UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
INTERNAL REVENUE SERVICE, APPELLANT V. WILLIAM CHARLES MURPHY, APPELLEE
CIVIL NO. 2:16-CV-08-DBH (BANKR. NO. 05-22363) (BANKR. ADV. NO. 11-2020)
DECISION AND ORDER ON BANKRUPTCY APPEAL
This bankruptcy appeal presents two primary questions: (1) how to interpret in a federal statute; (2) unrecognized cognitive impairment that comes to light only later can be used to upset an interlocutory ruling that may have resulted from inadequate representation during the cognitive impairment.
The appellant Internal Revenue Service ( IRS ) 1
argues that it should not be held liable for damages to a debtor-taxpayer under an Internal Revenue Code provision that allows a taxpayer to recover damages if the IRS a discharge injunction under section 524 of the Bankruptcy Code. The IRS and the
1 In the adversary proceeding from which the IRS appeals, the debtor named the Internal Revenue Service as the defendant. See Compl., Murphy v. I.R.S., Ch. 7 Case No. 05-22363, Adv. No. 11-2020 (Feb. 28, 2011) (Bankr. ECF No. 1). Where the debtor asserts that the IRS 7433(e)(1) (2015). As the appellant points out, the IRS does not have capacity for suit; the United States is the real party in interest. See, e.g., Reppert v. I.R.S. Like the ef, however, for simplicity this Order refers
decision to use offensive collateral estoppel to establish the IRS violation. The IRS argues that the predicate judgment against the IRS confirming that the bankruptcy discharge wiped out the tax debts (thus generating the estoppel) resulted from (AUSA) then unknown cognitive impairment.
After oral argument on August 22, 2016, I conclude that the bankruptcy court acted contrary to law and abused its discretion in failing to motions for reconsideration under the interests-of-justice test that Federal Rule of Civil Procedure 54(b) requires. 2
FACTS AND PROCEDURAL BACKGROUND The debtor-taxpayer William C. Murphy ( Murphy ) filed for Chapter 7 bankruptcy protection in October 2005. Voluntary Pet., In re Murphy, Ch. 7 Case No. 05-22363 (Oct. 13, 2005) (Bankr. ECF No. 1). The majority of the debts Murphy listed on his Petition were for outstanding federal income taxes for various years. Id. at 11 14. The bankruptcy court granted his discharge on February 14, 2006. Order Discharging Debtor, In re Murphy, Ch. 7 Case No. 05-22363 (Feb. 14, 2006) (Bankr. ECF No. 5).
Thereafter, the IRS informed Murphy that it considered his tax liabilities excepted from the 2006 discharge on the basis that Murphy had filed fraudulent returns or attempted to evade taxes. See 11 U.S.C.A. § 523(a)(1)(C). The IRS
2 Federal Rule of Bankruptcy Procedure 7054(a) incorporates Federal Rule of Civil Procedure 54(a) through (c). Throughout this Order I refer to the Federal Rules of Civil Procedure (as incorporated by the corresponding Bankruptcy Rules) unless the Bankruptcy Rule is substantively different than the Civil Rule. I note the corresponding Bankruptcy Rule in footnotes.
3 See Statement of Material Facts at 2-3, Murphy v. I.R.S., Adv. No. 09-2042 (May 4, 2010) (Bankr. ECF No. 41-1); Obj. and Resp. by IRS at 9-10, Murphy v. I.R.S., Adv. No. 09-2042 (May 25, 2010) (Bankr. ECF No. 44).
In August 2009, Murphy reopened his bankruptcy case and began the first adversary proceeding in bankruptcy court seeking a declaration that his 2006 discharge covered taxes owing for 1993 1998, 2000, and 2001; challenging the IRS attempts to collect taxes for the years covered by his bankruptcy discharge; and asking that the IRS be enjoined from all collection activities concerning the discharged tax liabilities. Compl., Murphy v. I.R.S., Adv. No. 09-2042 (Aug. 14, 2009) (Bankr. ECF No. 1). Because the AUSA who handled bankruptcy proceedings in this District accepted service of the Complaint, Murphy s counsel did not mail a copy of the Complaint to the Attorney General, as Federal Rule of Bankruptcy Procedure 7004(b)(5) would otherwise require. Therefore, the Tax Division of the Department of Justice and the Boston IRS Office of Chief Counsel were unaware of the adversary proceeding until long after an adverse judgment. 4 U.S. Renewed Mot. to Recons. Order Granting Partial Summ. J. at 8-9, Murphy v. I.R.S., Adv. No. 11-2020 (Nov. 16, 2015) (Bankr. ECF No. 265).
In this first adversary proceeding, Murphy bore the burden of proving that a bankruptcy discharge issued, but the IRS bore the burden of proving that
3 For a more detailed synopsis of the circumstances related to these earlier bankruptcy proceedings, see my earlier opinion on sary proceeding. I.R.S. v. Murphy, No. 2:14-cv-340-DBH, --- B.R. ---, 2015 WL 790075 (D. Me. Feb. 24, 2015). 4 the fact that the Complaint was not served in accordance with Bankruptcy Rule 7004(b)(5) bears on whether it was appropriate for the bankruptcy court to apply offensive collateral estoppel on the issue of liability. See Brief of Appellant at 53-
Bankruptcy Code section 523 and therefore that the 2006 discharge did not
prevent IRS collection efforts. See Pretrial Order at 6, Murphy v. I.R.S., Adv. No. 09-2042 (Oct. 20, 2009) (Bankr. ECF No. 19).
Murphy moved for summary judgment in this adversary proceeding on May 4, 2010, seeking a final determination that his 2006 discharge embraced his tax debts. Murphy v. I.R.S., Adv. No. 09-2042 (May 4, 2010) (Bankr. ECF No. 41). The AUSA who had been handling bankruptcy proceedings in this District on behalf of the government for many years took only limited discovery See
Notice of Service of Disc., Murphy v. I.R.S., Adv. No. 09-2042 (Dec. 3, 2009) (Bankr. ECF No. 26). In opposing the motion on May 25, 2010, the AUSA failed to present evidence that would tax liabilities were excepted an opposition that presiding Bankruptcy Judge
far short of applicable substantive and procedural under Federal Rule of Civil Procedure 56. 5
Order Granting Summ. J. at 5, Murphy v. I.R.S., Adv. No. 11-2020 (Dec. 20, 2013) (Bankr. ECF No. 94). In June 2010, Judge Haines granted Murphy s motion for summary judgment from the bench, stating:
y carefully of the 5 Federal Rule of Civil Procedure 56 is incorporated by Federal Rule of Bankruptcy Procedure for summary judgment in the second adversary proceeding (to establish liability for violating the for summary judgment in the first adversary proceeding in 2010.
view that the IRS has put forth qualified, evidentiary-quality, by affidavit or otherwise, materials that create disputed issues of material fact. A summary judgment for the plaintiff.
