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No. 14-2363
IN THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
THE NATIONAL ORGANIZATION FOR MARRIAGE, INC.,
Plaintiff-Appellant
v.
UNITED STATES OF AMERICA, Internal Revenue Service
Defendant-Appellee
ON APPEAL FROM THE ORDER OF
THE UNITED STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF VIRGINIA
BRIEF FOR THE UNITED STATES
CAROLINE D. CIRAOLO
Acting Assistant Attorney General

Of Counsel:

RICHARD FARBER
IVAN C. DALE
Attorneys, Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

(202) 514-2959
(202) 307-6615

DANA J. BOENTE
United States Attorney

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-iTABLE OF CONTENTS
Page
Table of contents .......................................................................................... i
Table of authorities .................................................................................. iii
Statement of jurisdiction ............................................................................ 1
Statement of the issue ................................................................................ 3
Statement of the case ................................................................................. 3
Statement of facts ....................................................................................... 4
1.

NOM files a two-count complaint seeking statutory,

actual and punitive damages and injunctive relief for
alleged willful or grossly negligent inspections and
disclosures of its confidential return information ................. 4

2.

The Government answers by admitting liability for

one inadvertent disclosure of NOMs return
information, but denying that it made any unlawful
inspections, or that its disclosure was willful, grossly
negligent, or the cause of the damages alleged in the
complaint .................................................................................. 8

3.

Discovery reveals no evidence that the IRS made any

unlawful inspections, that it made any disclosure to
NOMs political enemies, that its failure to redact
NOMs donor information was intentional or
politically motivated, or that NOM lost contributions as
a result of the IRSs mistake ................................................. 10

4.

The District Court awards summary judgment to the

Government on NOMs unlawful inspection claim and
NOMs claim for punitive damages, but holds over for
trial NOMs claim for actual damages resulting from a
single, inadvertent disclosure, and the parties
promptly settle that lone, outstanding claim for far
less than was demanded ........................................................ 18

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-iiPage
5.

The District Court denies NOMs request for $691,025

in attorneys fees, finding that NOM was not the
prevailing party, and that, in any event, the
Governments position in the litigation was
substantially justified ............................................................ 20

Summary of Argument ............................................................................. 24

Argument:
The District Court did not abuse its discretion in denying
NOMs request for attorneys fees .................................................. 26
Standard of review ................................................................. 26
A.

Relevant statutory background ............................................. 27

B.

The District Court did not abuse its discretion in

determining that NOM did not substantially prevail
with respect to either the amount in controversy or the
most significant issue or set of issues ................................... 31

C.

1.

NOM did not substantially prevail with regard to

the amount in controversy ............................................ 31

2.

NOM did not substantially prevail as to the most

important issues............................................................ 42

At all events, the District Court did not abuse its

discretion in determining that the Governments
position in this litigation was substantially justified ........ 46

Conclusion ................................................................................................. 49
Statement regarding oral argument ........................................................ 50
Certificate of compliance .......................................................................... 51
Certificate of service ................................................................................. 52

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-iiiTABLE OF AUTHORITIES
Cases:

Page(s)

Andrews v. Commissioner,
T.C. Memo 1985-559, 1985 WL 15179 (1985) ....................... 36
Ardestani v. INS,
5012 U.S. 129 (1991) ........................................................ 30, 42
Bowles v. United States,
947 F.2d 91 (4th Cir. 1991) .................................................... 26
Budinich v. Becton Dickinson & Co.,
486 U.S. 196 (1988) .................................................................. 3
Christian Coalition Intl v. United States,
133 F. Supp. 2d 437 (E.D. Va. 2001) ..................................... 43
Dang v. Commissioner,
259 F.3d 204 (4th Cir. 2001) ............................................ 26, 31
Don Johnson Motors, Inc. v. United States,
2008 WL 2200263 (S.D. Tex. 2008),
affd, 433 Fed. Appx. 526 (5th Cir. 2011) .............................. 32
Estate of Holmes v. United States,
1990 WL 10062 (E.D. Pa. Feb. 9, 1990) ................................ 36
Goettee v. Commissioner,
192 Fed. Appx. 212 (4th Cir. 2006) ....................................... 46
Hensley v. Eckerhart,
461 U.S. 424 (1983) .................................................... 31, 45, 49
Jones v. United States,
9 F.Supp.2d 1154 (D. Neb. 1998) ........................................... 41
Jones v. United States,
207 F.3d 508 (8th Cir. 2000) ............................................ 41, 47
Kenagy v. United States,
942 F.2d 459 (8th Cir. 1991) .................................................. 46
Kenlin Industries, Inc. v. United States,
927 F.2d 782 (4th Cir. 1991) ............................................ 31, 42
Library of Congress v. Shaw,
478 U.S. 310 (1986) ................................................................ 30
Phillips v. Commr,
851 F.2d 1492 (D.C. Cir. 1988) .............................................. 47
Pierce v. Underwood,
487 U.S. 552 (1988) ................................................................ 46
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-ivCases:

Page(s)

Ralston Development Corp. v. United States,

937 F.2d 510 (10th Cir. 1991) ................................................ 36
Robinson v. Equifax Information Services, LLC,
560 F.3d 235 (4th Cir. 2009) .................................................. 26
Scrimgeour v. IRS,
149 F.3d 318 (4th Cir. 1998) .................................................. 29
Snider v. United States,
2005 WL 1950122 (W.D. Mo. 2005),
affd in part, revd in part,
468 F.3d 500 (8th Cir. Mo. 2006) ........................................... 35
Ward v. United States,
973 F.Supp. 996 (D. Colo. 1997) ............................................ 35
Statutes:
Internal Revenue Code of 1986 (26 U.S.C.):
501(c)(4) ................................................................................. 4
6033(a)(1) ......................................................................... 5, 27
6103 ........................................................................ 1, 5, 25, 27
6104(b) ....................................................................... 5, 12, 27
7430 ............................................................... 28, 30, 40-41, 46
7430(a) ................................................................................. 29
7430(c)(1)(B)(iii) ................................................................... 23
7430(c)(4) ..................................................... 3-4, 24-25, 29-31
7430(c)(4)(A)(i) ......................................................... 30, 34, 36
7430(c)(4)(B) ........................................................................ 46
7430(c)(4)(B)(i) ..................................................................... 30
7430(c)(7) ............................................................................. 47
7431 ...................................................................... 9, 29, 30, 35
7431(a)(1) ..................................................................... 2, 3, 28
7431(c) ........................................................................ 3, 20, 29
7431(c)(1)-(2) ........................................................................ 28
7431(c)(3) ......................................................................... 2, 29
26 U.S.C. 7217(c) (Supp.1981) (repealed 1982) ........................... 28

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-v-

Statutes (contd):

Page(s)

28 U.S.C.:
1291 ........................................................................................ 3
1340 ........................................................................................ 2
2107(b) ................................................................................... 3
Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. No. 97-248, 357 (97th Cong., 2d Sess.) (Sept. 3, 1982) ............ 28
Pub. L. No. 94-455, 1202(e) (94th Cong., 2d Sess.)
(Oct. 4, 1976) ............................................................................................. 27

Regulations:
Treasury Regulations (26 C.F.R.):
1.6033-2(a)(2)(ii)(f) ........................................................... 5, 27
301.6104(b)-1(b) ..................................................................... 5
301.6104(b)-1(d) ..................................................................... 5
301.7430-5(d) ................................................................. 32, 38
Miscellaneous:
Federal Rule of Appellate Procedure:
4(a)(1)(B) ................................................................................... 3
Federal Rule of Civil Procedure:
16(b) ....................................................................................... 10
26(f) ....................................................................................... 10
H.R. Conf. Rep. No. 99-841, at 801-02 (99th Cong., 2d Sess.)
(1986) ...................................................................................... 46

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-vi-

Miscellaneous (contd):

Page(s)

H.R. Conf. Rep. No. 105-599, at 242-43 (105th Cong., 2d Sess.)

