Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-93-06201/USCOURTS-ca10-93-06201-0/pdf.json

Parties Involved:
Michael A. Cramer
Appellant
United States of America
Appellee

Document Text:

PUBLISH 

IN THE UNITED STATES COURT OF APPEALS F I L E D 

Ualted States Court of Appeals 

FOR THE TENTH CIRCUIT Tenth Circuit 

FEB 06 1995 

MICHAEL A. CRAMER, MAI, SRPA, INC., ) 

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PATRICK FISHER 

Clerk 

Plaintiff-Appellant, 

v. No. 93-6201 

UNITED STATES OF AMERICA, 

Defendant-Appellee. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No. CIV-91-1265-A) 

James H. Rice, Midwest City, Oklahoma, for Plaintiff-Appellant. 

Christine A. Grant, Attorney, Tax Division, Department of Justice, 

Washington, D.C. (Loretta c. Argrett, Assistant Attorney General, 

and Bruce R. Ellisen, Attorney, Tax Division, Department of 

Justice, Washington, D.C., with her on the brief), for DefendantAppellee. 

Before SEYMOUR, Chief Judge, HOLLOWAY and HENRY, Circuit Judges. 

HOLLOWAY, Circuit Judge. 

Appellate Case: 93-6201 Document: 01019280481 Date Filed: 02/06/1995 Page: 1 
In this tax refund case, plaintiff/appellant Michael A. 

Cramer, MAI, ARPA, Inc. (an Oklahoma corporation) (Cramer) appeals 

an order of the District Court for the Western District of 

Oklahoma denying Cramer's application for litigation costs 

pursuant to 26 U.S.C. § 7430. For reasons that follow, we reverse 

the district court's order and remand for further proceedings. 

I 

In 1991 Cramer filed suit against the United States seeking a 

refund of employment taxes, penalties, and interest assessed 

against Cramer by the IRS. The company paid part of the 

assessment prior to filing suit. In the suit, Cramer challenged 

the government's contention that certain real estate appraisers 

retained by Cramer in the course of its business were "employees" 

of the company rather than independent contractors -- for 

employment tax purposes. See 26 U.S.C. §§ 3102, 3111, 3301, 3402. 

Shortly before Cramer filed suit against the government, a 

similar tax refund case involving the assessment of employment 

taxes for retention of real estate appraisers was filed in the 

Western District of Oklahoma, REAG. Inc. v. United States, 

No. CIV-91-1267-c.1 The REAG case was tried without a jury in 

August 1992, before the scheduled trial in this case, resulting in 

a judgment for the plaintiff/taxpayer REAG. The trial judge found 

that the real estate appraisers there were independent contractors 

and not employees for tax purposes; alternatively, the court 

1 

While REAG was pending before a different judge in the 

Western District, counsel for both plaintiff (the taxpayer) and 

defendant (the government) were the same as in the instant case. 

2 

Appellate Case: 93-6201 Document: 01019280481 Date Filed: 02/06/1995 Page: 2 
concluded that even if the appraisers could be characterized as 

employees, REAG had a reasonable basis for not treating them as 

such and was therefore entitled to relief from the assessed 

employment taxes pursuant to the safe harbor provision in § 530 of 

the Revenue Act of 1978, Pub. L. No. 95-6000, 92 Stat. 2763, 

2885.2 REAG, Inc. v. United States, 801 F. Supp. 494 (W.D. Okla. 

1992), appeal dismissed per stipulation, No. 92-6347 (lOth Cir. 

Dec. 21, 1992). 

The government initially appealed the district court's 

judgment but subsequently stipulated to the dismissal of its 

appeal. REAG then filed an application for litigation costs, 

including attorney fees, pursuant to 26 U.S.C. § 7430, arguing 

that the government's position in the case was not substantially 

justified. That district judge agreed and awarded costs. 

In the instant case, a stipulated judgment in favor of Cramer 

was entered on February 26, 1993, shortly after the verdict in 

REAG. On March 12, 1993, Cramer filed an application for 

litigation costs under § 7430, arguing that "since the United 

States conceded this case on the basis of REAG, it has also 

conceded that its position here was also not substantially 

justified." Brief in Support of Application for Litigation Costs, 

App. at 31. 

On March 29, 1993, the government filed a lengthy objection 

to Cramer's application, arguing that notwithstanding the outcome 

in REAG, the government's position in the present case was 

2 

See 26 u.s.c. § 3401, Historical and Statutory Notes. 

