PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2161
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
515 GRANBY, LLC; MARATHON DEVELOPMENT GROUP, INCORPORATED,
Defendants – Appellants,
and
1.604 ACRES OF LAND, more or less, situate in the City of
Norfolk, Commonwealth of Virginia,
Defendant,
SKYLINE STEEL, LLC,
Claimant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. Norman K. Moon, Senior
District Judge. (2:10-cv-00320-NKM-BWC)
Argued: September 19, 2013 Decided: November 20, 2013
Before DUNCAN and THACKER, Circuit Judges, and Gina M. GROH,
United States District Judge for the Northern District of West
Virginia, sitting by designation.
Vacated and remanded with instructions by published opinion.
Judge Duncan wrote the opinion, in which Judge Thacker and Judge
Groh joined.
ARGUED: William Walter Wilkins, NEXSEN PRUET, Greenville, South
Carolina, for Appellants. Joan M. Pepin, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON
BRIEF: Kirsten E. Small, Andrew Mathias, NEXSEN PRUET, LLC,
Greenville, South Carolina, for Appellants 515 Granby, LLC and
Marathon Development Group, Inc. John C. Lynch, Ethan G.
Ostroff, TROUTMAN SANDERS LLP, Virginia Beach, Virginia, for
Appellant Marathon Development Group, Inc. Joseph T. Waldo,
Stephen J. Clarke, Brian G. Kunze, WALDO AND LYLE, P.C.,
Norfolk, Virginia, for Appellant 515 Granby, LLC. Kris E.
Durmer, General Counsel, Julie A. Holvik, Assistant Regional
Counsel, GENERAL SERVICES ADMINISTRATION, Philadelphia,
Pennsylvania; Ignacia S. Moreno, Assistant Attorney General,
John E. Arbab, Georgia Garthwaite, Kristin R. Muenzen,
Environment & Natural Resources Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C. for Appellee.
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DUNCAN, Circuit Judge:
Appellants 515 Granby, LLC (“Granby”) and Marathon
Development Group, Inc. (“Marathon”) appeal the district court’s
denial of attorney’s fees under the Equal Access to Justice Act
(“EAJA”), 28 U.S.C. § 2412, after prevailing against the United
States on the issue of just compensation in a condemnation
proceeding. The EAJA provides that a party who prevails in
litigation against the United States is entitled to an award of
attorney’s fees and expenses unless “the position of the United
States was substantially justified” or “special circumstances
make an award unjust.” 28 U.S.C. § 2412(d)(1)(A). The district
court determined that, although the prelitigation position of
the United States was admittedly unreasonable, the United
States’ overall position was substantially justified under the
totality of the circumstances. We vacate and remand to the
district court with instructions regarding how to properly weigh
the government’s prelitigation position in determining whether
its position as a whole is substantially justified, and to
consider, if necessary, whether special circumstances exist in
the first instance.
3
I.
A.
Granby owned a 1.604-acre parcel of land in Norfolk,
Virginia, on which it planned to develop luxury condominiums,
retail establishments, and office space. Although the
development project never materialized, Granby made improvements
to the land by preparing the site for construction, including
excavating and installing piles to support a high-rise building.
Granby hired Marathon to manage the development of the parcel.
Marathon held a lien of over $3 million on the property because
of its role in the project. The Bank of the Commonwealth also
financed the development project and had a lien on the property.
The United States was interested in obtaining Granby’s
parcel in order to expand the federal court building in Norfolk.
The United States conducted two appraisals of the property. In
2008, appraisers valued it at $7 million. After the economic
downturn, it was reappraised in 2009 at a value of $6.175
million. The United States instructed the appraiser in each
instance to assess the property as if it were vacant--that is,
to ignore any improvements to the land.
