Source: https://www.law.cornell.edu/supremecourt/text/503/30
Timestamp: 2015-11-30 03:04:19
Document Index: 19016410

Matched Legal Cases: ['§ 106', '§ 106', '§ 106', '§ 542', '§ 106', '§ 106', '§ 106', '§ 106', '§ 106', '§ 550', '§ 101', '§ 541', '§ 106', '§ 1334', '§ 1334', '§ 550', '§ 106', '§ 106']

UNITED STATES, Petitioner v. NORDIC VILLAGE, INC., David O. Simon, Trustee. | US Law | LII / Legal Information Institute
Supreme Court aboutsearch liibulletin subscribe previews UNITED STATES, Petitioner v. NORDIC VILLAGE, INC., David O. Simon, Trustee.
503 U.S. 30 (112 S.Ct. 1011, 117 L.Ed.2d 181)
UNITED STATES, Petitioner v. NORDIC VILLAGE, INC., David O. Simon, Trustee.
Argued: Dec. 9, 1991.
Decided: Feb. 25, 1992.
[HTML] Syllabus After respondent Nordic Village, Inc., filed a petition for relief under Chapter 11 of the Bankruptcy Code, one of its officers withdrew funds from the company's corporate account. He sent part of the money to the Internal Revenue Service (IRS), directing it to apply the funds against his individual tax liability, which it did. In a subsequent adversary proceeding, the Bankruptcy Court permitted Nordic Village's trustee to recover the transfer and entered a monetary judgment against the IRS. The District Court affirmed, as did the Court of Appeals, which rejected a jurisdictional defense that sovereign immunity barred the judgment.
Held: 1. Section 106(c) of the Code does not waive the United States' sovereign immunity from an action seeking monetary recovery in bankruptcy. Pp. 32-37.
2. Respondent's several alternative grounds for affirming the judgment belowthat 28 U.S.C. 1334(d)'s broad jurisdictional grant provides the necessary waiver, that a bankruptcy court's in rem jurisdiction overrides sovereign immunity, and that a waiver of sovereign immunity is supported by trust law principlesare unpersuasive. Pp. 37-39.
"(2) a determination by the court of an issue arising under such a provision binds governmental units." 11 U.S.C. 106.
Contrary to the Government's suggestion, Hoffman does not control today's decision. It is true, to be sure, that Congress made clear in § 106 that (insofar as is within Congress's power) State and Federal Sovereigns are to be treated the same for immunity purposes. See 11 U.S.C. 101(27) (1982 ed., Supp. II) (" 'governmental unit' means United States and State"). Since, however, the Court in Hoffman was evenly divided over what that treatment was as to the States; and since the deciding vote of the concurrence, denying amenability to suit, rested upon a ground (the Eleventh Amendment) applicable only to the States and not to the Federal Government, see FHA v. Burr, 309 U.S. 242, 244, 60 S.Ct. 488, 490, 84 L.Ed. 724 (1940); the holding in Hoffman has no binding force here. The separate opinions dealing with the statutory question are relevant, however, and we shall in fact rely on the reasoning of the plurality.
