United States District Court, District of Columbia
December 18, 2002
FRANK TAUCHER, ET AL., PLAINTIFFS,
WILLIAM J. RAINER, ET AL., DEFENDANTS.
The opinion of the court was delivered by: John M. Facciola, United States Magistrate Judge
This matter is before me upon the application of the plaintiffs
for attorney fees.
Plaintiffs are ten small commodity advisory publishers and their
subscribers. Defendants are the Commodity Futures Trading Commission
("CFTC") and its commissioners. The District Court held for plaintiffs
and plaintiffs then sought attorneys fees under the Equal Access to
Justice Act ("EAJA"). After reviewing plaintiffs' first application for
attorneys fees, I held that plaintiffs, not plaintiffs' pro bono counsel
were the real parties
in interest.*fn1 I then denied plaintiffs'
application without prejudice pending supplemental briefing on the issue
of plaintiffs' eligibility for attorneys fees under EAJA.
District Court's Decision
Under 7 U.S.C.A. § 6 m(10) (1999), commodity trading advisors
("CTAs") are required to register with the CFTC if they intend to make
use of any means of interstate commerce in order to provide their
The district court (Urbina, J.,) first determined that the publishers
were CTA's. Taucher v. Born, 53 F. Supp.2d 464, 475 (D.D.C. 19998).
Having then concluded that the CFTC was engaged in the regulation of the
publishers' speech rather than the regulation of their profession, the
court then considered whether the speech being regulated was commercial
speech, subject to being regulated so long as the regulations were
narrowly tailored to advance legitimate government interests. The court
concluded that the publications at issue were not commercial speech since
they did not propose a commercial transaction between the publishers and
their subscribers and since they were not solely concerned with the
economic interests of the publishers and their subscribers.*fn2 Id. at
480-81. Thus, the court concluded that the speech at issue was subject
to the greatest protection afforded under the Constitution. Id. at 481.
Finally, the court considered whether the imposition of the Commodity
Exchange Act's ("CEA") registration requirement was an impermissible
prior restraint on speech. The court determined that it was:
[T]he defendants in this case have imposed a drastic
prohibition on speech based on the mere possibility
that the prohibited speech will be fraudulent. As
applied by the CFTC, the CEA imposes a ban on the
plaintiffs' publishing of impersonal commodity futures
trading advice unless they register with the CFTC.
Moreover, the CFTC may, within its discretion, refuse
to register any applicant for various reasons
enumerated at 7 U.S.C. § 12a, including that the
Commission believes the applicant has the "potential"
to disregard the requirements of the CEA or has
demonstrated "moral turpitude, or lack of honesty or
financial responsibility." See 7 U.S.C. § 12a(2),
12a(3); 7 C.F.R. Part 3, App. A. This is no different
than the regulation in Lowe [v. SEC, 472 U.S. 181
(1985)] in that it seeks to prevent individuals from
publishing information based solely on a fear that
someone may publish advice that is fraudulent or
misleading, regardless or whether or not the
information published actually is fraudulent or
misleading. Such a prior restraint on fully protected
speech cannot withstand the searching scrutiny of the
Id. at 482.
Earlier, the court had explained the derivation of the "searching
scrutiny" it was obliged to conduct as a result of controlling Supreme
A prior restraint "arises in those situations where
the government limitation, expressed in statute,
otherwise, undertakes to prevent future
publication or other communication without advance
approval of an executive official." Times Film Corp.
v. Chicago, 365 U.S. 43, 56, 5 L.Ed.2d 403, 81 S.Ct.
391 (1961) (Warren, C.J., dissenting) (quoting Thomas
I. Emerson, The Doctrine of Prior Restraint, 20 Law
& Contemp. Prob. 648, [**51] 655). While not all
restrictions on speech are impermissible, a
restriction that imposes a prior restraint on speech
"comes to the Court bearing a heavy presumption
against its constitutional validity." New York Times
Co. v. United States, 403 U.S. 713, 714, 29 L.Ed.2d
822, 91 S.Ct. 2140 (1971). Indeed, courts allow this
"`most extraordinary remedy' only where the evil that
would result from the [speech] is both great and
certain and cannot be militated by less intrusive
measures." CBS, Inc. v. Davis, 510 U.S. 1315, 1317,
127 L.Ed.2d 358, 114 S.Ct. 912 (1994) (quoting
Nebraska Press Association v. Stuart, 427 U.S. 539,
562, 49 L.Ed.2d 683, 96 S.Ct. 2791 (1976)). In the
instant case, the court concludes that the CEA's
registration requirement, as applied to the plaintiffs
by the CFTC, is an unconstitutional prior restraint on
Id. at 481.
