Jonathan Hunsaker v. United States

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JONATHAN ELDON HUNSAKER; No. 16-35991

CHERYL LYNN HUNSAKER,

Plaintiffs-Appellants, D.C. No.

6:16-cv-00386-

v. MC

UNITED STATES OF AMERICA,

Defendant-Appellee. OPINION

Appeal from the United States District Court

for the District of Oregon

Michael J. McShane, District Judge, Presiding

Argued and Submitted May 15, 2018

Portland, Oregon

Filed August 30, 2018

Before: M. Margaret McKeown and Richard A. Paez,

Circuit Judges, and Cynthia A. Bashant, * District Judge.

Opinion by Judge Bashant

*

The Honorable Cynthia A. Bashant, United States District Judge

for the Southern District of California, sitting by designation.

2 HUNSAKER V. UNITED STATES

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 provision,

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.

**

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

HUNSAKER V. UNITED STATES 3

COUNSEL

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.

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.

4 HUNSAKER V. UNITED STATES

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.

HUNSAKER V. UNITED STATES 5

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 ordered the Hunsakers’ complaint to

be dismissed, without reaching the merits of their claims.

The Hunsakers appealed.

II.

We have jurisdiction under 28 U.S.C. § 158(d). We

review de novo questions of statutory interpretation and

sovereign immunity. See Zazzali v. United States (In re

DBSI, Inc.), 869 F.3d 1004, 1007 n.2 (9th Cir. 2017);

Montana v. Goldin (In re Pegasus Gold Corp.), 394 F.3d

1189, 1193 (9th Cir. 2005).

III.

“Sovereign immunity shields the United States from suit

absent a consent to be sued that is ‘unequivocally

expressed.’” United States v. Bormes, 568 U.S. 6, 9–10

(2012) (quoting United States v. Nordic Vill., Inc., 503 U.S.

30, 33–34 (1992)). “Congress has enacted several broad

waivers of the United States’ sovereign immunity.” Navajo

Nation v. Dep’t of the Interior, 876 F.3d 1144, 1168 (9th Cir.

2017).

The waiver at issue here, Section 106(a), applies to fifty-

nine provisions of the Bankruptcy Code. For these

enumerated provisions, Section 106(a) provides that

“sovereign immunity is abrogated as to a governmental unit

to the extent set forth in this section.” The extent of the

waiver relevant to this appeal is set forth in Section

106(a)(3), which authorizes a court to “issue against a

governmental unit an order, process, or judgment under such

sections . . . , including an order or judgment awarding a

6 HUNSAKER V. UNITED STATES

money recovery, but not including an award of punitive

damages.”

One of the waiver’s enumerated provisions, Section 362,

is the Bankruptcy Code’s automatic stay statute. When

debtors file for bankruptcy, Section 362 imposes an

automatic stay “to protect debtors from all collection efforts

while they attempt to regain their financial footing.”

Schwartz v. United States (In re Schwartz), 954 F.2d 569,

571 (9th Cir. 1992). Section 362(k) establishes

consequences for violating the stay: “an individual injured

by any willful violation of a stay provided by this section

shall recover actual damages, including costs and attorneys’

fees, and, in appropriate circumstances, may recover

punitive damages.” In Dawson v. Washington Mutual Bank,

F.A. (In re Dawson), 390 F.3d 1139, 1148 (9th Cir. 2004),

we held “actual damages” under Section 362(k) “include[s]

damages for emotional distress.” 1

Relying on Section 362(k) and Dawson, the bankruptcy

court awarded the Hunsakers emotional distress damages

against the government. Because Section 106(a)’s waiver of

sovereign immunity applies to Section 362(k), this appeal

turns on whether the bankruptcy court’s award falls within

the scope of the waiver. That is, we must resolve whether

an award of emotional distress damages is an “order or

judgment awarding a money recovery, but not including an

award of punitive damages.” See 11 U.S.C. § 106(a)(3).

