UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

)

In re LONG-DISTANCE TELEPHONE )

SERVICE FEDERAL EXCISE TAX )

REFUND LITIGATION ) 07-mc-0014 (RCL)

)

) MDL Docket No. 1798

) 

This Document Relates to )

Cohen v.United States ) 07-cv-0051 (RCL)

Gurrola v. United States ) 07-cv-0050 (RCL)

Sloan v. United States ) 06-cv-0483 (RCL)

)

MEMORANDUM OPINION

I. INTRODUCTION

Pending before this Court is plaintiffs’ Motion to Enter Judgment and for an Interim 

Award of Attorneys’ Fees and Litigation Expenses [83]. This Court will GRANT plaintiffs’

motion for final judgment in part and DENY the motion in part. The Court will enter final 

judgment in favor of the Sloan plaintiffs on their procedural APA claim and for the government 

with respect to all other claims. The Court will enter final judgment in favor of the government 

on all claims raised by the Cohen and the Gurrola plaintiffs. The Court will DENY plaintiffs’

motion for an interim award of attorneys’ fees.

II. BACKGROUND

For decades, the IRS collected an excise tax on long-distance calls based on the distance 

and duration of calls. See Cohen v. United States, 650 F.3d 717, 719-20 (D.C. Cir. 2011) (en 

banc). The service providers collected the tax and paid it over to the IRS. Id. However, as 

technology changed, service providers no longer calculated the distance of the call in their billing

and the IRS began to base the tax solely on duration. Id. at 720. Multiple plaintiffs brought cases
2

challenging this new method, seeking refunds and injunctive relief. Even after the IRS lost on 

this issue in the Eleventh Circuit, see Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328 

(11th Cir. 2005), the Service continued to defend the tax in court and directed phone service 

providers to continue collecting it – even within the Eleventh Circuit’s jurisdiction. Cohen, 650 

F.3d at 720 (citing IRS Notice 2005–79). Only after four other circuits held that the tax was 

illegal, see Reese Bros., Inc. v. United States, 447 F.3d 229, 234 (3d Cir. 2006); Fortis, Inc. v. 

United States, 447 F.3d 190, 190 (2d Cir. 2006); Nat’l R.R. Passenger Corp. v. United States, 

431 F.3d 374, 379 (D.C. Cir. 2005); OfficeMax, Inc. v. United States, 428 F.3d 583, 600 (6th Cir.

2005), did the IRS finally change its position. See Cohen, 650 F.3d at 720.

In May 2006, without notice or opportunity for public comment, the IRS issued Notice 

2006-50. This Notice discontinued the collection of the tax and provided a limited procedure that 

allowed some taxpayers to obtain a refund for taxes that had been illegally collected. See Cohen, 

650 F.3d at 720. More litigation ensued challenging the lawfulness and adequacy of this refund 

process. Id. at 720-21.

Three cases are involved in the present dispute. 

Cohen v. United States, 05-cv-1237 (E.D. Wis. 2005) was filed in 2005 as a putative class 

action, seeking refunds, an injunction against the collection of further taxes, and other relief.

After the IRS issued Notice 2006-50, Mr. Cohen amended his class action complaint by adding a

challenge to the notice as an “arbitrary and unreasonable administrative action” under the 

Administrative Procedure Act (APA). See Second Amended Complaint [75] at 8, Cohen, 05-cv1237. Mr. Cohen’s amended Complaint alleges that the “restitution procedure adopted by the 

government arbitrarily, unreasonably, and unlawfully limits restitution of the funds unlawfully 
3

exacted from phone-users” in several enumerated respects. The Complaint does not refer to the 

absence of notice and comment, or otherwise to the procedures used in issuing the Notice. See id.

Sloan v. United States, 06-cv-483 (D.D.C. 2006) was filed in March 2006 as a putative 

class action seeking refunds, an injunction against the collection of further taxes, and other relief. 

