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IN THE SUPREME COURT OF THE UNITED STATES - - - - - - - - - - - - - - - -X TENNESSEE STUDENT ASSISTANCE CORPORATION, Petitioner : : : : : No. 02-1606

PAMELA L. HOOD.

- - - - - - - - - - - - - - - -X Washington, D.C. Monday, March 1, 2004 The above-entitled matter came on for oral

argument before the Supreme Court of 10:01 a.m. APPEARANCES:

the United States at

DARYL J. BRAND, ESQ., Associate Solicitor General, Nashville, Tennessee; on behalf of the Petitioner. LEONARD H. GERSON, ESQ., New York, New York; on behalf of the Respondent.

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ORAL ARGUMENT OF DARYL J. BRAND, ESQ.

C O N T E N T S
PAGE

On behalf of the Petitioner LEONARD H. GERSON, ESQ.
On behalf of the Respondent REBUTTAL ARGUMENT OF
DARYL J. BRAND, ESQ.
On behalf of the Petitioner

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the notion briefs, that proceeding or the State case in an would be the Court: now in

P R O C E E D I N G S (10:01 a.m.) CHIEF JUSTICE No. 82 -REHNQUIST: We'll hear Tennessee argument Student

rather, 02-1606,

Assistance Corporation v. Pamela Hood. Mr. Brand. ORAL ARGUMENT OF DARYL J. BRAND ON BEHALF OF THE PETITIONER MR. BRAND: Mr. Chief Justice, and may it please

This Court's

decisions recognize

that even

in

subject areas where Article I grants Congress complete and exclusive authority to make laws, unconsenting States are

still immune from suits by private parties. QUESTION: Well, let's talk a little in one or more bit about amicus

that's raised

of the

a bankruptcy proceeding is akin to an in rem is an in rem proceeding, such as where we would would you might be think the that

admiralty suit bound. Now,

address

argument, which I found possibly persuasive? MR. BRAND: Certainly, Your Honor. We would

submit that there -- there is no authority from this Court supporting the view that there is an in rem exception from sovereign immunity in the bankruptcy
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context.

The

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argument referred,

instead to the

is --

made the

by

analogy, case

as of

Your Deep

Honor Sea

admiralty

Research, but the Deep Sea Research case is limited to the admiralty context. admiralty law that It's limited to the special aspects of had developed over hundreds of years,

certainly 200 years of -- of our Nation's experience. QUESTION: bankruptcy assembled creditors context in kind Well, too of why doesn't it fit in the are the

where the an It in rem

debtor's

assets and

proceeding

share in it?

could have

very unfortunate

consequences certainly if -- if your position were upheld. MR. BRAND: Well, Your Honor, although there

certainly are in rem aspects to bankruptcy jurisdiction in the context of dealing with the property of the estate

that is before the court and that is in the custody of the court, bankruptcy jurisdiction in personam also embraces other -the

other aspects of

jurisdiction involving

parties and -- and personal relationships. QUESTION: rem for a moment? Well, could we just stick with the in Suppose there's a $100,000 on the usual are more -the -- the debts

free-for-all because there exceed that it's not amount. going to

The State appear.

gets notice. The bankrupt

It decides is -is

discharged.

At the very least,

if the State

then later

sues on the debt, is the -- can the discharge be set up as
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a defense? MR. BRAND: authority from could in fact, Well, Your Honor, there -- there is courts that -that it the -­

-- from the lower and that in --

in that situation,

the State might be bound by a general discharge order. QUESTION: something where -Well, what -where what happened here was was issued to the

a summons

State, wasn't it?

It was -- the

State didn't just remain

outside and do nothing. MR. BRAND: Well, that's -that's exactly

right, Your Honor, and it also is a situation in which the State was not making a of the bankrupt estate. QUESTION: part of a res. Yes. It's hard to think of a debt as claim against the -- the property

I -- I can't quite -­ And that -­ -- get that.

MR. BRAND: QUESTION:

And I understand, but just on the basic point of whether or not just for a discharge of a debt, the State

can be bound, you say you think it might be plausible, but the State would be bound by on the debt. MR. BRAND: Your Honor. I don't want to concede that point, is authority certainly that the judgment if it later sues

I think there

would -- that could support

that, and there are decisions
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from

the

-- from

the

circuit courts,

particularly the a

Fourth, the Fifth, and the

Ninth, which have held that

discharge order under those circumstances would be binding against the upheld State. But each of those a bar courts has also

sovereign immunity as

to a suit

against a

State as the State asserts in this case. QUESTION: the State. This is But this is not a normal suit against a suit in which the debtor seeks

authority to get a discharge, isn't it? MR. that -­ QUESTION: determine So the proceeding itself is to BRAND: That's right, Your Honor, except

whether or not she's entitled to a discharge on

the debt at issue. MR. BRAND: Yes. She is -she has already

received a bankruptcy discharge, debt. This is a proceeding

a blanket discharge from to determine if this the

particular debt statute is this up

qualifies under

that.

