Opinion
Case No. 6:05-cv-1633-Orl-31DAB.
February 10, 2006
ORDER
This matter came before the Court after a hearing on the appeal filed by the Florida Department of Revenue ("DOR") of the Bankruptcy Court's Order of August 26, 2005, which awarded damages and sanctions for violations of the automatic stay. In considering this appeal, the Court has considered the DOR's brief (Doc. 16,), the brief filed by the Appellees, Gregg and Michelle Omine (the "Omines") (Doc. 17), and DOR's reply brief (Doc. 18).
Unless otherwise indicated, all references are to this Court's docket in this case, rather than that of the Bankruptcy Court or that of the previous proceedings involving these parties in this Court.
I. Background
The Omines filed for Chapter 13 bankruptcy protection on April 12, 2001. (Doc. 1-5 at 1). DOR filed a proof of claim on June 18, 2001, seeking to recover public assistance money paid by the state of Hawaii to Omine's former wife and children, who resided there. (Doc. 2-2 at 6-7). This debt (the "Hawaii debt") was included among those to be paid in the Debtors' Chapter 13 plan, which was confirmed by the Bankruptcy Court on February 5, 2002. (Doc. 1-5 at 4).
All references to "Omine" in this opinion are references to Gregg Omine.
Shortly before confirmation, Omine had filed a motion for sanctions, contending that DOR had continued debt-collection efforts after the filing of the bankruptcy petition, in violation of the automatic stay. Specifically, Omine contended that DOR (1) had sent him a letter threatening to report him to credit bureaus for failing to pay the Hawaii debt and (2) had continued to garnish his wages. (Doc. 2-2 at 7-8). The Debtors withdrew the motion on January 23, 2002, after DOR's counsel assured them that no further actions would be taken against Omine. (Doc. 2-2 at 8).
The assurances proved illusory. In February 2003, Omine's employer received a letter from DOR directing the employer to begin garnishing Omine's wages in connection with the Hawaii debt. (Doc. 2-2 at 9). Omine's attorney contacted DOR's counsel, who agreed to get the department to cease the garnishment. (Doc. 2-2 at 10). DOR sent a garnishment-cessation letter to Omine's employer on March 6 — followed, a week later, by a letter directly to Omine, threatening him with various penalties (from driver's license suspension to criminal prosecution) if he failed to pay the Hawaii debt. (Doc. 2-2 at 10). Again, communications between the parties' attorneys were sufficient to bring the collection efforts to a halt, at least temporarily. (Doc. 2-2 at 11). On April 18, DOR directed Omine's employer to begin garnishing his wages again to pay the Hawaii debt. (Doc. 2-2 at 11). Omine's counsel again contacted DOR's counsel, and on May 14 DOR sent another garnishment-cessation letter to Omine's employer. (Doc. 2-2 at 11-12). Within a few days, the Omines received notice that their 2002 tax refund had been offset against the Hawaii debt. (Doc. 2-2 at 12). Shortly thereafter, the Omines filed a motion for sanctions for DOR's repeated violations of the automatic stay. (Doc. 2-2 at 12).
The Bankruptcy Court found that DOR had willfully violated the automatic stay by directing Omine's employer to begin garnishing his wages in February 2003 and April 2003 and by sending Omine the collection notice in March 2003. (Doc. 2-2 at 21-22). As a sanction, the Bankruptcy Court discharged the remainder of the Hawaii debt and awarded the Omines $1,000 in actual damages, plus $1,600 in attorney's fees and costs. (Doc. 2-2 at 23-24).
