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New Limits on the Scope of Seminole

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The U.S. Supreme Court's decision in Seminole Tribe of Florida v. Florida1 has cast doubt on the constitutionality of the Bankruptcy Code's abrogation of state sovereign immunity under 11 U.S.C. §106. Specifically, the Supreme Court held in Seminole that the only recognized way Congress can abrogate the Eleventh Amendment2 and allow individuals to bring suits against states is through legislation via the Fourteenth Amendment.3 The Supreme Court further stated that "even when the Constitution vests in Congress complete law-making authority over a particular area, the Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting states."4 This decision places the states in a position of immunity from suits brought by individuals not based on the Fourteenth Amendment.

States will clearly invoke the Seminole decision to support the argument that §106 is unconstitutional, allowing them to participate in a bankruptcy proceeding and maintain their immunity from the discharge of debtor's obligations owed them. If §106 violates the Constitution, the states may have the advantage of receiving payment on their claims inside a bankruptcy proceeding and retaining their ability to pursue any remaining claims outside of the bankruptcy.

However, a recent opinion out of the Bankruptcy Court for the Western District of Oklahoma casts serious doubt on the ability of states to use this tactic in bankruptcy proceedings. In In re Barrett Refining Corporation,5 U.S. Bankruptcy Judge Richard L. Bohanon directly addressed the argument made by the state of Mississippi that 11 U.S.C. §106 is unconstitutional after Seminole .

In Barrett, the debtor, an Oklahoma corporation, operated a crude oil refinery in Mississippi that resulted in the state assessing environmental fines and penalties against the corporation in the amount of $750,000 along with a demand for the remediation of the pollution.6 After the filing of the debtor's chapter 11 petition, Mississippi filed a proof of claim related to the environmental damages that included the following statement: "The filing was not a consent to jurisdiction of this court nor a waiver of any rights."7 This limiting language was an attempt by Mississippi to avoid any waiver of constitutional immunity it had from the bankruptcy proceeding.8 It was not until after the Supreme Court's decision in Seminole that the state of Mississippi filed a motion objecting to the bankruptcy court's jurisdiction on its environmental claims, or in the alternative, to allow it to withdraw its proof of claim in the case.9


Judge Bohanon's focus...toward the definition of the term "suit" in the Eleventh Amendment should simplify the issues regarding the applicability of Seminole to bankruptcy cases.

The focus of the bankruptcy court's opinion was not on Mississippi's argument that Congress had unconstitutionally abrogated state sovereignty by legislating the Bankruptcy Code (and bankruptcy court jurisdiction) through Article I. Instead, the court's opinion focused on the definition of a "suit" pursuant to the Eleventh Amendment.10 The definition of the word "suit" in this case is particularly applicable because, as the bankruptcy court noted, bankruptcy cases are not "suits" as the term is used in the Eleventh Amendment.11 The bankruptcy court reviewed Chief Justice John Marshall's opinion in Cohens v. Virginia12 where the Supreme Court, in an early decision, defined a "suit" within the meaning of the Eleventh Amendment. The bankruptcy court summed up the decision in Cohens by stating:

The decision shows that a suit consists of: 1) an adversarial proceeding, 2) which arises as a result of a deprivation or injury, 3) which involved at least two parties, 4) which compels the attendance of the parties, 5) which asserts and prosecuted a claim against one of the parties, and 6) which demands the restoration of some thing from the defending party. Chief Justice Marshall noted in his decision that there are legal actions which are not "suits" within the scope of the Eleventh Amendment.13

The court noted that a petition commencing a bankruptcy case does not assert a claim against any other party, demand the presence of other parties to adjudicate a claim, or commence a "suit" seeking the restoration of "something from an opposing party."14 The court's opinion also cited Gardner v. New Jersey15 as modern support for Chief Justice Marshall's definition (in Cohens) of the term "suit."16 In Gardner, the Supreme Court stated, "If the claimant is a state, the procedure of proof and allowance is not transmitted into a suit against the state because the court entertains objections to the claim. The state is seeking something from the debtor. No judgement is sought against the state."17

In addition, the bankruptcy court cited another early Supreme Court decision, Weston v. City Council of Charleston,18 that supports the principle that a suit generally requires adversarial litigation between two parties to obtain a remedy—a situation that does not exist in a bankruptcy case.19 The bankruptcy court distinguished Barrett from a bankruptcy case that involves an adversarial proceeding. In Barrett, Mississippi was not involved in an adversarial proceeding, but simply objected to the treatment of its claim in the bankruptcy case.20

