The opinion of the court was delivered by: David E. Peebles U.S. Magistrate Judge
REPORT, RECOMMENDATION AND ORDER Plaintiff Donald P. Wendt, who is proceeding pro se and seeks leave to proceed in this matter in forma pauperis ("IFP"), has commenced this action against the United States Department of Agriculture ("USDA"), three agencies within the USDA, and fourteen of its employees alleging a host of both tort and breach of contract claims, apparently related to the administration and termination of a contract between plaintiff and the USDA. As relief, plaintiff seeks compensatory and punitive damages in an unspecified amount.
Having afforded plaintiff the deference to which he is entitled as a pro se litigant and liberally construed his pleading, I have nonetheless concluded that although plaintiff's IFP application will be granted, his complaint should be dismissed for lack of subject matter jurisdiction.
It appears that plaintiff's claims arise out of a contract with
the USDA relating to the development of a fine hardwood tree forest
which provided for "cost sharing reimbursements" to plaintiff upon
compliance with certain contractually specified requirements under a
"Conservation Plan." See Complaint (Dkt. No. 1) ¶
20. The specific terms of that agreement and when it was executed are
not set forth in plaintiff's complaint. The complaint alleges that the
contract term was ten years and that the contract was originally to
commence in June 2005. See id. According to
plaintiff the contract did not actually begin until October 1, 2006,
and was to continue through September 30, 2016. See id.
Plaintiff alleges that as a result of the delay in the
commencement of the contract he suffered a corresponding lag in
receiving reimbursements for costs and labor incurred by him.
Id. Plaintiff further claims that during the course of
the agreement, defendants failed to respond to his requests for
information, failed to inspect his plantings as required, and delayed
payment of his reimbursements, which caused him problems in filing his
federal income tax returns. Id.
It appears that the parties proceeded under the terms of their agreement and plaintiff received reimbursements for costs until on or about March 10, 2009, when defendants Cronsier, Jones, Arliss, Ameele, Wells, and Mouton, as members of the Wayne County Farm Service Agency Committee, voted to terminate the contract, and failed to provide plaintiff an opportunity to make reparations as required by the Conservation Plan. Complaint (Dkt. No. 1) ¶ 24. Thereafter, the parties engaged in an effort to resolve their dispute, apparently by way of unsuccessful efforts at mediation as well as administrative hearings, up through the issuance of a final order in connection with plaintiff's administrative appeal. Id. at ¶¶ 25-37.
Plaintiff further alleges that beginning in the fall of 2009 defendants began harassing him, claiming that he was indebted to the USDA and/or Commodity Credit Corporation in the amount of $21,912.07, plus interest at a rate of 8.620%, and seized $270.30 from his Social Security check, which was eventually refunded. Complaint (Dkt. No. 1) ¶ 38. In August 2010, Plaintiff filed for bankruptcy protection pursuant to Chapter 13 of the United States Bankruptcy Code. Id. Even after that date, the Commodity Credit Corporation, once again, seized $270.30 from plaintiff's Social Security check. Id.
Plaintiff filed his complaint, accompanied by an application to proceed in forma pauperis , on February 28, 2012. Dkt. Nos. 1 and 2. The complaint alleges twelve causes of action including malfeasance, breach of contract, tortious interference with contract, misrepresentation and consumer fraud, and harassment.
A. In Forma Pauperis Application
As indicated in his IFP application, plaintiff filed a voluntary Chapter 13 bankruptcy petition in the Western District of New York on October 4, 2010. *fn2 In re Wendt , No.2-10-22424-PRW (W.D.N.Y. filed Oct. 4, 2010). That proceeding is still pending.
Based upon a careful review of plaintiff's IFP application, and considering that he is presently in bankruptcy, I have concluded that he has sufficiently established his inability to pay the required filing fee due to his financial circumstances. Plaintiff's request for permission to proceed in forma pauperis in this action will therefore be granted.
Since the court has found that plaintiff meets the financial criteria for commencing this case in forma pauperis , I must next consider the sufficiency of the allegations set forth in his pleading in light of 28 U.S.C. § 1915(e). Section 1915(e) directs that, when a plaintiff seeks to proceed in forma pauperis , "(2) . . . the court shall dismiss the case at any time if the court determines that -- . . . (B) the action . . . (I) is frivolous or malicious; (ii) fails to state a claim on which relief may be granted; or (iii) seeks monetary relief against a defendant who is immune from such relief." 28 U.S.C. § 1915(e)(2)(B). Thus, the court has a gatekeeping responsibility to determine that a complaint may be properly maintained in this district before it may permit a plaintiff to proceed with an action in forma pauperis . See id.
