Abel Converting, Inc. v. US, Civ. A. No. 88-0177-OG.

• Decision Date: 15 July 1988
• Docket Number: Civ. A. No. 88-0177-OG.
• Citation: 695 F. Supp. 574
• Parties: ABEL CONVERTING, INC., Plaintiff, v. The UNITED STATES, et al., Defendants.
• Court: U.S. District Court — District of Columbia

695 F. Supp. 574

ABEL CONVERTING, INC., Plaintiff, v. The UNITED STATES, et al., Defendants.

Civ. A. No. 88-0177-OG.

United States District Court, District of Columbia.

July 15, 1988.

Bingham Kennedy and Barry Trilling, Freedman, Levy, Kroll & Simonds, Washington, D.C., for Abel Converting, Inc.

Daniel Bensing, Asst. U.S. Atty., Washington, D.C., for U.S.

MEMORANDUM

GASCH, Senior District Judge.

After hearings on plaintiff's application for a temporary restraining order and motion for preliminary injunction both of which were granted, the Court entered final judgment for plaintiff on March 16, 1988. Plaintiff, a small paper towel manufacturer, now seeks an award of attorney's fees under the Equal Access to Justice Act, 28 U.S.C. § 2412(d)(1) (1982 & Supp.).

I. BACKGROUND

In July 1987, the General Services Administration ("GSA") solicited bids for a two-year contract for the purchase of a variety of paper towel products. Plaintiff was the incumbent contractor, but no copy of the solicitation was mailed to it. Direct notification of incumbents is expressly required by GSA regulations, 48 C.F.R. § 514.203-1(b), and implicitly required by the Federal Acquisition Regulations, id. § 14.205-1 and the Competition in Contracting Act ("CICA"), 41 U.S.C. § 251 et seq.

Despite admitting that it had failed to comply with these regulations and statute, GSA refused plaintiff's demand that bids be resolicited. As a result of plaintiff's protest of this decision, the General Accounting Office ("GAO") concluded that a portion of the solicitation should be rescinded. Abel Converting, Inc., GAO No. B-229065 (Jan. 15, 1988). The GAO distinguished those items of the solicitation for which only one bid was submitted from those for which more than one bid was submitted. The distinction was based on the Competition in Contracting Act ("CICA"), Pub.L. No. 98-369, 98 Stat. 1175 (1984) (codified at 31 U.S.C. § 3551 et seq. & 41 U.S.C. § 251 et seq.), which requires that government contracts be let only after "full and open competition." Id. §§ 253 & 403(7).

Dissatisfied with the partial remedy recommended by the GAO, plaintiff filed suit seeking temporary and permanent injunctive relief against award of a contract by GSA under the faulty solicitation and directing GSA to resolicit bids for all thirty-three items originally appearing in the solicitation. Finding no basis for GSA's failure to mail a solicitation packet to plaintiff, the Court granted plaintiff's application for a temporary restraining order. After a prolonged hearing and extensive briefing, the Court preliminarily enjoined GSA from awarding any contracts under the solicitation. Abel Converting, Inc. v. United States, 679 F.Supp. 1133, 1142 (D.D.C. 1988).¹

Throughout this litigation the parties negotiated for settlement but were unable to reach a compromise acceptable to all. Because the GSA announced an intention to resolicit all thirty-three items and intervenors withdrew resistance to this proposal, see, e.g., Order, Abel Converting, Inc. v. United States, Civil Action No. 88-0177-OG (filed Mar. 10, 1988) available on WESTLAW, 1988 WL 28331 (granting defendant-intervenor Fort Howard's motion to dismiss voluntarily its cross claim), the Court entered judgment for plaintiff on March 16, 1988. Plaintiff now moves for an award of attorney's fees and expenses under EAJA.

II. DISCUSSION

The EAJA authorizes an award of attorney's fees and expenses against the United States

in any civil action (other than cases sounding in tort), including proceedings for judicial review of agency action, brought by or against the United States in any court having jurisdiction of that action, 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). The benefits of EAJA do not inure, however, to all litigants who challenge the United States. To qualify for these benefits, a corporation must be the prevailing party, must have a net worth of no more than $7,000,000, and must employ no more than 500 employees. Id. §§ 2412(d)(1)(B) & (d)(2)(B).

The government does not contest plaintiff's capacity to qualify for an award under EAJA. Instead, the parties' dispute focuses on whether the treatment of plaintiff's protest by the GSA was substantially justified. The GSA also insists that the fees and expenses demanded by plaintiff are exaggerated.

