Estate of Fernandez, Matter of

• Decision Date: 15 September 1997
• Docket Number: 97-30529,Nos. 96-31013,s. 96-31013
• Citation: 123 F.3d 241
• Parties: 38 Collier Bankr.Cas.2d 1249, 31 Bankr.Ct.Dec. 601, Bankr. L. Rep. P 77,514, 11 Tex.Bankr.Ct.Rep. 355 In the Matter of ESTATE OF Julian E. FERNANDEZ, Debtor, DEPARTMENT OF TRANSPORTATION AND DEVELOPMENT, State of Louisiana, Appellant, v. PNL ASSET MANAGEMENT COMPANY LLC; Jean O. Turner, Appellees. In the Matter of: Julian E. FERNANDEZ, Debtor, STATE OF LOUISIANA, Department of Transportation and Development, Appellee, v. Jean O. TURNER, trustee; PNL Asset Management Company, Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 241

123 F.3d 241

38 Collier Bankr.Cas.2d 1249, 31 Bankr.Ct.Dec. 601,

Bankr. L. Rep. P 77,514, 11 Tex.Bankr.Ct.Rep. 355

In the Matter of ESTATE OF Julian E. FERNANDEZ, Debtor,

DEPARTMENT OF TRANSPORTATION AND DEVELOPMENT, State of

Louisiana, Appellant, v. PNL ASSET MANAGEMENT COMPANY LLC; Jean O. Turner, Appellees.

In the Matter of: Julian E. FERNANDEZ, Debtor,

STATE OF LOUISIANA, Department of Transportation and Development, Appellee, v. Jean O. TURNER, trustee; PNL Asset Management Company, Appellants.

Nos. 96-31013, 97-30529.

United States Court of Appeals Fifth Circuit.

Sept. 15, 1997.

Ronald J. Bertrand, Bertrand & Soileau, Rayne, LA, for Dept. of Transp. and Development, State of La.

Mark Bernard Stern, U.S. Department of Justice, Washington, DC, Michael Eugene Robinson, Civil Div., Department of Justice, Appellate Staff, Washington, DC, for U.S., Intervenor.

Gerald F. Slattery, Jr., New Orleans, LA, for PNL Asset Management Co. LLC, Appellee.

Jan M. Hayden, Robyn Jeana Spalter, Tristan Edwards Manthey, Bronfin & Heller, New Orleans, LA, for Jean O. Turner.

Leonard Howard Gerson, Angel & Frankel, New York City, for Business Bankruptcy Law Committee of the New York County Lawyers' Ass'n, Amicus Curiae.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before REYNALDO G. GARZA, HIGGINBOTHAM and DAVIS, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

The State of Louisiana and the Louisiana Department of Transportation and Development contend that the Eleventh Amendment denies the Bankruptcy Court jurisdiction in this adversary action, and Congress cannot constitutionally displace the State's immunity by Section 106(a) of the Bankruptcy Code ¹ (11 U.S.C. § 106(a) (1994)). The district court agreed. We now affirm.

I.

On August 8, 1974, New Communities, Inc. sold property in Terrebonne Parish, Louisiana, to Julian E. Fernandez who purported to act as a general partner of a Louisiana partnership called JEF Developers. But JEF came into existence only a day later on August 9, 1974, when the articles of partnership were executed.

PNL Asset Management Company LLC is the owner of a recorded judgment against Fernandez. In 1984, the State of Louisiana purchased two parcels of the property from JEF Developers in two separate transactions. The title to the property is now disputed. The State's claim of title rests on the two sales transactions in 1984. PNL contends that the state's title is flawed, since it is Fernandez individually, and not JEF, the partnership, who owns the property and has since 1974.

PNL's predecessor in interest, NCNB Texas National Bank brought this adversary action after Fernandez declared Chapter 11 bankruptcy on June 15, 1989. The State and the DOTD moved for dismissal pointing to the Eleventh Amendment. The bankruptcy court denied this motion and held that Section 106(a) of the Bankruptcy Code abrogated the State's Eleventh Amendment sovereign immunity thus permitting the bankruptcy court to retain jurisdiction over the State and the DOTD. The district court partially affirmed and partially reversed the bankruptcy court's judgment. On September 25, 1996, the DOTD filed its first appeal to this court contending that the bankruptcy court did not have jurisdiction over the State and the DOTD.

In light of the Supreme Court's decision in Seminole Tribe of Florida v. Florida ², on April 16, 1997, the district court issued another order dismissing the State and the DOTD from this action. In May, 1997, PNL and the trustee in bankruptcy, Jean O. Turner, filed a second appeal to this court contending that Section 106(a) was constitutional, and therefore, the federal courts had jurisdiction over the State and the DOTD. These two appeals, which raise the same jurisdictional question, have been consolidated.

II.

Seminole Tribe outlined a two-part test of abrogation: first, has Congress unequivocally expressed its intent to abrogate the immunity; and second, has Congress acted pursuant to a valid exercise of its power. Seminole Tribe, 517 U.S. at ----, 116 S.Ct. at 1123.

Section 106(a) clearly expresses Congressional intent to abrogate sovereign immunity. No party contends otherwise. The sole question then is whether Congress had the power to do so.

A.

PNL and Turner contend that Congress had the power to abrogate state sovereign immunity by enacting Section 106(a) pursuant to its bankruptcy power in Art. I, § 8, cl. 4 ³. We think not.

