Harrison v. United States of America
Filing
117
ORDER granting in part and denying in part 108 Plaintiff's Motion for Attorney Fees. The Judgment entered on February 17, 2017, will be amended to reflect an award of attorney's fees in the amount of $33,735.00. Plaintiff must file its Bill of Costs within fourteen (14) days, to be taxed by the Clerk consistent with the Court's directions. Signed by Judge Candy W. Dale. (klw)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
C1 DESIGN GROUP, LLC,
Case No. 1:15-cv-000146-CWD
Plaintiff,
v.
UNITED STATES OF AMERICA,
Internal Revenue Service,
MEMORANDUM DECISION AND
ORDER RE: MOTION FOR
ATTORNEY’S FEES AND COSTS
(DKT. 108)
Defendant.
Pending before the Court is Plaintiff C1 Design’s Motion for Attorney’s Fees and
Costs (Dkt. 108). Having reviewed the parties’ briefs and the record in this matter, the
Court concludes oral argument is not necessary. Dist. Idaho L. R. 7.1(d). Accordingly, for
the reasons stated herein, the Court will grant in part and deny in part C1 Design’s
motion and will award attorney’s fees in the amount of $33,735.00.
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 1
PROCEDURAL BACKGROUND
On April 30, 2015, C1 Design filed this lawsuit against the United States seeking a
refund of penalties paid to the Internal Revenue Service pursuant to 26 U.S.C. § 7422. C1
Design’s refund suit addressed whether its failure to timely pay its excise taxes was due
to reasonable cause and not to willful neglect. The premise of C1 Design’s refund claim
was a car accident involving its President, Ryan Harrison. The downstream effects of the
car accident led to financial difficulties for the small business, which in turn resulted in
the untimely payment of its excise taxes. 1
On June 16, 2016, C1 Design sent the United States a 26 U.S.C. § 7430 Qualified
Offer by mail, offering to settle the lawsuit for $14,285.00. (Dkt. 108-12.) On August 25,
2016, the United States notified C1 Design of its rejection of the Qualified Offer. (Dkt.
108-13.) While the Qualified Offer was pending, the United States filed a motion for
summary judgment on all of C1 Design’s claims. (Dkt. 41.) On December 20, 2016, the
Court denied the motion and the case proceeded to trial. (Dkt. 69.)
Following a two-day jury trial beginning on January 31, 2017, the jury rendered its
Special Verdict as to all relevant tax periods (Dkt. 102); Judgment was entered in favor of
C1 Design in the amount of $29,530.61 on February 17, 2017. (Dkt. 103.)
1
Prior to filing suit, C1 Design sought abatement of the penalties associated with its failure to timely pay
its excise taxes from Q3 2010 through Q1 2013 by submitting an appeal to the IRS. In the course of its
investigation, the IRS agreed that reasonable cause existed for C1 Design’s failure to timely pay its excise
taxes for the first four quarters of the relevant tax period (Q3 2010 through Q2 2011).
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 2
STANDARD OF LAW
“Section 7430(a) permits the award of reasonable administrative and litigation
costs to a taxpayer in an administrative or court proceeding brought against the United
States in connection with the determination of any tax, interest, or penalty under the
Code.” Fitzpatrick v. Comm'r of Internal Revenue, 113 T.C.M. (CCH) 1416 (T.C. 2017).
An award for costs may only be made if the taxpayer is the “prevailing party.” 2
To qualify as a prevailing party, a taxpayer must establish it “has substantially
prevailed with respect to the amount in controversy, or…with respect to the most
significant issue or set of issues presented.” 3 Sec. 7430(c)(4)(A). However, prevailing
party status is not without exception. For instance, if the taxpayer meets the prevailing
party requirements, it is not treated as a prevailing party if the Government can establish
its position in the proceeding was “substantially justified.” Sec. 7430(c)(4)(B).
2
Other requirements must also be established by the taxpayer to qualify for an award of costs, such as: (1)
exhaustion of administrative remedies; and (2) the taxpayer must not have unreasonably protracted the
proceedings. See Sec. 7430(b)(1) and (3). The United States does not dispute these requirements (other
than prevailing party status) are met.
