In re Chandler, BAP No. NO-00-016. Bankruptcy No. 99-01929. Adversary No. 99-0173.

• Decision Date: 24 August 2000
• Docket Number: BAP No. NO-00-016. Bankruptcy No. 99-01929. Adversary No. 99-0173.
• Citation: 251 BR 872
• Parties: In re Kenneth O. CHANDLER, Debtor. Kenneth O. Chandler, Plaintiff-Appellee, v. State of Oklahoma ex rel. Oklahoma Tax Commission, Defendant-Appellant.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

251 B.R. 872 (2000)

In re Kenneth O. CHANDLER, Debtor.

Kenneth O. Chandler, Plaintiff-Appellee, v. State of Oklahoma ex rel. Oklahoma Tax Commission, Defendant-Appellant.

BAP No. NO-00-016. Bankruptcy No. 99-01929. Adversary No. 99-0173.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

August 24, 2000.

Kenneth O. Chandler, pro se.

Submitted on the briefs:^* Thomas E. Kemp, Jr., General Counsel, Oklahoma Tax Commission; Joseph P. Gappa and Amber L. Willingham, Assistant General Counsel, Oklahoma Tax Commission, Oklahoma City, Oklahoma, for Defendant-Appellant.

Before CLARK, ROBINSON, and MATHESON, Bankruptcy Judges.

OPINION

CLARK, Bankruptcy Judge.

The State of Oklahoma ex rel. Oklahoma State Tax Commission ("OTC") appeals a decision of the United States Bankruptcy Court for the Northern District of Oklahoma, holding that the OTC could be sued by the Chapter 7 debtor ("Debtor") in the bankruptcy court pursuant to 11 U.S.C. § 523(a).¹ In so holding, the bankruptcy court ruled that § 106(a) validly abrogates the OTC's sovereign immunity. For the reasons set forth below, we REVERSE and REMAND.

I. Background

The OTC allegedly assessed the Debtor for certain taxes, and filed a tax warrant against the Debtor related to that tax debt. Several years later, the Debtor filed a petition seeking relief under Chapter 7 of the Bankruptcy Code. The OTC asserts that it has neither filed a proof of claim nor otherwise participated in the Debtor's Chapter 7 case, and these facts are not contested by the debtor.

The Debtor filed a complaint in the bankruptcy court, naming the OTC as a defendant, seeking a determination that his alleged tax debt to the OTC is dischargeable ("Dischargeability Action"). On the day that the Debtor filed his complaint, a summons was issued to the OTC. In response, the OTC made a special appearance in the Debtor's bankruptcy case, moving to dismiss the Dischargeability Action for lack of subject matter jurisdiction. The OTC argued that as a sovereign entity it was immune from suit under the Eleventh Amendment, and that § 106(a) was not a valid abrogation of its sovereign immunity. The OTC also maintained that it had not waived its immunity in the Debtor's case.

The bankruptcy court denied the OTC's motion to dismiss the Dischargeability Action. In so doing, the court issued a Memorandum Opinion and Order holding that § 106(a) validly abrogated the OTC's sovereign immunity. The OTC filed a timely appeal from the bankruptcy court's final Memorandum Opinion and Order, and no party has elected to have this appeal considered by the United States District Court for the Northern District of Oklahoma. See 28 U.S.C. § 158(a)(1) & (c)(1); Fed. R. Bankr.P. 8001(a) & 8002(a); 10th Cir. BAP L.R. 8001-1.²

II. Discussion

In Straight v. Wyoming Dep't of Transp. (In re Straight), 248 B.R. 403 (10th Cir. BAP 2000), this Court, in a split decision, ruled that § 106(a) is not a constitutional abrogation of a governmental unit's sovereign immunity. Given this binding decision, the bankruptcy court's order must be reversed, unless the Court determines that the OTC is not entitled to claim sovereign immunity under the Eleventh Amendment, or that the OTC has waived its sovereign immunity. As discussed below, the proceeding involved herein is a "suit" to which the Eleventh Amendment applies and, based on the record before us, the OTC has not waived its sovereign immunity. Thus, the bankruptcy court's order must be reversed.

1. The Dischargeability Action is a "Suit" to which the Eleventh Amendment Applies

The States' sovereign immunity is derived from the Eleventh Amendment, which provides: "The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." U.S. Const. amend. XI (emphasis added). This bar to federal jurisdiction extends to suits against States by its own citizens. See, e.g., Hans v. Louisiana, 134 U.S. 1, 10, 10 S.Ct. 504, 33 L.Ed. 842 (1890); accord Seminole Tribe of Florida v. Florida, 517 U.S. 44, 54, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996). The Eleventh Amendment's express language makes clear that its limitations only apply to a "suit," and not all legal actions are suits for purposes of the immunity afforded to the States by the Eleventh Amendment. Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 407-12, 5 L.Ed. 257 (1821).

It is well-established that a suit for purposes of the Eleventh Amendment includes any action by a private party against a State that seeks to impose liability which must be paid from public funds of the State's treasury. See, e.g., Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974). However, monetary recovery against a State is not necessarily required for an action be deemed a suit. In Seminole Tribe, the Court stated:

The type of relief sought is irrelevant to whether Congress has power to abrogate States\' immunity. The Eleventh Amendment does not exist solely in order to "prevent federal-court judgments that must be paid out of a State\'s treasury," Hess v. Port Authority Trans-Hudson Corporation, 513 U.S. 30, 48 115 S.Ct. 394, 130 L.Ed.2d 245 (1994); it also serves to avoid "the indignity of subjecting a State to the coercive process of judicial tribunals at the instance of private parties," Puerto Rico Aqueduct and Sewer Authority, 506 U.S., at 146, 113 S.Ct. 684 (internal quotation marks omitted).

