Sovereign immunity in bankruptcy: The next chapter

American Bankruptcy Law Journal

Volumn 70, Issue 2, 1996, Pages 195-215

  Gibson, S Elizabeth ^a  

^a UNIVERSITY OF NORTH CAROLINA   (United States)

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EID: 0040423024     PISSN: 00279048     EISSN: None     Source Type: Journal    
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References (140)

1. S. Elizabeth Gibson, Congressional Response to Hoffman and Nordic Village: Amended Section 106 and Sovereign Immunity, 69 AM. BANKR. L.J. 311 (1995).
2. 11 U.S.C. § 106 (1994).
3. See Gibson, supra note 1, at 337-40.
4. See id. at 340-41.
5. 491 U.S. 1 (1989).
6. See Gibson, supra note 1, at 345.
7. 116 S. Ct. 1114 (1996).
8. Id. at 1128.
9. 25 U.S.C. § 2701-27 (1994) [hereinafter "the Gaming Act"].
10. See id. § 2710(d)(3)(A).
11. See id. § 2710(d)(7)(A)(I), (B)(I).
12. Id. § 2710(d)(7)(B)(iii). A failure to negotiate a compact during that period results in the intervention of a mediator, who is directed to determine whether the state's or the tribe's "last best offer for a compact" better comports with the Act. See id. § 2710(d)(7)(B)(iv)-(v). The mediator submits the one selected to the parties, and if the state consents, that proposal becomes the compact. See id. § 2710(d)(7)(B)(v)-(vi). If the state's consent is not obtained, the Secretary of the Interior prescribes the procedures under which such gaming activities shall be conducted by the tribe. See id. § 2710(d)(7)(B)(vii).
13. See Seminole Tribe v. Florida, 801 F. Supp. 655 (S.D. Fla. 1992), rev'd, 11 F.3d 1016 (11th Cir. 1994), aff'd, 116 S. Ct. 1114 (1996).
14. Id. at 663.
15. Seminole Tribe v. Florida, 11 F.3d 1016 (11th Cir. 1994), aff'd, 116 S. Ct. 1114 (1996).
16. 116 S. Ct. 1114 (1996). The majority opinion, written by Chief Justice Rehnquist, was joined by Justices O'Connor, Scalia, Kennedy, and Thomas. Justice Stevens filed a dissenting opinion, see id. at 1133, as did Justice Souter, who was joined by Justices Ginsburg and Breyer. See id. at 1145.
17. See id. at 1131.
18. 491 U.S. 1 (1989).
19. See Seminole, 116 S. Ct. at 1128 ("We feel bound to conclude that Union Gas was wrongly decided and that it should be, and now is, overruled.").
20. See id. at 1133 ("We hold that Ex parte Young is inapplicable to petitioner's suit against the Governor of Florida, and therefore that suit is barred by the Eleventh Amendment and must be dismissed for a lack of jurisdiction.").
21. 209 U.S. 123 (1908).
22. See Seminole Tribe v. Florida, 116 S. Ct. 1114, 1133 (1996).
23. See id. ("[T]he fact that Congress chose to impose upon the State a liability which is significantly more limited than would be the liability imposed upon the state officer under Ex parte Young strongly indicates that Congress had no wish to create the latter under § 2710(d)(3).").
24. See id. at 1124 (footnote omitted).
25. See id. at 1125 ("In Pennsylvania v. Union Gas Co. . . . , a plurality of the Court found that the Interstate Commerce Clause, Art. I, § 8, cl. 3, granted Congress the power to abrogate state sovereign immunity . . . .").
26. See id. at 1119 (noting that the Gaming Act was "passed by Congress under the Indian Commerce Clause, U.S. Const, Art. I, § 8, cl. 3").
27. See id. at 1127 (agreeing that "the plurality opinion in Union Gas allows no principled distinction in favor of the States to be drawn between the Indian Commerce Clause and the Interstate Commerce Clause").
28. Id. at 1128. Because Union Gas lacked a rationale agreed upon by a majority of the Court, the Seminole majority said that it had "created confusion among the lower courts that have sought to understand and apply the deeply fractured decision." Id. at 1127. Furthermore, the Chief Justice asserted, the decision "deviated sharply from [the Court's] established federalism jurisprudence," id., and had misapplied prior decisions. See id. at 1127-28. Accordingly, the four justices who had dissented in Union Gas, now joined by Justice Thomas, voted to overrule it.
29. See id. at 1131-32 ("The Eleventh Amendment restricts the judicial power under Article III, and Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction.").
