Nelson, Coralynn F. v. La Crosse County Dis

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 01-1261
IN RE:
CORALYNN F. NELSON,
Debtor-Appellant,
v.
LA CROSSE COUNTY DISTRICT ATTORNEY (STATE OF
WISCONSIN) and TIM GRUENKE,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 00 C 690—John C. Shabaz, Judge.
____________
ARGUED SEPTEMBER 14, 2001—DECIDED AUGUST 23, 2002
____________
Before FLAUM, Chief Judge, and MANION and WILLIAMS,
Circuit Judges.
MANION, Circuit Judge. Ronald and Coralynn Nelson filed
for personal bankruptcy. Although Mrs. Nelson received a
discharge, the government filed a separate criminal charge
against her for crimes connected with her operation of an
incorporated business. Her appeal involves the scope of a
State’s sovereign immunity in the bankruptcy context. In
this case, she filed an adversary complaint against the State
of Wisconsin. The State moved to dismiss, arguing that the
2 No. 01-1261
Eleventh Amendment barred the suit. The bankruptcy court
disagreed, holding that the Eleventh Amendment does not
apply to bankruptcy cases. On appeal, the federal district
court reversed, concluding that the State had sovereign im-
munity from suit under the Eleventh Amendment and that
it had not waived that immunity. The district court then re-
manded the case back to the bankruptcy court for dismissal
of the adversary proceeding. The debtor appeals, and we
affirm.
I. BACKGROUND
On April 8, 1999, Ronald and Coralyn Nelson filed for
protection under Chapter 7 of the United States Bankruptcy
Code. In re Nelson, No. 99-21588-7 (Bankr. W.D. Wis.). Mrs.
Nelson set forth various obligations in her bankruptcy peti-
tion, some of which she incurred in her individual capacity
and others on behalf of Discovery Child Care Center, Inc.,
a non-profit daycare facility located in La Crosse, Wisconsin,
of which she was the executive director. That same day,
Discovery filed its own Chapter 7 bankruptcy petition. See
In re Discovery Child Care Center, Inc., No. 99-21587-7 (Bankr.
W.D. Wis.). The State of Wisconsin, through its Department
of Instruction, filed a claim in Discovery’s separate bank-
ruptcy proceeding, seeking damages from Discovery for
breach of contract. The State did not file a claim in Mrs.
Nelson’s individual bankruptcy case. On July 27, 1999, Mrs.
Nelson received a discharge in her individual bankruptcy
case. The record does not reveal the current status of Discov-
ery’s separate bankruptcy proceeding.
On December 14, 1999, the La Crosse County District
Attorney’s Office commenced a three-count criminal action
in state court, charging Mrs. Nelson with theft by bailee,
theft by fraud and embezzlement, arising out of activities
No. 01-1261 3
that she was alleged to have committed as Discovery’s
director. The next day, Mrs. Nelson commenced an adver-
sary proceeding in her individual bankruptcy case against
the District Attorney’s Office and Tim Gruenke, the Assis-
tant District Attorney primarily responsible for the prosecu-
tion of her criminal case. Specifically, Mrs. Nelson’s adver-
sary proceeding alleged that the District Attorney’s Office
and Gruenke violated 11 U.S.C. § 524, which enjoins cred-
itors from taking steps to collect a discharged bankruptcy
debt from a debtor by initiating a criminal action against
her for the sole purpose of obtaining a restitution order.
In her prayer for relief, Mrs. Nelson requested a per-
manent injunction against both the District Attorney’s Of-
fice and Gruenke under 11 U.S.C. § 105 to preclude them
from proceeding with the criminal indictment against
1
her, as well as actual and punitive damages from both
defendants in an unspecified amount.
The State defendants filed a motion to dismiss the adver-
sary complaint for lack of subject matter jurisdiction under
the Eleventh Amendment and for failure to state a claim
upon which relief could be granted. Alternatively, the de-
fendants requested the bankruptcy court to abstain in favor
of the pending state court criminal case pursuant to 28
2
U.S.C. § 1334 and the Younger abstention doctrine. At a
1
Section 105(a) provides that a court “may issue any order, process
or judgment that is necessary or appropriate to carry out the pro-
visions of the [Bankruptcy Code].” 11 U.S.C. § 105(a).
2
Section 1334(c)(1) of Title 28 of the United State Code provides that
“[n]othing in this section [granting original and exclusive jurisdiction
in bankruptcy cases to federal courts] prevents a district court in the
interest of justice, or in the interest of comity with State courts or
respect for State law, from abstaining from hearing a particular pro-
(continued...)
4 No. 01-1261
status conference, the defendants asked the bankruptcy
court to decide the jurisdictional issue first, and the bank-
ruptcy court agreed to do so. See Steel Co. v. Citizens for a
Better Env’t, 523 U.S. 83, 94-95 (1998) (holding that the
“requirement that jurisdiction be established as a threshold
matter springs from the nature and limits of the judicial
power of the United States and is inflexible and without
exception”) (citations omitted). In its jurisdictional analysis,
the bankruptcy court first noted that Section 106(a) of the
Bankruptcy Code contains a specific abrogation of state
sovereign immunity as a defense available to States as to
certain matters arising thereunder, including Section 524.
The bankruptcy court then acknowledged that, following
the Supreme Court’s decision in Seminole Tribe of Fla. v.
Florida, 517 U.S. 44 (1996), a number of courts have held
that Congress lacked authority under Article I of the Con-
stitution to enact Section 106(a). See Nelson v. La Crosse
County District Attorney (State of Wisconsin) (In re Nelson),
254 B.R. 436, 440 (Bankr. W.D. Wis. 2000). However, the
bankruptcy court posited that the “real issue is whether
the state actually has any immunity to waive.” Id. at 442.
The court concluded that it did not need to address the
implication of Seminole Tribe because all of the States had
generally waived their sovereign immunity in the bank-
ruptcy context by ratifying the Constitution under the
“plan of the Convention” doctrine. Id. at 443. Accordingly,
the bankruptcy court denied the defendants’ motion to dis-
2
(...continued)
ceeding arising under title 11 or arising in or related to a case under
title 11.” Id. Under the Younger abstention doctrine, federal courts
cannot enjoin ongoing state criminal proceedings unless extraordi-
nary circumstances are present. See Younger v. Harris, 401 U.S. 37, 43-
44 (1971); State of Indiana v. Haws, 131 F.3d 1205, 1210 (7th Cir. 1997).
No. 01-1261 5
miss based on lack of jurisdiction, concluding that the
Eleventh Amendment was not applicable in bankruptcy
cases. Id. at 447.
The defendants then filed an interlocutory appeal to the
federal district court. See Cherry v. Univ. of Wisconsin Sys. Bd.
of Regents, 265 F.3d 541, 546 (7th Cir. 2001) (denial of
Eleventh Amendment immunity is immediately appeal-
able). The district court reversed the decision of the bank-
ruptcy court, holding that the Eleventh Amendment bars
suits by private citizens against a State in bankruptcy court.
