Petitioners Brief — United States v. Nordic Village, Inc.

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Ne. 90-169 { AUG \ 99

In the Supreme Court of the Unite

OCTOBER TERM, 1991

UNITED STATES OF AMERICA, PETITIONER

Vv.

NORDIC VILLAGE, INC.,

RICHARD A. BAUMGART, TRUSTEE

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR THE UNITED STATES

KENNETH W. STARR

Solicitor General

SHIRLEY D. PETERSON

Assistant Attorney General

JOHN G. ROBERTS, JR.

Deputy Solicitor General

RICHARD H. SEAMON

Assistant to the Solicitor General

GARY D. GRAY

JOHN A. DUDECK, JR.

Attorneys

Department of Justice

Washington, D.C. 20530

(202) 514-2217

QUESTION PRESENTED

Whether Section 106(c) of the Bankruptcy Code

(11 U.S.C.) waives the sovereign immunity of the

United States from an action seeking a monetary re-

covery in bankruptcy.

(1)

TABLE OF CONTENTS

PARTIES TO THE PROCEEDINGS Page

In addition to the parties named in the caption, Opinions below 0... l

Robert E. Martin, Lake County Treasurer, was a de- Jurisdiction nm 1 1

fendant in the district court and the bankruptcy court. Statutory ientatene t involved - ae 2

John Howard and the State of Ohio, Department of Me —— ae | 9

Taxation, were defendants in the bankruptcy court.* Aanemens:

Section 106(c) does not authorize bankruptcy courts

to order the United States to pay money to a bank-

ruptcy trustee __. EES 6

I. The language of Section 106(c), peepesty con-

strued, shows that Congress did not intend to

authorize monetary relief against the United

a es 6

Il. Legislative history is welevent in intergretine

Section 106(c) and, in any event, confirms that

Congress did not intend to authorize monetary

relief against the United States... ae 17

| Conclusion ............ tS en ws 25

| TABLE OF AUTHORITIES

Cases:

/ Atascadero State Hospital v. Scanlon, 473 U.S. 234

) ss ee 9

| Business Guides Vv. Chromatic ‘Communications

Enterprises, Inc., 111 S. Ct. 922 (1991) : 17

| Dellmuth v. Muth, 491 U.S. 223 (1989) 17

| Dolard, In re, 519 F.2d 282 (9th Cir. 1975) 22

Edelman v. Jordan, 415 U.S. 651 (1974) 15

Federal Housing Admin. V. Burr, 309 U.S. 242

EES SE 24

Grogan V. Garner, 111 S. Ct. 654 a 15

Gwilliam, In re, 519 F.2d 407 (9th Cir. 1975) | 22

Hoffman v. Connecticut Dep't of Income Mainte-

* In the caption of our petition, we named David O. Simon urate 492 U.S. 96 (1989) _ gp caeagge .... passim

as the trustee in the bankruptcy case of Nordic Village, Inc. Immigration & Naturalization Serv. v. Cardoza-

We have since learned that Mr. Simon has been succeeded by Fonseca, 480 U.S. 421 (1987) ...... 11,19

Richard A. Baumgart, and we have changed the caption

accordingly. See Br. in Opp. ii. (111)

Cases—Continued : wage | Statutes and rule—Continued : Page

Irwin V. Veterans Administration, 111 8. Ct. 453 : ;

SR GMAT! LEIS TR 8,17 | Bankruptcy Code, 11 U.S.C. 101 et seq.:

Johnson V. Bome State Bank, dn S. Ct. 2150 Ch. 1:

(1991) . i BSE. 11 11 U.S.C. 101 (4) (A) 11

Lehman V. Nakshian, 453 U.S. 156 (1981) 15 11 U.S.C. 101(27) eetoneecenecasens 3

Library of Congress V. Shaw, 478 U.S. 310 (1986). 8, 16 11 U.S.C. 106 2,5, 7,8, 11, 17, 18, 19

Montclair v. Ramsdell, 107 U.S. 147 (1883) _.. 12 11 U.S.C. 106 (a) 10, 11, 12, 13, 14, 20

Minnesota V. United States, 305 U.S. 382 (1939) 6 11 U.S.C, 106(b) 10, 11, 12, 13, 14, 20

Missouri Vv. Jenkins, 491 U.S. 274 (1989) & 11 U.S.C. 106(c) _ passim

Nachman Corp. Vv. Pension Benefit Guaranty Corp., 11 U.S.C. 106(¢) (1) 10, 12, 22

sD IED cnc cocentiensesncnsanvoonedll 20 11 U.S.C. 106(c) (2) . 10, 11, 12

Nevear v. Schweiker, 674 F. 2d 1201 (7th Cir. Ch. 5:

1982) . 14 11 U.S.C. 505 (a) | 15

Pennsylvania v. Union Gas Co., 491 U. Ss. 1 (1989). 9 11 U.S.C. 522(b) 9,24

Owen V. Owen, 111 S. Ct. 1833 ron if) 11 U.S.C. 522(f) 9, 24

Ruckelshaus V. Sierra Club, 463 U.S. 680 (1983) 7 11 U.S.C. 542 (a) 16

Small Business Admin. Vv. Rinehart, 887 F.2d 165 11 U.S.C. 542(b) _. 14

(8th Cir. 1989) .............. 4-5 11 U.S.C. 544-549 24

Stevens V. Department of the Treasury, 111 Ss. Ct. 11 U.S.C, 544-550 24

1562 (1991) 6 11 U.S.C. 549 2,24

Toibb Vv. Radloff, 111 S. Ct. 2197 (1991) 17 11 U.S.C. 549 (a) 3

United States vy. King, 395 U.S. 1 (1969) il 11 U.S.C. 550 2,24

United States v. McPeck, 910 F.2d 509 (8th Cir. 11 U.S.C. 550 (a) 3,16

1990) 13 11 U.S.C. 550(b) 3,5

United States v. Menasche, 348 U.S. 528 (1955) . 12 Ch.7 2

United States v. Mitchell, 463 U.S. 206 (1983) 6, 8 Ch. 11 bie 14

United States v. Rojas-Contreras, 474 U.S. 231 USC. 1101. 1174 9

(1985) ........... ™ 11 U.S.C. 1141 (a) 15

United States Vv. Sherwood, 312 U. s. 584 (1941) 6 i USC 11 (a) (2A) (1976) 99

United States v. Testan, 424 U.S. 392 (1976) . 6,8 basing) ete :

