In re Shafer

• Decision Date: 21 September 1992
• Docket Number: 89-4196,No. 89-4197,89-4195 and 89-4200.,89-4197
• Citation: 146 BR 477
• Parties: In re Ray SHAFER and Sandra Shafer, Debtors. In re Robert SCHNEIDER and Gipsy Schneider, Debtors. In re Darrell WEEKLEY and Karen Weekley, Debtors. In re Clifford SANDERS and Marilyn Sanders, Debtors.
• Court: U.S. District Court — District of Kansas

146 B.R. 477 (1992)

In re Ray SHAFER and Sandra Shafer, Debtors In re Robert SCHNEIDER and Gipsy Schneider, Debtors In re Darrell WEEKLEY and Karen Weekley, Debtors In re Clifford SANDERS and Marilyn Sanders, Debtors.

Nos. 89-4197, 89-4196, 89-4195 and 89-4200.

United States District Court, D. Kansas.

September 21, 1992.

D. Brad Bailey, Office of U.S. Atty., Topeka, Kan., Martin M. Shoemaker, Office of Special Litigation Tax Div., U.S. Dept. of Justice, Virginia Cronan Lowe, U.S. Dept. of Justice Tax Div., Washington, D.C., for Ray (NMI) Shafer.

Frankie D. Taff, Charles R. Hay, Goodell, Stratton, Edmonds & Palmer, Lloyd C. Swartz, D. Brad Bailey, Office of U.S. Atty., Topeka, Kan., Martin M. Shoemaker, Office of Special Litigation Tax Div., U.S. Dept. of Justice, Virginia Cronan Lowe, U.S. Dept. of Justice Tax Div., Washington, D.C., Joseph I. Wittman, Topeka, Kan., for Robert Schneider and Clifford Sanders.

Frankie D. Taff, Lloyd C. Swartz, D. Brad Bailey, Office of U.S. Atty., Topeka, Kan., Martin M. Shoemaker, Office of Special Litigation Tax Div., U.S. Dept. of Justice, Virginia Cronan Lowe, U.S. Dept. of Justice, Tax Div., Washington, D.C., for Darrell Weekley.

MEMORANDUM AND ORDER

CROW, District Judge.

These consolidated bankruptcy appeals present two issues of law: (1) Do bankruptcy courts have civil contempt power? and (2) Has the United States, by the terms of 11 U.S.C. § 106(c), waived its sovereign immunity from monetary relief? Issues of law are reviewed de novo on appeal. In re Branding Iron Motel, 798 F.2d 396, 400 (10th Cir.1986).

These cases involve common and undisputed facts. The debtors received discharges under Chapter 13 or Chapter 7 of the Bankruptcy Code. Thereafter, the United States acting through the Internal Revenue Service or the Department of Housing and Urban Development issued demand notices and, in some instances, even offset refunds in an effort to collect on debts that had been discharged. Through repeated communications, the debtors and their counsel convinced the United States of the errors, and the notices were abated and the offsets corrected. The United States explained to the bankruptcy court that the challenged actions were inadvertent computer errors.

The debtors filed motions to have the United States found in civil contempt for violating the discharge orders and permanent injunctions. The bankruptcy court sustained the motions, awarded attorneys' fees and actual damages, and imposed $250 sanctions against the United States in each case.

Since the briefs were filed in this dated appeal, both issues have been the subject of controlling precedent for this court.¹ The Tenth Circuit has held that the bankruptcy courts have civil contempt powers as a result of 11 U.S.C. § 106 and 28 U.S.C. § 157 and that this delegation of power does not offend the Constitution. In re Skinner, 917 F.2d 444, 447-50 (10th Cir.1990). In short, the Tenth Circuit decidedly rejected the Ninth Circuit's reasoning in In re Sequoia Auto Brokers, Ltd., 827 F.2d 1281 (9th Cir.1987), upon which the Government relies in the instant appeal. The bankruptcy court did not err in concluding it had the power to find a party in civil contempt for violating a discharge order.

In February of this year, the Supreme Court construed 11 U.S.C. § 106.² United States v. Nordic Village, 503 U.S. ___, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992). With respect to monetary liability, the Court found that the Government had unequivocally waived its sovereign immunity in subsections (a) and (b), but not in subsection (c). At ___, 112 S.Ct. at 1014-17, 117 L.Ed.2d at 188-191. Unable to read the text of subsection (c) as unambiguously imposing monetary liability on the Government, the Court did not consider legislative history in concluding that sovereign immunity had not been waived. At ___, 112 S.Ct. at 1016, 117 L.Ed.2d at 190. Therefore, § 106(c)³ is not a basis for finding a waiver of sovereign immunity from monetary liability. See In re Stuber, 142 B.R. 435, 438-39 (Bankr.D.Kan.1992) (Nordic Village precludes any finding that the government waived its immunity from monetary sanctions under § 106(c) for being in contempt of the automatic stay).⁴

Instead of reading § 106(c) as a general waiver to monetary liability, the bankruptcy court reasoned that Congress in waiving sovereign immunity from injunctions under § 106(c) also waived its immunity from any liability for violating the injunctions.⁵ Such a proposition is consistent with neither the Supreme Court's interpretation of § 106(c) nor the general case law on sovereign immunity.

