Opinion ID: 199369
Heading Depth: 2
Heading Rank: 2

Heading: Our Assessment

Text: 12 We find no error in the district court's conclusion that the decision to initiate a debarment proceeding was substantially justified. The Act provides that no contract of the United States shall be awarded to individuals or firms found to have violated its provisions [u]nless the Secretary otherwise recommends because of unusual circumstances. 41 U.S.C. § 354(a). As we noted in our earlier decision, appellants violated an explicit prohibition against pay periods longer than semimonthly, see Dantran, 171 F.3d at 65-66 (citing 29 C.F.R. § 4.165(b)), and, on that basis alone, the Secretary was required to institute debarment proceedings, seeid. at 67. We think it reasonable for the Secretary to have awaited the fact finding hearing before deciding whether appellants were entitled to a reprieve from that penalty because of unusual circumstances. Indeed, the enforcement regulations caution the Secretary to use restraint in excusing a contractor from the ineligible list, see 29 C.F.R. § 4.188(b)(1), and the burden of establishing unusual circumstances falls on the violator, id. See also Vigilantes, Inc. v. Adm'r, Wage and Hour Div., 968 F.2d 1412, 1418 (lst Cir. 1992) (The legislative history of the SCA makes clear that debarment of contractors who violated the SCA should be the norm, not the exception, and only the most compelling of justifications should relieve a violating contractor from that sanction.). 13 Our inquiry does not end, however, with the Secretary's initial decision to bring a debarment complaint. To satisfy its burden, the government must justify not only its pre-litigation conduct but also its position throughout litigation. Comm'r, INSv. Jean, 496 U.S. 154, 159 (1990); Jackson v. Chater, 94 F.3d 274, 278 (7th Cir. 1996); One Parcel of Real Prop., 960 F.2d at 208; seealso 28 U.S.C. § 2412(d)(2)(D). 7 The court's task in examining the government's position is not to make discrete findings as to each of these temporally distinct elements, [but to] . . . arrive at one conclusion that simultaneously encompasses and accommodates the entire civil action. Chater, 94 F.3d at 278. 14 The difficulty with the Secretary's position in this case surfaces when we look beyond the ALJ's hearing and fact finding. The Secretary's continuing view that appellants' practices warranted debarment does not give us pause; the payment frequency requirement is unambiguous, and the lengthy analysis in our earlier opinion demonstrates that the Secretary's position on the lawfulness of cross-crediting was sufficiently debatable, though we ultimately ruled it incorrect. 15 We balk, however, on the issue of unusual circumstances. 8 The ALJ thoroughly examined the relevant circumstances in the course of concluding that appellants were ideally suited for relief from the debarment penalty. See supra at 38-39. In our earlier decision, we noted the ALJ's unassailable finding that no aggravating factors were extant, Dantran, 171 F.3d at 73, as well as his specific findings of historical fact that resolve virtually all of the enumerated factors in the plaintiffs' favor, id. Seealso id. at 74 ([L]egal certainty associated with the payment frequency provision, without more, cannot overcome a record that reeks of mitigation.). 16 The Secretary resisted this determination, however, and persisted in pushing for debarment. She took this path even though the company had ceased to exist because of financial difficulties triggered by the Department of Labor's freezing of its assets, see note 1 supra, and despite repeated settlement offers from appellants, see infra at 14-15. Although the Secretary prevailed in the next stage of the litigation when the ARB reversed the ALJ, the Board's decision lends no support to the Secretary's effort to justify the continuing pursuit of debarment. The ALJ's decision had been based on first-hand observation of witnesses, giving strength to the credibility assessments on which it rested. We found the ARB's contrary ruling to be not only incorrect, but without foundation: 17 On appellate review, courts are entitled to expect, at a minimum, that an agency which rejects an ALJ's factfinding will provide a rational exposition of how other facts or circumstances justify such a course of action. [Citations omitted.] There is no hint of such an analysis in the ARB's opinion. . . . The short of it is that, gauged by the proper standard of review, the ARB had no legally sufficient reason for upsetting the ALJ's findings of fact (particularly those that relied on credibility assessments). 18 Dantran, 171 F.3d at 73. 19 The particular testimony prompting that criticism of the ARB's ruling concerned appellants' knowledge of the bi-weekly pay rules. The investigator who had done the earlier examination of appellants' pay practices, Rioux, testified that he had told appellant Holmes that the regulations call for payment twice a month, rather than monthly. Rioux testified that appellant replied as follows: 20 [T]he post office pays me on a monthly basis. When they pay me on a bi-weekly basis, I'll pay [my employees] on a bi-weekly basis. 21 Id. at 69. According to the ARB, this exchange demonstrated appellants' culpable disregard of the law - an aggravating circumstance under 29 C.F.R. § 4.188(b)(3)(i) that made Dantran and Holmes ineligible for relief from debarment. 