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. 565

No. 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

16

442, 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