T.C. Memo. 2006-97
UNITED STATES TAX COURT
JERRY AND PATRICIA A. DIXON, ET AL.,1 Petitioners
v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 9382-83, 15907-84, Filed May 10, 2006.
40159-84, 30979-85,
29643-86.
Henry Binder and John A. Irvine, counsel for petitioners in
docket Nos. 9382-83, 15907-84, 40159-84, and 30979-85.
Michael Louis Minns and Enid M. Williams, counsel for
petitioners in docket No. 29643-86.
Henry E. O’Neill and Peter R. Hochman, counsel for
respondent.
1
Cases of the following petitioners are consolidated
herewith: Robert L. and Carolyn S. DuFresne, docket Nos.
15907-84 and 30979-85; Terry D. and Gloria K. Owens, docket No.
40159-84; and Richard and Fiorella Hongsermeier, docket No.
29643-86.
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CONTENTS
Page
Background . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . 17
I. Introduction . . . . . . . . . . . . . . . . . . . . . . 17
A. Overview of Section 7430 . . . . . . . . . . . . . 17
B. Tax Court’s Authority To Award Appellate
Fees Under Section 7430 . . . . . . . . . . . . . . 18
C. The Other Side of the Coin: Inapplicability
of Section 6673(a)(2) and the Bad
Faith Exception . . . . . . . . . . . . . . . . . . 22
II. Entitlement to Relief Under Section 7430 . . . . . . . . 25
A. Respondent’s Position . . . . . . . . . . . . . . . 25
B. Paid or Incurred Requirement . . . . . . . . . . . 25
1. Overview . . . . . . . . . . . . . . . . . . . 25
2. Real Parties in Interest . . . . . . . . . . . 26
C. Substantial Justification Defense . . . . . . . . . 29
1. Identifying “the Position of the
United States in the Proceeding” . . . . . . . 29
2. Substantial Justification Analysis . . . . . . 31
D. Conclusion . . . . . . . . . . . . . . . . . . . . 33
III. Amount of Award . . . . . . . . . . . . . . . . . . . . 33
A. Respondent’s Position . . . . . . . . . . . . . . . 33
B. Applicability of Statutory Rate Cap . . . . . . . . 33
1. Limited Availability of Qualified Attorneys . 34
2. Local Availability of Tax Expertise . . . . . 36
3. Difficulty of the Issues . . . . . . . . . . . 36
4. Other Possible Special Factors . . . . . . . 37
a. In General . . . . . . . . . . . . . . . 37
b. The Government’s Misconduct . . . . . . 38
c. The Delay Factor . . . . . . . . . . . . 41
d. Test Case Status . . . . . . . . . . . . 44
5. Conclusion . . . . . . . . . . . . . . . . . . 45
C. Compensable Hours . . . . . . . . . . . . . . . . . 45
1. Respondent’s Objections . . . . . . . . . . . 45
a. Duplicative Fees Due to Change of
Counsel . . . . . . . . . . . . . . . . . 45
b. Overstaffing . . . . . . . . . . . . . . 46
c. Porter & Hedges Client Conferences . . . 48
2. Additional Adjustments to Time Claimed for the
Appeals . . . . . . . . . . . . . . . . . . . 49
a. Missing Minns Time Entries . . . . . . . 49
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b. Minns Hours Relating to Dispute With
Committee . . . . . . . . . . . . . . . . 50
c. Additional Porter & Hedges Time Relating
to Minns Dispute . . . . . . . . . . . . 50
d. Porter & Hedges Time Relating to
Bill of Costs . . . . . . . . . . . . . . 51
e. Porter & Hedges Time Relating to Remand . 51
3. Adjustments to Porter & Hedges Time
Relating to Fee Request . . . . . . . . . . . 51
a. Initial Research Time . . . . . . . . . . 51
b. Time Relating to Unsuccessful Claims . . 52
D. Computation of Potentially Compensable Fees . . . . 55
1. The Hongsermeiers--Work on the Appeal . . . . 55
a. 2001 . . . . . . . . . . . . . . . . . . 55
b. 2002 . . . . . . . . . . . . . . . . . . 56
c. Total . . . . . . . . . . . . . . . . . . 57
2. The Hongsermeiers--Work on the Fee Request 57
a. 2003 to 2005 . . . . . . . . . . . . . . 57
b. 2006 . . . . . . . . . . . . . . . . . . 57
c. Application of Limited Success Factor . . 57
3. The PH Petitioners . . . . . . . . . . . . . . 59
a. 2001 . . . . . . . . . . . . . . . . . . 59
b. 2002 to 2005 . . . . . . . . . . . . . . 60
c. 2006 . . . . . . . . . . . . . . . . . . 61
d. Total . . . . . . . . . . . . . . . . . . 61
E. Potentially Compensable Expenses . . . . . . . . . 62
F. Amounts Paid or Incurred by Eligible Persons . . . 62
1. Amounts Paid Through the Defense Fund . . . . 63
a. Minns Agreement . . . . . . . . . . . . . 63
b. Porter & Hedges Agreement . . . . . . . . 66
2. Amounts Paid Directly to Minns . . . . . . . 68
3. Amounts Incurred But Not Paid . . . . . . . . 68
4. Summary . . . . . . . . . . . . . . . . . . . 69
G. Final Figures . . . . . . . . . . . . . . . . . . . 69
IV. Interest . . . . . . . . . . . . . . . . . . . . . . . . 70
Appendix A--September 1, 2005 Order . . . . . . . . . . . . . 72
Appendix B--September 8, 2005 Order . . . . . . . . . . . . . 78
Appendix C--November 18, 2005 Order . . . . . . . . . . . . . 84
MEMORANDUM OPINION
BEGHE, Judge: These cases are before the Court on separate
remand from the Court of Appeals for the Ninth Circuit. In this
opinion, we address petitioners’ requests for appellate
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attorney’s fees and expenses under section 7430,2 originally
filed with the Court of Appeals in the aftermath of Dixon v.
Commissioner, 316 F.3d 1041 (9th Cir. 2003), revg. and remanding
T.C. Memo. 1999-101.
Background3
Petitioners (the Dixons, DuFresnes, Owenses, and
Hongsermeiers) are, along with one other couple--the Youngs--the
remaining test case petitioners in the Kersting tax shelter
litigation. That litigation arose from respondent’s disallowance
of interest deductions claimed by participants in various tax
shelter programs promoted by Henry F.K. Kersting during the late
1970s through the 1980s. Under the test case procedure, most of
the other Kersting program participants who had filed Tax Court
petitions (“nontest case petitioners”) entered into “piggyback”
agreements in which they agreed that their cases would be
resolved in accordance with the Court’s opinion in the test
cases.4 Eventually, more than 300 nontest case petitioners made
2
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, and Rule references
are to the Tax Court Rules of Practice and Procedure.
3
The following background statement is based on the
existing record and additional information submitted by the
parties in connection with the appellate fee requests. We have
not found it necessary to hold an evidentiary hearing. See Rule
232(a)(2).
4
Upon the final disposition of the test cases, the
relatively few nontest case petitioners who did not enter into
piggyback agreements will generally be ordered to show cause why
their cases should not be decided in the same manner as the test
cases.
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periodic and/or lump sum contributions to a fund (hereafter, the
“Defense Fund” or “Fund”) created to share the cost of the test
case litigation.5
Following a 3-week trial, the Court sustained virtually all
of respondent’s determinations in each of the test cases. See
Dixon v. Commissioner, T.C. Memo. 1991-614 (Dixon II).6 Shortly
thereafter, on June 9, 1992, respondent notified the Court that,
prior to the trial of the test cases, respondent’s trial
attorney, Kenneth W. McWade (McWade), and his supervisor,
Honolulu District Counsel William A. Sims (Sims), had entered
into contingent settlement agreements with two of the test case
petitioners (the Thompsons and the Cravenses) and had failed to
disclose those agreements to their superiors, to the Court, or to
the other test case petitioners or their counsel. Respondent
asked the Court to conduct an evidentiary hearing to determine
whether the undisclosed agreements had affected the trial of the
test cases or the opinion of the Court. The Court denied
respondent’s request for an evidentiary hearing, entered
decisions giving effect to the Thompson and Cravens settlements,
and reentered or allowed to stand the decisions sustaining
5
The Defense Fund was initially known as the Don Belton
Legal Defense Fund and subsequently became known as the Atlas
Legal Defense Fund.
6
Prior to the trial of the test cases, the Court had issued
an opinion rejecting the test case petitioners’ arguments that
certain evidence should be suppressed and that the burden of
proof should be shifted to respondent. See Dixon v.
Commissioner, 90 T.C. 237 (1988) (Dixon I).
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respondent’s determinations against the other test case
petitioners.
On appeal, the Court of Appeals for the Ninth Circuit,
citing Arizona v. Fulminante, 499 U.S. 279, 309 (1991), stated:
We cannot determine from this record whether the
extent of misconduct rises to the level of a structural
defect voiding the judgment as fundamentally unfair, or
whether, despite the government’s misconduct, the
judgment can be upheld as harmless error. [DuFresne v.
Commissioner, 26 F.3d 105, 107 (9th Cir. 1994) (per
curiam), vacating Dixon v. Commissioner, T.C. Memo.
1991-614.]
The Court of Appeals vacated the Court’s decisions in the test
cases (other than the Thompson and Cravens cases) and remanded
them for “an evidentiary hearing to determine the full extent of
the admitted wrong done by the government trial lawyers.” Id.
In response to the direction of the Court of Appeals to consider
on the merits all motions of intervention filed by interested
parties, this Court ordered that the cases of 10 nontest case
petitioners (hereafter, the participating nontest case
petitioners) be consolidated with the remaining test cases for
purposes of the evidentiary hearing. One of the participating
nontest case petitioners was represented by Joe Alfred Izen, Jr.
(Izen), who had represented the test case petitioners (other than
the Thompsons and Cravenses) at the original trial; the others
were represented by either Robert Alan Jones (Jones) or Robert
Patrick Sticht (Sticht).
On the basis of the record developed at the evidentiary
hearing, the Court held that the misconduct of the Government
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attorneys in the trial of the test cases did not constitute a
structural defect in the trial but rather resulted in harmless
error. See Dixon v. Commissioner, T.C. Memo. 1999-101 (Dixon
III). However, the Court imposed sanctions against respondent,
holding that Kersting program participants who had not had final
decisions entered in their cases would be relieved of liability
for (1) the interest component of the addition to tax for
negligence under former section 6653(a), and (2) the incremental
interest attributable to the increased rate prescribed in former
section 6621(c).
After the issuance of Dixon III, the remaining test case
petitioners, all of whom were still represented by Izen, and some
of the participating nontest case petitioners filed motions for
attorney’s fees and costs (the initial fee requests), relying
primarily on sections 7430 and 6673. The Court ordered the
movants to submit documentation pertaining to fees and expenses
incurred commencing June 10, 1992 (i.e., the day after the Court
learned of the misconduct by the Government attorneys). In Dixon
v. Commissioner, T.C. Memo. 2000-116 (Dixon IV), the Court
rejected the initial fee requests insofar as they relied on
section 7430, on the ground that the movants had not
substantially prevailed on the merits as required by section
7430(c)(4)(A)(i). However, the Court awarded a portion of the
claimed fees and expenses under section 6673(a)(2)(B) (relating
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to misconduct of the Commissioner’s attorneys in Tax Court proceedings).
The Court entered decisions in the remaining test cases and
certified the cases of the participating nontest case petitioners
for interlocutory appeal. Izen filed notices of appeal on behalf
of the remaining test case petitioners, and he also filed an
interlocutory appeal on behalf of Norman and Barbara Adair, the
participating nontest case petitioners he represented.7 Izen
purported to file his interlocutory appeal on behalf of not only
the Adairs, but also on behalf of nontest case petitioners in
more than 450 docketed cases who had not participated in the
evidentiary hearing and therefore were not included in this
Court’s certification order.
In January 2001, the Defense Fund, acting through a five-
person “steering committee”, retained attorney Michael Louis
Minns (Minns) to replace Izen. Under the Minns retainer
agreement, the Defense Fund agreed to pay Minns an up-front,
nonrefundable fee of $110,000, while Minns agreed to a maximum
fee for his firm of $150,000. The Fund also agreed to a $75,000
fee for Lawfinders Associates, Inc. (Lawfinders), a firm hired by
Minns to assist in researching and writing his appellate briefs.
Although Minns replaced Izen as counsel of record for the Dixons,
7
Jones and Sticht filed interlocutory appeals on behalf of
the other participating nontest case petitioners.
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DuFresnes, Owenses, and Hongsermeiers, Izen remained counsel of
record for the Youngs, the only other remaining test case
petitioners.
In January and February 2001, the Hongsermeiers and 112
nontest case petitioners (hereafter, the group of 112) made
contributions to the Defense Fund (all but two in the amount of
$1,500) totaling $168,600 in connection with the hiring of Minns.