And the way

written, the way -is that the

the way Congress debt is

has set

presumptively

nondischargeable. such point as which point

It is an exception from discharge until establishes undue hardship, absolved and she at

the debtor

the debt would be

would -­

she would, in effect, have a discharge. by -- by the nature of the way the -­
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But again, the -­

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QUESTION:

If she

-- if

she prevails will be just

in that like any forward would be

factual matter, If

then it

other discharge case. and she prevails as

-- if the hearing goes fact, then it

a matter of

just like any other discharge case, wouldn't it? MR. BRAND: No, it wouldn't, Your Honor. A

normal discharge case would essentially not involve at all the adjudication of individual debts. QUESTION: No. I'm saying The discharge is -­ if she prevails on just

the disputed issues of fact, like a normal discharge case. MR. understanding, BRAND: Your It Honor.

thereafter it would be

--

it Yes,

--

yes,

if have,

I'm in

she would Yes.

effect, a discharge from that debt. QUESTION: Moreover,

the -- the fact

that this

proceeding had to be brought a result of congressional these debts case they

against the State was purely disposition. to the State Congress could like all other

have

treated

debts, in which discharged.

would have been

automatically

MR. BRAND: QUESTION:

That's exactly right, Your Honor. So -so that the -- the argument

that the bankruptcy -- the in rem nature of the bankruptcy procedure gives Constitution -- gives her all the protection that the State, it

at least requires,
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vis-a-vis the

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seems

to me is

a strong one.

It's only

because of the If

statute that

-- that this action

had to be brought.

Congress really wants to State, it

discharge her from debts

to the

could have done so by simply treating the State

like all other debtors. MR. BRAND: Honor. which I think that's exactly right, Your

The debt could be treated as a discharged debt, in case the State would certainly be bound by the

operation of that law, but that is not -­ QUESTION: Isn't it -- isn't it odd that you are

objecting to this proceeding where, if Congress then said, okay, we'll make it dischargeable, you In other words, Congress is trying will be worse off? to ameliorate the

ordinary effect of the bankruptcy law to give the State an advantage. And your argument is to the effect of, and us is

Congress, you can treat us we'll be worse off than we this favor, then you

just like all the others, are now, but once you give -the -the law

unconstitutional.

You can't give us a favor.

That seems

to be the essence of your argument. MR. BRAND: our argument immune from discharge -- our No, Your Honor. argument is of the of I -- I would submit the State is

not that statute that

the effect upon showing

would allow We would of

undue

hardship.

recognize that that is --

that is an appropriate part
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the -- of the exercise of Congress' bankruptcy power. Our issue is with the provisions which are there by virtue of the nature of the way that -that exception

is written and also by virtue of the bankruptcy rules that require that proceeding in it be which raised in the State the form could of an be adversary

summoned into

court, in bankruptcy court, anywhere in the country. MR. BRAND: Well, could it be adjudicated

without an adversary proceeding, just say the debtor comes in and says, I'm giving notice to the State? to come in, they can, but it's not If they want I'm not

-- it's --

going to and just

call it or the statute doesn't call it a summons call it an establish adversary proceeding, the status of this

complaint, doesn't a proceeding to

obligation. MR. Scalia would BRAND: Your Honor, I write think a as Justice statute that

suggested,

Congress could

make a student loan

dischargeable, more or less by submit that the way this

operation of

law, but we would

statute is written -- and again, if we look -­ QUESTION: I'm not asking about making it

totally dischargeable, but Congress result and sensitive to your

wants to achieve this So it says, fine,

concern.

we're going to make it nondischargeable unless the student shows undue hardship, but because the State
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doesn't want

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to receive a summons and

complaint, we're going to do

it

in a nonadversary proceeding.

The student will establish

it to the satisfaction of the bankruptcy court or not, and the State complaint. will be given notice but not a summons and

Would that be satisfactory? MR. BRAND: think that Your Honor, in I don't that believe it would be --

would.

I

substance

essentially the same that

as the

adversary complaint that

we're talking about here.

And -- and under -- under similar

Coeur d'Alene and -- and cases, the

the discussion in other turn on the

question here can't

mechanics of

the pleading or on the -- the style of the caption. QUESTION: So you -- you would have this statute so that waive its in this no problem it reads if the

with Congress' amending the State debtor chooses to

sovereign immunity, manner. However,

has to proceed

if the

State refuses to waive its sovereign immunity by appearing in the proceeding, the debt will be automatically

discharged. take it.

You -- you would have no problem with that, I

MR. BRAND:

I'm not -- I'm not certain that that

would not be the same type of statute that I -- I objected to a moment ago. QUESTION: moment ago. I No. I thought you accepted that moment ago a

thought you

accepted a
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that

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Congress didn't have to provide the States at all. If

this special treatment of

Congress didn't have to provide it if the State chooses

at all, certainly Congress could say

not to -- not to take it, not to appear in the proceeding, we'll dispense with it. includes the lesser. MR. BRAND: I still agree that Well, I -- I agreed, Your Honor, and -that Congress could fashion a I -- it seems to me the greater

statute that would make student loans dischargeable in the same manner as -- as -- it would any other debt. take place And in -- in that as any other

case, it debt.

the same

And of course, if -- if the State were to waive its immunity and enter into a bankruptcy proceeding then -- then it could without

sovereign

and -- and voluntarily participate, do so and -- and

the court could act accordingly

any special enabling legislation by Congress. QUESTION: statute has -how the I -I don't understand what the I a

statute is involved

in this.

mean, the statute just sets -- a student to be why

a standard for discharging

who has an educational loan. What's

It says it has I mean, dozens of

undue hardship. can't -- there

wrong with that? of statutes --

are dozens

statutes that say -- I guess dozens. expert, but discharge statutes that say

I'm not a bankruptcy this kind of a

you get

if there hasn't

been a
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fraudulent conveyance,

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but if there has been, you don't get it, and if it's this, you don't get it, and if it's that, you do get it. All Are -­

these may involve debts are you saying

owed to or -- the State. statute to do

-- what has the

with this?