United States v. United States Fidelity & Guaranty Fed. R. Civ. P. 13 (a) 1s

Co., 309 U.S. 506 (1940) siaieiatedeliilcteaiiaindbiagaania 6 Miscellaneous:

— nehiaahcrseshalonanloue venetian 8. 198 16 4 Collier on Bankruptcy (L. King, 15th ed. 1991) 23

Young, Ex parte, 209 U.S. 123 (1908) ................ 15 124 Cong. Rec. (1978) :

p. 32,391 21

Constitution, statutes and rule: ) p. 32,392 21

U.S. Const. : | p. 32,394 21, 22, 23, 24

Art. I, §8, cl. 4 (Bankruptcy Clause) 4 | p. 32,400 or

Amend. XI 4,8, 12, 15,17 | p. 32,420 =

Miscellaneous—Continued : Page

a neeeeniadinn 21

teense 22, 23, 24

ES RCE ee ee ee 21

ELE A Wena ea Fane eae 21

H.R. 6, 95th Cong. Ist Sess. (1971) 00... 19

H.R. 31, 94th Cong., Ist Sess. (1975) 19

H.R. 32, 94th Cong., Ist Sess. (1975)... 19

H.R. 7330, 95th Cong., Ist Sess. (1977) ee 19

H.R. 8200, 95th Cong., Ist Sess. (1977) 20

H.R. 10792, 93d Cong., Ist Sess. (1973) 19

H.R. Doc. No. 137, 93d Cong., Ist Sess. Pt. 2

REESE SSS SET ET 19

H.R. Rep. No. 595, 95th Cong., ist Sess. (1977). . 20,23

Klee, Legislative History of the New Bankruptcy

Law, 28 DePaul L. Rev. 942 (1979) ee 21

S. 235, 94th Cong., Ist Sess. (1975) ; 19

S. 236, 94th Cong., Ist Sess. (1975). 19

S. 2266, 95th Cong., 2d Sess. (1978) ............. Sie 19, 20

SF 8S ee 19

S. Rep. No. 989, 95th Cong., 2d Sess. (1978) ..12- 13, 20, 23

Iu the Supreme Court of the United States

OCTOBER TERM, 1991

No. 90-1629

UNITED STATES OF AMERICA, PETITIONER

Vv.

NORDIC VILLAGE, INC.,

RICHARD A. BAUMGART, TRUSTEE

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR THE UNITED STATES

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-

46a) is reported at 915 F.2d 1049. The orders of the

district court (Pet. App. 37a-45a) and the decision

and orders of the bankruptcy court (Pet. App. 46a-

52a) are unreported.

JURISDICTION

The judgment of the court of appeals (Pet. App.

55a-56a) was entered on October 4, 1990. A petition

for rehearing was denied on January 23, 1991. Pet.

(1)

App. 53a-54a. The petition for a writ of certiorari

was filed on April 23, 1991, and granted on June 17,

1991. 111 8. Ct. 2823. The jurisdiction of this Court

is invoked under 28 U.S.C. 1254(1).

STATUTORY PROVISIONS INVOLVED

Sections 106, 549, and 550 of the Bankruptcy Code

(11 U.S.C.) are set forth in the petition appendix at

57a-60a.

STATEMENT

Respondent Nordic Village, Inc. is the debtor in

bankruptcy proceedings pending in the United States

Bankruptcy Court for the Northern District of Ohio,

No. B84-771. In an adversary proceeding commenced

by the trustee, the bankruptcy court entered a judg-

ment for $20,000 against the Internal Revenue Serv-

ice (TRS). The Sixth Circuit upheld the judgment,

concluding that Section 106(c) of the Bankruptcy

Code, 11 U.S.C. 106(c), waives the sovereign im-

munity of the United States from monetary relief.

1. In March 1984, Nordic Village filed a petition

for relief under Chapter 11 of the Bankruptcy Code,

11 U.S.C, 1101-1174.' The IRS learned of the filing

in June 1984 and later filed a proof of claim for over-

due employment taxes, penalties, and interest totalling

approximately $80,000. Meanwhile, in July 1984,

Josef Lah, an officer and shareholder of Nordic Vil-

lage, wrote a check for $26,000 on Nordic Village’s

corporate account, which he then used to obtain

several cashier’s checks, including one for $20,000

payable to the IRS. Lah delivered the $20,000 check

to the IRS and told IRS to apply it against his per-

' The case was later converted to a Chapter 7 proceeding.

See Br. in Opp. ii.

sonal tax liability. IRS credited Lah’s account ac-

cordingly. Pet. App. 2a-3a.

2. In December 1984, the trustee appointed in

Nordic Village’s bankruptcy case commenced an ad-

versary proceeding to recover the $20,000 paid to the

IRS. The bankruptcy court held that the payment

was an unauthorized transfer that could be avoided

under Section 549(a) and recovered under Section

550(a) of the Code. Pet. App. 48a-50a. In so hold-

ing, the court rejected the government’s argument

that, under Section 550(b) of the Code, IRS was pro-

tected from recovery as a subsequent transferee that

had received the transfer in good faith and without

knowledge of its voidability. Pet. App. 49a-50a. The

court entered judgment against IRS for $20,000. Jd.

at 5la-52a.

3. The government appealed the bankruptcy court’s

judgment to the United States District Court for the

Northern District of Ohio, renewing its argument that

IRS was protected from recovery under Section 550

(b) of the Code. The district court affirmed. Pet.

App. 37a-44a.

4. On appeal, the Sixth Circuit affirmed the dis-

trict court’s decision. In upholding the money judg-

ment against IRS, the court concluded, over Judge

Kennedy’s dissent, that Section 106(c) of the Bank-

ruptey Code authorizes monetary recovery from the

federal government. Pet. App. la-36a.

a. The majority recognized that in Hoffman vy.

Connecticut Dep’t of Income Maintenance, 492 U.S.

