MARTIN W. HOFFMAN, TRUSTEE, PETITIONER V. STATE OF CONNECTICUT,
DEPARTMENT OF INCOME MAINTENANCE, ET AL.

   No. 88-412

   In the Supreme Court of the United States

   October Term, 1988

   On Writ of Certiorari to the United States Court of Appeals for the
Second Circuit

   Brief for the United States as a Respondent

                       PARTIES TO THE PROCEEDING

   In addition to Martin W. Hoffman, Trustee, and the State of
Connecticut's Department of Income Maintenance, the State's Department
of Health Services, its Department of Revenue Services, and the United
States are parties to the proceeding.

            TABLE OF CONTENTS
   Question Presented
   Parties to the Proceeding
   Opinions below
   Jurisdiction
   Statutory provision involved
   Statement
   Summary of argument
   Argument:
      Section 106(c) does not authorize bankruptcy courts to order
      government agencies to pay money to bankruptcy trustees
      A. Section 106(c) provides that bankruptcy courts may determine
         the government's rights in the debtor's estate, not that the
         debtor may recover from the government
      B. The legislative history confirms that Section 106(c) does
         not waive sovereign immunity from money judgments
      C. Rules of statutory construction further support the
         conclusion that Section 106(c) does not authorize suits for
         monetary relief
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. A1-A19) is reported
at 850 F.2d 50.  The opinion of the district court in In re Willington
Convalescent Home, Inc. (Pet. App. A20-A71) is reported at 72 Bankr.
R. 1002.  The opinion of the district court in In re Edward Zera (Pet.
App. A72-A97) is reported at 72 Bankr. R. 997.  The opinion of the
bankruptcy court in In re Willington Convalescent Home, Inc. (Pet.
App. A98-A143) is reported at 39 Bankr. R. 781.  The opinion of the
bankruptcy court in In re Edward Zera (Pet. App. A144-A185) is
unreported.

                             JURISDICTION

   The judgment of the court of appeals was entered on June 15, 1988.
The petition for a writ of certiorari was filed on September 7, 1988.
The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).

                     STATUTORY PROVISION INVOLVED

   11 U.S.C. 106 provides:

         (a) A governmental unit is deemed to have waived sovereign
      immunity with respect to any claim against such governmental
      unit that is property of the estate and that arose out of the
      same transaction or occurrence out of which such governmental
      unit's claim arose.

         (b) There shall be offset against an allowed claim or
      interest of a governmental unit any claim against such
      governmental unit that is property of the estate.

         (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.

                          QUESTION PRESENTED

   Whether Section 106(c) of the Bankruptcy Code permits a bankruptcy
trustee to bring an action against a State in federal bankruptcy court
seeking retroactive monetary relief.

                               STATEMENT

   Petitioner, Martin W. Hoffman, is the trustee in two unrelated
bankruptcy cases, In re Willington Convalescent Home, Inc., Debtor,
No. 2-82-00508, and In re Edward Zera, Debtor, No. 2-83-00754, pending
in the United States Bankruptcy Court for the District of Connecticut.
 In each case, he commenced adversary proceedings in the bankruptcy
court against the State of Connecticut seeking monetary relief.  The
court of appeals affirmed the district court's dismissal for lack of
jurisdiction, thus rejecting the bankruptcy court's finding that 11
U.S.C. 106(c) authorizes trustees to bring suits for money judgments
against government agencies.

   1. The Willington Convalescent Home, Inc., was a nursing home
operator which participated in the Connecticut Medicaid program.
After a field audit in 1980 determined that Willington had overstated
its real property costs, resulting in excess reimbursements by the
State for five years, the State began to recoup these past
overpayments from its current payments to Willington.  In 1982,
Willington filed a petition under Chapter 11 of the Bankruptcy Code.
It continued to operate and participate in the Medicaid program until
it closed in April 1983;  at that time it still owed Connecticut
$121,408.  Although the State did not file a proof of claim in the
bankruptcy court, it refused to pay Willington $64,010.24 for Medicaid
services rendered in March 1983.  After Willington's Chapter 11 case
was converted to Chapter 7, petitioner was appointed trustee and filed
a turnover action under 11 U.S.C. 542(b) (see Pet. App. A6) seeking to
recover the $64,010.24 from the State.  The State moved to dismiss for
lack of jurisdiction.  Pet. App. A5-A6.

   Edward Zera, who operated a maintenance service, incurred liability
to Connecticut for overdue taxes and a renewal fee.  Connecticut's
Department of Revenue Services issued a tax warrant, which resulted in
payment of $2,100.62 to the State.  After Zera filed for bankruptcy,
petitioner was appointed trustee and sought to avoid the $2,100.62
payment as a preference (see 11 U.S.C. 547(b)) and to recover the
money paid to Connecticut (see 11 U.S.C. 550(a)).  The State again
moved to dismiss for lack of jurisdiction.  Pet. App. A6-A7.

   2. In each case, the bankruptcy court denied the State's motion to
dismiss, finding that the court had jurisdiction over the trustee's
action under Section 106(c).  In Willington's case, the court first
noted that Section 106(c) provides that "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 under such a
provision binds governmental unit." The court then noted that Section
542(b), the turnover provision invoked by petitioner to compel
Connecticut to turn over the $64,010.24, applies to any "entity," one
of the triggering words listed in Section 106(c)(1).  From that, and
without any discussion of Section 106(c)(2), the court concluded that
"Congress has expressly provided that a State is bound by a court
judgment ordering it to make payment of a matured debt and a defense
of sovereign immunity against a suit brought by a trustee is
unavailable" (Pet. App. A115-A116).

