In Brief: Supreme Court Ruling on Sovereign Immunity

Revisiting an issue that it left unresolved 10 years ago, the U.S. Supreme Court ruled on January 23, 2006 in Central Virginia Community College v. Katz that the states agreed not to assert sovereign immunity from a bankruptcy trustee's suit to avoid a preferential transfer when they ratified the Constitution's bankruptcy clause. In its first bankruptcy ruling of 2006, the Court re-examined its 1996 decision on the scope of a state's 11th Amendment immunity in Seminole Tribe of Florida v. Florida. Both the majority and the dissenters in Seminole assumed that a statement in that case — that Congress lacks authority under Article I to abrogate a state's immunity — would apply in the bankruptcy context.