Florida Dept. of Revenue v. Diaz

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JULY 27, 2011
No. 10-14426
JOHN LEY
________________________
CLERK

D. C. Docket No. 6:09-cv-01850-MSS,
BKCY No. 6:02-bk-05591-ABB

IN RE:
MIGUEL A. DIAZ,

Debtor,

STATE OF FLORIDA DEPT OF REVENUE,

Plaintiff - Appellant,

versus

MIGUEL A. DIAZ,
a.k.a. Miguel A. Diaz-Collado,

Defendant - Appellee.

________________________

No. 10-14475
________________________

D. C. Docket No. 6:09-cv-01850-MSS,
BKCY No. 6:02-bk-05591-ABB

IN RE:
 MIGUEL A. DIAZ,

Debtor,

COMMONWEALTH OF VIRGINIA DEPT OF SOCIAL SERVICES,

Plaintiff - Appellant,

versus

MIGUEL A. DIAZ,
also known as
Miguel A. Diaz-Collado,

Defendant -Appellee.
________________________

Appeals from the United States District Court
for the Middle District of Florida
_________________________

(July 27, 2011)

Before DUBINA, Chief Judge, HILL and EBEL,* Circuit Judges.

EBEL, Circuit Judge:

The Florida Department of Revenue (“Florida DOR”) and the Virginia

Department of Social Services (“Virginia DSS”) appeal the district court’s

decision affirming an order of the bankruptcy court holding the agencies in

*
Honorable David M. Ebel, United States Circuit Judge for the Tenth Circuit, sitting by
designation.

2
contempt and awarding the debtor, Miguel Diaz, compensatory and punitive

damages for the agencies’ alleged violations of the automatic stay and discharge

injunction. Exercising jurisdiction under 28 U.S.C. §§ 158(d)(1) and 1291, we

conclude that state sovereign immunity shields the Florida DOR and Virginia DSS

from Diaz’s claims for violations of the automatic stay. Furthermore, although

sovereign immunity does not bar Diaz’s claims for violations of the discharge

injunction, we conclude that neither the Florida DOR nor the Virginia DSS

violated the discharge injunction. Accordingly, we REVERSE the judgment of the

district court and REMAND with instructions to vacate the bankruptcy court’s

order and dismiss the action.

BACKGROUND

In May 1986, a Virginia state court ordered Debtor-Appellee Miguel A.

Diaz to pay child support to his ex-wife, Maribel Diaz-Bieberach. But Diaz

quickly defaulted on his support obligation, and, in November 1989, the Virginia

court entered a judgment in favor of Diaz-Bieberach for $29,500 in support

arrearages. The court’s new order required Diaz to pay $200 per month toward the

arrearages and reaffirmed his continuing obligation to pay $500 per month for

child support. Diaz subsequently moved from Virginia to Florida.

3
 After Diaz’s relocation, he failed to make support payments in accordance

with the Virginia court’s order. Consequently, the Virginia DSS, acting on behalf

of Diaz-Bieberach, requested the Florida DOR’s assistance in enforcing the order.1

In March 1996, a Florida state court ordered that an account be established for the

receipt and disbursement of the support payments ordered by the Virginia court.

The Florida court also entered an income-deduction order against Diaz.

Nevertheless, Diaz continued to default on his support obligation.

On May 24, 2002, Diaz filed for Chapter 13 bankruptcy protection, listing

the Florida DOR as a priority unsecured creditor. Later that year, the Florida DOR

filed a proof of claim with bankruptcy court in the amount of $67,047.45 for past-

due child support. This dollar figure represented principal and roughly $20,000 in

accrued pre-petition interest. But the monthly statement of account that the

Florida DOR submitted in support of its claim did not include interest; instead, the

statement of account indicated that the total amount of overdue child-support was

$47,746.49.2 Diaz objected to the Florida DOR’s claim on the basis of the

supporting monthly account statement, arguing that the statement demonstrated

1
The Florida DOR is the Florida state agency charged with enforcing and collecting child-
support obligations established in another state. See Fla. Stat. § 409.2557.
2
The account statement contained the following provision regarding interest: “DOR court
cost[s] and interest are not included on statement.” (Doc. 2, at Ex. A (emphasis added).)

4
that he owed only $47,746.49 in support arrearages. For reasons that are not

revealed by the record, the Florida DOR did not respond to Diaz’s objection

within thirty days. Consequently, the bankruptcy court deemed the objection

unopposed and ordered the Florida DOR’s claim reduced to $47,746.49. The

Florida DOR’s allowed claim thus covered only unpaid principal and not interest.

On January 24, 2003, Diaz filed an amended Chapter 13 plan providing for

payment in full of the Florida DOR’s allowed claim over a period of fifty-eight

months. Neither the Florida DOR nor any other creditor objected to the plan, so

the bankruptcy court entered an order confirming the plan on March 27, 2003.

Diaz then began making payments in accordance with the plan.

During Diaz’s bankruptcy, the Florida DOR mailed Diaz two separate

notices regarding unpaid child support. On May 8, 2004, the Florida DOR issued

a “Notice to Report to Consumer Reporting Agencies.” This notice advised Diaz

that he owed overdue support in the amount of $1,699.40 and that this delinquency

would be reported to consumer reporting agencies unless Diaz paid the arrearages

or requested an administrative hearing to contest the Florida DOR’s action. On

September 23, 2004, the Florida DOR issued a “Notice of Intent to Suspend Driver

License/Vehicle Registration(s),” which informed Diaz that he owed $2,669.40 in

past-due child support and that the department was authorized to request the

5
Florida Department of Highway Safety and Motor Vehicles (“Florida DHSMV”)

to suspend his driver’s license and motor-vehicle registration. The notice stated

that the Florida DOR would make such a request unless Diaz (1) paid the

delinquency in full, (2) scheduled a payment plan with the Florida DOR, or (3)

contested the suspension action by filing a petition in state court. After each of

these notices, Diaz’s attorney contacted the Florida DOR, informed the department

of Diaz’s bankruptcy, and requested that the department cease its collection

efforts. The Florida DOR took no further action while the bankruptcy was

pending.

