PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
AER-AEROTRON, INCORPORATED,
Plaintiff-Appellee,
HOLMES P. HARDEN,
Trustee-Appellee,
No. 95-2987
v.
THE TEXAS DEPARTMENT OF
TRANSPORTATION,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
Malcolm J. Howard, District Judge.
(CA-95-146-5-H, BK-94-20-5-AP)
Argued: September 26, 1996
Decided: January 21, 1997
Before HALL, NIEMEYER, and HAMILTON, Circuit Judges.
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Reversed and remanded by published opinion. Judge Hall wrote the
majority opinion, in which Judge Hamilton joined. Judge Niemeyer
wrote a separate opinion concurring in the judgment.
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COUNSEL
ARGUED: Katherine E. Kasten, Assistant Attorney General, Trans-
portation Division, TEXAS ATTORNEY GENERAL'S OFFICE,
Austin, Texas, for Appellant. J. Stephen Ravel, BICKERSTAFF,
HEATH, SMILEY, POLLAN, KEVER & MCDANIEL, Austin,
Texas, for Appellees. ON BRIEF: Trawick H. Stubbs, Jr., Judith L.
Goldsborough, Neal Brickman, STUBBS, PERDUE & AYERS, P.A.,
New Bern, North Carolina, for Appellees.
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OPINION
HALL, Circuit Judge:
The Texas Department of Transportation (TDOT) appeals the dis-
trict court's order that affirmed the bankruptcy court's order denying
TDOT's motion to dismiss an adversary proceeding brought against
it by debtor AER-Aerotron, Inc., to recover on various contract
claims. The lower courts ruled that the debtor's action was not barred
by the Eleventh Amendment because TDOT had waived its immunity
by filing a proof of claim in the bankruptcy proceeding. We hold that
TDOT did not waive its Eleventh Amendment immunity. Accord-
ingly, we reverse and remand.
I
In 1991, TDOT contracted with AER-Aerotron for the installation
of a statewide radio system. Things did not go well, and each side
blames the other. In any event, TDOT terminated the contract in
December, 1992. In January, 1993, AER-Aerotron filed for chapter
11 bankruptcy in North Carolina. Although not listed in any of the
schedules, TDOT was aware of the filing from the outset. Neverthe-
less, between February and October, 1993, TDOT sent four letters to
AER-Aerotron demanding the refund of some $396,000 already paid
under the contract.
On April 24, 1994, AER-Aerotron filed an adversary proceeding in
the bankruptcy court against TDOT for $224,000 allegedly owed for
equipment accepted under the contract, plus other damages arising out
of the cancellation of the contract.1 Asserting that the action was
barred by the Eleventh Amendment, TDOT moved to dismiss.
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1 The bankruptcy case was subsequently converted to a Chapter 7 pro-
ceeding, and the trustee intervened as a party plaintiff.
2
The bankruptcy court denied the motion to dismiss on the ground
that the letters sent by TDOT after it was aware of the bankruptcy fil-
ing were an "affirmative demand" that constituted a waiver of its
Eleventh Amendment right to immunity from suit in federal court
under 11 U.S.C.A. § 106(a) (1993). In re AER-Aerotron, 172 B.R.
202 (Bankr. E.D.N.C. 1994). On appeal, the district court remanded
to the bankruptcy court for reconsideration in light of the intervening
enactment of the Bankruptcy Reform Act of 1994, Pub. L. No. 103-
394, 108 Stat. 4150. On remand, the bankruptcy court found that the
letters constituted a "written informal proof of claim" that was "suffi-
cient to waive sovereign immunity" under the new statute. In re AER-
Aerotron, Inc., 181 B.R. 268 (Bankr. E.D.N.C. 1995). This order was
affirmed by the district court, and TDOT brings this appeal.
II
A
The bankruptcy court decided the case the first time under the pre-
Reform Act version of § 106(a), which provided that
a governmental unit is deemed to have waived sovereign
immunity with respect to any claim against such govern-
mental unit that is property of the estate and that arose out
of the same transaction or occurrence out of which such
governmental unit's claim arose.
Although the States generally have Eleventh Amendment immunity
from suit in federal court, this immunity may be waived. See, e.g.,
Port Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 304 (1990)
("The Eleventh Amendment bar to suit is not absolute. States may
consent to suit in federal court."). The courts had not, however,
reached a consensus as to what exactly constituted a waiver under this
statute.