After the IRS adopted Notice 2006-50, the Sloan plaintiffs amended their Complaint, adding

substantive and procedural APA challenges to the notice. Second Amended Complaint at 18-20, 

Sloan v. United States, 06-cv-483 (D.D.C. 2006). The Complaint’s sixth Cause of Action alleges 

that the IRS failed to comply with the APA’s notice and comment requirements. See id. at 19. 

Gurrola v. United States, 06-cv-3425 (C.D. Cal. 2006) was filed in June 2006, after 

Notice 2006-50 had already been issued. The Complaint does not include any claims for relief 

based on the APA, but the plaintiffs’ response to the governments’ motion to dismiss their claim 

did allege that Notice 2006-50 had been promulgated “without any public notice, public 

comment or evidence.” Plaintiffs’ Response in Opposition to Motion of Defendant United 

States’ To Dismiss Plaintiffs’ Complaint at 3, Gurrola v. United States, 06-cv-3425 (C.D. Cal. 

2006).

In late 2006, the Multidistrict Litigation (“MDL”) Panel transferred Cohen and Gurrola

to this Court where they were consolidated with Sloan “for pretrial proceedings.” In re Long–

Distance Tel. Serv. Fed. Excise Tax Refund Litig., 469 F. Supp. 2d 1348, 1350 (J.P.M.L. 2006) 

(Transfer Order); accord Practice and Procedure Order Establishing the Governing Practice and 

Procedure Upon Transfer Pursuant to 28 U.S.C. § 1407(a) at 1, In re Long–Distance Tel. Serv. 

Fed. Excise Tax Refund Litig., 07-mc-14, Docket No. 8 (Jan. 29, 2007) (noting that these actions 

are “consolidated for pretrial purposes”); see also Cohen, 650 F.3d at 751. Plaintiffs declined to 

file a consolidated amended complaint “[i]n light of the extensive prior briefing in all the actions, 
4

and in light of the fact that such briefing is complete.” See Joint Status Report, In re Long–

Distance Tel. Serv. Fed. Excise Tax Refund Litig., 07-mc-14, Docket No. 20 (D.D.C. Mar. 30, 

2007).

Judge Urbina dismissed the consolidated cases. In re Long–Distance Tel. Serv. Fed. 

Excise Tax Refund Litig., 539 F. Supp. 2d 281, 287 (D.D.C. 2008). He concluded that plaintiffs

failed to exhaust their administrative remedies, to state valid claims under federal law, and that 

Notice 2006–50 constituted unreviewable agency action. Id. 

The D.C. Circuit reversed. Cohen v. United States, 578 F.3d 1, 4-14 (D.C. Cir. 2009).

Judge Rogers Brown, joined by Judge Garland, concluded that Notice 2006–50 constituted final 

agency action reviewable under the APA, and rejected the government’s jurisdictional 

challenges. Id. Judge Kavanaugh dissented, arguing that plaintiffs’ claims were barred by the 

Anti-Injunction Act and the ripeness doctrine. Id. at 16-21 (Kavanaugh, J., dissenting). 

The D.C. Circuit granted the government’s petition for rehearing en banc. Cohen v. 

United States, 599 F.3d 652 (D.C. Cir. 2010). The en banc court affirmed the decision of the 

panel, and remanded to this Court to consider the merits of plaintiffs’ APA claims. Cohen, 650 

F.3d 717. Judge Kavanaugh reiterated his objections to reaching the merits of these claims, and 

was joined in dissent by Chief Judge Sentelle and Judge Henderson. See id. at 736-745 

(Kavanaugh, J., dissenting). 

On remand, Judge Urbina found that the D.C. Circuit’s en banc opinion had concluded 

that the IRS violated the APA’s procedural notice-and-comment requirements by issuing Notice 

2006-50. He prospectively vacated the Notice, and remanded to the IRS for further action. In re 

Long-Distance Tel. Serv. Fed. Excise Tax Refund Litig., 853 F. Supp. 2d 138 (D.D.C. 2012). 
5

In May 2012, plaintiffs filed a motion seeking entry of judgment in favor of all plaintiffs 

and an interim award of attorneys’ fees of more than $6.5 million in fees and expenses, and 

seeking the court’s permission to allow them to file an additional motion for attorneys’ fees 

when the IRS takes further actions. Pl. Br. at 10.1

The case was reassigned to the undersigned Judge upon Judge Urbina’s retirement from 

the bench.

