06/04/08
In re David B. Lorenz , Case No. 07-30593-elp7; Appellate No. CV-08-443-KI
Oregon US District Court Judge Garr King
Judge Perris’ order denying debtor’s application for attorney fees under the Equal Access to Justice Act (“EAJA”), 28 U.S.C. § 2412, was upheld on appeal in this unpublished opinion by Oregon US District Court Judge Garr King. His opinion hinged simply on his conclusion that Judge Perris did not abuse her discretion in denying fees to the debtor, specifically that her order was not based “on an erroneous legal conclusion or a clearly erroneous finding of fact.” Oregon Envtl. Council v. Kunzman, 817 F.2d 484, 496 (9th Cir. 1987). Although unpublished, this opinion is noteworthy because it gives the U.S. Trustee, and thus debtors, guidance about the kind of abuse case the U.S. Trustee (“UST”) can file without worrying about being held liable for the debtors’ attorney fees, even if those abuse allegations are found at trial to have been without merit.
The EAJA provides for attorney fees and expenses to be paid by the U.S. to a prevailing party in any civil action brought by or against the U.S. unless the court finds that the government’s position was substantially justified or that special circumstances make an award unjust. 28 U.S.C. § 2412(d)(1)(A).
Although the burden is on the government, it needs only to show that its position had a reasonable basis both in law and fact or were “justified in substance or in the main.” Pierce v. Underwood, 487 U.S. 552, 565 (1988).
The debtor’s circumstances seem to make this an easy case at first blush. As stated by Judge Perris in the underlying case: “This debtor had an $800,000 house, at least four vehicles on which he owed substantial amounts, and a wife who contributes a substantial amount to the household but who did not join in the bankruptcy petition. Although the court ultimately decided that, even given reasonable expenses, this debtor could not afford to make a meaningful payment to creditors, the UST was justified in challenging this debtor’s use of the bankruptcy system, given the lifestyle he leads. This debtor is living beyond his means, and even with a bankruptcy discharge, will have to curtail his living expenses in order to maintain a reasonable standard of living in the future.”
Debtor’s counsel, Bret Knewtson, argued that the UST should have dismissed its pending abuse motion as soon as debtor became employed when it should have become clear that he would not be able to repay a meaningful amount to his business debts totaling between $500,000 and a million dollars. Counsel also argued that the UST was wrong in pushing for the reasonableness of Lorenz’s expenses to be judged by the IRS Standards, and in arguing that the non-debtor wife should contribute to paying debtor’s debts. But Judge King discussed how each of these factors are reasonable to include when judging the rather ambiguous concept of abuse, and that thus Judge Perris was within her discretion in consider these factors, and so also within her discretion in not making the UST pay debtor’s attorney fees.
BOTTOM LINE: The UST is undoubtedly keeping an eye on the Equal Access to Justice Act’s standards as laid out in this case, and so is filing motions to dismiss for abuse only when it is confident that it can bear the burden of showing that its position, at each point in the proceedings, is substantially justified. The facts here did not seem to make it very hard for the UST to avoid being hit with attorney fees. But debtor’s counsel should nevertheless keep an eye on the EAJA and this opinion whenever defeating a trustee’s motion to dismiss for abuse, and should also try to use these as leverage to persuade the UST to drop its motion if the case turns more in debtor’s favor during discovery.
The EAJA provides for attorney fees and expenses to be paid by the U.S. to a prevailing party in any civil action brought by or against the U.S. unless the court finds that the government’s position was substantially justified or that special circumstances make an award unjust. 28 U.S.C. § 2412(d)(1)(A).
Although the burden is on the government, it needs only to show that its position had a reasonable basis both in law and fact or were “justified in substance or in the main.” Pierce v. Underwood, 487 U.S. 552, 565 (1988).
The debtor’s circumstances seem to make this an easy case at first blush. As stated by Judge Perris in the underlying case: “This debtor had an $800,000 house, at least four vehicles on which he owed substantial amounts, and a wife who contributes a substantial amount to the household but who did not join in the bankruptcy petition. Although the court ultimately decided that, even given reasonable expenses, this debtor could not afford to make a meaningful payment to creditors, the UST was justified in challenging this debtor’s use of the bankruptcy system, given the lifestyle he leads. This debtor is living beyond his means, and even with a bankruptcy discharge, will have to curtail his living expenses in order to maintain a reasonable standard of living in the future.”
Debtor’s counsel, Bret Knewtson, argued that the UST should have dismissed its pending abuse motion as soon as debtor became employed when it should have become clear that he would not be able to repay a meaningful amount to his business debts totaling between $500,000 and a million dollars. Counsel also argued that the UST was wrong in pushing for the reasonableness of Lorenz’s expenses to be judged by the IRS Standards, and in arguing that the non-debtor wife should contribute to paying debtor’s debts. But Judge King discussed how each of these factors are reasonable to include when judging the rather ambiguous concept of abuse, and that thus Judge Perris was within her discretion in consider these factors, and so also within her discretion in not making the UST pay debtor’s attorney fees.
BOTTOM LINE: The UST is undoubtedly keeping an eye on the Equal Access to Justice Act’s standards as laid out in this case, and so is filing motions to dismiss for abuse only when it is confident that it can bear the burden of showing that its position, at each point in the proceedings, is substantially justified. The facts here did not seem to make it very hard for the UST to avoid being hit with attorney fees. But debtor’s counsel should nevertheless keep an eye on the EAJA and this opinion whenever defeating a trustee’s motion to dismiss for abuse, and should also try to use these as leverage to persuade the UST to drop its motion if the case turns more in debtor’s favor during discovery.
by Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com
© 2008 Bankruptcy Litigation Support for Attorneys
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