United States of America, Plaintiff-appellant, v. 313.34 Acres of Land, More or Less, Situated in Jeffersoncounty, State of Washington, Defendant,andgary Smith; Janice Smith, Defendants-appellees, 889 F.2d 814 (9th Cir. 1989)

The government appeals an award, under the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412(d) (1) (A) (Supp. V 1987), of attorney and expert witness fees to the landowners in this action to condemn a large rock in Puget Sound which had become the site of a number of private homes. We affirm the award of fees, but remand for reconsideration of the amount awarded.

Gary and Janice Smith ("the Smiths") owned tract 2001 on Protection Island in Washington. The Smiths had purchased the tract in 1972 for $3800. The United States filed a complaint in condemnation on April 11, 1986, to acquire 313.34 acres, which included tract 2001, for the development and management of the Protection Island National Wildlife Refuge, pursuant to the Protection Island National Wildlife Refuge Act, Pub. L. 97-333, 96 Stat. 1623 (1982). Simultaneously with the complaint, a declaration of taking was filed and $1,538,102 was deposited as estimated just compensation for the entire area.

At trial,¹  the government's expert testified that the value of the Smiths' tract was $2,000. The Smiths' two experts gave valuations of $12,000 and $7,500. The difference in the valuations stemmed from a disagreement as to the highest and best use of the tracts. The government's expert testified that the highest and best use would be primitive camping sites, whereas the Smiths' experts testified that the highest and best use would be a residential subdivision development. The government's expert said he had taken into consideration various problems the Island had encountered with its potable water supply. The Smiths' experts, on the other hand, emphasized that the Island had been developed as a residential subdivision, that eighteen dwellings existed there, and that various solutions to the water supply problem had been implemented.

The jury returned a verdict valuing the Smiths' tract at $7000. The Smiths, unquestionably the "prevailing parties" under the EAJA, filed a motion for an award of expert witness fees, consultants' fees, and attorneys' fees. The district court granted the motion, finding that the government's position was not "substantially justified," and that the fees and expenses were reasonable in amount.

On appeal, the government contends that under evolving law concerning the EAJA in condemnation actions, the district court erred when it found no substantial justification for the government's position, and that the amount of fees and expenses awarded was not reasonable. The Smiths counter that Ninth Circuit precedent clearly supports the court's ruling on substantial justification, and that the fees and expenses awarded were reasonable in amount. They also attack the factual basis of the government's expert's appraisal.

The Ninth Circuit has not formulated a detailed test for substantial justification in condemnation cases. In United States v. 101.80 Acres of Land, More or Less, in Idaho County, Idaho, 716 F.2d 714, (9th Cir. 1983) [hereinafter, Idaho County], on which the Smiths rely, we observed that "the government's original deposit was wholly inadequate, representing only a fraction of the true value of the easement condemned as found by the jury," and that " [u]nder such circumstances, we cannot say the district court abused its discretion in concluding that the government's position was not 'substantially justified.' " Id. at 728. There, the deposits for the two tracts in question were approximately 34% and 28% of the jury awards. Id. at 716-17. The Idaho County test thus compares the jury award with the government's deposit. The Smiths argue that because the deposit in their case amounted to only approximately 29% of the award, Idaho County dictates that we affirm the district court's finding that the government's position was not substantially justified.

However, the Idaho County test is more appropriately characterized as a test of what is required to be an EAJA "prevailing party" in condemnation suits than as a test for substantial justification. At the time Idaho County was decided, courts were concerned with determining whether any party other than the government could be a prevailing party in eminent domain cases. Compare, e.g., United States v. 341.45 Acres of Land, St. Louis County, Minn., 542 F. Supp. 482 (D. Minn. 1982) (holding the EAJA did not apply to condemnation cases), rev'd, 751 F.2d 924 (8th Cir. 1984), vacated 786 F.2d 1168 (8th Cir. 1986), with, e.g., United States v. 329.73 Acres, Situated in Grenada and Yalobusha Counties, Miss., 704 F.2d 800 (5th Cir. 1983) (en banc) ("prevailing party" under section 2412(d) would clearly include a landowner who won far more than government had offered). Indeed, most of the discussion in Idaho County centered on the question whether the landowners were prevailing parties.

