Texas v. Soileau (In Re Soileau)

United States Court of Appeals

Fifth Circuit

F I L E D

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT May 22, 2007

_______________________ Charles R. Fulbruge III

Clerk

No. 05-20501

_______________________

IN THE MATTER OF: GERALDINE H. SOILEAU

Debtor.

-------------------------

STATE OF TEXAS,

Appellant,

versus

GERALDINE H. SOILEAU,

Appellee.

On Appeal from the United States District Court

for the Southern District of Texas

Before JONES, Chief Judge, and WIENER and PRADO, Circuit Judges.

Wiener, Circuit Judge:

The State of Texas (“the State”) appeals the decisions of the

bankruptcy and district courts denying the State’s motion to

dismiss the petition of Geraldine Soileau (“Soileau”) for Chapter

7 bankruptcy protection. The State’s challenge is grounded

exclusively in Eleventh Amendment sovereign immunity, and the

bankruptcy court and district court ruled on that ground alone. As

the Supreme Court’s decisions in Central Virginia Community College

v. Katz1 and Tennessee Student Assistance Corp. v. Hood2 establish

that the discharge of a debt like Soileau’s is not barred by such

immunity, the bankruptcy court had jurisdiction. We therefore

affirm the denial of the State’s dismissal motion.

I. Facts and Proceedings

The facts pertinent to this case are undisputed. As a

licensed bail bondsman, Soileau served as surety on bail bonds for

numerous criminal defendants in Texas. Over time, fifty-five of

these defendants absconded while out on bail. The State sued

Soileau as those defendants’ surety and obtained state court money-

judgments against her. In April 2004, Soileau filed a petition

under Chapter 7 of the Bankruptcy Code, in which she sought to

discharge a total of $650,897.71 in such judgments.

Two weeks later, the State moved to dismiss on sovereign

immunity grounds, claiming that its refusal to consent to being

made a party to the bankruptcy proceedings deprived the bankruptcy

court of jurisdiction over it. Shortly thereafter, the bankruptcy

court denied the State’s motion, relying on both Hood and on our

pre-Hood and pre-Katz decision in Hickman v. State of Texas (In re

Hickman).3 The State appealed to the district court, but it

1

546 U.S. 356 (2006).

2

541 U.S. 440 (2004).

3

260 F.3d 400 (5th Cir. 2001). As we shall more fully

demonstrate below, the bankruptcy court’s refusal to deny

discharge of Soileau’s judgment debts owed to the State was

compelled by Hood alone; consideration of our earlier decision in

2

affirmed. The State then timely filed a notice of appeal to this

court.

II. ANALYSIS

A. Standard of Review

In reviewing cases originating in bankruptcy, we “perform the

same function, as did the district court: Fact findings of the

bankruptcy court are reviewed under a clearly erroneous standard

and issues of law are reviewed de novo.”4

B. Eleventh Amendment Sovereign Immunity: Hood and Katz

The only issue presented by this appeal is whether, on grounds

of Eleventh Amendment sovereign immunity, the State may avoid

discharge of Soileau’s forfeiture judgments incurred as surety on

bail bonds issued to the State in conformity with its statutory

scheme.5 Under the Eleventh Amendment, the jurisdiction of the

federal courts “shall not be construed to extend to any suit in law

Hickman was wholly unnecessary. Not only do Katz and Hood leave

no doubt that sovereign immunity does not bar the discharge

involved in this case, Hickman is inapposite, as the State here

acknowledges, because it was neither based nor decided on a claim

of sovereign immunity by Texas. Hickman was argued and decided

exclusively on a statutory interpretation of the Bankruptcy Code.

In contrast, the only legal theory asserted by the State today is

Eleventh Amendment sovereign immunity, albeit the State noted in

passing its continuing disagreement with Hickman.

4

Nationwide Mut. Ins. Co. v. Berryman Prods. (In re

Berryman), 159 F.3d 941, 943 (5th Cir. 1998).

5

As we discuss more fully below, the State did not

argue, either before us or to the lower courts, that Soileau’s

debt should be nondischargeable by virtue of § 523(a)(7) of the

Bankruptcy Code.

3

or equity, commenced or prosecuted against one of the United States

by Citizens of another State, or by Citizens or Subjects of any

Foreign State.”6 As interpreted, however, the Eleventh Amendment

is not limited to its text; the Supreme Court has “repeatedly held

that an unconsenting State also is immune from suits by its own

citizens.”7 Despite this general prohibition of suits against a

non-consenting or non-waiving state, “[s]tates, nonetheless, may

still be bound by some judicial actions without their consent.”8

Hood and Katz, both recent Supreme Court cases addressing sovereign

immunity in the bankruptcy context, provide two such examples; and

their holdings inform our analysis of the State’s claim today.

In Hood, the debtor had signed promissory notes for

educational loans guaranteed by the Tennessee Student Assistance

Corporation (“TSAC”), a governmental corporation created by the

State to administer student loans. Early in 1999, Hood filed a

Chapter 7 bankruptcy petition and was granted a general discharge

that did not cover her student loans. Later that year, Hood

reopened her petition, filing an adversary proceeding against,

inter alia, TSAC, seeking a determination by the bankruptcy court

that her student loans were dischargeable. TSAC sought dismissal

6

U.S. CONST. amend. XI.