See In re Nelson, 258 B.R. 374 (W.D. Wis. 2001). The district
court also determined that the State had not waived its
immunity by filing a claim in Discovery’s bankruptcy case.
Id. at 376. The district court further concluded that under the
Younger abstention doctrine, the bankruptcy court could
not enjoin a state criminal proceeding, noting that if the
State eventually issued a restitution order in the criminal
action, the bankruptcy court could then properly address
3
whether such restitution qualified as a dischargeable debt.
Id. Accordingly, the district court reversed the decision of
the bankruptcy court and remanded the matter for dis-
missal of the adversary proceeding. Coralynn Nelson
appeals this decision.
II. ANALYSIS
On appeal, Mrs. Nelson argues that the district court erred
in concluding that the Eleventh Amendment bars her ad-
versary proceeding against the State defendants for two
reasons: (1) Congress validly abrogated the States’ sovereign
3
Criminal restitution orders are generally non-dischargeable in
bankruptcy. See 11 U.S.C. § 523(a)(7); Kelly v. Robinson, 479 U.S. 36,
53 (1986) (holding that criminal restitution orders fall within the
meaning of § 523(a)(7)).
6 No. 01-1261
immunity in bankruptcy cases by enacting Section 106(a) of
the Bankruptcy Code; and (2) the States, by ratifying the
Constitution, waived their sovereign immunity in the bank-
ruptcy context. The State argues in response that under
Seminole Tribe and its progeny, Congress lacked the author-
ity to abrogate State sovereign immunity in Section 106(a)
and that those cases implicitly negate Mrs. Nelson’s “plan
of the Convention” argument as well. We review the grant
or denial of a state’s sovereign immunity defense de novo.
See Richman v. Sheahan, 270 F.3d 430, 434 (7th Cir. 2001). In
reviewing this issue, we begin with Section 106(a), discuss-
ing whether it is a valid abrogation of State sovereign im-
munity under Article I of the Constitution. We then address
Mrs. Nelson’s “plan of the Convention” argument, and con-
clude by evaluating whether there are any other alleged
limits on a State’s sovereign immunity applicable in this
case.
A. Abrogation of Sovereign Immunity under Section
106(a)
To understand the concept of sovereign immunity, it is
important to put into historical context the framework and
structure of our nation’s federal Constitution. As the Su-
preme Court recently recognized, “[d]ual sovereignty is a
defining feature of our Nation’s constitutional blueprint.
States, upon ratification of the Constitution, did not consent
to become mere appendages of the Federal Government.
Rather, they entered the Union with their sovereignty in-
tact.” Federal Maritime Comm’n v. South Carolina State Ports
Auth., ___ U.S. ___, 122 S.Ct. 1864, 1870 (2002) (citations
omitted). Thus, although “the Constitution establishes a
National Government with broad, often plenary authority
over matters within its recognized competence, the found-
ing document ‘specifically recognizes the States as sovereign
entities.’ ” Alden v. Maine, 527 U.S. 706, 713 (1999) (citing
No. 01-1261 7
Seminole Tribe, 517 U.S. at 71 n. 15). At the very core of sov-
ereign immunity is the inherent right of the sovereign to be
immune from private suit. See Alden, 527 U.S. at 715 (“The
generation that designed and adopted our federal system
considered immunity from private suits central to sovereign
dignity.”).
Notwithstanding the universal understanding of both the
meaning and scope of sovereign immunity at the time of our
nation’s founding, the Supreme Court held, in Chisolm v.
Georgia, 2 U.S. (2 Dall.) 419 (1793), that under the plain
meaning of Article III a private citizen of another State
could sue the State of Georgia in federal court without
4
its consent. Only Justice Iredell dissented in Chisolm, ar-
guing that the language of Article III was insufficient to
authorize a suit against a State without its consent. The
“Court’s decision fell upon the country with a profound
shock,” Alden, 527 U.S. at 720 (citations omitted), because
“the state conventions which addressed the issue of sover-
eign immunity in their formal ratification documents . . .
made clear that they . . . understood the Constitution
as drafted to preserve the States’ immunity from private
suits.” Id. at 718. In response to, and within a short time
of the Chisolm decision, the Eleventh Amendment was
proposed, approved by both houses of Congress and
ratified by the States, the purpose of which was “not to
change but to restore the original constitutional design.”
Alden, at 722 (emphasis added). Thus, as the Supreme Court
has consistently emphasized, “sovereign immunity de-
rives not from the Eleventh Amendment but from the
4
Article III provides, in relevant part, that the “Judicial Power [of
the United States] shall extend to all Cases, in Law and Equity, . . . to
Controversies between a State and Citizens of another State . . . .”
U.S. Const. Art. III, § 2.
8 No. 01-1261
structure of the original Constitution itself.” Id. at 728. See
also Federal Maritime Comm’n, 122 S.Ct. at 1871; Seminole
Tribe, 517 U.S. at 54.
The Eleventh Amendment to the Constitution provides
5
that “[t]he Judicial Power of the United States shall not be
6
construed to extend to any suit in law or equity, com-
7
menced or prosecuted against one of the United States by
5
The Eleventh Amendment is phrased in terms of the “Judical
Power” of the United States. However, courts have not limited its
application to Article III courts. See e.g., Federal Maritime Comm’n, 122
S.Ct. at 1875 (holding that Congress may not use “Article I powers
to create court-like administrative tribunals where sovereign im-
munity does not apply”); Alden, 527 U.S. at 754 (holding that Con-
gress may not abrogate state sovereign immunity from suits in state
court); In re Sacred Heart Hosp. of Norristown, 133 F.3d 237, 243 n. 9 (3d
Cir. 1998) (noting that Eleventh Amendment is not limited to Article
III courts). See also 28 U.S.C. § 151 (“In each judicial district, the
bankruptcy judges in regular active service shall constitute a unit of
the district court to be known as the bankruptcy court for that
district.”). In any case, Mrs. Nelson does not contend that the Elev-
enth Amendment is not implicated on this basis.
6
The term “suit” as used in the Eleventh Amendment applies to
adversarial proceedings such as the one before us. See, e.g., In re
Mitchell, 209 F.3d 1111, 1116-17 (9th Cir. 2000) (holding that adver-
sary proceeding to determine dischargeability of taxes owed to the
states constitutes a “suit” under Eleventh Amendment); Texas v.
Walker, 142 F.3d 813, 823 (5th Cir. 1998) (noting same). In any event,
except as discussed in Section II (C) below, Mrs. Nelson does not
contend that her adversary proceeding is not a “suit” for purposes
of the Eleventh Amendment.
7
By its terms, the Eleventh Amendment protects “States.” Mrs.
