Opinion
Case No. 1:02-cv-1505-DFH.
August 20, 2004
ENTRY ON PETITIONS FOR COSTS, ATTORNEY FEES, AND INJUNCTION DAMAGES
On August 12, 2003, the court entered a permanent injunction designed to ensure that the Third Street Project in Goshen, Indiana, is funded and stays funded with only local money, without using federal money. Both sides have claimed victory. In light of those claims, one might expect that each side was at least reasonably satisfied with the outcome and that the litigation could come to an end. That expectation would fail to account for the prospect of recovering costs, attorney fees, and injunction bonds. Both the plaintiffs and the City of Goshen claim to have prevailed. Each side wants the other to pay lots of cash.
Presently pending for decision are the City of Goshen's Motion to Recover on Injunction Bond; Goshen's Bill of Costs; and Plaintiffs' Fee Petition and Bill of Costs. As the parties recognize, and as is evident from the fact that both sides can make straight-faced claims to victory, the posture of this case is unusual. As a result, one must take care before applying to this case the general statements of other courts in different contexts. These are matters that ultimately call for the district court to exercise its sound discretion, keeping in mind important presumptions and relevant factors. See Coyne-Delany Co. v. Capital Development Bd., 717 F.2d 385, 390-91 (7th Cir. 1983) (Rule 54(d) and Rule 65(c)).
To summarize the extended discussion below, the court views this case as essentially a tie. Goshen did not prevail, for the court entered a permanent injunction against it. Plaintiffs cannot recover fees under the National Historic Preservation Act, 16 U.S.C. § 470w-4, because that statute does not authorize a fee award against non-federal defendants. Preservation Coalition of Erie County v. Federal Transit Admin., 356 F.3d 444, 455 (2d Cir. 2004). Even if such an award were theoretically available, no award would be appropriate here. Although plaintiffs obtained some relief, it was so limited and so different from the relief they had sought that it would not be equitable to award substantial fees and costs against the City of Goshen or the Indiana Department of Transportation. Accordingly, both sides' petitions for awards of costs, fees, and damages are denied.
Procedural History
The Supreme Court has expressed the hope that a request for attorney fees "should not result in a second major litigation," even in the context of a complex case that presents issues of partial success. Hensley v. Eckerhart, 461 U.S. 424, 437 (1983). As the Seventh Circuit observed recently, however, the Supreme Court's decisions demonstrate that such requests nonetheless require "a meticulous analysis of the `particular judgments and orders entered in a case.'" Palmetto Properties, Inc. v. County of DuPage, 375 F.3d 542, 543 (7th Cir. 2004), quoting McGrath v. Toys "`R" Us, Inc., 356 F.3d 246, 253 (2d Cir. 2004), and citing Buckhannon Board Care Home, Inc. v. West Virginia Dep't of Health and Human Resources, 532 U.S. 598, 603 (2001).
This case has been the subject of three decisions on the merits: Old Town Neighborhood Ass'n v. Kauffman, 2002 WL 31741477 (S.D. Ind. Nov. 15, 2002) (" Old Town I") (issuing preliminary injunction against further construction on Third Street Project); Old Town Neighborhood Ass'n v. Kauffman, 333 F.3d 732 (7th Cir. 2003) (" Old Town II") (remanding for entry of different injunctive relief); and Old Town Neighborhood Ass'n v. Kauffman, 2003 WL 22004870 (S.D. Ind. Aug. 12, 2003) (" Old Town III") (entering permanent injunction against Goshen and InDOT, and dismissing federal defendants for lack of a ripe claim). Readers interested in further details will find many in those pages. For present purposes, this summary should suffice.
Plaintiffs Old Town Neighborhood Association, Inc. and Historic Landmarks Foundation of Indiana, Inc. are not-for-profit corporations that seek to promote historic preservation in Goshen and in Indiana. They filed this action on October 1, 2002 and sought a preliminary injunction to halt construction on the Third Street Project, which was a project to widen a six-block stretch of Third Street and Madison Street in a historic district in downtown Goshen. The Third Street Project was designed to provide an alternate route for traffic, including commercial trucks and other through-traffic, that would otherwise travel along Main Street, which is also part of the downtown historic district.
