Dec. 3 (Westlaw Journals) – The Justice Department has asked the U.S. Supreme Court not to busy itself with deciding whether the government has waived its immunity from emotional-distress damages when it violates the Bankruptcy Code’s automatic stay and discharge provisions.
Prescott v. Department of Agriculture, No. 12-330, opposition brief filed (U.S. Nov 19, 2012).
The government says in an opposition brief to a petition for certiorari that no compelling reason exists for Supreme Court review because only one federal circuit court of appeals has weighed in on the issue and it correctly found that sovereign immunity has not been waived.
The 1st U.S. Circuit Court of Appeals 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.
Duby, who has since passed away, 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, court records say. 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. After the Bankruptcy Court issued a discharge order July 15, 2004, the USDA continued to contact Duby about the debt through 2009, court records say.
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 had violated both the orders pertaining to the 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.
The 1st Circuit held that Duby had presented no reason to upset Rivera Torres and denied her appeal.
In a cert petition filed in September, the executor of Duby’s estate said 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 government responds in an opposition brief that Section 106(a) waives sovereign immunity for only a given class of damages, and that emotional-distress is not one of them.
It also argues that reliance on Jove Engineering is misplaced because in that case the 11th Circuit considered whether the IRS could be held liable to a debtor corporation for attorneys’ fees for a violation of the automatic stay.
The government claims, therefore, that no circuit split exists because the 1st Circuit is the only court to have considered the effect of sovereign immunity on emotional distress damages.
To the extent the petitioner cites a number of Bankruptcy Court decisions holding that emotional distress damages are available against the government for violating the automatic stay or a discharge order, the government says the Supreme Court’s “ordinary practice” is to resolve conflicts among the circuits, not lower level courts.
The government notes that, if the high court agrees to take the case, it may have to decide the antecedent question of whether emotional distress damages are available at all.
The 1st and 9th Circuits have held that a private party may be held liable for a violation of the automatic stay, while the 7th Circuit does not permit an award absent a showing of financial loss.
Similarly, only the 4th Circuit has addressed whether emotional-distress damages are available against a private party for a violation of a discharge order, finding they are not.
The Supreme Court’s docket does not indicate when a decision on the cert petition is expected.
Petitioner: Lynne F. Riley, Riley Law Group, Boston
Government: Solicitor General Donald B. Verrilli Jr., Justice Dep’t., Washington