After Brian Coughlin filed for bankruptcy, a payday lender from which he had taken out a loan continued to try to collect, in violation of the Bankruptcy Code’s automatic stay provision. That provision applies to all entities, and because of its central role in the operation of the bankruptcy laws, a debtor can enforce a willful violation of the stay through an action for damages. In this case, the lender that violated the stay is affiliated with a Native American tribe and argues that it cannot be held accountable because it has sovereign immunity. The case wound its way up to the Supreme Court, which granted certiorari to address the question whether tribal creditors, alone among all sovereigns, have sovereign immunity from the automatic stay’s enforcement mechanism.
Public Citizen, joined by the National Consumer Law Center and the National Association of Consumer Advocates, filed an amicus brief in the case. The question before the Court was of particular importance to low-income consumers because tribal sovereignty has increasingly been invoked in connection with payday and other high-cost consumer lending that can drive borrowers into bankruptcy. In recent years, non-tribal predatory lenders have sought out tribes to establish lending operations structured in ways that the lenders hope will insulate their activities from consumer protection laws. Evidence suggests that, in many and likely most instances, the non-tribal entity controls the lending operations, while the tribe receives only a small portion of the profits. In some cases, consumer debtors may eventually be able to prove that the true lender is a non-tribal entity not covered by tribal sovereign immunity. Doing so, however, requires discovery and litigation to resolve potential issues of fact—adding cost and taking time that is not practical in the context of the immediate stay needed to ensure the orderly functioning of the bankruptcy system. The amicus brief explained that allowing one set of creditors to ignore the stay with impunity would undermine the efficiency of a bankruptcy system premised on the requirement that all creditors—including government creditors—play by the same rules.
Agreeing with our statutory argument, the Supreme Court held that the Code unequivocally abrogates the sovereign immunity of any and every government with the power to assert such immunity and that, because federally recognized tribes unquestionably fit that description, the Code’s abrogation provision plainly applies to them as well.