Jonathan Eldon Hunsaker; Cheryl Lynn Hunsaker, Plaintiffs-Appellants,
United States of America, Defendant-Appellee.
and Submitted May 15, 2018 Portland, Oregon
from the United States District Court No. 6:16-cv-00386-MC
for the District of Oregon Michael J. McShane, District
Douglas D. Geyser (argued) and Daniel L. Geyser, Stris &
Maher LLP, Los Angeles, California; Keith D. Karnes, Karnes
Law Offices P.C., Salem, Oregon; for Plaintiffs-Appellants.
Andrew Allulis (argued) and Thomas J. Clark, Attorneys; David
A. Hubbert, Acting Assistant Attorney General; Tax Division,
United States Department of Justice, Washington, D.C.; for
Twomey, National Consumer Bankruptcy Rights Center, San Jose,
California, for Amici Curiae National Association of Consumer
Bankruptcy Attorneys and National Consumer Bankruptcy Rights
Before: M. Margaret McKeown and Richard A. Paez, Circuit
Judges, and Cynthia A. Bashant, [*] District Judge.
panel reversed the district court's judgment reversing
the bankruptcy court's judgment awarding damages to
debtors for the Internal Revenue Service's violation of
the Bankruptcy Code's automatic stay.
panel held that sovereign immunity does not preclude an award
of emotional distress damages against the United States for
willful violation of the automatic stay. In 11 U.S.C. §
106(a), Congress waived sovereign immunity for a "money
recovery" under certain bankruptcy provisions, including
11 U.S.C. § 362(k), which allows an individual to
recover "actual damages" for a willful violation of
the automatic stay. Disagreeing with the First Circuit, the
panel concluded that the bankruptcy court's award of
emotional distress damages under § 362(k) was a
"money recovery" under § 106(a)'s waiver
of sovereign immunity.
panel remanded to the district court with instructions to
consider the government's challenge to the merits of the
BASHANT, District Judge.
determine whether sovereign immunity precludes an award of
emotional distress damages against the United States for
willful violation of the Bankruptcy Code's automatic
stay. The answer turns on the interplay between two
Bankruptcy Code statutes: 11 U.S.C. §§ 106(a)
("Section 106(a)") and 362(k) ("Section
362(k)"). In Section 106(a), Congress waived sovereign
immunity for a "money recovery" under certain
bankruptcy provisions, including Section 362(k). Section
362(k) in turn allows an individual to recover "actual
damages" for a willful violation of the Bankruptcy
Code's automatic stay.
Jonathan and Cheryl Hunsaker filed for bankruptcy, the
Internal Revenue Service ("IRS") violated the
automatic stay by sending the couple collection notices. The
bankruptcy court awarded the Hunsakers damages under Section
362(k) for their emotional distress, but the district court
reversed on sovereign immunity grounds. Because Section
106(a) unambiguously waives sovereign immunity for an award
of emotional distress damages under Section 362(k), we
reverse and remand.
Hunsakers filed for relief under Chapter 13 of the Bankruptcy
Code. Despite being notified of the couple's bankruptcy,
the IRS sent four notices to the Hunsakers demanding payment
and threatening imminent enforcement action, including a levy
on Social Security benefits. The Hunsakers responded by
bringing an adversary proceeding against the United States in
bankruptcy court seeking damages for violation of the
automatic stay under Section 362(k). The government conceded
the IRS's conduct violated the stay.
trial, the Hunsakers sought only damages for emotional
distress. The government argued sovereign immunity bars this
relief, but the bankruptcy court was unconvinced. In reaching
the merits, the court determined that the IRS's conduct
exacerbated the stress of the Hunsakers' bankruptcy,
causing them to suffer significant emotional distress. As
compensation, the court awarded the Hunsakers $4, 000 in
appeal to the district court, the government again invoked
sovereign immunity. The government also challenged the merits
of the Hunsakers' claims, arguing they suffered
insufficient emotional distress to warrant damages. The
district court concluded Congress has not waived sovereign
immunity for emotional distress damages under Section 362(k).
The court therefore reversed the bankruptcy court's
judgment and ...