and the Fifth Amendment provision against double jeopardy do not apply to tribes. 51. Talton, 163 U.S. at 384 (noting the supreme legislative authority of the United States over the inherent rights of Indian tribes to regulate and adjudicate local self-governments); see also Santa Clara Pueblo v. Martinez, 436 U.S. 49, (1978) (addressing Congress s plenary authority over the Indian tribe s powers of local self-governments). 52. See Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055, 1057 (9th Cir. 2004) ( Neither the Supreme Court nor any circuit has determined whether these statutes, which do not include the term Indian tribes or any similar language, suffice to abrogate Indian tribes immunity from suit. ). The term Indian Territory seems to be the only reference to Indian tribes in the history of U.S. Bankruptcy Law, but the Bankruptcy Act of July 1, 1898, amended the term. See Chandler Act, 75 ch. 575, 52 Stat. 840 (1938). 53. Nonmembers are those persons who are not members of a particular Indian tribe U.S. 544 (1981).

11 2012] CROSS-BORDER INSOLVENCY 71 adjudicative power over reservations or Indian country unless Congress limits that power by statute or treaty. Specifically, the Supreme Court of the United States held that the exercise of tribal power beyond what is necessary to protect tribal self-government or to control internal relations... cannot survive without express congressional delegation. 55 The two exceptions to congressional delegation are (1) A tribe may regulate through taxation, licensing, or other means, the activities of nonmembers who enter consensual relationships with the tribe or its members, through commercial dealings... ; and (2) tribes are free to regulate conduct of non- Indians that threatens or directly affects the political integrity, the economic security, or the health or welfare of the tribe. 56 Montana still stands as prevailing law in civil matters. 57 On the issue of whether a tribe may regulate and adjudicate insolvency matters, which would most likely involve non-indian creditors, both exceptions to the Montana rule apply. This is positive news for Indian tribes because it means that they retain power to regulate insolvency matters involving non-indians within tribal courts. Under the first exceptions to the Montana rule, tribes are free to regulate nonmembers who enter consensual, commercial dealings with the tribe or its members. 58 Such commercial dealings include contracts and secured transactions between tribes and lending institutions. The second exception is also satisfied because the Bankruptcy Code appears to restrict Indian tribes from accessing bankruptcy relief; the unavailability of such relief strikes at the heart 55. Id. at Id. at But see Brendale v. Confederated Tribes, 492 U.S. 408, 449 (1989) (Blackmun, J., dissenting) (arguing that Montana should be recognized as a relatively narrow exception to the presumption of tribal governmental power over persons within their territory). Justice Blackmun s dissent was rejected by later Courts as the Montana exception was applied in four monumental cases, which will not be discussed at length: Strate v. A-1 Contractors, 520 U.S. 438 (1997); Atkinson Trading Co. v. Shirley, 532 U.S. 645 (2001); Nevada v. Hicks, 533 U.S. 353 (2001); and Plains Commerce Bank v. Long Family Land, 128 S. Ct (2008). These cases reverse the usual presumption regarding a tribe s regulatory and adjudicatory power over nonmembers. The Court presumes that tribal power over nonmembers is absent unless either one of the exceptions in Montana applies or Congress has otherwise conferred power. See Hicks, 533 U.S. at ; see also Plains Commerce Bank, 128 S. Ct. at Montana, 450 U.S. at

