5th Circuit: Feds must pay $500K in attorney fees to defendant company for bad faith in FLSA case
Calling the U.S. Department of Labor’s conduct in an employment case baseless and vindictive, a federal appeals court is requiring the government to pay some $500,000 in attorney fees to the defendant company under a bad-faith provision of the Equal Access to Justice Act.
“It is often better to acknowledge an obvious mistake than defend it,” the New Orleans-based 5th U.S. Circuit Court of Appeals says at the outset of its July 2 opinion (PDF). “When the government acknowledges mistakes, it preserves public trust and confidence. It can start to repair the damage done by erroneously, indeed vindictively, attempting to sanction an innocent business. Rather than acknowledge its mistakes, however, the government here chose to defend the indefensible in an indefensible manner.”
At issue in the underlying Southern District of Texas case was whether Gate Guard Services LP had violated the Fair Labor Standards Act by misclassifying as independent contractors workers who were paid $100 to $175 a day to live at oil drilling sites in remote areas and record the license plates of vehicles as they entered and left.
The trial court had denied an attorney fee award to Gate Guard under a bad-faith theory, finding the government’s position “not entirely frivolous.” However, it OK’d an award of more than $565,000 in legal fees and costs last year under another prong of the EAJA that required the government’s position to be substantially justified.
The 5th Circuit reversed the trial court’s bad-faith ruling as an abuse of discretion. As a result, the appellate panel did not address whether or not the DOL’s position was substantially justified. The case is now remanded back to the trial court to decide how much to award in attorney fees under the bad-faith standard.
In nixing a bad-faith award to Gate Guard, the trial court applied an “unduly rigid test” that did not adequately take into account all the facts and circumstances, including the manner in which the Department of Labor handled the litigation process, the 5th Circuit said. “By focusing solely on whether the government’s claim that Gate Guard was violating the FLSA was colorable at the outset, the court ignored both that the case lost all ‘color’ as it proceeded and the government’s misconduct throughout this litigation.”
Among the factors cited by the 5th Circuit that support a bad-faith attorney fee award were a “factually incomplete” case that had been minimally investigated by an inexperienced DOL employee, followed by “extraordinarily uncivil and costly litigation tactics” that “strongly” suggested the government “hoped to prevail by oppressively pursuing a very weak case.”
These tactics included DOL contact with a low-level company worker, even though the government knew Gate Guard was represented by counsel; refusing to produce witness statements to the defense, even though some had already been used as evidence; a deposition in which a DOL lawyer spent more time objecting to defense questions than the witness spent answering them, requiring trial court intervention; and a DOL demand that Gate Guard pay a “grossly inflated multimillion dollar penalty,” the opinion says.
“This is a landmark decision, a case of the first impression,” partner Annette Idalski of Chamberlain, Hrdlicka, White, Williams & Aughtry told Texas Lawyer (sub. req.). The firm represented Gate Guard in the case.
The article doesn’t include any comment from the Department of Labor.
Related coverage:
Texas Lawyer (sub. req., 2014): “Company Wins Half-Million-Dollar Fee Award From DOL”
