Lead Opinion
KETHLEDGE, J., delivered the opinion of the court in which BATCHELDER, J., joined. ROGERS, J. (pg. 472-73), filed a separate dissenting opinion.
OPINION
. This case is before us for a third time. The defendant, Circle C Construction, is a family-owned general contractor that built 42 warehouses for the United States Army in Kentucky and Tennessee. In the course of building all those warehouses, over a period of seven years, a subcontractor, Phase Tech, paid two of its electricians about $9,900 .less than the wages mandated by the Davis-Bacon Act. That underpayment rendered false a number of “compliance statements” that Circle C submitted to the government along with its invoices. As a result, the government thereafter pursued Circle C for nearly a decade of litigation, demanding not merely $9,900— Phase Tech itself had paid $15,000 up front to settle that underpayment — but rather $1.66 million, of which $554,000 was purportedly “actual damages” for the $9,900 underpayment. The government’s theory in support of that demand was that all of Phase Tech’s electrical work, in all of the warehouses, was “tainted” by the $9,900 underpayment — and therefore worthless. “The problem with that theory,” we wrote in the last appeal, was that, “in all of these warehouses, the government turns on the lights every day.” United States ex rel. Wall v. Circle C Constr., LLC,
Over the past decade, Circle C paid its attorneys an estimated $468,704 to defend against the government’s claim. In Circle C’s view, Congress has contemplated situations like this one: a 1996 amendment to the Equal Access to Justice Act provides that, if a court awards damages to the federal government, but the government’s original demand for damages was both “substantially in excess of the judgment finally obtained” and “unreasonable when compared with such judgment,” then (subject to two exceptions) the court must “award to the [defendant] the fees and
Accordingly, on remand after the last appeal, Circle C moved under § 2412(d)(1)(D) for recovery of its attorneys’ fees in this litigation. But the district court denied the motion. Citing only legislative history — and indeed without first identifying any ambiguity in the words of the provision at issue, contrary to Supreme Court precedent, see, e.g., Exxon Mobil Corp. v. Allapattah Servs., Inc.,
* We review the district court’s denial of Circle C’s motion for an abuse of discretion. See Minor v. Comm’r of Soc. Sec.,
Yet the government ventures to argue that § 2412(d)(1)(D) does not apply. Section 3730(g) is entitled, “Fees and expenses to prevailing defendant.” Circle C technically was not a prevailing defendant, because on remand the district court entered a judgment in favor of the government (albeit in an amount that was less than 1% of the amount the government initially sought). The government thus contends that § 2412(d)(1)(D) does not apply, because that section authorizes awards to noM-prevailing defendants (in cases where, among other things, the government’s demand was unreasonable). But that argument overlooks a basic principle of statutory construction, namely that a provision’s title “cannot limit the plain meaning of the text.” Penn. Dep’t of Corr. v. Yeskey,
Thus we turn to § 2412(d)(1)(D), which provides in relevant part:
If, in a civil action brought by the Unit- • ed 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, under the facts and circumstances of the ease, the court shall award to the party the fees and other expenses related to defending against the excessive demand, unless the party has committed a willful violation of law or otherwise acted in bad faith, or special circumstances make an award unjust.
