In the Matter of the Complaint Against ) July 25, 1994 ) ) BUILDING TRADES ASSOCIATION ) 325 Pennsylvania Avenue, S.E. ) Washington, DC 20003-1100 ) ) and ) ) BUILDING TRADES ASSOCIATION, INC. ) HARVEY OLECK and ) RICHARD OLECK ) 1181 S. Rogers Circle, Suite 6 ) Boca Raton, FL 33487-2724 ) P.S. Docket No. 37/88 APPEARANCE FOR COMPLAINANT: Jeannine H. Walter, Esq. Law Department United States Postal Service Washington, DC 20260-1147 APPEARANCE FOR RESPONDENTS: David P. Hendel, Esq. Wickwire Gavin, P.C. 8100 Boone Boulevard, Suite 700 Vienna, VA 22182-2642
Respondents in this proceeding have filed an application for attorney fees and other expenses pursuant to 5 U.S.C. §504 (The Equal Access to Justice Act "EAJA"), and the Postal Service's implementing regulations of that Act (39 C.F.R. §960.1 et al.). In their application Respondents seek a total of $50,289.26, as reimbursement for fees and other expenses incurred in litigation in defense of Complainant's Complaint filed against them which alleged materially false representations made by Respondents in direct mail circulars and sought the issuance of a cease and desist order and a false representation order.
Complainant initiated a proceeding against Respondents by filing a Complaint which alleged in paragraphs 13(a) through (f) that Respondents' direct mail circular contained six materially false representations in regard to certain membership benefits available to those who joined Respondent Building Trades Association (BTA) by paying the requisite membership fee. Following an evidentiary hearing and written submissions of proposed findings of fact and conclusions of law the presiding Administrative Law Judge issued an Initial Decision in which he found that Respondents' solicitation made the materially false representations alleged in paragraphs 13(c),(d) and (e) of the Complaint. The Administrative Law Judge further found the representations alleged in paragraphs 13(a) and (f) were made, but were not false. In regard to paragraph 13(b) the Administrative Law Judge found Respondents' solicitation did not contain the representation alleged by Complainant. Based on his findings regarding paragraphs 13(c), (d), and (e) of the Complaint, the Administrative Law Judge concluded that Respondents were engaged in a scheme to obtain money through the mail by means of materially false representations in violation of 39 U.S.C. §3005, and he recommended the issuance of orders pursuant to that provision.
Complainant thereafter filed an appeal of the Initial Decision with the Judicial Officer, contending that the Administrative Law Judge erred in finding that Respondents' solicitation did not contain the materially false representations alleged in paragraphs 13(a), (b) and (f) of the Complaint. Respondents did not file a separate appeal. However, Respondents reply to Complainant's appeal suggested that the Judicial Officer reconsider the entire Initial Decision, not just the portion appealed. In accordance with 39 C.F.R. §952.26 the entire record was considered on appeal.
Thereafter the Acting Judicial Officer issued the Postal Service Decision (Building Trades Association, P. S. Docket No. 37/88 (P.S.D. August 2, 1993)). The Postal Service Decision affirmed that portion of the Initial Decision which concluded that Respondents' solicitation made the materially false representations alleged in paragraphs 13(c),(d), and (e) of the Complaint. The Postal Service Decision also modified the Administrative Law Judge's conclusions in regard to paragraphs 13(a), (b), and (f) of the Complaint.
In regard to paragraphs 13(a) and (f) of the Complaint, the Postal Service Decision found the representations alleged therein, as contained in Respondents' solicitation were false, contrary to the Administrative Law Judge's conclusion. However the false representations were found not to be material. In regard to paragraph 13(b) of the Complaint, the Postal Service Decision found the representation alleged therein, was in fact made in Respondents' solicitation, again contrary to the Administrative Law Judge's conclusion. However, the representation was found not to be false. The cease and desist order and false representation order authorized by 39 U.S.C. §3005 were thereupon issued.
In order to be eligible for an award of attorney fees and other expenses under EAJA Respondents must establish that, as individuals, their net worth did not exceed $2,000,000 at the time the adversary adjudication was initiated, or as a corporation, or business, a net worth not in excess of $7,000,00;(1) that they did not employ more than 500 employees;(2) and that they were the prevailing party in the adjudication.(3) Once Respondents have established such elements of eligibility, Complainant has the burden of proving that its position as a party to the proceeding was substantially justified(4) in order to prevent the award of fees and expenses.(5) Exhibits attached to Respondents' application for fees and expenses establish that Respondents meet the net worth and employer requirements of EAJA (Exhibits 3-5). Thus, the prevailing party issue remains for resolution.
Respondents contend that they were the prevailing party in the false representation proceeding as they prevailed on three significant issues in the litigation which brought them some benefit.(6) Respondents identify these issues as those litigated pertaining to paragraphs 13(a), (b) and (f) of the Complaint. According to Respondents, they prevailed on these issues since the Postal Service Decision did not conclude that the representations alleged in those paragraphs of the Complaint were materially false and did not include language in the cease and desist order preventing representations of such nature in Respondents' solicitations. In buttressing their argument Respondents contend that Complainant considered Complaint paragraph 13(a), pertaining to the use of the term "membership" in BTA's solicitation, the single most important issue of the proceeding.(7)
Respondents also contend that the second most important issue in the case was Complaint paragraph 13(b). This contention is based on the fact that a significant amount of trial time was expended by both parties in litigating the issue.
