City of Brunswick, Ga. v. U.S., 87-8543

• Decision Date: 11 July 1988
• Docket Number: No. 87-8543,87-8543
• Citation: 849 F.2d 501
• Parties: The CITY OF BRUNSWICK, GEORGIA, Plaintiff-Appellee, Cross-Appellant, v. UNITED STATES of America, et al., Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 501

849 F.2d 501

57 USLW 2054

The CITY OF BRUNSWICK, GEORGIA, Plaintiff-Appellee, Cross-Appellant, v. UNITED STATES of America, et al., Defendants-Appellants Cross-Appellees.

No. 87-8543.

United States Court of Appeals Eleventh Circuit.

July 11, 1988.

Hinton R. Pierce, U.S. Atty., Savannah, Ga., John C. Hoyle, Civil Div., Michael Jay Singer, Washington, D.C., for defendants-appellants, cross-appellees.

David F. Walbert, Walbert & Hermann, Atlanta, Ga., for plaintiff-appellee, cross-appellant.

Appeals from the United States District Court for the Southern District of Georgia.

Before JOHNSON and HATCHETT, Circuit Judges, and ESCHBACH ^*, Senior Circuit Judge.

JOHNSON, Circuit Judge:

This case arose out of the City of Brunswick's challenge to the determination by the Federal Emergency Management Agency (FEMA) of the flood level figures used in calculating Brunswick's eligibility for federally subsidized flood insurance. The United States District Court for the Southern District of Georgia awarded Brunswick $324,492.16 in attorney fees, costs, and other expenses pursuant to the Equal Access to Justice Act, 28 U.S.C.A. Sec. 2412. See City of Brunswick v. United States, 661 F.Supp. 1431 (S.D.Ga.1987). On appeal, the government challenges, inter alia, the district court's determinations that Brunswick met EAJA's "net worth" requirement and that the "position of the United States" was not "substantially justified." We agree with the government and thus reverse the district court. ¹

I. Brunswick's Net Worth

As relevant to this issue, recovery under EAJA requires that the prevailing party be a "unit of local government, ... the net worth of which did not exceed $7,000,000 at the time the civil action was filed." 28 U.S.C.A. Sec. 2412(d)(2)(B)(ii). The district court rejected the government's argument that Brunswick's net worth exceeded $7 million when the civil action was filed in July 1985. We reverse the district court.

This issue, apparently a question of first impression, turns on the definition of "net worth." The government relies on the "Annual Financial Report of the City of Brunswick for the Fiscal Year Ended June 30, 1985." The report, prepared by certified public accountants retained by Brunswick, shows a "Total Municipal Equity" of $22,010,596. The government's expert witness explained in an affidavit that "Total Municipal Equity" as used in the report equates to Brunswick's net worth. Consequently, the government argues that by exceeding EAJA's net worth limit Brunswick cannot recover under EAJA.

Brunswick responds that its net worth is less than $7 million because the term "net worth" should not include "restricted" assets (those assets not generally available to meet the payment of debts). Specifically, Brunswick argues that the government erred by counting Brunswick's water and sewage system as an asset. The inclusion or exclusion of this system determines whether Brunswick's net worth exceeds EAJA's limit.

Congressional intent regarding the definition of "net worth" is sparse. The House and Senate Reports associated with EAJA's enactment in 1980 each contain identical language: " 'Net worth' is calculated by subtracting total liabilities from total assets. In determining the value of assets, the cost of acquisition rather than fair market value should be used." H.R.Rep. No. 1418, 96th Cong., 2d Sess. 15, reprinted in 1980 U.S. Code Cong. & Admin.News 4984, 4994; S.Rep. No. 253, 96th Cong., 1st Sess. 17 (1979). ²

When EAJA was first enacted in 1980, however, Congress did not expressly provide for recovery by a unit of local government. Only when it adopted amendments to EAJA in 1985 did Congress do so. A statutory interpretation problem, as recognized by the district court, resulted because the term "net worth" generally is not used in reference to the financial status of a municipality.

The district court, relying on the legislative history connected with the 1985 addition, ³ reasoned that Congress was concerned with "ability to pay" and thus agreed with Brunswick's view that "restricted assets" were to be excluded when calculating Brunswick's net worth. See 661 F.Supp. at 1440. We disagree.