DOR appealed the Bankruptcy Court's order to this Court. DOR argued that the Bankruptcy Court erred by holding that its actions violated the automatic stay, by awarding attorney's fees without sufficient evidentiary support, and by awarding punitive damages against a governmental unit. (Doc. 10 at 4 in 6:03-cv-01283). In regard to the automatic stay, DOR contended that Omine's post-petition income was not property of the estate, that sending debt-collection letters was not an "action" against estate property, that 11 U.S.C. § 362(b)(2) permitted DOR to attempt to collect a support obligation, and that the collection efforts resulted from computer glitches and were therefore not willful. (Doc. 10 at 5-7 in 6:03-cv-01283). The undersigned found in the Omines' favor as to each of the automatic stay issues and found that the damages were actual, rather than punitive, but vacated and remanded for the Bankruptcy Court to provide an evidentiary basis for the attorney's fee award. (Doc. 10 at 5-10 in 6:03-cv-01283). The undersigned also remanded for the Bankruptcy Court to determine whether the debt was actually in the nature of support, and therefore dischargeable. (Doc. 10 at 10-12 in 6:03-cv-01283).
DOR appealed again. In an unpublished, per curiam decision, the United States Court of Appeals for the Eleventh Circuit affirmed this Court's order. (Doc. 2-5). The Eleventh Circuit declined to address the DOR's "property of the estate" argument, finding that it had not been raised before the Bankruptcy Court. (Doc. 2-5 at 2).
On remand, the Bankruptcy Court held another hearing to address the attorney's fee and dischargeability issues. After considering evidence as to the hours expended by the Omines' counsel (both in the original action and on appeal) and expert testimony as to its reasonableness, the Bankruptcy Court awarded the debtors $12,740 in fees and $175.45 in costs. The Bankruptcy Court also concluded that the Hawaii debt was not one "in the nature of alimony, maintenance or child support due to [Omine's] ex-wife or his children" and was therefore dischargeable. (Doc. 1-3 at 2).
At the same hearing, the Bankruptcy Court was required to address two further motions for sanctions, both filed by the Omines while the first order had been on appeal. DOR had sent a notice of past due support to the Omines in August 2003 and a collection letter in October 2004. (Doc. 1-3 at 7-8). The Bankruptcy Court found that both letters constituted willful violations of the automatic stay. (Doc. 1-3 at 8). She awarded the Omines an additional $1,045.12 in actual damages, $2,000 in sanctions, and $885.00 in attorneys' fees. (Doc. 1-3 at 8-9).
II. Standard of Review
In an appeal of a decision of the Bankruptcy Court, this Court sits as an appellate court. When reviewing the Bankruptcy Court's findings of fact, this Court applies the clearly erroneous standard. In re Williamson, 15 F.3d 1037, 1038 (11th Cir. 1994); Capitol Indem. Corp. v. Heidkamp, 312 B.R. 437, 439 (M.D. Fla. 2003); Fed.R.Bankr.P. 8013 ("Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses."). This Court does not make independent factual findings, as that is the function of the Bankruptcy Court. Williamson, 15 F.3d at 1038; In re Goerg, 930 F.2d 1563, 1566 (11th Cir. 1991). "A finding of fact is clearly erroneous when, although there is evidence to support it, the reviewing court on review of the entire evidence is left with the definite and firm conviction that a mistake has been committed." Lightner v. Lohn, 274 B.R. 545, 548 (M.D. Fla. 2002); see also Capitol Indem., 312 B.R. at 440 (same). The burden of showing clear error falls on the party seeking to overturn the Bankruptcy Court's findings. In re Caribbean K Line, Ltd., 288 B.R. 908, 911 (S.D. Fla. 2002).
This Court reviews the Bankruptcy Court's conclusions of law under a de novo standard. Williamson, 15 F.3d at 1038; Goerg, 930 F.2d at 1566. Under de novo review, this Court independently examines the law and draws its own conclusions after applying the law to the facts of the case, without regard to decisions made by the Bankruptcy Court. In re Piper Aircraft Corp., 244 F.3d 1289, 1295 (11th Cir. 2001) ("De novo review requires the court to make a judgment independent of the bankruptcy court's, without deference to that court's analysis and conclusions.").
