Buchwald Capital Advisors, LLC v. Sault Ste. Marie Tribe of Chippewa Indians (In re Greektown Holdings, LLC)

• Decision Date: 26 February 2019
• Docket Number: Nos. 18-1165,18-1166,s. 18-1165
• Parties: IN RE: GREEKTOWN HOLDINGS, LLC, Debtor. Buchwald Capital Advisors, LLC, Solely in its Capacity as Litigation Trustee to the Greektown Litigation Trust, Plaintiff-Appellant, v. Sault Ste. Marie Tribe of Chippewa Indians; Kewadin Casinos Gaming Authority, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

917 F.3d 451

IN RE: GREEKTOWN HOLDINGS, LLC, Debtor.Buchwald Capital Advisors, LLC, Solely in its Capacity as Litigation Trustee to the Greektown Litigation Trust, Plaintiff-Appellant,

v.Sault Ste. Marie Tribe of Chippewa Indians; Kewadin Casinos Gaming Authority, Defendants-Appellees.

Nos. 18-1165

18-1166

United States Court of Appeals, Sixth Circuit.

Argued: October 17, 2018

Decided and Filed: February 26, 2019

CLAY, Circuit Judge.

Plaintiff Buchwald Capital Advisors, LLC, in its capacity as litigation trustee for the Greektown Litigation Trust, appeals the district court’s January 23, 2018 order affirming the bankruptcy court’s dismissal of Plaintiff’s complaint on the basis of tribal sovereign immunity. Plaintiff’s complaint seeks avoidance and recovery of allegedly fraudulent transfers made to Defendants Sault Ste. Marie Tribe of Chippewa Indians and Kewadin Casinos Gaming Authority pursuant to the Bankruptcy Code of 1978, 11 U.S.C. §§ 544, 550. For the reasons set forth below, we AFFIRM the district court’s dismissal.

BACKGROUND

Factual Background

This case arises out of the bankruptcy of Detroit’s Greektown Casino (the "Casino") and several related corporate entities (collectively, the "Debtors"). Under the ownership and management of Defendant Sault Ste. Marie Tribe of Chippewa Indians and its political subdivision Defendant Kewadin Casinos Gaming Authority (collectively, the "Tribe"), the Casino opened in November 2000 and filed for bankruptcy in May 2008.

From the outset, the Tribe was under serious financial strain due to two obligations incurred in connection with the Casino. In 2000, the Tribe entered into an agreement with Monroe Partners, LLC ("Monroe") to pay $265 million in exchange for Monroe’s 50% ownership interest in the Casino, giving the Tribe a 100% ownership interest in the Casino. And in 2002, the Tribe entered into an agreement with the City of Detroit to pay an estimated $200 million to build a hotel and other facilities at the Casino in exchange for a continued gaming license from the Michigan Gaming Control Board ("MGCB").

In 2005, the Tribe restructured the Casino’s ownership to alleviate this strain. The Tribe created a new entity, Greektown Holdings, LLC ("Holdings"), which became the owner of the Casino, while several pre-existing entities—all owned by the Tribe—became the owners of Holdings. This allowed the Tribe to refinance its existing debt, and allowed the intermediate entities to take on new debt, all to raise capital so that the Tribe could meet its financial obligations. Holdings, for example, took on $375 million of debt in various forms shortly after the restructuring.

The restructuring was subject to, and received, the approval of the MGCB. However, the MGCB conditioned its approval on the Tribe’s adherence to strict financial covenants and other conditions. If those covenants and conditions were not satisfied, the MGCB could force the Tribe to sell its ownership interest in the Casino, or place the Casino into conservatorship.

On December 2, 2005, Holdings transferred approximately $177 million to several different entities. At least $145.5 million went to the original owners of Monroe—Dimitrios and Viola Papas, and Ted and Maria Gatzaros. At least $9.5 million went to other entities for the benefit of Dimitrios and Viola Papas, and Ted and Maria Gatzaros. And at least $6 million went to the Tribe.

Over the next three years, the Tribe attempted to raise additional capital to fully meet its financial obligations. However, by April 2008, the strain of these obligations had proved too much to bear, and the Tribe was in danger of losing both its ownership interest in the Casino—through failure to comply with the MGCB’s restructuring conditions—and the Casino’s gaming license—through failure to comply with the City of Detroit’s development requirements. Accordingly, on May 29, 2008, the Debtors, including Holdings, the Casino, and other related corporate entities, filed voluntary petitions for Chapter 11 bankruptcy.¹

Under the Debtors’ plan of reorganization, the Greektown Litigation Trust (the "Trust") was created to pursue claims belonging to the Debtors’ estate for the benefit of unsecured creditors. Plaintiff Buchwald Capital Advisors, LLC (the "Trustee") was appointed as the Trust’s litigation trustee, and in that capacity, the Trustee brought the instant case.

