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Article: Fee Rulings Show When to Litigate Wage Claims for Defense

March 9, 2020

A recent Law 360 article by Valerie K. Ferrier, “3 Rulings Show When Litigating Wage Claims Is Worth It,” reports on three recent fee rulings defense counsel should consider when deciding to litigate wage claims.  This article was posted with permission.  The article reads:

Wage and hour cases present a particular threat to small businesses. The hospitality industry is especially vulnerable to these claims.

Aside from incurring the legal costs of a defense, with one-way fee-shifting in favor of prevailing plaintiffs under the Fair Labor Standards Act and the New York Labor Law, it is often advisable for businesses to offer an early settlement before the other side incurs substantial attorney fees.

Yet, as some recent cases illustrate, there are situations when defendants may choose to fight it out at trial. Business owners may have multiple reasons they prefer to litigate: deterrence of future lawsuits, lack of concern because they are essentially judgment-proof, and of course moral outrage. Three recent decisions highlight instances in which businesses fought the good fight, and largely prevailed.

Offer of Judgment Under Federal Rule of Civil Procedure 68

A Rule 68 offer of judgment is a litigation tool meant to incentivize early settlement. Under the rule, at least 14 days before trial, a defendant may make an offer to settle on terms they specify.

If a plaintiff rejects the offer, and does not ultimately obtain a more favorable result at trial, the plaintiff must pay the defendant’s post-offer costs for things like transcript fees. In FLSA cases, the plaintiff's attorney may be incentivized to delay settlement discussions, knowing that if they prevail on any claim, in any amount, the FLSA’s fee-shifting provision will be triggered, and the defendant will have to pay the plaintiff's attorney fees, in addition to any judgment obtained by the plaintiff. A Rule 68 offer means that the plaintiff’s attorney, as well as the plaintiff, must think hard about whether to gamble on a more favorable outcome at trial.

A recent decision by a panel of the U.S. Court of Appeals for the Second Circuit in December 2019 made it easier for the parties to resolve cases early, without court approval. Prior to the ruling in Yu v. Hasaki Restaurant Inc., there was a split of authority about whether the parties to an FLSA action could privately settle the matter pursuant to a Rule 68 offer, or whether any FLSA settlement, including those under Rule 68, required court approval, as enunciated in Cheeks v. Freeport Pancake House Inc.

A two-judge majority of the panel held that "[a]ppeals to the broad remedial goals and uniquely protective qualities of the FLSA do not authorize us to write a judicial approval requirement into the FLSA, and thereby into Rule 68(a), when the text of both provisions is silent as to such a requirement." With this decision, parties are now free to more quickly resolve wage and hour cases, even prior to discovery.

Marcelino v. 374 Food

In Marcelino v. 374 Food Inc., following unsuccessful attempts at mediation and settlement, the U.S. District Court for the Southern District of New York held a bench trial, approximately a year and a half after the case was filed. The plaintiff, Domingo Castillo Marcelino, alleged he was underpaid over six months of employment.

His credibility was undermined on cross-examination when, among other things, he contradicted his starting date and was unable to identify one of the individual defendants in the courtroom, even though he testified that the man personally directed his work. The court dismissed the FLSA claims, holding that the plaintiff failed to establish either enterprise or individual coverage under the law.

Despite the defendant’s lack of time and pay records, the court assessed minimal damages under the New York Labor Law only, awarding the plaintiff $8,144, including statutory penalties and liquidated damages. However, noting that the plaintiff seemed to be "making up answers as he went along" during his testimony, the court concluded that the plaintiff perjured himself, and requested briefing from the parties as to whether, in light of that finding, the plaintiff was entitled to recover anything at all.

Thereafter, the plaintiff’s counsel, the subject of possible sanctions himself, withdrew from representation, and the plaintiff was unable to be located. He failed to appear at a hearing on the court’s order to show cause, and as a result, in addition to his "extensive perjury," on Jan. 24 the court forfeited the plaintiff’s award pursuant to its inherent power and closed the case.