30. See id. at 1137 (Stevens, J., dissenting)("Hans instead reflects, at the most, this Court's conclusion that, as a matter of federal common law, federal courts should decline to entertain suits against unconsenting States. . . . Congress may direct the federal courts to reject sovereign immunity in those suits not mentioned by the Eleventh Amendment."); id. at 1184 (Souter, J., dissenting)("I would therefore treat Hans as it has always been treated in fact until today, as a doctrine of federal common law. . . . [T]he relationship may still be altered, not by the Court but by Congress . . . .").
31. See id. at 1131 ("Even when the Constitution vests in Congress complete lawmaking authority over a particular area, the Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting States"). Elsewhere, however, the Court indicated its continued recognition of congressional authority under § 5 of the Fourteenth Amendment to abrogate the states' sovereign immunity. See id. at 1128 (distinguishing Fitzpatrick v. Bitzer and noting that "the Fourteenth Amendment, adopted well after the adoption of the Eleventh Amendment and the ratification of the Constitution, operated to alter the pre-existing balance between state and federal power achieved by Article III and the Eleventh Amendment").
32. See id. at 1119 ("We hold that notwithstanding Congress' clear intent to abrogate the States' sovereign immunity, the Indian Commerce Clause does not grant Congress that power, and therefore § 2710(d)(7) cannot grant jurisdiction over a State that does not consent to be sued.").
33. See, eg., id. at 1131-32 ("The Eleventh Amendment restricts the judicial power under Article III, and Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction.").
34. See 25 U.S.C. § 2710(d)(7)(A)(I), (B)(I) (1994).
35. See 11 U.S.C. § 106(a)("sovereign immunity is abrogated as to a governmental unit"), (b)("A governmental unit . . . is deemed to have waived sovereign immunity...."), (c)("Notwithstanding any assertion of sovereign immunity by a governmental unit . . . .")(1994).
36. See id. § 101 (27) ("'governmental unit' means United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States (but not a United States trustee while serving as a trustee in a case under this title), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government").
37. See, e.g., Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 100 (1984)("[I]n the absence of consent a suit in which the State or one of its agencies or departments is named as the defendant is proscribed by the Eleventh Amendment."); Mount Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280 (1977)("The bar of the Eleventh Amendment to suit in federal courts extends to States and state officials in appropriate circumstances . . . ."); Edelman v. Jordan, 415 U.S. 651, 663 (1974)("Thus the rule has evolved that a suit by private parties seeking to impose a liability which must be paid from public funds in the state treasury is barred by the Eleventh Amendment").
38. See Seminole Tribe v. Florida, 116 S. Ct. 1114, 1131 (1996)("[T]he Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting States").
39. See, e.g., United States v. Nordic Village, Inc. 503 U.S. 30 (1992)(holding the United States immune from suit because Congress had not clearly indicated its intent to waive sovereign immunity).
40. See, e.g., Library of Congress v. Shaw, 478 U.S. 310, 318 (1986)("In analyzing whether Congress has waived the immunity of the United States, we must construe waivers strictly in favor of the sovereign . . . ."); United States v. Lee, 106 U.S. 196, 205 (1882)(opining that only Congress may give consent to suit against the United States and it may give such consent on the terms it chooses to impose).
41. See Gibson, supra note 1, at 339-41.
42. See Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486 (1983)(indicating that "foreign sovereign immunity is a matter of grace and comity on the part of the United States, and not a restriction imposed by the Constitution"). See generally Robert B. von Mehren, The Foreign Sovereign Immunities Act of 1976, 17 COLUM. J. TRANSNAT'L. L. 33, 34-43 (1978).
43. 43 28 U.S.C. §§ 1330, 1602-11 (1994).
44. See 11 U.S.C. § 101 (40) (1994)("'municipality' means political subdivision or public agency or instrumentality of a State").
45. See, e.g., Mount Healthy City Sch. Dist. v. Doyle, 429 U.S. 274, 280 (1977)("The bar of the Eleventh Amendment . . . does not extend to counties and similar municipal corporations."); Workman v. New York City, 179 U.S. 552, 556-74 (1900)(holding that the city was not immune from suit in federal admiralty court); Lincoln County v. Luning, 133 U.S. 529, 530 (1890)(holding that a suit against the county was not barred by the Eleventh Amendment). See also Melvyn R. Durchslag, Should Political Subdivisions Be Accorded Eleventh Amendment Immunity?, 43 DEPAUL L. REV. 577 (1994).
46. See Monell v. Department of Social Servs., 436 U.S. 658, 695 n.59 (1978)(stating that it has never been the law that state law immunities are permitted to override a § 1983 cause of action).
47. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 701, 108 Stat. 4106, 4150 ("If any provision of this Act or amendment made by this Act or the application of such provision or amendment to any person or circumstance is held to be unconstitutional, the remaining provisions of and amendments made by this Act and the application of such other provisions and amendments to any person or circumstance shall not be affected thereby.").