The statute just sets a standard for getting a discharge. MR. that this student BRAND: Well, Your Honor, I -I believe

statute -- this particular subsection affecting loan discharge is really unique within the

exceptions to discharge. QUESTION: MR. BRAND: QUESTION: All right. There -­ What is it in the Constitution or the Let's assume it's unique.

Eleventh Amendment that says Congress cannot set a special standard for discharging a bankrupt from a certain kind of debt? MR. BRAND: QUESTION: Constitution says Congress -­ What -what in -what in the

that if that kind of debt happens to be

one that is owed to the State, Congress is forbidden to do that? I don't -- I just don't understand it. MR. BRAND: Your Honor, we -- we do not dispute

that Congress has the power to set a separate standard for this type of debt -­ QUESTION: happens to be I know and so why is the State, if it money, in any sort of a

owed that kind of
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different position? MR. BRAND: Well, the -- the question is not the

effectiveness of the congressional determination regarding how to handle that debt, but rather the constitutionality

of the means by which Congress -QUESTION: is, of Now, then what you're quarreling with You are quarreling, as

course, not the statute.

Justice Ginsburg pointed out, with happen to use

a bankruptcy rule that But suppose in

the word adversary proceeding.

the rulemakers had simply said, an adversary proceeding. It can

this need not be done be done in

exactly the kind of the You the they about

same kind of proceeding debt. I, the

as discharging any other judge, will

bankruptcy

follow

congressional mandate will notify all

as to when

it is discharged. Bankrupt, including

debtors, Mr.

State, and if can. such a

they want to come what would that never

in and protest it, be unconstitutional uses the word

Now, why -provision

adversary

proceeding? MR. BRAND: not merely Well, Your Honor, our objection is I would

to the bankruptcy rules.

I would --

repeat that -- that -QUESTION: State isn't bound I at read your position to all, for instance, be that the that the

bankruptcy

court cannot discharge
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property liens held by

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the that

State.

I

mean, I --

I read your

position as being of the

the State cannot

be forced

into any aspect

bankruptcy proceeding. QUESTION: QUESTION: And so did I. I guess -I guess the -- you would

say the State doesn't have to abide by the automatic stay. MR. Certainly briefing would be not. BRAND: And Oh, certainly not, Your Honor.

I thought that we we recognize the

were clear in our the State it's

that we -bound by

that the -stay

automatic

because

automatic.

It is by operation of law and

by operation of

the Supremacy Clause -­ QUESTION: I'd rather like to get the answer to understand what position you took know why. I want to know what Constitution

the question which is I in the brief. the logic is. I I want to

can't find anything in the

that says that Congress cannot impose the same standard in respect to discharging a debt owed to the State as it you you

applies to a debt owed agree with don't -- and the theory is. MR. BRAND:

to anybody else. or you

Now, either And if

that proposition

don't.

I think you don't

-- I'd like to

know what

Your Honor, I -­ Once
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I agree that

Congress

can make those distinctions. QUESTION: Fine.

you agree

with

the

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proposition,

then

all

your

objecting

to is

the

word

adversary in the word adversary proceeding, and it takes 3 minutes or less that for a good expert simply to get rid of

adversary proceeding and have the same thing done in

an ordinary proceeding. Now, I not it. want to know the answer to what I say,

that you disagree with it.

I know you disagree with

I want to know why you disagree with it. MR. BRAND: I disagree with to that out that it because the --

the

legislative

reports as

subsection, section the statute -that

5239(a)(8), strongly point

that subsection is intended to the creditor, the lender, the

be self-executing and that guaranteer, the -- the

guarantee institution, are not required to initiate action but instead can rely on the nondischarge, on the exception from discharge. So by -- by structuring the -- the exception

that way, we would submit that Congress, as this Court has recognized in other situations, has given elevated status

to that creditor's position, has recognized that creditors of those kinds of debts those debts that -that it have interests in the payment the normal of

that outweigh

fresh-start policy So our position is and not

that underlies does turn on

bankruptcy. the nature

of the statute

merely those bankruptcy rules that require -­
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QUESTION:

The statute -- the statute doesn't -­ that preferred position be

doesn't require, does it, that

established in an adversary proceeding? MR. BRAND: but -with but Certainly not by express terms, Your again, that the rules -rules with that made that --

consistent legislative that -­

statute,

together

purpose,

would

certainly indicate

QUESTION:

And

I suppose you're saying Regardless of whether -­

this is

an adversary proceeding. MR. BRAND: QUESTION:

Oh -­ -- regardless of how -- how it got to to be so through rule or through

whether it got

anything else, it's an adversary

proceeding and the State

cannot be hailed in in this fashion. MR. BRAND: That's exactly right, I mean, this -­ there is a dispute about Your Honor.

There's no dispute about that. QUESTION: you could, in No, but

fact, call this

kind of adversary it is not an Eleventh difference

proceeding, given the is a way of

underlying standard that all the same for has result, really of the

getting to proceeding since it

adversary Amendment,

purposes no

functional

whatsoever from a proceeding that but simply gives the State

isn't labeled adversary and

notice of what's going on
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permits the

State to come in, just as if it worked, which

is ordinary proceedings. MR. BRAND: bankruptcy, as Except that ordinary proceedings in not involve the other

I mentioned

earlier, do

individualized adjudication of debts. issues.

They involve

They involve martialing the assets.

