Taborski v. USIRS
| Decision Date | 10 March 1992 |
| Docket Number | No. 91 C 6600,88 B 1624 and 89 A 587.,91 C 6600 |
| Citation | 141 BR 959 |
| Parties | Jerri TABORSKI, Plaintiff, v. UNITED STATES of America INTERNAL REVENUE SERVICE, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Robert J. Adams and Brian C. Pedersen, Robert J. Adams & Associates, Chicago, Ill., for Adolph Taborski.
Jerri Taborski, pro se.
Douglas W. Snoeyenbos, U.S. Dept. of Justice, Washington, D.C., for I.R.S.
The bankruptcy court found the Internal Revenue Service ("IRS") willfully violated the automatic stay set forth in 11 U.S.C. § 362 ("§ 362") by seizing Jerri Taborski's postpetition income tax refunds and applying those overpayments to her husband's income tax liability.1 As a consequence of these actions, the bankruptcy court awarded Jerri Taborski her costs and attorneys' fees for actions she took to force the IRS to refund her overpayments. The United States objects to the bankruptcy court's decision. Notwithstanding the United States' objections, we affirm the bankruptcy court's decision.
On October 8, 1984, the IRS jointly and severally assessed Adolph and Jerri Taborski $3,248 in tax, $1317.47 in interest and $793.40 in penalty with respect to their joint 1981 federal income taxes. On February 17, 1988, Jerri Taborski filed a petition under Chapter 13 of the Bankruptcy Code. The bankruptcy court confirmed her reorganization plan on May 16, 1988. On June 17, 1988, the IRS filed a proof of claim totaling $3,163.45 for 1981 income taxes owed by the Taborskis.
Subsequently, the IRS seized the Taborskis' joint 1987 and 1988 federal and 1988 state income tax refunds and applied those refunds against Adolph Taborski's 1981 federal tax liability. In response to this action, Jerri Taborski filed an adversary complaint against the IRS seeking a rule to show cause why the IRS should not be held in contempt for violating the automatic stay by seizing her share of the 1987 and 1988 federal and 1988 state income tax refunds.2
The IRS also filed a notice of federal income tax lien on August 25, 1989 against all of Adolph and Jerri Taborski's property. In response to the tax lien, the Taborskis filed a motion in the bankruptcy court on November 21, 1989 seeking damages under § 362(h) and a rule to show cause why the IRS should not be held in contempt under Bankruptcy Rule 9020. Taborski argued the IRS violated the automatic stay again by filing its notice of federal tax lien. On January 12, 1990, the bankruptcy court consolidated the adversary complaint with the motion.
On October 11, 1990, the IRS seized Jerri Taborski's 1989 income tax refund and applied it to her husband's 1981 tax liability. Jerri Taborski responded to this second seizure by filing a second motion to show cause why the United States should not be held in contempt for violating the automatic stay under § 362.
On November 1, 1990, the IRS refunded Jerri Taborski's overpayments for the 1987 and 1988 federal and 1988 state income taxes, which the IRS had withheld in violation of the automatic stay. However, the IRS did not compensate Taborski for her costs and attorneys' fees incurred in filing the adversary action and the first motion to show cause.
On September 16, 1991, the bankruptcy court held that the IRS willfully violated the automatic stay in two ways.3 First, the court held that the IRS violated the automatic stay by seizing Jerri Taborski's share of the 1987 and 1988 federal and 1988 state income tax refunds and offsetting them against Adolph Taborski's tax liability. Second, the court concluded that the IRS violated the automatic stay by filing a notice of federal tax lien against Jerri Taborski's property. The bankruptcy court rejected the United States' sovereign immunity defense and awarded Jerri Taborski her attorneys' fees and costs in bringing the adversary action and the first motion to show cause. Furthermore, the bankruptcy court ordered an evidentiary hearing to determine whether the IRS violated the automatic stay by seizing Jerri Taborski's share of the 1989 income tax refund.