III. ANALYSIS

A. Final Judgment

Plaintiffs move for an entry of final judgment in favor of the Cohen, Gurrola and Sloan 

plaintiffs on their procedural APA claim. This Court will enter final judgment only in favor of

the Sloan plaintiffs, and only on this single claim. It will enter judgment in favor of the

government on all other claims and with respect to the other two cases.

“Every judgment and amended judgment must be set out in a separate document . . . .” 

Fed. R. Civ. P. 58(a). A party may move for final judgment. Fed. R. Civ. P. 58(a). A court must 

“promptly approve the form of judgment” to be entered by the clerk. Fed. R. Civ. P. 58(b)(2)(B). 

Plaintiffs initially sought an entry of judgment “in favor of Plaintiffs and against the 

United States with respect to Plaintiffs’ claims for a procedural violation of the Administrative 

Procedure Act.” See Plaintiffs’ [Proposed] Order [83-1]. While some language in plaintiffs’ 

opening brief suggested they might seek an even broader entry of judgment, see, e.g., Pl. Br. at 

2-3 (enumerating favorable IRS actions taken after commencement of this litigation), plaintiffs’

proposed order confirms that they only seek final judgment based on the single procedural APA

claim. This Court takes it as conceded that the procedural APA claim is the only proper source of 

judgment in favor of plaintiffs here.

 1 Reference here and throughout is to plaintiffs’ Corrected Memorandum of Law, Docket No. 84-2.
6

In the government’s Response, it notes that the three cases at issue here were 

consolidated solely for pre-trial purposes, so that “separate judgments must be entered for the 

three cases, rather than the one universal judgment that plaintiffs seek.” Def. Judgment Br. at 1

(citing In re Long–Distance, 469 F. Supp. 2d at 1350 (Transfer Order)). The government further 

argued that only one of the three cases (Sloan) actually stated the procedural APA claim in its

complaint, and so final judgment may only be granted with respect to those plaintiffs on that 

particular claim. Id. at 4-10.

In their Reply, plaintiffs seem to concede that judgment must be considered separately for 

each case. See Pl. Reply at 2-5. Instead, they insist that all plai ntiffs have pursued the procedural 

APA claim and criticize the government’s proposed readings of the Cohen and Gurrola

complaints as “formalism at its worst.” Pl. Reply at 5. 

This Court agrees with the government and finds that the Cohen and Gurrola plaintiffs 

did not raise the procedural APA claim in their complaints and so cannot now be awarded final 

judgment on that claim. These cases were consolidated for “pretrial purposes” only, see In re 

Long–Distance, 469 F. Supp. 2d at 1350; Practice and Procedure Order at 1, In re Long–

Distance, 07-mc-14, Docket No. 8 (Jan. 29, 2007); Cohen, 650 F.3d at 751, and plaintiffs

declined to file a consolidated amended complaint. see Joint Status Report, In re Long–Distance 

Tel. Serv. Fed. Excise Tax Refund Litig., 07-mc-14, Docket No. 20 (D.D.C. Mar. 30, 2007). 

Thus, for purposes of final judgment, plaintiffs must be evaluated separately on the basis of their 

complaints. Only the Sloan plaintiffs raised the procedural APA claim in their complaint and so 

only those plaintiffs are entitled to final judgment on that claim. 

