In re: Omine, 2007 U.S. App. LEXIS 11085 (11th Cir. 2007)

2007 U.S. App. LEXIS 11085,*

IN RE: Gregg Takafumi Omine, Debtor. IN RE: Michelle Lynn Omine, Debtor. FLORIDA DEPARTMENT OF REVENUE, Plaintiff-Appellant, versus GREGG TAKEFUMI OMINE, MICHELE LYNN OMINE, Defendants-Appellees.

No. 06-11655

UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

2007 U.S. App. LEXIS 11085

May 11, 2007, Decided

May 11, 2007, Filed

PRIOR HISTORY: [*1] Appeal from the United States District Court for the Middle District of Florida. D. C. Docket Nos. 05-01633-CV-ORL-31-DAB & 01-03306-BKC-KS.

JUDGES: Before BIRCH and BLACK, Circuit Judges, and MILLS, District Judge. * BLACK, Circuit Judge, concurring in part and dissenting in part.

* Honorable Richard Mills, United States District Judge for the Central District of Illinois, sitting by designation.

OPINION BY: BIRCH

OPINION: BIRCH, Circuit Judge:

The Florida Department of Revenue (”the Florida DOR”) appeals the district court’s order affirming an order of the bankruptcy court awarding damages after a determination that the Florida DOR violated the automatic stay. We consider whether the district court erred in upholding the bankruptcy court’s discharge of the support obligation, affirming the bankruptcy court’s holding that the Florida DOR violated the automatic stay, and ordering damages. We AFFIRM the district court’s determination that the Florida DOR could not assert sovereign immunity, REVERSE and VACATE the award of damages, and REMAND to the district court for proceedings consistent with this opinion.

I. BACKGROUND

Gregg and Michele Omine filed for Chapter 13 bankruptcy [*2] protection in 2001. The Florida DOR then filed a proof of claim seeking to recover public assistance money Hawaii paid to Gregg Omine’s former wife and children, who resided there. This Hawaii debt was included among those to be paid in the Omines’ Chapter 13 plan. The Omines filed a motion for contempt and sanctions, contending that the Florida DOR had continued debt-collection efforts after the filing of the bankruptcy petition, in violation of the automatic stay. The Omines withdrew the motion in January 2002 after the Florida DOR assured them that no further actions would be taken against them, but that assurance proved illusory.

The following year, Gregg Omine’s employer received a letter from the Florida DOR directing the employer to garnish Omine’s wages in connection with the Hawaii debt. n1 After counsel for both sides conferred, the Florida DOR agreed to cease this garnishment, but then, a week later, Omine received a letter threatening him with various penalties if he failed to pay the Hawaii debt. Again, after the parties’ counsel conferred, the collection efforts were halted, albeit only temporarily.

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n1 References to “Omine” refer to Gregg Omine, whose income the Florida DOR attempted to garnish post-confirmation, whereas references to “the Omines” refer to the debtors, Gregg and Michele, collectively.

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The Florida DOR soon directed Omine’s employer to begin garnishing Omine’s wages again to pay the Hawaii debt, and counsel for each side again conferred and resolved to halt the collection effort. A few days later the Omines received a notice that their 2002 tax refund had been offset against the Hawaii debt. The Omines then filed a motion for sanctions that alleged the Florida DOR repeatedly violated the automatic stay.

The bankruptcy court found that the Florida DOR had willfully violated the automatic stay by directing Omine’s employer to begin garnishing his wages on two separate occasions and by sending the Omines the collection notice. The bankruptcy judge 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.

The Florida DOR appealed, arguing that the bankruptcy judge erred in holding that the Florida DOR’s actions violated the automatic stay, by awarding attorney’s fees without sufficient evidentiary support, and by awarding punitive damages against a governmental unit. The Florida DOR asserted that Omine’s post-petition income was not property of the estate; that sending debt-collection letters [*4] was not an action against estate property; that 11 U.S.C. § 362(b)(2) created an exception permitting the Florida DOR to collect a support obligation; and that the collection efforts resulted from computer glitches and were therefore not willful.

On 3 November 2003, the district court found that the Florida DOR violated the automatic stay and the damages were actual, not punitive. The court, however, vacated the attorney’s fees award and remanded to the bankruptcy court to provide an evidentiary basis for it. The district court also remanded the case to the bankruptcy court for the determination as to whether the debt was in the nature of support, and therefore nondischargeable. The district court considered the Florida DOR’s “property of the estate” argument, but found that “Omine’s income, which the [Florida DOR] attempted to garnish post-confirmation, is essential to the Debtors’ ability to make plan payments and therefore is estate property to which the [Florida DOR] is not entitled.” R1, 2-4 at 6.

The Florida DOR appealed the 2003 order, and we affirmed the district court’s order in a 2004 unpublished opinion. We declined to address the Florida DOR’s [*5] “property of the estate” argument, finding that it was not raised before the bankruptcy court, but otherwise affirmed the district court’s order finding that the Florida DOR violated the automatic stay and remanding the case to the bankruptcy court.

Before the bankruptcy court decided the remanded issues, the Omines filed new motions for sanctions on additional alleged violations of the automatic stay for conduct similar to the Florida DOR’s earlier transgressions. Specifically, the Omines alleged that the Florida DOR had sent another notice of past-due support to the Omines in August 2003 and another collection letter in October 2004 regarding the Hawaii debt. With new motions filed against the Florida DOR at the bankruptcy court level, the Florida DOR raised many of the same issues it raised regarding the first collection letters, including the “property of the estate” argument, which we held was not raised properly the last time the parties were at the bankruptcy court. The bankruptcy court addressed both the remanded issues and the new motions in the same 2005 order.

The 2005 bankruptcy court order awarded $ 12,740 in fees and $ 175.45 in costs. The bankruptcy court also concluded [*6] that the Hawaii debt was “not in the nature of support and, therefore, [was] dischargeable.” R1, 1-3 at 2. The order then addressed the two additional new motions for sanctions that alleged that the Florida DOR had sent a notice of past-due support to the Omines and a collection letter. The bankruptcy court found that both letters constituted willful violations of the automatic stay and awarded $ 1045.12 in actual damages, $ 2,000 in sanctions, and $ 885 in attorney’s fees. The bankruptcy court disposed of the Florida DOR’s “property of the estate” argument by agreeing with the district court’s analysis in its 2003 order.

The Florida DOR again appealed to the district court. Regarding dischargeability, the district court held that the pertinent issue was whether, under federal law, the Hawaii debt was in the nature of support, not whether Hawaii’s state laws consider it as such. Based on the lack of evidence provided by the Florida DOR that the Hawaii debt was in the nature of support and Omine’s testimony that the Hawaii debt was not in the nature of support, the district court affirmed the bankruptcy court’s determination that the Hawaii debt was not in the nature of support [*7] and was therefore dischargeable.

The district court also held, pursuant to the Supreme Court’s decision in Central Virginia Community College v. Katz, 546 U.S. 356, 126 S. Ct. 990, 163 L. Ed. 2d 945 (2006), that actions to force a creditor to honor the automatic stay are the types of proceedings necessary to effectuate the Court’s in rem jurisdiction and, therefore, the Florida DOR could not assert sovereign immunity. The district court then turned to the Florida DOR’s challenge to the bankruptcy court’s failure to apply the limitations set forth in 11 U.S.C. § 106(a)(3), which prohibits punitive damages and limits attorney’s fees and costs. The district court noted that we held that § 106(a) was an unconstitutional attempt to abrogate state sovereign immunity in In re Crow, 394 F.3d 918, 921-24 (11th Cir. 2004) (per curiam). The district court then held that even if § 106(a)(3) were viable after In re Crow, Congress would not have intended it to be applicable in a case such as this-where the Florida DOR filed a proof of claim, waiving sovereign immunity-as opposed to situations where the government was dragged into [*8] court via abrogation of their sovereign immunity. Finally, the court rejected the Florida DOR’s argument that the bankruptcy court erred by failing to find that the Florida DOR’s debt collection efforts met the requirements for the exception in 11 U.S.C. § 362(b)(2)(B), which states that the automatic stay does not bar the collection of a domestic support obligation from property that is not property of the estate. The Florida DOR asserted that upon the filing of the Omines’ petition, all Omine’s future earnings and other assets became property of the estate, but upon confirmation of the Chapter 13 plan all assets beyond the amounts needed to make the plan payments re-vested in Omine. The district court rejected this argument, reasoning that the Hawaii debt was not in the nature of support, but then went on to conclude that the Florida DOR’s “property of the estate” argument was meritless because the collection letters were not limited as to their target. In other words, the notice of past-due support that the Florida DOR sent threatened Omine with repercussions if he did not pay the entire Hawaii debt, not just whatever fraction might be payable from assets [*9] not committed to the plan. Also, because the claim against the Florida DOR arose out of its efforts to collect on the debt under its proof of claim, the district court agreed with the bankruptcy court’s finding that this claim satisfied the “same transaction or occurrence” language of § 106(b). As a result, the district court affirmed the bankruptcy court’s order. This appeal followed.

II. DISCUSSION

A. Standard of review

We review issues presenting a question of law de novo. See In re Thomas, 883 F.2d 991, 994 (11th Cir. 1989). Any error as to a finding of fact is reviewed using a clearly erroneous standard. Id.

B. Res Judicata

As detailed in the background sections, the parties have litigated earlier violations of the automatic stay previously, culminating in our 2004 opinion that affirmed the district court’s order upholding the bankruptcy court’s determination that actions by the Florida DOR violated the automatic stay. The case is now before us, in part, on an appeal from the bankruptcy court’s determination that additional similar actions by the Florida DOR taken while the first case was on appeal also constitute a violation [*10] of the automatic stay, and, in part, on an appeal of the issues originally remanded to the bankruptcy court from the first case.

A party seeking to invoke the doctrine of res judicata must establish its propriety by satisfying four initial elements: “(1) the prior decision must have been rendered by a court of competent jurisdiction; (2) there must have been a final judgment on the merits; (3) both cases must involve the same parties or their privies; and (4) both cases must involve the same causes of action.” In re Piper Aircraft Corp., 244 F.3d 1289, 1296 (11th Cir. 2001). The Omines assert that the district court noted that the Florida DOR argued in its first appeal to the district court that it did not seek collection from property of the estate but we declined to hear that argument, stating that it had not been raised before the bankruptcy court. Although in our 2004 opinion we affirmed the Florida DOR’s violation of the automatic stay regarding the letters at issue in the Omines’ initial motion for sanctions, the parties are now before us from an appeal of not only the remanded issues, but also an appeal of two subsequent motions for sanctions filed against [*11] the Florida DOR for additional collection actions that the bankruptcy court held also violated the automatic stay.

“Under res judicata . . . a final judgment on the merits bars the parties to a prior action from re-litigating a cause of action that was or could have been raised in that action.” Id. Here, however, the new motions for sanctions could not have been raised in the first case because the transgressions complained of by the Omines in the new motions for sanctions had not yet occurred. See Apotex, Inc. v. FDA, 364 U.S. App. D.C. 187, 393 F.3d 210, 218 (D.C. Cir. 2004) (”Res judicata does not bar parties from bringing claims based on material facts that were not in existence when they brought the original suit.”). n2 Since the factual allegations underlying the two additional motions for sanctions are distinct allegations of new violations of the automatic stay, both cases do not involve “the same causes of action.” See In re Piper, 244 F.3d at 1296.

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n2 Although referenced in oral argument, the Omines failed to brief, and therefore waived, whether collateral estoppel could still bar our review of whether the automatic stay was violated. See Farrow v. West, 320 F.3d 1235, 1242 n.10 (11th Cir. 2003) (deeming waived an argument made only in “passing reference” and not argued on the merits).

