United States v. Hudson, No. 09-3600 (2d Cir. 2010)

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09-3600-bk United States v. Hudson 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2010 (Argued: September 23, 2010 Decided: November 10, 2010) Docket No. 09-3600-bk - - - - - - - - - - - - - - - - - - - - - - - - - -x UNITED STATES DEPARTMENT OF JUSTICE, TAX DIVISION, Appellee, UNITED STATES OF AMERICA, Appellee-Cross Appellant, -v.PAUL S. HUDSON, Debtor-Appellant, GREGORY G. HARRIS, Chapter 7 Trustee, Trustee. - - - - - - - - - - - - - - - - - - - - - - - - - -x Before: JACOBS, Chief Judge, KATZMANN and LIVINGSTON, Circuit Judges. 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. 3 lawyer, is appearing pro se here, as he did in the 4 bankruptcy court and 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. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Mr. Hudson, a The district court We affirm. Paul S. Hudson, Law Offices of Paul S. Hudson, Sarasota, FL, (Troy A. Morgan, Silver Spring, MD, on the brief), for Debtor-Appellant. Richard L. Parker, Department of Justice, Tax Division (John A. DiCicco, Acting Assistant Attorney General, Bruce R. Ellisen, Attorney, on the brief), Washington, D.C., for Appellee. DENNIS JACOBS, Chief Judge: 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. 2 Mr. Hudson, a 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. 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. 8 appeals from the district court s July 8, 2009 judgment. 9 affirm. The Bankruptcy Court of the Northern District of Mr. Hudson We 10 11 12 I 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. 16 determined that the workers were employees, and assessed 17 withholding and Federal Insurance Contributions Act ( FICA ) 18 taxes for 1989 and 1990. 19 3401, 3402(a), 3403. 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 After an audit, the IRS See 26 U.S.C. §§ 3102(a), 3111, The firm failed to pay, and the IRS 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. 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. 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. 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 While the bankruptcy After a collection- The United States District Court 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. 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 9 court reasoned that [b]y allowing reasonable fees to pro se Having thus prevailed, Mr. The bankruptcy 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. 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 24 18 (1st Cir. 1989) (per curiam), and United States v. 19 McPherson, 840 F.2d 244 (4th Cir. 1988). 20 followed. 1 This appeal 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 In 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. 8 Baker v. Health Mgmt. Sys., Inc., 264 F.3d 144, 149 (2d Cir. 9 2001). We review rulings of law de novo. 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). 20 defined (inter alia) to include[] reasonable fees paid or 21 incurred for the services of attorneys in connection with 22 the court proceeding. [R]easonable litigation costs is 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. 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 See Pietrangelo v. U.S. Army, 568 F.3d 341, 342 (2d 10 Education Act). 11 whether a lawyer appearing pro se is entitled to fees under 12 IRC § 7430. 13 But we have not previously considered 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. 4 (emphasis added). 5 he either paid or incurred fees for the services of an 6 attorney. 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 26 U.S.C. § 7430(c)(1)(B)(iii) Mr. Hudson may recover therefore only if Mr. Hudson never paid an attorney; so the Incur means [t]o suffer or bring on oneself (a Black s Law Dictionary 836 (9th ed. 11 liability or expense). 12 2009). 13 pecuniary obligation; debt. 14 [a]n expenditure of money, time, labor, or resources to 15 accomplish a result. 16 that Mr. Hudson brought on himself an expenditure of time 17 defending himself against the IRS. 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. 21 In this context, a liability is [a] financial or Id. at 997. Id. at 658. An expense is At most one could say While his time could be Id. at 690. 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. 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. 13 merely a pro se litigant who happens to earn a living as a 14 lawyer. 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 23 Id. at 147. An agent is a representative ; so Mr. Without the other there can be no attorney, At any given time, an individual can be either a In holding that Mr. Hudson is ineligible to receive 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. 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 . . . . 9 petitioner did not become liable to another person for McPherson, In representing himself, 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 19 B Awarding attorneys fees to lawyers appearing pro se 20 would not serve the policy of fee-shifting statutes such as 21 IRC § 7430. 22 declined to award fees to a lawyer appearing pro se under In Pietrangelo v. United States Army, we 10 1 the fee-shifting provision of the Freedom of Information 2 Act, 5 U.S.C. § 552(a)(4)(E). 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 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Pietrangelo, 568 F.3d at 341. [T]he Supreme Court reasoned that although the feeshifting provision of section 1988 was no doubt intended to encourage litigation protecting civil rights, [Kay, 499 U.S.] at 436, the overriding statutory concern [was] the interest in obtaining independent counsel for victims of civil rights violations, id. at 437. Representation by independent counsel, the Supreme Court explained, has distinct advantages over even a skilled lawyer who represents himself. Id. To give just two examples, (a) ethical considerations may make it inappropriate for a lawyer to appear as a witness, and (b) a pro se lawyer is deprived of the judgment of an independent third party in framing the theory of the case, evaluating alternative methods of presenting evidence, crossexamining hostile witnesses, formulating legal arguments, and in making sure that reason, rather than emotion, dictates the proper tactical response to unforeseen developments in the courtroom. Id. Given the advantages of employing independent counsel, the Supreme Court concluded that the statutory policy of furthering the successful prosecution of meritorious claims was best served by a rule that creates an incentive to retain counsel in every such case. Id. at 438. Permitting a fee award to a pro se litigant, even one who is a lawyer, would instead create a disincentive to employ counsel. Id. Accordingly the Supreme Court held that pro se lawyers did not fall within the scope of the fee-shifting provision. 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. 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]. 17 (quoting Ray v. U.S. Dep t of Justice, 87 F.3d 1250, 1252 18 (11th Cir. 1996)). Kay, 499 U.S. at 438. 19 20 21 We find no reason to Pietrangelo, 568 F.3d at 345 CONCLUSION For the foregoing reasons, we AFFIRM the judgment of the district court. 12

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