Hoffman v. Connecticut Department Of Income Maintenance/Concurrence Scalia

by Antonin Scalia

Justice SCALIA, concurring in the judgment.

I concur in the Court's judgment that "petitioner's actions in United States Bankruptcy Court under §§ 542(b) and 547(b) of the [Bankruptcy] Code are barred by the Eleventh Amendment." Ante, at 104. I reach this conclusion, however, not on the plurality's basis that "Congress did not abrogate Eleventh Amendment immunity" of the States, ibid., but on the ground that it had no power to do so. As I explained in my opinion concurring in part and dissenting in part in Pennsylvania v. Union Gas Co., 491 U.S. 1, 35-42, 109 S.Ct. 2273, 2299-2303, 105 L.Ed.2d 1 (1989), it makes no sense to affirm the constitutional principle established by Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed. 842 (1890), that " 'a suit directly against a State by one of its own citizens is not one to which the judicial power of the United States extends, unless the State itself consents to be sued,' " Welch v. Texas Dept. of Highways and Public Transp., 483 U.S. 468, 486, 107 S.Ct. 2941, 2952, 97 L.Ed.2d 389 (1987) (plurality opinion), quoting Hans, supra, 134 U.S., at 21, 10 S.Ct., at 509 (Harlan, J., concurring), and to hold at the same time that Congress can override this principle by statute in the exercise of its Article I powers. Union Gas involved Congress' powers under the Commerce Clause, but there is no b sis for treating its powers under the Bankruptcy Clause any differently. Accordingly, I would affirm the judgment of the Court of Appeals without the necessity of considering whether Congress intended to exercise a power it did not possess.

Justice MARSHALL, with whom Justice BRENNAN, Justice BLACKMUN, and Justice STEVENS join, dissenting.

In my view, the language of § 106(c) of the Bankruptcy Code (Code), 11 U.S.C. § 106(c), satisfies even the requirement that Congress' intent to abrogate the States' Eleventh Amendment immunity be "unmistakably clear." Atascadero State Hospital v. Scanlon, 473 U.S. 234, 242, 105 S.Ct. 3142, 3147, 87 L.Ed.2d 171 (1985). Because Congress clearly expressed its intent to authorize a bankruptcy court to issue a money judgment against a State that has not filed a proof of claim in a bankruptcy proceeding, and because Congress has the authority under the Bankruptcy Clause to abrogate the States' Eleventh Amendment immunity, I respectfully dissent.

Section 106(c) states that, "notwithstanding any assertion of sovereign immunity," any Code provision containing one of the trigger words-"creditor," "entity," or "governmental unit"-applies to the States, and that "a determination by the court of an issue arising under such a provision binds [the States]" (emphasis added). The drafters of § 106(c) were fully aware of "the requirement in case law that an express waiver of sovereign immunity is required in order to be effective." 124 Cong.Rec. 32394 (1978) (statement of Rep. Edwards); id., at 33993 (statement of Sen. DeConcini); see Employees v. Missouri Dept. of Public Health and Welfare, 411 U.S. 279, 285, 93 S.Ct. 1614, 1618, 36 L.Ed.2d 251 (1973). They therefore carefully abrogated the States' sovereign immunity in three steps. First, they eliminated "any assertion of sovereign immunity." § 106(c). Second, they included States within the trigger words used elsewhere in the Code. § 106(c)(1). Third, they provided that States would be bound by the orders of the bankruptcy court. § 106(c)(2). What the plurality sees as redundancy in subsections (c)(1) and (c)(2) is thus more reasonably understood as evidence of the importance Congress attached to ensuring that the abrogation of sovereign immunity was express. ^[1]

By its terms, § 106(c) makes no distinction between Code provisions that contain trigger words and permit only injunctive and declaratory relief, and Code provisions that contain trigger words and permit money judgments. Nevertheless, by placing heavy emphasis on the word "determination" in § 106(c)(2), the plurality concludes that § 106(c), in its entirety, is "more indicative of declaratory and injunctive relief than of monetary recovery." Ante, at 102. The plurality justifies this conclusion by accepting an analog to the use of the word "determine" in a Code provision dealing with taxes, § 505(a)(1), while rejecting an equally compelling analogy to the use of the word "determine" in the Code's jurisdictional provision, 28 U.S.C. § 157(b)(1) (1982 ed., Supp. V). But instead of trying to force meaning into the word "determination" through competing analogies to other Code provisions, we should give decisive weight to the explicit language abrogating sovereign immunity.