In addition, from January 2001 through November 2001 (the last
full month during which the steering committee recognized Minns
as the Fund’s counsel), the Hongsermeiers and 106 members of the
group of 112 made smaller contributions to the Defense Fund
totaling $99,600. Thus, total contributions to the Defense Fund
by the Hongsermeiers and the group of 112 from January 2001
through November 2001 amounted to $268,200. The Fund paid the
aforementioned fees of $110,000 and $75,000 to Minns and
Lawfinders, respectively, in early 2001.8
The steering committee became dissatisfied with Minns, and
by letter dated December 7, 2001, the Defense Fund formally
requested Porter & Hedges, L.L.P. (Porter & Hedges) to take over
the appeals and to represent the Fund in “the anticipated
litigation involving our former attorney in this matter, Michael
Minns.” The ensuing engagement letter confirms that Porter &
8
The Fund paid other amounts under the Minns agreement,
including a $20,000 fee to an accounting firm, for which the
Hongsermeiers do not seek recovery.
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Hedges, in addition to the appellate work, would “represent the
Committee with regard to counsel and assistance in terminating
its relationship with its present lawyer, Michael Louis Minns,
and * * * assist * * * in obtaining a refund of attorneys’ fees
and expenses paid to Mr. Minns or at his direction”. The
engagement is on an hourly fee basis, with the Defense Fund
agreeing to advance $120,000 for application against expected
billings. Three members of the steering committee--all nontest
case petitioners--are jointly and severally liable for the
Defense Fund’s obligations under the agreement, which are not
limited by the $120,000 estimate and required advance.
From December 12, 2001 to April 5, 2002, the Dixons and 43
nontest case petitioners (hereafter, the group of 43)--36 of whom
are also part of the group of 112--made contributions to the
Defense Fund (all but three in the amount of $1,500) totaling
$66,050 in connection with the hiring of Porter & Hedges. In
addition, from December 2001 through April 2002, 37 members of
the group of 43 made smaller contributions to the Defense Fund
totaling $18,150. Thus, total contributions to the Defense Fund
from December 2001 through April 2002 by the Dixons and the group
of 43 amounted to $84,200. Porter & Hedges has received only
$60,000 from the Defense Fund to date, with the last payment
occurring in April 2002.
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Although Porter & Hedges attorneys Henry Binder (Binder) and
John A. Irvine (Irvine) entered appearances in the Court of
Appeals on behalf of the Dixons, DuFresnes, and Owenses, Minns
remained counsel of record for the Hongsermeiers. Thus, three
sets of counsel pursued the appeals of the test cases: Izen on
behalf of the Youngs, Minns on behalf of the Hongsermeiers, and
Porter & Hedges on behalf of the Dixons, DuFresnes, and Owenses
(hereafter, the PH petitioners).
The Court of Appeals reversed and remanded, holding that the
misconduct of the Government attorneys in the trial of the test
cases was a fraud on the court, for which no showing of prejudice
is required. See Dixon v. Commissioner, 316 F.3d 1041 (9th Cir.
2003) (Dixon V); see also Dixon v. Commissioner, T.C. Memo. 2006-
90 (Dixon VI) (determining the parameters of the illicit Thompson
settlement and extending the benefit thereof to all remaining
Kersting project petitioners in accordance with the mandate of
the Court of Appeals in Dixon V). After the issuance of Dixon V,
a group comprising the Hongsermeiers and 38 nontest case
petitioners--35 of whom are also part of the group of 112 and
three of whom are part of the group of 112 and the group of 43--
retained Minns to continue representing their interests in post-
appellate matters (including this fee litigation). The
Hongsermeiers and each member of the group of 38 paid Minns a
$3,500 retainer fee.
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Shortly after the issuance of Dixon V, the Hongsermeiers and
the PH petitioners filed separate requests with the Court of
Appeals for attorney’s fees incurred on appeal. The
Hongsermeiers’ request relates solely to services performed by
Minns and Lawfinders, and the PH petitioners’ request relates
solely to services performed by Porter & Hedges. As filed, both
appellate fee requests relied exclusively on section 7430.
Rather than filing a fee request with the Court of Appeals
on behalf of the Youngs, Izen objected to petitioners’ fee
requests.9 Izen’s primary objection was that petitioners had not
paid or incurred the amounts requested:
In actuality, Mr. Binder’s motion fails to reveal
the true clients in interest who have paid him fees to
represent their interests on appeal. These “real
clients in interest” are the same clients represented
by Joe Alfred Izen, Jr. in the appeal styled Barbara L.
Adair, Et Al, v. Commissioner * * *.
9
Izen is not the only attorney in these proceedings who
was, at least initially, hostile to petitioners’ appellate fee
requests. In a filing relating to the evidentiary hearing
required to implement the primary mandate of Dixon V, Jones (who
would subsequently file his own appellate fee request on behalf
of the participating nontest case petitioners he represents, see
infra note 12) remarked:
Test case counsel, exclusive of Mr. Izen, charged
clients in excess of $500,000 to copy Mr. Izen’s, Mr.
Jones’, and Mr. Sticht’s prior work from the
evidentiary hearing [held in 1996 and 1997] without
adding one new idea which had a substantial effect on
the Dixon appeal. These taxpayers cannot afford to pay
expensive lawyers by the hour in order to get the
relief they so justly deserve.
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Izen then filed a motion in the Adairs’ interlocutory appeal to
transfer consideration of attorney’s fees on appeal to the Tax
Court. See 9th Cir. R. 39-1.8. Although the Court of Appeals
promptly granted the motion, Izen waited more than 2 years to
file his appellate fee request with this Court. That fee request
is currently pending and will be the subject of a later opinion.
See infra note 12.
On May 28, 2003, the Court of Appeals, acting through the
panel that had decided Dixon V, issued the following order in
response to petitioners’ appellate fee requests:
Appellants’ request for attorneys’ fees on appeal
is remanded to the Tax Court for a determination of
entitlement and, if warranted, amount. Although not
required by this order, an evidentiary hearing may aid
the Tax Court in making this determination. The panel
retains jurisdiction over all further proceedings that
may arise.
Thereafter, petitioners’ counsel attempted, unsuccessfully, to
retrieve from the Court of Appeals the documents relative to the
appellate fee requests. Petitioners’ counsel and respondent’s
counsel eventually filed in this Court a Special Stipulation of
Facts Concerning Appellants’ Request for Attorneys’ Fees on
Appeal (the stipulation), stipulating the authenticity of the
appellate fee requests and all related objections, oppositions,
replies, and records attached as exhibits to the stipulation.
Petitioners have largely pursued their appellate fee requests in
this Court on a joint basis.
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In considering the appellate fee requests, we solicited the
parties’ views as to whether we were limited to section 7430,
cited in their requests, or were instead free to proceed under
section 6673(a)(2), on which we relied in Dixon IV.10 In a May
2005 order, we expressed the view that “there are substantial
obstacles to awarding appellate fees and costs under section
6673(a)(2)”. Shortly thereafter, the Youngs filed a motion in
this Court for attorney’s fees under section 6673 relating to
services performed (and expenses incurred) by Izen on appeal.
In August 2005, the PH petitioners amended their appellate
fee request to assert entitlement under the “bad faith” exception
to the so-called American rule (hereafter, the bad faith
exception), while continuing to rely on section 7430 as an
alternative ground.11 By the amendment, the PH petitioners also
seek interest on the requested fees and expenses from January 17,
2003 (the date of the Court of Appeals’ Dixon V opinion).
In an order dated September 1, 2005, which we incorporate by
reference and reproduce as Appendix A, we concluded that “the
10
Sec. 7430 contains certain conditions and limitations
that do not apply to fee awards under sec. 6673(a)(2). See infra
Parts I.A., I.C.
11
The American rule generally prohibits a Federal court
from awarding attorney’s fees in the absence of a statute or
contract providing for a fee award. Chambers v. NASCO, Inc., 501
U.S. 32, 61 (1991) (Kennedy, J., dissenting) (citing Alyeska
Pipeline Serv. Co. v. Wilderness Socy., 421 U.S. 240, 258-259
(1975)).
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principles enunciated in Cooter & Gell v. Hartmarx Corp., [496
U.S. 384 (1990),] preclude us from awarding appellate fees and
expenses under the bad faith exception to the American rule”.
Having determined to proceed under section 7430, and with a nod
to Izen’s previous objection, we ordered petitioners to submit
net worth affidavits for all real parties in interest with
respect to their appellate fee requests; namely, “those
individuals who have made payments to Porter & Hedges or Michael
Minns, P.L.C.--through contributions to the Atlas Legal Defense
Fund or otherwise--or are liable to Porter & Hedges or Michael
Minns, P.L.C. for the unpaid portion of the requested fees and
expenses”. See Rule 231(b)(4); see also infra Part I.A.
Meanwhile, in an order dated September 8, 2005, which we
incorporate by reference and reproduce as Appendix B, we
similarly rejected the Youngs’ reliance on section 6673 and
ordered them to submit net worth affidavits for all real parties
in interest.12
On November 7, 2005, the PH petitioners filed a motion for
reconsideration of our September 1 order, as well as a separate
12
That order also pertains to a motion for appellate fees
and expenses filed in this Court in July 2005 by the
participating nontest case petitioners represented by Jones. We
subsequently informed the parties that we would handle that
motion and the Youngs’ appellate fee motion (filed by Izen)
separately from petitioners’ appellate fee requests. To complete
the story regarding appellate fee requests, the Court understands
that Sticht and respondent are working on a comprehensive
stipulation and submission regarding requests for fees by
participating nontest case petitioners represented by Sticht.
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motion for appellate attorney’s fees under section 6673. We
denied the motion for reconsideration by order dated November 18,
2005, which we incorporate by reference and reproduce as Appendix
C. We separately denied the PH petitioners’ motion for fees
under section 6673 “[f]or the reasons discussed in our Order
dated September 8, 2005” (App. B).
The Hongsermeiers claim attorney’s fees of $276,434.75,
based on (1) 930.32 hours devoted to the appeal and 278.75 hours
devoted to the fee request,13 and (2) rates ranging from $50 to
$300 per hour. They have not requested any expenses other than
attorney’s fees.
The PH petitioners claim attorney’s fees of $494,514.75,
based on (1) 1,157.65 hours devoted to the appeal and 734.1 hours
devoted to the fee request, and (2) rates ranging from $90 to
$460 per hour.14 They also claim other expenses of $20,307.15.
13
Respondent does not dispute that fees relating to work on
a fee request (“fees for fees” or “fees on fees”) are potentially
recoverable under sec. 7430. See, e.g., Huffman v. Commissioner,
978 F.2d 1139, 1149 (9th Cir. 1992), affg. in part and revg. in
part on other grounds T.C. Memo. 1991-144.
14
Both fee requests include legal assistant or paralegal
fees. Although sec. 7430 does not specifically provide for the
recovery of such fees, this Court has routinely awarded them,
see, e.g., Foothill Ranch Co. Pship. v. Commissioner, 110 T.C.
94, 101-102 (1998), and we have no reason to believe that the
Court of Appeals for the Ninth Circuit would take a different
approach. Cf. Commissioner, INS v. Jean, 496 U.S. 154, 163 n.10
(1990) (Equal Access to Justice Act (EAJA) case; Court’s
hypothetical refers to paralegal fees even though the EAJA, from
which sec. 7430 derives, does not specifically refer to such
fees); Sorenson v. Mink, 239 F.3d 1140, 1144 (9th Cir. 2001)
(continued...)
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Discussion
I. Introduction
A. Overview of Section 7430
Section 7430 provides that, subject to certain conditions, a
taxpayer who prevails against the Government in any Federal tax
proceeding (administrative or judicial) may recover reasonable
costs, including attorney’s fees, paid or incurred in connection
with such proceeding if the Government’s position in the
proceeding was not substantially justified. Sec. 7430(a),
(c)(1)(B)(iii), (c)(4)(A) and (B). In its report accompanying
the bill in which section 7430 originated, the House Committee on
Ways and Means contemplated that such fee awards “will enable
individual taxpayers to vindicate their rights regardless of
their economic circumstances.” H. Rept. 97-404, at 11 (1981).
A taxpayer seeking litigation costs under section 7430 must
have exhausted all available administrative remedies prior to
litigation, must not have unreasonably protracted the
proceedings, and, if an individual, must not have had a net worth
in excess of $2 million as of the filing date of the suit. Sec.
7430(b)(1), (b)(3), (c)(4)(A)(ii); see 28 U.S.C. sec.
2412(d)(2)(B)(i) (1988) (individual net worth limitation
14
(...continued)
(EAJA fee application included legal assistant fees; no
discussion of the issue). Although legal assistant and paralegal
fees do not fit neatly within the category of either “attorney’s
fees” or “expenses”, we follow petitioners’ lead in grouping them
with attorney’s fees.
