In re T & D Management Co.
| Decision Date | 08 June 1984 |
| Docket Number | Bankruptcy No. 81C-02570,81C-02569,Civ. No. 83PC-0889.,81C-02568 |
| Citation | 40 BR 781 |
| Court | U.S. Bankruptcy Court — District of Utah |
| Parties | In re T & D MANAGEMENT COMPANY, Debtor. In re Veldon D. TAYLOR, Debtor. In re Kay A. DRIGGS, Debtor. Duane H. GILLMAN, Trustee, Plaintiff, v. BOARD OF TRUSTEES OF the ALPINE SCHOOL DISTRICT and John Does One Through Ten, Defendants. |
Steven T. Waterman, Watkiss & Campbell, Salt Lake City, Utah, for trustee, plaintiff.
James J. Cassity, Kirton, McConkie & Bushnell, Salt Lake City, Utah, for Board of Trustees of Alpine School District.
This case presents the question of whether or not a school district is a "governmental unit" within the meaning of 11 U.S.C. § 106(c), and, if so, whether such "governmental unit" is subject to the jurisdiction of this court in an adversary proceeding brought by the trustee under 11 U.S.C. §§ 548(a)(2) and 550.
The trustee of the estates of these jointly administered Chapter 7 cases filed a complaint against the Board of Trustees of the Alpine School District, located in Utah County, Utah. The complaint alleges, as part of its cause of action under Sections 548(a)(2)1 and 5502 of the Bankruptcy Code, (1) that debtors made cash gifts of $4,520.20 either to the school district or to individuals who in turn "gifted" the money to the school district, (2) that the gifts were made within one year of the filing of debtors' petitions, (3) that when the gifts were made the debtors were insolvent, and (4) that the debtors received less than a reasonably equivalent value in exchange for the gifts. The trustee is seeking summary judgment for the recovery of this money on behalf of the debtors' estate.
The school district filed a motion to dismiss the trustee's complaint on the ground that this court lacks subject matter jurisdiction of the civil proceeding because the Eleventh Amendment to the United States Constitution3 forbids this or any other federal court from exercising jurisdiction over this lawsuit.
The parties here have assumed, and therefore the court need not consider, that Article I, Section 8, Clause 4 (the bankruptcy clause) of the Constitution empowers Congress to permit a state to be sued under the provisions of the federal bankruptcy statute, notwithstanding the provisions of the Eleventh Amendment, in cases where the state consents to suit or otherwise waives its sovereign immunity.
The parties have raised two issues for determination by the court: (1) whether the defendant school district is a "state" under Utah law and within the meaning of the Eleventh Amendment and a "governmental unit" within the meaning of Section 106(c) of the Bankruptcy Code; and (2) whether or not Congress intended to sweep away the Eleventh Amendment immunity of a "state" in an action by a trustee seeking recovery under 11 U.S.C. § 548(a)(2) and 550.4
The parties disagree on whether the Alpine School District is to be considered "one of the United States" for Eleventh Amendment purposes. But because the issues raised in this case can be resolved with reference to the Bankruptcy Code alone, without the necessity for constitutional interpretation, the court declines to determine whether or not Congress intended to nullify the sovereign immunity of the school district, vouchsafed by the Eleventh Amendment, in an action by a trustee seeking to recover property under Sections 548(a)(2) and 550 of the Code.
The Alpine School District is a subdivision of the State of Utah and a creature of the Utah Legislature, pursuant to Article X of the Utah Constitution and Sections 53-4-1 et seq. of the Utah Code Annotated (1953, as amended). It is funded by state tax revenues pursuant to Sections 53-7-1 et seq. For these reasons, the court finds that the Alpine School District is a "governmental unit" within the meaning of Section 106(c) of the Bankruptcy Code.5
Since the school district does not assert any claim against the debtors in this case, 11 U.S.C. §§ 106(a) and (b)6 do not apply. However, 11 U.S.C. § 106(c)7 does apply to this action and can best be understood in light of its legislative history.
