In Re Nordic Village, Inc., Debtor. Internal Revenue Service v. Nordic Village, Inc., David O. Simon, Trustee

WELLFORD, Before KENNEDY JOINER, Judges; and Senior Circuit Judge.* District JOINER, Judge. District Senior (IRS) ap- Revenue Service The Internal determina- the district court’s peals from bank- that it is liable to defendant, Village, Inc. ruptcy Nordic sec- (Nordic), transfer under for a voidable Code, 11 tion 549 stipulated. are The facts section 549. petition on March Chapter Nordic filed a acted as pursuant to which Nordic 18, 1984, July debtor-in-possession. On Jo- Lah, shareholder of Nor- an officer and sef Haus, (then doing business as Swiss dic Inc.), $26,000 counter-check on the drew payable made to the corporate account bank, turn, issued several bank. to Lah. The cashier’s cashier’s checks here, $20,000, was made at issue check IRS. payable to the “REMIT- the notation The check bore HAUS, INC.” At some TER: SWISS through this nota- point, a line was drawn tion, clearly legible. although it remains check to the the cashier’s Lah delivered * Joiner, sitting by designation. gan, W. United States Charles The Honorable the Eastern District of Michi- District Court for Scalia, by Justice con- delivered case was it be credited IRS, instructions grounds, judgment on other curring in the outstanding liabilities tax he did not concur stating that explicitly Hair Lah, Josefs doing business as Josef upon in the theory expanded Lah’s account credited The Design. IRS Thus, most that can White. of Justice accordingly. of the for the status be said Hoffman in 10, 1984, bank- a trustee August On each of two precedent is that decision as for Nordic. The appointed ruptcy was support. equal theories received proceeding initiated subsequently trustee is distin- Second, holding in post-peti- unauthorized Hoffman several to recover immuni- with the it dealt guishable because to the transfers, including the transfer amendment. the eleventh ty of states under that the held bankruptcy court The IRS. did not address whether opinion The White of section 549 under voidable transfer was immunity intended to waive Congress IRS Code, was and that Bankruptcy States, decided but instead United of the debtor transferee the initial rule of by application the case Code, 11 Bankruptcy 550 of the section sovereign abrogation of congressional (1979 Supp.1990), be- & section 550 U.S.C. not found will immunity of the states agent of acting as the Lah was cause Congress’s explicit statement minus an the funds from he withdrew when debtor of the statute. the face to do so on intent district court The account. corporate dealing Here, are at 2822. we issue, it also affirmed, to the latter sover- waiver congressional awith an IRS was the alternative held in States. immunity the United eign transferee, or should and knew immediate history supports the Third, was voidable transfer have known and the rea- “REMIT- section 106 the notation plain consequence as a Hoffman, in opinion af- HAUS, soning We now of the Marshall INC.” SWISS TER: intention that it was pointed out firm. sovereign Congress to waive like the case Hoffman, and like in cases I. pars- only clear The us. presently before for review. two issues presents case This having any application ing of the statute question jurisdictional is the issue The first Marshall. by Justice is done this case sovereign agency has a federal of whether issue presents the also This case Bankruptcy Code. immunity under the circum- in a transferee liability of v. Connecti upon relies The IRS Hoffman receipt of surrounding the IRS’s stances Maintenance, Income Department cut correct court was district The check. Lah’s — 2818, 106 L.Ed.2d U.S. -, S.Ct. against the IRS’s alternatively, holding, Court held Supreme (1989), in which in good taken were the funds claim immunity provision they knowledge that without faith and Code, Inc., Haus, belonging to Swiss funds were immunity of the (1979),does waive voidable. of which the transfer For three money judgments.1 as to states misplaced. reasons, this reliance Immunity Sovereign Waiver of II. analysis of controlling First, is no there A. Intent of Four Justices the statute Hoffman. court turns jurisdiction waive 106 did that section agreed the IRS’s Congress of by waiver states, on the Justice an immunity of provisions immunity. Two by Justice White, opinion written in an Section are relevant. Bankruptcy Code held Justices Marshall, equal number of part: provides, deciding vote contrary. to the See, e.g., Small Business bankruptcy actions. appeals courts other that certain note 1. We Admin, Cir.1989); (8th Rinehart, F.2d 165 here, found, argues as the have Hoff- Sys., 873 State Retirement Tennessee Arizona controlling precedent the issue isman Cir.1989). of the federal “creditor,” (a) provided, any in contains of the words “enti- Except as otherwise section, ty,” “governmental that a unit.” Section 550 to the extent transfer 544, 545, 547, specifically It is one of these sections. is avoided under section 724(a) title, the Trustee to avoid the trans- 553(b), of this authorizes recover, property and to recover the or its value for the benefit of fer trustee transferred, or, “entity” estate, from the for whose benefit orders, the of such transfer was made. if the court so value property, from— 550 and 106 authorize suits Sections transferee of such the initial a transfer of the recover entity for whose bene-

transfer or the regardless type involved here from the IRS made; fit transfer was or such immunity. sovereign this (2) of the check. any immediate or mediate trans- IRS received “benefit” “governmental unit” and an initial transferee. The IRS is a feree or such thus, “entity,” language of the statute (b) The trustee not recover clearly governmen- in this case waives (a)(2) from— of this section section immunity. tal value, (1) a that takes for transferee securing of a including satisfaction or straight-forward spe- Section 106 is a debt, present or antecedent sovereign immunity as it cific waiver of faith, knowledge of the and without governmental relates to federal units. voidability the transfer avoided.... nothing provision suggest- There is injunctive or declar- ing that it is limited to Bank- 550. Section 106 of the U.S.C. § take atory relief. The terms of ruptcy provides: Code using any provision to of the Code us (a) unit governmental A is deemed meaning trigger words. The could sovereign immunity re- have waived clearer. any against govern- claim such spect to property of the estate mental unit that is legislative history Bankruptcy transac- and that arose out of same reading supports plain-language Code or occurrence out of which such original draft of the section 106.2 The governmental unit’s claim arose. Bankruptcy by the Com- Code submitted (b) against offset an There shall be on the Laws of the mission governmen- interest of a claim or following allowed proposed the waiv- United States any against govern- such tal unit claim sovereign immunity: er of that is of the estate. mental unit apply provisions All of the Act shall (a) (c) Except provided as subsection every depart- and to United States (b) of this section and notwithstand- ment, instrumentality agency there- ing any sovereign immuni- assertion of, every every and to state and subdivi- ty— spe- except thereof where otherwise sion (1) provision of this title that con- This section does not cifically provided. “creditor”, “entity”, “govern- tains any govern- or unit of the render branch applies governmental mental unit” petitioner eligible ment for relief as a units; and VIII, Chapter except provided subject upon as a debtor an