Waivers of the Government's sovereign immunity, to be effective, must be " ' "unequivocally expressed." ' " Irwin v. Department of Veterans Affairs, 498 U.S. ----, ----, 111 S.Ct. 453, 457, 112 L.Ed.2d 435 (1990) (quoting United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351, 63 L.Ed.2d 607 (1980), and United States v. King, 395 U.S. 1, 4, 89 S.Ct. 1501, 1503, 23 L.Ed.2d 52 (1969)). Contrary to respondent's suggestion, moreover, they are not generally to be "liberally construed." We have on occasion narrowly construed exceptions to waivers of sovereign immunity where that was consistent with Congress's clear intent, as in the context of the "sweeping language" of the Federal Tort Claims Act, United States v. Yellow Cab Co., 340 U.S. 543, 547, 71 S.Ct. 399, 402, 95 L.Ed. 523 (1951), see, e.g., id., at 554-555, 71 S.Ct., at 406-407, Block v. Neal, 460 U.S. 289, 298, 103 S.Ct. 1089, 1094, 75 L.Ed.2d 67 (1983), United States v. Aetna Casualty & Surety Co., 338 U.S. 366, 383, 70 S.Ct. 207, 216, 94 L.Ed. 171 (1949), or as in the context of equally broad "sue and be sued" clauses, see, e.g., Franchise Tax Board of California v. United States Postal Service, 467 U.S. 512, 517-519, 104 S.Ct. 2549, 2552-2553, 81 L.Ed.2d 446 (1984), FHA v. Burr, supra, 309 U.S., at 245, 60 S.Ct., at 490. These cases do not, however, eradicate the traditional principle that the Government's consent to be sued "must be 'construed strictly in favor of the sovereign,' McMahon v. United States, 342 U.S. 25, 27 72 S.Ct. 17, 19, 96 L.Ed. 26 (1951), and not 'enlarged . . . beyond what the language requires,' " Ruckelhaus v. Sierra Club, 463 U.S. 680, 685, 103 S.Ct. 3274, 3278, 77 L.Ed.2d 938 (1983) (quoting Eastern Transp. Co. v. United States, 272 U.S. 675, 686, 47 S.Ct. 289, 291, 71 L.Ed. 472 (1927)), a rule of construction that we have had occasion to reaffirm once already this Term, see Ardestani v. INS, 502 U.S. ----, ---- - ----, 112 S.Ct. 515, ---- - ----, 116 L.Ed.2d 496 (1991).
Subsections (a) and (b) of § 106 meet this "unequivocal expression" requirement with respect to monetary liability. Addressing "claims," which the Code defines as "rights to payment," 11 U.S.C. 101(4)(A), they plainly waive sovereign immunity with regard to monetary relief in two settings: compulsory counterclaims to governmental claims, 11 U.S.C. 106(a); permissive counterclaims to governmental claims capped by a setoff limitation, 11 U.S.C. 106(b). Next to these models of clarity stands subsection (c). Though it, too, waives sovereign immunity, it fails to establish unambiguously that the waiver extends to monetary claims. It is susceptible of at least two interpretations that do not authorize monetary relief.
Under one interpretation, § 106(c) permits the bankruptcy court to issue "declaratory and injunctive"though not monetary relief against the Government. Hoffman, 492 U.S., at 102, 109 S.Ct., at 2823. This conclusion is reached by reading the two paragraphs of subsection (c) as complementary rather than independent: the first paragraph identifies the subject matter of disputes that courts may entertain under the subsection and the second paragraph describes the relief that courts may grant in such disputes. That is to say, the second paragraph specifies the manner in which there shall be applied to governmental units the provisions identified by the first paragraph, i.e., a manner that permits declaratory or injunctive relief but not an affirmative monetary recovery.
Several factors favor this construction. The distinction it establishesbetween suits for monetary claims and suits for other reliefis a familiar one, and is suggested by the contrasting language used in subsections (a) and (b) ("claims") and in subsection (c) ("determinations" of "issues"), Hoffman, 492 U.S., at 102, 109 S.Ct., at 2823. It also avoids eclipsing the carefully drawn limitations placed on the waivers in subsections (a) and (b). The principal provision of the Code permitting the assertion of claims against persons other than the estate itself is § 542(b), which provides that "an entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on the order of, the trustee," 11 U.S.C. 542(b). If the first paragraph of § 106(c) means that, by reason of use of the trigger-word "entity," this provision applies in all respects to governmental units, then the Government may be sued on all alleged debts, despite the prior specification in subsections (a) and (b) that claims against the Government will lie only when the Government has filed a proof of claim, and even then only as a setoff unless the claim is a compulsory counterclaim. Those earlier limitations are reduced to trivial application if paragraph (c)(1) stands on its own. See Hoffman, supra, at 101-102, 109 S.Ct., at 2822-2823. This construction also attaches practical consequences to paragraph (c)(2), whereas respondent's interpretation violates the settled rule that a statute must, if possible, be construed in such fashion that every word has some operative effect. See Hoffman, supra, at 103, 109 S.Ct., at 2823; United States v. Menasche, 348 U.S. 528, 538-539, 75 S.Ct. 513, 519-520, 99 L.Ed. 615 (1955). Respondent has suggested no function to be performed by paragraph (2) if paragraph (1) operates to treat the Government like any other "entity" or "creditor," regardless of the type of relief authorized by an applicable Code provision.
