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The district court held that the defendants had 'carried their burden' in showing the connection needed for jurisdiction under ' 1334 (b). The court also cited the need to coordinate WorldCom's bankruptcy proceedings and the myriad shareholder suits filed against the troubled telecommunications company. The court reasoned that the desire of the pension funds to return to state court had to give way to the 'efficiency and reorganization goals of the Bankruptcy Code,' which favor federal jurisdiction and removal in all but a few limited circumstances.

Automatic Stay Does Not Apply to EEOC Action

The Bankruptcy Court for the Eastern District of Kentucky has ruled that a civil enforcement action brought by the Equal Employment Opportunity Commission qualifies as an action brought by a governmental unit to enforce its police or regulatory power, so the EEOC's efforts to enforce the provisions of Title VII against a Chapter 7 debtor-employer in federal district court were not subject to the automatic stay. The court also noted, however, that although the EEOC's cause of action was not subject to the automatic stay, any judgment that the EEOC obtained against the debtor-employer would only be collectible through the debtor's bankruptcy. In re Shelbyville Mixing Center, Inc., 288 B.R. 765 (Dec. 20, 2002).

The EEOC filed suit in federal district court alleging that an employer failed and refused to hire women as a class because of their sex in violation of Title VII of the Civil Rights Act of 1964. Upon filing its Chapter 7 bankruptcy petition, the employer argued that the EEOC's action was automatically stayed pursuant to Section 362(a) of the Bankruptcy Code. The debtor also filed a Notice of Removal and a Motion to Transfer, seeking to remove the EEOC's action from the district court and to transfer it to the bankruptcy court.

The bankruptcy court rejected the debtor's argument that all claims and causes of action asserted in the EEOC's Title VII lawsuit are within the jurisdiction of the bankruptcy court and may be removed pursuant to 28 U.S.C. ' 1452. Stating that the debtor's reliance on Section 1452 was 'misplaced,' the court noted the 1452 'applies to removals and remands from and to state courts and does not provide a basis for removing a case to the bankruptcy court from a U.S. district court, of which the bankruptcy court is a unit. The proper method for achieving such a transfer is by a motion to refer filed with the district court.' Further that even if removal were proper, the EEOC action 'may not be removed under Section 1452(a),' which courts have interpreted to prohibit the removal of various enforcement actions brought under state and local laws and ordinances. The bankruptcy court also noted that under Section 362(b)(4) an ”action by a governmental unit to enforce such governmental unit's police or regulatory power” is exempt from the automatic stay. 'It is well settled that lawsuits filed by the EEOC are actions brought to enforce its police or regulatory power within the meaning of Section 362(b)(4) of the Bankruptcy Code and are therefore not stayed by the filing of a petition in bankruptcy,' the court stated. The court also added that although the automatic stay did not apply to the EEOC's lawsuit or its ability to obtain a judgment against the debtor, any judgment that it would obtain 'is collectible only in the bankruptcy proceedings.'

Bankruptcy Code Valid Abrogation of State Sovereign Immunity

Rejecting the position of five other circuit courts, the Sixth Circuit has held that pursuant to Article I, section 8 of the U.S. Constitution, Section 106 of the Bankruptcy Code is a valid abrogation of the states' sovereign immunity with respect to debt dischargeability issues. Hood v. Tennessee Student Assistance Corporation (In re Hood), No. 01-5769 (Feb. 3, 2002).

A Chapter 7 debtor brought an adversary proceeding seeking a determination that she was entitled to a hardship discharge of her student loan. The state entity holding the debtor's loan moved to dismiss for lack of jurisdiction, claiming that the proceeding was barred by sovereign immunity. The bankruptcy court refused to dismiss the adversary action, holding that when Congress abrogated the states' immunity in Section 106(a) of the Bankruptcy Code, it was exercising a valid grant of constitutional authority. On appeal, a Bankruptcy Appellate Panel affirmed.

