Natl Organization for Marriage v. US, Internal Revenue Service
Filing
PUBLISHED AUTHORED OPINION filed. Originating case number: 1:13-cv-01225-JCC-IDD. [999710174]. [14-2363]
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Pg: 1 of 16
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-2363
THE NATIONAL ORGANIZATION FOR MARRIAGE, INC.,
Plaintiff - Appellant,
v.
THE UNITED STATES OF AMERICA, Internal Revenue Service,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. James C. Cacheris, Senior
District Judge. (1:13−cv−01225−JCC−IDD)
Argued:
September 16, 2015
Decided:
December 2, 2015
Before GREGORY, AGEE, and DIAZ, Circuit Judges.
Affirmed by published opinion. Judge Diaz wrote the opinion, in
which Judge Gregory and Judge Agee joined.
ARGUED: William Earl Davis, PUBLIC INTEREST LEGAL FOUNDATION,
Plainfield, Indiana, for Appellant. Ivan C. Dale, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
ON
BRIEF:
Kaylan
L.
Phillips,
Noel
H.
Johnson,
Joseph
A.
Vanderhulst, ACTRIGHT LEGAL FOUNDATION, Plainfield, Indiana;
John C. Eastman, CENTER FOR CONSTITUTIONAL JURISPRUDENCE,
Orange, California; Jason Torchinsky, Shawn Toomey Sheehy,
HOLTZMAN
VOGEL
JOSEFIAK,
PLLC,
Warrenton,
Virginia,
for
Appellant.
Caroline D. Ciraolo, Acting Assistant Attorney
General, Richard Farber, Tax Division, UNITED STATES DEPARTMENT
OF JUSTICE, Washington, D.C.; Dana J. Boente, United States
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Attorney, OFFICE OF THE
Virginia, for Appellee.
Pg: 2 of 16
UNITED
2
STATES
ATTORNEY,
Alexandria,
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Pg: 3 of 16
DIAZ, Circuit Judge:
The National Organization for Marriage (“NOM”) appeals the
district
court’s
§ 7431(c)(3)
to
denial
collect
Revenue Service.
of
its
motion
attorneys’
fees
under
from
26
the
U.S.C.
Internal
NOM contends that the district court abused
its discretion by determining that NOM was not a “prevailing
party” under 26 U.S.C. § 7430(c)(4)(A) because (1) it did not
“substantially prevail[] [in litigation against the IRS] with
respect
to
the
amount
in
controversy,
or . . . the
most
significant . . . issues presented,” and, alternatively, (2) the
government’s
position
in
the
litigation
was
“substantially
justified” under § 7430(c)(4)(B).
We agree with the district
court
litigation
that
the
government’s
position
was
“substantially justified,” which, by itself, is sufficient to
find that NOM was not a “prevailing party” under the statute.
Consequently, we affirm.
I.
A.
NOM is a tax-exempt, nonprofit organization whose mission
is “to protect marriage and the faith communities that sustain
it across the United States.”
file
IRS
Form
990,
which
J.A. 11.
includes
the
Each year, NOM must
names,
addresses,
and
contribution amounts of donors who gave $5,000 or more during
3
Appeal: 14-2363
Doc: 36
the year.
Filed: 12/02/2015
Pg: 4 of 16
26 U.S.C. § 6033(a)(1); 26 C.F.R. § 1.6033-2(a)(2).
While federal law requires the IRS to make information in a taxexempt organization’s return available to the public, the IRS
must redact the names and addresses of donors listed in a Form
990 filing.
26 U.S.C. § 6104(b); 26 C.F.R. § 301.6104(b)-1(b),
(d).
Despite these rules, an IRS clerk released NOM’s unredacted
donor list from its 2008 filing after receiving a request in
January 2011 for NOM’s publicly available tax information.
The
IRS destroyed the request after forty-five days per its standard
policy.
Consequently, little is known about it other than that
it was made by a Matthew Meisel, who identified himself as a
member of the media.
Meisel gave NOM’s Form 990 information to the Human Rights
Campaign (the “HRC”)—an ideological opponent of NOM.
The HRC
then forwarded the information to the Huffington Post.
Both the
HRC and the Huffington Post published the donor list online.
After
Internet,
discovering
NOM
sought
its
to
unredacted
mitigate
any
donor
list
potential
on
harm.
the
It
undertook its own investigation of the unauthorized disclosure
and attempted to have its tax-return information removed from
the HRC’s and the Huffington Post’s websites.