48. See PETER W. LOW & JOHN C. JEFFRIES, JR., FEDERAL COURTS AND THE LAW OF FEDERAL-STATE RELATIONS 912 (3d ed. 1994)(indicating that "a unit of local government, although not in itself entitled to claim 11th amendment immunity, may be shielded by state sovereign immunity if an award of damages against it would operate directly against the state treasury").
49. See supra note 29 and accompanying text. See also Seminole, 116 S. Ct. at 1122 ("For 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.'")(citations omitted).
50. See Seminole Tribe v. Florida. 116 S. Ct. 1114, 1131 (1996)(indicating that "the Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting States").
51. See id. at 1124 ("[T]he relief sought by a plaintiff suing a State is irrelevant to the question whether the suit is barred by the Eleventh Amendment. . . . [T]he type of relief sought is [also] irrelevant to whether Congress has power to abrogate States' immunity.").
52. See id. at 1129 ("'[T]he entire judicial power granted by the Constitution does not embrace authority to entertain a suit brought by private parties against a State without consent given . . . .'")(citation omitted).
53. See id. at 1131-32 ("[T]he background principle of state sovereign immunity embodied in the Eleventh Amendment is not so ephemeral as to dissipate when the subject of the suit is an area . . . that is under the exclusive control of the Federal Government. . . . The Eleventh Amendment restricts the judicial power under Article III, and Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction.").
54. See In re Merchants Grain, Inc., 59 F.3d 630, 637 (7th Cir. 1995)(holding that amended § 106 was enacted pursuant to the Bankruptcy Clause, U.S. CONST, art. I, § 8, cl. 4), cert. granted & Judgment vacated, 116 S. Ct. 1411 (1996).
55. See 11 U.S.C. § 106(a) (1994)(abrogating sovereign immunity with respect to sixty sections of the Bankruptcy Code and authorizing the issuance against governmental units under those provisions of any order, process, or judgment, including a money judgment, but not including punitive damages).
56. See infra notes 108-24 and accompanying text.
57. See 11 U.S.C. § 106(b) (1994)(authorizing the assertion of a claim against a governmental unit that files a proof of claim in a bankruptcy case if the claim against the government arises out of the same transaction or occurrence as gave rise to the government's claim against the estate); id. § 106(c)(authorizing any claim of the bankruptcy estate against a governmental unit to be setoff against that government's claim against the estate).
58. Cf. Seminole, 116 S. Ct. at 1122 (explaining that principles underlying the Eleventh Amendment, as interpreted by the Supreme Court, are twofold: "first, that each State is a sovereign entity in our federal system; and second, that '[i]t is inherent in the nature of sovereignty not to be amendable to the suit of an individual without its consent.'")(citation omitted). Interestingly, the Seminok majority downplayed the impact that its decision was likely to have on bankruptcy and other areas of federal substantive law, noting that "it has not been widely thought that the federal antitrust, bankruptcy, or copyright statutes abrogated the States' sovereign immunity." Id. at 1131-32 n.16. The theory of the Eleventh Amendment adopted by the Court, however, mandates the preservation of the states', sovereignty regardless of the resulting harm to federal substantive interests. See id. at 1131-32 ("The Eleventh Amendment restricts the judicial power under Article III, and Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction.").
59. See, e.g., BRIAN A. BLUM, BANKRUPTCY AND DEBTOR/CREDITOR - EXAMPLES AND EXPLANATIONS § 10.4, at 141 (1993)("Upon the filing of a bankruptcy petition, creditors are compelled to halt that self-centered individual collection action which inevitably leads to the unequal division of the debtor's assets."); I DAVID G. EPSTEIN ET AL, BANKRUPTCY § 6-3, at 278 (1993)("The primary goal [of bankruptcy law] is to treat creditors within each class equally by giving every member a pro rata share of the property available for distribution to the class").
60. See, e.g., Hilton v. South Carolina Pub. Rys. Comm'n, 502 U.S. 197, 205 (1991)("the Eleventh Amendment does not apply in state courts'"); Will V. Michigan Dep't of State Police, 491 U.S. 58, 63-64 (1989)(same).
61. See, e.g., Port Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 304 (1990)("The Eleventh Amendment bar to suit is not absolute. States may consent to suit in federal court . . . ."); Welch v. Texas Dep't of Highways & Pub. Transp., 483 U.S. 468, 473 (1987)("If a State waives its immunity and consents to suit in federal court, the suit is not barred by the Eleventh Amendment."). See infra note 109 (describing the distinction between recoupment, which does not require an express waiver of sovereign immunity, and setoff and counterclaim which do require such a waiver).
