Opinion ID: 3048294
Heading Depth: 4
Heading Rank: 2

Heading: application to district court “judicial

Text: PROCEEDING” [7] With these principles in mind, we hold that the government’s position in the “judicial proceeding” was substantially justified. Huffman instructs us to look at a party’s conduct at “each stage of the case” in determining whether an award of attorneys’ fees is appropriate. 978 F.2d at 1148. Here, the taxpayers filed the petitions to quash in district court and then, one month later, the taxpayers sent a letter to the IRS asking for more information and informing the IRS that they believed the summonses were invalid. Two days later, the IRS withdrew the summonses and requested that the taxpayers voluntarily dismiss the petitions to quash. After the taxpayers refused to dismiss the case, they launched a mini-litigation surrounding their requested fees and conditions. The only position taken by the government was withdrawal of the summonses before its answer was due.4 The government’s with- 4 The government asks us to adopt a categorical rule that in considering attorneys’ fees under 26 U.S.C. § 7430, the government does not take a position until it files its answer. We decline to adopt that bright-line rule, even though we hold that the government’s conduct in this case was reasonable. Such a rule would make no sense as it would potentially exclude conduct or positions taken in a judicial proceeding before the answer was filed. See Huffman, 978 F.2d at 1148 (stating that “[g]enerally, the posiPACIFIC FISHERIES INC. v. UNITED STATES 4377 drawal of the summonses, which both parties agree were unenforceable, was surely reasonable. The government also acted reasonably when it asked the taxpayers to voluntarily dismiss the petitions to quash, given that those petitions were moot after the summonses were withdrawn. Accordingly, the government established that its position in litigation was substantially justified and the taxpayers are not entitled to attorneys’ fees. [8] The taxpayers also argue that the district court should have permitted them discovery to shore up their claim that the IRS was unreasonable, to support their claim for conditions, and to provide a basis for the district court to impose sanctions. This endeavor is premised on the taxpayers’ view that the IRS has engaged in improper conduct in this and at least two other Russian tax treaty cases. As the district court pointed out, it was unaware of any case under Rule 41(a)(2) “in which plaintiffs were able to condition their own voluntary dismissal upon payment or performance by defendants.” The district court did not abuse its discretion in denying the taxpayers’ requests, since the purpose of discovery is to aid a party in the preparation of its case, not to punish its opponents for past sins. See Fed. R. Civ. P. 26(b) advisory committee’s note (1946 amendments). To the extent taxpayers seek sanctions, there is no basis for us to award sanctions in this appeal for prelitigation conduct nor did the district court err in declining to exercise its supervisory powers vis-a-vis the alleged conduct of the government. Gomez v. Vernon, 255 F.3d 1118, 1134 (9th Cir. 2001) (holding that where a party has not acted in bad faith during the litigation, inherent powers sanctions are not appropriate). tion of the United States is established initially by the Government’s answer to the petition” but stopping short of articulating a bright-line rule to that effect); see also Wade v. United States, 865 F. Supp. 216, 219-20 (D.N.J. 1994) (holding that a court may consider the government’s preanswer conduct, such as motions to dismiss, in deciding whether to award attorneys’ fees under the statute). 4378 PACIFIC FISHERIES INC. v. UNITED STATES Although the IRS’s issuance of the administrative summonses forced the taxpayers into litigation, we see no fees remedy for them in the judicial proceeding. We conclude that their case falls into a gap in the statute, but it is not our role to bridge that gap. AFFIRMED.