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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).