In deciding whether a complaint states a colorable claim a court
must extend a certain measure of deference towards pro se
litigants, Nance v. Kelly , 912 F.2d 605,
606 (2d Cir. 1990) (per curiam), and
extreme caution should be exercised in ordering sua
sponte dismissal of a pro se complaint
before the adverse party has been served and the parties have had an
opportunity to respond, Anderson v. Coughlin ,
F.2d 37, 41 (1983). There is, nonetheless, an obligation on the
part of the court to determine that a claim is not frivolous before
permitting a plaintiff to proceed. See Fitzgerald v. First
East Seventh St. Tenants Corp. , 221
F.3d 362, 363 (2d Cir. 2000) (district court may dismiss
frivolous complaint sua sponte notwithstanding
fact the plaintiff has paid statutory filing fee); Wachtler
v. Cnty. of Herkimer , 35 F.3d 77, 82 (2d Cir. 1994)
(district court has power to dismiss case sua sponte
for failure to state a claim).
"Legal frivolity . . . occurs where 'the claim is based on an
indisputably meritless legal theory [such as] when either the claim
lacks an arguable basis in law, or a dispositive defense clearly
exists on the face of the complaint.'" Aguilar v. United
States , Nos. 3:99-MC-304, 3:99-MC-408, 1999 WL 1067841, at
*2 (D. Conn. Nov. 8, 1999) (Burns J.) (quoting Livingston v.
Adirondack Beverage Co. , 141 F.3d 434, 437 (2d Cir. 1998));
see also Neitzke v. Williams , 490 U.S. 319, 325,
109 S. Ct. 1827, 1831 (1989) and Pino v. Ryan , 49
F.3d. 51, 53 (2d Cir.1995) ("[T]he decision that a complaint is based
on an indisputably meritless legal
theory, for the purposes of dismissal under section 1915(d), may
upon a defense that appears on the face of the complaint.").
When reviewing a complaint under section 1915(e), the court may also look to the Federal Rules of Civil Procedure. Federal Rules of Civil Procedure 8 provides that a pleading that sets forth a claim for relief shall contain "a short and plain statement of the claim showing that the pleader is entitled to relief [.]" Fed.R.Civ.P. 8(a)(2). The purpose of Rule 8 "'is to give fair notice of the claim being asserted so as to permit the adverse party the opportunity to file a responsive answer [and] prepare an adequate defense.'" Hudson v. Artuz , No. 95 CIV. 4768, 1998 WL 832708, *1 (S.D.N.Y. Nov. 30, 1998) (quoting Powell v. Marine Midland Bank , 162 F.R.D. 15, 16 (N.D.N.Y.1995) (quoting Brown v. Califano , 75 F.R.D. 497, 498 (D.D.C.1977))) (other citation omitted).
A court should not dismiss a complaint if the plaintiff has stated
"enough facts to state a claim to relief that is plausible on its
face." Bell Atlantic Corp. v. Twombly , 550 U.S.
544, 570, 127 S. Ct. 1955, 1974 (2007). "A claim has facial
plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged."
Ashcroft v. Iqbal , 129 S.Ct. 1937');">129 S. Ct. 1937, 1949 (2009)
(citation omitted). Although the court should construe the factual
allegations in the light most favorable to the plaintiff, "the tenet
that a court must accept as true all of the allegations contained in a
complaint is inapplicable to legal conclusions." Id.
"Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice."
Id. (citing Twombly , 550 U.S. at
555, 127 S. Ct.1955). Thus, "where the well-pleaded facts do not
permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged-but it has not 'show[n]'-'that
the pleader is entitled to relief.'" Id. at 1950
(quoting Fed. Rule Civ. Proc. 8(a)(2)).
Upon careful review of plaintiff's complaint in light of the foregoing standards, I recommend that it be dismissed for several reasons.
C. Analysis of Plaintiff's Complaint
At the outset, plaintiff alleges that jurisdiction is conferred upon the court under 29 U.S.C. § 626(c)(1). That provision, which is part of the Age Discrimination in Employment Act ("ADEA"), appears to have no relevance to this lawsuit. *fn4 Moreover, though providing for a civil action under the ADEA, section 626(c)(1) does not specifically confer subject matter jurisdiction over those claims upon the court.
The subject matter jurisdiction of the federal district courts is
limited, and is set forth generally in 28 U.S.C. §§ 1331 and 1332.
Under these statutes, federal jurisdiction is available only when a
federal question is presented, or when the parties are of diverse
citizenship and the amount in question exceeds $75,000. It is well
established that the court may raise the question of jurisdiction
sua sponte , and that where jurisdiction is
lacking, "dismissal is mandatory." United Food & Commercial
Workers Union, Local 919, AFL-CIO v. Centermark Prop. Meriden Square,
Inc. , 30
F.3d 298, 301 (2d Cir.1994); see also
Section 1331 provides that "district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. The existence of a federal question is governed by the "well-pleaded complaint" rule, which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint. Id. A well-pleaded complaint presents a federal question where it "establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on a resolution of a substantial question of federal law." Franchise Tax Bd. of State of Cal. v. Constr. Laborers Vacation Trust , 463 U.S. 1, 9, 103 S. Ct. 2841, 2846 (1983).