96 (1989), this Court held that Section 106(c) dces

2 The trustee also sought to recover several other post-

petition transfers. According to the trustee’s complaint, Lah

and his wife had drawn on the debtor’s corporate account to

pay not only their federal taxes but also their state and local

taxes. J.A. 13-16; see also Pet. App. 47a.

not authorize monetary recovery from the States. The

court below determined, however, that Hoffman did

not control for three reasons. First, the court ob-

served, no interpretation of Section 106(c) com-

manded majority support in Hoffman.’ Second, the

court believed that the question in Hoffman of Elev-

enth Amendment immunity entailed a “very different”

analysis from the question of federal sovereign im-

munity in the present case. Pet. App. 4a, 12a. The

question here, in the court’s view, posed a “simple”

issue of statutory construction altogether unlike the

plain-statement analysis applicable under the Elev-

enth Amendment. /d. at 12a. Third, the court found

that, because the Hoffman plurality’s analysis of Sec-

tion 106(c) did not discuss legislative history, the

analysis in Justice Marshall’s dissent contained

“Tt]he only clear parsing of the statute.” Pet. App.

4a.*

8In Hoffman, Justice White, joined by the Chief Justice

and Justices O’Connor and Kennedy, concluded that the lan-

guage of Section 106(c) “is more indicative of declaratory

and injunctive relief than of monetary recovery” (492 U.S.

at 102); therefore, the provision did not satisfy the require-

ment that Congress express an intent to abrogate the Eleventh

Amendment immunity of the States in “unmistakably clear”

terms (id. at 101). Justice Scalia concurred in the judg-

ment, on the ground that Congress lacked power under the

Bankruptcy Clause to abrogate the States’ Eleventh Amend-

ment immunity. /d. at 105. Justice O’Connor joined Justice

Sealia’s opinion. /bid. Four Justices dissented, finding that

Congress did in Section 106(c) “clearly express[] its intent to

authorize a bankruptcy court to issue a money judgment

against a State.” 492 U.S. at 106 (Marshall, J., dissenting,

joined by Brennan, Blackmun, and Stevens, JJ.) ; see also id.

at 111-114 (Stevens, J., dissenting, joined by Blackmun, J.).

* Having decided that it would not follow the plurality in

Hoffman, the court of appeals likewise refused to follow

The court of appeals then analyzed Section 106(c)

along the lines of the dissenting opinions in Hoffman.

The court determined that Section 106(c) waived

the federal government’s sovereign immunity from

monetary judgments “in clear and explicit terms.”

Pet. App. 13a. The court found “nothing in the pro-

vision suggesting that it is limited to injunctive or

declaratory relief.”” /d. at 6a-7a. The court reviewed

the legislative history of Section 106 and concluded

that it supported the court’s reading of the text. /d.

at Ta-10a.

The court acknowledged that under its reading Sec-

tion 106(c) “wfould] result in different meanings

depending upon whether it is being applied to a state

or federal governmental unit.” Pet. App. 12a-13a.

The court justified this disparity as “the inevitable

result of applying two different methods of construc-

tion.” Jd. at 13a.°

b. Judge Kennedy dissented. Pet. App. 17a-36a.

“(F Jor essentially the same reasons relied upon by

the plurality * * * in Hoffman,” she concluded that,

“when reading the language narrowly in favor of the

government, as [courts] are required to do, * * * the

language of subsection 106(c) only waives sovereign

immunity for the purpose of allowing a bankruptcy

court to issue declaratory and injunctive relief.” Pet.

Small Business Admin. Vv. Rinehart, 887 F.2d 165 (1989),

in which the Eighth Circuit relied on the Hoffman plurality

to hold that Section 106(c) does not authorize bankruptcy

courts to grant monetary relief against the United States.

Pet. App. 7a n.2.

* The court of appeals also held that the trustee was not

barred from recovery by Section 550(b) of the Code, because

IRS should have known that the $20,000 transfer was voidable.

Pet. App. 13a-16a. That issue is not before this Court.

App. 22a. Judge Kennedy also expressed doubt about

relying on legislative history as an aid to interpreta-

tion in this context. Jd. at 2la-22a & n.4. She none-

theless reviewed those portions of the legislative his-

tory on which the majority had relied, and determined

that they did not “produce[] an outcome different

from that reached by a plurality of the Supreme

Court [in Hoffman].” Id. at 22a.

ARGUMENT

SECTION 106(c) DOES NOT AUTHORIZE bANK-

RUPTCY COURTS TO ORDER THE UNITED STATES

TO PAY MONEY TO A BANKRUPTCY TRUSTEE

I. THE LANGUAGE OF SECTION 106(c), PROPERLY

CONSTRUED, SHOWS THAT CONGRESS DID NOT

INTEND TO AUTHORIZE MONETARY RELIEF

AGAINST THE UNITED STATES

“Tt has long been established * * * that the United

States, as sovereign, ‘is immune from suit save as it

consents to be sued .. . and the terms of its consent

to be sued in any court define that court’s jurisdic-

tion.’”’ United States v. Testan, 424 U.S. 392, 399

(1976) (quoting United States v. Sherwood, 312 U.S.

584, 586 (1941)).° The terms of that consent “must

® Because “‘[i]t is axiomatic that the United States may not

be sued without its consent and that the existence of consent is

a prerequisite for jurisdiction,” United States v. Mitchell, 463

U.S. 206, 212 (1983), the court of appeals properly considered

whether sovereign immunity barred the present action even

though that question had not arisen in the bankruptcy court

or the district court. See, e.g., United States v. United States

Fidelity & Guaranty Co., 309 U.S. 506, 513 (1940); Min-

nesota V. United States, 305 U.S. 382, 388-389 (1939) ; see also

Stevens Vv. Department of the Treasury, 111 S. Ct. 1562, 1567

(1991) (issue decided by court of appeals was properly before

the Supreme Court even if not raises below).

be construed strictly in favor of the sovereign and

not enlarge[d] ... beyond what the language re-

quires.” Ruckelshaus v. Sierra Club, 463 U.S. 680,

685 (1983) (citations and internal quotation marks

omitted ).