Mr. Cohen’s complaint alleged, inter alia, a cause of action based on a “Review of 

Arbitrary and Unreasonable Administrative Action,” and argued that Notice 2006-50 “arbitrarily, 
7

unreasonably, and unlawfully limits restitution of the funds unlawfully exacted from phoneusers.” Second Amended Complaint [75] at 8, Cohen, 05-cv-1237. This states only a substantive 

APA challenge, not a procedural one. Mr. Cohen’s complaint contains no reference to the lack of 

notice and comment procedures, nor does it refer otherwise to the procedures by which the 

Notice 2006-50 was promulgated. This complaint cannot be fairly read to state a procedural APA 

claim. Mr. Cohen did not pursue this procedural APA theory until his case had been consolidated 

with the Sloan case. Because these cases were consolidated for “pretrial purposes” only, and 

because plaintiffs declined to file a consolidated amended complaint incorporating all theories 

raised by separate plaintiffs into a single, unified document, this Court finds that Mr. Cohen did 

not pursue a procedural APA claim and must enter judgment in favor of the government with 

respect to all of Mr. Cohen’s claims.

The Gurrola complaint alleged neither procedural nor substantive challenges under the

APA. Plaintiffs point out that the Gurrola Complaint challenged the lawfulness of Notice 2006-

50, and that their opposition brief to the government’s motion to dismiss alleged that the Notice

had been promulgated “without any public notice, public comment or evidence.” Plaintiffs’

Opposition to Defendant’s Motion to Dismiss at 3, Gurrola v. United States, 06-cv-3425 (C.D. 

Cal. 2006). However, an unspecified challenge to the “lawfulness” of Notice 2006-50 cannot be 

reasonably read to state a procedural APA claim, and the fact that the Gurrola plaintiffs later 

raised this claim in subsequent briefs does not alleviate their failure to include this theory in the

complaint. Because these cases were consolidated for “pretrial purposes” only, and because 

plaintiffs declined to file a consolidated amended complaint incorporating all theories raised by 

separate plaintiffs into a single, unified document, this Court cannot enter judgment in favor of 

the Gurrola plaintiffs based on a claim they did not properly pursue.
8

Accordingly, final judgment will be entered in favor of the Sloan plaintiffs on the 

procedural APA claim and in favor of the government on all remaining claims including all 

claims raised by the Cohen and Gurrola cases.

B. Attorneys’ Fees

Plaintiffs seek an Interim Award of Attorneys’ Fees and Litigation Expenses. This Court 

will DENY this request.

1. Preliminary Issues

Before addressing the merits of plaintiffs’ request for attorneys’ fees, this Court first must 

resolve two preliminary questions: (i) whether there is a separate “need” requirement for an 

interim fee request; and (ii) whether the general fee shifting provision of the Equal Access to 

Justice Act (EAJA) or the more demanding provision of the Internal Revenue Code (IRC)

governs plaintiffs’ request. The Court agrees with plaintiffs on both issues, finding that (i) there 

is no additional “need” requirement for an interim fee request; and (ii) that the general EAJA 

provision applies.

i. There is No Additional “Need” Requirement For An Interim Fee Request

Plaintiffs seek an interim award. The motion comes before the entry of final judgment, 

and plaintiffs seek to reserve “the right to make a supplemental fee application to take 

appropriate credit for any . . . additional value created” by their work on these cases. Pl. Br. at 8.

As to the timing of plaintiffs’ motion, the government concedes that “under this Court’s 

Local Rules . . . a party may move for an interim application for attorneys’ fees prior to final 

judgment.” Def. Judg. Br. at 10 (citing Local Civ. R. 54.2(c)). However, the government insists 

that such a motion must demonstrate a special “need.” Id. The government points to Betranena v. 

Clinton, 770 F. Supp. 2d 175, 187 (D.D.C. 2011), wherein Judge Friedman rejected a party’s 
9

request for interim fees as premature because (1) final judgment was not appropriate; and (2) the 

moving party had not demonstrated any need for interim fees. See also Hussain v. U.S. Dep’t of 

Homeland Sec., 674 F. Supp. 2d 260, 272 (D.D.C. 2009) (Friedman, J.) (making the same 

judgment). 