III. Analysis
A. Sovereign Immunity
DOR argued extensively before the Bankruptcy Court and this Court that sovereign immunity barred the Omines' suit. However, on January 23, 2006, the United States Supreme Court handed down its decision in Central Virginia Community College v. Katz, 126 S.Ct. 990 (2006). In Katz, the Supreme Court held that the states, in ratifying the Bankruptcy Clause of Article I of the Constitution, "acquiesced in a subordination of whatever sovereign immunity they might otherwise have asserted in proceedings necessary to effectuate the in rem jurisdiction of the bankruptcy courts." Id. at *11. Actions to force a creditor to honor the automatic stay are obviously the sorts of proceedings that are necessary to effectuate the Court's in rem jurisdiction. DOR may not assert sovereign immunity here.
B. Dischargeability
The version of 11 U.S.C. § 523(a)(5) applicable to this case renders nondischargeable in bankruptcy any debt
The current version of 11 U.S.C. § 523(a)(5), which was amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, simply renders nondischargeable any debt "for a domestic support obligation" — with no qualifiers or exceptions. 11 U.S.C. § 523(a)(5) (2006). However, that amendment to § 523(a)(5) took effect 180 days after April 20, 2005 and does not apply to bankruptcy cases, such as this one, commenced before that date. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Publ.L. No. 109-8, Title XV, § 1503, 119 Stat. 23, 216 (2005).
to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that —
(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to section 408(a)(3) of the Social Security Act, or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State); or
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support;
The only evidence presented on this point was Omine's testimony. Omine testified that DOR was collecting money "[f]or the state of Hawaii for the welfare that my ex-wife and children had received.". (Doc. 2-10 at 12). DOR does not argue that the Hawaii debt was, in fact, in the nature of support, as required by § 523(a)(3). Rather, DOR argues that the Bankruptcy Court was required to treat the Hawaii debt as if it were in the nature of support because (1) § 523 requires the Bankruptcy Court to look to state law to determine whether a debt is in the nature of support and (2) a Hawaiian statute provides that orders for reimbursement of public assistance "shall be considered child support arrearages for purposes of nondischargeability in bankruptcy." (Doc. 16 at 12-13).
However, in construing 11 U.S.C. 523(a)(5), the United States Court of Appeals for the Eleventh Circuit has held that federal law, not state law, governs this determination.
Congress chose . . . to describe as not dischargeable those obligations in the "nature" of support. We believe that in using this general abstract word, Congress did not intend bankruptcy courts to be bound by particular state law rules.
This conclusion is directly supported by the legislative history of § 523(a)(5). The committee reports that accompanied the new bankruptcy code provide that "what constitutes alimony, maintenance, or support will be determined under the bankruptcy laws, not state law." H.R. Rep. No. 595, 95th Cong., 1st Sess. 364 (1977), U.S. Code Cong. Admin.News 1978, pp. 5787, 6319. We take this legislative history as another indication Congress did not intend dischargeability to be determined by reference to . . . state law.In re Harrell, 754 F.2d 902, 904-05 (11th Cir. 1985). Thus, the pertinent issue, governed by federal law, is whether the Hawaii debt is in the nature of support, not whether the state of Hawaii would like it to be considered that way. DOR offered no evidence that the Hawaii debt was in the nature of support, or that it was an actual support obligation that had been transferred to the state of Hawaii, or anything of that nature. Based on Omine's testimony, the Hawaii debt was not in the nature of support and was therefore dischargeable.
DOR does not challenge the reasonableness of the attorney's fees (($12,740) and costs ($175.45) awarded by the Bankruptcy Court on remand. Instead, DOR challenges the Bankruptcy Court's failure to apply the limitation set forth in 11 U.S.C. § 106, which provides, in pertinent part:
(a) Notwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated to a governmental unit to the extent set forth in this section with respect to the following:
. . .
