Opinion ID: 771782
Heading Depth: 1
Heading Rank: 2

Heading: mandamus adversary

Text: 13 We must first address whether the State Board enjoys Eleventh Amendment immunity in the Mandamus Adversary. 14 We have jurisdiction to review the district court's denial of the State Board's claim of Eleventh Amendment immunity under the collateral order doctrine. Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc. 506 U.S. 139, 147 (1993). We review questions of Eleventh Amendment immunity de novo. Hill v. Blind Indus. & Servs., 179 F.3d 754, 756 (9th Cir. 1999), amended by 201 F.3d 1186 (9th Cir. 2000). Under the law of this circuit, an entity invoking Eleventh Amendment immunity bears the burden of asserting and proving those matters necessary to establish its defense. Id. at1186. The Eleventh Amendment provides: 15 The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State. 16 U.S. Const. amend. XI. Although the text of the Amendment would appear to restrict only the Article III diversity jurisdiction of the federal courts, Seminole Tribe v. Florida, 517 U.S. 44, 54 (1996), the Eleventh Amendment stand[s] not so much for what it says, but for the presupposition . . . which it confirms. Kimel v. Florida Bd. of Regents , 120 S. Ct. 631, 640 (2000) (quoting Seminole Tribe, 517 U.S. at 54 (quoting Blatchford v. Native Village of Noatak, 501 U.S. 775, 779 (1991))) (internal quotation marks omitted). That presupposition . . . has two parts: first, that each State is a sovereign entity in our federal system; and second, that  `it is inherent in the nature of sovereignty not to be amenable to the suit of an individual without its consent. '  Seminole Tribe, 517 U.S. at 54 (quoting Hans v. Louisiana, 134 U.S. 1, 13 (1890) (quoting The Federalist No. 81, at 487 (Alexander Hamilton) (Clinton Rossiter ed., 1961))). Indeed, as the Supreme Court has recently explained, the sovereign immunity of the States neither derives from nor is limited by the terms of the Eleventh Amendment. Alden v. Maine, 119 S. Ct. 2240, 2246 (1999). Rather, sovereign immunity derives . . . from the structure of the original Constitution itself. Id. at 2254. 7 Although some may wish to factually dispute whether a longstanding tradition [exists] in the bankruptcy courts, dating back to 1979, of allowing the bankruptcy courts to enforce applicable law against the states, see Schulman v. California State Water Res. Control Bd. (In re Lazar), 200 Bankr. 358, 376 (C.D. Cal. 1996), the Supreme Court in Seminole Tribe interpreted the Eleventh Amendment to apply in bankruptcy proceedings. 8 As the Court stated, [t]he Eleventh Amendment restricts the judicial power under Article III, and Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction. Seminole Tribe, 517 U.S. at 72-73. 17 The district court held that Eleventh Amendment immunity did not apply in the Mandamus Adversary because the Fund, which it determined would be the source of any money damages, was not an arm of the state. The State Board is the only named defendant in the Mandamus Adversary, however, and with respect to the . . . Eleventh Amendment question, it is the entity's potential legal liability, rather than its ability or inability to require a third party to reimburse it, or to discharge the liability in the first instance, that is relevant. Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 431 (1997). Therefore, to determine whether Eleventh Amendment immunity applies here, we must assess the nature of the State Board, a task made easy by the California legislature. 