12 72 THOMAS M. COOLEY LAW REVIEW [Vol. 29:1 of a tribe s economic security, health, and welfare. 59 Accordingly, a tribe s ability to regulate insolvency matters is permitted under the two exceptions to the Montana rule. Because Congress has not barred a tribe from regulating insolvency matters and insolvency matters fall squarely within the two Montana exceptions, tribes have the power to regulate insolvency matters. B. Chapter 15 Circumvents Provisions Under Chapters 7 and 11 of the Bankruptcy Code Unlike chapters 7 or 11, no exclusion precludes Indian tribes from seeking relief through chapter 15. As discussed, the primary contention against a tribe s ability to seek relief under chapters 7 or 11 is the failure to meet the required status of debtor under 109. But 103 provides that chapter 1 only applies in a case under chapters 7, 9, 11, 12, or This means that the debtor requirement found in 109 does not apply to chapter 15. Congress redefined the term debtor for specific use in chapter 15 and intentionally broadened the definition to mean an entity that is subject to a foreign proceeding. 61 This definition differs from the definition of debtor in 109 because the definition of debtor in 109 makes no reference to the term entity. Legislative history for 1502(1) explains: Debtor is given a special definition for [chapter 15]. This definition does not come from the Model Law....With certain exceptions, the term person used in the Model Law has been replaced with entity, which is defined broadly in section 101(15) to include natural persons and various legal entities, thus matching the intended breadth of the term person in the Model Law. 62 Thus, unlike the definition of debtor in 101(13), defined as a person or municipality excluding governmental units, the chapter Id. 60. Cf. 11 U.S.C.A. 103(a), (f), (k)(1) (2) (Westlaw 2013) (1). 62. H. COMM. ON THE JUDICIARY, BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTIONS ACT OF 2005, H.R. REP. NO , pt. 1, at 107 (2005) (emphasis added).

13 2012] CROSS-BORDER INSOLVENCY 73 definition of debtor includes the term entity. This subtle difference is extremely important because the legislative history makes clear that entity is defined under 101(15), which includes governmental unit. It follows that governmental units may seek relief under chapter 15 as debtors. Indian tribes are governmental units under 101(27) because tribes fall within the plain meaning of domestic governments as domestic dependent nations. The word domestic means of or relating to one s own country... jurisdiction... family or the household. 63 Government means the structure of principles and rules determining how a state or organization is regulated. 64 Accordingly, a tribe qualifies under the plain meaning of domestic government because a tribe is an organization within jurisdictionally defined lands and operates through a structure of ruling principles. The Supreme Court also recognized Indian tribes as domestic dependent nations that exercise inherent sovereign authority over their members and territories. 65 As such, Indian tribes are specific members of the group of domestic governments. 66 C. Statutory Construction Illustrates that Indian Tribes Are Likely Governmental Units Statutory construction reveals the likelihood that Congress intended to include Indian tribes as other foreign or domestic governments under the definition of governmental unit in 101(27). This definition embraces virtually every form of domestic government, including municipalities, states and their subdivisions, and the federal government. 67 When analyzing the definition of governmental unit in 101(27), the questions becomes: To what does the phrase other foreign or domestic government refer? An important statutory maxim of interpretation requires a court to give 63. BLACK'S LAW DICTIONARY (9th ed. 2009). 64. Id. at Okla. Tax Comm'n. v. Citizen Band Potawatomi Indian Tribe of Okla., 498 U.S. 505, 509 (1991) (citing Cherokee Nation v. Georgia, 30 U.S. (5 Pet) 1, 17 (1831)); see also Blatchford v. Native Vill. of Noatak, 501 U.S. 775, 782 (1991) (comparing Indian tribes to states and foreign sovereigns, and concluding that both states and Indian tribes are domestic sovereigns). 66. See Krystal Energy Co. v. Navajo Nation, 357 F.3d 1055, 1058 (9th Cir. 2004) U.S.C.A. 101(27) (Westlaw 2013).