(June 24, 1998) ....................................................................... 29
Stephen Dinan, Marriage Group to Sue IRS over
Donor Leak, Says List Went to Political Enemies,
Wash. Times, Oct. 3, 2013 .................................................. 8, 43

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IN THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT
No. 14-2363
THE NATIONAL ORGANIZATION FOR MARRIAGE, INC.,
Plaintiff-Appellant
v.
UNITED STATES OF AMERICA, Internal Revenue Service
Defendant-Appellee
ON APPEAL FROM THE ORDER OF
THE UNITED STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF VIRGINIA
BRIEF FOR THE UNITED STATES
STATEMENT OF JURISDICTION
Appellant National Organization for Marriage, Inc. (NOM) filed
a complaint in the United States District Court for the Eastern District
of Virginia, seeking damages for alleged willful, unauthorized
inspections and disclosures of its return information by Government
employees in violation of 6103 of the Internal Revenue Code of 1986

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-2(26 U.S.C.) (I.R.C. or the Code). (A. 9, 30-32.)1 The District Court had
jurisdiction under I.R.C. 7431(a)(1) and 28 U.S.C. 1340.
On June 3, 2014, the District Court (Hon. James C. Cacheris)
awarded summary judgment to the Government on NOMs claim for
damages arising from alleged unlawful inspections, as well as its claim
for punitive damages, determining that there was no evidence from
which a jury could reasonably conclude that the Governments
disclosure of NOMs return information was willful or grossly negligent.
(A. 350.)2 The parties then settled NOMs remaining claim for actual
damages and costs arising from a single, improper disclosure of its
return information. (A. 352.) On June 23, 2014, the court, consistent
with the parties settlement, entered a consent judgment against the
United States in the amount of $50,000. (A. 354.) Pursuant to the
settlement, the District Court retained jurisdiction to consider a request
by NOM for attorneys fees under I.R.C. 7431(c)(3). (A. 352, 354.)
A. references are to the pages of the separately bound record
appendix. Doc. references are to docket entries below, as numbered by
the Clerk of the District Court. Br. references are to the pages of
NOMs opening brief.
1

The District Courts order on summary judgment was published

at 24 F.Supp.3d 518 (E.D.Va. 2014).
2

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-3NOM then made a motion to recover $691,025 in attorneys fees, which

the District Court denied, on October 16, 2014, finding that NOM was
not the prevailing party under I.R.C. 7430(c)(4). (A. 367-381, 383.)
The District Courts final order denying NOMs request for
attorneys fees is separately appealable. Budinich v. Becton Dickinson
& Co., 486 U.S. 196, 199-200 (1988). On December 15, 2014, within 60
days of the order denying attorneys fees, NOM filed a notice of appeal.
(A. 384.) The notice of appeal is timely under Fed. R. App. P. 4(a)(1)(B)
and 28 U.S.C. 2107(b). This Court has jurisdiction pursuant to 28
U.S.C. 1291.
STATEMENT OF THE ISSUE
Whether the District Court abused its discretion in determining
that NOM was not a prevailing party, under I.R.C. 7430(c)(4), and
that, consequently, it was not eligible for an award of attorneys fees.
STATEMENT OF THE CASE
This appeal arises out of NOMs lawsuit seeking statutory or
actual and punitive damages and costs, under I.R.C. 7431(a)(1) and
(c), for what NOM contended were willful, unauthorized inspections and
disclosures of its tax return information by Government employees. (A.
27-32.) The District Court awarded partial summary judgment to the
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-4Government, concluding that there were no unlawful inspections, that

there was but one disclosure, that the disclosure was inadvertent and
not willful or grossly negligent, and that NOM was not entitled to
punitive damages. (A. 318-350.) The parties then settled, for $50,000,
NOMs remaining claim for actual damages and costs (A. 352, 354).
NOM then made a motion to recover $691,025 in attorneys fees, which
the District Court denied, determining that NOM was not the
prevailing party in the litigation under I.R.C. 7430(c)(4). (A. 367381, 383.) This appeal is from the District Courts order denying NOMs
request for an award of attorneys fees. (A. 384-85.)
STATEMENT OF FACTS
1.

NOM files a two-count complaint seeking

statutory, actual and punitive damages and
injunctive relief for alleged willful or grossly
negligent inspections and disclosures of its
confidential return information

NOM is recognized by the Internal Revenue Service (IRS) as a

social welfare organization exempt from income tax under I.R.C.
501(c)(4). (A. 11, 39.) Tax exempt organizations are required to file
an annual information return on IRS Form 990, and to disclose on
Schedule B to Form 990 the names, addresses, and contribution
amounts of any persons who contributed $5,000 or more during the
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-5taxable year. (A. 11, 39; see I.R.C. 6033(a)(1); 26 C.F.R. 1.60332(a)(2)(ii)(f).) Federal law requires the IRS to make exempt
organization returns available to the public upon request, except that
the names and addresses of the organizations contributors are to be
redacted before complying with a public request for inspection or
copying. (A. 11, 40; see I.R.C. 6104(b); 26 C.F.R. 301.6104(b)-1(b),
(d).)
NOM filed its complaint in this case on October 3, 2013. (A. 9.)
NOM made numerous contentions in the complaint that, with one
exception, it was ultimately unable to substantiate. For instance, the
complaint alleged that in March, 2012, in violation of I.R.C. 6103, IRS
employees inspected NOMs confidential return information, including
the names, addresses, and contributions of its donors listed on Schedule
B to its 2008 Form 990, and disclosed that information to third parties,
including to NOMs ideological opponent, the Human Rights Campaign.
(A. 10.) The complaint alleged that the IRS employees made these
disclosures to third parties specifically intending that those parties
would widely publish the information . . . as part of a deliberate attempt
to chill the First Amendment activity of NOM, its donors, and those

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-6who associate with NOM. (A. 10.) The complaint suggested that the
disclosure to the Human Rights Campaign was politically motivated,
connected with the Presidents 2012 re-election campaign, and alleged
that the IRSs actions were part of a larger pattern of behavior aimed
at harassing, burdening, and retaliating against philosophically
conservative organizations and their donors. (A. 22-24.) NOM alleged
that it had asked the Treasury Inspector General for Tax
Administration (TIGTA) to investigate the disclosure, and suggested
that the IRS and TIGTA were deliberately hiding the results of that
investigation. (A. 17-22.)
NOMs complaint stated two claims for relief. Count I entitled
Willful or Grossly Negligent Unauthorized Disclosure alleged that
one or more IRS employees chose to disclose NOMs confidential return
information to the Human Rights Campaign with the intent that HRC
would widely publish the information through its website, media
releases, and through other means. (A. 27-28.) NOM alleged that this
disclosure to HRC was intentional, grossly negligent, or negligent. (A.
28.) Count II entitled Willful or Grossly Negligent Unauthorized
Inspection alleged that one or more IRS employees unlawfully

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-7inspected NOMs confidential return information and that [s]uch

inspections were intentional, grossly negligent, or negligent. (A. 29.)
NOMs complaint sought to [p]ermanently enjoin the IRS and its
agents and employees from further release to any third party of NOMs
return information. (A. 31.) It sought $1,000 for each unauthorized
inspection and $1,000 for each unauthorized disclosure of its return
or return information, including subsequent disclosures by third
parties. (A. 31.) NOM calculated that it has lost in excess of $50,000
in contributions, plus in excess of $10,500 in legal fees and costs
incurred to defend against a complaint that NOM had violated
California election laws by not reporting all of its contributions received
in 2008, and sought actual damages according to proof incurred as a
result of the illegal disclosures and inspections. (A. 31-32; see A. 3536.) Finally, [b]ecause some or all of these disclosures and inspections
were made willfully or as a result of gross negligence, NOM alleged
that the United States was liable to NOM for punitive damages, and
sought an award thereof. (A. 30, 32.)
On the day the complaint was filed, NOMs attorneys in the case
stated publicly that they brought the suit because [s]omebody did this

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-8deliberately and it was planned. Stephen Dinan, Marriage Group to

Sue IRS over Donor Leak, Says List Went to Political Enemies, WASH.
TIMES, Oct. 3, 2013, at A01. NOMs attorneys stated that they found it
laughable that the IRS claimed its disclosure was inadvertent, that
instead they believed the disclosure was deliberate and at high levels
and that they wanted to keep the pressure on the investigation of the
offenders.3 Id. In the meantime, NOM used the publicity and the
allegations attendant to this lawsuit to solicit contributions from
donors. (A. 127.)
2.

