DANTRAN, INC. and Robert Holmes, Plaintiffs, Appellants, v. UNITED STATES DEPARTMENT OF LABOR, Defendant, Appellee.
No. 00-1656
United States Court of Appeals, First Circuit.
April 13, 2001
246 F.3d 36
Affirmed.
DANTRAN, INC. and Robert Holmes, Plaintiffs, Appellants, v. UNITED STATES DEPARTMENT OF LABOR, Defendant, Appellee.
No. 00-1656.
United States Court of Appeals, First Circuit.
Heard Jan. 11, 2001.
Decided April 13, 2001.
Carol Arnold, Attorney, with whom Henry L. Solano, Solicitor of Labor, Ste
Before SELYA, Circuit Judge, COFFIN and CAMPBELL, Senior Circuit Judges.
COFFIN, Senior Circuit Judge.
After six years of litigation challenging the Secretary of Labor‘s attempt to bar them from government contracting because of irregular payroll practices, appellants Dantran, Inc., and its principal, Robert C. Holmes, prevailed. This court ruled that, given the circumstances, debarment would be a punishment totally out of proportion to the offense (and, therefore, contrary to the regulations). See Dantran v. U.S. Dep‘t of Labor, 171 F.3d 58, 74-75 (1st Cir. 1999). Having achieved that outcome, appellants came back to court seeking attorney‘s fees under the Equal Access to Justice Act (EAJA),
I. Background
In our earlier decision, we discussed at length the facts underlying this case, see Dantran, 171 F.3d at 61-62, and we revisit only so much of that history as is necessary to provide a backdrop for the issue now before us. Dantran is a trucking company that for more than a decade contracted with the United States Postal Service to haul mail between various sites in Maine, Vermont, New Hampshire, and Massachusetts. This case began with the Secretary of Labor‘s 1993 administrative complaint seeking to exclude, or debar, appellants from government contracting for three years based on violations of the McNamara-O‘Hara Service Contract Act of 1965 (the Act or the SCA),
Although appellants promptly took action to remedy the identified violations, and the wage deficiencies were settled through payments to employees totaling about $67,000,1 the investigator‘s final report pressed for debarment. The report noted the size of the violations and the fact that the firm was investigated once before. Dantran, 171 F.3d at 62. That prior investigation had a markedly different outcome, however. Even though Dantran had been using the same procedures, another investigator, Rioux, found no irregularities, and his report stated that there were no problems with the company‘s fringe benefit payment practices.
The Secretary nonetheless followed the recommendation of the second investigator
After a hearing, an Administrative Law Judge (ALJ) concluded that neither Holmes nor Dantran should be debarred, finding:
that the plaintiffs attempted to comply with the regulations in good faith; that they cooperated fully with the Secretary‘s investigation; that they promptly settled their account and changed their monthly payment practice once the matter was brought to their attention; that nothing in their past compliance history reflected adversely on them; and that, in all events, the alleged violations were not especially serious.
Dantran, 171 F.3d at 74 n. 9 (summarizing ALJ‘s conclusions). The Labor Department‘s Administrative Review Board (ARB) reversed, however, and ordered debarment. The ARB ruled that appellants’ violation of the payment frequency regulation reflected culpable disregard of that legal requirement, and their cross-crediting of fringe benefits constituted culpable neglect for failing to ascertain the proper calculation, making them ineligible for unusual circumstances relief. The district court affirmed the ARB, but this court then reversed that decision, concluding that the factors militating against debarment were so potent that an outcome contrary to that which the ALJ reached would constitute an abuse of discretion, id. at 74.3
Armed with our firm statement in support of their position, appellants sought attorney‘s fees under the EAJA, contending that the government‘s litigation stance was not substantially justified. The district court denied the request, finding that the Secretary had a reasonable basis in
On appeal, appellants argue, inter alia, that the court erred by failing to consider the government‘s position not only at the outset of the proceedings but also throughout the litigation, and by giving no consideration to the unusual circumstances that this court found weighed so strongly against debarment.