The plurality correctly points out that the abrogation of sovereign immunity in § 106(c) should not be read to overwhelm the narrow scope of the voluntary waiver set forth in §§ 106(a) and (b). But the plurality's conclusion that § 106(c) must therefore refer only to declarative and injunctive relief rests on the mistaken assumption that, without such a narrowing interpretation, "the only limit is the number of provisions in the Bankruptcy Code containing one of the trigger words." Ante, at 102 (emphasis added). The plurality then raises the specter that "§ 106(c) would apply in a scattershot fashion to over 100 Code provisions," ibid., offering virtually endless opportunities for money judgments against the States.

Nothing could be further from the truth, for most of the Code provisions containing trigger words do not contemplate money judgments. Some provide States, in their role as creditors or entities, with rights against the debtor. ^[2] Others limit relief against "creditors," "entities," or "governmental units" to declaratory or injunctive relief. ^[3] Only a handful of the triggered sections clearly contemplate money judgments against a "creditor," "entity," or "governmental unit." These include the Code provisions at issue in this case, i.e., the provision giving a trustee the power to avoid preferential payments made to "creditors," § 547, and the provision requiring "entities" to turn over property and money belonging to the debtor. § 542. ^[4] Thus, rather than reading § 106(c) in isolation as the plurality does, the provision should be read in light of the Code provisions containing the trigger words "creditor," "entity," and "governmental unit." Only in this way is it possible to appreciate the limited extent to which Congress sought to abrogate the States' sovereign immunity in § 106(c). See Kelly v. Robinson, 479 U.S. 36, 43, 107 S.Ct. 353, 358, 93 L.Ed.2d 216 (1986) (Code should be read as an integrated whole).

By expressly including States within the terms "creditor" and "entity," Congress intended States generally to be treated the same as ordinary "creditors" and "entities," who are subject to money judgments in a relatively small number of Code provisions. The effect of today's decision is to exempt States from these provisions, which are crucial to the efficacy of the Code. The plurality therefore ignores Congress' careful choice of language and turns States into preferred actors. ^[5] By allowing a trustee to recapture payments made to creditors 90 days before a bankruptcy petition is filed, the preference provision prevents anxious creditors from grabbing payments from an insolvent debtor and hence getting more than their fair share. After today, however, any State owed money by a debtor with financial problems will have a strong incentive to collect whatever it can, as fast as it can, even if doing so pushes the debtor into bankruptcy. Ordinary creditors will soon realize that States can receive more than their fair share; the very existence of this governmental power will cause these other creditors, in turn, to increase pressure on the debtor. See McVey Trucking, Inc. v. Secretary of State of Illinois, 812 F.2d 311, 328 (CA7), cert. denied, 484 U.S. 895, 108 S.Ct. 227, 98 L.Ed.2d 186 (1987). ^[6] The turnover provision is designed to prevent third parties from keeping property of the debtor or from refusing to make payments owed to the debtor, thereby aiding the reorganization of the debtor's affairs or the orderly and equitable distribution of the estate. See United States v. Whiting Pools, Inc., 462 U.S. 198, 202-203, 103 S.Ct. 2309, 2312-2313, 76 L.Ed.2d 515 (1983). Exempting States from this provision, as well as from the preference provision, undermines these important policy goals of the Code.

