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Title Taucher v. Brown-Hruska

Argued October 8, 2004 Decided January 28, 2005

Subject Business

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 8, 2004 Decided January 28, 2005

No. 04-5026

Frank Taucher, et al.,

Appellees

Sharon Brown-Hruska, Acting CFTC Chairman, et al.,

Appellants

Appeal from the United States District Court

for the District of Columbia

(No. 97cv01711)

William S. Liebman, Assistant General Counsel, Commod-

ity Futures Trading Commission, argued the cause for appel-

lants. With him on the briefs was Kirk T. Manhardt, Deputy

General Counsel.

Scott G. Bullock argued the cause for appellees. With him

on the brief was William H. Mellor.

Before: EDWARDS, HENDERSON, and ROBERTS, Circuit

Judges.

Opinion for the Court filed by Circuit Judge ROBERTS.

Dissenting opinion filed by Circuit Judge EDWARDS.

ROBERTS, Circuit Judge: After a federal district court

declared a portion of the Commodity Exchange Act unconstitu-

tional, the prevailing parties sought attorneys' fees under the

Equal Access to Justice Act. A magistrate judge concluded that

the Commodity Futures Trading Commission's defense of the

Act was not substantially justified, and accordingly awarded

fees to the challengers. On appeal we reject the Commission's

argument that it should not be held liable for fees because it was

obligated to defend the statute, but we also conclude that the

Commission's defense was a reasonable one on the merits.

Accordingly, we reverse and vacate the award of attorneys' fees.

A. Congress enacted the Commodity Exchange Act (CEA),

Pub. L. No. 74-675, 49 Stat. 1491 (1936), in an effort to combat

fraudulent practices affecting the commodity futures market.

Section 4m of the CEA as amended, see Commodity Futures

Trading Act of 1974, Pub. L. No. 93-463, 88 Stat. 1389, 1398,

makes it unlawful for any commodity trading advisor (CTA) "to

make use of the mails or any means or instrumentality of

interstate commerce in connection with his business as a

commodity trading advisor" unless the CTA is registered under

the Act. 7 U.S.C. § 6m(1). Registration is burdensome; those

applying to register must submit a substantial amount of

background information, renew their registrations annually,

maintain books and records for inspection, and undertake

mandatory ethics training. See id. § 6n; 17 C.F.R. §§ 3.10, 3.34

(1997). The Commodity Futures Trading Commission (CFTC),

which implements the Act, can deny, revoke, or suspend

registration for a wide variety of reasons. See 7 U.S.C.

§ 12a(2)(A)(H). It also has discretionary authority to deny

registration for "good cause," § 12(a)(3)(M), which can be based

on a pattern of conduct by the applicant indicating "moral

turpitude, or lack of honesty," even if such conduct has never

been the subject of a formal action or proceeding. 7 C.F.R. pt.

3, app. A (interpreting § 12(a)(3)(M)).

The statutory definition of a CTA subject to these provi-

sions sweeps broadly. It includes those who "for compensation

or profit . . . advise others, either directly or through publica-

tions, writings, or electronic media, as to the value of or the

advisability of trading in" commodity futures or "issue or

promulgate analyses or reports concerning" trading in com-

modity futures. 7 U.S.C. § 1a(6)(A). There is an exemption for

"any news reporter, news columnist, or news editor of the print

or electronic media," id. § 1a(6)(B)(ii), but only if their activities

relating to commodity futures are "solely incidental to the

conduct of their business or profession," id. § 1a(6)(C). The

consequences of acting as an unregistered CTA are not trifling:

willfully violating Section 4m is a felony punishable by a

maximum fine of $500,000 for individuals and as much as five

years' imprisonment, id. § 13(a)(5), and unregistered CTAs risk

civil penalties of $100,000 or triple their monetary gains,

whichever is greater. Id. § 9.

B. On July 30, 1997, certain publishers providing informa-

tion, analyses, and advice on commodity futures trading filed

suit against the chairman and commissioners of the CFTC in

their official capacities. Joined by customers who purchased

their publications, these plaintiffs sought a declaration that the

registration provision was unconstitutional under the First

Amendment. The publishers did not dispute that they qualified

as CTAs under the statutory scheme. After all, they offered

advice on trading in commodity futures through newsletters,

books and trading course manuals, Internet-based information

services, and software programs. Although the publishers could

be considered part of the print or electronic media for purposes

of the exemption in 7 U.S.C. § 1a(6)(B), commodity trading

advice was central rather than "incidental" to their businesses,

and accordingly they could not qualify for the exemption. See

id. § 1a(6)(c). Each publisher employed a trading system based

on technical analysis of commodity price levels and historic

trends. The publisher's system played a central role across the

spectrum of publications, forming the basis for tips in newslet-

ters and serving as the backbone of software programs generat-

ing trading recommendations based on current market data. See,

e.g., Taucher v. Born, 53 F. Supp. 2d 464, 46667 (D.D.C.

1999) ("Taucher I") (describing a publisher's use of his trading

system in his newsletter, book, trading course, and software

program).

The publishers' argument was not that they were not

covered by the statute, but instead that their various publications

were protected under the First Amendment and that the registra-

tion requirement constituted a prior restraint on speech prohib-

ited by that Amendment. After rejecting the CFTC's motion to

dismiss and the plaintiffs' motion for summary judgment, the

district court held a three-day bench trial. In a memorandum

opinion and order issued the following month, the court entered

judgment in favor of the plaintiffs, declaring the registration

requirement unconstitutional as applied to the publishers. Id. at

48283.

