Business Law

Teter v. Baumgart (In re Teter), ___ F. 4th ___, 2024 WL 28864 (6th Cir. 1/3/24)

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The Sixth Circuit Court of Appeals (the Court) ruled that a debtor who successfully fended off a motion to dismiss her bankruptcy case for abuse under 11 U.S.C. § 707(b) was not entitled to recover the attorney’s fees incurred in defense of the motion under the Equal Access to Justice Act (EAJA) because the motion was not a “civil action”.  Teter v. Baumgart (In re Teter), ___ F. 4th ___, 2024 WL 28864 (6th Cir. 1/3/24).  

To view the opinion, click here.

FACTS

Megan Teter filed a chapter 7 bankruptcy petition in Ohio in 2019. Of her almost $100,000.00 in debt, over half was student loans, which she described as business debts.  Section 707(b) of the Bankruptcy Code restricts an individual’s ability to discharge consumer debts if the debtor’s income exceeds certain thresholds.  Teter’s income exceeded those thresholds, so if her student loans were actually consumer debts, her chapter 7 filing would be considered an abuse under § 707(b).  For that reason, the United States Trustee (UST) filed a motion to dismiss her case for abuse, asserting that the student loans were consumer debt. 

Teter opposed the UST by filing a motion for summary judgment.  After the bankruptcy court initially denied the motion because the factual record was not fully developed, Teter again requested a ruling.  However, before the bankruptcy court acted on that request, the UST withdrew the motion. Asserting victory, Teter sought attorneys’ fees incurred in defending the motion to dismiss under the EAJA, 28 U.S.C. § 2412.  The bankruptcy court denied her motion.  Teter appealed to the district court, which affirmed the bankruptcy court.  She appealed again to the Sixth Circuit, which also affirmed.

REASONING

The Court first considered whether the bankruptcy court had jurisdiction over an action under the EAJA, which was arguably a non-core matter because it did not relate to administration of Teter’s bankruptcy case nor was it listed as a core matter under 28 U.S.C. § 157(b).  In such circumstance, jurisdiction could only arise if the parties consented.  By bringing the motion in the bankruptcy court, Teter demonstrated her consent; similarly, the UST opposed without raising any objection to the bankruptcy court’s jurisdiction, resulting in its consent.  Therefore, the Court concluded the bankruptcy court had jurisdiction.

Turning to the merits, the Court noted that typically in the American judicial system, parties bear their own attorneys’ fees unless a statute provides otherwise.  Congress, however, had provided otherwise in the EAJA, which allowed federal courts to award prevailing parties fees and costs incurred “in any civil action” that is “brought by or against the United States in any court having jurisdiction of that action.”  28 U.S.C. § 2412(d)(1)(A).  The Court considered a threshold to recovery was Teter’s ability to show the motion to dismiss was a “civil action.” 

The Court recognized that its analysis was informed by principles of sovereign immunity, because the EAJA represented a partial waiver of that defense. In this setting, the Court felt itself compelled to read any textual ambiguity in favor of immunity because “the Government’s consent to be sued is never enlarged beyond what a fair reading of the text requires.” It then looked to Fed. R. Civ. P. 2 and 3 and Black’s Law Dictionary to assist in the definition and understanding of what a “civil action” was intended to mean in the EAJA. In every relevant reference a civil action was initiated by filing a complaint with the court.  Filing a motion was not the same, since resolution of a motion often would not be the same as resolution of a complaint.  There would be no prevailing party for the purpose of awarding attorneys’ fees because the action would not be resolved.  For example, a motion to dismiss under Fed. R. Civ. P. 12(b)(6) could result in partial dismissal but the action would go on.

Teter directed the Court’s attention to Bankruptcy Rule 9002, which seems to broaden the definition of “civil action” under the Federal Rules of Bankruptcy Procedure to include contested matters.  The Court cast that argument aside, stating “[b]ut Rule 9002, remember, provides a definition for the bankruptcy rules, not the EAJA.  And the bankruptcy rules cannot implicitly expand the scope of a congressionally enacted statute.”

The Court ruled that only if Congress had demonstrated an express waiver of sovereign immunity would the government be responsible for attorneys’ fees of a party.  Therefore, it construed the EAJA narrowly and found it inapplicable to a motion or contested matter in a bankruptcy proceeding.

AUTHOR’S COMMENTS

This opinion is interesting for its analysis of the EAJA as a limited waiver of sovereign immunity.  With that as a backdrop, its conclusions are not surprising.  In addition, its restriction of civil actions to mean a matter initiated by filing a complaint with the court, eliminating motions which are contested matters in the bankruptcy court, makes sense when one considers the many types of motions which a civil action might generate in a district court.  That most would not resolve the case supports the Court’s narrow definition.  Only a few bankruptcy court decisions have ever applied the EAJA, which solidifies my conclusion that this is the correct decision. 

[The Commercial Financial Newsletter is written by an ad hoc group of the California Lawyers Association (CLA) Business Law Section.  This article was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, CD CA, ret.), a member of the ad hoc group.  The opinions contained herein are strictly those of the author.]


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