62. See, e.g., Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 102-03 (1984)("[W]hen a plaintiff sues a state official alleging a violation of federal law, the federal court may award an injunction that governs the official's future conduct . . . . [S]uch a suit would not be one against the State . . . ."); Edelman v. Jordan, 415 U.S. 651, 664 (1974)(describing Ex parte Young as "a watershed case in which this Court held that the Eleventh Amendment did not bar an action in the federal courts seeking to enjoin the Attorney General of Minnesota from enforcing a statute claimed to violate the Fourteenth Amendment").
63. The Eleventh Amendment is also inapplicable to suits brought against states by the federal government. See Blatchford v. Native Village of Noatak, 501 U.S. 775, 785 (1991)(referring to "the Federal Government's exemption from state sovereign immunity"); Employees v. Department of Pub. Health & Welfare, 411 U.S. 279, 286 (1973)("[S]uits by the United States against a State are not barred by the Constitution."); United States v. Mississippi, 380 U.S. 128, 140 (1965)("[N]othing in . . . any . . . provision of the Constitution prevents . . . a State's being sued by the United States."). This exemption applies, not only to the United States itself, but also to suits brought by federal officials. See, e.g., Employees, 411 U.S. at 286 (noting that Eleventh Amendment does not bar Secretary of Labor from suing states under the Fair Labor Standards Act). Furthermore, this exemption from Eleventh Amendment protection also applies even if the federal government is suing to recover damages that will be paid to individuals, who themselves would be barred from suing the state. See, eg., Blatchford, 501 U.S. at 785 (noting that "consent, 'inherent in the convention,'. . . to suit by the United States for a particular person's benefit" is not synonymous with "consent to suit by that person himself"); Employees, 411 U.S. at 285-86 (finding that the Secretary of Labor has authority to sue states for unpaid minimum wages or unpaid overtime compensation even though the Eleventh Amendment bars affected employees from suing); Tennessee Dep't of Human Resources v. United States Dep't of Educ., 979 F.2d 1162, 1167 (6th Cir. 1992)(concluding that the Eleventh Amendment does not bar an action by the federal government against a state "even if the money collected by the federal government ultimately will pass to a private person"). While this limitation on the Eleventh Amendment's protection is generally inapplicable to bankruptcy proceedings under the current statutory scheme, consideration might be given to whether United States Trustees (or some other federal officials) should be authorized to sue states in bankruptcy court under the circumstances specified in § 106 and whether such suits would be sufficiently in the public interest to be free of Eleventh Amendment constraints. See John R. Pagan, Eleventh Amendment Analysis, 39 ARK. L. REV. 447, 456-57 (1986)("If the government is not the real plaintiff, the eleventh amendment applies in full force"). Cf. Marshall v. A & M Consol. Indep. Sch. Dist., 605 F.2d 186, 188-90 (5th Cir. 1979)(examining whether suit by Secretary to recover back wages was in the public interest).
64. See Pub. L. No. 95-598, § 241(a), 92 Stat. 2549, 2668-69 (1978)(codified at 28 U.S.C. § 1471 (1982)). The Commission on the Bankruptcy Laws of the United States, whose proposals served as the source of the 1978 Act, had recommended the creation of bankruptcy courts "vested with jurisdiction to determine most controversies arising from cases commenced under the Act." REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES, H.R. DOC. No. 137, Part I, 93d Cong., 1st Sess. 85 (1973)(footnote omitted), reprinted in 2 ALAN N. RESNICK & EUGENE M. WYPYSKI, BANKRUPTCY REFORM ACT OF 1978: A LEGISLATIVE HISTORY, doc. 21, at 85 (1978) [hereinafter, "COMMISSION REPORT"].
65. See Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, § 101, 98 Stat. 333 (1984)(codified at 28 U.S.C. § 1334 (1994)).
66. 28 U.S.C. § 1334(b) (1994).
67. Id.
68. See, e.g., Sanders v. City of Brady (In re Brady, Tex., Mun. Gas Corp.), 936 F.2d 212, 218 (5th Cir.), cert. denied. 502 U.S. 1013 (1991)("[T]he only aspect of the bankruptcy proceeding over which the district courts and their bankruptcy units have exclusive jurisdiction is 'the bankruptcy petition itself.' In other matters arising in or related to title 11 cases, unless the Code provides otherwise, state courts have concurrent jurisdiction . . . .")(citation omitted). Thus, Justice Stevens' assertion, in dissent, that "persons harmed by state violations of federal . . . bankruptcy laws . . . have no remedy" since "federal courts have exclusive jurisdiction over cases arising under these laws" is based on a misunderstanding of the law. See Seminole Tribe v. Florida, 116 S. Ct. 1114, 1134 n.1 (1996)(Stevens, J., dissenting).
69. See, e.g., COMMISSION REPORT, supra note 64, at 85-102 (identifying delay and expense as problems caused by the division of jurisdiction between bankruptcy and nonbankruptcy courts).