The district court first addressed whether Section 4m was

a regulation of speech triggering First Amendment scrutiny or

was merely a regulation of a profession -- that of commodity

trading advisor -- subject to rational basis review. As the court

explained, " t his is a question with which courts have struggled

in the past in an effort to articulate a principled way of distin-

guishing between the two kinds of regulations." Id. at 47677.

The court looked to Justice Jackson's concurring opinion in

Thomas v. Collins, 323 U.S. 516 (1945), which noted that while

regulation of speech and regulation of a profession "may shade

into" one another, "a rough distinction always exists, . . . which

is more shortly illustrated than explained." Id. at 544 (Jackson,

J., concurring). The district court quoted Justice Jackson's view

that "modern regulators sought, at times successfully, to regulate

speech by `associating the speaking with some other factor

which the state may regulate so as to bring the whole within

official control.' " Taucher I, 53 F. Supp. 2d at 479 (quoting

323 U.S. at 547). " I t is the court's duty to `inquire whether

the speech or publication is properly condemned by associa-

tion.' " Id. (same).

The district court also sought guidance from Lowe v. SEC,

472 U.S. 181 (1985), in which the Supreme Court addressed a

First Amendment challenge to a registration requirement for

securities investment advisors under the Investment Advisors

Act (IAA). The Lowe majority did not reach the constitutional

question, finding that the plaintiffs fell within a statutory

exemption for the press. See id. at 211. Relying on the legisla-

tive history underlying the exemption, the Supreme Court

construed it as reaching those whose investment advice was not

personalized for clients. See id. at 20311. Although the

majority in Lowe did not reach the constitutional question, the

district court looked to Justice White's separate opinion concur-

ring in the result. Justice White did not think the exemption

could be construed to cover the plaintiffs, but would have found

the registration requirement an unconstitutional prior restraint of

speech as applied to them. He found Justice Jackson's concur-

rence in Thomas "instructive" in "help ing to locate the point

where regulation of a profession leaves off and prohibitions on

speech begin." Id. at 23132 (White, J., concurring in the

result). Justice White reasoned that where there was no

"personal nexus between professional and client" and a speaker

does not exercise judgment on behalf of that client, "government

regulation ceases to function as legitimate regulation of profes-

sional practice . . . and becomes regulation of speaking or

publishing as such" subject to heightened scrutiny under the

First Amendment. Id. at 232.

Finding that the publishers here never exercised judgment

or traded commodity futures on behalf of clients and had no

personal contact with them, the district court concluded that the

registration requirement was a regulation of speech when

applied to the plaintiffs. Taucher I, 53 F. Supp. 2d at 47879.

Rejecting the claim that the dispute involved commercial speech

entitled to lesser First Amendment protection, the court then

concluded that the registration scheme was an unconstitutional

prior restraint. Id. at 48082. The CFTC appealed the district

court's decision, but later agreed to dismiss its appeal because

of a new regulation it had promulgated exempting persons like

the plaintiff-publishers from registration requirements. See 17

C.F.R. § 4.14(a)(9) (2000).

C. With its merits victory secured, the plaintiffs' pro bono

counsel, a public interest law firm, sought to recover attorneys'

fees pursuant to the Equal Access to Justice Act (EAJA), 28

U.S.C. § 2412. That Act authorizes an award of fees to a party

prevailing against the government unless the government's legal

position is "substantially justified or . . . special circumstances

make an award unjust." 28 U.S.C. § 2412(d)(1)(A). The district

court referred the matter to a magistrate judge, who correctly

read "substantially justified" to mean "justified to a degree that

could satisfy a reasonable person" or otherwise having "a

reasonable basis both in law and fact." Taucher v. Rainer, 237

F. Supp. 2d 7, 11 (D.D.C. 2002) ("Taucher II") (quoting Pierce

v. Underwood, 487 U.S. 552, 565 (1988)). The magistrate judge

spent the bulk of his opinion explaining that Section 4m was

" u nquestionably" a prior restraint on speech, and that defen-

dants "utterly failed to overcome" the weighty presumption

against its validity by casting the registration scheme as a

content-neutral regulation advancing important governmental

interests unrelated to the suppression of speech. Id. at 1112.

In a more summary fashion, the magistrate judge rejected

the substantiality of the CFTC's argument that Section 4m was

a regulation of a profession that did not implicate the First

Amendment in the first place. The magistrate judge regarded

the difference between "a professional's advice to a client and

a writer's advice to whoever will read her and use it" as "so self-

evident and obvious that the defendants' ignoring it cannot be

justified." Id. at 15. Finally, the magistrate judge rejected the

argument that the CFTC was excused from paying fees because

it had the duty to defend -- and the inability to question -- the

constitutionality of Section 4m. Id. Having concluded that the

CFTC was liable for fees under EAJA, the magistrate judge

awarded plaintiffs' counsel $182,425.55 in fees in a subsequent

decision. Taucher v. Rainer, 292 F. Supp. 2d 111, 125 (D.D.C.

2003).

The CFTC appeals the magistrate judge's holding that its

position was not substantially justified under EAJA and chal-

lenges the amount of fees awarded.

II.

We review a district court's conclusion on substantial

justification only for abuse of discretion, even when the district

court's judgment turns on an evaluation of questions of law.

Underwood, 487 U.S. at 560. We have explained, however, that

"our deference does not exempt the district court's substantial

justification determination from appellate scrutiny." F.J.