This Court finds that a party need not demonstrate “need” to properly state a request for 

attorneys’ fees before final judgment has been entered. Our Local Civil Rule 54.2 provides 

guidance to litigants and Courts in the D.D.C. on matters related to attorneys’ fees. Rule 54.2(c) 

explains that “[n]othing in this Rule precludes interim applications for attorneys fees prior to 

final judgment.” Nothing in the text of this rule suggests any “need” requirement. This Court 

reads Judge Friedman’s reasoning in Betranena as expressing two alternative modes to pursue 

an interim motion, rather than two necessary elements. A party may state an interim award of 

fees before final judgment has been entered if (a) final judgment is subsequently deemed 

appropriate by the court after the motion is filed; or (b) plaintiff has demonstrated need. Here, as 

discussed above, final judgment is appropriate, and thus the interim motion is sufficient without 

any separate demonstration of need.

As to plaintiffs’ reservation of the right to file a supplemental request at a later date, the 

Court declines to comment on that issue until it is raised on such a later date.

ii. The Equal Access to Justice Act Governs Plaintiffs’ Request For Fees, Not

Internal Revenue Code

Plaintiffs moved for attorneys’ fees pursuant to two provisions in the EAJA: 28 U.S.C. §§

2412(b) & (d). The government counters that because plaintiffs’ cases challenged the collection 

of a tax, and sought refunds of that tax, any award of fees must be governed by a provision from 

the IRC, 26 U.S.C. § 7430(a), which applies to “any administrative or court proceeding which is 
10

brought by or against the United States in connection with the determination, collection, or 

refund of any tax, interest, or penalty under this title.” 26 U.S.C. § 7430(a). 

This Court agrees with plaintiffs. Though these cases began seeking refunds, those claims

have long since been dismissed. Thus, the D.C. Circuit’s en banc decision concluded that “[t]his 

suit does not seek to restrain the assessment or collection of any tax.” Cohen, 650 F.3d at 725. 

Earlier the Circuit panel explained:

[T]his is not your typical tax case. In a run-of-the-mill case, taxpayers litigate who has 

the right to disputed funds . . . in the context of a suit for refund. . . . But this case is 

different: the fight is over process, not disputed funds. . . . Appellants no longer seek a 

refund in this suit. . . . They seek to challenge the procedural obstacles the IRS inserted 

between individual taxpayers and their right to file suit to recover unlawfully collected 

taxes.

Cohen, 578 F.3d at 5. Applying the IRC fee shifting provision as the government urges would 

contradict these statements. This Court concludes that the EAJA, not the IRC applies.

2. The Merits of Plaintiffs’ Fee Request 

Plaintiffs request fees under two provisions of the EAJA: §§ 2412 (b) & (d). This Court 

concludes that plaintiffs are not entitled to attorneys’ fees pursuant to either provision.

i. Plaintiffs are Not Entitled to Fees under § 2412(b)

Section 2412(b) of U.S. Code Title 28 permits recovery of reasonable attorneys’ fees, 

expenses and costs for a prevailing party in litigation against the United States “to the same 

extent that any other party would be liable under the common law or under the terms of any 

statute which specifically provides for such an award.” 

The government’s brief erroneously seeks to apply the requirements of § 2412(d) which

allows recovery of reasonable fees by a party unless the government’s position is “substantially 

justified” and unless the movant’s net worth exceeds $2,000,000 at the time the action was filed. 
11

The government’s attempt to read the requirements of subsection (d) onto subsection (b) is

incorrect. The “substantially justified” requirement appears only in subsection (d). Pursuant to 

the canon of construction expressio unius est exclusio alterius, the inclusion of this requirement 

in subsection (d) but not in subsection (b) implies that no such requirement applies to subsection 

(b). Similarly, the net worth requirement articulated in subsection (d)(2)(B)(i) explicitly applies

only to “this subsection” – language that refers to subsection (d). Only the requirements of 

subsection (b) apply to plaintiffs’ request for attorneys’ fees under that subsection.

