Supreme Court to Review Whether Bankruptcy Laws Can Abrogate States’ Immunity

The Supreme Court has agreed to decide the issue it sidestepped last Term: whether Congress has authority under the Bankruptcy Clause of Article I of the Constitution to abrogate states’ sovereign immunity.

Central Virginia Community College v. Katz, No. 04-885, --- S.Ct. ----, 2005 WL 742622 (Apr. 4, 2004) (reviewing In re Wallace's Bookstore, Inc., No. 03-6054,106 Fed.Appx. 341, 2004 WL 1763229 (6th Cir. Aug 04, 2004)). In Tennessee Student Assistance Corp. v. Hood, 124 S. Ct. 1905 (2004), the Court decided that bankruptcy proceedings are in rem proceedings over the estate of the bankrupt individual, not in personam actions against the creditors, and thus even when assets held by states are at stake, the action is not a “suit” against a state that violates a state’s sovereign immunity.

Katz, however, involves a situation explicitly reserved in Hood: “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." Hood, 120 S.Ct. at 1914. An adversary proceeding is not in rem and thus the sovereign immunity issue cannot be avoided.

The bankruptcy trustee faces a steep challenge, as the Supreme Court has held repeatedly since Seminole Tribe v. Florida, 517 U.S. 44 (1996), that Article I of the Constitution does not give Congress power to abrogate states’ sovereign immunity.