Eduoard v. Nikodemo Operating

In Eduoard v. Nikodemo Operating Corp., the plaintiff, a former dishwasher and general helper sued his former employer, a restaurant, about a year after he had received approximately 150% of his total annual pay as a member of a class settlement against the restaurant. In his own lawsuit, he claimed that after the settlement the restaurant had improperly rounded his hours, and thus failed to appropriately pay him overtime.

He further alleged that an hour was improperly deducted from his time each day for a meal break that he claimed he never once took in all the years he worked there, and that he was fired in retaliation for complaining about it. He also brought spread-of-hours claims and claims for violation of the Wage Theft Prevention Act.

The defendants almost immediately made a Rule 68 offer, which was ignored and expired. Thereafter, without ever having conducted any class discovery, the plaintiff moved for class certification under Rule 23.

The court denied the motion, and the parties proceeded to a bench trial because the plaintiff failed to request a jury trial. Shortly before the trial was to commence, the plaintiff’s original counsel was substituted just before he was disbarred.

The plaintiff testified on his own behalf. One of the owners of the business testified on behalf of the defense. After the conclusion of the trial the court issued findings of fact and conclusions of law.

As in Marcelino, the U.S. District Court for the Eastern District of New York dismissed the FLSA claim because the plaintiff failed to prove either individual or enterprise coverage under the law. The court also found the defendant "much more credible than [the] plaintiff on several issues." Specifically incredible was the plaintiff's testimony that he never took a lunch break and never ate anything during his shifts, never got hungry, and never even once sat down while working during the relevant time period.

The court denied the plaintiff’s rounding, meal break deduction, retaliation and overtime claims, but granted the plaintiff’s claims as to spread-of-hours and the Wage Theft Prevention Act. As a result, after one year of litigation, the plaintiff was awarded a total of $3,419.32, including interest.

Because the defendants had previously made a Rule 68 offer before discovery commenced, the defendants moved for sanctions pursuant to the court’s inherent authority and under Title 28 of U.S. Code Section 1927 against the plaintiff’s former counsel. The motion was for unnecessarily multiplying the proceedings in bad faith by making a frivolous and factually unsupported motion for class certification, despite an explicit warning from the court regarding the consequences of doing so. A decision on this motion is pending.

Feuer v. Cornerstone Hotels

More recently, the Eastern District of New York issued a decision in Feuer v. Cornerstone Hotels Corp.[5] following a 2018 bench trial in the case of a married couple who worked and lived at a 12-room motel for six months in 2014. They alleged that they were either working or on-call 24/7, and were thus underpaid minimum wage and overtime. Shortly after the case commenced, the individual defendant chose to proceed pro se and left the corporate defendant unrepresented.

The court held that neither the husband nor wife, even combining their hours, ever worked more than 40 hours in a week. However, because they were underpaid during the first week of their employment the court awarded them $92 in unpaid wages, the same amount as liquidated damages, and statutory damages, for a total of $5,184, plus 2 cents interest per day until the judgment was paid.

Similar to Eduoard, the court credited the employer’s time and pay records, and found the plaintiffs’ testimony was not credible, especially when compared to that of the owner who testified and also lived on the premises.

Lessons for Counsel

As all three cases make clear, plaintiffs counsel must go beyond merely accepting their client’s word for how long they worked, or how much they were paid. Moreover, plaintiffs who take patently exaggerated positions do so at their peril.

Indeed juries are often instructed that if they determine that a witness has lied about anything, they are entitled to conclude that the witness has lied about everything. As the Latin saying goes, "falsus in uno, falsus in omnibus."

Even if a plaintiff is ultimately awarded a few thousand dollars after a year or more of litigation, other sanctions may be attached. In addition, plaintiffs counsel, who generally take wage and hour cases on contingency, may end up wasting an enormous amount of time, money, resources and good will, even if they are not sanctioned.

On the other hand, defendants who are confident that they have complied with the law, or have only minimal liability, may elect to pursue litigation to its conclusion in order to prove a point. Defendants are often loath to pay both their own attorney fees and at the same time accept the risk that they may be ordered to pay plaintiff fees, even if the award is small.

However, as Feuer demonstrated, in some instances, pro se individual defendants can save attorney fees and successfully defend themselves. In addition, strategic deployment of a Rule 68 offer of judgment at an early stage of the litigation may drastically curtail even a prevailing plaintiff’s entitlement to attorney fees.

