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Developer wins new chance for its fees

Early lowball offer shouldn’t be ignored

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When your client wins a case against the federal government, there is a chance to collect attorney’s fees if a court decide the government’s position was not “substantially justified.”

A court taking a later look at whether the government acted reasonably in litigating the case should not ignore an early lowball offer by the government, under a new decision by the 4th U.S. Circuit Court of Appeals. The government can’t necessarily “cure” its initial unreasonable approach by striking a more reasonable posture at trial, the court said.

In U.S. v. 515 Granby LLC (VLW 013-2-215), the government wanted a 1.604-acre parcel in downtown Norfolk in order to expand the Norfolk federal courthouse. The parties agreed the government’s initial offer to pay a developer $6.175 million for the property was unreasonable, when compared to the $13.4 million a jury awarded the developer in 2011 in an eminent domain proceeding.

The developer went back to court, seeking attorney’s fees under the Equal Access to Justice Act, 28 U.S.C. § 2412.

The statute says a party who prevails in litigation against the United States is entitled to attorney’s fees and costs unless the government’s position was “substantially justified” or “special circumstances” make an award unjust. The fee-shifting law allows individuals, small businesses and environmental groups to recover lawyer fees when they successfully pursue a wide variety of claims before administrative agencies and in federal courts.

In Granby, there was no dispute that the developer prevailed, as the jury verdict of $13.4 million was closer to Granby’s valuation of the property at $16.3 million, than to the government’s valuation of $9 million offered at trial. But the trial court said the government was substantially justified and denied a fee award.

The test for the government to avoid a fee award is whether it took a position that had a “reasonable basis in law and fact.” That can be a tough question when a court has to balance the government’s prelitigation and litigation postures in a case, the appellate panel said.

The calculus gets more complicated when the government’s prelitigation position was unreasonable, but its litigation position was reasonable, as in Granby, said 4th Circuit Judge Allyson K. Duncan, who wrote the panel’s Nov. 20 published opinion.

Legislative history indicated the statute is meant to prevent the government from unjustifiably forcing litigation with an unreasonable position, only to avoid liability by acting reasonably during litigation, the appellate court said.

It vacated denial of a fee award in Granby, and sent the case back for reexamination of the effect of the government’s prelitigation position. The panel prescribed a framework for making that assessment.

First, an unreasonable prelitigation posture “will generally lead to an award of attorney’s fees under the EAJA,” Duncan said.

After separately assessing both prelitigation and litigation postures, the court should ask the government to prove that the unreasonable position did not “force” the litigation or substantially alter the course of the litigation.

For instance, in a condemnation proceeding such as Granby, the court should start by asking if the government’s initial offer had a reasonable basis in fact and law, looking at factors such as the experience, qualifications and competence of appraisers; evidence of government bad faith; how and why the government changed its property valuations; and the severity of the alleged governmental misconduct.

In evaluating whether the government’s unreasonable prelitigation posture provoked a lawsuit, the court should consider the parties’ precondemnation negotiations, discovery, pretrial motions practice and settlement negotiations, the panel said.

One thing the court should not consider: the financial state of the prevailing party. It’s not a matter of whether the winning party “needs” the fee award, the 4th Circuit said.

The court pointed out, however, that a district court has considerable discretion in awarding fees, and a “sizeable award” is not automatic.

VLW 013-2-215

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