14 74 THOMAS M. COOLEY LAW REVIEW [Vol. 29:1 operative effect to every word Congress used. 68 The phrase becomes meaningless if domestic government is not interpreted to include Indian tribes. 69 D. A Majority of Courts Have Held that Indian Tribes Are Governmental Units for Purposes of Applying the Sovereign-Immunity Provisions While no reported decision examines whether a federally recognized Indian tribe is a governmental unit for purposes of eligibility for relief under chapters 7, 11, or 15, numerous courts have examined whether an Indian tribe is a governmental unit for purposes of applying the sovereign-immunity provisions of 106. Most cases examining waiver of sovereign immunity have found that an Indian tribe is a governmental unit within the meaning of 101(27). 70 The leading case, Krystal Energy Co. v. Navajo Nation, held that Indian tribes are domestic governments for purposes of Mayes v. Cherokee Nation (In re Mayes), 294 B.R. 145, 159 (B.A.P. 10th Cir. 2003) (McFeeley, C.J., dissenting). 69. Id. 70. In re Platinum Oil Props., L.L.C., 465 B.R. 621, 643 (Bankr. D.N.M. 2011) ( The language or other foreign or domestic government found in 11 U.S.C. 101(27) includes Indian tribes, such that 11 U.S.C. 106 together with 11 U.S.C. 101(27) embodies Congress clear and unequivocal abrogation of tribal sovereign immunity. ), reconsideration denied, 2011 WL (Bankr. D.N.M. 2011); Turning Stone Casino v. Vianese (In re Vianese), 195 B.R. 572, (Bankr. N.D.N.Y. 1995) (explaining that Indian nations are considered domestic dependent nations and as such comprise governmental units within the meaning of Code 101(27)); Santa Ynez Band of Mission Indians v. Torres, 2008 WL , at *3 (Cal. Ct. App. Jan. 22, 2008) ( Krystal Energy controls.... We hold that where, as here, an Indian tribe files a proof of claim in an adversarial bankruptcy proceeding, the tribe waives it[s] sovereign immunity as to counterclaims or cross-complaints that are transactionally related to the proof of claim. ). In addition to these, one court found that an Indian tribe is a governmental unit but not for purposes of 362. See In re Sandmar Corp., 12 B.R. 910, 916 (Bankr. D.N.M. 1981). But see In re Whitaker, 474 B.R. 687, (B.A.P. 8th Cir. 2012) (holding that Congress did not unequivocally express its intent by enacting legislation explicitly abrogating the sovereign immunity of tribes) F.3d at The Ninth Circuit Court of Appeals reasoned the Supreme Court has referred to Indian tribes as domestic dependent nations, and Congress enacted 106 and 101(27) with that reference in mind. Congress abrogated sovereign immunity as to states, foreign states, and other foreign or domestic governments; Congress must have intended to abrogate tribal sovereign

15 2012] CROSS-BORDER INSOLVENCY 75 It s likely that Indian tribes qualify within the meaning of debtor and are able to seek relief under chapter 15 because 1502(1) redefines the term debtor to include entity. Based on statutory construction, an entity is governmental unit under 101(15) and a governmental unit includes a domestic government under.101(27); thus, the plain meaning of domestic government indicates that Indian tribes qualify as domestic governments. In addition, a majority of courts support the conclusion. III. WHY HAVEN T INDIAN TRIBES USED CHAPTER 15? Tribes have not sought relief under chapter 15 for three obvious reasons. First, courts have not taken a decisive stance on tribal eligibility under chapters 7 and 11 until recently. Second, the purpose and objectives of chapter 15 may be unfamiliar to Indian tribes and bankruptcy practitioners. Third, even if Indian tribes and practitioners understand the purpose and objectives, they may find it to be an economically infeasible source of relief. Even so, it appears that Congress intended that tribes use chapter 15 as a means of insolvency relief. A. Courts Are Only Now Taking a Decisive Stance on Tribal Eligibility Under Chapters 7 and 11 The most apparent reason why Indian tribes have not sought relief under chapter 15 is because, until recently, courts have not foreclosed the possibility of chapters 7 and 11 to tribes. Before the California Bankruptcy Court s recent decision, chapters 7 and 11 seemed to be the most practical option for bankruptcy practitioners because these chapters cover the most common areas in bankruptcy law. Bankruptcy scholars have tested the applicability of chapter 11 to Indian tribes and received unfavorable results. Bankruptcy scholars and courts are beginning to support the conclusion that tribes are governmental units and are excluded from relief under chapters 7 and 11 for failure to qualify as debtors under 109. From this decision, Indian tribes may be more open to consider chapter 15 as a viable avenue for insolvency relief. immunity by including Indian tribes as other foreign or domestic governments under 101(27). Id.

