[PUBLISH]
FILED
IN THE UNITED STATES COURT OF APPEALS
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
FOR THE ELEVENTH CIRCUIT
________________________ 2/19/03
THOMAS K. KAHN
No. 97-8917 CLERK
________________________
D. C. Docket Nos. 92-11482JSD (97-42), 94-12007JSD (97-43)
IN RE: GARY BURKE, PAMELA BURKE,
Debors.
STATE OF GEORGIA DEPARTMENT OF REVENUE,
Plaintiff-Appellant,
versus
GARY BURKE;
PAMELA BURKE,
Defendants-Appellees.
IN RE; RAYMOND D. HEADRICK, CYNTHIA J. HEADRICK,
Debtors.
THE STATE OF GEORGIA,
Department of Revenue,
Plaintiff-Appellant,
versus
RAYMOND D. HEADRICK;
CYNTHIA J. HEADRICK,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Georgia
_________________________
(July 22, 1998)
Before ANDERSON and BIRCH, Circuit Judges, and COHILL*, Senior District
Judge.
___________________
* Honorable Maurice B. Cohill, Senior U.S. District Judge for the Western District of
Pennsylvania, sitting by designation.
ANDERSON, Circuit Judge:
In this consolidated appeal of two separate bankruptcy proceedings, the State of
Georgia Department of Revenue (“the State”) appeals the district court’s affirmance of
two bankruptcy court orders denying the State’s motion to dismiss and motion for
summary judgment based on Eleventh Amendment immunity. Because we conclude
that the State waived its Eleventh Amendment immunity by filing a proof of claim in
each of the bankruptcy proceedings, we affirm.
I. FACTS AND PROCEDURAL HISTORY
The first bankruptcy case involves Gary and Pamela B. Burke (“the Burkes”).
In August 1992, the Burkes sought relief under Chapter 13 of the Bankruptcy Code.
The Georgia Department of Revenue filed a proof of claim that included an unsecured
priority claim of $12,437.40 for unpaid state income taxes covering the tax years 1980-
84. This claim was later adjudged to be a general unsecured claim. After the case was
converted to Chapter 7, the bankruptcy court entered a general discharge order
releasing the Burkes from liability for all dischargeable debts. Before the case was
closed, however, neither party requested that the bankruptcy court determine whether
the taxes accrued in 1980-84 were discharged. In May 1994, three months after the
entry of the discharge, the Department of Revenue wrote a letter to the Burkes
demanding payment of these taxes and warning that nonpayment could result in
collection by garnishment, attachment, or levy. The Burkes then reopened their
Chapter 7 case and filed an adversary action against the State of Georgia, alleging that
the Department of Revenue violated the discharge injunction of 11 U.S.C. § 524(a) by
2
sending the demand letter for unpaid state income taxes.1 After its motion for
summary judgment was denied,2 the State moved to dismiss the Burkes’ action, relying
on Seminole Tribe of Florida v. Florida, 517 U.S. 44, 116 S. Ct. 1114 (1996), and
arguing that the relief sought by the Burkes was barred by the Eleventh Amendment.
The bankruptcy court initially declined to address this issue, relying instead on its
finding that the State of Georgia had waived its sovereign immunity by filing a proof
of claim against the Burkes’ bankruptcy estate. See In re Burke, 200 B.R. 282, 287-88
(Bankr. S.D. Ga. 1996). In denying the State’s motion to alter or amend the previous
order, the bankruptcy court concluded that § 106(a)3 of the Bankruptcy Code
1
Section 524(a) provides in relevant part that “[a] discharge in a case under this title . .
. (2) operates as an injunction against the commencement or continuation of an action, the
employment of process, or an act, to collect, recover or offset any such debt as a personal
liability of the debtor, whether or not discharge of such debt is waived.” 11 U.S.C. § 524(a)
(1993).
2
In its motion for summary judgment, the State argued that it could not have violated
the discharge injunction since the taxes in question were nondischargeable. In an August 9,
1995, order, the bankruptcy court denied this motion, finding that the 1980-84 taxes including
accrued interest and penalties were discharged by the discharge order of February 1, 1994. See
In re Burke, 200 B.R. 282, 284 (Bankr. S.D. Ga. 1996). This ruling is not challenged on
appeal.
