Grewe, In re

• Decision Date: 03 September 1993
• Docket Number: No. 93-1223,93-1223
• Citation: 4 F.3d 299
• Parties: -5849, 62 USLW 2215, 93-2 USTC P 50,535, Bankr. L. Rep. P 75,420 In re Henry Robert GREWE; In re Cathy Anne GREWE, his wife, Debtors. Henry Robert GREWE; Cathy Anne Grewe, his wife, Plaintiffs-Appellees, v. UNITED STATES of America, on Behalf of its agency, Internal Revenue Service, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 299

4 F.3d 299

72 A.F.T.R.2d 93-5849, 62 USLW 2215, 93-2

USTC P 50,535,

Bankr. L. Rep. P 75,420

In re Henry Robert GREWE; In re Cathy Anne GREWE, his wife Debtors Henry Robert GREWE; Cathy Anne Grewe, his wife, Plaintiffs-Appellees, v. UNITED STATES of America, on Behalf of its agency, Internal Revenue Service, Defendant-Appellant.

No. 93-1223.

United States Court of Appeals Fourth Circuit.

Argued July 12, 1993.

Decided Sept. 3, 1993.

Joy Lea Pritts, Tax Div., U.S. Dept. of Justice, Washington, DC, argued (Michael L. Paup, Acting Asst. Atty. Gen., Gary R. Allen, Kenneth L. Greene, Tax Div., U.S. Dept. of Justice, on brief), for defendant-appellant.

Martin Patrick Sheehan, Volk, Frankovitch, Anetakis, Recht, Robertson & Hellerstedt, Wheeling, WV, argued (John H. Kamlowsky, on brief), for plaintiffs-appellees.

Before HAMILTON, LUTTIG, and WILLIAMS, Circuit Judges.

OPINION

HAMILTON, Circuit Judge:

The issue presented in this appeal focuses on which statute governs the attorneys' fee request of the appellees, Henry and Cathy Grewe (the Grewes). The district court, in adopting the recommendation of the bankruptcy court, ruled that the Equal Access to Justice Act (EAJA), 28 U.S.C. Sec. 2412(b), controlled. On appeal, the Internal Revenue Service (IRS) claims that the Internal Revenue Code (the IRC), 26 U.S.C. Sec. 7430, rather than the EAJA, should apply. For the reasons that follow, we agree with the IRS. In addition, because the Grewes failed to satisfy the requirements of the IRC, we also hold the district court erred when it awarded attorneys' fees to the Grewes and, therefore, reverse the award of attorneys' fees.

I

In 1983, the IRS made assessments against the Grewes for unpaid federal income taxes with respect to their 1977-80 tax years. In 1986, the IRS filed a notice of federal income tax liens for these past due taxes. On November 20, 1989, because of their financial difficulties, the Grewes filed a voluntary petition in bankruptcy under Chapter 7 of the Bankruptcy Code. On March 21, 1990, the Grewes received a discharge of their debts pursuant to 11 U.S.C. Sec. 523, which discharged their past due federal tax liabilities. Shortly thereafter, their bankruptcy case was closed.

Apparently ignorant of the discharge, the district director of the IRS sent the Grewes a Notice of Intention to Levy on February 25, 1992 in an effort to collect some of these past due taxes. This Notice indicated that the IRS intended to levy on the Grewes' personal property as a result of their unpaid federal income tax for the 1980 tax year. The IRS sought to recover an amount totalling $26,666.

Because the Grewes' prior bankruptcy proceedings had discharged their obligation for these taxes, the Grewes filed a motion on March 25, 1992 with the bankruptcy court, requesting that their bankruptcy case be reopened. After the bankruptcy court granted this motion, the Grewes filed a complaint against the IRS on April 7, 1992, without first pursuing any administrative remedies within the IRS itself. In their complaint, the Grewes alleged that the IRS's collection efforts violated the permanent discharge injunction of 11 U.S.C. Sec. 524(a). On April 13, 1992, the IRS recorded a lien on the Grewes' property in Wood County, West Virginia. After discovering that these debts had been discharged in bankruptcy, however, the IRS promptly prepared a judgment in which it conceded that the Grewes were no longer liable for these taxes. The IRS also agreed to remove the tax lien against the Grewes' property.

After the bankruptcy court adopted this judgment, the Grewes filed a motion requesting costs and attorneys' fees against the IRS for the IRS's violation of the Bankruptcy Code's discharge provisions. The parties then agreed to submit the matter to the bankruptcy court pursuant to 28 U.S.C. Sec. 157(c)(1), under which the bankruptcy court would make proposed findings of fact and conclusions of law and submit them to the district court for a de novo review and entry of a final order. (Joint Appendix (J.A.) 50). ¹ In the proceedings before the bankruptcy court, 148 B.R. 824, the parties disputed which statute should determine whether the Grewes could recover attorneys' fees from the IRS. The IRS argued that 26 U.S.C. Sec. 7430 of the Internal Revenue Code (IRC) governed. Under that statute, the IRS claimed the Grewes could not recover any attorneys' fees because they failed to exhaust their administrative remedies within the IRS before filing their adversary proceeding in the bankruptcy court. In response the Grewes claimed that the EAJA, 28 U.S.C. Sec. 2412(b), rather than the IRC, dictated whether the Grewes could recover attorneys' fees in the present case.