7

Hood, 541 U.S. at 446 (collecting cases).

8

Id.

4

on sovereign immunity grounds.9

The bankruptcy court concluded that Hood’s debt to the state

was dischargeable, rejecting TSAC’s contention that the court

lacked jurisdiction because of sovereign immunity. A Bankruptcy

Appellate Panel (“BAP”) affirmed, as did the Sixth Circuit Court of

Appeals thereafter.10 The Supreme Court granted certiorari to

determine whether the Bankruptcy Clause of the Constitution11

“grants Congress the authority to abrogate state sovereign immunity

from private suits.”12

The Hood Court affirmed the BAP and the Court of Appeals, but

did so without reaching the broader question whether 11 U.S.C. §

106(a)13 is a valid abrogation of sovereign immunity. The Court

held more narrowly that “a proceeding initiated by a debtor to

determine the dischargeability of a student loan debt is not a suit

against the State for purposes of the Eleventh Amendment.”14 As the

9

Id. at 443-45.

10

Id. at 445.

11

The Bankruptcy Clause states that Congress shall have

the power “[t]o establish . . . uniform Laws on the subject of

Bankruptcies throughout the United States.” U.S. CONST. art. 1, §

8, cl. 4.

12

Hood, 541 U.S. at 443.

13

Section 106(a) provides, in part, “[n]otwithstanding an

assertion of sovereign immunity, sovereign immunity is abrogated

as to a governmental unity . . . with respect to” delineated

sections of the Bankruptcy Code. 11 U.S.C. § 106(a).

14

Hood, 541 U.S. at 443.

5

Court explained, “[t]he discharge of a debt by a bankruptcy court

is . . . an in rem proceeding,” as the bankruptcy court is

concerned with the estate of the debtor.15 The Court in Hood

concluded that, “[a]t least when the bankruptcy court’s

jurisdiction over the res is unquestioned, our cases indicate that

the exercise of its in rem jurisdiction to discharge a debt does

not infringe state sovereignty.”16

The Supreme Court went on in Hood to reject another of TSAC’s

contentions, i.e., that because the proceedings to challenge the

dischargeability of a student loan debt were inherently

adversarial,17 the discharge of the student loan debt was an

infringement on state sovereignty. In rejecting this argument, the

Court ruled that, despite the adversarial nature of the proceeding,

“the bankruptcy court’s jurisdiction is premised on the res, not

the on the persona . . . . A debtor does not seek monetary damages

or any affirmative relief from a State by seeking to discharge a

debt; nor does he subject an unwilling State to a coercive judicial

15

Id. at 447 (The bankruptcy court’s “jurisdiction is

premised on the debtor and his estate, and not on his

creditors.”).

16

Id. at 448 (citation omitted).

17

Under 11 U.S.C. § 523(a)(8), student loan debts

guaranteed by the government are presumed to be nondischargeable.

To obtain a discharge of these debts, the debtor must therefore

demonstrate that excepting the debt from the discharge order

would impose “undue hardship.” 11 U.S.C. § 523(a)(8).

6

process. He seeks only a discharge of his debts.”18 Accordingly,

the Court held that, for purposes of the Eleventh Amendment, the

undue-hardship determination under § 523(a)(8) of the Bankruptcy

Code is not a suit against the state.19

In Katz, decided two years after Hood and two years after

Soileau filed her Chapter 7 petition, the Court assayed to answer

the question left open in Hood, viz, “whether Congress’ attempt to

abrogate the states sovereign immunity in 11 U.S.C. § 106(a) is

valid.”20 Katz involved a proceeding initiated by a bankruptcy

trustee under Sections 547(b) and 550(a) of the Bankruptcy Code to

set aside the debtor’s pre-petition preferential transfers of funds

to state agencies.21 The State contended that sovereign immunity

18

Hood, 541 U.S. at 450.

19

Id. at 451.

20

Katz, 546 U.S. 356, 126 S. Ct. 990, 995 (2006).

21

Section 547(b) of the Bankruptcy Code states:

Except as provided in subsections (c) and (i) of this

section, the trustee may avoid any transfer of an

interest of the debtor in property--

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by

the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made--

(A) on or within 90 days before the date of the

filing of the petition; or

(B) between ninety days and one year before the

date of the filing of the petition, if such

creditor at the time of such transfer was an

insider; and

(5) that enables such creditor to receive more than

such creditor would receive if--

7

barred the proceedings to avoid and recover the preferential

transfers.22 The Court concluded that the transfer did not offend

state sovereign immunity, holding that, “[i]n ratifying the

Bankruptcy Clause [of the United States Constitution], the States

acquiesced in a subordination of whatever sovereign immunity they

might otherwise have asserted in proceedings necessary to

effectuate the in rem jurisdiction of the bankruptcy courts.”23

Discussing the transfer involved in Katz, the Court held that

“[i]nsofar as orders ancillary to the bankruptcy courts’ in rem

jurisdiction, like orders directing turnover of preferential

(A) the case were a case under chapter 7 of this

title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt

to the extent provided by the provisions of

this title.