The complaint alleged that the City of Goshen, the Indiana Department of Transportation, and the Federal Highway Administration were violating the National Historic Preservation Act, the National Environmental Policy Act, and the Department of Transportation Act by constructing, or allowing or funding the construction of, the Third Street Project. All of plaintiffs' claims were based on the theory that the local, state, and federal defendants had agreed to improperly "segment" the Third Street Project from a larger federally-funded highway construction project by making it appear to be a purely local project that would not be subject to federal environmental and historic preservation review. For relief, the complaint asked that:
a. The Court issue a preliminary and permanent injunction prohibiting the Defendants from proceeding with any construction of the Madison/Third Leg, and prohibiting the FHWA and InDOT from providing assistance with respect to transportation projects within the City, until there has been complete compliance with the provisions of Section 106 of the NHPA, Section 4(f) of the Transportation Act, and NEPA; and
b. The Court issue such other and further relief as it may deem necessary and proper, including awarding Old Town and Historic Landmarks their attorneys' fees pursuant to 16 U.S.C. § 470w-4 and the costs of bringing this action.
After an evidentiary hearing, the court found that plaintiffs were likely to prevail on the merits of their "segmenting" claims and were otherwise entitled to preliminary injunctive relief. As an immediate remedy, the court ordered the City of Goshen to stop construction on the Third Street Project unless and until defendants complied with the federal environmental and historic preservation review process.
The City appealed. The parties have differed sharply in their interpretation of the Seventh Circuit's decision. The Seventh Circuit accepted this court's preliminary factual findings for purposes of its decisions but found that a much more limited form of injunctive relief could be sufficient to remedy the alleged violations of federal law, at least if the City was willing to accept certain conditions. The more limited form of injunctive relief would be restrictions on funding for the Third Street Project to ensure that it was and remained entirely local, without using any federal funds, directly or indirectly. Old Town II, 333 F.3d at 736. The Seventh Circuit concluded its opinion by saying: "The preliminary injunction is vacated, and the case is remanded for further proceedings consistent with this opinion." Id. Contrary to the City's arguments, and contrary to the impression one might draw by reading only the last sentence of the Seventh Circuit's opinion, the Seventh Circuit did not itself vacate the preliminary injunction. Nor did the Seventh Circuit give this court an unconditional order to vacate the preliminary injunction.
The Seventh Circuit instead gave a conditional order: If Goshen was willing to give an "ironclad" commitment, which would take the form of consent to a permanent injunction, then the preliminary injunction stopping construction would have to be vacated. Old Town II, 333 F.3d at 736. If the City had not been willing to provide the required "ironclad" commitment to keep the Third Street Project completely local, then the preliminary injunction should have and would have stayed in place. In the words of the Seventh Circuit: "If the City balks at making an ironclad commitment, however, and if as a result federal reimbursement remains in prospect, then the City must keep the work on hold until the conditions of federal support have been satisfied." Id.
Contrary to plaintiffs' arguments, this court does not believe the Seventh Circuit adopted this court's preliminary factual findings. The Seventh Circuit merely assumed the validity of those findings. "For purposes of Goshen's appeal, we take as established all of the district court's factual findings. . . ." 333 F.3d at 734. The Seventh Circuit concluded that the appropriate relief supported by those facts was a much more limited form of relief — relief which plaintiffs had not sought and which the City had not suggested. The Seventh Circuit concluded that the appropriate relief would allow the City to complete the Third Street Project so long as a permanent injunction, enforceable by the court's contempt power, would require the City to avoid using or accepting any federal funds for the Third Street Project, directly or indirectly, and would block defendants from making Third Street part of the national highway system.
With the cooperation of counsel for all parties, the court held an evidentiary hearing on the remand and remaining issues before this court had actually received the mandate. That timing allowed the court to act quickly when the mandate arrived. After the City and its attorneys had read the Seventh Circuit's opinion, the City quickly stated its willingness to agree to its vision of an "ironclad" commitment. Plaintiffs were not satisfied with the City's proposed commitment. The court heard evidence and issued a permanent injunction that was broader than the City had suggested but not as broad as plaintiffs had proposed. See Old Town III, 2003 WL 22004870 at *1. In light of the parties' general agreement to the tenor of the permanent injunction, the court did not attempt to reach definitive and final findings of fact as to matters affecting the merits of plaintiffs' claims. The court also dismissed the plaintiffs' claims against the Federal Highway Administration as not yet ripe. No party appealed the final judgment.