517 U.S. at 58, 116 S.Ct. 1114.

In bankruptcy, the overwhelming view is that an adversary proceeding that names a State as a defendant and summons it to appear in federal court is a suit for Eleventh Amendment purposes, regardless of whether the plaintiff is seeking monetary relief from the State. See, e.g., Mitchell v. Franchise Tax Board, State of Calif. (In re Mitchell), 209 F.3d 1111, 1116 (9th Cir.2000); Virginia v. Collins (In re Collins), 173 F.3d 924, 928-29 (4th Cir. 1999), cert. denied, ___ U.S. ____, 120 S.Ct. 785, 145 L.Ed.2d 663 (2000); Maryland v. Antonelli Creditors' Liquidating Trust, 123 F.3d 777, 786-87 (4th Cir.1997); Schlossberg v. Maryland (In re Creative Goldsmiths of Washington D.C., Inc.), 119 F.3d 1140, 1148 (4th Cir.1997), cert. denied, 523 U.S. 1075, 118 S.Ct. 1517, 140 L.Ed.2d 670 (1998); University of Virginia v. Robertson, 243 B.R. 657, 662-65 (W.D.Va.2000); Taylor v. Georgia Dep't of Revenue (In re Taylor), 249 B.R. 571, 573-75 (Bankr.N.D.Ga.2000); Pitts v. Ohio Dep't of Taxation (In re Pitts), 241 B.R. 862, 868-70 (Bankr.N.D.Ohio 1999); A.H. Robins Co. v. James Dieleuterio et al. (In re A.H. Robins Co.), 235 B.R. 406 (Bankr. E.D.Va.1999); see In re NVR, LP, 189 F.3d 442, 452-53 (4th Cir.1999) (contested matter was a suit where, although not summoned to appear, the reorganized debtor sought monetary recovery from taxing authorities), cert. denied, ___ U.S. ___, 120 S.Ct. 936, 145 L.Ed.2d 815 (2000); Texas v. Walker, 142 F.3d 813, 823 (5th Cir.1998), cert. denied, 525 U.S. 1102, 119 S.Ct. 865 (1999) (holding that bankruptcy case is not a suit as the State was not hauled into federal court against its will, but recognizing that the commencement of an adversary proceeding may be a suit); In re Sun Healthcare Group, Inc., 245 B.R. 779, 785 (Bankr.D.Del.2000) (same); In re Barrett Refining Corp., 221 B.R. 795, 801-08 (Bankr.W.D.Okla.1998) (same); see also Missouri v. Fiske, 290 U.S. 18, 28, 54 S.Ct. 18, 78 L.Ed. 145 (1933) (if a State does not come voluntarily to federal court, the federal court may not issue process compelling State to appear). In Straight, 248 B.R. at 409 n. 4, this Court agreed with this view, holding that the adversary proceeding in that case was a suit for purposes of the Eleventh Amendment.

The rationale behind the "adversary proceeding" rule is twofold. First, the commencement of an adversary proceeding naming a State as a defendant results in the issuance of a summons against the State thereby subjecting it to the "indignity" of a required appearance in a judicial tribunal. Seminole, 517 U.S. at 58, 116 S.Ct. 1114; see Fed. R. Bankr.P. 7001 & 7004 (making Fed.R.Civ.P. 4(a), (b), (c) and (j) applicable in adversary proceedings); Antonelli, 123 F.3d at 787 (commencement of an adversary proceeding would "amount to the exercise of federal judicial power to hale a state into federal court against its will and in violation of the Eleventh Amendment."), quoted in NVR, 189 F.3d at 453. Second, the commencement of an adversary proceeding against a State entails the bankruptcy court's exercise of in personam jurisdiction over the State, and the resolution of the proceeding results in a decision that is specifically binding on the State. See Mitchell, 209 F.3d at 1116 (relying on Collins, 173 F.3d at 930 (distinguishing "jurisdiction over the debtor and his estate" from "bankruptcy court jurisdiction over the state")); Antonelli, 123 F.3d at 787; see also Fed. R. Bankr.P. 7004(f) ("If the exercise of jurisdiction is consistent with the Constitution and laws of the United States, serving a summons . . . in accordance with this rule or the subdivisions of Rule 4 F.R. Civ. P. . . . is effective to establish personal jurisdiction over the person of any defendant with respect to a case under the Code or a civil proceeding arising under the Code, or arising in or related to a case under the Code.").

In the Dischargeability Action, the Debtor has sought a determination of the dischargeability of his debt to the OTC in an adversary proceeding. The record shows that the Debtor named the OTC as a defendant in the Dischargeability Action, and the OTC was summoned to appear in the bankruptcy court. As such, the Dischargeability Action is a suit to which the Eleventh Amendment applies. Accord Mitchell, 209 F.3d at 1116; Straight, 248 B.R. at 409 n. 4; Robertson, 243 B.R. at 664-65; Robins, 235 B.R. at 411; Pitts, 241 B.R. at 868....