Seminole Tribe held that Congress may not abrogate state sovereign immunity by legislation passed pursuant to its Article I powers. Id. at ---- - ----, 116 S.Ct. at 1131-32. The Court stated:

Even when the Constitution vests in Congress complete lawmaking authority over a particular area, the Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting States. The Eleventh Amendment restricts the judicial power under Article III, and Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction.

Id.

Turner contends that Seminole Tribe only held that Congress could not abrogate sovereign immunity pursuant to the Indian and Interstate Commerce Clauses and did not address all of Congress' Article I powers. In addition, Turner notes that the Bankruptcy Clause is distinguishable from the Commerce Clause since it contains an affirmative requirement of uniformity. We find both arguments to be unpersuasive.

As the quoted passage from Seminole Tribe notes, Congress' Article I powers cannot be used to circumvent the Eleventh Amendment restrictions on federal judicial power. Seminole Tribe explicitly overruled Pennsylvania v. Union Gas Co. ⁴ --the only Supreme Court case that held Congress may abrogate sovereign immunity pursuant to its Article I powers. Seminole Tribe, 517 U.S. at ----, 116 S.Ct. at 1128. With respect to Congress' bankruptcy power in particular, Chief Justice Rehnquist noted in Seminole Tribe that "it has not been widely thought that the federal antitrust, bankruptcy, or copyright statutes abrogated the States' sovereign immunity. This Court never has awarded relief against a State under any of those statutory schemes." Id. at ---- - ---- n.16, 116 S.Ct. at 1131-32 n. 16.

We find no principled reason to distinguish in a relevant way Congress' Commerce Clause power that it purported to exercise in Seminole Tribe from its power under the Bankruptcy Clause for the purposes of state sovereign immunity. See Hoffman v. Connecticut Dep't of Income Maintenance et al., 492 U.S. 96, 105, 109 S.Ct. 2818, 2825, 106 L.Ed.2d 76 (1989) (Scalia, J., concurring in judgment) (noting that "there is no basis for treating [Congress'] powers under the Bankruptcy Clause any differently" from its powers under the Commerce Clause); In re Sacred Heart Hosp. of Norristown, 204 B.R. 132, 138 (E.D.Pa.1997) (noting that "[t]he Bankruptcy Clause is identical to the Indian Commerce Clause in both wording and scope.") On the contrary, the Framers intended that the two powers be treated similarly. As Madison noted in the Federalist No. 42, "the power of establishing uniform laws of bankruptcy is ( ) intimately connected with the regulation of commerce." James Madison, The Federalist No. 42 in The Federalist Papers, 271 (C. Rossiter ed. 1961). The large grant of power to the national government by the Commerce Clause reflects the felt need to escape the risks of economic balkanization attending the confederation.

The uniformity requirement in the Bankruptcy Clause is not a relevant distinction. As the Supreme Court noted more than fifty years ago, "[t]he Constitutional requirement of uniformity is a requirement of geographic uniformity" and nothing more. Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 172, 67 S.Ct. 237, 244-45, 91 L.Ed. 162 (1946). Holding that federal courts do not have jurisdiction over the states without their consent does not frustrate this requirement of geographic uniformity since sovereign immunity applies uniformly to all states and to all parties in a bankruptcy proceeding.

Congress' bankruptcy power in Article I may be contrasted with its Fourteenth Amendment powers which are deemed "to intrude upon the province of the Eleventh Amendment." Seminole Tribe, 517 U.S. at ----, 116 S.Ct. at 1125. While the history and language of the Fourteenth Amendment make plain that it "fundamentally altered the balance of state and federal power struck by the Constitution," the same cannot be said of Congress' bankruptcy power and its uniformity requirement. See Seminole Tribe, 517 U.S. at ----, 116 S.Ct. at 1125 (quoting Fitzpatrick v. Bitzer, 427 U.S. 445, 455, 96 S.Ct. 2666, 2671, 49 L.Ed.2d 614 (1976)).

Finally, several other courts that have reached this issue in the wake of Seminole Tribe agree that the Bankruptcy Clause does not enable Congress to abrogate state sovereign immunity unilaterally. See, e.g., In re Creative Goldsmiths of Washington, D.C., Inc., 119 F.3d 1140, 1146 (4th Cir.1997); AER-Aerotron, Inc. v. Texas Dep't of Transp., 104 F.3d 677, 680-81 (4th Cir.1997) ("[P]erhaps the handwriting is on the wall that the abrogation provisions of the Bankruptcy Reform Act will suffer the same fate as the statutes involved in Seminole." (dictum)); id. at 681 (Niemeyer, J., concurring in judgment) (reading Seminole Tribe as rejecting the notion that "states are amenable to suits in federal courts when Congress, acting pursuant to its Article I bankruptcy power, deems it so"); In re Sacred Heart Hosp. of Norristown, 204 B.R. 132, 138 (E.D.Pa.1997); In re NVR, L.P., 206 B.R. 831, 837 (Bankr.E.D.Va.1997); In re York-Hannover Devs., Inc., 201 B.R. 137, 140 (Bankr.E.D.N.C.1996); In re Tri-City Turf Club, Inc., 203 B.R. 617, 619-20 (Bankr.E.D.Ky.1996); In re Midland Mechanical Contractors, Inc., 200 B.R. 453, 457-58 (Bankr.N.D.Ga.1996); In re Burke, 200 B.R. 282, 286 (Bankr.S.D.Ga.1996) and In re Martinez, 196 B.R....