On June 21, 1999, the court, therefore, entered judgment in favor of
plaintiffs, finding that the CFTC's application of the CEA's registration
requirement to individuals who publish and sell information about the
futures market was unconstitutional.
Award of Attorneys Fees under EAJA
An award of attorneys fees under the Equal Access to Justice Act
("EAJA") is allowed in the following circumstances:
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 . . .
including proceedings for judicial review of agency
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.A. § 2412(d)(1)(A) (1994).
A "party" is defined in pertinent part as follows:
(i) an individual whose net worth did not exceed
$2,000,000 at the time the civil action was filed, or
(ii) any owner of an unincorporated business, or any
partnership, corporation, association, unit of local
government, or organization, the net worth of which
did not exceed $7,000,000 at the time the civil action
was filed, and which had not more than 500 employees
at the time the civil action was filed[.]"
28 U.S.C.A. § 2412(d)(2)(B) (1994).
Pursuant to court orders dated July 6, 2001, and October 24, 2001,
plaintiffs submitted net worth statements to chambers for in camera
review. The following chart summarizes plaintiffs' submissions:
Plaintiff Receipt of Declaration Net Worth Less than $2M
1. Frank Taucher No n/a
2. Stephen Briese Yes Yes
3. Frederick J. Kastead*fn3 n/a n/a
(replacing B. A. Thunman) (Yes) (Yes)
4. Bruce Babcock (Deceased) No n/a
5. Robert Miner Yes Yes
6. Galen Cawley Yes Yes
7. Arthur Hayner Yes Yes
8. Edward Hearne, III Yes Yes
9. Roemer McPhee No n/a
10. Roger Rines Yes Yes
As is evident from the chart, those plaintiffs who submitted net worth
statements meet EAJA's financial eligibility requirement. Plaintiffs
Taucher, Briese, and Miner are publishers; Cawley, Hayner, Hearne, McPhee
and Rines are subscribers.
Defendants argue that plaintiffs should not recover any fees because
the defendants' position was substantially justified and, in any event,
special circumstances make an award of fees unjust. In the alternative,
defendants argue that the subscriber plaintiffs are not prevailing
parties and that any fees awarded must be diminished accordingly.*fn4
Whether The Defendants' Position Was Substantially Justified
The fundamental question presented is whether the defendants' position
was substantially justified, i.e., "justified in substance or in the main
— that is, justified to a degree that could satisfy a reasonable
person. That is no different from . . . [having] a reasonable basis both
in law and fact." Pierce v. Underwood, 487 U.S. 552, 565 (1988) (internal
quotation marks and citation omitted). Accord Halverson v. Slater,
206 F.3d 1205, 1208 (D.C. Cir. 2000); Truckers United for Safety v.
Mead, 201 F. Supp.2d 52, 55 (D.D.C. 2002).
The Defendants' Position
According to the defendants, impermissible prior restraints have
invoked judicial condemnation as violations of the First Amendment only
when they (1) absolutely barred speech or (2) conditioned it upon meeting
licensure requirements that were so vague and amorphous that they in fact
permitted state censorship because of a dislike of the message conveyed or
(3) required the payment of high fees. The defendants insisted that the
regulatory scheme in this case did not prevent the publishers from
publishing, provided clear and certain standards to be applied by the
defendants in making the licensing decision, and required the payment of
a reasonable fee. Defendants' Proposed Findings of Fact and Conclusion
of Law at 52-56. The defendants also insisted that the regulatory scheme
at issue was subject
only to intermediate scrutiny, meaning that it would
be upheld if it "advance[d] important governmental interests unrelated to
the suppression of free speech and [did] not burden substantially more
speech than necessary to further those interests." Turner Broadcasting
Systems, Inc. v. FCC, 520 U.S. 180, 189 (1997). Defendants argued that
the statute surpassed this standard easily because it advanced the
governmental interest in preventing fraudulent activity without undue
interference with any rights the plaintiffs could claim.
Judge Urbina's Decision
Judge Urbina, however, would have none of it. He saw the regulatory
scheme as nothing more than a prior restraint upon speech burdened by a
heavy presumption against its validity. The defendants utterly failed to
overcome that presumption because the only justification they could
provide was their fear that the publishers might publish advice that was
fraudulent or misleading. That fear could not possibly justify what the
judge called "a drastic prohibition on speech based on the mere
possibility that the prohibited speech will be fraudulent." Taucher,
53 F. Supp.2d at 482.
The Regulatory Scheme Created by the Statute Was
Unquestionably an Impermissible Prior Restraint
An understanding of the most fundamental First Amendment principles
indicates why Judge Urbina was so right and the defendants so wrong.
