Natl Home Equity v. Face ( 2002 )

Case vacated and remanded by Supreme
Court order filed 10/15/02.
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
4444444444444444444444444444444444444444444444447
NATIONAL HOME EQUITY MORTGAGE
ASSOCIATION,
Plaintiff-Appellee,
v.
E. JOSEPH FACE, JR., Commissioner
of Financial Institutions, Bureau of
Financial Institutions, Virginia State
Corporation Commission; SUSAN E. No. 01-1631
HANCOCK, Deputy Commissioner,
Consumer Finance, Bureau of
Financial Institutions, Virginia State
Corporation Commission,
Defendants-Appellants,
and
MARK L. EARLEY,
Movant.
4444444444444444444444444444444444444444444444448
Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
Richard L. Williams, Senior District Judge.
(CA-99-398-3)
Argued: January 25, 2002
Decided: March 8, 2002
Before NIEMEYER, LUTTIG, and KING, Circuit Judges.
_________________________________________________________
___
Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Judge Luttig and Judge King joined.
COUNSEL
ARGUED: William Henry Hurd, Solicitor General, Richmond, Vir-
ginia, for Appellants. Earle Duncan Getchell, Jr., MCGUIRE
WOODS, L.L.P., Richmond, Virginia, for Appellee. ON BRIEF:
Randolph A. Beales, Attorney General of Virginia, Judith Williams
Jagdmann, Deputy Attorney General, Gregory E. Lucyk, Senior
Assistant Attorney General, A. Ann Berkebile, Assistant Attorney
General, Richmond, Virginia, for Appellants. Robert L. Hodges, Wil-
liam H. Baxter, II, MCGUIRE WOODS, L.L.P., Richmond, Virginia,
for Appellee.
_________________________________________________________
___
OPINION
NIEMEYER, Circuit Judge:
On the petition of the National Home Equity Mortgage Association
("NHEMA") for attorneys fees, costs, and expenses under 42 U.S.C.
§ 1988, the district court awarded NHEMA $79,750. On appeal, offi-
cials of the Commonwealth of Virginia contend that the award is
barred by principles of sovereign immunity and is improper because
NHEMA did not prevail on a claim based on a right secured by fed-
eral law so as to be enforceable under 42 U.S.C. § 1983. Alterna-
tively, they argue that special circumstances make an award of
attorneys fees in this case unjust. For the reasons that follow, we
reject these arguments and affirm.
I
NHEMA commenced this action in June 1999 to obtain declaratory
and injunctive relief, pursuant to 42 U.S.C. § 1983, against Virginia
officials ("Virginia") who were, under color of State law, allegedly
depriving NHEMA members of their federal rights under the Alterna-
tive Mortgage Transaction Parity Act of 1982, 12 U.S.C. § 3801 et
seq. (the "Parity Act"). In its complaint, NHEMA alleged that each
of its members has, pursuant to the Parity Act, "federal rights to
charge prepayment penalties for every alternative mortgage transac-
tion made, purchased, or enforced in the Commonwealth of Virginia
2
without regard to state law" and that Virginia officials were "currently
directing and authorizing the Bureau [of Financial Institutions] to
enforce or threaten to enforce all of these punitive measures [under
Virginia law] against NHEMA members who are lawfully invoking
their federal rights to charge prepayment penalties under the Parity
Act." It also alleged that "[t]he Parity Act creates immediately
enforceable rights under 42 U.S.C. § 1983 and Congress has not fore-
closed the enforcement of these rights through a civil action filed
under 42 U.S.C. § 1983." Finally, NHEMA alleged that, under the
Supremacy Clause, the Parity Act preempted Virginia law prohibiting
prepayment penalties. NHEMA requested a declaratory judgment that
the Virginia officials' actions were "depriving NHEMA members of
their federal rights under color of state law," an appropriate injunc-
tion, and attorneys fees pursuant to 42 U.S.C. § 1988.
