Court Opinion

ID: 2643229
Source: CourtListenerOpinion
Date Created: 2013-11-20 19:42:17.004034+00
Date Added: 2024-06-11T12:47:20.297324
License: Public Domain

PUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                               No. 12-2161

UNITED STATES OF AMERICA,

                 Plaintiff - Appellee,

           v.

515 GRANBY, LLC; MARATHON DEVELOPMENT GROUP, INCORPORATED,

                 Defendants – Appellants,

           and

1.604 ACRES OF LAND, more or less, situate in the City of
Norfolk, Commonwealth of Virginia,

                 Defendant,

SKYLINE STEEL, LLC,

                 Claimant.

Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk.       Norman K. Moon, Senior
District Judge. (2:10-cv-00320-NKM-BWC)

Argued:   September 19, 2013                 Decided:   November 20, 2013

Before DUNCAN and THACKER, Circuit Judges, and Gina M. GROH,
United States District Judge for the Northern District of West
Virginia, sitting by designation.
Vacated and remanded with instructions by published opinion.
Judge Duncan wrote the opinion, in which Judge Thacker and Judge
Groh joined.

ARGUED: William Walter Wilkins, NEXSEN PRUET, Greenville, South
Carolina, for Appellants.         Joan M. Pepin, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.             ON
BRIEF: Kirsten E. Small, Andrew Mathias, NEXSEN PRUET, LLC,
Greenville, South Carolina, for Appellants 515 Granby, LLC and
Marathon Development Group, Inc.         John C. Lynch, Ethan G.
Ostroff, TROUTMAN SANDERS LLP, Virginia Beach, Virginia, for
Appellant Marathon Development Group, Inc.         Joseph T. Waldo,
Stephen J. Clarke, Brian G. Kunze, WALDO AND LYLE, P.C.,
Norfolk, Virginia, for Appellant 515 Granby, LLC.            Kris E.
Durmer, General Counsel, Julie A. Holvik, Assistant Regional
Counsel,    GENERAL     SERVICES    ADMINISTRATION,     Philadelphia,
Pennsylvania; Ignacia S. Moreno, Assistant Attorney General,
John   E.   Arbab,   Georgia   Garthwaite,   Kristin    R.   Muenzen,
Environment    &   Natural   Resources   Division,    UNITED   STATES
DEPARTMENT OF JUSTICE, Washington, D.C. for Appellee.

                                 2
DUNCAN, Circuit Judge:

      Appellants          515     Granby,       LLC   (“Granby”)        and     Marathon

Development Group, Inc. (“Marathon”) appeal the district court’s

denial of attorney’s fees under the Equal Access to Justice Act

(“EAJA”), 28 U.S.C. § 2412, after prevailing against the United

States   on    the    issue      of     just   compensation    in   a    condemnation

proceeding.      The EAJA provides that a party who prevails in

litigation against the United States is entitled to an award of

attorney’s fees and expenses unless “the position of the United

States   was   substantially            justified”    or   “special     circumstances

make an award unjust.”                28 U.S.C. § 2412(d)(1)(A).         The district

court determined that, although the prelitigation position of

the   United     States         was     admittedly    unreasonable,       the     United

States’ overall position was substantially justified under the

totality of the circumstances.                     We vacate and remand to the

district court with instructions regarding how to properly weigh

the government’s prelitigation position in determining whether

its   position       as   a     whole    is    substantially   justified,        and   to

consider, if necessary, whether special circumstances exist in

the first instance.

                                               3
                                         I.

                                         A.

     Granby       owned    a   1.604-acre     parcel    of       land    in    Norfolk,

Virginia, on which it planned to develop luxury condominiums,

retail     establishments,        and    office      space.             Although      the

development project never materialized, Granby made improvements

to the land by preparing the site for construction, including

excavating and installing piles to support a high-rise building.

Granby hired Marathon to manage the development of the parcel.

Marathon held a lien of over $3 million on the property because

of its role in the project.             The Bank of the Commonwealth also

financed the development project and had a lien on the property.

     The    United       States   was   interested     in    obtaining         Granby’s

parcel in order to expand the federal court building in Norfolk.

The United States conducted two appraisals of the property.                           In

2008, appraisers valued it at $7 million.                    After the economic

downturn,    it    was    reappraised    in   2009     at    a    value       of   $6.175

million.      The United States instructed the appraiser in each

instance to assess the property as if it were vacant--that is,

to ignore any improvements to the land.

