United States Court of Appeals
For the First Circuit
____________________
No. 00-2514
ELEANOR C. SCHOCK,
Plaintiff, Appellant,
v.
UNITED STATES; FEDERAL DEPOSIT INSURANCE CORPORATION in its capacity
as deposit insurer and in its capacity as Receiver of Old Stone Bank,
F.S.B.,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ronald R. Lagueux, U.S. District Judge]
____________________
Before
Torruella, Circuit Judge,
Cyr, Senior Circuit Judge,
and Lynch, Circuit Judge.
____________________
John D. Deacon, Jr. for appellant.
Lawrence H. Richmond, with whom Ann S. DuRoss, Assistant General
Counsel, Robert D. McGillicuddy, Supervisory Counsel, and J. Scott
Watson, Counsel, Federal Deposit Insurance Corporation, were on brief,
for appellees.
____________________
June 21, 2001
____________________
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LYNCH, Circuit Judge. In the Equal Access to Justice Act
(EAJA), Congress provided that a prevailing party may recover
attorneys' fees and expenses in a civil action against any
"agency . . . of the United States" unless the court finds the
position of the United States "substantially justified." 28
U.S.C. § 2412(d)(1)(A). This appeal is about the denial of EAJA
fees to a plaintiff who was successful in a contract claim
against the FDIC as receiver of an insolvent bank. Attorneys'
fees and expenses in the sum of $27,896.00 are sought for a
judgment for plaintiff of $23,331.72. The district court denied
the claim on the ground that the FDIC as receiver was not an
agency of the United States. We affirm, albeit on different
grounds.
I.
Schock, the daughter and only heir of Ragnar Miller,
discovered that her late father's attorney, Pat Nero, had
embezzled from her father's estate, including the sum of
$23,331.72 in Miller's savings account at Old Stone Bank. At
the time Nero withdrew the funds, Old Stone was being run under
the conservatorship of the Resolution Trust Corporation (RTC),
the FDIC's statutory predecessor. As holder of her father's
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estate's claims, Schock sued the FDIC, as receiver for Old
Stone, for breach of contract, alleging that the bank permitted
an unauthorized signatory (Nero) to withdraw funds on deposit in
the Miller savings account. Schock also brought a conversion
claim against the United States under the Federal Tort Claims
Act and a claim for insurance liability against the FDIC in its
corporate capacity, and subsequently amended her complaint to
bring a negligence claim against the FDIC-Receiver.
Schock moved for summary judgment on her breach of
contract claim. The FDIC-Receiver invoked the protection of
Rhode Island's version of the Uniform Fiduciaries Act (UFA),
which provides a defense to "a person who in good faith pays or
transfers to a fiduciary any money . . . which the fiduciary is
authorized to receive" if the fiduciary later misappropriates
those funds. R.I. Gen. Laws § 18-4-16. Schock argued that this
law did not apply because Nero's apparent authority to withdraw
the money as Miller's agent, under the Restatement (Second) of
Agency, ended by operation of law when Miller died. See
Restatement (Second) Agency § 120 cmt. c (1958).1
1 Restatement (Second) of Agency § 120 states:
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The district court rejected Schock's argument, ruling
that apparent agency terminates only when a third party has
notice of the termination. Schock v. United States, 21 F. Supp.
2d 115, 121 (D.R.I. 1998) (Schock I). The court noted that the
Rhode Island Supreme Court has not yet ruled whether reliance on
an agent's prior agency status is sufficient to qualify the
agent as a fiduciary under R.I. Gen. Laws § 18-4-6. Id. at 121-
22. But the court predicted, based on its reading of
Restatement (Second) of Agency § 125,2 that the Rhode Island law
(1) The death of the principal terminates the authority of
the agent without notice to him, except as stated in
subsections (2) and (3) and in the caveat.
(2) Until notice of a depositor's death, a bank has
authority to pay checks drawn by him or by agents authorized
by him before death.
(3) Until notice of the death of the holder of a check
deposited for collection, the bank in which it is deposited
and those to which the check is sent for collection have
authority to go forward with the process of collection.
