In re Hood, No. 00-8062.

CourtBankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit
Writing for the CourtGerson, 74 Am. Bankr.L.J. at 13
Citation262 BR 412
PartiesIn re Pamela L. HOOD, Debtor. Pamela L. Hood, Plaintiff-Appellee, v. Tennessee Student Assistance Corporation, Defendant-Appellant.
Docket NumberNo. 00-8062.
Decision Date22 May 2001

262 B.R. 412 (2001)

In re Pamela L. HOOD, Debtor.
Pamela L. Hood, Plaintiff-Appellee,
Tennessee Student Assistance Corporation, Defendant-Appellant.

No. 00-8062.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued February 7, 2001.

Decided May 22, 2001.

262 BR 413

Sally Ramsey, argued and on brief, Office of the Attorney General, Nashville, TN, for Appellant.

William A. Cohn, argued and on brief, Cohn Law Firm, Cordova, TN, for Appellee.

Before AUG, MORGENSTERN-CLARREN, and RHODES, Bankruptcy Appellate Panel Judges.


RHODES, Chief Bankruptcy Appellate Panel Judge.

The Debtor, Pamela L. Hood, filed an adversary proceeding seeking a determination that her debt to the Tennessee Student Assistance Corporation (TSAC) is dischargeable under 11 U.S.C. § 523(a)(8). The bankruptcy court denied TSAC's motion to dismiss based on sovereign immunity and TSAC appealed.

The Panel concludes that as a part of the plan of the Constitutional Convention, the States ceded to Congress their sovereignty over bankruptcy discharge matters. Therefore, the bankruptcy court's order denying TSAC's motion to dismiss is AFFIRMED.


The sole issue on appeal is whether TSAC has sovereign immunity in bankruptcy discharge matters.


The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Western District of Tennessee has authorized appeals to the BAP. A final order of a bankruptcy court may be appealed by right under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "`ends the litigation on

262 BR 414
the merits and leaves nothing for the court to do but execute the judgment.'" Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted)

Hood filed a motion to dismiss this appeal, asserting that the order denying the motion to dismiss is not a final order. On September 19, 2000, the Panel denied Hood's motion, because the collateral order doctrine allows immediate appellate review of an order denying a claim of Eleventh Amendment Immunity. Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 52, 116 S.Ct. 1114, 1121, 134 L.Ed.2d 252 (1996); Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 144-45, 113 S.Ct. 684, 688, 121 L.Ed.2d 605 (1993).

The application of a sovereign immunity defense is an issue of law subject to de novo review. Seminole Tribe, 517 U.S. 44, 116 S.Ct. 1114. "De novo review requires the Panel to review questions of law independent of the bankruptcy court's determination." First Union Mortgage Corp. v. Eubanks (In re Eubanks), 219 B.R. 468, 469 (6th Cir. BAP 1998) (citation omitted).


Between July of 1988 and February of 1990, Hood signed promissory notes for educational loans guaranteed by TSAC. On February 26, 1999, she filed a chapter 7 bankruptcy petition, at which time she owed money on these student loans. TSAC took no action in the bankruptcy case. On June 4, 1999, Hood was granted a discharge.

On October 14, 1999, she filed an adversary proceeding requesting discharge of her educational loans on the grounds of undue hardship under 11 U.S.C. § 523(a)(8). After TSAC was added as a defendant, it filed a motion to dismiss, asserting that the adversary proceeding was barred by sovereign immunity. The bankruptcy court denied the motion to dismiss, holding that 11 U.S.C. § 106 properly abrogated TSAC's sovereign immunity. TSAC filed this timely appeal.


A. Introduction

This opinion holds that as a part of the plan of the Constitutional Convention, the States ceded their sovereignty over matters relating to the discharge in bankruptcy. In so holding, the Panel applies the analytical framework that the Supreme Court has now firmly established for determining the issue. Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996). See also Board of Trustees of the Univ. of Al. v. Garrett, 531 U.S. 356, 121 S.Ct. 955, 962, 148 L.Ed.2d 866 (2001); Alden v. Maine, 527 U.S. 706, 730-33, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999); Kimel v. Florida Bd. of Regents, 528 U.S. 62, 120 S.Ct. 631, 145 L.Ed.2d 522 (2000); Florida Prepaid Postsecondary Educ. Exp. Bd. v. College Sav. Bank (II), 527 U.S. 627, 636, 119 S.Ct. 2199, 144 L.Ed.2d 575 (1999); College Sav. Bank v. Florida Prepaid Postsecondary Educ. Exp. Bd. (I), 527 U.S. 666, 672, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999).

