In re Slayton

• Decision Date: 07 August 2009
• Docket Number: Bankruptcy No. 06 B 2826.,Adversary No. 09 A 100.
• Citation: 409 B.R. 897
• Parties: In re Frederick K. SLAYTON and Ann Slayton, Debtors. Frederick K. Slayton and Ann Slayton, Plaintiffs, v. Jesse White, Secretary of State for the State of Illinois, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

Page 897

409 B.R. 897

In re Frederick K. SLAYTON and Ann Slayton, Debtors Frederick K. Slayton and Ann Slayton, Plaintiffs, v. Jesse White, Secretary of State for the State of Illinois, Defendant.

Bankruptcy No. 06 B 2826.

Adversary No. 09 A 100.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

August 7, 2009.

COPYRIGHT MATERIAL OMITTED

David P. Leibowitz, Sharanya Gururajan, Waukegan, IL, for plaintiffs Frederick K. Slayton and Ann Slayton.

Lisa Madigan, Attorney General of Illinois, Allan V. Abinoja, Assistant Attorney General, General Law Bureau, Office of the Illinois Attorney General, Chicago, IL, for defendant Jesse White, Secretary of State for the State of Illinois.

MEMORANDUM OPINION

A. BENJAMIN GOLDGAR, Bankruptcy Judge.

Before the court for ruling is the motion of Illinois Secretary of State Jesse White (the "Secretary") to dismiss the adversary complaint of plaintiffs Frederick K. Slayton ("Frederick") and Ann Slayton ("Ann") (collectively, the "Slaytons"). The Slaytons allege that the Secretary has suspended their driving privileges and placed a hold on their vehicle registrations and license plates in an attempt to collect debts discharged in the Slaytons' 2006 chapter 7 bankruptcy case. The Secretary moves to dismiss the complaint for lack of subject matter jurisdiction under the Eleventh Amendment, as barred by the doctrine of claim preclusion, and on the basis of Younger abstention.

For the reasons that follow, the Secretary's motion will be granted as to the Slaytons' claims for punitive damages. Those claims will be dismissed as unauthorized by section 106(a)(3) of the Bankruptcy Code and therefore barred by the Eleventh Amendment. In all other respects, the motion will be denied.

1. Facts

On a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) (made applicable by Fed. R. Bankr.P. 7012(b)), the court accepts as true all well-pleaded factual allegations in the complaint and draws all reasonable inferences in the plaintiff's favor. Evers v. Astrue, 536 F.3d 651, 656 (7th Cir.2008).¹ The court can also look beyond the complaint's allegations and consider "whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Id. (internal quotation omitted). The following facts are therefore drawn from the complaint and from the sheaf of papers the Secretary has attached to his motion.

The Slaytons own and operate commercial vehicles for hire and did business in the past through a corporation called Rocks Ann Trucking, Inc. The precise relationship between the Slaytons and Rocks Ann Trucking is unclear, but it appears that Ann, at least, was an officer of the corporation.

Rocks Ann Trucking filed a chapter 11 bankruptcy case in June 2005. At least some of the assets of the corporation were sold at a court-ordered auction, and the case was dismissed in December 2005. Two months later, Rocks Ann Trucking was involuntarily dissolved. In March 2006, the Slaytons filed a chapter 7 bankruptcy case of their own. They received their discharge in August 2006, and the case was closed in March 2007.

In May 2007, well after the Slaytons' discharge, the Secretary sent a letter to "Rocks-Ann" stating that his office had cancelled "your Illinois drivers license" because of an unpaid $245 check that Rocks Ann Trucking had issued to the Secretary on September 3, 2005, in payment of two special hauling vehicle licenses. The driver's license mentioned in the letter belonged to Frederick. That same month, the Secretary sent a second letter to "Rocks-Ann" stating that his office had cancelled "your Illinois drivers license" because of the unpaid $245 check. The second letter was identical to the first, except that the driver's license mentioned belonged to Ann.

Around this time, Frederick learned that the debt mentioned in the letters was not the only debt Rocks Ann Trucking owed the Secretary. Rocks Ann Trucking owed $8,811 in connection with several semi-trailer tractors, at least two of which had been sold in the company's bankruptcy.