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contained in the Equal Access to Justice Act and incorporated by
reference in sec. 7430(c)(4)(A)(ii)). Reasonable attorney’s fees
may not exceed the rate of $125 per hour (as adjusted for
inflation) unless “a special factor, such as the limited
availability of qualified attorneys for such proceeding, the
difficulty of the issues presented in the case, or the local
availability of tax expertise, justifies a higher rate.” Sec.
7430(c)(1)(B)(iii).15
Respondent publishes the inflation-adjusted rate cap on an
annual basis. The hourly rate cap for fees incurred in 2001 (the
earliest year for which petitioners claim fees) is $140. Rev.
Proc. 2001-13, 2001-1 C.B. 337, 341. The hourly rate cap for
fees incurred between 2002 and 2005 is $150. Rev. Proc. 2001-59,
2001-2 C.B. 623, 628; Rev. Proc. 2002-70, 2002-2 C.B. 845, 850;
Rev. Proc. 2003-85, 2003-2 C.B. 1184, 1190; Rev. Proc. 2004-71,
2004-2 C.B. 970, 976. The hourly rate cap for fees incurred in
2006 is $160. Rev. Proc. 2005-70, 2005-47 I.R.B. 979, 985.
B. Tax Court’s Authority To Award Appellate
Fees Under Section 7430
Before we evaluate petitioners’ appellate fee requests under
section 7430, we address the threshold issue of our authority to
15
The latter two examples of special factors were added by
the Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, sec. 3101(a)(2), 112 Stat. 727, effective
for costs incurred after Jan. 18, 1999, id. sec. 3101(g), 112
Stat. 729. All of the costs sought by petitioners were incurred
after Jan. 18, 1999.
- 19 -
award appellate fees under that section.16 We begin by observing
that the Court of Appeals cannot independently empower us to make
such an award. See Cooter & Gell v. Hartmarx Corp., 496 U.S.
384, 409 (1990) (reversing that portion of Court of Appeals’
judgment remanding the case to District Court for award of
appellate attorney’s fees as part of Rule 1117 sanction; that
rule does not authorize District Courts to award attorney’s fees
incurred on appeal). Having said that, we are satisfied that
section 7430, unlike the provision at issue in Cooter & Gell,
authorizes trial courts (such as the Tax Court) to award
litigation costs incurred on appeal.
Our conclusion that we may award appellate fees under
section 7430 ultimately rests on the distinction between (1) fee
awards (such as those under section 7430) authorized under “fee-
shifting rules that embody a substantive policy, such as a
16
We are hesitant to phrase the issue (i.e., whether we can
award appellate litigation costs under sec. 7430) in terms of our
“jurisdiction”. See Scarborough v. Principi, 541 U.S. 401, 414
(2004) (Equal Access to Justice Act does not describe what
“classes of cases” the Court of Appeals for Veterans Claims is
competent to adjudicate; rather, it relates only to postjudgment
proceedings auxiliary to cases already within that court’s
adjudicatory authority); see also Kafka & Cavanagh, Litigation of
Federal Civil Tax Controversies, par. 2.01[5], at 2-8 (2d ed.
1997) (Tax Court’s “jurisdiction” to consider a motion for
litigation costs is part and parcel of its jurisdiction over the
underlying action); cf. Rule 270(c) (recognizing that the Tax
Court’s jurisdiction to review an administrative denial of
administrative costs derives from sec. 7430(f)(2)).
17
References to Rule 11 are to Rule 11 of the Federal Rules
of Civil Procedure.
- 20 -
statute which permits a prevailing party in certain classes of
litigation to recover fees”, Chambers v. NASCO, Inc., 501 U.S.
32, 52 (1991), and (2) fee awards (such as those under Rule 11,
the bad faith exception, or section 6673(a)(2)) that serve as
sanctions, the imposition of which “depends not on which party
wins the lawsuit, but on how the parties conduct themselves
during the litigation”, Chambers v. NASCO, Inc., supra at 53
(drawing the distinction in the context of the Erie doctrine as
applied to the bad faith exception). See also Bus. Guides, Inc.
v. Chromatic Commcns. Enters., Inc., 498 U.S. 533, 553 (1991)
(Rule 11 sanctions, which “are not tied to the outcome of [the]
litigation”, “do not constitute the kind of fee shifting at issue
in Alyeska [Pipeline Serv. Co. v. Wilderness Socy., 421 U.S. 240
(1975)].”18 In Cooter & Gell v. Hartmarx Corp., supra at 409,
the Supreme Court expressly recognized this distinction in the
context of appellate fees: “As Rule 11 is not a fee-shifting
statute, the policies for allowing district courts to require the
losing party to pay appellate, as well as District Court
attorney’s fees, are not applicable.”
18
The “kind of fee shifting at issue in Alyeska” involved
the substantive policy of encouraging private parties “to bring
suit to further broad public interests” such as protecting the
environment, i.e., under the “private attorney general” theory.
Wilderness Socy. v. Morton, 495 F.2d 1026, 1034 (D.C. Cir. 1974),
revd. sub nom. Alyeska Pipeline Serv. Co. v. Wilderness Socy.,
421 U.S. 240 (1975).
- 21 -
The foregoing dictum from Cooter & Gell regarding the
authority of District Courts to award appellate attorney’s fees
under fee-shifting statutes is consistent with the Supreme
Court’s approach in Commissioner, INS v. Jean, 496 U.S. 154
(1990), issued 1 week prior to Cooter & Gell. In Jean, the Court
held that the recipient of a fee award under the Equal Access to
Justice Act (EAJA), the fee-shifting statute from which section
7430 derives, may recover fees incurred litigating the fee award
without a separate showing that the Government’s opposition to
the fee award was not substantially justified. See Commissioner,
INS v. Jean, supra at 159 (“only one threshold [substantial
justification] determination for the entire civil action is to be
made”). In so holding, the Court observed that while “[a]ny
given civil action can have numerous phases”, “the EAJA--like
other fee-shifting statutes--favors treating a case as an
inclusive whole”. Id. at 161-162.19 To interpret a fee-shifting
statute such as the EAJA or section 7430 as not authorizing a
trial court to award appellate attorney’s fees would be
19
The Court also noted that the EAJA “refers to an award of
fees ‘in any civil action’ without any reference to separate
parts of the litigation, such as discovery requests, fees, or
appeals.” Commissioner, INS v. Jean, 496 U.S. at 159 (emphasis
added). Similarly, sec. 7430(a)(2) refers to “costs incurred in
connection with such [tax-related] court proceeding”, and sec.
7430(c)(6) defines “court proceeding” as “any civil action
brought in a court of the United States” (including the Tax
Court), without any reference to separate phases of the
proceeding.
- 22 -
inconsistent with the unitary approach espoused by the Court in
Jean.20
C. The Other Side of the Coin: Inapplicability
of Section 6673(a)(2) and the Bad Faith Exception
The distinction between fee-shifting provisions and fee
sanctions also informs our prior refusals to evaluate
petitioners’ appellate fee requests under either section
6673(a)(2) or the bad faith exception, each of which falls into
the fee sanction category. See Apps. A, B, C. In contrast to
the unitary approach adopted in the fee-shifting (EAJA) case of
Commissioner, INS v. Jean, 496 U.S. at 159, under which “only one
threshold [substantial justification] determination for the
entire civil action is to be made”, the Supreme Court adopted a
“direct causation” approach 1 week later in Cooter & Gell v.
Hartmarx Corp., supra, a case involving a fee sanction under Rule
11. There, the Court rejected the argument that the reference in
Rule 11 (as then in effect) to fees and expenses incurred
“because of” the offending filing included fees incurred in
defending a District Court’s Rule 11 sanction on appeal: “We
20
If the authority to award appellate fees under the EAJA
or sec. 7430 resided exclusively in the appellate courts, then
there would be two “substantial justification” determinations
whenever an appellate court, applying the (deferential) abuse of
discretion standard, see Pierce v. Underwood, 487 U.S. 552, 557-
563 (1988), upholds the trial court’s determination in that
regard (i.e., with respect to an EAJA or sec. 7430 fee request
pertaining to trial fees), but reaches the opposite conclusion in
disposing of a similar request for appellate fees in the same
case.
- 23 -
believe Rule 11 is more sensibly understood as permitting an
award only of those expenses directly caused by the
[sanctionable] filing, logically, those at the trial level.”
Cooter & Gell v. Hartmarx Corp., 496 U.S. at 406. Thus, while
Jean contemplates that the recipient of an EAJA fee award may
recover fees incurred in defending the award on appeal without a
separate showing that the Government’s appeal of the award was
not substantially justified, the Court in Cooter & Gell concluded
that a litigant defending a Rule 11 fee award on appeal may
recover appellate expenses “only when those expenses are caused
by a frivolous appeal, and not merely because a Rule 11 sanction
upheld on appeal can ultimately be traced to a baseless filing in
district court.” Id. at 407.
The foregoing dichotomy suggests that a litigant who is
entitled to attorney’s fees at the trial level on the basis of
his opponent’s misconduct must, in the absence of additional
sanctionable conduct at the appellate level, premise any claim
for appellate fees on a fee-shifting (prevailing party)
provision. Because some fee-shifting provisions impose
restrictions (such as hourly rate caps) that may not apply to fee
sanctions, such a litigant may find that his claims for
attorney’s fees incurred during the trial and appellate phases,
respectively, of the same litigation are subject to markedly
different rules. That is the case here. Under section
6673(a)(2), we are authorized to sanction respondent for the
- 24 -
attorney misconduct that marred the test case trial by charging
him the full amount of petitioners’ attorney’s fees relating to
the Tax Court proceedings necessitated by that misconduct,
subject only to the requirement that such amounts have been
reasonably incurred.21 Because that misconduct did not extend to
the appellate proceedings, petitioners are relegated to the
applicable fee-shifting provision--section 7430, with its hourly
rate cap and eligibility requirements--with regard to their
appellate fee requests.22 Cf. Hutto v. Finney, 437 U.S. 678, 689
& n.13, 693 & n.21 (1978) (Court separately analyzes fee awards
ordered by the District Court and the Court of Appeals,
respectively; whereas the trial court’s award was adequately
supported by its finding of bad faith, the appellate court’s
award, not supported by any finding of bad faith at the appellate
level, could only be sustained under the Civil Rights Attorneys
21
Specifically, sec. 6673(a)(2)(B) provides that, whenever
respondent’s attorneys have unreasonably and vexatiously
multiplied proceedings in this Court, the Court may require the
United States to pay the excess attorney’s fees and other
litigation costs reasonably incurred because of such conduct.
Although we imposed substantial percentage reductions in our fee
awards under sec. 6673(a)(2) in Dixon IV, those reductions were
attributable to counsel’s various failures to substantiate their
claims in their entirety.
22
We note further that (1) sec. 6673(a)(2) by its terms
appears to be limited to Tax Court proceedings, and (2) inasmuch
as petitioners filed their appellate fee requests with the Court
of Appeals under sec. 7430, our evaluation of those requests
under sec. 6673(a)(2) or the bad faith exception arguably would
be outside the scope of the Court of Appeals’ mandate. Cf.
Pollei v. Commissioner, 94 T.C. 595 (1990).
- 25 -
Fees Awards Act of 1976 (CRAFAA), see 42 U.S.C. sec. 1988 (2000),
a fee-shifting statute designed to encourage private enforcement
of civil rights laws).
II. Entitlement to Relief Under Section 7430
A. Respondent’s Position
Respondent contends that petitioners are not entitled to any
relief under section 7430 because (1) they have failed to
demonstrate that they “paid or incurred” the claimed fees and
expenses, and (2) respondent’s position on appeal was
substantially justified.
B. Paid or Incurred Requirement
1. Overview
Unlike certain other fee-shifting statutes, section 7430
generally allows the recovery of attorney’s fees only to the
extent such amounts have been paid or incurred.23 Sec.
7430(a)(2), (c)(1)(B)(iii); see Frisch v. Commissioner, 87 T.C.
838, 844 (1986) (distinguishing CRAFAA, under which a court “may
allow the prevailing party * * * a reasonable attorney’s fee”);
cf. Blanchard v. Bergeron, 489 U.S. 87, 96 (1989) (fee award
under CRAFAA is not limited to the amount the prevailing party
owes his attorney pursuant to contingent fee agreement). For
purposes of section 7430, fees are “incurred” when there is a
legal obligation to pay them. E.g., Grigoraci v. Commissioner,
23
But see sec. 7430(c)(3)(B), providing an exception for
pro bono services.