The United States objects to the bankruptcy court's decision pursuant to Bankruptcy Rule 9033. The United States first argues that it never waived its sovereign immunity and therefore that the bankruptcy court did not have jurisdiction to enter an award of costs and attorneys' fees against it. Second, the United States claims that even if it waived sovereign immunity, the IRS did not violate the automatic stay under § 362 with respect to the 1987 and 1988 refunds because it did not know Jerri Taborski claimed an individual share of the refund. Finally, the United States argues that the bankruptcy court committed error by failing to apply the substantive provisions of 26 U.S.C. § 7430 to the issue of the award of costs and attorneys' fees.
Pursuant to Bankruptcy Rule 9033, the district court reviews a bankruptcy judge's decision de novo. For the reasons set forth below, we find that the IRS willfully violated the automatic stay and therefore that the United States must reimburse Jerri Taborski for her costs and attorneys' fees. As an initial matter, we must first discuss how the United States has waived its sovereign immunity defense.
In general, the United States cannot be sued without its consent, and the existence of consent is a prerequisite for jurisdiction. United States v. Mitchell, 463 U.S. 206, 212, 103 S.Ct. 2961, 2965, 77 L.Ed.2d 580 (1983). The bankruptcy court found that the United States waived sovereign immunity pursuant to 11 U.S.C. § 106, which provides as follows:
11 U.S.C. § 106(a) & (c). The United States challenges the bankruptcy court's finding and argues it did not waive sovereign immunity under either § 106 or under Bankruptcy Rule 9020.4
The United States first argues that 11 U.S.C. § 106(c) does not waive the United States' sovereign immunity from suit for recovery of monetary damages, citing as authority Hoffman v. Connecticut Department of Income Maintenance, 492 U.S. 96, 109 S.Ct. 2818, 106 L.Ed.2d 76 (1989). In Hoffman, four members of the Supreme Court held that § 106(c) does not operate as a waiver of a State's sovereign immunity. The United States seeks to expand the application of that rule and have us find that § 106(c) does not operate as a waiver of the United States' sovereign immunity from suits for money damages.
Upon our first review of this matter, our initial inclination was to limit Hoffman to situations involving monetary awards against states as did Judge Rovner in In re Price, 130 B.R. 259 (N.D.Ill.1991). In Price, Judge Rovner affirmed the bankruptcy court's decision to sanction the IRS for willfully violating the automatic stay. Judge Rovner rejected the United States' argument that Hoffman barred an award of costs and attorneys' fees. She distinguished Hoffman in three ways.
First, Judge Rovner noted that the Supreme Court was evenly divided about whether § 106(c) waives a state's sovereign immunity. Therefore, Judge Rovner found that even assuming Hoffman is controlling on the issue of the federal government's waiver of sovereign immunity under § 106(c), "there is no signal from the divided Court which suggests one result or another on this question." Price, 130 B.R. at 267.
Second, the issue before the Hoffman court concerned the relationship between Congress' ability to waive a state's sovereign immunity under § 106(c) and a state's constitutional protection under the Eleventh Amendment. This peculiar constitutional issue distinguishes Hoffman from a suit involving the United States, because the United States does not enjoy similar constitutional protection.
Finally, Judge Rovner found that the legislative history of § 106 supports the conclusion that Congress intended to waive the federal government's immunity from suit, including suits for monetary relief. Id.5
We delayed issuing our decision because the Supreme Court granted certiorari to decide whether § 106(c) of the Bankruptcy Code waives the United States' sovereign immunity from an action seeking monetary recovery in bankruptcy. On February 25, 1992, the Supreme Court issued its opinion, holding that § 106(c) does not waive the United States' sovereign immunity. United States v. Nordic Village, ___ U.S. ___, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992). In that case, the debtor, Nordic Village ("Nordic"), filed a petition under Chapter 11. Four months later, a Nordic Village officer withdrew $20,000 from the company's corporate account and sent that amount to the IRS with instructions that it be used against his individual tax liability. The trustee appointed for Nordic filed an adversary proceeding against the United States to recover the $20,000. The bankruptcy court permitted the recovery and entered a $20,000 judgment against the IRS, which the district court affirmed.6 For the first time on appeal, the United States raised a defense of sovereign immunity. The Sixth Circuit rejected that defense and upheld the district court's decision. The Supreme Court agreed to hear the case because of a conflict in the circuits.
The Court first rejected the notion that its prior opinion in Hoffman controlled the issue before it. Nordic Village, 112 S.Ct. at 1014. The Court...
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