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Shaw v. United States

United States District Court, D. New Mexico

July 26, 2018


          David J. Jaramillo, Kelly A. Stout Sanchez Martinez, Maria E. Touchet Touchet Law Firm, P.C. Albuquerque, New Mexico Attorneys for the Plaintiff

          John C. Anderson United States Attorney Erin Langenwalter Ruth Fuess Keegan Assistant United States Attorneys United States Attorney's Office Albuquerque, New Mexico Attorneys for the Defendant


         THIS MATTER comes before the Court on the Unopposed Motion for Approval of the Settlement of Plaintiff Troy Dwayne Shaw's Claims, filed June 6, 2018 (Doc. 74)(“Motion”). The Court held a hearing on June 11, 2018. The primary issue is whether Plaintiff Troy Dwayne Shaw's attorneys may recover, in a settlement agreement, New Mexico gross receipts tax payments beyond the twenty-five percent attorney's fees cap in the Federal Tort Claims Act, 28 U.S.C. § 2678 (“FTCA”). The Court concludes that gross receipts tax obligations are neither taxable costs nor attorney's fees, so passing those obligations on to FTCA plaintiffs does not implicate the FTCA's attorney's fees cap. Accordingly, the Court will grant the Motion and approve Shaw's settlement.


         This case began following an alleged sexual assault. Shaw was a patient at the Veteran's Administration Medical Center (“VA Hospital”) in Albuquerque, New Mexico, where he was seeking treatment for mental health problems. Second Amended Report of the Guardian ad Litem at 1-2, filed June 12, 2018 (Doc. 77)(“Report”). During the early morning hours of January 13, 2016, another patient “was permitted to wander the halls of the Ward and enter Mr. Shaw's room, ” where he allegedly sexually assaulted Shaw. Report at 1.


         Shaw sues Defendant United States of America under the FTCA, alleging that the VA Hospital's negligence caused the assault. See Complaint to Recover Damages for Personal Injury ¶ 34, at 6, filed February 1, 2017 (Doc. 1)(“Complaint”). The Court appointed a guardian ad litem (“GAL”), because Shaw was “committed to the Las Vegas Behavioral Health Institute during the pendency of this case.” Report at 2-3. See Order to Appoint Guardian ad Litem at 1, filed August 14, 2017 (Doc. 23). More specifically, Shaw has “been determined to be 100% disabled as a result of PTSD from . . . military sexual trauma.” Report at 2. After discovery, the parties agreed to settle the case for $150, 000.00. See Report at 3. The GAL recommends that Shaw's attorneys be awarded $37, 500.00 in attorney's fees -- twenty-five percent of the settlement -- plus gross receipts tax payments of $2, 812.50, and costs of $16, 249.32. See Report at 7. The GAL states: “These costs include filing fees, expert fees, travel expenses, and deposition fees.” Report at 7. The GAL further recommends that the Court approve the settlement. See Report at 7. In the Motion, the parties ask the Court to approve the settlement. See Motion at 1-2.

         1. The Hearing.

         The Court held a hearing on June 11, 2018. See Draft Transcript of Motion Hearing at 1:9-11 (taken June 11, 2018)(“Tr.”)(Court).[1] The Court began by stating that the one question it had about the proposed settlement involved the gross receipts tax. See Tr. at 4:10-11 (Court). Specifically, the Court questioned whether the New Mexico gross receipts tax should be considered part of the attorney's fee or a separate cost for FTCA purposes. See Tr. at 4:14-15 (Court). Shaw responded that he was unsure how gross receipts payments should be classified. See Tr. at 5:14-17 (Touchet). The United States asserted that gross receipts payments should be included within the FTCA's twenty-five percent cap on attorney's fees. See Tr. at 6:10-13 (Langenwalter). The United States continued that, “if they are going to call it out separately, then it needs to be included within the 25 percent. If they want to call it out as costs with their client, then that's an issue on a settlement of this size that I'm not going to get involved in.” Tr. at 6:23-7:2 (Langenwalter). The United States added that, if this case involved a one million dollar settlement, gross receipts would be included as part of attorney's fees. See Tr. at 7:9-11 (Langenwalter).

