Oh no! Another Eleventh Amendment column? But wait...this one is different. This time we're talking waiver of immunity by conduct. This time we're talking implications far beyond the realm of bankruptcy.

In August, a unanimous Tenth Circuit panel found that Kansas State University (KSU) waived its Eleventh Amendment immunity by contracting with the U.S. Department of Education (DOE) to participate in the federal Perkins Loan Program. In re Innes, 1999 WL 641865, p.6 (10th Cir. 1999). Specifically, the panel held that "the overwhelming implication of this record, including the statute, the contract, and the federal regulation 'otherwise reflect[s][ ] an unequivocal intent to waive...immunity.'" Id. at p. 5, quoting, Ellis v. University of Kan. Med. Ctr., 163 F.3d. 1186, 1195 (10th Cir. 1999).

The procedural history of Innes is typical of these cases: The debtor initiated an adversary proceeding (Bankruptcy Rule 7001(6)) seeking a hardship discharge of his student loans (11 U.S.C. §523(a)(8)), and KSU responded by filing a motion to dismiss on the basis of immunity. The bankruptcy court denied the motion, and KSU appealed. Innes v. Kansas State University (In re Innes), 207 B.R. 953, 957 (Bankr. D. Kan. 1997). The district court affirmed the bankruptcy court's decision and appeal was taken to the Tenth Circuit. On appeal, KSU again argued that neither the Kansas statute authorizing KSU to apply and receive federal funds nor the DOE contract evidence any intent to waive the state's Eleventh Amendment immunity. Innes, 1999 WL 641865, p. 1.

Despite KSU's arguments, the Tenth Circuit considered the critical issue to be one of affirmative conduct. That is, whether KSU waived immunity by signing a contract with the DOE. Id. at 1. To answer this question, the court began by reciting the Supreme Court test that "[a] state may effectuate a waiver of its constitutional immunity by a state statute or constitutional provision, or by otherwise waiving its immunity to suit in the context of a particular federal program." Id. at 2, quoting Atascadero State Hospital v. Scanlon, 473 U.S. 234, 238 n.1, 105 S.Ct. 3142 (1985).² In either case, the state must unequivocally indicate its intention to consent to federal jurisdiction. Id.; Pennhurst State School & Hosp'l v. Halderman, 465 U.S. 89, 99, 104 S.Ct. 900 (1984). Put differently, a waiver will be found "only where stated 'by the most expressive language or by such an overwhelming implication from the text as [will] leave no room for any other reasonable construction.'" Id., quoting Edelman v. Jordan, 415 U.S. 651, 673, 94 S.Ct. 1347 (1974).³ The test is a stringent one. Atascadero, 437 U.S. at 241.

---

If the Tenth Circuit's "waiver by conduct" holding stands, the implications extend far beyond student loan discharges.

---

What would appear to be a straightforward analysis now gets confusing. After determining that neither the Kansas statute nor the Kansas constitution effectuated waiver of KSU's immunity, the court then asked whether KSU waived immunity by affirmative conduct. Innes at p. 3. What's this? Consent through conduct? Did the court simply ignore Edelman? Apparently not, given that the court restates the Edelman factors and then quotes from Atascadero that participation in federal programs and receipt of federal funds "fall[] far short of manifesting a clear intent...to waive immunity." Id., quoting Atascadero, 473 U.S. at 246-47.

To get from express language or overwhelming implication in the text to affirmative conduct, the court relied upon the Eleventh Circuit's decision in Georgia Dep't of Revenue v. Burke (In re Burke), 146 F.3d 1313, 1318 (11th Cir. 1998) ("[I]n the absence of explicit consent..., a state may consent to a federal court's jurisdiction through its affirmative conduct."). Id. Burke, in turn, relies on the Supreme Court's decision in Gardner v. New Jersey, 329 U.S. 565, 67 S.Ct. 467 (1947). Id. Unfortunately, both the Tenth and Eleventh Circuits ignore the fact that the New Jersey statutes in Gardner had expressly authorized the state comptroller to waive immunity, which it did by filing a proof of claim, i.e., a pleading seeking affirmative relief in federal court. Gardner, 329 U.S. at 574-75 ("Nor can we conclude that the claim was not properly filed by the state. The state comptroller, who filed the claim on behalf of the state, is authorized to 'Institute and direct prosecution...for just claims and debts due to the state.' N.J.R.S. s 52: 19—10, subd. c, N.J.S.A. And see Id., s 52: 19—15. The state Attorney General, who resisted the objections made to the claim, is authorized to 'Attend generally to all matters in which the state is a party or in which its rights and interests are involved.' Id., s 52: 17—2g."). The Innes panel failed to even discuss whether the Kansas statute gave KSU authority to waive the state's immunity, instead focusing solely on its statutory power to enter into contracts.