Vollmer Co. v. Magaw, 102 F.3d 591, 596 (D.C. Cir. 1996)

(finding abuse of discretion); see Halverson v. Slater, 206 F.3d

1205 (D.C. Cir. 2000) (same). "We will reverse the district

court if its decision rests on clearly erroneous factual findings or

if it leaves us with a definite and firm conviction that the court

below committed a clear error of judgment in the conclusion it

reached upon a weighing of the relevant factors." F.J. Vollmer,

102 F.3d at 596 (internal quotation marks omitted).

EAJA provides, in relevant part, that "a court shall award to

a prevailing party other than the United States fees and other

expenses . . . incurred by that party in any civil action . . . unless

the court finds that the position of the United States was

substantially justified or that special circumstances make an

award unjust." 28 U.S.C. § 2412(d)(1)(A). Although the CFTC

questions whether the subscriber-plaintiffs were prevailing

parties -- the district court found it unnecessary to consider their

claims as distinct from the publishers' claims -- it is undisputed

that the publishers prevailed in the merits litigation. Once an

applicant's status as a prevailing party is established, the

government has the burden of showing that its legal position was

substantially justified or that special circumstances make an

award unjust. Air Transp. Ass'n of Canada v. FAA, 156 F.3d

1329, 1332 (D.C. Cir. 1998).

The government's position is substantially justified if it is

"justified to a degree that could satisfy a reasonable person" or,

in other words, has "a reasonable basis both in law and fact."

Underwood, 487 U.S. at 565 (internal quotation marks omitted).

Although the strength of the government's position in the

litigation obviously plays an important role in a substantial

justification evaluation, the reasonableness inquiry "may not be

collapsed into an antecedent evaluation of the merits, for

EAJA sets out a distinct legal standard." Cooper v. United

States R.R. Ret. Bd., 24 F.3d 1414, 1416 (D.C. Cir. 1994)

(internal quotation marks omitted). The statutory structure

assumes that the government can lose on the merits and never-

theless be found to have taken a substantially justified position.

Underwood, 487 U.S. at 569. See De Allende v. Baker, 891 F.2d

7, 12 (1st Cir. 1989) ("The mere fact that the government lost in

the underlying litigation does not create a presumption that its

position was not substantially justified."). "To be `substantially

justified' means, of course, more than merely undeserving of

sanctions for frivolousness," Underwood, 487 U.S. at 566, but

at the same time the standard does not "require the Government

to establish that its decision to litigate was based on a substantial

probability of prevailing." Spencer v. NLRB, 712 F.2d 539, 557

(D.C. Cir. 1983) (quoting H.R. Rep. No. 96-1418, at 1011

(1980)).

Here as in other areas courts need to guard against being

"subtly influenced by the familiar shortcomings of hindsight

judgment." Beck v. Ohio, 379 U.S. 89, 96 (1964). Cf.

Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 42122

(1978) (courts must "resist the understandable temptation to

engage in post hoc reasoning by concluding that, because a

plaintiff did not ultimately prevail, his action must have been

unreasonable or without foundation"). Not all opinions can

aspire to what was said of those of Justice Brandeis -- that in

them "the right doctrine emerges in heavenly glory and the

wrong view is consigned to the lower circle of hell," HENRY J.

FRIENDLY, Mr. Justice Brandeis -- The Quest for Reason, in

BENCHMARKS 291, 294 (1967) -- but there is always the hope

that, after decision, the "wrong view" looks considerably less

plausible than it did before. But just as discovery of contraband

does not establish probable cause, nor an accident negligence,

nor poor returns an imprudent trustee, so too a loss on the merits

does not mean that legal arguments advanced in the context of

our adversary system were unreasonable.

Our EAJA jurisprudence reflects this principle. It "requires

that the district court do more than explain, repeat, characterize,

and describe the merits . . . decision." Halverson, 206 F.3d at

1209. Courts evaluating substantial justification must instead

analyze why the government's position failed in court: if, for

example, the government lost because it vainly pressed a

position "flatly at odds with the controlling case law," Am.

Wrecking Corp. v. Sec. of Labor, 364 F.3d 321, 32627 (D.C.

Cir. 2004) (internal quotation marks omitted), that is one thing;

quite another if the government lost because an unsettled

question was resolved unfavorably. See United States v.

Hallmark Constr. Co., 200 F.3d 1076, 1080 (7th Cir. 2000) ("the

district court must reexamine the legal and factual circumstances

of the case from a different perspective than that used at any

other stage of the proceeding").

III.

The CFTC's first argument was presented to the district

court not under the guise of "substantial justification" at all, but

instead as a "special circumstance" making the award of fees

"unjust" in this case. See 28 U.S.C. § 2412(d)(1)(A). The

CFTC argued that it had a duty to defend the constitutionality of

Section 4m, and that it would be unjust to award fees against it

simply for faithfully undertaking this duty. See Taucher II, 237

F. Supp. 2d at 15. On appeal, the CFTC merged this contention

with its substantial justification claim. See Reply Br. at 16

("The Commission understands that it still must pass the

substantial justification test.").

The CFTC argues that the merits suit is best seen not as a

challenge to a discretionary agency action directed against any

particular plaintiff, but rather an attack on the validity of a

congressionally enacted statute as applied to the plaintiffs. The

CFTC argues -- and the district court agreed -- that unlike the

situation in Lowe, the statutory scheme at issue here does not

lend itself to an interpretation exempting the plaintiffs from

registration. See Taucher I, 53 F. Supp. 2d at 47576 (conclud-

ing Section 4m applied to publisher-plaintiffs). In other words,

the judgment that these publishers should register was made by

Congress, not the CFTC. The CFTC notes that acts of Congress

are presumed to be constitutional, see, e.g., United States v.