3
The taxpayer must also meet certain net worth requirements and the requirements listed in the first
sentence of: 28 U.S.C. § 2412(d)(1)(B):
A party seeking an award of fees and other expenses shall, within thirty days of final
judgment in the action, submit to the court an application for fees and other expenses
which shows that the party is a prevailing party and is eligible to receive an award under
this subsection, and the amount sought, including an itemized statement from any
attorney or expert witness representing or appearing in behalf of the party stating the
actual time expended and the rate at which fees and other expenses were computed.
The United States does not dispute C1 Design meets these requirements.
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 3
“The Government bears the burden to demonstrate that its position was
substantially justified, both in the administrative proceeding and in the court proceeding.”
Pacific Fisheries Inc., v. United States, 484 F.3d 1103, 1107 (9th Cir. 2007) (government
bears burden of establishing substantial justification). If the United States is successful in
establishing that its position was substantially justified, the taxpayer may still be treated
as a prevailing party if it makes a qualified offer and “the liability of the taxpayer
pursuant to the judgment in the proceeding…is equal to or less than the liability of the
taxpayer which would have been so determined if the United States had accepted [the]
qualified offer.” Sec. 7430(c)(4)(E)(i).
The qualified offer rule applies regardless of whether the United States’ position in
the proceeding was substantially justified. Haas & Assocs. Accountancy Corp. v. C.I.R.,
117 T.C. 48, 59 (2001), aff'd, 55 F. App'x 476 (9th Cir. 2003). An award of reasonable
administrative and litigation costs permitted under the qualified offer rule includes only
“those costs incurred on or after the date of the last qualified offer.” 26 C.F.R. §
301.7430-7(a); Sec. 7430(c)(4)(E)(iii)(II).
Moreover, the Court may award only “reasonable litigation and administrative
costs which are allocable to the United States,” and not to any other party. 26 U.S.C. §
7430(b)(2). And, an attorney's hourly rate is subject to a presumptively reasonable rate
set by statute at $200.00 per hour during 2015–2017. 26 U.S.C. § 7430(c)(B)(iii); Rev.
Procs. 2009–50, 2010–40, 2011–52. An attorney may request a higher rate, but the Court
must determine whether a special factor, such as a limited availability of qualified
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 4
attorneys for the proceeding, the difficulty of the issues presented in the case, or the local
availability of tax expertise, justifies the higher rate. 26 U.S.C. § 7430(c)(B)(iii).
DISCUSSION
C1 Design seeks $76,270.39 in attorney’s fees and $1,485.63 in costs pursuant to
26 U.S.C. § 7430(a). Alternatively, if the Court finds the United States’ position was
substantially justified, C1 Design seeks an award of fees and costs accrued after it made
its Qualified Offer, in the amount of $50,925.16. The United States concedes that C1
Design prevailed with respect to the amount in controversy; however, the United States
contends its position was substantially justified, and therefore, C1 Design is entitled to
fees and costs that accrued only after it submitted its Qualified Offer. The United States
challenges also the reasonableness of the hourly rates requested by C1 Design’s counsel
(and his staff) and costs which lack proper documentation.
Because there is no dispute that C1 Design meets the statutory requirements for
prevailing party status, the Court will first address whether the United States meets the
“substantial justification” exception and the application of the Qualified Offer rule before
discussing the reasonableness of the fees and costs requested by C1 Design.
I.
Position of the United States
The United States contends its position was substantially justified, and reasonable
minds could differ on the existence of reasonable cause. C1 Design argues to the
contrary, that because the jury found in favor of C1 Design for all relevant tax periods,
reasonable minds could not differ as to the issues presented in this litigation. For the
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 5
following reasons, the Court finds the position taken by the United States was
substantially justified.
“The United States’ position was substantially justified if it is ‘justified to a degree
that satisfies a reasonable person,’” or has reasonable basis in both law and fact. Pac.
Fisheries Inc. v. United States, 484 F.3d 1103, 1108 (9th Cir. 2007) (citing Pierce v.
Underwood, 487 U.S. 552 (1988). In making its determination, Section
7430(c)(4)(B)(iii), requires the Court to “take into account whether the United States has
lost in courts of appeal for other circuits on substantially similar issues.” 26 U.S.C.
