Talbot, In re

• Decision Date: 26 August 1997
• Docket Number: No. 95-4130,95-4130
• Parties: -6330, 97-2 USTC P 50,624, Bankr. L. Rep. P 77,479, 97 CJ C.A.R. 1716 In re Gary TALBOT and Sherry Talbot, Debtors. UNITED STATES of America, Appellant, v. Barbara W. RICHMAN, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1201

124 F.3d 1201

80 A.F.T.R.2d 97-6330, 97-2 USTC P 50,624,

Bankr. L. Rep. P 77,479, 97 CJ C.A.R. 1716

In re Gary TALBOT and Sherry Talbot, Debtors UNITED STATES of America, Appellant, v. Barbara W. RICHMAN, Appellee.

No. 95-4130.

United States Court of Appeals Tenth Circuit.

Aug. 26, 1997.

Laurie Snyder, Tax Division, Department of Justice, Washington, DC (Loretta C. Argrett, Assistant Attorney General, Washington, DC, and Gary D. Gray, Tax Division, Department of Justice, Washington, DC, Scott M. Matheson, Jr., United States Attorney, Of Counsel, on the brief), for Appellant.

Barbara W. Richman, Salt Lake City, UT (as and for Standing Chapter 13 Trustee for the Estate of Gary and Sherry Talbot, Debtors), for Appellee.

Before BALDOCK, HOLLOWAY, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

I. INTRODUCTION

The United States appeals a district court order directing the Internal Revenue Service ("IRS") to disgorge monies paid to it by Chapter 13 debtors, Gary and Sherry Talbot. The district court determined that a large payment made by the Talbots to the IRS for unpaid income taxes was improper because it was made outside of the confirmed plan of reorganization (the "Plan"). Exercising jurisdiction pursuant to 28 U.S.C. §§ 158(d) and 1291, this court reverses the order of disgorgement and remands to the district court for further proceedings.

II. BACKGROUND

On June 17, 1991, the Talbots petitioned the bankruptcy court for relief under Chapter 13 of the Bankruptcy Code (the "Code"). The IRS filed a proof of claim for pre-petition federal income taxes and interest in the aggregate amount of $37,660. A sizable amount of the $37,660 owed by the Talbots to the IRS was properly secured through the filing of notices of tax lien which had previously attached to the Talbots' home. According to the undisputed schedule of assets filed with the Talbots' petition, the home was worth $77,000. Using that undisputed valuation, the IRS asserted that $18,674 ¹ of its claim was secured. See 11 U.S.C. § 506(a) (providing that a claim secured by a lien on property is secured only to the extent "of the value of [the] creditor's interest in the estate's interest in [the] property"). The IRS also asserted that $15,875 of its claim was priority unsecured and that the remainder, $3111, was general unsecured. See id. § 507(a) (setting out priority of certain classes of unsecured claims).

In a proceeding brought pursuant to Chapter 13 of the Code, the debtor generally retains her assets and pays part of her future earnings to the trustee for distribution to creditors pursuant to a debt adjustment plan. See generally 8 Collier on Bankruptcy p 1300.01-.02 (Lawrence P. King ed., 15th ed.1996). Consistent with that scheme, the Talbots proposed a Plan under which creditors' claims, including the claims of the IRS, would be paid from the Talbots' future earnings. On February 4, 1992, the bankruptcy court ordered the Plan confirmed.

Under the Plan, the IRS retained its lien and the Talbots promised full payment of both the IRS' secured and priority unsecured claims, and at least thirty percent payment of IRS' general unsecured claim. Under the particular terms of the Plan, the Talbots were required to make monthly payments of $1060 to the Chapter 13 Trustee (the "Trustee") from their future earnings for a period of between thirty-six and sixty months. The Trustee would collect the payments, make distributions to creditors, and collect her own fee in accordance with the terms of the Plan.

In October 1993, some twenty months into the Plan, the Talbots sold their home for $137,500. This amount was substantially more than the $77,000 value placed on the home when the Talbots filed for Chapter 13 relief in June of 1991. By October of 1993, the federal taxes secured by liens against the Talbots' home had increased to $38,646. Of that amount, $19,229 represented unpaid debts relating to the Talbots' pre-petition taxes; the remaining $19,417 represented tax debts that had accrued post-petition. The IRS refused to release its lien on the residence unless the Talbots paid off their tax debts. Accordingly, the Talbots paid $38,646 to the IRS out of the proceeds of the sale of the home; the IRS, in turn, released the tax liens. By that time, the Talbots had already paid $11,703 of their pre-petition federal tax debt through payments under the Plan. The IRS then filed amended proofs of claim in the bankruptcy proceeding reflecting the $19,229 payment. ²