18 The California Water Code provides that the State Board shall exercise the adjudicatory and regulatory functions of the state in the field of water resources,  Cal. Water Code 174 (West 1971), and that the State Board is in the California Environmental Protection Agency and consist[s] of five members appointed by the Governor, id. 175. Thus, the State Board correctly contends that it is an agency of the State of California, and the Trustee does not dispute this contention. See Rounds v. Oregon State Bd. of Educ. , 166 F.3d 1032, 1035 (9th Cir. 1999) (To determine whether[an entity] enjoys Eleventh Amendment immunity, we must look to its nature as created by state law.) (citing Regents of the Univ. of Cal. v. Doe, 519 U.S. at 429-30 & n.5); cf. Dittman v. California, 191 F.3d 1020, 1026 (9th Cir. 1999) (holding that the State of California Acupuncture Committee is a state agency entitled to Eleventh Amendment immunity), cert. denied, 120 S.Ct. 2717 (June 26, 2000). [U]nder the eleventh amendment, agencies of the state are immune from private damage actions or suits for injunctive relief brought in federal court. Id. at 1025 (quoting Mitchell v. Los Angeles Community College Dist., 861 F.2d 198, 201 (9th Cir. 1989)) (internal quotation marks omitted); see also Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 100 (1984) (It is clear, of course, that in the absence of consent a suit in which the State or one of its agencies or departments is named as the defendant is proscribed by the Eleventh Amendment.). 19 The State Board's Eleventh Amendment immunity is not absolute, however. [A] State may waive its sovereign immunity by consenting to suit. College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 119 S. Ct. 2219, 2223 (1999) (citing Clark v. Barnard, 108 U.S. 436, 447-48 (1883)). Furthermore, Congress may authorize such a suit in the exercise of its power to enforce the Fourteenth Amendment -an Amendment specifically designed to alter the federal-state balance. Id. (citing Fitzpatrick v. Bitzer, 427 U.S. 445 (1976)). The Trustee argues that both of these circumstances are present in the Mandamus Adversary. Therefore, to determine whether the State Board enjoys Eleventh Amendment immunity, we must determine whether it waived that immunity or whether Congress abrogated that immunity in a valid exercise of its constitutional powers. 9
20 [A] State's sovereign immunity is `a personal privilege which it may waive at pleasure.'  Id. at 2226 (quoting Clark, 108 U.S. at 447). Generally, we will find a waiver either if the State voluntarily invokes our jurisdiction or else if the State makes a `clear declaration' that it intends to submit itself to our jurisdiction. Id. (citations omitted). 21 The Trustee argues that the State Board waived its Eleventh Amendment immunity in the Mandamus Adversary because other agencies of the State of California, namely the BOE and the Controller, filed proofs of claims in the Lazars' bankruptcy proceedings. 22 In Gardner v. New Jersey, 329 U.S. 565 (1947), the Supreme Court addressed the impact that filing a proof of claim in a bankruptcy proceeding has on a state's assertion of Eleventh Amendment immunity. Id. at 573-74. The Court held: 23 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 consequences of that procedure. If the claimant is a State, the procedure of proof 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. . . . When the State becomes the actor and files a claim against the fund it waives any immunity which it otherwise might have had respecting the adjudication of the claim. 24 Id. Last Term, the Supreme Court reaffirmed the validity of Gardner. See College Sav. Bank, 119 S. Ct. at 2228 n.3 (stating that Gardner stands for the unremarkable proposition that a State waives its sovereign immunity by voluntarily invoking the jurisdiction of the federal courts); see also California Franchise Tax Bd. v. Jackson (In re Jackson) , 184 F.3d 1046, 1048-50 & n.1 (9th Cir. 1999) (relying on Gardner to find that the California Franchise Tax Board waived its sovereign immunity when it filed a proof of claim for unpaid state income taxes against the Jacksons). 25 The question in this case, then, is not whether a state waives its Eleventh Amendment immunity by filing a proof of claim in bankruptcy. Gardner establishes that it does. Gardner, 329 U.S. at 573-74. Rather, the relevant questions are the extent of this waiver and, more concretely, how this waiver applies to the State Board in the Mandamus Adversary. We now turn to these questions. 26
