Securitypoint Holdings, Inc. v. Transportation Security Administration

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Decided September 2, 2016

No. 13-1068

SECURITYPOINT HOLDINGS, INC.,

PETITIONER

v.

TRANSPORTATION SECURITY ADMINISTRATION,

RESPONDENT

On Motion for Attorneys’ Fees under

the Federal Equal Access to Justice Act

Don J. Pelto, Bradley Graveline, and Laura M. Burson

were on the motion for attorneys’ fees under the Federal

Equal Access to Justice Act and the supplemental briefs for

petitioner.

Benjamin C. Mizer, Principal Deputy Assistant Attorney

General, and Mark B. Stern and John S. Koppel, Attorneys,

U.S. Department of Justice, were on the response in

opposition and the supplemental briefs for respondent.

Before: HENDERSON and SRINIVASAN, Circuit Judges,

and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

WILLIAMS.

2

WILLIAMS, Senior Circuit Judge: In SecurityPoint

Holdings, Inc. v. TSA, 769 F.3d 1184 (D.C. Cir. 2014), we

vacated an order of the Transportation Security

Administration for want of reasoned decisionmaking and

remanded the case for further proceedings. SecurityPoint now

seeks an award of attorneys’ fees as a prevailing party under

the Equal Access to Justice Act (“EAJA”), 28 U.S.C.

§ 2412(d)(1)(A) (2012). We conclude that SecurityPoint is a

prevailing party and, in doing so, overrule Waterman

Steamship Corp. v. Maritime Subsidy Board, 901 F.2d 1119

(D.C. Cir. 1990), as inconsistent with the Supreme Court’s

later decision in Shalala v. Schaefer, 509 U.S. 292 (1993).1

We also conclude that the challenged order was not

substantially justified. But because SecurityPoint achieved

only a partial success in the litigation, we award only a

portion of the fees sought.

* * *

Our merits decision in SecurityPoint Holdings concerned

an advertising program at airport security checkpoints in

which participating airports, under a Memorandum of

Understanding (“MOU”) with TSA, would contract with

private companies like SecurityPoint to obtain bins and other

equipment for use at checkpoints. In exchange, the private

companies would receive a portion of the revenue from

advertisements displayed inside the checkpoint bins.

In 2012 TSA amended its template for such MOUs to

include, among other things, a provision requiring airports to

1

Because this part of our opinion rejects a prior statement of

circuit precedent, it has been considered separately and approved by

the full court. See Irons v. Diamond, 670 F.2d 265, 268 n.11 (D.C.

Cir. 1981). (Chief Judge Garland did not participate in this matter.)

3

indemnify TSA from liability for intellectual property claims.

SecurityPoint opposed these changes and requested that TSA

cease and desist from implementing them. TSA refused,

prompting SecurityPoint to seek review in this court. We

granted SecurityPoint’s petition for review, vacated the denial

of the cease-and-desist request as arbitrary and capricious, and

remanded the case to TSA. We didn’t reach SecurityPoint’s

principal claim—that TSA had amended the MOU template in

retaliation for SecurityPoint’s patent infringement lawsuit

against TSA—but held that “TSA’s explanation for persisting

in the change, in the face of SecurityPoint’s arguments that

the change was unnecessary and self-defeating for TSA, failed

to satisfy the minimum requirements of reasoned

decisionmaking.” SecurityPoint Holdings, 769 F.3d at 1186.

After our decision issued, SecurityPoint filed a timely

application for attorneys’ fees under the EAJA. We deferred

consideration of the application pending TSA’s actions on

remand. After the proceedings on remand were completed,

the parties submitted additional briefs on the fee motion and,

at our request, filed briefs discussing whether the Waterman

case should be overruled.2

* * *

The EAJA directs a court to award “fees and other

expenses” to a “prevailing party” in a civil action against the

United States unless the government’s position was

“substantially justified” or “special circumstances make an

award unjust.” 28 U.S.C. § 2412(d)(1)(A). “[F]ees and other

2

In December 2015 SecurityPoint filed a new petition for

review in this court challenging TSA’s response on remand.