Plaintiffs’ request for fees under § 2412(b) relies on the common law “common benefit” 

theory. This theory has been applied “to impose fees on a corporate or union defendant when the 

fruits of a named plaintiff's victory, though nonmonetary, were spread evenly among 

shareholders or union members.” Grace v. Burger, 763 F.2d 457, 459-60 (D.C. Cir. 1985) (citing 

Hall v. Cole, 412 U.S. 1, 8–9 (1973); Mills v. Electric Auto-Lite Co., 396 U.S. 375, 391–97

(1970)). Specifically plaintiffs argue that this case has “generated a substantial benefit for more 

than 100 million taxpayers” who have “already received, or will in the future receive, at least 

partial refunds,” and that counsel deserve fees for generating this common benefit. See Pl. Br. at 

6.

In Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 247 (1975), the 

Supreme Court articulated requirements that any “class” of beneficiaries must satisfy in order for 

prevailing attorneys to recover fees under the common-benefit doctrines:

[1] the classes of beneficiaries [must be] small in number and [2] easily ascertainable. [3] 

The benefits [must be] traced with some accuracy, and [4] there [must be] reason for 

confidence that the costs [can] indeed be shifted with some exactitude to those 

benefitting.

Alyeska, 421 U.S. at 265 n. 39 (quoted in Brzonkala v. Morrison, 272 F.3d 688, 691 (4th Cir. 

2001)). In Grace v. Burger, 763 F.2d 457, 459-60 (D.C. Cir. 1985), the D.C. Circuit 
12

categorically rejected the application of the “common benefit” theory to allow recovery of 

attorneys’ fees under § 2412(b) in cases where plaintiffs seek injunctive relief against the United 

States. The court adopted the reasoning of Judge Kane of the District of Colorado:

[T]he defendant, United States, is more than just a representative of all the beneficiaries 

of the litigation. An award of attorney fees would ultimately be born[e] by all taxpayers, 

rather than just those benefiting from the injunctive order. As such, . . . the common 

benefit theory is inapplicable in cases such as this where plaintiffs seek injunctive relief 

against the government. . . . The common benefit theory is designed to avoid unjust 

enrichment of beneficiaries to a law suit who are not named plaintiffs. An award of fees 

here would not compel the beneficiaries to compensate the winning litigant who acted as 

their representative, but would assess costs against the unrelated losing party. This, 

clearly, is inconsistent with the American rule and the common benefit exception.

Id. at 460 (quoting Trujillo v. Heckler, 587 F. Supp. 928, 931 (D. Colo. 1984)) (emphasis added); 

see also United States v. Instruments, S.A., Inc., 1993 WL 198842 at *4 (D.D.C. May 26, 1993)

(collecting cases that have rejected the applicability of the common benefit theory to recovery 

against the United States); 10 Moore’s Federal Practice, § 54.171[2] [c] (3d ed. 1997) (noting 

that Alyeska “completely undermined” the application of the common-benefit doctrine against 

governmental entities).

In Brzonkala, the Fourth Circuit denied plaintiffs’ request for fees from the government 

under the common-benefit doctrine. Plaintiffs’ first purported class of beneficiaries – all U.S. 

taxpayers – was “not sufficiently ‘small in number and easily identifiable’ to withstand scrutiny 

under Alyeska.” 272 F.3d at 691 (quoting Alyeska, 421 U.S. at 265 n.39). Their alternate 

proposed class of beneficiaries – the class of individuals spared liability thanks to the judicial 

decision plaintiffs’ obtained – also failed because “even assuming it would be possible to 

identify such persons . . . , imposing fees on the United States would not ‘shift [costs] with some 

exactitude to those benefitting,’ as required by Alyeska.” Id. at 692 (quoting Alyeska, 421 U.S. at 

265 n. 39). The court also noted that “[a]ll federal taxpayers would bear the burden of fees, not 
13

merely the comparatively much smaller class of those who would otherwise have been 

prosecuted.” Id.

This Court concludes that plaintiffs’ request for fees from the government under the 

common benefit theory fails for several reasons. Plaintiffs’ proposed class of “more than 100 

million taxpayers” who have “already received, or will in the future receive, at least partial 

refunds” fails under Alyeska’s stringent requirements that any class of beneficiaries must be 

“small in number,” “easily ascertainable,” the benefits “traced with some accuracy,” and some 

“reason for confidence that the costs [can] indeed be shifted with some exactitude to those 

benefitting.” Alyeska, 421 U.S. at 265 n. 39. This proposed class of beneficiaries fails on all 

counts.

