United States v. Torres (In Re Torres) , 432 F.3d 20 ( 2005 )

United States Court of Appeals
For the First Circuit
No. 04-9006
IN RE ANTONIO RIVERA TORRES; SOFIA VILLATA SELLA,
Debtors.
UNITED STATES OF AMERICA,
Creditor, Appellant,
v.
ANTONIO RIVERA TORRES; SOFIA VILLATA SELLA,
Debtors, Appellees.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
OF THE FIRST CIRCUIT
Before
Torruella, Lynch, and Howard,
Circuit Judges.
Thomas J. Clark, Attorney, Tax Division, with whom Bethany
B. Hauser, Attorney, Tax Division, Eileen J. O'Connor, Assistant
Attorney General, and Of Counsel, H.S. Garcia, United States
Attorney, were on brief, for appellant.
Irving K. Hernandez Valls for appellees.
December 16, 2005
LYNCH, Circuit Judge. Antonio Rivera Torres and Sofía
Villata Sella, debtors, were awarded emotional distress damages by
the bankruptcy court against the Internal Revenue Service for the
IRS's violation of a discharge injunction. The Bankruptcy
Appellate Panel affirmed, but remanded the case to the bankruptcy
court for reconsideration of debtors' request for attorneys' fees
and litigation costs. The United States appeals only the award of
emotional distress damages. We reverse the order awarding
emotional distress damages because Congress has not waived the
federal government's sovereign immunity for emotional distress
damages, and remand for further proceedings consistent with this
opinion.
I.
Only a brief summary of the facts is necessary. On
September 1, 1992, debtors filed for Chapter 7 bankruptcy. The IRS
filed a proof of claim for $21,587.11, consisting of an unsecured
general claim of $14,486.62 for self-employment income taxes for
1985 and an unsecured priority claim of $7,100.49 for self-
employment income taxes for 1989 through 1992. In January of 1993,
debtors received a discharge that freed them from "all
dischargeable debts," which included only the IRS's unsecured
general claim for the 1985 tax deficiency. The IRS's claim for
self-employment taxes for 1989 through 1992 were non-
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dischargeable.1 The IRS suspended collection activities on all the
debts, including the non-discharged debt.
Debtors filed a tax return for 1995, showing that they
were entitled to a refund for approximately $1,200. The IRS
retained this refund and applied it to the discharged 1985 debt.
According to the IRS, this occurred because of an error by an IRS
technician. Since the amount of non-discharged debt exceeded the
amount of the refund, an offset was in order. To do so required
the inputting of particular codes into the IRS computer system.
However, rather than inputting these codes for only the non-
discharged debts associated with 1989 through 1992, the IRS
technician entered the codes for all debts, including the
discharged 1985 debts. The result was that in late 1996, the
debtors' 1995 refund was applied to the discharged 1985 debt (since
it was the oldest debt) and collection activities were resumed on
all debts, including the 1985 debt, despite the discharge order.
The debtors began receiving notices from the IRS in
September 1996. They unsuccessfully attempted to resolve the issue
1
Section 523(a) of the Bankruptcy Code provides that some
debts cannot be discharged, including any tax "of the kind and for
the periods specified in section . . . 507(a)(8) of this title."
11 U.S.C. § 523(a)(1)(A). Section 507(a)(8)(A)(i), in turn,
describes a tax deficiency for which the return was due within
three years prior to the filing of the bankruptcy petition. 11
U.S.C. § 523(a)(1)(A); see also Young v. United States, 535 U.S.
43, 46 (2002) (describing the operation of §§ 535(a) and
507(a)(8)). Since the claims based on taxes owed from 1989 through
1992 fell within this "three-year lookback period," see Young, 535
U.S. at 46, they could not be discharged.
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with the IRS over the telephone. On March 18, 1997, the debtors
filed a motion in the ongoing Chapter 7 bankruptcy proceedings
seeking an order that the IRS show cause why it should not be held
in contempt for violating the discharge injunction under 11 U.S.C.
§ 524. In the motion, the debtors sought compensatory damages,
emotional distress damages, punitive damages, attorneys' fees, and
costs. In April 1997, the IRS ceased collection activities and
reversed the application of the refund and the bankruptcy
distribution to the 1985 account, and applied it instead to the
1989 account. The remainder of the 1985 debt was cleared in August
1997.
In June of 1998, the IRS filed a motion for summary
judgment requesting that the court dismiss with prejudice the
debtors' action for contempt. The IRS conceded that its collection
activities violated the discharge injunction, but argued that § 524
did not authorize an award of damages. At the summary judgment
hearing, however, the IRS agreed that it could be held liable for
compensatory damages, but not for emotional distress damages,
punitive damages, attorneys' fees, and costs. The bankruptcy court
entered partial summary judgment in favor of the debtors, subject
to a later hearing on damages. The court found that 11 U.S.C.
§ 106(a) abrogated sovereign immunity for monetary relief --
including emotional distress damages, but not including punitive
damages -- entered under 11 U.S.C. § 105(a), the provision of the
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Bankruptcy Code giving the court the power to "issue any order,
process, or judgment that is necessary or appropriate to carry out
the provisions of this title." The court concluded that attorneys'
fees and litigation costs were unwarranted because the debtors had
failed to seek such fees and costs in administrative proceedings
before the IRS.
