In re Garcia
| Decision Date | 09 September 2013 |
| Docket Number | Case No.: 5:12-CV-02449-EJD |
| Parties | In re Richard A. Garcia, et al., Debtors. |
| Court | U.S. District Court — Northern District of California |
CERTIFIED FOR PUBLICATION
ORDER AFFIRMING BANKRUPTCY
COURT'S AWARD OF ATTORNEY'S
FEES FOR APPELLEES
[Re: Docket Item No. 1]
Appellant United States of America (here, "the IRS" or "Appellant") has timely appealed United States Bankruptcy Judge Arthur S. Weissbrodt's May 2, 2012 order granting Appellees Richard A. and Laura J. Garcia ("the Garcias" or "Appellees") an award of attorney's fees over and above the statutory limit pursuant to 26 U.S.C. § 7430.
Having fully reviewed the parties' papers, the Court AFFIRMS the judgment of the Bankruptcy Court.
On June 20, 2007, the Garcias filed a voluntary Chapter 13 petition. Docket Item No. 1, Ex. 2, Tr. of Hr'g on Debtors' Mot. for Orders Enforcing Sanction ("Order") at 4. The IRS appearsamong the Garcias' listed creditors on the relevant schedules and was served with notice of the commencement of their bankruptcy case. Id. at 5. On September 15, 2010, the Garcias received confirmation of their Chapter 13 plan. Id.
Approximately one year later, on September 20, 2011, the IRS recorded a lien for trust fund taxes against Richard Garcia. Id. Counsel for the Garcias, Cathleen Cooper Moran, discussed the pendency of the Garcias' bankruptcy case with an IRS employee in October of 2011. Id. Despite this, the IRS served Richard Garcia's employer with a notice of wage garnishment on October 27, 2011. Id.
The Garcias' filed the motion giving rise to the present appeal on November 29, 2011. Id. That motion requested damages in the amount of $5,000 for each communication or collection action taken in violation of the automatic stay imposed on actions undertaken by the Garcias' listed creditors, as well as an award of attorney's fees incurred to stop such violations. Id. The motion further sought reimbursement for expenses the Garcias accumulated by virtue of the seizure of Richard Garcia's wages. Id.
The Bankruptcy Court held a hearing on that motion on February 13, 2012. Id. At the hearing, Ms. Moran informed the court that, pursuant to her efforts with the IRS, Mr. Garcia's garnished wages had been returned. Id. at 6. She further noted that as of February 12, 2012, the IRS had also lifted the lien on the Garcias' property. Id. The court informed the parties that an award of attorney's fees might be appropriate, and that based on the Bankruptcy Court's knowledge would be unlikely to hold Ms. Moran to amounts the IRS proposed. Id. Accordingly, the Bankruptcy Court instructed Ms. Moran to file a declaration demonstrating the Garcias' actual damages. Id.
Adhering to the Bankruptcy Court's request, Ms. Moran furnished a declaration in support of the motion for attorney's fees detailing her credentials, in addition to the fees incurred inpreparing and litigating the Garcias' motions. Id. In this declaration, Ms. Moran asserted (1) that she had practiced bankruptcy law in the Northern District of California for thirty-two years; (2) that she was one of only one-hundred-eighteen individuals certified by the California State Board of Legal Specialization as a "Specialist in Bankruptcy Law;" and (3) that she teaches bankruptcy law to practitioners. Id. The Bankruptcy Court also reiterated its personal familiarity with Ms. Moran's "level of knowledge and expertise." Id. The declaration also contained copies of billing statements, time records linked to the IRS's post-petition efforts to collect prepetition taxes from the Garcias, and stated Ms. Moran's hourly billing rate of $425 per hour. Id. at 6-7. The IRS offered no evidence rebutting Ms. Moran's credentials. Instead, it characterized the species of legal skills Ms. Moran employed in her interactions with the IRS as those of any competent lawyer. Id. at 10.
As such, the Bankruptcy Court deemed that a "special factor" existed under Huffman v. Comm'r of Internal Revenue, 987 F.2d 1139 (9th Cir. 1992), justifying an upward departure from the statutory limit imposed on attorney's fees by 26 U.S.C. § 7340. The Bankruptcy Court, citing United States v. Guess, 425 F. Supp. 2d 1143, 1156 (S.D. Cal. 2006), identified a "two-prong test" for determining the existence of such a special factor: whether the attorney in question possesses distinctive knowledge or skills that are needful for the litigation, and cannot be obtained elsewhere at the statutory rate. Order at 10-11. In particular, the Bankruptcy Court likened the Garcias' case to Pirus v. Bowen, 869 F.3d 536 (9th Cir. 1989), in support of the conclusion that specialized knowledge of a complex statutory scheme, such as the Bankruptcy Code, necessary to the vindication of a client's claim, could justify an upward deviation from a statutory cap on awards of attorney's fees. Order at 10. Relevant to the present appeal, the Bankruptcy Court found that Ms. Moran "employ[ed] distinctive knowledge of the Bankruptcy Code to remedy the IRS's violationsof the automatic stay." Order at 11. Both at the February 13, 2012 hearing and in its May 2, 2012 order, the Bankruptcy Court relied extensively on its personal knowledge and experience, in particular noting that "Ms. Moran's standard fee of $425 per hour for handling bankruptcy matters is very reasonable under these circumstances." Order at 11. The present appeal ensued.