Deeply embedded in the jurisprudence of the First Amendment is the
judicial recognition that a central purpose of the adoption of the First
Amendment was to prohibit the conditioning of speech upon the securing of
The question is whether a statute authorizing such
proceedings in restraint of publication is consistent
with the conception of the liberty of the press as
historically conceived and guaranteed. In determining
the extent of the constitutional protection, it has
been generally, if not universally, considered that it
is the chief purpose of the guaranty to prevent
previous restraints upon publication. The struggle in
England, directed against the legislative power of the
licence, resulted in renunciation of the censorship of
the press. n4 The liberty deemed to be established was
thus described by Blackstone: "The liberty of the
press is indeed essential to the nature of a free
state; but this consists in laying no previous
restraints upon publications, and not in freedom from
censure for criminal matter when published. Every
freeman has an undoubted right to lay what sentiments
he pleases before the public; to forbid this, is to
destroy the freedom of the press; but if he publishes
what is improper, mischievous or illegal, he must take
the consequence of his own temerity." 4 Bl. Com. 151,
152; see Story on the Constitution, §§ 1884,
Near v. Minnesota, 283 U.S. 697
, 714 (1931) (footnotes omitted).
Given that history, any prior restraint "comes to the Court bearing a
heavy presumption against its constitutional validity." New York Times
Co. v. United States, 403 U.S. 713, 714 (1971). Indeed, that presumption
is so heavy that in that famous case, it would not justify a prior
restraint unless there was, at least a showing of, for example, direct,
immediate and irreparable damage to the country and its people. Id. at
730 (Stewart, J.
concurring).*fn5 See CBS, Inc. v. Davis, 510 U.S. 1315,
1317 (1994) (quoting Nebraska Press Assoc. v. Stuart, 427 U.S. 539, 562
(1976) (prior restraint permitted only to prevent evil that is "great and
certain and cannot be militated by less intrusive means.").
For the defendants to say, in the teeth of this jurisprudence, that
prior restraints upon publication are subject to, at most, intermediate
scrutiny was to ignore the central principle of the jurisprudence
pertaining to prior restraints — that such restraints, sui generis,
come burdened with a heavy presumption against their constitutionality
and therefore have historically been judged by a much more stringent
standard than statutes that have an incidental effect on speech. To so
misunderstand the controlling law and to equate a prior restraint that
conditioned speech upon governmental approval with a statute that had
only an incidental effect on speech was to confuse most unreasonably two
entirely different principles of First Amendment adjudication.
The defendants certainly did not help themselves by distinguishing the
New York Times and Near cases by saying that, unlike them, this case did
not involve "injunctions barring a particular publication." Defendant's
Proposed Findings of Fact and Conclusions of Law at 52. While the cases
did deal with injunctions, their applicability to this case turned on
their intense scrutiny of any form of prior restraint, judicial or
otherwise, upon a person's speaking. An injunction cannot be
distinguished from a licensing system for the purposes of the First
Amendment because they both purport to stop a person from speaking unless
and until some branch of the government permits him to speak. Thus, the
Supreme Court has specifically and unequivocally demanded that the
government show the most compelling reason for any prior restraint on
speech. Once again, the defendants' misstatement of the controlling
standard pertaining to the constitutionality of the statute at issue robs
its legal position of any substantial justification.
The defendants were also misguided in their assertion that the
licensing system at issue in this case was not a prior restraint because
it placed adequately defined restrictions on the defendants' power to
deny the license, because there were requirements one had to meet, and
because the fees one had to pay before speaking or publishing were
reasonable. See Defendants' Proposed Findings of Fact and Conclusions of
Law at 53-55. The cases cited for this proposition (id. at 54)*fn6 do
support it and, in any event, it ignores the central principle that
any form of restraint upon speaking or publish is a "prior restraint" and
therefore not judged by its mere reasonableness. To the contrary, the
perfection of the ancient*fn7 intent of the First Amendment, that in a
free society a man be permitted to speak without first being licensed by
the government, subjects any prior restraint upon his doing so to a heavy
presumption against its legitimacy. The reasonableness of the restraint
is, in this sense, irrelevant.
