09-3600-bk

United States v. Hudson

1 UNITED STATES COURT OF APPEALS

2

3 FOR THE SECOND CIRCUIT

4

5 August Term, 2010

6

7

8 (Argued: September 23, 2010 Decided: November 10, 2010)

9

10 Docket No. 09-3600-bk

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14 UNITED STATES DEPARTMENT OF JUSTICE, TAX DIVISION,

15

16 Appellee,

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18 UNITED STATES OF AMERICA,

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20 Appellee-Cross Appellant,

21

22 -v.-

23

24 PAUL S. HUDSON,

25

26 Debtor-Appellant,

27

28 GREGORY G. HARRIS, Chapter 7 Trustee,

29

30 Trustee.

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34 Before: JACOBS, Chief Judge, KATZMANN and

35 LIVINGSTON, Circuit Judges.

36

37 Debtor-Appellant Paul S. Hudson appeals from a July 8,

38 2009 judgment of the United States District Court for the

39 Northern District of New York (Scullin, J.), reversing the

40 decision of the Bankruptcy Court of the Northern District of
2

1 New York (Littlefield, J.), which awarded Mr. Hudson

2 attorney’s fees under 26 U.S.C. § 7430. Mr. Hudson, a

3 lawyer, is appearing pro se here, as he did in the

4 bankruptcy court and the district court. The district court

5 held that a lawyer appearing pro se cannot be awarded

6 attorney’s fees pursuant to 26 U.S.C. § 7430. We affirm. 

7 Paul S. Hudson, Law Offices of

8 Paul S. Hudson, Sarasota, FL, 

9 (Troy A. Morgan, Silver Spring,

10 MD, on the brief), for

11 Debtor-Appellant.

12

13 Richard L. Parker, Department of

14 Justice, Tax Division (John A.

15 DiCicco, Acting Assistant

16 Attorney General, Bruce R.

17 Ellisen, Attorney, on the

18 brief), Washington, D.C., for

19 Appellee.

20

21

22 DENNIS JACOBS, Chief Judge:

23

24 Debtor Paul S. Hudson, having successfully challenged a

25 claim lodged against him in the bankruptcy court by the

26 Internal Revenue Service (“IRS”), sought attorney’s fees

27 pursuant to 26 U.S.C. § 7430 of the Internal Revenue Code

28 (“IRC”), which permits the prevailing party to recover

29 litigation costs, including attorney’s fees, in any

30 proceeding brought by the United States in connection with

31 the collection of interest on past due taxes. Mr. Hudson, a
3

1 lawyer who appeared pro se in the bankruptcy court (as well

2 as in the district court and now here), thus sought

3 attorney’s fees on account of his legal work on his own

4 behalf. The Bankruptcy Court of the Northern District of

5 New York (Littlefield, J.) awarded IRC § 7430 attorney’s

6 fees, but the United States District Court for the Northern

7 District of New York (Scullin, J.) reversed. Mr. Hudson

8 appeals from the district court’s July 8, 2009 judgment. We

9 affirm.

10

11 I

12 Mr. and Mrs. Hudson were principals in a real estate

13 rental firm that deemed its maintenance workers to be

14 independent contractors for whom the firm paid no federal

15 employment withholding tax. After an audit, the IRS

16 determined that the workers were employees, and assessed

17 withholding and Federal Insurance Contributions Act (“FICA”)

18 taxes for 1989 and 1990. See 26 U.S.C. §§ 3102(a), 3111,

19 3401, 3402(a), 3403. The firm failed to pay, and the IRS

20 assessed penalties pursuant to IRC § 6672 against Mr. and

21 Mrs. Hudson in the amount of the unpaid withholding taxes. 

22 When the firm filed for bankruptcy in 1995, the IRS sought
4

1 to recover the delinquent employment taxes from the estate. 

2 As to their personal exposure, the Hudsons entered into a

3 Stipulation of Settlement of Claims (“Stipulation”) which

4 provided that “[t]he total liability of Eleanor and Paul

5 Hudson shall be the trust fund portion” of the past due

6 taxes in the amount of $30,838.49.

