Hubbard v. United States

United States Court of Appeals for the Federal Circuit

2003-5076, -5080, 2005-5167

BILL HUBBARD (individually and doing
business as Bill Hubbard Associates),

Plaintiff-Cross Appellant,

v.

UNITED STATES,

Defendant-Appellant.

Steve McNichols, McNichols Randick O’Dea & Tooliatos, LLP, of Pleasanton,
California, argued for plaintiff-cross appellant. Of counsel was Leslie A. Baxter.

Kenneth M. Dintzer, Senior Trial Attorney, Commercial Litigation Branch, Civil
Division, United States Department of Justice, of Washington, DC, argued for
defendant-appellant. With him on the brief were Peter D. Keisler, Assistant Attorney
General, and David M. Cohen, Director. Of counsel were Harold D. Lester, Jr.,
Assistant Director, Nancy Kim and John N. Kane, Jr., Attorneys.

Appealed from: United States Court of Federal Claims

Senior Judge Loren A. Smith
 United States Court of Appeals for the Federal Circuit

2003-5076, -5080, 2005-5167

BILL HUBBARD (individually and doing
business as Bill Hubbard Associates),

Plaintiff-Cross Appellant,
v.

UNITED STATES,

Defendant-Appellant.

______________________________

DECIDED: March 20, 2007
______________________________

Before NEWMAN, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and RADER,
Circuit Judge.

FRIEDMAN, Senior Circuit Judge.

In this government contract case, in which the Court of Federal Claims

held that the government had breached the contract, the contractor’s cross-

appeal challenges the court’s ruling that he had not proven that the government’s

breach had resulted in lost profits for him. The government’s appeal challenges

the district court’s award to the contractor, under the Equal Access to Justice Act,

28 U.S.C. § 2412, of attorneys fees of $110,000 in a case in which the contractor

recovered damages of $400.

We affirm the denial of lost profits damages, vacate the attorney fees

award, and remand the case to the trial court to reconsider an attorney fees

award under the standard we have described.
 I

This case stems from a 1984 contract under which the cross-appellant Bill

Hubbard (“Hubbard”) agreed to build and operate a mini-storage facility at a

naval air station. The Navy agreed to provide the personnel to operate the

facility and a rental office known as the Rent All Center. The financial

arrangements were that Hubbard would give the Navy 17.5% of the business’

gross revenue and retain the rest.

Tensions arose between the parties in 1993 when Captain Al Gorthy, Jr.

became the new commander of the base. Despite Hubbard’s objection, Captain

Gorthy moved the Rent All Center to a new location about two miles from the

facility. Captain Gorthy also took other actions relating to the facility, described

below, to which Hubbard objected.

In 1995, Hubbard filed suit in the Court of Federal Claims seeking

damages for breach of contract. He contended that moving the Rent All Center

violated the Navy’s contractual obligation to provide an on-site rental office.

Hubbard v. United States, 52 Fed. Cl. 192, 194 (2002). Hubbard also contended

that the Navy breached the contract by ending phone service to the rental facility

before it was moved; reducing the hours of the Rent All Center; failing to post

signs notifying customers of the new office’s location; allowing firefighters to

conduct a training exercise at the storage facility site; and allowing other

contractors to park at the storage facility, which damaged a concrete slab on

which Hubbard planned to build another storage building. Id.

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 After a trial, the court held that Captain Gorthy’s decision to move “the

Rent All Center breached both the implied duty to make reasonable decisions

and the implied covenant of good faith and fair dealing,” id. at 196—a ruling not

challenged in this appeal. The court found that Captain Gorthy’s “stated reasons

for the move were pretextual, and that the move was engineered in bad faith,

without regard, indeed, with deliberate and bad faith disregard, for the legitimate

business interests of Mr. Hubbard.” Id. The court also found that the Navy’s

permitting a fire drill at the storage facility and parking by other contractors on the

slab breached the contract. Id. at 198. Lastly, the court found that the

termination of telephone service, the reduction in office hours, and the delay in

posting signs providing notice of the Rent All Center’s move did not breach the

contract. Id. at 197-98.