Morrison, 529 U.S. 598, 607 (2000), and that administrative

agencies generally do not have jurisdiction to question the

constitutionality of their governing statutes. See, e.g., Thunder

Basin Coal Co. v. Reich, 510 U.S. 200, 215 (1994); Oestereich

v. Selective Serv. Sys. Local Bd. No. 11, 393 U.S. 233, 242

(1968) (Harlan, J., concurring in result).

From these premises, however, the CFTC draws a suspect

conclusion: that its inability to question the presumptive

constitutionality of Section 4m renders its position substantially

justified under EAJA. It seeks support for this conclusion in the

following observation, made by this court two decades ago:

T he prospect of judicial review of legislation for constitu-

tionality does not relieve Congress of the obligation to self-

police its measures for compatibility with the Constitution.

Therefore, situations in which the government's defense of

the constitutionality of a federal statute fails the "substan-

tially justified" test should be exceptional.

Grace v. Burger, 763 F.2d 457, 458 n.5 (D.C. Cir. 1985)

(emphasis added). The CFTC argues that because it has a duty

to execute faithfully the laws passed by Congress, it should not

be penalized for undertaking that constitutional obligation. See

Kiareldeen v. Ashcroft, 273 F.3d 542, 549 (3d Cir. 2001) ("We

conclude that the Executive Branch is duty-bound to defend

what Congress has enacted, and was therefore substantially

justified in defending the constitutionality of this statute.").

Circuit precedent provides no support for the Commission's

duty-to-defend argument. Rather than promulgating the rule the

CFTC proposes, the underscored language from our footnote in

Grace simply emphasizes that this court presumes that Congress

typically attends to its obligation to legislate within the bounds

of the Constitution. Indeed, the text to which footnote 5 was

appended explained that "we do not rule . . . that the government

is forever and always `substantially justified' in defending in

court the constitutionality of an act of Congress, whatever the

statute may say, and on any ground a legal mind might con-

ceive." 763 F.2d at 458. See also League of Women Voters v.

FCC, 798 F.2d 1255, 1259 (9th Cir. 1986) ("neither the lan-

guage of the EAJA nor its legislative history support . . .

exceptions for constitutional attacks on statutes"). The CFTC's

duty to defend the constitutionality of Section 4m explains, at

most, why the CFTC took the position it did. The question

under EAJA remains whether that position was substantially

justified.

IV.

The CFTC's main contention is that the district court

abused its discretion in finding the argument that Section 4m

was a valid regulation of a profession rather than a restraint on

speech to be not substantially justified. Focusing on whether the

registration scheme was an unconstitutional prior restraint, the

magistrate judge devoted less attention to the separate and

antecedent question of whether Section 4m was a regulation of

speech that implicated the First Amendment at all. See Taucher

II, 237 F. Supp. 2d at 1215. On that question, the magistrate

judge wrote that refusing to appreciate the difference between

brokers giving advice to clients and the publication of a newslet-

ter was "to ignore the cases upon which the district court relied

that discuss the distinction between a professional's advice to a

client and a writer's advice to whoever . . . will read her and use

it." Id. at 1415. According to the magistrate judge, this

difference was "self-evident and obvious." Id. at 15.

In considering substantial justification under EAJA,

however, it is not enough to repeat the analysis of the merits

decision, and add adjectives. See Halverson, 206 F.3d at 1209;

F.J. Vollmer, 102 F.3d at 596. " T he district court must

analyze the merits . . . reasoning to determine whether the

government's position, though rejected, was substantially

justified." Halverson, 206 F.3d at 1209. Here such an analysis

of the merits reasoning might begin with the fact that "the cases

upon which the district court relied" consist of two concurring

opinions. Well reasoned, to be sure, and perhaps ultimately

persuasive, but -- to paraphrase the Supreme Court's dismissal

of non-majority views in another case -- the comments in the

concurring opinions are just that: comments in concurring

opinions. See United States R.R. Ret. Bd. v. Fritz, 449 U.S. 166,

177 n.10 (1980).

What is more, while the magistrate judge found the distinc-

tion drawn in the two concurrences "self-evident and obvious,"

Taucher II, 237 F. Supp. 2d at 15, the concurring opinions

themselves belie that assertion. Justice Jackson acknowledged

that the distinction between permissible regulation and unconsti-

tutional suppression of speech was a "rough" one, with the two

areas "shad ing " into one another, and that the distinction was

"more shortly illustrated than explained." Thomas, 323 U.S. at

544 (concurring opinion). Justice Jackson's analysis highlighted

the fact-specific nature of the inquiry, noting that a court can

draw the pertinent line only after deciding whether the speech

has been "properly condemned by association" with a non-

speech factor open to state regulation. Id. at 547. "Whether in

a particular case the association or characterization is a proven

and valid one," Justice Jackson acknowledged, "often is difficult

to resolve." Id. Justice White recognized that Justice Jackson

"wrestled" with the issue, and that the question was a line-

drawing one of "locat ing the point where regulation of a

profession leaves off and prohibitions on speech begin." Lowe,

472 U.S. at 23132 (concurring opinion). Hardly the language

of a "self-evident and obvious" distinction.

Nor is there any indication that the district court judge

regarded the matter as so open-and-shut as did the magistrate

judge. The former's opinion lacks the adjectives that populate

the latter's; the district judge appreciated that the distinction the

magistrate judge found "so self-evident and obvious" was one

"with which courts have struggled in the past." Taucher I, 53 F.