(2) by the court of to relief a determination involuntary petition. arising provision under such a an issue governmental units. binds Bankrupt- Report of the Commissionon the States, H.R.Doc. No. cy Laws of the United 106. Section 106 abolishes U.S.C. § Sess., II, 93-137, Cong., 1st Pt. sovereign immunity in cases 93d defense of ON BANK- {reprinted in COLLIER the claim is made where (15th RUPTCY, 2, ed.1984)). App. pursuant of the Code that § history. It assumes that Business Administration 2. The in Small Hoffman Rinehart, (8th Cir.1989), holding applies 887 F.2d 165 and as such it is to the United States sovereign that the statute does not waive immu- suspect authority. nity punitive damages, does not consider as to does not confer This section versions House and Senate original unit that any governmental on identical and were section 106 of current immunity. It sim- already have does not follows: scope, providing as far narrower immunity that exists recognizes any ply files a unit that (a) governmental A proper treatment prescribes the 501 of of claim under proof sovereign. against the by and claims to have waived is deemed title 595, Cong., 1st Sess. H.R.Rep. 95th any claim respect immunity with 989, Cong., 2d Sess. (1977); S.Rep. 95th that is governmental unit such against Cong. & (1978), Admin. U.S.Code 29-30 arose out and that property of the estate 5816, (re 5815, pp. News or occurrence transaction the same BANKRUPTCY, printed in COLLIER ON unit’s governmental such of which out ed.1984)). II; App. App. V§ § arose. claim proposed identical Subsequently, two offset (b) shall be There immunity, H.R. provisions governmen- aof or interest claim allowed the Confer- and S. were sent for which tal unit 106(a) and where sections ence Committee interest claim or proof unit filed 106(b) and where were reworded any claim title 501 of this under section ap- permanent 106(c) its initial made that is unit governmental such against Com- Although the Conference pearance. of estate. floor report, issue a mittee did not (1977); 1st Sess. 324 Cong., 95th H.R. legislation read into managers of Cong., 2d Sess. 313 2266, 95th S. statements Congressional Record identical ON BANKRUPT COLLIER (reprinted in Committee’s explaining the Conference 1984)). (15th III, ed. VII CY, App. §§ 106(c)pro- on section The statement work. accompanied reports which The committee as follows: vided indic identical provision were also sovereign im- 106(c) to relating Section proposed of the narrowness ative of provision indicates new. The munity is part: pertinent They stated provision. “creditor,” “enti- of the term the use waiv- for a limited provides Section in Title 11 unit” “governmental ty,” or bankruptcy immunity in sovereign er units notwith- governmental applies to power Congress has Though cases. sovereign im- any assertion standing the fed- immunity to waive of the court an order munity and bankrupt- completely government eral provision units. governmental binds is de- here cases, policy followed cy require- comply with to is included approximately signed achieve express waiver that an in case law ments outside prevail result same required or- immunity is not, how- Congress bankruptcy. 106(c) codi- Section effective. der to be to waive ever, power have (9th Gwilliam, F.2d 407 In re fies respect completely with immunity Dolard, 519 F.2d Cir.1975) In re against estate bankruptcy [sic] claims bankruptcy Cir.1975), permitting (9th its bank- State, exercise though a dis- amount and to determine court supremacy through the power ruptcy owing tax liabilities chargeability of ac- State prohibit a prevent or clause dur- prior to or or the estate debtor poli- bankruptcy contrary to tion that whether or bankruptcy case ing the cy. tax- unit to which governmental Ex- proof of claim. files a owed es are 106(a) and par- provided sections cept creates Though this subsection (c) not limited 106(b), govern- subsection immunity when the tial waiver bankruptcy issues, permits a claim, it does these proof of files unit mental oth- units on governmental to bind the debtor court immunity if not waive example, section unit, as well. For er matters trustee, governmental debtor-in-pos- 106(c) a trustee permits claim unit’s governmental files proof avoiding powers under to assert 501(c). session proposed § Scalia, unit; cast the tie-break- nity. Justice who governmental against Title statute, Report vote, parse the because ing in the House did not contrary thereby Congress un- 8200 is overruled. intent of was irrelevant to H.R. joining analysis. The four Justices der his 28, 1978) (Sept. H11091 Cong.Rec. opinion held that the the Marshall California) (comments Edwards of of Mr. specific permit sufficiently broad and BANKRUPT- ON {reprinted in COLLIER sum, In the case the states. suits (15th 1984)); IX, ed. CY, IX-90 App. at § support a claim that used to cannot be 1978) (comments (Oct. 6, of Mr. S17307 § Congress has not waived Arizona) (reprinted in COL- DeConcini States, BANKRUPTCY, 3, X, immunity absent App. United ON § LIER In 1984)). the eleventh amendment. strictures of X-16 ed. presently the one before a case such as B. Hoffman court, Marshall arguments Justice this case. precedent for is not Hoffman arguments equal force with have in the White joining The Justices White, must and the lower courts Justice eleventh their conclusion based judgments as whether independent make holding that the elev- analysis, amendment Act, intended, by of states enth amendment agencies, of federal to waive the language of the waiver by the not breached case, in this the IRS. not examine did provision. These Justices highlights the foregoing discussion agen- Congress as to federal the intent of distinguish the features which They examine did not cies like the IRS. Hoffman In this case at bar. case from the fact, they all. legislative history at involve the eleventh amend- issues do not judgment in The decide this case. did not ment, intent of Con- simply raise the but only because Justice was reached Hoffman sovereign immunity regard- gress to waive hold, Congress that did not would Scalia the IRS. These two ing claims amend- abrogate the states’ eleventh differ- very different and involve cases are it does not have immunity, that ment analyses. and ent burdens O’Connor to do so. Justice power the agreed. urged Hoffman, opinion The White IRS, heavy the other Justices emphasized of four the upon

