Nordic Village, Inc., In re
| Citation | 915 F.2d 1049 |
| Decision Date | 23 January 1991 |
| Docket Number | No. 89-3656,89-3656 |
| Parties | -5652, 59 USLW 2230, 91-1 USTC P 50,028, 23 Collier Bankr.Cas.2d 1491, 21 Bankr.Ct.Dec. 1335, Bankr. L. Rep. P 73,650 In re NORDIC VILLAGE, INC., Debtor. INTERNAL REVENUE SERVICE, Plaintiff-Appellant, v. NORDIC VILLAGE, INC., David O. Simon, Trustee, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
Charles M. Greene, U.S. Dept. of Justice, Tax Div., Washington, D.C., William J. Kopp, Asst. U.S. Atty., Cleveland, Ohio, Gary R. Allen, Acting Chief, Murray S. Horwitz, Gary D. Gray (argued), U.S. Dept. of Justice, Appellate Section, Tax Div., Washington, D.C., for plaintiff-appellant.
David O. Simon, Selker, Furber & Spotts, Michael D. Zaverton (argued), Dettelbach, Sicherman & Baumgart, Cleveland, Ohio, for defendants-appellees.
Before KENNEDY and WELLFORD, Circuit Judges; and JOINER, Senior District Judge. *
The Internal Revenue Service (IRS) appeals from the district court's determination that it is liable to the trustee in bankruptcy of defendant, Nordic Village, Inc. (Nordic), for a voidable transfer under section 549 of the Bankruptcy Code, 11 U.S.C. section 549. The facts are stipulated. Nordic filed a Chapter 11 petition on March 27, 1984, pursuant to which Nordic acted as debtor-in-possession. On July 18, 1984, Josef Lah, an officer and shareholder of Nordic (then doing business as Swiss Haus, Inc.), drew a $26,000 counter-check on the corporate account made payable to the bank. The bank, in turn, issued several cashier's checks to Lah. The cashier's check at issue here, for $20,000, was made payable to the IRS.
The check bore the notation "REMITTER: SWISS HAUS, INC." At some point, a line was drawn through this notation, although it remains clearly legible. Lah delivered the cashier's check to the IRS, with instructions that it be credited against the outstanding tax liabilities of Josef Lah, doing business as Josef's Hair Design. The IRS credited Lah's account accordingly.
On August 10, 1984, a trustee in bankruptcy was appointed for Nordic. The trustee subsequently initiated a proceeding to recover several unauthorized post-petition transfers, including the transfer to the IRS. The bankruptcy court held that the transfer was voidable under section 549 of the Bankruptcy Code, and that the IRS was the initial transferee of the debtor under section 550 of the Bankruptcy Code, 11 U.S.C. section 550 (1979 & Supp.1990), because Lah was acting as the agent of the debtor when he withdrew the funds from the corporate account. The district court affirmed, but as to the latter issue, it also held in the alternative that the IRS was an immediate transferee, and knew or should have known that the transfer was voidable as a consequence of the notation "REMITTER: SWISS HAUS, INC." We now affirm.
This case presents two issues for review. The first issue is the jurisdictional question of whether a federal agency has sovereign immunity under the Bankruptcy Code. The IRS relies upon Hoffman v. Connecticut Department of Income Maintenance, --- U.S. ----, 109 S.Ct. 2818, 106 L.Ed.2d 76 (1989), in which the Supreme Court held that the sovereign immunity provision of the Bankruptcy Code, 11 U.S.C. section 106 (1979), does not waive the immunity of the states as to money judgments. 1 For three reasons, this reliance is misplaced.
First, there is no controlling analysis of the statute in Hoffman. Four Justices agreed that section 106 did not waive the immunity of states, in an opinion by Justice White, and in an opinion written by Justice Marshall, an equal number of Justices held to the contrary. The deciding vote in the case was delivered by Justice Scalia, concurring in the judgment on other grounds, and explicitly stating that he did not concur in the theory expanded upon in the opinion of Justice White. Thus, the most that can be said for the status of the Hoffman decision as precedent is that each of two theories received equal support.
