Attorneys – Fees – EAJA

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Where a defendant in an enforcement action brought by the Securities and Exchange Commission filed a motion for fees and costs under the Equal Access to Justice Act, a remand should be ordered for the lower court to determine, among other things, whether the SEC made an excessive demand.

“This appeal arises out of a Securities and Exchange Commission (SEC) enforcement action against Gregory Lemelson, also known as Rev. Fr. Emmanuel Lemelson, and Lemelson Capital Management, LLC (together, ‘Lemelson’). In a prior decision, we affirmed the jury’s liability findings as to three asserted violations. … Here, Lemelson appeals from the district court’s denial of his motion for attorneys‘ fees and costs under the Equal Access to Justice Act (EAJA), 28 U.S.C. §2412(d)(1)(D), arising out of the SEC’s claims, some of which were unsuccessful although others were successful. … For the reasons that follow, we vacate the denial of fees and costs and remand for further proceedings consistent with this opinion. …

“… The district court concluded that even if the complaints’ request for disgorgement amounted to an ‘express demand’ under the meaning of the statute, it fell within the statute’s safe harbor for a ‘recitation of the maximum statutory penalty … in the complaint.’ … The district court also held that the complaints’ request for disgorgement ‘was reasonable’ but did so ‘in light of the scope of the initial claims [the SEC] brought.’ … As to the SEC’s post-verdict request for $2,296,624, the district court cited United States v. One 1997 Toyota Land Cruiser, 248 F.3d 899, 905 (9th Cir. 2001), and held that a post-verdict demand was not an ‘express demand of the United States which led to the adversary adjudication.’ … The district court did not reach the SEC’s more global defenses of whether ‘the party ha[d] committed a willful violation of law or otherwise acted in bad faith, or special circumstances ma[d]e an award unjust,’ 28 U.S.C. §2412(d)(1)(D). Although it interpreted certain statutory phrases, it did not address others. …

“Congress amended the EAJA in 1996, adding, inter alia, a provision allowing parties who defended against civil actions brought by the United States to collect attorneys’ fees and costs under certain limited circumstances where the United States has made an ‘excessive demand’: ‘If, in a civil action brought by the United States … the demand by the United States is substantially in excess of the judgment finally obtained by the United States and is unreasonable when compared with such judgment, under the facts and circumstances of the case, the court shall award to the party the fees and other expenses related to defending against the excessive demand, unless the party has committed a willful violation of law or otherwise acted in bad faith, or special circumstances make an award unjust. Fees and expenses awarded under this subparagraph shall be paid only as a consequence appropriations provided in advance.’ … The Act further sets forth that the term ‘demand’ means: ‘the express demand of the United States which led to the adversary adjudication, but shall not include a recitation of the maximum statutory penalty in (i) the complaint, or (ii) elsewhere when accompanied by an express demand for a lesser amount.’ 28 U.S.C. §2412(d)(2)(I). We refer to the ‘shall not’ clause as the safe harbor provision. …

“The plain language of the EAJA makes clear that there are two comparators when evaluating reasonableness: the ‘demand’ and the ‘the judgment finally obtained by the United States.’ 28 U.S.C. §2412(d)(1)(D). The district court incorrectly compared the alleged demand to ‘the scope of the initial claims [the SEC] brought.’ Because the district court erred in its interpretation of the relevant final comparator to which the term ‘express demand’ must be compared, we must remand. …

“On remand, the district court may choose to consider first whether Lemelson ‘has committed a willful violation of law or otherwise acted in bad faith, or special circumstances make an award unjust,’ 28 U.S.C. §2412(d)(1)(D). If the textual interpretation issues are addressed, the court should consider, inter alia, (1) whether the statute’s definition of ‘demand’ includes a timing requirement, in light of the use of the term ‘adversary adjudication’ in the EAJA; (2) whether the statute encompasses injunctive relief; (3) and the meaning of Section 2412(d)(2)(I)’s safe harbor. And if in doing so the district court finds the SEC made an excessive demand, the court should evaluate the reasonableness of that demand in comparison to the final judgment obtained.

“We vacate the district court’s denial of Lemelson’s motion and remand for further proceedings consistent with this opinion. No costs are awarded.”

U.S. Securities and Exchange Commission v. Lemelson, et al. (Lawyers Weekly No. 01-100-25) (14 pages) (Lynch, J.) Appealed from the U.S. District Court for the District of Massachusetts. Russell G. Ryan, with whom Andreia Trifoi, John J. Vecchione, New Civil Liberties Alliance, Douglas S. Brooks and Libby Hoopes Brooks & Mulvey were on brief, for the defendants-appellants; Paul G. Álvarez, with whom Jeffrey B. Finnell, Elizabeth McFadden, Melinda Hardy and Timothy N. McGarey were on brief, for the plaintiff-appellee; Theodore M. Cooperstein, with whom Theodore Cooperstein PLLC was on brief, for Southern Policy Law Institute, amicus curiae; J. Marc Wheat, with whom Advancing American Freedom, Inc. was on brief, for Advancing American Freedom, Inc.; American Encore, Americans for Limited Government; Catholics Count; Eagle Forum; Eagle Forum of Georgia; Family Institute of Connecticut Action; Charlie Gerow; International Conference of Evangelical Chaplain Endorsers; JCCWatch.org, Tim Jones, Former Speaker, Missouri House, Chairman, Missouri Center-Right Coalition; Men and Women for a Representative Democracy in America, Inc.; New Jersey Family Policy Center; Melissa Ortiz, Principal & Founder, Capability Consulting; Project 21 Black Leadership Network; Pro-Life Wisconsin; Pamela S. Roberts, Immediate Past President – Kentucky Federation of Republican Women; Rick Santorum; Setting Things Right; 60 Plus Association; Stand for Georgia Values Action; Tea Party Express; Tea Party Patriots Action, Inc.; The American Association of Senior Citizens; Women for Democracy in America, Inc.; Yankee Institute; Young Conservatives of Texas; Young America’s Foundation, amici curiae (Docket No. 24-1754) (May 27, 2025).

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