     After     negotiations        to   purchase       the       1.604-acre        parcel

failed, the United States initiated a condemnation proceeding in

                                         4
2010 to acquire it by eminent domain. 1                   See U.S. Const. amend. V;

40 U.S.C. § 3113.                Based on the 2009 appraisal, the United

States offered $6.175 million as just compensation and deposited

that amount with the court.                    Granby rejected the offer and the

case proceeded toward trial on the issue of just compensation

under       the   Fifth    Amendment’s         Takings    Clause.          Because   of   its

lien,       the   United      States     joined       Marathon    as   a    party    to   the

action;       other    lienholders        were      put   on     notice     as    interested

parties       but   were      not    joined.        Marathon      participated       in   the

lawsuit, but relied on Granby’s valuations of the property’s

fair market value.

        Granby obtained two appraisals valuing the land at $36.1

million and $30.7 million, respectively.                         These appraisals were

based, in part, on a variety of valuation techniques that the

United States opposed, such as valuing the land at its best use

and     including       the     value     of    the    developer’s         entrepreneurial

incentive.          The district court ultimately granted most of the

government’s          motions       to   exclude      certain     types      of   valuation

evidence.         As a result, Granby lowered its valuation to $16.32

million shortly before trial.

        1
       Because the condemnation proceeding relates to one of the
court buildings for the Eastern District of Virginia, Judge
Norman K. Moon of the Western District of Virginia was assigned
to the case.

                                                5
      The    government   ordered   a       new    appraisal   for     its   trial

valuation of the property, this time including improvements to

the land, which raised its value to $9 million.                      Each of the

parties rejected last-minute settlement offers: the government

offered $9.4 million and Granby offered $15.4 million.

                                    B.

      The matter was tried before a jury, which heard evidence

relating to Granby’s asserted value of $16.32 million and the

United States’ asserted value of $9 million.                 The jury returned

a verdict of $13,401,741 as just compensation.

      Granby and Marathon each applied for attorney’s fees under

the EAJA, asserting that they were entitled to such fees because

they prevailed in an action against the United States and the

other requirements of the EAJA were met.               The “prevailing party”

in an eminent-domain proceeding is the party whose highest trial

valuation of the property is closest to the final judgment.                     28

U.S.C.   §   2412(d)(2)(H).      Here,      the     jury’s   verdict    of   $13.4

million was closer to Granby’s valuation of $16.3 million than

it was to the government’s valuation of $9 million.                  That Granby

and Marathon prevailed is not contested.

      The United States opposed an award of attorney’s fees on

the   grounds   that   the   government’s         position   was   substantially

justified and special circumstances existed that would make the

award of fees unjust.         The issue was referred to a magistrate

                                        6
judge,      who        recommended         that       both       Granby       and    Marathon       were

eligible         for    fees,       costs,     and        other       expenses      under     the   EAJA

because          the        government’s        position              was     not      substantially

justified and there were no special circumstances.                                     The district

court rejected the magistrate judge’s recommendation.                                          Because

it   found        that        the    government’s               position      was      substantially

justified,             it     did     not       reach           the     question        of     special

circumstances.               This appeal followed.

                                                     II.

     The arguments on appeal mirror those before the district

court.       Appellants argue that the government’s position was not

substantially               justified    because           an    unreasonable          prelitigation

position         should       automatically           foreclose         a   court      from    finding

substantial justification.                     They contend that the district court

erred by considering their financial ability to litigate and the

reasonableness of their position. 2                              Appellants also ask us to

find,       as     a        matter    of       law,        that       there      are    no     special

circumstances           that     would        make    an     award       unjust.        Because      the

district         court         did      not     reach           the     question        of     special

circumstances, we do not address it here.

        2
       We have considered the appellants’ argument regarding the
district court’s characterization of Marathon’s status and find
it to be without merit.

                                                      7
      We review the district court’s denial of attorney’s fees

under the EAJA for abuse of discretion.                         Pierce v. Underwood,

487   U.S.    552,    562–63       (1988).         A    district   court    abuses    its

discretion when it makes an error of law.                              United States v.

Basham,      561    F.3d    302,    326    (4th        Cir.   2009).      Although    this

standard is deferential, it is not merely “a simple, accept-on-

faith,     rubber-stamping         of   district        court   decisions”    regarding

fees under the EAJA.            United States v. Paisley, 957 F.2d 1161,

1166 (4th Cir. 1992).

