_________________________________________x
In re      Case No. 5X-85-00007-HAR
In Chapter 11
HAIDA CORPORATION,
Debtor(s)
_________________________________________x
HAIDA CORPORATION,
Plaintiff(s),
v.	Adv. No. 5X-85-00007-001-HAR
COLEMAN DRILLING, INC., UNITED
STATES OF AMERICA, INTERNAL
REVENUE SERVICE, and GORDON
ZERBETZ, Trustee of the Island
Logging Bankruptcy Estate,
Defendant(s).	MEMORANDUM DECISION REGARDING SOVEREIGN IMMUNITY
_________________________________________x

Table of Contents				Page
1.	PROCEDURE			2
2.	HOLDING			2
3.	FACTUAL BACKGROUND			3
4.	LEGAL ANALYSIS			5
	4.1.	Haida Cannot Recover a Money Judgment Against the IRS Because § 106(c) of the Bankruptcy Code Does Not Waive Sovereign Immunity for Such Relief		5
	4.2	§ 106(a) of the Bankruptcy Code Does Provide Grounds for Waiver of Sovereign Immunity Against the IRS		7
		4.2.1.	§§ 106(a) and (b) in General	7
		4.2.2	Circuit and District Court Cases from the 9th Circuit	8
2 ABR 299
		4.2.3	Is Haida's Claim Against the IRS Property of the Estate as Required by § 106(a) of the Bankruptcy Code?	11
		4.2.4	Is Haida's Claim Against the IRS a Compulsory Counterclaim as Required by § 106(a) of the Bankruptcy Code	12
		4.2.5	Bankruptcy Policy vs. Tax Policy	14
	4.3	Is the Claim for a Refund for a Wrongful Levy Under IRC §7426 the Exclusive Remedy for Haida?		15

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          1. PROCEDURE - Haida Corporation has sued the Internal Revenue Service to recover $154,436.29 which it claims it paid in error. The IRS was paid, along with other unsecured creditors of Haida, after it levied on Haida to collect the chapter 11 plan payment due to a delinquent taxpayer, Coleman Drilling, Inc. Coleman Drilling had filed a proof of claim as an unsecured creditor of Haida, and Haida did not at that time contest the claim.

     The IRS filed a motion to dismiss the complaint for lack of subject matter jurisdiction. The IRS argues that it has not waived its sovereign immunity. Alternatively, the IRS argues that, if sovereign immunity has been waived, the statute of limitations to contest a wrongful levy has expired.

          2. HOLDING - The United States has not waived sovereign immunity under § 106(c) of the Bankruptcy Code to allow entry of a judgment for money damages. § 106(a) of the Bankruptcy Code does provide a basis for such waiver, however. In determining whether Haida eventually prevails on the merits, the court is not restricted to the Internal Revenue Code procedure for challenging a wrongful levy. Therefore, the IRS's motion to dismiss will be denied.

    2 ABR 300            3. FACTUAL BACKGROUND - Haida Corporation is a village corporation under the Alaska Native Claims Settlement Act. 43 USC §1601 et seq. It filed a chapter 11 petition on May 15, 1985. A plan of reorganization was confirmed on July 19, 1988.

     Before filing bankruptcy, Haida engaged in timber operations. Island Logging had a logging contract with Haida. Island Logging subcontracted with Coleman Drilling. Both Coleman Drilling and Island Logging filed proofs of claim in the Haida bankruptcy. The proof of claim of Coleman Drilling was for $108,999.87, plus interest, and the proof of claim for Island Logging was for $950,000.00.

     Island Logging preceded Haida in bankruptcy. It filed a chapter 11 petition in 1984 in Case No. 5-84-00012. The Island Logging case was eventually converted to chapter 7 and Gordon Zerbetz was appointed the trustee.

     Two of Coleman Drilling's creditors asserted an interest in its creditor's claim against Haida. One was Coastal Machinery which be given an assignment of Coleman Drilling's proof of claim. The assignment was approved by the court pursuant to Bankruptcy Rule 3001(e) in April, 1988. The other creditor asserting an interest in Coleman Drilling's claim against Haida was the IRS. The IRS served a notice of levy on Haida in December, 1988 for up to $245,642.64 of any amounts Haida owed to Coleman Drilling. Coastal Machinery stipulated with Haida that the IRS levy was superior to its assignment.