Under this interpretation, § 106(c), though not authorizing claims for monetary relief, would nevertheless perform a significant function. It would permit a bankruptcy court to determine the amount and dischargeability of an estate's liability to the Government, such as unpaid federal taxes, see 11 U.S.C. 505(a)(1) (permitting the court to "determine the amount or legality of any tax") (emphasis added), whether or not the Government filed a proof of claim. See 492 U.S., at 102-103, 109 S.Ct., at 2823. Cf. Neavear v. Schweiker, 674 F.2d 1201, 1203-1204 (CA7 1982) (holding that under § 106(c) a bankruptcy court could discharge a debt owed to the Social Security Administration). The Government had repeatedly objected, on grounds of sovereign immunity, to being bound by such determinations before § 106(c) was enacted in 1978. See, e.g., McKenzie v. United States, 536 F.2d 726, 728-729 (CA7 1976); Bostwick v. United States, 521 F.2d 741, 742-744 (CA8 1975); Gwilliam v. United States, 519 F.2d 407, 410 (CA9 1975); In re Durensky, 377 F.Supp. 798, 799-800 (ND Tex.1974), appeal dism'd, 519 F.2d 1024 (CA5 1975).
Subsection (c) is also susceptible of another construction that would not permit recovery here. If the two paragraphs of § 106(c) are read as being independent, rather than the second as limiting the first, then, pursuant to the first paragraph, Code provisions using the triggering words enumerated in paragraph (c)(1) would apply fully to governmental units. But that application of those provisions would be limited by the requirements of subsections (a) and (b), in accordance with the phrase that introduces subsection (c) ("Except as provided in subsections (a) and (b) of this section"). This exception, in other words, could be read to mean that the rules established in subsections (a) and (b) for waiver of Government "claims" that are "property of the estate" are exclusive, and preclude any resort to subsection (c) for that purpose. That reading would bar the present suit, since the right to recover a postpetition transfer under § 550 is clearly a "claim" (defined in § 101(4)(A)) and is "property of the estate" (defined in § 541(a)(3)). (The dissent appears to read paragraphs (c)(1) and (c)(2) as being independent but provides no explanation of what the textual exception could mean under that reading.)
The foregoing are assuredly not the only readings of subsection (c), but they are plausible oneswhich is enough to establish that a reading imposing monetary liability on the Government is not "unambiguous" and therefore should not be adopted. Contrary to respondent's suggestion, legislative history has no bearing on the ambiguity point. As in the Eleventh Amendment context, see Hoffman, 492 U.S., at 104, 109 S.Ct., at 2824, the "unequivocal expression" of elimination of sovereign immunity that we insist upon is an expression in statutory text. If clarity does not exist there, it cannot be supplied by a committee report. Cf. Dellmuth v. Muth, 491 U.S. 223, 228-229, 109 S.Ct. 2397, 2400, 105 L.Ed.2d 181 (1989).
