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United States v. 515 Granby, LLC, No. 12-2161

Decided: November 20, 2013

The Fourth Circuit vacated the district court’s denial of attorneys’ fees and expenses under the Equal Access to Justice Act (the “EAJA”). Under the EAJA, the prevailing party in litigation against the United States is entitled to attorneys’ fees and expenses unless, inter alia, “the position of the United States was substantially justified.” Because of its failure to consider the pre-litigation valuation of the appellants’ property in a condemnation proceeding, the Fourth Circuit vacated the district court’s determination that the United States’ position was “substantially justified” and defined a standard for determining whether the government’s position is “substantially justified.”

Appellant, 515 Granby, LLC (“Granby”) owned a parcel of property in Virginia on which it planned to develop luxury condominiums, retail, and office space. Although the property was never used for this purpose, Granby made various improvements to the property in preparation of its intended use. The United States wished to obtain the property to expand its federal courthouse in Norfolk, Virginia and had the building appraised in 2008 and 2009 for $7 million and $6.175 million, respectively. The United States instructed its appraisers to ignore improvements to the land. When Granby refused to sell for $6.175 million, the United States initiated condemnation proceedings. Granby initially obtained two appraisals for the property, which valued the property at over $30 million. By the time the parties reached trial, the government raised its valuation to $9 million and Granby lowered its valuation to $16.32 million. At trial, the jury returned a verdict for $13.4 million as just compensation for the property. Under the EAJA, the “prevailing party,” that is, the party whose highest trial valuation is closest to the final judgment value is entitled to attorneys’ fees. Granby moved for attorneys’ fees, but the United States argued that it was not obligated to pay attorneys’ fees because its position at trial was “substantially justified.” The district court agreed with the government. Granby appealed.

On appeal, Granby argued that the United States’ position was not “substantially justified” because its pre-litigation valuation of the property was unreasonable. Granby further asserted that the district court erred in considering its financial ability to litigate and the reasonableness of its position in determining whether the United States’ valuation was “substantially justified.” The Fourth Circuit agreed that the district court erred in its determination and vacated the judgment with new instructions for determining whether the government’s position in a condemnation proceeding is “substantially justified.” First, the court emphasized that the United States has the burden of showing that its position is substantially justified. Second, the court explained that a position is “substantially justified” when it is “justified to a degree that could satisfy a reasonable person.” Determining the reasonableness of the government’s position requires an examination of both its pre-litigation and litigation postures, looking to the “totality of the circumstances.”

In the present case, the Court examined the peculiar situation where the pre-litigation position was unreasonable, but the litigation position was reasonable. The court followed other circuits, holding that a determination of reasonableness “emphasizes” the pre-litigation position “without creating a bright line rule.”  The court explained that Congress intended the EAJA to prevent the government from “unjustifiably forcing litigation, then avoiding liability by acting reasonably during the litigation.” Thus, the court held that, in general, an unreasonable pre-litigation position will lead to an award of attorneys’ fees under the EAJA unless the government can prove that its unreasonable position did not “force” the litigation or “substantially alter the course of the litigation.” In making this assessment, the court explained that the district could should consider the following factors: the “experience, qualifications, and competence of the appraisers”; evidence of bad faith by the government; relationship of the government’s appraisals to each other; the government’s explanation for changes in its valuations; and the “severity of the alleged governmental misconduct.” Finally, the court instructed that the financial state of the prevailing party is not relevant to the determination of the reasonableness of the government’s position.

Full Opinion

– Wesley B. Lambert