# Petition for Writ of Certiorari — Crandon v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_0731%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1992 - **Citation:** 506 U.S. 822 ## Text 91-1908 Buprems Court, U.S. | FILED iain ian 291992 | IN THE OFFICE OF THE CLERK | Supreme Court of the United October Term, 1991 ——— es ates LAWRENCE H. CRANDON, THOMAS K. JONES, HAROLD KITSON, JR., MELVYN R. PAISLEY AND HERBERT A. REYNOLDS, V. UNITED STATES OF AMERICA, Petitioners, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT PETITION FOR WRIT OF CERTIORARI GERARD F. TREANOR, JR AMY BERMAN JACKSON VENABLE, BAETJER, HOWARD & CIVILETTI Suite 1000 1201 New York Ave., N.W. Washington, D.C. 20005 (202) 962-4800 Counsel for Petitioner Lawrence H. Crandon ROBERT S. PLOTKIN PAUL, HASTINGS, JANOFSKY & WALKER Suite 1200 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 223-9000 Counsel for Petitioner Melvyn R. Paisley WILLIAM R. STEIN (Counsel of Record) DAVID M. DORSEN JOHN C. MOYLAN HUGHES HUBBARD & REED 1300 I Street, N.W. Washington, D.C., 20005 (202) 408-3600 Counsel for Petitioners Thomas K. Jones, Harold Kitson, Jr., and Herbert A. Reynolds CASILLAS PRESS, 1N¢ 1717 K STREET N.W., WASHINGTON, D.C. 20036 QUESTIONS PRESENTED This petition follows the Fourth Circuit’s divided decision reversing the district court’s award of attorneys’ fees and ex- penses to petitioners under the Equal Access to Justice Act (‘‘EAJA’’) upon remand after this Court’s decision in Cran- don v. United States, 494 U.S. 152 (1990). The following ques- tions are presented: 1. Are corporate employees excluded from eligibility under the EAJA simply because indemnification for legal fees may be available from their employer under a state statute, where the employees retain their own lawyer and are personally obligated by contract with the lawyer to pay his fees whether or not they are indemnified by their employer? 2. Does an individual who hires and becomes personally liable for paying his lawyer ‘‘incur’’ attorneys fees within the meaning of the EAJA, notwithstanding the availability of funds to pay the legal fees from a collateral source? 3. Do this Court’s holdings in Pierce v. Underwood and Cooter & Gell v. Hartmarx permit courts of appeals to engage in an ‘‘independent assessment”’ of the reasonableness of the government’s position when reviewing a district court’s deter- mination whether the government’s position was ‘‘substan- tially justified’ under the EAJA? 4. Under the EAJA, is the substantial justification for the government’s position determined solely by reference to the strength of its legal arguments, or may the trial court in the exercise of its discretion also consider other factors going to the reasonableness of the government’s decision to litigate, such as the unprecedented nature of the lawsuit and the government’s long acquiescence in the challenged conduct? ill TABLE OF CONTENTS Page QUESTIONS PRESENTED...................ccc cc cece. i eo Ss ee es cc iil Bimum OF AUTHORITIES... 2... ooo ccc ccccee V RPP ROEPU MEATY or eck ia uct ccucnccccencccccccy 1 POPUP URIIN oon ac cece cass ccavansccununccucce, 2 A 2 EE 2 A. Background—Petitioners’ Receipt Of So 3 B. The Government’s Lawsuit......................... 4 C. The Litigation On The Merits....................... 5 o. wemuamers Legal Fees............................ 6 E. Petitioners’ Fee Application......................... 7 REASONS FOR GRANTING THE WRIT................ 10 I. The Fourth Circuit Drastically Restricted The EAJA, Contrary To The Established Definition Of A Critical Term In The Statute And In Disregard Of The Trial Court's Well Supported Factual Findings........... ll IV Page II. Contrary To This Court’s Mandate In Pierce v. Underwood, The Fourth Circuit Engaged In De Novo Review Of The District Court’s Fact-Based Determination That The Government’s Position Was Not Substantially Justified, And Improperly Narrowed The District Court’s Inquiry Under ce er eS rey rir erat eee 20 ee EET PCT eT ER ET OLT EET TT Te CeCe Ce 28 APPENDICES Appendix A. Opinion of Court of Appeals............... la Appendix B. Opinion of Distnct Court................. 25a Appendix C. Opinion of District Court Oe ON REE eee Appendix D. Judgments and Orders of District EE. tC oh oak cea moGlaie~ ¥aw ee es 46a Appendix E. Judgment of Court of Appeals............. 55a V TABLE OF AUTHORITIES CASES Page Adkins v. Auto Owners Ins. Co., 105 Mich.App. 430, 306 N.W.2d 312 (1981)............- 14 American Indem. Co. v. Olesyuk, 353 S.W.2d 71 (Tex. Civ. App. 1901). ..... 00. sce ccaes 16 In re American Int’l Airways, Inc., GR BR. S06 CED. Fa. TOR ounce ccc cesarean aes 14 Anderson v. Bessemer City, OIO US. GRE CR a5 gc hdc i hace enisccivaeeiees 19, 21 Anderson v. Liberty Lobby, Inc., G77 03.G: Dee Ce oc cc a ca Viena ease caer eee 27 Barash v. Public Fin. Corp., 658 F.2d 504 (7th Cir. 1981)............ cece eeeeeeees 14 Bauer Bros. Co. v. Commissioner of Internal Revenue, 46 F.2d 874 (6th Cir.) cert. dented, 283 U.S. 85 (IGGL)... 0c cect were enes 14 Bailey v. United States, vias © £2). Se eer 24 In re Caceres Johnson P.R., Inc., - 9] B.R. 200 (Bankr. D.P.R. 1988)..............-.. cy AR 14 Ceglia v. Schwetker, 566 F. Supp. 118 (E.D.N.Y. 1983)...........----5+5>. 14 Chee v. Schweiker, 563 F. Supp. 1362 (D. Ariz. 1983)............---. eee 14 Cooter & Gell v. Hartmarx Corp., vi Page Crandon v. United States, 494 U.S. 152 (1990) rev'g United States v. Boeing, 845 F.2d 476 (4th Cir. 1988), aff’g in part & rev'g in part 653 F. Supp. 1381 Gs WO SUES Cae GNC eee uehiweeean 2, 6, 24, 2, 27 Dilltone v. Deborah Hosp., 113 N.J. Super. 548, 274 A.2d 597 (1971).............. 16 In re Donovan, eee 8 ee A | A re 13 In re Emerald Oil Co., GOS FBG Gis Gtk Cir. BOB). oi ec ctece savas 13 In re Energy Coop., 103 B.R. 171 Gaenkr. N.D. TF. 1966)... 2... ese ses 14 FERC v. Martin Exploration Mgmt. Co., SEG Ue. ee Claes eae haere ee 12 Graham v. Reserve Life Ins. Co., 274 NO. 156, B61 5.8.26 S65 CUBGB). ew ks ceccdase 14, 16 Hall v. Cook County, OOS Th. Gee, 10S MB. OE ies sc cei nine ieee eves 14 Icicle Seafoods, Inc. v. Worthington, STG US: FOR Tes so ov os 8 00kb 0 5s00e ceer kere 19 In re Iowa Premium Serv. Co., — pst Bt fF Ee | peepee errs 13 Jackson v. Virginia, O69 Ua. ee Ceca ake co abenkas ET eee ge rer ye 27 Mallard v. United States Dist. Ct. for S. Dist. of Iowa, 490 U.S. 296 (1989).................. 12 Vil Page Margolis v. Prudential Ins. Co. of Amenca, ee ©. BU. Kier Carin RRs sce sce ic cuseceseess 14 Maryland Cas. Co. v. Thomas, 260 S.W.2d G52 (Tex. Civ. App. 1956)... «2... ..00208, 14 MCI Telecommunications Corp. v. MCI Communications Corp., C.A. No. 89C-MR-216, 1990 WL 91100 (Del. Super. Ct. i Sa. | Pee aie ieee recame yanmar gy ane yr re Ae ear ue 19 In re Miniscnbe Corp., oe 8 a 2 eee OR} ree 14 Myers v. Sullivan, 3 ef Bibl Eo Se. | rey 24, ,25 Phillips v. General Serv. Adm’r, ee Bok le ae | rer eee 15 Pierce v. Underwood a ee 8, 20-23, 27 Quarles Pet. Co. v. United States, Je ge Be > a Oe en. onenerenee one 13 Rawlings v. Heckler, ee ee ee ss is a ae eb he a 24 Reliance Mut. Life Ins. Co. of Illinots v. Booher, 166 30.20 Zee (Fm. Dest. Ct. App. i906)............%.. 14 Rubin v. Empire Mut. Ins. Co., 25 N.Y.S.2d 426, 306 N.Y.2d 914, 255 N.E.2d 154 (1969)14, 16 Russell v. Thermalito Union School Dtst., 176 Cal. Rptr. 1, 115 Cal. App. 3d 880 (1981)........... 14 SEC v. Comserv Corp., ae bg fe Re Beer errr ry ese Page Sorensen v. Overland Corp., 142 F.Supp. 354 (D. Del. 1956), . ¢ & fe § R. fe A). ) re 14, 18 Spencer v. NLRB, 712 F.2d 539 (D.C. Cir. 1983), cert. dented, ee er ren ee ree 24, 25 Standard Oil Co. of Ohio v. Federal Energy Admin., 612 F.2d 1291 (Temp. Emer. Ct. App. 1979), aff'g 465 F. Supp. 274 (N.D. Ohio 1978)............... 14 Stuyvesant Ins. Co. v. Nardelli, ail 266 F.20 GOO Gih Cr. 1961)........55..... Serre 13 Unification Church v. INS, Pe oe ee es Ges PE as ek a ebooks 16 United States v. St. Paul Mercury Indem. Co., ge GF ee | ee eee eee ere 13,16 United States v. Ron Pair Enterpnses, Inc., ee I se ek as da vids wh Rene warn es 12 United States v. Yoffe, pee go Fg go ey Rees 20 Wall Industries, Inc. v. United States, 15 Cl. Ct. 796 (1988), aff'd mem., 883 F.2d 1027 (Fed. Cir. 1989)............. 16 Walsh v. Grange Mut. Cas. Co., 1 Ohio App.2d 304, 204 N.E.2d 690 (1964).......... 14, 16 Wayte v. United States, Be AE FR Pe ere me ee Peers: 25 West Virginia Univ. Hosp., Inc. v. Casey, Se ee NR ss kas Wow coh hha okies ane kee 12 Page In re White River Corp., Ce £ Et. Ce ae) | Seer errr rer 13 STATUTES | ihe og ee ere eee en ree passim BBE Oe Gy) Pn eter ree ee se 2 28 U.S.C. § 2412(d)(I)(A)... «ee eee eee ee eee passim Del. Code Ann. tit. 8, § 145(c)..... 66... eee eee ee eee 8, 11 N.Y. Bus. Corp. Law §§ 722-25. ........-- 2s eee eee eee 11 LEGISLATIVE MATERIALS H.R. Rep. No. 1418, 96th Cong., 2d Sess. (1980), reprinted in 1980 U.S. Code Cong. & Admin. NA ee rer ree eer ee ee ee 19, 23 TREATISES AND MISCELLANEOUS The American Heritage Dictionary (2d College ed. Houghton Mifflin Co. 1982, 1985)...........-+++-+- 19, 23 Ballentine’s Law Dictionary (3d ed. 1969)..........-.---- 13 Black’s Law Dictionary (6th ed. 1990)............. +++. 13 Burton, Legal Thesaurus (1980)........-..-.6--0 see seers 13 E. Falk, The Delaware General Corporation Law (1972)... .13 2 Model Business Corporation Act Annotated 1081-98.1 oe ee | ee eer err re ee ee. 13 x Page E. Veasy, J. Finkelstein, C. Bigler, Delaware Supports Directors With Three-Legged Stool of Limited Liability, Indemnification, and Insurance, 42 The Business Lawyer 399 (1987)................... 18 VII The Oxford English Dictionary (2d ed. _ a 13 Webster’s New Collegiate Dictionary (G.& C. Merriam | ELD BUM die. ee ee 13 Webster’s Second New International Dictionary (G.& C. Merriam Co., 1934)......................... 13 Webster’s Third New International Dictionary ems ©. Minette Co. BOF)... wo ccc cc ccccecce ns. 13 IN THE Supreme Court of the United States OCTOBER TERM, 1991 No. LAWRENCE H. CRANDON, THOMAS K. JONES, HAROLD KITSON, JR., MELVYN R. PAISLEY and HERBERT A. REYNOLDS, Petitioners, Vv. UNITED STATES OF AMERICA, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT PETITION FOR A WRIT OF CERTIORARI Petitioners Lawrence H. Crandon, Thomas K. Jones, Harold Kit- son, Jr., Melvyn R. Paisley and Herbert A. Reynolds petition this Court to issue a writ of certiorari to review the judgment of the United States Court of Appeals for the Fourth Circuit entered in United States of America v. Melvyn R. Paisley, Thomas K. Jones, Herbert A. Reynolds, Harold Kitson, Jr., and Lawrence H. Crandon. OPINIONS BELOW The opinion of the court of appeals is reported at 957 F.2d 1161 and is set forth in Appendix A to this Petition (cited as ‘‘App.’’). The opinion of the district court is reported at 747 F. Supp. 319 and is set forth in Appendix B. 2 This case was previously before this Court during the October 1989 Term, at which time the Court unanimously reversed an earlier judgment of the United States Court of Appeals for the Fourth Cir- cuit. Crandon v. United States, 494 U.S. 152 (1990), rev’g United States v. Boeing Co., 845 F.2d 476 (4th Cir. 1988), aff’g in part and revg in part 653 F. Supp. 1381 (E.D. Va. 1987). JURISDICTION The judgment of the court of appeals was entered on March 3, 1992. The Court has jurisdiction to review the judgment of the court of appeals under 28 U.S.C. § 1254(1). STATUTE INVOLVED 28 U.S.C. § 2412(d)(1)(A) provides in pertinent part: a court shall award to a prevailing party other than the United States fees and other expenses . . . incurred by that party in any civil action (other than cases sounding in tort) . . . brought by or against the United States in any court having jurisdiction of that action, unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust. - STATEMENT This case began in 1986 when the government filed a civil action against former and current government employees, claiming that their receipt of severance payments from their former private employer had violated a criminal conflict-of-interest statute, 18 U.S.C. § 209. On the prior sojourn in this Court, all nine Justices found incorrect the Fourth Circuit’s 2-1 opinion that held 18 U.S.C. \ 209 applicable to one-time, irrevocable severance payments receiv- ed prior to entry into government service. On remand, petitioners sought to recover legal fees from the government under the EAJA. The district judge, who had conducted the trial, found that the Government had failed to sustain its burden 3 of proving that its position was substantially justified. App. 28a. He further ruled that petitioners had ‘‘incurred’’ fees within the meaning of the EAJA because at all times they were personally obligated to pay their lawyers. The district court rejected the government’s argument that the petitioners had not ‘‘incurred’’ fees because they may be covered by a Delaware statute that provides for indemnifica- tion by a Delaware corporation of an individual who is made a party to an action ‘‘by reason of the fact that he is or was a[n} . . . employee of the corporation.’’ The district court ordered the govern- ment to reimburse a portion of petitioners’ substantial legal fees. As in the merits phase of this litigation, a divided court of appeals reversed. A. Background — Petitioners’ Receipt Of Severance Payments Petitioners are five former employees of The Boeing Company, who resigned or took early retirement from the company in 1981 or 1982 to accept important positions in the Executive Branch of the Federal Government, four with the Department of Defense, one with NATO. App. 34a-35a. In each case the government recruited the individual and each man agreed to become a candidate for the proposed government position. App. 33a. Before the government formally offered any of the men positions, Boeing informed each man of his eligibility for a severance payment and invited him to prepare his own estimate of the anticipated total financial impact of retiring or resigning from Boeing at that stage of his career. JA (1987) 332, 333, 335, 336, 338.! This invitation was in accordance with long-standing Boeing policy. Boeing had made a total of 21 similar severance payments between 1962 and 1982, and had fully disclosed all such payments to the government. App. 33a-34a. Each man received an unconditional and irrevocable lump-sum severance payment before leaving Boeing and before being formally \JA refers to the Joint Appendix filed in the court of appeals in the ins- tant case. JA (1987) refers to the Joint Appendix filed in the court of ap- peals in the appeal on the ments. 