Opinion ID: 12453
Heading Depth: 5
Heading Rank: 2

Heading: reasonable litigation costs incurred in

Text: connection with such court proceeding.... (c) Definitions.—For purposes of this section— (1) Reasonable litigation costs.—The term reasonable litigation costs' includes— (A) reasonable court costs, and (B) based upon prevailing market rates for the kind of quality of services furnished ... (iii) reasonable fees paid or incurred for the services of attorneys in connection with the court proceeding, ... (3) Attorney's fees. For purposes of paragraphs (1) and (2), fees for the services of an individual (whether or not an attorney) who is authorized to practice before the Tax Court or before the Internal Revenue Service shall be treated as fees for the services of an attorney. 26 U.S.C. § 7430. 14 Blazer Financial Services, Inc. of Ga., 598 F.2d 1357, 1365-66 (5th Cir.1979) (disallowing setoff by creditor for violation of Truth in Lending Act where debtor was awarded attorneys' fees under statute making creditor liable for the costs of the action together with a reasonable attorney's fee as determined by the court); Duncan v. United States Dept. of Army, No. 88-2143, 1989 WL 117742, at  (4th Cir. Oct.4, 1989) (unpublished opinion) (disallowing setoff of attorneys' fees by Army for violation of Right to Privacy Act, 12 U.S.C. § 3401 et seq., where fees were awarded under 12 U.S.C. § 3417(a)(4), making Army responsible for the costs of the action together with reasonable attorney's fees as determined by the court). Thus, damages and attorneys' fees under section 7430 are separate awards, the former going to the prevailing party and the latter to the prevailing party's attorneys. In this case, because the attorneys' fees awarded under section 7430 belong to Urquhart & Hassell, and not Marré, the government cannot set off Marré's tax obligations against the attorneys' fees award, as no mutuality of debt exists between the government and Marré's attorneys. That the statute provides that attorneys' fees are to be awarded to the prevailing party is not controlling. The issue is not whether plaintiff is nominally to receive the money but whether ultimately it is to go to her attorney or to be credited toward defendant in repayment of plaintiff's debt. Plant, 598 F.2d at 1366. Here, as in Plant and Duncan, the prevailing party is only nominally the person who receives the award; the real party in interest vis-à-vis attorneys' fees awarded under the statute are 15 the attorneys themselves.11 See, e.g., Id. at 1366; Duncan, 1989 WL 117742, at . To the extent we conclude that Marré's attorneys' fees award belongs to Urquhart & Hassell—and therefore is not subject to set off—the government cannot take advantage of either United States v. Cohen, 389 F.2d 689 (5th Cir.1967), or United States v. Transocean Air Lines, Inc., 386 F.2d 79 (5th Cir.1967), cert. denied, 389 U.S. 1047, 88 S.Ct. 784, 19 L.Ed.2d 839 (1968). Cohen involved a prisoner who successfully sued the United States under the Federal Tort Claims Act for failure to prevent his being assaulted by a fellow inmate. The court awarded the plaintiff $110,000, and of that amount $15,000 was awarded in attorneys' fees under 28 U.S.C. § 2678, free and clear of any and all claims which the Internal Revenue Service, the Treasury Department or the United States of America ... might have or assert against the plaintiff in this case. Id. at 690 (internal quotations omitted). On appeal, we reversed the district court's denial of setoff, holding that under section 2678, the attorneys' rights to the fees were derivative of the plaintiff's recovery and, therefore, subject to the government's right of setoff. Id. at 691-92. In Transocean Air Lines, plaintiff, a bankrupt air carrier, sued the government over disputed compensation allegedly owed it for its transportation services. The government and the trustee in 11 For the same reasons, the fact that the district court awarded the attorneys' fees to Marré, and not his attorneys, does not affect our conclusion that, in this particular case, the fee once awarded becomes in effect an asset of the attorney, not the client. Plant, 598 F.2d at 1366. 