The Government answers by admitting liability

for one inadvertent disclosure of NOMs return
information, but denying that it made any
unlawful inspections, or that its disclosure was
willful, grossly negligent, or the cause of the
damages alleged in the complaint

On December 2, 2013, the Government filed its answer to NOMs

complaint. (A. 37.) The Government admitted in its answer that the
Similarly, NOMs counsel testified before Congress in June,
2013, about what he contended was the willful unauthorized public
disclosure of NOMs donors, urging the House Ways and Means
Committee to identify the culprit or culprits, and refer the matter for
indictment and prosecution, because the civil remedy was woefully
inadequate. Testimony of Dr. John C. Eastman before the Committee
on Ways and Means, U.S. House of Representatives, June 4, 2013. (See
A. 317.)
3

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-9IRS inadvertently disclosed one unredacted copy of NOMs 2008

information return, including the donor information on Schedule B, to a
third party. (A. 49.) The Government admitted that it was liable to
NOM for statutory damages of $1,000 as a result of that single
disclosure. (A. 55.) The Government denied, however, that the IRS
intentionally disclosed NOMs return information. (A. 38.) It further
denied NOMs allegation that the disclosure was made to the Human
Rights Campaign, or to NOMs fiercest political enemies. (A. 43). The
Government also denied NOMs allegation that the IRS was harassing
or retaliating against exempt organizations based on their political
philosophy, or that its disclosure occurred during the Presidents reelection campaign. (A. 50.) And it contended that its withholding of the
results of TIGTAs investigation was compelled by federal law. (A. 48.)
The Government denied that NOM was entitled to injunctive
relief. (A. 55.) It denied that any unlawful disclosure was done
willfully, or as a result of gross negligence, or that it was liable for
subsequent disclosures under I.R.C. 7431. (A. 55-56.) It denied
liability for punitive damages, liability for unlawful inspections, liability
for $50,000 in lost contributions or $10,500 in legal fees and costs.

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-10(Id.) It requested that the Court award to NOM $1,000 in statutory

damages for a single unauthorized disclosure of return information (A.
55), and 15 days later made an offer of judgment for $1,000, plus the
costs of the action, which NOM declined (A. 62; Doc. 91 at 2).
3.

Discovery reveals no evidence that the IRS made

any unlawful inspections, that it made any
disclosure to NOMs political enemies, that its
failure to redact NOMs donor information was
intentional or politically motivated, or that NOM
lost contributions as a result of the IRSs mistake

a. On December 30, 2013, the parties filed a joint proposed

scheduling order and discovery plan under Fed. R. Civ. P. 16(b) and
26(f). NOM characterized its suit as an action for the recovery of
statutory and/or actual and punitive damages caused by Defendants
willful, unauthorized disclosures and inspections. (A. 60.) Counsel for
the Government admitted the unauthorized disclosure of NOMs donor
information and suggested therefore that a settlement should be
likely. (A. 62.) But the Government again denied that the disclosure
was either willful or grossly negligent, that the disclosure was made to
the Human Rights Campaign, that there were any unlawful inspections
of NOMs return information, or that NOM was entitled to punitive
damages. (A. 60-61.)

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-11NOM, however, reported that settlement was unlikely, and that it

expected to take discovery of electronic communications from the White
House, the Federal Election Commission, and other Government
agencies. (A. 62.) NOM estimated that a trial would last five days, and
that it was entitled to, at a minimum, (1) $50,000 for [l]ost
contributions resulting from Defendants unauthorized inspection
and/or disclosure, (2) $12,500 to defend against the complaint
regarding California election laws, (3) [p]unitive damages in an
amount to be determined at trial; and (4) costs and attorneys fees. (A.
61.)
NOMs contentions that the disclosure of its donor information
was politically motivated, or otherwise was done willfully, or as a result
of gross negligence, were not supported by the evidence revealed in
discovery. (A. 328, 330.) Because of a unique, non-repeatable
identifying watermark that was imprinted onto the disclosed copy of
NOMs 2008 information return, and logged into the IRS database, the
parties were able to identify the employee who accessed that return,
and the date and time of the access. (A. 13, 85-86, 140, 219, 320.) The
employee identified Wendy Peters was a clerk with the IRS unit

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-12responsible for responding to public requests for exempt organization

returns, as I.R.C. 6104(b) requires. (A. 82, 217.) Between 2009 and
2012, that unit produced more than 48,000 information returns in
response to such requests. (A. 86, 219.) Peters processed the vast
majority of such requests. (A. 82, 217.) And Peters knew nothing about
NOM or its mission. (A. 86, 219.)
In January, 2011, Matthew Meisel had sent the IRS a request to
inspect or copy of NOMs publicly available returns, identifying himself
as a member of the media. (A. 81, 216, 319.) Peters did not know who
Meisel was. (A. 86, 219.) On January 21, 2011, Peters accessed and
printed NOMs information return for 2007, and both NOMs original
and amended information return for 2008, each of which bore a unique
watermark. (A. 82, 217, 319-20.) On January 19 and 24, in accordance
with IRS procedures, Peters e-mailed Peggy Riley, an IRS media
relations specialist, to determine whether Meisel was a member of the
media, because it was IRS policy to expedite media requests. It is
unclear whether Riley responded. (A. 81-83, 319-20.)
On January 31, 2011, Peters created a standard cover letter used
to respond to public requests for exempt organization information

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-13returns. (A. 83-84, 142, 218.) Such a letter was sent shortly thereafter
to Meisel along with NOMs amended information return for 2008,
bearing the watermark discussed above, but the donor information on
Schedule B to that return had not been redacted, as required by law.
(A. 320.) It is the only case of which the IRS is aware where an
improper disclosure resulted from a clerks failure to properly redact a
Schedule B to an exempt organization return. (A. 86, 219.) Indeed,
Peters responded to two other requests for NOMs return in 2011, and
properly redacted the donor information in those instances. (A. 142-43.)
The unredacted donor information on NOMs amended 2008
return was not disclosed to the Human Rights Campaign until March
28, 2012, more than a year after Peters responded to Meisels request.
(A. 321.) And it was not the IRS who disclosed the information to
Human Rights Campaign, but Meisel. (Id.) The Human Rights
Campaign then forwarded the information to a journalist at the
Huffington Post, who published it along with an article focusing on the
fact that an Alabama state political action committee associated with
Mitt Romney had made a $10,000 donation to NOM in 2008. (Id.) The

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-14fact and amount of that donation was already publicly available on the
Alabama state reporting website. (A. 203.)
b. NOM itself ultimately recognized that the disclosure of its
donor information was accidentally made in response to a routine public
inspection request, so it shifted its theory of the case to one of gross
negligence caused by improper oversight and training of IRS employees.
(A. 226) On January 21, 2014, NOM responded to the governments
interrogatories by increasing its claim for actual damages to $108,586.37.
(A. 118.) It arrived at this figure by identifying for the first time and in
addition to its prior claim of $50,000 for lost contributions and $12,500
for defense of the California election law complaint an additional
$46,086.37 consisting primarily of attorney fees that it alleged it had
incurred as a result of the unauthorized disclosure. (Id.) NOM also
sought statutory damages of $1,000 for each unlawful inspection (A. 31),
and it contended that Peters accesses of its donor information, as well as
eight subsequent inspections by IRS personnel after NOMs donor
information was published by the Huffington Post, were unlawful (A.
229).