Section 106 of the Bankruptcy Code waives the

sovereign immunity of “governmental units” under

certain defined circumstances.’ In Hoffman v. Con-

necticut Dep’t of Income Maintenance, 492 U.S. 96

(1989), a plurality of this Court concluded that the

waiver in Section 106(c) did not extend to monetary

claims against a State. In contrast, the majority be-

low held that the same provision did extend to mone-

tary claims against the United States. The majority

sought to explain these “different meanings depending

upon whether [Section 106] is being applied to a state

or federal governmental unit” on the ground that the

7 Section 106 provides:

(a) A governmental unit is deemed to have waived

sovereign immunity with respect to any claim against

such governmental unit that is property of the estate

and that arose out of the same transaction or occurrence

out of which such governmental unit’s claim arose.

(b) There shall be offset against an allowed claim or

interest of a governmental unit any claim against such

governmental unit that is property of the estate.

this section and notwithstanding any assertion of sov-

ereign immunity—

(1) a provision of this title that contains “cred-

itor”, “entity”, or “governmental unit” applies to

governmental units; and

(2) a determination by the court of an issue aris-

ing under such a provision binds governraental units.

Eleventh Amendment required a clear statement of

congressional intent to abrogate state sovereign im-

munity, while abrogation of federal sovereign im-

munity presented “a simple case involving the con-

struction of language enacted by Congress.” Pet. App.

12a-13a. In other words, the same statutory language

meant different things because different judical canons

of construction were applied.

There is no such distinction in approaches to con-

struing Section 106(c). Just as congressional intent

to abrogate the immunity of the States must be “un-

mistakably clear in the language of the statute,”

Hoffman, 492 U.S. at 101, so too an intent to waive

the immunity of the United States “cannot be im-

plied but must be unequivocally expressed.” Jrwin v.

Veterans Administration, 111 S. Ct. 453, 457

(1990). Accord United States vy. Mitchell, 445 U.S.

535, 5388 (1980); United States v. Testan, 424 U.S.

at 399; United States v. King, 395 U.S. 1, 4 (1969).°

Quite apart from the fact that the same exacting

principles of statutory construction apply to waivers

of state and federal immunity, Congress intended in

Section 106 to treat the States and the United States

the same. That intention is clear from Congress’s use

of a single term, “governmental unit,” to refer to both

5 Indeed, this Court has concluded that principles of statu-

tory construction may bar certain types of relief against the

federal government that are available against the States.

Compare Library of Congress v. Shaw, 478 U.S. 310, 318

(1986) (interest on attorneys’ fees cannot be recovered from

the United States in Title VII action) with Missouri v. Jenk-

ins, 491 U.S. 274, 281 n.3 (1989) (interest on attorneys’ fees

is available in a Title VII action against a State).

sovereigns.” See 11 U.S.C. 101(27). There are not

separate rules for the States and the United States

in the statute, yet that is precisely the result of the

court of appeals’ interpretation, which “create[s] a

distinction that the words of the statute do not

contain.” Owen v. Owen, 111 S. Ct. 1833, 1838

(1991). Rather than applying a “different analysis”

(see Pet. App. 12a), the court should have followed

the same analysis that this Court did in Hoffman and

determined whether it was “unmistakably clear in the

language of [Section 106(c)]” that Congress in-

tended to subject the United States to money judg-

ments. Hoffman, 492 U.S. at 101 (quoting Atasca-

dero State Hospital v. Scanlon, 473 U.S. 234, 242

(1985) ).

In Hofman, a plurality of this Court construed

Section 106(c) “as not authorizing monetary recov-

ery from the States.” 492 U.S. at 102. The Court

was construing the same language that is at issue

here. We urge the Court to adopt the analysis of the

Hoffmen plurality and conclude that Section 106(c)

* Cf. Pennsylvania v. Union Gas Co., 491 U.S. 1, 10 (1989)

(finding it “highly significant” that Congress used “virtually

identical language” in separate provisions waiving state and

federal immunity from actions under CERCLA).

1 In Owen, this Court rejected an interpretation of Section

522(f) of the Code that would have treated State-created

exemptions differently from federal exemptions (see 11 U.S.C.

522(b)). Section 522(f) permits a debtor to avoid the fixing

of a lien on property if the lien would impair an exemption

to which the debtor would have been entitled under Section

522(b) of the Code. The Court concluded that “[n]Jothing

in the text of §522(f) remotely justifies treating the two

categories of exemptions differently.” Owen, 111 S. Ct. at

1838. Similarly, nothing in the text of Section 106(c) justifies

treating the States and the United States differently.

does not authorize monetary recovery from the United

States, just as it does not authorize such recovery

from the States.

As the plurality in Hoffman stated, Section 106(c)

contains “limiting language” that is ‘more indicative

of declaratory and injunctive relief than of monetary

recovery.” 492 U.S. at 102. The first subpart of

Section 106(c) is broad. Section 106(c)(1) states

that provisions of the Code that contain any of three

trigger words—‘“creditor,” “entity,” or ‘“govern-

mental unit”’—apply to governmental units. 11

U.S.C. 106(c) (1). The second subpart, joined to the

first by the word “and,” “operates as a further limi-

tation on the applicability of § 106(c).” Hoffman,

492 U.S. at 102. Section 106(c)(2) provides that a

“determination” by a bankruptcy court of an “issue”

arising under one of the pertinent provisions “binds

governmental units.” 11 U.S.C. 106(c)(2). By

limiting courts to making “determination[s]” of “‘is-

sue[s],” Section 106(c)(2) “narrow[s] the type of

relief” available against governmental units to pre-

clude monetary relief. Hoffman, 492 U.S. at 102."

The narrow language in Section 106(c) contrasts

sharply with the broader language of Sections 106

(a) and 106(b). See Hoffman, 492 U.S. at 102.

While Section 106(c) authorizes a bankruptcy court

11 Justice Marshall observed in his dissent in Hoffman that

not all Code provisions containing a trigger word authorize

monetary or affirmative injunctive relief, so that Section

106(c) (2) does not serve a limiting function with respect to

some of the provisions triggered under Section 106(c) (1).

