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No. 04-1462

In the Supreme Court of the United States

Franklin Savings Corporation and
Franklin Savings Association, petitioners

v.

United States of America, et al.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT

BRIEF FOR RESPONDENTS IN OPPOSITION

Paul D. Clement

Solicitor General

Counsel of Record

Peter D. Keisler

Assistant Attorney General

Mark B. Stern

Dana J. Martin

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

 

 

 

QUESTION PRESENTED

Whether a bankruptcy estate may assert tort claims against the United States pursuant to 11 U.S.C. 106 when those claims are barred by the Federal Tort Claims Act's statute of limitations, 28 U.S.C. 2401(b).

 

In the Supreme Court of the United States

 

 

 

 

 

No. 04-1462

Franklin Savings Corporation and

Franklin Savings Association, petitioners

v.

United States of America, et al.

 

 

 

 

 

 

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

 

 

 

 

 

 

BRIEF FOR RESPONDENTS IN OPPOSITION

 

 

 

 

 

 

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1a-17a) is reported at 385 F.3d 1279. The order of the district court (Pet. App. 18a-30a) is unreported. The order of the bankruptcy court (Pet. App. 31a-46a) is reported at 296 B.R. 521.

JURISDICTION

The judgment of the court of appeals was entered on October 7, 2004. A petition for rehearing was denied on December 29, 2004 (Pet. App. 47a-48a). On March 17, 2005, Justice Breyer extended the time within which to file a petition for a writ of certiorari to and including April 28, 2005, and the petition was filed on that date.

The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).

STATEMENT

1.a. The tort liability of the United States is defined by the Federal Tort Claims Act (FTCA), which provides in part that "[t]he 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." 28 U.S.C. 2674 (first sentence). The FTCA also provides that "[s]ubject to the provisions of chapter 171 of this title," i.e., 28 U.S.C. 2671-2680, the district courts "shall have exclusive jurisdiction of civil actions on claims against the United States, for money damages, * * * for injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of any em ployee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred." 28 U.S.C. 1346(b)(1). The FTCA further provides that the re medies provided by the Act are "exclusive of any other civil action or proceeding." 28 U.S.C. 2679(b)(1); United States v. Smith, 499 U.S. 160, 161-162 (1991).

Although the FTCA incorporates state tort law by permitting tort claims against the United States under circumstances in which a private person would be liable under state law, Congress shielded the United States from liability in a variety of circumstances regardless of the provisions of state law. For instance, the FTCA ex cepts from its coverage claims based upon the per formance of discretionary governmental functions, 28 U.S.C. 2680(a), claims involving intentional torts, 28 U.S.C. 2680(h), and claims arising in a foreign country, 28 U.S.C. 2680(k). In addition, the FTCA is subject to a uniform, federal statute of limitations, set forth in Section 2401(b), which provides that "[a] tort claim against the United States shall be forever barred unless it is presented in writing to the appropriate Federal agency within two years after such claim accrues or unless action is begun within six months after the date of mailing * * * of notice of final denial of the claim by the agency to which it was presented." 28 U.S.C. 2401(b).

b.Section 106 of the Bankruptcy Code, 11 U.S.C. 106, waives the immunity of governmental units, in cluding the United States, the States, and foreign sover eigns, in bankruptcy proceedings. In relevant part, Section 106 provides:

Waiver of sovereign immunity

* * * * *

(b) A governmental unit that has filed a proof of claim in the case is deemed to have waived sovereign immunity with respect to a claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which the claim of such governmental unit arose.

(c) Notwithstanding any assertion of sovereign immunity by a governmental unit, there shall be offset against a claim or interest of a governmental unit any claim against such governmental unit that is property of the estate.

11 U.S.C. 106(b) and (c).

Section 106(b) thus permits a bankruptcy estate to assert a compulsory counterclaim against a govern mental entity that has filed a proof of claim in bank ruptcy against the estate, while Section 106(c) permits the estate to assert an unrelated claim against a governmental entity that has filed a proof of claim, but only up to the amount of a setoff. Section 106 further provides that "[n]othing 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)(5).

