Opinion ID: 626466
Heading Depth: 2
Heading Rank: 3

Heading: Decisions Focusing on the Real Party of Interest

Text: The Estate's discussion of case law regarding the real-party-in-interest doctrine does not dissuade us from our conclusion. We now examine this case law and explain why we believe it does not dictate a different result. One of the first decisions to apply the real-party-in-interest doctrine to the EAJA was Unification Church v. I.N.S., 762 F.2d 1077 (D.C.Cir.1985). The United States Court of Appeals for the District of Columbia Circuit held that courts should determine the real party in interest in the fee litigation and decide whether that party is eligible to recover fees. In the underlying litigation, the Unification Church agreed to pay the attorneys' fees for three of its employees in their dealings with the Immigration and Naturalization Service, and joined the suit as a named plaintiff. Id. at 1082; see also Unification Church v. I.N.S., 547 F.Supp. 623 (D.D.C.1982). The employees and Church were successful, and the Church sought to recover, through the EAJA, the fees it paid on behalf of the employees. Id. at 1079. The court decided that the Church was the real party in interest because it had incurred all of the fees, and would be the beneficiary of any award of fees. Id. at 1082. Despite the fact each employee was individually eligible to recover, the Church was prevented from recovering because it had more than 500 employees. The court explained that if it were to award fees in this case on the basis that the individual appellants qualified under subsection (d)(2)(B)(i), [it] would open the door for the wholesale subversion of Congress's intent to prevent large entities from receiving fees under subsection (d). Id. The D.C. Circuit feared that [i]n a wide variety of circumstances, organizations obviously not qualified for an award under subsection (d) would be able to persuade individuals to be among the parties, and the organization would then receive free legal services if its side were to prevail. Id. The court could not allow such a situation. Id. As a result the court held that where the fee arrangement among the plaintiffs is such that only some of them will be liable for attorney's fees, the court shall consider only the qualification vel non under the [EAJA] of those parties that will be themselves liable for fees if court-awarded fees are denied. Id. The Estate also argues the decision in Wall Industries v. United States, 15 Cl.Ct. 796 (1988), aff'd in unpublished opinion, 883 F.2d 1027 (Fed.Cir.1989), supports the extension of the real-party-in-interest doctrine. In that decision the court denied the taxpayer-plaintiff fees under the EAJA because it was not the real party in interest. Wall Industries Inc. (Wall), the taxpayer and plaintiff in the action, filed suit seeking a tax refund. Wall, however, entered into an agreement with its accounting firm, Arthur Young (Young), whereby Young paid Wall $291,045 to settle a potential malpractice claim against Young for failing to file the refund claim. Wall Indus., 15 Cl.Ct. at 799. As a condition of the settlement, Wall granted to Young full responsibility for litigating the tax refund claim and any refund proceeds resulting from that litigation. Id. Therefore, Young conducted the litigation, paid for the litigation, and would receive any and all benefit from the litigation. Id. The court stated [a] thorough analysis of the settlement agreement between Young and Wall discloses that there is no question that Young, in actuality, required Wall to initiate this suit as a condition of the payment of $291,045, and that Wall is little more than a nominal applicant. Id. at 804. After Wall prevailed and obtained a refund, it sought fees under the EAJA. The court found that Wall was not eligible for fees because it never assumed any responsibility to pay for legal services and would derive no benefit from an award herein.... Id. at 805. The court found that Young was the real party in interest because it, not Wall, actively and continuously participated in the litigation and stood alone to benefit. Id. The court then analyzed whether Young, not Wall, could qualify under the net worth provisions, and denied fees because of Young's net worth and size. Id. at 806. Here, the Estate argues that because, in its view, the Charitable Trust actively and continuously participated in the litigation and stood alone to benefit, it must be considered the real party in interest, just like the Unification Church in Unification Church, and Young in Wall Industries. The Estate errs in relation to both cases. In both Unification Church and Wall Industries, the real party in interest had a legal arrangement that made it responsible for the fees. See also Love v. Reilly, 924 F.2d 1492, 1494 (9th Cir.1991) (The members of the [association] would be the real party in interest in the fee litigation only if they were liable for the [association's] attorney's fees.). The Charitable Trust had no such arrangement that made it liable or responsible for the fees. The Estate argues that as the sole residuary beneficiary the Charitable Trust did ultimately bear the fees. The Charitable Trust, however, did not directly bear the costs of these fees in the manner that the Unification Church and Young did. The Unification Church and Young paid the costs directly out of their pocket, whereas the Estate paid the costs out of its pocket and the Charitable Trust will only indirectly bear the costs after it receives a smaller distribution. In fact, the Estate is in a more analogous position to Young and the Unification Church than the Charitable Trust because the Estate, like those organizations, directly paid the costs of litigation. Other differences render Unification Church and Wall Industries legally distinguishable from the current matter. First, the Unification Church was an actual party to the underlying suit, whereas the Charitable Trust was not. Second, Young contracted for any tax refund obtained and was thus legally entitled to it. By