Iowa Exp. Distribution, Inc. v. N.L.R.B.

• Decision Date: 11 July 1984
• Docket Number: No. 83-1589,83-1589
• Citation: 739 F.2d 1305
• Parties: 116 L.R.R.M. (BNA) 3224, 101 Lab.Cas. P 11,173 IOWA EXPRESS DISTRIBUTION, INC., Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1305

739 F.2d 1305

116 L.R.R.M. (BNA) 3224, 101 Lab.Cas. P 11,173

IOWA EXPRESS DISTRIBUTION, INC., Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent.

No. 83-1589.

United States Court of Appeals Eighth Circuit.

Submitted Dec. 13, 1983.

Decided July 11, 1984.

Rogers, Phillips & Swanger, John R. Phillips, James R. Swanger, Des Moines, Iowa, for petitioner.

Aileen A. Armstrong, Asst. Gen. Counsel for Special Litigation, Lynne E. Deitch, Attorney, N.L.R.B., William A. Lubbers, Gen. Counsel, John E. Higgins, Jr., Deputy Gen. Counsel, Robert E. Allen, Associate Gen. Counsel, Elliott Moore, Deputy Associate Gen. Counsel, N.L.R.B., Washington, D.C., for respondent.

Before HEANEY and FAGG, Circuit Judges, and HANSON, ^* Senior District Judge.

FAGG, Circuit Judge.

Iowa Express Distribution, Inc. (IED) petitions this court for review of an order of the National Labor Relations Board dismissing IED's application for attorneys fees under the Equal Access to Justice Act (EAJA), 5 U.S.C. Sec. 504(c)(2). The issue for review is whether the Board abused its discretion in denying attorneys fees by deciding that the NLRB General Counsel was substantially justified in bringing an unfair labor practice case against IED. The dispute focuses on whether it was reasonable for the General Counsel to allege in its suit that IED was merely an alter ego of, or single employer with, Iowa Parcel Service (IPS). We affirm the Board's decision to deny attorneys fees.

I. Background

A. Facts

William K. Walker was the sole stockholder and president of a number of corporations in the trucking industry, including Merchants Delivery Company of Kansas City, Missouri. In 1978, Merchants acquired IPS, a common carrier serving 13 states in the Midwest with its main terminal in Des Moines, Iowa, and additional terminals in Waterloo, Iowa, and Omaha, Nebraska. Employment conditions at IPS were governed by collective bargaining agreements between IPS and Teamsters Local 90 in Des Moines and Teamsters Local 554 in Omaha. Because IPS was losing money, Walker decided to halt operations temporarily on March 23, 1981, and directed that the terminal gates be locked. On April 14, Walker permanently discontinued the operations of IPS.

Two long-time managers of IPS, Harold Sternberg and Randy McElroy, decided to go into business for themselves when they learned from Walker in early February 1981 that IPS would not likely continue in business. Walker encouraged Sternberg and McElroy to start their own company, and in lieu of severance pay, gave them a $25,800 interest-free loan to get them started. On March 4, 1981, IED's certificate of incorporation was filed, listing only Sternberg and McElroy as shareholders, directors, and officers. Walker was never an IED shareholder, director, or officer. Before resigning from IPS, Sternberg solicited several IPS pool customers for the new venture.

The scope of IED's operations was substantially more limited than IPS. IPS had served 1000 communities in Iowa and also had served 12 other midwestern states. IED served only 35 Iowa communities and the Omaha and Rock Island, Illinois areas. IPS's annual revenues in 1980 had exceeded $7 million. After eight months of operations, IED's revenues were $266,042. IPS had employed 90 drivers and dockworkers. IED employed only five drivers, who were referred to it by the Iowa employment office. No former IPS employees sought employment with IED. As the administrative law judge noted, however, IED's business was "identical in type if not in scope to a portion of IPS's operations."

B. Procedural History

The General Counsel of the NLRB issued an unfair labor practice complaint alleging that IED, as an alter ego of, or single employer with, IPS and its president, William K. Walker, violated sections 8(a)(1), (3) and (5) of the National Labor Relations Act, 29 U.S.C. Sec. 158(a)(1), (3) and (5). The complaint alleged that IPS had locked out and discharged its employees at IPS's Des Moines, Iowa facility, closed that facility, and transferred some of its operations to IED, while refusing to continue in effect its collective bargaining agreement with Teamsters Local 90. The complaint also alleged that IPS had closed its Omaha, Nebraska facility, discharged its employees, transferred its work to IED, and refused to bargain with Teamsters Local 554. After a four-day hearing, an administrative law judge found IPS guilty of the unfair labor practices alleged but recommended that the complaint against IED be dismissed. The administrative law judge found that the General Counsel's evidence, "while warranting grave suspicion," failed to establish that IED was an alter ego of, or single employer with, IPS. The Board adopted the administrative law judge's recommended order and dismissed the complaint against IED.

