UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________________

No. 97-20106

_______________________

THE STATE OF TEXAS, by and through the Board of Regents of

The University of Texas System and University of Texas Health

Science Center at Houston,

Plaintiff-Appellant,

versus

WILLIAM E. WALKER, M.D.,

Defendant-Third Party Plaintiff,

Appellee-Appellant,

THOMAS OLLIS HICKS; ELLEN CLARKE TEMPLE; BERNARD RAPAPORT; THOMAS

LOEFFLER; ROBERT JAMES CRUIKSHANK; ZAN W. HOLMES, JR.; MARTHA

ELLEN SMILEY; LOWELL H. LEBERMANN, JR.; MARIO EFRAIN RAMIREZ,

M.D.; M. DAVID LOW, M.D.,

Third Party Defendants-Appellees.

_________________________________________________________________

Appeals from the United States District Court

for the Southern District of Texas

_________________________________________________________________

May 28, 1998

Before DAVIS, JONES, and DENNIS, Circuit Judges.

EDITH H. JONES, Circuit Judge:

This case presents a straightforward employment and

con tract dispute mired in a procedural thicket. Our task is to

untangle the thicket, although, unhappily, we cannot fi nally

resolve the merits. We conclude, first, that the case was

correctly removed by Univ e rsity President Low, a counterclaim

defendant newly-joined on a “separate a nd independent claim” for

purposes of 28 U.S.C. § 1441(c). Second, the court did not err in2

shielding the counterclaim defendants from Walker’s § 1983 claims

on qualified immunity grounds. Third, Walker’s debt to the state

for fees he owed before he filed for bankruptcy relief is

dischargeable post- Seminole

, although whether it is

nondischargeable under 11 U.S.C. § 523(a)(6) is a question left to

be addressed on remand.

I. Background

Dr. Walker was a heart surgeon and a tenured faculty

member at the University of Texas Health Science Center at Houston

(“UTHSC”). As a condition of his employment, Walker joined the

Medical Services, Research, and Development Plan (“MSRDP”) by

executing the standard MSRDP contract in 1980. The MSRDP contract

required Walker to remit all professional fees he earned to the

Universit y of Texas (“University”). The MSRDP’s by-laws define

professional fees in part as fees for all court appearances,

depositions, or legal consultations. During the period of his

employment at UTHSC, Walker received substantial fees for court

appearances, depositions, and l egal consultations, but he never

remitted any of them to the University. When Walker’s

non compliance with the MSRDP came to the attention of the

University, it i nvestigated Walker’s and other faculty members’

personal retention of professional fees. Walker and the other

faculty members denied that they retained fees in violation of the

MSRDP. After attempts to settle the resulting contractual3

disagreement failed, Walker was terminated by the Board of Regents

of the University of Texas System in August 1994.

Prior to his termination , Walker filed for bankruptcy

relie f under Chapter 7 on September 1, 1992. His debts were

discharged by the bankruptcy court on January 19, 1993. The

Universit y was not identified as a creditor in Walker’s no-asset

bankruptcy filing, and it did not file a proof of claim.

In February 1995, the State of Texas, by and through the

Board of Regents of the University of Texas System and UTHSC

(“State”), filed suit against Walker in state court. The State

alleged conversion and breach of contract and sought an accounting

of the fees retained by Walker. Walker counterclaimed against the

State, made additional claims against the Regents in their

individual capacities (“Regents”), and impleaded as an additional

defendant UTHSC’s president, M. David Low, in both his official and

individual capacitie s. Walker alleged state tort and breach of

contrac t claims, as well as substantive due process and equal

protection claims pursuant to 42 U.S.C. § 1983, all of which were

related to his allegedly improper termination.

The counter-defendants removed this case to federal court

pursuant to 28 U.S.C. § 1441(c). The State and Walker subsequently

filed motions for summary judgment. The district court granted

partial summary judgment to the State, the Re gents, and Low,

dismissing Walker’s federal § 1983 claims with prejudice based on

sovereign and qualified immunity. The district court also granted4

partial summary judgm ent to Walker, holding that the fees Walker

retained prior to his filing bankruptcy on September 1, 1992, were

discharged. The district court remanded to state court Walker’s

state-law claims against the State, the Regents, and Low, as well

as the State’s claims a gainst Walker for fees earned after

September 1, 1992.

Walker now appeals the district court’s grant of summary

judgment to the Regents and Low based on qualified immunity. The

State appeals the district court’s grant of summary judgment to

Walker based on discharge in bankruptcy for Walker’s fees earned

pre-bankruptcy.

II. Propriety of Removal

As an initial mat ter, Walker argues that the district

court lacked jurisdiction to hear this case because removal by the

Regents and Low under 28 U.S.C. § 1441(c) was improper. We review

a district court’s d etermination of the propriety of removal de

novo. S ee Vasquez v. Alto Bonito Gravel Plant Corp.

, 56 F.3d 689,

692 (5th Cir. 1995). Section 1441(c) is difficult to interpret,

but under this court’s precedent, it permitted removal of the case.

