In re Davis, Bankruptcy No. 81-60100-THOM

• Decision Date: 02 June 1982
• Docket Number: Adv. No. 82-6005-THOM.,Bankruptcy No. 81-60100-THOM
• Citation: 20 BR 519
• Parties: In re David Larry DAVIS, Debtor. Charles A. GOWER, Trustee, Plaintiff, v. FARMERS HOME ADMINISTRATION, an Agency of the United States of America, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Georgia

20 B.R. 519 (1982)

In re David Larry DAVIS, Debtor Charles A. GOWER, Trustee, Plaintiff, v. FARMERS HOME ADMINISTRATION, an Agency of the United States of America, Defendant.

Bankruptcy No. 81-60100-THOM, Adv. No. 82-6005-THOM.

United States Bankruptcy Court, M.D. Georgia.

June 2, 1982.

Charles A. Gower, Columbus, Ga., T. Jefferson Loftiss, II, Associate Atty., Thomasville, Ga., J. Patrick Ward, Associate Atty., Cairo, Ga., for plaintiff.

J. Christopher Kohn, Stephanie Wickouski, Attys., Civ. Div., Commercial Litigation Branch, U.S. Dept. of Justice, Washington, D.C., for defendant.

OPINION TO ACCOMPANY ORDER DENYING MOTION TO DISMISS

ALGIE M. MOSELEY, Jr., Bankruptcy Judge.

The question for decision is whether this adversary proceeding should be dismissed because barred by the doctrine of sovereign immunity. Herein, the question is answered in the negative. The issue arises by reason of Defendant's motion to dismiss.

In this Chapter 7 case Plaintiff filed a complaint seeking, among other things, to avoid certain alleged transfers and preferences. Plaintiff also alleged a partnership relationship between Debtor and Defendant and that Debtor assumed a fiduciary relationship toward Debtor and Debtor's creditors, and this fiduciary relationship was breached. Defendant filed a motion to dismiss asserting that ". . . the relief sought is barred by the doctrine of sovereign immunity." Defendant contends that it has not filed a proof of claim, and, therefore, pursuant to 11 U.S.C. § 106, has not waived its sovereign immunity. Defendant presents the question for decision as "Whether the United States has waived its sovereign immunity in a bankruptcy proceeding where it has not filed a proof of claim?" No issue is made by Plaintiff that Defendant is not a governmental unit of the United States to which the doctrine of sovereign immunity is available in a non-bankruptcy case. Plaintiff does contend that Congress has waived the Defendant's sovereign immunity in 11 U.S.C. § 106.

Defendant contends that under subsections (a), (b), and (c) of 11 U.S.C. § 106, "the filing of a proof of claim is a prerequisite for relief against the government." This contention is without support and is rejected.

11 U.S.C. § 106 is as follows:

"(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 subsections (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."

PART I PLAIN LANGUAGE INTERPRETATION

As stated in Consumer Product Safety Commission, et al. v. GTE Sylvania, Inc., et al., 447 U.S. 102, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980):

"We begin with the familiar canon of statutory construction that the starting point for interpreting a statute is the language of the statute itself. Absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive."

The Fifth Circuit has said in State of Alabama v. Marshall, 626 F.2d 366, 368-369 (1980):

"Although both sides of this case point to evidence of Congressional intent favoring their positions, the law is well settled that a statute must be interpreted according to its plain language unless a clear contrary legislative intention is shown. See NLRB v. Catholic Bishop 440 U.S. 490, 99 S.Ct. 1313, 59 L.Ed.2d 533, supra; U.S. v. Apfelbaum, 445 U.S. 115, 100 S.Ct. 948, 63 L.Ed.2d 250 (1980). Regarding § 3309(b)(1)(A), we can find no clear Congressional intention to desire a result contrary to its plain language."

The plain language of § 106 says nothing about the necessity of a governmental unit filing a proof of claim before there is a waiver of sovereign immunity nor does the definition of "claim" or "governmental unit," § 101(4) and § 101(21) respectively, say anything about the necessity of a governmental unit filing a proof of claim before there is a waiver of sovereign immunity.