Supp. 2d at 476. The district court also appreciated that the

Lowe concurrence was "perhaps not conclusive" and only

"instructive" on how to draw the line between regulation of a

profession and regulation of speech. Order Den. Pls.' Mot. for

Summ. J. (Jan. 14, 1999) at 2 JA 56 . The district court did not

regard the Lowe concurrence as stating a well-established rule;

the Justices who joined it were instead "searching for a way to

distinguish between the regulation of a profession and the

regulation of speech." Id.

The plaintiffs argue, however, that because the Lowe

majority "clearly implied" that the IAA registration scheme

would have been unconstitutional had it been "applied to . . .

impersonal investment advisers," Lowe dictates that the CEA

registration scheme violates the First Amendment. Br. at 17

(citing 472 U.S. at 210). The district court's merits opinion

drew a similar inference, reasoning that the Lowe majority -- in

construing the IAA as it did to avoid a conflict with the First

Amendment -- "alluded to the correctness" of a conclusion that

Section 4m was unconstitutional. Taucher I, 53 F. Supp. 2d at

48182. Such "allusions" are properly the stuff from which to

draw guidance in resolving open legal questions, but the very

fact that such inferences must be drawn confirms the absence of

controlling legal authority. After all, the whole point of the

constitutional avoidance in which the Lowe majority expressly

engaged, see 472 U.S. at 190 & n.24, is to avoid deciding the

constitutional question. It is a bit much to argue that the Lowe

majority provided constitutional guidance so clear that fees

should be awarded against those who failed to heed it, even

under a different statute regulating a different business than the

one at issue in Lowe, when the basis for the opinion was the

need to avoid a constitutional decision altogether. The Lowe

majority opinion, while helpful and apposite, did not govern the

disposition of the case. See CFTC v. Vartuli, 228 F.3d 94,

10405 (2d Cir. 2000) ("Lowe provides us with neither a binding

interpretation of the CEA . . . nor a constitutional analysis of

the IAA ").

Moreover, the magistrate judge was wrong to suggest that

the defendants "ignore d " the cases on which the district court

had relied. The defendants confronted the guidance the district

court sought from Lowe head on, and attempted to distinguish it.

Relying heavily on the IAA's legislative history, the Lowe

majority explained that the IAA was meant to cover "the

business of rendering personalized investment advice," not

"nonpersonalized publishing activities." 472 U.S. at 204. The

defendants explained that the difference between a traditional

personalized trader and a publisher specializing in trading advice

is markedly less sharp in the commodity futures business than

in the securities market addressed by Lowe. In the commodity

futures market, the relationship between trader and client is quite

impersonal. CTAs are rarely in contact with their clients. They

generally do not obtain detailed financial information from

clients, evaluate the suitability of clients to engage in trading, or

communicate trading advice. Transactions are rarely pre-

approved by individual clients and rarely tailored to their needs.

See Taucher I, 53 F. Supp. 2d at 46566 (factual findings on the

CTA-client relationship).

Securities and commodity futures trading are similar

enough to invite comparison, but the differences between the

two markets render any analogy less than airtight. This consid-

eration is particularly weighty when reviewing the reasonable-

ness of the government's position in litigation over the bound-

aries between permissible economic regulation and unconstitu-

tional infringement on speech rights -- disputes in which factual

distinctions concerning the nature of particular markets can

carry the day. Compare, e.g., Glickman v. Wileman Bros. &

Elliott, Inc., 521 U.S. 457 (1997) (upholding the constitutional-

ity of a mandatory advertising fee -- for peaches -- against

First Amendment challenge because pertinent market was

comprehensively regulated) with United States v. United Foods,

Inc., 533 U.S. 405 (2001) (striking down a similar mandatory

advertising fee on First Amendment grounds because market --

for mushrooms -- was not as pervasively regulated as the one

in Glickman).

In the absence of controlling Supreme Court case law, the

available circuit precedent becomes more significant in consid-

ering substantial justification under EAJA. During pre-litigation

enforcement of Section 4m and when the plaintiffs filed suit, the

only appellate decision addressing the constitutionality of

requiring a publisher of a commodity futures newsletter to

ment challenge. See Savage v. CFTC, 548 F.2d 192, 19798

(7th Cir. 1977). The argument considered and rejected in

Savage was that

a statutory requirement that a license be obtained in order

to publish information and opinions regarding the commod-

ities markets is an unwarranted impairment of First Amend-

ment rights of freedom of speech and press; that the First

Amendment covers newsletters even though they are

published in anticipation of economic gain; and that prior

restraints are presumed illegal especially where, as here, the

Commission seeks to prohibit publication of a newsletter

without any evidence whatsoever that it was used in a

deceptive or fraudulent manner.

Id. at 196.

The plaintiffs argue that Savage is distinguishable because

there the plaintiff also had personal contacts with his clients. Br.

at 26 n.3. In rejecting the constitutional challenge, however, the

Savage opinion -- written well before Justice White's concur-

rence in Lowe -- placed no weight whatever on that fact. See

Savage, 548 F.2d at 197. The fact that the Seventh Circuit itself

narrowed a broad reading of Savage after the merits decision

below, see Commodity Trend Serv., Inc. v. CFTC, 233 F.3d 981,

990 (7th Cir. 2000), or suggested such a narrowing during the

merits briefing below, see Commodity Trend Serv., Inc. v.

CFTC, 149 F.3d 679, 686 (7th Cir. 1998), does not alter the

reasonableness of the CFTC's position in this case.