Second, the holding in Hoffman is distinguishable because it dealt with the immunity of states under the eleventh amendment. The White opinion did not address whether Congress intended to waive the immunity of the United States, but instead decided the case by application of the rule that a congressional abrogation of the sovereign immunity of the states will not be found minus an explicit statement of Congress's intent to do so on the face of the statute. 109 S.Ct. at 2822. Here, we are dealing with a congressional waiver of the sovereign immunity of the United States.
Third, the legislative history supports the plain language of section 106 and the reasoning of the Marshall opinion in Hoffman, which pointed out that it was the intention of Congress to waive sovereign immunity in cases like Hoffman, and like the case presently before us. The only clear parsing of the statute having any application to this case is done by Justice Marshall.
This case also presents the issue of the liability of a transferee in the circumstances surrounding the IRS's receipt of Lah's check. The district court was correct in holding, alternatively, against the IRS's claim that the funds were taken in good faith and without knowledge that they were funds belonging to Swiss Haus, Inc., the transfer of which was voidable.
The jurisdiction of the court turns on the waiver by Congress of the IRS's sovereign immunity. Two provisions of the Bankruptcy Code are relevant. Section 550 provides, in part:
(a) Except as otherwise provided, in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from--
(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or
(2) any immediate or mediate transferee or such initial transferee.
(b) The trustee may not recover under section (a)(2) of this section from--
(1) a transferee that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided....
11 U.S.C. Sec. 550. Section 106 of the Bankruptcy Code provides:
(a) A governmental unit is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which such governmental unit's claim arose.
(b) There shall be offset against an allowed claim or interest of a governmental unit any claim against such governmental unit that is property of the estate.
(c) Except as provided in subsection (a) and (b) of this section and notwithstanding any assertion of sovereign immunity--
(1) a provision of this title that contains "creditor", "entity", or "governmental unit" applies to governmental units; and
(2) a determination by the court of an issue arising under such a provision binds governmental units.
11 U.S.C. Sec. 106. Section 106 abolishes the defense of sovereign immunity in cases where the claim is made by the trustee pursuant to a provision of the Code that contains any of the words "creditor," "entity," or "governmental unit." Section 550 is one of these sections. It specifically authorizes the Trustee to avoid the transfer and to recover the property or its value from the "entity" for whose benefit the transfer was made.
Sections 550 and 106 authorize suits by the trustee to recover a transfer of the type involved here from the IRS regardless of sovereign immunity. In this case, the IRS received the "benefit" of the check. The IRS is a "governmental unit" and an "entity," thus, the language of the statute in this case clearly waives the governmental immunity.
Section 106 is a straight-forward and specific waiver of sovereign immunity as it relates to federal governmental units. There is nothing in the provision suggesting that it is limited to injunctive or declaratory relief. The terms of the waiver take us to any provision of the Code using the trigger words. The meaning could not be clearer.
The legislative history of the Bankruptcy Code supports a plain-language reading of section 106. 2 The original draft of the Bankruptcy Code submitted by the Commission on the Bankruptcy Laws of the United States proposed the following waiver of sovereign immunity:
All provisions of the Act shall apply to the United States and to every department, agency and instrumentality thereof, and to every state and every subdivision thereof except where otherwise specifically provided. This section does not render any branch or unit of the government eligible for relief as a petitioner except as provided in Chapter VIII, or subject to relief as a debtor upon an involuntary petition.
Report of the Commission on the Bankruptcy Laws of the United States, H.R.Doc. No. 93-137, 93d Cong., 1st Sess., Pt. II, at 1 (1973) (reprinted in COLLIER ON BANKRUPTCY, App. 2, Sec. 1 (15th ed.1984)).
The original House and Senate versions of current section 106 were identical and far narrower in scope, providing as follows:
(a) A governmental unit that files a proof of claim under section 501 of this title is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which such governmental unit's claim arose.
(b) There shall be offset against an allowed claim or interest of a governmental unit for which such governmental unit filed a proof of claim or interest under section 501 of this title any claim against such governmental unit that is property of the estate.
H.R....
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