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EEOC’s Sec. 707(a) severance agreement suit against CVS doesn’t warrant attorneys’ fee award

By Joy P. Waltemath, J.D.

Finding the EEOC’s Section 707(a) pattern or practice lawsuit against CVS Pharmacy over its use of a broad (and potentially chilling) severance agreement to be neither legally nor factually frivolous, the Seventh Circuit reversed an attorneys’ fee award to CVS of over $300K. Stressing that “it takes much more than a loss on the merits to warrant a fee award,” the appeals court found the EEOC’s novel legal distinction between Sec. 707(a) and Sec. 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. Plus, 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 [awarding fees] impermissibly rested on hindsight” (EEOC v. CVS Pharmacy, Inc., June 8, 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 Sec. 707(a), but the district court rejected this claim on summary judgment, and the Seventh Circuit affirmed 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 Sec. 707(a).

Procedural posture: Section 707(a) or (e). Although CVS’s severance agreement came to the EEOC’s attention after a former store manager filed a charge with the Commission, the agency later abandoned that charge, issued the manager a right-to-sue letter, and later still, filed suit against CVS under Sec 707(a), which it believed contained a grant of independent litigation authority. Sec. 707(a) provides for suits against “any person or group of persons … engaged in a pattern or practice of resistance to the full enjoyment of any of the rights” protected by the statute. Typically, through Sec. 707(e)’s incorporation of Sec. 706’s procedural requirements, the EEOC must follow the same pre-suit procedures—including conciliation—whether the suit is an individual one or a pattern-or-practice action. But the EEOC contended that Sec. 707(a), unlike Sec. 707(e), gave the EEOC a right to litigate without an underlying charge or unlawful employment practice, and (the EEOC thought), by extension, without first conciliating.

On the merits, both the district court and the Seventh Circuit rejected the EEOC’s arguments and held that conciliation is necessary under both sections. On appeal of the attorneys’ fee award, however, the Seventh Circuit was facing a different question: “whether the EEOC’s position was far enough afield at the time it was advanced that a fee award is warranted.” The district court believed that the EEOC had taken a position contrary to its own regulations and awarded fees, although it found the EEOC’s factual foundations for bringing suit were reasonable. CVS argued that either way, the fee award should be affirmed.

Title VII prevailing party fee awards. Sec. 706(k) of Title VII provides for fee shifting in favor of any “prevailing party,” but it has never been that easy because courts have recognized under the policy reflected in Title VII that fees should be awarded to prevailing defendants only in exceptional cases—only “upon a finding that the plaintiff’s action was frivolous, unreasonable, or without foundation, even though not brought in subjective bad faith.” As such, the Seventh Circuit considered how the EEOC’s theory looked in light of the available statutes, regulations, and case law at the time the action was litigated.

Textual distinctions. The EEOC’s legal theory involved a subtle textual distinction between Sec. 707(a) and Sec. 707(e)—one that was novel, yes, but it had legitimate support, the appeals court ruled. First, the EEOC had a textual foothold. Sec. 707(a), which allows for suit against “any person or group of persons,” is “something of an odd fit” for the rest of the statutory scheme and for the EEOC’s typical enforcement powers, said the court, finding it “difficult to envision what conciliation with a non-employer would look like.” While the EEOC brought this case against an employer, it was entitled to test its theory that Sec. 707(a) is distinctive and does not distinguish between employers and non-employers.

No precedent against EEOC interpretation. Second, the EEOC had modest support in prior case law, since when in amending Title VII’s enforcement provisions, Congress also transferred to EEOC authority previously vested in the Attorney General to institute “pattern or practice” lawsuits on its own initiative—without certain of the prerequisites to a civil action—and no case had squarely foreclosed the EEOC’s interpretation. Case law CVS emphasized to the contrary relied on Sec. 707(e), which has always required the use of the Sec. 706 procedures, including conciliation, but did not address the possibility of two different sorts of Sec. 707 pattern or practice claims. The Seventh Circuit would not say that the EEOC’s reading was frivolous as a result. “Novel interpretations succeed or fail,” the appeals court pointed out, also noting the agency was entitled to take “inconsistent positions” and “change its mind as new members are appointed and it is confronted with new problems.”

Sec. 707(a) case. And, although CVS claimed the EEOC’s case was “really” brought under Sec. 707(e), the Seventh Circuit said “we are not persuaded.” Reading the complaint as a whole, it was plainly a Sec. 707(a) action, and the EEOC had dismissed the manager’s initial charge, “so it cannot possibly form the basis for this suit.” Plus, the district court rested its fee award not on the statute, but on two of the EEOC’s own regulations that required it to first use conciliation to eliminate any unlawful employment practices and to bring a civil action based on a charge only if conciliation has failed—but these regulations applied by their own terms “only when an unlawful employment practice has been alleged or when the EEOC is proceeding pursuant to a charge,” noted the court, and neither was the case here.

Fees for failure to conciliate? If the real problem with the EEOC’s case was a failure to conciliate, the Seventh Circuit found it questionable whether a fee award was appropriate after Mach Mining, LLC v. EEOC, because the “appropriate remedy is to order the EEOC to undertake the mandated efforts to obtain voluntary compliance.” Here, CVS incurred legal fees not because of a failure to conciliate, but because of the novelty of the EEOC’s claimed independent cause of action under Sec. 707(a). Even if the EEOC had conciliated, its ability to bring a pattern or practice of resistance case without underlying discrimination or retaliation would have been at issue, and the legal arguments were the same. Not only that, said the appeals court, CVS said it had spent at least 823.5 hours defending this suit because the case involved “novel issues that required deep understanding of Title VII’s text, structure, and history.” That position cut against its argument that the EEOC’s position was frivolous or that the law was settled.

Novel but factually reasonable. Title VII does not punish a civil rights litigant for pursuing a novel, even if ambitious, theory, stressed the appeals court, agreeing with the district court that the suit was factually reasonable as well. The Commission’s factual case was based on the contrast between the broad language of the severance agreement’s waiver provisions and the relatively vague exceptions, which the EEOC feared would have the practical effect of chilling at least some former employees—not legal experts—from cooperating, whatever the agreement’s legal effect. As a result, the court reversed the fee award against the EEOC.