Explaining Katz's New Bankruptcy Exception to State Sovereign Immunity: The Bankruptcy Power as a Federal Forum Power
41 Pages Posted: 26 Nov 2012
Date Written: March 1, 2007
The Supreme Court has now squarely addressed the effect of its monumental state sovereign immunity decisions of Seminole Tribe of Florida v. Florida and Alden v. Maine in the context of federal bankruptcy proceedings. Seminole Tribe held that Congress's Article I legislative powers could not be used to abrogate states' constitutional sovereign immunity from suit in federal court, creating considerable uncertainty regarding the extent to which states and state agencies could be bound by federal bankruptcy proceedings.
In its 2004 Tennessee Student Assistance Corp. v. Hood decision, the Court held that there is a bankruptcy exception to states' constitutional sovereign immunity. By its terms, though, the Hood decision was limited to dischargeability and general discharge proceedings in federal bankruptcy court, and the Hood Court rested its decision upon the awkward and erroneous supposition that discharge and dischargeability proceedings are an exercise of in rem jurisdiction.
In Central Virginia Community College v. Katz, though, the Court abandoned Hood's in rem rationale for a bankruptcy exception to states' constitutional sovereign immunity, and in the process, vastly expanded the scope of that exception. In fact, Katz effectively eliminates states' constitutional sovereign immunity in federal bankruptcy proceedings. The Court ceded all determinations regarding whether states can be bound by federal bankruptcy proceedings to Congress, as long as "Congress' determination that States should be amenable to such proceedings is within the scope of its power to enact 'Laws on the subject of Bankruptcies.'" Under Katz's bankruptcy exception to state sovereign immunity, then, "Congress may, at its option, either treat States in the same way as other creditors insofar as concerns 'Laws on the subject of Bankruptcies' or exempt them from operation of such laws." Bankruptcy Code section 106, therefore, will now determine the extent to which states are bound by federal bankruptcy proceedings, not constitutional sovereign immunity doctrine.
For those interested only in the "bottom line," Katz delivers up the proverbial "silver bullet" that smites (what most considered) the state sovereign immunity vampire that had stalked the bankruptcy system since Seminole. Those concerned with the consistency and coherence of bankruptcy and constitutional jurisprudence, though, will find no comfort in the Katz decision. The Katz Court's rationale for its all-inclusive bankruptcy exception to state sovereign immunity is no more convincing than the exceedingly feeble in rem reasoning of Hood. The Katz majority does not credibly reconcile its holding with the state sovereign immunity framework of Seminole Tribe and Alden. Perhaps this is an indication that the Seminole framework is on the decline, or perhaps this is an indication that bankruptcy is somehow intrinsically different from Congress's other Article I powers.
Although the Katz Court itself provided no defensible basis for reaching the latter conclusion, this article suggests a federal forum power theory for distinguishing the uniqueness of Congress's Article I Bankruptcy Power. Under this federal forum power theory of federal bankruptcy law, the Katz holding can be reconciled with the Seminole-Alden accommodation of state sovereignty. The federal forum power theory, however, has dramatic implications for a whole range of judicial federalism issues, warranting extreme skepticism of widespread (but troublesome) "bankruptcy is different" instincts.
Keywords: state sovereign immunity, Bankruptcy Clause, bankruptcy power, Eleventh Amendment, in rem jurisdiction, congressional abrogation, habeas corpus, originalism, Article I powers, citizen-state diversity, Seminole Tribe v. Florida, Alden v. Maine, Tennessee Student Assistance Corp. v. Hood
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