   Having concluded that the State was subject to suit, the bankruptcy
court went on to consider whether, in light of the Eleventh Amendment,
the State was subject to suit in federal court.  The court stated that
Section 106(c) "clearly and unambiguously" subjects States to turnover
actions, and further noted that the Code's jurisdictional provisions
and general policies showed that Congress intended a bankrupt estate
"to have the benefit of bringing all its litigation in the single
federal forum" (Pet. A127, A128).  The court accordingly concluded
that "Congress not only waived the State's common-law sovereign
immunity but intended that such waiver be enforced in the federal
courts" (id. at A129).  The court further concluded that Congress had
the power under the Bankruptcy Clause, Art. I, Section 8, Cl. 4, to
abrogate a State's Eleventh Amendment immunity (id. at A135).

   In Zera's case, the bankruptcy court noted that the "proceeding
differs significantly from Willington only in that the trustee's
complaint is based on Section 547(b) (the preference provision) rather
than 542(b) (the turnover provision)" (Pet. App. A161).  Since the
preference provision applies to "creditor(s)," another triggering word
under Section 106(c)(1), the court concluded that the State was also
subject to an action seeking to avoid a preferential transfer (id. at
A166).

   3. Connecticut appealed both cases to the United States District
Court for the District of Connecticut, arguing that Section 106(c) did
not subject it to suit, and if it did, that it was unconstitutional.
The district court certified to the Attorney General, pursuant to 28
U.S.C. 2403, that the constitutionality of an Act of Congress had been
drawn into question, and the United States intervened.  The district
court then reversed the bankruptcy court's decisions.

   In Willington's case, the district court agreed with the United
States that, properly construed, Section 106(c) has a limited purpose:
 it "'subjects sovereign units to bankruptcy jurisdiction and
authority when the bankruptcy courts acts pursuant to a specific grant
of authority where relief of an injunctive and declaratory nature can
be imposed or when the dispute arises within the bankruptcy court's in
rem jurisdiction'" (Pet. App. A64-A65 n.22 (quoting U.S. Br. 9)).
That reading was based on the language of Section 106(c)(2), which,
unlike Sections 106(a) and 106(b), does not authorize "claim(s)" but
instead provides that "a determination by the court of an issue
arising under such a provision (i.e., a provision containing one of
the triggering terms listed in Section 106(c)(1)), binds governmental
units." In addition, the district court stressed (Pet. App. A42) that
it is difficult to harmonize the bankruptcy court's broad
interpretation of Section 106(c) with Sections 106(a) and 106(b).
Section 106(a) authorizes compulsory counterclaims against
governmental units if the agency has filed a proof of claim in the
bankruptcy proceeding, and Section 106(b) authorizes permissive
counterclaims for offset purposes, "but, again, only after the
sovereign files its own proof of claim" (id. at A43 (emphasis by the
court)).  "The express waiver of sovereign immunity in the carefully
limited circumstances provided for in subsections (a) and (b) would
seem to preclude reading subsection (c) as a completely independent
wide-open waiver of sovereign immunity which would permit suits
against the state for retroactive money damages irrespective of
whether the state had first brought suit against the estate" (id. at
A43-A44).  Noting that "waivers of sovereign immunity must be strictly
construed in favor of the sovereign" (id. at A45-A46), particularly
where the Eleventh Amendment is at issue, the court concluded that the
bankruptcy court lacked jurisdiction over petitioner's turnover claim
(id. at A69).

   In Zera's case, the district court relied on its decision in
Willington.  The court again agreed with the United States (Pet. App.
A94) that Section 106(c) authorizes preference actions against
government agencies only where the bankruptcy court has in rem
jurisdiction.  The court concluded, like the United States, that
nothing in the Bankruptcy Code showed that Congress plainly intended
"to abrogate the states' immunity to suit in bankruptcy court for
recovery of funds from the state treasury" by means of an action to
avoid a preference (id. at A95).  Thus, as in Willington, the district
court found it unnecessary to discuss whether Congress has the power
under the Bankruptcy Clause to abrogate States' immunity.  The court
acknowledged (id. at A92) that the Seventh Circuit had reached a
contrary conclusion as to the proper construction of Section 106(c) in
In re McVey Trucking, Inc., 812 F.2d 311, cert. denied, 484 U.S. 895
(1987), which also involved a preference action.

   4. The court of appeals, after consolidating the cases, affirmed
the district court's conclusion that the bankruptcy court lacked
jurisdiction over petitioner's claims (Pet. App. A1-A19).  The court
focused on the language of Section 106(c)(2), which "provides only
that governmental units are bound by 'a determination by the court of
an issue arising under' a provision containing one of the 'triggering'
terms enumerated in subsection (c)(1)" (Pet. App. A12 (emphasis by the
court)).  "(P)articularly when read in light of 106(a) and (b)," the
court said, it seems plain that Section 106(c) "waives state sovereign
immunity only to the extent necessary for the bankruptcy court to
determine a state's rights in the debtor's estate" (id. at A12-A13).

   The court of appeals found support for its conclusion in the
legislative history, which makes clear that the primary purpose of
Section 106(c) was to codify the results in In re Gwilliam, 519 F.2d
407 (9th Cir. 1975), and In re Dolard, 519 F.2d 282 (9th Cir. 1975),
where the courts held that bankruptcy courts may determine the amount
and dischargeability of unpaid taxes.  Both the Senate and House bills
had preserved sovereign immunity for tax authorities.  S. Rep. No.
1106, 95th Cong., 2d Sess. 6 (1978);  H.R. Rep. No. 595, 95th Cong.,
1st Sess. 317 (1977).  Thus, if the holdings of Gwilliam and Dolard
were to be preserved, it was necessary to add Section 106(c) to
provide that bankruptcy courts could issue binding determinations with
respect to tax liability.  Members of the Conference Committee stated
that this was in fact the primary purpose of Section 106(a).  See 124
Cong. Rec. 32,394 (1978) (statement of Rep. Edwards);  id. at 33,993
(1978) (statement of Sen. DeConcini).  Nothing in the legislative
history, the court of appeals stated, "indicate(d) that the scope of
the sovereign immunity waiver was intended to extend beyond
determinations of the bankruptcy court" and to allow original actions
against a State for money damages (Pet. App. A15 (emphasis in
original)).

