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NO STATE SOVEREIGN IMMUNITY IN ADVERSARY PROCEEDING TO DETERMINE DISCHARGEABILITY

The Supreme Court has affirmed the Sixth Circuit (and the Bankruptcy Court) in Tennessee Student Assistance Corporation v. Hood.

The issue was whether a Bankruptcy Court could overrule a state”s objection to jurisdiction based on sovereign immunity in an adversary complaint seeking discharge of a student loan. The Appellant had asserted that the Eleventh Amendment”s protection of state sovereign immunity prohibited the complaint without the assent of the state. The Supreme Court, by a 7 — 2 majority, said that the Bankruptcy Court had in rem jurisdiction to hear the adversary proceeding.

Chief Justice Rehnquist, writing for the majority, stated the Eleventh Amendment does not bar federal jurisdiction over in rem admiralty actions when the State is not in possession of the property, citing California v. Deep SeaResearch, Inc., 523 U. S. 491 (1998). He also ruled that that “[t]he discharge of a debt by a bankruptcy court is similarly an in rem proceeding. Accordingly, the “[b]ankruptcy courts have exclusive jurisdiction over a debtor”s property, wherever located, and over the estate.” Further, the requirement that the debtor take action to initiate a hardship discharge was not, as the state asserted, a congressional authorization of a suit against a state, but effecting the discharge”s in rem jurisdiction. Chief Justice Rehnquist also found the statute did not prohibit a debtor from pursuing discharge relief by the filing of a motion (although the rules require it) which would also eliminate constitutional issues.

The debtor was represented by Leonard Gerson, with 14-attorney Angel & Frankel in New York.
TENNESSEE STUDENT ASSISTANCE CORPORATION v. HOOD (S.Ct. 2004).

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