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195. Limits Of The § 106 Waiver Of Sovereign Immunity

  1. Forum
  2. Sovereign Immunity v. Bankruptcy Jurisdiction
  3. Sue-and-Be-Sued Agencies.
  4. Application of 28 U.S.C. § 2410
  5. Effect of § 106 On Non-Bankruptcy Jurisdictional Prerequisites
  6. Multiple Agencies in Case


1. Forum.

Section 106 is a forum waiver only and does not expose governments to causes of action from which they would be immune in a non-bankruptcy context. See WJM, Inc. v. Mass. Dep't of Pub. Welfare, 840 F.2d 996 (1st Cir. 1988) (waiver of sovereign immunity under § 106 does not include prejudgment interest absent express statutory authority creating right to payment); see also Minnesota v. United States, 305 U.S. 382, 399 (1939) (Congress determines not only whether the United States may be sued but also in what courts suit may be brought); 2 Collier on Bankruptcy 106.06[1] (15th ed. 1997) (whether estate has a valid and enforceable claim against government depends upon the applicable substantive law, whether state or Federal). This argument is strengthened by the 1994 Reform Act's new language stating: "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)(5). See Hardy v. IRS (In re Hardy), 97 F.3d 1384 (11th Cir. 1996) (1994 act unequivocally waived sovereign immunity permitting court to hold IRS in contempt under § 105 for violation of § 524 discharge injunction; court may impose sanctions that are coercive, not punitive, and attorney fees if consistent with EAJA and 26 U.S.C. § 7430); Jove Eng'g, Inc. v. IRS, 92 F.3d 1539 (11th Cir. 1996) (same for automatic stay violation); United States v. Pullman Constr. Indus., Inc., 210 B.R. 302 (N.D. Ill. 1997) (Bankruptcy Code does not expressly waive U.S. sovereign immunity with regard to pre- judgment interest).

2. Sovereign Immunity v. Bankruptcy Jurisdiction.

We also argue that a non-bankruptcy waiver of sovereign immunity, e.g., Federal Tort Claims Act, may not be combined with 28 U.S.C. § 1334(b) ("co-exclusive" jurisdiction of district court sitting in bankruptcy) and 28 U.S.C. § 157 (referral of jurisdiction to bankruptcy court) to waive sovereign immunity in the bankruptcy court. Sections 157 and 1334 address subject matter jurisdiction and do not waive sovereign immunity. See United States v. Nordic Vill., Inc., 503 U.S. 30 (1992); see also Williamson v. USDA, 815 F.2d 368 (5th Cir. 1987); Kjeldahl v. United States (In re Kjeldahl), 52 B.R. 916 (D. Minn. 1985); FDIC v. Ginn (In re Ginn), 128 B.R. 719 (Bankr. D.S.C. 1990) (all holding that FTCA jurisdictional requirements cannot be circumvented by § 106). Contra Quality Tooling, Inc. v. United States, 47 F.3d 1569 (Fed. Cir. 1995) (Tucker Act and Contract Disputes Act waivers of sovereign immunity apply to bankruptcy courts despite apparent language limiting jurisdiction under those statutes to Court of Federal Claims); Anderson v. FDIC, 918 F.2d 1139 (4th Cir. 1990) (claim lacking waiver of sovereign immunity under FTCA permitted to proceed as counterclaim based on § 106(a) waiver of sovereign immunity); Town & Country Home Nursing Servs., Inc. v. Blue Cross of Cal. (In re Town & Country Home Nursing Servs., Inc.), 112 B.R. 329 (B.A.P. 9th Cir. 1990) (independent grants of bankruptcy jurisdiction in 28 U.S.C. §§ 157 and 1334 and 11 U.S.C. § 106(a) overcome limitations on judicial review found in Medicare statute, Tucker Act and FTCA), aff'd, 963 F.2d 1146 (9th Cir. 1992); TPI Int'l Airways, Inc. v. FAA (In re TPI Int'l Airways, Inc.), 141 B.R. 512 (Bankr. S.D. Ga. 1992) (filing of FAA claim for civil penalties waived immunity under § 106(a) for misrepresentation, conversion, and interference with business in connection with FAA's failure to return forfeited operating specifications; however, notwithstanding waiver, FAA immune under FTCA's discretionary function exception), aff'd, No. CV292- 230 (S.D. Ga. Dec. 21, 1992) (in unpublished opinion, district court stated that all of the substantive limitations on the FTCA applied, including the misrepresentation exception); Inslaw, Inc. v. United States (In re Inslaw , Inc.), 76 B.R. 224 (Bankr. D.D.C. 1987), aff'd, 83 B.R. 89 (D.D.C. 1989), rev'd on other grounds, 932 F.2d 1467 (D.C. Cir. 1991); cf. Ashbrook v. Block, 917 F.2d 918 (6th Cir. 1990) (U.S. filing of proof of claim obviates FTCA administrative claim filing requirement). In a nonbankruptcy case, the Supreme Court unanimously held that an FTCA action cannot be maintained when the claimant failed to exhaust the administrative claim requirement even if he did so while the suit was pending. McNeil v. United States, 508 U.S. 106 (1993). This may cast doubt on the continued validity of some of the above decisions. In addition, in Department of the Army v. Blue Fox, Inc., 525 U.S. 255 (1999), the Supreme Court reiterated that waivers of sovereign immunity must be both explicit and narrowly construed. At least one court, in the context of a Tucker Act case, has cited Department of the Army as compelling rejection of the Federal Circuit's Quality Tooling decision. Carrington Gardens Assocs. v. United States (In re Carrington Gardens Assocs.), 248 B.R. 752, 768-69 n.7 (Bankr. E.D. Va. 2000), aff'd, 258 B.R. 622 (E.D. Va. 2001).