7 On November 12, 1999, Mr. Hudson himself filed for

8 bankruptcy. The IRS filed an amended proof of claim

9 seeking, inter alia, $50,026.61, which represented the

10 employment tax penalty in the amount of $27,916.49 (i.e.,

11 the unpaid past due taxes owed by the firm) plus statutory

12 interest in the amount of $22,110.12. While the bankruptcy

13 petition was pending, the IRS sent Mrs. Hudson a final

14 notice of its intent to levy penalties exceeding the amount

15 of her settlement per the Stipulation. After a collection16 due-process hearing pursuant to IRC § 6330, the IRS Office

17 of Appeals sustained the proposed collection action, and

18 Mrs. Hudson sought review. The United States District Court

19 for the Northern District of New York ruled that the plain

20 wording of the Stipulation absolved her of liability for any

21 interest.

22 Relying on the district court’s ruling, Mr. Hudson
 1 Although Mr. Hudson sought $21,106, the Bankruptcy

Court found the fee application “replete with deficiencies

and problems,” and awarded $6,831.25. In re Hudson, 364

B.R. 875, 879, 882 (Bankr. N.D.N.Y. 2007).

5

1 argued in his bankruptcy case that he likewise was not

2 liable for interest accrued on the employment tax penalty. 

3 The bankruptcy court agreed. Having thus prevailed, Mr.

4 Hudson moved for attorney’s fees pursuant to IRC § 7430. 

5 Citing the Fifth Circuit’s holding in Cazalas v. United

6 States Department of Justice, 709 F.2d 1051 (5th Cir. 1983)

7 (awarding fees in the context of the Freedom of Information

Act), the bankruptcy court awarded fees.1 8 The bankruptcy

9 court reasoned that “[b]y allowing reasonable fees to pro se

10 attorney litigants, the court will promote the ‘vigorous

11 advocacy’ policy advanced by the Court of Appeals for the

12 Fifth Circuit in Cazalas while still retaining the ability

13 to control fees awarded based on the facts of the case.” In

14 re Hudson, 345 B.R. 477, 484 (Bankr. N.D.N.Y. 2006). 

15 On the Government’s appeal, the district court

16 reversed, relying on the reasoning in Kay v. Ehrler, 499

17 U.S. 432 (1991), McCormack v. United States, 891 F.2d 24

18 (1st Cir. 1989) (per curiam), and United States v.

19 McPherson, 840 F.2d 244 (4th Cir. 1988). This appeal

20 followed.
6

1

2 II

3 Although we generally review a district court’s award

4 of attorney’s fees for an abuse of discretion, see Mautner

5 v. Hirsch, 32 F.3d 37, 39 (2d Cir. 1994), Mr. Hudson’s

6 contention on appeal is that the denial of the fee award was

7 based on an error of law. We review rulings of law de novo. 

8 Baker v. Health Mgmt. Sys., Inc., 264 F.3d 144, 149 (2d Cir.

9 2001).

10

11 III

12 Section 7430 of the IRC provides that “[i]n any

13 administrative or court proceeding which is brought by or

14 against the United States in connection with the

15 determination, collection, or refund of any tax, interest,

16 or penalty . . . the prevailing party may be awarded a

17 judgment or a settlement for . . . reasonable litigation

18 costs incurred in connection with such court proceeding.” 

