GRIFFIN, Circuit Judge.
Andrea Harchar appeals the district court's order of August 18, 2010, which affirmed the bankruptcy court's grant of summary judgment in favor of the United States on her claim that the IRS violated the automatic stay issued pursuant to the Harchars' Chapter 13 bankruptcy, as well as the bankruptcy court's dismissal of her claims that the United States violated the bankruptcy plan and her rights under the Fifth Amendment's due process clause. See Harchar v. United States, 435 B.R. 480 (N.D.Ohio 2010). Harchar also appeals the district court's order of September 27, 2005, which reversed the bankruptcy court's decision allowing her to amend her complaint to add a claim for emotional distress damages based on the government's
On May 1, 1998, appellant Andrea Harchar and her then-husband Kenneth Harchar filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. Appellee United States of America was a creditor in the case because of a pre-petition tax arrearage owed by the Harchars. In August 1998, the plan of reorganization proposed by the Harchars was confirmed by the bankruptcy court. The plan required that the Harchars pay in full priority tax claims held by the government and to pay 5 cents on the dollar over 43 months for unsecured, nonpriority claims held by the government and similarly-situated creditors.
On June 12, 2000, the Harchars filed (and, on August 10, 2000, eventually served) an adversary proceeding against the government, alleging injury caused by the government's practice of "freezing" computer-automated refunding of tax overpayments to Chapter 13 debtors and the government's refusal to issue a refund for their 1999 return until after the bankruptcy court resolved its April 27, 2000, motion to modify the Chapter 13 plan to include the refund in plan funding. Harchar also opposed the government's motion to modify in the bankruptcy court, explaining that since the confirmation of the plan, she had separated from her husband, her husband was no longer employed, and the 1999 refund claim was now needed for essential living expenses. At a hearing on June 13, 2000, the bankruptcy court directed the Harchars to file amended schedules to support their contentions. When they did so, the IRS withdrew its motion and issued the refund with interest.
The Harchars were granted leave to amend their complaint multiple times. In their third and final amended complaint,
The Harchars also sought leave to amend their complaint to seek damages for emotional distress as a result of the government's alleged violation of the automatic stay. The bankruptcy court granted their motion, but the district court reversed on appeal. United States v. Harchar, 331 B.R. 720 (N.D.Ohio 2005). It held that because "actual damages" in section 362(h) did not include damages for emotional
The government moved to dismiss the Harchars' complaint under Federal Civil Rule 12(b)(1) and (6), arguing that the Harchars' claims failed as a matter of law. The bankruptcy court granted the government's motion as to the alleged violations of due process, section 525, and the bankruptcy plan, as well as the Harchars' associated requests for declaratory and injunctive relief, but denied the government's motion as to the alleged violation of the automatic stay. In re Harchar, No. 98-13277, 2006 WL 3196846 (Bankr.N.D.Ohio Oct. 4, 2006). The government was given leave to appeal the partial denial of its motion to dismiss. The district court affirmed. United States v. Harchar, 371 B.R. 254 (N.D.Ohio 2007).
Thereafter, the parties filed cross-motions for summary judgment on the Harchars' stay-violation claims. The bankruptcy court granted the government's motion for summary judgment and denied the Harchars' motion. Harchar v. United States (In re Harchar), 393 B.R. 160 (Bankr.N.D.Ohio 2008). It concluded that the IRS had not violated the automatic stay by manually processing the Harchars' tax refund or by withholding the refund while the government petitioned the bankruptcy court for modification of the confirmed Chapter 13 plan. Id. at 176, 183. The court eventually dismissed Kenneth Harchar's claims for failure to prosecute. Andrea appealed.
The district court affirmed in all respects. Adopting the bankruptcy court's analysis, it held that the government was entitled to summary judgment on Harchar's stay-violation claims. The district court further held that Harchar's due-process claim was barred by sovereign immunity and was, in any event, without merit because she had the right to a refund suit under 26 U.S.C. § 7422. And it found that Harchar's plan-violation claim failed because she did not identify any provision of the plan that had been violated. The parties timely appeal the district court's judgment.
