By Gerald L. Maatman Jr. and Howard M. Wexler

On October 7, 2013 the U.S. Court of Appeals for the Sixth Circuit upheld a district court’s award of $751,942.48 against the EEOC in the case of EEOC v. Peoplemark, Inc., No. 11-2582 (6th Cir. Oct. 7, 2013). This decision marks yet another significant win for employers faced with the EEOC’s “shoot-first, aim later” litigation tactics as well as yet another defeat for the EEOC in a high profile case based on a purported (and unfounded) disparate impact theory of liability stemming from an employer’s use of background checks.

Background

As we previously blogged, the EEOC alleged in this case that Peoplemark’s policy of not hiring individuals with a criminal record had a disparate impact on African-Americans. Id. at 1. The problem with the EEOC’s theory was its assertion that Peoplemark had a blanket no-hire policy; this was simply not true.  In fact, of the 286 individuals the EEOC purported to represent in this case, only 22% actually had been hired and placed by Peoplemark. Id. at 4-6. Significantly, the district court found that even after the EEOC knew that was the case, it proceeded with the litigation anyway. It was only after the EEOC failed to designate a statistical expert per a scheduling deadline that it finally folded and agreed to dismiss the case pursuant to a stipulation that allowed Peoplemark to seek fees as a prevailing party. Id. at 5.

In its Motion for Fees, Costs, and Sanctions, Peoplemark argued that the EEOC had deliberately caused the company to incur attorneys’ fees and expert fees when it should have known that the company did not have the blanket no-hire policy. Both a magistrate judge and district court judge agreed, finding that if the EEOC had done a reasonable investigation, it should have known that Peoplemark had, in fact, hired a number of the allegedly injured individuals, thereby undercutting the EEOC’s central “blanket policy” position. Id. at 6-8. As such, the district court entered an award against the EEOC totaling $751,942.28, which included $219,350.70 in attorneys’ fees, $526,172 in expert witness fees, and $6,419.78 in other expenses. Id. at 6.

Sixth Circuit’s Decision

On appeal, the Sixth Circuit rejected the EEOC’s argument that the district court abused its discretion when it imposed attorneys’ and expert fees. Id. at 9. Although holding that the EEOC’s case was not groundless when it was first filed, the Sixth Circuit held that, “when discovery clearly indicated Osten’s [Peoplemark’s Vice President] statements belied the facts, the Commission should have reassessed its claim.” Id. at 10. As such, the Sixth Circuit held that, “from that point forward, it was unreasonable to continue to litigate the Commissioner’s pleaded claim because the claim was based on a companywide policy that did not exist.” Id. Citing the longstanding case of Christiansburg Garment Co. v. EEOC, 434 U.S. 412 (1978), the Sixth Circuit held that a fee award against the EEOC was appropriate since the EEOC “could not prove a prima facie case because its claim was groundless…” Id. 

Agreeing with the district court, the Sixth Circuit held that the EEOC should be held liable for Peoplemark’s fees from October 1, 2009 through the end of the litigation because by this point, the EEOC “should have known it could not prove its claim as pleaded.” Id. at 12. Finally, the Sixth Circuit also upheld the grant of expert fees to Peoplemark since the retention of an expert was necessary to mount a defense against the EEOC’s claims. Id. at 14.

In a strongly worded 50-page dissent, the Honorable James G. Carr reasoned that the district court abused its discretion in awarding Peoplemark attorneys’ fees and expert fees since, in his belief, the EEOC’s claims were not “frivolous, unreasonable, or groundless, or that the [EEOC] continued to litigate after it clearly became so.” Id. at 17. As Judge Carr stated in a footnote, “Most simply put, my disagreement with the majority’s analysis and result arises from my different reading, as explained in this dissent of the record. Where the majority sees mis-focus and dilatoriness on the part of the EEOC, I see an effort to gain information to refocus and reassess the defendant’s conduct and practices, and, as importantly, obstructive tactics on the defendant’s part that needless, but successful, ate up much of the time the court allocated for discovery.” Id.  at fn. 1. 

Despite Judge Carr’s dissent, and his belief as to the lack of unreasonableness demonstrated by the EEOC, the Sixth Circuit fully upheld the $751,942.48 award against the EEOC.

Implications For Employers

EEOC v. Peoplemark, Inc. joins cases like EEOC v. Bloomberg L.P., EEOC v. Freeman, and EEOC v. CRST, that demonstrate a growing intolerance for the EEOC’s “shoot-first, aim later” tactics in large-scale pattern or practice cases. This decision provides employers with even more ammunition with which to challenge unreasonable and groundless claims advanced by the EEOC.

Readers can also find this post on our Workplace Class Action blog here.