After the evidentiary hearing for damages, during which
the debtors testified as to their out-of-pocket costs and the
emotional distress they experienced as a result of the IRS's
actions, the bankruptcy court awarded Rivera Torres $4,000 for
expenses and $5,000 for emotional damages, and awarded Villata
Sella another $5,000 in emotional damages.
The IRS appealed only the emotional distress awards to
the BAP, and debtors cross-appealed from the ruling that they were
not entitled to attorneys' fees. The BAP found that § 105(a)
permitted courts to award emotional distress damages. As for the
IRS's arguments with respect to sovereign immunity, the BAP deemed
them waived because the precise arguments made had not been raised
before the bankruptcy court. The BAP also reversed the district
court's denial of attorneys' fees and costs, and remanded to the
bankruptcy court for further consideration. The IRS has only
appealed the BAP's award of emotional distress damages. We reverse
and remand for further proceedings consistent with this opinion.
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II.
We deal first with the issue of appellate jurisdiction.
We have jurisdiction to review "all final decisions, judgments,
orders and decrees" of a BAP. 28 U.S.C. § 158(d)(1). We have held
that:
[W]hen a district court remands a matter to the
bankruptcy court for significant further proceedings,
there is no final order for the purposes of § 158(d) and
the court of appeals lacks jurisdiction. When a remand
leaves only ministerial proceedings, for example,
computation of amounts according to established formulae,
then the remand may be considered final.
In re Gould & Eberhardt Gear Mach. Corp., 852 F.2d 26, 29 (1st Cir.
1988). Here, the BAP remanded in part to the bankruptcy court for
determination of attorneys' fees, and thus we must consider whether
such a remand prevents the exercise of appellate jurisdiction here.
We conclude that it does not.
The Supreme Court has held, in the context of an appeal
under 28 U.S.C. § 1291, that a federal district court's decision is
final and appealable even if issues regarding attorneys' fees and
costs remain to be decided. Budinich v. Becton Dickinson & Co.,
486 U.S. 196, 202-03 (1988) ("Courts and litigants are best served
by the bright-line rule . . . that a decision on the merits is a
'final decision' for purposes of § 1291 whether or not there
remains for adjudication a request for attorney's fees attributable
to the case.").
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The fact that here we are operating under § 158(d) rather
than § 1291 makes little difference. We have noted that given
"[t]he great similarity between an adversary proceeding in
bankruptcy and an ordinary civil action," the standards regarding
finality in civil actions will track the standards to be applied to
judgments in bankruptcy proceedings. Estancias La Ponderosa Dev.
Corp. v. Harrington (In re Harrington), 992 F.2d 3, 6 n.3 (1st Cir.
1993). Therefore, we hold that we have appellate jurisdiction over
the government's appeal.
III.
We turn now to the issue of sovereign immunity. The
question presented is whether there is an explicit waiver of
sovereign immunity in 11 U.S.C. § 106, as to allow an award of
emotional distress damages against the United States, under the
sanctions provisions of 11 U.S.C. § 105, to remedy a violation of
11 U.S.C. § 524, which enjoins actions to recover discharged
debts.2 The bankruptcy court and the BAP found that the imposition
of emotional distress damages against the federal government was
2
As its final argument, the IRS says there was no basis for
a finding of emotional distress damages. It emphasizes that the
debtors had discharged tax liabilities from 1985 and non-discharged
tax liabilities from 1989 to 1992. When the IRS corrected its
error, it did not return the tax refund; rather, it applied it
against the non-discharged 1989 liability. We will assume, with
some skepticism, that the debtors have met the standard for
emotional distress damages.
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not barred by sovereign immunity, relying on the waiver of immunity
in § 106. We believe this to be a question of first impression.
The debtors were awarded emotional distress damages by
the bankruptcy court pursuant to a finding that the IRS had
violated its 11 U.S.C. § 524 obligations not to attempt to collect
a discharged debt. While § 524 itself does not specify remedies
for its violation, the remedies for violation of § 524 are set
forth under 11 U.S.C. § 105(a), which authorizes courts to "issue
any order, process, or judgment that is necessary or appropriate to
carry out the provisions of this title." The bankruptcy court
reasoned that § 105(a) authorized an award of emotional distress
damages for violations of § 524, that the waiver of sovereign
immunity effectuated in § 106 extended to all remedies available
under § 105(a), and therefore § 106 authorized an award of
emotional distress damages against the United States.3
We start with the standards for determining whether
Congress has waived the sovereign immunity of the federal
government, noting that we review this determination de novo.
3
The BAP erred when it concluded the government had waived
its arguments for immunity by not raising particular arguments in
the bankruptcy court or to it. The rule is that the defense of
sovereign immunity cannot be waived in litigation. See United
States v. United States Fid. and Guar. Co., 309 U.S. 506, 513
(1940); Dep't of the Army v. Fed. Labor Relations Auth., 56 F.3d
273, 275 (D.C. Cir. 1995); see also Irving v. United States, 162
F.3d 154, 159-61 (1st Cir. 1998) (en banc) (holding that the
government cannot waive or forfeit an argument that the
discretionary function exception to the Federal Tort Claims Act
(FTCA) should apply).