Additionally, it
urged the Treasury Inspector General for Tax Administration as
well
as
certain
members
of
Congress
4
to
investigate
the
Appeal: 14-2363
Doc: 36
disclosure.
complaint
Filed: 12/02/2015
NOM
filed
also
was
with
Pg: 5 of 16
forced
to
California’s
mount
Fair
a
defense
Political
Commission by a man named Fred Karger.
to
a
Practices
The complaint, which
alleged violations of California election law, referenced the
unredacted information contained in NOM’s 2008 Form 990.
B.
NOM filed suit against the IRS “seeking damages pursuant to
26
U.S.C.
§ 7431
for
unlawful
inspection
and
disclosure
of
confidential tax information by agents of the [IRS] in violation
of 26 U.S.C. § 6103.”
J.A. 9.
NOM sought statutory damages,
actual damages, punitive damages due to “willful and grossly
negligent disclosures and inspections of NOM’s return and return
information,”
and
costs
and
attorneys’
fees
under
§ 7431(c).
J.A. 31–32.
In
its
occasion—the
answer,
the
response
to
government
Meisel’s
admitted
that
request—it
on
one
inadvertently
disclosed an unredacted copy of NOM’s Form 990 information.
The
government conceded this act entitled NOM to a single recovery
of statutory damages.
It denied, however, that NOM was entitled
to actual or punitive damages, costs, or attorneys’ fees.
After
summary
a
period
judgment.
of
discovery,
It
argued
the
that
government
NOM
failed
moved
to
for
present
sufficient evidence that (1) the IRS conducted any unauthorized
inspections, (2) NOM was entitled to punitive damages because
5
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Pg: 6 of 16
the IRS’s disclosure was willful or grossly negligent, and (3)
NOM was entitled to actual damages. 1
contention,
disclosure
the
was
government
neither
NOM’s alleged damages.
the
With regard to this final
maintained
“but-for”
that
nor
the
unauthorized
proximate
cause
of
Additionally, the government argued that
NOM mitigated its claims for actual damages through aggressive
and successful fundraising.
The district court granted partial summary judgment to the
government.
As to NOM’s punitive damages claim, the court found
that NOM failed to present sufficient evidence showing that the
IRS acted willfully or with gross negligence.
The court also
ruled for the government on NOM’s claim of unlawful inspection
because NOM failed to present sufficient evidence to carry its
burden.
The
district
court,
however,
NOM’s claim for actual damages.
1
denied
summary
judgment
on
The court explained that it
By this point in the litigation, NOM’s basis for actual
damages, and consequently the amount it sought to recover, had
changed.
NOM’s complaint sought “actual damages according to
proof,” and specifically identified lost donations in the amount
of $50,000 as well as damages based on defending the Karger
complaint in California in the amount of $10,500.
J.A. 31–32.
Later in the litigation, however, NOM elected to withdraw its
claim for the $50,000 in lost donations. NOM then added $2,000
to the damages it sought for defending the Karger complaint and
$46,086.37 in additional legal expenses arising from NOM’s
efforts to prevent the further dissemination of its donor
information.
This brought the total revised amount of claimed
actual damages to $58,586.37.
6
Appeal: 14-2363
Doc: 36
“ha[d]
Filed: 12/02/2015
little
trouble
disclosure . . . was
damages.”
the
Pg: 7 of 16
concluding
actual
that
the
unlawful
of
[NOM’s]
claimed
cause
Nat'l Org. for Marriage, Inc. v. United States, 24 F.
Supp. 3d 518, 529 (E.D. Va. 2014).
As for proximate cause, the
court noted that the question was “a closer call” given that
“proximate cause is a ‘flexible concept’ not easily defined or
implemented.”
134
S.
Ct.
Id. at 530 (quoting Paroline v. United States,
1710,
1719
(2014)).
Nevertheless,
the
court
explained, “[t]he independent actions of Meisel, the HRC, and
others
cannot
immunize
the
IRS
from
responsibility
in
this
case,” and therefore “[t]he fact that a third-party was involved
in [the] chain of events does not foreclose finding proximate
cause on the[] facts [presented].”
district
court
rejected
the
Id. at 531.
government’s
Finally, the
mitigation
argument
because there was “a continuing factual dispute as to whether
the cited contributions were caused by the disclosure, and if
so, in what amount.”
