Harchar v. United States (In re Harchar)

• Decision Date: 18 October 2012
• Docket Number: Nos. 10–4201,10–4419,10–4420.,s. 10–4201
• Citation: 694 F.3d 639
• Parties: In re Andrea Lynne HARCHAR, Debtor. Andrea Lynne Harchar, aka Andrea Peticca, Appellant/Cross–Appellee, v. United States of America, Appellee/Cross–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

694 F.3d 639

68 Collier Bankr.Cas.2d 219

In re Andrea Lynne HARCHAR, Debtor.

Andrea Lynne Harchar, aka Andrea Peticca, Appellant/Cross–Appellee,

v.United States of America, Appellee/Cross–Appellant.

Nos. 10–4201, 10–4419, 10–4420.

United States Court of Appeals,Sixth Circuit.

Argued: June 6, 2012.

Decided and Filed: Sept. 12, 2012.

Rehearing and Rehearing En Banc Denied Oct. 18, 2012.

ARGUED:Thomas C. Loepp, Maistros & Loepp Ltd., Stow, Ohio, for Appellant/Cross–Appellee. Ivan C. Dale, United States Department of Justice, Washington, D.C., for Appellee/Cross–Appellant. ON BRIEF:Thomas C. Loepp, Maistros & Loepp Ltd., Stow, Ohio, Susan M. Gray, Rocky River, Ohio, for Appellant/Cross–Appellee. Ivan C. Dale, Bruce R. Ellisen, United States Department of Justice, Washington, D.C., for Appellee/Cross–Appellant.

Before: BATCHELDER, Chief Judge; GRIFFIN, Circuit Judge; COHN, District Judge.^*

OPINION

GRIFFIN, Circuit Judge.

Andrea Harchar appeals the district court's order of August 18, 2010, which affirmed the bankruptcy court's grant of summary judgment in favor of the United States on her claim that the IRS violated the automatic stay issued pursuant to the Harchars' Chapter 13 bankruptcy, as well as the bankruptcy court's dismissal of her claims that the United States violated the bankruptcy plan and her rights under the Fifth Amendment's due process clause. See Harchar v. United States, 435 B.R. 480 (N.D.Ohio 2010). Harchar also appeals the district court's order of September 27, 2005, which reversed the bankruptcy court's decision allowing her to amend her complaint to add a claim for emotional distress damages based on the government'salleged violations of the automatic stay. United States v. Harchar, 331 B.R. 720 (N.D.Ohio 2005). The government filed a cross-appeal of the district court's order of June 6, 2007, see United States v. Harchar, 371 B.R. 254 (N.D.Ohio 2007), with the stated purpose of preserving certain legal arguments regarding Harchar's stay-violation claims, but has since moved to dismiss that appeal. For the reasons set forth below, we affirm the judgment of the district court and grant the government's motion to dismiss.

I.

On May 1, 1998, appellant Andrea Harchar and her then-husband Kenneth Harchar filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. Appellee United States of America was a creditor in the case because of a pre-petition tax arrearage owed by the Harchars. In August 1998, the plan of reorganization proposed by the Harchars was confirmed by the bankruptcy court. The plan required that the Harchars pay in full priority tax claims held by the government and to pay 5 cents on the dollar over 43 months for unsecured, nonpriority claims held by the government and similarly-situated creditors.

On June 12, 2000, the Harchars filed (and, on August 10, 2000, eventually served) an adversary proceeding against the government, alleging injury caused by the government's practice of “freezing” computer-automated refunding of tax overpayments to Chapter 13 debtors and the government's refusal to issue a refund for their 1999 return until after the bankruptcy court resolved its April 27, 2000, motion to modify the Chapter 13 plan to include the refund in plan funding. Harchar also opposed the government's motion to modify in the bankruptcy court, explaining that since the confirmation of the plan, she had separated from her husband, her husband was no longer employed, and the 1999 refund claim was now needed for essential living expenses. At a hearing on June 13, 2000, the bankruptcy court directed the Harchars to file amended schedules to support their contentions. When they did so, the IRS withdrew its motion and issued the refund with interest.

The Harchars were granted leave to amend their complaint multiple times. In their third and final amended complaint,¹ they alleged that the IRS's freeze of automatic processing and delayed payment of the refund constituted a willful violation of the automatic stay under section 362(a)(3) and (6) of the Bankruptcy Code, entitling them to actual damages under section 362(h). ² They also alleged violations of due process, section 525(a) of the Bankruptcy Code, and the plan confirmation order, and sought injunctive and declaratory relief on behalf of all Chapter 13 debtors to prevent the IRS from “freezing” the automatic processing of refunds.

