Schock v. United States, 00-2514

Decision Date06 June 2001
Docket NumberNo. 00-2514,00-2514
CourtU.S. Court of Appeals — First Circuit

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND [Hon. Ronald R. Lagueux, U.S. District Judge] John D. Deacon, Jr. for appellant.

Lawrence H. Richmond, with whom Ann S. DuRoss, Assistant General Counsel, Robert D. McGillicuddy, Supervisory Counsel, and J. Scott Watson, Counsel, Federal Deposit Insurance Corporation, were on brief, for appellees.

Before Torruella, Circuit Judge, Cyr, Senior Circuit Judge, and Lynch, Circuit Judge.

Lynch, Circuit Judge.

In the Equal Access to Justice Act (EAJA), Congress provided that a prevailing party may recover attorneys' fees and expenses in a civil action against any "agency . . . of the United States" unless the court finds the position of the United States "substantially justified." 28 U.S.C. §§ 2412(d)(1)(A). This appeal is about the denial of EAJA fees to a plaintiff who was successful in a contract claim against the FDIC as receiver of an insolvent bank. Attorneys' fees and expenses in the sum of $27,896.00 are sought for a judgment for plaintiff of $23,331.72. The district court denied the claim on the ground that the FDIC as receiver was not an agency of the United States. We affirm, albeit on different grounds.


Schock, the daughter and only heir of Ragnar Miller, discovered that her late father's attorney, Pat Nero, had embezzled from her father's estate, including the sum of $23,331.72 in Miller's savings account at Old Stone Bank. At the time Nero withdrew the funds, Old Stone was being run under the conservatorship of the Resolution Trust Corporation (RTC), the FDIC's statutory predecessor. As holder of her father's estate's claims, Schock sued the FDIC, as receiver for Old Stone, for breach of contract, alleging that the bank permitted an unauthorized signatory (Nero) to withdraw funds on deposit in the Miller savings account. Schock also brought a conversion claim against the United States under the Federal Tort Claims Act and a claim for insurance liability against the FDIC in its corporate capacity, and subsequently amended her complaint to bring a negligence claim against the FDIC-Receiver.

Schock moved for summary judgment on her breach of contract claim. The FDIC-Receiver invoked the protection of Rhode Island's version of the Uniform Fiduciaries Act (UFA), which provides a defense to "a person who in good faith pays or transfers to a fiduciary any money . . . which the fiduciary is authorized to receive" if the fiduciary later misappropriates those funds. R.I. Gen. Laws §§ 18-4-16. Schock argued that this law did not apply because Nero's apparent authority to withdraw the money as Miller's agent, under the Restatement (Second) of Agency, ended by operation of law when Miller died. See Restatement (Second) Agency §§ 120 cmt. c (1958).1

The district court rejected Schock's argument, ruling that apparent agency terminates only when a third party has notice of the termination. Schock v. United States, 21 F. Supp. 2d 115, 121 (D.R.I. 1998) (Schock I). The court noted that the Rhode Island Supreme Court has not yet ruled whether reliance on an agent's prior agency status is sufficient to qualify the agent as a fiduciary under R.I. Gen. Laws §§ 18-4-6. Id. at 121-22. But the court predicted, based on its reading of Restatement (Second) of Agency §§ 125,2 that the Rhode Island law protects third parties who rely on the apparent authority of former agents before they have notice of the termination of agency and in good faith pay money to the apparent agents. Id. at 122. The court applied Restatement §§ 125 to the situation of death of the principal, despite the language of §§ 120 comment c dealing with that situation. The court noted the Restatement's definition of "notice" as "when the third party . . . 'knows, should know, has reason to know, or has been given a notification of the occurrence of an event from which, if reasonable, he would draw the inference that the principal does not consent to have the agent so act for him.'" Id. (quoting Restatement (Second) of Agency §§ 135 at 333). Finding material issues of disputed fact as to the question of actual notice to the bank of Miller's death, the court denied Schock's summary judgment motion on her breach of contract claim. See id.

