Anyone’s who’s experienced the spectacle of an oral argument at the US Supreme Court will surely appreciate the scare, laughter, and tricks served up at oral argument on Halloween Day in Central Va. Community College v. Katz. In the end, however, I expect that Judge Goldgar‘s prediction at the National Conference of Bankruptcy Judges in early November that the Supreme Court “dodged another bullet” on the sovereign immunity question will likely prove correct, and that the litigants will find at the end of the day that their bags contain few treats.
A good summary of the case going into oral argument is found here, courtesy of our friends at SCOTUSblog, which also alerted us to the availability of the 49 page transcript.
At oral argument, William E. Thro argued on behalf of the petitioner-claimants from Virginia, and Kim Martin Lewis argued for Katz, the respondent-bankruptcy trustee. All Justices, except Justice Thomas, actively engaged counsel in discussion and debate, with Justice Scalia overtly supporting Mr. Thro’s arguments, and Chief Justice Roberts showing good-natured exasperation at the respondent’s own bag of tricks (p.44, and see below).
Still, the argument was interrupted by no fewer than six good-hearted chuckles of record from the Justices and the gallery, including (p.37) from a loud, sudden “pop” and “flash” that clearly startled the Justices on this ghoulish day and led to the following amusing rapid-fire sequence of comments, starting with–

Justice O’Connor, who proclaimed, in Paul Revere-like fashion, “A light bulb exploded. A light bulb exploded.”
Followed by Chief Justice Roberts signaling the “all clear”: “I think it’s safe.”
Followed by the dry Justice Breyer: “A light bulb went out.”
Then again by a relieved Chief Justice Roberts: “It’s a trick they play on new Chief Justices all the time.”
Then by Justice Scalia, who wished everyone “Happy Halloween”.
Meanwhile, the unflappable Justice Ginsburg stayed on track with her line of questioning, not missing a beat: “Let me ask this–“.
While Justice Kennedy tried to allay Katz’s shaken counsel, who was already having difficulties of her own on the merits: “Take your time. We’re interested–“.
Only to be thrown off yet again by Chief Justice Roberts, who reminded counsel of the noticeably shaky ground on which she was treading: “Yeah, we’re even more in the dark now than before.”

Thro’s arguments for the Petitioners were workmanlike, and–most importantly–he didn’t stray from his two main arguments (Seminole Tribe controls; and sovereign immunity bars monetary judgment claims) despite attempts by four of the nine Justices to trip him up within the first few minutes of his argument, including:

Justice O’Connor: “Why wouldn’t the sovereign immunity extend to [the automatic stay]?”
Justice Kennedy: “[Saying] that it’s an exercise of the sovereign power of Congress [is] just a conclusion.”
Justice Breyer: “[I]f you’re right … the result of this is two bad things: bankruptcy law’s basic purpose, to treat creditors fairly [and] to give firms a chance to rehabilitate, are both seriously undermined.”
Justice Stevens (echoing Justice O’Connor): “How do you reach the conclusion that you’re bound by the automatic stay and the discharge? Why aren’t those also an infringement of State sovereignty?”

Some time was spent on the in rem issues from the Supreme Court’s decision in Tennessee Student Assistance Corp. v. Hood, including whether a preference action against a governmental unit is more akin to an in rem proceeding (to which sovereign immunity would not apply per Hood) than to a contract or tort type action (to which sovereign immunity principles generally would apply) (pp. 17-20). Hood, however, supplied little help for the Justices, with Justice Souter seeming to sum up the conclusions of the Court by stating that recoveries of “estate property” in a preference action are “not what we mean, traditionally, by ‘in rem jurisdiction’ ” (p.19).
When Katz’s counsel stepped up, Justice Souter let her know early on of the uphill battle facing her. He said:

I’m not a big fan of sovereign immunity in these circumstances, but I’m not quite sure how to get around it, based on the fact that there is no alternative remedy here…. [B]asically, you’re making the argument from the uniformity phrase – uniform bankruptcy laws…. And you’re saying, in this case, that that trumps the sovereign immunity, and that gets you out of Seminole Tribe. (p.25)