Valerie K. Ferrier is a partner and head of the labor and employment practice group at Martin Clearwater & Bell LLP in New York, NY.

Article: Some Litigation Too Complex for AI Attorney Fee Predictions

March 2, 2020

A recent Law 360 article by Paul Aloe, “Discrimination Cases Are Too Complex For AI Fee Prediction,” responses to another Law 360 article, “Legal Prediction is Demanding But Not Impossible.”  This article was posted with permission.  The article reads:

A recent Law360 guest article by Joseph Avery criticizing the New Jersey Supreme Court’s opinion in Lisa Balducci v. Brian M. Cige shows a profound misunderstanding of the opinion and the nature of hourly fee retainers.  The article overlooks that even with artificial intelligence, an experienced litigator cannot safely predict the hourly fee of a litigated case.

That is especially so with respect to cases under the New Jersey Law Against Discrimination, or NJLAD, with which Balducci v. Cige dealt.  Those cases are often highly charged and emotional — and the length and work required is very difficult to predict.

Some cases resolve quickly, many after protracted litigation.  The New Jersey Supreme Court was entirely correct that predicting the cost and length of a new case is "a difficult, if not impossible, task" and thus lawyers are not obligated to provide a calculation of the entire fee that will be incurred at the outset of the litigation.

The decision itself recites factors that make that so, including whether the cases is settled or tried, "the nature and length of the discovery process, the number of depositions conducted and expert witnesses retained, the overall complexity of the litigation, and many other factors."

The opinion in Balducci v. Cige makes complete sense in the context of which it was decided.  This was a NJLAD case, and the courts below found that the attorney had assured the client that she would not have to pay the hourly rate, even though the retainer said otherwise.

There is also an indication in the decision that the attorney admitted padding his invoices.  When the client became dissatisfied with the attorney, and exercised her right to terminate the attorney, the attorney then presented her with a bill for $270,791, which she likely had no means to pay.

This of course is not the typical hourly arrangement, where a client receives a regular invoice, calculated on the hours expended, and pays that invoices as the litigation progresses.  In that situation, if the client chooses to terminate the lawyer, the client is free to do so.  In this case, the billing contradicted the oral assurances that the fee would be paid by the client, which undermined her right to change attorneys.

Discrimination cases are very different than the typical hourly fee arrangement.  Discrimination cases are often brought with the expectation that the fee will be paid by the defendants, either as part of a settlement or at trial, which appears to be the situation in this case, even though the actual retainer agreement said otherwise.

Of course, NJLAD cases present special circumstances that do need to be considered.  While it is often the case that the attorney receives his or her fee from the defendants as part of a settlement or judgment, that is not always the case.

The case can be lost at trial, the plaintiff might decide to no longer pursue the case, the court might award some but not all of the fees incurred, the plaintiff might win a judgment that includes fees, but the defendants might go bankrupt or otherwise be unable to pay it.  Although New Jersey Rule of Professional Conduct 1.5(b) only provides "[w]hen the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated in writing to the client before or within a reasonable time after commencing the representation," it is entirely appropriate that the retainer agreement in a NJLAD case spell out exactly when and under what circumstances a client may personally have to pay the fees.

Some situations where fees are not recovered may be the fault of neither the lawyer nor the client.  For example, where the defendant goes bankrupt rather than paying a judgment.  Other situations may be more complicated, as when the client loses the ultimate case, which could be the result of the client not being credible, the handling of the case by the attorney, or both.  These situations are not easy to spell out, but it is important at the outset for the lawyer and the client to have an understanding of who is bearing this risk.

Balducci v. Cige, however, presents a particularly important ethical issue, because the client was exercising her right to terminate counsel.  The rules of professional ethics afford clients the unfettered right to discharge counsel, but in this case, it seems the retainer was used in such a fashion as to undermine that right.

Of course, there are situations where a client, just before receiving a settlement, might choose to terminate the attorney.  Another factor is that where the client discharges the attorney, but continues the case, and ultimately receives an attorney fee award, the award would presumably compensate both the old and the new attorney.  A still further situation may be where a client, having commenced a NJLAD case, decides to no longer pursue it.  These types of cases in particular are difficult cases for the plaintiff.

