03/13/2009 394 RESPONSE in Opposition re: 387 MOTION for Attorney Fees Expert's Fees, and Costs Pursuant to the Equal Access to Justice Act, 28 U.S.C. § 2412(d). MOTION for Attorney Fees Expert's Fees, and Costs Pursuant to the Equal Access to Justice Act, 28 U.S.C. § 2412(d)., 388 MOTION for Attorney Fees Expert's Fee and Costs Pursuant to the Equal Access to Justice Act, 28 U.S.C. § 2412(d).. Document filed by U.S. Securities and Exchange Commission. (Hughes, Leslie) (Entered: 03/13/2009)
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Doc 394
Extract
SEC’S OPPOSITION TO THE ESTATE DEPARTMENT’S APPLICATION FOR ATTORNEYS’ FEES, EXPERT’S FEES AND COST PURSUANT TO 28 U.S.C. § 2412 (d)
TABLE OF CONTENTS
Page
I. INTRODUCTION . . . . . . . 1
II. STANDARD FOR AN EAJA AWARD . . . . 1
III. TED IS NOT ENTITLED TO ATTORNEYS’ FEES AND
EXPENSES, BECAUSE TED HAS FAILED TO PROVE
IT IS A PARTY ENTITLED TO FEES UNDER EAJA . . 3
IV. THE SEC’S ACTION WAS SUBSTANTIALLY JUSTIFIED. . 4
V. IF TED PREVAILS ON ITS MOTION, TED’S FEES
SHOULD BE CALCULATED AT THE STATUTORY
CAP OF $125 PER HOUR. . . . . . . 8
VI. TED’S REQUEST FOR COSTS IS PROHIBITED BY STATUTE. 9
VII. CONCLUSION . . . . . . . 10
TABLE OF AUTHORITIES
[...]
I. INTRODUCTION
The Securities and Exchange Commission opposes the application of Intervenor, The Estate Department, Inc. (“TED”), for payment under the Equal Access to Justice Act (“EAJA”), 28 U.S.C. § 2412 (d), of TED’s attorney’s fees, expert’s fees, and costs related TED’s defense against the SEC’s service of a writ of execution upon TED and seizure of jewelry and other personal property (referred to jointly as the “jewelry”), which TED had acquired from a judgment debtor in this case, Richard A. Altomare. TED’s present application should be denied, because TED has failed to prove that it is a “party” entitled to fees under EAJA. Further, the SEC’s action in obtaining the writ of execution and seizing the jewelry was substantially justified at the time the action was initiated, and its pursuit of resolution of the legal issues through the hearing on November 11, 2008 remained substantially justified in fact and law. Where TED has failed to provide admissible evidence that its net worth was less than $7,000,000, and the SEC has established its action was substantially justified, TED is not entitled to an award of attorneys’ fees and expert’s fees. TED’s request for costs is prohibited by statute. For the reasons discussed below, the SEC respectfully requests that the Court deny TED’s application.
II. STANDARD FOR AN EAJA AWARD
The Equal Access to Justice Act provides that the prevailing party shall be awarded reasonable fees and expenses of attorneys “unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.” 28 U.S.C. § 2412 (d) (1) (A). TED bears the burden of establishing that it was the prevailing party, its application was timely, its application for fees are documented, and that it is a corporation which at the time of the action had a net worth of less than $7,000,000. 28 U.S.C. § 2412(d)(1)(A), (B) and (D) (2)ii). The SEC bears the burden of proving that its position was substantially justified.
