Federal District Court Opinions

Plaintiff, v. L. DONALD GUESS, et al., Defendants. Case
No. 04CV2184-LAB (AJB). United States District Court, S.D.
California. February 22, 2006


LARRY BURNS, District Judge

This matter is before the court following supplemental
briefing to substantiate defendant x?©lan Foundation,
Inc.’s (“Foundation”) claim for attorneys’ fees and costs
incurred to defend this litigation, from the time plaintiff
the United States obtained its unnoticed TRO on November 3,
2004 through the hearing of plaintiff’s unsuccessful motion
for preliminary injunction on December 3, 2004 and for
expenses incurred to prepare its fees and costs
application. The Court took the matter under submission for
decision on the papers and without oral argument, pursuant
to Civil Local Rule 7.1(d)(1). For the reasons discussed
below, all claimed costs are approved as unopposed and
facially reasonable. The Foundation’s application for
attorneys’ under 26 U.S.C. § 7430 of the Internal
Revenue Code (“Section 7430”) is GRANTED IN PART and DENIED
IN PART, as modified herein.[fn1] Page 2


By Order entered July 5, 2005, the court conditionally
granted the Foundation’s application to recover its
reasonable attorneys’ fees incurred to defend this action,
claimed then to be in the actual amount of $232,176.30 or,
alternatively, in the statutory amount of $101,008.05, and
its costs, claimed then to be in the actual amount of
$5,443.05. The court determined an award of the
Foundation’s undisputed claimed costs and an award of
reasonable attorneys’ fees was warranted under Section
7430. Dkt No. 148. The court instructed the Foundation to
provide supporting documentation to substantiate the
attorney tasks, time, qualifications, and billing rates.
The court solicited briefing from both sides to assist in
its determination whether deviation from the statutory
hourly rate cap may be warranted. The Foundation has
incorporated the costs of its fees substantiation and
supplemental briefing, raising its request for attorneys’
fees to the new billed amount of $312,049.75 (an increase of
an additional $79,873.45), claiming a new total of 325
hours incurred by ten attorneys to prepare the application
and substantiation. Its total litigation costs claim is
$6,817.83. Dkt No. 150 16:1-2.

The government argues no deviation from the statutory
hourly rate cap is warranted for any of the activities of
the Foundation’s attorneys and disputes the reasonableness
of the claimed time to prepare the fee application. The
issues presented are: (1) whether the Foundation justifies
a fee recovery at a rate in excess of the statutory maximum
based on the “special factor” that it required counsel with
expertise in tax and complex litigation; (2) the meaning of
the availability of competent counsel as a consideration
for waiver of the hourly rate cap in determining a Section
7430 fee award; (3) if the Foundation is entitled to
recover fees at a rate in excess of the statutory cap for
some of its attorneys, whether the Foundation is entitled
to recover fees for all 21 of its attorneys at their normal
billing rates, all of which are in excess of the statutory
maximum; (4) if the Court determines that some of the
Foundation’s attorneys are entitled to compensation at a
rate higher than the statutory maximum, whether the
Foundation is entitled to recover at the billed rate; (5)
whether all time spent on all billed activities, in
particular the preparation of the application to recover
fees and costs, should be reimbursed by the government at a
rate above the statutory maximum; and (6) whether the
claimed hours of attorney time is reasonable, “especially
the 325 hours claimed for the work of ten lawyers pursuing
its motion for fees and costs” (Opp. 3:1-3). Page 3


A. The Foundation’s Twenty-One Attorneys

The Foundation provided the declarations of nineteen
professionals it contends “demonstrate that each attorney
representing the Foundation in this litigation has the
`special expertise’ required” for waiver of the Section
7430 cap on hourly rates, and that “such expertise was
essential in order for the Foundation to be adequately
represented in this case.” Appl. 6:14-21 (emphasis added).
All participating counsel emphasize the short time period
the Foundation had to prepare a defense against entry of a
preliminary injunction and the “monumental task” it faced
while access to its own records was restricted. See, e.g.,
Johnson Decl. ¶ 2. As a general principle, such a
timing circumstance can justify a large number of billed
hours, but does not necessarily advance the issue of
reasonable hourly compensation under Section 7430. The
government objects:

According to the Foundation’s affidavits, every single
one of their attorneys, and one paralegal, should be
compensated for every hour devoted to every task in this
case — from reading e-mails, to drafting press
releases, to participating in conference calls, or
preparing the fee application — at a rate exceeding
the statutory cap, with some attorneys allegedly entitled
to rates more than quadruple that cap.

Opp. 3:19-24.

1. Sheppard Mullin Richter & Hampton LLP

Nine Sheppard Mullen attorneys billed a total of $98,273.00
in fees for 225.90 hours at claimed hourly rates ranging
from $240.00 to $530.00, for the firm’s role in defending
the Foundation in this action, plus $1,167.79 in costs.
Naughton Decl., Lodg. Ex. 1, 2:12-22. The Naughton
Declaration emphasizes: the complexity of the tax and mail
fraud allegations involving hundreds of transactions, the
onerous time constraints; the need to use “tax planning and
tax litigation counsel” to research corporate records,
audit records, accounting records; the need to provide
“declarations and legal background materials and drafts;”
the need to engage “an excellent trial lawyer” to handle
“the interviewing of the Foundation employees, the auditor,
donors” and to handle “document requests to the Receiver”
to procure the exhibits in support of the Foundation’s
opposition to entry of a preliminary injunction. Naughton
Decl. ¶¶ 5, 6.