By not realizing how heavy their burden was, the defendants wound up
insisting that it was reasonable for them to insist that a government
agency had the right to prevent a publication if the agency believed that
the publisher had the potential to disregard the requirements of the
Commodity Exchange Act or had demonstrated moral turpitude, or a lack of
honesty or financial responsibility. Taucher, 53 F. Supp. at 482. To
insist that such an obvious licensing and censoring system passed muster
because it was reasonable was to disregard the fundamental constitutional
requirement that any such system could only be justified by an
overwhelming and immediate governmental necessity. Since the defendants
misunderstood their burden, it is hardly surprising that Judge Urbina
dismissed their argument so quickly nor should it surprise the defendants
that I too find their argument to lack any substantial justification
Nor was defendants' theory that the First Amendment was not even
engaged because the statute merely regulated persons who engaged in a
particular profession and was similar to bar admission, any more
persuasive. Under this theory, it was as appropriate to regulate the
publishers, who provided information to commodity investors, as it was to
regulate CTA's, who actually managed clients' accounts. To the
defendants, the medium was irrelevant; whether it was a published
article, a website, or computer software, the message communicated
— buy or don't buy this commodity — was the same. Any such
communication was as subject to government regulation as any other.
Thus, there was no significant difference between the CTA telling a
client, who had retained her, to buy cocoa and a published article making
the same recommendation. Defendants' Proposed Findings of Fact and
Conclusions of Law at 42-46.
But, as Holmes pointed out, "every idea is an incitement." Gitlow v.
New York, 268 U.S. 652, 673 (1925) (Holmes, J., dissenting). If
encouraging a person to engage in a particular economic activity is
subject to government regulation, irrespective of the medium, or because
some of the people who do it have clients who rely upon them for advice,
then, reductio ad absurdum, the government could regulate what appears in
the Wall Street Journal, Barrons and Money Magazine. These publications
all have specific columns providing investment advice and, unless they
are wasting their time, hope that their readers will use it. To refuse
to see the
difference between the broker who gives her advice to her
client and the publisher of a newsletter is to ignore the cases upon
which Judge Urbina relied that discuss the distinction between a
professional's advice to a client and a writer's advice to whoever who
will read her and use it. Taucher, 53 F. Supp. at 476-79. That
distinction is so self-evident and obvious that the defendants' ignoring
it cannot be justified.
Special Circumstances Do Not Make the Award of Fees Unjust
As this court has said on a prior occasion:
A prevailing party in a § 1983 action is generally
entitled to attorneys' fees unless special
circumstances would render the award unjust.
Hensley, 461 U.S. at 429, 103 S.Ct. 1933; Grano, 783
F.2d at 1111 (applying the same rule used in
Commissioners Court v. United States, 683 F.2d 435,
438 (D.C.Cir. 1982)). Special circumstances, however,
have been held to be quite rare and the exception is
narrowly construed. Hatfield v. Hayes, 877 F.2d 717,
719 (8th Cir. 1989). See 2 M. Schwartz & J.
Kirklin, Section 1983 Statutory Attorney Fees §
3.13 (3d ed. 1997).
Turner v. D.C. Board of Elections and Ethics, 170 F. Supp.2d 1, 4
The defendants find special circumstances in the inability of an
administrative agency to declare an act of Congress unconstitutional,
from which it follows that an agency, like some sort of Flying Dutchman,
is doomed to continue to apply an unconstitutional statute until a
district court concludes that the statute is unconstitutional. But, that
is an argument in favor of awarding the fees plaintiffs seek. As I
pointed out in Turner, Congress enacted EAJA to encourage lawyers to
undertake litigation to vindicate the constitutional and statutory rights
of those who could not otherwise afford to vindicate those rights. Turner
v. D.C. Board of Elections and Ethics, 170 F. Supp. at 5. If, as the
defendants have it, agencies are compelled to enforce statutes even if
they are unconstitutional, then only lawyers, acting as "private attorney
generals" and paid by EAJA, can stop the agencies' unconstitutional
behavior. An agency's supposed compulsion to enforce unconstitutional
statutes is therefore a circumstance militating in favor of awarding EAJA
fees to the lawyers who challenge the agency's conduct rather than a
special circumstance precluding such an award.
