In re Germaine
| Decision Date | 31 March 1993 |
| Docket Number | Bankruptcy No. 86-01880.,BAP No. WW-91-2177-RJM |
| Parties | In re Mary GERMAINE, Debtor. UNITED STATES of America, INTERNAL REVENUE SERVICE, Appellant, v. Mary GERMAINE, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Berry A. Heatley, Washington, DC, for appellant, U.S.
John S. Woodburne, Bellevue, WA, for appellee, Mary Germaine.
Before RUSSELL, JONES and MEYERS, Bankruptcy Judges.
The United States appeals a bankruptcy court order holding the IRS liable for $2,000 in attorney's fees incurred by the debtor in defending attempts to collect taxes in violation of a discharge order. We AFFIRM.
Mary Germaine ("Germaine") filed a Chapter 131 petition. Her plan was confirmed on May 12, 1986. The Internal Revenue Service ("IRS") filed a claim in that case for $3,588.50 which was paid in full. Germaine's Chapter 13 case was completed and closed on March 6, 1990. Germaine subsequently received a notice from the IRS dated May 14, 1990, indicating that her 1989 tax refund was being applied to taxes allegedly owed for the period ending December 31, 1984. Germaine brought a motion to reopen her case and to accord her relief. This motion culminated in a stipulation with the IRS stating that the tax liability for 1984 had been discharged, and in an order directing the IRS to return her refund.
In January 1991, the debtor received a "Notice of Intent to Levy" from the IRS indicating its intent to recover $2,437.81 in taxes allegedly owed for the tax period ending December 31, 1981. The debtor again found it necessary to file a motion seeking further assistance of the bankruptcy court.
The bankruptcy court found that the IRS Notice of Intent to Levy for the 1981 taxes was a second violation of the § 524 discharge and ordered the IRS to pay $600 in compensatory damages. That order was subsequently reversed by this Panel in an unpublished memorandum decision dated April 23, 1992 (WW-91-1596-RPAs) on the basis that sovereign immunity under § 106(a) had not been waived, effectively barring monetary recovery against the IRS.
On June 3, 1991, the same day that the bankruptcy court issued the order imposing sanctions for violating Germaine's discharge order, the IRS issued yet another Notice of Intent to Levy to Germaine for the payment of 1981 FUTA taxes which were the subject of the January 1991 notice. When she arrived home, Germaine found a message on her telephone answering machine indicating that the IRS had called and wanted to audit her taxes from 1981 through 1986 as it was believed that she "owed the Internal Revenue Service a lot of money."
Nine days later, on June 12, 1991 Germaine received a letter from the IRS stating that her 1990 tax refund had been applied in payment of the 1981 FUTA taxes which had been declared discharged in the June 3, 1991 order.
By a motion dated June 26, 1991, Germaine sought an order from the bankruptcy court directing the IRS to: (1) abate permanently the assessment of 1981 FUTA taxes; (2) refrain from auditing Germaine's tax returns for years prior to 1987; (3) refund Germaine's $634.00 overpayment of 1990 taxes; (4) pay attorney's fees incurred in bringing the motion; and (5) pay punitive damages payable to the debtor for repeated violations of her discharge. The IRS opposed this motion on the grounds that the United States had not waived its sovereign immunity with respect to an award of attorney's fees or punitive damages.
The bankruptcy court granted the requested relief, except for punitive damages, and issued an order granting the permanent abatement, the refund of applied tax overpayment and ordered that all pre-petition taxes were either paid in full or discharged. The court further awarded Germaine $2,000 under § 106(a) and under tax code provision 26 U.S.C. § 7430. The IRS appeals the award of attorney's fees. We affirm.
1. Whether the doctrine of sovereign immunity under § 106(a) bars monetary recovery against the United States for violation of the § 524(a) discharge injunction.
2. Whether the bankruptcy court may award attorney's fees against the IRS under 26 U.S.C. § 7430.
Since the facts are not in dispute, this appeal involves interpretation of statutory provisions and legal conclusions under de novo review. In re Klein, 57 B.R. 818, 819 (9th Cir. BAP 1985); In re Town & Country Home Nursing Services, Inc., 112 B.R. 329, 332 (9th Cir. BAP 1990), aff'd, 963 F.2d 1146 (9th Cir.1992).