The us the in this analysis asserting court of the supports party a waiver burden Marshall, joined by Justices abrogate case. Justice amendment: eleventh “[T]o Stevens, Blackmun, Brennan, and dealt Amendment ... Eleventh States’ language section 106 squarely with make its intention ‘unmis Congress must compel- sufficiently and broad language and found stat takably clear ’’ ling to overcome (quot 109 S.Ct. at 2822 Hoffman, ute.' grants the states. amendment to Scanlon, eleventh Hosp. ing v. State Atascadero rejected the They explicitly conclusion 3142, 3147, 234, 242, 105 S.Ct. 473 U.S. that statute four Justices the other (1985)). proba Addressing the L.Ed.2d and only injunctive for permit suits would history, the tive value of “ declaratory relief. ‘[legislative that histo held four Justices judicial a be irrelevant to ry generally will authority fact that for the Hoffman to Congress intended inquiry into whether the Bank- cannot be sued under the states ” abrogate the Eleventh Amendment.’ combina- due to a five-Justice ruptcy Code holding at 2824. That Hoffman, theories, no authori- finding one two tion of simple case. This is a inapplicable to this sovereign im- Congress to waive ty in involving the construction of case holding states, and other munity of by Congress, not a constitutional enacted provi- Bankruptcy Code’s relating con to fundamental amendment to the sover- not intended waive sion was We do not have before cept of federalism. eign immunity of states. Hoffman relating to states’ in this case issues not broad us the Act was not establish power and the various rights and central immu- specific enough to enough waive property transfer of the estate developed pre- benefit been have doctrines may recover The trustee govern- or its value. red overreaching by the federal vent transferee, entity for initial differ- from the case involves The ment. Hoffman made, or transfer was of that thus, analysis benefit the whose and values ent transferee or mediate any than immediate necessarily different was case possi chain of The initial transferee. here. called only interrupted when parties liable ble reading of sec- that our it is While true value, faith takes for transferee meanings in different result 106 will na voidable knowledge of the without and being applied it is whether depending upon requirement The the transfer. ture unit, or federal a state if transferee satisfied “knowledge” is result an inevitable meanings are different lead reasonable facts that “knew of con- methods different two applying trans to believe person struction, dealing with a constitutional one Mixon, recoverable.” Smith ferred system, federal our protecting Cir.1986); Rob 2n. determining the will simply the other (Bankr. Robbins, 91 B.R. bins govern- permit the federal W.D.Mo.1988). argument plaintiffs sued. ment erroneously assumes “ini- Hoffman was either IRS In this are immune states holding that the Court’s ... an “immediate transferee” tial by the was reached monetary recoveries If initial transferee.” of such transferee pro- construction inevitable sole Nordic, then acting for is viewed Lah did itself Court vision. If Lah Hoffman transferee.”3 is the “initial evenly divided reading, but single offer money illegally having taken is viewed argu- pertinent The more two. between “initial transferee” Nordic, is the he is that case present ment check to cashier’s delivery opinion. Marshall “immediate IRS an IRS makes Lah, “initial transferee.” statute, clear summary, the transferee” “immediate as an from as- terms, the IRS the IRS is considered prevents If explicit if Lah, prevail immunity. the IRS can of transferee” serting the defense value, in took for history, that it shows by the IRS supported the is This the knowledge of faith, in without and good Marshall by the noted as Hoff- transfer. jurisdictional voidability of the Having resolved the man. the of the merits issue, turn to we now the stipulated that case, it is In this since recovery. trustee’s recover voidable, can the trustee is transfer “initial is the if the IRS IRS the from Recover Trustee to Right of III. is the IRS transferee,” if can recover and pro- Bankruptcy Code the of Section Lah, of unless transferee” “immediate an a transfer may avoid that the trustee vides value, (2) (1) took for it shows that provision of by any authorized knowledge of faith, (3) without good and Code, after the commencement occurs that transfer. voidability of the was the transfer In this the case. of clearly of statute The place af- unauthorized, all events took value, good showing of the burden places bankruptcy action. filing of the ter the trans knowledge, on faith, lack of pro- Bankruptcy Code 550(a) of Section is way the statute a defense. as here, is feree when, transfer that vides trustee’s that it clear makes for the worded voidable, may recover officer, debts, corporate and not showing sonal of its burden not met the IRS has As transferee. the initial knowledge payee on the check check without took the that it voidability Inc.), Auto-Pak, transfer, (In essential re it is not v. United States of the Ross was an initial Nat'l (D.D.C.1987); not the IRS Still American determine whether B.R. support Mills, Inc.), for the (In Jorges is substantial Carpet There transferee. re & Trust Co. Bank corporate officer takes when that (Bankr.E.D.Tenn.1985). conclusion 50 B.R. 84 per- pay corporate funds checks drawn from accepting a check. The broad, wrong by giving rights with right to recover IRS, liability transferee, crediting Lah’s tax only the but also against not Haus, Inc., has belonging money trans- to Swiss initial transferees prejudice to others However, nothing third to cause prevent innocent done feree. here, Haus, When, broadly Inc. being except hurt Swiss parties recovery, gives the law the burden does not meet right delineated the transferee faith, they took lack of they given, good if show that a defense value proving them faith, value, unwinding and without knowl- the situation good knowledge, voidability money edge transfer. by requiring the return anything one away from no Trustee takes “[a]ny that Bankruptcy Rule 6001 states Holding person is entitled. that which validity of a transfer entity asserting the simply places Trustee recover shall have 549 of the Code they position where parties all present proof.” While the the burden of took wrongful transfer were before 550, section under section dispute arises words, nothing place. In other there exception for 549(c) provides an identical cause us to relax the IRS to special about realty. If the IRS purchasers of good faith faith, value, good requirements they facts must show prevail, is to such as this knowledge in situations lack of the three proving met the burden have one, being by the court. unwound faith, value, good required conditions— knowledge. lack of IV. stipulated facts show the defense cannot assert the IRS Since the notation “REMITTER: check bore the IRS immunity, and since HAUS, INC.,” name was the SWISS showing its burden has not carried doing business. debtor under which the voidability knowledge of the it took without indicate nothing in the record to There is transfer, court is AF- the district out be the notation was crossed whether FIRMED. IRS. the transfer to the fore or after for the check gave value The IRS KENNEDY, Judge, dissenting. Circuit outstanding tax crediting against Lah’s it Congress has not I believe Because However, because of words liability. immunity of clearly waived INC.,” HAUS, “REMITTER: SWISS States, In the alter- I dissent.1 the United the IRS without said that acted cannot be majority errs native, I also believe voidability of the trans- knowledge holding Court’s affirming the District ordinary practice business fer. It is not faith acted other than that the IRS another’s pay one corporate entities knowledge. and with place a is sufficient to This taxes. notation immunity pro- sovereign of The doctrine that the trans- person on notice reasonable ex- against the United States extension, that hibits suits by illegitimate, fer was which it has instances in cept in those apparent from It is not voidable. Such to be sued. specifically consented notice— the IRS had actual facts narrowly construed. are to in be accept the check waivers that it did not Af- States, 406 