541 U.S. 440 (2004), 02-1606, Tennessee Student Assistance Corporation v. Hood

Docket Nº:No. 02-1606
Citation:541 U.S. 440, 124 S.Ct. 1905, 158 L.Ed.2d 764
Party Name:Tennessee Student Assistance Corporation v. Hood
Case Date:May 17, 2004
Court:United States Supreme Court
 
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541 U.S. 440 (2004)

124 S.Ct. 1905, 158 L.Ed.2d 764

Tennessee Student Assistance Corporation

v.

Hood

No. 02-1606

United States Supreme Court

May 17, 2004

Argued March 1, 2004

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Syllabus

Respondent Hood had an outstanding balance on student loans guaranteed by petitioner Tennessee Student Assistance Corporation (TSAC), a state entity at the time she filed a Chapter 7 bankruptcy petition. Hood's general discharge did not cover her student loans, as she did not list them and they are only dischargeable if a bankruptcy court determines that excepting the debt from the order would be an "undue hardship" on the debtor, 11 U.S.C. § 523(a)(8). Hood subsequently reopened the petition, seeking an "undue hardship" determination. As prescribed by Federal Rules of Bankruptcy Procedure 7001(6), 7003, and 7004, she filed a complaint and, later, an amended complaint, and served them with a summons on TSAC and others. The Bankruptcy Court denied TSAC's motion to dismiss the complaint for lack of jurisdiction, holding that 11 U.S.C. § 106(a) abrogated the State's Eleventh Amendment sovereign immunity. The Sixth Circuit Bankruptcy Appellate Panel affirmed, as did the Sixth Circuit, which held that the Bankruptcy Clause gave Congress the authority to abrogate state sovereign immunity in § 106(a). This Court granted certiorari to determine whether the Bankruptcy Clause grants Congress such authority.

Held:

Because the Bankruptcy Court's discharge of a student loan debt does not implicate a State's Eleventh Amendment immunity, this Court does not reach the question on which certiorari was granted. Pp. 446-455.

(a) States may be bound by some judicial actions without their consent. For example, the Eleventh Amendment does not bar federal jurisdiction over in rem admiralty actions when the State does not possess the res. California v. Deep Sea Research, Inc., 523 U.S. 491, 507-508. A debt's discharge by a bankruptcy court is similarly an in rem proceeding. The court has exclusive jurisdiction over a debtor's property, wherever located, and over the estate. Once debts are discharged, a creditor who did not submit a proof of claim will be unable to collect on his unsecured loans. A bankruptcy court is able to provide the debtor a fresh start, even if all of his creditors do not participate, because the court's jurisdiction is premised on the debtor and his estate, not on the creditors. Because the court's jurisdiction is premised on the res, however, a nonparticipating creditor cannot be personally liable.

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States, whether or not they choose to participate in the proceeding, are bound by a bankruptcy court's discharge order no less than other creditors, see, e.g., New York v. Irving Trust Co., 288 U.S. 329, 333. And when the bankruptcy court's jurisdiction over the res is unquestioned, the exercise of its in rem jurisdiction to discharge the debt does not infringe a State's sovereignty. TSAC argues, however, that the individualized process by which student loan debts are discharged unconstitutionally infringes its sovereignty. If a debtor does not affirmatively secure § 523(a)(8)'s "undue hardship" determination, States choosing not to submit themselves to the court's jurisdiction might receive some benefit: the debtor's personal liability on the loan may survive the discharge. TSAC misunderstands the proceeding's fundamental nature when it claims that Congress, by making a student loan debt presumptively nondischargeable and singling it out for an individualized determination, has authorized a suit against a State. The bankruptcy court's jurisdiction is premised on the res, not the persona; that States were granted the presumptive benefit of nondischargeability does not alter the court's underlying authority. A debtor does not seek damages or affirmative relief from a State or subject an unwilling State to a coercive judicial process by seeking to discharge his debts. Indeed, this Court has endorsed individual determinations of States' interests within the federal courts' in rem jurisdiction, e.g., Deep Sea Research, supra. Although bankruptcy and admiralty are specialized areas of the law, there is no reason why the exercise of federal courts' in rem bankruptcy jurisdiction is more threatening to state sovereignty than the exercise of their in rem admiralty jurisdiction. Pp. 446-451.