Respondent proposes several alternative grounds for affirming the judgment below, all unpersuasive. First, it claims that the necessary waiver can be found in 28 U.S.C. 1334(d), which grants the district court in which a bankruptcy case is initiated "exclusive jurisdiction of all of the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate." Respondent urges us to construe this language as empowering a bankruptcy court to compel the United States or a State to return any property, including money, that passes into the estate upon commencement of the bankruptcy proceeding. Under this theory, a sovereign's exposure to suit would not be governed by the specific language of § 106, but would be concealed in the broad jurisdictional grant of § 1334(d). Besides being unprecedented and running afoul of the unequivocal-expression requirement, this theory closely resembles an argument we rejected just last Term. In Blatchford v. Native Village of Noatak, 501 U.S. ----, ----, 111 S.Ct. 2578, 2585, 115 L.Ed.2d 686 (1991), the argument was made that Alaska's Eleventh Amendment immunity to suit was abrogated by 28 U.S.C. 1362, a jurisdictional grant, akin to § 1334(d), that gives district courts jurisdiction over "all civil actions, brought by any Indian tribe . . . arising under the Constitution, laws, or treaties of the United States." Rejecting that contention, we observed: "The fact that Congress grants jurisdiction to hear a claim does not suffice to show Congress has abrogated all defenses to that claim. The issues are wholly distinct." Id., at ----, n. 4, 111 S.Ct., at 2585, n. 4.
Thus, "notwithstanding any assertion of sovereign immunity," subparagraph (c)(1) provides that § 550(a) "applies" to the United States, and subparagraph (c)(2) provides that the Government is bound by the court's determination of the issues arising under that provision. The literal text of the Act unquestionably forecloses the defense of sovereign immunity.
The legislative history unambiguously demonstrates that Congress intended the statute to be read literally. The immediate purpose of § 106(c) was to enable the bankruptcy court to determine the amount and the dischargeability of the debtor's tax liabilities, but the sponsors of the amendment clearly stated that it covered "other matters as well," specifically including the avoidance of preferential transfers. 124 Cong.Rec. 32394 (1978) (statement of Rep. Edwards); id., at 33993 (statement of Sen. DeConcini).
and by reiterating the Court's view that waivers of sovereign immunity must be strictly construed.
I shall not comment on the plausible alternatives except to note that they are obviously less satisfactoryboth as a matter of sound bankruptcy policy and as a principled interpretation of the English languagethan a literal reading of the statute. I shall, however, add a few words about the Court's love affair with the doctrine of sovereign immunity.
Moreover, its persistent threat to the impartial administration of justice has been repeatedly acknowledged and recognized.
Thus, in FHA v. Burr, 309 U.S. 242, 245, 60 S.Ct. 488, 490, 84 L.Ed. 724 (1940), we remarked on "the current disfavor of the doctrine of governmental immunity from suit."
In the bankruptcy context, the Court has noted that there is no reason why the Federal Government should be treated differently than any other secured creditor.
If these comments by the experts who played a major role in formulating the policies embodied in the Bankruptcy Code are sound as I believe they areone must ask what valid reason supports a construction of the waiver in § 106(c) that is so "strict" that the Court will not even examine its legislative history.
The cost to litigants, to the legislature, and to the public at large, of this sort of judicial lawmaking is substantial and unfortunate. Its impact on individual citizens engaged in litigation against the sovereign is tragic.
Section 101(27) defines the term "governmental unit" to include the "United States [and any] department, agency, or instrumentality of the United States." 11 U.S.C. 101(27) (1988 ed., Supp. II).
"(2) any immediate or mediate transferee of such initial transferee." 11 U.S.C. 550(a).
Many legal scholars have been similarly critical of the doctrine. See, e.g., Comment, Sovereign ImmunityAn Anathema to the "Constitutional Tort," 12 Santa Clara Law. 543, 553, and n. 60 (1972) (collecting authorities); Cramton, Nonstatutory Review of Federal Administrative Action: The Need for Statutory Reform of Sovereign Immunity, Subject Matter Jurisdiction, and Parties Defendant, 68 Mich.L.Rev. 387, 418-419 (1970); Davis, supra n. 11; Pugh, supra n. 11, at 494.