v. Citizens United however, give to an Ute the facts rise filiated faith — 1456, 1466, 141-42, 31 128, 92 S.Ct. is a U.S. inquiry of notice. The inference (1972); v. States Sher- 741 United procedures for L.Ed.2d organization and its sizeable 769, 586, 767, 584, wood, 61 S.Ct. 312 U.S. complicated, but there collecting taxes (1941). A waiver purported 85 L.Ed. 1058 complexity should in or nothing size read nar- immunity is to be sovereign circum- of obligation observe lessen in fa- ambiguity construed rowly, any might something notice giving stances Co., Guaranty Fidelity & sovereign v. United States States government not waived its has 1. The 656-57, 653, 513-14, 506, failing 84 by it below 60 argument S.Ct. raise 309 U.S. juris- sovereign (1940). are questions of since L.Ed. 894 any at United be raised time. dictional 1057 See, out of which such tion or occurrence e.g., United States. of the United vor unit’s claim 392, 399, governmental arose. Testan, 424 U.S. 96 S.Ct. v. States (“a (1976) waiver 948, 953, 114 (b) against 47 L.Ed.2d an There be offset shall immunity ‘can- sovereign governmen- traditional a or interest of allowed claim unequivocally must be implied govern- any against not be claim such tal unit v. States (quoting United ”) expressed’ estate. unit that mental 1503, 1501, 23 1, 4, 89 S.Ct. King, 395 U.S. (c) provided in Except as subsections v. United McMahon (1969)); 52 L.Ed.2d (b) (a) this section and notwith- 17, 19, 27, 96 States, 25, 72 S.Ct. 342 U.S. im- sovereign standing any assertion im- (“statutes waive (1951) which 26 L.Ed. munity— from suit are munity the United States this title that con- (1) provision of strictly favor construed to be “creditor”, “entity”, “govern- tains Sherwood, 590, 61 U.S. at 312 sovereign”); governmental applies to mental unit” must inter- be (“[t]he section at 771 S.Ct. units; giving its function light in the preted by court of a determination sued, to be of the Government consent arising an issue relinquishment consent, it is a since which units. binds strictly immunity, must of a “govern- the term undisputed that It is Justice Ste- The citations in interpreted”). applies in section 106 unit” used mental v. Connecticut dissent2 vens’ Hoffman 106. It is also 11 the IRS. § — Maintenance, U.S. Income Dep’t of fall with- this case undisputed that 2818, 2829, 76 L.Ed.2d -, 106 109 S.Ct. 106(a) (b). scope of subsections the rule (1989), establish purportedly waiver 106(a) very is a narrow Subsection immunity are waivers to cover sovereign immunity intended These point. not on broadly, are construed are estate that only those claims reading of for a broad provide do cases claim compulsory counterclaims for a immunity but waivers governmen- filed the estate an placed on limitations reading of narrow Willington In re Convalescent unit. tal See, v. e.g., Block waiver. broad otherwise Cir.1988), 50, (2d Home, Inc., 1089, 289, 298, Neal, S.Ct. 460 U.S. v. Connecticut nom. sub Hoffman aff'd States (1983); United 1094, 75 L.Ed.2d — Maintenance, U.S. Income Dep’t of 554-55, Co., 340 U.S. 543, Yellow Cab (1989); 2818, L.Ed.2d 76 -, (1951). I do 406-07, 95 L.Ed. 523 S.Ct. Dep’t Pub. WJM, Inc. Massachusetts case in this at issue waiver not believe the (1st n. Cir. 8. Welfare, 840 F.2d it is framework since falls within Cong., 2d Sess. 1988); 95th S.Rep. No. issue, not that are terms of Cong. & U.S.Code reprinted placed upon limitation terms Here, trust Admin.News waiver. of the IRS’s arise out claim does not ee’s United concludes that majority payment for the debtor against the claim suit immunity to this its has waived narrow 106(b) is also Subsection taxes. 106 of the enacting immunity only provide waiving scope, pro- Code, 106. Section 11 U.S.C. § govern- of the to the value limited offset vides: the es- against claim allowed unit’s mental 54; S.Rep. at Willington, 850 F.2d to deemed tate. (a)A unit is governmental in 29-30, printed supra 989, at re- immunity with No. sovereign have waived 5787, at Cong. & Admin.News govern- against such U.S.Code claim spect any to 106(b) may Although subsection of the estate 5815-16. unit that mental case, Bankruptcy Court’s in this apply transac- out of same that arose and convenience, did dissenting as opinion for opinion in White’s to I refer Justice Hoff- dissenting See opinion. any in his votes of Marshall the most Justice received man —which opinion concurring judgment Hoffman, at 2825-27. in 109 S.Ct. —as Stevens’ and “plurality” Justice Marshall's and Stevens, and Justice nan, and Blackmun value of the to the limited is not order Blackmun, filed Stevens, by joined Justice the estate. against claim IRS's expressing their belief dissenting opinions that the United States agree parties and had ex- power Congress had that immunity to sovereign its waived has Eleventh abrogate the to pressed the intent all, of subsec- action, by its enactment if at immunity sovereign Amendment 106(c). believes The trustee tion 2824, 2827. Id. at States. 106(c) subsection that concludes majority govern- the federal to waive be read should majority con- argues The trustee immunity whenever sovereign ment’s adopt not that should cludes we Hoff- provi- to a pursuant brings a suit trustee of subsection construction plurality’s man contains Code sion reasoning used to derive 106(c) because “creditor,” “entity,” or the words one of the case. to the facts it is limited argues The IRS unit.” “governmental of the States’ involving the waiver cases 106(c) authorize does not subsection immunity, sovereign Amendment Eleventh judgment enter “ bankruptcy courts ir- history generally will ‘[legislative recoveries monetary ” affirmative (quoting Dellmuth at 2824 relevant.’ Id. only allows them entities but — 2397, -, Muth, 109 S.Ct. U.S. aof binding determinations to make (1989)). Thus 2401, 105 L.Ed.2d rights in the debtor’s entity’s government to the ac- its examination plurality limited estate. 106(c), re- of subsection tual by govern- urged The construction history. legislative fusing to examine adopted by construction same ment we the trustee believes In this in Supreme Court plurality Hoff- language of only look not should had in before The Court man. Hoffman isolation, ex 106(c) also subsection Congress waived question of whether provisions other it in context of amine sovereign Amendment Eleventh States’ light Bankruptcy Code 106(c). mem- Four immunity in subsection determining history. When legislative Court, in an authored bers its has waived the United whether White, subsection construed by Justice pro general no sovereign there monetary recov- 106(c) authorizing “as not of a statute on the examination hibition 109 S.Ct. Hoffman, the States.” ery history. legislative its light context of subsec- this construction 2823. Under Burr, See, Admin. Hous. e.g., Federal proof files no 106(e), State that “a 491, 60 S.Ct. U.S. creditors, bound, other like would be claim legislative (1940) (examining the L.Ed. bankruptcy, in- discharge of debts recently agencies created history of other taxes, not be but would unpaid cluding Congress intended determine whether (cita- recovery.” monetary Id. subjected to immunity); the FHA’s waive opinion was omitted). Justice White’s tions Fin. v. Reconstruction & Rehnquist, and Jus- Keifer Justice Keifer joined Chief 516, 520, Corp., 306 U.S. Sca- Justice Kennedy and O’Connor. tices (examining a statute L.Ed. 784 he in which concurring opinion filed a lia to de seeking setting” when its entire “in no Congress had expressed the belief Congress has waived whether termine Eleventh States’ abrogate the power corpo government Be- at 2824.3 immunity. Id. Amendment Court ration). Although I believe no had he concluded cause the context authority to examine has Eleventh States’ abrogate the power 106(c) history of subsection immunity, he did Amendment convinced, language, I am its 106(c). well as meaning of subsection address pro- balance, examination such an Bren- Marshall, joined by Justices Justice Clause, Congress had but believed O'Connor, mptly concurring opinion, in a 3. Justice to make expressed a clear intention Congress could not attempt. agreed Scalia with Justice joined plurality Accordingly, she abrogate Amendment the States’ Eleventh not immunity by at 2824. Hoffman, 109 S.Ct. opinion. enacting Bank- a under the statute

