United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 96-3660

___________

United States Department *

of Labor; Robert B. Reich, *

Secretary of U.S. * Appeal from the United

Department of Labor, * States

Appellants, * Western District of

 v. *

Rapid Robert's Inc.; *

Robert E. Wilson, Jr..

Appellees.

* District Court for the

* Missouri.

*

___________

Submitted: April 10, 1997

 

Filed: December 2, 1997

___________

Before MCMILLIAN, FLOYD R. GIBSON, and JOHN R. GIBSON,

Circuit Judges.

___________

JOHN R. GIBSON, Circuit Judge.

The United States Department of Labor and its

Secretary appeal from an order of the district court

granting attorneys' fees to Rapid Robert's, Inc. as a

result of the district court setting aside an order of

the Secretary of the United States Department of Labor

assessing penalties against Rapid Robert's for violation
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of the Employee Polygraph Protection Act, 29 U.S.C. §§

2001-2009 (1988), and implementing
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regulations. The Secretary concedes that Rapid Robert's

was the prevailing party in the litigation on the merits,

but argues the district court erred in holding that the

Department's position was not substantially justified,

and in awarding fees. We decline to address the issue of

substantial justification and instead hold that special

circumstances exist which would make the award of

attorneys' fees unjust. Accordingly, we reverse.

In 1990, Rapid Robert's performed fifteen polygraph

examinations of employees, testing five employees on

March 10, May 31, and June 11. Rapid Robert's explained

that it performed the polygraphs to investigate

heightened inventory losses occurring close to those

dates. The Department of Labor sought penalties from

Rapid Robert's, claiming that the polygraph examinations

violated the Employee Polygraph Protection Act. 

This Act, which was enacted June 27, 1988, became

effective six months following that date on December 27,

1988. Congress had directed the Secretary of Labor to

issue rules and regulations not later than ninety days

after June 27, 1988, or September 25, 1988. The interim

final regulations, however, were actually promulgated on

October 21, 1988, with comments requested on or before

February 27, 1989. The final regulations were eventually

promulgated three years later on March 4, 1991, with the

effective date of April 3, 1991.

The Department conducted an investigation, issued a

notice of violation, and assessed a $74,000 penalty.

Rapid Robert's denied the violations and requested an

administrative hearing. 
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The ALJ found that Rapid Robert's had made a good

faith effort to comply with the Act and had not

terminated any employees based on the polygraph

examinations.
Specifically, the ALJ found that Rapid Robert's failed to give proper notice 1

according to 29 U.S.C. § 2006(d)(4). The amount assessed for violation of 29

U.S.C. § 2006(d) was reduced to $500 for each of eight incidents in which the

notices provided to employees did not comply with the content requirements set

forth in § 2006(d)(4). The ALJ assessed $1000 for each of seven incidents in which

the notices not only contained insufficient content but also were not provided to

employees at least forty-eight hours before testing. The ALJ upheld the penalty of

$1,500 assessed for each of six counts of unlawfully threatening to discipline

employees refusing to submit to polygraph testing in violation of 29 U.S.C. §

2002(3)(A). With respect to the unlawful suspension of three employees, the ALJ

reduced the $22,000 in penalties for violations of 29 U.S.C. §§ 2002(3)(A) and

2002(4)(C) to a penalty of $2000 for each of the three violations.

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Although it found Rapid Robert's and its President,

Robert Wilson, liable for violating the Act, it reduced

the penalty to $26,000.1

All parties appealed the ALJ's decision to the

Secretary. The Secretary affirmed the $26,000 penalty,

although articulating somewhat different reasoning.

Further, the Secretary rejected the ALJ's exception not

to hold Wilson personally liable and placed liability

upon Wilson as an employer under § 2001(2). 

Rapid Robert's then sought review of the Secretary's

decision in the district court. Rapid Robert's argued

that the Secretary's decision was unlawful because the

Department of Labor implemented the controlling interim

regulations without notice or the opportunity for public

comment in violation of the Administrative Procedure Act,

5 U.S.C. § 551, as well as the Fifth and Fourteenth

Amendments of the United States Constitution.

Additionally, Rapid Robert's claimed that the Department

failed to provide technical assistance as required by the
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Act, that Wilson was not an employer under the Act, and

that it conducted the polygraph examinations in

accordance with the ongoing investigation exemption in 29

U.S.C. § 2006(d). Rapid Robert's prayed that the

decision of the Secretary and the administrative law

judge be reversed and set
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aside, and that it be awarded its attorneys' fees. As

a result, the district court dismissed the enforcement

action.

