Labor Department Asks High Court to Skip ESOP Lawyer Fee Suit

The Labor Department advised the US Supreme Court to skip a case seeking to force the department to pay attorneys’ fees after losing a trial over an employee stock ownership plan transaction.

A lower court’s decision declining to assess attorneys’ fees against the department is a “factbound determination” that doesn’t warrant attention from the Supreme Court, the department said in a Monday opposition brief. That correct decision doesn’t conflict with any appeals court rulings, and the Supreme Court has repeatedly denied petitions by parties seeking attorneys’ fees from the government under the Equal Access to Justice Act, the department said.

In particular, the department disputed the idea that the US Court of Appeals for the Ninth Circuit adopted a “laxer standard” for the government to defeat a fee request under the EAJA, which is a federal law aimed at curbing abusive lawsuits involving the government. The Ninth Circuit reviewed the entire record and determined the department had substantial evidence to support its litigation position, even if that position was ultimately unsuccessful, the department said.

The department’s underlying lawsuit accused Brian Bowers and Dexter Kubota of selling all their stock in their architectural firm to the company’s ESOP for significantly more than the shares were worth.

A federal judge ruled against the department after a one-week trial, saying it failed to show that the $40 million paid by the Bowers & Kubota Consulting Inc. ESOP in 2012 was an unfair price for the company’s stock. The judge awarded the defendants about $40,000 in costs but denied their request for attorneys’ fees.

The defendants appealed, arguing they should have been awarded fees under the EAJA because the department’s litigation position wasn’t justified.

The Ninth Circuit disagreed. Although the lawsuit was “shoddy” and expensive to defend, it wasn’t so flawed that the department wasn’t substantially justified in its litigation position when it went to trial, the appeals court said.

Bowers & Kubota in June asked the Supreme Court to intervene, saying the federal circuit courts are divided on what “substantially justified” means under the EAJA, and the justices should settle the confusion. Both the ESOP Association and the American Society of Appraisers filed amicus briefs supporting the petition.

But the dispute doesn’t merit Supreme Court attention, the department said.

“If this Court did grant review here to apply the substantial justification standard to the facts and circumstances of this case, then the Court’s only task would be to determine whether the district court abused its discretion in finding substantial justification,” the department said. “Such a case-specific and fact-specific contention does not warrant this Court’s review.”

Hawkins Parnell & Young LLP and McDermott Will & Emery LLP represent Bowers & Kubota. The government represents itself.

The case is Bowers & Kubota Consulting, Inc. v. Su, U.S., No. 23-1286, opposition brief 9/9/24.