Goshen's Requests
The City of Goshen contends that it is the prevailing party entitled to costs under Rule 54(d). The City seeks $3,374.60 in costs. Also, because the preliminary injunction was ultimately vacated and replaced by a more limited permanent injunction, the City seeks damages against plaintiffs' $10,000 injunction bond on the theory that the City was wrongfully enjoined from construction for about ten months.
These requests founder on two facts. First, the final judgment in this case is a permanent injunction against the City of Goshen. Second, the Seventh Circuit plainly decided that the preliminary injunction should remain in place — unless and until the city provided a sufficiently "ironclad" commitment to keep the Third Street Project completely local, without direct or indirect financial help from the federal government. Until that commitment was made, the injunction blocking construction was justified, based on this court's preliminary findings of fact.
The court fully acknowledges that the Seventh Circuit wrote that "the district court afforded plaintiffs the wrong relief" and "[t]he preliminary injunction is vacated." 333 F.3d at 736. The fact remains, however, that the Seventh Circuit's more complete instructions to this court were to leave the original preliminary injunction in place unless and until the City made a commitment that the City itself had not yet even suggested, let alone embraced: "If the City balks at making an ironclad commitment, however, and if as a result federal reimbursement remains in prospect, then the City must keep the work on hold until the conditions of federal support have been satisfied." In other words, in the "further proceedings consistent with this opinion," if the City had not made the "ironclad commitment," the preliminary injunction keeping the work on hold until the conditions of federal support had been satisfied would have remained in effect.
In the face of the permanent injunction against the City, the court could not conclude that the City is a prevailing party within the meaning of Rule 54(d). The permanent injunction provided some degree of "actual relief on the merits" of plaintiffs' claims and "materially alter[ed] the legal relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff[s]." Farrar v. Hobby, 506 U.S. 103, 111-12 (1992); see also Robinson Farms Co. v. D'Acquisto, 962 F.2d 680, 683 (7th Cir. 1992) (applying the "general rule that whichever party has judgment entered in its favor is the prevailing party," and holding that a seller of produce was prevailing party even though court awarded lesser amount of damages than had been awarded in administrative proceeding that was subject of appeal), citing 10 Wright, Miller Kane, Federal Practice and Procedure: Civil 2d § 2667, at 178 (1983). An injunction in favor of a party ordinarily makes that party a prevailing party for purposes of fee-shifting statutes as well as Rule 54(d). See Buckhannon Board Care Home, 532 U.S. at 605, citing Maher v. Gagne, 448 U.S. 122, 129-30 (1980) (consent decree in favor of plaintiff made her a prevailing party for purposes of fee award). The City has not cited, and the court has not found, any case in which the target of a permanent injunction has been deemed a prevailing party for purposes of Rule 54(d).
The City also is not entitled to damages under the $10,000 preliminary injunction bond. Although the preliminary injunction was ultimately replaced by a much narrower permanent injunction, the fact that the Seventh Circuit left it in place until the City made its new commitment shows that the preliminary injunction was not issued wrongfully. This fact distinguishes this case from Coyne-Delany Co. v. Capital Development Bd., 717 F.2d 385, 392 (7th Cir. 1983), upon which the City relies. In Coyne-Delany, the preliminary injunction against a capital improvement project was vacated in its entirety, and no substitute form of relief was ordered.
In general, "[n]o liability can arise on an injunction bond unless there is a final judgment in favor of the party enjoined." American Bible Society v. Blount, 446 F.2d 588, 594-95 n. 12 (3d Cir. 1971); Meeker v. Stuart, 188 F. Supp. 272, 276 (D.D.C. 1960) ("As to damages on the injunction bond, it is well established that there can be no recovery of damages caused by a preliminary injunction, even if the injunction is set aside, unless final judgment after trial is in favor of the party that has been enjoined.") (emphasis added). Where the final judgment included injunctive relief against the City, there is no basis for awarding damages to the City.
Perhaps if the City had proposed the type of undertaking that the Seventh Circuit later proposed, and if this court had rejected it back in November 2002, the City would be able to claim the injunction was wrongful. But neither the City nor this court had proposed the middle ground that the Seventh Circuit found as a resolution for the case. Those conditions, which are intended to prevent the "two-step" that would have subverted federal laws, include long-term prohibitions on any use of the Third Street corridor as part of the National Highway System. They also include prohibitions on other indirect efforts to obtain federal funding — which had previously been obligated — to pay the City for its work on the Third Street project. The City did not indicate a willingness to abide by those conditions before the Seventh Circuit ruled, and even after the Seventh Circuit ruling, the City was proposing an undertaking that was considerably narrower than this court ultimately required in the form of compliance with the terms of the permanent injunction.
