A divided Sixth Circuit panel affirmed the district court decision in EEOC v. Peoplemark, Inc., (Case No. 11-2582) assessing fees and costs against the Equal Employment Opportunity Commission (“EEOC”) totaling $751,942.48 for continuing to pursue an action it knew to be meritless.

On September 29, 2008, the EEOC had filed an action against Peoplemark, Inc., a temporary employment agency, alleging that Peoplemark had a blanket, companywide policy of denying employment to individuals with felony convictions and that this policy had a disparate impact on African-Americans. When discovery revealed that no such blanket policy existed, the EEOC continued on with its statistical analysis to determine if Peoplemark’s consideration of felony convictions might have a disparate impact on African-Americans.

After multiple extensions, the EEOC finally filed its expert report in February 2010. Thereafter, Peoplemark filed a motion for summary judgment on February 25, 2012 and the parties agreed to a voluntary dismissal of the case with prejudice on March 24, 2010. The dismissal stated that Peoplemark was the “prevailing party” for purposes of assessing fees under § 706(k) of Title VII.

After the action was dismissed, Peoplemark moved for attorneys’ fees, expert fees, sanctions and costs. The district court ultimately granted the company fees, including attorneys’ fees, expert witness fees and expenses.

The Background

The Sixth Circuit opinion, written by Judge David W. McKeague, related that the case was a result of a charge of discrimination filed in 2005 by Sherri Scott, an African-American with a felony conviction who submitted an application but was not referred for employment. Scott claimed that Peoplemark denied the application because of her race and felony record. During its investigation of the charge, the EEOC contacted Peoplemark’s Vice President and Associate General Counsel who informed the agency that Peoplemark had a companywide policy of rejecting felon applicants. As part of its charge investigation, the EEOC subpoenaed more than 18,000 documents which according to the company, revealed that it had no blanket policy of rejecting felon applicants but instead referred felons to job openings. After conciliation failed, the EEOC filed the legal action on behalf of Scott and a class of similarly situated individuals.

The EEOC identified 286 class members but based on company records some did not have felony convictions and some secured employment through Peoplemark in spite of their conviction records. In April 2009, Peoplemark “formally informed the Commission for the first time” that it denied having a blanket policy of rejecting applicants with felonies.

Thereafter, the EEOC sought two extensions of expert report deadlines in June and July of 2009 with one being granted. In July 2009, Peoplemark provided the EEOC with a copy of its e-database. The database again indicated that the company did not have a companywide policy of rejecting all felon applicants.

By the end of August 2009, Peoplemark had produced over 176,000 documents and in September produced about 2000 new documents. In September, 2009 the EEOC sought yet another extension to file expert reports.  And, on October 23, 2009, filed a supplemental brief which, in part, “disavowed the theory of the case that Peoplemark had a discriminatory categorical companywide policy.” Yet, the EEOC sought additional time to determine if the case was “viable” until the voluntary dismissal in March 2010.

Actions Below

The magistrate judge assigned recommended that Peoplemark be awarded fees and  costs because by October 1, 2009 the EEOC “should have known the case was groundless.” The district court adopted the magistrate judge’s report and recommendation and rejected the EEOC’s objections.

The Appellate Analysis

In applying Title VII standards Judge McKeague found a court could award a prevailing party reasonable attorneys’ fees, including expert fees if it found the “claim was frivolous, unreasonable, or groundless, or that the plaintiff continued to litigate after it clearly became so.” The appellate court also concluded that the lower court did not abuse its discretion when it found that the EEOC could not prove its case as pleaded. While the EEOC’s case was not groundless when filed, “the Commission could only rely on [the Associate General Counsel’s] statement up to a point.” When discovery revealed otherwise, “the Commission should have reassessed its claim.” And, “[f]rom that point forward, it was unreasonable to continue to litigate the Commission’s pleaded claim because the claim was based on a companywide policy that did not exist.”

The majority focused on the EEOC’s claim as pleaded, not on what the EEOC “could have brought.” Indeed, the EEOC did not dispute that it knew or should have known by October 1, 2009 that a company policy did not exist. Based on that meritless claim of a blanket policy and EEOC’s agreement in a motion that Peoplemark was a “prevailing party”, the assessment of attorneys’ fees was proper.

The appellate panel also found that expert fees were properly awarded based on the text of section 2000e-5(k) and that awarding expert fees incurred before October 1, 2009 was not an abuse of discretion even though attorneys’ fees only were awarded starting October 1, 2009. The panel held that “temporal concurrence” was not required for attorneys’ and expert fees. Experts may proceed on a different schedule than attorneys. “[S]o long as the prevailing party acted reasonably in hiring the expert, the fees. . . were reasonable, the work conducted was reasonable, and the [legal] standard. . . permits an award of expert fees, a court should be permitted to award. . . expert fees independent of. . . attorney’s fees.” The appellate panel also found the documentation for the expert fees was sufficient and that they were not excessive.

District Judge James G. Carr filed a 50 page dissent disagreeing with the majority’s reading of the record. “Where the majority [saw] mis-focus and dilatoriness” by the EEOC, he saw “an effort to gain information to refocus and reassess the defendant’s conduct and practices. . . . ”

The Sixth Circuit’s opinion is yet another example of courts holding the EEOC to the same standards as private litigants. The Sixth Circuit now has before it the EEOC’s attempt to challenge a district court’s decision in EEOC v. Kaplan Higher Education Corp., (Case No. 13-3408) which ruled against the Commission on its claim that the company’s use of credit checks as a screening tool had a disparate impact on black applicants and employees in violation of Title VII. We blogged that decision on February 13, 2013.

The Bottom Line: Stay tuned as defendants more aggressively challenge and courts more closely examine the EEOC’s litigation tactics.