Lockhart v. Jackson (In re Lockhart)
| Decision Date | 24 June 2021 |
| Docket Number | Case No.: 1:17-bk-00532,AP No.: 1:20-ap-38 |
| Court | U.S. Bankruptcy Court — Northern District of West Virginia |
| Parties | IN RE: KENNETH DWAYNE LOCKHART, Debtor. KENNETH DWAYNE LOCKHART, Plaintiff, v. ETHEL MARCIE JACKSON, WASHINGTON COUNTY, WASHINGTON COUNTY CSEA, WEST VIRGINIA BUREAU FOR CHILD SUPPORT ENFORCEMENT, and INTERNAL REVENUE SERVICE, Defendants. |
The Internal Revenue Service ("IRS") seeks dismissal of complaint filed by Kenneth Dwayne Lockhart (the "Debtor") for lack of subject matter jurisdiction and for failure to state a claim on which relief can be granted. Similarly, the Washington County (Ohio) Child Support Enforcement Agency ("CSEA") seeks summary judgement on behalf of itself and Washington County, Ohio (the "County"). The movants argue that as arms of the federal and state governments, they are entitled to sovereign immunity and the court accordingly lacks adequate subject matter jurisdiction. Also, they argue that the collection activity at issue here involved non-estate property or property otherwise excepted from the automatic stay.
The Debtor argues that under applicable provisions of the Bankruptcy Code, the parties waived sovereign immunity and that their actions constituted a willful violation of the automatic stay for which he is entitled to damages. In support of his argument, he contends that property taken by the defendants was property of the estate which is not subject to an exception from the automatic stay. Further, in Count II of the complaint Debtor asks the court to find defendants in contempt for willfully violating the confirmation order.
For the reasons stated herein, the court will deny the IRS's motion to dismiss for lack of subject matter jurisdiction, but will grant the motion to dismiss for failure to state a claim upon which relief can be granted and CSEA's motion for summary judgment as to Count I. The court will deny the motions as to Count II to allow for further proceedings.
When adjudicating a motion to dismiss for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1), the "court should grant the Rule 12(b)(1) motion to dismiss 'only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law.'" Evans v. B. F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999) (citation omitted); Fed. R. Bank. P. 7012(b). If any factual allegations are in dispute, the court may resolve the factual issues in adjudicating the motion to dismiss. Wiles v. Wiles, Nos. 02-21206, 10-123, 2011 Bankr. LEXIS 139 (Bankr. N.D.W. Va. Jan. 19, 2011) (citing Thigpen v. United States, 800 F.2d 393, 396 (4th Cir. 1986)).
Under Federal Rule of Civil Procedure 12(b)(6), a party may seek to dismiss a complaint against it when the complaint fails "to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6); Fed. R. Bankr. P. 7012(b). When evaluating a motion to dismiss, the court must (1) construe the complaint in a light favorable to the non-movant, (2) accept the factual allegations in the complaint as true, and (3) draw all reasonable inferences in favor of the plaintiff. 2 Moore's Federal Practice - Civil § 12.34 (2018). After undertaking these steps, the claim for relief must be "'plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In determining a motion to dismiss, the court is not adjudicating whether a plaintiff will ultimately prevail on the merits of the complaint; it is only determining if the plaintiff is entitled to offer evidence to support the claims. Skinner v. Switzer, 562 U.S. 521, 529-30 (2011).
Federal Rule of Civil Procedure 56, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment is only appropriate if the movant demonstrates "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); Celotex v. Catrett, 477 U.S. 317, 322 (1986). Material facts are those which are necessary to establish a cause of action. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In making this determination, "the evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255. Further, the court's role is not "to weigh the evidence and determine the truth of the matter [but to] determine whether there is a need for a trial." Id. at 249-50. If no genuine issue of material fact exists, the court has a duty to prevent claims and defenses not supported in fact from proceeding to trial. Celotex Corp., 477 U.S. at 317, 323-24.
