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October 15, 1996

SHIRLEY S. CHATER, Commissioner of Social Security, Defendant.

The opinion of the court was delivered by: ALESIA

 Raleigh Sutton applied to the Commissioner of Social Security for disability insurance benefits. The Commissioner denied his application, so Sutton filed suit in federal district court seeking review of the Commissioner's final decision. The parties consented to have their case heard by Magistrate Judge Keys, before whom both parties moved for summary judgment.

 The magistrate judge denied the Commissioner's motion, but granted in part Sutton's motion for summary judgment, and remanded the case to the Commissioner for further proceedings. However, the magistrate judge denied Sutton's request for attorney's fees pursuant to the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412. Sutton appealed to this court from the magistrate judge's denial of attorney's fees. This court has jurisdiction over Sutton's appeal pursuant to 28 U.S.C. § 636(c)(4). See also FED. R. CIV. P. 73(d).


 A. Equal Access to Justice Act

 The EAJA requires a court to award fees and other expenses to a prevailing party in litigation against the United States, 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(d)(1)(A). Under the EAJA, the government bears the burden of proving that its position was substantially justified. Marcus v. Shalala, 17 F.3d 1033, 1036 (7th Cir. 1994) (citing Cummings v. Sullivan, 950 F.2d 492, 495 (7th Cir. 1991)).

 The United States' position is substantially justified if it is "'justified in substance or in the main -- that is, justified to a degree that could satisfy a reasonable person.'" Marcus, 17 F.3d at 1036 (quoting Pierce v. Underwood, 487 U.S. 552, 565, 108 S. Ct. 2541, 2550, 101 L. Ed. 2d 490 (1988)). Moreover, "'... [a] position can be substantially justified even though it is not correct, and we believe that it can be substantially justified if a reasonable person could think it correct, that is, if it has a reasonable basis in law and fact.'" Marcus, 17 F.3d at 1036 (quoting Pierce, 487 U.S. at 566 n.2, 108 S. Ct. at 2550 n.2).

 The "position of the United States" includes the underlying agency action as well as the agency's litigation position. Marcus, 17 F.3d at 1036 (citing 28 U.S.C. § 2412(d)(2)(D)). Thus, in making its determination whether or not to award fees and expenses to the prevailing party, the court considers both "the government's litigating position as well as its prelitigation conduct -- the action or inaction that gave rise to the litigation." Marcus, 17 F.3d at 1036 (citing Cummings, 950 F.2d at 496).

 The court may award EAJA fees if either the government's prelitigation conduct or its litigation position is not substantially justified. Marcus, 17 F.3d at 1036 (citing McDonald v. Secretary of Health and Human Services, 884 F.2d 1468, 1476 (1st Cir. 1989)). However, the court makes only one determination for the entire action, encompassing both the prelitigation and litigation conduct of the government. Marcus, 17 F.3d at 1036 (citing Comm'r, Immigration and Naturalization Serv. v. Jean, 496 U.S. 154, 159, 110 S. Ct. 2316, 2319, 110 L. Ed. 2d 134 (1990)). A decision by an administrative law judge is part of the agency's prelitigation conduct. Cummings, 950 F.2d at 497.

 In this case, the magistrate judge did not discuss the foregoing law or fully explain why he chose not to award fees to Sutton under the EAJA. The magistrate judge stated:

Notwithstanding the findings above [remanding the case to the administrative law judge who denied disability benefits to Sutton], the Court finds that the Commissioner's position was substantially justified. It is quite possible that, upon remand, the [administrative law judge] could arrive at the same conclusion after further proceedings in accordance with the Court's directives. Plaintiff's request for attorneys' fees is denied.

 Raleigh v. Sutton, Slip. Op. at 18 n.8.

 On appeal, Sutton argues that the administrative law judge's decision was not substantially justified, and therefore that the magistrate judge erred in denying Sutton's request for attorney's fees. This court reviews the magistrate judge's decision denying EAJA fees to Sutton for an abuse of discretion. See Pierce, 487 U.S. at 571, 108 S. Ct. at 2553; Young v. Sullivan, 972 F.2d 830, 835 (7th Cir. 1992).

 B. Factual record and decisions below

 Since the parties agree that Sutton was a prevailing party under the EAJA, the only question before the court is whether the magistrate judge abused his discretion in determining that the Commissioner's position in Sutton's case was substantially justified. Consequently, the law and facts underlying both the Commissioner's and magistrate judge's decisions are important on appeal, and the court will set them out in a fair amount of detail here.

 From 1978 until 1981, Sutton was owner, then part owner, of a stamp and coin shop. In 1979, Sutton was in a car accident in which he received severe head injuries. He could not work more than one or two hours a day in his business for a period of time following his accident.

 From August 1981 to April 1982, Sutton worked as a project leader for a data processing consulting company. Sutton had no problems on the job, and left it after the company went out of business. For about a year or year and a half in 1983 and 1984, Sutton was part owner of another stamp and coin shop. Then he started having depression problems and hallucinations, and left the job.

 Sutton apparently did not work from 1984 to 1986. From August 1986 to June 1988, Sutton worked for an art and paint supply company. He left that job for the same reasons as the previous one -- he started stressing out and getting hostile, and quit. Sutton did not work from June 1988 through October 1990, and applied for Social Security disability benefits during that time.

 Starting in November 1990, Sutton worked as a volunteer at a group home for people with disabilities. In 1991, Sutton was hired by the group home to work 20 hours per week as a secretary/receptionist; he also taught residents with mental disabilities how to use a computer. Sutton had no problems with the work until early 1992, when he began having his "usual problems." He started getting stressed out, and "started getting stupid and misfiling things and not getting along with people." Sutton left the job in April 1992.

 The group home was Sutton's last employer. After he left there, he volunteered at a library for one or two hours a week and delivered books to nursing homes once a month, but had to give both up ...

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