Court Opinion

ID: 7009795
Source: CourtListenerOpinion
Date Created: 2022-07-24 04:02:26.766572+00
Date Added: 2024-06-11T16:09:51.165341
License: Public Domain

KOZINSKI, Circuit Judge,
dissenting:
1. To be liable under the Equal Access to Justice Act, the United States *1154must take a position in litigation that is not just wrong, but so wrong that it is not “substantially justified.” 28 U.S.C. § 2412(d)(1)(A). This means that the position must lack any “reasonable basis in both law and fact.” Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988) (internal quotation marks omitted). An incorrect position is substantially justified under the EAJA if “a reasonable person could think it correct.” Id. at 566 n. 2, 108 S.Ct. 2541. Pierce held that this test is similar to the test for sanctions against parties who resist discovery unreasonably: If “reasonable people could differ” about the appropriateness of the action, sanctions are unwarranted. Id. at 565, 108 S.Ct. 2541 (internal quotation marks and citations omitted); see also Reygo Pac. Corp. v. Johnston Pump Co., 680 F.2d 647, 649 (9th Cir.1982) (holding that, under Fed. R.Civ.P. 37(a)(4), a discovery request is “substantially justified” if “reasonable people could differ as to whether the party requested must comply”).
2. Here, reasonable people can, and did, think the government’s position was justified. Notably, the district court believed the position of the United States was not only reasonable, but correct. The district court granted the United States summary judgment, accepting its arguments.
While an initial victory in the district court does not conclusively establish substantial justification, Or. Natural Res. Council v. Madigan, 980 F.2d 1330, 1332 (9th Cir.1992), it weighs heavily in the government’s favor. District courts make mistakes, but they generally reject legal positions that are so baseless that reasonable people could not accept them. It is a rare case where the arguments of the party that wins in the district court are not merely wrong but laughable.
The majority discounts the significance of the district court’s initial ruling by arguing that we reversed the district court under United States v. 92 Buena Vista Ave., 507 U.S. 111, 113 S.Ct. 1126, 122 L.Ed.2d 469 (1993), a pre-existing Supreme Court case. Maj. Op. at 1152 (citing United States v. 2659 Roundhill Dr., 194 F.3d 1020, 1027 (9th Cir.1999) [hereinafter, Roundhill !])• But it was hardly a foregone conclusion that Buena Vista negated, or even addressed, the government’s arguments. In reversing the district court, the Roundhill I panel made it clear that this was a tough case. The panel noted that Buena Vista arose “from a very different factual context” and that the panel was “applying] its principles in a different context.” Roundhill I, 194 F.3d at 1027. The Roundhill I panel was right, of course, because Buena Vista does not address this case’s most complicated features. The government’s argument was that a non-judicial foreclosure sale did not terminate its forfeiture right, because the foreclosure occurred after the government filed a lis pendens and forfeiture action but before the court entered a forfeiture judgment. Buena Vista says nothing about that situation; it doesn’t talk about mortgages or foreclosure sales at all. The majority finds that “well-established principles” rendered the government’s position substantially unjustified after the foreclosure sale, Maj. Op. at 1152, but neither the parties nor the Roundhill I panel cited any prior case for the proposition that a nonjudicial foreclosure sale terminates the government’s vested forfeiture interest. As the district court noted, it was Roundhill I, not Buena Vista, that “made clear” the dispositive legal issues. This weighs against finding the government’s position not substantially justified. While the government is not “automatically shielded” from EAJA liability when no cases are on point, Gutierrez v. Barnhart, 274 F.3d *11551255, 1262 (9th Cir.2001), an “absence of adverse precedent” weighs against a finding that a position was not substantially justified. Bay Area Peace Navy v. United States, 914 F.2d 1224, 1231 (9th Cir.1990) (citing Or. Envtl. Council v. Kunzman, 817 F.2d 484, 498 (9th Cir.1987)).
3. The majority holds that the government’s position stopped being substantially justified when claimants bought the property at the foreclosure sale. See Maj. Op. at 1152. It reasons that “well-established principles” dictated that “the government’s interest in the property could not have vested until ... October 19, 1994,” and therefore the mortgage company’s “foreclosure sale extinguished the government’s junior interest in the property.” Id. But this short-changes the government’s position. Not only do I doubt that the government’s position wasn’t substantially justified, I am not convinced that the Roundhill I panel got it right; though its opinion is binding on us, the case easily could — and in my view should- — have been decided the other way. Other circuits, and the Supreme Court, very well may.