Plaintiffs point to Swedish Hospital Corp. v. Shalala, 1 F.3d 1261, 1266-71 (D.C. Cir. 

1993) but, this case does not help plaintiffs here. See Pl. Br. at 7. In that case, under a courtapproved settlement, the Department of Health and Human Services agreed to pay $27.8 million 

into a fund for distribution among the members of the class. See Swedish Hosp. Corp. v. 

Sullivan, 89-1693, 1991 WL 319154 at *1 (D.D.C. Dec. 20, 1991). Judge Oberdorfer calculated 

that the plaintiffs’ lawyers were only responsible for a portion of that fund, and calculated the 

attorneys’ fees by taking 20% of that portion. Id. On appeal, the Circuit approved the use of this 

percentage-of-the-benefit method in common fund cases. Swedish Hosp., 1 F.3d at 1266-71. In 

that case the dispute was over the proper measure of attorneys’ fees to be drawn from a formally 

fixed pool of money that had been drawn from the government in the course of a judicially 

approved settlement. 1 F.3d at 1266-71. In the present case, by contrast, there is no such 

common fund. Here, in fact, plaintiffs tried and failed to obtain monetary relief from the 

government. Plaintiffs analogize the value that their litigation has generated to other taxpayers 
14

with the common fund in Swedish Hospital, but Swedish Hospital simply provides no support for 

this position. 

Finally, as in Brzonkala, “[a]ll federal taxpayers would bear the burden of fees, not 

merely the comparatively much smaller class of those who” allegedly benefitted from plaintiffs’ 

work on these cases. See 272 F.3d at 691.

Because of our circuit’s demonstrated hostility towards applying the common benefit 

theory to cases against the government, Grace v. Burger, 763 F.2d at 459-60, plaintiffs’ failure to 

cite any authority supporting its theory, the failure of plaintiffs’ proposed class to satisfy the 

requirements of Alyeska, and the fact that the burden would be borne by all taxpayers to 

compensate for a benefit allegedly received by only some of them, this Court will DENY 

plaintiffs’ request for attorneys’ fees pursuant to § 2412(b).

ii. Plaintiffs are Not Entitled to Fees Under § 2412(d)

In their Reply, plaintiffs argue that they are entitled to recover fees under § 2412(d). This 

argument also fails. 

Section 2412(d) provides that a “prevailing party” is entitled to recover fees from the 

United States “unless the court finds that the position of the United States was substantially 

justified.” See § 2412(d)(1)(A). “Whether or not the position of the United States was 

substantially justified shall be determined on the basis of the record (including the record with 

respect to the action or failure to act by the agency upon which the civil action is based) which is 

made in the civil action for which fees and other expenses are sought.” § 2412(d)(1)(B). The 

“‘position of the United States’ means, in addition to the position taken by the United States in 

the civil action, the action or failure to act by the agency upon which the civil action is based.” § 
15

2412(d)(2)(D). Recovery is limited to individuals “whose net worth did not exceed $2,000,000 at 

the time the civil action was filed.” § 2412(d)(2)(B)(i).

a. Only Sloan and not Cohen or Gurrola Plaintiffs are “Prevailing Parties” 

Prevailing party status is only conferred on a plaintiff who obtains a “material alteration 

of the legal relationship of the parties” either through judgment or a court-ordered consent 

decree. See Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health & Human Res., 532 

U.S. 598, 600-04 (2001). A party who produced agency change through litigation without 

securing such an order is not a “prevailing party.” Id. Where a plaintiff has obtained such a 

court-ordered material alteration, his counsel may be entitled to fees for “all hours reasonably 

expended on the litigation” including time spent pursuing alternative legal grounds for a desired 

outcome. See Hensley v. Eckerhart, 461 U.S. 424, 435 (1983). A party who seeks and obtains a 

judicial order vacating an agency order is a prevailing party. LePage’s 2000, Inc. v. Postal 

Regulatory Comm’n, 674 F.3d 862, 866 (D.C. Cir. 2012).