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United States v. Puerto Rico, 287 F.3d 212, 216 (1st Cir. 2002);
see also In re BankVest Capital Corp., 360 F.3d 291, 295 (1st Cir.
2004) ("We review the bankruptcy court's conclusions of law de
novo, with the benefit of the BAP's bankruptcy expertise but
without deference to its conclusions." (citing Fed. R. Bankr. P.
7052)). The debtors bear the burden of proof to establish a waiver
of immunity. See Murphy v. United States, 45 F.3d 520, 522 (1st
Cir. 1995).
The standard for finding a waiver is quite stringent.
A waiver must be "unequivocally expressed," Dep't of the Army v.
Blue Fox, Inc., 525 U.S. 255, 261 (1999) (citing Lane v. Pena, 518
U.S. 187, 192-93 (1996)), and "must be strictly construed in favor
of the sovereign," Orff v. United States, 125 S.Ct. 2606, 2610
(2005), with ambiguities construed against waiver, United States v.
Williams, 514 U.S. 527, 531 (1995). Furthermore, a waiver of
sovereign immunity may subject the federal government to some
categories of damages, but not others. Lane, 518 U.S. at 192 ("To
sustain a claim that the Government is liable for awards of
monetary damages, the waiver must extend unambiguously to such
monetary claims." (emphasis added)).
The text of § 106(a), as amended in 1994, provides 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:
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(1) Sections 105, 106, . . . 362, . . . , 524,
. . . of this title.
(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.
11 U.S.C. § 106(a); see also Bankruptcy Reform Act of 1994, Pub. L.
No. 103-394, § 113, 108 Stat. 4106, 4117-18. The text of § 106(a)
does not specifically refer to emotional distress damages at all.
There is no doubt that § 106 is an express waiver of
sovereign immunity. That does not answer the question of what
types of relief are encompassed in the waiver. There is also no
doubt § 106 is a waiver, in appropriate circumstances, for "money
recovery," 11 U.S.C. § 106(a)(3), and for entry of money judgments,
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id. § 106(a)(4). We turn later to whether the "money recovery"
language constitutes a waiver of immunity for emotional distress
damages.
Section 106(a)(3) also contains a waiver of immunity for
an "order, process, or judgment" issued under the sections
enumerated in § 106(a)(1). One could argue that this language
constitutes a flexible waiver of immunity for any "order, process
or judgment" that a bankruptcy court may chose to enter under any
of the enumerated sections. This argument, we think, rests on
entirely too broad a reading of the waiver in § 106. The argument
is one which would swamp the strict construction and express
statement rules governing waiver of sovereign immunity.
A. The Enumerated Sections Under § 106(a)(1) as a Source of
Waiver
A narrower approach is to look at the enumerated sections
and the nature of the relief available under those sections to
determine if there has been waiver of immunity as to such relief.
The inquiry, though, must have temporal confines. We ask not about
present understandings, but about what Congress understood in 1994,
at the time of the amendment of § 106, to be the content of its
waiver for "orders, processes, or judgments" under § 105 and the
other enumerated sections. The enumerated section at issue here,
§ 105(a), authorizes the court to issue any order so long as it is
"necessary or appropriate to carry out the provisions of this
title." The temporal distinction we draw is important because it
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means that we are not here resolving any question as to the types
of relief that are now available to private parties under any of
the enumerated sections.
This narrower temporal approach -- looking at
congressional understanding of the enumerated sections at the time
of the amendment -- is preferable for several reasons. First, it
is the approach taken by the Supreme Court in several cases. See
Sosa v. Alvarez-Machain, 542 U.S. 692, 711 (2004) (relying on the
fact that Congress' "provision of an exception when a claim arises
in a foreign country was written at a time when the phrase 'arising
in' was used in state statutes to express the position that a claim
arises where the harm occurs"); Bowen v. Massachusetts, 487 U.S.
879, 897 (1988) ("There is no evidence that any legislator in 1976
understood the words 'money damages' to have any meaning other than
the ordinary understanding of the term as used in the common law
for centuries.").
Second, the approach adheres to the general principle
that Congress is presumed to know the content of background law.
See Smith v. United States, 507 U.S. 197, 203-04 (1993)
(interpreting the scope of the foreign country exception to the
Federal Tort Claims Act (FTCA) in light of the assumption "'that
Congress legislates against the backdrop of the presumption against
extraterritoriality'" (quoting EEOC v. Arabian Am. Oil Co., 499
U.S. 244, 248 (1991))); see also Exxon Mobil Corp. v. Allapattah
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Servs., Inc., 125 S.Ct. 2611, 2636 (2005) ("The Court should
assume, as it ordinarily does, that Congress legislated against a
background of law already in place and the historical development
of that law."); Villescas v. Abraham, 311 F.3d 1253, 1261 (10th
Cir. 2002) ("We must presume that Congress was aware at those
times, and during all the years since 1974 when [the ADEA] was
passed, that the general rule announced by the courts was to forbid
damages for emotional distress [under the ADEA], and chose not to
interfere with that rule.").
Third, our approach gives content as to what type of
money judgment the waiver of immunity applies.
