United States v. Nordic Village, Inc./Dissent Stevens

Justice Stevens, with whom Justice Blackmun joins, dissenting.

The injustice that the Court condones today demonstrates that it is time to reexamine the wisdom of the judge-made rules that drive its decision.

An officer of an insolvent corporation appropriated corporate funds and used them to discharge a personal tax obligation. Because the Federal Government was the ultimate recipient of the stolen property, the Court holds that the '''[p. 40]''' bankruptcy trustee cannot avoid the transfer. The interest in a rigid interpretation of the doctrine of sovereign immunity outweighs the interest in equitable treatment of general creditors and shareholders of the corporate debtor. This result is neither necessary nor just.

It is not necessary because both the text and the legislative history of the Bankruptcy Code support a contrary result. It is not just because nothing more than a misguided interest in adherence to obsolete judge-made rules is at stake. I shall comment first on the laws enacted by Congress and then on the rules that the Court itself has ordained.

I
The text of §106 is straightforward. Because the case does not involve either a counterclaim or an offset, subsections (a) and (b) are not applicable. Subsection (c) provides:

"(c) Except as provided in subsections (a) and (b) of this section and notwithstanding any assertion of sovereign immunity—

"'(1) a provision of this title that contains 'creditor,' 'entity,' or 'governmental unit' applies to governmental units; and"

"'(2) a determination by the court of an issue arising under such a provision binds governmental units.' 11 U.S.C. §106."

The United States is a "governmental unit," and therefore any provision of the Bankruptcy Code that contains one of the "trigger words" listed in paragraph (c)(1) applies to the United States. Section 550(a) is undoubtedly one such pro- '''[p. 41]''' vision. Thus, "notwithstanding any assertion of sovereign immunity," paragraph (c)(1) provides that §550(a) "applies" to the United States, and paragraph (c)(2) provides that the Government is bound by the court's determination of the issues arising under that provision. The literal text of the Act unquestionably forecloses the defense of sovereign immunity.

The legislative history unambiguously demonstrates that Congress intended the statute to be read literally. The immediate purpose of §106(c) was to enable the bankruptcy court to determine the amount and the dischargeability of the debtor's tax liabilities, but the sponsors of the amendment clearly stated that it covered "other matters as well," specifically including the avoidance of preferential transfers. 124 Cong. Rec. 32394 (1978) (statement of Rep. Edwards); id., at 33993 (statement of Sen. DeConcini). The congressional purpose to waive sovereign immunity is pellucidly clear.

The Court evades this conclusion by hypothesizing "plausible" alternative constructions of the statute, by refusing to consider its legislative history and by reiterating the '''[p. 42]''' Court's view that waivers of sovereign immunity must be strictly construed. I shall not comment on the plausible alternatives except to note that they are obviously less satisfactory—both as a matter of sound bankruptcy policy and as a principled interpretation of the English language—than a literal reading of the statute. I shall, however, add a few words about the Court's love affair with the doctrine of sovereign immunity.

II
Despite its ancient lineage, the doctrine of sovereign immunity is nothing but a judge-made rule that is sometimes favored and sometimes disfavored. Its original reliance on the notion that a divinely ordained monarch "can do no wrong" is, of course, thoroughly discredited. Moreover, '''[p. 43]''' its persistent threat to the impartial administration of justice has been repeatedly acknowledged and recognized. Thus, in Federal Housing Authority v. Burr, 309 U.S. 242, 245 (1940), we remarked on "the current disfavor of the doctrine of governmental immunity from suit."

Time after time Congress has taken action to ameliorate the hardship of the doctrine. A half century ago this Court observed:

"'A sense of justice has brought a progressive relaxation by legislative enactments of the rigor of the immunity rule. As representative governments attempt to ameliorate inequalities as necessities permit, prerogatives of the government yield to the needs of the citizen.... When authority is given, it is liberally construed.' United States v. Shaw, 309 U.S. 495, 501 (1940)."

In the bankruptcy context, the Court has noted that there is no reason why the Federal Government should be treated '''[p. 44]''' differently from any other secured creditor. Its interests are adequately protected by specific statutory provisions governing discharges and priorities. As the Commission on the Bankruptcy Laws of the United States observed, unanimously, in 1973:

"The Commission also recommends that unpaid taxes entitled to priority be reduced from those accruing within three years prior to bankruptcy to those accruing within one year prior to bankruptcy and that the government be given no other priority for taxes in a bankruptcy proceeding (including those secured by a 'tax lien'). Data submitted to the Commission by the Treasury Department establishes that the total amount collected by the Federal Government as a result of all of its liens and priorities in bankruptcy proceedings is insignificant in the total federal budget. It is the view of the Commission that it is unseemly for the Federal Government to insist upon collecting its taxes at the expense of other creditors of the taxpayer, and that the [p. 45] only possible justification for this would be a plea of necessity in order to keep the government functioning. As indicated above, such a plea would be totally without foundation in fact.

"...When the Federal Government enters into business transactions, it should be prepared to deal upon a basis of equality with other creditors of the bankrupt business." Report of Commission on Bankruptcy Laws of the United States, H. R. Doc. No. 93–137, pt. 1, p. 22 (1973).

If these comments by the experts who played a major role in formulating the policies embodied in the Bankruptcy Code are sound—as I believe they are—one must ask what valid reason supports a construction of the waiver in §106(c) that is so "strict" that the Court will not even examine its legislative history.

Surely the interest in requiring the Congress to draft its legislation with greater clarity or precision does not justify a refusal to make a good-faith effort to ascertain the actual meaning of the message it tried to convey in a statutory provision that is already on the books. The Court's stubborn insistence on "clear statements" burdens the Congress with unnecessary reenactment of provisions that were already plain enough when read literally. The cost to litigants, to '''[p. 46]''' the legislature, and to the public at large of this sort of judicial lawmaking is substantial and unfortunate. Its impact on individual citizens engaged in litigation against the sovereign is tragic.

The fact that Congress has ample power to correct the Court's unfortunate error does not justify this refusal to obey its command. I respectfully dissent.