1

When we decided Dawson, Section 362(k) was labeled Section

362(h). Congress redesignated the statute as Section 362(k) in 2005, but

the relevant text remains unchanged. See Bankruptcy Abuse Prevention

and Consumer Protection Act of 2005, Pub. L. No. 109-8, § 305(1)(B),

119 Stat. 23, 79.

HUNSAKER V. UNITED STATES 7

We conclude that it is. We first explain why the scope

of Section 106(a)’s waiver of sovereign immunity is

unambiguous and encompasses damages for emotional

distress under Section 362(k). We then address the

government’s alternative, implausible interpretation of the

waiver based on the term “money recovery” in Section

106(a)(3). Finally, we address our departure from the First

Circuit’s decision reaching the opposite result in an

analogous context.

A.

“To maintain a suit against the government for money

damages, ‘the waiver of sovereign immunity must extend

unambiguously to such monetary claims,’ thus foreclosing

an implied waiver.” Daniel v. Nat’l Park Serv., 891 F.3d

762, 768 (9th Cir. 2018) (quoting Lane v. Pena, 518 U.S.

187, 192 (1996)). “Ambiguity exists if there is a plausible

interpretation of the statute that would not authorize money

damages,” and we “construe any ambiguities in the scope of

a waiver in favor of the sovereign.” FAA v. Cooper, 566

U.S. 284, 290–91 (2012).

Although a waiver of sovereign immunity must be

unequivocally expressed, “Congress need not state its

intent” to waive the government’s immunity “in any

particular way” or “use magic words.” Cooper, 566 U.S. at

291. “The sovereign immunity canon is just that—a canon

of construction.” Richlin Sec. Serv. Co. v. Chertoff, 553 U.S.

571, 589 (2008). It is an interpretive tool that “does not

‘displac[e] the other traditional tools of statutory

construction.’” Cooper, 566 U.S. at 291 (alteration in

original) (quoting Chertoff, 553 U.S. at 589).

Our inquiry, then, is whether the scope of the waiver is

“clearly discernable from the statutory text in light of

8 HUNSAKER V. UNITED STATES

traditional interpretive tools.” Cooper, 566 U.S. at 291. If

it is not, we will adopt the interpretation of the waiver that is

most favorable to the government. Id.; see also In re DBSI,

869 F.3d at 1013 (“[W]here a plausible interpretation of a

provision that would preserve immunity is available, we

should adopt that interpretation and preserve the

government’s sovereign immunity.”).

Turning to our interpretive tools, “we start with the plain

meaning of the statute’s text.” Father M v. Various Tort

Claimants (In re Roman Catholic Archbishop of Portland in

Or.), 661 F.3d 417, 432 (9th Cir. 2011) (quoting United

States v. Wright, 625 F.3d 583, 591 (9th Cir. 2010)). “The

plainness or ambiguity of statutory language is determined

by reference to the language itself, the specific context in

which that language is used, and the broader context of the

statute as a whole.” Robinson v. Shell Oil Co., 519 U.S. 337,

341 (1997).

Section 106(a)’s text plainly waives sovereign immunity

for court-ordered monetary damages under the waiver’s

enumerated provisions, although the damages may not be

punitive. Under Section 106(a)(3), a court is authorized to

issue against the government an “order, process, or judgment

under” the provisions identified in Section 106(a)(1),

“including an order or judgment awarding a money

recovery, but not including an award of punitive damages.”

The clause “including . . . a money recovery” expressly

broadens the waiver’s scope to encompass monetary

damages. The text then provides for one limitation: the

money recovery cannot “includ[e] an award of punitive

damages.” Thus, the statute’s text unambiguously waives

sovereign immunity for nonpunitive monetary damages

HUNSAKER V. UNITED STATES 9

under the waiver’s listed provisions. 2 And because Section

106(a)(3)’s language is unambiguous, the scope of the

waiver is “clearly discernable from the statutory text in light

of traditional interpretive tools.” See Cooper, 566 U.S. at

291.

