Opinion ID: 2972689
Heading Depth: 3
Heading Rank: 1

Heading: Motion for Fees and Sanctions Standards

Text: The EAJA requires the payment of fees and expenses to the prevailing party in an action against the United States, unless the position of the United States was substantially justified. Howard v. Barnhart, 376 F.3d 551, 553 (6th Cir. 2004) (quoting Scarborough v. Principi, 541 U.S. 401, 405 (2004)); 28 U.S.C. § 2412(d)(1)(A) (2005). A position is substantially justified when it is “justified in substance or in the main,”— that is, justified to a degree that could satisfy a 10 No. 04-1689 Elfelt, et al. v. United States, et al. reasonable person. Howard, 376 F.3d at 553 (quoting Pierce, 487 U.S. at 565). In other words, a position is substantially justified when it has a reasonable basis in law or fact. Id. A court’s finding that the government’s position is unsupported by substantial evidence does not foreclose the possibility of the position being substantially justified. Id. (citing Pierce, 487 U.S. at 569). There is no presumption that the government’s position is not substantially justified simply because the government loses its case. See id. (quoting Scarborough, 541 U.S. at 412). Nor is there such a presumption when the government withdraws its claims. See E.W. Grobbel Sons, Inc. v. NLRB, 176 F.3d 875, 878 (6th Cir. 1999). A position can be justified even though it is not correct. Pierce, 487 U.S. at 569.
Under Rule 11 of the Federal Rules of Civil Procedure, the district court has discretion to award sanctions (1) when a party presents pleadings, motions or papers to the court for an improper purpose, (2) if the claims, defenses or other legal contentions therein are not warranted by existing law or a nonfrivolous extension of the law, or (3) if the allegations and other factual contentions therein do not have evidentiary support. Fed. R. Civ. P. 11; see First Bank v. Hartford Underwriters Ins. Co., 307 F.3d 501, 510 (6th Cir. 2002). The test for imposition of Rule 11 sanctions is whether the litigant’s conduct was reasonable under the circumstances. United States v. $515,060.42 in U.S. Currency, 152 F.3d 491, 507 (6th Cir. 1998). 3. 28 U.S.C. § 1927 and the Court’s Inherent Power to Sanction Under 28 U.S.C. § 1927, any attorney who multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to personally satisfy the excess costs, 11 No. 04-1689 Elfelt, et al. v. United States, et al. expenses and attorney’s fees reasonably incurred because of such conduct. 28 U.S.C. § 1927 (2005). Sanctions may be awarded under § 1927 where an attorney knows, or reasonably should know, that a claim is frivolous. Jones v. Cont’l Corp., 789 F.2d 1225, 1230 (6th Cir. 1986). In addition, a district court may award sanctions pursuant to its inherent power. Sanctions under a court’s inherent power are even more limited and require a finding of bad faith. First Bank, 307 F.3d at 517. B. District Court’s Decision on the United States’ Pre-remand Summary Judgment Motion: the 1998 Tender For the pre-remand portion of the litigation, the Elfelts filed an application for fees and other expenses under the EAJA and a motion for excess costs and sanctions under 28 U.S.C. § 1927 and the court’s inherent power to sanction. The district court denied the Elfelts’ application and motion finding that the United States’ position on Palmer’s 1998 tender was substantially justified. The Elfelts appeal on several grounds. 1. The Elfelts’ Law of the Case Argument The Elfelts first argue that in finding that the United States was substantially justified in advancing its position on Palmer’s 1998 tender, the district court contradicted the law of the case, as this Court, on the first appeal, directed the district court to follow Halabu. The Elfelts’ argument is meritless. In finding that the United States’ pre-remand position was not unreasonable, the district court was not reviewing the merits of the pre-remand arguments, which had already been rejected by this Court, but was only assessing the reasonableness of the United States’ position at the time for the purpose of determining whether attorney’s fees or 12 No. 04-1689 Elfelt, et al. v. United States, et al. sanctions were warranted. 2. Substantial Justification of the United States’ Position The Elfelts also argue that the district court erred in determining that the United States’ position was substantially justified because Judge Roberts’ ruling in favor of the United States was reversed on appeal and, therefore, provides no basis for finding substantial justification. According to the Elfelts, the district court erroneously focused on the fact that Judge Roberts was persuaded by the United States’ argument. Additionally, the Elfelts contend that the United States’ position was not substantially justified because a reasonable person would not have challenged the authority of Halabu given this Court’s ruling. The Court is not persuaded by this argument for two reasons. First, as stated above, the United States’ failure to win the suit raises no presumption that its position was not substantially justified. Second, the United States relied on long-standing Michigan case law to support its position in an area where the law has not been settled by the Michigan Supreme Court. The district court found that the United States’ interpretation of the Michigan statutory right-to-redemption scheme to be reasonable given the fact that there were two conflicting authorities decided by different panels of the Michigan Court of Appeals and that the Michigan Supreme Court had yet to rule on the issue. In its brief, the United States acknowledged the existence of Halabu, a later case decided by a different panel of judges from that of Andre, the case it was relying on. However, the United States contended that the underlying statutory right-to-redemption provision should be interpreted in accordance with the dissenting opinion in Halabu, which was consistent with Andre. 