In re Solis

• Decision Date: 14 February 1992
• Docket Number: Bankruptcy No. 90 B 12237 (FGC).
• Citation: 137 BR 121
• Parties: In re Armando J. SOLIS, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

137 B.R. 121 (1992)

In re Armando J. SOLIS, Debtor.

Bankruptcy No. 90 B 12237 (FGC).

United States Bankruptcy Court, S.D. New York.

February 14, 1992.

A. LeCrichia, Mujica & Goodman, New York City, for debtor Armando J. Solis.

E. Smith, Asst. U.S. Atty., Office of Otto G. Obermaier, U.S. Atty., S.D.N.Y., for Internal Revenue Service (IRS).

MEMORANDUM OF DECISION ON AWARD OF DAMAGES FOR VIOLATION OF STAY BY IRS

FRANCIS G. CONRAD, Bankruptcy Judge.^*

Debtor, a physician, seeks¹ an award of compensatory and punitive damages against IRS for willful violation of the automatic stay provisions of 11 U.S.C. § 362(a), as a result of two abortive postpetition attempts by IRS to collect delinquent tax liabilities. That both attempts did indeed violate the automatic stay is undisputed. IRS strongly denies, however, that the violations were either willful, an essential prerequisite to an award of damages under § 362(h), or malicious, a necessary predicate for punitive damages. IRS also argues that the doctrine of sovereign immunity shields it from liability even for willful and malicious violations. We hold that sovereign immunity is waived by § 106, find that IRS violations of the automatic stay were willful, and, thus, will award Debtor reasonable attorneys' fees and costs. Debtor's request for punitive damages will be denied, however, because we were provided with no evidence of malice or bad faith.

FACTUAL BACKGROUND

Debtor filed a voluntary petition seeking protection under Chapter 13 of the Bankruptcy Code on July 17, 1990, listing IRS as a creditor. The caption of the petition listed Debtor's Social Security number, but omitted any reference to two employer identification numbers (EIN) under which Debtor has operated a medical practice.

IRS Revenue Officer L. Rossi (Rossi) was responsible for prepetition collection of delinquent Federal taxes from Debtor. IRS concedes that, prepetition, Rossi knew Debtor owed delinquent Federal income taxes under the Social Security number, as well as Federal withholding and FICA liabilities under EIN # XX-XXXXXXX. IRS also acknowledges that Rossi learned about the second number, EIN # XX-XXXXXXX, on April 3, 1990, after entering a query on the IRS computer system for the express purpose of determining whether Debtor had ever operated under any other EIN. That query disclosed the existence of the second number, and the fact that no tax liabilities had then been assessed under it.

About twelve days prior to Debtor's Chapter 13 filing, IRS seized Debtor's professional medical offices. On July 30, 1990, IRS received the "Order for Meeting Of Creditors, Combined with Notice Thereof of an Automatic Stay" for Debtor's bankruptcy. Based upon this information, the IRS Technical Unit made two computer entries, on Sept. 2, 1990 and Sept. 21, 1990, to prevent postpetition collection activity. The first computer entry was intended to prevent collection of Federal tax liabilities associated with Debtor's Social Security number. The second entry was to prevent collection of tax liabilities for EIN # XX-XXXXXXX.

IRS was aware, however, of Debtor's filing even before receiving the "Order for Meeting of Creditors." On July 23, 1990, Rossi typed a memorandum to the Advisory Unit of Special Procedures Function, reporting the bankruptcy filing and describing the tax liabilities associated with Debtor's Social Security number and EIN # XX-XXXXXXX. Rossi's memo also noted that seizure had been authorized under two separate writs, one for Debtor's sole proprietorship, "and another, under Ein:XX-XXXXXXX, to seize the P.C. professional corporation (at the same location)." Rossi Memorandum.

I {p}resented both writs to Dr. Solis, as I was uncertain how he was operating. I was informed that the P.C. had ceased operations in 1989, so I proceeded with seizure under the Writ for S.P. sole proprietorship.

Id. That same day, Rossi wrote by hand a letter to the Insolvency Unit disclosing the existence of Debtor's second EIN number. Thus, we find that IRS had knowledge, prepetition and postpetition, of both EIN numbers.

