NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other
than opinions or orders designated for publication are not
precedential and should not be cited except when relevant under the
doctrines of law of the case, res judicata, or collateral estoppel.
(The decision of the Court is referenced in a "Table of Decisions
Without Reported Opinions" appearing in the Federal Reporter.)
CHURCH OF SCIENTOLOGY WESTERN UNITED STATES, Plaintiff-Appellant,
UNITED STATES of America, Defendant-Appellee.
CHURCH OF SCIENTOLOGY INTERNATIONAL, Plaintiff-Appellant,
UNITED STATES of America, Defendant-Appellee.
Nos. 92-55188, 92-55437.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted April 8, 1993.
Decided June 9, 1993.
Appeal from the United States District Court for the Central District of
California, Nos. CV-91-5343-WDK, CV-91-5344-WDK; William D. Keller,
District Judge, Presiding.
Before: HALL, WIGGINS, and TROTT, Circuit Judges
MEMORANDUM DISPOSITION [FN*]
**1 The district court denied motions by the Church of Scientology
International and the Church of Scientology Western United States ("Churches")
for fees and costs under 26 U.S.C. s 7430 in connection with the quashing of
three summonses. The district court concluded that the Churches had failed to
establish that the position of the United States was not substantially
justified. The Churches appeal, claiming error in the district court's
interpretation of the statute. The district court had jurisdiction pursuant
to 26 U.S.C. s 7609(h). Our jurisdiction derives from 26 U.S.C. s
7609(h) and 28 U.S.C. s 1291. We affirm.
On September 26, 1991, the Internal Revenue Service issued three summonses to
Joseph Yanny, former counsel to the Churches. The summonses demanded the
production of information that the Churches claim was obtained during Yanny's
lengthy tenure as the Churches' attorney. The summonses indicated that October
8, 1991, was the date for compliance, but a letter accompanying the summonses
instructed Yanny that the IRS expected compliance by October 3. The letter
also indicated that Yanny need not notify the Churches that the summonses had
The Churches learned of the summonses on October 1, 1991, at about 5:00 p.m.,
when Yanny's attorney called the Churches' attorney. Concerned that any
challenge to the validity of the summonses would be mooted by Yanny's
compliance with them on October 3rd, counsel for the Churches worked through
the night to bring petitions to quash the summonses.
Early in the morning of October 2nd, the Churches' counsel attempted to
resolve the matter by contacting an Assistant United States Attorney, who was
representing the IRS in another pending summons enforcement action between the
Churches and the IRS. The Churches maintain, and the IRS does not refute, that
the IRS's attorney refused to withdraw the summonses. As a result, the
Churches were compelled to complete work on the petitions to quash and filed
them in the district court on the afternoon of October 2nd. The petitions
sought to quash the summonses temporarily to prevent any breach of attorney-
client confidences, which the Churches feared would occur if Yanny complied
with the summonses.
Late in the afternoon of October 3rd an order was entered enjoining the IRS
from conducting its examination of Yanny until further action by the court
determined that the examination was appropriate. Thereafter, the IRS indicated
that it would not attempt to enforce the summonses pending final resolution of
the petitions to quash. In response to the Churches' petitions, the IRS
withdrew all of the summonses and asked the district court to dismiss the
petitions as moot in light of the withdrawals. The court dismissed all three
Subsequently, the Churches filed motions for fees and costs, seeking to
recover the expenses incurred in bringing the petitions. The district court
denied the motions, and the Churches appeal.
STANDARD OF REVIEW
**2 We review the district court's interpretation of 26 U.S.C. s 7430 de
novo. Huffman v. Commissioner, 978 F.2d 1139, 1143 (9th Cir.1992). The
district court's determination as to whether the position of the United States
was substantially justified is reviewed for an abuse of discretion.