After negotiations to purchase the 1.604-acre parcel
failed, the United States initiated a condemnation proceeding in
4
2010 to acquire it by eminent domain. 1 See U.S. Const. amend. V;
40 U.S.C. § 3113. Based on the 2009 appraisal, the United
States offered $6.175 million as just compensation and deposited
that amount with the court. Granby rejected the offer and the
case proceeded toward trial on the issue of just compensation
under the Fifth Amendment’s Takings Clause. Because of its
lien, the United States joined Marathon as a party to the
action; other lienholders were put on notice as interested
parties but were not joined. Marathon participated in the
lawsuit, but relied on Granby’s valuations of the property’s
fair market value.
Granby obtained two appraisals valuing the land at $36.1
million and $30.7 million, respectively. These appraisals were
based, in part, on a variety of valuation techniques that the
United States opposed, such as valuing the land at its best use
and including the value of the developer’s entrepreneurial
incentive. The district court ultimately granted most of the
government’s motions to exclude certain types of valuation
evidence. As a result, Granby lowered its valuation to $16.32
million shortly before trial.
1
Because the condemnation proceeding relates to one of the
court buildings for the Eastern District of Virginia, Judge
Norman K. Moon of the Western District of Virginia was assigned
to the case.
5
The government ordered a new appraisal for its trial
valuation of the property, this time including improvements to
the land, which raised its value to $9 million. Each of the
parties rejected last-minute settlement offers: the government
offered $9.4 million and Granby offered $15.4 million.
B.
The matter was tried before a jury, which heard evidence
relating to Granby’s asserted value of $16.32 million and the
United States’ asserted value of $9 million. The jury returned
a verdict of $13,401,741 as just compensation.
Granby and Marathon each applied for attorney’s fees under
the EAJA, asserting that they were entitled to such fees because
they prevailed in an action against the United States and the
other requirements of the EAJA were met. The “prevailing party”
in an eminent-domain proceeding is the party whose highest trial
valuation of the property is closest to the final judgment. 28
U.S.C. § 2412(d)(2)(H). Here, the jury’s verdict of $13.4
million was closer to Granby’s valuation of $16.3 million than
it was to the government’s valuation of $9 million. That Granby
and Marathon prevailed is not contested.
The United States opposed an award of attorney’s fees on
the grounds that the government’s position was substantially
justified and special circumstances existed that would make the
award of fees unjust. The issue was referred to a magistrate
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judge, who recommended that both Granby and Marathon were
eligible for fees, costs, and other expenses under the EAJA
because the government’s position was not substantially
justified and there were no special circumstances. The district
court rejected the magistrate judge’s recommendation. Because
it found that the government’s position was substantially
justified, it did not reach the question of special
circumstances. This appeal followed.
II.
The arguments on appeal mirror those before the district
court. Appellants argue that the government’s position was not
substantially justified because an unreasonable prelitigation
position should automatically foreclose a court from finding
substantial justification. They contend that the district court
erred by considering their financial ability to litigate and the
reasonableness of their position. 2 Appellants also ask us to
find, as a matter of law, that there are no special
circumstances that would make an award unjust. Because the
district court did not reach the question of special
circumstances, we do not address it here.
2
We have considered the appellants’ argument regarding the
district court’s characterization of Marathon’s status and find
it to be without merit.
7
We review the district court’s denial of attorney’s fees
under the EAJA for abuse of discretion. Pierce v. Underwood,
487 U.S. 552, 562–63 (1988). A district court abuses its
discretion when it makes an error of law. United States v.
Basham, 561 F.3d 302, 326 (4th Cir. 2009). Although this
standard is deferential, it is not merely “a simple, accept-on-
faith, rubber-stamping of district court decisions” regarding
fees under the EAJA. United States v. Paisley, 957 F.2d 1161,
1166 (4th Cir. 1992).
A.
As we have stated, the EAJA provides that parties who
prevail in litigation against the government are entitled to an
award of attorney’s fees and other expenses “unless the court
finds that the position of the United States was substantially
justified or that special circumstances make an award unjust.”