Diaz completed all payments under his Chapter 13 plan early, and on

November 29, 2005, the bankruptcy court entered an order granting Diaz a

discharge pursuant to the general discharge provision of Chapter 13. The

discharge order explained that a Chapter 13 discharge extinguishes the debtor’s

legal obligation to pay any debt that is discharged. It further explained that

“[m]ost, but not all, types of debts are discharged if the debt is provided for by the

chapter 13 plan or is disallowed by the court.” (Doc. 2-9, at 2.) Finally, it listed

common types of debts that are not discharged in a Chapter 13 case, including

“[d]ebts that are in the nature of alimony, maintenance, or support.” (Id.)

6
 The bankruptcy court formally closed the case on April 11, 2006. Diaz

received no communications from either the Florida DOR or the Virginia DSS for

a year and a half after that date. Between October 2007 and May 2009, however,

the Florida DOR and Virginia DSS initiated a series of collection activities against

Diaz in an effort to recover both the pre-petition interest on Diaz’s support

obligation, which the bankruptcy court had disallowed, and the interest that

accrued post-petition while Diaz was paying down the principal through his

Chapter 13 plan.3 Specifically, the Florida DOR issued three collection letters,

caused a Florida state court to enter an income-deduction order against Diaz, and

caused the Florida DHSMV to suspend Diaz’s driver’s license for forty-nine days.4

In addition, the Virginia DSS sent Diaz two collection letters and caused the U.S.

Treasury Department to intercept Diaz’s income-tax refunds in 2008 and 2009.

On December 4, 2008, Diaz filed a motion for contempt and sanctions in the

bankruptcy court. In the motion, Diaz alleged that the Florida DOR violated the

3
According to Virginia DSS records, Diaz owed $27,119 in pre- and post-petition interest
as of October 30, 2007.
4
The Florida DOR contends that the bankruptcy court erroneously found that the Florida
DHSMV suspended Diaz’s license for forty-nine days. According to the Florida DOR, the
record shows that the Florida DHSMV scheduled Diaz’s license for suspension but then
cancelled the suspension before it took effect. Because we conclude that the Florida DOR did
not violate the discharge injunction even if it did cause Diaz’s license to be suspended, we need
not decide whether this factual finding by the bankruptcy court was error.

7
automatic stay of 11 U.S.C. § 3625 by sending two collection notices while the

bankruptcy was pending and that both the Florida DOR and Virginia DSS

repeatedly violated the discharge injunction of 11 U.S.C. § 524 by trying to collect

past-due child support after the discharge. He sought compensatory damages,

including costs and attorney’s fees, and punitive damages.

The bankruptcy court granted Diaz’s motion and held the agencies in

contempt on September 30, 2009. As an initial matter, the bankruptcy court

rejected the Florida DOR’s and Virginia DSS’s argument that state sovereign

immunity shielded them from Diaz’s claims. Turning to the merits of those

claims, the bankruptcy court determined that both agencies had wilfully violated

the automatic stay, the discharge injunction, and numerous court orders. As relief,

the bankruptcy court awarded Diaz $42,622.00 in actual damages and $25,000.00

in punitive damages. On appeal, the district court affirmed the bankruptcy court’s

judgment.

The Florida DOR and Virginia DSS now seek review in this Court. We

begin our analysis with the threshold issue of sovereign immunity.

5
Unless otherwise specified, all references to the Bankruptcy Code (Title 11 of the U.S.
Code) refer to the version in effect when Diaz filed for bankruptcy in May 2002. Congress
enacted substantial amendments to the Bankruptcy Code in 2005, see Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Pub. L. No. 109-8, 119 Stat. 23
(2005), but those amendments do not apply in the present case. See In re Globe Mfg. Corp., 567
F.3d 1291, 1297 n.4 (11th Cir. 2009).

8
 DISCUSSION

I. Standard of Review

“We review the district court’s decision to affirm the bankruptcy court de

novo, which allows us to assess the bankruptcy court’s judgment anew, employing

the same standard of review the district court itself used.” In re Globe Mfg. Corp.,

567 F.3d 1291, 1296 (11th Cir. 2009). Thus, we review the bankruptcy court’s

grant of Diaz’s motion for contempt and sanctions for an abuse of discretion. See

Jove Eng’g, Inc. v. IRS, 92 F.3d 1539, 1545–46 (11th Cir. 1996). A bankruptcy

judge abuses his discretion if he commits an error of law or relies on factual

findings that are clearly erroneous. See In re Celotex Corp., 227 F.3d 1336,1338

(11th Cir. 2000).

II. State Sovereign Immunity

A. Current Law Pertaining to State Sovereign Immunity in
Bankruptcy Proceedings

Generally speaking, the doctrine of state sovereign immunity precludes a

federal court from entertaining a private person’s suit against a state. See Va.

Office for Protection & Advocacy v. Stewart, 131 S. Ct. 1632, 1637–38 (2011).

State sovereign immunity is not absolute, however, and this case requires us to

consider three different theories of how a bankruptcy court might acquire in

9
personam jurisdiction over a state that would otherwise be immune to suit. Before

addressing whether any of these theories authorize Diaz’s suit against the Florida

DOR and Virginia DSS, we pause here briefly to identify these theories and to

discuss their evolution and current vitality.

The first and best settled theory is the “litigation waiver” theory. Under this

theory, which is familiar in many areas of the law, a state waives its sovereign

immunity to the extent it voluntarily invokes the jurisdiction of the federal courts.

See Lapides v. Bd. of Regents, 535 U.S. 613, 618–19 (2002). In the bankruptcy

context, this means that when a state “invokes the aid of the bankruptcy court by

offering a proof of claim and demanding its allowance,” the state “waives any

immunity which it otherwise might have had respecting the adjudication of the

claim.” Gardner v. New Jersey, 329 U.S. 565, 573–74 (1947); see also Coll. Sav.

Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 681 n.3

(1999) (explaining that Gardner “stands for the unremarkable proposition that a

State waives its sovereign immunity by voluntarily invoking the jurisdiction of the

federal courts”). The “litigation waiver” theory as applied to bankruptcy

proceedings has evolved little since Gardner. Thus, although we will address its

applicability to the present case later, see infra Part II.B.1.b, we need not discuss

the theory further here.

10
 The second theory, which is also familiar in areas of the law other than

bankruptcy, is “congressional abrogation.” Under this theory, Congress may

abrogate state sovereign immunity if it (1) “unequivocally expresse[s] its intent to

abrogate” in the text of a statute and (2) acts “pursuant to a valid exercise of

power.”6 Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 55 (1996) (internal

quotation marks omitted). In 1994, Congress passed § 106(a) of the Bankruptcy

Code in an effort to effect a limited abrogation of the states’ sovereign immunity

with respect to claims brought under certain sections of the Code, including the

sections at issue in the present case. Section 106(a) provides, in relevant part, as

follows:

(a) 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 105 [bankruptcy court’s civil-contempt power], . . .
362 [automatic stay], . . . [and] 524 [discharge injunction] . . . of
this title.

11 U.S.C. § 106(a)(1).

6
The Supreme Court has “recognized that Congress may abrogate a State’s immunity
when it acts under § 5 of the Fourteenth Amendment, but not when it acts under its original
Article I authority to regulate commerce.” Stewart, 131 S. Ct. at 1638 n.2 (citation omitted).

11
 Section 106(a) initially appeared to provide a basis for the “congressional

abrogation” theory in bankruptcy proceedings. In 2004, however, this Court held

that § 106(a) was unconstitutional. In re Crow, 394 F.3d 918, 924 (11th Cir.

2004) (per curiam). We reasoned that Congress lacked the power to abrogate state

sovereign immunity under the Bankruptcy Clause of Article I of the U.S.

Constitution and that § 106(a) was not validly enacted pursuant to Section 5 of the

Fourteenth Amendment. Id. Thus, we concluded that a Chapter 7 debtor’s

complaint seeking damages against two state agencies for allegedly violating the

discharge injunction should have been dismissed on sovereign-immunity grounds.

Id.

Not long after our decision in In re Crow, the Supreme Court granted

certiorari in Central Virginia Community College v. Katz, 546 U.S. 356 (2006), to

resolve “whether Congress’ attempt to abrogate state sovereign immunity in 11

U.S.C. § 106(a) is valid.” Id. at 361 (footnote omitted). In Katz, a bankruptcy

trustee commenced an in personam proceeding against state institutions of higher

education in order to avoid and recover alleged preferential transfers made by the

debtor to the institutions while the debtor was insolvent. Id. at 360. The

institutions raised state sovereign immunity as a defense. Id. Although the

Court’s answer to the question whether § 106(a) validly abrogated the institutions’

12
immunity would have conclusively determined the viability of the “congressional

abrogation” theory in bankruptcy, the Court ultimately resolved the case without

reaching that question. See id. at 359, 362, 377–79. Instead, the Court recognized

a new theory, which we will refer to as “consent by ratification.”

The “consent by ratification” theory is predicated on the states’ decision

when joining the Union to ratify the Bankruptcy Clause, which empowers

Congress to establish “uniform Laws on the subject of Bankruptcies throughout

the United States.” U.S. Const. art. I, § 8, cl. 4. The Court in Katz explained that

“[b]ankruptcy jurisdiction, as understood today and at the time of the framing, is

principally in rem jurisdiction.” 546 U.S. at 369. Nevertheless, the Court

continued, “[t]he Framers would have understood that laws ‘on the subject of

Bankruptcies’ included laws providing, in certain limited respects, far more than

simple adjudications of rights in the res.” Id. at 370. “More generally,” the Court

stated, “courts adjudicating disputes concerning bankrupts’ estates historically

have had the power to issue ancillary orders enforcing their in rem adjudications.”

Id. Therefore, the Court concluded that when the states ratified the Bankruptcy

Clause, they “acquiesced in a subordination of whatever sovereign immunity they

might otherwise have asserted in proceedings necessary to effectuate the in rem

jurisdiction of the bankruptcy courts.” Id. at 378; see also id. at 373 (“Insofar as

13
orders ancillary to the bankruptcy courts’ in rem jurisdiction, like orders directing

turnover of preferential transfers, implicate States’ sovereign immunity from suit,

the States agreed in the plan of the Convention not to assert that immunity.”).

The applicability of the “consent by ratification” theory in a given case thus

turns on whether the proceedings against the state qualify as “necessary to

effectuate the in rem jurisdiction of the bankruptcy courts.” Id. at 378. The Katz

Court did not endeavor to define the range of proceedings that satisfy this

standard. The Court’s decision, however, does establish some parameters. To

begin with, the Court provided guidance by setting forth the three critical in rem

functions of bankruptcy courts: “[1] the exercise of exclusive jurisdiction over all

of the debtor’s property, [2] the equitable distribution of that property among the

debtor’s creditors, and [3] the ultimate discharge that gives the debtor a ‘fresh

start’ by releasing him, her, or it from further liability for old debts.” Id. at

363–64. At a minimum, then, a proceeding must directly relate to one or more of

these functions in order to meet the “necessary to effectuate” standard. The Court

also warned that not “every law labeled a ‘bankruptcy’ law could, consistent with

the Bankruptcy Clause, properly impinge upon state sovereign immunity.” Id. at

378 n.15. In context, we interpret this to mean that some proceedings, although

they may arise under the Bankruptcy Code, nevertheless lack a meaningful nexus

14
to the bankruptcy courts’ in rem jurisdiction and thus do not fall within the scope

of the states’ consent to suit. These guidelines provide a useful starting point for

courts tasked with giving meaning to the “necessary to effectuate” standard and

further refining the “consent by ratification” theory.

