## Joh n J. Callahan was named Acting Commissioner of the Social Securit y 1 

## Adm inistration effective March 1, 1997. He has been substituted as appellant fo r Shirley S. Chater pursuant to Fed. R. App. P. 43(c). United States Court of Appeals 

### FOR THE EIGHTH CIRCUIT

___________ Nos. 96-4183/97-1192

___________ Stephen A. Arneson, *
* Appellee, *
* v. * Ap peals from the United State s District
* Cour t for the Eastern District o f John J. Callahan, Acting * Missouri. 1 Commissioner of the Social Security * Administration, *
* Appellant. *

Submitted: September 10, 1997 Filed: November 7, 1997

___________ Before BEAM, FLOYD R. GIBSON, and HEANEY, Circuit Judges.

___________ BEAM, Circuit Judge. The Social Security Administration appeals the amount of back p ay the district court awarde d Stephen A. Arneson. We affirm in part and reverse in part.

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I. BACKGROUND
This disp ute is before us for the third time. We will discuss only those facts relevant to this appeal. Stephen A. Arneson sued the Social Security Administration (SSA), claiming that it violated the Rehabilitatio n Act of 1973, 29 U.S.C. §§ 701-796 in discharging him from his government positi on. Arneson suffers from a neurological disorder, apraxia, whic h affects his ability to concentrate and perform certain tasks.

The di strict court dismissed the suit and Arneson appealed. Thi s court r emanded to determine whether the SSA failed to make reasonabl e accommodations for Arneson's disability. Arneson v. Heckler , 879 F.2d 393 , 400 (8th Cir. 1989). On remand, the district court entered judgment for the SSA. In Arneson v. Sullivan , 946 F.2d 90, 92-93 (8th Cir. 1991), we reversed that judgment, ordered the SSA to reins tate Arneson, and remanded the case for a determination of the amount of back pay that the SSA owes Arneson. The SSA now claims that the district court made three errors in that calculation.
First, th e SSA contends that the district court erroneously awarded Arneson prejudgment interest accruing from his unlawful discharge. Second , the SSA contends that the district court erred in awarding Arneso n additi onal monies to compensate him for the adverse tax consequence s associated with receiving twelve years of back pay in two payments

. Finally, the SSA contends that the district court erred in declining t o reduce Arneson's back pay award by the amount of disability retiremen t benefits that Arneson received.

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## The Supreme Court has also held that just compensation under the Fift h 2 

## Amendment takings clause waives sovereign immunity from interest. Smyth v. United States , 302 U.S. 329, 353 (1937). Sovereign immunity is a jurisdictional question which the government can raise 3 

## at any time. See, e.g. , Preferred Risk Mut. I ns. Co. v. United States , 86 F.3d 789, 793 (8th Cir. 1996), cert. denied , 117 S. Ct. 1245 (1997). Thus, we reject Arneson' s argu ment that the government waived its claim of sovereign immunity by failing t o immediately appeal the district court's order awarding A rneson interest on his back pay award.
-5- II. DISCUSSION

A. Prejudgment Interest

The no-interest rule provides that sovereign immunity generall y precludes a party from recovering interest in a suit against the Unite d States. See Library of Congress v. Shaw , 478 U.S. 310, 311 (1986)

. Congres s may expressly waive the government's sovereign immunity fro m interest by statute or contract, see, e.g. , id. , at 317, or by removing th e cloa k of sovereignty and giving the "status of a 'private commercia l enterprise.'" Loeffler v. Frank , 486 U.S. 549, 556 (1988) (quoting Shaw , 478 U.S. at 317 n.5). 2

The R ehabilitation Act does not provide for prejudgment interest ; however, it expressly incorporates the "remedies, procedures and rights" of Title VII. 29 U.S .C. § 794 (a)(1). Title VII of the Civil Rights Act of 1964, provides that a court may order an employer to reinstate employee s "with or without back pay" or order "any other equitable relief as th e court deems appropriate." 42 U.S.C. § 2000e-5(g )(1). Arneson argues that Congre ss waived sovereign immunity from interest under Title VII or , alternati vely, that the Back Pay Act, 5 U.S.C. § 5596, provides th e necessary waiver. 3