SecurityPoint Holdings, Inc. v. TSA, 15-1449 (D.C. Cir., Dec. 14,

2015).

4

expenses” include “reasonable attorney fees.” Id.

§ 2412(d)(2)(A). A fee application must be filed within 30

days from entry of final judgment, id. § 2412(d)(1)(B),

defined under the EAJA as “a judgment that is final and not

appealable,” id. § 2412(d)(2)(G). (A final judgment is not

appealable within the meaning of this provision if the time for

appeal has expired without one being filed. Melkonyan v.

Sullivan, 501 U.S. 89, 96 (1991); see also Al-Harbi v. INS,

284 F.3d 1080, 1083-84 (9th Cir. 2002) (considering the

opportunity to apply for certiorari).)

In determining whether a litigant is a prevailing party, we

apply a three-part test: “(1) there must be a court-ordered

change in the legal relationship of the parties; (2) the

judgment must be in favor of the party seeking the fees; and

(3) the judicial pronouncement must be accompanied by

judicial relief.” Initiative & Referendum Inst. v. USPS, 794

F.3d 21, 23-24 (D.C. Cir. 2015) (citation and internal

quotation marks omitted). Our 2014 decision clearly satisfies

the second and third requirements. The question is whether

the decision effected “a court-ordered change in the legal

relationship of the parties.”

Relying principally on Waterman, TSA argues that

SecurityPoint is not a prevailing party because it achieved a

“purely procedural victory.” TSA Original Br. 3. That

appears to be a correct reading of Waterman. There the

Maritime Subsidy Board granted U.S. Lines authority to

conduct unsubsidized around-the-world shipping service

without giving competing companies an opportunity to contest

the grant. The competitors sued the Board in district court,

which found an abuse of discretion in the Board’s refusal to

entertain their objections; the district court remanded the case

and thereby afforded the competitors the missed opportunity

to contest the grant. While the remand was pending before

the Board, the district court awarded the competitors

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attorneys’ fees under the EAJA. This court reversed, holding

that such a procedural victory didn’t make the plaintiffs

prevailing parties. We reasoned that “[f]rom a party’s

viewpoint . . . correct procedures and use of correct

substantive standards are largely (if not entirely) instruments

to a desired end—a change in someone’s primary conduct in

the real world: relief from a restriction, grant of a benefit,

imposition of a restriction on others, etc.” 901 F.2d at 1122.

The remand in Waterman wasn’t enough, we said, because it

didn’t confer on the plaintiffs any “benefit in the real world,

outside the judicial/administrative process.” Id. at 1123.

Rather, the remand merely “increased the odds” of ultimately

obtaining such a benefit, which we saw as insufficient. Id.

In reaching this result, Waterman relied a good deal on

the Supreme Court’s decision in Sullivan v. Hudson, 490 U.S.

877 (1989). There the Court considered whether a Social

Security claimant was entitled to fees incurred during the

administrative phase of the proceedings. The claimant had

lost at the administrative level, secured a remand from the

courts on the ground that the agency had failed to follow its

own regulations, and finally prevailed on remand. In holding

that the claimant was entitled to recover fees for the

proceedings on remand, the Court observed that where the

remand didn’t “necessarily dictate the receipt of benefits, the

claimant will not normally attain ‘prevailing party’ status . . .

until after the result of the administrative proceedings is

known.” Id. at 886. Further: “We think it clear that . . . a

Social Security claimant would not, as a general matter, be a

prevailing party within the meaning of the EAJA merely

because a court had remanded the action to the agency for

further proceedings.” Id. at 887. Waterman invoked both of

these passages, saying that “[a]lthough the Sullivan decision is

not a direct holding on the issue before us, the analysis

appears a critical step in support of the Court’s holding and

6

we see no reason not to take it seriously.” Waterman, 901

F.2d at 1122.