Fourth, this approach is a corollary of the principle
that the Code itself should not be read "to effect a major change
in pre-Code practice" unless the change is the subject of "at least
some discussion in the legislative history." Dewsnup v. Timm, 502
U.S. 410, 419 (1992).4
Fifth, it also avoids an assumption, engaged in by the
BAP, that the scope of remedies available against private parties
as the law develops are co-extensive with those available against
4
The government observes that absent a contrary statement,
Congress may be assumed to have implicitly imparted background law,
such as common law standards, into the Code. See Field v. Mans,
516 U.S. 59, 73-74 (1995). As the government points out, it has
found no pre-Code bankruptcy cases awarding emotional distress
damages under similar circumstances. It also argues that "there is
no indication in the legislative history that Congress intended to
make such [emotional distress] damages available."
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the government when it waives immunity. We note that on the one
occasion that Congress wished to establish co-extensiveness, under
the FTCA, it was explicit about doing so.5
And sixth, our principle that the background law against
which Congress legislates must have been clearly established at the
time § 106 was passed is itself reinforced by § 106(a)(5). That
section states: "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, or
nonbankruptcy law." 11 U.S.C. § 106(a)(5).
It is arguable that such a narrow temporal approach is
not appropriate. There is little reason to doubt that Congress
could give to another governmental actor some degree of flexibility
to interpret types of relief subject to Congressional waivers of
immunity and to change those interpretations over time. But here,
5
Section 106 does not contain the sort of waiver found in
the FTCA, which provides: "The United States shall be liable,
respecting the provisions of this title relating to tort claims, in
the same manner and to the same extent as a private individual
under like circumstances, but shall not be liable for interest
prior to judgment or for punitive damages." 28 U.S.C. § 2674.
Based on this waiver, courts have found that the FTCA waives the
federal government's immunity in an action against the United
States for emotional distress damages. See Sarno, Recovery of
Damages for Infliction of Emotional Distress Under Federal Tort
Claims Act, 107 A.L.R. Fed. 309 (citing cases). By contrast, § 106
does not explicitly tie the scope of government liability to the
scope of private liability. Therefore, it is not clear that
Congress intended to expose the federal government to all the
remedies that may be imposed on private parties in bankruptcy
proceedings.
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Congress has clearly endorsed a temporal approach in § 106(a)(5),
by stating that no new rights were to be created through the
mechanism of the waiver of immunity.
Instead, applying the temporal rule, we assume that if it
were perfectly clear that the enumerated section at issue, here
§ 105, encompassed the relief of emotional distress damages at the
time of the amendment of § 106, then the § 106 waiver would
encompass such damages. But if debtors cannot show that the
background law clearly established that they were entitled to
emotional distress damages under the relevant enumerated clauses,
then this argument fails.
The government argues that § 105 does not now and has
never authorized emotional distress damages. Our concern is
narrower, and has to do with the background law Congress was
presumed to know in 1994, at the time it waived immunity as to the
enumerated sections.6 The background law at the time Congress
passed the Bankruptcy Reform Act does not support the debtors'
reading of the remedies available as including emotional distress
damages under the enumerated sections in the waiver language of
§ 106.
6
The government argues that the rights "protected under the
Bankruptcy Code are financial and economic rights: the Code is not
crafted with a view to protecting debtors from emotional distress."
This argument would apply to all parties subject to § 105 orders,
not just the government. We address only the question of waiver of
sovereign immunity.
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We start with § 105(a), the statutory sanction power, and
§ 524, the provision violated. The initial question of whether a
violation of § 524 could be remedied at all by an award of damages
was resolved at the time of the amendment of the waiver of immunity
provision in § 106. This court did not resolve that question until
2000. In Bessette v. Avco Financial Services, Inc., 230 F.3d 439,
445 (1st Cir. 2000), as the BAP properly recognized, this court
held that a district court could award damages as a sanction under
§ 105 for violations of § 524. Bessette referred to "actual
damages," but did not specify what was encompassed by this term;
nor did it discuss emotional distress damages. Our quest narrows
to focus on emotional distress damages and their availability in
1994 under § 105.
Only one circuit, by 1994, had directly considered the
question of whether § 105(a) or § 524 authorized courts to issue
awards for emotional distress damages, and it answered that
question in the negative. See Burd v. Walters (In re Walters), 868
F.2d 665, 670 (4th Cir. 1989). The court vacated the award for
emotional distress, holding: "[N]o authority is offered to support
the proposition that emotional distress is an appropriate item of
damages for civil contempt, and we know of none." Id.This conclusion that emotional distress damages were
unavailable was reinforced by the decision in McBride v. Coleman,
955 F.2d 571 (8th Cir. 1992). McBride dealt with the power of
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civil contempt more generally, not specifically under § 105(a).
The court, in rejecting an award for emotional distress damages,
held:
The problems of proof, assessment, and appropriate
compensation attendant to awarding damages for emotional
distress are troublesome enough in the ordinary tort
cases, and should not be imported into civil contempt
proceedings. Although in some circumstances an award of
damages to a party injured by the violation of an
injunction may be appropriate, the contempt power is not
to be used as a comprehensive device for redressing
private injuries, and it does not encompass redress for
injuries of this sort.
Id. at 577. McBride and Burd make it clear that at the time of the
amendment of § 106, the background law was that § 105(a) did not
encompass an award for monetary damages,7 much less for a § 524
violation. That background law argues against a finding of
emotional distress damages.