In its responses to NHEMA's complaint, Virginia took the position
that NHEMA members did not have a cause of action under the Parity
Act and that, in any event, the Parity Act did not preempt State regu-
lations that prohibited prepayment penalties. In a memorandum in
support of summary judgment, Virginia stated with respect to
NHEMA's rights under the Parity Act, "The issue is thus whether the
Parity Act implicitly created a private right of enforcement under
§ 1983 to bar States from regulating prepayment penalties. . . . Noth-
ing in the statute purports to create a federal right not to be regulated
by States in the area of prepayment penalties." On the preemption
issue, the State took the position that "[n]othing in the Parity Act,
either expressly or in its structure and purpose, indicates that Con-
gress intended to preempt state prepayment penalty laws."
On cross-motions for summary judgment, the district court granted
summary judgment to NHEMA and permanently enjoined Virginia
from enforcing its punitive measures, based on State law, against
NHEMA members who were charging prepayment penalties as
allowed under the Parity Act. In its memorandum opinion, the district
court, applying the standard set forth in Wilder v. Virginia Hospital
Association, 496 U.S. 498, 509 (1990), concluded that Congress had
not foreclosed private enforcement of the rights created by the Parity
Act and, therefore, "[t]he plaintiff has a federally enforceable right
under 42 U.S.C. § 1983." The court also held that "state regulation of
prepayment penalties [is] preempted by the Parity Act" and, therefore,
3
"sections 6.1-330.83 and 6.1-330.85 of the Code of Virginia [are] pre-
empted by the Parity Act."
In its initial appeal to this court, Virginia did not challenge the dis-
trict court's conclusion that the Parity Act created federally enforce-
able rights. It raised only one issue, "Whether the district court erred
in ruling that the [Parity Act] and the 1996 actions of the Office of
Thrift Supervision preempt §§ 6.1-330.83 and 6.1-330.85 of the Code
of Virginia . . . which prescribes limits on prepayment penalties."
Addressing only that issue, a unanimous panel of this court rejected
the appeal and affirmed the district court's judgment. Nat'l Home
Equity Mortgage Ass'n v. Face, 239 F.3d 633 (4th Cir. 2001).
After prevailing on its appeal, NHEMA filed a motion for attorneys
fees, costs and expenses under 42 U.S.C. § 1988. While Virginia stip-
ulated that $79,750 would be an appropriate amount for an award of
attorneys fees, costs and expenses in this case, it opposed any award
based on its constitutional sovereign immunity arguments and on its
argument that the district court's preemption ruling did not involve a
claim under 42 U.S.C. § 1983 because the Supremacy Clause was not
a source of substantive rights enforceable under § 1983. By order
dated April 5, 2001, the district court rejected Virginia's defenses
and, pursuant to 42 U.S.C. § 1988, awarded NHEMA $79,750 in
attorneys fees, costs and expenses. The court reasoned that its earlier
ruling that NHEMA had federally enforceable rights under the Parity
Act went unchallenged on appeal and concluded that NHEMA pre-
vailed on the assertion of those rights. The court observed that when
Virginia elected not to appeal its ruling on NHEMA's rights under the
Parity Act, that ruling "became the law of the case and [became] bind-
ing on these proceedings." From the district court's order awarding
NHEMA attorneys fees, costs, and expenses, Virginia filed this
appeal.
II
Virginia contends first that sovereign immunity precludes an award
of attorneys fees against State officers when no violation of the Four-
teenth Amendment has been alleged. It argues that, in light of recent
Supreme Court jurisprudence, such as Seminole Tribe v. Florida, 517
4
U.S. 44 (1996), the authority of district courts to award attorneys fees
against State actors should be reexamined.
But as Virginia recognizes, this argument is squarely at odds with
Supreme Court cases allowing awards of attorneys fees against State
actors. See Hutto v. Finney, 437 U.S. 678, 695 (1978) (holding that
because attorneys fees have traditionally been regarded as costs,
which have long been awardable against a State, they may be awarded
against a State "without regard for the states' Eleventh Amendment
immunity"); Missouri v. Jenkins, 491 U.S. 274, 279-80 (1989) (reaf-
firming the holding in Hutto and clarifying that an application of
§ 1988 to the States does not require congressional abrogation of sov-
ereign immunity). Because we lack authority to reconsider the
Supreme Court's jurisprudence, we reject Virginia's argument. See
Agostini v. Felton, 521 U.S. 203, 237 (1997) ("We reaffirm that ``[i]f
a precedent of this Court has direct application in a case, yet appears
to rest on reasons rejected in some other line of decisions, the Court
of Appeals should follow the case which directly controls, leaving to
this Court the prerogative of overruling its own decisions'" (quoting
Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S.
