In the Matter of the Complaint Against: 

 EQUISYSTEMS CALIFORNIA, INC.,
 c/o DONALD EUGENE MASON, ESQ.,
 2121 Ponce de Leon Blvd.,
 Suite 630,
 Coral Gables, FL  33134-5222;

 AARON HASTINGS,
 c/o DONALD EUGENE MASON, ESQ.,
 2121 Ponce de Leon Blvd.,
 Suite 630,
 Coral Gables, FL  33134-5222;

 LORRAINE A.  HASTINGS
 c/o DONALD EUGENE MASON, ESQ.;
 2121 Ponce De Leon Blvd.,
 Coral Gables, FL  33134-5222

 P.S. Docket No. 33/155

 03/06/92

 Grant, Quentin E., Chief Administrative Law Judge

 APEARANCE FOR COMPLAINANT: John L. DeWeerdt, Esq., Jennifer Y.  Angelo,
 Esq., Geoffrey A. Drucker, Esq., Elizabeth P. Martin, Esq., Law Department,
 United States Postal Service, Washington, DC  20260-1144 

 APPEARANCE FOR RESPONDENTS: Donald Eugene Mason, Esq., 2121 Ponce de Leon
 Blvd., Suite 630, Coral Gables, FL  33134-5222

Respondents Aaron Hastings, Lorraine Hastings, and Equisystems California, Inc. (Equisystems) have filed an application for attorney fees under the Equal Access to Justice Act (EAJA), 5 U.S.C. § 504, following dismissal of the complaint by the Judicial Officer in his Postal Service Decision (P.S.D.), dated July 10, 1991, affirming the earlier Initial Decision (I.D.) of the undersigned.

Complainant has filed an answer opposing the application on the grounds that his litigation position was substantially justified and that special circumstances make an award of attorney fees unjust.

The application requests an award of attorney fees in the amount of $34,245.00. In their reply to Complainant's answer to the application, Respondents request an additional $1,500.00 for legal services necessitated by the answer.

As required by the EAJA, the application shows that Respondents were the prevailing parties in this adversarial adjudication. It also shows that Equisystems was no longer in business and had no employees at the time the adjudication was initiated and that Respondents Lorraine and Aaron Hastings, had at that time, individual net worth not exceeding $2,000,000.

The General Counsel of the United States Postal Service (Complainant) initiated the original proceeding on February 22, 1989, by filing a complaint alleging that Respondents solicit money or property through the mail by means of solicitations offering credit cards which make materially false representations in violation of 39 U.S.C. § 3005. Specifically, Complainant alleged that Respondent Equisystems falsely represented that:

a) It is affiliated with, acting in concert with or acting on behalf of, a financial institution that issues a nationally-recognized credit card (e.g. VISA or MasterCard);

b) It is authorized to represent the financial institution named in its correspondence with consumers; and

c) The financial institution named in its correspondence with consumers issues a nationally-recognized credit card (e.g. VISA or MasterCard).

Respondents filed a timely answer denying that the representations alleged in the complaint were materially false.

Over Respondents' opposition, Complainant on September 22, 1989, was allowed to file an amended complaint making four additional allegations of misrepresentation based, according to Complainant's motion, on evidence gathered by a postal inspector subsequent to the filing of the complaint. Respondents' answer to the amended complaint denied the falsity of the additional representations. On Complainant's motion, following the hearing, these additional representations were dismissed (order dated February 13, 1990).

In an I.D. dated June 11, 1990, Respondents were found to have made representations a, b, and c, supra. The complaint was dismissed, however, for Complainant's failure to prove either the falsity of such representations or their employment in a scheme within the meaning of 39 U.S.C. § 3005.

The P.S.D. dated July 10, 1991, affirmed the I.D.'s determination that Complainant had failed to prove the falsity of Respondent's representations.

The burden of demonstrating that its litigation position was substantially justified rests with the Postal Service. See S & H Riggers & Erectors, Inc. v. OSHA, 672 F.2d 426, 430 (Cir. 5, 1982).

This entails the requirement of showing "that its case had a reasonable basis both in law and fact" for "the test of whether or not a government action is substantially justified is essentially one of reasonableness." H.R. Rep. No. 1418 at 11, 1980 U. S. Code Cong. & Ad. News at 4990.

