Securitypoint Holdings, Inc. v. Transportation Security Administration

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Decided September 2, 2016

No. 13-1068

SECURITYPOINT HOLDINGS, INC.,
PETITIONER

v.

TRANSPORTATION SECURITY ADMINISTRATION,
RESPONDENT

On Motion for Attorneys’ Fees under
the Federal Equal Access to Justice Act

Don J. Pelto, Bradley Graveline, and Laura M. Burson
were on the motion for attorneys’ fees under the Federal
Equal Access to Justice Act and the supplemental briefs for
petitioner.

Benjamin C. Mizer, Principal Deputy Assistant Attorney
General, and Mark B. Stern and John S. Koppel, Attorneys,
U.S. Department of Justice, were on the response in
opposition and the supplemental briefs for respondent.

Before: HENDERSON and SRINIVASAN, Circuit Judges,
and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.
 2

WILLIAMS, Senior Circuit Judge: In SecurityPoint
Holdings, Inc. v. TSA, 769 F.3d 1184 (D.C. Cir. 2014), we
vacated an order of the Transportation Security
Administration for want of reasoned decisionmaking and
remanded the case for further proceedings. SecurityPoint now
seeks an award of attorneys’ fees as a prevailing party under
the Equal Access to Justice Act (“EAJA”), 28 U.S.C.
§ 2412(d)(1)(A) (2012). We conclude that SecurityPoint is a
prevailing party and, in doing so, overrule Waterman
Steamship Corp. v. Maritime Subsidy Board, 901 F.2d 1119
(D.C. Cir. 1990), as inconsistent with the Supreme Court’s
later decision in Shalala v. Schaefer, 509 U.S. 292 (1993).1
We also conclude that the challenged order was not
substantially justified. But because SecurityPoint achieved
only a partial success in the litigation, we award only a
portion of the fees sought.

* * *

Our merits decision in SecurityPoint Holdings concerned
an advertising program at airport security checkpoints in
which participating airports, under a Memorandum of
Understanding (“MOU”) with TSA, would contract with
private companies like SecurityPoint to obtain bins and other
equipment for use at checkpoints. In exchange, the private
companies would receive a portion of the revenue from
advertisements displayed inside the checkpoint bins.

In 2012 TSA amended its template for such MOUs to
include, among other things, a provision requiring airports to

1
Because this part of our opinion rejects a prior statement of
circuit precedent, it has been considered separately and approved by
the full court. See Irons v. Diamond, 670 F.2d 265, 268 n.11 (D.C.
Cir. 1981). (Chief Judge Garland did not participate in this matter.)
 3

indemnify TSA from liability for intellectual property claims.
SecurityPoint opposed these changes and requested that TSA
cease and desist from implementing them. TSA refused,
prompting SecurityPoint to seek review in this court. We
granted SecurityPoint’s petition for review, vacated the denial
of the cease-and-desist request as arbitrary and capricious, and
remanded the case to TSA. We didn’t reach SecurityPoint’s
principal claim—that TSA had amended the MOU template in
retaliation for SecurityPoint’s patent infringement lawsuit
against TSA—but held that “TSA’s explanation for persisting
in the change, in the face of SecurityPoint’s arguments that
the change was unnecessary and self-defeating for TSA, failed
to satisfy the minimum requirements of reasoned
decisionmaking.” SecurityPoint Holdings, 769 F.3d at 1186.

After our decision issued, SecurityPoint filed a timely
application for attorneys’ fees under the EAJA. We deferred
consideration of the application pending TSA’s actions on
remand. After the proceedings on remand were completed,
the parties submitted additional briefs on the fee motion and,
at our request, filed briefs discussing whether the Waterman
case should be overruled.2

* * *

The EAJA directs a court to award “fees and other
expenses” to a “prevailing party” in a civil action against the
United States unless the government’s position was
“substantially justified” or “special circumstances make an
award unjust.” 28 U.S.C. § 2412(d)(1)(A). “[F]ees and other