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-15The Government repeatedly sought information as to the basis for

NOMs claim for damages for lost contributions. (A. 118, 362-63, 375.) On
February 12, 2014, 30 days before the close of discovery, NOM amended
its discovery responses to inform the Government that it decided to
withdraw the lost contributions portion of its claim for damages in
order to protect the anonymity of its prospective donors, notwithstanding
the fact that the parties were under a confidentiality order. (A. 64, 67,
133.)
As for the damages for defending the California election law
complaint, the complainant (Fred Karger) obtained NOMs donor
information from information publicly available on the internet, one of
which was the Huffington Posts article of March, 2012, and alleged that
NOM had violated California law by failing to identify certain donors in
connection with its sponsorship of Californias Proposition 8. (A. 87-88,
203-07, 281-316.) Karger himself had requests for NOMs information
returns, but had never received unredacted donor information from the
IRS. (A. 88, 196-97, 221.)
NOMs remaining, claimed actual damages the $46,086.37 added
halfway through discovery consisted of fees paid to NOMs counsel in

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-16this appeal, primarily in connection with inquiries made of the IRS,

including six Freedom of Information Act (FOIA) and Privacy Act
requests, and lobbying efforts on Capitol Hill. (A. 89-90, 169-84.)
c. Discovery closed on March 14, 2014. (A. 64.) On April 28, 2014,
the United States filed a motion for summary judgment. (A. 78.) The
Government contended in that motion that NOM had failed to present
any evidence that: (1) that there were any unauthorized inspections of
NOMs return information; (2) that the IRSs disclosure was intentional,
willful, or the result of any agreement or conspiracy; or (3) that the
disclosure was the result of gross negligence. (A. 93-100.) The
Government also argued that there were too many intervening events
Meisels disclosure to the Human Rights Campaign, the Human Rights
Campaigns disclosure to the Huffington Post, NOMs alleged violation of
California law, and Kargers decision to file a complaint for Wendy
Peters failure to redact a response to a public information request in 2011
to be considered the proximate cause of NOMs alleged damages, and that,
in any event, such damages were offset by the hundreds of thousands of
dollars in contributions that NOM had received by soliciting donors based
on its disproven allegations of improper IRS actions. (A. 101-06.)

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-17NOM opposed the Governments summary judgment motion. (A.

213.) Although now conceding that the IRSs disclosure may have been
inadvertent (A. 226), NOM argued that nine unlawful inspections of its
return information had occurred, and that it was a question of disputed
fact whether such inspections were willful or grossly negligent (A. 227-30.)
NOM argued, moreover, that the IRSs disclosure was egregious, was
the result of improper training and oversight, and entitled NOM to
punitive damages. (A. 226-27.) Finally, NOM argued that the facts with
respect to actual damages were not susceptible to only one inference,
and that it was foreseeable that Meisel would forward NOMs donor
information to political enemies, and that NOM would spend attorneys
fees to request IRS and Department of Justice investigations, file FOIA
and Privacy Act requests, and testimony to Congress as a result of Wendy
Peters failure to redact Schedule B to NOMs 2008 information return in
response to a public request. (A. 232, 237.)

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-184.

The District Court awards summary judgment to

the Government on NOMs unlawful inspection
claim and NOMs claim for punitive damages, but
holds over for trial NOMs claim for actual
damages resulting from a single, inadvertent
disclosure, and the parties promptly settle that
lone, outstanding claim for far less than was
demanded

On June 3, 2014, the District Court issued an opinion and order

which granted the United States motion for summary judgment as to
NOMs claims of (1) a willful disclosure stemming from a conspiracy, (2) a
disclosure as a result of gross negligence, and (3) unlawful inspections of
NOMs tax return. (A. 327-339.) The court found that (A. 328)
NOM has proffered no evidence that its unredacted tax
information was willfully disclosed. The record provides a
specific timeline evidencing that NOMs Schedule B was
released inadvertently as part of a single employees
mistake.
As for NOMs attacking the IRSs internal procedures for
processing public requests for inspection of exempt organization returns,
the court noted that, other than this case, there is no record of an IRS
clerk failing to redact donor information, and found that NOM has made
no showing from which a reasonable jury could find that the disclosure
was the result of gross negligence. (A. 332-35.) As for NOMs unlawful
inspection claims, the court found that the evidence overwhelmingly

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-19indicates that Peters inspected the return while performing her official
IRS duties, and that the evidence confirmed that the other inspections
were somehow involved in the IRSs response to the disclosure. (A. 337,
339.) The court therefore dismissed NOMs claims for unlawful inspection
and punitive damages for willful or grossly negligent disclosures of return
information. (A. 350.)
As to NOMs remaining claim for actual damages resulting from the
single, inadvertent disclosure, the District Court found the issue whether
Peters disclosure proximately caused NOMs claimed damages (other
than NOMs conceded claim for lost contributions) to be a closer call, (A.
343), but concluded that [t]he fact that a third party was involved in this
chain of events does not foreclose finding proximate cause (A. 346). It
further found that there was a continuing factual dispute as to whether
the contributions NOM received after soliciting donors based on its
disproven allegations of IRS targeting were caused by the disclosure, and
if so, in what amount. (A. 348.) Accordingly, the District Court denied
the Governments motion for summary judgment as to the actual
damages alleged to have resulted from Peters inadvertent disclosure,
and held the matter over for trial. (A. 348-49.)

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-20Fifteen days after the Court granted partial summary judgment to

the Government, the parties settled the remaining issue of actual
damages and costs for $50,000. (A. 351-52.) The District Court granted
the parties motion for a consent judgment in that amount. (A. 354.)
The court retained jurisdiction, pursuant to the parties settlement
agreement, to decide whether NOM was entitled to attorneys fees for
this action, pursuant to I.R.C. 7431(c). (A. 352, 354.) NOM then
sought to recover $691,025.25 in attorneys fees in connection with the
prosecution of its complaint. (A. 381.)
5.

The District Court denies NOMs request for

$691,025 in attorneys fees, finding that NOM was
not the prevailing party, and that, in any event,
the Governments position in the litigation was
substantially justified

On October 16, 2014 the District Court entered an order denying

NOMs motion for attorneys fees. (A. 367.) Recognizing that NOM
could be awarded attorneys fees only if (1) it had substantially
prevailed as to either the amount in controversy or the most significant
issue presented, and (2) the Governments position in the litigation was
not substantially justified (A. 367), the District Court began by
determining the amount in controversy. The court noted that the

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-21amount in controversy includes any amount placed at issue by the

pleadings increased by any amount subsequently placed at issue by any
party. (A. 373.) It determined that the amounts in issue included the
$108,586.37 asserted by NOM in its January 21, 2014 actual damages
calculation, plus $9,000 in statutory damages, as well as $108,586.37 in
punitive damages, noting that the Government had to defend against
NOMs claim of willful and grossly negligent conduct for eight months
until the dismissal of those claims in June, 2014. (A. 375.) Because
NOMs ultimate recovery via settlement of $50,000 was
disproportionately low compared to what it originally sought, the court
determined that NOM had not substantially prevailed as to the amount in
controversy. (A. 377.)
The District Court found that, likewise, NOM had not
substantially prevailed as to the most significant issue, or set of issues.
(A. 378.) The court observed that [t]his case presented many
significant issues, . . . the majority of which were dismissed by the
[c]ourt on summary judgment. (Id.) It noted that, based on the face of
the complaint, NOM alleged that the Governments actions
constitute[d] gross violations of NOMs statutory and constitutional

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-22rights. (A. 379.) To be clear, the court stated, this case was not
brought to determine whether the IRS unlawfully disclosed NOMs
2008 IRS Form 990, Schedule B, as NOM claims. (Id.) The
Government conceded that issue in its answer, the court noted, but the
Government was forced to defend NOMs unfounded claims of willful
and grossly negligent conduct for over six months thereafter. (Id.) At
heart, the court concluded, this case presented a series of claims
against the IRS, the vast majority of which were determined in the
IRSs favor. (A. 380.) Accordingly, the District Court held that NOM
did not substantially prevail as to the issues presented. (Id.)
Finally, the District Court held that, even if NOM had
substantially prevailed as to the amount in controversy or as to the
most significant issues presented, NOM would still not be entitled to a
fee award because the Governments position was substantially
justified. (A. 380.) It found that the Governments position was
reasonably based in law and in fact. (A. 381.) The court observed that
the Government reasonably contested NOMs unfounded conspiracy
allegations, and unfounded willful disclosure and inspection allegations
that would have supported a claim for punitive damages if properly

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-23proven. (Id.) Because all of those allegations were ultimately rejected

by the court, it found that the Governments defense of the case was
entirely warranted. (Id.)
Because it found that NOM was not the prevailing party, and
that, in any event, the Governments litigating position was
substantially justified, the District Court declined to reach the issue of
the reasonableness of NOMs fee request, and denied NOMs motion in
its entirety.4 (A. 381, 383.) NOM then filed the instant appeal from the
District Courts denial of its request for attorneys fees. (A. 384.)