   Moreover, since "statutes that purport to waive immunity are
construed strictly in the sovereign's favor" (Pet. App. A17), and
Congress must abrogate Eleventh Amendment immunity with particular
clarity, the court held that governmental units are not subject "to
adversarial proceedings in bankruptcy that involve payment of * * *
funds to the estate," except as provided in Section 106(a) (ibid.).
Like the district court, the court of appeals noted (ibid.) that the
Seventh Circuit had reached a contrary conclusion in McVey, which,
like Zera's case, involved a preference action, and that the Third
Circuit had reached a contrary conclusion in In re Vazquez, 788 F.2d
130, cert. denied, 479 U.S. 936 (1986), which involved an action to
recover a debt collected in violation of 11 U.S.C. 524(a), which is
comparable to the turnover action petitioner seeks to bring on behalf
of Willington.

                          SUMMARY OF ARGUMENT

   The court of appeals correctly concluded that Section 106(c)
authorizes bankruptcy courts to determine government agencies' rights
in debtors' estate, but does not authorize bankruptcy courts to order
government agencies to pay money to bankruptcy trustees.  Section
106(c)(2) states that "a determination by the (bankruptcy) court of an
issue arising under such a provision (i.e., a provision of the
Bankruptcy Code containing one of the triggering terms listed in
Section 106(c)(1)) binds governmental units" (emphasis added).  That
language -- which petitioner ignores -- authorizes declaratory and
injunctive relief of a defensive nature that determines and limits
agencies' rights in debtors' estates, but does not authorize debtors
to obtain monetary awards from government agencies.  When Congress
wanted to authorize monetary awards, as it did under Section 106(a),
it used different language providing that bankruptcy trustees may
bring claims against government agencies.  In addition, as the
district court stressed, petitioner's broad reading of Section 106(c)
renders Sections 106(a) and 106(b) largely redundant.

   The legislative history supports the court of appeals' construction
of Section 106(c).  The Commission on the Bankruptcy Laws of the
United States proposed waiving sovereign immunity completely under the
Bankruptcy Code, but Congress did not adopt the Commission's draft
waiver provision or anything resembling it.  Indeed, the congressional
reports on the Bankruptcy Code show that Congress believed that it
lacked the power to subject unconsenting States to suits for money
damages in bankruptcy courts.  The floor comments concerning Section
106(c) show that Congress thought its primary effect was to codify
decisions permitting bankruptcy courts to determine the amount and
dischargeability of an estate's liability to government agencies
whether or not an agency filed a proof of claim.

   Rules of statutory construction also support the decision below.
Waivers of sovereign immunity must be unequivocally expressed and, if
Congress intends to abrogate the States' Eleventh Amendment immunity,
it must make its intention unmistakably clear in the language of the
statute.  Section 106 does not unequivocally or unmistakably authorize
bankruptcy courts to order government agencies to pay money damages to
bankruptcy trustees, except in the case of counterclaims arising out
of the same transaction or occurrence on which an agency has filed a
proof of claim as provided in Section 106(a).  In addition, statutes
should be construed, where possible, to avoid constitutional
questions.  The court of appeals' construction of Section 106(c)
avoids the question, on which this Court has reserved judgment,
whether Congress may abrogate Eleventh Amendment immunity under its
Article I powers.

                               ARGUMENT

   SECTION 106(c) DOES NOT AUTHORIZE BANKRUPTCY COURTS TO ORDER
GOVERNMENT AGENCIES TO PAY MONEY TO BANKRUPTCY TRUSTEES

   A. Section 106(c) Provides That Bankruptcy Courts May Determine The
Government's Rights In The Debtor's Estate, Not That The Debtor May
Recover From the Government

   Section 106(c) provides that, "notwithstanding any assertion of
sovereign immunity," certain determinations by bankruptcy courts bind
"governmental units," which include both federal and state agencies
(11 U.S.C. 101(26) (Supp. IV 1986)).  The question here is not, as
petitioner suggests, whether Section 106(c) waives sovereign immunity
-- which it plainly does.  Rather, the question is how far that waiver
extends.

   Section 106(c) contains two subparts.  Section 106(c)(1) states
that "a provision of this title that contains 'creditor', 'entity', or
'governmental unit' applies to governmental units." Thus, Section
106(c) applies only to sections of the Bankruptcy Code containing one
of those three triggering terms.  Section 106(c)(2) states that "a
determination by the court of an issue arising under such a provision
binds governmental units." Both subparts must be satisfied before
Section 106(c) applies:  the two subparts are linked by the
conjunction "and." The bankruptcy court ignored Section 106(c)(2) and
focussed only on Section 106(c)(1), as does petitioner.  But Section
106(c)(2) contains a significant limitation on the reach of Section
106(c):  it does not broadly authorize bankruptcy courts to entertain
any action against government agencies, but provides only that
government agencies are bound by bankruptcy court determinations of
their rights in the debtor's estate.

