In re Scarborough
| Citation | 229 BR 145 |
| Decision Date | 25 January 1999 |
| Docket Number | SM 98-90115,Adversary No. 98-99008,98-99010. 98-99020.,Bankruptcy No. SM 97-90830,SM 97-90801 |
| Parties | In re Ruth Pearl SCARBOROUGH, Debtor. Ruth Pearl Scarborough, Plaintiff, v. State of Michigan Collection Division, and United Student Aid Funds, Inc., Defendants. In re Sharon E. Rushton, f/k/a Sharon E. Cox, Debtor. Sharon E. Rushton, Plaintiff, v. Michigan Department of Education and/or Michigan Guaranty Agency, Defendants. In re Ashli J. Kirtley, Debtor. Ashli J. Kirtley, Plaintiff, v. Michigan Guaranty Agency, Defendant. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Michigan |
CONSOLIDATED OPINION DECIDING ISSUE OF SOVEREIGN IMMUNITY AND GRANTING STATE'S MOTIONS TO DISMISS
Before the Court are three motions involving the dischargeability of various student loans issued by the Michigan Department of Education and/or the Michigan Guarantee Agency. The Plaintiffs, Scarborough, Rushton and Kirtley, each filed a Complaint to Determine the Dischargeability of Student Loan Debt under 11 U.S.C. § 523(a)(8) on February 11, 1998, February 13, 1998 and April 7, 1998, respectively. Although a separate Motion to Dismiss was filed in each adversary proceeding, the Court has taken the three motions under advisement in order to issue a consolidated opinion. Each of these cases raises the identical question: to wit, whether Congress has validly abrogated the State's sovereign immunity when enacting the Bankruptcy Code.
Because this opinion is based solely on legal issues, the specific facts of each case are irrelevant. Suffice it to say that each Plaintiff incurred student loan debt owed to a state agency and subsequently filed Chapter 7.
Article III, Section 2 of the United States Constitution provides that federal judicial power extends to controversies "between a State and Citizens of another State." Relying on this language, the Supreme Court of the United States assumed original jurisdiction over a suit brought in 1793 by a citizen of South Carolina against the State of Georgia. Chisholm v. Georgia, 2 U.S. 419, 2 Dall. 419, 1 L.Ed. 440 (1793). The decision "created such a shock of surprise that the Eleventh Amendment was at once proposed and adopted." Principality of Monaco v. State of Mississippi, 292 U.S. 313, 325, 54 S.Ct. 745, 749, 78 L.Ed. 1282 (1934).
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.
Through the years, the Supreme Court continued to expand the Amendment's reach from disallowing lawsuits against one of the States by a citizen of another state, to include suits brought by a citizen against his own State. Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed. 842 (1890).
The Supreme Court has also held that a sovereign's immunity may be waived and a State may consent to suit in federal court. However, the State's consent must be unequivocally expressed. Clark v. Barnard, 108 U.S. 436, 2 S.Ct. 878, 27 L.Ed. 780 (1883), Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974).
That a state may not be sued without its consent is a fundamental rule of jurisprudence having so important a bearing upon the construction of the Constitution of the United States that it has become established by repeated decisions of this court that the entire judicial power granted by the Constitution does not embrace authority to entertain a suit brought by private parties against a state without consent given: not one brought by citizens of another state, or by citizens or subjects of a foreign state, because of the Eleventh Amendment; and not even one brought by its own citizens, because of the fundamental rule of which the amendment is but an exemplification.
In re State of New York, 256 U.S. 490, 497, 41 S.Ct. 588, 589, 65 L.Ed. 1057 (1921).
In 1989, the Supreme Court decided that Congress had the authority to abrogate the States' Eleventh Amendment immunity, pursuant to the Constitution's Article I Commerce Clause powers. Pennsylvania v. Union Gas Co., 491 U.S. 1, 17, 109 S.Ct. 2273, 2283, 105 L.Ed.2d 1 (1989).
Like the Fourteenth Amendment, the Commerce Clause with one hand gives power to Congress while, with the other, it takes power away from the States. It cannot be relevant that the Fourteenth Amendment accomplishes this exchange in two steps, while the Commerce Clause does it in one. The important point, rather, is that the provision both expands federal power and contracts state power; that is the meaning, in fact, of a `plenary\' grant of authority, and the lower courts have rightly concluded that it makes no sense to conceive of Section 5 as somehow being an `ultraplenary\' grant of authority.
Six years later, the Supreme Court decided Seminole Tribe of Florida v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996) effectively overruling Union Gas. The Court stated that in order to determine whether Congress has abrogated the states' sovereign immunity, it must ask two questions: first whether Congress has "unequivocally expressed its intent to abrogate the immunity," and second, whether Congress has acted "pursuant to a valid exercise of power."
In overruling Union Gas today, we reconfirm that the background principle of state sovereign immunity embodied in the Eleventh Amendment is not so ephemeral as to dissipate when the subject of the suit is an area . . . that is under the exclusive control of the Federal Government. Even when the Constitution vests in Congress complete lawmaking authority over a particular area, the Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting States. The Eleventh Amendment restricts the judicial power under Article III, and Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction.
Seminole, 517 U.S. at 72-73, 116 S.Ct. 1114.
In footnote 16, the Supreme Court recognized the bankruptcy implications of the Seminole decision:
The Michigan Guarantee Agency (MGA) is a nonprofit corporation created by 1960 Mich. Pub. Act 77; M.C.L. § 390.951; M.S.A. § 15.2097(1), and is a division of the Michigan Higher Education Student Loan Authority (MHESLA), which is housed within the Michigan Department of Treasury. The MGA administers five loan programs which guarantee subsidized Federal Stafford Loans, unsubsidized Federal Stafford Consolidated Loans made by banks, credit unions, savings and loan associations, insurance companies, federal agencies and by the MHESLA's Michigan Direct Student Loan Program.
The MHESLA is subject to the supervision and examination of the Commissioner of the Financial Institutions Bureau of the Department of Commerce. It is also required to make annual reports to the governor and the legislature. Consequently, we find that the MGA is a State entity that would be afforded Eleventh Amendment protection.
We also find that the MGA has not waived its sovereign immunity by consenting to suit in this Court because it has not filed a proof of claim or in any other way "unequivocally expressed a waiver." "A state defendant does not waive its Eleventh Amendment immunity by filing a motion to dismiss . . . by failing to raise the Eleventh Amendment before the trial court, or by seeking judgment in its favor." In re Kish, 212 B.R. 808, 814 (D.N.J.1997). A State waives its immunity and consents to suit in federal court by specific declaration or by act, such as filing general appearance, or by becoming plaintiff or intervenor in a federal lawsuit.1 In re C.J. Rogers, Inc., 212 B.R. 265 (E.D.Mich. 1997).
11 U.S.C. § 106(a) as amended by the Bankruptcy Reform Act of 1994, states in pertinent part:
The Legislative History of 11 U.S.C. § 106 states:
This amendment expressly provides for a waiver of sovereign immunity by governmental units with respect to monetary recoveries as well as declaratory and injunctive relief. It is the Committee\'s intent to make section 106 conform to the Congressional intent of the Bankruptcy Reform Act of 1978 waiving the sovereign immunity of the States and the Federal Government in this regard . . . As suggested by the Supreme Court, section 106(a)(1) specifically lists those sections of title 11 with respect to which sovereign immunity is abrogated.
Based on this amendment, we find that Congress has unequivocally expressed its intent to abrogate the State's sovereign immunity in a Section 523(a)(8) adversary proceeding.
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