In re Ballard
| Decision Date | 09 May 1991 |
| Docket Number | Bankruptcy No. WU7-90-00826,Adv. No. A90-0140-7. |
| Citation | 131 BR 97 |
| Parties | In re Teddy C. BALLARD, Sr., and Evelyn M. Ballard, Debtors. Teddy C. BALLARD, Sr., and Evelyn M. Ballard, Plaintiffs, v. STATE of Wisconsin, United States of America, Department of Treasury, State of Illinois, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Wisconsin |
Terrence J. Byrne, Byrne Law Office, Wausau, Wis., for plaintiffs.
Mary Bielefeld, Trial Atty., Tax Div., U.S. Department of Justice, Washington, D.C., for the U.S.
This matter comes before the Court on a motion to dismiss filed by the defendant United States of America, Department of Treasury—Internal Revenue Service. The grounds for this motion are lack of jurisdiction and failure to state a claim upon which relief can be granted.
The motion to dismiss pertains to an adversary proceeding filed by the debtors, Teddy C. and Evelyn M. Ballard, against the State of Wisconsin; the United States of America, Department of Treasury—Internal Revenue Service (hereinafter USA-IRS); and the State of Illinois. In the adversary proceeding, the debtors seek to have their 1985 income taxes declared dischargeable and to have an IRS levy of wages totalling $1,283.29 declared void as a preference. The actions against the State of Illinois and the State of Wisconsin were dismissed pursuant to stipulations between the parties dated September 11, 1990, and September 12, 1990, respectively. The remaining defendant, USA-IRS, has admitted that the debtors' 1985 income taxes are dischargeable. The debtors in this action are represented by Terrence J. Byrne, and the defendant by Mary Bielefeld.
Two issues are presented by the defendant's motion. First, whether the defendant USA-IRS has waived its sovereign immunity in this matter so as to be subject to the jurisdiction of this Court. Second, whether the amount seized by the USA-IRS from the debtors pursuant to a wage levy constituted "a transfer by the debtor of an interest in property" for purposes of 11 U.S.C. § 547 so as to present a colorable preference claim to overcome defendant's motion to dismiss for failure to state a claim on which relief can be granted.
The relevant facts are not in dispute and need be only briefly reviewed here. The debtors filed for relief under Chapter 7 of the Bankruptcy Code on March 26, 1990. On or about December 18, 1989, the defendant USA-IRS served a notice of levy on wages pursuant to 26 U.S.C. § 6331 on plaintiff's employer, Marmet Corporation. Within the 90 days prior to the debtors' bankruptcy filing, wages totalling $1,283.29 were levied against and were paid over to the USA-IRS. It is this amount which the debtors allege to be a voidable preference pursuant to 11 U.S.C. § 547.
In support of its motion to dismiss for lack of jurisdiction, the defendant asserts that the United States has not waived its sovereign immunity in this case. The defendant expounds at length in support of this assertion, but when its argument is reduced to the essentials, the USA-IRS principally relies on a recent Supreme Court case, Hoffman v. Conn. Dept. of Income Maintenance, 492 U.S. 96, 109 S.Ct. 2818, 106 L.Ed.2d 76 (1989) and its progeny. The defendant cites Hoffman for the proposition that 11 U.S.C. § 106(c) does not constitute a waiver of sovereign immunity by a state in preference actions, among others. Hoffman dealt in part with an action by a Chapter 7 trustee to recover as a preference an amount paid to the defendant Connecticut Department of Revenue Services for state taxes, interest, and penalties. The Supreme Court affirmed the Second Circuit's denial of the trustee's preference claim by concluding that 11 U.S.C. § 106(c) does not authorize monetary recovery from the states. 109 S.Ct. at 2823. The Court states "Under this construction of 106(c), a State that files no proof of claim would be bound, like other creditors, by discharge of debts in bankruptcy, including unpaid taxes, . . . but would not be subjected to monetary recovery." Id.
The defendant also cites Hoffman in rebuttal of a Seventh Circuit case heavily relied upon by the plaintiff, McVey Trucking, Inc. v. Secretary of the State of Ill. (In re McVey Trucking, Inc.), 812 F.2d 311 (7th Cir.1987), cert. denied, 484 U.S. 895, 108 S.Ct. 227, 98 L.Ed.2d 186 (1987). McVey involved a debtor's preference action to recover money transferred to the Illinois Secretary of State for prospective highway-use and flat-weight taxes. The Bankruptcy Court and the District Court both held that they lacked jurisdiction over the Secretary under the Eleventh Amendment. 812 F.2d at 313. The Seventh Circuit Court of Appeals reversed and remanded after concluding in a lengthy opinion that Congress intended through 11 U.S.C. §§ 106(c) and 547(b) to create a cause of action for money damages enforceable against a state in federal court. Id. at 327. The defendant asserts that the Supreme Court's Hoffman decision effectively overrules this holding of the Seventh Circuit in McVey.
