In re Rivera Torres

• Decision Date: 16 December 2005
• Docket Number: No. 04-9006.,04-9006.
• Citation: 432 F.3d 20
• Parties: In re Antonio RIVERA TORRES; Sofia Villata Sella, Debtors. United States of America, Creditor, Appellant, v. Antonio Rivera Torres; Sofia Villata Sella, Debtors, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 20

432 F.3d 20

In re Antonio RIVERA TORRES; Sofia Villata Sella, Debtors.

United States of America, Creditor, Appellant, v. Antonio Rivera Torres; Sofia Villata Sella, Debtors, Appellees.

No. 04-9006.

United States Court of Appeals, First Circuit.

Heard April 4, 2005.

Decided December 16, 2005.

Thomas J. Clark, Attorney, Tax Division, with whom Bethany B. Hauser, Attorney, Tax Division, Eileen J. O'Connor, Assistant Attorney General, and Of Counsel, H.S. Garcia, United States Attorney, were on brief, for appellant.

Irving K. Hernandez Valls for appellees.

Before TORRUELLA, LYNCH, and HOWARD, Circuit Judges.

LYNCH, Circuit Judge.

Antonio Rivera Torres and Sofía Villata Sella, debtors, were awarded emotional distress damages by the bankruptcy court against the Internal Revenue Service for the IRS's violation of a discharge injunction. The Bankruptcy Appellate Panel affirmed, but remanded the case to the bankruptcy court for reconsideration of debtors' request for attorneys' fees and litigation costs. The United States appeals only the award of emotional distress damages. We reverse the order awarding emotional distress damages because Congress has not waived the federal government's sovereign immunity for emotional distress damages, and remand for further proceedings consistent with this opinion.

I.

Only a brief summary of the facts is necessary. On September 1, 1992, debtors filed for Chapter 7 bankruptcy. The IRS filed a proof of claim for $21,587.11, consisting of an unsecured general claim of $14,486.62 for self-employment income taxes for 1985 and an unsecured priority claim of $7,100.49 for self-employment income taxes for 1989 through 1992. In January of 1993, debtors received a discharge that freed them from "all dischargeable debts," which included only the IRS's unsecured general claim for the 1985 tax deficiency. The IRS's claim for self-employment taxes for 1989 through 1992 were non-dischargeable.¹ The IRS suspended collection activities on all the debts, including the non-discharged debt.

Debtors filed a tax return for 1995, showing that they were entitled to a refund for approximately $1,200. The IRS retained this refund and applied it to the discharged 1985 debt. According to the IRS, this occurred because of an error by an IRS technician. Since the amount of non-discharged debt exceeded the amount of the refund, an offset was in order. To do so required the inputting of particular codes into the IRS computer system. However, rather than inputting these codes for only the non-discharged debts associated with 1989 through 1992, the IRS technician entered the codes for all debts, including the discharged 1985 debts. The result was that in late 1996, the debtors' 1995 refund was applied to the discharged 1985 debt (since it was the oldest debt) and collection activities were resumed on all debts, including the 1985 debt, despite the discharge order.

The debtors began receiving notices from the IRS in September 1996. They unsuccessfully attempted to resolve the issue with the IRS over the telephone. On March 18, 1997, the debtors filed a motion in the ongoing Chapter 7 bankruptcy proceedings seeking an order that the IRS show cause why it should not be held in contempt for violating the discharge injunction under 11 U.S.C. § 524. In the motion, the debtors sought compensatory damages, emotional distress damages, punitive damages, attorneys' fees, and costs. In April 1997, the IRS ceased collection activities and reversed the application of the refund and the bankruptcy distribution to the 1985 account, and applied it instead to the 1989 account. The remainder of the 1985 debt was cleared in August 1997.

In June of 1998, the IRS filed a motion for summary judgment requesting that the court dismiss with prejudice the debtors' action for contempt. The IRS conceded that its collection activities violated the discharge injunction, but argued that § 524 did not authorize an award of damages. At the summary judgment hearing, however, the IRS agreed that it could be held liable for compensatory damages, but not for emotional distress damages, punitive damages, attorneys' fees, and costs. The bankruptcy court entered partial summary judgment in favor of the debtors, subject to a later hearing on damages. The court found that 11 U.S.C. § 106(a) abrogated sovereign immunity for monetary relief — including emotional distress damages, but not including punitive damages — entered under 11 U.S.C. § 105(a), the provision of the Bankruptcy Code giving the court the power to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." The court concluded that attorneys' fees and litigation costs were unwarranted because the debtors had failed to seek such fees and costs in administrative proceedings before the IRS.

