G. Equitable Reasons to Allow Indian Tribes to Utilize the Bankruptcy System

There are two primary reasons that equity requires that Indian tribes be able to avail themselves of the benefits of the bankruptcy system. First, the Ninth Circuit Court of Appeals held in Krystal that the Bankruptcy Code waived the tribe's immunity such that adverse parties can bring the tribe into bankruptcy proceedings. Under Krystal, courts can force tribes to participate in a system from which they cannot simultaneously derive a benefit. Second, other laws treat tribal enterprises like private employers and subject them to burdens as such. However, because the Code does not treat tribes like private employers, tribes cannot file for bankruptcy, creating an asymmetry that likens tribal enterprises to private employers when it is to the tribe's detriment, but distinguishes tribal enterprises from private employers when being treated like a private employer would be to the tribe's benefit.

1. Jurisdiction over Indian Tribes via Krystal

The Ninth Circuit Court of Appeals in Krystal found that Congress intended to abrogate tribal sovereign immunity in the Bankruptcy Code. Therefore, adverse parties can bring suit against tribes in bankruptcy court, effectively creating a system where parties can sue tribes in the bankruptcy system, but tribes cannot avail themselves of that system. The law denies tribes the protections of the system but subjects them to its burdens.

There are few other examples of such asymmetry in the court system, and it is highly unusual that an entity can be sued in a court despite being unable to bring its own lawsuit in that court. Although the asymmetry is not inherently unjust--provided, for example, that the excluded party could bring claims in other courts--it is unjust in the context of bankruptcy because of forum shopping.

The phenomenon of forum shopping in bankruptcy courts is illustrated by Marshall v. Marshall, which became famous because of the celebrity litigants involved. The case concerned the disposition of the estate of J. Howard Marshall II, the late husband of actress and model Anna Nicole Smith. While the Texas probate case was pending, Smith filed for bankruptcy in California after a former nanny sued her. As part of this bankruptcy proceeding, Smith filed suit against Marshall's son, who was also Smith's adversary in the Texas probate case. The bankruptcy court ultimately found in favor of Smith concerning the disposition of Marshall's estate and awarded her over $85 million in compensatory and punitive damages for tortious interference by Marshall's son in the disposition of his father's estate. The California bankruptcy court reached this conclusion under its interpretation of Texas law. At the same time, the Texas probate case continued, and, after five months of testimony from over forty witnesses, the Texas probate court found for Marshall's son on the same issue.

The Supreme Court ultimately ruled that the Texas state court did not have the right to grant itself exclusive jurisdiction over the state law claim. In other words, this decision permits a bankruptcy court finding to be diametrically opposed to a state court finding on the same issue, though both courts purport to apply the same law to the facts.

If bankruptcy courts are able to issue final orders on state law claims that are only tangentially related to a bankruptcy proceeding, forum shopping between state and bankruptcy courts may become more popular. Bankruptcy courts would effectively be acting as a parallel universe to state legal systems, thus putting the two court systems in competition with each other. The litigant would then, of course, choose the forum most amenable to its claim. Still, whether the justice system should tolerate forum shopping between bankruptcy courts and state courts is not the concern of this Note, which instead addresses the way that the opportunity for forum shopping affects Native American businesses.

Bankruptcy courts have authority to interpret state law--such as contract, property, or tort law--and thus parties that have claims against Indian entities that have waived immunity have their choice as to where to bring the claims: state court or bankruptcy court. Any strategic litigant will bring suit in the court most likely to find in its favor. Indian enterprises, however, cannot forum shop and file suit in the bankruptcy system, which gives non-Indian entities a distinct advantage in litigation. By allowing parties to sue Indian entities in bankruptcy court, but not allowing Indian entities to bring suit in bankruptcy, the law permits inequitable, one-sided forum shopping.

2. Lack of Consistency in the Likening of Tribes to Private Employers

A privately held corporation, as long as it meets the necessary requirements of the Bankruptcy Code, can file for bankruptcy and enjoy the benefits and protections the system affords. A tribal enterprise, however, even if it is similar to the private entity in all ways except its status as a tribe, cannot avail itself of the bankruptcy system. This disparity creates an advantage for the private enterprise but a detriment to the tribal enterprise.

Failing to provide tribal enterprises access to the bankruptcy system might be justified if tribal enterprises were uniformly distinguished from private enterprises in other business contexts. Tribes, unlike private corporations or municipalities, are independent sovereigns, and the law could achieve symmetry in the business context by uniformly recognizing tribes as sovereign entities that are different from other private business entities. However, an analysis of employment law--an integral aspect of doing business--reveals no such symmetry.

The federal government regulates many aspects of the employment relationship, including hours worked, wages, safety and health, collective bargaining, and prohibition of discrimination. Tribal employers are subject to lawsuits claiming they have violated these statutes. Employment lawsuits against tribal employers require that the courts determine whether Congress intended the statutes to include Indian tribes within the definition of employers. Only Title VII of the Civil Rights Act and the Americans with Disabilities Act expressly exclude Indian tribes from coverage. The rationale for excluding Indian tribes from these two statutes is respect for tribal sovereignty and self-government. Other federal employment statutes are silent as to whether they apply to Indian tribes and thus require judicial interpretation.

Courts have found that Indian tribes are subject to the requirements of the Occupational Safety and Health Act (OSHA). The Employee Retirement Income and Security Act (ERISA) has also been found to apply to tribes. In Smart v. State Farm Insurance Co., an employee of the Chippewa Health Center, which the tribe owned and operated, contested the denial of a claim under a health plan offered by the tribe. The Seventh Circuit Court of Appeals reasoned that applying ERISA to tribes would not affect tribal sovereignty and the right to self-government. The Ninth Circuit Court of Appeals reached the same result when adjudicating a dispute concerning a pension fund, finding that the application of ERISA to tribes would not interfere with sovereignty or self-government.

The application of these statutes to Indian enterprises likens them to private employers rather than the sovereign entities that they are. There may be policy arguments that justify treating an Indian enterprise like a private employer in the employment law context, such as affording the Native American workforce with protections in the event that no tribal remedies are available. However, if the law treats tribes like private employers and, as such, subjects them to suit under employment law, then the law should also treat tribes like private employers in the context of the bankruptcy system. There are equally meritorious policy arguments for allowing tribes to use the bankruptcy system. Tribes are disadvantaged by their inability to utilize the bankruptcy system, so if the law forces Indian businesses to bear the burdens and responsibilities of a private employer, then the law should also grant them the benefits and privileges of a private employer, particularly given the reciprocal nature of the employer-employee relationship.

Federal labor statutes impose duties upon employers in relation to their employees. Through the bankruptcy system, federal law also grants private employers privileges in the employer-employee relationship--namely, the right to avoid paying back wages in bankruptcy. For example, in a Chapter 7 liquidation, creditors, including employees, share in the distribution of the liquidating entity's assets, but they cannot collect beyond the amount available for liquidation, even if the employer does not pay all owed wages. Those privileges are unavailable to Indian entities, another example of the law subjecting Indian entities to the burdens but not the privileges of the legal system.



. 2012 J.D. Candidate, Columbia Law School.