In Coyne-Delany, the Seventh Circuit wrote: "A good reason for not awarding such damages would be that the defendant had failed to mitigate damages." 717 F.2d at 392. One way to look at the problem here is that the City failed to mitigate its damages by proposing the narrower form of relief that the Seventh Circuit found to be appropriate in this case. See also In re Aimster Copyright Litigation, 334 F.3d 643, 655 (7th Cir. 2003) (defendant waived objection to scope of injunction by failing to suggest alternative language in the district court or court of appeals).
When the Seventh Circuit's decision is read in full, its conclusions were (a) that the parties and the court should have recognized earlier the solution that the Seventh Circuit saw, but (b) the preliminary injunction was not inappropriate and should stay in place until the City consented to a permanent injunction sufficiently tight to bar the use of federal money or other steps that would federalize the Third Street Project. The City argues that it was wrongfully enjoined because it "had the right all along to do what it was enjoined from doing." City Br. (Docket No. 105) at 6, quoting Nintendo of America, Inc. v. Lewis Galoob Toys, Inc., 16 F.3d 1032, 1036 (9th Cir. 1994). In this case, however, the City had the right to build the Third Street Project only under conditions that the City was not willing to accept until after the remand to this court. Only when the court issued its Permanent Injunction imposing those conditions, and the City accepted those conditions by choosing not to appeal that injunction, did the City secure the right to do what it had been enjoined from doing.
Under these circumstances, the City is not entitled to an award of costs under Rule 54(d) or an award of damages pursuant to Rule 65(c) for a wrongful injunction.
Plaintiffs' Fee Petition and Bill of Costs
The financial stakes are considerably higher on plaintiffs' fee petition and bill of costs. Plaintiffs seek attorney fees of $229,803.38 and costs of $3,588.00, as well as prejudgment interest on fees. Plaintiffs argue that they are the prevailing parties because they obtained the permanent injunction against the City and the Indiana Department of Transportion, and because the injunction prevents the intended swap of Third Street for U.S. Highway 33 that would have violated the National Historic Preservation Act (NHPA). Goshen argues that it is really the prevailing party under the NHPA, though the court disagrees for reasons set forth above.
The NHPA authorizes fee awards to a person who "substantially prevails" in an action to enforce the act. 16 U.S.C. § 470w-4. The City contends that the NHPA does not authorize a fee award against state and local defendants, but only against federal agencies. The Second Circuit recently agreed with that view in Preservation Coalition of Erie County v. Federal Transit Admin., 356 F.3d 444, 455 (2d Cir. 2004) (affirming historic preservation group's right to recover fees under NHPA from federal agency, but vacating fee award against state agencies). This court agrees, and that finding bars plaintiffs' fee petition.
Drawing on authority under 42 U.S.C. § 1988, plaintiffs contend that the City and the Indiana Department of Transportation should be held liable for fees because they acted jointly with federal officials to violate the NHPA. This court has not stated a final conclusion as to whether such joint action to violate the NHPA occurred here. However, the Second Circuit faced such joint action in Preservation Coalition of Erie County, and the court held squarely that the NHPA authorized a fee award only against the federal agency. See 356 F.3d at 447-49 (describing joint efforts of federal, state, and local officials to develop harbor project).
Even if plaintiffs were able to show that Preservation Coalition of Erie County was wrongly decided on this issue, they still would not be entitled to a fee award in this case. The most general test for prevailing party status under federal fee-shifting statutes is in Farrar v. Hobby, 506 U.S. 103, 111-12 (1992): "The plaintiff must obtain an enforceable judgment against the defendant from whom fees are sought, or comparable relief through a consent decree or settlement. . . . In short, a plaintiff `prevails' when actual relief on the merits of his claim materially alters the legal relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff." Plaintiffs have in fact secured an enforceable judgment against the City and the state agency. They thus satisfy the essential criteria for prevailing party status.