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[*12]

C. Subordination of Sovereign Immunity

Both parties attempt to define the contours of the Supreme Court’s Katz decision, issued only days before the district court’s hearing. In Katz, the trustee commenced proceedings in bankruptcy court to recover alleged preferential transfers made to several institutions of higher education prior to the debtor’s bankruptcy filing. 546 U.S. at 356, 126 S. Ct. at 994-95. The institutions of higher education filed motions to dismiss, claiming sovereign immunity. Id. at 360, 126 S. Ct. at 995. The Supreme Court granted certiorari to consider “whether Congress’ attempt to abrogate state sovereign immunity in 11 U.S.C. § 106(a) is valid.” Id. (footnote omitted). Instead, the Court recast the issue and stated that “[t]he relevant question is not whether Congress has ‘abrogated’ States’ immunity in proceedings to recover preferential transfers. See 11 U.S.C. § 106(a). The question, rather, is whether Congress’s determination that States should be amenable to such proceedings is within the scope of its power [under the Bankruptcy Clause].” Id. at 379, 126 S. Ct. at 1005 [*13] (footnote omitted). The Supreme Court concluded that Congress’s determination is within such power, explaining “that States agreed in the plan of the Convention not to assert any sovereign immunity defense they might have had in proceedings brought pursuant to ‘Laws on the subject of Bankruptcies.’” Id. at 377, 126 S. Ct. at 1004. In other words, Congress’s power, “either [to] treat States in the same way as other creditors . . . or exempt them from [the] operation of [bankruptcy] laws . . . arises from the Bankruptcy Clause itself; the relevant ‘abrogation’ is the one effected in the plan of the Convention, not by statute.” Id. at 379, 126 S. Ct. at 1005.

Katz held that 11 U.S.C. § 106(a)’s statutory abrogation of state sovereign immunity was unnecessary to authorize the Bankruptcy Court’s jurisdiction over the preference avoidance proceedings at issue, and recognized that historically courts adjudicating disputes concerning bankrupts’ estates had the power to issue ancillary orders to enforce its in rem jurisdiction, including granting in personam relief. Id. at 361-62, 369-72, 126 S. Ct. at 995, 1000-01 [*14] . While the Supreme Court clarified that it did “not mean to suggest that every law labeled a ‘bankruptcy’ law could, consistent with the Bankruptcy Clause, properly impinge upon state sovereign immunity,” it did not delineate, other than authorizing the Bankruptcy Court’s jurisdiction over the preference avoidance proceedings at issue in Katz, where or how that line would be drawn. Id. at 378 n.15, 126 S. Ct. at 1005 n.15. The action by the bankruptcy court in this case now launches us into the remaining gray area as to what power provided by the bankruptcy code cannot be used against the State.

The Florida DOR argues that Katz recognized a waiver of sovereign immunity limited to core bankruptcy issues, including the determination of discharge and the marshaling of estate assets, but did not extend to allow public funds held by a state treasury to be at risk to benefit an individual. The Omines essentially argue that Katz’s “ancillary order” theory is broad enough to preclude the Florida DOR from asserting immunity as a defense to any proceeding grounded on a provision of the Bankruptcy Code or that affects property of the debtor estate. See [*15] id. at , 126 S. Ct. at 1000.

Courts have long recognized that “[t]he automatic stay is fundamental to the reorganization process . . . .” Small Bus. Admin. v. Rinehart, 887 F.2d 165, 168 (8th Cir. 1989) (citations omitted). Basic bankruptcy doctrine posits that a bankruptcy court’s actions in protecting the automatic stay stems from the need to prevent abusive debt-collection practices. The bankruptcy processes of proof, allowance, and distribution are all fundamentally about the adjudication of interests claimed in a res and are all inextricably intertwined. As the Katz court acknowledged, “[c]ritical features of every bankruptcy proceeding are the exercise of exclusive jurisdiction over all of the debtor’s property, the equitable distribution of that property among the debtor’s creditors, and the ultimate discharge that gives the debtor a ‘fresh start’ . . . .” 546 U.S. at 363-64, 126 S. Ct. at 996. Katz made clear that, “[i]n ratifying the Bankruptcy Clause, the States acquiesced in a subordination of whatever sovereign immunity they might otherwise have asserted in proceedings necessary to effectuate the in rem jurisdiction of [*16] the bankruptcy courts.” Id., 126 S. Ct. at 1005. A bankruptcy court’s authority to issue compulsory orders to facilitate the administration and distribution of the res flows from that jurisdiction and, as such, does not implicate a State’s sovereignty in the same way as other kinds of jurisdiction, even where the orders take the form of money damage awards against a State. While motions for contempt and seeking sanctions that include attorney’s fees and costs for violating the automatic stay may resemble money damage lawsuits in form, it is their function that is critical, and their function is to facilitate the in rem proceedings that form the foundation of bankruptcy. See In re Burke, 146 F.3d 1313, 1319 (11th Cir. 1998) (”We conclude that the substance of the Headricks’ action [alleging that the Georgia Department of Revenue violated the discharge injunction by sending a demand letter for unpaid state income taxes] is a motion to enforce the bankruptcy court’s automatic stay order.”).

As a result, we agree with the district court that, pursuant to Katz, actions to force a creditor to honor the automatic stay are the types [*17] of “proceedings necessary to effectuate the in rem jurisdiction of the bankruptcy court[],” and that, therefore, the Florida DOR may not assert sovereign immunity here. See 546 U.S. at 378, 126 S. Ct. at 1005. And while the Florida DOR insists that the Katz decision should be read narrowly, the Court’s broad language makes clear that “the jurisdiction of courts adjudicating rights in the bankrupt estate include[s] the power to issue compulsory orders to facilitate the administration and distribution of the res.” Id. at 362, 126 S. Ct. at 996. In fact, in holding that the States could not assert their sovereign immunity to defeat preference recovery proceedings, the Court in Katz did not limit its decision by singling out any other specific types of ancillary bankruptcy proceedings that remain subject to the States’ Eleventh Amendment immunity. n3 We hold that the bankruptcy court’s ancillary order to enforce an automatic stay, which is one of the fundamental debtor protections provided by the bankruptcy laws, operates free and clear of the Florida DOR’s claim of sovereign immunity.

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n3 Black’s Law Dictionary defines “ancillary” as “supplementary.” See Richard Loeb, State Sovereign Immunity: Bankruptcy Is Special, 14 AM. BANKR. INST. L. REV. 201, 230-31 (2006) (discussing the broad scope of Katz).

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It is well settled that a panel of this court may depart from circuit precedent based on an intervening opinion of the Supreme Court that undermines the prior precedent. United States v. Dennis, 786 F.2d 1029, 1049 (11th Cir. 1986). As a result of the Supreme Court’s opinion in Katz, it is necessary to point out that our pre-Katz reasoning of In re Crow, 394 F.3d at 922, invalidating § 106(a), in part, on the basis that Congress may not abrogate state sovereign immunity by legislation passed pursuant to its Article I powers, is no longer good law. See 546 U.S. at 363, 126 S. Ct. at 996 (acknowledging that statements in Seminole Tribe of Florida v. Florida, 517 U.S. 44, 72, 116 S. Ct. 1114, 1132, 134 L. Ed. 2d 252 (1996), reflected an erroneous assumption that its holding that “Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction,” would apply to the Bankruptcy Clause).

Moreover, as we shall discuss, even without Katz’s pronouncement regarding state abrogation of sovereign immunity under the Bankruptcy Clause, the Florida DOR filed a proof of claim in this [*19] case, which raises issues of waiver of sovereign immunity. n4

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n4 In resolving the issues in this case, we find it necessary to address arguments regarding both the Florida DOR’s subordination and waiver of sovereign immunity. First, in Katz, one party, the Virginia Military Institute (”VMI”), like the Florida DOR, also filed proof of claim. Respondent Katz made this point in his response to the Petitioner’s writ for certiorari when urging the Court to deny certiorari on the basis that “Virginia’s sovereign immunity in this bankruptcy case has been waived, and . . . [t]hus, this case does not present the question on which Petitioners seek certiorari. Whether Congress can abrogate Virginia’s immunity is not at issue because that immunity has been waived here.” Respondent’s Brief in Opposition at 4, Katz, 546 U.S. 356, 126 S. Ct. 990, 163 L. Ed. 2d 945; see also Transcript of Oral Argument at 23 (discussing VMI’s waiver). Despite the proof of claim filed on behalf of one of the petitioners in the Katz case, the Supreme Court still granted certiorari and answered the question of abrogation under the Bankruptcy Clause. Second, we find it necessary to undertake an analysis of the Katz case because of its implications for our caselaw regarding § 106(a), which the parties put in dispute regarding the limitations set forth in subsection (a)(3).

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[*20]

D. Waiver of Sovereign Immunity

“[B]y filing a proof of claim in [a] debtors’ . . . bankruptcy proceedings, [a] State waive[s] its sovereign immunity for purposes of the adjudication of those claims.” In re Burke, 146 F.3d 1313, 1319 (11th Cir. 1998). A State’s waiver of sovereign immunity must be express and unequivocal, and generally courts have set out three elements to analyze in determining if the State waived sovereign immunity by participating in the bankruptcy case. In re Straight, 143 F.3d 1387, 1390 (10th Cir. 1998). The first element limits the waiver to cases where a governmental unit files a proof of claim. Id. The second element requires that the claim against the governmental unit must be property of the estate. Id. The third element requires that the claim arises out of the same transaction or occurrence. Id. The parties agree that the first element, the governmental unit filing a proof of claim, has been met. The parties disagree as to the second and third elements.

The second element requires us to determine whether the claim against the Florida DOR is property of the estate. The Florida DOR argues [*21] that any waiver of sovereign immunity recognized by the filing of a proof of claim is limited to actions related to the claim held by the bankruptcy estate and does not extend to the instant action brought by the debtor. It asserts that upon confirmation of the Chapter 13 plan, all assets beyond the amounts needed to make the plan payments were not property of the estate because they had re-vested in the debtor, and, therefore, it did not violate the automatic stay by seeking to garnish those wages.

The automatic stay does not bar “collection of alimony, maintenance, or support from property that is not property of the estate.” 11 U.S.C. § 362(b)(2)(B). “[P]roperty necessary for the execution of the plan . . . remain[s] property of the estate” upon confirmation of a Chapter 13 plan. Telfair v. First Union Mortgage Corp., 216 F.3d 1333, 1340 (11th Cir. 2000) (adopting the “estate transformation approach”). The Florida DOR’s letters at issue were not limited as to their target, that is, the letters sought collection as to Omine’s post-petition earnings, not just whatever fraction of Omine’s income that might be payable from assets not committed [*22] to the plan. Accordingly, we agree that Omine’s income is essential to the Omines’ ability to make plan payments and therefore is estate property.

The third element requires that the claim arise out of the same transaction or occurrence. The district court agreed with the bankruptcy court that because the claim against the Florida DOR arose out of the Florida DOR’s efforts to collect on the debt underlying its proof of claim, the “same transaction or occurrence” requirement was met. Our ruling in In re Burke supports this determination and, as a result, the district court’s conclusion was proper. See 146 F.3d at 1318 n.10 (concluding “that the debtors’ actions for violation of the automatic stay and discharge injunction ‘arise out of the same transaction or occurrence’ as the State’s proofs of claim”).

E. Violation of the Automatic Stay

The Florida DOR’s remaining argument regarding the district court’s affirmance of the bankruptcy court’s determination that the Florida DOR violated the automatic stay is that the district court improperly shifted the burden of showing a violation of the automatic stay to the creditor, instead of the debtor. Multiple [*23] bankruptcy courts have held that the “[p]laintiff [/debtor] bears the burden of providing that she is entitled to damages under section 362(h).” See, e.g., In re Lord, 270 B.R. 787, 794 (Bkrtcy. M.D. Ga. 1998) (citing similar holdings). The Florida DOR argues that the district court improperly shifted the burden from the debtor to the Florida DOR in holding that the Florida “DOR failed to show that its actions were taken against property that was not property of the estate.” R1, 23 at 12.

While the wording of the district court’s second order appears to suggest the burden was improperly shifted, in its first order in the prior case-undertaking an analysis of the Florida DOR’s identical “property of the estate” argument-the district court concluded, without any improper shifting of the burden, that “Omine’s income, which the D.O.R. attempted to garnish post-confirmation, is essential to the Debtors’ ability to make plan payments and therefore is estate property to which the D.O.R. is not entitled.” R1, 2-4 at 5-6. Furthermore, the bankruptcy court, without improperly shifting the burden, concluded that the Florida DOR violated the automatic stay when it found that [*24] the “[d]ebtors’ income is considered essential to their ability to make plan payments and, therefore, remains estate property.” R1, 1-3 at 8 (citing Telfair, 216 F.3d at 1340). We agree with the bankruptcy court’s analysis, and, therefore, affirm the district court’s ultimate holding based on the correct analysis used by the bankruptcy court.