Harchar challenges the dismissal of her plan-violation and due process claims, the grant of summary judgment to the IRS on her stay-violation claim, and the denial of her motion to amend the complaint to add a claim for emotional distress damages for violation of the automatic stay.
Harchar first contends that the district court erroneously affirmed the bankruptcy
Section 1327 of the Bankruptcy Code states that "[t]he provisions of a confirmed plan bind the debtor and each creditor" and that "[e]xcept as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor." 11 U.S.C. § 1327. The confirmed plan in this case provides that "[c]reditors holding unsecured claims shall be paid 5% of the amount owing on a pro-rata basis"; and the plan confirmation order likewise indicates that the IRS will be paid in regular monthly payments over the life of the plan. Contrary to Harchar's contention, nothing in these provisions prohibits the IRS from manually processing her refund. This is not a case where the IRS sought to unilaterally vary the plan's payment terms; it is a case where the IRS halted automatic payment of the refund to consider its rights and responsibilities with regard to the Harchars' bankruptcy, and then filed a motion for relief in the bankruptcy court, as it was expressly permitted to do. 11 U.S.C. § 1329 ("At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to — (1) increase or reduce the amount of payments on claims of a particular class provided for by the plan[.]"). Harchar has not stated a viable plan-violation claim.
Even if Harchar had sufficiently alleged a violation of the plan, however, the district court correctly dismissed her claim for damages because 11 U.S.C. § 1327 — the statutory provision declaring that confirmation plans are "binding" — does not contain an express cause of action for damages.
Absent a private right of action, an alleged violation of § 1327 might be enforced under 11 U.S.C. § 105, which provides the bankruptcy courts with authority to exercise their equitable powers where necessary or appropriate to implement another Bankruptcy Code provision. And some courts have held that § 105 does authorize bankruptcy courts to award damages. See Nat'l Indem. Co. v. Proia (In re Proia), 35 B.R. 385, 388-89 (Bankr.D. R.I.1983) (sanctioning a debtor for fraud without finding him in contempt or establishing the elements of a state law fraud claim); Mercantile Nat'l Bank at Dallas v. Aerosmith Denton Corp. (In re Aerosmith Denton Corp.), 36 B.R. 116, 119 (Bankr.N.D.Tex.1983) (awarding creditor a replacement lien for cash collateral that debtor improperly spent). But we have held to the contrary. See Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 423 (6th Cir.2000); Kelvin v. Avon Printing Co. (In re Matter of Kelvin Pub., Inc.), No. 94-1999, 1995 WL 734481, at *4 (6th Cir. Dec. 11, 1995) (per curiam) ("[W]e do not read § 105 as conferring on courts such broad remedial powers."). Accordingly, Harchar's plan-violation claim was properly dismissed.
Harchar next argues that the district court erred in granting summary judgment in favor of the IRS on her claim that the IRS violated section 362(a)(3) by "freezing" the automatic processing of her tax refund and by holding onto that refund while it petitioned the bankruptcy court to modify the confirmed plan and have the refund turned over to the trustee. She notes that in 2005 Congress enacted Bankruptcy Code section 362(b)(26), which granted the IRS limited authority to setoff pre-petition refunds against pre-petition tax obligations, and reasons that that provision would be unnecessary if the IRS had broad authority to "freeze" post-petition tax refunds. She also directs us to Thompson v. General Motors Acceptance Corp., LLC, 566 F.3d 699 (7th Cir.2009), in which the defendant was held to have violated the automatic stay by refusing to return, post-petition, a vehicle that was lawfully repossessed pre-petition, and TranSouth Fin. Corp. v. Sharon (In re Sharon), 234 B.R. 676 (6th Cir. BAP 1999), in which the court found that a creditor, who had legally repossessed a debtor's car pre-petition, was under an affirmative duty pursuant to section 362(a)(3) to return the car once a proper demand for the property's return was made.
