Under the Equal Access to Justice Act, or EAJA, someone who prevails over the federal government in litigation is entitled to the recovery of attorneys’ fees and expenses.

However, the Ninth Circuit held that the EAJA does not allow debtors to recover attorneys’ fees for reversing the bankruptcy court’s sua sponte denial of confirmation.

In four cases in California, the debtors proposed chapter 13 plans with estimated durations. Neither the chapter 13 trustee nor creditors objected. Sua sponte, the bankruptcy courts denied confirmation.

The bankruptcy courts confirmed the plans when they were modified to have fixed durations. The debtors appealed, but the Bankruptcy Appellate Panel affirmed.

The four debtors appealed again, but this time they won in a Ninth Circuit opinion on June 22.

The appeals court held that the bankruptcy court must confirm a chapter 13 plan with an estimated duration, so long as no creditor objects and all other confirmation requirements are satisfied. In re Sisk, 962 F.3d 1133 (9th Cir. June 22, 2020). To read ABI’s report on Sisk, click here.

The reversal was important because Sisk allows debtors to accelerate payments and receive their discharges more quickly, without paying more to creditors than required. Sisk also lowers expenses for debtors because it also allows an accelerated exit from chapter 13 without paying counsel to modify their plans under Section 1329.

Having won an important reversal of an action taken by the bankruptcy court sua sponte, counsel for the debtors filed applications for payment of their fees and expenses under the EAJA, 28 U.S.C. § 2412(d)(1)(A).

The statute provides that the “court shall award” fees and expenses “to a prevailing party” in “any civil action . . . brought by or against the United States . . . unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.”

Despite the significance of the debtors’ victory, the appeals court panel entered an unsigned order on September 1 denying the fee applications, based on the text of the statute and presumption of sovereign immunity.

The panel first found that “a bankruptcy court does not clearly fall within the EAJA’s definition of ‘United States.’”

Second, the panel said that “uncontested bankruptcy cases do not clearly constitute ‘civil action[s] brought by or against the United States’ within the meaning of the EAJA.” The appeals court said that the government has no involvement “in uncontested bankruptcy matters,” contrasted with “cases where the United States plays an active, adversarial role in the adjudication, such as immigration or social security cases.” [Citations omitted.]

Furthermore, uncontested bankruptcy cases are not “‘brought by or against’ the United States — they are brought by Debtors seeking relief from their creditors.”

While acknowledging that “Debtors’ counsel expended considerable time and resources pursuing these ultimately successful appeals,” the panel held that the “EAJA, however, does not clearly authorize attorney fees under these circumstances.”

Question

Suppose that the U.S. Trustee, without support from any creditors, unsuccessfully opposes an action proposed by a debtor. Is the debtor entitled to the recovery of costs and expenses?

If it’s a close question, there would be no liability for the government because the U.S. Trustee would have been “substantially justified.” But “not substantially justified” is not the same as “frivolous.”

Assuming that a U.S. Trustee’s intervention in a contested matter is an action “brought by or against the United States,” the government might be liable if the position taken by the U.S. Trustee is somewhere between frivolous and substantially justified. Drawing the line won’t be easy, so the presumption of sovereign immunity may protect the government — unless the position taken by the U.S. Trustee is almost frivolous.