In light of this unambiguous scope, Section 106(a)

waives sovereign immunity for emotional distress damages

under Section 362(k). Emotional distress damages are a

form of monetary relief—compensatory damages—but they

are not punitive. 3 We have already determined that damages

for emotional distress are recoverable as “actual damages”

under Section 362(k). Dawson, 390 F.3d at 1148. And,

given that Section 106(a) waives immunity for nonpunitive

monetary damages awarded under the statute’s enumerated

provisions, the bankruptcy court’s award falls within the

scope of the waiver. In other words, the court’s award is a

“judgment awarding a money recovery, but not including an

award of punitive damages.” See 11 U.S.C. § 106(a)(3).

Finally, because the scope of the waiver is unambiguous,

“judicial inquiry is complete,” and there is no need to look

beyond the plain meaning of Section 106(a). See Conn.

Nat’l Bank v. Germain, 503 U.S. 249, 254 (1992) (quoting

2

The Eleventh Circuit has adopted the same interpretation of the

scope of Section 106(a)’s sovereign immunity waiver. See Hardy v.

United States (In re Hardy), 97 F.3d 1384, 1390 (11th Cir. 1996).

3

These damages compensate for an actual injury: distress. “Distress

is a personal injury familiar to the law” that “include[s] mental suffering

or emotional anguish.” See Carey v. Piphus, 435 U.S. 247, 263–64, 264

n.20 (1978) (discussing the standard for awarding emotional distress

damages as compensatory damages under 42 U.S.C. § 1983). In

contrast, punitive damages “are not compensation for injury”; they are

instead awarded “to punish reprehensible conduct and to deter its future

occurrence.” Gertz v. Robert Welch, Inc., 418 U.S. 323, 350 (1974).

10 HUNSAKER V. UNITED STATES

Rubin v. United States, 449 U.S. 424, 430 (1981)). There is

also no need to subject Section 362(k) to the same scrutiny

as Section 106(a). Section 362(k) “is not a waiver of

sovereign immunity; it is a substantive provision” that

provides individuals relief for willful violations of the

Bankruptcy Code’s automatic stay. See Gomez-Perez v.

Potter, 553 U.S. 474, 491 (2008) (drawing this distinction

between an analogous pair of statutes in the Age

Discrimination in Employment Act of 1967). Because

Section 106(a) waives sovereign immunity for claims under

Section 362(k), the latter provision “need not . . . be

construed in the manner appropriate to waivers of sovereign

immunity.” See United States v. Mitchell, 463 U.S. 206,

218–19 (1983); accord Gomez-Perez, 553 U.S. at 491.

In sum, the Hunsakers may recover emotional distress

damages against the government under Section 362(k)

because Section 106(a)’s waiver of sovereign immunity

“extend[s] unambiguously to such monetary claims.” See

Daniel, 891 F.3d at 768 (quoting Lane, 518 U.S. at 192).

B.

The government argues for an alternative interpretation

of Section 106(a)’s waiver based on the term “money

recovery,” which appears only in Section 106(a)(3)’s clause

providing for “an order or judgment awarding a money

recovery, but not including an award of punitive damages.”

In the government’s view, “money recovery” can be

construed “to refer only to claims seeking to restore to the

bankruptcy estate sums of money unlawfully in the

possession of governmental entities—not to the broader

measure of damages.”

The government’s position is based on the Supreme

Court’s decision interpreting the prior version of Section 106

HUNSAKER V. UNITED STATES 11

in United States v. Nordic Village, Inc., 503 U.S. 30 (1992).

This prior version of Section 106 provided that a bankruptcy

provision containing the term “‘creditor,’ ‘entity,’ or

‘governmental unit’ applies to governmental units,” and a

court’s determination “of an issue arising under such a

provision binds governmental units.” 11 U.S.C. § 106(c)

(Supp. III 1979), amended by 11 U.S.C. § 106 (1994). The

Supreme Court considered whether this language waived

immunity for a trustee’s action to recover an unauthorized

payment made to the IRS after the debtor had filed for

bankruptcy. Nordic Vill., 503 U.S. at 31. The Court held the

statute did not waive sovereign immunity for the trustee’s

action because the statute’s text failed to unequivocally

subject the government to “claims for monetary relief.” Id.

at 39.