   The court of appeals' construction gives meaning to and is
consistent with the language of Section 106(c)(2).  As the court
stated, the subsection "provides only that governmental units are
bound by 'a determination by the court of an issue arising under' a
provision containing one of the 'triggering' terms enumerated in
subsection (c)(1)" (Pet. App. A12 (emphasis by the court)).  The words
that the court emphasized suggest declaratory relief, and the
subsection does not hint at monetary relief.  Moreover, the language
of Section 106(c)(2) contrasts sharply with the language of Sections
106(a) and 106(b), as the court of appeals noted (Pet. App. A12).
Those two provisions each address "any claim against such governmental
unit" (emphasis added), and both provisions authorize claims for money
judgments against governmental units under specified circumstances.
That Section 106(c) contains different language supports the
conclusion that, unlike those two provisions, it does not involve
claims for money judgments.  /1/ From the language of Section
106(c)(2), the court of appeals correctly concluded that Section
106(c) waives sovereign immunity "only to the extent necessary for the
bankruptcy court to determine (the government's) rights in the
debtor's estate" (Pet. App. A13).  /2/

   The most obvious flaw in petitioner's and the bankruptcy court's
reading of Section 106(c) is that, as their inattention to Section
106(c)(2) suggests, they view it as adding nothing to the statute.  In
their view, the meaning of Section 106(c) would not change at all if
the second clause were eliminated.  But, of course, statutes are to be
construed so that each subpart has meaning.  /3/

   Petitioner's broad reading of Section 106(c) also seems
inconsistent with Sections 106(a) and 106(b) because those provisions
are so narrowly crafted.  Section 106(a) provides that a government
agency "is deemed to have waived sovereign immunity with respect to
any claim * * * that arose out of the same transaction or occurrence
out of which such governmental unit's claim arose." It allows
bankruptcy trustees to bring counterclaims that would be considered
compulsory under Fed. R. Civ. P. 13(a) and to collect money judgments
from the government on such claims.  Section 106(b) authorizes an
"offset against an allowed claim or interest of a governmental unit."
It allows bankruptcy trustees to bring permissive counterclaims
against the government, but authorizes setoff only, not affirmative
recovery.  Both provisions are applicable only when the government has
filed a proof of claim in the bankruptcy court.  H.R. Rep. No. 595,
95th Cong., 1st Sess. 317 (1977);  S. Rep. No. 989, 95th Cong., 2d
Sess. 29-30 (1978).  As the district court stated, "(t)he express
waiver of sovereign immunity in the carefully limited circumstances
provided for in subsections (a) and (b) would seem to preclude reading
subsection (c) as a completely independent wide-open waiver of
sovereign immunity which would permit suits against the state for
retroactive money damages irrespective of whether the state had first
brought suit against the estate" (Pet. App. A43-A44).

   Indeed, since Section 542(b) authorizes bankruptcy trustees to
bring contract actions against any "entity" (one of Section
106(c)(1)'s triggering terms), petitioner's interpretation of Section
106(c) would encompass most claims that would be brought against a
sovereign by a bankruptcy trustee.  Tort claims would not be
authorized by Section 106(c), but they are much less common in
bankruptcy cases than contract claims.  In practice, therefore,
petitioner's broad reading would largely swallow most of the rule
established by Sections 106(a) and 106(b), which is that government
agencies are subject to suit for money damages only when they have
filed a proof of claim.  /4/

   While the court of appeals interpreted Section 106(c) more narrowly
than does petitioner, that provision still has substantial effect
under the court of appeals' reading.  For example, the statute makes
clear that the bankruptcy court "may determine the amount or legality
of any tax" under 11 U.S.C. 505 (1982 & Supp. IV 1986), even if a tax
authority does not file a proof of claim.  /5/ In addition, Section
106(c) authorizes bankruptcy courts to discharge debts owed to
government agencies by businesses seeking to reorganize under Chapter
11, whether or not the government files a proof of claim.  11 U.S.C.
1141 (1982 & Supp. IV 1986).  /6/ That is critically important since
discharging debts is a primary goal of most businesses that seek to
reorganize.  In short, while Section 106(c) does not authorize
bankruptcy courts to order government agencies to pay money to
bankruptcy trustees, the statute provides bankruptcy courts with
significant powers to determine and limit what government agencies may
obtain from estates that seek protection under the bankruptcy laws.
Since by their nature estates in bankruptcy proceedings have numerous
debts, the power to adjudicate those matters is quite important.  /7/

   B. The Legislative History Confirms That Section 106(c) Does Not
Waive Sovereign Immunity From Money Judgments

   Five years before Congress enacted the Bankruptcy Code, the
Commission on the Bankruptcy Laws of the United States issued a report
recommending changes in the law that included the draft of a new
Bankruptcy Act.  The draft contained a provision stating that "(a)ll
provisions of this Act shall apply to the United States and to every
department, agency, and instrumentality thereof, and to every state
and every subdivision thereof except where otherwise specifically
provided." Sec. 1-104, App., infra, 1a.  If that provision had been
enacted, then government agencies would be subject to turnover actions
under Section 542(b) and to actions to avoid preferences under Section
547(b), as petitioner contends.  But that provision was not adopted.
Congress instead enacted the much more guarded language of Section
106(c), which does not resemble the language of the provision in the
Commission's draft.  That Congress legislated narrowly, after
rejecting a broad waiver of sovereign immunity that had been proposed
by the Commission, strongly supports the conclusion that Section
106(c) does not mean what petitioner says it means.  "'Few principles
of statutory construction are more compelling than the proposition
that Congress does not intend sub silentio to enact statutory language
that it has earlier discarded in favor of other language.'"
Immigration and Naturalization Service v. Cardoza-Fonseca, 480 U.S.
421, 442-443 (1987), quoting Nachman Corp. v. Pension Benefit Guaranty
Corp., 446 U.S. 359, 392-393 (1980) (Stewart, J., dissenting).  If
Congress had intended to adopt the rule that petitioner seeks to
establish, it could have used the Commission's language, which
contains no restrictions such as those in Section 106(c)(2).

