Justices Remand Title VII Legal Fees Dispute

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By Kevin McGowan

May 19 — The Equal Employment Opportunity Commission may be ordered to pay an employer's attorneys' fees under Title VII of the 1964 Civil Rights Act when an agency lawsuit is dismissed because the EEOC failed to satisfy its pre-suit requirements, the U.S. Supreme Court has ruled.

The justices 8-0 reversed a U.S. Court of Appeals for the Eighth Circuit decision that a district court ruling on the merits of the underlying discrimination claims is required for an employer to be deemed a “prevailing party” able to recover its legal fees.

There's no indication in Title VII that Congress intended that employers defending EEOC suits “should be eligible to recover attorneys' fees only when courts dispose of claims on the merits,” Justice Anthony Kennedy wrote.

Debate Over Significance

Attorneys representing employers and plaintiffs differed on the significance of the court's ruling, which both sides indicated was the expected outcome.

A decision that victorious employers may recover their attorneys' fees if the EEOC fails to investigate or to try to settle discrimination claims prior to filing suit could affect the agency's systemic program, said Gerald Maatman, with Seyfarth Shaw in Chicago.

Under its systemic program, the EEOC emphasizes investigating and litigating cases affecting an entire employer or industry or large classes of workers.

But employers say the EEOC sometimes fails to investigate or conciliate individual bias charges because of its eagerness to develop and litigate systemic cases. The Supreme Court's decision holding the EEOC potentially liable for an employer's attorneys' fees if it neglects those required pre-suit steps should give the agency pause, Maatman told Bloomberg BNA May 19.

However, plaintiffs' attorney Paul Mollica said the court issued a “very incremental decision” that reaffirms Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 16 FEP Cases 502 (1978). In Christiansburg, the court said when an employer is the “prevailing party” under Title VII, a district court may award attorneys' fees only if the EEOC's claim was “frivolous, unreasonable or groundless” or the agency continued to litigate “after it clearly became so.”

The Eighth Circuit's “unusual” position that a district court must rule “on the merits” for a defending employer to be a “prevailing party” conflicted with every other federal circuit to address the issue, Mollica told Bloomberg BNA May 19.

That the Supreme Court rejected an “on the merits” gloss to Christiansburg and said an employer is a “prevailing party” if it wins a Title VII case for procedural reasons isn't a change in the law anywhere but the Eighth Circuit, said Mollica, who is with Outten & Golden in Chicago.

On remand, the EEOC still can defeat attorneys' fees by showing its actions weren't “frivolous, unreasonable or groundless,” Mollica said.

The court's decision is a “notable follow-up” to Mach Mining LLC v. EEOC, 135 S. Ct. 1645, 126 FEP Cases 1521 (2015), in which the court ruled the EEOC's conciliation efforts are subject to narrow judicial review (82 DLR AA-1, 4/29/15), said Kevin Kraham, with Littler Mendelson in Washington.

The justices now hold that a district court's dismissal of a discrimination suit because of the EEOC's “complete failure” to fulfill its investigation and conciliation obligations can support an employer's attorneys' fees award, Kraham told Bloomberg BNA May 19.

That “bright-line standard” is significant for employers and sends a message that the court expects the EEOC to take its pre-suit obligations seriously, Kraham said.

CRST Van Expedited Inc., the trucking firm whose $4.5 million attorneys' fees award was vacated by the Eighth Circuit, is pleased with the Supreme Court ruling, said attorney Paul Smith, who represented CRST before the court.

“We are hopeful that the district court and Eighth Circuit will move fast to restore the fee award on remand,” Smith told Bloomberg BNA by e-mail May 19. Smith is with Jenner & Block in Washington.

The EEOC is reviewing the decision and looks forward to presenting its arguments to the Eighth Circuit, an agency spokeswoman said May 19.

Two Trips to Eighth Circuit

In several rulings, a federal district court in Iowa mostly had dismissed the EEOC's sex discrimination claims against CRST, which were based on a female driver trainee's charge she had been sexually harassed by male trainers. During its investigation of her charge, the EEOC said it discovered other female drivers also had been harassed.

But the district court dismissed the EEOC's claim that CRST had engaged in a “pattern or practice” of sex discrimination. It also dismissed some 67 individual discrimination claims because it found the EEOC had failed to investigate or conciliate (try to settle) any of those claims prior to suing. The district court granted CRST's request for attorneys' fees, awarding $4.5 million to be paid by the EEOC.