As a "prevailing party" IED then applied for $27,138.38 in attorneys fees and expenses pursuant to the EAJA. The same administrative law judge who dismissed the unfair labor practice complaint against IED also dismissed IED's application for attorneys fees, stating that "the evidence which General Counsel had in its possession justified its issuance of the complaint against the Applicant [IED] as well as IPS and Walker and warranted litigation." He concluded that "the General Counsel presented, if not a prima facie case, a case which still had a substantial basis in fact and law." The Board upheld the administrative law judge's dismissal of the application for attorneys fees and IED filed its petition for review with this court.

II. Equal Access to Justice Act

A. Overview

The Equal Access to Justice Act, 5 U.S.C. Sec. 504, provides that an agency shall award attorneys fees and expenses to a prevailing party in connection with an agency adversary adjudication "unless the adjudicative officer of the agency finds that the position of the agency as a party to the proceeding was substantially justified." 5 U.S.C. Sec. 504(a)(1). "[T]he test of whether the position of the United States is substantially justified is essentially one of reasonableness in law and in fact. The government bears the burden of proving the substantial justification of its position." Foley Construction Co. v. U.S. Army Corps of Engineers, 716 F.2d 1202, 1204 (8th Cir.1983). "The government must therefore show that there is a reasonable basis in truth for the facts alleged in the pleadings; that there exists a reasonable basis in law for the theory it propounds; and that the facts alleged will reasonably support the legal theory advanced." United States v. 2,116 Boxes of Boned Beef, 726 F.2d 1481, 1487 (10th Cir.1984). "Where the government forces a party into 'lengthy administrative proceedings before final vindication of his or her rights ... the government should have to make a strong showing ... that its action was reasonable.' " Cornella v. Schweiker, 728 F.2d 978, 982 (8th Cir.1984), quoting H.R.Rep. No. 1418, 96th Cong. 2d Sess. 18, reprinted in 1980 U.S.Code Cong. & Ad.News 4997. An administrative agency's fee determination under the EAJA may only be modified if there is an abuse of discretion. 5 U.S.C. Sec. 504(c)(2).

B. "Position of the United States"

Considerable uncertainty has surrounded the question of which government position must be substantially justified. Several courts have concluded that the government position referred to in the EAJA is its position in litigation. See, e.g., United States v. 2,116 Boxes of Boned Beef, supra, 726 F.2d at 1487; Spencer v. NLRB, 712 F.2d 539, 556-57 (D.C.Cir.1983); Electronic Modules Corp. v. United States, 702 F.2d 218, 219 (Fed.Cir.1983). Other courts have held that the government position referred to in the EAJA is the underlying governmental action that precipitated the litigation. See, e.g., Natural Resources Defense Council v. U.S.E.P.A., 703 F.2d 700, 707 (3d Cir.1983); Moholland v. Schweiker, 546 F.Supp. 383, 386 (D.N.H.1982); Photo Data, Inc. v. Sawyer, 533 F.Supp. 348, 352 (D.D.C.1982). See also Tyler Business Services, Inc. v. NLRB, 695 F.2d 73, 75 (4th Cir.1982) (cited for both litigation and underlying action theories; compare United States v. 2,116 Boxes of Boned Beef, supra, 726 F.2d at 1487, with Rawlings v. Heckler, 725 F.2d 1192, 1195 (9th Cir.1984)). The Ninth Circuit, noting its preference "for the broader 'underlying action' theory," has recently concluded that the government's position should be determined by "considering the totality of the circumstances prelitigation and during trial." Rawlings v. Heckler, supra, 725 F.2d at 1195-96. The Eighth Circuit has not yet decided which government position--litigation or prelitigation--is to be considered to determine substantial justification under the EAJA. We have observed, however, that "[i]n most cases 'it makes no functional difference how one conceives of the government's "position" ' because 'the litigation position of the United States will almost always be that its underlying action was legally justifiable.' " Foley Construction Co. v. U.S. Army Corps of Engineers, supra, 716 F.2d at 1204, quoting Spencer v. NLRB, supra, 712 F.2d at 551-52.

The statute itself does not define the term "position of the United States". The legislative history, which has been thoroughly examined in previous opinions, is inconclusive as to which position is to be examined. See, e.g., Cornella v. Schweiker, supra, 728 F.2d at 982; Rawlings v. Heckler, supra, 725 F.2d at 1195; Spencer v. NLRB, supra, 712 F.2d at 547-49; Natural Resources Defense Council v. USEPA, supra, 703 F.2d at 707-12. The references in the legislative history to the government's position at both the agency and litigation levels suggest to us, however, that Congress was concerned with unreasonable government activity at whatever level it was encountered. See Rawlings v. Heckler, supra, 725 F.2d at 1195. We must also consider the purpose of the EAJA to determine the meaning of the government's "position." If we were to...