Norris v. Securities and Exchange Commission , 695 F.3d 1261 ( 2012 )

United States Court of Appeals
for the Federal Circuit
__________________________
JEFFREY B. NORRIS,
Petitioner,
v.
SECURITIES AND EXCHANGE COMMISSION,
Respondent.
__________________________
2011-3129
__________________________
Petition for review of an arbitrator’s decision in case
no. SEC-AR-09-005 by Daniel M. Winograd.
__________________________
ON APPLICATION FOR ATTORNEY FEES
__________________________
Before DYK, MOORE, and O’MALLEY, Circuit Judges.
PER CURIAM.
ORDER
Jeffrey B. Norris (“Norris”) applies for an award of at-
torneys’ fees and expenses under the Equal Access to
Justice Act (“EAJA”), 28 U.S.C. § 2412. Because the
government’s position was substantially justified, we deny
the application.
BACKGROUND
Norris was removed from his position as Trial Attor-
ney with the Securities and Exchange Commission
(“SEC”) based on three incidents of misuse of government
equipment by sending unauthorized or inappropriate
NORRIS v. SEC 2
emails. Pursuant to a collective bargaining agreement,
Norris sought arbitration. Norris did not dispute the
charges or that his conduct was improper. He contended,
however, that removal was not a reasonable penalty for
his actions. Norris urged that a lesser penalty was ap-
propriate, among other things, because his actions were
influenced by several personal and family circumstances.
Although the arbitrator allowed Norris to introduce
evidence related to the improvement of his personal and
family circumstances since his removal, he declined to
consider that evidence in rendering a decision, explaining
that “the issue before [him was] whether [the deciding
official’s] decision, based upon the facts and circumstances
known to her at the time, was within tolerable limits of
reasonableness.” Norris v. SEC, 675 F.3d 1349, 1352
(Fed. Cir. 2012) (internal quotation marks omitted). On
appeal to this court, Norris urged that it was improper for
the arbitrator to not consider the post-removal evidence.
The government contended that the arbitrator acted
properly because, since Board review of penalties is
limited to whether the penalty imposed was reasonable,
such a determination must be based only on the evidence
before the agency at the time of its decision.
We held that the arbitrator erred in refusing to con-
sider post-removal evidence and vacated the arbitrator’s
decision, remanding for the arbitrator to “consider the
post-removal evidence submitted by Norris” to determine
whether the penalty of removal was reasonable. Id. at
1357. We explained that this holding followed from the
fact that Congress required a full evidentiary hearing in
appeals to the Board, and thus the Board should consider
all relevant evidence introduced, even post-removal
evidence, regarding the reasonableness of the penalty.
We also recognized that the Board consistently considered
post-removal evidence and that we had impliedly decided
this issue in one of our decisions, Malloy v. United States
Postal Service, 578 F.3d 1351 (Fed. Cir. 2009), in which
we remanded a case so the Board could consider medical
3 NORRIS v. SEC
evidence that included a post-removal report from a
physician.
Norris now seeks attorneys’ fees and expenses under
28 U.S.C. § 2412(d) in the amount of $62,863.80 for the
fees and costs incurred in relation to his prior appeal. He
properly filed his application here in the first instance.
Fed. Cir. R. 47.7.
DISCUSSION
Under the American rule, attorneys’ fees are not
awarded to a prevailing party absent explicit statutory
authorization. Buckhannon Bd. & Care Home, Inc. v. W.
Va. Dept. of Health & Human Res., 532 U.S. 598, 602
(2001). One such authorizing statute, EAJA, provides
that
[e]xcept as otherwise specifically provided by
statute, a court shall award to a prevailing party
other than the United States fees and other ex-
penses . . . incurred by that party in any civil ac-
tion (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 circum-
stances make an award unjust.
28 U.S.C. § 2412(d)(1)(A) (emphases added). Under this
statute, fees must be awarded if the party seeking the
award timely files its application for fees to the court, the
applicant is a “prevailing party” in the litigation, the
government’s position in the case was not “substantially
justified,” and no special circumstances exist that would
make an award unjust. Comm’r, I.N.S. v. Jean, 496 U.S.