Harchar's contention that the grant of a right to setoff under section 362(b)(26) would be unnecessary if the IRS could "freeze" refunds of debtors without violating section 362(a)(3) is without merit. A setoff is an intentional taking of funds to satisfy a mutual debt; the IRS's so-called "freeze" is nothing more than the manual processing of a debtor's refund claim to allow the IRS to decide whether to file a motion to modify a debtor's plan, check whether the debtor has defaulted on a plan and preserve its pre-petition right of setoff, or determine if it needs to send the tax refund to the trustee rather than the debtor, among other things. Congress's exception for setoffs does not logically preclude such manual processing. Nor are Harchar's citations to Thompson and In re Sharon availing. Those cases addressed the turnover of tangible property pursuant to 11 U.S.C. § 542(a), while the property in this case is a debt subject to turnover under 11 U.S.C. § 542(b). See In re Calvin, 329 B.R. 589, 601 (Bankr.S.D.Tex. 2005) (when a debt is at issue, § 542(b), being a more specific statute, applies over § 542(a)); see also In re Bourne, 262 B.R. 745, 756 (Bankr.E.D.Tenn.2001) (turnover request for tax refund covered by § 542(b), not § 542(a)). The difference matters.
Section 542(b) provides that "an entity that owes a debt that is property of
Harchar contends that Butts's use of the word "taking" in his notes memorializing a phone call with her, and her testimony that Butts told her that she "did not deserve" the refund, show that the IRS exercised "control" over her refund. As the bankruptcy court noted, however, to equate the use of the word "taking" with an act to exercise control of estate property belies its context, since the log entry was simply a notation used by Butts to provide a summary of what occurred during his telephone conversion with Harchar. Butts's alleged statement that Harchar "did not deserve" her refund also does not show that the IRS exercised control over her refund because it could only be reasonably construed as a "blurt of the tongue." Harchar, 393 B.R. at 180. Furthermore, by the time these events took place on or after May 2, 2000, Butts had already referred the matter to counsel to file a motion for modification of the plan on April 21, 2000, and counsel had already filed such a motion on April 27, 2000. The evidence supports only one reasonable inference: the IRS was seeking through the bankruptcy court to turn over the refund to the trustee for the benefit of all of the Harchars' unsecured creditors. Accordingly, we hold that the IRS did not "control" the refund by taking a little over a month to manually process the claim.
Nor does the fact that the IRS failed to issue the refund while its motion to modify the plan was pending show that it exercised control over the Harchars' refund in violation of the automatic stay. Tax refunds for Chapter 13 debtors are considered income. See Freeman v. Schulman (In re Freeman), 86 F.3d 478, 481-82 (6th Cir.1996). And in a Chapter 13 bankruptcy, a debtor is required to devote all of her "disposable income" to her plan of reorganization. 11 U.S.C. § 1325(b). Thus, as the district court explained, "it does not seem out of the ordinary that the IRS would want to seek to modify the Debtors' plan because ... the `plan provided for only a 5% dividend on the IRS's unsecured claim of $6,335 and the $4,303 overpayment, if treated as disposable income and turned over to the trustee, was large
Harchar also argues that the IRS violated the automatic stay pursuant to section 362(a)(6) because its motion to modify the plan was a "smokescreen" for its attempt to coerce her into repaying, and because, by simply holding onto the refund, the IRS could have precipitated a plan failure by depriving the Harchars of the funds needed to make the plan payments, or at least have put itself in a better position vis-a-vis other creditors had they otherwise been unable to make those payments. We disagree. "[A] course of conduct violates § 362(a)(6) if it (1) could reasonably be expected to have a significant impact on the debtor's determination as to whether to repay, and (2) is contrary to what a reasonable person would consider to be fair under the circumstances." Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 423 (6th Cir.2000). There is no evidence of coercion here. Indeed, as the bankruptcy court noted, the only contact between Harchar and the IRS were phone calls, which Harchar initiated. Additionally, assuming that the Harchars' failure to immediately receive their refund did affect their ability to make the payments required by the bankruptcy plan, the IRS's conduct could not reasonably be expected to have had a significant impact on their determination as to whether to repay because the plan did not anticipate such a large refund, the pre-motion-to-modify delay was minimal, and the Harchars never moved the bankruptcy court for an order of immediate turnover. The district court properly affirmed the bankruptcy court's grant of summary judgment in favor of the IRS.