A. Carl Heck Engineers

Although there is a sp lit among the circuits on the

point, this court has held that a third-party indemnity defendant

may remove a case to federal court pursuant to § 1441(c). S ee Carl

Heck Engineers v. Lafourch Parish Police Jury

, 622 F.2d 133 (5th1 For a discussion of the circuit split, see 14A C H ARLES A LAN

W RIGHT ET AL

. , F EDERAL P RACTICE AND P ROCEDURE § 3724, at 388-393 (1985 &

Supp. 1997). S ee gener ally M ichael C. Massengale, Note, Riotous

Uncertainty: A Quarrel with the “Commentators’ Rule” Against

Section 1441(c) Removal for Counterclaim, Cross-Claim, and ThirdParty Defendants, 75 T EX

. L. R EV

. 659 (1997) (citing relevant cases with analysis).

2 The well-pleaded complaint rule bases removal jurisdiction

on the existence of a claim lying within federal jurisdiction on

the face of a plaintiff’s well-pleaded complaint. There has never

been a suggestion that a defendant could, by asserting an artful

counterclaim, render a case removable in violation of the wellpleaded complaint rule. See, e.g., Rivet v. Regions Bank , 118 S.

Ct. 921 (1998).

5 Cir. 1980). 1 Neither the Regents nor Low is a third-party

indemnity defendant because there is no basis for Walker to assert

that they are liable for any part of his alleged debt to the state.

See F ed. Rule Civ. P. 14; Tex. Rule Civ. P. 38. Rather, the

Regents, joined in their individual capacities, and Low, newly

joined both in his official and individual capacities, are counterdefendants in Walker’s counterclaim. This court has not previously

extended the Carl Heck rationale to ordinary counter-defendants.

Doing so would fly in the face of the well-pleaded complaint rule

where the counter-defendants were the same parties as the state

court plaintiffs. 2

Here, however, the consequence of permitting removal

satis fied C arl Heck without breaching the well-pleaded complaint

rule. We shall assume that the Regents cannot remove under

§ 1441(c) whe n joined in their individual capacities as counterdefendants, because (in their official capacities ) they were the

plaintiffs by and through whom the state sued Walker. Low, on the3 Section 1441(c) states in full:

Whenever a separate and independent claim or cause

of action within the jurisdiction conferred by section

1331 of this title is joined with one or more otherwise

non-removable claims or causes of action, the entire case may be removed and the district court may determine all

issues therein, or, in its discretion, may remand all

matters in which State law predominates.

28 U.S.C. § 1441(c).

6 other hand, was not a party in the case in any way before Walker

sued him for § 1983 violations. If the rationale of Carl Heck

correctly affords third-party defendants the opportunity of

§ 1441(c) removal to federal court, to which they could have

removed when sued alone, then that rationale protects Low.

B. Separate & Independent

Section 1441(c) authorizes re moval to federal court of

cases in which a “separate and independent” federal claim or cause

of action is joined with a nonremovable claim or cause of action. 3

A federal claim is separate and independent if it involves an

obligation distinct from the nonremovable claims in the case. S ee

American Fire & Cas. Co. v. Finn

, 71 S. Ct. 534, 540 (1951)

(“[W]here there is a single wrong to plaintiff, for which relief is

sought, arising from an interlocked series of transactions, there

is no separate and independent claim or cause of action under §

1441(c).”); see also 14A C HARLES A LAN W RIGHT ET AL

., F EDERAL P RACTICE AND

P ROCEDURE § 3724, at 364-66 (1985 & Supp. 1997).4 In addition, F inn has been read to question whether claims

can be separate and independent when they involve substantially the

same facts and transactions. See Eastus v. Blue Bell Creameries,

L.P.

, 97 F.3d 100, 104 (5th Cir. 1996); Able

, 829 F.2d at 1332-33;

Addison v. Gulf Coast Contracting Servs., Inc. , 744 F.2d 494, 500

(5th Cir. 1984).

7

Walker contends that his claims against the Regents and

Low were not “separ ate and independent” from his counterclaims

against the State and, therefore, the district court lacked subject

matter jurisdiction to hear this case. He is mistaken. Finn

states that there is no “separate and independent” claim when the

plaintiff

suffered but one actionable wrong and was entitled to but

one recovery, whether his injury was due to one or the

other of several distinct acts of alleged negligence or

to a combination of some or all of them. In either view,

there would be but a single wrongful invasion of a single

primary r ight of the plaintiff, namely, the right of

bodily safety, whether the acts constituting such

invasion were one or many, simple or complex.

Finn

, 71 S. Ct. at 539-40 (quoting Baltimore S.S. Co. v. Phillips

,

47 S. Ct. 600, 602 (1927)). Thus, a case involving the violation

of a single primary right or wherein a party seeks redress for one

legal wrong cannot contain separate and independent claims, despite

multiple theories of liability against multiple defendants. S e e

Finn

, 7 1 S. Ct. at 540; A ble v. Upjohn Co.

, 829 F.2d 1330, 1332

(4th Ci r. 1987). 4 When applied to a third-party defendant, this

rule requires that the plaintiff’s claims against the ori ginal

defendant be “separate and independent” from the defend ant’s

federal claims against the re moving third-party defendant. S ee

Carl Heck Eng’rs

, 622 F .2d at 136; s ee also In re Wilson Indus.,8

Inc. , 886 F.2d 93, 96 (5th Cir. 1989); 14A W R IGHT ET AL

., supra

, §

3724, at 392-94.