Having discussed the three different theories of how a bankruptcy court

might obtain in personam jurisdiction over a state, we are almost ready to turn to

the specifics of this case. Before moving on, however, we must make one more

important point about Katz. Although Katz did not directly address the

constitutionality of § 106(a) or the viability of the “congressional abrogation”

theory, the Katz Court made clear that the Bankruptcy Clause—and not “any

statement Congress ha[s] made on the subject of state sovereign immunity” in §

106(a)—represents the source of any “subordination” of state sovereign immunity

in bankruptcy proceedings. Id. at 378; see also id. at 379 (“[T]he relevant

‘abrogation’ is the one effected in the plan of the Convention, not by statute.”).

Accordingly, the “consent by ratification” inquiry of Katz precedes and obviates

the need for the “congressional abrogation” inquiry.7 See id. at 362 (recognizing

that because the state institutions consented to suit by ratifying the Bankruptcy

7
For this reason, we need not decide whether our holding in In re Crow regarding the
unconstitutionality of § 106(a) remains good law after Katz.

15
Clause, “the enactment of [§ 106(a)] was not necessary to authorize the

Bankruptcy Court’s jurisdiction over these preference avoidance proceedings”);

id. at 379 (“The relevant question is not whether Congress has ‘abrogated’ States’

immunity in proceedings to recover preferential transfers. The question, rather, is

whether Congress’ determination that States should be amenable to such

proceedings is within the scope of its power to enact ‘Laws on the subject of

Bankruptcies.’” (footnote and citation omitted)). After Katz, then, courts faced

with state-sovereign-immunity questions in bankruptcy proceedings should limit

their focus to the “litigation waiver” theory and the “consent by ratification”

theory.

We take that approach here and now turn to the application of those two

theories to the contempt proceedings in this case, addressing first whether the

Florida DOR and Virginia DSS are precluded from asserting sovereign immunity

as a defense to Diaz’s claims for violations of the automatic stay pursuant to the

“consent by ratification” theory of Katz.8

B. Application

8
Although Diaz alleged stay violations and discharge-injunction violations in a single
contempt motion, we believe that Diaz’s motion gave rise to two distinct “proceedings” for
sovereign-immunity purposes—one for the alleged violations of the automatic stay and one for
the alleged violations of the discharge injunction. Thus, we consider these proceedings
separately.

16
 1. Contempt Proceedings for Violations of the Automatic Stay

a. “Consent by Ratification”

As explained above, the exercise of jurisdiction over the bankruptcy estate

and the equitable distribution of the estate’s property among the debtor’s creditors

are two of the three core in rem functions of a bankruptcy court. Katz, 546 U.S. at

363–64. The automatic stay is a fundamental procedural mechanism in

bankruptcy that allows the court to carry out both of these functions. Specifically,

the stay facilitates the orderly administration and distribution of the estate by

“protect[ing] the bankrupt’s estate from being eaten away by creditors’ lawsuits

and seizures of property before the trustee has had a chance to marshal the estate’s

assets and distribute them equitably among the creditors.” Martin-Trigona v.

Champion Fed. Sav. & Loan Ass’n, 892 F.2d 575, 577 (7th Cir. 1989).

Ordinarily, an adversary action arising out of a creditor’s violations of the

automatic stay forces the creditor to honor the automatic stay and thereby assists

the bankruptcy court in carrying out its in rem functions. That holds true even

where the action takes the form of a motion seeking contempt and sanctions.

Although these kinds of actions “may resemble money damage lawsuits in form, it

is their function that is critical, and their function is to facilitate the in rem

proceedings that form the foundation of bankruptcy.” In re Omine, 485 F.3d 1305,

17
1313 (11th Cir. 2007), withdrawn pursuant to settlement, No. 06-11655-II, 2007

WL 6813797 (11th Cir. June 26, 2007) (unpublished);9 see also In re Burke, 146

F.3d 1313, 1319 (11th Cir. 1998) (characterizing the debtors’ action brought

before the discharge for damages caused by violations of the automatic stay as an

action to enforce the automatic stay).

As a result, we have no difficulty concluding that contempt motions alleging

that a creditor has violated the automatic stay generally qualify as “proceedings

necessary to effectuate the in rem jurisdiction of the bankruptcy courts.” Katz,

546 U.S. at 378. Therefore, the “consent by ratification” theory will generally

allow a bankruptcy court to exercise jurisdiction over a state in such proceedings.

We emphasize the word “generally,” however, because this case presents a rare

exception to the rule.

Here, the Florida DOR and Virginia DSS allegedly violated the automatic

stay in 2004. But it was not until more than four years later that Diaz filed his

contempt motion. By that time, the bankruptcy court had distributed the estate

according to the Chapter 13 plan and entered a discharge order, which replaced the

automatic stay with the discharge injunction. Thus, the automatic stay had already

9
We recognize that the In re Omine decision has been withdrawn and is not binding
precedent. Nevertheless, we may rely on statements in that opinion for their persuasive value.
See Friends of Everglades v. S. Fla. Water Mgmt. Dist., 570 F.3d 1210, 1218 (11th Cir. 2009).

18
accomplished its purpose of preserving the assets of the estate by the time that

Diaz brought this suit, and it was no longer necessary or even operative to assist

the bankruptcy court in exercising its in rem jurisdiction. For that reason, to the

extent that Diaz’s motion seeks contempt and sanctions for alleged violations of

the automatic stay, it was filed too late to be considered essential to any in rem

functions of the bankruptcy court. The nexus between the motion and the

bankruptcy court’s in rem jurisdiction is thus too remote to satisfy Katz’s

“necessary to effectuate” standard.

Because we conclude that the portion of Diaz’s motion that alleges

violations of the automatic stay does not fall within the class of “proceedings

necessary to effectuate the in rem jurisdiction of the bankruptcy courts,” id., we

hold that the “consent by ratification” theory does not provide a basis for the

bankruptcy court’s exercise of jurisdiction over the Florida DOR and Virginia

DSS in the contempt proceedings for violations of the automatic stay. Therefore,

we must next consider whether the Florida DOR and Virginia DSS waived their

sovereign immunity to these proceedings under the “litigation waiver” theory.

b. “Litigation Waiver”10

10
We note that our waiver analysis is based on constitutional principles and not on 11
U.S.C. § 106(b), in which Congress attempted to define the scope of the waiver effected by a
state’s filing of a proof of claim. See In re Burke, 146 F.3d at 1317 n.8.