492 U.S. at 108-109. As Judge Kennedy noted below, however,

“i]t is not illogical for Congress to provide for such a limi-

tation in subsection 106(c) (2) rather than in each individual

section that contains a provision allowing for monetary recov-

ery.” Pet. App. 24a.

to make a “determination * * * of an issue,’’ Sections

106(a) and 106(b) grant it authority with respect

to a “claim” against a governmental unit. A “claim”

is defined by the Code to include a “right to pay-

ment,” 11 U.S.C. 101(4)(A). By using the term

“claim” in Sections 106(a) and 106(b), Congress

clearly contemplated that monetary relief would be

available. Cf. Johnson v. Home State Bank, 111 S.

Ct. 2150, 2154-2155 (1991) (Congress intended

“claim” to have broad meaning). Congress’s use of

different, narrower language in Section 106(c) just

as clearly indicates an intention to preclude such re-

lief under that provision. See /mmigration & Nat-

vralization Serv. v. Cardoza-Fonseca, 480 U.S. 421,

432 (1987)."

The court of appeals found “nothing in [Section

106] suggesting that it is limited to injunctive or

declaratory relief.” Pet. App. 6a-7a. That is because

the court ignored the limitations set forth in Section

106(c) (2). Under the court of appeals’ approach—

like that of the petitioner in Hoffman—Section 106

(c)(2) had been totally omitted.” Hoffman, 492

U.S. at 103. The plurality in Hofj/man properly re-

jected such an approach, observing that it contravenes

2 Justice Stevens acknowledged in his dissent in Hoffman

that construing Section 106(c) to authorize monetary relief

causes the scope of that provision to overlap with the scope of

Sections 106(a) and 106(b). 492 U.S. at 113. He cited the

opening phrase of Section 106(c)—‘“[e]xcept as provid-d in

subsections (a) and (b)”—as evidence that Congress acknow!-

edged the redundancy. /bid. In our view, however, the open-

ing phrase expresses Congress’s intent not to authorize mone-

tary relief under Section 106 “[e]xcept as provided in sub-

sections (a) and (b).” That reading is more consistent with

the structure of Section 106 as a whole.

the duty of courts “to give effect, if possible, to every

word and clause of a statute.” /bid. (quoting United

States v. Menasche, 348 U.S. 528, 538-539 (1955),

and Montclair v. Ramsdell, 107 U.S. 147, 152

(1883) ).”

The structure of Section 106 also shows that Con-

gress did not intend to authorize monetary relief

under Section 106(c). In the three subsections of

Section 106, there is a relationship between the scope

of the waiver and the nature of the relief against the

sovereign that is authorized: the broader the relief

authorized, the narrower the scope of the waiver.

Section 106(a) authorizes the broadest relief—af-

firmative monetary recovery—and it is the narrowest

in scope. Section 106(a) is not applicable here; it

applies only when the government has filed a proof of

claim against the estate and the estate has a compul-

sory counterclaim against the government." See S.

18 In his dissent in Hoffman, Justice Marshall argued that

Section 106(c) (2) should be understood as the third of three

steps that Congress took in Section 106(c) to “ensur[e] that

the abrogation of [Eleventh Amendment] sovereign immunity

was express,” 492 U.S. at 107, the first two steps being inclu-

sion of the phrase “notwithstanding any assertion of sovereign

immunity” and of subpart (c)(1). In our view, subpart

differing language of the two subparts indicates, subpart

may entertain under Section 106(c), and subpart (c) (2) de-

scribes the relief that courts may grant in such disputes.

* Although the government filed a proof of claim against

the estate, the relief sought here would not be authorized un-

der Section 106(a), as the trustee conceded below. Respond-

ent’s C.A. Br. 12. Section 106(a) does not apply because the

trustee’s claim against the IRS did not “ar[i]se out of the

same transaction or occurrence” (11 U.S.C. 106(a)) as the

Rep. No. 989, 95th Cong., 2d Sess. 29 (1978): ef.

Fed. R. Civ. P. 13(a). Section 106(b) is broader in

scope than Section 106(a), but is more restrictive in

terms of relief. Section 106(b) is also not applicable

here; like Section 106(a), it applies only when the

government has filed a proof of claim.” Unlike Sec-

tion 106(a), however, Section 106(b) allows the

estate to assert any claim, not just compulsory coun-

terclaims, against the government. But Section 106

(b) does not authorize affirmative monetary recov-

ery; it limits relief to an offset of an estate’s claim

against the claim of a governmental unit. Hoffman,

492 U.S. at 102.

Section 106(c) is broadest in scope, since its

applicability does not depend on the government’s

filing a claim against the estate; instead, Section

106(c) applies when an issue arises under any of the

“over 100 Code provisions” (Hoffman, 492 U.S. at

102) that contain the words “creditor,” “entity,” or

“governmental unit.” Given the comparative breadth

of Section 106(c) in this respect, the structure of

Section 106 strongly suggests that the relief avail-

able under Section 106(c) should be correspondingly

narrow.

IRS’s claim against the estate. The IRS’s claim was based

on employment taxes assessed against Nordic Village before

it petitioned for bankruptcy. The trustee’s claim was based

on a defalcation by an officer of Nordic Village after the

petition was filed.

'® Section 106(b) does not apply because the trustee did not

seek an offset. See 11 U.S.C. 106(b). As respondent empha-

sized below, “the Trustee has brought an action to recover

money from the United States.” Respondent’s C.A. Br. 13.

The order entered by the bankruptcy court thus “is not limited

to the value of the IRS’s claim against the estate.” Pet. App.

20a (Kennedy, J., dissenting). Cf. United States v. McPeck,

910 F.2d 509 (8th Cir. 1990).

Indeed, the court of appeals’ broad interpretation

of Section 106(c) would render Sections 106(a) and

106(b) largely superfluous. The court of appeals’

reading of Section 106(c) authorizes money judg-

ments against the government for any claim based on

a Code provision containing a trigger word. One such

provision is Section 542(b), which authorizes trustees

to bring contract actions and actions to recover other

forms of indebtedness against any “entity.” 11

U.S.C. 542(b). Such claims make up a significant

portion of claims that a trustee would have against

the sovereign. Under the court of appeals’ approach,

none of these claims would be subject to the carefully

crafted limitations on recovery in Sections 106(a)

and 106(b). Sections 106(a) and 106(b) establish a

rule that limits the availability of monetary relief to

cases in which the government has filed a proof of

claim. The court of appeals’ reading of Section 106

ample, monetary relief on contract claims whether

or not the governmental unit filed a proof of claim.

