B-218504 May 10, 1985

B-218504: May 10, 1985

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United States District Court case from its appropriated funds because the court order which was the basis of the settlement agreement made its attorney's fee award under the authority of 28 U.S.C. Expressly requires that "bad faith" awards under section 2412(b) "be paid by any agency found to have acted in bad faith." 63 Comp.Gen. 260 (1984) cited. The Federal Emergency Management Agency (FEMA) should pay the attorney's fees from its appropriated funds because the court order upon which the settlement agreement was based predicated its attorney's fee award upon a finding of bad faith under 28 U.S.C. Forcing the plaintiffs to reside in premises which were uninhabitable.". While the appeal was pending the parties entered into a settlement agreement.

B-218504 May 10, 1985

DIGEST

The Honorable Richard K. Willard Acting Assistant Attorney General Civil Division Department of Justice Attention: Robert E. Kopp, Director, Appellate Staff

Dear Mr. Willard:

Re: Daniel F. Kolner and Josephine G. Kolner v. Director, Federal Emergency Management Agency (7th Cir. Nos. 84-2899 and 84-2969)

You requested our opinion on the proper source of funds for the payment of the attorney's fees due under the settlement agreement filed in the above referenced case. As explained below, the Federal Emergency Management Agency (FEMA) should pay the attorney's fees from its appropriated funds because the court order upon which the settlement agreement was based predicated its attorney's fee award upon a finding of bad faith under 28 U.S.C. Sec. 2412(b).

The plaintiffs sued FEMA in the United States District Court for the Northern District of Illinois to recover under a flood insurance policy issued pursuant to the National Flood Insurance Act of 1968. In April 1983, the district court entered judgment against FEMA for $35,912 on the insurance claim and costs. The court also awarded $9,500 to the plaintiffs as attorney's fees under the authority of 28 U.S.C. Sec. 2412(b) as added by the Equal Access to Justice Act (EAJA), Pub. L. No. 96-481, title II, 94 Stat. 2321, 2325. The Court based its attorney's fee award upon its finding that FEMA had acted in bad faith because it "did nothing to adjust or settle the plaintiffs claim for a full year after the flood, forcing the plaintiffs to reside in premises which were uninhabitable." FEMA appealed the District Court's judgment and award to the United States Court of Appeals for the Seventh Circuit and the plaintiffs cross- appealed.

While the appeal was pending the parties entered into a settlement agreement. The agreement provided that FEMA would pay the flood claim and the attorney's fee award pursuant to the District Court's order and that the appeal and cross-appeal would be dismissed. Subsequently, FEMA indicated that it would pay the flood insurance claim, but that it did not believe that it should pay the EAJA attorney's fee award from its appropriated funds. [1]

We disagree. The applicable EAJA payment provision, 28 U.S.C Sec. 2412(c)(2), requires FEMA to pay the attorney's fees from its appropriated funds since the award was predicated upon a finding that FEMA had acted in bad faith. As noted, the court awarded the plaintiffs attorney's fees under 28 U.S.C. Sec. 2412(b). [2] The payment provision applicable to awards authorized by subsection 2412(b) is 28 U.S.C. Sec. 2412(c)(2). It provides:

"Any judgment against the United States or any agency * * * for fees and expenses of attorneys pursuant to subsection (b) shall be paid as provided in sections 2414 and 2517 of this title, except that if the basis for the award is a finding that the United States acted in bad faith, then the award shall be paid by any agency found to have acted in bad faith and shall be in addition to any relief provided in the judgment." (Emphasis added.)

The emphasized portion of Sec. 2412(c)(2) clearly indicates that where an award is based on a finding of bad faith, as it was in this case, attorney's fees awarded under 28 U.S.C. Sec. 2412(b) must be paid from agency funds rather than as provided in 28 U.S.C. Secs. 2414 and 2517 (i.e. from the permanent, indefinite appropriation established by 31 U.S.C. Sec. 1304 for the payment of judgments). [3] The fact that technically payment is to be made under the settlement agreement and not directly pursuant to court order does not affect our determination as to the appropriate payment source of the plaintiffs' attorney's fees. Generally, once litigation has been commenced in the courts, there is no distinction between judgment and settlement with respect to the source of funds for payment. In other words, a monetary settlement of a lawsuit is normally paid in the same manner as a judgment in that case would have been paid. In essence, the settlement agreement in this case is simply an agreement by FEMA to comply with the court's order.

The permanent judgment appropriation may be used only where "payment is not otherwise provided for." 31 U.S.C. Sec. 1304(a)(1). Here, by virtue of 28 U.S.C. Sec. 2412tc)(2), payment is clearly "otherwise provided for." Accordingly, we conclude that FEMA must pay the plaintiffs' attorney's fees from its appropriated funds. We see no basis for any other conclusion.

Sincerely yours

Harry R. Van Cleve General Counsel

1. In view of your expressed need to have this question resolved expeditiously in order to avoid further litigation (because the plaintiffs' attorney has indicated that he will petition the district court to order compliance with the settlement agreement if the attorney's fees are not paid within a reasonable time), we have not had time to formally solicit comments from FEMA regarding this question. However, in view of the explicit statutory language discussed in the text, we fail to see how our conclusion could be any different.

2. 28 U.S.C. Sec. 2412(b) provides:

"Unless expressly prohibited by statute, a court may award reasonable fees and expenses of attorneys * * * to the prevailing party in any civil action brought by or against the United States or any agency * * * in any court having jurisdiction of such action. The United States shall be liable for such fees and expenses to the same extent that any other party would be liable under the common law or under the terms of any statute which specifically provides for such aware. "

3. For a complete discussion of payment of attorney's fee awards under the EAJA, see 63 Comp.Gen. 260 (1984).