546 U.S. 356 (2006), United States Supreme Court

Facts
Wallace's Bookstores did business with Central Virginia Community College, an arm of the state. While it was insolvent, Wallace's Bookstores made certain preferential transfers of property to the state to satisfy debts. After Wallace's Bookstores filed for bankruptcy, Katz, the bankruptcy trustee, sued the state under 11 U.S.C. § 547 to recover those transfers. The state raised sovereign immunity as a defense.

Majority Opinion
In an opinion by Justice Stevens, the Court rejected the state's claim of sovereign immunity. The Court first noted that during the time the Articles of Confederation were in effect, states often did not recognize another state's discharge of a person's debt. This patchwork of bankruptcy laws made it difficult for people in debt to get out of debtor's prison. In light of this history, the Court interpreted Congress' power under the Bankruptcy Clause to make "uniform laws on the subject of bankruptcies" to include the power to abrogate state sovereign immunity.

The Court stated early bankruptcy legislation also supported its interpretation of the Bankruptcy Clause. It noted that in 1800, when concerns for state sovereign immunity ran fervent, Congress, with no recorded objection, gave federal courts power to release debtors from state prison through the writ of habeas corpus.

In coming to its conclusion, the Court declined to follow dicta in Seminole Tribe v. Florida suggesting a contrary result.

Dissent
Justice Thomas, writing for three other justices, argued the historical record indicated states did not give up their sovereign immunity under the Bankruptcy Clause. The dissenters would have followed the view that nothing in Article I abrogates state sovereign immunity.

Historical Context
In England, sovereign immunity referred to the concept that the king could not be sued without his consent. Beginning with Hans v. Louisiana (1890), a line of controversial Supreme Court cases had applied the concept of sovereign immunity to suits brought by private individuals against state governments. See The Eleventh Amendment. By the time Central Virginia Community College v. Katz came up for review, a majority of the justices on the Supreme Court had suggested Congress could never authorize individuals to sue a state pursuant to its Article I powers, including the Bankruptcy power. Seminole Tribe v. Florida.