(3) The Court may issue against a governmental unit an order . . . including an order or judgment awarding a money recovery, but not including an award of punitive damages. Such order or judgment for costs or fees . . . shall be consistent with the provisions and limitations of section 2412(d)(2)(A) of title 28.11 U.S.C. § 106(a)(3) (2006) (emphasis added). 28 U.S.C. § 2412(d)(2)(A) defines "fees and other expenses" for purposes of the Equal Access to Justice Act (the "EAJA") and limits attorney's fee awards to $125 per hour. The Bankruptcy Court held that this prohibition regarding punitive damages and limitation on attorney's fees (the "EAJA limitation") was not applicable in the instant case. The Eleventh Circuit had ruled that Section 106(a) was an unconstitutional attempt to abrogate state sovereign immunity. And DOR had filed a proof of claim, bringing this case within the ambit of 11 U.S.C. § 106(b), which provides that
See In re Crow, 394 F.3d 918, 924 (11th Cir. 2004) ("Because Congress may not abrogate state sovereign immunity pursuant to its Article I Bankruptcy Clause powers, and because § 106(a) was not validly enacted pursuant to its powers under § 5 of the Fourteenth Amendment, Congress' attempt to take from states in in personam bankruptcy cases the protection that the Eleventh Amendment provides them is invalid.").
A governmental unit that has filed a proof of claim in the case is deemed to have waived sovereign immunity with respect to a claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which the claim of such governmental unit arose.
Because the claim against DOR arose out of DOR's effort to collect on the debt underlying its proof of claim, the Bankruptcy Court found that it satisfied the "same transaction or occurrence" language of § 106(b). The Bankruptcy Court concluded that
DOR contests this finding, apparently on the grounds that its claim was against the estate, while any claim for a violation of the automatic stay belongs to Omine, and the two claims cannot therefore be considered to have arisen from the same transaction or occurrence. This argument does not merit extended discussion. See In re Burke, 146 F.3d 1313, 1318 n. 10 (11th Cir. 1998) ("[T]he debtors' adversary action in the instant case involves the same state income taxes that the State of Georgia sought to recover by filing proofs of claim. . . . Therefore, we conclude that the debtors' actions for violation of the automatic stay . . . `arise out of the same transaction or occurrence' as the State's proofs of claim.").
The provisions of the EAJA are contained in the now unconstitutional Section 106(a) and apply only in circumstances of forced abrogation of sovereign immunity protection. They do not apply when the state agency consents to this Court's jurisdiction. If Congress had intended the limitation of the EAJA to apply to other sections of the Bankruptcy Code, it would not have placed the reference to the EAJA solely under Section 106(a). By filing its proof of claim, [DOR] is deemed to have waived its sovereign immunity. No limitations imposed by the EAJA are extended to a state agency, such as [DOR] by Section 106(b). Therefore, the Court must follow the normal rules in awarding fees and costs.
(Doc. 1-3 at 5). DOR now argues that § 106(a)(3) remained in effect after In re Crow and applies in the instant case.
Judicial nullification of one portion of a legislative act does not necessarily nullify the entire act. See, e.g., Buckley v. Valeo, 424 U.S. 1, 109 (1976) ("Unless it is evident that the legislature would not have enacted those provisions which are within its power, independently of that which is not, the invalid part may be dropped if what is left is fully operative as a law."). With this in mind, it is not clear whether § 106(a)(3) remained good law in this Circuit after In re Crow. On the one hand, it could be argued that § 106(a)(3) simply helps define the scope of the abrogation of sovereign immunity set forth in § 106(a). As such, § 106(a)(3) is meaningless in the absence of § 106(a), and Congress would not have enacted the former independently of the latter. On the other hand, as the Supreme Court stated in Katz, "Congress may, at its option, either treat States in the same way as other creditors insofar as concerns `Laws on the subject of Bankruptcies' or exempt them from operation of such laws." Katz at 1005. Section 106(a)(3) could be read as Congress exempting states from the normal operation of the bankruptcy laws governing punitive damages and attorney's fees. Such an exemption would not be dependent on an abrogation of states' sovereign immunity and could survive the invalidation of § 106(a).