The court held that it was undisputed that the

Department brought the enforcement action under the

interim final regulations, not the final regulations. In

analyzing the requirement of the Administrative Procedure

Act for notice and comment, the court rejected the

argument that the situation fell within the "good cause"

exemption contained in 5 U.S.C. § 553(b)(3)(B). After

considering legislative history as well as law from this

circuit, the district court concluded that the good cause

exemption applies only in narrow circumstances where the

facts and interests are such that notice and comment is

impossible or manifestly unnecessary. The court rejected

the Secretary's argument that ninety days was

insufficient to solicit public comments, review them, and

promulgate final regulations. Likewise, the court

rejected the Secretary's argument that the good cause

exemption applied because the interim regulations

obviated uncertainty on the part of employers, employees,

and polygraph examiners concerning the scope of the

statutory coverage and the exemptions. The court held

that the regulations were promulgated without public

participation under § 553(b)(3)(B), and therefore, were

invalid. The district court set aside the decision of

the Secretary and entered judgment in favor of Rapid

Robert's. The Secretary did not appeal.

Thereafter, Rapid Robert's applied for attorneys'

fees under the Equal Access to Justice Act, 28 U.S.C. §

2412 (1997). The court found that Rapid Robert's was the

prevailing party under the Act, that the Secretary of
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Labor's position in the litigation was not substantially

justified, and that the award of attorneys' fees and

expenses was proper. 

The district court's decision to set aside the

Secretary's decision and enter judgment in favor of Rapid

Robert's is not in issue. It was not appealed, and the

Secretary concedes that no issue is raised concerning its

propriety. The only issue before us is the propriety of

the attorneys' fee award. The district court held that

the
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Department lacked substantial justification for its

position simply because it lost on the merits. For the

most part, both parties on appeal battle over the

question of whether the issuance of the interim

regulations without notice and comment was such that it

could not be defended. The government also argues that

its position was substantially justified because the

pursuit of penalties against Rapid Robert's was primarily

based on violations of the statute and not the interim

regulations.

While the parties have vigorously asserted their

positions with respect to the propriety of the interim

regulations, we need not tread that sensitive ground to

reach the issue of attorneys' fees. Under the Equal

Access to Justice Act, the court should deny an award of

attorneys' fees not only when the government's position

is substantially justified but also when "special

circumstances make an award unjust." 28 U.S.C. §

2412(d)(1)(A). 

The district court's decision concerning an

application for fees under the EAJA is reviewed for abuse

of discretion. S.E.C. v. Kluesner, 834 F.2d 1438, 1439

(8th Cir. 1987). Under this standard, the district

court's conclusions of law are reviewable under a de novo

basis, and its factual findings are reviewed for clear

error. Id. at 1439-40.

In explaining the "special circumstances" exception,

the House Report accompanying the EAJA stated: 

Furthermore, the Government should not be held

liable where "special circumstances would make
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an award unjust." This "safety valve" helps to

insure that the Government is not deterred from

advancing in good faith the novel but credible

extensions and interpretations of the law that

often underlie vigorous enforcement efforts. It

also gives the court discretion to deny awards

where equitable considerations dictate an award

should not be made.
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H.R.Rep. No. 1418, 96th Cong., 2d Sess. at 11, reprinted

in 1980 U.S.C.C.A.N 4953, 4990. "The EAJA thus

explicitly directs a court to apply traditional equitable

principles in ruling upon an application for counsel fees

by a prevailing party." Oguachuba v. INS, 706 F.2d 93,

98 (2d Cir. 1983). 

Relying on this direction, courts have denied

attorneys' fees in a number of different situations. For

example, in Oguachuba, the Second Circuit upheld the

district court's denial of attorneys' fees to an

applicant who, because of a technical error by the INS,

prevailed on a petition for writ of habeas corpus despite

having repeatedly violated federal immigration laws. Id.

at 99. In reaching its result, the appellate court found

the petitioner to be "without clean hands." Id.; see

also Taylor v. United States, 815 F.2d 249 (3rd Cir.

1987) (denying attorneys' fees under EAJA where applicant

for fees took advantage of unlawful government action but

then challenged that action to avoid serving valid

manslaughter conviction).

In United States v. 27.09 Acres of Land in Town of

Harrison, 43 F.3d 769 (2d Cir. 1994), an otherwise

eligible and prevailing party was denied attorneys' fees

because it did not substantially contribute to the

successful phase of the litigation. Id. at 775.

Purporting to apply general equitable principles, the

Second Circuit reasoned that "where one or more

ineligible parties are willing and able to pursue the

litigation against the United States, the parties

eligible for EAJA fees should not be able to take a free

ride through the judicial process at the government's

expense." Id. (quotation and citation omitted).
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 The circumstances surrounding the present case

similarly demand that attorneys' fees be denied. The

government argues that, regardless of the validity of the

interim regulations, Rapid Robert's committed several

violations of the statute itself. These statutory

violations have gone unpunished as the result of the

district court's order setting aside the Secretary of

Labor's decision.
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The government did not argue the statutory basis of

the penalties before the district court, and ordinarily

we do not consider issues raised for the first time on

appeal. See Miller v. Federal Emergency Management

Agency, 57 F.3d 687 (8th Cir. 1995). This general rule,

however, is not absolute. As the Supreme Court has

stated,

The matter of what questions may be taken up and

resolved for the first time of appeal is one

left primarily to the discretion of the courts

of appeals, to be exercised on the facts of

individual cases. We announce no general rule.

