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Hunsaker v. United States

United States Court of Appeals, Ninth Circuit

August 30, 2018

Jonathan Eldon Hunsaker; Cheryl Lynn Hunsaker, Plaintiffs-Appellants,
v.
United States of America, Defendant-Appellee.

          Argued and Submitted May 15, 2018 Portland, Oregon

          Appeal from the United States District Court No. 6:16-cv-00386-MC for the District of Oregon Michael J. McShane, District Judge, Presiding

          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.

          Paul 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 Defendant-Appellee.

          Tara Twomey, National Consumer Bankruptcy Rights Center, San Jose, California, for Amici Curiae National Association of Consumer Bankruptcy Attorneys and National Consumer Bankruptcy Rights Center.

          Before: M. Margaret McKeown and Richard A. Paez, Circuit Judges, and Cynthia A. Bashant, [*] District Judge.

         SUMMARY[**]

         Bankruptcy

         The 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.

         The 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.

         The panel remanded to the district court with instructions to consider the government's challenge to the merits of the debtors' claims.

          OPINION

          BASHANT, District Judge.

         We must 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.

         After 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.

         I.

         The 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.

         At 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 damages.

         In an 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 ...


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