   Congress did not authorize money judgments against government
agencies under Section 106, unless a government agency filed a proof
of claim, for a simple reason:  Congress thought that it lacked the
power to subject unconsenting state agencies to liability for money
judgments.  As originally proposed in both the House and the Senate
bills, Section 106 contained provisions similar to Sections 106(a) and
106(b) as enacted, but no provision comparable to Section 106(c).
H.R. 8200, 95th Cong., 1st Sess. (1977);  S. 2266, 95th Cong., 2d
Sess. (1978);  App., infra, 1a-2a.  Both the House and the Senate
reports explained that, while Congress may waive sovereign immunity
completely for the federal government, "Congress does not, however,
have the power to waive sovereign immunity completely with respect to
claims of a bankrupt estate against a State." H.R. Rep. No. 595, 95th
Cong., 1st Sess. 317 (1977);  S. Rep. No. 989, 95th Cong., 2d Sess. 29
(1978);  App., infra, 2a.

   Congress was plainly expressing the views that, while federal
courts may provide prospective relief against state officials,
Congress may not subject States to suits in federal courts for money
damages in the absence of a waiver by the State (such as the filing of
a proof of claim).  See Ex parte Young, 209 U.S. 123 (1908) (federal
courts may provide injunctive relief against state officials);  Oneida
County v. Oneida Indian Nation, 470 U.S. 226, 252 (1985) (leaving open
whether Congress may abrogate Eleventh Amendment immunity when acting
under its Article I powers);  see generally Pennhurst State School &
Hospital v. Halderman, 465 U.S. 89, 97-103 (1984);  cf. Fitzpatrick v.
Bitzer, 427 U.S. 445 (1976) (Congress may abrogate Eleventh Amendment
immunity when acting under the Fourteenth Amendment).  Thus, Congress
believed that it lacked the power to abrogate Eleventh Amendment
immunity under the Bankruptcy Clause.  /8/ So believing -- and there
is no evidence that Congress ever changed its mind on this point --
Congress plainly did not intend to subject unconsenting States to
money judgments in federal bankruptcy courts.  /9/ Moreover, since
Congress treated federal and state agencies identically in Section
106(c), it did not intend to subject federal agencies to suits for
money damages unless they file a proof of claim.

   Congressional statements offered at the time Section 106(c) was
proposed also show that the provision was not intended to have the
broad meaning that petitioner contends it has.  A brief explanatory
comment on the provision was read on the floor of both the House and
the Senate.  124 Cong. Rec. 32,394 (1978) (statement of Rep. Edwards);
 id. at 33,993 (statement of Sen. DeConcini);  App., infra, 4a.  The
statement did not suggest that Section 106(c) was broadly designed to
enact the Bankruptcy Commission's proposal completely to waive
sovereign immunity.  /10/ Rather, the statement explained that
"Section 106(c) codifies in re Gwilliam, 519 F.2d 407 (9th Cir.,
1975), and in re Dolard, 519 F.2d 282 (9th Cir., 1975), permitting the
bankruptcy court to determine the amount and dischargeability of tax
liabilities owing by the debtor or the estate prior to or during a
bankruptcy case whether or not the governmental unit to which such
taxes are owed files a proof of claim." /11/

   Thus, as its language provides, Section 106(c) waives sovereign
immunity so that unconsenting government agencies, particularly tax
authorities, are bound by determinations of bankruptcy courts and may
not seek to obtain a greater recovery in a separate action.  The
legislative history provides, immediately following the sentence
discussing Gwilliam and Dolard, that "subsection (c) is not limited to
those issues, but permits the bankruptcy courts to bind governmental
units on other matters as well." 124 Cong. Rec. 32,394 (1978)
(statement of Rep. Edwards);  id. at 33,993 (statement of Sen.
DeConcini);  App., infra, 4a.  By that, we think, the congressmen
meant that Section 106(c) is not limited to tax issues, but provides
that bankruptcy courts may determine other disputes as to how much a
bankrupt estate owes a government agency, whether or not the agency
files a proof of claim, and may discharge such debts.  See pages
14-15, supra.

   Certain statements in the floor comments, for example, that
"section 106(c) permits a trustee or debtor in possession to assert
avoiding powers under title 11 against a governmental unit" (124 Cong.
Rec. 32,394 (1978) (statement of Rep. Edwards);  id. at 33,993
(statement of Sen. DeConcini);  App., infra, 4a), /12/ admittedly lend
some support to petitioner's position.  But we believe that these
references to the avoidance provisions should be restricted to cases
where the debtor has a possessory or ownership interest in property
that a trustee seeks to include in the estate.  Thus, if a debtor gave
a creditor a preferential security interest in property that the
debtor owns, the bankruptcy court could avoid that preference.