2
In December 2015 SecurityPoint filed a new petition for
review in this court challenging TSA’s response on remand.
SecurityPoint Holdings, Inc. v. TSA, 15-1449 (D.C. Cir., Dec. 14,
2015).
 4

expenses” include “reasonable attorney fees.” Id.
§ 2412(d)(2)(A). A fee application must be filed within 30
days from entry of final judgment, id. § 2412(d)(1)(B),
defined under the EAJA as “a judgment that is final and not
appealable,” id. § 2412(d)(2)(G). (A final judgment is not
appealable within the meaning of this provision if the time for
appeal has expired without one being filed. Melkonyan v.
Sullivan, 501 U.S. 89, 96 (1991); see also Al-Harbi v. INS,
284 F.3d 1080, 1083-84 (9th Cir. 2002) (considering the
opportunity to apply for certiorari).)

In determining whether a litigant is a prevailing party, we
apply a three-part test: “(1) there must be a court-ordered
change in the legal relationship of the parties; (2) the
judgment must be in favor of the party seeking the fees; and
(3) the judicial pronouncement must be accompanied by
judicial relief.” Initiative & Referendum Inst. v. USPS, 794
F.3d 21, 23-24 (D.C. Cir. 2015) (citation and internal
quotation marks omitted). Our 2014 decision clearly satisfies
the second and third requirements. The question is whether
the decision effected “a court-ordered change in the legal
relationship of the parties.”

Relying principally on Waterman, TSA argues that
SecurityPoint is not a prevailing party because it achieved a
“purely procedural victory.” TSA Original Br. 3. That
appears to be a correct reading of Waterman. There the
Maritime Subsidy Board granted U.S. Lines authority to
conduct unsubsidized around-the-world shipping service
without giving competing companies an opportunity to contest
the grant. The competitors sued the Board in district court,
which found an abuse of discretion in the Board’s refusal to
entertain their objections; the district court remanded the case
and thereby afforded the competitors the missed opportunity
to contest the grant. While the remand was pending before
the Board, the district court awarded the competitors
 5

attorneys’ fees under the EAJA. This court reversed, holding
that such a procedural victory didn’t make the plaintiffs
prevailing parties. We reasoned that “[f]rom a party’s
viewpoint . . . correct procedures and use of correct
substantive standards are largely (if not entirely) instruments
to a desired end—a change in someone’s primary conduct in
the real world: relief from a restriction, grant of a benefit,
imposition of a restriction on others, etc.” 901 F.2d at 1122.
The remand in Waterman wasn’t enough, we said, because it
didn’t confer on the plaintiffs any “benefit in the real world,
outside the judicial/administrative process.” Id. at 1123.
Rather, the remand merely “increased the odds” of ultimately
obtaining such a benefit, which we saw as insufficient. Id.

In reaching this result, Waterman relied a good deal on
the Supreme Court’s decision in Sullivan v. Hudson, 490 U.S.
877 (1989). There the Court considered whether a Social
Security claimant was entitled to fees incurred during the
administrative phase of the proceedings. The claimant had
lost at the administrative level, secured a remand from the
courts on the ground that the agency had failed to follow its
own regulations, and finally prevailed on remand. In holding
that the claimant was entitled to recover fees for the
proceedings on remand, the Court observed that where the
remand didn’t “necessarily dictate the receipt of benefits, the
claimant will not normally attain ‘prevailing party’ status . . .
until after the result of the administrative proceedings is
known.” Id. at 886. Further: “We think it clear that . . . a
Social Security claimant would not, as a general matter, be a
prevailing party within the meaning of the EAJA merely
because a court had remanded the action to the agency for
further proceedings.” Id. at 887. Waterman invoked both of
these passages, saying that “[a]lthough the Sullivan decision is
not a direct holding on the issue before us, the analysis
appears a critical step in support of the Court’s holding and
 6

we see no reason not to take it seriously.” Waterman, 901
F.2d at 1122.