F. Award Limitations in 11 U.S.C. § 106(a)(3)

The Florida DOR also asserts that the limitations found in § 106(a)(3) should apply to the bankruptcy court’s order awarding a money recovery and that the district court ignored the plain language of the statute. The relevant text of 11 U.S.C. § 106(a) states:

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

(1) Sections 105, 106 . . . 362 . . . of this title.

. . .

(3) The court may issue against a governmental unit an order, process, or judgment under such sections or the Federal Rules of Bankruptcy Procedure, including an order or judgment awarding a money recovery, but [*25] not including an award of punitive damages. Such order or judgment for costs or fees under this title or the Federal Rules of Bankruptcy Procedure against any governmental unit shall be consistent with the provisions and limitations of section 2412(d)(2)(A) of title 28 [defining ‘fees and other expenses’ under the Equal Access to Justice Act (”EAJA”)].

The bankruptcy court found that the provisions and limitations of EAJA referenced in § 106(a)(3) apply only in circumstances of forced abrogation of sovereign immunity protection, not in situations such as this, wherein the state agency consents to the bankruptcy court’s jurisdiction through the filing of a proof of claim as detailed in § 106(b). The bankruptcy court reasoned that “[i]f 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) . . . . No limitations imposed by the EAJA are extended to . . . [the] Florida DOR, by Section 106(b). Therefore, the Court must follow the normal rules in awarding fees and costs.” R1, 1-3 at 5. The district court largely agreed, adding that it was persuaded by the [*26] structure and history of the section 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 prior to the restrictions added in the current § 106(a).

We agree with the Florida DOR that based on the plain text of 11 U.S.C. § 106(a)(3), the award limitations found in § 106(a)(3) are applicable in this case. Section 106(a)(3) clearly states that “[t]he court may issue against a governmental unit an order . . . under such sections.” The phrase “such sections” in § 106(a)(3) unambiguously refers to the list of sections in § 106(a)(1), which includes an order pursuant to § 362, the section that addresses the automatic stay, and § 105, the section that addresses the power of the court to issue orders necessary to carry out the provisions of the Bankruptcy Code. A plain reading of § 106(a)(3) requires that “such order or judgment for costs or fees under this title” shall be consistent with the provisions and limitations of 28 U.S.C. § 2412(d)(2)(A) and may not include an award of punitive damages.

The dissent concludes that because the “statutory [*27] abrogation scheme” is unnecessary, the award limitations found in subsection (a)(3) are necessarily inapplicable. We disagree. Two initial points help contextualize our conclusion: 1) in Katz, the Supreme Court did not declare § 106 unconstitutional, but rather, held only that statutory abrogation is unnecessary in light of the “‘abrogation . . . effected in the plan of the Convention,” 546 U.S. at 379, 126 S. Ct. at 1005; and 2) Katz reaffirmed Congress’s power “either [to] 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.” Id. at 379, 126 S. Ct. at 1005. In resolving the applicability of § 106(a)(3) under these undisputed premises, the question, post-Katz, is: even though § 106(a)’s statutory abrogation framework is unnecessary, is all of § 106(a) necessarily inapplicable? That is, do the award limitations imposed in subsection (a)(3) remain?

The dissent posits that a contextual reading of the statutory scheme ineluctably renders § 106(a)(3)’s award limitations inapplicable. But it does not necessarily follow, based on a plain reading of the [*28] text, that subsection (a)(3) is devoid of any meaning and inapplicable now that subsection (a)(1) is unnecessary to abrogate state sovereign immunity here, or that enforcing subsection (a)(3) after Katz is against Congress’s intent-to the contrary, it is entirely consistent with such intent. See Dodd v. United States, 545 U.S. 353, 359, 125 S. Ct. 2478, 2483, 162 L. Ed. 2d 343 (2005) (holding that when the statute’s language is plain, the sole function of the courts, at least where the disposition required by the text is not absurd, is to enforce it according to its terms).

The issue of Congressional intent is unusual in the context of this case because Katz dramatically altered the assumptions under which Congress (and even the Supreme Court) had been operating with respect to state sovereign immunity and the Bankruptcy Code. That is, until Katz, it was not clear that “the States 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.” 546 U.S. at 378, 126 S. Ct. at 1005. In fact, as Justice Thomas notes in his [*29] Katz dissent, a myriad of cases, including Hoffman v. Connecticut Department of Income Maintenance, 492 U.S. 96, 109 S. Ct. 2818, 106 L. Ed. 2d 76 (1989) (which preceded and prompted the 1994 Bankruptcy Reform Act Amendments to the current § 106) and Seminole Tribe, 517 U.S. at 72-73, 116 S. Ct. 1132-33, indicated otherwise. See id. at 382-83 , 126 S. Ct. at 1007-08 (Thomas, J., dissenting) (arguing that Supreme Court precedent is replete with language barring abrogation of state sovereign immunity under various clauses in § 8 of Article I, including the Bankruptcy Clause).

The legislative history of the current § 106 makes clear that § 106’s present statutory abrogation framework was created in response to the Supreme Court’s rulings “that the States and Federal Government are not deemed to have waived their sovereign immunity by virtue of Congress enacting former § 106(c).” See H. Comm. on the Judiciary, Bankruptcy Reform Act of 1994, H. Rep. No. 103-835, at 42 (1994), reprinted in 1994 U.S.C.C.A.N. 1881, 3350-51 (stating that § 106 “would effectively overrule two Supreme Court cases [including Hoffman] that have held [*30] that the States and Federal Government are not deemed to have waived their sovereign immunity by virtue of enacting section 106(c)“). The backdrop to the creation of the current § 106 was the Supreme Court’s decision in Hoffman. See id. Hoffman reminded Congress that “to abrogate the States’ Eleventh Amendment immunity from suit in federal court . . . Congress must make its intention ‘unmistakably clear in the language of the statute.’” 492 U.S. at 101, 109 S. Ct. at 2822 (citations omitted). The Hoffman plurality refrained from analyzing whether Congress had the power under Article I to abrogate the States’ sovereign immunity, id., 492 U.S. at 104, 109 S. Ct. at 2824 (”Since we hold that Congress did not abrogate Eleventh Amendment immunity by enacting § 106(c), we need not address whether it had the authority to do so under its bankruptcy power”), and two Justices, each concurring separately, explicitly stated their view that Congress did not have the power to abrogate state sovereign immunity by enacting a statute under Article I. Id.,492 U.S. at 105, 109 S. Ct. 2824-25 (Scalia, J., concurring; O’Connor, concurring) (concurring [*31] “on the ground that [Congress] had no power to [abrogate state sovereign immunity under its] . . . Article I [Bankruptcy Clause] powers”). n5

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n5 Justice Scalia’s reasoning in his Hoffman concurrence prevailed in Seminole Tribe, wherein both the majority and dissenting opinions “reflected an assumption that the holding . . . would apply to the Bankruptcy Clause.” See Katz, 546 U.S. at 363, 126 S. Ct. at 996.

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In Hoffman, no Justice even intimated that the States had subordinated their sovereign immunity in the manner described in Katz. n6 In light of Hoffman, it was entirely reasonable for Congress to believe that Supreme Court precedent “suggested” that Congress make its intent to waive the States’ sovereign immunity “unmistakenly clear,” and establish the statutory abrogation framework that is the current § 106. See 140 Cong. Rec. H10766 (daily ed. Aug. 17, 1994) (statement of Rep. Brooks) (analyzing the purposes behind § 106’s enactment and noting that the Supreme [*32] Court “suggested” that “§ 106(a)(1) list[] those sections of title 11 with respect to which sovereign immunity is abrogated”). As a corollary, it was also natural for Congress, then, to place its limitations on awards (subsection (a)(3)), into the framework they believed the Supreme Court had “suggested.” See id.

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n6 Even Justice Marshall, writing for the dissent, would have reversed the Second Circuit’s ruling “[b]ecause Congress clearly expressed its intent to authorize a bankruptcy court to issue a money judgment against a State . . . and because Congress has the authority under the Bankruptcy Clause to abrogate the States’ Eleventh Amendment immunity,” not because the States’ had subordinated their sovereign immunity under the plan of the Convention. See Hoffman, 492 U.S. at 106, 109 S. Ct. at 2825 (Marshall, J., dissenting).

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As a result, even putting aside our conclusion that the plain text alone dictates the application of the award limitations in subsection (a)(3), in light of [*33] the jurisprudential understanding of state sovereign immunity at the time of § 106’s drafting, we find it difficult to conclude that Congress intended to include such award limitations only when the abrogation was statutory but exclude such limitations if it was later revealed that the “relevant “‘abrogation’ [turned out to be] the one effected in the plan of the Convention[.]” See Katz, 546 U.S. at 379, 126 S. Ct. at 1005. Katz clarified the “relevant ‘abrogation[.]’” See id. It did not undermine Congress’s ability to limit awards against the States.

Since the plain text of the language is applicable, we are loathe to ignore award limitations that are within Congress’s power to enact and refuse to apply them when the framework that the award limitations were placed in was rendered, not unconstitutional, but rather, only unnecessary. Given that the result is not only not “absurd,” but aligned with Congress’s intent, it is difficult to escape the application of a plain reading of § 106(a)(3) that applies its award limitations to a bankruptcy court order issued pursuant to §§ 105 or 362(h). Although § 106(a)(1)’s abrogation was unnecessary now that the [*34] Court has clarified that the States acquiesced in a subordination of whatever sovereign immunity they had through the Constitutional Convention, we do not read Katz to render § 106(a)(3)’s limitations unconstitutional or inapplicable.

Because we disagree about the applicability of § 106 post-Katz, we disagree with the dissent’s alternative basis for affirming the bankruptcy court’s award of punitive damages and fees in excess of the award limitations referenced in § 106(a)(3) as well. The dissent would alternatively affirm the awards based on the fact that the Florida DOR filed of a proof of claim here, hence waiving its sovereign immunity. Although not precedential, we agree with the reasoning in In re Washington and In re Flynn-that § 106(a)(3) limits awards even against a governmental unit that filed a proof of claim . See 184 B.R. 172, 175 (S.D. Ga. 1995) (reversing awards against a governmental unit that filed a proof of claim because of the limitations imposed in subsection (a)(3)); 185 B.R. 89, 93-94 (S.D. Ga. 1995) (same). Moreover, the limitations in subsection (a)(3) apply to orders issued pursuant to § 105. See Jove Eng’g, Inc. v. I.R.S., 92 F.3d 1539, 1559 (11th Cir. 1996) [*35] (”[T]he plain meaning of [§ 106(a)(3)] requires an award of attorney fees under the statutory powers of § 105(a) to be consistent with § 2412(d)(2)(A) which defines those “fees and other expenses” that may be awarded under EAJA.”).

As a result, the attorney’s fees and costs award imposed against the Florida DOR is vacated and remanded for a determination of attorney’s fees and costs consistent with the provisions and limitations of section 2412(d)(2)(A) as referenced in § 106(a)(3). Furthermore, we vacate the additional sanction award of $ 2000 as invalid in light of the limitations in § 106(a)(3) regarding “punitive damages.”

G. Debt Dischargeability

11 U.S.C. § 523(a)(5) disallows discharge of a debt:

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, . . . but not to the extent that — . . .

(B) such a debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.

[*36]

We have held that federal law, not state law, governs a dischargeability of domestic obligations determination. See In re Harrell, 754 F.2d 902, 904-05 (11th Cir. 1985). “A debt is in the nature of support,” and therefore nondischargeable, “if at the time of its creation the parties intended the obligation to function as support . . . .” Cummings v. Cummings, 244 F.3d 1263, 1265 (11th Cir. 2001). “[T]he party seeking to hold the debt nondischargeable has the burden of proving by a preponderance of the evidence that the parties intended the obligation as support . . . .” Id. (citation and internal quotations omitted).

