U.S. v. Gavilan Joint Community College Dist.

Decision Date02 September 1988
Docket NumberNo. 87-2126,87-2126
Citation849 F.2d 1246
Parties, 47 Ed. Law Rep. 444 UNITED STATES of America, Plaintiff-Appellee, v. GAVILAN JOINT COMMUNITY COLLEGE DISTRICT, et al., Defendants-Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

Michael J. Tonsing, Pierucci & Tonsing, Oakland, Cal., for defendants-appellants.

Michael E. Robinson, Dept. of Justice, Civil Div., Appellate Section, Washington, D.C., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California.

Before SCHROEDER, FLETCHER and BOOCHEVER, Circuit Judges.

SCHROEDER, Circuit Judge:

The United States brought suit against Gavilan Joint Community College District and Gavilan College ("Gavilan") to recover overpayments received by Gavilan under a Veterans Administration educational program. The district court granted summary judgment to Gavilan, finding that the United States' action was time-barred by the six-year statute of limitations. 662 F.Supp. 309. Gavilan appeals from the district court's denial of attorney's fees under the Equal Access to Justice Act. It also appeals from the denial of sanctions under Rule 11, Fed.R.Civ.P.

The district court found "that the United States had no reasonable basis in law and fact on which to challenge [Gavilan's] limitations defense," but nevertheless held that under the "totality of the circumstances" the United States' position was substantially justified because the underlying claim once had a reasonable chance for success. The district court misapplied the "totality of the circumstances" test in holding that the Government's pursuit of a time-barred claim was substantially justified. We therefore reverse and remand for imposition of attorney's fees.

BACKGROUND

The facts are not disputed. From 1972 to 1976, Gavilan participated in the Predischarge Education Program, under which it provided active duty military personnel with high school completion programs and remedial courses of study. Under this program, Gavilan was entitled to receive reimbursement for its reasonable costs in providing tuition, fees, books, and supplies, or $175 per month for a full-time course, whichever was less. 38 U.S.C. Sec. 1696(b).

In 1977, the General Accounting Office ("GAO") audited some of the participating schools, including Gavilan, and concluded that the schools had received surplus funds. On December 8, 1977, the GAO wrote to the Veterans Administration, recommending that the VA recover its surplus payments from the schools.

Under 28 U.S.C. Sec. 2415(a), actions based in contract or quasi-contract brought by the United States have a six-year statute of limitations. Gavilan contended that the statute began to run when it ceased its participation in the program in June 1976, or alternatively, that the statute began to run when VA officials knew or should have known of the surplus payments. The GAO had advised the Veterans Administration to recover the surplus payments in December 1977; VA officials were questioned about the surplus payments in a Congressional hearing in February 1978; and the VA Administrator wrote to the Chair of the Senate Subcommittee on Governmental Affairs in March 1978, promising to audit the schools in the GAO survey, and to "attempt to recover the excess profits and/or surplus funds from the schools." Therefore, Gavilan argued that the statute began to run by early 1978 at the latest. The United States did not file suit to recover the overpayments until November 22, 1985.

The United States contended that the statute did not begin to run until the completion of its own audit on July 20, 1979. (The parties stipulated to exclude July 19, 1985, to November 25, 1985, from the limitations period in order to conduct settlement negotiations.) The district court granted summary judgment to Gavilan, finding that the statute of limitations began to run on December 8, 1977, and thus that the Government's claim was time-barred.

Gavilan then requested attorney's fees, contending that the United States' position was not substantially justified as defined by the Equal Access to Justice Act. Gavilan also requested Rule 11 sanctions. The district court found that "the United States

                had no reasonable basis in law on which to challenge defendants' limitations defense," and that "[a]s to the Government's factual assertion against defendants' limitations defense, the court finds that the United States' position was unreasonable."    Yet the court then held that considering the "totality of the circumstances," the Government's position was substantially justified because the underlying action was reasonable, and thus denied both motions.  Gavilan timely appeals pursuant to 28 U.S.C. Sec. 1291
                
