Opinion
No. CV-97-J-2189-S
October 29, 2002
ORDER
Pending before the court are the plaintiffs' motion for award of reasonable litigation costs, including attorneys' fees (doc. 125), brief and documentation in support thereof (doc. 126), the defendant's opposition to said motion (doc. 132), the plaintiffs' reply brief in support of its motion, and the defendant's motion to supplement its opposition to plaintiffs' motion for award of reasonable litigation costs, including attorneys' fees (doc. 140), which the court granted (doc. 146). While the motion for award of reasonable litigation costs was pending, the parties entered a stipulation that the amount of costs to be taxed under Rule 54(d)(1), Federal Rules of Civil Procedure was $15,651.33 (doc. 134) and the court entered an Order taxing that amount to the defendant (doc. 135). The court thereafter ordered the plaintiffs to submit their billing documents from July 27, 2001 to July 31, 2002 to the court in camera, in an unredacted form (doc. 139). The plaintiffs complied (doc. 142). The plaintiffs also filed a motion to avoid duplication of reasonable litigation costs (doc. 141). In said motion, the plaintiffs state that the amounts in their Bill of Costs (doc. 127) were also included in their motion for litigation costs (doc. 125). The court having considered the motion to avoid duplication, and being of the opinion said motion is due to be granted;
It is therefore ORDERED by the court that said motion (doc. 141) be and hereby is GRANTED.
Said motion to avoid duplication does not specify which costs included in the Bill of Costs were also included in the motion for litigation costs.
Factual Background
This case began in 1997 when the plaintiffs filed this lawsuit to obtain a refund of $1,883,762.00 in federal estate taxes and interest collected from the Estate of Elizabeth P. O'Neal, deceased. The refund action was based upon claims made against plaintiffs for transferee gift tax and generation-skipping transfer tax liabilities asserted against the donees of certain gifts made by Elizabeth P. O'Neal ("Mrs. O'Neal"). The facts of the case were not disputed, and have previously been sent forth by this court and the Eleventh Circuit Court of Appeals. Estate of O'Neal v. U.S., 81 F. Supp.2d 1205 (N.D.Ala. 1999); O'Neal v. U.S., 258 F.3d 1265 (11th Cir. 2001).Upon cross-motions for summary judgment, this court made the following rulings: 1) on the issue of whether the estate was entitled to a deduction of $563,314.00, the amount awarded the donees as claims against the estate in probate court, the court entered judgment in favor of the plaintiffs and against the United States and allowed the estate a deduction in the amount of $563,314.00;
2) on the issue of whether attorney fees paid to the law firm of Chamberlain, Hrdlicka, White, Williams Martin, in the amount of $74,485, were allowable as a deduction to the estate; the court held in favor of the U.S. and against the plaintiffs, denying the deduction in full;
3) on the issue of whether the estate was allowed a deduction for $114,022.23 paid to the Chamberlain firm before Mrs. O'Neal's death by Emmet O'Neal acting under a durable power of attorney, the court ordered that the estate be increased by $114,022.00, ruling in favor of the U.S. and against the plaintiffs; and
4) on the issue of whether the IRS was entitled to revalue the gifts of stock to increase the Adjusted Taxable Gifts for 1987 and thus increase the amount of Gift Tax Payable from the estate, the court held that 28 U.S.C. § 2504(c) did not preclude the revaluation of gifts made during the decedent's lifetime and therefore increased the adjustable taxable gifts made by the decedent by $904,026.00, and also increased the amount of gift tax due on such gifts. See Estate of O'Neal, 81 F. Supp.2d at 1227-28. Of these four rulings, the plaintiffs were the prevailing parties on the first one only. Both parties appealed to the Eleventh Circuit Court of Appeals.
The Eleventh Circuit affirmed this court on all but the first ruling. O'Neal, 258 F.3d at 1276-77. In remanding the case to this court, the Eleventh Circuit stated "[t]his estate tax claim for refund case presented an issue of first impression in this circuit. It also spotlights the distinct split among the circuits on this issue." Id., at 1266. The Court determined that "there is no dispute that the estate is entitled to a deduction with respect to claims against the estate by the nine heirs for reimbursement of their transferee gift tax liability on the 1987 gifts of stock by Mrs. O'Neal." Id., at 1271. In a footnote, the Court states that the government moved for and was granted a voluntary dismissal of its notice of appeal on the issue that the estate was not entitled to the $536,314.00 deduction. The court held "[b]y this action the government appears to have abandoned its earlier argument that the amount of the deduction should be zero." Id., at 1271 n. 20. The Eleventh Circuit examined the split among the circuits and stated its preference for those circuits that follow Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S.Ct. 291, 73 L.Ed. 647 (1929). O'Neal, 258 F.3d at 1273. Based on an analysis of cases that adopted the Ithaca Trust reasoning, the Eleventh Circuit stated:
We conclude that the Section 2053(a)(3) deduction should be the value at Mrs. O'Neal's date of death. We still, however, do not know what that value is. As in Estate of Smith, it is not necessarily the amount of the demand being made by the government at Mrs. O'Neal's death. Like the Fifth Circuit, we must remand this case to the district court for a recalculation of the deduction (citations omitted). . . .