1. Ms. Naughton is described as a partner in her law firm
with 25 years of experience as an attorney specialized in
fraud cases, having tried one tax case to a jury and
having defended Page 4 numerous actions against the
government’s efforts to seize assets. She prepared
“successive drafts of the brief” in opposition to the
government’s motion for a preliminary injunction and
presented oral argument at the motion hearing. She billed
87.2 hours at an hourly rate of $530.00;

2. Roscoe C. Howard, Esq. is described only as a former
United States Attorney for the District of Columbia. He
“assisted in the outline and strategy of the brief.” He
billed 6.80 hours at an hourly rate of $525.00;

3. Daniel S. Seikaly, Esq. is described as a former Chief
of the Criminal Division of the United States Attorney’s
Office for the District of Columbia. He also “assisted in
the outline and strategy of the brief.” He billed 4.10
hours at an hourly rate of $450.00;

4. Mark E. Nagle, Esq. is described as a former Chief of
the Civil Division of the United States Attorney’s Office
for the District of Columbia who has handled similar Tax
Division injunctive relief actions under the same statutes
as in this case. He wrote the “first drafts of the brief.”
He billed 36 hours at an hourly rate of $450.00;

5. Andre P. Barlow, Esq. is described only as Mr. Nagle’s
associate. He “did the bulk of the legal research” for the
brief, and billed 55.5 hours at an hourly rate of $345.00;

6. Elizabeth A. Balfour, Esq. is described only as a
former law clerk to United States District Judge Huff. She
performed “final edits” and “compilation” of the brief.
She billed 20 hours at an hourly rate of $305.00;

7. Rebecca A. Shults, Esq. is described only as a former
law clerk to United States District Judge Moskowitz who
performed “research for oral argument.” She billed 8.8
hours at an hourly rate of $240.00;

8. Eileeen M. Gorman’s qualifications are not described.
She billed 1.8 hours at an hourly rate of $240.00; and

9. Matthew Richardson, Esq. is described as “a tax
attorney who specializes in advising charitable entities.”
He “provided assistance in preparation for oral argument.”
He billed 5.7 hours at an hourly rate of $465.00.

Naughton Decl. pp. 2-3. Page 5

2. Law Offices Of Frank J. Johnson

Attorney Frank J. Johnson (formerly of Sheppard Mullin) and
his firm became the Foundation’s co-counsel of record
beginning November 10, 2004 to prepare the Foundation’s
opposition to entry of a preliminary injunction. Johnson
Decl. ¶ 2, Lodg. Exh. 2. He recites his firm’s
contributions as primarily “gathering the facts and
evidence (interviewing witnesses, obtaining declarations,
working with the receiver, meeting with the auditor, etc.)”
and participating in the December 3, 2004 oral argument.
Id. ¶ 3. Mr. Johnson recites his particular relevant
qualifications as having represented “numerous clients
involved in complex civil litigation, including securities
fraud class actions, consumer class actions, and tax fraud
cases raising similar issues to those raised in this
matter.” Id. ¶ 9 (emphasis added).

Mr. Johnson billed 160.7 hours from November 10 through
December 31, 2005 at an hourly rate of $370.00 ($59,459.00).
He also billed 33.2 hours for the time of two associates at
an hourly rate of $225.00, for a total firm fees bill of
$66,929.00, plus litigation costs of $2,848.44 incurred for
that period. Johnson Decl. ¶¶ 5, 6. For the
period January 1 to August 11, 2005, in connection with the
Foundation’s litigation expenses application, Mr. Johnson
billed an additional 37.1 hours at an hourly rate of
$385.00 and an associate billed 8.1 hours at an hourly rate
of $275.00, totaling $16,472.50 in fees for that period,
plus litigation costs of $508.69. Id. ¶¶ 7, 8.

3. Connor & Winters LLP

Attorney Henry G. Will states he has been “general tax
counsel” for the Foundation since 1997, with a practice
specialty in tax, tax-exempt organizations, and trusts and
estates. Will Decl. ¶¶ 2-4, Lodg. Exh. 3. He
and another member of his practice group had incorporated
the Foundation and worked “to obtain its tax-exempt status
under the Internal Revenue Code as a charitable
organization.” Id. ¶ 4. The firm was retained in
this matter on November 8, 2004: to represent the
foundation and coordinate communication between the
Foundation’s board and its counsel in three law firms; “to
provide factual information concerning the Foundation and
its activities;” to supply “information not obtainable from
the Foundation’s records due to their seizure by the
Government;” to provide “tax expertise relating to the
Foundation’s tax-exempt status as a donor-advised fund;” to
assist other counsel in preparing briefs and exhibits; and
participating in the Page 6 December 3, 2004 hearing. Id.
¶ 5 (emphasis added). For the period November 8
through December 3, 2004, three Connor & Winters attorneys
(including Mr. Will) billed $32,402.50, at hourly rates
ranging from $230.00 to $300.00 per hour, plus costs of
$1,426.82. Id. ¶¶ 6-7. For the period January
3 through August 10, 2005, six Connor & Winters attorneys
billed $56,381.50 in attorney time and $866.09 in costs in
connection with the Foundation’s application. Id. ¶

Conner & Winters attorney Martin R. Wing billed 3.3 hours
at an hourly rate of $275.00 for the defense period
November 8 through December 3, 2004, and 22.5 hours at an
hourly rate of $290.00 for the period January 3 through
August 10, 2005 in connection with the Foundations’ fees
and costs application. He declares his practice
concentration “include[s] tax and tax-exempt
organizations.” Wing Decl. ¶ 3, Lodg. 4 (emphasis
added). He was consulted in this matter both because of his
tax litigation experience and because of his significant
experience with legal questions raised by the Government,
including “the propriety of the Foundation’s programs and
activities, its qualified status and the extent to which
private inurement and the conferring of a personal benefit
had occurred.” Id.