154, 158 (1990). We apply the same substantive stan-
dards to review of arbitration decisions as we do to review
of Board decisions. See Cornelius v. Nutt, 472 U.S. 648,
652 (1985). Because Norris secured a remand to the
NORRIS v. SEC 4
arbitrator based on an error in his decision, Norris is a
prevailing party. See, e.g., Kelly v. Nicholson, 463 F.3d
1349, 1353 (Fed. Cir. 2006). 1
The remaining question is whether the government’s
position was “substantially justified.” One purpose of
EAJA was to enable citizens to vindicate their rights
against the government, particularly where, due to the
government’s greater resources and expertise and the
limited amount at stake in relation to the cost of litiga-
tion, there otherwise would be no effective remedy, even
in situations where the government was not justified in
its refusal to provide relief. See Scarborough v. Principi,
541 U.S. 401, 406 (2004); S. Rep. No. 96-253, at 5 (1979).
So too, Congress sought to discourage the government
from initiating litigation that was not substantially
justified. Congress determined that, because of its unique
position, the government must be held to a higher stan-
dard in litigation than private parties, both as defendant
1 Norris argues that he prevailed in another respect
as well, namely that the arbitrator had improperly con-
sidered evidence not contained in the proposed notice of
removal. Contrary to Norris’s assertion in his EAJA
application, he did not prevail as to this issue. While we
held that the arbitrator could not sustain the decision to
remove Norris based on evidence not in the proposed
notice of removal, the government never contended that it
was proper for the arbitrator to consider such evidence.
Instead, the government urged that the arbitrator’s
mention of a single incident not in the proposed notice of
removal was not a due process violation and was, at
worst, harmless. We did not resolve the case on these
grounds or set aside the arbitrator’s decision on these
grounds, ultimately finding that “[i]t is far from clear that
the arbitrator’s consideration of [the incident] played a
significant role in the arbitrator’s decision to sustain
Norris’s removal; the arbitrator’s consideration of the
conduct, while improper, may well have been harmless
error.” Norris, 675 F.3d at 1355. Even though Norris did
not prevail as to this issue, he is a prevailing party be-
cause he prevailed on the other issue.
5 NORRIS v. SEC
and plaintiff. See H.R. Rep. No. 96-1434, at 21 (1980)
(“The Senate bill makes findings that certain named
entities may be deterred from seeking review of or defend-
ing against unreasonable governmental action because of
the expense involved and that because of the greater
resources and expertise of the United States the standard
for an award of fees against the United States should be
different from the standard governing an award against a
private litigant in certain situations.”).
The statute thus discourages the government from as-
serting or defending claims where the claim or defense
might not be frivolous but nevertheless should not have
been brought or defended in the first place. See S. Rep.
No. 96-253, at 6. To meet these goals, the “substantially
justified” formula was adopted as an “acceptable middle
ground between the mandatory award [of fees to prevail-
ing parties] and the restrictive standard adopted in the
Department of Justice draft proposal,” which proposed
that fees be awarded only where the contested govern-
ment action was “arbitrary, frivolous, unreasonable, or
groundless, or [where] the United States continued to
litigate after it clearly became so.” S. Rep. No. 96-253, at
2-3; see also Gavette v. Office of Pers. Mgmt., 808 F.2d
1456, 1465-66 (Fed. Cir. 1986).