At trial, Hubbard sought damages of $627,000—most of which

represented profits he allegedly lost as a result of the contract breaches. The

court rejected most of his claim because Hubbard had not shown that the

breaches had caused his alleged lost profits. Id. at 199-200. It awarded

damages of only $400, covering the cost of repaving the concrete slab.

Finally, the court concluded that

Because of the clear bad faith shown by the
Navy in dealing with Mr. Hubbard, Mr. Hubbard has
been forced to appeal to this court, after numerous
attempts to resolve the case without resort to
litigation, because it was impossible to deal
reasonably with a business partner that had acted in
bad faith. Accordingly, plaintiff is entitled to recover
all its attorney costs, fees and expenses related to
this litigation, including expert expenses, from the

2003-5076, -5080, 2005-5167 3
 preparation for the filing of this suit until the current
date.

Id. at 200.

The court wrote an additional opinion dealing with the attorney fees issue

under the Equal Access to Justice Act. Hubbard v. United States, No. 95-396C,

slip op. at 2-3 (Fed. Cl. Aug. 26, 2003) (“Fees Op. 1”). The court first determined

that the statutory conditions for awarding a fee were satisfied. The court ruled

that the $400 damages it had awarded made Hubbard a “prevailing party” under

the Act. It stated that although the Navy’s “conduct during the litigation phase of

the dispute was generally justified,” its pre-litigation bad faith, which “seriously

abused Plaintiff’s contract rights, and amounted to harassment” and “needlessly

forced this matter before the Court,” meant that the government’s position was

not substantially justified. Id. at 4.

In determining the attorney fees, the court multiplied the number of

attorney and paralegal hours billed by the rate specified in the Act, adjusted

upward to reflect cost-of-living increases based on the Consumer Price Index.

Hubbard v. United States, No. 95-396C, slip op. at 2-3 (Fed. Cl. July 14, 2005)

(“Fees Op. 2”); Fees Op. 1 at 4. This came to $110,920.59. To this the court

added total costs of $14,266.33, for a total attorney fees and costs award of

$125,185.92.

II

Hubbard’s claim of lost profits damages was based upon two items of

evidence. First, he presented a study by his expert, Mr. O’Keefe, that purported

2003-5076, -5080, 2005-5167 4
to show what the business’ profits would have been had there been no breach.

Second, Hubbard himself testified about the profits he had expected to earn.

The Court of Federal Claims rejected this evidence because it did not

establish that the breach of the contract (primarily the moving of the Rent All

Center) caused the decrease in earnings that Hubbard attributed to the breach.

The court found that O’Keefe’s analysis did “not relate to the actual breach

actions,” and that based on a review at Hubbard’s business records, the “rental

revenue on a month-to-month basis varied considerably both before and after the

breach, and that no reduction or fall-off in rental revenue can be attributable to

the move based on the information before the court.” Hubbard, 52 Fed. Cl. at

199-200. The court rejected Hubbard’s own analysis for substantially the same

reason.

Although a trier of fact perhaps could have concluded that Hubbard’s lost

profits evidence showed the necessary causal connection between the breach

and the losses, it did not compel that conclusion. We have no reason to reject,

as contrary to the evidence, the trial court’s determination that the necessary

causal connection had not been shown.

III

The Equal Access to Justice Act provides that “in any civil action brought

by or against the United States . . . a court shall award to a prevailing party other

than the United States fees and other expenses . . . unless the court finds that

the position of the United States was substantially justified or that special

circumstances make an award unjust.” 28 U.S.C. § 2412(a)(1), (d)(1)(A). “For

2003-5076, -5080, 2005-5167 5
the purposes of this subsection . . . ‘Fees and other expenses’ includes

reasonable attorney fees.” Id. § 2412(d)(2)(A). Thus, the “fees and other

expenses” that the Act directs to be awarded to a “prevailing party,” includes

“reasonable attorney fees.”

