In Re David Larry Davis, Debtor.charles A. Gower, Trustee, Plaintiff-appellee, v. Farmers Home Administration, Defendant-appellant, 899 F.2d 1136 (11th Cir. 1990)

Davis, a farmer, borrowed $985,000 from FmHA in 1981. It was later determined that Davis defrauded FmHA in obtaining this loan, and he pleaded guilty to federal fraud charges under 18 U.S.C.A. Sec. 1014 on May 12, 1983. On November 16, 1981, Davis filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code, 11 U.S.C.A. Secs. 701-766 (West 1979 & Supp.1989). On February 12, 1982, the Trustee brought an adversary action against FmHA to set aside certain preferential payments made to FmHA during the 90-day period prior to Davis's Chapter 7 petition. See 11 U.S.C.A. Sec. 547(b), (c) (5) (West 1979 & Supp.1989). The Trustee also sought to have FmHA's claims against Davis's estate equitably subordinated to those of other creditors. See 11 U.S.C.A. Sec. 510(c) (West 1979). After rejecting FmHA's claim of sovereign immunity from the Trustee's action, see In re Davis, 20 B.R. 519 (Bkr.M.D. Ga. 1982), the bankruptcy court, on November 13, 1984, ruled in favor of the Trustee, ordering return of the preferential transfers and equitably subordinating FmHA's claims to those of Davis's other creditors. The court found that FmHA's conduct toward the other creditors was "at best, misleading," and that "FmHA obtained an unfair advantage over the other unsecured creditors in this case." On December 12, 1984, the Trustee filed a timely application in the bankruptcy court for attorney's fees under section 2412(d) (1) (A) of the EAJA; this application was stayed, however, when FmHA appealed to the district court.¹ 

The district court reversed the bankruptcy court on July 10, 1985, ruling that the Trustee's claim was forfeited under 28 U.S.C.A. Sec. 2514 because of Davis's admitted fraud against FmHA. This Court reversed the district court, ruling that because the Trustee's action was on behalf of the other creditors, the bankrupt debtor's fraud was irrelevant. In re Davis, 785 F.2d 926, 927 (11th Cir. 1986).²  On November 5, 1986, the district court, on remand, affirmed the bankruptcy court's decision of November 13, 1984. On September 23, 1987, this Court summarily affirmed the district court under 11th Circuit Rule 36-1. The Trustee renewed his EAJA application in the bankruptcy court on January 4, 1988, and a hearing was held on February 25, 1988. FmHA objected to any award of attorney's fees on the grounds that (1) the Trustee was not an eligible "party" to recover fees under the EAJA, see 28 U.S.C.A. Sec. 2412(d) (2) (B), (2) the Trustee did not qualify under the EAJA's net-worth limitations, see id., (3) FmHA was substantially justified in its position, see id., Sec. 2412(d) (1) (A), and (4) special circumstances (in particular, Davis's fraud) made an award of fees unjust, see id. On September 23, 1988, the bankruptcy court overruled FmHA's objections and awarded a total of $112,638.75 in attorneys' fees and $631.56 in expenses to the Trustee and his two co-counsel, T. Jefferson Loftiss, II, and J. Patrick Ward.³  In re Davis, 91 B.R. 627, 638 (Bkr.M.D. Ga. 1988). The court found, inter alia, that a bankruptcy trustee was an eligible "party" to receive an EAJA award and that the EAJA's net-worth and number-of-employees limitations were satisfied because the Chapter 7 estate was insolvent. Id. at 632-33.

FmHA appealed to the district court, which affirmed the bankruptcy court's fee award on March 2, 1989. The district court, citing Davis's fraud against FmHA, expressed in dicta the opinion that FmHA's position was substantially justified and that special circumstances made an award of attorney's fees to the Trustee unjust. The district court concluded, however, that its views on those issues were precluded by this Court's reversal of its July 10, 1985 decision. The district court did not discuss the EAJA eligibility issues concerning the Trustee, but its disposition of the case implicitly affirmed the bankruptcy court's holdings on those issues. The FmHA thereafter appealed to this Court, raising the four issues noted above,⁴  and also contending, for the first time, that the bankruptcy court lacked jurisdiction to award attorney's fees under the EAJA.⁵  The two issues which we address are questions of law subject to de novo review.