Conner & Winters attorney Katherine G. Coyle declares her
practice area for over thirty years has been tax exempt
organizations, and she has extensive experience with
applicable requirements of the IRS Code and Treasury
Regulations. Coyle Decl. ¶ 3, Lodg. 7. She has
established and represented “innumerable support
organizations” such as the donor advised fund operated by
the Foundation. Id. ¶ 4. She attests the laws
pertaining to such organizations are extremely complicated:
“Few tax practitioners would have any but the most limited
knowledge of and experience with the esoteric requirements
of support organizations, a tax subspecialty essential to
representation of the Foundation” in this litigation. Id.
(emphasis added). She represents she was already very
familiar with the Foundation’s programs and operations
through her prior representation of that entity, giving her
“unique expertise” with “a similar legal and factual
acquaintance with the Foundation on the part of Henry Will
and Martin Wing of this firm” which was “essential to the
Foundation’s representation” in these proceedings,
particularly as the Government had seized its records and
accelerated the timetable for response. Id. ¶ 5. She
billed 31.7 hours at an hourly rate of $230.00 for the
period November 8 through December 3, 2004 and 11.4 hours at
an hourly rate of $240.00 for the period January 3 though
August 10, 2005. The qualifications of two other Conner &
Winters attorneys, Alissa A. Hurley and Anne B. Sublett,
are not described. Ms. Hurley billed 13.5 hours at Page 7
an hourly rate of $160.00. Ms. Sublett billed 119.5 hours at
an hourly rate of $240.00. Ms. Carolyn S. Thomason billed
.70 hours at an hourly rate of $115.00. All three billed
their time for the post-defense period January 3 through
August 10, 2005. Will Decl. ¶ 9, Lodg. 3.

4. Chicoine & Hallett, P.S.

Attorney Nicole M. Chicoine declares her firm is
internationally known for its expertise in federal tax
controversies and focuses its practice on federal and state
tax matters, both civil and criminal, in litigation and
administrative proceedings, with expertise by some members
in tax-exempt organization matters. Chicoine Decl.
¶¶ 2, 3, Lodg. 8. The firm has been counsel
for the Foundation in an administrative proceeding before
the IRS involving the Foundation’s tax-exempt status,
through which it “has gained a breadth of knowledge of the
underlying facts and tax issues involving the Foundation.”
Id. ¶¶ 3, 4 (emphasis added). On November 3,
2004, the day after the government obtained the TRO in this
case, the firm was retained to assist other counsel in
representing the Foundation, with “only 30 days” to prepare
for the preliminary injunction hearing. Id. ¶ 4. She
describes the firm’s contributions as: researching complex
tax and procedural issues; “assisting in the drafting of
the response to the government’s motion for a permanent
restraining order;” interviewing witnesses and obtaining
declarations; reviewing thousands of pages of potential
exhibits; and preparing for the preliminary injunction
hearing. Id.

Ms. Chicoine’s declaration supplements her prior
declaration in support of the Foundation’s motion to
recover its litigation expenses, including a three page
chart listing each attorney and his or her billing rate,
the date of the activity performed, a description of the
activity, time, and amount billed. Chicoine Decl.
¶¶ 6, 7, Lodg. 8. The firm billed $41,591.25
for 146.5 hours, and no costs. Id. ¶¶ 7, 9.
One attorney billed at $350.00 per hour, two others at
$300.00 per hour, and three other persons billed time at
$95.00 or at $75.00 per hour. See also Lodg. 9, Colvin
Decl. and Lodg. 10, Hallett Decl. Page 8

B. Calculation Methodology

Section 7430 defines recoverable “reasonable litigation
costs”[fn2] to include:

. . . reasonable fees paid or incurred for the services
of attorneys in connection with the court proceeding,
except that such fees shall not be in excess of $125 per
hour unless the court determines that an increase in the
cost of living or a special factor, such as the limited
availability of qualified attorneys for such proceeding,
the difficulty of the issues presented in the case, or
the local availability of tax expertise, justifies a
higher rate.

Section 7430(c)(B)(iii) (emphasis added).

The Foundation and the government agree that the
“lodestar” calculation method is not applicable when
attorneys’ fees are sought under 26 U.S.C. §
7430.[fn3] While both take account of market information, a
different presumption of “reasonableness” applies. The
parties agree that the statutory hourly rate cap for the
period at issue, as adjusted for inflation, is $150.00 per
hour.[fn4] The parties also agree that the Court is
empowered to determine whether “special factor(s)”
contemplated by the statute justify an attorneys’ fee award
at an hourly rate higher than the statutory maximum. Absent
a cognizable “special factor” warranting an upward
departure, the hourly rate for the reasonable attorneys’
fees component of litigation expenses which may be shifted
under Section 7430 is capped at the statutory maximum.
Page 9

1. Tax Expertise Is Not A Section 7430 “Special Factor”

Section 7430 provides for limited fee shifting[fn5] 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”
and contains provisions analogous to the EAJA with respect
to a prevailing party’s request for attorneys’ fees and
costs. See Huffman v. Commissioner, 978 F.2d 1139 (9th Cir.

Cases applying the attorneys’ fee provisions in the Equal
Access To Justice Act (“EAJA”), 28 U.S.C. § 2412
assist in the application of Section 7430 provisions.[fn7]

[T]he “special factor” formulation suggests Congress
thought that $75 an hour was generally quite enough public
reimbursement for lawyers’ fees, whatever the local or
national market might be. . . . [T]he exception for
“limited availability of qualified attorneys for the
proceedings involved” must refer to attorneys “qualified
for the proceedings” in some specialized sense, rather
than just in their general legal competence. We think it
refers to attorneys having some distinctive knowledge or
specialized skill needful for the litigation in question
— as opposed to an extraordinary level of the
general lawyerly knowledge and ability useful in all

Pierce v. Underwood, 487 U.S. 552, 571-72 (1988) (emphasis
added) (examining, among other things, “special factors” in
the context of the EAJA attorneys’ fee provision and
finding an upward deviation Page 10 from the statutory
rate cap is justified only if the attorneys retained have
“some distinctive knowledge,” such as an identifiable
practice speciality like patent law, where separate
certification is needed, or knowledge of foreign law or
language, or similar specialized skill needed in the case).