The defense is often able to suggest that the underlying problem was with the plaintiff, not the defendant, and even where that is not the defense, since the NJLAD deals with unlawful discrimination, the pursuit of the case may be very painful for the plaintiff.  Clients of course should be free to discontinue suits, but the discontinuance leaves the attorney without a fee.

Again, if the client were regularly paying an hourly fee that decision would be entirely up to the client.  But where the parties have agreed that the fee will be paid by the defendants, the parties need to consider what occurs if the client decides to discontinue the suit.

All of these are difficult issues.  The New Jersey Supreme Court wisely directed the appointment of an ad hoc committee to address the ethical issues raised in its decision.  In the NJLAD situation, many of those ethical issues are difficult and complex.  Requiring attorneys to use artificial intelligence to make predictions is rightfully not endorsed, and deemed nearly impossible, by the court.

Paul Aloe is a partner at Kudman Trachten Aloe LLP in New York, NY.

Article: Five Lessons for Recovering Attorney Fees in Texas

February 24, 2020

A recent BizLitNews article by Amanda Taylor, “Recovering Attorney’s Fees in Texas: Five Lessons,” reports on attorney fee recovery in Texas.  This article was posted with permission.  The article reads:

Obtaining an award of attorneys’ fees might be the final step in a long-waged litigation battle but to do so successfully requires careful planning and diligence from the outset of a case.  The Texas Supreme Court recently clarified the evidence required to obtain and affirm such an award.  Rohrmoos Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469 (Tex. 2019).  The Texas Supreme Court also recently confirmed that these evidentiary standards apply equally when fees are sought to be recovered as a sanction.  Nath v. Texas Children’s Hosp., 576 S.W.3d 707, 710 (Tex. 2019).  To best serve a client’s interests of recovering attorneys’ fees in Texas, whether as a prevailing party or as a sanction, lawyers should adhere to five lessons from Rohrmoos.

Lesson One:  Confirm a legal entitlement to recover fees.  “In Texas, as in the federal courts, each party must pay its own way in attorney’s fees … unless a statute or contract provides otherwise.”  Rohrmoos Venture, 578 S.W.3d at 484.  Certain claims, such as a breach of contract claim brought under Chapter 38 of the Texas Civil Practices and Remedies Code, entitle a prevailing party to recover attorneys’ fees.  Other claims, such as a common law fraud claim, do not afford such a remedy.  In establishing your initial case strategy, it is important to consider which claims will and will not allow for recovery of fees, and advise your client about the pros and cons of pursuing each claim accordingly.  Also, be aware of fee-shifting procedural tools (such a motion to dismiss under the Texas Citizens Participation Act) and various Texas statutes and rules that allow for recovery of fees as a sanction (such as Civil Practice and Remedies Code Chapters 9-10, and Texas Rule of Civil Procedure 215).

Lesson Two: Keep accurate, contemporaneous billing records.  Although billing records are not absolutely required to prove the amount of reasonable and necessary fees, it is “strongly encouraged” to submit such proof in support of attorneys’ fees.  Rohrmoos Venture, 578 S.W.3d at 502.  It is much easier to review, summarize, and testify about the work performed (often years later) if you have been diligent in your billing practices throughout.  Time should be kept in a manner that demonstrates the “(1) particular services performed, (2) who performed those services, (3) approximately when those services were performed, (4) the reasonable amount of time required to perform the services, and (5) the reasonable hourly rate for each person performing the services.”  Id.  It is also advisable to keep time in a manner that is specific enough to cover the topic but without legalese and without so much detail that heavy redactions become necessary.  Fact finders prefer to read invoices in plain English without the interruption of hidden text.

Lesson Three:  Your fee agreement does not control the amount awarded.  “[A] client’s agreement to a certain fee arrangement or obligation to pay a particular amount does not necessarily establish that fee as reasonable or necessary.”  Id. at 488.  Translation: even if you have agreed to handle the matter for a flat fee or contingency fee, you still must demonstrate that the amount of fees sought for recovery are reasonable and necessary based on the work performed and the time incurred.  Regardless of the fee arrangement with your client, keeping accurate and contemporaneous billing records is important.