In Shalala v. Schaefer, 509 U.S. 292 (1993), however, the
Court made clear that Hudson turned on the fact that the
district court had retained jurisdiction during the remand to
the agency. See id. at 299, quoting the penultimate sentence
of Hudson. Schaefer had appealed from a denial of Social
Security benefits and secured a remand based on agency error.
After he was granted benefits on remand, he sought attorneys’
fees as a prevailing party. The issue for the Court was
whether his application was timely under the EAJA’s 30-day
clock. The answer, the Court explained, turned on a
distinction between a “sentence-four” remand and a
“sentence-six” remand under § 205(g) of the Social Security
Act, 42 U.S.C. § 405(g). (The labels refer to the sentences of
§ 405(g).) The crucial difference is that a “sentence-four”
remand is accompanied by immediate entry of judgment,
whereas a “sentence-six” remand entails the court’s retaining
jurisdiction and entering judgment only after completion of
the remand and post-remand proceedings. See Schaefer, 509
U.S. at 297. The Court held that a sentence-four remand order
was a “final judgment” triggering the 30-day clock to seek
fees. (Curiously, Hudson itself was a sentence-four remand
with retention of jurisdiction, which was improper under the
Court’s reading of § 405(g). Id. at 299-300.)

Critically, the Court rejected the argument that a remand
order could not be considered a final judgment “since a Social
Security claimant does not ‘prevail’ until he is awarded Social
Security benefits.” Id. at 300. To the contrary, the Court said,
by “[o]btaining a sentence-four judgment reversing the
Secretary’s denial of benefits,” the plaintiff achieved “some of
the benefit . . . sought in bringing suit” and thereby obtained
prevailing-party status. Id. at 302 (citation and internal
quotation marks omitted). According to the Schaefer Court,
 7

Hudson’s “dicta” to the contrary—dicta on which Waterman
relied—“simply failed to recognize the distinction between a
sentence-four remand, which terminates the litigation with
victory for the plaintiff, and a sentence-six remand, which
does not.” Id. at 301. (The Court was plainly not using
“litigation” in one of the colloquial senses of the term, where
it encompasses whatever cases may be filed in resolution of
the parties’ overall dispute.)

Schaefer is fatal to Waterman’s idea that to “prevail” a
party must obtain a change in the opposing party’s “primary
conduct,” such as, in the agency context, “relief from a
restriction, grant of a benefit, imposition of a restriction on
others, etc.” 901 F.2d at 1122. Schaefer itself involved a
remand based on agency error, and the Court deemed it
sufficient, expressing no view whatever as to the probability
(much less a certainty) that it would lead to a grant of the
benefit applied for. Just like the sentence-four remand in
Schaefer, our 2014 decision in SecurityPoint “terminate[d] the
litigation with victory for the [petitioner],” Schaefer, 509 U.S.
at 301: we granted SecurityPoint’s petition for review, set
aside the challenged order as arbitrary and capricious, and
remanded the case to the agency for further review (without
retaining jurisdiction). See CIRCUIT RULE 41(b) (drawing a
distinction between, on the one hand, remanding a record and
retaining jurisdiction and, on the other, remanding a case and
terminating the action). Thus SecurityPoint achieved “some
of the benefit . . . sought in bringing suit,” which is all that’s
required. Schaefer, 509 U.S. at 302 (citation and internal
quotation marks omitted). By vacating the challenged order
and placing the agency under an obligation to consider the
cease-and-desist request afresh and supply new or better
reasons should it decide to deny the request again, our
decision effectuated “a court-ordered change in the legal
relationship of the parties.” Initiative & Referendum Inst.,
794 F.3d at 23.
 8

Though Schaefer is enough to require overruling of
Waterman, another subsequent decision, Buckhannon Bd. &
Care Home, Inc. v. W. Virginia Dep’t of Health & Human
Res., 532 U.S. 598 (2001), made clear that Waterman’s
attempted focus on impact in “the real world” was no longer
sustainable. Rejecting the so-called “catalyst theory,”
Buckhannon held that a plaintiff doesn’t become “prevailing”
merely because “the lawsuit brought about a voluntary change
in the defendant’s conduct.” Id. at 600. Applied in a court
following Waterman, Buckhannon would appear to block an
award of fees even if a judicial remand on a procedural point
led to an agency change completely meeting the plaintiffs’
substantive concerns. Cf. Initiative & Referendum Inst., 794
F.3d at 23-25 (awarding fees where the terms of the remand
made the plaintiffs’ substantive victory inevitable).