Id. at 532.
The parties subsequently entered into a consent judgment.
The government agreed to pay NOM $50,000 to resolve its claims
for actual damages and costs.
Additionally, the parties agreed
that
jurisdiction
the
court
would
retain
so
NOM
could
seek
attorneys’ fees under § 7431(c)(3).
NOM moved for $691,025.05 in attorneys’ fees.
court denied the motion.
This appeal followed.
7
The district
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Pg: 8 of 16
II.
Under § 7431(a)(1), a taxpayer may bring suit against the
United States if an “employee of the United States knowingly, or
by reason of negligence, inspects or discloses any return or
return information with respect to a taxpayer in violation of
any provision of section 6103.” 2
Reasonable attorneys’ fees are
potentially available under § 7431(c)(3), but “if the defendant
is the United States, reasonable attorneys fees may be awarded
only if the plaintiff is the prevailing party (as determined
under section 7430(c)(4)).”
Section 7430(c)(4)(B)(i) mandates
that if the government is the defendant, the plaintiff “shall
not
be
treated
as
the
prevailing
party . . . if
the
United
States establishes that [its] position . . . in the proceeding
was substantially justified.”
The district court held that the government’s position was
substantially
reasoned
unfounded
that
justified
the
under
§ 7430(c)(4)(B).
government
conspiracy
“reasonably
allegations,
and
The
court
contested
NOM’s
unfounded
willful
disclosure and inspection allegations that would have supported
a claim for punitive damages if properly proven.”
for
Marriage,
Inc.
v.
United
States,
2
No.
Nat'l Org.
13cv1225,
2014
WL
26 U.S.C. § 6103 generally provides that tax-return
information should be kept confidential. It is undisputed that
by releasing NOM’s unredacted Form 990, the IRS violated § 6103.
8
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Pg: 9 of 16
5320170, at *6 (E.D. Va. Oct. 16, 2014).
comment,
however,
on
whether
the
The court did not
government’s
position
respecting actual damages was substantially justified.
NOM seizes on the district court’s silence on this issue,
arguing that it amounts to an abuse of discretion. 3
NOM also
argues that once the government’s contention on actual damages
is taken into account, it becomes clear that the government’s
position was not substantially justified.
We will assume the
district
as
court
abused
its
discretion
NOM
contends.
Therefore, we turn directly to whether the government’s position
in this litigation was substantially justified in light of its
arguments regarding actual damages.
The
justified”
government’s
if
it
has
litigation
a
position
“reasonable
basis
is
in
“substantially
law
and
fact,”
United States v. 515 Granby, LLC, 736 F.3d 309, 315 (4th Cir.
2013) (quoting Cody v. Caterisano, 631 F.3d 136, 141 (4th Cir.
2011)), or if it is “justified to a degree that could satisfy a
reasonable
(1988). 4
person,”
Pierce
v.
Underwood,
487
U.S.
552,
565
It is not necessarily enough that the government’s
3
We review the district court’s denial of attorneys’ fees
for abuse of discretion. Bowles v. United States, 947 F.2d 91,
94 (4th Cir. 1991).
4
A number of the cases we cite in this opinion, including
Granby and
Pierce,
deal
with
a
provision
analogous
to
§ 7430(c)(4)(B) in the Equal Access to Justice Act (“EAJA”), 28
(Continued)
9
Appeal: 14-2363
Doc: 36
position
is
Filed: 12/02/2015
“more
than
Pg: 10 of 16
merely
undeserving
of
sanctions
frivolousness” to qualify as “substantially justified.”
736 F.3d at 315 (quoting Pierce, 487 U.S. at 566).
for
Granby,
On the other
hand, the government’s position need not necessarily carry the
day.
to
Pierce, 487 U.S. at 569.
show—based
position
Bowles,
was
947
on
the
totality
substantially
F.2d
at
The burden is on the government
94
of
the
circumstances—that
justified.
(noting
that
its
§ 7430(c)(4)(B)(i);
“‘all
the
facts
and
circumstances surrounding the proceeding[]’ provide guidance to
the court” (quoting In re Testimony of Arthur Andersen & Co.,
832 F.2d 1057, 1060 (8th Cir. 1987))).
To
assess
substantially
whether
justified,
of
the
we
the
government’s
first
consider
strength
of
position
“the
the
was
available
‘objective
indicia’
position.”
