United States v. Nordic Village, Inc./Dissent Stevens

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Dissenting Opinion

Justice Stevens, with whom Justice Blackmun joins, dissenting.

The injustice that the Court condones today demonstrates that it is time to reexamine the wisdom of the judge-made rules that drive its decision.

An officer of an insolvent corporation appropriated corporate funds and used them to discharge a personal tax obligation. Because the Federal Government was the ultimate recipient of the stolen property, the Court holds that the [p. 40] bankruptcy trustee cannot avoid the transfer. The interest in a rigid interpretation of the doctrine of sovereign immunity outweighs the interest in equitable treatment of general creditors and shareholders of the corporate debtor. This result is neither necessary nor just.

It is not necessary because both the text and the legislative history of the Bankruptcy Code support a contrary result. It is not just because nothing more than a misguided interest in adherence to obsolete judge-made rules is at stake. I shall comment first on the laws enacted by Congress and then on the rules that the Court itself has ordained.


The text of §106 is straightforward. Because the case does not involve either a counterclaim or an offset, subsections (a) and (b) are not applicable. Subsection (c) provides:

"(c) Except as provided in subsections (a) and (b) of this section and notwithstanding any assertion of sovereign immunity—

"(1) a provision of this title that contains 'creditor,' 'entity,' or 'governmental unit' applies to governmental units; and

"(2) a determination by the court of an issue arising under such a provision binds governmental units." 11 U.S.C. §106.

The United States is a "governmental unit,"[1] and therefore any provision of the Bankruptcy Code that contains one of the "trigger words" listed in paragraph (c)(1) applies to the United States. Section 550(a) is undoubtedly one such pro- [p. 41] vision.[2] Thus, "notwithstanding any assertion of sovereign immunity," paragraph (c)(1) provides that §550(a) "applies" to the United States, and paragraph (c)(2) provides that the Government is bound by the court's determination of the issues arising under that provision. The literal text of the Act unquestionably forecloses the defense of sovereign immunity.

The legislative history unambiguously demonstrates that Congress intended the statute to be read literally. The immediate purpose of §106(c) was to enable the bankruptcy court to determine the amount and the dischargeability of the debtor's tax liabilities, but the sponsors of the amendment clearly stated that it covered "other matters as well," specifically including the avoidance of preferential transfers. 124 Cong. Rec. 32394 (1978) (statement of Rep. Edwards); id., at 33993 (statement of Sen. DeConcini).[3] The congressional purpose to waive sovereign immunity is pellucidly clear.

The Court evades this conclusion by hypothesizing "plausible" alternative constructions of the statute,[4] by refusing to consider its legislative history[5] and by reiterating the [p. 42] Court's view that waivers of sovereign immunity must be strictly construed.[6] I shall not comment on the plausible alternatives except to note that they are obviously less satisfactory—both as a matter of sound bankruptcy policy and as a principled interpretation of the English language—than a literal reading of the statute. I shall, however, add a few words about the Court's love affair with the doctrine of sovereign immunity.


Despite its ancient lineage, the doctrine of sovereign immunity is nothing but a judge-made rule that is sometimes favored[7] and sometimes disfavored.[8] Its original reliance on the notion that a divinely ordained monarch "can do no wrong"[9] is, of course, thoroughly discredited.[10] Moreover, [p. 43] its persistent threat to the impartial administration of justice has been repeatedly acknowledged and recognized.[11] Thus, in Federal Housing Authority v. Burr, 309 U.S. 242, 245 (1940), we remarked on "the current disfavor of the doctrine of governmental immunity from suit."[12]

Time after time Congress has taken action to ameliorate the hardship of the doctrine. A half century ago this Court observed:

"A sense of justice has brought a progressive relaxation by legislative enactments of the rigor of the immunity rule. As representative governments attempt to ameliorate inequalities as necessities permit, prerogatives of the government yield to the needs of the citizen.... When authority is given, it is liberally construed." United States v. Shaw, 309 U.S. 495, 501 (1940).