TSA contends that “[t]he distinction Schaefer drew in the
Social Security context . . . makes little sense in the broader
framework of APA review” because “it would lead to the
anomalous result that someone who secured a remand without
retention of jurisdiction would be a ‘prevailing party,’ while
someone who secured a remand with retention of jurisdiction
would not.” TSA Second Suppl. Br. 6. Apart from being
precisely the line drawn in Schaefer, the distinction is in no
way “anomalous.” When a court retains jurisdiction, the civil
action remains ongoing, and any fee motion must await final
judgment. In such a case, the remand order is only an interim
victory; final judgment will not be entered until proceedings
on remand conclude, and the determination of prevailing-
party status properly awaits the sequel (e.g., an outcome at the
agency favorable to the plaintiff, as in Hudson, 490 U.S. at
881-82, or continued dispute in court). By contrast, when a
court remands a case based on agency error without retaining
jurisdiction, the case is terminated and the petitioner becomes
a prevailing party without regard to the outcome on remand
(which can be challenged by way of a new petition, as
 9

happened here). Cf. Former Employees of Motorola Ceramic
Products v. United States, 336 F.3d 1360, 1366 (Fed. Cir.
2003).

TSA tries to analogize the remand in this case to interim
victories within the federal court system that are insufficient
for prevailing-party status, such as withstanding a motion to
dismiss or obtaining “an interlocutory ruling that reverses [a]
dismissal for failure to state a claim.” TSA Second Suppl. Br.
6. But the analogy is inapt. When a district court denies a
motion to dismiss—or when an appellate court reverses a
grant of such a motion—the plaintiff has won nothing but an
opportunity to continue pressing his claims in the case
originally filed. Such a ruling doesn’t compel the defendant
to alter its conduct one whit; it merely means that an attempt
to throw the case out was unsuccessful. And, as in cases
where the court retains jurisdiction, ascertaining the prevailing
party must await further developments in the case.

Finally, TSA cites Sole v. Wyner, 551 U.S. 74 (2007), in
which the Supreme Court held that a plaintiff who obtained a
preliminary injunction but was ultimately denied any
permanent relief was not a prevailing party. See id. at 77-78.
According to TSA, “if the preliminary injunction obtained in
Sole . . . was insufficient to make plaintiff there a prevailing
party, then a remand for reasoned decisionmaking by an
agency cannot be sufficient, by itself, to make petitioner a
prevailing party where the agency may ultimately adhere to its
initial determination.” TSA Second Suppl. Br. 8. A fallacy in
that reasoning is, again, that the preliminary injunction in Sole
was but an interim victory en route to final judgment (which
was against the fee applicant), whereas the vacatur and
remand in this case terminated the litigation in SecurityPoint’s
favor. See Sole, 551 U.S. at 84 (“express[ing] no view on
whether, in the absence of a final decision on the merits of a
claim for permanent injunctive relief, success in gaining a
 10

preliminary injunction may sometimes warrant an award of
counsel fees”). Moreover, fee cases involving preliminary
injunctive relief may be sui generis, as reflected by the
complex array of decisions on that subject. See, e.g., Select
Milk Producers, Inc. v. Johanns, 400 F.3d 939 (D.C. Cir.
2005) (awarding fees for securing a preliminary injunction
where a subsequent change in regulation rendered the case
moot); Role Models Am., Inc. v. Brownlee, 353 F.3d 962
(D.C. Cir. 2004) (awarding fees for securing an administrative
remand to correct procedural errors along with a permanent
injunction barring the government from transferring certain
property in the meantime); Thomas v. National Science
Foundation, 330 F.3d 486 (D.C. Cir. 2003) (reversing a fee
award where the plaintiffs had secured a preliminary
injunction freezing certain contested funds but a subsequent
law rendered the case moot); Grano v. Barry, 783 F.2d 1104
(D.C. Cir. 1986) (holding that the plaintiffs, who sought to
preserve a historic tavern, were prevailing parties for securing
a preliminary injunction temporarily barring the tavern’s
demolition, even though the tavern was eventually razed as a
result of subsequent litigation).

