Press Releases
The ESOP Association Files Amicus Brief With U.S. Supreme Court in Bowers + Kubota Case
Urges Court to Consider Bowers + Kubota’s Appeal to Award Attorneys’ Fees After Company Was Vindicated in Overzealous, “Shoddy” Prosecution by Dept. of Labor
Washington, DC – The ESOP Association has filed an amicus brief with the Supreme Court of the United States, asking the Court to grant a writ of certiorari and consider Bowers + Kubota Consulting, Inc., et al. v. Julie A. Su, Acting Secretary of Labor.
The ESOP Association argues in its amicus brief that the Department of Labor (DOL) subjected Bowers + Kubota to “costly and protracted litigation to vindicate their rights in the face of patently unreasonable DOL conduct.” The Association states that Bowers + Kubota is entitled to relief under the Equal Access to Justice Act (EAJA), which “requires an award of attorneys’ fees to a prevailing party in litigation with the government unless the government’s position was ‘substantially justified’ or special circumstances would make an award unjust.” The ESOP Association further states that the DOL’s conduct in this case is “precisely the unreasonable conduct the EAJA was designed to prevent,” and asks the Court to grant certiorari “in order to say so.”
“For justice to prevail, there must be accountability and consequences when federal agencies clearly overstep their regulatory authority, otherwise there is no deterrent preventing agencies from engaging in such behavior” said Jim Bonham, President and CEO of The ESOP Association. “We believe the Ninth Circuit erred by showing undue deference to the DOL even after acknowledging the government’s case was knowingly flawed. The ESOP Association respectfully asks the Supreme Court to hear Bowers + Kubota’s appeal and award the company compensation entitled to it under the Equal Access to Justice Act.”
The Department of Labor initially sued Bowers + Kubota Consulting, an architectural and engineering firm based in Hawaii, alleging the employees (the ESOP) overpaid when purchasing the business from the owners. Bowers + Kubota’s founders refused to cave to DOL pressure, and after seven years prevailed against every claim advanced by DOL in federal court. In fact, the judge resoundingly struck down each of the government’s arguments and ruled that Bowers + Kubota “did not violate any provision of ERISA with respect to the sale of the Company to the Company’s ESOP.”
However the court, and subsequently the Ninth Circuit Court of Appeals, denied Bowers + Kubota’s request for DOL to fully compensate the company for its expenses and legal fees. The Ninth Circuit went so far as to acknowledge the government’s case was “shoddy” and significantly flawed, and “rested on an expert who committed several material errors that the government knew or should have known about.” Yet the Ninth Circuit refused to award attorneys’ fees to Bowers + Kubota, even though the EAJA provides for the compensation of regulated parties in cases of governmental overreach.
In fact, it was the intent of Congress when enacting the EAJA that the threat of paying attorneys’ fees when losing a case would “cause agencies to be more deliberative in their regulatory activity,” and “force Federal departments and agencies to substantially improve the quality of their enforcement and other proceedings.”
In its amicus brief, The ESOP Association argues that in lieu of a rule on adequate consideration, “the DOL uses enforcement proceedings to try and compel compliance with its perspective on valuation issues – even in the absence of regulations that the DOL should have issued decades ago.” And despite the ESOP community, Congress, and other stakeholders urging DOL to promulgate a rule on adequate consideration, the DOL has waged “an aggressive enforcement campaign designed to compel compliance with the DOL’s idiosyncratic – and often unreasonable – opinions on nuanced valuation concepts.”
Unfortunately, the Ninth Circuit ruled that regardless of the flawed nature of the DOL’s prosecution, the government’s case was “substantially justified” because the DOL’s valuation expert “stood firm” in his argument that the company’s valuation was too high. The Ninth Circuit said this meant the government “could have rationally believed” the transaction was overpriced and that its case had merit.
The ESOP Association argues in its amicus brief that such a standard “dilutes the EAJA to the point of irrelevance.” And instead of enforcing the need for government accountability, such a weak and subjective standard “will foster hasty, uncritical governmental actions” the EAJA was meant to deter. This would unreasonably force citizens to choose between the high cost of litigation and “vindicating their rights in court, even when the government’s predicate is in error.”
In this case, the Ninth Circuit affirmed that the government’s case rested on an erroneous predicate. The ESOP Association argues the DOL sought to impose its own opinion on valuation issues despite having never promulgated a regulation. The DOL “relied on a valuation expert who violated accepted, industry-standard practices” for estimating the fair market value of a company.” And although the DOL knew or should have known about the serious errors committed by their own expert, it “continued to rely on that expert in its case.”
The ESOP Association is urging the Supreme Court to consider the hypocrisy inherent in the DOL’s conduct and positions, as well as the intent of the EAJA, and allow Bowers + Kubota’s case to be heard.
Click here to read The ESOP Association’s full amicus brief to the Supreme Court
For Media Inquiries, Contact:
Demetrios Karoutsos
Senior Director, Marketing & Communications
dkaroutsos@esopassociation.org