Involuntary Bankruptcy and State Sovereign Immunity: It's Good to Be the King.

Section 106 of the Bankruptcy Code expressly abrogates the sovereign immunity of governmental units with respect to fifty-nine provisions of the Code. In addition, the United States Supreme Court has recognized a bankruptcy-specific exception to state sovereign immunity in proceedings necessary to effectuate the in rem jurisdiction of the bankruptcy courts. The Court reasoned that by ratifying Congress's bankruptcy power in Article I of the Constitution, the states had waived their immunity in such proceedings. This acknowledgement of bankruptcy exceptionalism in relation to sovereign immunity aligned quite nicely with the bedrock bankruptcy axiom that creditors with legally similar claims should be treated equally. Recently, however, a United States Court of Appeals for the Ninth Circuit panel seems to have ignored these principles by holding that a state entity that files an involuntary bankruptcy petition in malicious bad faith is immune from the consequences any other creditor engaging in the same conduct would incur under § 303(i) of the Code. This Article critically examines that decision against the larger backdrop of the reconciliation of state sovereign immunity under the Eleventh Amendment with the constitutionally mandated power of Congress to pass "uniform Laws on the subject of Bankruptcies.". [ABSTRACT FROM AUTHOR]