JULIE SU V. BRIAN BOWERS, ET AL, No. 22-15378 (9th Cir. 2023)
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The U.S. Department of Labor brought the underlying lawsuit under the Employee Retirement Income Security Act, alleging that Appellants Brian Bowers and Dexter Kubota sold their company to an employee stock ownership plan (ESOP) at an allegedly inflated value. The government’s case hinged on a single valuation expert, who opined that the plan overpaid for that company. The district court rejected the opinion, and the government lost a bench trial. The district court denied Appellants’ request for attorneys’ fees and nontaxable costs under EAJA, finding that the government’s litigation position was “substantially justified” and that it did not act in bad faith.
The Ninth Circuit affirmed the district court’s denial of attorneys’ fees and nontaxable costs. The panel held that the district court did not abuse its discretion in concluding that the government’s position at trial was substantially justified, and in denying attorneys’ fees and nontaxable costs under EAJA. The panel noted that the government could not rely on red flags alone, such as the “suspicious” circumstances of the ESOP transaction, to defend its litigation position as “substantially justified.” The panel held that the district court abused its discretion in reducing the award of taxable costs because it relied on a clearly erroneous finding of fact in reducing the magistrate judge’s recommended award of taxable costs.
Court Description: Equal Access to Justice Act. The panel affirmed the district court’s denial of attorneys’ fees and nontaxable costs under the Equal Access to Justice Act (“EAJA”), and remanded the district court’s award of taxable costs.
The U.S. Department of Labor brought the underlying lawsuit under the Employee Retirement Income Security Act, alleging that Appellants Brian Bowers and Dexter Kubota sold their company to an employee stock ownership plan (ESOP) at an allegedly inflated value. The government’s case hinged on a single valuation expert, who opined that the plan overpaid for that company. The district court rejected the opinion, and the government lost a bench trial. The district court denied Appellants’ request for attorneys’ fees and nontaxable costs under EAJA, finding that the government’s litigation position was “substantially justified” and that it did not act in bad faith, The panel held that the district court did not abuse its discretion in concluding that the government’s position at trial was substantially justified, and in denying attorneys’ fees and nontaxable costs under EAJA. The panel noted that the government could not rely on red flags alone, such as the “suspicious” circumstances of the ESOP transaction, to defend its litigation position as “substantially justified.” The government, however, did not know heading to trial that the district court would reject the expert’s entire opinion as unreliable. The panel further held that it was constrained by the deferential standard of review, and it could not say that the district court abused its discretion in finding that the government’s position was substantially justified at the time of trial. Given the panel’s holding that the government’s position was substantially justified, the district court did not clearly err in finding that the government did not litigate in bad faith.
The panel held that the district court abused its discretion in reducing the award of taxable costs because it relied on a clearly erroneous finding of fact in reducing the magistrate judge’s recommended award of taxable costs.
Judge Collins concurred with the majority’s decision to vacate the district court’s order reducing the award of taxable costs, and dissented from the majority’s decision to affirm the denial of EAJA attorneys’ fees. He would reverse the district court’s determination that the government’s position in this case was substantially justified, and would remand for the district court to consider the government’s remaining argument that none of the Appellants satisfied the “net worth” requirements of EAJA.
The court issued a subsequent related opinion or order on January 8, 2024.
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