In re Seay
| Decision Date | 19 January 2000 |
| Docket Number | Bankruptcy No. 98-11839. Adversary No. 99-1216. |
| Citation | 244 BR 112 |
| Parties | In re Deborah Jane SEAY, Debtor. Deborah Jane Seay, Plaintiff, v. Tennessee Student Assistance Corporation, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
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Mark T. Young, Mark T. Young & Associates, Hixson, TN, for the Debtor.
Paul G. Summers, Attorney General and Reporter, State of Tennessee, Charlotte E. Keeton, Assistant Attorney General, TN Attorney General's Office, Bankr. Unit, Nashville, TN, for TSAC.
This adversary proceeding is before the court on the defendant's motion to dismiss for lack of jurisdiction. The debtor, Deborah Jane Seay, has filed a complaint against the defendant, the Tennessee Student Assistance Corporation ("TSAC"), seeking a determination that her student loans should be discharged pursuant to the undue hardship exception in 11 U.S.C. § 523(a)(8). TSAC has responded with a motion to dismiss, alleging that it is an arm of the state of Tennessee, that Tennessee has not consented to this lawsuit, and that therefore the Eleventh Amendment to the United States Constitution1 requires dismissal of the debtor's action.
TSAC is a governmental corporation created by the statutes of Tennessee for the purpose of facilitating student loans in the state. As such it is an arm or agency of the state of Tennessee2 and is clothed with the sovereign immunity guaranteed to the states by the Eleventh Amendment. It filed a proof of claim in the debtor's original Chapter 13 for four student loans in the amount of $13,800.88, and the debtor then converted her case to a Chapter 7 case (no assets) wherein the court eventually entered its general discharge order.
In its motion to dismiss, TSAC argues that the Bankruptcy Code provisions that purport to give the court jurisdiction over a state in these circumstances, 11 U.S.C § 106(a), (b), are unconstitutional because Congress lacked the constitutional authority to enact them. It also argues that it did nothing to waive the state's sovereign immunity, which, being still intact, requires the dismissal of the debtor's lawsuit. The debtor, apparently cognizant of the many recent cases declaring 11 U.S.C. § 106(a) unconstitutional, does not argue that the state's sovereign immunity has been abrogated by § 106(a) or even that it has been waived under the provisions of 11 U.S.C. § 106(b). Instead, she takes the position that the state has expressly waived its sovereign immunity by statute, i.e., Tenn. Code Ann. § 49-4-503. No evidence has been offered by either party, and accordingly the court will decide this matter on the briefs and its understanding of the law.
Since the question of a court's jurisdiction may be raised by a party at any time or stage in a case, a trial court to which a suggestion of lack of jurisdiction has been made should give plenary consideration to the question, going beyond the contentions of the parties if necessary to a full resolution of the issue. After a review of the recent decisions on the subject of sovereign immunity the court concludes that the Eleventh Amendment precludes it from exercising jurisdiction over TSAC.
Congress sought to obtain bankruptcy jurisdiction over the states by abrogating their sovereign immunity in 11 U.S.C. § 106(a) and by prescribing the conditions under which a waiver of that immunity would occur in 11 U.S.C. § 106(b). The attempt to abrogate sovereign immunity in § 106(a)3 has failed, however, for quite recently, in College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999), a non-bankruptcy case turning on the question of state sovereign immunity, the Supreme Court observed:
While this immunity from suit is not absolute, we have recognized only two circumstances in which an individual may sue a State. First, Congress may authorize such a suit in the exercise of its power to enforce the Fourteenth Amendment — an Amendment enacted after the Eleventh Amendment and specifically designed to alter the federal-state balance. Second, a State may waive its sovereign immunity by consenting to suit.
119 S.Ct. at 2223 (citations omitted). In a companion case, Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627, 119 S.Ct. 2199, 144 L.Ed.2d 575 (1999), the Supreme Court went on to state that "Seminole Tribe4 makes clear that Congress may not abrogate state sovereign immunity pursuant to its Article I powers. . . ." 119 S.Ct. at 2205. Since Congress' bankruptcy powers emanate from Article I of the Constitution, it now seems certain that 11 U.S.C. § 106(a) is unconstitutional and thus void.