Our temporal approach to the issue of availability of
emotional distress damages may differ from that of the Eleventh
7
The BAP rejected the views of the courts in McBride and
Burd. Instead it pointed to a single bankruptcy court decision,
after the amendment of § 106, finding that court could award
emotional distress damages against the IRS. Matthews v. United
States (In re Matthews), 184 B.R. 594 (Bankr. S.D. Ala. 1995). The
BAP relied on the fact that Bessette cited Matthews as part of a
long string cite, concluding that "[t]his reference strongly
suggests an acknowledgment by the First Circuit that full remedial
relief for civil contempt must include emotional distress damages."
The BAP also pointed to one decision awarding emotional distress
damages against a private party under § 105(a), see In re Perviz,
302 B.R. 357, 372 (Bankr. N.D. Ohio 2003), and two other decisions
awarding emotional distress damages under § 362(h), see In re
Bishop, 296 B.R. 890 (Bankr. S.D. Ga. 2003); Holden v. IRS (In re
Holden), 226 B.R. 809, 812 (Bankr. D. Vt. 1998).
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Circuit, which has held that § 106(a) unequivocally waives
sovereign immunity for court-ordered monetary damages under § 105,
although not for punitive damages. Jove Eng'g, Inc. v. IRS, 92
F.3d 1539, 1555 (11th Cir. 1996); Hardy v. United States (In re
Hardy), 97 F.3d 1384 (11th Cir. 1996). While the Eleventh Circuit
has not said that emotional distress damages are available as
actual damages, it has tied the waiver of immunity to any monetary
relief deemed to be "necessary or appropriate." Hardy, 97 F.3d at
1389-90. More significantly, Hardy states: "While it is true that
§ 524 does not specifically authorize monetary relief, the modern
trend is for courts to award actual damages for violation of § 524
based on the inherent contempt power of the court." Id. at 1389.
Whatever the modern trend as to private parties, we think the
waiver of immunity question is a different issue and far narrower.
Debtors turn by analogy to 11 U.S.C. § 362(h) and argue
it encompasses emotional distress damages within its authorization
for "actual damages," and that therefore we should read § 105 to
also cover such damages. The argument fails. First, the order
here was not entered for violation of § 362(h), which prohibits
violations of the automatic stay provisions during the proceedings;
rather, the order stemmed from a violation of the discharge
injunction under § 524. Second, even assuming the analogy to
§ 362(h) is apt, while it is true that the text of § 362(h) does
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provide for "actual damages,"8 there was no consensus in the
background law that emotional distress damages are encompassed
within "actual damages" at the time of the amendment of the
immunity provision in § 106.
Even today the question of whether emotional distress
damages are "actual damages" within the meaning § 362(h) has not
been conclusively determined. The Ninth Circuit, the only circuit
to hold thus far that the term "actual damages" in § 362(h)
encompasses emotional distress damages, also acknowledges that the
issue of whether that is what Congress intended is not clear. In
re Dawson, 390 F.3d 1139, 1146 (9th Cir. 2004). And the Seventh
Circuit has held that "actual damages" in § 362(h) contemplated a
financial loss, not emotional distress damages.9 Aiello v.
Providian Fin. Corp., 239 F.3d 876, 881 (7th Cir. 2001). Aiello
points out:
The law has always been wary of claims of emotional
distress, because they are so easy to manufacture. For
a long time damages for such distress were generally
8
In a case that was decided after Hoffman v. Connecticut
Department of Income Maintenance, 492 U.S. 96 (1989), and before
the 1994 amendment to § 106, the district court had awarded actual
damages for the government's violation of the automatic stay
provisions of § 362(h). Small Bus. Admin. v. Rinehart, 887 F.2d
165, 166 (8th Cir. 1989). The government in Rinehart did not
appeal the award of actual damages, only of punitive damages. Id.at 166 n.1.
9
The court in Aiello also suggested that under the "clean-up
doctrine" of equity, emotional distress might be compensable if
there was a "financial loss to hitch it to." Aiello, 239 F.3d at
880.
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limited to cases in which the plaintiff was able to prove
some other injury. The courts have grown more confident
of their ability to sift and value claims of emotional
distress, and the old limitations have largely been
abandoned; but suspicion lingers as demonstrated by two
recent Supreme Court decisions . . . that set a high
threshold for proof of damages for emotional distress
caused by a denial of due process of law.
Id. at 880 (citations omitted) (citing Metro-North Commuter R.R.
Co. v. Buckley, 521 U.S. 424, 428 (1997); Consol. Rail Corp. v.
Gottshall, 512 U.S. 532 (1994)). The Aiello court found it
doubtful that Congress intended "to change the fundamental
character of bankruptcy remedies by enacting [§ 362]," even in
light of "the modern era of receptivity to claims of damages for
purely emotional injury." Id.
This circuit has not squarely resolved the question,
although there is dicta in Fleet Mortgage Group v. Kaneb, 196 F.3d
265 (1st Cir. 1999), suggesting that emotional distress damages may
be available as "actual damages" under § 362(h). See id. at 269.
The panel did not reach the question of whether § 362(h) authorizes
emotional distress damages.10
Thus, none of the enumerated sections in § 106(a)(1)
that apply directly (§§ 105, 524) or by analogy (§ 362) clearly
established the availability, even against private parties, of an
10
The language in this opinion is dicta because, as the
opinion notes, Fleet had failed to make any arguments regarding the
appropriateness of the emotional distress damages award before the
BAP, much less regarding whether the statute authorized the award,
and had therefore waived the argument. Fleet Mortgage Group, 196
F.3d at 269.
