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TRAHAN v. REGAN

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA


July 12, 1989

AVA P. TRAHAN, ET AL., Plaintiffs,
v.
DONALD R. REGAN, ET AL., Defendants

The opinion of the court was delivered by: GASCH

MEMORANDUM

 OLIVER GASCH, UNITED STATES DISTRICT JUDGE

 Plaintiffs in this case, pursuant to 28 U.S.C. § 2412(d), renew their application for an award of attorneys fees and costs in accordance with the remand order of the Court of Appeals. Plaintiffs assert that the application is made on the grounds that plaintiffs are the prevailing parties and that the government's position was not substantially justified.

 I. BACKGROUND

 Although the Court of Appeals' previous decision in Trahan v. Regan, 262 U.S. App. D.C. 369, 824 F.2d 96 (D.C. Cir. 1987), was vacated by the Court of Appeals en banc on its own motion, see Order dated August 1, 1988, that Court's review of the background and procedural history of this case remains accurate.

 

The litigation that precipitated the present fee proceeding arose from SSA's [the Social Security Administration's] implementation of a new policy to verify the income and assets of [Supplemental Security Income] Benefits recipients. The Benefits program, administered by SSA, is designed to provide cash assistance to needy individuals who are elderly, blind or disabled. See Title XVI of the Social Security Act, 42 U.S.C. §§ 1381-1383c (1982). To be eligible for assistance, such individuals must meet financial qualifications established by SSA. See 42 U.S.C. § 1382; 20 C.F.R. §§ 416.1100-.1266 (1986). Regulations prescribed by SSA require Benefits recipients to supply the agency with the evidence necessary to prove eligibility and with any information that the agency requests. See 20 C.F.R. § 416.200. If an individual fails to comply with an SSA request, the agency may determine that the individual is ineligible to receive Benefits and suspend any further payments. See 20 C.F.R. §§ 416.1322, 416.714(b). Before discontinuance of Benefits may occur, however, SSA must afford a recipient extensive procedural protections, including notice and a hearing. See, e.g., 42 U.S.C. § 1383(c)(3); 20 C.F.R. § 416.1336, 416.1407-.1494.

 

In order to ensure that SSA provides assistance only to eligible individuals and in correct amounts, the Social Security Act directs the agency to verify an applicant's representation of eligibility through corroborating evidence from other sources and additional information obtained as necessary. See 42 U.S.C. § 1383(e)(1)(B). The statute does not identify any specific sources for this supplemental evidence. Congress, however, required that other federal agencies "provide such information as the [SSA] needs for purposes of determining eligibility for or amount of benefits, or verifying other information with respect thereto." 42 U.S.C. § 1383(f).

 

Prompted by reports of widespread abuse in the Benefits program, the General Accounting Office (GAO), in two separate reports, recommended that the SSA verify eligibility by using tax information collected by the IRS. The International [sic] Revenue Code's (Code) stringent confidentiality requirements, however, erected a substantial roadblock to this source of information. The IRS may release tax data only as explicitly authorized by section 6103 of the Code. See 26 U.S.C. § 6103(a) (1982). The section lists many federal agencies to which the IRS may release otherwise confidential tax information, but it does not authorize disclosure of the information at issue here to SSA. See 26 U.S.C. § 6103(c)-(o). Under subsection 6103(c), however, the IRS may release tax information, "subject to such requirements and conditions [as] it may prescribe by regulations, . . . to such person or persons as the taxpayer may designate in a written request or a consent to such disclosure." In light of these provisions, GAO made two recommendations: GAO suggested that Congress amend the Code to provide specific authorization for the IRS to release the needed information to SSA or, in the alternative, that SSA attempt to obtain the desired information by soliciting the recipients' consent to such disclosure.

