The federal government has no sovereign immunity to fend off liability for almost $38,000 in contempt sanctions for violating a discovery order, according to a May 7 opinion by Bankruptcy Judge Scott C. Clarkson of Santa Ana, Calif.

The chapter 7 trustee served a deposition subpoena on a special agent of the Internal Revenue Service. Through an assistant U.S. Attorney, the government filed a motion to quash. Denying the motion to quash, Judge Clarkson issued a 12-page opinion setting out the questions that the IRS agent was required to answer.

The deposition didn’t go well. Judge Clarkson described how the agent was directed not to answer 25 of 41 questions and “provided incomplete responses to the remaining questions to which responses were required.”

On motion by the trustee, Judge Clarkson held a hearing and found by “clear and convincing evidence” that the government was in contempt for having “willfully violated” the discovery order. He said that “the Government intentionally and willfully refused to obey this Court’s [discovery order]” and “acknowledged the Government’s willful violation of the [discovery order].”

The government’s appeal of the contempt order is pending.

In the contempt order, Judge Clarkson called for another hearing to quantify the sanctions owing to the trustee from the government’s contempt. The trustee submitted papers, including time records, and the government filed an opposition.

During the hearing on sanctions, Judge Clarkson described how the “Government only contested the time and expenses asserted by the Trustee in limited areas.” Although the government conceded that it could be held in contempt, Judge Clarkson said that the government proffered “the doctrine of sovereign immunity” to mean that “it cannot be required to compensate an injured party.”

Judge Clarkson interpreted the government’s argument to mean that “no true remedy exists to address the actions of the Government for violating orders of the Court, even when significant harm is directly caused by the Government.” He called the argument “troubling, at best” and said it was “[u]nsupported by any statute or case law.”

Addressing the merits of the government’s immunity argument, Judge Clarkson said “[t]here is no serious question that a violation of a Court’s order is punishable by contempt.” Citing authorities from the Ninth Circuit and the Ninth Circuit Bankruptcy Appellate Panel, he found the “inherent authority of bankruptcy courts . . . to impose sanctions and provide compensation for improper litigation tactics.”

Judge Clarkson relied “on 11 U.S.C. Section 106 as clearly waiving the Government’s sovereign immunity as it relates to Section 105 of the Bankruptcy Code.” “Notwithstanding an assertion of sovereign immunity,” Section 106(a) provides that “sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect” to Section 105, among others. Section 105(a) allows the bankruptcy court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.”

Turning to the quantum of sanctions, Judge Clarkson said that “the Ninth Circuit has instructed that an application of the ‘but for’ test is the appropriate measure of civil contempt sanctions.” He then found “that an award of compensatory damages which the Trustee would not have incurred but for the Government’s violation of the [discovery order] are warranted.”

Judge Clarkson found that the trustee’s counsel had expended almost 70 hours of attorney and paralegal time at rates of $500 and $125 an hour, respectively. Together with expenses, he awarded the trustee almost $38,000.