In June 2007, the Secretary formally canceled Frederick's driver's license. The next month, the Slaytons paid the amount due under the May 23 letters, and after a hearing the Secretary rescinded the cancellation of Frederick's driver's license. But the respite was only temporary. Frederick's license was suspended again because of the debt Rocks Ann Trucking owed in connection with the tractors. The Secretary has since canceled all of the Slaytons' personal and commercial driver's licenses and continues to place a hold on all licenses, registrations, and license plates belonging to the Slaytons and any company they attempt to operate.

In September 2007, Frederick filed an action against the Secretary in Illinois state court. His complaint sought a writ of mandamus directing the Secretary to rescind the cancellation of the Slaytons' driver's licenses and remove all holds on registrations and license plates of vehicles belonging to the Slaytons or their companies. The complaint also sought a declaration rescinding any settlement agreement between the Slaytons and the Secretary. The complaint was later amended to add Ann as a plaintiff.

The Secretary moved to dismiss the Slaytons' amended complaint. In May 2008, the state court continued the motion and ordered the Secretary to hold an expedited administrative hearing "regarding the suspensions and/or cancellations of Petitioners' driver's licenses and/or registrations and license plates." The hearing was held, and the hearing officer issued findings and recommendations in which he rejected the Slaytons' arguments. Among the arguments he rejected was one based on the Slaytons' discharge in their bankruptcy case. The hearing officer accordingly recommended that the Secretary deny the Slaytons' petition to rescind the "stops" on their driving records. On June 30, 2008, the Secretary entered a final order adopting the hearing officer's findings and denying the petition. The Slaytons did not seek review of the final administrative decision in Illinois state court.

Instead, the parties returned to the state court, which held a hearing on the Secretary's continued motion to dismiss. In August 2008, the court issued an order granting the motion and dismissing the Slaytons' claims "relating to the registration and titles of license plates [sic]" because the Slaytons had "failed to exhaust their administrative remedies with respect to such claims." The court denied the motion, however, "with respect to the remainder of Plaintiffs' claims."

In January 2009, the Slaytons moved to reopen their chapter 7 case to file their adversary complaint against the Secretary. The case was reopened, and the adversary proceeding was commenced. The complaint has two counts. Count I is a claim for violation of the discharge injunction in section 524(a)(2) of the Code, 11 U.S.C. § 524(a)(2). In Count I, the Slaytons request injunctive relief, actual and punitive damages, and attorney's fees and costs. Count II is a claim for violation of section 525(a) of the Code, 11 U.S.C. § 525(a), which prohibits a governmental unit from denying, revoking, suspending, or refusing to renew a license because, among other reasons, a debtor has not paid a debt dischargeable in his bankruptcy case. The Slaytons request the same relief in Count II.²

2. Discussion

The Secretary contends that Counts I and II should be dismissed because he is immune from suit under the Eleventh Amendment to the U.S. Constitution, because both counts are barred under the doctrine of claim preclusion, or because abstention is warranted under Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). Of these, only the Eleventh Amendment contention has any merit, and then only to the extent the Slaytons request punitive damages. The Secretary is not immune from the remaining claims, his claim preclusion argument is premature, and this case does not call for Younger abstention.

a. Eleventh Amendment

The Secretary first contends he is immune from suit, and the court lacks jurisdiction, under the Eleventh Amendment's grant of sovereign immunity. In support of this contention, he relies on Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), and Nelson v. La Crosse County Dist. Att'y, 301 F.3d 820 (7th Cir.2002). As the Slaytons rightly point out, however, the Secretary's reliance on these cases suggests he is a bit behind the times.

The Eleventh Amendment declares that "[t]he 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." U.S. Const. amend. XI. Despite its literal terms, the Amendment has consistently been held to bar suits against a state brought by its own citizens as well as by citizens of other states. Edelman v. Jordan, 415 U.S. 651, 662-63, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974); see Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed. 842 (1890). The Amendment generally "bars actions in federal court against a state, state agencies, and state officials acting in their official capacities." Peirick v. Indiana Univ.-Purdue Univ. Indianapolis Athletics Dep't, 510 F.3d 681, 695 (7th Cir.2007).

Traditionally, there have been three exceptions to Eleventh Amendment immunity. First, a state may waive immunity by consenting to be sued in federal court. Id. Second, Congress may abrogate the state's immunity "through a valid exercise of its powers." Id.; see also Toeller v. Wisconsin Dep't of Corrections, 461 F.3d 871, 875 (7th Cir.2006). And third, under the doctrine of Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), a plaintiff may "file `suit[ ] against state officials seeking prospective equitable relief for ongoing violations of federal law.'" Peir...