The EAJA states simply that attorney's fees are awardable by "a court ... in any civil action ... brought by or against the United States in any court having jurisdiction of that action." 28 U.S.C.A. Sec. 2412(d) (1) (A); see also id., Sec. 2412(b). FmHA does not contest that the bankruptcy court had jurisdiction over the voidable-preference/equitable-subordination action brought by the Trustee in this case. See 28 U.S.C.A. Sec. 157(b) (2) (F), (O) (West Supp.1989). It thus might appear, ipso facto, that the bankruptcy court had jurisdiction to entertain the Trustee's EAJA application. This Court, however, in Bowen v. Commissioner of Internal Revenue, 706 F.2d 1087 (11th Cir. 1983), held that despite the EAJA's reference to "any court having jurisdiction of th [e] action," only "court [s] of the United States" as defined in 28 U.S.C.A. Sec. 451--that is, courts whose judges enjoy the characteristics of tenure "during good behavior" and irreducible salary provided by Article III of the Constitution--have jurisdiction to award fees under the EAJA.⁶  See Bowen, 706 F.2d at 1088 (" [W]e conclude that Section 2412(d) (1) (A) authorizes an award of attorney's fees only by an Article III court.").

The specific holding in Bowen was that the non-Article III Tax Court lacked jurisdiction to award EAJA fees. See id. (noting that a Senate co-sponsor of the EAJA specifically contemplated that EAJA fees would be available in "tax-related matters" before the district courts but not "before the Tax Court"). The language of Bowen, however, unambiguously controls the jurisdictional issue presented in this case. Furthermore, the legislative history of the EAJA states:

Section 2412(b) permits a court in its discretion to award attorney fees and other expenses to prevailing parties in civil litigation involving the United States to the same extent it may award fees in cases involving other parties. The courts so empowered are those defined in section 451 of title 28, United States Code. This is consistent with the present law in section 2412.

H.R.Rep. No. 96-1418, 96th Cong., 2d Sess. 17, reprinted in 1980 U.S.Code Cong. & Admin.News 4953, 4984, 4996 (emphasis added). The language of section 2412(d) (1) (A) is identical in relevant respects to that of section 2412(b), and the House Report does not suggest any different definition of the courts empowered to award fees under section 2412(d) (1) (A). See id. at 18, 1980 U.S.Code Cong. & Admin.News at 4997.⁷  Bankruptcy courts are not listed in section 451, and it is indisputable that, as presently constituted, they are not Article III courts. See Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 60-61, 102 S. Ct. 2858, 2865-66, 73 L. Ed. 2d 598 (1982) (plurality opinion of Brennan, J., joined by Marshall, Blackmun, and Stevens, JJ.); id. at 89, 102 S. Ct. at 2880 (Rehnquist, J., joined by O'Connor, J., concurring in the judgment); 28 U.S.C.A. Sec. 152(a) (1) (West Supp.1989) (appointment of bankruptcy judges by Courts of Appeals for 14-year terms). It thus appears that the bankruptcy court below lacked jurisdiction to award fees under the EAJA.

The jurisdictional provisions of the Bankruptcy Code nevertheless suggest two possible methods by which a bankruptcy court might validly entertain an EAJA application. The 1984 amendments to the Code responded to the constitutional problems created by the bankruptcy courts' non-Article III status⁸  by distinguishing between "core" and "non-core" proceedings, the latter being proceedings outside the scope of bankruptcy law as such. See 28 U.S.C.A. Sec. 157 (West Supp.1989). The assumption underlying the 1984 amendments is that Article III is not violated by the resolution of "core" bankruptcy proceedings in the non-Article III bankruptcy courts.⁹  While the Trustee's underlying action in this case was a core proceeding, see id., Sec. 157(b) (2) (F), (O), his application for EAJA fees clearly is not. "If the proceeding does not involve a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy it is not a core proceeding; it may be related to the bankruptcy because of its potential effect, but under section 157(c) (1) it is an 'otherwise related' or non-core proceeding." Matter of Wood, 825 F.2d 90, 97 (5th Cir. 1987) (Wisdom, J.) (emphasis in original).

Section 157(c) (1), however, provides that

[a] bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district court after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.