Tr. of Bench Ruling at 4-5, Murphy v. I.R.S., Adv. No. 09-2042 (June 22, 2010) 6 (Bankr. ECF No. 99).
In his ensuing order, Judge Haines the years 1993-1998, 2000, and 2001 discharged by the 2006 bankruptcy
discharge. Order Granting Mot. for Summ. J., Murphy v. I.R.S., Adv. No. 09- 2042 (June 22, 2010) (Bankr. ECF No. 48). The IRS did not appeal.
In February 2011, Murphy filed a second adversary Complaint against the IRS under Internal Revenue Code section 7433(e), which permits a taxpayer to recover damages a bankruptcy discharge under section 524 of the Bankruptcy Code. 7
Compl., Murphy v. I.R.S., Adv. No. 11- 2020 (Feb. 28, 2011) (Bankr. ECF No. 1); see 26 U.S.C.A. § 7433(e). Murphy alleged that the IRS was liable under section 7433(e) of the Internal Revenue Code because the IRS had violated Bankruptcy Code section 524 by levying on his discharged tax liabilities. Compl., Murphy v. I.R.S., Adv. No. 11-2020 (Feb. 28, 2011) (Bankr. ECF No. 1). The period for discovery in the second adversary proceeding expired without the AUSA taking any discovery. U.S.
6 Entered on the bankruptcy docket in the 09-2042 adversary proceeding on September 6, 2016, at the request of this court. This court also requested that the parties provide a transcript of the before Judge Haines on June 1, 2010. 7 Murphy first pursued an administrative claim for damages pursuant to 26 C.F.R. § 301.7433- 1(e), and was unsuccessful at the administrative level. See Stipulation to an Order Staying Adversary Proceeding, Murphy v. I.R.S., Adv. No. 11-2020 (Apr. 22, 2011) (Bankr. ECF No. 7); Order Staying Adversary Proceeding, Murphy v. I.R.S., Adv. No. 11-2020 (Apr. 25, 2011) (Bankr. ECF No. 8).
Request for a Status or Pretrial Conference in Chambers at 1, 3, Murphy v. I.R.S., Adv. No. 11-2020 (Dec. 11, 2012) (Bankr. ECF No. 52).
In 2012, the AUSA who had been handling this and other bankruptcy matters in this District stated his intention to retire by end. See id. at 1. Around the same time, colleagues of the AUSA stated concerns about his physical demeanor and possible health problems. See R. Murphy Decl. at 2, Murphy v. I.R.S., Adv. No. 11-2020 (Feb. 28, 2014) (Bankr. ECF No. 142-1) (sealed document). In October 2012, the United States Division that the AUSA had been potentially diagnosed with amyotrophic lateral sclerosis (ALS) and dementia. Id. at 6. Thereafter, the Tax Division informed the bankruptcy court that the AUSA d that the Tax Division would take over the defense of
the second adversary proceeding. U.S. Request for a Status or Pretrial Conference in Chambers at 1, Murphy v. I.R.S., Adv. No. 11-2020 (Dec. 11, 2012) (Bankr. ECF No. 52). In this same filing, Tax Division counsel said that the IRS planned to file a motion to reopen discovery on damages in the second adversary proceeding based on excusable neglect under Bankruptcy Rule 9006 and/or good cause under Federal Rule of Civil Procedure 16(b)(4). Id. at 3.
At that time, the parties agreed that the IRS would defer moving to reopen discovery pending cross motions for summary judgment on liability. See Am. Joint Pretrial Order at 5-6, Murphy v. I.R.S., Adv. No. 11-2020 (Mar. 27,
2013) (Bankr. ECF No. 63). The principal argument that the IRS made in its motion for summary judgment was that the IRS should be able to escape liability
it relied on a good faith belief that the statutory discharge injunction was inapplicable to the tax debts at issue. Br. in Support of Mot. for Summ. J. at 1- 19, Murphy v. I.R.S., Adv. No. 11-2020 (May 1, 2013) (Bankr. ECF No. 69). [d] injunction under section 7433(e) because the tax debt was discharged, the IRS
had notice of the discharge, and the IRS intended the acts that violated the discharge injunction. Murphy Cross-Motion for Summ. J. at 4-8, Murphy v. I.R.S., Adv. No. 11-2020 (June 28, 2013) (Bankr. ECF No. 80).
On December 20, 2013, Bankruptcy Judge Haines granted partial summary judgment on liability to taxpayer Murphy in the second adversary proceeding. Order Granting Summ. J., Murphy v. I.R.S., Adv. No. 11-2020 (Dec. 20, 2013) (Bankr. ECF Nos. 94 95). Using the doctrine of offensive collateral estoppel, Judge Haines ruled that the preclusive effect of the June 2010 summary judgment order in the first adversary proceeding (determining that discharged) estopped the IRS from asserting that Murphy s tax debt was excepted from discharge for the purpose of escaping liability under 26 U.S.C.A. § 7433(e). Id. As a result, liability (not damages) was established. Id. At the time Judge Haines issued his ruling, he knew of the by- then- (it was brought to his attention in a 2013 status conference), but nothing in the record suggested had affected his competency during the first adversary proceeding in 2010. Although the IRS sought an interlocutory appeal from the partial summary judgment, I denied the request, Murphy v. I.R.S., No. 2:14-mc-24-DBH, --- B.R.
---, 2014 WL 840255 (D. Me. Mar. 4, 2014), ruling that the appeal should await final judgment after a determination of damages.
Thereafter, the learned that he had in fact been diagnosed with frontotemporal dementia in late 2011, coupled with ALS, and that three physicians all predated the May 2010 summary judgment proceedings in the first adversary
proceeding. See U.S. Mot. to Revise Interlocutory Order Granting Partial Summ. J. on Issue of Liability at 6-10, Murphy v. I.R.S., Adv. No. 11-2020 (Apr. 11, 2014) (Bankr. ECF No. 155); Mem. Mot. to Reopen Damages Disc. at 6-9, Murphy v. I.R.S., Adv. No. 11-2020 (Feb. 7, 2014) (Bankr. ECF No. 132) (sealed document); Exs. Medical R., Murphy v. I.R.S., Adv. No. 11-2020 (Apr. 1, 2014) (Bankr. ECF No. 152-2) (sealed documents). The IRS then filed three motions seeking relief.