22 As we explained in our earlier decision, however, the ALJ - the only factfinder with direct exposure to the testifying parties - explicitly considered this evidence and declined to give it weight, instead crediting Holmes' testimony that Rioux made no such point. See Dantran, 171 F.3d at 72. We devoted a considerable part of our opinion to an explanation why this was binding on the ARB. See id. at 68-72. The ALJ's finding that Dantran had a reasonable, good-faith belief throughout the ensuing period that its wage-payment practices conformed with the Act's requirements was reinforced, moreover, by Rioux's final report stating that plaintiffs' payroll practices were 'in compliance with all the provisions of the [Act].' Id. 23 On this record, a majority of our panel found that the ARB's decision reflected a serious infirmity in agency decisionmaking, and we concluded that there was no plausible basis for an outcome contrary to that reached by the ALJ on the absence of aggravating factors. See id. at 73. In the panel majority's view, the mitigating factors in appellants' favor were so strong - as the ALJ had recognized - that this was the rare case in which the facts admit of only one plausible legal conclusion. See id. at 75. We observed: 24 [T]here is no reasonable doubt about the balancing equation's overall equilibrium. Although the Act grants the Secretary latitude in considering whether to recommend relief from debarment, she has cabined that discretion by enumerating specific factors (and the balancing methodology) upon which she will rely to determine the existence of unusual circumstances. In this case, the findings as to mitigation are so potent that solving the balancing equation in any manner contrary to that which the ALJ reached would constitute an abuse of discretion. 25 Id. at 74 (emphasis added). 26 Although there may be cases in which the government's position would be substantially justified even though to adopt it would be an abuse of discretion, this is not one of them. Once the ALJ resolved crucial credibility issues against the Department of Labor, the Secretary needed some rationale for rejecting those findings in order to be deemed substantially justified in continuing to press for debarment. We found there was none. The Secretary again emphasizes that appellants, as of the time of the first investigation in 1989, had copies in hand of the applicable regulations; in her view, this led to a reasonable perception that appellants' continuing violations represented at least culpable neglect, an aggravating circumstance that would on its own preclude relief from debarment. 27 We previously have identified the flaws in this logic, pointing out that language in appellants' postal contracts calling for monthly payments to Dantran, together with the investigator's clean bill of health after the earlier investigation, would have lulled appellants into a reasonable assumption of compliance. SeeDantran, 171 F.3d at 74. The legislative intent behind the Act was to make the full vigor of the law [] felt by those who repeatedly and callously violate it, 9 and it would be a stretch to characterize appellants' conduct as culpable within that understanding. With affirmative assurances that their practices were lawful, theirs was not even a failure to pay attention to the requirements, let alone a deliberate flaunting of them. SeeDantran, 171 F.3d at 74 n.10 ([T]he regulatory scheme with which we are dealing is designed to debar those whose conduct is culpable and to excuse those whose actions invite leniency.). 28 We recognize that the debarment sanction is not intended as a punishment only for deliberate misconduct. The regulations do not permit relief from debarment simply because the violator pays what should have been paid previously, see 29 C.F.R. § 4.188(b)(2); such leniency would provide no incentive for contractors to seek out and conform to the regulations governing their conduct. But the facts here go far beyond such a straightforward failure to abide by the law. Not only had appellants experienced an apparent endorsement of their practices by a Department investigator, but by the time of the ALJ's decision the Secretary's enforcement actions already had imposed a severe punishment by triggering the loss of their business. 10 It is hard to imagine a more compelling case for leniency. 29 The insistence on forging ahead was exacerbated in this case, moreover, by the Secretary's apparent refusal to consider appellants' repeated offers to cut short the litigation with a settlement that would have conceded the legal issues in exchange for the relief from debarment to which they ultimately were found entitled. The costs of not settling are precisely what appellants seek to recover here. Although the offer of settlement certainly does not on its own render the Secretary's position unjustified, the decision to persevere in light of the ALJ's findings of unusual circumstances seems all the more unreasonable against the backdrop of appellants' overtures. 30 In sum, while the Secretary's original decision to bring a debarment action was supportable, we believe the district court abused its discretion in failing to find that the Secretary's continuing pursuit of debarment following the ALJ's ruling was ill-considered and, in the language of the EAJA, not substantially justified. In these circumstances - involving a company already severely penalized by the government's enforcement action, a factfinder's determination of no culpability, full compliance with remedial obligations, and repeated offers to settle with acquiescence to the government's legal stance - we do not believe a reasonable person could find the government's position following the ALJ's decision to be correct, particularly with the burden on the government to prove itself justified. We conclude that the decision to prolong the adversarial proceedings swallowed up the earlier justifiable pursuit of debarment. These appear to be precisely the circumstances in which Congress intended a successful litigant to be able to recover the costs of obtaining success. SeeJean, 496 U.S. at 163 ([T]he specific purpose of the EAJA is to eliminate for the average person the financial disincentive to challenge unreasonable governmental actions.). 11 31 We therefore reverse the district court's judgment and hold that appellants are entitled to fees under the EAJA. We address the precise scope of that award in the following section. 32