4 appointed to the proposed government position. App. 35a. None of the men promised to return to Boeing at a later time and Boeing made no commitment to rehire them. Jd. Boeing unilaterally deter- mined the amount of the payments. App. 36a. The government presented no evidence that, until suit was filed, any of the men knew how Boeing calculated the amount of severance payments or even what financial factors Boeing had taken into account. E .£., JA (1987) 957, 1045, 1056. The payments made by Boeing ranged from 22 to 75 per cent of the amounts the petitioners had requested. JA (1987) 332-40. Before being appointed to their government positions, the men disclosed to the government the possibility that they might receive severance payments; after their appointments, they disclosed their actual receipt of those payments to responsible government officials. App. 37a-38a. The first two of the recruited Boeing employees discussed the proposed payments both with the government officials who were to be their superiors and with Defense Department legal counsel. The four Defense Department recruits submitted SF-278 Financial Disclosure Reports, which included the sources and amounts of the payments. The responsible Defense Department officials reviewed and certified that they were ‘‘satisfied that there Is no actual or potential conflict of interest.’’ E.g., JA (1987) 121-22, 126-27, 148-49, 1035-37, 1060-63. After entering government service. none of the individual peti- tioners provided Boeing with any favored treatment or, indeed, par- ticipated in any source selection or procurement decision that af- fected Boeing. App. 37a, 43a. It was stipulated at trial that all five were competent and faithful government servants and. at the trial. Secretary of the Navy John.F. Lehman testified for the defense. App. 36a; JA (1987) 1072. B. The Government's Lawsuit The government did not get around to filing its complaint until July 22, 1986, which was between four and five years after the peti- tioners had received their severance payments. App. 35a. The government’s complaint was an unprecedented attempt to rely in a civil action on the criminal conflict-of-interest provisions embodied in 18 U.S.C. § 209, which makes it a crime for federal officers know- ingly to accept a ‘‘supplementation of salary, as compensation for services as an officer or employee’’ of the government. Thus, it was against petitioners that the government chose to bring their first civil action based on section 209 after 24 years on the books (or, indeed, based on the predecessor statute to section 209, which had been on the books since 1914). Nor had the government ever promul- gated regulations or guidelines for its prospective employees regard- ing the legality of severance payments. Nevertheless, the govern- ment sought to recover twice the amount of the severance payment (plus interest) — once from Boeing and once from the recipients. C. The Litigation On The Merits The trial judge, sitting without a jury, conducted a tnal that in- cluded live testimony from two of the five individual defendants, a government auditor, and the Secretary of the Navy. JA (1987) 988, 1007-78. The trial judge made detailed findings of fact and con- clusions of law. He concluded that the acceptance of a severance payment before entry into government service does not violate 18 U.S.C. § 209. App. 41a. Alternatively, he found that the payments did not violate section 209 because they were neither paid nor receiv- ed with the intent that they act as a supplementation to the govern- ment salanes or as compensation for government services. App. 41a-42a. The tnal court also found that the severance payments were timely disclosed to the government and therefore did not violate common-law agency principles, which prohibit only secret profits. App. 42a-43a. Finally, he held that the payments created neither the appearance of nor an actual conflict of interest because none of the individuals was in a position to — nor in fact did — render preferential treatment to Boeing, and, as a result, the government suffered no injury. App. 43a. On appeal, the Fourth Circuit, in a divided decision, reversed the distnct court's conclusion that section 209 does not apply to severance payments made pnior to entry into government service. Dilciictina eile 6 845 F.2d at 480. In addition, while the court agreed that liability can be imposed under section 209 only when the defendant specifical- ly intends to pay or receive the money ‘‘as compensation for govern- ment service,’’ the majority rejected the trial judge’s finding that Boeing and the individual defendants did not possess the requisite intent, even though the court acknowledged that the trial judge’s finding was ‘‘based largely on statements by individual defendants and others at Boeing.’’ Jd. The panel also rejected the trial judge’s findings that the individuals’ disclosure of the payments obviated any potential conflict of interest and that the government had suf- fered no injury. Jd. at 481. In dissent, Judge Hall objected to the majority’s statutory con- struction as well as to its reversal of the trial judge’s findings on the issue of intent. Judge Hall reminded the majority that the issue of intent is ‘‘a factual determination purely within the province of the district court,’’ which had reached its finding ‘‘after hearing substantial testimony and weighing the credibility of numerous witnesses.’ Jd. at 483. This Court unanimously reversed. The Court’s decision, joined in by six Justices, held that section 209(a) requires status as a government employee at the time of payment. 494 U.S. at 159. Three Justices filed a concurring opinion in which they concluded that section 209(a) applies only to periodic payments, and could never apply to unconditional, lump sum payments. Jd. at 174-75. Because this Court resolved the case based on its construction of section 209, neither opinion addressed petitioners’ arguments concerning the court of appeals’ reversal of the trial judge’s findings on intent or injury. D. Petitioners’ Legal Fees In order to defend themselves against the government’s lawsuit — alleging a criminal violation based on an action that the government had previously approved — petitioners retained counsel to repre- sent them. The individuals hired their own attorneys and agreed to be responsible for their fees. During the lengthy course of discovery, pre-trial motions, trial and two appeals on the merits, petitioners’ legal fees amounted to hundreds of thousands of dollars. Fortunately, the Board of Directors of Boeing, acting pursuant to Delaware law and Boeing’s by-laws, agreed to advance funds to the petitioners to cover their legal bills. In order to obtain the advances, the petitioners were required to — and did — execute undertakings promising to repay the advances to Boeing unless the Board votes to indemnify them, an event which has not yet occurred. Boeing initially declined to advance fees to petitioners Crandon and Paisley because they were still government employees at the time the lawsuit was filed. (Paisley began to receive advances after he left government service in 1987.) As a result, during the course of litigation on the merits, Crandon received no advances, and Paisley paid over $20,000 in legal fees out of his own pocket and ended up owing his lawyers an additional $40,000 that he was unable to pay. JA (1987) 50, 70. Notwithstanding its agreement to advance fees to petitioners, no fee arrangement existed between Boeing and petitioners’ counsel. As the district court expressly found, petitioners’ attorneys at all times viewed themselves as answerabie only to petitioners. Peti- tioners were personally contractually liable to their lawyers, and the lawyers affirmed that they looked to petitioners for ultimate pay- ment of their fees. Boeing had no role in retaining petitioners’ lawyers and exercised no control over the petitioners’ defense or the conduct of petitioners’ lawyers. App. 27a. I. Petitioners’ Fee Application Following remand from this Court, petitioners applied to the district court for attorneys’ fees pursuant to the Equal Access to Justice Act, 28 U.S.C. § 2412(d)(1)(A). Petitioners sought to recover from the government the attorneys’ fees which they had obligated themselves to pay to their attorneys, but which Boeing had largely advanced. Because of the hourly rate limitations of the EAJA, the amount sought was far less than the fees actually charged. 8 The district court ruled in favor of petitioners. It rejected the government's argument that petitioners were not the real parties in interest because fees had been advanced by Boeing and because Delaware law calls for indemnufication of former corporate em.vyees who successfully defend a lawsuit brought against them ‘‘by reason’’ of their employment. Del. Code Ann. tit. 8, § 145(c). The district court made the factual determination that recovery by petitioners of their attorneys’ fees from Boeing was only a ‘‘possibility,’’ and held that ‘‘the mere possibility of future indemnification’ did not disquality them under the EAJA, because at all times they were personally liable for their legal fees. App. 27a. The district court also held that the government had failed to satisfy its burden that its position was substantially justified. App. 28a. The district court emphasized that although the statute had been on the books in its current form for 27 years, ‘‘this is the first time the government has ever brought a criminal or civil case against anyone for receiving a severance payment, and this is the only time the government has tried to apply that provision to a person receiving any kind of payment before entering government service.”’ Id. Rely- ing on the unanimous decision of this Court, the district court con- cluded that the government’s construction of section 209 found no substantial justification in the text or legislative history of the statute. App. 28a-29a. The judge rejected the government’s suggestion that ‘the fact that two appellate judges agreed with the government’s position’’ in and of itself ‘‘make[s] it a substantially justified one.’’ App. 29a. The trial court concluded that ‘‘[a]lthough the govern- ment has the right to seek modification or repudiation of establish- ed doctrine, the EAJA exists to ensure that individual private litigants are not compelled to subsidize such re-evaluations.’’ Jd. Once again, a divided F ourth Circuit reversed. Purporting to apply the abuse-of-discretion standard set forth in Pierce v. Underwood, 487 U.S. 552 (1988), the majority proceeded explicitly to embark on a de novo review: ’’we turn to an independent assessment of the strength of — the justification for — the Government’s posi- tion... .’’ App. 12a. The court of appeals objected to the fact that ‘‘the district court accorded no weight to the cogency of the 9 reasoning’ of two circuit judges, App. 14a, and charged that the district court had ‘‘seriously underestimated the Supreme Court’s recognition of the difficulty of the interpretive issue.’’ App. 15a. Finally, contrary to the district court’s weighing of the relevant fac- tors, the appellate court found that this Court’s use of the rule of lenity in resolving the interpretive issue cut against petitioners, and that the unprecedented nature of the case was ‘‘completely neutral.’’ App. 12a. The court of appeals also held that given the existence of the Delaware corporate indemnification provision, the petitioners had not ‘‘incurred’’ legal fees. App. 6a-7a. First, the court disregard- ed the district court’s finding of fact that indemnification was a ‘‘mere possibility,’’ and instead made its own finding of fact, without record support, that Boeing was required to and actually would indemnify petitioners. App. 7a. Next, having ignored the district court’s find- ings of fact, the court of appeals ignored the statutory language. Rather than addressing whether petitioners had ‘‘incurred’’ fees — the language of the EAJA — it concluded that ‘‘the purposes’’ and ‘‘critical concern’’ of the EAJA required denying recovery to petitioners. App. 7a-8a. Once again, Judge Hall dissented. Especially without Boeing before the court, he was unwilling to conclude that ‘‘it is a foregone con- clusion’ that Boeing will indemnify petitioners, and found no basis to overturn the district court’s factual finding that indemnification was only a ‘‘possibility.’’ App. 21a. Furthermore, Judge Hall con- cluded that the government, not Boeing, should be the first line of reimbursement, and that any indemnification obligation of Boe- ing should be reduced by petitioners’ EAJA recovery. ‘‘ I see nothing in EAJA that permits the government to stand in back of the line to pay attorneys’ fees . . . The government’s obligation is fault- based; Boeing’s is analogous to insurance. . . [A]ppellees most definitely ‘incurred’ fees for which they were and are personally liable.’’ App. 21a-22a. He quoted the following language from the district court’s opinion: Simply put, the mere possibility of future indemnifica- tion by a company for the attorney’s fees incurred by its 10 employees is not, in itself, enough to alter the fact that employees who are ultimately liable for those fees are the real parties in interest. Were this not the case, the government would be able to viciously pursue corporate employees with the knowledge that, due to the possibility of later corporate indemnification, the government would not be held accountable for any unjustified conduct. The EAJA would certainly not be served by such a rule. (App. 22a-23a.) Judge Hall also concluded that the district court did not abuse its discretion in finding that the government failed to establish that its position was substantially justified. Disagreeing fundamentally with the majority’s view of the rule of lenity, he explained that the rule of lenity ‘‘is a force the government must weigh before it decides to go on its foray.’’ App. 23a (emphasis in original). Judge Hall observed that for a period of over 20 years Boeing had disclosed to the govern- ment that it had made a total of 21 lump-sum payments to employees departing for government service, that ‘‘the government had ac- quiesced in this practice,’’ that the government had waited over four years to bring its suit, and that it had taken petitioners four more years to vindicate their rights, culminating in unanimous vindica- tion in the Supreme Court. App. 20a. Judge Hall continued: The price of vindication, over a half-million dollars of at- torneys’ fees, was dear — more, indeed, than the govern- ment’s original complaint sought to recover. Today, the majority permits the government to walk away from the carnage it has wrought and leave the appellees to clean up as they may. (/d.) REASONS FOR GRANTING THE WRIT This petition presents an important question of federal law con- cerning the applicability of the EAJA to present or former corporate employees who may be subject to indemnification by their corporate employers under state law. In addition, this case confronts the Court with a situation in which the court of appeals, acting inconsistently 11 with this Court’s precedent, failed to give proper deference to the district court’s finding regarding substantial justification under the EAJA. Furthermore, as to two questions (discussed at pp. 15-16 and 23-25, infra), the decision of the court of appeals conflicts in principle with the decisions of other circuits. I. THE FOURTH CIRCUIT DRASTICALLY RESTRICTED THE EAJA, CONTRARY TO THE ESTABLISHED DEFINITION OF A CRITICAL TERM IN THE STATUTE AND IN DISREGARD OF THE TRIAL COURT’S WELL SUPPORTED FACTUAL FINDINGS 1. The issue presented by this case has broad applicability to employees of every corporation in the nation. The law of the State of Delaware provides that an individual who has been successful in defending an action brought against him ‘‘by reason of the fact that he is or was’’ a corporate employee, shall be indemnified by the corporation against expenses, including attorneys’ fees, ‘‘ac- tually and reasonably incurred.’’ Del. Code Ann. tit. 8, § 145(c). All but seven U.S. jurisdictions have enacted similar indemnifica- tion provisions, which are based on the Model Business Corpora- tion Act. The remaining seven jurisdictions all have indemnification statutes, though they differ in form from the Model Act.? The court below held that, because Delaware law provides for corporate indemnification, the government was excused from pay- ing petitioners’ legal expenses even though petitioners from the outset of the litigation had been legally obligated to pay their lawyers, and, in one instance, personally had made substantial payments. In other words, the court ruled that fees subject to indemnification have not been ‘‘incurred’’ by the prevailing party. Since all state 2Model Business Corporation Act Annotated 1081-98.1 (3d ed. 1992 Supp.) (‘‘All jurisdictions have indemnification statutes, and all but seven of them are similar to the present or one of the earlier versions of the Model Act,”’ including Delaware). See, e.g., N.Y. Bus. Corp. Law §§ 722-25. 12 laws provide varying degrees of indemnification to corporate employees who prevail in litigation, the decision below has all but eliminated the availability of the EAJA to defendants who are pre- sent or former employees of corporations in cases where there is any kind of nexus between the lawsuit and the individual’s status as a corporate employee. 2. The Fourth Circuit’s conclusion that the EAJA does not per- mit petitioners to recover from the government if the Delaware Statute imposes a parallel obligation on Boeing finds no support in the language of the statute. ‘Interpretation of a statute must begin with the statute’s language.’’ Mallard v. United States Dist. Court for S. Dist. of Iowa, 490 U.S. 296, 300 (1989). ‘‘[W]here, as here, the statute’s language is plain, ‘the sole function of the court is to enforce it according to its terms.’’’ West Virginia Univ. Hosp., Inc. v. Casey, 111 S.Ct. 1138, 1147 (1991); United States v. Ron Pair Enterpnises, Inc., 489 U.S. 235, 241 (1989); see also, e.g., FERC v. Martin Exploration Mgmt. Co., 486 U.S. 204 (1988). Despite the existence of this well established principle, the court of appeals never even stopped to consider the definition of the word “‘incurred,’’ but, instead, leapt immediately into its view of the con- gressional purpose in enacting the EAJA. After concluding that Boe- ing was obliged to reimburse petitioners and that Boeing would not ‘default deliberately on its legal obligation,’’ the court of appeals next stated: Aside from the unseemliness of such a judicial assump- tion, such a holding would not in fact serve a principal purpose of the EAJA: to avoid the deterring effect which liability for attorney fees might have on parties’ willingness and ability to litigate meritorious civil claims or defenses against the Government. The EAJA provides for fee- shifting precisely to avoid this result. . . . [T]o effectuate the purposes of the EAJA, a claimant with a legally en- forceable right to full indemnification of attorney fees from a solvent third party cannot be deemed to have incurred that expense for purposes of the EAJA, hence is not eligi- ble for an award of fees under that Act. (App. 7a.) 13 The failure of the court of appeals to consider the definition of ‘‘in- curred’’ is highlighted by its phrasing of the issue not as whether fees were ‘‘incurred,’’ but as whether the expenses should be ‘‘deemed”’ to have been incurred. App.6a, 8a. The word ‘‘incurred”’ has a clear meaning in the English language generally and in legal usage. ’’To incur’’ is ‘‘to become liable to,”’ ‘‘responsible for,’’ ‘‘legally obligated to pay,’’ or ‘‘subject to.”’ Numerous dictionaries (including legal dictionaries)? and literally dozens of federal and state cases uniformly give the word “‘incur’”’ that definition.‘ 3E.g., Webster’s Third New International Dictionary 1146 (G.&C. Mer- riam Co. 1971) (‘‘to meet or fall in with (as an inconvenience): become liable or subject to... ."’); Webster’s Second New International Dictionary 1261 (G.& C. Merriam Co. 1934) (‘‘To meet or fall in with, as something inconvenient or harmful; to become liable or subject to... .’’); The American Heritage Dictionary 653 (2d College ed. Houghton Mifflin Co. 1982, 1985) (‘To become liable or subject to, esp. as a result of one’s own actions... .'’); Webster’s New Collegiate Dictionary 423 (G.& C. Merriam Co. 1961) (‘‘To meet with, as a thing inconvenient or harmful; become liable to... .’’); VII The Oxford English Dictionary 834-35 (2d ed. 1989); Black’s Law Dictionary 768 (6th ed. 1990) (‘To become liabie or subject to... .’’); Ballentine’s Law Dictionary 606 (3d ed. 1969) (‘‘To bring upon one’s self. To become subject to liability by act or operation of law’’); Burton, Legal Thesaurus 273 (1980) (‘‘acquire, assume, bargain for, become liable for, become responsible for... .’’). 4E.g., Quarles Pet. Co. v. Umited States, 551 F.2d 1201, 1205 (Ct. Cl. 1977) (‘‘To incur means to becomie liable for or subject to; it does not mean to actually pay for’’ ) (footnote omitted); Jn re Donovan, 877 F.2d 982, 991 (D.C. Cir. 1989) (‘‘the term ‘incurred’ [means] actual fees which the subject paid or for which he is liable’); In re White River Corp., 799 F.2d 631, 632 (10th Cir. 1986) (‘‘a debt is incurred when a debtor first becomes legally bound to pay’’); Jn re lowa Premium Serv. Co., 695 F.2d 1109, 1111 (8th Cir. 1982) (en banc) (‘‘a debt is incurred on the date upon which the debtor first becomes legally bound to pay’’); United States v. St. Paul Mercury Indem. Co., 238 F.2d 594, 598 (8th Cir. 1956) (‘‘’Incur emphasizes the idea of liability’’’); Jn re Emerald Oil Co., 695 F.2d 833, 837 (5th Cir. 1983) (‘‘the debt is incurred on the date that the debtor becomes liable for it’); Stuyvesant Ins. Co. of New York v. Nardelli, 286 F.2d 600, 603 (5th Cir. 1961) (‘‘The term ‘incur,’ when used in policies of insurance, has a fixed legal meaning. ‘A debt has been incurred when 14 In this case, of course, the petitioners were liable to and legally obligated to pay their lawyers. The district court so found and the court of appeals did not disagree. If Boeing had not advanced fees, petitioners would have had to pay from their own assets, as Paisley, liability attaches’’’); Barash v. Public Fin. Corp., 658 F.2d 504, 510 (7th Cir. 1981) (‘‘construing ‘incurred’ to mean when a debtor first becomes legally bound to pay comports . . . with the plain meaning of the word’’); Standard Oil Co. of Ohio v. Fed. Energy Admin., 612 F.2d 1291, 1294 (Temp. Emer. Ct. App. 1979) (‘‘future costs can be regarded as having been ‘incurred’ before actual payment takes place’’), aff’g 465 F. Supp. 274, 280 (N.D. Ohio 1978) (‘‘A cost is normally incurred, regardless of amount, when a reciprocal obligation to pay for the item received arises’’): Bauer Bros. Co. v. Commissioner of Internal Revenue, 46 F.2d 874, 875 (6th Cir.), (‘‘expenses are incurred only when there is an agreement or a legal obligation to pay them within the taxable year’’), cert. denied, 283 U.S. 850 (1931); Margolis v. Prudential Ins. Co. of America, 629 F . Supp. 195, 198 (D.D.C. 1985) (‘‘Where there is no obligation to pay for a thing provided, there is no ‘expense incurred’ ’’); Ceglia v. Schweiker, 556 F. Supp. 118, 122 (E.D.N.Y. 1983) (‘‘Plaintiff maintains that the term ‘‘in- curred’ as used in the statute should not be given a narrow reading re- quiring the plaintiff to be actually liable for the fees awarded’’): Chee v. Schwetker, 563 F. Supp. 1362, 1364 (D. Ariz. 1983) (‘‘The terms ‘fees’ and ‘incurred’ indeed connote an obligation to pay’’); Sorensen v. Overland Corp., 142 F. Supp. 354, 361 (D. Del. 1956) (‘‘Where indemnity agreements use ‘incurred’ the indemnity is against liability and not against loss or damage’’), aff'd, 242 F.2d 70 (3d Cir. 1957); In re Miniscribe Corp., 123 B.R. 86, (Bankr. D. Colo. 1991) (‘‘a debt is incurred when a debtor first becomes legally obligated to pay’’); Jn re Energy Coop., 103 B.R. 171, 174 (Bankr. N.D. Ill. 1986) (‘‘a debt is incurred . . . when the deb- tor becomes legally obligated to pay’’); In re Caceres Johnson P.R., Inc., 91 B.R. 200, 202 (Bankr. D.P.R. 1988) (‘‘a debt is incurred . . . when the debtor becomes legally obligated to pay’’); Jn re American Int’! Air- ways, Inc., 68 B.R. 326, 327 (Bankr. E.D. Pa. 1986); Russell v. Ther- malito Union School Dist., 115 Cal. App. 3d 880, 176 Cal. Rptr. 1, 2 (Ct. App. 1981); Reliance Mut. Life Ins. Co. of Illinois v. Booher, 166 So.2d 222, 224 (Fla. Dist. Ct. App. 1964); Hall v. Cook County, 359 Ill. 528, 195 N.E. 54, 62 (1935); Adkins v. Auto Owners Ins. Co., 105 Mich. App. 430, 306 N.W.2d 312 (1982); Rubin v. Empire Mut. Ins. Co.,25 N.Y.2d 426, 306 N.Y.S.2d 914, 916, 255 N.E.2d 154 (1969): Graham v. Reserve Life Ins. Co., 274. N.C. 115, 161 S.E.2d 485, 490 (1968); Walsh v. Grange Mut. Cas. Co., 1 Ohio App.2d 304, 204 N.E.2d 690, 691 (1964); Maryland Cas. Co. v. Thomas, 289 S.W.2d 652, 655 (Tex. Civ. App. 1956). ’ a 15 in fact, did. If Boeing does not indemnify petitioners and they are required to repay the advances, they will not be able to recover amounts already paid to their lawyers and would be legally bound to pay all their unpaid legal bills. Under the plain meaning of the word, they ‘‘incurred’’ fees. The Fourth Circuit’s view of sound policy is not a proper basis for ignoring the established meaning of the words used in the statute. 3. While perhaps not rising to the level of a split in the circuits, the decision below is at odds with a 1991 case from the Federal Circuit, a case relied on by petitioners but ignored by the court of appeals. In Phillips v. General Serv. Adm’r, 924 F.2d 1577 (Fed. Cir. 1991), the court awarded legal fees under the EAJA where the plaintiff had a contingency fee arrangement under which her lawyer agreed to represent her for $2500 plus whatever additional fees might be awarded under the EAJA. The plaintiff ‘“was not respon- sible for further payment of . . . charges and no further payment was made by her during the course of the litigation.’’ Jd. at 1582. The court nevertheless allowed recovery of attorneys’ fees in ex- cess of $2500. ‘‘Inherent in the agreement is an intention on the part of Ms. Phillips to be obligated to her counsel for fees properly obtainable under the statute.’’ Jd. at 1583. The court held that the plaintiff had ‘‘incurred’’ fees despite the fact that the plaintiff made no payments during the course of the litigation and had no respon- sibility for any further payments, and despite the fact that there was a strong possibility she would never be obligated to pay her attorney any more money. If Ms. Phillips ‘‘incurred’’ fees under the EAJA, then a fortion the petitioners in this case did, since, as the district court found, petitioners’ obligation to pay their lawyers is concrete and absolute, as Paisley learned when he had to pay $20,000 from his own pocket. The one case cited in the panel’s opinion, as well as the cases relied upon by the government below, involved situations in which the fee applicant had no obligation to pay attorneys’ fees, because at the outset of the case a third party had retained and uncondi- tionally agreed to pay the lawyers. In those cases, the applicants were never legally obligated to pay the lawyers and, therefore, 16 did not ‘‘incur’’ any obligation. SEC v. Comserv Corp., 908 F.2d 1407, 1413-14 (8th Cir. 1990) (cited by court of appeals, App. 7a) (‘Comsery, not Johnson, was legally obligated to pay Johnson’s attorneys’ fees’’ so ‘‘Johnson was never exposed to unconditional liability for legal fees in the SEC litigation’); Wall Industries, Inc. v. United States, 15 Cl. Ct. 796, 799, 802 (1988) (‘‘no credible evidence was proffered establishing that Wall assumed any respon- sibility to pay for the legal fees and other expenses incurred in the refund litigation,’’ so Wall had not ‘‘incurred’’ fees) (emphasis add- ed), aff'd mem., 883 F.2d 1027 (Fed. Cir. 1989): Unification Church v. INS, 762 F.2d 1077, 1082 (D.C. Cir. 1985) (‘! ‘arrangement’ for payment for his [attorney’s] services is solely with the Unifica- tion Church’’). 4. The critical distinction based on whether an individual is legal- ly responsible for payment is well known and established in insurance law. In cases where an insured has no legal obligation to pay ex- penses, the insured did not incur an obligation and there is no coverage. But where the insured becomes legally responsible for payment, he incurs expenses and is entitled to coverage. The key in insurance law — as was the key in Phillips — is legal obligation, not actual payment. *For example, in American Indem. Co. v. Olesyuk, 353 S.W.2d 71, 72 (Tex. Civ. App. 1961), the court held an insurance company liable on a policy that provided for payment to an insured when he ‘“‘incurred’’ ex- penses. The court reasoned that because the insured ‘‘became liable for the payment of the charges therefor, such charges were incurred by him and [the insurance company] became liable to him for such expenses so incurred.’’ The court held inapplicable cases involving suits by veterans who received treatment free of charge: ‘‘[T]reatment was free to the veteran, therefore, he could incur no liability therefor . . . . The insured was not and could not be liable for any amount thereof.”’ Jd. at 73. Olesi- juk has been cited with approval in Rubin v. Empire Mut. Ins. Co., 25 N.Y.2d at 429, 306 N.Y.S.2d at 916; Walsh v. Grange Mut. Cas. Co., 204 N.E.2d at 691; Dillione v. Deborah Hosp., 113 N.J. Super. 548, 274 A.2d 597, 600 (1971); Graham v. Reserve Life Ins. Co., 161 S.E.2d at 490. See also United States v. St. Paul Mercury Indem. Co., 238 F.2d 594, 998 (8th Cir. 1956) (free hospital care provided to veteran ‘‘cannot in law be claimed to constitute an ‘expense incurred’’’). 