Jurisdiction over the United States and its agencies exists only where it has waived its sovereign immunity by statute. Dep't of the Army v. Blue Fox, Inc. , 525 U.S. 255, 260, 119 S. Ct. 687, 690 (1999); Presidential Gardens Assocs. v. United States ex rel. Sec'y of HUD , 175 F.3d 132, 139 (2d Cir. 1999). Under the Tucker Act, 28 U.S.C. § 1491, the United States has waived its sovereign immunity with respect to breach of contract claims. *fn5 Spinale and G & T Terminal Packaging Co., Inc. v. United States Dep't of Agric. , No. 05 Civ. 9294(KMV), 2007 WL 747803, at *2 (S.D.N.Y. 2007). For claims exceeding $10,000.00, however, "the Tucker Act vests exclusive jurisdiction in the Court of Federal Claims." Id. (citing 28 U.S.C. § 1346(a)(2)); see also Brazos Elec. Power Coop. v. United States Dep't Agric. , 144 F.3d 784, 787 (Fed. Cir. 1998). Though the Tucker Act expressly excludes cases sounding in tort from its limited grant of jurisdiction to the Federal Court of Claims, that court does have jurisdiction "'where a tort claim stems from a breach of contract, the cause of action is ultimately one arising in contract, and thus is properly within the exclusive jurisdiction of the [United States] Court of Federal Claims.'" Kenney Orthopedic, LLC v. United States , 88 Fed. Cl. 688, 703-04 (Fed. Cl. Aug. 17, 2009) (quoting Awad v. United States , 301 F.3d 1367, 1372 (Fed. Cir.2002)) and Hall v. United States , 69 Fed. Cl. 51, 57 (Fed. Cl. Oct. 31, 2005) (holding that it is "well established" that where a tort claim arises from a breach of contract, the cause of action is properly within the United States Court of Federal Claims' jurisdiction)).
Here, plaintiff asserts breach of contract, intentional breach of contract, and tortious interference with contract claims. The court's subject matter jurisdiction over plaintiff's contract claims, however, is not evident from the face of the complaint. Though generally demanding compensatory and punitive damages, nowhere does plaintiff's complaint specify the amount of damages claimed. Indeed, plaintiff's complaint fails to identify the terms of his alleged contract with the USDA, it does not clearly identify how the contract was breached, and the alleged injury plaintiff sustained is not readily apparent. Plaintiff does allege that he invested at least $20,980.00 in the development of a hardwood tree forest and that during the 29-month period that the parties performed under the terms of their agreement, he received cost sharing reimbursements in excess of $14,000. Based upon the allegations in his complaint, it thus seems likely that the damages that plaintiff is claiming are in excess of $10,000, and that this court therefore lacks jurisdiction over all of plaintiff's contract claims. Because plaintiff has failed to show that this court has subject matter over his contract claims, I recommend they be dismissed.
Turning to plaintiff's claims for malfeasance, fraud, and
misrepresentation, with certain exceptions the Federal Tort Claims Act
("FTCA"), 28 U.S.C. §§1346(b), 2671-2680, waives the sovereign
immunity of the United States with respect to tort claims.
See Williams v. Metro. Det. Ctr., 418 F. Supp. 2d
96, 102 (E.D.N.Y. 2005). By its express term, the FTCA does not apply
to "[a]ny claim arising out of assault, battery, false imprisonment,
false arrest, malicious prosecution, abuse of process, libel, slander,
misrepresentation, deceit, or interference with contract right. . . ."
28 U.S.C. § 2680(h); see also Balfour Land Co., L.P.
v. United States , No. 7:08-cv-34, 2009 WL 1796068, at
*9 (M.D.Ga. Jun. 22, 2009). Additionally, "[p]rior to bringing an
action, the FTCA requires that a claimant file an administrative claim
with the appropriate federal agency and that the claim be denied."
Id. (citing 28 U.S.C. § 2675(a)). "This
requirement is jurisdictional and cannot be waived."
Keene Corp. v. United States , 700 F.2d 836, 841 (2d Cir.
v. United States Dep't of Agric. , No. 97-CV-1439, 1998
WL 887278, at * 2 (N.D.N.Y. Dec. 11, 1998) (McCurn, S.J.).
In the first instance, plaintiff does not allege that he first presented a claim to the USDA for the damages he now seeking by way of this lawsuit. In the event that he has failed to do so, the court is precluded from exercising jurisdiction over any of plaintiff's tort claims asserted under the FTCA. *fn6 Dowdy v. Hercules , No. 07-CIV-2488(EVEN)(LB), 2010 WL 169624, at *5 (E.D.N.Y. Jan. 15, 2010). Furthermore, it seems clear that with regard to plaintiff's claims for misrepresentation, fraud, and intentional interference with contract, this court lacks jurisdiction. Spinale and G & T Terminal Packaging , 2007 WL 747803, at *1; Balfour Land Co. , 2009 WL 1796068, at *9-10. For these reasons, I recommend that plaintiff's claims for misrepresentation, fraud, and intentional interference with contract be dismissed with prejudice, and insofar as plaintiff's complaint can be interpreted to allege federal tort claims that are within the court's jurisdiction, that those claims be dismissed for failure to state a cause of action, with leave to replead. *fn7
Additionally, the sovereign immunity of the United States extends
to its agencies, and in favor of is officials sued for damages in
their official capacities when the essence of the claim involved seeks
recovery from the government as the real party in interest.
