In re Schmitt
| Decision Date | 30 April 1998 |
| Docket Number | Bankruptcy No. 97-50921-ABF,Adversary No. 98-5009-ABF. |
| Citation | 220 BR 68 |
| Parties | In re Jack Bartlett SCHMITT, Betti Renee Schmitt, Debtors. Betti Renee SCHMITT, Plaintiff, v. MISSOURI WESTERN STATE COLLEGE, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
Alden S. Lance, Savannah, MO, for Plaintiff.
Christie A. Kincannon, Assistant State Attorney General, Jefferson City, MO, for Defendants.
Plaintiff/debtor Betti Renee Schmitt filed an adversary proceeding to determine the dischargeability of a student loan payable to Missouri Western State College, et al., pursuant to 11 U.S.C. § 523(a)(8)(A) and (B). Defendant, Missouri Student Loan Program, by and through the Attorney General of Missouri, moved to dismiss the proceeding in light of the Eleventh Amendment to the United States Constitution (the Constitution). Defendant contends that this Court does not have jurisdiction to entertain a suit seeking to discharge a debt due to a state agency. Plaintiff contends that this is a core proceeding under 28 U.S.C. § 157(b)(2) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334(b), 157(a), and 157(b)(1). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure. The issue raised by the state's motion to dismiss is whether Missouri, or any other state, can excuse itself from the bankruptcy process by raising a sovereign immunity defense to dischargeability actions brought by a debtor or to actions to enforce the bankruptcy discharge. Under current Court interpretation of the Eleventh Amendment, a state has such a right. The Supreme Court's interpretation of the Eleventh Amendment, however, allows a debtor to bring an action for injunctive relief against an appropriate state official pursuant to the doctrine of Ex Parte Young. Since plaintiff here did not list any state official as a defendant, but simply filed suit against a Missouri state agency, her Complaint will be dismissed.
Preliminarily, I point out that the bankruptcy process hinges on the Bankruptcy Court having the jurisdiction to either restructure or discharge a debtor's obligations, based on that debtor's financial circumstances.1 In order to avoid a piecemeal approach to the bankruptcy process, the Constitution grants Congress the authority to enact uniform laws on the subject of bankruptcy2. Those having even a passing familiarity with the bankruptcy process are aware of the frequent presence of states and their agencies in bankruptcy court proceedings. For example, the Missouri Department of Revenue is listed as a creditor in 17.5 percent of the cases pending in the Western District of Missouri. And many debtors in Missouri owe taxes to other states. Many other debtors, such as this one, owe student loans which were guaranteed, and upon default are assumed by, agencies of the State of Missouri as well as agencies of other states.
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.3 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.4 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.5 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.6
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. The Eleventh Amendment 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.7
By its text, this provision grants sovereign immunity in the federal courts only as to actions in which the court's jurisdiction is based on diversity of citizenship.8 Bankruptcy actions in which a debtor seeks to discharge obligations to her own state would not be impacted by the plain language of the Eleventh Amendment. However, in Hans v. Louisiana, the Supreme Court held, with certain exceptions, that the Eleventh Amendment prohibits Federal Courts from taking jurisdiction over any suit against an unconsenting state, whether jurisdiction is based on diversity or on a federal question.9 In Pennsylvania v. Union Gas Co., the Court, nevertheless, found that the Interstate Commerce Clause granted Congress the power to abrogate state sovereign immunity.10 But, in Seminole Tribe of Florida v. Florida, the Court overruled Union Gas and held that Congress may not use its Article I powers to abrogate sovereign immunity.11 To do so, the Court held, would violate the Court's expansive interpretation of the Eleventh Amendment.12 Relying on Seminole Tribe, several lower courts, including this one, have held that Section 106(a), which purports to abrogate sovereign immunity, is contrary to the Eleventh Amendment, and therefore unconstitutional.13 Based on those decisions, this case, as captioned, must be dismissed. However, debtor may be able to seek a determination of dischargeability by bringing her action against the state official charged with enforcing the obligation owed by her.14
The Supreme Court's decision in Seminole Tribe was joined by five members of the Court. The issue which split the Court was whether the Eleventh Amendment bars all federal court suits against states, or just those based on diversity of citizenship jurisdiction. The majority held that the Eleventh Amendment bars Congress from abrogating sovereign immunity in both instances, unless Congress is acting pursuant to the Privileges and Immunities Clause of the Fourteenth Amendment.15 In other words, the majority held that unless the state is acting contrary to rights granted citizens by the Constitution, it cannot be sued in Federal Court, even if it is acting in violation of federal statutory law. The four dissenters argued that the Eleventh Amendment does not immunize states from all federal court actions. If a state's actions contravene federal law, which is supreme, the dissent would allow the state to be sued by the aggrieved party in Federal Court.
The majority, and the dissent, also considered the applicability of Ex Parte Young16 to this issue. In Young, a Federal Court had issued a preliminary injunction prohibiting the Attorney General of Minnesota from enforcing a state statute concerning railroad rates. The basis for the injunction was that the state's procedure was a taking without due process in violation of the Fourteenth Amendment.17 At the time of the preliminary injunction, the Attorney General had taken no action to enforce the statute. He, thereafter, violated the injunction by bringing suit in state court to enforce the Minnesota statute. He was held in contempt, and he filed a petition for a writ of habeas corpus. In denying the writ, the Supreme Court held that Federal Courts could enjoin state officials from bringing suit if the relief to be sought by such suit would violate the Constitution.18 In so doing the Court recognized that "the Supremacy Clause makes federal law paramount over the contrary positions of state officials; the power of federal courts to enforce federal law thus presupposes some authority to order state officials to comply."19 Therefore, the Young doctrine states that "a Federal Court, consistent with the Eleventh Amendment, may enjoin state officials to conform their future conduct to the requirements of Federal law."20 The Young doctrine was created to temper the Court's expansive view of the Eleventh Amendment, which left Federal Courts powerless to remedy violations of Federal law by states. "Remedies designed to end a continuing violation of Federal law are necessary to vindicate the federal interest in assuring the supremacy of that law."21. Consistent with its intent to use this remedy only against continuing violations, the Court has limited the Young doctrine to suits seeking prospective relief only, and not to those seeking retrospective monetary relief against the state.22
In Seminole Tribe, the majority found that the Young doctrine did not apply because, in enacting the Indian Gaming Regulatory Act Congress had created "a detailed remedial scheme for the enforcement against a State of a statutorily created right," and that the Court "should hesitate before casting aside those limitations and permitting an action against a state officer based on Ex Parte Young."23 The statute at issue in Seminole Tribe required a step-by-step process for tribal-state compacts regarding gaming. First, the Indian tribe was required to request the state to enter into negotiations for the purpose of entering a compact. Upon receiving such a request, the state was required to negotiate in good faith. If the tribe contended the state did not do so, the Act authorized the tribe to file suit in the United States District Court to obtain an Order requiring the state to negotiate in good faith. If, within sixty days of the District Court Order requiring...
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