27 As the Fifth Circuit has recognized, [t]he extent to which filing a proof of claim constitutes waiver of [Eleventh Amendment] immunity is uncertain. Texas ex rel. Board of Regents of the Univ. of Tex. Sys. v. Walker, 142 F.3d 813, 820 (5th Cir. 1998), cert. denied, 525 U.S. 1102 (1999). 28 Surely, as held in the Gardner decision, it encom passes defenses to the claim asserted. But does it extend to the assertion of a counterclaim, and if so, must the counterclaim arise out of the same transaction or occurrence as the state's claim? If any counterclaim is permitted on this theory, is recovery limited to an offset of some or all of the state's recoverable claim, or is an affirmative recovery permitted? 29 Richard H. Fallon et al., Hart and Wechsler's The Federal Courts and the Federal System 111-12 (4th ed. Supp. 1999) [hereinafter Hart & Wechsler (Supp. 1999)]. Although we have never directly addressed these questions, we have applied Gardner in the past, and these past applications provide us with some guidance. 30 First, in Confederated Tribes v. White (In re White), 139 F.3d 1268 (9th Cir. 1998), we held, in accordance with Gardner, that by participating in a bankruptcy proceeding, an Indian tribal government waived sovereign immunity respecting the adjudication of its claim against [the debtor]'s assets. Id. at 1270. In so holding, we upheld the district court's order affirming discharge of the tribal government's claim under Chapter 7 of the Bankruptcy Code. See id. at 1268. Similarly, in California Franchise Tax Board v. Jackson (In re Jackson), 184 F.3d 1046 (9th Cir. 1999), we determined that because a state agency filed a proof of claim, it was not immune from the bankruptcy court's discharge of that claim. Id. at 1048-50. These two decisions clarified the rule of Gardner: that when a state files a proof of claim against a debtor, it waives its Eleventh Amendment immunity with respect to the adjudication of that particular claim. Or, as the Gardner Court stated, by filing a proof of claim in bankruptcy, the state waives its immunity from [t]he whole process of proof, allowance, and distribution of the claim. Gardner, 329 U.S. at 574. 31 In Jackson, however, we indicated that this waiver may encompass more than the mere adjudication of the state's claim. We noted favorably the Fourth Circuit's holding that when a state files a proof of claim in a bankruptcy proceeding, the state waives its sovereign immunity in regard to the debtor's claims which arise out of the same transaction or occurrence as the state's proof of claim. Jackson, 184 F.3d at 1049 (citing Schlossberg v. Maryland (In re Creative Goldsmiths, Inc.), 119 F.3d 1140, 1148 (4th Cir. 1997)). This language in Jackson is not inconsistent with Gardner. Although the waiver found constitutional in Gardner was limited to the state's own claim, and thus narrower than the same transaction-or-occurrence standard, Gardner, 329 U.S. at 57374; see also Confederated Tribes, 139 F.3d at 1271 (The Supreme Court made clear in Gardner v. New Jersey that when a sovereign files a claim against a debtor in bankruptcy, the sovereign waives immunity with respect to the adjudication of the claim. (citation omitted)); Seay v. Tennessee Student Assistance Corp. (In re Seay), 244 B.R. 112, 118 (Bankr. E.D. Tenn. 2000) (noting that the operative language of Gardner v. New Jersey . . . cannot really be read to say any more than that the filing of a proof of claim by a state waives its sovereign immunity as to matters connected with the claims allowance process), nothing in Gardner precludes a broader waiver rule, see Hart & Wechsler (Supp. 1999), supra, at 111-12 (suggesting that when a state voluntarily invokes federal jurisdiction, the permissible extent of the state's Eleventh Amendment waiver goes beyond the bounds of Gardner); Teresa K. Goebel, Comment, Obtaining Jurisdiction over States in Bankruptcy Proceedings after Seminole Tribe, 65 U. Chi. L. Rev. 911 (1998) (The Gardner Court held that the defensive counterclaim rule was constitutional, but did not foreclose the possibility that a broader test may be constitutional.); cf. Danning v. United States, 259 F.2d 305, 309-11 (9th Cir. 1958) (citing Gardner while allowing a bankruptcy trustee to assert counterclaims against the United States up to the amount of the federal government's claim). 