"The Supreme Court has endorsed the view that Section 106(c) by its terms authorizes declaratory and injunctive relief only." In re Crook, 966 F.2d 539, 543 (10th Cir.1992) (citing Hoffman v. Connecticut Income Maint. Dept., 492 U.S. 96, 102, 109 S.Ct. 2818, 2822, 106 L.Ed.2d 76 (1989)), petition for cert. filed, 61 U.S.L.W. 3112 (U.S. Aug. 3, 1992) (No. 92-211), and Nordic Village, ___ U.S. at ___, 112 S.Ct. at 1013, 117 L.Ed.2d at 188-89). The Court in Nordic Village favored an interpretation of § 106(c) which did not permit the recovery of monetary relief and said the provision remained effective under this interpretation by giving bankruptcy courts the authority to determine the amount and dischargeability of the estate's liability to the Government. At ___, 112 S.Ct. at 1015, 117 L.Ed.2d at 189. On unassailable terms, the Supreme Court has found that § 106(c) does not waive sovereign immunity from monetary relief. At ___, 112 S.Ct. at 1016, 117 L.Ed.2d at 190. Attorney's fees, actual damages and sanctions against the United States constitutes monetary relief.

Waivers of sovereign immunity can only occur by unequivocal statutory language that is "`construed strictly in favor of the sovereign,' . . . and not `enlarged . . . beyond what the language requires.'" Nordic Village, at ___, 112 S.Ct. at 1015, 117 L.Ed.2d at 187-88 (quoting McMahon v. United States, 342 U.S. 25, 27, 72 S.Ct. 17, 19, 96 L.Ed. 26 (1951) and Ruckelshaus v. Sierra Club, 463 U.S. 680, 685, 103 S.Ct. 3274, 3277, 77 L.Ed.2d 938 (1983)). Waivers of sovereign immunity "`cannot be implied but must be unequivocally expressed.'" United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351, 63 L.Ed.2d 607 (1980) (quoting United States v. King, 395 U.S. 1, 4, 89 S.Ct. 1501, 1503, 23 L.Ed.2d 52 (1969)). Waivers of sovereign immunity are judged from the statutory text exclusively without consideration of legislative history, See Nordic Village, ___ U.S. at ___, 112 S.Ct. at 1016, 117 L.Ed.2d at 190, the purpose of the statute, See Ardestani v. INS, 502 U.S. ___, ___, 112 S.Ct. 515, 520, 116 L.Ed.2d 496, 506 (1991) or equitable concerns, id.

In contrast, the bankruptcy court implies a waiver of sovereign immunity from sanctions for violating an injunction as a result of the government's waiver of immunity from injunctive and declaratory relief in § 106(c). Simply because the government has consented to suit and certain relief does not by perforce mean the government has waived its immunity from monetary liability for all sanctions or penalties. See e.g., Department of Energy v. Ohio, 503 U.S. ___, 112 S.Ct. 1627, 118 L.Ed.2d 255 (1992) (Interpreted the Clean Water Act and Resource Conservation and Recovery Act as waiving sovereign immunity from suit but not from the imposition of punitive fines for past failures to comply and strictly construed statutory language as waiving immunity from only those penalties imposed by the court to enforce its order); Adamson v. Bowen, 855 F.2d 668, 670-71 (10th Cir.1988) (Construed the Equal Access to Justice Act as waiving sovereign immunity from actions for attorney's fees pursuant to Rule 11); U.S. v. State of Wash., 872 F.2d 874, 876-77 (9th Cir.1989) (Refused to read the Resource Conservation and Recovery Act of 1976 as impliedly giving the state administrative agencies the authority to impose civil penalties against the federal government). Indeed, courts have considered whether the government expressly waived its immunity from monetary sanctions for contempt violations. See, e.g., McBride v. Coleman, 955 F.2d 571, 576 (8th Cir.1992) (Questioned whether the government waived its immunity from compensatory damages awarded for violating a court-ordered injunction), petition for cert. filed, ___ U.S. ___, 113 S.Ct. 65, 121 L.Ed.2d 32 (1992); Barry v. Bowen, 884 F.2d 442 (9th Cir.1989) (Reversed an award of monetary sanctions imposed against the Secretary of Health and Human Services for being in contempt of a court order requiring payment of attorney's fees and costs); NAACP, Jefferson County Branch v. Brock, 619 F.Supp. 846, 849 (D.D.C.1985) (Observed that one issue to consider in deciding whether to sanction the Department of Labor for being in contempt of the court injunction was sovereign immunity).⁶ By waiving its immunity from injunctive and declaratory relief, the government did not expressly state it would compensate those harmed or pay penalties as a result of its violation of the injunction. Nor is this an instance where the court believes that Congress has waived sovereign immunity over a subject matter and a strict construction of that waiver would frustrate congressional intent. "A clear and unequivocal waiver of anything more cannot be found; a broader waiver may not be inferred." Department of Energy v. Ohio, 503 U.S. at ___, 112 S.Ct. at 1635, 118 L.Ed.2d at 269 (citations omitted).

Without contempt sanctions, the bankruptcy court pondered "in what sense the government is `bound' by bankruptcy injunctions." The availability of contempt sanctions does not affect the extent to which the government is bound, but only the manner by which the injunctions are enforced. Monetary sanctions are undoubtedly effective and can compensate those harmed; nonetheless, they are not the only ways of handling contemptuous behavior. More importantly, general statutory...