In Re Pamela L. Hood, Debtor. Pamela L. Hood v. Tennessee Student Assistance Corporation

KENNEDY, Circuit Judge,

concurring.

Because I conclude that TSAC has waived its sovereign immunity by filing a claim, I concur with the majority of the panel that the bankruptcy court has jurisdiction to hear this adversary proceeding. I cannot join the panel’s opinion and I thus concur in the judgment only.

It is well-established that when a state files a proof of claim in a bankruptcy adjudication, “it waives any immunity it otherwise might have had respecting the adjudication of the claim.” Gardner v. New Jersey, 329 U.S. 565 , 67 S.Ct. 467 , 91 L.Ed. 504 (1947).

On November 15, 1999, an authorized agent of Sallie Mae Servicing Corporation, the original holder of Hood’s student loan debt, signed an assignment of proof of claim form transferring the debt to TSAC. The actual proof of claim was filed by Sallie Mae in the bankruptcy court on November 29, 1999. The assignment of that proof of claim form was filed one month later, on December 20, 1999. The assignment was effectuated with notice to TSAC and without objection from any party. Although there is no claims docket or claims register in the record, that is only because it is standard practice in that district not to have a claims docket or claims register in a no-asset Chapter 7 bankruptcy and it does not change the fact that a proof of claim was filed.

TSAC’s first argument it that it was Sallie Mae — not the state — who filed the proof of claim, and Sallie Mae does not have the authority to waive Tennessee’s sovereign immunity. Although Sallie Mae filed the proof of claim, it was a proof of claim on a debt owned by TSAC. TSAC had voluntarily undertaken to guarantee Hood’s student loans, and accepted assignment of the debt from Sallie Mae. The assignment was made before the filing of the claim. Under these circumstances, I think it is clear that TSAC voluntarily invoked the federal bankruptcy court’s jurisdiction and waived its sovereign immunity.

TSAC’s second argument (in the alternative) is that filing a proof of claim only constitutes waiver of its immunity from jurisdiction over the normal bankruptcy adjudication, but not for an “undue hardship” proceeding under 11 U.S.C. § 523 (a)(8). Although the Supreme Court’s decision in Gardner v. New Jersey clearly holds that filing a proof of claim waives a state creditor’s sovereign immunity with respect to normal discharge proceedings, TSAC argues that the adversarial proceeding required by federal bankruptcy regulations is separate and distinct from the normal bankruptcy discharge proceeding.

*769 I disagree. The determination of “undue hardship” is inextricably interrelated with the normal discharge proceeding such that the waiver of sovereign immunity in one extends to the other. See Rose v. United States Dep’t of Educ. (In re Rose), 187 F.3d 926 (8th Cir.1999) (state’s submission of proof of claim waives its immunity in the “undue hardship” adjudication); State of Georgia Dep’t of Revenue v. Burke (In re Burke), 146 F.3d 1313 (11th Cir.1998) (filing proof of claim waives immunity in adversarial action to enforce a bankruptcy court’s stay order against a state because it is sufficiently related to discharge proceeding). As the Eight Circuit noted in In re Rose, “[t]he text of the bankruptcy code makes clear that these procedures are both part of a larger whole; the same section that exempts educational debt from a general discharge establishes the ground of undue hardship as the exception to the exemption.” 187 F.3d at 930 . The structure of the statutory provision reveals that “undue hardship” is a defense — indeed, the only defense — to the state’s general privilege of exempting student loans from normal bankruptcy discharge proceedings.

Moreover, in filing a proof of claim, TSAC attempted to take advantage of the federal bankruptcy court’s power to exempt student loans from general discharge proceedings. Further, if there had been assets in the estate, TSAC could have shared in those assets. Having attempted to benefit from the powers of the federal bankruptcy court, it must, therefore, accept the court’s power to decide whether the hardship exception protects Hood from the general student loan exemption. See New York v. Irving Trust Co., 288 U.S. 329, 332 , 53 S.Ct. 389 , 77 L.Ed. 815 (1933) (“If a state desires to participate in the assets of a bankrupt, she must submit to the appropriate requirements by the controlling power.”).

Although I agree with the majority that we should not normally reach issues not raised before the bankruptcy court, we have recognized certain exceptions to that rule. In Pinney Dock and Transport Co. v. Penn Central Corp., 838 F.2d 1445, 1461 (6th Cir.1988), we held that we may reach an issue if it “is presented with sufficient clarity and completeness” for the court to resolve the issue. The Supreme Court has held that the decision to deviate from the general rule is a matter “left primarily to the discretion of the courts of appeals, to be exercised on the facts of individual cases.” Singleton v. Wulff, 428 U.S. 106, 121 , 96 S.Ct. 2868 , 49 L.Ed.2d 826 (1976). Moreover, the Supreme Court has long recognized that we should not decide constitutional questions when their resolution is unnecessary to the outcome of the case. Alexander v. Louisiana, 405 U.S. 625, 633 , 92 S.Ct. 1221 , 31 L.Ed.2d 536 (1972) (noting the “custom of avoiding decision of constitutional issues unnecessary to the decision of the case before us.”). See also Bejjani v. INS, 271 F.3d 670, 687 (2002) (noting that “where possible, a court should rule on a narrow ground in order to avoid a constitutional question.”) While the issue of waiver was not raised in the bankruptcy court, the facts with respect to the filing of the claim are not in dispute, and the documents relied upon to establish those facts are from the bankruptcy court’s records. In this case, the waiver question is presented with sufficient clarity and completeness to resolve the issues before this court without having to reach the complex constitutional questions raised by the parties.