                                         PRECEDENTIAL

         UNITED STATES COURT OF APPEALS
              FOR THE THIRD CIRCUIT
                   ____________

                       No. 10-1494
                      ____________

                    MODESTO CRUZ,

                             Appellant

                            v.

        COMMISSIONER OF SOCIAL SECURITY
                  ____________

      On Appeal from the United States District Court
         for the Eastern District of Pennsylvania
                 (D.C. No. 2-08-cv-00204)
       District Judge: Honorable Lynne A. Sitarski
                      ____________

      Submitted Pursuant to Third Circuit LAR 34.1(a)
                   September 17, 2010

Before: SCIRICA, RENDELL and FISHER, Circuit Judges.

                 (Filed: October 22, 2010)




Robert Savoy
3 Neshaminy Interplex, Suite 301
Trevose, PA 19053
      Counsel for Appellant
Lori R. Karimoto
Social Security Administration
SSA/OGC/Region III
P. O. Box 41777
Philadelphia, PA 19101

      Counsel for Appellee

                       ____________

                OPINION OF THE COURT
                     ____________

FISHER, Circuit Judge.

       Modesto Cruz appeals from an order denying his
motion for attorney’s fees under the Equal Access to Justice
Act (“EAJA”), 28 U.S.C. § 2412, and an order denying his
motion to alter or amend judgment. For the reasons stated
herein, we will affirm.

                             I.

       On August 22, 1997, Mr. Cruz applied for Disability
Insurance Benefits under Title II of the Social Security Act,
42 U.S.C. § 401 et seq, claiming neck and back impairments.
His claim for benefits was denied. Thereafter, Mr. Cruz
timely requested a hearing before an Administrative Law
Judge (“ALJ”). Following the hearing, the ALJ denied Mr.
Cruz’s request for review. The Appeals Council denied his
request for further review.



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       On November 19, 2001, Mr. Cruz filed a civil action.
After reviewing a motion for summary judgment filed by Mr.
Cruz, the District Court granted the motion in part, and
remanded the matter to the Commissioner of the Social
Security Administration for consideration of all relevant
medical evidence in determining Mr. Cruz’s residual
functional capacity and ability to return to past relevant work.

       On remand, Mr. Cruz sought disability benefits for the
period from November 23, 1996 through November 15, 2000.
On November 15, 2000, Mr. Cruz resumed working for his
previous employer and continued until 2005 when the
employer relocated. The ALJ held a hearing and determined
that Mr. Cruz was not disabled and that he could return to his
past relevant work. Mr. Cruz appealed this decision to the
Appeals Council. The Appeals Council declined to review
the ALJ’s decision.

       On March 2, 2006, Mr. Cruz filed a second civil
action. The Commissioner filed an Uncontested Motion for
Remand requesting that the ALJ: (1) reevaluate Mr. Cruz’s
residual functional capacity considering the applicable state
agency opinions; (2) address the treating physician’s opinions
that Mr. Cruz was disabled and provide a rationale for the
weight assigned those opinions; (3) obtain vocational expert
testimony to determine the physical and mental demands of
Mr. Cruz’s past work; and (4) if Mr. Cruz was unable to
perform his past work, determine if there are other jobs Mr.
Cruz could perform. The motion was granted.

       The ALJ convened a third hearing to consider the case
following remand. At this hearing, Mr. Cruz submitted

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evidence from Dr. Melanie Ice, his treating physician.
Significant to this appeal, Mr. Cruz introduced Dr. Ice’s April
2007 Medical Source Statement Concerning Nature and
Severity of Impairments (“Dr. Ice’s Statement”).           The
statement referred to the closed period from November 23,
1996 to November 15, 2000, and supported a finding that Mr.
Cruz was disabled. The ALJ denied benefits for this closed
period and granted benefits from November 7, 2005 forward.

       On January 11, 2008, Mr. Cruz filed a third civil action
seeking judicial review of the final decision of the
Commissioner of the Social Security Administration denying
his claim for disability benefits for the closed period from
November 23, 1996 to November 15, 2000. Both parties
consented to jurisdiction before the Magistrate Judge. In his
claim, Mr. Cruz argued that the ALJ misinterpreted Dr. Ice’s
Statement. Specifically, Mr. Cruz contended that the ALJ
mistakenly applied Dr. Ice’s Statement to his benefits claim
for the period from 2005 onward, instead of the closed period
from November 23, 1996 to November 15, 2000.