    2 ABR 301       Haida's confirmed plan provided for full payment of allowed unsecured claims, plus interest. On October 25, 1989, Haida Corporation paid the Internal Revenue Service $154,436.29 as payment in full of the Coleman Drilling proof of claim plus interest. Although not alleged in the complaint, at oral argument on the motion to dismiss, Haida said that it has mistakenly failed to object to the Coleman Drilling claim because it had no direct liability to Coleman Drilling.

     On April 25, 1990, the court approved a settlement between Haida Corporation and Island Logging, which, after all deductions, pegged the Island Logging allowed claim at $301,798.91. There was no mention of the Coleman Drilling claim in this settlement, but Haida alleges that the $301,798.91 claim incorporates an unsegregated amount for the Coleman Drilling subcontractor's claim against Island Logging. Haida alleges that this is the same claim Coleman Drilling filed against Haida, and which Haida eventually paid to the IRS. In accordance with the Island Logging settlement, Haida wired Island Logging's trustee in bankruptcy the sum of $311,752.28.

     Thus, Haida complains that it has paid the Coleman Drilling claim twice, and, in any event, that the claim was not owed directly to Coleman Drilling and should have been objected to. To rectify this, this adversary proceeding was filed on September 12, 1990 against Coleman Drilling, Inc., the United States of America (IRS) and Gordon Zerbetz, trustee of Island Logging. Haida prays for relief that the IRS return the $154,436.29, plus interest to Haida Corporation, or if Coleman Drilling did have a valid claim against Haida, that Gordon Zerbetz reimburse the trustee for the portion of the settlement payment to Island Logging which was for     2 ABR 302  the Coleman Drilling claim against Island Logging already paid by Haida to the IRS.

     The IRS filed a motion to dismiss on the grounds that the court lacks subject matter jurisdiction. The IRS argues that sovereign immunity had not been waived for this type of adversary proceeding. The IRS says that, even if this court does have jurisdiction, it should characterize the issue as one of "wrongful levy", subject to a 9-month statute of limitations. 26 USC §§ 6532(c)(1) and 7426.

     The IRS has participated in the Haida main case in several respects. The IRS filed one or more proofs of claim against Haida for unpaid pre-petition employment taxes. These have all been paid. There is a continuing matter concerning possible tax consequences arising from the structuring of a sale of net operating losses (NOLs) under the special tax provisions favoring Alaska native corporations. The Haida case is still an open file in this court.

The IRS informed the court at oral argument that Coleman Drilling is defunct.

          4. LEGAL ANALYSIS -

          4.1. Haida Cannot Recover a Money Judgment Against the IRS Because § 106(c) of the Bankruptcy Code Does Not Waive Sovereign Immunity for Such Relief - Because I considered the question of waiver under § 106(a) very close I delayed ruling on the motion for summary judgment because a critical case was before the Supreme Court which would determine if the federal government was subject to a monetary judgment under § 106(c) of the Bankruptcy Code. On February 25, 1992, the Supreme Court held that the federal     2 ABR 303  government was not subject to a money judgment by virtue of § 106(c). In United States v Nordic Village, Inc., ______ US _______, 1992 WL 30618 (1992) the issue was the scope of § 106(c):

This case presents a narrow question: Does § 106(c) of the Bankruptcy Code waive the sovereign immunity of the United States from an action seeking monetary recovery in bankruptcy?

     Hoffman held that the scope of the waiver under §§ 106(a) and (b) is narrow. No proofs of claim had been filed in Hoffman, however, and waivers under §§ 106(a) and (b) were not sought. The issue was whether sovereign immunity under the 11th Amendment was waived against a state under § 106(c) where no proof of claim had been filed. A four judge plurality in Hoffman held (108 SCt at 2823):

We therefore construe § 106(c) as not authorizing monetary recovery from the States. Under this construction of § 106(c), a State that files no proof of claim would be bound like any other creditors, by discharge of debts in bankruptcy, including unpaid taxes, [citations omitted], but would not be subject to a monetary recovery.