2. Petitioner Franklin Savings Corporation (FSC) was the owner of approximately 94% of the stock of petitioner Franklin Savings Association (FSA), a failed savings and loan institution, which was placed into conservatorship in 1990, and into receivership and liquidation in 1992. See Pet. App. 2a-3a, 18a. This case is the latest in a long series of unsuccessful legal challenges and damages claims pursued by petitioners in various courts.

a. In 1990, the Director of the Office of Thrift Supervision (OTS) determined that FSA was "in an unsafe and unsound condition to transact business" and appointed the Resolution Trust Corporation (RTC) as its conservator. Pet. App. 32a. FSA and FSC subsequently filed a lawsuit, known as Franklin I, seeking removal of the conservator. The court of appeals upheld the Director's decision, and this Court denied review. Franklin Sav. Ass'n v. Office of Thrift Supervision, 934 F.2d 1127, 1150-1151 (10th Cir. 1991), cert. denied, 503 U.S. 937 (1992).

In July 1992, the Director converted RTC's role from that of conservator to receiver and ordered RTC to liquidate FSA. Pet. App. 3a, 20a; See 57 Fed. Reg. 41,969 (1992). FSA and FSC filed a lawsuit, known as Franklin II, challenging the Director's decision. The court of appeals held that the decision was not subject to judicial review. Franklin Sav. Ass'n v. Office of Thrift Supervision, 35 F.3d 1466, 1469-1471 (10th Cir. 1994).

Meanwhile, on July 26, 1991, FSC had filed a volun tary petition for relief under Chapter 11 of the Bank ruptcy Code in the United States Bankruptcy Court for the District of Kansas. In 1993, petitioners filed an adversary complaint in the bankruptcy court seeking tort damages of $820 million and relief under the Administrative Procedure Act, 5 U.S.C. 701 et seq., for certain actions of the Resolution Trust Corporation while it was acting as conservator for FSA. That action, known as Franklin III, was eventually transferred to the district court, where it was dismissed on several grounds. Among other things, the district court held that the tort claims were barred by the discretionary function exception to the Federal Tort Claims Act, 28 U.S.C. 2680(a). Franklin Sav. Corp. v. United States, 970 F. Supp. 855, 867 (D. Kan. 1997). That dismissal was upheld on appeal, and this Court denied review. Franklin Sav. Corp. v. United States, 180 F.3d 1124 (10th Cir.), cert. denied, 528 U.S. 964 (1999).

Also in 1993, petitioners filed additional claims in the bankruptcy proceeding alleging that the Director's imposition of a conservatorship and receivership upon FSA, and disposition of FSA's assets, constituted an unconstitutional taking of their property. The takings claims were transferred to the district court, which in turn transferred the claims to the Court of Federal Claims. Franklin Sav. Corp. v. Office of Thrift Super vision, 213 B.R. 596, 601-602 (D. Kan. 1997). On June 16, 2003, the Court of Federal Claims granted the government's motion for summary judgment, denied petitioners' motion for summary judgment, and ordered the entry of judgment in the government's favor. Franklin Sav. Corp. v. United States, 56 Fed. Cl. 720 (2003). The Federal Circuit affirmed in an unpublished opinion. Franklin Sav. Corp. v. United States, 97 Fed. Appx. 331 (Fed. Cir. 2004). This Court recently denied certiorari in that case. 125 S. Ct. 1694 (2005).

b. In the meantime, on February 8, 2000, petitioners filed the present action as another adversary proceeding in the bankruptcy court, reasserting their tort claims seeking $820 million. As the jurisdictional basis for their claims, petitioners invoked Section 106 of the Bankruptcy Code, 11 U.S.C. 106.1

The bankruptcy court granted the defendants' motion to dismiss the complaint. Pet. App. 46a. The bankruptcy court held that petitioners' claim was barred by the doctrine of res judicata, explaining that the complaint was "virtually identical" "with respect to the actual parties, allegations, and legal claims" asserted in the Franklin III action. Id. at 34a, 37a-41a.

