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192. Sovereign Immunity -- 11 U.S.C. § 106(a)

  1. Generally
  2. Punitive Damages and Attorney Fees
  3. Enforcement of Judgments
  4. Claims Under the Bankruptcy Rules
  5. No New Substantive Claims or Causes of Action
  6. Other Governmental Units


1. Generally.

Section 106(a) now lists those sections of Bankruptcy Code with respect to which sovereign immunity is abrogated. This listing effectively allows the assertion of bankruptcy causes of action, but specifically excludes causes of action belonging to the debtor that become property of the estate under § 541.

Unlike the old section 106, which (absent a governmental unit's filing a proof of claim) only allowed declaratory or injunctive relief with respect to Bankruptcy Code based causes of action, monetary judgments may now be entered. The legislative history accompanying the Bankruptcy Reform Act of 1994 states that new § 106(a) "effectively overrule[s] two Supreme Court cases [Hoffman v. Conn. Dep't of Income Maint., 492 U.S. 96 (1989) and United States v. Nordic Village, Inc., 503 U.S. 30 (1992)] that had held that the States and Federal Government are not deemed to have waived their sovereign immunity by virtue of enacting [old] section 106(c) of the Bankruptcy Code. . . . This amendment expressly provides for a waiver of sovereign immunity by governmental units with respect to monetary recoveries as well as declaratory and injunctive relief." 140 Cong. Rec. H10766 (daily ed. Oct. 4, 1994).

Query: may a third party bring the action? See IRS v. Amoskeag Bank Shares, Inc. (In re Amoskeag Bank Shares, Inc.), 239 B.R. 653, 658 (D.N.H. 1998) (allowing former employee of debtor to intervene in § 505 action). But see United States v. Zellers (In re CNS, Inc.), 255 B.R. 198 (N.D. Ohio 2000) (Bankruptcy Code's sovereign immunity waiver does not provide U.S. consent for non-debtor to obtain a binding determination of his own tax liability, indirectly, by objecting to IRS claim against debtor; such objection violates Anti- Injunction Act, 26 U.S.C. § 7421).

2. Punitive Damages and Attorney Fees. Section 106(a)(3) specifically provides that punitive damages may not be awarded against a governmental unit. See also Taylor v. United States (In re Taylor), 263 B.R. 139, 153 (N.D. Ala. 2001) (no punitive damages against U.S. unless Congress explicitly authorizes) (note: on appeal to 11th Cir.). Section 106(a)(3) also provides that any award of attorney fees is subject to the hourly rate limitations contained in 28 U.S.C. § 2412(d)(2)(a) (EAJA), and these limitations are applicable to all governmental units, not just the United States. See also Jove Eng'g, Inc. v. IRS, 92 F.3d 1539 (11th Cir. 1996) (attorney fee award must be consistent with EAJA or IRC 7430). But see Brown v. IRS (In re Brown), 211 B.R. 1020 (Bankr. S.D. Ga. 1997) (IRC 7430 not applicable because bankruptcy court is not "court of the United States; award need only be consistent with EAJA, per 106(a)(3), and thus, no need to exhaust administrative remedies).

3. Enforcement of Judgments.

a. Generally.

Section 106(a)(4) provides that enforcement of any judgment or order against a governmental unit shall be "consistent with appropriate nonbankruptcy law applicable to such governmental unit."

b. Money Judgments Against the United States.

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." Such judgments are governed by 28 U.S.C. § 2414.

4. Claims Under the Bankruptcy Rules. Section 106(a) provides a waiver of sovereign immunity for claims under both the Bankruptcy Code and under the Federal Rules of Bankruptcy Procedure. The provisions of Rule 9011 (sanctions) and 9020 (contempt) may prove to be the most affected by this change. Whether this can result in an unconstitutional delegation of legislative power (at least for future rules, which are proposed by the Judicial Conference) remains to be seen.

5. No New Substantive Claims or Causes of Action. Section 106(a)(5) explicitly provides that no new substantive claim for relief not otherwise existing under the Bankruptcy Code, the Bankruptcy Rules or nonbankruptcy law is created. This may prove to be helpful in instances where debtors seek to assert creative theories not otherwise cognizable under existing law. In Field v. Montgomery County (In re Anton Motors, Inc.), 177 B.R. 58 (Bankr. D. Md. 1995), the court found no waiver of sovereign immunity for a claim under § 544 even though that section is one for which sovereign immunity has been abrogated by the 1994 amendments. Section 544 only permits the trustee to avoid transfers "voidable under applicable law by a creditor holding an unsecured claim;" in other words, it allows a trustee to assume causes of action under state law. The court found that Maryland law did not authorize such a suit, and § 106(a)(5) does not create any substantive cause of action; therefore, § 106(a) did not abrogate sovereign immunity. See also Taylor v. United States (In re Taylor), 263 B.R. 139 (N.D. Ala. 2001) (appeal to 11th Cir. pending) (emotional distress damages are not recoverable for violations of 11 U.S.C. § 525, especially where no supporting medical evidence was presented; such compensation would be in the nature of punitive damages which, with respect to the United States, are explicitly prohibited).

6. Other Governmental Units. a. States. See section II.E below concerning the applicability of § 106 to the States. b. Indian Tribes. See In re Nat'l Cattle Cong., 247 B.R. 259 (Bankr. N.D. Iowa 2000) (Congress has not unequivocally abrogated tribe's sovereign immunity via 11 U.S.C. § 106(a); tribe's proof of claim with disclaimer of waiver did not waive immunity; tribe must elect between withdrawing its proof of claim and removing its waiver disclaimer); see also Stringer v. Chrysler (In re Stringer), 252 B.R. 900 (Bankr. W.D. Pa. 2000) (bankruptcy court's jurisdiction to hear adversary proceeding does not operate to pierce an Indian nation's immunity from suit) (dicta). c. Foreign Nations. Section 106(a) overrides the Foreign Sovereign Immunity Act, 28 U.S.C. § 1604. Tuli v. Iraq, 172 F.3d 707, 711-12 (9th Cir. 1999).

Updated May 20, 2015