Schock renewed her summary judgment motion, asking the district court to reconsider its rejection of her argument that apparent authority ends by operation of law upon a principal's death. Schock directed the court's attention to Restatement §§ 120 comment c. The court rejected comment c as "illogical" and contrary to what it believed Rhode Island public policy to be. Schock v. United States, 56 F. Supp. 2d 185, 193 (D.R.I. 1999) (Schock II). Schock also offered evidence that the bank had actual notice when it permitted the Nero savings account withdrawal that Miller had died. Schock's new evidence included a bank employee's statement that the bank had in place a procedure for checking the obituaries in the local paper to see whether bank clients had died, and that an obituary for Miller appeared in that paper. The court found the evidence disputed and again denied Schock's motion for summary judgment on her breach of contract claim. Id. at 195.

After a bench trial, where it was established that the bank did indeed have such a procedure, the district court concluded as to the contract claim that the bank should have known that Miller died because his obituary was published in a local newspaper. That the bank had notice of Miller's death, the court concluded, extinguished Nero's apparent authority, and the bank therefore was not entitled to invoke R.I. Gen. Laws §§ 18-4-16 as a defense to liability for breach of contract. The court also entered judgment for the FDIC on Schock's tort claim. Judgment entered for Schock on her contract claim.3

Schock filed a motion for an award of attorneys' fees and expenses incurred in her claim against FDIC-Receiver pursuant to the Equal Access to Justice Act, 28 U.S.C. §§ 2412 (1994), which allows a prevailing party to recover fees and expenses incurred in a civil action against the United States, including "any agency . . . of the United States." Id. §§ 2412(d). The district court denied the claim, concluding that the FDIC in its role as receiver is not an "agency of the United States" within the meaning of the EAJA. Schock v. FDIC, 118 F. Supp. 2d 165, 171 (D.R.I. 2000) (Schock III).

A. The Equal Access to Justice Act

The EAJA provides that a court "shall award to a prevailing party . . . fees and other expenses . . . incurred by that party in any civil action . . . brought by or against the United States . . . 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. §§ 2412(d)(1)(A). The United States is defined to include "any agency and any official of the United States acting in his or her official capacity." Id. §§ 2412(d)(2)(C). The purpose of the EAJA is to remove economic deterrents to parties who seek review of unreasonable government action by allowing certain prevailing parties to recover an award of attorney fees, expert witness fees, and other expenses against the United States. See H.R. Rep. No. 96-1418, at 5-6 (1980), reprinted in 1980 U.S.C.C.A.N. 4984, 4984. Schock is a prevailing party as to the contract claim.

We review the district court's denial of Schock's fee application under the EAJA for abuse of discretion. Pierce v. Underwood, 487 U.S. 552, 557 (1988) (reviewing grant or denial of EAJA fee applications only for an abuse of district court's discretion). Whether the EAJA applies to a contract claim against the FDIC when it acts as a receiver of a bank -- that is, whether the FDIC as receiver acts as an agency of the United States for EAJA purposes or merely functions like a private-sector receiver or bank -- is a difficult question. It is difficult because what is an "agency" of the United States for EAJA purposes is not a self-defining term, and there are differing and conflicting policy objectives that are relevant to determining congressional intent. We decline to reach the issue.4 Mindful of the Supreme Court's admonition not to turn an EAJA fee application into a second major litigation, Pierce, 487 U.S. at 563, we prefer to resolve the less problematic question whether the FDIC-Receiver's litigation position was "substantially justified." See Armster v. United States Dist. Court, 817 F.2d 480, 483-84 (9th Cir. 1987) (reaching "substantially justified" question under §§ 2412(d)(1)(A) and bypassing "agency" question); BayBank Middlesex v. Ralar Distribs., 69 F.3d 1200, 1202 (1st Cir. 1995) (appellate court may affirm district court's ruling on any ground adequately supported by the appellate record).

B. Whether the FDIC's position was substantially justified

The burden is on the government to demonstrate that its position was "substantially justified." See Sierra Club v. Secretary of Army, 820 F.2d 513, 517 (1st Cir. 1987). Although the language of the statute refers to a "prevailing party," 28 U.S.C. §§ 2412(d)(1)(A), the statute makes clear that courts are to examine both the prelitigation actions or inaction of the agency on which the litigation is based and the litigation position of the United States, id. §§ 2412(d)(2)(D); see Sierra Club, 820 F.2d at 516. A position which is substantially justified at the initiation may not be justified later in the agency's continuation of the litigation. Dantran, Inc. v. United States Dep't of Labor, 246 F.3d 36, 41 (1st Cir. 2001).

The government need not show that its...

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