## In Shaw , the plaintiff argued that Congress waived sovereign immunity from 4 

## i n terest under Title VII because Title VII holds the United States "liable 'the same as a private person' for 'costs,' including 'a reasonable attorney's fee.'" Shaw , 478 U.S. at 317-18 (quoting 42 U.S.C. § 2000e-5(k)).
-6- The Supre me Court has previously held that Title VII does not waive the federal government's sovereign immunity from interest. Sh aw , 478 U.S. 4 at 319 . The Court stated that waivers of sovereign immunity must b e strictly construed in the sovereign's favor. Id. at 318. Furthermore, th e Court stated:
[T]here can be no consent by implication or by use of ambiguous lang uage. Nor can an intent on the part of the framers of a statute or contract to p ermit the recovery of interest suffice where the intent is not translated into affirmative statutory or contractual terms. The consent necessary to waive th e traditional immunity must be express, and it must be strictly construed.

Id. (alternation in original) (quoting United States v. N. Y. Rayo n Importing Co. , 329 U.S. 654, 659 (1947)). See al so, e.g. , Miller v. Alamo , 992 F.2d 766 (8th Cir. 1993) (Congress must clearly and unequivocally waiv e the government's sovereign immunity).

After Sha w , Congress amended Title VII, expressly waiving sovereign immunity from interes t. 42 U.S.C. § 2000e-16(d). Neither party disputes that t he district court properly awarded Arneson interest beginning o n Novembe r 21, 1991, the amendment's effective date. However, the 199 1 amendment does not apply retroactively. See Huey v. Sullivan , 971 F.2 d 1362, 1365-66 (8th Cir. 1992). Nonetheless, Arneson argues that he i s entitled to interest on his back pay award from January 21, 1983, through November 21, 1991, because the Back Pay Act waives sovereign immunity.

## In Brown , the plaintiffs brought an unlawful failure to promot e claim under Title 5 

## VII and not the Back Pay Act. Brown , 918 F.2d at 216. Because the Back Pay Act limit s its protections to the unlawful "withdrawal or reduction" of compensation, 5 U.S.C. § 5596(b)(1), and the plaintiffs alleged unlawful failure to promote, the court did not award them any interest from the government. Brown , 918 F.2d at 221.
-7- The Back Pay Act generally provides certain federal agency employees with a monetary remedy for "unjustified or unwarranted personnel actio n which has resulted in the withdrawal or reduction" of the employees' pay. 5 U.S.C. § 5596(b)(1). The Back Pay Act did not provide for interes t against the United States until Congress amended it in 1987. 5 U.S.C. § 5596(b)(2)(A).

Arneson cites three circuit decisions for the proposition that th e amende d Back Pay Act waives the government's sovereign immunity fro m interest awards in Rehabilitation Act and Title VII cases. See Brown v. Secretary of the Army , 918 F.2d 214 (D.C. Cir. 1 990); Edwards v. Lujan , 40 F.3d 1152, 1154 (10th Cir. 1994) (adopting Brown ); Woolf v. Bowles , 57 F.3 d 407, 410 (4th Cir. 1995) (adopting Brown ). With due respect to our sister circuits, we find the reasoning in those cases i nconsistent with sovereign immunity and the no-interest rule.

In Brown , the court held that the Back Pay Act waives the federa l government's sovereig n immunity from interest in Title VII cases. Brown , 918 F.2d at 218. The court relied upon Loeffler , 486 U.S. at 556, for the proposition that a st atute other than Title VII can provide the requisite sovereign immunity waiver. Brown , 918 F.2d at 216. The court stated, "Th e government offers no convincing reason why the Back Pay Act does not suppl y the immunity waiver prescription absent in Title VII, just as the Postal Reorganization Act do es." Id. The court next held that because the Back Pay Act complements T itle VII, the Back Pay Act waives sovereign immunity frominterest for any claim which could have been brought under the Back Pay Act. Id. at 218.

5

## -8- We find t his reasoning unpersuasive. In Loeffler , 486 U.S. at 556, the Supreme Court held that Congress expressly w aived the postal service's
sovere ign immunity at its inception because, under the 1970 Posta l Reorgan ization Act, the postal service assumed the role of a "privat e commercial enterprise." Express and unequivocal Congressional waiver of sovereign immunity was not required in Loeffler because the postal service fit within the "private commercial enterprise" exception to the no-interes t rule. Id. In cases like Brown and the present one however, the private commercial enterprise exception does not apply.
We hold that to provide the sovereign immunity waiver absent in Title VII, t he separate statute must, at a minimum, unequivocally expres s Cong ress's intent to waive sovereign immunity under Title VII. Cf

. McGehee v . Panama Canal Comm'n , 872 F.2d 1213, 1215 (5th Cir. 1989 ) (holding that for Congress to waive sovereign immunity by statute, th e "legislation giving rise to the cause of action" itself must expressl y subject "the government to interest payments").