In asse rting that his claims against the State are not

s eparate and independent from his claims against the Regents and

Low, Walker is barking up the wrong tree. The proper comparison is

between the State’s claims against Walker and W alker’s federal

claims against the Regents and Low. The State seeks redress for

Walker’s alleged failure to remit his professional fees to the

University. In contrast, Walker seeks redress from the Regents and

Low for allegedly improperly terminating him. The State’s claims

against Walker and Walker’s claims against the Regents and Low thus

i nvolve two distinct wrongs. Whether Walker was improperly

terminated is a distinct wrong not dependent on whether Walker

improperly retained professional fees in violation of the MSRDP.

Second, proof of Walker’s § 1983 claims against the

Regents and Low would not involve substantially the same facts as

proof of the State’s claims against Walker. If a substantive due

process claim is cognizable at all, Walker must show that he had

and was arbitrarily deprived of a property right in his employment.

See Regents of Univ. of Mich. v. Ewing , 106 S. Ct. 507, 511-12

(1985) (assuming without deciding tha t a substantive due process

claim exists for an adverse decision of an academic institution).

Regarding his equal protection claim, Walker must show that he was

treated different ly during his termination proceedings than were

other similarly situated doctors, and that there was no rational5 Walker incorrectly cites M cKay v. Boyd Constr. Co.

, 7 6 9

F.2d 1084 (5th Cir. 1985), in support of his contention that

removal was improper. M cKay involved removal under § 1441(a), not

§ 1441(c). The M cKay court expressly distinguished its holding

under § 1441(a) from its understanding of how the case would have

come out had removal been proper under § 1441(c). S ee id. at 1087-

88. McKay

is inapplicable to our removal analysis in this case.

9 basis for this difference in treatment. S ee United States v. AbouKassem

, 78 F.3d 161, 165 (5th Cir. 1996). In contrast, for the

State to succeed on its state-law claims against Walker, it must

initially show th at Walker breached his MSRDP contract, and its

claims would not require proof of substantially the same facts as

will be relevant to Walker’s § 1983 claims against the Regents and

Low.

As a consequence, the State’s claims against Walker are

separate and independent from Walker’s federal claims against the

Regen ts and Low, and removal under §1441(c) was procedurally

proper. 5

III. Qualified Immunity

The district court granted partial judgment as a matter

of law on the ground of qualified immunity to the Regents and Low,

in their individual capacities, with respect t o Walker’s § 1983

claims. A grant of judgment as a matter of law is reviewed de

novo, examining the evidence in the light most favorable to the

nonmovant. See Channer v. Hall , 112 F.3d 214, 216 (5th Cir. 1997).

The moving party will prevail if he has demonstrated that there is10

no genuine issue of material fact, and that he is entitled to

judgment as a matter of law. See id

.

Qualified immunity shields a public official exercising

discretionary functions from liability for civil damages unless the

public official’s conduct violated clearly established

constitutional or statutory rights of which an objectively

reasonable person should have known. S ee Harlow v. Fitzgerald

, 102

S. Ct. 2727, 2738 (1982); Coleman v. Houston Indep. Sch. Dist.

, 113

F.3d 528, 532-33 (5th Cir. 1997). This court reviews a claim of

qualified immunity under a two-part analysis. First, it must be

determined whether the plaintiff alleged the violation of a clearly

established constitutional right. S ee Coleman

, 113 F.3d at 533.

Second, if so, we determine whether the defendant’s conduct was

objectively reasonable. See id.

The “touchstone” of the qualified immunity analysis is

the “objective legal reasonab l eness” of the public official’s

conduct. Anderson v. Creighton , 107 S. Ct. 3034, 3038-39 (1987).

That is, “[t]he contours of the right must be sufficiently clear

that a reasonable official would understand that what he is doing

violates that right.” I d. at 3039; see also Malley v. Briggs

, 106

S. Ct. 1092, 1096 (1986) (stating that qualified immunity is

desig ned to shield from civil liability “all but the plainly

incompetent or those who knowingly violate the law”)

.11 A. Substantive Due Process

This court has said, “To succeed with a claim based on

substantive due process in the public employment context, the

plaintiff must show two things: (1) that he had a property

interest/right in his employment, and (2) that the public

employer’s termination of that interest was arbit rary or

capricious.” Moulton v. City of Beaumont , 991 F.2d 227, 230 (5th

Cir. 1993). M oulton exaggerated the status of a substantive due

process claim for academic protection, however, because the Supreme

Court has not squarely decided the issue. S ee Ewing

, 106 S. Ct. at

at 511-12

. Moulton h eld that no constitutionally protectible

property interest existed, so it did not reach the question of

arbitrary deprivation. In this case, as in E wing

, even if Walker’s

tenure is a property right, he has failed to show that the Regents’

or Low’s actions in terminating him were arbitrary or capricious.