- 26 -
122 T.C. 272, 277-278 (2004). In that regard, respondent notes
that none of the steering committee members who are jointly and
severally liable for the Defense Fund’s obligations to Porter &
Hedges is a party to the PH petitioners’ fee request. Similarly,
respondent asserts that “[t]he Hongsermeiers have failed to show
that they, as opposed to the Atlas Legal Defense Fund and/or its
Steering Committee members, are personally liable for” Minns’s
fees. Respondent further complains that the appellate fee
requests are devoid of any evidence regarding the existence or
amounts of petitioners’ contributions to the Defense Fund.24
2. Real Parties in Interest
Under the “real party in interest” approach we adopted in
our September 1, 2005 order (App. A), the fact that petitioners
have not, by and large, paid or incurred the claimed fees and
expenses does not render those amounts unrecoverable under
section 7430. As one commentator has recognized in the context
of the EAJA, even though that statute “states plainly that the
award is to be made to the ‘prevailing party’”, “[t]his is not to
say that the party named in the lawsuit is invariably the true
litigant to whom an award is due.” Sisk, “The Essentials of the
24
Petitioners subsequently submitted schedules prepared by
the business manager of the Defense Fund indicating that the
Hongsermeiers and the Dixons contributed $3,900 and $3,000,
respectively, to the Defense Fund during the years 2000-2003.
Respondent does not suggest that contributions to the Defense
Fund cannot qualify as amounts paid for purposes of sec. 7430.
Cf. Grason Elec. Co. v. NLRB, 951 F.2d 1100, 1106 (9th Cir. 1991)
(suggesting that fees requested under EAJA may have been paid
through contributions to multiemployer association).
- 27 -
Equal Access to Justice Act: Court Awards of Attorney’s Fees for
Unreasonable Government Conduct (Part One),” 55 La. L. Rev. 217,
343 (1994); see, e.g., Grason Elec. Co. v. NLRB, 951 F.2d 1100
(9th Cir. 1991) (real parties in interest in EAJA case included
all 48 members of multiemployer collective bargaining association
who financed the litigation, not just the 6 members who were
parties to the litigation). The case for looking beyond the
named parties is particularly compelling in these proceedings,
where similarly situated taxpayers not only shared the costs of
the litigation but also “had rights at stake in the case on the
merits”. Sisk, supra at 346 (arguing that one can be a real
party in interest with respect to an EAJA fee request--and
thereby potentially entitled to recover the requested fees--only
by virtue of one’s status as a real party in interest in the
underlying litigation on the merits; i.e., that financial
responsibility for the claimed legal fees does not confer real
party in interest status).25
We now hold that the real parties in interest in this
litigation include not only the test case petitioners and
participating nontest case petitioners, but also all other
25
Conversely, Professor Sisk reasons, a real party in
interest who has no financial responsibility for legal fees
cannot recover those fees under the EAJA for the simple reason
that such person has not “incurred” any fees as required by the
statute. Sisk, “The Essentials of the Equal Access to Justice
Act: Court Awards of Attorney’s Fees for Unreasonable Government
Conduct (Part One),” 55 La. L. Rev. 217, 346-347 (1994).
- 28 -
remaining nontest case petitioners.26 Accordingly, the relevant
inquiry is not whether petitioners paid or incurred the claimed
fees and expenses, but whether the real parties in interest who
did pay or incur those amounts satisfy the net worth requirement
26
It could be argued that only those nontest case
petitioners who are bound by the outcome of this litigation,
i.e., those who entered into piggyback agreements, should be
considered real parties in interest. Cf. Mearkle v.
Commissioner, 90 T.C. 1256, 1261 & n.6 (1988) (refusing to fully
reimburse petitioners’ claimed litigation costs when those costs
clearly related to cases of similarly situated taxpayers--Amway
distributors--as well; Court notes that “this case is not a ‘test
case’ which the parties and the Court agree to litigate in order
to resolve an issue affecting many other taxpayers who agree to
be bound by the result therein”). (Emphasis added.) However, in
Dixon v. Commissioner, T.C. Memo. 2006-90 (Dixon VI), we observe
that “the parties have agreed--and properly so--that the sanction
[imposed in Dixon VI] applies to benefit not only the test case
petitioners, but also to nontest case petitioners in all
remaining docketed cases in the Kersting project, whether or not
they signed piggyback agreements.” (Emphasis added.) We
similarly draw no distinction between piggybackers and non-
piggybackers for purposes of our real party in interest analysis.
- 29 -
imposed by section 7430(c)(4)(A)(ii).27 We address that issue in
Part III.F., infra.
C. Substantial Justification Defense
1. Identifying “the Position of the
United States in the Proceeding”
Under section 7430(c)(4)(B)(i), it is “the position of the
United States in the proceeding” that is evaluated under the
substantial justification standard. Typically, the position of
the United States in a judicial proceeding for purposes of
section 7430 is set forth in the Commissioner’s answer to the
petition. E.g., Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430,
442 (1997). These proceedings, of course, are anything but
typical. Although these cases originated with petitions and
answers in a tax deficiency setting, the appellate fees at issue
are not directly related to those initial pleadings or the
ensuing litigation on the merits. Rather, the proceedings to
27
In Cobell v. Norton, 407 F. Supp. 2d 140, 148 (D.D.C.
2005), the court concluded that the net worth affidavits of the
named plaintiffs in the underlying class action “amply satisfy
the [net worth] requirements of the [EAJA] statute for the entire
class.” We note that the referenced class includes more than
350,000 claimants. See id. at 145. Olenhouse v. Commodity
Credit Corp., 922 F. Supp. 489 (D. Kan. 1996), the EAJA case
cited by the Norton court for support, is similarly inapposite.
The court in Olenhouse, while recognizing that “[e]ach party
seeking an award must meet the relevant net worth cap”, id. at
492, concluded that the named plaintiffs, “i.e., those who
prosecuted the claim”, id. at 493, were the ones seeking the EAJA
award; accordingly, they alone were required to meet the net
worth requirement. The court noted that the Government “has not
shown that * * * unnamed members of the class were willing and
able to bear the cost of the litigation.” Id. That is not the
case here.
- 30 -
which these fees relate involve the legal and factual issues
raised by the misconduct of IRS attorneys McWade and Sims in the
original trial of the test cases. Accordingly, we look to the
misconduct inquiry (as opposed to tax deficiency) phase of these
proceedings to determine “the position of the United States in
the proceeding”.
While the parties are in general agreement that the relevant
“position of the United States” derives from the misconduct
inquiry phase of these proceedings, their respective submissions
compel us to clarify exactly what it is we are testing against
the substantial justification standard. Not surprisingly,
petitioners repeatedly draw our attention to the odious character
of the attorney misconduct. At the other end of the spectrum,
respondent emphasizes the inherent reasonableness of defending a
trial court victory on appeal. In our view, the issue is not
whether the conduct of Sims and McWade was substantially
justified (it obviously was not), nor whether respondent’s
decision to defend his Dixon III victory against petitioners’
appeals (as opposed to simply rolling over) was substantially
justified (it obviously was). Rather, our inquiry focuses on
respondent’s litigating position regarding the legal effect of
the attorney misconduct (i.e., that such misconduct amounted to
harmless error and therefore did not invalidate the decisions
entered against the test case petitioners following the issuance
of Dixon II).
- 31 -
2. Substantial Justification Analysis
We turn now to the issue of whether respondent’s position,
as identified above, was substantially justified.28 A position
of the United States in a judicial proceeding is substantially
justified if it has a reasonable basis in law and fact. E.g.,
Maggie Mgmt. Co. v. Commissioner, supra at 443. Common sense
dictates that if the Government was able to prevail at trial
(only to lose on appeal), its position ordinarily will have been
reasonable. See H. Rept. 97-404, at 15 (1981) (stating that in
such situation “the appellate court would not normally award
attorney’s fees to the taxpayer since the trial court, by
definition, had found the government’s position to be
reasonable”); S. Comm. on Fin., Technical Explanation of
Committee Amendment, 127 Cong. Rec. 32070, 32078 (1981) (same);
see also Ness v. Commissioner, 73 AFTR 2d 94-1195, at 94-1196
(9th Cir. 1994) (fact that the Commissioner prevailed in the Tax
Court, while “not dispositive”, is “significant”). On the other
28
In the case of proceedings commenced after July 30, 1996,
the Government bears the burden of establishing that its position
was substantially justified. Sec. 7430(c)(4)(B)(i); see Taxpayer
Bill of Rights 2, Pub. L. 104-168, sec. 701(d), 110 Stat. 1463
(1996). In the case of proceedings commenced on or before that
date, the taxpayer bears the burden of establishing that the
Government’s position was not substantially justified. Sec.
7430(c)(4)(A)(i), prior to amendment by the Taxpayer Bill of
Rights 2, supra. The parties apparently assume that the current
rule applies to these cases. While our resolution of the
substantial justification issue would be the same regardless of
which rule applies, we are of the view that the relevant
“proceedings” commenced prior to July 30, 1996. Cf. supra note
19.
- 32 -
hand, it is “not always * * * true” that trial courts “[act] on a
soundly reasoned basis in every tax case.” Huckaby v. U.S. Dept.
of Treasury, 804 F.2d 297, 299 (5th Cir. 1986); see also Henry v.
Commissioner, 34 Fed. Appx. 342, 345 (9th Cir. 2002) (Court of
Appeals had previously “found clear error in the Tax Court’s
findings” on negligence issue, which “leads to the conclusion
that the Commissioner’s position was not substantially
justified”).
As noted above, respondent took the position in Dixon III
that the acknowledged attorney misconduct amounted to harmless
error, and this Court agreed. While we would like to think that
we “[acted] on a soundly reasoned basis” in adopting respondent’s
position, the Court of Appeals in Dixon V could not have been
more clear in expressing and emphasizing its view that our
holding in Dixon III did not have a reasonable basis in law. The
Court of Appeals began by stating: “We review the Tax Court’s
refusal to grant a motion vacating a judgment on the basis of
fraud on the court for abuse of discretion, mindful that only
when this Court has a ‘definite and firm conviction that the Tax
Court committed a clear error of judgment in the conclusion it
reached’ is reversal appropriate.” Dixon v. Commissioner, 316
F.3d 1041, 1046 (9th Cir. 2003) (citations omitted). The Court
of Appeals quickly concluded: “Because the Tax Court applied the
wrong legal standard, it abused its discretion.” Id.
Specifically, “[t]he Tax Court * * * applied the wrong law when
- 33 -
it imposed a requirement that taxpayers show prejudice as a
result of the misconduct.” Id. Taking our cue from Henry v.
Commissioner, supra, we conclude that, given the foregoing
language of the Court of Appeals in Dixon V, respondent’s
position in Dixon III was not substantially justified. Cf.
Golembiewski v. Barnhart, 382 F.3d 721, 724 (7th Cir. 2004)
(“Strong language against the government’s position in an opinion
[of a reversing appellate court] discussing the merits of a key
issue is evidence in support of an award of EAJA fees.”).
D. Conclusion
We conclude that petitioners are entitled to relief under
section 7430.
III. Amount of Award
A. Respondent’s Position
Respondent argues that, even if petitioners are entitled to
relief under section 7430, we should determine the amounts of
their awards by giving effect to section 7430’s hourly rate cap
and by denying compensation for services respondent alleges are
“redundant, excessive and unnecessary.”29
B. Applicability of Statutory Rate Cap
The rate cap to which fee awards under section 7430 are
generally subject applies “unless the court determines that * * *
a special factor, such as the limited availability of qualified
29
Respondent does not quantify that argument in terms of
noncompensable hours.
- 34 -
attorneys for such proceeding, the difficulty of the issues
presented in the case, or the local availability of tax
expertise, justifies a higher rate.” Sec. 7430(c)(1)(B)(iii).
Not surprisingly, petitioners urge us to lift the rate cap, while
respondent argues that we have no legal basis for doing so.30 We
begin by examining the three examples of special factors in the
statute and then discuss other factors that courts have taken
into account in this context.
1. Limited Availability of Qualified Attorneys
The Supreme Court has narrowly interpreted the “limited
availability of qualified attorneys” factor in the context of the
EAJA. See Pierce v. Underwood, 487 U.S. 552, 571-572 (1988),
interpreting 28 U.S.C. sec. 2412(d)(2)(A)(ii).31 Specifically,
the Court concluded that such language
must refer to attorneys “qualified for the proceedings”
in some specialized sense, rather than just in their
general legal competence. We think it refers to
attorneys having some distinctive knowledge or
30
The Hongsermeiers also argue that respondent’s
calculation of the applicable rate caps, see supra Part I.A., is
erroneous. They maintain that a 27.6-point increase in the
relevant CPI figures (i.e., from 151.075 to 178.675) requires a
27.6-percent increase in the statutory rate cap. That argument
is based on a misapprehension of the statutory adjustment
formula; it is the relative difference between CPI figures (i.e.,
27.6/151.075 = 18.27 percent)--not the arithmetic difference--
that determines the adjustment. See sec. 1(f)(3) (cross-
referenced in flush language of sec. 7430(c)(1)).
31
“The reasoning employed by the courts under the
attorney’s fees provision of the Equal Access to Justice Act
applies equally to review under section 7430.” Huffman v.
Commissioner, 978 F.2d at 1143.
- 35 -
specialized skill needful for the litigation in
question--as opposed to an extraordinary level of the
general lawyerly knowledge and ability useful in all
litigation. Examples of the former would be an
identifiable practice specialty such as patent law, or
knowledge of foreign law or language. * * * [Id. at
572.]
