09-3600-bk United States v. Hudson
**UNITED STATES COURT OF APPEALS** 1 2 **FOR THE SECOND CIRCUIT** 3 4 August Term, 2010 5 6 7 (Argued: September 23, 2010 Decided: November 10, 2010) 8 9 Docket No. 09-3600-bk 10 11 - - - - - - - - - - - - - - - - - - - - - - - - - -x 12 13 UNITED STATES DEPARTMENT OF JUSTICE, TAX DIVISION, 14 15 Appellee , 16 17 UNITED STATES OF AMERICA, 18 19 Appellee-Cross Appellant , 20 21 -v.- 22 23 PAUL S. HUDSON, 24 25 Debtor-Appellant , 26 27 GREGORY G. HARRIS, Chapter 7 Trustee, 28 29 Trustee
. 30 31 - - - - - - - - - - - - - - - - - - - - - - - - - -x 32 33 Before: JACOBS, Chief Judge , KATZMANN and 34 LIVINGSTON, Circuit Judges

. 35 36 Debtor-Appellant Paul S. Hudson appeals from a July 8, 37 2009 judgment of the United States District Court for the 38 Northern District of New York (Scullin, J. ), reversing the 39 decision of the Bankruptcy Court of the Northern District of 402 New York (Littlefield, J. ), which awarded Mr. Hudson 1 attorney’s fees under 26 U.S.C. § 7430. Mr. Hudson, a 2 lawyer, is appearing prosehere, as he did in the 3 bankruptcy court and the district court. The district court 4 held that a lawyer appearing prosecannot be awarded 5 attorney’s fees pursuant to 26 U.S.C. § 7430. We affirm. 6 Paul S. Hudson, Law Offices of 7 Paul S. Hudson, Sarasota, FL, 8 (Troy A. Morgan, Silver Spring, 9 MD, on the brief ), for 10 Debtor-Appellant

. 11 12 Richard L. Parker, Department of 13 Justice, Tax Division (John A. 14 DiCicco, Acting Assistant 15 Attorney General, Bruce R. 16 Ellisen, Attorney, on the 17 brief ), Washington, D.C., for 18 Appellee

. 19 20 21 DENNIS JACOBS, Chief Judge : 22 23 Debtor Paul S. Hudson, having successfully challenged a 24 claim lodged against him in the bankruptcy court by the 25 Internal Revenue Service (“IRS”), sought attorney’s fees 26 pursuant to 26 U.S.C. § 7430 of the Internal Revenue Code 27 (“IRC”), which permits the prevailing party to recover 28 litigation costs, including attorney’s fees, in any 29 proceeding brought by the United States in connection with 30 the collection of interest on past due taxes. Mr. Hudson, a 313 lawyer who appeared prosein the bankruptcy court (as well 1 as in the district court and now here), thus sought 2 attorney’s fees on account of his legal work on his own 3 behalf. The Bankruptcy Court of the Northern District of 4 New York (Littlefield, J. ) awarded IRC § 7430 attorney’s 5 fees, but the United States District Court for the Northern 6 District of New York (Scullin, J. ) reversed. Mr. Hudson 7 appeals from the district court’s July 8, 2009 judgment. We 8 affirm. 9
10

