In rе: DAIRY MART CONVENIENCE STORES, INC., et al., Debtors.
Dairy Mart Convenience Stores, Inc., et al., Debtors-Appellees,
v.
Robert E. Nickel, Secretary Ronald B. McCloud, Defendants-Appellants.
Docket No. 04-1156-BK.
United States Court of Appeals, Second Circuit.
Argued October 29, 2004.
Decided June 13, 2005.
James D. Brannen, Frankfort, Kentucky (Office of the Petroleum Storage Tank Environmental Assurance Fund, Frankfort, Kentucky; Joseph T. Moldovan, Morrison Cohen LLP, New York, New York, of counsel), for Defendants-Appellants.
Lena Mandel, New York, New York (Dennis F. Dunne, Milbank, Tweed, Hadley & McCloy LLP, New York, New York, of counsel), for Debtors-Appellees.
Before: CARDAMONE, KATZMANN, and RAGGI, Circuit Judges.
CARDAMONE, Circuit Judge.
In this opinion we are required to examine concepts that have evolved in our jurisprudence since the 1798 ratification of the Eleventh Amendment to the United States Constitution. Contributing to those concepts were, among others, Alexander Hamilton in The Federalist No. 81 (Sesquicentennial ed.), Chief Justice John Marshall in Osborn v. Bank of United States,
Defendants Robert E. Nickel and Ronald B. McCloud, public officials of the Commonwealth of Kentucky (defendants, state officials, or appellants), appeal from an order dated January 23, 2004 of the United States District Court for the Southern District of New York (Wood, J.). The decision affirmed an order dated June 12, 2002 of the United States Bankruptcy Court for the Southern District, which denied defendants' motion to dismiss an adversary proceeding initiated by debtors Dairy Mart Convenience Stores, Inc. and its affiliated organizations (Dairy Mart or plaintiff). Defendants contend the present action should be dismissed for lack of subject matter and personal jurisdiction because the doctrine of sovereign immunity, as derived from the Eleventh Amendment to the United States Constitution, protects state officials from suit. Dairy Mart urges that the action falls under the exception to sovereign immunity set forth in Ex parte Young,
BACKGROUND
On September 24, 2001 plaintiff Dairy Mart filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southеrn District of New York. Plaintiff operated a large chain of convenience stores comprising about 547 stores located in Ohio, Kentucky, Pennsylvania, Michigan, Indiana, and North Carolina. One hundred ninety-three of these convenience stores sold gasoline. Because Dairy Mart owned facilities that stored gasoline in underground tanks, it is subject to the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq. (2000) (Resource Recovery Act or Act), which requires such entities to pay for cleanup costs and third-party damagе in the event of contamination.
In order to assist owners and operators of underground storage tanks in meeting their responsibilities under the Resource Recovery Act, the Kentucky General Assembly created the Office of Petroleum Storage Tank Environmental Assurance Fund (Office) to administer the Petroleum Storage Tank Environmental Assurance Fund (Fund). The Fund reimburses owners and operators of underground tanks for expenses associated with cleanup actions mandated by the Act. These reimbursements are derived, in pаrt, from assurance fees assessed on fuels imported into the Commonwealth of Kentucky. See Ky.Rev.Stat. Ann. § 224.60-145 (2001). As an importer Dairy Mart pays these fees into the Fund.
Appellants Nickel and McCloud have substantial responsibilities within the Office. Nickel is the Office's executive director and has responsibility for the overall management of the Fund's operations, including final authority over claim acceptances or rejections. McCloud is the Secretary of the Public Protection and Regulation Cabinet for the Commonwealth of Kentucky and oversees agencies within the Cabinet, including the Office.
Once a qualified entity incurs cleanup costs under the Act, it must file an application for reimbursement with the Office, which then determines whether the application will be approved on the basis of numerous regulatory qualifications. These include, among others, whether: (1) the claimant is eligible under the program, (2) the contamination occurred at an approved facility, (3) corrective action was necessary, (4) the event had beеn reported to the Natural Resources and Environmental Protection Cabinet, and (5) the costs were reasonable and properly documented. See generally 415 Ky. Admin. Regs. 1:080 (2003). Timeliness in making a claim is one of the many requirements for reimbursement. Dairy Mart missed the filing deadline of October 13, 2001, imposed by Ky. Admin. Regs. 1:080 § 6(4)(a), when it filed 22 Fund reimbursement claims with the Office four days late. All of these claims sought reimbursement for corrective action done with respect to Dairy Mart's underground storage tanks in Kentucky.
