We The People Did Not Divest the States of Their Sovereign Immunity in Bankruptcy

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Dec/Jan 2003

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Editor's Note:This article was originally written as Part II of a thesis submitted to the LL.M. in Bankruptcy
Program at St. John's University School of Law, Spring 2002.

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The general theory of a blanket surrender of sovereign immunity by the states through their adoption of the original
Constitution is nothing new. In fact, the U.S. Supreme Court addresses the theory early in its existence in
Chisholm v. Georgia, 2 U.S. 419 (1793) (though in the limited context of a diversity case), and again in Hans v.
Louisiana, 134 U.S. 1 (1890). The latest argument on the issue is based on a more subject-specific theory: The
states ceded their immunity from suit only within the context of particular types of cases. A case that will test this
theory in the context of bankruptcy has recently been granted certiorari by the court. In re Hood, 262 B.R. 412 (6th
Cir. BAP 2001), aff'd., 319 F.3d 755 (6th Cir. 2003), cert. granted sub nom, Tennessee Student Assistance Corp.
v. Hood, 2003 WL 21134036 (U.S. Sept. 30, 2003) (No. 02-1606).

There is limited case law on this subject-specific theory as it relates to bankruptcy. In addition to the Sixth
Circuit's case, there are only two cases addressing the theory at the circuit court level, and each with a different
result. In re Bliemeister, 251 B.R. 383 (Bankr. D. Ariz. 2000) (accepting the theory), aff'd. on alternate grounds,
296 F.3d 858 (9th Cir. 2002) (declining to address the issue, finding the state waived whatever immunity it had, if
any); and In re Nelson, 258 B.R. 374 (W.D. Wis. 2001) (rejecting the theory; holding that the Eleventh
Amendment bars suits by private citizens against a state in bankruptcy), aff'd., 301 F.3d 820 (7th Cir. 2002).

The theory has two elements, each based on acceptance of a particular interpretation of the Constitution.
First, the Eleventh Amendment does not create sovereign immunity but merely restores an understanding both that
such immunity pre-existed the Constitution and that it remains intact to the extent not surrendered upon adoption of
the Constitution. Second, such immunity is deemed surrendered by the states with respect to bankruptcy through
their adoption of the original Constitution.

With regard to the first element, an analysis of the Court's historical approach to the Eleventh Amendment
indicates its acceptance of this interpretation. The Court's consistent reliance on its interpretation of the intent of
the original Constitution with respect to the states' sovereign immunity is confirmed in a long line of cases since
Hans. Seminole Tribe v. Florida, 517 U.S. 44, 54 (stating "[f]or over a century we have reaffirmed that federal
jurisdiction over suits against unconsenting states 'was not contemplated by the Constitution when establishing the
judicial power of the United States[,]'" citing Hans, 134 U.S. at 15 n.7, and a list of subsequent cases). Under this
analysis, there is no blanket surrender of sovereign immunity by virtue of the states adopting the original
Constitution; therefore, the Eleventh Amendment does not serve to create any such immunity, but merely restores
the understanding of its existence.

The second element of the theory is more difficult. It is based primarily, if not entirely, on language used
by Alexander Hamilton in The Federalist Papers indicating the unsurprising fact that some elements of the states'
sovereignty are surrendered in the Plan of the Convention. Bliemeister, 251 B.R. at 387 (stating that the Court has
consistently held that the "views expressed by Hamilton, Madison and Marshall during the ratification debates, and
by Justice Iredell in his dissenting opinion in Chisholm, reflect the original understanding of the Constitution.")
(internal citations omitted). However, what proponents of the theory fail to recognize is exactly what elements of
sovereignty are in fact surrendered. Their unwarranted leap from the notion that some sovereignty is surrendered to a
conclusion that this necessarily includes a surrender of that element of sovereignty relating to immunity from suit
by individuals is based on an erroneous reading of the interplay between the language used by Hamilton in
Federalist No. 81 and Federalist No. 32.

They read No. 81, where Hamilton states that "[u]nless, therefore, there is a surrender of this immunity in
the plan of the convention, it will remain with the states," and then follow his later reference to No. 32, where he
lists "[t]he circumstances which are necessary to produce an alienation of state sovereignty[.]" Bliemeister, 251 B.R.
at 388 (emphasis added) (internal citations omitted). Hamilton describes three such circumstances and provides
examples of each. The Federalist No. 32 at 198-199 (Alexander Hamilton) (Clinton Rossiter ed., 1961). Finding
the example given for the third circumstance, where the Constitution "granted authority to the Union, to which a
similar authority in the states would be absolutely and totally contradictory and repugnant[,]" to be the provision
authorizing Congress "[t]o establish a uniform rule of naturalization," which is found along with the bankruptcy
provision in Article I, §8, Clause 4, the proponents conclude that Hamilton has stated that "the states surrendered
their sovereignty over the subject of bankruptcy." Bliemeister, 251 B.R. at 388-389 (internal citations omitted).

