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United States v. Thouvenot

February 18, 2010

UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT,
v.
THOUVENOT, WADE & MOERSCHEN, INC., DEFENDANT-APPELLEE.
CHRISTINE M. BAUER, PLAINTIFF-APPELLANT,
v.
MICHAEL J. ASTRUE, COMMISSIONER OF SOCIAL SECURITY, DEFENDANT-APPELLEE.
RONALD J. PARK, PLAINTIFF-APPELLANT,
v.
MICHAEL J. ASTRUE, COMMISSIONER OF SOCIAL SECURITY, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Southern District of Illinois. No. 3:05-cv-306-DRH-DGW-David R. Herndon, Chief Judge. Appeal from the United States District Court for the Eastern District of Wisconsin. No. 2:06-cv-697-RTR-Rudolph T. Randa, Chief Judge. Appeal from the United States District Court for the Central District of Illinois. No. 2:07-cv-2227-HAB-DGB-Harold A. Baker, Judge.

The opinion of the court was delivered by: Posner, Circuit Judge.

ARGUED DECEMBER 1 AND 2, 2009

Before POSNER, FLAUM, and SYKES, Circuit Judges.

We have consolidated for decision three appeals, argued before the same panel on consecutive days, that require interpretation of the Equal Access to Justice Act. The Act entitles a party that prevails in litigation with the United States (including proceedings for judicial review of agency action) to attorneys' fees "unless the court finds that the position of the United States was substantially justified." 28 U.S.C. § 2412(d)(1)(A). The issue in each appeal is whether the government's position was "substantially justified," but in No. 09-2421, with which we begin, there is an additional issue-whether attorneys' fees paid to a defendant's liability insurer can be awarded under the Act. The district judge awarded TWM (Thouvenot, Wade & Moerschen) some $200,000 in attorneys' fees; its liability insurer paid for its defense and so will receive $150,000 because the policy specified a $50,000 deductible.

The United States sued the project site engineer of an apartment complex, charging TWM along with others (who are not parties to the appeal) with having designed and built a project that violated the Federal Housing Act because it wasn't accessible to persons having a disability: the ground floor was sunk four feet below the level of the parking lot and there was no ramp, just steps. The lack of access to disabled persons was apparent from plans prepared by TWM. Though they were marked "for construction," the company denied that they had been intended for use in construction and moved for summary judgment, which was denied. The case was tried to a jury. At the close of the govern-ment's case, and again at the end of the entire trial, the defendant moved for entry of judgment as a matter of law. The judge denied the motions. He said "the jury could believe that throughout this construction, these plans were used by everyone. We have a jury who could clearly believe that TWM was involved in both the design and the construction and given the Fair Housing Act, could believe that they are culpable." But the jury returned a verdict for the defendant.

In justifying his award of attorneys' fees despite having refused to take the case from the jury, the district judge said that "upon reviewing the evidence, Plaintiff's position was not substantially justified and the jury ruled accordingly." This is a mysterious statement because of course the jury had not been asked to decide whether the position of the United States had been substantially justified, and did not offer an opinion on the issue. The judge later amplified his grounds slightly, saying that "after reviewing all of the evidence presented at trial, the Court finds that Defendant TWM clearly did not belong in this case. As Defendant TWM points out, the evidence showed that TWM was only involved in the zoning process and had no role in designing the complex, nor were its drawings prepared as building plans."

The key statutory term, "substantially justified," is neither defined nor self-evident. If it just meant not frivolous, there would be no problem because usually it's pretty easy to distinguish a frivolous from a non-frivolous case. But the courts have not taken that road. Pierce v. Underwood, 487 U.S. 552, 566 (1988); Gerow v. Rohm & Haas Co., 308 F.3d 721, 726 (7th Cir. 2002); Halverson v. Slater, 206 F.3d 1205, 1210 (D.C. Cir. 2000). The title of the statute-Equal Access to Justice Act-and the fact that eligibility for an award is limited to persons and organizations of limited financial means (with im-material refinements and exceptions, the prevailing party may not have a net worth in excess of $2 million if an individual and $7 million if an organization, 28 U.S.C. § 2412(d)(2)(B)) suggest that Congress's concern was not limited to frivolous cases-that it wanted the government to take care before deploying its formidable litigation resources against a weak opponent. See McDonald v. Schweiker, 726 F.2d 311, 315 (7th Cir. 1983); Dole v. Phoenix Roofing, Inc., 922 F.2d 1202, 1207 (5th Cir. 1991); Myers v. Sullivan, 916 F.2d 659, 667-68 (11th Cir. 1990); Feldpausch v. Heckler, 763 F.2d 229, 231-32 (6th Cir. 1985). The Equal Access to Justice Act has thus been called an "anti-bully" law. Battles Farm Co. v. Pierce, 806 F.2d 1098, 1101 (D.C. Cir. 1986), vacated and remanded, 487 U.S. 1229 (1988), for reconsideration in light of Pierce v. Underwood; Melissa A. Peters, "The Little Guy Myth: The Fair Act's Victimization of Small Business," 42 Wm. & Mary L. Rev. 1925, 1928-30 (2001).

