Opinion ID: 199461
Heading Depth: 2
Heading Rank: 2

Heading: Whether the FDIC's position was substantially justified

Text: 11 The burden is on the government to demonstrate that its position was substantially justified. See Sierra Club v. Secretary of Army, 820 F.2d 513, 517 (1st Cir. 1987). Although the language of the statute refers to a prevailing party, 28 U.S.C. §§ 2412(d)(1)(A), the statute makes clear that courts are to examine both the prelitigation actions or inaction of the agency on which the litigation is based and the litigation position of the United States, id. §§ 2412(d)(2)(D); see Sierra Club, 820 F.2d at 516. A position which is substantially justified at the initiation may not be justified later in the agency's continuation of the litigation. Dantran, Inc. v. United States Dep't of Labor, 246 F.3d 36, 41 (1st Cir. 2001). 12 The government need not show that its position was justified to a high degree; rather, it must show that its position was justified in substance or in the main -- that is, justified to a degree that could satisfy a reasonable person. Pierce 487 U.S. at 565 (internal quotation marks omitted). The Supreme Court has said this is equivalent to the reasonable basis both in law and fact formulation we have used. See, e.g., United States v. Yoffe, 775 F.2d 447, 449 (1st Cir. 1985) (asking whether government's position was reasonable both in law and fact). As the Supreme Court has said, this area is a difficult one for useful generalization. Pierce, 487 U.S. at 562. Nonetheless, some rules of analysis have emerged: 13 1) There must be an examination of the actual merits of the government's litigation position as to both the facts and the law. See Pierce, 487 U.S. at 568-69. 14 2) The mere fact that the government does not prevail is not dispositive on the issue of substantial justification. See De Allende v. Baker, 891 F.2d 7, 13 (1st Cir. 1989). 15 3) Conversely, that the government succeeded at some stage of the litigation does not by itself prove the requisite level of justification. Dantran, 246 F.3d at 40. 16 4) Nonetheless, the legislative history of the EAJA indicates courts should look closely at cases where there was judgment on the pleadings or a directed verdict against the government or where an earlier suit by the government on the same claim had been dismissed. H. R. Rep. No. 96-1418, at 11 (1980), reprinted in 1980 U.S.C.C.A.N. 4989-90. 17 5) Whether one court agreed or disagreed with the government does not establish that the government's position was not substantially justified, but a string of court decisions going either way can be indicative. Pierce, 487 U.S. at 568; see also De Allende, 891 F.2d at 13 (reversing grant of fees where government's position was supported by decisions in parallel cases and by three members of the Supreme Court). 18 6) When the issue is a novel one on which there is little precedent, courts have been reluctant to find the government's position was not substantially justified. See, e.g., Washington v. Heckler, 756 F.2d 959, 961-62 (3d Cir. 1985). 19 We examine first the agency's prelitigation position. The FDIC-Receiver initially disallowed Schock's reimbursement claim because it found Schock failed to prove the facts set forth in the claim to the satisfaction of the Receiver. An agency's request that a claimant provide facts in support of her claim does not strike us as an adequate ground to say the government's position was not substantially justified. Furthermore, the legal effect flowing from the facts was the subject of real dispute, as we describe below. 20 As for whether the ensuing litigation was substantially justified, Schock argues that the weakness of the FDIC's position was established by the fact that she was clearly entitled to (although she was denied) summary judgment, twice, on her contract claim. The district court erred, Schock says, in denying her motions for summary judgment in light of the unanimous rule of state agency law that death of the principal terminates apparent authority or because the undisputed facts demonstrate that the bank had actual or constructive notice of Miller's death. See, e.g., In re Estate of Kelly, 547 A.2d 284, 288 (N.H. 1988) (recognizing general rule that attorney's apparent authority terminates at death of client); accord Gallup v. Barton, 47 N.E.2d 921, 923-24 (Mass. 1934). Thus, Schock claims, the FDIC-Receiver's resistance to her reimbursement claim was not substantially justified. The FDIC-Receiver counters that the issues in the case are novel and unsettled under Rhode Island law and that substantial disputed issues of material fact existed when Schock moved for summary judgment, rendering the FDIC-Receiver substantially justified in its legal and factual arguments. 21 In response to Schock's complaint, the FDIC-Receiver asserted as an affirmative defense that Old Stone Bank, its predecessor in interest, had acted at the request of an agent of Miller who was possessed of actual or apparent authority. Depending on how this is viewed, that was a matter of fact or of law, or a mixed issue of fact and law. The initial question of law was whether an agent's death terminates apparent authority by operation of law without notice. If the answer to that question was no, then two more questions arose, one of law and one of fact. The fact questions had to do with what actual or constructive notice the bank received. In Schock's second motion for summary judgment on her breach of contract claim, Schock for the first time produced evidence that bank employees had actual notice of Miller's death at the time of Nero's withdrawal based on the fact that Miller's obituary was published in a local newspaper. This then raised the legal question of what type of notice is sufficient, assuming the agent's death did not automatically terminate apparent authority. 