* * *

In sum, when this suit was filed, there was no controlling

Supreme Court authority or D.C. Circuit precedent on the

constitutionality of Section 4m as applied to publishers of

commodity futures trading advice. The only circuit authority --

although arguably distinguishable -- had upheld the provision

in the face of a First Amendment challenge. The theory on

which the publishers relied in arguing that Section 4m was

unconstitutional as applied to them had been articulated not in

a Supreme Court majority opinion but in two separate concur-

rences. These concurrences themselves had recognized that the

line between regulation of a profession and regulation of speech

was not easy to discern. And even if the two concurrences did

state the applicable test, the nature of the commodity futures

market presented a substantial factual basis for supposing that

applying the test might lead to a different result than the one

argued for by the plaintiffs.

Contrast this with cases in which we have found the govern-

ment's position not to be substantially justified. Given the

precedent at the time of litigation, the CFTC's position was

neither "patently flawed" nor "flatly at odds with the controlling

case law." Am. Wrecking Corp., 364 F.3d at 32627 (internal

quotation marks omitted). It was not "obviously insufficient

under well-established precedent," or pressed " i n the face of

an unbroken line of authority." Precision Concrete v. NLRB,

362 F.3d 847, 85152 (D.C. Cir. 2004). The CFTC did not act

in defiance of a "string of losses." Contractor's Sand & Gravel,

Inc. v. FMSHRC, 199 F.3d 1335, 1341 (D.C. Cir. 2000) (internal

quotation marks omitted). See also Halverson, 206 F.3d at 1211

(government's position "entirely without merit"); F.J. Vollmer,

102 F.3d at 596 (government's position "required treating

identical weapons in completely different ways"). Morever,

given the differences between the securities and commodity

futures trading markets, it cannot be said that the CFTC's

argument lacked a reasonable factual basis in the record,

Cooper, 24 F.3d at 141617, even if the Lowe concurrence

governed. We are confident that the CFTC's position -- though

rejected -- was nonetheless "justified to a degree that could

satisfy a reasonable person," Underwood, 487 U.S. at 565, and

that it was an abuse of discretion to conclude otherwise.

The decision of the district court is reversed and the award

of attorneys' fees is vacated.

EDWARDS, Circuit Judge, dissenting: The Equal Access to

Justice Act ("EAJA") provides that:

a court shall award to a prevailing party . . . fees and other

expenses . . . incurred by that party in any civil action . . .

brought by or against the United States . . . unless the court

finds that the position of the United States was substantially

justified or that special circumstances make an award

unjust.

28 U.S.C. § 2412(d)(1)(A) (2000). The Supreme Court's

decision in Pierce v. Underwood, 487 U.S. 552 (1988), clearly

and firmly controls the level of involvement by the courts of

appeals in the application of this statutory provision.

In Underwood, the Court instructed that, in considering

whether the Government's litigating position was "substantially

justified" within the meaning of EAJA, a court of appeals does

not engage in de novo review. Id. at 557-63. Rather, a district

court's judgment that fees are due to a prevailing party under

EAJA is entitled to significant deference under an abuse-of-

discretion standard. Id. Indeed, the Court made it clear that,

even when "the attorney's fee determination . . . involve s a

judgment ultimately based upon evaluation of the purely legal

issue governing the litigation," the district court's judgment is

still subject only to the most limited review. Id. at 560.

In reaching this conclusion, the Court in Underwood was

counseled by considerations of "sound judicial administration."

Id. at 563. Specifically, the Court sought to avoid the "unusual

expense" associated with requiring an appellate court to

"undertake the unaccustomed task of reviewing the entire

record, not just to determine whether there existed the usual

minimum support for the merits determination made by the

factfinder below, but to determine whether urging of the

opposite merits determination was substantially justified." Id.

at 560. The Court indicated that this would be a poor use of

court of appeals resources, because it "will either fail to produce

the normal law-clarifying benefits that come from an appellate

decision on a question of law, or else will strangely distort the

appellate process." Id. at 561. In short, Underwood was quite

plain in saying that the courts of appeals have no business

second-guessing district court determinations whether the

Government's litigating position was "substantially justified"

within the meaning of EAJA.

Thus, under Underwood, a district court's judgment may be

reversed only when the record "commands the conclusion that

the Government's position was substantially justified." Id. at

570-71 (emphasis added). Why such a tight rein on the standard

of review? It is really quite simple. The abuse-of-discretion

standard of review is required because judgments on what is

substantially justified are inherently discretionary and therefore

not reasonably susceptible to more probing review. Id. at 561-

62. In other words, as the Court said in Underwood, the

"substantially justified" formulation admits of no "useful

generalization." Id. at 562. Therefore, "` o ne of the "good"

reasons for conferring discretion on the trial judge is the sheer

impracticability of formulating a rule of decision for the matter

in issue.'" Id. at 561 (quoting Maurice Rosenberg, Judicial

Discretion of the Trial Court, Viewed from Above, 22 SYRACUSE

L. REV. 635, 662 (1971)).

There is no doubt that we are bound to follow the principles

enunciated in Underwood. And adherence to Underwood means

that our review of the District Court's decision is narrow,

limited, and deferential. Under this standard of review, there is

no conceivable way that the record in this case can be seen to

"command" the conclusion that the Government's position was

substantially justified.

* * * *

The merits litigation in this case did not pose a difficult

legal issue. The Commodity Futures Trading Commission

("Commission") had been enforcing a provision under the

Commodity Exchange Act ("CEA"), 7 U.S.C. § 6m(1), that

required all Commodity Trading Advisors ("CTAs") to register.