 

Because legislative change was not immediately forthcoming, the agencies pursued GAO's second recommendation. SSA, together with GAO and the IRS, developed a notice-and-consent form designed to give SSA access to the desired information pursuant to subsection 6103(c) of the Code. The form consisted of two parts. In the first part, SSA attempted to notify Benefits recipients of the purpose of their requested consent:

 

We want the [IRS] to give us information from your tax records. The [IRS] will give us the information if you sign the form below.

 

We will compare this tax information with what you told us about your income and what you own to make sure we are paying the right amount in your [Benefits] checks.

 

The notice then advised recipients that:

 

You have a choice about signing the form. But we must have accurate information about your income and what you own to pay your [Benefits] checks. If you do not sign the form, your [Benefits] checks may be affected.

 

The second part of the form constituted the recipient's "consent." It requested the recipient's signature, authorizing the IRS to disclose to SSA information relating to the recipient's unearned income. In a separate document sent only to agency area office staff, SSA explained that those who refused to consent would be subject to suspension procedures. Refusal to sign the form apparently was, by itself, grounds for suspending Benefits. In May 1982, SSA mailed the form to each of four million former and current Benefits recipients. Almost three million recipients, including appellees, signed and returned the form to SSA, as SSA had requested.

 

In June 1982, eight Benefits recipients filed a class action against SSA alleging various statutory and constitutional violations with respect to the notice-and-consent forms. Plaintiffs sought to enjoin the SSA from gaining access to the tax information covered by the forms. The district court granted SSA's motion for summary judgment. The trial judge explained that because the case was "premature," he had dismissed the complaint without reaching the merits. Tierney v. Schweiker, Civ. Action No. 82-1638 (D.D.C. July 6, 1982). Plaintiffs appealed the decision to [the United States Court of Appeals for the District of Columbia Circuit].

 

After the district court's dismissal in Tierney, SSA conveyed many of the signed forms to the IRS. Some of the same plaintiffs then filed suit against the IRS, alleging, inter alia, that the forms had been obtained by threat and coercion, rather than by consent, as required under subsection 6103(c) of the Code, and that the forms did not meet the requirements set forth in the applicable IRS regulations. Plaintiffs sought declaratory relief and an order enjoining the IRS from disclosing information based on the forms. A different trial judge dismissed the complaint on a variety of jurisdictional and remedial grounds, concluding that plaintiffs' claims were "insubstantial and frivolous." Trahan v. Regan, 554 F. Supp. 57, 63 (D.D.C. 1982). Plaintiffs appealed this decision as well.

 

On appeal, [the Court of Appeals] consolidated the two cases. [The Court] reversed the ruling in Trahan and, as a result, found it unnecessary to reach the independent issues raised in Tierney. See Tierney v. Schweiker, 231 U.S. App. D.C. 37, 718 F.2d 449 (D.C. Cir. 1983). Upon reaching the merits of the claims against the IRS, [the Court of Appeals] concluded that the notice-and-consent forms were invalid in two major respects. First, [the Court] held that the form "does not meet the requirements of the IRS' own regulations," and therefore any reliance on the forms by the agency would be "invalid." Id. at 455. The Treasury Regulations pertaining to subsection 6103(c) require that the consent "be in the form of a written document pertaining solely to the authorized disclosure" and contain specific information including "the taxable year covered by the return or return information." 26 C.F.R. § 301.6103(c)-1(a) (1982). In this regard, the form at issue authorized the release of information "for all tax years beginning January 1, 1980, and subsequent." It contained no expiration date.

 

Second, emphasizing the importance of maintaining the confidentiality of tax returns, [the Court of Appeals] found that the forms did not provide the "type of knowing and voluntary consent that [subsection 6103(c) of] the statute contemplates." Id. The forms failed to notify recipients of their procedural rights. And, as [the Court of Appeals] found, because they "contained poorly-veiled threats that the recipients' benefits would be terminated if they failed to sign," the forms were likely to coerce recipients into relinquishing their statutory right to confidentiality. Id. at 456. Although [the Court of Appeals] found that "the form used in this case [made] a mockery of the consent requirement," [the Court] specifically reserved judgment as to whether another form could result in knowing and voluntary consent. Id. In conclusion, [the Court of Appeals] directed the district court to enter a declaratory judgment that reliance on the signed forms by the IRS to justify release of tax information would be unlawful. See id. at 457.