After the evidentiary hearing for damages, during which the debtors testified as to their out-of-pocket costs and the emotional distress they experienced as a result of the IRS's actions, the bankruptcy court awarded Rivera Torres $4,000 for expenses and $5,000 for emotional damages, and awarded Villata Sella another $5,000 in emotional damages.

The IRS appealed only the emotional distress awards to the BAP, and debtors cross-appealed from the ruling that they were not entitled to attorneys' fees. The BAP found that § 105(a) permitted courts to award emotional distress damages. As for the IRS's arguments with respect to sovereign immunity, the BAP deemed them waived because the precise arguments made had not been raised before the bankruptcy court. The BAP also reversed the district court's denial of attorneys' fees and costs, and remanded to the bankruptcy court for further consideration. The IRS has only appealed the BAP's award of emotional distress damages. We reverse and remand for further proceedings consistent with this opinion.

II.

We deal first with the issue of appellate jurisdiction. We have jurisdiction to review "all final decisions, judgments, orders and decrees" of a BAP. 28 U.S.C. § 158(d)(1). We have held that:

[W]hen a district court remands a matter to the bankruptcy court for significant further proceedings, there is no final order for the purposes of § 158(d) and the court of appeals lacks jurisdiction. When a remand leaves only ministerial proceedings, for example, computation of amounts according to established formulae, then the remand may be considered final.

In re Gould & Eberhardt Gear Mach. Corp., 852 F.2d 26, 29 (1st Cir.1988). Here, the BAP remanded in part to the bankruptcy court for determination of attorneys' fees, and thus we must consider whether such a remand prevents the exercise of appellate jurisdiction here. We conclude that it does not.

The Supreme Court has held, in the context of an appeal under 28 U.S.C. § 1291, that a federal district court's decision is final and appealable even if issues regarding attorneys' fees and costs remain to be decided. Budinich v. Becton Dickinson & Co., 486 U.S. 196, 202-03, 108 S.Ct. 1717, 100 L.Ed.2d 178 (1988) ("Courts and litigants are best served by the bright-line rule ... that a decision on the merits is a `final decision' for purposes of § 1291 whether or not there remains for adjudication a request for attorney's fees attributable to the case.").

The fact that here we are operating under § 158(d) rather than § 1291 makes little difference. We have noted that given "[t]he great similarity between an adversary proceeding in bankruptcy and an ordinary civil action," the standards regarding finality in civil actions will track the standards to be applied to judgments in bankruptcy proceedings. Estancias La Ponderosa Dev. Corp. v. Harrington (In re Harrington), 992 F.2d 3, 6 n. 3 (1st Cir.1993). Therefore, we hold that we have appellate jurisdiction over the government's appeal.

III.

We turn now to the issue of sovereign immunity. The question presented is whether there is an explicit waiver of sovereign immunity in 11 U.S.C. § 106, as to allow an award of emotional distress damages against the United States, under the sanctions provisions of 11 U.S.C. § 105, to remedy a violation of 11 U.S.C. § 524, which enjoins actions to recover discharged debts.² The bankruptcy court and the BAP found that the imposition of emotional distress damages against the federal government was not barred by sovereign immunity, relying on the waiver of immunity in § 106. We believe this to be a question of first impression.

The debtors were awarded emotional distress damages by the bankruptcy court pursuant to a finding that the IRS had violated its 11 U.S.C. § 524 obligations not to attempt to collect a discharged debt. While § 524 itself does not specify remedies for its violation, the remedies for violation of § 524 are set forth under 11 U.S.C. § 105(a), which authorizes courts to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." The bankruptcy court reasoned that § 105(a) authorized an award of emotional distress damages for violations of § 524, that the waiver of sovereign immunity effectuated in § 106 extended to all remedies available under § 105(a), and therefore § 106 authorized an award of emotional distress damages against the United States.³

We start with the standards for determining whether Congress has waived the sovereign immunity of the federal government, noting that we review this determination de novo. United States v. Puerto Rico, 287 F.3d 212, 216 (1st Cir.2002); see also In re BankVest Capital Corp., 360 F.3d 291, 295 (1st Cir.2004) ("We review the bankruptcy court's conclusions of law de novo, with the benefit of the BAP's bankruptcy expertise but without deference to its conclusions." (citing Fed. R. Bankr.P. 7052)). The debtors bear the burden of proof to establish a waiver of immunity. See Murphy v. United States, 45 F.3d 520, 522 (1st Cir.1995).

The standard for finding a...