Section 106(a) also applies to federal "governmental units." See, e.g., Doe v. U.S., 58 F.3d 494, 497 (9th Cir. 1995). Because it does not affect the analysis here, for simplicity's sake this opinion will ignore the fact that In re Crow did not nullify Section 106(a)'s application to federal entities.
Nonetheless, assuming arguendo that § 106(a)(3) remains viable, this Court agrees that it does not apply here. DOR filed a proof of claim in these proceedings, electing to be treated like any other creditor. The original Bankruptcy Code contained a waiver provision (then codified at § 106(a)) substantially similar to the one now found at § 106(b):
(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 unit's claim arose.
Act of November 6, 1978, Pub.L. 95-598, 92 Stat. 2549 (1978). In 1978, however, Section 106 did not contain any restrictions regarding awards of punitive damages or attorneys' fees. Such restrictions were first introduced in the Bankruptcy Reform Act of 1994, along with the language attempting to abrogate sovereign immunity. Congress included the restrictions in a subsection of the new abrogation provision rather than, for example, also adding them to Section 106(b) or making them into a "Section 106(d)" that would benefit all governmental units. The most reasonable conclusion is that Congress intended for governments that filed proofs of claim to be treated like ordinary creditors in regard to those claims — as they had been for 16 years at that point. Only those governments that were dragged into court via abrogation of their sovereign immunity were to be treated like governments — immune from punitive damages and limited as to the attorney's fees and costs they (or their taxpayers) might be called upon to pay. Even if Section 106(a)(3) survived In re Crow and Katz, Congress would not have intended it to apply here.
D. Property of the Estate
The automatic stay does not bar "collection of a domestic support obligation from property that is not property of the estate." 11 U.S.C. § 362(b)(2)(B) (2006). DOR contends that the Bankruptcy Court erred by failing to find that its debt-collection efforts met the requirements for this exception. As outlined above, because the Hawaii debt was not even in the nature of support, DOR's argument must fail. Nonetheless, in the interest of completeness, the Court will address the remainder of this issue — i.e., whether DOR's actions were taken against property of the estate.
Essentially, DOR argues as follows: Upon the filing of Omine's petition, all of his future earnings and other assets became property of the estate. Upon confirmation of the Chapter 13 plan, all assets beyond the amounts needed to make the plan payments re-vested in Omine. See Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000). The collection efforts for which DOR was sanctioned occurred post-confirmation, and Omine never missed any plan payments. Somehow — and DOR does not provide further explanation — all of this adds up to a conclusion that no violation of the automatic stay occurred. (Doc. 16 at 15-16).
Originally, DOR argued that all of Omine's post-petition wages were not property of the estate — an argument which this Court rejected (Doc. 2-4 at 5) and which the Eleventh Circuit declined to address because it had not been raised before the Bankruptcy Court (Doc. 2-5 at 2-3). DOR raised the instant argument before the Bankruptcy Court in regard to the collection letters that were sent while the first motion for sanctions was making its way to the Eleventh Circuit.
It appears DOR is arguing that its collection efforts were aimed only at whatever assets Omine possessed (if any) beyond those needed to make the plan payments. But DOR made no showing that any such assets exist. Moreover, the collection letters were not limited as to their target. The "Notice of Past Due Support," which DOR sent in August 2003, threatened Omine with jail time if he did not pay the entire Hawaii debt, not just whatever fraction might be payable from assets not committed to the plan. ( See Doc. 2-3 at 4). DOR failed to show that its actions were taken against property that was not property of the estate. In consideration of the foregoing, it is hereby
ORDERED that the Bankruptcy Court's Order of August 26, 2005 is AFFIRMED. DONE and ORDERED in Chambers, Orlando, Florida on February 10, 2006.