19 26 U.S.C. § 7430(a)(2). “[R]easonable litigation costs” is

20 defined (inter alia) to “include[] reasonable fees paid or

21 incurred for the services of attorneys in connection with

22 the court proceeding.” 26 U.S.C. § 7430(c)(1)(B)(iii). 
7

1 In other statutory contexts, this Court has ruled that

2 a lawyer appearing pro se is not entitled to attorney’s

3 fees. See Pietrangelo v. U.S. Army, 568 F.3d 341, 342 (2d

4 Cir. 2009) (per curiam) (Freedom of Information Act);

5 Hawkins v. 1115 Legal Serv. Care, 163 F.3d 684, 694-95 (2d

6 Cir. 1998) (Title VII and 42 U.S.C. § 1981); c.f. S.N. ex

7 rel. J.N. v. Pittsford Cent. School Dist., 448 F.3d 601, 604

8 (2d Cir. 2006) (attorney-parents representing children in

9 actions brought under the Individuals with Disabilities

10 Education Act). But we have not previously considered

11 whether a lawyer appearing pro se is entitled to fees under

12 IRC § 7430. 

13 Finding no reason to depart from our reasoning in

14 Pietrangelo or Hawkins, and joining our sister Circuits that

15 have considered this provision of the IRC, see McCormack v.

16 United States, 891 F.2d 24, 25 (1st Cir. 1989) and United

17 States v. McPherson, 840 F.2d 244, 245 (4th Cir. 1988), we

18 hold that lawyers appearing pro se who prevail in

19 administrative or court proceedings against the United

20 States are ineligible for attorneys’ fees under IRC § 7430. 

21 A

22 Section 7430 of the IRC provides that a prevailing
8

1 party is entitled to collect “reasonable fees paid or

2 incurred for the services of attorneys in connection with

3 the court proceeding.” 26 U.S.C. § 7430(c)(1)(B)(iii)

4 (emphasis added). Mr. Hudson may recover therefore only if

5 he either paid or incurred fees for the services of an

6 attorney. Mr. Hudson never paid an attorney; so the

7 question is whether he may be said to have incurred

8 attorney’s fees by virtue of the time he invested litigating

9 the tax issue in bankruptcy court.

10 “Incur” means “[t]o suffer or bring on oneself (a

11 liability or expense).” Black’s Law Dictionary 836 (9th ed.

12 2009). In this context, a “liability” is “[a] financial or

13 pecuniary obligation; debt.” Id. at 997. An “expense” is

14 “[a]n expenditure of money, time, labor, or resources to

15 accomplish a result.” Id. at 658. At most one could say

16 that Mr. Hudson brought on himself an expenditure of time

17 defending himself against the IRS. While his time could be

18 characterized as an “expense,” it cannot be characterized as

19 a “fee,” which is defined as a “charge for labor or

20 services, [especially] professional services.” Id. at 690. 

21 Moreover, Mr. Hudson never incurred fees for the

22 services of an attorney because an “attorney” is “one who is

23 designated to transact business for another” or is “a legal
9

1 agent.” Id. at 147. An agent is “a representative”; so Mr.

2 Hudson cannot have acted as an agent for himself, id. at 72;

3 see Duncan v. Poythress, 777 F.2d 1508, 1518, 1519 (11th

4 Cir. 1985) (Roney, J., dissenting) (cataloguing the

5 definition of “attorney” from more than two dozen

6 dictionaries and finding that “[w]ithout exception they

7 define the word ‘attorney’ in terms of someone who acts for

8 another, someone who is employed as an agent to represent

9 another, someone who acts at the appointment of another”)

10 (emphasis in original); see also Frisch v. Comm’r, 87 T.C.

11 838, 846 (1986) (“An ‘attorney’ is essentially an agent for

12 another. Without the ‘other’ there can be no attorney,

13 merely a pro se litigant who happens to earn a living as a

14 lawyer. At any given time, an individual can be either a

15 pro se litigant or an attorney, but not both.”); 2A C.J.S.

16 Agency § 24 (2010) (“The parties to an agency relationship

17 are the principal and the agent, and an agent cannot exist

18 without a then–existing principal.”); Black’s Law Dictionary

19 1341 (9th ed. 2009) (defining pro se to mean “[o]ne who

20 represents oneself in a court proceeding without the

21 assistance of a lawyer”).