They involve

assessing the -­ QUESTION: QUESTION: QUESTION: QUESTION: That's a good answer. Mr. Brand, can I ask you -­ Now, what about -­ May I ask one question? Did I

understand you correctly to the fact that if -that all

say that you did

not contest

if -- that if they had a blanket rule are automatically dischargeable,

student loans

that would be true even if the creditor was a State? MR. BRAND: QUESTION: Certainly, Your Honor, and the -­ And does that mean you also would

agree that any ordinary commercial obligation to the State such as paying rent for an -- an office suite or something like that could also be dischargeable and there would be

no sovereign immunity problem there? MR. BRAND: the reason an I agree Yes, Your Honor, and the to that is It because -it reason -­ not by

that does would occur

require

adjudication.

operation of law by which -­
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QUESTION: a --

Well, but in

there has to the bankruptcy the --

be -- there proceeding a

final order you

discharging discharge.

know, giving

the debtor

MR. BRAND:

But we would

submit in

a -- in

a

very real sense that would be surplusage. QUESTION: But the -- but the net result is I

thought your position in your brief was somewhat different from that. do agree That's that -why I wanted to be sure about it. that the sovereign immunity is not You a

valid objection to a discharge of a bankrupt estate. MR. discharge is analogize to BRAND: That's -that's right And when the would

by operation the -- the

of law.

again, I

situation of the

automatic stay Again,

provision that --

that Justice

O'Connor raised.

that operates automatically when the -­ QUESTION: automatic stay if prove his name, So, but the difference in the

the -- if the serial number,

debtor had to go and rank

in and

or something you would

first, so it

wasn't completely automatic, then

say you have a sovereign immunity objection. MR. BRAND: Possibly, possibly not. Again, I

would submit that there's authority from lower courts that would -- would possibly -­ QUESTION: Well,
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I'm

really

not

so

much

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interested in curious about

the authority from the lower courts as I am your position. What exactly does the

sovereign immunity defense protect for you? MR. BRAND: In this case the sovereign immunity

defense protects the State from being made a defendant and from having compulsory process issued against it to appear in a bankruptcy court union in this case. Now, authority from Court the -the reason is to I was -- is referring to remind to the that could be in any State of the

other courts

that all of the courts

that have -- that have made have

the type of holding that also recognized the

Your Honor is referring to

applicability of

Eleventh Amendment

immunity in adversary settings. QUESTION: I know, but it seems to me somewhat

anomalous to say that if you want us a hearing, you can go ahead us notice and a hearing and

to do it without giving

and do it, but if you give an opportunity to respond,

then you're protected by the Eleventh Amendment. MR. BRAND: QUESTION: MR. BRAND: think There general we're talking is -there Well, again -­ A rather strange position. -- again, about very is quite which
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Your Honor, I think -different things a difference again

I

there. the

between

discharge,

occurs

without

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individualized adjudication of -- of that is

debts -- that is

--

a distinct thing under the bankruptcy laws from a in which there's a proceeding involving

situation in --

the dischargeability of a particular debt -­ QUESTION: MR. BRAND: QUESTION: Well, you say -­ -- such as we have here. -- it could well be that the State

filed a claim and proved up its claim and then there's not enough money to pay it, the claim, but there would be some kind of proceeding to establish the claim. Would that be

different then? MR. BRAND: State Well, in -in a case where the

had filed a claim, the State would have voluntarily in the -in the proceeding as relates to the any

appeared

subject matter of that claim.

So there would not be

sovereign immunity situation there at all. QUESTION: appears, it would So that if the State voluntarily its sovereign

automatically

waive

immunity defense. MR. BRAND: QUESTION: it? The -MR. BRAND: New Jersey. QUESTION: Tell me how bankruptcy works.
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As to that claim, yes. Well, that's the Gardner case, isn't

Yes, I believe so.

Yes, Gardner v.

Is the

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United States

trustee potentially part of

any proceeding Can the trustee

that the trustee wants to be involved in? have come she chose? MR. BRAND: I --

into this proceeding voluntarily if -- if he or

I believe so, Your Honor,

but

I'm not certain if that is applicable in every -- in every district. to that. And I'm not -- I apologize. I know the U.S. trustees I'm not certain as have -have those

powers and responsibilities in at least -- at least a good number of bankruptcy -­ QUESTION: action is Because it does seem that if an

brought by a U.S. trustee, that's an officer -­

that's the Federal Government. MR. BRAND: Well, certainly that would be a

different situation and certainly the State -­ QUESTION: problem. MR. BRAND: that's conceivable. sovereign immunity States. QUESTION: resources, especially no-asset bankruptcy. into each one of In -in a world of limited is a That's right, Your Honor. Certainly from -- from the State That's -­ no Which is another way of solving this

would have

an action by

the United

for the U.S.

trustee -- this

If the U.S. trustee is going to come it might be rather

these proceedings,
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impractical. I was curious class for about the credit -the creditor

these student loans.

It's not just States that under

are creditors when a student the student's debts.

tries to get out from

What -- what other entities would be

in this situation, not with respect to sovereign immunity, but as someone who has loaned money to a student? MR. institution BRAND: could Well, be certainly involved as any a lending -- as a

-- could

creditor in a student loan. I guess fairly there are complicated

The -- the Federal and -- and as well, but between involve lending

State programs

relationships

institutions and secondary holders and guarantors at -- at various levels. QUESTION: the States have, Do you know what part of the business to what extent, compared to other

creditors, other lenders? MR. BRAND: the State of Well, the -- I -The I can speak Tennessee for is

Tennessee.