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award of emotional distress damages in 1994 as a matter of
background law. Those sections do not provide a basis to find
clear waiver of sovereign immunity as to emotional distress
damages.
B. The Term "Money Recovery" Under § 106(a)(3)
The debtors also argue that the language "including an
order or judgment awarding a money recovery" in § 106(a)(3)
authorizes waiver of sovereign immunity as to emotional distress
damages.
The government argues that the phrase "money recovery"
does not even unambiguously mean "money damages," much less that
money damages necessarily includes emotional distress damages. The
bankruptcy court concluded money recovery was the equivalent of
money damages, and money damages included emotional distress
damages.
We are reluctant to approach the question as one of
semantic equivalents, regardless of the circumstances in which the
question arose. Whether Congress intended the term "money
recovery" to mean "money damages" may turn on context. Bowen v.
Massachusetts, 487 U.S. 879 (1988), makes this point and compels
the conclusion that the term "money recovery" cannot, as a matter
of plain text reading, be deemed to include emotional distress
damages. In Bowen, the Court interpreted the waiver of sovereign
immunity in the Administrative Procedure Act as to claims for
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"relief other than money damages." 5 U.S.C. § 702. The Court drew
a distinction between damages, which "are given to the plaintiff to
substitute for a suffered loss," and specific relief, which
"attempt to give the plaintiff the very thing to which he was
entitled." Id. at 895 (quoting D. Dobbs, Handbook on the Law of
Remedies 135 (1973)) (internal quotation mark omitted). It held
that 5 U.S.C. § 702, while withholding waiver for "money damages,"
still waived sovereign immunity for specific relief, such as
recovery of money or properties wrongfully taken.
The United States argues in its brief that the
legislative history of § 106 supports its arguments and that it is
appropriate to consider that history. The Supreme Court has
followed two different courses as to the relevance of legislative
history on questions of statutory waiver of sovereign immunity. In
one line of cases, the court has declined to consider legislative
history at all. See, e.g., Orff, 125 S.Ct. at 2610; Blue Fox, 525
U.S. at 261; Lane, 518 U.S. at 192 ("A statute's legislative
history cannot supply a waiver that does not appear clearly in any
statutory text."); see also Marina Bay Realty Trust LLC v. United
States, 407 F.3d 418, 422 (1st Cir. 2005).
However, in another line of cases, legislative history
plays in important role in construction of the statute as to waiver
of immunity. That line includes the most recent Supreme Court
decision about waiver of immunity as to particular remedies, West
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v. Gibson, 527 U.S. 212 (1999). See id. at 222 (examining
legislative history to determine Congressional intent as to the
term "appropriate remedies"). Other cases, both recent and older,
also make reference to the legislative history to determine the
meaning of the terms used by Congress in a statutory waiver of
immunity. See Smith, 507 U.S. at 202 n.4; Bowen, 487 U.S. at 896-
901; see also Sosa, 542 U.S. at 704-709 (relying on legislative
history to determine the scope of the foreign country exception to
the waiver in the FTCA); Scarborough v. Principi, 541 U.S. 401, 421
& n.9 (2004) (relying on legislative history to determine the scope
of waiver of immunity in the Equal Access to Justice Act).
Moreover, the courts of appeals have frequently looked to
the legislative history of the waiver of immunity provisions,
§ 106(a), which are at the heart of this case. See, e.g., Franklin
Sav. Corp. v. United States (In re Franklin Sav. Corp.), 385 F.3d
1279, 1290 (10th Cir. 2004); Gordon Sel-Way, Inc. v. United States
(In re Gordon Sel-Way, Inc.), 270 F.3d 280, 285 (6th Cir. 2001);
Anderson v. FDIC, 918 F.2d 1139, 1143 (4th Cir. 1990); Ashbrook v.
Block, 917 F.2d 918, 924 (6th Cir. 1990).
We emphasize we do not here look to statutory history to
supply a waiver that does not appear clearly in any statutory text.
See Lane, 518 U.S. at 192. The statutory text clearly waives
immunity for "monetary recovery." The question is what Congress
meant by that phrase. Thus, our case differs from other sovereign
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immunity cases, like Lane v. Pena, 518 U.S. 187, which addressed
the question of whether Congress waived immunity for any money
awards at all. Our case, by contrast, deals with the scope, not
the existence, of the waiver. See Nagle, Waiving Sovereign
Immunity in an Age of Clear Statement Rules, 1995 Wis. L. Rev. 771,
820-21 (observing that clear statement rules are "well-suited for
interpretive questions that can be answered with a simple 'yes' or
'no'" -- such as whether a statutory provision has waived sovereign
immunity at all -- but that such rules "pose problems" with
"interpretive questions that do not present two such sharp
alternatives" -- such as questions about the scope of a waiver).
We think legislative history important on at least one
point. If the legislative history showed that the clear intent of
Congress in enacting § 106 was to overrule cases holding that no
emotional distress damages were available, that would be
significant. But the legislative history shows no such thing.
Indeed, it works against finding a waiver of immunity.
