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July 15, 1988


The opinion of the court was delivered by: GASCH



 After hearings on plaintiff's application for a temporary restraining order and motion for preliminary injunction both of which were granted, the Court entered final judgment for plaintiff on March 16, 1988. Plaintiff, a small paper towel manufacturer, now seeks an award of attorney's fees under the Equal Access to Justice Act, 28 U.S.C. § 2412(d)(1) (1982 & Supp.).


 In July 1987, the General Services Administration ("GSA") solicited bids for a two-year contract for the purchase of a variety of paper towel products. Plaintiff was the incumbent contractor, but no copy of the solicitation was mailed to it. Direct notification of incumbents is expressly required by GSA regulations, 48 C.F.R. § 514.203-1(b), and implicitly required by the Federal Acquisition Regulations, id. § 14.205-1 and the Competition in Contracting Act ("CICA"), 41 U.S.C. § 251 et seq.

 Despite admitting that it had failed to comply with these regulations and statute, GSA refused plaintiff's demand that bids be resolicited. As a result of plaintiff's protest of this decision, the General Accounting Office ("GAO") concluded that a portion of the solicitation should be rescinded. Abel Converting, Inc., GAO No. B-229065 (Jan. 15, 1988). The GAO distinguished those items of the solicitation for which only one bid was submitted from those for which more than one bid was submitted. The distinction was based on the Competition in Contracting Act ("CICA"), Pub. L. No. 98-369, 98 Stat. 1175 (1984) (codified at 31 U.S.C. § 3551 et seq. & 41 U.S.C. § 251 et seq.), which requires that government contracts be let only after "full and open competition." Id. §§ 253 & 403(7).

 Dissatisfied with the partial remedy recommended by the GAO, plaintiff filed suit seeking temporary and permanent injunctive relief against award of a contract by GSA under the faulty solicitation and directing GSA to resolicit bids for all thirty-three items originally appearing in the solicitation. Finding no basis for GSA's failure to mail a solicitation packet to plaintiff, the Court granted plaintiff's application for a temporary restraining order. After a prolonged hearing and extensive briefing, the Court preliminarily enjoined GSA from awarding any contracts under the solicitation. Abel Converting, Inc. v. United States, 679 F. Supp. 1133, 1142 (D.D.C. 1988). *fn1"

 Throughout this litigation the parties negotiated for settlement but were unable to reach a compromise acceptable to all. Because the GSA announced an intention to resolicit all thirty-three items and intervenors withdrew resistance to this proposal, see. e.g., Order, Abel Converting, Inc. v. United States, 1988 U.S. Dist. LEXIS 16544 Civil Action No. 88-0177-OG (filed Mar. 10, 1988) (granting defendant-intervenor Fort Howard's motion to dismiss voluntarily its cross claim), the Court entered judgment for plaintiff on March 16, 1988. Plaintiff now moves for an award of attorney's fees and expenses under EAJA.


 The EAJA authorizes an award of attorney's fees and expenses against the United States


in any civil action (other than cases sounding in tort), including proceedings for judicial review of agency action, brought by or against the United States in any court having jurisdiction of that action, unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.

 28 U.S.C. § 2412(d)(1)(A). The benefits of EAJA do not inure, however, to all litigants who challenge the United States. To qualify for these benefits, a corporation must be the prevailing party, must have a net worth of no more than $ 7,000,000, and must employ no more than 500 employees. Id. §§ 2412(d)(1)(B) & (d)(2)(B).

 The government does not contest plaintiff's capacity to qualify for an award under EAJA. Instead, the parties' dispute focuses on whether the treatment of plaintiff's protest by the GSA was substantially justified. The GSA also insists that the fees and expenses demanded by plaintiff are exaggerated.