In Shalala v. Schaefer, 509 U.S. 292 (1993), however, the

Court made clear that Hudson turned on the fact that the

district court had retained jurisdiction during the remand to

the agency. See id. at 299, quoting the penultimate sentence

of Hudson. Schaefer had appealed from a denial of Social

Security benefits and secured a remand based on agency error.

After he was granted benefits on remand, he sought attorneys’

fees as a prevailing party. The issue for the Court was

whether his application was timely under the EAJA’s 30-day

clock. The answer, the Court explained, turned on a

distinction between a “sentence-four” remand and a

“sentence-six” remand under § 205(g) of the Social Security

Act, 42 U.S.C. § 405(g). (The labels refer to the sentences of

§ 405(g).) The crucial difference is that a “sentence-four”

remand is accompanied by immediate entry of judgment,

whereas a “sentence-six” remand entails the court’s retaining

jurisdiction and entering judgment only after completion of

the remand and post-remand proceedings. See Schaefer, 509

U.S. at 297. The Court held that a sentence-four remand order

was a “final judgment” triggering the 30-day clock to seek

fees. (Curiously, Hudson itself was a sentence-four remand

with retention of jurisdiction, which was improper under the

Court’s reading of § 405(g). Id. at 299-300.)

Critically, the Court rejected the argument that a remand

order could not be considered a final judgment “since a Social

Security claimant does not ‘prevail’ until he is awarded Social

Security benefits.” Id. at 300. To the contrary, the Court said,

by “[o]btaining a sentence-four judgment reversing the

Secretary’s denial of benefits,” the plaintiff achieved “some of

the benefit . . . sought in bringing suit” and thereby obtained

prevailing-party status. Id. at 302 (citation and internal

quotation marks omitted). According to the Schaefer Court,

7

Hudson’s “dicta” to the contrary—dicta on which Waterman

relied—“simply failed to recognize the distinction between a

sentence-four remand, which terminates the litigation with

victory for the plaintiff, and a sentence-six remand, which

does not.” Id. at 301. (The Court was plainly not using

“litigation” in one of the colloquial senses of the term, where

it encompasses whatever cases may be filed in resolution of

the parties’ overall dispute.)

Schaefer is fatal to Waterman’s idea that to “prevail” a

party must obtain a change in the opposing party’s “primary

conduct,” such as, in the agency context, “relief from a

restriction, grant of a benefit, imposition of a restriction on

others, etc.” 901 F.2d at 1122. Schaefer itself involved a

remand based on agency error, and the Court deemed it

sufficient, expressing no view whatever as to the probability

(much less a certainty) that it would lead to a grant of the

benefit applied for. Just like the sentence-four remand in

Schaefer, our 2014 decision in SecurityPoint “terminate[d] the

litigation with victory for the [petitioner],” Schaefer, 509 U.S.

at 301: we granted SecurityPoint’s petition for review, set

aside the challenged order as arbitrary and capricious, and

remanded the case to the agency for further review (without

retaining jurisdiction). See CIRCUIT RULE 41(b) (drawing a

distinction between, on the one hand, remanding a record and

retaining jurisdiction and, on the other, remanding a case and

terminating the action). Thus SecurityPoint achieved “some

of the benefit . . . sought in bringing suit,” which is all that’s

required. Schaefer, 509 U.S. at 302 (citation and internal

quotation marks omitted). By vacating the challenged order

and placing the agency under an obligation to consider the

cease-and-desist request afresh and supply new or better

reasons should it decide to deny the request again, our

decision effectuated “a court-ordered change in the legal

relationship of the parties.” Initiative & Referendum Inst.,

794 F.3d at 23.

8

Though Schaefer is enough to require overruling of

Waterman, another subsequent decision, Buckhannon Bd. &

Care Home, Inc. v. W. Virginia Dep’t of Health & Human

Res., 532 U.S. 598 (2001), made clear that Waterman’s

attempted focus on impact in “the real world” was no longer

sustainable. Rejecting the so-called “catalyst theory,”

Buckhannon held that a plaintiff doesn’t become “prevailing”

merely because “the lawsuit brought about a voluntary change

in the defendant’s conduct.” Id. at 600. Applied in a court

following Waterman, Buckhannon would appear to block an

award of fees even if a judicial remand on a procedural point

led to an agency change completely meeting the plaintiffs’

substantive concerns. Cf. Initiative & Referendum Inst., 794

F.3d at 23-25 (awarding fees where the terms of the remand

made the plaintiffs’ substantive victory inevitable).