The Sixth Circuit also affirmed. The Eleventh Amendment only permits private suits against states if the state waives its sovereign immunity or if Congress, following valid constitutional authority, abrogates the state's sovereign immunity. The Supreme Court has established a two-part test to determine if Congress has validly abrogated state immunity from suit in federal court. Seminole Tribe of Florida v. Florida, 517 U.S. 44, (1996) holds that Congress must make its intention to abrogate unmistakably clear in the language of the statute, and Congress must act pursuant to sufficient authority. The Third, Fourth, Fifth, Seventh, and Ninth Circuits have all held that Congress may not validly abrogate state sovereign immunity on the basis of its Bankruptcy Clause powers, but the Sixth Circuit concluded that the Supreme Court has 'never addressed Congress's Bankruptcy Clause powers' as set forth in plan of the Constitutional Convention. The court looked carefully at the text of the Constitution and the comments in The Federalist Papers and concluded that by granting Congress the power to make uniform laws, such as the Bankruptcy Clause, the states were ceding both their legislative powers and their immunity. The court noted that none of the original debaters of state ratification 'objected to subjecting the states to federal suits in bankruptcy,' and that this 'lack of recorded opposition puts suits in bankruptcy against the states in the same category with other constitutionally-approved limits on sovereign immunity, such as the provisions subjecting states to suit by the federal government.' Consequently, the court found '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 Bankruptcy Court for the Eastern District of Kentucky has ruled that a civil enforcement action brought by the Equal Employment Opportunity Commission qualifies as an action brought by a governmental unit to enforce its police or regulatory power, so the EEOC's efforts to enforce the provisions of Title VII against a Chapter 7 debtor-employer in federal district court were not subject to the automatic stay. The court also noted, however, that although the EEOC's cause of action was not subject to the automatic stay, any judgment that the EEOC obtained against the debtor-employer would only be collectible through the debtor's bankruptcy. In re Shelbyville Mixing Center, Inc., 288 B.R. 765 (Dec. 20, 2002).

The EEOC filed suit in federal district court alleging that an employer failed and refused to hire women as a class because of their sex in violation of Title VII of the Civil Rights Act of 1964. Upon filing its Chapter 7 bankruptcy petition, the employer argued that the EEOC's action was automatically stayed pursuant to Section 362(a) of the Bankruptcy Code. The debtor also filed a Notice of Removal and a Motion to Transfer, seeking to remove the EEOC's action from the district court and to transfer it to the bankruptcy court.

The bankruptcy court rejected the debtor's argument that all claims and causes of action asserted in the EEOC's Title VII lawsuit are within the jurisdiction of the bankruptcy court and may be removed pursuant to 28 U.S.C. ' 1452. Stating that the debtor's reliance on Section 1452 was 'misplaced,' the court noted the 1452 'applies to removals and remands from and to state courts and does not provide a basis for removing a case to the bankruptcy court from a U.S. district court, of which the bankruptcy court is a unit. The proper method for achieving such a transfer is by a motion to refer filed with the district court.' Further that even if removal were proper, the EEOC action 'may not be removed under Section 1452(a),' which courts have interpreted to prohibit the removal of various enforcement actions brought under state and local laws and ordinances. The bankruptcy court also noted that under Section 362(b)(4) an ”action by a governmental unit to enforce such governmental unit's police or regulatory power” is exempt from the automatic stay. 'It is well settled that lawsuits filed by the EEOC are actions brought to enforce its police or regulatory power within the meaning of Section 362(b)(4) of the Bankruptcy Code and are therefore not stayed by the filing of a petition in bankruptcy,' the court stated. The court also added that although the automatic stay did not apply to the EEOC's lawsuit or its ability to obtain a judgment against the debtor, any judgment that it would obtain 'is collectible only in the bankruptcy proceedings.'

Hood v. Tennessee Student Assistance Corporation (In re Hood)

A Chapter 7 debtor brought an adversary proceeding seeking a determination that she was entitled to a hardship discharge of her student loan. The state entity holding the debtor's loan moved to dismiss for lack of jurisdiction, claiming that the proceeding was barred by sovereign immunity. The bankruptcy court refused to dismiss the adversary action, holding that when Congress abrogated the states' immunity in Section 106(a) of the Bankruptcy Code, it was exercising a valid grant of constitutional authority. On appeal, a Bankruptcy Appellate Panel affirmed.