II. Discussion
A. The Standard: Limited Role for Objective Factors
The EAJA obliges a court to award attorney‘s fees and expenses to a party that prevails in litigation against the government unless the court finds that the government‘s position was substantially justified.
B. Our Assessment
We find no error in the district court‘s conclusion that the decision to initiate a debarment proceeding was substantially justified. The Act provides that no contract of the United States shall be awarded to individuals or firms found to have violated its provisions [u]nless the Secretary otherwise recommends because of unusual circumstances.
Our inquiry does not end, however, with the Secretary‘s initial decision to bring a debarment complaint. To satisfy its burden, the government must justify not only its pre-litigation conduct but also its position throughout litigation. Comm‘r, INS v. Jean, 496 U.S. 154, 159 (1990); Jackson v. Chater, 94 F.3d 274, 278 (7th Cir. 1996); One Parcel of Real Prop., 960 F.2d at 208; see also
The difficulty with the Secretary‘s position in this case surfaces when we look beyond the ALJ‘s hearing and fact finding. The Secretary‘s continuing view that appellants’ practices warranted debarment does not give us pause; the payment frequency requirement is unambiguous, and the lengthy analysis in our earlier opinion demonstrates that the Secretary‘s position on the lawfulness of cross-crediting was sufficiently debatable, though we ultimately ruled it incorrect.
The Secretary resisted this determination, however, and persisted in pushing for debarment. She took this path even though the company had ceased to exist because of financial difficulties triggered by the Department of Labor‘s freezing of its assets, see
On appellate review, courts are entitled to expect, at a minimum, that an agency which rejects an ALJ‘s factfinding will provide a rational exposition of how other facts or circumstances justify such a course of action. [Citations omitted.] There is no hint of such an analysis in the ARB‘s opinion.... The short of it is that, gauged by the proper standard of review, the ARB had no legally sufficient reason for upsetting the ALJ‘s findings of fact (particularly those that relied on credibility assessments).
The particular testimony prompting that criticism of the ARB‘s ruling concerned appellants’ knowledge of the bi-weekly pay rules. The investigator who had done the earlier examination of appellants’ pay practices, Rioux, testified that he had told appellant Holmes that the regulations call for payment twice a month, rather than monthly. Rioux testified that appellant replied as follows:
[T]he post office pays me on a monthly basis. When they pay me on a bi-weekly basis, I‘ll pay [my employees] on a bi-weekly basis.
Id. at 69. According to the ARB, this exchange demonstrated appellants’ culpable disregard of the law—an aggravating circumstance under
As we explained in our earlier decision, however, the ALJ—the only factfinder with direct exposure to the testifying parties—explicitly considered this evidence and declined to give it weight, instead crediting Holmes’ testimony that Rioux made no such point. See Dantran, 171 F.3d at 72. We devoted a considerable part of our opinion to an explanation why this was binding on the ARB. See id. at 68-72. The ALJ‘s finding that Dantran had a reasonable, good-faith belief throughout the ensuing period that its wage-payment practices conformed with the Act‘s requirements was reinforced,
On this record, a majority of our panel found that the ARB‘s decision reflected a serious infirmity in agency decisionmaking, and we concluded that there was no plausible basis for an outcome contrary to that reached by the ALJ on the absence of aggravating factors. See id. at 73. In the panel majority‘s view, the mitigating factors in appellants’ favor were so strong—as the ALJ had recognized—that this was the rare case in which the facts admit of only one plausible legal conclusion. See id. at 75. We observed:
[T]here is no reasonable doubt about the balancing equation‘s overall equilibrium. Although the Act grants the Secretary latitude in considering whether to recommend relief from debarment, she has cabined that discretion by enumerating specific factors (and the balancing methodology) upon which she will rely to determine the existence of unusual circumstances. In this case, the findings as to mitigation are so potent that solving the balancing equation in any manner contrary to that which the ALJ reached would constitute an abuse of discretion.
Id. at 74 (emphasis added).