To be substantially justified, the government’s posi-
tion need not be “correct,” or even “justified to a high
degree.” Pierce v. Underwood, 487 U.S. 552, 565, 566 n.2
(1988). Instead, the term “substantially justified” means
that the government’s position was “justified in substance
or in the main—that is, justified to a degree that could
satisfy a reasonable person.” Id. at 565. In other words,
in order to be substantially justified, the government’s
position must be “more than merely undeserving of sanc-
tions for frivolousness” and must instead have “a reason-
able basis in law and fact.” Id. at 566 & n.2; see also Chiu
v. United States, 948 F.2d 711, 715 (Fed. Cir. 1991) (hold-
ing that courts are “to look at the entirety of the govern-
NORRIS v. SEC 6
ment’s conduct and make a judgment call whether the
government’s overall position had a reasonable basis in
both law and fact”); H.R. Rep. No. 96-1434, at 22 (1980)
(Conf. Rep.) (“The test of whether the government’s posi-
tion is substantially justified is essentially one of reason-
ableness in law and fact.”). Furthermore, in assessing the
justification of the government’s position, courts consider
the clarity of the governing law, that is, whether “judicial
decisions on the issue left the status of the law unsettled,”
Nalle v. C.I.R., 55 F.3d 189, 192 (5th Cir. 1995), and
whether the legal issue was novel or difficult. Id.; see also
Schock v. United States, 254 F.3d 1, 6 (1st Cir. 2001)
(“When the issue is a novel one on which there is little
precedent, courts have been reluctant to find the govern-
ment’s position was not substantially justified.”). “Put
another way, substantially justified means there is a
dispute over which ‘reasonable minds could differ.’”
Gonzales v. Free Speech Coal., 408 F.3d 613, 618 (9th Cir.
2005).
This standard does not “raise a presumption that the
Government position was not substantially justified,
simply because it lost the case.” Broad Ave. Laundry &
Tailoring v. United States, 693 F.2d 1387, 1391 (Fed. Cir.
1982) (quoting S. Rep. No. 96-253, at 7 (1980)), superseded
by statute on other grounds as recognized by Chiu, 948
F.2d at 714-15.
We are satisfied that the government’s position that
the arbitrator’s review of the penalty imposed should be
based only on the evidence before the agency at the time
of its decision was “substantially justified,” that is, “justi-
fied to a degree that could satisfy a reasonable person.”
Pierce, 487 U.S. at 565. First, we find that there was a
reasonable basis in law for the government’s theory. “It is
a well-established rule of civil service law that the penalty
for employee misconduct is left to the sound discretion of
the agency.” Miguel v. Dep’t of the Army, 727 F.2d 1081,
1083 (Fed. Cir. 1984). In light of this, our cases establish
7 NORRIS v. SEC
that Board review of an agency’s penalty is not de novo
but only to determine whether the penalty imposed by the
agency “did strike a responsible balance within tolerable
limits of reasonableness.” Douglas v. Veterans Admin., 5
MSPB 313, 333 (1981); see also Lachance v. Devall, 178
F.3d 1246, 1256-57 (Fed. Cir. 1999). The government
reasonably argued that based on the limited review of
penalties made by the Board and the policy concerns of
leaving such determinations to the agency, it would follow
that Board review should be limited to only the evidence
existing before the agency at the time of its decision.
Although we ultimately rejected the argument, we explic-
itly recognized that
[s]ince the Board’s review is designed to deter-
mine whether the agency’s action was reasonable,
it can be argued that such a determination limits
the Board’s review to the evidence before the
agency at the time of its decision. After all, a
court’s review of agency action to determine
whether it was arbitrary and capricious is typi-
cally limited to review of the agency record.
Norris, 675 F.3d at 1355-56 (emphasis added). The gov-
ernment’s argument was thus based on established
precedent and the established policy considerations
underlying Board review of penalties.
Although we found that the issue in Norris had been
“impliedly decided” by Malloy, 578 F.3d 1351, we find it
relevant that Norris did not cite to Malloy in either of his
briefs as precedent. This suggests that Norris did not
view Malloy as controlling, and that Malloy’s importance
as precedent was not immediately apparent. Indeed, on
its face, the decision in Malloy was itself not clear, thus
leaving room for the government to make a reasonable
argument for a contrary result. In short, the government
offered a reasonable legal argument on a somewhat
“unsettled [and] difficult” issue, Nalle, 55 F.3d at 192,
“over which reasonable minds could differ,” Free Speech
NORRIS v. SEC 8
Coal., 408 F.3d at 618, regarding the scope of Board
review.
The government’s position was therefore substantially
justified.
Accordingly,
IT IS ORDERED THAT:
Norris’s application for attorneys’ fees is denied.
FOR THE COURT
August 22, 2012 /s/ Jan Horbaly
Date Jan Horbaly
Clerk
cc: Michael J. Kator, Esq.
Tara K. Hogan, Esq.