1059 bankruptcy 106(c) court authorizes tion from different outcome duces an at Hoffman, 109 S.Ct. Supreme Compare make. of the plurality to by a reached Hoffman, opinion) with (plurality 2822-23 Court.4 J., dissenting). (Marshall, S.Ct. at 2825 109 a is not statute language drafting. legislative clear, reading concise in Third, results majority’s model language Nevertheless, reading the when 106(c) speaks of the subsection —which as we government, narrowly in favor of the “govern- immunity for waiver do, that the lan- I to believe required are completely dif- having two mental units”— sov- 106(c)only waives guage of subsection govern- meanings depending on ferent of allow- purpose immunity for ereign trustee seeks against which the unit mental declaratory issue to bankruptcy court ing a by it, surely never intended a result use to relief. injunctive and to purport not statute does Congress. The essentially the the treatment between for distinctions conclusion draw reach this I units, its by plurality governmental upon relied and federal reasons state same Cir “governmental only Second to Court refer Supreme provisions “deter First, words state- some affirmative in Absent cuit units.” Hoffman. used issue” of an by the court I conclude by cannot Congress, mination ment different 106(c)(2) both are intended. result was subsection an anomalous such “any the words scope than congressional scrutiny given narrower greater (b). 106(a) and in subsections immunity claim” used of the State’s waivers 2822-23; Willing 109 S.Ct. at Hoffman, immunity is insuffi- States’ the United than Home, F.2d at 54- 850 ton Convalescent a result. Accord support such to cient Admin, Retire State v. 55; Tew Arizona see also Rinehart, 887 v. Business Small Cir.1989) (11th 1400 F.2d Sys., ment Cir.1989). 165, Where 169-70 position Circuit’s the Second (adopting equally applies language Home, applied Willington Convalescent and federal state of both sover Amendment Eleventh the States’ units, appropriate it is more governmental language claim). The eign scrutiny. higher standard apply in the 106(c) to more appears be subsection by pointed out Justice recognize, I declaratory for an authorization nature of 106(c)(1) not Marshall, subsection an affirma for authorization relief than im- the waiver limit explicitly recovery. tive that con- provisions code munity to those ren Second, contrary conclusion a injunctive permit trigger tain words language subsec meaningless the der Hoffman, monetary relief. See 106(c)(2). often stated As has been that this not believe I do at 2825. S.Ct. give duty ‘to Court, our Supreme “It reasoning, how- in the flaw creates fatal word every clause and effect, possible, if Congress to illogical for It not ever. statute_’” Me United in subsection a limitation provide 513, 538-39, 528, 75 S.Ct. nasche, U.S. sec- in each individual 106(c)(2) than rather Inhab (quoting 99 L.Ed. allowing for tion that contains Township Rams Montclair itants of least, very I do damages. At the monetary dell, U.S. cre- statute tension not believe Hoffman, (1883)); also see L.Ed. greater than any reading is by this ated plurality did 2822-23. As S.Ct. reading subsection created tension sub interpret I Hoffman, statute, which results 106(c)(2) out of limitation on 106(c)(2) to be interpretation. majority’s 106(c), a not redundant scope of subsection statutory my examination Finally, en governmental declaring that statement to a different lead me not history does rulings subsec- by the be bound tities will legisla- that the priate. I do believe Because language we are intended 4. Since sufficiently expression of clear history ais tive Congressional fashion applied in the same interpreting be sovereign immu- units, to waive intent and federal both state issue, however. nity, reach this need inappro- I history may well resort to 1060 S33,993 5, 1978) Cong.Rec. (daily majority. original The ed. Oct. it does the result as DeConcini).5 (comments of Sen. by passed 106 of section

