Price, In re

• Citation: 42 F.3d 1068
• Decision Date: 14 December 1994
• Docket Number: No. 93-3133,93-3133
• Parties: -7417, 75 A.F.T.R.2d 95-581, 32 Collier Bankr.Cas.2d 935, Bankr. L. Rep. P 76,305 In re Theodore R. PRICE and Ollie P. Price, Debtors. Theodore R. PRICE and Ollie P. Price, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1068

42 F.3d 1068

74 A.F.T.R.2d 94-7417, 75 A.F.T.R.2d 95-581,

32 Collier Bankr.Cas.2d 935,

Bankr. L. Rep. P 76,305

In re Theodore R. PRICE and Ollie P. Price, Debtors Theodore R. PRICE and Ollie P. Price, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 93-3133.

United States Court of Appeals Seventh Circuit.

Argued Sept. 14, 1994.

Decided Dec. 14, 1994.

Gary R. Allen, Gary D. Gray (argued), John A. Dudeck, Jr., Dept. of Justice, Tax Div., Appellate Section, Washington, DC, Joel R. Nathan, Asst. U.S. Atty., Civ. Div., Appellate Section, Chicago, IL, Karen A. Smith, Dept. of Justice, Tax Div., Appellate Section, Washington, DC, for appellant.

Cary R. Rosenthal, Kevin D. Sprow, Robert E. McKenzie (argued), McKenzie & McKenzie, Chicago, IL, for appellees.

Before GODBOLD, ^* WOOD, Jr., and COFFEY, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

Within the context of a Chapter 13 bankruptcy proceeding, Theodore Price and his wife, Ollie Price, brought an action against the United States seeking attorneys' fees and costs for the Internal Revenue Service's post-petition violation of an automatic stay. The bankruptcy court held that sovereign immunity was waived by the United States under Section 106 of the Bankruptcy Code, and that the debtors were entitled to damages for the stay violation. The district court affirmed and remanded the case for entry of the amount of the award. The bankruptcy court awarded $11,477.88 in fees and costs, and the district court affirmed. The government appeals arguing that the government did not waive sovereign immunity because the applicable logical relationship test was not met. Because we conclude the government did waive sovereign immunity under Sec. 106(a), we affirm.

I. FACTS

The facts in this case are not in dispute. On January 17, 1989, Theodore and Ollie Price [debtors] filed a joint Chapter 13 petition for relief. The Internal Revenue Service [IRS] received proper notification of the bankruptcy filing. A repayment plan was confirmed in February 1989. Under the plan the debtors were required to pay in full their 1986, 1987, and 1988 income taxes. The debtors have paid those taxes according to their plan.

On April 17, 1989, the IRS sent a notice of intent to levy in violation of the automatic stay. The notice stated that unless the IRS received their 1988 income tax liability of $3,188.65 within ten days, enforcement proceedings, which may include filing tax liens and seizing debtors' property, would be instituted. The debtors contacted their bankruptcy counsel, who called the IRS office that issued the notice the next day. After several days and several unsuccessful attempts by debtors' counsel to contact an IRS official concerning this matter, the debtors filed an emergency motion to enjoin the IRS from taking further collection actions and a petition to show cause.

The government conceded in their response that such a notice to levy was a violation of the automatic stay under 11 U.S.C Sec. 362, but contested the emergency motion and petition. The notice was a computer-generated error that could have been suspended with human intervention. On May 9, 1989, subsequent to the notice and response, the IRS filed its timely proof of claim concerning their tax liability interest.

On August 23, 1989, Bankruptcy Judge John H. Squires of the United States Bankruptcy Court for the Northern District of Illinois, held that the IRS had willfully violated the automatic stay under Sec. 362(a)(1) and (6), and thus the Prices were entitled to reasonable attorneys' fees and costs under Sec. 362(h). Bankruptcy Judge Squires also determined the IRS had waived its sovereign immunity under 11 U.S.C. Sec. 106(a), (b), and (c).

The government appealed to the district court. The government's principal defense was the bankruptcy court erred in finding that the United States had waived its sovereign immunity from monetary relief under Sec. 362(h). Judge Rovner affirmed the bankruptcy court's order and ruled the United States had waived its sovereign immunity under Sec. 106(a), (b), and (c). The case was remanded back to Bankruptcy Judge Squires for entry of the amount of attorneys' fees and costs.