70. See Seminole Tribe v. Florida, 116 S. Ct. 1114, 1131 n.14 (1996).
71. Id.
72. McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18, 26-31 (1990)("The Eleventh Amendment does not constrain appellate jurisdiction of the Supreme Court over cases arising from state courts."); Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 405-12 (1821).
73. See Seminole, 116 S. Ct. at 1131 n.14; see also id. at 1172 n.52 (Souter, J., dissenting)("appellate review of state court decisions is contingent upon state consent to suit in state court"). By the majority's citation of Cohens v. Virginia, 19 U.S. (6 Wheat.) 264 (1821), as the only supporting authority for its statement, however, it appears that its focus was upon the Supreme Court's authority to review final judgments in state court actions against states, rather than upon the conditions under which such suits can be brought in the first instance.
74. 502 U.S. 197 (1991).
75. Id. at 199. Suit in federal court was foreclosed by the decision in Welch v. Texas Dep't of Highways & Pub. Transp., 483 U.S. 468 (1987), which had held that the Jones Act, which incorporates the FELA's remedial scheme, did not abrogate the states' Eleventh Amendment immunity.
76. See Hilton v. South Carolina Pub. Rys. Comm'n, 502 U.S. 197, 201 (1991).
77. Id. at 207. The majority opinion was joined by Chief Justice Rehnquist and by Justices White, Stevens, and Souter. Justice Blackmun concurred in the judgment, and Justices O'Connor and Scalia dissented. See id. at 198.
78. See id. at 201-03. Although the earlier decision, Parden v. Terminal Ry. of Alabama Docks Dep't, 377 U.S. 184 (1964), had been overruled in part by Welch v. Texas Dep't of Highways & Pub. Transp., 483 U.S. 468 (1987), its holding that the FELA authorises suits for damages against state-owned railroads had not been disturbed. See Hilton, 502 U.S. at 200.
79. Hilton, 502 U.S. at 206. The Court explained that the rule "ought to be of assistance to the Congress and the courts in drafting and interpreting legislation [and that it] also serves to make parallel two separate inquiries into state liability: Eleventh Amendment doctrine and canons of statutory interpretation." Id.
80. Id. at 205 (citation omitted)("The issue becomes, then, a pure question of statutory construction . . . .").
81. Id. at 207.
82. See Gibson, supra note 1, at 337-339.
83. 11 U.S.C. § 101(27) (1994).
84. Id. § 106.
85. See supra note 81 and accompanying text.
86. 496 U.S. 356 (1990).
87. Id. at 358. Justice Stevens wrote the opinion for the Court.
88. Id. at 367.
89. Id.
90. See id. at 369 (quoting Douglas v. New York, N.H. & H.R. Co., 279 U.S. 377, 387-88 (1929)). See also Testa y. Katt, 330 U.S. 386, 394 (1947)(holding that the state court had an obligation to entertain suit under the federal price control act); Mondou v. New York, New Haven &: Hartford R.R. Co., 223 U.S. 1, 56-58 (1912)(holding that the state court could not decline to entertain a FELA suit on the ground that the federal statute was contrary to state policy).
91. See Howlett, 496 U.S. at 371.
92. Id. at 383.
93. See id. at 359-60. The state appellate court held that the Florida statute waiving sovereign immunity did not extend to claims brought under 42 U.S.C. § 1983 and thus the school board remained immune from such suits in state court. Id.
94. Id. at 375.
95. Id. at 376.
96. Id. (citing Martinez v. California, 444 U.S. 277 (1980)).
97. Id. at 383.
98. See 28 U.S.C. § 1334(a), (e) (1994)(granting district courts exclusive jurisdiction over "cases under title 11" and over property of the estate). See also supra note 68 (discussing bankruptcy courts' exclusive jurisdiction over the bankruptcy petition itself).
99. See Seminole Tribe v. Florida, 116 S. Ct. 1114, 1127-28 (1996)(quoting Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 97-98 (1984)).
100. See id. at 1128 (referring with approval to the "unremarkable . . . proposition that the States may waive their sovereign immunity"); id. at 1131 ("the Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting States")(emphasis added).
101. See. e.g., Sosna v. Iowa, 419 U.S. 393, 398 (1975)("While the parties may be permitted to waive non-jurisdictional defects, they may not by stipulation invoke the judicial power of the United States in litigation which does not present an 'actual case or controversy'. . . ."); Mitchell v. Maurer, 293 U.S. 237, 244 (1934)("Unlike an objection to venue, lack of federal jurisdiction cannot be waived or be overcome by an agreement of the parties."). See also ERWIN CHEMERINSKY, FEDERAL JURISDICTION § 5.1, at 249 (2d ed. 1994)("indicating that consent is never adequate to permit federal jurisdiction where none otherwise would exist").