Walker essentially argues that when the Regents

termina ted him at the instigation of Low, rejecting a faculty

tribunal’s contrary recommendation, the Regents denied him a proper

hearing, acted partially, and f ailed to fully consider his

arguments and defense s regarding his retention of professional

fees. Both the Supreme Court and this court have held in related

contexts that substantive due process requires only t hat public

officials exercise professi onal judgment, in a nonarbitrary and

noncapricious manner, when depriving an individual of a protected6 Walker also argues that the Regents and Low acted

arbitrarily by (1) ignoring the fact that his debt had been

discharged and (2) violating 11 U.S.C. § 525(a) which prohibits a

governmental unit from terminating an employee because the employee

has not paid a discharge able debt. Inasmuch as the

dischargeability of this debt is not yet settled, see infra Part

IV(B), appellees were entitled to qualified immunity against these

claims.

12 property interest. S ee Ewing

, 106 S. Ct. at 513; Spuler v. Pickar

,

958 F.2d 103, 107 (5th Cir. 1992).

Walker did not remit to the University the substantial

outside professional fees he earned while a UTHSC professor. The

University alleged that his actions violated the MSRDP, and Walker

contended that they did not or, even if they di d, his debt was

discharged in bankruptcy. Walker was afforded a hearing before the

Regents regarding this dispute. They considered his side of the

story and rejected it. Having reviewed the record, we cannot

conclude that the Regents’ determinations -- that Walker retained

professional fees that b elonged to the University and moreover,

that he refused to cooperate in resolving the matter -- so lacked

a basis in fact that their decision to terminate him was arbitrary,

capricious, or taken without professional judgment. 6 At best, one

might argue that reasonable minds could disagree on the propriety

of Walker’s termination, and that is insufficient to defeat a

public official’s qualified immunity. S ee Malley

, 106 S. Ct. at

1096. Consequently, the Regents’ and Low’s actions in terminating

Walke r either were not unconstitutional or were not objectively

unreasonable in light of the law as it existed at the time of13

Walker’s firing. The district court properly granted qualified

immunity.

B. Equal Protection

“The Equal Protection Clause ‘is essentially a direction

that all persons similarly situated should be treated alike.’”

Brennan v. Stewart

, 834 F.2d 1248, 1257 (5th Cir. 1988) (quoting

City of Cleburne v. Cleburne Living Center , 105 S. Ct. 3249, 3254

(1985)). As the district court correctly concluded, Walker is not

a member of a suspect class. Therefore, under equal protection

a nalysis, rational basis scrutiny applies. S ee Johnson v.

Rodriguez , 110 F.3d 299, 306 (5th Cir. 1997).

Walker argues that the Re gents and Low treated him

differently from other similarly situated UTHSC faculty members who

failed to remit their professional fees to the University. He is

incorrect. Walker’s case is factually distinct because he defied

the University and refused to cooperate in resolv ing the dispute

over the MSRDP. The other “similarly situated” faculty members to

whom Walker refers all cooperat ed with the University, and most

eventually reached settlement agreements regarding their improperly

r etained professional fees. Because any difference in treatment

between Walker and other faculty members was based on distinctions

in their factual situations, the Regents and Low had a rational

basis for their treatment of Walker. The counter-defendants are

entitled to qualified immunity fromWalker’s equal protection

claim.7 The State raised the Eleventh Amendment defense for the

first time on appeal to this court, asserting that “it is

. . . not

clear that the bankruptcy court had jurisdiction to discharge an

obligation to [UTHSC].” Specifically, the State (1) mentions a

potential Eleventh Amendment problem without substantive discussion

in a foot note of its reply brief, (2) filed a Fifth Circuit Rule

28(j) letter prior to oral argument bringin g to this court’s

attention a somewhat relevant case, and (3) discussed the Eleventh

Amendment a t oral argument. While the State has been less than

helpful in supplying any case law or arguments to support its

contention that the Eleventh Am endment barred the discharge of

Walker’s debt, it nonetheless has not waived the issue. Because of

the strong federalism concerns behind t he Eleventh Amendment, we

may properly consider the issue even at this stage of the

proceeding. S ee Edelman v. Jordan

, 94 S. Ct. 1347, 1362-63 (1974);

Neuwirth v. Louisiana State Bd. of Dentistry

, 845 F.2d 553, 555

(5th Cir. 1988).

14 IV. Discharge in Bankruptcy

The State contends that the district court erred in

holding that Walker’s debt to the University for professional fees

earned prior to September 1, 1992, was discharged. The State makes

two arguments: (1) the Eleventh Amendment barred the b ankruptcy

court from discharging Walker’s debt to the State; and (2) Walker’s

debt was nondischargeable under 11 U.S.C. § 5 23(a)(6) because it

was a “willful and malicious injury” against the State. We hold,

first, that the Eleventh Amendment did not preclude the discharge

of Walker’s debt to the State, and second, that there exists a fact

issue regarding whether Walker’s debt was nondischargeable under §

523(a)(6). 7

A. The Eleventh Amendment and Bankruptcy Discharge

Walker’s bankruptcy filing did not list the State as a

creditor, and the State did not file a bankruptcy proof of claim.

In fact, the State did not participate in any man ner in Walker’s8 Prior to S eminole Tribe v. Florida

, 116 S. Ct. 1114 (1996),

some courts held that debts owed to a state were dischargeable in

bankruptcy even if the state had not filed a proof of claim. See

In re Glidden , 653 F.2d 85, 89 (2d Cir. 1981); C onnecticut v. Crisp , 521 F.2d 172, 178 (2d Cir. 1975); Iowa State Dep’t of Soc.

