The Sixth Circuit has effectively immunized the U.S. Trustee from paying a debtor’s attorneys’ fees under the Equal Access to Justice Act (EAJA) when the U.S. Trustee is the loser in a contested matter.
Why’s that? Because a contested matter spawned by a U.S. Trustee in a bankruptcy case is not a “civil action,” since there is no “complaint.” The January 3 opinion from the Sixth Circuit leaves open the possibility that a U.S. Trustee could be liable for attorneys’ fees if the U.S. Trustee initiates an adversary proceeding and ends up losing.
The individual debtor filed a chapter 7 petition with $100,000 in debt and declared that most of her liabilities were business debts.
The U.S. Trustee moved to dismiss the case under Section 707(b), alleging the case was an abuse of chapter 7 because the debtor’s liabilities were “primarily consumer debts.” After the debtor filed a motion to dismiss the U.S. Trustee’s contested matter, the U.S. Trustee withdrew the motion to dismiss the chapter 7 case.
After the debtor received her discharge, she sought to recover her attorneys’ fees under the Equal Access to Justice Act, 18 U.S.C. § 2412. In his opinion for the appeals court, Circuit Judge Chad A. Readler explained that the EAJA allows the court “to award prevailing parties’ fees and costs incurred ‘in any civil action’ that is ‘brought by or against the United States in any court having jurisdiction of that action.’ 28 U.S.C. § 2412(d)(1)(A).”
The bankruptcy court declined to award fees, and the district court affirmed. So did the Sixth Circuit.
Before addressing the merits, Judge Readler considered whether the request for fees under the EAJA was “core” or “noncore.” He said that courts disagree, but he saw the proceeding as core. Even if it were noncore, he said that no one objected, making it “a valid exercise of [the bankruptcy court’s] jurisdiction.” (Note: Judge Readler spoke in terms of the bankruptcy court’s jurisdiction rather than the bankruptcy court’s power to issue a final order.)
On the merits, Judge Readler mentioned the so-called American Rule, where parties pay their own expenses unless a statute, like the EAJA, provides otherwise. To recover fees, he said that the debtor must show that the “Trustee’s motion to dismiss in the bankruptcy court unambiguously constituted a ‘civil action’ under the EAJA.”
The outcome, Judge Readler said, was “informed by principles of sovereign immunity,” which require that waivers be “strictly construed” in favor of the government.
To decide whether the motion to dismiss was a “civil action,” Judge Readler consulted the Federal Rules of Civil Procedure and Black’s Law Dictionary. Rule 2 says, “There is one form of action — the civil action,” and Rule 3 says, “A civil action is commenced by filing a complaint with the court.”
Judge Readler said that the law dictionary “parrots” the Federal Rules by saying that a civil action is initiated by filing a complaint.
Because “neither [the debtor] nor the Trustee filed a complaint,” Judge Readler said, “it is difficult to believe that this proceeding is the kind to which the EAJA applies.”
If denial of a motion to dismiss in bankruptcy court invoked the EAJA, Judge Readler said that a plaintiff in district court would qualify for reimbursement of counsel fees “for doing no more than simply defeating a Rule 12(b)(6) motion.”
To recover attorneys’ fees, Judge Readler said that the debtor must demonstrate “that Congress unambiguously intended to allow bankruptcy petitioners to recover attorneys’ fees under the EAJA after successfully defending against the Trustee’s motion to dismiss.”
Since “it is at the very least plausible to conclude that a § 707(b) motion to dismiss does not initiate its own civil action” and there is no “express waiver by Congress of sovereign immunity,” Judge Readler affirmed the bankruptcy court and held that the debtor “is unable to avail herself of the EAJA.”
Observation
The appeal dealt with a contested matter where there is no complaint. Strictly speaking, the opinion leaves open the possibility that a U.S. Trustee may be liable for attorneys’ fees in an adversary proceeding initiated by filing a complaint.
The Sixth Circuit has effectively immunized the U.S. Trustee from paying a debtor’s attorneys’ fees under the Equal Access to Justice Act (EAJA) when the U.S. Trustee is the loser in a contested matter.
Why’s that? Because a contested matter spawned by a U.S. Trustee in a bankruptcy case is not a “civil action,” since there is no “complaint.” The January 3 opinion from the Sixth Circuit leaves open the possibility that a U.S. Trustee could be liable for attorneys’ fees if the U.S. Trustee initiates an adversary proceeding and ends up losing.