The Florida DOR, which argued that the debt was nondischargeable, presented no evidence to the bankruptcy court that the Hawaii debt was in the nature of support. The Florida DOR also asserts that the testimony of the debtor clearly showed the monies owed were for support of his wife and children paid by the State of Hawaii. Omine testified that the Hawaii debt was not in the nature of support. The Florida DOR, however, presented no evidence as to the intent of the parties. Instead, it argues that we should not disregard [*37] Hawaiian law that provides that the welfare payments made in cases such as this one are support obligations and non-dischargeable. n7 Though “a court cannot rely solely on the label used by the parties,” see id., intent cannot be imputed or proven with the introduction of a state statute on appeal. In light of Omine’s testimony that supported a dischargeability determination and the lack of evidence presented by the Florida DOR, the district court correctly affirmed the bankruptcy court’s finding that the Hawaii debt was not in the nature of support, and was therefore dischargeable.

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n7 In a recognition that federal, not state law, governs a dischargeability of domestic obligations determination, the Florida DOR also cites 42 U.S.C. § 656(b), that, it claims, dictates the state law classification be followed. 42 U.S.C. § 656(b), does not resolve the dispute, however, because it requires the bankruptcy court to make the factual determination as to whether the debt is “in the nature of support.”

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III. CONCLUSION

The district court properly upheld the bankruptcy court’s discharge of the support obligation and properly affirmed the bankruptcy court’s determination that the Florida DOR violated the automatic stay and, furthermore, that the Florida DOR was not protected by sovereign immunity. As a result, we AFFIRM the district court’s order affirming the bankruptcy court’s determination that the Florida DOR was not immune from the Omines’ suit for its violation of the automatic stay. The district court erred, however, in affirming the bankruptcy court’s determination that the award limitations set forth in 11 U.S.C. § 106(a)(3) did not apply. As a result, we REVERSEand VACATE the award of attorney’s fees and costs as inconsistent with the limitations of § 106(a)(3) and REVERSE and VACATE the $ 2000 awarded as sanctions, and REMANDto the district court for proceedings consistent with this opinion.CONCUR BY: BLACK (In Part)

DISSENT BY: BLACK (In Part)

DISSENT: BLACK, Circuit Judge, concurring in part and dissenting in part:

I agree with all portions of the Court’s opinion except Section F. I respectfully dissent because [*39] I conclude 11 U.S.C. § 106(a)(3) does not apply to limit the bankruptcy court’s award. Section 106(a)(3) would apply only if the bankruptcy court entered judgment pursuant to the statutory abrogation of state sovereign immunity embodied in § 106(a). In this case, we do not rely on § 106(a) to affirm the judgment against the Florida DOR. Instead, we rely on the states’ consent to subordinate their sovereign immunity at the plan of convention and, alternatively, on Florida’s waiver of sovereign immunity by filing a proof of claim. In either case, the limitations in § 106(a)(3) that the 1994 Congress enacted as part of its statutory abrogation scheme in § 106(a)(1) through (a)(4) do not apply.

A. Abrogation of State Sovereign Immunity

State sovereign immunity, a concept embodied in the Eleventh Amendment, is an immunity from suit. See Blatchford v. Native Vill. of Noatak, 501 U.S. 775, 779, 111 S. Ct. 2578, 2581, 115 L. Ed. 2d 686 (1991). However, there are certain well-established situations in which states are amenable to suit. First, Congress may abrogate state sovereign immunity if it unequivocally expresses an intent to abrogate [*40] state immunity and acts pursuant to a valid exercise of power. Green v. Mansour, 474 U.S. 64, 68, 106 S. Ct. 423, 425-26, 88 L. Ed. 2d 371 (1985). Second, a state may waive its sovereign immunity by consenting to suit in federal court, either expressly or in the “plan of the convention.” Blatchford, 501 U.S. at 779, 111 S. Ct. at 2581.

In 11 U.S.C. § 106(a), Congress purported to abrogate state sovereign immunity, to a limited extent, in proceedings brought under certain enumerated sections of the Bankruptcy Code. See 11 U.S.C. § 106(a)(1)-(4). Subsections (a)(1) through (a)(4) together establish Congress’s abrogation scheme, with each subsection adding an additional, necessary component to the scheme. n1 Subsection (a)(1) lists the specific sections of the Bankruptcy Code to which the abrogation scheme applies. Subsection (a)(2) abrogates sovereign immunity so as to allow a bankruptcy court to hear and determine any issue in proceedings applying the enumerated sections to governmental units. Subsection (a)(3) abrogates sovereign immunity so as to allow a bankruptcy court to issue an order [*41] or judgment against a governmental unit, including a state agency, in such proceedings. Although subsection (a)(3) permits a bankruptcy court to issue an order awarding a money recovery, the subsection also contains two limitations: first, it does not permit an award of punitive damages and second, if the order or judgment is for costs and fees, it requires that the order be consistent with the provisions and limitations of 28 U.S.C. § 2412(d)(2)(A). Finally, subsection (a)(4) abrogates sovereign immunity so as to allow a bankruptcy court toenforce any such order or judgment it issues against a governmental unit. As a whole, subsections (a)(1) through (a)(4) comprise Congress’s statutory abrogation scheme.

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n1 The relevant text of § 106(a) is as follows:

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

(1) Sections 105, 106, . . . 362, . . . .

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

(3) The court may issue against a governmental unit an order, process, or judgment under such sections or the Federal Rules of Bankruptcy Procedure, 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 under this title or the Federal Rules of Bankruptcy Procedure against any governmental unit shall be consistent with the provisions and limitations of section 2412(d)(2)(A) of title 28.

(4) The enforcement of any such order, process, or judgment against any governmental unit shall be consistent with appropriate nonbankruptcy law applicable to such governmental unit and, in the case of a money judgment against the United States, shall be paid as if it is a judgment rendered by a district court of the United States.

(5) Nothing in this section shall create any substantive claim for relief or cause of action not otherwise existing under this title, the Federal Rules of Bankruptcy Procedure, or nonbankruptcy law.

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When Congress enacted § 106(a) in 1994, the common perception was that Congress could validly abrogate state sovereign immunity pursuant to its enumerated powers under Article I of the Constitution. See Pennsylvania v. Union Gas Co., 491 U.S. 1, 14-19, 109 S. Ct. 2273, 2281-84, 105 L. Ed. 2d 1 (1989) (holding Congress may abrogate state sovereign immunity when legislating pursuant to its Commerce Clause power under Article I of the Constitution as long as it clearly expresses its intent to do so). This perception of Congress’s Article I powers changed in 1996 when the Supreme Court overruled Union Gas. In Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 116 S. Ct. 1114, 134 L. Ed. 2d 252 (1996), the Supreme Court held that Congress could not abrogate state sovereign immunity pursuant to its Article I powers, but only pursuant to § 5 of the Fourteenth Amendment. Id. at 45, 116 S. Ct. at 1118. While the Supreme Court did not address § 106(a) in Seminole Tribe, its holding implicitly rendered § 106(a) an unconstitutional abrogation of sovereign immunity because Congress enacted § 106(a) pursuant to its Article I bankruptcy [*43] power. See In re Crow, 394 F.3d 918, 923 (11th Cir. 2004). In 2004, this Court addressed the constitutionality of § 106(a) in In re Crow and held that, in light of Seminole Tribe, Congress’s attempt to abrogate state sovereign immunity in in personam bankruptcy cases was invalid. Id. at 921, 924.

In 2006, when presented with an opportunity to address whether § 106(a) was a valid abrogation of state sovereign immunity, the Supreme Court did not answer the question. See Cent. Va. Cmty. College v. Katz, 546 U.S. 356, 361-62, 126 S. Ct. 990, 995, 163 L. Ed. 2d 945 (2006). Instead, the Supreme Court held § 106(a) was “not necessary” to authorize a suit against a state in certain bankruptcy proceedings. See id. at 362, 126 S. Ct. at 995, 1000-05 (holding Congress’s attempted abrogation of sovereign immunity in § 106(a) was unnecessary to authorize a bankruptcy court’s in personam jurisdiction over ancillary orders necessary to effectuate its in rem jurisdiction). The Court explained that the statutory abrogation was unnecessary because the “States agreed in the plan of the Convention not to assert any [*44] sovereign immunity defense they might have had in proceedings brought pursuant to ‘Laws on the subject of Bankruptcies.’” Id. at 377, 126 S. Ct. at 1004.

Consequently, after Katz, the entire statutory scheme in § 106(a)(1) through (a)(4) is unnecessary and inapplicable to suits against a state in proceedings necessary to effectuate a bankruptcy court’s in rem jurisdiction. In particular, Katz renders § 106(a)(3), which abrogates state sovereign immunity so as to allow a bankruptcy court to issue an order against a state with some limitations, unnecessary and inapplicable in such bankruptcy proceedings. Section 106(a)(3) has nothing to abrogate or limit because, according to Katz, bankruptcy courts have always had the power to enter a money judgment against states in such proceedings.

After Katz, any other interpretation of § 106(a) is unpersuasive. For instance, if § 106(a)(1) is sufficient in and of itself to abrogate sovereign immunity (without regard to § 106(a)(2)-(a)(4)), it would render § 106(a)(2), the first sentence of § 106(a)(3), and § 106(a)(4) meaningless. Section 106(a)(2), which permits a bankruptcy court to hear and determine [*45] issues against a state, would have no purpose because a state would already be amenable to suit pursuant to § 106(a)(1)’s “abrogation” of sovereign immunity. Likewise, the first sentence of § 106(a)(3), which permits a bankruptcy court to issue money judgments against a state, would also have no purpose because the states would already be amenable to money judgments pursuant to § 106(a)(1)’s “abrogation.” Finally, § 106(a)(4), which permits a bankruptcy court to enforce a judgment against a state, would also have no purpose because a state would be amenable to enforcement pursuant to § 106(a)(1)’s “abrogation.” Section 106(a) only has meaning if it is read as a statutory scheme of abrogation, effected through subsections 106(a)(1), (a)(2), (a)(3), and (a)(4). Thus, after Katz, § 106(a), in its entirety, is inapplicable because there is no sovereign immunity for its subsections to abrogate.

Therefore, a plain reading n2 of the statutory scheme indicates that any limitations in subsections (a)(1) through (a)(4) - such as those in subsection (a)(3) regarding punitive damages and attorney’s fees - apply to an award against a governmental unit only where the statutory [*46] abrogation of state sovereign immunity created the bankruptcy court’s jurisdiction to enter the award. It is ultimately irrelevant whether, in enacting § 106(a)(3), the 1994 Congress actually intended that the limitations in subsection (a)(3) apply to all awards issued against a state, and not only awards issued pursuant to the statutory abrogation scheme in § 106(a)(1) through (a)(4). The fact remains that the 1994 Congress specifically placed the limitations in the text of § 106(a), and the limitations appear nowhere else in the Bankruptcy Code. Of course, Congress may now exercise its plenary power over the uniform laws of bankruptcy to limit all awards against a state in bankruptcy proceedings, but it has yet to do so.

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n2 The majority suggests that by reading the statute as a whole, I give it a “contextual reading” and ignore the plain meaning of § 106(a)(3). I admit, unlike the majority, I do not read the second sentence of § 106(a)(3) in isolation. Instead, I consider a plain reading of subsection (a)(3) to include consideration of the entire statute. In so doing, I follow the guidance of the Supreme Court. See King v. St. Vincent’s Hosp., 502 U.S. 215, 221, 112 S. Ct. 570, 574, 116 L. Ed. 2d 578 (1991) (”[W]e do nothing more, of course, than follow the cardinal rule that a statute is to be read as a whole . . . since the meaning of statutory language, plain or not, depends on context.”). My interpretation, therefore, is informed by the plain meaning of the text in relation to the statute as a whole or, in other words, by its context.

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In the instant case, the limitation in § 106(a)(3) does not apply to the bankruptcy court’s award because, as the majority explains, § 106(a)’s statutory abrogation of sovereign immunity did not create the bankruptcy court’s jurisdiction to issue a judgment against the Florida DOR. Therefore, I would affirm the bankruptcy court’s award of punitive damages and its determination of attorney’s fees.