Nelson brought her suit against the “La Crosse County District
Attorney’s Office (State of Wisconsin).” The Eleventh Amendment
extends to state agencies and departments and, subject to the Ex Parte
Young doctrine, to state employees acting in their official capacities.
(continued...)
No. 01-1261 9
Citizens of another State, or by Citizens or Subjects of any
Foreign State.” U.S. Const. amend. XI. In describing the
scope of the Eleventh Amendment, the Supreme Court has
stressed that:
[a]lthough the text of the Amendment would appear
to restrict only the Article III diversity jurisdiction of
the federal courts, we have understood the Eleventh
Amendment to stand not so much for what it says, but
for the presupposition which it confirms. That presup-
position . . . has two parts: first, that each State is a
sovereign entity in our federal system; and second, that
it is inherent in the nature of sovereignty not to be
amenable to the suit of an individual without its con-
sent.
7
(...continued)
See Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 123-24
(1984) (holding that relief against county and state officers was
barred by the Eleventh Amendment because the state funded and
cooperated in operating the county program at issue). However,
the Eleventh Amendment generally does not “extend to suits
prosecuted against a municipal corporation or other governmental
entity which is not an arm of the State,” Alden, 527 U.S. at 756,
although county sheriffs may act as an arm of the state when
performing certain functions and thus fall within the ambit of the
Eleventh Amendment. See Richman, 270 F.3d at 439-40 (holding that
Illinois county sheriff was not acting as an arm of the state when
performing courtroom security duties). Cf. McMillian v. Monroe
County, Alabama, 520 U.S. 781 (1997) (holding that a county sheriff
was a state official for purposes of Section 1983). Here, the State
asserts that in Wisconsin district attorneys are state employees,
citing Wis. Stat. ch. 978, and as such are entitled to whatever
protection the Eleventh Amendment offers. Mrs. Nelson does not
dispute this assertion, and we need not address the matter further.
See Florida Prepaid Postsecondary Educ. Expense Bd. v. College Sav.
Bank, 527 U.S. 627, 633 n.3 (1999).
10 No. 01-1261
Seminole Tribe, 517 U.S. at 54 (internal citations omitted).
Thus, “the Court has upheld States’ assertions of sovereign
immunity in various contexts outside the literal text of the
Eleventh Amendment.” Alden, 527 U.S. at 727. The Eleventh
Amendment has also been construed to bar suits against a
State by its own citizens, as well as by citizens of another
state. See Hans v. Louisiana, 134 U.S. 1, 15 (1890). It is not
limited to diversity cases, but also applies to prevent suits
invoking federal question jurisdiction. See Idaho v. Coeur
d’Alene Tribe of Idaho, 521 U.S. 261, 268 (1997) (relying on
Seminole Tribe). Additionally, the Eleventh Amendment
has been interpreted to protect non-consenting States from
suit in state as well as federal court. See Alden, 527 U.S. at
754. And, most recently, in Federal Maritime Commission,
the Supreme Court extended the protection of the Eleventh
Amendment beyond traditional judicial fora to administra-
tive claims against non-consenting States filed with execu-
tive branch agencies, reasoning that federal agencies share
“strong similarities” with federal courts. 122 S.Ct. at 1874.
The Court noted that the Framers of the Constitution, “who
envisioned a limited Federal Government, could not have
anticipated the vast growth of the administrative state.” Id.
at 1872. The Court also emphasized that “[t]he preeminent
purpose of state sovereign immunity is to accord States
the dignity that is consistent with their status as sov-
ereign entities.” Id. at 1874.
Nevertheless, the Supreme Court has recognized that
under certain circumstances Congress may validly abrogate
a State’s Eleventh Amendment immunity. Mrs. Nelson
argues that, to the extent that the Eleventh Amendment
applies in this case, it has been abrogated by 11 U.S.C.
§ 106(a), which provides that “[n]otwithstanding an asser-
tion of sovereign immunity, sovereign immunity is abro-
gated as to a governmental unit to the extent set forth in this
section . . . .” Id. To validly do so, Congress must (1) un-
equivocally express an intent to abrogate state immunity,
No. 01-1261 11
and (2) must act pursuant to a valid exercise of legislative
power. Seminole Tribe, 517 U.S. at 55. Congress’ intent to
abrogate a State’s immunity “must be obvious from ‘a clear
legislative statement.’ ” Id. (citing Blatchford v. Native Village
of Noatak, 501 U.S. 775, 786 (1991)). There is no dispute that
the text of Section 106(a) clearly and unequivocally ex-
presses a clear legislative intent to abrogate state sover-
8
eign immunity. See, e.g., Kimel v. Florida Bd. of Regents, 528
U.S. 62, 73 (2000) (holding that ADEA contained clear
statement of Congress’ intent to abrogate States’ sovereign
immunity); Florida Prepaid, 527 U.S. at 635 (Court found
that Patent Remedy Act contained clear intent to abrogate
States’ sovereign immunity). And, indeed, the parties do
not suggest otherwise. Thus, the only remaining issue is
whether Congress enacted Section 106(a) pursuant to a
valid exercise of legislative power.
Mrs. Nelson contends that Section 106(a) is a valid exer-
cise of legislative power under Article I, Section 8, Clause 4
of the Constitution, the Bankruptcy Clause, which empow-
ers Congress to “establish . . . uniform Laws on the subject
of Bankruptcies throughout the United States.” While the
Supreme Court has not directly addressed the question of
whether the Bankruptcy Clause of Article I authorizes Con-
8
In Hoffman v. Connecticut Dep’t of Income Maint., 492 U.S. 96 (1989),
the Supreme Court held that the predecessor of current Section
106(c) did not validly abrogate an unconsenting State’s Eleventh
Amendment immunity with respect to money judgments because
Congress had failed to make its intention to do so unmistakably
clear. Id. at 104. Consequently, in the Bankruptcy Reform Act of 1994,
Congress significantly revised Section 106 to expressly provide for
the abrogation of sovereign immunity. However, in Hoffman, the
Supreme Court declined to address whether Congress could validly
abrogate sovereign immunity under its bankruptcy power in the first
place, as it would later do in other contexts in Seminole Tribe and its
progeny. Id.12 No. 01-1261
gress to abrogate state sovereign immunity, its recent fed-
eralism decisions are clearly dispositive of the issue.
As the parties rightly acknowledge, the seminal case
guiding our analysis is Seminole Tribe of Fla. v. Florida. There,
the Seminole Indian Tribe sued the State of Florida under
the Indian Gaming Regulatory Act, which specifically
9
provided for suits against states in federal court. 517 U.S.
at 51. The State of Florida moved to dismiss, arguing that
Congress lacked authority to pass a law abrogating its
Eleventh Amendment immunity. Id. at 52. The Court de-
termined that the Gaming Act had been enacted pursuant to
Congress’ legislative authority under the Indian Commerce
Clause, U.S. Const. art. I, § 8, cl. 3, and then held that
[e]ven when the Constitution vests in Congress com-
plete lawmaking authority over a particular area, the
Eleventh Amendment prevents congressional authoriza-
tion of suits by private parties against unconsenting
States. 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.
