Finney v. Roddy

• Decision Date: 20 September 1985
• Docket Number: Civ. A. No. 83-0686-R.
• Citation: 617 F. Supp. 997
• Parties: Gladys C. FINNEY, Plaintiff, v. Charles E. RODDY, et al., Defendants.
• Court: U.S. District Court — Eastern District of Virginia

617 F. Supp. 997

Gladys C. FINNEY, Plaintiff, v. Charles E. RODDY, et al., Defendants.

Civ. A. No. 83-0686-R.

United States District Court, E.D. Virginia, Richmond Division.

September 20, 1985.

William K. Grogan, Richmond, Va., for plaintiff.

Robert W. Jaspen, Asst. U.S. Atty., D. French Slaughter, III, Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendants.

MEMORANDUM

MERHIGE, District Judge.

This matter comes before the Court on the motion of plaintiff for an award of attorneys' fees. Plaintiff contends that she is entitled to such an award pursuant to 26 U.S.C. § 7430. Defendants, on the other hand, contend that plaintiff is not entitled to any fees whatever under that section. The motion has been briefed, and the parties have not timely sought oral argument. Accordingly, it is now ripe for disposition.

BACKGROUND

Plaintiff originally brought this suit for declaratory, injunctive, and monetary relief against defendants Roddy (the district director of the Richmond Division of the Internal Revenue Service (IRS) at all times material hereto) and the United States of America. Plaintiff primarily sought to enjoin an impending public auction sale of several of her properties upon which the IRS had placed liens.

The complaint alleged that the IRS placed nominee liens on the properties in question for taxes the IRS claimed were owed by a third person, whom the IRS believed was the true owner of the property. The IRS threatened to hold — and went so far as to schedule and advertise — a public auction sale of the properties on November 9, 1983. Yet it had never mailed to the allegedly deficient taxpayer any notice pursuant to 26 U.S.C. § 6212, thereby precluding the taxpayer from challenging the alleged deficiency under 26 U.S.C. § 6213. Apparently plaintiff, by counsel, had attempted during the four weeks prior to the scheduled sale date to persuade IRS collection division officials not to hold the sale. On November 7, 1983 — two days prior to the date scheduled for the sale — those officials nevertheless decided that the sale would go forward, prompting plaintiff to file this lawsuit and a motion for a temporary restraining order.

A conference between an assistant United States attorney and counsel for plaintiff followed. The IRS decided, shortly thereafter, not to hold the scheduled sale. Some seven months later, the parties concluded most of the case by stipulation. The stipulation dismissed as moot plaintiff's request for declaratory and injunctive relief, and dismissed with prejudice plaintiff's demand for monetary damages. The stipulation reserved plaintiff's claim for attorney's fees, however. In that regard, it also provided that: (i) the United States did not act unreasonably, subsequent to the filing of the complaint; and (ii) the plaintiff had substantially prevailed with respect to the most significant issue or set of issues presented. The parties now dispute the availability of attorney's fees to plaintiff under 26 U.S.C. § 7430, in light of these stipulations and the other facts of the case.

DISCUSSION

I. Applicability of 26 U.S.C. § 7430(a).

The parties do not dispute that 26 U.S.C. § 7430(a) governs the disposition of the issue before the Court. The statute provides that:

In the case of any civil proceeding which is —

(1) brought by or against the United States in connection with the determination, collection, or refund of any tax, interest or penalty under this title, and

(2) brought in a court of the United States (including the Tax Court and the United States Claims Court),

the prevailing party may be awarded a judgment for reasonable litigation costs incurred in such proceeding.

26 U.S.C. § 7430(a). This suit was brought in federal district court against the United States in connection with the collection of an alleged federal income tax deficiency. It thereby falls within the scope of Section 7430(a).

II. Exhaustion.

The statute requires that, in order to recover litigation costs under § 7430(a), a prevailing party must have first "exhausted the administrative remedies available...." 26 U.S.C. § 7430(b)(2). Here, plaintiff by counsel apparently engaged in a series of conferences prior to filing this suit with the relevant personnel in the IRS's collection division, unsuccessfully attempting to dissuade the IRS from holding the public auction sale. She filed this suit shortly after those officials reached an adverse administrative decision, and only days prior to the scheduled sale. The parties do not dispute that plaintiff exhausted her available administrative remedies, and the Court so finds.

