Keasler v. United States

• Decision Date: 13 March 1984
• Docket Number: No. J-C-79-165.,J-C-79-165.
• Citation: 585 F. Supp. 825
• Parties: Lawrence KEASLER and Keasler Body Company, Inc., Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Arkansas

585 F. Supp. 825

Lawrence KEASLER and Keasler Body Company, Inc., Plaintiffs, v. UNITED STATES of America, Defendant.

No. J-C-79-165.

United States District Court, E.D. Arkansas, Jonesboro Division.

March 13, 1984.

COPYRIGHT MATERIAL OMITTED

Robert Branch, Paragould, Ark., for plaintiffs.

Lawrence Sherlock, Tax Div. Justice Dept., Washington, D.C., for defendant.

MEMORANDUM AND ORDER

EISELE, Chief Judge.

On October 2, 1981, this Court granted summary judgment in favor of the plaintiffs in an action against the United States to obtain refunds of excise taxes paid pursuant to 26 U.S.C. § 4061(a)(1) (1970 & Supp. V 1975). After an appeal of that decision was dismissed by the Eighth Circuit Court of Appeals, the plaintiffs moved for an award of expenses, including attorney's fees, pursuant to the Equal Access to Justice Act, 28 U.S.C. § 2412 (Supp. V 1981). For the reasons stated below, the plaintiffs' motion will be granted.

I. Facts.

A. Background:

At all times relevant to this lawsuit, the plaintiffs were engaged in the business of assembling truck chassis, truck bodies and hydraulic hoists. For the period beginning January 1, 1974, and ending September 30, 1975, the Internal Revenue Service (IRS) assessed an excise tax of $7,342.99, plus interest of $603.24 on all truck-hoist units assembled by the plaintiffs. A related excise tax of $1,321.67, plus interest of $99.82, was assessed against the plaintiffs for the period of October 1, 1975, through March 31, 1976. The assessments were based on the IRS's determination that the plaintiffs assembling activities constituted further "manufacture" within the meaning of 26 U.S.C. § 4061(a)(1) and Revenue Ruling 69-195, 1969-Cum.Bull. 276, and thereby subject to the ten percent excise tax imposed under section 4061(a)(1). After timely paying both assessments, the plaintiffs sought refunds from the IRS. The IRS Examining Officer denied the refunds in full on October 24, 1978, and these denials were confirmed in letters from the District Director on January 9, 1979.

The plaintiffs then filed the underlying lawsuit against the United States on December 5, 1979. They contended that their assembling activities did not constitute "manufacturing" under the statute and that they were entitled to a refund of the excise taxes and interest paid, plus costs and attorney's fees. Both the United States and the plaintiffs moved for summary judgment based upon the pleadings and a joint stipulation of the relevant facts.

B. Trial Court Decision:

In its October 2, 1981, Order this Court granted the plaintiffs' motion for summary judgment and directed the Government to refund the taxes and interest paid by the two plaintiffs. In reaching this decision, the Court recognized the existence of Revenue Ruling 69-195, which held that the combining or assembling of dump truck hoist with a dump truck body constitutes further "manufacture" of the body and therefore is subject to the section 4061(a)(1) excise tax. The Court noted, however, that in enacting section 2109 of the 1976 Tax Reform Act, codified at 26 U.S.C. § 4063(d), Congress has specifically repudiated the position taken by the IRS in Revenue Ruling 69-195. The opinion states:

Although Rev.Rul. 69-195 was in effect at the time the taxes were assessed against plaintiffs, Congress has indicated that it was an erroneous interpretation of its intent in § 4061. Thus, the court does not view the plaintiffs as manufacturers within the meaning of the statute.