In this Rehabilitation Act case, Arneson recovered back pay unde r Title VII's remedial provisions. He did not rel y upon the Back Pay Act to
recove r back pay, but now asserts that the Back Pay Act provides th e necessary waiver of s overeign immunity. The Back Pay Act language relied upon by Arneson states that "[a]n amount payable under paragraph (1)(A)(I) of this subsection shall be payable with interest." 5 U.S.C

. § 5596(b)(2)(A). The amended Back Pay Act does not even mention Title VII
or the Rehabilitation Act. This provision does not evidence Congress' s clear and unequivocal consent to interest awards against the governmen t under the Rehabilitation Act and Title VII. Had Congress desired to waive sovereign immunity from interest awards under either the Rehabilitation Ac t
or Title VII, it would not have limited Section 5596(b)(2)(A) interes t awards to amounts payable under "paragraph (1)(A)(I)." Congress could als o have expressed its intent by amending Title VII before 1991.

## In light of thi s finding, we need not address Arneson's argument that the 1987 6 

## Back Pay Act amendment applies retroactively.
-9- The Supre me Court's decisions addressing sovereign immunity and the no-in terest rule buttress our holding. The Court has instructed us t o construe the scope of such waivers in the sovere ign's favor, see Shaw , 478 U.S. at 318; to limit such waivers to their plain language, see Ruckelshau s v. Sierra Club , 463 U .S. 680, 694 (1983); and to construe "ambiguities in favor of immunity." United States v. Williams , 514 U.S. 527, 531 (1995). The Back Pay Act does not expressly and unambiguously waive the federa l gov ernment's sovereign immunity from interest awards under th e Rehabilitation Act or Title VII. We therefore reverse the prejudgmen t interest award to the extent it relies upon the Back Pay Act to waiv e sovereign immunity. 6

B. Tax Enhancement Damages

Th e district court awarded Arneson additional monies to compensat e Arneson for the adverse tax consequences from receiving back pay in tw o payments (tax enhancement award). The SSA argues that tax enhancemen t awards are not availa ble under Title VII and that, if available, Congress has not waived sovereign immunity from these awards.

If the ta x enhancement remedy is available under Title VII, we find it analogo us to the prejudgment interest remedy, see Manko v. Unite d States , 830 F.2d 831, 836 (8th Cir. 1987), as an element of making persons whole fo r discrimination injuries. See Loeffler , 486 U.S. at 558

. Theref ore, we treat the tax enhancement remedy like the prejudgmen t intere st remedy and hold that Congress must expressly and unequivocall y waive sovereign immunity before a party can recover a tax enhancement awar d from the federal government. We do no t believe that Congress has authorized the tax enhancemen t remedy against the federal government. Nowhere within the statutor y framework of the

## Because we believe C ongress has not unequivocally expressed its intention to 7 

## waive the federal governme nt's sovereign immunity from this tax enhancement award,
we need not decide whether plaintiffs may recover this type of award against private parties.
-10- Rehabilitation Act or Title VII, has Congress expressly waived sovereign immunity from tax enhancement damages. The mere fact that Congres s int ended that discrimination victims receive a full measure of back pa y does not amount to an unequivocal and express waiver of sovereign immunity

. We the refore reverse the district court's award of tax enhancemen t damages. 7

C. Disability Retirement Annuity

After his unlawful discharge, Arneson received Civil Servic e Ret irement System (CSRS) disability retirement benefits (disabilit y ben efits) in the amount of $72,241.87. The SSA argues that we shoul d deduct the amount of these benefits from Arneson's back pay award because Arneson would otherwise receive a double recovery. We disagree.

The Title VII back pay remedy is limited by 42 U.S.C. § 2000e-5(g), which provides in part, "[i]nterim earnings . . . by the person or persons discri minated against shall operate to reduce the back pay otherwis e allowable." This provision prevents employment discrimination victims fro m reco vering twice for the same injury. The SSA argues that Arneson' s disability benefits constitute interim earnings.

Because t he National Labor Relations Act provides the model for the Title VII back pay remedy, see Craig v. Y & Y Snacks, Inc. , 721 F.2d 77, 82 (3d Cir. 1983), we find the Court's decision in NLRB v. Gullett Gin Co. , 340 U.S. 361 (1951) particularly relevant to this issue.

