McVey Trucking, Inc., Matter of

• Decision Date: 13 February 1987
• Docket Number: No. 86-1216,86-1216
• Citation: 812 F.2d 311
• Parties: , 16 Collier Bankr.Cas.2d 218, 15 Bankr.Ct.Dec. 1105, Bankr. L. Rep. P 71,613 In the Matter of McVEY TRUCKING, INC., Debtor-Appellant. McVEY TRUCKING, INC., Plaintiff-Appellant, v. SECRETARY OF STATE OF ILLINOIS, First National Bank of Danville and First Midwest Bank of Danville, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 311

812 F.2d 311

55 USLW 2470, 16 Collier Bankr.Cas.2d 218,

15 Bankr.Ct.Dec. 1105, Bankr. L. Rep. P 71,613

In the Matter of McVEY TRUCKING, INC., Debtor-Appellant.

McVEY TRUCKING, INC., Plaintiff-Appellant, v. SECRETARY OF STATE OF ILLINOIS, First National Bank of

Danville and First Midwest Bank of Danville,

Defendants-Appellees.

No. 86-1216.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 12, 1986.

Decided Feb. 13, 1987.

John L. Greenleaf, Jr., Byers, Byers & Greenleaf, Ltd., Decatur, Ill., for debtor-appellant.

Thomas P. Marnell, Illinois Atty. Gen., Chicago, Ill., for defendants-appellees.

Before POSNER and FLAUM, Circuit Judges, and CAMPBELL, Senior District Judge. ^*

FLAUM, Circuit Judge.

McVey Trucking, a debtor, brought this action under Sec. 547(b) of the Bankruptcy Code to recover money that it claims was improperly transferred to the Secretary of State of Illinois. The bankruptcy court dismissed the action, holding that under the Eleventh Amendment it lacked jurisdiction over the Secretary. The district court affirmed. Because Congress, in the exercise of its plenary power to enact bankruptcy legislation, may create a cause of action for money damages enforceable against a state in federal court, and because we are certain that, in enacting Sec. 547(b) of the Bankruptcy Code, Congress intended to subject states to suit, we reverse and remand.

I

On February 27, 1984, McVey Trucking placed a certificate of deposit, payable to the Secretary of State of Illinois, on deposit with the First National Bank of Danville. The certificate, in the amount of $20,188.25, reflected the balance that McVey then owed to the State of Illinois for its prospective highway use tax for 1984 and 1985. ¹ McVey placed a similar certificate, for $2,490.00, with the First Midwest Bank of Danville. McVey intended for the second certificate to cover its future liability to the state for its flat-weight tax. One month later, the First National Bank, which was also McVey's creditor, forced McVey to cease operation. McVey was placed in involuntary bankruptcy, under Chapter 11 of the Code, on May 16, 1984.

Three weeks after the initiation of the bankruptcy proceedings, on July 9, 1984, the Secretary of State requested the First National Bank of Danville to pay over to the state the $20,188.25 in McVey's certificate. The Secretary claimed that McVey, even though in bankruptcy, still owed this money for the state's highway use tax. Without requesting permission from the bankruptcy court, the bank made the payment. McVey thereupon filed suit against the Secretary and the bank, pursuant to Sec. 547(b) of the Bankruptcy Code, 11 U.S.C. Sec. 547(b) (1982 & 1985 Supp.), seeking to avoid the transfer.

The Secretary of State moved to dismiss McVey's suit, arguing that because he was a state official, the Eleventh Amendment to the United States Constitution denied the bankruptcy court personal jurisdiction over him unless the state consented to be sued. The bankruptcy court, concluding that the State of Illinois had not consented to suit, granted the motion on April 29, 1985.

Immediately after the bankruptcy court entered its order, the Secretary of State requested the First Midwest Bank of Danville, in which McVey had deposited $2,490.00, to transfer the deposited funds to the state. The bank complied. McVey responded by amending its complaint, joining First Midwest as a defendant, and moving for reconsideration. The bankruptcy court denied the motion to reconsider. McVey appealed, arguing that in enacting Sec. 547(b) of the Bankruptcy Code, Congress created a cause of action enforceable against a state in federal court. The district court rejected this contention and affirmed the bankruptcy court's dismissal. McVey then brought this appeal.

II

The Secretary of State is the named defendant in this case. Nonetheless, it is obvious that this is, in reality, a suit against the State of Illinois. See Edelman v. Jordan, 415 U.S. 651, 663, 94 S.Ct. 1347, 1355, 39 L.Ed.2d 662 (1974) (A suit "seeking to impose a liability which must be paid from public funds in the state treasury" is a suit against the state.). Congress may create a cause of action for money damages enforceable against an unconsenting state in a federal court only if the Constitution grants Congress the power "to subject a State to suit in [the given] circumstances," Parden v. Terminal Railway, 377 U.S. 184, 187, 84 S.Ct. 1207, 1210, 12 L.Ed.2d 233 (1964). In deciding this case, therefore, we must determine whether the constitutional grant of power to Congress "[t]o establish ... uniform Laws on the subject of Bankruptcies," U.S. Const. Art. I Sec. 8, Cl. 4, gives Congress the power to create a cause of action for money damages against a state. We must also determine whether Article III gives the federal courts the power to issue an enforceable order against a state in such a suit.

