United States: U.S. Supreme Court Rejects The Government's Position In The Largest EEOC Fee Sanction Case Ever

Seyfarth Synopsis: In a landmark case for EEOC litigation involving fee sanctions, while employer CRST successfully argued that a ruling "on-the-merits" is not necessary to be a prevailing party, the SCOTUS remanded the case back down to the Eighth Circuit to determine whether a preclusive judgment existed and if the EEOC should be responsible to pay over $4.5 million in fees as a sanction.

Today, the U.S. Supreme Court issued its much anticipated ruling in EEOC v. CRST Van Expedited, Inc., unanimously ruling in favor of the employer. We have kept our blog readers up to date on this litigation as it wound through the lower courts and progressed at the Supreme Court.  Readers can find the previous posts here, here, here, here, here, here, here, here, here, here, here, and here.

At stake was the largest fee sanction award ever levied against the EEOC — nearly $4.7 million.  While the SCOTUS remanded the case back to the U.S. Court of Appeals for the Eighth Circuit for further proceedings, and therefore did not directly rule on the appropriateness of the record fee sanction, the Supreme Court nonetheless held that a favorable ruling on the merits is not a necessary predicate to find that a defendant is a "prevailing party" for purposes of recovering legal fees under Title VII.

Though a procedural ruling, EEOC v. CRST Van Expedited, Inc. is apt to have significant practical implications for the future of EEOC litigation.

Case Background

Finding that the EEOC's actions in pursuing this lawsuit were unreasonable, contrary to the procedure outlined by Title VII, and imposed an unnecessary burden on the employer and the judicial process, the U.S. District Court for the Northern District of Iowa granted CRST's motion for an award of attorneys' fees and costs, directing the EEOC to pay CRST a record fee sanction of nearly $4.7 million.  On the EEOC's appeal, the Eighth Circuit reversed and held that the District Court "did not make particularized findings of frivolousness, unreasonableness, or groundlessness as to each individual claim" and remanded these claims to the District Court to make such individualized determinations.  Further, the Eighth Circuit found that the District Court's dismissal of 67 claims based on the EEOC's failure to satisfy Title VII's pre-suit obligations "[did] not constitute a ruling on the merits," and that "[t]herefore, CRST is not a prevailing party as to these claims."  Accordingly, the Eighth Circuit's holding provided the EEOC some breathing room in terms of complying with its Title VII pre-suit obligations.

In its Supreme Court brief, CRST asserted two arguments as to why the Eighth Circuit's decision was improper.  First, CRST argued that the Eighth Circuit's rule that a prevailing defendant may recover fees only when a case is decided "on the merits" has no basis in the statute, conflicts with Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 422 (1978), and severely undermines the policy of Section 706(k) of Title VII.  Second, CRST posited that even if the "on the merits" standard applied, CRST was successful on the merits when it defeated certain claims by demonstrating that the EEOC did not investigate, find reasonable cause for, or attempt to conciliate any of these claims as required by the statute.  In essence, CRST asserted that the EEOC never identified the allegedly injured workers prior to filing its lawsuit; instead, it filed suit and then fished for the identities of the claimants by using discovery.

In its response, having abandoned its original contention that only a dismissal "on the merits" may be the subject of an attorneys' fee award, the EEOC argued that the District Court's finding that the EEOC failed to satisfy Title VII's administrative preconditions to filing a lawsuit did not authorize an award of attorneys' fees under 42 U.S.C. 2000e-5(k), because such a dismissal does not make the defendant a "prevailing party."  The EEOC further noted the District Court's original dismissal was not "with prejudice," and that the later agreed-upon "with prejudice" dismissal did not and could not modify the District Court's earlier dismissal of the claims at issue here, which had already been affirmed by the Eighth Circuit.  Finally, citing Mach Mining, LLC v. EEOC, 135 S. Ct. 1645, 1656 (2015), the EEOC also contended that the award of attorneys' fees and costs in this litigation was improper because the Commission's suit was not "frivolous, unreasonable, or groundless."