The Government had pointed out, in opposition to NOMs fee

request, that purportedly incurring $691,000 in fees to collect a $50,000
settlement was facially unreasonable, that NOMs attorneys had billed
at a rate far in excess of the hourly rate cap of I.R.C. 7430(c)(1)(B)(iii),
that most of those fees were incurred in prosecuting unsuccessful
claims, that NOMs attorneys had engaged in block billing and that
their time entries were too vague to make a reasoned determination as
to whether the time spent on tasks was appropriate. (Doc. 92 at 19-30.)
4

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-24SUMMARY OF ARGUMENT
Despite losing all the significant issues in this case and settling a
damages claim of hundreds of thousands of dollars for $50,000, NOM
sought over $691,000 in attorneys fees. The District Court correctly
denied NOMs motion. Because of the District Courts superior
knowledge of the litigation, including what amounts and issues were in
dispute, its decision denying attorneys fees is accorded substantial
deference.
The court did not abuse its discretion in determining that NOM is
not the prevailing party under I.R.C. 7430(c)(4) either with respect
to the amount in controversy or the most significant issue presented.
Regarding the amount in controversy, NOM received only a small fraction
of what it sought when all amounts are properly considered, particularly
its overriding claim for punitive damages. With respect to the most
important issue, NOMs complaint makes clear that the most important
issues were whether the IRS had acted willfully or with gross negligence
in disclosing NOMs return information and in inspecting its returns. The
District Court granted summary judgment for the United States as to
those issues. The only issue NOM prevailed on was whether the IRS

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-25violated I.R.C. 6103 in inadvertently disclosing an unredacted copy of a

schedule to its 2008 return an issue the United States conceded in its
answer. In these circumstances, the District Court committed no abuse of
its discretion in determining that NOM was not a prevailing party in
this case under I.R.C. 7430(c)(4).
Even assuming, arguendo, that the District Court abused its
discretion in determining that NOM was not the prevailing party, the
District Court did not abuse its discretion in holding that the position of
the United States was substantially justified in this case. The
Government was obligated to debunk NOMs wholly unfounded claims of
governmental conspiracy and gross negligence, which, if proven at trial,
would have subjected the United States to punitive damages. As long as
NOM pursued those baseless claims, the Government, which admitted an
inadvertent disclosure in its answer, was entirely justified in defending
against NOMs suit. Two weeks after the District Court rejected NOMs
overriding claims of willful or grossly negligent misconduct by the IRS,
the United States settled the only remaining issue the amount of actual
damages incurred by NOM as a result of the IRSs inadvertent disclosure.
The amount of damages to which the parties agreed was less than the

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-26damages NOM claimed it had incurred. In these circumstances, as the

District Court determined, the position of the United States in this case
was substantially justified.
ARGUMENT
The District Court did not abuse its discretion in
denying NOMs request for attorneys fees
Standard of review
This Court reviews the District Courts denial of NOMs request
for attorneys fees for abuse of discretion. See Robinson v. Equifax
Information Services, LLC, 560 F.3d 235, 243 (4th Cir. 2009) (appellate
review of attorney-fee award is sharply circumscribed due to the district
courts close and intimate knowledge of attorneys efforts); Dang v.
Commissioner, 259 F.3d 204, 208 (4th Cir. 2001) (substantial
deference afforded to Tax Courts determination that taxpayer was not
prevailing party entitled to attorneys fees); Bowles v. United States,
947 F.2d 91, 94 (4th Cir. 1991) (whether Governments position was
substantially justified such that taxpayer was not entitled to
attorneys fees is reviewed for abuse of discretion).

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-27A.

Relevant statutory background

Tax exempt organizations, such as NOM, are required to file an

annual information return. I.R.C. 6033(a)(1). Included in that return
is a Schedule B wherein the exempt organization is required to report
the names, addresses, and contribution amounts of any persons who
contributed $5,000 or more during the taxable year. 26 C.F.R. 1.60332(a)(2)(ii)(f). I.R.C. 6103 provides that, subject to certain exceptions,
tax returns and return information must be kept confidential. I.R.C.
6104(b) is one such exception, and generally provides that exempt
organization returns shall be made available to the public at such
times and in such places as the Secretary may prescribe. That section,
however, does not authorize the Secretary to disclose the name or
address of any contributor to the exempt organization. Id. The rules
thus require the IRS to make NOMs information returns available to
the public upon request, but when it does so, to redact from the returns
the names and addresses of any contributors.
In 1976, Congress created a civil remedy for the unauthorized
disclosure of tax return information. Pub. L. No. 94-455, 1202(e) (94th
Cong., 2d Sess.) (Oct. 4, 1976). The person who made the unauthorized

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-28disclosure was originally the proper defendant to such actions. See

I.R.C. 7217(c) (Supp.1981) (repealed 1982). In 1982, Congress waived
the Governments sovereign immunity to provide a civil action against
the United States where a United States officer or employee knowingly
or by reason of negligence makes an unauthorized disclosure of tax
information. Tax Equity and Fiscal Responsibility Act of 1982, Pub. L.
No. 97-248, 357 (97th Cong., 2d Sess.) (Sept. 3, 1982). See I.R.C.
7217(c) (Supp.1981) (repealed 1982). That waiver of sovereign
immunity was codified at I.R.C. 7431(a)(1).
Upon a finding of liability for wrongful disclosure or wrongful
inspection of tax return information, the plaintiff is to be awarded the
costs of the action, plus the greater of (A) $1,000 for each act of
unauthorized inspection or disclosure, or (B) the sum of actual damages
sustained as a result of such unauthorized inspection or disclosure,
plus, in the case of a willful inspection or disclosure or an inspection or
disclosure which is the result of gross negligence, punitive damages.
I.R.C. 7431(c)(1)-(2).
Section 7430 of the Code waives the Governments sovereign
immunity with respect to litigation costs, including attorneys fees, in

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-29certain tax proceedings. Specifically, I.R.C. 7430(a) provides that in

any administrative or court proceeding against the United States in
connection with the determination, collection, or refund of any tax,
interest, or penalty, the prevailing party may be awarded a judgment
for reasonable administrative costs or reasonable litigation costs. Prior
to 1998, the courts of appeals were apparently split over whether a
wrongful inspection or wrongful disclosure suit against the United
States under I.R.C. 7431 was in connection with the determination,
collection, or refund of any tax, interest, or penalty, such that the
aggrieved party may be awarded litigation costs under I.R.C. 7430(a).
See Scrimgeour v. IRS, 149 F.3d 318, 328-29 (4th Cir. 1998).
Congress in 1998 resolved the apparent split by clarifying that an
award of attorneys fees is permitted in actions for civil damages for
unauthorized inspection or disclosure of taxpayer returns and return
information. See H.R. Conf. Rep. No. 105-599, at 242-43 (105th Cong.,
2d Sess.) (June 24, 1998). It amended 7431(c) to provide that if the
defendant is the United States, reasonable attorneys fees may be
awarded, but only if the plaintiff is the prevailing party (as
determined under section 7430(c)(4)). I.R.C. 7431(c)(3).

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-30A prevailing party under section 7430(c)(4) is one who (I.R.C.

7430(c)(4)(A)(i)):
(I)

has substantially prevailed with respect to the amount

in controversy, or

(II)

has substantially prevailed with respect to the most

significant issue or set of issues presented.

