GOODWIN, Circuit Judge:
Plaintiffs appeal the order denying attorneys' fees following lengthy litigation which successfully challenged federal and state regulations that changed the conditions of eligibility for benefits under state Aid to Families with Dependent Children (AFDC) for some three-generation families living together.
The district court granted summary judgment to the plaintiff class.
After winning their appeal, the plaintiffs moved the district court for an award of attorneys' fees and costs against the federal government under the Equal Access to Justice Act (EAJA), 28 U.S.C.A. § 2412(d) (West Supp.1988). The district court denied the motion, observing that only one district court had addressed the question at the time the action was filed and that the Ninth Circuit had never addressed the regulations until this case:
We review the district court's decision to deny attorneys' fees under the EAJA for an abuse of discretion. See Pierce v. Underwood, 487 U.S. 552, ___-___, 108 S.Ct. 2541, 2546-49, 101 L.Ed.2d 490 (1988); Minor v. United States, 797 F.2d 738, 739 (9th Cir.1986) (per curiam). The district court abuses its discretion when its "decision is based on an erroneous conclusion of law or when the record contains no evidence on which [it] rationally could have based that decision." Petition of Hill, 775 F.2d 1037, 1040 (9th Cir.1985). Interpretation of the EAJA presents a question of law reviewable de novo. See id.
The plaintiffs suggest that attorneys' fees might be available under 28 U.S.C.A. § 2412(b) (West Supp.1988), which authorizes awards of attorneys' fees against the United States "to the same extent that any other party would be liable under the common law or the terms of any statute which specifically provides for such an award." Attorneys' fees for an action brought under 42 U.S.C. § 1983 (1982) are authorized by 42 U.S.C. § 1988 (1982). However, "[f]ederal officials who violate federal rights protected by § 1983 generally do not act under `color of state law,' and therefore cannot be held liable for attorneys' fees under 28 U.S.C. § 2412(b) and 42 U.S.C. § 1988." Olson v. Norman, 830 F.2d 811, 821 (8th Cir.1987). Because the plaintiffs make no allegation that federal and state officials conspired so that the actions taken by the federal officials could be deemed to have been under "color of state law," the plaintiffs have not demonstrated a statutory basis for an award of attorneys' fees under § 2412(b) (West Supp.1988). See id.
The plaintiffs also seek attorneys' fees under 28 U.S.C.A. § 2412(d)(1)(A) (West Supp.1988). As originally adopted, 28 U.S.C. § 2412(d)(1)(A) (1982) provided that a party prevailing in a suit against the United States or one of its agencies is entitled to attorneys' fees, costs, and other expenses "unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust." The Ninth Circuit "has long applied a test of reasonableness in determining whether the government's position was substantially justified." Oregon Envtl. Council v. Kunzman, 817 F.2d 484, 498 (9th Cir.1987); see, e.g., League of Women Voters of California v. FCC, 798 F.2d 1255, 1257 (9th Cir.1986) (stating that the "substantially justified" requirement of § 2412 requires only a showing that the government's "`case had a reasonable basis both in law and fact'") (quoting H.R.Rep. No. 1418, 96th Cong., 2d Sess. 10, reprinted in 1980 U.S.Code Cong. & Admin.News 4953, 4984, 4989); Foster v. Tourtellotte, 704 F.2d 1109, 1112 (9th Cir.1983) (per curiam).
The original EAJA contained a "sunset" provision and expired on Sept. 30, 1984. In 1985, Congress reenacted the EAJA without changing the language of 28 U.S.C. § 2412(d)(1)(A). See 28 U.S.C.A. § 2412(d)(1)(A) (West Supp.1988). The House report accompanying the 1985 reenactment suggests that something more than mere reasonableness is required to satisfy the "substantially justified" standard:
H.R.Rep. No. 120, 99th Cong., 1st Sess. 9, reprinted in 1985 U.S.Code Cong. & Admin.News 132, 138 (footnote omitted).
The government has the burden of demonstrating that its position was substantially justified. See Hill, 775 F.2d at 1042. The government's failure to prevail does not raise a presumption that its position was not substantially justified. See id. "In analyzing the reasonableness of the government's position under the `totality of the circumstances' test, we must look both to the position asserted by the government in the trial court as well as the nature of the underlying government action at issue." League of Women Voters of California, 798 F.2d at 1258.
The inquiry into the nature of the underlying government action will by definition concern only the merits of that action. The inquiry into the government's position at trial will encompass the first inquiry to the extent that the government chooses to defend the merits of the challenged action. However, the second inquiry must also focus upon extraneous circumstances bearing upon the reasonableness of the government's decision to take a case to trial. Perhaps the most important of these extraneous circumstances will be the existence of precedents construing similar statutes or similar facts. See Pierce, ___ U.S. at ___, 108 S.Ct. at 2551-53 (observing that "a string of losses" or "a string of successes" may be "indicative" on the issue of substantial justification).
The inquiry into the existence of substantial justification therefore must focus on two questions: first, whether the government was substantially justified in taking its original action; and, second, whether the government was substantially justified in defending the validity of the action in court. We will address the second question first.
The plaintiffs argue that the Secretary lacked substantial justification because at the time that the government decided to defend the suit the Minnesota district court had already decided Morrison, 602 F.Supp. 1485, in a manner adverse to the government, and the Secretary's decision to litigate therefore was intended to create an intercircuit conflict on the issue.