(a) As to The Misrepresentations Alleged in Subparagraphs a, b, and c of Paragraph 9 of the Complaint

Complainant says that application of 39 U.S.C. § 3005 to the unusual facts in this case presents a credible, prima facie case on which the Postal Service was substantially justified in proceeding. Complainant refers to the statement in the I.D. at page 6 that "this proceeding presents what appears to be a novel fact situation with respect to the applicability of 39 U.S.C. § 3005" and, on that basis, urges the application of the legislative history of the EAJA, as cited in S & H Riggers & Erectors, supra at page 431, to find that its litigation position had substantial justification.

The legislative history relied on by Complainant appears at page 11 of H.R. Report No. 1418 (1980 U.S. Code Cong. & Ad. News, p. 4990) and reads as follows:

The standard (substantial justification), however, should not be read to raise a presumption that the Government position was not substantially justified, simply because it lost the case. Nor, in fact, does the standard require the Government to establish that its decision to litigate was based on a substantial probability of prevailing. Furthermore, the Government should not be held liable where

"special circumstances would make an award unjust." This "safety valve" helps to insure that the Government is not deterred from advancing in

The reference to novelty in the I.D. here had to do with an unusual fact situation, not a novel extension or interpretation of the law. These facts, as found in the I.D. and the P.S.D., were that for the short period of time involved (25 days) during which the issuance of credit cards, but not the marketing thereof, was halted by the Texas Banking Department, Equisystems' contract with Security Trust to market and process applications for secured credit cards was in force, Mastercard had not revoked Security Trust's authority to issue credit cards, Equisystems continued to market and process applications with the knowledge of the Banking Department and the justified expectation that the freeze would soon be lifted, and, finally, Equisystems made arrangements with another financial institution to issue Mastercard credit cards on approved application received during the freeze period.

Complainant was aware of Respondent's defense posture, including its reliance on the above facts, well in advance of the hearing. Nevertheless it proceeded to hearing on a theory which essentially ignored these facts and failed to present evidence controverting Respondent's case by which they were established. Complainant seeks to excuse this failure and to avoid its adverse consequences on various grounds, i.e., that Respondent Hastings' critical testimony regarding the above facts was largely hearsay, incredible, false, and contrary to the factual basis and theory on which Complainant litigated its case and that, given the short time left to prepare for hearing after settlement fell through, arranging for rebuttal testimony was not made a priority.

Complainant also argues (Ans. to Application, pp. 6, 7) that substantial justification should be found in his theory that Respondents' failure to provide the credit cards promised to consumers, after advertising and taking their application fees and security deposits, is in itself a violation of 39 U.S.C. § 3005. This was not a theory advanced in the allegations of the complaint or argued in Complainant's proposed findings of fact and conclusions of law. It may not, therefore, be treated as a litigation position to defeat this EAJA application.

The hearing record and my observation of Mr. Hastings's demeanor on the witness stand do not support Complainant's attacks on the credibility of his testimony. The remaining arguments as to representations a, b, and c fail to support a conclusion that Complainant's litigation position was substantially justified and do not present special circumstances making an award of attorney fees unjust.

(b) As to The Alleged Misrepresentations Dismissed on Complainant's Post Hearing Motion

Complainant's explanation for requesting dismissal of the misrepresentations alleged in paragraphs d through g of paragraph 9 of the complaint was that the undersigned erroneously and unfairly denied him the opportunity to present, at the hearing, certain testimony and exhibits without which the record contained insufficient evidence to substantiate them (Complainant's Brief on the Hearsay Testimony of Deputy Attorney General Steven J. Green dated Feb. 5, 1990). This explanation was dealt with in detail and rejected in my order dated February 13, 1990. Nothing in Complainant's answer to the EAJA application persuades me that the relevant rulings or any part of the comments and observations in part II of that order were erroneous or unfair. In addition, review of the record supports the conclusion that the consumers listed by Complainant as witnesses, just prior to the hearing, had never been interviewed by telephone or otherwise during Complainant's investigation and preparation for hearing.

Complainant's unjustified failure to present at the hearing admissible, credible evidence to support alleged misrepresentations d through g has prevented him from showing here that there existed substantial justification for his litigation position. Further, none of Complainant's reasons for such failure constitutes or reflects special circumstances making an award of attorney fees unjust.

