In Central Va. Cmty. Coll. v. Katz, 546 U.S. 356 (2006), the U.S. Supreme Court held that, by ratifying the Bankruptcy Clause of the U.S. Constitution, states waived their sovereign immunity defense in proceedings that further a bankruptcy court’s exercise of its jurisdiction over property of the debtor and its estate. In the case of In re Venoco LLC, the Third Circuit applied Katz to a bankruptcy adversary proceeding brought by a liquidating trustee for the debtors’ assets. The liquidating trustee sought compensation from California and its Lands Commission for the alleged taking of a refinery that belonged to the debtors. The Third Circuit ruled that because the proceeding asked the Bankruptcy Court to enforce rights in the property of the debtors and their estates and would facilitate the fair distribution of their assets to creditors, Katz foreclosed California and its Lands Commission’s assertion of sovereign immunity. The Third Circuit then affirmed the District Court’s order affirming the Bankruptcy Court’s decision.