 

A concurring opinion in Tierney urged Congress to amend section 6103 of the Code to authorize the IRS to give the SSA the tax information it needed. See id. at 458-59. Congress so amended the statute in 1984. See 26 U.S.C. § 6103(l)(7), as amended by Section 2651(k)(1) of the Deficit Reduction Act of 1984, Pub. L. No. 98-369, 98 Stat. 494, 1150.

 

After the district court entered the declaratory judgment as instructed, appellees filed their application under the EAJA for attorney's fees and litigation costs. The district court granted appellees' motion, awarding them $ 25,743.73 in fees and $ 80.00 in costs. Trahan v. Regan, 625 F. Supp. 1163 (D.D.C. 1985). In determining that appellants were liable, the court ruled that the 1985 amendments to the EAJA (Amendments) applied to the instant case. As a result of this ruling, the government was required to show that it was "substantially justified" in both its litigating position and its administrative acts or omissions that led to the filing of the underlying suit. Id. at 1165-66. The court looked to this court's opinion in the prior appeal to determine if the IRS' position was substantially justified. The district court first dismissed the government's contention that the IRS had not taken any "official" administrative action on the forms and that therefore there was no "position of the United States" in this case. In this regard, the court noted our observation in Tierney that the IRS appeared prepared to release the tax information and observed itself that the IRS had failed to reject the improper forms. Both, the court found, constituted "positions" for purposes of the EAJA. Id. at 1166-67. The court then concluded that the government's conduct at the agency level was not substantially justified because "the IRS was prepared to release tax information pursuant to consent forms which violated clear regulatory requirements." Id. at 1167. The court added that its conclusion was motivated, in part, by its conviction that "the EAJA should be construed to provide a greater 'incentive for careful agency action' where, as here, the agency's conduct involves a large number of people and affects their assertion of statutory rights." Id. at 1167 n. 5.

 824 F.2d at 97-100. Defendants filed an appeal and the Court of Appeals affirmed this Court's decision on July 28, 1987. See 824 F.2d at 106. Appellants subsequently suggested that the case be reheard en banc, and the Court of Appeals adopted this suggestion by an order dated October 26, 1987. The Court of Appeals indicated subsequently that the purpose of the rehearing was to consider the proper application of the term "substantially justified" under the EAJA. The Court, however, held its proceedings in abeyance pending the Supreme Court's decision in Pierce v. Underwood, 487 U.S. 552, 108 S. Ct. 2541, 101 L. Ed. 2d 490 (1988).

 In Pierce, the Supreme Court held that the statutory phrase "substantially justified" in the EAJA means "justified to a degree that would satisfy a reasonable person." *fn1" 108 S. Ct. at 2550. This Court and the Court of Appeals had previously applied a higher standard of justification in accordance with the prevailing case law in this Circuit. Accordingly, the Court of Appeals en banc, on its own motion, vacated the panel opinion and this Court's previous opinion, and remanded to this Court for fresh consideration of the application for attorney's fees and litigation costs under the standard set forth in Pierce.

 II. DISCUSSION

 The EAJA provides:

 

[A] court shall award to a prevailing party . . . fees and other expenses . . . incurred by that party in any civil action (other than cases sounding in tort) . . ., including proceedings for judicial review of agency 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. § 2412(d)(1)(A). Thus, the Court must consider the following issues: first, whether the Equal Access to Justice Act ("EAJA"), 28 U.S.C. § 2412(d)(1)(A) (1982 & Supp. III 1985), applies to this case; and second, whether both the agency actions that formed the basis of this litigation and the government's litigating position were substantially justified. If the Court finds that the position of the United States was not substantially justified, the Court must then consider whether the circumstances of this case make an award unjust. If the Court concludes that an award of fees is proper, the Court must then determine the proper amount of the award.