A primary distinction between the EAJA and Section 7430,
however, is that Section 7430 applies only in tax cases. An
attorney’s tax expertise may be presumed in proceedings
involving the Internal Revenue Code. Accordingly, tax
expertise is not appropriately considered a “special
factor” for purposes of deviating from the maximum rate
cap. The Section 7430 “special factor” provision is
discussed in Huffman. 978 F.2d at 1143 (adopting the Fifth
and Second Circuits’ reasoning to hold tax law expertise is
not a “special factor” for purposes of exceeding the
statutory rate cap).

The Tax Court’s holding that general tax expertise does
not qualify as a “special factor” warranting an
enhancement of the statutory fee award is in keeping with
the language of § 7430, logic, and the case law. As
the Second Circuit has explained: “Section 7430 applies
only to tax cases; therefore most of the applications for
attorney’s fees under it would be to pay attorneys who
have brought or defended tax cases. Such lawyers
presumably all have a certain degree of `tax expertise.’
To suppose that Congress intended them all to be paid at a
higher than $75 an hour rate would allow this `special
factor’ to swallow the $75 an hour rule.”

Huffman v. Commissioner, 978 F.2d 1139, 1150 (9th Cir.
1992) (emphasis added) (finding it “unnecessary” to
consider a taxpayer’s contention that the alleged
unavailability of tax specialists in Ventura County is a
“special factor” justifying a fee award at an hourly rate
above the statutory cap because a specialty in tax matters
does not qualify as a Section 7430 “special factor”),
quoting Cassuto v. Commissioner, 936 F.2d 736, 743 (2d Cir.
1991); accord Bode v. United States, 919 F.2d 1044, 1050,
1051 (5th Cir. 1990) (“Clearly, counsel’s expertise in tax
law, in and of itself, is not a special factor warranting a
fee award in excess of [the then rate of] $75 per hour
under section 7430” otherwise “the exception would wholly
swallow the rule because almost all attorneys seeking
compensation under section 7430 possess an expertise in tax
law,” but finding no abuse of discretion in an award in
excess of the statutory hourly rate on a presumed finding
that the needs of that particular case required special
skill); see also Estate of Cervin, 200 F.3d 351 (5th Cir.
2000) (articulating an inquiry, in consideration of Pierce,
to determine whether a “special factor” warranted a higher
hourly rate: (1) whether the attorney has a specialized
skill needed for the litigation; (2) whether the number
Page 11 of attorneys with that skill is so limited that
parties with potentially valid claims are unable to obtain
counsel; and (3) whether an increased fee award would
reduce the shortage).

The court finds the tax law expertise of the Foundation’s
various attorneys does not qualify as a “special factor”
justifying recovery of their fees in excess of the
statutory maximum rate. The government acknowledges “this
case did require prompt action, and did involve a number of
different issues.” Opp. 14:19-21. However, “specialized
non-legal expertise of the type courts have held
constitutes a `special factor’ justifying an upward
departure from the statutory rate in § 7430” must be
demonstrated. Opp. 14:19-21.

Applying any of the various tests articulated by courts in
assessing the “special factor” considerations needed before
statutory cap can be exceeded,[fn8] unless the first prong
of “special expertise” is satisfied, the inquiry can end.

2. An Extraordinary Level Of Lawyerly Ability Useful In
All Litigation Is Not A Section 7430 “Special Factor”

In discussing the “specialized skill” component of the
“special factor” inquiry, the Pierce Court eliminated from
that equation “generalized lawyerly knowledge needed in all
litigation.” Pierce 487 U.S. at 572. The difficulty of a
case and the ability of counsel do not justify a fee award
in excess of the statutory cap: “The `novelty and
difficulty of issues,’ `the undesirability of the case,’
the `work and ability of counsel,’ and `the results
obtained,’ . . . are factors applicable to a broad spectrum
of litigation; they are little more than routine reasons
why market rates are what they are.” National Wildlife
Federation v. Federal Energy Regulatory Comm’n, 870 F.2d
542, 547 (9th Cir. 1989), disapproved on other grounds in
Commissioner of INS v. Jean, 496 U.S. 154 (1990), quoting
Pierce, 487 U.S. at 573. It is beyond dispute that the
Foundation was required to engage litigation counsel with
tax law Page 12 expertise and a high level of legal
competence in complex litigation matters, and that a number
of its billing attorneys were eminently suited to the task,
but neither a tax specialty nor counsel’s litigation skills
is among the “special factors” adequate to support an
upward departure from the Section 7430 hourly rate cap. See
JJR, Inc. v. United States, 36 F.Supp.2d 1259, 1262-63
(W.D.Wash. 1999) (“If an attribute of counsel or the type
of legal analysis required was probably considered by the
market when determining an appropriate hourly rate, then
that factor is not `special,’but rather routine”), citing
Pierce, 487 U.S. at 571-74. “The Supreme Court has rejected
the ability of counsel and the difficulty of the case as
factors justifying an excess award.” National Wildlife
Federation, 870 F.2d at 547, citing Pierce, 487 U.S. at

3. “Limited Availability” At The Statutory Hourly Rate Is
Not A Section 7430 “Special Factor”

The measure of reasonable attorneys’ fees awarded under
Section 7430 is “based upon prevailing market rates for the
kind or quality of services furnished “but” shall not be in
excess of $75.00 [now $150] per hour unless the court
determines that an increase in cost of living or a special
factor, such as limited availability of qualified attorneys
for such proceeding justifies a higher rate.” 26 U.S.C.
§ 7430(c)(1) (B(iii). The Foundation’s burden to
recover its fees under Section 7430 at rates in excess of
$150 per hour was to demonstrate for each of the attorneys
billing time in this matter a “special factor” justifying
deviation from the statutory maximum rate, or be limited to
the statutory hourly rate cap for that particular attorney
for reasonable time spent defending the Foundation.