## This case is distinguishable from Beshears v. Asbill , 930 F.2d 1348 (8th Cir

. 8 

## 1991). Beshears involved an emplo yee that received disability benefits due to injuries which were unrelated

to his unlawful discharge. Id. at 1355. Thus we adopted the test articulated by the Tenth Circuit in Spu lak v. K Mart Corp. , 894 F.2d 1150, 1158 (10th Cir. 1990 ), to determine whether the disability benefits received should operate t o reduce the employee's wrongful discharge back pay award. Beshears , 930 F.2d a t 1355. By contrast, Arneson received disabi lity benefits as a result of the government's wrongful termination. Therefore, we do not apply the Beshears analysis.
-11- The common law collateral source rule holds that the defendant' s liability shall not b e reduced merely because the plaintiff's net damages are reduced by paymen ts received from others. See Gullett Gin , 340 U.S. at 364. In Gullett Gin , the Court applied the collateral source rule to uphold the National Labor Relations Board's refu sal to deduct unemployment ben efits from an employee's NLRA back pay award for unlawful discharge

. Id. The Court held that the unemployment benefits at issue wer e collateral because they were not direct benefits from the employer and the y were made "to carry out a policy of social betterment for the benefit of the entire state." Id.
We have previously addressed this is sue under the Age Discrimination in Employment Act of 1967, 29 U.S.C. § 621. See, e.g. , Smith v. World Ins

. Co. , 38 F.3d 1456, 1465 (8th Cir. 1994). In Smith , we refused to reduce
an ADEA back pay award by pension benefits received on account of th e employee's wrongful discharge and remanded the case to determine whether "th e award of backpay includes amounts designed to put [the employee's ] pension account in th e same position as though he were never discharged." Id. at 1466.

We affirm the district court's refusal to deduct Arneson's disa bility benefits from his back pay award because these benefits were from a collateral source and should not be considered interim earnings. Cf

. 8 Eichel v. New York Central R.R. Co. , 375 U.S. 253, 254 (1963) (statin g "[r]espondent does not dispute that it would be highly improper for th e disability pension payments to be considered in mitigation of" petitioner' s damages). We believe Arneson's back pay award does not include monies

## Congress expressly waived the government's sovereign immunity from c osts and 9 

## attorney's fees. 42 U.S. C. § 2000e-5(k) ("[T]he United States shall be liable for costs the same as a private person.").
-12- for disability pensio n contributions that the SSA would have made but for Arneson's wrongful te rmination. Moreover, the disability benefits do not
come entirely from Arneson's employer because Arneson has unquestionably contributed to his CSRS disability retirement fu nd. Finally, the payments to Arneson from the CSRS disability fund were made to carry out a social policy wholly independent of back pay awards and they did not discharge an y direct obligation tha t the SSA had to Arneson. See Gullett Gin , 340 U.S. at 364.

D. Attorney's Fees and Costs

The district court awarded Arneson a ttorney's fees totaling $178,610 and other costs totaling $9,381.13. The SSA argues that Arneson should no t
recover the fees and costs related to any issues that Arneson loses o n appeal because Arneson would no longer be the prevailing party with respec t to those issues. We agree.

Under Title VII, the district court may, in its discretion, awar d "the prevailing party" a "reasonable attorney's fee (including expert fees )
as p art of the costs." 42 U.S.C. § 2000e-5(k). In awarding attorney' s 9 fees and costs when the plaintiff has only achieved limited or partia l success, the court must consider "whether the expenditure of counsel's tim e was reasonable in relation to the success achieved." Hensley v. Eckerhart , 461 U.S. 424, 436 (1983).

We find Arneson's post-trial claims for prejudgment interest and a tax enhancement award distinct and unrelated to those that he has prevaile d on, see id. at 437 n.12, and thus, the district court has the discretion to reduce Arneson's award of costs, including attorney's fees, accordingly

. We recognize that "[t ]here is no precise rule or formula for making these determinations." Id. at 436. However, "[a] request

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for attorney's fees s hould not result in a second major litigation." Id. at 437. Nonetheless, we remand the case to enab le the court most familiar with the litigation to award Arneson a reasonable fee in relation to the results obtained on appeal.

III. CONCLUSION

For the f oregoing reasons, we affirm the district court decision in part and reverse in part. We remand the case for a redetermination o f interest and costs, including attorney's fees.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.