In the bankruptcy context, the Court has noted that there is no reason why the Federal Government should be treated [p. 44] differently from any other secured creditor.[13] Its interests are adequately protected by specific statutory provisions governing discharges and priorities. As the Commission on the Bankruptcy Laws of the United States observed, unanimously, in 1973:

"The Commission also recommends that unpaid taxes entitled to priority be reduced from those accruing within three years prior to bankruptcy to those accruing within one year prior to bankruptcy and that the government be given no other priority for taxes in a bankruptcy

proceeding (including those secured by a 'tax lien'). Data submitted to the Commission by the Treasury Department establishes that the total amount collected by the Federal Government as a result of all of its liens and priorities in bankruptcy proceedings is insignificant in the total federal budget. It is the view of the Commission that it is unseemly for the Federal Government to insist upon collecting its taxes at the expense of other creditors of the taxpayer, and that the [p. 45] only possible justification for this would be a plea of necessity

in order to keep the government functioning. As indicated above, such a plea would be totally without foundation in fact.

"...When the Federal Government enters into business transactions, it should be prepared to deal upon a basis of equality with other creditors of the bankrupt business." Report of Commission on Bankruptcy Laws of the United States, H. R. Doc. No. 93–137, pt. 1, p. 22 (1973).

If these comments by the experts who played a major role in formulating the policies embodied in the Bankruptcy Code are sound—as I believe they are—one must ask what valid reason supports a construction of the waiver in §106(c) that is so "strict" that the Court will not even examine its legislative history.

Surely the interest in requiring the Congress to draft its legislation with greater clarity or precision does not justify a refusal to make a good-faith effort to ascertain the actual meaning of the message it tried to convey in a statutory provision that is already on the books. The Court's stubborn insistence on "clear statements" burdens the Congress with unnecessary reenactment of provisions that were already plain enough when read literally.[14] The cost to litigants, to [p. 46] the legislature, and to the public at large of this sort of judicial lawmaking is substantial and unfortunate. Its impact on individual citizens engaged in litigation against the sovereign is tragic.

The fact that Congress has ample power to correct the Court's unfortunate error does not justify this refusal to obey its command. I respectfully dissent.


1 ^ . Section 101(27) defines the term "governmental unit" to include the "United States [and any] department, agency, or instrumentality of the United States." 11 U.S.C. §101(27) (1988 ed., Supp. II).

2 ^ . Section 550(a) provides:

"(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from—

"(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or

"(2) any immediate or mediate transferee of such initial transferee."

3 ^ . See also the material summarized and quoted in my dissenting opinion in Hoffman v. Connecticut Dept. of Income Maintenance, 492 U.S. 96, 111–114 (1989). Particularly note the sponsors' comment that "'§106(c) permits a trustee or debtor in possession to assert avoiding powers under Title 11 against a governmental unit,'" id., at 112, and the comment that as a result of §106(c) "'the government is subject to avoidance of preferential transfers,'" id., at 113.

4 ^ . Ante, at 34–37.

5 ^ . Ante, at 37.

6 ^ . Ante, at 34.

7 ^ . See, e. g., Library of Congress v. Shaw, 478 U.S. 310, 318 (1986) ("'The consent necessary to waive the traditional immunity must be express, and it must be strictly construed'") (quoting United States v. N. Y. Rayon Importing Co., 329 U.S. 654, 659 (1947)); Ruckelshaus v. Sierra Club, 463 U.S. 680, 685 (1983) ("Waivers of immunity must be 'construed strictly in favor of the sovereign,'...and not 'enlarge[d]...beyond what the language requires'"); United States v. Sherwood, 312 U.S. 584, 590 (1941) (Because "a relinquishment of a sovereign immunity...must be strictly interpreted," we construe the statutory language with "conservatism").

8 ^ . See, e. g., Block v. Neal, 460 U.S. 289, 298 (1983) ("'The exemption of the sovereign from suit involves hardship enough where consent has been withheld. We are not to add to its rigor by refinement of construction where consent has been announced'") (quoting Anderson v. Hayes Constr. Co., 243 N.Y. 140, 147, 153 N.E. 28, 29–30 (1926) (Cardozo, J.)); Indian Towing Co. v. United States, 350 U.S. 61, 69 (1955) (Frankfurter, J.) (Court should not be "a self-constituted guardian of the Treasury [and] import immunity back into a statute designed to limit it"); Canadian Aviator, Ltd. v. United States, 324 U.S. 215, 222 (1945) (Court should not thwart the "broad statutory language authorizing suit" against the United States with "an unduly restrictive interpretation").