Servs. v. Morris

, 10 B.R. 448, 455-56 (Bankr. N.D. Iowa 1981). The

rationale behind these cases is that the El eventh Amendment only

protects a state from federal court money judgments paid out of the

state treasury. S ee Crisp

, 521 F.2d at 178; Morris

, 10 B.R. at

456. Because a judgment of discharge in a bankruptcy case does not

require payment out of a state’s coffers, discharge does not

implicate the Eleventh Amendment. S ee Crisp

, 521 F.2d at 178;

Morris

, 10 B.R. at 456. The reasoning of these case is incorrect,

as expres sed clearly and emphatically in S eminole : “The Eleventh

Amendment does not exist solely in order to prevent federal court

judgm ents that must be paid out of a State’s treasury, it also

serves to avoid the indignity of subjecting a State to the coercive

process of judicial tribunals at the instance of private parties.”

Seminole

, 116 S. Ct. at 1124 (internal citations and quotations

omitted).

9 The State does not assert that the Eleventh Amendment

barred the federal dist rict court from adjudicating Walker’s

defense of discharge in this case. Once the case was removed, the

court had jurisdiction over the State’s claims against Walker, and

15 bankruptcy case. Subsequently, in this entirely separate

proceeding, the State sued Walker for conversion and breach of

contract. Walker asserted the affirmative defense that his debt to

the State was discharged in bankruptcy. The district court agreed

with Walker, insofar as his debt to the State consists of

professional fees earned prior to Walker’s bankruptcy.

Consequently, the precise issue here is whether th e

Eleventh Amendment prevents the discharge of a debt owed to a state

in a bankruptcy proceeding in which the state does not participate

in any fashion. 8 In deciding that it does not, we mean only that

the discharge may be raised as a defense to the state’s suit on the

debt. 9his assertion of the di scharge defense was not equivalent to

seeking affirmative relief, such as an injunction against further

collection efforts under 11 U.S.C. § 524. We have no occasion to

consider the road not taken by Walker.

10 It is also well settled that suits against certain state

agents or instrumentalities fal l within the Eleventh Amendment’s

compass. S ee Regents of Univ. of Cal. v. Doe

, 117 S. Ct. 900, 903-

04 (1997). The parties in this case do not dispute that UTHSC and

the Regents of the University of Texas, sued in their official

capacities, may invoke the State’s Eleventh Amendment immunity;

they are “arms” of the state for purposes of the Eleventh

Amendment. See id

. ; United Carolina Bank v. Board of Regents of

Stephen F. Austin State Univ.

, 665 F.2d 553, 556-61 (5th Cir. Unit

A 1982).

16

The Eleventh Amendment jurisdictionally bars a suit in

federal court by a private individual against an unconsenting

state—absent waiver or congressional abrogation of sovereign

immunity pursuant to section five of the Fourteenth

Amendment—regardless of the relief so ught by the plaintiff. S ee

U.S. C ONST . amend. XI; Seminole Tribe v. Florida , 116 S. Ct. 1114,

1124 (1996). This court has recently held that even in an area of

the law under the exclusive control of the federal government, such

as bankruptcy, the Eleventh Amendment absolutely bars such suits.

See In re Estate of Fernandez

, 1 23 F.3d 241 (5th Cir. 1997)

(holding attempted statutory waiver of sovereign immunity under 11

U.S.C. § 106(a) unconstitutional). 10

Cases that have considered Seminole ’s impact on

bankruptcy practice have generally concerned adversary proceedings

brought by the trustee or a party in interest against the state in1 1 Three recent lower court cases are representative. In K ish

v. Ve rniero , 212 B.R. 808 (D.N.J. 1997) (Brown, J.), and R ose v. United States Dept. of Educ. , 214 B.R. 372 (Bankr. W.D. Mo. 1997)

(Koger, J.), the debtors filed actions directly against the state

to determine the dischargeability of certain debts owed to the

state. In both cases, the state had not filed a proof of claim in

the debtors’ bankruptcy proceedings. Both courts held that they

lacked jurisdiction pursuant to the Eleventh Amendment to hear the

debtors’ claims against the state.

In In re Martinez , 196 B.R. 225 (D.P.R. 1996), the debtors

filed for bankruptcy under Chapter 13 in 1985. The debtors listed

a tax debt to the Treasury of the Commonwealth of Puerto Rico

(“Treasury”) on their schedule of creditors, but the Treasury did

not file a proof of claim. The district court found that the

Treas ury was aware of the debtors’ bankruptcy petition. A

reorganization plan was confirmed by the bankruptcy court in 1986.

In 1989, the Treasury ( an arm of a state for purposes of the

Eleventh Amen dment), filed a tax lien on the debtors’ property.

The debtors alleged tha t the Treasury had violated the automatic

stay and, therefore, should be liable for actual and punitive

damages. See id. at 226-27. The district court held that “it is

clear that Treasury violated the debtors’ automatic stay when

Treasury filed a tax lien over debtors’ property after the Chapter

13 petition had been filed.” I d. at 228. Nonetheless, it also

held that it did not have jurisdiction over the debtors’ claim

against Treasury for willful violation of the automat ic stay

because of Treasury’s sovereign immunity, w hich had not been

waived. S ee id. at 230. Treasury’s lien remained in place despite

the fact that Treasury both had actual knowledge of debtors’

bankruptcy proceeding and refused to participate in that

proceeding.

