246 F.3d 36 (1st Cir. 2001), 00-1656, Dantran v. U.S Dept of Labor

Docket Nº00-1656
Citation246 F.3d 36
Party NameDANTRAN, INC. AND ROBERT HOLMES, Plaintiffs, Appellants, v. UNITED STATES DEPARTMENT OF LABOR, Defendant, Appellee.
Case DateApril 13, 2001
CourtUnited States Courts of Appeals, United States Courts of Appeals. United States Court of Appeals (1st Circuit)

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246 F.3d 36 (1st Cir. 2001)

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

Heard January 11, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE

[Hon. Gene Carter, U.S. District Judge]

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Richard P. Romeo, with whom Seth D. Harrow was on brief, for appellants.

Carol Arnold, Attorney, with whom Henry L. Solano, Solicitor of Labor, Steven

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J. Mandel, Associate Solicitor, and Paul L. Frieden, Counsel for Appellate Litigation, were on brief, for appellee.

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 (lst Cir. 1999). Having achieved that outcome, appellants came back to court seeking attorney's fees under the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412(d)(1)(A), which entitles litigants who prevail against the government to attorney's fees unless the position of the United States was "substantially justified." The district court concluded that the government's position had sufficient merit and rejected the fee request. Our review of the record and relevant legal principles persuades us that the court erred in its assessment of the latter phase of the government's case. We therefore reverse its judgment and remand for calculation of fees covering the appropriate portions of the litigation, as discussed in Section III below.

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"), 41 U.S.C. §§ 351-358, and related regulations. The complaint followed an examination by the Department of Labor's Wage and Hour Division, whose investigator concluded that two of Dantran's routine practices - paying employees on a monthly basis and capping fringe benefits at 40 hours per week regardless of the number of hours an employee actually worked ("cross-crediting" benefits) - violated the Act.

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

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and filed a debarment complaint. The Act's enforcement scheme generally anticipates debarment proceedings whenever the Secretary determines that a government contractor has violated the Act or its associated regulations, but both the statute and regulations provide that the existence of "unusual circumstances" may warrant a reprieve from that sanction. See 41 U.S.C. § 354(a); 29 C.F.R. § 4.188(a). The existence of "unusual circumstances" in a given case depends on the absence of aggravating factors and the presence of mitigating factors. SeeDantran, 171 F.3d at 68, 73 (listing some aggravating and mitigating factors); 29 C.F.R. § 4.188(b)(3)(i), (ii). If a contractor's conduct evidences one of the enumerated aggravating circumstances, which include culpable neglect or culpable disregard of regulatory obligations, "relief from the debarment sanction cannot be in order." Id. at § 4.188(b)(3)(i). 2

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, 3 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.

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

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fact and law to pursue debarment. The court relied primarily on the differing conclusions reached in the prior judicial and administrative proceedings to support its conclusion that a reasonable person could view the government's position as justified. 4

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." 28 U.S.C. § 2412(d)(1)(A). 5 There is no dispute that appellants prevailed, and the controversy before us therefore centers on whether the government was "substantially justified" in pursuing debarment. That the government lost in the underlying litigation does not create a presumption that its position was not substantially justified. Pierce v. Underwood, 487 U.S. 552, 569 (1988); United States v. One Parcel of Real Prop., 960 F.2d 200, 208 (lst Cir. 1992). Nor does success at some stage of the litigation prove the requisite level of justification. Pierce, 487 U.S. at 569; Sierra Club v. Sec'y of Army, 820 F.2d 513, 517 (lst Cir. 1987). 6 The question is whether the

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government's position "has a reasonable basis in law and fact,"Pierce, 487 U.S. at 566 n.2, or, stated another way, whether "a reasonable person could think it correct," id.; see also De Allende v. Baker, 891 F.2d 7, 11-12 (lst Cir. 1989). This standard means that the government's case need not be frivolous to support an award of fees, Pierce, 487 U.S. at 566, but, on the other hand, the litigation need not be a cliffhanger to be sufficiently justified. The government bears the burden of proving, by a preponderance of the evidence, that its position was substantially justified, De Allende, 891 F.2d at 12, and we review the district court's determination for abuse of discretion, Pierce, 487 U.S. at 562-63.

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." 41 U.S.C. § 354(a). As we noted in our earlier decision, appellants violated an explicit prohibition against pay periods longer than semimonthly, see Dantran, 171 F.3d at 65-66 (citing 29 C.F.R. § 4.165(b)), and, on that basis alone, the Secretary was required to institute debarment proceedings, seeid. at 67. We think it reasonable for the Secretary to have awaited the fact finding hearing before deciding whether appellants were entitled to a reprieve from that penalty because of "unusual circumstances." Indeed, the enforcement regulations caution the Secretary to use restraint in excusing a contractor from the ineligible list, see 29 C.F.R. § 4.188(b)(1), and the burden of establishing unusual circumstances falls on the violator, id. See also Vigilantes, Inc. v. Adm'r, Wage and Hour Div., 968 F.2d 1412, 1418 (lst Cir. 1992) ("The legislative history of the SCA makes clear that debarment of contractors who violated the SCA should be the norm, not the exception, and only the most compelling of justifications should relieve a...

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