102. See, e.g., Port Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 304 (1990)(indicating that "States may consent to suit in federal court"); Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 238 (1985)(opining that "if a State waives its immunity and consents to suit in federal court, the Eleventh Amendment does not bar the action").
103. See, e.g., Seminole, 116 S. Ct. at 1131 (indicating that the "the Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting States").
104. See, e.g., Welch v. Texas Dep't of Highways & Pub. Transp., 483 U.S. 468, 473 (1987)("If a State waives its immunity and consents to suit in federal court, the suit is not barred by the Eleventh Amendment."); Hans v. Louisiana, 134 U.S. 1, 17 (1890)("Undoubtedly a State may be sued by its own consent . . . .").
105. Edelman v. Jordan, 415 U.S. 651, 673 (1974)(quoting Murray v. Wilson Distilling Co., 213 U.S. 151, 171 (1909)).
106. Port Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 306 (1990). See Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 241 (1985)("Although a State's general waiver of sovereign immunity may subject it to suit in state court, it is not enough to waive the immunity guaranteed by the Eleventh Amendment."); Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 99 n.9 (1984)(noting that "the Court consistently has held that a State's waiver of sovereign immunity in its own courts is not a waiver of the Eleventh Amendment immunity in the federal courts").
107. See Edelman, 415 U.S. at 677-78 (opining that "the Eleventh Amendment defense sufficiently partakes of the nature of a jurisdictional bar so that it need not be raised in the trial court").
108. See, e.g., Genentech, Inc. v. Eli Lilly & Co., 998 F.2d 931, 946-47 (Fed. Cir. 1993), cert. denied, 114 S. Ct. 1126 (1994)("The general rule, although not without debate, is that when a governmental entity has waived its immunity from federal judicial authority by taking legal action in federal court, the person charged can raise all counterclaims that arise from the same transaction or events."); United States v. Montrose Chem. Corp, 788 F. Supp. 1485, 1493 (C.D. Cal. 1992)("A state waives its Eleventh Amendment and sovereign immunities as to compulsory counterclaims by filing a complaint in federal court.")(footnote omitted); United States v. Mottolo, 605 F. Supp. 898, 910 (D.N.H. 1985)("Filing suit as a plaintiff constitutes a waiver of Eleventh Amendment immunity as well as sovereign immunity with respect to any counterclaim asserted by a defendant which arises out of the same event underlying the State's claim and which is asserted defensively in recoupment for the purpose of diminishing the State's recovery."). See also Gibson, supra note I, at 346 n.259 (collecting authorities). But see United States v. Iron Mountain Mines, Inc., 881 F. Supp. 1432, 1456 (E.D. Cal. 1995)(discussing authorities and declining to extend the recoupment doctrine to a CERCLA action).
109. Mottolo, 605 F. Supp. at 910. The authorities can be confusing because, as the Collier treatise points out, "many courts use the words 'counterclaim' and 'setoff' interchangeably; and in many practices, both state and federal, the word 'counterclaim' as a term of practice connotes a setoff, recoupment, or a strict counterclaim." 4 COLLIER ON BANKRUPTCY ¶ 553.03, at 553-17 (Lawrence P. King et al. eds., 15th ed. 1995). Technically, however, "recoupment," "setoff" and "counterclaim" are terms with distinct meanings. "'Recoupment allows a defendant to reduce the amount of a plaintiff's claim by asserting a claim against the plaintiff which arose out of the same transaction to arrive at a just and proper liability on the plaintiff's claim.'" Holford v. Powers (In re Holford), 896 F.2d 176, 178 (5th Cir. 1990)(quoting In re Clowards, Inc., 42 B.R. 627, 628 (Bankr. D. Idaho 1984)). "Setoff," by contrast," 'involves a claim of the defendant against the plaintiff which arises out of a transaction which is different from that on which the plaintiff's claim is based.'" Id. Finally, "counterclaim" includes both setoff and recoupment, but extends to include other claims and may be used as a basis for affirmative relief. 3 JAMES WM. MOORE, MOORE'S FEDERAL PRACTICE ¶ 13.02, at 13-13, n.1 (2d ed. 1995); 6 CHARLES WRIGHT ET AL., FEDERAL PRACTICE & PROCEDURE §§ 1401-03 (2d ed. 1990). These niceties are no longer significant for pleading purposes and have faded into the background for most other purposes. See MOORE, supra, at 13-14 n.1. The distinctions between recoupment, setoff, and counterclaim do, however, remain important when a defendant seeks to assert a claim against a governmental plaintiff who has not otherwise waived sovereign immunity. Id. As noted above, courts have permitted recoupment in this context without requiring an express waiver of sovereign immunity, but only as used in the narrow sense of "recoupment" a setoff or other form of counterclaim against a state plaintiff requires an express waiver of sovereign immunity. See, e.g., supra note 108 & infra note 110 and accompanying text.