16 bankruptcy settled for $75,000, to be credited against a larger claim the government held against Transocean. Plaintiff's attorneys, who under a contingency fee agreement were to be given a one-third interest in all amounts recovered, sought to recover $25,000 for their services. The district court granted judgment in favor of the attorneys in the amount of $25,000 directly against the government and reduced Transocean's judgment to $50,000. In reversing the judgment, we reasoned that the attorneys' interest in the fees was derived from Florida contracts law, and because the right to sue the federal government cannot be granted by state law or through contractual relationships with third parties, the judgment could not be sustained as against the government. Id. at 81-82. We also held that the attorneys' fees award could not be characterized as an assignment of Transocean's claim, as any such assignment of the judgment would be invalid under the AntiAssignment Act, 31 U.S.C. § 203.12 Id. Unlike the case at bar, the attorneys' fees in Cohen and Transocean Air Lines were awarded out of the plaintiffs' damages. In Cohen, the attorneys' fees were awarded pursuant to a statute that then provided that the court could award reasonable attorneys' fees of up to twenty percent of the amount recovered by the plaintiff  to be paid out of but not in addition to the amount of judgment ... recovered, ...'  Cohen, 389 F.2d at 690 n. 3 (citing 28 U.S.C.A. § 2678) (emphasis added). In Transocean Air Lines, the 12 Section 203 has since been revised. See 31 U.S.C. § 3727. These revisions, however, are not relevant to our discussion. 17 fees were awarded under a contingency fee contract that provided that the attorneys would receive a one-third interest in the recovery. See Transocean Air Lines, 386 F.2d at 80. Because the attorneys' interest in the fees was derivative of the plaintiffs' interest in the judgment, we allowed the government to set off the attorneys' fees awarded to the plaintiffs against the judgments favorable to the plaintiffs. See Duncan, 1989 WL 117742, at  (distinguishing Cohen on the basis that the case involved two creditors, the government and plaintiff's attorneys, competing for rights to the plaintiff's judgment). As stated earlier, the case before us does not involve derivative rights of the attorneys to the fees; instead, the fees were awarded to Marré's attorneys in addition to the full statutory damages awarded to Marré.13 Our holding that the government may not set off the attorney's fees extends to, but only to, that portion of the fees awarded pursuant to section 7430, i.e. $107,500 in fees and $17,738.02 in costs, or $125,238.02. The government may still set off the remaining portion of the attorneys' fees which was awarded out of Marré's $215,000 in damages, or $53,750. This is so because the $53,750 falls within and comes out of the $215,000 awarded to Marré as damages, which we have held may be set off by the government 13 None of the other cases cited by the government involves attorneys' fees awarded pursuant to a statute. See United States v. Munsey Trust Co., 332 U.S. 234, 67 S.Ct. 1599, 91 L.Ed. 2022 (1947); Massachusetts Bonding & Ins. Co. v. New York, 259 F.2d 33 (2d Cir.1958); South Side Bank & Trust Co. v. United States, 221 F.2d 813 (7th Cir.1955); Malman v. United States, 207 F.2d 897 (2d Cir.1953). 18 because of mutuality of debt between the government and Marré.14 III. Nursery Associates' Rights Under the Turnover Order Nursery Associates, following a jury trial in Texas state court, secured a judgment against Marré individually on December 4, 1989, in the amount of $345,800 plus post-judgment interest of 10% per annum on the amount of $204,000 until paid. Through post-judgment discovery, Nursery Associates identified Marré's interest in the present case as his only significant asset. Pursuant to section 31.002 of the Texas Civil Procedure Practice and Remedies Code, Nursery Associates obtained an order for turnover relief from the state court on March 16, 1993.15 The order 14 We note that Marré has not challenged the propriety of awarding his attorneys more than the amount we held in Marré I was the maximum proper award. Our disposition of the claims of the other parties renders it unnecessary to decide that matter. 15 Section 31.002 provides, in relevant part: (a) A judgment creditor is entitled to aid from a court of appropriate jurisdiction through injunction or other means in order to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including present or future rights to property, that: (1) cannot readily be attached or levied on by ordinary legal process; and (2) is not exempt from attachment, execution, or seizure for the satisfaction of liabilities.... .... (c) The court may enforce the order by contempt proceedings or by other appropriate means in the event of refusal or disobedience. (d) The judgment creditor may move for the court's assistance under this section in the same proceeding in which the judgment is rendered or in an independent proceeding. 