19
 When the Florida DOR filed a proof of claim in Diaz’s bankruptcy case, it

“waive[d] any immunity which it otherwise might have had respecting the

adjudication of the claim.” Gardner, 329 U.S. at 574. This Court has had only one

prior opportunity to address the scope of the “litigation waiver” recognized in

Gardner. In In re Burke, we held that the waiver extends to (1) actions seeking

damages for automatic-stay violations filed while the automatic stay is in effect

and (2) actions seeking damages for violations of the discharge injunction. See

146 F.3d at 1319. In re Burke does not resolve the question before us here, which

is whether the “waiver respecting the adjudication of the claim” encompasses a

contempt motion that alleges violations of the automatic stay but was filed after

the discharge in a Chapter 13 case.

In our view, the language “respecting the adjudication of the claim”

functions as an important limitation on the scope of the “litigation waiver” in

bankruptcy. A state that files a proof of claim in a bankruptcy case does not

thereby subject itself to any and all lawsuits that in any way might relate to the

bankruptcy. Instead, an adversary action against the state must bear a direct

relationship to the bankruptcy court’s adjudication of the state’s claim. In a

Chapter 13 case, an action meets this standard in only two situations. First, an

action qualifies if it is initiated before the discharge and targets the state’s failure

20
to abide by any of the procedures and rules that exist to facilitate the bankruptcy

court’s adjudication of the claim, including, inter alia, the automatic stay. Second,

an action qualifies if it is initiated after the discharge and targets the state’s failure

to honor the discharge injunction, the procedural mechanism that exists post-

discharge to protect the bankruptcy court’s adjudication of the claim.

To the extent that Diaz’s contempt motion alleges violations of the

automatic stay, it does not fit within either of these two scenarios. Diaz filed his

motion long after the entry of a discharge order and the dissolution of the stay. At

that point, any action regarding stay violations was insufficiently related to the

bankruptcy court’s adjudication of the Florida DOR’s claim. Accordingly, we

hold that the Florida DOR did not waive sovereign immunity to the portion of

Diaz’s motion that alleges violations of the automatic stay when it filed a proof of

claim.11

Because neither the “consent by ratification” theory nor the “litigation

waiver” theory allows Diaz to overcome the Florida DOR’s and Virginia DSS’s

sovereign-immunity defense, we hold that the bankruptcy court lacked jurisdiction

to adjudicate Diaz’s contempt motion to the extent that the motion alleges

11
In light of this holding, we need not decide whether the Florida DOR’s filing of a proof
of claim could waive the sovereign immunity of the Virginia DSS.

21
violations of the automatic stay.12 We now turn to the issue of whether state

sovereign immunity bars Diaz’s claims for violations of the discharge injunction.

2. Contempt Proceedings for Violations of the Discharge
Injunction

a. “Consent by Ratification”

As we pointed out above, the discharge is one of the three fundamental in

rem functions of the bankruptcy courts. Katz, 546 U.S. at 363–64. A bankruptcy

court’s discharge order provides the debtor with a financial “fresh start” by

“releas[ing] [the] debtor from personal liability with respect to any discharged

debt.” Tenn. Student Assistance Corp. v. Hood, 541 U.S. 440, 447 (2004). The

discharge injunction that arises upon the entry of a discharge order is perhaps the

most important feature of the discharge. That injunction helps to ensure that the

debtor’s “fresh start” is realized by prohibiting creditors from attempting to collect

discharged debts. See In re Jet Fla. Sys., Inc., 883 F.2d 970, 972 (11th Cir. 1989).

We recognized in Part II.B.1.a that the function of a particular type of

proceeding is critical to the determination of whether that proceeding qualifies as

necessary to effectuate the bankruptcy courts’ in rem jurisdiction. See Katz, 546

U.S. at 378. An adversary action arising out of a creditor’s alleged violations of

12
As a result, we do not reach the question whether the Florida DOR and Virginia DSS
actually violated the automatic stay.

22
the discharge injunction forces the creditor to honor the discharge and thereby

protects the bankruptcy court’s in rem jurisdiction. This is so even when the

action takes the form of a money-damages lawsuit. See In re Slayton, 409 B.R.

897, 903–04 (Bankr. N.D. Ill. 2009) (“[D]amages[] and attorneys’ fees, though

seemingly in personam remedies, are ancillary to [an] . . . in rem proceeding

because those remedies serve as mechanism for enforcement of the discharge.”);

see also In re Burke, 146 F.3d at 1319 (characterizing the debtors’ action seeking

damages for violations of the discharge injunction as an action to enforce the

discharge injunction). We thus conclude that motions seeking contempt and

sanctions for alleged violations of the discharge injunction meet the Katz

“necessary to effectuate” standard. Consequently, pursuant to the “consent by

ratification” theory, the bankruptcy court had jurisdiction to entertain the portion

of Diaz’s motion that alleges violations of the discharge injunction

notwithstanding the Florida DOR’s and Virginia DSS’s assertion of sovereign

immunity.13

We now proceed to address the principal merits issue that remains after our

sovereign-immunity rulings—whether the Florida DOR and Virginia DSS violated

13
Given this holding, we need not address whether the “litigation waiver” theory also
provides a basis for jurisdiction.

23
the discharge injunction by attempting to collect child-support from Diaz after the

discharge.

III. Violations of the Discharge Injunction

Pursuant to § 524 of the Bankruptcy Code, a discharge under Chapter 13

“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 [discharged]

debt as a personal liability of the debtor.” 11 U.S.C. § 524(a)(2). Significantly,

the discharge injunction “prohibits collection only with respect to dischargeable

debts and does not apply to nondischargeable debts.” United States v. White, 466

F.3d 1241, 1246 (11th Cir. 2006). As a result, once a discharge has been granted,

holders of nondischargeable debts generally may attempt to collect from the debtor

personally for such debts. See id. at 1245–46.