The government contends that the Foundation’s evidence to
substantiate “prevailing market rates and usual billing
rates” of its counsel and of similarly experienced
attorneys in the field is “irrelevant.” Opp. 10:21-11:14.
Section 7430 inescapably starts from the premise that
attorneys with tax expertise are the counsel whose fees are
capped for purposes of shifting fees to the government. In
addition: “In Pierce, the Supreme Court interpreted a
substantially identical provision of the EAJA and held that
`the prevailing market rate’ is not a `special factor’
which would justify an upward departure from the $75.00
hourly rate set by Congress.” Huffman, 978 F.2d at 1149.
Section 7430 was intended to provide reimbursement in
reasonable part, not to provide full reimbursement of legal
expenses. See Dewalt v. Sullivan, 963 F.2d 27, 29 (3rd Cir.
1992); see also Pierce, 487 U.S. at 572 Page 13
(“whatever the local or national market might be,” Congress
set a cap it determined was sufficient public reimbursement
for lawyers fees).

The Foundation provides several testimonial declarations
regarding the unavailability of comparably qualified counsel
at the statutory $150.00 hourly rate. However, their
demonstration addresses only whether qualified counsel
would be willing to undertake the representation at that
rate, rather than the availability of counsel with the
necessary qualifications to do so. For example, the
declaration of attorney Charles H. Dick, Jr., a partner at
Baker & McKenzie, LLP with 38 years of practice as a trial
lawyer with significant experience “handling complicated
business litigation, including securities fraud, business
torts, professional liability, and fiduciary duty matters,”
states this action “appears to be a legally and factually
complex matter, involving a range of issues, including
civil litigation, assets freezes, tax law and criminal
procedure.” Dick Decl. ¶¶ 2, 3, Lodg. 11. On
that basis, he believes “there are relatively few attorneys
in San Diego who possess the experience and capacity to
defend a case such as this Action, particularly when they
are given only three weeks to prepare.” Id. His hourly
billing rate is $595, and attorneys in his firm bill from
$250 to over $600 per hour, rates he believes to be
consistent with rates charged by comparable law firms in
San Diego with experience in complex litigation matters. Id.
¶ 4. He represents he would not have accepted the
defense of this action for $150 per hour, nor does he
believe the Foundation would have been able at that rate to
retain experienced and able trial lawyers in San Diego with
the staff and capacity to address the numerous issues in
the short time period allowed. Id. ¶ 5.

The Johnson Law Firm obtained similar declarations from
attorneys at other prominent firms to substantiate the
Foundation’s contention it could not have engaged competent
counsel to handle this litigation for $150 per hour. Each
of those attorneys describes his significant experience
handling complex litigation matters, and each opines he
would not have agreed to defend this case at that rate nor
would the Foundation likely have found competent counsel in
San Diego who would. Their hourly rates range from $325 to
$595. Lodgs. 12-15. Mr. Johnson himself declares his firm’s
hourly rates are “conservative when compared to those
charged by other firms with similar experience for complex
litigation matters in San Diego.” Johnson Decl. ¶ 9.
He states he “would not have agreed to represent the
Foundation for $150 per hour,” and he does not believe the
Foundation “would have been able to Page 14 retain
experienced counsel in San Diego, or anywhere for that
matter, who would be able to address the numerous issues
involved in the time period for $150 per hour.” Johnson
Decl. ¶ 10, Lodg. 2.

The Connor & Winters firm obtained two declarations from
Oklahoma attorneys with tax-related expertise, neither of
whom believes the Foundation could have retained qualified
tax counsel at a billing rate of $150 per hour in Tulsa,
Oklahoma. Lodgs. 16, 17. Chicoine & Hallett solicited two
other declarations from attorneys practicing tax law in
Washington state. Each substantiates his considerable
qualifications and attests to the expertise of the Chicoine
& Hallett firm, the range of legal issues raised by the
circumstances of this case, their own billing rates of $300
per hour and firm rates ranging from $180 per hour for
junior associates to over $400 per hour for senior members.
Neither believes the Foundation could have obtained
competent counsel in Southern California for $150 per hour.
Lodgs. 18-19. Sheppard Mullin also submits a 2004 Citigroup
survey of average billing rates for equity partners at
comparable law firms, contending overall, its firm’s rates
“are below market.” Naughton Decl. ¶ 8.

The court rejects the materiality of the Foundation’s
“market rate” arguments for Section 7430 fee recoveries.
The expertise and competence of the Foundation’s legal team
members is not disputed. The issue is the fee shifting
provision of Section 7430 rather than the market value of
the services provided. The Foundation establish that
attorneys with comparable tax and complex litigation
expertise generally charge much more than the statutory
hourly cap. That circumstances does not qualify as a
“special factor.” See Pierce,487 U.S. at 572; Huffman 978
F.2d 1139.

