Alabama Dept. of Human Resources v. Lewis

• Decision Date: 14 May 2002
• Docket Number: No. CIV.A. 01-0812-CGM.,CIV.A. 01-0812-CGM.
• Citation: 279 B.R. 308
• Parties: State of ALABAMA DEPARTMENT OF HUMAN RESOURCES, Appellant, v. Clyde Eli LEWIS, Appellee.
• Court: U.S. District Court — Southern District of Alabama

279 B.R. 308

State of ALABAMA DEPARTMENT OF HUMAN RESOURCES, Appellant, v. Clyde Eli LEWIS, Appellee.

No. CIV.A. 01-0812-CGM.

United States District Court, S.D. Alabama, Northern Division.

May 14, 2002.

James E. Long, Montgomery, AL, G. Wayne Ashbee, Mobile, AL, for appellant.

John A. Lockett, Jr., Selma, AL, for appellee.

John C. McAleer, III, Mobile, AL, trustee, pro se.

MEMORANDUM OPINION AND ORDER

GRANADE, District Judge.

This case is before the court on appeal from a decision of the United States Bankruptcy Court for the Southern District of Alabama, Case No. 97-14379. On September 19, 2001, the bankruptcy court issued an order denying the motion of the State of Alabama Department of Human Resources ("DHR" or "the State") to set aside the bankruptcy court's May 23, 2001, order, in which the State was held in contempt of the bankruptcy court and found to be in violation of the automatic stay imposed in debtor's Chapter 13 bankruptcy proceedings. On September 27, 2001, the State filed this appeal of both the May 23 and September 19, 2001 orders.

For the reasons stated below, the court concludes that the bankruptcy court's order is due to be reversed.

I. FACTUAL AND PROCEDURAL BACKGROUND

On December 4, 1997, appellee Clyde Eli Lewis initiated Chapter 13 bankruptcy proceedings. (Bankruptcy file, Doc. 1.) With no action or approval from the State, appellee listed the Department of Human Resources as a creditor holding an unsecured nonpriority claim in the amount of $3,000, representing delinquent child support. Id. Appellee's Chapter 13 plan included payment of 100% of the child support arrearage. (Bankruptcy file, Doc. 2.) The plan was confirmed on March 4, 1998. (Bankruptcy file, Doc. 8.) The State did not file a claim or otherwise make an appearance in appellee's bankruptcy proceedings. The precise date is not clear from the record, but at some point in 2000 or 2001, the State garnished appellee's wages and began collecting the child support arrearage through weekly deductions of $76.47 from appellee's salary. (Doc. 2, Bankruptcy file, Doc. 12.) Appellee's child reached the age of majority on February 11, 2001. On March 22, 2001, appellee's counsel wrote the State, noted the pending bankruptcy and payment plan, and asked the State to release the garnishment of appellee's wages. (Bankruptcy file, Doc. 12.) The garnishment was not released. On April 26, 2001, appellee moved the bankruptcy court to hold the State in contempt for violating the automatic stay, 11 U.S.C. § 362(a)(1) and (6), and to award compensatory and punitive damages, as well as sanctions and attorney's fees against the State.

On May 10, 2001, the bankruptcy court convened a hearing on appellee's motion to hold the State in contempt. The State did not appear at the hearing. The bankruptcy court's May 23, 2001, order found DHR in contempt of court for violating the automatic stay; ordered the state's garnishment of appellee's wages terminated; ordered the State to refund all money garnished after February 11, 2001; ordered the state to compensate the appellee $160 for lost wages for attending court; and ordered the State to pay appellee's attorney's fees in the amount of $500. (Bankruptcy file, Doc. 14.)

The State filed a motion to set aside judgment on August 16, 2001. The State's motion noted that the State had not filed a proof of claim or otherwise waived sovereign immunity in the bankruptcy proceeding. The State further asserted its immunity pursuant to the Eleventh Amendment and requested that the contempt order be set aside. (Bankruptcy file, Doc. 15.)

The bankruptcy court denied the motion in an order dated September 19, 2001. After noting the facts and procedural posture, the order included the following rationale:

DHR asserts that the action against DHR for violation of the automatic stay was barred by the Eleventh Amendment of the United States Constitution. The Eleventh Amendment provides:

The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of a Foreign State.