The Act thus is similar to the fee-shifting provision of the Civil Rights

Attorney’s Fees Awards Act of 1976 (“Civil Rights Act”), 42 U.S.C. § 1988, which

provides that “the court, in its discretion, may allow the prevailing party, other

than the United States, a reasonable attorney’s fee as part of the costs.” The

only significant differences between the two provisions are that in the Civil Rights

Act the award of attorney fees is discretionary, not mandatory; the requirement

that the attorney fees be “reasonable” is contained in the operative provision

itself, not in the definitions; and it does not include the “substantially justified” and

“special circumstances” provision of the Equal Access to Justice Act. We do not

think, however, that these distinctions justify different results with respect to the

issue in this appeal.

A. The government urges two grounds upon which, it contends, Hubbard

is not entitled to any attorney fees.

1. The government contends that since Hubbard recovered only nominal

damages, he cannot receive any attorney fees. It refers to the statement in

Farrar v. Hobby, 506 U.S. 103 (1992), that “[w]hen a plaintiff recovers only

nominal damages because of his failure to prove an essential element of his

claim for monetary relief, the only reasonable fee is usually no fee at all.” Id. at

115 (internal citation omitted).

2003-5076, -5080, 2005-5167 6
 “Nominal damages” ordinarily are awarded where, although the plaintiff

has established the merits of his claim, he has not shown any actual damages.

The nominal damages, frequently $1 or sometimes $.06, are intended to

vindicate the plaintiff’s institution of the law suit. In Farrar, in which the Court

held that “a civil rights plaintiff who receives a nominal damages award is a

‘prevailing party’ eligible to receive attorney’s fees under 42 U.S.C. § 1988,” id. at

105, the nominal damages the plaintiff had recovered were $1, id. at 107. It was

in this context that the Court made the statement upon which the government

relies relating to no fee recovery where only nominal damages are recovered.

The term “nominal damages” is also sometimes used to describe the

situation “where, although there has been a real injury, the plaintiff’s evidence

entirely fails to show its amount.” Black’s Law Dictionary 206 (abridged 5th ed.

1983). This was how the Court of Federal Claims used the term in this case,

since the $400 that the trial court characterized as “nominal” represented that

court’s estimate of the actual costs Hubbard had incurred in repairing the

concrete slab, for which Hubbard produced no documentary evidence.

Since the $400 damages in this case were not “nominal” in the sense in

which the Supreme Court apparently used that term in Farrar, this case does not

present the question whether a plaintiff whose $400 damage award is

characterized as “nominal” is therefore not entitled to recover attorney fees under

the Equal Access to Justice Act.

2. Alternatively, the government challenges, as contrary to the evidence,

the trial court’s finding that the government’s position in the case was not

2003-5076, -5080, 2005-5167 7
substantially justified. That was a factual determination that turned in

considerable part on credibility determinations—the trial court concluded that

Captain Gorthy was not a credible witness—which we are in no position to

second guess. We cannot say that the Court of Federal Claims’ finding was

clearly erroneous or otherwise incorrect.

The government also argues that because Hubbard failed to prove his lost

profits (his major damages claim), the government’s position must have been

substantially justified. Under the Equal Access to Justice Act, however, the

substantial justification requirement covers not only the government’s position in

the litigation but also “the action or failure to act by the agency upon which the

civil action is based.” 28 U.S.C. § 2412(d)(1)(D)(2)(D); see also Role Models

Am., Inc. v. Brownlee, 353 F.3d 962, 967 (D.C. Cir. 2004) (“The government,

however, must demonstrate the reasonableness not only of its litigation position,

but also of the agency’s actions.”) (citations omitted).