          4.2. § 106(a) of the Bankruptcy Code Does Provide Grounds for Waiver of Sovereign Immunity Against the IRS -

          4.2.1.  §§ 106(a) and (b) in General - A waiver of sovereign immunity by the federal government cannot be implied, but must be expressly and unequivocally stated. Mayo v United States, 319 US 441 (1943); United States v State of Washington, 872 F2d 874, 877 (9th Cir 1989); and, In re Town & Country Home Nursing Services, Inc., 112 BR 329, 332 (9th Cir BAP 1990), aff'd 952 F2d 305 (9th Cir 1991).

11 USC § 106 provides:

Section 106. Waiver of sovereign immunity

     (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.

     Haida argues that it has overpaid the IRS by paying the Coleman Drilling claim twice, or erroneously paying on the Coleman Drilling claim in the first place. Haida argues that it is entitled to seek relief from the erroneous or double payment under 11 USC 507(j):

     (j) A claim that has been allowed or disallowed may be reconsidered for cause. A reconsidered claim may be allowed or disallowed according to the equities of the case. Reconsideration of a claim under this subsection does not affect the validity of any payment or transfer from the estate made to a holder of an allowed claim on account of such allowed claim that is not reconsidered, but if a reconsidered claim is allowed and is of the same class as such holder's claim, such holder may not receive any additional payment or transfer from the estate on account of such holder's allowed claim until the holder of such reconsidered and allowed claim receives payment on account of such claim proportionate in value to that already received by such other holder. This subsection does not alter or modify the trustee's right to recover from a creditor any excess payment or transfer made to such creditor.

     It should be noted that the government did not make a sovereign immunity argument in the district court (Madden at 49). The district court held that a bankruptcy court had summary jurisdiction, based on actual possession of the bankrupt's estate which it had distributed in part to the IRS, to reconsider claims and order repayment up until the case was closed under §§ 57(l) and (k) of the Bankruptcy Act (11 USC §§ 93(k) and (l), repealed)). §§ 57(l) and (k) are comparable to § 502(j) of the present Bankruptcy Code.

     Madden, at 52, relied on In re Pittsburgh Railways Company, 253 F2d 654 (3rd Cir 1958) as authority that a bankruptcy court has jurisdiction to decide such refund issues. In Pittsburgh Railways, the trustee sought a refund of post-petition interest payments made as a result of a settlement with the IRS based upon an interpretation of the law which was later decided to the contrary by the Supreme Court of the United States. The government argued that there was no statutory consent by the government which would grant jurisdiction to a bankruptcy court to hear a tax refund claim, and that a refund proceeding had to be brought by a separate action in district court.

    2 ABR 307       The 3rd Circuit said that there was statutory authority under §§ 196 and 199 of the old Bankruptcy Act (11 USC §§ 596 and 599 repealed) which allowed the court to establish claims procedures in chapter X cases. The court said:

Where assets of the bankrupt and where claims of creditors have been under the jurisdiction of the bankruptcy court, the import of 57, subsections k and l is that the court's jurisdiction may be asserted any time until the closing of the estate. In re Plankinton Bldg. Co., D.C.E.D.Wis.1942, 46 F.Supp. 697, reversed on other grounds, 7 Cir., 1945, 135 F.2d 273. Unless, therefore, there is a compelling argument why 57, subsections k and l should not be applied to tax claims in a reorganization proceeding, the court below had jurisdiction. [footnotes omitted]

     The 9th Circuit recently cited Pittsburgh Railways approvingly in In re Pacific Far East Lines, Inc., 889 F2d 242 (9th Cir 1989). This was also a case under the old Bankruptcy Act. The trustee made a claim in the bankruptcy court for reimbursement of money paid to the United States under the Referees' Salary and Expense Fund (RSEF) provisions under the § 40(c)(2) of Bankruptcy Act of 1898 (11 USC § 68(c)(2), repealed). The United States had calculated that about $900,000 was due under RSEF, and the trustee figured the correct amount was closer to $500,000. They settled on a payment of $776,000 for the RSEF, which was approved by the bankruptcy court and paid by the trustee to the United States. Later, the Bankruptcy Amendments and Federal Judgeship Act of 1984 was enacted, limiting RSEF payments in Old Act cases to $200,000. The trustee sought a refund. The government argued that sovereign immunity had not been waived for suits concerning RSEF payments. The court said, at 245:

We disagree. Under § 57k of the 1898 Act, bankruptcy courts are given jurisdiction to reconsider orders, and under § 57l they are given jurisdiction, up until the closing of the estate, to order repayment of funds distributed from the bankruptcy estate. In re Pittsburgh Railways, 253 F.2d 654, 657 (3d Cir.1958). Sovereign immunity protects the property which belongs to the government independent of the bankruptcy process, but, where the government has acquired property through its affirmative actions under the jurisdiction of the bankruptcy court, it consents to the jurisdiction of that court over the property until the case is closed. Id. See also In re Greenstreet, Inc., 209 F.2d 660, 663 (7th Cir.1954).

     Neither the order of confirmation in the Haida case nor the plan delayed revesting of the property of the chapter 11 estate in Haida, the reorganized debtor, upon confirmation. It might be argued that any recovery from the IRS would not be for the estate, but for Haida Corporation, the reorganized debtor. Is there a waiver of sovereign immunity under §§ 106(a) and (b) if there is no longer an "estate" by virtue of the property revesting in the reorganized debtor? See 11 USC § 1141(b) and In re T.S.P.     2 ABR 309  Industries, Inc., 117 BR 375 (Bankr NDIll 1990). I believe there is.

     There has to be an end to a debtor hiding under the protection of bankruptcy law. See Pettibone Corp. v Easley, 935 F2d 120, 122 (7th Cir 1991) and In re Xonics, Inc., 813 F2d 127, 131 (7th Cir 1987). However, the date the plan is confirmed does not end the confirmation process. Even today, Haida has ongoing claims litigation which is part of the reorganization process. Notwithstanding the facile statement that the estate disappears when it revests in the reorganized debtor, the debtor may continue post-confirmation procedures (such as claims objections and reconsideration of claims allowance or disallowance) which, but for the fact they occur post-confirmation, are just as much a part of the reorganization process as the confirmation hearing itself. Therefore, I hold that a proceeding to reconsider allowance of a claim is one that involves property of the estate for the purposes of § 106(a).

          4.2.4.  Is Haida's Claim Against the IRS a Compulsory Counterclaim as Required by § 106(a) of the Bankruptcy Code - A waiver of sovereign immunity under § 106(a) requires that a claim which is property of the estate "arose out of the same transaction or occurrence out of which the governmental unit's claim arose." This is similar to a compulsory counterclaim under FRCivP 13(a).

The basic approach under this test is to analyze whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all issues should be resolved in one lawsuit.

     In re Beugen, 99 BR 961 (9th Cir BAP 1989) suggests that only the "original holder" of the claim is a "creditor" under § 101(10) [1991 version]. Beugen was a hard case in which a vexatious litigant purchased a claim to harass a debtor with a § 727(a) action to deny his discharge. The holding in Beugen, that the purchase of a claim from a legitimate pre-petition creditor is not a "creditor" for § 101(10) purposes, is out of the mainstream. See, e.g., In re First Humanics Corporation, 124 BR 87, 91 (Bankr WDMo 1991) and In re Allegheny International, Inc., 118 BR 282, 286 (Bankr WDPa 1990).

     Beugen also ignored the implications of Bankruptcy Rule 3001(e), recognizing post-petition transfers of claims, and many other inferences which can be garnered from consideration of the Bankruptcy Code as a whole, that the "creditor" does not have to be the pre-petition claimant. An assignee will do. While the Bankruptcy Appellate Panel decision in Beugen is entitled to great respect, it is probably not binding. Cf Bank of Maui v Estate Analysis, Inc., (9th Cir 1990) (concurrence of Judge O'Scannlon) and In re Brosman, 119 BR 212, 214, 1 ABR 165, 169 (Bankr D Alaska 1990). First Humanics Corporation said at 91:

The legislative history to the Code indicates that the only requirement to be a creditor is that an entity be the "holder of pre-petition claims against the debtor." H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 309-10 (1977), U.S. Code Cong. & Admin.News 1978, p. 6266.

