Teter v. United States Tr. (In re Teter)

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In re Megan Marie Teter, Debtor,

MEGAN MARIE TETER, Appellant, v. UNITED STATES TRUSTEE, Appellee.

No. E21-CV-00334

United States District Court, N.D. Ohio, Eastern Division

August 15, 2022

Appeal No. 19-11224 U.S. Bankruptcy Court Northern District of Ohio Eastern Div. Hon. Arthur I. Hanis, presiding

MEMORANDUM OF OPINION AND ORDER

BRIDGET M. BRENNAN UNITED STATES DISTRICT JUDGE

The Equal Access to Justice Act, 28 U.S.C. § 2412 (“EAJA”) pennits a prevailing party in a civil action either brought by or brought against the United States (or agency or official thereof) to file a motion for costs and attorneys' fees under specified circumstances. Debtor-Appellant is a chapter 7 bankruptcy debtor. The U.S Trustee filed - and later withdrew upon receiving new information and before any court rnling - a motion to dismiss the bankruptcy case pursuant to 11 U.S.C. § 707(b). Debtor-Appellant then filed a motion for attorneys' fees under the EAJA.

The Bankruptcy Court granted the Debtor-Appellant a discharge order pursuant to 11 U.S.C. § 727. But the Bankruptcy Court denied the EAJA fee motion on legal grounds, noting the dearth of case law on the specific issues involved:

Unfortunately, despite the passage of forty years, there appear to be no published cases from the Sixth Circuit or other courts of appeals that have analyzed whether bankruptcy cases or disputes within bankruptcy cases other than adversary proceedings fall within the scope of the term ‘civil action' under the EAJA, let alone do so under the Supreme Court's framework for delineating the scope of waivers of sovereign immunity.

In re Teter, No. 19-11224, 2021 WL 371750, at *7 (Bankr. N.D. Ohro Jan. 25, 2021).

And, if a reviewing court were to find that the debtor is in fact a ‘prevailing party' in a ‘civil action' for purposes of the EAJA, this Court would certainly benefit from any guidance (1) delineating the applicable ‘civil action,' and (2) explaining what is necessary to be a ‘prevailing party' in the context of bankruptcy cases or contested matters.

Id. at *22.

Debtor-Appellant filed an appeal from the denial of her EAJA fee motion to this Court, and both sides seek similar clarification. This Court AFFIRMS the decision below and answers the questions of law raised by the parties.

Issues on Appeal

1. Does the EAJA apply to this chapter 7 bankruptcy case with a § 707(b) motion to dismiss filed by the U.S. Trustee?

a. Was this a ‘civil action brought by or against the United States' or its officers acting in their official capacity?

b. Does the attorneys' fees recovery clause in § 707(b)(5) preclude the debtor's reliance upon the more general EAJA?

2. Was the debtor a prevailing party for purposes of the EAJA?

Jurisdiction & Standard of Review

This Court has jurisdiction over appeals from final orders of the Bankruptcy Court in core proceedings. 28 U.S.C. §§ 157(b)(1) and 158(a)(1); In re H.J. Scheirich Co., 982 F.2d 945, 949 (6th Cir. 1993).

Under 28 U.S.C. § 157(b)(1), bankruptcy judges may hear and determine core proceedings arising under the bankruptcy code and may enter orders and judgments in those proceedings. Core proceedings are defined in a non-exclusive list at section 157(b)(2). The significance of whether a proceeding is core or non-core is that the bankruptcy judge may hear non-core proceedings related to bankruptcy cases but cannot enter judgments and orders without consent of all parties to the proceeding. See § 157(c).

In re G.A.D., Inc., 340 F.3d 331, 336 (6th Cir. 2003) (citations and quotations omitted).

The matter under review was a core proceeding for one or more of the following reasons. See generally Sanders Confectionery Prod., Inc. v. Heller Fin., Inc., 973 F.2d 474, 483 (6th Cir. 1992) (noting that a court “looks at both the form and the substance of the proceeding in making its determination” of core or non-core). First, the matter below concerned the administration of the estate. 28 U.S.C.A. § 157(b)(2)(A). The § 707(b) motion to dismiss related to whether the Debtor accurately described property of the estate, income, and financial obligations. Second, the matter affected the liquidation of the assets of the estate. Id. § 157(b)(2)(O). If the § 707(b) motion was granted, then the bankruptcy case would cease to exist, property would return to the debtor, and no discharge of debts against that property would be discharged. Third, the EAJA fee motion matter arose from and is based upon a § 707(b) motion to dismiss that was filed and withdrawn. The contested matter raised by the § 707(b) motion was a core proceeding. See 28 U.S.C.A. § 157(b)(2)(A, I, J, O). Other courts have held that a fee motion related to and arising from a core proceeding is itself considered a core proceeding. See generally In re Mendez, No. 7-07-11092 SA, 2008 WL 5157922, at *5 n.1 (Bankr. D. N.M. Sept. 26, 2008) (“A request for fees arising out of a core proceeding is also a core proceeding.”); In re Chambers, 140 B.R. 233, 238 (N.D. Ill. 1992).