My conclusion that Congress intended § 106(c) to abrogate the States' Eleventh Amendment immunity against money judgments requires me to decide whether Congress has the authority under the Bankruptcy Clause to do so. ^[7] In Pennsylvania v. Union Gas Co., 491 U.S. 1, 19, 109 S.Ct. 2273, 2284, 105 L.Ed.2d 1 (1989) (plurality opinion); id., at 57, 109 S.Ct., at 2296 (WHITE, J., concurring in judgment), we held that Congress has the authority under the Commerce Clause to abrogate the States' Eleventh Amendment immunity. I see no reason to treat Congress' power under the Bankruptcy Clause any differently, for both constitutional provisions give Congress plenary power over national economic activity. See The Federalist No. 42, p. 271 (C. Rossiter ed. 1961) (J. Madison) (describing the Bankruptcy Clause and the Commerce Clause as "intimately connected"); cf., ante, at 105 (SCALIA, J., concurring in judgment).

For the reasons stated, I respectfully dissent.

Justice STEVENS, with whom Justice BLACKMUN joins, dissenting.

While I join Justice MARSHALL'S dissenting opinion, I think it is appropriate to explain why the legislative history of 11 U.S.C. § 106 lends added support to his reading of the statute.

The drafters of the Bankruptcy Code were well aware of the value to the bankruptcy administration process of a waiver of federal and state sovereign immunity. In 1973, five years before the Code was enacted, the Commission on the Bankruptcy Laws of the United States proposed a broad waiver of sovereign immunity under which every provision of the proposed bankruptcy bill would apply to the States. That provision was not enacted into law apparently because of concerns that Congress did not have the constitutional power to abrogate completely the States' sovereign immunity. See H.R.Rep. No. 95-595, p. 317 (1977); S.Rep. No. 95-989, p. 29 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787. Instead, the initial legislation drafted by Congress limited the waiver of sovereign immunity to compulsory counterclaims and offsets, the provisions that now appear in §§ 106(a) and 106(b). Section 106(c), added after the bill that became the Bankruptcy Code was reported by the Senate and House Committees, restored to a large extent the power of the bankruptcy courts over States that had first been proposed in 1973. Whereas the waiver contained in the Commission on the Bankruptcy Laws' proposal would have subjected the States to suit under every provision of the Code, the application of § 106(c) was limited to those Code provisions containing the statutory trigger words. The House and Senate sponsors explained in floor statements:

"The provision is included to comply with the requirement in case law that an express waiver of sovereign immunity is required in order to be effective. Section 106(c) codifies In re Gwilliam, 519 F.2d 407 (9th Cir., 1975), and In re Dolard, 519 F.2d 282 (9th Cir., 1975), permitting the bankruptcy court to determine the amount and dischargeability of tax liabilities owing by the debtor or the estate prior to or during a bankruptcy case whether or not the governmental unit to which such taxes are owed files a proof of claim. . . . [S]ubsection (c) is not limited to those issues, but permits the bankruptcy court to bind governmental units n other matters as well. For example, section 106(c) permits a trustee or debtor in possession to assert avoiding powers under title 11 against a governmental unit; contrary language in the House report to H.R. 8200 is thereby overruled." 124 Cong.Rec. 32394 (1978) (statement of Rep. Edwards); id., at 33993 (statement of Sen. DeConcini).

"Section 547(b)(2) of the House amendment adopts a provision contained in the House bill and rejects an alternative contained in the Senate amendment relating to the avoidance of a preferential transfer that is payment of a tax claim owing to a governmental unit. As provided, section 106(c) of the House amendment overrules contrary language in the House report with the result that the Government is subject to avoidance of preferential transfers." Id., at 32400 (statement of Rep. Edwards); id., at 34000 (statement of Sen. DeConcini).

Although the primary object of § 106(c) was to provide the bankruptcy court with authority to determine the amount and dischargeability of tax liabilities even if a claim has not been filed, the legislative history thus indicates that the provision was also intended to cover "other matters as well," including specifically the avoidance of preferential transfers. There was no suggestion that this authority did not include the power to order the return of real property and the payment of money damages or that the issues that the bankruptcy court could determine under § 106(c) were limited to whether prospective or declaratory relief was appropriate.