7430(c)(4)(B)(iii). “[L]osing does not mean substantially unjustified.” Van Duzer v.
C.I.R., 9 F.3d 1555 (9th Cir. 1993) (citing Pierce, 487 U.S. at 569); See Awmiller v.
United States, 1 F.3d 930, 931 (9th Cir. 1993) (affirming district court decision, that
although plaintiff prevailed at trial, a reasonable person could have found that the
plaintiff was responsible for its tax payment to IRS).
Although the jury found in its answers to the Special Verdict that C1 Design’s
failure to pay its excise taxes for all relevant tax periods was due to reasonable cause and
not to willful neglect (Dkt. 102), the evidence offered by the United States at trial on the
factual disputes was substantial. C1 Design’s financial difficulties and how it managed
and prioritized its finances during the relevant tax periods at issue were a big focus at
trial. During the period C1 Design claimed it could not pay its excise taxes, the company
continued to pay its managing members’ salaries of over $100,000.00. C1 Design also
prioritized other payments above its excise tax payments to the IRS, such as other tax
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 6
payments and severance and salary payments to John Talbot after the termination of his
employment. And, nearly $8 million dollars flowed into C1 Design’s accounts during the
periods it owed excise taxes to the IRS. In consideration of this evidence, the Court finds
that reasonable minds could differ as to whether C1 Design acted with reasonable cause
when it failed to timely pay its excise tax obligations for the relevant time periods. 4
Moreover, the United States’ victories in the Ninth Circuit and other “courts of
appeal for other circuits on substantially similar issues,” lend further support for finding
the position of the United States was substantially justified. For instance, the Ninth
Circuit in Van Camp & Bennion, P.S. v. United States, affirmed summary judgment in
the United States’ favor where “[t]he record shows…the corporation was receiving large
monthly deposits that were sufficent to meet its [employee withholding] tax
obligations…. [and] the corporation was paying its president over $100,000 per year.” 70
F. App'x 937, 938 (9th Cir. 2003); see also Pac. Wallboard & Plaster Co. v. United
States, 319 F. Supp. 2d 1187, 1190 (D. Or. 2004), aff'd, No. 04-35511, 2005 WL
3113470 (9th Cir. Nov. 22, 2005) (where “Plaintiff had sufficient funds to pay the taxes
owing for a given payroll period,” but then “chose to use the money for other purposes,”
reasonable cause was not present).
4
Having issued its Order on summary judgment, presided over the trial, and otherwise being fully advised
of the evidence and controlling law in this case, the case did not present a “slam dunk” for either side.
Had C1 Design’s witness, Mr. Harrison, been less credible, the verdict may have gone the other way. See
Awmiller, 1 F.3d at 991 (“One never knows until one watches it happen in front of the jury just how bad
one’s star witness is going to be.”); Van Duzer v. C.I.R., 9 F.3d 1555 (9th Cir. 1993) (“a court properly
exercises its discretion in denying litigation costs…when the case turns on the credibility of witnesses.”).
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 7
The only published opinion identified by the Court where reasonable cause on the
basis of financial difficulties was found on summary judgment and affirmed on appeal is
the Court of Appeal for the Third Circuit’s opinion in E. Wind Indus., Inc. v. United
States, 196 F.3d 499, 500 (3d Cir. 1999). In that case, suppliers were left unpaid for four
years, one of the officers paid utilities from his personal account, and the officer had to
personally guarantee payment to suppliers so that they would continue providing supplies
without payments, which resulted in the officer being personally sued. Id. at 510.
In analyzing the same cases in ruling on the United States’ motion for summary
judgment, the Court found: “the evidence in this record regarding whether C1 Design
exercised ordinary business care and prudence during the relevant tax quarters lays
somewhere in the middle of these cases….” There were genuine issues of material fact
regarding how long C1 Design could use the automobile accident as reasonable cause not
to pay its taxes and also whether excise taxes should be given higher priority over C1
Design’s other expenses, such as manager salaries and vendor payments. Considering the
existence of only one known published case from another circuit where the United States
lost on substantially similar issues (a case involving payroll and not excise taxes), it was
reasonable for the United States to pursue this matter to trial to allow the jury to assess
the credibility of the witnesses and other evidence, and to make factual findings for each
tax quarter at issue. (Dkt. 102.)