TSA contends that “[t]he distinction Schaefer drew in the

Social Security context . . . makes little sense in the broader

framework of APA review” because “it would lead to the

anomalous result that someone who secured a remand without

retention of jurisdiction would be a ‘prevailing party,’ while

someone who secured a remand with retention of jurisdiction

would not.” TSA Second Suppl. Br. 6. Apart from being

precisely the line drawn in Schaefer, the distinction is in no

way “anomalous.” When a court retains jurisdiction, the civil

action remains ongoing, and any fee motion must await final

judgment. In such a case, the remand order is only an interim

victory; final judgment will not be entered until proceedings

on remand conclude, and the determination of prevailing-

party status properly awaits the sequel (e.g., an outcome at the

agency favorable to the plaintiff, as in Hudson, 490 U.S. at

881-82, or continued dispute in court). By contrast, when a

court remands a case based on agency error without retaining

jurisdiction, the case is terminated and the petitioner becomes

a prevailing party without regard to the outcome on remand

(which can be challenged by way of a new petition, as

9

happened here). Cf. Former Employees of Motorola Ceramic

Products v. United States, 336 F.3d 1360, 1366 (Fed. Cir.

2003).

TSA tries to analogize the remand in this case to interim

victories within the federal court system that are insufficient

for prevailing-party status, such as withstanding a motion to

dismiss or obtaining “an interlocutory ruling that reverses [a]

dismissal for failure to state a claim.” TSA Second Suppl. Br.

6. But the analogy is inapt. When a district court denies a

motion to dismiss—or when an appellate court reverses a

grant of such a motion—the plaintiff has won nothing but an

opportunity to continue pressing his claims in the case

originally filed. Such a ruling doesn’t compel the defendant

to alter its conduct one whit; it merely means that an attempt

to throw the case out was unsuccessful. And, as in cases

where the court retains jurisdiction, ascertaining the prevailing

party must await further developments in the case.

Finally, TSA cites Sole v. Wyner, 551 U.S. 74 (2007), in

which the Supreme Court held that a plaintiff who obtained a

preliminary injunction but was ultimately denied any

permanent relief was not a prevailing party. See id. at 77-78.

According to TSA, “if the preliminary injunction obtained in

Sole . . . was insufficient to make plaintiff there a prevailing

party, then a remand for reasoned decisionmaking by an

agency cannot be sufficient, by itself, to make petitioner a

prevailing party where the agency may ultimately adhere to its

initial determination.” TSA Second Suppl. Br. 8. A fallacy in

that reasoning is, again, that the preliminary injunction in Sole

was but an interim victory en route to final judgment (which

was against the fee applicant), whereas the vacatur and

remand in this case terminated the litigation in SecurityPoint’s

favor. See Sole, 551 U.S. at 84 (“express[ing] no view on

whether, in the absence of a final decision on the merits of a

claim for permanent injunctive relief, success in gaining a

10

preliminary injunction may sometimes warrant an award of

counsel fees”). Moreover, fee cases involving preliminary

injunctive relief may be sui generis, as reflected by the

complex array of decisions on that subject. See, e.g., Select

Milk Producers, Inc. v. Johanns, 400 F.3d 939 (D.C. Cir.