517 U.S. at 72-73.
In reaching its conclusion, the Supreme Court noted that
it had previously found authority to abrogate the Eleventh
Amendment under only two provisions of the Constitution:
the Interstate Commerce Clause, see Pennsylvania v. Union
Gas Co., 491 U.S. 1, 19-20 (1989), and Section 5 of the Four-
teenth Amendment, see Fitzpatrick v. Bitzer, 427 U.S. 445, 453-
9
The statute provided, in relevant part, that federal district courts
have jurisdiction “over any cause of action . . . arising from the fail-
ure of a State to enter into negotiations . . . or to conduct such nego-
tiations in good faith.” 25 U.S.C. § 2710(d)(7).
No. 01-1261 13
56 (1976). See Seminole Tribe, 517 U.S. at 59. With respect to
the first source of authority, the Court reasoned that since
the Interstate Commerce Clause and the Indian Commerce
Clause were both Article I powers there was no “principled
distinction in favor of the States to be drawn between the
[two],” id. at 63, and as such concluded that Union Gas “has
proved to be a solitary departure from established law, . . .
was wrongly decided and that it should be, and now is,
overruled.” Id. at 66. The Court then turned to Section 5
10
of the Fourteenth Amendment, explaining that it had
“fundamentally altered the balance of state and federal
11
power struck by the Constitution.” Id. at 59. In other
words, by ratifying the Fourteenth Amendment, the States
agreed to relinquish a portion of the sovereign immunity
they previously enjoyed under the Constitution and the
Eleventh Amendment. Therefore, “when acting pursuant
to § 5 of the Fourteenth Amendment, Congress can abro-
gate the Eleventh Amendment without the States’ con-
sent.” Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 238
(1985). This is because the States already provided that
consent through their approval of the Amendment itself.
After Seminole Tribe, Section 5 of the Fourteenth Amend-
ment remains the only valid source of legislative authority
by which the Supreme Court has held that Congress may
validly abrogate a State’s Eleventh Amendment immu-
nity. See Kimel, 528 at 80; Alden, 527 at 756; Florida Prepaid,
10
Section 5 of the Fourteenth Amendment expressly grants Congress
the power “to enforce, by appropriate legislation, the provisions of
this article.” U.S. Const. amend. XIV, § 5.
11
Thus, the impact of the Section 5 of the Fourteenth Amendment is
distinct from that of the Eleventh Amendment, which merely re-
stored the original constitutional equilibrium between the two sov-
ereigns at the formation of the Union, undermined and disregarded
by the Chisolm decision. See Alden, 527 U.S. at 722.
14 No. 01-1261
527 U.S. at 637. Mrs. Nelson, however, does not contend that
Section 106 was enacted pursuant to the Fourteenth Amend-
ment, and therefore we do not address whether it is a
valid abrogation of State sovereign immunity thereunder.
While Seminole Tribe did not directly address whether the
Bankruptcy Clause of the Constitution was subject to the
Eleventh Amendment, Justice Stevens raised the issue in his
dissent, expressing a concern that the decision would
prohibit federal jurisdiction over suits to enforce, inter alia,
the bankruptcy laws against the States. See Seminole Tribe,
517 U.S. at 77 & n.1 (Stevens, J., dissenting). Justice Rehn-
quist, writing for the majority, directly responded to this
concern by stating that, with respect to Congress’ bank-
ruptcy power in particular, “it has not been widely thought
that the federal antitrust, bankruptcy, or copyright statutes
abrogated the States’ sovereign immunity. This Court never
has awarded relief against a State under any of those
statutory schemes. . . .” 517 U.S. at 72, n.16.
Mrs. Nelson takes issue with Justice Rehnquist’s state-
ment, claiming that prior to Seminole Tribe, the Supreme
Court had not hesitated to find that States fell within the
scope of bankruptcy court jurisdiction. In support of her
argument she relies on New York v. Irving Trust Co., 288 U.S.
329 (1933), where the State of New York brought an un-
timely claim for unpaid franchise taxes, and the trustee
struck its claim. The State claimed that the trustee’s ability
to do so violated its sovereign immunity. In upholding the
trustee’s act, the Court noted that, “[i]f a state desires to
participate in the assets of a bankrupt, she must submit to
appropriate requirements by the controlling power; other-
wise, orderly and expeditious proceedings would be impos-
sible and a fundamental purpose of the Bankruptcy Act
would be frustrated.” Id. at 333. Mrs. Nelson also relies
upon the holding of Gardner v. New Jersey, 329 U.S. 565No. 01-1261 15
(1947), where New Jersey filed a proof of claim for unpaid
taxes in the debtor’s bankruptcy proceeding, and in re-
sponse to objections to the claim, raised an Eleventh
Amendment defense. In upholding the authority of the
bankruptcy court to hear the action, the Court declared that
settled law established “that the bankruptcy court was
constitutionally empowered to order a sale of property”
free and clear of state tax liens. Id. at 578. Both of these
cases are easily distinguished from the case at bar because
they involved situations where the State itself voluntarily
entered into the bankruptcy proceeding and thus consented
to the court’s jurisdiction. As such, Irving Trust and Gardner
more aptly demonstrate that a State may waive its sovereign
immunity (which waiver, of course, presumes States enjoy
such immunity in the first instance). The notion that a State
may voluntarily waive its immunity is not a new doctrine,
nor is it one that has been called into question by Seminole
Tribe or its progeny. See College Sav. Bank v. Florida Prepaid
Postsecondary Educ. Expense Bd., 527 U.S. 666, 681 n. 3 (1999)
(stating that Gardner, “which held that a bankruptcy court
can entertain a trustee’s objections to a claim filed by a
State, stands for the unremarkable proposition that a State
waives its sovereign immunity by voluntarily invoking the
jurisdiction of the federal courts.”). Thus, contrary to Mrs.
Nelson’s position, these cases do not stand for the proposi-
tion that a State lacks sovereign immunity in bankruptcy
suits. To the extent that any of the Supreme Court’s pre-
Seminole Tribe cases remotely suggest otherwise, their
“precedential value” has been eviscerated by that decision
and the other federalism cases that have followed in its
wake.