Lesson Four: Remember to timely designate fee experts.   “Historically, claimants have proven reasonableness and necessity of attorney’s fees through an expert’s testimony—often the very attorney seeking the award.”  Id. at 490.  “[C]onclusory testimony devoid of any real substance will not support a fee award.”  Id. at 501.  Because expert testimony will be required, the attorney must remember to designate herself and any other attorney who will offer an opinion about the reasonableness and necessity of the fee amount(s) as an expert witness in compliance with the scheduling order or discovery control plan governing the case.

Lesson Five: Understand the “Texas two-step” calculation method.  At step one, calculate the “base” or “lodestar” amount by multiplying the “reasonable hours worked” by a “reasonable hourly rate.”  Id. at 498.  This is an “objective calculation” that yields a “presumptively reasonable” amount.  Id. at 497-98, 502.  The determination of what is a reasonable market rate and what is a reasonable amount of time will typically include consideration of the following factors: (1) the time and labor required, (2) the novelty and difficulty of the questions involved, (3) the skill required to perform the legal service properly, (4) the fee customarily charged in the locality for similar legal services, (5) the amount involved, (6) the experience, reputation, and ability of the lawyer or lawyers performing the services, (7) whether the fee is fixed or contingent and the uncertainty of collection, and (8) the results obtained.  Id. at 500.  At step two, “adjust[] the base calculation up or down based on relevant considerations … [that were not] subsumed in the first step.”  Id.  “If a fee claimant seeks an enhancement, it must produce specific evidence showing that a higher amount is necessary to achieve a reasonable fee award.”  Id. at 501.  Remember that only “rare circumstances” justify such an adjustment.  Id. at 502.

Following these five lessons from the outset of a case will be beneficial to the expert testifying about the amount of fees at the end of a case.  More importantly, it will benefit your client’s best interest in obtaining a monetary award and being able to have that award affirmed on appeal.

Amanda G. Taylor is a Board-Certified Civil Appellate attorney who practices from the Austin, TX office of Butler Snow LLP.  Her practice is focused on shaping successful case strategy for litigation clients from the outset of litigation through the end of an appeal.  She also frequently represents clients in matters regarding the Texas Citizens Participation Act (Texas’ anti-SLAPP statute).

Article: The Need For Attorney Fee Expertise

February 20, 2020

A recent AI article by John D. O’Connor, “The Need For Attorney Fee Expertise (pdf),” reports on the need for attorney fee expertise to prove reasonable attorney fees and proper billing practices in underlying litigation.  This article was posted with permission.  The article reads:

Most corporate clients today have access to excellent litigation counsel in each particular area of concern.  However, as attorney fee disputes are increasingly becoming a by-product of the main litigation event, few clients and few otherwise excellent litigators truly understand when and how to use attorney fee experts.

Although the “American Rule” provides that each litigating party bears its own fees, there are exceptions to this rule.  Successful class actions; employment and governmental discrimination cases; eminent domain suits; RICO claims; and other cases result in legally-sanctioned attorney fees claims.  Promissory notes, guarantees, real estate purchase agreements, and corporate acquisition contracts often contain attorney fee clauses.  High-stakes insurance coverage litigation usually features a battle over fees incurred in the underlying case(s).  It is common for a case with a small monetary award to result in an extremely high request for fees.

Typically in fees proceedings, the party with a claim to fees files a motion detailing the amount it requests, accompanied at a minimum by a Declaration of the main litigating attorney attaching a statement of his billings, detailing hours and rates for which payment is sought.  The main billing attorney will normally justify the requested billing rate, which can be his actual rate or a rate claimed to be prevailing in the community for one of similar skill and experience. The motion, usually accompanied by a brief summarizing the law of fees in that type of case, includes the statutory or contractual authority for same.

When the responding party files its submission, the contours of the ultimate dispute take shape.  It is common for the respondent to challenge the billing rates as unduly high; the number of lawyers assigned as excessive; the hours spent as inefficient; the number and length of conferences and meetings as unnecessary; the billing form as improperly “blocked” and “vague” in description; many of the tasks billed as being unwisely or improvidently chosen; certain work as not related to prevailing claims; and generally excessive fees for the type of litigation involved.  Often this opposition is accompanied by a request for limited discovery regarding fees.