11 U.S.C. § 547(b).

Under Section 550(a) of the Bankruptcy Code,

[e]xcept as otherwise provided in this section, to the

extent that a transfer is avoided under[, inter alia,]

section . . . 547 . . . of this title, the trustee may

recover, for the benefit of the estate, the property

transferred, or, if the court so orders, the value of

such property, from--

(1) the initial transferee of such transfer or the

entity for whose benefit such transfer was made;

or

(2) any immediate or mediate transferee of such

initial transferee.

11 U.S.C. § 550(a).

22

Katz, 126 S. Ct. at 994-95.

23

Id. at 1005.

8

transfers, implicate States’ sovereign immunity from suit, the

States agreed in the plan of the Convention not to assert that

immunity.”24

C. Application of Hood and Katz

Applying Hood and Katz to the instant case, we conclude that

the State here has no claim to sovereign immunity. Whatever

uncertainty there may be as to the outer limits of the holdings of

Katz and Hood, at the very least they together establish beyond

cavil that an in rem bankruptcy proceeding brought merely to obtain

the discharge a debt or debts by determining the rights of various

creditors in a debtor’s estate —— such as is brought here —— in no

way infringes the sovereignty of a state as a creditor.25

There can be no serious question that the proceeding at issue

here is purely in rem: The bankruptcy court’s exercise of

jurisdiction is focused only on Soileau’s estate. Katz describes

three crucial facets of the exercise of in rem jurisdiction that

prevent it from interfering with state sovereign immunity: (1)

exercise of jurisdiction over the estate of the debtor, (2)

equitable distribution of the estate’s property among creditors,

24

Id. at 1002.

25

Katz, 126 S. Ct. at 1000 (“In ratifying the Bankruptcy

Clause, the States acquiesced in a subordination of whatever

sovereign immunity they might otherwise have asserted in

proceedings necessary to effectuate the in rem jurisdiction of

the bankruptcy courts.”); Hood, 541 U.S. at 448 (“At least when

the bankruptcy court’s jurisdiction over the res is unquestioned,

our cases indicate that the exercise of its in rem jurisdiction

to discharge a debt does not infringe state sovereignty.”).

9

and (3) discharge.26 In this case, the State challenges the in rem

discharge of a debt, a specie of imposition on the states’

sovereignty undeniably countenanced by Katz and Hood.

To the extent that Hood implies in a footnote that there could

possibly be some exercise of in rem jurisdiction that conceivably

might offend the sovereignty of the state,27 “such concerns are not

present here.”28 Indeed, Soileau’s is even a stronger case for

rejection of the State’s sovereign immunity defense than was Hood’s

or Katz’s. Hood, after all, addressed an adversarial proceeding

involving a state, and Katz addressed an order for the avoidance of

preferential transfers to a state to allow the trustee to recoup

those transfers from the state’s treasury —— each proceeding

26

Id. at 996 (“Critical features of every bankruptcy

proceeding are the exercise of exclusive jurisdiction over all of

the debtor’s property, the equitable distribution of that

property among the debtor’s creditors, and the ultimate discharge

that gives the debtor a ‘fresh start’ by releasing him, her, or

it from further liability for old debts.”).

27

Hood’s footnote 5 states:

This is not to say, “a bankruptcy court’s in rem

jurisdiction overrides sovereign immunity,” as Justice

Thomas characterizes our opinion, but rather that the

court’s exercise of its jurisdiction to discharge a

student loan debt is not an affront to the sovereignty

of the State. Nor do we hold that every exercise of a

bankruptcy court’s in rem jurisdiction will not offend

the sovereignty of the State. No such concerns are

present here, and we do not address them.

Hood, 541 U.S. at 451 n.5 (quoting United States v. Nordic

Village, Inc., 503 U.S. 30, 38 (1992)).

28

Id.

10

carrying with it some of the trappings traditionally associated

with a suit against a state. Soileau’s, in contrast, carries none:

She is neither seeking the return of any funds already in the

State’s possession nor bringing an adversarial proceeding against

the State. She asks nothing more than that the bankruptcy court

exercise its in rem jurisdiction over her bankruptcy estate by

adjudicating the rights of the State as a creditor. As such an

exercise of in rem jurisdiction is indisputably contemplated by

Katz,29 the State’s sovereign immunity claim must fail.

D. Hood’s Footnote Five and Hickman

That should be the end of this appeal, disposing of the case

as it does on the sole issue raised by the State, viz., sovereign

immunity. But our co-panelist (“the Concurrer”) has opted to make

a collateral attack on our six-year old precedent in Hickman v.