State of

involved guarantor

as a guarantor, not as a lender, but merely as a in conjunction programs. mainly with these -these

Federal loan

And the -- the State of Tennessee a business actor, public policy of but as a making it a

is participating means of -- of

not as a -pursuing the

simpler and

easier for

Tennessee residents
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college education.

So the -- the State as a guarantor is

-- is not in this -- in the position at all of an ordinary creditor, really, and -- and as far as its -as far as its purpose its financial Again, it's making

even as far as

its -- probably with that.

calculations in -- in how to deal -- it's a matter of it easier

pursuing the public policy of students, for these

for -- for the

debtors to

obtain their college education. QUESTION: So for -- for the primary lender,

this procedure would be fine. be dischargeable to the

The -- so the debt wouldn't creditor, the one who

initial

loans -­ MR. BRAND: Honor, certainly the I -- I -believe -- I the initial believe, Your creditor could

certainly be defense.

involved, would would still

have no be the

sovereign immunity requirement of the

There

undue hardship showing. QUESTION: to say, can't But if you -- if you -- Congress was give them a break, we them dischargeable adverse are

well, too bad, we tried to do it, so we're

going to make

just like any other debt, effect on all the other not State actors. MR. BRAND:

that would have a very

creditors in the picture who

It certainly

would, Your Honor, but far as

it also could create complications as far as -- as
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whether

States

would

choose

to

participate in

--

in

student loan programs. made State by State.

Again, it's a policy determination There's no requirement that the

States participate in -- in such programs. It -it's part of the balancing of those

interests I think that has resulted in this statute and in this statute being written the way it is. At one point in

time not too long ago, student loans were discharged in an ordinary bankruptcy, and then it was -- it was cut back to only loans more than 5 and now, of that had been -- more than 7 in -in payment more than -­ 5 years,

years and more than back all the

course, it's cut

way to where undue

it's only hardship.

subject to

discharge upon a

showing of

So there's --

there's definitely a

policy of and other

wanting to make make that a --

student loan a different

repayment more certain relationship from

debtor/creditor relationships. If there are no further questions from the Court at this time, I would like to reserve the remainder of our time. I would ask that the judgment of the Sixth Circuit

be reversed. QUESTION: Very well, Mr. Brand.

Mr. Gerson, we'll hear from you. ORAL ARGUMENT OF LEONARD H. GERSON ON BEHALF OF THE RESPONDENT
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 is a case fact that

MR.

GERSON:

Mr. Chief

Justice,

and

may it

please the Court: The questioning of the there is an petitioner reflected the between the

inherent conflict

requirements of the operation of the bankruptcy system and the State's sovereign immunity. This conflict has been

recognized in this Court's past opinions. Van Huffel v. Harkelrode, a 1931

For example, in

decision of this Court, free

it was claimed that the and clear of -- of the

sale of a debtor's property

State's tax lien was not effective This --

because the State lacked jurisdiction. QUESTION: MR. GERSON: QUESTION: QUESTION: MR. GERSON: The State lacked?

Jurisdiction over the -­ The State lacked? The Supreme Court. I'm -- I'm sorry, Your Honor. And The

Court lacked jurisdiction over the State. denied that -- the State's position. Subsequent to that that --

this Court

in Gardner/New Jersey, which noted for waiver, the

that which is

State also took the position that not -- that the property that was a part of the debtor's estate was debtor's equity and did not limited to the of the

include that portion

property of the debtor that was subject to the State's tax lien. Again, this Court said,
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no, all property

of the

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

debtor is part of the

estate, including that part

that's

subject to a State's tax lien. QUESTION: Of course, in that case the State had

come into bankruptcy -- the bankruptcy court voluntarily. MR. GERSON: That's correct, Your Honor. But

the opinion -- that portion of the opinion in Gardner that addresses that issue does not rely upon the fact that the

State filed a proof of claim. QUESTION: If -if we were to analogize general, is set up

bankruptcy proceedings to nevertheless this

in rem proceedings in

dischargeability proceeding

under the rules as an summons is

adversary one where a notice That's a product

and a of how

filed on the State. constructed.

the rules are

Now, presumably

in time they

could be changed, but what about this case? MR. GERSON: on To allow this case to be determined proceeding had been filed substance because the

the basis that an adversary be elevating form over

would

jurisdiction of the court with respect to the claim arises from the estate and debtor. adversary court's jurisdiction claims made against over the it and property of the -- and the the

They're all part of the res. proceeding was merely a

So the filing of an manner -merely elevated

allowing the State to --

to be provided with an

form of notice rather than being jurisdictional.
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In

addition, 28

U.S.C.

2075

states that

the

rules, bankruptcy

rules, should not in any way abridge or rights that are granted under the allow this adversary effect of

modify the substantive code, and I decision proceeding

believe in these circumstances to based been upon the filed fact that an the

to be had

would

have

abridging Ms. Hood's rights -­ QUESTION: MR. GERSON: for hardship. QUESTION: What happens when you don't show up Well -­ -- by denying here an opportunity

in an adversary proceeding? MR. GERSON: QUESTION: MR. GERSON: QUESTION: set up judge A default judgment is entered. A default judgment. Yes. So how can you say this way, I to would make -- I mean, had it assume his or that her the own

bankruptcy

would have

determination about had been

whether the condition

of the statute

met, but once you have this adversary system set bankruptcy judge is entirely within his

up, I assume the or her

rights by just saying, hey, the State hasn't shown

up, the State loses. MR. GERSON: QUESTION: I would -- I'd like -­ Now, that -27
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that doesn't seem to me

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

to be elevating form over substance. difference. MR. GERSON: Yes, and I

That -- that's a big

--

I

believe

I

incorrectly stated what would happen, Your Honor. even -- even still have in an adversary proceeding,

It's -­

the court would

to find that Ms. Hood had demonstrated a right

to a -- to an undue hardship discharge. QUESTION: So it wouldn't just go by default

then if the State didn't show up? MR. GERSON: QUESTION: proceedings that depends on what That's correct, Your Honor. Do you know any other adversary

work that way?