On the other hand, as the plurality recognized in

Hoffman, construing Section 106(c) to authorize

declaratory or injunctive-style relief does not deny

all effect to that provision. So construed, Section 106

Government so that the Federal Government is bound

by determinations of issues by the bankruptcy courts

even when it did not appear and subject itself to the

jurisdiction of such courts.” Hoffman, 492 U.S. at

103." Thus, under Section 106(c), the United States

16 See also Nevear v. Schweiker, 674 F.2d 1201, 1203-1204

(7th Cir. 1982) (holding that under Section 106(c) a bank-

ruptcy court could discharge a debt owed to the Social Security

Administration) , cited with approval in Hoffman, 492 U.S. at

102, 103.

“would be bound, like other creditors, by discharge of

debts in bankruptcy, including unpaid taxes.” Jd. at

102." The discharge of debts owed to the federal

government is often essential, for example, to busi-

nesses seeking to reorganize under Chapter 11. See

11 U.S.C. 1141(a) (terms of confirmed reorganiza-

tion plan bind any “creditor,” one of trigger words in

Section 106(c)). The Hoffman plurality’s interpre-

tation of Section 106(c) therefore is faithful to the

Bankruptcy Code’s general policy of affording debtors

a “fresh start.” See Grogon v. Garner, 111 S. Ct.

654, 659 (1991).

711 U.S.C. 505(a) provides that a court “may determine the

amount or legality of any tax.” Because Section 505(a) con-

tains a trigger word (“governmental unit”), a determination

under that provision is binding on governmental units pur-

suant to Section 106(c).

1® The plurality’s interpretation also accords with the tradi-

tional understanding of sovereign immunity evinced in this

Court’s decisions and by Congress. Under the plurality’s in-

terpretation, States are subject to monetary recovery only

when they consent to such recovery by filing a proof of claim.

This restriction reflects the fact that freedom from monetary

relief is at the heart of Eleventh Amendment immunity. See

Edelman v. Jordan, 415 U.S. 651, 666-668 (1974). Cf. Ex

parte Young, 209 U.S. 123 (1908). Similarly, Congress has

been especially careful in waiving the federal government’s

sovereign immunity from monetary relief. See Library of

Congress V. Shaw, 478 U.S. 310, 315-316 (1986) (federal gov-

ernment was not required to pay interest on attorneys’ fees in

Title VII case because Congress had not made liability for in-

terest “affirmatively and separately” explicit); Lehman v.

Nakshian, 453 U.S. 156, 161 & n.8 (1981) (Congress’s re-

luctance to provide for jury trials when waiving sovereign

immunity reflects concern that juries will return excessive

money judgments).

The Hoffman plurality suggested that Section 106

See 492 U.S. at 102. That does not mean, however,

that a trustee can ask for an injunction ordering the

government to pay money. The trustee in Ho//man

was barred from obtaining either an order requiring

the “turnover” of funds (see 11 U.S.C. 542(a)) or

an order requiring the return of an avoided transfer

(see 11 U.S.C. 550(a)). 492 U.S. at 99, 102. In

concluding that such relief was barred, the plurality

made clear that Section 106(c) does not authorize

any form of “monetary recovery” (492 U.S. at 102).

The plurality’s conclusion fully applies here, where

the trustee, like the trustee in Hoffman, sought to

recover an avoided transfer.”

In our view, Section 106(c) permits injunctive relief of the

sort this Court upheld in United States v. Whiting Pools, Inc.,

462 U.S. 198 (1983). In Whiting Pools, the IRS seized a com-

pany’s tangible property—“equipment, vehicles, inventory,

and office supplies” (id. at 200)—tto satisfy the company’s tax

liabilities. As the Court’s opinion emphasized, the business

retained ownership of the property even after it came into

the hands of the IRS. /d. at 200, 211. Under these circum-

stances, the Court held, a bankruptcy court could order the

IRS to turn over the property pursuant to Section 542(a) of

the Code. The order in Whiting Pools thus amounted to

a binding determination that the IRS “[was] require[d]

* * * to seek protection of its interest according to the con-

gressionally established bankruptcy procedures, rather than

by withholding the seized property from the debtor’s efforts to

reorganize.” 462 U.S. at 212.

II. LEGISLATIVE HISTORY IS [RRELEVANT IN IN-

TERPRETING SECTION 106(c) AND, IN ANY

EVENT, CONFIRMS THAT CONGRESS DID NOT

INTEND TO AUTHORIZE MONETARY RELIEF

AGAINST THE UNITED STATES

The plurality in Hoffman declined to examine

legislative history in deciding whether Section 106(c)

abrogated the States’ Eleventh Amendment immunity

from monetary recovery. It observed that “[]]egis-

lative history generally will be irrelevant to a judicial

inquiry into whether Congress intended to abrogate

the Eleventh Amendment” because, under Aftasca-

dero, Congress must make such an intention unmis-

tukably clear on the face of the statute. Hoffman,

492 U.S. at 104 (quoting Dellmuth vy. Muth, 491

U.S. 223, 230 (1989)). Thus, the plurality reasoned,

“Tijf congressional intent is unmistakably clear in

the language of the statute, reliance on committee re-

ports and floor statements will be unnecessary, and

if it is not, Atascadero will not be satisfied.” 492

U.S. at 104.

Legislative history is likewise irrelevant in deter-

mining whether Section 106(c) waives federal sov-

ereign immunity from monetary recovery. In the

federal context as in the state, abrogation of im-

munity “cannot be implied but must be unequivocally

expressed.” Jrwin vy. Veterans Administration, 111

S. Ct. at 457. Resort to legislative history is appro-

priate only when congressional intent is not “un-

equivocally expressed” in the statute, see, ¢.g., Toibb

v. Radloff, 111 S. Ct. 2197, 2200 (1991); Business

Guides, Inc. vy. Chromatic Communications Enter-

prises, Inc., 111 S. Ct. 922, 928 (1991); United

States v. Rojas-Contreras, 474 U.S. 231, 235 (1985),

so legislative history will never be an appropriate

source of a waiver of sovereign immunity.

