In re Straight
| Decision Date | 15 May 2000 |
| Docket Number | BAP No. WY-99-020. Bankruptcy No. 95-10007. Adversary No. 96-1008. |
| Citation | 248 BR 403 |
| Parties | In re Beverly A. STRAIGHT, doing business as Centerline Traffic Control & Flagging, Debtor. Beverly A. Straight, doing business as Centerline Traffic Control & Flagging, Plaintiff-Appellee, v. Wyoming Department of Transportation, Defendant-Appellant. New York County Lawyers' Association, Amicus Curiae. |
| Court | U.S. Bankruptcy Appellate Panel, Tenth Circuit |
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Submitted on the briefs:* Gay Woodhouse, Attorney General, Martin L. Hardsocg, Assistant Attorney General, and Jennifer A. Golden, Senior Assistant Attorney General, Cheyenne, Wyoming, for Defendant-Appellant.
Stephen R. Winship of Winship & Winship, P.C., Casper, Wyoming, for Plaintiff-Appellee.
Leonard H. Gerson of Angel & Frankel, P.C., New York City, for Amicus Curiae.
Before PUSATERI, BOULDEN, and ROBINSON, Bankruptcy Judges.
Asserting a violation of its sovereign immunity, the Wyoming Department of Transportation ("the DOT") moved to dismiss an adversary proceeding filed against it by Beverley A. Straight ("Straight"), the Chapter 7 debtor. Straight's adversary proceeding seeks damages against the DOT resulting from the DOT's violation of 11 U.S.C. §§ 362(a) and 525(a) when it revoked Straight's "Disadvantaged Business Enterprise" ("DBE") certification solely because of Straight's bankruptcy filing. The bankruptcy court denied the DOT's motion to dismiss on the grounds that rulings in Wyoming Dep't of Transp. v. Straight (In re Straight), 209 B.R. 540 (D.Wyo.1997), holding that the DOT's sovereign immunity in a related matter was validly abrogated under § 106(a) or waived under § 106(b), and Wyoming Dep't of Transp. v. Straight (In re Straight), 143 F.3d 1387 (10th Cir.), cert. denied, 525 U.S. 982, 119 S.Ct. 446, 142 L.Ed.2d 400 (1998), affirming the district court's holding that the DOT waived its sovereign immunity under § 106(b), established the law of the case. We find the doctrine of law of the case to be inapplicable under the facts of this case, and conclude that § 106(a) is an unconstitutional attempt to abrogate Wyoming's sovereign immunity from Straight's adversary proceeding.1 Consequently, the bankruptcy court's decision must be reversed.
Straight operated a highway flagging business known as "Centerline Traffic Control and Flagging" ("Centerline"). Centerline was certified by the DOT as a DBE. DBE certification entitled Centerline to bid for subcontracting jobs on federally-funded state highway projects in which general contractors obtain federal incentives for hiring DBE's. The DBE certification process is conducted through the DOT, and the DOT also lets construction bids.2
On January 13, 1995, Straight and her husband filed a petition under Chapter 13 of the Bankruptcy Code. The DOT received notice of the case. Although the DOT did not file a proof of claim, the Wyoming Department of Employment and the Wyoming Workers' Safety & Compensation Division ("the Other State Entities") filed proofs of claim that totaled about $30,000.
Shortly after Straight and her husband filed their Chapter 13 petition, the DOT recertified Centerline as a DBE. However, a few weeks later, the DOT sent a letter indicating it intended to decertify Centerline as a DBE because Straight had filed a Chapter 13 case and "lost the ability to control her business; that control now lies in the hands of the Bankruptcy Court and the Bankruptcy Trustee." The letter gave a short period to respond. Straight replied that the legal premise for the DOT's threat to decertify Centerline was incorrect, citing § 1304(b) of the Bankruptcy Code. The DOT proceeded to decertify Centerline as a DBE on March 28, 1995, claiming that Centerline was no longer eligible for DBE status under 49 C.F.R. § 23.53(a)(2) because Straight did not "possess the financial and bonding resources necessary to operate the business in its field of work." The notice of this action added that Straight had 180 days to appeal the decision to the United States Department of Transportation.
The Straights filed a "Motion for Order to Show Cause and/or Contempt Citation," asserting that the DOT's decertification of Centerline as a DBE constituted a violation of the automatic stay under § 362(a) and the prohibition in § 525(a) against revoking Straight's property rights based solely on her bankruptcy filing. The bankruptcy court issued an order to show cause, scheduling a hearing on the matter for August 1995. The DOT did not appear at the hearing, but filed a written response to the motion and order that the court received later that day.