In the first adversary proceeding, the IRS moved the bankruptcy court under Federal Rule of Civil Procedure 60(b)(6) and 60(b)(4) 8
to vacate its 2010 final discharge order. Mot. for Relief from the Final Order of June 22, 2010, Murphy v. I.R.S., Adv. No. 09-2042 (May 1, 2014) (Bankr. ECF No. 52). Judge Haines having retired, Bankruptcy Judge Kornreich denied the motion in June 2014, 9
see Order on 8
Bankruptcy Rule 9024 applies Rule 60 of the Federal Rules of Civil Procedure, subject to three exceptions that are inapplicable here. 9 The bankruptcy court denied the motion without an evidentiary hearing. The bankruptcy court could have been ascertained at the time, if indeed there were such failures, if there had been appropriate review during the Murphy v. I.R.S., Adv. No. 09-2042 (June 25, 2014) (Bankr. ECF No. 80). The bankruptcy court , Id.
Order, Murphy v. I.R.S., Adv. No. 09-2042 (June 26, 2014) (Bankr. ECF No. 78). The IRS appealed to this c s denial of Rule 60(b) relief on February 24, 2015. See I.R.S. v. Murphy, No. 2:14-cv-340- DBH, --- B.R. ---, 2015 WL 790075 (D. Me. Feb. 24, 2015). 10
The IRS also filed two motions in the second adversary proceeding: (1) the IRS moved to reopen discovery on damages based on its contention of excusable neglect and/or good cause because of the during the second adversary proceeding Mot. to Reopen Damages Disc., Murphy v. I.R.S., Adv. No. 11-2020 (Jan. 27, 2014) (Bankr. ECF No. 114); and (2) the IRS moved to reconsider or revise the interlocutory order granting summary judgment on the issue of liability, U.S. Mot. to Revise Interlocutory Order Granting Partial Summ. J. on Issue of Liability, Murphy v. I.R.S., Adv. No. 11-2020 (Apr. 11, 2014) (Bankr. ECF No. 155). Again, Judge Haines having retired, Judge Kornreich denied both motions from the bench on May 8, 2014.
at 9. Id. The bankruptcy court did not address the Anti-Injunction Act arguments, but after full consideration, I found those arguments
unpersuasive. See I.R.S. v. Murphy, No. 2:14-cv-340-DBH, --- B.R. ---, 2015 WL 790075, at *12- 16 (D. Me. Feb. 24, 2015). 10 I concluded )(1) was four years. I.R.S. v. Murphy, No. 2:14-cv-340-DBH, --- B.R. ---, 2015 WL 790075, at *6 (D. Me. Feb. 24, 2015) void under Federal Rule of Civil Procedure 60(b)(4) under any argument that the IRS pressed and on is tragic, and any IRS loss that occurred on account of his impairment is unfortunate, [ ] the bankruptcy court did not abuse its discretion in concluding that under all of the circumstances the government failed to seek relief under Rule 60(b)(6) withi Id -back proceeding in June 2010 should have no collateral estoppel or claim preclusion effect. Id. at effect of establishing liability in the second adversary proceeding is an appeal from final judgment
Id. That appeal is what is now before me.
Tr. of Bench Ruling at 8, 10, Murphy v. I.R.S., Adv. No. 09-2042 (May 8, 2014) (Bankr. ECF No. 65) 11
; see to Revise Interlocutory Order, Murphy v. I.R.S., Adv. No. 11-2020 (May 13, 2014) (Bankr. ECF No. 165); Order Mot. to Reopen Damages Disc., Murphy v. I.R.S., Adv. No. 11-2020 (May 13, 2014) (Bankr. ECF No. 166).
With regard to the Rule 54(b) 12
motion to reconsider or revise Judge summary judgment on liability, Judge Kornreich stated that he the applicability of that rule, did not apply it, and instead applied Federal Rule of Civil Procedure 60(b) 13
which is applicable only to final judgments. Tr. of Bench Ruling at 9, Murphy v. I.R.S., Adv. No. 09-2042 (May 8, 2014) (Bankr. ECF No. 65). In s motion to reconsider, stating:
My denial of the motion has two prongs. First, that the disability was not the problem; that if there was a failure to adequately prosecute that was attributable to a failure to supervise and as I have been told by the United States Attorney, supervision is not part of the game plan. 14
Second, I have reviewed the written decision and have determined, according to my own likes, that there was no error of law which would permit me as a trial judge of this court to set aside or reconsider the decision of [Judge Haines].
11 Although the motion was made in the second adversary proceeding, the transcript of the bankruptcy c Tr. of Bench Ruling at 8, 10, Murphy v. I.R.S., Adv. No. 09-2042 (May 8, 2014) (Bankr. ECF No. 65). 12 Incorporated by Federal Rule of Bankruptcy Procedure 7054. 13 Incorporated by Federal Rule of Bankruptcy Procedure 9024. 14 sider, counsel for the IRS revealed that for this AUSA who handled bankruptcy cases in this District there was no procedure for review of his decisions or hierarchy of supervision in place to identify failings of counsel. Tr. of Oral Argument on Apr. 7, 2014 at 28-30, Murphy v. I.R.S., Adv. No. 11-2020 (May 23, 2014) (Bankr. ECF No. 169) (sealed document). Moreover, because of the unique lawyer/client relationship when the Justice Department represents an agency like the IRS, the AUSA did not consult with the agency about litigation tactics or strategy, or send the IRS motions to review before filing. See id. at 27- 28. Thus, there was no agency review and no internal review to monitor performance of counsel.
Id. at 9-10 (footnote added by this court).
Thereafter, the parties entered into and submitted to the bankruptcy court a stipulation as to damages, with certain rights reserved, whereby they stipulated to $225,000 in damages caused by the IRS levies after the discharge. Settlement Agreement as to Damages (with Certain Rights Reserved), Murphy v. I.R.S., Adv. No. 11-2020 (Oct. 2, 2015) (Bankr. ECF No. 259-2). The parties also agreed that the damages were contingent upon the IRS being able to file a renewed motion to reconsider in the bankruptcy court and to appeal any final judgment including the liability decision of December 20, 2013, and the denials of any motions to reconsider that determination. Id. at 1-3, 5; see U.S. Renewed Mot. to Recons. Order Granting Partial Summ. J. on Issue of Liability, Murphy v. I.R.S., Adv. No. 11-2020 (Nov. 16, 2015) (Bankr. ECF No. 265).