Scarborough v. Principi, 541 U.S. 401, 414 (2004); Pierce v. Underwood, 487 U.S. 552, 565 (1988); Healey v. Leavitt, 485 F.3d 63, 67 (2d Cir. 2007). The Supreme Court defines “substantially justified” as having “a reasonable basis both in law and fact.” Pierce v. Underwood, 487 U.S. at 563-567; SEC v. Fox, 855 F.2d 247, 251 (5th Cir. 1988). The Court’s determination of whether the position of the government was substantially justified must be made "on the basis of the record . . . in the civil action for which fees and other expenses are sought." 28 U.S.C. § 2412(d)(1)(B). “The touchstone of substantial justification is reasonableness” and the government carries its burden of proof “if it shows that its position has a reasonable basis both in law and fact.” USLIFE Title Ins. Co. v. Harbison, 784 F.2d 1238, 1242 (5th Cir. 1986) (citations omitted). The standard, however, should not be read to raise a presumption that the Government’s position was not substantially justified, simply because it lost the case. Id. In determining the reasonableness of the government’s position, the legislative history of Section 2412(d) is helpful. The House Judiciary Committee stated that the “reasonableness” standard “should not be read to raise a presumption that the Government position was not substantially justified, simply because it lost the case. Nor, in fact, does the standard require the Government to establish that its decision to litigate was based on a substantial probability of prevailing.” H.R. Rep. No. 96-1418,
96th Cong., 2d Sess., at 11 (1980), reprinted in 1980 U.S. Code Cong. & Ad. News 4984, 4990. EAJA is not intended to be an automatic fee-shifting device in cases where an applicant prevailed. Luciano Pisoni Fabbrica Accessori v. United States, 837 F.2d 465, 467 (Fed. Cir. 1988), cert. denied, 488 U.S. 819 (1988); SEC v. Price Waterhouse, 41 F.3d 805, 809 (2d Cir. 1994). To meet the substantial justification standard, the government need only demonstrate its litigation position was reasonable. SEC v. Switzer, 590 F. Supp. 756, 767 (W.D. Okla. 1984).
III. TED IS NOT ENTITLED TO ATTORNEYS’ FEES AND EXPENSE, BECAUSE TED HAS FAILED TO PROVE IT IS A PARTY ENTITLED TO FEES UNDER EAJA.
The SEC does not contest that TED (1) filed a timely application, (2) was the prevailing party, or (3) submitted an itemized account of its time and expenses. However, the SEC does contest that TED falls within the statutory definition of a party entitled to recover an award under EAJA. TED bears the burden to establish a prima facie case of eligibility under EAJA and EAJA’s waiver of sovereign immunity is to be strictly construed. Kinney ex rel. NLRB v. Fed. Sec., Inc., 2002 U.S. Dist. LEXIS 16914 *10-11 (N.D. Ill. 2002) (conclusory affidavit without supporting evidence is inadequate to establish party status). TED has failed to make an adequate showing that its net worth at the time of this action in November 2007, was less than $7,000,000.[1] Motion at 19. The balance sheet prepared by M.A.S. Accounting showing a net worth of $515,361.16 does not conform with generally accepted accounting principles or any standards established by the American Institute of
Certified Public Accountants, because among other things it does not contain a statement of cash flows, a statement of income, and other disclosures. Additionally, it contains no affirmation under penalty of perjury that the document is complete and accurate. To the contrary, the cover letter indicates that the accountant has not checked or verified any of the information presented and does not offer any form of assurance; moreover, it indicates that management has elected to omit all disclosures and the statement of cash flows, which if included might influence the user’s conclusions about the company’s financial position. Where TED has failed to demonstrate by admissible evidence that it is a party eligible to request fees under EAJA, its application should be denied. See Id.; Mantle Ranches v.U.S. Park Serv., 993 F. Supp. 1335 (D. Colo. 1998).
[1] TED has failed to make an adequate showing that its net worth at the time of this action in November 2007, did not exceed $7,000,000. The balance sheet and Mr. Kravit’s affidavit are both hearsay and should be excluded as inadmissible evidence. TED has not provided any business records such as its tax returns, bank records, inventory, logs of jewelry purchases made during 2007 or insurance records to demonstrate that its net worth was less than $7,000,000. To the contrary, TED submitted advertisements in support of its motion to intervene that stated it was “The Nations Largest Estate Buyers” and that from September 3 through September 7, 2007 it was conducting a five day buying session (one of several that Mr. Kravit testified occurred through out the country each year) at which it was prepared to pay $10,000,000 in instant cash to purchase diamonds, gold watches, antique jewelry and silver. See Docket No. 264-4, Exhibits 2 and 3. TED also submitted two checks drawn on its bank account on September 17 and 20, 2007, for $225,000 and $920,000 which were purportedly used for buying trips in Boca Raton, Long Island and Chile, and allegedly used, in part, as the source of cash to purchase Altomare’s jewelry. Id., Exhibit 11. These documents indicate TED had in excess of $7,000,000 in early September 2007. Yet it produced no evidence on how its balance sheet decreased precipitously to $515,361 as of November 30, 2007.