As objections are detailed in various cases, the challenging lawyer is usually able to write an impressive brief in support.  These objections can be made without an expert witness, except as to prevailing billing rates, which the responding lawyer is qualified to opine.  The responding party will have made a serious mistake, however, if it did not bolster its objections with a detailed opinion of an experienced fee expert.  Often, the reviewing Court has witnessed the work of the petitioning lawyers and formed a positive opinion of them. Indeed, the reviewing Court in the underlying case would often have ruled in favor of the petitioner and against the respondent.  Even if not, the respondent must labor against the human assumption that established, competent lawyers have billed in accordance with community standards.

However, surprisingly, it is common for responding parties to put forth objections without an expert.  We have seen cases where fees sought into eight figures, where no expert has been retained, with unenviable results. Most experts have the capability of presenting a computer analysis isolating hours and tasks, which can claim to isolate amounts of “block” entries, incompensable “clerical” time, and other practices.  Such a presentation, though, is often superficial, and may not impress a reviewing Court seeking a principled basis upon which to reduce fees for the prevailing party.

Whatever the case, any attack on the requested fees should call for a rebuttal by a qualified attorney fee expert on behalf of the petitioner.  However, this guideline is frequently observed in the breach.  Even if the Court had been inclined to a favorable opinion of the petitioning firm, even a superficial attack on the petitioning lawyers’ fees can be facially effective, and thus the petitioner would need to blunt effectively any such attack.

A qualified expert can help by suggesting needed discovery from the responding party of information regarding that party’s billings which supports the petitioner’s request.  More importantly, an expert employed correctly will go beyond the glittering generalities put forth in these disputes.  They would show why a particular billing rate is justified with specific reference to specific firms doing nearly identical work or why a particular task was necessarily and properly time-consuming.

Most reviewing Courts are experienced at resolving factual disputes based on a presentation of specific compelling facts.  A wise litigation party, in short, should employ an expert to do just that. 

John D. O’Connor is a NALFA member and the Principal of O’Connor & Associates in San Francisco.  For more on John D. O’Connor, visit www.joclaw.com.

When Must the Federal Government Pay Attorney Fees?

February 11, 2020

A recent NLJ article by Marcia Coyle, “When Must the U.S. Pay Legal Fees? A Vietnam Vet Turns to the Supreme Court,” reports on attorney fee recovery from the federal government in an EAJA case.  The article reads:

Alfred Procopio Jr.’s decades-long fight with the U.S. Department of Veterans Affairs changed the law, forcing the agency to provide potentially billions of dollars in benefits for thousands of Vietnam War veterans.  But his dispute with the government hasn’t ended, as his lawyer presses an appeal in the U.S. Supreme Court to collect $35,000 in legal fees.

The petition tests a key element of the Equal Access to Justice Act, or EAJA, a federal law that allows private parties who prevail against federal agencies in certain circumstances to recoup the cost of litigation.  An award of fees under the EAJA is mandatory when a court concludes that the government’s position was not “substantially justified.”  Procopio’s case challenges how courts determine whether the government’s arguments were “substantially justified.”

The septuagenarian Procopio, represented by retired Navy Cmdr. John Wells of Slidell, Louisiana, is asking the justices to review a decision by the U.S. Court of Appeals for the Federal Circuit that said he is not entitled to any compensation. The en banc court in September sided with the U.S. Justice Department in ruling against Procopio’s fee request.  “The Supreme Court takes about one veteran’s case a year,” Wells said in an interview.  “When I filed [the petition], I said, ‘OK, it’s worth a try,’ but given the success rate [in granting review], I didn’t hold out much hope. It’s a very good, legitimate issue.”

In 2010, a dozen federal agencies paid out more than $50 million in court and administrative cases via the EAJA, according to one government report.  The Department of Veterans Affairs tab of $15.5 million was among the highest.  The U.S. Court of Appeals for Veterans Claims in 2017 reported receiving nearly 3,000 applications under the EAJA.

The original statute capped fees at $125 hourly, an amount that is now $200 adjusted for inflation.  Awards are limited to individuals with a net worth of $2 million or less, or the owner of a business or other organization worth $7 million or less and with no more than 500 employees.  Lawyers at major U.S. law firms that have served pro bono sometimes ask courts to award EAJA fees.