Schein v. United States , 352
F. Supp. 182, 185 (E.D.N.Y. 1972). "The FTCA makes a lawsuit
against the United States itself the exclusive remedy for common law
tort actions against federal agencies or employees acting on behalf of
the government." Dowdy , 2010 WL 169624, at * 4
(citing cases). In other words, only the United States can be sued
under the FTCA, and neither its agencies nor its employees are proper
defendants. Bazuaye v. United States , No. 06 Civ.
8259(DAB), 2009 WL 210702, at *6 (S.D.N.Y. Jan. 27, 2009) (citing
cases). As a result, plaintiff's claims against the USDA, including
the Farm Service Agency, Natural Resource Conservation Service and the
Commodity Credit Corporation, and those against the
individual defendants in their official capacities should also be
dismissed for lack of subject matter jurisdiction. *fn8
Dowdy , 2010 WL 169624, at * 4.
Generally, when a district court dismisses a pro se
action sua sponte , the plaintiff should
be allowed to amend his or her complaint. See Gomez v. USAA
Fed. Savings Bank , 171 F.3d 794, 796 (2d Cir.1999).
Affording plaintiff the deference to which he is entitled as a
pro se litigant, I cannot conclude with certainty that
plaintiff cannot state a claim within this court's jurisdiction under
either the Tucker Act or the FTCA. Accordingly, I recommend that in
the event his computer is dismissed, plaintiff be permitted to amend
his complaint in effort to state plausible breach of contract and
federal tort claims against the United States.
In the event that leave to amend is granted and plaintiff chooses to avail himself of that opportunity, he is advised that any such amended complaint, which will supersede and replace in its entirety the previous complaint filed by plaintiff, see Harris v. City of N.Y. , 186 F.3d 243, 249 (2d Cir. 1999) (citing Shields v. Citytrust Bancorp, Inc ., 25 F.3d 1124, 1128 (2d Cir. 1994)); Fed. R. Civ. P. 10(a), must contain a caption that clearly identifies, by name, each individual or entity that plaintiff is suing in the present lawsuit, and must bear the case number assigned to this action. Significantly, the body of plaintiff's complaint must contain sequentially numbered paragraphs containing only one act of misconduct per paragraph. Fed. R. Civ. P. 10(b). I will further recommend that unless plaintiff files such an amended complaint within thirty days from the date of the filing of any decision and order adopting my recommendation in full, his complaint be dismissed without further order of the court.
While plaintiff's complaint includes a relatively detailed recitation of the salient facts, it is difficult to discern from those allegations any basis for plaintiff's claims. Even when broadly construing plaintiff's complaint and affording him the special leniency to which he is entitled as a pro se litigant, the court has not identified a plausible claim within its jurisdiction. Moreover, with respect to plaintiff's claims for misrepresentation, fraud, and intentional interference with contract, as well as those against the named agencies and individual defendants, it is quite apparent that the court lacks subject matter jurisdiction. Nonetheless, at this early juncture, I am unable to conclude with certainty that if given the opportunity plaintiff would not be able to state a viable claim under either the Tucker Act or the FTCA. For all of the foregoing reasons, it is therefore hereby respectfully RECOMMENDED that plaintiff's complaint be DISMISSED in its entirety, with prejudice as to plaintiff's claims for misrepresentation, fraud, and intentional interference with contract under the FTCA, and those against the named agencies and individual defendants, and otherwise with leave to file an amended complaint within thirty days of any decision and order adopting my recommendation in full, and that upon his failure to do so that the clerk dismiss the action without further order of the court.
NOTICE: Pursuant to 28 U.S.C. § 636(b)(1), the parties may lodge written objections to the foregoing report. Such objections must be filed with the clerk of the court within FOURTEEN days of service of this report. FAILURE TO SO OBJECT TO THIS REPORT WILL PRECLUDE APPELLATE REVIEW. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a), 6(d), 72; Roldan v. Racette, 984 F.2d 85 (2d Cir. 1993).
It is hereby ORDERED that plaintiff's application to proceed in forma pauperis (Dkt. No. 2) is GRANTED; and it is further, ORDERED that the clerk of the court serve a copy of this report, recommendation, and order upon the parties in accordance with this court's local rules.
Not Reported in F.Supp.2d, 2007 WL 604936 (N.D.Fla.), 20 Fla. L. Weekly Fed. D 560 (Cite as: 2007 WL 604936 (N.D.Fla.)) administrative expense priority pursuant to 11 U.S.C. § 503 is reviewed under the abuse of discretion standard. "Orders implicating the equitable discretion of the United States District Court, N.D. Florida, bankruptcy court in directing immediate payment of an administrative expense are reviewable for an abuse of Gainesville Division. discretion." In re Colortex Industries, Inc., 19 F.3d 1371, PARK NATIONAL BANK, as successor in interest to 1374 (11th Cir.1994). See also In re Tama Beef Packing, Regency Savings Bank, Appellant, Inc., 290 B.R. 90 (B.A.P. 8th Cir.2003), appeal dismissed, v. 92 Fed. Appx. 368 (8th Cir.2004). A bankruptcy court UNIVERSITY CENTRE HOTEL, INC., Appellee. abuses its discretion when its ruling is founded on an error No. 1:06-cv-00077-MP-AK. of law or on misapplication of the law to the facts. "The question is not how reviewing court would have ruled, but Feb. 22, 2007. whether reasonable person could agree with the Steven M. Berman, Berman PLC, Tampa, FL, for bankruptcy court's decision." In re Eagle-Picher Appellant. Industries, Inc., 285 F.3d 522, 529, 2002 Fed. Appx.