The bankruptcy court and the district court in this case concluded that the

Florida DOR’s and Virginia DSS’s post-discharge attempts to collect the unpaid

pre- and post-petition interest on Diaz’s child-support obligation violated the

discharge injunction. Although the agencies argued that child-support debts are

nondischargeable and that they could not have violated the discharge injunction by

trying to collect a nondischargeable debt, the bankruptcy court reasoned that any

24
amount of the debt above the amount of the Florida DOR’s allowed claim was

discharged:

A child support debt is nondischargeable pursuant to 11 U.S.C.
Section 523(a)(5), but Section 523(a)(5) does not insulate Respondents from
the discharge injunction. Respondents submitted to the claim adjudication
process by filing [a] proof[] of claim pursuant to 11 U.S.C. Section 501(a).
Their claim was fixed at $47,746.49 pursuant to 11 U.S.C. Section 502(a).
Their allowed claim was provided for in the Plan and was fully paid and
satisfied. The debt was discharged pursuant to 11 U.S.C. Section 1328(a).

(Doc. 7-3, at 48; see also id. at 25 (“Respondents received and accepted payment

in full of their allowed claim of $47,746.49 through Plan disbursements. Any

purported delinquency owed to Respondents over and above the allowed claim

was discharged.”).

Further, the bankruptcy court determined that collateral estoppel and res

judicata precluded the agencies from arguing that Diaz owed a child-support debt

greater than $47,746.49 or that any deficiency survived the discharge. The court

reasoned that the amount of the debt was conclusively adjudicated during the

claims-allowance process and reaffirmed in subsequent orders that incorporated

the court’s resolution of Diaz’s claim objection, including the order confirming

Diaz’s Chapter 13 plan.

Unlike the bankruptcy court, the district court determined that “the

bankruptcy court did not discharge [Diaz’s] child support obligations in the

25
Chapter 13 bankruptcy proceeding.” (Doc. 28, at 17 (emphasis added).)

Nevertheless, relying on the bankruptcy court’s preclusion rationale, the district

court still concluded that the Florida DOR and Virginia DSS violated the

discharge injunction. The court referred to the agencies’ “argument regarding the

nondischargeability of child support [as] nothing more than a red herring” and

framed the “real issue” as “whether Appellants are barred from re-litigating

matters already decided by the bankruptcy court under res judicata or collateral

estoppels [sic], to wit, the determination of the amount of the child support claim.”

(Id.)

On appeal, the agencies argue that they could not have violated the

discharge injunction because child-support obligations are never dischargeable in

a Chapter 13 bankruptcy. They further contend that res judicata and collateral

estoppel do not apply because neither the amount nor the dischargeability of the

child-support debt was litigated when the court resolved Diaz’s objection to the

Florida DOR’s proof of claim. We agree with the Florida DOR and Virginia DSS.

The conclusions reached by the bankruptcy court and district court contravene the

plain language of the Chapter 13 discharge provision and conflict with Congress’s

clear intent to insulate child-support creditors from the discharge injunction after

Chapter 13 bankruptcy proceedings.

26
 A. Nondischargeability of Child-Support Debts

Although “[a] discharge under Chapter 13 is broader than the discharge

received in any other chapter[,] Chapter 13 nevertheless restricts or prohibits

entirely the discharge of certain types of debts.” United Student Aid Funds, Inc. v.

Espinosa, 130 S. Ct. 1367, 1376 (2010) (internal citation and quotation marks

omitted). Section 1328 of the Bankruptcy Code governs the scope of the

discharge in a Chapter 13 case. That section provides, in pertinent part, as

follows:

(a) As soon as practicable after completion by the debtor of all payments
under the plan, . . . the court shall grant the debtor a discharge of all
debts provided for by the plan or disallowed under section 502 of this
title, except any debt--

....

(2) of the kind specified in . . . paragraph (5) . . . of section 523(a)
of this title[.]

11 U.S.C. § 1328(a)(2) (emphasis added). Thus, § 1328 indicates that a debt of

the kind specified in § 523(a)(5) is not discharged by the bankruptcy court’s

discharge order in a Chapter 13 case. Section 523(a)(5) specifically lists a debt for

child support as an exception to discharge. Consequently, as the Supreme Court

27
recently observed, a child-support debt is “not dischargeable under any

circumstances” in Chapter 13 proceedings.14 Espinosa, 130 S. Ct. at 1379 n.10.

In light of the foregoing, we easily conclude that the bankruptcy court’s

discharge order did not discharge Diaz’s child-support obligation. Therefore, the

Florida DOR and Virginia DSS could not have violated the discharge injunction

by pursuing Diaz for child support after the discharge, and an award of sanctions

for violations of the discharge injunction cannot stand.

The bankruptcy court reached a contrary conclusion because it operated

under the assumption that the disallowed portion of the Florida DOR’s claim was

necessarily discharged. But “disallowance of a claim and nondischargeability are

separate issues.” In re Zich, 291 B.R. 883, 886 (Bankr. M.D. Ga. 2003).

Although a creditor whose claim is disallowed may not collect from the

bankruptcy estate, “disallowance of a claim does not necessarily discharge [the

14
Although it is clear that pre-petition interest and principal are part of a nondischargeable
child-support obligation, the Eleventh Circuit has not yet considered whether interest on a child-
support obligation that accrues post-petition is also nondischargeable. In In re Burns, however,
we held that “post-petition interest on a nondischargeable tax debt is nondischargeable.” 887
F.2d 1541, 1543 (11th Cir. 1989). We see no basis on which to distinguish post-petition interest
on a tax debt and post-petition interest on a child-support debt. Thus, we agree with the Ninth
Circuit that “post-petition interest, as an integral part of the nondischargeable child support
obligation, is also nondischargeable and may be collected personally against the debtor” after the
discharge. In re Foster, 319 F.3d 495, 498 (9th Cir. 2003); see also Bruning v. United States, 376
U.S. 358, 360 (1964) (“[O]ne would assume that Congress, in providing that a certain type of
debt should survive bankruptcy proceedings as a personal liability of the debtor, intended
personal liability to continue as to the interest on that debt as well as to its principal amount.”).