3.The district court affirmed the bankruptcy court's res judicata ruling. Pet. App. 18a-30a. The district court rejected petitioners' argument that the res judicata bar did not apply because petitioners had asserted 11 U.S.C. 106 as a new jurisdictional basis for their new complaint. The court explained that this theory was "contrary to the doctrine of claim pre clusion." Pet. App. 29a.

The district court further held that Section 106 did not provide petitioners with an avenue for suing the United States in tort under Kansas state law, because Congress had made clear that the FTCA is the "exclusive remedy for tort claims against the United States." Pet. App. 29a. The district court explained that, "[a]ssuming Franklin Savings meets the require ments of § 106(b) * * * , that section merely provides a waiver of sovereign immunity; Franklin Savings must still point to a source of law for its causes of action." Ibid.

4.The court of appeals affirmed. Pet. App. 1a-17a. The court did not reach the question of whether the complaint was barred by res judicata. Instead, the court held that the case was properly dismissed because it was barred by the FTCA's statute of limitations, 28 U.S.C. 2401(b), which provides that a tort claim against the federal government shall be forever barred if it is not presented to the relevant federal agency within two years of accrual and filed in district court within six months of denial by the agency. Pet. App. 6a-7a. Because petitioners did not dispute that their claims (which involved events that transpired between 1990 and 1992) had expired before the present action was commenced in 2000, the court of appeals held that the claim was barred. Id. at 10a, 17a.

The court of appeals explained that the FTCA supplies the relevant limitations period because that Act "provides the exclusive avenue to assert a claim sounding in tort against the United States." Pet. App. 7a-8a (citing 28 U.S.C. 2679(a)). The court of appeals accordingly rejected petitioners' argument that the waiver of sovereign immunity contained in Section 106 of the Bankruptcy Code renders inoperative the pro visions of the FTCA, including its statute of limitations and exclusions. Id. at 11a-12a. The court explained that "Section 106 is simply a waiver of sovereign immunity; it does not create a claim for relief." Id. at 12a. The court of appeals also observed that "[i]t would be extraordinarily unfair to the United States if the mere filing of a proof of claim in a bankruptcy proceeding subjected it to liability for untimely claims, leaving it without recourse to the usual protections from stale claims available to it in any other, non-bankruptcy pro ceeding." Id. at 16a.

ARGUMENT

Petitioners seek review of the court of appeals' determination that the waiver of sovereign immunity set forth in Section 106 of the Bankruptcy Code does not vitiate the substantive provisions of the FTCA, including its statute of limitations. The court of appeals correctly decided that the action was barred by the FTCA's statute of limitations, Pet. App. 6a-7a, and petitioner's tort claims in any event would be barred by the FTCA's discretionary function exception and principles of res judicata. The petition therefore does not warrant this Court's review.

1.a. Petitioners do not dispute that all of their claims sound in tort and that their claims may not be brought under the FTCA, because the claims are untimely under 28 U.S.C. 2401(b), and because-as the Tenth Circuit held in petitioner's prior action-they are barred by the Act's exception for discretionary func tions, 28 U.S.C. 2680(a). Pet. App. 4a, 5a, 34a, 39a. Petitioners nonetheless argue (Pet. 10) that because Section 106 independently waives the United States's sovereign immunity from suit, their action may be maintained. That contention is fundamentally unsound.

There are two prerequisites to the imposition of liability against the United States: a waiver of sovereign immunity and a source of substantive law that estab lishes a cause of action against the United States. FDIC v. Meyer, 510 U.S. 471, 483-484 (1994); United States Postal Serv. v. Flamingo Indus. (USA) Ltd., 540 U.S. 736, 742-744 (2004). Although Section 106 contains, as its title indicates, a waiver of sovereign immunity, it does not itself confer a right of action against the United States (much less one for alleged torts). Quite to the contrary, Congress in 1994 amended Section 106 to make explicit that "[n]othing 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)(5) (emphasis added); see Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, Tit. I, § 113, 108 Stat. 4117.