However, a party shall not be treated as the prevailing party under

7430(c)(4) if the United States establishes that the position of the
United States in the proceeding was substantially justified. I.R.C.
7430(c)(4)(B)(i).
Consequently, a court may award reasonable attorneys fees in a
7431 action only if (1) the plaintiff has substantially prevailed,
either with respect to the amount in controversy or the most significant
issue or set of issues, and (2) the Governments position in the litigation
was not substantially justified. In conducting this analysis, the court
must be mindful that I.R.C. 7430 and 7431 constitute a waiver of the
Government's sovereign immunity and, as such, must be strictly
construed in the United States favor. Ardestani v. INS, 5012 U.S. 129,
137 (1991) (statutes allowing for recovery of attorneys fees from the
United States constitute waivers of sovereign immunity and must be
strictly construed in favor of the United States); see Library of
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-31Congress v. Shaw, 478 U.S. 310, 318 (1986); Kenlin Industries, Inc. v.
United States, 927 F.2d 782, 786 (4th Cir. 1991).
B.

The District Court did not abuse its discretion in

determining that NOM did not substantially prevail
with respect to either the amount in controversy or
the most significant issue or set of issues

The District Court first determined that NOM was not the
prevailing party in this litigation within the meaning of I.R.C.
7430(c)(4), because NOM did not substantially prevail with respect to
either the amount in controversy or the most significant issue
presented. Because the District Court possesses superior
understanding of the litigation, and to avoid a second major litigation
over attorneys fees, the District Court is accorded a great degree of
deference in fee matters. Hensley v. Eckerhart, 461 U.S. 424, 437
(1983); see Dang, 259 F.3d at 208. On this record it can hardly be said
that the District Court abused its discretion in determining that NOM
did not substantially prevail in this litigation.
1.

NOM did not substantially prevail with regard to

the amount in controversy

a. The amount in controversy in a wrongful inspection and/or

disclosure suit shall include the amount in issue when the proceeding
was commenced as increased by any amounts subsequently placed in
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-32issue by any party. 26 C.F.R. 301.7430-5(d); see Don Johnson Motors,

Inc. v. United States, 2008 WL 2200263, at *3 (S.D. Tex. 2008), affd, 433
Fed. Appx. 526, 528 (5th Cir. 2011). When this suit was commenced,
NOM filed suit seeking: (1) a permanent injunction against the United
States; (2) $1,000 per inspection or disclosure for an unspecified number of
inspections and disclosures; (3) in excess of $10,500 in fees and costs
incurred to defend against a complaint filed by Fred Karger alleging that
NOM had violated California election laws in connection with its
sponsorship of Proposition 8; (4) at least $50,000 resulting from lost
contributions; and (5) punitive damages on account of the alleged willful
or grossly negligent disclosures and inspections of return information.
(A. 30-32.)
In the parties joint proposed scheduling order, filed in December,
2013, NOM upped its claim for fees incurred to defend against the
complaint regarding California election laws to $12,500. (A. 61.) In its
January 21, 2014, responses to the Governments request that it state the
exact numerical amount and breakdown of actual and punitive
damages, NOM increased its claim for actual damages to $108,586.37.
(A. 118.) It arrived at this figure by identifying in addition to its prior

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-33claim of $50,000 for lost contributions and $12,500 for defense of the
California election law complaint an additional $46,086.37, consisting
primarily of attorney fees that it alleged it had incurred as a result of the
unauthorized disclosure. (Id.) In response to the Governments summary
judgment motion, NOM argued that, in addition to the alleged actual
damages from the IRSs disclosure, the Government was liable for $1,000
in statutory damages for each of nine separate unlawful inspections of its
return information. (A. 227-29, 336.) Thus, in total, including all four
categories of actual and statutory damages, NOM sought $117,586.37 in
actual and statutory damages.
Of course, as the District Court pointed out (A. 379), the gravamen
of the complaint NOM filed in this case was not that it should be
compensated for the IRSs inadvertent disclosure of return information.
Rather, NOMs two-count complaint centered on its unfounded allegations
that IRS employees willfully and unlawfully inspected its confidential
return information, and disclosed its donor list to NOMs ideological
opponent, the Human Rights Campaign. (A. 22, 27-29.) NOM
contended that the IRSs actions in this regard were politically
motivated, connected with the Presidents 2012 re-election campaign,

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-34and part of a larger pattern of behavior aimed at harassing, burdening,

and retaliating against philosophically conservative organizations and
their donors. (A. 22-24.) NOM alleged that IRS employees disclosed its
return information to third parties specifically intending that those
parties would widely publish the information . . . as part of a deliberate
attempt to chill the First Amendment activity of NOM, its donors, and
those who associate with NOM. (A. 10.) These allegations of willful
misconduct were relevant only to the issue of punitive damages, which
(as discussed more fully below) was at the core of NOMs request for
relief. (A. 30, 32.) Thus, punitive damages were very much a part of
the amount in controversy in this case. I.R.C. 7430(c)(4)(A)(i).
Although NOM never quantified the amount of punitive damages it
sought, some estimate of those damages i.e., what might have been
awarded had NOM proved its inflammatory allegations is necessary
to accurately assess the amount in controversy in this case.
The District Court determined that the amount in controversy
included the $108,586.37 asserted by NOM in its January 21, 2014

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-35actual damages calculation, plus $9,000 in statutory damages.5 And,

although successful claims for punitive damages in I.R.C. 7431 cases
have generally involved a multiplier greater than 1 times the amount of
actual damages, the District Court determined (A.377) that an amount of
punitive damages only equal to the amount of actual damages
($108,586.37) sought was appropriate for calculating the amount in
controversy. Cf. Snider v. United States, 2005 WL 1950122, at *15 (W.D.
Mo. 2005) (using a 2:1 multiplier to award punitive damages), affd in
part, revd in part, 468 F.3d 500, 510 (8th Cir. Mo. 2006); Ward v. United
States, 973 F.Supp. 996, 1002 (D. Colo. 1997) (awarding $250,000 in
punitive damages on top of $75,000 in actual damages).

The District Court characterized the statutory damages as

$1,000 for a single disclosure, plus $8,000 for eight alleged
unauthorized inspections. (A. 374-75.) Because the damages for the
unauthorized disclosure are the greater of $1,000 or the actual damages
plus punitive damages, where applicable, the inclusion of $1,000 in
statutory damages for a wrongful disclosure for which actual damages
has been awarded is duplicative. But, because NOM had sought
statutory damages for a total of nine alleged unauthorized inspections
(A. 227-29), the District Court correctly determined that NOM sought
$9,000 in statutory damages, in addition to actual and punitive
damages, in this case.
5

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-36The District Court, accordingly, determined that the total amount in

controversy was $217,172.74. (A. 377.) Because NOMs ultimate recovery
$50,000 was only 23% of the amount in controversy, the District Court
held that NOM had not substantially prevailed with respect to the
amount in controversy within the meaning of I.R.C. 7430(c)(4)(A)(i). In
Ralston Development Corp. v. United States, 937 F.2d 510, 515 (10th
Cir. 1991), the Tenth Circuit held, as a matter of law, that a taxpayer
who recovered only 19% of the amount in controversy had not
substantially prevailed. In light of this decision and of the broad
discretion given to district courts with respect to the awarding of
attorneys fees, it cannot be reasonably argued that the District Court
here abused its discretion in determining that NOMs 23% recovery was
insufficient to render it a prevailing party. Indeed, courts have held
that plaintiffs who recovered a far greater percentage of the amount in
controversy nonetheless had not substantially prevailed. See, e.g.,
Estate of Holmes v. United States, 1990 WL 10062, at *4 (E.D. Pa. Feb. 9,
1990) (plaintiff who recovered 54% of the amount demanded in the
complaint did not substantially prevail as to the amount in
controversy): Andrews v. Commissioner, T.C. Memo 1985-559, 1985 WL

