On August 18, 2017, the U.S. Court of Appeals for the Sixth Circuit reversed the denial of a FCA defendant’s request for attorney’s fees and expenses under the Equal Access to Justice Act (EAJA) and held the government accountable for an unreasonable damages demand.

Background

In U.S. ex. rel. Wall v. Circle C Construction, LLC, a subcontractor for the defendant, Circle C Construction, failed to pay $9,900 in wages for electrical work performed in the construction of warehouses. The subcontractor’s paid wages thus failed to meet the requirements of the Davis-Bacon Act. As a result, Circle C Construction’s subsequent statements of compliance with federal regulations, including the Davis-Bacon Act, were false.

Over a decade of litigation between Circle C Construction and the government followed. During that litigation, the government demanded $1.66 million in damages from Circle C Construction. It claimed that $554,000 of the demand was for “actual damages” and then sought to treble those damages. After trial, the District Court entered a $763,000 judgment in favor of the government. On appeal, the Sixth Circuit reversed the judgment and remanded the case for the entry of a reduced award of $14,748.

Company Requested Government Pay Cost of Defense

Defending against the government’s demand had cost Circle C Construction almost $500,000 in legal fees and expenses. For that reason, on remand, Circle C Construction requested that the government pay its cost of defending the suit under the EAJA.

The EAJA requires a district court to award “fees and other expenses” to a party in civil litigation with government when the government’s demand is:

  1. “substantially in excess of the judgment finally obtained by the United States”
  2. “unreasonable when compared with such judgment.”

Applying that language, the district court concluded that the government’s $1.66 million demand was “not unreasonable” as the district court itself had twice approved the legality of the demand, and so it denied Circle C Construction’s request.

Court Determined EAJA’s Requirements Were Satisfied, Reverses Lower Court Decision

The Sixth Circuit reversed. It concluded that Circle C Construction satisfied the EAJA’s requirements for the provision of fees and expenses. First, the Sixth Circuit observed that the government’s demand for $1.66 million in damages was plainly in excess of the $14,748 judgment ultimately awarded to the government. Second, the government’s demand was “unreasonable.”

The government’s theory was that the failure to pay wages compliant with the Davis-Bacon Act infected all of the performed electrical work. The Sixth Circuit rejected this theory. It reasoned that the government bargained for two items in its dealings with Circle C Construction:

  1. warehouses with proper electrical work
  2. compliance with the Davis-Bacon Act.

The government received the warehouses and electrical work, but fell short of receiving complete compliance with Davis-Bacon Act. Therefore, the government was not entitled to damages for “tainted” electrical work and could only recover for damages related to the non-payment of wages compliant with the Davis-Bacon Act.

Furthermore, in awarding attorney’s fees and expenses to Circle C Construction, the Sixth Circuit rejected several arguments advanced by the government. The government first argued that the FCA only allowed for “prevailing defendants” to recover fees and expenses under the EAJA, and Circle C Construction could not recover because it did not “prevail” in the underlying case. Dismissing that argument in short order, the Sixth Circuit quoted the text of the FCA, which simply states that the EAJA “shall apply” to “civil actions brought … by the United States.” The Sixth Circuit next rebuffed the government’s contention that Circle C Construction could not recover because its FCA violations were “willful,” an exception to the ability to recover fees and expenses under the EAJA. That contention failed, however, as the district court had found that Circle C Construction was only “reckless,” not willful, in violating the FCA.

Finally, the Sixth Circuit rejected two policy arguments by the government. The government asserted that it should be allowed to present “novel” interpretations of law. While acknowledging the government’s prerogative to do so, the Sixth Circuit explained that the government’s “tainted” electrical work theory was problematic not because it was novel, but because it was unreasonable. The government also contended that awarding fees and expenses would have a “chilling effect” on its enforcement of the FCA. The Sixth Circuit likewise rejected that argument, pointedly observing that preventing unreasonable government damages demands (like the one at issue on appeal) was the very goal of the EAJA’s provision of fees and expenses.