Texas’s30 construction of § 523(a)(7) of the Bankruptcy Code. In

the special concurrence, the concurrer writes that, although “Hood

and Katz may dispose of any Eleventh Amendment sovereign immunity

claim that Texas could31 raise here, . . . those cases do not

29

Katz, 126 S. Ct. at 1004 (“The ineluctable conclusion,

then, is that States agreed in the plan of the Convention not to

assert any sovereign immunity defense they might have had in

proceedings brought pursuant to ‘Laws on the subject of

Bankruptcies.’”) (emphasis added).

30

260 F.3d 400, 406 (5th Cir. 2001).

31

The Concurrer’s use of “could” here is misleading, as

it suggests that it is merely theoretical that the State might

raise this claim when the State has raised a sovereign immunity

claim. In contrast, it has not challenged the dischargeability

11

resolve whether the Bankruptcy Code in fact authorizes the

discharge of Soileau’s defaulted bail bonds.” The Concurrer urges

that, because our prior precedent in Hickman requires us to find

that Soileau’s judgment debt was contractual in nature, we are

“bound to apply Hickman and reject the State’s nondischargeability

claim.” The gravamen of the Concurrer’s writing is that Hickman

was wrongly decided, so we should now rehear Soileau’s case en banc

to abrogate the 2001 rule in Hickman. We respectfully disagree

with that proposal. Here’s why.

In Hickman, as here, a bail bondsman filed for bankruptcy,

seeking to discharge all debt from her bail bond business. The

State filed a complaint to determine whether her debts to it were

dischargeable. Significantly, Texas did not claim Eleventh

Amendment sovereign immunity in Hickman as it does here against

Soileau, arguing in Hickman only that, because the debt was a

forfeiture, it was nondischargeable under the Bankruptcy Code,

specifically 11 U.S.C. § 523(a)(7). This provision of the

Bankruptcy Code specifies, in relevant part, that the debt of an

individual debtor is nondischargeable to “the extent such debt is

for a fine, penalty, or forfeiture payable to and for the benefit

of a governmental unit.” The Hickman bankruptcy court agreed with

the State, but the district court reversed, holding that bail bond

forfeitures were not the type of penal forfeiture contemplated by

of the debt under § 523(a)(7), implicitly acknowledging that our

precedent in Hickman forecloses such a claim.

12

§ 523(a)(7).32 Neither opinion turned on sovereign immunity or on

§ 106(a) of the Bankruptcy Code. Neither, as we shall show, did

the Hickman opinion turn on the contractual nature of the debtor’s

bail bond obligation to the State, as the Concurrer represents it.

On appeal, we held that:

[Bankruptcy Code section] 523(a)(7) excludes from

discharge only those forfeitures imposed because of

misconduct or wrongdoing by the debtor. Hickman’s debt

arising from her failure to fulfill her contractual

obligation to the State as a surety on a criminal bail

bond is not the sort of punitive or penal forfeiture

rendered nondischargeable by § 523(a)(7).33

In so holding, we expressly rejected the argument advanced by Texas

that finding bail bond forfeiture debts dischargeable would

undermine the effective administration of its criminal justice

system.34

With due respect to the position advocated in the special

concurrence, this case is not the appropriate vehicle for a

reexamination of Hickman’s holding, as the State has not advanced

what the Concurrer refers to as a “nondischargeability claim.”

Rather, the only legal theory asserted by the State both today and

before the lower courts is Eleventh Amendment sovereign immunity.

In its brief to us, for example, the State clarified that its

“[m]otion in the present case claims sovereign immunity. The State

32

In re Hickman, 260 F.3d at 401.

33

Id.

34

Id. at 406.

13

does not even raise an issue concerning the dischargeability of

Soileau’s criminal bail bond forfeiture judgments.”35 Likewise, at

oral argument, the State observed that “this case is not concerned

directly with the issue of whether the Fifth Circuit’s decision

[regarding the dischargeability of bail bond judgments in Hickman]

is accurate.”

Although both the State and the lower courts did address

Hickman, they did so only in the context of determining whether,

under Hood’s footnote five, discharge in the instant case would

offend the State’s sovereign immunity, not whether the debt was

dischargeable vel non. Indeed, the State criticized the lower

courts in its brief to us, asserting that they had “fail[ed] to

distinguish and apply the State’s claim of sovereign immunity from

the question of dischargeability of debt with both courts relying

on the In re Hickman case, which . . . did not even involve a

sovereign immunity issue.”36 The special concurrence similarly

conflates the State’s sovereign immunity argument with this so-

called “nondischargeability claim” —— a claim not advanced to us or

35

(Emphasis added).

36

In its reply, the State does suggest that “the Fifth

Circuit, in light of [the Third Circuit’s holding in Dobrek v.

Phelan, 419 F.3d 259 (3d Cir. 2005)], may wish to reconsider its

position in Hickman . . . on the dischargeability of criminal

bond forfeiture judgments.” Nevertheless, Texas does not

expressly challenge the dischargeability of Soileau’s debts under

§ 523(a)(7) in the face of our binding precedent in Hickman;

rather, it concludes by requesting that “the decisions of the

bankruptcy court and the district court be reversed allowing the

State to claim sovereign immunity in the bankruptcy court.”

