United States v. First National Bank of Circle
55 A.F.T.R.2d (RIA) 626, 732 F.2d 1444, 1984 U.S. App. LEXIS 22663 (1984)
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Rule of Law:
When a district court denies attorney fees under the Equal Access to Justice Act (EAJA) based on the government's position being substantially justified, it must articulate the specific basis for that finding to enable meaningful appellate review.
Facts:
- In February 1970, the Fort Belknap Indian Community created Fort Belknap Builders, Inc. (Builders) to construct 50 houses for tribal members under a Department of Housing and Urban Development (HUD) contract.
- The First National Bank of Circle (the Bank) and its affiliates loaned $350,000 to the Indian Community, with at least $200,000 provided to Builders for operating capital, secured by proceeds from the HUD contract.
- By the summer of 1970, Builders experienced financial difficulties, leading the Bank to provide additional loans and honor overdrafts, ultimately totaling approximately $600,000.
- Builders ceased operations in November 1971, having paid over $300,000 in wages through its Bank account but failing to pay payroll taxes on these wages for its last five quarters.
- The government contended that the Bank knew Builders would not pay these taxes and thus was liable under 26 U.S.C. § 3505(b), while the Bank claimed it had no such knowledge or control over Builders' finances regarding tax payments.
- Builders officials (e.g., Steve Long) claimed Bank officials controlled Builders' finances and prevented tax payments, while Bank officers denied such knowledge and control.
Procedural Posture:
- In July 1974, the government sued the First National Bank of Circle in federal district court under 26 U.S.C. § 3505(b) to recover federal withholding taxes.
- In 1976, the district court granted summary judgment in favor of the Bank.
- The government appealed the summary judgment, and the Ninth Circuit reversed and remanded the case (556 F.2d 589 (9th Cir.1977)).
- In April 1978, the district court again granted summary judgment for the Bank.
- The government appealed this second summary judgment, and the Ninth Circuit again reversed and remanded, setting out factual issues for trial (652 F.2d 882, 887-89 (9th Cir.1981)).
- After a four-day trial in 1982, the jury found in favor of the Bank.
- The government's motions for judgment n.o.v. or new trial were denied by the district court.
- The Bank applied to the district court for an award of costs and attorney fees totaling $35,982.57 under the EAJA.
- The clerk allowed only court costs and some witness fees totaling $2444.14, and the district court approved this award, denying the attorney fees.
- The Bank appealed the denial of attorney fees to the Ninth Circuit.
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Issue:
Does the Equal Access to Justice Act require a district court to articulate the specific basis for its finding that the government's position was "substantially justified" when denying attorney fees to a prevailing party?
Opinions:
Majority - Eugene A. Wright
Yes, the district court must articulate the basis for finding the government's position substantially justified when denying attorney fees under the EAJA. The EAJA creates a presumption that a prevailing party against the United States will be awarded fees unless the government's position was "substantially justified" or "special circumstances" make an award unjust. While the district court's decision on substantial justification is reviewed for abuse of discretion, the appellate court cannot properly conduct this review without knowing the specific factors and reasoning that led to the district court's conclusion. The test for substantial justification is one of reasonableness, requiring the government to show its case had a reasonable basis both in law and in fact. The court clarified that the government losing the case or appellate reversals of summary judgment do not automatically negate substantial justification. Without the district judge articulating his reasons, the appellate court is left to speculate on what was considered. The court also affirmed that EAJA fees can be recovered for costs incurred prior to the Act's effective date, so long as the action was pending on that date, and that the Allen Amendment is irrelevant if EAJA fees are awarded.
Concurring - Norris
Judge Norris concurred in the result to remand but raised three points of concern. First, he found the majority's discussion of the Bank's arguments against substantial justification inappropriate as it amounted to an advisory opinion given the remand. Second, he questioned the majority's guidance on "special circumstances," particularly the suggestion that the behavior of government counsel is relevant to denying fees to a private party, and criticized the vagueness of the standards for evaluating counsel's actions. Third, and most importantly, he argued that Ninth Circuit precedent applying an abuse of discretion standard to EAJA § 2412(d)(1)(A) decisions is suspect. He contended that the statutory term "shall" indicates a mandatory award of fees unless the objective legal standards of "substantially justified" or "special circumstances" are met, not a discretionary decision. He pointed out that prior cases relied on inapposite authority (LMRDA language using "may") or miscited legislative history that pertained to agency fee awards, not court awards. He suggested that factual determinations should be reviewed for clear error, legal determinations de novo, and mixed questions guided by United States v. McConney.
Analysis:
This case establishes a critical procedural requirement for district courts when applying the EAJA, ensuring transparency and accountability in decisions regarding attorney fee awards against the government. By mandating that district courts articulate their basis for finding "substantial justification," the Ninth Circuit provides a necessary foundation for meaningful appellate review, preventing unreasoned denials of fees. The concurring opinion highlights an important debate regarding the appropriate standard of review for EAJA determinations, suggesting that a purely discretionary standard might be inconsistent with the statute's mandatory language and the nature of legal and factual inquiries involved. This discussion could influence future judicial interpretations of EAJA and the balance between judicial discretion and appellate oversight in statutory fee-shifting cases.