Procedural History

On May 28, 2010, the Trustee filed a complaint in the United States Bankruptcy Court for the Eastern District of Michigan. The Trustee’s complaint alleges that, on December 2, 2005, Holdings fraudulently transferred $177 million to or for the benefit of the Tribe, and seeks avoidance and recovery of that amount pursuant to the Bankruptcy Code of 1978, 11 U.S.C. §§ 544, 550. The Tribe then filed a motion to dismiss the complaint on the grounds that the Tribe possessed tribal sovereign immunity from the Trustee’s claims. The Trustee responded that that the Tribe did not possess tribal sovereignty (1) because Congress abrogated tribal sovereign immunity in the Bankruptcy Code of 1978, 11 U.S.C. §§ 106, 101(27), and (2) because the Tribe waived tribal sovereign immunity by actually or effectively filing the Debtors’ bankruptcy petitions.² By stipulation of the parties, the bankruptcy court bifurcated the Tribe’s motion—it would first decide whether Congress had abrogated the Tribe’s immunity and then, if necessary, whether the Tribe had waived its immunity.

Regarding abrogation, the bankruptcy court denied the Tribe’s motion to dismiss, holding that Congress had expressed its "clear, unequivocal, and unambiguous intent to abrogate tribal sovereign immunity" in 11 U.S.C. §§ 106, 101(27). (RE 1, Bankruptcy Court Opinion, No. 14-cv-14103, PageID # 43.) The Tribe appealed to the district court, which reversed, holding that Congress had not "clearly, unequivocally, unmistakably, and without ambiguity abrogate[d] tribal sovereign immunity" in 11 U.S.C. §§ 106, 101(27). (RE 5, District Court Opinion, PageID # 203.) The district court accordingly remanded the case to the bankruptcy court to decide whether the Tribe had waived its immunity.

Regarding waiver, and in light of the district court’s holding on abrogation, the bankruptcy court granted the Tribe’s motion to dismiss, holding (1) that the Tribe’s litigation conduct "was insufficient to waive [tribal] sovereign immunity" since tribal law required an express board resolution, (2) that waiver of tribal sovereign immunity could not be "implied" through the litigation conduct of a tribe’s alter ego or agent, and (3) that even if both of the above were possible, filing a bankruptcy petition does not waive tribal sovereign immunity "as to an adversary proceeding subsequently filed" against the tribe. (Id. , Bankruptcy Court Opinion, at PageID # 449, 464, 456.) The Trustee appealed to the district court which affirmed, similarly holding that no waiver of the Tribe’s sovereign immunity could occur "in the absence of a board resolution expressly waiving immunity," and that the Trustee’s "novel theory of implied waiver" through the "imputed" conduct of an alter ego or agent was foreclosed by binding precedent. (Id. , District Court Opinion, at PageID # 730, 744, 737.)

This appeal, regarding both abrogation and waiver, followed.

DISCUSSION

I. Standard of Review

On appeal from a district court’s review of a bankruptcy court’s order, we review the bankruptcy court’s order directly rather than the intermediate decision of the district court. In re McKenzie , 716 F.3d 404, 411 (6th Cir. 2013). We review questions of subject matter jurisdiction, including sovereign immunity, de novo . DRFP, LLC v. Republica Bolivariana de Venezuela , 622 F.3d 513, 515 (6th Cir. 2010).

II. Analysis

A. Abrogation of Tribal Sovereign Immunity

Indian tribes have long been recognized as "separate sovereigns pre-existing the Constitution." Michigan v. Bay Mills Indian Cmty. , 572 U.S. 782, 788, 134 S.Ct. 2024, 188 L.Ed.2d 1071 (2014) (quoting Santa Clara Pueblo v. Martinez , 436 U.S. 49, 56, 98 S.Ct. 1670, 56 L.Ed.2d 106 (1978) ). As such, they possess the "common-law immunity from suit traditionally enjoyed by sovereign powers." Id. (quoting Santa Clara Pueblo , 436 U.S. at 58, 98 S.Ct. 1670 ). Yet this immunity is not without limit. Because Indian tribes are subject to Congress’ plenary authority, Congress can abrogate tribal sovereign immunity "as and to the extent it wishes." Id. at 803–04, 134 S.Ct. 2024. To do so, Congress must "unequivocally" express that purpose. Id. at 790, 134 S.Ct. 2024 (quoting Santa Clara Pueblo , 436 U.S. at 58, 98 S.Ct. 1670 ). "The baseline position [however], [the Supreme Court] [has] often held, is tribal immunity ...." Id. Thus, Indian tribes possess this "core aspect[ ] of sovereignty" unless and until Congress "unequivocally" expresses a contrary intent. Id. at 788, 790, 134 S.Ct. 2024.

At issue in this case is whether Congress unequivocally expressed such an intent in the Bankruptcy Code of 1978, 11 U.S.C. §§ 106, 101(27). Section 106 provides, in relevant part, that "[n]ot withstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect to ... Sections ... 544 ... [and] 550 ... of [the Bankruptcy Code]." (emphasis added). Section 101(27) then provides that:

[t]he 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.

(emphasis added). The Trustee asserts that, read together, these sections constitute an unequivocal expression of congressional intent to abrogate tribal sovereign immunity. The Tribe asserts that that they do not.

In...