On December 14, 2015, Judge Kornreich also having retired and the two successor bankruptcy judges in this District being recused, Bankruptcy Judge Hoffman of the District of Massachusetts denied the renewed motion to reconsider the liability decision, determining on the willfulness issue settled law in the First Circuit that damages are available for violation of the
discharge injunction if a creditor had knowledge of the discharge and intended the actions which constit & Order on Renewed Mot. of U.S. to Recons. at 3-4, Murphy v. I.R.S., Adv. No. 11-2020 (Dec. 14, 2015) (Bankr. ECF No. 266) (citing Pratt v. GMAC, 462 F.3d 14, 21 (1st Cir. 2006); Fleet Mortg. Grp., Inc. v. Kaneb, 196 F.3d 265, 268 (1st Cir. 1999)). As to the estoppel to determine liability, Judge Hoffman stated exible standards of
Fed. R. Bankr. P. 7054 [incorporating Federal Rule of Civil Procedure 54(b)], I find no basis to [s] partial summary judgment ruling Id. at 5 (footnote omitted). 15
In accordance with the settlement agreement, final judgment entered in favor of Murphy in the amount of $225,000 on December 23, 2015. Final Judgment, Murphy v. I.R.S., Adv. No. 11-2020 (Dec. 23, 2015) (Bankr. ECF No. 268). This timely appeal followed.
JURISDICTION The district court has 28 U.S.C.A. § 1334. The bankruptcy court had jurisdiction by reference from this court under 28 U.S.C.A. § 157. See Local Rule 83.6. If the adversary proceeding seeking damages was a core bankruptcy proceeding (I conclude that it was, see infra), the reference was under section 157(b). If the adversary proceeding was a noncore bankruptcy proceeding, the reference was under section 157(c)(1). Because the IRS elected to have this appeal from the bankruptcy court heard by the District Court instead of the Bankruptcy Appellate Panel, this court now has jurisdiction under 28 U.S.C.A. § 158(a)(1), (c)(1)(A).
STANDARD OF REVIEW In core proceedings, conclusions of law reached by the bankruptcy court are subject to de novo review, and underlying factual findings are reviewed only for clear error. Monarch Life Ins. Co. v. Ropes & Gray, 65 F.3d 973, 978 (1st
15 Judge Hoffman recognized the error of the previous denial, stating that he was applying Bankruptcy Rule 7054 (Fed. R. Civ. P. 54) rather than Bankruptcy Rule 9024 (Fed. R. Civ. P. 60). Mem. & Order on Renewed Mot. of U.S. to Recons. at 5 & n.6, Murphy v. I.R.S., Adv. No. 11-2020 (Dec. 14, 2015) (Bankr. ECF No. 266).
Cir. 1995). Discretionary decisions are reviewed for abuse of discretion. In re Gonic Realty Tr., 909 F.2d 624, 626 (1st Cir. 1990). In noncore proceedings the findings of fact, conclusions of law, and discretionary decisions are reviewed de novo. See 28 U.S.C.A. § 157(c)(1); In re Sheridan, 362 F.3d 96, 99-100 (1st Cir. 2004).
ANALYSIS The IRS has raised two issues on appeal: (1) what kind of intent determines whether an IRS employee the bankruptcy discharge injunction under section 7433(e); and (2) in refusing to reconsider or revise its order determining that the IRS was liable under section 7433(e) based upon offensive collateral estoppel, did the bankruptcy court improperly apply Federal Rule of Civil Procedure 54(b) previously unknown cognitive impairment.
A. The Section 7433(e) Standard fo Viol
Internal Revenue Code section 7433(e) 16
provides: If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service willfully violates any provision of section 362 (relating to automatic stay) or 524 (relating to effect of discharge) of Title 11, United States Code (or any successor provision), or any regulation promulgated under such provision, such taxpayer may petition the bankruptcy court to recover damages against the United States. The IRS Restructuring and Reform Act of 1998 added subsection (e) as part of a significant bipartisan effort to payers by investigative hearings
16 The entire text of 26 U.S.C.A. § 7433 appears as Appendix 1 to this decision.
examining both the internal and public conduct of the agency. 144 CONG. REC. S4251-01 (daily ed. May 5, 1998); S. REP. NO. 105-174, at 7-9 (1998); Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 Stat. 685 (1998). The Act including the ability to collect civil damages if an IRS employee sections 362 or 524 of the Bankruptcy Code, Pub. L. No. 105-206, § 3102(c), and reckless, intentional, or negligent disregard of any provision of the Internal Revenue Code, id. § 3102(a). 17
Although the legislative history of the entire Act is voluminous, it does not explain why Congress used subsection (7433(a) remedy for violations of the Internal Revenue Code), and used a different subsection (7433(e) remedy for violations of sections 362 and 524 of the Bankruptcy Code). It is a general principle, however, that Congress d against a background of law already in place and the historical development of that law. Exxon Mobile Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 587 (2005). I therefore address the interpretations of those terms at the time section 7433(e) was enacted. s in the Internal Revenue Code and is an element of several tax crimes in Title 26. See, e.g., 26 U.S.C.A. §§ 7201-07. In that context, the Supreme Court has defined the term requir[ing] the Government to prove that the law imposed a duty on the defendant, that the
17 Before the IRS Restructuring and Reform Act of 1998, taxpayers could recover damages from See Pub. L. No. 105-206, § 3102(a), 112 Stat. 730.
defendant knew of this duty, and that he voluntarily and intentionally violated that duty Cheek v. United States, 498 U.S. 192, 201 (1991) (emphasis added). As a result, a taxpayer defendant may raise as a defense that he held a good faith belief that he was not violating any provision of the tax laws. Id. at 202; see United States v. Aitken, 755 F.2d 188, 191-93 (1st Cir. 1985); cf. Ratzlaf v. United States, 510 U.S. 135, 137 lish that a defendant willfully violat[ed the antistructuring law, the Government must prove that the .
In contrast to these Internal Revenue Code provisions and interpretations, , and that is the provision prohibiting any violation of the section 362 automatic stay, 11 U.S.C.A. § 362(k)(1). 18
However, courts have used the standard for assessing violations of the discharge injunction as well, relying
on the statutory contempt powers in section 105. 19
See, e.g., Crysen/Montenay Energy Co. v. Esselen Assocs., Inc. (In re Crysen/Montenay Energy Co.), 902 F.2d 1098, 1105 (2d Cir. 1990); Cuffee v. Atl. Bus. & Cmty., Dev. Corp. (In re Atl. Bus. & Cmty. Corp.), 901 F.2d 325, 329 (3d Cir. 1990); Goichman v. Bloom (In re Bloom), 875 F.2d 224, 227 (9th Cir. 1989); David M. Holliday, Annotation,
18 Section 524 of the Bankruptcy Code does contain the term 11 U.S.C.A. § 524(i). 19 Section 105(a) provides:
The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. 11 U.S.C.A. § 105(a).