At one end of the spectrum were those cases that had held that the
mere existence of a claim by the state was sufficient for a waiver. See,
e.g., In re Craftsmen, Inc., 163 B.R. 88 (Bankr. N.D. Tex. 1993). Fur-
ther along were cases finding a waiver in affirmative action by the
3
state evidencing a claim, see In re Town & Country Home Nursing
Services, Inc., 963 F.2d 1146 (9th Cir. 1991) (offsetting overpayments
against Medicare reimbursements due debtor), and in written
demands to the debtor of the sort at issue in this case. At the furthest
point were those cases finding waiver only upon the filing of a formal
proof of claim with the court. Although we had not yet addressed the
issue in a waiver of immunity case, we had tended to employ a fairly
lenient definition of what constituted a claim in other contexts. See,
e.g., In re Davis, 936 F.2d 771, 775-76 (4th Cir. 1991) ("For an
amended claim to be allowed in the absence of a prior written infor-
mal claim, the creditor . . . must undertake some affirmative action
to constitute sufficient notice that he has a claim against the estate.").2
The bankruptcy court, after determining that "some affirmative
conduct" was required before waiver would be found, held that the
post-petition letters sent to AER-Aerotron constituted a waiver of the
State's immunity from suit in federal court by the debtor to recover
for a claim arising out of the same contract that was the source of
TDOT's claim. TDOT appealed to the district court.
B
On October 22, 1994, while the appeal of the first bankruptcy court
decision was pending, the 1994 Bankruptcy Reform Act went into
effect. The Reform Act purports to abrogate state governmental
immunity in numerous respects; for example, states may not claim
immunity from sanctions for violating the automatic stay provisions.
See 11 U.S.C.A. § 106(a)(1) (West Supp. 1996). However, the waiver
provisions of § 106(a) of the former statute found their way into the
Reform Act in the following form:
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2 Much of the caselaw on the subject of informal proof of claims has
arisen in the context of late claims rather than waiver. See In re
Houbigant, 190 B.R. 185, 187 (Bankr. S.D.N.Y. 1996) ("The informal
proof of claim is an equitable principle developed by courts to alleviate
the harsh results of strict enforcement of the bar date."). The equitable
principles that courts use to avoid the bar on late filings, however, are not
readily importable to the question of State waivers of immunity.
4
A governmental unit that has filed a proof of claim in the
case is deemed to have waived sovereign immunity with
respect to a claim against such governmental unit that is
property of the estate and that arose out of the same transac-
tion or occurrence out of which the claim of such govern-
mental unit arose.
11 U.S.C.A. § 106(b) (West Supp. 1996) (emphasis added). In adding
the language highlighted above, Congress clearly eliminated those sit-
uations in which the mere existence of a claim would suffice to con-
stitute a waiver. The question on remand to the bankruptcy court was
how much more the Reform Act had changed the rules for finding a
waiver.3
The bankruptcy court framed the question as whether the new
§ 106(b) required that a formal proof of claim be filed in order for a
waiver to be found. The legislative history was sparse:
Section 106(b) is clarified by allowing a compulsory coun-
terclaim to be asserted against a governmental unit only
where such unit has actually filed a proof of claim in the
bankruptcy case. This had the effect of overruling contrary
case law, such as [3 named cases] that interpreted § 106(a)
of [pre-Reform Act] law.
Bankruptcy Reform Act of 1994 - Section-by-Section Description;
140 Cong. Rec. H10752-01, H10766 (1994). The district court noted
that, inasmuch as each of the three cases cited in the congressional
report held that the mere existence of a claim was enough to consti-
tute a § 106(a) waiver, the legislative history points toward eliminat-
ing only those waivers unaccompanied by affirmative action by the
governmental unit. The court then concluded that informal written
proofs of claims, such as TDOT's letters to AER-Aerotron, continue
to constitute waivers in the same manner as under pre-Reform Act
law; instead of using the term "filed . . . in the case," Congress "could
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3 The waiver provisions of § 106(b) were made expressly applicable to
cases pending on the date of the enactment of the Reform Act. Pub. L.
103-394, § 702(b)(2)(B).
5
very easily have chosen to include the phrase `filed . . . with the court.'"4
Texas Dept. of Transp. v. AER-Aerotron, No. 5:95-CV-146-H at 11
(E.D.N.C. Oct. 10, 1995) (order). AER-Aerotron appealed again.