22 As to Schock's legal argument -- that it is well-settled that apparent agency terminates with the death of the principal -- the question on an EAJA petition is not whether the district court was correct or incorrect in its prediction about Rhode Island law. Schock overstates the effect of the Restatement rule. Restatement §§ 120(1) is largely concerned with the effect of the death of the principal on the authority of the agent, not on third parties who rely on the apparent authority of the agent. Further, §§§§ 120(2) and (3) are concerned with the effect of a depositor's death, without notice of death, on negotiable instruments. Whether these provisions would apply to withdrawals by the former agent in the form of treasury checks is an open question. 23 The two cases Schock relies on in support of her argument are inapposite. The only Rhode Island case Schock cites, Industrial Trust Co. v. Colt, 128 A. 200 (R.I. 1925), involved whether the authority of an agent is revoked by the principal's insanity where the authority of the agent is coupled with an interest. The court recognized the general rule that the death or insanity of the principal operates as a revocation or suspension of the agent's authority, but did not discuss the issue before us, whether apparent authority similarly ends under the general rule. In Walker v. Portland Savings Bank, 93 A. 1025 (Me. 1915), a case which Schock relied on at oral argument and which she presented to the district court, a bank was held liable to the estate of a depositor for allowing a withdrawal from the depositor's account by an individual who at the time possessed no authority, apparent or otherwise, to act as an agent for the decedent. The court held that the subsequent appointment of the individual as administrator did not validate the bank's earlier payment to him because he did not seek payment as a representative of the estate but as an individual with pretended rights against the estate. Id. at 1027. Accordingly, Walker has no applicability in this case, where the FDIC-Receiver claimed to have relied on Nero's prior agency status. 5 24 Absent any Rhode Island precedent on point, the district court made an informed prophecy of what the state court would do in the same situation, Blinzer v. Marriott Int'l Inc., 81 F.3d 1148, 1151 (1st Cir. 1996), seeking guidance in analogous state court decisions, persuasive adjudications by courts of sister states, learned treatises, and public policy considerations identified in state decisional law, id. The court concluded that the Rhode Island Supreme Court would adopt the Restatement (Second) of Agency §§ 125, as Rhode Island had adopted that Restatement for other issues, and ruled that R.I. Gen. Laws §§ 18-4-16 applied to third parties who in good faith pay or transfer money to an apparent agent. Schock III, 56 F. Supp. 2d at 194. The relationship between Restatement §§ 120, Restatement §§ 125, and the Uniform Fiduciary Act on these facts is far from obvious. Cf., e.g., Mubi v. Broomfield, 492 P.2d 700, 702 n.1 (Ariz. 1972) ([A] further exception [to the Restatement rule of automatic termination of a power of attorney upon a principal's death] is sometimes made where innocent third parties are protected from dealings made in good faith with an agent and death of the principal is unknown.). The court was also faced with the FDIC's strong argument that banks should have no obligation to investigate and warrant the bona fides of an apparent fiduciary; otherwise the bank becomes a guarantor of the fiduciary, and such a result was contrary to the policies behind the UFA. It is not necessary for us to decide whether the district court's conclusion is correct; it is enough that the FDIC's legal argument was at least justified to a degree that could satisfy a reasonable person. Pierce, 487 U.S. at 565. 25 After the district court rejected Schock's suggestion that Rhode Island law would deem third parties' notice of the principal's death irrelevant, there was then an open question of what constitutes notice to the bank of Miller's death. Although the district court ultimately concluded that Miller's obituary in the local newspaper was sufficient notice to the bank, that ruling does not render the FDIC-Receiver's litigation position unreasonable. In its opposition to Schock's motions for summary judgment and throughout the trial, the FDIC-Receiver disputed whether any bank employees had actual notice of Miller's death. The FDIC also argued that the proper measure of notice was actual knowledge, not constructive notice, and so the publication of Miller's obituary was insufficient to establish notice to the bank of Miller's death. That argument was not unreasonable. Indeed, in its ruling denying Schock's motion for attorneys' fees and costs, the district court acknowledged that its previous ruling on Schock's contract claim established a new rule on the issue of notice. Schock III, 118 F. Supp. 2d at 168. 26 In sum, the FDIC-Receiver's litigation position -- that it was not liable to reimburse Schock because the bank had allowed withdrawal by a fiduciary with actual and apparent authority despite the death of the principal -- had a reasonable basis in law and fact, and so we cannot say that it was not substantially justified. We do not decide whether the district court erred in holding that the FDIC was not an agency . . . of the United States under the EAJA, or in its prediction of Rhode Island law governing the termination of an agent's power of attorney upon the principal's death. 27 Affirmed.