A. Was The Position Of The GSA Substantially Justified?

As a qualifying party under the EAJA, 28 U.S.C. § 2412(d)(2), plaintiff is entitled to recover its attorney's fees and expenses, unless the GSA can demonstrate that its position on the merits of this case and its conduct prior to litigation were substantially justified. See Cinciarelli v. Reagan, 729 F.2d 801, 804 (D.C.Cir.1984); Trahan v. Regan, 824 F.2d 96, 101 (D.C.Cir. 1987); 28 U.S.C. § 2412(d)(2)(D). As recently explained by the Supreme Court, the government satisfies this burden if its position was "justified to a degree that could satisfy a reasonable person." Pierce v. Underwood, ___ U.S. ___, 108 S.Ct. 2541, 2549, 101 L.Ed.2d 490 (1988). The standard "is no different from the `reasonable basis in both law and fact' formulation adopted by ... the vast majority of ... Courts of Appeals that have addressed this issue." Id. (citing cases from the First, Third, Fourth, Fifth, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits).²

An agency is not per se precluded from satisfying this standard simply because its action is determined to be arbitrary and capricious. Federal Election Commission v. Rose, 806 F.2d 1081, 1089 (D.C.Cir.1986). There is a "rich variety of agency conduct" to which the arbitrary and capricious label may be affixed, and EAJA requires that the Court reexamine the merits of the conduct under the standard set forth by that statute. Id. Of the many reasons for invalidating agency conduct under the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, some have little to do with the reasonableness of that conduct. When the conduct is determined to be "contrary to law," however, "the government will rarely be able to demonstrate that its administrative action was substantially justified." Trahan, 824 F.2d at 102.

This determination, in contrast to the "arbitrary and capricious" finding, inevitably reflects on the reasonableness of the agency's action in light of the organic law. Due to the deference granted the agency, the determination that an agency's action is contrary to law in this context is basically a determination that the agency has acted unreasonably.... "When the construction of an administrative regulation rather than a statute is in issue, deference to the agency is even more clearly in order." ... A court may invalidate an agency's construction of its regulations only if it is "plainly erroneous or inconsistent with the regulation." ... Thus, when a court invalidates an agency action that is based on the agency's interpretation of its ... own regulations, the court is in effect finding that the interpretation is, at best, unreasonable.

Id. (citations omitted).³ In "rare circumstances," however, the agency may surmount this presumption. As GSA argues in this case, one such circumstance is when the agency relies upon its prior interpretation of the regulation or judicial precedent. Id.

Trahan obviously establishes a strong presumption that agency action in contravention of its own regulations is not justified to a reasonable degree. Had this case traversed all the stages of litigation with the result presaged by plaintiff's success at the preliminary stages, the Court's task would simply be to determine whether the circumstances of this case are a presumption-rebutting rarity. The question is complicated, however, by the unusual manner in which this case was terminated. Before the merits of the GSA's action were presented for review, the agency withdrew its opposition to resolicitation of all items in the faulty solicitation. Resistance by defendant-intervenors to resolicitation also dissipated before the Court could finally determine whether the GSA had acted contrary to law in refusing to adopt initially the position to which it eventually acquiesced. The ostensible reasons for this disposition of the case were the GSA's need to procure quickly the paper towels and the disproportionate cost of protracted litigation; there was no admission by any defendant that the plaintiff's arguments would inevitably prevail.

Our Circuit Court has suggested that settlement at the behest of the government creates an irrebuttable presumption that its position was not substantially justified.

It seems clear that, if the government does not immediately accede to the plaintiff's demand, but instead initially opposes his claims and then at some later stage (e.g., in a pre-trial settlement) surrenders, the United States will be liable for attorneys' fees.... Under such circumstances, not only will sic government have acted unreasonably, but it will have adopted (at least briefly) a litigation position lacking substantial justification.

Spencer v. N.L.R.B., 712 F.2d 539, 555 n. 58 (D.C.Cir.1983). Though apparently unequivocal, the effect given by Spencer to settlement by the government relies on an inference not universally applicable to settled cases. Pierce, 108 S.Ct. at 2551. The inference simply is that the government would settle only if its position were not substantially justified. This case is evidence that the inference is not always well-founded. The decision to settle was purportedly based on a balancing of the value of litigation versus its cost and the urgency of the need for paper towels. Consequently, the Court cannot conclude without some examination of the merits that GSA's settlement of the case was tantamount to an admission that its position was not substantially justified. See Cinciarelli, 729 F.2d at 807 n. 6.

Although settlement...