Decided: December 2, 2015
The Fourth Circuit affirmed the district court’s denial for the National Organization for Marriage (NOM) to collect attorneys’ fees because the government’s litigation position was “substantially justified” showing NOM was not a “prevailing party” under the statute.
NOM is a tax-exempt, nonprofit organization that works to protect and sustain marriage and faith throughout the United States. NOM is required to annually file Internal Revenue Service (IRS) Form 990, which includes names, addresses, and contribution amounts of donors who give $5,000 or more during the year. The IRS is required to disclose this information to the public but must redact the names and addresses. However, an IRS clerk released a copy of the unredacted donor list, and it eventually was published online by the Human Rights Campaign (HRC) and the Huffington Post.
NOM filed suit against the IRS seeking damages for the unlawful inspection and disclosure of confidential tax information by agents of the IRS in violation of 26 U.S.C. § 6103. NOM sought statutory damages, actual damages, punitive damages, and costs and attorneys’ fees under § 7431(c). The government conceded that its release of the information entitled NOM to a single recovery of statutory damages but not actual damages, punitive damages, costs, or attorneys’ fees. After discovery, the government moved for summary judgment. The district court granted partial summary judgment to the government. The court found that NOM was not entitled to punitive damages and NOM’s claim of unlawful inspection failed due to a lack of evidence. However, the district court determined NOM was entitled to actual damages, and the parties entered into a consent judgment for the government to pay NOM $50,000 to resolve its claims for actual damages and costs. NOM then moved for $691,025.05 in attorney’s fees. The district court denied this motion, and NOM appealed.
Reasonable attorneys’ fees, when the defendant is the United States, are available under § 7430(c)(4). Section 7430(c)(4)(B)(i) requires that if the government is the defendant, the plaintiff “shall not be treated as the prevailing party…if the United States establishes that [its] position…in the proceeding was substantially justified.” The district court determined that the government “reasonably contested NOM’s unfounded willful disclosure and inspection allegations that would have supported a claim for punitive damages if properly proven.” However, the court did not comment on whether the government’s position regarding actual damages was substantially justified. Here, NOM argues there was an abuse of discretion.
The litigation position of the government is “substantially justified” if it has a “reasonable basis in law and fact” or if it is “justified to a degree that could satisfy a reasonable person.” The burden is on the government to show that it was substantially justified. In determining whether the government’s position was substantially justified, the court looked at the available objective indicia of the strength of the government’s position and conducted an independent assessment of the merits of the government’s position with respect to actual damages.
Here, NOM sought statutory, actual, and punitive damages. The Fourth Circuit concluded that the government adopted a reasonable strategy in conceding statutory damages, but challenging both actual and punitive damages. The government had substantial justification to argue that the proximate cause had been broken. If the government would have conceded actual damages early on, this could have hurt the government’s position later if NOM had been able to submit evidence enabling it to proceed on the punitive damages issue. Therefore, the Fourth Circuit could not say that the government acted unreasonable prior to the summary judgment stage of the litigation by waiting to see what NOM’s evidence was and then challenging its sufficiency. The Fourth Circuit held that the government’s position was substantially justified, making NOM not entitled to attorney’s fees because it was not a prevailing party.
Austin T. Reed