versions provi- did not contain House and Senate trustee, relying majority The 106(c). The analogous to subsection sentence, sion particularly the last read this on produced Committee Congress Conference clear statement as evidence that containing 106 final of section immuni ly version intended to waive produce a conference com- an action is provision ty did not of the United States when Instead, managers any section con report. the floor filed the trustee under mittee trigger government The Congression- taining a word. legislation read into the narrowly, em more reads this statement explaining Record identical statements al reference to phasizing the statement’s The Committee’s work. the Conference (In re Gwil Gwilliam v. United States 106(c) provided: statement subsection Cir.1975) liam), (9th re 519 F.2d 407 106(c) sovereign im- relating Section (9th Cir.1975). Dolard, 519 F.2d 282 These provision indicates munity is new. The provision of cases held that under a two “creditor,” “enti- that the use of the term Code, bankruptcy Bankruptcy the former II ty,” “governmental unit” title or jurisdiction courts had the to determine units notwith- applies governmental any unpaid tax of the legality amount or im- standing any assertion bankrupt estate. debtor munity and that an order of the court language indicat government believes the governmental units. The binds (c) not limited to ing that “subsection comply require- is included to issues, bankruptcy permits the those but express in case law that an ment governmental on other court to bind units required in or- only to matters as well” should be read 106(c) Section codi- der to be effective. declaratory injunctive and actions on allow Gwilliam, 519 F.2d 407 fies In re that are similar to those en nontax issues Cir.1975), Dolard, In re 519 F.2d 282 for tax issues Gwilliam and Do dorsed (9th Cir.1975), bankruptcy permitting the Willington lard. Accord Convalescent the amount and dis- court to determine Home, F.2d at 55-56. 850 owing by chargeability of tax liabilities statement, sentence of the As to the final prior the estate to or dur- the debtor or may lend some government admits it or not the ing bankruptcy case whether position, support to the trustee’s but as- taxes governmental unit to which such read in favor ambiguity serts its should be Except proof files a of claim. are owed government. Accordingly, 106(a) (b), provided sections government read the last sentence (c) is not limited to those is- subsection authorizing bankruptcy actions sues, bankruptcy court permits but possessory has a court where the debtor governmental units on other mat- to bind ownership interest 106(c) example, For ters as well. in the estate. As trustee seeks to include possession or debtor permits a trustee example, government cites United 11 avoiding powers under title to assert Pools, Inc., 462 U.S. Whiting unit; contrary (1983). In 76 L.Ed.2d 515 report in the House to H.R. company’s the IRS had seized a thereby overruled. satisfy liability a tax tangible assets H32,394 cir- (daily Sept. yet ed. sold them. Under those Cong.Rec. had cumstances, Edwards); Supreme held that 1978) (comments Rep. Court (1978) (statement Rep. Ed passing Rec. in time in Due to the constraints H32.392 (1978) (statement wards); Cong.Rec. Act of there was no Reform S33992 124 DeConcini). report the differences to reconcile Supreme conference Court has of Sen. and Senate bills. Instead the House between "persuasive these floor statements as evi treated Representative and Senator DeConcini Edwards Begier congressional dence of intent.” IRS , reports on the results of oral S.Ct, made — -, 2258, 2266 n. U.S. Cong.Rec. conference. See H32.391 (1990). L.Ed.2d Rousselot); (1978) (statement Cong. Rep. provided, unit. As to a the seizure avoid could the trustee 106(c) House amendment of the section retained the debtor since assets the recover in the contrary language it was sold. until overrules property the ownership of the security that the the result only report House entitled was The IRS at Id. of property. subject to avoidance on the is by its lien Government provided coun- The trustee 2316. transfers. 211, preferential 103 S.Ct. at Pools, Whiting such as cases that ters 28, Sept. (daily ed. H32400 Cong.Rec. 542, techni- 11 U.S.C. § arise under which Edwards); 124 Rep. 1978) (statement of “avoiding powers” the do not involve cally 5, 1978) S34,000 (daily ed. Oct. Cong.Rec. Therefore, the Code. of the DeConcini). (statement Sen. of mean- possible not a is this asserts trustee strongest ev- the contains This statement statement. the last sentence ing of its to waive intended that idence joint the of final sentence the Although read in When immunity to suit. sovereign support lend 106 does section statement history even legislative of the entire light the that I position, believe majority’s to the all fully resolve does not language this as a whole taken congressional statements reports ex- original committee The doubts. the override clear to sufficiently are not sepa- the 550 “enunciates plain to construe Supreme Court mandate avoiding a concepts of the between ration the of concerning the provisions trans- recovering from the transfer “strictly in favor Cong., 2d No. 95th S.Rep. feree.” McMahon, U.S. sovereign.” the No. 95th (1978); H.R.Rep. Sess. statutory the both at 19. Since (1977), reprinted Cong., 1st Sess. history are legislative language and Cong. Admin.News & U.S.Code it is this reading, narrower of a capable is not with here concern Our effect. give we should reading to which ques- but with determination avoidance posi- his bolster seeks to also trustee The recover can the trustee of whether tion history by reference the transfer IRS once funds 547(b)(2). Subsection of 11 § context, language Read avoided. avoid certain 547(b)(2) allows only authorize trustee cited by the property transfers prepetition the avoidance to make bankruptcy courts “for made that were ato creditor debtor recovery from determination, not order debt owed antecedent on account this purpose of For government. transfer such before debtor this effect precise not I do decide version original Senate The made.” this one only I conclude language. tax exempted payments specifically bill alone, sufficient, standing not statement adopted Committee The Conference debts. ambiguities override how- provision, of this version the House 106(c).6 of subsection not- statement explanatory joint ever. choice: this effect of ed the Subsequent Faith as a Good The IRS House amend- 547(b)(2)of the Section Knowledge Without Transferee contained adopts a ment as to no conclusion majority reaches con- alternative rejects an bill House or a trustee initial is an IRS relating whether amendment in the Senate tained meaning within subsequent transferee trans- preferential the avoidance It affirms 550(a)(1). 11 U.S.C. owing § tax claim payment that is fer my 549.” Because section ... avoided under disposition case arises argues that because 6. The immunity question, not § under first instance it is sufficient decide whether I need trigger listed words one contain trigger Fur- 550(a) words. one of contain qualify § under 106(c)(1), case does § payment act ther, the order I note 550(a), under which —the Subsection § 106. made un- that offends recov- bring an action to —is is authorized trustee 549 is 550(a). § The determination triggering §der does contain property, er the by my type endorsed merely may only declaration provides language, 106(c). reading §of transfer extent recovered "to INC.,” HAUS, the if an “REMITTER: SWISS holding that even Court’s District transferee, investigate it required should have the source immediate IRS as a con- the transfer was voidable known of the check. “REMITTER: the notation sequence of of the test for The clearest articulation HAUS, my con- INC.” Because SWISS a an individual or institution becomes when government has that the federal clusion is contained in Bonded Fin. transferee immunity, I am its not waived Serv’s, Bank, European Inc. v. Am. questions. to reach these required (7th Cir.1988). the issues F.2d 890 One of Nevertheless, I the I do so because believe facing the court in Bonded Financial was that the in its conclusion majority has erred bank an initial trans- whether a becomes knowledge faith and with in bad IRS acted by cashing feree a check from the debtor voidability. The trust- of the transaction’s and, per corporation the instructions ac- from “the initial property ee recover check, depositing it in the companying entity transfer or the of such transferee corporate officer of the debt- account such transfer was made” benefit for whose did The court held the bank’s actions or. 550(a)(1). 11 U.S.C. limitation. without § give it the status of a transferee However, cannot recover from “financial concluded the bank was a mere “that takes for subsequent transferee intermediary” to the transaction. Id. at value, securing or including satisfaction minimum 893. The court reasoned “[T]he debt, faith, good antecedent present is requirement of status as a ‘transferee’ voidability knowledge of the and without asset, money over the or other dominion avoided....” the transfer money one’s right put own 550(b)(1). § Though purposes.” Id. Court, adopting the Bank- The District narrowly, more I that could be read believe issue, held resolution of ruptcy Court’s Circuit intended to cover two the Seventh un- an initial transferee the IRS was (1) person had those where situations: 550(a)(1) because der subsection “[t]he legal equitable right put agent, procured the at least its debtor or money to his own uses and those where it to the check and delivered official bank ability had the intent and to do person App. at Service.” Joint Internal Revenue is, legal in a “right” if the to do so so even and the IRS had submitted 39. The trustee sense, lacking. interpretation It is this Bankruptcy Court on the matter to apply I would this case. stipula- briefs. The stipulated facts and fall into the In this Lah does not make clear the circumstances tions do not legal category. He lacked first both Lah delivered the check to under which right to make transfer. equitable an indication that there was IRS. While stipulated from the facts It is difficult Village that Nordic had had notice the IRS possession Lah’s determine whether bankruptcy protection as of filed for category. How- funds falls into the second check, indi- accepted the there no time it ever, I do not the District Court believe persons ac- person who cation that holding Lah was correct because should have check knew or cepted the authority corporate officer to used his as a bankruptcy filing or knew or known of check, a counter the transfer was cash Village Nordic did known that should have corporation to the IRS.7 To so from the In the alterna- Haus. business as Swiss person establish a rule that no hold would that even if the tive, held the District Court directly receives embezzled transferee, who it did not subsequent was a good could ever be from an embezzler The court good faith. cancel the debt and without no- purchaser for value notice faith the IRS had that because