                                              A.

      As    we     have    stated,      the   EAJA      provides   that     parties   who

prevail in litigation against the government are entitled to an

award of attorney’s fees and other expenses “unless the court

finds that the position of the United States was substantially

justified or that special circumstances make an award unjust.”

28 U.S.C. § 2412(d)(1)(A).                The United States has the burden of

showing that its position was substantially justified.                          EEOC v.

Clay Printing Co., 13 F.3d 813, 815 (4th Cir. 1994).

      We have held that a position is “substantially justified”

when it has a “reasonable basis in law and fact.”                               Cody v.

Caterisano, 631 F.3d 136, 141 (4th Cir. 2011) (quoting Pierce,

487 U.S. at 566 n.2).               In Pierce, the Supreme Court clarified

that the EAJA’s use of “substantially justified” is similar to

its use in other statutes, in which it has been defined as

                                              8
“justified to a degree that could satisfy a reasonable person”

and   as      “more      than     merely      undeserving          of     sanctions      for

frivolousness.”           487    U.S.    at   565–66.         In    the   eminent-domain

context,      a    position      is     substantially         justified         when    “the

government’s refusal to offer more to the property owners as

just compensation ha[s] a reasonable basis in fact and in law.”

In re Lamson (Lamson I), No. 94-1249, 1995 WL 54025, at *4 (4th

Cir. Feb. 10, 1995).

      While       seeming       relatively        straightforward,          “determining

whether the government’s position is substantially justified . .

. ‘has proved to be an issue of considerable conceptual and

practical difficulty.’”               Roanoke River Basin Ass’n v. Hudson,

991 F.2d 132, 138 (4th Cir. 1993) (quoting Paisley, 957 F.2d at

1165).     In particular, we have found little guidance on the

specific   question        of    balancing        the   government’s       prelitigation

and litigation postures in a case, such as ours, where they

differ.

      Limited       guidance     notwithstanding,            we    have   no    difficulty

concluding        that   the    government’s        prelitigation         and   litigation

postures together comprise, in the words of the statute, “the

position   of      the   United       States.” 3        As   the    Supreme     Court    has

      3
       Significantly, the EAJA defines the government’s position
as “the position taken by the United States in the civil action”
(Continued)

                                              9
elaborated, courts must undertake “a single evaluation of past

conduct” that examines the “case as an inclusive whole, rather

than as atomized line-items.”               Comm’r, INS v. Jean, 496 U.S.

154, 159 n.7, 162 (1990).            Moreover, although not directed to

the specific question at hand, we have noted the necessity to

“look    beyond   the   issue   on   which     the    petitioner      prevailed      to

determine, from the totality of the circumstances, whether the

government    acted     reasonably     in    causing      the   litigation     or    in

taking a stance during the litigation.”                     Roanoke River Basin

Ass’n, 991 F.3d at 139.

     Having       recognized     the        need     to    consider     both        the

government’s prelitigation and litigation positions, we now turn

to the more challenging question of how to assess substantial

justification when the government’s prelitigation position was

unreasonable but its litigation position was reasonable. 4                          For

as well as “the action or failure to act by the agency upon
which the civil action is based.” 28 U.S.C. § 2412(d)(2)(D).
     4
       It is the multiple stages of this case that significantly
complicated the district court’s task of analyzing the totality
of the circumstances in the usual manner. Often, as in Roanoke
River Basin Ass’n, the district court must examine the
reasonableness of the government’s position on multiple issues
to determine whether it was, as a whole, substantially
justified.   991 F.3d at 138–39.   Here, on the other hand, the
district court has to balance two different positions on the
single issue presented in the case, which grafts an extra layer
onto our traditional analysis.

                                        10
this analysis, we can draw guidance from the views of our sister

circuits, who have addressed the question directly, albeit with

differing results.          Some have gone as far as stating that a

reasonable litigation position can never cure an unreasonable

prelitigation stance.           For example, the Second Circuit stated,

“[I]f the underlying Government position is not substantially

justified,     a    court      must    award      fees       .       .    .    even   if     the

Government’s       litigation      position        is    itself           reasonable        when

considered alone.”          Smith v. Bowen, 867 F.2d 731, 734 (2d Cir.

1989); see also Morgan v. Perry, 142 F.3d 670, 684 (3d Cir.

1998).     Other circuits have emphasized the importance of the

prelitigation      position       without        creating        a       bright-line       rule.