Willful Violation of Discharge Injunction Provisions of Bankruptcy Code § 524(a)(2) and (3), 9 A.L.R. Fed. 2d 431 (2016) (collecting cases). The term is not defined in the Bankruptcy Code. But courts have stated that a willful
violation occurs knew that the automatic stay was invoked and (2) intended the actions which violated the stay. This test is likewise applicable to determining willfulness for violations of the discharge injunction of § Hardy v. I.R.S. (In re Hardy), 97 F.3d 1384, 1390 (11th Cir. 1996) (citation omitted) (internal quotation marks omitted).
Against this backdrop, it is logical to conclude that when Congress adopted the undefined subsection of section 7433 that applies to IRS bankruptcy § 7433(e) (emphasis added), it was using the meaning that the cases addressing bankruptcy violations previously had given it,
and not the meaning of that courts use when taxpayers violate the Internal Revenue Code. Furthermore, in the same subsection of 7433, Congress recognized that individual debtors can by the IRS of a section 362 stay. Id. § 7433(e)(2)(B). As I have said, that term was already defined by the caselaw. It is unlikely that Congress intended subsection (e) of section 7433 to encompass two separate definitions in the same sentence. Thus, I am unpersuade (the automatic stay provision) and section 524 (the discharge injunction
20 One bankruptcy court has stated that Congress as a result of repeated violations of the dis In re Johnston, No. 2:01-BK-06221-SSC, 2010 WL 1254882, at *4 n.13 (Bankr. D. Ariz. Mar. 22, 2010), d on other grounds, No. 2:01-BK- 06221-SSC, 2014 WL 5797644 (D. Ariz. Sept. 25, 2014), but it cites no authority for the statement.
provision) should be treated differently. Section 7433(e) applies the same violations of both sections.
The First Circuit has articulated the standard for willfulness in the context of violating the automatic stay as follows:
A good faith belief in a right to the property is not relevant to a determination of whether the violation was willful. A willful violation does not require a specific intent to violate the automatic stay. The standard for a willful violation of the automatic stay under § 362(h) is met if there is knowledge of the stay and the defendant intended the actions which constituted the violation. Kaneb, 196 F.3d at 268-69 (emphasis added) (citations omitted). The First Circuit has said that the same standard applies for willful violations of the section 524 discharge injunction. See In re Pratt, 462 F.3d at 21; see also 4 Collier on Bankruptcy § discharge injunction are willful if the creditor knows the discharge has been
. I conclude that the same standard applies to section 7433(e). I also note that the interpretation of the term in this lawsuit is undermined by own internal manual. After providing an overview regarding the IRS authority to pay damages and attorney fees for violations of the automatic stay and discharge injunction, the Internal Revenue Manual explicitly states:
(4) Willfulness. The Service can only be held liable for of the stay or discharge injunction. means an act that was committed intentionally or knowingly.
A willful violation occurs when the Service has received notice of a voluntary bankruptc s granting of a discharge, and the Service does not respond timely to stop its collection activities.
(5) Identifying Willfulness. To determine if a willful violation has occurred, [the IRS] must verify the Service received notice of the bankruptcy or discharge order and:
Internal Revenue Manual § 18.104.22.168.7.1 (Payment of Damages) (Aug. 11, 2015). Although the Manual is not binding authority, 21
its definition of willfulness is consistent with the standard I apply here. The IRS argues that sovereign immunity requires a different, more demanding standard for determining liability under section 7433(e). See IRS Br. at 42-46. But it is clear that the government has waived sovereign immunity by virtue of section 7433(e), and the statutory language is straightforward. There is no ambiguity that would require sovereign immunity principles to tip the scales the other way. As a result, upon de novo review I conclude that the bankruptcy court was correct in ruling that section 7433(e) willfulness is satisfied if the taxes at issue were discharged, the IRS knew of the bankruptcy discharge, and the IRS thereafter engaged in collection efforts, regardless of good faith. Here, the IRS knew of the bankruptcy court discharge and sought to collect tax debts nevertheless. It is therefore liable under section 7433(e) unless the tax debts were in fact not discharged.
decision refusing to reconsider its interlocutory ruling that offensive collateral estoppel prevented the IRS from
21 See Griswold v. United States does not have the force of law, the manual provisions do constitute persuasive authority as to (citing Anderson v. United States, 44 F.3d 795, 799 (9th Cir.1995))); see also United States v. Michaud, 860 F.2d 495, 498-500 (1st Cir. 1988); United States v. Hopkins, 509 F. Ap In re Krause, 386 B.R. 785, 841 (Bankr. D. Kan. 2008), No. 08-1132, 2009 WL 5064348 (D. Kan. Dec. 16, 2009), 637 F.3d 1160 (10th Cir. 2011); Yalkut v. Gemignani, 873 F.2d 31, 35 (2d Cir. 1989).
contesting whether the taxes were discharged for purposes of the second adversary proceeding seeking damages under section 7433(e). The bankruptcy court denied the Rule 54(b) motion twice. That is the subject of the second issue in this appeal. B. Ruling
The IRS accepts that it is for debts. 22 But it requests that I vacate the judgment, and vacate and remand the so that it can attempt to prove that a discharge exception applies for the purpose of refuting [an IRS] willful violation [and resulting damages], even though res judicata bars collecting the taxes. IRS Br. at 47-63. Murphy, in turn, argues that the bankruptcy court did not abuse its discretion in estopping the IRS from relitigating whether his taxes were discharged because it is not the job of the supervised or their cases [are] not being
1. Rule 54(b) Review of an Interlocutory Ruling
a. Core or Noncore Proceeding First, I address the core versus noncore nature of this adversary proceeding. The IRS argues that my review is de novo because the damages remedy created by 26 U.S.C.A. § 7433(e) not Title 11 and it is therefore a noncore bankruptcy proceeding. IRS Br. at 49. Murphy
22 I affirmed the denial of Rule 60(b) relief from a final judgment in the first adversary proceeding. See I.R.S. v. Murphy, No. 2:14-cv-340-DBH, --- B.R. ---, 2015 WL 790075, at *16 (D. Me. Feb. 24, 2015).
argues that because the bankruptcy court has exclusive jurisdiction over such claims under section 7433(e) this is a core proceeding, and therefore my review is limited to whether the bankruptcy court abused its discretion the standard of review for appeals from denials of motions to reconsider. Murphy Br. at 46.