We thus overrule Waterman and hold, consistent with
Schaefer, that a petitioner who secures a remand terminating
the case and requiring further administrative proceedings in
light of agency error is a prevailing party without regard to the
outcome on remand. Our sister circuits have reached the same
conclusion in the immigration context. See Johnson v.
Gonzales, 416 F.3d 205, 209-10 (3d Cir. 2005); Muhur v.
Ashcroft, 382 F.3d 653, 654-55 (7th Cir. 2004); Rueda-
Menicucci v. INS, 132 F.3d 493, 495 (9th Cir. 1997).

* * *

We next consider whether the agency’s position was
“substantially justified,” which would preclude a fee award.
 11

28 U.S.C. § 2412(d)(1)(A). A position is substantially
justified “if a reasonable person could think it correct, that is,
if it has a reasonable basis in law and fact.” Pierce v.
Underwood, 487 U.S. 552, 566 n.2 (1988). See also id. at
565. The government bears the burden of establishing
substantial justification. See Halverson v. Slater, 206 F.3d
1205, 1208 (D.C. Cir. 2000). But even a finding that an
agency’s action was arbitrary and capricious doesn’t preclude
a decision that the action was substantially justified. See FEC
v. Rose, 806 F.2d 1081, 1087-90 (D.C. Cir. 1986).

TSA has not met its burden of demonstrating that its
position was substantially justified. In urging TSA to rescind
the revisions to the MOU template, SecurityPoint advanced
several serious points: It argued that the indemnification
demand was a “classic ‘poison pill’” because airports would
not and could not agree to it. It gave reason to believe that
TSA’s revisions would not only disable SecurityPoint’s
business but also damage TSA itself by shifting equipment
costs to the agency. Finally, it suggested that an
indemnification commitment was unnecessary because TSA
had an implied license to use the relevant intellectual property
at all airports that had contracts with SecurityPoint. TSA’s
denial letter, penned by its Chief Counsel, was wholly
unresponsive to these contentions. As we said in 2014, the
letter offered “no indication that . . . anyone at TSA even
considered the potential harms to . . . TSA[] from insistence
on the new provisions” and no engagement with the argument
that the agency already enjoyed an implied license.
SecurityPoint Holdings, 769 F.3d at 1188. This indifference
seems sufficiently beyond ordinary “arbitrary and capricious”
agency action to qualify as lacking substantial justification.

TSA also says that SecurityPoint’s “principal argument,
both before the agency and in litigation, was that TSA had
changed the terms of the MOU to retaliate against
 12

SecurityPoint”—an argument that TSA “emphatically
rejected” and that the court didn’t reach. TSA Original Br. 8-
10. That’s true but ultimately irrelevant, because “[t]he
government . . . must demonstrate the reasonableness not only
of its litigation position, but also of the agency’s actions.”
Role Models Am., Inc. v. Brownlee, 353 F.3d 962, 967 (D.C.
Cir. 2004) (emphasis in original). See also Halverson, 206
F.3d at 1208; 28 U.S.C. § 2412(d)(2)(D) (providing that
“position of the United States” refers to both the position
taken in the civil action and the agency’s act or failure to act
on which the civil action is based). The court’s not reaching
the retaliation argument does nothing to help TSA carry its
burden of showing that the underlying action—the failure to
address critical arguments made by SecurityPoint—was
substantially justified.