I mean, I

suppose that but when the

the -- what the rule means,

rule describes it as an adversary proceeding, I -- I would take it to mean that if the other side doesn't show up, it loses. QUESTION: suit for money Well, in a -- in a -- in an ordinary show

judgment, if the

defendant fails to

up, he can be defaulted as to liability, to show the money damages.

but he still has

He just doesn't get the amount

that he says in his complaint. MR. GERSON: QUESTION: here? MR. GERSON: The amount is at issue only to the
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That's correct, Mr. Chief Justice. Well, is -is the amount at issue

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extent that

in order to show undue hardship, Ms. Hood has

to demonstrate that she can't repay it. QUESTION: Yes, but the -but the -the

amount, how much it is, is is it? MR. GERSON: QUESTION: QUESTION: mean, I don't want adversary there are now.

not -- is not in

controversy,

No, it's not. I thought -­ So what is the situation there? I

you just to drop this. under the Bankruptcy

That is, is an Code -- and

proceeding quite a few.

You've said two

opposite things other party just say,

Your first time show up, win. the

you said, well, if the bankruptcy judge can

doesn't

debtor, you And the The

Okay?

Without looking at no, that's not satisfy

the merits. really so. that the

second time you said, judge has to

bankruptcy

himself

statutory standard is met. Now, I guess this isn't the only place where is

there's a adversary proceeding in it? Is it like an -- and how do

the code. I find out?

So which If

you're

uncertain, what do I look up to try to find out the answer to that question? MR. GERSON: adversary proceedings Well, Justice Breyer, very often court

are commenced

in bankruptcy

and they're necessary when the kind of action that dispute
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-- in have

dispute is the equivalent been commenced prior It's just -Yes, I -­ -to

of an action

that could of the

the establishment

bankruptcy.

QUESTION: MR. brought into

GERSON: the

prior,

you know, And

action now then the

bankruptcy

court.

bankruptcy court could issue a default judgment because -­ QUESTION: MR. action. QUESTION: there -- are So maybe there are no others. Are No, I got that. -it would be a traditional

GERSON:

there any adversary proceedings,

other than

this, one which isn't like what you just described? QUESTION: trustee for -Well, certainly preference an action would by a

of voidable

be quite

different, would it not? MR. GERSON: With respect to a voidable

preference, if -had any the --

if the defendant did not demonstrate it be issued in is a favor of a

defense, a judgment would the State because there

presumption for

voidable preference once certain factors are met. QUESTION: outside the estate against somebody estate.
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And there you're getting too. You're getting increase the

money from

a money judgment assets of the

that would

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. Eleventh actually the -against prevail? is not action

MR. GERSON:

That's correct,

Your Honor, but it

Ms. Hood's position in this case that a preference would of fall within the court traditional and thus in rem

jurisdiction

a bankruptcy

the State

sovereign immunity would be abrogated. QUESTION: if there the So you would -- you would say that if suit for a voidable Amendment preference rule would

were a

State,

the Eleventh

MR.

GERSON:

I

-- that issue

is unclear, Your that the there's right now, is So the the

It's certainly not Amendment a case v. would

Ms. Hood's position not prevail. this where tax And Court

pending before H.J. for an Wilson, income

Massachusetts debtor's

at issue refund.

demand

opportunity

to visit

the issue

of affirmative

monetary

relief against a State and its -- and the ramifications of the Eleventh Amendment can be addressed in that case.

It's -­ QUESTION: get the answer still the question the action. It's We're trying to get -- I'm trying to to Justice Scalia's question. It's Take

Chief Justice asked. a kind of

a preference It's in an

bankruptcy action.

adversary proceeding. MR. GERSON:

Is that right? Yes.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 answer. show up. I just

QUESTION:

Okay.

Now,

the other side

doesn't

Okay, forget this Eleventh want to know the normal

Amendment business. thing in bankruptcy.

What's the answer?

If he doesn't show up, is he defaulted

like a regular case outside the court, or does the trustee -- I mean, does the the matter judge, the bankruptcy judge, look his own mind not? at

and make up

independently about How does it work in

whether it was a preference or bankruptcy? MR. GERSON:

It would

-- it

would

not be

a on

default judgment, Your Honor. the merits. QUESTION:

It would be a judgment

I have one other technical question.

Suppose we were to say -­ QUESTION: Excuse me. I didn't understand that It would be

It would not be a default judgment.

a judgment on the merits. MR. GERSON: QUESTION: all purposes,

Is there a distinction?

It would be a judgment -­ I thought default judgments are, on the merits. for For the

considered judgments

what purpose is a default merits? MR. GERSON:

judgment not a judgment on

Oh, to -of a I

to the extent

it is -­ back normal

there's greater flexibility and ask for

defendant to come believe, under

reconsideration,
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procedures. QUESTION: on the merits. That doesn't make it not be subject a decision but a

It may

to reopening,

default judgment is a judgment. MR. GERSON: QUESTION: were talking certain answer is made That's correct. I thought that the question we -there was a we

about before -- that

clear and

to the question, that -- that if the claim undue hardship, even if the State

that there's

doesn't show up -- well, let's take the -- because this is written for all creditors and not particularly with States in mind. judge still If the creditor doesn't show up, the bankruptcy has to find that there's undue hardship in

order to make this dischargeable. MR. GERSON: QUESTION: That's correct, Justice Ginsburg. And where does that come from? the way it works, but -- where does I -­ is that

that was my understanding about that a statute, come from? MR. GERSON: I a rule?