After finding the United States’ position was substantially justified, the Court next
must consider whether C1 Design made a Qualified Offer pursuant to 26 U.S.C.
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 8
§ 7430(c)(4)(E), which imposes special rules when the judgment is less than the
taxpayer’s offer. 26 U.S.C. § 7430(c)(4)(E) provides:
A party to a court proceeding meeting the requirements of subparagraph
(A)(ii) shall be treated as the prevailing party if the liability of the taxpayer
pursuant to the judgment in the proceeding (determined without regard to
interest) is equal to or less than the liability of the taxpayer which would
have been so determined if the United States had accepted a qualified offer
of the party under subsection (g).
Under this section, C1 Design is a prevailing party, and thus, entitled to attorney’s
fees. C1 Design made a Qualified Offer to the IRS to accept a refund in the amount of
$14,285 (versus the $28,573.88 as demanded in the Complaint) on June 16, 2016. After
trial, the Court entered Judgment in favor of C1 Design in the amount of $29,560.61—the
full amount of the late penalties and interest for the relevant tax quarters. C1 Design’s tax
liability therefore was reduced to zero. Accordingly, an award for reasonable attorney’s
fees is appropriate for legal services rendered after the date of the Qualified Offer, June
16, 2016.
II.
Reasonableness of Claimed Fees
a. Adjustment of Attorney Fee Rate Beyond Statutory Cap
C1 Design seeks an award of attorney’s fees billed by Mr. Martelle at $300 per
hour and for an associate attorney at $250 per hour. In its fee petition, C1 Design
contends the prevailing market rate for attorney’s fees for this type of litigation is $300
per hour and that such rate is reasonable based upon a lack of available qualified tax
attorneys in the Boise, Idaho market and the complexity of the litigation. The United
States argues C1 Design has not established any “special factors” that warrant hourly fees
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 9
beyond the $200 statutory cap. For the following reasons, the Court agrees with the
United States.
26 U.S.C. § 7430(c)(1)(iii) provides that the hourly rate for attorney fees must not
be in excess of the statutory cap “unless the court determines that a special factor, such as
the limited availability of qualified attorneys for such proceeding, the difficulty of the
issues presented in the case, or the local availability of tax expertise, justified a higher
rate.” Although the statute speaks of “prevailing market rates,” the “special factor”
formulation “suggests Congress thought that [$200] an hour was generally quite enough
public reimbursement for lawyers' fees, whatever the local or national market might
be....” Huffman v. C.I.R., 978 F.2d 1139, 1149 (9th Cir. 1992), as amended (Dec. 4, 1992)
(quoting Pierce . Underwood, 487 U.S. 552, 572 (1988)). Counsel's expertise in tax law,
in and of itself, is not a special factor justifying an upward departure. Id. at 978 F.2d at
1150. Rather, the special training must be in an area “needful for the litigation in
question.” Id. at 1149.
In support of its fee petition, C1 Design filed the Affidavit of Mr. Martelle of the
Boise law firm Martelle & Associates, P.A. (Dkt. 108-14.) Mr. Martelle has been
practicing law for 37 years; the last 16 years his primary focus has been in tax problem
resolution and litigation. Mr. Martelle owns also The Tax Group, LLC, which has a
Certified Public Accountant who works closely with Mr. Martelle and the associates in
his firm. Mr. Martelle’s regular hourly rate is $300 per hour; he asserts his rate is
reasonable and the equivalent to what other attorneys with similar expertise and
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 10
experience charge. Mr. Martelle indicates further that he “believe[s he is] one of only a
couple of Attorneys in Southwestern Idaho that almost solely represent clients in Tax
Resolution and litigation matters.”