3. Sue-and-Be-Sued Agencies.

Courts have held that "sue and be sued" statutes waive sovereign immunity, and, therefore, courts do not need to consider applicability of § 106.

In re Epps, 110 B.R. 691 (E.D. Pa. 1990) (sovereign immunity waived under National Housing Act authorizing HUD to "sue and be sued" in carrying out certain provisions of the Act). Such "sue and be sued" statutes waive sovereign immunity only of particular agencies, not the United States generally. See Lomas & Nettleton Co. v. Pierce, 636 F.2d 971, 972-73 (5th Cir. 1981); Indus. Indem., Inc. v. Landrieu, 615 F.2d 644, 646 (5th Cir. 1980). If the judgment sought by the plaintiff would "expend itself on the public Treasury," the suit is in reality against the United States regardless of whether the complaint names only Federal agencies or officials. Dugan v. Rank, 372 U.S. 609, 620 (1963) (quoting Land v. Dollar, 330 U.S. 731, 738 (1947)); see also FHA V. Burr, 309 U.S. 242, 250-51 (1940) (garnishment action against Federal agency permitted only to the extent it had funds outside the Treasury); Presidential Gardens Assocs. v. United States ex rel. Sec'y of HUD, 175 F.3d 132, 141 (2d Cir. 1999) (waiver of HUD's immunity limited to funds under control of HUD, does not reach general Treasury funds). Finally, in the case of "sue-and-be-sued" agencies, one can argue that, although such governmental units may have independent litigating authority, the Bankruptcy Code, § 106, places limits upon the jurisdiction of the bankruptcy courts over any governmental unit. Cf. Aetna Cas. & Sur. Co. v. United States, 655 F.2d 1047 (Ct. Cl. 1981) (although HUD might be suable in other courts upon certain causes of action, Tucker Act places limits upon Court of Claims' jurisdiction over them).

4. Application of 28 U.S.C. § 2410.

Harmon v. United States Through FmHA, 101 F.3d 574 (8th Cir. 1996). In this case of first impression for the courts of appeal, the Eighth Circuit held that chapter 12 permits a debtor to strip down an undersecured creditor's lien to the value of the collateral, and that the United States waived sovereign immunity under 28 U.S.C. § 2410(a)(1). That statute provides that the U.S. "may be named a party in any civil action or suit . . . to quiet title to . . . real property on which the United States has or claims a mortgage or other lien." Because of this statute, the individual defendants (an AUSA and the FmHA state director), who were sued in their official capacities, were not entitled to dismissal either.