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-3715179 (1985) (petitioner who reduced tax deficiency by 41% did not
substantially prevail).
b. NOM argues on appeal that the District Court abused its
discretion with respect to the amount-in-controversy calculus in two
respects. First, NOM argues (Br. 17-18) that the District Court abused
its discretion in including NOMs claim for lost contributions in the
amount in controversy. NOM contends that its lost-contributions claim
should be disregarded, because it amended its discovery responses, 30
days before the close of discovery, to inform the Government that it
decided to withdraw the lost contributions portion of its claim for
damages in order to protect the anonymity of its prospective donors,
notwithstanding the fact that the parties were under a confidentiality
order. (A. 64, 67, 133.) NOM suggests (Br. 17) that the court erroneously
relied on a general, out-of-circuit definition of amount in controversy to
mean . . . any damages sought at any point in the litigation. (emphasis
in original). NOMs argument in this regard is without merit.
In determining the amount in controversy, the District Court did not
rely on a general, out-of-circuit definition. It simply cited to another
courts quotation of the applicable regulation. That regulation clearly

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-38states that the amount in controversy shall include the amount in issue
when the proceeding was commenced as increased by any amounts
subsequently placed in issue by any party. 26 C.F.R. 301.7430-5(d)
(emphasis added). The validity of that regulation is not in question in this
case. Under that regulation, the amount in controversy shall include
the $60,500 in actual damages articulated in the complaint, the punitive
damages also sought in the complaint, and the $57,086.37 in actual and
statutory damages that NOM placed in issue later in the litigation.6
NOMs argument that the amount in controversy should not include
a claim that was withdrawn four months into the case and one month
before the close of discovery is meritless and unsupported by any
authority. Contrary to NOMs suggestion (Br. 18), the Government was
obligated to defend against that claim, repeatedly seeking discovery as to
its basis (A. 118, 362-63, 375). NOMs argument that its lost-contribution
This $57,086.37 figure consists of: (1) the additional $2,000 that
added to its calculation of the damages from defending against the Karger
complaint (A. 61); (2) $46,086.37 in [a]dditional legal fees and expenses
resulting from the unauthorized disclosure (A. 118); and (3) $9,000 in
statutory damages from the nine alleged unlawful inspections (A. 227-29).
NOMs brief does not appear to acknowledge the additional damages that
would have resulted from a successful prosecution of its unlawful
inspection claims. (Br. 22).
6

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-39claim was meritorious but dropped for reasons unrelated to the

litigation is self-serving, completely unverifiable, and belied by the
confidentiality order entered in this case. Moreover, its argument makes
no sense. A party who prevails on an issue as a result of his opponents
concession of the issue obviously is the prevailing party as to that issue
without regard to the reasons for the concession or the stage of the
proceedings at which the concession is made. Indeed, a party who
concedes his entire lawsuit because he lacks the funds to prosecute his
case hardly could claim that he should be deemed the prevailing party
because his abandoned lawsuit was meritorious. Simply stated, for
purposes of determining whether a party was the prevailing party, it
makes no difference whether the party prevailed on a particular issue
because it was conceded by his opponent or because it was adjudicated in
his favor.
If the shoe were on the other foot, the Government could not escape
attorneys fees by withdrawing at the close of discovery those claims on
which it could not prevail.7 NOMs lost-contribution claim of $50,000 was

A concession by the United States of an issue might indicate that

the position of the United States was substantially justified where, for
(continued)
7

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-40placed in controversy by its complaint, the Government sought discovery

as to the factual basis of that claim, and the claim was only dropped when
it became apparent that NOM would have to respond to a motion to
compel it to explain why it refused to provide that basis. (A. 361-64.)
NOMs subsequent concession of that claim hardly means that the United
States was not the prevailing party as to that claim.
Second, NOM argues (Br. 18) that the District Court abused its
discretion by making a speculative calculation of the punitive damages at
issue. NOM contends that including punitive damages in the amount in
controversy could deter plaintiffs with seemingly meritorious punitive
damages claims from seeking punitive damages in the first instance. (Br.
20.) But the District Court did not hold that punitive damages must be
included in every amount-in-controversy calculus under I.R.C. 7430.
Rather, the court determined that in this case the primary issue was
whether the Government acted willfully or was grossly negligent in
disclosing NOMs tax return information, which if proven, would justify a
example, the United States promptly made its concession after
receiving new information from its opponent that substantiated the
opponents claim. The United States, however, could hardly claim that
its opponent did not substantially prevail as to the conceded issue.

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-41punitive damage award. (A. 10-11.) Indeed, NOMs two-count complaint

relates almost exclusively to the issue of punitive damages. To ignore
NOMs claim for punitive damages in this case would be to ignore what
the case was predominantly about. Simply stated, the District Court
plainly did not abuse its discretion in holding that NOMs overriding claim
for punitive damages should be taken into account for purposes of
determining whether NOM substantially prevailed as to the amount in
controversy.8
Finally, the District Court correctly recognized that, because it is a
waiver of the Governments sovereign immunity, I.R.C. 7430 must be
strictly construed in the United States favor. The District Courts
inclusion of both NOMs conceded lost-contribution claim and its

NOM cites (at Br. 23) to Jones v. United States, 9 F.Supp.2d

1154 (D. Neb. 1998) for the proposition that a plaintiff who receives a
15% award has substantially prevailed with respect to the amount in
controversy. That case, however, establishes no such standard. The
district court in Jones determined that the plaintiff substantially
prevailed as to the amount in controversy because the amount he had
been awarded $5 million was so large. The court, however,
determined that the plaintiff was not entitled to any attorneys fees
because the position of the United States was substantially justified.
That determination was affirmed on appeal. Jones v. United States,
207 F.3d 508, 512-13 (8th Cir. 2000).
8

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-42unsuccessful punitive-damages claim in its amount in controversy

determination is in accord with this required strict construction. See
Ardestani, 501 U.S. at 137; Kenlin Industries, 927 F.2d at 786.
Accordingly, the District Court did not abuse its discretion in
determining that NOM did not substantially prevail in terms of the
amount in controversy.
2.

NOM did not substantially prevail as to the most

important issues

The District Court also correctly determined that NOM did not
substantially prevail with respect to the most significant issue or set of
issues presented, because [t]his case presented many significant issues
. . . the majority of which were dismissed by the Court on summary
judgment. (A. 378.) The court noted that, on the face of the
complaint, NOMs action was for willful or grossly negligent conduct,
and rejected NOMs post-settlement effort to recharacterize its
complaint and assert that the most significant issue was whether the
IRS unlawfully disclosed NOMs 2008 IRS Form 990, Schedule B. (A.
379.) As the court stated, [t]o be clear, this case was not brought to
determine whether the IRS unlawfully disclosed NOMs 2008 IRS Form

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-43990, Schedule B, as NOM claims. The Government conceded this issue

in its answer (A. 379.)
In determining whether NOM substantially prevailed with regard to
the most important issues, the District Court properly started with
NOMs complaint. See Christian Coalition Intl v. United States, 133 F.
Supp. 2d 437, 439 (E.D. Va. 2001). It is clear from NOMs complaint that
the fact of the IRSs unauthorized disclosure of NOMs 2008 Schedule B
was never even in issue. Not only did the Government concede that
issue in its answer (A. 49), but NOM alleged in its complaint that, four
and a half months before the complaint was filed, the acting
Commissioner of Internal Revenue testified before Congress that the
IRS had inadvertently disclosed NOMs return information (A. 16). The
complaint obviously was not filed to obtain an adjudication of what the
IRS previously had publicly acknowledged, i.e., that it made an
improper disclosure of NOMs return information. Rather, it was filed
because NOM considered the IRSs explanation that the disclosure was
inadvertent to be laughable, and because NOM instead believed that
the disclosure was deliberate and at high levels. Stephen Dinan,
Marriage Group to Sue IRS over Donor Leak, Says List Went to Political