The fact that Complainant appealed the Initial Decision is another factor relied upon by Respondents in their argument that they were the prevailing party. Respondents reason that had Complainant been the prevailing party it would not have appealed.
Respondents argue that the benefit achieved by prevailing on these significant issues is evidenced by the content of the cease and desist order issued. The cease and desist order proposed by Complainant was broader than the one issued.
As stated in Devine v. Sutermeister, 733 F.2d 892, 898 (Fed. Cir. 1984), "A court should look to the substance of the litigation to determine whether an applicant has substantially prevailed in its position .... In effect substance should prevail over form." [emphasis in original]. The present Respondents clearly have not substantially prevailed.
The Complaint filed in this matter alleged that six materially false representations were contained in Respondents' solicitation. The Postal Service Decision found three of the six representations to be materially false. As a result, the sanctions permitted by 39 C.F.R. §3005 and requested by Complainant, a cease and desist order and a false representation order, were issued. The cease and desist order prohibited Respondents from continuing to make in their solicitation those materially false representations set forth in paragraphs 13(c), (d) and (e) of the Complaint. The false representation order forbid the payment of any money orders drawn to the order of Respondents related to their solicitation, and directed the return of all mail addressed to Respondents which was related to the described activities. In addition, any such mail returned was to be clearly marked "Returned To Sender Due to Addressee's Violation of Postal False Representation Law." Thus, all recipients of the returned mail were clearly advised of Respondents' transgression of the law. Under these circumstances it would be incongruous to determine that Respondents, and not Complainant, prevailed in the litigation.
Nor were Respondents a prevailing party for EAJA purposes on any single significant issue which brought them a benefit. In regard to paragraphs 13(a) and 13(f) of the Complaint the Administrative Law Judge in the Initial Decision found the representations alleged therein were not false. However, the Postal Service Decision overturned such conclusions and determined the representations in fact were false. Only insufficient proof of the materiality factor prevented the inclusion of language covering such false representations in the cease and desist order. Respondents' position that they prevailed on these issues lacks substance and merit.(8)
In regard to Complaint paragraph 13(b), Complainant's failure to prove this one allegation to be a false representation or a materially false one does not automatically mean Respondents were a prevailing party. In the overall litigation in all significant areas Complainant prevailed. Even if Respondents are deemed to be a prevailing party on this one issue(9) Complainant's overall position in the litigation was certainly substantially justified,(10) as was its position pertaining to paragraph 13(b) of the Complaint.
The fact that Complainant, not Respondents, appealed the Initial Decision is of no consequence. Complainant's appeal was partially successful, as the Initial Decision was significantly modified in two areas. Additionally, although Respondents did not initially file an appeal from the Initial Decision, Respondents in their reply to Complainant's appeal sought Judicial Officer reconsideration of the entire Initial Decision.
Accordingly, it is concluded that Respondents have not established they were the prevailing party on any significant issue of the false representation action. Respondents' Application for Attorney Fees and Expenses is denied in its entirety.
James D. Finn, Jr. Acting Judicial Officer
2. Id.
3. 5 U.S.C. §504(a)(1); 39 C.F.R. §960.1, 960.5; Ramos v. Haig, 716 F.2d 471, 473 n. 3 (7th Cir. 1983).
4. 5 U.S.C. §504(a)(1); 39 C.F.R. §960.5; Ellis v. United States, 711 F.2d 1571, 1575 (Fed. Cir. 1983).
5. Award or fees and expenses may also not be allowed if it is determined that special circumstances make an award unjust. 5 U.S.C. §504(a)(1); 39 C.F.R. §960.5.
6. In this regard Respondents rely on language contained in Hensley v. Eckerhart, 461 U.S. 424, 433 (1983) that "plaintiffs may be considered 'prevailing parties' for attorney's fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit." (quoting Nadeau v. Helgemoe, 581 F.2d 275, 278-279 (1st Cir. 1978).
7. Respondents rely on correspondence between the parties pertaining to settlement as a basis for this contention. Such correspondence was not a part of the record in the initial proceeding, but was attached by Respondents (cont'd.)
to their fee application. The rules of practice for EAJA proceedings allow for supplemental evidence or further proceedings only upon application to the adjudicative officer and subsequent Order issued. 39 C.F.R. §960.18. Respondents made no such application in this instance. Nevertheless since Complainant made no objection to the admission of the correspondence into the record, and in fact relied upon some of it in opposition to the fee application, it has been considered.
8. Respondents' reliance on the settlement documents (the record of which is incomplete) in support of their position is of no avail. Many issues were discussed between the parties and in any event positions taken during settlement discussions may or may not reveal what issues the parties truly believed to be significant.
9. Any benefit Respondents received on this issue was not significant and was far outweighed by the issuance of the orders permitted by 39 U.S.C. §3005.
10. As stated in Roanoke River Basin Ass'n. v. Hudson, 991 F.2d 132, 139 (4th Cir. 1993):
"... we conclude that when determining whether the government's position in a case is substantially justified, we look beyond the issue on which the petitioner prevailed to determine from the totality of circumstances, whether the government acted reasonably in causing the litigation or in taking a stance during the litigation."