In re Lees

• Decision Date: 24 July 2000
• Docket Number: Bankruptcy No. 99-26880K. Adversary No. 99-0727
• Citation: 252 BR 441
• Parties: In re Daniel J. LEES, Debtor. Daniel J. Lees, Plaintiff, v. Tennessee Student Assistance Corporation, et al., Defendants.
• Court: U.S. Bankruptcy Court — Western District of Tennessee

252 B.R. 441 (2000)

In re Daniel J. LEES, Debtor Daniel J. Lees, Plaintiff, v. Tennessee Student Assistance Corporation, et al., Defendants.

Bankruptcy No. 99-26880K. Adversary No. 99-0727

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

July 24, 2000.

Russell W. Savory, Memphis, TN, for Plaintiff/Debtor.

The Honorable Paul G. Summers, Tennessee Attorney General and Reporter, Sally Ramsey, Assistant Attorney General, Tax Division, Bankruptcy Unit, Nashville, TN, for TSAC.

Madalyn S. Greenwood, Memphis, TN, for Assistant United States Trustee for Region 8.

George W. Stevenson, Memphis, TN, for Chapter 7 Trustee.

Michael A. Beatty, Boston, MA, Tucker H. Dewey, Memphis, TN, for The Educational Resources Institution, Inc.

Monica M. Simmons, Assistant United States Attorney, Memphis, TN.

MEMORANDUM AND ORDER DENYING DEFENDANT'S PRETRIAL MOTION TO DISMISS ADVERSARY PROCEEDING COMBINED WITH NOTICE OF THE ENTRY THEREOF

DAVID S. KENNEDY, Chief Judge.

The instant motion of the defendant, Tennessee Student Assistance Corporation ("TSAC"), seeks a pretrial dismissal of the above-referenced dischargeability complaint previously filed under section 523(a)(8) of the Bankruptcy Code ("Code") by the plaintiff, Daniel J. Lees, the above-named chapter 7 debtor ("Debtor"). TSAC primarily argues that it is immune from this "suit" under the Code by virtue of the 11th Amendment of the United States Constitution.¹

The sole question for judicial determination here is whether section 106(a) of the Code, as it relates to section 523(a)(8) of the Code, is a constitutionally permissible and valid abrogation of the TSAC's sovereign immunity under the 11th Amendment of the United States Constitution. This is an issue of first impression for this court.

For the reasons discussed below, the court finds and concludes in this core proceeding under 28 U.S.C. § 157(b)(2)(l), (A), and (O) that section 106(a) of the Code,² when read in conjunction with section 523(a)(8), is a constitutionally permissible and valid abrogation of TSAC's sovereign immunity under the 11th Amendment.³

Although the parties have a strong difference of opinion regarding the outcome of this proceeding, the relevant background facts are not in dispute and may be briefly summarized as follows: Prior to bankruptcy, the debtor incurred student loan debts. After filing an original, no-asset petition under chapter 7 of the Code, the debtor filed this dischargeability complaint pursuant to section 523(a)(8) of the Code seeking a judicial determination in the bankruptcy court that the outstanding student loan debts owed to TSAC are dischargeable under the "undue hardship" exception.⁴ TSAC thereafter filed this motion seeking a pretrial dismissal of the debtor's pending section 523(a)(8) action for asserted lack of jurisdiction. Debtor opposes TSAC's motion to dismiss this proceeding. Perhaps it is important to note that the debtor only seeks a judicial determination that the particular student loan debts owed to TSAC are subject to a bankruptcy discharge based on the "undue hardship" exception under section 523(a)(8). No money judgment is sought by the debtor against TSAC or the State of Tennessee. Actually, the proceeding under section 523(a)(8) is akin to a declaratory judgment action. See FED.R.BANKR.P. 7001(9).

TSAC contends that because it is an agency or instrumentality of the government of the State of Tennessee, it is immune from this proceeding filed in the United States bankruptcy court by virtue of the 11th Amendment.⁵ Consequently, TSAC seeks a pretrial dismissal of this dischargeability action for asserted lack of jurisdiction stating that the enactment of section 106(a) of the Code, subjecting state governmental units to 60 specifically enumerated sections of the Code and the federal bankruptcy court's remedial powers, violates the 11th Amendment and also has been thwarted by the United States Supreme Court's non-bankruptcy decision in Seminole Tribe of Florida v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996) ("Seminole Tribe").⁶

As a result of the 11th Amendment and Seminole Tribe, among other cases, TSAC, in essence, argues that a state governmental unit can no longer be sued in the bankruptcy court for any type of significant relief, unless the state gives its express consent to such proceedings.⁷ TSAC has given no such consent in the present action. If TSAC is correct in its legal position, the United States bankruptcy courts, in reality, are without meaningful authority to issue any orders, judgments, or decrees affecting the interests of a state or a unit of a state, absent the express consent of the governmental unit.⁸

TSAC's motion to dismiss this complaint for lack of jurisdiction specifically provides as follows:

"1. Pursuant to the Eleventh Amendment of the Constitution of the United States, the federal courts are without jurisdiction in suits brought by individuals against a State. The only exceptions to this rule are when the state has consented to such suit or when the suit is brought to enforce Fourteenth Amendment due process rights.

