In re Janc

• Decision Date: 08 August 2000
• Docket Number: Bankruptcy No. 99-40221-W-7. Adversary No. 99-4198-1.
• Parties: In re Tammy L. JANC, Debtor. Tammy L. Janc, Plaintiff, v. Coordinating Board for Higher Education, Missouri Western State College, and U.S. Department of Education, Defendants.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri

251 B.R. 525 (2000)

In re Tammy L. JANC, Debtor.

Tammy L. Janc, Plaintiff, v. Coordinating Board for Higher Education, Missouri Western State College, and U.S. Department of Education, Defendants.

Bankruptcy No. 99-40221-W-7. Adversary No. 99-4198-1.

United States Bankruptcy Court, W.D. Missouri, Western Division.

August 8, 2000.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Tracy L. Robinson, Kansas City, MO, for debtor/plaintiff.

Judith M. Strong, Kansas City, MO, Patricia A. Molteni, Jefferson City, MO, for defendant.

MEMORANDUM OPINION AND ORDER

JERRY VENTERS, Bankruptcy Judge.

This Adversary Proceeding comes before the Court at this juncture on the following pre-trial motions: (1) Defendant Coordinating Board for Higher Education's ("CBHE") Motion to Dismiss, filed June 16, 1999; (2) Plaintiff Tammy L. Janc's Motion for Summary Judgment on the Issue of Sovereign Immunity, filed on January 21, 2000; and (3) Defendant CBHE's Cross Motion for Summary Judgment on the Issue of Sovereign Immunity, filed March 20, 2000. Because these motions all hinge on the issue of whether CBHE has waived its Eleventh Amendment immunity from suit in federal court, the Court will rule on them together in this Memorandum Opinion and Order.¹

DISCUSSION

The facts of this case, unlike the issues, are not complicated. On April 19, 1999, the Debtor initiated the instant Adversary Proceeding to obtain the discharge, pursuant to 11 U.S.C. § 523(a)(8), of fourteen (14) student loans taken out at various times from 1991 to 1996 when she was a student at Missouri Western State College. The Debtor's original and Amended Complaint listed CBHE, Missouri Higher Education Loan Authority ("MOHELA"), Missouri Western State College ("MWSC") and the U.S. Department of Education ("DOE") as defendants. According to the Amended Complaint, MWSC holds a claim against the Debtor for approximately $456.08; MOHELA holds a claim for approximately $36,651.39; CBHE holds a claim for approximately $10,409.08; and DOE is the ultimate guarantor on all of the loans. Since the filing of the Complaint, a default judgment has been entered against Defendant MWSC, and Defendant MOHELA has been dismissed as a party because it no longer owns any of the Debtor's loans. (Pursuant to MOHELA's agreement with CBHE, CBHE purchased all of the loans held by MOHELA upon the Debtor's default.) DOE also moved to be dismissed as a party to the action based on the fact that it does not currently hold any of the Debtor's loans and because it agrees to be bound by any determination of the Court, if the loans are later transferred to it pursuant to its guarantee agreement with CBHE. The Debtor opposed this Motion on the basis that DOE is a necessary party because it is the ultimate guarantor on the loans and for the reason that DOE's participation in discovery was necessary because its agreements with CBHE, MOHELA and MWSC allegedly bear directly on the Debtor's ability to maintain her § 523(a)(8) claim. The Court denied DOE's motion without prejudice stating, however, that it would consider allowing DOE to re-file its motion after the completion of discovery. At this point, then, the only remaining defendants in this Adversary Proceeding are CBHE and DOE.

CBHE filed the Motion to Dismiss now before the Court on June 16, 1999. The Motion's sole argument is that CBHE is immune from the jurisdiction of this Court because CBHE is a state agency and is thereby entitled to Eleventh Amendment sovereign immunity. The Debtor combined her Response to CBHE's Motion with a Motion for Summary Judgment on the Issue of Sovereign Immunity. CBHE subsequently filed a Cross-Motion for Summary Judgment on the Issue of Sovereign Immunity.

Our discussion of the issue of Eleventh Amendment sovereign immunity will follow the road map set out concisely by the Debtor in her Response/Motion for Summary Judgment. She posits, and we will answer, the following questions:

1. Did Congress successfully abrogate the Eleventh Amendment Immunity when it enacted 11 U.S.C. § 106?

2. If Congress did not successfully abrogate the Eleventh Amendment immunity by the enactment of 11 U.S.C. § 106, has CBHE waived its immunity in this action?