Dairy Mart contends these claims were timely filed desрite the Kentucky regulation, because § 108 of the bankruptcy code, which is set forth in the margin,1 automatically extends the filing deadline to 60 days after the filing date of a bankruptcy petition, in this case to November 23, 2001. This provision of the federal bankruptcy law affords a grace period regarding all regulatory deadlines for a debtor's filing of a "proof of claim or loss" if such deadlines have not yet passed on the date the debtor files for bankruptcy. 11 U.S.C. § 108(b) (2000). Dairy Mart's filing occurred well within this grace period.
During the application process, plaintiff drew defendants' attention to the effect of this section of the bankruptcy code. The state officials, however, refused to accept Dairy Mart's claims as being timely filed, indicating that § 108 did not bind the Fund. Their denial of the claims was communicated to plaintiff by a letter dated December 5, 2001, and through telephone conferences with Dairy Mart's counsel.
On March 5, 2002 plaintiffs initiated an adversary proceeding in the bankruptcy court seeking a declaratory judgment with respect to the parties' rights and obligations in connection with the grace period provided by § 108 of the bankruptcy code, and also requesting an injunction ordering defendants to accept Dairy Mart's claims as timely filed, pursuant to 11 U.S.C. § 105(a). Defendants filed a motion to dismiss, arguing that sovereign immunity protected them from suit and that the bankruptcy court therefore lacked personal and subject matter jurisdiction over them. On June 12, 2002 the bankruptcy court denied the motion to dismiss. It reasoned that the Eleventh Amendment did not bar the suit because Dаiry Mart sought prospective injunctive relief to end a continuing violation of federal law, thus falling within the Ex parte Young exception to the bar of sovereign immunity.
Defendants then appealed that decision to the United States District Court for the Southern District of New York, which has appellate jurisdiction over final judgments, orders, and decrees of federal bankruptcy courts in the Southern District, pursuant to 28 U.S.C. § 158(a)(1). In an order dated January 23, 2004, district court Judge Kimba Wood affirmed the order of the bankruptcy court, agreeing that the action was "best understood as one for `prospective injunctive relief.'" This appeal followed.
DISCUSSION
I Standard of Review
The single issue on appeal is whether the relief sought by Dairy Mart is essentially for the retroactive recovery of funds from the Commonwealth of Kentucky and thus jurisdictionally barred by the doctrine of sovereign immunity, as derived from the Eleventh Amendment, which protects states from being sued in federal court. Both the bankruptcy court and the district court answered this question in the negative. We agree.
When a district court acts as an appellate court in an appeal from an order of the bankruptcy court, its determination is subject to plenary review. See Mazzeo v. Lenhart (In re Mazzeo),
II A Doctrinal Summary of the Eleventh Amendment
The Eleventh Amendment to the United States Constitution states that "[t]he 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." U.S. Const. amend. XI. For over a century, the Supreme Court has interpreted the Eleventh Amendment not as against a tabula rasa, but rather as a confirmation of the preexisting principle of sovereign immunity. See Seminole Tribe of Fla. v. Fla.,
The Eleventh Amendment protects unconsenting states from suits in federal court brought by citizens of other states, see U.S. Const. Amend. XI, and consistent with the Eleventh Amendment, the doctrine of sovereign immunity additionally protects unconsenting states from suits brought by its own citizens in its own state courts, see Hans,
Even so, sovereign immunity is not absolutе. In tension with the immunity of the states is the supremacy of the Union and its Constitution. Thus, the Supreme Court has in certain circumstances limited state sovereign immunity. Congress may, for example, abrogate a state's sovereign immunity when it acts pursuant to § 5 of the Fourteenth Amendment. See Seminole Tribe,
III The Ex parte Young Exception to Sovereign Immunity
A. Ex parte Young
In the landmark case of Ex parte Young, the Supreme Court reviewed the jailing of the Minnesota Attorney General who had been enjoined by federal court from imposing what stockholders of a railroad believed were onerous rates on railroads in that state. The Supreme Court, echoing Chief Justicе Marshall in Osborn, said that Young, as a state officer attempting to enforce an unconstitutional state statute, is subject to the consequences personally because he is stripped of his official representation.