13 No. 04-1689 Elfelt, et al. v. United States, et al. Before this Court determined that Halabu, rather than Andre, controls, the conflict between the two cases had not been resolved as the Michigan Supreme Court had not reached the question. Under these circumstances, the Court finds that it was not unreasonable for the United States to advance its position that the 1998 tender was effective redemption of the property under Michigan law. The facts that the United States’ position persuaded the district court pre-remand and that a Michigan state judge had taken the same position also support the district court’s finding that the United States’ position was substantially justified. Therefore, the Court finds that the district court did not abuse its discretion in finding that the United States’ position was substantially justified and in denying the Elfelts’ application for fees and costs under the EAJA. On the same basis, the Court also finds that the district court did not abuse its discretion in denying the Elfelts’ motion for excess costs and sanctions under 28 U.S.C. § 1927 and the court’s inherent power to sanction. C. District Court’s Decision on the United States’ Post-remand Summary Judgment Motion: the 1995 Tender For the post-remand portion of the litigation, the Elfelts filed (1) an application for attorney’s fees and expenses under the EAJA, (2) a motion for Rule 11 sanctions, and (3) a motion for excess costs and sanctions under 28 U.S.C. § 1927 and the court’s inherent power to sanction. The district court denied all three motions. The Elfelts appeal on the grounds that (1) it was a reversible error for the district court to contradict the law of the case as decided by this Court on the first appeal, (2) it was an error for the district court to find that it was reasonable for the United States to rely on Palmer as a credible 14 No. 04-1689 Elfelt, et al. v. United States, et al. witness, (3) it was unreasonable for the United States to seek summary judgment given the fact that Palmer was not reliable, and (4) it was also an error for the district court not to address whether the United States’ novel theory of combining the funds paid for redemption of different tax years was substantially justified. After a review of the records, the Court finds that the district court did not abuse its discretion in denying the Elfelts’ application and motions. 1. The Elfelts’ Law of the Case Argument The Elfelts argue that the United States had already presented to the district court pre-remand and to this Court its argument that Palmer made a good faith effort to redeem the 1990 taxes in 1995 but was prevented from doing so by the County Treasurer. The Elfelts further argue that this Court rejected the argument by stating, “Although Mr. Palmer apparently sought at one point to satisfy his delinquency on the 1990 taxes, the county treasurer applied the payment to 1991 taxes instead.” See Elfelt, 47 Fed. Appx. at 388. Therefore, the Elfelts argue, the trial court was not allowed to consider this argument on remand. This argument is meritless. On the Elfelts’ first appeal, this Court simply reversed the district court’s order granting summary judgment for the United States on the issue of the 1998 tender and remanded the case for further proceedings. Clearly the law of the case did not bar the district court from allowing the United States to pursue its argument on the 1995 tender. 2. Reasonableness of the United States’ Reliance on Palmer Next, the Elfelts argue that the district court erred in finding that it was reasonable for the United States to advance its position solely relying on Palmer’s testimony because his testimony was 15 No. 04-1689 Elfelt, et al. v. United States, et al. inconsistent throughout the litigation. The district court found that “the United States had a position to enforce in an effort to collect taxes to fund the public treasury and to have facts upon which it could rely.” (Hr’g Tr. on Mot. for Fees, Costs and Sanctions of 4/27/04, J.A. at 831.) Therefore, the court found that it was not unreasonable for the United States to put Palmer forth as a witness whose credibility should be assessed by the fact finder in the case. The district court also gave the United States credit for withdrawing its position when further discovery indicated that Palmer’s credibility was seriously undermined. As the Elfelts point out, it is true that Palmer’s testimony has not been consistent: In his affidavit, he testified that he asked the Treasurer’s office to pay for the 1990 taxes; in a hearing before the district court a year later, he testified that he asked to pay for the 1989 taxes; and in the deposition taken nearly three years after the hearing, he stated again that he wanted to redeem the 1989 taxes. Despite the discrepancies, however, Palmer had consistently testified that