3 

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substantially justified. Id. at 32-57. Acknowledging that 11 the 

United States['] decision to concede this case was due largely to 

the fact that REAG had already been decided in the Western 

District of Oklahoman (id. at 51), the government nonetheless 

insisted that differences between this case and REAG belied the 

contention that the award of litigation costs to the taxpayer in 

REAG required a similar award here. Id. at 51-52. Specifically, 

the government argued: 

In Reag, the court found that the appraisers were 

independent contractors because the taxpayer in question 

did not exercise control over either the manner in which 

the appraisers prepared appraisals or the final form of 

the appraisal. Reag, 801 F.Supp. at 500. Unlike the 

situation in Reag, where substantially less than one 

percent of the appraisals were reviewed, id. at 498, in 

the present case Cramer made it his practice to review 

and sign every appraisal. In addition, Reag is further 

distinguishable because the Reag holding was based on 

[the district judge's] interpretation of the credibility 

of the testimony of some of the witnesses. Id. at 499. 

The credibility of witnesses must be determined on an 

individual basis and is difficult to predict prior to 

trial. 

Id. at 51. 

Three days after the filing on March 29, 1993, of the 

government's objection and brief, and before Cramer had an 

opportunity to reply to the government's submissions, the district 

court entered an order denying Cramer's application for litigation 

costs on April 1, 1993.3 This ruling was made by a different 

judge who handled the instant case, not the same judge as in REAG. 

The April 1 order in the instant case stated: 

3 

The plaintiff-appellant's brief on appeal represents that 

counsel did not receive the government's objection and brief until 

April 1. Brief for Appellant at 6. 

4 

Appellate Case: 93-6201 Document: 01019280481 Date Filed: 02/06/1995 Page: 4 
Plaintiff's Application for Litigation Costs is 

DENIED; the court is not persuaded that the litigation 

position of the United States was [not]4 substantially 

justified. The Court declines to award costs on the 

basis that this case is but an echo of REAG, Inc. v. 

United States, CIV-91-1267 (W.D. Okla.), in which [the 

district judge] awarded costs. Who knows what 

similarities or differences there are? [The judge in 

REAG] made many detailed findings that were possible 

only because REAG was litigated. A similar analysis in 

this case is not possible because of the spare [sic] 

record and the manner of its termination. Movant has 

the burden of persuasion on the issue, which is not met 

either by pointing to the agreed judgment in his [sic] 

favor or to REAG. 

Id. at 145. 

On appeal, Cramer contends that the district court erred in 

not allowing Cramer to supplement the record with evidence 

pertaining to the similarity between this case and REAG and in 

failing to conduct an evidentiary hearing to resolve the parties' 

dispute in this regard. Cramer argues that "having filed an 

application and affidavit fulfilling the statutory prerequisites 

for an award under § 7430, [Cramer] was entitled to an opportunity 

to respond to the Government's objections before having judgment 

entered against it on the basis of a 'sparse record' and its 

failure to meet a burden of persuasion imposed on it prior to its 

having received what was effectively the opposing party's initial 

pleading on the issue being decided." Brief for Appellant at 7. 

II 

We review a district court's denial or award of reasonable 

litigation costs sought by virtue of 26 U.S.C. § 7430 under an 

4 

The word "not" does not actually appear in the court's order. 

Based on our reading of the order as a whole, however, we are 

convinced that the term was inadvertently omitted. 

5 

Appellate Case: 93-6201 Document: 01019280481 Date Filed: 02/06/1995 Page: 5 
abuse of discretion standard. Pate v. United States, 982 F.2d 

457, 459 (lOth Cir. 1993). Accord Anthony v. United States, 987 

F.2d 670, 674 (lOth Cir. 1993). "The decision to rely upon 

affidavits and the record of a case rather than conduct an evidentiary hearing on a fee petition is also reviewed for an abuse of 

discretion." Hamner v. Rios, 769 F.2d 1404, 1406 (9th Cir. 1985). 

"In determining whether the position of the United States was 

'substantially justified,' the district court must look at all 

facts and circumstances as well as the legal precedents relating 

to the case, bearing in mind the applicant bears the burden of 

proof." Pate, 982 F.2d at 459. Moreover, in order to permit this 

court to conduct a meaningful review of the fee determination, the 

district court must provide "a reasoned explanation" for its 

ruling. Anthony, 987 F.2d at 675. As noted in Creske v. 

