Harchar v. U.S. (In re Harchar)
- Summarized by Robert Miller , University of South Dakota, Knudson School of Law
- 12 years 4 months ago
- Citation:
- Harcher v. U.S. (In re Harcher), Case Nos. 10-4201, 10-4419, 10-4420 (6th Cir. Sept. 12, 2012)
- Tag(s):
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- Ruling:
- In a 3-0 ruling, the Sixth Circuit held that the IRS violated neither the Debtor's chapter 13 plan nor the automatic stay by choosing to manually process the Debtor's tax refund when the processing did not involve taking control of property of the debtor's estate. Because the IRS had not waived its sovereign immunity by filing a proof of claim which did not arise from the same transaction or occurrence as the debtor's counterclaim, the court held that the debtor's suit for violation of her procedural due process was barred by a lack of subject matter jurisdiction.
- Procedural context:
- This case was an appeal from the District Court for the Northern District of Ohio. The District Court had affirmed the Bankruptcy Court's dismissal of the Debtor's adversary proceedings against the United States for violation of her chapter 13 plan and her Fifth Amendment due process rights. It also affirmed the Bankruptcy Court's grant of summary judgment in favor of the United States on the Debtor's automatic stay violation claims. Additionally, the District Court had reversed the Bankruptcy Court's decision to allow the Debtor leave to amend her complaint to add a claim for damages from emotional distress stemming from the alleged automatic stay violation.
- Facts:
- The Debtor, along with her co-debtor husband, filed a chapter 13 petition in May 1998 and their chapter 13 plan ("the Plan") was confirmed later that year. The United States was both a priority creditor and a general unsecured creditor. In 2000, both the Debtor and her husband filed an adversary proceeding against the United States alleging injury from the IRS's decision to manually process their 1999 tax return ("the Return") and its decision to delay issuance of the accompanying refund ("the Refund") until the Bankruptcy Court had ruled on the IRS's motion to modify the Plan. After the Debtor and her husband filed amended schedules evidencing a change in circumstances and the necessity of the refund to pay essential expenses, the IRS withdrew its motion to modify and issued the Refund. The Debtor and her husband amended their complaint to allege that the decision to manually process the Return and delay the issuance of the Refund constituted a willful of the automatic stay by the IRS and a violation of their Plan. At the Sixth Circuit, the Debtor faced the IRS alone because the claims her husband were dismissed for failure to prosecute by the District Court. The Court held that the IRS did not violate the Plan because none of the provisions of chapter 13 prohibit the manual processing of a tax return. The IRS did not inhibit the plan's payment terms. Hence, it could decide to manually process the Return and as a creditor, the IRS possessed the expressed right to file for a modification of the Plan pursuant to 11 U.S.C. section 1329. As an alternative basis, the Court also reiterated that in the Sixth Circuit, no private right of action exists for violations of a chapter 13 plan. 11 U.S.C. section 1327 does not expressly provide for a cause of action and the equitable powers of 11 U.S.C. section 105 are not sufficient to authorize damages. The Court next found that the IRS's manual processing of the the Tax Return did not constitute an exercise of control over estate property sufficient to violate the automatic stay. The one month delay in the issuance of the Refund due to the increased processing time was not an attempt by the IRS to exercise control of the Refund or coerce the Debtor. This was further evidenced by the IRS's prompt issuance of the Refund once the Debtor and her husband produced amended schedules. Because the IRS did not violate the automatic stay, no reason existed for the Court to address whether the Debtor could amend her claim for a violation to include damages for emotional distress. Lastly, the IRS did not waive its sovereign immunity pursuant to 11 U.S.C. section 106(b) because the IRS's proof of claim and Debtor's claim did not stem from the same transaction. The IRS's proof of claim related to the Debtor's 1993-95 and 1997 returns while the manual processing of the 1999 Tax Return was the basis of the Debtor's due process claim. Applying the Rule 13 test to whether the Debtor's claim arose from the same transaction or occurrence as the IRS's proof claim, the Court found them insufficiently related.
- Judge(s):
- Judge Griffin authored the opinion of the Court. He was joined by Chief Judge Batchelder and District Judge Cohn.
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