During the oral arguments on March 29, 2016, the Supreme Court asked nearly twice as many questions to the EEOC's counsel than the Justices did to CRST's counsel.  The grilling of the government is best summarized with a notable quote from Chief Justice Roberts, who opined that conciliation without the threat of fees would not necessarily incentivize the EEOC to abide by Title VII obligations, "But if they were subject to fees because they ignored their duty to conciliate, it seems to me that might give them some incentive to get it right the first time."  Our blog post on that argument is here.

The Supreme Court's Ruling

In vacating the judgment of the Eighth Circuit, the Supreme Court ­unanimously held that a favorable ruling on the merits is not a necessary predicate to find that a defendant is a "prevailing party" in order to recover attorneys' fees under Title VII.

After thoroughly detailing the intricate procedural history of this ten-year litigation, the Supreme Court initially noted the question of whether the petitioner was a prevailing party was the central issue presented by the decision of the Eighth Circuit.  Id. at 3.  The Supreme Court opined that "[c]ommon sense undermines the notion that a defendant cannot 'prevail' unless the relevant disposition is on the merits . . . The defendant may prevail even if the court's final judgment rejects the plaintiff 's claim for a non-merits reason."  Id. at 12.  The Supreme Court reasoned that this is so because while a plaintiff seeks a "material alteration in the legal relationship between the parties that is in its favor, a defendant seeks to prevent that material alteration.  Where the defendant succeeds and the plaintiff's challenge is "rebuffed," the defendant prevails.  Id.

Looking beyond the letter of Title VII to Congressional intent in enacting a fee shifting statutory scheme, the Supreme Court noted that "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. 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 fee awards available."  Id. at 13.  Accordingly, the Supreme Court held that neither the text of the fee-shifting statute nor the policy which underpins it counsels in favor of adopting the Eighth Circuit's on-the-merits requirement.  Id. at 14.

Turning to the EEOC's specific arguments, the Supreme Court observed that the EEOC had abandoned its defense of the Eighth Circuit's requirement that a party prevail on the merits, and instead urged the Supreme Court to hold that a defendant must obtain a "preclusive" judgment in order to prevail.  Id.  The Supreme Court declined to decide this issue, and noted in an implied bench-slap how the EEOC "changed its argument between the certiorari and merits stages... [and] [a]s a result, the Commission may have forfeited the preclusion argument by not raising it earlier."  Thus, the Supreme Court took issue with the EEOC's strategy of advancing new arguments at the "11th hour," and further noted that this tactic resulted in inadequate briefing on the issue.  Id. at 15.

In addition, the Supreme Court avoided consideration of the EEOC's argument that even if CRST was the prevailing party, the EEOC should prevail upon the fee request because its claim that it had satisfied its pre-suit obligations was not frivolous, unreasonable, or groundless.  Noting that the Court of Appeals had not decided this "fact sensitive issue," the Supreme Court declined to address it.  Id.

By remanding the case for further proceedings consistent with its holding that a party need not prevail "on the merits" to be eligible to recover attorney fees under Title VII, the Supreme Court left the door open for the EEOC to continue to defend against CRST's fee petition. That being said, the record and the circumstances in the case suggest rough sledding for the EEOC on remand and the likelihood of having to face a record-setting fee sanction for its litigation tactics.

Implications For Employers

In the context of potential fee sanction motions brought by employers mired in improper EEOC litigation, the Supreme Court's holding that a favorable ruling "on the merits" is not a necessary for an employer to seek an award of legal fees in EEOC-initiated Title VII litigation can certainly be beneficial to employers.

In practice, the SCOTUS decision may well have the significant practical effect of forcing the EEOC to "come clean" during conciliation and to provide fulsome information about the identities, number, and alleged injuries of claimants rather than threatening employers with the costs and adverse publicity of a systemic lawsuit. Clearly, a litigation strategy based on "fishing for claimants" after filing a lawsuit is a process that is likely to be deemed inconsistent with the proper utilization of taxpayer dollars for enforcing Title VII.

Readers can also find this post on our EEOC Countdown blog here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Gerald L. Maatman Jr.
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