Jones v. United States

• Decision Date: 29 December 1980
• Docket Number: Civ. A. No. B-77-309-CA.
• Citation: 505 F. Supp. 781
• Parties: E. C. JONES v. UNITED STATES of America.
• Court: U.S. District Court — Eastern District of Texas

505 F. Supp. 781

E. C. JONES v. UNITED STATES of America.

Civ. A. No. B-77-309-CA.

United States District Court, E. D. Texas, Beaumont Division.

December 29, 1980.

Robert I White, Larry A. Campagna, Chamberlain, Hrdlicka, White, Johnson & Williams, Houston, Tex., for E. C. Jones.

Gerald B. Leedom, Dept. of Justice, Tax Division, Washington, D. C., for United States of America.

MEMORANDUM OPINION¹

JOE J. FISHER, District Judge.

This case is before the Court on remand from the Court of Appeals for the Fifth Circuit for the purpose of awarding attorneys' fees "consistent with the guidelines expressed in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974)." E. C. Jones v. United States, 613 F.2d 1311, 1314 (5th Cir. 1980).

I

The plaintiff, E. C. Jones (Jones) brought this suit for a refund of employment taxes for 1973 and 1974. Jones was assessed approximately $1500 for employment taxes relating to Jimmy Wayne Morton, a tree feller who performed services for Jones, a logging contractor. Jones made a partial payment of $53.74 and filed a claim for a refund with the IRS. When the claim was denied, Jones filed this refund suit. The government counterclaimed for $10,170, the full amount of the employment taxes not reduced by the amounts that were already paid by Morton.²

The essence of plaintiff's original claim is that Morton was an independent contractor of Jones and not an employee as claimed by the IRS. The case was tried before Judge Steger who ruled that Morton was an independent contractor. The government's counterclaim was dismissed. Jones moved for an award of attorneys' fees pursuant to the Civil Rights Attorney's Fees Award Act of 1976, 42 U.S.C. § 1988.³ The motion was denied and Jones appealed. On appeal, the Fifth Circuit reversed and remanded for the purpose of awarding attorneys' fees "for both the trial and appellate phases." E. C. Jones v. United States, 613 F.2d 1311, 1314 (5th Cir. 1980). The Fifth Circuit held that attorney's fees may be awarded in a tax case when there is a showing that "the government's action was frivolous, unreasonable, or without foundation," id. at 1313-14, even though not brought in subjective bad faith, id. The government's counterclaim in this case "was the epitome of a frivolous and unreasonable lawsuit." Id.

The hearing on remand brought out the following facts not in the record on appeal. Jones was represented throughout these proceedings by the firm of Chamberlain, Hrdlicka, White, Johnson and Williams of Houston. The Chamberlain, Hrdlicka firm was retained by the Piney Woods Logging Contractors' Association (PWA), a group of logging contractors united for the purpose of establishing that tree cutters who perform services for logging contractors were independent contractors for payroll tax purposes, rather than employees. Jones is a member of the PWA. The Chamberlain, Hrdlicka firm and the PWA entered into an agreement whereby the firm was to litigate two test cases against the IRS, one in the Court of Claims, and one in the Eastern District of Texas. The PWA agreed to pay a $10,000 minimum retainer. The PWA was to be billed monthly for the firm's services, first using up the $10,000 retainer and the balance to be paid as billed. The hourly billing for services was not to exceed $35,000. Each member of the PWA was assessed a portion of the expense of hiring the Chamberlain, Hrdlicka firm, depending on the size of the member's operation. The agreement was supplemented in 1978 to account for the Civil Rights Attorney's Fees Award Act of 1976. The supplemental agreement provided that the firm would litigate the attorneys' fee issued in the District Court and Court of Appeals. Any fee award to Jones was to be turned over to the PWA pursuant to another side agreement. The PWA would pay for the firm's services up to $35,000 as originally agreed, and would be paid in full if successful out of the award. If Jones lost the attorney fee claim, the firm would not be paid.

II

Jones now moves for an award of $22,705 for attorneys' fees as follows: $11,427.50 for the original trial; $7,240 for the appeal; and $4,240 for the present motion. The government does not contest the reasonableness of the fee for the services rendered. Rather it argues that the fee award should be limited under the factual and legal circumstances.