17 federal court to recover money damages. 11 Just as S eminole renders

11 U.S.C. § 106(a) unconstitutional, it perforce deprives federal

courts of jurisdiction over these unconsented-to suits against the

state. The extent to which filing a proof of claim constitutes

waiver of this immunity is uncertain. The Fourth Circuit has held

that even where the state filed a proof of claim for one type of

past due taxes, it did not waive Eleventh Amendment immunity

against an adversary proceeding in bankruptcy court to determine a

different type of tax. S ee In re Creative Goldsmiths , Inc., 1 1918

F.3d 1140, 1149 (4th Cir. 1997). Since UTHSC never filed a proof

of claim, however, waiver is irrelevant to the present an alysis.

The pressing issue here is whether a bankru ptcy case, in and of

itself, constitutes an unconsented suit against a creditor state,

so that the debtor’s discharge, which “operates as an injunction”

against collection of the de bt, 11 U.S.C. § 524(a)(2), is

ineffectual against the state under the Eleventh Amendment.

The argument for an Eleventh Amendment bar would assert

that although the State was not a named defendant in Walker’s

bankruptcy case, it was an indirect party because its legal rights

were adjudicated and altered (albeit without its knowledge) when

the bankruptcy court discharged Walker’s debt. C f. Regents of

Univ. of Cal. , 117 S. Ct. at 904-05 (holding that the “underlying

Eleventh Amendment question” is the state’s “ potential legal

liability,” n ot whether any award of damages would actually come

from the state’s coffers); Kish v. Verniero

, 212 B.R. 808, 814 n.5

(D.N.J. 1997) (citing Regents of University of California v. Doe

and stating that “the relevant inquiry for Eleventh Amendment

purpo ses is whether a state’s potential legal rights are

affected”). If Walker’s discharge was valid, then the State was

enjoined in perpetuity from collecting that debt. S ee 11 U.S.C.

§ 524(a)( 2). This can be viewed as both subjecting the state to

the indignity of the coercive powers of a federal court, see

Seminole

, 116 S. Ct. at 1124, and significantly altering the legal1 2 The Supreme Court has held that “[t]he general rule is that

a suit is against the sovereign if ‘the judgment would expend

itself on the public treasury or domain, or interfere with the

public administration,’ or if the effect of the judgment would be

‘to restrain the Government from acting, or to compel it to act.’”

Pennhurst State Sch. & Hosp. v. Halderman

, 104 S. Ct. 900, 908 n.11

(1984) (quoting Dugan v. Rank , 83 S. Ct. 999, 1006 (1963)).

1 3 B ut see DeKalb County Div. of Family and Child Servs. v.

Platter

, 1998 WL 138847, at *3 (7th C ir. Mar. 26, 1998) (arguing

that “the imposition of this decision by Congress on the states

‘does not amount to the exercise of federal judicial power to hale

a state into federal court against its will and in violation of the

Eleventh Amendment.’” (quoting Maryland v. Antonelli Creditors’

Liquidating Trust , 123 F.3d 777, 787 (4th Cir. 1997))).

1 4 After S eminole

, some courts have held that a state waives

its Eleventh Amendment immunity to some extent when it files a

proof of claim in a bankruptcy proceeding. See, e.g.

, I n re

Creative Goldsmiths, 119 F.3d 1140, 1148-49 (4th Cir. 1997); Rose

v. United States Dept. of Educ.

, 215 B.R. 755, 761-62 (Bankr. W.D.

Mo. 1997); I n re NVR L.P.

, 206 B.R. 831, 850-51 (Bankr. E.D. Va.

1997) (collecting cases and extensively discussing waiver).

19 rights of the state, see Regents of Univ. of Cal. , 117 S. Ct. at

904.

Put another way, dischar ging a debt owed to the state

either restrains the state from acting by enjoining it from

collecting the debt, or compels the state to act by forcing it to

file a proof of claim in bankruptcy court in order to collect the

debt. 12 The state is thus presented with a Hobson’s choice: either

subject yourself to federal court jurisdiction or take nothing. 13

If the state acts, it is potentially forced to waive its sovereign

immunity by filing a proof of claim in the bankruptcy court. 14 If

t he state does nothing, it is permanently barred from collect ing

its debt and from recovering a pro rata share of the debtor’s1 5 B ut see New Jersey v. Mocco

, 206 B.R . 691 (D.N.J. 1997)

(holding that a potential state-court fraud judgment owed to a

state that had notice of a pending bankruptcy proceeding and failed

to file a proof of claim could be discharged without violating the

Eleventh Amendment); In re Kings Terrace Nursing Home & Health

Related Facility

, 184 B.R. 200 (S.D.N.Y. 1995) (holding that a

state may not recoup pre-petition Medicaid overpayments t o the

debtor because the state knowingly and intentionally failed to file

a proof of claim and, therefore, the debt was discharged when the

debtor’s bankruptcy plan was confirmed).