2005) (awarding fees for securing a preliminary injunction

where a subsequent change in regulation rendered the case

moot); Role Models Am., Inc. v. Brownlee, 353 F.3d 962

(D.C. Cir. 2004) (awarding fees for securing an administrative

remand to correct procedural errors along with a permanent

injunction barring the government from transferring certain

property in the meantime); Thomas v. National Science

Foundation, 330 F.3d 486 (D.C. Cir. 2003) (reversing a fee

award where the plaintiffs had secured a preliminary

injunction freezing certain contested funds but a subsequent

law rendered the case moot); Grano v. Barry, 783 F.2d 1104

(D.C. Cir. 1986) (holding that the plaintiffs, who sought to

preserve a historic tavern, were prevailing parties for securing

a preliminary injunction temporarily barring the tavern’s

demolition, even though the tavern was eventually razed as a

result of subsequent litigation).

We thus overrule Waterman and hold, consistent with

Schaefer, that a petitioner who secures a remand terminating

the case and requiring further administrative proceedings in

light of agency error is a prevailing party without regard to the

outcome on remand. Our sister circuits have reached the same

conclusion in the immigration context. See Johnson v.

Gonzales, 416 F.3d 205, 209-10 (3d Cir. 2005); Muhur v.

Ashcroft, 382 F.3d 653, 654-55 (7th Cir. 2004); Rueda-

Menicucci v. INS, 132 F.3d 493, 495 (9th Cir. 1997).

* * *

We next consider whether the agency’s position was

“substantially justified,” which would preclude a fee award.

11

28 U.S.C. § 2412(d)(1)(A). A position is substantially

justified “if a reasonable person could think it correct, that is,

if it has a reasonable basis in law and fact.” Pierce v.

Underwood, 487 U.S. 552, 566 n.2 (1988). See also id. at

565. The government bears the burden of establishing

substantial justification. See Halverson v. Slater, 206 F.3d

1205, 1208 (D.C. Cir. 2000). But even a finding that an

agency’s action was arbitrary and capricious doesn’t preclude

a decision that the action was substantially justified. See FEC

v. Rose, 806 F.2d 1081, 1087-90 (D.C. Cir. 1986).

TSA has not met its burden of demonstrating that its

position was substantially justified. In urging TSA to rescind

the revisions to the MOU template, SecurityPoint advanced

several serious points: It argued that the indemnification

demand was a “classic ‘poison pill’” because airports would

not and could not agree to it. It gave reason to believe that

TSA’s revisions would not only disable SecurityPoint’s

business but also damage TSA itself by shifting equipment

costs to the agency. Finally, it suggested that an

indemnification commitment was unnecessary because TSA

had an implied license to use the relevant intellectual property

at all airports that had contracts with SecurityPoint. TSA’s

denial letter, penned by its Chief Counsel, was wholly

unresponsive to these contentions. As we said in 2014, the

letter offered “no indication that . . . anyone at TSA even

considered the potential harms to . . . TSA[] from insistence

on the new provisions” and no engagement with the argument

that the agency already enjoyed an implied license.

SecurityPoint Holdings, 769 F.3d at 1188. This indifference

seems sufficiently beyond ordinary “arbitrary and capricious”

agency action to qualify as lacking substantial justification.

TSA also says that SecurityPoint’s “principal argument,

both before the agency and in litigation, was that TSA had

changed the terms of the MOU to retaliate against

12

SecurityPoint”—an argument that TSA “emphatically

rejected” and that the court didn’t reach. TSA Original Br. 8-

10. That’s true but ultimately irrelevant, because “[t]he

government . . . must demonstrate the reasonableness not only

of its litigation position, but also of the agency’s actions.”

Role Models Am., Inc. v. Brownlee, 353 F.3d 962, 967 (D.C.

Cir. 2004) (emphasis in original). See also Halverson, 206

F.3d at 1208; 28 U.S.C. § 2412(d)(2)(D) (providing that

“position of the United States” refers to both the position

taken in the civil action and the agency’s act or failure to act

on which the civil action is based). The court’s not reaching

the retaliation argument does nothing to help TSA carry its

burden of showing that the underlying action—the failure to

address critical arguments made by SecurityPoint—was

substantially justified.