The Court finds C1 Design failed to meet its burden in establishing a “special
factor” that would otherwise warrant an upward adjustment of the statutory cap. While
Mr. Martelle “believes” he is one of few tax attorneys in the Boise, Idaho market, he does
not identify in his affidavit who those other attorneys are or the rates charged by those
attorneys. Mr. Martelle’s belief, without other evidence to corroborate it, is not sufficient
to establish that Boise, Idaho, is lacking in qualified tax attorneys. Moreover, the Court
finds the issues presented in this matter were not so difficult as to warrant an upward
adjustment of attorney fees. The issues presented were not technical—neither side found
it necessary to hire an expert, and the trial (including deliberations) was over in just two
days. Finally, while the Court does not doubt Mr. Martelle’s vast experience in tax law,
such expertise alone is not a special factor to justify attorney’s fees in excess of the
statutory cap. For these reasons, the Court will award attorney's fees at the maximum
statutory rate of $200 per hour for Mr. Martelle.
As for the associate attorney who expended work on this litigation, Austin Frates, 5
he did not file any declarations or affidavits indicating his experience to justify the rate
requested of $250 per hour. The Court reduced Mr. Martelle’s requested rate by
approximately 33% and finds a reduction for associate attorney fees by approximately the
5
Mr. Frates also billed time as a legal intern. (Dkt. 115-1.) As indicated below, the Court will adjust fees
for Mr. Frates’s time accordingly.
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 11
same percentage results in a reasonable rate that reflects the prevailing market rate for
associate attorneys in the District of Idaho. Therefore, the Court will award attorney’s
fees at the rate of $150 per hour for Mr. Frates.
b. Reasonableness of Paralegal and Legal Intern Fee Rate
C1 Design seeks reimbursement for the time expended by Mr. Martelle’s legal
interns at the rate of $150 per hour. C1 Design contends that the nature of and duties
performed by the legal interns in this matter warrant an increase in the market rate for
legal interns. The United States does not dispute that reimbursement for time expended
by legal interns is allowed by the statute; however, they contend the hourly rate of $150
is excessive and that it should be reduced to $65. For the following reasons, the Court
finds an hourly rate of $100 is reasonable for the work performed by the legal interns.
Work performed by paralegals and legal interns is compensable as “litigation
costs” under section 7430 if it is work that would have been done by an attorney. Filicetti
v. United States, No. 1:10-CV-595-EJL-CWD, 2013 WL 959787, at *9 (D. Idaho Jan. 7,
2013), report and recommendation adopted as modified, No. 1:10-CV-00595-EJL, 2013
WL 958641 (D. Idaho Mar. 12, 2013).
In support of its argument that $65 per hour is a reasonable billing rate, the United
States cites to Balla v. Idaho State Bd. of Correction, for the proposition that $65 was a
reasonable hourly rate for time billed by paralegals and summer associates in that case.
No. CV81-1165-S-BLW, 2013 WL 501646, at *1 (D. Idaho Feb. 8, 2013). Although not
mentioned by the United States, this fee order has since been amended. In its amended
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 12
order, the Court found (based on the prevailing market rate for a paralegal with nine years
of experience) that $165 per hour was a reasonable rate for a paralegal. Balla v. Idaho
State Bd. Of Correction, No. CV-81-1165-S-BLW, 2016 WL 6762651, at *6 (D. Idaho
Feb. 1, 2016). Further, in In re Hopkins NW Fund LLC (Holland & Hart, LLP v.
Oversight Comm.), the Court determined that “the hourly rate of $100 for a paralegal is
within the range of charges regularly approved for paralegals in bankruptcy cases and
civil matters in the District of Idaho.” 567 B.R. 590, 596 (D. Idaho 2017).
Mr. Martelle indicates in his affidavit that he bills time spent by his associates,
paralegals, and legal interns at rates between $150 to $250 per hour; Mr. Martelle
believes his rates are “reasonable, customary and equivalent to” what a similar law firm
would charge. Mr. Martelle does not indicate the experience of his legal interns nor does
C1 Design include the affidavit of the legal interns in its fee petition. However, in its
reply brief, C1 Design indicated that one of its legal interns, Ms. Mooney, was in a
concurrent degree program where she expects to earn a Juris Doctor and a Masters in
Accounting.