The court construes the Section 7430 “special factor” of
“limited availability of qualified attorneys” for the
particular proceeding to mean an actual shortage of
qualified attorneys who could handle the case rather than
an inability to retain qualified counsel willing to take on
the representation at the statutory maximum hourly rate.
See, e.g., Powers v. Commissioner, 43 F.3d 172, 183 (5th
Cir. 1995) (no special factor shown to justify an increased
rate for litigating an attorneys’ fees motion, even if some
times a special factor warrants a higher award associated
with litigating the underlying claim); Huffman, 978 F.2d at
1149-50. The declarations substantiate no shortage of
qualified counsel locally or nationally to handle a matter
like this one, but only that such counsel would not accept
the representation for compensation capped at $150.00 per
hour. See, e.g., Bode, 919 F.2d at 1049 (“The Supreme Court
[in Pierce] explained that the similarly worded exception
for limited availability of Page 15 qualified attorneys in
the [EAJA] cannot mean simply that lawyers skilled and
experienced enough to try a particular case are in short
supply and cannot be hired at $75 per hour,” and “Congress
did not intend that the market-minimum rate should govern
instead of the presumed statutory rate if the national or
local market rate was above the statutory cap”); Heasley v.
Commissioner of Internal Revenue, 967 F.2d 116, 124-25 (5th
Cir. 1992) (declining to find an abuse of discretion in the
Tax Court’s limiting of attorneys’ fees to the statutory
rate on grounds “that the `going rate’ did not qualify as a
`special factor’ within the meaning of section 7430”),
citing, inter alia, Pierce, 487 U.S. at 572.

4. Special Training “Needful For The Litigation”

Having eliminated tax expertise and extraordinary legal
competency as Section 7430 “special factors,” this court
also finds special insider knowledge of the entity
represented should similarly not qualify as a “special
factor” warranting compensation above the statutory cap.
Certain of the billing attorneys support the Foundation’s
effort to exceed that reimbursement cap by suggesting their
status is analogous to in-house or corporate counsel to the
Foundation and that such inside knowledge was very
important in this case. See, e.g. Will Decl, Coyle Decl.
Recognizing such a relationship as a “special factor” would
again operate to swallow the rule.

As noted by the Fifth Circuit:

[W]e believe that the Supreme Court in [Pierce] intended
to distinguish nonlegal or technical abilities possessed
by, for example, patent lawyers and experts in foreign
law, from other types of substantive specializations
currently proliferating within the profession. In a sense,
every attorney practicing within a narrow field could
claim specialized knowledge.

Perales v. Casillas, 950 F.2d 1066, 1078 (5th Cir. 1992);
see also Cervin, 200 F.3d at 355 (the Perales court’s
“articulation of the `limited availability’ standard
illustrates [the Fifth Circuit’s] view that this is a very
narrow exception,” confirming that Circuit’s conclusion
that the “special factor” analysis requires “nonlegal or
technical abilities”).

An award in excess of the statutory rate is only
appropriate where “lawyers skilled and experienced enough
to try the case are [not only] in short supply,” but there
is also limited availability of “attorneys having some
distinctive knowledge or specialized skill needful for the
litigation in question.” [Pierce, 487 U.S. at 573.] The
Ninth Circuit has distilled the Supreme Court’s Pierce v.
Underwood holding into a two-prong test: (1) the attorney
must possess “distinctive knowledge and skills” and (2)
the qualifications must be “in some way needed in the
litigation and cannot be obtained elsewhere at the
statutory rate.” Page 16 Games v. Barnhardt, 2006 WL
249522 (N.D.Cal. Jan. 31, 2006) (awarding attorneys’ fees
in excess of the EAJA statutory cap to counsel with
distinctive knowledge of the social security scheme,
policies, practices, and regulations in a challenge to
the manner of the agency’s application of a particular
provision in a regulation, applying Pirus, 869 F.2d 536,
but reducing the hourly rates for the two attorneys whose
fees were shifted to the government to a rate below their
billed rate).

C. Fees For Litigation Defense

This case undeniably presented the Foundation with
complex, multi-faceted issues to be rapidly researched and
coordinated for presentation to defend on several fronts
against the imposition of a crippling preliminary
injunction. None of the claimed attorneys’ fees is billed
at a rate at or below the statutory hourly cap. The 21
attorneys claim hourly rates ranging from $230 to $530 per
hour, in defending the merits of the case and, for ten of
them, considerable additional time at their market rates to
prepare the fees and costs application. “Special factor”
deviation limitations preclude out of hand such an
across-the-board excess award.[fn9] This lawsuit was active
for four to six weeks. All time billed in 2005 was invested
to pursue litigation expenses recovery. The Foundation has
not demonstrated its entitlement to reimbursement of its
attorneys’ fees calculated at an hourly rate in excess of
the statutory maximum.

Even if hourly rates for some of the Foundation’s attorneys
at rates higher than the statutory maximum were warranted,
recovery at those attorneys’ market rates would not
necessarily be justified or justified for all the
activities they billed. To find otherwise would convert the
calculation to an inappropriate lodestar methodology. See
Section II.B. As the government argues, if some “special
factor” under Section 7430, excluding tax law expertise and
complex litigation expertise, is demonstrated for purposes
of a rate cap waiver, it does not follow that the
attorney’s usual hourly rate (as might be used in the
lodestar calculation methodology) is the proper
reimbursement rate. However, as the court has found the
Foundation has not demonstrated entitlement to deviation
from the statutory cap, the court need not reach the issue
of an appropriate excess hourly rate.