* * *

Finally, we must determine the amount of fees to which

SecurityPoint is entitled. SecurityPoint seeks to recover

$108,393.48 for 564.2 hours of work at a rate of

approximately $190 per hour. TSA doesn’t contest its

adversary’s billing rates but argues that SecurityPoint

achieved only a limited victory in this litigation and that the

fee award should be reduced accordingly.

The Supreme Court has held that “the extent of a

plaintiff’s success is a crucial factor in determining the proper

amount of an award of attorney’s fees.” Hensley v. Eckerhart,

461 U.S. 424, 440 (1983). A first cut in measuring that extent

depends, where there are multiple claims for relief, on

whether the successful claims are “related” to the

unsuccessful ones. Hours spent on unsuccessful claims that

are “distinct in all respects from” the successful ones should

be excised. Id. By contrast, where successful and

unsuccessful claims are related, “a plaintiff who has won

13

substantial relief should not have his attorney’s fee reduced

simply because the district court did not adopt each contention

raised.” Id.

Here SecurityPoint’s principal argument was that TSA

adopted the MOU revisions in retaliation for a prior patent

suit, and that such retaliatory action was both arbitrary and

capricious and contrary to the First Amendment.

SecurityPoint also argued (albeit cursorily) that the denial of

its cease-and-desist request was arbitrary and capricious for

want of reasoned decisionmaking. The latter argument, the

only one we reached, was successful. Much argument was

also devoted to motions by both parties to supplement the

record with various documents bearing on the retaliation

claims; we denied those motions as moot.

We believe that SecurityPoint’s petition for review

presented only one claim for relief—that TSA’s denial of the

cease-and-desist request was unlawful and must be set aside.

Its assertion of several distinct grounds does not create

multiple claims. See Am. Petroleum Inst. v. EPA, 72 F.3d

907, 911-12 (D.C. Cir. 1996). But even if we treated the

various grounds as separate claims, they are related in the

sense meant by Hensley. The absence of any affirmative

explanation for TSA’s action buttressed the claim of

retaliation. And the efforts to supplement the record were

clearly related to SecurityPoint’s underlying challenges, as the

goal was to bring to the court’s attention evidence bearing on

TSA’s alleged retaliatory intent. This is a case where it is

“difficult to divide the hours expended on a claim-by-claim

basis,” so that the litigation should be viewed as a whole.

Hensley, 461 U.S. at 435.

Even when we are satisfied either that SecurityPoint

raised a single claim or that it raised multiple related claims,

Hensley tells us to assess the extent of its success and to

14

“award only that amount of fees that is reasonable in relation

to the results obtained.” 461 U.S. at 440. See also Goos v.

Nat’l Ass’n of Realtors, 68 F.3d 1380, 1384 (D.C. Cir. 1995).

In making the assessment we disregard the outcome of the

remand to TSA; not only is it under review, but under

Schaefer it is SecurityPoint’s success in the civil action before

us that we are evaluating. To a degree, the results fall short of

matching SecurityPoint’s efforts. Had we reached its

retaliation theory, to which it devoted much of its briefing, we

might well have responded favorably to its suggestion that we

order TSA to withdraw the offending changes to the MOU

template (though subject, presumably, to ultimate restoration

on an adequate record). See SecurityPoint Merits Reply Br.

32. Nonetheless, SecurityPoint won a significant victory—an

opinion vacating the challenged order on the ground that the

agency had failed to meet the minimum requirements of

reasoned decisionmaking. Under these circumstances, we

think a reduction of 20% is appropriate.

Finally, TSA argues that SecurityPoint’s billing records

are inadequate in certain respects and that too many hours

were spent on various tasks. Upon review of SecurityPoint’s

contemporaneous records, we conclude that while some

entries are less than perfect, the time spent on the various

tasks was reasonable and a further reduction is unwarranted.

Compare Role Models, 353 F.3d at 968-74 (D.C. Cir. 2004).

* * *

We grant in part SecurityPoint’s application for

attorneys’ fees and enter an award in the amount of

$86,714.78.

So ordered.