A.

The Supreme Court has made clear that when Congress acts pursuant to its power under Sec. 5 of the Fourteenth Amendment, ² it may create a cause of action for money damages enforceable against an unconsenting state in the federal courts. ³ In Fitzpatrick v. Bitzer, 427 U.S. 445, 96 S.Ct. 2666, 49 L.Ed.2d 614 (1976), the Court held that Congress, acting under the Fourteenth Amendment, could create a cause of action for money damages against a state that had engaged in employment discrimination in violation of Title VII of the Civil Rights Act. However, the Court has left open the question of whether Congress may create a cause of action for money damages enforceable against an unconsenting state in federal court when it acts under its Article I powers. See Oneida County v. Oneida Indian Nation, 470 U.S. 226, 252, 105 S.Ct. 1245, 1261, 84 L.Ed.2d 169 (1985).

This court has previously held that Congress' power to create a cause of action for money damages enforceable against an unconsenting state in federal court is not limited to legislation enacted pursuant to Sec. 5 of the Fourteenth Amendment. See Jennings v. Illinois Office of Education, 589 F.2d 935 (7th Cir.), cert. denied, 441 U.S. 967, 99 S.Ct. 2417, 60 L.Ed.2d 1073 (1979). In Jennings we held that Congress, acting under the War Powers Clauses, U.S. Const. Art. 1 Sec. 8, Cl. 11-13, could create a cause of action against a state by veterans seeking reemployment rights granted by Congress. In reaching this result, we concluded that "to the extent Congress acts within sovereign powers delegated to it by the states ... it has the power to abrogate states' immunity." Id. at 941-42. At least three circuits have adopted this approach. See County of Monroe v. Florida, 678 F.2d 1124, 1128-35 (2nd Cir.1982), cert. denied, 459 U.S. 1104, 103 S.Ct. 726, 74 L.Ed.2d 951 (1983) (Congress may create a cause of action against a state under its extradition powers.); Peel v. Florida, 600 F.2d 1070, 1074-82 (5th Cir.1979) (cause of action created under the War Powers Clauses permitted); Mills Music v. Arizona, 591 F.2d 1278, 1285 (9th Cir.1979) (cause of action created under the Copyright and Patent Clause permitted).

Despite the acceptance of our approach in Jennings, two recent Supreme Court cases may have called its holding into question. These decisions expressly link the power of Congress to create a cause of action for money damages enforceable against an unconsenting state in federal court with Congress' exercise of its power under the Fourteenth Amendment. See Atascadero State Hospital v. Scanlon, 473 U.S. 234, 105 S.Ct. 3142, 3145, 3146, 3148, 87 L.Ed.2d 171 (1985) ("[W]hen acting pursuant to Sec. 5 of the Fourteenth Amendment, Congress can" create a cause of action against a state); Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 99, 104 S.Ct. 900, 907, 79 L.Ed.2d 67 (1984) ("Congress has the power with respect to rights protected by the Fourteenth Amendment to" create a cause of action against a state.). The Court's language may reflect the fact that, to date, it has only considered Congress' ability to create a cause of action for money damages enforceable against an unconsenting state in federal court in cases in which Congress has acted under its Fourteenth Amendment power. However, it is also possible that the Court may be indicating that the Fourteenth Amendment is the only grant of power that allows Congress to do so.

A recent case decided by this court suggests, albeit in a dictum, that we may have abandoned the approach taken in Jennings. In Gary A. v. New Trier High School District 203, 796 F.2d 940 (7th Cir.1986) (per curiam), we suggested that "[a] state may be sued on a federal court only if it consents ... or if Congress, using powers granted by section 5 of the Fourteenth Amendment, abrogates the state's immunity." Id. at 943 (citations omitted) (emphasis added). In light of the language used by the Supreme Court and by this circuit, we feel compelled to revisit our decision in Jennings.

B.

Article I and the Fourteenth Amendment are both plenary grants of power to Congress. At first glance, therefore, it would appear that because Congress may create a cause of action for money damages enforceable against an unconsenting state in federal court under the Fourteenth Amendment, it should also be able to do so under Article I. In order to limit Congress' power to create a cause of action enforceable against an unconsenting state in federal court to actions that Congress takes in the exercise of its Fourteenth Amendment power, it is necessary to demonstrate that there is some constitutionally significant way of distinguishing Congress' Fourteenth Amendment power from its Article I powers. If there is no constitutionally significant way of distinguishing between these two grants of plenary power, then we must conclude, as we did in Jennings, that Congress' ability to create a cause of action for money damages enforceable against an unconsenting state in federal court is not limited to actions...