9 ^ . See 1 W. Blackstone, Commentaries *246.

10 ^ . See, e. g., Nevada v. Hall, 440 U.S. 410, 415 (1979) (the fiction that the king could do no wrong "was rejected by the colonists when they declared [p. 43] their independence from the Crown"); Langford v. United States, 101 U.S. 341, 343 (1880) ("We do not understand that...the English maxim [that the king can do no wrong] has an existence in this country").

11 ^ . See, e. g., Davis, Sovereign Immunity Must Go, 22 Admin. L. Rev. 383, 383–384, 389–393 (1969); Pugh, Historical Approach to the Doctrine of Sovereign Immunity, 13 La. L. Rev. 476, 492 (1953); Borchard, Government Liability in Tort, 34 Yale L. J. 1, 1–2, 31, 33 (1924).

12 ^ . Many legal scholars have been similarly critical of the doctrine. See, e. g., Comment, Sovereign Immunity—An Anathema to the "Constitutional Tort," 12 Santa Clara Law. 543, 553, and n. 60 (1972) (collecting authorities); Cramton, Nonstatutory Review of Federal Administrative Action: The Need for Statutory Reform of Sovereign Immunity, Subject Matter Jurisdiction, and Parties Defendant, 68 Mich. L. Rev. 387, 418–419 (1970); Davis, supra n. 11; Pugh, supra n. 11, at 494.

Recognizing the lack of current justification for and the inequities caused by this judicially created doctrine, several state courts have abrogated or limited the immunity of state and local governments. See Note, Rethinking Sovereign Immunity after Bivens, 57 N. Y. U. L. Rev. 597, 603, and n. 26 (1982) (collecting cases).

13 ^ . In United States v. Whiting Pools, Inc., 462 U.S. 198, 209 (1983), the Court first held that "the reorganization estate includes property of the debtor that has been seized by a creditor prior to the filing of a petition for reorganization." The Court then explained:

"We see no reason why a different result should obtain when the IRS is the creditor. The Service is bound by §542(a) to the same extent as any other secured creditor. The Bankruptcy Code expressly states that the term 'entity,' used in §542(a), includes a governmental unit. §101(14). See Tr. of Oral Arg. 16. Moreover, Congress carefully considered the effect of the new Bankruptcy Code on tax collection, see generally S. Rep. No. 95–1106 (1978) (Report of Senate Finance Committee), and decided to provide protection to tax collectors, such as the IRS, through grants of enhanced priorities for unsecured tax claims, §507(a)(6), and by the nondischarge of tax liabilities, §523(a)(1). S. Rep. No. 95–989, pp. 14–15 (1978). Tax collectors also enjoy the generally applicable right under §363(e) to adequate protection for property subject to their liens. Nothing in the Bankruptcy Code or its legislative history indicates that Congress intended a special exception for the tax collector in the form of an exclusion from the estate of property seized to satisfy a tax lien." Ibid.

14 ^ . One scholar's comment on the countermajoritarian thrust of the Court's fascination with clear statement rules is illustrative:

"In Dellmuth v. Muth, [ 491 U.S. 223 (1989),] the Court held that the Education of the Handicapped Act (EHA) of 1975 did not abrogate state immunity. The Court reached this result even though the law imposed substantive obligations directly on the states, included the states in its jurisdictional grant, and included legislative discussion assuming that the states could be sued. After the Supreme Court changed the clear statement rule in 1985, Congress responded in 1986 with a broad textual abrogation of state immunity for statutes protecting the disabled. Yet in Dellmuth, the Court held not only that the EHA did not meet the more stringent test for abrogation, but that the 1986 statute made clear Congress' 'intent' not to abrogate state immunity in lawsuits filed before 1986. Congress overrode Dellmuth in 1990. That Congress had to pass the same statute three times to achieve its original goal is quite striking." Eskridge, Overriding Supreme Court Statutory Interpretation Decisions, 101 Yale L. J. 331, 409–410 (1991) (footnotes omitted).