Huffman, 978 F.2d at 1143; Estate of Merchant v. Commissioner, 947 F.2d
1390, 1392-93 (9th Cir.1991); Bertolino v. Commissioner, 930 F.2d 759, 761
To recover costs and attorney's fees under s 7430, the Churches must show
that they are prevailing parties and that they have exhausted their
administrative remedies. See 26 U.S.C. s 7430 (1988). The IRS concedes
that the Churches have exhausted their administrative remedies and does not
argue here that any of the restrictions placed on recovery of attorney's fees
under s 7430(b) apply in this case. Thus, the question before us is whether
the Churches are prevailing parties within the meaning of the statute.
Section 7430(c)(4) provides that "[t]he term 'prevailing party' means any
party ... (i) which establishes that the position of the United States in the
proceeding was not substantially justified, (ii) which ... (II) has
substantially prevailed with respect to the most significant issue ..., and
(iii) which meets the requirements of the 1st sentence of section
2412(d)(1)(B) of title 28...." The parties agree that the Churches have
substantially prevailed with respect to the most significant issue and that the
Churches' request for fees meets the requirements of s 2412(d)(1)(B). The
only issue remaining is whether the position of the United States was
Section 7430(c)(7) states:
The term "position of the United States" means--(A) the position taken by the
United States in a judicial proceeding ... and (B) the position taken in an
administrative proceeding ... as of the earlier of (i) the date of the receipt
by the taxpayer of the notice of the decision of the Internal Revenue Service
Office of Appeals, or (ii) the date of the notice of deficiency.
Id. (emphasis added). The IRS contends that this section precludes
consideration of any conduct prior to the initiation of litigation in
determining whether the position of the United States was substantially
justified because there was no notice of deficiency or notice of decision from
the IRS Office of Appeals in these cases. The Churches concede that there was
neither a deficiency notice nor an Office of Appeals notice of decision
involved here. Nevertheless, they contend that the district court should have
considered the IRS's prelitigation conduct in determining whether the position
of the United States was substantially justified. The district court agreed
with the IRS, and the law compels us to affirm.
Section 7430 is a waiver of sovereign immunity. See Campbell v. United
States, 835 F.2d 193, 195 (9th Cir.1987) ("Except to the extent it has waived
its immunity, the federal government is immune from claims for attorneys'
fees."); In re Graham, 981 F.2d 1135, 1138-39 (10th Cir.1992). As such, we
must construe it strictly in favor of the government, and we should not find a
waiver absent clear congressional intent. United States v. Washington, 872
F.2d 874, 877 (9th Cir.1989); Campbell, 835 F.2d at 195.
**3 Because neither a notice of deficiency nor a notice of decision from the
Office of Appeals ever issued here, s 7430 permits the consideration only of
the IRS's position "in a judicial proceeding." Nonetheless, the Churches
contend that s 7430 should not be read to preclude consideration of the
IRS's conduct prior to the filing of the petitions to quash in determining
whether the position of the United States was substantially justified in the
judicial proceeding. Unfortunately, they fail to cite any authority for such a
reading. [FN1] They argue that their interpretation is consistent with
congressional intent and prevents circumvention of the attorneys' fees
provision by the IRS. They also argue that the IRS should not be permitted to
take indefensible positions prior to the initiation of litigation and then
avoid paying attorney's fees by acting circumspectly once a petition or
complaint is filed. While we find the Churches' arguments persuasive, they are
inconsistent with the express provisions of the statute, and we are wholly
without authority to rewrite the statute. Congressional intent to waive the
sovereign immunity of the federal government " 'cannot be implied but must be
unequivocally expressed.' " United States v. Mitchell, 445 U.S. 535, 538
(1980) (quoting United States v. King, 395 U.S. 1, 4 (1969)); see also
Washington, 872 F.2d at 877; cf. Barnes v. United States, No. S90-
1592-WBS/GGH, 1991 WL 323001, at *4 (E.D.Cal. Nov. 26, 1991) ("It is not the
province of the courts, but rather that of Congress to remedy this apparent
loophole in the statute [s 7430].").
Few courts have considered the question now before us. Those that have
uniformly have held that when there is neither a notice of deficiency nor a
notice of decision from the IRS Office of Appeals, "the express terms of the
statute ... limit [a court's] assessment of the United States' position ... to
the position taken as of the initiation of the judicial proceeding."