reasoned Instead, question turns I believe the filing, tice. Village’s bankruptcy Nordic Lah exercised over degree of control the notation the check contained because merely intermediary." Bonded Fi holdings a "financial agree below and decision I with the 7. nancial, in Bonded Financial that the Seventh Circuit 838 F.2d of the transferee, Ameri-Trust, bank, is not do not believe majority, I Unlike counter cashed he when funds bears burden government given Lah have would bank If the check. majority is anyone on this issue. proof check a cashier’s or issued cash that Lah clear asserts when it choosing, it correct Lah’s proving be- transferee initial the burden places been have Rule intent and knowledge had initial have he would faith and cause own use. to his 11 money put the under ability to real transferee (In re Auto- the wishing assert v. United to 549(e) party Boss the See on § (D.D.C.1987); Stills 52 Inc.), 73 not Pak, B.R. This rule transfer. validity the (In Co. Trust & Bank Nat’l 550, v. American however. to section apply 84 Inc.), B.R. Mills, Carpet Jorges “the separate re to explicit choice an made Lah that Note (Bankr.E.D.Tenn.1985). and recov- avoiding transfer a concepts well, ac- checks cashier’s bought other S.Rep. No. transferee.” the ering from con- In facts. stipulated cording the to (1977), 375-76 2d 989, Cong., Sess. 95th the cash Lah to allowed trast, if bank the Cong. Ad-& 1978 U.S.Code in reprinted proceeds the only because check counter Here, dis- it is not 5876, 6331. min.News cashier’s a purchase to used to be were was to Lah initial transfer the that puted pos- IRS, Lah then the to payable check ques- avoided. be and wrongful could the control ability to only a limited sessed money the is whether answered to be an insuffi- is control limited Such funds. subsequent trans- from recovered be can a trans- Lah that to conclude basis cient feree, government. the feree.8 ini- clear that makes Although the Code the from tell to impossible if it is Even to presumed generally are transferees tial parties by the agreed facts stipulation voidability of transfer the on notice be closely re most case this situation to the trust- any defenses few if have and It the trustee. aid sembles, cannot 550(a)(1); Bank- (see ee, 11 U.S.C. §§ initial burden the who bears also makes 6001), Code the ruptcy Rule that occurred a transfer proving that not are transferees subsequent that clear See, e.g., transferee. the initial IRS is 11 U.S.C. disability. a severe such (Bankr. 345, 347-48 Closson, B.R. re In rationally dichotomy is 550(b). Such record, trustee § 1989). thisOn S.D.Ohio transferees initial fact that to the related his burden. not met has and there- knowledge have generally will showing by prevail can still The trustee directly they deal since faith act bad fore money without IRS received contrast, subse- bankrupt. In with the voida- knowledge of value, with giving likely to more much are transferees quent Lah, other than transfer bility of the little They have parties. third innocent be 550(b)(1). 11 U.S.C. § faith. good making themselves protect ability to for was transfer concedes trustee Absent transferor. their on cursory checks tax indebt- Lah’s IRS canceled value—the proof the burden placing rule express argues trustee Although edness. transferees, I believe subsequent on not act knowledge and did had seeking to party rest on should burden I do majority, contrary faith, good as to least property, recover on is warranted this conclusion believe not transferee’s subsequent issues us.9 before facts trans- entity whose benefit be the would Lah had is sufficient think it I do not 8. intended. fer apply the cashier’s IRS to ability direct the liability. Lah must personal tax to his check stipu- drawing inferences receive is to are ability who we control Since have facts, to have preferable might be benefit it funds, receive the just will lated who Bankruptcy Court. by the closely drawn too inferences However, situation latter payment. This charac- perhaps be can questions sends the debtor where analogous to a case and fact questions of law mixed terized with instruction directly the IRS check who has appear to turn instance, large extent to a In account. credit Lah’s the IRS proof. burden Lah transferee the initial the IRS would knowledge. Accordingly, checks, large faith I con- persons even from who are clude that the trustee bears the burden of payments. Further, behind their tax showing the IRS acted knowledge is not uncommon for a check to cashier’s See, e.g., Sarasota Plaza bad faith. purchased have been someone other Partnership (In Trupin Assoc. Ltd. re than taxpayer, particularly where the Partnership), Sarasota Plaza Assoc. Ltd. tax operation debt arises out of the (Bankr.M.D.Fla.1989); 105 B.R. Moreover, business. the trustee’s rule Closson, re 347-48; 100 B.R. at Holt v. require investigate IRS to (In Serv., FDIC re Instrument Sales & hundreds, sources of funds of if not thou Inc.), (Bankr.W.D.Tex. 99 B.R. sands, Wood, taxpayers. FDIC Cf. 1987); De Co. v. Sunshine State Rochfort (6th Cir.) (FDIC (In Bank re De Co.), B.R. Rochfort charged knowledge with of a defense mere (Bankr.S.D.Fla.1982). I do not believe ly because information could be found in the trustee has met his burden. records of failed it bank took since over