 A. Was The Position Of The GSA Substantially Justified ?

 As a qualifying party under the EAJA, 28 U.S.C. § 2412(d)(2), plaintiff is entitled to recover its attorney's fees and expenses, unless the GSA can demonstrate that its position on the merits of this case and its conduct prior to litigation were substantially justified. See Cinciarelli v. Reagan, 234 U.S. App. D.C. 315, 729 F.2d 801, 804 (D.C. Cir. 1984); Trahan v. Regan, 262 U.S. App. D.C. 369, 824 F.2d 96, 101 (D.C. Cir. 1987); 28 U.S.C. § 2412(d)(2)(D). As recently explained by the Supreme Court, the government satisfies this burden if its position was "justified to a degree that could satisfy a reasonable person." Pierce v. Underwood, 487 U.S. 552, 56 U.S.L.W. 4806, 4810, 101 L. Ed. 2d 490, 108 S. Ct. 2541 (1988). The standard "is no different from the 'reasonable basis in both law and fact' formulation adopted by . . . the vast majority of . . . Courts of Appeals that have addressed this issue." Id. (citing cases from the First, Third, Fourth, Fifth, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits). *fn2"

 An agency is not per se precluded from satisfying this standard simply because its action is determined to be arbitrary and capricious. Federal Election Commission v. Rose, 256 U.S. App. D.C. 395, 806 F.2d 1081, 1089 (D.C. Cir. 1986). There is a "rich variety of agency conduct" to which the arbitrary and capricious label may be affixed, and EAJA requires that the Court reexamine the merits of the conduct under the standard set forth by that statute. Id. Of the many reasons for invalidating agency conduct under the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, some have little to do with the reasonableness of that conduct. When the conduct is determined to be "contrary to law," however, "the government will rarely be able to demonstrate that its administrative action was substantially justified." Trahan, 824 F.2d at 102.


This determination, in contrast to the "arbitrary and capricious" finding, inevitably reflects on the reasonableness of the agency's action in light of the organic law. Due to the deference granted the agency, the determination that an agency's action is contrary to law in this context is basically a determination that the agency has acted unreasonably . . . . "When the construction of an administrative regulation rather than a statute is in issue, deference [to the agency] is even more clearly in order." . . . A court may invalidate an agency's construction of its regulations only if it is "plainly erroneous or inconsistent with the regulation." . . . Thus, when a court invalidates an agency action that is based on the agency's interpretation of its . . . own regulations, the court is in effect finding that the interpretation is, at best, unreasonable.

 Id. (citations omitted). *fn3" In "rare circumstances," however, the agency may surmount this presumption. As GSA argues in this case, one such circumstance is when the agency relies upon its prior interpretation of the regulation or judicial precedent. Id.

 Trahan obviously establishes a strong presumption that agency action in contravention of its own regulations is not justified to a reasonable degree. Had this case traversed all the stages of litigation with the result presaged by plaintiff's success at the preliminary stages, the Court's task would simply be to determine whether the circumstances of this case are a presumption-rebutting rarity. The question is complicated, however, by the unusual manner in which this case was terminated. Before the merits of the GSA's action were presented for review, the agency withdrew its opposition to resolicitation of all items in the faulty solicitation. Resistance by defendant-intervenors to resolicitation also dissipated before the Court could finally determine whether the GSA had acted contrary to law in refusing to adopt initially the position to which it eventually acquiesced. The ostensible reasons for this disposition of the case were the GSA's need to procure quickly the paper towels and the disproportionate cost of protracted litigation; there was no admission by any defendant that the plaintiff's arguments would inevitably prevail.

 Our Circuit Court has suggested that settlement at the behest of the government creates an irrebuttable presumption that its position was not substantially justified.


It seems clear that, if the government does not immediately accede to the plaintiff's demand, but instead initially opposes his claims and then at some later stage (e.g., in a pre-trial settlement) surrenders, the United States will be liable for attorneys' fees . . . . Under such circumstances, not only will [sic] government have acted unreasonably, but it will have adopted (at least briefly) a litigation position lacking substantial justification.

 Spencer v. N.L.R.B., 229 U.S. App. D.C. 225, 712 F.2d 539, 555 n.58 (D.C. Cir. 1983). Though apparently unequivocal, the effect given by Spencer to settlement by the government relies on an inference not universally applicable to settled cases. Pierce, 56 U.S.L.W. at 4811. The inference simply is that the government would settle only if its position were not substantially justified. This case is evidence that the inference is not always well-founded. The decision to settle was purportedly based on a balancing of the value of litigation versus its cost and the urgency of the need for paper towels. Consequently, the Court cannot conclude without some examination of the merits that GSA's settlement of the case was tantamount to an admission that its position was not substantially justified. See Cinciarelli, 729 F.2d at 807 n.6.

