A recent Law 360 story by Kellie Mejdrich, “9th Circ. Says DOL Doesn’t Owe Atty Fees in Stock Plan Case”, reports that the U.S. Department of Labor doesn't have to pay an architecture firm's attorney fees after losing its suit accusing the firm of mismanaging an employee stock ownership plan, a split Ninth Circuit panel ruled, saying a lower court didn't abuse its discretion by finding the suit was justified. In a published opinion, the majority of the three-judge panel affirmed the denial of attorney fees and non-taxable costs that Bowers + Kubota Consulting Inc. and its former owners had sought from a Hawaii federal court under the Equal Access to Justice Act, or EAJA. The government first sued in 2018, alleging the company and its executives mismanaged the Bowers + Kubota ESOP by overvaluing stock in a $40 million sale, but the DOL lost its case in 2021 following a five-day trial.
In the opinion for the panel's majority, written by U.S. Circuit Judge Kenneth Kiyul Lee, the appellate court criticized the government's case for being "shoddy" and hinging on erroneous ESOP valuation data from a single expert witness that the district court ultimately rejected. But the panel's majority said the district court didn't abuse its discretion when it denied Bowers + Kubota fees and non-taxable costs. "The government reasonably relied on its expert's valuation opinion, despite its flaws, as the parties proceeded to trial," the opinion said.
"In short, the government's litigation position at the time of trial was weak on evidence but perhaps not without a reasonable basis," the majority later added. "We recognize that this is a close call."
U.S. District Judge Susan Oki Mollway found in September 2021 that the company and its former owners, Brian Bowers and Dexter Kubota, had complied with the Employee Retirement Income Security Act when structuring a $40 million sale of stock to the ESOP. The judge ruled that the government's case collapsed because of errors in the expert witness's calculations, which formed the basis of the DOL's allegations that the valuation was too high. The judge also awarded taxable costs to the firm and its former owners. In February 2022, Judge Mollway rejected the architecture firm's bid for attorney fees and reduced deposition costs owed by the DOL. The firm subsequently appealed.
Regarding the award of taxable costs, the panel's majority said that the district court had abused its discretion in reducing the award "by relying on a clearly erroneous finding of fact." That is, the district court mistakenly believed that depositions for which the firm sought reimbursement had occurred after the court denied a motion for summary judgment, when they had occurred before the ruling, the panel's majority said. "Because the district court's reduction of costs was mainly based on that clear error, it abused its discretion," the panel's majority said. "We thus remand the issue of costs so that the district court may reconsider its decision on the corrected record."