C
The statutory interpretation issue is simply stated: Does a written
post-petition demand sent to a debtor5 satisfy the statutory waiver
requirement of a "filing of a proof of a claim in the case"? At a mini-
mum, as noted above, § 106(b) removes from consideration the possi-
bility that the mere existence of a claim against the debtor by the State
still constitutes a waiver of that State's immunity. Even if the lan-
guage of the statute were not sufficient on this point, the inclusion of
the three cases noted in the legislative history as being expressly over-
ruled settles the issue. The bankruptcy and district courts erred, how-
ever, in concluding that because only these three cases were expressly
noted, Congress intended to maintain the expansive view of waiver
"commonly found in bankruptcy practice . . . ." Id. at 7.
When we are confronted with a question of whether a State has
consented to be sued, the general rule is that we will find a waiver
"only where stated by the most express language or by such over-
whelming implications from the text as [will] leave no room for any
other reasonable construction." Welch v. Texas Dept. of Highways
and Public Transp., 483 U.S. 468, 473 (1987) (internal citations and
quotations omitted). Perhaps the standard should be no less stringent
when we are considering a Congressional attempt to define waiver.
However, our interpretation of § 106(b) rests on that most basic guide
to the meaning of statutes, the words of the statute itself.
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4 As additional support for this interpretation, the district court stressed
that "[o]ne of the Bankruptcy Code's main purposes is to marshall the
debtor's assets for an equitable distribution to all creditors."
5 We deem it irrelevant that AER-Aerotron was a debtor-in-possession
when it received the letters. Bankr. R. 5005(c) provides that erroneous
delivery of a paper to a trustee, the trustee's attorney, a judge or district
court clerk shall be deemed to have been properly filed with the bank-
ruptcy court clerk. Although a debtor-in-possession generally has the
same duties and powers of a trustee, TDOT clearly did not intend to file
the letters with the court.
6
The new § 106(b) injects three new related requirements: "filed,"
"proof of claim," and "in the case." Surely something in writing--
something capable of being "filed"--is required, and "in the case"
connotes the involvement of the bankruptcy court clerk to some
degree with the written filing. "Proof of claim" is a specifically
defined concept. Although the letters from TDOT arguably satisfy the
definition of "proof of claim" in Rule 3001(a)--"a written statement
setting forth a creditor's claim"--the same rule also prescribes an
official form for claims. Rule 5005, however, requires that "proofs of
claim . . . required to be filed by these rules . . . shall be filed with
the clerk . . . ." The plain meaning of the words of the statute leads
us to conclude that TDOT did not "file[ ] a proof of claim in the case"
when it sent the letters.
We hold simply that a State's transmission to a debtor of a written
demand for payment of a claim, without more, does not constitute the
"filing of a proof of claim in the case" as that term is used in § 106(b)
of the Bankruptcy Reform Act of 1994. TDOT is immune from the
suit that is the subject of this appeal.
III
TDOT urges us to find a basis for reversal in the recent decision
in Seminole Tribe of Florida v. Florida, 116 S. Ct. 1114 (1996), in
which the Court held that Congress is powerless to abrogate the
States' Eleventh Amendment immunity under the Indian Commerce
Clause of Article I, § 8 of the Constitution. The Court has remanded
one bankruptcy case for reconsideration in light of the Seminole
decision,6 and perhaps the handwriting is on the wall that the abroga-
tion provisions of the Bankruptcy Reform Act will suffer the same
fate as the statutes involved in Seminole. See, e.g., Matter of Midland
Mechanical Contractors, Inc., 200 B.R. 453 (Bankr. N.D. Ga. 1996)
(abrogation provisions of § 106 of the Bankruptcy Reform Act of
1994 Code do not affect the States' Eleventh Amendment immunity).
Nevertheless, in light of our determination that TDOT did not "file a
proof of claim" within the meaning of § 106(b) of the Reform Act, we
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6 Ohio Agr. Commodity Depositors Fund v. Mahern, 116 S. Ct. 1411
(1996), vacating judgment and remanding in Matter of Merchants Grain,
Inc., 59 F.3d 630 (7th Cir. 1995).
7
have no occasion to address the broader constitutional question. See
State of Md. v. E.P.A., 530 F.2d 215, 227 (4th Cir. 1975) ("[I]f a case
can be decided on either of two grounds one involving a constitu-
tional question, and the other, a question of statutory construction or
general law, the court should decide on the basis of the latter."),
vacated on other grounds, 431 U.S. 99 (1977). There is simply no
need to determine if Congress, acting pursuant to its Article I bank-
ruptcy powers, could have abrogated the States' immunity when,
under the circumstances of the case before us, abrogation never came
into play.
