On May 13, 2002, the U.S. Supreme Court held that a state waives its Eleventh Amendment immunity when it removes a case from state court to federal court.³ The court reached its decision by relying on the long-standing jurisprudential principle that "a state's voluntary appearance in federal court amount[s] to a waiver of its Eleventh Amendment immunity."⁴ By reasserting this principle, the court may have answered a question raised in an earlier Toxins-Are-Us article⁵ regarding whether a state that voluntarily participates in bankruptcy court environmental litigation waives its Eleventh Amendment immunity.⁶

It is common for a state to intervene in environmental bankruptcy cases where it seeks to prevent bankruptcy estates from abandoning property due to environmental concerns, or where the state seeks to require debtors to comply with environmental regulations.⁷ Generally, the state's justification for intervention is to object to the abandonment of property by a debtor-in-possession (DIP) or bankruptcy trustee.⁸ However, in other bankruptcy cases, states raise the Eleventh Amendment as a bar to bankruptcy court jurisdiction. In these cases, states argue that bankruptcy courts have no authority to either consider or adjudicate claims against them,⁹ unless they have effectively waived their Eleventh Amendment immunity. This column will explore the effect of Lapides v. Board of Regents of the University System of Georgia on state immunity when a state voluntarily intervenes in a bankruptcy case with environmental issues under 11 U.S.C. §554.¹⁰

General Issues Regarding Waiver of Eleventh Amendment Immunity by States

The leading case on Eleventh Amendment Immunity is Seminole Tribe v. Florida.¹¹ In Seminole, the Supreme Court greatly limited Congress's ability to waive the Eleventh Amendment immunity of states. While Seminole's interpretation of the Eleventh Amendment grants states broad immunity from suit in federal court, states have the right to voluntary waive their Eleventh Amendment immunity.¹² However, such a waiver will not be lightly implied and must be voluntary, unequivocal and clearly expressed to be effective.¹³ In College I, the Supreme Court overruled the "implied waiver doctrine" of Parden v. Terminal Ry of Alabama State Docks Dept.,¹⁴ which held that states could waive their Eleventh Amendment immunity by engaging in certain types of conduct.

Waiver by the State's Removal of a Case to Federal Court Under Lapides

In Lapides, the court stated that the clear indication of a state's intent to waive its immunity "must focus on the litigation act the state takes that creates the waiver."¹⁵ The case involved a professor employed by the Georgia state university system that sued the Board of Regents of the University System of Georgia after being investigated for allegations of sexual harassment.¹⁶ The original suit was brought in a Georgia state court, but the Georgia Attorney General removed the case to federal district court under 28 U.S.C. §1441. Once the case was removed to federal court, the state sought dismissal on the grounds of Eleventh Amendment immunity.¹⁷

Relying on past precedent,¹⁸ the court concluded that the state's act of removal clearly indicated a waiver of immunity.¹⁹ However, Justice Breyer, in the unanimous opinion, limited the context of the issue to the removal of state-law claims where the state has waived immunity from state court proceedings.²⁰ The justification for this limitation was that the federal §1983 claim sought only monetary damages from the state, and the court has "held that a state is not a 'person' against whom a §1983 claim for money damages might be asserted."²¹ However, Lapides dictates that removal instituted by a state constitutes waiver of Eleventh Amendment immunity.²²

In the bankruptcy context, a majority of courts have held that a state at least partially waives its Eleventh Amendment immunity by filing a proof of claim in a bankruptcy case,²³ although the extent of that waiver is not entirely defined.²⁴ After Lapides, it seems logical that other state actions in a bankruptcy case would be a sufficient act to constitute waiver of its Eleventh Amendment immunity.