Where does

think it comes from the

natural

reading of the statute that such that there would be an undue

a finding has to be made debtor to

hardship for the

have to repay that -- that loan. QUESTION: any default You -- you could say the same about

judgment in a case -33

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the tort statute, the defendant has show up.

you know, only imposes been negligent. The

liability where defendant doesn't its own was

The court doesn't -- doesn't enter into inquiry as to whether the

independent negligent.

defendant

It enters default

judgment.

And the statute,

just as clearly, requires negligence there as this statute requires undue hardship here. MR. GERSON: The difference -- the difference is

-- Your Honor, is that all of the property of a debtor and claims against under the that property -- they're -- they're So all a

bankruptcy

court's

jurisdiction.

bankruptcy court has a special obligation to -- to protect the interests believe of all creditors of that, it and the estate, a and I

because

would have

heightened

responsibility to determine whether there an undue hardship discharge because

was a basis for not

the decision is

solely -- is -- is affecting everyone. QUESTION: -- it's as if we're court has In the voidable preference case, it's -- the the suggestion is authority is that the the res the

bankruptcy

to order

brought before

it, commanding

the State

to deliver

res, i.e., the voidable preference. MR. GERSON: QUESTION: MR. I -- there is a question that -­ And -- please. -with -34
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GERSON:

with

regard

to

a

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

voidable preference

action whether

the funds

the debtor

would be seeking would be part of the res because it's not in the possession of the estate. QUESTION: MR. GERSON: Right. And certainly that distinction can

be made as made in California v. -- v. Deep Sea

Research,

that if the property is in the possession of the -- of the State, rather than the debtor, a different result is

required with respect to the Eleventh Amendment. QUESTION: Well, before the Bankruptcy Act in

1978, bankruptcy courts couldn't try voidable preferences. That had to be in the district court I believe. MR. GERSON: QUESTION: when we look That's correct, Justice Rehnquist. If in fact we assume -- let's suppose suppose I was to come to the

into this --

conclusion that

an adversary proceeding in

bankruptcy is

identical to a case that has nothing to do with bankruptcy in a court. find out. You say isn't, All right. Now, if that were so and if that meant under the Court's case law that this particular adversary proceeding were invalid under the Eleventh Amendment, would the and maybe that's so and we'll

bankruptcy judge under

section 105 or some

other section going

or would the Rules Committee have the power without back to Congress to devise
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a different

procedure that

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

would get to exactly the same place, say, a procedure that had the bankruptcy standard while judge adjudicate the this under the like any same other

notifying

State,

creditor, that it could intervene at is choice. MR. GERSON: and the basis for Yes, it could, Your Honor. that would be to And -­

reconciling the

requirements of 28 U.S.C. 2075 and the requirement for the bankruptcy rules because under 105, a court could rule

that it would be inappropriate of Bankruptcy So Rule 7001,

to enforce the requirement an adversary court that

which requires

proceeding.

105 would

give a bankruptcy

power and I believe it would be an appropriate exercise of that power. QUESTION: And even without 105, could the Rules

Committee then devise a different rule? MR. GERSON: QUESTION: depends heavily on Certainly, Your Honor. Mr. Gerson, the you -your position bankruptcy about

characterization of

proceedings as in rem, and

one can understand that

the bankrupt estate, it collects whatever assets there are and distributes them. So how does the in there are no assets? MR. GERSON: Because the debtor itself, at least is also
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But this

is a no-asset bankruptcy. where

rem characterization fit a case

the pre-petition debtor,

considered part of

the

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

res, part of That where was the

the bankruptcy court's in Hanover

rem jurisdiction. v. Moyses had been or

reflected in creditor

National Bank its debt

complained that

discharged, but complaint had

it had

never received --

no summons

ever been filed.

In fact, it complained it

had never received notice. no, bankruptcy that basis discharged is a form of

And this Court's response was, in rem jurisdiction, of that adversary and on be

the -even

the claim though no Notice

creditor could -- no

summons and sufficient,

complaint was filed. and it based -­ QUESTION: the debtor

as a motion was

So

what you're saying

is the --

is

is not a thing, is not

a res, but a debtor -­

this is an adjudication over is also in rem. MR. GERSON:

a status which traditionally

That's correct, Your Honor.

I know what a has of a

it doesn't entirely fit our traditional notions of res is, but it's consistent with in how this

Court

traditionally

understood the and the needs

rem jurisdiction of a bankruptcy

bankruptcy court

court to

satisfy its essential functions. The raised in the kinds of contradictions are that are of being what's Fourth have

questioning

reflective

happened in the circuit courts of appeal where the Circuit, the Fifth Circuit, the Ninth
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Circuit all

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recognized and have stated in -- in the later Seminole Tribe recognized doctrine an in

earlier opinions that in bankruptcy to allow but

applied

rem exception

for the

discharge of debts

with respect to the Fifth

Circuit and the

the Ninth Circuit and --

and the Fourth Circuit, and

Fourth Circuit also recognized that principle with respect to the a confirmation of a plan and its binding effect upon So right now bankruptcy law is in an

State.

inconsistent muddle

with respect to the

applicability of

the Eleventh Amendment, and this case allows this Court an opportunity to reconcile that inconsistency as -­ QUESTION: Only a small piece of it, according

to what you told us earlier, because you said this doesn't involve the preference question. MR. Honor. GERSON: That's -that's correct, Your

Of course, this Court rem nature of

could rule that a bankruptcy

given the fact

traditional in

and the

that, particularly under the Bankruptcy Act as Chief Justice Rehnquist pointed out, was

a preference, not part of

the bankruptcy summary jurisdiction but required a plenary action, that in fact actions requiring any affirmative

monetary relief against a State are not part of a debtor's -are not part of a bankruptcy court's in rem

jurisdiction, if it chose. If there are no more questions, thank you.
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QUESTION:

Thank you, Mr. Gerson.