We now turn to the determination whether the government's decision to promulgate its original regulation was substantially justified. As a threshold matter, we may reject two claims made by the plaintiffs
First, the plaintiffs argue that the deference given to an agency's interpretation of its organic statute under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), demonstrates that a court's finding that an agency has acted contrary to law implicitly indicates that its action was unreasonable. See Trahan v. Regan, 824 F.2d 96, 101-02 (D.C.Cir.1987) (stating that "only in unusual circumstances can a court find that agency action based on the agency's interpretation of its own regulations or governing statute is `substantially justified' if the court has previously overruled that interpretation and found the agency action to be contrary to law"), reh'g en banc granted, 832 F.2d 158 (D.C.Cir.1987). We must reject this argument. Morrison expressly stated that little deference was due to the Secretary's interpretation. See Morrison, 602 F.Supp. at 1491. In any event, this circuit has recognized that "arbitrary and capricious conduct is not per se unreasonable." Andrew, 837 F.2d at 878.
Second, the plaintiffs claim that the district court's summary judgment demonstrates that the Secretary's position was not substantially justified. This argument is meritless, given that under Fed.R.Civ.P. 56 the district court's finding that summary judgment was appropriate hinged upon the absence of factual disputes, not the clarity of the law. See Pierce, ___ U.S. at ___, 108 S.Ct. at 2552 (observing that where "the dispute centers upon questions of law rather than fact, summary disposition proves only that the district judge was efficient").
We now reach the primary issue presented upon appeal: Was the government substantially justified in its initial interpretation of the relevant statutes?
The plaintiffs challenged the government regulations on the ground that they exceeded the scope and intent of the enabling statute, 42 U.S.C. § 602(a)(39) (Supp.II 1984).
Both the federal government and the state of Hawaii have enacted regulations that construe § 602(a)(39) as applying to parents classified as minors under the regulations implementing § 606(a)(2) "without regard to school attendance." See Hawaii Admin.R. 17-621-3(e); 45 C.F.R. § 233.20(a)(3)(xviii) (1987). As a result, "the grandparent's income [was] deemed available to the dependent grandchild in all three-generation families living together in which the intermediate parent is eighteen, rather than only in those families where the eighteen-year-old parent satisfies the school attendance requirement." Kali, 800 F.2d at 973.
The plaintiffs cite our prior holding that the Secretary's regulation was against the statutory purpose of the Grandparent Deeming Rule because it ignored the school attendance requirement for children between ages 18 and 19, thereby requiring
However, the government's failure to prevail does not raise a presumption that its position was not substantially justified. See Oregon Envtl. Council, 817 F.2d at 498. The determination whether the government's position was substantially justified "requires courts to examine the government's conduct, not the Secretary's beliefs with respect to his policies." Andrew, 837 F.2d at 878-79. We may reverse the district court's determination that the Secretary's position was substantially justified only if we find that the court abused its discretion. See Pierce, ___ U.S. at ___-___, 108 S.Ct. at 2546-49; Edwards, 834 F.2d at 801.
Applying this highly deferential standard, we uphold the district court's finding that the Secretary's interpretation of § 602(a)(39) was substantially justified.
The applicable statutory language could be read to support the Secretary's regulations. Section 602(a)(39) refers only to "the age selected by the State pursuant to section 606(a)(2)," 42 U.S.C. § 602(a)(39) (Supp.II 1984), while § 606(a)(2) gives states the option of selecting the age of 18 or 19 as the cut-off for dependency status, 42 U.S.C. § 606(a)(2) (1982). This language on its face supports the Secretary's interpretation even though § 606(a)(2) also includes the school attendance requirement as part of the age 19 cut-off. The Secretary's interpretation is further bolstered by the fact that § 602(a)(38), which was adopted at the same time, expressly refers to all of the conditions described in § 606(a), thereby incorporating both the age and school attendance requirements of that statute. 42 U.S.C. § 602(a)(38) (Supp.II 1984). Because § 602(a)(39) lacks this general reference to § 606(a), it was not improper to infer that school attendance was not intended to be relevant to the grandparent deeming rule. We therefore cannot say that the Secretary lacked substantial justification in interpreting the statutory language as she did.
Furthermore, we cannot say that the Secretary's interpretation, although constituting a facially correct reading of the statutes, was so at odds with congressional intent as to render it lacking in substantial justification. Any interpretation denying benefits to the children of 18-year-old students while granting benefits to the children of 18-year-old nonstudents would have given 18-year-old parents a great incentive to drop out of school, thereby contravening the congressional policy of encouraging continued school attendance through the extension of AFDC funding to 18-year-old students. See S.Rep. No. 139, 97th Cong., 1st Sess. 513, reprinted in 1981 U.S.Code Cong. & Admin.News 396, 779-80. It also was reasonable to conclude that Congress did not intend to deny benefits to the children of students while giving benefits to the children of nonstudents; because nonstudents may work full time while students may not, as a general matter nonstudent parents could be expected to earn more and therefore to have less need for AFDC funds than would student parents.
The district court did not abuse its discretion in finding that the government's position was substantially justified. The Secretary's interpretation of the complex statutory scheme was justifiable on the facial language of the relevant statutes and did not clearly contravene congressional intent. "The parties raised difficult issues of statutory interpretation, with substantial sums at stake." Edwards, 834 F.2d at 803. The Secretary "argued forcefully and well" for
The decision of the district court denying attorneys' fees is AFFIRMED.