3
Section 106(a), entitled “Waiver of Sovereign Immunity,” provides:
Notwithstanding an assertion of sovereign immunity, sovereign immunity is
abrogated as to a governmental unit to the extent set forth in this section with
respect to the following:
(1) Sections . . . 362, . . . 524 . . . .
(2) The court may hear and determine any issue arising with respect to
the application of such sections to governmental units.
(3) The court may issue against a governmental unit an order, process or
judgment under such sections . . . including an order or judgment awarding a
money recovery, but not including an award of punitive damages.
11 U.S.C. § 106(a) (Supp. 1998).
3
unequivocally expressed congressional intent to abrogate states’ sovereign immunity
for violations of the discharge injunction of § 524 and that § 106(a) was enacted by a
valid exercise of power under the Fourteenth Amendment. See In re Burke, 203 B.R.
493, 497 (Bankr. S.D. Ga. 1996) (reasoning that in light of Seminole Tribe, the
Bankruptcy Clause of Article I did not empower Congress to abrogate the Eleventh
Amendment, but that abrogation could be accomplished under the Fourteenth
Amendment). In an alternative holding, the bankruptcy court concluded that even if
the State of Georgia was immune from suit for its alleged violations of the discharge
injunction, it had waived that immunity by filing a proof of claim against the Burkes.
In re Burke, 203 B.R. at 497-98.
In the second bankruptcy proceeding, Raymond D. and Cynthia J. Headrick
(“the Headricks”) filed a petition for relief under Chapter 13 of the Bankruptcy Code in
December 1994. The Georgia Department of Revenue filed a proof of claim for state
income taxes. Thereafter, in October 1995, the Department of Revenue issued an
“Official Assessment and Demand for Payment” against the Headricks, and then issued
a “Collection Notice” demanding immediate payment of the taxes and warning that
nonpayment would result in collection by levy, garnishment, or attachment.
Subsequently, the Headricks filed an adversary action against the State of Georgia,
alleging that the State’s collection attempts violated the automatic stay prescribed by
4
11 U.S.C. § 362.4 The State moved for summary judgment, arguing that it was entitled
to sovereign immunity and, alternatively, that as a matter of law it had not violated the
automatic stay. The bankruptcy court found both grounds to be without merit and
denied the motion. See In re Headrick, 200 B.R. 963, 965-69 (Bankr. S.D. Ga. 1996)
(adopting the same reasoning as in In re Burke, and thus finding that the State’s
immunity was abrogated because § 106(a) was enacted by Congress pursuant to a valid
exercise of authority under the Fourteenth Amendment, or alternatively, that the State
waived its immunity by filing a proof of claim against the debtors). The State’s motion
to alter or amend the previous order denying summary judgment was denied. See In re
Headrick, 203 B.R. 805 (Bankr. S.D. Ga. 1996). The State of Georgia then appealed
the bankruptcy court’s orders in In re Burke and In re Headrick to the District Court for
the Southern District of Georgia. In affirming the bankruptcy court’s orders, the
district court concluded that “the case law now uniformly acknowledges that Congress
4
Section 362(a) provides in relevant part that
[e]xcept as provided in subsection (b) of this section, a petition filed under
section 301, 302, or 303 of this title, . . . operates as a stay, applicable to all
entities, of (1) the commencement or continuation . . . of a judicial,
administrative, or other action or proceeding against the debtor that was or
could have been commenced before the commencement of the case under this
title, or to recover a claim against the debtor that arose before the
commencement of the case under this title; . . . (6) any act to collect, assess, or
recover a claim against the debtor that arose before the commencement of the
case under this title.
11U.S.C. § 362(a) (1993).
Section 362(h) provides that “[a]n individual injured by any willful violation of a stay
provided by this section shall recover actual damages, including costs and attorneys’ fees.” 11
U.S.C. § 362(h) (1993).
5
did not have the power to enact § 106(a) pursuant to those powers granted it under the
Bankruptcy Clause of Article I,” but that § 106(a) validly abrogates Georgia’s
sovereign immunity because “the bankruptcy code creates privileges and immunities
enforceable by Congress under § 5 of the Fourteenth Amendment.” District Court
Order, at 6-8 (July 23, 1997).5 The State of Georgia appeals this order.