Armed with its waiver by conduct pronouncement, the Tenth Circuit proceeded to examine Kansas's enabling legislation, the DOE contract, and finally the corresponding federal regulation. In short order the court concluded that because (a) the state statute authorized KSU to enter into the contract, and (b) the contract provided that KSU would, inter alia, file proofs of claim and, where appropriate, object to a debtor's discharge of student loans, that (c) KSU unequivocally intended to waive immunity. Innes at p. 5.

As if the foregoing analysis were not questionable enough, the court then proceeded to summarily state that KSU had the authority to waive immunity because the enabling statute gave KSU expansive, unlimited authority to contract with the DOE. Id., p. 7. Again, what happened to Edelman and Atascadero? Where is the unequivocally expressed, overwhelming implication from the text analysis? The court simply states that the statute authorizing KSU to enter into a contract waiving immunity was not an ultra vires act. Id. So the Kansas statute gave KSU the authority to enter into contracts. Where in the statute did it give KSU the authority to waive Kansas's immunity? That's a rhetorical question, because it did not.

From the states' perspective, the biggest concern about Innes is the absence of any federal statute conditioning participation in the Perkins Loan Program on KSU's waiving its immunity. The Constitution empowers Congress to "lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States." U.S. Const. Art. I, §8, cl. 1. Incident to this power, Congress may attach conditions on the receipt of federal funds and has often done so. South Dakota v. Dole, 483 U.S. 203, 207, 107 S.Ct. 2793 (1987). The key is that it is Congress, not the DOE or any other federal agency, that is authorized to impose the conditions. Even then, the spending power is not unlimited. If Congress desires to condition the states' receipt of federal funds, it "must do so unambiguously..., enabl[ing] the states to exercise their choice knowingly, cognizant of the consequences of their participation." Id., quoting Pennhurst State School & Hosp'l v. Halderman (Pennhurst II), 451 U.S. 1, 17, 101 S.Ct. 1531 (1981). In case you forgot, in Innes the court was dealing with a DOE regulation—34 C.F.R. §674.49.

If the Tenth Circuit's "waiver by conduct" holding stands, the implications extend far beyond student loan discharges. What about an Environmental Protection Agency (EPA) regulation requiring states to defend CERCLA suits in federal court? Or how about a Department of Labor regulation requiring states to defend FLSA suits in federal court? More disturbing from the states' perspective is the fact that a federal agency need only couple funding with a waiver, and, suddenly, no more Eleventh Amendment defenses.

Fortunately, not all the circuits seem intent upon discarding the express language requirement. In Bradley v. Arkansas Dep't of Education, also decided in August, the Eighth Circuit wrote that to effectuate a waiver by participation in a federal spending program, "the statute creating the spending program must contain a clear, unambiguous warning that Congress intends to exact a waiver of Eleventh Amendment immunity as a condition for participating in the program." 1999 WL 673228 (8th Cir. 1999). Unfortunately, until the Supreme Court decides to enter the fray once more, who knows what decisions will be rendered in the interim—and not necessarily in the bankruptcy courts.

Footnotes

¹ All views expressed herein are those of the author, and do not necessarily reflect those of the Office of the Attorney General of Texas or the client agencies it represents. Return to article

² The third exception to a state's Eleventh Amendment immunity is Congressional abrogation when acting pursuant to §5 of the Fourteenth Amendment. Atascadero, 473 U.S. at 238. Because the debtor conceded that abrogation was not an issue, the court only addressed the issue of waiver. Innes at p. 2. Return to article

³ The Innes panel noted that the constructive or implied waiver principle set out in Parden v. Terminal Ry. of Ala. Docks Dep't, 377 U.S. 184, 84 S.Ct. 1207 (1964) was overturned in College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., __ U.S. __, 119 S.Ct. 2219, 2226-28 & n. 2, 1999 WL 412639 (1999). Innes at p. 2. Return to article