In the present case, the Court of Federal Claims held in its opinion on

damages that the government’s “conduct during the litigation phase of this

dispute was generally justified; Defendant’s arguments had a reasonable basis in

law and fact, Defendant did not appear to advance the argument in bad faith, and

counsel acted professionally.” Fees Op. 1 at 3. However, the Court explicitly

held that “Defendant demonstrated bad faith in the conduct that gave rise to the

litigation of this case.” Id. We have upheld the “bad faith” ruling and that suffices

to support the court’s determination that, overall, the government’s position was

not substantially justified.

2003-5076, -5080, 2005-5167 8
 B. The principal issues in this appeal are the amount of the fee and the

way it was determined.

In Hensley v. Eckerhart, 461 U.S. 424 (1983), the Supreme Court

“clarif[ied] the proper relationship of the results obtained to an award of attorney’s

fees.” Id. at 432. The Court stated that “[t]he most useful starting point for

determining the amount of a reasonable fee is the number of hours reasonably

expended on the litigation multiplied by a reasonable hourly rate.” Id. at 433.

After calculating this amount, the court must then consider whether to increase or

decrease the fee based on a number of factors, of which “the most critical factor

is the degree of success obtained.” Id. at 436. “If, on the other hand, 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.” Id. The Court

h[e]ld that the extent of a plaintiff’s success is a
crucial factor in determining the proper amount of an
award of attorney’s fees under 42 U.S.C. § 1988 . . .
where the plaintiff achieved only limited success, the
district court should award only that amount of fees
that is reasonable in relation to the results obtained.

Id. at 440.

The Court reiterated this principle in Farrar, where it stated, citing Hensley,

that “[i]ndeed, ‘the most critical factor’ in determining the reasonableness of a fee

award ‘is the degree of success obtained.’’’ 506 U.S. at 114 (citing Hensley, 461

U.S. at 436, and Marek v. Chesny, 473 U.S. 1, 11 (1985)).

Although those cases involved the fee-shifting provision of the Civil Rights

Act, we see no reason why the foregoing principles there announced should not

2003-5076, -5080, 2005-5167 9
be equally applicable to the parallel fee-shifting provision of the Equal Access to

Justice Act.

In the present case, the Court of Federal Claims determined the fee award

by multiplying the hours spent by the hourly rate—the first step of the Hensley

analysis. It did not, however, then proceed to the second step of determining

whether there were circumstances that required a reduction in the fee thus

calculated—particularly whether such fee would be excessive in light of the

results achieved.

As noted, the trial court explained the basis for its attorney fees award as

follows: “Because of the clear bad faith shown by the Navy in dealing with Mr.

Hubbard, Mr. Hubbard has been forced to appeal to this court . . . . Accordingly,

plaintiff is entitled to recover all its attorney’s costs, fees and expenses related to

his litigation.” Hubbard, 52 Fed. Cl. at 200. In other words, the court concluded

that because of the government’s misconduct in its pre-litigation relations with

Hubbard, the latter was entitled to be reimbursed by the government for all of the

expenses he incurred, including his attorney fees, in conducting this litigation.

Although the court properly considered the government’s pre-litigation conduct in

determining whether the government’s position was substantially justified, such

conduct did not make irrelevant Hubbard’s lack of success in this case.

Although at trial Hubbard sought damages of $627,000, he recovered only

$400—less than 1/10th of 1% of the amount sought. The $110,000 attorney’s

fee awarded was 275 times the amount of the recovery. The trial court made no

attempt to explain why that fee—which on its face seems grossly excessive in

2003-5076, -5080, 2005-5167 10
light of the small recovery—could be deemed a reasonable one in the light of “the

degree of success obtained.” Farrar, 506 U.S. at 114.

“Once civil rights litigation materially alters the legal relationship between

the parties, ‘the degree of the plaintiff’s overall success goes to the

reasonableness’ of a fee award under Hensley v. Eckerhart, 461 U.S. 424

(1983).” Farrar, 506 U.S. at 114. A fortiori, this principle applies in a simple

breach of contract suit where attorney fees are sought under the Equal Access to

Justice Act. The present case involves only a garden variety contract claim that,

unlike civil rights litigation, involves no broad public policy issues and the only

relief sought was damages for the loss Hubbard allegedly suffered because of

the breach.