Applying that reasoning, and leaving aside for the moment the
issue of tax expertise,32 we conclude that the general advocacy
and case management skills of petitioners’ counsel, while
undoubtedly “needful for the litigation”, do not justify a
departure from the statutory rate cap under the “limited
availability of qualified attorneys” exception, however
extraordinary in degree and limited in supply those skills may
be. Cf. Hyatt v. Barnhart, 315 F.3d 239, 251 (4th Cir. 2002)
(“plaintiffs do not contend that expertise in class action
enforcement and procedure is a ‘special factor’ warranting an
increase in the statutory [EAJA] maximum rate”; such expertise
“should certainly not be beyond that possessed or easily acquired
by reasonably competent attorneys”); Animal Lovers Volunteer
Association, Inc. v. Carlucci, 867 F.2d 1224, 1226-1227 (9th Cir.
1989) (rejecting claim that “considerable expertise in appellate
32
See infra Part III.B.2., discussing the “local
availability of tax expertise” factor. We note that, prior to
the addition of that factor to sec. 7430 in 1998, see supra note
15, courts applying sec. 7430 generally held that, inasmuch as
the provision applies exclusively to tax cases, counsel’s tax
expertise did not support the finding of a special factor. See,
e.g., Huffman v. Commissioner, supra at 1150; Cassuto v.
Commissioner, 936 F.2d 736, 743 (2d Cir. 1991), affg. in part and
revg. in part on other grounds 93 T.C. 256 (1989); McWilliams v.
Commissioner, T.C. Memo. 1995-111.
- 36 -
matters that would be necessary to successfully prosecute an
appeal against the enormous resources of the federal government”
is a special factor under the EAJA); Scarborough v. Nicholson, 19
Vet. App. 253, 264 (2005) (rejecting specialization in Supreme
Court litigation as a special factor under the EAJA).
2. Local Availability of Tax Expertise
Petitioners’ counsel do not fare any better with regard to
this factor for the simple reason that tax expertise had little,
if anything, to do with the misconduct inquiry phase of this
litigation. Cf. Hyatt v. Barnhart, supra at 252 (even if
counsel’s expertise in Social Security law could warrant a
departure from the EAJA hourly rate cap, “there has been no
satisfactory showing that such expertise was necessary to handle
the dispute [interpretation of settlement agreement] that
actually gave rise to the award of attorneys’ fees and costs
currently at issue”). Thus, while we do not question counsel’s
tax expertise, such expertise does not support the finding of a
special factor under these circumstances.
3. Difficulty of the Issues
Petitioners assert that the misconduct inquiry phase of
these proceedings presented difficult issues relating to
procedural due process, structural defect, “Footnote Nine”
error,33 and standards of proof and review applicable to the
doctrine of harmless error. Petitioners point to DuFresne v.
33
See Brecht v. Abrahamson, 507 U.S. 619, 638 n.9 (1993).
- 37 -
Commissioner, 26 F.3d at 107, in which the Court of Appeals
framed the issue as one of structural defect versus harmless
error, as giving rise to the need to address the specified
difficult issues.34 The Court of Appeals, however, made no
reference to any of those issues in its Dixon V opinion. Rather,
the Court of Appeals focused solely on the issue of fraud on the
court--specifically, whether fraud on the court requires a
showing of prejudice (i.e., whether it is properly the subject of
harmless error analysis). The court’s 1-paragraph (with
accompanying footnote) disposition of that issue, see Dixon v.
Commissioner, 316 F.3d at 1047 & n.9, belies petitioners’
assertion that the relevant issues in the case were sufficiently
difficult to justify a departure from the statutory rate cap.
Cf. Golembiewski v. Barnhart, 382 F.3d at 724 (rejecting the
District Court’s contention that the complexity of the case
warranted a finding of substantial justification under the EAJA;
“our opinion does not reveal a complex case”).
4. Other Possible Special Factors
a. In General
In Pierce v. Underwood, 487 U.S. 552 (1988), the Supreme
Court recognized that the language of the EAJA admits of other
possible special factors in addition to the statutory example of
34
In fairness to petitioners, they took their cue from us
in that regard; we framed our analysis in Dixon III in terms of
structural defect versus harmless error in response to DuFresne.
- 38 -
limited availability of qualified attorneys. After narrowly
interpreting that factor, the Court continued:
For the same reason of the need to preserve the
intended effectiveness of the [then applicable] $75
cap, we think the other “special factors” envisioned by
the exception must be such as are not of broad and
general application. * * * The “novelty and difficulty
of issues,” “the undesirability of the case,” the “work
and ability of counsel,” and “the results obtained,”
are factors applicable to a broad spectrum of
litigation; they are little more than routine reasons
why market rates are what they are. The factor of
“customary fees and awards in other cases,” is even
worse; it is not even a routine reason for market
rates, but rather a description of market rates. * * *
[Id. at 573; citations to Pet. for Cert. omitted.]
Although Congress subsequently amended section 7430 to include
one of the factors specifically rejected by the Court in Pierce
(i.e., the difficulty of the issues), see supra note 15, there is
no indication in the relevant legislative history that the
amending Congress intended any broader retreat from the general
principles expressed in the foregoing excerpt in the context of
section 7430. Thus, factors that are of “broad and general
application” (including the undesirability of the case, work and
ability of counsel, and results obtained) presumably remain
insufficient justification for lifting the caps.
b. The Government’s Misconduct
It is certainly tempting to point to the attorney misconduct
in this litigation as a special factor that justifies a departure
from the hourly rate cap of section 7430. Support for that
position may be found in Jean v. Nelson, 863 F.2d 759 (11th Cir.
- 39 -
1988), affd. on other grounds sub nom. Commissioner, INS v. Jean,
496 U.S. 154 (1990), in which a divided panel of the Court of
Appeals for the Eleventh Circuit concluded that the Government’s
misconduct can be a special factor under the EAJA.35 The
majority rejected the notion that the threshold “reasonableness”
inquiry under the EAJA precludes any further consideration of the
Government’s behavior:
As the dissent points out, the EAJA already requires
that the government’s position have no ‘reasonable
basis in law and fact’ as a condition precedent to the
recovery of fees. The EAJA does not, however, protect
a litigant against potential government harassment. It
is easy to imagine a situation where a position that is
not ‘substantially justified’ is exacerbated by
improper purposes in defending the lawsuit. * * * Thus,
if the government in this case advanced litigation for
any improper purpose such as harassment, unnecessary
delay or increase in the plaintiffs’ expense, then
consistent with Pierce, its action warrants the
imposition of a special factor. [Id. at 776 n.13.]
See also Pollgreen v. Morris, 911 F.2d 527, 537-538 (11th Cir.
1990). However, the Court of Appeals for the Fifth Circuit
explicitly rejected the Jean analysis in Estate of Cervin v.
Commissioner, 200 F.3d 351, 355-358 (5th Cir. 2000), affg. T.C.
Memo. 1998-176, reasoning that the finding of a special factor
under section 7430 based on the Government’s misconduct would
amount to an impermissible award of punitive damages. Accord
Cassuto v. Commissioner, 936 F.2d 736, 743-744 (2d Cir. 1991),
35
The Supreme Court’s affirmance of Jean is limited to the
Court of Appeals’ holding that fees incurred in obtaining an EAJA
fee award are recoverable regardless of whether the Government
was substantially justified in opposing the initial fee request.
- 40 -
affg. in part and revg. in part on other grounds 93 T.C. 256
(1989); Fields v. Commissioner, T.C. Memo. 2002-320; see also In
re Sealed Case 00-5116, 254 F.3d 233, 237 (D.C. Cir. 2001) (EAJA
case).
We agree with the majority view and conclude that
disregarding the section 7430 rate cap on the basis of the
attorney misconduct in this litigation would improperly add a
punitive aspect to the fee award. Stated differently, such an
approach would blur the distinction between fee-shifting
provisions and punitive measures that the Supreme Court has drawn
in cases such as Cooter & Gell v. Hartmarx Corp., 496 U.S. at
409, and Chambers v. NASCO, Inc., 501 U.S. at 51-55. See supra
Part I.B. As the dissent in Jean v. Nelson, 863 F.2d at 782
(Kravitch, J., dissenting), observed in reasoning that Government
misconduct should not be treated as a special factor under the
EAJA: “Rule 11 sanctions are always available to compensate ‘a
litigant whose opponent acts in bad faith in instituting or
conducting litigation.’” Here, the acknowledged misdeeds of
McWade and Sims have been the subject of sanctions under section
6673(a)(2)(B) with respect to proceedings at the trial level.
See supra Part I.C. Such misconduct is relevant to our present
task only in relation to the threshold issue under section 7430
of whether respondent’s position regarding the legal
ramifications of the misconduct was substantially justified. See
supra Part II.C.
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c. The Delay Factor
In Library of Congress v. Shaw, 478 U.S. 310 (1986), the
Supreme Court held that a 30-percent increase in the lodestar
amount of a Title VII fee award to account for the delay factor
violated the “no-interest” rule, which prohibits the recovery of
interest in a suit against the Government absent an express
waiver of sovereign immunity with regard to interest. Two years
later, the Court of Appeals for the D.C. Circuit concluded that
the “special factor” provision of the EAJA provides the express
waiver of sovereign immunity required by Shaw. Wilkett v. ICC,
844 F.2d 867, 876 (D.C. Cir. 1988). The court therefore
concluded that Shaw is not inconsistent with the law of that
circuit holding that delay may be regarded as a special factor
under the EAJA. Id.; see also Masonry Masters, Inc. v. Nelson,
105 F.3d 708, 713-714 (D.C. Cir. 1997); Okla. Aerotronics, Inc.
v. United States, 943 F.2d 1344, 1350 (D.C. Cir. 1991).
The Courts of Appeals for the Fifth and Eleventh Circuits
have sided with the D.C. Circuit on the delay issue in the
context of the EAJA, while the Courts of Appeals for the Seventh
and Federal Circuits have gone the other way. Compare Perales v.
Casillas, 950 F.2d 1066, 1077 (5th Cir. 1992) (agreeing with the
D.C. Circuit that “[e]ven after the Supreme Court’s sweeping
prohibition in Shaw of interest awards against the United
States”, “some forms of delay may justify enhancing the statutory
- 42 -
base rate under the EAJA”),36 and Pollgreen v. Morris, supra at
537-538 (citing Wilkett but not Shaw; delay can be a special
factor under the EAJA if “the length of the delay was
excessive”), with Marcus v. Shalala, 17 F.3d 1033, 1039 (7th Cir.
1994) (Wilkett, Okla. Aerotronics, and Perales “amount to an end
run around the no-interest rule in Shaw because the statutory
provision allowing for a higher fee where there is a special
factor is not the kind of express, unambiguous statutory language
sufficient to waive sovereign immunity”), and Chiu v. United
States, 948 F.2d 711, 721 (Fed. Cir. 1991) (stating in dictum
that the argument for delay as a special factor would not pass
muster under Shaw).37
We agree with the Courts of Appeals for the Seventh and
Federal Circuits that the Wilkett line of authority runs directly
counter to Library of Congress v. Shaw, supra. See also Wilkett
v. ICC, supra at 795 (Starr, J., dissenting from denial of rehg.
36
The Court of Appeals for the Fifth Circuit subsequently
stated, without mentioning Perales or its special factor
analysis, that Shaw precludes an award of interest on a sec. 7430
fee award. See Wilkerson v. United States, 67 F.3d 112, 120 n.15
(5th Cir. 1995).
37
The courts in Marcus v. Shalala, 17 F.3d at 1039, and
Chiu v. United States, 948 F.2d at 721, also contended that
Wilkett runs afoul of the Supreme Court’s subsequent admonition
in Pierce v. Underwood, 487 U.S. at 573, that special factors
under the EAJA cannot be of “broad and general application”. The
Court of Appeals for the D.C. Circuit attempted to reconcile its
holding in Wilkett with Pierce in Okla. Aerotronics, Inc. v.
United States, 943 F.2d 1344, 1350 (D.C. Cir. 1991) (clarifying
that “what makes the factor ‘special’ is not simple delay, but
unusual delay”).
- 43 -
en banc) (“the panel’s decision is incompatible with the
teachings of” Shaw); Okla. Aerotronics, Inc. v. United States,
supra at 1353 (Williams, J., concurring and dissenting) (finding
Wilkett’s rationale “far from clear”); Masonry Masters, Inc. v.
