Central Virginia Community College v. Katz

Supreme Court of the United States · 2006 · Federal Courts

Federal CourtsBankruptcyState Sovereign ImmunityBankruptcy Clausestate sovereign immunityEleventh Amendmentplan of the Conventionin rem jurisdiction

Facts

Petitioners are Virginia institutions of higher education treated as arms of the State and thus entitled to sovereign immunity. Wallace's Bookstores, Inc. filed for chapter 11 relief in the Eastern District of Kentucky, and respondent Bernard Katz was appointed liquidating supervisor of the estate. Katz sued petitioners in Bankruptcy Court under §§ 547(b) and 550(a) to avoid and recover allegedly preferential transfers made while the debtor was insolvent. Petitioners moved to dismiss on sovereign immunity grounds, but the lower courts rejected that defense.

Issue

Whether a bankruptcy trustee's proceeding against state agencies to avoid and recover preferential transfers is barred by state sovereign immunity. More specifically, whether the Bankruptcy Court's jurisdiction over such proceedings depends on a valid statutory abrogation, or instead rests on the States' surrender of immunity in the constitutional plan embodied in the Bankruptcy Clause.

Rule

The Bankruptcy Clause reflects the States' agreement in the plan of the Convention not to assert sovereign immunity in proceedings brought pursuant to laws on the subject of bankruptcies when those proceedings are necessary to effectuate the bankruptcy courts' in rem jurisdiction. Accordingly, Congress may subject States to preference avoidance and recovery proceedings as part of its power to enact uniform bankruptcy laws, without relying on a separate statutory abrogation of immunity.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Maple Street Office Supply, a retailer based in Louisville, filed for Chapter 7 bankruptcy in federal court. The trustee sued Blue Ridge Technical Institute, a Virginia state school, to avoid and recover a payment made 45 days before filing on an old invoice; the school moves to dismiss on sovereign immunity grounds.

How should the bankruptcy court rule on the immunity defense?

Explanation. The majority held that States surrendered sovereign immunity in proceedings brought pursuant to bankruptcy laws when those proceedings are necessary to effectuate the bankruptcy court's in rem jurisdiction. Preference avoidance and recovery are core tools for administering the estate, so sovereign immunity does not bar the trustee's suit. The Court did not rest this conclusion on post-petition consent or on a categorical statutory abrogation analysis.