Davis, In re

• Decision Date: 30 April 1990
• Docket Number: No. 89-8359,89-8359
• Citation: 899 F.2d 1136
• Parties: , 23 Collier Bankr.Cas.2d 555, Bankr. L. Rep. P 73,369 In re David Larry DAVIS, Debtor. Charles A. GOWER, Trustee, Plaintiff-Appellee, v. FARMERS HOME ADMINISTRATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1136

899 F.2d 1136

58 USLW 2653, 23 Collier Bankr.Cas.2d 555,

Bankr. L. Rep. P 73,369

In re David Larry DAVIS, Debtor Charles A. GOWER, Trustee, Plaintiff-Appellee, v. FARMERS HOME ADMINISTRATION, Defendant-Appellant.

No. 89-8359.

United States Court of Appeals, Eleventh Circuit.

April 30, 1990.

Lillian Lockary, Asst. U.S. Atty., Macon, Ga., Robert M. Loeb, William Kanter, U.S. Dept. of Justice, Civil Appellate Staff, Washington, D.C., for defendant-appellant.

Charles A. Gower, Columbus, Ga., J. Patrick Ward, Loftiss, Van Heiningen & Ward, Cairo, Ga., T. Jefferson Loftiss, II, Loftiss, Van Heiningen & Ward, Thomasville, Ga., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Georgia.

Before JOHNSON and ANDERSON, Circuit Judges, and TUTTLE, Senior Circuit Judge.

JOHNSON, Circuit Judge:

The Farmers Home Administration ("FmHA") appeals from the district court's affirmance of the bankruptcy court's award of attorney's fees to Charles A. Gower, the Trustee of the Bankruptcy Estate of David Larry Davis, under the Equal Access to Justice Act, 28 U.S.C.A. Sec. 2412 (West Supp.1989) ("EAJA").

I. STATEMENT OF THE CASE

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.

II. ANALYSIS

A. Jurisdiction

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 status ⁸ 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...