contrast, the tax refund obtained by the Estate will go to the Estate, and the Charitable Trust has no legal claim to it. The Charitable Trust will benefit after the Estate obtains that refund and passes it along in the proper manner, but that does not mean that the Charitable Trust possesses the legal right, as Young did, to the refund. But the essential difference is that neither of these cases authorized payment under the EAJA to entities that were not parties to the underlying suit. Courts have rejected assertions by non-parties that they were eligible for EAJA fees because they were the real parties in interest. Sw. Marine, Inc. v. United States, 43 F.3d 420, 422 (9th Cir.1994); S.E.C. v. Comserv Corp., 908 F.2d 1407, 1413 (8th Cir.1990); Am. Bayridge Corp. v. United States, 24 C.I.T. 9, 10-12, 86 F.Supp.2d 1284 (2000). For that reason, the real-party-in-interest doctrine, as applied to the EAJA, does not support the Estate's claim. Though the above discussion explains why judicial interpretations of the real-party-in-interest doctrine pertaining to the EAJA do not militate in favor of the Estate's position, we must also discuss the cases, cited by the Estate, that apply the real-party-in-interest doctrine to § 7430. See Young, 2006 WL 2564109; Dixon v. Comm'r, 91 T.C.M. 1138, 2006 WL 1275497 (2006), aff'd on other grounds, 621 F.3d 890 (9th Cir.2010). A careful analysis of these decisions reveals that they provide little support for, and run counter to, the Estate's position. In Young and Dixon, the Tax Court addressed both test and nontest cases involving taxpayers who had invested in a specific tax shelter. The analysis in these two decisions applies to a small portion of tax litigation cases and provides a narrow exception to an otherwise clear rule. Specifically, both Young and Dixon arise from the tax shelter programs promoted by Henry F.K. Kersting during the 1970's and 1980's. The shelters spawned more than 1,000 docketed cases after the Commissioner of Internal Revenue disallowed interest deductions claimed by participants in the shelters. Young, 2006 WL 2564109, at . Test cases proceeded, while nontest case petitioners entered into agreements whereby their cases would be resolved in accordance with the outcome of the test cases. Id. A Defense Fund was organized and nontest case petitioners shared the further costs of the test case litigation. Id. at . In Young, the Tax Court held that the real parties in interest in th[e] litigation include not only the test case petitioners and participating nontest case petitioners, but also all other remaining nontest case petitioners. Id. at  (quoting Dixon, 2006 WL 1275497, at ). The court stated the fact that petitioners have not, by and large, paid or incurred the claimed fees and expenses does not render those amounts unrecoverable under section 7430. Id. at  (quoting Dixon, 2006 WL 1275497, at ). As the court noted, the relevant inquiry is ... whether the real parties in interest who did pay or incur those amounts satisfy the net worth requirement imposed by § 7430 and § 2412. Id. (quoting Dixon, 2006 WL 1275497, at ). Here, we are dealing with a factual situation very different from Young and Dixon. In those decisions many of the taxpayers had filed petitions in the Tax Court regarding related issues, and had done so because they had rights at stake in the decisions. The petitioners in Young and Dixon had similar rights in the tax shelter; the resolution of one case, therefore, would determine the legal rights of many others. To that end over 300 nontest case petitioners had contributed to the Defense Fund. Conversely, the resolution of the Estate's tax refund proceeding does not determine the Charitable Trust's rights in a similar proceeding; the Charitable Trust is not a nontest case petitioner waiting to learn how the courts will rule on its tax interests. While the nontest case petitioners had legal claims dependent on the resolution of the test cases' outcomes, the Charitable Trust has no legal claim of its own that is dependent on the outcome of the Estate's tax litigation. The fact that the Charitable Trust will suffer an indirect pecuniary consequence from the Estate's litigation does not elevate that consequence to an independent legal claim. The Charitable Trust is thus more akin to the spouse of one of the test case petitioners who stands to gain only through the resolution of another's legal rights, not the legal rights of its own. In Dixon, the Tax Court stated the case for looking beyond the named parties [was] particularly compelling in the[] proceedings, where similarly situated taxpayers not only shared the costs of the litigation but also `had rights at stake in the case on the merits.' Dixon, 2006 WL 1275497, at . We believe Dixon 's exception is narrowly cabined to situations involving complex tax litigation where similarly situated taxpayers have foregone individual litigation to further their independent legal claims and shared in the costs of the representative litigation. It is not applicable to situations, such as those present in this case, where an estate has a sole residuary beneficiary that has no independent legal claim and will only be affected indirectly by the outcome of the Estate's litigation. For the reasons discussed above we do not believe that any of the decisions applying the real-party-in-interest doctrine dictate that we classify the Charitable Trust as the real party in interest. The application of the statutory language shows that the Estate was the prevailing party who incurred the costs, and therefore is the party who must meet the net worth requirements of § 2412 incorporated into § 7430. To look through the Estate and query whether the beneficiary, or beneficiaries, qualified for recovery of fees under § 7430 would complicate an otherwise straightforward analysis. It would also make § 7340(c)(4)(D) superfluous because we would never consider the net worth requirement imposed on estates, let alone at the specific time Congress required. We decline reading such a rule into the statute.