32 Our sister circuits, in addressing this question, have not yet achieved consensus on the proper rule. As noted above, the Fourth Circuit has articulated a same-transaction-oroccurrence test. Schlossberg, 119 F.3d at 1148 (holding that to the extent a defendant's assertions in a state-instituted federal action, including those made with regard to a state-filed proof of claim in a bankruptcy action, amount to a compulsory counterclaim, a state has waived any Eleventh Amendment immunity against that counterclaim in order to avail itself of the federal forum). The Tenth Circuit also has held that sovereign immunity is waived for claims arising out of the same transaction or occurrence. Wyoming Dep't of Transp. v. Straight (In re Straight), 143 F.3d 1387, 1390 (10th Cir.) (indicating, without reaching the question, that the permissible extent of a state's waiver may be even broader than the same-transaction-or-occurrence test), cert. denied, 525 U.S. 982 (1998); cf. Fed. R. Civ. P. 13(c) (stating that a counterclaim may claim relief exceeding in amount or different in kind from that sought in the pleading of the opposing party). 10 The Seventh Circuit, however, has indicated that when a state files a proof of claim in bankruptcy, the state's waiver of immunity is limited to matters . . . arising out of the same transaction or occurrence which is the subject matter of the suit, to the extent of defeating the [state]'s claim. Jones v. Yorke (In re Friendship Med. Ctr., Ltd.), 710 F.2d 1297, 1301 (7th Cir. 1983); DeKalb County Div. Of Family & Children Servs. v. Platter (In re Platter), 140 F.3d 676, 679 (7th Cir.1998) (stating that no sovereign immunity problem existed where the state filed the claim and no one sought money from the state). 33 Consistent with this authority, we hold today that when a state or an arm of the state files a proof of claim in a bankruptcy proceeding, the state waives its Eleventh Amendment immunity with regard to the bankruptcy estate's claims that arise from the same transaction or occurrence as the state's claim. However, whether these claims are limited to only compulsory counterclaim/recoupment, as the Seventh Circuit holds, or allow for a broader affirmative recovery from the state, need not be addressed here. Because the estate's claims are slightly over $4 million and the BOE's proof of claim is at least $13 million 11 in taxes payable to the Fund, affirmative recovery beyond the proof of claim amount is not being sought in this case, and we leave for a future day the question of whether Gardner would so permit. We must nevertheless ascertain whether the Trustee's Mandamus Adversary arises out of the same transaction or occurrence as the BOE's proof of claim. 34
35 To determine whether the Trustee's claims against the State Board in the Mandamus Adversary arise out of the same transaction or occurrence as the proofs of claims filed in the Lazars' bankruptcy case by the BOE, we apply the so-called `logical relationship' test of Fed. R. Civ. P. 13(a). Pinkstaff v. United States (In re Pinkstaff), 974 F.2d 113, 115 (9th Cir. 1992). 36 A logical relationship exists when the counterclaim arises from the same aggregate set of operative facts as the initial claim, in that the same operative facts serve as the basis of both claims or the aggregate core of facts upon which the claim rests activates additional legal rights otherwise dormant in the defendant. 37 Id.; see also Moore v. New York Cotton Exch., 270 U.S. 593,610 (1926) ( `Transaction' is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship.); Pochiro v. Prudential Ins. Co. of Am,, 827 F.2d 1246, 1252 (9th Cir. 1987) (noting the same). 