In re Price
| Decision Date | 01 April 1991 |
| Docket Number | No. 89 C 7852.,89 C 7852. |
| Citation | 130 BR 259 |
| Parties | In re Theodore R. PRICE and Ollie P. Price, Debtors. Theodore R. PRICE and Ollie P. Price, Plaintiffs, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Benjamin R. Norris, Trial Atty. Tax Div., U.S. Dept. of Justice, Washington, D.C., for U.S.
Robert E. McKenzie, Kevin D. Sprow, McKenzie & McKenzie, P.C. Chicago, Ill., for Theodore R. Price and Ollie P. Price.
The United States of America (the "government") has appealed from an order of the Bankruptcy Court awarding attorneys' fees and costs for the Internal Revenue Service's willful violation of the automatic stay of attempts to collect upon the pre-petition obligations of the debtors. In re Price, 103 B.R. 989 (Bankr.N.D.Ill.1989). The government contends that the doctrine of sovereign immunity shields it from the imposition of such an award. For the reasons set forth below, the Court concludes that the government has waived its sovereign immunity and affirms the order of the Bankruptcy Court.
The underlying facts are not disputed and are set forth in detail in Judge Squires' opinion. 103 B.R. at 990-91. Briefly, the debtors, Theodore and Ollie Price, filed a voluntary petition pursuant to Chapter 13 of the Bankruptcy Code on January 17, 1989. On February 28, 1989, in the absence of objection, the Bankruptcy Court confirmed the Prices' plan to pay off their debts by making monthly payments to the Chapter 13 trustee over a 36-month period.
The Internal Revenue Service ("IRS") was the Prices' chief creditor. There is no dispute that the IRS was properly notified of the pending bankruptcy proceedings. Indeed, on May 9, 1989, the IRS filed a proof of claim indicating that the Prices owed income taxes totalling $12,732.57 for the years 1986, 1987, and 1988.
Pursuant to sections 362(a)(1) and (6) of the Bankruptcy Code, when a debtor files a petition in bankruptcy, his creditors are barred from attempting to collect upon debts which arose prior to the bankruptcy. However, on or about April 17, 1989, the Prices received from the IRS a Notice of Intention to Levy (the "Notice"), which claimed unpaid income taxes in the amount of $3,188.65 for 1988 and informed the Prices that if they failed to make payment within 10 days, the IRS would proceed to levy their available assets.
Shortly after they received the Notice, and after repeated but unsuccessful attempts to resolve the matter with the IRS, the Prices filed a petition for rule to show cause why the IRS should not be held in civil contempt for violation of the automatic stay pursuant to Federal Rule of Bankruptcy Procedure 9020 and 11 U.S.C. § 362. Judge Squires heard the motion on May 3, 1989, and indicated at that time that he would consider the motion as one for relief under 11 U.S.C. § 362(h) rather than one for a finding of contempt.1 Section 362(h) provides:
An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys\' fees, and, in appropriate circumstances, may recover punitive damages.
In response to the Prices' motion, the IRS conceded that the Notice constituted a technical violation of the automatic stay and explained that the Notice had been generated and sent to the Prices in error. The IRS' principal defense to the Prices' motion for sanctions was that sovereign immunity bars the imposition of a monetary award against the United States under § 362(h).
On August 23, 1989, having reviewed the briefing and having held an evidentiary hearing, Judge Squires granted the Prices' motion and awarded them the attorneys' fees and costs they had reasonably incurred in seeking relief from the Notice. 103 B.R. at 996. He concluded that such an award was called for pursuant to § 362(h) because (1) the IRS had violated the automatic stay and (2) the violation was willful given that the IRS had received actual notice that the bankruptcy proceedings were pending. See id. at 992-93. He rejected the defense of sovereign immunity, concluding that §§ 106(a) and (c) of the Bankruptcy Code reflect a waiver of that immunity by the United States. Id. at 993-95. In so holding, Judge Squires distinguished Hoffman v. Connecticut Department of Income Maintenance, 492 U.S. 96, 109 S.Ct. 2818, 106 L.Ed.2d 76 (1989), in which a divided Supreme Court held that § 106 did not operate to waive the sovereign immunity of the States from monetary liability.