IV. THE SEC’S ACTION WAS SUBSTANTIALLY JUSTIFIED.
The SEC’s levy of the writ of execution upon TED was substantially justified for several reasons. When it obtained the writ, the SEC had a valid judgment against Richard Altomare requiring him to pay over $3 million. It had obtained an order to show cause why Altomare should not be held in contempt for his failure to comply with the judgment which was set for hearing on October 12, 2007. It received information from Greg Osipov that Altomare had conveyed jewelry purchased from Osipov’s company, Les Bijoux, to TED in the preceding week in exchange for less than half the purchase price paid by Altomare, and that Marc Kravit, the agent of TED who negotiated the purchase of the jewelry, had told Osipov that Altomare was a crook and the subject of a government lawsuit in which he had taken lots of money from shareholders. Osipov also stated that Kravit knew from his discussion with Osipov that
Altomare was selling a 7.02 ct yellow diamond ring purchased from Les Bijoux, for which Altomare had not yet paid $65,000 of the $85,000 price. These facts substantially justified the SEC in believing that Altomare was making a fraudulent conveyance to TED. The SEC obtained a writ of execution and had it served upon TED on October 10, 2007. Contrary to TED’s repeated arguments that the seizure violated TED’s due process rights, Motion at 24, the Court has held that the SEC’s seizure under 28 U.S.C. § 2413 was proper. [Docket No. 312 at p. 9-10.] Additionally, counsel for the SEC had a good faith belief that the language of the Florida second hand dealer statute, Fla. Stat. § 538.03 et seq., which contained a holding period similar to the pawn broker statute, Fla. Stat. §§ 539.001(1) and 539.001 (16) (b), could be interpreted to read that title to second hand goods does not pass until expiration of the fifteen day holding period. There were no cases that interpret the Florida second hand dealer statute as immediately passing title to the second hand dealer. Moreover, one of the Second Hand Dealer Forms filed by TED contained an alteration to the date on which the transaction occurred, which brought into question whether the document had been altered to create the appearance that the transaction had occur more than fifteen days earlier to avoid the levy on the writ of execution.[2] The form also indicated that the sale of the 7.02 ct yellow diamond was contingent upon TED’s receipt of a GIA certificate verifying the authenticity of the diamond; payment for that sale was not completed until October 5, 2007. In light of a reasonable reading of the statute, and the circumstances of TED altering the second hand dealer form to make it appear that the transaction had occurred on an earlier date, the SEC’s argument that the Florida statute should be read to hold that title did not pass until the end of the fifteen day holding period was substantially justified.
In its October 23, 2007 letter to the SEC, TED submitted the affidavit of Mark Kravit that TED allegedly paid $385,000 for the 11.02 ct emerald-cut diamond that TED purchased from Altomare. However, the price TED paid for the 11.02 ct emerald-cut diamond was not contemporaneously recorded on the Second Hand Dealer Form completed at the time of sale. It is one of twenty items purchased on September 24, 2007 for which TED agreed to pay in total $481,000, of which $70,000 was withheld until verification of the authenticity of the diamond. It was reasonable to draw the conclusion that where the value of diamond wais not listed in the Second Hand Dealer Form, TED valued it at only $70,000, the amount being withheld pendingits authentication. TED later submitted an appraisal by one of its employees, Ben Adams, which listed the value of the 11.02 ct diamond at $143,700, or less than half the value that Kravit represented in his affidavit that TED purportedly paid. TED’s employee appraised all twenty four items using Fair Market Value3 at $384,535 or sixty-seven percent of the $571,000 that TED had paid to Altomare for all of the jewelry. If in fact, TED purchased the 11.02 ct diamond for $385,000 as represented by Mr. Kravit, then based on Mr. Adam’s appraisal, TED purchased that item at more than twice its fair market value and acquired the additional twenty-three items for nothing. Additionally, TED did not disclose to the Court or the SEC that Mr. Adam was not an independent appraiser, but instead frequently works for TED at purchasing jewelry at various events TED holds around the country. Mr. Adam’s appraisal of the diamond at an amount substantially below what TED purportedly paid, and at a fraction of the $433,000 that Les Bijoux had paid to purchase the diamond from a wholesaler, created serious doubt about whether TED paid fair market value for the Altomare’s jewelry and property.