I conclude that this is a core proceeding. Section 157 of Title 28 sets forth such as 28 U.S.C.A. § 157(b)(2)(I), and id. § 157(b)(2)(B), as well as a broadly- affecting the liquidation of the assets of the estate or the adjustment of the
debtor-creditor or the equity security holder relationship id. § 157(b)(2)(O). to section 7433(e) is not a noncore proceeding because it appears in Title 26 instead of Title 11. Rather, the First Circuit has indicated that core proceedings are those that are In re Sheridan, 362 F.3d at 108 09 (internal quotation marks omitted). Put another way, ontroversies that do not depend on the bankruptcy laws for their existence suits that could proceed in another court even in the absence of bankruptcy Id. (quoting Jackson v. Wessel (In re Jackson), 90
B.R. 126, 129 (Bankr. E.D. Pa. 1988), d, 118 B.R. 243 (E.D. Pa. 1990)). Section 7433(e) does not fit that paradigm.
Section 7433(e) was explicitly added to remedy actions for violations of certain bankruptcy procedures and states that it is to be the exclusive remedy for automatic stay violations (section 362) and discharge violations (section 524).
26 U.S.C.A. § 7433(e), (e)(2) (emphasis added). Subsection (e) is dependent upon and would not exist without the bankruptcy laws, see In re Sheridan, 362 F.3d at 108-09, the automatic stay and the discharge injunction created by the Bankruptcy Code. Moreover, the nonexhaustive list of core proceedings found in section 157(b)(2) includes proceedings that determine the dischargeability of particular debts. The fact that part of a damages claim pursuant to section 7433 of the Internal Revenue Code does not make this matter noncore. In a core proceeding, judgment under traditional appellate standards, Exec. Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165, 2171 72 (2014), namely novo, its factual findings for clear error, and its [discretionary rulings] for abuse
In re Puffer, 674 F.3d 78, 81 (1st Cir. 2012) (citations omitted).
b. Denial of the Rule 54(b) 23
Motions Here is the record before me concerning the bankruptcy court rulings. In June 2010, Judge Haines granted summary judgment to Murphy that the tax debt at issue was discharged because the IRS presented no
23 Incorporated by Federal Rule of Bankruptcy Procedure 7054(a). Federal Rule of Civil Procedure 54(b) states:
(b) Judgment on Multiple Claims or Involving Multiple Parties. When an action presents more than one claim for relief whether as a claim, counterclaim, crossclaim, or third-party claim or when multiple parties are involved, the court may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for delay. Otherwise, any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and rights and liabilities. (Emphasis added.)
evidence to the contrary. Then in December 2013, relying on that 2010 ruling, Judge Haines used offensive collateral estoppel to grant partial summary judgment to Murphy on the issue of the ability for damages under section 7433(e). In December 2013, Judge Haines had learned of the by-then-retired , but there was no available medical evidence to suggest that the impairment existed during the first summary judgment proceeding in 2010 (the first adversary proceeding). In April 2014, after procuring the medical records impairment predated the 2010 summary judgment, the IRS moved under Rule
54(b) to reconsider or revise Judge interlocutory order granting summary judgment on liability (in the second adversary proceeding), arguing that the newly discovered evidence and the unique factual circumstances of this case presented the type of situation where the bankruptcy court should exercise its discretion to reconsider its interlocutory decision and decline to apply offensive collateral estoppel. That 54(b) motion to reconsider came before Judge Kornreich for hearing in May 2014 because Judge Haines had retired. Judge Kornreich said that he He did not apply the standard of Rule 54(b) (interests of justice) for an interlocutory ruling and instead applied the more stringent standard of Rule
for vacating final judgments, and 25 In October 2015, the parties reached a stipulation as to damages and agreed that the IRS could file a renewed motion to reconsider December 20, 2013, partial summary judgment on liability.
The IRS moved again in November 2015 under Rule 54(b) not Rule 60(b) for the bankruptcy court to reconsider and revise interlocutory liability determination from December 20, 2013. The IRS pointed
out that, unlike Rule 60(b), a motion for reconsideration under Rule 54 standar U.S. Renewed Mot. to Recons.
Order Granting Partial Summ. J. on Issue of Liability at 21, Murphy v. I.R.S., Adv. No. 11-2020 (Nov. 16, 2015) (Bankr. ECF No. 265) (internal quotation marks omitted) (citing Greene v. Union Mut. Life Ins. Co. of Am., 764 F.2d 19, 22-23 (1st Cir. 1985)). By then, Judge Kornreich had also retired. Bankruptcy Judge
24 Incorporated by Federal Rule of Bankruptcy Procedure 9024. Judger Kornreich said that he more demanding than Rule 54(b). Tr. of Bench Ruling at 9, Murphy v. I.R.S., Adv. No. 09-2042 (May 8, 2014) (Bankr. ECF No. 65); see 1946 ence, interlocutory judgments are not brought within the restrictions of the rule, but rather they are left subject to the complete power of the court rendering them to afford such see also Fed. Deposit Ins. Corp. v. Francisco Inv. Corp., 873 F.2d 474, 478 (1st Cir. 1989) If we were to apply the 60(b) standard to non-final default judgments we would have the anomaly of using the strict standard envisioned for final judgments to non-final default judgments and the more liberal standard of Rule 54(b) to other non-final judgments. 25
[t]hose newly discovered facts have nothing to do with the merits of the case. . . . [T]he disability was not the problem; that if there was a failure to adequately prosecute that was attributable to a failure to supervise and as I have been told by Tr. of Bench Ruling at 9, Murphy v. I.R.S., Adv. No. 09-2042 (May 8, 2014) (Bankr. ECF No. 65). I certainly appreciate that was one of the factors that played a role in my affirming the denial of Rule 60(b) relief to the final judgment in the first adversary proceeding. But that is only one factor out of many to consider in deciding under the interests of justice whether an interlocutory order should be vacated or revised under Rule 54(b). See infra note 29.
Hoffman, who was assigned from the District of Massachusetts, ruled on the . 26
Judge Hoffman devoted a single paragraph
to argument that offensive collateral estoppel was inequitable under the circumstances of t In it, he summarily reasoning for denying the first motion for reconsideration before stating: standards of Fed. R. Bankr. P. 7054 [which incorporates Rule 54(b)], I find no
basis to reconsider Judge Haines [s] Mem. & Order on Renewed Mot. of U.S. to Recons. at 5, Murphy v. I.R.S., Adv. No. 11- 2020 (Dec. 14, 2015) (Bankr. ECF No. 266) (footnote omitted). Judge Hoffman , entered final judgment in favor of Murphy on December 23, 2015 based upon the summary judgment of liability and the stipulated damages and the IRS appealed to this court.
