Brinson v. United States (In re Brinson)
| Decision Date | 28 January 2013 |
| Docket Number | Bankruptcy No. 11 B 35376.,Adversary No. 11 A 02449. |
| Citation | 485 B.R. 890 |
| Parties | In re Artie Lee BRINSON, Debtor. Artie Lee Brinson, Plaintiff, v. United States of America, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
OPINION TEXT STARTS HERE
Jonathan D. Parker, Geraci Law L.L.C., Chicago, IL, for Plaintiff.
William C. Elwell, Carina Clark Federico, US Department of Justice, Washington, DC, for Defendant.
This adversary proceeding is related to a Chapter 13 bankruptcy case filed by debtor Artie Lee Brinson (“Brinson”). Brinson has several years of federal income tax debts, some of which he concedes are nondischargeable. The Internal Revenue Service (“IRS”) claims a lien securing most or all of the tax debts. Brinson has sued the United States of America seeking to void the IRS lien on his personal property pursuant to 11 U.S.C. § 506(d) (Count I); seeking determination as to the dischargeability of his tax debts pursuant to 11 U.S.C. § 523(a)(1) (Count II); to fix the priority of his tax debts pursuant to 11 U.S.C. § 507(a)(8) (Count II); and for a declaratory judgment determining the dischargeability and priority of his tax debts pursuant to 28 U.S.C. § 2201 (Count III).
The United States moved for “partial dismissal” of the Brinson Complaint, but its motion is not explicitly directed to any specific Count. The motion seeks to dismiss the Complaint “except to the extent it seeks a determination of dischargeability.” Count II is the only Count seeking determination of dischargeability. The motion also contends that the Complaint should be dismissed for lack of subject matter jurisdiction, for lack of personal jurisdiction based on sovereign immunity, and for failure to state a claim pursuant to Rules 12(b)(1), (2) and (6) of the Federal Rules of Civil Procedure []. These asserted grounds apply to Counts I and III. Count II is not addressed by the Motion.
In opposition to the United State's Motion Brinson argues, in sum, that § 106(a) of the Bankruptcy Code, Title 11 U.S.C., is an explicit waiver of the United States' sovereign immunity, and the ultimate decision as to Plaintiff's ability to strip the United States' lien under § 506(d) therefore does not abrogate sovereign immunity. He also argues that the plain language of §§ 506(a) and 506(d) allows the court to value and bifurcate the Government's claim into secured and unsecured parts, and that § 506(d), not § 1322(b)(2), operates to void the Government's liens that are not supported by property equity. He further argues that the U.S. Supreme Court's decision in Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992) does not apply in Chapter 13 cases and does not forbid stripping off of the Government's liens. Finally, Brinson argues that his Complaint does seek a determination as to the size of his tax debt due for each tax year, and therefore falls within § 505(a)(1) of the Bankruptcy Code.
District courts have exclusive jurisdiction over bankruptcy cases, pursuant to 28 U.S.C. § 1334(a), and they have concurrent jurisdiction over all civil proceedings “arising under” the Bankruptcy Code, pursuant to 28 U.S.C. § 1334(b). The determination of a creditor's secured status sought under § 506(a) “arises under” the Bankruptcy Code, and is within the District Court's jurisdiction. See Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5th Cir.1987) ().
Pursuant to 28 U.S.C. § 157(a) and its own Internal Operating Procedure 15(a), the District Court for the Northern District of Illinois has referred its bankruptcy cases and matters to the bankruptcy judges of this district. When presiding over a referred case, the bankruptcy judge has authorization under 28 U.S.C. § 157(b)(1) to enter appropriate orders and judgments as to core issues within the case. Determination as to the dischargeability of particular debts and the determination of the validity, extent, or priority of liens are core proceedings under 28 U.S.C. § 157(b)(2)(I) and (K), respectively. Proceedings “arising under” the Bankruptcy Code are core proceedings. Id.
Venue lies under 28 U.S.C. § 1409(a).
The United States has first challenged jurisdiction in the Complaint filed by Brinson on the ground of sovereign immunity. It contends that the Bankruptcy Code § 506(d) claim in Count I of the Brinson Complaint should be dismissed for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1) and also for lack of in personam jurisdiction pursuant to Rule 12(b)(2) based on assertion of United States sovereign immunity.