"Under the Code, as under the prior Act, whenever the statute accords rights and privileges to creditors or subjects them to duties, anyone holding a claim comes within the scope of such provision, unless the express language or the context require additional qualifications to be met." 2 Collier on Bankruptcy ¶ 101.09, at 101-38 (15th ed.1990).

          4.2.5.  Bankruptcy Policy vs. Tax Policy - Should the bankruptcy policy of allowing a trustee or debtor-in-possession to recover a wrongful payment under § 502(j), or tax policy, allowing a limited time to rectify a wrongful levy, control?

     The IRS cites one case where a levy was determined not to impinge on bankruptcy policies, and was authorized. Laughlin v United States, 912 F2d 197 (8th Cir 1990) involved a motion by a chapter 13 trustee to enforce the automatic stay. The IRS had filed notices of levy on a chapter 13 trustee against funds payable from the estates being administered by the trustee which were payable to an attorney taxpayer who apparently represented chapter 13 debtors.The 8th Circuit said that this levy did not interfere with the     2 ABR 312  estate, the trustee, the debtor, or the creditors, and did not violate the automatic stay.

     In the context of our case, however, the IRS levy against any payment due to Coleman Drilling was functionally equivalent to the assignment of the claim under Bankruptcy Rule 3001(e) to Coastal Machinery. Compare In re Town & Country Home Nursing Services, Inc., 952 F2d 305, 311 (9th Cir 1991) which held there is no requirement under § 106(a) that the "claim" even be a formally filed proof of claim:

We hold that the government's actions in enforcing post-petition payment were the functional equivalent of filing a claim and that they were sufficient to waive sovereign immunity under 11 U.S.C. § 106(a). To hold otherwise would enable the government to achieve by self-help what it could not accomplish through the procedures of the bankruptcy court, i.e., retain its immunity while extracting payment from the estate. The government had a choice concerning whether to force distribution from T & C's assets, and it chose to do so by pursuing post-petition offsets. Congress made the consequences of this action clear in the final language of subsection (a), and the government cannot now ask us to raise a shield of immunity between it and the estate.

          4.3. Is the Claim for a Refund for a Wrongful Levy Under IRC §7426 the Exclusive Remedy for Haida? - In re Town & Country Home Nursing Services, Inc. at 312-14 disposes of the IRS's final argument that wrongful levy procedure in 26 USC § 7426 and     2 ABR 313  related 9-month statute of limitations in 26 USC § 6532(c)(1) for recovering a wrongful levy should control. The issue in Town & Country Home Nursing Services was whether a debtor-in-possession was bound to exhaust Medicare Act administrative remedies before seeking recourse in bankruptcy court against a Medicare Intermediary, Blue Cross, for wrongful post-petition offsets. The 9th Circuit noted there was a conflict in the circuits regarding the jurisdiction of a bankruptcy court to hear a matter when there was an exhaustion of administrative remedies statute such as the Federal Tort Claims Act or the Medicare Act. Id at 312-13. The court held that there was an independent basis for bankruptcy court to exercise its jurisdiction, citing 28 USC § 1334(b). But see Nordic Village at _____ (Justice Scalia).

     I recognize that we are concerned with a statute of limitation issue, not an exhaustion of remedies question. But, if the IRS payment was in substance payment on a "claim" in the bankruptcy sense, instead of a levy, the court should be able to deal with a § 502(j) reconsideration matter under bankruptcy terms. See also In re Pittsburgh Railways Company, 253 F2d 654, 656 (3rd Cir 1958). 26 USC § 7426 is not the exclusive remedy for recovery of the money which Haida alleges it mistakenly paid to the IRS. The present case is a closer question than the issue in Pittsburgh Railway Company which involved a tax claim of a debtor, not a levy against a creditor's recovery. Nonetheless, I feel that the IRS stepped into the shows of Coleman Drilling so far as subjecting itself to a reconsideration of the claim, and a motion for     2 ABR 314  reconsideration under 11 USC § 502(j) is an appropriate and available procedure for Haida to pursue.