IRS filed a proof of claim totaling $35,412.20 on Sept. 17, 1990, for Federal income taxes due for 1986 and 1987. The amount claimed included only tax liabilities incurred under Debtor's Social Security number. Debtor filed an amended voluntary petition on September 21, 1990, again listing only the Social Security number. On October 1, 1990, IRS filed an amended proof of claim for $70,124.94, which covered 1986-1989 and included liabilities owed in connection with both Debtor's Social Security number and EIN # XX-XXXXXXX.²

IRS violated the automatic stay for the first time on Oct. 11, 1990, when, without notice to Debtor, it levied on Debtor's Chemical Bank account. The levy, in the amount of $3,517.70, named Debtor personally, but was for taxes owed under the second number, EIN # XX-XXXXXXX.³ When Chemical Bank refused to disclose the identity of the levying creditor, Debtor moved by "Order to Show Cause" to compel the bank to identify the source of the levy, and to enjoin the Bank from releasing any property of the Debtor. IRS received a copy of the "Order to Show Cause," signed by Judge Prudence B. Abram, on October 16, 1990. On October 17, 1990, the Technical Unit directed that the levy be released by the IRS automated collection system. Debtor's funds remained frozen until October 22, 1990, when IRS issued a manually-generated "Release of Levy." No funds were received by IRS as a result of the levy.

During the week of October 29, 1990, the Technical Unit directed that the IRS computer system be programmed to prevent any further collection activity against the second EIN number. Nevertheless, a second violation of the automatic stay occurred on November 3, 1990, when the IRS' Holtsville, New York, Service Center issued a "Notice of Intent to Levy," again for liabilities under the second EIN number. The IRS office of District Counsel notified the Technical Unit of that action on November 7, 1990. That very day, the Technical Unit requested for the second time that an entry be made in the computer system to halt collection activity against the second EIN number. IRS did not actually levy upon or seize any of Debtor's assets as a result of the second notice of levy.

IRS filed a second amended proof of claim for $97,217.56 on November 16, 1990, which covered Debtor's Social Security number and both employer identification numbers for the years 1987-1990. Pending at the time of the hearing on this matter, was Debtor's objection to the IRS claim, which argued that Debtor's outstanding liabilities totalled just $5,621.04.

Debtor seeks two kinds of compensatory damages: (1) attorney's fees and costs of $3,000 accrued at the time of the hearing, plus any amounts subsequently incurred; and, (2) $10,000 in compensatory damages for embarrassment, anguish, and injury to Debtor's personal and professional reputation. Debtor also requests $50,000 in punitive damages.

ARGUMENTS

Debtor contends that IRS had all the relevant necessary information about the bankruptcy proceeding and, nevertheless, violated the automatic stay. Although the doctrine of sovereign immunity is ordinarily a barricade that insulates government from responsibility for its transgressions, Debtor argues that § 106 permits an award of damages against IRS for violation of the automatic stay.

IRS opposes Debtor's claim, arguing that the barricade is unbreached. IRS also argues that its violations of the automatic stay were caused by Debtor's failure to list both employer identification numbers in the caption of Debtor's bankruptcy petition. Because of the omission, which IRS says violated F.R.Bkrtcy.P. 1005,⁴ the IRS Technical Unit did not receive the information through the customary channel, and was thus deprived of the opportunity to follow its general procedures to suspend collection activity. Accordingly, IRS contends, its post-petition collection attempts were not willful violations of the automatic stay.

CONCLUSIONS OF LAW

Section 362(a) of the Code provides that the filing of a bankruptcy petition

operates as a stay, applicable to all entities, of —

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title; (and,)

. . . . .

(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of a case under this title

IRS is an "entity," as that phrase is defined in § 101(15),⁵ and is thus subject to the automatic stay. Congress intended that the automatic stay be "one of the fundamental debtor protections provided by the bankruptcy laws," H.R. Rep. No. 595, 95th Cong, 1st Sess 340-342, (1977), reprinted in 1978 U.S.Code Cong. & Admin.News, pp. 5787, 6296-6298 and set in place effective means to protect debtors against willful violations.

An individual injured by any willful violation of a stay . . . shall recover actual damages, including costs and attorney fees, and in the appropriate circumstances, may recover punitive damages.

11 U.S.C. § 362(h). (Emphasis added).

As a preliminary matter to determining whether the award of damages under § 362(h) is appropriate, we must first decide whether the doctrine of sovereign immunity shields IRS from an award of money damages.

The United States, as sovereign, is immune from suit save as it consents to be sued . . ., and the terms of its consent to be sued in any court define that court\'s jurisdiction to entertain the suit.

United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 769-70, 85 L.Ed. 1058 (1941). (Citations omitted). A waiver of sovereign immunity "cannot be implied but must be unequivocally expressed." United...