150 B.R. 688 (Bkrtcy.N.D.Ill. 1993), 88 A 00681, In re Abernathy

Docket Nº:Adv. No. 88 A 00681.
Citation:150 B.R. 688
Party Name:In re William R. ABERNATHY and Peggy V. Abernathy, Debtors. William R. ABERNATHY and Peggy V. Abernathy, Plaintiffs, v. UNITED STATES of America, Defendant. Bankruptcy No. 86 B 08694.
Case Date:February 16, 1993
Court:United States Bankruptcy Courts, Seventh Circuit
 
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Page 688

150 B.R. 688 (Bkrtcy.N.D.Ill. 1993)

In re William R. ABERNATHY and Peggy V. Abernathy, Debtors.

William R. ABERNATHY and Peggy V. Abernathy, Plaintiffs,

v.

UNITED STATES of America, Defendant.

Bankruptcy No. 86 B 08694.

Adv. No. 88 A 00681.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

February 16, 1993

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Kevin Sprow, McKenzie & McKenzie, Chicago, IL, for debtor, plaintiff.

Benjamin Norris, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC, for defendant.

MEMORANDUM, OPINION AND ORDER

ROBERT E. GINSBERG, Bankruptcy Judge.

This matter comes before the court on the motion of the Debtors, William and Peggy Abernathy, for summary judgment on Counts II and III of their second amended complaint against the United States. For the reasons stated below, this court grants summary judgment for the Debtors on Count II, but denies summary judgment on Count III.

FACTS

On June 4, 1986, the Debtors filed a joint petition under Chapter 7 of the Bankruptcy Code. The Internal Revenue Service was listed as a creditor on the Debtors' schedules. On October 2, 1986, the Debtors were granted a discharge in their Chapter 7 case. Both parties to this adversary proceeding agree that all of the Debtors' debts, including their 1979-1982 federal income taxes, were discharged. See § 727. 1

Nonetheless, in the years after the grant of the Chapter 7 discharge, the IRS on several occasions attempted to collect the discharged taxes. Among the steps the IRS took were: (1) on May 11, 1987, issuing a notice to the Debtors indicating that their tax refund had been applied to their 1979 income tax obligation; (2) on August 1, 1988, sending notices to the Debtors threatening enforcement action if the 1979-1982 taxes were not paid; and (3) on August 27, 1988, sending the Debtors a notice of levy on wages, salary, and other income. After each collection effort, the Debtors' attorney notified the IRS that the taxes in question had been discharged, and the IRS usually backed off without pressing its enforcement efforts any further.

On September 9, 1988, the Debtors filed the instant adversary proceeding against the United States, alleging that the IRS has violated the permanent discharge injunction of § 524(a) and seeking to recover the attorneys' fees and litigation costs the Debtors have incurred in enforcing the discharge injunction against the IRS's efforts to collect the discharged taxes. Count II of the Debtors' complaint alleges that the United States has waived sovereign immunity with respect to such fees and costs under § 7430 of the Internal Revenue Code, 26 U.S.C. § 7430. In Count III, the Debtors claim that the United States has waived sovereign immunity to such recovery by the Debtors under § 2412(b) of the Equal Access to Justice Act, 28 U.S.C. § 2412(b) ( "EAJA"). 2

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Despite the pendency of the instant adversary proceeding, the IRS continued its collection efforts with respect to the discharged taxes. On March 13, 1989, the IRS served the Debtors with a final notice of intention to levy on its alleged tax lien.

On June 20, 1989, this court found the IRS in civil contempt for violating the permanent discharge injunction of § 524(a). 3 See Fed.R.Bankr.P. 9020. The contempt finding did little to slow the IRS down in its zeal to collect the discharged taxes. On June 17, 1991, the IRS notified the Debtors that their 1990 tax refund had been applied to the 1980 taxes, and issued two notices of intent to levy to collect the 1980 and 1981 income taxes. On November 4, 1991, the IRS issued two notices of intent to levy to collect the 1980 and 1981 income taxes. On December 19, 1991, the IRS issued a final notice of intent to levy to collect the 1980 and 1981 income taxes. On February 24, 1992, the IRS notified the Debtors that their 1991 income tax refund had been applied to the 1980 income taxes. On February 27, 1992, the IRS issued yet another final notice of intent to levy to collect the 1980 and 1981 income taxes. Incredibly, the IRS's attempt to collect the discharged taxes continues virtually to this very day. In January 1993, while this motion was pending before this court for a decision on the sanctions question, the IRS indicated its intent to apply the Debtors' 1992 tax refund to the 1980 taxes by denying the Debtors' request for that refund.

On October 23, 1992, the Debtors filed the instant motion for summary judgment on Counts II and III of their complaint, claiming that, as a matter of law, the United States has waived its sovereign immunity under either IRC § 7430 or EAJA § 2412(b), and thus they can be awarded money damages in terms of fees and expenses incurred in warding off the myriad of illegal IRS collection efforts. The United States continues to insist that it has not waived its sovereign immunity under any provision of the United States Code.

JURISDICTION AND PROCEDURE

The court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334(b) as a matter arising under § 524 of the Bankruptcy Code. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O) as a matter concerning the administration of the estate and as a proceeding affecting the adjustment of the debtor-creditor relationship and is before this court pursuant to Local Rule 2.33 of the United States District Court for the Northern District of Illinois automatically referring bankruptcy cases and proceedings to this court for hearing and determination.

STANDARD FOR SUMMARY JUDGMENT

Under Fed.R.Civ.P. 56(c), made applicable to adversary proceedings and contested matters in bankruptcy cases by Fed.R.Bankr.P. 7056 and 9014, summary judgment is proper if the pleadings, depositions, answers to interrogatories and admissions on file, together with any affidavits, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). On a summary judgment motion, the inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). There is no genuine issue for trial if the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

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DISCUSSION

This court has already held that the IRS is in civil contempt of this court for its wilful violation of the permanent discharge injunction of § 524(a), enjoining any effort to collect on a discharged debt. Therefore, the only question remaining to be resolved in this adversary proceeding is whether the United States has waived sovereign immunity so as to allow the court to award the Debtors the fees and expenses they have incurred in protecting their Chapter 7 discharge against the IRS's relentless contemptuous assault on that discharge. 4 That is strictly a question of law. There are no disputes of fact between the Debtors and the IRS. Thus, if the court finds that the United States has waived sovereign immunity under either IRC § 7430 or EAJA § 2412(b), the Debtors are entitled to judgment as a matter of law.

IRC § 7430 waives sovereign immunity and authorizes an award of attorneys' fees and litigation costs against the United States to a prevailing party in a tax case if: (1) the proceeding is an administrative or court proceeding; (2) brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty; and (3) the United States was substantially unjustified in its position. See 26 U.S.C. § 7430(a), (c). If the taxpayer can prove these three requirements, the taxpayer may recover reasonable attorneys' fees and other litigation costs. See 26 U.S.C. § 7430(c).

I. Is this proceeding a "court proceeding?"

IRC § 7430 is applicable to "any administrative or court proceeding which is brought by or against the United States." 5 A "court...

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