16 76 THOMAS M. COOLEY LAW REVIEW [Vol. 29:1 B. Chapter 15 May Be Unfamiliar to Indian Tribes and Bankruptcy Practitioners Indian tribes may have avoided seeking relief under chapter 15 because of its relatively new and unfamiliar nature. Specifically, the language in chapter 15 may cause Indian tribes and bankruptcy practitioners to overlook the possible application of chapter 15. The term foreign country in chapter 15 might cause some to believe that Congress requires a foreign main proceeding to arise within the courts of a foreign state or foreign government. 72 Because the Supreme Court concluded that tribes are not foreign states, Indian tribes may avoid chapter 15 due to the conflation of the terms foreign country and foreign state foreign government. 73 But the Bankruptcy Code distinguishes between foreign country and foreign state foreign government. The definition of foreign country appears broad enough to include tribal insolvency courts exercising authority within a reservation or Indian country. The Bankruptcy Code distinguishes between the terms foreign country and foreign state foreign government because Congress places these terms in different sections of the Bankruptcy Code. The (b)(1) (4). Chapter 15 applies where (1) assistance is sought in the United States by a foreign court or a foreign representative in connection with a foreign proceeding; (2) assistance is sought in a foreign country in connection with a case under this title; (3) a foreign proceeding and a case under this title with respect to the same debtor are pending concurrently; or (4) creditors or other interested persons in a foreign country have an interest in requesting the commencement of, or participating in, a case or proceeding under this title. Id. 73. In Cherokee Nation v. Georgia, the Supreme Court first described an Indian tribe as a domestic dependent nation. 30 U.S. (5 Pet.) 1 (1831). On the issue of whether the Cherokee Nation was a foreign state, Chief Justice Marshall concluded that while the tribe, like a foreign government, had entered into a treaty with the United States, their lands were within the boundaries of the United States, and consequently they were not a foreign state. Still, the tribe was not a domestic state either. Accordingly, the Court held that the relation of the Indians to the United States is marked by peculiar and cardinal distinctions which exist no where else. Id. at 2. Chief Justice Marshall bolstered his holding by citing the Commerce Clause, which empowers Congress to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.... In this clause, they are as clearly contradistinguished by a name appropriate to themselves from foreign nations as from the several States composing the union. Id. at 18.

17 2012] CROSS-BORDER INSOLVENCY 77 terms foreign state foreign government are used by Congress in chapter 1, 101(27). But these terms are used nowhere in chapter 15. Because chapter 1 does not apply to chapter 15, and chapter 15 only uses the term foreign country, the terms foreign state foreign government and foreign country are distinguishable. 74 The definition of foreign country appears broad enough to include tribal insolvency courts exercising authority within a reservation or Indian country. Neither the Bankruptcy Code nor Black s Law Dictionary define foreign country. But the plain meaning of the term is of or relating to another community of people inhabiting a defined territory and organized under an independent government; or a sovereign political state. 75 This definition appears broad enough to include tribal courts exercising their authority within a reservation or Indian country. Indian tribes are communities of people organized under independent governments. The Supreme Court has long recognized that Congress has plenary authority to limit, modify or eliminate the powers of local self-government which the tribes otherwise 74. Compare 1501(a)(1)(B), (b)(2), (b)(4) (using the phrase foreign country in describing the scope of chapter 15), with 103(a), (f), (k) (outlining the applicability of Chapter 1). 75. Foreign is defined as of or relating to another country... or jurisdiction. BLACK S LAW DICTIONARY, supra note 63, at Country is defined as [a] nation or political state;... [or] [t]he territory of such a nation or state. Id. at 404. Nation is defined as [a] large group of people having a common origin, language, and tradition and usually constituting a political entity or [a] community of people inhabiting a defined territory and organized under an independent government; a sovereign political state. Id. at 1121; see also JOHN SALMOND, JURISPRUDENCE 136 (Glanville L. Williams ed., 10th ed. 1947). The nearest we can get to a definition is to say that a nation is a group of people bound together by common history, common sentiment and traditions, and, usually (though not always, as, for example, Belgium or Switzerland) by common language. A state, on the other hand, is a society of men united under one government. These two forms of society are not necessarily coincident. A single nation may be divided into several states, and conversely a single state may comprise several nations or parts of nations. Id.