Yet, even if this much is true, the context of Hamilton's discussion indicates that any surrender is only
with respect to legislative authority on the subject of bankruptcies. No. 32 is written on the subject of legislative
authority regarding taxation and speaks to the limited circumstances by which any rights of sovereignty, not
sovereign immunity specifically, may be "exclusively delegated [by the Constitution] to the United States."
Federalist No. 32 at 198. The literal language used in No. 81 refers to No. 32 only for "[t]he circumstances which
are necessary to produce an alienation of state sovereignty[,]" Federalist No. 81, at 488 (emphasis added), not for
the examples of such circumstances given in No. 32, which are relevant only to the legislative context in which they
are provided. Thus, all that Hamilton states in No. 81 is that the states retain their sovereign immunity unless
surrendered in the plan of the convention, and that there are circumstances by which such surrender might be deemed
to have occurred if language giving rise to one of such circumstances is identified in the Constitution. He provides
examples of such language with respect to legislative authorities conferred in the Constitution, but none with
respect to judicial authority generally or to sovereign immunity specifically.

In Hood, the Sixth Circuit briefly recognizes that an argument may be made that the states ceded only their
legislative authority and that their immunity from suit remains intact. However, it then cites to Hamilton's
language in No. 81 and his cross-reference to No. 32, and summarily dismisses the notion that any explanation of
the cross-reference can be made other than that "in the minds of the framers, ceding sovereignty by the methods
described in No. 32 implies ceding sovereign immunity as discussed in No. 81. Hood at 766 (emphasis added). The
Sixth Circuit fails to even consider the analysis above regarding the distinction between the circumstances, or
methods, as the Sixth Circuit refers to them, that may produce an alienation of sovereignty, and the examples of
such circumstances as provided only in the legislative context of No. 32.

Also recognizing that No. 32 is a discussion limited to the context of legislative authority, Judge Haines,
in writing the opinion of the bankruptcy court in Bliemeister, provides further analysis by referring to Federalist No. 82, where Hamilton discusses judicial authority rather than legislative authority and again refers to No. 32. Bliemeister, 251 B.R. at 391. Hamilton restates in No. 82, with only minor differences in the language used, the
same circumstances by which a surrender of sovereignty might occur that he listed in No. 32. Federalist No. 82 at
492. Notably, however, he does not restate the examples of those circumstances as they are stated in No. 32 because
they are not relevant in the context of a discussion of judicial authority. In fact, he states no examples at all in No. 82.

In No. 82, Hamilton himself notes some hesitation even as to general applicability of the three listed
circumstances to the judicial context, much less the specific legislative examples of those circumstances given in
No. 32. He states, "these principles may not apply with the same force to the judiciary as to the legislative power,
yet I am inclined to think that they are, in the main, just with respect to the former, as well as the latter." Id. But
again, he states that there are circumstances by which such a surrender of sovereignty might occur, but does not
provide any examples of where such surrender has in fact occurred with respect to judicial authority or sovereign
immunity. This lack of any reference to specific language that can be identified as a basis for a theory of a surrender
of sovereign immunity through adoption of the Constitution leaves the second element of the theory unsatisfied.

Further difficulty in establishing the second element of the theory is evident when one looks to Federalist No. 80, the analysis of which is curiously absent from all cases addressing this issue, including all briefs filed on
either side or the amici, as well as the opinions of the respective courts. I say "curiously absent," because No. 80 is
the primary Federalist Paper discussing the jurisdictional grant to the federal courts by the Constitution. One
would think that when purporting to rely heavily, if not exclusively, on the language of The Federalist Papers to
establish an argument addressing an issue relating to the jurisdiction of the federal judiciary, as both the proponents
of the theory and the courts themselves do explicitly, some analysis of the one devoted precisely to a discussion of
the jurisdictional grant under the Constitution would be in order. In fact, No. 80 contains language that is far more
supportive of the proposed theory than any of the papers cited by its proponents.

In No. 80, Hamilton states, "the national judiciary ought to preside in all cases in which one state or its citizens are opposed to another state or its citizens." Federalist No. 80 at 478. Thus, he indicates his
interpretation of the language "between a state and citizens of another state" found in Article III, §2, Clause 1, as
one that clearly contemplates a state as a defendant to an action brought by an individual citizen of another state,
and thereby contemplates at least some degree of surrender of sovereign immunity by the states. Though limited to
diversity actions, it at least indicates an acceptance of the notion that some surrender of immunity may actually be
found in the language of Article III.