**I** 11 Mr. and Mrs. Hudson were principals in a real estate 12 rental firm that deemed its maintenance workers to be 13 independent contractors for whom the firm paid no federal 14 employment withholding tax. After an audit, the IRS 15 determined that the workers were employees, and assessed 16 withholding and Federal Insurance Contributions Act (“FICA”) 17 taxes for 1989 and 1990. See 26 U.S.C. §§ 3102(a), 3111, 18 3401, 3402(a), 3403. The firm failed to pay, and the IRS 19 assessed penalties pursuant to IRC § 6672 against Mr. and 20 Mrs. Hudson in the amount of the unpaid withholding taxes. 21 When the firm filed for bankruptcy in 1995, the IRS sought 224 to recover the delinquent employment taxes from the estate. 1 As to their personal exposure, the Hudsons entered into a 2 Stipulation of Settlement of Claims (“Stipulation”) which 3 provided that “[t]he total liability of Eleanor and Paul 4 Hudson shall be the trust fund portion” of the past due 5 taxes in the amount of $30,838.49. 6 On November 12, 1999, Mr. Hudson himself filed for 7 bankruptcy. The IRS filed an amended proof of claim 8 seeking, interalia , $50,026.61, which represented the 9 employment tax penalty in the amount of $27,916.49 (i.e., 10 the unpaid past due taxes owed by the firm) plusstatutory 11 interest in the amount of $22,110.12. While the bankruptcy 12 petition was pending, the IRS sent Mrs. Hudson a final 13 notice of its intent to levy penalties exceeding the amount 14 of her settlement per the Stipulation. After a collection15 due-process hearing pursuant to IRC § 6330, the IRS Office 16 of Appeals sustained the proposed collection action, and 17 Mrs. Hudson sought review. The United States District Court 18 for the Northern District of New York ruled that the plain 19 wording of the Stipulation absolved her of liability for any 20 interest. 21 Relying on the district court’s ruling, Mr. Hudson 221Although 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 argued in his bankruptcy case that he likewise was not 1 liable for interest accrued on the employment tax penalty. 2 The bankruptcy court agreed. Having thus prevailed, Mr. 3 Hudson moved for attorney’s fees pursuant to IRC § 7430. 4 Citing the Fifth Circuit’s holding in Cazalas v. United 5 States Department of Justice , 709 F.2d 1051 (5th Cir. 1983) 6 (awarding fees in the context of the Freedom of Information 7 Act), the bankruptcy court awarded fees. 1The bankruptcy 8 court reasoned that “[b]y allowing reasonable fees to pro se 9 attorney litigants, the court will promote the ‘vigorous 10 advocacy’ policy advanced by the Court of Appeals for the 11 Fifth Circuit in Cazalas while still retaining the ability 12 to control fees awarded based on the facts of the case.” In 13 re Hudson , 345 B.R. 477, 484 (Bankr. N.D.N.Y. 2006). 14 On the Government’s appeal, the district court 15 reversed, relying on the reasoning in Kay v. Ehrler , 499 16 U.S. 432 (1991), McCormack v. United States , 891 F.2d 24 17 (1st Cir. 1989) (per curiam), and United States v. 18 McPherson , 840 F.2d 244 (4th Cir. 1988). This appeal 19 followed. 206 1

**II** 2 Although we generally review a district court’s award 3 of attorney’s fees for an abuse of discretion, see Mautner 4 v. Hirsch , 32 F.3d 37, 39 (2d Cir. 1994), Mr. Hudson’s 5 contention on appeal is that the denial of the fee award was 6 based on an error of law. We review rulings of law de novo . 7 Baker v. Health Mgmt. Sys., Inc. , 264 F.3d 144, 149 (2d Cir. 8 2001). 9 10

**III** 11 Section 7430 of the IRC provides that “[i]n any 12 administrative or court proceeding which is brought by or 13 against the United States in connection with the 14 determination, collection, or refund of any tax, interest, 15 or penalty . . . the prevailing party may be awarded a 16 judgment or a settlement for . . . reasonable litigation 17 costs incurred in connection with such court proceeding.” 18 26 U.S.C. § 7430(a)(2). “[R]easonable litigation costs” is 19 defined (interalia ) to “include[] reasonable fees paid or 20 incurred for the services of attorneys in connection with 21 the court proceeding.” 26 U.S.C. § 7430(c)(1)(B)(iii). 227 In other statutory contexts, this Court has ruled that 1 a lawyer appearing proseis not entitled to attorney’s 2 fees. See Pietrangelo v. U.S. Army , 568 F.3d 341, 342 (2d 3 Cir. 2009) (per curiam) (Freedom of Information Act); 4 Hawkins v. 1115 Legal Serv. Care , 163 F.3d 684, 694-95 (2d 5 Cir. 1998) (Title VII and 42 U.S.C. § 1981); c.f. S.N. ex 6 rel. J.N. v. Pittsford Cent. School Dist. , 448 F.3d 601, 604 7 (2d Cir. 2006) (attorney-parents representing children in 8 actions brought under the Individuals with Disabilities 9 Education Act). But we have not previously considered 10 whether a lawyer appearing proseis entitled to fees under 11 IRC § 7430. 12 Finding no reason to depart from our reasoning in 13 Pietrangeloor Hawkins , and joining our sister Circuits that 14 have considered this provision of the IRC, see McCormack v. 15 United States , 891 F.2d 24, 25 (1st Cir. 1989) and United 16 States v. McPherson , 840 F.2d 244, 245 (4th Cir. 1988), we 17 hold that lawyers appearing prose who prevail in 18 administrative or court proceedings against the United 19 States are ineligible for attorneys’ fees under IRC § 7430. 20

