In re Jarrett, No. 02-3003.

• Decision Date: 24 July 2002
• Docket Number: No. 90-31640.,No. 02-3003.
• Citation: 293 B.R. 127
• Parties: In re William/Norma Jean JARRETT, Debtors. Norma Jean Jarrett, Plaintiff, v. State of Ohio, Dept. of Taxation, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

293 B.R. 127

In re William/Norma Jean JARRETT, Debtors Norma Jean Jarrett, Plaintiff, v. State of Ohio, Dept. of Taxation, Defendant.

No. 02-3003.

No. 90-31640.

United States Bankruptcy Court, N.D. Ohio.

July 24, 2002.

Randy L. Reeves, Lima, OH, for Plaintiff.

William H. Webster, Toledo, OH, for Defendant.

MEMORANDUM OPINION AND DECISION

RICHARD L. SPEER, Bankruptcy Judge.

This cause comes before the Court upon the Defendant's Motion for Summary Judgment, Memorandum in Support, and Reply; and the Plaintiff's Cross Motion for Summary Judgment, and Response to the Defendant's Motion for Summary Judgment. This Court has now had the opportunity to review the arguments of Counsel, the exhibits, as well as the entire record of the case. Based upon that review, and for the following reasons, the Court finds that the Defendant's Motion for Summary Judgment should be Granted, and that the Plaintiff's Motion for Summary Judgment should be Denied.

FACTS

There are no disputed facts in this case. On November 16, 1989, the Defendant, through the filing of a certificate of judgment, obtained a tax lien on all of the real property owned by the Debtor, Norma Jean Jarrett (hereinafter referred to individually as the "Debtor"). The following year, on May 16, 1990, the Debtors filed a petition for relief under Chapter 7 of the United States Bankruptcy Code. During the pendency of the Debtors' bankruptcy case, no assets were administered by the trustee and no proof of claim was filed by the Defendant. Additionally, the facts presented in this case show that no real property was listed by the Debtors in their schedule of assets. On September 18, 1990, the Debtors, in accordance with 11 U.S.C. § 727(a), received their bankruptcy discharge.

Approximately nine years later, on November 9, 1999, the Defendant renewed its tax lien in accordance with Ohio law. As a direct result of this action, the Debtor commenced the instant adversary proceeding contending that the Defendant, by the act of renewing its lien, violated the discharge injunction of 11 U.S.C. § 524. As it pertains to this cause of action, the facts presented in this case show that at no time did the Debtor seeks a determination as to the dischargeability of her tax debts.

LAW

11 U.S.C. § 524. Effect of discharge

(a) A discharge in a case under this title —

(1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under section 727, 944, 1141, 1228, or 1328 of this title, whether or not discharge of such debt is waived;

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived[.]

DISCUSSION

The Debtor in this case asserts that the Defendant's act of renewing its tax lien violated the discharge injunction of 11 U.S.C. § 524. In response thereto, the Defendant raises what are, in essence, two affirmative defenses: (1) this Court, pursuant to the 11th Amendment to the United States Constitution, has no jurisdiction to hear the Debtor's cause of action; and (2) the act of renewing a lien is strictly an in rem action, which, by definition, cannot violate the discharge injunction of § 524. Given that this Court needs a valid jurisdictional basis to hear any matter raised by a party, the Court will begin its analysis with the first issue raised by the Defendant.

The United States Constitution, under Article 1, grants to the federal government the exclusive power to pass bankruptcy laws.¹ See, e.g., National Railroad Passenger Corp. v. Blanchette, 551 F.2d 127, 135 (7th Cir.1977). By comparison the Eleventh Amendment to the United States Constitution prohibits federal courts from hearing suits against unconsenting states in federal court which are based upon either diversity of citizenship, or those suits which are brought against an unconsenting state by one of its own citizens as well as by citizens of another state.² Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 98, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984); Hans v. Louisiana, 134 U.S. 1, 18-19, 10 S.Ct. 504, 33 L.Ed. 842 (1890). In addition to serving the function of protecting a state's treasury from federal court judgments, the purpose of this Amendment is to avoid the indignity of subjecting states to the coercive process of judicial tribunals at the instance of private parties. Seminole Tribe of Florida v. Florida, 517 U.S. 44, 58, 116 S.Ct. 1114, 1124, 134 L.Ed.2d 252 (1996). Section 106 of the Bankruptcy Code, however, waives this immunity from suit in federal court for, among other things, causes of action brought to determine the dischargeability of a debt (§ 523) and proceedings brought to enforce the discharge injunction of § 524.³

