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No. 14-2363

In the United States Court of Appeals

for the Fourth Circuit
THE NATIONAL ORGANIZATION FOR MARRIAGE, INC.,
Appellant,
v.

UNITED STATES OF AMERICA, INTERNAL REVENUE SERVICE,

Appellee,

Appeal from the United States District Court

for the Eastern District of Virginia, Alexandria Division

REPLY BRIEF OF APPELLANT

William E. Davis, of counsel John C. Eastman

Kaylan L. Phillips CENTER FOR CONSTITUTIONAL
Noel H. Johnson JURISPRUDENCE
Joseph A. Vanderhulst c/o Chapman Univ. School of Law
PUBLIC INTEREST LEGAL FOUNDATION* One University Drive
209 West Main Street Orange, CA 92866
Plainfield, IN 46168 (877) 855-3330 x2 (telephone)
(317) 203-5599 (telephone) (714) 844-4817 (fax)
(888) 815-5641 (fax) jeastman@chapman.edu
wdavis@foley.com
kphillips@publicinterestlegal.org
njohnson@ publicinterestlegal.org Counsel for Appellant
jvanderhulst@ publicinterestlegal.org (additional counsel listed inside cover)
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Additional Counsel:

Jason Torchinsky
Shawn Toomey Sheehy
HOLTZMAN VOGEL JOSEFIAK, PLLC
45 North Hill Drive, Suite 100
Warrenton, VA 20186
(540) 341-8808 (telephone)
(540) 341-8809 (fax)
jtorchinsky@hvjlaw.com
ssheehy@hvjlaw.com

*Formerly known as ACTRIGHT LEGAL FOUNDATION

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Table of Contents

Table of Authorities .................................................................................................. ii

Argument....................................................................................................................1
Response to Government’s “Statement of Facts” ......................................................2
I. NOM Substantially Prevailed with Respect to the Most Significant Issue or
Set of Issues Presented.....................................................................................4
II. NOM Substantially Prevailed with Respect to the Amount in Controversy ...6
A. The District Court Erred by Including a Voluntarily Withdrawn Claim for
Damages in the “Amount in Controversy.” ...................................................7
B. The District Court Abused Its Discretion in Its Speculative Calculation of
the Punitive Damages at Issue........................................................................8
III. The District Court Abused Its Discretion in Determining that the
Government’s Position Was Substantially Justified........................................9
A. The District Court Abused its Discretion in Omitting Consideration of the
Government’s Position on Actual Damages. .................................................9
B. The Government’s Position on Actual Damages Was Not Substantially
Justified...........................................................................................................9
Conclusion ...............................................................................................................11
Certificate of Compliance ........................................................................................13
Certificate of Service ...............................................................................................14

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Table of Authorities

Cases

Cassuto v. Comm’r, 936 F.2d 736 (2d Cir. 1991) .....................................................6

Estate of Baird v. Comm’r, 416 F.3d 442 (5th Cir. 2005) .......................................10
Jones v. United States, 9 F.Supp.2d 1154 (D. Neb. 1998). .................................6 n.5
Marre v. United States, 117 F.3d 297 (5th Cir. 1997) ...............................................2
Smith v. United States, No. 3:09cv228 (JBA), 2011 U.S. Dist. LEXIS 22316
(D. Conn. Mar. 7, 2011)........................................................................................10
United States v. Paisley, 957 F.2d 1161 (4th Cir. 1992) ................................. 1-2, 10
Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288 (1st Cir. 2000) ..................9
Statutes

26 U.S.C. § 6103 ........................................................................................................5

26 U.S.C. § 7431 ..................................................................................................6 n.4
26 U.S.C. § 7430(c)(4)(A)(i)(I) and (II) ....................................................................5
26 U.S.C. § 7430(c)(4)(B)(i)....................................................................................10

Other Authorities

Local Rule of the Fourth Circuit 28(f). ......................................................................2

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Argument

As a result of this litigation, Appellant National Organization for Marriage,

Inc., (“NOM”) identified who illegally disclosed its confidential tax return

information and successfully obtained a judgment in the amount of $50,000 against

the Government for the damage the Government caused by that disclosure. The

Government vehemently disavowed any liability for that damage throughout the

entire course of this litigation. Yet, to escape liability again, this time for any

attorneys’ fees, the Government attempts to diminish the significance of NOM’s

victory by inundating the Court with its interpretation of the purpose of the case. In

its prolix statement of facts—which spans nineteen pages—the Government spends

merely a few paragraphs discussing its liability for damages. See Brief of the

United States at 4-23 (hereinafter “Government’s Response”). However, the record

tells a different story than the Government. The record demonstrates that the

district court abused its discretion in finding that NOM was not a prevailing party

and in finding the Government’s position substantially justified.