110. See, e.g., Iron Mountain Mines. Inc., 881 F. Supp. at 1453 ("The claim in recoupment may not exceed the government's recovery but may only offset it."); Burgess v. M/V Tamano, 382 F. Supp. 351, 356 n.6 (D. Me. 1974)(indicating that a "waiver is . . . limited to a counterclaim asserted defensively, by way of recoupment, for the purpose of defeating or diminishing the State's recovery, but not for the purpose of obtaining an affirmative judgment against the State"), vacated on other grounds, 564 F.2d 964 (1st Cir. 1977).
111. See 11 U.S.C. § 106(b) (1994)("A governmental unit that has filed a proof of claim in the case is deemed to have waived sovereign immunity with respect to a claim against such governmental unit . . . .").
112. See id. § 106(c)("there shall be offset against a claim or interest of a governmental unit any claim against such governmental unit that is property of the estate")(emphasis added).
113. See Gibson, supra note 1, at 346-47.
114. 377 U.S. 184, 192 (1964)("Our conclusion is simply that Alabama, when it began operation of an interstate railroad approximately 20 years after enactment of the FELA, necessarily consented to such suit as was authorized by that Act").
115. See CHEMERINSKY, supra note 101, § 7.6, at 410 (indicating that a constructive waiver requires a situation in which "Congress indicates a clear intent to make states liable in federal court if they engage in a particular activity, and then a state voluntarily chooses to engage in that conduct").
116. See Welch v. Texas Dep't of Highways & Pub. Transp, 483 U.S. 468, 478 (1987)(holding that "to the extent that Parden v. Terminal Railway . . . is inconsistent with the requirement that an abrogation of Eleventh Amendment immunity by Congress must be expressed in unmistakably clear language, it is overruled").
117. See Gibson, supra note 1, at 337-39 (concluding that § 106 satisfies requirement that abrogation of Eleventh Amendment immunity be "'unmistakably clear in the language of the statute'")(quoting Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 242 (1985)).
118. See Welch, 483 U.S. at 473 (opining that "'[c]onstructive consent is not a doctrine commonly associated with the surrender of constitutional rights'")(quoting Edelman v. Jordan, 415 U.S. 651, 673 (1974); Edelman, 415 U.S. at 673 (reasoning that "[t]he mere fact that a State participates in a program through which the Federal Government provides assistance for the operation by the State of a system of public aid is not sufficient to establish consent on the part of the State to be sued in the federal courts"); Employees v. Department of Pub. Health & Welfare, 411 U.S. 279, 285 (1973)(indicating that it cannot be concluded "that Congress conditioned the operation of these facilities on the forfeiture of immunity from suit in a federal forum").
119. 492 U.S. 33 (1989).
120. Id. at 59 n.14.
121. See, e.g., 995 Fifth Ave. Assocs., L.P. v. New York State Dep't of Taxation & Fin. (In re 995 Fifth Ave. Assocs., L.P.), 963 F.2d 503, 508-09 (2d Cir.), cert. denied. 506 U.S. 947 (1992)(holding that in enacting former § 106(a), now codified as amended at § 106(b), Congress validly conditioned a state's participation in a bankruptcy case on its partial waiver of Eleventh Amendment immunity); WJM, Inc. v. Massachusetts Dep't of Pub. Welfare, 840 F.2d 996, 1002-03 (1st Cir. 1988)(holding that because former § 106(a) "unambiguously alerts the states as to the consequences of filing a bankruptcy claim, . . . a governmental unit that does so waives its sovereign immunity").
122. 427 U.S. 445 (1976).
123. Under the abrogation theory of Union Gas, for example, a state's consent to federal suit authorized by Congress was given at the time it ratified the Constitution giving Congress the power to regulate interstate commerce. See Union Gas, 491 U.S. 1, 20 (1989)("The States held liable under such a congressional enactment are thus not 'unconsenting'; they gave their consent all at once, in ratifying the Constitution containing the Commerce Clause, rather than on a case-by-case basis."). Thus, it was not necessary for the Court to look to later actions on the part of the state in order to find consent.
124. Cf. Seminole Tribe v. Florida, 116 S. Ct. 1114, 1125 (1996)("The Eleventh Amendment immunity may not be lifted by Congress unilaterally deciding that it will be replaced by grant of some other authority [to the states].").