After our Idaho County decision, however, Congress amended the EAJA to eliminate the need for courts to define what "prevailing party" meant in condemnation suits:

' [P]revailing party', in the case of eminent domain proceedings, means a party who obtains a final judgment (other than by settlement), exclusive of interest, the amount of which is at least as close to the highest valuation of the property involved that is attested to at trial on behalf of the property owner as it is to the highest valuation of the property involved that is attested to at trial on behalf of the Government.

Pub. L. No. 99-80, 99 Stat. 185 Sec. 2(c) (2) (H) (1985), codified as amended, 28 U.S.C. § 2412(d) (2) (H) (Supp. V 1987). In light of the 1984 amendment, the Idaho County test does not sufficiently distinguish between "prevailing party" and "substantial justification." Cf. Charles Gyurman Land & Cattle Co., 836 F.2d 480 (10th Cir. 1987) (in case originally brought prior to 1985 amendment to EAJA, district court was reversed for using same test to determine "substantial justification" as "prevailing party").

A more important indication that the Idaho County test does not set out the entire standard for "substantial justification" is revealed by the failure of the opinion expressly to consider whether the nonprevailing position has a reasonable basis in fact and in law. The Supreme Court has stated that this is the appropriate test for substantial justification. Pierce v. Underwood, 487 U.S. 552, 108 S. Ct. 2541, 2549, 101 L. Ed. 2d 490 (1988) (citing H.R.Conf.Rep. No. 96-1434 at 22 (1980)).

The Eighth, Tenth, and Eleventh Circuits have fashioned more comprehensive and detailed tests. See United States v. Charles Gyurman Land & Cattle Co., 836 F.2d 480 (10th Cir. 1987); United States v. 1,378.65 Acres of Land, More or Less, Situated in Vernon County, Mo., 794 F.2d 1313 (8th Cir. 1986) [hereinafter Phister ]; United States v. 640.00 Acres of Land, More or Less, in Dade County, Fla., 756 F.2d 842 (11th Cir. 1985) [hereinafter Dade County ]. The government advocates the adoption of the Eighth Circuit's test of substantial justification as established in Phister:

If the government's appraisers are qualified or the other evidence of valuation is sufficient, the government's prelitigation position or offer is substantially justified if it is based upon and consistent with the appraisals or other evidence of valuation. Similarly, the government's litigation position is substantially justified if the amount established by the government during trial is based upon and consistent with the appraisals or other evidence of valuation. The district court should focus upon the relationship between the government's offer, the appraisals, and the valuations established by the government's expert witnesses during trial, rather than the relationship between the government's offer or deposit and the property owner's counteroffer, if any, or the jury award....

794 F.2d at 1317 (citation omitted).

The Smiths counter that a substantial justification test that turns solely upon the determinations whether the government's appraisers were qualified and whether the government's offer and testimony at trial are consistent with its appraisal would create a "virtually irrebuttable presumption in favor of the government." United States v. 0.376 Acres of Land, 838 F.2d 819, 828-29 (6th Cir. 1988) [hereinafter Knox County ]. We agree with the Smiths. See Knox County, 838 F.2d at 826 (commenting, in dictum, on Phister: "We are by no means convinced that the government will always find itself in a safe harbor, absent evidence of bad faith, if its position, however, extreme, is supported by the valuation of a qualified independent appraiser."). However, other factors considered by the Eighth Circuit, as well as by other circuits are worthy of attention by district courts in performing the substantial justification analysis.

3. Elements in Determining Substantial Justification

As the Tenth Circuit has noted, "Because the sole issue at trial in condemnation proceedings is the very narrow factual issue of valuation, a particularized test is needed for such cases. The test must be workable in light of the statutory command that the issue be decided upon the record already available to the district court." Gyurman, 836 F.2d at 483 (citation omitted). The following considerations, which have been used in the Eighth, Tenth, and Eleventh Circuits, should form the basis of the district court's reasoning when deciding whether the government's position was substantially justified. See Charles Gyurman Land & Cattle Co., 836 F.2d at 485; Phister, 794 F.2d at 1317; Dade County, 756 F.2d at 850.

(1) The reasonableness and reliability of the government's appraisals introduced into evidence based on the(a) qualifications of the appraiser;

(b) impartiality or lack thereof of the appraiser (for example, it might be important to know how often he or she was employed by the government);

(c) factual basis of the appraisal; specifically, the reasons the appraisal differs from that of the landowner;

(d) awards and sales of similar property in the area at or about the time in question;

(e) whether the comparable sales used by the appraiser were in fact comparable;

(2) A comparison of the government's appraisal, the offer made,²  and proof of valuation at trial;

(3) Any explanation offered by the government as to discrepancies between its offer, the appraisal(s), and trial evidence;

(4) The good faith, or lack of it, of the government in trying to reconcile the dispute prior to litigation; and

(5) Any other relevant evidence.