Using the example of a Midlantic objection to property abandonment, under the Lapides reasoning it seems clear that a state's objection to a bankruptcy estate's proposed abandonment of property should constitute an effective waiver of any Eleventh Amendment immunity objection to the bankruptcy court's jurisdiction over the state in that case. In these cases, the state is seeking to have the bankruptcy court affirmatively prevent the bankruptcy estate from performing an act (i.e., abandoning property) that it has a right to do unless an objecting party, such as a state, demonstrates that "imminent and indefinable harm" to the health and safety of the public will result from the abandonment.²⁵ This type of participation constitutes the voluntary, unequivocal and clearly expressed submission to the jurisdiction of the federal courts that courts have held waive a state's Eleventh Amendment immunity.²⁶

The Lapides decision bolsters the position that a state's objection to a bankruptcy estate's proposed abandonment of property constitutes an effective waiver. Although the court explicitly stated that the rule from the case was that removal constituted waiver, the holding may be extended so that other forms of litigation commenced in a bankruptcy case will constitute waiver as well. The court recognized that it would "seem anomalous or inconsistent for a state both (1) to invoke federal jurisdiction, thereby contending that the 'judicial power of the United States' extends to the case at hand, and (2) to claim Eleventh Amendment immunity, thereby denying that the 'judicial power of the United States' extends to the case at hand."²⁷

Further, an argument can be made that by voluntarily invoking the general jurisdiction of the bankruptcy court by objecting to an aspect of the administration of the bankruptcy estate, the state has waived its immunity for all matters arising in that bankruptcy case. After Lapides, a state may not be permitted to argue that it has waived its Eleventh Amendment immunity merely for the limited purpose of arguing to enforce its environmental laws. The Supreme Court indicated in Lapides that allowing a state this type of leeway would permit states to achieve "unfair tactical advantages."²⁸ Moreover, the court stated that "an interpretation of the Eleventh Amendment that finds waiver in the litigation context rests upon the Amendment's presumed recognition of the judicial need to avoid inconsistency, anomaly and unfairness, and not upon a state's actual preference or desire, which might, after all, favor selective use of 'immunity' to achieve litigation advantages."²⁹

Unlike the bankruptcy claims allowance process, where a state has a "Hobson's Choice"³⁰ in environmental bankruptcy cases of either forgoing asserting a claim against a bankruptcy estate and retaining its Eleventh Amendment immunity, or filing a claim and submitting to federal court jurisdiction, the state has a real choice in abandonment cases. It can allow the property to be abandoned, take action in state court against the property and later seek to assert a claim against the bankruptcy estate. Alternatively, it could attempt to have the bankruptcy court require the estate to attempt to comply with the state environmental laws by preventing the abandonment of the property, thereby submitting the state to federal court jurisdiction. Finally, a state could make a limited appearance to seek stay relief or a determination that the stay does not apply to its enforcement of its environmental laws and regulations in order to force the estate to comply with environmental laws in state courts.³¹ This meaningful choice should lead courts to find that the state's waiver in these cases should be broadly rather than narrowly interpreted.³²

Conclusion

Although state involvement in a bankruptcy case involving toxic tort issues is ordinarily undesirable for a bankruptcy estate in cases where the debtor may have a claim against a state, it could be a blessing in disguise. If a state attempts to enforce its environmental laws against the debtor by invoking the jurisdiction of the bankruptcy court, it may be waiving its Eleventh Amendment immunity. If this occurs, the bankruptcy estate could then pursue any valid claims that it might have against the state in bankruptcy court. This may be the only benefit of a debtor having toxic tort problems in a bankruptcy proceeding, but it is one that should not be ignored.

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Footnotes

¹ J.D. expected May 2003, Louis D. Brandeis School of Law at the University of Louisville; B.A. political science 2000, University of Kentucky. Return to article

² Associate, Greenebaum Doll & McDonald PLLC; J.D. 2001, Washington University School of Law; B.A. English 1994, Bellarmine College. Return to article

³ Lapides v. Board of Regents of the University System of Georgia, ___ U.S. ___, 122 S.Ct. 1640, 1646 (2002). Return to article

⁴ Id. at 1643 (citing Clark v. Barnard, 108 U.S. 436 (1883)). Return to article

⁵ See Bowles, Chip, "The Toxic Avenger: Bankruptcy Court Jurisdiction Over States," Am. Bank. Inst. J. Vol. XIX No. 3, 18+ (April, 2000). Return to article

⁶ For an opposing view, please see Cordry, Karen, "Missing the Forest for the Trees," Am. Bank. Inst. J. Vol. XIX No. 5, 8 + (June, 2000). Return to article