B. W aiver of State Sovereign Immunity

The majority also held the Florida DOR waived its sovereign immunity in this case by filing a proof of claim. Even if we affirmed the judgment against the Florida DOR based on its waiver of sovereign immunity, rather than on Katz, I would likewise affirm the bankruptcy court’s award of punitive damages and determination of attorney’s fees.

Where a state waives sovereign immunity by filing a proof of claim, the scope of the waiver is limited to the adjudication of that claim. In Re Burke, 146 F.3d 1313, 1319 (11th Cir. 1998). Our case law has not provided any limitations on an award issued against a state where the state has waived sovereign immunity by filing a proof of claim. The claim in this case was the Florida [*48] DOR’s violation of the automatic stay. “[A]n individual injured by any willful violation of a stay . . . shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages .” 11 U.S.C. § 362(h) (now § 362(k)(1)) (emphasis added). Further, the bankruptcy court entered its order pursuant to 11 U.S.C. § 105(a), which grants the court power to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” Section 105 does not contain limitations on an award of punitive damages or attorney’s fees. Therefore, even if we relied on the Florida DOR’s waiver of sovereign immunity to affirm the judgment against it, there are no limitations on the bankruptcy court’s award of punitive damages and determination of attorney’s fees. n3

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n3 I note that the cases the majority cites for this issue, Jove Eng’g, Inc. v. I.R.S., 92 F.3d 1539 (11th Cir. 1996), In re Washington, 184 B.R. 172 (S.D. Ga. 1995), and United States v. Flynn (In re Flynn), 185 B.R. 89 (S.D. Ga. 1995), have limited persuasive value. In these cases, debtors sought relief against the Internal Revenue Service, a federal “governmental unit,” and the courts specifically relied on 11 U.S.C. § 106 to find a waiver of federal sovereign immunity. By contrast, the instant case deals with the waiver of state sovereign immunity pursuant to In Re Burke, 146 F.3d 1313, 1319 (11th Cir. 1998). We specifically do not rely on § 106 to find a waiver of state sovereign immunity. Because this case does not require I answer the question, I express no opinion on whether the limitations in the Equal Access to Justice Act apply to federal waivers of sovereign immunity pursuant to § 106.

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For the foregoing reasons, I respectfully dissent in Section F of the majority opinion, and I concur in all other respects.

Bookmark to:

May 14th, 2007 | 1 Comment »

Chief Counsel Memorandum 2007-009 (2007).

Office of Chief Counsel Internal Revenue Service

Memorandum

Number: AM 2007-009

Release Date: 5/11/07 CC:ITA:KLKoch POSTN-128928-06

UILC: 461.06-00

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subject: Generic Legal Advice Application of §§ 1.461-4(d)(6)(ii) and 1.461-5 to service contracts

This memorandum responds to your request for assistance. We understand that the issues in your request have arisen in various industries and derive from a transaction that has been promoted by several accounting firms.

This memorandum is intended for use only by the office that requested it. It may not be used or cited as precedent.

ISSUES

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FACTS:

At the end of year 1, the taxpayer enters into a 12-month service contract with X. Under the contract, X will provide services to the taxpayer until the end of year 2. At the end of year 1, when the contract is executed, the taxpayer makes a prepayment to X for a portion of the services to be provided in year 2. On its federal income tax return for year 1, the taxpayer deducted the prepayment as an expense, citing either the 3 ½ month rule or the recurring item exception as authority for the deduction.

LAW AND ANALYSIS:

Section 461 of the Internal Revenue Code and the regulations thereunder provide general rules that govern the taxable year of deduction. Section 1.461-1(a)(2) provides that, under an accrual method, a liability is incurred, and generally is taken into account for federal income tax purposes, in the taxable year in which all the events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred with respect to the liability (collectively, the “all events test”). Section 461(h)(1) provides that, in determining whether an amount has been incurred with respect to any item during any taxable year, the all events test shall not be treated as met any earlier than when economic performance with respect to such item occurs. See also 1.461-4(a)(1). The two issues raised in this request for advice relate to the economic performance requirement of the all events test. This advice does not address whether the liability for services would be fixed or determinable with reasonable accuracy.

Section 461(h)(2)(A) provides that if the liability of the taxpayer arises out of the providing of services to the taxpayer by another person, economic performance occurs as such person provides such services. See also § 1.461-4(d)(2). Therefore, under this general rule, economic performance would occur for the prepaid services at issue as the services are provided to the taxpayer. Under the facts of Issues (1) and (2), although payment was made in year 1, economic performance generally would not occur until year 2 when the services were provided. However, there are two exceptions to the general economic performance rule applicable to service liabilities.

The first exception is the so-called “3 ½ month rule” in § 1.461-4(d)(6)(ii). That rule provides that a taxpayer is permitted to treat services or property as provided to the taxpayer (i.e., as economic performance) as the taxpayer makes payment to the person providing the services or property if the taxpayer can reasonably expect the person to provide the services or property within 3 ½ months after the date of payment.

Thus, under the facts of Issue (1), the taxpayer could treat the year 1 prepayment for services as economic performance so long as the taxpayer can reasonably expect the services to be provided within 3 ½ months after the payment. The question is whether this rule contemplates that all of the services must be provided within 3 ½ months, or whether this rule permits a taxpayer to accelerate into year 1 a deduction for 3 ½ months’ worth of services to be provided in year 2.

The liability in the facts set forth above relates to services to be provided both before and after the 3 ½ month period following payment. That liability is not divisible unless different services are required to be provided to the taxpayer under a single contract, in which case economic performance occurs (and any applicable economic performance exception will apply) separately with regard to each service provided. Section 1.461-4(d)(6)(iv). If a single contract does not provide for different services, there is no authority in the § 461 regulations allowing taxpayers to use the 3 ½ month rule for a portion of a liability, even if the taxpayer can reasonably estimate the amount of services that will be provided to it within 3 ½ months.

Although § 1.461-4(d)(6) does not specifically state that all the services must be provided within 3 ½ months, that conclusion is implicit in the language that requires the services (not a pro-rata amount, or portion of, services) to be provided within 3 ½ months. (Emphases added). The language of the regulation does not provide that taxpayers may use the rule to meet economic performance for a service liability “to the extent of” services provided. Compare the language of the 3 ½ month rule with the language of the 2 ½ month rule for deferred compensation under § 1.404(b)-1T(b)(1) (providing that a plan, or method or arrangement, is presumed to defer the receipt of compensation for more than a brief period of time after the end of an employer’s taxable year to the extent that compensation is received after the 15th day of the 3rd calendar month after the end of the employer’s taxable year in which the related services are rendered). (Emphasis added).

Unlike the deferred compensation rule, the 3 ½ month rule is an “all or nothing” rule with respect to a particular liability. Therefore, the 3 ½ month rule does not apply to allow a deduction in year 1 for a prepayment made at the end of year 1 for services to be performed in the first 3 ½ months of year 2 under a contract that extends beyond that 3 ½ month period.

The second exception to the economic performance rule applicable to service liabilities (as well as other liabilities) is the recurring item exception in § 461(h)(3). Under the recurring item exception, a liability is treated as incurred for a taxable year if—

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Thus, with regard to Issue (2), the question is whether economic performance with respect to the liability occurs on or before the 15th day of the 9th calendar month after the close of that taxable year. This advice does not address whether the other requirements of the recurring item exception would be met.

As discussed in connection with Issue (1), economic performance for the liability at issue generally occurs under § 1.461-4(d)(2) as the services are provided to the taxpayer. Therefore, the issue is whether the recurring item exception contemplates that all of the services must be provided within 8 ½ months, or whether this rule permits a taxpayer to accelerate into year 1 a deduction for 8 ½ months’ worth of services to be provided in year 2. Similar to the analysis in Issue (1), the particular liability in this case is for services to be provided both before and after the 8 ½ month period following the end of the taxable year. If a single contract does not provide for different services, there is no authority in the § 461 regulations allowing taxpayers to use the 8 ½ month rule for a portion of a liability, even if the taxpayer can reasonably estimate the amount of services that will be provided to it within 8 ½ months.

Although neither § 461(h)(3) nor § 1.461-5 specifically states that economic performance (the provision of services) must be complete within 8 ½ months, the language of both sections refers to “economic performance with respect to the liability” (not economic performance with respect to a pro-rata amount, or portion of, the liability, nor economic performance “to the extent of” the service liability). (Emphasis added). Similar to the 3 ½ month rule, the recurring item exception is an “all or nothing” rule with respect to a particular liability. Therefore, the recurring item exception does not apply to allow a deduction in year 1 for a prepayment made at the end of year 1 for services to be performed in the first 8 ½ months of year 2 under a contract that extends beyond that 8 ½ month period.

Please call Kim Koch at (202) 622-4800 if you have any further questions.

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May 13th, 2007 | 1 Comment »

Nichols v. United States, 2007 U.S. App. LEXIS 10919 (9th cir. 2007).

2007 U.S. App. LEXIS 10919,*

JAMES NICHOLS; BEVERLY ANN NICHOLS, Plaintiffs-Appellants, v. DAVID A. BIRDSELL, Defendant-Appellee.

No. 05-15554

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

2007 U.S. App. LEXIS 10919

February 16, 2007, Argued and Submitted, San Francisco, California

May 9, 2007, Filed

PRIOR HISTORY: [*1] Appeal from the United States District Court for the District of Arizona. D.C. No. CV-04-00099-DGC. David G. Campbell, District Judge, Presiding.

DISPOSITION: AFFIRMED.

COUNSEL: Michael J. Fatta, Law Office of Michael J. Fatta, PLLC, Glendale, Arizona, for the plaintiffs-appellants.

Terry A. Dake, Terry A. Dake, LTC., Phoenix, Arizona, for the defendant-appellee.

JUDGES: Before: J. Clifford Wallace, Richard D. Cudahy, * and M. Margaret McKeown, Circuit Judges.
* The Honorable Richard D. Cudahy, Senior United States Circuit Judge for the Seventh Circuit, sitting by designation.

OPINION BY: J. Clifford Wallace

OPINION: WALLACE, Senior Circuit Judge:

This case presents a new issue for our court: whether debtors’ pre-bankruptcy application of their right to tax refunds to post-bankruptcy tax obligations constitutes an asset that must be turned over to the bankruptcy trustee pursuant to the Bankruptcy Code, 11 U.S.C. § 542. Plaintiffs-Appellants James W. Nichols and Beverly Nichols (Debtors) appeal from the district court’s order denying their appeal from the bankruptcy court decision. In the underlying case, the bankruptcy court concluded that the pre-petition application of [*2] the right to the tax refund was an asset as of the petition date, and that the Debtors must therefore deliver to the trustee the value of the property under section 542(a). We agree, and affirm the district court’s order denying the Debtors’ appeal.

I.

David A. Birdsell, the trustee of the Debtors’ bankruptcy estate (Trustee), filed an amended complaint in the United States Bankruptcy Court alleging a claim in the Debtors’ interest in tax overpayments. The facts are not in dispute. The Debtors overpaid their 2001 federal and state income tax returns and were entitled to tax refunds as a result of the overpayments. Rather than obtain a current refund of that money, the debtors elected to leave those funds on deposit with the United States and the State of Arizona, respectively, and apply the overpayments to their future tax liability. Sixteen days later, on February 5, 2002, the Debtors filed for bankruptcy. The Trustee demanded that the Debtors turn the deposits over to the Trustee, but this was not done. In February of 2003, the Debtors signed their 2002 federal and state income tax returns and applied the deposits (resulting from the overpayment of their 2001 taxes) to their 2002 [*3] tax liabilities.

The Trustee moved for partial summary judgment on the amended complaint, arguing that the Debtors’ interest in the tax overpayments was property of the bankruptcy estate pursuant to 11 U.S.C. § 541 that must be turned over to the Trustee under section 542. The Debtors opposed the motion and also moved for summary judgment. The Debtors observed that, after making the election, they were no longer entitled to a tax refund. They contended that the election to apply the deposits to future tax liabilities extinguished their interest in the tax refund and left no property interest for the bankruptcy estate.