14

to the lower courts. As the issue of dischargeability was never

raised,37 we limit our holding to the issue before us —— whether

discharge of Soileau’s debt impermissibly infringes on the State’s

sovereign immunity.

Even assuming arguendo, however, that there is in fact a

“statutory question raised here,” as the Concurrer suggests,

Hickman’s holding that § 523(a)(7) only excludes from discharge

those debts incurred by wrongdoing or misconduct —— and that

judgments against the sureties on bail bonds (as distinguished from

“forfeitures” by the defaulting principals), such as the one at

issue here are dischargeable —— should not be revisited. Although

no effort to rehear Hickman was mounted before its mandate issued

in 2001, the Concurrer now seeks to use the instant appeal to

challenge Hickman en banc by contending “[t]hat Soileau owes a

forfeiture debt to a governmental entity should be dispositive”

that the debt is nondischargeable. Contrary to the Concurrer’s

position, however, Hickman’s interpretation of § 523(a)(7) is

consistent with the established definitions of that section’s

exclusive trio of fines, penalties, and forfeitures.

From the standpoint of statutory construction, “forfeiture” in

§ 523(a)(7) must be understood in light of its relationship to the

other nouns in that section’s exclusive list, i.e., “fine” and

37

See Robinson v. Guarantee Trust Life Ins. Co., 389 F.3d

475, 481 n. 3 (5th Cir. 2004) (“Failure adequately to brief an

issue on appeal constitutes waiver of that argument.”).

15

“penalty.” According to Black’s Law Dictionary, a forfeiture is:

(1) “[t]he divestiture of property without compensation,” (2)

“[t]he loss of a right, privilege, or property because of a crime,

breach of obligation, or neglect of duty,” (3) “[s]omething (esp.

money or property) lost or confiscated by this process; a penalty”,

(4) “A destruction or deprivation of some estate or right because

of the failure to perform some obligation or condition contained in

the contract.”38 The American Heritage Dictionary defines a

forfeiture as “the act of surrendering something as a forfeit,”39

then defines forfeit as “something surrendered as punishment for a

crime, offense, error, or breach of contract.”40 Although these

definitions alone might leave open the possibility that the type of

judgment debt at issue here should be considered a forfeiture for

purposes of § 523(a)(7), Congress’s synonymizing use of

“forfeiture” with “penalty” and “fine” supports Hickman’s more

narrow interpretation of this section as applicable only to takings

grounded in wrongful acts and effectuating a punishment therefor.41

In Hickman, we explained:

A penalty is “[a]n elastic term with many different

38

Black’s Law Dictionary 677 (8th ed. 2004).

39

American Heritage Dictionary 515 (ed. William Morris,

1976).

40

Id.

41

As we recognized in Hickman, “a word is known by the

company it keeps.” In re Hickman, 260 F.3d at 403 (quoting

Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 575 (1995)).

16

shades of meaning; it involves [the] idea of punishment,

corporeal or pecuniary, or civil or criminal, although

its meaning is generally confined to pecuniary

punishment.” Black's Law Dictionary 1133 (6th ed. 1990).

Central to the definition of penalty is the “idea of

punishment”-“[p]unishment imposed on a wrongdoer, esp. in

the form of imprisonment or fine. Though usu. for

crimes, penalties are also sometimes imposed for civil

wrongs.” Black's Law Dictionary 1153 (7th ed. 1999).

The term penalty, however, may also include “[t]he sum of

money which the obligor of a bond undertakes to pay in

the event of his omitting to perform or carry out the

terms imposed upon him by the conditions of the bond,”

Black's Law Dictionary 1133 (6th ed. 1990), or

“[e]xcessive liquidated damages that a contract purports

to impose on a party that breaches.” Black's Law

Dictionary 1153 (7th ed. 1999). Although focusing on

punishment for criminal and civil wrongs, the definition

of penalty, like forfeiture, could be read expansively to

include the [bail bondsman’s] debt. A fine, on the other

hand, relates solely to “[a] pecuniary punishment or

civil penalty payable to the treasury.” Black's Law

42

Dictionary 647 (7th ed. 1999).

The Hickman court summarized, “[t]he definitions of penalty and

fine reflect the traditional understanding of the these terms as

punitive or penal sanctions imposed for some form of wrongdoing.

Their inclusion in § 523(a)(7) implies that Congress intended to

limit the section's application to forfeitures imposed upon a

wrongdoing debtor.”43

Mindful of “the principle that exceptions to discharge are to

be narrowly construed,”44 we agree with Hickman’s interpretation of

42

Id. at 403-04.

43

Id. at 404.

44

Id. at 404 (quoting In re Tran, 151 F.3d 339, 342 (5th

Cir. 1998)); see also In re Walker, 48 F.3d 1161, 1164-65 (11th

Cir. 1995) (noting “obligation to construe strictly exceptions to

discharge to give effect to the fresh start policy of the

17

§ 523(a)(7) as excepting from discharge only those debts incurred

as a result of misconduct or wrongdoing. Indeed, this holding is

consistent with the purpose of the Bankruptcy Code and,

specifically, with § 523(a).45 We cannot overemphasize here the

importance of the distinction between the absconding criminal

defendants as principals and the bail bondsmen as sureties: The

former would properly be denied discharge on their own cash or

property bonds as “forfeitures” in the § 523(a)(7) sense, but the

latter are not forfeiting wrongdoers; they are ordinary judgment

debtors who are not guilty of any wrongful conduct that should

prohibit discharge in bankruptcy.