19 required that Marré and his agents, representatives, and/or attorneys turn over to HP-84 Nursery Associates any and all benefits or items of value that arise or result from [Marré's suit against the government]. In addition, Nursery Associates was awarded reasonable and necessary attorneys' fees of $1,000 along with the costs of the turnover proceeding. On April 7, 1993, Nursery Associates filed its Notice of Interest, Motion to Intervene and Brief in Support, and Complaint In Intervention, requesting permission to intervene in Marré's federal lawsuit as a judgment creditor pursuant to the Texas state court turnover order. On April 16, 1993, the court denied the intervention. On remand to the district court from Marré I, Nursery Associates again sought to intervene in this case as judgment creditor. On April 21, 1995, the district court granted the Motion to Intervene and thereafter, on May 1, 1995, Nursery Associates filed its Complaint in Intervention. Nursery Associates filed a Motion to Enforce Turnover Order on November 3, 1995, asserting that it was entitled to enforcement of its judgment in the total amount of $503,198.44 ($345,800 principal plus interest). The district court, however, did not order turnover of all of the damages and attorneys' fees awarded to Marré, which totaled $322,500. Instead, in its enforcement of the turnover order, the district court apparently relied on Marré's contingency fee agreement, which provided for a fee of 50% of all amounts (e) The judgment creditor is entitled to recover reasonable costs, including attorney's fees. 20 recovered by Marré, and awarded Nursery Associates only $161,250, to be paid by the government. The court also denied Nursery Associates's request for attorneys' fees. On appeal, Nursery Associates argues that the district court erred in prohibiting it from receiving all of the proceeds of the judgment obtained by Marré against the government, including all damages and attorneys' fees. It claims that the court was required to look to state law in enforcing the state court turnover order and, because the language of the turnover order awards Nursery Associates any and all benefits or items of value that arise from Marré's suit against the government, the district court was required to honor the terms of the turnover order without regard to any contractual arrangement between Marré and his attorneys. Moreover, Nursery Associates complains that it was entitled to all attorneys' fees and costs incurred in enforcing its turnover order in these proceedings.16 A. Nursery Associates' Interest in Marré's Damages With respect to the $215,000 in damages awarded to Marré, we held above that the government could set off the entire amount against Marré's tax liabilities, as the government's right of setoff is superior to both Marré's interest and his attorneys' derivative interest in that award. Because Nursery Associates' 16 It is undisputed that Nursery Associates complied with Texas law in obtaining the turnover order; that the order requires Marré to turn over any and all benefits and items of value received or to be received by Marré, including any damages and attorneys' fees, from his action against the government; and that Nursery Associates was properly before the district court to enforce its turnover order. 21 interest in Marré's damages is also merely derivative of Marré's interest, we likewise conclude that the government's right of setoff is superior to Nursery Associates' interest in the damages. See Cohen, 389 F.2d at 692.17 Our analysis regarding Nursery Associates' interest in Marré's damages does not end here, however. With the litigation over the legitimacy of Marré's tax assessments currently pending in 17 We observe that neither the government nor Nursery Associates contends that their rights vis-a-vis each other in respect to the setoff issue differ in any way from the rights of Marré and the government vis-a-vis each other in respect to the same issue. In other words, Nursery Associates does not contend that it has any greater right than has Marré to prevent the government from setting off against Marré's damage award Marré's asserted indebtedness for taxes as per the tax assessments made against Marré October 18, 1993, during the pendency of the Marré I appeal; and, Nursery Associates has stated its agreement with the government's contention that Nursery Associates simply stands in Marré's shoes in this respect, with rights as against the government no greater or lesser than those of Marré. In this respect, neither the government nor Nursery Associates contends that their