The bankruptcy court granted the Trustee’s motion for summary judgment, concluding that the Debtors’ prepayment of their tax liability constituted an asset of the estate as of the petition date, and that the Debtors must deliver to the Trustee the value of that asset under section 542(a). The Debtors appealed to the district court, and the district court denied the appeal.

On appeal to this court, the Debtors argue that their prebankruptcy application of their tax overpayment to the subsequent year’s tax obligation was not property of their bankruptcy [*4] estate. They observe that Internal Revenue Code §§ 6402(b) and 6513(d) provide for a taxpayer to make an irrevocable election applying an overpayment of taxes to the subsequent year’s tax obligation. They further contend that the election changed the character of the overpayment to a payment of estimated taxes, leaving no interest for the bankruptcy estate.

We have jurisdiction under 28 U.S.C. § 1291, and review de novo the district court’s decision on an appeal from a bankruptcy court. See In re Bankr. Estate of MarkAir, Inc., 308 F.3d 1057, 1059 (9th Cir. 2002). The bankruptcy court’s conclusions of law are reviewed de novo, and its factual findings for clear error. Id. We review de novo questions of statutory construction. See id.

II.

Section 542 provides in part,

Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or [*5] the value of such property, unless such property is of inconsequential value or benefit to the estate.

11 U.S.C. § 542(a). Section 541 defines property as “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1).

In In re Feiler, 218 F.3d 948 (9th Cir. 2000), we addressed an analogous issue under the Bankruptcy Code. The Feilers had net operating losses (NOLs) in 1993. Id. at 950. Under the tax code at that time, they had two options: (1) carry back the NOLs and apply them to the past three taxable years, carrying forward any remainder; or (2) waive the carryback provision and carry forward the entire NOLs. Id. at 950-51. Under the first option, applying the NOLs to the past years would result in a current tax refund to the debtors. Carrying forward the NOLs under the second option could result in a reduction of tax liability in future years, since the NOLs could be used to offset future income.

The Feilers chose the second option, to waive the carryback. Id. at 951. Had they chosen the first option, [*6] they would have been entitled to a tax refund of over $ 280,000. Id. The following year, five months after making the election, the Feilers declared bankruptcy. Id. The bankruptcy trustee filed income requests for the tax refund that the Feilers would have received had they chosen the first option. Id. The Internal Revenue Service (IRS) disallowed the refund on the grounds that the Feilers had made an irrevocable election to carry forward the NOLs. Id. The trustee filed suit against the government, seeking to set aside the Feilers’ previous election under section 548, a code section that involves fraudulent transfers. Id. The bankruptcy court granted summary judgment in favor of the bankruptcy trustee, and we affirmed. Id.

Feiler is different from this case in that it involved an election relating to NOLs, and not a prepayment of taxes. Id. at 950. In addition, the issue in Feiler was whether the debtors’ irrevocable election should be set aside under section 548, not section 542. Id. at 951. Under section 548, the trustee may avoid certain fraudulent transfers of an “interest of the debtor in property” that were “made [*7] or incurred on or within 2 years before the date of the filing of the petition.” 11 U.S.C. § 548(a)(1). In contrast, the issue in the instant case is whether the prepayment of taxes constitutes estate property under section 542 at the time of the bankruptcy filing. Thus, Feiler is not dispositive.

Our reasoning in Feiler is nevertheless instructive. Feiler stated that the first issue was whether “the election to forgo a tax refund and waive the carryback on the NOLs involved an interest in property.” 218 F.3d at 955 (quotation marks omitted). Interpreting the term “property” broadly, we held that “[b]ecause the right to receive a tax refund constitutes an interest in property, . . . the election to waive the carryback and relinquish the right to a refund necessarily implicates a property interest.” Id. We observed that “the Supreme Court has explained that the term property has been construed most generously and an interest is not outside its reach because it is novel or contingent or because enjoyment must be postponed.” Id. (internal quotation marks omitted) (citing Segal v. Rochelle, 382 U.S. 375, 379, 15 L. Ed. 2d 428 (1966)). [*8]

The Debtors contend that their inability to get the funds back from the IRS and the irrevocable nature of their election prevents the bankruptcy estate from asserting any right to the funds. However, nothing in section 541 requires that the debtor’s interest be immediately capable of being liquidated into cash in order to constitute property of the estate. See 11 U.S.C. § 541. Instead, section 541(c)(1) provides that a debtor’s interests become property of the estate even in circumstances in which the interest cannot be liquidated and transferred by the debtor. 11 U.S.C. § 541(c)(1); cf. In re O’Gorman-Sykes, 245 B.R. 815, 819 (Bankr. E.D. Va. 1999) (holding that anticipated tax refunds are property of the bankruptcy estate under section 541(a)).

As a result of the election, the Debtors were left with a credit with the IRS that provided a dollar-for-dollar tax reduction in the following year. If the Nichols had not elected to prepay their taxes, those funds would have been refunded to them and would likely have been available for the bankruptcy estate when they voluntarily filed for bankruptcy just 16 days later. [*9] The fact that the election, once made, was irrevocable, does not change the analysis. In light of the expansive definition of property contained in the Bankruptcy Code and our broad interpretation of “property” under Feiler, we hold that this credit toward future taxes constituted estate property at the time the Debtors filed for bankruptcy. Cf. In re Ryerson, 739 F.2d 1423, 1425 (9th Cir. 1984) (”By including all legal interests without exception, Congress indicated its intention to include all legally recognizable interests although they may be contingent and not subject to possession until some future time”).

AFFIRMED.

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May 10th, 2007 | 1 Comment »

We the People Foundation, Inc. v. United States, 2007 U.S. App. LEXIS 10849 (2007).

2007 U.S. App. LEXIS 10849,*

WE THE PEOPLE FOUNDATION, INC., ET AL., APPELLANTS v. UNITED STATES OF AMERICA, ET AL., APPELLEES

No. 05-5359

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

2007 U.S. App. LEXIS 10849

October 6, 2006, Argued

May 8, 2007, Decided

PRIOR HISTORY: [*1] Appeal from the United States District Court for the District of Columbia. (No. 04cv01211).

COUNSEL: Mark Lane argued the cause for appellants. With him on the briefs was Robert L. Schulz, Pro se.

Carol Barthel, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief were Kenneth L. Wainstein, U.S. Attorney at the time the brief was filed, and Kenneth L. Greene, Attorney. Bruce R. Ellisen and Kenneth W. Rosenberg, Attorneys, entered appearances.

JUDGES: Before: GINSBURG, Chief Judge, and ROGERS and KAVANAUGH, Circuit Judges. Opinion for the Court filed by Circuit Judge KAVANAUGH, in which Chief Judge GINSBURG and Circuit Judge ROGERS join. Concurring opinion filed by Circuit Judge ROGERS.

OPINION BY: KAVANAUGH

OPINION:

KAVANAUGH, Circuit Judge: Ratified in 1791, the First Amendment to the United States Constitution provides in part that “Congress shall make no law . . . abridging . . . the right of the people . . . to petition the Government for a redress of grievances.” Plaintiffs are citizens who petitioned various parts of the Legislative and Executive Branches for redress of a variety of grievances that plaintiffs asserted with respect to the Government’s [*2] tax, privacy, and war policies. Alleging that they did not receive an adequate response, plaintiffs sued to compel a response from the Government.

Plaintiffs contend that the First Amendment guarantees a citizen’s right to receive a government response to or official consideration of a petition for redress of grievances. Plaintiffs’ argument fails because, as the Supreme Court has held, the First Amendment does not encompass such a right. See Minn. State Bd. for Cmty. Colls. v. Knight, 465 U.S. 271, 283, 285, 79 L. Ed. 2d 299 (1984); Smith v. Arkansas State Highway Employees, 441 U.S. 463, 465, 60 L. Ed. 2d 360 (1979).

I

Plaintiffs are numerous individuals and an organization that creatively calls itself “We the People.” For purposes of this appeal, we take the allegations in the complaint as true. According to plaintiffs, they have engaged since 1999 in “a nationwide effort to get the government to answer specific questions” regarding what plaintiffs view as the Government’s “violation of the taxing clauses of the Constitution” and “violation of the war powers, money and ‘privacy’ clauses of the Constitution.” Joint Appendix (”J.A.”) 80 (Am. Compl. [*3] P 3). Plaintiffs submitted petitions with extensive lists of inquiries to various government agencies. On March 16, 2002, for example, plaintiffs submitted a petition with hundreds of inquiries regarding the tax code to a Member of Congress and to various parts of the Executive Branch, including the Department of Justice and the Department of the Treasury. On November 8, 2002, plaintiffs presented four petitions to each Member of Congress. Those petitions concerned the Government’s war powers, privacy issues, the Federal Reserve System, and the tax code. On May 10, 2004, plaintiffs submitted a petition regarding similar issues to the Executive Branch, including the Department of Justice and the Department of the Treasury.

Plaintiffs contend that the Legislative and Executive Branches have responded to the petitions with “total silence and a lack of acknowledgment.” J.A. 85 (Am. Compl. P 35). In protest, some plaintiffs have stopped paying federal income taxes.

Based on their view that the Government has not sufficiently responded to their petitions, plaintiffs filed suit in the United States District Court for the District of Columbia. They raised two claims. First, plaintiffs contend [*4] that the Government violated their First Amendment right to petition the Government for a redress of grievances by failing to adequately respond to plaintiffs’ petitions. In particular, plaintiffs contend that the President, the Attorney General, the Secretary of the Treasury, the Commissioner of the Internal Revenue Service, and Congress neglected their responsibilities under the First Amendment to respond to plaintiffs’ petitions. Plaintiffs want the Government to enter into “good faith exchanges” with plaintiffs and to provide “documented and specific answers” to the questions posed in the petitions. J.A. 78 (Am. Compl.).

Second, plaintiffs claim that government officials-by seeking to collect unpaid taxes-have retaliated against plaintiffs’ exercise of First Amendment rights. Plaintiffs therefore asked the District Court to enjoin the Internal Revenue Service, the Department of Justice, and other federal agencies from retaliating against plaintiffs’ exercise of their constitutional rights (in other words, to prevent the Government from collecting taxes from them).

The Government has responded that the federal courts lack jurisdiction over either claim because the Government has [*5] not waived its sovereign immunity with respect to the causes of action asserted by plaintiffs. As to the Petition Clause claim, the Government has contended in the alternative that plaintiffs have failed to state a claim for which relief could be granted because the Petition Clause does not require the Government to respond to or officially consider petitions.

The District Court dismissed plaintiffs’ complaint. We The People v. United States, No. 04-cv-1211, slip op. at 6 (D.D.C. Aug. 31, 2005). The Court ruled that the First Amendment does not provide plaintiffs with the right to receive a government response to or official consideration of their petitions. Id. at 2-3. In addition, the District Court concluded that the Anti-Injunction Act bars plaintiffs’ claim for injunctive relief with respect to the collection of taxes. See id. at 5 (citing 26 U.S.C. § 7421).

II

Plaintiffs raise two legal arguments on appeal. First, plaintiffs contend that they have a First Amendment right to receive a government response to or official consideration of their petitions. Second, plaintiffs argue that they have the right to withhold payment of their taxes until [*6] they receive adequate action on their petitions.

The Government renews its argument that plaintiffs’ claims are barred by sovereign immunity. In response, plaintiffs have contended that Section 702 of the Administrative Procedure Act waives the Government’s sovereign immunity. That section provides: “A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof. . . . The United States may be named as a defendant in any such action . . . .” 5 U.S.C. § 702. The Government acknowledges that Section 702 waives sovereign immunity from suits for injunctive relief. See Dep’t of the Army v. Blue Fox, Inc., 525 U.S. 255, 260-61, 142 L. Ed. 2d 718 (1999) (describing Section 702 as waiving the Government’s immunity from actions seeking relief other than money damages); Trudeau v. FTC, 456 F.3d 178, 186 (D.C. Cir. 2006) (”[T]here is no doubt that § 702 waives the Government’s immunity from actions seeking relief other than money damages.”) (internal quotation omitted). The Government contends, however, that [*7] plaintiffs’ claims fall within an exception to Section 702 that provides: “Nothing herein . . . affects other limitations on judicial review . . . .” 5 U.S.C. § 702. The Government further argues that the Anti-Injunction Act presents just such a barrier to judicial relief in this case because of the Act’s provision that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” 26 U.S.C. § 7421(a).