**A** 21 Section 7430 of the IRC provides that a prevailing 228 party is entitled to collect “reasonable fees paidor 1 incurredfor the services of attorneys in connection with 2 the court proceeding.” 26 U.S.C. § 7430(c)(1)(B)(iii) 3 (emphasis added). Mr. Hudson may recover therefore only if 4 he either paid or incurred fees for the services of an 5 attorney. Mr. Hudson never paid an attorney; so the 6 question is whether he may be said to have incurred 7 attorney’s fees by virtue of the time he invested litigating 8 the tax issue in bankruptcy court. 9 “Incur” means “[t]o suffer or bring on oneself (a 10 liability or expense).” Black’s Law Dictionary836 (9th ed. 11 2009). In this context, a “liability” is “[a] financial or 12 pecuniary obligation; debt.” Id. at 997. An “expense” is 13 “[a]n expenditure of money, time, labor, or resources to 14 accomplish a result.” Id. at 658. At most one could say 15 that Mr. Hudson brought on himself an expenditure of time 16 defending himself against the IRS. While his time could be 17 characterized as an “expense,” it cannot be characterized as 18 a “fee,” which is defined as a “charge for labor or 19 services, [especially] professional services.” Id. at 690. 20 Moreover, Mr. Hudson never incurred fees for the 21 services of an attorney because a n “attorney” is “one who is 22 designated to transact business for another” or is “a legal 239 agent.” Id. at 147. An agent is “a representative”; so Mr. 1 Hudson cannot have acted as an agent for himself, id. at 72; 2

see Duncan v. Poythress , 777 F.2d 1508, 1518, 1519 (11th 3 Cir. 1985) (Roney, J. , dissenting) (cataloguing the 4 definition of “attorney” from more than two dozen 5 dictionaries and finding that “[w]ithout exception they 6 define the word ‘attorney’ in terms of someone who acts for 7 another , someone who is employed as an agent to represent 8 another , someone who acts at the appointment of another ”) 9 (emphasis in original); see alsoFrisch v. Comm’r , 87 T.C. 10 838, 846 (1986) (“An ‘attorney’ is essentially an agent for 11 another. Without the ‘other’ there can be no attorney, 12 merely a pro se litigant who happens to earn a living as a 13 lawyer. At any given time, an individual can be either a 14 pro se litigant or an attorney, but not both.”); 2A C.J.S. 15 Agency§ 24 (2010) (“The parties to an agency relationship 16 are the principal and the agent, and an agent cannot exist 17 without a then–existing principal.”); Black’s Law Dictionary 18 1341 (9th ed. 2009) (defining proseto mean “[o]ne who 19 represents oneself in a court proceeding without the 20 assistance of a lawyer”). 21 In holding that Mr. Hudson is ineligible to receive 22 attorney’s fees under the plain wording of IRC § 7430, we 2310 join our sister Circuits that have addressed this issue, as 1 well as the Tax Court, all of which have held that lawyers 2 appearing prose “did not pay any fees for legal services 3 nor incur any debts which remain outstanding.” McPherson , 4 840 F.2d at 245; see Frisch , 87 T.C. at 845-47 (“The simple 5 truth is that the plain language of section 7430 cannot be 6 read to include lost opportunity costs, but is limited to 7 actual expenditures . . . . In representing himself, 8 petitioner did not become liable to another person for 9 attorney fees nor did he bring down upon himself any 10 debt.”). 11 While Mr. Hudson did expend time and effort to litigate 12 (successfully) the issue of the IRS’s interest assessment on 13 the settlement amount, he paid no out-of-pocket expenses and 14 incurred no obligation for the services of an attorney and 15 therefore is not entitled to attorney’s fees pursuant to IRC 16 § 7430. 17