United States v. Paisley, 957 F.2d 1161, 1166 (4th
Cir. 1992) (citing Pierce, 487 U.S. at 568–71).
Government’s
The pertinent
indicia will change depending on the case, but as relevant here
U.S.C. § 2412(d)(1)(A). We have said that the EAJA’s definition
of “substantially justified” is “essentially the same” as in
§ 7430.
Bowles, 947 F.2d at 94; see also Kenagy v. United
States, 942 F.2d 459, 464 (8th Cir. 1991) (“The ‘not
substantially justified’ standard was copied by Congress from
the EAJA provisions.
Thus, where the wording is consistent,
courts read the EAJA and § 7430 in harmony.”). Consequently, we
rely on judicial interpretations of the EAJA’s “substantially
justified” language.
10
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Pg: 11 of 16
they include “the terms of the settlement agreement that ended
the underlying litigation, the stage at which the merits were
thereby decided, and the views of other courts on the strength,
hence
reasonableness,
of
the
Government’s
position.”
Id.
(citing Pierce, 487 U.S. at 568–71).
The fact that the parties reached a settlement cannot alone
establish
Pierce,
the
487
government’s
unreasonableness
U.S.
at
568.
position
of
the
government’s
Additionally,
survives
or
dies
the
position.
fact
during
that
the
the
pleading
stage—or even makes it all the way to the Supreme Court—does not
conclusively establish the strength or weakness of the position.
See id. at 568-69 (“At least where, as here, the dispute centers
upon
questions
of
law
rather
than
fact,
summary
disposition
proves only that the district judge was efficient.”); Paisley,
957 F.2d at 1166 (concluding that a final merits decision before
the
Supreme
Court
could
not
establish
the
strength
of
the
prevailing position because “unfounded claims sometimes, for a
variety of reasons, survive beyond their just desserts”); see
also Pierce, 487 U.S. at 569 (“[The government] could take a
position that is substantially justified, yet lose.”).
If the “objective indicia” are inconclusive, we “turn[] to
an
independent
position.”
decisions
assessment
Paisley,
in
a
957
of
the
F.2d
litigation,
at
merits
1166.
whether
11
of
the
Here
Government’s
too,
intermediate
or
“merits
final,
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Pg: 12 of 16
cannot, standing alone, determine the substantial justification
issue.”
Id. at 1167.
Nevertheless, “they—and more critically
their rationales—are the most powerful available indicators” of
whether the government’s position was “substantially justified.”
Id.
Moving to the first step of the analysis, we consider three
indicia
bearing
position.
on
the
reasonableness
of
the
government’s
The first two are (1) the fact that the parties
ultimately settled the actual damages claim, and (2) the fact
that
the
claim
survived
summary
judgment.
insufficient to carry the day without more.
factor
that
NOM
asks
us
to
consider
These
are
The third objective
is
the
District
of
Nebraska’s decision in Jones v. United States, 9 F. Supp. 2d
1119 (D. Neb. 1998).
See Appellant’s Br. at 26.
Specifically,
NOM argues that Jones demonstrates that third parties abusing
confidential tax-return information is a reasonably foreseeable
consequence of an unauthorized disclosure.
Id. at 33–34.
We find NOM’s reliance on Jones unavailing.
First, one
other district court’s view is not enough to establish or refute
the reasonableness of the government’s position.
See Pierce,
487
other
U.S.
agreed
or
at
569
(“Obviously,
disagreed
with
the
the
fact
that
Government
one
does
not
court
establish
whether its position was substantially justified.”); see also
§ 7430(c)(4)(B)(iii)
(directing
12
that
courts
“shall
take
into
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Pg: 13 of 16
account whether the United States has lost in courts of appeal
for
other
circuits
undertaking
the
on
substantially
substantial
similar
justification
issues”
inquiry
in
(emphasis
added)).
Second, Jones involves distinguishable facts, rendering it
a weak objective indicator of the merits of the government’s
position in this case.
criminal
violations
informant
that
In Jones, an IRS agent investigating
unlawfully
the
government
disclosed
planned
warrant at the plaintiffs’ business.
