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United States for Internal Revenue Service v. Benjamin

United States District Court, N.D. New York

June 17, 2014

UNITED STATES FOR THE INTERNAL REVENUE SERVICE, Appellant,
v.
JEFFREY H. BENJAMIN, Appellee. UNITED STATES FOR DEPARTMENT OF VETERANS AFFAIRS, Appellant,
v.
JEFFREY H. BENJAMIN, Appellee.

LAURA C. BECKERMAN, ESQ., Trial Attorney, HON. ERIC H. HOLDER, JR., Attorney General of the United States, United States Department of Justice-Tax Division Washington, DC., Counsel for Appellant.

WILLIAM F. LARKIN, ESQ., Assistant United States Attorney, HON. RICHARD S. HARTUNIAN, U.S. Attorney for the Northern District of New York, Syracuse, NY, Co-Counsel for Appellant.

SELBACH LAW FIRM, PLLC, JAMES F. SELBACH, ESQ., Liverpool, NY, Counsel for Appellee.

SUSAN N. ESCE, ESQ., OFFICE OF SUSAN N. ESCE, East Syracuse, NY, Co-Counsel for Appellee.

DECISION and ORDER

GLENN T. SUDDABY, District Judge.

The two above-captioned actions are bankruptcy appeals, filed by the United States, from a Decision and Order issued by United States Bankruptcy Judge Margaret Cangilos-Ruiz on September 18, 2013. For the reasons set forth below, the United States' appeals are denied, and Judge Cangilos-Ruiz's decision is affirmed.

I. RELEVANT BACKGROUND

A. Events Giving Rise to Current Dispute

Jeffrey H. Benjamin ("Debtor" or "Appellee") filed a voluntary petition for bankruptcy on April 10, 2013. The automatic stay protecting Debtor from creditors seeking to collect prepetition debts was immediately imposed pursuant to 11 U.S.C. § 362(a).

Debtor alleges that, despite the automatic stay, on June 17, 2013, he received a notice from the Internal Revenue Services ("IRS") informing him that it had applied $1, 497.88 of his 2012 tax refund to an outstanding 2008 tax liability (which liability is dischargeable in the pending bankruptcy case), noting a net "refund due" of $403.12. Moreover, Debtor alleges that, on June 3 and 7, 2013, he received a bill and notice from the Department of Veterans Affairs ("DVA"), informing him that it had applied the balance of his 2012 tax refund ($403.12) in partial payment of his pre-petition debt.

On July 10, 2013, Debtor filed motions pursuant to 11 U.S.C. § 362(k) seeking to vindicate his right to be free from the harassment of creditor demands, and preserve the integrity of the automatic stay.[1] In such a motion, a debtor may seek compensation for actual damages suffered in such an action. In his motions, Debtor sought "actual damages in the form of emotional distress" (because the IRS and DVA had denied him the right to be free of creditor collection "pressure, " and the right to a "fresh start, " guaranteed by the Bankruptcy Code), as well as "attorney's fees."[2]

On August 13 and 14, 2013, the IRS and DVA filed requests to strike or summarily deny Debtor's motions for lack of jurisdiction. In their requests, the IRS and DVA argued that, because Debtor seeks money damages in connection with the alleged violations of the stay, the relief Debtor seeks may be sought only through an adversary proceeding (which must be, but was not, initiated through the filing of a separate complaint).

On August 22, 2013, Bankruptcy Judge Cangilos-Ruiz held a hearing. At the hearing, Judge Ruiz orally overruled the Government's objections and denied the motions to strike. Approximately four weeks later, on September 18, 2013, Judge Ruiz issued a written decision explaining her ruling.

B. Judge Cangilos-Ruiz's Decision

Generally, in her Memorandum-Decision and Order of September 18, 2013, Judge Ruiz reasoned as follows: (1) of course, there is a difference between an "adversary proceeding" (which is commenced by filing a complaint under Bankruptcy Rule 7003) and a "contested matter" (which may be commenced by filing a motion under Bankruptcy Rule 9014); (2) Bankruptcy Rule 7001 lists ten types of proceedings that must be commenced by adversary proceeding (and thus must be commenced by filing a complaint), one of which is "a proceeding to recover money or property...."; (3) the United States agues that, because Debtor's request seeks money damages in connection with the alleged violations of the automatic stay, Debtor's request is "a proceeding to recover money or property" that must be, but has not been, commenced through the filing of a complaint; (4) however, a request to vindicate one's rights under 11 U.S.C. § 362(k) is not in the nature of "a proceeding to recover money or property" under Bankruptcy Rule 7001; (5) such an interpretation (which is shared by judges across this Circuit) permits the expeditious resolution of a matter that affects the fundamental purpose of the Bankruptcy Code-to give a debtor necessary breathing room to be free from the harassment of creditor demands while simultaneously preserving property of the estate intact for ultimate distribution to creditors; and (6) moreover, because Part VII of the Federal Rules of Bankruptcy Procedure incorporate (or adopt with ...


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