18 78 THOMAS M. COOLEY LAW REVIEW [Vol. 29:1 possess. 76 Congress has acknowledged the independent status of tribes in 25 U.S.C. 3601, which provides in relevant part: (1) there is a government-to-government relationship between the United States and each Indian tribe; (2) the United States has a trust responsibility to each tribal government that includes the protection of the sovereignty of each tribal government; (3) Congress, through statutes, treaties, and the exercise of administrative authorities, has recognized the self-determination, self-reliance, and inherent sovereignty of Indian tribes; (4) Indian tribes possess the inherent authority to establish their own form of government, including tribal justice systems; Based on this statutory language, Congress recognizes that each Indian tribe is a sovereign government with inherent power to establish its own form of government. 78 In addition to the statutory language, the nature of Indian tribes independent governance is most apparent when one compares the difference between tribal, state, 79 federal, and foreign powers. 80 Tribal powers differ from federal powers because Indian tribes selfgovernance predates the U.S. Constitution. 81 Tribal power is inherent and not conferred by Congress. 82 Thus, while Congress has plenary power to restrict tribal power, the existence of that right in Congress to regulate Indian tribes 83 does not render such local powers federal 76. Santa Clara Pueblo v. Martinez, 436 U.S. 49, 56 (1978); see, e.g., South Dakota v. Yankton Sioux Tribe, 522 U.S. 329, 343 (1998); Cherokee Nation v. Hitchcock, 187 U.S. 294, (1902); United States v. Kagama, 118 U.S. 375, , (1886) U.S.C.A. 3601(1) (4) (Westlaw 2013). 78. Id. 79. Kagama, 118 U.S. at 384 (explaining that Indian tribal governments exercise power distinct from the several states). 80. See Talton v. Mayes, 163 U.S. 376, 384 (1896) (stating that Indian tribal governments exercise power distinct from the federal government). 81. See id. 82. See id. 83. See, e.g., 1302 (making many of the protections afforded in the Bill of Rights applicable to Indian tribes).

19 2012] CROSS-BORDER INSOLVENCY 79 powers arising from and created by the constitution of the United States. 84 Indian tribes are not domestic states, and their power differs greatly from the power exercised by domestic states. Indeed, tribal power over tribal members is significantly greater than the States' powers over their own citizens. 85 As separate sovereigns preexisting the Constitution, tribes have historically been regarded as unconstrained by those constitutional provisions framed specifically as limitations on federal or state authority. 86 [T]he Bill of Rights in the Federal Constitution does not apply to Indian tribal governments. 87 The criminal jurisdiction of the tribes over their own members is similarly unconstrained by constitutional limitations applicable to the States and the Federal Government. 88 Thus, tribal power differs from domestic state power because it is less restricted than state power. Indian tribes are not foreign states, but they exercise powers very similar to foreign states. 89 In Cherokee Nation v. Georgia, 90 the Court faced the issue of whether the Cherokee Nation was a foreign state. Chief Justice John Marshall concluded that while the tribe had entered into a treaty with the United States, like a foreign state, their lands were within the boundaries of the United States and 84. Talton, 163 U.S. at Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, (1982). 86. Santa Clara Pueblo v. Martinez, 436 U.S. 49, 56 (1978). 87. Oliphant v. Suquamish Indian Tribe, 435 U.S. 191, 194 n.3 (1978) (citing Talton, 163 U.S. 376). The Indian Civil Rights Act of 1968 provides for a trial by jury of not less than six persons, (a)(10), but the tribal court is not explicitly prohibited from excluding non-indians from the jury even where a non-indian is being tried. In 1977, the Suquamish Tribe amended its Law and Order Code to provide that only Suquamish tribal members shall serve as jurors in tribal court. Id. at 194 n Merrion, 455 U.S. at ; see also Plains Commerce Bank v. Long Family Land & Cattle Co., 128 S. Ct (2008) (stating that the Bill of Rights does not apply to Indian tribes); Talton, 163 U.S. at (holding that the Fifth Amendment right to indictment by grand jury does not apply to prosecutions in tribal courts); United States v. Wheeler, 435 U.S. 313, (1978). 89. See In re Whitaker, 474 B.R. 687, (B.A.P. 8th Cir. 2012) U.S. (5 Pet.) 1 (1831).

