Establishing the Comparator for “Excessive Demands” Under the EAJA

Introduction

SEC v. Lemelson is a First Circuit decision clarifying how courts must apply the “excessive demand” provision of the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412(d)(1)(D). The Securities and Exchange Commission (SEC) brought an enforcement action against Gregory Lemelson and his advisory firm, alleging manipulative statements in violation of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. After a mixed jury verdict and a modest final judgment, Lemelson sought attorneys’ fees and costs as the “prevailing party,” arguing that the SEC’s requests for disgorgement, civil penalties, injunctive relief, and prejudgment interest were “substantially in excess” of the judgment obtained. The district court denied the motion, and on appeal the First Circuit vacated that denial and remanded for further proceedings.

Key issues:

What constitutes a “demand” under § 2412(d)(1)(D) and its definitional safe-harbor, § 2412(d)(2)(I)?
Against which “judgment finally obtained” must that demand be compared?
What role do the EAJA’s exceptions (willfulness, bad faith, special circumstances) play in the award analysis?

Summary of the Judgment

The First Circuit held that the district court misapplied the EAJA by comparing the SEC’s “demands” to the scope of its initial allegations rather than the final judgment. Under § 2412(d)(1)(D), a court must compare (1) the government’s “express demand” to (2) “the judgment finally obtained.” Because the district court compared the demand only to the breadth of the original claims, it applied the wrong legal benchmark. The appellate court therefore vacated the denial of fees and costs and remanded for the district court to:

Identify the specific demands that qualify under § 2412(d)(2)(I).
Compare those demands to the final judgment entered by the court.
Determine whether the demand was “substantially in excess” of the judgment and “unreasonable when compared with such judgment.”
Consider any EAJA exceptions—willfulness, bad faith, or special circumstances—before awarding fees.

Analysis

Precedents Cited

SEC v. Lemelson, 57 F.4th 17 (1st Cir. 2023): The First Circuit’s earlier opinion affirming liability on three statements under Rule 10b-5 and the Advisers Act.
28 U.S.C. § 2412(d)(1)(D): The 1996 EAJA amendment permitting fee awards when the government’s demand is “substantially in excess” of the final judgment and “unreasonable” under the facts.
28 U.S.C. § 2412(d)(2)(I): The safe harbor defining “demand” to exclude mere “recitation of the maximum statutory penalty” in a complaint or elsewhere when paired with an express lesser demand.
United States v. One 1997 Toyota Land Cruiser, 248 F.3d 899 (9th Cir. 2001): A Ninth Circuit case holding that a post-verdict request did not qualify as the “express demand” leading to the adversary adjudication.

Legal Reasoning

The court’s de novo statutory analysis began with the text of § 2412(d)(1)(D):

“If, in a civil action brought by the United States . . . the demand by the United States is substantially in excess of the judgment finally obtained by the United States and is unreasonable when compared with such judgment . . . the court shall award . . . fees.”

Two key terms required definition:

“Demand” – the “express demand” that “led to the adversary adjudication,” but not including bare recitations of maximum penalties under the safe harbor in § 2412(d)(2)(I).
“Judgment finally obtained” – the actual relief ordered in the final judgment (injunction duration, penalty amounts, disgorgement, interest), not the breadth of allegations or requests originally made.

The district court had equated “judgment finally obtained” with the scope of the initial claims, reasoning that the SEC’s requests tracked its initial complaint. The First Circuit rejected that construction: it is the relief actually imposed, not the allegations, that constitute the “judgment finally obtained.” By comparing demands only to initial claims, the lower court applied the wrong standard and thus abused its discretion.

Having identified this error, the appellate court remanded without reaching the alternative EAJA defenses (willfulness, bad faith, special circumstances) or resolving definitional disputes over exactly which SEC requests qualify as “demands.” It instructed the district court first to perform the correct statutory comparison and then—only if a demand proves “excessive” and “unreasonable”—to consider exceptions.

Impact

SEC v. Lemelson clarifies a long-standing ambiguity in fee-shifting under the EAJA’s “excessive demand” provision:

It affirms that courts must compare the government’s express demands to the relief actually granted, not the breadth of initial allegations.
It highlights the necessity of identifying precisely which requests constitute “demands” under § 2412(d)(2)(I).
It sets out a two-step framework: first, the quantitative comparison; second, the qualitative assessment of any EAJA exceptions.

Future litigants in government enforcement or regulatory actions will find guidance on how to plead and quantify their demands, and prevailing parties will have a clearer path to fee awards when the government’s ultimate recovery falls well short of its initial requests.

Complex Concepts Simplified

1. “Excessive Demand” Provision (§ 2412(d)(1)(D)): If the U.S. government asks for more relief than it ultimately gets, and that request was unreasonable under the facts, a prevailing defendant can recover fees—unless the defendant acted in bad faith or other special circumstances exist.

2. “Express Demand” vs. “Recitation of Maximum Penalty”: A genuine demand is a specific request (“We want $X penalty, $Y in interest, and a permanent injunction”). A mere statutory placeholder (“maximum penalty up to $Z”) is not counted if it appears only as a boilerplate maximum.

3. “Judgment Finally Obtained”: This is the actual relief the court orders at the end of the case—what defendants must pay or comply with—not the relief the government initially sought.

Conclusion

SEC v. Lemelson marks a pivotal refinement of the EAJA’s fee-shifting mechanics in government-initiated civil actions. By insisting that courts compare exactly what the government demanded to exactly what the government received, the First Circuit safeguards against unmoored fee awards and reaffirms the statutory text. The decision bolsters access to justice for individuals and small entities defending against federal enforcement actions by ensuring that truly excessive government demands can trigger an award of attorneys’ fees and costs, subject to equitable limitations.