“Congress amended Section 106(a)(1) in 1994, at least

in part, as a response to Nordic Village.” In re DBSI, 869

F.3d at 1011 n.8 (citing H.R. Rep. 103-835, at 42 (1994)).

Using this backdrop as a springboard, the government argues

“money recovery” can be interpreted as only allowing for the

relief the Supreme Court held was unavailable in Nordic

Village—the recovery of money unlawfully in the

government’s possession.

We reject this interpretation because it is not plausible in

light of the statute’s text. In particular, Section 106(a)(3)’s

exclusion of punitive damages dispels the government’s

interpretation. In this provision, the phrase “judgment

awarding a money recovery” is immediately followed by the

carve-out “but not including an award of punitive damages.”

11 U.S.C. § 106(a)(3). If “money recovery” is limited,

however, to recovering “sums of money unlawfully in the

possession of governmental entities,” the punitive damages

carve-out is meaningless. Punitive damages are not “sums

12 HUNSAKER V. UNITED STATES

of money unlawfully in the possession of governmental

entities.”

Given that the government’s interpretation of “money

recovery” renders part of the statute meaningless, this

interpretation runs afoul of “one of the most basic

interpretive canons, that ‘[a] statute should be construed so

that effect is given to all its provisions, so that no part will

be inoperative or superfluous, void or insignificant[.]’” See

Corley v. United States, 556 U.S. 303, 314 (2009) (first

alteration in original) (quoting Hibbs v. Winn, 542 U.S. 88,

101 (2004)). For this reason, the government’s construction

of Section 106(a) is implausible. See Cooper, 566 U.S. at

290–91. And we cannot rely on an implausible construction

of the statute to preserve the government’s immunity. See

id.; see also In re DBSI, 869 F.3d at 1013. We instead afford

Section 106(a) its plain meaning: Congress has waived

sovereign immunity for nonpunitive monetary damages

under the waiver’s enumerated provisions, including Section

362(k).

C.

We recognize the First Circuit reached a different result

when construing the scope of Section 106(a)’s waiver in

United States v. Rivera Torres (In re Rivera Torres),

432 F.3d 20 (1st Cir. 2005). We briefly turn to the First

Circuit’s opinion and explain why we disagree with its

reasoning.

In Rivera Torres, the First Circuit analyzed whether

Section 106(a) waives sovereign immunity for emotional

distress damages awarded under a different provision

enumerated in the waiver: 11 U.S.C. § 105. 432 F.3d at 23.

In resolving this issue, the First Circuit adopted a “temporal

approach.” Id. at 25. This approach focuses on whether

HUNSAKER V. UNITED STATES 13

Congress understood emotional distress damages to be

available under Section 106(a)’s enumerated provisions at

the time of the 1994 amendment to the statute. Id. The First

Circuit reasoned that “congressional understanding” can be

evaluated by considering the “background law” at the time

of the amendment. See id. at 25–26.

After surveying the state of the law in 1994, the First

Circuit concluded that none of the relevant provisions

enumerated in Section 106(a)(1) “clearly established the

availability, even against private parties, of an award of

emotional distress damages in 1994 as a matter of

background law.” Rivera Torres, 432 F.3d at 29. Thus, the

First Circuit reasoned these enumerated sections “do not

provide a basis to find [a] clear waiver of sovereign

immunity as to emotional distress damages.” Id.

We decline to adopt the First Circuit’s temporal

approach to Section 106(a) for several reasons. First, the

plain language of the statute is dispositive. Because the

scope of Section 106(a)’s waiver is unambiguous, there is no

need to look beyond the statute’s text and ascertain whether

it was clearly established in 1994 that emotional distress

damages were recoverable under Section 362(k). See, e.g.,

Germain, 503 U.S. at 253–54 (“We have stated time and

again that courts must presume that a legislature says in a

statute what it means and means in a statute what it says

there.”).