28
underlying] debt” and eliminate the debtor’s personal liability outside of

bankruptcy. In re Cruz, 277 B.R. 793, 795 (Bankr. M.D. Ga. 2000); see also In re

Bell, 236 B.R. 426, 430 (N.D. Ala. 1999) (“Claim allowance and debt liability are

different concepts.”). As relevant to the present case, the Code provision

governing a Chapter 13 discharge compels the conclusion that a child-support debt

is not discharged regardless of whether the debt is provided for by the plan or

disallowed. 11 U.S.C. § 1328(a)(2). Thus, if a creditor holds a child-support debt,

then whether the bankruptcy court disallows all, part, or even none of that

creditor’s claim has no bearing on whether any portion of the debt is

discharged—no part of a child-support debt is “dischargeable under any

circumstances” in a Chapter 13 case. Espinosa, 130 S. Ct. at 1379 n.10.

Accordingly, the bankruptcy court was mistaken in its belief (1) that the

disallowed portion of Diaz’s claim was discharged and (2) that the Florida DOR’s

and Virginia DSS’s post-discharge efforts to collect unpaid interest on Diaz’s

child-support obligation could constitute violations of the discharge injunction.

B. Res Judicata and Collateral Estoppel

Both the bankruptcy court and the district court also erred in concluding that

the Florida DOR and Virgina DSS violated the discharge injunction because the

29
doctrines of res judicata and collateral estoppel preclude the agencies from

relitigating the amount of Diaz’s child-support debt.

As an initial matter, the courts’ conclusion reflects a fundamental

misunderstanding of the issue presented by Diaz’s contempt motion. Diaz’s

motion alleges that the agencies violated the discharge injunction. The merits of

Diaz’s position turn on a single inquiry: did the Florida DOR and Virginia DSS

attempt to collect a debt that the bankruptcy court discharged? See 11 U.S.C. §

524(a)(2). As we have already explained, the Chapter 13 discharge provision

answers that question in the negative, regardless of the amount of the debt. Thus,

we are at a loss to figure out how the bankruptcy court’s and the district court’s

premise that the Florida DOR and Virginia DSS cannot now relitigate the amount

of the debt leads to the conclusion that the agencies violated the discharge

injunction.15

15
The bankruptcy court and the district court may have reasoned that if the Florida DOR
and Virginia DSS were barred from relitigating the amount of the debt, then the agencies violated
the discharge injunction because they tried to collect a debt that was fully satisfied during the
bankruptcy. But that rationale erroneously assumes that whether the child-support debt was
satisfied is somehow relevant to the question whether the Florida DOR and Virginia DSS could
run afoul of the discharge injunction by trying to collect that debt outside of bankruptcy. In the
case of a child-support debt, whether the debt was satisfied is unrelated to the question whether
the debt was discharged. Such a debt is never dischargeable in a Chapter 13 bankruptcy,
regardless of whether it was paid in full through the bankruptcy plan. As we discuss in more
detail below, this does not mean that the Florida DOR and Virginia DSS are legally entitled to
collect twice on any portion of the debt that was paid during the bankruptcy. It means only that
the Florida DOR and Virginia DSS could not have violated the Bankruptcy Code’s discharge
injunction by trying to collect child-support from Diaz after the discharge, even if the agencies

30
 Furthermore, the doctrines of res judicata and collateral estoppel do not bar

the Florida DOR and Virginia DSS from “relitigating” the amount of the debt in

any event. The agencies are not attempting to relitigate this issue, as it was never

litigated during the underlying bankruptcy proceedings. The bankruptcy court and

the district court mistakenly treated the bankruptcy court’s order sustaining Diaz’s

claim objection and reducing the Florida DOR’s allowed claim as an adjudication

of the total amount of the child-support debt. But the only issue before the

bankruptcy court at the time of the claim objection was the amount of the child-

support debt that would be paid by the bankruptcy estate through Diaz’s Chapter

13 plan, not the total amount of the child-support debt. See In re Bell, 236 B.R. at

429.

We also find compelling the logic of this Court and several others that have

addressed the question whether preclusion doctrines can be used to prevent a

creditor who holds a nondischargeable tax debt from arguing that the amount of

the debt exceeds the payment that the creditor received during bankruptcy. Courts

have consistently found theories of preclusion inapplicable in these circumstances.

See, e.g., In re Gurwitch, 794 F.2d 584, 585 (11th Cir. 1986) (rejecting the

debtor’s argument that the IRS’s filing of a proof of a claim and the bankruptcy

sought to collect portions of the debt that had already been satisfied.

31
court’s confirmation of a plan that provided for payment in full of that claim

amounted to a final determination of the debtor’s tax liabilities, thereby preventing

the IRS from collecting pre-petition tax delinquencies after the discharge;

explaining that res judicata did not apply because the Bankruptcy Code made clear

that the taxes were not dischargeable regardless of whether a bankruptcy claim

was filed or allowed); In re DePaolo, 45 F.3d 373, 376 (10th Cir. 1995) (“While

principles of res judicata apply generally to bankruptcy proceedings, the plain

language of [the Bankruptcy Code] forbid[s] the application of those principles to

the facts of this case. By expressly providing that the described taxes are not

discharged ‘whether or not a claim for such taxes was filed or allowed,’ Congress

has determined that the IRS may make a claim for taxes for a particular year in a

bankruptcy proceeding, accept the judgment of the bankruptcy court, then audit

and make additional claims for that same year, even though such conduct may

seem inequitable or may impair the debtor’s fresh start.” (footnote and citation

omitted)); In re Fein, 22 F.3d 631, 633 (5th Cir. 1994) (“Fein contends that the

discharge of claims in bankruptcy serves as res judicata, barring the government’s

claim [for pre-petition tax delinquencies]. Because the Bankruptcy Code

specifically makes this claim nondischargeable, however, res judicata does not bar

it.” (citing In re Gurwitch)).