         Shaw's GAL, Timothy White, responded that state law should determine whether gross receipts payments are costs or attorney's fees. See Tr. at 8:15-17 (White). The Court replied that federal law will decide what a fee is within the FTCA's meaning, although state law “may be of interest in determining what a gross receipts tax is.” Tr. at 9:4-9 (Court). The Court continued that

I'm not sure that you can just . . . call something a cost if it's not -- if it's not a cost. That's something that I'm struggling with a little bit in the sense that the way New Mexico structures its gross receipts tax, it's not probably a real cost. It's, instead, something that falls upon the taxpayer. I mean, it falls no differently than the federal income tax.

Tr. at 9:22-10:2 (Court). The Court then asked Mr. White to discuss the rest of the settlement. See Tr. at 10:8-9 (Court). Mr. White recommended that the Court approve the settlement, stating that “we all believe that this is in Troy's best interest to be able to settle this case now under the proposal that's been presented to the Court.” Tr. at 10:23-25 (White). The Court replied that the settlement is a good resolution to the case and that it questions only the gross receipts tax issue. See Tr. at 11:14-25 (Court). At the hearing's conclusion, the Court invited the parties to submit to the Court any authorities on the gross receipts tax issue. See Tr. at 11:19-22 (Court).

         2. The Letter.

         After the hearing, the United States submitted a letter to the Court. See Letter from Assistant United States Attorney Erin E. Langenwalter to the Court at 1-3 (dated June 11, 2018), filed July 25, 2018 (Doc. 78)(“Letter”). In the Letter, the United States asserts that, “in the absence of state law treating the tax payment as a litigation cost, ” the gross receipts tax should be included in the FTCA's twenty-five percent cap. Letter at 2. The United States notes that it cannot find any New Mexico or United States Court of Appeals for the Tenth Circuit cases regarding the gross receipts tax's treatment under the FTCA, but it asserts that at least one judge has held that gross receipts tax payments are not “fees and expenses” within the meaning of the Equal Access to Justice Act., 28 U.S.C. 2412(d)(2)(A). Letter at 2 (citing N.L.R.B. v. Pueblo of San Juan, 305 F.Supp.2d 1229, 1238 (D.N.M. 2003)(Vazquez, C.J.)). The Letter further notes that the Tenth Circuit has held that a district court did not abuse its discretion in disallowing gross receipts tax recovery in a Truth in Lending Act[2] case. See Letter at 2 (citing Herrera v. First Northern Savings & Loan Ass'n, 805 F.2d 896, 902 (10th Cir. 1986)). The Letter concludes that the gross receipts tax “should be included in the 25% limitation on fees under the FTCA so as not to subject [the United States] to having to prosecute a claim on behalf of a plaintiff who later argues the fees unauthorized.” Letter at 2-3.


         As with any jurisdictional issue, the party bringing the suit against the United States bears the burden of proving that Congress has waived sovereign immunity. See James v. United States, 970 F.2d 750, 753 (10th Cir. 1992). It is “axiomatic that the United States may not be sued without its consent and that the existence of consent is a prerequisite for jurisdiction.” United States v. Mitchell, 463 U.S. 206, 212 (1983). “Challenges to jurisdiction can . . . be raised at any time prior to final judgment.” Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 571 (2004)(citing Capron v. Van Noorden, 6 U.S. (2 Cranch) 126 (1804)).

         The terms of the United States' consent define the parameters of federal court jurisdiction to entertain suits brought against it. See United States v. Orleans, 425 U.S. 807, 814 (1976); Ewell v. United States, 776 F.2d 246, 248 (10th Cir. 1985). When the United States waives its immunity from suit, a court should neither narrow the waiver nor “take it upon [itself] to extend the waiver beyond that which Congress intended.” Smith v. United States, 507 U.S. at 203 (quoting United States v. Kubrick, 444 U.S. 111, 117-18 (1979)).

         In 1948, Congress enacted the FTCA, which waives the United States' sovereign immunity for certain torts that federal employees commit. See FDIC v. Meyer, 510 U.S. 471, 475 (1994). Congress waives sovereign immunity only for certain torts that United States employees cause while acting within the scope of their office or of their employment. See 28 U.S.C. § 1346(b); Warren v. United States, 244 F.Supp.3d 1173, 1212 (D.N.M. 2017)(Browning, J.).

         1. Exhaustion ...

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