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Case 1:00-cv-00428-CCM

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

INTERNATIONAL AIR RESPONSE, Plaintiff, vs. THE UNITED STATES, Defendant.

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Case No. 00-428C (Assigned to the Honorable Christine O.C. Miller) E-Filed December 19, 2007

PLAINTIFF IAR'S REPLY ON ITS APPLICATION FOR ATTORNEYS' FEES AND COSTS Before addressing the Government's specific arguments, the Court should note what the Government does not seriously dispute in its response. The Government does not contest that the result in this case was, in the Court's prior words, "quite one-sided;" that IAR "was done wrong by the Forest Service;" or that the Government's sole witness at trial "lacked conviction in his own testimony." (Order at 4, 7, 11). Nor does the Government challenge IAR's account of the Government's unreasonable settlement conduct in this case ­ conduct which prolonged the litigation unnecessarily. (IAR Memorandum at 5-6). Perhaps most important, the Government made no serious effort to explain on what basis it continued to insist right up through trial that the planes it exchanged were worth millions as air tankers when, in 2002, the Forest Service itself declared the planes unsafe to fly. IAR is (and was) a small company that the Government dragged through litigation seemingly on unthinking, auto-pilot mode for years and years, while lacking any 1
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meaningful basis for doing so. Again, in the Court's prior words, "Mr. Grantham has gone through enough, this has been a virtual odyssey." (Tab A, Tr. Trans. at 181). That the Government maintained its position without meaningful basis was not because of the Government's attorney, who was always professional, but rather of internal politics at the Forest Service, which disregarded IAR's interests for too long. This is thus exactly the type of case in which an EAJA award is appropriate. II. Eligibility A. IAR Was the Prevailing Party

The Government does not dispute that IAR was the prevailing party and thus presumptively entitled to a fee award unless the Government meets its burden of establishing that its position was substantially justified. See Scarborough v. Principi, 124 S. Ct. 1856, 1860 (2004). B. IAR Is Not Too Large to Qualify for An Award

The Government challenges whether IAR qualifies for a fee award, citing a lack of specifics in the record regarding IAR's size and value. Under the EAJA, IAR would not be eligible for a fee award if its net value at the time it filed its complaint exceeded $7,000,000. See 28 U.S.C. § 2412(d)(2)(B). IAR filed this action in 2000. In 2000, it had ordinary income of $195,368. According to the detailed balance sheet attached to its 2000 federal income tax return, IAR's liabilities exceeded its assets by and, consequently, the company had negative equity. Indeed, the company's retained earnings by year-end 2000 was negative $421,891. (See Tab B). IAR's net value thus came nowhere even remotely close to the $7,000,000 cap. 2

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Similarly, the EAJA provides that a company must have less than 500 employees. See 28 U.S.C. § 2412(d)(2)(B). Even counting seasonal and part-time employees, IAR only had approximately 25 employees in 2000. (See Tab C). The Government is well aware of IAR's financial history and limited resources, having deposed Mr. Grantham twice. At his deposition in 2005, he was questioned directly about his tax returns, the lack of any recent appraisals on the aircraft, and the limited scope of the company's operations. (See Tab D at 27-34). The Government claimed in its pleadings and at trial that the C-130As had great value, but the Court noted that at trial the Government "offered no proof as to the value of the aircraft." (Order at 13). There is thus no basis to disqualify IAR from a fee request based on the EAJA's net worth or employee limitations.1 III. The Government's Position Was Not Substantially Justified The Government's brief does not establish that the Government's position in this case was substantially justified. The Government makes three arguments, all of which should be rejected.

1

There is no jurisdictional bar to IAR supplementing the record in support of its application to satisfy the net worth or employee requirements. See, e.g., Bazalo v. West, 150 F.3d 1380, 1382-84 (Fed. Cir. 1998) (holding that a party may supplement its application to provide proof regarding net worth). The Government is not unfairly prejudiced by supplementation given its familiarity with IAR's finances and the lack of any evidence that IAR somehow was too large or valuable to be eligible for a fee award. 3

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A.

The Government Knew the Planes Had Minimal Value By 2002 As we pointed out in our initial memorandum, whether the Government's position

was substantially justified should be determined by looking at the case as a whole, not discrete parts of the case. See, e.g., Commissioner of INS v. Jean, 496 U.S. 154, 161-2 (1990); CEMS v. United States, 65 Fed. Cl. 473, 483 (2005). The Government does not directly address that, as of 2002, it viewed the planes as unsafe for firefighting and thus would not contract for them. As the Government's witness, Mr. Hooper, explained, if the planes had been repossessed by the Government, as the Government sought to accomplish under one of its theories in the case, the Government "would not operate the[em] as air tankers" but instead it would give them to GSA to "dispose of them." (Tab A, Tr. Trans. at 175). But even though the Government's view about the aircraft's value had changed dramatically by 2002, the Government never withdrew and in fact continued litigating its claim that the planes were worth millions as firefighting air tankers. Even at trial, the Government continued to try to suggest the planes had substantial value. After 2002, however, the Government not only had no substantial basis for its counterclaim it had no basis for it whatsoever. B. The Espionage Act

The Government's claim that the Espionage Act provided substantial support for its position is wrong for several reasons. The Government did not even raise the Espionage Act until years into this litigation; no mention, for example, is made of the Act in the Contracting Officer's decision, in the Government's answer to IAR's complaint; in 4