Nelson, supra at 714 (Henderson, J., concurring) (asserting that,
because the EAJA lacks the express waiver contemplated in Shaw,
fees awarded thereunder “can never be enhanced for delay as a
matter of law”). In Shaw, the Supreme Court rejected the
argument that language in Title VII making the Government liable
for costs (including a reasonable attorney’s fee) “the same as a
private person” operated as an express waiver of sovereign
immunity with respect to interest, even though interest on
attorney’s fees may be recovered in a Title VII suit against a
private employer. In our view, the case for waiver was stronger
under the version of Title VII at issue in Shaw38 than it is under
the EAJA or, by extension, section 7430. See Wilkerson v. United
States, 67 F.3d 112, 120 n.15 (5th Cir. 1995) (“Nothing in § 7430
indicates that Congress intended to waive its immunity from
interest awards”); Miller v. Alamo, 992 F.2d 766, 767 (8th Cir.
1993) (same); Austin v. Commissioner, T.C. Memo. 1997-157 (same);
see also Intl. Woodworkers of Am., AFL-CIO, Local 3-98 v.
Donovan, 792 F.2d 762, 766-767 (9th Cir. 1985) (pre-Shaw; no
38
Title VII has since been amended to expressly allow the
recovery of interest against the Government in Title VII actions.
See 42 U.S.C. sec. 2000e-16(d) (2000); Landgraf v. USI Film
Prods., 511 U.S. 244, 251 (1994).
- 44 -
interest on EAJA fee award since no statutory provision expressly
authorizes such interest).
d. Test Case Status
One aspect of this litigation that is certainly “not of
broad and general application” (and therefore potentially
supports the finding of a special factor) is its test case
status. Undoubtedly, counsel’s efforts have beneficially
affected hundreds of nontest case petitioners. At least one
court, however, has explicitly rejected the notion that such
widespread benefit may be treated as a special factor under the
EAJA. See Pollgreen v. Morris, 911 F.2d 527 (11th Cir. 1990).
Pollgreen involved an EAJA fee award to plaintiffs who had
successfully challenged fines and property seizures stemming from
their participation in the “Freedom Flotilla” of Cuban refugees
in 1980. The District Court had doubled the statutory rate, in
part because the litigation benefited “not only * * * the
Plaintiffs herein but a class of people, including over 1,000
vessel owners.” Id. at 537; see also Lyden v. Howerton, 731 F.
Supp. 1545, 1556 (S.D. Fla. 1990) (same language in another
“Freedom Flotilla” case). The Court of Appeals concluded that
the District Court’s “consideration of the litigation’s benefit
to a broad class of people is foreclosed by Pierce’s prohibition
on considering ‘the results obtained’”. Pollgreen v. Morris,
- 45 -
supra at 537.39 In that regard, we deem it noteworthy that Pierce
itself involved a class action in which plaintiffs’ counsel
secured a $60 million settlement against the Department of
Housing and Urban Development that was paid to more than 150,000
low-income tenants of federally subsidized housing projects. See
Underwood v. Pierce, 547 F. Supp. 256, 258 (C.D. Cal. 1982).
5. Conclusion
For the reasons discussed above, we conclude that we are
constrained to apply the statutory rate caps in determining the
respective amounts of petitioners’ fee awards under section 7430.
C. Compensable Hours
1. Respondent’s Objections
a. Duplicative Fees Due to Change of Counsel
Respondent argues that any fee award should exclude
“duplicative attorneys’ fees associated with two sets of
appellate counsel having to read the same record and learn the
same case.” While the inefficiencies associated with a change in
counsel may, in some instances, warrant a reduced fee award, see,
e.g., Spell v. McDaniel, 852 F.2d 762, 768 (4th Cir. 1988), we
conclude that such a reduction would be inappropriate here. As
noted above, more than 300 nontest case petitioners have financed
the test case litigation through contributions to the Defense
39
The court also cited Jean v. Nelson, 863 F.2d at 775, a
class action involving Haitian refugee claims, in which it had
rejected “vindication of public rights” as a special factor under
the EAJA.
- 46 -
Fund. It is hardly surprising that this group, faced with the
largely unfavorable outcome of Dixon III, would fracture over the
issue of legal representation going forward. Indeed, given the
number of contributors to the Defense Fund, three sets of
appellate counsel (i.e., Izen, Minns, and Porter & Hedges) does
not seem unreasonable.40 Therefore, we shall not reduce the
number of compensable hours merely to account for the fact that
Minns and Porter & Hedges had to “read the same record and learn
the same case” with which Izen was already familiar.
b. Overstaffing
Respondent also asserts that “it is apparent that these
cases have been overstaffed by both Mr. Minns and Porter and
Hedges and that the number of hours charged by those firms for
the appeal is excessive and outside the realm of reason.” In
evaluating the reasonableness of the hours claimed, we are aided
by the fact that, taking into account Izen’s appellate fee
request, we have before us three separate fee applications
relating to the same appellate proceedings.41 Each of those
applications contains a breakdown of hours devoted to various
tasks as delineated in the Ninth Circuit’s Form 9. Regarding
40
We note that three sets of counsel participated in the
evidentiary hearing underlying our opinion in Dixon III as well:
Izen, Jones, and Sticht.
41
Although Jones has also filed a motion in this Court for
appellate fees and expenses, see supra note 12, he did not
directly participate in the appeals of the test cases as did
Izen.
- 47 -
what we deem to be the four “core” categories (obtaining and
reviewing records, legal research, preparing briefs, and
preparing for and attending oral argument), Izen claims 676.65
hours, Minns claims 779.18 hours (including Lawfinders’ time),
and Porter & Hedges claims 1,013.9 hours. While it may be
somewhat presumptuous for this Court to judge the relative merits
of the appellate briefs,42 we see no obvious justification for the
significantly greater number of hours claimed by Porter & Hedges
in these categories. Assuming for these purposes that the
subject hours claimed by Izen and Minns represent the low end and
the midpoint, respectively, of the range of reasonableness, we
reduce the Porter & Hedges figure by 130 hours so that the
42
We do observe that it was Izen who hewed to the line that
the misconduct of respondent’s attorneys was a fraud on the
Court, and that the primary relief to which all eligible
petitioners should be entitled is the benefit of the Thompson
settlement. Binder and Minns argued primarily for the complete
vacatur of this Court’s decisions, which would result in a
complete win--no deficiencies--for the petitioners (although
Binder did suggest the Thompson settlement as an alternative).
In the light of hindsight, Izen’s approach has been vindicated;
the Court of Appeals in Dixon V adopted both his diagnosis and
his prescription without reservation.
Having said that, we do not mean to imply that all of Izen’s
appellate time was well spent. He was the only attorney who
continued to argue that the Kersting tax shelters created valid
tax deductions, a position not only contrary to the holdings of
this Court in Dixon II and Dixon III, but also contrary to that
of the Court of Appeals for the Ninth Circuit in the related
promoter penalty case. See Kersting v. United States, 206 F.3d
817 (9th Cir. 2000). We also have the impression that
considerable time was wasted at the appellate level in dealing
with Izen’s unsuccessful and unnecessary attempts to include
hundreds of nontest cases in the Adairs’ interlocutory appeal.
- 48 -
resulting figure (883.9 hours) for these categories is in line
with the high end of the range of reasonableness.
c. Porter & Hedges Client Conferences
Respondent alleges that the PH petitioners have failed to
demonstrate the reasonableness of “charges for numerous
conferences with various unidentified individuals, apparently
members of the Steering Committee.” Our concern lies with the
lack of subject matter descriptions for many of those conferences
and other client communications such as e-mail correspondence.
As discussed above, the committee hired Porter & Hedges not only
to replace Minns but also to recover amounts previously paid to
him. We do not intend to hold the Government responsible for
fees attributable to the latter task. In that regard, the
parties’ submissions indicate that Binder assumed primary
responsibility for the Porter & Hedges briefs, while Irvine dealt
with the Minns situation and client relations, in addition to
overseeing work on the briefs. Most of the generic references to
client contacts appear in Irvine’s time entries, and common
experience suggests that such contacts were more likely related
to the Minns dispute or client relations than, say, appellate
strategy. Nevertheless, in the absence of subject matter
descriptions, we assume that the time Irvine spent consulting
with Defense Fund representatives was divided equally between
matters relating to the Minns dispute and client relations on the
one hand, and matters relating to the appeal, on the other.
- 49 -
2. Additional Adjustments to Time Claimed for the
Appeals
a. Missing Minns Time Entries
Although Minns claims 577.42 hours of attorney and legal
assistant time for his firm (i.e., not including the Lawfinders
time) in the Hongsermeiers’ initial appellate fee request, the
accompanying time entries for Minns and his in-house staff cover
only 462.56 hours. Inasmuch as those time entries run only
through January 22, 2002, they do not cover the final preparation
of the brief (apparently mailed on January 25, 2002), the
preparation of the reply brief, or the oral argument.43 While we
are not inclined to provide Minns the opportunity to “prove up”
his firm’s undocumented efforts at this late date, we likewise
are not prepared to disregard those efforts altogether.
Accordingly, we shall credit Minns with the 66-hour block of time
he categorized as “preparing for and attending oral argument” in
his submission to the Court of Appeals and disallow the remaining
48.86 undocumented hours.44
43
We note that there is no corresponding break in the Bates
numbering of the documents accompanying the parties’ special
stipulation of facts (filed in this Court) regarding the
appellate fee requests.
44
Only 11.5 of those 48.86 hours are attributable to Minns;
the balance is attributable to his associate attorney and his
legal assistant.
- 50 -
b. Minns Hours Relating to Dispute With Committee
As stated above, we will not hold the Government responsible
for fees attributable to the dispute between the steering
committee and Minns. Following the approach used above with
regard to Irvine’s time, we assume that, absent subject matter
descriptions to the contrary, the time Minns and his staff spent
during December 2001 and January 2002 communicating with clients
was divided equally between damage control and matters relating
to the appeal. Similarly, we assume that time spent
communicating with Irvine during this contentious period was
devoted to “self defense” and to coordination efforts in equal
measure.
c. Additional Porter & Hedges Time Relating to Minns
Dispute
We have previously dealt with Irvine’s nondescriptive time
entries relating to client communications. We add here that,
consistent with our treatment of Minns, we assume, absent subject
matter descriptions to the contrary, that time spent by Irvine
communicating with Minns and his staff was divided equally
between matters relating to the Minns dispute and matters
relating to the appeal. We also disallow the relatively small
amount of time Irvine devoted to “review of contracts”, as that
task is clearly identifiable with his firm’s engagement by the
steering committee to handle its dispute with Minns.
- 51 -
d. Porter & Hedges Time Relating to Bill of Costs
Porter & Hedges claims approximately 33 hours of attorney
time (most of it Binder’s) relating to a bill of costs in the
amount of $5,663.40.45 See Fed. R. App. P. 39. We see no
justification for the devotion of that much time to a task
normally considered ministerial. In that regard, we note that
Minns has not claimed any time relating to the bill of costs he
filed on behalf of the Hongsermeiers. We disallow all but 5
hours of attorney time relating to the PH petitioners’ bill of
costs.
e. Porter & Hedges Time Relating to Remand
A few of Binder’s time entries describe time spent analyzing
the illicit Thompson settlement shortly after the Court of
Appeals’ issuance of Dixon V. As those entries relate to the
ensuing remand proceedings in this Court, they are not properly
the subject of an appellate fee request. See supra text
accompanying note 21.
3. Adjustments to Porter & Hedges Time Relating to
Fee Request
a. Initial Research Time
According to the Porter & Hedges time entries, four
attorneys spent 85.2 hours researching section 7430 and
attorney’s fees issues (and memorializing that research) before
45
The Court of Appeals ultimately allowed $3,808.50 of such
costs.
- 52 -
work on the actual fee request even began. That seems excessive
to us, and we accordingly reduce those hours by 50 percent.
b. Time Relating to Unsuccessful Claims
All of the adjustments we have made thus far relate to
either (1) documentation or (2) what may be termed the efficiency
aspect of the reasonableness standard incorporated into section
7430. In Hensley v. Eckerhart, 461 U.S. 424, 436 (1983), a case
involving CRAFAA (the general civil rights fee-shifting
statute),46 the Supreme Court addressed another aspect of
reasonableness in this context:
If * * * a plaintiff has achieved only partial or
limited success, the product of hours reasonably
expended on the litigation as a whole times a
reasonable hourly rate may be an excessive amount.* * *
* * * That the plaintiff is a “prevailing party”
therefore may say little about whether the expenditure
of counsel’s time was reasonable in relation to the
success achieved. * * *
Professor Sisk sometimes refers to this aspect of the
reasonableness standard as the limited success factor. Sisk,
“The Essentials of the Equal Access to Justice Act: Court Awards
of Attorney’s Fees for Unreasonable Government Conduct (Part
Two),” 56 La. L. Rev. 1, 119 (1995).
The Supreme Court subsequently referred to the limited
success factor in the context of “fees for fees” (i.e., fees
46
“The standards set forth in this opinion are generally
applicable in all cases in which Congress has authorized an award
of fees to a ‘prevailing party.’” Hensley v. Eckerhart, 461 U.S.
424, 433 n.7 (1983).