On September 20, 1995, the bankruptcy court issued an order on the Straights' motion ("the Contempt Order"), holding that the DOT's stated reason for revoking the DBE certification was mere pretext, and that the revocation violated §§ 362(a) and 525(a). The bankruptcy court ordered the DOT to reinstate Centerline as a DBE, awarded the Straights attorney's fees and costs, and ordered their attorney to serve on the DOT an itemization of the fees and costs incurred. The Contempt Order also stated: "Should the Straights seek damages in addition to their attorney fees, they must file an adversary proceeding in accordance with Fed. R. Bankr.P. 7001." The Straights' attorney thereafter filed an itemization and served it on the DOT. The DOT did not object to the itemization, and on July 11, 1996, the bankruptcy court entered an order approving fees and costs of $1,949.94 ("the Fee Order").
The DOT appealed the Fee Order to the United States District Court for the District of Wyoming, asserting a violation of its sovereign immunity. That court affirmed, finding that § 106(a) expressly abrogated the DOT's sovereign immunity for actions under §§ 362 and 525. Wyoming Dep't of Transp. v. Straight (In re Straight), 209 B.R. 540 (D.Wyo.1997) ("Straight I"). In light of its analysis of Seminole Tribe v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), the court ruled that § 106(a) was constitutional. Id. at 546-555. Alternatively, the court held that the DOT's sovereign immunity had been waived under § 106(b) when the Other State Entities filed proofs of claim. Id. at 555-58.
The district court's order was affirmed by the United States Court of Appeals for the Tenth Circuit. Wyoming Dep't of Transp. v. Straight (In re Straight), 143 F.3d 1387 (10th Cir.) ("Straight II"), cert. denied, 525 U.S. 982, 119 S.Ct. 446, 142 L.Ed.2d 400 (1998). The Tenth Circuit refused to address the constitutionality of § 106(a) and its application to the case, but affirmed on the ground that the DOT's sovereign immunity had been waived under § 106(b) as a result of the filing of the Other State Entities' proofs of claim, and that § 106(b) is constitutional. Id. at 1389-92.
While the appeal of the Fee Order was pending, and in compliance with the bankruptcy court's directive in the Contempt Order, the Straights filed an adversary proceeding against the DOT ("the Damages Suit"). In it, they sought compensatory and punitive damages, plus attorney's fees and costs, based on contracts Straight claims she lost because the DOT revoked the DBE certificate, contracts that would allegedly have produced net profits of over $250,000. At some point, Straight's husband was dismissed from the suit. The DOT filed a motion to dismiss the complaint, declaring that "this Court has no jurisdiction to proceed against the DOT on the grounds and for the reason that the State is not a creditor of the Straights nor has the State waived its sovereign immunity under the 11th Amendment to the United States Constitution."
At the DOT's request, the bankruptcy court postponed ruling on the motion to dismiss while the Fee Order appeal was pending. After the decision in Straight II, however, the bankruptcy court entered an order denying the DOT's motion. In that order, the bankruptcy court held that the decisions in Straight I and Straight II disposed of the DOT's claim of sovereign immunity, stating: "The matter has effectively been resolved by the District Court's order of May 14, 1997 in the underlying bankruptcy case, which was affirmed by the Tenth Circuit Court of Appeals." The DOT timely appealed, bringing the dispute to us.
About three months after the filing of the Damages Suit, the bankruptcy court entered orders that bifurcated Straight's case from her husband's case, dismissed her husband's case, and converted her case to one under Chapter 7. No Chapter 13 plan of reorganization for either of the Straights was ever confirmed.
Neither the bankruptcy court's order denying the DOT's motion to dismiss the Damages Suit nor the briefs filed in this appeal addressed the conversion of Straight's case from Chapter 13 to Chapter 7, or the effect of that conversion on the issue of any waiver of the DOT's sovereign immunity under § 106(b). In supplemental briefing required by this Court, however, Straight admits that, pursuant to § 348(f)(1), the claim she asserts against the DOT in the Damages Suit is no longer property of the estate.3
With the consent of the parties, this Court has jurisdiction to hear timely-filed appeals from "final judgments, orders, and decrees" of bankruptcy courts within the Tenth Circuit. 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr.P. 8002. This appeal is properly before us. The DOT timely filed a notice of appeal from the bankruptcy court's order, and the parties have consented to this Court hearing the appeal by failing to elect to have it heard by the district court. Id. § 158(c); Fed. R. Bankr.P. 8001; 10th Cir. BAP L.R. 8001-1. In a prior order, this Court determined the order appealed is a final...
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