The fact that paragraph (c) was added to the bill after paragraphs (a) and (b) had been reported out of Committee also explains why those paragraphs were not rewritten to eliminate any possible redundancy in the section. Given this history it is apparent that the initial phrase in paragraph (c) ("[e]xcept as provided in subsections (a) and (b)") constituted a declaration that the new subsection provided an additional mechanism by which the bankruptcy courts could bind States and did not derogate from the power granted under the other two subsections.

There is no question that § 106(c) effects a waiver of sovereign immunity. The statute, which applies to the Federal Government, the States, and municipalities alike, see 11 U.S.C. § 101(21), states in the clearest possible terms that provisions of the Code using any of the trigger words apply to governmental units "notwithstanding any assertion of sovereign immunity," and the legislative history supports that reading. It is well settled that when the Federal Government waives its sovereign immunity, the scope of that waiver is construed liberally to effect its remedial purposes. See Block v. Neal, 460 U.S. 289, 298, 103 S.Ct. 1089, 1094, 75 L.Ed.2d 67 (1983); United States v. Yellow Cab Co., 340 U.S. 543, 554-555, 71 S.Ct. 399, 406-407, 95 L.Ed. 523 (1951); Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 709, 69 S.Ct. 1457, 1471, 93 L.Ed. 1628 (1949) (Frankfurter, J., dissenting); Great Northern Life Ins. Co. v. Read, 322 U.S. 47, 59, 64 S.Ct. 873, 879, 88 L.Ed. 1121 (1944) (Frankfurter, J., dissenting); see also Finley v. United States, 490 U.S. 545, 578-580, 109 S.Ct. 2022-2023, 2011, 104 L.Ed.2d 593 (1989) (STEVENS, J., dissenting). The same rule should be applied under this section when the defendant is a State, rather than the Federal Government or a municipality. Cf. Missouri v. Jenkins, 491 U.S. 274, 281-282, 109 S.Ct. 2463, 2468, 105 L.Ed.2d 229 (1989) (whether Congress intended an enhancement of a reasonable attorney's fee under § 1988 should not turn on whether the party against whom fee is awarded is a State). I would therefore hold that the determinations that a bankruptcy court may make under § 106(c) include a determination that a State must pay money damages under a Code provision containing one of the trigger words.

