“Ignorance is not bad faith. But persistence in ignorance is.”  -Joanna Russ

When it comes to the payment of attorneys’ fees in litigation disputes, the American Rule requires each party to bear its own costs.  There are some exceptions to this rule – a fee-granting statute, a fee-shifting contract provision, bad faith or other misconduct sufficient to justify the fee award.  Even the U.S. Department of Labor (DOL) can be found to have engaged in bad faith.  In that context, bad faith doesn’t necessarily mean DOL’s position was obviously frivolous from the outset.  As discussed below, bad faith may arise at any point during litigation, requiring courts to evaluate the merit of a claim throughout the entire course of the judicial process.

The Equal Access to Justice Act (EAJA) waives sovereign immunity on a limited basis and provides two routes for recovering attorneys’ fees from the federal government.  28 U.S.C § 2412(b) allows for recovery if a party can prove the Government acted in “bad faith, vexatiously, wantonly, or for oppressive reasons.”  Alternatively, 28 U.S.C. § 2412(d) allows the recovery of attorneys’ fees if the Government’s position was not “substantially justified.” The difference in these sections affects the bottom-line when it comes to attorneys’ fees.  Unlike § 2412(b), § 2412(d) is inapplicable to certain classes of individuals and corporations, and the award is limited to a modest hourly rate.  Obviously, § 2412(b) is the preferable route for a party seeking full recompense for attorneys’ fees.  A party seeking such an award should not be discouraged if the claim against it appears to be meritorious at the outset, for even claims with merit may deteriorate as the case progresses.

In Gate Guard Services, L.P. v. Perez, 792 F.3d 554 (5th Cir. 2015), the 5th Circuit dealt with this very issue.  There, DOL unreasonably pursued a failing case against an employer, Gate Guard, for allegedly misclassifying its gate attendants as independent contractors.  In the past, DOL has gone on “witch hunts” for improperly classified independent contractors.  In DOL’s view, almost no worker was an independent contractor.  In this case, the foundation of DOL’s case was shoddy from the beginning, and any merit it may have possessed quickly deteriorated after litigation commenced.  Ultimately, the District Court for the Southern District of Texas granted summary judgment in favor of Gate Guard.  Gate Guard then sought the recovery of its attorneys’ fees, which the Government opposed.  The district court found that DOL’s claim lacked substantial justification and awarded attorneys’ fees under § 2412(d) for the bad faith and vexatious positions taken by the Government.  The court held, however, that § 2412(b) was inapplicable as Gate Guard failed to show the Government’s position was “entirely frivolous.”  Gate Guard and the Government cross-appealed this award to the 5th Circuit.

The 5th Circuit found the district court’s test to be “unduly restrictive,” stating that the presence of merit at the outset of a case does not automatically preclude a finding of bad faith down the road.  In this case, DOL’s malfeasance was obvious from the start as DOL gave the case to an investigator who had virtually no experience with contractor classification issues.  The case continued spiraling downward, but the Government continued its pursuit notwithstanding.  As the legal justification began to crumble, the Government’s oppressive tactics increased.  The DOL attorney assigned to the case from the Solicitor’s Office was abusive, and the litigation strategy was dubious at best.  By the end, DOL was left fighting for a case that had all but disintegrated.  These outrageous tactics coupled with negligible merit resulted in a case DOL should have abandoned long ago.  Its failure to do so amounted to an abuse of the judicial system, and ultimately, a finding of bad faith.  The result was an award of attorneys’ fees under § 2412(b), leaving DOL responsible for covering Gate Guard’s defense costs.

DOL has behaved oppressively on numerous occasions.  It has many tools at its disposal to secure the outcome it seeks, such as regulations making its administrative procedures exempt from EAJA awards.  It has also ignored due process rights and unilaterally seized monies with impunity and without advanced notice to government contractors.  Gate Guard Services represents one of the few times DOL has been held to account for its vexatious and oppressive conduct.  While such a result is rare, it stands as a warning to DOL that there are limits on its abusive tactics.