In accordance with the argument raised by the Defendant, this Court, in the case of Pitts v. Ohio Dep't of Taxation (In re Pitts), 241 B.R. 862 (Bankr.N.D.Ohio 1999), examined whether, in a dischargeability action brought by a debtor against the State of Ohio, Congress' waiver of a state's Eleventh Amendment immunity under § 106 was constitutionally permissible. After carefully considering the matter, the Court answered the question in the negative, and accordingly dismissed the debtor's complaint to determine dischargeability. In deciding that Congress did not have the constitutional power to waive a state's Eleventh Amendment immunity for purposes of a dischargeability action, this Court relied primarily upon the Supreme Court's decision in Seminole Tribe of Florida v. Florida, wherein it was held that those laws created pursuant to Congress' authority under Article 1 of the Constitution (and from which the bankruptcy laws are enacted) cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction by the Eleventh Amendment. 517 U.S. at 72-73, 58, 116 S.Ct. 1114, 1131-32.

In a case subsequent to this Court's decision in In re Pitts, however, the Bankruptcy Appellate Panel for the Sixth Circuit found that § 106 of the Bankruptcy Code was a constitutionally permissible waiver of a state's Eleventh Amendment immunity. Hood v. Tennessee Student Assistance Corp., (In re Hood), 262 B.R. 412 (6th Cir. BAP 2001). In doing so, the Court in In re Hood, after conducting an in-depth analysis of the historical framework of the bankruptcy laws vis-a-vis the United States Constitution, concluded that once the states had ceded their sovereignty over bankruptcy matters to Congress through the Bankruptcy Clause of the Constitution, (U.S. Const. art. I, § 8, cl.4) it had also empowered the federal courts to completely enforce those rights created under that system. In re Hood, 262 B.R. at 416-18. Furthermore, the Court in In re Hood observed that the Supreme Court in Seminole Tribe had not specifically addressed the issue of the Eleventh Amendment's applicability to the bankruptcy laws. Id. at 423.

The In re Hood decision, however, which is presently on appeal to the Sixth Circuit Court of Appeals, has been criticized on a couple of different grounds. In particular, it has been asserted that the In re Hood decision, in addition to ignoring the plain holding of Seminole Tribe, blurs the distinction between Congress' exclusive power to pass bankruptcy laws versus the immunity afforded to the states by the Eleventh Amendment. See Claxton v. United States (In re Claxton), 273 B.R. 174, 182-83 (Bankr.N.D.Ill.2002); Alabama Dep't of Human Resources v. Lewis, 279 B.R. 308 (S.D.Ala.2002); In re Serv. Merch. Co., Inc., 265 B.R. 917, 920 (M.D.Tenn.2001). For example, it is noted that state courts have concurrent jurisdiction on many issues that involve the application of bankruptcy law. Nevertheless, despite such criticisms and contrary to the Court's previous decision in In re Pitts, this Court, based upon the principle of stare decisis, will follow the decision rendered in In re Hood, unless at some point the holding therein is overturned. Accordingly, in this case, the Court will exercise jurisdiction over the Debtors' Complaint to find the Defendant in violation of the discharge injunction of § 524.⁴

The purpose of the discharge of injunction of § 524 is to promote the fresh start policy of the Bankruptcy Code by protecting a debtor against actions brought on prepetition debts. Hassanally v. Republic Bank (In re Hassanally), 208 B.R. 46, 49 (9th Cir. BAP 1997); In re Zarro, 268 B.R. 715, 720 (Bankr.S.D.N.Y.2001). However, § 524 is specifically limited in its scope to only those actions by creditors to collect a debt as a "personal liability of the debtor." Thus, § 524 (or for that matter any other Bankruptcy Code section) does not affect the fundamental principle of bankruptcy law that unless otherwise avoidable under the Bankruptcy Code, valid liens — including tax liens — survive a bankruptcy discharge. 11 U.S.C. § 522(c). See, also, Leslie v. Commissioner (In re Leslie), 103 B.R. 775, 777 (Bankr.S.D.W.Va.1989)("[a] lien created before bankruptcy survives bankruptcy even though the underlying debt was discharged in bankruptcy, if the lien is not avoided."). As stated by the Supreme Court of the United States, "a bankruptcy discharge extinguishes only one mode of enforcing a claim — namely, an action against the debtor in personam — while leaving intact another — namely, an action against the debtor in rem." Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991). With regards to this rule, the question raised in this case is whether a creditor who seeks to renew or otherwise extend their lien after the debtor has received a bankruptcy discharge, has acted solely in rem, or has instead violated the discharge injunction of § 524 by acting against the debtor in personal capacity; that is, does the renewal of a lien...