II. DISCUSSION
Our jurisdiction in this case arises from the district court’s denial of the State of
Georgia’s claim to Eleventh Amendment immunity; such a denial grants the State the
right of an immediate, interlocutory appeal. See Puerto Rico Aqueduct and Sewer
Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 147, 113 S. Ct. 684, 689 (1993) (applying
collateral order doctrine of Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 69 S.
Ct. 1221 (1949)); see also Seminole Tribe of Florida v. Florida, 11 F.3d 1016, 1021
(11th Cir. 1994); aff’d, 517 U.S. 44, 116 S. Ct. 1114 (1996). The grant or denial of a
state’s sovereign immunity defense is an issue of law subject to de novo review by this
court. See Seminole Tribe, 11 F.3d at 1021.
The Eleventh Amendment states:
The Judicial power of the United States shall not be construed to extend
to any suit in law or equity, commenced or prosecuted against one of the
5
The district court acknowledged that the issue of waiver was raised by the debtors, but
declined to address the issue because the court concluded that the State’s Eleventh Amendment
immunity was validly abrogated by 11 U.S.C. § 106(a). District Court Order, at 2 (July 23,
1997).
6
United States by Citizens of another State, or by Citizens or Subjects of
any Foreign State.
U.S. Const. amend. XI. Although the Eleventh Amendment only expressly prohibits
suits against states by citizens of other states, the Supreme Court has long held that the
Eleventh Amendment also bars suits brought against a state by its own citizens. Hans
v. Louisiana, 134 U.S. 1, 15, 10 S. Ct. 504, 507 (1890). However, there are certain
well-established exceptions to Eleventh Amendment immunity. First, a state may
waive its Eleventh Amendment immunity and consent to suit in federal court. See
Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 238, 105 S. Ct. 3142, 3145 (1985).
Second, Congress can abrogate states’ Eleventh Amendment immunity if Congress
unequivocally expresses an intent to abrogate state immunity and acts pursuant to a
valid exercise of power. See Green v. Mansour, 474 U.S. 64, 68, 106 S. Ct. 423, 425-
26 (1985) (citing Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 99, 104
S. Ct. 900, 907 (1984)).
Relying on Seminole Tribe of Florida v. Florida, 517 U.S. 44, 116 S. Ct. 1114
(1996), the State of Georgia contends that Congress’ power to abrogate states’
Eleventh Amendment immunity only exists under § 5 of the Fourteenth Amendment
and that § 106(a) of the Bankruptcy Code was not enacted pursuant to the Fourteenth
Amendment. The debtors6 respond that § 106(a) validly abrogates states’ sovereign
immunity because § 106(a) was enacted pursuant to § 5 of the Fourteenth Amendment
6
We refer to the Burkes and the Headricks collectively as “the debtors.”
7
in order to enforce a protected due process property interest or the privileges and
immunities of federal citizenship as recognized in § 1 of the Fourteenth Amendment.7
However, we need not resolve this abrogation issue because assuming arguendo that
the State of Georgia has Eleventh Amendment immunity and it has not been validly
abrogated by § 106(a), we conclude that in this case the State waived its sovereign
immunity by filing a proof of claim in the debtors’ bankruptcy proceedings.
Waiver of Eleventh Amendment Immunity8
7
The amicus curiae, the Business Bankruptcy Law Committee of the New York
County Lawyers’ Association, contends that Congress has the right to abrogate states’
Eleventh Amendment immunity pursuant to the power granted in the Bankruptcy Clause of
Article I of the U.S. Constitution. As noted in the text, we need not address the abrogation
issue.
8
We note at the outset of this section that our waiver analysis is not based on 11 U.S.C.
§ 106(b). Section 106(b) provides that
[a] governmental unit that has filed a proof of claim in the case is deemed to
have waived sovereign immunity with respect to a claim against such
governmental unit that is property of the estate and that arose out of same
transaction or occurrence out of which the claim of such governmental unit
arose.