Such status, however, does not automatically guarantee a fee recovery where there is a substantial difference between the relief plaintiffs sought and the relief they ultimately obtained. In Farrar, the Supreme Court instructed district courts to exercise their discretion in making fee awards in such cases. "In some circumstances, even a plaintiff who formally `prevails' under § 1988 should receive no attorney's fees at all. A plaintiff who seeks compensatory damages but receives no more than nominal damages is often such a prevailing party." 506 U.S. at 115. The Court in Farrar affirmed the denial of a fee award to a civil rights plaintiff who sought compensatory damages but was awarded only nominal damages.
In addition, in cases that result in a nominal damage award or a damage award that is minimal in relation to the amount of damages sought, the Seventh Circuit employs a three-part test from Justice O'Connor's concurrence in Farrar to determine whether a prevailing party achieved enough success to be entitled to a fee recovery. Simpson v. Sheahan, 104 F.3d 998, 1001 (7th Cir. 1997). The "relevant indicia of success" in such cases are: (1) the difference between the judgment recovered and the recovery sought; (2) the significance of the legal issue on which the plaintiff prevailed; and (3) the public purpose served by the litigation. The first factor bears the most weight, and the second factor bears the least. Id.
With regard to the first Farrar factor, the Seventh Circuit has observed that recovery of less than 10 percent of the initial demand is a good reason to curtail the fee award substantially. Cole v. Wodziak, 169 F.3d 486, 489 (7th Cir. 1999). The injunctive relief in this case was more than nominal. That much is shown by the parties' battles over the precise scope of the permanent injunction even after the Seventh Circuit had issued its decision. Yet contrary to plaintiffs' characterization, the permanent injunction was more than "slightly different" from the relief requested. See Pl. Br. at 12. The permanent injunction was only a shadow of what the plaintiffs sought originally, and to which most of their efforts were directed.
The relief plaintiffs sought was an order permanently "prohibiting the Defendants from proceeding with any construction of the Madison/Third Leg, and prohibiting the [Federal Highway Administration] and [Indiana Department of Transportation] from providing assistance with respect to transportation projects within the City, until there has been complete compliance with the provisions of Section 106 of the NHPA, Section 4(f) of the Transportation Act, and NEPA." The relief plaintiffs obtained in the permanent injunction allows construction of the Third Street project without compliance with those federal statutes by providing a means for ensuring that the project remains (or returns to its former status as) a purely local street project.
The second factor, the legal significance of the issue on which plaintiffs prevailed, does not favor the plaintiffs. In this equitable case, this factor seems to echo the first.
The third factor, the public purpose served by the litigation, requires the court to consider the impact of the final judgment "in terms of vindication of rights and deterrence of future violations." Simpson v. Sheahan, 104 F.3d at 1002. This factor weighs in favor of plaintiffs, but not heavily. The Seventh Circuit's remedy, which allowed the Third Street Project to go forward but without federal funding, arguably is a hollow victory for plaintiffs. The public interests in environmental protection and historic preservation addressed by NEPA, NHPA, and the FHA were not, in the end, vindicated. The main public interest vindicated was, at most, an interest in denying federal funding to potentially damaging state projects.
In addition, as part of this third factor and the goal of deterrence, the court must note that the City of Goshen has never conceded that this court was correct in evaluating the evidence and finding that plaintiffs were likely to prove an unlawful agreement to "segment" the Third Street Project from a larger federal project. Nor did this court make a final decision that those preliminary findings about probabilities were ultimately correct. From the City's perspective, construction on the project was enjoined for no good reason. That delay caused considerable expense and inconvenience to the City and its citizens. After the remand, the City was anxious to get started on construction under the conditions proposed by the Seventh Circuit. At the same time, the City wanted to fight this court's preliminary findings. A prolonged battle on the merits of those factual findings would have caused further delay and expense. The result was a more or less tacit compromise in which both sides decided they could live with the terms of the permanent injunction issued by the court, without any final and definitive ruling on the facts underlying the segmentation claim. As a result, the impact or deterrence of the permanent injunction are not as great as they might otherwise have been.
In combination, the great disparity between the relief plaintiffs sought and the relief they obtained, and the compromise character of the final decision, without any final resolution of the factual disputes, persuade the court that any substantial fee award in favor of plaintiffs would not be fair here, even if the NHPA would authorize a fee award against the state and local defendants. As noted at the outset, the court views the final outcome of this case as essentially a tie, and each side should bear its own costs and attorney fees.
Accordingly, the court hereby denies plaintiffs' petition for attorney fees and bill of costs, as well as the City of Goshen's petition for a cost award and motion for damages on the preliminary injunction bond.
So ordered.