17 As Judge Hall pointed out in dissent, while ‘‘the government's [EAJA] obligation is fault-based,’’ Boeing's indemnification obliga- tion is ‘‘analogous to insurance.’’ App. 22a. To hold that the ex- istence of insurance means that a litigant does not ‘‘incur’’ expenses is contrary to the most fundamental principles of insurance coverage. The same logic would conclude that a person injured by another's fault has not incurred damages if his medical insurer pays his medical bills. As Judge Hall explained, the ‘‘majority’s decision rejects the wisdom ef the common-law collateral source rule, which does not permit the wrongdoer to profit from his victim’s foresight to secure an insurer.’’ /d.® Indeed, under the Fourth Circuit’s crabbed reading, the EAJA would be unavailable to individuals with any source of reimburse- ment for their legal fees. The court held that ‘‘to effectuate the purposes of the EAJA, a claimant with a legally enforceable right to full indemnification of attorney fees from a solvent third party cannot be deemed to have incurred that expense for purposes of the EAJA.’’ App. 7a-8a. According to the Fourth Circuit, therefore, a person who purchased liability insurance that reimburses his legal fees could never seek redress under the EAJA for the government’s overreaching. Nor could a fee applicant with a contractual claim for reimbursement from a third party. In fact, if a wealthy aunt induc- ed the individual to undertake a defense by promising to reimburse his legal bills if he is vindicated at trial, the court below would deny his EAJA claim because he has a ‘“‘legally enforceable nght’’ to recover from his aunt on the basis of promissory estoppel. There simply is no basis in the language or legislative history of the EAJA for so restrictive a reading of the statute. As Judge Hall observed, ‘It is worth noting that if a current or former corporate employee receives reimbursement for attorneys’ fees under the EAJA, only a por- tion of the empioyee’s fees will be covered, since the maximum hourly rate awardable under the EAJA — $75 per hour adjusted by the cost of living ($106 in this case) — is far below current market rates for lawyers. Thus, the corporate employer would never be entirely relieved of its in- demification obligation by the EAJA, but would face, at best, a reduced obligation. 18 the Fourth Circuit’s holding is likely to have devastating conse- quences for the availability of the EAJA and its effectiveness in achieving the congressional goal of deterring unreasonable govern- ment litigation. This Court should resolve the issue. 5. The Court also should hear this case to correct the appellate court’s failure properly to defer to the trial court’s findings. The district court made a factual determination that Boeing’s payment of petitioners’ legal fees must be considered no more that a ‘‘mere possibility.’ Ample evidence existed in the record before the court to support this finding. Boeing had not retained petitioners’ counsel and had not exercised any control over the defense or conduct of the petitioners’ attorneys. JA 108. Boeing had not advanced fees to two of the petitioners. Boeing was not before the court and would not be bound by any determination regarding its indemnification obligation. JA 109. Boeing’s Board of Directors had made no deci- sion to indemnify petitioners. JA 108.7 Equally important, the district court recognized that Boeing had available the argument that it should not have to pay petitioners’ legal bills because suit had not been brought against each petitioner ‘‘by reason of the fact that he is or was a director, officer, employee or agent of the corporation,’’ one of the pre-requisites for indem- nification under the Delaware statute. The government had charg- ed petitioners with violating their duty to the United States by their receipt of the severance payments, and had alleged no wrongdoing by them related to their work for Boeing. See Sorensen v. Overland Corp., 242 F.2d 70 (3d Cir. 1957); E. Falk, The Delaware General Corporation Law 102 (1972). Thus, it is far from clear whether this lawsuit was brought against petitioner ‘‘by reason of the fact’’ that 7See also E. Veasy, J. Finkelstein, C. Bigler, Delaware Supports Direc- tors With Three-Legged Stool of Limited Liability, Indemnification, and In- surance, 42 The Business Lawyer 399, 408 (1987) (‘‘Entitlement to in- demnification is not automatic, whether permissive or mandatory, whether by statute, by-law, or contract. A determination of ultimate entitlement must be made by the appropriate decisionmaker’’). . | 19 they were Boeing employees. Boeing also might argue that the amount of expenses incurred was unreasonable.® The court of appeals summarily reversed the district court’s find- ing and concluded, despite the substantial support in the record for the trial court’s finding, that Boeing was obligated to and would in- demnify petitioners. Judge Hall took the majority to task for its failure to defer to the district court’s finding. As he stated in his dissent, | do not share the majority’s confidence . . . that in- demnification by Boeing is a foregone conclusion .. . . Aside from this court’s lack of day-to-day familiarity with Delaware law, Boeing is not even before us. It may fight indemnification claims; the record before us contains no concessions or waivers from Boeing. We have no way of knowing what creative arguments its lawyers may pre- sent to the state courts. (App. 21a.) This Court should remind the Fourth Circuit that it must give pro- per weight to the factual findings of the district court. Anderson v. Bessemer City, 470 U.S. 564, 576 (1985); Icicle Seafoods, Inc. v. Worthington, 475 U.S. 709 (1986). Moreover, the appellate court’s readiness to deny EAJA coverage based on unsupported assump- tions and surmise is inconsistent with the salutary purpose of the legislation. This Court should take this opportunity to correct this erroneous approach to questions about eligibility under the EAJA. 8Furthermore, the Delaware courts provide more limited reimburse- ment than the EAJA; they do not award attorneys’ fees incurred by a defen- dant in enforcing his right to indemnification. MCI Telecommunications Corp. v. MCI Communications Corp., C.A. No. 89C-MR-216, 1990 WL 91100, *12-13 (Del. Super. Ct. June 19, 1990). ee eo 20 Il. CONTRARY TO THIS COURT’S MANDATE IN PIERCE v. UNDERWOOD, THE FOURTH CIRCUIT ENGAGED IN DE NOVO REVIEW OF THE DISTRICT COURT’S FACT-BASED DETERMINATION THAT THE GOVERNMENT’S POSITION WAS NOT SUBSTANTIALLY JUSTIFIED, AND IMPROPERLY NARROWED THE DISTRICT COURT’S INQUIRY UNDER THE EAJA The EAJA provides that a prevailing party is entitled to attorneys’ fees ‘‘unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.’’ 28 U.S.C. § 2412(d)(1)(A). The government has the burden of proving that its litigation position was substantially justified. United States v. Yoffe, 775 F.2d 447, 450 (1st Cir. 1985): H.R. Rep. No. 1418, 96th Cong., 2d Sess. 18 (1980), reprinted in 1980 U.S. Code Cong. & Admin. News 4953, 4984, 4989, 4997. 1. This Court has held that EAJA fee determinations must be reviewed deferentially, and may be overturned only if an abuse of discretion: ‘‘the text of the statute permits, and sound administra- tion counsels, deferential review of a district court’s decision regar- ding attorney’s fees under the EAJA.’’ Pierce, 487 U.S. at 563. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 403 (1990) (in analogizing appellate review of Rule 11 sanctions to review of EAJA awards, the Court stated that ‘‘[iJn Pierce, the Court held a District Court’s determination under the [EAJA] that the posi- tion of the United States was substantially justified should be review- ed for an abuse of discretion’’). The Fourth Circuit, however, chose to ignore this Court’s man- date that a district court’s EAJA determinations should be review- ed deferentially. Notwithstanding that this Court’s decisions in Pierce and Cooter & Gell clearly answer the question of the proper stan- dard of review for EAJA fee determinations, the Fourth Circuit decid- ed to address that settled question anew: ‘‘There remains the ques- tion — how deferential?’’ App. 10a. Then, in complete defiance of this Court’s holdings, the Fourth Circuit answered its own ques- 21 tion: ‘‘we turn to an independent assessment of the strength of — the justification for — the Government’s position.’’ App. 12a (em- phasis added). - The Fourth Circuit’s ‘‘independent assessment’’ standard — in essence, de novo review — flies in the face of this Court’s deci- sions as to the meaning of deferential review. See Anderson v. Bessemer City, 470 U.S. at 573-74 (‘‘If the district court’s account of the evidence is plausible in light of the record viewed in its en- tirety, the court of appeals may not reverse it even though con- vinced that had it been sitting as the trier of fact, it would have weigh- ed the evidence differently’) (emphasis added). By ‘‘independently assessing’ whether the Government was substantially justified in litigating this case, the Fourth Circuit has completely undermined this Court’s decisions in Pierce and Cooter & Gell and ignored prin- ciples of sound judicial administration. The court below apparently rejected this Court’s admonitions that ‘‘the district court may have insights not conveyed by the record” (Pierce, 487 U.S. at 560); and that ‘‘only deferential review [gives] the district court the necessary flexibility to resolve questions involving ‘multifarious, fleeting, special, narrow facts that utterly resist generalization.’ *’ Cooter & Gell, 496 U.S. at 404, quoting Pierce, 487 U.S. at 561-62. 2. In fact, the Fourth Circuit has distorted Pierce case beyond recognition. The panel inferred that because this Court in the Pterce case engaged in a detailed analysis to determine whether the court of appeals had overreached in reversing the district court, it was free to re-examine and re-weigh the evidence underlying the district court’s determination. App. at 10a. That analysis turns Pierce on its head. Pierce was intended to instruct the courts of appeals to leave district court decisions alone as long as the record contains substantial evidence supporting the trial court’s determination. This Court’s opinion in Pierce examined the details of the record simply to demonstrate that the district court’s view was supportable and thus must be accepted. In this case, by contrast, the Fourth Cir- cuit reversed the district court simply because it disagreed with the trial judge’s assessment of the factors going to the reasonableness of the government’s legal and factual positions. The appellate court’s iat i 22 substitution of its own judgment for that of the district court’s is precisely what this Court in Pierce warned against doing. Under Pierce, the trial court has the responsibility for weighing the rele- vant factors, and the appellate courts may not reverse because they disagree with the balance reached by the trial court. Unreversed, the action of the Fourth Circuit will serve to eviscerate Pierce.? The court of appeals also usurped the district court’s authority by asserting that the district court had accorded ‘‘no weight to the cogency of the reasoning’’ of the two judges of the Fourth Circuit who had voted to reverse the district court on the merits. App. 14a. In fact, the district court held only that the government’s vic- tory before the Fourth Circuit ‘‘does not, in itself, establish substan- tial justification.’’ App. 29a (emphasis added). The trial court’s posi- tion is consistent with this Court’s teaching in Pierce that ‘‘[o]bvious- ly, the fact that one other court agreed . . . with the Government does not establish whether its position was substantially justified’’ for purposes of the EAJA because ‘‘the Government could take a position that is not substantially justified yet win.’’ Pierce, 487 U.S. at 569. The district court, therefore, took into account the Fourth Circuit majority opinion, but simply concluded, in the exercise of its discretion, that other factors outweighed the opinion of two of the thirteen judges who have considered this case. Certainly, the petitioners’ ‘‘side of the case has at least sufficient force that [the Fourth Circuit] cannot possibly state, on the basis of [its prior deci- sion] alone, that the District Court abused its discretion in finding no substantial justification.’’ Pierce, 487 U.S. at 569. 3. In addition to misapplying Pterce, the panel converted the whole °The panel also sought to distinguish Pierce, on the ground that the merits issues have been finally resolved and there is no danger of indirect ‘‘affirm- ances.’’ But that danger is always present in some degree, as evidenced by the fact that this Court did not reach several merits issues, including the issues of intent and harm to the government. Furthermore, when the case is not finally resolved until after a trial on the merits, the record is considerably longer than when a case is dismissed on motion or is settl- ed, and it makes all the more sense to defer to the trial court’s familiarity with the extensive record. See Pierce, 487 U.S. at 560. 23 issue of substantial justification into a limited inquiry of the ‘‘legal strength’’ of the government’s position, to the exclusion of other factors going to the reasonableness of the government’s action. The panel then proceeded to equate the legal strength of the govern- ment’s position with its legal right to bring an action: ‘‘[T]he Govern- ment’s interests here were essentially those that inform prose- cutorial discretion in criminal matters’’ and that discretion ‘‘must and does involve the targeting of pa: ticular conduct at particular times in response to many legitimate factors having nothing to do with the general legal strength of the claim.’’ App. 12a (emphasis add- ed). The panel went on to criticize the trial court on the ground that its action ‘‘necessarily implies a more cramped view of the latitude that must be accorded Government interpretations of the reach of untested, ambiguously-drawn criminal statutes than is ac- ceptable.’’ App.19a-20a. There are two fundamental flaws in this reasoning: First, the panel’s opinion, by limiting the issue under the EAJA to the ‘‘legal strength’’ of the government’s case, improperly and unnecessarily restricts the scope of the trial court’s inquiry into the _ justification for the government's position. This Court has observed that a trial judge should consider all the surrounding circumstances when deciding whether the government established that its posi- tion was substantially justified. See Pterce v. Underwood, 487 U.S. at 562 (issue is ‘‘multifarious and novel question’); Cooter & Gell ». Hartmarx Corp., 496 U.S. at 401 (analogizing Rule 11 deter- mination to EAJA determination, and holding that *‘to determine whether an attorney’s prefiling inquiry was reasonable, a court must consider all the circumstances of a case’’); see also H.R. Rep. No. 1418, 96th Cong., 2d Sess. 18 (1980), reprinted in 1980 U.S. Code Cong. & Admin. News 4953, 4984, 4989 (° ‘An adjudication, for ex- ample, may show that the policy or factual foundation underlying an agency rule is erroneous or inaccurate’’).!