As a threshold matter, the parties agree that this Court reviews decisions

awarding or denying attorneys’ fees for an abuse of discretion. (Opening Brief at 9,

Government’s Response at 26.) But, importantly, the abuse of discretion standard

is “considerably short of a simple, accept-on-faith, rubber-stamping of district court

decisions on this issue.” United States v. Paisley, 957 F.2d 1161, 1166 (4th Cir.

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1992). The Government does not contest that de novo review is appropriate for any

conclusions of law underlying the award or denial of fees. (Opening Brief at 9,

citing Marre v. United States, 117 F.3d 297, 301 (5th Cir. 1997)).

Response to Government’s “Statement of Facts”

Pursuant to the Federal Rule of Appellate Procedure 28(b), an Appellee is

not required to present a Statement of the Case unless it is “dissatisfied with the

appellant’s statement.” The Government chose to file an extensive “Statement of

Facts” that goes well beyond what is called for by the local rule, which requires

only “a narrative statement of all of the facts necessary for the Court to reach the

conclusion which the brief desires with references to the specific pages in the

appendix that support each of the facts stated.” Local Rule of the Fourth Circuit

28(f). Comprising nearly 40 percent of its entire brief, the Government’s

“Statement of Facts” includes many statements of opinion. Many of these

editorialized comments are highly prejudicial and are not supported by record

evidence. For example, the Government states as fact that “NOM itself ultimately

recognized that the disclosure of its donor information was accidentally made in

response to a routine public inspection request.” (Government’s Response at 14

(citing to a portion of NOM’s gross negligence argument where NOM’s analysis

necessarily begins with the assumption—not concession—that the disclosure was

inadvertent).)

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The Government also uses its “Statement of Facts” to cite to articles

regarding statements by NOM’s counsel at the filing of the lawsuit. (Government’s

Response at 7-8.) None of these articles were considered by the district court and

they are not relevant to whether NOM is entitled to attorneys’ fees. 1 Despite the

Government’s attempts to vilify NOM in its “Statement of Facts,” none of NOM’s

claims were frivolous or made in bad faith. If they were, the Government would

have sought sanctions or filed a motion to dismiss. Instead, all of NOM’s claims

proceeded to summary judgment. And although NOM was unable to overcome the

high evidentiary hurdles presented by the Government’s interpretation of 26 U.S.C.

§ 6103 and third-party witness assertions of Fifth Amendment rights regarding its

claims for willfulness or gross negligence, NOM did substantially prevail on its

hotly contested claim for actual damages and on the amount in controversy, as well

as on its effort to identify the individual responsible for the disclosure of its

confidential tax return information. 2 And its victory, in light of the Government’s

1
Regarding the Washington Times article, (Government’s Response at 7-8),
the Government conveniently omits counsel’s statements regarding NOM’s claims
for damages, including specifics about the actual damages NOM sustained as a
result of a complaint premised on the disclosure that was filed in California.
2
As is evident from the record below, many of the “facts” surrounding even
the disclosure are premised on circumstantial evidence because the Government
destroyed any records of the alleged request from Matthew Meisel, (see, e.g., Joint
Appendix (“JA”) at 216-217, 228-29, 321), the IRS clerk deemed responsible for
the disclosure could not recall processing the specific request, id. at 216-217, and

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position during the litigation, is sufficient for an award of attorneys’ fees.

I. NOM Substantially Prevailed with Respect to the Most Significant Issue

or Set of Issues Presented.

