Opinion
NO. 4:01CV00012 JMM
June 4, 2003
ORDER
The government opposes plaintiffs motion for attorney's fees filed pursuant to 26 U.S.C. § 7430 contending that plaintiffs motion is untimely and that plaintiff does not qualify as a "prevailing party."
Judgment was entered against the government on January 23, 2003. Plaintiff filed his motion for attorneys' fees on February 20, 2003.
A prevailing party in certain proceedings is to be awarded reasonable attorney's fees. See 26 U.S.C. § 7430 (a). A prevailing party is defined as one who meets the requirements of "the 1st sentence of 2412(d)(1)(B) of title 28, United States Code . . . except to the extent differing procedures are established by rule of court . . ."
Equal Access to Justice Act.
The first sentence of 28 U.S.C. § 2412 (d)(1)(B) states in relevant part:
a party seeking an award of fees and other expenses shall, within thirty days of final judgment in the action, submit to the court an application for fees and other expenses which shows that the party is a prevailing party and is eligible to receive an award under this subsection.
The government contends that the phrase, "except to the extent differing procedures are established by rule of court" found in § 7430(c)(4)(A)(ii) dictates the application of Federal Rule of Civil Procedure 54 and Rule 54.1 of the United States District Court for the Eastern and Western Districts of Arkansas both of which call for a 14-day time limit to file a motion for attorney's fees.
Federal Rule of Civil Procedure 54(d) provides that "[u]nless otherwise provided by statute or order of the court, the motion must be filed no later than 14 days after entry of judgment." The Court finds that the language "unless otherwise provided by statute" refers back to the 30-day rule found in 28 U.S.C. § 2412 (d)(1)(B) resulting in the 30-day time period being applicable.
Moreover, the 14-day time period found in Local Rule 54.1 is not applicable as it states that "[t]he 14 day period set forth in subsection (a) shall not apply to cases wherein the statute creating the right to attorney's fees also provides its own limitation period for filing such motions." Finally the Eighth Circuit has held that "[a] local court rule cannot supercede a statute that expressly allows prevailing parties thirty days in which to file applications for fees and expenses." United States v. Estridge, 797 F.2d 1454, 1459 n. 1 (8th Cir. 1986)) citing Washington-Southern Navigation Co. v. Baltimore Philadelphia Steamboat Co., 263 U.S. 629, 635, 44 S.Ct. 220, 222, 68 L.Ed. 480 (1924) (a court rule cannot enlarge or restrict jurisdiction or substantive law).
For these reasons, the Court finds that plaintiffs motion for attorney's fees was timely filed.
II. Prevailing Party
The government notified plaintiff in December of 1999 that he was being assessed a $25,479.49 penalty for unpaid taxes for Utility Contractors, Inc. ("UCI"). At the same time, the government seized $7,659.82 from plaintiffs tax refund as a result of his overpayment of income taxes. Plaintiff subsequently paid $1,000.00 to defendant to cover the withholding tax of one employee of UCI and he filed a claim for refund. The government denied the refund and plaintiff filed a complaint in January of 2001 to recover the refund. The government answered the complaint and filed a counterclaim alleging that plaintiff had wilfully failed to collect, truthfully account for or pay to the IRS federal employment taxes withheld from UCI employees wages.
On December 5, 2002, the government deposed plaintiff. On December 16, plaintiff filed his motion for summary judgment. The government subsequently conceded the grant of plaintiffs motion for summary judgment.
Plaintiff contends that he was the prevailing party because the government conceded all the issues raised in his motion for summary judgment, and because the government knew when they denied his refund that he was not the person responsible for collecting, accounting for and paying over to the defendant the federal employment taxes withheld from the wages of the employees of UCI.
The government contends that the documents referred to in making its decision to litigate described plaintiff as a person responsible for payment of UCI's obligations, including determining which bills to pay. It is the government's position that it did not know all of the pertinent facts until after plaintiffs December deposition.
Plaintiff responds that the facts which exonerated plaintiff from liability were known to defendant in February of 1998 by way of two Reports of Interviews by Internal Revenue Service agents in which plaintiff was not mentioned as a person responsible for payment of UCI's obligations. He contends that no new facts were discovered or revealed during the course of the litigation which the government did not already know when it refused his request for a refund or filed its counterclaim. Plaintiff concedes that four credit applications and a Tennessee Business Tax Reporting Form indicated that he was the President of UCI.
A taxpayer seeking an award of attorney fees, as a prevailing party bears the burden of proving that the governments litigation position was not substantially justified. See 26 U.S.C.A. § 7430(a) and (c)(4)(B). "The government's litigation position is not substantially justified if it lacks a reasonable basis in law and fact." Barton v. United Staes, 988 F.2d 58, 59 (8th Cir. 1993). The IRS's position that a corporate officer is a responsible person solely because of his title and status is not reasonable where the agency is possessed of evidence indicating that the officer had no authority to pay taxes. United States. v. Bisbee, 245 F.3d 1001, 1007 (8th Cir. 2001).
A review of the relevant documents reflect that the IRS possessed evidence indicating that plaintiff was an officer of the corporation. In addition the Interview Report for Jeff Gross conducted by the IRS agent James Winton states that plaintiff was authorized to pay the obligations of the corporation. Based upon this information, the IRS reasonably drew the conclusion that plaintiff was the president of UCI and had some authority to pay the company's bills.
Plaintiff contends that United States. v. Bisbee controls this case. In Bisbee the Court held that the IRS's lawsuit lacked a reasonable basis and was not substantially justified when it knew that an officer of a corporation lacked authority to pay obligations of the corporation. In the instant case, however, the IRS did not have proof that plaintiff lacked such authority to pay the obligations of the corporation. In fact, the IRS had some evidence that he could pay such obligations. Up to this point, the government's position was reasonable and substantially justified, and the motion for attorney's fees is denied for any work completed by plaintiffs counsel up to this point (#48).
In its brief opposing the motion for attorney's fees, the government states plaintiff's deposition testimony explained "a large amount of damning evidence against him" and it was this testimony that convinced it to concede its position that plaintiff was a responsible party. Plaintiff was not informed of this decision and went forward with the filing of the motion for summary judgment on December 16, 2002.
The government did not actually concede until January 3, 2003, which was almost a month after plaintiffs deposition at which the government admits it learned the true facts. Once it knew the true facts, the government's position lacked a reasonable basis and was not substantially justified, and an award of attorney's fees is appropriate for this period of time.
According to counsel's affidavit in support of the motion for attorney's fees, he spent 25 hours on the motion for summary judgment. Plaintiffs motion is granted for the time spent on the motion for summary judgment (#48). Plaintiff is awarded $3,750.00 based upon an hourly rate of $150.00.
As stated in its sur reply filed on May 29, 2003, the government does not object to the $150.00 hourly rate. 26 U.S.C. § 7430 (c)(1)(B)(iii) imposes a statutory cap of $125.00 per hour "unless the court determines that a special factor, such as the . . . difficulty of the issue presented in the case, or the local availability of tax expertise, justifies a higher rate." The $125.00 is further required to be adjusted for inflation. Id Such adjustments resulted in a rate of $150.00 per hour in 2002 and 2003. See Rev. Proc. 2001-59, 2001-2 C.B. 623, 628; Rev. Proc. 2002-70, 2002-46 I.R.B. 845. The Court finds that there are no special factors justifying a higher hourly rate.
Based upon the above, plaintiffs motion is denied in part and granted in part (#48).
IT IS SO ORDERED.