A

The government argues that in a tax refund suit under 42 U.S.C. § 1988, the attorneys' fee award should be limited to the amount that the plaintiff is contractually obligated to pay to his attorney. The government relies on language in Johnson v. Georgia Highway Express, 488 F.2d 714, 718 (5th Cir. 1974), which arguably supports its position.⁴ In this case, the plaintiff is not contractually obligated to pay his attorney. Jones' liability is limited to what he paid or agreed to pay the PWA, if anything. If the government's argument were correct, it would follow that the plaintiff is not entitled to any attorney fee award. This is certainly not the result mandated by the Fifth Circuit, and counsel has cited no authority construing Johnson to so limit the fee award.⁵ The fee award should not be reduced because the plaintiff is not obligated to pay his attorney. See Neeley v. City of Grenada, 624 F.2d 547, 551-52 n.4 (5th Cir. 1980); Miller v. Amusement Enterprises, Inc., 426 F.2d 534, 538 (5th Cir. 1970).

B

In a related argument, the government asserts that the award should be decreased by the amounts contributed by nonparties, i. e. the PWA. The government is correct in stating that the statute provides for payment of fees to the prevailing party and not to the attorney. See Johnson, 488 F.2d at 718. It does not follow, however, that the expenses on nonparties are not recoverable. "As a general matter, awards of attorneys' fees where otherwise authorized are not obviated by the fact that individual plaintiffs are not obligated to compensate their counsel. The presence of an attorney-client relationship suffices to entitle prevailing litigants to receive fee awards." Rodriguez v. Taylor, 569 F.2d 1231, 1245 (3d Cir. 1978) (age discrimination case). The Fifth Circuit has stated: "What is required is not an obligation to pay attorney fees. Rather what—and all—that is required is the existence of a relationship of attorney and client, a status which exists wholly independently of compensation ...." Miller v. Amusement Enterprises, Inc., 426 F.2d 534, 538 (5th Cir. 1970) (applying 42 U.S.C. § 1988); see Gore v. Turner, 563 F.2d 159, 164 (5th Cir. 1977) (applying section 1988); Sellers v. Wollman, 510 F.2d 119, 123 (5th Cir. 1975) (Truth in Lending Act case); Fairley v. Patterson, 493 F.2d 598, 607 (5th Cir. 1974) (Voting Rights Act case).

The government argues that the above cited cases should be distinguished and the expenses of the PWA should not be reimbursed because the case is not in the category of "public interest litigation." This Court does not think the application of section 1988 should be so limited. First, the Fifth Circuit in remanding this case mandated that this Court follow the guidelines expressed in Johnson, a civil rights case. Secondly, nothing in section 1988 indicates that different standards should be used in awarding fees in "public interest litigation" as opposed to private litigation. Section 1988 applies to civil rights actions as well as suits against taxpayers. There is no authority for the government's position that only out of pocket expenses should be awarded in suits against taxpayers.⁶ Lastly, even though most suits against taxpayers involve private economic interests, the reach of the present cases is greater. The issue of whether tree fellers are employees or independent contractors is of interest to the logging industry generally. The issue of recovery of attorneys' fees in a taxpayer refund suit is not a purely private economic interest of the PWA or Jones. Jones' opposition to the IRS policy of asserting the entire amount of an employment tax assessment when only a fraction of the amount is due is in the public interest. Therefore, Jones should recover fees paid by the PWA.

C

The government's third argument is that the fee award should be limited to the expenses directly related to its frivolous counterclaim. The government tried to show that the cost of defending the counterclaim was a small fraction of the total cost.

It is clear that were it not for the counterclaim, plaintiff would not be entitled to any fee award. See E. C. Jones v. United States, 613 F.2d 1311, 1313 (5th Cir. 1980); Key Buick Co. v. CIR, 613 F.2d 1306, 1309 (5th Cir. 1980); Prince v. United States, 610 F.2d 350, 352 (5th Cir. 1980). The substance of the counterclaim and the plaintiff's claim overlapped, in that both involved the amount of tax due the government. To the extent that Jones' claim and the government's claim overlapped, the attorneys should be compensated. See Familias Unidas v. Briscoe, 619 F.2d 391, 406 (5th Cir. 1980); Hardy v. Porter, 613 F.2d 112, 114 (5th Cir. 1980). Furthermore, even if it were possible to separate the attorneys' work, the work should not be severed into "issue parcels," for the purpose of determining the fee award. Miller v. Carson, 628 F.2d 346, 348 (5th Cir. 1980).

The Fifth Circuit was aware that attorneys spent time on both the claim and the counterclaim, but did not limit the remand to fees incurred in defending the counterclaim. The Fifth Circuit impliedly required this result by remanding for an award of attorneys' fees for both the trial and appellate phases when the dismissal of the counterclaim was not appealed. It should be noted that most of the attorneys' fees requested in this case arose from the litigation of the attorneys' fees issue. Thus, but for the government's counterclaim, most of the fees would not have been incurred.

D

The government asserts as a fourth argument that the fee award should be limited to the maximum economic exposure of the plaintiff...