The conclusion that Section 106 creates no liability is further confirmed by the requirement that claims against the United States under Section 106 must be "property of the estate," 11 U.S.C. 106(b) and (c). The property of the estate generally consists of "all legal or equitable interests of the debtor in property as of the commencement of the case," i.e., the filing of the bankruptcy petition. 11 U.S.C. 541(a)(1). Absent the bankruptcy petition and petitioners' reliance on Section 106, petitioners have no tort claims against the United States by virtue of 28 U.S.C. 2401(b)-and by virtue of the discretionary function exception, 28 U.S.C. 2680(a), under which the court of appeals held in Franklin III that petitioners' tort claims are barred (see 180 F.3d 1130-1142). Yet petitioners are attempting in the bankruptcy case to enlarge the rights of the estate by creating tort liability where none previously existed.

Other than state law, petitioners do not point to any source of "nonbankruptcy law" imposing substantive liability on the United States for torts. Pet. 8. State law, however, generally provides no cause of action against the United States, M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 426 (1819); Hancock v. Train, 426 U.S. 167, 178-179 (1976). Indeed, the Supremacy Clause preempts any state law purporting to establish tort liability on the part of the United States in this case. Here, Congress made unmistakably clear that litigants in petitioners' position may not recover on tort claims against the United States. Thus, Congress directed that any "tort claim against the United States shall be forever barred" when not presented within two years of a claim's accrual or within six months of an admini strative denial of the claim. 28 U.S.C. 2401(b) (emphasis added). Congress likewise barred tort claims when based on an exercise of the government's discretionary function. 28 U.S.C. 2680(a). Finally, Congress provided that the FTCA remedy "is exclusive of any other civil action or proceeding for money damages by reason of the same subject matter against the employee whose act or omission gave rise to the claim." 28 U.S.C. 2679(b)(1) (emphasis added); accord 28 U.S.C. 2679(a); see also FDIC v. Meyer, 510 U.S. at 476; United States v. Smith, 499 U.S. 160, 161-162 (1991).

It is therefore irrelevant in this case that the FTCA in part incorporates standards of state law. FDIC v. Meyer, 510 U.S. at 478 (noting that the FTCA incor porates the "law of the place" where the act or omission occurred). While the FTCA, like some other federal statutes, incorporates state law as the appropriate standard of liability, Congress itself, in the FTCA, established the United States' liability for the torts of federal employees as a matter of federal law subject to a range of conditions, limitations, and exceptions that are independent of the provisions of state law. See 28 U.S.C. 2674 ("The United States shall be liable * * * ."); Key Tronic Corp. v. United States, 511 U.S. 809, 818 n.11 (1994). Petitioners cannot point to any statute that imposes substantive liability on the United States for tort actions independent of the FTCA. That failure is fatal, because the FTCA unquestionably bars the claims in this case

There is, in short, no basis to conclude that Congress intended Section 106 to subject the United States in bankruptcy proceedings to new and unprecedented forms of liability that, outside of bankruptcy, are explicitly precluded under the statutes defining the contours of governmental liability. Thus, if, as peti tioners suggest, the provisions of the FTCA defining the scope of the liability of the United States were not relevant under Section 106, the result in bankruptcy court would bear no resemblance to that outside bank ruptcy court. Instead, by filing for bankruptcy, debtors facing a proof of claim by the federal government would be in a substantially more favorable position than their counterparts outside bankruptcy, possessed of causes of action unavailable to those who do not file a petition. Petitioners have pointed to no statutory language or legislative history under the Code supporting such a bizarre and anomalous result, and the plain language of Section 106(a)(5) explicitly precludes it.2

b.Petitioners argue (Pet. 15-17) that the court of appeals erroneously held that the FTCA provides a cause of action when, in their view, the FTCA solely reflects a waiver of sovereign immunity. As discussed above, however, absent Congress's affirmative establish ment in the FTCA of the United States' liability for certain torts as a matter of federal law and the resulting cause of action against the United States, the FTCA's waiver of sovereign immunity from suit alone would be insufficient. Pp. 9-11, supra.