32
 Although the cases cited above involved nondischargeable tax obligations,

the rationale of those cases applies with equal force in the context of

nondischargeable child-support obligations. The holdings of those cases rested on

the premise that the plain language of the Bankruptcy Code provides that a

discharge “does not fix tax liabilities made nondischargeable under 11 U.S.C. §

523.” In re Gurwitch, 794 F.2d at 585. The Code similarly makes clear that a

Chapter 13 discharge does not fix child-support liabilities made nondischargeable

under 11 U.S.C. § 523. See 11 U.S.C. § 1328(a)(2). Accordingly, res judicata and

collateral estoppel do not preclude the Florida DOR and Virginia DSS from

arguing the extent of Diaz’s personal liability for child support post-bankruptcy.16

C. Discharge-Injunction Conclusion

In short, Congress has drafted the Bankruptcy Code such that child-support

debts are never dischargeable in a Chapter 13 proceeding. This reflects

16
We note that a contrary conclusion could be especially problematic in the context of
child-support obligations. If bankruptcy courts could fix a debtor’s personal liability for child-
support through rulings on a claim objection or confirmation of a Chapter 13 plan, this would
often result in de facto modification of state child-support orders. Federal bankruptcy courts
have no business becoming embroiled in state domestic relations to such a degree. See Carver v.
Carver, 954 F.2d 1573, 1579 (11th Cir. 1992) (“Nor was it the intent of the new Bankruptcy
Code to convert the bankruptcy courts into family or domestic relations courts—courts that
would in turn, will-nilly, modify divorce decrees of state courts insofar as these courts had
previously fixed the amount of alimony and child-support obligations of debtors.” (internal
quotation marks omitted)); In re Harrell, 754 F.2d 902, 907 (11th Cir. 1985) (“[L]imited to its
proper role, the bankruptcy court will not duplicate the functions of state domestic relations
courts, and its rulings will impinge on state domestic relations issues in the most limited manner
possible.”).

33
Congress’s policy decision that payment of child support is more important than a

debtor’s financial “fresh start.” Bankruptcy courts are not free to override the

plain language of the Code and Congress’s policy choice by using a ruling on a

debtor’s claim objection or doctrines of preclusion to transform a nondischargeble

child-support obligation into a dischargeable debt. Therefore, Diaz’s child-

support obligation was not discharged, and the bankruptcy court and the district

court erred in determining that the Florida DOR and Virginia DSS violated the

discharge injunction by attempting to collect child-support arrearages from Diaz

after the discharge.17

We caution that our holding should not be read to suggest that Diaz remains

personally liable for any child support that the Florida DOR and Virginia DSS

17
As noted in the background section, the bankruptcy court also determined that the
Florida DOR and Virginia DSS should be held in contempt for violating various court orders by
seeking to collect from Diaz personally after the discharge. Specifically, the court concluded that
the agencies violated the discharge order; the order reducing the Florida DOR’s allowed claim to
$47,746.49; the order confirming Diaz’s Chapter 13 plan; and the order approving the trustee’s
report, discharging the trustee, and closing the estate. This unsupported and erroneous
conclusion does not merit extended discussion.

Before holding a litigant in civil contempt for violating a court order, a court must find by
clear and convincing evidence that the order unambiguously proscribed the litigant’s conduct.
See McGregor v. Chierico, 206 F.3d 1378, 1383 (11th Cir. 2000). Not one of the orders
mentioned by the bankruptcy court even hinted that the Florida DOR and Virginia DSS could not
pursue Diaz for child-support delinquencies after the discharge. In fact, the only order that
addressed the effect of the discharge—namely, the discharge order—specifically stated that
child-support debts are not discharged in a Chapter 13 case. Accordingly, the bankruptcy court
abused its discretion by holding the Florida DOR and Virginia DSS in contempt for violating
court orders.

34
already collected during bankruptcy. To the extent that Diaz disputes the amount

of child support he now owes, this is a matter that he is free to raise in a state court

with jurisdiction. See In re Harrell, 754 F.2d 902, 907 n.9 (11th Cir. 1985) (“The

parties do not agree on the amount of debtor’s [alimony] arrearages. We decide

here only that debtor’s obligation is not dischargeable in bankruptcy. The precise

terms under which debtor’s obligation can be enforced must be determined by the

appropriate state court, if necessary.”); see also Unif. Interstate Family Support

Act § 607(a)(6) (amended 2008) (providing that a party may contest the validity of

enforcement of a child-support order on the grounds that “full or partial payment

has been made”) (enacted in Florida at Fla Stat. § 88.6071(1)(f) and in Virginia at

Va. Code Ann. § 20-88.72(A)(6)). Moreover, if the Florida DOR and Virginia

DSS actually attempted to collect part of the child-support debt that had already

been paid during bankruptcy, legal proceedings outside of the Bankruptcy Code

may provide Diaz with a remedy. These matters, however, are of no concern to us

or to the bankruptcy court. In the present case, the only question is whether the

Florida DOR and Virginia DSS may be held in contempt for violating the

discharge injunction. We hold that they may not.

35
 CONCLUSION

For the foregoing reasons, we hold that state sovereign immunity deprived

the bankruptcy court of jurisdiction to entertain Diaz’s contempt motion to the

extent that the motion alleges violations of the automatic stay. We also hold that

the Florida DOR and Virginia DSS did not violate the discharge injunction by

attempting to collect a child-support debt after the bankruptcy court entered its

discharge order because child-support obligations are nondischargeable in a

Chapter 13 proceeding. Accordingly, we REVERSE the judgment of the district

court affirming the bankruptcy court’s order holding the Florida DOR and

Virginia DSS in contempt for violating the automatic stay and discharge

injunction, and we REMAND this case to the district court with instructions to

vacate the bankruptcy court’s order and dismiss the action.

36