The bankruptcy court went on to distinguish the difference between bankruptcy cases and other federal causes of action such as those arising under copyright and antitrust legislation.21 The bankruptcy court distinguished bankruptcy from other federal legislation by again noting that a bankruptcy case does not have the enumerated elements necessary to define it as a "suit." Therefore, the court noted that, "Thus, as a matter of law, pre-Seminole, this court finds that the Eleventh Amendment does not apply to the Bankruptcy Code as a bankruptcy case is not a 'suit' within the scope of the Amendment."22

Since the court had determined that the Eleventh Amendment did not apply to the Bankruptcy Code, the remaining constitutional issue involved the application of Seminole to the issues in Barrett. The court directly confronted Mississippi's contention that Seminole had established that the bankruptcy court had no jurisdiction over it.23

[A] bankruptcy petition seeks no 'traditional' remedy for redress as a state is not compelled to appear in federal court by a citizen in a suit to obtain redress for injuries or damages...By the mere commencement of the case, the bankruptcy court does not acquire jurisdiction over either anyone else or anyone else's property. Thus, it does not acquire jurisdiction over the state, either in personam or in rem.24

The court in this passage explained that a bankruptcy case does not establish "jurisdiction" over a state in the same way that it acquires jurisdiction over parties in a "suit." The court again concluded that the commencement of a bankruptcy case is still not a "suit" for purposes of the Eleventh Amendment, and therefore, Seminole did not apply to bankruptcy cases.25

Second, the court specifically cited a portion of the majority opinion that addressed Justice Stevens's dissent: "[C]ontrary to the implication of Justice Stevens's conclusion, it has not been widely thought that the federal anti-trust, bankruptcy or copyright statutes abrogated the states' sovereign immunity."26 In discussing this portion of the majority's holding in Seminole, the bankruptcy court again distinguished the difference between "jurisdiction" being exercised by a court in the usual adversarial context as opposed to a bankruptcy context. As the court stated, "In this part of its refutation of Justice Stevens's concerns, the majority concludes that Seminole does not stand, nor was intended to stand, for the proposition that the Eleventh Amendment prohibits bankruptcy courts from exercising jurisdiction over states…"27

The court then addressed whether a state could be a named party in a bankruptcy action to the extent that the action would be construed to be a suit against the state.28 The court noted that a state could not be a real party in interest in a bankruptcy case because a bankruptcy case again does not invoke a traditional "two-party" adversarial suit for damages.29 As the court noted, "There is only one named party [in a bankruptcy case]: the debtor. And there can be no question that the debtor is the real party in interest with regard to the bankruptcy case."30 In addition, the court addressed the applicability of the holding in Ford Motor Company v. Department of Treasury of Indiana31 to the instant case.32 In Ford Motor, the Supreme Court held that where an action against a named party is in reality an attempt to acquire funds from a state treasury, then the real party in interest will be deemed to be the state.33 The court rejected any applicability of the situation in Ford Motor to a bankruptcy case by stating, "In a bankruptcy case, this definition and application would not apply, as the debtor who files for bankruptcy is not seeking to retrieve funds from the state treasury."34

The court then discussed and rejected two additional arguments made by Mississippi: that the filing of its proof of claim did not act as a waiver of its sovereign immunity, and that it should be allowed to withdraw its proof of claim.35 The court found that Mississippi had constructively consented to the jurisdiction of the bankruptcy court through the filing of its proof of claim36 and that any withdrawal of Mississippi's proof of claim would be of no effect.37

The court, in summing up its arguments regarding the application of the Eleventh Amendment and Seminole to bankruptcy cases, rejected the reasoning of cases that have focused on whether bankruptcy legislation was enacted through Article I or the Fourteenth Amendment.

In the instant decision, the issue of whether the source of bankruptcy jurisdiction is Article I or the Fourteenth Amendment is not applicable for, as demonstrated, the Eleventh Amendment applies only to 'suits', not to bankruptcy cases. Thus, these arguments are irrelevant. Indeed, it is the position of this court that the entire line of cases, taking either of these postures, can be said to have overlooked the fundamental issue of the difference between a suit and a bankruptcy case.38

Judge Bohanon's focus away from the enactment of bankruptcy legislation and toward the definition of the term "suit" in the Eleventh Amendment should simplify the issues regarding the applicability of Seminole to bankruptcy cases.