0112P (6th Cir.2002). Because the Bankruptcy Court's Carl Edwin Rude, Jr., C. Edwin Rude PA, Tallahassee, decision is supported by the law and is not an abuse of FL, for Appellee. discretion, it is affirmed.
MAURICE M. PAUL, Senior District Judge. This case arose from a transaction on January 20,
*1 This matter is before the Court on appeal, pursuant 2000, when University Centre Hotel, Inc. and Lido Bay to 28 U.S.C. § 158(a), from the final order of the United Resort, LLC, entered into loan agreement with Southern States Bankruptcy Court for the Northern District of Pacific Bank (the predecessor in interest to Regency Florida, Gainesville Division (the "Bankruptcy Court"), Savings Bank and Park National Bank), and executed a denying Regency Savings Bank's ("Regency") application Note for $7,300,000. Both UCH and Lido Bay are for allowance of administrative claim. Appellant Park companies owned and controlled by Anthony Liuzzo. As National Bank ("Park National" or the "Appellant"), as security for the Note, both companies delivered a successor in interest to Regency, appeals the Order of the mortgage agreement to the Lender on property throughout Bankruptcy Court denying its Motion to Assess Legal Florida, as well as an assignment of rents. Finally, Fees and Costs against University Centre Hotel Inc. Anthony Liuzzo, owner of both companies, executed an ("UCH" or the "Debtor") and its Application for unconditional Guarantee for the Note. Both the Note and Allowance of Administrative Claim pursuant to 11 U.S.C. the Guarantee contained contractual provisions for the § 503(b)(1)(A). Oral arguments on this matter were heard recovery of prevailing party attorney's fees and costs. on October 19, 2006. After UCH initially defaulted on the loan, it filed its Because this Court functions as an appellate court in voluntary Chapter 11 petition on October 18, 2002. Before reviewing the decision of the Bankruptcy Court, three the Note matured, Southern Pacific Bank stipulated with standards of review apply. First, because no independent UCH to pay the default interest at the rate of 25% percent fact finding occurs at the appellate level, the Bankruptcy per annum in exchange for a pay-down of $3,000,000. On Court's factual findings are reviewed under the clearly February 1, 2003, the Note matured, and UCH and Luizzo erroneous standard. Second, all determinations of law by defaulted by failing to pay their obligations under the the Bankruptcy Court are reviewed de novo. Finally, the Note. After the property in Gainesville that secured the Bankruptcy Court's decision whether to award Note was sold to Shands Healthcare, leaving a deficit in state court's judgment for money damages "is only against the loan, Regency, which had acquired the Note, filed an Anthony Liuzzo, not the debtor in this case." Id. Because action in the Circuit Court of the Eighth Judicial Circuit Mr. Liuzzo, as guarantor, had posted a bond to satisfy the against Luizzo as guarantor for his refusal to pay the full amount owed while the case was on appeal, the deficiency. The Debtors, UCH and Lido Bay, were Bankruptcy Court saw no reason to treat Regency's permitted by the Bankruptcy Court to intervene in this contractually-owed attorney's fees as administrative state court action to pursue a counterclaim against expenses, which would give Regency first priority over Regency. other creditors.