That conclusion is also reflected in the terms and structure of the FTCA. Thus, 28 U.S.C. 1346(b)(1) confers jurisdiction of federal district courts and waives the sovereign immunity of the United States for tort claims, "[s]ubject to the provisions of chapter 171," i.e., 28 U.S.C. 2671-2680. See United States v. Mitchell, 463 U.S. 206, 212-216 (1983) (construing Tucker Act grant of jurisdiction as a waiver of sovereign immunity, subject to substantive liability standards created elsewhere). The provisions of Sections 2671-2680, including the exceptions set forth in Section 2680, create and define the scope of the United States' substantive tort liability. Because they are incorporated into Section 1346(b)(1), they are also conditions on the waiver of sovereign immunity. Thus, Section 2680 provides that neither the "provisions of this chapter" (i.e., the FTCA's substantive provisions), nor Section 1346(b) (i.e., the waiver of sovereign immunity) apply to claims falling within the exceptions. Those provisions thus reflect congressional intent both to waive sovereign immunity and to impose substantive tort liability on the United States, but only under the precise conditions set forth in the Act.

Petitioners also err in asserting a conflict between the decision below and decisions stating that the FTCA does not create a new cause of action. Pet. 15-16. The decisions cited by petitioners stand for a proposition as to which there is no dispute in this case: that the tort liability to which the United States subjected itself in the FTCA is limited to traditional common-law tort liability reflected in state law, and does not extend to novel tort claims not recognized under the state tort law applicable to private persons.3 Feres v. United States, 340 U.S. 135, 141-142 (1950) (finding that the FTCA does not provide a basis for a soldier on active duty to sue the United States for negligence because a private person in like circumstances would not be liable under state law); In re Orthopedic Bone Screw Prod. Liab. Litig., 264 F.3d 344, 362 (3d Cir. 2001) (explaining that state law generally defines the extent of the United States' liability under the FTCA), cert. denied, 535 U.S. 1095 (2002); Florida Auto Auction of Orlando, Inc. v. United States, 74 F.3d 498, 502 (4th Cir. 1996) (concluding that an alleged breach of duty under Federal law does not, by itself, state a valid tort claim under the FTCA); Howell v. United States, 932 F.2d 915, 917 (11th Cir. 1991) ("Congress's chief intent in drafting the FTCA was simply to provide redress for ordinary torts recognized by state law.") (citation omitted); Myers v. United States, 17 F.3d 890, 894 (6th Cir. 1994) (FTCA "constitutes consent to suit and is fundamentally limited to cases in which 'a private individual [would be liable] under like circumstances.'") (quoting 28 U.S.C. 2674). None of those decisions holds, as petitioners urge, that a simple waiver of sovereign immunity, standing alone, is sufficient to render the United States liable for a state law cause of action. A fortiori, none of those decisions supports the proposition that the United States may be liable for tort damages under circumstances explicitly precluded by the FTCA itself.

2.Petitioners further assert that there is a "well- developed" conflict of authority on the question pre sented. Pet. 9. But most of the cases upon which they rely are distinguishable from the present case. And the one case that does conflict with the decision below is the subject of a pending petition for rehearing en banc. Review by this Court is therefore not warranted at this time.

Petitioners cite four cases from other courts of appeals that they contend are in conflict with the decision below: Anderson v. FDIC, 918 F.2d 1139 (4th Cir. 1990); Ashbrook v. Block, 917 F.2d 918 (6th Cir. 1990); In re Town & Country Home Nursing Servs., Inc., 963 F.2d 1146 (9th Cir. 1992); and In re Supreme Beef Processors, Inc., 391 F.3d 629 (5th Cir. 2004). The first three of those decisions were decided before Congress in 1994 amended Section 106 to state that it does not "create any substantive claim for relief or cause of action not otherwise existing under * * * non bankruptcy law." 11 U.S.C. 106(a)(5). To the extent that the decisions are inconsistent with that provision, they have lost their validity, and those circuits should have the opportunity to consider the issue in light of Congress's subsequent enactment.