Consideration of an EAJA application by a bankruptcy court under this procedure would not raise any problem under Bowen because the Article III district court, not the bankruptcy court, would ultimately determine the merits of the application and award the fees.¹⁰  While FmHA attempts a rather strained argument that the bankruptcy and district court decisions below should be viewed as having followed the section 157(c) (1) procedure, it is clear that the proceedings below cannot be so characterized. The bankruptcy court's September 23, 1988 judgment is by its own terms an "ORDER" and states that "it is hereby ORDERED that the Defendant [FmHA] shall pay to the Trustee [the awarded] fees." The district court's March 2, 1989 judgment is styled an "OPINION AND ORDER ON APPEAL," states that "the Bankruptcy Court entered an order on September 23, 1988 ... and this is an appeal by [FmHA] from that order," and concludes that "the appeal is denied." It is thus clear that the bankruptcy and district courts below were following the appeal procedure of 28 U.S.C.A. Sec. 158 (West Supp.1989).¹¹ 

This brings us to the second potential method by which the bankruptcy court might have considered this EAJA application. Section 158 provides for appellate review by the district court of "final judgments, orders, and decrees" of the bankruptcy court, id., Sec. 158(a), "in the same manner as appeals in civil proceedings generally are taken to the courts of appeals," id., Sec. 158(c). See In re Sublett, 895 F.2d 1381, 1383-84 (11th Cir. 1990). The bankruptcy courts are authorized to enter final judgments, subject to appellate review under section 158, in "core proceedings" under section 157(b) and under the consensual referral provision of section 157(c) (2), which provides that "the district court, with the consent of all the parties to the proceeding, may refer a proceeding related to a case under title 11 [i.e., a non-core proceeding] to a bankruptcy judge." The EAJA application in this case is unquestionably "related" to the underlying core proceeding. Because the very purpose of section 157(c) (2) is to authorize adjudication by the bankruptcy courts of proceedings otherwise reserved for Article III tribunals, it would appear that EAJA applications may properly be adjudicated by bankruptcy courts pursuant to that section.¹²  In the present case, however, the crucial element of consent is lacking. The parties agree that at a pre-trial conference on August 25, 1983, FmHA consented to the bankruptcy court's jurisdiction over the underlying case on the merits. That consent clearly did not apply to the EAJA action, however, which was not actually commenced until January 1988 when the Trustee renewed his application.¹³  Bankruptcy Rule 7012(b), effective as amended on August 1, 1987, provides that " [i]n non-core proceedings final orders and judgments shall not be entered on the bankruptcy judge's order except with the express consent of the parties." (Emphasis added.)

For the foregoing reasons, the bankruptcy court lacked jurisdiction to award EAJA fees in this case.

Because our holding on the jurisdictional issue would not preclude the Trustee from renewing his EAJA application before the district court, and because the district court has already faced and decided--albeit implicitly--the issue of the Trustee's eligibility to seek fees under the EAJA, it is appropriate for us to resolve that issue now.¹⁴  The EAJA defines a "party" eligible to seek attorney's fees as

(i) an individual whose net worth did not exceed $2,000,000 at the time the civil action was filed, or (ii) any owner of an unincorporated business, or any partnership, corporation, association, unit of local government, or organization, the net worth of which did not exceed $7,000,000 at the time the civil action was filed, and which had not more than 500 employees at the time the civil action was filed [.]

28 U.S.C.A. Sec. 2412(d) (2) (B). The Trustee argues that a bankruptcy estate fits within the meaning of the term "organization," and that, as the representative of the estate, he is entitled to seek fees under the EAJA. FmHA argues that a bankruptcy estate is not listed as an eligible party in the EAJA and cannot be shoe-horned into any of the other listed entities. We find surprisingly little guidance on this issue. No decision of this Court has addressed this issue, and few cases from any court even relate to it. One district court in this Circuit has declined to award EAJA fees to a bankruptcy estate, but only on the grounds that the litigation involved was not a "civil action" within the EAJA's meaning and that special circumstances made an award of fees unjust. See Flournoy v. Hershner, 68 B.R. 165, 172-73 (M.D. Ga. 1986). The Fifth Circuit recently vacated and remanded an award of EAJA fees to a partnership, one of whose partners was in bankruptcy, in an action jointly brought by the partnership and the trustee of the bankrupt partner's estate; the court's vacatur and remand was not based on the identity of the parties and the court clearly contemplated that fees might be awarded on remand. See In re Estate of Lee, 812 F.2d 253, 256-57 (5th Cir. 1987). Because the Fifth Circuit did not discuss the bankruptcy-trustee eligibility issue, however, and because the EAJA explicitly authorizes an award of fees to a "partnership," we find this case to be of little help to our analysis.¹⁵ 