28 U.S.C. § 2412(d)(1)(A). The United States has the burden of
showing that its position was substantially justified. EEOC v.
Clay Printing Co., 13 F.3d 813, 815 (4th Cir. 1994).
We have held that a position is “substantially justified”
when it has a “reasonable basis in law and fact.” Cody v.
Caterisano, 631 F.3d 136, 141 (4th Cir. 2011) (quoting Pierce,
487 U.S. at 566 n.2). In Pierce, the Supreme Court clarified
that the EAJA’s use of “substantially justified” is similar to
its use in other statutes, in which it has been defined as
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“justified to a degree that could satisfy a reasonable person”
and as “more than merely undeserving of sanctions for
frivolousness.” 487 U.S. at 565–66. In the eminent-domain
context, a position is substantially justified when “the
government’s refusal to offer more to the property owners as
just compensation ha[s] a reasonable basis in fact and in law.”
In re Lamson (Lamson I), No. 94-1249, 1995 WL 54025, at *4 (4th
Cir. Feb. 10, 1995).
While seeming relatively straightforward, “determining
whether the government’s position is substantially justified . .
. ‘has proved to be an issue of considerable conceptual and
practical difficulty.’” Roanoke River Basin Ass’n v. Hudson,
991 F.2d 132, 138 (4th Cir. 1993) (quoting Paisley, 957 F.2d at
1165). In particular, we have found little guidance on the
specific question of balancing the government’s prelitigation
and litigation postures in a case, such as ours, where they
differ.
Limited guidance notwithstanding, we have no difficulty
concluding that the government’s prelitigation and litigation
postures together comprise, in the words of the statute, “the
position of the United States.” 3 As the Supreme Court has
3
Significantly, the EAJA defines the government’s position
as “the position taken by the United States in the civil action”
(Continued)
9
elaborated, courts must undertake “a single evaluation of past
conduct” that examines the “case as an inclusive whole, rather
than as atomized line-items.” Comm’r, INS v. Jean, 496 U.S.
154, 159 n.7, 162 (1990). Moreover, although not directed to
the specific question at hand, we have noted the necessity to
“look beyond the issue on which the petitioner prevailed to
determine, from the totality of the circumstances, whether the
government acted reasonably in causing the litigation or in
taking a stance during the litigation.” Roanoke River Basin
Ass’n, 991 F.3d at 139.
Having recognized the need to consider both the
government’s prelitigation and litigation positions, we now turn
to the more challenging question of how to assess substantial
justification when the government’s prelitigation position was
unreasonable but its litigation position was reasonable. 4 For
as well as “the action or failure to act by the agency upon
which the civil action is based.” 28 U.S.C. § 2412(d)(2)(D).
4
It is the multiple stages of this case that significantly
complicated the district court’s task of analyzing the totality
of the circumstances in the usual manner. Often, as in Roanoke
River Basin Ass’n, the district court must examine the
reasonableness of the government’s position on multiple issues
to determine whether it was, as a whole, substantially
justified. 991 F.3d at 138–39. Here, on the other hand, the
district court has to balance two different positions on the
single issue presented in the case, which grafts an extra layer
onto our traditional analysis.
10
this analysis, we can draw guidance from the views of our sister
circuits, who have addressed the question directly, albeit with
differing results. Some have gone as far as stating that a
reasonable litigation position can never cure an unreasonable
prelitigation stance. For example, the Second Circuit stated,
“[I]f the underlying Government position is not substantially
justified, a court must award fees . . . even if the
Government’s litigation position is itself reasonable when
considered alone.” Smith v. Bowen, 867 F.2d 731, 734 (2d Cir.
1989); see also Morgan v. Perry, 142 F.3d 670, 684 (3d Cir.
1998). Other circuits have emphasized the importance of the
prelitigation position without creating a bright-line rule.