Comment c states:
Like authority, apparent authority terminates with the death
of the principal. Third persons who, in ignorance of the
death, deal with the former agent . . . have no rights upon
the contract against the estate of the deceased, unless the
situation is one within the rules stated in Subsections (2)
or (3) or the Caveat . . . .
2 "Apparent authority, not otherwise terminated, terminates
when the third person has notice of: (a) the termination of the agent's
authority . . . ." Restatement (Second) Agency § 125.
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protects third parties who rely on the apparent authority of
former agents before they have notice of the termination of
agency and in good faith pay money to the apparent agents. Id.
at 122. The court applied Restatement § 125 to the situation of
death of the principal, despite the language of § 120 comment c
dealing with that situation. The court noted the Restatement's
definition of "notice" as "when the third party . . . 'knows,
should know, has reason to know, or has been given a
notification of the occurrence of an event from which, if
reasonable, he would draw the inference that the principal does
not consent to have the agent so act for him.'" Id. (quoting
Restatement (Second) of Agency § 135 at 333). Finding material
issues of disputed fact as to the question of actual notice to
the bank of Miller's death, the court denied Schock's summary
judgment motion on her breach of contract claim. See id.
Schock renewed her summary judgment motion, asking the
district court to reconsider its rejection of her argument that
apparent authority ends by operation of law upon a principal's
death. Schock directed the court's attention to Restatement §
120 comment c. The court rejected comment c as "illogical" and
contrary to what it believed Rhode Island public policy to be.
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Schock v. United States, 56 F. Supp. 2d 185, 193 (D.R.I. 1999)
(Schock II). Schock also offered evidence that the bank had
actual notice when it permitted the Nero savings account
withdrawal that Miller had died. Schock's new evidence included
a bank employee's statement that the bank had in place a
procedure for checking the obituaries in the local paper to see
whether bank clients had died, and that an obituary for Miller
appeared in that paper. The court found the evidence disputed
and again denied Schock's motion for summary judgment on her
breach of contract claim. Id. at 195.
After a bench trial, where it was established that the
bank did indeed have such a procedure, the district court
concluded as to the contract claim that the bank should have
known that Miller died because his obituary was published in a
local newspaper. That the bank had notice of Miller's death,
the court concluded, extinguished Nero's apparent authority, and
the bank therefore was not entitled to invoke R.I. Gen. Laws §
18-4-16 as a defense to liability for breach of contract. The
court also entered judgment for the FDIC on Schock's tort claim.
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Judgment entered for Schock on her contract claim.3
Schock filed a motion for an award of attorneys' fees
and expenses incurred in her claim against FDIC-Receiver
pursuant to the Equal Access to Justice Act, 28 U.S.C. § 2412
(1994), which allows a prevailing party to recover fees and
expenses incurred in a civil action against the United States,
including "any agency . . . of the United States." Id. §
2412(d). The district court denied the claim, concluding that
the FDIC in its role as receiver is not an "agency of the United
States" within the meaning of the EAJA. Schock v. FDIC, 118 F.
Supp. 2d 165, 171 (D.R.I. 2000) (Schock III).
II.
A. The Equal Access to Justice Act
The EAJA provides that a court "shall award to a
prevailing party . . . fees and other expenses . . . incurred by
that party in any civil action . . . brought by or against the
United States . . . unless the court finds that the position of
the United States was substantially justified or that special
3 As of March 26, 2001, the judgment with interest amounted to
$46,331. The FDIC, as receiver of Old Stone Bank, has paid the sum.
As a result, Schock's appeal from the district court's dismissal of her
Count 3 depository-insurance claim is now moot.
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circumstances make an award unjust." 28 U.S.C. § 2412(d)(1)(A).
The United States is defined to include "any agency and any
official of the United States acting in his or her official
capacity." Id. § 2412(d)(2)(C). The purpose of the EAJA is to
remove economic deterrents to parties who seek review of
unreasonable government action by allowing certain prevailing
parties to recover an award of attorney fees, expert witness
fees, and other expenses against the United States. See H.R.
Rep. No. 96-1418, at 5-6 (1980), reprinted in 1980 U.S.C.C.A.N.
4984, 4984. Schock is a prevailing party as to the contract
claim.