Conzress set forth in Section 106 rules applicable

to “governmental units.” Because Congress in writ-

ing the statute treated the States and the United

States the same, courts should likewise accord them

identical treatment when construing the statute.

That means that the scope of federal sovereign im-

munity under Section 106 should be determined solely

based on its text, just as the Hoffman plurality deter-

mined the scope of the States’ immunity under the

same provision solely based on the statutory text. It

would be a curious jurisprudence that concluded that

the same words in Section 106 meant one thing with

respect to the States but another with respect to the

United States, not because the legislative history sug-

gested different treatment, but simply because legis-

lative history could be resorted to in the latter case

but not the former.

In any event, the legislative history confirms that

Congress intended to treat the States and the United

States—“governmental units’—the same under Sec-

tion 106, and nothing in that history supports the

view that monetary relief was authorized under Sec-

tion 106(c). The States and the United States were

treated the same in the waiver of sovereign immunity

proposed to Congress in 1973 by the Commission on

the Bankruptcy Laws of the United States.” They

20 The Commission’s proposal provided :

Section 1-104. Applicability of Act to United States,

States, and Subdivisions. All provisions of this Act shall

apply to the United States and to every department,

agency, and instrumentality thereof, and to every state

and every subdivision thereof except where otherwise

specifically provided. This section does not render any

branch or unit of the government eligible for relief as a

were also treated the same in every subsequent bill

that Congress considered.”

Other than treating the States and the United

States the same, Section 106 bears no resemblance to

the waiver proposed by the Commission. The Com-

mission’s proposal placed the state and federal gov-

ernment on the same footing as any other creditor.

See note 20, supra. It clearly would have authorized

the money judgment entered against the IRS in this

case. Congress did not, however, enact the broad lan-

guage of the Commission’s proposal. Instead, it en-

acted the much narrower language in Section 106(c)

authorizing “a determination by the court of an is-

sue” arising under certain Code provisions. The lan-

guage that Congress enacted should not be interpreted

to have the same effect as the language that Congress

rejected. “Few principles of statutory construction

are more compelling than the proposition that Con-

gress does not intend sub silentio to enact statutory

language that it has earlier discarded in favor of

other language.” Cardoza-Fonseca, 480 U.S. at 442-

petitioner except as provided in Chapter VIII, or subject

to relief as a debtor upon an involuntary petition.

Report of the Commission on the Bankruptcy Laws of the

United States, H.R. Doc. No. 137, 93d Cong., 1st Sess. Pt. 2,

at 10 (1973). The Commission’s proposal was included in

bills introduced in the 94th Congress. S. 236, 94th Cong., Ist

Sess. (1975) ; H.R. 31, 94th Cong., Ist Sess. (1975).

21 H.R. 6, 95th Cong., Ist Sess. § 106 (1977); H.R. 7330,

95th Cong., Ist Sess. § 106 (1977); S. 2266, 95th Cong., Ist

Sess. § 106 (1977); H.R. 31, 94th Cong., Ist Sess. § 1-104

(1975) ; H.R. 32, 94th Cong., Ist Sess. § 1-104 (1975); S. 235,

94th Cong., Ist Sess. § 1-104 (1975); S. 236, 94th Cong., Ist

Sess. § 1-104 (1975) ; H.R. 10792, 93d Cong., 1st Sess. § 1-104

(1973) ; S. 2565, 93d Cong., Ist Sess. § 1-104 (1973).

443 (quoting Nachman Corp. v. Pension Benefit

Guaranty Corp., 446 U.S. 359, 392-393 (1980)

(Stewart, J., dissenting) ).

Notwithstanding this principle, Justice Stevens

stated in his dissenting opinion in Hoffman that Sec-

tion 106(c) “restored to a large extent the power of

bankruptcy courts” granted in the Commission’s pro-

posal. 492 U.S. at 112. With all respect, the circum-

stances under which Congress enacted Section 106(c)

fail to support the dissenters’ view. As the dissent

observed, Congress rejected the Commission’s proposal

“apparently because of concerns that Congress did

not have the constitutional power to abrogate com-

pletely the State’s sovereign immunity.” /bid. There

is no evidence that Congress ever set aside these con-

cerns. These concerns resulted in congressional nar-

rowing of the abrogation of the States’ immunity

proposed by the Commission ::nd—with the consistent

decision to treat the States and the United States the

same—a corresponding narrowing of the waiver of

federal sovereign immunity.

As reported out of committee, the bills enacted as

the Bankruptcy Reform Act of 1978 contained waiver

provisions consisting of two subsections similar to

Sections 106(a) and 106(b) as enacted. H.R. 8200,

95th Cong., Ist Sess. (1977); S. 2266, 95th Cong.,

2d Sess. (1978). The reports accompanying the bills

explained that while Congress can waive federal sov-

ereign immunity completely, “Congress does not, how-

ever have the power to waive sovereign immunity

completely with respect to claims of a bankrupt estate

against a State.” S. Rep. No. 989, supra, at 29; H.R.

Rep. No. 595, 95th Cong., lst Sess (1977). Congress

was plainly expressing doubt that it could subject

States to money judgments in the absence of a waiver

by the State (such as the filing of a proof of claim).

Section 106(c) was added to the bills after they

were reported out of committee. The addition oc-

curred during an informal conference that did not re-

sult in a formal conference report.” Because of time

constraints, both the House and Senate subsequently

passed the bill with little debate.** In light of the con-

cerns earlier expressed in the committee reports, it

seems unlikely that Congress intended by its belated

addition of Section 106(c) to restore the broad waiver

previously rejected.

Moreover, congressional statements made when Sec-

tion 106(c) was proposed confirm that Congress did

not intend the provision to authorize monetary relief.

In statements made on the floor in lieu of a con-

ference report, the sponsors of the bankruptcy legisla-

tion explained that “Section 106(c) codifies in re

Gwilliam, 519 F.2d 407 (9th Cir. 1975) and in re

Dolard, 519 F.2d 282 (9th Cir. 1975), permitting the

bankruptcy court to determine the amount and dis-

chargeability of tax liabilities owing by the debtor or

the estate prior to or during a bankruptcy case

whether or not the governmental unit to which such

*2 124 Cong. Rec. 32,392, 32,394 (1978) (statements of Rep.