The Court finds that, in conjunction with the statutory rate of $200 per hour
assigned to Mr. Martelle, the rate of $150 for legal intern time is excessive. Although the
legal interns in this matter dedicated a lot of time to this matter, they were, nevertheless,
law students. The Court reduced Mr. Martelle’s requested rate by approximately 33% and
finds a similar reduction for the hourly rates for legal intern work results in a reasonable
rate that reflects the prevailing market rate for legal interns in the District of Idaho for a
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 13
case of this nature. Therefore, the Court will award legal intern fees at the rate of $100
per hour.
c. Lodestar Adjustment
Pursuant to Section 7430(a), the Court is permitted to award reasonable attorney
fees in this action. “The most useful starting point for determining the amount of a
reasonable fee is the number of hours reasonably expended on the litigation multiplied by
a reasonable hourly rate.” Jordan v. Multnomah County, 815 F.2d 1258, 1262 & n. 5 (9th
Cir.1987) (explaining method to arrive at “lodestar” figure). “Once the lodestar amount is
determined, the Court then ‘assesses whether it is necessary to adjust the presumptively
reasonable lodestar figure on the basis of the Kerr 6 factors that are not already subsumed
in the initial lodestar calculation.’” Wisdom v. Centerville Fire Dist., Inc., No. CV07-95S-EJL, 2010 WL 468094, at *3 (D. Idaho Feb. 4, 2010), aff'd, 424 F. App'x 691 (9th Cir.
2011) (citing Morales v. City of San Rafael, 96 F.3d 359, 363–64 (9th Cir.1996)).
In support of C1 Design’s motion for fees, counsel for Plaintiff submitted a
condensed summary of his firm’s billing ledger for this matter. The condensed summary
of the billing ledger contained substantial blocks of time billed on one day that were in
6
The original Kerr factors are: “(1) the time and labor required; (2) the novelty and difficulty of the
questions involved: (3) the skill requisite to perform the legal service properly; (4) the preclusion of other
employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is
fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount
involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the
undesirability of the case; (11) the nature and length of the professional relationship with the client; and
912) awards in similar cases.” Id. at 364, n. 8 (citing Kerr v. Screen Guild Extras, Inc., 526 F.2d 67, 70
(9th Cir.1975)). “[T]he court ‘need not consider all ... Kerr factors, but only those called into question by
the case at hand and necessary to support the reasonableness of the fee award.’” Cairns v. Franklin Mint
Co., 292 F.3d 1139, 1158 (9th Cir.2002); see also Hensley, 461 U.S. at 363–64) (Kerr “factors irrelevant
to the case need not be considered....”).
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 14
excess of 24 hours, and the time billed contained no reference to the services that were
rendered. (Dkt. 108-15, 16.) Although the United States did not object to the amount of
time expended on this matter by Mr. Martelle and the other members of his firm, the
Court was unable to determine from the initial ledger whether the fees requested by
counsel were reasonable. Therefore, the Court requested supplemental information which
was provided timely by C1 Design. (Dkt. 115.) Considering the supplemental
information, the Court calculated the following loadstar amounts for time expended after
June 16, 2016.
Reasonable
Rate
Martin Martelle
Attorney $200
Hours
Reasonably
Expended
74.2
Austin Frates
Attorney $150
6.1
$915
Legal
Intern
Legal
Intern
Legal
Intern
$100
4.2
$420
$100
175.4
$17,540
$100
.2
$20
Vanessa Mooney
Taryn Basauri
Loadstar
$14,840
TOTAL $33,735
Upon review of the supplemental information filed by C1 Design, as well as the
full billing invoices that detail the time spent by the attorneys and legal interns (Dkt. 1091), the Court finds the hours expended were reasonable and consistent with the nature of
this litigation. Accordingly, the Court will award attorney’s fees based on the hourly
rates and time expended in the total amount of $33,735.00, as illustrated above.
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 15
III.