After the sale of their home and payment to the IRS, the Talbots filed a motion in the bankruptcy court to reduce the amount of their monthly payments under the Plan from $1060 to $600 per month. The Trustee objected "to the portion of the debtors' motion which allowed the [IRS] to retain proceeds received directly from the sale of debtors' real property, rather than provided for the proceeds to be paid through the plan to [the IRS]." She asked the court to order the IRS to disgorge and pay to her on behalf of the estate the $19,229 the Talbots paid directly to the IRS from the sale proceeds of their residence. She conceded that the IRS could keep the $19,417 it had received in satisfaction of post-petition taxes. As support for her request, the Trustee argued that the amount the IRS could properly collect on its lien was limited to the balance remaining due on its secured claim, which she contended was $6971.

The United States filed a memorandum in support of the Talbots' motion to reduce their Plan payments. The United States argued that its tax lien survived the confirmation of the Plan and was not limited to the amount of the IRS' secured claim. The United States maintained that the only way in which a federal tax lien may be avoided is through an adversary proceeding. Because neither the Trustee nor the Talbots brought an adversary proceeding to avoid the IRS lien, the United States asserted the lien continued to exist post-petition.

The bankruptcy court approved the Talbots' motion to modify the Plan. Nevertheless, by a separate order dated October 4, 1994, the court directed the IRS to disgorge $19,229 to the Trustee so that the IRS' claim could be paid as provided in the Plan. The only rationale the bankruptcy court gave for its order was that the sale of Talbots' residence "had not been specifically approved by the Court."

On appeal to the district court, the United States again argued that the IRS tax lien survived confirmation of the Plan. In addition, the United States argued that the bankruptcy court should not have ordered disgorgement because the Talbots' home revested in the Talbots upon confirmation and was no longer property of the estate subject to bankruptcy court oversight. The district court affirmed the order of the bankruptcy court without opinion.

III. ANALYSIS

A. Sovereign Immunity

The United States asserts for the first time on appeal that as a sovereign it was immune from the Trustee's suit in this case and, concomitantly, that the district court was without power to order the IRS to disgorge the monies paid to it by the Talbots. Although the general rule in the Tenth Circuit is that the court will not consider an issue raised for the first time on appeal, Hicks v. Gates Rubber Co., 928 F.2d 966, 970 (10th Cir.1991), the United States' claim of sovereign immunity presents an exception to the general rule.

"It has long been established ... that the United States, as sovereign 'is immune from suit save as it consents to be sued.' " United States v. Testan, 424 U.S. 392, 399, 96 S.Ct. 948, 953, 47 L.Ed.2d 114 (1976) (quoting United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 769, 85 L.Ed. 1058 (1941)). "[T]he 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). "Thus, if the government has not consented to suit, the courts have no jurisdiction to either 'restrain the government from acting, or to compel it to act.' " See United States v. Murdock Mach. & Eng'g Co., 81 F.3d 922, 930 (10th Cir.1996) (quoting Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 704, 69 S.Ct. 1457, 1468, 93 L.Ed. 1628 (1949)). Furthermore, neither the government's attorneys nor any other officer of the United States may waive the United States' sovereign immunity. See Murdock Mach., 81 F.3d at 931. Accordingly, questions of sovereign immunity may be raised at any time in the proceeding. See Daigle v. Shell Oil Co., 972 F.2d 1527, 1539 (10th Cir.1992); Hicks, 928 F.2d at 970; Farmers Ins. Co. v. Hubbard, 869 F.2d 565, 570 (10th Cir.1989).

Substantively, the doctrine of sovereign immunity prohibits suits against the United States except in those instances in which it has specifically consented to be sued. See Murdock Mach., 81 F.3d at 929. The United States consents to be sued only when Congress unequivocally expresses in statutory text its intention to waive the United States' sovereign immunity. See United States v. Nordic Village, Inc., 503 U.S. 30, 33, 112 S.Ct. 1011, 1014, 117 L.Ed.2d 181 (1992); Irwin v. Department of Veterans Affairs, 498 U.S. 89, 95, 111 S.Ct. 453, 457, 112 L.Ed.2d 435 (1990). Any waiver "must be construed strictly in favor of the sovereign and not enlarged beyond what [its] language requires." See Nordic Village, 503 U.S. at 34, 112 S.Ct. at 1015 (citations and quotations omitted).

Section 106(a) of the Code specifies the exact Code provisions for which the United States' sovereign immunity is waived. Section 106(a) provides, in pertinent part, as follows:

(a) Notwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit[ ³] to the extent set forth in this section with respect to the following:

(1) Sections 105, 106, ..., 362, ..., 1301, 1303, 1305, and 1327 of this title.

(2) The court may hear and determine any issue arising with respect to the application of such sections to...