In consideration of the “special factor” limitations, the
court finds the Foundation’s recovery of fees from the
government for its attorneys’ work to defend this case is
capped at the statutory hourly Page 17 rate of $150.00.
The total attorney time claimed by the Foundation for its
defense, excluding the 325 hours of time spent to prepare
the fees and costs application addressed below, is 622.1
hours.[fn10] See Dkt No. 150, p. 15. Those hours are
substantiated as actually devoted to the Foundation’s
necessarily vigorous and intensive defense on the merits to
avoid imposition of the government’s preliminary
injunction. The government does not challenge the number of
attorney hours expended in defending on the merits.
Accordingly, the total award for the 622.1 hours of claimed
attorney time expended in that capacity at $150 per hour is

D. Fees For Application Preparation

“[R]easonable time spent litigating a fee award may be
compensable” under Section 7430. National Wildlife, 870
F.2d at 547-48, citing Cinciarelli v. Reagan, 729 F.2d 801,
809 (D.C. Cir. 1984). The Foundation claims 325 hours of
attorney time,[fn11] or 34% of the nearly 950 total hours
its attorneys billed in this case, to prepare the fees and
costs application, at the normal billing rates for each of
the ten participating attorneys, totaling a request for
government reimbursement of $85,316.50 solely for the
application preparation occurring after the merits of the
injunctive relief claims were resolved.[fn12] The
supplemental briefing added 310 hours to the 15 hours
included in the initial application expended to prepare the
application points and authorities, with the Foundation
thus seeking an additional $85,316.50 for fee application
preparation alone. Dkt No. 150, pp. 15-16.

The government challenges that component of the
Foundation’s claim as unreasonable. Page 18 Although the
United States agrees that the Foundation may recover
“reasonable attorneys fees” incurred in pursuing its claim
for attorneys’ fees, the United States submits that it is
not reasonable to have spent 8 attorney-weeks preparing the
original 13-page memorandum and 4 short affidavits, and
preparing the 14-page supplemental memorandum and 19 pro
forma supplemental affidavits.

Opp. 15:26-16:3.

The government objects to the claimed hours, but proposes
no “reasonable” number of hours fairly compensable to
pursue the Foundation’s motion, only that it must be
“substantially less than 325” hours. The Court agrees. The
claimed 322 hours represent four forty-hour weeks more than
the duration of the litigation on the merits, from the
November 3, 2004 TRO to the December 3, 2004 denial of a
preliminary injunction. Moreover, there is some indication
in the backup documentation that not all the claimed time
was expended on this application.[fn13]

The government also challenges the hourly rates sought to
be applied to preparation of the fee application. As
observed by the Fifth Circuit: “Even if some special factor
existed to merit a higher award with regard to the
underlying claim, there has been no showing that any
special factor justifies an increased rate for litigating
the attorney’s fee motion. For example, an expert in tax
law is not required to litigate such an issue.” Powers, 43
F.3d at 183. Technical expertise of the type adequate to
qualify as a “special factor” is not required for the
compilation activities associated with presenting a fees
and costs application. Accordingly, compensable hours to
prepare the Foundation’s fees and costs application will be
reimbursed at $150 per hour rather than at the considerably
higher rates billed by the participating attorneys.

Although setting a reasonable number of hours reimburseable
by the government for the fee application necessarily will
be less than a scientific calculation, the Court considers
the authority cited by the Foundation. Hours to be excluded
from reimbursement calculations include hours that are
“excessive, redundant, or otherwise unnecessary.”‘ U.S. v.
Real Property Known As 22249 Dolorosa St., 190 F.3d 977,
985 (9th Cir. 1999), quoting Hensley v. Eckerhart, 461 U.S.
424 (1983). Hours that are poorly documented or the result
of overstaffing are also excludable. Sorenson v. Mink, 239
F.3d 1140, 1146 (9th Cir. 2001) (distinguishing fee awards
under statues like the EAJA and Section 7430, Page 19
containing explicit rate caps, from awards under statutes
like 42 U.S.C. § 1988, where prevailing market rates
are considered); see also Jean, 496 U.S. 154.

The fee application activity should have consisted
essentially of compiling and authenticating billing
records. The court finds a reasonable time to accomplish
that activity in a case that only lasted four to six weeks
is 20 (twenty) hours. As discussed above, the Court finds
the Foundation’s reimbursement is capped at the $150.00 per
hour maximum rate set by Section 7430. The total recovery
for this component of claimed fees is accordingly $3,000.00
(20 hours x $150 per hour). Each side shall bear its own
costs for the supplemental legal briefing solicited by the


For all the foregoing reasons, the Foundation’s application
for recovery of its fees and costs is GRANTED IN PART and

1. The Foundation’s application to recover its claimed
litigation costs in the total amount of $6,817.83 is
reasonable and unopposed and is GRANTED.

2. The Foundation’s application to recover 622.1 hours of
attorney fees for all claimed time counsel spent defending
the Foundation on the merits in this litigation is
GRANTED. However, as no “special factor” has been
demonstrated to warrant deviation from the statutory
maximum rate, the recovery shall be at the Section 7430
hourly rate of $150.00, for a total recovery of $93,315.00
for that portion of its claim.

3. The Foundation’s application to recover 325 hours of
attorney time at the billed rates for the preparation of
its application for fees and costs is DENIED. The court
reduces the compensable time for that activity to 20
(twenty) hours, reimbursable at the Section 7430 rate of
$150.00 per hour, for a total recovery of $3,000.00 for
that portion of its claim.

4. The grand total award of litigation expenses the
government shall reimburse the Foundation is accordingly


[fn1] In its Order conditionally awarding the Foundation
its reasonable attorneys’ fees and costs, the court ruled
the application for recovery of litigation expenses is
governed by Section 7430 as an action by the United States
in connection with the determination or collection of tax,
interest, or penalty under the Internal Revenue Code,
rather than by the Equal Access to Justice Act, 28 U.S.C.
§ 2412 (“EAJA”). Dkt No. 148, p. 7.

[fn2] Section 7430(b) describes the limitations on
judgments awarding litigation costs: “(b) Limitations. . .
. (2) Only costs allocable to the United States. —
An award under subsection (a) shall be made only for
reasonable litigation and administrative costs which are
allocable to the United States and not to any other party .
. .”