For numerous reasons, this Court finds the defendant's reliance on the Hoffman decision unconvincing when applied to the facts of this case. First, Hoffman is a plurality decision which at most holds that the states cannot be sued pursuant to 11 U.S.C. § 106(c) for money damages. This holding was reached by a five-Justice combination involving two theories, one finding that Congress lacks authority to waive the sovereign immunity of states, and the other holding that the Bankruptcy Code's waiver provision was not intended to waive the sovereign immunity of states. Four Justices dissented, concluding that Congress intended § 106(c) to abrogate the states' Eleventh Amendment immunity against money judgments. Hoffman, 109 S.Ct. at 2824-25 (Marshall J., Brennan J., Blackmun J., and Stevens J., dissenting). Given the fact that Hoffman was decided by a plurality based on two separate theories, therefore, its precedential value is quite limited.
Second, contrary to defendant's assertion in its reply brief, the Hoffman plurality relied heavily on the strictures of the Eleventh Amendment in holding that the states' immunity under that provision is not abrogated by 11 U.S.C. § 106(c). The case before us involves the federal government, not a state, and thus Eleventh Amendment concerns are inapplicable here. The Sixth Circuit Court of Appeals, in an action to avoid a transfer to the IRS, reached this same conclusion as to the precedential value of Hoffman, stating "the case cannot be used to support a claim that Congress has not waived the governmental immunity of the United States, absent the strictures of the Eleventh Amendment." See In re Nordic Village, Inc., 915 F.2d 1049, 1054 (6th Cir.1990), reh'g denied, No. 89-3656, 1990 WL 143021 (6th Cir. Jan. 23, 1991) (LEXIS, Bkrtcy library, Cases file).
Third, dicta in the Hoffman decision supports the fact that it is inapplicable to the federal government. Examining 11 U.S.C. § 106(c), the Supreme Court states that "the language in 106(c) waives the sovereign immunity of the Federal Government so that the Federal Government is bound by determinations of issues by the bankruptcy courts even when it did not appear and subject itself to the jurisdiction of such courts." Hoffman, 109 S.Ct. at 2823. Although dicta, this statement is sufficient to rebut the defendant's assertion that the Hoffman case should be expanded to apply to cases involving the United States as well. See Bryant v. United States (In re Bryant), 116 B.R. 272, 276 (Bankr.D.Kan. 1990); Grant v. United States (In re Simmons), 110 B.R. 72, 73 (Bankr.M.D.Fla. 1990); In re Price, 103 B.R. 989, 994 (Bankr.N.D.Ill.1989), aff'd, 130 B.R. 259 (N.D.Ill.1991). In addition, the legislative history of 11 U.S.C. § 547(b)(2), part of the preference provision at issue in this case, explicitly states that preference actions can be maintained against the government. That legislative history states "As provided, section 106(c) of the House amendment overrules contrary language in the House report with the result that the Government is subject to avoidance of preferential transfers." 124 Cong.Rec. H11097 (daily ed. Sept. 28, 1978) (statement of Rep. Edwards), reprinted in 3 Collier on Bankruptcy at IX-103 (Appendix Vol., 15th ed. 1990); 124 Cong.Rec. S17414 (daily ed. Oct. 6, 1978) (statement of Sen. DeConcini), reprinted in 3 Collier on Bankruptcy at X-29 (Appendix Vol., 15th ed. 1990). See Hoffman, 109 S.Ct. at 2827 n. 6 (Marshall, J., Brennan, J., Blackmun, J., and Stevens, J., dissenting). Justice Kennedy of the Sixth Circuit Court of Appeals, in his dissent in the aforementioned Nordic Village case, notes that "this statement contains the strongest evidence that Congress intended to waive its sovereign immunity to suit." 915 F.2d at 1061. Justice Kennedy minimizes the persuasive effect of this statement, however, by noting that "this statement may only authorize bankruptcy courts to make the avoidance determination, not order recovery from the government." Id. This Court is not persuaded by this reasoning. The question at issue here is a threshold one—whether the federal government has waived its sovereign immunity so as to be subject to the jurisdiction of this Court. In order for this Bankruptcy Court to make an avoidance determination as to an allegedly preferential transfer to the USA-IRS, it must first have jurisdiction over the USA-IRS as to this matter. If this Court has jurisdiction to make an avoidance determination in a case where the federal government is a defendant, then it has jurisdiction to order the recovery of the avoided property as well. The emphasis here is on jurisdiction—the threshold issue currently before this Court. The aforementioned legislative history states clearly and unequivocally that the government is subject to avoidance of preferential transfers. It follows,...
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