° l0By narrowing the issue to the ‘‘legal strength’ of the government's position, the court of appeals incorrectly took out of the case such factors as the government’s brazen attempt to play fast and loose with the courts. 24 The Fourth Circuit’s decision is inconsistent with decisions in other circuits. For example, in Spencer v. NLRB, 712 F.2d 539, 559-60 (D.C. Cir. 1983), cert. denied, 466 U.S. 936 (1984), the D.C. Cir- cuit cited three criteria to be used to decide whether the govern- ment’s position was substantially justified; (1) clarity of the gover- ning law (‘‘The government is always free, of course, to seek modification or repudiation of established doctrine, but individual private litigants should not be compelled to subsidize such reevalua- tions of controlling doctrine’’); (2) foreseeable length and complexity of the litigation; and (3) consistency of the government’s position (‘a court reviewing an EAJA petition should demand that the govern- ment make a particularly strong showing of justification for its position when there is evidence that the petitioner was subject to atypically harsh treatment’’) (emphasis in orginial). See also, e.g., Myers v. Sullivan, 916 F.2d 659,665-66 (11th Cir. 1990); Rawhngs v. Heckler, 725 F.2d 1192 (9th Cir. 1984); Bailey v. United States, 721 F.2d 357 (Fed. Cir. 1983). The Fourth Circuit improperly rejected the district court’s reliance, in part, on the fact that the government had not during the 27-year life of section 209 (or the more than 50 years its predecessor was on the books) brought a single civil case based on the statute, much less based on a severance payment made before government employment commenced. The court of appeals also wrongly criticized the district court’s consideration of the facts that Boeing had a ‘‘long standing practice of making severance payments’’ (‘‘at least twenty-one’’ from 1962-82); that ‘‘Boeing has repeatedly disclosed to the United States government, including Throughout the merits litigation, the government maintained — ‘‘indeed boast[ed] — that its position was ‘firmly established.’’’ 494 U.S. at 174 (Scalia, J., concurring). In the fee litigation, the government reversed its position and argued that the case was one ‘‘of first impression.’’ Memoran- dum of the United States in Opposition to the Motion of the Individual Defendants for Attorney’s Fees and Costs at 6, C.A. No. 86-829-A (E.D.Va., April 20, 1990); Brief for Appellant United States of America at 29, Nos. 90-3510 & 90-3513 (4th Cir., April 26, 1991). 25 responsible officials of the Department of Defense, the fact of these payment and the circumstances under which they are made’’; that the government had ‘‘actual knowledge of Boeing’s making severance payments’’; and that ‘‘the government has never ob- jected to the practice, and on at least one occasion informed Boe- ing that a proposed severance payment was in compliance with the federal conflict of interest statutes.’’ App. 33a-34a. To the district court’s consideration of these circumstances, the court of appeals’ answer in reversing the fee award was simple: ‘‘We disagree.’’ The court of appeals believed this enforcement history was ‘‘a completely neutral factor.’’ App. 12a. It defies logic, however, to conclude that the government’s sudden, dogged and intense attempts to apply a novel and untested theory to a practice it has long acquiesced in — and had in fact initially approved in this very case — cannot support a conclusion that the government’s deci- sion to subject innocent individuals to years of litigation, enormous expense, and the personal obloquy of being charged with criminal conduct was not substantially justified. Second, the decision below gives far too much leeway to the government. The Fourth Circuit ruled that the district court had not accorded enough weight to prosecutorial discretion to take ex- pansive ‘‘interpretations of the reach of untested, ambiguously drawn criminal statutes.’’ App. 19a-20a. In so holding, the court of ap- peals ignored this Court’s conclusion that section 209 was not am- biguous. 494 U.S. at 159. Even if the statute were ambiguous, however, the Fourth Circuit took an insupportably narrow view of the EAJA and ignored its goal of deterring unreasonable govern- ment litigation. See Spencer v. NLRB, 712 F.2d at 550; Myers v. Sullivan, 916 F.2d at 665. Since there are few limitations on the exercise of prosecutorial discretion, see, e.g., Wayte v. United States, 470 U.S. 598 (1985), there is, at least in the Fourth Circuit, little, if anything, left to the EAJA in situations such as the one before the Court. It is precisely when the government subjects an individual to the expense of litigation based on an expansive ‘‘interpretation’’ of an ‘‘untested and ambiguously drawn criminal statute’’ that the government should be required to bear the cost. 26 4. In reversing the district court, moreover, the court of appeals misconstrued this Court’s opinions in Crandon. The panel ignored the primary teaching of Crandon, namely, that a court’s focus must be on the text of the statute. The Statute’s text requires that the person must receive a supplement to his or her ‘‘salary’’ and that it be ‘‘as compensation for his services an officer or employee”’ of the government. All nine Justices of this Court concluded that a lump sum paid prior to entry into government service could not possibly violate the language of the statute. '’The text of § 209(a) thus indicates that employment status is an element of the offense.’’ 494 U.S. at 159. ’’[T}he only reasonable meaning of subsection (a) itself is that it applies exclusively to periodic payments.’’ Jd. at 174-175 (Scalia, J., concurring) (emphasis in original). The panel majority took great comfort in the detailed analysis engaged in by this Court of the legislative history of section 209(a), which had been, in large measure, the basis of the panel’s decision on the merits. By contrast, the district court correctly read this Court’s opinions in Crandon as (1) emphasizing that construction of a criminal statute based on legislative history rarely can provide the kind of warning due process requires, (2) pointing out that the panel had relied on materials that could not properly be considered as legislative history, and (3) demonstrating that the court of ap- peals had misconstrued the legislative history and that the legislative history actually reinforced the text of the statute. This Court’s analysis of legislative history in Crandon, therefore, provides no basis for overturning the district court’s assessment, made after weighing all the evidence and considering numerous relevant fac- tors, that the government had not been substantially justified in bring this lawsuit. The Fourth Circuit's reasoning also reveals a fundamental misap- prehension of the rule of lenity, on which this Court placed great emphasis in Crandon. Contrary to the view of the court below, however, this Court in Crandon did not look to the rule of lenity as a final factor to consider in a close case. Rather, this Court began its legal discussion with the rule of lenity and the importance of the rule in ensuring that ‘‘there is fair warning of the boundaries of eo 27 criminal conduct.’’ 494 U.S. at 158; cf. Jackson v. Virginia, 443 U.S. 307, 318-19 & n. 11 (1979) (analysis required in applying ‘‘reasonable doubt’’ standard); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252-56 (1986) (analysis required in applying ‘‘convincing clarity’’ standard). The point was that an expansive interpretation of a criminal statute — such as the reading of section 209 preferred by the government in this case — cannot, as a matter of due pro- cess, be supported by obscure and ambiguous legislative history. Judge Hall made this compelling point when he stated: The rule of lenity is not a passive recognition of a statute’s ambiguity; it is an affirmative principle in favor of the in- dividual, and it protects him from the tyranny of vague criminal laws. . . . [L]enity is not merely a way to decide whether the government prevails on the merits of a foray into the boundaries of a criminal law; it is also a force the government should weigh before it decides to go on its foray. Our inquiry, then, should be whether the government knowing that ambiguity in the statute would be resolved against it, was substantially justified in tak- ing the position it took on the meaning of § 209(a). The district court held that it was not, that holding is not an abuse of discretion. (App. 23a-24a (emphasis in original).) The district court, in other words, gave appropriate weight to this critical factor. The failure of the court of appeals to apprehend this balance demonstrates the wisdom of the deferential standard of review mandated by Pierce. This Court should grant certioran in order to reaffirm this important principle. 28 CONCLUSION This Court should grant the petition for a writ of certiorari. Respectfully submitted. GERARD F. TREANOR, JR. WILLIAM R. STEIN AMY BERMAN JACKSON (Counsel of Record) VENABLE, BAETJER, HOWARD DAVID M. DORSEN & CIVILETTI JOHN C. MOYLAN Counsel for Petitioner HUGHES HUBBARD & REED Lawrence H. Crandon Counsel for Petitioners Thomas K. Jones, Harold Kitson Jr., and ROBERT S. PLOTKIN Herbert A. Reynolds PAUL, HASTINGS, JANOFSKY & WALKER Counsel for Petitioner Melvyn R. Paisley May 1992 APPENDIX A PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT UNITED STATES OF AMERICA. Plaintiff-Appellant, v. MELVYN R. PAISLEY; THOMAS K. JONES; HERBERT A. REYNOLDS; HAROLD KITSON, JR.; LAWRENCE H. CRANDON, Defendants-Appellees, and THE BOEING, COMPANY, INC.., Defendant. UNITED STATES OF AMERICA. Platintiff-Appellant, ¥. MELVYN R. PAISLEY; THOMAS K. JONES; HERBERT A. REYNOLDS; HAROLD KITSON, JR.; LAWRENCE H. CRANDON, Defendants-Appellees, and THE BOEING, COMPANY, INC., ___ Defendant. No. 90-3510 No. 90-3513 2a Appeals from the United States District Court for the Eastern District of Virginia, at Alexandria. Claude M. Hilton, District Judge. (CA-86-829-A) Argued: October 2, 1991 Decided: March 3, 1992 - Before RUSSELL, HALL, and PHILLIPS, Circuit Judges. Reversed by published opinion. Judge Phillips wrote the ma- jority opinion, in which Judge Russell joined. Judge Hall wrote a dissenting opinion. COUNSEL ARGUED: Mark William Pennak, Civil Division. UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.., for Appellant. William Robert Stein, HUGHES, HUBBARD & REED, Washington, D.C., for Appellees. ON BRIEF: Stuart M. Gerson, Assistant Attorney General. William Kanter, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., Henry E. Hudson, United States Attorney, Alexandria, Virginia, for Appellant. John C. Moylan, Paul Greco, HUGHES, HUBBARD & REED, Washington, D.C., for Appellees Jones, Reynolds and Kitson; Gerard F. Treanor, Jr., Amy Berrman Jackson, VENABLE, BAETJER & HOWARD, McLean, Virginia, for Appellee Cran- don; Robert Plotkin, WASHINGTON, PERITO & DUBUC, Washington, D.C., for Appellee Paisley. 3a OPINION PHILLIPS, Circuit Judge: The question is the entitlement of certain government employees, appellees in this appeal, to an award of attorney fees as prevailing parties under the Equal Access to Justice Act, 28 U.S.C. § 2412 (the EAJA), following the Govern- ment’s unsuccessful attempt to recover from them a civil penalty for allegedly -receiving from their former private employer compensation in violation of 18 U.S.C. J 209(a). Because the former employer is legally obligated to indem- nify the employees for their attorney fees in the event of their successful defense of the Government action, we conclude that they did not ‘‘incur’’ the fee expenses, hence are not eligible for a fee award under the EAJA. Alternatively, we conclude that in any event the Government’s position in the underly- ing litigation was ‘‘substantially justified,’’ so that on that basis as well the employees are not entitled to a fee award under the EAJA. Accordingly we reverse the order of the district court awarding fees to the employees. I In 1986, the United States brought a civil penalty action against The Boeing Company, Inc. (Boeing), and appellees, five former Boeing employees, alleging that the lump sum payments appellees received as ‘‘severance payments”’ from Boeing upon leaving their employment with that company, but before accepting government appointments, violated 18 es § 209(a), a criminal statute prohibiting payment of any govern- ment employee's salary by anyone other than the Govern- ment or receipt of supplemental salary by a government employee from an outside source. Boeing advanced the at- torney fees and expenses of four of the five appellees pur- 4a suant to agreements obligating these appellees to repay Boe- ing all amounts advanced ‘’unless it shall ultimately be deter- mined pursuant to Section 145 of the Delaware Corporation Law and Section 4 of Article VII of the By-Laws of the Com- pany’ that appellees are entitled to indemnification by Boeing. The district court held that the payments did not violate 18 U.S.C. § 209(a); a divided panel of this court reversed; and the Supreme Court, on writ of certiorari, reversed this court, holding that the payments did not violate section 209(a) because the statute does not apply to payments made to or received by persons who, like appellees, were not govern- ment employees. at the time the payments were made and received. United States v. Boeing Co., 653 F. Supp. 1381 (E.D. Va. 1987), aff'd in part and rev'd in part, 845 F.2d 476 (4th Cir. 1988), rev'd sub nom. Crandon v. United States, 494 U.S. 152 (1990). Appellees then applied to the district court for an award of attorney fees and costs of defending the action under the EA- JA, which, in pertinent part, provides that a court shall award to a prevailing party other than the United States fees and other expenses . . . incur- red by that party in any civil action (other than cases sounding in tort) . . . unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust. 28 U.S.C. § 2412(d)(1)(A). The Government opposed appellees’ EAJA claim by argu- ing that because controlling Delaware law obligated Boeing to indemnify appellees, only Boeing, and not the appellees, 5a actually ‘‘incurred’’ the fees in this action.! The Government also argued that even if appellees were held to have incurred the fees and expenses in this matter, the Government had been ‘‘substantially justified’’ in bringing and prosecuting the underlying action against appellees. Rejecting both of the Government’s arguments, the district court granted appellees’ application for an EAJA award. United States v. Boeing Co., 747 F. Supp. 319 (E.D. Va. 1990). This appeal by the Government followed. II The Government challenges both grounds upon which the district court found the appellees entitled to a fee award: (1) that appellees incurred the fees and costs at issue, and are therefore eligible to recover them under the EAJA; and (2) that the Government’s position in the underlying merits litiga- tion was not substantially justified. We take these in order. A The Government argues that because Del. Code Ann. tit. 8, § 145(c) unconditionally required Boeing to indemnify ap- pellees for all of their attorney fees and costs, appellees did not “‘incur’’ those expenses, an essential condition to entitle- ment under the EAJA. Section 145(c) provides: To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) ‘Boeing does not qualify for recovery of fees under the EAJA. A corp oration is eligible for an EAJA award only if its net worth did not exceed $7,000,000 and it had no more than 500 employees at the time the action was filed. 