Notes on 11 U.S.C. § 106 : US Code - Notes

Search Notes on 11 U.S.C. § 106 : US Code - Notes

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2555; Pub. L. 103-394,
title I, Sec. 113, Oct. 22, 1994, 108 Stat. 4117.)
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 106(c) relating to sovereign immunity is new. The
provision indicates that the use of the term "creditor," "entity,"
or "governmental unit" in title 11 applies to governmental units
notwithstanding any assertion of sovereign immunity and that an
order of the court binds governmental units. The provision is
included to comply with the requirement in case law that an express
waiver of sovereign immunity is required in order to be effective.
Section 106(c) codifies In re Gwilliam, 519 F.2d 407 (9th Cir.,
1975), and In re Dolard, 519 F.2d 282 (9th Cir., 1975), permitting
the bankruptcy court to determine the amount and dischargeability
of tax liabilities owing by the debtor or the estate prior to or
during a bankruptcy case whether or not the governmental unit to
which such taxes are owed files a proof of claim. Except as
provided in sections 106(a) and (b), subsection (c) is not limited
to those issues, but permits the bankruptcy court to bind
governmental units on other matters as well. For example, section
106(c) permits a trustee or debtor in possession to assert avoiding
powers under title 11 against a governmental unit; contrary
language in the House report to H.R. 8200 is thereby overruled.
SENATE REPORT NO. 95-989
Section 106 provides for a limited waiver of sovereign immunity
in bankruptcy cases. Though Congress has the power to waive
sovereign immunity for the Federal government completely in
bankruptcy cases, the policy followed here is designed to achieve
approximately the same result that would prevail outside of
bankruptcy. Congress does not, however, have the power to waive
sovereign immunity completely with respect to claims of a bankrupt
estate against a State, though it may exercise its bankruptcy power
through the supremacy clause to prevent or prohibit State action
that is contrary to bankruptcy policy.
There is, however, a limited change from the result that would
prevail in the absence of bankruptcy; the change is two-fold and is
within Congress' power vis-a-vis both the Federal Government and
the States. First, the filing of a proof of claim against the
estate by a governmental unit is a waiver by that governmental unit
of sovereign immunity with respect to compulsory counterclaims, as
defined in the Federal Rules of Civil Procedure [title 28,
appendix], that is, counterclaims arising out of the same
transaction or occurrence. The governmental unit cannot receive a
distribution from the estate without subjecting itself to any
liability it has to the estate within the confines of a compulsory
counterclaim rule. Any other result would be one-sided. The
counterclaim by the estate against the governmental unit is without
limit.
Second, the estate may offset against the allowed claim of a
governmental unit, up to the amount of the governmental unit's
claim, any claim that the debtor, and thus the estate, has against
the governmental unit, without regard to whether the estate's claim
arose out of the same transaction or occurrence as the government's
claim. Under this provision, the setoff permitted is only to the
extent of the governmental unit's claim. No affirmative recovery is
permitted. Subsection (a) governs affirmative recovery.
Though this subsection creates a partial waiver of immunity when
the governmental unit files a proof of claim, it does not waive
immunity if the debtor or trustee, and not the governmental unit,
files proof of a governmental unit's claim under proposed 11 U.S.C.
501(c).
This section does not confer sovereign immunity on any
governmental unit that does not already have immunity. It simply
recognizes any immunity that exists and prescribes the proper
treatment of claims by and against that sovereign.
REFERENCES IN TEXT
Section 728 of this title, referred to in subsec. (a)(1), was
repealed by Pub. L. 109-8, title VII, Sec. 719(b)(1), Apr. 20,
2005, 119 Stat. 133.
The Federal Rules of Bankruptcy Procedure, referred to in subsec.
(a)(3), (5), are set out in the Appendix to this title.
AMENDMENTS
1994 - Pub. L. 103-394 amended section generally. Prior to
amendment, section read as follows:
"(a) A governmental unit is deemed to have waived sovereign
immunity with respect to any claim against such governmental unit
that is property of the estate and that arose out of the same
transaction or occurrence out of which such governmental unit's
claim arose.
"(b) There shall be offset against an allowed claim or interest
of a governmental unit any claim against such governmental unit
that is property of the estate.
"(c) Except as provided in subsections (a) and (b) of this
section and notwithstanding any assertion of sovereign immunity -
"(1) a provision of this title that contains 'creditor',
'entity', or 'governmental unit' applies to governmental units;
and
"(2) a determination by the court of an issue arising under
such a provision binds governmental units."
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and
applicable with respect to cases commenced under this title before,
on, and after Oct. 22, 1994, see section 702(a), (b)(2)(B) of Pub.
L. 103-394, set out as a note under section 101 of this title.
(!1) See References in Text note below.