[W]e find that no case holds that the value at the date of death is the demand amount, $9,407,226, being made here by the government at the date of death (citation omitted). We therefore vacate the opinion of the district court on this issue and remand for evidentiary hearing on valuation.
On remand, the district court is instructed neither to admit nor consider evidence of post-death occurrences when determining the date of death value of the Section 2053(a)(3) deduction (citation omitted). It will be incumbent on each party to supply the district court with relevant evidence of pre-death facts and occurrences supporting the date of death value of the deduction as advocated by that party. . . .O'Neal, 258 F.3d at 1275.
With those instructions, this court held an evidentiary hearing on the value of the deduction as of the date of Mrs. O'Neal's death and thereafter entered an Order finding the value of those claims to be $5,835,000.00. Because this amount exceeded the value of the estate, the court limited the amount under 26 U.S.C. § 2053(c)(2) to $5,303,744.00 and found the deduction for the claims of the decedent's children and grandchildren reduced the amount of the taxable estate to zero. See Order of July 31, 2002 (doc. 124). Therefore, the defendant was ordered to refund to the plaintiff estate $1,883,762.00 as the full amount of estate taxes paid by the estate, and $191,129.99 as the full amount of interest paid by the estate on such estate taxes.
To recover their fees and costs, the plaintiffs must establish that:
1) The estate was worth less than $2 million as of July 23, 1994. 26 U.S.C. § 7430(c)(4)(D), applying 28 U.S.C. § 2412(d)(2)(B).
2) The estate exhausted all administrative remedies prior to filing this action. 28 U.S.C. § 7430(b)(1).
3) The plaintiffs did not unreasonably protract the proceedings. 26 U.S.C. § 7430(b)(3).
4) The plaintiffs are the prevailing party. 26 U.S.C. § 7430(a) and (c)(4)(A)(i)
5) The United States' position was not substantially justified. 26 U.S.C. § 7430(c)(4)(B).
6) The costs and fees incurred by the plaintiffs in this action are allocable entirely to the defendant. 26 U.S.C. § 7430(b)(2).
Attorney Fees
The plaintiffs seek $845,444.50 in litigation costs. Affidavit of Bruce Rogers, at ¶ 13. In considering the motion for litigation costs, including reasonable attorneys' fees now pending before the court, the court has already determined that the net value of the decedent's estate was zero after the claims of the donees were included. See Order of July 31, 2002 (doc. 124). As such, the court must conclude that the value of the estate was worth less than $2,000,000.00. The parties do not contest that the plaintiffs exhausted their administrative remedies. The court finds no evidence that the plaintiffs unreasonably protracted these proceedings. Likewise, the court finds the costs and fees incurred by the plaintiffs were allocable entirely to the defendants. Additionally, the defendant does not seriously dispute that the plaintiffs were ultimately the prevailing party.The substantial justification of the government in the position it argues is disputed by the parties. Only if the government's position was not substantially justified are the plaintiffs entitled to recover attorneys' fees. See 26 U.S.C. § 7430. The plaintiffs assert that at no time during this litigation has the defendant's position been justified. Plaintiffs' brief in support, at 5. The defendant argues that, should the Eleventh Circuit adopt this court's position upon remand, at most the defendant's position before this court after remand was not substantially justified. This court agrees. of the four issues presented to this court originally, the court held in favor of the defendant on three of them. The court rulings on these issues, detailed above, were affirmed upon appeal. The only possible conclusion regarding these issues is that the government's position was justified.
26 U.S.C. § 7430(c)(4)(B) states: "A party shall not be treated as the prevailing party in a proceeding to which subsection (a) applied if the United States establishes that the position of the United States in the proceeding was substantially justified."
