Opinion
No. 286-00943-A-13
November 1, 1993
Opinion
FACTS
The debtors and the Internal Revenue Service (I.R.S.) agree upon the following facts. The debtors, Joseph D. Schmidt and Catherine A. Schmidt, filed a chapter 13 petition on February 25, 1986. On April 30, 1986, the debtors' chapter 13 plan was confirmed and, thereafter, on September 19, 1986, the I.R.S. filed its proof of claim for income taxes and penalties for the 1993 and 1994 tax years. The I.R.S. admits that its claim was duly paid through the chapter 13 plan.
On February 28, 1989 the chapter 13 trustee filed his final report and account which indicated that the case was completed and that the I.R.S. was paid $2,406.95 as a priority claim. The court issued a final decree discharging the debtor, the trustee, and the trustee's surety on March 28, 1989 thereby closing the case.
After the case was closed, the I.R.S. continued to issue notices of intent to levy against the debtors. The debtors, understandably disturbed by the actions of the I.R.S., reopened their chapter 13 case on October 30, 1989. Almost one year later, on October 16, 1990, this court granted the debtors' motion to hold the I.R.S. in contempt for violation of the 11 U.S.C. § 524(a)(2) discharge injunction. The court ordered the I.R.S. to reimburse the debtors the amount of $2,107 for the expenses they had incurred as a result of the violation.
On October 25, 1990, the I.R.S. filed a motion to alter or amend the order pursuant to Fed.R.Bankr.P. 7052 and 9023. The court granted that motion on December 10, 1990 and the debtors, by this time in propria persona, appealed to the District Court.
On August 20, 1991, the District Court, issued a memorandum and order which remanded the case to this court for a report and recommendation with respect to debtors' motion for contempt. Citing In re Sequoia Auto Brokers Ltd., 827 F.2d 1281 (9th Cir. 1987), the District Court noted that the Bankruptcy Courts do not have jurisdiction to issue contempt orders. The District Court then specifically requested the Bankruptcy Court to recommend whether or not the argument of the United States that sovereign immunity barred the imposition of sanctions against the United States should be accepted or rejected.
On October 5, 1993, the debtors filed the present motion. THOMAS M. ROHALL, ESQ., Special Assistant U.S. Attorney, appeared on behalf of the I.R.S. and JOSEPH D. SCHMIDT appeared in propria persona.
Local Rule 820 covers procedures following remand by an appellate court. That rule states that any party to the appeal may set the matter for further proceedings by filing a motion. It also states that the "Court will not set the matter for further proceedings as a matter of course." Although not so entitled, the court treats the debtor's motion as one for further proceedings following remand consistent with Local Rule 820.
DISCUSSION
The District Court citing, inter alia, In re Bulson, 117 B.R. 537 (Bankr. 9th Cir. 1990) (sovereign immunity waived pursuant to secs. 106(a) and 362(h)) and In re Pearson, 917 F.2d 1215 (9th Cir. 1990),cert. denied, 112 S.Ct 1291 (1991) (United States was immune from suit for damages for violating the automatic stay) noted an apparent conflict in Ninth Circuit cases regarding waivers of sovereign immunity.
Since the District Court signed its memorandum and order a number of important rulings have occurred: 1) the Supreme Court decided United States v. Nordic Village, Inc., 117 L.Ed.2d 181 (1992); 2) Bulson was affirmed by the Ninth Circuit at 974 F.2d 1341 [(table)] (9th Cir. 1992); 3) the Ninth Circuit in In re Pinkstaff, 974 F.2d 113 (Bankr. 9th Cir. 1992) explained its holdings in Pearson and Bulson; and, 4) the Bankruptcy Appellate Panel in In re Germaine, 152 B.R. 619 (Bankr. 9th Cir. 1993) ruled upon the exact same issue which is presently before this court.
Based upon these rulings this court must recommend that contempt sanctions not be imposed against the I.R.S. The case law indicates that even though the I.R.S. violated the discharge injunction of 11 U.S.C. § 524(a)(2), the United States has not waived its sovereign immunity with respect to a claim for money damages. When the basis of the damages claimed against the United States is sec. 524(a)(2), 11 U.S.C. § 106(a) is not an effective waiver of sovereign immunity.
