In re Burke

• Decision Date: 06 September 1996
• Docket Number: Bankruptcy No. 92-11482. Adversary No. 95-01050A.
• Citation: 200 BR 282
• Parties: In re Gary BURKE, Pamela B. Burke, Debtors. Gary BURKE, Pamela B. Burke, Plaintiffs, v. STATE OF GEORGIA, Acting Through Its Agency, The DEPARTMENT OF REVENUE, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Georgia

200 B.R. 282 (1996)

In re Gary BURKE, Pamela B. Burke, Debtors Gary BURKE, Pamela B. Burke, Plaintiffs, v. STATE OF GEORGIA, Acting Through Its Agency, The DEPARTMENT OF REVENUE, Defendant.

Bankruptcy No. 92-11482. Adversary No. 95-01050A.

United States Bankruptcy Court, S.D. Georgia, Augusta Division.

September 6, 1996.

Angela Carter McElroy, McElroy & Toole, Augusta, GA, for Plaintiffs.

Shereen M. Walls, Assistant Attorney General, Atlanta, GA, for Defendant.

ORDER

JOHN S. DALIS, Bankruptcy Judge.

Gary and Pamela Burke (hereinafter "Debtors") filed this action against the State of Georgia acting through its agency the Department of Revenue (hereinafter "Georgia") alleging a violation of the discharge injunction of 11 U.S.C. § 524(a).¹ Georgia moved to dismiss the complaint asserting sovereign immunity and that it committed no willful violation of the discharge injunction as a matter of law. The motion is denied.

Georgia moves to dismiss this complaint under Federal Rule of Civil Procedure (FRCP) 41, made applicable to bankruptcy cases under Federal Rule of Bankruptcy Procedure (FRBP) 7041. FRCP 41 does not apply here. The motion seeks dismissal based on a lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. FRCP 12(b)(1) & (6) made applicable to bankruptcy cases under FRBP 7012. As Georgia requests that I consider the affidavits of Janice M. Coffman and Reginald Awtrey, matters outside the pleadings, I will dispose of the motion as one for summary judgment under FRCP 56, applicable to bankruptcy cases under FRBP 7056. See, FRCP 12(b).

Under FRCP 56, this Court will grant summary judgment only if ". . . there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FRCP 56(c). The moving party has the burden of establishing its right of summary judgment. See, Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir.1991). The evidence must be viewed in a light most favorable to the party opposing the motion. See, Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). The Court has jurisdiction to hear this matter as a core bankruptcy proceeding under 28 U.S.C. § 157(b)(2)(A), (B) & (O).

The Debtors filed a Chapter 13 case on August 14, 1992. On December 1, 1992, Georgia filed a proof of claim for state income taxes, including a secured claim of $856.21 for the tax year 1990, an unsecured priority claim of $12,437.40 for taxes and interest for the tax years 1980 through 1984, and a general unsecured claim of $1,810.50 for tax penalties incurred from 1980 through 1984. The Debtors objected to the priority status asserted in the $12,437.40 claim. By Order dated May 18, 1993 following a contested hearing, I sustained the objection and allowed the $12,437.46 claim as general unsecured. The Debtors converted their case to Chapter 7 on July 20, 1993, and received a discharge on February 1, 1994. Neither Georgia nor the Debtors filed an action to determine the dischargeability of these taxes under 11 U.S.C. § 523² prior to the case closing on February 9, 1994.

On May 3, 1994, Georgia sent a letter to the Debtors demanding payment of the 1990 taxes and the taxes for the years 1980-1984. On January 27, 1995, the Debtors moved to reopen their Chapter 7 case. Thereafter, the Debtors instituted this action against Georgia alleging that the demand letter violated the § 524(a) discharge injunction. Georgia filed a motion for summary judgment, alleging that the taxes were not discharged, and that it therefore did not violate the injunction. On August 9, 1995, I entered an order finding that the 1990 taxes were not discharged, but that the 1980-1984 taxes including accrued interest and penalties were discharged by the discharge order of February 1, 1994.

I. ALTHOUGH THE ELEVENTH AMENDMENT ESTABLISHES STATE IMMUNITY FROM SUIT IN FEDERAL COURT BY AN INDIVIDUAL, THE STATE OF GEORGIA, ACTING THROUGH ITS AGENCY THE DEPARTMENT OF REVENUE, HAS WAIVED THAT IMMUNITY IN THIS CASE.

The Eleventh Amendment to the United States Constitution immunizes a State from suit in the federal courts by a non-resident of that State³. Despite this narrow language, the Supreme Court has consistently interpreted the Eleventh Amendment to immunize States from suits by any individual, whether a resident of that State or of another State. Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed. 842 (1890). This immunity restricts Congress from creating rights of action against States in federal court under Congress' Article I powers unless the State consents to suit. Seminole Tribe v. Florida, ___ U.S. ___, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996) (Congress cannot abrogate a State's immunity from suit by creating a right of action against the State under the Indian Commerce Clause.) But see, Fitzpatrick v. Bitzer, 427 U.S. 445, 96 S.Ct. 2666, 49 L.Ed.2d 614 (1976) (The Fourteenth Amendment expressly authorizes Congress to enforce the provisions of that Article through legislation. Therefore, Congress may abrogate a State's Eleventh Amendment immunity under this authority.)