We agree with the Government that the Anti-Injunction Act precludes plaintiffs’ second claim - related to collection of taxes. See Bob Jones Univ. v. Simon, 416 U.S. 725, 726-27, 749-50, 40 L. Ed. 2d 496 (1974). In asserting that claim, plaintiffs seek to restrain the Government’s collection of taxes, which is precisely what the Anti-Injunction Act prohibits, notwithstanding that plaintiffs have couched their tax collection claim in constitutional terms. See Alexander v. “Americans United” Inc., 416 U.S. 752, 759-60, 40 L. Ed. 2d 518 (1974).

Plaintiffs also raise, however, a straight First Amendment Petition Clause claim-namely, that they [*8] have a right to receive a government response to or official consideration of their various petitions. By its terms, the Anti-Injunction Act does not bar that claim, and Section 702 waives the Government’s sovereign immunity from this suit for injunctive relief, at least with respect to plaintiffs’ allegations regarding actions of certain of the named defendants. See 26 U.S.C. § 7421; cf. Trudeau, 456 F.3d at 187. We therefore will consider that claim on the merits.

III

The First Amendment to the Constitution provides: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” U.S. CONST. amend. I. Plaintiffs contend that they have a right under the First Amendment to receive a government response to or official consideration of a petition for a redress of grievances. We disagree.

In cases involving petitions to state agencies, the Supreme Court has held that the Petition Clause does not provide a right to a response or official [*9] consideration. In Smith v. Arkansas State Highway Employees, for example, state highway commission employees argued that a state agency violated the First Amendment by not responding to or considering grievances that employees submitted through their union. See 441 U.S. 463, 463-64 & n.1 (1979). In response, the Court held that “the First Amendment does not impose any affirmative obligation on the government to listen, to respond or, in this context, to recognize the association and bargain with it.” Id. at 465.

Likewise, in Minnesota State Board for Community Colleges v. Knight, the Supreme Court evaluated a state law that required public employers to discuss certain employee matters exclusively with a union representative; this prevented nonunion employees from discussing those matters with their employers. 465 U.S. 271, 273 (1984). Holding that the state statutory scheme had not “unconstitutionally denied an opportunity to participate in their public employer’s making of policy,” the Court reiterated: “Nothing in the First Amendment or in this Court’s case law interpreting it suggests that the rights to speak, associate, and [*10] petition require government policymakers to listen or respond to individuals’ communications on public issues.” Id. at 285, 292. Therefore, the Court concluded that individuals “have no constitutional right as members of the public to a government audience for their policy views.” Id. at 286.

Plaintiffs contend that Smith and Knight do not govern their claims in this case because those cases addressed petitions to state officials regarding public policy, not claims that the Federal Government has violated the Constitution. Plaintiffs’ attempted distinction is at best strained. In both cases, the Supreme Court flatly stated that the First Amendment, which has been incorporated against the States by the Fourteenth Amendment, does not provide a right to a response to or official consideration of a petition. Knight, 465 U.S. at 285; Smith, 441 U.S. at 465. Nothing in the two Supreme Court opinions hints at a limitation on their holdings to certain kinds of petitions or certain levels of Government. In short, the Supreme Court precedents in Smith and Knight govern this case.

IV

Plaintiffs cite [*11] the work of several commentators who suggest that Smith and Knight overlooked important historical information regarding the right to petition. Those commentators point to the government practice of considering petitions in some quasi-formal fashion from the 13th century in England through American colonial times - a practice that continued in the early years of the American Republic. Based on this historical practice, plaintiffs and these commentators contend that the Petition Clause should be interpreted to incorporate a right to a response to or official consideration of petitions. See, e.g., Stephen A. Higginson, A Short History of the Right to Petition Government for the Redress of Grievances, 96 YALE L.J. 142, 155 (1986); James E. Pfander, Sovereign Immunity and the Right to Petition: Toward a First Amendment Right to Pursue Judicial Claims Against the Government, 91 NW. U. L. REV. 899, 904-05 & n.22 (1997); Julie M. Spanbauer, The First Amendment Right to Petition Government for a Redress of Grievances: Cut From a Different Cloth, 21 HASTINGS CONST. L.Q. 15, 17-18 (1993); Note, A Petition Clause Analysis of Suits [*12] Against the Government: Implications for Rule 11 Sanctions, 106 HARV. L. REV. 1111, 1116-18 (1993); cf. David C. Frederick, John Quincy Adams, Slavery, and the Disappearance of the Right of Petition, 9 LAW & HIST REV. 113, 116-18, 141 (1991).

Other scholars disagree, arguing based on the plain text of the First Amendment that the “right to petition the government for a redress of grievances really is just a right to petition the government for a redress of grievances.” Gary Lawson & Guy Seidman, Downsizing the Right to Petition, 93 NW. U. L. REV. 739, 766 (1999); cf. Norman B. Smith, “Shall Make No Law Abridging . . .”: An Analysis of the Neglected, but Nearly Absolute, Right of Petition, 54 U. CIN. L. REV. 1153, 1190-91 (1986). These scholars note that the Petition Clause by its terms refers only to a right “to petition”; it does not also refer to a right to response or official consideration. See N. BAILEY, AN UNIVERSAL ETYMOLOGICAL ENGLISH DICTIONARY (24th ed. 1782) (”To petition”: “to present or put up a Petition”); S. JOHNSON, A DICTIONARY OF THE ENGLISH LANGUAGE (6th ed. 1785) (”To petition”: “To solicite; to supplicate”). [*13] As they suggest, moreover, the Framers and Ratifiers did not intend to incorporate every historical practice of British or colonial governments into the text of the Constitution. See Lawson & Seidman, 93 NW. U. L. REV. at 756-57; cf. Williams v. Florida, 399 U.S. 78, 92-93, 26 L. Ed. 2d 446 (1970); Browning-Ferris Indus. of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 274-76, 106 L. Ed. 2d 219 (1989) (”Despite this recognition of civil exemplary damages as punitive in nature, the Eighth Amendment did not expressly include it within its scope.”).

We need not resolve this debate, however, because we must follow the binding Supreme Court precedent. See Tenet v. Doe, 544 U.S. 1, 10-11, 161 L. Ed. 2d 82 (2005). And under that precedent, Executive and Legislative responses to and consideration of petitions are entrusted to the discretion of those Branches.

The judgment of the District Court is affirmed.

So ordered.

CONCUR BY: ROGERS

CONCUR: ROGERS, Circuit Judge, concurring: The text of the Petition Clause of the First Amendment does not explicitly indicate whether the right to petition includes a right to a response. [*14] Appellants ask the court to consider the text in light of historical evidence of how the right to petition was understood at the time the First Amendment was adopted. Essentially, they contend that the Petition Clause should be read in light of contemporary understanding, which they suggest indicates that the obligation to respond was part and parcel of the right to petition.

As the court points out, we have no occasion to resolve the merits of appellants’ historical argument, given the binding Supreme Court precedent in Smith v. Arkansas State Highway Employees, 441 U.S. 463, 60 L. Ed. 2d 360 (1979), and Minnesota State Board for Community Colleges v. Knight, 465 U.S. 271, 79 L. Ed. 2d 299 (1984). Op. at 9. That precedent, however, does not refer to the historical evidence and we know from the briefs in Knight that the historical argument was not presented to the Supreme Court.

The Supreme Court’s interpretation of the Constitution has been informed by the understanding that:

“The provisions of the Constitution are not mathematical formulas having their essence in their form; they are organic living institutions transplanted from English [*15] soil. Their significance is vital not formal; it is to be gathered not simply by taking the words and a dictionary, but by considering their origin and the line of their growth.”

Konigsberg v. State Bar of California, 366 U.S. 36, 50 n.10, 6 L. Ed. 2d 105 (1961) (quoting Gompers v. United States, 233 U.S. 604, 610, 58 L. Ed. 1115 (1914)). Even where the plain text yields a clear interpretation, the Supreme Court has rejected a pure textualist approach in favor of an analysis that accords weight to the historical context and the underlying purpose of the clause at issue. For example, in Lynch v. Donnelly, 465 U.S. 668, 79 L. Ed. 2d 604 (1984), the Supreme Court stated that “[t]he history may help explain why the Court consistently has declined to take a rigid, absolutist view of the Establishment Clause. We have refused ‘to construe the Religion Clauses with a literalness that would undermine the ultimate constitutional objective as illuminated by history.’” Id. at 678 (quoting Walz v. Tax Comm’n, 397 U.S. 664, 671, 25 L. Ed. 2d 697 (1970)); see id. at 673-75. Nor is [*16] the Supreme Court’s rejection of literalism limited to the First Amendment. n1

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

n1 For instance, in Eleventh Amendment cases, the Supreme Court has rejected “ahistorical literalism,” Alden v. Maine, 527 U.S. 706, 730, 144 L. Ed. 2d 636 (1999), and instead has turned to “history, practice, precedent, and the structure of the Constitution,” id. at 741; see id. at 711-24, 730-35, 741-44, explaining that “[a]lthough the text of the Amendment would appear to restrict only the Article III diversity jurisdiction of the federal courts, ‘we have understood the Eleventh Amendment to stand not so much for what it says, but for the presupposition . . . which it confirms,’” id. at 729 (omission in original) (quoting Seminole Tribe of Florida v. Florida, 517 U.S. 44, 54, 134 L. Ed. 2d 252 (1996) (quoting Blatchford v. Native Village of Noatak, 501 U.S. 775, 779, 115 L. Ed. 2d 686 (1991))); see also Seminole Tribe, 517 U.S. at 69-70; Principality of Monaco v. Mississippi, 292 U.S. 313, 320-26, 330, 78 L. Ed. 1282 (1934); Hans v. Louisiana, 134 U.S. 1, 10-11, 15, 33 L. Ed. 842 (1890). In construing the Fifth Amendment in Ullmann v. United States, 350 U.S. 422, 424-25, 438-39, 100 L. Ed. 511 (1956), the Supreme Court rejected the contention that the privilege against self-incrimination protects an individual who is given immunity from prosecution from being forced to testify before a grand jury: For “the privilege against self-incrimination[,] . . . it is peculiarly true that ‘a page of history is worth a volume of logic.’ For the history of the privilege establishes not only that it is not to be interpreted literally, but also that its sole concern is . . . with the danger to a witness forced to give testimony” that may lead to criminal charges. Id. at 438-39 (internal quotation marks omitted) (citations omitted) (quoting New York Trust Co. v. Eisner, 256 U.S. 345, 349, 65 L. Ed. 963 (1921)). And in interpreting the Ex Post Facto Clause, the Supreme Court in Collins v. Youngblood, 497 U.S. 37, 111 L. Ed. 2d 30 (1990), relied on history rather than adopting a literal construction:

Although the Latin phrase “ex post facto” literally encompasses any law passed “after the fact,” it has long been recognized by this Court that the constitutional prohibition on ex post facto laws applies only to penal statutes which disadvantage the offender affected by them. As early opinions in this Court explained, “ex post facto law” was a term of art with an established meaning at the time of the framing of the Constitution.

Id. at 41 (internal citations omitted) (citing Calder v. Bull, 3 Dall. 386 (1798)); see Minnesota v. Carter, 525 U.S. 83, 88-89, 142 L. Ed. 2d 373 (1998); Maryland v. Craig, 497 U.S. 836, 844-49, 111 L. Ed. 2d 666 (1990); Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 502-03, 94 L. Ed. 2d 472 (1987); Goldstein v. California, 412 U.S. 546, 561-62, 37 L. Ed. 2d 163 (1973); Gravel v. United States, 408 U.S. 606, 616-18, 33 L. Ed. 2d 583 (1972); Wright v. United States, 302 U.S. 583, 607, 82 L. Ed. 439 (1938) (Stone, J., concurring); Olmstead v. United States, 277 U.S. 438, 476-77, 72 L. Ed. 944 (1928) (Brandeis, J., dissenting); Boyd v. United States, 116 U.S. 616, 634-35, 29 L. Ed. 746 (1886).

- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*17]

In the context of the First Amendment, the Supreme Court has repeatedly emphasized the significance of historical evidence. A few examples suffice to illustrate the point. In Globe Newspaper Co. v. Superior Court, 457 U.S. 596, 73 L. Ed. 2d 248 (1982), the Supreme Court acknowledged that:

[The] right of access to criminal trials [by the press] is not explicitly mentioned in terms in the First Amendment. But we have long eschewed any narrow, literal conception of the Amendment’s terms, for the Framers were concerned with broad principles, and wrote against a background of shared values and practices. The First Amendment is thus broad enough to encompass those rights that, while not unambiguously enumerated in the very terms of the Amendment, are nonetheless necessary to the enjoyment of other First Amendment rights.

Id. at 604 (internal quotations marks omitted) (citations omitted). In Lynch v. Donnelly, the Supreme Court acknowledged that its “interpretation of the Establishment Clause has comported with what history reveals was the contemporaneous understanding of its guarantees.” 465 U.S. at 673; see id. at 673-77. [*18] In Marsh v. Chambers, 463 U.S. 783, 786-94, 77 L. Ed. 2d 1019 (1983), the Supreme Court looked to contemporary practice from the early sessions of Congress and to later congressional practice in holding that paid legislative chaplains and opening prayers do not violate the First Amendment. See Minneapolis Star & Tribune Co. v. Minn. Comm’r of Revenue, 460 U.S. 575, 583-85 (1983); Engel v. Vitale, 370 U.S. 421, 425-33, 8 L. Ed. 2d 601 (1962); Everson v. Bd. of Educ., 330 U.S. 1, 7-15, 91 L. Ed. 711 (1947); Grosjean v. Am. Press Co., 297 U.S. 233, 240, 245-49, 80 L. Ed. 660 (1936); Near v. Minnesota, 283 U.S. 697, 713-18, 75 L. Ed. 1357 (1931). n2

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n2 Similar analysis is found in the Supreme Court’s interpretation of other provisions of the Constitution. See Crawford v. Washington, 541 U.S. 36, 42-50, 158 L. Ed. 2d 177 (2004) (Sixth Amendment); Atwater v. City of Lago Vista, 532 U.S. 318, 326-40, 345 n.14, 149 L. Ed. 2d 549 (2001) (Fourth Amendment); U.S. Term Limits, Inc. v. Thornton, 514 U.S. 779, 782-83, 800-15, 131 L. Ed. 2d 881 (1995) (Tenth Amendment); Harmelin v. Michigan, 501 U.S. 957, 975-85, 115 L. Ed. 2d 836 (1991) (Eighth Amendment); Wesberry v. Sanders, 376 U.S. 1, 2-3, 7-17, 11 L. Ed. 2d 481 (1964) (Art. I, § 2).

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Appellants point to the long history of petitioning and the importance of the practice in England, the American Colonies, and the United States until the 1830’s as suggesting that the right to petition was commonly understood at the time the First Amendment was proposed and ratified to include duties of consideration and response. See Julie M. Spanbauer, The First Amendment Right to Petition Government for a Redress of Grievances: Cut From a Different Cloth, 21 HASTINGS CONST. L.Q. 15, 22-33 (1993); Norman B. Smith, “Shall Make No Law Abridging . . .”: An Analysis of the Neglected, but Nearly Absolute, Right of Petition, 54 U. CIN. L. REV. 1153, 1154-68, 1170-75 (1986). Based on the historical background of the Petition Clause, “most scholars agree that the right to petition includes a right to some sort of considered response.” James E. Pfander, Sovereign Immunity and the Right to Petition: Toward a First Amendment Right to Pursue Judicial Claims Against the Government, 91 NW. U. L. REV. 899, 905 n.22 (1997); see David C. Frederick, John Quincy Adams, Slavery, and the Right of Petition, 9 LAW & HIST. L. REV. 113, 141 [*20] (1991); Spanbauer, supra, at 40-42; Stephen A. Higginson, Note, A Short History of the Right to Petition, 96 YALE L.J. 142, 155-56 (1986); Note, A Petition Clause Analysis of Suits Against the Government: Implications for Rule 11 Sanctions, 106 HARV. L. REV. 1111, 1116-17, 1119-20 (1993); see also Akhil Reed Amar, The Bill of Rights as a Constitution, 100 YALE L.J. 1131, 1156 (1991) (lending credence to Higginson’s argument that the Petition Clause implies a duty to respond). Even those who take a different view, based on a redefinition of the question and differences between English and American governments, acknowledge that there is “an emerging consensus of scholars” embracing appellants’ interpretation of the right to petition. See Gary Lawson & Guy Seidman, Downsizing the Right to Petition, 93 NW. U. L. REV. 739, 756 (1999).

The sources cited by appellants indicate that “[t]he debates over the inclusion of the right to petition reveal very little about why the convention delegates may have regarded the right as important or what the ‘framers’ intended with respect to the substantive meaning of the right.” Frederick, [*21] supra, at 117 n.19 (citing 4 BERNARD SCHWARTZ, THE ROOTS OF THE BILL OF RIGHTS 762-66, 840-42 (1980)); see Higginson, supra, at 155-56. But neither textual omission n3 nor the absence of explicit statements by Framers or Ratifiers on the precise issue has been dispositive in the Supreme Court’s First Amendment jurisprudence. Instead, the historical context and the underlying purpose have been the hallmarks of the Supreme Court’s approach to the First Amendment. See, e.g., Buckley v. Valeo, 424 U.S. 1, 14-15, 46 L. Ed. 2d 659 (1976); New York Times Co. v. Sullivan, 376 U.S. 254, 269-71, 11 L. Ed. 2d 686 (1964); Roth v. United States, 354 U.S. 476, 481-84, 488, 1 L. Ed. 2d 1498 (1957); Beauharnais v. Illinois, 343 U.S. 250, 254-55, 96 L. Ed. 919 (1952).

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n3 See, e.g., Globe Newspaper, 457 U.S. at 604. The Supreme Court has adopted the same approach in interpreting other provisions of the Constitution. For example, in holding that the Speech or Debate Clause applies to a Senator’s aide even though it mentions only “Senators and Representatives,” the Supreme Court in Gravel observed that although the Clause “speaks only of ‘Speech or Debate,’” its precedent, consistent with adhering to the underlying purpose of the Clause, “ha[d] plainly not taken a literalistic approach in applying the privilege” to protect committee reports, resolutions, and voting. Gravel, 408 U.S. at 617; see id. at 616-18. In the Fourth Amendment context, although the Amendment speaks only to protecting people in their houses, the Supreme Court in Carter noted that its precedent, in some situations, had extended that protection to apply to individuals’ privacy in other people’s houses. Carter, 525 U.S. at 88-89; see also Faretta v. California, 422 U.S. 806, 819 & n.15, 45 L. Ed. 2d 562 (1975); Goldstein, 412 U.S. at 561-62; Principality of Monaco, 292 U.S. at 320-23, 330; Hans, 134 U.S. at 10-11, 15.

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The Supreme Court’s free speech precedent is illustrative. Although the textual meaning of “speech” is as clear, in terms of dictionary definitions, as the meaning of “petition,” the Supreme Court has interpreted “speech” broadly in order to protect freedom of expression:

The First Amendment literally forbids the abridgment only of “speech,” but we have long recognized that its protection does not end at the spoken or written word . . . . [W]e have acknowledged that conduct may be “sufficiently imbued with elements of communication to fall within the scope of the First and Fourteenth Amendments.”

Texas v. Johnson, 491 U.S. 397, 404, 105 L. Ed. 2d 342 (1989) (quoting Spence v. Washington, 418 U.S. 405, 409, 41 L. Ed. 2d 842 (1974)); cf. NAACP v. Button, 371 U.S. 415, 430, 9 L. Ed. 2d 405 (1963). The text of the First Amendment mentions neither writing nor conduct, and at the time of the Founding, as now, the word “speech” meant expression through “vocal words.” n4 Yet the Supreme Court has considered both the history and purpose of the First Amendment in according a broad interpretation to the Free Speech Clause. [*23] Looking, in part, to the Framers’ intent, the Supreme Court has held that the Free Speech Clause applies to written communications, see City of Ladue v. Gilleo, 512 U.S. 43, 45, 58, 129 L. Ed. 2d 36 (1994); Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 61, 77 L. Ed. 2d 469 (1983); Martin v. Struthers, 319 U.S. 141, 141-42, 149, 87 L. Ed. 1313 (1943), as well as a broad range of expressive activities, including spending to promote a cause, First Nat’l Bank v. Bellotti, 435 U.S. 765, 767, 55 L. Ed. 2d 707 (1978); Buckley, 424 U.S. at 19-20, burning the American flag, see Johnson, 491 U.S. at 399-400, 404-06, and dancing nude, see City of Erie v. Pap’s A.M., 529 U.S. 277, 289, 146 L. Ed. 2d 265 (2000); Barnes v. Glen Theatre, Inc., 501 U.S. 560, 565-66, 115 L. Ed. 2d 504 (1991). Furthermore, although the dictionaries do not exclude any particular types of oral communication from the definition of “speech,” the Supreme Court has held, in light of the historical context, that the First Amendment does not protect obscene speech, Roth, 354 U.S. at 481-85, 488; [*24] Miller v. California, 413 U.S. 15, 23, 37 L. Ed. 2d 419 (1973), libelous speech, Beauharnais, 343 U.S. at 254-55, 266, false commercial speech, see Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557, 563-64, 65 L. Ed. 2d 341 (1980); Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, 425 U.S. 748, 771-72, 48 L. Ed. 2d 346 (1976), or speech that is “likely to cause a breach of the peace,” Chaplinsky v. New Hampshire, 315 U.S. 568, 569, 573, 86 L. Ed. 1031 (1942).

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n4 2 SAMUEL JOHNSON, A DICTIONARY OF THE ENGLISH LANGUAGE (6th ed. 1785) (”speech”: “The power of articulate utterance; the power of expressing thoughts by vocal words,” “Language; words considered as expressing thoughts,” “Particular language; as distinct from others,” “Any thing spoken,” “Talk; mention,” “Oration, harangue,” “Declaration of thoughts”); 2 THOMAS SHERIDAN, A COMPLETE DICTIONARY OF THE ENGLISH LANGUAGE (3d ed. 1790) (”speech”: “The power of articulate utterance, the power of expressing thoughts by vocal words; language, words considered as expressing thoughts; particular language as distinct from others; any thing spoken; talk, mention; oration, harangue”); see NATHAN BAILEY, AN UNIVERSAL ETYMOLOGICAL ENGLISH DICTIONARY (24th ed. 1782) (”speech”: “Language, Discourse”); see also THE AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE 1731 (3d ed. 1992) (”speech”: “The faculty or act of speaking,” “The faculty or act of expressing or describing thoughts, feelings, or perceptions by the articulation of words,” “Something spoken; an utterance,” “Vocal communication; conversation”); THE NEW OXFORD AMERICAN DICTIONARY 1630 (2d ed. 2005) (”speech”: “the expression of or the ability to express thoughts and feelings by articulate sounds”); 16 THE OXFORD ENGLISH DICTIONARY 175-77 (2d ed. 1989) (”speech”: “The act of speaking; the natural exercise of the vocal organs; the utterance of words or sentences; oral expression of thought or feeling”).

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Of course, this court cannot know whether the traditional historical analysis would have resonance with the Supreme Court in a Petition Clause claim such as appellants have brought. It remains to be seen whether the Supreme Court would agree to entertain the issue, much less whether it would agree with appellants and “most scholars” that the historical evidence provides insight into the First Congress’s understanding of what was meant by the right to petition and reevaluate its precedent, or conversely reject that analysis in light of other considerations, such as the nature of our constitutional government. No doubt it would present an interesting question. For now it suffices to observe that appellants’ emphasis on contemporary historical understanding and practices is consistent with the Supreme Court’s traditional interpretative approach to the First Amendment.

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May 8th, 2007 | 1 Comment »