Inasmuch as we accept that the state is incapable of authorizing an unconstitutional act, the Ex parte Young exception is not a legal fiction, but rather involves the infliction of real damage by an officer, without authority by the state, upon the plaintiff. Although the state is comprised of people acting in their official capacity, one cannot confuse the state with the cast of the government, the current reflection of which may be marred by its composition. Put another way, although "[t]he people in their sovereign capacity may be immune from suit," "it does not follow that [officers of the state] should share this aspect of sovereignty" when they violate the laws of the people. Orth, supra, at 135.
B. The Straightforward Inquiry
Whether a litigant's claim falls under the Ex parte Young exception to the Eleventh Amendment's bar against suing a state is a "straightforward inquiry" that asks "whether [the] complaint alleges an ongoing violation of federal law and seeks relief properly characterized as prospective." Verizon Md., Inc. v. Pub. Serv. Comm'n of Md.,
Appellants question whether Dairy Mart successfully alleged that appellants have continually violated § 108 of the United States Bankruptcy Code. Moreover, defendants contend that the relief sought by Dairy Mart cannot be charactеrized as injunctive relief because the relief sought ultimately results in an unlawful retroactive monetary liability against the state of Kentucky. We cannot adopt these contentions. Instead, in our view Ex parte Young authorizes jurisdiction over appellants. Our reasons follow.
1. Ongoing Violation of Federal Law
Under Ex parte Young, the state officer against whom a suit is brought "must have some connection with the enforcement of the act" that is in continued violation of federal law.
Dairy Mart's complaint alleges that Kentucky officials are in continued violation of federal law and thus clearly satisfies the straightforward inquiry test. See Verizon,
In the district court proceedings, appellants asserted there is no continuing violation of federal law for which they can be sued under Ex parte Young because the acts in question occurred in the past. In rejecting this characterization, we note that the instant case is very similar to that in Edelman, where the Supreme Court, under the Ex parte Young exception, granted a permanent injunction requiring compliance with federal time limits for paying disability benefits, which were wrongfully withheld. Edelman,
In moving for dismissal, defendants did not argue to the bankruptcy or district courts, nor do they contend оn appeal, that Younger abstention precludes a federal court from entertaining plaintiff's request for equitable relief in light of ongoing state administrative proceedings. See Younger v. Harris,
2. Question of Jurisdiction
Appellants attempt to distinguish Ex parte Young and its progeny by asserting that the рrospective injunction Dairy Mart seeks is not to bar wrongful state activity, but to escape the consequences of having missed lawful regulatory deadlines in the underlying state administrative proceeding. We think this reasoning is circular; essentially, appellants declare the Ex parte Young exception that would allow for jurisdiction does not apply because the court has not yet found appellants' actions illegal and cannot do so because it has no jurisdiction to decide that question.
We reach a cоntrary conclusion. The question of whether federal jurisdiction exists is not always free from doubt, and a federal court may have to examine and determine the facts and the law before concluding whether jurisdiction is appropriate. Thus, it follows that "a court has jurisdiction to determine its own jurisdiction." United States v. United Mine Workers of Am.,
Necessarily, deciding whether a state officiаl violated federal law "affects both the initial immunity inquiry as well as the ultimate decision on the merits." 17A James Wm. Moore et al., Moore's Federal Practice § 123.40[3][a] (3d ed.2004). At this stage, we need only determine whether Dairy Mart's assertion that the appellants' decision resulted in a violation of federal law is a substantial and not frivolous claim; we need not reach the legal merits of the claim. See id.; see also Lewis v. New Mexico Dep't of Health,
3. Prospective Injunctive Relief
Recognizing that the degree of a state's interest implicated in a suit is related to the type of relief sought, the second aspect of the Ex parte Young exception affords jurisdictional grants to federal court only when a plaintiff seeks a prospective, injunctive remedy. The essential inquiry in an Eleventh Amendment challenge is whether the state, although not named in the action, is the real party in interest. See Edelman,
Appellants insist that although the relief sought in Dairy Mart's complaint is for declaratory and injunctive relief, compelling the state of Kentucky to accept their claims as timely filed ultimately leads to reimbursement from thе state treasury. They insist the filing and the payment of the claim cannot be separated for the purpose of determining whether injunctive or monetary relief is sought. This proposition is logically flawed. A causation relationship does not create an identity relationship. Otherwise, as Dairy Mart points out, life would be equated with death, since the latter is an inevitable consequence of the former.
