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#1936

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

In Re:

JAMES ROBERT DALEY, MARILYN KAY McCLUSKEY,

DEBTOR(S)

NO. 93-40288-13

CHAPTER 13

JAMES ROBERT DALEY,

PLAINTIFF(S),

v.

NANCY PARRISH, SECRETARY OF THE KANSAS DEPARTMENT OF REVENUE,

DEFENDANT(S)

ADV. NO. 93-7073

ORDER ON AVAILABILITY OF MONEY DAMAGES AGAINST STATE OFFICIAL

FOR ALLEGED VIOLATION OF AUTOMATIC STAY

This proceeding is before the Court following the filing of briefs on certain issues. The plaintiff-debtor appears by counsel Frank D. Taff. The defendant appears by Brian Cox, Special Assistant Attorney General. The Court has reviewed the relevant pleadings and is now ready to rule.

The debtor filed this proceeding because he had been unable to get his driver's license reinstated after he filed for bankruptcy. He asked the Court to order the defendant to reinstate his license, to hold the defendant in contempt for violating the automatic stay, and to award him actual damages and attorney fees. He indicated he thought this relief was appropriate because the defendant had violated 11 U.S.C.A. §§362 and 525(a) and 42 U.S.C.A. §1983. At a pretrial conference, the Court directed the parties to research two issues and determine whether they could agree about them or wished instead to file briefs. These issues were: (1) whether the defendant was protected by sovereign immunity from a money judgment for contempt; and (2) if so, whether any damages for the alleged stay violation could nevertheless be offset against any claims the state might have against the debtor. Although both parties have briefed one or more additional issues, the Court is now prepared to rule on the sovereign immunity issue, and its ruling on that issue will make the second issue moot.

The debtor first argues he may recover damages under 42 U.S.C.A. §1983. However, the United States Supreme Court has ruled that states and state officials acting in their official capacities are not "persons" subject to liability under 42 U.S.C.A. §1983. Will v. Michigan Dept. of State Police, 491 U.S. 58 (1989). The debtor has named the defendant only in her official capacity, and so §1983 does not authorize the Court to impose monetary sanctions against her.

The debtor has also suggested "contempt remedies should be available." In discussing the propriety of awarding attorney fees against a state agency based on a finding of a bad faith failure to comply with an order requiring improvements in the conditions of a prison, the Supreme Court said:

In the landmark decision in Ex Parte Young, 209 U.S. 123 (1908), the Court held that, although prohibited from giving orders directly to a State, federal courts could enjoin state officials in their official capacities. And in Edelman v. Jordan, 415 U.S. 651 (1974), when the Court held that the [Eleventh] Amendment grants the States an immunity from retroactive relief, it reaffirmed the principle that state officers are not immune from prospective injunctive relief. Aware that the difference between retroactive and prospective relief "will not in many instances be that between night and day," id., at 667, the Court emphasized in Edelman that the distinction did not immunize the States from their obligation to obey costly federal-court orders. The cost of compliance is "ancillary" to the prospective order enforcing federal law. Id., at 668. The line between retroactive and prospective relief cannot be so rigid that it defeats the effective enforcement of prospective relief.

The present case requires application of that principle. In exercising their prospective powers under Ex parte Young and Edelman v. Jordan, federal courts are not reduced to issuing injunctions against state officers and hoping for compliance. Once issued, an injunction may be enforced. Many of the court's most effective enforcement weapons involve financial penalties. A criminal contempt prosecution for "resistance to [the court's] lawful . . . order" may result in a jail term or a fine. 18 U.S.C. §401 (1976 ed.). Civil contempt proceedings may yield a conditional jail term or fine. United States v. United Mine Workers, 330 U.S. 258 (1947). Civil contempt may also be punished by a remedial fine, which compensates the party who won the injunction for the effects of his opponent's noncompliance. Id., at 304; Gompers v. Buck's Stove & Range Co., 221 U.S. 418 (1911). If a state agency refuses to adhere to a court order, a financial penalty may be the most effective means of insuring compliance. The principles of federalism that inform Eleventh Amendment doctrine surely do not require federal courts to enforce their decrees only by sending high state officials to jail. The less intrusive power to impose a fine is properly treated as ancillary to the federal court's power to impose injunctive relief.

In this case, the award of attorney's fees for bad faith served the same purpose as a remedial fine imposed for civil contempt.

Hutto v. Finney, 437 U.S. 678, 690-91 (1978). Knowing violations of the automatic stay, 11 U.S.C.A. §362, and the discharge injunction, §524(a)(2), can constitute civil contempts. In re Colon, 114 B.R. 890, 896 (Bankr.E.D.Pa. 1990). Bankruptcy courts have the statutory authority to punish civil contempts. In re Skinner, 917 F.2d 444, 447-48 (10th Cir. 1990). Consequently, based on the reasoning in Hutto, the Court believes it may award monetary sanctions against the defendant. Although Judge Crow recently ruled that §106(c) of the Bankruptcy Code, as interpreted by the United States Supreme Court, does not waive the federal government's immunity from the imposition of monetary damages for a violation of the discharge injunction, he did indicate in a footnote that the reasoning of Hutto would govern issues involving the Eleventh Amendment immunity of states, but that he would not apply it to issues concerning the sovereign immunity of the federal government. In re Shafer, 146 B.R. 477, 480 n.6, modified on other grounds 148 B.R. 617 (D.Kan. 1992).

For these reasons, the Court concludes the defendant is not immune from monetary damages if she is shown to have violated the automatic stay.

The parties should now determine how they wish to proceed with the other issues to remaining in this case. The Clerk is hereby directed to set this case for a final pretrial conference as the state of the docket permits.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of September, 1993.













__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

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