* * *

Finally, we must determine the amount of fees to which
SecurityPoint is entitled. SecurityPoint seeks to recover
$108,393.48 for 564.2 hours of work at a rate of
approximately $190 per hour. TSA doesn’t contest its
adversary’s billing rates but argues that SecurityPoint
achieved only a limited victory in this litigation and that the
fee award should be reduced accordingly.

The Supreme Court has held that “the extent of a
plaintiff’s success is a crucial factor in determining the proper
amount of an award of attorney’s fees.” Hensley v. Eckerhart,
461 U.S. 424, 440 (1983). A first cut in measuring that extent
depends, where there are multiple claims for relief, on
whether the successful claims are “related” to the
unsuccessful ones. Hours spent on unsuccessful claims that
are “distinct in all respects from” the successful ones should
be excised. Id. By contrast, where successful and
unsuccessful claims are related, “a plaintiff who has won
 13

substantial relief should not have his attorney’s fee reduced
simply because the district court did not adopt each contention
raised.” Id.

Here SecurityPoint’s principal argument was that TSA
adopted the MOU revisions in retaliation for a prior patent
suit, and that such retaliatory action was both arbitrary and
capricious and contrary to the First Amendment.
SecurityPoint also argued (albeit cursorily) that the denial of
its cease-and-desist request was arbitrary and capricious for
want of reasoned decisionmaking. The latter argument, the
only one we reached, was successful. Much argument was
also devoted to motions by both parties to supplement the
record with various documents bearing on the retaliation
claims; we denied those motions as moot.

We believe that SecurityPoint’s petition for review
presented only one claim for relief—that TSA’s denial of the
cease-and-desist request was unlawful and must be set aside.
Its assertion of several distinct grounds does not create
multiple claims. See Am. Petroleum Inst. v. EPA, 72 F.3d
907, 911-12 (D.C. Cir. 1996). But even if we treated the
various grounds as separate claims, they are related in the
sense meant by Hensley. The absence of any affirmative
explanation for TSA’s action buttressed the claim of
retaliation. And the efforts to supplement the record were
clearly related to SecurityPoint’s underlying challenges, as the
goal was to bring to the court’s attention evidence bearing on
TSA’s alleged retaliatory intent. This is a case where it is
“difficult to divide the hours expended on a claim-by-claim
basis,” so that the litigation should be viewed as a whole.
Hensley, 461 U.S. at 435.

Even when we are satisfied either that SecurityPoint
raised a single claim or that it raised multiple related claims,
Hensley tells us to assess the extent of its success and to
 14

“award only that amount of fees that is reasonable in relation
to the results obtained.” 461 U.S. at 440. See also Goos v.
Nat’l Ass’n of Realtors, 68 F.3d 1380, 1384 (D.C. Cir. 1995).
In making the assessment we disregard the outcome of the
remand to TSA; not only is it under review, but under
Schaefer it is SecurityPoint’s success in the civil action before
us that we are evaluating. To a degree, the results fall short of
matching SecurityPoint’s efforts. Had we reached its
retaliation theory, to which it devoted much of its briefing, we
might well have responded favorably to its suggestion that we
order TSA to withdraw the offending changes to the MOU
template (though subject, presumably, to ultimate restoration
on an adequate record). See SecurityPoint Merits Reply Br.
32. Nonetheless, SecurityPoint won a significant victory—an
opinion vacating the challenged order on the ground that the
agency had failed to meet the minimum requirements of
reasoned decisionmaking. Under these circumstances, we
think a reduction of 20% is appropriate.

Finally, TSA argues that SecurityPoint’s billing records
are inadequate in certain respects and that too many hours
were spent on various tasks. Upon review of SecurityPoint’s
contemporaneous records, we conclude that while some
entries are less than perfect, the time spent on the various
tasks was reasonable and a further reduction is unwarranted.
Compare Role Models, 353 F.3d at 968-74 (D.C. Cir. 2004).

* * *

We grant in part SecurityPoint’s application for
attorneys’ fees and enter an award in the amount of
$86,714.78.

So ordered.