22 In holding that Mr. Hudson is ineligible to receive

23 attorney’s fees under the plain wording of IRC § 7430, we
10

1 join our sister Circuits that have addressed this issue, as

2 well as the Tax Court, all of which have held that lawyers

3 appearing pro se “did not pay any fees for legal services

4 nor incur any debts which remain outstanding.” McPherson,

5 840 F.2d at 245; see Frisch, 87 T.C. at 845-47 (“The simple

6 truth is that the plain language of section 7430 cannot be

7 read to include lost opportunity costs, but is limited to

8 actual expenditures . . . . In representing himself,

9 petitioner did not become liable to another person for

10 attorney fees nor did he bring down upon himself any

11 debt.”).

12 While Mr. Hudson did expend time and effort to litigate

13 (successfully) the issue of the IRS’s interest assessment on

14 the settlement amount, he paid no out-of-pocket expenses and

15 incurred no obligation for the services of an attorney and

16 therefore is not entitled to attorney’s fees pursuant to IRC

17 § 7430.

18 B

19 Awarding attorneys’ fees to lawyers appearing pro se

20 would not serve the policy of fee-shifting statutes such as

21 IRC § 7430. In Pietrangelo v. United States Army, we

22 declined to award fees to a lawyer appearing pro se under
11

1 the fee-shifting provision of the Freedom of Information

2 Act, 5 U.S.C. § 552(a)(4)(E). Pietrangelo, 568 F.3d at 341. 

3 Citing Kay v. Ehrler, 499 U.S. 432 (1991), which denied fees

4 to a lawyer appearing pro se under 42 U.S.C. § 1988, we

5 explained:

6 [T]he Supreme Court reasoned that although the fee7 shifting provision of section 1988 was “no doubt

8 intended to encourage litigation protecting civil

9 rights,” [Kay, 499 U.S.] at 436, the “overriding

10 statutory concern [was] the interest in obtaining

11 independent counsel for victims of civil rights

12 violations,” id. at 437. Representation by independent

13 counsel, the Supreme Court explained, has distinct

14 advantages over even a skilled lawyer who represents

15 himself. Id. To give just two examples, (a) ethical

16 considerations may make it inappropriate for a lawyer

17 to appear as a witness, and (b) a pro se lawyer is

18 “deprived of the judgment of an independent third party

19 in framing the theory of the case, evaluating

20 alternative methods of presenting evidence, cross21 examining hostile witnesses, formulating legal

22 arguments, and in making sure that reason, rather than

23 emotion, dictates the proper tactical response to

24 unforeseen developments in the courtroom.” Id.

25

26 Given the advantages of employing independent

27 counsel, the Supreme Court concluded that the statutory

28 policy of “furthering the successful prosecution of

29 meritorious claims” was best served by a rule that

30 “creates an incentive to retain counsel in every such

31 case.” Id. at 438. Permitting a fee award to a pro se

32 litigant, even one who is a lawyer, would instead

33 “create a disincentive to employ counsel.” Id.

34 Accordingly the Supreme Court held that pro se lawyers

35 did not fall within the scope of the fee-shifting

36 provision.

37

38 568 F.3d at 343-44.
12

1 The policy underlying statutes such as IRC § 7430 is to

2 incentivize litigants to retain counsel in order to prevent

3 overreaching by the IRS; awarding pro se litigants

4 attorneys’ fees would run counter to that policy by

5 discouraging litigants who are lawyers from obtaining

6 outside, independent counsel.

7 The fee-shifting provision of IRC § 7430, like the fee8 shifting provisions of 42 U.S.C. § 1988 and 5 U.S.C. 

9 § 552(a)(4)(E), exists to further “the successful

10 prosecution of meritorious claims” and to ensure that

11 taxpayers are not forced into settlements with the IRS

12 because the cost of litigation outweighs the amount in

13 controversy. Kay, 499 U.S. at 438. We “find no reason to

14 distinguish the principles articulated in Kay and conclude

15 that they apply with ‘equal force’ to [Mr. Hudson’s] motion

16 for fees under [IRC § 7430].” Pietrangelo, 568 F.3d at 345

17 (quoting Ray v. U.S. Dep’t of Justice, 87 F.3d 1250, 1252

18 (11th Cir. 1996)). 

19 CONCLUSION

20 For the foregoing reasons, we AFFIRM the judgment of

21 the district court.