(c) As to Special Circumstances Making an Award of Fees to Respondent Unjust

Complainant says that in the event it is found that his litigation position was not substantially justified, the fee application should be denied in light of two "equitable considerations" constituting "special circumstances mak(ing) an award unjust" under 5 U.S.C. § 504(a)(1).

The first equitable consideration advanced by Complainant has to do with the conduct of Donald Eugene Mason, Respondent's counsel, in prehearing settlement negotiations. Complainant says that Mr. Mason's daily records submitted with the EAJA application do not show certain contacts with his clients late in settlement negotiations with Complainant. Complainant suggests that absence of entries showing such contact casts doubt on the veracity of Mr. Mason's statement made on January 4, 1990, that his clients would sign during the week of January 8-12 a revised version of a certain settlement proposal, thereby giving Complainant the false impression the case had been settled and hampering its hearing preparation. It is noted that at the hearing and until filing its answer to this EAJA application Complainant has said that it was notified on January 11, 1990, by Mr. Mason that his clients refused to sign the agreement (Cplt's Brief, Feb. 5, 1990, p. 4). Counsel's declaration submitted with the answer changes that date to January 15, 1990, without explaining a change so significant in terms of time remaining to prepare for hearing.

At pages 2 through 5 of my order dated February 13, 1990 (on Respondent's Motion to Strike Testimony of Steven J. Green and Complainant's Motion to Dismiss Certain Allegations of the Complaint) I commented on the validity of Complainant's statements relative to settlement breakdown and its prejudicial impact on hearing preparation. Its correlative argument here, based on adverse inferences it draws from omissions in Mr. Mason's daily records, is equally lacking in substance and fails to show special circumstances requiring denial of the application.

Complainant's second "equitable consideration" is the asserted falsity of Aaron Hastings's testimony as to what he was told by Larry Hearn, then identified as the chief attorney to the Commissioner of Banking of the Texas Department of Banking (Tr. 186-193). This testimony, unrebutted and credible, was the partial basis for findings of fact nos. 6 and 9 in the I.D. Complainant has attached to its answer to the EAJA application the affidavit of Larry Hearn which disputes this testimony and, Complainant argues, shows that Mr. Hastings lied under oath, thereby disqualifying Respondents for an award of attorney fees.

Complainants' answer to the application acknowledges that, in hindsight, it should have arranged for Mr. Hearns's attendance at the hearing because his testimony would have been very helpful but states that Complainant did not anticipate that Mr. Hastings's testimony would become such a critical element of the I.D. A letter attached to Respondent's application (Sept. 12, 1989 from Mr. Mason to Ms. Elizabeth P. Martin) put Complainant on ample prehearing notice of the positions and facts relied on by Respondents to defend against the complaint, including those attacked in the Hearns affidavit as fabrications. Under these circumstances, it would be unfair to Respondents were I to accept the Hearns affidavit as a basis for denial of the application.

(d) As to the Amount of Attorney Fees Requested

The amount of attorney fees billed by Mr. Mason to Respondents was $34,245.00, representing 228.3 hours of work at the rate of $150.00 per hour, shown by affidavit to be a reasonable rate for this kind of work in South Florida and less than the prevailing rate, there, for defense of a complex case.

Complainant's answer does not challenge the number of hours billed but properly points to the EAJA limitation of $75.00 per hour on attorney fees "unless the agency determines by regulation that an increase in the cost of living or a special factor *** justifies a higher fee" (5 U.S.C. § 504 (b)(1)(A)). The Postal Service has not adopted a regulation providing for a fee higher than $75.00 per hour (see 39 C.F.R. § 960.6, 960.7(a)).

(a) The applicants were the prevailing parties in this adversary adjudication and are eligible to receive an award of attorney fees under the EAJA.

(b) Complainant has failed to show that its litigation position was substantially justified or that special circumstances make an award unjust.

(c) The 228.3 hours spent by the applicants' counsel in representing them, as billed, appears reasonable in light of the difficulty and complexity of the issues in the proceeding. The EAJA and the implementing regulations adopted by the Postal Service limit the hourly rate which may be charged for attorney services to $75.00.

Therefore, the award must be limited to the amount of $17,122.50 which should be granted. The additional amount ($1,500.00) requested application should be disallowed because it was not incurred in defense of the original proceeding.

(d) The law firm of Daniels, Keshtan & Fornaris, P.A. has a valid charging lien in the full amount of the fees awarded. Therefore, the amount of $17,122.50 should be paid to that firm.