   The action in United States v. Whiting Pools, Inc., 462 U.S. 198
(1983), is of the sort that Section 106(c) authorizes under our
construction of the statute.  In that case, the Internal Revenue
Service (IRS) seized a company's tangible property -- its equipment,
vehicles, inventory, and office supplies -- to satisfy tax
liabilities.  As this Court's opinion stressed, the business retained
ownership of the property, even though it was in the hands of the IRS
(id. at 211).  In those circumstances, the Court held, a bankruptcy
court could order the IRS to turn the property over to the estate.
/13/ Similarly, we think that Section 106(c) authorizes bankruptcy
courts to make binding determinations with respect to property that is
in the possession of the estate.  But we do not think that it
authorizes bankruptcy courts to order government agencies to pay money
to bankruptcy trustees.  /14/

   It is correct, as petitioner states (Br. 23-24), that it would be
more convenient for bankruptcy trustees if they were able to bring all
of their actions in bankruptcy court.  Here, for example, rather than
pursue the Willington Convalescent Home's administrative remedies or
file a breach of contract action against Connecticut's Department of
Health Services in state court, petitioner would prefer to pursue his
turnover action in the bankruptcy court.  But our interpretation of
Section 106(c) would allow centralization in the most pressing class
of cases -- those involving competing claims to tangible property.
Thus, if petitioner were seeking a declaration as to the ownership of
real or personal property owned by the estate or in the possession of
the estate, then, under our view, he could pursue his claim in the
bankruptcy court.  In any event, even if it would be more efficient
for trustees to centralize all claims involving a bankrupt estate,
Congress was clearly entitled to give greater weight to other values,
such as the federal government's sovereign immunity to claims for
monetary relief and the State's Eleventh Amendment immunity, which, as
noted, Congress believe it lacked power to abrogate.

   C. Rules Of Statutory Construction Further Support The Conclusion
That Section 106(c) Does Not Authorize Suits For Monetary Relief

   Waivers of the federal government's sovereign immunity "cannot be
implied but must be 'unequivocally expressed.'" Army and Air Force
Exchange Service v. Sheehan, 456 U.S. 728, 734 (1982), quoting United
States v. Testan, 424 U.S. 392, 399 (1976).  Similarly, "Congress may
abrogate the States' constitutionally secured immunity from suit in
federal court only by making its intention unmistakably clear in the
language of the statute." Atascadero State Hospital v. Scanlon, 473
U.S. 234, 242 (1985).  It is clear that, to a limited extent, Section
106 waives the federal government's sovereign immunity and deems the
States to have waived their Eleventh Amendment immunity.  /15/ But, we
submit, except as provided in Sections 106(a) and 106(b), Congress has
not "unequivocally expressed" its intention to waive the federal
government's sovereign immunity from claims for monetary relief or
deemed the States to have waived their immunity.  Nor has it made its
intention to abrogate the States' Eleventh Amendment immunity
"unmistakably clear in the language of the statute." To the contrary,
as the court of appeals concluded, the language of Section 106(c) is
most reasonably read to preclude bankruptcy courts from ordering
government agencies to pay money to bankruptcy trustees.  Any doubt as
to the proper construction of Section 106(c) should be resolved in
favor of the government, since waivers of sovereign immunity are to be
"construed strictly in favor of the sovereign" (McMahon v. United
States, 342 U.S. 25, 27 (1951)) and courts should not "enlarge its
liability * * * beyond what the language requires" (Eastern
Transportation Co. v. United States, 272 U.S. 675, 686 (1927)).  /16/

   This is not a case, such as those arising under the Federal Tort
Claims Act, where Congress has waived the federal government's
immunity from money damages, subject to certain exceptions, and the
meaning of an exception is at issue.  In such cases, this Court has
concluded that the rule that waivers of sovereign immunity are to be
strictly construed does not mandate that exceptions to waivers of
sovereign immunity be broadly construed.  Kosak v. United States, 465
U.S. 848, 853-854 n.9 (1984).  /17/ Rather, here the question is the
extent of the waiver of the federal government's sovereign immunity
and whether Congress has abrogated the States' Eleventh Amendment
immunity at all.  /18/

   This case is comparable to Library of Congress v. Shaw, 478 U.S.
310 (1986), a Title VII case.  Congress made the federal government
responsible for attorney's fees under Title VII "the same as a private
person." 42 U.S.C. 2000e-5(k).  But, while private parties may be
required to pay interest on attorney's fee awards, the Court
nevertheless held that the government may not be required to pay
interest because, while waiving sovereign immunity, Congress had not
"affirmately and separately" made clear that the government is liable
for interest and the "no interest rule" requires a specific waiver
(478 U.S. at 315).  Freedom from awards of retroactive monetary relief
are also at the heart of Eleventh Amendment immunity.  Edelman v.
Jordan, 415 U.S. 661, 666-668 (1974).  Similarly, Congress has been
especially careful in waiving the federal government's immunity from
money damages, generally requiring plaintiffs to seek recovery for
contract-type actions in the Claims Court, even though the
Administrative Procedure Act (APA) generally authorizes suit against
federal agencies where relief other than money damages is sought (5
U.S.C. 702).  /19/ Accordingly, as under the no interest rule, an
affirmative and separate waiver should be required before government
agencies are required to provide monetary relief.  Because Congress
did not make clear that bankruptcy court may order government agencies
to pay money judgments, except pursuant to Section 106(a), Section
106(c) should not be broadly construed to authorize such awards.  /20/

   Another rule of statutory construction also supports that result.
"'When the validity of an act of the Congress is drawn in question,
and even if a serious doubt of constitutionality is raised, it is a
cardinal principle that this Court will first ascertain whether a
construction of the statute is fairly possible by which the question
may be avoided.'" Ashwander v. Tennessee Valley Authority, 297 U.S.
288, 348 (1936) (Brandeis, J., concurring), quoting Crowell v. Benson,
285 U.S. 22, 62 (1932).  Accord, United States v. Security Industrial
Bank, 459 U.S. 70, 78 (1982);  NLRB v. Catholic Bishop of Chicago, 440
U.S. 490, 500-501 (1979).  This Court in Oneida County explicitly left
open the question whether Congress may abrogate Eleventh Amendment
immunity when acting under its Article I powers (470 U.S. at 252).
/21/ As the briefs on behalf of petitioner and the State of
Connecticut illustrate, that is not an easy question to resolve.  See
also McVey Trucking, 812 F.2d at 314-323.  A construction of the
statute is "fairly possible by which the question may be avoided":
Section 106(c) may be construed not to authorize monetary awards.
That is the construction which should therefore be adopted.