Having found that the IRS did not violate section 362(a)(3) or section 362(a)(6), we need not address the IRS's arguments that the refund was not property of the estate and that any stay violation was not willful or Harchar's contention that she was entitled to amend her complaint to add a claim for emotional distress damages as a result of the alleged stay violation.
This brings us to Harchar's argument that by freezing her post-petition tax refund without notice and without providing an opportunity to make a timely objection to the seizure, the IRS violated her right to procedural due process of law under the Fifth Amendment to the United States Constitution. The bankruptcy court held that it lacked subject-matter jurisdiction over this claim because the IRS was immune from suit, and the district court affirmed. We review the claim de novo. Hollins v. Methodist Healthcare, Inc., 474 F.3d 223, 225 (6th Cir.2007).
It is well-settled 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 jurisdiction to entertain the suit." United States v. Dalm, 494 U.S. 596, 608, 110 S.Ct. 1361, 108 L.Ed.2d 548 (1990) (citation and internal quotation marks omitted). Although "[a] waiver of sovereign immunity cannot be implied but must be unequivocally expressed," Selden Apartments v. U.S. Dep't
Harchar argues that the IRS waived its immunity pursuant to section 106(b) when it filed a proof of claim in the bankruptcy case.
The bankruptcy court found that Harchar's claim did not arise out of the same transaction or occurrence as any of the government's claims against the Harchars for back taxes. It noted that courts applying Rule 13 have asked whether there is a logical relationship between the two claims; whether the issues of fact and law are largely the same; whether res judicata would bar a subsequent suit on the counterclaim; and whether substantially the same evidence would support both the claim and counterclaim. Harchar v. United States (In re Harchar), No. 98-13277, 2006 WL 3196846, at *4 (Bankr.N.D.Ohio, Oct. 4, 2006) (citing Brown v. United States (In re Rebel Coal Co.), 944 F.2d 320, 321-22 (6th Cir.1991)). It then concluded that because the IRS's and Harchar's claims are "not connected in time," require "consideration of different law and evidence," and because Harchar's due process claim would not be barred by "res judicata," the claims did not arise out of the same transaction or occurrence, and therefore the IRS had not waived sovereign immunity under section 106(b). Id. The district court determined that this analysis was "correct." Harchar v. United States, 435 B.R. 480, 488 (N.D.Ohio 2010). Upon review, we agree.
Harchar argues otherwise, citing our decision in In re Gordon Sel-Way, Inc. for the proposition that a transaction "may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship." 270 F.3d at 287 (quoting United States v. Southern Constr. Co., 293 F.2d 493, 500 (6th Cir.1961), rev'd in part on other grounds, 371 U.S. 57, 83 S.Ct. 108, 9 L.Ed.2d 31 (1962) (internal
The IRS has filed an unopposed motion to dismiss its cross-appeal of the district court's June 6, 2007, order, claiming that it need not have filed the appeal in order to preserve its argument that the refund was not property of the estate. We agree and therefore grant the motion.
For these reasons, we affirm the dismissal of Harchar's claims that the IRS violated the bankruptcy confirmed plan and her constitutional right to due process; the grant of summary judgment in favor of the government on Harchar's claim that the IRS willfully violated the automatic stay provisions of sections 362(a)(3) and 362(a)(6); and the denial of Harchar's motion to amend her complaint to add emotional distress damages for violation of the automatic stay as moot. We also grant the IRS's motion to dismiss its cross-appeal.
