Oct. 22, 2012 (Westlaw Journals) – The U.S. Supreme Court should resolve a circuit court split over whether the government waives its immunity from emotional-distress damages when it violates the Bankruptcy Code’s automatic stay and discharge provisions, a deceased debtor’s estate says in a petition for certiorari.
Prescott v. United States, No. 12-330, petition for cert. filed (U.S. Sept. 14, 2012).
The petition, stemming from a ruling by the 1st U.S. Circuit Court of Appeals, says the government is a common creditor in bankruptcy cases whose extensive power and authority endows it with “a unique ability to threaten and intimidate.”
The 1st Circuit ruled in April that the U.S. Bankruptcy Court for the District of New Hampshire did not err when it prevented Dorothy R. Duby from seeking emotional-distress damages from the government.
LOWER COURT PROCEEDINGS
Duby filed a Chapter 7 petition in October 2003. At the time, she was over 80, had impaired vision, lived alone in a mobile home and had monthly income of $691, the petition says.
She listed the U.S. Department of Agriculture as holding an unsecured claim of about $1,800.
Despite the automatic stay, the USDA sent Duby eight bills between Oct. 14, 2003, and July 14, 2004, the petition says.
After the Bankruptcy Court issued a discharge order July 15, 2004, the USDA sent Duby another 19 statements through April 2006 and called her nearly 30 times over the next three years, according to the petition.
The petition says the government threatened Duby with the loss of her mobile home if she did not pay her debt.
Duby returned to Bankruptcy Court to stop the collection efforts and sought emotional-distress damages. She claimed to have experienced depression and a loss of sleep and appetite as a result of the government’s alleged conduct.
The Bankruptcy Court found the government violated both the orders pertaining to automatic stay, codified at 11 U.S.C. § 362, and discharge, codified at 11 U.S.C. § 524. It awarded Duby nearly $12,000 in attorney fees and imposed a $3,000 sanction against the government.
But the Bankruptcy Court relied upon United States v. Rivera Torres (In re Rivera Torres), 432 F.3d 20, 23 (1st Cir. 2005), in determining that the government did not waive its sovereign immunity from emotional-distress damages.
The 1st Circuit Bankruptcy Appellate Panel agreed that Rivera Torres controls the issue of emotional-distress damages. It also struck the $3,000 sanction, saying it amounted to an impermissible punitive damages award against the government. Duby v. United States, 451 B.R. 664 (B.A.P. 1st Cir. 2011).
Duby turned to the 1st Circuit. She challenged only the emotional distress issue. She died while the appeal was pending.
The 1st Circuit held that Duby had presented no reason to upset Rivera Torres and denied her appeal.
CERT PETITION
Cathy Lynn Prescott, executor of Duby’s estate, says in the Supreme Court petition that 11 U.S.C. § 106(a) abrogates the government’s sovereign immunity for violations of certain Bankruptcy Code provisions, including Sections 362 and 524.
She argues that the 1st Circuit’s finding that Section 106(a) does not apply to emotional-distress damages runs contrary to the 11th Circuit’s holding in Jove Engineering v. Internal Revenue Service, 92 F.3d 1539 (11th Cir. 1996), that the statute is an unequivocal waiver of sovereign immunity for court-ordered money damages that are not punitive in nature.
The petition says the 11th Circuit’s holding accords with “a vast majority” of lower court opinions, including decisions from the U.S. District Court for the Southern District of Georgia and bankruptcy courts in the Northern District of New York, Middle District of Pennsylvania, District of South Carolina and District of Utah.
Prescott also argues that the legislative history of Section 106 confirms that Congress amended the provision in 1994 to allow emotional-distress claims against the government for Bankruptcy Code violations.
She closes the petition by suggesting that “government creditors will be more likely to violate the automatic-stay and discharge injunction with impunity in the absence of meaningful repercussions” like emotional-distress damages.
The Supreme Court’s docket says the government’s response is due Oct. 18.
Attorney:
Petitioner: Lynne F. Riley, Riley Law Group, Boston