UNITED STATES of America, Petitioner,
CHURCH OF SCIENTOLOGY OF BOSTON, INC., and Antonia Chrambanis, Secretary,
No. MBD 90-302-T.
United States District Court, D. Massachusetts.
March 18, 1993.
TAURO, Chief Judge:
*1 In the latter part of 1988 the Internal Revenue Service ("IRS")
initiated an inquiry into the tax exempt status of the Church of Scientology of
Boston ("CSB"). In connection with that inquiry, the IRS issued a summons on
October 13, 1989, directing CSB to produce various church records. When CSB
failed to comply, the government brought a petition to enforce the summons. On
June 18, 1990, this court denied the government's petition, finding that "there
ha[d] not been a demonstration of necessity for the IRS's massive document
request." United States v. Church of Scientology of Boston, Inc. [90-2
USTC P 50,349], 739 F.Supp. 46, 50 (D.Mass.1990) [hereinafter CSB I ].
The Court of Appeals for the First Circuit subsequently affirmed that
decision. United States v. Church of Scientology of Boston, Inc. [91-2
USTC P 50,279], 933 F.2d 1074 (1st Cir.1991) [hereinafter CSB II ]. As
the prevailing party in the enforcement action, CSB now moves for an award of
attorneys' fees, expenses and costs, pursuant to 26 U.S.C. s 7430 [FN1] or,
in the alternative, 28 U.S.C. s 2412(b). [FN2]
To recover attorneys' fees, expenses and costs under 26 U.S.C. s 7430, CSB
must "establish[ ] that the position of the [IRS] in the proceeding was not
substantially justified." 26 U.S.C. s 7430(c)(4)(A)(i). CSB cannot satisfy
its burden simply by pointing to the government's defeat in the summons
enforcement action. See De Allende v. Baker, 891 F.2d 7, 12 (1st
Cir.1989) ("The mere fact that the government lost in the underlying litigation
does not create a presumption that its position was not substantially
justified."). It must show that the government's position lacked a "reasonable
basis both in law and fact." See Pierce v. Underwood, 487 U.S. 552, 565
(1988) (interpreting "substantially justified" to mean "justified to a degree
that could satisfy a reasonable person"); United States v. Yoffe, 775 F.2d
447, 450 (1st Cir.1985) (describing test as "a middle ground between an
automatic award of fees to a prevailing party and an award made only when the
government's position was frivolous"). [FN3]
Applying this standard, this court is convinced that the government's position
during the summons enforcement proceeding was not substantially justified. The
basic issue raised in that proceeding was whether the church records requested
by the IRS were "necessary to determine" CSB's tax liability. 26 U.S.C. s
7611(b)(1). Both before this court and on appeal, the IRS "primarily argue[d]
that it ha[d] shown the summons to be 'necessary' because 'necessary' means
'relevant.' " CSB II, 933 F.2d at 1076 (emphasis omitted). As the Court
of Appeals found, this interpretation, while "ingenious," is "strained,
contrary to the view set forth in [relevant cases], and in conflict with
the ... legislative history." Id. at 1077. Although an unsuccessful legal
argument may nevertheless be reasonable, the government's position in this case
had been rejected by virtually every court that had considered it. See id.
(citing several federal court decisions rejecting the " 'necessary' means
'relevant' " argument). This court finds such a string of losses to be
"indicative." See Underwood, 487 U.S. at 569. See also McDonald v.
Secretary of Health & Human Services, 884 F.2d 1468, 1477 (1st Cir.1989) ("In
litigation, as in sports, a [winless] record suggests that something is
*2 Its legal argument aside, the IRS also failed to proffer facts
establishing the necessity of the records it requested. CSB I, 739 F.Supp.
at 50 (noting the IRS's "failure to link in any way particular documents to
explanations of their necessity" to its examination of CSB). The declarations
accompanying the IRS summons "merely state[d] a conclusion" and did not explain
in any detail how or why the documents requested were "necessary" to the
investigation. CSB II, 933 F.2d at 1075. This deficiency cannot be
remedied now by a post hoc rationalization of the investigation. As the
government acknowledges in its opposition to respondents' motion, its position
in the litigation was "its position throughout the district court and appellate
proceedings." In the view of this court, that position was not substantially
To calculate a reasonable fee, the court employs a two-step process. First,
"the number of hours reasonably expended on the litigation [is] multiplied by a
reasonable hourly rate" to arrive at the "lodestar" figure. Hensley v.
