As I have said before (
see here), I do not believe that the states have any inherent sovereign immunity in the federal courts; moreover, I would tend to interpret the Eleventh Amendment in a very limited fashion. Due to the Eleventh Amendment, the federal courts may not hear a suit against a state, simply on the grounds that the plaintiff was a citizen of a different state. But nothing prevents the federal courts from hearing such cases on a multitude of other grounds: that the case arose under federal law, that the case is a question of admiralty, etc.
This particular suit appears to be a suit under federal law. It seems to be predicated not on the diversity jurisdiction of the federal courts, but on their subject-matter jurisdiction. Thus, no issue of immunity should arise.
That said, however, a century of precedent (beginning with
Hans v. Louisiana) suggests that states do have sovereign immunity, and that the Eleventh Amendment is only one example of that immunity. If we apply this doctrine consistently, then Congress does not have the authority to abrogate this immunity under the bankruptcy clause. In
Seminole Tribe v. Florida, the Supreme Court held that the commerce clause does not allow an abrogation of state immunity; the same principle applies with respect to the bankruptcy clause.
The only instances in which power to abrogate state immunity does (as the Supreme Court has previously agreed) arise seem to be under constitutional amendments such as the Fourteenth. These amendments contain specific directives to the states, and authorize Congress to enforce them by "appropriate legislation."
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