Under this subsection, the party seeking fees bears the burden of proving (i) that the government’s demand was substantially in excess of the award obtained by the judgment and (ii) that the government’s
That leaves the question whether the government’s demand was “unreasonable” as that term is used in § 2412(d)(1)(D). Neither this circuit nor, so far as we can tell, any other has specifically interpreted the term “unreasonable” as used in that provision. But that term is hardly abstruse. As a matter of ordinary usage, “unreasonable” means “not governed by reason” or “exceeding reasonable limits; immoderate[.]” The American Heritage Dictionary 1957 (3d ed. 1994). And meanwhile there is a well-developed body of law concerning a similar inquiry under a related provision: namely, whether the government’s position was “substantially justified” under § 2412(d)(1)(A). On that point, our court (along with numerous others) has held that “[t]he question of substantial justification is essentially one of reasonableness[J” United States v. 0.376 Acres of Land,
The Supreme Court has held that, to be “substantially justified” under § 2412(d)(1)(A), the government’s position “of course” must be “more than merely undeserving of sanctions for frivolousness[.]” Pierce v. Underwood,
. The question, then, is whether the government’s demand for $1.66 million as compensation for Phase Tech’s $9,900 underpayment of its electricians, in a project spanning seven years, was justified to that degree. The short answer to that question, as we said in the last appeal, is that the damages the government sought to recover in this case were “fairyland rather than actual.” Wall,
A longer answer begins with the observation that actual damages are a simple concept, familiar to any first-year student in law school. In the context of this ease, actual damages are simply “the difference in value between what the government bargained for and what the government received.” Id. at 617 (citing U.S. ex rel. Roby v. Boeing Co.,
The government therefore faces strong headwinds — both common-sense and legal — in asserting that its demand for roughly $554,000 in actual damages, and $1.66 million overall, was reasonable nonetheless. The government’s theory, as noted above, was that all of Phase Tech’s electrical work was tainted by the $9,900 underpayment and therefore valueless to the
The • district court, as noted above, held that the government’s theory was reasonable simply because the court itself had twice accepted the theory. But “the fact that one other court agreed or disagreed with the Government does not establish whether its position was substantially justified.” Pierce,
That means Circle C was entitled to a fee award unless it “committed a willful violation of law or otherwise acted in bad faith, or special circumstances make an award unjust.” 28 U.S.C. § 2412(d)(1)(D). The district court did not reach this issue because it mistakenly thought that the government’s demand was reasonable. Yet we choose to reach the issue because the parties have briefed it, the merits are clear, and this litigation has already persisted for nearly ten years. See Carrier Corp. v. Outokumpu Oyj,
We begin with the burden of proof. Typically, when a statute articulates a general rule, the burden, of proving an exception rests with the party invoking it. See N.L.R.B. v. Kentucky River Cmty. Care, Inc.,
As to these exceptions, the government first argues that Circle C “acted in bad faith.” The Act does not define bad faith, but it is a common term of art. The sixth edition of Black’s Law Dictionary— the one in effect at the ■ time § 2412(d)(1)(D) was enacted — defines “bad faith” as “not prompted by. an honest mistake as to one’s rights or duties, but by some interested or sinister motive.” Black’s Law Dictionary 139 (6th ed. 1990). That definition nicely captures the term, and we adopt it here.
The government has not shown that the conduct giving rise to Circle C’s $14,748 of liability in this case was driven by a sinister motive rather than the result of an honest mistake. Unlike many cases under the False Claims Act, this case did not involve a large-scale, systematic effort
Instead, the government contends that, “[b]y definition, a defendant who has been found liable under the False Claims Act has ‘knowingly1 made or caused ‘false or fraudulent claims’ on public money.” Government Br. at 34 (quoting 31 U.S.C. § 3729(a)). Under the False Claims Act,, however, “knowingly” is itself a term of art, which refers to three mental states: “actual knowledge,” “deliberate ignorance,” or “reckless disregard.” 31 U.S.C. § 3729(b)(1)(A). The district court found that Circle C was reckless — the least culpable of these states — as to whether its compliance reports were accurate regarding the wages paid to Phase Tech’s electricians (actually, on this record, just two of them). But “recklessness is a less stringent standard than bad faith[.]” United States v. Wallace,
The government also argues that this case presents two circumstances that are special enough to “make an award unjust.” 28 U.S.C. § 2412(d)(1)(D). First>-in reference to the government’s theory that all of Phase Tech’s electrical work was worthless — the government says that, in applying § 2412(d)(1)(D), we should leave room to allow the government to present “novel but credible” interpretations of law, See generally United States v. Winchester Mun. Utils.,
Second — and finally — the governmént warns that a fee award'in this case would have a “chilling effect” on its efforts “to vigorously enforce” the False Claims Act. Gov’t Br. at 13-14, 37. One should hope so. In this case the government made a demand for damages a hundredfold greater than what it was entitled to, and then pressed that demand over nearly a decade of litigation, all based on a theory that as applied here was nearly frivolous. The consequences for Circle C included nearly a half-million dollars in attorneys’ fees. Section 2412(d)(1)(D) makes clear that the government must bear its share of those consequences as well,
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The district court abused its discretion when it denied Circle C’s motion. We reverse the district court’s June 17, 2016 Order and remand the ease for an award to Circle C of "the fees and other expenses related to defending against the [government’s] ¿xcessive demand,” 28 U.S.C. § 2412(d)(1)(D), including, to the extent appropriate, fees incurred during this appeal and on remand.
Dissenting Opinion
■ ■ DISSENT
dissenting.
The majority accepts that the Government does not owe fees if its position was “substantially justified.” That standard