DISCUSSION
A. Equal Access to Justice Act

The Equal Access to Justice Act provides for the award of attorney's fees to parties prevailing against the Government in civil actions:

Except as otherwise specifically provided by statute, a court shall award to a prevailing party other than the United States fees and other expenses, in addition to any costs awarded pursuant to subsection (a), incurred by that party in any civil action (other than cases sounding in tort), including proceedings for judicial review of agency action, brought by or against the United States in any court having jurisdiction of that action, 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. Sec. 2412(d)(1)(A). There is no question that Gavilan has prevailed against the Government in this litigation. The argument on appeal is whether the United States' position was "substantially justified" so that an award of attorney's fees was not warranted.

In focusing upon the possible prima facie merit of the Government's claim, without regard to possible defenses, the district court was no doubt influenced by the intercircuit debate over what courts should consider in assessing the "position" of the United States. After Congress enacted the Equal Access to Justice Act, the courts divided over the proper definition of the term "position" of the United States. Some courts construed the language to mean the Government's litigation posture. See, e.g., Spencer v. NLRB, 712 F.2d 539, 556 (D.C.Cir.1983), cert. denied, 466 U.S. 936, 104 S.Ct. 1908, 80 L.Ed.2d 457 (1984); Electronic Modules Corp. v. United States, 702 F.2d 218, 219 (Fed.Cir.1983). Other courts construed the language to include the conduct of the Government giving rise to the litigation. See, e.g., Natural Resources Defense Council v. EPA, 703 F.2d 700, 708 (3rd Cir.1983); Tyler Business Services v. NLRB, 695 F.2d 73, 75-76 (4th Cir.1982). In examining this conflict, this circuit held that "the remedial purpose of the EAJA is best served by considering the totality of the circumstances prelitigation and during trial." Rawlings v. Heckler, 725 F.2d 1192, 1196 (9th Cir.1984).

Congress then discussed the meaning of the term "position" of the United States in its 1985 amendments to the Equal Access to Justice Act. The legislative history to the amendments states that:

Part of the problem in implementing the Act has been that agencies and courts are misconstruing the Act. Some courts have construed the "position of the United States" which must be "substantially justified" in a narrow fashion which has helped the Federal Government escape liability for awards. H.R. 2378 clarifies both of these points. When the escape clause [permitting the United States to escape liability when its position was substantially justified] was originally written, it was understood that "position of the United States" was not limited to the government's litigation position but included the action--including agency action--which led to the litigation. However, courts have been divided on the meaning of "position of the United States." H.R. 2378 clarifies that the broader meaning applies.

H.R.Rep. No. 120, 99th Cong., 1st Sess. 8, reprinted in 1985 U.S.Code Cong. & Admin.News 132, 137 (footnotes omitted). Thus, Congress has clarified that it intended that courts examine both the underlying Government action and the Government's litigation position, not solely the litigation position.

When the district court in this case held that the Government's position was substantially justified, it apparently focused solely on the underlying claim, to the exclusion of the litigation position and the Government's unexplained delay in bringing its claim. Nothing in the Act's language itself or the legislative history, however, implies that in evaluating whether the Government's position was substantially justified in a particular action, Congress intended the courts to ignore the obvious existence of complete defenses to a Government action. Rather, the legislative history to the original Act clearly indicated a presumption that fees would be awarded unless the Government showed the award would be unjust.

[F]ees will be awarded unless the Government can show that its action was substantially justified or that special circumstances make an award unjust.... [T]he strong deterrents to contesting Government action require that the burden of proof rest with the Government.... Certain types of case dispositions may indicate that the Government action was not substantially justified. A court should look closely at cases, for example, where there has been a judgment on the pleadings or where there is a directed verdict or where a prior suit on the same claim had been dismissed. Such cases clearly raise the possibility that the Government was unreasonable in pursuing the litigation.

H.R.Rep. No. 1418, 96th Cong., 2d Sess. 10-11, reprinted in 1980 U.S.Code Cong. & Admin.News 4984, 4989-90. There is no reason, consistent with the Act's purpose, or with the "totality of the circumstances" test, for...

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