Central Va. Community College v. Katz - Oral Argument - October 31, 2005 Page 2

Central Va. Community College v. Katz

Media for Central Va. Community College v. Katz

Audio Transcription for Opinion Announcement - January 23, 2006 in Central Va. Community College v. Katz

Audio Transcription for Oral Argument - October 31, 2005 in Central Va. Community College v. Katz

Anthony M. Kennedy:

That--

William E. Thro:

The automatic--

Anthony M. Kennedy:

--I mean, it seems that that answer is just conclusory, that it's an exercise of the sovereign power of Congress, okay.

That's just... that's just a conclusion.

That's not a reason.

William E. Thro:

--Yes, Your Honor.

The... this Court's decisions have struck a balance between respecting the need for the States to obey Federal law and, at the same time, respecting the constitutional value of the States' sovereign immunity.

What we have here in... with respect to the automatic stay and with respect to the discharge decisions, is States being bound by Federal law, no different than the States being bound by the minimum wage law, for example.

But what we have with respect to the trustee's attempts to augment the estate by collecting a monetary judgment against the States is an attempt to invade the State treasury, which this Court's decisions clearly state is barred by sovereign immunity.

Stephen G. Breyer:

Tell me, if you're... if you're right... let's suppose you're right.

I'm over here.

That's--

[Laughter]

William E. Thro:

Sorry, Justice Breyer.

Stephen G. Breyer:

That's all right.

So, it's hard to figure out, because the direction... you can't tell by the sound.

I don't know if there's a modern system that would help with that, but... you're right.

Suppose that the State... suppose you're right.

What I'd worry about... and I'd like your response to this... is that in bankruptcies, or weak firms... a lot of firms are weak, and they owe a lot of money to the States.

So, the States figure this out after a while.

It takes a few years to seep through, but once they see what they can do, they say,

"Here's what we'll do. "

"Settle your claims against the State, which happen to be pretty good, for 50 cents on the dollar. "

"Give us the money. "

"And you're... we're out of it. "

So, they settle it.

A month later, phhht, bankrupt.

Now, two things have happened.

The States got 50 cents on the dollar, every other creditor gets 5 cents on the dollar, because they were a month ahead of it.

The second thing that happened is, the creditor... the firm lost the chance to come in and be rehabilitated.