The Sixth Circuit also affirmed. The Eleventh Amendment only permits private suits against states if the state waives its sovereign immunity or if Congress, following valid constitutional authority, abrogates the state's sovereign immunity. The Supreme Court has established a two-part test to determine if Congress has validly abrogated state immunity from suit in federal court. Seminole Tribe of Florida v. Florida, 517 U.S. 44, (1996) holds that Congress must make its intention to abrogate unmistakably clear in the language of the statute, and Congress must act pursuant to sufficient authority. The Third, Fourth, Fifth, Seventh, and Ninth Circuits have all held that Congress may not validly abrogate state sovereign immunity on the basis of its Bankruptcy Clause powers, but the Sixth Circuit concluded that the Supreme Court has 'never addressed Congress's Bankruptcy Clause powers' as set forth in plan of the Constitutional Convention. The court looked carefully at the text of the Constitution and the comments in The Federalist Papers and concluded that by granting Congress the power to make uniform laws, such as the Bankruptcy Clause, the states were ceding both their legislative powers and their immunity. The court noted that none of the original debaters of state ratification 'objected to subjecting the states to federal suits in bankruptcy,' and that this 'lack of recorded opposition puts suits in bankruptcy against the states in the same category with other constitutionally-approved limits on sovereign immunity, such as the provisions subjecting states to suit by the federal government.' Consequently, the court found '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.'

Transfer of WorldCom Fraud Claim Rejected

The District Court for the Southern District of New York has rejected an attempt by nine New York City pension funds to have their fraud case against the former Chief Operating Officer of WorldCom Inc. and others transferred to state court. New York City Employees Retirement System v. Ebbers (In re WorldCom, Inc. Securities Litigation), No. 02 Civ. 8981 (March 3, 2003).

The pension funds argued that their fraud claim should be heard in state court because it was not 'related to' the bankruptcy within the meaning of the Code's subject matter jurisdiction provision, 28 U.S.C. ' 1334 (b). In addition, even if bankruptcy jurisdiction existed, the pension fund claimed that the federal court should abstain from exercising jurisdiction or at least remand the case to state court based on equitable considerations. The defendants, including WorldCom directors and underwriting investment banks, replied that the 'related-to' standard was met by the indemnification and contribution rights asserted against the company and company insurance policies covering the directors.

The district court held that the defendants had 'carried their burden' in showing the connection needed for jurisdiction under ' 1334 (b). The court also cited the need to coordinate WorldCom's bankruptcy proceedings and the myriad shareholder suits filed against the troubled telecommunications company. The court reasoned that the desire of the pension funds to return to state court had to give way to the 'efficiency and reorganization goals of the Bankruptcy Code,' which favor federal jurisdiction and removal in all but a few limited circumstances.

Automatic Stay Does Not Apply to EEOC Action

The Bankruptcy Court for the Eastern District of Kentucky has ruled that a civil enforcement action brought by the Equal Employment Opportunity Commission qualifies as an action brought by a governmental unit to enforce its police or regulatory power, so the EEOC's efforts to enforce the provisions of Title VII against a Chapter 7 debtor-employer in federal district court were not subject to the automatic stay. The court also noted, however, that although the EEOC's cause of action was not subject to the automatic stay, any judgment that the EEOC obtained against the debtor-employer would only be collectible through the debtor's bankruptcy. In re Shelbyville Mixing Center, Inc., 288 B.R. 765 (Dec. 20, 2002).

The EEOC filed suit in federal district court alleging that an employer failed and refused to hire women as a class because of their sex in violation of Title VII of the Civil Rights Act of 1964. Upon filing its Chapter 7 bankruptcy petition, the employer argued that the EEOC's action was automatically stayed pursuant to Section 362(a) of the Bankruptcy Code. The debtor also filed a Notice of Removal and a Motion to Transfer, seeking to remove the EEOC's action from the district court and to transfer it to the bankruptcy court.