Debtor filed Chapter 13 bankruptcy on May 19, 2017, scheduling with his petition, among other debts, his past-due child support then being collected by West Virginia Bureau of Child Services ("WVBCSE").1 On May 24, 2017, WVBCSE filed its proof of claim, claiming a total amount due of $19,761.14, which the Debtor proposed to pay in full over the course of the 60-month plan. At some point post-confirmation, the child relocated to Washington County, Ohio. The Debtor still resides in West Virginia. Upon the child moving to Ohio, WVBCSE notified CSEA of the Debtor's child support obligation. The Debtor alleges that CSEA subsequently, with knowledge of the Chapter 13 plan and confirmation order, coordinated with the U.S. Department of the Treasury ("Treasury") to intercept a $2,400 economic stimulus payment ("Stimulus") to which Debtor and his spouse were entitled as a result of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").2 Specifically, the Treasury intercepted the Stimulus on May 22, 2020.3
On September 18, 2020, Debtor filed this complaint seeking monetary loss among other damages. In Count I, Debtor alleges a violation of the automatic stay. Debtor asks the court to hold the defendants in contempt for violation of the confirmation order in Count II. The same week the Debtor initiated this proceeding, CSEA mailed the Debtor a "Notice of Ohio Income Tax Refund Offset For Overdue Support" ("Notice"). Debtor states this Notice constitutes a separate violation of the stay. The complaint names CSEA and attaches the IRS as an indispensable party, neither of whom were originally parties to the bankruptcy action but have been implicated in this complaint by their alleged conduct.4 CSEA seeks summary judgment and IRS seeks to dismiss the action.
The IRS and CSEA seek dismissal and summary judgment of the Debtor's adversary complaint. Specifically, they first argue that they, as governmental entities, have sovereign immunity that they have not expressly waived. The defendants further argue that the Stimulus was a "refund" for the purposes of § 362(b)(2)(F) of the Bankruptcy Code such that its interception was excepted from the automatic stay. CSEA also argues that the child support reporting system is automatically administered and, to a certain degree, out of the agency's control. CSEA states that under the "Treasury Offset Program" ("TOP"), arrears are required by law to be submitted to the State and any arrears owed to an obligee (in this case, Ethel Marcie Jackson) are then automatically reported by the state for federal tax offset. Because of this, the motion alleges, any decisions are made by the state of Ohio, not the individual counties or their agencies, and the only determination by the county is the total amount of arrearage.
Debtor counters that the parties are not immune from suit, that the Stimulus was a "credit" subject to the automatic stay, and that Notice from the state of Ohio amounted to an independent attempt to collect which violated the stay.
Defendants IRS and CSEA seek a determination that the complaint cannot go forward based upon various bases. Because the defendants are similarly situated, their defenses areessentially analogous, and the court will discuss them together. Parties argue that as government entities, they have sovereign immunity and are not subject to suit. IRS asserts that the court lacks subject matter jurisdiction over the action and dismissal is required without explicit consent to suit or an instance of waiver. CSEA additionally makes this argument on behalf of the County. IRS cites to United States v. Nordic Village in support of its position. 503 U.S. 30 (1980). Lastly, the IRS argues that statutory authority for the offset—26 U.S.C. § 6402—precludes suit against the agency. Debtor argues that Congress abrogated sovereign immunity in this context - prohibited collection done actions taken with knowledge of the Debtor's bankruptcy. The arguments put forth by IRS and CSEA as to sovereign immunity miss the mark.
In 1992, the Supreme Court in Nordic Village held that § 106 of the Bankruptcy Code did not establish an unequivocal textual waiver necessary to avoid the government's sovereign immunity in bankruptcy proceedings. 503 U.S. at 33-35. However, § 106 was amended in 1994 to provide for express waiver of sovereign immunity by governmental units in a bankruptcy context relating to monetary recovery, declaratory, and injunctive relief. Benson v. United States (In re Benson), 566 B.R. 800 n.3 (Bankr. W.D. Va. 2017). Under the amended § 106, sovereign immunity is abrogated with respect to § 362 of the Bankruptcy Code, among a multitude of other sections. 11 U.S.C. § 106(a).
At least as to states, there is an understanding within the realm of bankruptcy law that the Bankruptcy Clause granted Congress the power to make a limited subrogation of sovereign immunity in order to serve the fundamental purposes which are intertwined with bankruptcy. Cent. Va. Cmty. College v. Katz, 546 U.S. 356, 362-63 (2006). As elaborated in Katz, the foundation of bankruptcy in the colonies was riddled with the issue of one jurisdiction not acknowledging...
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