In a recent and comprehensive opinion dealing with the constitutionality of § 106(a), the United States Bankruptcy Court for the Northern District of Ohio reviewed all the authorities5 and held that an adversary action to determine dischargeability was a suit for the purposes of the Eleventh Amendment,6 that Congress' bankruptcy powers granted in Article I, Section 8, do not confer on Congress the power to abrogate a state's Eleventh Amendment rights, and that the Fourteenth Amendment to the United States Constitution similarly affords no basis for congressional abrogation of the Eleventh Amendment. Pitts v. Ohio Dep't of Taxation (In re Pitts), 241 B.R. 862 (Bankr. N.D.Ohio 1999). This court agrees with the reasoning and the holding in In re Pitts, and rather than replowing that same ground it will simply adopt Chief Judge Speer's opinion insofar as it finds 11 U.S.C. § 106(a) to be beyond Congress' constitutional powers.
If Section 106(a) of the Bankruptcy Code will not serve to subject the state of Tennessee to this court's jurisdiction, what of § 106(b)? It provides:
(b) A governmental unit that has filed a proof of claim in the case is deemed to have waived sovereign immunity with respect to a claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which the claim of such governmental unit arose.
11 U.S.C. § 106(b).
TSAC has indeed filed a proof of claim in this case, but even so, and even assuming arguendo that 11 U.S.C. § 106(b) is constitutional,7 it seems clear that the subsection does not apply in this case because the filing of a proof of claim only waives sovereign immunity (1) with respect to a claim against a governmental unit, (2) that is property of the estate, and (3) that arose out of the same transaction or occurrence out of which the claim of the governmental unit arose. None of those three prerequisites to waiver is present in this action.
First, the debtor's suit to establish the dischargeability of her student loans is not a "claim" as defined in 11 U.S.C. § 101(5) which states that a claim means:
11 U.S.C. § 101(5). The debtor does not have a claim against the governmental unit in this case because she asserts no "right to payment" when she asks that her student loan debts be discharged, see Epps v. Lomas Mortgage USA, Inc. (In re Epps), 110 B.R. 691, 696-97 (E.D.Pa.1990), nor does she assert a "right to an equitable remedy for breach of performance," for nowhere is it alleged that TSAC has breached any duty of performance.
Even if the debtor's suit could be considered a claim as defined in § 105(5), however, it is clear that it does not constitute an interest in property such as could be "property of the estate." Instead, debtor's claim is a personal one belonging to her individually and following her8 beyond bankruptcy.
Finally, even if the debtor's lawsuit could be construed to be a claim, and even if the claim could be considered a property of her estate, § 106(b) would still be inapplicable because the claim would not arise from the same transaction or occurrence out of which TSAC's claim arose. This "same transaction or occurrence" language mirrors the compulsory counterclaim language found in Fed. R. Bankr.P. 7013, which essentially defines a compulsory counterclaim as one arising "out of the transaction or occurrence that is the subject matter of the opposing party's claim. . . ." The Sixth Circuit's test for determining whether a counterclaim is a compulsory counterclaim is to "determine whether the issues of law and fact raised by the claims are largely the same and whether substantially the same evidence would support or refute both claims." Sanders v. First Nat'l Bank & Trust Co., 936 F.2d 273, 277 (6th Cir.1991). Upon application of that test to the circumstances before the court, it is apparent that the issues of law and fact raised by the two claims are quite dissimilar. The facts and law pertinent to TSAC's claim have to do with the debtor's liability on one or more notes. The facts and law pertinent to the debtor's claim have to do with the level of her current financial distress. Moreover, the evidence to support or refute both claims is not the same. The debtor's evidence that paying the claim would impose an undue hardship on her has nothing to do with TSAC's evidence that she validly executed the notes it holds. For all these reasons, § 106(b) is not applicable to this case, and the court need not consider its constitutionality.
Beyond the statutory waiver established in 11 U.S.C. § 106(b), courts recognize a common law rule of waiver to the effect that "a State waives its sovereign immunity by voluntarily invoking the...
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