Mr. Brand, you have 4 minutes remaining. REBUTTAL ARGUMENT OF DARYL J. BRAND ON BEHALF OF THE PETITIONER MR. BRAND: Thank you, Your Honor. Mr. Chief

Justice, and may it please the Court: The State's position in this case is that a to make

proceeding under the law which requires the State a choice between voluntarily entering the

proceeding or

sitting back and suffering a loss is every bit as coercive or an

of its -- of its rights motion else, is the -- the in the

whether it's styled as a or -or anything

adversary proceeding

every bit as situation

coercive as a lawsuit similar to the administrative

with

proceedings

Federal Maritime Commission case. QUESTION: is your answer Is that loss to the of its right automatic? if you

question of whether,

don't show up, a default judgment is entered automatically against you, or does the bankruptcy judge have to make the assessment of whether there's an undue hardship? MR. BRAND: that an undue I am not certain, Your Honor, but I hardship showing would still be

necessary. But in either -- in either situation, the State

would suffer the consequences of losing its rights subject
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to an adjudication, not subject law as with the general

to the mere operation

of a

discharge at the conclusion of

-- of an ordinary bankruptcy proceeding. As case --- as far as the preference actions go, this -- this Court decided in Hoffman v.

I'm sorry

Connecticut

which involved

a preference action

and even

more than that, a turnover action where there actually was property of the estate that the -that the bankrupt

trustee was

-- was entitled to recover, that in either of

those types of situations, the Eleventh Amendment applied. Now, of course, that -- had made a clear event, Congress override the case turned on whether Congress statement in the statute, but found that the had

in any the to

Court, having make

-- that of intent the

did not

a clear immunity,

statement applied

sovereign

Eleventh

Amendment to that preference in that case. Now, in this case we the debtor the creditor

action, that turnover action

have no property. get property.

The

--

is not seeking to -- to is not seeking estate.

The -­ the

to make a

claim out of

property of the the

So we would submit

that -- that

Court can decide proceeding

this case, which on its face,

involves a simple the issuance of of

adversary

compulsory process without whether a

even reaching the question

similar effect would -- would
40

occur in -- in a

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preference action.

action

or

in any

other

type

of bankruptcy

So I'd like to emphasize to is an unusual statute, and does the Eleventh

the Court that this is,

the question in this case apply in the

Amendment

bankruptcy

context? well limit sovereign proceeding

But the precise circumstances of a court's holding immunity protects on this

this case can of whether adversary for a

to the question the State type in an

particular

of statute

particular exception from discharge. If there are no further questions -­ QUESTION: what -- what's the I do have. cite to Would you tell me again, the turnover

the case about

that you just cited? MR. BRAND: QUESTION: MR. BRAND: QUESTION: MR. BRAND: QUESTION: MR. BRAND: plurality of It's -­ What is the name of the case? It's Hoffman v. Connecticut. Hoffman, thank you. It's a 1989 case -­ Right. -- in which -- in which the -- the

the Court found that Congress had not made a to override sovereign immunity,

clear statement of intent

but in which two Justices found that in any event Congress had no constitutional authority
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to

override

Eleventh

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Amendment immunity in such a setting. If there are no further questions, again we -­ QUESTION: your Yes, I had one. it's not that And it was in --

brief said, well,

the bankruptcy law

doesn't find the States so that, for example, if the State as creditor would sue the student after she's been

discharged in bankruptcy, she could then as a defense say, I'm not liable on this debt. the undue hardship finding It's been discharged. from the bankruptcy I got court. would be

That -- you did say that in your brief that that -- that -- that she could have this as a defense. MR. BRAND:

Well, we -- we did not mean that she

would have obtained the undue hardship finding from the -­ the bankruptcy court, of undue hardship in but that she could whatever State raise the issue proceeding was

initiated by the State. QUESTION: such a Why would it the State ever initiate -- it can

proceeding when

has much

easier

garnish wages. MR. question?

It can intercept tax refunds. BRAND: Your Honor, may I answer the

QUESTION: MR. suggests, student the BRAND:

Yes, briefly. The answer is, as means Your Honor

primary

-- the

primary

under the

loan program would

be through
42

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14
15
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18
19
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21
22
23
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and through and State

tax intercepts, law would afford

but the

Federal regulations
opportunity for
undue hardship
from the

the debtor to raise the

administrative issue and prove

proceedings that she So

should

be absolved

student loan debt.

there are State remedies available

in the context not of a State court -­
QUESTION: MR. BRAND: Thank -- thank you, Mr. Brand.
Thank you, Your Honor.
The case is submitted.
a.m.,
the case in the

CHIEF JUSTICE REHNQUIST: (Whereupon, at 10:52

above-entitled matter was submitted.)

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