E.g., Hackett v. Barnhart, 475 F.3d 1166, 1174 (10th Cir. 2007);
United States v. Marolf, 277 F.3d 1156, 1164 n.5 (9th Cir.
2002); Marcus v. Shalala, 17 F.3d 1033, 1036 (7th Cir. 1994).
As we elaborate below, we endorse the latter approach as
consistent with our precedent generally and truer to the dual
purposes of the EAJA: providing incentives for private parties
to vindicate their rights in the judicial system and creating a
check on government action. Sullivan v. Hudson, 490 U.S. 877,
883 (1989); see also H.R. Rep. 96-1418, at 9–10 (1980).
In assessing the reasonableness of awards of attorney’s
fees under the EAJA, we have recognized that “Congress intended
to address governmental misconduct whether that conduct preceded
11
litigation, compelling a private party to take legal action, or
occurred in the context of an ongoing case through prosecution
or defense of unreasonable positions.” Roanoke River Basin
Ass’n, 991 F.2d at 138. We have also held, more specifically,
that when the government’s unjustified prelitigation position
forces a lawsuit, the petitioner may recover fees under the EAJA
for the entire suit, even if the government’s litigation
position was reasonable. Thompson v. Sullivan, 980 F.2d 280,
281 (4th Cir. 1992); see also Roanoke River Basin Ass’n, 991
F.2d at 139 (stating that substantial justification “focuses .
. . on the reasonableness of [the government’s] position in
bringing about or continuing the litigation”) (emphasis added).
Furthermore, Congress amended the EAJA in 1985, in part, to
emphasize the significance of the government’s prelitigation
stance. Act of August 5, 1985, Pub. L. No. 99-80, 99 Stat. 183.
The legislative history of those amendments specifically notes
that the EAJA was designed to prevent the government from
unjustifiably forcing litigation, then avoiding liability by
acting reasonably during the litigation. H.R. Rep. No. 98-992,
at 9 (1984); see also Jean, 496 U.S. at 159 n.7. Such a
strategy of “curing” a purposefully unreasonable prelitigation
position would be particularly problematic in the context of an
eminent-domain proceeding because the government is required to
pay just compensation for a taking under the Fifth Amendment and
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42 U.S.C. § 4651. See also United States v. Miller, 317 U.S.
369, 373 (1943) (defining just compensation as fair market
value).
B.
In light of the principles discussed above, we are
constrained to conclude that the district court did not properly
weigh the effect of the government’s unreasonable prelitigation
position, particularly given the government’s burden of proof. 5
We therefore vacate and remand for a reexamination of the effect
of the government’s prelitigation position using the framework
provided below.
In short, we adopt the view that an unreasonable
prelitigation position will generally lead to an award of
attorney’s fees under the EAJA. If the government’s position
changes, the court must independently determine whether its
prelitigation and litigation positions were reasonable. If the
government’s prelitigation position is unreasonable and its
litigation position reasonable, the government must then prove
that the unreasonable position did not “force” the litigation or
substantially alter the course of the litigation.
5
In doing so, we imply no criticism of the district court
because our guidance on substantial justification in this
context has been less than clear.
13
For each government valuation position in a condemnation
proceeding, the district court should start by asking “whether
the government’s refusal to offer more to the property owners as
just compensation had a reasonable basis in fact and law.”
Lamson I, 1995 WL 54025, at *4. In making this assessment, the
court should examine such factors as: the experience,
qualifications, and competence of appraisers; whether there is
evidence of bad faith on the part of the government; the
relationship of the government’s various appraisals to each
other; the government’s explanations for changes in its asserted
valuations; and the severity of the alleged governmental
misconduct. See generally Roanoke River Basin Ass’n, 991 F.2d
at 139; United States v. 312.50 Acres of Land, 851 F.2d 117,
118–19 (4th Cir. 1988); United States v. Lamson (Lamson II), No.