                              CONCLUSION

   The judgment of the court of appeals should be affirmed.

   Respectfully submitted.

   WILLIAM C. BRYSON

      Acting Solicitor General

   JOHN R. BOLTON

      Assistant Attorney General

   THOMAS W. MERRILL

      Deputy Solicitor General

   CHRISTOPHER J. WRIGHT

      Assistant to the Solicitor General

   TRACY J. WHITAKER

      Attorney

   MARCH 1989

   /1/ Amicus Inslaw notes (Br. 10-11) that the Bankruptcy Code's
jurisdictional provision, 28 U.S.C. 157 (Supp. IV 1986), contains the
word "determine," and suggests that our reading of Section 106(c)
necessitates the conclusion that bankruptcy courts lack jurisdiction
to render money judgments against private parties.  That argument
lacks merit because the language of the jurisdictional provision is
very different than the language of Section 106(c).  The
jurisdictional provision states that bankruptcy courts may determine
cases, whereas Section 106(c) authorizes them to determine issues.
Similarly, the jurisdictional provision authorizes bankruptcy courts
to "enter appropriate orders and judgments" (Section 157(b)(1)),
whereas Section 106(c) merely states that government agencies are
"bound" by bankruptcy court "determination(s)." Moreover, "determine"
was added to the jurisdictional provision in 1984, and what Congress
meant in adopting a provision of Title 11 in 1978 containing
"determination" is not a good guide to what it meant in amending a
provision in Title 28 in 1984 by adding "determine." The contrasting
language of Sections 106(a) and 106(b) provides a much better guide to
the meaning of Section 106(c) than does the language of 28 U.S.C. 157
(Supp. IV 1986).  Cf. United States v. Hohri, 107 S.Ct. 2251 (1987).

   /2/ Like petitioner -- and unlike the court of appeals below --
neither the Seventh Circuit in McVey Trucking nor the Third Circuit in
Vazquez focused on the language of Section 106(c)(2).

   /3/ Amicus Inslaw, unlike petitioner, has addressed (Br. 9-12) the
court of appeals' reading of Section 106(c)(2).  However, it offers no
interpretation of the provision that would change the meaning of
Section 106(c) if it ended following the first subsection.  Inslaw
further contends (Br. 7) that the court of appeals' construction of
Section 106(c) gives no meaning to the phrase "notwithstanding any
assertion of sovereign immunity." But that is not so.  Government
agencies would not be bound by any determinations of bankruptcy
courts, and those courts would not be able to provide declaratory or
injunctive relief against the government, in the absence of a waiver
of sovereign immunity.

   /4/ In addition, the district court noted (Pet. App. A44) that
Section 106(c) begins "(e)xcept as provided in subsections (a) and (b)
of this section," and concluded that the clause "seem(s) calculated to
prevent subsection (c) from exposing governments to liability for
money judgments or set-offs beyond what has been accomplished in the
excepted subsections." While the drafter could have chosen a more
lucid manner of communicating that point, it seems likely that this is
what the introductory clause means.  Petitioner has offered no
interpretation of Section 106(c)'s introductory clause.

   /5/ Section 505(a)(2)(B) refers to "governmental unit," one of
Section 106(c)(1)'s triggering terms.

   /6/ Section 1141(a) provides that the terms of a confirmed
reorganization plan bind "any creditor," one of Section 106(c)(1)'s
triggering terms.  Section 1141(d)(1) further provides that "the
confirmation of a plan -- (A) discharges the debtor from any debt that
arose before the date of such confirmation, * * * whether or not --
(i) a proof of the claim based on such debt is filed."

   /7/ Petitioner suggests (Pet. 24-25), relying on the Seventh
Circuit's comments in McVey Trucking (812 F.2d at 328), that if
government agencies are held to be immune from suits for money
judgments unless they file a proof of claim, they will have a strong
incentive to collect past due funds as rapidly as possible where a
debtor may be heading into insolvency, which could lead other
creditors to redouble their collection efforts and hasten a slide into
bankruptcy.  There is no merit to this contention.  Every creditor has
a strong incentive to collect past due funds from a debtor that
appears to be insolvent.  Payment now is always better than payment
later, especially where a substantial dilution in payment is possible
later on account of insolvency.  Creditors have no way of knowing if
and when a debtor will file for bankruptcy and cannot be certain that
any money they collect would be disgorged later if the debtor files.
In any event, the prospect of disgorgement in a bankruptcy proceeding
would never preclude a rational creditor from pressing for immediate
payment.

   /8/ "(I)n traditional eleventh amendment parlance, abrogation
refers to the ability of Congress to create a cause of action for
money damages enforceable by a citizen suit against a state in federal
court." United States v. Union Gas Co., 832 F.2d 1343, 1345 n.1 (3d
Cir. 1987), cert. granted, No. 87-1241 (argued Oct. 31, 1988).
"Abrogation" differs from "waiver" in Eleventh Amendment parlance.  It
is agreed that, if it gives the States sufficiently clear warning,
Congress may deem a State to have waived its Eleventh Amendment
immunity by participating in a federal program or taking some other
affirmative step, such as filing a proof of claim in a bankruptcy
court.  See Pennhurst, 465 U.S. at 99.