The bankruptcy court rejected the debtor's argument that all claims and causes of action asserted in the EEOC's Title VII lawsuit are within the jurisdiction of the bankruptcy court and may be removed pursuant to 28 U.S.C. ' 1452. Stating that the debtor's reliance on Section 1452 was 'misplaced,' the court noted the 1452 'applies to removals and remands from and to state courts and does not provide a basis for removing a case to the bankruptcy court from a U.S. district court, of which the bankruptcy court is a unit. The proper method for achieving such a transfer is by a motion to refer filed with the district court.' Further that even if removal were proper, the EEOC action 'may not be removed under Section 1452(a),' which courts have interpreted to prohibit the removal of various enforcement actions brought under state and local laws and ordinances. The bankruptcy court also noted that under Section 362(b)(4) an ”action by a governmental unit to enforce such governmental unit's police or regulatory power” is exempt from the automatic stay. 'It is well settled that lawsuits filed by the EEOC are actions brought to enforce its police or regulatory power within the meaning of Section 362(b)(4) of the Bankruptcy Code and are therefore not stayed by the filing of a petition in bankruptcy,' the court stated. The court also added that although the automatic stay did not apply to the EEOC's lawsuit or its ability to obtain a judgment against the debtor, any judgment that it would obtain 'is collectible only in the bankruptcy proceedings.'

Bankruptcy Code Valid Abrogation of State Sovereign Immunity

Rejecting the position of five other circuit courts, the Sixth Circuit has held that pursuant to Article I, section 8 of the U.S. Constitution, Section 106 of the Bankruptcy Code is a valid abrogation of the states' sovereign immunity with respect to debt dischargeability issues. Hood v. Tennessee Student Assistance Corporation (In re Hood), No. 01-5769 (Feb. 3, 2002).

A Chapter 7 debtor brought an adversary proceeding seeking a determination that she was entitled to a hardship discharge of her student loan. The state entity holding the debtor's loan moved to dismiss for lack of jurisdiction, claiming that the proceeding was barred by sovereign immunity. The bankruptcy court refused to dismiss the adversary action, holding that when Congress abrogated the states' immunity in Section 106(a) of the Bankruptcy Code, it was exercising a valid grant of constitutional authority. On appeal, a Bankruptcy Appellate Panel affirmed.

The Sixth Circuit also affirmed. The Eleventh Amendment only permits private suits against states if the state waives its sovereign immunity or if Congress, following valid constitutional authority, abrogates the state's sovereign immunity. The Supreme Court has established a two-part test to determine if Congress has validly abrogated state immunity from suit in federal court. Seminole Tribe of Florida v. Florida , 517 U.S. 44, (1996) holds that Congress must make its intention to abrogate unmistakably clear in the language of the statute, and Congress must act pursuant to sufficient authority. The Third, Fourth, Fifth, Seventh, and Ninth Circuits have all held that Congress may not validly abrogate state sovereign immunity on the basis of its Bankruptcy Clause powers, but the Sixth Circuit concluded that the Supreme Court has 'never addressed Congress's Bankruptcy Clause powers' as set forth in plan of the Constitutional Convention. The court looked carefully at the text of the Constitution and the comments in The Federalist Papers and concluded that by granting Congress the power to make uniform laws, such as the Bankruptcy Clause, the states were ceding both their legislative powers and their immunity. The court noted that none of the original debaters of state ratification 'objected to subjecting the states to federal suits in bankruptcy,' and that this 'lack of recorded opposition puts suits in bankruptcy against the states in the same category with other constitutionally-approved limits on sovereign immunity, such as the provisions subjecting states to suit by the federal government.' Consequently, the court found '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 Bankruptcy Court for the Eastern District of Kentucky has ruled that a civil enforcement action brought by the Equal Employment Opportunity Commission qualifies as an action brought by a governmental unit to enforce its police or regulatory power, so the EEOC's efforts to enforce the provisions of Title VII against a Chapter 7 debtor-employer in federal district court were not subject to the automatic stay. The court also noted, however, that although the EEOC's cause of action was not subject to the automatic stay, any judgment that the EEOC obtained against the debtor-employer would only be collectible through the debtor's bankruptcy. In re Shelbyville Mixing Center, Inc., 288 B.R. 765 (Dec. 20, 2002).