We review the district court's denial of Schock's fee
application under the EAJA for abuse of discretion. Pierce v.
Underwood, 487 U.S. 552, 557 (1988) (reviewing grant or denial
of EAJA fee applications only for an abuse of district court's
discretion). Whether the EAJA applies to a contract claim
against the FDIC when it acts as a receiver of a bank -- that
is, whether the FDIC as receiver acts as an agency of the United
States for EAJA purposes or merely functions like a private-
sector receiver or bank -- is a difficult question. It is
difficult because what is an "agency" of the United States for
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EAJA purposes is not a self-defining term, and there are
differing and conflicting policy objectives that are relevant to
determining congressional intent. We decline to reach the
issue.4 Mindful of the Supreme Court's admonition not to turn
an EAJA fee application into a second major litigation, Pierce,
487 U.S. at 563, we prefer to resolve the less problematic
question whether the FDIC-Receiver's litigation position was
"substantially justified." See Armster v. United States Dist.
Court, 817 F.2d 480, 483-84 (9th Cir. 1987) (reaching
"substantially justified" question under § 2412(d)(1)(A) and
bypassing "agency" question); BayBank Middlesex v. Ralar
Distribs., 69 F.3d 1200, 1202 (1st Cir. 1995) (appellate court
may affirm district court's ruling on any ground adequately
supported by the appellate record).
B. Whether the FDIC's position was substantially justified
The burden is on the government to demonstrate that its
position was "substantially justified." See Sierra Club v.
Secretary of Army, 820 F.2d 513, 517 (1st Cir. 1987). Although
4 Perhaps Congress will see fit to give greater clarity before
this Court is required to resolve the issue.
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the language of the statute refers to a "prevailing party," 28
U.S.C. § 2412(d)(1)(A), the statute makes clear that courts are
to examine both the prelitigation actions or inaction of the
agency on which the litigation is based and the litigation
position of the United States, id. § 2412(d)(2)(D); see Sierra
Club, 820 F.2d at 516. A position which is substantially
justified at the initiation may not be justified later in the
agency's continuation of the litigation. Dantran, Inc. v.
United States Dep't of Labor, 246 F.3d 36, 41 (1st Cir. 2001).
The government need not show that its position was
"justified to a high degree"; rather, it must show that its
position was "justified in substance or in the main -- that is,
justified to a degree that could satisfy a reasonable person."
Pierce 487 U.S. at 565 (internal quotation marks omitted). The
Supreme Court has said this is equivalent to the "reasonable
basis both in law and fact" formulation we have used. See,
e.g., United States v. Yoffe, 775 F.2d 447, 449 (1st Cir. 1985)
(asking whether government's position was "reasonable both in
law and fact"). As the Supreme Court has said, this area is a
difficult one for "useful generalization." Pierce, 487 U.S. at
562. Nonetheless, some rules of analysis have emerged:
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1) There must be an examination of the actual merits of the
government's litigation position as to both the facts and the
law. See Pierce, 487 U.S. at 568-69.
2) The mere fact that the government does not prevail is not
dispositive on the issue of substantial justification. See De
Allende v. Baker, 891 F.2d 7, 13 (1st Cir. 1989).
3) Conversely, that the government succeeded at some stage of
the litigation does not by itself prove the requisite level of
justification. Dantran, 246 F.3d at 40.
4) Nonetheless, the legislative history of the EAJA indicates
courts should look closely at cases where there was judgment on
the pleadings or a directed verdict against the government or
where an earlier suit by the government on the same claim had
been dismissed. H. R. Rep. No. 96-1418, at 11 (1980), reprinted
in 1980 U.S.C.C.A.N. 4989-90.
5) Whether one court agreed or disagreed with the government
does not establish that the government's position was not
substantially justified, but a string of court decisions going
either way can be indicative. Pierce, 487 U.S. at 568; see also
De Allende, 891 F.2d at 13 (reversing grant of fees where
government's position was supported by decisions in parallel
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cases and by three members of the Supreme Court).
6) When the issue is a novel one on which there is little
precedent, courts have been reluctant to find the government's
position was not substantially justified. See, e.g., Washington
v. Heckler, 756 F.2d 959, 961-62 (3d Cir. 1985).