he wished to redeem the oldest delinquent taxes and not the 1991 taxes because he believed he had to pay the taxes in order and that he was confused about the process. The Elfelts also argue that the United States was unreasonable in advancing its position despite the County Treasurer’s testimony that the office policy was to apply the tax to the oldest taxes due absent a specific request from the taxpayer and its knowledge of the fact that Equivest had sent a letter to Palmer advising him to redeem the 1991 taxes. The United States responds that it is true that the Elfelts had previously referred to the fact that Equivest purchased the 1991 tax deed and that there were some references to a letter that Palmer took with him in 1995 when he went to 16 No. 04-1689 Elfelt, et al. v. United States, et al. redeem his taxes. However, the United States argues, those facts in and of themselves did not undercut Palmer’s testimony that he had intended to tender payment for 1989 or 1990. The Court finds that the district court did not abuse its discretion when it found that the United States was not unreasonable in putting Palmer forth as a witness and relying on him given its reasoning acknowledging the United States’ duty to collect taxes to fund the public treasury. 3. Reasonableness of the United States’ Second Motion for Summary Judgment The Elfelts also argue that it was unreasonable for the United States to seek summary judgment when there was a genuine issue of material fact with respect to Palmer’s attempt to redeem his property in 1995. The Elfelts contend that because a reasonable person would not advance its position in a summary judgment motion when there are a number of disputed material facts, the United States was not substantially justified in so doing. However, this argument overlooks the fact that the United States did not seek summary judgment post-remand on the ground that Palmer’s tender in 1995, by itself, established effective redemption. In its summary judgment motion, the United States argued that Palmer’s two payments made by the close of the redemption period in May 1997 collectively constituted a valid redemption under Michigan law for both the 1989 and 1990 tax deeds.7 Since the factual dispute on the 1995 tender was about whether Palmer asked to redeem his taxes for 1989 or 1990 and it was undisputed that Palmer made two payments before the close of the redemption period, the United States’ ground for summary judgment did not involve a genuine issue of material fact. Therefore, the Court finds 7 Palmer made a payment of $1,573.13 on August 8, 1995 and a payment of $1,751.04 on December 30, 1996. Both payments were made before the close of the redemption period in May 1997. 17 No. 04-1689 Elfelt, et al. v. United States, et al. that the United States’ motion for summary judgment was not unreasonable. This leaves the Court with the issue of whether the United States was substantially justified in advancing the theory that Palmer’s payments collectively constituted an effective redemption. 4. The United States’ Theory of Combining Tax Payments The Elfelts argue that the United States’ position in its post-remand summary judgment motion was an argument fabricated by the United States which had no basis in law. The United States responds that its theory is not a novel fabrication. The United States points out that there is no requirement that a tax deed be redeemed in a single payment and nothing prohibited Palmer from paying off the tax deeds as he was able to marshal the necessary funds. The United States also argues that since Michigan courts liberally construe the redemption statutes in favor of persons seeking to redeem property, there was no reason to conclude that the courts would read the statutory scheme to prevent a finding that Palmer had tendered payment for both 1989 and 1990 with his two payments collectively. See Geraldine v. Miller, 33 N.W.2d 672, 677 (Mich. 1948) (holding that Michigan public policy favors the redemption of property sold for taxes). The Court finds that it was reasonable for the United States to pursue this theory given that Michigan courts liberally construe the redemption statutes in favor of the taxpayers but have never addressed the precise theory advanced by the United States. The Court, therefore, finds that the United States was substantially justified in seeking summary judgment on such theory. The Elfelts raised this argument at the hearing before the district court, but the court did not address this argument in its ruling. The Elfelts argue that the district court’s failure to address this argument constituted a reversible error. However, because the argument would have failed on the 18 No. 04-1689 Elfelt, et al. v. United States, et al. merits, the Court finds that the district court’s error was harmless. For the reasons stated above, the Court finds that the district court did not abuse its discretion in denying the Elfelts’ application for fees and expenses under the EAJA for the post-remand portion of the case. Because Rule 11 sanctions and motion for excess costs and sanctions under 28 U.S.C. § 1927 or the court’s inherent power to sanction require either a standard of reasonableness or a higher standard, the Court also finds that the district court did not abuse its discretion in denying the Elfelts’ motion for Rule 11 sanctions and motion for excess costs and sanctions.