Although there may be cases in which the government‘s position would be substantially justified even though to adopt it would be an abuse of discretion, this is not one of them. Once the ALJ resolved crucial credibility issues against the Department of Labor, the Secretary needed some rationale for rejecting those findings in order to be deemed substantially justified in continuing to press for debarment. We found there was none. The Secretary again emphasizes that appellants, as of the time of the first investigation in 1989, had copies in hand of the applicable regulations; in her view, this led to a reasonable perception that appellants’ continuing violations represented at least culpable neglect, an aggravating circumstance that would on its own preclude relief from debarment.
We previously have identified the flaws in this logic, pointing out that language in appellants’ postal contracts calling for monthly payments to Dantran, together with the investigator‘s clean bill of health after the earlier investigation, would have lulled appellants into a reasonable assumption of compliance. See Dantran, 171 F.3d at 74. The legislative intent behind the Act was to make the full vigor of the law [] felt by those who repeatedly and callously violate it,9 and it would be a stretch to characterize appellants’ conduct as culpable within that understanding. With affirmative assurances that their practices were lawful, theirs was not even a failure to pay attention to the requirements, let alone a deliberate flaunting of them. See Dantran, 171 F.3d at 74 n. 10 ([T]he regulatory scheme with which we are dealing is designed to debar those whose conduct is culpable and to excuse those whose actions invite leniency.).
We recognize that the debarment sanction is not intended as a punishment only for deliberate misconduct. The regulations do not permit relief from debarment simply because the violator pays what should have been paid previously, see
The insistence on forging ahead was exacerbated in this case, moreover, by the Secretary‘s apparent refusal to consider appellants’ repeated offers to cut short the litigation with a settlement that would have conceded the legal issues in exchange for the relief from debarment to which they ultimately were found entitled. The costs of not settling are precisely what appellants seek to recover here. Although the offer of settlement certainly does not on its own render the Secretary‘s position unjustified, the decision to persevere in light of the ALJ‘s findings of unusual circumstances seems all the more unreasonable against the backdrop of appellants’ overtures.
In sum, while the Secretary‘s original decision to bring a debarment action was supportable, we believe the district court abused its discretion in failing to find that the Secretary‘s continuing pursuit of debarment following the ALJ‘s ruling was ill-considered and, in the language of the EAJA, not substantially justified. In these circumstances—involving a company already severely penalized by the government‘s enforcement action, a factfinder‘s determination of no culpability, full compliance with remedial obligations, and repeated offers to settle with acquiescence to the government‘s legal stance—we do not believe a reasonable person could find the government‘s position following the ALJ‘s decision to be correct, particularly with the burden on the government to prove itself justified. We conclude that the decision to prolong the adversarial proceedings swallowed up the earlier justifiable pursuit of debarment. These appear to be precisely the circumstances in which Congress intended a successful litigant to be able to recover the costs of obtaining success. See Jean, 496 U.S. at 163 ([T]he specific purpose of the EAJA is to eliminate for the average person the financial disincentive to challenge unreasonable governmental actions.).11
We therefore reverse the district court‘s judgment and hold that appellants are entitled to fees under the EAJA. We address the precise scope of that award in the following section.
III. The Fee Award: What Proceedings are Covered by the EAJA?
The Secretary argues that appellants should be limited in any award of attor-
In addition to providing for an award of fees and other expenses incurred in a civil action in federal court, see
The Secretary argues that this sequence of statutory provisions does not permit Dantran to recover fees and expenses for the ARB proceedings because, notwithstanding the proceeding‘s adversary nature and the Secretary‘s representation by counsel, the debarment hearing was not required by statute and thus was not an adjudication within the coverage of the EAJA. She emphasizes that only fees within the explicit language of the statute are recoverable because the EAJA must be strictly construed as it is a waiver of the government‘s sovereign immunity. See Ardestani v. INS, 502 U.S. 129, 137 (1991) (a waiver of sovereign immunity must be strictly construed in favor of the United States); Fidelity Constr. Co. v. United States, 700 F.2d 1379, 1386 (Fed. Cir. 1983) (Although the EAJA lifts the bar of sovereign immunity for awards of fees in suits brought by litigants qualifying under the statute, it does so only to the extent explicitly and unequivocally provided.), superseded in part by statute,
Appellants maintain, however, that a hearing that meets the EAJA definition is mandated by the Service Contract Act. They point to SCA section 354(a), which provides in relevant part as follows:
Where the Secretary does not otherwise recommend because of unusual circumstances, he shall, not later than ninety days after a hearing examiner has made a finding of a violation of this chapter, forward to the Comptroller General the name of the individual or firm found to have violated the provisions of this chapter.