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-44Enemies, WASH. TIMES, Oct. 3, 2013, at A01. NOM wanted to keep the
pressure on the investigation of the offenders, id., to identify the
culprit or culprits, and refer the matter for indictment and prosecution.
Testimony of Dr. John C. Eastman before the Committee on Ways and
Means, U.S. House of Representatives, June 4, 2013. (See A. 317.)
The complaint begins with the allegation that the disclosure(s) in
this case were made to the Human Rights Campaign, NOMs ideological
opponent, as part of a deliberate attempt to chill the First Amendment
activity of NOM and its donors. (A. 10.) The complaint spends twentyone paragraphs on the inflammatory suggestion that the disclosure in
this case was part of [a] pattern of unscrupulous behavior toward
philosophically conservative organizations, and was connected with the
Presidents 2012 relection campaign. (A. 14-18.) It contains only two
counts Count I, entitled Willful or Grossly Negligent Unauthorized
Disclosure and Count II, entitled Willful or Grossly Negligent
Unauthorized Inspection. (A. 27-29.) NOM prevailed on neither count.
It prevailed only on its minor, fallback position one the Government
had conceded before the complaint was filed and again in its answer
that there was an inadvertent disclosure of an unredacted copy of

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-45Schedule B to its 2008 return. The District Court rejected all of NOMs
allegations of willful or grossly negligent conduct on the part of the IRS.
In these circumstances, the District Court did not abuse its discretion in
determining that NOM did not substantially prevail as to the most
significant issue or set of issues presented. See Hensley, 461 U.S. at 437.
NOMs passing argument (Br. 14) that it should be considered the
prevailing party as to the most important issue presented because it
sought and received an award of damages is plainly misconceived. As
discussed above, the damages awarded were only a minor fraction of the
damages it sought and, as such, were insufficient to render NOM the
prevailing party as to the amount in controversy. NOMs receipt of a
damages award that was too small to make it the prevailing party in
terms of the amount in controversy hardly makes it a prevailing party
as to the most important issue presented. Indeed, under NOMs
position it would have been the prevailing party as to the most
important issue even if it had received only statutory damages of $1,000
for the IRSs unauthorized disclosure. As the District Court stated,
NOMs attempt to conflate its award of $50,000 as the primary or most
significant issue does not change the fact that, at heart, this case

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-46presented a series of claims against the IRS, the vast majority of which
were determined in the IRSs favor on summary judgment. (A. 380,
citing Goettee v. Commissioner, 192 Fed. Appx. 212, 223 (4th Cir. 2006).)
C.

At all events, the District Court did not abuse its

discretion in determining that the Governments
position in this litigation was substantially justified

Even assuming, arguendo, that the District Court abused its

discretion in determining that NOM did not substantially prevail in this
litigation, its decision denying NOMs request for attorneys fees must
be affirmed unless it is also shown by NOM that the court abused its
discretion in determining that the position of the United States in the
litigation was substantially justified. I.R.C. 7430(c)(4)(B). The
substantially justified standard of 7430 was derived from the
substantially justified standard of the EAJA. Kenagy v. United States,
942 F.2d 459, 464 (8th Cir. 1991); see H.R. Conf. Rep. No. 99-841, at
801-02 (99th Cong., 2d Sess.) (1986). The term substantially justified
means justified to a degree that could satisfy a reasonable person, or
there is a genuine dispute over which reasonable people could differ.
Pierce v. Underwood, 487 U.S. 552, 563-65 (1988). The position does not
need to be justified to a high degree. Id. at 565. In Pierce v.

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-47Underwood, the Supreme Court made plain that the Government could
take a position that is substantially justified, yet lose. 487 U.S. at 569.
The position of the United States, moreover, means the position
taken by the United States in [the] judicial proceeding. I.R.C.
7430(c)(7). In other words, the relevant position of the government is
exclusively the one taken in the actual litigation. Phillips v. Commr, 851
F.2d 1492, 1499 (D.C. Cir. 1988). Consequently, NOMs argument (Br. 28)
that the Government finally admitted the disclosure in its answer
misses the mark: the answer was the first statement by the Government
of its position in the litigation. And that first statement was to admit that
it had made an unlawful disclosure of return information. (A. 55.) But
because of the inflammatory allegations of NOMs complaint, the United
States was obligated to debunk NOMs claims of governmental conspiracy
and gross negligence. After the Court rejected those claims in granting
the Governments summary judgment motion, the Government quickly
settled the remaining issue of actual damages. These actions epitomize a
reasonable litigating position. Accord, Jones, 207 F.3d at 513
(Governments resistance to . . . various and excessive damages claims,
including the claim for punitive damages, was entirely warranted).

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-48NOM argues (Br. 27) that the District Court abused its discretion by
failing to consider the Governments position on actual damages.
Clearly, however, the District Court did consider the Governments
position on actual damages. (A. 373-77.) That position, at the outset, was
that [b]ased on the evidence at hand, the United States denies that the
disclosure caused any actual damages. (A. 61.) And this denial at the
outset was appropriate, because, of the $60,500 in actual damages
demanded in the complaint, $50,000 was attributable to alleged lost
contributions, a claim subsequently conceded by NOM. It was a month
into discovery before NOM even disclosed the basis for the remainder of
its claim for actual damages. (A. 118.) As late as May 13, 2014 (two
months after the close of discovery), NOM agreed that there was a
genuine factual dispute as to whether the IRSs disclosure of NOMs
return information was the proximate cause of its actual damages. (A.
230.) On June 3, 2014, the District Court itself found [t]he issue of
proximate cause raised by the Government s summary judgment motion
to be a closer call, but denied the motion in that respect. (A. 343.)
Fifteen days later, the claims for punitive damages and unlawful
inspection having been dismissed, the Government settled the remaining

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-49issue of NOMs actual damages for $50,000, still far less than NOM was
demanding. In requiring NOM to demonstrate a factual basis for its claim
of actual damages from an unlawful disclosure of return information
before agreeing to pay more than statutory damages, the United States
was appropriately protecting the public fisc, and was substantially
justified in so doing. That the Government held out until NOM lowered
its $108,586.37 demand to $50,000 supports the determination of the
District Court that the position of the United States was substantially
justified. NOM certainly has not met its heavy burden of demonstrating
an abuse of discretion by the court in this regard. See Hensley, 461 U.S. at
437.
CONCLUSION
For the foregoing reasons, the District Courts order denying
NOMs motion for attorneys fees should be affirmed.

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-50STATEMENT REGARDING ORAL ARGUMENT

Counsel for the United States respectfully submit that oral
argument would be helpful to the court in resolving the legal disputes in
this case.
Respectfully submitted,
CAROLINE D. CIRAOLO
Acting Assistant Attorney General
/s/ Ivan C. Dale

Of Counsel:

RICHARD FARBER
(202) 514-2959
IVAN C. DALE
(202) 307-6615
Attorneys, Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044
Ivan.C.Dale@usdoj.gov
Appellate.Taxcivil@usdoj.gov

DANA J. BOENTE
United States Attorney
APRIL 2015

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-51UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT
No. _14-2363______ Caption: _Natl Org. for Marriage v. U.S.__

CERTIFICATE OF COMPLIANCE WITH RULE 28.1(E) OR 32(A)

Certificate of Compliance With Type-Volume Limitation, Typeface
Requirements, and Type Style Requirements
1. This brief complies with the type-volume limitation of Fed. R. App.
P. 28.1(e)(2) or 32(a)(7)(B) because:
[X]

this brief contains 9,806 words, excluding the parts of the

brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii), or

[]

this brief uses a monospaced typeface and contains [state the

number of] lines of text, excluding the parts of the brief
exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of Fed. R. App.

P. 32(a)(5) and the type style requirements of Fed. R. App. P.
32(a)(6) because:
[X]

this brief has been prepared in a proportionally spaced

typeface using Microsoft Word 2010 in 14-point Century
Schoolbook; or

[]

this brief has been prepared in a monospace typeface using

[state name and version of word processing program] with
[state number of characters per inch and name of type style].
(s) Ivan C. Dale__
Attorney for the United States
Dated: April 15, 2015

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-52CERTIFICATE OF SERVICE
It is hereby certified that, on this 15th day of April, 2015, this
brief was filed with the Clerk of the United States Court of Appeals for
the Fourth Circuit by using the CM/ECF system and that 8 paper copies
were sent to the Clerk by First Class Mail. The CM/ECF system will
send notice of such filing to the attorneys for the appellant, who are
registered CM/ECF users.

/s/ Ivan C. Dale

IVAN C. DALE
Attorney

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