As to the fourth issue, the amount of the deduction due the estate, the Court of Appeals noted that it was an "issue of first impression in this circuit." O'Neal, 258 F.3d at 1266. The Eleventh Circuit rejected the defendant's valuation of the deduction at zero, the plaintiffs valuation of the deduction at $9,407,226, and this court's original valuation of the deduction at $563,314, for which the parties settled in tax court. Therefore, this court cannot conclude that the plaintiff was the prevailing party or that the defendant's position was not substantially justified at any time through the date the Eleventh Circuit's opinion remanding the case to this court for evidentiary hearing to value the deduction at the date of death issued, that being July 26, 2001. See 26 U.S.C. § 7430(c)(4)(A)-(B).
July 26, 2001 was the date of the Eleventh Circuit's opinion. That decision did not issue as a mandate until October 18, 2001 (doc. 75).
However, since remanded to this court, the defendant's position cannot be considered as substantially justified. That term has been defined to mean, "justified to a degree that could satisfy a reasonable person" and having a "reasonable basis both in law and fact." Estate of Cervin v. Commissioner of Internal Revenue, 111 F.3d 1252, 1261 (5th Cir. 1997); citing Nalle v. Commissioner, 55 F.3d 189, 191 (5th Cir. 1995) (quoting Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541, 2550, 101 L.Ed.2d 490 (1988). This court must examine whether the defendant "knew or should have known that [its] position was invalid at the onset of the litigation (citations omitted)." Cervin, 111 F.3d at 1261-62.
In spite of the Eleventh Circuit's pronouncement that "the estate is entitled to a deduction with respect to claims against the estate by the nine heirs for reimbursement of their transferee gift tax liability on the 1987 gifts of stock by Mrs. O'Neal," O'Neal at 1271, the defendant has repeatedly argued that the value of that deduction was zero. On March 14, 2002, the plaintiffs filed a motion for partial summary judgment, requesting this court order that the defendant was foreclosed from arguing that the value of the claims of the donees was zero. Plaintiffs' motion for partial summary judgment (doc. 81), at ¶ 2. This court ordered that "the defendant may not allege that the estate of Mrs. O'Neal is not entitled to any deduction for the value of the claims of the donees." Order of April 2, 2002 (doc. 87), at 2.
On April 3, 2002, the defendant filed a motion requesting this court hold the motion for partial summary judgment in abeyance pending discovery on the issue of "the value, if any, of the donees' claims as of July 23, 1994" (doc. 89). The court found this motion to be moot on April 4, 2002 (doc. 95). On April 11, 2002, the defendant filed a motion asking this court to reconsider its granting of the plaintiffs' motion for partial summary judgment (doc. 93). The court denied that motion, stating its April 2, 2002 Order merely required the parties to comply with the instructions from the Eleventh Circuit regarding the issues on remand. Court Order of April 11, 2002 (doc. 94), at 2. The court, by footnote, stated:
"the court notes that the plaintiffs filed that motion [for partial summary judgment] due to a concern that the defendant would argue that the plaintiffs were estopped from claiming the estate was entitled to any deduction. As the Eleventh Circuit stated that `there is no dispute that the estate is entitled to a deduction . . .' this court will not allow the defendant to argue otherwise, whether before, during, or after discovery is completed."
Order of April 11, 2002, at n. 1. In its trial brief, the defendant again argued that, because the court could not consider post-death events, the value of the deduction for the donees' claims would be zero. Trial brief of defendant United States (doc. 121), at 14-15. The defendant then argues in that brief that "[e]xcepting (sic), arguendo, that the plaintiffs' reading of Smith is correct, the valuations performed by the plaintiffs' (sic) indicate that the deduction for the donees' claims as of July 23, 1994 is zero (citation omitted). . . . As a consequence, no deduction for the donees' claims can be permitted under Treas. Reg. § 20.2053-1(b)(3)." Trial brief of defendant United States, at 19-20. In its conclusion, the United States argued, "Applying a strict interpretation of the Eleventh Circuit's Opinion in this case, the amount of the deduction for the donees' claims as of July 23, 1994 is zero because no cause of action had accrued at the time of Mrs. O'Neal's death." Id. at 24-25.
At the evidentiary hearing, which commenced June 6, 2002, the court stated it was "concerned about . . . the government's argument that the plaintiffs are entitled to zero deduction, because I think the Eleventh Circuit closed that out." See Tab 11 to plaintiffs' evidentiary submission (doc. 126). The government responded:
Let me explain. . . . This is the way we're interpreting. We're not saying that that restitution claim would not be entitled to a deduction (sic). What we are saying is is the value would be zero, because the Eleventh Circuit said, what you will go back and do, is you will value the deduction.
