In re Koehler
| Citation | 204 BR 210 |
| Decision Date | 06 January 1997 |
| Docket Number | Bankruptcy No. 4-94-6040,Adv. No. 4-96-0087. |
| Parties | In re Tamra M. KOEHLER, Debtor. Tamra M. KOEHLER, Plaintiff, v. IOWA COLLEGE STUDENT AID COMMISSION, Defendant. Tamra M. KOEHLER, Plaintiff, v. NATIONAL CREDIT SERVICES CORP., Defendant. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota |
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Russell A. Norum, Wayzata, MN, for plaintiff.
Daniel S. Rabin, Berman, Singer & Rabin, P.A., Overland Park, KS, Rodney A. Honkanen, Wagner, Falconer & Judd, Ltd., Minneapolis, MN, for defendant National Credit Service Corp.
Janet S. Wisby, Assistant Attorney General, Des Moines, IA, for defendant ICSAC.
ORDER DENYING DEFENDANT'S MOTION TO DISMISS COUNT TWO OF PLAINTIFF'S COMPLAINT
The above-entitled matter came on for hearing before the undersigned on the motion of Defendant, Iowa College Student Aid Commission (ICSAC), to dismiss Count Two of the Plaintiff's Complaint due to lack of subject matter jurisdiction under the sovereign immunity doctrine of the Eleventh Amendment to the United States Constitution. In light of the recent United States Supreme Court decision in Seminole Tribe of Florida v. Florida, ___ U.S. ___, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), the parties were asked to brief the issue of the effect of the Eleventh Amendment on this Court's jurisdiction over Count Two of the Plaintiff's Complaint. After carefully considering the arguments of counsel, I hold that ICSAC has waived its Eleventh Amendment sovereign immunity by filing a counterclaim in this proceeding, that this Court does not lack subject matter jurisdiction over Count Two, and that Defendant's motion to dismiss Count Two should be denied.
Tamra M. Koehler (Plaintiff) is a resident of the State of Minnesota. Between October, 1981 and August, 1984, the Plaintiff executed a series of promissory notes totaling $10,000 in principal amount in exchange for student loans received under a government-funded student loan program. ICSAC is an agency of the State of Iowa authorized under Iowa law to administer and enforce the Iowa Guaranteed Loan Program which served as guarantor of the Plaintiff's loans. Plaintiff defaulted on her obligation to repay the loans. Subsequently, ICSAC paid the debt pursuant to the terms of its guaranty and the notes were endorsed and assigned to ICSAC for collection.
On December 1, 1994, the Plaintiff filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. Neither ICSAC nor the Plaintiff filed a proof of claim on behalf of ICSAC in the Chapter 13 case. During the case, ICSAC allegedly made attempts to collect the loans in willful violation of the automatic stay. Plaintiff's Chapter 13 plan was confirmed on February 3, 1995. After paying 100 percent of the filed claims under the Chapter 13 Plan, the Plaintiff received a discharge on February 2, 1996.
On March 29, 1996, the Plaintiff commenced the current adversary proceeding. In Count One of her Complaint, Plaintiff seeks a declaration that the debt to ICSAC was discharged. In Count Two, Plaintiff seeks monetary damages against ICSAC for alleged willful violations of the automatic stay.
On behalf of ICSAC, the Attorney General for the State of Iowa filed an Answer to the Plaintiff's Complaint and a Counterclaim for judgment in the amount of $13,706.39, the unpaid principal and interest balance of the loans, plus collection costs. ICSAC then moved to dismiss Count Two of the Complaint, arguing that the Bankruptcy Court lacks subject matter jurisdiction under the sovereign immunity doctrine of the Eleventh Amendment.1 The issue to be decided is whether and to what extent ICSAC has waived its Eleventh Amendment immunity against suit for damages by filing a counterclaim seeking judgment for the debt.
The Eleventh Amendment to the United States Constitution 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."2 Prior to the ratification of the Constitution, it was widely understood that the common-law principle of sovereign immunity would prevent Article III's grant of federal judicial power from making states unwilling defendants in federal court. Employees v. Missouri Dep't of Pub. Health and Welfare, 411 U.S. 279, 291-92, 93 S.Ct. 1614, 1621, 36 L.Ed.2d 251 (1973) (Marshall, J., concurring). "Because of the problems of federalism inherent in making one sovereign appear against its will in the courts of the other, a restriction upon the exercise of the federal judicial power has long been considered appropriate. . . ." Id. at 294, 93 S.Ct. at 1622-23. The Eleventh Amendment was added to the Constitution in 1798 to affirm the Framers' original intent that "the fundamental principle of sovereign immunity limits the grant of judicial authority in Art. III." Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 98, 104 S.Ct. 900, 906-07, 79 L.Ed.2d 67 (1984). Therefore, by restricting the grant of judicial power found in Article III, the Eleventh Amendment represents a constitutional limitation on the subject matter jurisdiction of the federal courts. Id.