A district court reviews a bankruptcy court's conclusions of law de novo. See Fed. R. Bankr. P. 8013(a); Huffman, 978 F.2d at 1143 (citing Pierce v. Underwood, 487 U.S. 552, 571 (1988)). Evidentiary rulings, by contrast, are reviewed for abuse of discretion. Hughes v. United States, 953 F.2d 531, 539 (9th Cir. 1992). Similarly, the district court reviews a bankruptcy court's determination of attorney's fees awards under 26 U.S.C. § 7430 for abuse of discretion. Huffman, 978 F.2d at 1143. A court abuses its discretion when its decision is based on an erroneous conclusion of law or when the record lacks evidence that could rationally support its decision. Kali v. Bowen, 854 F.2d 329, 331 (9th Cir. 1988).
26 U.S.C. § 7430(c)(1)(B)(iii) places a presumptive limit on attorney's fees in litigation with the IRS. See id. ().1 Its wording closely tracks that of the Equal Access to Justice Act ("EAJA") and the same broad principles undergird it. Compare 26 U.S.C. § 7430(c)(1)(B)(iii) with 28 U.S.C. § 2412(d)(2)(A); see also Estate of Merchant v. Comm'r of Internal Revenue, 947 F.2d 1390, 1392-93 (9th Cir. 1991). As such, courts rely on interpretation of the EAJA when interpreting Section 7430. Huffman, 978 F.2d at 1143. Under Section 7430, as under the EAJA, a court of first instance may award attorney's fees in excess of the presumptive statutory limit if a "special factor" exists,justifying such a departure. See 26 U.S.C. § 7430(c)(1)(B)(iii) ().
In construing the language "limited availability of qualified attorneys for such proceeding," the U.S. Supreme Court has determined that this phrase means qualification in "some specialized sense, rather than ... general legal competence." Pierce, 487 U.S. at 571 ( the EAJA). The Supreme Court elaborated: "We think it refers to attorneys having some distinctive knowledge or specialized skill needful for the litigation in question—as opposed to an extraordinary level of the general lawyerly knowledge and ability useful in all litigation." Id. The Ninth Circuit has refined this test, such that a "special factor" exists if the attorney in question possesses distinctive knowledge or skills, that are needful for the litigation, and that cannot be obtained elsewhere at the statutory rate. Pirus, 839 F.2d at 541-42 (); see also Guess, 425 F. Supp. 2d at 1156.
As an initial matter, the Court notes that the IRS does not contest that attorney's fees are owed in the present litigation. Rather, the IRS argues that the Bankruptcy Court erred in departing from the presumptive statutory cap on attorney's fees imposed by Section 7430. The IRS grounds this view in the argument that the Bankruptcy Court wrongly concluded that Ms. Moran's credentials and the nature of the legal representation constitute a "special factor" justifying a higher attorney's fees award. The IRS asserts first that Ms. Moran's credentials as a specialist in bankruptcy law fail to qualify her as possessing distinctive knowledge or skills as a matter of law under Section 7430. The IRS further claims that regardless of Ms. Moran's credentials, any such specialized skill in bankruptcy law was not necessary to vindicate the Garcias' interests because the actions involved were routine. Finally, the IRS notes that the Bankruptcy Court never applied thethird prong of the Pirus test because it made no explicit, separate finding as to the availability of counsel willing to perform the necessary legal work at the statutory rate. The Court addresses each point in turn.
C. Specialized Skill in Bankruptcy Law Constitutes "Distinctive Knowledge or Specialized Skill"
The IRS vigorously espouses the position that "knowledge of the Bankruptcy Code" cannot satisfy the Pirus test, and cites to various bankruptcy cases in support of this proposition.2 However, the Court notes that other tribunals have come to the opposite conclusion. See, e.g., In re Ladera Heights Cmty. Hosp., Inc., Nos. CV-94-5647JMI, CV-94-4468JMI, 1995 WL 459297 (...
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