 A. Applicability of the EAJA

 The 1985 amendments to the EAJA provide that "the amendments . . shall apply to cases pending on or commenced on or after the date of the enactment of this Act [August 5, 1985]." 5 U.S.C. § 504 Note (Supp. III 1985). In Center for Science in the Public Interest v. Regan, 255 U.S. App. D.C. 442, 802 F.2d 518 (D.C. Cir. 1986), the D.C. Circuit held that a case was "pending" for purposes of the EAJA Amendments if the application for fees was pending on August 5, 1985, even if the merits of the case had been resolved previously. 802 F.2d at 524. It is undisputed that plaintiffs' fee application was pending on August 5, 1985. Accordingly, the 1985 Amendments to the EAJA apply to this proceeding. *fn2"

 B. Was the United States' position substantially justified ?

 The 1985 Amendments to the EAJA clarified that

 

"Position of the United States" means, in addition to the position taken by the United States in the civil action, the action or failure to act by the agency upon which the civil action is based. . . .

 Pub. L. No. 99-80, § 2(c)(2)(B), amending 28 U.S.C. § 2412(d)(2). "By virtue of the 1985 Amendments, the Government must now show that both its position in the litigation and its conduct that led to the litigation were substantially justified." Federal Election Commission v. Rose, 256 U.S. App. D.C. 395, 806 F.2d 1081, 1086-87 (D.C. Cir. 1986).

 In Pierce v. Underwood, 487 U.S. 552, 108 S. Ct. 2541, 101 L. Ed. 2d 490 (1988), the United States Supreme Court clarified the meaning of the statutory phrase "substantially justified." The Court found that a position of the United States is substantially justified when it is "'justified in substance or in the main' -- that is, justified to a degree that could satisfy a reasonable person." 108 S. Ct. at 2550. Pierce, therefore, overrules the standard for substantial justification previously applied in this Circuit. See Trahan v. Regan, 824 F.2d at 101 ("Substantial justification means more than mere reasonableness.").

 The Pierce Court also clarified that "obviously, the fact that one other court agreed or disagreed with the Government does not establish whether its position was substantially justified. Conceivably, the Government could take a position that is not substantially justified, yet win; even more likely, it could take a position that is substantially justified, yet lose." 108 S. Ct. at 2552. Prior to Pierce, a presumption existed in this circuit that where a court overrules an agency's interpretation of its own regulations or governing statute and finds agency action to be contrary to law, the agency action was not substantially justified. 824 F.2d at 102; but see 824 F.2d at 106-07 (Silberman, J., dissenting) (criticizing the majority's interpretation of EAJA's "substantially justified" test as an automatic fee-shifting statute). Clearly, after Pierce, the presumption previously applied by the D.C. Circuit is no longer valid.

 Plaintiffs now argue that the standard previously applied by this Court and the Court of Appeals was, in fact, a test of reasonableness, notwithstanding language to the contrary. See Plaintiffs' Renewed Application for Attorneys' Fees and Costs at 8. Defendants, on the other hand, contend that the standard applied previously differs considerably from the standard articulated in Pierce.

 Upon reconsideration of the government's position in this case, the Court finds that the position of the United States, including both its litigation position and its conduct that led to the litigation, was substantially justified.

 1. The Agencies' *fn3" conduct at the administrative level was justified to a degree that could satisfy a reasonable person.

 At the outset, the Court finds that the Internal Revenue Service's ("IRS") action in this case must be evaluated notwithstanding defendants' contention that "the IRS never really formulated an administrative position as to the validity-of the contested consent forms." Memorandum in Opposition at 7. In Tierney v. Schweiker, 231 U.S. App. D.C. 37, 718 F.2d 449 (D.C. Cir. 1983), the Court held that the IRS appeared "prepared to release the tax information "under the forms." 718 F.2d at 454. Furthermore, the 1985 Amendments to the EAJA specifically include within the definition of "position of the United States" the failure of agency to act. In this case, the IRS failed to reject the improper consent forms.