In this case, the Plaintiff, a resident of the State of Minnesota, has commenced an adversary proceeding seeking damages against ICSAC, an agency of the State of Iowa. It is immediately apparent that the language of the Eleventh Amendment purports to foreclose federal subject matter jurisdiction over Count Two of the Plaintiff's Complaint by its very terms. There are two recognized exceptions to the reach of the Eleventh Amendment, however. Notwithstanding an assertion of Eleventh Amendment immunity, a federal court may exercise jurisdiction over a suit for damages between an individual and a state if: 1) Congress has validly abrogated the state's sovereign immunity; or 2) the state has voluntarily waived its sovereign immunity. Pennhurst State Sch. & Hosp., 465 U.S. at 99, 104 S.Ct. at 907-08.
The first exception to the reach of the Eleventh Amendment which must be considered is the doctrine of congressional abrogation. It is well-established that Congress, under § 5 of the Fourteenth Amendment, has the power to abrogate a state's Eleventh Amendment immunity by making its intention to do so "unmistakably clear in the language of the statute." Blatchford v. Native Village of Noatak, 501 U.S. 775, 786, 111 S.Ct. 2578, 2584-85, 115 L.Ed.2d 686 (1991); Dellmuth v. Muth, 491 U.S. 223, 227-28, 109 S.Ct. 2397, 2400, 105 L.Ed.2d 181 (1989); Fitzpatrick v. Bitzer, 427 U.S. 445, 456, 96 S.Ct. 2666, 2671, 49 L.Ed.2d 614 (1976).
In 1994, former § 106(c),3 now § 106(a), of the United States Bankruptcy Code was amended to make Congress' intention clear in this regard. In clear and unmistakable language, current § 106(a) purports to abrogate the sovereign immunity of any "governmental unit," including that of a state,4 for actions arising out of § 362 of the Bankruptcy Code.5 The amendment was enacted to address the Supreme Court's decisions in United States v. Nordic Village, Inc., 503 U.S. 30, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992), and Hoffman v. Conn. Dep't of Income Maintenance, 492 U.S. 96, 109 S.Ct. 2818, 106 L.Ed.2d 76 (1989). Under the rulings in those cases, an earlier and less specifically-worded version of current § 106(a) was found to be an insufficiently clear expression of congressional intent to abrogate the sovereign immunity of the states and the federal government. See Nordic Village, 503 U.S. at 34, 112 S.Ct. at 1015; Hoffman, 492 U.S. at 104, 109 S.Ct. at 2824.
Almost immediately following the 1994 Amendments, commentators questioned the constitutionality of new § 106(a) as applied to a state's Eleventh Amendment sovereign immunity.6 The Supreme Court's answer to these questions was not long in coming. In Seminole Tribe of Florida v. Florida, ___ U.S. ___, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), the Supreme Court held that Congress may not use its Article I powers to abrogate a state's Eleventh Amendment immunity. The Seminole decision arose in the context of congressional action taken under Article I, Section 8, clause 3 of the Constitution, the Indian Commerce Clause. The power given to Congress "to establish uniform Laws on the subject of Bankruptcies throughout the United States" is also an Article I power. U.S. CONST. art. I, § 8, cl. 4. With near uniformity,7 the commentaries written and the cases decided since Seminole have concluded that it follows from Seminole that § 106(a) is unconstitutional insofar as it attempts to abrogate an unconsenting state's sovereign immunity from suit in federal court.8 This Court agrees. The Seminole decision goes well beyond the Indian Commerce Clause and acts to frustrate any congressional attempt to abrogate Eleventh Amendment immunity using the powers granted to it under the Bankruptcy Clause of Article I.9 Thus, § 106(a) does not effectively abrogate ICSAC's Eleventh Amendment immunity, and it provides no predicate for an assertion of subject matter jurisdiction over Count Two of the Plaintiff's Complaint.
The second exception to the Eleventh Amendment's doctrine of sovereign immunity is waiver. In spite of its broad reading of the reach of the Eleventh Amendment, the Supreme Court has consistently adhered to the well-established rule that a consenting state may be sued for damages by an individual in federal court. Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 238, 105 S.Ct. 3142, 3145, 87 L.Ed.2d 171 (1985). See Seminole, at ___, 116 S.Ct. at 1131 n. 14 ()....
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