The government has appealed from Judge Squires' ruling, contending that he erred in finding that the United States has waived its sovereign immunity from monetary relief under § 326(h).2
There is no dispute that the government's waiver of sovereign immunity was a jurisdictional prerequisite to the Bankruptcy Court's order. See generally United States v. Mitchell, 463 U.S. 206, 212, 103 S.Ct. 2961, 2965, 77 L.Ed.2d 580 (1983). There is also no dispute that § 106 of the Bankruptcy Code represents the only potential source of such a waiver in this case. Section 106 provides:
11 U.S.C. § 106. The Bankruptcy Court found that subsections (a) and (c) reflected a waiver of the government's immunity which permitted an award of monetary relief pursuant to § 362(h). 103 B.R. at 993-95. On appeal, the government contends that none of the three subsections of § 106 incorporate a waiver of the government's immunity adequate to sustain the Bankruptcy Court's order, while the Prices contend that any of the three subsections suffices to establish a waiver of the government's sovereign immunity. For the reasons set forth below, the Court concludes that all three subsections of § 106 reflect a waiver of sovereign immunity sufficient to permit the award of damages against the government in this case.
There are two specific inquiries posed by the government's defense of sovereign immunity under § 106(c): First, whether § 106(c) effectuates a waiver of the government's sovereign immunity as to monetary awards, and second (assuming that the answer to the first inquiry is yes), whether the statutory provision under which the Bankruptcy Court awarded the Prices their fees and costs contains one of the "trigger words" set forth in § 106(c)(1) — "creditor," "entity," or "governmental unit" — required in order to permit the imposition of monetary damages against the government in this case. Because the parties' positions as to these inquiries rest upon their interpretations of the Supreme Court's recent opinion in Hoffman, that decision supplies the starting point for this Court's analysis.
In Hoffman, the question before the Supreme Court was "whether § 106(c) of the Bankruptcy Code, 11 U.S.C. § 106(c), authorizes a bankruptcy court to issue a money judgment against a State that has not filed a proof of claim in the bankruptcy proceeding." 109 S.Ct. at 2821. The result was a four-one-four decision which has proved to be fertile ground for disagreement among the courts which have considered Hoffman's application to waiver of the United States' sovereign immunity. Not surprisingly, both the Prices as well as the government maintain that Hoffman supports their respective positions in this case.
The four-member plurality opinion in Hoffman, authored by Justice White and joined in by Chief Justice Rehnquist and Justices O'Connor and Kennedy, concluded that § 106(c) did not effect a waiver of the States' immunity from suit under the Eleventh Amendment. 109 S.Ct. at 2824. Starting from the premise that Congress must make its intention to waive the States' Eleventh Amendment "unmistakably clear," the plurality concluded that the terms of § 106(c) were devoid of an express authorization for monetary recovery from the States and appeared to authorize only declaratory and injunctive relief. It was not enough, the plurality stated, that the provisions which a bankruptcy court might employ to award monetary relief against a State contained one of the "trigger words" set forth in § 106(c)(1). Id. at 2823. In the plurality's view, § 106(c)(1) must be read together with § 106(c)(2), which indicates that governmental entities may be bound by a bankruptcy court's "determination." Id. The plurality reasoned that the term "determination" as used in the Bankruptcy Code does not necessarily envision monetary relief, whereas the term "claim" — a term used in §§ 106(a) and 106(b), but not § 106(c) — envisions a right to payment. Id. Thus, "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. at 2823 (citations omitted). Id. The plurality went on to remark:
Moreover, the construction we give to § 106(c) does not render irrelevant the language of the section that it applies "notwithstanding any assertion of sovereign immunity." The section applies to the Federal Government as well, see 11 U.S.C. § 101(26) (), and the language in § 106(c)...
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