The legislative history shows that the focus of
Congress's concern was "monetary recovery" of a distinctly
different type than emotional distress damages. The provision for
waiver of sovereign immunity in the Bankruptcy Code was overhauled
in 1994. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394,
§ 113, 108 Stat 4106, 4117-18; see also Gibson, Congressional
Response to Hoffman and Nordic Village: Amended Section 106 and
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Sovereign Immunity, 69 Am. Bankr. L.J. 311 (1995). Before the 1994
amendment, § 106(c) had provided that "notwithstanding any
assertion of sovereign immunity" any provision of the Bankruptcy
Code which contained the phrase "creditor," "entity," or
"governmental unit" applied to governmental units and that "a
determination by a court of an issue arising under such a provision
[bound] governmental units." Hoffman v. Conn. Dep't of Income
Maint., 492 U.S. 96, 100-01 (1989) (providing former version of
§ 106). In passing the Bankruptcy Reform Act of 1994, Congress
provided a waiver of immunity for "an order, process or judgment"
under one of enumerated sections, "including an order or judgment
awarding a money recovery, but not including an award of punitive
damages." 11 U.S.C. § 106(a)(3).
The House Report accompanying the final bill demonstrates
that Congress intended to abrogate two Supreme Court cases which
had held that § 106, as it then stood, did not waive sovereign
immunity. See H.R. Rep. No. 103-835, at 42 (1994), reprinted in
1994 U.S.C.C.A.N. 3340, 3350-51. One case, Hoffman, 492 U.S. 96,
involved the sovereign immunity of state agencies in an action
where the bankruptcy trustee sought to recover Medicaid payments
owed to a nursing home. In Hoffman, the plurality held that § 106,
read as a whole, did not waive immunity for monetary recovery, but
waived immunity only for declaratory and injunctive relief, binding
governmental units to issues determined by the bankruptcy court
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even when those units did not appear before the court. Id. at 99-
100. The other case, United States v. Nordic Village, Inc., 503
U.S. 30 (1992), involved the waiver of the sovereign immunity of
the federal government, and specifically, the IRS. There, the
bankruptcy trustee for a corporate debtor sought recovery of an
improper post-petition transfer of estate property by an officer of
the bankrupt company to pay off the officer's personal tax
liabilities. The Court, after finding that the waiver under then
§ 106(a) and (b) (now § 106(b) and (c)) were unavailable, found
there were at least two interpretations of § 106(c) that limited
the waiver to declaratory and injunctive relief, and so the waiver
could not be said to be "unambiguous" as to damages. Neither
Hoffman nor Nordic Village involved emotional distress damages, but
only classic recovery of moneys already paid to the United States
that the estate wished to recover. The legislative history
supports the view that the "money recovery" language in the new
§ 106 was in reference to the type of recoveries involved in
Hoffman and Nordic Village and not emotional distress damages.
In the end, it is clear that Congress has not "definitely
and unequivocally" waived sovereign immunity under § 106(a) of the
Bankruptcy Code for emotional damages awards in circumstances such
as these.11 We hold, therefore, that sovereign immunity bars awards
11
Neither side suggests that § 106(b) or (c) plays a role in
this case.
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for emotional distress damages against the federal government under
§ 105(a) for any willful violation of § 524, and that immunity is
not waived by § 106.
If more were needed, and it is not, our view is also that
recognizing a waiver of sovereign immunity for emotional distress
damages in this case would run afoul of § 106(a)(5), which forbids
the creation of any substantive claim for relief "not otherwise
existing under this title, the Federal Rules of Bankruptcy, or non-
bankruptcy law." 11 U.S.C. § 105(a)(5).
For the above reasons we reverse the portion of the
judgment awarding emotional distress damages against the IRS and
remand for further proceedings consistent with this opinion.
(Concurrence follows.)
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TORRUELLA, Circuit Judge, Concurring. I concur with the
result in this case: 11 U.S.C. § 106 does not contain an explicit
waiver of sovereign immunity as to emotional distress damages under
11 U.S.C. § 105. However, I write separately because I am not
persuaded that it is either necessary or appropriate to look to
legislative history to reach this result.
The rule is that "a waiver of the Federal Government's
sovereign immunity must be unequivocally expressed." Lane v. Pena,
518 U.S. 187, 192 (1996). This rule applies to awards for monetary
damages. Id. at 192-93. Even when a cause of action has been
authorized against the government, sovereign immunity may be waived
with regard to certain remedies but not as to others. "To sustain
a claim that the Government is liable for awards of monetary
damages, the waiver must extend unambiguously to such monetary
claims." Id. at 192 (citing United States v. Nordic Village, Inc.,
503 U.S. 30, 34 (1992)).
Because the waiver must be unequivocally expressed, our
analysis is confined to the text of the statute itself. Lane
dictates in no uncertain terms that "[a] statute's legislative
history cannot supply a waiver that does not appear clearly in any
statutory text; the unequivocal expression of elimination of
sovereign immunity that we insist upon is an expression in
statutory text." Id. (internal citation and quotation marks
omitted).
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As the majority opinion observes, the text of the statute
does not mention emotional distress damages one way or another.