Second, we disagree with the First Circuit’s

interpretation of Section 106(a)(5), which the First Circuit

relied upon to tether its temporal approach to the statute’s

text. Section 106(a)(5) provides: “Nothing in this section

shall create any substantive claim for relief or cause of action

not otherwise existing under this title, the Federal Rules of

Bankruptcy Procedure, or nonbankruptcy law.” In the First

14 HUNSAKER V. UNITED STATES

Circuit’s view, this text limits Section 106(a)’s waiver to

only those remedies that were available at the time of the

1994 amendment because the text “forbids the creation of

any substantive claim for relief ‘not otherwise existing under

this title, the Federal Rules of Bankruptcy, or non-

bankruptcy law.’” See Rivera Torres, 432 F.3d at 31

(quoting 11 U.S.C. § 106(a)(5)). And, based on Section

106(a)(5), the First Circuit reasoned that “Congress has

clearly endorsed a temporal approach.” Id. at 26.

We do not read the same temporal restriction into

Section 106(a)(5). Section 106(a)(5) only states that Section

106(a)—a provision waiving immunity for various

substantive provisions—does not itself create any new

causes of action or substantive claims for relief. See

Franklin Sav. Corp. v. United States (In re Franklin Sav.

Corp.), 385 F.3d 1279, 1286 (10th Cir. 2004) (“By its

express terms . . . Bankruptcy Code § 106 does not provide

a substantive or independent basis for asserting a claim

against the government.”). In other words, Section 106(a)(5)

confirms that a party bringing a claim against the

government “must demonstrate that a source outside of” the

waiver provision “entitles [it] to the relief sought.” See In re

Hardy, 97 F.3d at 1388. This section does not graft a

temporal restriction into the waiver’s scope.

Third, Section 362(k) predates the operative text of

Section 106(a). Although we interpreted Section 362(k) to

provide for emotional distress damages in Dawson in

2004—ten years after Congress enacted the relevant text in

Section 106(a)—Section 362(k) has always permitted

recovery of damages for emotional distress. See Rivers v.

Roadway Express, Inc., 511 U.S. 298, 312–13 (1994) (“A

judicial construction of a statute is an authoritative statement

HUNSAKER V. UNITED STATES 15

of what the statute meant before as well as after the decision

of the case giving rise to that construction.”).

For these reasons, we decline to adopt the First Circuit’s

temporal approach and rest our interpretation of Section

106(a) on the statute’s plain text.4

IV.

In sum, sovereign immunity does not preclude an award

of emotional distress damages against the United States for

willful violation of the Bankruptcy Code’s automatic stay.

The district court erred in ordering the bankruptcy court to

dismiss the Hunsakers’ complaint on sovereign immunity

grounds. Accordingly, we reverse the district court’s

judgment, and we remand to the district court with

instructions to consider the government’s challenge to the

merits of the Hunsakers’ claims. See, e.g., Mastro v. Rigby,

764 F.3d 1090, 1097 (9th Cir. 2014) (“When a district court

improperly dismisses a bankruptcy appeal without reaching

the merits, we generally reverse the district court’s dismissal

and remand for the district court’s consideration of the

appeal in the first instance.”).

REVERSED AND REMANDED.

4

We note that, even under a temporal approach, some bankruptcy

courts had awarded emotional distress damages for willful violations of

the automatic stay before the enactment of Section 106(a) in 1994. See

Brower Oil Co. v. Brannen (In re Brannen), Ch. 7 Case No. 89-60229,

Adv. No. 89-6011, 1990 WL 10007473, at *4 (Bankr. S.D. Ga. June 27,

1990); Wagner v. Ivory (In re Wagner), 74 B.R. 898, 905 (Bankr. E.D.

Pa. 1987); Mercer v. D.E.F., Inc. (In re Mercer), 48 B.R. 562, 565

(Bankr. D. Minn. 1985).