The Harchars also sought leave to amend their complaint to seek damages for emotional distress as a result of the government's alleged violation of the automatic stay. The bankruptcy court granted their motion, but the district court reversed on appeal. United States v. Harchar, 331 B.R. 720 (N.D.Ohio 2005). It held that because “actual damages” in section 362(h) did not include damages for emotionaldistress, the government had not waived its sovereign immunity as to damages for emotional distress. Id. at 725–33. The district court therefore denied the Harchars' motion for leave to amend as futile. Id. at 733.

The government moved to dismiss the Harchars' complaint under Federal Civil Rule 12(b)(1) and (6), arguing that the Harchars' claims failed as a matter of law. The bankruptcy court granted the government's motion as to the alleged violations of due process, section 525, and the bankruptcy plan, as well as the Harchars' associated requests for declaratory and injunctive relief, but denied the government's motion as to the alleged violation of the automatic stay. In re Harchar, No. 98–13277, 2006 WL 3196846 (Bankr.N.D.Ohio Oct. 4, 2006). The government was given leave to appeal the partial denial of its motion to dismiss. The district court affirmed. United States v. Harchar, 371 B.R. 254 (N.D.Ohio 2007).

Thereafter, the parties filed cross-motions for summary judgment on the Harchars' stay-violation claims. The bankruptcy court granted the government's motion for summary judgment and denied the Harchars' motion. Harchar v. United States (In re Harchar), 393 B.R. 160 (Bankr.N.D.Ohio 2008). It concluded that the IRS had not violated the automatic stay by manually processing the Harchars' tax refund or by withholding the refund while the government petitioned the bankruptcy court for modification of the confirmed Chapter 13 plan. Id. at 176, 183. The court eventually dismissed Kenneth Harchar's claims for failure to prosecute. Andrea appealed.

The district court affirmed in all respects. Adopting the bankruptcy court's analysis, it held that the government was entitled to summary judgment on Harchar's stay-violation claims. The district court further held that Harchar's due-process claim was barred by sovereign immunity and was, in any event, without merit because she had the right to a refund suit under 26 U.S.C. § 7422. And it found that Harchar's plan-violation claim failed because she did not identify any provision of the plan that had been violated. The parties timely appeal the district court's judgment.

II.

Harchar challenges the dismissal of her plan-violation and due process claims, the grant of summary judgment to the IRS on her stay-violation claim, and the denial of her motion to amend the complaint to add a claim for emotional distress damages for violation of the automatic stay.³ The government cross-appealed an earlier order of the district court in order to preserve its argument that the refund was not property of the estate, but now seeks to have its cross-appeal dismissed. We address each of the issues in turn.

A. Plan Violation

Harchar first contends that the district court erroneously affirmed the bankruptcycourt's Rule 12(b)(6) dismissal of her claim that the IRS violated the terms of the debtors' confirmed bankruptcy plan on the basis that she failed to identify any provision of the plan that was violated by the government. We review the dismissal of this claim de novo. Hughes v. Sanders, 469 F.3d 475, 477 (6th Cir.2006). In order to survive a Rule 12(b)(6) motion to dismiss, a complaint need contain “only enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); see Bankruptcy Rule 7012(b). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 677, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). We may affirm the district court's dismissal of a plaintiff's claim on any preserved ground, including a ground not relied upon by the district court. Hensley Mfg. v. ProPride, Inc., 579 F.3d 603, 609 (6th Cir.2009).

Section 1327 of the Bankruptcy Code states that “[t]he provisions of a confirmed plan bind the debtor and each creditor” and that “[e]xcept as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.” 11 U.S.C. § 1327. The confirmed plan in this case provides that “[c]reditors holding unsecured claims shall be paid 5% of the amount owing on a pro-rata basis”; and the plan confirmation order likewise indicates that the IRS will be paid in regular monthly payments over the life of the plan. Contrary to Harchar's contention, nothing in these provisions prohibits the IRS from manually processing her refund. This is not a case where the IRS sought to unilaterally vary the plan's payment terms; it is a case where the IRS halted automatic payment of the refund to consider its rights and responsibilities with regard to the Harchars' bankruptcy, and then filed a motion for relief in the bankruptcy court, as it was expressly permitted to do. 11 U.S.C. § 1329 (“At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to—(1) increase or reduce the amount of...