ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA C.A. No. 78-04014
Before Adams and Garth, Circuit Judges and Fisher*fn*, District Judge.
This is an appeal from a district court order denying plaintiffs' motion, filed pursuant to Fed.R.Civ.P. 54(d), for costs and expenses incurred while seeking to enforce a lease agreement against the United States Postal Service.*fn1 In order to resolve the controversy, we are called upon to address the following questions: First, whether attorney's fees are recoverable against the United States and the United States Postal Service in instances alleging vexatious litigation and bad faith; second, whether the district court abused its discretion in denying plaintiffs' motion for costs incurred in this litigation.
On June 15, 1970, appellants Jules and Eileen Pearlstine leased a one-story building located in Clementon, New Jersey to the United States and United States Postal Service for a period of fifteen years. On July 11, 1978, the Postal Service advised the Pearlstines of its intent to construct an addition to the leased property. The Pearlstines filed suit on December 1, 1978, seeking injunctive relief against the Postal Service.*fn2 They contended that the new addition would make it physically impossible to restore the building to its original condition, and that this would violate the applicable lease provision and therefore constitute "waste" within the legal meaning of the term.*fn3
Following extensive litigation, the Postal Service, on September 8, 1980, informed the Pearlstines that the proposed project had been abandoned. On September 19, the district court, with the consent of both parties, permanently enjoined the Postal Service "from constructing an addition to the structure of the premises known as the Clementon Post Office." The Pearlstines moved for an award of attorney's fees and costs pursuant to Fed.R.Civ.P. 54(d).*fn4 The district court denied the motion, and the Pearlstines brought this appeal. For the reasons set forth below, we affirm the portion of the judgment denying plaintiffs' request for counsel fees and vacate that portion of the judgment dealing with plaintiffs' request for costs.
In Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S. Ct. 1612, 44 L. Ed. 2d 141 (1975), the Supreme Court reaffirmed the American rule that, in the absence of an explicit statutory exception, a prevailing litigant is not entitled to recover attorney's fees from the losing party. The Court recognized, however, that certain narrow exceptions to the American rule exist. Thus, a court relying upon its inherent equitable powers, may award reasonable attorney's fees "when the losing party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons " 421 U.S. at 258-59, 95 S. Ct. at 1622 (quoting F. D. Rich Co., Inc. v. United States ex rel. Industrial Lumber Co., Inc., 417 U.S. 116, 129, 94 S. Ct. 2157, 2165, 40 L. Ed. 2d 703 (1974)).*fn5
The statute which governs with respect to the award of attorney's fees and costs against the government, 28 U.S.C. § 2412, states:
Except as otherwise specifically provided by statute, a judgment for costs, as enumerated in section 1920 of this title but not including the fees and expenses of attorneys may be awarded to the prevailing party in any civil action brought by or against the United States or any agency or official of the United States acting in his official capacity, in any court having jurisdiction of such action. A judgment for costs when taxed against the Government shall, in an amount established by statute or court rule or order, be limited to reimbursing in whole or in part the prevailing party for the costs incurred by him in the litigation. Payment of a judgment for costs shall be as provided in section 2414 and section 2517 of this title for the payment of judgments against the United States.
(emphasis added). Because the Postal Service is an "independent establishment" of the executive branch of the United States, Postal Reorganization Act, Pub.L. No. 91-375, § 201, 84 Stat. 720 (1970) (codified at 39 U.S.C. § 201 (1976)), and the statutory term "agency," includes an "independent establishment," see 28 U.S.C. § 451, the Postal Service falls within the § 2412 provision. Normally, then, the Postal Service is insulated from awards of attorney's fees.
Plaintiffs argue that the conduct of the Postal Service that brought about this injunctive action was vexatious and obdurate and that the Service's persistence in litigating this matter was founded on a frivolous defense and taken in bad faith.*fn6 See Straub v. Vaisman & Co., Inc., 540 F.2d 591, 598-600 (3d Cir. 1976). They rely on National Association of Letter Carriers v. United States Postal Service, 192 U.S. App. D.C. 55, 590 F.2d 1171 (D.C.Cir.1978), for the proposition that attorney's fees are recoverable against the Postal Service, notwithstanding § 2412, when the actions of the Service were taken in bad faith, vexatiously, wantonly, or for offensive reasons. Reliance on National Association of Letter Carriers, however, is misplaced. There, the Court of Appeals for the District of Columbia held that the actions of the Postal Service in dismissing a letter carrier and subsequently contesting a judicial action for the enforcement of an arbitrator's award did not amount to vexatious or wanton conduct justifying an award of attorney's fees under the equitable power of the court. Id. at 1178. More important, the court noted that because Congress had not expressly waived the immunity of the Postal Service against awards of attorney's fees, an independent bar to such an award existed regardless of bad faith. Id. at 1180. Similarly, other courts of appeals have held that § 2412 does not authorize a judicially fashioned "bad faith" exception for the awarding of attorney's fees against the United States Government, but provides only a limited waiver of sovereign immunity. Gibson v. Davis, 587 F.2d 280, 281-82 (6th Cir. 1978), cert. denied, 441 U.S. 905, 99 S. Ct. 1993, 60 L. Ed. 2d 374 (1979); Rhode Island Com. on Energy v. General Services Administration, 561 F.2d 397, 404-05 (1st Cir. 1977). Therefore, even assuming that the Postal Service acted in bad faith here, in the absence of explicit statutory authority, attorney's fees may not be awarded against it.
The recent Congressional amendment of § 2412, which authorizes the recovery of attorney's fees and expenses by the prevailing party in any civil action or adversary adjudication brought by or against the United States, offers no present succor to the Pearlstines. This is so because the provision does not take effect until October 1, 1981. Equal Access to Justice Act, Pub.L. No. 96-481, § 204(a), 94 Stat. 2327 (Oct. 21, 1980) (to be codified at 28 U.S.C. § 2412(a) & (b)). Under this Act, a court may, in its discretion, award reasonable attorney's fees and expenses to prevailing parties in civil actions involving the United States to the same extent as that which may be awarded against private parties. Thus, the United States Government will in the future be liable for attorney's fees under the "bad faith," "common fund," and "common benefit" exceptions. See H.R.Rep.No.96-1418, 96th Cong., 2nd Sess. 9, reprinted in (1980) U.S.Code Cong. & Ad.News 4953, 4984, 4987. In addition to permitting recovery for attorney fees pursuant to these common law exceptions, the Equal Access to Justice Act further provides for recovery of attorney's fees against the United States in all ...