Slip. op. at 2. The Court then observed that a factually analogous case, Jacobs Equipment Co. v. United States, 574 F.2d 1040 (10th Cir.1978), had previously addressed the same issue. In Jacobs Equipment, the Tenth Circuit held that the assembly of hoists and truck bodies did "not rise to the dignity of manufacturing." Id. at 1042. Although it recognized that several decisions, including at least two Eighth Circuit opinions, had broadly defined the term "manufacturing,"¹ the Court declined the Government's invitation to reject Jacobs Equipment and implement an expansive definition of the term "manufacture." As the Court concluded:

In the instant case, the combining of the bodies and hoists was nothing more than mere assembly. The trucks did not change in their essential character. The Court therefore agrees with the Tenth Circuit in Jacobs that the acts of the plaintiffs in attaching hoists to truck bodies do not constitute manufacturing within the meaning of 26 U.S.C. § 4061(a)(1). That is also the intent of Congress in exempting the attachment of cranes, hoists, and winches (termed "certain modifications") from the manufacturers' excise tax.

Slip op. at 4. Judgment in favor of the plaintiffs was entered on October 2, 1981.

C. Post-Trial Court Developments:

The Government then filed its notice of appeal with the Eighth Circuit Court of Appeals on November 30, 1982. On April 8, 1982, the parties filed a stipulation for dismissal of the appeal with the Eighth Circuit, which stated in pertinent part that

the appeal of the United States of America from the judgment of the United States District Court for the Eastern District of Arkansas in the above-captioned case would be dismissed, with prejudice, with each party to bear its own appellate costs, except that plaintiffs' claim of entitlement to attorneys' fees is preserved for future decision by the appropriate court.

The order of dismissal entered by the Eighth Circuit on April 27, 1982, stated in part: "Motion of appellees for award of attorneys' fees and costs is denied without prejudice to it being renewed in the district court."

On May 6, 1982, the plaintiffs filed the pending motion for award of attorney's fees and costs in this Court pursuant to the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412. They contend that they were the prevailing parties in both the district court proceedings as well as the appellate proceeding. They also state that the position of the government was not substantially justified.

The Government has responded with two principal arguments: first, that the plaintiffs' motion for attorney's fees is untimely; and second, even if deemed timely, the position of the United States at all relevant times was "substantially justified." The Government contends that either of these facts precludes the Court from awarding attorney's fees pursuant to section 2412.

II. Applicable Law.

Section 2412 provides a means by which certain parties, who prevail in actions by or against the United States (or officers and agencies thereof), may be awarded costs and attorney's fees and expenses. Section 2412(a) provides the basis upon which a claim for costs may be made. Sections 2412(b) and 2412(d), which authorize the award of attorney's fees and expenses and set forth the terms and conditions under which such awards may be granted, state in pertinent part:

(b) Unless expressly prohibited by statute, a court may award reasonable fees and expenses of attorneys, in addition to the costs which may be awarded pursuant to subsection (a), to the prevailing party in any civil action brought by or against the United States ... in any court having jurisdiction of such action. The United States shall be liable for such fees and expenses to the same extent that any other party would be liable under the common law or under the terms of any statute which specifically provides for such an award.

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(d)(1)(A) 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) 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.

(B) 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, and the amount sought, including an itemized statement from any attorney or expert witness representing or appearing in behalf of the party stating the actual time expended and the rate at which fees and other expenses are computed. The party shall also allege that the position of the United States was not substantially justified.

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(2) For the purposes of this subsection—

(A) "fees and other expenses" includes the reasonable expenses of expert witnesses, the reasonable cost of any study, analysis, engineering report, test, or project which is found by the court to be necessary for the preparation of the party's case, and reasonable attorney fees. (The amount of fees awarded under this subsection shall be based upon prevailing market rates for the kind and quality of the services furnished, except that ... attorney fees shall not be awarded in excess of $75 per hour unless the court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for the proceedings involved, justifies a higher fee.);

(B) "party" means (i) an individual whose net worth did not exceed $1,000,000 at the time the civil action was filed, (ii) a sole owner of an unincorporated business, or a partnership, corporation, association, or organization whose net worth did not exceed $5,000,000 at the time the civil action was filed ..., or (iii) a sole owner of an unincorporated business, or a partnership, corporation, association, or organization, having not more than 500 employees at the time the civil action was filed;

It is therefore plain to see that section 2412 authorizes two independent bases by which a party may recover attorney's fees when it prevails in a...