College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board (1999) is a landmark U.S. Supreme Court case dealing with the ability of Congress to exact waivers of sovereign immunity. The Eleventh Amendment confirms that the states retain sovereign immunity from being sued by citizens. However, this immunity is not absolute. For instance, Congress, in exercising its powers to enforce the Fourteenth Amendment, may abrogate the states’ immunity. In College Savings, the U.S. Supreme Court addressed the issue of whether public institutions could be liable for claims arising under the Trademark Act of 1946 (the Lanham Act) alleging false and misleading advertising. The Supreme Court overruled a prior landmark case in unequivocally clarifying that there are no constructive waivers of sovereign immunity. Put another way, if a litigant wishes to claim that a state has waived sovereign immunity, the litigant must point to an explicit statement of waiver by the state. To the extent that most public institutions are considered to be arms of the state for purposes of Eleventh Amendment immunity, College Savings has significant consequences for institutions of higher education, because it protects them from the risk of waiving sovereign immunity and exposing themselves to the threat of litigation unless officials make a conscious choice in this regard.
College Savings Bank is often confused with Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank (1999), a case involving the same parties that resolved on the same day and addressed similar issues. However, the two cases are distinct. College Savings deals primarily with states’ waivers of sovereign immunity and, pursuant to the precedent that it set, there are no constructive waivers of sovereign immunity. In contrast, Florida Prepaid is primarily about when Congress may abrogate, or abolish, a state’s sovereign immunity; in that case, the Supreme Court held that Congress may not abrogate sovereign immunity for intellectual property claims.
Facts of the Case
As in the companion case of Florida Prepaid, the litigation in College Savings arose out of a dispute between the state agency in Florida that administered a prepaid tuition program and a bank in New Jersey that, in addition to marketing and selling certificates of deposit designed to finance the costs of college education for borrowers, patented a methodology for administering these funds. The bank in New Jersey sued the agency in Florida for false advertising under the Lanham Act, a federal statute that affords private rights of action against persons who use false descriptions or make false representations in commerce. Although the state agency in Florida would ordinarily have been immune from litigation, the bank argued that Congress had enacted a statute that abrogated the states’ sovereign immunity for such claims. The bank also argued that by participating in interstate commerce, the agency implicitly waived its sovereign immunity. The agency contended that the purported abrogation was unconstitutional and that there was no implied waiver of sovereign immunity. After both a federal trial court in New Jersey and the Third Circuit adopted the same position as the state agency, the Supreme Court then agreed to hear an appeal that the bank filed.
The Supreme Court’s Ruling
The Supreme Court, in a five-to-four judgment, affirmed in favor of the state agency from Florida. In an opinion written by Justice Scalia and joined by Chief Justice Rehnquist, as well as Justices O’Connor, Kennedy, and Thomas, the Court held that both the attempt at abrogation and the invitation to waive were unconstitutional.
In addressing the abrogation issue first, the Supreme Court began by noting that while Congress made its intention to abrogate clear, Congress could not use its Article I powers to abrogate sovereign immunity. Consequently, the critical issue was whether Congress properly used its power to enforce the Fourteenth Amendment. The answer to this inquiry turned on the application of the test from the 1997 landmark case of City of Boerne v. Flores, wherein the Court invalidated the Religious Freedom Restoration Act in a suit over historical preservation at a church in Texas. The Flores test focuses on whether Congress had identified a pattern of constitutional violations by the states, and if so, whether abrogating sovereign immunity was an appropriate response to that pattern. In a brief analysis, the Court concluded that because there was no finding of a pattern of constitutional violations by the states, the attempt at abrogation was invalid.
Having disposed of the abrogation issue, the Supreme Court turned to the much more complex question of waiver. Under the 1964 decision in Parden v. Terminal R. of Alabama Docks Department, a state constructively waives its sovereign immunity for specified federal claims if it chooses to participate in interstate commerce. However, as the Court acknowledged, in the years since Parden was handed down, the Court had cast doubt on constructive waivers of sovereign immunity, actually requiring explicit statements with respect to congressional attempts to abrogate sovereign immunity. In College Savings Bank, then, the Court explicitly overruled Parden, reasoning that there were no constructive waivers of sovereign immunity.
At the same time, the Supreme Court pointed out that recognizing a congressional power to exact constructive waivers of sovereign immunity was inconsistent with the limitations imposed on Congress’s power to abrogate sovereign immunity. If Congress may not use its general Article I powers to abrogate sovereign immunity, the Court observed that Congress may not use its general Article I powers to exact a constructive waiver of sovereign immunity. Yet the Court did concede that in some instances, such as interstate compact or imposing conditions on the receipt of federal funds, Congress might be able to use its Article I powers to exact a waiver of sovereign immunity, but the Court emphasized that Congress could not require states to choose between immunity and participation in lawful activities.
Justice Stevens wrote a short dissent emphasizing his belief that sovereign immunity should not apply when a state engages in commercial activity. He added that Congress’s power to abrogate sovereign immunity is much broader than the Court held.
Justice Breyer, joined by Justices Stevens, Souter, and Ginsburg, vigorously dissented. In their view, Parden should not have been overruled. More importantly, these justices espoused the position that ever since the Court affirmed that Congress may not use its Article I powers to abrogate sovereign immunity in Seminole Tribe v. Florida (1996), its jurisprudence with respect to sovereign immunity had been flawed. Rather, these dissenters contended that any abrogation of sovereign immunity must involve the Fourteenth Amendment enforcement power.
A decade after College Savings was resolved, while the Supreme Court has chosen not to limit its holding, lower courts have refused to expand its opinion. Indeed, every circuit has refused to impose any limits on the ability of Congress to require the states to waive sovereign immunity for certain claims as a condition of receiving federal funds. Nevertheless, for state universities that are considered an arm of the state, College Savings remains a foundational case.
William E. Thro
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- Trademark Act of 1946, as amended (15 U.S.C. §§ 1051-1127).