Court Opinion

ID: 14711
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:38:01+00
Date Added: 2024-06-11T16:46:35.333320
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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

contract dispute mired in a procedural thicket.                  Our task is to

untangle    the    thicket,    although,     unhappily,    we    cannot    finally

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

correctly removed by University President Low, a counterclaim

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

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

University 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 legal consultations, but he never

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

noncompliance        with    the   MSRDP       came   to    the   attention     of    the

University, it investigated 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      contractual

                                              2
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

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

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

University 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 capacities.       Walker alleged state tort and breach of

contract 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 Regents, and Low,

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

sovereign and qualified immunity.         The district court also granted

                                      3
partial summary judgment 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   against    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 matter, 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 determination of the propriety of removal de

novo.      See 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 split 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).           See Carl

Heck Engineers v. Lafourch Parish Police Jury, 622 F.2d 133 (5th

                                      4
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 Fed. 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 counter-

defendants 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

satisfied Carl Heck without breaching the well-pleaded complaint

rule.        We shall assume that the Regents cannot remove under

§ 1441(c) when joined in their individual capacities as counter-

defendants, because (in their official capacities) they were the

plaintiffs by and through whom the state sued Walker.               Low, on the

        1
         For a discussion of the circuit split, see 14A CHARLES ALAN
WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 3724, at 388-393 (1985 &
Supp. 1997). See generally Michael C. Massengale, Note, Riotous
Uncertainty: A Quarrel with the “Commentators’ Rule” Against
Section 1441(c) Removal for Counterclaim, Cross-Claim, and Third-
Party Defendants, 75 TEX. L. REV. 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 well-
pleaded complaint rule. See, e.g., Rivet v. Regions Bank, 118 S.
Ct. 921 (1998).

                                       5
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 removal 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.                  See

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 CHARLES ALAN WRIGHT     ET AL.,    FEDERAL PRACTICE   AND

PROCEDURE § 3724, at 364-66 (1985 & Supp. 1997).

     3
         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
            Walker contends that his claims against the Regents and

Low were not “separate 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 right 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.            See

Finn, 71 S. Ct. at 540; Able v. Upjohn Co., 829 F.2d 1330, 1332

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

rule requires that the plaintiff’s claims against the original

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

federal claims against the removing third-party defendant.              See

Carl Heck Eng’rs, 622 F.2d at 136; see also In re Wilson Indus.,

    4
        In addition, Finn 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
Inc., 886 F.2d 93, 96 (5th Cir. 1989); 14A WRIGHT           ET AL.,   supra, §

3724, at 392-94.

           In asserting that his claims against the State are not

separate 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 Walker’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

involve   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 that 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 differently during his termination proceedings than were

other similarly situated doctors, and that there was no rational

                                     8
basis for this difference in treatment.   See United States v. Abou-

Kassem, 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 that 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

Regents 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 to 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 is

       5
         Walker incorrectly cites McKay v. Boyd Constr. Co., 769
F.2d 1084 (5th Cir. 1985), in support of his contention that
removal was improper. McKay involved removal under § 1441(a), not
§ 1441(c). The McKay 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). See id. at 1087-
88. McKay is inapplicable to our removal analysis in this case.

                                  9
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. See 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.         See 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 reasonableness” 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.”     Id. at 3039; see also Malley v. Briggs, 106
S. Ct. 1092, 1096 (1986) (stating that qualified immunity is

designed to shield from civil liability “all but the plainly

incompetent or those who knowingly violate the law”).

                                     10
                          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     arbitrary      or

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

Cir. 1993).     Moulton exaggerated the status of a substantive due

process claim for academic protection, however, because the Supreme

Court has not squarely decided the issue.                      See Ewing, 106 S. Ct. at

at 511-12.      Moulton held that no constitutionally protectible

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

arbitrary deprivation. In this case, as in Ewing, 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

terminated him at the instigation of Low, rejecting a faculty

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

hearing,    acted    partially,           and    failed        to   fully       consider    his

arguments and defenses regarding his retention of professional

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

contexts that substantive due process requires only that public

officials exercise professional judgment, in a nonarbitrary and

noncapricious manner, when depriving an individual of a protected

                                            11
property interest.   See 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 did, 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 belonged 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.       See Malley, 106 S. Ct. at

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

Walker either were not unconstitutional or were not objectively

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

        6
           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   dischargeable   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
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

analysis,    rational   basis    scrutiny   applies.   See   Johnson   v.