‘The Government’s Position Here Was Plainly Wrong.’

Wells argues that the Federal Circuit took an “inelastic and rigid approach” in its conclusion that the government’s position was substantially justified in the case.  The government resisted Procopio’s arguments that so-called Blue Water veterans, who served in the waters of Vietnam, but not on land, were entitled to certain benefits after being exposed to the chemical Agent Orange.

Procopio’s petition relies in part on a concurring opinion from Federal Circuit Judge Kathleen O’Malley, who sympathized with Procopio but ultimately said the court’s hands were tied because of Supreme Court and circuit court precedents.  O’Malley said, “this is the very type of case for which Congress enacted the EAJA.  The government’s position here was plainly wrong.”

O’Malley continued: “Mr. Procopio is the very type of prevailing party, moreover, for whom Congress enacted the EAJA.  Mr. Procopio changed the law for all Vietnam War veterans who served in the Republic of Vietnam’s territorial waters.  And his financial burden in doing so was only increased by the government’s failure to codify its tenuous position into a type of rule whose validity we may review on its face rather than as applied to any individual case.”

O’Malley wrote separately, she said, “to express my belief that the governing interpretation of ‘substantially justified’ sets the bar far too low for the government in a way that is contrary to the plain text of the EAJA and its underlying purpose.”  She implored the judiciary to adopt a standard that she said “breathes life back into the text and purpose of the EAJA.”  The word “substantially,” O’Malley said, “must do some work in defining precisely how justified the government’s position must be.”

In the 1988 case Pierce v. Underwood, the Supreme Court said “substantially justified” means that the government’s position, in both its underlying conduct and its litigating posture, must have a “reasonable basis” in law and fact.  But O’Malley said there is no reasonableness standard in EAJA’s text.  The statutory text, she said in Procopio’s case, “requires that the government’s position be justified by a considerable amount or, at least, that it have a solid foundation in substance.”  And that was not the case with the government’s position in Procopio, she concluded.

Procopio’s fee request stemmed from his victory in January 2019 in Procopio v. Wilkie.  The Federal Circuit, ruling 9-2, said for the first time that the Agent Orange Act of 1991 and its presumption of exposure to the chemical herbicide applies to Navy veterans who served on ships within the 12-mile territorial sea of Vietnam.  The Veterans Affairs department and the Justice Department had argued for years that the 1991 act covered only those veterans who served on the ground or inland waterways of Vietnam.  Six months after the appellate decision, the Justice Department told the Supreme Court that it would not appeal the ruling.  The benefits potentially owed to roughly 90,000 vets have been estimated to cost the government more than $1 billion over 10 years.

In reaching its 2019 decision, the majority, led by Federal Circuit Judge Kimberly Moore, said Congress was clear from its use of the term “in the Republic of Vietnam” that “all available international law unambiguously confirms that it includes its territorial sea.”  The majority overruled the 2008 decision in Haas v. Peake.  The Haas court, Moore wrote, “went astray” when it found ambiguity in the law.  Mel Bostwick, a partner in Orrick, Herrington & Sutcliffe, argued pro bono on behalf of Procopio.

Justice Department’s Opposition

In opposing Procopio’s subsequent fee application in the Federal Circuit, the Justice Department’s civil division, led by Assistant Attorney General Jody Hunt, argued that a 1988 decision benefited the government’s argument that its litigation position was substantially justified.  The Federal Circuit’s ruling in Owen v. United States said that the government’s position can be deemed substantially justified when the government relies on a binding, precedential court of appeals decision that is later overturned.

“Our position relied on this court’s 2008 precedential decision in Haas v. Peake to defend [the] VA’s denial of Mr. Procopio’s presumptive disability compensation claim and the Veterans Court’s decision on appeal,” the Justice Department lawyers told the Federal Circuit.  In the Supreme Court petition, Wells said the justices’ “reasonable person” test for substantial justification “flies in the face of the plain meaning of the statute.”  He contends the Federal Circuit in a 2015 decision had placed the government on notice that its “boots-on-the-ground” position was wrong but it persisted in defending it.