*2 The counterclaim against Regency sought in Since the Bankruptcy Court's order is rather short, the excess of $20,000,000 for usury, civil remedies for record helps explain many of the issues reflected in the criminal practices act violation, tortious interference, order. During the hearing before the Bankruptcy Court on abuse of process, and breach of fiduciary duty. The state the Administrative Claim Application, the court was court found in favor of Regency on the breach of troubled by several aspects of the treating the attorney's guarantee and found against the Debtors and Guarantor on fees as administrative expenses. First, the Bankruptcy each counterclaim. This decision is currently on appeal to Court was concerned that the amount that Regency sought the First District Court of Appeal. The state court decision to collect as attorney's fees from UCH-$316,002.58-was found the amount of money owed Regency was not related solely to UCH's counterclaim, as two other $330,805.42 for interest and late fees, $149,506.59 for defendants had also pursued the same counterclaim. "How legal fees prior to June 20, 2003, and $630,022.76 for much of this relates just to the counterclaim by the debtor? legal fees from July 1, 2003 to December 29, 2005. The ... You're clearly not entitled to $316,000, but you came in decision then stated: "By virtue of the Guarantee, Anthony asking for it." Doc. 17 at 11. Second, the Bankruptcy Luizzo owes the above sums to Plaintiff. Therefore, it is Court expressed concern that Regency was trying to hereby ORDERED AND ADJUDGED that Plaintiff collect its fees from UCH even though a bond had been Regency Savings Bank recover from Defendant Anthony posted by Mr. Luizzo, the initiator of the counterclaim that Luizzo ... the sum of $1,110,334.77." Doc. 10, ex. # 6 at UCH joined. "[I]f you collect from Mr. Luizzo, he's all 11. you're getting it from. If you take an administrative expense from this estate, you've gutted whatever's left to
Court's Order pay any creditors of this estate. Why should the creditors of this estate completely fund the liability of Mr. Luizzo
After the state court entered judgment, Regency filed for attorney's fees?" Id. at 13. its Motion to Assess Legal Fees and Costs and Application for Allowance of Administrative Claim with the *3 Finally, the Bankruptcy Court viewed UCH's role Bankruptcy Court on January 11, 2006. The in the counterclaim as different than Mr. Luizzo and Lido Administrative Claim Application requested fees to be Bay: "[I]t seems the debtor was a kind of me too, tag assessed against UCH in the amount of $316,002.58, and along, just so the issues that were raised by Luizzo and also requested that such fees be treated as an Lido Bay in the state court could also be binding ... and administrative expense of the Debtor pursuant to 11 the debtor was tagging along just to get whatever benefits U.S.C. § 503 because the fees were incurred as a result of or at least a final adjudication." Id. at 20. This raised the Debtor's unsuccessful pursuit of post-petition problems in allocating the state court judgment between litigation. The Bankruptcy Court denied Regency's the three parties. "What additional expenses were the Administrative Claim Application, stating that: "Since result of the debtor's actions? ... And I have absolutely no [the] State Court did not award attorney's fees against the way of coming up with that." Id. at 38. At the end of the debtor for prosecution of the action, they are not an hearing, the Bankruptcy Court seemed concerned at obligation of the debtor estate and accordingly will not be Regency attempting to collect from UCH when it had a allowed [as] an administrative expense of this estate." secured bond for the entire amount owed: "Why do we Doc. 10, ex. # 8 at 3. The basis for this denial was that the keep on coming back here and arguing over what little is left in this estate when you have a bond to recover does not apply to actions brought by the debtor. "[A]s the everything you're owed? ... My job is to watch over the plain language of the statute suggests, and as no less than creditors of this estate. And the bank is here trying to suck six circuits have concluded, the Code's automatic stay every dollar there is out of this estate." Id. at 44. does not apply to judicial proceedings, such as this suit, that were initiated by the debtor." Brown v. Armstrong,
III. Review of the Bankruptcy
Court's Decision 949 F.2d 1007, 1009-10 (8th Cir.1991). In the instant case, because the Appellee intervened in the state court
The central issue on appeal is whether the Bankruptcy proceeding to pursue a counterclaim against the Appellant, Court erred in finding that Regency was not entitled to an the action was not "against the debtor." "[W]hether an administrative expense claim for its legal fees and costs action is 'against the debtor' is determined by examining incurred by virtue of UCH's unsuccessful post-petition the debtor's status at the time proceedings were initiated." pursuit of a counterclaim in a state court action against Ostano Commerzanstalt v.. Telewide Systems, Inc., 790 Regency, pursuant to a pre-petition contract between UCH F.2d 206, 207 (2d Cir.1986). and Regency with a prevailing party fee and cost provision. *4 Furthermore, any award of attorney's fees against
A. Automatic Stay Under 11 U.S.C. § 362(a) the Appellee by the state court would most likely not be considered acts to obtain possession of or exercise control
Park National's chief argument on appeal is that the over "property of the estate" under § 362(a)(3). Judge Bankruptcy Court erred when it based its decision on the Posner states: lack of a state-court award of fees because such an award would violate the automatic stay provision of the Code. [T]he automatic stay is inapplicable to suits by the There is no legal support for the position taken by the bankrupt ("debtor," as he is now called). This appears Bankruptcy Court to wit: that the Bankruptcy Court from the statutory language, which refers to actions somehow cannot adjudicate the entitlement to "against the debtor," 11 U.S.C. § 362(a)(1), and to acts administrative expense priority unless the tribunal to obtain possession of or exercise control over handling the underlying litigation enters a judgment for "property of the estate," § 362(a)(3).... There is, in fees and costs against the Debtor. Such a proposition contrast, no policy of preventing persons whom the would seem to run counter to the imposition of the bankrupt has sued from protecting their legal rights. automatic stay which precludes the pursuit, litigation True, the bankrupt's cause of action is an asset of the and award of a claim for relief as against a Debtor in estate; but as the defendant in the bankrupt's suit is not, bankruptcy whether the claim arises from a pre-petition by opposing that suit, seeking to take possession of it, claim or the claim would ultimately be asserted against subsection (a)(3) is no more applicable than (a)(1) is. the Debtor or property of the Debtor.