28 U.S.C. § 2412(d)(2)(B). 6a of this section, or in defense of any claim, issue or matter therein, he shall be indemnified against ex- penses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith. We agree with the Government. The underlying merits litigation was of a type referred to in subsection (a) of section 145 of the Delaware Code, so that its subsection (c) applies.? Appellees indisputably were suc- cessful on the merits. Under these circumstances, section 145(c) plainly directs that appeilees ‘‘shall be indemnified’’ by Boeing and we therefore hold that Delaware law requires Boe- ing to indemnify appellees for the attorney fees and costs of defending the underlying action. Appellees contend, however, that even if Delaware law gave them an unconditional right to be indemnified, this does not resolve the question whether they nevertheless should be deemed to have ‘“‘incurred’’ the expenses for EAJA purposes. They argue that they should be deemed to have incurred them because having paid them, Boeing’s indemnification (or, more properly, declination to demand return of its advances) can only be counted at this point ‘‘a mere possibility.’’ The district Each appellee was a party to the underlying action ‘‘by reason of the fact that he is or was a director, officer, employee or agent of the cor- poration.’’ Del. Code Ann. tit. 8, § 145(a). In their brief, appellees con- jecture that Boeing might decline to indemnify them, taking the position that appellees were sued by the Government because of their employ- ment with the United States, not because of their employment with Boe- ing. However, it was only ‘‘by reason of the fact’’ that appellees were employees and received payments from Boeing before going to work for the Government that they were parties to the action brought against them (and Boeing) by the Government. Any effort by Boeing to avoid liability for indemnification on that basis (a basis, it should be noted, which ap- pellees carefully decline to suggest as more than a theoretical possibility) would not succeed. 7a court accepted this argument, Boeing, 747 F. Supp. at 321. We disagree. To hold that a prevailing party with an unconditional legal night to indemnification of its attorney fees by a manifestly sol- vent third party might nevertheless qualify for an EAJA award because indemnification had not yet occurred is unacceptable for several reasons. In the first place, it necessarily would imply an assumption by a court that the indemnitor either would default deliberately on its legal obligation, or, even more ques- tionably, would conspire with the indemnitee to alter the in- tended operation of the EAJA by jointly disregarding the legal right and duty. Aside from the unseemliness of such a judicial assumption, such a holding would not in fact serve a principal purpose of the EAJA: to avoid the deterring effect which liability for at- torney fees might have on parties’ willingness and ability to litigate meritorious civil claims or defenses against the Govern- ment. The EAJA provides for fee-shifting precisely to avoid this result. See SEC v. Comserv Corp., 908 F.2d 1407, 1415 (8th Cir. 1990). Consequently, in any situation in which the eligibility of a particular prevailing party for an EAJA award is in issue, it is appropriate to inquire whether that party would, as a practical matter, have been deterred from litigating had it been known that a fee-shifting award was not available upon a successful conclusion. If that question is asked here, it is obvious that appellees, all but one of whom were funded by an advance which by contract they need not refund if they prevailed in litigation, would not have been deterred had the EAJA not then existed. This is the critical concern underlying the EAJA precondition that a fee claimant shall have ‘‘incur- red’’ the expense. Accordingly, we hold that, to effectuate the purposes of the EAJA, a claimant with a legally enforceable right to full indemni- ee Se 8a fication of attorney fees from a solvent third party cannot be deemed to have incurred that expense for purposes of the EA- JA, hence is not eligible for an award of fees under that Act. B The Government also contends that even if appellees should be deemed to have “‘incurred”’ these expenses, thereby quali- fying for a fee award if the other requirements of the EAJA were met, the district court also erred in concluding that the Government's position was not substantially justified. We agree. Whether for purposes of the EAJA the Government’s ‘‘posi- tion’’ in particular litigation is ‘‘substantially justified’ has proved to be an issue of considerable conceptual and practical difficulty, given the open-endedness of the statutory language and, no doubt, the delicacy of the question. It had given the lower federal courts enough trouble that in 1987 the Supreme Court undertook to clarify the matter — so far as was possible in light of the statutory text. In Pierce v. Underwood, 487 U.S. 902 (1988), the Court, wrestling essentially with the two possi- ble (almost opposite) meanings of ‘‘substantially’’ in this con- text — ‘‘considerable’’ (to a high degree) or ‘‘in the main’”’ (to a reasonable degree) — came down with ‘‘in the main,’’ i.e., ‘‘to a degree that could satisfy a reasonable person.’’ Id. at 565. That comes out, said the Court, as ‘‘no different from the ‘reasonable basis in law and fact’ formulation adopted by . . . the vast majority of Courts of Appeals that have ad- dressed this issue,’’ including this court, see Anderson v. Heckler, 756 F.2d 1011, 1013 (4th Cir. 1985). In the context of this case, the question of substantial justification is therefore whether the Government’s ‘‘position’’ —that the severance payments to the Boeing employees were prohibited by 18 U.S.C. § 209(a) — was one that had a reason- 9a able basis in law and fact, i.e., was such as to satisfy a reasonable person. In practical terms, this comes to whether the Government attorneys who decided to bring the civil penal- ty action made a reasonable legal decision that § 209(a) covered the payments. The district court held that this decision was not a reasonable legal one, that the position taken on its basis was not substan- tially justified. The court’s conclusion was rested almost en- tirely on the fact that the legal position taken by the Govern- ment had in the end been found legally wrong by a unanimous Supreme Court (not to say by the district court and a dissen- ting court of appeals judge on the way to the Supreme Court). 747 F. Supp. at 322. We are required to review this decision of the district court under an abuse of discretion standard. Pierce, 487 U.S. at 997-63. Though recognizing that such a decision may involve both factual, legal, and discretionary components, the Pierce Court concluded that, mainly for concerns of judicial administra- tion, a unitary standard that accords the deference traditionally associated with abuse of discretion review was appropriate for all aspects of this decision, including even those that could be characterized as purely legal. Jd. Some of the practical reasons thought in Pierce to justify deferential review even of purely legal aspects of substantial justification decisions are not present where, as here, the merits issue has by now been finally and definitively resolv- ed. In such a situation, there is not the general danger em- phasized in Pierce that intensive de novo review of the legal aspects of an EAJA decision might indirectly compromise a still pending review of the closely-related merits issues, or encourage needless merits appeals by the Government to avoid the risk of indirect ‘‘affirmances’’ (on fee-claimants’ EAJA ap- peals) of Government losses on the merits in the district courts. See id. at 561. 10a Furthermore, since Pierce was decided, the Court has in- dicated that in the comparable use of a unitary abuse of discre- tion standard in reviewing Rule 11 sanction decisions, flat er- rors of law must be considered abuses of discretion. Cooter & Gell v. Hartmarx Corp., U.S. __, _, 110 S.Ct. 2447, 2459 (1990). Notwithstanding these intimations that pure legal error must yet on occasion ve freely reviewable under these administra- tively-driven deferential review regimes, Pierce still stands powerfully against such a view. See Pierce, 487 U.S. at 563 (conceding apparent need in some cases for more stringent review standard to avoid injustice, but nevertheless concluding that “‘the generality rather than the exception must form the basis for our rule [of deference]’’). We therefore consider that even with respect to misapprehensions of controlling law, our review must be deferential in obedience to Pierce. There remains the question — how deferential? Pierce of course wisely did not attempt to formulate the degree in terms more precise than the traditional abuse-of-discretion formula- tion it adopted for across-the-board application. But Pierce ob- viously contemplated a degree of deference considerably short of a simple, accept-on-faith, rubber-stamping of district court decisions on this issue. Pierce’s own careful, detailed review to determine whether the primary EAJA decision in that case reflected an ‘‘abuse of discretion’’ demonstrates that the deference commanded is a suitably informed deference. See Pierce, 487 U.S. at 568-71 (affirming court of appeals holding of no abuse in district court’s determination that Government’s position was not substantially justified). ‘Although one of the avowed aims of the adoption of an across-the-board abuse of discretion review standard is the avoidance of duplicative judicial efforts, see Pierce, 487 U.S. at 560-61, it is inescapable that honest, prin- cipled review under the traditional deferential standards may yet require considerable appellate court effort. In order to declare that discretion has lla In the course of its review, Pierce also gave some guidance on the way to conduct principled review under this standard. It first assessed the district court decision by looking at the available ‘‘objective indicia of the strength of the Government’s position: in that case, 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. Essentially finding these a washout, certainly not suf- ficiently favorable to the Government to find on their basis alone an abuse of discretion in the district court’s decision, the Court turned to an independent assessment of the merits of the Government’s position. Finding that the opposing arguments advanced by the parties on the unadjudicated merits did not ‘‘command’’ a conclusion that the Government’s posi- tion was substantially justified, the Court concluded that the district court had not abused its discretion in its determina- tion to the contrary. See id. at 568-71. We can follow the genera! review process Pierce charted, but the available indicia inevitably are not at all the same. This case was litigated all the way to the Supreme Court, not settled before trial. No other court has ruled on the merits of the issue | in other cases. Here the obvious sources for an independent assessment of the strength of the Government’s merits posi- tion are the merits, decisions and opinions of the district court, the court of appeals, and the Supreme Court, rather than mere opposing contentions of counsel as to the merits. been abused, or clear error committed in finding facts, a substantial can- vassing of the relevant materials may be required in any case of signifi- cant complexity. See Anderson v. City of Bessemer City, 470 U.S. 564, 981 (1985) (Powell, J., concurring) (cautioning that Court’s deliberate heightening of deference to be accorded in clear ecror review of factfind- ings should not be read to relieve appellate courts of the “type of burden- some review that may be appropriate in some cases’’). Review of ‘‘discre- tionary’’ EAJA decisions can be expected frequently to require the same | sort of ‘‘burdensome’’ review. 12a As did the Pierce Court, we look first to the available ‘‘ob- jective indicia.’’ Here the merits were finally decided against the Government only at the Supreme Court level. We think this at best a neutral factor. Although the fact that the claim survived through the court of appeals rather than collapsing or settling at an earlier stage points generally in the direction of strength, it obviously could not suffice, standing alone, to command a finding of substantial justification. Completely un- founded claims sometimes, for a variety of reasons, survive beyond their just desserts. The fact that no other court has ruled on the merits — none having had a chance — is advanced by the appellees as an in- dication of non-justification. The fact that although § 209(a) had been on the books for 27 years, this was the first action ever brought by the Government on comparable facts in- dicates, they contend, the weakness of the claim, hence non- justification for its prosecution. The district court thought this persuasive. 