We recognize that in many cases the difference between the type of relief barred by the Eleventh Amendment and that permitted under Ex parte Young is not as clear cut as the brightness of high noon and the darkness of midnight. See Edelman,
The Supreme Court reversed in part, holding that while the Ex parte Young doctrine allowed the portion of the judgment awarding injunctive relief, the district court erred in ordering the payment of wrongfully withheld funds. The Court observed that the monetary award, although under the guise of equitable restitution rather than damages, constituted retrospective relief thаt was barred by the Eleventh Amendment. Id. at 668,
IV Resolution of Present Case
We hold that Dairy Mart's adversary action is akin to the injunctive relief compelling compliance with federal timing requirements that was approved in Edelman, as opposed to the retrospective relief that the Supreme Court barred. Dairy Mart seeks prospective injunctive relief compelling appellants to accept its claims as timely filed. To be sure, the ultimate purpose behind the action is to commence a process that Dairy Mart hopes will allow it to recover funds from the state treasury. Nonetheless, we follow the rationale of the Edelman court and approve this form of injunctive relief. If eventual payment is made to Dairy Mart as an outcome of the injunction, such a depletion from the state treasury is a permissible ancillаry effect of Ex parte Young because it is the "necessary result of compliance with decrees which by their terms were prospective in nature." Id. at 668,
Moreover, the injunction does not directly lead to the payment of state funds from the treasury because the Fund will still make the final decision determining whether Dairy Mart meets the numerous other filing requirements imposed by Kentucky law. Thus, whether reimbursement is ultimately appropriate, the injunctive relief sought in this case falls on the Ex parte Young side of the Eleventh Amendment, rather than on the Edelman side because "whether or not [the claimant] will receivе retroactive benefits rests entirely with the State, ... not with the federal court." Quern v. Jordan,
Appellants dispute that the eventual payment of state funds may be characterized as a permissible ancillary effect on the treasury via a legitimate prospective injunction. Instead, the state officials maintain thаt Dairy Mart's objective is to institute a process that will lead to a retroactive monetary recovery. We respond by first noting that defendants misstate the duty of an appellate court reviewing a motion to dismiss for lack of jurisdiction. We do not simply accept the allegations of the complaint but must construe those allegations favorably when passing on a motion to dismiss for lack of jurisdiction. See Scheuer v. Rhodes,
We further acknowledge that although our decision may ultimately impact the state treasury, the financial effect is not the same as it is when a court orders retroactive payments. See Edelman,
Finally, Dairy Mart's complaint seeks a declaratory judgment regarding the parties' rights and obligations with respect to the extension of time provided by § 108 of the bankruptcy code. While this asks the Court to declare the state officials' past and future actions illegal, that relief does not impose a past liability on the state. See Verizon,
CONCLUSION
In sum, Dairy Mart has successfully аlleged that the refusal of the Kentucky state officials to accept Dairy Mart's claims as timely filed, and their failure to correct this decision, is a violation of § 108 of the United States Bankruptcy Code. Dairy Mart has alleged a violation of federal law, and its entitlement to injunctive relief preventing such a violation is not tantamount to monetary reimbursement from the state. Accordingly, the Ex parte Young exception to sovereign immunity applies and the district court properly affirmed the bankruptcy court's denial of aрpellee's motion to dismiss for lack of personal and subject matter jurisdiction. To rule otherwise would usurp the constitutional authority granted the federal government over bankruptcy matters.
Order affirmed.
Notes:
Notes
Section 108(b) of Title 11 of the United States Code provides in relevant part as follows:
if applicable nonbankruptcy law, ... fixes a period within which the debtor ... may file any pleading, demand, notice, or proof of claim or loss, ... and such period has not expired before the date of the filing of the petition, the trustee may ... file, cure, or perform, as the case may be, ... 60 days after the order for relief.
11 U.S.C. § 108(b)(2) (2000).