20 estate. It can be argued that the Eleventh Amendment should

prevent a state from being forced to make such a choice. 15

Resting as it does on extrapolations from Supreme Court

cases, this argument is not specious, b ut it is ultimately

unpersuasive on the facts before us. Its key assumption is the

equation of a bankruptcy case with a suit a gainst the state, but

this assumption is flawed. In a bankruptcy case, in its simplest

terms, a debtor turns over his assets, which constitute the estate,

for liquidation by a trustee for the benefit of creditors according

to their statutory priorities. Bankruptcy law modifies the state’s

c ollection rights with respect to its claims against the debt or,

but it also affords the s tate an opportunity to share in the

collective recovery. Bankruptcy operates by virtue of the

Supremacy Clause and without forcing the state to submit to suit in

federal court

. See Maryland v. Antonelli Creditors’ Liquidating

Trust , 123 F.3d 777, 787 (4th Cir. 1997) (“While resolution of an

adversary proceeding against a state depends on court jurisdiction

over th at state, the power of the bankruptcy court to enter an

order confirming a plan

. . . derives not from jurisdiction over1 6 11 U.S.C. § 523(a)(3)(B) states that a debtor is not

disc harged from certain claims, including those for willful and

malicious injury, if the creditor was not listed or scheduled by

the debtor in time to permit timely filing of a proof of claim and

timely request of a determin ation of dischargeability. Walker,

mysteriously, filed a “no-asset” case, in which creditors are

informed that they need not file proofs of claim because such

filings would be futile. But his failure to notify the University

als o deprived it of the opportunity timely to pursue a

nondischargeability action.

Ano ther peculiarity about this case might have posed an

Eleventh Amendment problem but has not been raised. The Bankruptcy

Code prov ides that federal courts have exclusive jurisdiction of

four types of nondischargeability claims, including the willful and

malicious injury exception, § 525(a)(6), on which the state relies.

See 11 U.S.C. § 523(c). This provision ordinarily requires a

creditor to proceed only in federal court to obtain a nondischargeability ruling on any of those four grounds, whether or

not the creditor received timely no tice of the bankruptcy case.

See 11 U.S.C. § 523(a)(3)(B). The state did not initially pursue

this course, however, and does not challenge the current procedural

posture of the case. Equally important, Dr. Walker has not

challenged the state’s right to litigate nondischargeability under

§ 523(a)(6) under the circumstances before us.

21 the state or other creditors, bu t rather from jurisdiction over

debtors and their estates.”).

From this standpoint, Walker’s entitlement to assert his

discharge against the state’s claims invoked no Eleventh Amendment

consequences. The state never was hauled into federal court

against its will in the bankruptcy. In fact, because the state was

never notified of the bankruptcy and never had the opportunity to

file a timely claim, bankruptcy law sho uld ordinarily expressly

protect the state’s claim from being discharged. S ee 11 U.S.C.

§ 523(a)(3)(B). 16 That is just the provision on which the state

predicates its request f or relief against the discharge defense

here.22 Additional support for our view that the granting of a

bankruptcy discharg e does not offend the Eleventh Amendment --

although commencement of certain adversary proceedings directly

against a state that has not filed a proof of claim in a bankruptcy

case would do so

-- derives from hoary Supreme Court authority.

The Court has long held that a federal bankruptcy court decision

can affect the lien interests of the states. See Gardner v. New

Jersey , 67 S. Ct. 467 (1947). In Gardner , the Court overruled an

apparent Eleventh Amendment objection to the process of

adjudicating the validity and priority of competing liens where the

state had filed a proof of claim:

It is traditional bankruptcy law that he who invokes

the aid of the bankruptcy court by offering a proof of

claim and demanding its allowance must abide the

conse quences of that procedure. If the claimant is a

State, the procedure of p roof and allowance is not

transmitted into a suit against the State because the

court entertains objections to the claim. The State is

seeking something from the debtor. No judgment is sought

against the State. The whole process of proof,

allowance, and distribution is, shortly speaking, an adjudication of interests claimed in a res. It is none

the less such because the claim is rejected in toto,

reduced in part, given a priority inferior to that

claimed, or satisfied in some way other than payment in

cash. When the State becomes the actor and files a claim

against the fund it waives any immuni ty which it

otherwise might have had respecting the adjudication of

the claim.

The extent of the constitutiona l authority of the

bankruptcy court in this respect was passed upon in

People of State of New York v. Irving Trust Co

., 288 U.S.

329, 53 S.Ct. 389, 77 L.Ed. 815. In that case the Court

sustained an order of the bankruptcy court which barred

a State’s tax claim because not filed within the time

fixed for the filing of claims. The Court stated, “If a

state desires to participate in the assets of a bankrupt,

she must submit to approp riate requirements by the23

controlling power; otherwise, orderly and expeditious

proceedings would be impossible and a fundamental purpose

of the Bankruptcy Act would be frustrated.”

In the present circumstances there is, therefore, no

collision between § 77 and the Constitution.

Gardner

, 67 S. Ct. at 472 (internal citations omitted). Until

these cases are overruled, Seminole does not and should not impair

their force.

This is a roundabout way to concluding that unless

Walker’s debt was nondischargeable under § 523(a)(6), his discharge

could be raised against the state’s lawsuit to collect a

prepetition debt.