747 F. Supp. at 322. We disagree. We see this as a completely neutral factor in assessing the strength of the Government's position. There are any number of practical reasons other than awareness of a claim’s intrin- sic weakness why its attempted application by Government enforcers to a particular type of conduct may be delayed. Though this was a claim for civil penalty rather than a pro- secution, the Government’s interests here were essentially those that inform prosecutorial discretion in criminal matters. That discretion must and does involve the targeting of par- ticular conduct at particular times in response to many legitimate factors having nothing to do with the general legal strength of the claim. When we turn to an independent assessment of the strength of — the justification for — the Government’s position, the 13a most direct indicator is that it has been rejected on the merits by the Supreme Court. As earlier noted, this was the prin- cipal basis upon which the district court found it not substan- tially justified for EAJA purposes. Although the impulse to equate ultimate judicial rejection of the Government’s merits position — at whatever level — with its lack of substantial justification is understandable, the courts perforce have rejected it as inappropriate, for to do so, ‘‘would virtually eliminate the ‘substantially justified’ stan- dard from the statute.’’ Broad Avenue Laundry & Tailonng v. United States, 693 F.2d 1387, 1391-92 (Fed. Cir. 1982). Or, as Judge Murnaghan of this court once put it, it would be ‘‘a war with life’s realities to reason that the position of every loser in a lawsuit upon final conclusion was unjustified.”’ Evans v. Sullivan, 928 F.2d 109, 110 (4th Cir. 1991). Equally unacceptable is the opposite impulse: to find in an intermediate judicial determination of merit in the Govern- ment’s position proof that the position was at least one that ‘‘could satisfy a reasonable person,”’ i.e., the one or more presumably reasonable Article III judges who at some stage of the litigation found merit in it. That too, despite the possi- ble incongruity of not so concluding, cannot be allowed, to determine the matter. To do so would be equally at ‘‘war with life's realities’ in the world of judges and judging and the legal process. As a practical matter, the substantial justification issue cannot be transformed into an up-or-down judgment on the relative reasoning powers of Article III judges who may have disagreed on the merits of a Government litigation position. In sum, merits decisions in a litigation, whether intermediate or final, cannot, standing alone, determine the substantial justification issue. But of course they — and more critically their rationales — are the most powerful available indicators of 14a the strength, hence reasonableness, of the ultimately rejected position. As such, they obviously must be taken into account both by a district court in deciding whether the Government's position, though ultimately rejected on the merits, was substantially justified, and by a court of appeals in later review- ing that decision for abuse of discretion. - In this case, the district court accorded no weight to the cogency of the reasoning by which two circuit judges of this _ court had concluded that the Government’s position was not only justified, but was legally correct.’ That reasoning was, essentially, that the critical language of § 209(a) did not ‘‘[o]n its face . . . require that payment occur while the [recipient] was a government employee’ ’; that in total statutory context the intended legislative meaning on this critical point was am- biguous, requiring resort to legislative history; and that this history pointed to an intention to cover the type pre- government employment payments at issue. 845 F.2d at 479-80. 4For the reasons just noted, the court was of course right in holding that the court of appeals decision could not ‘‘in itself’’ establish substan- tial justification. 747 F. Supp. at 222. But this does not mean, on the other hand, that the rationale of an ultimately rejected intermediate decision is, on that account alone, entitled to no weight. That may or may not be the case, depending upon the cogency of rationale for that decision, as that, in turn, is mainly indicated by the rationale for its later reversal. The point is that the mere cast of intermediate and final merits decisions, or simple head-counting of judges on different sides of the merits issue, cannot be made decisive. An independent assessment of the substantial justification for the Government position requires a deeper and more difficult inquiry. Interestingly, the district court apparently thought it necessary to discount the significance of the court of appeals’ intermediate reversal of the former’s ultimately vindicated merits decision. This the court did by point- ing — erroneously — to Pierce's requirement of deference to district court decisions on the substantial justification issue itself. Jd. As noted above, the proper view would be that the court of appeals’ reversal — standing alone — was of no significance, only the cogency of its rationale was. 15a Indirectly alluding to the court of appeals’ reasoning — which of course was relied upon by the Government in attempting to establish its substantial justification for its position — the district court considered it to have been flatly rejected by the Supreme Court. As to whether the critical language was, in the first place, ambiguous on its face — as the court of ap- peals had held — the district court thought that the Supreme Court had unequivocally concluded that the ‘text of [Section] 209(a) . . . indicates that employment status is an element of the offense’ ’’ 747 F. Supp. at 322 (quoting Crandon, 110 S. Ct. at 1002). On this basis, the district court concluded that ‘‘[iJt was, therefore, unreasonable for the government to re- ly on a nonexistent ambiguity in the statute.’’ Jd. Furthermore, opined the district court, even if the statute were ambiguous the authority construing Section 209, as well as the pertinent legislative history, provides no support for the government’s position. As the Supreme Court found, the government’s attempt to apply the statute to persons not serving as federal employees at the time of the payment was at odds with the language and clear congressional intent of Section 209. Id. (citing Crandon, 110 S. Ct. at 1003-06). In sum, the district court read the Supreme Court’s rationale for reversal of the court of appeals’ decision as so thorough and ready a rejection of that court’s statutory interpretation as to compel the conclusion that the Government’s position thereby upheld was not substantially justified. With all respect, and with the deference we think Pierce com- mands, we think the district court so seriously underestimated the Supreme Court’s recognition of the difficulty of the inter- pretive issue, hence of the reasonableness of the Govern- 16a ment’s position, that its conclusion cannot be allowed to stand. At odds with the district court’s reading of the Supreme Court’s decision, we think that decision, fairly read, demon- strates that the interpretive issue was sufficiently difficult and arguable that the Government was completely justified in seek- ing to apply § 209(a) to the conduct at issue. Our assessment rests both on the general indications of difficulty reflected in the Supreme Court’s decision and on a particular feature of the underlying litigation that — as the Supreme Court deci- sion implicitly recognized — warrants special deference to the Government’s litigation position in this type case. First off, the Supreme Court decision was not, as it might have been had the interpretive issue been considered an open- and-shut one, by summary reversal. Cf., e.g., Palmer v. BRG of Georgia, Inc., 111 S. Ct. 401 (1990) (per curiam) (sum- mary reversal of court of appeals decision respecting reach of § 1 of the Sherman Act). Instead it prompted two separate. fairly lengthy, opinions, each of which demonstrates a percep- tion by the author that the issue was one whose resolution required significant intellectual effort, careful analysis of rele- vant interpretive sources, and sophisticated applications of traditional canons of statutory construction. See Crandon, 110 S. Ct. at 999-1007 (Stevens, J., majority opinion); Jd. at 1007-15 (Scalia, J.. with O’Connor and Kennedy, JJ., concur- ring in the judgment). Although the two opinions agree in the end that § 209(a) _ could not properly be interpreted to cover the pre-Government employment lump-sum severance payments there in issue, they differ on the proper interpretive route to that end. Critical- ly, both seem to agree that the most directly applicable statutory text (that of the section’s ‘‘receiving’’ prohibition), does not, as a matter of piain, unaided meaning, dictate the answer. See id. at 1002 (majority opinion) (‘‘neither [of i i 4 : } 17a § 209(a)’s prohibitions] directly specifies when a payment must be made or received’’); id. at 1007-08 (concurring opinion) (opining that neither prohibition, literally read, excludes the possibility that some types of payment made before or after Government employment might be covered). Both then find, with the aid of a wider contextual analysis of the specifically applicable prohibition, legislative history, and indications of general statutory policy, meanings that exclude from coverage the severance payments there at issue, but the meanings so found are different. The majority finds a congressional intent to prohibit only payments received during the period of Government employment, id. at 1003-06; the concurrence, an intent to prohibit only those payments, whenever made, that in some form could be considered periodic contributions to or supplementations of Government salaries, id. at 1008-10. We are satisfied that any legally trained reader of the two Crandon opinions would see in them a Court concerned with a serious issue of statutory interpretation. Passing these general indications of the interpretive difficulty posed by § 209(a), the most critical specific aspect of the Cran- don Court’s statutory analysis is its reliance on the rule of lenity in resolving the interpretive issue against the Government’s position. Pointing out at the beginning of its analysis that ‘‘the governing standard is set forth in a criminal statute,”’ the Court noted that this made it ‘‘appropriate to apply the rule of leni- ty in resolving any ambiguity in the ambit of the Statute’s coverage.’’ Jd. at 1001. And the Court concluded its analysis of statutory text, legislative history, and statutory design and policy, see id. at 1001-06, by reiterating its reliance on this interpretive rule in construing the reach of this criminal statute. Finally, as we have already observed, we are con- struing a criminal statute and are therefore bound to consider application of the rule of lenity. To the 18a extent that any ambiguity over the temporal scope of § 209(a) remains, it should be resolved in [the employees’] favor unless and until Congress plainly states that we have misconstrued its intent. Id. at 1007; see also id. at 1008, 1010 (concurring opinion) (drawing on rule of lenity). Implicit in this of course is a perception by the Court that the statute had enough of ambiguity about it to require invoca- tion of the rule of lenity, for that is the only occasion for its invocation. See Liparota v. United States, 471 U.S. 419, 427 (1985). This implication is reinforced by various specific allu- sions in the two opinions to the ambiguity of the § 209(a) text. See Crandon, 110 S. Ct. at 1005 (majority opinion) (‘‘ap- propniate, in a case that raises questions about the scope of the prohibition, to identify the specific policies that the provi- sion serves’’); id. at 1006 (majority opinicn) (noting that in- terpretation finding coverage under § 209(a) serves one of the two principal statutory policies, disserves the other); id. at 1010 (concurring opinion) (conceding that proffered interpreta- tion “‘is no more successful than the Government's in giving effect to all the language of the section,’’ and concluding on the particular interpretive problem that ‘‘at most we have an ambiguity’’). We therefore think that the district court’s perception that Crandon’s ultimate unanimous rejection of the Government’s position necessarily demonstrated that ambiguity justifying the Government's position was ‘‘nonexistent,’’ is flatly belied by a careful reading of the Crandon Court’s two opinions. In- stead, in its recognition of the need to draw on the rule of lenity to resolve the interpretive issue, the Court implicitly recognized that the Government’s position, taking a broader view of the statute’s reach than lenity allowed the Court to take, might well be ‘‘justified,’’ given the different roles of the vO ORO eS OREO Lalo eine, sis Mn thins Can 19a executive and judicial branches in enforcing the criminal laws. For as Justice Scalia pointed out in his concurring opinion, the Government’s enforcement role requires that as between the opposing risks of taking too narrow or too broad a view of ‘‘what it may prosecute,’’ it must in prudence choose the broad view, knowing that judicial review (including lenity in the end) stands guard against error in that choice, whereas an error in the opposite direction is not likely ever to be cor- rected. Jd. at 1011.5 In effect, this reflects a judicial percep- tion that, within bounds of essential prosecutorial fairness, Government prosecutors have an obligation to establish the outer limits of a criminal statute’s ambiguously-defined reach by making just such choices when occasion requires. Here, despite the deference we must accord even those district court EAJA decisions that we may think legally ‘‘wrong,’’ we think this one sufficiently wrong, with sufficiently dangerous implications for the Government’s prosecutorial function, that we must consider it, under Pierce’s standard, an ‘‘abuse of discretion.”’ It reflects, as we have attempted to demonstrate, an insufficiently careful assessment of the true import of the Crandon opinions as they bear upon the strength, hence justification for, the Government’s litigation position. And it necessarily implies a more cramped view of the latitude that must be accorded Government interpreta- ‘Justice Scalia’s point was not of course being made with reference to the EAJA substantial justification issue, but in addressing the merits. He was explaining why the Government’s consistent pattern of interpreting } 209(a) to cover such payments as those in issue was due no judicial deference. To accord deference, he pointed out, would in effect be to con- vert the judicial rule of lenity into one of judicial ‘‘severity’’ in construing the reach of a criminal statute, since the proper prosecutorial rule is not lenity, but severity, i.e., broad interpretation. Though made in reference to the merits issue, it perfectly anticipates the substantial justification issue. 20a tions of the reach of untested, ambiguously-drawn criminal statutes than is acceptable.