Nathaniel v. United States, No. S91-0056-WBS/GGH, 1991 WL 323002, at *
2 (E.D.Cal. Nov. 26, 1991) (emphasis added); see also Nunn v. Commissioner,
63 Tax Ct.Mem. Dec. (CCH) 3060 (1992); Estate of Holmes v. United States,
No. 89-2581, 1990 WL 10062, at *2-3 (E.D.Pa. Feb. 5, 1990). Moreover,
this court unequivocally stated in Huffman that "[c]ase law holds that if
the Government concedes the petitioner's case in its answer, its conduct is
reasonable." [FN2] 978 F.2d at 1148; see also Bertolino, 930 F.2d at
761 (indicating that if the IRS settles a case with reasonable dispatch once a
triggering event occurs, its conduct is substantially justified); cf.
Hanson v. Commissioner, 975 F.2d 1150, 1156 n. 4 (5th Cir.1992) (court left
open the question whether the government should have to pay fees when it
surrenders at the very outset of litigation but indicated that at that point a
"plaintiff's cost will be very small, perhaps de minimis," suggesting that such
a surrender may preclude the recovery of attorney's fees under s 7430).
**4 More importantly, the plain language of the statute indicates that the
relevant position of the United States is its position in a judicial
proceeding. It is axiomatic that the United States can have no position in a
judicial proceeding until a judicial proceeding actually has been initiated. A
judicial proceeding is initiated only upon the filing of a petition or
complaint. See Huffman, 978 F.2d at 1145 ("[C]ourts have held that actions
taken ... by the IRS prior to initiation of litigation in the Tax Court or the
district court are 'non-judicial in nature.' "); see also United States v.
Baggot, 463 U.S. 476, 479 (1983) (indicating that an IRS audit and its internal
appeal component are not judicial proceedings). Thus, while conduct prior to
the initiation of litigation may color a court's determination as to whether
the position of the United States was substantially justified, see Huffman,
978 F.2d at 1148 ("Congressional intent behind section 7430 is not served by
looking only to the answer to determine whether the government's position in
the judicial proceeding was 'substantially justified.' "); Hanson, 975 F.2d
at 1152 n. 2 (indicating that the court could review the government's position
in the judicial proceeding against the backdrop of administrative actions to
determine if the position in litigation was substantially justified), the
government's position in the judicial proceeding must be determined with
reference only to actions taken after a complaint or petition has been filed.
Here, the parties agree that the only action taken by the IRS following the
Churches filing of the petitions was to withdraw the subpoenas. Thus, we must
conclude that the position of the United States in the judicial proceeding was
substantially justified and that the district court's interpretation of the
statute was correct.
FN* This disposition is not appropriate for publication and may not be
cited to or by the courts of this circuit except as provided by 9th Cir.R.
FN1. The Churches do cite Kenagy v. United States, 942 F.2d 459 (8th
Cir.1991), to support their position. Considering the same version of the
statute at issue here, the Kenagy court stated that "[t]he position of
the United States is the legal and factual position asserted by it during
the administrative and court proceedings, regardless of whether the
position originated before or after the proceedings began." Id. at
464. We note, however, that a notice of decision from the Office of
Appeals had issued in Kenagy. In addition, Kenagy can be read to
support the district court's position as easily as it can be read to
advance the Churches' argument. The opinion states that a court should
only consider the position of the United States during court proceedings in
a case like this one. Thus, we find the Churches' citation to the
Kenagy language defining "position of the United States" unpersuasive
and wholly inapposite to the resolution of this case.
FN2. Under earlier versions of the statute the standard was reasonable not
substantially justified. The change, however, is little more than
semantic. Subsequent cases have indicated that the substantially justified
standard is basically the same as the former reasonable standard. See
Huffman, 978 F.2d at 1147 n. 8 (" '[s]ubstantially justified' means
'justified to a degree that could satisfy a reasonable person' ") (quoting
Pierce v. Underwood, 487 U.S. 552, 565 (1988)); Kenagy, 942 F.2d at
464 ("the government's position is not substantially justified where it is