Jove Engineering, Inc. v. I.R.S.

• Citation: 92 F.3d 1539
• Decision Date: 29 August 1996
• Docket Number: No. 94-6372,94-6372
• Parties: -6250, 96-2 USTC P 50,469, 36 Collier Bankr.Cas.2d 1270 In re JOVE ENGINEERING, INC., Debtor-Appellant, Cross-Appellee, v. INTERNAL REVENUE SERVICE, Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1539

92 F.3d 1539

78 A.F.T.R.2d 96-6250, 96-2 USTC P 50,469,

36 Collier Bankr.Cas.2d 1270

In re JOVE ENGINEERING, INC., Debtor-Appellant, Cross-Appellee, v. INTERNAL REVENUE SERVICE, Appellee, Cross-Appellant.

No. 94-6372.

United States Court of Appeals, Eleventh Circuit.

Aug. 29, 1996.

Rhonda P. Chambers, Richard E. Smith, Romaine Scott, III, Eric J. Briethaupt, Rives & Peterson, Birmingham, AL, for appellant.

David E. Carmack, Billie L. Crowe, John Dudeck, Jr., Mark E. Matthews, Acting Chief Counsel, Laurie Snyder, Murray S. Horwitz, Loretta C. Argrett, Gary D. Gray, Department of Justice, Tax Division, Washington, DC, for appellee.

Appeals from the United States District Court for the Northern District of Alabama.

Before BIRCH and BARKETT, Circuit Judges, and SMITH, ^* Senior Circuit Judge.

EDWARD S. SMITH, Senior Circuit Judge:

Jove Engineering, Inc. ("Jove") appeals the district court's order denying it relief against the Internal Revenue Service ("IRS") under 11 U.S.C. § 362(h), ¹ and limiting Jove's relief under 11 U.S.C. § 105. The district court limited Jove's relief to the amount of $500 as attorney fees, to be offset against any bankruptcy liability to IRS, for the violation by IRS of 11 U.S.C. § 362(a), and specifically the automatic stay provision which arose when Jove filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. In re Jove Engineering, Inc., 171 B.R. 387 (N.D.Ala.1994). IRS cross-appeals the district court's award of attorney fees under § 105. We have resolved several issues which required clarification in this circuit, and we remand to the district court to assess attorney fees consistent with 28 U.S.C. § 2412(d)(2)(A) and 26 U.S.C. § 7430.

Initially we conclude we have jurisdiction to review the district court's order as a "final decision" under 28 U.S.C. § 1291, notwithstanding that court's remand to the bankruptcy court. We further conclude that, as amended in 1994, 11 U.S.C. § 106 unequivocally waives sovereign immunity for monetary damages under 11 U.S.C. §§ 105(a) and 362(h). However, Jove is not entitled to relief under § 362(h) because the term "individual," as used in that provision, does not include a corporation. Jove is entitled to relief under § 105(a) which, distinct from the court's inherent powers, grants the court statutory powers to enter monetary damages. An award of monetary sanctions is appropriate in this case because IRS willfully violated the automatic stay when it knew the stay was in effect and intended the actions that violated the stay, regardless whether any IRS employee had the specific intent to violate the stay. In this case, monetary sanctions are limited to actual expenses, such as attorney fees, because Jove's claim for coercive sanctions appear more punitive in nature and Congress expressly declined to waive sovereign immunity for punitive damages. We must remand to the district court to assess attorney fees consistent with both 28 U.S.C. § 2412(d)(2)(A) and 26 U.S.C. § 7430 because neither the parties nor the court addressed the criteria of these provisions.

Facts

On October 20, 1992, Jove filed a petition for reorganization which automatically invokes the stay provision of 11 U.S.C. § 362(a). On November 6, 1992, the bankruptcy court clerk sent notice of the case to all 413 creditors, including IRS which Jove listed as a disputed creditor.

On November 12, 1992, Ms. Judy Hibbard of IRS's Special Procedures Staff in Birmingham wrote a letter to Jove's president, Mr. Walter H. Brough, acknowledging Jove's bankruptcy filing and discussing IRS's concerns when a taxpayer files for bankruptcy. IRS forwarded a copy of this letter to Jove's attorney, Mr. Romaine Scott. On November 18, Jove's attorney wrote a letter to Ms. Hibbard requesting all future contact be directed to him instead of his client. On November 25, Jove's attorney wrote a similar letter to Ms. Hibbard which included a copy of the "notice of first meeting of creditors."

Sometime in November 1992, the IRS Birmingham office entered a computer code showing Jove filed a Chapter 11 petition. The IRS center in Memphis ("Memphis office") had access to this entry. This code did not preclude accepting payments or sending payment requests related to post-petition liability. IRS did not initially enter a computer code to "freeze" collection activities. IRS usually does not enter this bankruptcy "freeze" code because, as configured, not entering a "freeze" permits the computer system to credit post-petition payments.