11 U.S.C. § 106(b) (Supp. 1998). We decline to rely on § 106(b) because, in deciding the
instant case, we have assumed arguendo that the State of Georgia’s Eleventh Amendment
immunity has not been validly abrogated by § 106(a) and because we acknowledge that “the
power to define waiver can become the functional equivalent of the power to abrogate.” Aer-
Aerotron v. Texas Dep’t of Transp., 104 F.3d 677, 681 (4th Cir. 1997); see also Schlossberg
v. Maryland Comptroller of the Treasury (In re Creative Goldsmiths of Washington,
D.C., Inc.), 119 F.3d 1140, 1147 (4th Cir. 1997) (concluding that the language of §
106(b) “amounts to language of abrogation” and that it is “not within Congress’ power to
abrogate such immunity by ‘deeming’ a waiver”), cert. denied, 118 S. Ct. 1517 (1998).
However, we note that, although we do not rely on § 106(b) and it does not control our
analysis, the language of § 106(b) may well be a correct restatement of the jurisprudence
regarding waiver of Eleventh Amendment immunity. See Wyoming Dep’t of Transp.
v. Straight (In re Straight), 143 F.3d 1387 (10th Cir. 1998) (concluding that §
106(b) “follows the lead already established by the Supreme Court in Gardner v.
8
The State of Georgia contends that, under its constitution, only the Georgia
General Assembly may waive the State’s sovereign immunity, and that waiver is limited
to the extent provided in the Georgia Constitution.9 Subsection (f) of article I, section 2,
paragraph 9 of the Georgia Constitution clearly provides that the constitution’s limited
waiver of sovereign immunity does not include the State’s Eleventh Amendment
immunity, and the debtors have identified no legislation providing that the State has
waived its Eleventh Amendment immunity for violations of a bankruptcy court’s
discharge injunction or automatic stay. However, in the absence of explicit consent by
state statute or constitutional provision, a state may consent to a federal court’s
jurisdiction through its affirmative conduct. See Gardner v. New Jersey, 329 U.S. 565,
New Jersey” and “merely codifies an existing equitable circumstance under
which a state can choose to preserve its immunity by not participating in a
bankruptcy proceeding or to partially waive that immunity by filing a claim”); In
re Creative Goldsmiths, 119 F.3d at 1147 (acknowledging that § 106(b) “may
correctly describe those actions that, as a matter of constitutional law, constitute
a state’s waiver of the Eleventh Amendment”); Aer-Aerotron, 104 F.3d at 683
(Niemeyer, J., concurring) (concluding that although § 106 “may restate the law
of Eleventh Amendment waiver, it does not establish the law on the subject”).
9
The Georgia Constitution provides in relevant part that:
(e) Except as specifically provided in this Paragraph, sovereign
immunity extends to the state and all of its departments and agencies. The
sovereign immunity of the state and its departments can only be waived by an
Act of the General Assembly which specifically provides that sovereign
immunity is thereby waived and the extent of such waiver.
(f) No waiver of sovereign immunity under this Paragraph shall be
construed as a waiver of any immunity provided to the state or its departments,
agencies, officers, or employees by the United States Constitution.
Ga. Const. Art. I., § II, Para. IX (Supp. 1997).
9
573-74, 67 S. Ct. 467, 472 (1947); Schlossberg v. Maryland Comptroller of the Treasury
(In re Creative Goldsmiths of Washington, D.C., Inc.), 119 F.3d 1140, 1148-49 (4th Cir.