Indeed, since its decision in Seminole Tribe, the Supreme
Court has affirmed its holding with respect to Congress’
lack of authority to abrogate State sovereign immunity
under Article I in any context and in increasingly stronger
terms. See, e.g., Board of Trustees of Univ. of Alabama v. Garrett,
16 No. 01-1261
531 U.S. 356, 364 (2001) (“Congress may not, of course, base
its abrogation of the States’ Eleventh Amendment immunity
upon the powers enumerated in Article I.”); Kimel, 528 U.S,
at 79 (“Under our firmly established precedent then, if the
ADEA rests solely on Congress’ Article I commerce power,
the private petitioners in today’s cases cannot maintain their
suits against their state employers.”); Alden, 527 U.S. at 748
(“it is settled doctrine that neither substantive federal law
nor attempted congressional abrogation under Article I bars
a State from raising a constitutional defense of sovereign
immunity in federal court”); Florida Prepaid, 527 U.S. at 636
(“Seminole Tribe makes clear that Congress may not abrogate
state sovereign immunity pursuant to its Article I powers;
hence the Patent Remedy Act cannot be sustained under
either the Commerce Clause or the Patent Clause.”). See also
MCI Telecomm. Corp. v. Illinois Bell Tel. Co., 222 F.3d 323, 338
(7th Cir. 2000) (“as the Supreme Court has made inescap-
ably clear, Congress may not abrogate Eleventh Amend-
ment immunity through the exercise of its Article I pow-
er.”).
The unequivocal language of these cases demonstrates
that the Supreme Court’s holding in Seminole Tribe was not
limited to Article I’s Indian Commerce Clause, but applies
equally to Congress’ attempt to abrogate sovereign immu-
nity under any other Article I legislative power. Moreover,
while the Supreme Court has yet to specifically consider
Congress’ attempt at abrogating the States’ sovereign im-
12
munity in the bankruptcy context, every court to address
12
In In the Matter of Merchant’s Grain, Inc., 59 F.3d 630 (7th Cir. 1995),
a case from this circuit pre-dating Seminole Tribe, we held that
Congress did have the power to abrogate state sovereign immunity,
and in doing so specifically relied on the Supreme Court’s decision
(continued...)
No. 01-1261 17
the issue since Seminole Tribe concluded that it may not do
so under its Article I powers. These courts correctly held
that the Supreme Court’s holding in Seminole Tribe is not
limited to the Indian Commerce Clause, but rather extends
to all of Congress’ Article I powers, including the Bank-
ruptcy Clause, and thus properly concluded that Section
106(a) was unconstitutional under the Eleventh Amend-
ment. See, e.g., In re Mitchell, 209 F.3d at 1118-19; In re Sacred
Heart Hosp., 133 F.3d at 243; In the Matter of Estate of
Fernandez, 123 F.3d 241, 243-44 (5th Cir. 1997); In re Creative
Goldsmiths of Washington, D.C., 119 F.3d 1140, 1145 (4th
13
Cir. 1997).
12
(...continued)
in Union Gas, 491 U.S. at 19-20 (holding that Congress could abrogate
the Eleventh Amendment pursuant to the Interstate Commerce
Clause of Article I). 59 F.3d at 635. However, after the Supreme Court
expressly overruled Union Gas in Seminole Tribe, see 517 U.S. at 66, it
granted the State’s petition for a writ of certiorari and vacated our
decision in Merchant’s Grain, remanding it for further consideration
in light of Seminole Tribe. See Ohio Agricultural Commodity Depositors
Fund v. Mahern, 517 U.S. 1130 (1996). On remand, the case was ren-
dered moot before reconsideration, and we have not had occasion to
revisit the issue until now. Nor has the Supreme Court.
13
Of course, some courts, such as the bankruptcy court in this case,
have held that Eleventh Amendment immunity does not apply in the
bankruptcy context for other reasons. Some of these courts have
adopted the argument that States waived sovereign immunity in
bankruptcy by ratifying the Constitution. See, e.g., In re Hood, 262 B.R.
412 (6th Cir. BAP 2001); In re Nelson, 254 B.R. 436 (Bankr. W.D. Wis.
2000); In re Bliemeister, 251 B.R. 383 (Bankr. D. Ariz. 2000), aff’d 296
F.3d 858 (9th Cir. July 19, 2002) (on alternative grounds that State
waived it sovereign immunity by its conduct in the proceeding).
Others have concluded that Section 106(a) is a valid abrogation of
State sovereign immunity under Section 5 of the Fourteenth Amend-
ment. See, e.g., In re Lees, 252 B.R. 441, 448 (Bankr. W.D. Tenn. 2000)
(Section 106 is valid abrogation of State sovereign immunity under
(continued...)
18 No. 01-1261
Based on the Supreme Court’s decision in Seminole Tribe
and its progeny, as well as the decisions of our sister cir-
cuits, we conclude that Congress did not validly abrogate
State sovereign immunity when enacting Section 106(a) pur-
suant to its Article I legislative power. Given the foregoing
analysis, we find no reason to distinguish Congress’ power
under the Indian Commerce Clause, that it purported to
exercise in Seminole Tribe, from its power under the Bank-
ruptcy Clause for purposes of State sovereign immunity, see
Hoffman, 492 U.S. at 105 (Scalia, J., concurring in judgment)
(noting that “there is no basis for treating [Congress’]
powers under the Bankruptcy Clause any differently” from
its powers under the Commerce Clause), especially in light
of the Supreme Court’s subsequent holdings which have
consistently emphasized Congress’ limited ability to abro-
gate State sovereign immunity.
1. Plan of the Convention.
As she did successfully before the bankruptcy court, Mrs.
Nelson attempts to distinguish her case from Seminole Tribe
and its progeny. First, she argues that Congress’ enactment
of Section 106(a) was unnecessary because the States had
already surrendered their sovereign immunity in the bank-
13
(...continued)
the Fourteenth Amendment), aff’d 264 B.R. 884 (W.D. Tenn. 2001) (on
alternative grounds that Tennessee Student Assistance Corporation
was not an “arm of the state” entitled to Eleventh Amendment
protection). However, no court, to our knowledge, has concluded
that Congress possesses authority under Article I to abrogate State
sovereign immunity in the bankruptcy context, notwithstanding
Seminole Tribe and its progeny.
No. 01-1261 19
14
ruptcy context through the “plan of the Convention.” She
contends that the Framers understood the Constitution it-
self, through Article I’s Bankruptcy Clause, to subject States
to federal legislative authority and to eliminate State sover-
eign immunity from suits to enforce those federal bank-
ruptcy laws. Thus, according to her argument, by ratifying
the Constitution the States agreed to surrender their sover-
eign immunity in this respect. She further argues that the
Eleventh Amendment did not restore the pre-convention
sovereign immunity, citing the Supreme Court’s statement
in Alden that the Eleventh Amendment did not create any
new immunity, but merely corrected the error made by the
Court in Chisolm. See Alden, 527 U.S. at 728 (noting that
sovereign immunity neither derives from nor is limited by
the Eleventh Amendment but stems instead from the
Constitution itself). The bankruptcy court agreed with Mrs.
Nelson and concluded that the States had indeed surren-
dered their immunity as to bankruptcy law by ratifying the
Constitution. In doing so, the bankruptcy judge candidly
acknowledged that his conclusion was the minority posi-
tion, and that very few courts had reached the same conclu-
15
sion after Seminole Tribe.