1123.
to
to
a
confidential
execute
a
search
Jones, 9 F. Supp. 2d at
The confidential informant then told the media, resulting
in videotaped news coverage of the day-long execution of the
warrant.
Id. at 1124–25.
The court held that the IRS agent’s disclosure proximately
caused the damage resulting from the media’s coverage because
(1) the IRS agent should have known that even “the suggestion of
criminal
activity”
can
have
devastating
consequences
for
the
person or business implicated, id. at 1143–44 (quoting Diamond
v. United States, 944 F.2d 431, 434 (8th Cir. 1991)), and (2)
based on his personal knowledge regarding the informant and the
plaintiffs,
confidential
the
IRS
agent
informant
should
“harbored
have
bad
foreseen
feelings”
plaintiffs and therefore might seek to harm them, id.
13
that
the
for
the
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Pg: 14 of 16
In this case, in contrast, there is no evidence that the
IRS knew whether Meisel held any ill will toward NOM.
Nor did
it have any reason to think that the disclosure of NOM’s taxreturn information would implicate NOM criminally.
In short,
the IRS did not have as clear of a reason as in Jones to believe
disclosure would cause NOM damage.
Consequently, we find the
objective indicia inconclusive.
We next conduct an independent assessment of the merits of
the government’s position with respect to actual damages.
Our
analysis of proximate cause in this case leads us to conclude
that the government’s position was substantially justified.
As
the Supreme Court recently noted, proximate cause “defies easy
summary” and is a “flexible concept.”
Paroline, 134 S. Ct. at
1719 (quoting Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639,
654 (2008)).
We think it reasonable for the government to have
argued that the third-party intervening conduct of Meisel, the
Huffington
Post,
and
the
HRC
broke
the
chain
of
proximate
causation.
While this contention was not a winner at the end of
the day, it need not be to qualify as “substantially justified.”
See Pierce, 487 U.S. at 569 (“[The government] could take a
position that is substantially justified, yet lose.”); see also
Kaffenberger v. United States, 314 F.3d 944, 960 (8th Cir. 2003)
(“[D]isputes
that
preclude
summary
14
judgment
do
not
establish
Appeal: 14-2363
that
Doc: 36
the
Filed: 12/02/2015
moving
party’s
Pg: 15 of 16
position
is
not
substantially
justified.”).
The
district
confirms
that
justified.
court’s
the
ruling
government’s
on
proximate
position
was
cause
further
substantially
While the court easily disposed of the government’s
“but-for” causation argument regarding actual damages, it found
the
question
of
proximate
causation
to
be
“a
closer
Nat'l Org. for Marriage, 24 F. Supp. 3d at 529–30.
call.”
Thus, like
us, the district court identified this issue as a more difficult
legal
question,
suggesting
that
the
government’s
litigation
position was substantially justified.
Finally, the context in which the government asserted its
defense
respecting
actual
conclusion.
Because
government’s
position
we
in
damages
assess
light
further
bolsters
our
the
reasonableness
of
the
of
the
of
the
totality
circumstances, we must take care not to view the government’s
position on a single issue in a vacuum.
In
this
litigation,
punitive damages.
reasonable
strategy
NOM
sought
statutory,
actual,
and
We conclude that the government adopted a
in
conceding
statutory
damages,
but
challenging the existence and amount of both actual and punitive
damages.
Conceding actual damages prematurely could have harmed
the government’s position later if NOM had been able to submit
15
Appeal: 14-2363
Doc: 36
Filed: 12/02/2015
Pg: 16 of 16
evidence enabling it to proceed on the punitive damages issue. 5
In addition, prior to the district court’s ruling on summary
judgment, NOM added and subtracted different categories and sums
of actual damages to its calculation, thus keeping the type and
extent of actual damages in flux.
See supra n.1.
Moreover, NOM
bore the burden of proving any actual damages.
In light of
these considerations, we cannot say that the government acted
unreasonably
prior
to
the
summary
judgment
stage
of
the
litigation by waiting to see what NOM’s evidence was and then
challenging its sufficiency.
In
sum,
we
conclude
substantially justified.
that
the
government’s
position
was
As a result, NOM is not a “prevailing
party” and is therefore not entitled to attorneys’ fees.
III.
For
the
reasons
given,
we
affirm
the
judgment
of
the
district court.
AFFIRMED
5
Of course, the government ultimately prevailed on NOM’s
unfounded claim for punitive damages.
16
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?