A recent Law 360 story by Emma Cueto, “7^th Circ. Again Rejects CVS’ Atty Fee Win Against EEOC,” reports that a Seventh Circuit panel has preserved its rejection of an attorneys' fee award in favor of CVS Pharmacy Inc. against the U.S. Equal Employment Opportunity Commission in a suit over the company’s severance agreements, saying that using a novel legal theory that was ultimately shot down did not make the suit frivolous.

Despite arguments that the decision would extend fee fights, the panel reiterated that the district court made an error in awarding $307,000 in attorneys' fees to CVS.  The panel said that even though the EEOC did not prevail in its argument that the regulatory language allowed it to file the suit without going through an initial conciliation process, the commission has a “legal hook on which to hang its case,” and that it should not be sanctioned for bringing the suit.

“[The district court] reasoned that the EEOC should have realized even before filing the suit that EEOC regulations required initial conciliation before it could proceed with an enforcement action,” the decision said.  “But that was not at all clear at the time the EEOC acted.”

The dispute between CVS and the EEOC stems from an employee agreement that the agency claimed was meant to confuse employees and to have a chilling effect on employees' rights to lodge discrimination claims with the agency.  The agency sued over the agreement in February 2014.  The district court granted CVS summary judgment in September 2014, finding that the EEOC hadn't met its obligations to conciliate the dispute before suing and therefore wasn't authorized to bring the action in court.  Another Seventh Circuit panel affirmed the dismissal in 2015, and a full Seventh Circuit declined to hear the case.

On remand, the trial court awarded CVS $307,902 in attorneys' fees, finding that the EEOC should have known before suing that its regulations required initial conciliation before it could proceed with an enforcement action.  In June, a new Seventh Circuit panel threw out the attorneys' fees, saying it took more than a loss on the merits to justify awarding the fees and that the district court's decision "impermissibly rested on hindsight,” a phrase it used again in its decision.

The panel was asked to revisit the case in July, when attorneys with Jones Day argued that the court used an improper standard and that the decision would unleash a wave of prolonged fee fights.  The EEOC argued in favor of the panel’s original decision, saying it was in keeping with past case law.  In its amended decision, the panel ruled that it had been correct to use a more permissive standard instead of reviewing the district court ruling only for an abuse of discretion, explaining that the lower court had made a legal error, meaning the abuse of discretion standard was not the correct one to use.

It then said that the question as to whether the EEOC should have to pay attorneys' fees rested on whether its legal theory — which relied on a novel interpretation of the unique wording in a subsection of Title VII of the Civil Rights Act of 1964 — was “far enough afield” as to be unreasonable.  The panel noted that there was a difference in the wording of the subsection the EEOC highlighted and no clear precedent that shut down its theory.  In addition, it added, CVS by its own admission spent more than 800 hours defending against the suit and specifically told the district court the questions required a deep understanding of Title VII.

The case is the U.S. Equal Employment Opportunity Commission v. CVS Pharmacy Inc., case number 17-1828, in the U.S. Court of Appeals for the Seventh Circuit.