In the bankruptcy court's proposed findings of fact and conclusions of law (J.A. 49-62), it found that the EAJA, rather than the IRC, dictated whether the Grewes could recover attorneys' fees. The bankruptcy court then recommended that, pursuant to the EAJA, the Grewes should be awarded attorneys' fees totalling $2,035. (J.A. 61). After the IRS filed objections, the bankruptcy court submitted its proposed findings of fact and conclusions of law, along with the IRS's objections, to the United States District Court for the Northern District of West Virginia. Upon a de novo review, the district court entered an order accepting and adopting in whole the bankruptcy court's proposed findings of fact and conclusions of law. (J.A. 84). Pursuant to the district court's order, the bankruptcy court then entered judgment against the IRS in the amount of $2,035. (J.A. 86).

The IRS now appeals.

II

On appeal, the IRS claims that the district court erred when it ruled that the EAJA, rather than the IRC, applied to the Grewes' request for attorneys' fees. In support, the IRS relies on 28 U.S.C. Sec. 2412(e) of the EAJA, which expressly provides that "the provisions of this section shall not apply to any [request for] fees ... in connection with any proceeding to which section 7430 of the Internal Revenue Code ... applies." Because the Grewes' request for fees stems from a tax matter, the IRS argues that the IRC, rather than the EAJA, determines whether the Grewes may recover attorneys' fees. We find this argument persuasive.

The EAJA, 28 U.S.C. Sec. 2412(b), provides one avenue through which prevailing parties may recover attorneys' fees against the United States or its agencies. Specifically, that statute provides, in relevant part:

[A] court may award reasonable fees and expenses of attorneys ... to the prevailing party in any civil action brought ... against the United States or any agency of the United States ... in any court having jurisdiction of such action....

Id. However, the EAJA does not apply to all actions for attorneys' fees against the United States. Section 2412(e) of the EAJA specifically limits the applicability of the EAJA by providing:

The provisions of this section shall not apply to any costs, fees, and other expenses in connection with any proceeding to which section 7430 of the Internal Revenue Code applies....

28 U.S.C. Sec. 2412(e). Because the EAJA expressly yields to "any proceeding to which section 7430 of the [IRC] applies," determining which statute applies to a particular request for attorneys' fees necessarily focuses first on the IRC. Id. Only if the IRC does not apply may a party rely on the EAJA. The jurisdictional statute within the IRC, 26 U.S.C. Sec. 7430(a), indicates that the IRC applies:

In any administrative or court proceeding which is brought by or against the United States in connection with the determination, collection or refund of any tax, interest or penalty under this title....

Id. It follows, if the requirements for this statute are met, a court must apply this statute rather than the EAJA in determining whether a request for attorneys' fees against the United States may be granted. Smith v. Brady, 972 F.2d 1095, 1099 (9th Cir.1992) (citing United States v. McPherson, 840 F.2d 244, 245-46 (4th Cir.1988)).

In the present case, the specific requirements of Sec. 7430(a) at issue are: (a) whether the proceedings qualify as an "administrative or court proceeding"; (b) whether the proceedings were brought "in connection with the ... collection ... of any tax"; and (c) the meaning of "under this title." We conclude that the Grewes' request for attorneys' fees satisfies all three of these requirements and, therefore, IRC Sec. 7430 applies. We discuss our rationale with respect to each requirement separately and in inverse order.

A

In finding that the EAJA applied to the present case, the district court partially relied on the fact that "[n]o proceeding in the case at bar was brought under Title 26." (J.A. 52, 85). Thus, the district court interpreted "under this title" in Sec. 7430(a) to modify "any administrative or court proceeding," such that the proceeding had to be brought under Title 26 before Sec. 7430 applied. We reject this interpretation because it conflicts with general rules of statutory construction and established precedent.

General statutory interpretation rules require "a limiting clause ... to be applied only to the last antecedent." FTC v. Mandel Bros., Inc., 359 U.S. 385, 389, 79 S.Ct. 818, 822, 3 L.Ed.2d 893 (1959). See also, Huffman v. Commissioner, 978 F.2d 1139, 1145 (9th Cir.1992); United States v. Pritchett, 470 F.2d 455, 459 (D.C.Cir.1972). Accordingly, "under this title" modifies "any tax, interest or penalty," rather than "any administrative or court proceeding." Thus, the proper interpretation of Sec. 7430(a) is that the IRC applies to any proceeding brought in connection with the collection of any tax, interest or penalty imposed by Title 26.

The Eighth Circuit's opinion in United States v. McPeck, 910 F.2d 509 (8th Cir.1990), confirms our interpretation. In that case, the IRS made several efforts to collect past due taxes after the taxpayer filed for bankruptcy protection. The taxpayer then filed a...