As NOM explained in its Opening Brief, the most significant issues in this

case were whether the Government released a nonprofit’s confidential return

information and, therefore, whether the Government is responsible for the resulting

damage. (Opening Brief at 12-14.) The Government argues that NOM’s statement

on the most significant issue or set of issues is a “post-settlement effort to

recharacterize its complaint.” (Government’s Response at 42.) To do so, the

Government must ignore the twenty-seven paragraphs of the Complaint discussing

the exhaustive efforts NOM undertook in an attempt to discover the circumstances

surrounding the disclosure, (Opening Brief at 13), circumstances that came to light

only as a result of discovery in this lawsuit. 3

The Government attempts to downplay NOM’s success on the hotly

Mr. Meisel asserted his Fifth Amendment rights and declined to respond to
questions regarding the request, id. at 319.
3
In questioning the reason behind NOM’s lawsuit, the Government readily
admits that it “conceded” its liability in its Answer, (Government’s Response at
43)—a concession that NOM was unable to receive previously despite its myriad
efforts to find the truth before it filed its suit. Despite this success, the Government
still contends that NOM did not substantially prevail, simply because it continued
to press for damages—on which NOM did ultimately prevail. The Government
appears to be conditioning prevailing party status on the speed with which an issue
is resolved. Just because NOM succeeded on the issue of liability early on (which
it then used to succeed on the issue of damages), it should not be disqualified for
attorneys’ fees at the end of the litigation.

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contested issue of actual damages by claiming that “NOM’s 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.” (Government’s Response at 45). While the merits of NOM’s argument

as to the amount in controversy are spelled out below, the relevant point here is

that the question of whether a party prevailed on the most significant issue is a

separate test from whether it prevailed as to the amount in controversy, and only

one test must be met for prevailing party status. 26 U.S.C. § 7430(c)(4)(A)(i)(I)

and (II) (“or”).

According to the Government, “[t]he only issue NOM prevailed on was

whether the IRS violated I.R.C. § 6103 in inadvertently disclosing an unredacted

copy of a schedule to its 2008 return.” (Government’s Response at 24-25.) This

statement is misleading in its oversimplification. Not only did NOM prevail on the

issue of whether the Government violated section 6103 with regards to its

confidential return information, it prevailed on the issue of whether the

Government is liable for the actual damages caused by the unauthorized disclosure.

After the court’s summary judgment decision, as the Government acknowledged,

the parties settled “the only remaining issue—the amount of actual damages

incurred by NOM.” (Government’s Response at 25.) The fact that the issue of

actual damages was settled does not affect the analysis, as the court looks “to the

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final outcome of the case—whether by court judgment or settlement.” Cassuto v.

Comm’r, 936 F.2d 736, 741 (2d Cir. 1991).

Whether the Government released NOM’s confidential return information

and, therefore, is responsible for the resulting damage are significant and important

issues upon which NOM prevailed.

II. NOM Substantially Prevailed with Respect to the Amount in

Controversy.

In addition to prevailing on the most significant issues, NOM substantially

prevailed on the amount in controversy with its recovery of $50,000. The

Government argues that both NOM’s voluntarily withdrawn claim and a

speculative amount for punitive damages should be included in the amount in

controversy, thus diminishing the percentage of NOM’s recovery. 4 As described

more fully in NOM’s Opening Brief and reiterated below, such additions to the

amount in controversy lead to inequitable results. 5 Each argument will be

4
According to the Government, the amount in controversy includes “statutory
damages that NOM placed in issue later in the litigation.” (Government’s
Response at 38.) But, pursuant to the statute at issue, NOM could only recover
statutory damages or actual and punitive damages. 26 U.S.C. § 7431. The fact that
the Government advocates that the “amount in controversy” include more damages
than the statute even allows further demonstrates that the Government’s position is
unworkable.
5
The Government also contests NOM’s inclusion of a case where the plaintiff
was deemed to have prevailed on the amount in controversy despite receiving only
15 percent of what was requested. (Government’s Response at 41 n.8) (citing
Jones v. United States, 9 F.Supp.2d 1154 (D. Neb. 1998). To be sure, the

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addressed in turn.

A. The District Court Erred by Including a Voluntarily Withdrawn

Claim for Damages in the “Amount in Controversy.”

The Government responds to NOM’s assertion that the district court erred by

considering a withdrawn claim in the amount in controversy by saying the

assertion is “unsupported by any authority” and “meritless.” (Government’s

Response at 38.) As to the first point, NOM pointed out in its Opening Brief that

the legal question of whether a voluntarily withdrawn claim is included in the

calculation of “amount in controversy” when determining prevailing party status is,

to NOM’s knowledge, a question of first impression. (Opening Brief at 17); (see

also Joint Appendix (“JA”) at 373 (stating that the Fourth Circuit has not provided

guidance as to how to calculate the amount in controversy).) As to the second

point, the Government misunderstands NOM’s argument as to why the voluntarily

withdrawn claim should not be included. Primarily, the general definition of

“amount in controversy” results in an inequitable calculation in this circumstance.