rights as against each other are determined by the body of law governing the relative priorities of federal tax liens and the claims of state law creditors of the taxpayer. See 26 U.S.C. § 6321 et seq. We note in passing that, for purposes of this body of law, Nursery Associates' March 1993 turnover order appears not to have resulted in a choate or perfected interest in Marré's judgment against the government before the conclusion of the appeal of that judgment in our 1994 decision in Marré I, so that the lien of the government's October 1993 assessment was first in time vis-a-vis Nursery Associates' interest. See United States v. McDermott, 507 U.S. 447, 449-51, 113 S.Ct. 1526, 1528, 123 L.Ed.2d 128 (1993) (explaining that a state lien is perfected when the identity of the lienor, the property subject to the lien, and the amount of the lien are established); Western National Bank v. United States, 8 F.3d 253, 255 (5th Cir.1993) (same); Palandjoglou v. United National Insurance Co., 821 F.Supp. 1179, 1186-87 (S.D.Tex.1993). See also Commercial Credit Corp. v. U.S. Fire Ins. Co., 630 S.W.2d 651, 652 (Tex.App.—Houston [1st Dist.] 1981, no writ). Even if we were to assume, arguendo, that after our Marré I decision Nursery Associates was a judgment lienor creditor for purposes of 26 U.S.C. § 6323(a), nevertheless Nursery Associates does not contend the government had not properly filed notice of its tax lien prior to our Marré I decision. 22 the district court below, there remains the possibility that the district court could invalidate the government's tax assessments. To that end, we must also consider whether Nursery Associates' interest in the $215,000 damage award is superior to the interests of Marré and his attorneys. As between Nursery Associates and Marré, Nursery Associates' interest in the entire amount of the award is superior to Marré's interest. The turnover order's mandate that Marré turn over to Nursery Associates any and all benefits or items of value that result from the present law suit was clear and unequivocal. Hence, the district court erred in awarding Nursery Associates only half of Marré's recovery. Likewise, as between Nursery Associates and Marré's attorneys, Nursery Associates' interest in that portion of the $215,000 in damages that was awarded to the attorneys under the contingency agreement—$161,250 less $107,500, or $53,750—is also superior to the interest of Marré's attorneys. An attorney's right to compensation pursuant to a contingency fee agreement is a property right determined under applicable state law. Augustson v. Linea Aerea Nacional-Chile S.A., 76 F.3d 658, 662 (5th Cir.1996). Under Texas law, a contingency fee agreement is generally considered to be an executory contract.18 See Lee v. Cherry, 812 18 Marré argues that an equitable assignment of a present interest in a cause of action can occur, although not expressed, if the parties intended such an assignment. Marré claims that he and his attorneys intended an assignment of an interest in the cause of action in the November 1, 1989, amended fee agreement. The amended fee agreement letter, however, does not support Marré's argument, as the letter states only that Urquhart & Hassell will be entitled to 50% of all amounts recovered. The letter does not state, for example, that Marré agrees to sell, transfer, assign, or 23 S.W.2d 361, 363 (Tex.App.—Hous.[14th Dist.] 1991, reh'g of writ overruled); Brenan v. LaMotte, 441 S.W.2d 626, 630 (Tex.Civ.App.San Antonio 1969, no writ); White v. Brookline Trust Co., 371 S.W.2d 597, 600 (Tex.Civ.App.Amarillo 1963, writ ref'd n.r.e.); Carroll, 168 S.W.2d at 240. Therefore, as a general rule, an attorney does not receive a legal or equitable interest pursuant to a contingency fee contract until the contingency actually occurs.19 In re Willis, 143 B.R. at 431. Once the contingency occurs, the attorney has a lien on the judgment or settlement securing his services, and an attorney's lien is paramount to the rights of the parties in the suit, and is superior to other liens on the money or property involved, subsequent in point of time. Id. at 432 (citations omitted). Nursery Associates obtained its turnover order from the state court on March 16, 1993, while appeal was pending in Marré I—before the contingency occurred. Because the contingency fee contract convey to his attorneys a specified interest in his claim. See, e.g., Carroll v. Hunt, 140 Tex. 424, 168 S.W.2d 238, 239 (Tex.Com.App.1943, opinion adopted); In re Willis, 143 B.R. 428, 431 n. 4 (Bankr.E.D.Tex.1992). 