Commissioner, 896 F.2d 250, 252 (7th Cir. 1990) (citations 

omitted) : 

When reviewing a judgment by the [trial] court 

under the abuse of discretion standard, we focus "on the 

reasons given by that court for its determination [under 

§ 7430] that the Commissioner's position was not 

unreasonable." . . . In order for this court to 

conduct its review of the [trial] court's judgment, the 

record must present an adequate manifestation of the 

reasoning of the court in denying litigation costs. 

While our review of the determinations of the [trial] 

court may be informed by reference to the opinion in the 

underlying deficiency litigation, . . . , this does not 

obviate the need for a reasoned explanation regarding 

the issue of litigation costs. 

Accord Berks v. United States, 825 F.2d 1262, 1263 (8th Cir. 1987) 

(in reviewing a district court's denial of fees and costs under 

§ 7430, the appellate court must "examine both the underlying 

6 

Appellate Case: 93-6201 Document: 01019280481 Date Filed: 02/06/1995 Page: 6 
facts and law upon which the [district] court based its decision. 

The district court's bald conclusion, without any explanation of 

the facts or law upon which its conclusion was based, however, 

provides us with no findings upon which a meaningful review can be 

conducted."). 

III 

The controlling issue here is whether the district court 

abused its discretion by not affording Cramer an opportunity to 

introduce additional responsive evidence pertaining to its 

application for litigation costs and the objection to it, and in 

failing to give further consideration to the application under 

§ 7430 and make findings and conclusions to resolve disputed 

questions. Based on our review of the record, we conclude that 

the court did abuse its discretion in this regard. 

The government argues that analogies drawn by Cramer to 

Fed.R.Civ.P. 12(b) (6) and other civil rules are not valid and that 

the local rules of the Western District of Oklahoma are on point, 

specifically Local Rule 6 pertaining to costs and fees and Local 

Rule 14 on motions, applications and objections. Brief for the 

Appellee at 21-23. We believe the government position is 

persuasive as to the pertinent rules and have considered those 

local rules. The government also says that under the rules it was 

Cramer's "responsibility to identify the specific position of the 

Government that [he] alleged was not substantially justified, and 

to describe the facts upon which that allegation was based," and 

that Cramer failed to do so by filing only a two-page brief. Id. 

7 

Appellate Case: 93-6201 Document: 01019280481 Date Filed: 02/06/1995 Page: 7 
at 23. we do not agree with the latter contention by the 

government. 

We are convinced that Cramer complied sufficiently with the 

local rules. Local Rule 14(A) requires that each motion, 

application or objection set out the point or points on which it 

is based and be accompanied "by a concise brief." Obviously, the 

intent of the rules is to obtain a concise statement of the 

movant's position by his submission. This Cramer gave. He 

asserted that he was the prevailing party (noting the government 

had stipulated to judgment for him on his complaint and to 

dismissal with prejudice of its counterclaim for recovery of 

assessed taxes of $14,489.91). Cramer requested attorney fees of 

$9,988.17 incurred for his counsel's services, as set forth in the 

affidavit attached to his application. The affidavit represented 

that the government's position was not substantially justified, 

asserting that the government prosecuted the instant case and 

REAG, and after entry of judgment for the plaintiff in REAG, 

obtained administrative suspension of this case until the 

government determined it would be conceded and then stipulated to 

entry of judgment for plaintiff and dismissal of the government's 

counterclaim which had sought recovery of the $14,489.91 of 

assessed taxes. Thus the government conceded its position here 

was not substantially justified, according to the affidavit. App. 

19-24. 

A detailed exhibit followed showing time spent each day from 

January 23, 1991 through February 23, 1993 amounting to 98.4 hours 

for which $9,840 in compensation was requested. Id. at 26-29. 

8 

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The brief in support followed, asserting that this case was 

litigated "in parallel with the almost identical REAG case" in 

which the court found against the government on each theory 

asserted; that the judge there granted plaintiff's application for 

litigation costs in full; and that since the government conceded 

the instant case on the basis of REAG, it has also conceded that 

its position here was not substantially justified. Id. at 30-31. 

A concise statement of Cramer's position was thus made in 

compliance with the local rules. 

The government's objection to Cramer's application and its 

supporting and supplemental briefs raised factual challenges to 

the claimed similarity of the instant case and REAG. Id. at 

32-139, 140-44. Cramer filed a brief in opposition to the 

government's objection to its application on April 5, 1993, but 

the district judge had already entered his order denying Cramer's 

application on April 1, three days after the government's 

objection, brief and extensive exhibits were filed. While Local 

Rule 14(A) provides that reply briefs are not encouraged and may 

be filed only on application and with leave of court, we feel that 

the circumstances of this case required an opportunity for a 

response and further consideration rather than the mere denial of 

Cramer's application because of a "sparse record" and the lack of 

more facts. 

