The Armed Services Board of Contract Appeals recently denied a contractor’s application for attorney fees and expenses under the Equal Access to Justice Act

Although denial of a petition for attorney fees under EAJA is not necessarily remarkable, this case serves as a stark reminder that a contractor may not qualify as a “prevailing party” under EAJA, which is necessary for a fee recovery, even when the Government abandons a position that it forced the contractor to litigate.

A bit of background, as this case began over eight years ago: In May 2008, the SBA, pursuant to the SBA’s 8(a) program, accepted on behalf of Tech Projects a requirement from the Army for the design and installation of a virtual fence at White Sands Missile Range in New Mexico. Approximately four months later, the Army advised the SBA that the requirement was cancelled and would be performed by in-house personnel.

Tech Projects submitted a certified claim for $185,346 in December 2008, seeking costs consistent with a termination for convenience. The claim was audited. The Contracting Officer made an initial decision in 2009 and, following a reconsideration request in 2011, made a final decision in March 2013. In the final decision, the CO determined that Tech Projects was entitled to partial reimbursement ($32,185), finding that “the government is in agreement with Tech Projects that there is an implied contract when SBA acceptance occurs,” and, further,

[i]t is understood that there was never a formal written contract but the SBA Acceptance Letter and actions by the government could be reasonably perceived by Tech Projects (or any other 8(a) contractor) to constitute an implied contract.

Tech Projects appealed the decision to the ASBCA in June 2013 seeking the balance of its claim. The Army then moved to dismiss the claim for lack of jurisdiction, claiming (despite its prior admissions) that Tech Projects had failed to allege sufficient facts to establish an implied-in-fact contract.

In its March 2015 decision, the Board denied the Army’s motion to dismiss. Relying on the CO’s decision, Tech Projects asserted that its prayer for a determination that “there were two contracts and that . . . in each case, the Contracting Officer’s actions amounted to a termination for the convenience of the Government,” cannot be dismissed as frivolous. The Board agreed, concluding that Tech Project’s arguments were sufficient to defeat the Army’s jurisdictional challenge and motion to dismiss. The Board also noted that, although it had jurisdiction over Tech Project’s claim, it would defer ruling on the issue of whether contracts were formed until a full merits proceeding, i.e., a hearing or summary judgment.

Following this decision by the Board, the Contracting Officer amended his final decision. The Army agreed to pay the remaining principal of Tech Projects’ claims, plus accrued interest from the dates the claims were submitted until payment of the claimed amounts were paid. The Government subsequently filed a motion to dismiss in February 2016, asserting that “the dispute has been rendered moot by voluntary Government action.” Tech Projects did not oppose, and stipulated to “a final non-appealable Order of Dismissal so that it can promptly apply for prevailing party fees and costs” under EAJA. On March 4, 2016, the Board dismissed the appeal as moot, expressly noting that Tech Projects intended to file an application under EAJA. On April 6, 2016, Tech Projects filed its application, asserting that it was a prevailing party.

The Army then filed a motion for summary dismissal of Tech Projects’ application, asserting that “because Tech Projects has failed to secure a judgment in this action, it is not a prevailing party, and does not qualify to recover under EAJA.” Tech Projects, of course, strenuously disagreed: “[T]he Contracting Officer’s decision, on the eve of the merits hearing, although self-described by Army counsel as ‘voluntary’ was anything but.”

The Board agreed with the Army, concluding that Tech Projects was not a prevailing party under EAJA. It accepted the Government’s core position that “because Tech Projects did not secure a decision sustaining its appeal, or a consent judgment, it lacks ‘prevailing party’ status.” The Board followed what it viewed to be Federal Circuit and Supreme Court precedent, in which the Supreme Court had “unambiguously rejected the ‘catalyst theory’ except in instances where there is an enforceable judgment on the merits, or a court-ordered consent decree, both of which create a material alteration in the legal relationship of the parties.” Brickwood Contractors, Inc. v. United States, 288 F.3d 1371, 1380 (Fed. Cir. 2002), cert. denied, 537 U.S. 1106 (2003) (relying on Buckhannon Board and Care Home, Inc. v. West Virginia Department of Health and Human Resources, 532 U.S. 598 (2001)). In reaching this decision, the Board declined to follow Benjamin S. Notkin & Assoc.[i], in which it held that a contractor was entitled to attorney fees under EAJA with respect to an issue that the Government had abandoned at the outset of the hearing, because Notkin predated the Supreme Court decision in Buckhannon.

The tone of the Board’s closing remarks suggests sympathy for Tech Projects’ position, but that the Board was nevertheless constrained by precedent: “[W]e conclude that Tech Projects, having failed either to have its appeal sustained, or to obtain a consent judgment, is not a ‘prevailing party’ under EAJA, and hence that the government’s motion must be granted and Tech Projects’ application must be denied.” During the more than eight years that Tech Projects was litigating its claim for $178,419 against the Government, it incurred attorney fees and out of pocket costs exceeding $357,000.

No doubt, Tech Projects believed that its lengthy and costly litigation efforts and overall strategy was responsible for the Army’s decision to pay its claim in full, plus interest which, in turn, constituted a material alteration in the legal relationship between the parties. Likewise, Tech Projects expected a fee recovery under EAJA in the event it prevailed on the merits, which most would probably agree Tech Projects effectively did when the Army conceded, or abandoned, its position and paid Tech Projects’ principal claim in full, including interest, apparently on the eve of the merits proceedings. Such an expectation is not inconsistent with the purpose of EAJA, through which Congress recognized “the deterrent effect” imposed by the expense associated with litigation, and sought to diminish that effect for a party “seeking review of, or defending against, governmental action” by allowing fee shifting when the private party’s position is vindicated. Indeed, although all but dismissed by the Federal Circuit in Brickwood, EAJA’s legislative history indicates that a party may be deemed a “prevailing party” if the party obtains a favorable settlement of the case.[ii]

But here, this was not enough for Tech Projects to be deemed a prevailing party and recover its fees, a result that appears particularly unforgiving in view of the fact that Tech Projects’ stipulation to the Government’s motion to dismiss appeared expressly contingent upon its right to pursue fees and costs under EAJA, which the Army understood, and which was expressly acknowledged in the Board’s Order dismissing the appeal.

The important takeaway from this case is that Government contractors who, after considerable time and expense (and often years of litigation), achieve a favorable outcome on the merits through some form of negotiation with the Government, should consider EAJA recovery in any settlement, and insist that a settlement be memorialized by a formal decision or a consent judgment sustaining the appeal.

One final interesting note: On December 17, 2015, Representative Matthew Cartwright introduced H.R. 4282, a bill titled the “Catalyst Theory Restoration Act of 2015.” This bill seeks to clarify the meaning of “prevailing party” under any statute ruling, regulation, or interpretation by federal agencies and states in part that a prevailing party “shall include a party whose pursuit of a nonfrivolous claim or defense was a catalyst for a voluntary or unilateral change in position by the opposing party that provides any significant part of the relief sought.” The bill is currently in subcommittee; we shall follow and report on any developments.