38 In these proceedings, the BOE filed several proofs of claims against the Lazars' bankruptcy estate, totaling approximately $13 million. An unspecified portion of the BOE's claims are for underground-storage-tank (UST) fees. 12 In the Mandamus Adversary, the Trustee has sued the State Board to reinstate its claims for reimbursement from the Fund and for damages. Accordingly, to determine whether the State Board is entitled to Eleventh Amendment immunity in the Mandamus Adversary, we must determine whether the BOE's claims for unpaid UST fees are logically related to the Trustee's claims for UST reimbursement. 13 See Pinkstaff, 974 F.2d at 115. 39 The State Board argues that although an owner or operator of an underground storage tank for which a permit is required must pay fees to the Fund in sums based on the amount of petroleum that is stored in the tanks, see Cal. Health & Safety Code 25299.41 (West 1999), whether an owner or operator will receive reimbursements for cleaning up petroleum leaksis dependent upon a detailed statutory scheme under which claimants receive priority based on various factors, see id. 25299.52-25299.58 (West 1999 & Supp. 2000). The State Board further asserts that, in this case, the denial of the Trustee's reimbursement claims was not based upon the nonpayment of fees, and that, therefore, the bankruptcy court could resolve the Mandamus Adversary without probing into the Lazars' payment of UST fees. Thus, the State Board contends that although the BOE's proofs of claims and the Trustee's claims in the Mandamus Adversary both revolve around the Fund and the Lazars' maintenance of underground storage tanks, the resolution of these claims involves wholly separate inquiries. We disagree. 40 The BOE's proofs of claims for unpaid UST fees and the Trustee's claims in the Mandamus Adversary both concern the Fund and both arise out of activities associated with the same bankruptcy case. While the BOE demands payments of fees to the Fund, the Trustee seeks reimbursement from the Fund for corrective actions taken on underground storage tanks. See Straight, 143 F.3d at 1392 (holding that the proofs of claim filed by the State and the motion filed by Mrs. Straight arose out of the same transaction or occurrence -the Debtor's business); 995 Fifth Ave. Assocs. v. New York State Dep't of Taxation & Fin. (In re 995 Fifth Ave. Assocs.), 963 F.2d 503, 509 (2d Cir. 1992) (Thus, the appellee's claim for a tax refund arose from the same transaction or occurrence -the sale of the Stanhope Hotel -as the State's claim for additional taxes.). Moreover, the Fund collects fees from owners and operators of underground storage tanks for the ultimate purpose of paying reimbursement claims when those tanks leak petroleum. See Cal. Health & Safety Code 25299.10, 25299.50-25299.51 (West 1999 & Supp. 2000). Therefore, we hold that the Trustee's claims against the State Board in the Mandamus Adversary are logically related to the proofs of claims filed by the BOE for unpaid UST fees. See Pinkstaff, 974 F.2d at 115; see also Price v. United States (In re Price), 42 F.3d 1068, 1073 (7th Cir. 1994) (The pertinent inquiry is whether the claim arises out of the same transaction or occurrence and not whether the claims are from the same transaction or occurrence.); Albright v. Gates, 362 F.2d 928, 929 (9th Cir. 1966) (In deciding what is a transaction, we take note that the term gets an increasingly liberal construction.). 41 Accordingly, because the BOE filed proofs of claim in the bankruptcy proceeding that arise out of the same transaction or occurrence as the Trustee's claims against the State Board in the Mandamus Adversary, the State Board has waived its Eleventh Amendment immunity in the Mandamus Adversary. 14