Sometime after filing the bankruptcy petition, Jove filed a Form 941 tax return with the Memphis office for the tax quarter ending September 30, 1992 (all pre-petition tax liability). On December 21, the Memphis office mailed Jove a "Request for Payment" seeking to collect taxes, penalties and interest totaling $112,433.65 for a tax period occurring both pre- and post-petition. This request warned Jove to make payment before December 31 to avoid further penalty. ² Although Jove's tax return was for pre-petition liability, the computer code did not preclude this request, apparently because the return was actually filed post-petition. IRS did not explain why the computer code does not preclude collection attempts for returns filed post-petition that only reference pre-petition liability.

On January 7, 1993, Jove's attorney sent a letter to the Memphis office requesting that IRS participate in the bankruptcy process by filing a claim with the bankruptcy court. Ms. Della Sanford, Chief of the Correspondence Section in the Memphis office, mailed a reply letter stating IRS had no record that Mr. Scott was authorized to receive information on Jove's behalf, and, in order for him to receive such information, Mr. Scott must provide a power of attorney, a tax information authorization or "other written evidence of ... [his] authority." Forms for "power of attorney" and "tax information authorization" were included in the letter.

On March 4, 1993, IRS filed with the bankruptcy court a "Proof of Claim" against Jove for unpaid taxes, penalties and interest totaling $304,239.08. On March 29, the Memphis office mailed a certified letter to Jove entitled "Notice of Intent to Levy--Immediate Response Required" seeking $41,745.61 in taxes, penalties and interest for the tax period ending December 31, 1992 (this quarter included 19 pre-petition days). The letter warned further that, if payment was not received by April 28, "the law allows us to seize your property or rights to property such as real estate and personal property to collect the amount you still owe." On April 5, Jove's attorney mailed to the Memphis office an executed power of attorney form which IRS marked "received" on April 8. This letter reiterated information in prior letters and further stated "any further direct communications with [Jove] will be interpreted as a willful violation of the automatic stay and appropriate action will be taken." However, on April 15, IRS issued another "Notice of Intent to Levy--Immediate Response Required" requesting payment for only $3,813.91 ³ and referencing the tax period ending December 31, 1992. On April 28, 1993, Jove filed a motion with the bankruptcy court to hold IRS in civil contempt for violating the automatic stay.

On May 3, 1993, the Memphis office sent Jove a letter stating IRS had no record Mr. Scott was authorized to act for Jove, and directing Jove to clear up the matter with the IRS office in Birmingham. On May 17, Jove received a notice from IRS stating "balance due on 3rd Q and 4th Q 941 returns for 1992. Plus 1992 940. Failure to keep appointment could result in enforcement action."

Jove's attorney contacted Mr. Leon F. Kelly, Jr., Assistant U.S. Attorney in Birmingham, concerning IRS's post-petition activity. In turn, Mr. Kelly contacted Ms. Hibbard's office after which, on May 23, IRS entered a computer code to "freeze" any further extra-judicial action.

Ms. Martha Langston, an IRS Revenue Officer in Birmingham, received a transfer of collection responsibilities which included the Jove account. At the time, the computer system contained the November 1992 bankruptcy entry, but no "freeze" code. On June 1, 1993, Ms. Langston made an unannounced visit to Jove's place of business to discuss the balance due for the 1992 fourth quarter on Jove's 941 return. Ms. Langston left a sealed envelope for Jove's president which contained information about collection and a note warning that failing to keep an appointment could result in an enforcement action. Several days later, Ms. Langston learned Jove was in bankruptcy and the collection action was "frozen." She then canceled her appointment and closed her file.

Proceedings Below

On April 28, 1993, Jove filed a motion with the bankruptcy court to hold IRS in civil contempt for violating the automatic stay. Jove later filed a motion to withdraw the contempt motion to district court due to concern whether the bankruptcy court had authority to rule on the contempt motion. On July 19, the bankruptcy court granted Jove's motion to withdraw the contempt motion to district court. After receiving briefs and conducting a hearing, the district court issued a memorandum opinion making findings of facts and conclusions of law. After thoroughly reviewing conflicting circuit decisions, the district court held that Jove, as a corporation, was not an "individual" entitled to relief under 11 U.S.C. § 362(h) based on (1) the plain meaning of the statute; (2) the statute's different treatment of individuals, corporations and partnerships; and (3) "the fact that § 362(h) was adopted as a part of 'Consumer Credit Amendments,' suggests that only individuals, not corporations, were intended." The district court stated that Jove is entitled to some relief under 11 U.S.C. §§ 105 and 106(b), limited to the extent of the government's claim, and precluding punitive or consequential damages which cannot be specifically...