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Abuse of discretion was standard to review attorneys’ fee award against EEOC, but lower court had made error of law

By Joy P. Waltemath, J.D.

In an amended opinion on petition for rehearing, the Seventh Circuit would not change its conclusion nor agree with CVS Pharmacy’s challenge to the standard of review the appeals court originally had applied, but the court did clarify that the appropriate standard was a deferential abuse of discretion, not de novo, review of the district court’s award of attorneys’ fees to CVS. As a result, the appeals court did not disturb its finding that the EEOC’s Section 707(a) pattern or practice lawsuit against CVS over its use of a broad (and potentially chilling) severance agreement was neither legally nor factually frivolous, and reversal of the over-$300K attorneys’ fee award would stand. Addressing CVS’ challenge, the Seventh Circuit held that the standard of review in this case was the deferential abuse-of-discretion approach, but in applying that approach, it “must assess whether the district court based its ruling on an erroneous view of the law or a clearly erroneous assessment of the evidence” (EEOC v. CVS Pharmacy, Inc., November 2, 2018, Wood, D.).

Severance agreement litigation. The fee award at issue was based on a lawsuit the EEOC filed alleging that CVS was using a severance agreement that chilled its employees’ exercise of their rights under Title VII. The EEOC contended that CVS’s use of the severance agreement constituted a “pattern or practice of resistance” to the rights protected by Title VII, in violation of Section 707(a), but the district court rejected this claim on summary judgment, and the Seventh Circuit affirmed that ruling in EEOC v. CVS Pharmacy, Inc. The district court then awarded CVS $307,902 in attorneys’ fees, reasoning that the EEOC should have realized, even before filing the suit, that EEOC regulations required initial conciliation before it could proceed with an enforcement action under Section 707(a).

Attorneys’ fee award. But the appeals court reversed the attorneys’ fee ruling, stressing that “it takes much more than a loss on the merits to warrant a fee award.” Instead, the Seventh Circuit found the EEOC’s novel legal distinction between Section 707(a) and Section 707(e) procedural requirements affecting conciliation to be a “colorable legal argument” with some basis in the text and with no precedent squarely against it. Even the district court found the EEOC’s factual foundation for bringing the case was reasonable, and the appeals court agreed, concluding that the “district court’s decision impermissibly rested on hindsight.”

Standard of review was abuse of discretion. In its amended opinion, the Seventh Circuit pointed out that its initial opinion had acknowledged that the standard of review for a district court’s decision to award fees is abuse of discretion. It also had said, however, that “the justifications for the generally deferential standard of review are absent” for questions of law, and so it would “consider the district court’s legal analysis de novo.” That was the basis for CVS’ challenge, contending that any use of a de novo standard of review conflicts with the Supreme Court’s decision in Piercev. Underwood, and with the Seventh Circuit’s decision in Mars Steel Corporation v. Continental Bank N.A. The appeals court explained that its decision had been “faithful to the governing Supreme Court cases, even if we were too summary in our initial description of the standard of review.”

Must ascertain error of law. In both Pierce and Mars Steel, the opinions concluded that abuse-of-discretion or deferential review was appropriate—in Pierce, considering a question about the proper interpretation of the Equal Access to Justice Act, to review whether the government’s position was not substantially justified, and in Mars Steel, for decisions about sanctions under FRCP 11. Decisions about “what is compatible with ‘the sound administration of justice’… are inherently questions of judgment” that support deferential review, reasoned the appeals court.

However, Pierce was not the Supreme Court’s last word. In Cooter & Gell v. Hartmarx Corporation, which also addressed the question of the standard of review for Rule 11 determinations, the High Court said it needed to consider three types of issues: “factual questions, legal issues, and discretionary determinations.” In doing so, it gave special treatment to questions of law, stressed the appeals court. To that end, it quoted the Supreme Court’s language that “[a] district court would necessarily abuse its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence.”

EEOC position not legally frivolous. Accordingly, the Seventh Circuit held that the standard of review in this case was the deferential abuse-of-discretion approach, but in applying that approach, it “must assess whether the district court based its ruling on an erroneous view of the law or a clearly erroneous assessment of the evidence.” As a result, the court reiterated fees should be awarded to prevailing defendants only when the plaintiff’s case is utterly without merit, which includes either a determination that the case is legally frivolous, or an assessment that the case is factually frivolous, When it is a farfetched legal theory that makes a plaintiff’s case frivolous, we have held that an “award of fees is only permitted when litigation proceeds in the face of controlling and unambiguous precedent.”

No dispute as to facts. The case did not involve disputed issues of fact, the appeals court emphasized. It dealt instead with a purely legal, procedural issue: “whether the EEOC must attempt to conciliate cases filed under section 707(a), just as it does in other areas.” The question was whether the district court, in ordering the EEOC to pay fees, abused its discretion by “bas[ing] its ruling on an erroneous view of the law.” Here, CVS itself argued that the case involved “novel issues that required deep understanding of Title VII’s text, structure, and history.” But, the appeals court reasoned, if it takes a “deep understanding” of the statute to refute a legal theory, “one can hardly argue with a straight face that the same case was squarely blocked by controlling authority,” and as a result the amended opinion did not change the result, which reversed the fee award.