For essentially the same reasons we do not address abrogation, we
decline to offer conjecture as to what ramifications Seminole might
have with regard to Congress's power to define the circumstances
under which a State is deemed to have waived its Eleventh Amend-
ment immunity. See Parden v. Terminal Ry. of Alabama State Docks
Dept., 377 U.S. 184 (1964) (question of waiver is one of federal law).
The courts that have addressed the waiver issue in the wake of
Seminole appear to agree that the filing of a formal proof of claim still
acts as a waiver of immunity with regard to claims of the debtor aris-
ing out of the same transaction. See In re Sacred Heart Hosp., 199
B.R. 129 (Bankr. E.D. Pa. 1996). Some courts have found that a for-
mal proof of claim acts as a waiver in other respects. See In re
Headrick, 200 B.R. 963 (Bankr. S.D. Ga. 1996) (State's filing of a
proof of claim acted as a waiver of the State's immunity from sanc-
tions for violations of the automatic stay); In re Burke, 200 B.R. 282
(Bankr. S.D. Ga. 1996) (same; violation of discharge injunction).
We realize that the power to define waiver can become the func-
tional equivalent of the power to abrogate. Indeed, defining waiver as
anything less than "the sort of voluntary choice which we generally
associate with the concept of constitutional waiver" permits Congress
to do indirectly what it perhaps could not do otherwise. Employees of
Dept. of Public Health and Welfare v. Dept. of Public Health and
Welfare, 411 U.S. 279, 296 (1973) (Marshall, J., concurring). Again,
however, inasmuch as we have already determined that TDOT did not
"file[ ] a proof of claim in the case" and, therefore, never brought the
statutory waiver provisions into play, we end the matter there.7
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7 AER-Aerotron contends that only the Texas state legislature has the
power to waive the State's immunity from suit and that no such waiver
8
IV
The order of the district court is reversed, and the case is remanded
with instructions to dismiss AER-Aerotron's adversary proceeding
against TDOT.
REVERSED AND REMANDED
NIEMEYER, Circuit Judge, concurring in the judgment only:
AER-Aerotron, Incorporated, a bankrupt contractor to the Depart-
ment of Transportation of the State of Texas, sued Texas in the
United States Bankruptcy Court for the Eastern District of North Car-
olina for $224,000 allegedly due for equipment that AER-Aerotron
delivered under its contract with Texas. Texas asserted Eleventh
Amendment immunity from suit in federal court. The bankruptcy
court and the district court held that Texas had waived its sovereign
immunity by sending demand letters to AER-Aerotron with knowl-
edge that it was a debtor in possession. The letters related to the inad-
equacy of AER-Aerotron's contractual performance. The bankruptcy
court and the district court interpreted 11 U.S.C.§ 106 to provide that
such demand letters constituted a "proof of claim in the case" and
therefore amounted to a waiver under § 106. That section, as amended
in 1994, provides in relevant part:
(a) Notwithstanding an assertion of sovereign immunity,
sovereign immunity is abrogated as to a governmental
unit to the extent set forth in this section with respect
to the following:
(1) [referring to this section 106]. . . .
***
(b) A governmental unit that has filed a proof of claim in
the case is deemed to have waived sovereign immunity
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is involved in this case. We leave for another day the issues revolving
around the authority to waive, and to define what can be deemed a
waiver of, Eleventh Amendment immunity.
9
with respect to a claim against such governmental unit
that is property of the estate and that arose out of the
same transaction or occurrence out of which the claim
of such governmental unit arose.
(Emphasis added).
The majority has today reversed the lower court's ruling by holding
that "a State's transmission to a debtor of a written demand for pay-
ment of a claim, without more, does not constitute the `filing of a
proof of claim in the case,' as that term is used in§ 106(b) of the
Bankruptcy Reform Act of 1994." Slip op. at 7. Based on that statu-
tory interpretation, the majority concludes that Texas did not waive
its sovereign immunity. Because of the outcome that the majority
reaches through its statutory interpretation of§ 106, it concludes that
"we have no occasion to address the broader constitutional question"
of whether the Eleventh Amendment bars this suit or bars Congress'
attempt to define a state's waiver of sovereign immunity. Slip op. at
7-8.
While I would agree with the statutory interpretation placed on 11
U.S.C. § 106(b) by the majority, I conclude that we must address the
Eleventh Amendment issue first because it determines our power as
a court to make any statutory interpretation. And if we were to con-
clude that we have the power to construe the statute, we would still
have to decide whether Congress had the power, under Article I, sec-
tion 8, clause 4, of the Constitution, to enact a provision that defines
when a State waives sovereign immunity before the federal bank-
ruptcy courts.