The above considerations support, on the whole record of the case, the decision of the district court to award attorneys' fees to the Smiths. As the Supreme Court stated in Underwood, the determination whether the government's position was substantially justified is " 'a determination that, as a matter of the sound administration of justice, one judicial actor [the district court] is better positioned than another to decide.' " 108 S. Ct. 2547 (citation omitted).

While the court might have made a more illuminating statement of its reasons, its decision was not an abuse of discretion. We thus reject the government's argument that the ruling cannot be upheld because the district court did not set forth specific findings of facts. Because the EAJA provides that courts "shall" award attorneys' fees to prevailing parties, it creates a presumption that fees will be awarded unless the government's position was substantially justified. Thomas v. Peterson, 841 F.2d 332, 335 (9th Cir. 1988). There is arguably a need for findings in cases in which the district court does not award fees. A reviewing court would then need a clear statement of reasons why the district court acted against the presumption set up by the EAJA.

Here, the district court awarded fees, thus acting consistently with the EAJA presumption. We decline to hold that a district court must always enter specific findings in EAJA cases. If a district court decision is not based on an erroneous conclusion of law, and the record contains evidence upon which the district court rationally could have based its decision, as we find to be the case here, there is no abuse of discretion. United States v. American Ry. Express Co., 265 U.S. 425, 435, 44 S. Ct. 560, 563-64, 68 L. Ed. 1087 (1924); Petition of Hill, 775 F.2d 1037, 1040 (9th Cir. 1985).

Although we affirm the district court's decision to award fees, we find the amount of the award to be troublesome. We vacate the portion of the judgment establishing the amount of award, and remand for the district court to consider the government's arguments that the amount of attorneys' fees was not reasonable under the statute for two reasons: (1) there was no justification shown in the record for awarding fees at an hourly rate higher than the statutory rate; and (2) the Smiths' attorneys failed adequately to document the hours for which they were reimbursed.

In regard to the first contention, the district court should take note of Pierce v. Underwood. There, Justice Scalia stated,

If 'the limited availability of qualified attorneys for the proceeding involved' meant merely that lawyers skilled and experienced enough to try the case are in short supply, it would effectively eliminate the $75 cap--since the 'prevailing market rates for the kind and quality of the services furnished' are obviously determined by the relative supply of that kind and quality of services.... We do not think Congress meant that if the rates for all lawyers in the relevant city--or even in the entire country--come to exceed $75 per hour (adjusted for inflation),³  then that market-minimum rate will govern instead of the statutory cap. To the contrary, the "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.

108 S. Ct. at 2553-54 (footnote omitted).

The district court awarded attorneys' fees at the rate of $125 per hour. As "special factors," it listed the following:

3. The prevailing market rate for the kind and quality of services furnished by defendants' attorneys is $125 per hour.

4. The rate of $125 per hour is justified due to the quality and nature of services performed by defendants' attorneys.

On remand, should the district court make an award of attorney's fees above the $75-per-hour rate established by the EAJA, 28 U.S.C. § 2412(d) (2) (A) (ii), the court should state reasons consistent with Underwood. See Blum v. Stenson, 465 U.S. 886, 899, 104 S. Ct. 1541, 1549, 79 L. Ed. 2d 891 (1984). See also Pirus v. Bowen, 869 F.2d 536, 540-42 (9th Cir. 1989) (upholding award of attorneys' fees above the $75-per-hour cap where district court made explicit, case-specific, Underwood-type findings as to why increase was merited).

As to the government's second contention, that the Smiths' attorneys did not adequately document the hours for which they claimed fees, we note that in the Smiths' Memorandum in Support of Motion for Award of Fees and Expenses, the Smiths' attorneys explained both the method by which they had calculated the total hours claimed, and the method by which they had calculated the experts' fees that should be reimbursed. On remand, however, the district court should give attention to the formulas by which payment was allocated for the attorneys' work before, during, and after the trial.⁴ 

AFFIRMED in part, and VACATED and REMANDED to review the issue of the amount of attorneys' fees. No party shall recover costs on appeal.