   /9/ While Connecticut argues that Congress lacks the power to
abrogate Eleventh Amendment immunity pursuant to its bankruptcy power,
and petitioners argue to the contrary, we do not think the Court needs
to reach that issue, on which we express no opinion.  Indeed, we think
it would be inappropriate to decide whether Congress may abrogate
Eleventh Amendment immunity pursuant to powers other than its
Fourteenth Amendment authority where Congress has specifically
disclaimed that it has authority to do so.

   /10/ The congressmen did note that section 106(c) was "included to
comply with the requirement in case law that an express waiver of
sovereign immunity is required in order to be effective." 124 Cong.
Rec. 32,394 (1978) (statement of Rep. Edwards);  id. at 33,993
(statement of Sen. DeConcini);  App., infra, 4a.  However, an express
waiver was required so that government agencies would be bound by
determinations made under provisions of the Code that Congress decided
should apply to the government.  In the absence of such a waiver,
bankruptcy courts would be unable to provide declaratory or injunctive
relief.

   /11/ In Gwilliam, the district court had concluded that "the
Bankruptcy Court lacked jurisdiction to determine the dischargeability
of the unpaid taxes as the Government has not waived sovereign
immunity by statute or otherwise expressly consented to the
jurisdiction of the Bankruptcy Court" (519 F.2d at 408).  The court of
appeals reversed, concluding that, under Section 2a(A) of the
Bankruptcy Act, 11 U.S.C. 11(a)(2A) (1976), which provided that
bankruptcy courts could determine "any question arising as to the
amount or legality of any unpaid tax," bankruptcy courts could
determine and discharge tax liability whether or not the Internal
Revenue Service filed a proof of claim.  Dolard extended Gwilliam's
rule to taxes accruing after bankruptcy proceedings concluded.

   /12/ Similarly, Congressman Edwards' and Senator DeConcini's
comments with respect to the preference provision state that "the
Government is subject to avoidance of preferential transfers." 124
Cong. Rec. 32,400 (1978);  id. at 34,000 (1978).

   /13/ The Court specifically noted that "if a tax levy or seizure
transfers to the IRS ownership of the property seized," a bankruptcy
court might not be able to order the IRS to return the property (462
U.S. at 209).

   /14/ Amicus Inslaw argues (Br. 20-21) that government agencies
should be liable for money judgments under 11 U.S.C. 362(h) (Supp. IV
1986) if they violate the Bankruptcy Code's "automatic stay"
provision, and claims (Br. 24) that it would be anomalous if such
awards were not available.  But it would seem that injunctive and
declaratory relief would be perfectly adequate to remedy governmental
violations of the automatic stay.  Moreover, Section 362 applies to
"entities" (one of Section 106(c)(1)'s triggering terms), and Section
362(h) authorizes awards of punitive damages.  Thus, under Inslaw's
(and petitioner's) interpretation of Section 106(c), the government
would be liable for punitive damages under Section 362(h).  That would
be anomalous in light of Congress's unwillingness to authorize
punitive damage awards under statutes such as the Federal Tort Claims
Act (28 U.S.C. 2674).

   /15/ Under Section 106(a), government agencies are deemed to have
waived their immunity with respect to compulsory counterclaims if they
file a proof of claim;  under Section 106(b), government agencies are
liable for setoff with respect to permissive counterclaims if they
file a proof of claim;  and, under Section 106(c), government agencies
are bound by certain determinations of bankruptcy courts whether or
not they file a proof of claim.

   /16/ As noted previously, Congress treated all "governmental
units," both state and federal, identically in Section 106.
Accordingly, we think it plain that the provision must be construed to
have the same meaning with respect to both state and federal agencies.

   /17/ Similarly, this is not a case, like Bowen v. Massachusetts,
No. 87-712 (June 29, 1988), where Congress has waived the federal
government's immunity generally, and the meaning of the exception for
suits seeking "money damages" is at issue.

   /18/ While Congress has made clear that the States are deemed to
have waived their Eleventh Amendment immunity to the limited extent
provided in Sections 106(a) and 106(b), and has further provided that
state officials are bound by certain bankruptcy court determinations
pursuant to Section 106(c), Congress has not made clear that it
intended to abrogate the Eleventh Amendment immunity of an
unconsenting State.  Indeed, as noted previously, Congress apparently
did not think that it could abrogate Eleventh Amendment immunity under
the Bankruptcy Clause.  H.R. Rep. No. 595 at 317;  S. Rep. No. 989 at
29;  App., infra, 2a.

   /19/ Petitioner's construction of Section 106(c) seems odd in that
it confers greater jurisdiction with respect to claims against the
government for money damages on bankruptcy courts, which are
subordinate adjuncts of the district courts, than is generally
conferred on the district courts.

   /20/ Although this Court has drawn a distinction between "money
damages" and other forms of monetary relief for purposes of the APA's
waiver of sovereign immunity for "relief other than money damages,"
Bowen v. Massachusetts, No. 87-712 (June 29, 1988), this case does not
involve a statute that uses the term "money damages." Rather, this
case involves a question of abrogation of a State's Eleventh Amendment
immunity.  In that context, the Court has not drawn a distinction
between "money damages" and other forms of monetary relief, but has
treated all retrospective monetary relief in federal courts as equally
impermissible in the absence of an express waiver of immunity.  See
Edelman v. Jordan, 415 U.S. at 666, 668.

   /21/ Similarly, in Welch v. Texas Department of Highways and Public
Transportation, No. 85-1716 (June 25, 1987), slip op. 6, the Court
"assume(d), without deciding or intimating a view on the question,
that the authority of Congress to subject unconsenting States to suit
in federal court is not confined to Section 5 of the Fourteenth
Amendment." The Court could decide the issue in No. 87-1241,
Commonwealth of Pennsylvania v. Union Gas Co. (argued Oct. 31, 1988).

   APPENDIX