I
In the bankruptcy court, in the district court, and on appeal before
us, Texas has raised two interrelated threshold constitutional ques-
tions: (1) whether we have authority to reach the merits of a statutory
interpretation when Texas contends that it has not consented to this
suit filed in federal court and (2) whether Congress overstepped its
power in purporting to abrogate Texas' immunity under Article I, sec-
tion 8, clause 4 of the Constitution.1 Because federal power to adjudi-
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1 Although 11 U.S.C. § 106(b) speaks of when a state is "deemed to
have waived sovereign immunity," § 106(a) says that state immunity is
10
cate against states is at issue, we cannot, as a matter of convenience,
decide the statutory meaning of 11 U.S.C. § 106 in order not to reach
the constitutional questions. Rather, we must first answer the constitu-
tional questions to determine whether, in the face of such a challenge,
we have the power to adjudicate matters beyond the questions of our
power and Congress' power.
II
The Eleventh Amendment is phrased to limit jurisdiction of the
federal courts as follows: "The Judicial power of the United States
shall not be construed to extend to any suit in law or equity, com-
menced or prosecuted against one of the United States by Citizens of
another State or by Citizens or Subjects of any Foreign State." U.S.
Const. amend. XI. The Supreme Court has consistently interpreted the
Eleventh Amendment to recognize that "it is inherent in the nature of
[state] sovereignty not to be amenable to the suit of an individual
without its consent." Seminole Tribe of Florida v. Florida, 116 S.C.
1114, 1122 (1996) (citations omitted). In Seminole Tribe, the
Supreme Court held that the Eleventh Amendment prohibits Con-
gress' attempt to authorize suits by Indian tribes against the states. Id.
The Court observed that "federal jurisdiction over suits against uncon-
senting states `was not contemplated by the Constitution when estab-
lishing the judicial power of the United States.'" Id. (quoting Hans v.
Louisiana, 134 U.S. 1, 15 (1890)). Accordingly, we must first address
whether Texas waived the benefit of the constitutional limitation.
Moreover, if Seminole Tribe made anything clear, it is that Elev-
enth Amendment immunity is a function of a State's sovereign consti-
tutional status, not Congress' Article I powers. See id. at 1131-32
("The Eleventh Amendment restricts the judicial power under Article
III, and Article I cannot be used to circumvent the constitutional limi-
tations placed upon federal jurisdiction"). Accordingly, Congress'
enactments under Article I are irrelevant to whether a state retains its
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"abrogated . . . to the extent set forth in this section [106]." (Emphasis
added). Congress apparently believed that the "deemed waiver" of
§ 106(b) was the extent of abrogation under§ 106(a).
11
Eleventh Amendment immunity because Congress lacks power to
affect that immunity in the exercise of its Article I powers.2
Thus, by analyzing Texas' immunity only in terms of Congress'
Article I enactments, I believe that the majority has committed the
very error identified in Seminole Tribe. By analyzing the question as
it has, the majority suggests that states are amenable to suits in federal
courts when Congress, acting pursuant to its Article I bankruptcy
power, deems it so. Congress, I respectfully suggest, lacks such power
in our system of federalism.
III
Instead of interpreting an Article I enactment of Congress, I believe
we must apply the constitutional doctrine of Eleventh Amendment
waiver. To find a waiver of Eleventh Amendment immunity, "we
require an unequivocal indication that the state intends to consent to
federal jurisdiction that otherwise would be barred by the Eleventh
Amendment." Atascadero State Hosp. v. Scanlon , 473 U.S. 234, 238
n.1 (1985). Since there is no such unequivocal indication here, I
would agree with the majority that Texas has not waived its sovereign
immunity.
In approaching the question without regard to 11 U.S.C. § 106, I
do not mean to suggest that the statute incorrectly describes those
actions which constitute a state's waiver of sovereign immunity. But
such actions constitute a waiver of immunity not because Congress in
§ 106 has said so. Seminole Tribe held that Congress' Article I pow-
ers are irrelevant to an Eleventh Amendment waiver. Instead, a state's
actions waive immunity when such actions are independently suffi-
cient under Eleventh Amendment doctrine. Thus, although 11 U.S.C.
§ 106 may restate the law of Eleventh Amendment waiver, it does not
establish the law on the subject.
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2 The Supreme Court affirmed Congress' power, not involved here, to
affect state immunity in federal court through the Fourteenth Amend-
ment. See Seminole Tribe, 116 S.C. at 1128.
12