       On January 30, 2009, the Magistrate Judge issued an
order granting in part and denying in part Mr. Cruz’s request
for review and remanded the case to the ALJ. According to
the Magistrate Judge, the ALJ misread Dr. Ice’s Statement as
applying from 2005 onward instead of the closed period from
1996 to 2000. Therefore, the Magistrate Judge remanded the
case to the ALJ for a determination based on a proper reading
of Dr. Ice’s Statement.

       On March 17, 2009, Mr. Cruz filed a motion for
attorney’s fees under the EAJA, 28 U.S.C. § 2412. Mr. Cruz

                              4
alleged that he was entitled to attorney’s fees because the ALJ
improperly considered Dr. Ice’s Statement and the
Commissioner’s defense of the ALJ’s decision was not
substantially justified. According to the Commissioner, the
ALJ realized that Dr. Ice’s Statement applied to the closed
period from 1996 to 2000. The Commissioner maintained,
however, that the ALJ found it more relevant to the period
from 2005 onward.

        On June 22, 2009, the Magistrate Judge denied Mr.
Cruz’s motion for attorney’s fees. Viewing the totality of the
circumstances, the Magistrate Judge concluded the ALJ
reasonably analyzed the facts of the case. Furthermore, in its
examination of the Commissioner’s position, the Magistrate
Judge focused on the inconsistencies in Dr. Ice’s notes for the
closed period from November 1996 to November 2000.
Contrary to Dr. Ice’s Statement, her other notes from this time
frame did not support a disability finding. Considering these
notes and other medical records, the Magistrate Judge found
that the Commissioner’s position regarding the ALJ’s
interpretation of Dr. Ice’s Statement was substantially
justified. Accordingly, the Magistrate Judge denied Mr.
Cruz’s motion for attorney’s fees.

       On July 7, 2009, Mr. Cruz filed a motion to alter or
amend judgment. Mr. Cruz alleged that the Magistrate Judge
improperly denied his motion for costs, improperly intruded
upon the Commissioner’s role in the fact-finding process by
making a credibility determination as to Dr. Ice’s Statement,
and erred by failing to apply Third Circuit precedent.




                              5
       On December 18, 2009, the Magistrate Judge denied
the motion. First, addressing Mr. Cruz’s claim for costs, the
Magistrate Judge interpreted the applicable statutory language
and explained that, given the broad statutory discretion in
awarding costs, it did not commit clear error of law.
Furthermore, the Magistrate Judge found it had not made a
credibility determination as to Dr. Ice’s Statement. Instead,
the Magistrate Judge concluded it correctly applied Third
Circuit precedent for assessing EAJA claims.

       On April 21, 2010, Mr. Cruz timely filed the instant
appeal alleging that the Magistrate Judge abused its discretion
by denying his claim for attorney’s fees pursuant to 28 U.S.C.
§ 2412(d)(1)(A) and costs pursuant to 28 U.S.C. § 2412(a)(1).

                              II.

        The Magistrate Judge exercised jurisdiction pursuant to
42 U.S.C. § 405(g). We have jurisdiction over this appeal
pursuant to 28 U.S.C. § 1291.            “The district court’s
determination of substantial justification in a suit under the
EAJA is reviewed for abuse of discretion.” Morgan v. Perry,
142 F.3d 670, 682 (3d Cir. 1998) (citing Pierce v.
Underwood, 487 U.S. 552, 560 (1988)). According to this
standard, “[a]n abuse of discretion arises when the district
court’s decision ‘rests upon a clearly erroneous finding of
fact, an errant conclusion of law or an improper application of
law to fact.’” Morgan, 142 F.3d at 682 (quoting Hanover
Potato Prods., Inc. v. Shalala, 989 F.2d 123, 127 (3d Cir.
1993)). Likewise, “[a]n abuse of discretion can also occur
‘when no reasonable person would adopt the district court’s
view.’” Morgan, 142 F.3d at 683 (citation omitted). As a

                              6
result, “we will not interfere with the district court’s exercise
of discretion ‘unless there is a definite and firm conviction
that the court . . . committed a clear error of judgment in the
conclusion reached upon a weighing of the relevant factors.’”
Id. (citation omitted).

                              III.

       Mr. Cruz advances two arguments on appeal. First,
Mr. Cruz contends that the Magistrate Judge abused its
discretion by finding that the Commissioner’s position was
substantially justified, and therefore he is entitled to
attorney’s fees under the EAJA, 28 U.S.C. § 2412(d)(1)(A).
Second, Mr. Cruz argues that the Magistrate Judge abused its
discretion in denying his claim for costs other than attorney’s
fees pursuant to 28 U.S.C. § 2412(a)(1). We address each
argument in turn.