125. See, e.g., Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89 (1984)(Eleventh Amendment bars federal court from enjoining state officials to comply with state law); Hutto v. Finney, 437 U.S. 678 (1978)(finding an award of attorneys' fees ancillary to injunctive relief against state officials not barred by Eleventh Amendment); Edelman v. Jordan, 415 U.S. 651 (1974)(holding that the Eleventh Amendment precludes the issuance of an injunction requiring state officials to restore wrongfully withheld benefits); Ford Motor Co. v. Department of the Treasury, 323 U.S. 459 (1945)(opining that the Eleventh Amendment precludes an award of monetary relief against state officials where payment is to be made from the state treasury); Ex parte Young, 209 U.S. 123 (1908)(ruling that the Eleventh Amendment does not bar suit against state official to enjoin violation of federal law). See generally CHEMERINSKY, supra note 101, § 7.5.
126. Kentucky v. Graham, 473 U.S. 159, 169 (1985)(quoting Brandon v. Holt, 469 U.S. 464, 471 (1985))(citations and footnotes omitted).
127. 209 U.S. 123 (1908).
128. Graham, 473 U.S. at n.18 (citations omitted).
129. See Edelman, 415 U.S. at 678 (ruling that "the Court of Appeals was wrong in holding that the Eleventh Amendment did not constitute a bar to that portion of the District Court decree which ordered retroactive payment of benefits found to have been wrongfully withheld").
130. See Seminole Tribe v. Florida, 116 S. Ct. 1114, 1133 (1996)("We hold that Ex pane Young is inapplicable to petitioner's suit against the Governor of Florida, and therefore that suit is barred by the Eleventh Amendment and must be dismissed for a lack of jurisdiction").
131. See id. at 1122 (noting that the Court had granted certiorari to decide whether "the doctrine of Ex parte Young permit[s] suits against a State's governor for prospective relief to enforce the good faith bargaining requirement of the [the Gaming] Act").
132. Id. at 1132.
133. Id. at 1133.
134. The only authority the Court cited for its analysis was Schweiker v. Chilicky, 487 U.S. 412 (1988), which the Chief Justice admitted addressed the different issue of "whether a remedy should be created, [not] whether the Eleventh Amendment bar should be lifted." Seminole, 116 S. Ct. at 1132. See id. at 1181 (Souter, J., dissenting)("Chilicky's remoteness from the point of this case is, however, apparent from its facts.").
135. See, e.g., Seminole, 116 S. Ct. at 1184 (Souter, J., dissenting). Justice Souter posited: Why would Congress have wanted to go for broke on the issue of state immunity in the event the State pleaded immunity as a jurisdictional bar? Why would Congress not have wanted [the Gaming Act] to be enforced by means of a traditional doctrine giving federal courts jurisdiction over state officers, in an effort to harmonize state sovereign immunity with federal law that is paramount under the Supremacy Clause?
136. Id.
137. Id. at 1131 n.14.
138. Section 106 merely lifts the shield of sovereign immunity and permits states to be sued in bankruptcy proceedings with few restrictions. Although punitive damages may not be recovered and attorneys' fees are capped, see 11 U.S.C. § 106(a)(3) (1994), the provision otherwise permits the court to "hear and determine any issue arising with respect to the application" of the enumerated Bankruptcy Code sections and to issue "an order, process, or judgment" against the states. Id. § 106(a)(2), (3). Thus, unlike the Gaming Act, which permitted only limited relief against the states in federal court and established a system of mediation and possible intervention by the Secretary of the Interior, see supra note 12, the bankruptcy provision cannot be said to establish a "carefully crafted and intricate remedial scheme." See Seminole. 116 S. Ct. at 1132. Thus, no inference should be drawn from the fact that Congress enacted § 106 that it intended to foreclose the possibility of bankruptcy suits directly against state officials in appropriate circumstances.
139. See United States v. Nordic Village, Inc., 503 U.S. 30, 36 (1992)(Under the Court's reading of the original § 106(c) as authorizing only injunctive and declaratory relief, the provision, "though not authorizing claims for monetary relief, would nevertheless perform a significant function. It would permit a bankruptcy court to determine the amount and dischargeability of an estate's liability to the Government . . . ."); Hoffman v. Connecticut Dep't of Income Maintenance, 492 U.S. 96, 102 (1989)(plurality opinion)("The language of § 106(c)(2) is more indicative of declaratory and injunctive relief than of monetary recovery. The clause echoes the wording of sections of the Code such as § 505, which provides that 'the court may determine the amount or legality of any tax,' a determination of an issue that obviously should bind the governmental unit.")(citation omitted).
140. The Eleventh Amendment does not bar federal suits against state officials in their personal capacities seeking damages for wrongs committed in the course of their official duties. Hafer v. Melo, 502 U.S. 21, 31 (1991)("Insofar as respondents seek damages against Hafer personally, the Eleventh Amendment does not restrict their ability to sue in federal court"). Thus, in appropriate cases, bankruptcy courts might award monetary relief against state officials sued in their personal capacities. Such awards would be enforceable against the officials' personal assets and not out of the state treasury. See id. at 30. Official immunities might also be applicable. See id. at 31.