(b) With regard to the procedure used in this case, the Bankruptcy Rules require a debtor to file an adversary proceeding against the State to discharge student loan debts. While this is part of the original bankruptcy case and within the bankruptcy court's in rem jurisdiction, it requires the service of a summons and a complaint, see Rules 7001(6), 7003, and 7004. The issuance of process is normally an indignity to a State's sovereignty, because its purpose is to establish personal jurisdiction; but the court's in rem jurisdiction allows it to adjudicate the debtors' discharge claim without in personam jurisdiction over the State. Section 523(a)(8) does not require a summons, and absent Rule 7001(6) a debtor could proceed by motion, which would raise no constitutional concern. There is no reason why service of a summons, which in this case is indistinguishable in practical effect from a motion, should be given dispositive weight. Dismissal of the complaint is not appropriate here where the court has in rem jurisdiction and has not attempted to adjudicate any claims outside of that jurisdiction. This case is unlike an adversary proceeding by a bankruptcy trustee seeking to recover

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property in the State's hands on the grounds that the transfer was a voidable preference. Even if this Court were to hold that Congress lacked the ability to abrogate state sovereign immunity under the Bankruptcy Clause, the Bankruptcy Court would still have authority to make the undue hardship determination Hood seeks. Thus, this Court declines to decide whether a bankruptcy court's exercise of personal jurisdiction over a State would be valid under the Eleventh Amendment. If the Bankruptcy Court on remand exceeds its in rem jurisdiction, TSAC would be free to challenge the court's authority. Pp. 451-455.

319 F.3d 755 affirmed and remanded.

REHNQUIST, C.J., delivered the opinion of the Court, in which STEVENS, O'CONNOR, KENNEDY, SOUTER, GINSBURG, and BREYER, JJ., joined. SOUTER, J., filed a concurring opinion, in which GINSBURG, J., joined, post, p. 455. THOMAS, J., filed a dissenting opinion, in which SCALIA, J., joined., post, p. 455.

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OPINION

REHNQUIST, CHIEF JUSTICE.

Article I, § 8, cl. 4, of the Constitution provides that Congress shall have the power "[t]o establish . . . uniform Laws on the subject of Bankruptcies throughout the United States." We granted certiorari to determine whether this Clause grants Congress the authority to abrogate state sovereign immunity from private suits. Because we conclude that a proceeding initiated by a debtor to determine the dischargeability of a student loan debt is not a suit against the State for purposes of the Eleventh Amendment, we affirm the Court of Appeals' judgment, and we do not reach the question on which certiorari was granted.

I

Petitioner, Tennessee Student Assistance Corporation (TSAC), is a governmental corporation created by the Tennessee Legislature to administer student assistance programs.

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Tenn.Code Ann. § 49-4-201 (2002). TSAC guarantees student loans made to residents of Tennessee and to nonresidents who are either enrolled in an eligible school in Tennessee or make loans through an approved Tennessee lender. § 49-4-203.

Between July 1988 and February 1990, respondent, Pamela Hood, a resident of Tennessee, signed promissory notes for educational loans guaranteed by TSAC. In February 1999, Hood filed a "no asset" Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Western District of Tennessee; at the time of the filing, her student loans had an outstanding balance of $4,169.31. TSAC did not participate in the proceeding, but Sallie Mae Service, Inc. (Sallie Mae) submitted a proof of claim to the Bankruptcy Court, which it subsequently assigned to TSAC.[1] The Bankruptcy Court granted Hood a general discharge in June 1999. See 11 U.S.C. § 727(a).

Hood did not list her student loans in the bankruptcy proceeding, and the general discharge did not cover them. See § 727(b) (providing that a discharge under § 727(a) discharges the debtor from all pre-petition debts except as listed in § 523(a)); § 523(a)(8) (providing that student loans guaranteed by governmental units are not included in a general discharge order unless the bankruptcy court determines that excepting the debt from the order would impose an "undue hardship" on the debtor). In September, 1999, Hood reopened her bankruptcy petition for the limited purpose of seeking a determination by the Bankruptcy Court that her student loans were dischargeable as an "undue hardship" pursuant to § 523(a)(8). As prescribed by the Federal Rules of Bankruptcy Procedure, Hood filed a complaint against the

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United States of America, the Department of Education, and Sallie Mae, see Fed.Rules Bkrtcy.Proc. 7001(6) and 7003, and later filed an amended complaint in which she included TSAC and University Account Services as additional defendants and deleted Sallie Mae. The complaint and the amended complaint were served along with a summons on each of the named parties. See Rule 7004.

In response, TSAC filed a motion to dismiss the complaint for lack of jurisdiction, asserting Eleventh Amendment sovereign immunity.[2] The Bankruptcy Court denied the motion, holding that 11 U.S.C. § 106(a) was a valid abrogation of TSAC's sovereign...

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