 The Court of Appeals decision in Tierney invalidated the consent forms at issue in this case on two independent grounds. See 718 F.2d at 455. First, the Court held that the notice-and-consent form did not meet the requirements of IRS' own regulations. The Court found that pursuant to IRS regulations, consent was required to "be in the form of a written document pertaining solely to the authorized disclosure." 26 C.F.R. § 301.6103(c)-1(a) (1982). Furthermore, the consent document was required to contain certain information, including "the taxable year covered by the return or return information." Id. Second, the Court held that the contested consent forms "cannot solicit the type of knowing and voluntary consent that the statute contemplates before the IRS can release confidential tax information under subsection 6103(c)." 718 F.2d at 455. The Court finds that the position of the United States with respect to both issues was justified to a degree that could satisfy a reasonable person.

 The contested consent forms authorized the release of tax return information "for all tax years beginning January 1, 1980 and subsequent." The Court of Appeals' holding that the contested forms did not meet the IRS' own regulations appears to have been premised on two findings. First, in May, 1982, when SSA mailed the notice-and-consent forms to more than four million Benefits recipients, the forms were applicable to two tax years, i.e., the tax year beginning January 1, 1980, and the tax year beginning January 1, 1981. Second, the notice-and-consent forms were open-ended and contained no expiration date. Therefore, the form was also potentially applicable to the tax year beginning January 1, 1982, as well as subsequent years. The Court of Appeals apparently concluded: that because the regulation governing consent makes reference to "the taxable year" rather than to "the taxable year[s]," that any form which seeks information with respect to more than one taxable year is inconsistent with the IRS' regulations.

 The Court finds that the IRS' position on this matter was justified to a degree that could satisfy a reasonable person. Ostensibly, the purpose of 26 C.F.R. § 301.6103(c)-1(a)(4) was to ensure that the consenting individual is informed about exactly what information he is agreeing to release. The notice-and-consent forms mailed by SSA in May 1982 accomplished this purpose by identifying the past years as to which Benefits recipients were agreeing to disclose information, and by indicating clearly that the consent remained in effect indefinitely in the future.

 Nothing in the regulation limits the number of years to which an individual can consent to release tax information. Moreover, it is not apparent what purpose is served by requiring separate consent forms for separate years. Presumably, the agencies could have complied with the regulation by sending three or four consent forms to the four million Benefits recipients instead of only one form.

 The Court finds that the agencies' interpretation of the phrase "the taxable year" in the IRS regulations as the equivalent of "the taxable year[s]" was justified to a degree that could satisfy a reasonable person, where no apparent purpose is served by accomplishing with multiple consent forms what could be accomplished in one form and where the notice-and-consent form used identified the relevant years to which the signatory was agreeing to disclosure.

 The Court of Appeals also held that the "second, and more important, basis for our holding is that these forms, which were mailed to 4 million elderly, blind and disabled individuals, cannot solicit the type of knowing and voluntary consent that the statute contemplates before the IRS can release confidential tax information under subsection 6103(c)." 718 F.2d at 455. The Court stated that "although a knowing and intelligent waiver of rights by Benefits recipients might permit the IRS to release those individuals' tax return information, the form used in this case makes a mockery of the consent requirement." 718 F.2d at 456. The Court also stated that "the form also failed to notify recipients of their procedural rights if SSA decided to terminate their benefits." Id.

 The Court now finds that the agencies' position with respect to the consent issue, while unsuccessful on the merits, clearly was justified to a degree that could satisfy a reasonable person. Noticeably absent from the Court of Appeals' analysis in Tierney is any reference to controlling statutory or case law which would require SSA to notify Benefits recipients of their procedural rights in order to obtain effective consent. *fn4" Indeed, the Court of Appeals' decision relied almost entirely on the legislative history of the Tax Reform Act of 1976. See 718 F.2d at 455-56. In its consideration of the consent requirement, the Court of Appeals did not mention the primary statute relied upon by the agencies in this case, 42 U.S.C. § 1383(f), nor did the Court appear to consider the legislative history thereof or the possible effect of this statute on the Tax Reform Act of 1976. See 718 F.2d at 455-56.

