RESPONDENT: Bernard Katz, Liquidating Supervisor for Wallace's Bookstores, Inc.
LOCATION: Supreme Court of Appeals of West Virginia
DOCKET NO.: 04-885
DECIDED BY: Roberts Court (2005-2006)
LOWER COURT: United States Court of Appeals for the Sixth Circuit
CITATION: 546 US 356 (2006)
GRANTED: Apr 04, 2005
ARGUED: Oct 31, 2005
DECIDED: Jan 23, 2006
Kim Martin Lewis - argued the cause for Respondent
William E. Thro - argued the cause for Petitioners
Facts of the case
Katz, the supervisor of a bookstore that declared bankruptcy, filed a suit to collect debts owed to the bookstore by Central Virginia Community College and several other schools operated by the state of Virginia. Katz also petitioned to prevent the schools from filing claims to collect money from the bookstore because of its bankruptcy status. The colleges argued that they could not be sued by Katz because of state sovereign immunity (which holds that a state must consent in order to be sued). The bankruptcy court disagreed, however, finding that Congress's authority under the Bankruptcy Clause of the Constitution (Article I Section 8) was sufficient to allow them to waive states' sovereign immunity in bankruptcy cases.
Does the Bankruptcy Clause of the U.S. Constitution (Article I Section 8), waive the states' sovereign immunity?
Media for Central Va. Community College v. KatzAudio Transcription for Oral Argument - October 31, 2005 in Central Va. Community College v. Katz
Audio Transcription for Opinion Announcement - January 23, 2006 in Central Va. Community College v. Katz
John G. Roberts, Jr.:
Justice Stevens has the opinion in No. 04-885, Central Virginia Community College versus Katz; it will be announced by Justice O’Connor.
Sandra Day O'Connor:
Since Justice Stevens is not with us this morning, I announce this on his behalf.
The case comes on writ of certiorari to the Court of Appeals for the 6th Circuit.
We granted review to decide further the Bankruptcy Clause of the Constitution gives Congress the power to abrogate state sovereign immunity in bankruptcy proceedings.
The debtor here, Wallace's Bookstores, had had dealings with a number of Virginia State agencies before going into bankruptcy.
Once the bankruptcy petition was filed, Bernard Katz, the court-appointed liquidating supervisor, brought actions against the state agencies to recover preferential money transfers made to them by the debtor on the eve of bankruptcy.
The Bankruptcy Court, the District Court and the Court of Appeals all rejected the State agencies’ argument that the Eleventh Amendment rendered them immune from the recovery actions.
In an opinion authored by Justice Stevens and filed today with the Clerk of the Court, we affirm.
Bankruptcy involves the marshalling of the debtor’s assets, the equitable distribution of that property among creditors and the ultimate discharge that gives the debtor a fresh start.
At its core, bankruptcy jurisdiction is in rem.
As such, its exercise does not implicate state sovereign immunity to the same degree as other kinds of jurisdiction, even when the state’s interests may be affected.
The history of the Bankruptcy Clause and the bankruptcy legislation enacted soon after its ratification reflect the framers’ understanding the Congress could authorize bankruptcy courts not just to render in rem adjudications, but also to issue compulsory orders in aid of those adjudications.
The peculiar nature of bankruptcy jurisdiction, combined with the history of the bankruptcy power, persuades us of the following: the states agreed in the plan of the convention not to assert sovereign immunity in proceedings like those at issue here, proceeding seeking turnover of preferential transfers.
We do not rest our decision on any express statement Congress has made on the subject of state sovereign immunity; the relevant abrogation is the one reflected in the plan of the convention, not by statute.
Congress may at its option either treat states like other creditors insofar as concerns laws on the subject of bankruptcies or exempt them from operation of those laws.
The opinion is joined by me and by Justices Souter, Ginsburg and Breyer; Justice Thomas has filed a dissenting opinion, which the Chief Justice, Justice Scalia and Justice Kennedy have joined.