Bill of Costs
C1 Design requests $1,485.63 as litigation costs, including costs associated with
photocopying, courier, travel, transcript/deposition, court filing, fax, and research
expenses. C1 Design seeks also $6,500.00 in administrative costs for the enrolled tax
agents it used to appeal the I.R.S.’s denial of penalty abatement. The United States
objects to certain costs requested by C1 Design, specifically to the $885.32 in claimed
expenses which lack receipts or documentation, and for costs spent on office supplies. 7
The United States challenges also the administrative costs for the enrolled tax agents as
those costs were incurred before the date of the last Qualified Offer on June 16, 2016. For
the following reasons, the Court will direct the Clerk to tax costs for deposition costs
only, in the amount of $75.17.
As a preliminary note, a motion for costs is not the proper procedure for
requesting costs. As indicated by Fed. R. Civ. P. 54(d), costs are allowed to the prevailing
party, and “[t]he clerk may tax costs on 14 days’ notice.” After the clerk taxes the costs, a
motion may be served requesting the Court to “review the clerk’s action.” Id. Thus,
Plaintiff’s motion technically is prematurely before the Court as C1 Design has not filed a
bill of costs for the Clerk to tax.
Because C1 Design combined its motion for litigation costs with its petition for
attorney’s fees, the United States responded to C1 Design’s requests. Accordingly, the
7
C1 Design does not address the United States’ objections to costs in its reply.
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 16
Court will review the issues presented in the filings and will direct the Clerk to tax costs
as indicated below once a bill of costs is filed by C1 Design.
C1 Design attached as an exhibit to its fee petition an accounting ledger from the
law firm that includes unitemized expenses. (Dkt. 108-15 at 2.) According to that ledger,
$600.31 in expenses were incurred after the date of the Qualified Offer. This total does
not match, however, the amount of $612.93 in the summary of fees and costs “After
Qualified Offer” also filed by C1 Design. (Dkt. 108-15 at 3.) C1 Design does not explain
the difference in these totals. C1 Design attached also several receipts that total $681.73,
but failed to explain the difference between the total reflected by the receipts and the
litigation costs requested ($1,485.63 - $681.73 = $803.90). And, C1 Design made no
effort to itemize or categorize the expenses.
In this regard, the Court finds the United States’ objection to the requested costs
($803.90) that lack either accounting detail or documentation valid. 8 Without proper
itemization and documentation, it is virtually impossible for the Court to determine
whether these costs are reasonable under 26 U.S.C. §7430 (c)(1)(B). Accordingly, these
costs will be disallowed.
Likewise, the requested costs for office supplies will be disallowed. Upon review
of the receipts which total $681.73, it appears all but $75.17 9 are for costs more typically
8
The United States argued in their response that $885.35 of the requested costs did not have an
accounting. However, it appears its math is wrong ($1,485.63 - $681.73 = $803.90).
9
The $75.17 expense corresponds to court reporter fees for the deposition of Mr. Harrison. (Dkt. 108-17
at 2.) Costs for depositions are recoverable under the statute.
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 17
included in law office overhead, such as binders, index tabs, etc. While some receipts
appear to be photocopy expenses, it is impossible for the Court to determine from
receipts alone whether the copies were necessary for this litigation. Accordingly, $606.56
of this request will be disallowed.
Finally, based on the Court’s finding that the United States’ position was
substantially justified, C1 Design is not entitled to litigation and administrative costs that
were incurred prior to the date of the last Qualified Offer. Because the enrolled tax agent
costs were incurred in June through December of 2013, long before June 16, 2016, these
administrative costs in the amount of $6500.00 will not be allowed.
Based on the above, the Clerk is directed to allow only the $75.17 for court
reporter fees for the deposition of Mr. Harrison, included in the receipts filed with C1
Design’s motion, when taxing costs.
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 18
ORDER
NOW THEREFORE IT IS HEREBY ORDERED:
1) C1 Design’s Motion for Award of Fees (Dkt. 108) is granted in part, and
denied in part. The Judgment entered on February 17, 2017, will be amended
to reflect an award of attorney’s fees in the amount of $33,735.00.
2) Plaintiff must file its Bill of Costs within fourteen (14) days, to be taxed by the
Clerk consistent with the Court’s directions above.
DATED: August 3, 2017
_________________________
Honorable Candy W. Dale
United States Magistrate Judge
MEMORANDUM DECISION AND ORDER RE: MOTION FOR ATTORNEY’S FEES AND
COSTS - 19
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