New Scholarship on Tribal Bankruptcy

Laura Coordes has posted “Beyond the Bankruptcy Code: A New Statutory Bankruptcy Regime for Tribal Debtors,” forthcoming in the Bankruptcy Developments Journal, on SSRN.

Here is the abstract:

Native American tribes and tribal businesses play an important role in U.S. commerce, but many of these entities are effectively prohibited from filing for bankruptcy relief when financial distress occurs. This Article demonstrates how and why the Bankruptcy Code is a poor fit for these “tribal debtors” and suggests that Congress enact a new statutory regime to provide structured debt relief for these entities rather than modify the Bankruptcy Code.

Although this proposal is novel with respect to tribal debtors, Congress has looked beyond the Bankruptcy Code to provide debt relief when use of the Code would be inapt on two other recent occasions: the passage of the Dodd-Frank Act and PROMESA. Using tribal debtors as an example, this Article investigates whether and how this practice might continue and what it might mean for the bankruptcy system writ large.

Torres v. Santa Ynez Band of Chumash Indians Cert Petition


Cert Petition

Questions presented:

1. Was Petitioner denied due process of law when the Indian Tribal Chairman Armenta filed a false claim in Bankruptcy as part of a long pattern and campaign of harassment against Petitioner and the Bankruptcy Court refused to impose sanctions, simply because she believed she could not find grounds for sanctions because much of the pattern of the ultra vires conduct of Chairman Armenta did not occur in her court?
2. Has the recent decisions of this court in Bay Mills Indian Community, 572 U.S. ___, 134 S.Ct. 2024 and the Ninth Circuit court of appeals recent case in Maxwell v. County of San Diego, 708 F.3d 1075 (9th Cir. 2013) expanded the liability of tribal officers engaging in unlawful and abusive acts while purporting to do so on behalf of the Indian tribe and who then seek to invoke the tribes sovereign immunity to evade liability?
3. Even though the sanction motion had to be brought on its face, against the tribe (who waived tribal immunity in the bankruptcy case), the court was authorized in its inherent jurisdiction to impose sanctions against the improper actions of chairman Armenta even though claimed to have been done on behalf of the tribe.

Ninth Circuit materials:

CA9 Memorandum Order

Answer Brief

Torres Opening Brief

Torres Reply

ICT’s Bankruptcy Primer

From ICT (thanks to Jason):

By Jack Duran, Guest Columnist

I am likely breaking some sort of gaming taboo discussing the topic of bankruptcy, however, with the current state of the economy, struggling to recover from the collapse of the financial markets, the bankruptcy filings of the Trump, Tropicana, Fontainebleau casinos, and the recent bankruptcy filing of gaming powerhouse Station Casinos, a discussion of bankruptcy law seems timely.

The gaming industry, once thought of as “recession proof,” is showing cracks in its armor, as gaming revenues have fallen in local hubs, like Las Vegas and New Jersey, and in distant places like Macau. Indian gaming has not been unscathed; gaming revenues for Indian casinos, while presently stable, have experienced a reduction over the past couple of years, causing significant belt tightening in Indian country.

Causes of Casino Bankruptcies

The causes are as abundant as bad business decisions. Typically, a bankruptcy filing occurs when business expenses and other liabilities exceed cash flow or assets, and creditors come banging at the doors to demand collateral. In the gaming industry, it’s easy to exceed available cash flow. This can occur prior to a casino’s opening if construction or development costs unexpectedly escalate.

Similarly, it may arise after opening if an expansion project suddenly goes sideways. As most casinos are heavily leveraged at the outset, for obvious reasons, a number of causes, whether it be an economic downturn or poor marketing and management, can result in lower revenues and a redlined EBITDA.

Additionally, missing a single debt payment can trigger a loan agreement’s immediate repayment clause or, in certain cases, gaming license suitability issues. Either of these can result in a parade of financial repercussions. Finally, casino operators and management groups may also over-extend themselves by purchasing competitors or expanding gaming holdings in untapped domestic or foreign markets.

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What Happens When a Tribal Business Goes Bankrupt?

Does federal bankruptcy law apply? Can a Section 17 corporation declare bankruptcy? What about tribal bankruptcy laws?

