Sixth Circuit nixes suit against bankruptcy trustees

It’s not often that the United States government, as a plaintiff, uses its sovereign immunity as a sword against lawsuit defendants, in this case the bankruptcy trustees of the Eastern District of Michigan.

More typically, the government raises sovereign immunity as a shield after being sued for transgressions, real and imagined.

And, if the government wields sovereign immunity as a sword, the thrust, as the 6th U.S. Circuit Court of Appeals explains in United States v. Carroll, et al., must be against the correct parties.

Our story: In 2008, the clearance rate for Eastern District Chapter 13 bankruptcy cases was among the lowest in the country — 79th out of 90 judicial districts.

Some of the Eastern District bankruptcy judges devised a plan to improve the situation. When a debtor was due a tax refund, the bankruptcy court would order the IRS to send the refund directly to the trustee overseeing the debtor’s case. That way, the trustees could directly disburse funds to Chapter 13 creditors while eliminating the debtor, who might find other uses for the money, as a middleman.

At first, the IRS went along with this, even though redirecting the refunds to the trustees required the IRS to hand-process the affected tax returns. But the number of affected returns grew from an initial 400 to almost 5,000. And, because Chapter 13 reorganizations typically last three to five years, the refund-redirect orders were creating a significant headache for the IRS.

So, the IRS asked the United States to sue the trustees, claiming that the redirect orders violated the government’s sovereign immunity.

The government’s argument was that the bankruptcy code abrogates sovereign immunity “to the extent set forth” in 11 U.S.C. § 106. Section 106 requires that debts owed to the bankruptcy estate must be paid to the trustee. But, according to the government, this language does not clearly waive sovereign immunity with respect to the refund-redirect orders.

The federal district court thought this was a pretty good argument. The court enjoined the trustees from enforcing existing redirect orders and issued a writ of mandamus to prohibit the bankruptcy court from issuing redirect orders in future Chapter 13 cases.

The trustees appealed to the Sixth Circuit. Judge Jeffrey S. Sutton set the stage:

Even though both sets of parties would prefer that we resolve this lawsuit on the merits, we lack the jurisdiction to do so. The government sued the wrong parties, depriving it of standing to bring this lawsuit.

Of the three “irreducible constitutional minimum[s]” of standing — injury in fact, causation and redressability, Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992) — the government satisfies just one of them. Given the administrative burden to the United States of complying with the bankruptcy court’s orders, to say nothing of the alleged violation of sovereign immunity underlying them, the government has suffered the requisite injury.

But, Sutton said, causation and “redressability” are much more problematic.

The government sued a group of bankruptcy trustees, but the harm it suffered — administrative costs associated with processing tax refunds — flows not from the trustees’ actions but from the bankruptcy court’s orders.

When an entity does not like a court order, the answer is not to sue the lawyer or party who recommended the order; it is to appeal the order or, if utterly necessary, to sue the court. Bankruptcy trustees do not control bankruptcy courts.

Redressability, too, is a problem. The question is whether the requested relief would fix the problem at hand … . Even if the trustees have a role in enforcing these orders, that does not mean a judgment against the trustees will eliminate the problem. Trustees are not the only parties to Chapter 13 bankruptcies. Other parties, including the debtor and creditors, have an interest in ensuring that tax refunds make their way to the trustees.

Nothing prevents these entities from asking the bankruptcy court to issue the same order. …

This lawsuit was apparently born of three good intentions: (1) a need to resolve the government’s sovereign-immunity defense to the redirection orders; (2) a timing exigency in view of the growing administrative burden of the orders; and (3) a desire not to sue federal judges — thank you — unless absolutely necessary.

Yet the government’s unusual vehicle for handling these concerns was not the only one available. The government could have filed a direct appeal from the entry of a redirection order in one (or more) of the cases in which the IRS is a party.

Good intentions, yes; good trial strategy, no

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Community Legal Resources rebrands for a statewide presence

After 12 years of being known as Community Legal Resources, the Detroit-based pro bono legal and technical assistance group is changing its name to Michigan Community Resources.

The group, which serves low-income people and nonprofit organizations, said that recent growth and a diversification of services prompted the name change to something that more accurately reflects its capabilities and increased range.

Over its course of existence, the group has grown from four to 17 employees, relocated its Detroit office, and added a Lansing branch.

The Huffington Post Detroit recently honored Michigan Community Resources with the “HuffPost Detroit Impact Award,” and was one of only 11 groups chosen for 2011.

MSC removes Justin from office

In a unanimous decision, the Michigan Supreme Court has removed 12th District Court Judge James Justin.

In this case, respondent’s fixing of traffic tickets issued to himself, his family, and staff alone warrants the most severe of sanctions. However, respondent’s substantiated misconduct is much more extensive. The duration, scope, and sheer number of respondent’s substantiated acts of misconduct are without precedent in Michigan judicial disciplinary cases. Respondent’s long-term pattern of judicial misconduct constitutes a negation of the proper exercise of judicial authority that more than justifies the sanction imposed.

We order respondent’s removal from office.

Chief Justice Robert P. Young Jr. wrote.

6th Circuit: EMU student can sue for religious discrimination

Julea Ward, who was expelled from an Eastern Michigan University counseling program because she refused to counsel gays and lesbians about their lifestyles, can file a religious discrimination suit against the university, the Detroit Free Press reported.

In Ward v. Polite, et al., 6th U.S. Circuit Court of Appeals Judge Jeffrey Sutton, joined by judges Julia Gibbons and John Adams, wrote that “Ward’s free speech claim deserves to go to a jury.”