In 2012, a split Eighth Circuit affirmed dismissal of the EEOC's pattern or practice claim and most of the individual discrimination claims (91 DLR A-4, 5/10/12). It agreed with the district court that under Title VII, the EEOC had to investigate and conciliate all individual claims before filing its lawsuit. But the appeals court remanded the fee award.

On remand, the district court awarded $4.7 million in attorneys' fees and costs, again citing the EEOC's total failure to investigate or conciliate the 67 individual claims (151 DLR A-1, 8/6/13).

But the Eighth Circuit in 2014 vacated the fee award, saying the district court's failure to decide the merits of the underlying bias claims meant CRST wasn't a “prevailing party” under Title VII's fee-shifting provision (245 DLR AA-1, 12/22/14).

The Supreme Court granted CRST's petition for review last December (233 DLR AA-1, 12/4/15).

No ‘Merits' Ruling Required

At oral argument March 28, the EEOC didn't defend the Eighth Circuit's “on the merits” rationale for vacating the fee award. Instead, the government argued CRST wasn't a prevailing party because the district court hadn't dismissed the EEOC's suit with prejudice and CRST therefore lacked a “preclusive judgment” shielding it from further EEOC litigation on the sexual harassment claims (59 DLR AA-1, 3/28/16).

The Supreme Court, however, decided only whether it should affirm the Eighth Circuit's “on the merits” rule for awarding defendants attorneys' fees under Title VII.

It said “common sense” and Supreme Court precedent undercut the notion that “sparing defendants from the costs of frivolous litigation” depends on a distinction between merits-based and non-merits-based “frivolity.”

“Congress must have intended that a defendant could recover fees expended in frivolous, unreasonable, or groundless litigation when the case is resolved in the defendant's favor, whether on the merits or not,” Kennedy wrote. “Imposing an on-the-merits requirement for a defendant to obtain prevailing party status would undermine that congressional policy by blocking a whole category of defendants for whom Congress wished to make fees available.”

The facts in Christiansburg involved a non-merits dismissal of an EEOC lawsuit, but the Supreme Court never suggested a merits determination is required for an attorneys' fees award, the court said. Federal appeals courts over the years also have affirmed fee awards to victorious Title VII defendants in cases dismissed for non-merits reasons, the court said.

“In cases like these, significant attorney time and expenditure may have gone in to contesting the claim,” Kennedy wrote. Congress couldn't have intended to bar attorneys' fees in such cases “on the basis that, although the litigation was resolved in their favor, they were nonetheless not prevailing parties,” the court said.

Neither Title VII's text nor the policy underlying the fee-shifting provision supports the Eighth Circuit's rule, Kennedy wrote.

Alternative Arguments Remanded

As for the EEOC's argument that an employee must obtain a “preclusive judgment” to be eligible for attorneys' fees, the court said the Eighth Circuit should decide that contention in the first instance.

It's possible the EEOC forfeited the argument by not raising it until after the Supreme Court had granted CRST's petition for review, the court said. The EEOC and the trucking company also dispute if the district court's disposition was in fact “preclusive,” the court said.

“The Court leaves these legal and factual issues for the [Eighth Circuit] in the first instance,” Kennedy wrote.

The EEOC said the Supreme Court could affirm the denial of attorneys' fees because the agency's position that it had satisfied its pre-suit obligations wasn't frivolous, unreasonable or groundless.

But the Supreme Court said this wasn't an appropriate case to “reach and settle this fact-sensitive issue.”

It's not the court's “usual practice” to “adjudicate either legal or predicate factual questions in the first instance,” Kennedy wrote. Given the “extensive record” in this case and the EEOC's change in legal arguments, the Supreme Court said it's prudent to let the lower courts decide the remaining issues.

In a concurring opinion, Justice Clarence Thomas agreed a “ruling on the merits” isn't necessary for a victorious employer to obtain attorneys' fees under Title VII.

But Thomas said he still believes Christiansburg is a “dubious precedent” that misreads Title VII by saying a prevailing defendant can recover its legal fees only if a plaintiff's action was “frivolous, unreasonable or without foundation.”

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com