In enacting § 106(a) of the Bankruptcy Code,[1] Congress waived the government’s ability to assert the defense of sovereign immunity with respect to a variety of Bankruptcy Code provisions.[2] Section 106(a) specifically authorizes the court to “issue against a governmental unit an order, process, or judgment under such sections or the Federal Rules of Bankruptcy Procedure, including an order or judgment awarding a money recovery, but not including an award of punitive damages,” with respect to certain specified sections of the Bankruptcy Code.[3] Section 362, which is one of those specifically enumerated provisions in § 106, authorizes the bankruptcy court to award “actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, [] punitive damages.”[4] At least in the Ninth Circuit, “actual damages” includes damages for emotional distress. So a court should be able to award emotional distress damages against the government, right?
The Hunsakers’ Bankruptcy Case
Mr. and Mrs. Hunsaker filed their chapter 13 case in November 2012. It was complicated from the outset, and multiple disputes related to the Hunsakers’ home plagued the case and delayed confirmation. Even when they did finally manage to confirm a plan in September 2014, they still could not rest easy.
In December 2013, the Internal Revenue Service began sending post-petition collection notices to the Hunsakers, threatening four different times over the course of the following year to take a variety of collection actions, including levying on a tax refund and their Social Security benefits. Ultimately, the Hunsakers’ attorney filed an adversary proceeding against the U.S. seeking damages under § 362(k), including monetary damages for their emotional distress.
The IRS did not dispute that its actions violated the automatic stay. Rather, it argued tht sovereign immunity protected it from any award of emotional distress damages. In a concise, plain-meaning analysis, the bankruptcy court rejected the IRS’s argument.[5] Section 106, it said, waives sovereign immunity for any type of damages authorized by the specifically enumerated provisions of the Bankruptcy Code, except for the imposition of punitive damages. The Ninth Circuit previously found in the case of Dawson v. Washington Mutual Bank (In re Dawson) that actual damages under § 362(k) include emotional distress damages.[6] Because emotional distress damages are not punitive, sovereign immunity did not apply, so the court awarded the Hunsakers $4,000 as compensation for their emotional distress, plus reasonable attorneys’ fees. The government appealed.
The District Court’s Analysis
The district court’s opinion found the statutory text to be clear and agreed with almost all of the government's arguments.[7] It noted that the U.S. “is immune from suit unless it has expressly waived such immunity and consented to be sued.”[8] While Dawson does state that emotional distress damages are “actual damages,” the district court concluded that the Ninth Circuit only reached its result by finding § 362(k)’s reference to “actual damages” ambiguous and thus open to traditional principles of statutory interpretation.
Given its obligation to construe statutes strictly in favor of immunity, the district court held that the ambiguous definition of actual damages in § 362(k) could not operate as a waiver, despite the Ninth Circuit’s reasoning in Dawson. For purposes of waiver, the district court concluded that only “economic damages” were unambiguous enough to constitute a money recovery that could be recovered against the government.[9] The district court reversed the bankruptcy court, so it was the Hunsakers’ turn to appeal.
The Ninth Circuit Weighs In
Acknowledging that Dawson had already decided whether emotional distress damages constitute actual damages under § 362(k), the Ninth Circuit panel succinctly framed the issue before it as whether an award of emotional distress damages is an “order or judgment awarding a money recovery, but not including an award of punitive damages” under § 106(a)(3).[10] To answer this question, the panel first examined § 106(a)(3).
By its plain terms, § 106(a)(3) authorizes a court to issue orders, process or judgments against the government under certain enumerated Bankruptcy Code provisions (such as § 362(k)), “including an order or judgment awarding a money recovery, but not including an award of punitive damages.” Thus, the panel reasoned, § 106(a)(3) broadly and unambiguously waived sovereign immunity for nonpunitive monetary damages awarded pursuant to those provisions of the Bankruptcy Code. Not being punitive, monetary damages awarded on account of a debtor’s emotional distress thus fall within the scope of the waiver.
According to the panel, the district court’s primary error was its conflation of §§ 106(a) and 362(k). Of the two, only § 106(a) waives sovereign immunity, so only that section must be clear and unambiguous as it relates to waiver. Section 362(k), as a substantive statutory provision, did not.[11] Having found “the scope of the waiver [to be] unambiguous, ‘judicial inquiry is complete,’ and there is no need to look beyond the plain meaning of Section 106(a).”[12]
Upon concluding that sovereign immunity does not prevent an award of emotional distress damages against the U.S. for willful violation of the automatic stay, the Ninth Circuit reversed the district court and remanded for further proceedings.
A Split or Not?
In its opinion, the Ninth Circuit panel acknowledged that its decision was at odds with the First Circuit’s decision in United States v. Rivera Torres (In re Rivera Torres).[13] In Rivera Torres, the First Circuit was confronted with a similar issue: Can a bankruptcy court award emotional distress damages pursuant to § 105(a) for violations of the discharge injunction by the government in light of sovereign immunity? Like § 362, § 105 is one of the provisions specifically subject to § 106(a)’s waiver of sovereign immunity.