The disputed legislation provided that " i t shall be unlawful for

any commodity trading advisor . . . unless registered under this

chapter, to make use of the mails or any means or

instrumentality of interstate commerce in connection with his

business as such commodity trading advisor." 7 U.S.C. § 6m(1).

Two groups of plaintiffs challenged the Commission's

enforcement of this provision. One group, the "publishers," was

composed of persons who published nonpersonalized books,

newsletters, Internet sites, instruction manuals, and computer

software that provided information, analysis, and advice on

commodity futures trading. The publishers did not service

individual clients or execute trades on behalf of any clients. The

second group, the "subscribers," was composed of members of

the public who read and used the publishers' publications. The

gravamen of the complaint was that, while the publishers'

actions made them CTAs under the CEA, the application of the

CEA's registration requirement to them, as opposed to the more

typical account-managing CTAs, constituted an unconstitutional

prior restraint infringing their freedom of speech under the First

Amendment.

The District Court held that the publications at issue were

"fully protected speech," as opposed to "commercial speech."

Taucher v. Born, 53 F. Supp. 2d 464, 480-81 (D.D.C. 1999).

The District Court concluded that, as a prior restraint on fully

protected speech, the registration requirement could not survive

the searching scrutiny applied to such restraints. Id. at 481-82.

On August 19, 1999, the Commission appealed the District

Court's decision to this court, where the case was briefed and

scheduled for oral argument. However, prior to argument, the

Commission adopted regulations exempting persons like the

publishers in this case from the registration requirement, thereby

mooting the case. See 17 C.F.R. § 4.14(a)(9) (2004) (adopted

Mar. 10, 2000). The parties then agreed to voluntarily dismiss

the appeal. See Taucher v. Rainer, No. 99-5293, 2000 WL

516081 (D.C. Cir. Mar. 28, 2000) (per curiam), reprinted in

Joint Appendix at 149.

It is hardly surprising that the Government elected not to

appeal the District Court's judgment on the merits, for that

judgment was eminently correct and unassailable. Nor is it

surprising that, in holding the Government liable under EAJA,

the Magistrate Judge who heard and decided the case found that

the Commission's position in the merits litigation was baseless

and thus not substantially justified. See Taucher v. Rainer, 237

F. Supp. 2d 7 (D.D.C. 2002).

The Magistrate Judge first noted that the Commission

seemed not to recognize that the registration requirement, as a

prior restraint, was subject to more than "intermediate scrutiny":

For the defendants to say, in the teeth of this jurisprudence,

that prior restraints upon publication are subject to, at most,

intermediate scrutiny was to ignore the central principle of

the jurisprudence pertaining to prior restraints that such

restraints, sui generis, come burdened with a heavy

presumption against their constitutionality and therefore

have historically been judged by a much more stringent

standard than statutes that have an incidental effect on

speech. To so misunderstand the controlling law and to

equate a prior restraint that conditioned speech upon

governmental approval with a statute that had only an

incidental effect on speech was to confuse most

unreasonably two entirely different principles of First

Amendment adjudication.

Id. at 13. The Magistrate Judge then held that the Commission

was not substantially justified in its position that the disputed

registration restriction constituted a permissible professional

regulation, as opposed to an impermissible regulation of speech:

Under the Commission's theory, it was as appropriate to

regulate the publishers, who provided information to

commodity investors, as it was to regulate CTA's, who

actually managed clients' accounts. To the defendants, the

medium was irrelevant; whether it was a published article,

a website, or computer software, the message

communicated buy or don't buy this commodity was the

same. Any such communication was as subject to

government regulation as any other. Thus, there was no

significant difference between the CTA telling a client, who

had retained her, to buy cocoa and a published article

making the same recommendation.

But, as Holmes pointed out, "every idea is an

incitement." Gitlow v. New York, 268 U.S. 652, 673 (1925)

(Holmes, J., dissenting). If encouraging a person to engage

in a particular economic activity is subject to government

regulation, irrespective of the medium, or because some of

the people who do it have clients who rely upon them for

advice, then, reductio ad absurdum, the government could

regulate what appears in the Wall Street Journal, Barrons

and Money Magazine. These publications all have specific

columns providing investment advice and, unless they are

wasting their time, hope that their readers will use it. To

refuse to see the difference between the broker who gives

her advice to her client and the publisher of a newsletter is

to ignore the cases upon which Judge Urbina relied that

discuss the distinction between a professional's advice to a

client and a writer's advice to whoever who will read her

and use it. Taucher, 53 F. Supp. 2d at 476-79. That

distinction is so self-evident and obvious that the

defendants' ignoring it cannot be justified.

Id. at 14-15 (citations omitted).

In essence, the Magistrate Judge found that, because the

Government's positions in the merits litigation bordered on the

absurd, the positions could not possibly be "substantially

justified." The Judge was quite correct on both counts.

Before this court, the Government offered nothing of

substance to suggest that the Magistrate Judge's decision

reflected an abuse of discretion. Rather, the Government's brief

to this court offered a new ploy, suggesting that the Commission

was "duty-bound" to defend the constitutional challenge to the

CEA and that this constituted substantial justification for its

position. Commission's Br. at 27-36. This argument is

specious. In Grace v. Burger, 763 F.2d 457 (D.C. Cir. 1985),

this court did state in a footnote that "situations in which the

government's defense of the constitutionality of a federal statute

fails the `substantially justified' test should be exceptional." Id.

at 458 n.5. However, the context reveals that the court intended

this statement not as a normative principle, but merely as a

prediction, noting that Congress is under an "obligation to

self-police its measures for compatibility with the Constitution."

