On January 23, 2006, the U.S. Supreme Court handed down its decision in Central Virginia Community College v. Katz , holding that a state cannot assert its sovereign immunity as grounds to block the avoidance of a preferential transfer to a state agency under § 547(b) of the Bankruptcy Code . At the heart of the matter was whether Congress overstepped its constitutional power when it enacted § 106(a) of the Code, which waives state sovereign immunity in bankruptcy.
However fair the outcome may be, the rationale of the Court cannot be reconciled with its prior decisions addressing Congress's ability to waive state sovereign immunity under its Article I powers. Indeed the Court's theory of implied waiver does little to justify why there should be a "bankruptcy exception" at all. On its face, Katz may be expected to open the door to broader Congressional abrogation of state sovereign immunity in the future, but the addition of Justice Alito to the bench almost certainly promises that Katz will receive a very narrow reading when the issue next reaches the Court. [More]