B. The Willful and Malicious Injury Exception to Discharge

The final issue is the applicability of § 523(a)(6) to

Walker’s acts in breaching his contract and failing to account to

UTHSC for his outside earnings.

Section 523(a)(6) bars the discharge of a debt “for

willful and malicious injury by the debtor to another entity or to

the property of another entity.” 11 U.S.C. § 523(a)(6). A

“willful and malicious injury” results from an act done with the

actual intent to cause injury, not from an act done intentionally

that causes injury. S ee Kawaauhau v. Geiger

, 118 S. Ct. 974, 977-

78 (1998). In other words, “for willfulness and malice to prevent

discharge under § 523(a)(6), the debtor must have intended the

actual injury that resulted.” I n re Delaney

, 97 F.3d 800, 802 (5th

Cir. 1996). “[D]ebts arising from recklessly or negligently

inflicted injuries do not fall within the compass of § 523(a)(6).”24

Kawaauhau

, 118 S. Ct. at 978. “[I]ntent to injure may be

established by a showing that the debtor intentionally took action

that necessarily caused, or was substantially certain to cause, the

injury.” In re Delaney , 97 F.3d at 802.

Neither a claim for breach of contract nor the tort of

conversion necessarily involves an intentiona l injury. See

Kawaauhau , 118 S. Ct. at 977 (negligence and breach of contract);

National Union Fire Ins. Co. v. Care Flight Air Ambulance Serv.,

Inc.

, 18 F.3d 323, 325 (5th Cir. 1994) (conversion); Moody v.

Smith

, 899 F.2d 383, 385 (5th Cir. 1990) (conversion). The act of

conversion, ho wever, can result in a “willful and malicious

injury.” S ee McIntyre v. Kavanaugh

, 37 S. Ct. 38 (1916); see also

Kawaauhau

, 118 S. Ct. at 978 (reaffirming the holding of McIntyre ).

In addition, under Texas law, a claim for breach of contract and

the tort of conversion may arise from the same set of facts. See

Care Flight Air Ambulance Serv. , 18 F.3d at 326.

Wal ker admits that he acted intentionally when he kept

the professional fees he earned while a UTHSC faculty member.

Consequently, the issue before this court is whether it is

a ppropriate to grant Walker judgment as a matter of law that his

pre-bankruptcy debt to the University is discharged and to conclude

that § 523(a)(6) is inapplicable because the injury suffered by the

State allegedly was not intended by Walker ( i.e.

, was not “willful

and malicious”).25 The district court found that Walker’s retention of his

professional fees was an “innocent and technical” act rather than

a “willful and malicious injury.” S ee Davis v. Aetna Acceptance

Co.

, 55 S. Ct. 151, 153 (1934) (C ardozo, J.) (“[A] willful and

malicious injury does not follow as of course from eve ry act of

conversion, without reference to the circumstances. There may be

a con version which is innocent or technical, an unauthorized

assumption of dominion without willfulness or malice.”); see also

Kawaauhau

, 118 S. Ct. at 978 (reaffirming the holding of Davis ).

For the following reasons, we reverse the district court’s grant of

judgment as a matter of law to Walker on the issue of § 523(a)(6)

nondischargeability. An issue of fact exists regarding whether

Walker was aware of his obligations to the University under the

MSRDP and nonetheless knowingly kept his professional fees with the

intent of depriving the University of money owed to it.

Walker signed his MSRDP contract in 1980. The MSRDP

contrac t expressly states that all fees received by a faculty

member for “professional services” are to be assigned to the

University. The MSRDP’s by-laws expressly state that

“professional fees” include fees for all “cou rt appearances,

depositions, or legal consultations.” The MSRDP contract and bylaw language is crystal clear, and all MSRDP participants were sent

a memorandum in November 1990 reminding them that “fees for all

court appearances, depositions and legal consultations (including

expert witness fees) shall be deposited in the departmental MSRDP26

account.” Walker claims that he did not receive this memorandum

and that he did not read the MSRDP by-laws until 1993, months after

his September 1992 bankruptcy filing. He also testified that the

g eneral belief among UTHSC faculty members was that professional

fees earned for legal consulting need not be remitted to the

University. The UTHSC faculty tribunal that reviewed Walker’s case

as part of UTHSC’s grievance procedures found that there was a lack

of understanding among fa culty members about the MSRDP’s

requirements. Based upon these conflicting facts alone, what

Walker knew regarding his obligations under the MSRDP and when he

knew it are disputed. If a factfinder were to decide that Walker

knew of his obligations under the MSRDP contract and its by-laws,

either at the time he signed the contract or received the November

1990 memorandum, then it might also find that Walker knowingly

retained his professional fees in violation of the MSRDP, an act

which he knew would necessarily cause the University’s injury.

This, in turn, could result in a finding of “willful and malicious

injury.” Such factual issues must be submitted to a trier of fact

in order to determine if Walker’s debt was nondischargeable under

§ 523(a)(6).

V. Conclusion

For the foregoing reasons, we affirm the district court’s

judgment upholding the Regents’ and Low’s qualified immunity, and

we reverse the d istrict court’s judgment regarding Walker’s

discharge in bankruptcy.27 AFFIRMED IN PART, REVERSED IN PART , and REMANDED

.