United States Department of Justice, Tax Division v. Hudson

09-3600-bk
United States v. Hudson
1 UNITED STATES COURT OF APPEALS
2
3 FOR THE SECOND CIRCUIT
4
5 August Term, 2010
6
7
8 (Argued: September 23, 2010 Decided: November 10, 2010)
9
10 Docket No. 09-3600-bk
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13
14 UNITED STATES DEPARTMENT OF JUSTICE, TAX DIVISION,
15
16 Appellee,
17
18 UNITED STATES OF AMERICA,
19
20 Appellee-Cross Appellant,
21
22 -v.-
23
24 PAUL S. HUDSON,
25
26 Debtor-Appellant,
27
28 GREGORY G. HARRIS, Chapter 7 Trustee,
29
30 Trustee.
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33
34 Before: JACOBS, Chief Judge, KATZMANN and
35 LIVINGSTON, Circuit Judges.
36
37 Debtor-Appellant Paul S. Hudson appeals from a July 8,
38 2009 judgment of the United States District Court for the
39 Northern District of New York (Scullin, J.), reversing the
40 decision of the Bankruptcy Court of the Northern District of
1 New York (Littlefield, J.), which awarded Mr. Hudson
2 attorney’s fees under 26 U.S.C. § 7430. Mr. Hudson, a
3 lawyer, is appearing pro se here, as he did in the
4 bankruptcy court and the district court. The district court
5 held that a lawyer appearing pro se cannot be awarded
6 attorney’s fees pursuant to 26 U.S.C. § 7430. We affirm.
7 Paul S. Hudson, Law Offices of
8 Paul S. Hudson, Sarasota, FL,
9 (Troy A. Morgan, Silver Spring,
10 MD, on the brief), for
11 Debtor-Appellant.
12
13 Richard L. Parker, Department of
14 Justice, Tax Division (John A.
15 DiCicco, Acting Assistant
16 Attorney General, Bruce R.
17 Ellisen, Attorney, on the
18 brief), Washington, D.C., for
19 Appellee.
20
21
22 DENNIS JACOBS, Chief Judge:
23
24 Debtor Paul S. Hudson, having successfully challenged a
25 claim lodged against him in the bankruptcy court by the
26 Internal Revenue Service (“IRS”), sought attorney’s fees
27 pursuant to 26 U.S.C. § 7430 of the Internal Revenue Code
28 (“IRC”), which permits the prevailing party to recover
29 litigation costs, including attorney’s fees, in any
30 proceeding brought by the United States in connection with
31 the collection of interest on past due taxes. Mr. Hudson, a
2
1 lawyer who appeared pro se in the bankruptcy court (as well
2 as in the district court and now here), thus sought
3 attorney’s fees on account of his legal work on his own
4 behalf. The Bankruptcy Court of the Northern District of
5 New York (Littlefield, J.) awarded IRC § 7430 attorney’s
6 fees, but the United States District Court for the Northern
7 District of New York (Scullin, J.) reversed. Mr. Hudson
8 appeals from the district court’s July 8, 2009 judgment. We
9 affirm.
10
11 I
12 Mr. and Mrs. Hudson were principals in a real estate
13 rental firm that deemed its maintenance workers to be
14 independent contractors for whom the firm paid no federal
15 employment withholding tax. After an audit, the IRS
16 determined that the workers were employees, and assessed
17 withholding and Federal Insurance Contributions Act (“FICA”)
18 taxes for 1989 and 1990. See 26 U.S.C. §§ 3102(a), 3111,
19 3401, 3402(a), 3403. The firm failed to pay, and the IRS
20 assessed penalties pursuant to IRC § 6672 against Mr. and
21 Mrs. Hudson in the amount of the unpaid withholding taxes.
22 When the firm filed for bankruptcy in 1995, the IRS sought
3
1 to recover the delinquent employment taxes from the estate.
2 As to their personal exposure, the Hudsons entered into a
3 Stipulation of Settlement of Claims (“Stipulation”) which
4 provided that “[t]he total liability of Eleanor and Paul
5 Hudson shall be the trust fund portion” of the past due
6 taxes in the amount of $30,838.49.