DHR claims that Eleventh Amendment immunity is a jurisdiction bar to a suit against an unconsenting state in federal bankruptcy court. There is a split of authority as to whether the states abrogated Eleventh Amendment immunity as to bankruptcy matters when they agreed to Article I, Section 8, in which Congress is given the power to establish uniform bankruptcy laws. Numerous courts have applied the sovereign immunity doctrine in the bankruptcy context. See, e.g., Arecibo Community Health Care, Inc. v. Commonwealth of Puerto Rico, 244 F.3d 241 (1st Cir.2001); NVR Homes Inc., v. Clerks of Circuit Courts for Anne Arundel County, Md., (In re NVR., LP), 189 F.3d 442 (4th Cir.1999); Sacred Heart Hospital v. Commonwealth of Pennsylvania, (In re Sacred Heart Hospital), 133 F.3d 237 (3d Cir.1998); In re Service Merchandise Co., Inc., 265 B.R. 917, 2001 WL 951316 (M.D.Tenn. June 15, 2001); Peterson v. State of Florida (In re Peterson), 254 B.R. 740 (Bankr.N.D.Ill.2000); Seay v. Tennessee Student Assistance Corp. (In re Seay), 244 B.R. 112 (Bankr.E.D.Tenn.2000); In re Womack, 253 B.R. 241 (Bankr.E.D.Ark.2000); Scarborough v. Michigan Collection Div. (In re Scarborough), 229 B.R. 145 (Bankr.W.D.Mich.1999); and Pitts v. Ohio Dep't of Taxation (In re Pitts), 241 B.R. 862 (Bankr.N.D.Ohio 1999). Other courts have held that states may not assert the defense of sovereign immunity in bankruptcy cases. See, e.g. Hood v. Tennessee Student Assistance Corp., (In re Hood), 262 B.R. 412 (6th Cir. BAP 2001); H.J. Wilson Co., Inc. v. Comm'r of Revenue for the Commonwealth of Massachusetts (In re Service Merchandise Co., Inc.), 262 B.R. 436 (Bankr.W.D.Wis.2000); Lees v. Tennessee Student Assistance Corp. (In re Lees), 252 B.R. 441 (Bankr.W.D.Tenn.2000); Bliemeister v. Industrial Comm'n of Ariz. (In re Bliemeister), 251 B.R. 383 (Bankr.D.Ariz.2000); Willis v. Oklahoma (In re Willis), 230 B.R. 619 (Bankr.E.D.Okla.1999); Wyoming Dept. of Transp. v. Straight (In re Straight), 209 B.R. 540 (D.Wyo.1997). The Eleventh Circuit discussed but did not decide the issue in In re Burke, 146 F.3d 1313 (11th Cir.1998). The Burke court stated that it "need not resolve this abrogation issue because . . . we conclude in this case the State waived its sovereign immunity." Id. at 1317.

This court finds the cases that hold that Eleventh Amendment immunity is abrogated to be more persuasive. This court agrees with the reasoning of the recent Sixth Circuit Bankruptcy Appellate Panel decision of In re Hood, 262 B.R. 412 (6th Cir. BAP 2001); see also Leonard Gerson, A Bankruptcy Exception to Eleventh Amendment Immunity; Limiting the Seminole Tribe Doctrine, 74 AM.BANKR.L.J. 1, 11 (2000)("At the inception of the Constitution, it was recognized that bankruptcy law required a subordination of state sovereignty.") The bankruptcy clause in Article I gives Congress the power to establish uniform laws on the subject of bankruptcy throughout the United States. U.S. CONST. art. 1, § 8, cl.r. Uniformity and state sovereignty are incompatible. "Subordinating bankruptcy laws to the sovereignty of the States would permit the States to use their power and sovereignty to collect any debt . . ." In re Hood, at 419. "It would thus permit the States to ignore the bankruptcy process . . ." Id. This court finds that the states ceded their sovereignty over bankruptcy matters and are not immune from suit in this court.

(Bankruptcy file, Doc. 17.) The court further concluded that there was no basis under Fed.R.Civ.P. 60(b) to set aside its order. The State filed its notice of appeal on September 27, 2001. (Bankruptcy file, Doc. 18.)

II. STATEMENT OF JURISDICTION AND STANDARD OF REVIEW

A. Jurisdiction

Section 1334(a) of Title 28, United States Code, vests "original and exclusive jurisdiction of all cases under title 11" — the bankruptcy code — in the federal district courts. Title 28 U.S.C. § 157 provides that "bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising title 11. . . ." Core proceedings are subject to appeal in the district courts pursuant to 28 U.S.C. § 158(a).¹ "The entry of a contempt order for violation of the automatic stay provisions of section 362(a) is a final appealable order in a core proceeding." In re Ellis, 66 B.R. 821, 823 (N.D.Ill.1986), citing 28 U.S.C. § 157(b)(1); 11 U.S.C. § 105; In the Matter of Carmen Crum, 55 B.R. 455, 458 (Bankr.M.D.Fla.1985), In re Indus. Tool Distributors, 55 B.R. 746, 749 (N.D.Ga.1985), and Better Homes of Virginia, Inc. v. Budget Service Co., 52 B.R. 426 (E.D.Va.1985).

B. Timeliness of Appeal

As an initial matter, the court must determine whether this appeal was timely filed. Bankruptcy Rule 8002 provides that "the notice of appeal shall be filed with the clerk within 10 days of the date of the entry of the judgment, order, or decree appealed from." F.R.B.P. 8002(a) (West 2002). Moreover, the lack of a timely notice of appeal divests a district court of jurisdiction over a bankruptcy appeal. See In re Williams, 216 F.3d 1295, 1297 (11th Cir.2000).

The bankruptcy court entered the contempt order against the State on May 23, 2001. (Doc. 14.) The State of Alabama Department of Human Resources did not appeal that order within 10 days. In fact, the State made no appearance until August 16, 2001, eighty-five days after the contempt order was entered, when the State filed a motion to set aside the contempt order. Although no basis for the motion was cited, the State apparently filed its motion under Bankruptcy Rule 9024 for relief from judgment or order. The rule states,

Rule 60 F.R.Civ.P. applies in cases under the Code except that (1) a motion to reopen a case under the Code or for the reconsideration of an order allowing or disallowing a claim against the estate

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