Footnotes

1Seminole Tribe of Florida v. Florida, 517 U.S. 44, 116 S. Ct. 1114 (1996). Return to article

2The Eleventh Amendment provides, "The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state." U.S. Const. amend. XI. Return to article

3Seminole, 517 U.S. at 59. The Court, in explaining this exception, specifically referred to its previous decision in Fitzpatrick v. Bitzer, 427 U.S. 445, 452-456, 96 S. Ct. 2666, 2669-72 (1976). Seminole, 517 U.S. at 59. Return to article

4Seminole, 517 U.S. at 72. Return to article

5In re Barrett Refining Corporation, 1998 Bankr. LEXIS 720 (Bankr. W. D. Okla. June 5, 1998). Return to article

6Barrett, 1998 LEXIS 720, at 2-3. Return to article

7Id. at 3. Return to article

8The Supreme Court has stated on numerous occasions that the voluntary appearance of the estate in a proceeding to pursue its interests is a waiver of any Eleventh Amendment sovereign immunity. See Id. at 42. Return to article

9Id. at 4. Return to article

10 As the court stated, "Whether a bankruptcy case falls within the scope of the Eleventh Amendment turns upon the definition of a 'suit'." Id. at 20. Return to article

11 Id. at 18. The bankruptcy court cited the Supreme Court opinion in Gardner v. New Jersey, 329 U.S. 565, 67 S. Ct. 467 (1947). Id. Return to article

12 Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 5 L. Ed. 256 (1821). Return to article

13 Barrett, 1998 Lexis 720, at 20 (citations omitted). Return to article

14 Id. at 22. Return to article

15 Gardner v. New Jersey, 329 U.S. 565, 67 S. Ct. 467 (1946). Return to article

16 Barrett of 1998 Lexis 720 at 22-23. Return to article

17 Gardner, 329 U.S. at 573-74. Return to article

18 Weston v. City Council of Charleston, 27 U.S. (2 Peters) 449, 464, 7 L. Ed. 481 (1829). Return to article

19 Barrett, 1998 Lexis 720 at 23. Return to article

20 The court specifically stated that there is a significant difference between an adversarial proceeding within a bankruptcy case and a bankruptcy case itself. As the bankruptcy court stated, "The adversary proceeding often involves recovery of property or the determination of the value of property and has adversarial parties. However, the adversary proceeding is related to and dependent upon the bankruptcy case and cannot occur unless a bankruptcy case has been filed." Id. at 21 n.10 (citations omitted). The court noted that in many bankruptcy cases adversary proceedings are not present and that this case did not involve an adversary proceeding, but rather dealt with the confirmation of a debtor's plan or reorganization. Id. Return to article

21This distinction was appropriate given the fact that the Supreme Court had addressed other types of federal legislation in their holding in Seminole. See Seminole, 517 U.S. at 73. Return to article

22 Barrett, 1998 Lexis 720 at 27. Return to article

23 Mississippi's argument depended on Justice Stevens's dissent in Seminole, where he stated, "The majority's opinion prevents Congress from providing a federal forum for a broad range of actions against states, from those sounding in copyright and patent law, to those concerning bankruptcy, environmental law, and the regulation of our vast national economy." Seminole, 517 U.S. at 77 (Stevens, J. dissenting). However, as the bankruptcy court stated, "Mississippi relies upon the dissent of Justice Stevens as its basis for arguing that the majority decision in Seminole prohibits bankruptcy courts from exercising jurisdiction over the states…Mississippi's reliance on Justice Stevens's dissent is misplaced, and not just for the reason that it was a dissent." Id. at 30. Return to article

24 Id. Return to article

25 Id. Return to article

26 Seminole, 517 U.S. at 73. Return to article

27 Barrett, 1998 Lexis 720 at 33. Return to article

28 Id. at 35. Return to article

29 Barrett, 1998 Lexis 720 at 33. Return to article

30 Id. Return to article

31 Ford Motor Company v. Department of Treasury of Indiana, 323 U.S. 459, 65 S. Ct. 347 (1945). Return to article

32Barrett, 1998 Lexis 720 at 6. Return to article

33Ford Motor, 323 U.S. at 464. Return to article

34Barrett, 1998 Lexis 720 at 36. Return to article

35Id. at 41-62. These arguments, although germane to the court's decision, are outside of the focus of this article and are therefore not addressed here. Return to article

36 Id. at 60. Return to article

37 Id. at 61-62. Return to article

38 Id. at 40. Return to article

Journal Date: 
Wednesday, July 1, 1998

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