There is no evidence the record that requirement would constitute unreasonable knowledge the IRS had voidability denied, burden), cert. 474 U.S. the transfer from corporation to Lah. (1985). S.Ct. Placing L.Ed.2d 286 The mere fact that the check contained a this burden on the IRS does not seem to stating notation pur- the check was purpose have been the faith good chased “Swiss Haus” is not sufficient to requirement. primary concern was put any recipient of the check familiar preventing a washing transferee from bankruptcy with the Village, of Nordic Inc. through transfer an innocent party third on actual notice that the transfer was void- who then would transfer Although able. likely true that certain in- See, e.g., H.R.Rep. transferee. No. dividuals at the IRS were familiar with Cong., (1978); 2d S.Rep. 95th Sess. 376 Village’s bankruptcy, Nordic there is no Cong., No. 95th (1978), 2d Sess. 90 showing on this record that the individuals reprinted in 1978 U.S.Code Cong. & Ad who received the check had such knowl- 5787, 5876, Accordingly, min.News I (In Mixon), See edge. Smith Mixon re do not believe the trustee has his bur met (4th Cir.1986) (knowledge prove den to that the IRS acted than other notice”). not mean “constructive To good faith or knowledge. with impute knowledge component of each every IRS to component other reasons, would For all of these respectfully I place an untenable administrative burden majority’s dissent decision to agency. waive of the Unit- ed finding also its that the IRS Similarly, I do not believe the trustee has received, the check under circumstances acted shown in bad faith. charged where knowledge be- Lah to have sent through Were this check cause it did not inquiry. make inmail the normal dealings course of IRS, with the there would be no doubt that

the IRS had received check in argues

faith. The trustee that because of check, filing size of IRS tax assets,

liens Lah’s notation check,

on the the IRS should have been

suspicious presented when Lah it. circumstances,

I do not believe that these more, suggest

without to the IRS

agent receiving payment that the trans-

fer collecting voidable. billions of dollars,

tax routinely the IRS receives

Case Details

Case Name: In Re Nordic Village, Inc., Debtor. Internal Revenue Service v. Nordic Village, Inc., David O. Simon, Trustee

Court Name: Court of Appeals for the Sixth Circuit

Date Published: Jan 23, 1991

Citation: 915 F.2d 1049

Docket Number: 89-3656

Court Abbreviation: 6th Cir.