Monday’s argument in Central Virginia Community College v. Katz

On Monday, the Court will hear its second case in two years concerning whether the federal government may abrogate state sovereign immunity using its Article I bankruptcy powers. Central Virginia Community College v. Katz, No. 04-885, will be one of the Court’s first significant federalism cases since the death of Chief Justice Rehnquist, who frequently cast the fifth vote to preserve state power against that of the national government. Most of the debate on Monday, however, may center on whether the Court should reach the sovereign immunity question at all. The Court declined to address abrogation after granting certiorari on it in Tennessee Student Assistance Corp. v. Hood, and the respondent is asking the Court to sidestep the issue again in Katz.

Virginia Solicitor General William E. Thro will argue for petitioners. Kim Martin Lewis of Cincinnati, Ohio, will argue for respondent. The briefs are available here.

The petitioners, four state-run schools, challenge the Sixth Circuit’s holding that Congress may strip states of their sovereign immunity when it legislates under the Bankruptcy Clause. In Katz, the trustee of a bankrupt bookstore chain filed adversary proceedings under federal bankruptcy law against three community colleges and the Virginia Military Institute. The suits seek the recovery of preferential transfers — payments that the bookstores made to the schools shortly before filing for bankruptcy — in addition to other money that the trustee claims the schools owe to the chain. The trustee also seeks to bar any claims by the schools for debts that were incurred before the bookstores filed for bankruptcy.

The schools argued below that the suits should be dismissed because non-consenting states are generally immune from suit by private parties. But the Sixth Circuit followed its precedent, In re Hood, and concluded that Congress may strip states of their immunity using its Bankruptcy Clause power “[t]o establish . . . uniform Laws on the subject of Bankruptcies throughout the United States.” The Sixth Circuit explained in Hood that passing “uniform” laws requires treating states and other creditors alike. It held that the uniformity requirement distinguishes the Bankruptcy Clause from the sources of Article I authority that do not allow abrogation. The six other circuits which have addressed abrogation under the Bankruptcy Clause have reached the opposite conclusion.

The Supreme Court took up the Sixth Circuit’s abrogation holding last year in Tennessee Student Assistance Corp. v. Hood, but affirmed the judgment below on narrower grounds. It held that a bankruptcy court could discharge state-guaranteed student loans as an exercise of in rem jurisdiction over the debtor’s estate rather than in personam jurisdiction against the creditors. In rem proceedings do not qualify as suits against the state at all, and do not impinge upon the state’s sovereign immunity. The Court suggested, however, that the result might be different if — as in Katz — the bankruptcy trustee sought to recover property in the state’s hands. It explained that the bankruptcy court in Hood had “not attempted to adjudicate any claims outside of that [in rem] jurisdiction. The case before us is thus unlike an adversary proceeding by the bankruptcy trustee seeking to recover property in the hands of the State on the grounds that the transfer was a voidable preference.”

On Monday, the Virginia schools ask the Supreme Court to finally address the Sixth Circuit’s broad construction of the federal bankruptcy power. Joined by all forty-nine other states as amicus curiae, they argue that the Sixth Circuit’s ruling contradicts the Supreme Court’s sovereign immunity precedents. The schools acknowledge that Congress may abrogate sovereign immunity under the Fourteenth Amendment, which gave Congress new power over the states after the Eleventh Amendment inscribed sovereign immunity in the Constitution’s text. But the petitioners argue that the Court has already established that abrogation authority cannot come from any provision of Article I, which is limited by the subsequently enacted Eleventh Amendment. For instance, the Court wrote in Kimel v. Florida Board of Regents, “Congress’ powers under Article I of the Constitution do not include the power to subject States to suit at the hands of private individuals.” The schools argue that the Bankruptcy Clause’s uniformity requirement is simply a limitation on congressional power, and that in any case it requires only geographic uniformity, not that all creditors be treated alike.

The respondent devotes most of his brief to urging the Court not to reach the Sixth Circuit’s abrogation holding at all. His argument that Congress may abrogate sovereign immunity using its bankruptcy powers occupies only four pages of his brief. Instead, the trustee argues that because one of the schools filed claims as part of the bookstore chain’s bankruptcy proceeding, the entire Commonwealth of Virginia waived its sovereign immunity. Further, he argues that bankruptcy trustees are federal officials, not private litigants. Because sovereign immunity does not limit the federal government’s power to sue the states, his suit would therefore be allowed. Finally, the trustee argues that his claims to avoid and recover preferential transfers can be justified under Hood as exercises of in rem jurisdiction over particular sums of money to which the state has no lawful claim.

The schools argue that the Court should not pass upon the trustee’s arguments because they were not addressed by the court of appeals. Instead, the schools argue, the Court should finally answering the question it first took up in Hood last year: “Having avoided this exact issue in [Hood], this Court presumably wishes to decide an issue that divides the Circuits, is constantly recurring, and affects all fifty states.”