Eckerhart, 461 U.S. 424, 433 (1983). In making this initial determination, the
court "should exclude ... hours that were not 'reasonably expanded' " on the
litigation. Id. at 434 (citation omitted). See Copeland v. Marshall,
641 F.2d 880, 891 (D.C.Cir.1980) ("It does not follow that the time actually
expended is the amount of time reasonably expended.") (emphasis in original).
Second, the court adjusts the lodestar figure upward or downward if any special
factors dictate such a result. Deary v. City of Gloucester, 789 F.Supp. 61,
63 (D.Mass.1992) (citation omitted).
According to their declarations, counsel for CSB spent a total of 876.5 hours
on this case: 781.95 hours on the summons enforcement proceeding, 74.55 hours
on their fee application, and 20 hours on the hearing on the application.
[FN4] Although some of the entries in their time records are somewhat vague,
[FN5] the court finds no reason to question their overall accuracy.
Accordingly, counsel for CSB are entitled to recover fees for 876.5 hours of
Under section 7430, reasonable attorneys' fees "shall not be in excess of
$75 per hour unless the court determines that an increase in the cost of living
or a special factor ... justifies a higher rate." 26 U.S.C. s
7430(c)(1)(B)(iii). In this case, the court finds a cost-of-living adjustment
warranted. CSB contends that the adjustment should be based on 1981 figures,
while the government argues that the correct date from which any increase
should be measured is 1986. Although there is authority to support CSB's
position, see Bayer v. Commissioner [CCH Dec. 47,921], 98 T.C. 2 (1992),
this court finds that the more persuasive precedents favor the government's
view. See Cassuto v. Commissioner [91-2 USTC P 50,334], 936 F.2d 736
(2d Cir.1991) (holding that cost of living adjustment should be calculated from
base year 1986); Balk v. United States, C.A. No. 90-10313-WF, 1993
U.S.Dist. LEXIS 1670 (D.Mass. Feb. 1, 1993) (same). Accordingly, a reasonable
hourly rate of $92.17 will be used in calculating respondents' fee award. [FN6]
*3 Finding no special factors warranting further adjustments, the court
concludes that respondents are entitled to an award of attorneys' fees,
expenses and costs in the amount of $80,787.00, reflecting 876.5 hours billed
at a reasonable hourly rate of $92.17.
An order will issue.
FN1. "In any ... court proceeding which is brought by or against the
United States in connection with the determination, collection, or refund
of any tax, interest, or penalty under this title, the prevailing party may
be awarded a judgment or a settlement for ... reasonable litigation costs
incurred in connection with such court proceeding." 26 U.S.C. s
FN2. This alternative basis for CSB's motion warrants little attention.
28 U.S.C. s 2412, the attorneys' fees provision of the Equal Access to
Justice Act ("EAJA"), does not apply "to any costs, fees, and other
expenses in connection with any proceeding to which [26 U.S.C. s 7430]
applies." 28 U.S.C. s 2412(e). See United States v. McPherson
[88-1 USTC P 9194], 840 F.2d 244, 245-46 (4th Cir.1988) (recognizing
awards under s 2412 and s 7430 to be mutually exclusive).
FN3. Although these cases interpreted the EAJA, and not s 7430, the
relevant language of the two statutes is identical. Compare 28 U.S.C. s
2412(d)(1)(A) ("substantially justified") with 26 U.S.C. s
FN4. These hours were distributed among five different attorneys as
follows: Eric M. Lieberman, 355.75 hours; Hillary Richard, 337.6 hours;
Michelle Lee Hertzberg, 110.75 hours; Earle C. Cooley, 40 hours; and
Louise F. Melling, 32.4 hours.
FN5. For example, the time records of Eric M. Lieberman and Hillary
Richard, the CSB attorneys who spent the most time on this case, include
the following entries: "Work on brief," "Work on opp.," "Draft," and
"Research." In the opinion of this court, such descriptions barely
constitute "a full and specific accounting" of the attorneys' time. See
Calhoun v. Acme Cleveland Corp., 801 F.2d 558, 560 (1st
Cir.1986) (rejecting bills which lack such specifics as the nature of the
FN6. This figure is arrived at by multiplying the statutory fee ($75) by
the ratio of the October, 1991 Consumer Price Index for All Urban
Consumers (137.4) to the January, 1986 CPI-U (111.8): $75 x
(137.4/111.8) = $92.17.