The Concurrer maintains that “Hickman’s conclusion that

‘[b]ail bond judgments are not penal sanctions . . . but rather

arise from a contractual duty,’ is . . . at odds with over a

century of Texas precedent” characterizing bail bond judgments as

criminal in nature. Whatever the merits of this argument, it fails

Bankruptcy Code”).

45

Lines v. Frederick, 400 U.S. 18, 19 (1970) (per curiam)

(“The most important consideration limiting the breadth of the

definition of ‘property’ lies in the basic purpose of the

Bankruptcy Act to give the debtor a ‘new opportunity in life and

a clear field for future effort, unhampered by the pressure and

discouragement of pre-existing debt. The various provisions of

the Bankruptcy Act were adopted in the light of that view and are

to be construed when reasonably possible in harmony with it so as

to effectuate the general purpose and policy of the act.’”)

(quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244-45 (1934)

(citations omitted)); In re Cross, 666 F.2d 873, 880 (5th Cir.

1982) (“The exceptions to discharge found in [§ 523(a) ] were

designed to prevent the bankrupt from avoiding through bankruptcy

the consequences of certain wrongful acts ...”).

18

to render the debts at issue nondischargeable, as determination of

the dischargeability of judgment debts like Soileau’s does not turn

on whether that debt was contractual, statutory, or criminal in

nature. Rather, it turns on whether the debt was incurred as a

result of the bail bondsman’s wrongful acts. A bail bondsman’s

judgment debt to the state, arising as it does solely from a

criminal defendant’s wrongful act of absconding, is not the result

of any act of misconduct or wrongdoing by the bail bondsman. As

the Fourth Circuit observed in In re Collins,

‘[i]t cannot be said that [the bail bondsman] was being

punished by virtue of incurring these [bail bond]

obligations. [He] committed no criminal or penal act

which gave rise to such debts. These bail bond

forfeiture obligations, as to [him], arose from a purely

financial and contractual arrangement.’46

This is so whether the proceedings to recover the judgment debt are

labeled criminal or contractual. Thus, Soileau’s judgment debts

are properly dischargeable —— even though, we repeat, that question

is not presented here.

Allowing Soileau’s debts to the State to be discharged,

insists the Concurrer, would impermissibly “invalidate the results

of state criminal proceedings,” as the Supreme Court has instructed

the federal courts may not do.47 We do not question the degree of

importance of the bail bond surety in the broad scheme of Texas’s

46

In re Collins, 173 F.3d 924, 932 (4th Cir. 1999)

(quoting In re Paige, No. 86 B 8072 C, 1988 WL 62500, *4 (Bankr.

D. Colo. Apr. 15, 1988)).

47

Kelly v. Robinson, 479 U.S. 36, 47 (1986).

19

criminal justice system. We disagree, however, that the discharge

of the bail bondsman’s debt “invalidate[s] the results of state

criminal proceedings.” Bail bonds in state criminal proceedings,

after all, are designed primarily to make criminal defendants

either (1) appear or (2) pay a forfeiture —— only secondarily to

make bail bondsmen pay. The State’s (and the Concurrer’s) parade

of horribles that today’s holding will produce in relation to the

administration of its criminal justice system is at best entirely

speculative hyperbole; in fact, it is belied by the apparent

continued functioning of the Texas criminal justice system in the

years since Hickman.

This simply is not a situation, as likewise hyperbolized by

the Concurrer in today’s special concurrence, wherein the

bankruptcy court is accused of using “its in rem jurisdiction to

ride roughshod over this traditional bastion of state sovereignty.”

Rather, to a much lesser degree than in either Katz or Hood, the

bankruptcy court here is discharging a debt by determining the

rights of the State as a creditor, a quintessential exercise of its

in rem jurisdiction that indisputably is permitted under Hood and

Katz. It matters not under those Supreme Court cases whether the

State’s judgments against Soileau arose from contracts or

forfeitures or torts or strict liability.

III. Conclusion

The State has sought to avoid discharge of judgments that were

20

rendered in state court against Soileau as the statutory surety on

bail bonds that she wrote under Texas’s scheme for the release of

criminal defendants pending future appearances. Having earlier

failed, in Hickman, to avoid this precise kind of discharge on non-

constitutional grounds of statutory interpretation of the

Bankruptcy Code, Texas has here taken a second bite at that apple

but on an entirely different tack, basing its affirmative efforts

to avoid discharge solely on the constitutional ground of Eleventh

Amendment sovereign immunity. Yet the Supreme Court, in Hood and

Katz, has left no doubt that the several states remain immutably

bound by their long-standing waivers of sovereign immunity under

the Bankruptcy Clause of the United States Constitution, at least

as to non-adversary in rem discharge proceedings in bankruptcy,

like this one. Accordingly, the judgment of the bankruptcy court,

and the district court’s affirmance of it, are

AFFIRMED.