3. If Congress did not successfully abrogate the Eleventh Amendment immunity by the enactment of 11 U.S.C. § 106 and CBHE did not waive its immunity in this action, does the Court retain jurisdiction over the Debtor and the Debtor\'s estate sufficient to make a determination on the merits of the hardship claim?

Before we address these questions, however, we pause briefly to discuss Eleventh Amendment sovereign immunity and why it is an issue in the context of determinations of student loan dischargeability.

The Eleventh Amendment to the United States Constitution restricts federal jurisdiction over "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. By its express terms, it appears only to prohibit suits against states by citizens, but the Supreme Court has long interpreted the Eleventh Amendment, in case law that has been described as "hoary" by more than a few courts,² to apply to all suits brought in federal court by any person against an unconsenting state.³

Section 523(a) of the Bankruptcy Code sets forth eighteen categories of debts that are excepted from the general discharge granted to debtors pursuant to 11 U.S.C. §§ 727, 1141, 1228(b) or 1328(b). 11 U.S.C. § 523. For purposes of the present case, we are interested in § 523(a)(8). Section 523(a)(8) excepts from discharge any debt —

for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor\'s dependents.

11 U.S.C. § 523(a)(8). Whether a particular debt is excepted from discharge under § 523(a) is determined in an adversary proceeding and requires the filing of a complaint. Fed.R.Bankr.P. 4007 and 7001(6).⁴ For most actions to determine the dischargeability of a debt, the creditor seeking to have its debt excepted from discharge is required to file the complaint and bears the burden of proof.⁵ Under § 523(a)(8), however, the debtor must institute the action and bears the burden of proving that excepting the student loan from discharge will impose an undue hardship.⁶ Because § 523(a)(8) and, by implication, Federal Rules of Bankruptcy Procedure 4007 and 7001(6), require the filing of a complaint against the creditor to whom the debt is owed, the issue of service, summons, and the bankruptcy court's jurisdiction over the defendant creditor must be considered. If a student loan is held by a private entity such as a bank or private school, there is usually no question whether the entity is subject to the jurisdiction of the bankruptcy court. However, if the loan is held by a state agency or a state-sponsored educational institution, the specter of Eleventh Amendment sovereign immunity frequently surfaces, and generally, if the state entity asserts its Eleventh Amendment sovereign immunity, which increasingly appears to be the case in student loan dischargeability actions, the bankruptcy court loses its jurisdiction over that entity, and therefore cannot proceed to determine the dischargeability of the student loan.⁷

A state's Eleventh Amendment sovereign immunity is not absolute, however. It may be abrogated by Congress, Seminole Tribe of Florida v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), or waived by a state. Id. at 65, 116 S.Ct. 1114. The abrogation and waiver of sovereign immunity are the subjects of the first two issues raised by Debtor.

I. 11 U.S.C. § 106.

Section 106 of the Bankruptcy Code is the section in which Congress attempted to abrogate sovereign immunity in bankruptcy proceedings. It provides, in pertinent part:

(a) Notwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect to the following:

(1) Sections 105, 106 . . . 523 . . . of this title.

(2) The court may hear and determine any issue arising with respect to the application of such sections to governmental units.

11 U.S.C. § 106(a). We find a thorough discussion of the origin, development, and meaning of § 106 in Schmitt v. Missouri Western State College (In re Schmitt), 220 B.R. 68, 71 (Bankr.W.D.Mo.1998). In Schmitt, Judge Arthur B. Federman of this Court wrote:

The Bankruptcy Code (the Code), as enacted in 1978, recognized the drastic impact that state claims of sovereign immunity could have on these bankruptcy proceedings. Section 106 of the Code, as originally enacted, provided for waiver of sovereign immunity in certain narrow circumstances. In Hoffman v. Connecticut Department of Income Maintenance, the Supreme Court held that in enacting section 106, Congress had not intended to waive states\' sovereign immunity as to causes of action for preferential transfers. The Court did not find in the text of the statute an "unmistakably clear" intent by Congress to waive sovereign immunity, so no such waiver was found. Thereafter, in order to make it perfectly clear, Congress amended the Code in 1994 to provide that sovereign immunity is abrogated as to governmental units with respect to certain specific sections of the Code. As relevant here, Congress specifically abrogated the sovereign immunity defense as to actions brought for a determination of dischargeability under Section 523 of the Code.

The application of Section 106 is dependent on the power of Congress to abrogate sovereign immunity in light of the Eleventh Amendment to the Constitution. . . . In Pennsylvania v. Union Gas Co., 491 U.S. 1,

...