2. TSAC Tennessee Student Assistance Corporation is a unit of the government of the State of Tennessee.

3. TSAC has not consented to this suit.

4. This suit is not brought to enforce a constitutional right which has been denied without due process by the State of Tennessee.

5. Accordingly, the Eleventh Amendment of the United States deprives the court of jurisdiction to hear this suit."

Briefly and simply stated, the debtor, not surprisingly, opposes TSAC's motion to dismiss this complaint for lack of jurisdiction and primarily contends that section 106(a) of the Code is constitutional and also that TSAC is not a governmental unit entitled to constitutional protection under the 11th Amendment. Debtor, therefore, asserts that this court has jurisdiction over both TSAC and the subject matter of this complaint.

Student loan debts, along with a very limited number of others,⁹ are specially treated under the Code. This type of debt (i.e., a student loan) is not routinely discharged (or automatically excepted from discharge). Instead, the Congress established a unique approach to the dischargeability of student loan debts. Section 523(a)(8) of the Code allows for a discharge of a student loan debt upon the filing of a successful complaint by the debtor pursuant to FED.R.BANKR.P. 7001(6), when excepting such debt from discharge would impose an "undue hardship" on the debtor and the dependents of the debtor.¹⁰ Also, a creditor (e.g., TSAC) may file a complaint under section 523(a)(8) and FED.R.BANKR.P. 7001(6) seeking a judicial determination that a particular student loan debt is nondischargeable. See FED.R.BANKR.P. 4007(a). Interestingly, the bankruptcy court and the state court have concurrent jurisdiction to address the dischargeability of student loan debts under section 523(a)(8) of the Code.¹¹

The debatable issue of the constitutionality of section 106(a) of the Code is ongoing and has engendered much discussion and controversy resulting in a sharply divided split of judicial authority among the lower federal courts and legal scholars.¹² This conflict of authority has created constitutional confusion and uncertainty resulting in a lack of uniformity in the nation's bankruptcy system.

This court, like the court in In re Straight, 248 B.R. 403, 422 (10th Cir. BAP 2000), is of the opinion that a constitutional analysis of section 106(a) of the Code should be made on a statute-by-statute basis. Section 106(a) of the Code provides, in pertinent part, that "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 . . . 523. . . ." Section 106(a)(2) provides that the court may hear and determine any issue arising under the 60 specific sections enumerated in section 106(a)(1).¹³ Section 106(a)(3) and (4) provide the statutory grounds for the court to issue an enforceable money judgment against a governmental unit in any of the 60 sections cited in section 106(a)(1), excluding an award of punitive damages.¹⁴

The law is well settled that a statute of the United States Congress (e.g., section 106(a)) enjoys a presumption of constitutionality. See, among others, Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 96 S.Ct. 2882, 49 L.Ed.2d 752 (1976). It is emphasized in this action that any analysis of the constitutionality of a statute must begin with the presumption that the statute is constitutionally valid. U.S. v. Nat'l Dairy Prods. Corp., 372 U.S. 29, 32, 83 S.Ct. 594, 9 L.Ed.2d 561 (1963); U.S. ex rel. Madden v. General Dynamics Corp., 4 F.3d 827, 830 (9th Cir.1993). It is further emphasized that this presumption is strongest when the Congress determines that it has the power to enact the statute. See, e.g., Rostker v. Goldberg, 453 U.S. 57, 64, 101 S.Ct. 2646, 69 L.Ed.2d 478 (1981); see also Section 5 of the 14th Amendment¹⁵ and Article I, Section 8, Clause 4 of the United States Constitution (discussed more fully infra).

It is now well established that the legislative acts adjusting the burdens and benefits of economic life ¹⁶ come to the court with the presumption of constitutionality and that the burden is on the complainant to establish that the legislature has acted in an arbitrary and irrational way. Ferguson v. Skrupa, 372 U.S. 726, 83 S.Ct. 1028, 10 L.Ed.2d 93 (1963); Williamson v. Lee Optical of Oklahoma, 348 U.S. 483, 487-488, 75 S.Ct. 461, 99 L.Ed. 563 (1955); see also Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 96 S.Ct. 2882, 49 L.Ed.2d 752 (1976). Indeed, it is well settled that a presumption exists in favor of the constitutionality of an act of the Congress. Regan v. Time, Inc., 468 U.S. 641, 104 S.Ct. 3262, 82 L.Ed.2d 487 (1984); Rostker v. Goldberg, 453 U.S. 57, 64, 101 S.Ct. 2646, 69 L.Ed.2d 478 (1981). Mere...