SU V. BOWERS, No. 22-15378 (9th Cir. 2024)
Annotate this CaseThe United States Court of Appeals for the Ninth Circuit affirmed the decision of the District Court, which denied attorneys' fees and nontaxable costs under the Equal Access to Justice Act (EAJA) to the defendants-appellants, Brian Bowers, Dexter Kubota, and Bowers + Kubota Consulting, Inc. The Department of Labor had alleged that the defendants sold their company to an employee stock ownership plan (ESOP) at an inflated value. The government's case relied on a single valuation expert, whose opinion was ultimately rejected by the District Court, resulting in the government losing the case. Nonetheless, the District Court found that the government's litigation position was "substantially justified." On appeal, the Ninth Circuit held that the District Court did not abuse its discretion in concluding that the government's position at trial was substantially justified, and thus, in denying attorneys' fees and nontaxable costs under EAJA. The Court also held that the District Court abused its discretion in reducing the award of taxable costs, as it was based on a clearly erroneous finding of fact. Therefore, the case was remanded for reconsideration of the award of taxable costs.
Court Description: Equal Access to Justice Act The panel filed (1) an order denying a petition for panel rehearing, denying a petition for rehearing en banc, and amending the opinion filed on October 25, 2023; and (2) an amended opinion affirming the district court’s denial of attorneys’ fees and nontaxable costs under the Equal Access to Justice Act (EAJA), and remanding 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 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 following 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.” But, because of the evidence that the quickly ballooning projected earnings were dubious, the panel could not definitely and firmly believe that the district court abused its discretion in finding that the government’s litigation position at the time of trial had a reasonable basis. 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.
This opinion or order relates to an opinion or order originally issued on October 25, 2023.
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