- 53 -
incurred in obtaining a fee award) in Commissioner, INS v. Jean,
496 U.S. 154 (1990). As discussed in Part I.B., supra, the Court
in Jean held that fees for fees are recoverable under the EAJA
without a separate showing that the Government’s opposition to
the fee award was not substantially justified. In response to
the Government’s argument that such a holding would have the
effect of allowing “an automatic award of ‘fees for fees’”, id.
at 162, the Court stated:
Because Hensley v. Eckerhart, 461 U.S. 424, 437
(1983), requires the district court to consider the
relationship between the amount of the fee awarded and
the results obtained, fees [claimed] for fee litigation
should be excluded [from the award] to the extent that
the applicant ultimately fails to prevail in such
litigation. For example, if the Government’s challenge
to a requested rate for paralegal time resulted in the
court’s recalculating and reducing the award for
paralegal time from the requested amount, then the
applicant should not receive fees for the time spent
defending the higher rate. [Id. at 163 n.10.]
The Court of Appeals for the Ninth Circuit has expressly held
that “the legal principles for recovering attorney’s fees laid
out in Hensley [citation omitted] apply to requests for fees-on-
fees”. Thompson v. Gomez, 45 F.3d 1365, 1367 (9th Cir. 1995);
see also Atkins v. Apfel, 154 F.3d 986, 990 (9th Cir. 1998).
While it is often difficult to allocate attorney time
between successful and unsuccessful issues and claims, “denial of
a particular form or aspect of relief occasionally may be
attributable to a discrete motion or proceeding, thus allowing
the limited success factor to be measured by hours devoted to
- 54 -
that effort.” Sisk, 56 La. L. Rev. at 119; see also Hensley v.
Eckerhart, supra at 436 (one way a court can give effect to the
limited success factor is by “attempt[ing] to identify specific
hours that should be eliminated”). That is the case with regard
to our rejection of the PH petitioners’ attempts (1) to avoid the
section 7430 rate cap by asserting entitlement under the bad
faith exception and section 6673, and (2) to obtain interest on
their fee award (see infra Part IV). Specifically, the PH
petitioners’ August 2005 amendment of their fee request (and the
prerequisite motion for leave to amend), their motion for
reconsideration of our September 1, 2005 order, and their
November 2005 request for appellate fees under section 6673
pertain exclusively to those unsuccessful claims. We therefore
disallow the 123.7 hours Porter & Hedges devoted to those
filings.47 Cf. Anthony v. Sullivan, 982 F.2d 586 (D.C. Cir. 1993)
(plaintiff initially sought recovery of fees under both the Title
VII fee provision, which contains no rate cap, and the EAJA;
after Court of Appeals overturned the Title VII award, plaintiff
established entitlement to EAJA award on remand; held, Hensley
dictates that plaintiff’s EAJA award not include any fees
incurred in the unsuccessful defense of the Title VII award on
appeal).
47
We do not intend to suggest thereby that the positions
taken in those filings are in any way frivolous. See Hensley v.
Eckerhart, supra at 436 (partial or limited success must be taken
into account even though the unsuccessful claims are nonfrivolous
and raised in good faith).
- 55 -
D. Computation of Potentially Compensable Fees
We now determine the amount of claimed fees that, to the
extent paid or incurred by real parties in interest who satisfy
section 7430’s net worth requirement (hereafter, eligible
persons), see infra Part III.F., are compensable under section
7430. Where the fee requests reflect the use of “block billing”
(i.e., the assignment of multiple discrete tasks to a single
block of time), we use our best judgment to allocate the
aggregate amount of time among the various tasks.
1. The Hongsermeiers--Work on the Appeal48
a. 2001
Taking into account the $140 rate cap in effect for 2001,
the Hongsermeiers claim 377.17 hours at $140 per hour, 31 hours
at $100 per hour, and 17.69 hours at $50 per hour. Regarding the
50-percent reduction for time deemed attributable to both the
dispute with the steering committee and the appeal, we have
assigned 16.4 hours in December to client communications (Minns:
8.5 hours; associate attorney: 4.5 hours; legal assistant: 3.4
hours). We therefore (1) reduce the $140 (Minns) time by 4.25
hours (50% of 8.5 = 4.25), leaving 372.92 hours; (2) reduce the
$100 (associate) time by 2.25 hours (50% of 4.5 = 2.25), leaving
48
Because the Defense Fund retained Minns to pursue the
appeal and a separate group subsequently retained him to pursue
appellate fees, we compute the potentially compensable fees with
respect to those two engagements separately. The Hongsermeiers
claim $220,201 for work on the appeal and $56,233.75 for work on
the fee request.
- 56 -
28.75 hours; and (3) reduce the $50 (legal assistant) time by 1.7
hours (50% of 3.4 = 1.7), leaving 15.99 hours. The resulting
amount is $55,883.30, determined as follows: [(372.92 X $140) +
(28.75 X $100) + (15.99 X $50)] = ($52,208.80 + $2,875 + $799.50)
= $55,883.30.
b. 2002
Taking into account the $150 rate cap in effect for 2002,
the Hongsermeiers claim 446.95 hours at $150 per hour, 34.4 hours
at $100 per hour, and 23.11 hours at $50 per hour. Of the 48.86
hours disallowed due to missing time entries, 11.5 hours relate
to $150 time, 20.8 hours relate to $100 time, and 16.56 hours
relate to $50 time. Regarding the 50-percent reduction for
January 2002 time deemed attributable to both the rift with the
steering committee and the appeal, we have assigned 6.9 hours to
client communications (Minns: 5.1 hours; legal assistant: 1.8
hours) and 2.9 hours to Irvine communications (Minns: 1.9 hours;
legal assistant: 1 hour). We therefore reduce the $150 (Minns)
time by an additional 3.5 hours (5.1 + 1.9 = 7; 50% of 7 = 3.5)
and reduce the $50 (legal assistant) time by an additional 1.4
hours (1.8 + 1 = 2.8; 50% of 2.8 = 1.4). That leaves 431.95
hours of $150 time (446.95 - 11.5 - 3.5 = 431.95), 13.6 hours of
$100 time (34.4 - 20.8 = 13.6), and 5.15 hours of $50 time (23.11
- 16.56 - 1.4 = 5.15). The resulting amount is $66,410,
determined as follows: [(431.95 X $150) + (13.6 X $100) + (5.15 X
$50)] = ($64,792.50 + $1,360 + $257.50) = $66,410.
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c. Total
The total amount of potentially compensable fees with
respect to the Hongsermeiers’ fee request for work on the appeal
is $122,293.30 ($55,883.30 for 2001 and $66,410 for 2002).
2. The Hongsermeiers–Work on the Fee Request
a. 2003 to 2005
Taking into account the $150 rate cap in effect during the
years 2003 through 2005, the Hongsermeiers claim 177.85 hours at
$150 per hour, 92.75 hours at $125 per hour, 2.4 hours at $75 per
hour, and 2.65 hours at $50 per hour. The resulting amount is
$38,583.75, determined as follows: [(177.85 X $150) + (92.75 X
$125) + (2.4 X $75) + (2.65 X $50)] = ($26,677.50 + $11,593.75 +
$180 + $132.50) = $38,583.75.
b. 2006
Taking into account the $160 rate cap in effect for 2006,
the Hongsermeiers claim 0.5 hours at $160 per hour, 0.9 hours at
$125 per hour, and 1.7 hours at $50 per hour. The resulting
amount is $277.50, determined as follows: [(0.5 X $160) + (0.9 X
$125) + (1.7 X $50)] = ($80 + $112.50 + $85) = $277.50.
c. Application of Limited Success Factor
While the Hongsermeiers did not join in the PH petitioners’
unsuccessful fee request claims discussed in Part III.C.3.b.,
supra, that does not mean that Hensley’s limited success factor
has no application to their claim for fees on fees. As Professor
Sisk observes: “Because ordinarily it is difficult to precisely
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link a certain segment of legal services to the denial of
particular relief, the limited success factor typically is
addressed at a separate stage through a percentage downward
adjustment of the lodestar.” Sisk, 56 La. L. Rev. at 119; see
also Hensley v. Eckerhart, 461 U.S. at 436-437 (in applying the
limited success factor, a court “may attempt to identify specific
hours that should be eliminated, or it may simply reduce the
award to account for the limited success”). Here, the lodestar
for the Hongsermeiers’ fees on fees is $38,861.25 ($38,583.75 for
2003 through 2005, and $277.50 for 2006). In determining the
degree of success they achieved with regard to their fee request,
we compare the number of “merits hours” they claimed (i.e., hours
relating to the appeal--930.32) with the number of merits hours
we have allowed (868.36).49 See Thompson v. Gomez, 45 F.3d 1365
(9th Cir. 1995) (upholding District Court’s award of 87.2 percent
of requested fees on fees to reflect the parties’ 87.2-percent
settlement with regard to requested “merits fees”); Harris v.
McCarthy, 790 F.2d 753, 759 (9th Cir. 1986) (upholding District
Court’s award of 11.5 percent of requested fees on fees to
reflect its award of 11.5 percent of requested merits fees). The
49
See supra Parts III.D.1.a. and III.D.1.b. (372.92 + 28.75
+ 15.99 + 431.95 + 13.6 + 5.15 = 868.36). We compare merits
hours claimed to merits hours allowed rather than merits fees
claimed to merits fees awarded because much of the difference
between the merits fees claimed and the merits fees awarded in
this case is attributable to sec. 7430’s rate cap, the effect of
which is already reflected in the fees on fees lodestar amount of
$38,861.25.
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resulting success ratio (868.36/930.32) is 93.33 percent, which
we apply to the aforementioned lodestar to obtain the amount of
potentially compensable fees on fees with respect to the
Hongsermeiers’ fee request: $36,269.20.50
3. The PH Petitioners
a. 2001
Taking into account the $140 rate cap in effect for 2001,
the PH petitioners claim 112.15 hours at $140 per hour, 3.25
hours at $105 per hour, and 0.5 hours at $90 per hour. We begin
by allocating to 2001 a portion of the 130-hour “overstaffing”
reduction discussed above. Based on the Porter & Hedges time
entries, we estimate that 10 percent of the hours devoted to
tasks described in the “core” categories of the Ninth Circuit’s
Form 9, see supra Part III.C.1.b., are attributable to services
performed in 2001. Accordingly, we reduce the time claimed for
2001 by 13 hours (10% of 130 = 13). Since more than 96 percent
of the time claimed for 2001 falls into the $140 category, we
further allocate the entire 13-hour reduction to the $140 time.
Next, we apply the 50-percent reduction to Irvine’s 2001 time
deemed attributable to both the Minns dispute and the appeal. In
50
We note here that, even though petitioners did not
receive all the relief they requested on appeal, see supra note
42, we see no need to reduce their “merits fees” awards by
applying a success ratio. See Hensley v. Eckerhart, 461 U.S. at
435 & n.11 (where plaintiff obtains “excellent results”, fee
award will normally encompass all hours reasonably expended on
the litigation; fact that such plaintiff did not receive all the
relief requested is not necessarily significant).
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that regard, we have assigned 10.5 hours to generic client
communications and 1.5 hours to Minns communications. We
therefore reduce the $140 time by an additional 6 hours (10.5 +
1.5 = 12; 50% of 12 = 6). Finally, we have assigned 0.75 hours
to Irvine’s review of contracts and further reduce the $140 time
by that amount. The end result is a 19.75-hour reduction in the
$140 time (13 + 6 + .75 = 19.75), leaving 92.4 hours of $140
time. The resulting amount is $13,322.25, determined as follows:
[(92.4 X $140) + (3.25 X $105) + (0.5 X $90)] = ($12,936 +
$341.25 + $45) = $13,322.25.
b. 2002 to 2005
Taking into account the $150 statutory rate cap in effect
during the years 2002 through 2005, the PH petitioners claim
1,683.85 hours at $150 per hour, 1 hour at $140 per hour, 0.7
hours at $130 per hour, 1.4 hours at $120 per hour, 2 hours at
$105 per hour, 1 hour at $100 per hour, and 15.5 hours at $90 per
hour. We adjust the $150 time to reflect the following
reductions: (1) Remainder of the 130-hour overstaffing reduction-
-117 hours; (2) Irvine’s time deemed attributable to the Minns
dispute--7.8 hours;51 (3) excessive time pertaining to the bill of
costs--28 hours; (4) work attributable to the remand proceedings-
51
We have assigned 15.6 hours of Irvine’s 2002 time to
generic client communications (10.9 hours) and Minns
communications (4.7 hours). As we deem 50 percent of that time
to be attributable to the Minns dispute, the resulting reduction
is 7.8 hours (50% of 15.6 = 7.8).