The first step in this analysis is to recognize the sovereignty of the States and the important and inherent place of that sovereignty in our constitutional structure. Our focus is thus firmly fixed on this specific issue: Did the States cede their sovereignty over discharge matters in bankruptcy as a part of the plan of the Constitutional Convention?

The next step is to review the role of the States in matters relating to the collection and discharge of debt at the time of the

262 BR 415
Constitutional Convention. This review demonstrates that for the purposes of collecting debt, the States utilized their sovereignty and power to nearly the greatest extent possible, including imprisoning debtors

The next step is to examine The Federalist Papers, upon which the Supreme Court has often relied in resolving these issues, to determine the contemporaneous understanding of the circumstances in which the States yielded their sovereignty as a part of the formation of the Union. This examination discusses Hamilton's view that the States ceded their sovereignty whenever "a similar authority in the States would be absolutely and totally contradictory and repugnant." The Federalist No. 32 at 152-53 (Alexander Hamilton) (Buccaneer Books, 1992). Although Hamilton did not explicitly discuss the application of this standard in the context of bankruptcy, he did conclude that when the States agreed to the naturalization clause, under which Congress was granted the power to enact "uniform" laws on that subject, the States did yield their sovereignty. Two powerful considerations compel the conclusion that the States must also have yielded their sovereignty over bankruptcy matters. First, the drafters of the Constitution utilized the same unique and identical language to empower Congress to enact "uniform" laws on these two subjects. Second, the conclusion that it would be contradictory and repugnant to allow sovereignty to both Congress and the States is as strong in the bankruptcy context as it is in the naturalization context.

The next part of the opinion demonstrates that throughout our history, the Supreme Court's decisions have consistently and repeatedly recognized that the sovereignty of the States is subject to the laws that Congress chooses to enact on bankruptcy matters. That binding precedent from the Supreme Court is inconsistent with the view that States retain their sovereignty in bankruptcy discharge matters.

Finally, the opinion explains that the statements in Seminole Tribe on which TSAC relies are dicta, to be accorded little weight in the analysis. The summary treatment given to this issue in the cases since Seminole Tribe is also discussed.

B. Sovereignty Is a Matter of the Plan of the Constitutional Convention.

The analysis of sovereign immunity in bankruptcy begins by examining the plan of the Constitutional Convention. "Although the sovereign immunity of the States derives at least in part from the common-law tradition, the structure and history of the Constitution make clear that the immunity exists today by constitutional design." Alden v. Maine, 527 U.S. 706, 734, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999). In Alden, the Supreme Court observed:

The States\' immunity from suit is a fundamental aspect of the sovereignty which the States enjoyed before the ratification of the Constitution, and which they retain today (either literally or by virtue of their admission into the Union upon an equal footing with the other States) except as altered by the plan of the Convention or certain constitutional Amendments.

Id. at 713, 119 S.Ct. 2240.

The Supreme Court also stated, "The Eleventh Amendment confirmed rather than established sovereign immunity as a constitutional principle; it follows that the scope of the States' immunity from suit is demarcated not by the text of the Amendment alone but by fundamental postulates implicit in the constitutional design." Id. at 728-29, 119 S.Ct. 2240. See

262 BR 416
also Seminole Tribe, 517 U.S. at 70 n. 13, 116 S.Ct. 1114

Alexander Hamilton expressed this guiding principle in The Federalist Papers. "Unless, therefore, there is a surrender of this immunity in the plan of the convention, it will remain with the states. . . ." The Federalist No. 81, at 414 (Alexander Hamilton) (Buccaneer Books, 1992). The Supreme Court has firmly embraced the principle that any surrender of sovereignty must be reflected in the plan of the Constitutional Convention. See Seminole Tribe, 517 U.S. at 70 n. 13, 116 S.Ct. 1114; Alden, 527 U.S. at 730, 119 S.Ct. 2240.

Accordingly, the precise issue in this appeal is whether, as a part of the plan of the Convention, which granted Congress the authority to enact "uniform" bankruptcy laws, the States ceded to Congress their sovereignty over bankruptcy discharge matters.

C. Bankruptcy and Debt Collection in Early America.

At the time of the Constitutional Convention, the power and sovereignty of the States were fully engaged in the processes of private debt collection and of discharge from debt. Indeed, that power was engaged in the most coercive way available to the States. "Imprisonment for debt was commonplace in the colonies and then in the states, until the mid-nineteenth century." Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 Am. Bankr.Inst. L.Rev. 5, 12 (1995).

The States' use of imprisonment for private debt...

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