The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Thaddeus Pudlo and Walter Pudlo ("Pudlos"), both in their
individual capacities and as proprietors of Pudlo Food Products,
filed their petition to quash an Internal Revenue Service ("IRS")
summons one day late in contravention of
26 U.S.C. § 7609(b)(2)(A) ("Code § 7609(b)(2)(A)"). Chicago District IRS
Director ("Director") moved to dismiss the petition as untimely
filed,*fn1 and Pudlos acknowledged the flaw
as soon as it was called to their attention. Accordingly this
Court granted dismissal.
At issue now is Director's contemporaneously-filed motion for
an award of attorneys' fees. For the reasons stated in this
memorandum opinion and order, that motion is denied.
Director's memorandum on both issues was quite lengthy,
comprising 12 pages of argument, a statutory appendix and 11
exhibits. Pudlos in response acknowledged their late filing and
correctly pointed out Director had engaged in overkill.
Director's attorneys' fees request is based on the Equal Access
to Justice Act ("EAJA"), 28 U.S.C. § 2412(b), and Fed.R.Civ.P.
("Rule") 11. This opinion must determine whether petitioners and
their counsel can escape liability under those provisions.*fn2
Neither party has cited any decisions discussing awards in
favor of the United States under EAJA, though by its terms it
does appear to apply. There is however no need to consider the
extent (if any) to which EAJA may provide the United States
protection against litigation that is not "substantially
justified." Director argues only that EAJA permits the United
States to be awarded attorneys' fees for bad faith litigation.
Because bad faith would enable this Court to award fees even in
the absence of statutory authorization (see, e.g., McCandless v.
Great Atlantic & Pacific Tea Co., 697 F.2d 198, 200-01 (7th Cir.
1983)), no question of EAJA statutory interpretation is
This Court finds Pudlos did not file or pursue this action in
bad faith. Director argues the petition was filed for purposes of
delay, but he has provided no evidence to that effect, nor has he
even shown Pudlos have benefited in any way from the delay in the
summons procedure caused by the filing of their petition. On the
contrary, two factors strongly suggest good faith:
1. If Pudlos in fact had a premeditated intent to
cause delay, that goal would have been far better
served by a timely rather than an untimely filing.*fn3
2. Once the filing defect was called to their
attention, Pudlos succumbed and did not oppose
dismissal of the petition.
Any finding of bad faith would be really insupportable.
Allowance of attorneys' fees under the newly-amended version of
Rule 11 presents a more difficult question. Before its amendment
Rule 11 seldom led to an award of attorneys' fees — and even then
only on a finding of bad faith. See, e.g., Ellingson v.
Burlington Northern, Inc., 653 F.2d 1327, 1332 (9th Cir. 1981).
Now however Rule 11 provides attorneys' fees or other sanctions
"shall" be imposed whenever based on "reasonable inquiry" a
pleading is not "well grounded in fact and warranted by existing
law or a good faith argument for . . . modification . . . of
existing law." Unlike the bad faith standard, Rule 11 is
objective in its application except to the extent a litigant
argues for a change in the law. See Notes of Advisory Committee
on 1983 Amendment to Rule 11.
This Court finds Pudlos also meet the objective test of Rule
11. Their counsel's inquiry into applicable law was reasonable,
albeit obviously not effective enough to avert dismissal. As
interpreted by court decisions, Code § 7609(b)(2)(A) required
dismissal of Pudlos' petition because it was filed more than 20
days after issuance of the challenged IRS summons. Pudlos'
counsel's failure to have known that standard will not be deemed
unreasonable in light of two factors:
1. Code § 7609(b)(2)(A) literally refers to
filing "not later than the 20th day after the day
such notice is given." Pudlos filed their petition
within 20 days of their receipt of notice, though not
within 20 days of the issuance of notice. While case
law, including this Court's opinion in Riggs, has
found the issuance and not the receipt of notice to
be controlling, the language of Code §
7609(b)(2)(A) — considered alone — does not admit of
only one possible reading, and the cases interpreting
it are very new.
2. Congress' imposition of a 20-day limitations
period obviously mandates prompt filing of petitions
to quash IRS summonses. Facing such a stringent
timetable, attorneys may understandably have
difficulty in reviewing controlling precedent
thoroughly before filing a petition.*fn4
Today at least Pudlos' failure to have complied with Code §
7609(b)(2)(A) is not unreasonable under Rule 11. As the courts'
interpretation of that section becomes more familiar to attorneys
practicing in the field, ...