We are persuaded by multiple considerations that appellants have the better argument. Like appellants, we read the language in section 354(a) to require a hearing. The statute expressly links the Secretary‘s obligation to place a contractor on the ineligible list to a hearing examiner‘s finding of a violation.12 That the statute does not command a hearing on the record in the language of APA section 554—is of modest significance, as it has long been recognized that the applicability of the APA does not turn on the presence or absence of the precise words ‘on the record, Seacoast Anti-Pollution League v. Costle, 572 F.2d 872, 876 (1st Cir. 1978) (citing United States v. Florida East Coast Ry. Co., 410 U.S. 224, 245 (1973)). See also St. Louis Fuel and Supply Co. v. F.E.R.C., 890 F.2d 446, 448 (D.C. Cir. 1989) (Our decision ... does not turn, mechanically, on the absence of magic words.)13; Marathon Oil v. EPA, 564 F.2d 1253, 1262-63 & nn. 30, 31 (9th Cir. 1977) (similar, referring to the magical phrase ‘on the record‘). Rather, the resolution of this issue turns on the substantive nature of the hearing. Congress intended to pro
We have no reason to doubt that Congress intended this adjudication to be governed by standard APA procedures. As we previously have observed, an adjudication such as this, which involves specific factual findings with potential for serious impact on private rights, is exactly the kind of quasi-judicial proceeding for which the adjudicatory procedures of the APA were intended. Id. (citation omitted); see also id. at 878 ([I]t is assumed that where a statute specifically provides for administrative adjudication (such as the suspension or revocation of a license) after opportunity for an agency hearing, such specific requirement for a hearing ordinarily implies the further requirement of a decision in accordance with evidence adduced at the hearing. (quoting Attorney General‘s Manual on the Administrative Procedure Act (1947))). Neither the SCA itself nor case law excludes proceedings under the Act from APA coverage. Cf., e.g., Ardestani, 502 U.S. at 133-34 (Supreme Court precedent established that deportation proceedings are not subject to the APA); Owens v. Brock, 860 F.2d 1363, 1365 (6th Cir. 1988)
Moreover, a careful review of the relevant statutory provisions suggests that the APA is indirectly made applicable by statute to debarment proceedings under the SCA. Section 353 of Title 41—the SCA section preceding the one on which appellants rely—incorporates the enforcement authority granted to the Secretary under certain provisions of another statute, the Walsh-Healey Act. See
The Secretary notes that regulations implementing the EAJA within the Department of Labor explicitly foreclose the award of attorney‘s fees for SCA proceedings before the ARB. See
We consider this administrative authority to be of limited value.
Moreover, one of the regulations cited by the Secretary suggests an inconsistency in the regulatory scheme. As noted, section 16.104 of the Department‘s regulations lists a variety of proceedings that are considered adversarial adjudications covered by the EAJA when all other conditions in that statute and the Department‘s rules are met. The list includes [v]iolations and debarment in Federal contracts under the Walsh-Healey Act.
We see no need to delve more deeply into the complexities of the regulatory scheme, having come this far primarily to show its inconclusiveness and, to a lesser extent, its arguable endorsement of fee recovery for adversary adjudications of debarment. Our holding rests not on the agency‘s views but on our conclusion that the hearing prescribed by section 354 satisfies the APA requirement for a statutorily mandated adjudication that is adversarial in nature.
