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National Organization for Marriage, Inc. v. United States

United States District Court, E.D. Virginia, Alexandria Division

October 16, 2014

THE NATIONAL ORGANIZATION FOR MARRIAGE, INC., Plaintiff,
v.
THE UNITED STATES OF AMERICA, INTERNAL REVENUE SERVICE, Defendant.

MEMORANDUM OPINION

JAMES C. CACHERIS, District Judge.

This matter is before the Court on The National Organization for Marriage, Inc.'s ("NOM") Motion for Attorneys' Fees (the "Motion"). (Pl.'s Mot. [Dkt. 90].) For the reasons detailed below, the Court will deny the Motion in its entirety.

I. Background

On June 3, 2014, the Court granted in part and denied in part the United States of America, Internal Revenue Service's (the "Government") Motion for Summary Judgment. [Dkt. 80] In the accompanying Memorandum Opinion, the Court detailed the factual background of this case. (Mem. Op. [Dkt. 79] at 1-6.) In short, NOM brought suit under 26 U.S.C. § 6103 and alleged that the Government improperly disclosed and inspected its confidential tax return information. (Compl. [Dkt. 1] at 1-2.) The Complaint alleged two counts: (1) willful or grossly negligent unauthorized disclosure, and (2) willful or grossly negligent unauthorized inspection, both in violation of 26 U.S.C. § 6103. (Id. at 19-22.) NOM sought actual, statutory, and punitive damages. (Id. at 22-23.) The Government admitted to an inadvertent disclosure of an unredacted copy of NOM's 2008 Form 990 Schedule B, which listed personal information of donors who contributed $5, 000 or more to NOM ("the 2008 Schedule B disclosure"), but denied NOM's allegations of a willful or grossly negligent disclosure and conspiracy. (Def.'s Answer [Dkt. 33] ¶ 78.) After the Court dismissed NOM's unlawful inspection claim and its request for punitive damages, the only issue that remained for trial was NOM's damages from the 2008 Schedule B disclosure. (Mem. Op. at 32.)

Approximately two weeks after the Court dismissed the majority of NOM's claims with prejudice, on June 18, 2014, the parties notified the Court of a proposed settlement. [Dkt. 86] On June 23, 2014, the Court entered the consent judgment, which ordered that NOM shall recover judgment against the Government in the amount of $50, 000 inclusive of NOM's claims for actual damages and costs of the action, but that the Court shall retain jurisdiction so NOM could file a motion for attorneys' fees under 26 U.S.C. § 7431(c)(3). [Dkt. 87] Otherwise, the case was dismissed with prejudice. (Id.)

Having been fully briefed, NOM's Motion for Attorneys' Fees is ripe for disposition.

II. Standard of Review

A taxpayer can recover reasonable attorneys' fees and costs arising from tax litigation brought against the United States under Title 26 of the United States Code if the taxpayer (1) exhausted all administrative remedies within the Internal Revenue Service and (2) was the "prevailing party" as defined in 26 U.S.C. §§ 7430(a)(2), (c)(1)(B)(iii).[1] Kenlin Indus., Inc. v. United States , 927 F.2d 782, 786 (4th Cir. 1991). To qualify as the "prevailing party, " the Government's position must not have been substantially justified, and the fee-seeking party must have "substantially prevailed" as to either "the amount in controversy" or "the most significant issue or set of issues presented."[2] 26 U.S.C. §§ 7430(c)(4)(A)-(B). The Government has the burden of proving its position was substantially justified, while the fee-seeking party has the burden of proving it substantially prevailed as to the amount in controversy or as to the most significant issues presented. Jensen v. Comm'r of Internal Revenue, No. 13005-98, 2000 WL 1663373, at *3 (T.C. Nov. 6, 2000) (citations omitted).

"The requirements of section 7430 are conjunctive; therefore, failure to meet any one of the requirements will preclude an award of costs." Id . (citation omitted). Moreover, the Court strictly construes the fee-award statute in favor of the United States because "this statute renders the United States liable for attorney's fees for which it would not otherwise be liable, [which] amounts to a partial waiver of sovereign immunity....'" Goettee v. Comm'r of Internal Revenue, 192 F.Appx. 212, 222 (4th Cir. 2006) (quoting Ardestani v. INS , 502 U.S. 129, 137 (1991)); see also Kenlin Indus. , 927 F.2d at 786 ("It should be noted at the outset that this is a suit for attorney's fees and costs against the Government in a tax refund case. As such, this case would be barred by the doctrine of sovereign immunity unless Congress has by statute expressly waived the doctrine for this type of case; if such waiver has been given, it must be strictly construed in favor of the Government.") (emphasis in original and citations omitted).

III. Analysis

NOM contends it is entitled to an attorneys' fee award of $691, 025.05 because first, it substantially prevailed both as to the amount in controversy and as to the most significant issue or set of issues presented, and second, because the Government's position was not substantially justified. (Pl.'s Mem. at 4-13.) The Government opposes NOM's fee request and argues not only that its position was substantially justified, but also that NOM did not substantially prevail in either category. (Def.'s Opp'n at 9-19.) First, the Court finds that NOM did not substantially prevail as to the amount in controversy, nor did it substantially prevail as to the set of issues presented. Even though the Court's inquiry could end there, the Court also finds that the Government's position was substantially justified. Accordingly, NOM's Motion will be denied. The Court addresses each requirement in turn.

A. Amount in Controversy

The parties arrive at widely disparate numbers for the total amount in controversy, but agree that NOM ultimately recovered $50, 000 in actual damages and costs from the Government. (See [Dkt. 87].)

NOM claims the proper amount in controversy is $58, 586.37. (Pl.'s Mem. at 7.) NOM's complaint originally requested $60, 500 in actual damages, comprised of $10, 500 in damages incurred from Fred Karger's complaint with the California Fair Political Practice Commission ("Karger Complaint") and $50, 000 from lost donations. (Id.) However, NOM argues this amount was later reduced to $58, 586.37, because it voluntarily withdrew the $50, 000 claim for lost donations, but increased the damages associated with the Karger Complaint to $12, 500 and included an additional $46, 086.37 in other legal fees and costs incurred as a result of the ...


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