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-7.9 hours; (5) excessive preliminary research regarding section
7430 and attorney’s fees issues--42.6 hours (85.2 X 50% = 42.6);
and (6) time devoted to unsuccessful fee request claims--123.7
hours (119.2 hours of Binder’s time and 4.5 hours of Irvine’s
time). The end result is a 327-hour reduction in the $150 time
(117 + 7.8 + 28 + 7.9 + 42.6 + 123.7 = 327), leaving 1,356.85
hours of $150 time. The resulting amount is $205,631.50,
determined as follows: [(1,356.85 X 150) + (1 X $140) + (0.7 X
$130) + (1.4 X $120) + (2 X $105) + (1 X $100) + (15.5 X $90] =
($203,527.50 + $140 + $91 + $168 + $210 + $100 + $1,395) =
$205,631.50.
c. 2006
Taking into account the $160 rate cap in effect for 2006,
the PH petitioners claim 67.9 hours at $160 per hour and 2.5
hours at $140 per hour.52 The resulting amount is $11,214,
determined as follows: [(67.9 X $160) + (2.5 X $140)] = ($10,864
+ $350) = $11,214.
d. Total
The total amount of potentially compensable fees with
respect to the PH petitioners’ fee request is $230,167.75
52
In their final submission of fees and expenses, the PH
petitioners seek to recover an additional $4,865 that Porter &
Hedges estimates it will incur in pursuing the fee request “until
this Court rules on this motion”. We are not aware of any
authority supporting such a request, nor do we see the need for
such additional fees and expenses under the circumstances.
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($13,322.25 for 2001, $205,631.50 for 2002 through 2005, and
$11,214 for 2006).
E. Potentially Compensable Expenses
The PH petitioners claim additional costs in the amount of
$20,307.18. We reduce that amount by $2,425.66 as follows:
Delivery charges: $105.11 (2 overnight deliveries to/from
persons with no identifiable connection to the litigation--
$26.86; extra charges for a Saturday package pickup--$75.25;
discrepancy between claimed courier charge and computer
backup--$3)
Computer research: $444.39 (difference between amounts
charged by provider and amounts reflected in billing
records--$226.31; unidentified research sessions--$218.08)
Secretarial overtime: $1,083.90
Double-counted charges: $751.26 (3/10/03 to 4/30/03)
Miscellaneous: $41 (“various tips”--$16; unidentified
parking charge--$25)
The amount of potentially compensable expenses with respect to
the PH petitioners’ fee request is therefore $17,881.52.
As indicated above, the Hongsermeiers have not requested any
expenses other than attorney’s fees.
F. Amounts Paid or Incurred by Eligible Persons
We now determine the extent to which eligible persons paid
or incurred the potentially compensable fees and expenses with
respect to the fee requests.
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1. Amounts Paid Through the Defense Fund
a. Minns Agreement
The Defense Fund paid $185,000 in legal fees under the Minns
agreement. Of the $220,201 claimed by the Hongsermeiers for the
corresponding legal services, see supra note 48, $122,293.30 is
potentially compensable, see supra Part III.D.1., meaning that
$97,907.70 is noncompensable ($220,201 - $122,293.30 =
$97,907.70). Given the fungibility of money, a case can be made
for allocating the Fund’s $185,000 expenditure between the
potentially compensable fees and the noncompensable fees on a pro
rata basis. We are not aware of any authority requiring us to do
so, and we think such an approach would run counter to the
remedial purpose of section 7430. Accordingly, we allocate the
first $122,293.30 of the $185,000 expenditure to the potentially
compensable fees and the remaining $62,706.70 ($185,000 -
$122,293.30 = $62,706.70) to the noncompensable fees.
Next, we must identify the contributions to the Defense Fund
from which the Fund’s $185,000 expenditure derived. Owing again
to the fungibility of money, any methodology we use will be
somewhat arbitrary. Nevertheless, we believe it is reasonable to
treat the $185,000 expenditure as having derived from the
$268,200 contributed to the Fund by the Hongsermeiers and the
group of 112 from January 2001 through November 2001.
The following table lists the persons described in the
preceding paragraph (i.e., the Hongsermeiers and the group of
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112) for whom we have received net worth affidavits, together
with the amount contributed by each such person to the Defense
Fund during the relevant period:
Name Amt. Contributed
Arbuckle $2,400
Asmus $2,500
Baccitich $2,400
Bakos $2,400
Beecher $2,300
Berger $3,500
Boettger $2,300
Bowersox $2,600
Branch $2,400
Bremner $2,300
Brown $2,400
Bruckner $2,400
Croft $2,700
Doyle $2,300
Ellis $2,400
Evans $2,100
Flatter $2,600
Fraser $2,500
Fruchnicht $3,000
Fusakio $1,500
Gaubert $1,500
Gavagan $2,700
Geisler $2,400
Graham $2,500
Hague $1,800
Hannan $2,400
Hartigan $2,000
Hatcher $2,400
Heintz $2,500
Hendrickson $2,300
Hillen $2,300
Hinrich $2,000
Hongsermeier $2,600
Howell $2,300
Humphries $2,200
Hunt $2,900
Jensen, John $2,400
Jensen, Steen $2,300
Johnson, Marvin $1,500
Jurewicz $2,400
Keadle $2,500
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Kelley $2,500
Klasch $2,500
Krassner $2,700
Layman $1,700
Leslie $1,700
Maeda $2,600
McNamee $2,300
Meyners $2,500
Michaelson $2,400
Miller, Dale $2,400
Miller, R.B. $2,800
Millon $3,000
Muckle $2,300
Myers $2,500
Norrell $2,500
Oakes $2,400
Oyler $2,700
Pistoll $2,500
Porter $2,300
Proctor $2,200
Pylate $1,500
Richmond $2,400
Satterfield $2,400
Sheasley $2,500
St. John $1,900
Tice $2,600
Toman $2,700
Tynan $2,700
Villines $2,400
Watkins $2,300
Whittlesey $2,500
Wiater $2,400
Wilson $2,400
$176,100
Thus, at least $176,100 of the $268,200 contributed to the
Defense Fund by the Hongsermeiers and the group of 112 between
January 2001 and November 2001 derives from eligible persons (we
refer to such contributions as eligible contributions). Here,
too, a case can be made for allocating the eligible contributions
between the Defense Fund’s $122,293.30 payment for potentially
compensable fees and its $62,706.70 payment for noncompensable
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fees on a pro rata basis. Again, we are not aware of any
authority requiring us to do so, and we think such an approach
would run counter to the remedial purpose of section 7430.
Accordingly, we allocate the eligible contributions first to the
Defense Fund’s $122,293.30 payment for potentially compensable
fees. It follows that eligible persons paid all of those
potentially compensable fees.
b. Porter & Hedges Agreement
We take a similar approach with regard to the $60,000 the
Defense Fund paid to Porter & Hedges. Of the $514,821.90 claimed
by the PH petitioners in their appellate fee request, $248,049.27
is potentially compensable. See supra Parts III.D.3., III.E.
First, we allocate the entire $60,000 expenditure to the
potentially compensable fees and expenses. Next, we identify the
contributions to the Defense Fund from which the Fund’s $60,000
expenditure derived. We believe it is reasonable to treat the
$60,000 expenditure as having derived from the $84,200
contributed to the Defense Fund by the Dixons and the group of 43
from December 2001 through April 2002.
The following table lists the persons described in the
preceding paragraph (i.e., the Dixons and the group of 43) for
whom we have received net worth affidavits, together with the
amount contributed by each such person to the Defense Fund during
the relevant period:
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Name Amt. Contributed
Asmus $2,000
Bakos $2,200
Beecher $2,100
Brown $2,000
Bruckner $2,000
Croft $2,100
Dixon $1,500
Ellis $2,000
Gomes $1,000
Grippo $2,500
Hague $2,000
Hartigan $1,500
Hatcher $2,000
Heintz $1,700
Hillen $2,000
Hunt $2,400
Ingals $2,100
Johnson, Marvin $1,500
Johnson, M.P. $1,500
Jurewicz $2,000
Keadle $1,800
Klasch $2,000
Leslie $2,000
McNamee $2,000
Meyners $2,100
Miller, R.B. $1,800
Moore, L. $1,700
Norrell $1,800
Oyler $1,500
Pistoll $2,000
Porter $2,000
Pylate $ 900
Richmond $2,000
Satterfield $2,000
St. John $1,500
Tice $2,000
Tynan $2,200
Villines $2,000
Whittaker $1,900
Whittlesey $2,000
$75,300
Thus, at least $75,300 of the $84,200 contributed to the Defense
Fund by the Dixons and the group of 43 between December 2001 and
April 2002 derives from eligible persons. Again, we allocate the
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eligible contributions first to the Fund’s $60,000 payment for
potentially compensable fees and expenses. It follows that
eligible persons paid $60,000 of the potentially compensable
amount of $248,049.27.
2. Amounts Paid Directly to Minns
The Hongsermeiers and each member of the group of 38 paid
Minns a $3,500 retainer fee for continued representation of their
interests in post-appellate matters, including services relating
to the Hongsermeiers’ appellate fee request. We have received
net worth affidavits for all but five of those persons. Thus, at
least $119,000 of the $136,500 initially paid by this group to
Minns derives from eligible persons. We allocate that $119,000
first to the $56,233.75 claimed by the Hongsermeiers for services
relating to the fee request. See supra note 48. It follows that
eligible persons paid the entire portion of the claimed amount
that is potentially compensable--$36,269.20. See supra Part
III.D.2.
3. Amounts Incurred But Not Paid
While eligible persons have paid all the potentially
compensable fees with respect to the Hongsermeiers’ fee request
(thus obviating the need to determine whether eligible persons
are liable for any unpaid amounts), eligible persons have paid
only $60,000 of the $248,049.27 that is potentially compensable
with respect to the PH petitioners’ fee request. Under the terms
of the Defense Fund’s agreement with Porter & Hedges, nontest
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case petitioners Darrell Hatcher (now deceased), Robert Norrell,
and Don Hunt are jointly and severally liable for the Fund’s
obligations under the agreement, which would include the
remaining potentially compensable fees and expenses of
$188,049.27 ($248,049.27 - $60,000 = $188,049.27). Since we have
received net worth affidavits for Messrs. Norrell and Hunt, it
follows that eligible persons are liable for, and therefore
incurred, the remaining potentially compensable fees and expenses
of $188,049.27.53
4. Summary
Eligible persons have paid or incurred all the potentially
compensable amounts with respect to the appellate fee requests.
G. Final Figures
We shall award (1) attorney’s fees in the amount of
$158,562.50 ($122,293.30 paid through the Defense Fund and
$36,269.20 paid outside the Defense Fund) in respect of the
Hongsermeiers’ appellate fee request, and (2) attorney’s fees and
53
Respondent does not suggest, nor do we have any reason to
believe, that the disproportionate liability of Messrs. Norrell
and Hunt is not bona fide. Cf. Sisk, “The Essentials of the
Equal Access to Justice Act: Court Awards of Attorney’s Fees for
Unreasonable Government Conduct (Part One),” 55 La. L. Rev. 217,
337-341 (1994) (discussing the potential for manipulation of the
EAJA eligibility requirements when counsel represents both
eligible and ineligible parties).
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expenses in the amount of $248,049.27 in respect of the PH
petitioners’ appellate fee request.54
IV. Interest
The PH petitioners seek interest on their fee award from
January 17, 2003 (the date of the Court of Appeals’ Dixon V
opinion). As discussed in Part III.B.4.c., supra, the “no-
interest” rule prohibits the recovery of interest in a suit
against the Government absent an express waiver of sovereign
immunity from an award of interest. Library of Congress v. Shaw,
478 U.S. at 311. Section 7430 contains no such express waiver,
see Wilkerson v. United States, 67 F.3d at 120 n.15; Miller v.
Alamo, 992 F.2d at 767; Austin v. Commissioner, T.C. Memo. 1997-
157, and petitioners do not point to any other provision that
might fit the bill. Cf. Miller v. Alamo, supra at 767 (rejecting
the argument that 28 U.S.C. sec. 1961(c)(1) operates as an
express waiver of sovereign immunity from interest on a section
7430 fee award). Accordingly, we deny the PH petitioners’
request for interest on their fee award.55
54
We shall address the manner in which the awards are to be
administered in a separate order or orders implementing this
opinion. In that regard, we note that some nontest case
petitioners who contributed to the Defense Fund during the
relevant period have not been asked to submit net worth
affidavits and therefore have not had the opportunity to
establish their right to share in the awards.
55
We recognize that in Dixon IV we granted postjudgment
interest on petitioners’ sec. 6673(a)(2) fee award. We did so
sua sponte on the basis of “this Court’s inherent power to
protect its own proceedings from abuse, oppression, and
(continued...)
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To reflect the foregoing,
Appropriate orders will be
issued.
55
(...continued)
injustice”, without the benefit of briefs on the subject.
Whatever one’s views may be on the interrelationship between the
doctrines of inherent authority and sovereign immunity, compare
United States v. Horn, 29 F.3d 754, 764 (1st Cir. 1994), with
United States v. Woodley, 9 F.3d 774, 782 (9th Cir. 1993), that
issue is not presented here.
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Appendix A--September 1, 2005 Order
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Appendix B--September 8, 2005 Order
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Appendix C--November 18, 2005 Order
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