Notes

1. Not surprisingly, most courts considering § 106(c) have concluded that it clearly allows a trustee to recover preferences from a State and to require a State to turn over money belonging to the debtor. See, e.g., WJM, Inc. v. Massachusetts Dept. of Public Welfare, 840 F.2d 996, 1001 (CA1 1988); McVey Trucking, Inc. v. Secretary of State of Illinois, 812 F.2d 311, 326-327 (CA7), cert. denied, 484 U.S. 895, 108 S.Ct. 227, 98 L.Ed.2d 186 (1987); Neavear v. Schweiker, 674 F.2d 1201, 1202-1204 (CA7 1982); Rhode Island Ambulance Services, Inc. v. Begin, 92 B.R. 4, 6-7 (Bkrtcy.Ct., RI 1988); Tew v. Arizona State Retirement System, 78 B.R. 328, 329-331 (SD Fla.1987); cf. Gingold v. United States, 80 B.R. 555, 561 (Bkrtcy.Ct., ND Ga.1987); R & L Refunds v. United States, 45 B.R. 733, 735 (Bkrtcy.Ct., WD Ky.1985); Gower v. Farmers Home Administration, 20 B.R. 519, 521-522 (Bkrtcy.Ct., MD Ga.1982); Remke, Inc. v. United States, 5 B.R. 299, 300-302 (Bkrtcy.Ct., ED Mich.1980). A leading bankruptcy commentator also reads § 106(c) to abrogate state sovereign immunity. 2 Collier on Bankruptcy ¶ 106.04 (15th ed. 1989).
2. See, e.g., § 303(b)(1) (permitting three or more "entities" to file an involuntary case against a debtor); § 303(c) (giving "creditors" who do not file an involuntary case the same rights as those who do); § 303(j) (requiring notice to all "creditors" before a court may dismiss an involuntary case); § 341(a) (requiring a meeting of "creditors"); § 343 (permitting "creditors" to examine the debtor); § 349(b)(3) (revesting property in an "entity" if the petition is dismissed); § 361 (setting forth adequate protection for certain property interests of an "entity"); § 363(c)(2)(A) (preventing use, lease, or sale of cash collateral assets absent consent of an interested "entity"); §§ 501 and 502 (regulating filing of proofs of claims by "creditors"); § 506(a) (granting secured status to lien "creditors"); § 553 (granting rights of setoff to certain "creditors"); §§ 702(a) and 705 (giving qualified "creditors" the right to vote for the trustee and the creditors' committee); §§ 507 and 726 (setting forth priorities of distribution to "creditors"); § 727(c) (giving a "creditor" the right to object to a discharge); § 1102 (providing for court appointed creditors' committee); § 1109(b) (giving a "creditor" the right to be heard on any issue); § 1121(c) (providing that a "creditor" may file a reorganization plan).
3. See, e.g., § 365 (permitting the trustee to assume or reject executory contracts and unexpired leases in certain circumstances); § 505 (permitting the ankruptcy court to determine the debtor's tax liability in certain circumstances); § 525 (protecting the debtor against government discrimination in licensing and employment); § 1141 (binding "creditors" to the terms of a confirmed reorganization plan and discharging all other claims); § 1142 (permitting the bankruptcy court to require performance of any act necessary to carry out a confirmed reorganization plan); § 1143 (preventing an "entity" that fails to perform a required act from participating in the distribution of estate assets).
4. Several Code provisions that permit money judgments do not apply to States. For example, 11 U.S.C. § 362(h) (1982 ed., Supp. V) provides that an individual injured as a result of a willful violation of an automatic stay may recover actual damages and, where appropriate, punitive damages. Because § 362(h) contains no trigger words, it does not apply to States. See also Prime, Inc. v. Illinois Dept. of Transp., 44 B.R. 924, 925-927 (Bkrtcy.Ct., WD Mo.1984); Gillman v. Board of Trustees of Alpine School Dist., 40 B.R. 781, 788-790 (Bkrtcy.Ct., Utah 1984).
5. When Congress wanted to grant States special treatment, it specifically used the term "governmental unit." See, e.g., § 101(35) (1982 ed., Supp. V) (defining the term "person" so that it does not generally include a "governmental unit"); § 346(f) (requiring the trustee to withhold State and local taxes from claims based on wages or salaries); §§ 362(b)(4) and (5) (exempting from the automatic stay provision actions of "governmental units" to enforce police or regulatory powers); § 362(b)(9) (1982 ed., Supp. V) (exempting from the automatic stay provision a "governmental unit's" issuance of a notice of tax deficiency); § 507(a)(7) (1982 ed., Supp. V) (creating relatively high priority for certain taxes owed to "governmental units"); §§ 523(a)(1) and (7) (exempting from discharge certain taxes and fines payable to "governmental units"); § 523(a)(8) (exempting from discharge student loans guaranteed by "governmental units"); § 1129(d) (barring bankruptcy court from confirming a reorganization plan if the principal purpose of the plan § the avoidance of taxes).
6. The plurality's decision to exempt States from the preference provision is contrary to the understanding of the members of the Conference Committee who presented § 106(c) to Congress. See 124 Cong.Rec. 32394 (1978) (statement of Rep. Edwards) (§ 106(c) will cover situations in which "a trustee or debtor in possession . . . assert[s] avoiding powers under title 11 against a governmental unit"); id., at 33993 (statement of Sen. DeConcini) (same).
7. The Bankruptcy Clause provides: "Congress shall have Power To . . . establish . . . uniform Laws on the subject of Bankruptcies throughout the United States." U.S.C.onst., Art. I, § 8, cl. 4.