Rulings on motions to reconsider in a core proceeding are reviewed for an abuse of discretion. In re Popa, 214 B.R. 416, 419-20 (B.A.P. 1st Cir. 1997), d, 140 F.3d 317 (1st Cir. 1998). A [ ] court abuses its discretion a relevant factor deserving of significant weight is overlooked, or when an improper factor is accorded significant weight, or when the court considers the appropriate mix of factors, but commits a palpable error of judgment in calibrating the decisional scales United States v. Siciliano, 578 F.3d 61, 72 (1st Cir. 2009) (quoting United States v. Roberts, 978 F.2d 17, 21 (1st Cir. 1992)).
26 As the Settlement Agreement contemplated, he did so without inviting Murphy to respond. See Order, Murphy v. I.R.S., Adv. No. 11-2020 (Oct. 9, 2015) (Bankr. ECF No. 260); Settlement Agreement as to Damages (with Certain Rights Reserved) at 5, Murphy v. I.R.S., Adv. No. 11- 2020 (Oct. 2, 2015) (Bankr. ECF No. 259-2). 27 I reproduce the entire paragraph in Appendix 2.
Unlike the more stringent standards for a Rule 60(b) motion to vacate a final judgment, a [ ] court faced with a motion to reconsider [a nonfinal ruling] must apply an interests-of-justice test. Roberts, 978 F.2d at 21 (emphasis added); see Douglas v. York Cty., 360 F.3d 286, 290 (1st Cir. 2004). Because is an ideal that defies precise definition, said that there is no single list of factors that will apply in every case, but has provided Roberts, 978 F.2d at 21-22. Those rules of thumb include (1) the nature of the case (in Roberts, vacating the previous order); (2) where the ruling resulted from a dilatory filing, the degree of tardiness; (3) the reasons underlying that tardiness; (4) (deliberate, accidental, grossly negligent, or merely careless); (5) what prejudice the failure caused to the other party; (6) the institutional interests of the court in enforcement of its procedural rules and the burden on judicial resources; and (7) the likelihood of success for the party seeking to revisit the interlocutory ruling. Id. at 21-23. Courts are not required to look at each factor in every case and are not precluded from examining other factors depending on the relevant circumstances. Id. at 22; see Siciliano, 578 F.3d at 72-73; Douglas, 360 F.3d at 290; Golf Tech, LLC v. Edens Techs., LLC, 610 F. Supp. 2d 106, 109 (D. Me. 2009). However, the court must apply the correct test.
The ruling on was contrary to law and an abuse of discretion because the bankruptcy judge applied the more stringent standards of Rule 60(b) for relief from final judgment, see Fed.
Deposit Ins. Corp. v. Francisco Inv. Corp., 873 F.2d 474, 478 (1st Cir. 1989), rather than the interests-of-justice test for an interlocutory ruling. 28
The 2015 denial explicitly cited Rule 54(b), but nowhere did it state the proper test the interests-of-justice test. Essentially it recapitulated Judge Kornreich
Judge Kornreich denied the previous motion for reconsideration on the basis that the United States Attorney should have supervised his AUSA. The government admitted at oral argument before Judge Kornreich that if the AUSA had merely been negligent, sloppy or inattentive, it would not be seeking relief. Judge Kornreich soundly reasoned that the late-discovered mental disability of the AUSA did not justify reconsideration professional incompetence would have.
Mem. & Order on Renewed Mot. of U.S. to Recons. at 5, Murphy v. I.R.S., Adv. No. 11-2020 (Dec. 14, 2015) (Bankr. ECF No. 266) (footnote omitted). At best, this explanation mentions a single Rule 54(b) factor the institutional interests of the court. I conclude that the Rule 54(b) interests-of-justice test was never applied to either IRS motion to reconsider, an abuse of discretion and contrary to law. See Roberts, 978 F.2d at 21.
The ruling under Rule 54(b) should not be based solely on the bankruptcy le dissatisfaction with how AUSAs in bankruptcy court are supervised. 29
That may be important in an excusable neglect analysis, and
28 Because damages had not yet been determined under section December 2013 order granting partial summary judgment to Murphy was interlocutory. 29 asserted gross failing in the summary judg I.R.S.
v. Murphy, No. 2:14-cv-340-DBH, --- B.R. ---, 2015 WL 790075 (D. Me. Feb. 24, 2015); see United States v. Golden Elevator, Inc., 27 F.3d 301, 304 (7th Cir. 1994) Supervision of Assistant United States Attorneys is a job for the Executive Branch, not for the Judicial Branch, and, if internal
indeed the IRS has already paid a price for that lack of supervision in the final judgment discharging the tax debts. But the Rule 54(b) analysis is different. An assessment of the interests of justice should consider the nature of the case (a taxpayer seeking damages from the government which would be in addition to his successful discharge of his tax debts); the nature of the default (here, not a late filing, but a failure to produce evidence in opposition to motion for summary judgment); the reasons for the default (here, evidence that the AUSA was cognitively impaired at the time that he performed inadequately); the degree of culpability (perhaps none by the AUSA if he was cognitively impaired in a way that prevented him from appreciating his condition; some by the U.S. Attorney ); the prejudice to the taxpayer (here, no prejudice so far as dischargeability of the tax debts is concerned because that judgment is final; but if the IRS is allowed to challenge the merits of the damages action and succeeds in showing that the
controls fail, the Executive Branch must accept the consequences. lack of supervision is not a per se reason to deny relief. For example, the First Circuit has previously ruled that the illness of a solo practitioner justified vacating a default six months after its entry and only a few weeks before the beginning of a trial under Federal Rule of Civil Procedure 55(c) (permitting a court to set aside the entr Leshore v. Cty. of Worcester, 945 F.2d 471, 472-73 (1st Cir. 1991). Similarly, the Ninth Circuit has held that the counsel can amount to an extraordinary circumstance under [Federal Rules of Appellate Procedure] 4(a)(5) (permitting the district court to extend the time for filing an appeal on a showing by the moving party that the failure to file ), even when the attorney was only one of many attorneys responsible for the administration of the case. Islamic Republic of Iran v. Boeing Co., 739 F.2d 464, 465 (9th Cir. 1984). In another Ninth Circuit case involving Rule 60(b)(1) (permitting motions for relief from a final judgment b not more than one year after the judgment ), the court vacated the order denying the motion for Rule 60(b) relief when a lawyer failed to sufficiently oppose summary judgment as the result of a serious mental impairment. Gravatt v. Paul Revere Life Ins. Co. x 194, 196-97 (9th Cir. 2004); see also United States v. Cirami, 563 F.2d 26, 32-36 (2d Cir. 1977) (vacating the t under Rule 60(b)(6) (permitting relief a reasonable time ) when the motion was filed approximately two years after summary judgment were the result of a mental illness).