477, 484 (1989)).
III
Virginia next contends that sovereign immunity bars an award of
attorneys fees against State officers because the standard used in
determining whether to award attorneys fees in a particular case
favors private plaintiffs and, therefore, discriminates against the
States. Virginia contends that "[c]oncepts of federalism demand that
a prevailing plaintiff, such as NHEMA, must be placed on the same
footing which the Supreme Court has established for prevailing State
defendants. Thus, attorney's fees should not be awarded absent a
showing that a party's position was frivolous, unreasonable, and with-
out foundation."
Again, this argument is at odds with existing Supreme Court prece-
dent. Under current law, a court may award attorneys fees to prevail-
ing plaintiffs as a matter of course, but to prevailing defendants only
if "the plaintiff's action was frivolous, unreasonable, or without foun-
dation." See Hughes v. Rowe, 449 U.S. 5, 14 (1980) (citation and
5
internal quotation marks omitted); see also Hensley v. Eckerhart, 461
U.S. 424, 429 (1983) (stating that "a prevailing plaintiff should ordi-
narily recover an attorney's fee unless special circumstances would
render such an award unjust" (citation and internal quotation marks
omitted)). The Supreme Court has established this differential stan-
dard, and, again, we lack the authority to change it.
IV
For its principal argument on appeal, Virginia contends that
NHEMA was not a prevailing party on a claim brought pursuant to
42 U.S.C. § 1983 and, therefore, is precluded from recovering attor-
neys fees under 42 U.S.C. § 1988. It argues that, because our first
opinion in this case focused exclusively on preemption and the
Supremacy Clause, NHEMA did not prevail under § 1983 because the
Supremacy Clause is not a source of substantive individual rights sup-
porting a § 1983 action. See Golden State Transit Corp. v. City of Los
Angeles, 493 U.S. 103, 107 (1989) (noting that the Supremacy Clause
is not "a source of any federal rights" and, therefore, "of its own force,
does not create rights enforceable under § 1983" (citation and internal
quotation marks omitted)); Maryland Pest Control Ass'n v. Montgom-
ery County, Maryland, 884 F.2d 160, 163 (4th Cir. 1989) (per curiam)
("We hold that federal preemption of local ordinances pursuant to the
Supremacy Clause is not actionable under Section 1983. Therefore,
there can be no award of attorney's fees under Section 1988").
This argument, however, overlooks the nature of NHEMA's com-
plaint, the issues decided by the district court, and the limited review
that we conducted in our earlier opinion. NHEMA brought its action
under 42 U.S.C. § 1983 explicitly to vindicate rights it asserted were
conferred on its members by the Parity Act, a federal statute. It
alleged in its complaint that it had rights conferred by the Parity Act
and that it was seeking to vindicate those rights in the face of conflict-
ing State law. While NHEMA did assert that the rights created by the
Parity Act trumped State law under the Supremacy Clause, its
requested relief was to enforce its federal rights under the Parity Act
despite conflicting State law. Thus, NHEMA sought to secure a fed-
eral right under § 1983.
When the parties filed cross-motions for summary judgment, they
explicitly addressed whether the Parity Act conferred enforceable
6
rights on NHEMA and its members. Virginia argued vigorously that
no such rights were created, but NHEMA prevailed on that issue
when the district court concluded, "the plaintiff has a federally
enforceable right under 42 U.S.C. § 1983," applying the three part test
in Wilder v. Virginia Hospital Association, 496 U.S. 498, 509 (1990).