According to some gaming experts, the United States bankruptcy code does apply? Here’s a quote from a news article on the Pequot debt default question:

“From the perspective of creditors, it’s a unique situation,” said Megan Neuburger, an analyst for Fitch Ratings. “It’s murky, but the consensus of legal experts is that a traditional bankruptcy proceeding would not apply to a tribal government.”

Although no court has ruled on the matter, she said, a tribe that’s considered a sovereign nation would likely be deemed ineligible to apply for relief under the bankruptcy code, which specifically excludes “governmental units.”

If federal bankruptcy protection doesn’t apply to tribal governments, what happens then?

Comments appreciated.

Creditors Object to Greektown Reorganization Plan

From the Detroit News:

DETROIT — Greektown Casino LLC, which is in bankruptcy reorganization, shouldn’t get an exclusive right until June 1 to file a turnaround plan, a group of creditors and a U.S. government representative told a judge.

Greektown’s request to block competing plans for more than eight months beyond the current Sept. 26 deadline should be denied because the company can realistically gauge its success long before then, U.S. Trustee Daniel McDermott said in an objection filed Monday in U.S. Bankruptcy Court in Detroit.

“The court should not permit the debtors to remain in Chapter 11 in a shroud of secrecy” while ” keeping other potential plan proponents off the playing field for such an extensive length of time,” McDermott said in the filing.

Closely held Greektown won court approval last June to borrow $150 million to continue operations and construction of a new hotel and gaming floor. McDermott questioned the viability of the company’s projected future operations during an economic decline in the U.S.

“The question that must be answered is whether the projections are reasonable for the foreseeable future in the given economic and political milieu in Detroit,” McDermott said in the filing.

Objections also were filed by the Michigan Gaming Control Board and the official committee of unsecured creditors.

Greektown sought court protection from creditors on May 29, citing cost overruns in a $332 million expansion. It opened in 2000, four years after Michigan citizens voted to legalize three gambling facilities in Detroit. It employs about 1,976 people, and attracts 15,800 visitors a day, the company said.

Greektown Casino Declares Bankruptcy

From Indianz:

The Sault Ste. Marie Tribe of Chippewa Indians announced that it has filed for Chapter 11 bankruptcy protection for its commercial casino in Detroit, Michigan.

The tribe has a majority stake in Greektown Casino, one of three gaming facilities in the city. The tribe was facing state deadlines to improve its financial standing. The tribe says the casino is not broke but that it needs $140 million in financing to complete work on a permanent casino.

Get the Story:
Greektown Casino falls into Chapter 11 (The Detroit Free Press 5/30)
Unpaid bills delay casino’s expansion (The Detroit Free Press 5/30)

Gaming Per Cap Bankruptcy Proceeding

The case is In Re DeCora. It involves a Ho-Chunk member declaring bankruptcy and whether the Ho-Chunk Nation Bank’s interest in the member’s per cap proceeds were secured. The opinion is a little entertaining, beginning with a reference to Frank Zappa:

Musician and satirist Frank Zappa once quipped that “Communism doesn’t work because people like to own stuff.” Whether this is an accurate take on geopolitical realities or not, the concept of personal property rights is certainly deeply ingrained into American culture and jurisprudence. In America, people may own all the stuff they can afford, and they can sell or give their stuff to someone else. Even when life doesn’t take Visa (or some other unsecured form of credit), people find ways to use their stuff as collateral for loans so that they can run out and buy more stuff. The present case involves competing interests in an intangible bit of stuff that this Court has encountered before-namely, a debtor’s right to receive tribal per capita distributions from tribal gaming revenues. The debtor used his right to future distributions as collateral for a loan so that he could afford, among other things, a new car. The question is whether the creditor took sufficient steps to protect its security interest from challenge.

Slip op. at 1-2.

The court also cites to numerous Ho-Chunk tribal court opinions. For example:

Third, the tribal courts of the Ho-Chunk Nation have themselves indicated that tribal members have a right to per capita distributions, if and when they are made, as long as that member is on the rolls of the Ho-Chunk Nation. See Kedrowski, 284 B.R. at 448-49; Hendrickson v. HCN Enrollment, CV 99-10 (Ho-Chunk Nation Trial Court 1999).

Slip op. at 3.

Here are the materials:

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