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EDITH H. JONES, Chief Judge, specially concurring:

I concur in the judgment only. With due respect to the

majority, Hood and Katz may dispose of any Eleventh Amendment

sovereign immunity claim that Texas could raise here,1 but those

cases do not resolve whether the Bankruptcy Code in fact authorizes

the discharge of Soileau’s defaulted bail bonds. Currently, this

court’s precedent equates default on bail bonds with any other

contractual obligation and holds such debts dischargeable. Hickman

v. Texas (In re Hickman), 260 F.3d 400, 406 (5th Cir. 2001). The

State has consistently argued, however, and I agree that Hickman

was wrongly decided. While this panel is bound to apply Hickman

and reject the State’s nondischargeability claim, I urge the court

1

The majority’s conclusion is probably correct;

nevertheless, the scope of Tennessee Student Assistance Corp. v.

Hood, 541 U.S. 440, 124 S. Ct. 1905 (2004), is not unlimited.

The Supreme Court specifically noted that it was not holding that

every “exercise of a bankruptcy court’s in rem jurisdiction will

not offend the sovereignty of the State.” Id. at 451 n.5, 124 S.

Ct. at 1913. Although the Court’s broader decision in Central

Virginia Community College v. Katz, 546 U.S. 356, 126 S. Ct. 990

(2006), made clear that even actions ancillary to a bankruptcy

court’s exercise of its in rem jurisdiction will not “in the

usual case” offend state sovereignty, the Court did not permit

bankruptcy courts always to exercise their jurisdiction without

regard to state sovereignty. Id. at __, 126 S. Ct. at 1000.

Contractual debts owed to the State are now fair game for

bankruptcy resolution, but Katz and Hood recognize that there are

still areas of traditional state sovereignty into which the

bankruptcy courts cannot tread. See also, State of Texas v.

Walker, 142 F.3d 813 (5th Cir. 1998). Thus, it could be argued

that the mere fact that this case concerns an in rem proceeding

in bankruptcy does not end this court’s analysis if the

bankruptcy court’s exercise of in rem jurisdiction offends

traditional state sovereignty over its criminal justice system.

22

to rehear this case en banc and overturn Hickman.

Standing alone, the Bankruptcy Code appears to render

Soileau’s debt for bond forfeitures nondischargeable.

Section 523(a)(7) of the Code states that a debt is

nondischargeable “to the extent such debt is for a fine, penalty,

or forfeiture payable to and for the benefit of a governmental

unit, and is not compensation for actual pecuniary loss, other than

a tax penalty.” 11 U.S.C. § 523(a)(7) (emphasis added). The panel

in Hickman interpreted this language to mean that only “punitive or

penal forfeiture[s]” were nondischargeable, and that bail bond

forfeitures, which it erroneously interpreted as contractual in

nature, were not covered by § 523(a)(7). Id. at 406.

A better approach to § 523(a)(7) was taken by a Third

Circuit panel (including now-Justice Alito) that held commercial

bail bond forfeitures nondischargeable within the plain meaning of

§ 523(a)(7). Dobrek v. Phelan, 419 F.3d 259 (3d Cir. 2005). As

Dobrek correctly points out, regardless whether bail bonds are

contractual in nature, there is no basis for Hickman’s holding that

§ 523(a)(7) “is restricted in scope to exempt from dischargeability

only obligations of a [purely] penal nature,” as “forfeitures” are

included in § 523(a)(7) without respect to their nature. Dobrek,

419 F.3d at 267 (quoting City of Philadelphia v. Nam (In re Nam),

273 F.3d 281, 287 (3d. Cir. 2001)). That Soileau owes a forfeiture

debt to a governmental entity should be dispositive here.

Moreover, state criminal proceedings are not the “usual

23

case” in bankruptcy, and the Supreme Court has refused to allow

bankruptcy jurisdiction to interfere with this traditional realm of

state authority. In Kelly v. Robinson, 479 U.S. 36, 107 S. Ct. 353

(1986), the Supreme Court noted its “deep conviction that federal

bankruptcy courts should not invalidate the results of state

criminal proceedings. The right to formulate and enforce penal

sanctions is an important aspect of the sovereignty retained by the

States.” Id. at 47, 107 S. Ct. at 360. Neither Hood nor Katz

conflicts with Kelly, whose authoritativeness we inferior courts

must recognize. Thus, the question whether bail bond forfeitures

in Texas are criminal matters is critical to determining the scope

of § 523 (a)(7). In this regard, Hickman seriously misinterpreted

Texas law when it held that bail bonds are essentially contractual,

not penal, obligations.

As early as 1854, in Gay v. State, 20 Tex. 504 (Tex.

1854), the Texas Supreme Court classified bail bond forfeitures as

criminal matters. Again, in Jeter v. State, 86 Tex. 555 (Tex.