It's the same thing as if, on July 23rd, 1994 you were valuing stock and it was determined to be worthless. . . . But we're not saying that there's — there is a difference between they are not entitled to a deduction — we're not saying that, Your Honor. What we're saying is is the value as of July 23rd, 1994, based on those facts, you have to assign it as — we're using zero as, in effect, worthless.Id. This court has repeatedly found this position of the United States to be irreconcilable with the Eleventh Circuit's finding that "that there is no dispute that the estate is entitled to a deduction with respect to claims against the estate by the nine heirs for reimbursement of their transferee gift tax liability on the 1987 gifts of stock by Mrs. O'Neal." O'Neal, supra, at 1271. As such, the court finds that the government "should have known that [its] position was invalid" from the time this case was remanded by the Eleventh Circuit. See Cervin, 111 F.3d at 1262; see also In re Rasbury, 24 F.3d 159, 168 (11th Cir. 1994).
Having considered the foregoing, the court is of the opinion the plaintiffs are entitled to recover reasonable litigation costs, including attorney fees, solely for costs and fees incurred after July 26, 2001. See Powers v. Commissioner of Internal Revenue, 51 F.3d 34, 35 (5th Cir. 1995) (approving award of 1/3 of fees for prevailing on 1/3 of issues). The court having reviewed those and fees submitted by the plaintiffs in unredacted form in camera, the court finds those fees to be reasonable, except as follows:
In their evidentiary submissions in support of the motion for award of reasonable litigation costs (doc. 126), the plaintiffs refer to this time period as "Stage III." See affidavit of Roy Crawford at ¶¶ 15-20.
Although included in the time records submitted to the court, the plaintiffs' motion for reasonable litigation costs did not include time spent on a petition for rehearing to the Eleventh Circuit, or any time spent by any counsel or assistant other than the three lead counsel, C. Fred Daniels, Roy Crawford an Phillip Walker. See Affidavit of Roy Crawford at ¶ 15, Plaintiffs' brief in support, at 16. Thus, much of the time defendant objects to is time for which plaintiffs do not seek reimbursement. See e.g., time recorded but not sought from 9/5/2001 to 9/18/01 (Attachment IV to affidavit of Roy Crawford, at 8-10. Similarly, work to which the defendant objected on 11/2/2001, 11/4/2001 and 11/5/2001 was time for which the plaintiffs did not seek reimbursement. See defendant's opposition at Exhibit B, p. 13. The court finds it unnecessary to list all time to which the defendant objected for which the plaintiffs do not seek reimbursement as the court has independently reviewed the hours for which plaintiffs seek reimbursement and eliminated those the court believes improperly charged.
Costs
The court finds the plaintiffs' costs for this time period to be reasonable except for the PACER charges of $914.38. The court notes this service is .07 cents per page. Thus, the amount charged is for 13,062 pages. The court can not consider this reasonable, as the entire court file is not that many pages. Additionally, the court disallows one charge of the $612.00 for airfare which was charged twice, once on April 25, 2002 and again on June 18, 2002, both for the same April 25, 2002 flight. Thus, the court subtracts $1,526.38 from the costs sought by plaintiffs. The court, having added the costs sought by plaintiffs, finds them to be $239,240.63. Subtracting $1,526.38 from this amount results in costs of $237,714.25.Additionally, although the plaintiffs represent to this court that the proper amount to be deducted from their claim of costs due to the parties' stipulation is $15,651.33, the court finds the proper amount to be that originally claimed by the plaintiffs as costs, namely $19,562.10. See Plaintiffs' Bill of Costs (doc. 127). The plaintiffs and defendant agreed that the amount to which the plaintiffs were due for these costs was $15,651,33. The plaintiffs represented to the court that the amounts included in the Bill of Costs were also included in the motion now before the court. See Motion to Avoid Duplication of Reasonable Litigation Costs, at ¶ 3 (doc. 141). Therefore, the court finds the costs to which plaintiffs are entitled to be $218,152.15.
In other words, deducting only the $15,651.33 to which the plaintiffs stipulated, leaves the plaintiffs with a windfall of the difference between this amount and the total amount they sought in their Bill of Costs, as that amount is included in the motion for reasonable litigation costs as well. Allowing such a windfall eliminates any motivation for an opposing party to stipulate to costs.
Conclusion
Having considered the foregoing, and the court being of the opinion that the plaintiffs' motion for award of reasonable litigation costs, including attorney fees, is due to be granted in part;
It is therefore ORDERED by the court that said motion is GRANTED IN PART. The plaintiffs are awarded the sum of $373,803.00 in attorney fees and $218,152.15 in costs.