95-2770, 1996 WL 393171, *2 (4th Cir. July 15, 1996) (per
curiam); Lamson I, 1995 WL 54025, at *4.
If the district court finds that the government’s
prelitigation valuation position was unreasonable but its
litigation posture reasonable, the court must then assess the
effect of the prelitigation position on the action for just
compensation. One important, but not determinative, factor is
the extent to which the government misconduct “compell[ed] a
party to resort to litigation or to prolong litigation.”
Roanoke River Basin Ass’n, 991 F.2d at 138. Assessing the
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effect of the government’s misconduct will necessarily vary
based on the particularities of the case, but could include an
examination of precondemnation negotiations, discovery, pretrial
motions practice, and settlement negotiations. To be clear,
because the government has the burden of proving substantial
justification, it has the onus of justifying the changes in its
valuation figures. See Lamson I, 1995 WL 54025, at *4; see also
Clay Printing Co., 13 F.3d at 815.
The financial state of the prevailing party, however, is
not relevant in determining substantial justification. Because
the EAJA itself defines which parties are eligible for EAJA fee
awards, the district court may not consider whether a party who
otherwise meets the statutory threshold “needs” fees in order to
litigate. See 28 U.S.C. § 2412(d)(2)(B). Additionally, the
district court may not determine that the government’s position
is substantially justified simply because it is more reasonable
than the private litigant’s. See Jean, 496 U.S. at 165 (stating
that the substantial-justification requirement “properly focuses
on the governmental misconduct giving rise to the litigation”)
(emphasis added). In other words, the prevailing party’s
position is relevant only to the extent that it is necessary to
15
identify the effects of the government’s unreasonable
prelitigation position. 6
The conduct of the prevailing party may also become
important at a later stage of the EAJA fee process: assessing
the amount of fees to be awarded after the district court makes
the “threshold determination” on substantial justification. See
Jean, 496 U.S. at 159. Once the threshold substantial-
justification determination is made, a sizeable award of
attorney’s fees and expenses is not automatic. Id. at 163. If
the petitioning party is entitled to fees and expenses, the
district court has considerable discretion in determining the
amount of the fee award. See id. at 161 n.9 (noting that, in
practice, district courts often do not grant the full amount of
attorney’s fees that parties request).
The EAJA specifically grants district courts the discretion
to reduce or deny an award “to the extent that the prevailing
6
Although the district court found the notion that Granby
and Marathon were compelled to trial to vindicate their rights
to be “fallacious,” J.A. 351, it did so by inappropriately
comparing the positions of the government and appellants at the
substantial-justification stage, see Estate of Baird v. Comm’r,
416 F.3d 442, 453–54 (5th Cir. 2005) (noting that the court
should only consider whether the government’s, not the private
party’s, position remained consistent). For example, the
district court considered the fact that the government’s motions
practice caused appellants to significantly lower their trial
valuation and the fact that this reduction was greater than the
change in the government’s valuations. J.A. 349, 351–52.
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party . . . unduly and unreasonably protracted the final
resolution of the matter in controversy.” 28 U.S.C. §
2412(d)(1)(C). The Supreme Court has also instructed courts to
assess the fees and expenses to be awarded in light of the
petitioning litigant’s success. Jean, 496 U.S. at 163 n.10; see
generally Hensley v. Eckerhart, 461 U.S. 424, 436 (1983).
Therefore, the district court may consider the prevailing
party’s litigation conduct--that is, the reasonableness of their
position--in the determination of the fee award amount, rather
than in the determination of the party’s threshold eligibility
for fees under the EAJA.
III.
For the reasons stated above, we vacate the district
court’s opinion and remand for a reexamination of substantial
justification. The issue of special circumstances under the
EAJA was not before us because the trial court made no finding
on that issue. If necessary on remand, the district court
should also consider whether special circumstances would make an
award of attorney’s fees unjust.
VACATED AND REMANDED
WITH INSTRUCTIONS
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