This makes it easier to accept an inference that Hamilton entertains similar notions of a surrender of
immunity in No. 80, when he discusses jurisdiction of the federal courts in cases brought pursuant to the
Constitution or other federal laws. He states that "there ought always to be a constitutional method of giving
efficacy to constitutional provisions" and that "[i]f there are such things as political axioms, the propriety of the
judicial power of a government being coextensive with its legislative may be ranked among the number." Federalist No. 80, at 475-476. This is arguably sufficient to infer that Hamilton deems these categories of cases to be
examples of the third circumstance by which he indicates a surrender of sovereignty might occur. Note that the
repugnancy here, if sovereignty is not surrendered, is to the judicial authority of the United States rather than merely
to the legislative authority.

Why then is reference to No. 80 left out of the analysis in the cases addressing this issue? One can only
surmise that proponents of the theory do so because, despite this language that is arguably supportive of the theory, No. 80 also contains language that eliminates the legitimacy of the theory entirely in light of the Court's approach
to the issue of the states' sovereign immunity. In No. 80, immediately following a verbatim recitation of the
jurisdictional grant of Article III, §2, Clause 1, Hamilton states, "[t]his constitutes the entire mass of the judicial
authority of the Union." Federalist No. 80, at 479 (emphasis added). Thus, as no provisions are found elsewhere in
the original Constitution that expressly refer to the jurisdiction of the federal courts and indicate either surrender or
abrogation of the states' sovereign immunity, any argument for such surrender or abrogation must necessarily be
based on the language within that clause of Article III.

As noted, there is some basis to infer that Hamilton contemplates a surrender of immunity with respect to
cases arising under the Constitution and other federal laws. However, if this is deemed to indicate a surrender of
immunity with respect to federal suits brought by individuals, it necessarily does so with respect to cases brought
pursuant to all provisions of the Constitution and all other federal laws enacted pursuant thereto, as there is no
basis to distinguish between particular provisions of the Constitution or between the various other federal laws
found within the jurisdictional grant of Article III, §2, Clause 1. While the language of the legislative provisions
provides a basis to distinguish what rights or authorities with regard to legislation are exclusively delegated to the
United States, thereby indicating a surrender of sovereignty in that context; there is no such basis of distinction
found in the jurisdictional provisions of Article III.

With respect to bankruptcy, the states' surrender of the exclusive authority to legislate on the subject of
bankruptcies indicates the surrender of their sovereign authority to legislate on that subject, U.S. Const. Art. I, §8,
Cl. 4; however, there is no such subject-specific language within the jurisdictional grant of Article III. Rather, the
judicial authority extends to all provisions of the Constitution, and all federal laws enacted pursuant thereto,
without distinction. Any perceived repugnancy necessarily extends to all such provisions and laws as well, and any
surrender of sovereign immunity must be found, if at all, with respect to all of them. Thus, it is an all-or-nothing
proposition for the Court where, given no basis for distinction, the only alternative is to find that there is no
surrender of sovereign immunity with respect to any such provisions or laws. A review of the Court's historical
approach to the issue indicates that it is precisely this latter alternative that the Court has adopted.

The Court repeatedly rules there was no blanket surrender of immunity under the original Constitution and
the only legitimate method to overcome the states' sovereign immunity without their consent is through abrogation
pursuant to appropriate legislation enacted under the Fourteenth Amendment. Seminole Tribe, 517 U.S. at 55,
65-66 (additional citations omitted). Placing the issue within the context of bankruptcy does not alter the Court's
approach. However, it should be noted that there is some acceptance of a theory that 11 U.S.C. §106(a) is such
"appropriate legislation" based on the Privileges and Immunities Clause of the Fourteenth Amendment. See Haines,
Hon. Randolph J., "Getting to Abrogation," 75 Amer. Bankr. Law Journal 447 (2001); see, also, Rich, William J.,
"Privileges or Immunities: The Missing Link in Establishing Congressional Power to Abrogate State Eleventh
Amendment Immunity," 28 Hastings Const. L.Q. 235 (2001). I also contend, in Part III of my thesis not
reproduced here, that there also is a basis for a similar argument under the Due Process Clause of the Fourteenth
Amendment.

Journal Authors

David K. Pinckney

Journal Date

Monday, December 1, 2003 - 12:00

Bankruptcy Rule

2003