Because the adjudication of debarment is required by statute, is adversarial in nature, appears intended by legislation to be covered by the APA, and implicates interests traditionally protected by APA procedures—and because it is not otherwise excluded from APA coverage—we hold that appellants are entitled to fees and expenses associated with the proceedings before the ARB.
IV. Conclusion
Although the government justifiably instituted debarment proceedings against appellants, the record shows that it was not substantially justified in continuing to pursue debarment after the ALJ‘s unassailable determination that unusual circumstances warranted a reprieve from that harsh sanction. The district court therefore erred in rejecting appellants’ request for attorney‘s fees under the EAJA. Because the debarment hearing qualifies as an adversary adjudication under the APA, appellants are entitled to fees for both the administrative and judicial components of the litigation, limited in this instance to the period following the ALJ‘s decision.
We leave to the district court the task of assessing a specific fee award, which may include the legal costs associated with this appeal.
Dissent follows.
SELYA, Circuit Judge (dissenting).
Congress, in enacting the Equal Access to Justice Act (the EAJA),
As the court‘s opinion explains, this appeal requires us to revisit a dispute between the Secretary of Labor and a government contractor, Dantran, Inc. On our previous encounter, a divided panel of this court reversed a debarment order promulgated by the Secretary under the McNamara-O‘Hara Service Contract Act of 1965 (the SCA),
The Secretary‘s consistently held position vis-à-vis Dantran had two components. First, she claimed that Dantran persistently violated a regulation governing frequency of wage payments. See Dantran I, 171 F.3d at 65-66. Second, she claimed that Dantran persistently violated a fringe benefit regulation,
The claim was plausible because the Secretary‘s understanding of the fringe benefit regulation was perfectly reasonable. At the very least, this regulation was susceptible to conflicting readings. See Dantran I, 171 F.3d at 63; id. at 75 (Cudahy, J., dissenting). And the mere fact that the Secretary, confronted with a choice among plausible interpretations of an opaque regulation, failed to predict how the courts would rule does not suffice to prove that the government acted unjustifiably. See De Allende v. Baker, 891 F.2d 7, 12-13 (1st Cir. 1989) (holding that the government was substantially justified in pursuing a novel—but erroneous—interpretation of the law); Martinez v. Sec‘y of HHS, 815 F.2d 1381, 1383-84 (10th Cir. 1987) (per curiam) (finding the government position substantially justified when the applicable law was unclear); Dougherty v. Lehman, 711 F.2d 555, 566 (3d Cir. 1983) (similar).
The history of the fringe benefit regulation helps to prove this point. The Secretary promulgated the regulation in 1983. When she cited Dantran in 1991, no court had construed it in respect to cross-crediting, and the regulation‘s application simply was not self-elucidating in that type of situation. Where, as here, a government actor‘s decisionmaking turns on a question of novel impression, the answer to the question would have to be relatively clear to warrant a holding that the government actor‘s plausible, though erroneous, response was not substantially justified. See De Allende, 891 F.2d at 12-13 (holding
The majority seems to concede, albeit grudgingly, that the Secretary‘s attempts to enforce the frequency-of-payment and cross-crediting regulations were substantially justified. It nonetheless maintains that the Secretary went too far by pushing for debarment. Although it strives mightily to treat these inquiries as separate and distinct, the two are inextricably intertwined.
The SCA requires the Secretary, within ninety days after she concludes that a violation of the statute has occurred, to forward to the Comptroller General the name of the individual or firm found to have [committed the violation].
In this case, the Secretary, having credibly found violations of both the frequency-of-payment and fringe benefit regulations, thought it inconcinnous to exempt Dantran from debarment. The district court upheld that determination. The calculus changed, however, when we set aside the finding that Dantran had violated the fringe benefit regulation. Dantran I, 171 F.3d at 65-66. At that point, after noting that the issue was one of some complexity, id. at 68, we conducted a lengthy analysis and determined that unusual circumstances rendered debarment an inappropriate remedy for the violation of the frequency-of-payment regulation, standing alone. Id. at 68-75. The majority seizes on this determination and argues that it demonstrates that the Secretary was not substantially justified in seeking debarment in the first place. The fallacy in this argument is that it wrests what the prior panel wrote from the context in which we wrote it.