The First Circuit noted that “there is no doubt that [§] 106 is an express waiver of sovereign immunity.” It found, however, that the scope of that express waiver applied only to those forms of relief “Congress understood in 1994” to exist under § 105(a) and the other enumerated sections of the Bankruptcy Code. It found authority for its narrowed interpretation in § 106(a)(5), which states 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.” In 1994, only one circuit had answered the question of whether § 105(a) or 524 authorized courts to award emotional distress damages — and that answer was “no.”[14] Ultimately, because it believed that a right to obtain damages for emotional distress under § 105(a) did not exist at the time of waiver, the First Circuit concluded that the government was still entitled to assert its immunity defense.
The Ninth Circuit rejected the First Circuit’s temporal approach for several reasons. First, § 106(a) contains an unambiguous waiver, and as stated above under applicable case law, no further inquiry is required. Second, the Ninth Circuit disagreed with the First Circuit’s reliance on § 106(a)(5). It noted that § 106(a)(5) only requires a party to bring a claim that arises other than under that statute; it does not impose a temporal restriction on what forms of relief it permits. Third, it found that, even under the First Circuit’s temporal approach, the Hunsakers would still prevail, because § 362(k) has always permitted the recovery of emotional distress damages.[15]
Does this constitute a split? Yes, but not on the question before the courts in the Hunsakers’ case. Even under the First Circuit’s test, emotional distress damages would likely still fall within § 106(a)’s waiver, since their availability predated the enactment of the waiver statute. Where the circuits differ is on whether there should be a temporal requirement at all. This argument bears less on § 106(a) and more on waiver of sovereign immunity in general — which may be one reason why the government litigated the case to the circuit, despite the comparably small amount of damages in dispute.
Aftermath
In the Ninth Circuit, emotional distress damages can be sought against governmental units for violations of § 362(k). The story does not end there, though, for the Hunsakers. On remand, the district court ordered additional briefing in light of the Ninth Circuit’s reversal, and on March 15, 2019, the U.S. filed its brief. In it, the government argues not only that the bankruptcy court erred in finding that the Hunsakers suffered emotional distress, but that Dawson itself was wrongly decided and should be overturned. The government clearly has an interest in both preventing litigants from pursuing it for damages and limiting the scope of sovereign immunity waivers, so this case could cause the Ninth Circuit emotional distress at least one more time.
[1] This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
[2] 11 U.S.C. § 106. This section specifically applies to a waiver as to a “governmental unit,” which the Bankruptcy Code defines broadly as the United States, states, commonwealths, districts, territories, municipalities, foreign states, departments, agencies or instrumentalities of the foregoing (other than a U.S. Trustee serving as a bankruptcy trustee), or other foreign or domestic governments. In addition to acting as an express waiver by Congress of the federal government’s sovereign immunity, the Supreme Court has found that the section embodies the individual states’ agreement in the Constitution to not assert their immunity from orders ancillary to the in rem jurisdiction of bankruptcy courts. Cent. Virginia Cmty. Coll. v. Katz, 546 U.S. 356, 357 (2006).
[3] 11 U.S.C. § 106(a)(3) (emphasis added).
[4] 11 U.S.C. § 362(k).
[5] In re Hunsaker, No. AP 14-06218-FRA, 2016 WL 409311, at *2 (Bankr. D. Or. Jan. 13, 2016).
[6] 390 F.2d 1139, 1148 (9th Cir. 2004).
[7] Hunsaker v. United States, No. 6:16-CV-00386-MC, 2016 WL 6134530, at *1 (D. Or. Oct. 20, 2016). In addition to agreeing with the IRS’s views on sovereign immunity, the district court also questioned the bankruptcy judge’s findings that the Hunsakers suffered any harm at all as a result of the IRS’s conduct. It did not ultimately reach that question given its reversal on sovereign immunity grounds.
[8] Dunn & Black P.S. v. United States, 492 F.3d 1084, 1087–88 (9th Cir. 2007). Indeed, the Supreme Court has held that waivers of sovereign immunity must be “clear” and “unequivocal.” F.A.A. v. Cooper, 132 S. Ct. 1441, 1448 (2012).
[9] The district court also noted that because sovereign immunity is jurisdictional, the bankruptcy court lacked jurisdiction to enter the award. See F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1994).
[10] Hunsaker v. United States, 902 F.3d 963, 966 (9th Cir. 2018).
[11] Hunsaker, 902 F.3d at 968 (citing Gomez-Perez v. Potter, 553 U.S. 474, 491, 128 S. Ct. 1931 (2008) (drawing same distinction between an analogous pair of statutes in the Age Discrimination in Employment Act of 1967)).
[12] Hunsaker, 902 F.3d at 968 (citing Conn. Nat’l Bank v. Germain, 503 U.S. 249, 254, 112 S. Ct. 1146 (1992)).
[13] 432 F.3d 20 (1st Cir. 2005).
[14] Burd v. Walters (In re Walters), 868 F.2d 665, 670 (4th Cir. 1989).
[15] See Rivers v. Roadway Express Inc., 511 U.S. 298, 312–13, 114 S. Ct. 1510, 128 L.Ed.2d 274 (1994) (“A judicial construction of a statute is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction.”).