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Supreme Court to Hear Bankruptcy Case Involving Colleges

April 5, 2005

The U.S. Supreme Court agreed Monday to decide whether the 11th Amendment should shield four public colleges in Virginia from being sued under federal bankruptcy laws.

The case, Central Virginia Community College, et al, v. Bernard Katz (No. 03-885), has greater implications for the continuing legal maneuvering over state vs. federal rights than it does for higher education law. But the fact that the plaintiffs in the case are three community colleges and the Virginia Military Institute makes the case of some interest to public college officials nationwide.

VMI and Blue Ridge, Central Virginia, and New River Community Colleges were all clients of Wallace's Bookstores, which at its peak operated the campus stores at scores of colleges, when the company filed for bankruptcy early in 2001.

The supervisor overseeing the liquidation of the estate of the bookstore chain sued the four colleges, among others, to try to recover money that they owed to Wallace's at the time of the bankruptcy.

The institutions asked the bankruptcy court in Kentucky, where Wallace's was based and the bankruptcy proceedings were unfolding, to dismiss the lawsuit against them, saying they were protected by the sovereign immunity clause of the 11th Amendment.

But the bankruptcy court and then the U.S. Court of Appeals for the Sixth Circuit (in August 2004) rejected the colleges' request, citing an earlier Sixth Circuit ruling (in a case known as Hood v. Tennessee Student Assistance Corporation) that had concluded that the U.S. Constitution's bankruptcy clause abrogated state immunity.

On the colleges' behalf, the State of Virginia appealed to the Supreme Court, noting that most other federal appeals courts had taken the opposing view. The court is expected to hear the case when its 2005 term, which begins in October.

 

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