14
This phrase is found in Alexander Hamilton’s The Federalist No. 81,
where he stated “It is inherent in the nature of sovereignty, not to be
amenable to the suit of an individual without its consent. This is the
general sense and the general practice of mankind, and the exemp-
tion, as one of the attributes of sovereignty, is now enjoyed by the
government of every state in the Union. Unless therefore, there is a
surrender of this immunity in the Plan of convention, it will remain
with the states, and the Danger intimated must be merely ideal.”
(emphasis added).
15
For a further discussion of the “plan of the Convention” theory,
see the cases cited infra at note 13.
20 No. 01-1261
The Supreme Court has stated that in “exercising its
Article I powers Congress may subject the States to private
suits in their own courts only if there is ‘compelling evi-
dence’ that the States were required to surrender this power
to Congress pursuant to the constitutional design.” Alden,
527 U.S. at 730-31 (citing Blatchford, 501 U.S. at 781). How-
ever, in noting this particular limit on Eleventh Amendment
immunity, the Court identified only two examples where
the States had done so: “suits brought by other States or by
the Federal Government.” 527 U.S. at 755. See also Blatchford,
501 U.S. at 781-82 (rejecting plan of convention argument;
States by entering into the Constitution did not consent to
suit by Indian tribes). Since Seminole Tribe, the Supreme
Court has not referred to any part of the constitutional
design or structure that would permit a private party to
bring suit against a State under a law enacted by Congress
pursuant to any of its Article I legislative powers. Nor has
Mrs. Nelson presented us with “compelling evidence” that
the States’ were required to surrender such immunity in the
bankruptcy context.
We reject the bankruptcy court’s and Mrs. Nelson’s “plan
of convention” argument because it is clearly untenable
under Seminole Tribe and its progeny. In Seminole Tribe, the
Court noted that “[u]nder the rationale of Union Gas, if the
States’ partial cession of authority over a particular area
[there, interstate commerce] includes cession of the immu-
nity from suit, then their virtually total cession of authority
over a different area [i.e., the Indian Commerce Clause]
must also include cession of the immunity from suit.”
Seminole Tribe, 517 U.S. at 62. In rejecting this rationale, and
thus overruling Union Gas, the Court held, that “[e]ven
when the Constitution vests in Congress complete lawmak-
ing authority over a particular area, the Eleventh Amend-
ment prevents congressional authorization of suits by pri-
vate parties against unconsenting States.” Id. at 72. These
No. 01-1261 21
cases make clear that the States, by ceding certain enumer-
ated legislative powers, did not relinquish their immunity
from suit in those areas. And, as we have previously noted,
there is nothing in these decisions indicating that bank-
ruptcy should be treated differently than any other Article
I power. While the ratification of the Bankruptcy Clause of
Article I by the States illustrates that they clearly surren-
dered their power to enact bankruptcy laws, there is nothing
in the text of that clause or in the structure of the Constitu-
tion indicating that the States consented to being sued in
bankruptcy court. In other words, “the Eleventh Amend-
ment . . . does not free [a State] from federal law, but simply
the jurisdiction of federal courts.” In re NVR, LP, 189 F.3d
16442, 452 (4th Cir. 1999).
2. Uniformity requirement.
Next, Mrs. Nelson argues that the Bankruptcy Clause
should be treated differently from other Article I powers
17
because it contains a uniformity requirement. This is not a
meaningful distinction. See Vanston Bondholders Protective
Comm. v. Green, 329 U.S. 156, 172 (1946) (Frankfurter, J.,
concurring) (“The Constitutional requirement of uniformity
is a requirement of geographic uniformity.”). Likewise,
other circuits presented with this argument have flatly
rejected it. See, e.g., In re Sacred Heart Hosp., 133 F.3d at 243
16
Additionally, if the “plan of the Convention” argument was
tenable, one is left to wonder why Congress attempted to abrogate
the States’ sovereign immunity by enacting Section 106.
17
As noted, Article I, Section 8, Clause 4 of the Constitution, the
Bankruptcy Clause, empowers Congress to “establish . . . uniform
Laws on the subject of Bankruptcies throughout the United States.”
(emphasis added).
22 No. 01-1261
(stating that because “Eleventh Amendment immunity
applies uniformly to all states and to all parties in a bank-
ruptcy proceeding, the uniformity requirement is not frus-
trated); Estate of Fernandez, 123 F.3d at 244 (same). Moreover,
the Supreme Court recently rejected a similar argument
with respect to the necessity of uniformity in the regulation
of maritime commerce. In Federal Maritime Commission, the
Court held that, under Seminole Tribe, “[a]lthough the
Federal Government undoubtedly possesses an important
interest in regulating maritime commerce . . . ‘the back-
ground principle of state sovereign immunity embodied in
the Eleventh Amendment is not so ephemeral as to dissipate
when the subject of the suit is in an area . . . that is under the
exclusive control of the Federal Government.’ ” 122 S.Ct. at
1878 (quoting Seminole Tribe, 517 U.S. at 72).
Accordingly, we conclude that the Bankruptcy Clause of
Article I is not a valid source of authority for Congress to
abrogate a State’s sovereign immunity and that the States
did not surrender their immunity from suit in bankruptcy
under the “plan of the Convention.” Thus, the defendants
are immune under the Eleventh Amendment from Mrs. Nel-
son’s adversary proceeding.
B. Limits on Eleventh Amendment
Having concluded that the defendants are protected by
the Eleventh Amendment, and enjoy sovereign immunity
from Mrs. Nelson’s adversary proceeding in bankruptcy, we
need now consider whether the State defendants waived
their Eleventh Amendment immunity in this case. Seminole
Tribe, 517 U.S. at 72 n. 16 (noting that, notwithstanding
Eleventh Amendment immunity, “several avenues remain
open for ensuring state compliance with federal law”).
No. 01-1261 23
1. Waiver or consent.
A State may waive its sovereign immunity, notwithstand-
ing the fact that the Eleventh Amendment is cast in terms of
jurisdictional bar. See Coeur d’Alene, 521 U.S. at 267. For
example, when a state files a claim in a bankruptcy case
there is a limited waiver of sovereign immunity. See Gardner,
329 U.S. at 574. In Gardner, the Supreme Court held that a
state’s sovereign immunity did not bar a debtor from
asserting defensive objections to a proof of claim filed by the
State in a bankruptcy proceeding because the State had
waived its immunity. Id. In College Savings Bank, the Court
reaffirmed this principle, stating that Gardner, “which held
that a bankruptcy court can entertain a trustee’s objections
to a claim filed by a State, stands for the unremarkable
proposition that a State waives its sovereign immunity
by voluntarily invoking the jurisdiction of the federal
18
courts.” 527 U.S. at 681 n. 3.