[2] This question was also posed by the Court in its Opinion and Order dated April 30, 2008 concerning this matter. [Docket #312]
When the Court issued its Opinion and Order on April 30, 2008, stating that its determination of whether TED was a bona fide purchaser hinged on factual disputes about whether TED acted in good faith and whether it had paid fair consideration, the SEC’s attorneys began the process of hiring an expert appraiser to value the jewelry and property.[4] The appraiser completed his report on August 8, 2008, and the SEC immediately forwarded it to TED’s attorney.5 Although there are a variety of valuation standards that appraisers may apply, the SEC’s appraiser suggested that he should use the Marketable Cash Value, which is based on prices reported at auctions of similar items and net of any costs including sales commissions paid by the seller and buyer’s premiums paid by the buyer. Use of the Market Cash Value resulted in a thirty percent reduction in the appraised value of the items to account for the seller’s and buyer’s respective costs. The appraiser reported that the total market value of the twenty-four items was $626,400, which even after taking out thirty percent for seller’s and buyer’s expenses was still nine percent more than the price paid by TED and sixty-one percent more than the “Fair Market Value” assigned by Mr. Adams which purportedly included selling expenses. The SEC’s
attorneys believed that this difference in the amounts, when coupled with the deposition testimony of Mr. Osipov that Mr. Kravit had told him that Altomare was a crook and pulled up information about the SEC’s lawsuit on a computer to show Mr. Osipov, established both a lack of fair market value and Mr. Kravit’s bad faith.6 These factual disputes justified the SEC in proceeding through the evidentiary hearing set by the Court to allow it to make the factual determination whether a nine percent difference in valuation using Market Cash Value or a thirty-nine percent difference using Fair Market Value as used by TED’s expert meant that TED had not paid fair market value for the jewelry.
[3] Fair Market Value is defined by the American Association of Appraisers and the IRS as the gross value and includes sales commission and buyer’s premium.
[4] The SEC’s attorneys believed the issue of whether TED paid fair consideration was a disputed issue of fact that could be resolved based on the appraisal submitted by TED’s employee, Mr. Adams, and testimony of Greg Osipov, the jeweler who sold eleven of the items to Altomare, and presented evidence that the wholesale value of the 11.02 ct diamond was $433,000, not the $143,700 appraised by Mr. Adams, which made it appear that TED had paid over twice the value of the diamond by representing in Marc Kravit’s affidavit, created after the fact, that TED had paid $385,000 for the diamond. When that issue was not resolved on the pleadings, the SEC retained an appraiser, Mr. Aretz.
The SEC’s attorneys also believed that whether Mr. Kravit acted with good or bad faith in dealing with Altomare hinged upon a credibility determination by the Court after its opportunity to view both Mr. Osipov and Mr. Kravit at the evidentiary hearing that the Court requested in its Opinion and Order dated April 30, 2008. The proffered testimony of Mr. Osipov was the same as his deposition testimony previously submitted to the Court with the initial pleadings. The statements in Mr. Kravit’s affidavit were subject to examination by the SEC at the hearing. The Court’s ultimate determination that Mr. Kravit was credible is not a basis to hold that the SEC’s actions were not substantially justified. Viewing the record presented in this matter, the Court should conclude that the SEC’s litigation was substantially justified and that no attorneys’ fees or expert fees should be awarded under 28 U.S.C. § 2412 (d).