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

            Walker argues that the Regents 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 resolving the dispute

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

whom Walker refers all cooperated with the University, and most

eventually reached settlement agreements regarding their improperly

retained 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 from Walker’s equal protection

claim.

                                     13
                      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 bankruptcy

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

debt was nondischargeable under 11 U.S.C. § 523(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 manner in Walker’s

     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 footnote of its reply brief, (2) filed a Fifth Circuit Rule
28(j) letter prior to oral argument bringing to this court’s
attention a somewhat relevant case, and (3) discussed the Eleventh
Amendment at oral argument. While the State has been less than
helpful in supplying any case law or arguments to support its
contention that the Eleventh Amendment barred the discharge of
Walker’s debt, it nonetheless has not waived the issue. Because of
the strong federalism concerns behind the Eleventh Amendment, we
may properly consider the issue even at this stage of the
proceeding. See 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
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 the

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.9

       8
       Prior to Seminole 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); Connecticut 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 Eleventh Amendment only
protects a state from federal court money judgments paid out of the
state treasury. See 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.     See Crisp, 521 F.2d at 178;
Morris, 10 B.R. at 456. The reasoning of these case is incorrect,
as expressed clearly and emphatically in Seminole: “The Eleventh
Amendment does not exist solely in order to prevent federal court
judgments 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 district 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
           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 sought by the plaintiff.                    See

U.S. CONST. 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, 123 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 in

his assertion of the discharge 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 fall within the Eleventh Amendment’s
compass. See 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
federal court to recover money damages.11   Just as Seminole 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.   See In re Creative Goldsmiths, Inc., 119

    11
       Three recent lower court cases are representative. In Kish
v. Verniero, 212 B.R. 808 (D.N.J. 1997) (Brown, J.), and Rose 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
Treasury 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 Amendment), filed a tax lien on the debtors’ property.
The debtors alleged that 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.” Id. at 228. Nonetheless, it also
held that it did not have jurisdiction over the debtors’ claim
against Treasury for willful violation of the automatic stay
because of Treasury’s sovereign immunity, which had not been
waived. See 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
F.3d 1140, 1149 (4th Cir. 1997).              Since UTHSC never filed a proof

of claim, however, waiver is irrelevant to the present analysis.

The pressing issue here is whether a bankruptcy 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   debt,    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.                      Cf. 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,” not 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

purposes    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.                      See 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 legal

                                         18
rights of the state, see Regents of Univ. of Cal., 117 S. Ct. at

904.

               Put another way, discharging 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

the state does nothing, it is permanently barred from collecting

its debt and from recovering a pro rata share of the debtor’s

       12
       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)).
        13
         But see DeKalb County Div. of Family and Child Servs. v.
Platter, 1998 WL 138847, at *3 (7th Cir. 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))).
       14
        After Seminole, 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., In 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); In re NVR L.P., 206 B.R. 831, 850-51 (Bankr. E.D. Va.
1997) (collecting cases and extensively discussing waiver).

                                      19
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,   but    it   is   ultimately

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

equation of a bankruptcy case with a suit against 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

collection rights with respect to its claims against the debtor,

but it also affords the state 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 that state, the power of the bankruptcy court to enter an

order confirming a plan . . . derives not from jurisdiction over

     15
         But 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 to 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
the state or other creditors, but 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 should ordinarily expressly

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

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

predicates its request for relief against the discharge defense

here.

        16
           11 U.S.C. § 523(a)(3)(B) states that a debtor is not
discharged 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 determination 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
also deprived it of the opportunity timely to pursue a
nondischargeability action.
     Another peculiarity about this case might have posed an
Eleventh Amendment problem but has not been raised. The Bankruptcy
Code provides 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 notice 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
           Additional support for our view that the granting of a

bankruptcy discharge 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
     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.       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 immunity which it
     otherwise might have had respecting the adjudication of
     the claim.

          The extent of the constitutional 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 appropriate requirements by the

                                  22
     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.    See 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.”     In 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).”

                                      23
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     intentional      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,    however,     can        result   in     a    “willful    and   malicious

injury.”   See 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.

           Walker 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

appropriate 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”).

                                           24
          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.”        See Davis v. Aetna Acceptance

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

malicious injury does not follow as of course from every act of

conversion, without reference to the circumstances.            There may be

a conversion 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

contract 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   “court   appearances,

depositions, or legal consultations.”          The MSRDP contract and by-

law 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 MSRDP

                                    25
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

general 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    faculty    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    district    court’s   judgment   regarding     Walker’s

discharge in bankruptcy.

                                       26
AFFIRMED IN PART, REVERSED IN PART, and REMANDED.

                     27