Here, however, the State did not file a proof of claim in
Mrs. Nelson’s bankruptcy proceeding. The State—through
its Department of Instruction, not the District Attorney’s
Office—only filed a claim in Discovery’s bankruptcy pro-
19
ceeding. Mrs. Nelson argues, however, that the State
waived its immunity by filing that claim. Both the bank-
ruptcy court and the district court determined that the State
had not waived its sovereign immunity in Mrs. Nelson’s
case by filing a claim in Discovery’s corporate bankruptcy
proceeding because she was not personally responsible for
Discovery’s debts. Mrs. Nelson seeks to blur the lines be-
18
Of course, we once again stress that the ability of a State to waive
its sovereign immunity in the bankruptcy context presupposes that
there is such immunity from suit in the first place.
19
Mrs. Nelson was Discovery’s executive director.
24 No. 01-1261
tween these separate and distinct bankruptcies by arguing
that a State’s waiver in one bankruptcy proceeding is effec-
tive as to all interrelated proceedings. However, the two
cases cited by Mrs. Nelson in support of her argument
involved situations where the State had filed a proof of
claim in the actual bankruptcy case at issue. See In re Rose,
187 F.3d 926, 930 (8th Cir. 1999) (holding that “[d]isputes
arising out of the adjudication of a single debt may be
sufficiently intertwined so that a waiver in one aspect
applies to others as well”; where State had filed proof of
claim in debtor’s bankruptcy proceeding, but raised Elev-
enth Amendment defense in debtor’s adversary proceeding
against State seeking discharge of student loan debt); In re
Straight, 143 F.3d 1387, 1391 (10th Cir. 1998) (proof of claim
filed by one state agency in bankruptcy proceeding served
as waiver for entire state in that proceeding). Thus, neither
case addressed whether a State may waive its immunity in
one bankruptcy case by filing a proof of claim in a separate
one.
We reject Mrs. Nelson’s argument that the State construc-
tively waived its sovereign immunity by filing a claim in a
corporate bankruptcy case factually linked to her bank-
20
ruptcy case. Waiver of sovereign immunity must be
unequivocal. See Atascadero, 473 U.S. at 239-40. Even if the
State’s filing in the Discovery Child Care bankruptcy could
be labeled a constructive waiver, that would not suffice.
20
The bankruptcy court’s discussion of Mrs. Nelson’s waiver argu-
ment is particularly cogent: “[t]he plaintiff in this case and Discovery
Child Care Center, Inc. remain separate legal entities notwithstand-
ing her argument that various personal guarantees render them
essentially indistinguishable. The Court questions whether she
would be so quick to surrender the shield from liability offered by
the corporate form were she to have been sued by a corporate
creditor to whom she owed no personal liability.” In re Nelson, 254
B.R. at 442.
No. 01-1261 25
See College Sav. Bank, 527 U.S. at 675-78 (overturning the
constructive or implied waiver principle set out in Parden
v. Terminal Ry. of the Alabama State Docks Dep’t, 377 U.S. 184(1964)). Additionally, the Supreme Court’s “test for deter-
mining whether a State has waived its immunity from
federal-court jurisdiction is a stringent one,” College Sav.
Bank, 527 U.S. at 675 (citation omitted), and is designed
to safeguard the sovereign dignity of the States. Applying
this stringent test to Nelson’s “interrelated bankruptcy
waiver” argument, we conclude that the State did not un-
equivocally waive its immunity in her bankruptcy proceed-
ing by filing a claim in Discovery’s bankruptcy proceed-
ing. Contrast In re Platter, 140 F.3d 676, 680 (7th Cir.
1998) (concluding that State’s claim of Eleventh Amendment
immunity did not bar action in bankruptcy court to deter-
mine discharge of debt because state had initiated ad-
versarial action against debtor).
2. Ex Parte Young exception to Eleventh Amendment
immunity.
There is another exception to a State’s Eleventh Amend-
ment immunity—the Ex Parte Young doctrine, explained by
the Supreme Court in Alden: “The constitutional privilege of
a State to assert its sovereign immunity . . . does not confer
upon the State a concomitant right to disregard the Consti-
tution or valid federal law.” 527 U.S. at 754-55. The Ex Parte
Young doctrine thus provides that suits against state offi-
cials, seeking prospective equitable relief for ongoing vio-
lations of federal law, are not barred by the Eleventh
Amendment. Id. at 757. See also Ex Parte Young, 209 U.S. 123(1908).
The bankruptcy court held that even if the Eleventh
Amendment were applicable to bankruptcy proceedings,
Mrs. Nelson’s claim for prospective injunctive relief against
26 No. 01-1261
the District Attorney himself would survive a motion to
dismiss under the Ex Parte Young doctrine. In re Nelson, 254
B.R. at 447-48. While the State appealed the bankruptcy
court’s decision to the district court, and in so doing specifi-
cally appealed the bankruptcy court’s reliance on the Ex
Parte Young doctrine, the district court did not discuss the
doctrine and simply held that the bankruptcy court’s deci-
sion was reversed and remanded for dismissal of the entire
adversary proceeding. On appeal, in arguing for reversal,
Mrs. Nelson did not assert in her opening brief any argu-
ment based on the Ex Parte Young doctrine. In its response
brief, the State noted that she had failed to address the
21
issue. Mrs. Nelson then raised it in her reply brief, but
did not develop the argument. It is well settled that issues
raised for the first time in a reply brief are deemed waived.
See James v. Sheahan, 137 F.3d 1003, 1008 (7th Cir. 1998)
(“Arguments raised for the first time in a reply brief are
waived.”). Mrs. Nelson bore the burden of setting forth a
reason to reverse the district court. Because she did not do
so, we express no opinion on the applicability of the Ex Parte
Young doctrine to the case before us.
C. In Rem Jurisdiction
Finally, we reach Mrs. Nelson’s last argument, that sov-
ereign immunity does not apply to protect the State of Wis-
21
The State briefly contended that the Ex Parte Young doctrine does
not apply to the case at bar, relying on two exceptions outlined by
the Supreme Court. First, as in Seminole Tribe, the States argued that
the doctrine does not apply where Congress has already prescribed
a detailed and comprehensive remedial scheme, here the Bankruptcy
Code. See Seminole Tribe, 517 U.S. at 74. Second, the State argued that
the “special state sovereign interest” exception outlined in Coeur
d’Alene applied, specifically referring to its interest in enforcing its
criminal laws. 521 U.S. at 281-88.
No. 01-1261 27
consin from injunctive relief because bankruptcy courts
22
merely exercise in rem jurisdiction over the debtor’s estate.
She claims that bankruptcy courts are empowered to resolve
the status of bankruptcy assets without invading the rights
of the State, and thus without running afoul of the Eleventh
Amendment. As applied to this case, she contends that the
adversary proceeding is, in substance, merely an attempt
to clarify the scope of her discharge order and, as such,
only concerns a res, i.e., her estate. In support of her argu-
ment, Mrs. Nelson relies upon the Supreme Court’s decision
in California v. Deep Sea Research, 523 U.S. 491 (1998), where
the Court held that the Eleventh Amendment did not apply
to bar federal court jurisdiction over an admiralty action
where the State claimed an interest in, but did not actually
possess, the res in dispute (there, an abandoned ship). Mrs.