**B** 18 Awarding attorneys’ fees to lawyers appearing prose 19 would not serve the policy of fee-shifting statutes such as 20 IRC § 7430. In Pietrangelo v. United States Army , we 21 declined to award fees to a lawyer appearing proseunder 2211 the fee-shifting provision of the Freedom of Information 1 Act, 5 U.S.C. § 552(a)(4)(E). Pietrangelo , 568 F.3d at 341. 2 Citing Kay v. Ehrler , 499 U.S. 432 (1991), which denied fees 3 to a lawyer appearing proseunder 42 U.S.C. § 1988, we 4 explained: 5 [T]he Supreme Court reasoned that although the fee6 shifting provision of section 1988 was “no doubt 7 intended to encourage litigation protecting civil 8 rights,” [Kay , 499 U.S.] at 436, the “overriding 9 statutory concern [was] the interest in obtaining 10 independent counsel for victims of civil rights 11 violations,” id. at 437. Representation by independent 12 counsel, the Supreme Court explained, has distinct 13 advantages over even a skilled lawyer who represents 14 himself. Id. To give just two examples, (a) ethical 15 considerations may make it inappropriate for a lawyer 16 to appear as a witness, and (b) a proselawyer is 17 “deprived of the judgment of an independent third party 18 in framing the theory of the case, evaluating 19 alternative methods of presenting evidence, cross20 examining hostile witnesses, formulating legal 21 arguments, and in making sure that reason, rather than 22 emotion, dictates the proper tactical response to 23 unforeseen developments in the courtroom.” Id. 24 25 Given the advantages of employing independent 26 counsel, the Supreme Court concluded that the statutory 27 policy of “furthering the successful prosecution of 28 meritorious claims” was best served by a rule that 29 “creates an incentive to retain counsel in every such 30 case.” Id. at 438. Permitting a fee award to a prose 31 litigant, even one who is a lawyer, would instead 32 “create a disincentive to employ counsel.” Id. 33 Accordingly the Supreme Court held that proselawyers 34 did not fall within the scope of the fee-shifting 35 provision. 36 37 568 F.3d at 343-44. 3812 The policy underlying statutes such as IRC § 7430 is to 1 incentivize litigants to retain counsel in order to prevent 2 overreaching by the IRS; awarding proselitigants 3 attorneys’ fees would run counter to that policy by 4 discouraging litigants who are lawyers from obtaining 5 outside, independent counsel. 6 The fee-shifting provision of IRC § 7430, like the fee7 shifting provisions of 42 U.S.C. § 1988 and 5 U.S.C. 8 § 552(a)(4)(E), exists to further “the successful 9 prosecution of meritorious claims” and to ensure that 10 taxpayers are not forced into settlements with the IRS 11 because the cost of litigation outweighs the amount in 12 controversy. Kay , 499 U.S. at 438. We “find no reason to 13 distinguish the principles articulated in Kayand conclude 14 that they apply with ‘equal force’ to [Mr. Hudson’s] motion 15 for fees under [IRC § 7430].” Pietrangelo , 568 F.3d at 345 16 (quoting Ray v. U.S. Dep’t of Justice , 87 F.3d 1250, 1252 17 (11th Cir. 1996)). 18
**CONCLUSION** 19 For the foregoing reasons, we AFFIRM the judgment of 20 the district court. 21