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AN E-BULLETIN
LEGAL INFORMATION INSTITUTE -- CORNELL LAW SCHOOL
lii\@lii.law.cornell.edu
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TENNESSEE STUDENT ASSISTANCE CORPORATION V. HOOD (02-
1606)
Web-accessible at:
http://supct.law.cornell.edu/supct/html/02-
1606.ZS.html
Argued March 1, 2004 -- Decided May 17, 2004
Opinion author: Rehnquist
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Respondent Hood had an outstanding balance on
student loans guaranteed by petitioner Tennessee Student
Assistance Corporation (TSAC), a state entity, at the
time she filed a Chapter 7 bankruptcy petition.
Hood's general discharge did not cover her student
loans, as she did not list them and they are only
dischargeable if a bankruptcy court determines that
excepting the debt from the order would be an "undue
hardship" on the debtor, 11 U.S.C. sect. 523(a)(8).
Hood subsequently reopened the petition, seeking an
"undue hardship" determination. As prescribed by
Federal Rules of Bankruptcy Procedure 7001(6), 7003, and
7004, she filed a complaint and, later, an amended
complaint, and served them with a summons on TSAC and
others. The Bankruptcy Court denied TSAC's motion to
dismiss the complaint for lack of jurisdiction, holding
that 11 U.S.C. sect. 106(a) abrogated the State's
Eleventh Amendment sovereign immunity. The Sixth
Circuit Bankruptcy Appellate Panel affirmed, as did the
Sixth Circuit, which held that the Bankruptcy Clause
gave Congress the authority to abrogate state sovereign
immunity in sect. 106(a). This Court granted certiorari
to determine whether the Bankruptcy Clause grants
Congress such authority.
Held: Because the Bankruptcy Court's discharge of a
student loan debt does not implicate a State's Eleventh
Amendment immunity, this Court does not reach the
question on which certiorari was granted. Pp. 4-13.
(a) States may be bound by some judicial actions
without their consent. For example, the Eleventh
Amendment does not bar federal jurisdiction over in rem
admiralty actions when the State does not possess the
res. California v. Deep Sea Research, Inc., 523 U.S.
491, 507-508. A debt's discharge by a bankruptcy court
is similarly an in rem proceeding. The court has
exclusive jurisdiction over a debtor's property,
wherever located, and over the estate. Once debts are
discharged, a creditor who did not submit a proof of
claim will be unable to collect on his unsecured loans.
A bankruptcy court is able to provide the debtor a fresh
start, even if all of his creditors do not participate,
because the court's jurisdiction is premised on the
debtor and his estate, not on the creditors. Because
the court's jurisdiction is premised on the res,
however, a nonparticipating creditor cannot be
personally liable. States, whether or not they choose
to participate in the proceeding, are bound by a
bankruptcy court's discharge order no less than other
creditors, see, e.g., New York v. Irving Trust Co., 288
U.S. 329, 333. And when the 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. TSAC argues,
however, that the individualized process by which
student loan debts are discharged unconstitutionally
infringes its sovereignty. If a debtor does not
affirmatively secure sect. 523(a)(8)'s "undue hardship"
determination, States choosing not to submit themselves
to the court's jurisdiction might receive some benefit:
The debtor's personal liability on the loan may survive
the discharge.TSAC misunderstands the proceeding's
fundamental nature when it claims that Congress, by
making a student loan debt presumptively
nondischargeable and singling it out for an
individualized determination, has authorized a suit
against a State. The bankruptcy court's jurisdiction is
premised on the res, not the persona; that States were
granted the presumptive benefit of nondischargeability
does not alter the court's underlying authority. A
debtor does not seek damages or affirmative relief from
a State or subject an unwilling State to a coercive
judicial process by seeking to discharge his debts.
Indeed, this Court has endorsed individual
determinations of States' interests within the federal
courts' in rem jurisdiction, e.g., Deep Sea Research,
supra. Although bankruptcy and admiralty are
specialized areas of the law, there is no reason why the
exercise of federal courts' in rem bankruptcy
jurisdiction is more threatening to state sovereignty
than the exercise of their in rem admiralty
jurisdiction. Pp. 4-9.
(b) With regard to the procedure used in this case,
the Bankruptcy Rules require a debtor to file an
adversary proceeding against the State to discharge
student loan debts.While this is part of the original
bankruptcy case and within the bankruptcy court's in rem
jurisdiction, it requires the service of a summons and a
complaint, see Rules 7001(6), 7003, and 7004. The
issuance of process is normally an indignity to a
State's sovereignty, because its purpose is to establish
personal jurisdiction; but the court's in rem
jurisdiction allows it to adjudicate the debtors'
discharge claim without in personam jurisdiction over
the State. Section 523(a)(8) does not require a
summons, and absent Rule 7001(6) a debtor could proceed
by motion, which would raise no constitutional concern.
There is no reason why service of a summons, which
in this case is indistinguishable in practical effect
from a motion, should be given dispositive weight.
Dismissal of the complaint is not appropriate here where
the court has in rem jurisdiction and has not attempted
to adjudicate any claims outside of that jurisdiction.
This case is unlike an adversary proceeding by a
bankruptcy trustee seeking to recover property in the
State's hands on the grounds that the transfer was a
voidable preference. Even if this Court were to hold
that Congress lacked the ability to abrogate state
sovereign immunity under the Bankruptcy Clause, the
Bankruptcy Court would still have authority to make the
undue hardship determination Hood seeks. Thus, this
Court declines to decide whether a bankruptcy court's
exercise of personal jurisdiction over a State would be
valid under the Eleventh Amendment. If the Bankruptcy
Court on remand exceeds its in rem jurisdiction, TSAC
would be free to challenge the court's authority. Pp.
10-13.
319 F.3d 755, affirmed and remanded.
Rehnquist
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