In the interim, on February 25, 1992, the Supreme Court decided United States v. Nordic Village, Inc., 503 U.S. 30, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992). At issue was whether Sec. 106 of the Bankruptcy Code was an unequivocal waiver of the government's sovereign immunity from a bankruptcy trustee's claims for monetary relief. Id. at ---- - ----, 112 S.Ct. at 1011-13. Justice Scalia, writing for the Court, held that Sec. 106(c) did not waive the United States' sovereign immunity with regard to monetary relief because it failed to unambiguously establish that the waiver extended to these types of monetary claims. Id. at ----, 112 S.Ct. at 1015. The Court, however, did find that subsections (a) and (b) of Sec. 106 met this " 'unequivocal expression' requirement with respect to monetary liability." Id. Subsections 106(a) and (b) plainly waive sovereign immunity in regards to monetary relief in two settings: compulsory counterclaims to governmental claims, 11 U.S.C. Sec. 106(a); and permissive counterclaims to governmental claims capped by a setoff limitation, 11 U.S.C. Sec. 106(b). Id.

Bankruptcy Judge Squires found that the Nordic Village decision effectively overruled Judge Rovner's holding with regard to Sec. 106(c), but buttressed the validity of her decision concerning subsections Sec. 106(a) and (b). Therefore Bankruptcy Judge Squires awarded damages accordingly; $10,963.75 was to be paid in attorneys' fees and $514.13 in reimbursement for expenses. The government again appealed to the district court, which was heard by Judge Holderman.

The district court affirmed the award of damages and dismissed the government's sovereign immunity arguments because the issue had been previously ruled on. The government then appealed to this court. We affirm.

II. ANALYSIS

Section 362 of the Bankruptcy Code provides:

(a) Except as provided in subsection (b) of this section, a petition filed under 301, 302, or 303 of this title ... 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 under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;

....

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

....

(h) An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages.

11 U.S.C. Sec. 362 (1993).

Pursuant to Sec. 362(a)(1) and (6) of the Bankruptcy Code, when a debtor files a petition in bankruptcy, creditors are barred from attempting to collect debts that arose prior to bankruptcy. See Price v. Rochford, 947 F.2d 829, 831 (7th Cir.1991). If such collection attempts are made, a violation will result and entitle the debtor to any actual damages--attorneys' fees and costs--under Sec. 362(h). There is no dispute in this case that the IRS did in fact violate Sec. 362(a)(1) and (6). The IRS has conceded that the notice, albeit generated by a computer error, constituted a technical violation of the stay. The violation is also considered willful because the government was aware of the pending bankruptcy proceeding and, despite the several pleas to halt further collection actions, the government declined to intervene. A "willful violation" does not require a specific intent to violate the automatic stay. Therefore, effectively conceding the violation, the government argues that it is not liable to the Prices because of sovereign immunity.

The doctrine of sovereign immunity prohibits suits against the United States except in specific instances where the government has consented to be sued. FDIC v. Meyer, --- U.S. ----, ----, 114 S.Ct. 996, 1000, 127 L.Ed.2d 308 (1994); United States v. Nordic Village, Inc., 503 U.S. 30, ---- - ----, 112 S.Ct. 1011, 1014-15, 117 L.Ed.2d 181 (1992); Loeffler v. Frank, 486 U.S. 549, 554, 108 S.Ct. 1965, 1969, 100 L.Ed.2d 549 (1988). The terms of the consent must be construed in favor of the sovereign and not enlarged beyond what the language requires. Ruckelshaus v. Sierra Club, 463 U.S. 680, 685, 103 S.Ct. 3274, 3277, 77 L.Ed.2d 938 (1983). Because sovereign immunity is jurisdictional in nature, the government's waiver of sovereign immunity is a jurisdictional prerequisite to a bankruptcy court's order. United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 769, 85 L.Ed. 1058 (1941) (stating the "terms of [the United States'] consent to be sued in any court define that court's jurisdiction to entertain the suit"); see also United States v. Mitchell, 463 U.S. 206, 212, 103 S.Ct. 2961, 2965, 77 L.Ed.2d 580 (1983) (stating that the "United States may not be sued without its consent and that the existence of consent is a prerequisite for jurisdiction").

In order to assert a claim against a "governmental unit," ¹ a party must satisfy the requirements of Sec. 106 of the Bankruptcy Code. Section 106 provides a limited waiver of sovereign immunity in bankruptcy cases, and is the only source for a waiver of immunity. Section 106 contains three subparts where the government is deemed to have waived sovereign immunity. Section 106 provides:

(a) A governmental unit is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which such governmental claim arose.

(b) There shall be offset against an allowed claim or...