Martin-Trigona v. Champion Federal Sav. and Loan
Doc. 10 at 12-13. Appellant states that both § Ass'n, 892 F.2d 575, 577 (7th Cir.1989). Extending this 362(a)(1) and (a)(3) would prevent the state court from reasoning, because a person sued by a debtor is merely awarding attorney's fees against UCH, and therefore the protecting their legal rights by opposing the lawsuit, there Bankruptcy Court was the only forum to decide any is no act to take possession of the debtor's property. Any entitlement to the fees. award of fees by a state court would be incident to this protection of rights.
Filing a petition for bankruptcy automatically stays "the commencement or continuation ... of a judicial, Moreover, the cases cited by Park National itself administrative, or other action or proceeding against the contradict its position that the state court somehow could debtor." 11 U.S.C. § 362(a)(1) (emphasis added). As the not award attorney's fee. See In re Property Management Appellee, UCH, points out, neither the state court a n d In vestm en ts, In c ., 9 1 B .R . 1 7 0 , 1 7 1 judgment nor the Bankruptcy Court's decision ever (Bkrtcy.M.D.Fla.1988) ("At the conclusion of the Circuit mentions the issue of the automatic stay because the Code Court trial, the jury returned a verdict in favor of Johnson the preservation of a bankrupt business, such as rent or Blakely and judgment was entered against [the Debtor] compensation for ongoing, post-petition operations. This PMI. The judgment included costs for attorney's fees and encourages parties to conduct business with a post-petition expenses."); see also In re G.I.C. Government Securities, debtor because such administrative claims are accorded Inc., 121 B.R. 647, 649 (Bkrtcy.M . D.Fla.1990) (Bill of the first level of priority and are paid in full before claims Costs against the Debtor considered by the District Court). in a lower category. The Appellant states that because the By engaging in post-petition litigation, UCH subjected Appellee sought $20 million, the litigation was seeking to itself to the risk of paying prevailing party fees. benefit the estate and therefore its costs should be allowed as administrative expenses.
It appears that the state court, realizing who would ultimately foot the bill anyway, awarded fees against the The use of the word "including" in § 503(b) has guarantor and owner, rather than against his bankrupt allowed courts to grant administrative expense status to businesses. The decision never mentions any issue of an expenditures not listed as one of the specific items in the automatic stay as the reason for this award, and the statute, such as attorney's fees. Moreover, use of the word Bankruptcy Court merely decided that because this "shall" connotes a mandatory intent. In re Celotex, 227 decision did not create any obligation on the Debtor, no F.3d 1336, 1338 (11th Cir.2000). However, other courts entitlement to fees exists. As the state case is now on have found that the administrative expense provision must appeal to the First District Court of Appeal, that is where be narrowly construed, as conflicting with general the issue of whether UCH ought to have been included in presumption that all of a debtor's limited resources will be the judgment should be resolved. Therefore, the equally distributed among its creditors. See In re Rose, Bankruptcy Court's decision not to award fees because no 347 B.R. 284 (Bankr.S.D.Ohio.2006), In re Carco judgment debt exists is not in error. Electronics, 346 B.R. 377 (Bankr.W.D.Pa., 2006).
B. Administrative Claims Under 11 U.S.C. § Under the Bankruptcy Code, only claims arising from However, the Supreme Court case of Reading Co. v. The second argument the Appellant raises is that the Brown, 391 U.S. 471 (1968), greatly expanded the fees and costs it incurred in defending the Debtor's concept of "transaction." In Reading, the Court counterclaims should be allowed as administrative determined that an award of tort damages to victims of a expenses. The allowance of administrative expense claims fire caused by the Chapter 11 receiver's negligence was is governed by 11 U.S.C. § 503, with the subsection entitled to administrative expense priority, despite the fact relevant to this case being 11 U.S.C. § 503(b)(1)(A), that victims did not transact with the receiver, nor did the which states: estate benefit from the event. The Court held that the tort 503(b)(1)(A) post-petition transactions may be granted such priority.
*5 (b) After notice and a hearing, there shall be allowed claims arising post-petition were "actual and necessary administrative expenses, other than claims allowed expenses" of preserving the estate because the statutory under section 502(f) of this title, including- objective of the Code was "fairness to all persons having claims against the insolvent." Id. at 477, 482, 485. This (1)(A) the actual, necessary costs and expenses of case can be read as suggesting that involuntary creditors preserving the estate, including wages, salaries, or of a debtor who have their loss thrust upon them should commissions for services rendered after the have administrative priority out of fairness, despite the commencement of the case.... plain language of the Code.