Equally important, Anderson, Ashbrook, and Town & Country, do not involve the question of whether the substantive requirements and limitations of the FTCA, including the statute of limitations or the discretionary function exception apply to actions brought under Sec tion 106. Those decisions held that a debtor is not re quired to comply with the procedural requirement of exhausting administrative remedies before filing an FTCA claim under Section 106. Anderson, 918 F.2d at 1143; Ashbrook, 917 F.2d at 921-923; Town & Country, 963 F.2d at 1154-1155. Whether or not those decisions are correct, they do not fundamentally alter the sub stantive scope of the government's tort liability. For instance, the FTCA does not require exhaustion of administrative remedies when tort claims against the United States are brought as compulsory counterclaims. 28 U.S.C. 2675(a).4

Petitioners, by contrast, urge the far broader contention that Section 106 expands the substantive liability of the United States, by vitiating the sub stantive limitations on governmental liability set forth in the FTCA. Anderson, Town & Country, and Ashbrook do not squarely address that issue and thus would not be in square conflict with the court of appeals' decision even if they had not been superceded by the enactment of 11 U.S.C. 106(a)(5) in 1996. Indeed, Ashbrook ap pears to be consistent with the decision below in this regard. In Ashbrook, the Sixth Circuit affirmed the dismissal of a purported Bivens claim against the United States on sovereign immunity grounds, notwithstanding the waiver of sovereign immunity set forth in Section 106. Ashbrook, 917 F.2d at 924. The court thus appears to have recognized the need to apply relevant sub stantive limitations on the United States' liability when analyzing counterclaims brought under Section 106.5

Petitioners emphasize that in In re Supreme Beef Processors, Inc., supra, the Fifth Circuit applied Section 106(c) to permit the assertion of a tort claim for setoff even if it would be barred by the FTCA's statute of limitations or one of the exceptions in 28 U.S.C. 2680. 391 F.3d at 633-636 (permitting suit even though action would have been barred as untimely under the FTCA and barred by the Act's exception for intentional torts, and its requirement of administrative exhaustion). The government, however, has filed a petition for rehearing en banc in In re Supreme Beef Processors, Inc., and the Fifth Circuit ordered the plaintiff to file a response to that petition. Order, No. 03-41345 (5th Cir. Jan. 24, 2005). If rehearing is granted, the conflict between In re Supreme Beef Processors, Inc. and the decision below may disappear entirely. Thus, while at some future time the issue raised by petitioners may warrant this Court's review, certiorari is premature in the absence of a certain and square conflict on the issue.

3.Finally, the present case would be a poor vehicle for certiorari because, even if the court of appeals had misconstrued Section 106 (which it did not), petitioners' complaint would still have been properly dismissed under the doctrine of res judicata or claim preclusion. As the district court and the bankruptcy court both concluded, the complaint in the present action involves the identical parties, alleged facts, and requested relief as the complaint in Franklin III, which was dismissed under Fed. R. Civ. P. 12(b)(6). Pet. App. 21a, 34a. Although the court of appeals did not reach the issue, the district court and the bankruptcy court correctly recognized that petitioners' new invocation of Section 106 of the Bankruptcy Code is insufficient to defeat the res judicata bar. Pet. App. 29a-30a, 40-41a.

Petitioners have repeatedly invoked the resources of the bankruptcy court, the district court, the Court of Federal Claims, the courts of appeals, and this Court in an unrelenting attempt to find some legal theory that will entitle them to relief. Agencies of the United States began to file proofs of claim in the bankruptcy pro ceedings as early as 1991 when a claim was filed on behalf of the Office of Thrift Supervision. See note 1, supra (Complaint 4). That was well before the district court dismissed their tort claims in 1997. Petitioners could have sought to rely on Section 106 as an inde pendent basis for recovery in that case but they failed to do so and raised that issue for the first time in the court of appeals, which found the claim waived. Petitioners may not circumvent their default in failing to raise that claim by filing a new complaint in bankruptcy court. The doctrine of res judicata (claim preclusion) exists to prevent just such a drain on the resources of the courts and the parties. See Montana v. United States, 440 U.S. 147, 153-154 (1979) ("To preclude parties from con testing matters that they have had a full and fair opportunity to litigate protects their adversaries from the expense and vexation attending multiple lawsuits, conserves judicial resources, and fosters reliance on judicial action by minimizing the possibility of incon sistent decisions.").6