Legislative History of Section 106(c). The 1973 Bankruptcy Bill, proposed by the Commission on the Bankruptcy Laws of the United States, provided a broad waiver of the sovereign immunity of governmental units:
Section 1-104. Applicability of Act to United States, States, and Subdivisions. All provisions of this Act shall apply to the United States and to every department, agency, and instrumentality thereof, and to every state and every subdivision thereof except where otherwise specifically provided. This section does not render any branch or unit of the government eligible for relief as a petitioner except as provided in Chapter VIII, or subject to relief as a debtor upon an involuntary petition.8
The Commission's note to Section 1-104 stated that:
This section, with the exceptions indicated, answers the question whether all of the provisions of this Act are intended to apply to all subdivisions and instrumentalities of a state.9
However, when William T. Plumb, a tax consultant to the Commission, testified before the House and Senate Judiciary Committees in 1975 and 1976, he expressed the following concerns about the effect Section 1-104 would have on state sovereign immunity:
Sections 1-104 and 2-201(a)(9),10 when taken together, have the effect of permitting the bankrupt estate to sue the United States or a State in the Bankruptcy Court to recover overpayments of taxes. Today, it is necessary for the estate to go through the more time-consuming process of suing the United States in the District Court or the Court of Claims, and suing the State in whatever forum it provides for the purpose. Congress long ago submitted the Federal Government\'s affirmative claims for unpaid taxes to the jurisdiction of the Bankruptcy Court in order to speed the closing of estates, and it should not hesitate to do the same concerning claims for overpayments that the Government happens to have collected before bankruptcy. But I raise for your consideration the question whether Congress, even if it has the power, should undertake to subject the States to suits for tax refunds (or other claims) in courts not of their own choosing. It is true that Congress has long exercised its bankruptcy power to regulate the manner of determining state claims for unpaid taxes, to fix their liens and priority, to bar those not timely presented, and to discharge their tax debtors. But the State in those situations is the moving party, appearing in the Bankruptcy Court in order to share in a fund of which the federal power has validly taken possession, or pursuing a debtor who has been freed of his debts pursuant to federal constitutional power. In the case of claims against the State, I suggest that, even if the constitutional power were clear—which it is not—a proper regard for the independence of State governments may outweigh the desirability of providing in the Bankruptcy Courts a possibly more speedy procedure than the States themselves provide for such determinations.11
The provisions of the 1973 Bankruptcy Bill were never passed into law; instead, H.R. 8200 was introduced. As reported by the House Committee on the Judiciary on September 8, 1977, Section 106 of H.R. 8200 provided that:
This provision was much more limited than the similar provision in the 1973 bill. Where the 1973 bill waived the sovereign immunity of governmental units completely with respect to all other provisions of that act, H.R. 8200 waived sovereign immunity only when a governmental unit filed a proof of claim, and then only with respect to compulsory counterclaims and certain offsets in favor of estates.12 Clearly there was concern in the House about the power of Congress to waive the sovereign immunity of the states. Although Section 106 of H.R. 8200 was intended to waive the sovereign immunity of states only in those instances where Congress has power to do so, no attempt was made to define the limits of Congress' power.
Congress did not attempt, either in H.R. 8200 or in S 2266 (the Senate's alternative legislation),13 to waive the sovereign immunity of states in all instances. The limiting effect of Section 106 of H.R. 8200 was to allow the trustee to recover a preferential transfer "only if the taxing authority did not have sovereign immunity or had waived it under proposed 11 U.S.C. 106."14 Taxing authorities would not be subject to actions to recover preferential transfers unless they had waived sovereign immunity by filing a claim.
The present version of Section 106(c) of the Bankruptcy Code was first added to the proposed compromise bill after H.R. 8200 and S. 2266 had been reported by their respective House and Senate Committees. The floor statements of Congressman Edwards and Senator Deconcini, delivered on September 28, 1978 and October 6, 1978, respectively, explain this final version of Section 106(c):
Section 106(c) relating to sovereign immunity is new. The provision indicates that the use of the term "creditor," "entity," or "governmental unit" in title 11 applies to...
To continue reading
Request your trial