III. Prevailing Party.

The statute authorizes an award of "litigation costs" — which include reasonable attorney's fees, 26 U.S.C. § 7430(c)(1)(A)(iv), as plaintiff seeks here — only to a "prevailing party." 26 U.S.C. § 7430(a). It then specifically defines "prevailing party" in 26 U.S.C. § 7430(c)(2)(A).¹ In order to be a prevailing party within the meaning of the statute, a party must meet two requirements. First, it must establish that the "position of the United States in the civil proceeding was unreasonable." 26 U.S.C. § 7430(c)(2)(A)(i). Second, the person must have "substantially prevailed" with respect either to the "amount in controversy" or "the most significant issue or set of issues" in the proceeding. 26 U.S.C. § 7430(c)(2)(A)(ii).

A. Whether plaintiff substantially prevailed.

The parties have stipulated that the plaintiff has "substantially prevailed with respect to the most significant issue or set of issues presented."² Thus, the issue remaining, in determining whether plaintiff is a "prevailing party" to whom the Court may award litigation expenses, is whether the position of the United States was unreasonable.

B. Whether position of United States was unreasonable.

In addition to stipulating that plaintiff has substantially prevailed with respect to the most significant issues, the parties have agreed that the United States did not act unreasonably subsequent to the filing of the complaint in this lawsuit.³ On the other hand, plaintiff vigorously argues — and the United States does not contest — that the IRS position prior to the filing of the complaint was unreasonable. The Court agrees. Thus, the relevant facts are not in dispute. The issue before the Court is, rather, a legal one involving statutory construction. Specifically, the Court must determine whether the statutory requirement that "the position of the United States in the civil proceeding be unreasonable," 26 U.S.C. § 7430(c)(2)(A)(i), is satisfied by an unreasonable position taken by the United States prior to the filing of the complaint in the action wherein the party seeks to recover fees.

The same issue has arisen in other courts, and they have divided on its proper resolution. See Kaufman v. Egger, 584 F.Supp. 872, 877-80 (D.Me.1984), aff'd, 758 F.2d 1 (1st Cir.1985) ("position of the United States" includes "pre-litigation" position); see also Hallam v. Murphy, 586 F.Supp. 1, 3 (N.D.Ga.1983); Penner v. United States, 584 F.Supp. 1582, 1583-84 (S.D.Fla.1984). Contra Brazil v. United States, 84-2 U.S. Tax Cas. (CCH) ¶ 9596 (D.Ore.1984); Zielinski v. United States, 84-1 U.S. Tax Cas. (CCH) ¶ 9514 (D.Minn. 1984); Eidson v. United States, 84-1 U.S. Tax Cas. (CCH) ¶ 9182 (N.D.Ala.1984); Baker v. Commissioner of Internal Revenue, 83 T.C. 822, 827 (1984). In addition, the Court has the benefit of Congress's resolution of the issue in favor of considering the pre-litigation as well as the post-complaint phase of the proceedings, in a closely related statute. See Equal Access to Justice Act Amendments, Pub.L. 99-80, § 2(c)(2)(B), 99 Stat. 183, 185 (1985).

The Court concludes that the broader construction plaintiff urges is the appropriate one. At the outset, the Court observes that the phrase to be construed is ambiguous. Even in the relatively specialized vocabulary of lawyers, the term "civil proceeding" may convey both the broad and narrow constructions urged here. See Black's Law Dictionary 1083 (rev. 5th ed. 1979) ("proceeding" refers to "administrative proceedings before agencies, tribunals, bureaus, or the like" as well as to court proceedings). And the statute itself does not expressly define the term "civil proceeding" that the Court must consider in evaluating the "position of the United States." Furthermore, portions of Section 7430 can be read to support either view.⁴

In light of the ambiguity in the text of the statute, extrinsic aids may properly be considered in clarifying the ambiguity. Some of the courts that have construed "position of the United States" to include the IRS's pre-litigation position have relied on the legislative history of Section 7430 to reach their conclusion. See, e.g., Kaufman v. Egger, supra, 758 F.2d at 4. The legislative history does provide some support for that broader reading, primarily through its articulation of Congress's goal of deterring abuses and over-reaching by the Internal Revenue Service. See H.R.Rep. No. 404, 97th Cong. 2d Sess. at 11 (1982); Senate Comm. on Finance, Technical Explanation of Committee Amendment, reprinted in 127 Cong.Rec. S 15595 (daily ed. Dec. 16, 1981). But the legislative goal of deterring IRS abuses, alone, does not persuade the Court to adopt one construction argued here over the other. Both constructions are consistent with that goal; the broader construction merely carries it further than the narrow one. The legislative history does not clarify the extent to which Congress intended to go in pursuing the goal.

It is, rather, the recent amendments to the Equal Access to Justice Act (EAJA) that persuade the Court to adopt the broader construction urged here by plaintiff. Similar statutes, as well as the legislative history of the statute in question, may appropriately be considered in construing an ambiguous statutory provision. See 2A N. Singer, Statutes and Statutory Construction § 51.01 at 449 (rev...