We examine first the agency's prelitigation position.
The FDIC-Receiver initially disallowed Schock's reimbursement
claim because it found Schock "failed to prove the facts set
forth in the claim to the satisfaction of the Receiver." An
agency's request that a claimant provide facts in support of her
claim does not strike us as an adequate ground to say the
government's position was not substantially justified.
Furthermore, the legal effect flowing from the facts was the
subject of real dispute, as we describe below.
As for whether the ensuing litigation was substantially
justified, Schock argues that the weakness of the FDIC's
position was established by the fact that she was clearly
entitled to (although she was denied) summary judgment, twice,
on her contract claim. The district court erred, Schock says,
in denying her motions for summary judgment in light of the
"unanimous rule" of state agency law that death of the principal
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terminates apparent authority or because the undisputed facts
demonstrate that the bank had actual or constructive notice of
Miller's death. See, e.g., In re Estate of Kelly, 547 A.2d 284,
288 (N.H. 1988) (recognizing general rule that attorney's
apparent authority terminates at death of client); accord Gallup
v. Barton, 47 N.E.2d 921, 923-24 (Mass. 1934). Thus, Schock
claims, the FDIC-Receiver's resistance to her reimbursement
claim was not substantially justified. The FDIC-Receiver
counters that the issues in the case are novel and unsettled
under Rhode Island law and that substantial disputed issues of
material fact existed when Schock moved for summary judgment,
rendering the FDIC-Receiver substantially justified in its legal
and factual arguments.
In response to Schock's complaint, the FDIC-Receiver
asserted as an affirmative defense that Old Stone Bank, its
predecessor in interest, had acted at the request of an agent of
Miller who was possessed of actual or apparent authority.
Depending on how this is viewed, that was a matter of fact or of
law, or a mixed issue of fact and law. The initial question of
law was whether an agent's death terminates apparent authority
by operation of law without notice. If the answer to that
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question was no, then two more questions arose, one of law and
one of fact. The fact questions had to do with what actual or
constructive notice the bank received. In Schock's second
motion for summary judgment on her breach of contract claim,
Schock for the first time produced evidence that bank employees
had actual notice of Miller's death at the time of Nero's
withdrawal based on the fact that Miller's obituary was
published in a local newspaper. This then raised the legal
question of what type of notice is sufficient, assuming the
agent's death did not automatically terminate apparent
authority.
As to Schock's legal argument -- that it is well-
settled that apparent agency terminates with the death of the
principal -- the question on an EAJA petition is not whether the
district court was correct or incorrect in its prediction about
Rhode Island law. Schock overstates the effect of the
Restatement rule. Restatement § 120(1) is largely concerned
with the effect of the death of the principal on the authority
of the agent, not on third parties who rely on the apparent
authority of the agent. Further, §§ 120(2) and (3) are
concerned with the effect of a depositor's death, without notice
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of death, on negotiable instruments. Whether these provisions
would apply to withdrawals by the former agent in the form of
treasury checks is an open question.
The two cases Schock relies on in support of her
argument are inapposite. The only Rhode Island case Schock
cites, Industrial Trust Co. v. Colt, 128 A. 200 (R.I. 1925),
involved whether the authority of an agent is revoked by the
principal's insanity where the authority of the agent is coupled
with an interest. The court recognized the general rule that
the death or insanity of the principal operates as a revocation
or suspension of the agent's authority, but did not discuss the
issue before us, whether apparent authority similarly ends under
the general rule. In Walker v. Portland Savings Bank, 93 A.
1025 (Me. 1915), a case which Schock relied on at oral argument
and which she presented to the district court, a bank was held
liable to the estate of a depositor for allowing a withdrawal
from the depositor's account by an individual who at the time
possessed no authority, apparent or otherwise, to act as an
agent for the decedent. The court held that the subsequent
appointment of the individual as administrator did not validate
the bank's earlier payment to him because he did not seek
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payment as a representative of the estate but "as an individual
with pretended rights against the estate." Id. at 1027.