5. Effect of § 106 On Non-Bankruptcy Jurisdictional Prerequisites.

To the extent parties assert claims under non-bankruptcy statutes, they should be required to comply with the statutes' prerequisites to bring suit, including exhaustion of administrative remedies. Compare Farmers State Bank v. Norris (In re Norris), 90 B.R. 424, 427-28 (Bankr. D. Neb. 1988) (to extent debtor invokes FTCA as jurisdictional basis for action, he is bound by the Act's procedural requirements and substantive exceptions), and Farmers State Bank v. Norris (In re Norris), 88 B.R. 213, 214 (Bankr. D. Neb. 1988) (state tort claims act did not waive State's sovereign immunity for actions brought in Federal bankruptcy court) with Prudential Lines, Inc. v. United States Maritime Admin. (In re Prudential Lines, Inc.), 79 B.R. 167, 182-83 (Bankr. S.D.N.Y. 1987) (if § 106 applies, need not comply with administrative claim prerequisite of FTCA), and MacLeod Co. v. United States, No. C-1-88-931 (S.D. Ohio Oct. 27, 1989) (decision of contracting officer which is a jurisdictional requirement under the Contract Disputes Act need not be obtained to assert counterclaim against United States), aff'd, 1991 U.S. WL 96718 (6th Cir. 1991) (unpublished opinion). See also Gingold v. United States ex rel. Dep't of Health & Human Servs. (In re Shelby County Healthcare Servs., Inc.), 80 B.R. 555 (Bankr. N.D. Ga. 1987) (although 42 U.S.C. § 405(h) jurisdictionally precludes review of HHS Medicare findings, waiver in § 106 obviates need to exhaust administrative remedies or defer to HHS (but court deferred to expeditious administrative process)); Kenny v. Block (In re Kenny), 75 B.R. 515, 520-21 (Bankr. E.D. Mich. 1987) (§ 106 waiver "is separate and distinct from the FTCA waiver" and exhaustion of administrative remedy requirement of FTCA is not to be read into § 106) (note: reversed by district court in unpublished decision); In re Parker N. Am. Corp., 24 F.3d 1145 (9th Cir. 1994) (debtor need not comply with FIRREA filing requirements before asserting preference claim against RTC).

6. Multiple Agencies in Case.

Are different agencies part of the same "governmental unit" for § 106 purposes? E.g., does IRS proof of claim waive immunity for a claim by the estate against HHS? [Note: issue could arise under 106(b) or (c) but is less likely in case of the former because of the "same transaction or occurrence" requirement.]

a. 11 U.S.C. § 101(27) defines "governmental unit" to include "United States" but also "department, agency, or instrumentality of the United States." Although we assert that U.S. agencies are part of one entity for setoff purposes, we could argue that they are different governmental units for § 106 purposes because of the § 101 definition and the requirement that sovereign immunity waivers must be strictly construed.

b. In Doe v. United States, 58 F.3d 494, 497-98 (9th Cir. 1995), the court held that agencies of the United States are one entity for purposes of the waiver of sovereign immunity and under § 106(c). This holding reflected the original position taken by the U.S. but was rendered after the court instructed the DOJ attorneys to consult with the Solicitor General, the IRS, and other agencies. Id. at 498. The court stated as follows: "The United States takes this position out of a commendable sense of fairness and reciprocity because it often seeks to be treated as a single unitary creditor under the offset provisions of 11 U.S.C. § 553." Id.

c. See also Ossen v. Conn. Dep't of Soc. Servs. (In re Charter Oak Assocs.), 203 B.R. 17 (Bankr. D. Conn. 1996) (applying single entity approach to state agencies); but see In re NVR L.P., 206 B.R. 831, 852 (Bankr. E.D. Va. 1997) (discussing diverse views on multiple agencies in bankruptcy and non-bankruptcy contexts and holding that taxing officials signing proof of claim must be authorized by state law to waive immunity of court clerks of same county), aff'd in part, rev'd in part on other grounds sub nom., Clerk of Circuit Court for Anne Arundel County v. NVR Homes, Inc., 222 B.R. 514 (E.D. Va. 1998), rev'd in part, vacated in part on other grounds, 189 F.3d 442 (4th Cir. 1999), cert. denied, 528 U.S. 1117 (2000).

Updated May 20, 2015