As several courts have observed, an evidentiary hearing is 

generally preferred, if not required, when factual disputes exist 

in connection with a request for attorney fees and costs and those 

disputes cannot be resolved without a hearing. ~, Copeland v. 

9 

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Marshall, 594 F.2d 244, 259, 259 n.95 (D.C. Cir. 1979) (citing 

cases); Lindy Bros. Builders, Inc. of Philadelphia v. American R. 

& s. Sanitary Corp., 487 F.2d 161, 169 (3d Cir. 1973) (on motion 

for attorney fees, "[t]he[] opposing interests should be afforded 

a hearing to provide an evidentiary basis for resolution of 

disputed factual matters and to allow the parties to supplement 

possibly incomplete statements of opposing parties."); King v. 

McCord, 621 F.2d 205, 206 (5th Cir. 1980) (abuse of discretion for 

district court not to hold evidentiary hearing to resolve disputed 

issues of fact); Marable v. Walker, 704 F.2d 1219, 1222 

(11th Cir. 1983) (same); Ross v. Saltmarsh, 500 F. Supp. 935, 948 

n.16 (S.D.N.Y. 1980) (noting that in the context of request for 

attorney fees, "an evidentiary hearing, even if not required, is 

strongly encouraged, particularly where there is evidence of 

factual disputes", citing cases); Imprisoned Citizens Union v. 

Sharp, 473 F. Supp. 1017, 1021 (E.D. Pa. 1979) (on motion for 

attorney fees, "[a]n evidentiary hearing is required when material 

facts are disputed"); see also Hardmand v. Board of Educ. of 

Dollarway. Ark., 714 F.2d 823, 825 (8th Cir. 1983). 

In some instances, of course, a district judge's familiarity 

with the facts in dispute may obviate the need for a hearing with 

respect to fees that may be proper. ~, McKittrick v. Gardner, 

378 F.2d 872, 874 (4th Cir. 1967) ("The judge who has decided a 

case, need hold no evidentiary hearing to determine the extent and 

quality of the assistance he received from the lawyers in reaching 

his conclusion and in preparing an opinion."). On the merits of 

the question whether the government's position was substantially 

10 

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• 

justified and in good faith, an evidentiary hearing was held 

unnecessary where "[t)he trial court gave the parties ample 

opportunity to brief and to argue the [fees and costs] issue, 

including an opportunity to submit pertinent affidavits, and 

rendered its decision based upon careful consideration of all 

arguments before the court." United States v. 2.116 Boxes of 

Boned Beef Weighing Approximately 154.121 Pounds, 726 F.2d 1481, 

1489 (lOth Cir.) (affirming denial, without evidentiary hearing, 

of prevailing party's request for fees and costs pursuant to 

§ 2412(d) (1) (A) of the Equal Access to Justice Act), cert. denied 

sub nom. Jarboe-Lackey Feedlots, Inc. v. United States, 469 u.s. 

825 (1984) .5 

Here, the district court obviously had some familiarity with 

the case at hand, but as the judge's order acknowledges, he was 

nonetheless unable to make the necessary findings of fact without 

the development of the evidence: "Who knows what similarities or 

5 

Accord Harris Mkt. Research v. Marshall Mktg. and 

Communications. Inc., 948 F.2d 1518, 1528 (lOth Cir. 1991) 

(affirming grant, without evidentiary hearing, of prevailing 

party's request for attorneys' fees pursuant to contract where 

"[n]o hearing was necessary to aid the trial court's 

determination"; "[i]n lieu of a hearing, the court requested an 

affidavit and an itemization of reasonable attorneys' fees and 

expenses"); Copeland v. Marshall, 641 F.2d 880, 905 (D.C. Cir. 

1980) (failure to hold evidentiary hearing not abuse of discretion 

where "the District Court ruled on the fee question after 

witnessing the conduct of the entire case, and with the benefit of 

substantial briefs from both sides"); Konczak v. Tyrrell, 603 

F.2d 13, 19 (7th Cir. 1979) ("Considering the depth of the 

briefing, a hearing on the attorney's fees was unnecessary."), 

cert. denied, 444 U.S. 1016 (1980); Williams v. Alioto, 625 F.2d 

845, 849 (9th Cir. 1980) ("The affidavits before the court were 

sufficiently detailed to enable the court to consider all the 

factors necessary in setting the fees."), cert. denied, 450 u.s. 