1997), cert. denied, 118 S. Ct. 1517 (1998).10
10
In In re Creative Goldsmiths, 119 F.3d at 1148-49, the court analyzed Maryland
constitutional and statutory law and concluded that Maryland law did not indicate a
waiver of the state’s Eleventh Amendment immunity nor grant the Maryland Attorney
General the power to waive that immunity by defending a case on the merits. However,
after undertaking this analysis, the court separately considered whether the state’s filing
of a proof of claim in the debtor’s bankruptcy proceeding constituted consent to the
trustee in bankruptcy’s suit in federal court seeking to recover income taxes paid to the
state. Id. at 1149. The court reasoned that if the state official has authority under state
law to file a proof of claim in the debtor’s bankruptcy proceeding and thus initiate a
federal action, then the court would “look to federal law to determine the scope of waiver
attending the state’s federal suit.” Id. at 1148. The court explained that
The Eleventh Amendment . . . presents no bar to a state affirmatively
entering a federal forum voluntarily to pursue its own interest. But it would
violate the fundamental fairness of judicial process to allow a state to
proceed in federal court and at the same time strip the defendant of valid
defenses because they might be construed to be affirmative claims against
the state. . . . For this reason, we hold that to the extent a defendant’s
assertions in a state-instituted federal action, including those made with
regard to a state-filed proof of claim in a bankruptcy action, amount to a
compulsory counterclaim, a state has waived any Eleventh Amendment
immunity against that counterclaim in order to avail itself of the federal
forum.
Id. Applying these principles, the court concluded that the trustee’s adversary action
against the State of Maryland to avoid the payment of the debtor’s corporate income
taxes did not “arise out of the same transaction or occurrence supporting Maryland’s
proof of claim for unrelated [sales and withholding] taxes” and thus the trustee’s action
could not be “construed under federal law as a claim in the nature of a compulsory
counterclaim to the state’s proof of claim.” Id. at 1149 (emphasis added). Therefore, the
court held that it did not have authority to entertain the action by the trustee. Id. at 1150.
Unlike in In re Creative Goldsmiths, the debtors’ adversary action in the
instant case involves the same state income taxes that the State of Georgia
sought to recover by filing proofs of claim in the debtors’ respective bankruptcy
proceedings. Therefore, we conclude that the debtors’ actions for violation of the
automatic stay and discharge injunction “arise out of the same transaction or
10
In Gardner v. New Jersey, 329 U.S. 565, 67 S. Ct. 467 (1947), the Supreme
Court addressed the effect of filing a proof of claim in a bankruptcy proceeding on a
state’s assertion of Eleventh Amendment immunity. In that case, the State of New
Jersey filed a proof of claim for unpaid taxes against the debtor. Id. at 570, 67 S. Ct. at
470. After the debtor and various creditors filed objections to the state’s claim, the
trustee in bankruptcy filed a petition for adjudication of the conflicting claims with the
bankruptcy court. Id. at 571, 67 S. Ct. at 470. The Attorney General of New Jersey
thereupon entered a special appearance in the proceedings, contending that the petition
“would constitute a prohibited suit against the State.” Id. In rejecting New Jersey’s
sovereign immunity argument, the Court concluded that
It is traditional bankruptcy law that he who invokes the aid of the
bankruptcy court by offering a proof of claim and demanding its allowance
must abide the consequences of that procedure. If the claimant is a State,
the procedure of proof and allowance is not transmitted into a suit against
the State because the court entertains objections to the claim. The State is
seeking something from the debtor. No judgment is sought against the
State. . . . When the State becomes the actor and files a claim against the
fund it waives any immunity which it otherwise might have had respecting
the adjudication of the claim.
Id. at 573-74, 67 S. Ct. at 472 (citation omitted). See New York v. Irving Trust Co., 288
U.S. 329, 332, 53 S. Ct. 389, 391 (1933) (concluding that “[i]f a state desires to
participate in the assets of a bankrupt, she must submit to appropriate requirements by the
controlling power; otherwise, orderly and expeditious proceedings would be
occurrence” as the State’s proofs of claim. See, e.g., In re Price, 42 F.3d 1068,
1073-74 (7th Cir. 1994); In re Pinkstaff, 974 F.2d 113, 115 (9th Cir. 1992).
11
impossible”); see also Clark v. Barnard, 108 U.S. 436, 447-48, 2 S. Ct. 878, 883 (1883)
(holding that the State of Rhode Island had waived its sovereign immunity by voluntarily
intervening as a claimant to a bankruptcy fund paid into federal court).11
We conclude that the Court’s reasoning in Gardner applies to the instant cases.