“Although the university submits it dismissed Ward from the program because her request for a referral violated the [American Counseling Association] code of ethics, a reasonable jury could find otherwise — that the code of ethics contains no such bar and that the university deployed it as a pretext for punishing Ward’s religious views and speech.”

Judge George Steeh of U.S. District Court for the Eastern District of Michigan had ruled in favor of the university in 2010. The remanded case now goes back to him.

Extremely open and obvious

When Wayne Bailey’s teen-aged son ran away from home, Bailey called the Oakland County sheriff.

The sheriff’s department sent Deputy Dominick Spadafore to the scene. It was a cold December night. A narrow path shoveled through the snow led from Bailey’s driveway, up a step to the porch and then to Bailey’s front door.

Spadafore followed the path, went inside and talked things over with Bailey for a half-hour or so.

Okay, you can see this one coming from a mile away: Spadafore finished his conversation with Bailey and headed back to his patrol car. As Spadafore stepped from the porch to the step leading down from it, he slipped, fell and was injured.

The circuit court said the conditions were open and obvious and dismissed Spadafore’s premises liability claim.

The Michigan Court of Appeals affirmed for all the usual reasons: Spadafore saw the conditions as he made his way into Bailey’s home. The same conditions were present when he left. Spadafore admitted the weather conditions were such that snow would melt in sunlight and then freeze after sunset.

“Under these circumstances, a reasonable person in Spadafore’s position would have been able to discover the condition and take self-preserving precautions,” the COA panel ruled.

And there was one other circumstance that put the — ahem — icing — on the cake as far as dismissing the case based on Spadafore’s awareness of the conditions outside Bailey’s house.

During their half-hour talk, Bailey told Spadafore that his son ran away after being asked to shovel the driveway, step and porch, and to spread some salt.

The case is Spadafore v. Bailey.

Innocence Clinic lawyer considering Supreme Court run

The Detroit News is reporting that Michigan Innocence Clinic co-director Bridget McCormack is seeking the Democratic nomination to run in the Michigan Supreme Court election in November.

Justices Marilyn Kelly’s and Stephen Markman’s terms expire Jan. 1, 2013. Justice Brian K. Zahra, who was appointed to the court in January 2011 to fill a vacancy on the court, will have to run for re-election this year if he wants to serve the remainder of the term, which expires Jan. 1, 2014.

Will fracking be banned?

The following post was written by John Stodder, The Dolan Company National Affairs Correspondent. Dolan is the parent company of Michigan Lawyers Weekly.

The spectacle of protesters descending on New York’s capitol to pressure Gov. Andrew Cuomo to support a ban on fracking earlier this week has prompted various interested parties to revisit the question of what lies ahead for the controversial natural gas drilling technique.

The stakes are high. If fracking – the process of injecting a mixture of water, sand and chemicals to fracture deep deposits of shale, allowing trapped gases to be released and drilled – is an acceptable way to extract natural gas, then the U.S. and much of the world will have a bounty of fuel for generating electricity, heating and perhaps transportation, for generations.

But environmentalists fear that precious groundwater aquifers could be destroyed by fracking fluids and collateral releases of methane. In response, industry leaders say such fears are based on misinformation.

New York Times environmental blogger Andrew Revkin sees the “quieter corners” of what the environmental community is seeking. Instead of a ban on fracking, they say they are looking for regulations that will “give the greatest social and economic benefits with the least risk of environmental regrets.”  However, rhetoric at the rally suggests that people at the grassroots don’t want compromise.

Fracking has significance far beyond the borders of New YorkState. According to the U.S. Energy Information Administration, there are 5,760 trillion cubic feet of “technically recoverable” shale gas resources in 32 foreign countries, about 15 percent of which is in the U.S. There are immense deposits in a Northeastern belt running fromOhio throughPennsylvania to upstateNew York, inTexas,Oklahoma,Arkansas andLouisiana, inMichigan and in theRocky Mountains.

The reason many environmental organizations stop short of calling for a fracking ban is the nature of the end product, natural gas. Per BTU, the Environmental Protection Agency says natural gas has just over half the carbon dioxide emissions of coal, which it is increasingly displacing to produce electricity. With the stubbornly high costs of renewable power, some environmental leaders embrace natural gas as a transitional fuel to reduce CO2 emissions and slow the effects on climate.

But such concessions tend to be abandoned in the immediate vicinity of proposed fracking projects, as demonstrated by Monday’s rally, during which New York State Sen. Tony Avella, author of the fracking ban, shouted “Shame on you!” to environment groups that didn’t support him on the issue.

In the U.S., there are temporary fracking bans in New Jerseyand New York, but no permanent prohibitions. Bulgariahas voted to ban fracking and revoked a fracking permit it had granted to Chevron.France has also banned fracking despite its wealth of shale gas deposits.

In his account of a recent Duke University workshop on fracking, “the Green Grok,” a.k.a. Bill Chameides, dean of Duke’sNicholasSchool of the Environment, posed the key question for environmentalists: “Does fracking undermine drinking water?” His answer: “This is a huge question with only a tiny bit of data – enough to raise some questions, but not enough to provide definitive answers.”  

Meanwhile, the EPA began a study of the impact of fracking on drinking water in 2010. That study is still underway. The agency’s final word won’t necessarily be definitive and certainly won’t persuade everyone, but the matter will likely remain in a holding pattern until the study is finished.