7 On November 12, 1999, Mr. Hudson himself filed for
8 bankruptcy. The IRS filed an amended proof of claim
9 seeking, inter alia, $50,026.61, which represented the
10 employment tax penalty in the amount of $27,916.49 (i.e.,
11 the unpaid past due taxes owed by the firm) plus statutory
12 interest in the amount of $22,110.12. While the bankruptcy
13 petition was pending, the IRS sent Mrs. Hudson a final
14 notice of its intent to levy penalties exceeding the amount
15 of her settlement per the Stipulation. After a collection-
16 due-process hearing pursuant to IRC § 6330, the IRS Office
17 of Appeals sustained the proposed collection action, and
18 Mrs. Hudson sought review. The United States District Court
19 for the Northern District of New York ruled that the plain
20 wording of the Stipulation absolved her of liability for any
21 interest.
22 Relying on the district court’s ruling, Mr. Hudson
4
1 argued in his bankruptcy case that he likewise was not
2 liable for interest accrued on the employment tax penalty.
3 The bankruptcy court agreed. Having thus prevailed, Mr.
4 Hudson moved for attorney’s fees pursuant to IRC § 7430.
5 Citing the Fifth Circuit’s holding in Cazalas v. United
6 States Department of Justice, 709 F.2d 1051 (5th Cir. 1983)
7 (awarding fees in the context of the Freedom of Information
8 Act), the bankruptcy court awarded fees.1 The bankruptcy
9 court reasoned that “[b]y allowing reasonable fees to pro se
10 attorney litigants, the court will promote the ‘vigorous
11 advocacy’ policy advanced by the Court of Appeals for the
12 Fifth Circuit in Cazalas while still retaining the ability
13 to control fees awarded based on the facts of the case.” In
14 re Hudson, 345 B.R. 477, 484 (Bankr. N.D.N.Y. 2006).
15 On the Government’s appeal, the district court
16 reversed, relying on the reasoning in Kay v. Ehrler, 499
17 U.S. 432 (1991), McCormack v. United States, 891 F.2d 2418 (1st Cir. 1989) (per curiam), and United States v.
19 McPherson, 840 F.2d 244 (4th Cir. 1988). This appeal
20 followed.
1
Although Mr. Hudson sought $21,106, the Bankruptcy
Court found the fee application “replete with deficiencies
and problems,” and awarded $6,831.25. In re Hudson, 364
B.R. 875, 879, 882 (Bankr. N.D.N.Y. 2007).
5
1
2 II
3 Although we generally review a district court’s award
4 of attorney’s fees for an abuse of discretion, see Mautner
5 v. Hirsch, 32 F.3d 37, 39 (2d Cir. 1994), Mr. Hudson’s
6 contention on appeal is that the denial of the fee award was
7 based on an error of law. We review rulings of law de novo.
8 Baker v. Health Mgmt. Sys., Inc., 264 F.3d 144, 149 (2d Cir.
9 2001).
10
11 III
12 Section 7430 of the IRC provides that “[i]n any
13 administrative or court proceeding which is brought by or
14 against the United States in connection with the
15 determination, collection, or refund of any tax, interest,
16 or penalty . . . the prevailing party may be awarded a
17 judgment or a settlement for . . . reasonable litigation
18 costs incurred in connection with such court proceeding.”
19 26 U.S.C. § 7430(a)(2). “[R]easonable litigation costs” is
20 defined (inter alia) to “include[] reasonable fees paid or
21 incurred for the services of attorneys in connection with
22 the court proceeding.” 26 U.S.C. § 7430(c)(1)(B)(iii).