See Dekalb County Div. of Family and Child Servs. v. Platter (In re Platter), 140 F.3d
676 (7th Cir. 1998) (applying Gardner and rejecting the State of Indiana’s Eleventh
Amendment immunity defense because a state agency had initiated an adversary
proceeding in bankruptcy court against the debtor seeking a ruling that the debt owed
to the agency was nondischargeable). In In re Headrick, the State of Georgia invoked
the aid of the bankruptcy court by filing a proof of claim for unpaid state income taxes
in the Headricks’ bankruptcy proceeding. However, after the bankruptcy court entered
an automatic stay order in the case to prevent creditors from attempting to collect on
the Headricks’ debts, the State sent a collection notice and official assessment to the
Headricks. We conclude that the substance of the Headricks’ action is a motion to
enforce the bankruptcy court’s automatic stay order. Enforcement of this order is
merely the bankruptcy court’s exercise of its jurisdiction over the State in the course of
adjudicating the proof of claim filed by the State in the Headricks’ bankruptcy
11
In a recent decision, the Fifth Circuit Court of Appeals concluded that Seminole
Tribe “does not and should not impair [the] force” of Gardner and Irving Trust. Texas v.
Walker, 142 F.3d 813 (5th Cir. 1998) (relying on Gardner and Irving Trust in holding that,
although the state did not file a proof of claim in the debtor’s bankruptcy proceeding, the
debtor could raise discharge as an affirmative defense against the state’s suit on the debt)
12
proceeding. Similarly, in In re Burke, the Burkes’ action is in substance one to enforce
the discharge injunction entered by the bankruptcy court. We note that in In re Burke,
the State of Georgia sent a demand letter to the Burkes after the Burkes’ bankruptcy
proceeding was closed. Therefore, the Burkes reopened their bankruptcy case in order
to file an adversary action against the State. We conclude that the bankruptcy court
retained jurisdiction over the State in order to enforce the judgment it had entered as
part of adjudicating the State’s claim in the Burkes’ bankruptcy case.
The Supreme Court’s decision in Gardner establishes that, by filing a proof of
claim in the debtors’ respective bankruptcy proceedings, the State waived its sovereign
immunity for purposes of the adjudication of those claims. We hold that this waiver
includes the bankruptcy court’s enforcement of the discharge injunction and the
automatic stay in the instant cases. We believe that the enforcement of the bankruptcy
court’s orders in both of the instant cases falls easily within the waiver of immunity
“respecting the adjudication of the claim” found by the Supreme Court in Gardner, 329
U.S. at 574, 67 S. Ct. at 472. We emphasize that our holding regarding the State’s
waiver of Eleventh Amendment immunity is quite narrow because the debtors
seriously seek to recover only the costs and attorneys’ fees incurred in enforcing the
bankruptcy court’s automatic stay and discharge injunction.12 Therefore, addressing
12
The district court noted that “the Burkes and the Headricks will have difficulty
proving that they suffered any real damage from the Revenue Department’s actions, which
amounted to nothing more than sending a few collection letters. Perhaps only nominal
damages will flow from the Revenue Department’s actions.” District Court Order, at 8 n.3
(July 23, 1997). At oral argument, the debtors’ attorney conceded that there was no indication
13
only the live issues in this case, we hold that the State of Georgia has waived its
Eleventh Amendment immunity to the extent of the attorneys’ fees and costs incurred
by the debtors in enforcing the bankruptcy court’s automatic stay and discharge
injunction.13
III. CONCLUSION
For the foregoing reasons, we affirm the district court’s affirmance of the
bankruptcy court’s orders denying the State of Georgia’s motion to dismiss in In re
Burke and its motion for summary judgment in In re Headrick.
AFFIRMED.
that damages in the two cases would go beyond the costs and attorneys’ fees incurred in
enforcing the bankruptcy court’s automatic stay and discharge injunction.
13
In dicta, the court in In re Creative Goldsmiths, 119 F.3d at 1148, indicated that “to
the extent a defendant’s assertions in a state-instituted federal action, including those made
with regard to a state-filed proof of claim in a bankruptcy action, amount to a compulsory
counterclaim, a state has waived any Eleventh Amendment immunity against the counterclaim
in order to avail itself of the federal forum.” In the instant case, we need not address whether
the scope of the State’s waiver of Eleventh Amendment immunity extends to the full scope
indicated by the Fourth Circuit in In re Creative Goldsmiths.
14