Contrary to the Government’s implications, NOM is not saying that “a party who

concedes his entire lawsuit…should be deemed the prevailing party because his

Government mischaracterizes NOM’s argument as stating that Jones created a

“standard” for plaintiffs that achieve 15 percent recoveries. (Compare Opening
Brief at 23 with Government’s Response at 41.) However, given that the
Government is supporting a methodology where the percentage of recovery is
determinative, it is relevant to know that the Jones court found a plaintiff with a
low percent of recovery to have prevailed as to the amount in controversy.

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abandoned lawsuit was meritorious.” (Government’s Brief at 39.) Nor is NOM

saying that it should be declared the prevailing party as to the $50,000 claim that it

withdrew. Rather, NOM believes that it serves judicial economy to treat a claim

that was voluntarily withdrawn prior to the close of a very-short discovery window

and well in advance of summary judgment briefing as not included in the

calculation of amount in controversy for the purposes of determining whether a

party prevailed.

B. The District Court Abused Its Discretion in Its Speculative

Calculation of the Punitive Damages at Issue.

Regarding NOM’s unspecified punitive damages, the Government appears

to understand the problems with including punitive damages in the amount in

controversy calculations for every case, (Government’s Response at 40), but it

argues that “some estimate of those damages…is necessary to accurately assess the

‘amount in controversy’ in this case,” (Government’s Response at 34.) Like the

district court, the Government provides no authority for this statement but simply

relies on its framing of the reason NOM brought this case. As NOM explained in

its Opening Brief, speculating as to the punitive damage award penalizes plaintiffs

with non-frivolous claims and does not lead to an equitable result. (Opening Brief

at 19-20.)

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III. The District Court Abused Its Discretion in Determining that the
Government’s Position Was Substantially Justified.
A. The District Court Abused its Discretion in Omitting
Consideration of the Government’s Position on Actual Damages.
The Government asserts that “the District Court did consider the

Government’s position on actual damages.” (Government’s Response at 48.) Yet

the record citation for that claim is not to the court’s discussion of “substantial

justification,” but to the court’s discussion of the “amount in controversy.” (Id.

(citing JA at 373-377).) That portion of the court’s opinion concerns only the

calculation of actual damages. It says nothing about the Government’s position

concerning its liability for those damages. Indeed, on that issue, the district court

was completely—and erroneously—silent. See Waste Mgmt. Holdings, Inc. v.

Mowbray, 208 F.3d 288, 295 (1st Cir. 2000) (“An abuse occurs when a court, in

making a discretionary ruling, relies upon an improper factor, omits consideration

of a factor entitled to substantial weight, or mulls the correct mix of factors but

makes a clear error of judgment in assaying them.”).

B. The Government’s Position on Actual Damages Was Not

Substantially Justified.

In an effort to justify its position on actual damages, the Government recasts

its argument as one about the amount of actual damages. The Government claims it

justifiably “held out until NOM lowered its $108,586.37 demand to $50,000” and

then settled the claim. (Government’s Response at 48.) To be sure, the Government

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“held out,” not because it believed it was responsible for a lesser amount of

damages but because it believed it was not liable for any damages. From the outset,

as the Government concedes, it “denie[d] that the disclosure caused any actual

damages.” (Id. (citing JA at 61) (emphasis added).) Truthfully, the Government

“held out” until the district court determined that its position was unjustified and

unsubstantiated by the record. The court’s rejection of the Government’s

arguments forced the Government to settle the issue on unfavorable terms.

NOM does not dispute that the relevant position of the Government is the

one taken “in the proceeding.” 26 U.S.C. § 7430(c)(4)(B)(i). However, “the Court

may consider ‘the facts … available at the time the IRS took its position,’

including pre-litigation actions … that may have informed [the Government’s]

conduct during the litigation.” Smith v. United States, No. 3:09cv228 (JBA), 2011

U.S. Dist. LEXIS 22316, 10 n.1 (D. Conn. Mar. 7, 2011) (quoting Estate of Baird

v. Comm’r, 416 F.3d 442, 447 (5th Cir. 2005)). The Government does not refute

that at the time the Government took the position that it was not responsible for

any of NOM’s actual damages, it knew all of the facts on which the district court

based the Government’s liability. (See Opening Brief at 29-31.) Moreover, other

“objective indicia,” including the ease with which the court reached its decision,

indicate that the Government’s position was plainly unreasonable. See United

States v. Paisley, 957 F.2d 1161, 1166 (4th Cir. 1992).