A district court reviewing a bankruptcy court's decision in a core proceeding functions as an appellate court, applying the standards of review normally applied by federal appellate courts. H.J. Scheirich, 982 F.2d at 949; In re Dow Corning Corp., 255 B.R. 445, 463 (E.D. Mich. 2000), aff'd and remanded, 280 F.3d 648 (6th Cir. 2002).

“The district court reviews the bankruptcy court's legal conclusions de novo.” In re Batie, 995 F.2d 85, 88 (6th Cir. 1993); see also In re Dudley, 614 B.R. 277, 280 (S.D. Ohio 2020) (“Questions of statutory construction are reviewed de novo.”). This Court “may affirm for any reason presented in the record, even if the reason was not raised below.” Loftis v. United Parcel Serv., Inc., 342 F.3d 509, 514 (6th Cir. 2003); see also Stein v. Regions Morgan Keegan Select High Income Fund, Inc., 821 F.3d 780, 786 (6th Cir. 2016); U.S. Postal Serv. v. Nat'l Ass'n of Letter Carrier, AFL-CIO, 330 F.3d 747, 750 (6th Cir. 2003). It may be appropriate to consider a new issue on appeal when the issue is one of law, and further development of the record is unnecessary. See generally Lockhart v. Napolitano, 573 F.3d 251, 261 (6th Cir. 2009) (citing cases).

Facts

Debtor-Appellant Megan M. Teter (“Debtor”) filed a voluntary chapter 7 bankruptcy petition on March 7, 2019. In the schedules filed with her petition, Debtor listed student loans among her debts. Debtor claimed that her debts were primarily business debts and filled out a statement of exemption from presumption of abuse under 11 U.S.C. § 707(b)(2). (Doc. No. 1.)

The U.S. Trustee must review all materials filed by chapter 7 debtors who are individuals and file with the court a statement as to whether a debtor's case would be presumed to be an abuse. See 11 U.S.C. § 704(b)(1). The U.S. Trustee must then, within thirty days, either file a motion to dismiss or convert or file a statement setting forth the reasons the U.S. Trustee does not consider such a motion to be appropriate. See 11 U.S.C. § 704(b)(2). The U.S. Trustee performs these duties even for cases in which debtors assert that their debts are not primarily consumer debts.

On April 25, 2019, the U.S. Trustee timely filed a statement of presumed abuse. (Doc. Nos. 12 - 14.) On May 28, 2019, the U.S. Trustee timely filed a motion to dismiss Debtor's case for abuse under § 707(b) of the Bankruptcy Code. (Doc. No. 15.) In the § 707(b) motion, the U.S. Trustee argued that most of Debtor's total debt, including debt from student loans, was “incurred primarily for personal, family, or household purposes.” (Doc. No. 15.) See 11 U.S.C. § 101(8). The U.S. Trustee also claimed that, based on the U.S Trustee's own calculations, there was a presumption of abuse under § 707(b)(2). (Id.) The U.S. Trustee argued that if the contested expenses were adjusted, then Debtor's net monthly income was sufficient to repay her creditors, justifying a dismissal under § 707(b)(2). (Id.) The U.S. Trustee also argued, in the alternative, that the totality of Debtor's circumstances necessitated a dismissal under § 707(b)(3). (Id.)

On June 5, 2019, Debtor filed an amended petition and schedules in which she claimed her debts were neither primarily consumer debts nor primarily business debts. (Doc. No. 18.) On the same day, Debtor also responded to the U.S. Trustee's motion to dismiss. (Doc. No. 19.) The debtor argued that, under the profit motive test, her student loan debt was not “consumer debt” and, taking into account all of her debt, she was not a debtor “whose debts are primarily consumer debts” within the meaning of §§ 101(8) and 707(b) of the Bankruptcy Code. Debtor also claimed that she provided all information necessary to confirm the expenses contested in the U.S. Trustee's motion to dismiss. (Id.)

The Bankruptcy Court held an initial hearing on June 18, 2019, and scheduled an evidentiary hearing for November 14, 2019. (Doc. No. 23.)

On October 14, 2019, Debtor moved for summary judgment on the U.S. Trustee's motion to dismiss. (Doc. No. 29.) Debtor argued that her student loan debts were not consumer debts, and so she was not a debtor “whose debts are primarily consumer debts” under § 707(b). According to the debtor, she incurred student loan debt “in the furtherance of her undergraduate education,” and “[h]er purpose in undertaking those obligations was to pay for an education and earn a degree that would maximize her opportunity for employment in business.” (Doc. No. 29 at 3.)

The Bankruptcy Court denied the summary judgment motion on December 11, 2019 -leaving the issues open until after an evidentiary hearing. (Doc. Nos. 35 & 36.) On December 19 2019, the Bankruptcy Court denied Debtor's motion for reconsideration and set a new evidentiary hearing date of April 23, 2020. ...