The district court reasoned that the test in Wilder was satisfied
because "(1) nonfederally chartered housing creditors belonging to
NHEMA are intended beneficiaries of the Parity Act, (2) the Parity
Act creates a present right to be free of state law, and (3) the judicial
remedies being sought are traditional and well established." In addi-
tion to concluding that the Parity Act provided NHEMA and its mem-
bers with rights enforceable under 42 U.S.C. § 1983, the court
concluded that the provisions of the Parity Act creating those federal
rights preempted Virginia's conflicting statutes — §§ 6.1-330.83 and
6.1-330.85 of the Virginia Code.
In appealing the district court's judgment, Virginia elected not to
challenge the district court's conclusion that the Parity Act conferred
a cause of action on NHEMA and its members. Rather, it limited its
challenge to whether Virginia law was in conflict with the Parity Act.
When we disposed of that issue in favor of NHEMA and its members,
NHEMA became a prevailing party on its claims brought under the
Parity Act and 42 U.S.C. § 1983.
While Virginia suggests by implication that perhaps we should
now review the question of whether the Parity Act conferred rights on
NHEMA, "[i]t is elementary that where an argument could have been
raised on an initial appeal, it is inappropriate to consider that argu-
ment on a second appeal following remand." Omni Outdoor Advertis-
ing, Inc. v. Columbia Outdoor Advertising, Inc., 974 F.2d 502, 505
(4th Cir. 1992) (citations and internal quotation marks omitted).
Accepting as the law of the case the conclusions that NHEMA has a
federally enforceable right under the Parity Act — a conclusion that
we do not review — and that NHEMA sought to enforce that right,
we find that this case does not fall within the rule announced in Gol-
den State Transit and Maryland Pest Control. In Golden State Tran-
sit, the Supreme Court ultimately concluded that the National Labor
Relations Act created a right to prevent State governmental interfer-
ence with federally protected labor rights and that therefore 42 U.S.C.
§ 1983 could be employed to enforce that right. 493 U.S. at 108-09.
7
In Maryland Pest Control, we concluded that the plaintiff did not
have a substantive right secured by a federal statute, determining
instead that the case involved a pure Supremacy Clause issue, and that
therefore no 42 U.S.C. § 1983 claim could be asserted. Maryland Pest
Control, 884 F.2d at 163. In the circumstances before us, however,
once the district court found that NHEMA had a federally enforceable
right under the Parity Act, it correctly determined that NHEMA pre-
vailed on that right through a § 1983 claim and therefore was justified
in relying on § 1988 for its award of attorneys fees, costs, and
expenses.
V
Finally, Virginia argues that special circumstances were presented
in this case that would render an award of attorneys fees to NHEMA
unjust. See Hensley v. Eckerhart, 461 U.S. 424, 429 (1983) (stating
that a prevailing party should "ordinarily recover an attorney's fee
unless special circumstances would render such an award unjust"
(citation and internal quotation marks omitted)).
Articulating those special circumstances, Virginia asserts first that
the nature of NHEMA, a nationwide trade association of mortgage
lenders, was a special circumstance weighing against awarding fees
because NHEMA can afford to hire its own lawyers. Second, Virginia
asserts that the nature of the case, a nonconstitutional case with its
own financial incentives for NHEMA, weighed against awarding fees.
Third, Virginia asserts that the nature of the defense — that "it would
have been irresponsible for the Commonwealth to have abandoned
these [Virginia] statutes enacted through the democratic process —
without testing their validity through a vigorous defense in the courts"
— weighed against awarding fees in this case.
Because the special circumstances exception is narrow and the spe-
cial circumstances claimed here are not extraordinary, we conclude
that none of them compel a finding that the district court abused its
discretion by not applying the exception. See Doe v. Board of Educ.
of Baltimore County, 165 F.3d 260, 264 (4th Cir. 1998) (recognizing
that "this ``special circumstances' exception is very ``narrowly lim-
ited'" and that "[o]nly on rare occasions does a case present such cir-
cumstances").
8
For the foregoing reasons, the order of the district court awarding
attorneys fees, costs and expenses to NHEMA in the amount of
$79,750 is
AFFIRMED.
9