6
1 In other statutory contexts, this Court has ruled that
2 a lawyer appearing pro se is not entitled to attorney’s
3 fees. See Pietrangelo v. U.S. Army, 568 F.3d 341, 342 (2d
4 Cir. 2009) (per curiam) (Freedom of Information Act);
5 Hawkins v. 1115 Legal Serv. Care, 163 F.3d 684, 694-95 (2d
6 Cir. 1998) (Title VII and 42 U.S.C. § 1981); c.f. S.N. ex
7 rel. J.N. v. Pittsford Cent. School Dist., 448 F.3d 601, 604
8 (2d Cir. 2006) (attorney-parents representing children in
9 actions brought under the Individuals with Disabilities
10 Education Act). But we have not previously considered
11 whether a lawyer appearing pro se is entitled to fees under
12 IRC § 7430.
13 Finding no reason to depart from our reasoning in
14 Pietrangelo or Hawkins, and joining our sister Circuits that
15 have considered this provision of the IRC, see McCormack v.
16 United States, 891 F.2d 24, 25 (1st Cir. 1989) and United
17 States v. McPherson, 840 F.2d 244, 245 (4th Cir. 1988), we
18 hold that lawyers appearing pro se who prevail in
19 administrative or court proceedings against the United
20 States are ineligible for attorneys’ fees under IRC § 7430.
21 A
22 Section 7430 of the IRC provides that a prevailing
7
1 party is entitled to collect “reasonable fees paid or
2 incurred for the services of attorneys in connection with
3 the court proceeding.” 26 U.S.C. § 7430(c)(1)(B)(iii)
4 (emphasis added). Mr. Hudson may recover therefore only if
5 he either paid or incurred fees for the services of an
6 attorney. Mr. Hudson never paid an attorney; so the
7 question is whether he may be said to have incurred
8 attorney’s fees by virtue of the time he invested litigating
9 the tax issue in bankruptcy court.
10 “Incur” means “[t]o suffer or bring on oneself (a
11 liability or expense).” Black’s Law Dictionary 836 (9th ed.
12 2009). In this context, a “liability” is “[a] financial or
13 pecuniary obligation; debt.” Id. at 997. An “expense” is
14 “[a]n expenditure of money, time, labor, or resources to
15 accomplish a result.” Id. at 658. At most one could say
16 that Mr. Hudson brought on himself an expenditure of time
17 defending himself against the IRS. While his time could be
18 characterized as an “expense,” it cannot be characterized as
19 a “fee,” which is defined as a “charge for labor or
20 services, [especially] professional services.” Id. at 690.
21 Moreover, Mr. Hudson never incurred fees for the
22 services of an attorney because an “attorney” is “one who is
23 designated to transact business for another” or is “a legal
8
1 agent.” Id. at 147. An agent is “a representative”; so Mr.
2 Hudson cannot have acted as an agent for himself, id. at 72;
3 see Duncan v. Poythress, 777 F.2d 1508, 1518, 1519 (11th
4 Cir. 1985) (Roney, J., dissenting) (cataloguing the
5 definition of “attorney” from more than two dozen
6 dictionaries and finding that “[w]ithout exception they
7 define the word ‘attorney’ in terms of someone who acts for
8 another, someone who is employed as an agent to represent
9 another, someone who acts at the appointment of another”)
10 (emphasis in original); see also Frisch v. Comm’r, 87 T.C.
11 838, 846 (1986) (“An ‘attorney’ is essentially an agent for
12 another. Without the ‘other’ there can be no attorney,
13 merely a pro se litigant who happens to earn a living as a
14 lawyer. At any given time, an individual can be either a
15 pro se litigant or an attorney, but not both.”); 2A C.J.S.
16 Agency § 24 (2010) (“The parties to an agency relationship
17 are the principal and the agent, and an agent cannot exist
18 without a then–existing principal.”); Black’s Law Dictionary
19 1341 (9th ed. 2009) (defining pro se to mean “[o]ne who
20 represents oneself in a court proceeding without the
21 assistance of a lawyer”).