[fn3] The lodestar method for calculating attorneys’ fees
awards multiplies the number of hours reasonably expended
on the litigation by a reasonable hourly rate, which
generally takes account of prevailing market rates for such
services. That method is the usual approach, for example,
in awarding fees in civil rights litigation under such
statutes as 42 U.S.C. §§ 1983, 1988. See,
e.g., discussion in Sorenson v. Mink, 239 F.3d 1140 (9th
Cir. 2001) (discussing the differences in fee calculations
under the EAJA and under the civil rights statutes).

[fn4] The hourly rate under Section 7430 for 2004 is
$150.00. As traced by the Foundation: “As originally
enacted, Section 7430 set the hourly rate at $75.00. In
1996, Congress amended Section 7430 to increase the maximum
hourly rate payable under the statute to $125.00.
Accordingly, cases decided before the 1996 amendment cite
$75.00 as the maximum hourly rate.” Foundation P&A p. 2, n.
2. Thereafter, a cost of living adjustment was to be
calculated “by multiplying $125 by the percentage that the
preceding calendar year (in this case 2003) CPI exceeds the
CPI for the year 1995, rounded to the nearest $10. 26
U.S.C. § 7430(c)(1).” Id. p. 2, n. 3. Applying that
formula, the hourly rate under 7430 for 2004 is $150.00.
See calculation at Foundation P&A p. 2, n. 3.

[fn5] The Supreme Court has observed that Congress set an
hourly rate cap it deemed “generally quite enough public
reimbursement for lawyers’ fees, whatever the local or
national market might be.” Pierce v. Underwood, 487 U.S.
552, 572 (1988). As noted by the Third Circuit, statutory
caps on attorney fee awards, such as under the EAJA, were
not intended to provide full reimbursement of legal
expenses, but rather to provide reimbursement in reasonable
part. See Dewalt v. Sullivan, 963 F.2d 27, 29, 30 (3rd Cir.
1992). Like the EAJA, the Section 7430 cost recovery
statute provides for recovery of “reasonable litigation
costs, including attorneys fees, “except that such 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.
§ 7430(c)(1)(B)(iii) (emphasis added).

[fn6] Helpful Ninth Circuit authority on the pertinent
Section 7430 issues is scarce, but appears to follow Fifth
and Second Circuit reasoning. See, e.g., Huffman, 978 F.2d
at 1150, relying on Cassuto v. Commissioner, 936 F.2d 736,
743 (2d Cir. 1991) and Bode v. United States, 919 F.2d
1044, 1050 (5th Cir. 1990).

[fn7] The fee award provisions are analogous. The EAJA
provides, in pertinent part: “Except as otherwise
specifically provided by statute, 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 . . . including proceedings for judicial review of
agency action, brought by or against the United States . .
. 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). “Fees” include “reasonable attorney fees,” which
are defined to include “prevailing market rates for the
kind and quality of the services furnished, except that . .
. attorney fees shall not be awarded in excess of $125 per
hour unless the court determines that an increase in the
cost of living or a special factor, such as the limited
availability of qualified attorneys for the proceedings
involved, justifies a higher fee.” Id.

[fn8] The Foundation relies on articulations of a
“three-prong test” for waiver of the hourly rate cap in the
EAJA context: “First, the attorney must possess distinctive
knowledge and skills developed through a practice
speciality. Secondly, those distinctive skills must be
needed in the litigation. Lastly, those skills must not be
available elsewhere at the statutory rate.” Love v. Reilly,
924 F.2d 1492, 1496 (9th Cir. 1991) (an EAJA case where the
court found special expertise in pesticides warranted a fee
award enhancement in environmental litigation, but
remanding on the third prong for specific findings on the
issue of availability of other attorneys with environmental
expertise at the statutory rate), citing Pirus v. Bowen,
869 F.2d 536, 541-42 (9th Cir. 1989) (awarding fees in
excess of the statutory cap under the EAJA in a class
action where specialized knowledge of a highly complex area
of Social Security law distinguished the matter from a
routine disability case). To reiterate, fee applications
brought under Section 7430 are different as that section
applies only to tax cases, in which special expertise in
tax law is presumed.

[fn9] See also the government’s objections to reimbursing
the Foundation for attorney time spent working on non-legal
matters such as press releases and board minutes. Opp. P&A
p. 9, n. 6.

[fn10] The Foundation initially requested reimbursement of
637.1 hours that appear to have included 15 hours of
attorney time to prepare the initial application. The Court
addresses all 325 hours claimed for the fee application and
supplemental briefing in the next section.

[fn11] 310 of the 325 hours were added for the supplemental
briefing in support of the fees and costs claimed: 221.6
hours expended by the Conner & Winters firm; 44 hours
expended by the Chicoine & Hallett firm; and 45.2 hours by
the Johnson Law Firm. Mot. p. 15. The Foundation’s original
fees and costs application filed January 14, 2005 (Dkt No.
129) thus included 15 hours expended on the fee

[fn12] “The Foundation previously requested recovery of
$226,733.25 in attorneys’ fees. . . .” Dkt No. 150 15:13-14.
The only case activity subsequent to that application was
the augmentation of the supporting documentation in support
of the claimed fees and costs: “the Foundation seeks
recovery of additional attorneys’ fees and costs . . .,”
bringing its total request for an “award [of] attorneys’
fees in the amount of $312,049.75” (Dkt No. 150
15:21-16:2), a difference adding $85,316.50 to the claimed
fees for the sole purpose of pursuing fees and costs
recovery. The government’s brief extracts detail from the
Foundation’s billings to show it seeks $90,700.50 in
attorneys’ fees billed after the case was dismissed. See
Opp. P&A p. 8.

[fn13] For example, the detailed billing records provided by
the Johnson firm reflect time was spent in related to the
Receiver’s application for costs and fees. See, e.g.,
Johnson Decl. Ex. A, entries for January 22, 2005, for
February 28, 2005, and for March 5, 2005.