1012 (1981); American Constitutional Party v. Munro, 650 F.2d 

184, 186 (9th Cir. 1981) (same) . 

11 

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t 

differences there are [between this case and REAG]? [The judge in 

REAG] made many detailed findings that were possible only because 

REAG was litigated. A similar analysis in this case is not 

possible because of the spar[s]e record and the manner of its 

termination." Brief for Appellant, App. at 145. 

In relying on the sparsity of the record for his ruling, and 

in not affording an opportunity for the record to be developed for 

further consideration, the district court abused its discretion. 

Under the circumstances of this case, the court should have 

afforded Cramer an opportunity to develop the record. He should 

have allowed Cramer to respond to the government's objection, 

brief and supporting exhibits of over 100 pages before entering 

his order. Without such additional evidence, the judge was not in 

a position to resolve the parties' dispute and determine fairly 

the merits of Cramer's application. 

In a strikingly similar case, Baker v. Commissioner, 787 F.2d 

637 (D.C. Cir. 1986), the District of Columbia Circuit vacated the 

lower court's denial of an application for litigation costs 

pursuant to § 7430. The application had been filed shortly after 

the Commissioner of Internal Revenue acknowledged that the 

government's position in the underlying litigation was wrong. Id. 

at 638. In support of his claim that the government's position 

was not only wrong but also was "unreasonable" within the meaning 

of § 7430 (c) (2) (A) (i), the taxpayer pointed out that the 

government had conceded the very same tax issue to several 

identically situated taxpayers (Baker's co-workers) before the 

litigation with Baker commenced. Id. Without a hearing, the Tax 

12 

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• 

Court denied Baker's cost application. Vacating the Tax Court's 

denial of Baker's application and remanding for an evidentiary 

hearing, the court of appeals in an opinion by Judge, now Justice, 

Ginsburg, observed: 

If the IRS officers handling Baker's case indeed 

acted "in a normal and orderly fashion," 83 T.C. at 830, 

no cost award would be in order. On the other hand, if 

they were unreasonably intransigent, an award would be 

warranted. We are not equipped, from the materials 

before us, to say which description better fits the case 

at hand. Nor was the Tax Court positioned to make that 

judgment. The record, in its current state, does not 

permit an informed determination as to the quality of 

the IRS officials' conduct - whether it was "normal and 

orderly" or intransigent and arbitrary - in relation to 

the concession eventually made by the Commissioner that 

there was no deficiency. Whether Baker experienced 

disadvantageous treatment in comparison to identically 

situated taxpayers and, if so, why, are fact questions 

the Tax Court left unexplored. We therefore vacate the 

judgment of the Tax Court, and remand the case for the 

factual hearing and attendant discovery [footnote 

omitted] necessary to a just adjudication whether the 

manner in which the IRS processed Baker's petition was 

unreasonable. 

Id. at 638. 

Here, as in Baker, the record is inadequate to permit any 

informed determination as to the reasonableness of the IRS's 

conduct in the underlying litigation. The district court 

therefore should not have ruled on Cramer's application for 

litigation costs, leaving critical fact questions unexplored, 

without permitting Cramer to introduce additional relevant 

evidence, and without giving further consideration to the disputed 

matters at hand.6 Here the ruling was not justified by merely 

6 

The government contends that no evidentiary hearing was 

required in this case because Cramer never identified a bona fide 

factual dispute and never requested a hearing. Brief of Appellee 

(Footnote continued on next page) 

13 

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observing that the record at that point was sparse and the movant 

had not met his burden of persuasion. We feel the application, 

supporting affidavit, exhibits and brief were sufficient to assert 

an initial claim for relief under § 7430 in compliance with the 

local rules. The applicant should not have been denied relief 

immediately when no opportunity had been given to answer the 

government's extensive submission. 

Accordingly, we REVERSE the district court's denial of 

Cramer's application for litigation costs pursuant to § 7430 and 

REMAND the case for further proceedings consistent with this 

opinion. We express no view on the merits of the 

plaintiff-appellant's application under § 7430. 

(Footnote continued) : 

at 11, 20. In support, the government cites Ward v. Commissioner, 

62 T.C.M. (CCH) 695 (1991). Ward is distinguishable, however, 

because that case was governed by the Tax Court Rules of Practice 

which, unlike § 7430 and the local rules in effect here, 

specifically require a party seeking litigation costs to set forth 

"the reasons why the motion cannot be disposed of by the Court 

without a hearing." 1991 Tax Ct. Memo. LEXIS 493 at *2 (citing 

Tax Court Rules of Practice, Rule 231(b) (9)). 

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