E.g., Hackett v. Barnhart, 475 F.3d 1166, 1174 (10th Cir. 2007);

United    States    v.   Marolf,      277    F.3d     1156,       1164        n.5   (9th    Cir.

2002); Marcus v. Shalala, 17 F.3d 1033, 1036 (7th Cir. 1994).

As   we   elaborate      below,       we    endorse      the      latter        approach     as

consistent with our precedent generally and truer to the dual

purposes of the EAJA: providing incentives for private parties

to vindicate their rights in the judicial system and creating a

check on government action.                Sullivan v. Hudson, 490 U.S. 877,

883 (1989); see also H.R. Rep. 96-1418, at 9–10 (1980).

     In    assessing     the    reasonableness          of       awards       of    attorney’s

fees under the EAJA, we have recognized that “Congress intended

to address governmental misconduct whether that conduct preceded

                                            11
litigation, compelling a private party to take legal action, or

occurred in the context of an ongoing case through prosecution

or       defense         of    unreasonable         positions.”            Roanoke    River     Basin

Ass’n, 991 F.2d at 138.                       We have also held, more specifically,

that         when    the       government’s         unjustified          prelitigation       position

forces a lawsuit, the petitioner may recover fees under the EAJA

for          the    entire          suit,    even        if    the     government’s        litigation

position was reasonable.                        Thompson v. Sullivan, 980 F.2d 280,

281 (4th Cir. 1992); see also Roanoke River Basin Ass’n, 991

F.2d at 139               (stating that substantial justification “focuses .

.    .       on    the    reasonableness         of       [the    government’s]       position       in

bringing about or continuing the litigation”) (emphasis added).

             Furthermore, Congress amended the EAJA in 1985, in part, to

emphasize           the       significance          of    the    government’s        prelitigation

stance.            Act of August 5, 1985, Pub. L. No. 99-80, 99 Stat. 183.

The legislative history of those amendments specifically notes

that         the    EAJA       was     designed       to       prevent    the   government       from

unjustifiably                 forcing       litigation,         then    avoiding     liability       by

acting reasonably during the litigation.                                 H.R. Rep. No. 98-992,

at       9    (1984);         see    also    Jean,       496    U.S.     at   159   n.7.      Such    a

strategy of “curing” a purposefully unreasonable prelitigation

position would be particularly problematic in the context of an

eminent-domain proceeding because the government is required to

pay just compensation for a taking under the Fifth Amendment and

                                                         12
42 U.S.C. § 4651.                See also United States v. Miller, 317 U.S.

369,       373    (1943)       (defining      just   compensation     as    fair    market

value).

                                                B.

       In        light    of     the    principles       discussed    above,       we   are

constrained to conclude that the district court did not properly

weigh the effect of the government’s unreasonable prelitigation

position, particularly given the government’s burden of proof. 5

We therefore vacate and remand for a reexamination of the effect

of the government’s prelitigation position using the framework

provided below.

       In        short,     we    adopt       the    view     that   an     unreasonable

prelitigation            position      will    generally      lead   to    an   award   of

attorney’s fees under the EAJA.                      If the government’s position

changes,         the     court   must    independently        determine     whether     its

prelitigation and litigation positions were reasonable.                            If the

government’s           prelitigation          position   is    unreasonable      and    its

litigation position reasonable, the government must then prove

that the unreasonable position did not “force” the litigation or

substantially alter the course of the litigation.

       5
       In doing so, we imply no criticism of the district court
because our guidance on substantial justification in this
context has been less than clear.

                                                13
       For each government valuation position in a condemnation

proceeding, the district court should start by asking “whether

the government’s refusal to offer more to the property owners as

just    compensation            had    a    reasonable           basis          in    fact    and     law.”

Lamson I, 1995 WL 54025, at *4.                           In making this assessment, the

court       should           examine       such        factors            as:        the     experience,

qualifications, and competence of appraisers; whether there is

evidence         of     bad    faith       on    the      part       of    the       government;        the

relationship            of    the     government’s             various      appraisals          to     each

other; the government’s explanations for changes in its asserted

valuations;            and     the     severity           of     the       alleged          governmental

misconduct.            See generally Roanoke River Basin Ass’n, 991 F.2d

at 139; United States v. 312.50 Acres of Land, 851 F.2d 117,

118–19 (4th Cir. 1988); United States v. Lamson (Lamson II), No.