The plain language of 11 U.S.C. § 106(a) as applied to this adversary proceeding is that Congress deemed the sovereign immunity of a governmental unit to have been waived when (1) the estate has a claim against a governmental unit and the governmental unit has a claim against the estate; and (2) the claim against the governmental unit must be property of the estate; and (3) the claims of each must arise out of the same transaction or occurrence. If any one of these three is missing, Congress did not deem sovereign immunity to have been waived under 11 U.S.C. § 106(a). There is nothing in this section to support Defendant's contention that "the filing of a proof of claim is a prerequisite for relief against the government."

To inject into 11 U.S.C. § 106(a) a phrase such as "A governmental unit that files a proof of claim under section 501 of this title" would change the plain language of the statute. To so inject would be doing exactly what Congress rejected. The original version of 11 U.S.C. § 106 contained such words. The text of H.R. 8200, 95th Cong., 1st Sess., 324 (1977) and S. 2266, 95th Cong., 2nd Sess., 313 (1978) each show 11 U.S.C. § 106 to read 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." (Underscoring added).

As finally adopted on November 6, 1978, sections (a) and (b) remained exactly the same except the underscored portion was eliminated from section (a) and (b), and section (c) was added. What Congress rejected should not be injected.

As in 11 U.S.C. § 106(a) the phrase in § 106(b), "for which governmental unit filed a proof of claim or interest under § 501 of this title," was not included in the section as finally adopted. The plain language of 106(b) is that any claim which is property of the estate shall be offset against the allowed claim of a governmental unit, and Congress, as to the offset, waived any defense of sovereign immunity that otherwise might be available to the governmental unit.

"Any claim" in § 106(b) is far broader than in 106(a), because in 106(b) the claim to be offset need not arise "out of the same transaction or occurrence."

"Allowed claim" in 106(b) raises one or more questions. Is there a distinction between "allowed claim" used in 106(b) and a "deemed allowed" claim in 11 U.S.C. § 502? If, as shown above "for which such governmental unit filed a proof of claim or interest under § 501 of this title" was eliminated from 106(b) as finally adopted, it would appear that the filing of a proof of claim is unnecessary to effect a waiver of sovereign immunity as to offsets. (It is not necessary now to decide if the filing of a proof of claim must be by the governmental unit or if it can be done by another under one or more of the provisions of 11 U.S.C. § 501). But, the use of the words "allowed claim" implies that under 11 U.S.C. § 502, a proof of claim must be filed before it can be "deemed allowed." If "deemed allowed" in § 502 and "allowed" in 106(b) mean the same thing, then a proof of claim must be filed before the offset in 106(b) is available. "Deemed allowed" in § 502 and "allowed" in § 106(b) are herein construed to mean the same thing. If they are synonymous and this Court is in error as to conclusions reached in Part II hereof, then the motion to dismiss, insofar as 106(b) is concerned, should be granted as no proof of claim has been filed by anyone.

As to 106(c), it should be noted that this subsection did not appear in any proposed legislation but appears for the first time in the section as finally adopted. What is excepted by the opening phrase "Except as provided in subsections (a) and (b) of this section"? Applying again the plain language test, it is mandatory in 106(c), before there is a waiver of sovereign immunity, that (1) the proceeding be brought under a provision of Title 11 and (2) that the provision of Title 11 contain the word "creditor" or the word "entity" or the word "governmental unit." But, there is excepted from these two mandatory requirements any proceeding that is available under 106(a) or 106(b). Stated another way, 106(c) means that if the proceeding is brought under 106(a) or 106(b), the two mandatory requirements in 106(c) are inapplicable. Stated still another way, 106(c) means that notwithstanding any assertion of sovereign immunity by a governmental unit, the sovereign immunity of a governmental unit is waived if a proceeding is commenced under a provision of Title 11 that contains "creditor" or "entity" or "governmental unit" except that these restrictions are inapplicable if the proceeding is brought under 106(a) or 106(b).

In summary, by the plain language of 11 U.S.C. § 106 Congress waived the sovereign immunity of a governmental unit where the circumstances fall within any of the three subsections and only in 106(b) if there can be no allowed claim without a filing of a proof of claim, there is no requirement that there be filed a proof of claim before sovereign...