And thus, of the utmost importance is the meaning of the term
"money recovery." Section 106(a)(3) of the Bankruptcy Code waives
sovereign immunity for claims for "money recovery" and only
explicitly excludes "punitive damages" from the waiver. The
specific exclusion of punitive damages might indicate -- as
debtors suggest -- that "money recovery" should be read broadly to
include all categories of monetary relief, including "money
damages." Indeed, the Eleventh Circuit has stated that § 106
(a)(3)'s waiver of sovereign immunity extended to "money damages."
See Jove Engineering, Inc. v. IRS, 92 F.3d 1539, 1555 (11th Cir.
1996).1
Although the broad construction suggested above is not
without superficial logic, a "waiver of sovereign immunity must be
1
However, Jove Engineering's brief discussion of §
106(a)(3), leaves unclear whether the court simply assumed that the
terms "money recovery" and "monetary damages" were interchangeable.
See Jove Engingeering, 92 F.3d at 1555 (concluding that since
"[s]ection 106 expressly extends this waiver to permit a court to
'issue against a governmental unit an order, process, or judgment
. . . awarding a money recovery'" it plainly "waives sovereign
immunity for court-ordered monetary damages under § 105") (citation
to § 106 corrected from original).
I do not believe that our holding today is inconsistent with
Jove Engineering because the Eleventh Circuit did not elaborate on
the scope of "monetary damages" available under Section 106(a)(3),
except to suggest that it would cover at least "actual expenses,"
assuming such expenses were consistent with other statutory
provisions. Id. at 1542-43, 1549.
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strictly construed in favor of the sovereign." Orff v. United
States, 125 S. Ct. 2606, 2610 (2005). Waivers of immunity must be
express, not implied, and we will not imply from the failure to
specifically exclude emotional distress damages -- even where
punitive damages are specifically excluded -- that such damages are
included.
In Bowen v. Massachusetts, 487 U.S. 879 (1988), the
Supreme Court suggested a distinction between specific relief and
damages that is of some assistance in our analysis. Bowen
interpreted "monetary relief" to include the two separate
categories of "money damages" and "specific relief." Bowen
considered the Administrative Procedure Act's ("APA") waiver of
sovereign immunity, 5 U.S.C. § 702, as to claims for "relief other
than money damages." Interpreting the term "money damages," the
Court distinguished between damages and specific relief, explaining
that "[d]amages are given to the plaintiff to substitute for a
suffered loss, whereas specific remedies 'are not substitute
remedies at all, but attempt to give the plaintiff the very thing
to which he was entitled.'" Bowen, 487 U.S. at 895 (quoting D.
Dobbs, Handbook on the Law of Remedies 135 (1973)). In Bowen, the
Court held that specific relief, such as recovery of specific
property or monies wrongfully taken, could still be awarded against
the government even where "money damages" were unavailable. Bowen,
487 U.S. at 893. In the words of the Supreme Court:
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Our cases have long recognized the distinction
between an action at law for damages -- which
are intended to provide a victim with monetary
compensation for an injury to his person,
property, or reputation -- and an equitable
action for specific relief -- which may
include an order providing for the
reinstatement of an employee with backpay, or
for "the recovery of specific property or
monies, ejectment from land, or injunction
either directing or restraining the defendant
officer's actions."
Id. (quoting Larson v. Domestic & Foreign Commerce Corp., 337 U.S.
682, 688 (1949)) (emphasis added).
The Court's reasoning in Bowen provides some foundation
with which to speculate that Congress's waiver of sovereign
immunity for "money recovery" could conceivably be limited to
claims for specific relief, such as where a government creditor
wrongfully collected funds from a debtor, and the debtor now seeks
to have those monies returned. The use of the term "recovery"
rather than "damages" suggests that there is property in the hands
of the government which originally belonged to appellees and which
appellees could "recover."2 In addition, this interpretation
appears to be the most straightforward since specific monetary
relief would be the logical remedy in cases where a creditor has
2
A narrow interpretation of "monetary recovery" would also
remain truer to the common usage of the term "recovery" to indicate
retrieval of something that one formerly possessed. See, e.g., The
American Heritage Dictionary of the English Language (4th ed. 2000)
(defining "recover" as "[t]o get back; regain").
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improperly recovered a debt that had already been discharged
through bankruptcy.
In light of the discussion in Bowen, we cannot say that
"money recovery," as used in § 106(a)(3), unambiguously includes
monetary damages, when it appears at least equally likely that
Congress intended to waive sovereign immunity only with respect to
claims for specific relief. The fact that there are "plausible"
readings of a statute that do not require waiver of sovereign
immunity "is enough to establish that a reading imposing monetary
liability on the Government is not 'unambiguous' and therefore
should not be adopted," even though the interpretations against
waiver "are assuredly not the only readings." Nordic Village, 503
U.S. at 37.
In the end, Congress has not "definitely and
unequivocally" waived sovereign immunity under § 106 of the
Bankruptcy Code for emotional damages. United States v. Horn, 29
F.3d 754, 762 (1st Cir. 1994). We must assume that had Congress
meant to waive sovereign immunity for all forms of "monetary
relief" or "money damages" specifically, it could have done so.
See, e.g., Bowen, 487 U.S. at 896 (refusing to "substitute the
words 'monetary relief' for the words 'money damages' actually
selected by Congress" in that statute).
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Because I believe the foregoing analysis to be sufficient
to reach the judgment with which we all agree, I have written
separately in this case.
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