Katz- State Sovereign Immunity

No vacination for the states

Today, the Court issued a 5-4 decision in Central Virginia Community College v. Katz, holding that States do not have sovereign immunity to suits by bankruptcy trustees seeking the return of preferential transfers under the federal bankruptcy act. Justice Stevens wrote the majority, joined by Justices O'Connor, Souter, Ginsburg and Breyer.

The petitioners were Virginia universities that did business with a bookstore that went bankrupt. While going down (while it was insolvent), the bookstore paid off debts to the universities.

In normal bankruptcy law, a court-appointed supervisor sort-of collects whatever hodge-podge of assets the bankrupt entity has/had, and distributes them in the fairest fashion, according to certain legal requirements. Often, this distribution to creditors involves reaping in some of the assets/$$ that the now-bankrupt entity shed out while going down. In other words, an insolvent entity can't shell out whatever it has to the detriment of folks that are due a fair share of what they'd loaned.

Here, since it was state universities that benefitted from the bookstore's assets-shelling, the universities claimed immunity from the bankruptcy administrator's request to have the money returned to the pot. State universities are arms of the state, and thus are allowed any immunity from lawsuit (for our purposes, the administrator's request is a lawsuit) that the state would have. Thus, the legal question is whether states are immune from normal bankruptcy administration. For states to be subject to suit, they must waive the existing (existing...this is a discussion that will haunt us for a bit, i believe) immunity. In a great many statutes, states do just that. In this case, the Court concluded that the states waived their immunity in bankruptcy proceedings while ratifying the Constitution, with it's Article 1 bankruptcy clause.

Sovereign immunity, as an area of jurispruence, reminds me of American Idol. It violates our sense of decency and what is right in the world, but we keep coming back. I think of the libertarian tendency to sue everything a government agency attempts, from preventing emissions to chewing big red. But they champion a state's immunity. Or the pure textualist that can't figure out where, in the Constitution, a right to privacy is enumerated. But, they find somewhere (in invisible ink?) words in the 11th amendment making a state immune from it's own citizens' suits. Most appropriate to the stretched analogy above, the relationship of state sovereign immunity to democracy has fair weathered legitimacy.

Here, for instance, it simply makes no common sense to me why the state ought to be treated differently that other creditors to the bankrupt bookstore.

On the other hand, the immunity of the sovereign is a bedrock principle...that the governing body is outside the lawsuit reach of the governed. Accountability is supposed to find manifestation in elections, not courts.