                               A.

       Pursuant to the EAJA, “a court shall award to a
prevailing party . . . fees and other expenses . . . incurred by
that party . . . 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) (2006). The Supreme Court has defined
substantial justification under the EAJA as “justified in
substance or in the main – that is, justified to a degree that
could satisfy a reasonable person.” Pierce, 487 U.S. at 565.
In EAJA claims, the government bears the burden of
demonstrating substantial justification. See Hanover, 989
F.2d at 128 (citation omitted). To satisfy this burden and


                               7
defeat a prevailing party’s application for fees, the
government must establish that there is substantial
justification for its position by demonstrating “(1) a
reasonable basis in truth for the facts alleged; (2) a reasonable
basis in law for the theory it propounded; and (3) a reasonable
connection between the facts alleged and the legal theory
advanced.” Morgan, 142 F.3d at 684 (citation omitted).
Furthermore, “a court cannot assume that the government’s
position was not substantially justified simply because the
government lost on the merits.” Id. at 685. Rather, when
deciding whether the government is substantially justified,
courts should determine whether the government’s position
has a reasonable basis in both fact and law. See id. at 684.

        Mr. Cruz argues that the Magistrate Judge abused its
discretion when it found the Commissioner’s position was
substantially justified and denied his claim for attorney’s fees.
Specifically, Mr. Cruz claims that the Commissioner’s
defense of the ALJ’s treatment of Dr. Ice’s Statement had no
basis in fact or law and, therefore, was not substantially
justified. We disagree.

        In proceedings below, the Magistrate Judge correctly
analyzed the Commissioner’s position under the three-step
substantial justification test set forth in Morgan. First, the
Magistrate Judge noted that the Commissioner did not believe
that the ALJ misread the dates of Dr. Ice’s Statement. Rather,
the Commissioner reasonably maintained that the ALJ knew
that Dr. Ice’s Statement applied to the period from November
1996 to November 2000, but determined that it better
represented the period from 2005 onward. Second, the
Magistrate Judge reviewed the record as a whole, including

                               8
Dr. Ice’s inconsistent notes and other medical records, and
determined that it supported a finding of no disability for the
closed period. As such, the Magistrate Judge found that the
Commissioner’s position had a reasonable basis in law.
Third, after examining the Commissioner’s position and the
record, the Magistrate Judge found a reasonable connection
between the facts and the Commissioner’s legal theory. In
concluding that the Commissioner was substantially justified,
the Magistrate Judge correctly applied the relevant facts to the
law and therefore did not “commit a clear error of judgment.”
Id. at 683. Accordingly, the Magistrate Judge did not abuse
its discretion.

                              B.

        Second, Mr. Cruz argues that the Magistrate Judge
abused its discretion by denying his claim for costs other than
attorney’s fees. The pertinent language of the EAJA instructs
that, “[e]xcept as otherwise specifically provided by statute, a
judgment for costs . . . may be awarded to the prevailing party
in any civil action brought by or against the United States or
any agency or any official of the United States acting in his or
her official capacity in any court having jurisdiction of such
action.” 28 U.S.C. § 2412(a)(1).

       Although we have not addressed the issue of a district
court’s discretion to award or deny costs under the EAJA, the
decision of the Federal Circuit in Neal & Company, Inc., v.
United States is instructive.1 In Neal, the court noted that 28
1

       In Morgan, we briefly discussed a claim for costs under
28 U.S.C. § 2412(a)(1). 142 F.3d at 689-90. We declined to

                               9
U.S.C. § 2412(a)(1) “does not create a presumption in favor
of an award of costs to the prevailing party.” 121 F.3d 683,
687 (Fed. Cir. 1997). Instead, broad discretion rests with the
trial court in awarding costs. See id. We agree with the
reasoning of the Federal Circuit in this regard. The plain
language of the statute provides that costs “may be awarded.”
28 U.S.C. § 2412(a)(1). Accordingly, it is appropriate for a
district court to exercise discretion in awarding or denying
costs depending on the particular circumstances. In the case
at hand, the Magistrate Judge considered all the facts and
circumstances surrounding Mr. Cruz’s claims. After careful
deliberation, the Magistrate Judge declined to award costs.
Given this reasoning, the Magistrate Judge did not abuse its
discretion in denying Mr. Cruz’s motion for costs.

                             IV.

      For the foregoing reasons, we will affirm the orders of
the Magistrate Judge.




reach a decision on the merits of the claim, however, because
the party asking for costs failed to properly appeal from the
district court=s decision not to award costs. See id.


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