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

 

 

 

Paul D. Clement

Solicitor General

Peter D. Keisler

Assistant Attorney General

Mark B. Stern

Dana J. Martin

Attorneys

 

 

 

JULY 2005

 

1 Various federal agencies beginning in 1991 had filed proofs of claims against FSC. 00-6029 Complaint 4-6 (Bankr. D. Kan. filed Feb. 8, 2000).

2 Contrary to petitioners' contention, reading Section 106 in accordance with its plain terms, i.e., to waive sovereign immunity but otherwise not to expand the scope of tort liability of the United States beyond that set forth in the FTCA, does not render Section 106(b) and (c) "meaningless." Pet. 11. Those Code provisions represent a waiver of sovereign immunity. Thus, they make clear that the bankruptcy court may hear an action against a state governmental entity. Similarly, the provisions permit bankruptcy courts to hear tort claims against the federal government notwithstanding 28 U.S.C. 1346(b)(1), which grants district courts "exclusive jurisdiction" to hear tort claims against the United States.

3 The government discusses this principle in depth in its merits brief in United States v. Olson, No. 04-759 (filed Apr. 25, 2005).

4 Although the FTCA's exhaustion requirement is excused for counterclaims, 28 U.S.C. 2675(a), that rule applies to compulsory, not permissive counterclaims. Northridge Bank v. Community Eye Care Ctr., Inc., 655 F.2d 832, 836 (7th Cir. 1981). The government re spectfully disagrees with Anderson, Ashbrook, and Town & Country to the extent that they hold that Section 106 eliminates the need to exhaust administrative remedies for tort claims brought as permissive counterclaims. See H.R. Rep. No. 595, 95th Cong., 1st Sess. 317 (1977) (Congress intended in Section 106 "to achieve approximately the same result that would prevail outside of bankruptcy"). Anderson also ad dressed the requirement that FTCA suits be filed against the United States rather than particular agencies, holding that requirement, like the exhaustion requirement, inapplicable to counterclaims filed under Section 106. 918 F.2d at 1143-1144. This Court need not reach this issue, which was not addressed by the court of appeals below. We note, however, that the government also respectfully disagrees with Anderson in this regard, because FTCA suits must be brought against the United States, not its agencies. 28 U.S.C. 1346(b), 2679(a).

5 For those reasons, petitioners also mistakenly argue (Pet. 14-15) that the decision below conflicts with University Medical Center v. Sullivan, 973 F.2d 1065 (3d Cir. 1992), which was decided before the 1994 Amendments to Section 106, and does not involve the question of whether Section 106 vitiates the substantive requirements of the FTCA. Rather, Medical Center holds that district courts have jurisdiction to hear claims that the Department of Health and Human Services violated the Bankruptcy Code's automatic stay provision, 11 U.S.C. 362, even though the plaintiff did not exhaust administrative remedies as required for claims arising under the Medicare Act, 42 U.S.C. 405(h). The court reasoned that the hospital's claim "arises under the Bankruptcy Code and not under the Medicare statute." 973 F.2d at 1073. Significantly, the court did not rely on Section 106 as a basis for imposing liability on the United States. Rather, the court recognized that Section 106 waived immunity from suit and that the automatic stay provision was the basis for the substantive source of liability. Medical Ctr., 973 F.2d at 1085-1087.

6 Although the United States assumed for the sake of argument, solely for purposes of the appeal, that Section 106(b) is applicable here, that issue has not yet been resolved by the courts below. The United States argued to the bankruptcy court that Section 106(b) is inap plicable because petitioners' claims do not arise out of the same trans action or occurrence as the government's claims against the bankruptcy estate. 11 U.S.C. 106(b). Should this case be remanded, the govern ment would expect to reassert that argument.