In order for an expense to be allowed as an 1. Preserving the Estate administrative claim, it must be actual and necessary to the preservation of the debtor's estate and must have been Although greatly expanding the language of the Code, incurred in an effort to benefit the estate as a whole. the Reading decision reflects the core concern of § Section 503 gives priority to creditors who incur costs in 503-equity-with the focus directed on the care and preservation of estate. This concept of "fairness" The decision in Reading, however, would allow such permeates the case law dealing with administrative expenses to be treated as administrative claims if in the expenses, as such expenses are dealt with on a interest of fairness. The Appellant cites two Bankruptcy case-by-case basis. "The central question in determining Court decisions from Judge Paskay that interpreted whether a claim is granted administrative expense priority Reading to allow prevailing party fees as administrative is whether the third party should be paid at the expense of expenses: the debtor's existing unsecured creditors." In re Ybarra, 424 F.3d 1018, 1025 (9th Cir.2005). The focus when There is no question that the suit instituted by the deciding whether to allow an administrative expense claim Trustee against E.F. Hutton was an attempt to benefit is on preventing unjust enrichment of the debtor, and not and preserve a property of the estate. But for the suit on compensating a creditor for its loss. commenced by the Trustee, E.F. Hutton would not have
*6 Therefore, courts look to any actual benefit to the incurred these costs. Therefore, this Court is satisfied estate, rather than to any loss sustained by the creditor. In that these costs are properly chargeable against the re Enron Corp., 279 B.R. 695 (Bankr.S.D.N.Y.2002). The estate as costs of administration. The fact that the Eleventh Circuit has interpreted § 503(b) to require not Trustee was not ultimately successful in the suit against only that the expense be "actual" and "necessary," but also E.F. Hutton does not change this result. that there be a concrete benefit to the debtor's estate. See In re Subscription Television of Greater Atlanta, 789 F.2d In re G.I.C. Government Securities, Inc., 121 B.R. 1530 (11th Cir.1986). It is not enough that the incurring of 647, 649 (Bkrtcy.M.D.Fla.1990), see also, In re Property an expense secured a potential benefit or maintained right Management and Investments, Inc., 91 B.R. 170, 172 to obtain a future benefit for estate, if estate did not (Bkrtcy.M.D.Fla.1988). This views the party opposing the actually make beneficial use of the value received in debtor as an unwilling creditor, much like the tort victims exchange for incurring the expense. In re Right Time in Reading, with equity requiring administrative priority Foods, Inc., 262 B.R. 882, 884 (Bankr.M.D.Fla.2001). for the legal fees incurred in opposing the debtor's attempt "Claims arising under § 503(b)(1)(A) are equitable in to benefit the estate. In the instant case, the Bankruptcy nature and thus are valued by the amount of post-petition Court found that equity did not require treating the benefit the claimant provides to the estate and not attorney's fees incurred by Regency as an administrative necessarily according to the contract terms underlying the expense. Because the record reflects that Regency's claim." In re CM Holdings, Inc., 264 B.R. 141 expenses are secured in full by a bond, and because the (Bankr.D.Del.2000). amount sought to be recovered from UCH was attributable to two other parties, a reasonable person could agree with In the instant case, the Appellant states that because the Bankruptcy Court's decision. Therefore, the the Debtor pursued a $20 million counterclaim, the Debtor Bankruptcy Court did not abuse its discretion in denying sought to benefit the estate, and therefore the fees incurred Park National's administrative claim. opposing the claim should be allowed as administrative expenses. The concern for administrative expenses is the 2. Pre-petition versus Post-petition Transaction benefit the claimant provides to the estate, not what benefit a debtor seeks. Regency incurred the fees not to *7 In order for a claim to be given administrative preserve or benefit the estate, but to preserve its own priority under 11 U.S.C. § 503(b)(1)(A), "the actual, interest in the underlying note. "Generally, a creditor's necessary costs and expenses of preserving the estate" legal fees are not allowable as an administrative expense must be "rendered after the commencement of the case." claim unless the creditor can demonstrate that the legal (emphasis added). This is central idea of an administrative services provided a benefit to the estate ." In re Sports expense-encouraging parties to do business with a debtor Shinko (Florida) Co., Ltd., 333 B.R. 483, 499 in bankruptcy proceedings by giving priority to expenses (Bkrtcy.M.D.Fla., 2005). incurred post-petition. The central argument of UCH, and what Appellant Park National calls a "new argument," is that post-petition legal fees owed by virtue of a pre-petition contract are not entitled to administration In re New Power Co., 313 B.R. 496, 506 priority since they are pre-petition expenses. (Bkrtcy.N.D.Ga.2004). Although not a basis of the
The case law of other circuits appear to support the Bankruptcy Court's decision, because the record supports position taken by UCH. See In re Hemingway Transport, the conclusion that the pre-petition contract alone would Inc., 954 F.2d 1, 5-6 (1st Cir.1992) (holding that attorneys' not justify treating the post-petition attorney's fees as fee claim of prevailing defendant incurred in defending administrative expenses, this provides an independent against Chapter 7 trustee's post-petition action was not ground for affirming the judgment of the Bankruptcy entitled to priority payment as the right to attorney fees Court. See Bustamante v. Cueva (In re Cueva), 371 F.3d arose from executed pre-petition contract, and 232, 236 (5th Cir.2004) (Finding that a court may affirm post-petition action did not benefit estate.); Matter of a bankruptcy court's decision if there are any grounds in Jartran, 732 F.2d 584 (7th Cir.1984) (holding that the record to support the judgment, even if those grounds pre-petition contracts do not trigger administrative were not relied upon by the courts below.) expense priority when the debtor's liability was fixed and irrevocable at the time of filing); In re Abercrombie, 139 IV. Conclusion F.3d 755 (9th Cir.1998) (holding that ...