® We therefore hold that, contrary to the district court’s deter- mination, the opposite conclusion, that the Government’s litigation position in the underlying litigation was substantially justified, is ‘‘commanded,’’ see Pierce, 487 U.S. at 470, by the most relevant indicators on that issue. REVERSED HALL, Circuit Judge, dissenting: Between 1962 and 1982, through the administrations of six presidents, Boeing made twenty-one lump sum payments to employees departing for federal service. All of these payments were disclosed to the government. Until the case of the ap- pellees, the government had acquiesced in the practice. A full four years after receiving actual notice of the payments, the government filed this suit to place a constructive trust on them. Four more years were expended as the appellees worked their way towards unanimous vindication in the Supreme Court. The price of vindication, over a half-million dollars of attorneys’ fees, was dear — more, indeed, than the government’s onginal complaint sought to recover. Today, the majority permits the government to walk away from the carnage it has wrought and leave the appellees to clean up as they may. Because I believe that the district court did not abuse its discretion in awarding EAJA attorneys’ fees to appellees, I would affirm. I therefore respectfully dissent. 6If, as we suggest, special latitude for Government litigation positions respecting the reach of criminal statutes may be due in assessing their justification for EAJA purposes, the special case thereby created is an ex- ceedingly narrow one. It is limited to those relatively rare occasions when the Government has sought, as here, to recover a civil penalty for viola- tion of a criminal statute. The EAJA does not, of course, apply to criminal prosecutions. 2la I. The majority opinion turns the issue of Boeing’s indemnify obligation on its head. EAJA is not served by a rule that the government may take unjustified positions in litigation against anyone who may have a collateral source to defray his at- torneys’ fees. I see nothing in EAJA that permits the govern- ment to stand in the back of the line to pay attorneys’ fees. The government asserts that it is legally and factually cer- tain that Boeing must indemnify under state law; therefore, appellees have not ‘‘incurred’’ attorneys’ fees reimbursable under EAJA. Boeing has not yet decided whether it will indemnify ap- pellees. The government points out that Boeing has no in- terest in making such a determination until this case is resolv- ed. I do not doubt the accuracy of the government’s observa- tion. On the other hand, though I think it is likely Boeing would indemnify the appellees if they do not recover their fees in this action, I do not share the majority’s confidence, ante at 9 n.2, that it is a foregone conclusion. Boeing must indemnify if the suit was brought against a person ‘‘by reason of the fact that he is or was a director, officer, employee or agent of the corporation.’’ Del. Code § 145(a), (c). Aside from this court’s lack of day-to-day familiarity with Delaware law, Boeing is not even before us. It may fight indemnification claims; the record before us contains no concessions or waivers from Boeing. We have no way of knowing what creative arguments its lawyers may present to the state courts. Moreover, even if Boeing is compelled to indemnify, I do not see any particular reason why it should be the first source of reimbursement for appellees. I think it is much more reasonable to reduce Boeing’s state-law obligation by the amount first recovered from the government than to do it the 22a other way around. The government’s obligation is fault-based; Boeing’s is analogous to insurance. The majority’s decision implicitly rejects the wisdom of the common-law collateral source rule, which does not permit the wrongdoer to profit from his victim’s foresight to secure an insurer. The majority’s authority is SEC v. Comserv, 908 F.2d 1407 (8th Cir. 1990). The court in Comserv held that a corporate officer did not ‘‘incur’’ attorneys’ fees where those fees were paid by his employer. The important distinguishing fact of Com- serv, however, is that the employer undertook, at the begin- ning of the litigation, to pay the employee’s attorneys’ fees, win or lose. The court found that ‘‘from the inception of the underlying lawsuit, [the employee] was able to pursue his defense in the SEC action secure in the knowledge that he would incur no legal liability for attorneys’ fees.’’ 908 F.2d at 1414. Appellees began this litigation with none of the security of the employee in Comerv. The most basic difference is that the Comserv employee’s fees would be paid even if he lost. In the instant case, victory was a prerequisite to even the possibility of indemnification. Therefore, appellees most definitely ‘‘incurred’’ fees for which they were and are per- sonally liable. That they have another potential source from which to obtain reimbursement ought not be a defense for the government. I find the district court’s observations compell- ing, 747 F. Supp. at 321: Simply put, the mere possibility of future indemnifica- tion by a company for the attorney’s fees incurred by its employees is not, in itself, enough to alter the fact that employees who are ultimately liable for those fees are the real parties in interest. Were this not the case, the government would be able to viciously pursue corporate employees with the | 23a knowledge that, due to the possibility of later cor- porate indemnification, the government would not be held accountable for any unjustified conduct. The EAJA would certainly not be served by such a rule. Il. Likewise, I disagree with the alternate ground for the ma- jority’s decision. I believe that the district court did not abuse its discretion in finding that the government’s position was not substantially justified. The Supreme Court’s unanimous ruling in favor of appellees rested heavily upon the rule of lenity, and the root of my disagreement with the majority lies in the significance of the Court’s use of the rule. The majority notes that reliance on the rule of lenity presupposes that the statute was ambiguous; I concede as much. I disagree, though, that any colorable con- struction urged by the government of an ambiguous criminal Statute is a substantially justified one. The rule of lenity is not a passive recognition of a statute’s ambiguity; it is an affirmative principle in favor of the individual, and it protects him from the tyranny of vague criminal laws. If an individual must parse conference committee notes and remarks of bill sponsors to discover the hidden meaning of a Criminal law, the law is too ambiguous to satisfy the rule of lenity. In other words, lenity is not merely a way to decide whether the government prevails on the merits of a foray into the boun- daries of a criminal law; it is also a force the government must weigh before it decides to go on its foray. Our inquiry, then, should be whether the government knowing that ambiguity in the statute would be resolved against it, was substantially justified in taking the position it took on the meaning of 24a \ 209(a). The district court held that it was not, that holding is not an abuse of discretion. Finally, though I recognize that the majority expressly does not so hold, ante at 11, I fear that we have turned the longevity of a case, the particular earnestness with which the govern- ment litigated it, and interim victories before administrative bodies or lower courts into impregnable shields against EAJA liability. See Crawford v. Sullivan, 935 F.2d 655, 659-660 (4th Cir. 1991) (Hall, J., dissenting). The government's trying of the case does not prove that it was substantially justified in bringing it. I respectfully dissent. 25a - APPENDIX B IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA ALEXANDRIA DIVISION UNITED STATES OF AMERICA Plaintiff, CIVIL ACTION NO. 86-0829-A Vi THE BOEING COMPANY, INC., et al., Defendants. eet “ee? Net Nee “eet Sea Ne | MEMORANDUM OPINION This matter is before the court on defendants’ motion for attorney's fees and costs pursuant to the Equal Access to Justice Act, (‘‘EAJA’’), 28 U.S.C. § 2412 1982 & Supp. 1989. The court finds defendants’ motion persuasive and awards attorneys’ fees and costs to the defendants. The case was an action for civil damages filed by the govern- ment against five private citizens. Specifically, the government charged these individuals with breach of a ‘‘duty of loyalty,’’ arising from the standard set out in 18 U.S.C. § 209(a), a criminal statute. Section 209(a) prohibits a person from receiv- ing a ‘‘supplementation of salary, as compensation for his ser- vice as an officer or employee of the executive branch of the United States .. .”’ After a one-day trial, this court found that the payments were not made with the intent of supplementing the employees’ government salaries, nor were they intended as compensa- tion for government service rendered by these individuals. Thus, this court held that Section 209 does not apply to 26a payments made to or received by persons who, like defen- dants, become government employees after receipt of severance payments. Plaintiff appealed the decision to the Fourth Circuit, which reversed this court’s judgment in a divided opinion. In that decision, two of the three judges on the panel ruled that employment status at the time of payment is not an element of a Section 209(a) violation and that the payments were, in fact, intended as compensation for services as federal employees. See United States v. Boeing Co., 845 F.2d 476 (4th Cir. 1988). Defendants filed a petition for rehearing en banc, which was denied by a vote of 6-5. On November 6, 1989, the case was argued before the United States Supreme Court. On February 27, 1990, in a 9 to 0 decision, the Court held that Section 209(a) applies on- ly to incumbent federal employees, reversing the judgment of the court of appeals and upholding this court’s decision. See Crandon v. United States, 110 S.Ct. 997 (1990). Defendants now come before the court requesting an award of attorneys’ fees and costs pursuant to the EAJA. Section 2412(d)(1)(A) of that statute provides: Except as otherwise specifically provided by statute, a court shall award to a prevailing party . . . fees and other expenses, in addition to any costs award- ed pursuant to subsection (a) incurred by that party in any civil action . . . brought by or against the United States in any court having jurisdiction under that action unless the court finds that the position of the United States was substantial [sic] justified or that special circumstances make an award unjust. The court finds that defendants have met all the re- quirements of this provision and are thus entitled to an award of 27a fees and costs from the United States. Defendants are clear- ly prevailing parties as contemplated by the EAJA. They in- itially prevailed at tria! and won definitively and completely in the United States Supreme Court. In addition, defendants are eligible for an award of fees under the EAJA as each has a net worth under $2,000,000 and each has incurred fees and expenses in defending this case. The government takes issue with the defendants’ eligibili- ty arguing that they are not the real parties in interest in the case and thus have not aciually incurred the fees as required by the statute. The court rejects this argument. In deciding which party is the real party in interest the court must look to the ‘‘totality of facts.”’ See Design and Produc- tion, Inc. v. United States, No. 553-84C, 1990 U.S. Cl. Ct. (April 23, 1990). The totality of fact in this case suggest that the defendants were at all times the real parties in interest. Although Boeing agreed to advance the costs and fees incur- red by defendants, the promise was undertaken with the understanding that all monies would be repaid unless, at a later date, Boeing’s Board of Directors determined that the defen- dants should be indemnified. At no time was there any fee arrangement between Boeing and the defendants’ counsel to shift that liability for fees. Moreover, Boeing did not retain the individuals’ counsel nor did it exercise any control over the defense or conduct of attorneys. Throughout this litiga- tion, the lawyers involved viewed themselves answerable only to the defendants they represented and viewed the defendants ultimately liable for all attorneys fees incurred. Simply put, the mere possibility of future indemnification by a company for the attorney’s fees incurred by its employees is not, in itself, enough to alter the fact that employees who are ultimately liable for those fees are the real parties in in- terest. Were this not the case, the government would be able 28a to viciously pursue corporate employees with the knowledge that, due to the possibility of later corporate indemnification, the government would not be held accountable for any un- justified conduct. The EAJA would certainly not be served by such a rule. Having found the individuals eligible to recover fees and ex- penses, the court’s focus now turns to whether or not the government was substantially justified in its position or whether or not special circumstances exist which would make award unjust. A finding of either would bar recovery under the EAJA. The Supreme Court has held that the government's posi- tion is substantially justified if it would satisfy a reasonable per- son knowing all of the law and all of the facts. See Pterce v. Underwood, 108 S.Ct. 2541, 2550 (1988). Considering all the circumstances surrounding this litigation, the court concludes that the government has not met this burden. Although 18 U.S.C. Section 209 has been on the statute books in its current form for 27 years, this is the first time the government has ever brought a civil or criminal case against anyone for receiving a severance payment, and this is the on- ly time the government has tried to apply that provision to a person receiving any kind of payment before entering federal service. The government argues that its position was justified, nevertheless, because the statute on its face is not restricted to recipients who are government employees on the date they receive the disputed payment. However, the Supreme Court unequivocally concluded that the ‘‘text of [Section] 209(a) _. indicates that employment status is an element of the of- fense.’’ Crandon 110 S.Ct. at 1002. It was, therefore, unreasonable for the government to rely on a nonexistent am- biguity in the statute in filing suit against these private citizens. Moreover, even if the statute were ambiguous the authority 29a construing Section 209, as well as the pertinent legislative history, provides no support for the government’s position. As the Supreme Court found, the government’s attempt to apply the statute to persons not servi [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_0731%3A1. Public record. Not legal advice.