Nelson claims that Deep Sea is analogous to her adversary
proceeding because, here, the State (by seeking criminal
restitution) is attempting to obtain assets from her as a
debtor which are not in its possession.
Mrs. Nelson’s argument, however, completely overlooks
the fact that she filed an adversary proceeding, and that such
a proceeding is not an in rem action merely involving the
property of the bankruptcy estate, but an in personam action
against the State of Wisconsin itself and its employees
(acting in their official capacities) that seeks to enjoin them
from prosecuting her. The State did not, however, file a
claim in her bankruptcy proceeding, seeking access to her
bankruptcy estate, but instead filed criminal charges against
her based on alleged criminal activity.
Because of Article I’s grant of exclusive power to the fed-
eral government to legislate in the bankruptcy context, and
22
Mrs. Nelson does not argue that this exception applies to her claim
for damages, and therefore we do not address that possibility.
28 No. 01-1261
by virtue of the Supremacy Clause, a State may very well
have its rights affected by a bankruptcy proceeding. As the
Fourth Circuit has aptly explained:
It is true that if a state wishes to challenge a bankruptcy
court order of which it receives notice, it will have to
submit to federal jurisdiction. . . . The state, of course,
may well choose not to appear in federal court. But that
choice carries with it the consequence of foregoing any
challenge to the federal court’s actions. While forcing a
state to make such a choice may not be ideal from the
state’s perspective, it does not amount to the exercise of
federal judicial power to hale a state into federal court
against its will and in violation of the Eleventh Amend-
ment. Instead it is the result of Congress’ constitution-
ally authorized legislative power to make federal courts
the exclusive venue for administering the bankruptcy
law.
Maryland v. Antonelli Creditors’ Liquidating Trust, 123 F.3d
777, 787 (4th Cir. 1997). See also In re Platter, 140 F.3d at 680
(acknowledging that a State may have its rights affected by
a bankruptcy proceeding). However, as we have explained,
unless a State consents to suit, a bankruptcy court may not
exercise jurisdiction over the State without running afoul of
the Eleventh Amendment. Two decisions from the Fourth
Circuit serve to illustrate the distinction. First, in In re
Creative Goldsmiths, supra, the court determined that an
adversary proceeding against the State of Maryland to avoid
a preferential transfer (of income tax payments) violated the
Eleventh Amendment. 119 F.3d at 1147. Applying Seminole
Tribe, the court concluded that Congress had no authority to
abrogate state sovereign immunity by enacting Section
106(a). Id. at 1145-47. Therefore, without Maryland’s con-
sent, the bankruptcy court lacked jurisdiction to hear the
trustee’s action against the State to avoid the transfer. We
No. 01-1261 29
contrast this decision to the Fourth Circuit’s decision in In
re Collins, 173 F.3d 924 (4th Cir. 1999). There, the debtors
petitioned the bankruptcy court to reopen their estate to
determine the dischargeability of a judgment debt owed to
23
the Commonwealth of Virginia. The bankruptcy court held
that the debt was discharged, and the district court affirmed
this decision. On appeal, for the first time, the Common-
wealth asserted its sovereign immunity under the Eleventh
Amendment. In considering this defense, the Fourth Circuit
concluded that the Eleventh Amendment did not preclude
the bankruptcy court from reopening the case to determine
the dischargeability of the debt, even though it was owed to
the Commonwealth. The court noted that bankruptcy courts
exercise jurisdiction over debtors and the bankruptcy estate
when discharging a debt, rather than in personam jurisdic-
tion over the estate’s creditors. Thus, where Virginia was
not named as a defendant, served with process or compelled
to appear, id. at 929, “[n]othing compels the state to submit
to the jurisdiction of the federal bankruptcy court, and the
court’s power to allow or deny a state’s claim derives from
the court’s jurisdiction over the bankruptcy estate. In short,
if a state wishes to share in the estate, it must submit to
federal jurisdiction.” Id. at 930. Essentially, the Collins court
concluded that the motion to reopen the bankruptcy pro-
ceeding did not constitute a “suit against one of the United
24
States” for Eleventh Amendment purposes. Id. at 929. As
the court in Collins explained, the case was distinguishable
from In re Creative Goldsmiths, “where the state was sum-
monsed to appear upon being sued by the trustee in an
adversary proceeding in bankruptcy court.” Id. at 928.
23
The debtor was a bail bondsman, and the Commonwealth sought
to collect on pre-bankruptcy judgments entered against him for
forfeited bail bonds.
24
See supra note 6.
30 No. 01-1261
The same distinction is applicable in this case. Unlike the
State of California in Deep Sea and the Commonwealth of
Virginia in Collins, Mrs. Nelson’s adversary proceeding was
brought against the defendants to prevent them from
prosecuting her, and they are necessary, named, parties in
the action. Accordingly, we conclude that the in rem “excep-
tion” to Eleventh Amendment immunity is not applicable in
25
the present case.
III.
For the foregoing reasons, we conclude that Congress
lacked authority under Article I of the Constitution to abro-
gate state sovereign immunity by enacting Section 106(a) of
the Bankruptcy Code. As such, the State is entitled to Elev-
enth Amendment immunity from Mrs. Nelson’s bankruptcy
adversary proceeding. Furthermore, we reject Mrs. Nelson’s
argument that the States waived their sovereign immunity
in the bankruptcy context by ratifying the Constitution
under the “plan of the Convention.” We also conclude that
the State did not waive its sovereign immunity from suit in
Mrs. Nelson’s personal bankruptcy case by filing a proof of
claim in a separate bankruptcy proceeding for the corpora-
tion that employed her. Finally, we reject Mrs. Nelson’s
argument that the bankruptcy court may exercise in rem
jurisdiction over her adversary proceeding against these de-
25
Because we conclude that the State is protected under the Eleventh
Amendment, we need not reach its alternative arguments that it is
also protected under the Anti-Injunction Act, 28 U.S.C. § 2284, and
the doctrine developed under Younger v. Harris, 401 U.S. 37 (1971).
See generally Craig Peyton Gaumer, Curbing an Expropriation of
Power: The Argument Against Allowing Bankruptcy Courts to
Enjoin State Criminal Proceedings, 16-MAR Am. Bankr. Inst. J. 12
(1997).
No. 01-1261 31
fendants. Because Mrs. Nelson waived her legal arguments
with respect to the Ex Parte Young doctrine, we express no
opinion on its applicability to the case before us. Accord-
ingly, we AFFIRM the judgment of the district court to
dismiss the adversary proceeding.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-97-C-006—8-23-02