tax debts should not have been discharged, Murphy will not recover his $225,000 in damages because he would not be entitled to them; if the taxpayer succeeds, then the additional delay and attorney fees in pursuing the matter); the effect of granting or denying reconsideration on the administration of justice judgment on dischargeability; the question is how strong the interest is in using
that judgment as offensive collateral estoppel rather than making the taxpayer prove liability in this proceeding); and the likelihood of IRS success if reconsideration is granted. In Roberts, the First Circuit r first blush, [the a standard satisfied here. 978
F.2d at 23. In that regard, I observe that the Restatement (Second) of Judgments, upon which the First Circuit regularly relies, see In re Iannochino, 242 F.3d 36, 47 (1st Cir. 2001); Troy v. Bay State Comput. Grp., Inc., 141 F.3d 378, 383 (1st Cir. 1998); l, Inc. v. Amertex Enters. Ltd., 48 F.3d 576, 583 (1st Cir. 1995), says that one exception to the use of collateral estoppel is when . . . disability that impeded effective litigation a RESTATEMENT (SECOND) OF JUDGMENTS § 28 cmt. j (AM. LAW INST. 1982). I am not prejudging the outcome in this case, but it is not a foregone conclusion that the supervision structure in the Justice Department and/or the should be the sole factor in determining the outcome.
CONCLUSION What remains is the question of remedy. I appreciate the taxpayer frustration, voiced by his counsel at oral argument, with the amount of time it
has taken to adjudicate this matter (and as he said in his legal memoranda, no court has yet determined that the cognitive impairment affected the AUSA in these bankruptcy proceedings). I also observe that the two District of Maine bankruptcy judges that had familiarity with this case have retired and that their successors are recused. suggested withdrawal of the reference since I now have far more familiarity with
the case than any bankruptcy judge to whom it might be assigned (I heard the appeal of the Rule 60(b) request from the final judgment in the first adversary proceeding, the attempted interlocutory appeal of the liability ruling in the second adversary proceeding, and now this appeal). not to respond to the suggestion. Although I have authority to withdraw a
reference for cause, see 28 U.S.C.A. § 157(d), I am reluctant to do so except upon hearing the fully-briefed positions of the parties, considering that the Rule 54(b) determination is a discretionary call once the proper factors are canvassed. That discretion might more properly belong to a bankruptcy judge.
As a result, the final judgment of the bankruptcy court is VACATED, the
Rule 54(b) is VACATED, and the case is REMANDED for further proceedings consistent with this opinion. I leave it to the parties to determine whether to move for withdrawal of the reference.
SO ORDERED. DATED THIS 7TH DAY OF SEPTEMBER, 2016
___/S/ D. BROCK HORNBY____________ D. BROCK HORNBY UNITED STATES DISTRICT JUDGE
APPENDIX 1 § 7433. Civil Damages for certain unauthorized collection actions (a) In general.--If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States. Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering damages resulting from such actions. (b) Damages.--In any action brought under subsection (a) or petition filed under subsection (e), upon a finding of liability on the part of the defendant, the defendant shall be liable to the plaintiff in an amount equal to the lesser of $1,000,000 ($100,000, in the case of negligence) or the sum of--
(1) actual, direct economic damages sustained by the plaintiff as a proximate result of the reckless or intentional or negligent actions of the officer or employee, and (2) the costs of the action. (c) Payment authority.--Claims pursuant to this section shall be payable out of funds appropriated under section 1304 of Title 31, United States Code. (d) Limitations.--
(1) Requirement that administrative remedies be exhausted.--A judgment for damages shall not be awarded under subsection (b) unless the court determines that the plaintiff has exhausted the administrative remedies available to such plaintiff within the Internal Revenue Service. (2) Mitigation of damages.--The amount of damages awarded under subsection (b)(1) shall be reduced by the amount of such damages which could have reasonably been mitigated by the plaintiff. (3) Period for bringing action.--Notwithstanding any other provision of law, an action to enforce liability created under this section may be brought without regard to the amount in controversy and may be brought only within 2 years after the date the right of action accrues. (e) Actions for violations of certain bankruptcy procedures.--
(1) In general.--If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service willfully violates any provision of section 362 (relating to
automatic stay) or 524 (relating to effect of discharge) of Title 11, United States Code (or any successor provision), or any regulation promulgated under such provision, such taxpayer may petition the bankruptcy court to recover damages against the United States. (2) Remedy to be exclusive.--
(A) In general.--Except as provided in subparagraph (B), notwithstanding section 105 of such Title 11, such petition shall be the exclusive remedy for recovering damages resulting from such actions. (B) Certain other actions permitted.-- Subparagraph (A) shall not apply to an action under section 362(h) of such Title 11 for a violation of a stay provided by section 362 of such title; except that--
(i) administrative and litigation costs in connection with such an action may only be awarded under section 7430; and (ii) administrative costs may be awarded only if incurred on or after the date that the bankruptcy petition is filed. 26 U.S.C.A. § 7433 (2015).
have proven that the taxes were not dischargeable in the first AP but for the fact, unknown to them at the time, that the AUSA handling the matter was seriously ill and could not competently defend the litigation. The IRS decries Judge Ko motion for reconsideration because he failed to take this circumstance into account and use it to overturn Judge [s] invocation of offensive collateral estoppel. Whether Judge Kornreich specifically addressed the doctrine of offensive collateral estoppel in his order irrelevant because he most assuredly considered the equitable argument put forth by the IRS that underpins the estoppel issue. Judge Kornreich denied the previous motion for reconsideration on the basis that the United States Attorney should have supervised his AUSA. The government admitted at oral argument before Judge Kornreich that if the AUSA had merely been negligent, sloppy or inattentive, it would not be seeking relief. Judge Kornreich soundly reasoned that the late-discovered mental disability of the AUSA did not justify reconsideration any negligence or professional incompetence would have. Fed. R. Bankr. P. 7054 [incorporating Rule 54], I find no [s] partial summary judgment ruling. motion is DENIED. Mem. & Order on Renewed Mot. of U.S. to Recons. at 4-5, Murphy v. I.R.S., Adv. No. 11-2020 (Dec. 14, 2015) (Bankr. ECF No. 266) (footnotes omitted).