The government’s interest in the property wasn’t “junior” at all. Under 21 U.S.C. § 881(h), title to the property “vest[s] in the United States upon commission of the act giving rise to forfeiture.” 21 U.S.C. § 881(h). Buena Vista interpreted this to mean that, while the government doesn’t literally have title to the property before a final forfeiture judgment, the government does get an executory interest in the property as soon as its owners commit their illegal act. Once there is a final judgment of forfeiture, a “retroactive vesting” occurs, giving the government outright ownership of the property that dates back to the time of the illegal act. Buena Vista, 507 U.S. at 125, 113 S.Ct. 1126. Consequently, while it is clear that the government did not own the defendant property before the forfeiture judgment, the government did have an executory interest in the property in 1990, when the Paytons bought it with money they earned from illegal drug trafficking. Because the mortgage company did not record its lien until 1993, the government could reasonably argue that its senior executory interest survived the foreclosure.
The claimants’ best response was to argue that they were “innocent” buyers who were therefore able to trump section 881(h)’s “relate back” provision. See 21 U.S.C. § 881(a)(6). The government argued that the claimants were on notice that the property might be tainted, and therefore were not innocent buyers. See United States v. 10986 Oak Run Circle, 9 F.3d 74, 76 (9th Cir.1993). Considerable evidence supported this argument. The claimants bought the property after the government filed a lis pendens, which gave notice to the world that the United States sought the judicial forfeiture of the property under drug forfeiture statutes. At least three of the six claimants knew about the lis pendens before purchasing the property. The government was surely justified in arguing that the lis pendens gave constructive notice of the forfeiture action to the other purchasers. See In re The Brickyard, 735 F.2d 1154, 1158 (9th Cir.1984); Cal. Civ.Code § 3146 (after a lis pendens is filed, purchasers are “deemed to have constructive notice of the pendency of the action”). The majority says that the claimants did not have “actual knowledge” that the government sought forfeiture because of drug crimes, Maj. Op. at 1152 n. 8 (emphasis in original), but the government was justified in arguing that they did. The lis pendens specifically says that the government sought forfeiture “pursuant to Title 21, United States Code, Section 881.” Because 21 U.S.C. § 881 only applies in drug cases, the government was justified in arguing that claimants had notice that a *1156drug forfeiture was afoot. It’s true that Roundhill I held that a lis pendens “does not necessarily impart knowledge of the previous owner’s illegal acts” because the government could have filed it as part of a non-criminal proceeding. Roundhill I, 194 F.3d at 1028. But that general rule doesn’t make sense here, where the lis pendens makes it obvious that the government accuses the property’s purchasers of drug offenses.
The purchase price gave the government additional reason to justifiably argue that the claimants were not innocent owners. Knowing there was a dispute over the property, the claimants purchased it for only $354,000-about $200,000 less than its price five years earlier and around $230,000 less than its appraised market price. The government was justified in arguing that this low price was circumstantial evidence that the claimants knew about the government’s allegations against the Paytons.
4. By definition, the EAJA only comes into play when the government loses. Yet Congress made it clear that it did not intend that courts award EAJA fees every time the government does not prevail in its substantive claims. The EAJA is meant to help private parties challenge unjustifiable government actions. By subsidizing their attorney fees, the EAJA makes it harder for the government to use its superior financial resources to wear them down, even though its position is frivolous. See Forest Conservation Council v. Devlin, 994 F.2d 709, 712 (9th Cir.1993) (O’Scannlain, J.) (“The purpose behind the EAJA is ‘to diminish the deterrent effect of seeking review of, or defending against governmental action because of the expense involved in securing the vindication of ... rights.’ ”) (quoting Sullivan v. Hudson, 490 U.S. 877, 883, 109 S.Ct. 2248, 104 L.Ed.2d 941 (1989)) (alteration in original). But when the underlying case is close, as here, EAJA fees are simply not appropriate. See Hoang Ha v. Schweiker, 707 F.2d 1104, 1106 (9th Cir.1983) (declining to award fees when the government argues for “a novel but credible extension or interpretation of the law”).
After today’s ruling, it’s hard to imagine a case where the government will not have to pay fees after losing. The district court adopted the government’s position, and we reversed only after noting there was no case directly on point. If that’s not substantial justification, what is?