Edwards).

*8 Because the bill in which Section 106(c) first appeared

did not go to a formal conference, it was considered on the

floor of the House and passed under a unanimous consent pro-

cedure. See 124 Cong. Rec. 32,391, 32,420 (1978). The Sen-

ate subsequently considered the bill under an abbreviated time

“agreement. /d. at 33,989 (remarks of Sen. Byrd). The Sen-

ate passed the bill with a series of unprinted amendments, not

relevant here, to which the House agreed, again pursuant to

the unanimous consent procedure. /d. at 33,990-33,991, 34,019,

34,145. See generally Klee, Legislative History of the New

Bankruptcy Law, 28 DePaul L. Rev. 942, 954-956 (1979).

taxes are owed files a proof of claim.” 124 Cong. Rec.

32,394 (1978) (statement of Rep. Edwards) ; id. at

33,993 (statement of Sen. DeConcini).** Determin-

ing the amount and dischargeability of tax liabilities

does not involve monetary recovery from the United

States.

The sponsors went on to explain that “subsection

bankruptcy courts to bind governmental units on

other matters as well.” 124 Cong. Rec. 32,394 (1978)

(statement of Rep. Edwards); id. at 33,993 (state-

ment of Sen. DeConcini). The “other matters” to

which the sponsors referred, in our view, meant issues

that arose under Code provisions containing one of the

trigger words in Section 106(c) (1). Thus, Section 106

the amount and dischargeability of a wide variety of

debts and obligations to the United States. Again,

that does not involve monetary recovery from the

United States.

Justice Stevens understood the “other matters” re-

ferred to in the floor statements to include claims for

monetary relief. Hoffman, 492 U.S. at 113. He

24 In In re Gwilliam, 519 F.2d 407 (1975), the Ninth Circuit

held that “the Bankruptcy Court had jurisdiction under

§ 1l(a) (2A) [of the old Bankruptcy Act] to determine the

amount and legality of the federal taxes due and owing by the

Bankrupt * * * and to determine the Bankrupt’s liability and

provable indebtedness therefor, under [the discharge pro-

visions of Title 11], notwithstanding the lack or absence of a

prior claim * * * by IRS.” 519 F.2d at 410. Section 2(a) (2A)

of the former Act provided that bankruptcy courts could

determine “any question arising as to the amount or legality

of any unpaid tax.” 11 U.S.C. 11(a) (2A) (1976). Dolard

extended the holding of Gwilliam to taxes accruing during

administration of the bankruptcy estate. Jn re Dolard, 519

F.2d 282, 286 (9th Cir. 1975).

observed that, in concluding their explanation of Sec-

tion 106(c), the sponsors stated that “section 106(c)

permits a trustee or debtor in possession to assert

avoiding powers under title 11 against a govern-

mental unit.” 492 U.S. at 112-113 (quoting 124

Cong. Rec. 32,394 (1978) (statement of Rep. Ed-

wards) ; id. at 33,993 (statement of Sen. DeConcini) ).

The sponsors later stated that, under section 106(c),

“the Government is subject to avoidance of preferen-

tial transfers.” Hoffman, 492 U.S. at 113 (quoting

124 Cong. Rec. 32,400 (1978) (statement of Rep.

Edwards); id. at 34,000 (statement of Sen. Decon-

cini) ). Justice Stevens found “no suggestion” that the

authority to avoid preferential transfers “did not in-

clude the power to order return of real property and

the payment of money damages or that the issues

that the bankruptcy court could determine under

§ 106(c) were limited to whether prospective or de-

claratory relief was appropriate.” Hoffman, 492 U.S.

at 113.

The Bankruptcy Code itself, in our view, defeats

the suggestion that avoidance of a transfer is the

same as recovery of the transfer. A major reform

effected by the Code was to “enunciate[] the separa-

tion between the concepts of avoiding a transfer and

recovering from the transferee.” H.R. Rep. No. 595,

supra, at 375; S. Rep. No. 989, supra, at 90. In dis-

tinguishing between avoiding a transfer and recover-

ing it, Congress recognized that the two concepts

are logically distinct. See 4 Collier on Bankruptcy

* 550.01, at 550-2 to 550-3 (L. King 15th ed. 1991)

(“The particular theory under which a transfer has

been avoided is, for all intents and purposes, ir-

relevant to the liability of the transferee against

whom the trustee claims recovery of the property.’’).

Cf. Federal Housing Admin. v. Burr, 309 U.S. 242,

250-251 (1940). Accordingly, Congress prescribed

the circumstances under which transfers could be

avoided and those under which avoided transfers

could be recovered in separate sections of the Code.

The avoidance provisions are Sections 544 through

549; the recovery provision is Section 550. 11

U.S.C. 544-550; see also 11 U.S.C. 522(f) (authoriz-

ing debtor to avoid certain liens that would impair

debtor’s ability to exempt property from the estate

under 11 U.S.C. 522(b)).

Because Congress treated avoidance and recovery

as distinct concepts, we do not believe that the refer-

ences to the trustee’s “avoiding powers” (124 Cong.

Rec. 32,394 (1978) (statement of Rep. Edwards) ;

id. at 33,993 (statement of Sen. DeConcini) ) express

an intent to authorize monetary recovery under Sec-

tion 106(c). Instead, by these references the legis-

lators meant what they said: that a court can de-

termine whether a transfer to a governmental unit

may be avoided. Thus, the bankruptcy court in this

case had the power to declare that the $20,000 trans-

fer to IRS was voidable as an unauthorized post-

petition transfer. See 11 U.S.C. 549. The court did

not, however, have authority to grant a recovery in

that amount from the federal government.

A bankruptcy court’s authority to avoid a transfer

to a governmental unit can provide a meaningful

remedy in the absence of recovery from the govern-

ment. In this case, for example, the trustee could

have sought recovery from Josef Lah. If the trustee

had done so, a prerequisite for recovery would be a

determination that the transfer to the IRS was void-

able. Section 106(c) empowers the court to make

such determinations. It does not empower a court to

order recovery of money from the United States.

CONCLUSION

The judgment of the court of appeals should be

reve

Respectfully submitted.