This appeal also involves the award of attorney's fees under 26 U.S.C. § 7430. Bankruptcy court determinations regarding attorney's fees will not be disturbed on appeal absent an abuse of discretion or erroneous application of the law. In re Riverside-Linden Inv. Co., 945 F.2d 320, 322 (9th Cir.1991); In re Nucorp Energy, Inc., 764 F.2d 655, 657 (9th Cir.1985). "Awards or denial of awards of attorneys' fees under Section 7430 are reviewed under an abuse of discretion standard." Zinniel v. C.I.R., 883 F.2d 1350, 1354 (7th Cir.1989). See e.g., Pierce v. Underwood, 487 U.S. 552, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988).
The IRS has, yet again, violated Germaine's discharge order by issuing another Notice of Intent to Levy. In the previous appeal by the parties before this Panel, we decided that the debtor's claim for sanctions against the IRS did not fall within the scope of section 106(a). Although the issue before us now involves an award of attorney's fees and not monetary sanctions, the same reasoning applies.
We are not, however, without sympathy for Germaine's plight and are also disturbed by the actions of the IRS. Nonetheless, we are bound to follow the law as it currently stands. Here, the IRS has admitted to repeated violations of the debtor's permanent injunction under § 524, forcing the debtor to resort to the bankruptcy court to find relief. Clearly, had these same acts been committed by any non-governmental entity, outright sanctions—not just attorney's fees—would be more than warranted. Even after acknowledging the violations, the IRS again refuses to compensate the debtor for the costs incurred to rectify the problems caused by the repeated violations of Germaine's discharge. Instead, the IRS asserts that its actions are insulated by the doctrine of sovereign immunity. Although immunity is not waived by § 106(c), and the facts do not support a waiver under the narrow wording of § 106(a), we hold that a bankruptcy court has the power to award attorney's fees under 26 U.S.C. § 7430.
The discharge under Bankruptcy Code § 524(a) operates as a permanent injunction against actions to recover debts subject to the discharge2. The IRS does not challenge the finding that the acts complained of violated this injunction; it appeals the $2,000 award of attorney's fees on the basis that it is immune from monetary recovery.
The doctrine of sovereign immunity protects governmental units from suits brought by the debtor in a bankruptcy case. Hoffman v. Conn. Dept. of Income Maintenance, 492 U.S. 96, 109 S.Ct. 2818, 106 L.Ed.2d 76 (1989). Its basis derives from the concept that the king could do no wrong3.
Sovereign immunity, however, may be waived provided the waiver is clear and explicit and not merely inferred. Hoffman, at 2822. A waiver of sovereign immunity must be unequivocally expressed, must be construed strictly in favor of the sovereign, and must not be enlarged beyond what the language requires. Nordic Village, ___ U.S. at ___ _ ___, 112 S.Ct. at 1014-15.
The Supreme Court, in Nordic Village, held that subsections (a) and (b) of § 106 meet the unequivocal expression requirement; however, subsection (c) does not. Nordic Village, ___ U.S. at ___ - ___, 112 S.Ct. at 1014-15.
The bankruptcy court determined, and the debtor contends, that the IRS' sovereign immunity is waived by section 106(a), which reads as follows:
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.
Although § 106(a) can effectively waive sovereign immunity, it is not properly invoked on the facts before us. Essentially, § 106(a) has three requirements: the government must have filed a claim against the estate; the claim against the government must arise from the same transaction or occurrence as the government's claim; the claim against the government must be property of the estate. In re Graham, 981 F.2d 1135, 1141 (10th Cir. 1992).
Applying basically the same reasoning as in the previous appeal by the parties before this Panel, the debtor's claim for attorney's fees does not fall within the scope of section 106(a): The IRS has not asserted a claim against the bankruptcy estate that arises from the same transaction or occurrence as the debtor's claim against the IRS; and the claim for fees against the IRS belongs to the debtor, not to the estate.
With respect to the IRS' claim, § 106(a) requires the assertion of a claim against the estate, not merely the assertion of a claim against the debtor. While we indicated in Town & Country Home Nursing Services, 112 B.R. 329, 333-334 (9th Cir. BAP 1990), aff'd, 963 F.2d 1146 (9th Cir.1992) that a government entity need not file a formal proof of claim against the estate to waive its sovereign immunity under section 106(a), reliance upon the mere existence of a claim against the debtor, rather than against the estate, reads our holding and the statutory language too broadly. Town & Country involved the assertion and enforcement of a claim against the estate through a series of set-offs involving estate property. In holding that the government's actions in enforcing payment were the...
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...that are no longer part of the estate, the purposes underlying section 106(a)31 are not implicated." United States v. Germaine (In re Germaine) , 152 B.R. 619, 624 (B.A.P. 9th Cir. 1993). Accordingly, to recover attorneys' fees from the Government for a discharge injunction violation, Cathe......
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