Id. Thus, the court simply stated its expectation that it would be

rare that Congress would enact a statute so clearly

unconstitutional that an agency would not be substantially

justified in defending it. Indeed, in the main text of the opinion,

the court explicitly stated:

W e do not rule, nor did the district court, that the

government is forever and always "substantially justified"

in defending in court the constitutionality of an act of

Congress, whatever the statute may say, and on any ground

a legal mind might conceive. As we have explained, the

government bears the burden on the substantial justification

plea, and to carry that burden, the government must

demonstrate that its litigation position had a solid basis in

fact and law.

Id. at 458 (footnote and citation omitted).

The Government also contends that its defense of the

unconstitutional registration requirement was substantially

justified because its position found support in the Seventh

Circuit's 1977 decision in Savage v. CFTC, 548 F.2d 192 (7th

Cir. 1977). This, too, is a specious argument. If considered in

isolation, Savage does indeed provide some support for the

Commission's position. However, Savage was completely

undermined by the Supreme Court's later decision in Lowe v.

SEC, 472 U.S. 181 (1985). In Lowe, the Court held that the

petitioners could not be permanently enjoined from publishing

nonpersonalized investment advice and commentary in

securities newsletters for the reason that they were not registered

as investment advisers under § 203(c) of the Investment

Advisers Act. The majority opinion by Justice Stevens held

that, because petitioners' publications fell within the statutory

exclusion for bona fide publications, none of the petitioners was

an "investment adviser" as defined in the Act.

Justice White wrote a long concurring opinion in Lowe, in

which Chief Justice Burger and then-Justice Rehnquist joined,

concluding that the prior restraint of the publishers was

forbidden under the First Amendment. Id. at 211-36 (White, J.,

concurring in result). Justice White focused on the point where

regulation of a profession leaves off and prohibitions on speech

begin:

One who takes the affairs of a client personally in hand and

purports to exercise judgment on behalf of the client in the

light of the client's individual needs and circumstances is

properly viewed as engaging in the practice of a profession.

Just as offer and acceptance are communications incidental

to the regulable transaction called a contract, the

professional's speech is incidental to the conduct of the

profession. If the government enacts generally applicable

licensing provisions limiting the class of persons who may

practice the profession, it cannot be said to have enacted a

limitation on freedom of speech or the press subject to First

Amendment scrutiny. Where the personal nexus between

professional and client does not exist, and a speaker does

not purport to be exercising judgment on behalf of any

particular individual with whose circumstances he is

directly acquainted, government regulation ceases to

function as legitimate regulation of professional practice

with only incidental impact on speech; it becomes

regulation of speaking or publishing as such, subject to the

First Amendment's command . . . .

Id. at 232 (footnote omitted) (White, J., concurring in result).

Justice White's concurring opinion in Lowe did not rest on

novel statements of law; it was grounded in decades of Supreme

Court precedent. See, e.g., id. at 229-30 (White, J., concurring

in result) (discussing the relevant precedent and citing a number

of cases in which the Supreme Court struck down prior restraints

on ostensibly professional speech). And the concurring opinion

in Lowe is consistent with the majority opinion. Indeed,

although the majority opinion decided the case on statutory

grounds, it strongly suggested that application of the disputed

statute to publishers of nonpersonalized investment advice

would be unconstitutional. See id. at 226 (White, J., concurring

in result) ("One does not have to read the Court's opinion very

closely to realize that its interpretation of the Act is in fact based

on a thinly disguised conviction that the Act is unconstitutional

as applied to prohibit publication of newsletters by unregistered

advisers.").

* * * *

The abuse-of-discretion standard obviously does not mean

that a district court's exercise of discretion is unreviewable. See

United States v. Criden, 648 F.2d 814, 817-19 (3d Cir. 1981).

"` U nreviewable discretion offends a deep sense of fitness in

our view of the administration of justice.'" Id. at 818 (quoting

Rosenberg, supra, at 641-42). What it does mean, however, is

that review is substantially limited, especially when, as with

cases under EAJA, litigating circumstances vary so much that it

is difficult to frame generally applicable principles constricting

the trial court's exercise of discretion. At bottom, the abuse-of-

discretion standard focuses on the reasonableness of the trial

court's judgment, and the measure of reasonableness depends

upon the facts of each particular case before the court. Id. at

817-18.

As noted above, under EAJA, a district court's judgment

that fees are due to a prevailing party is entitled to significant

deference because the "substantially justified" formulation

admits of no "useful generalization." Underwood, 487 U.S. at

562. With this in mind, the Court in Underwood found that,

when the "objective indicia" in a case (such as "the objective

fact that the merits were decided at the pleadings stage") fail to

provide a "conclusive answer," id. at 568, and the district court's

exercise of discretion rests on a view of the facts and the law

that is not unreasonable, id. at 568-571, the appellate court

cannot find that the district court abused its discretion. It does

not matter whether the appellate court agrees or disagrees with

the trial court. All that matters is that the trial court's judgment

rests on a reasonable view of the record before it.

In this case, the Magistrate Judge found that the

Government's positions in the merits litigation were far from

substantially justified, because they were largely baseless. If the

decision were mine to make, I would hold that the

Government's positions bordered on frivolous. But my job here

is not to make that decision. Rather, as the Court in Underwood

instructed, my colleagues and I are limited to determining only

whether the District Court's judgment amounts to an abuse of

discretion. I think it is absolutely clear on the record at hand

that the District Court's judgment in this case cannot be found

wanting under any accepted construction of the abuse-of-

discretion standard of review. Appellees were properly awarded

fees under EAJA, and the judgment in their favor should be

affirmed.

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