The Supreme Court established a two prong test to determine whether Congress may abrogate a State's immunity: ". . . first, whether Congress has unequivocally expressed its intent to abrogate the immunity, and second, whether Congress has acted pursuant to a valid exercise of power." (citations omitted) Seminole Tribe at ___, 116 S.Ct. at 1123. In Seminole Tribe the Court acknowledged that Congress had unequivocally acted to abrogate State immunity from suit under the Indian Gaming Regulatory Act, 25 U.S.C. § 2701 et seq., but ruled that the Indian Commerce Clause of the Constitution (U.S. Const., Art. I, § 8, cl. 3⁴) did not authorize Congress to abrogate this immunity. In determining that the Indian Commerce Clause did not authorize Congress to subject a State to suit in federal court by an individual, the Court reversed the line of cases holding that the Commerce Clause authorizes Congress to act so. See e.g., Pennsylvania v. Union Gas Co., 491 U.S. 1, 109 S.Ct. 2273, 105 L.Ed.2d 1 (1989).

Bankruptcy Code, title 11 section 106⁵ unequivocally expresses Congressional intent to abrogate the States' sovereign immunity by subjecting them to damage awards for violations of the discharge injunction of § 524. See, In re Merchants Grain, Inc., 59 F.3d 630 (7th Cir.1995) vacated and remanded ___ U.S. ___, 116 S.Ct. 1411, 134 L.Ed.2d 537 (1996) (Congress' 1994 revision of § 106 unequivocally evidenced its intent to abrogate the States' immunity from suit). The question is whether Congress has authority to abrogate this immunity under the Bankruptcy Clause of the United States Constitution (U.S. Const. Art. I, § 8, Cl. 4⁶). Answered yes by the Seventh Circuit in Merchants Grain, but remanded by the Supreme Court for reconsideration in light of Seminole Tribe. ___ U.S. at ___, 116 S.Ct. at 1411.

Because Seminole Tribe determined that the Commerce Clause does not grant Congress the authority to abrogate the States' Eleventh Amendment immunity, it logically follows that the Bankruptcy Clause also lacks such authorization. The Bankruptcy Clause, like the Commerce Clause, lacks language granting Congress authority to enforce the bankruptcy provisions against the States through private rights of action for damages. Both the majority opinion and the dissent in Seminole Tribe intimated that the holding invalidated Congress' efforts under the Bankruptcy Code to abrogate this immunity. ___ U.S. at ___, n. 16, 116 S.Ct. at 1131, n. 16; Id. at ___, 116 S.Ct. at 1134 (Stevens' dissent). Whether Congress acted beyond its constitutional power by applying § 106 of the Bankruptcy Code to the States must be decided before a tribunal exercising the judicial power of the United States under Article III of the Constitution, not here. Northern Pipe Line Constr., Co. v. Marathon Pipeline Co., 458 U.S. 50, 58-59, 102 S.Ct. 2858, 2865, 73 L.Ed.2d 598 (1982). However, resolution of this issue is not now required because Georgia has waived its Eleventh Amendment immunity.

Notwithstanding a Congressional inability to abrogate a State's immunity from suit, the State may waive that immunity and subject itself to suit in federal court. Georgia asserts that, under its constitution, only the Georgia legislature may waive its sovereign immunity, and that waiver is limited to the extent provided in the Georgia Constitution. Ga. Const.1983, Art. I, Sec. II, Para. IX(e)⁷. Notably, paragraph (f) provides that the Georgia Constitution's limited waiver of sovereign immunity does not include the State's Eleventh Amendment immunity. Therefore, Georgia has not by its constitution or legislative enactment waived its immunity from suit in federal court for violations of the bankruptcy discharge injunction. See, Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 241, 105 S.Ct. 3142, 3146, 87 L.Ed.2d 171 (1985) reh'g denied, 473 U.S. 926, 106 S.Ct. 18, 87 L.Ed.2d 696 (1985) (a State does not waive its Eleventh Amendment immunity from suit in federal court by waiving its immunity from suit in state court).

Although Georgia has not legislatively waived its Eleventh Amendment immunity, the weight of authority establishes that it can, and here has, waived this immunity by filing a proof of claim against the Debtor's estate. See, University Medical Ctr. v. Sullivan (In re University Medical Ctr.), 973 F.2d 1065, 1086 (3d Cir.1992); 995 Fifth Ave. Assoc. v. New York State Dept. of Tax. and Fin. (In re 995 Fifth Ave. Assoc.), 963 F.2d 503 (2d Cir.1992), cert. denied, 506 U.S. 947, 113 S.Ct. 395, 121 L.Ed.2d 302 (1992); Sullivan v. Town & Country Home Nursing Svc., Inc. (In re Town & Country Home Nursing Svc., Inc.), 963 F.2d 1146, 1150 (9th Cir. 1992); WJM, Inc. v. Mass. Dept. of Public Welfare, 840 F.2d 996 (1st Cir.1988). The Supreme Court has not directly addressed whether a State...