1894), the Texas court concluded that a proceeding for the

forfeiture of bail bonds is “a criminal case within the

Constitution and laws of the State.” 86 Tex. at 557 (citing Gay).

As seminal criminal law precedents, Gay and Jeter have been

repeatedly reaffirmed in recent years. See, e.g., Ex Parte Burr,

185 S.W.3d 451, 452-53 (Tex. Crim. App. 2006); Bailout Bonding Co.

v. State, 797 S.W.2d 275, 277 (Tex. App. 1990); State v. Sellers,

790 S.W.2d 316, 321 (Tex. Crim. App. 1990); State ex rel. Vance v.

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Routt, 571 S.W.2d 903, 906 (Tex. Crim. App. 1978)(“[There is] no

doubt that a bond forfeiture proceeding is ‘criminal in nature.’”).

Hickman’s conclusion that “[b]ail bond judgments are not

penal sanctions . . . but rather arise from a contractual duty,” is

thus at odds with over a century of Texas precedent. Hickman,

260 F.3d at 406. The panel in Hickman relied almost exclusively

upon Reyes v. State, 31 S.W.3d 343 (Tex. App. 2000), a state

appeals court decision which held that “[b]ail bonds are contracts

between the surety and the State.” Id. at 345. Based on Reyes,

Hickman reasoned that the State’s classification of bail bonds as

forfeitures (i.e., criminal in nature) was a mere “label,” masking

their contractual nature. Hickman, 260 F.3d at 405. Such reliance

on Reyes was in error. First, the conclusion in Reyes that bail

bonds are contractual in nature must be put in context. Reyes

concerned a bondsman whose client had absconded; the bondsman

wished to be released from liability to the State. The Reyes court

held only that the Texas Code of Criminal Procedure would not allow

the bondsman to be released from his obligation to the State absent

a showing that the bonded defendant failed to appear in court due

to “an uncontrollable circumstance that arose from no fault on his

[the defendant’s] part”; it did not purport to overrule nearly one

hundred fifty years of state precedent. Reyes, 31 S.W.3d at

346-47. Further, if Reyes did in fact re-examine the nature of

bail bonds in Texas, it did so without a single mention of Gay,

Jeter, or their progeny.

25

Bailout Bonding, another Texas Court of Appeals case,

provides a more complete assessment of the State’s practices.

There, the court noted that although “the surety’s liability on the

appearance bond would appear to be contractual,” in actuality, the

“judgment on a bond is not in the nature of a violation of

contract.” Bailout Bonding, 797 S.W.2d at 277. Bailout Bonding

relied upon General Bonding & Casualty Insurance Co. v. State,

165 S.W. 615 (Tex. Crim. App. 1913), which held that though “the

action [on the forfeiture of an appearance bond] is not directly to

punish the offender . . . it partakes of punishment for an offense

against the state, and is not in the nature of a violation of a

contract.” Id. at 617. In Texas, notwithstanding that the Texas

Code of Criminal Procedure Article 22.10 applies certain civil

court rules to bail bond proceedings, forfeiture judgments have

always been regarded as “penal judgment[s], that is, a judgment in

the nature of a fine.” Bailout Bonding, 797 S.W.2d at 277; see

also Magless v. State, 18 S.W.2d 669, 670 (Tex. Crim. App.

1929)(“It is plain, we think, that the sum recoverable for non-

compliance with the conditions of a bail bond is a penalty.”). In

sum, even if the initial relationship between a surety and the

State has elements of contract according to Reyes, a forfeiture

judgment does not, and is instead a criminal matter.

Finally, assuming arguendo that bail bonds are contracts,

even the Hickman panel conceded that a “bail bond contract is sui

generis,” and “is certainly distinguishable from the typical

26

contract.” Hickman, 260 F.3d at 406. Hickman correctly noted that

a bail bond is an “integral and essential tool in the

administration of the State’s criminal justice system.” Id.

Regardless whether the forfeiture judgment is against a criminal

defendant or his sureties, “[a criminal] case is too closely

connected with the judgment on the bail bond to be separable from

it.” Jeter, 86 Tex. at 558. A bail bond proceeding concerns “an

instrument to coerce the accused to take his trial; a power

incident to every criminal court”, and not a mere civil contract.

Id.

The fear expressed in Kelly, that the bankruptcy courts

would “invalidate the results of state criminal proceedings by

erasing debts” is made reality if Soileau is granted a discharge

from her debts to the State. Dobrek, 419 F.3d at 265. If bail

bondsmen can obtain discharge in bankruptcy of forfeited bond

debts, they plainly have less incentive to supervise and assure the

appearance of their clients at trial.

Hood and Katz stand for the proposition that a state may

be treated as an ordinary creditor in bankruptcy as to its “usual”

contractual debts, but they do not answer the statutory question

raised here. Informed by Kelly, I would hold that a bankruptcy

court may not utilize its in rem jurisdiction to ride roughshod

over this traditional bastion of state sovereignty, and I hope that

our court will take this case en banc to reconsider Hickman and

preserve the integrity and self-sufficiency of the State’s criminal

27

procedures.

28