The United States does concede that § 106 of the Bankruptcy Code “abrogates the United States' sovereign immunity to the extent set forth in certain other sections of the Bankruptcy Code, including section 502.” However, Congress also unequivocally abrogated sovereign immunity of the United States with respect to Bankruptcy Code § 506. Section 106(a)(1) of the Bankruptcy Code provides in pertinent part that “[n]otwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect to the following: (1) Sections ... 502, 503, 505, 506 ... of this title.” See11 U.S.C. § 106(a)(1). The extent of the express abrogation is broad: A bankruptcy judge is thereby empowered to “hear and determine any issue arising with respect to the application” of § 506 to the United States. 11 U.S.C. § 106(a)(2). There is no question that the United States is subject to claims under § 506. See In re Nicks, No. 12 C 1360, 2012 WL 3133618, at *2 (N.D.Ill. July 31, 2012); Berkebile v. Ocwen Loan Serv., LLC (In re Berkebile), 444 B.R. 326, 334 (Bankr.W.D.Pa.2011); In re Louis Jones Enters., Inc., No. 10 B 11375, 2010 WL 1726820, at *1 (Bankr.N.D.Ill. Apr. 27, 2010).
Nevertheless, the Government contends that because § 506(d) does not expressly permit lien stripping, sovereign immunity has not been abrogated to permit it. Therefore, it argues, sovereign immunity has not been abrogated despite § 106(a) and dismissal under Rules 12(b)(1) and (b)(2) appropriate.
Sovereign immunity is not jurisdictional but rather a waivable affirmative defense; it “concerns the remedy rather than adjudicatory competence.” Blagojevich v. Gates, 519 F.3d 370, 371 (7th Cir.2008); see also Libertarian Party of Ill. v. Illinois State Bd. of Elections, No. 12 C 2511, 2012 WL 3880124, at *1 n. l (N.D.Ill. Sept. 5, 2012). The asserted deficiency of Brinson's § 506(d) claim does not negate the abrogation of sovereign immunity in § 106(a). In arguing that it does, the IRS confuses the merits of Brinson's claim with the court's subject matter jurisdiction. But it is “firmly established ... that the absence of a valid (as opposed to arguable) cause of action does not implicate subject matter jurisdiction, i.e., the courts' statutory or constitutional power to adjudicate the case.” Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (emphasis in original); see also Verizon Md., Inc. v. Public Serv. Comm'n of Md., 535 U.S. 635, 642–43, 122 S.Ct. 1753, 152 L.Ed.2d 871 (2002); Jogi v. Voges, 480 F.3d 822, 825 (7th Cir.2007); see also Ryan v. United States of America (In re Ryan), No. 11 A 01793, 2012 WL 4959632, at *2 (Bankr.N.D.Ill. Oct. 17, 2012) (Goldgar, J.) ().
The merits of Brinson's claim have no bearing on whether the United States is immune from the action in which the claim is asserted. Therefore, the motion to dismiss Brinson's Complaint based on the asserted sovereign immunity ground will be denied.
Brinson filed his adversary proceeding to void the liens of the IRS and classify its claims as unsecured claims under 11 U.S.C. § 506(a) and (d), and “strip off the unsecured portion of those liens. He also seeks a declaratory judgment as to the secured status of the IRS' claim. The United States filed a proof of claim in the total amount of $49,850.80, $41,004.86 of which it claimed to have priority status, for Brinson's tax liabilities for the 2006 through 2010 income tax years.
Brinson filed a voluntary Chapter 13 bankruptcy petition on August 30, 2011 (“Petition Date”). He indicated on his schedules the following assets: (1) entitlement to an employer-funded pension; (2) two depository accounts, both with nominal balances; (3) various household goods valued at approximately $2,145; (4) a one-half interest in a 2010 Dodge Caravan, with a fair market value of $24,525 and encumbered by a lien in the amount of $22,717; (5) a 2010 Dodge Ram 1500, with a fair market value of $16,750 and encumbered by a $20,590 lien; and (6) a 2001 Honda Accord, with a fair market value of $2,325 and encumbered by an $800 lien. Brinson states on his Schedule B that the aggregate value of his personal property at the time of filing was $45,747.00. (11 B 35376, Dkt. No. 1) He claims exemptions totaling at least $6,354.
As of the Petition Date, Brinson owed the following tax debts:
+-------------------------------+
¦Tax Year Ending ¦Amount ¦
+-----------------+-------------¦
¦Dec. 31,2006 ¦$12,038.47 ¦
+-----------------+-------------¦
¦Dec. 31,2007 ¦$9,006.09 1 ¦
+-------------------------------+
On July 13, 2011, the IRS recorded a lien with the Cook County Recorder of Deeds for the tax debt owed by Brinson for the 2007 tax year. On July 19, 2011, the IRS also recorded a lien with the Cook County Recorder of Deeds for tax debts owed by Brinson for all of the subject tax years, including 2007, but excluding 2010, for which no tax lien has been filed. Both the 2006 and 2007 tax returns were due...
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