Certainly there are circumstances in which a

federal appellate court is justified in

resolving an issue not passed on below, as where

the proper resolution is beyond any doubt, or

where injustice might otherwise result.

Singleton v. Wulff, 428 U.S. 106, 121 (1975) (quotations

and citations omitted). 

This court has applied an exception to the general

rule where "the obvious result of following the rule

would be a plain miscarriage of justice or would be

inconsistent with substantial justice." Seniority

Research Group v. Chrysler Motor Corp., 976 F.2d 1185,

1187 (8th Cir. 1992). We believe this exception applies

here. 

Rapid Robert's direct violations of the statutory

provisions are outlined in detail in the ALJ's order. As

a result, the record on the issue is well-developed and

amenable to our review. The Secretary briefed and argued

the statutory basis for the penalties, and Rapid Robert's

had the opportunity to respond. Therefore, it is
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appropriate for us to consider whether Rapid Robert's

relief from valid statutory penalties constitutes a

special circumstance which would make an award of

attorneys' fees unjust. 

While the district court focused exclusively on the

validity of the interim regulations, the vast majority of

the penalties levied against Rapid Robert's were for

direct violations of statutory provisions.
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An analysis of the administrative law judge's order

reveals that the only violations which depended on the

regulations were those related to the failure to give 48-

hour advance notification of testing. See 29 C.F.R. §

801.12(g)(2). Because the statutory language specifies

only that written notice be provided before the polygraph

test, the 48-hour time frame was derived purely from the

interim regulations. See 29 U.S.C. § 2006(d)(4).

Therefore, without the interim regulation, the

administrative law judge could not conclude that Rapid

Robert's did not give written notice sufficiently in

advance of testing.

The other violations were based on requirements

plainly set forth in the statute. The administrative law

judge found fifteen violations related to the content of

the written notices provided by Rapid Robert's to its

employees. Namely, the written notices did not set

"forth with particularity the specific incident or

activity being investigated" as required by 29 U.S.C. §

2006(d)(4)(A) and did not describe "the basis of the

employer's reasonable suspicion" as required by 29

U.S.C. § 2006(d)(4)(D)(iii). Rapid Robert's argues that

the interim regulations provided a detailed description

of "reasonable suspicion." See 29 C.F.R. § 801.12(g)(3)

(Interim 1989). The administrative law judge, however,

referred primarily to a line of Supreme Court decisions

to determine the meaning of "reasonable suspicion."

Thus, he did not rely on regulatory language to interpret

the statutory requirements or to ascertain that those

requirements had been violated.

Rapid Robert's was also held accountable for six

violations involving unlawful threats in conjunction with
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polygraph examinations and for three violations involving

unlawful employee suspensions. While the administrative

law judge found that Rapid Robert's violated both the

statute and the regulations in these instances, only the

statutory language was necessary to find the violations

as the statutory and regulatory provisions were virtually

identical. Compare 29 U.S.C. §§ 2002(3)(A), 2002(4)(C),
2

In its brief, Rapid Robert's argues that §§ 801.40-.43 of the interim

regulations dictated the procedures for enforcement actions and the assessment of

penalties under the Employee Polygraph Protection Act. The Administrative

Procedure Act, however, provides that rules of agency procedure or practice are

exempt from the requirements of notice and hearing. 5 U.S.C. § 553(b)(3)(A)

(1997). Thus, the validity of the enforcement procedures contained in the interim

regulations was never at issue. 

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with 29 C.F.R. § 801.4(a)(3). Therefore, Rapid Robert's

was in clear violation of the statute regardless of the

validity of the interim regulations. 

2

When the district court set aside the decision of the

Secretary of Labor, the court released Rapid Robert's

from all penalties, not just those rooted in regulatory

violations. Consequently, Rapid Robert's recognized a

substantial benefit beyond mere relief from the interim

regulations. For the seven violations of the 48-hour

advance notice requirement, the administrative law judge

levied penalties totaling $3500. The remaining $22,500

in penalties were levied for other violations which, as

discussed above, stemmed from clear violations of the

statute. 

While we may not disrupt the district court's

disposition on the merits, the consequence of that

disposition is a factor in weighing the equities of

awarding attorneys' fees. Here, the district court

relieved Rapid Robert's of over seven times the amount of

penalties which actually resulted from the invalidated

regulations. Rapid Robert's has reaped a windfall by

escaping its duty to pay for clear violations of a valid

statute. To add to that windfall by requiring the

government to pay attorneys' fees and expenses would be
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patently unjust. We conclude that the district court

abused its discretion by failing to find special

circumstances in this case.

We reverse the district court's order.
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A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH

CIRCUIT.

 

.