EAJA Fees Should Not Be Apportioned On The Present Record
The parties are agreed that the publishers prevailed and are,
therefore, entitled to EAJA fees if any of the other plaintiffs are also
so entitled. Defendants would, however, reduced radically their
entitlement by insisting that the subscriber plaintiffs were not
prevailing parties. If that is true, defendants demand that only the
eligible publishers be deemed prevailing parties. As the chart above
shows, there are only 3 such publishers and defendants argue that, at
best, plaintiffs should only get 30% of the total fees sought, there
being a total of ten publishers and subscribers combined. This approach,
if accepted, may have already worked an unfairness. Note that one
publisher has died. If he had lived and qualified, there would be 4
eligible plaintiffs and defendants would seek to limit plaintiffs to 40%
of the total fees. An approach that grants the defendants a 10% windfall
because of the fortuity that one of their opponents died requires the
most searching analysis before it can be accepted.
The only case actually accepting such an apportionment is Sierra Club
v. U.S. Army Corps of Engineers, 776 F.2d 383 (2nd Cir. 1985). The
problem in this case was that some of the prevailing plaintiffs were EAJA
qualified and some were not. In the absence of controlling precedent,
that court required the lower court to "determine the number of eligible
plaintiffs and award fees based on the ratio of eligible plaintiffs to
total plaintiffs." Id. at 394. The principle animating such an
apportionment is the prevention of a "free ride" by the ineligible
plaintiffs at government expense because they had the good sense to join
eligible plaintiffs in suing the government. See American Assoc. of
Retired Persons v. EEOC, 873 F.2d 402, 406 (D.C. Cir. 1989).
That is all well and good as a matter of arithmetic, but should the
presence of an ineligible plaintiff whose participation is nominal deny
the eligible plaintiffs their full entitlement to fees? Two Circuits,
including the one that decided Sierra Club, indicated that it should
not. United States v. 27.09 Acres of Land, 43 F.3d 769
, 774 (2nd Cir.
1994); Louisiana v. Guste, 853 F.2d 1219
, 1225 (5th Cir. 1988).
That seems to be the situation here. Judge Urbina devoted the entire
analytical portion of his opinion to the constitutionality of the
statute's consequences for publishers. Given his analysis of the issues
presented and the very nature of the case, I would be stunned to learn
from the plaintiffs' documentation that the plaintiffs' lawyers in this
case devoted as much time or effort to vindicating the subscribers'
rights as they did the publishers'. Yet, if I am right in that
supposition, denying plaintiffs' 70% of the fees because of the mere
presence of ineligible subscribers for whom they actually did very little
works a monumental unfairness.
A much more attractive approach is to realize, as one court has, that
the question is not one of arithmetic but of the reasonableness of the
After reviewing the above cases and the language of
EAJA, the Court concludes that apportionment is part
of the issue of the reasonableness of the fee. The
basic question is whether the actions of the eligible
parties and their counsel were reasonable and
necessary to the successful prosecution of the case.
This is the same inquiry the Court must make whenever
it determines any award of attorney fees. Thus, here,
the presence of an ineligible co-plaintiff, Wildlife,
represented by its own counsel, may affect the
reasonableness or necessity of certain expenditures by
the eligible parties, but should not result in an
automatic adjustment of the attorney fee award.
Washington Dept. of Wildlife v. Stubblefield, 739 F. Supp. 1428, 1432
Similarly here, I will determine the reasonableness of the fees sought
by taking into account all the services performed by plaintiffs'
counsel, including their work on behalf of the subscribers, rather than
attempting to set some percentage in advance. I leave open the
possibility of a hearing at which plaintiffs' counsel will have to testify
as to the work done.
I reject the defendants' arguments that their position was
substantially justified, that special circumstances make the award of
fees unjust, and that the presence of the subscribers as plaintiffs
warrants any automatic deduction of any award.
I remain hopeful, particularly now that I have resolved the plaintiffs'
basic entitlement to EAJA fees, that the parties may be able to settle
this case. To that end, I am ordering plaintiffs' counsel to make
available to defendants' counsel their documented hours and costs.
Defendants will be given time to study these materials and to engage in
settlement negotiations. If those negotiations fail, I will order
plaintiffs to submit an amended fee request to me with a full
documentation of their hours and costs. Defendants will then be permitted
to oppose that request. Plaintiffs will be permitted a reply and I will
resolve the matter.
An Order accompanies this Memorandum Opinion.
Pursuant to the accompanying Memorandum Opinion, it is, therefore,
ORDERED that, by January 3, 2003, plaintiffs' counsel make available to
defendants' counsel their documented hours and costs. The parties shall
then meet and confer regarding any possibility for settlement and
conclude their discussions by January 31, 2003. Should the settlement
negotiations fail, plaintiffs shall submit an amended fee request with
complete documentation of hours and costs by February 7, 2003.
Defendants must file any opposition thereto by February 28, 2002, and
plaintiffs may reply by March 7, 2003.