Tennessee Student Assistance Corp. v. Hood, Pamela (05/17/2004)

Question presented: Whether Article I, "8, cl. 4, of the Constitution on bankrupty grants Congress the authority to abrogate state sovereign immunity from private suits involving the dischargeability of a student loan debt?

BY AYESHA TEJPAR, MEDILL NEWS SERVICE

For most college graduates, it is troublesome to pay back student loans. But for one woman, it turned out to be an even bigger hassle not to pay back her loans.

Pamela Hood, formerly a student in Tennessee, borrowed more than $4,000 for school between 1988 and 1990. In 1999, she filed for bankruptcy, claiming she had no assets. The bankruptcy court allowed Hood to be discharged from her debts, but not her student loans.

Hood then filed suit against the Tennessee Student Assistance Corp., the state agency that backed her student loans. Hood claimed it was too difficult for her to pay back her loans.

Under the Education Amendments of 1976, a person cannot be discharged of student loans under normal bankruptcy proceedings. The debtor must prove, in a separate adversary hearing, that repaying the loan would "impose undue hardship," in order to be discharged.

The state of Tennessee moved to dismiss Hood's case on grounds of sovereign immunity. Ordinarily, states are immune from suits brought by private individuals. But Hood's attorney, Leonard Gerson, said Congress can override a state's immunity if necessary.

The Bankruptcy Court for the Western District of Tennessee agreed with Hood in June 2000, stating that the Constitution gives Congress the authority to abrogate a states sovereign immunity.

A unanimous Bankruptcy Appellate Panel affirmed, ruling that "as a part of the plan of the Constitutional Convention, the states ceded to Congress their sovereignty over bankruptcy discharge matters."

The court referred back to the days of Alexander Hamilton and the Federalist Papers. Federalist No. 32 explained that Congress was given the power to establish uniform laws in such areas as bankruptcy and naturalization, and that the need for uniformity required states to give up a degree to their sovereignty. The Constitution's Bankruptcy Clause, Art. I, sec. 8, thereby carried with it the power to abrogate states' sovereign immunity.

But when the case went to 6th Circuit Court of Appeals, a new issue arose.

Hood asserted during oral arguments that Tennessee had already waived its sovereign immunity. Sallie Mae, the initial creditor for Hoods student loans, had submitted a proof of claim to the bankruptcy court and assigned it to the Tennessee Student Assistance Corp. Because TSAC had not raised it, Hood said, immunity was waived.

The court declined to address the issue since it was not brought up in the lower courts or in the brief in the appeals court.

The state of Tennessee argued that the Supreme Court has already dealt with the question of valid abrogation of state sovereign immunity, beginning with the 1996 Supreme Court opinion in Seminole Tribe of Florida v. Florida, in which the Court held that "[t]he Eleventh Amendment restricts the judicial power under Article III, and Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction."

The court acknowledged the precedent but distinguished Congress' Bankruptcy Clause power from its other powers enumerated in Article I of the Constitution.

"However, neither Seminole Tribe nor any of the Supreme Court's other recent sovereign immunity cases address Congress's Bankruptcy Clause powers as understood in the plan of the Convention," wrote Judge Karen Nelson Moore. "We engage in the Seminole Tribe analysis, and we conclude that the text of the Constitution and other evidence of the Framers' intent demonstrate that under the Bankruptcy Clause of Article I, section 8, Congress has the power to abrogate state sovereign immunity."

The 6th Circuit noted that its holding "in no way undermines the dignity of the state as a separate sovereign.

"This is not an instance in which Congress has enabled private parties to 'haul' states into court against their will," Moore wrote, "but an instance in which Congress has granted states precisely the protection that they sought."

In so holding, the 6th Circuit panel conceded that five other circuits had concluded just the opposite; that under Seminole Tribe, Congress may not validly abrogate state sovereign immunity relying on its Bankruptcy Clause powers.

Judge Cornelia G. Kennedy concurred.

"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," Kennedy wrote. "I cannot join the panel's opinion and I thus concur in the judgment only."

On Sept. 30, 2003, one week before the 2003-04 term, the U.S. Supreme Court accepted review in the case.

Forty-seven states filed amicus curiae briefs, backing Tennessee as "friends of the court."

If Tennessee wins, Gerson later said, it could have significant impact on future bankruptcy cases.

"If the states retain sovereign immunity, the bankruptcy court's orders in respect to all matters become questionable unless the state has consented," he said.

As for Hood? Gerson emphasized that winning does not necessarily mean that Hood won't have to pay her loans. It just means that she will be given a chance to prove "undue hardship" at a hearing that she was denied in the first place.

But if she does win, the decision could have a profound effect on other students across the country who also find it difficult to pay back student loans.

On May 17, 2004, the Court sided with Hood by a vote of 7-2. However, the Court did not reach the Constitutional question.

Writing for the majority, Chief Justice William Rehnquist concluded that the bankruptcy court's discharge of a student loan debt did not implicate a state's 11th Amendment immunity.

The basis for that conclusion, Rehnquist reasoned is that a bankruptcy court can discharge a debt through an in rem proceeding over the property without seeking personal jurisdiction over a creditor, or imposing personal liability on a creditor. When a bankruptcy court's jurisdiction over the res is unquestioned, the exercise of its in rem jurisdiction to discharge the debt does not infringe a State's sovereignty, the majority held.

Justices Antonin Scalia and Clarence Thomas dissented.