Chief Justice Roberts then dissected Katz’s case, finding a number of logical inconsistencies in the argument that seemed to spell its doom, especially on the waiver argument (i.e., that the sovereign immunity that was waived by VMI was the sovereign immunity of all of the Commonwealth of Virginia, not just VMI’s), which (quite uncharacteristically) was raised by the Respondent for the first time at the Supreme Court level. Chief Justice Roberts inquired:

How can you argue in favor of waiver when you have a statute with a much more limited waiver, the limits in 106(b) and 106(c)?… How do we interpret the statute to establish that Congress intended the States to waive their immunity with the filing of the claim? I don’t see that anywhere in the statute…. How do you have an informed waiver if the argument is over authority to abrogate?… And if it turns out that Congress doesn’t have that authority, I don’t see how you can say the State has made an informed waiver, when their theory is, “Guess what? You don’t have that authority to abrogate.” (pp.27,29,34,36)

As the oral argument drew to a close, Justice Scalia nudged the discussion to its probable indecisive end, asking:

[H]ere, you’re making [the waiver argument] as to all claims against all State institutions; whereas, below you made it only as to the claims against VMI. I don’t understand that. (pp.43-44)

Katz’s lawyer properly responded:

At the time, 106(a), in the Sixth Circuit, it was determined that that was constitutional. So, at the time, the only thing left for the States to waive was the contract actions. And the contract actions of VMI were the only that things that could be waived as part of the underlying…. (p.44)

Whereupon Chief Justice Roberts summed up, showing good-natured exasperation by the apparent exercise in futility:

So, the long and short of it is, for good and sufficient reasons you did not make the same waiver below that you’re making here today. (p.44)

Justice Ginsburg then seized the moment, summing up the Court’s expected ruling in a sharp response to Mr. Thro’s closing remark in rebuttal that “the Article I bankruptcy power cannot be used to abrogate sovereign immunity.” She said:

That’s the question you’ve presented, Mr. Thro, but it was the same question that was presented to us in Hood. And in Hood, we decided that we were not going to answer the question presented, we were going to decide the case on a lesser ground. So, the Court, certainly if our venture in Hood was proper, here, too, we could decide the case on some other ground than the one you presented in your question. (p.47)

When Mr. Thro returned moments later to Justice Ginsburg’s argument in favor of deflection by noting that “a second reason for not addressing Katz’s [waiver] arguments were, they were not passed on below,” Justice Ginsburg retorted:

Well, then that would be a ground to allow them to present it below. They had a total winner on that … below.

Looks like the Court really did “dodge a bullet” on this one!
Finally, let’s not forget Professor Bruce Mann, the able historian who wrote an uncontroverted amicus curiae brief (referenced here), in which he concluded:

Contrary to the petitioners’ argument, there is no evidence that at the time of the ratification of the Constitution the states reserved any right to assert sovereign immunity in any bankruptcy proceedings established pursuant to any Congressional exercise of the bankruptcy power conferred in art I, sect. 8, cl. 4. None of the known public or private discussions of bankruptcy – before, during or after the adoption and ratification of the Constitution – drew any distinction between public and private creditors.

Justice Stevens acknowledged the potential power of Professor Mann’s conclusions, noting during Mr. Thro’s rebuttal that “[t]here is that argument out there…” Even Petitioner’s counsel had to acknowledge that Katz would win if Mann’s arguments were accepted by the Court (p.48). But, he argued, the Sixth Circuit concluded there is no “compelling evidence” to support such a conclusion:

The question presented is whether or not Congress may use the Article I Bankruptcy Clause to abrogate sovereign immunity. In Alden v. Maine, this Court held that there was a presumption that the States had retained their immunity unless it could be shown by conclusive evidence that the States surrendered their immunity in the plan of convention. If Congress can use the Article I bankruptcy power to abrogate sovereign immunity, then one would expect there to be discussions to that effect at the constitutional convention, in the federalist and antifederalist writings, and in the ratifying conventions. Yet, as the Sixth Circuit conceded in its version of Hood, there is no compelling evidence. There is, at best, silence. Silence cannot equal the compelling evidence. Therefore, the Article I bankruptcy power cannot be used to abrogate sovereign immunity. (p.46)

Looks like Professor Mann has some more work ahead of him if his research is to convince the Justices that his historical arguments should carry the day.
© Steve Jakubowski 2005