The EEOC filed suit in federal district court alleging that an employer failed and refused to hire women as a class because of their sex in violation of Title VII of the Civil Rights Act of 1964. Upon filing its Chapter 7 bankruptcy petition, the employer argued that the EEOC's action was automatically stayed pursuant to Section 362(a) of the Bankruptcy Code. The debtor also filed a Notice of Removal and a Motion to Transfer, seeking to remove the EEOC's action from the district court and to transfer it to the bankruptcy court.

The bankruptcy court rejected the debtor's argument that all claims and causes of action asserted in the EEOC's Title VII lawsuit are within the jurisdiction of the bankruptcy court and may be removed pursuant to 28 U.S.C. ' 1452. Stating that the debtor's reliance on Section 1452 was 'misplaced,' the court noted the 1452 'applies to removals and remands from and to state courts and does not provide a basis for removing a case to the bankruptcy court from a U.S. district court, of which the bankruptcy court is a unit. The proper method for achieving such a transfer is by a motion to refer filed with the district court.' Further that even if removal were proper, the EEOC action 'may not be removed under Section 1452(a),' which courts have interpreted to prohibit the removal of various enforcement actions brought under state and local laws and ordinances. The bankruptcy court also noted that under Section 362(b)(4) an ”action by a governmental unit to enforce such governmental unit's police or regulatory power” is exempt from the automatic stay. 'It is well settled that lawsuits filed by the EEOC are actions brought to enforce its police or regulatory power within the meaning of Section 362(b)(4) of the Bankruptcy Code and are therefore not stayed by the filing of a petition in bankruptcy,' the court stated. The court also added that although the automatic stay did not apply to the EEOC's lawsuit or its ability to obtain a judgment against the debtor, any judgment that it would obtain 'is collectible only in the bankruptcy proceedings.'

Hood v. Tennessee Student Assistance Corporation (In re Hood)

A Chapter 7 debtor brought an adversary proceeding seeking a determination that she was entitled to a hardship discharge of her student loan. The state entity holding the debtor's loan moved to dismiss for lack of jurisdiction, claiming that the proceeding was barred by sovereign immunity. The bankruptcy court refused to dismiss the adversary action, holding that when Congress abrogated the states' immunity in Section 106(a) of the Bankruptcy Code, it was exercising a valid grant of constitutional authority. On appeal, a Bankruptcy Appellate Panel affirmed.

The Sixth Circuit also affirmed. The Eleventh Amendment only permits private suits against states if the state waives its sovereign immunity or if Congress, following valid constitutional authority, abrogates the state's sovereign immunity. The Supreme Court has established a two-part test to determine if Congress has validly abrogated state immunity from suit in federal court. Seminole Tribe of Florida v. Florida , 517 U.S. 44, (1996) holds that Congress must make its intention to abrogate unmistakably clear in the language of the statute, and Congress must act pursuant to sufficient authority. The Third, Fourth, Fifth, Seventh, and Ninth Circuits have all held that Congress may not validly abrogate state sovereign immunity on the basis of its Bankruptcy Clause powers, but the Sixth Circuit concluded that the Supreme Court has 'never addressed Congress's Bankruptcy Clause powers' as set forth in plan of the Constitutional Convention. The court looked carefully at the text of the Constitution and the comments in The Federalist Papers and concluded that by granting Congress the power to make uniform laws, such as the Bankruptcy Clause, the states were ceding both their legislative powers and their immunity. The court noted that none of the original debaters of state ratification 'objected to subjecting the states to federal suits in bankruptcy,' and that this 'lack of recorded opposition puts suits in bankruptcy against the states in the same category with other constitutionally-approved limits on sovereign immunity, such as the provisions subjecting states to suit by the federal government.' Consequently, the court found '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.'