42 In 11 U.S.C. 106(b), Congress provided that when a state files a proof of claim in a bankruptcy case, the state is deemed to have waived sovereign immunity with respect to a claim against such [state] that is property of the estate and that arose out of the same transaction or occurrence out of which the claim of such [state] arose. 11 U.S.C.S 106(b) (1994). Several courts have considered the issue of whether, by enacting 106(a) and (b), Congress has abrogated the States' sovereign immunity. Some courts have found that 106 (a) and (b) are unconstitutional because the sections were enacted pursuant to Article I of the United States Constitution. See e.g., Sacred Heart Hosp. v. Pennsylvania, Dep't of Pub. Welfare (In re Sacred Heart Hosp.), 133 F.3d 237, 243-44 (3d Cir. 1998) (holding 11 U.S.C. 106(a), which purports to abrogate sovereign immunity, unconstitutional); Department of Transp. & Dev. v. PNL Asset Management Co. (In re Estate of Fernandez), 123 F.3d 241, 245 (5th Cir.) (same), amended by 130 F.3d 1138 (5th Cir. 1997) (per curiam); In re Creative Goldsmiths of Washington, D.C., Inc., 119 F.3d at 1147-48 (holding section 106(b) unconstitutional). Other courts have concluded that 106 (a) and (b) are constitutional because the Bankruptcy Code was enacted pursuant to Section 5 of the Fourteenth Amendment--which has long been recognized by the Supreme Court as a valid source of congressional power to abrogate state's Eleventh Amendment immunity. 15 See e.g., In re: Straight, 209 B.R. 540, 555 (Bankr. D. Wyo. 1997) (concluding that application of the Fourteenth Amendment to Section 106 renders it constitutional), aff'd, 143 F.3d 1387 (10th Cir.), cert. denied, 525 U.S. 982 (1998); In re: Headrick, 200 B.R. 963, 967 (Bankr. D. Ga. 1996) (the Fourteenth Amendment allows debtors to enforce the provisions of the Bankruptcy Code in federal court notwithstanding the States' Eleventh Amendment immunity.). 43 Because we have determined that the state waived its Eleventh Amendment immunity rendering permissible the estate's counterclaim against the state, we refrain from reaching the question of the constitutionality of sections 106(a) or (b). State of Maryland v. E.P.A., 530 F.2d 215, 227 (4th Cir.1975) ( [I]f a case can be decided on either of two grounds one involving a constitutional question, and the other, a question of statutory construction or general law, the court should decide on the basis of the latter.), vacated on other grounds, 431 U.S. 99 (1977); see e.g., Rose, 187 F.3d at 930 (concluding that because the court found that the state had waived its Eleventh Amendment immunity, [the court] need not reach issues of the constitutionality of the abrogation provision of 106(a) and the statutory provision of 106 (b)).
44 In sum, we hold that because the BOE filed proofs of claims in the Lazars' bankruptcy case that are logically related to the Trustee's claims against the State Board in the Mandamus Adversary, the State Board has waived its Eleventh Amendment immunity in the Mandamus Adversary.
45 The State Board also argues that the bankruptcy court erred by not abstaining in the Mandamus Adversary, pursuant to 28 U.S.C. 1334(c)(1) and 1334(c)(2). 16 In Security Farms v. International Brotherhood of Teamsters, 124 F.3d 999 (9th Cir. 1997), however, we noted that [a]bstention can exist only where there is a parallel proceeding in state court. Id. at 1009. Thus, we held that: 46 Section 1334(c) abstention should be read in pari materia with section 1452(b) remand, so that [S 1334(c)] applies only in those cases in which there is a related proceeding that either permits abstention in the interest of comity, section 1334(c)(1), or that, by legislative mandate, requires it, section 1334(c)(2). 47 Id. at 1010. On March 22, 1996, the Trustee successfully removed the Mandamus Adversary from state court, and, as a result, [n]o other related [state] proceeding thereafter exists. Id. Accordingly, because there is no pending state proceeding, 1334(c)(1) and 1334(c)(2) are simply inapplicable to this case. See id. at 1009-10. 17 48 Furthermore, to the extent that the State Board appeals the bankruptcy court's decision against remanding the Mandamus Adversary, and to the extent that we are required to construe [the State Board's] motion to abstain as a motion to remand, id. at 1009, we lack jurisdiction over the appeal. 28 U.S.C. 1452(b) (1994) (stating that a decision to not remand . . . is not reviewable by appeal or otherwise by the court of appeals); Security Farms, 124 F.3d at 1009-10 & n.7 (Section 1452(b) prevents this court from reviewing a district court's decision not to remand.).