Take, for example, the majority‘s reliance on the constellation of mitigating factors (e.g., the first compliance officer‘s acquiescence in Dantran‘s payroll practices, Dantran‘s generally good compliance history, and its prompt payment of all monies due) that the prior panel enumerated to excuse Dantran‘s violation of the frequency-of-payment provision. See Dantran I, 171 F.3d at 69-73. The majority transplants these factors, root and branch, from one opinion to the other without the slightest allowance for the stark difference in settings. The prior panel wrote in the context of a finding that Dantran had transgressed only the frequency-of-payment regulation. My brethren write, how
Stated another way, the Secretary, in deciding not to grant relief from debarment, was entitled to rely on her reasonable (albeit erroneous) finding that Dantran had persistently violated the fringe benefit regulation. This factor, together with Dantran‘s undeniable violation of the frequency-of-payment regulation, justified the Secretary‘s conclusion that aggravating circumstances prevented relief from debarment. See
In an effort to shore up its flawed reasoning, the majority suggests that the Secretary‘s persistence in seeking debarment after the ALJ had found that Dantran had a justifiable, good-faith belief that [the two challenged] practices were lawful somehow robbed her subsequent actions of any patina of substantial justification.
I need go no further. The short of it is that, on this record, I see no way to hold that the Secretary lacked substantial justification in not exempting Dantran from debarment. After all, the EAJA does not require the government to be prescient: substantially justified does not mean justified to a high degree, but rather justified in substance or in the main—that is, justified to a degree that could satisfy a reasonable person. Pierce v. Underwood, 487 U.S. 552, 565 (1988) (internal quotation marks omitted). Here, the Secretary not only had reasonable bases in fact and law for believing that Dantran had violated the SCA, but also had reasonable bases in fact and law for pursuing debarment. No more is exigible to show substantial justification (and, accordingly, to defeat an EAJA application). See id.; see also Sierra Club v. Sec‘y of Army, 820 F.2d 513, 516-17 (1st Cir. 1987). Because my brethren set the bar considerably higher for the Secretary, I respectfully dissent.
No. 00-1940.
United States Court of Appeals, First Circuit.
Heard April 2, 2001.
Decided April 17, 2001.
Notes
[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 ... including proceedings for judicial review of agency 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.
Id. The government‘s position in Pierce was rejected by nine district courts and two courts of appeals, though two courts, including the Supreme Court, issued stays that the government relied on to show justification. The Court declined to base its decision on this category of objective indicia, turning instead to a review of the merits.Obviously, the fact one other court agreed or disagreed with the Government does not establish whether its position was substantially justified. Conceivably, the Government could take a position that is not substantially justified, yet win; even more likely, it could take a position that is substantially justified, yet lose. Nevertheless, a string of losses can be indicative; and even more so a string of successes.
While it would not be insignificant that the ultimate merits panel, as here, was divided in its outcome (or that the district court and ARB sided with the government), that objective fact could not outweigh an appellate court‘s conviction, based on a review of the underlying issues, that the district court erred in ruling the government‘s position to be substantially justified. Cf. Sierra Club, 820 F.2d at 518 ([A]fter the merits of a case have been adjudicated, fresh and distinctive inquiry is needed to determine whether a fee entitlement vests under EAJA.).
Sections 38 and 39 of this title [provisions of the Walsh-Healey Act] shall govern the Secretary‘s authority to enforce this chapter [the SCA], make rules, regulations, issue orders, hold hearings, and make decisions based upon findings of fact, and take other appropriate action hereunder.
Proceedings under the Service Contract Act and the Contract Work Hours and Safety Standards Act are not subject to the Equal Access to Justice Act.... Accordingly, in any proceeding conducted pursuant to the provisions of this Part 8, the Board shall have no power or authority to award attorney fees and/or other litigation expenses pursuant to the Equal Access to Justice Act.