V. IF TED PREVAILS ON ITS MOTION, TED’S FEES SHOULD BE CALCULATED AT THE STATUTORY CAP OF $125 PER HOUR.
If the Court determines that TED is a party qualified to recover attorney’s fees under EAJA, and that the SEC’s actions were not substantially justified, then the SEC requests that TED’s attorneys’ fees be paid at the statutory rate of $125 per hour. EAJA is a partial waiver of the government’s sovereign immunity and as such must be strictly construed in the government’s favor. Ardestani v. Immigration and Naturalization Serv., 502 U.S. 129, 112 S. Ct. 515, 520, 116 L. Ed. 2d 496 (1991). EAJA provides that the “fees awarded . . . shall be based upon prevailing market rates for the kind and quality of the services furnished, except that . . . attorney fees shall not be awarded in excess of $125 per hour unless the court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for the proceedings involved, justifies a higher fee.” 28 U.S.C. § 2412(d)(2)(A). TED does not seek
an increase in the fee rate based on any specialized knowledge. Motion at p. 22 n. 12. Rather it seeks an increase in the hourly rate because of an increase in the cost of living measured by increases to the Consumer Price Index, citing Harris v. Sullivan, 968 F.2d 263, 265 (2d Cir. 1992). The prevailing market rate paid to the Receiver in this matter or Mr. Schoeppl in another
matter is not relevant to whether the amount should be increased because of an increase in the cost of living. Id. The SEC opposes an increase in the statutory rate because of the negative impact it will have on the Commission’s enforcement program.[7] TED’s request for attorneys’ fees should be determined at the statutory rate of $125. The 547 hours calculated at $125 per hour equals $68,375.
[7] The SEC’s regulations on payment of attorney’s fees under EAJA in administrative proceedings limit the hourly compensation to $75 per hour. 17 C.F.R. § 201.36(b). The SEC has not approved a cost of living adjustment on the basis that such an increase will have a negative impact on the Commission’s enforcement program. See Letter of former Chairman Arthur Levitt to Congressman John D. Dingell, 142 Cong. Rec. H2984-85 (Mar. 28, 1996) discussed In the Matter of Michael Flanagan, Initial Decision 241, 2003 SEC LEXIS 2795 *40-441 (Nov. 24, 2003).
VI. TED’S REQUEST FOR COSTS IS PROHIBITED BY STATUTE.
EAJA provides that the Court may award costs identified in 28 U.S.C. § 1920, “except as otherwise specifically provided by statute.” 28 U.S.C. § 2412(a)(1). Section 2412(d) contains a
similar limitation. Section 22(a) of the Securities Act of 1933 and Section 27 of the Securities Exchange Act of 1934 both state: “No costs shall be assessed for or against the Commission in
any proceeding under this title brought by or against it. . . .” 15 U.S.C. §§ 77v and 78aa. TED’s request for costs of $35,998.51 must be denied. SEC v. Switzer, 590 F. Supp. at 767 n. 2. The
SEC may not be assessed for costs identified in the following subsections of 28 U.S.C. § 1920: (2) fees of the court reporter for all or any part of stenographic transcript (TED seeks $6,680.73, see Exhibit B at p. 65, Docket No. 387-3); (3) fees for printing and witnesses (TED seeks $757.40, id.); (4) fees for copies of papers (TED seeks $13,269.97, id.); (6) compensation for
court appointed experts (TED seeks $4,737.50, id.). Moreover, there is no provision in 19 U.S.C. § 1920 that allows for payment of TED’s postage, telephone, overnight delivery services, security, legal research or travel costs. See e.g. Matter of Kochell, 36 B.R. 766, 768 (E.D. Wis. 1984) (expert witness fees, traveling expenses, telephone calls and postage not included); United States ex rel. Evergreen Pipeline Constr. Co. v. Merritt Meridian Const. Corp., 95 F. 3d 153, 173 (2d Cir. 1996) (computer research fees are not reimbursable); Adams v. Wolff, 110 F.R.D.
291, 293 (D. Nev. 1986) (fees for security not allowable). TED’s request for costs of $35,998.51 should be denied.
VI. CONCLUSION
TED has failed to provide admissible evidence that it is a corporation with net worth of less than $7,000,000 to qualify as a party that may seek reimbursement of its attorneys’ fees under EAJA. Moreover, the SEC’s actions in this matter were substantially justified and no award of attorneys’ fees and expenses is appropriate. TED’s request for payment of various costs is barred by statute. For the reasons discussed above, the SEC respectfully requests that the Court deny TED’s application in full.
Dated March 13, 2009.
Respectfully submitted,
s/ Leslie J. Hughes
Leslie J. Hughes
Attorney for the Plaintiff
U.S. Securities and Exchange Commission |