22 In holding that Mr. Hudson is ineligible to receive
23 attorney’s fees under the plain wording of IRC § 7430, we
9
1 join our sister Circuits that have addressed this issue, as
2 well as the Tax Court, all of which have held that lawyers
3 appearing pro se “did not pay any fees for legal services
4 nor incur any debts which remain outstanding.” McPherson,
5 840 F.2d at 245; see Frisch, 87 T.C. at 845-47 (“The simple
6 truth is that the plain language of section 7430 cannot be
7 read to include lost opportunity costs, but is limited to
8 actual expenditures . . . . In representing himself,
9 petitioner did not become liable to another person for
10 attorney fees nor did he bring down upon himself any
11 debt.”).
12 While Mr. Hudson did expend time and effort to litigate
13 (successfully) the issue of the IRS’s interest assessment on
14 the settlement amount, he paid no out-of-pocket expenses and
15 incurred no obligation for the services of an attorney and
16 therefore is not entitled to attorney’s fees pursuant to IRC
17 § 7430.
18 B
19 Awarding attorneys’ fees to lawyers appearing pro se
20 would not serve the policy of fee-shifting statutes such as
21 IRC § 7430. In Pietrangelo v. United States Army, we
22 declined to award fees to a lawyer appearing pro se under
10
1 the fee-shifting provision of the Freedom of Information
2 Act, 5 U.S.C. § 552(a)(4)(E). Pietrangelo, 568 F.3d at 341.
3 Citing Kay v. Ehrler, 499 U.S. 432 (1991), which denied fees
4 to a lawyer appearing pro se under 42 U.S.C. § 1988, we
5 explained:
6 [T]he Supreme Court reasoned that although the fee-
7 shifting provision of section 1988 was “no doubt
8 intended to encourage litigation protecting civil
9 rights,” [Kay, 499 U.S.] at 436, the “overriding
10 statutory concern [was] the interest in obtaining
11 independent counsel for victims of civil rights
12 violations,” id. at 437. Representation by independent
13 counsel, the Supreme Court explained, has distinct
14 advantages over even a skilled lawyer who represents
15 himself. Id. To give just two examples, (a) ethical
16 considerations may make it inappropriate for a lawyer
17 to appear as a witness, and (b) a pro se lawyer is
18 “deprived of the judgment of an independent third party
19 in framing the theory of the case, evaluating
20 alternative methods of presenting evidence, cross-
21 examining hostile witnesses, formulating legal
22 arguments, and in making sure that reason, rather than
23 emotion, dictates the proper tactical response to
24 unforeseen developments in the courtroom.” Id.25
26 Given the advantages of employing independent
27 counsel, the Supreme Court concluded that the statutory
28 policy of “furthering the successful prosecution of
29 meritorious claims” was best served by a rule that
30 “creates an incentive to retain counsel in every such
31 case.” Id. at 438. Permitting a fee award to a pro se
32 litigant, even one who is a lawyer, would instead
33 “create a disincentive to employ counsel.” Id.34 Accordingly the Supreme Court held that pro se lawyers
35 did not fall within the scope of the fee-shifting
36 provision.
37
38 568 F.3d at 343-44.
11
1 The policy underlying statutes such as IRC § 7430 is to
2 incentivize litigants to retain counsel in order to prevent
3 overreaching by the IRS; awarding pro se litigants
4 attorneys’ fees would run counter to that policy by
5 discouraging litigants who are lawyers from obtaining
6 outside, independent counsel.
7 The fee-shifting provision of IRC § 7430, like the fee-
8 shifting provisions of 42 U.S.C. § 1988 and 5 U.S.C.
9 § 552(a)(4)(E), exists to further “the successful
10 prosecution of meritorious claims” and to ensure that
11 taxpayers are not forced into settlements with the IRS
12 because the cost of litigation outweighs the amount in
13 controversy. Kay, 499 U.S. at 438. We “find no reason to
14 distinguish the principles articulated in Kay and conclude
15 that they apply with ‘equal force’ to [Mr. Hudson’s] motion
16 for fees under [IRC § 7430].” Pietrangelo, 568 F.3d at 345
17 (quoting Ray v. U.S. Dep’t of Justice, 87 F.3d 1250, 1252
18 (11th Cir. 1996)).
19 CONCLUSION
20 For the foregoing reasons, we AFFIRM the judgment of
21 the district court.
12