Plaintiffs claim that they are “prevailing parties” here both because of their success in 

court on the procedural APA violation claim and because the IRS’s decision to stop collecting 

the tax and issue Notice 2006-50 was allegedly occasioned by their legal actions. See Pl. Reply at 

8-10.

Plaintiffs’ success on the procedural APA claim constitutes a “material alteration of the 

legal relationship of the parties” through judgment. See Buckhannon, 532 U.S. at 600-04; see 

also LePage’s 2000, 674 F.3d at 866. However, as discussed above, only the Sloan plaintiffs 

properly pursued this claim, and so only these are entitled to “prevailing party” status. Neither 

Mr. Cohen nor the Gurrola plaintiffs are entitled to “prevailing party” status because they did not 

properly pursue the procedural APA claim. And, any other results these plaintiffs might have 
16

otherwised accomplished through the litigation – e.g., by catalyzing the IRS to change positions -

- do not qualify them as prevailing parties under the principles of Buckhannon. Accordingly, Mr. 

Cohen and the Gurrola plaintiffs’ request for attorneys’ fees is DENIED.

b. The “Government’s Position” Was Substantially Justified With Respect To Sloan

Section 2412(d) provides that substantial justification must be provided not only for “the 

position taken by the United States in the civil action” but also “the action or failure to act by the 

agency upon which the civil action is based.” § 2412(d)(2)(D). “Substantially justified” means 

“justified in substance or in the main—that is, justified to a degree that could satisfy a reasonable 

person.” LePage’s 2000, 674 F.3d at 866 (D.C. Cir. 2012) (quoting Pierce v. Underwood, 487 

U.S. 552, 565 (1988)). “[D]effects common to positions that are not substantially justified” 

include actions that are “flatly at odds with controlling case law” or which are taken “in the face 

of an unbroken line of authority.” Hill v. Gould, 555 F.3d 1003, 1008 (D.C. Cir. 2009). The 

burden is on the government to demonstrate that it was “substantially justified.” Halverson v. 

Slater, 206 F.3d 1205, 1208 (D.C. Cir. 2000).

Here, the government must demonstrate “substantial justification” for the IRS’ action in 

issuing Notice 2006-50 and for the government’s legal defense of that Notice. It has done so. 

Judges of this Court and the Court of Appeals have written opinions finding that the 

Notice was not subject to judicial review. See, e.g., Cohen, 650 F.3d at 736-45 (Kavanaugh, J., 

dissenting) (joined by Chief Judge Sentelle and Judge Henderson); In re Long-Distance, 539 F. 

Supp. 2d at 308-311 (Urbina, J.). This fact provides an adequate basis to allow this Court to 

conclude that the government was substantially justified both in issuing the Notice and defending 

it in court.
17

Plaintiffs’ reliance on LaPage’s 2000 is misplaced. See Pl. Reply at 8 (citing LaPage’s 

2000, 674 F.3d at 866). In that case, the Court of Appeals held that an agency was not 

substantially justified in issuing an order that it struck down under a substantive APA challenge 

as arbitrary and capricious based on numerous internal inconsistencies and anomalies – problems 

that would have been apparent on the face of the order. In the present case, by contrast, the 

challenged order was struck down on procedural APA challenge only after overcoming obstacles

to judicial review – obstacles that had the well-reasoned support of Judges Urbina, Kavanaugh 

and Henderson and Chief Judge Sentelle. 

Thus, the position of the government was substantially justified, and plaintiffs are not 

entitled to Attorneys Fees under § 2412(d).

IV. CONCLUSION

For the foregoing reasons, plaintiffs’ Motion to Enter Judgment and for an Interim Award 

of Attorneys’ Fees and Litigation Expenses will be GRANTED in part and DENIED in part. 

Separate orders consistent with this Opinion shall issue on this date.

Signed by Royce C. Lamberth, Chief Judge, on October 29, 2012.