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Accordingly, this Court should reverse the district court and remand the case

with instructions to find the Government’s position on actual damages was not

substantially justified, and to award attorneys’ fees to NOM in an amount

commensurate with NOM’s substantial success.

Conclusion

For the reasons outline in its Opening Brief and in the foregoing, NOM is a

“prevailing party,” and is entitled to reasonable attorneys’ fees. The judgment to

the contrary by the district court should be reversed, and the district court directed

to consider NOM’s reasonable attorneys’ fees request.

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Dated: April 29, 2015

Respectfully submitted,

/s Kaylan L. Phillips John C. Eastman

William E. Davis, of counsel Center for Constitutional
Kaylan L. Phillips Jurisprudence
Noel H. Johnson c/o Chapman Univ. School of Law
Joseph A. Vanderhulst One University Drive
PUBLIC INTEREST LEGAL Orange, CA 92866
FOUNDATION* (877) 855-3330 x2 (telephone)
209 West Main Street (714) 844-4817 (fax)
Plainfield, IN 46168 jeastman@chapman.edu
(317) 203-5599 (telephone)
(888) 815-5641 (fax)
wdavis@foley.com Jason Torchinsky
kphillips@publicinterestlegal.org Shawn Toomey Sheehy
njohnson@ publicinterestlegal.org Holtzman Vogel Josefiak, PLLC
jvanderhulst@publicinterestlegal.org 45 North Hill Drive, Suite 100
Warrenton, VA 20186
*Formerly known as ACTRIGHT LEGAL (540) 341-8808 (telephone)
FOUNDATION (540) 341-8809 (fax)
jtorchinsky@hvjlaw.com
ssheehy@hvjlaw.com

Counsel for Appellant

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UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 14-2363
_______ National Organization for Marriage, Inc. v. United States
Caption: __________________________________________________

CERTIFICATE OF COMPLIANCE WITH RULE 28.1(e) or 32(a)

Type-Volume Limitation, Typeface Requirements, and Type Style Requirements

1. Type-Volume Limitation: Appellant’s Opening Brief, Appellee’s Response Brief, and

Appellant’s Response/Reply Brief may not exceed 14,000 words or 1,300 lines. Appellee’s
Opening/Response Brief may not exceed 16,500 words or 1,500 lines. Any Reply or Amicus
Brief may not exceed 7,000 words or 650 lines. Counsel may rely on the word or line count
of the word processing program used to prepare the document. The word-processing program
must be set to include footnotes in the count. Line count is used only with monospaced type.

This brief complies with the type-volume limitation of Fed. R. App. P. 28.1(e)(2) or
32(a)(7)(B) because:

[✔] this brief contains 2,604 [state number of] 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 number

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

2. Typeface and Type Style Requirements: A proportionally spaced typeface (such as Times
New Roman) must include serifs and must be 14-point or larger. A monospaced typeface
(such as Courier New) must be 12-point or larger (at least 10½ characters per inch).

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:

[✔] this brief has been prepared in a proportionally spaced typeface using
Microsoft Word 2010 [identify word processing program] in
14-point, Times New Roman [identify font size and type style]; or

[ ] this brief has been prepared in a monospaced typeface using

[identify word processing program] in
[identify font size and type style].

(s) Kaylan L. Phillips

Attorney for Appellant

Dated: 4/29/2015

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04/13/2012
SCC
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CERTIFICATE OF SERVICE

I hereby certify that I electronically filed the foregoing Reply Brief of

Appellant with the Clerk of the Court for the United States Court of Appeals for

the Fourth Circuit by using the appellate CM/ECF system on April 29, 2015. I

further certify that all participants in the case are registered CM/ECF users and that

service will be accomplished by the appellate CM/ECF system.

Dated: April 29, 2015 /s/ Kaylan L. Phillips

Kaylan L. Phillips
PUBLIC INTEREST LEGAL FOUNDATION
209 West Main Street
Plainfield, IN 46168
(317) 203-5599 (telephone)
(888) 815-5641 (fax)
kphillips@publicinterestlegal.org
Counsel for Appellant

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