Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

ALLEN v. UNITED STATES

July 6, 1982

ETHAN J. ALLEN, ET AL., PLAINTIFFS,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Decker, District Judge.

MEMORANDUM OPINION AND ORDER

This case is currently before the court on plaintiffs' application for attorney's fees submitted pursuant to the provisions of the Equal Access to Justice Act, 28 U.S.C. § 2412(d)(1)(A). That section provides as follows:

    "Except as otherwise specifically provided by
  statute, a court shall award to a prevailing
  party other than the United States fees and other
  expenses [including attorney's fees], in addition
  to any costs awarded pursuant to subsection (a),
  incurred by that party in any civil action (other
  than cases sounding in tort) brought by or
  against the United States in any court having
  jurisdiction of that action, unless the court
  finds that the position of the United States was
  substantially justified or that special
  circumstances make an award unjust."

The following is the procedural history of this case leading up to plaintiffs' current request for fees. On September 13, 1979, plaintiffs filed their complaint, requesting a refund of alleged overpayments of individual income taxes and the abatement of certain penalty assessments made against plaintiff Ethan Allen. Defendant responded by answering the complaint and filing a counterclaim against the Allens and two other named individuals. After some discovery and, apparently, negotiations between the parties, the parties agreed to settle the litigation. Under the terms of the settlement, plaintiffs dismissed their complaint against the government, and the government dismissed its counterclaim against the plaintiffs.*fn1 The docket entry for September 15, 1981, notes "Cause will be dismissed by agreement, upon filing of stipulation and order." The stipulation and order referred to were never filed, and at a subsequent status hearing held on December 3, 1981, the controversy between the Allens and the government was dismissed on an oral motion by the government. The parties do not dispute that the settlement agreement was extremely favorable for plaintiffs, and therefore they may be considered the prevailing parties in this litigation.

The United States has three arguments against allowing plaintiffs' request for attorney's fees. First, defendant argues that plaintiffs are not entitled to an award of fees that were incurred before October 1, 1981, the effective date of the Equal Access to Justice Act. Second, the government suggests that the special circumstances of this case would make an award of fees unjust. Finally, the defendant claims that it was substantially justified in maintaining its position in this case and so an award of fees would be improper. The government also argues that plaintiffs' amended claim is untimely, because it was not filed within thirty days of the final judgment in this action. The court will first address the government's claim that its position in the underlying litigation was substantially justified.

The "substantially justified" standard was carefully considered by Congress whet the Equal Access to Justice Act was passed. The House Report contains the following explanation:

    "The test of whether or not a Government action
  is substantially justified is essentially one of
  reasonableness. Where the Government can show
  that its case had a reasonable basis both in law
  and fact, no award will be made. . . .
    "The standard, however, should not be read to
  raise a presumption that the Government position
  was not substantially justified, simply because
  it lost the case. Nor, in fact, does the standard
  require the Government to establish that its
  decision to litigate was based on a substantial
  probability of prevailing."

H.R.Rep. No. 96-1418, 96th Cong., 2d Sess. 10-11, reprinted in [1980] U.S.Code Cong. & Ad.News 4953, 4984, 4989-90. In order to determine whether or not the government's case here was reasonable, it is necessary to carefully review the facts of the underlying dispute which culminated in this litigation.

This case arose out of the failure of two organizations, Medical Health Testing Centers, Inc. ("MHTC") and Northbrook Clinical and X-Ray Laboratories, Inc. ("Northbrook Clinical") to pay taxes withheld from their employees during 1974 and 1975. Until June 1, 1973, Northbrook Clinical was a sole proprietorship, owned and run by plaintiff Ethan Allen. On that date, Northbrook Clinical was acquired by Associated Medical Labs ("AML"), located in Park Ridge, Illinois. On July 13, 1973, AML also acquired MHTC. Both Northbrook Clinical and MHTC were operated as divisions of AML, rather than as subsidiary corporations having identities separate and distinct from the parent corporation.

During at least part of the period that MHTC and Northbrook Clinical allegedly failed to make the required tax payments, defendant Ethan Allen was a member of AML's board of directors and served from time to time as chairman of the board and treasurer of the corporation. He was also listed as one of the persons authorized to sign checks drawn on one of AML's accounts. After acquiring MHTC and Northbrook Clinical, AML collected all their receipts and paid out their wages and expenses. AML prepared all the federal tax withholding forms for its divisions and made some tax deposits.

In addition, Ethan Allen was named as president of Northbrook Clinical when it was first formed as a corporation. Until May 1974, he was authorized to write checks on Northbrook Clinical's account. The record shows that in late August 1974, Ethan Allen was removed from his corporate offices with both Northbrook Clinical and AML. After that date, he no longer had any authority to make any payments to the IRS or anyone else.

Penalties were assessed against Mr. Allen, for the failure of MHTC and Northbrook Clinical to pay the withholding taxes, under 26 U.S.C. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.