The Trustee points to Black's Law Dictionary, which broadly defines an "organization" to include "a corporation, government or governmental subdivision or agency, business trust, estate, trust, partnership or association, two or more persons having a joint or common interest, or any other legal or commercial entity." Id. at 991 (5th ed. 1979).¹⁶  We believe, however, that the uncritical adoption of such a sweeping scope for the term "organization" would not be consistent with the principle that "waivers of sovereign immunity, as EAJA is, are to be construed narrowly and in favor of the sovereign." City of Brunswick v. United States, 849 F.2d 501, 503 n. 4 (11th Cir. 1988), cert. denied, --- U.S. ----, 109 S. Ct. 1313, 103 L. Ed. 2d 582 (1989); see also Library of Congress v. Shaw, 478 U.S. 310, 321, 106 S. Ct. 2957, 2965, 92 L. Ed. 2d 250 (1986) (an expression of "the clear affirmative intent of Congress" is required "to waive the sovereign's immunity"). We believe the conception of an "organization" as "a group of people that has a more or less constant membership, a body of officers, [and] a purpose," see Webster's Third New International Dictionary 1590 (1976) (emphasis added), more probably captures Congress's intent in drafting the EAJA, and comports more closely with a narrow construction of the EAJA's waiver of sovereign immunity.

We think it clear that a bankruptcy estate fits awkwardly, at best, within this conception. It is true, as the Trustee argues, that a bankruptcy trustee represents, in part, a group of creditors who share the common interest and purpose of recovering the maximum return on the debts owed to them. It is clear that the Trustee, in bringing the voidable-preference/equitable-subordination action against the FmHA in this case, was, generally speaking, " 'standing in the shoes' of the creditors." See Koch Refining v. Farmers Union Central Exchange, Inc., 831 F.2d 1339, 1343 (7th Cir. 1987), cert. denied, 485 U.S. 906, 108 S. Ct. 1077, 99 L. Ed. 2d 237 (1988). But the "organization" of creditors represented by a bankruptcy trustee in this sense is of a transient and limited nature. The "members" of the "organization" do not in fact necessarily share any particular ties or links, other than that the debtor owes them all money. Even their abstract common purpose of recovering what is owed to them will often mask, in reality, a set of violently competing individual interests. Indeed, "representing self-interested creditors has long been recognized" as perhaps the most "difficult aspect" of the bankruptcy trustee's duties. See id. As the Supreme Court has observed, "historically one of the prime purposes of the bankruptcy law has been ... to protect the creditors from one another." Young v. Higbee Co., 324 U.S. 204, 210, 65 S. Ct. 594, 597, 89 L. Ed. 890 (1945) (Black, J.); see also Koch Refining, 831 F.2d at 1343. This reality is reflected in this very case, where FmHA, the defendant in the Trustee's action, was itself one of Davis's key creditors, and where FmHA has been adjudged guilty of misleading and inequitable conduct toward the other creditors.¹⁷ 

The transient nature of such an "organization" is reflected in the fact that it did not even exist prior to Davis's bankruptcy filing, and thus did not exist during the time FmHA was engaging in the conduct which was the subject matter of the lawsuit for which attorney's fees are now sought. The bankruptcy estate and the creditors represented by the Trustee simply do not seem to be the kind of "organization" which the average, reasonable person would envision as falling under a narrow, common-sense definition of that term. We find the "organization" in this case to be a far cry, for example, in terms of "constant membership" and common "purpose," from the Indian tribe found eligible in Hoopa Valley Tribe v. Watt, 569 F. Supp. 943, 945 (N.D. Cal. 1983).¹⁸ 

In construing the scope of the definition of an eligible "party" under EAJA, we are not insensible to the concerns which prompted Congress to enact that statute. As the Supreme Court recently noted, "Congress passed the EAJA in response to its concern that persons 'may be deterred from seeking review of, or defending against, unreasonable governmental action because of the expense involved in securing the vindication of their rights.' " Sullivan v. Hudson, --- U.S. ----, 109 S. Ct. 2248, 2253, 104 L. Ed. 2d 941 (1989). While the EAJA should thus be construed to vindicate its beneficial purposes, we believe that a definition of the term "organization" according to the conception discussed above appropriately balances those purposes with the principle requiring narrow construction of the EAJA as a waiver of sovereign immunity. Because a bankruptcy estate does not comfortably fit within that conception, we conclude that the Trustee is not an eligible "party" to bring an EAJA application.

The bankruptcy court's award of fees under the EAJA was entered without jurisdiction. The judgments of the district and bankruptcy courts below are therefore VACATED. Furthermore, the Trustee may not renew his EAJA application in the district court because a bankruptcy trustee is not a "party" eligible to seek fees under the EAJA.