19 Although it is unclear what constitutes the defining moment at which the contingency occurs, compare Lee, 812 S.W.2d at 363 (contingency occurs after reduction to judgment) with White, 371 S.W.2d at 600 (contingency occurs after prosecuting or defending to final judgment all suits) and Carroll, 168 S.W.2d at 240, 242 (contingency occurs after successful termination of the litigation), we believe that at minimum, the contingency cannot occur before judgment is affirmed on appeal or when the time for filing an appeal has lapsed. See Lee, 812 S.W.2d at 363 (explaining that an executory contract is one that is still unperformed by both parties or one with respect to which something still remains to be done on both sides) (internal quotations omitted) (emphasis in original). 24 between Marré and his attorneys was still executory at the time Nursery Associates obtained its turnover order, Nursery Associates' interest in the fees is superior to the interest held by Urquhart & Hassell. Thus, Nursery Associates' interest in the entire $215,000, including the $53,750 in attorneys' fees awarded out of the damages, is superior to the interests of both Marré and his attorneys.20 B. Nursery Associates' Interest in the $107,500 in Attorneys' Fees For the same reasons that the government cannot set off the $107,500 in attorneys' fees against Marré's tax assessments, Nursery Associates cannot claim an interest in the $107,500 of the fee award which would be superior to Urquhart & Hassell's interest. Any rights that Nursery Associates has in that portion of the attorneys' fees under the turnover order are, at most, derivative of Marré's right to the fees. Thus, because the fees were awarded to Marré's attorneys, and not Marré, and because Nursery Associates' interest stems from Marré's right to the fees, Urquhart 20 Marré argues that, under the common fund doctrine, it would be inequitable to allow Nursery Associates to reap the benefits of Urquhart & Hassell's labor, as the attorneys' fees fund that Nursery Associates seeks to acquire through the turnover order was only made possible through Urquhart & Hassell's work in this case. The common fund doctrine, however, typically applies in situations where the attorneys sue for an interest commonly held by members of a class or third parties who benefit from the suit—which is not the situation here. See, e.g., Boeing Co. v. Van Gemert, 444 U.S. 472, 477-81, 100 S.Ct. 745, 749-50, 62 L.Ed.2d 676 (1980); Sprague v. Ticonic National Bank, 307 U.S. 161, 164-68, 59 S.Ct. 777, 77980, 83 L.Ed. 1184 (1939). Although application of the doctrine may be appropriate in exceptional cases, we believe the case at bar does not present any exceptional or compelling reasons that would warrant invoking the doctrine. See In re Delta Towers, Ltd., 924 F.2d 74, 78 (5th Cir.1991). 25 & Hassell's interest in the $107,500 of the attorneys' fees is superior to the interest held by Nursery Associates.21 C. Nursery Associates' Reasonable Attorneys' Fees Finally, Nursery Associates argues that it is entitled to all of its reasonable and necessary attorneys' fees incurred in having to obtain and enforce the turnover order: $1,000 in attorneys' fees for obtaining the order plus $15,000 in attorneys' fees for the intervention. Attorneys' fees are mandatory under the turnover statute if the evidence shows that the judgment creditor was successful in obtaining turnover relief and the attorneys' fees and costs are reasonable.22 Great Global Assurance Co. v. Keltex Properties, Inc., 904 S.W.2d 771, 775-76 (Tex.App.—Corpus Christi 1995, no writ); see also Cortland Line Co. v. Israel, 874 S.W.2d 178, 184 (Tex.App.—Houston [14th Dist.] 1994, writ denied) (stating that [a] court has the discretion to fix the amount of attorney's fees, but it does not have the discretion in denying them if they are proper under § 38.001). Because Nursery Associates was successful in obtaining turnover relief and we find nothing in the record that would indicate to us that the fees are anything but 21 Nursery Associates make no claim to the $17,738.02 in costs awarded to Marré's attorneys. However, even if Nursery Associates had asked for the costs, its interest would nevertheless come behind the attorneys' interest because the costs were awarded, along with the $107,500 in attorneys' fees, directly to the attorneys under the attorneys' fees statute. 22 Tex. Civ. Prac. & Rem.Code Ann. §§ 38.001-.006 govern the award of attorneys' fees under section 31.002(e). See Great Global Assurance Co., 904 S.W.2d at 775. 26 reasonable,23 we conclude the district court erred in refusing to award Nursery Associates its requested attorneys' fees as against Marré.