UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA

Lance Frank Nutter and Sheri Lyn Nutter ("the Nutters") borrowed money from the State of Alaska ("State") to pay for their college tuition. Lance has an education degree, but is currently employed as a recreational specialist by the Fairbanks North Star Borough. The Nutters filed bankruptcy to, inter alia, free themselves from the burden of repaying their student loans. 11 U.S.C. § 523(a)(8). In relevant part this section provides:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title [the bankruptcy code] does not discharge an individual debtor from any debt--

....

(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, 5 ABR 399      scholarship or stipend unless--

(A) such loan, benefit, scholarship or stipend overpayment first became due more than seven years (exclusive of any applicable suspension of the payment) before the date of the filing of the petition; or

(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependants.

The bankruptcy court held a hearing and granted partial relief. The bankruptcy court found that less than seven years had transpired since payment first became due because of various suspensions of payment that the Nutters had applied for and received. The bankruptcy court nevertheless found that repayment of the total indebtedness would be an undue hardship for the Nutters. The bankruptcy court applied the test established by the United States Court of Appeals for the Second Circuit in Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2nd Cir. 1987); see also In re Faish, 72 F.3d 298, 302-06 (3rd Cir. 1995), cert. denied, 518 U.S. 1009 (1996); In re Cheeseman, 25 F.3d 356 (6th Cir. 1994), cert. denied, 513 U.S. 1081 (1995). Applying the Brunner test, Judge MacDonald concluded that it would be an undue hardship to require the Nutters to repay the entirety of their debt, but that they did have the present and future earning capacity to repay a significant part of it. He therefore established a payment schedule for the Nutters to meet.

Contending that they cannot meet that schedule, the Nutters have appealed to this Court. See Docket nos. 1 (notice of appeal), 8 (brief on the merits). The State did not cross-appeal, but in its response brief contends that the bankruptcy court, and by extension this Court, has no jurisdiction over this matter. See Docket No. 9 at 5-9. The State argues that the Eleventh Amendment to the United States Constitution bars 5 ABR 400      an adversary action in bankruptcy against a state or a state agency such as the Alaska Commission on Post-Secondary Education. The State relies on Seminole Tribe of Florida v. Florida, 517 U.S. 44 (1996). The State concedes that this is the first occasion upon which it is raised a jurisdictional challenge, but contends that the Attorney General for the State of Alaska does not have the authority to consent to federal jurisdiction over Alaska and, consequently, its lawyers may assert its Eleventh Amendment immunity at any time. In re Creative Goldsmiths of Washington, D.C., Inc., 119 F.3d 1140, 1144 (4th Cir. 1997), cert. denied, 118 S. Ct. 1517 (1998). The State acknowledges that Congress has attempted to expressly abrogate state immunity in bankruptcy proceedings through the Bankruptcy Improvement Act of 1994, 11 U.S.C. § 106(a). Nevertheless, the State correctly points out that those federal courts that have considered the issue have held that § 106(a) is unconstitutional to the extent that it purports to permit suits against a state. See In re Sacred Heart Hospital of Norristown, 133 F.3d 237, 242-45 (3rd Cir. 1998); In the Matter of Estate of Fernandez, 123 F.3d 241, 243 (5th Cir. 1997); In re Creative Goldsmiths, 119 F.3d at 1145. The Nutters did not name any state employees in their adversary action and therefore the rule of Ex Parte Young is inapplicable. See Ex Parte Young, 209 U.S. 123, 150-54 (1908); Natural Resources Defense Council v. California Dep't of Transp., 96 F.3d 420, 422 (9th Cir. 1996); but see Idaho v. Coeur d'Alene Tribe of Idaho, 117 S. Ct. 2028, 2040-43 (1997) (holding action against state officers under Young nevertheless barred by Eleventh Amendment). This Court expresses no opinion as to whether the bankruptcy court should permit an amendment to name state officials on remand.

5 ABR 401      IT IS THEREFORE ORDERED:

The appeal in this matter is dismissed for lack of subject matter jurisdiction, because the Nutters' adversary action against a state agency is barred by the Eleventh Amendment to the United States Constitution.

Dated at Anchorage, Alaska, this 22nd day of May, 1998.

JAMES K. SINGLETON, JR.
United States District Judge