Accordingly, Walker has no applicability in this case, where the
FDIC-Receiver claimed to have relied on Nero's prior agency
status.5
Absent any Rhode Island precedent on point, the
district court made an "informed prophecy" of what the state
court would do in the same situation, Blinzer v. Marriott Int'l
Inc., 81 F.3d 1148, 1151 (1st Cir. 1996), seeking guidance in
"analogous state court decisions, persuasive adjudications by
courts of sister states, learned treatises, and public policy
considerations identified in state decisional law," id. The
court concluded that the Rhode Island Supreme Court would adopt
5 During oral argument in this appeal, Schock pointed out that
some states have adopted the Uniform Durable Power of Attorney Act,
which protects a third party who acts in reliance on a written power of
attorney and who "did not have, at the time of exercise of the power,
actual knowledge of the termination of the power by revocation or of
the death, disability, or incapacity of the principal . . . ." See
Mass. Gen. Laws ch. 201B, § 5. Because Rhode Island has not adopted
the Act, Schock argues, the district court was bound to follow Rhode
Island law and acted improperly in anticipating a new rule. We are not
aware of whether Rhode Island has ever considered adopting the Act. In
the absence of any evidence of such consideration by the Rhode Island
General Assembly or courts, and given the Rhode Island courts'
historical reliance on the Restatement (Second) of Agency in other
contexts, the UDPAA can offer us no insight whether current Rhode
Island law incorporates the automatic-termination-by-death-without-
notice rule which Schock advocates.
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the Restatement (Second) of Agency § 125, as Rhode Island had
adopted that Restatement for other issues, and ruled that R.I.
Gen. Laws § 18-4-16 applied to "third parties who in good faith
pay or transfer money to an apparent agent." Schock III, 56 F.
Supp. 2d at 194. The relationship between Restatement § 120,
Restatement § 125, and the Uniform Fiduciary Act on these facts
is far from obvious. Cf., e.g., Mubi v. Broomfield, 492 P.2d
700, 702 n.1 (Ariz. 1972) ("[A] further exception [to the
Restatement rule of automatic termination of a power of attorney
upon a principal's death] is sometimes made where innocent third
parties are protected from dealings made in good faith with an
agent and death of the principal is unknown."). The court was
also faced with the FDIC's strong argument that banks should
have no obligation to investigate and warrant the bona fides of
an apparent fiduciary; otherwise the bank becomes a guarantor of
the fiduciary, and such a result was contrary to the policies
behind the UFA. It is not necessary for us to decide whether
the district court's conclusion is correct; it is enough that
the FDIC's legal argument was at least "justified to a degree
that could satisfy a reasonable person." Pierce, 487 U.S. at
565.
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After the district court rejected Schock's suggestion
that Rhode Island law would deem third parties' notice of the
principal's death irrelevant, there was then an open question of
what constitutes notice to the bank of Miller's death. Although
the district court ultimately concluded that Miller's obituary
in the local newspaper was sufficient notice to the bank, that
ruling does not render the FDIC-Receiver's litigation position
unreasonable. In its opposition to Schock's motions for summary
judgment and throughout the trial, the FDIC-Receiver disputed
whether any bank employees had actual notice of Miller's death.
The FDIC also argued that the proper measure of notice was
actual knowledge, not constructive notice, and so the
publication of Miller's obituary was insufficient to establish
notice to the bank of Miller's death. That argument was not
unreasonable. Indeed, in its ruling denying Schock's motion for
attorneys' fees and costs, the district court acknowledged that
its previous ruling on Schock's contract claim "established a
new rule on the issue of notice." Schock III, 118 F. Supp. 2d
at 168.
In sum, the FDIC-Receiver's litigation position -- that
it was not liable to reimburse Schock because the bank had
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allowed withdrawal by a fiduciary with actual and apparent
authority despite the death of the principal -- had a reasonable
basis in law and fact, and so we cannot say that it was not
substantially justified. We do not decide whether the district
court erred in holding that the FDIC was not an "agency . . . of
the United States" under the EAJA, or in its prediction of Rhode
Island law governing the termination of an agent's power of
attorney upon the principal's death. Affirmed.
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Schock v. United States
Court: Court of Appeals for the First Circuit
Date filed: 2001-06-22
Citations: 254 F.3d 1
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