20 80 THOMAS M. COOLEY LAW REVIEW [Vol. 29:1 consequently could not be a foreign state. 91 Even so, the Court determined the tribe was not a domestic state, either. Chief Justice Marshall, citing the federal Commerce Clause, writes that [i]n this clause, [Indian tribes] are as clearly contradistinguished by a name appropriate to themselves, from foreign nations, as from the several States composing the union. 92 The Court ultimately concluded that the relation of the Indians to the United States is marked by peculiar and cardinal distinctions which exist no where else. 93 Based on the Court s holding, it follows that, in spite of Indian tribes ability to exercise power like a foreign state, Indian tribes are not foreign states; their governmental status is unique among domestic states, the federal government, and foreign states. In addition to being communities of people organized under independent governments, 94 Indian tribes inhabit defined territory and exercise power over reservations and Indian country. A Federal Indian reservation is an area of land reserved for a tribe or tribes under treaty or other agreement with the United States, executive order, or federal statute or administrative action as permanent tribal homelands Indian reservations encompass Indian country, but Indian country may exist without reservations. 96 Three basic categories of land tenure exist within Indian country: (1) tribal trust lands; (2) allotted trust lands; and (3) fee lands. 97 Tribal trust lands 91. Id. 92. Id. at Id. at BLACK S LAW DICTIONARY, supra note 63, at See U.S. Dep t of the Interior, Indian Affairs, Frequently Asked Questions (Feb. 15, 2013, 4:00 PM), See Solem v. Bartlett, 465 U.S. 463, 468 (1984). Indian lands were judicially defined to include only those lands in which the Indians held some form of property interest: trust lands, individual allotments, and, to a more limited degree, opened lands that had not yet been claimed by non-indians. see Bates v. Clark, 95 U.S. 204, 24 L.Ed. (1877); Ash Sheep Co. v. United States, 252 U.S. 159, 40 S. Ct. 241, 64 L.Ed. 507 (1920). Only in 1948 did Congress uncouple reservation status from Indian ownership, and statutorily define Indian country to include lands held in fee by non-indians within reservation boundaries. See Act of June 25, 1948, ch. 645, 1151, 62 Stat. 757 (codified 18 U.S.C. 1151). Id. at U.S.C.A. 1151(a) (c) (Westlaw 2013).

21 2012] CROSS-BORDER INSOLVENCY 81 are held in trust by the United States government for the use by the tribe. The United States holds legal title, and the tribe holds the beneficial interest. Allotted trust lands are held in trust for the use of individual Indians (or their heirs). 98 Here too, the United States holds legal title, and the tribe holds the beneficial interest. Fee lands are held by an owner, whether Indian or non-indian. Indian tribes govern defined territory in the form of reservations or Indian country. The term foreign country in chapter 15 may be misinterpreted by some to require a foreign main proceeding to arise within the courts of a foreign state or foreign government. But the definition of foreign country appears broad enough to include tribal insolvency courts exercising authority within a reservation or Indian country because [T]he term Indian Country... means (a) all land within the limits of any Indian reservation under the jurisdiction of the United States Government, notwithstanding the issuance of any patent, and, including rights-of-way running through the reservation, (b) all dependent Indian communities within the borders of the United States whether within the original or subsequently acquired territory thereof, and whether within or without the limits of a state, and (c) all Indian allotments, the Indian titles to which have not been extinguished, including rights-of-way running through the same. Id. See generally United States v. Sandoval, 231 U.S. 28, 46 (1913) (discussing the nature of trust land); Alaska v. Native Vill. of Venetie Tribal Gov't, 522 U.S. 520 (1998) (discussing the impact of the Alaska Native Claims Settlement Act, 43 U.S.C. 1601, et seq. in relation to Indian country). The Indian Gaming Regulatory Act (IGRA) defined Indian lands. 25 U.S.C.A. 2703(4)(b) (Westlaw 2013). The National Indian Gaming Commission clarified the definition: Indian lands means (a) Land within the limits of an Indian reservation; or (b) Land over which an Indian tribe exercises governmental power that is either (1) Held in trust by the United States for the benefit of the Indian tribe; or (2) Held by the Indian tribe subject to a restriction by the United States against alienation. 25 C.F.R (Westlaw 2013). 98. See, e.g., 25 U.S.C.A. 415(d)(3) (Westlaw 2013). [T]he term individually owned Navajo Indian allotted land means a single parcel of land that (A) is located within the jurisdiction of the Navajo Nation; (B) is held in trust or restricted status by the United States for the benefit of Navajo Indians or members of another Indian tribe; and (C) was (i) allotted to a Navajo Indian; or (ii) taken into trust or restricted status by the United States for an individual Indian.... Id.