Congress determined that only those units of local government whose net worth did not exceed $7 million at the time of suit could receive an award under EAJA. We believe that the choice of the $7 million figure represents Congress' concern with the "ability to pay" factor. We discern from the legislative history that Congress, already having taken "ability to pay" into account by its choice of the $7 million figure, intended "net worth" to be determined by subtracting total liabilities from total assets. Congress thus did not intend for "ability to pay" to enter into the calculation of net worth. ⁴ We thus reject the argument that "restricted" assets should be excluded from that calculation.

Rather, we agree with the government's expert that the critical consideration for inclusion as an asset is whether the City has title to the asset. ⁵ It is undisputed that Brunswick held title to the water and sewage system. This system thus is to be included in the "net worth" calculation. Consequently, Brunswick's "net worth" clearly exceeded EAJA's limit and Brunswick cannot recover for an award under EAJA.

II. "Substantially Justified"

The Equal Access to Justice Act provides in relevant part a court shall award to a prevailing party other than the United States fees and other expenses ... incurred by that party in any civil 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.A. Sec. 2412(d)(1)(A) (emphasis added). In the present case, the district court determined that FEMA's original agency action ⁶ was not substantially justified. Consequently, the district court determined that Brunswick was entitled to an award under EAJA.

We review the district court's finding for abuse of discretion. Pierce, Secretary of Housing and Urban Development v. Underwood et al., --- U.S. ---, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988). The government bears the burden of showing that its position was substantially justified. The standard for substantial justification is one of "more than mere reasonableness." The government must show that its case had a reasonable basis both in law and fact. Hudson v. Secretary of Health and Human Services, 839 F.2d 1453, 1456 (11th Cir.1988); accord United States v. Certain Real Estate Property, 838 F.2d 1558, 1561 (11th Cir.1988). As an alternative holding to our determination that Brunswick failed to meet EAJA's "net worth" requirement, we conclude that the district court abused its discretion when it held that the position of the United States was not "substantially justified."

A. The Government's Position at the Agency Level

Brunswick sought flood insurance available to property owners at subsidized rates. ⁷ 42 U.S.C.A. Secs. 4011, 4012(c). The Federal Emergency Management Agency sought to perform a flood insurance study (FIS) and then to create a flood insurance rate map (FIRM). Id. Secs. 4101, 4104.

FEMA employed a private engineering firm to perform the FIS for Brunswick and the surrounding tri-county area. On July 14, 1982, Brunswick was provided copies of the FIS and draft FIRMs for information and review. The documents, which notified Brunswick of the proposed base flood elevations (BFE), ⁸ were subsequently published in The Brunswick News on August 25, 1983, and September 1, 1983.

In November 1983, Brunswick authorized Glynn County, Georgia, to prosecute an appeal to FEMA on Brunswick's behalf from the proposed BFEs. Later that month, pursuant to 42 U.S.C.A. Sec. 4104(c), ⁹ Glynn County filed a timely joint appeal on behalf of itself and Brunswick. The joint appeal challenged (1) the technical interpretation of field survey data used to determine wave transmission coefficients and (2) whether the effect on wave heights of non-rigid herbaceous vegetation was considered.

On November 1, 1984, pursuant to its duty under 42 U.S.C.A. Sec. 4104(e), ¹⁰ FEMA sent its response by certified mail/return receipt requested to Reginald E. Holtzendorf, Mayor of Brunswick. ¹¹ In this response, FEMA determined that no adjustments to the wave transmission coefficients were warranted and some site-specific reductions because of marsh grass effects were warranted in the BFEs. FEMA enclosed a revised FIRM and stated that Brunswick had thirty days to review and comment on the enclosed maps. Brunswick did not submit additonal scientific or technical data.

On December 19, 1984, FEMA notified Brunswick ¹² by certified letter that the final FIRM would go into effect on June 19, 1985, and that Brunswick had six months to adopt appropriate ordinances regulating development in the flood-risk areas. At this point, 42 U.S.C.A. Sec. 4104(g) (emphasis added) became applicable: "Any appellant aggrieved by any final determination of the Director upon administrative appeal ... may appeal such determination to the United States district court for the district within which the community is located not more than sixty days after receipt of notice of such determination."

Although Brunswick's right to judicial review lapsed in February 1985, Brunswick did not respond to FEMA's notice until May 1, 1985. Brunswick presented its response at the agency level. Brunswick sought a nine-month extension of the FIRM's effective date, claimed that the FIS was technically deficient, and asserted that FEMA should have conducted an environmental impact statement (EIS) for the Brunswick area. FEMA refused to grant the extension, stated that an EIS was not required, permitted Brunswick to submit additional flood data (which Brunswick did), and did not alter the FIS or FIRM.

We hold that "the position of the United...