A. Nordic Village
In Nordic Village a chapter 11 trustee sued the I.R.S. in order to avoid and recover a postpetition transfer made by one of the corporate officers of the debtor. The Supreme Court considered whether or not the United States had waived its sovereign immunity under 11 U.S.C. § 106(c). The Court noted that in contrast to sec. 106(c), 11 U.S.C. § 106 (a) and (b) were unequivocal expressions of waivers of sovereign immunity with regard to monetary relief in two settings: compulsory counterclaims to governmental claims and permissive counterclaims capped by a setoff limitation. 117 L.Ed.2d at 188. The Court continued that 11 U.S.C. § 106(c) was not an express waiver of sovereign immunity from a bankruptcy trustee's claims for monetary relief. 117 L.Ed.2d at 191.
Applying Nordic Village to the present facts, the debtor cannot use 11 U.S.C. § 106(c) to claim that the United States waived its sovereign immunity with respect to the contempt sanctions. The remaining cases answer in the negative whether the debtor may rely upon secs. 106(a) and (b) for the necessary waiver.
B. In re Pinkstaff
Pinkstaff involved chapter 13 debtors who sought damages, attorney's fees, and costs against the I.R.S. pursuant to 11 U.S.C. § 362(h). The Ninth Circuit rejected the government's argument that it had not waived its sovereign immunity. Instead, the court found that under 11 U.S.C. § 106(a), the government had, by filing a proof of claim, invoked the jurisdiction of the Bankruptcy Court and was exposed to counterclaim liability. 974 F.2d at 115. Citing In re Bulson, 117 B.R. 537, 541 (Bankr. 9th Cir. 1990), aff'd by memorandum, 974 F.2d 1341 [(table)] (9th Cir. 1992), and the identical facts of Bulson, the Ninth Circuit held that the government's collection activities were logically related to the tax claim itself. 974 F.2d at 115. The court concluded that the debtor's claim against the government was a compulsory counterclaim. Id.
Finally, in footnote number 2, the Ninth Circuit clarified its holdings in Bulson and Pearson. The court stated,
In re Pearson deals with the scope of the government's sovereign immunity under 11 U.S.C. § 106(c), while In re Bulson discusses the subject under 11 U.S.C. § 106(a). Whatever confusion may have existed on that point has been cleared up by the Supreme Court's recent holding in United States v. Nordic Village, Inc. (citations omitted). 974 F.2d at 116, footnote 2.
C. In re Germaine
If the present facts involved a violation of the automatic stay by the I.R.S., Bulson, Pinkstaff, and Nordic Village leave no doubt that the I.R.S. has waived its sovereign immunity under 11 U.S.C. § 106(a) and that damages for the violation could be imposed. The present facts, however, do not involve a violation of the automatic stay, but rather a violation of the 11 U.S.C. § 524(a)(2) discharge injunction. The Ninth Circuit Bankruptcy Appellate Panel's holding in In re Germaine, 152 B.R. 619 (Bankr. 9th Cir. 1993) is factually identical to the present case and controls this court's holding.
The appellate panel in Germaine held that a debtor injured by the government's violation of the discharge injunction could not rely upon a waiver of sovereign immunity under 11 U.S.C. § 106(a). The court stated that sec. 106(a) has three requirements: the government must have filed a claim against the estate; the claim against the government must arise from the same transaction or occurrence as the government's claim; and, the claim against the government must be property of the estate. 152 B.R. at 623-24. The court in Germaine found that the government's claim was being asserted against the debtor after discharge and not against the debtor's estate. 152 B.R. at 624. The court also concluded that the cause of action which arose after the debtor's discharge belonged to the debtor. Id.
Although Germaine involved an interpretation of 11 U.S.C. § 106(a), the same holding that the United States had not waived its sovereign immunity under sec. 106(b) would not apply. 11 U.S.C. § 106(b), like sec. 106(a), explicitly requires that the claim against the United States be "property of the estate."
CONCLUSION
This court recommends that the District Court not find the United States in contempt for violating the discharge injunction. The court makes no recommendation on whether or not attorney's fees would be appropriate under 26 U.S.C. § 7430 (see Germaine, 152 B.R. at 625) as this was not cited as a basis for contempt sanctions in the debtor's initial motion.