⁷ See Midlantic Nat'l. Bank v. New Jersey Dept. of Env. Protection, 474 U.S. 494 (1986); In re L.F. Jennings Oil Co., 4 F.3d 887 (10th Cir. 1993); In re St. Lawrence Corp., 239 B.R. 720 (Bankr. D. N.J. 1999). Return to article

⁸ See, generally, In re St. Lawrence Corp., 239 B.R. 720 (Bankr. D. N.J. 1999). Return to article

⁹ See, generally, Alden v. Maine, 527 U.S. 706, 119 S.Ct. 2240 (1999) (states can invoke common-law sovereign immunity to a suit to enforce federal rights even when the suit is filed in federal court); see, also, Florida Prepaid Postsecondary Education Expense Board v. College Saving Bank (College I), 527 U.S. 627 (1999); Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank (College II), 527 U.S. 666, 119 S.Ct. 2219 (1999); In re Tri-City Turf Club, 203 B.R. 617 (Bankr. E.D. Ky. 1996). Return to article

¹⁰ Lapides, 122 S.Ct. at 1640. Return to article

¹¹ 517 U.S. 44 (1996) Return to article

¹² See College I, 119 S.Ct. at 2204. Return to article

¹³ See Edelman v. Jordan, 415 U.S. 651, 673 (1974), where the Supreme Court stated that waiver of a state's Eleventh Amendment immunity will be found "only where stated 'by the most express language or by such overwhelming implication...'" (quoting Murray v. Wilson Distilling Co., 213 U.S. 151, 171 (1909)). Return to article

¹⁴ 377 U.S. 184 (1964) Return to article

¹⁵ Lapides, 122 S. Ct. at 1644. Return to article

¹⁶ Id. at 1642. Return to article

¹⁷ Id. Return to article

¹⁸ Gardner v. New Jersey, 329 U.S. 565 (1947); Gunter v. Atlantic Coast Line R. Co., 200 U.S. 273 (1906); Clark v. Barnard, 108 U.S. 436, 437 (1883). Return to article

¹⁹ Lapides, 122 S.Ct. at 1646. Return to article

²⁰ Id. at 1643. Return to article

²¹ Id. (citing Will v. Michigan Dept. of State Police, 491 U.S. 58 (1989)). Return to article

²² Id. Return to article

²³ See, generally, Katchen v. Landy, 382 U.S. 323 (1966); Gardner, 329 U.S. at 565. Return to article

²⁴ Compare In re Straight, 143 F.3d 1387 (10th Cir. 1998), cert. denied, 525 U.S. 982, 119 S.Ct. 446 (1998) (stating filing of a proof of claim was a broad waiver of a state's Eleventh Amendment immunity), with In re Creative Goldsmiths of Washington, D.C., Inc., 119 F.3d 1140 (4th Cir. 1997), cert. denied, 523 U.S. 1075, 118 S.Ct. 1517 (1998) (stating filing of a proof of claim was a narrow waiver). Return to article

²⁵ Midlantic, 474 U.S. 494 at 507 n.9. Return to article

²⁶ See In re Straight, 143 F.3d at 1387, 1389-90; see, also, In re White, 139 F.3d 1268 (9th Cir. 1998) (holding that a Native American tribe waived its immunity by voting on a proposed chapter 11 plan and objecting to its confirmation). Return to article

²⁷ Lapides, 122 S. Ct. at 1643. Return to article

²⁸ Id. at 1645. Return to article

²⁹ Id. at 1644. Return to article

³⁰ See University of Virginia v. Robinson, 243 B.R. 657 (W.D.Va. 2000). Return to article

³¹ See, generally, Safety-Kleen Inc. v. Wyche, 274 F.3d 846 (4th Cir. 2001) (holding enforcement of environmental regulations excepted from automatic stay under 11 U.S.C. §362(b)(4) as exercise of state's police and regulatory powers). Return to article

³² See In re St. Lawrence Corp., 239 B.R. 720, 727 (Bankr. D. N.J. 1999) (for an overview of the lengths to which a state will go to force a debtor to police the conduct of tenants on property owned by the estate). Return to article

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