C. The government contends that if Hubbard is entitled to any fee it

should be $80.11. It calculates this amount by multiplying the total of the fees

and costs incurred ($125,000) by the percentage of the damages Hubbard

claimed ($625,000) that he actually recovered ($400), or .06%. This mechanical

mathematical analysis is inconsistent with the nuanced approach we have

determined the trial court should take. Indeed, in Hensley the Court “agree[d]

with the District Court’s rejection of ‘a mathematical approach comparing the total

number of issues in the case with those actually prevailed upon.’ Such a ratio

provides little aid in determining what is a reasonable fee in light of all the

relevant factors.” 461 U.S. at 435 n.11 (internal citation omitted).

D. The government contends that the Court of Federal Claims

erroneously determined the amount by which the statutory maximum hourly rate

2003-5076, -5080, 2005-5167 11
of $75 was increased to reflect increases in the cost of living, as the statute

authorizes. The trial court calculated the hourly rate as $153.18 by multiplying

the statutory rate of $75 by 2.04. The latter figure reflected the Consumer Price

Index (CPI) for April 2003 of $197.31, divided by the Consumer Price Index for

October 1981 of 96.6.

The government argues that the effect of this calculation was improperly

to award interest without Congressional authority to do so. The government

relies upon Library of Congress v. Shaw, 478 U.S. 310, 314 (1986), and Chiu v.

United States, 948 F.2d 711, 719-20 (Fed. Cir. 1991).

The trial court properly used the CPI of October 1, 1981 as the starting

point for its calculation. Chiu, 948 F.2d at 718. Although this case was tried in

1996 and most of the attorney fees presumably were incurred and paid in that

year or before, the court’s use of the higher April 2003 CPI increased the

attorney fees beyond what was actually incurred in 1996—an increase the

government states in its brief amounted to approximately $15,000. The effect of

using the CPI for 2003, whose only connection with the fees was that that was

the year in which the fee award was made, was to compensate for the delay in

Hubbard’s receiving the attorney fees, which constitutes the award of interest on

the fee that had been earned earlier. Chiu, 948 F.2d at 719-20.

In denying the government’s motion to reconsider the fee award on this

ground, the trial court stated that the Equal Access to Justice Act “is silent as to

applying cost of living adjustments when awarding litigation costs and fees. In

light of this, the Court acted within its discretion in applying the CPI for April

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2003.” Fees Op. 1 at 2. ”Although the award of attorney’s fees lies within the

discretion of the trial court, that discretion does not authorize the court to award

prejudgment interest against the United States. In recalculating the attorney fees

on remand, the trial court should take this principle into account. Although it may

be difficult, or even impossible, to determine the particular year in which

particular portions of the fees were earned, that does not justify the court’s failure

to directly address the problem. The court may be able to do no more than make

a rough approximation of when various portions of the fees were earned but it is

clear that they all were earned before 2003.

E. In sum, the Court of Federal Claims’ award of attorney fees of

$110,000 in a damage suit in which the plaintiff recovered only $400 cannot

stand. We therefore vacate the attorney fees award and remand the case for

that court to reconsider the award under the standards set forth in this opinion.

In connection with redetermining the attorney fees, the trial court also may, if it

deems it appropriate, reconsider its award of the other costs.

The trial court has considerable discretion in determining reasonable

attorney fees. Cf. Hensley, 461 U.S. at 437. Of course, we intimate no view on

what would be an appropriate fee award in this case. That is for the trial court to

determine in the first instance.

CONCLUSION

The judgment of the Court of Federal Claims is affirmed insofar as it

denied Hubbard lost profits and vacated insofar as it awarded Hubbard

2003-5076, -5080, 2005-5167 13
$125,186.92 in attorney fees and costs. The case is remanded to that court for

further proceedings consistent with this opinion.

AFFIRMED-IN-PART, VACATED-IN-PART, and REMANDED

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