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the Government's counterclaim, or even in the Government's response to IAR's motion to dismiss. The Espionage Act was never raised by the Government in the related actions in Oregon and Arizona. Indeed, while the planes were exchanged in 1989, it appears the Government's first mention of the Espionage Act occurred in approximately 2004. Moreover, the Government always was willing to allow IAR to keep the planes if it paid a large sum to the Government, so national security was obviously simply being used as a pretextual argument to coerce a settlement. On the merits, the claim was patently flawed as well, as the Court concluded on pages 14-16 of its Order. The Government produced no evidence or witness whatsoever to substantiate that the planes contained technical or secret information or technology so as to even be governed by the Espionage Act. In the Court's words, the claim was "largely abandoned" by trial. (Order at 16). The best the Government can do is to show that the planes were still on the Munitions List, but, as the Court reasoned, that the planes were related somehow to the military means very little by itself for Espionage Act purposes. (Id.). That the Government would implicitly threaten IAR with penalties under the Espionage Act, so deep into the litigation and without having proof of any real national security concern, only highlights that the Government's position in this case was far more severe than the merits warranted. Moreover, even if the 1950s-era planes were governed by the Espionage Act, IAR always would have been entitled to be compensated for its out-of-pocket costs in having the transaction unwound, which, as the Court expressly concluded, would have resulted 5

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in an "affirmative recovery" for IAR. (Tab A, Tr. Trans. at 180; see also Order at 16). Given that the Government's primary demand was to be compensated for the planes, to the tune of over $2.4 million, and given that the netting calculation required by the case law would have yielded an affirmative recovery for IAR, the Government's position clearly was not substantially justified. C. IAR Was A Bona Fide Grantee for Value

The Government says that it was substantially justified in claiming that IAR was not a bona fide grantee as that term is used in 40 U.S.C. § 544. The Court concluded otherwise, ruling: "Mr. Grantham has detailed circumstances whereby he ably qualifies as a bona fide purchaser for value under any scenario dealing with the acquisition of the three aircraft." (Tab A, Tr. Trans. at 179; see also Order at 12-13). The Government never claimed it had any evidence that Mr. Grantham did anything dishonest or unethical vis-à-vis the Government. Nor did the Government claim that Mr. Grantham had failed to provide the aircraft it promised to provide under its exchange agreement. Instead, the Government says its position was substantially justified because Mr. Grantham somehow should have known the deal was not authorized or legitimate because he supposedly was getting too good a deal. First, we have repeatedly cited, and the Government has repeatedly ignored, the case law making clear that a difference in value between what the Government exchanges and what the Government receives is largely irrelevant to determining whether someone was a bona fide grantee. The statutory scheme that includes section 544 was enacted near the end of World War II in order to help the Government dispose of surplus military and 6

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other property quickly and in a manner that would stimulate the economy and encourage enterprising citizens to use the property in a way more productive than the Government would. See United States v. Jones, 176 F.2d 278, 288-90 (9th Cir. 1949). Given the statute's purposes, it soon was established that a mere difference in value between what the Government accepted and what the citizen received in no way undermines the legality of the transaction. Id. Thus, the Government's premise ­ that it somehow would matter if Mr. Grantham knew he was getting a really good deal ­ is legally wrong. Moreover, as the Court found, "the record does not support" the Government's assertion that Mr. Grantham should have known the program was unauthorized because he supposedly was getting such a good deal. (Order at 12). Mr. Grantham's company not only provided aircraft of substantial value, but it was always understood that they would have to invest substantial sums to retrofit the planes in order to use them to fight fires. (Id. at 10-12). The Government's response overlooks these uncontroverted facts. Perhaps the best evidence that the Government has no substantial basis for saying Mr. Grantham "should have known" the transactions were unauthorized is that the Government itself could not internally agree whether the exchanges were authorized or not for several years. (Order at 11). For years, the Forest Service insisted the program was in fact authorized and sought to justify it on several grounds. (See id.; see also Tab A, Tr. Trans. at 177-78). Yet the Government claims that Mr. Grantham, a rancher and pilot in Arizona who all agree used no legal assistance in the transaction, somehow "should have known" in 1989 the Forest Service lacked authority to make the exchanges. That position was hardly "substantially justified." 7

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IV.

Amount IAR overlooked the $125 cap limitation that presumptively applies to EAJA

applications. Thus, its request as detailed in its Memorandum was overstated. The total amount of fees, recalculated at $125 per hour, is $92,350, of which $32,112.50 was prior to the Federal Circuit's ruling that IAR's complaint should be deemed timely filed. IAR's request for reimbursement of costs remains as set forth on page 8 of its Memorandum. The total of the requested cost reimbursement is $20,649.39. V. Conclusion The Court is very familiar with this matter, with the tortured history regarding settlement efforts in front of Judge Firestone and otherwise, and with what IAR submits was the paucity of evidence submitted by the Government at trial that IAR did anything wrong or otherwise should have been forced to spend years litigating with the Government. The fee award requested would reimburse IAR for only a small portion of its out-of-pocket expense in this matter and would be fully supported by both the terms and the purposes of the EAJA. Respectfully submitted, Date: December 19, 2007 By: s/ Randy Papetti Randy Papetti Lewis and Roca LLP 40 North Central Avenue Phoenix, Arizona 85004-4429 602-262-5337 Telephone 602-734-3865 Facsimile Attorney of Record for Plaintiff International Air Response 8