Between frivolous and meritorious lie cases that are " 'justified in substance or in the main'-that is, justified to a degree that could satisfy a reasonable person [and hence has a] 'reasonable basis both in law and fact.' " Pierce v. Underwood, supra, 487 U.S. at 565; see also Potdar v. Holder, 585 F.3d 317, 319-20 (7th Cir. 2009); Kolman v. Shalala, 39 F.3d 173, 177 (7th Cir. 1994); Ericksson v. Com-missioner of Social Security, 557 F.3d 79, 81-82 (2d Cir. 2009). The case must have sufficient merit to negate an inference that the government was coming down on its small opponent in a careless and oppressive fashion.

But, consistent with this standard, there is a presumption that a government case strong enough to survive both a motion to dismiss and a motion for summary judgment is substantially justified. See EEOC v. Liberal R-II School District, 314 F.3d 920, 926 (8th Cir. 2002). Given the Supreme Court's insistence in its recent Bell Atlantic and Iqbal decisions that a case must be dismissed if the complaint does not appear to have a substantial basis, Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-52 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 559-63 (2007), and given that summary judgment resolves cases that though not frivolous would not persuade a reasonable jury, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-56 (1986); Simple v. Walgreen Co., 511 F.3d 668, 671 (7th Cir. 2007); Boyd v. Wexler, 275 F.3d 642, 647 (7th Cir. 2001), a case that is allowed to go all the way to trial is likely to be a toss-up.

Of course something might emerge at trial that showed that the government really had no case at all. Or the district judge might on reflection decide that he had erred grievously in refusing to grant the defendant's motion to dismiss or motion for summary judgment. But in this case the presumption stands unrebutted. See Wilfong v. United States, 991 F.2d 359, 367-69 (7th Cir. 1993); cf. Temp Tech Industries, Inc. v. NLRB, 756 F.2d 586, 590 (7th Cir. 1985); Mester Mfg. Co. v. INS, 900 F.2d 201, 204 (9th Cir. 1990). Fees were awarded solely because the jury's verdict was adverse to the government, and an award of fees in such a case is error, as we held in the Wilfong case.

In deciding to award fees the district judge gave no weight to his rulings denying TWM's motions for sum-mary judgment, for judgment as a matter of law at the close of the government's evidence, and for judgment as a matter of law at the close of all the evidence. After hearing all the evidence he had decided that the government had a substantial case and therefore the jury would be permitted to decide it, and the only thing that happened afterward was that the jury rendered a verdict for TWM. This impelled the judge to review the evidence after the defendant filed its motion for an award of attorneys' fees. But all he found in his review, judging from his cryptic discussion, was that the jury's verdict was justified by the evidence, which no one questions. He pointed to nothing that suggested that the trial had revealed profound weaknesses in the government's case that, had he known about them earlier, would have moved him to grant one of TWM's dispositive motions. Nor can we find anything.

There was evidence that TWM did not think that its drawings, which depicted sewer lines, water lines and other subdivision improvements, and were preliminary and unsigned, would be used to construct the apartment complex-evidence that they were subdivision-improvement plans rather than building plans and that, being intended to be used to obtain a building permit and the Village Planning Commission's approval for the project, they merely illustrated the project's general conception and contours and omitted technical details. Yet the plans showed the difference in elevation between the parking lot and the ground floor; a ramp had been included but was later deleted; and TWM went on site to "stake" the first six buildings and did so in a manner that indicated that the entrances would indeed be below ground level. Thus there was evidence that TWM knew that regardless of the original purpose of the plans, they were being used as building plans, at least with regard to how the buildings would be entered. So the government had a substantial though not winning case, and TWM therefore failed to establish its right to an award.

But we agree with the district judge that an award of attorneys' fees under the Equal Access to Justice Act can include fees incurred by the party's liability insurer. It is not strictly necessary for us to decide the issue, since we have just held that TWM was not entitled to an award, whether to share with its insurer or not. But the issue is a recurrent one that has divided the circuits to have considered it: compare United States v. Paisley, 957 F.2d 1161, 1163-64 (4th Cir. 1992), and SEC v. Comserv Corp., 908 F.2d 1407, 1413-16 (8th Cir. 1990), which hold that the award cannot include such expenses when the litigant has been indemnified by his employer (and we cannot see what difference it makes who the indemnitor is), with Ed A. Wilson, Inc. v. General Services Administration, 126 F.3d 1406, 1408-11 (Fed. Cir. 1997); see also Morrison v. Commissioner, 565 F.3d 658, 662-66 (9th Cir. 2009). Since the issue has been fully briefed and argued, we might as well take a stand on it for the guidance of the district courts of this circuit.

The case for inclusion is compelling. Suppose a party seeking an award of fees had been uninsured and had agreed to pay a lawyer's fee as he had to do in order to induce the lawyer to take his case; but, being worried that if he lost he wouldn't be able to afford the fee, he borrowed $150,000 from his rich uncle, promising to pay it back if he won his case and received a fee award. Sup-pose the rich uncle has a net worth in excess of $2 million and therefore would not be entitled to an award of attorneys' fees if he were the prevailing party in the case; and anyway he is not a party. But ...


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