95-2770,         1996    WL     393171,         *2    (4th      Cir.       July       15,    1996)     (per

curiam); Lamson I, 1995 WL 54025, at *4.

       If        the     district          court       finds         that        the        government’s

prelitigation            valuation          position           was        unreasonable          but     its

litigation posture reasonable, the court must then assess the

effect      of    the        prelitigation           position        on    the       action     for    just

compensation.            One important, but not determinative, factor is

the extent to which the government misconduct “compell[ed] a

party       to    resort        to     litigation          or     to       prolong          litigation.”

Roanoke      River       Basin       Ass’n,      991      F.2d       at    138.            Assessing    the

                                                     14
effect   of   the   government’s   misconduct    will   necessarily   vary

based on the particularities of the case, but could include an

examination of precondemnation negotiations, discovery, pretrial

motions practice, and settlement negotiations.              To be clear,

because the government has the burden of proving substantial

justification, it has the onus of justifying the changes in its

valuation figures.      See Lamson I, 1995 WL 54025, at *4; see also

Clay Printing Co., 13 F.3d at 815.

     The financial state of the prevailing party, however, is

not relevant in determining substantial justification.             Because

the EAJA itself defines which parties are eligible for EAJA fee

awards, the district court may not consider whether a party who

otherwise meets the statutory threshold “needs” fees in order to

litigate.      See 28 U.S.C. § 2412(d)(2)(B).           Additionally, the

district court may not determine that the government’s position

is substantially justified simply because it is more reasonable

than the private litigant’s.       See Jean, 496 U.S. at 165 (stating

that the substantial-justification requirement “properly focuses

on the governmental misconduct giving rise to the litigation”)

(emphasis     added).    In   other    words,   the   prevailing   party’s

position is relevant only to the extent that it is necessary to

                                      15
identify        the      effects         of    the      government’s         unreasonable

prelitigation position. 6

      The       conduct    of     the     prevailing         party    may    also   become

important at a later stage of the EAJA fee process: assessing

the amount of fees to be awarded after the district court makes

the “threshold determination” on substantial justification.                             See

Jean,     496     U.S.     at     159.        Once    the     threshold      substantial-

justification         determination           is     made,    a     sizeable    award    of

attorney’s fees and expenses is not automatic.                         Id. at 163.       If

the   petitioning         party    is    entitled      to    fees    and    expenses,   the

district court has considerable discretion in determining the

amount of the fee award.                 See id. at 161 n.9 (noting that, in

practice, district courts often do not grant the full amount of

attorney’s fees that parties request).

      The EAJA specifically grants district courts the discretion

to reduce or deny an award “to the extent that the prevailing

      6
       Although the district court found the notion that Granby
and Marathon were compelled to trial to vindicate their rights
to be “fallacious,” J.A. 351, it did so by inappropriately
comparing the positions of the government and appellants at the
substantial-justification stage, see Estate of Baird v. Comm’r,
416 F.3d 442, 453–54 (5th Cir. 2005) (noting that the court
should only consider whether the government’s, not the private
party’s, position remained consistent).      For example,    the
district court considered the fact that the government’s motions
practice caused appellants to significantly lower their trial
valuation and the fact that this reduction was greater than the
change in the government’s valuations. J.A. 349, 351–52.

                                              16
party   .    .    .    unduly      and    unreasonably           protracted       the    final

resolution       of    the    matter       in      controversy.”            28    U.S.C.     §

2412(d)(1)(C).          The Supreme Court has also instructed courts to

assess the fees and expenses to be awarded in light of the

petitioning litigant’s success.                  Jean, 496 U.S. at 163 n.10; see

generally    Hensley         v.    Eckerhart,         461    U.S.    424,       436     (1983).

Therefore,       the    district         court     may      consider      the     prevailing

party’s litigation conduct--that is, the reasonableness of their

position--in the determination of the fee award amount, rather

than in the determination of the party’s threshold eligibility

for fees under the EAJA.

                                            III.

      For   the       reasons      stated       above,      we   vacate     the       district

court’s opinion and remand for a reexamination of substantial

justification.          The issue of special circumstances under the

EAJA was not before us because the trial court made no finding

on   that   issue.       If       necessary      on   remand,       the   district       court

should also consider whether special circumstances would make an

award of attorney’s fees unjust.

                                                                    VACATED AND REMANDED
                                                                       WITH INSTRUCTIONS

                                              17