 Even the Court of Appeals' review of the legislative history of the Tax Reform Act of 1976 is somewhat perplexing when applied to the facts of this case. The Court determined that "the legislative history of section 6103 demonstrates that Congress intended to limit disclosure of tax return information except under narrowly defined circumstances." 718 F.2d at 455. The Court never indicated, however, why the consent exception, which is an express provision of the Tax Code, was inapplicable in this case.

 The agencies never adopted the position in this case that IRS could disclose information to SSA in the absence of consent. Indeed, the agencies acknowledged that 26 C.F.R. § 301.6103 prohibited IRS from releasing confidential information to SSA absent consent. Thus, the agencies' reading of the Tax Reform Act of 1976 is entirely consistent with the Court of Appeals' articulation. The agencies merely interpreted 42 U.S.C. § 1383(f) as evincing a congressional intent to broaden the scope of information which could be released under the consent requirement of subsection 6103(c).

 The Court finds that although the United States did not ultimately succeed on the merits of this litigation, the agencies' position was justified to a degree that could satisfy a reasonable person. The Court finds that reasonable minds could differ as to how 42 U.S.C. § 1383(f) should be interpreted. While 26 U.S.C. § 6103 prohibited IRS from releasing confidential tax information to SSA in the absence of consent, 42 U.S.C. § 1383(f) evinced a legislative intent to provide this confidential information to SSA. The agencies correctly identified, however, that 42 U.S.C. § 1383(f) did not authorize disclosure in the absence of consent. The agencies attempted, therefore, to obtain disclosure of information in accordance with the terms of the Tax Code.

 The Court finds it entirely reasonable for the Agencies to have given greater weight to the express terms of more recent legislation, i.e., 42 U.S.C. § 1383, which specifically authorized the SSA to condition the receipt of benefits upon the disclosure of relevant information, see 42 U.S.C. § 1383, than to the legislative history of the Tax Reform Act of 1976. Indeed, the reasonableness of the agencies' position in this case is buttressed by the fact that Congress subsequently amended the Tax Code in 1984; this action clarified that the agencies had correctly interpreted congressional intent with respect to the 1982 Act. See 26 U.S.C. § 6103(l), (7), as amended by Section 2651(k)(1) of the Deficit Reduction Act of 1984, Pub. L. No. 98-369, 98 Stat. 494, 1150. The Court finds that a reasonable person would be justified in believing that the terms of a 1982 Act of Congress should be given greater weight than the legislative history of the Tax Reform Act of 1976, which evinced a congressional intent which was arguably at odds with the more recent legislation.

 2. The United States' litigation position was justified to a degree that could satisfy a reasonable person.

 The Court also finds that the government has demonstrated that its litigation position throughout this case has been substantially justified under the standard articulated in Pierce. Upon review, the government's defense of this suit was primarily on jurisdictional grounds, and the issues presented have been reasonable. Plaintiffs offer no substantial argument to the contrary.

 Because the Court finds that the government has succeeded in demonstrating that both its litigation position as well as the agencies' position which led to this litigation are "substantially justified" in accordance with the standard set forth in Pierce, the Court need not consider whether special circumstances make an award of attorney's fees in this case unjust.

 Date: July 12th, 1989

 ORDER

 Upon consideration of plaintiffs' renewed application for attorney's fees and costs, the memoranda in support thereof and in opposition thereto, the entire record herein, and for the reasons set forth in the accompanying memorandum, it is by the Court this 12th day of July, 1989,

 ORDERED that plaintiffs' application for attorney's fees and costs be, and hereby is, denied.


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