 Although settlement vitiated the need for trial or summary judgment proceedings, the Court undertook an unusually extensive examination of the GSA's position in the course of granting plaintiff's motion for a preliminary injunction. See Abel Converting, 679 F. Supp. at 1138-1141. After reviewing the requirements for full and open competition in government contracting and the express regulatory requirements for notice to incumbent contractors, the Court concluded that plaintiff had "demonstrated a clear and prejudicial violation of procurement regulations." Id. at 1141 (citing Kentron Hawaii, Ltd. v. Warner, 156 U.S. App. D.C. 274, 480 F.2d 1166, 1169 (D.C. Cir. 1973)). The legal premises for this conclusion were simply that the absence of an incumbent from a very small pool of bidders substantially diminished the competitiveness of the bidding process and that GSA had plainly violated relevant regulations designed to ensure compliance with these statutory competition requirements. The Court also noted that the Federal Circuit and the GAO have ruled that an incumbent contractor may expect to be solicited for follow-on contracts. Id. at 1140. Essentially, the Court concluded that the GSA had acted contrary to law when it rejected plaintiff's protest and refused to redistribute the paper towel contract solicitation.

 Following the conclusion in Trahan that a "contrary to law" finding is only rarely compatible with a "substantially justified" finding, the plaintiff is entitled to recover attorney's fees and expenses unless the GSA's refusal to resolicit was reasonably based on judicial precedents or a prior interpretation of the relevant procurement regulations. See 824 F.2d at 102. The agency insists its action falls within this narrow exception. The legal authority upon which GSA relied for its refusal to resolicit included:


- A procurement regulation that prohibits rescission of bid solicitations absent a "compelling reason."


- Several GAO decisions allegedly holding that failure to solicit a potential bidder is not a compelling reason for rescission of the solicitation.


- The judicial deference to agency procurement decisions.


- Several GAO decisions holding that publication of the fact of a solicitation in the Commerce Business Daily constituted constructive notice to all eligible bidders.

 See Federal Defendants' Opposition to Plaintiff's Application for Attorneys Fees at 4. As to the first two of these arguments, the Court noted that an incumbent contractor is unique in the class of potential bidders and that the small number of bidders in this case rendered the incumbent essential to full and open competition. Abel Converting, 679 F. Supp. at 1140. Regarding the tradition of judicial deference to agency procurement decisions, it need only be said that deference is accorded most agency decisions; were this a relevant factor in the EAJA analysis, few private litigants would recover their attorney's fees and expenses. Finally, though publication in the Commerce Business Daily has been characterized as constructive notice of a solicitation, the opinions reaching this conclusion also note that such publication does not satisfy the full and open competition requirements of CICA. See id. (citing United States v., Thorson Co., 806 F.2d 1061, 1064 (Fed. Cir. 1986) and Dan's Moving & Storage, Inc., B-222431, 86-1 C.P.D. para. 496, at 2 (May 28, 1986)).

 In sum, the GSA's arguments painted only half the picture and ignored important circumstances of this case that distinguish several of the judicial and GAO precedents on which the GSA relied. Thus, the agency's arguments do not satisfy its burden to demonstrate that its position was substantially justified. *fn4" Additionally, the GSA cites no "special circumstances mak[ing] an award unjust." 28 U.S.C. § 2412(d)(1)(A). Plaintiff is entitled in principle to recover its attorney's fees and expenses. The amount to be awarded, however, is contested.

 B. The Amount To Be Awarded To Plaintiff

 The amount to which plaintiff is entitled under EAJA depends, in this case, upon the billing rate permitted for the services of two senior attorneys and the time frame during which plaintiff's attorney's fees may be taken from the government's purse. The GSA argues that no circumstance in this case justifies an exception to the $75 per hour cap imposed by EAJA. Additionally, the agency denies that it is liable for fees and expenses incurred after it acceded to plaintiff's resolicitation, demand.

 1. The Hourly Rate To Which Plaintiff's Counsel Is Entitled

 Like many fee-shifting statutes, the EAJA imposes a presumptive cap on the rate at which an attorney may be compensated. After stating that attorney's fees may be awarded, the statute parenthetically provides:


The amount of fees awarded under this subsection shall be based upon prevailing market rates for the kind and quality of services furnished except that . . . (ii) attorney fees shall not be awarded in excess of $75 per hour unless the court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for the proceedings involved, justifies a higher fee.

 28 U.S.C. § 2412(d)(2)(A). Regarding the cost of living adjustment, the GSA admits that as of November 1987 the appropriate rate of compensation was approximately $ 96. See Wilkett v. I.C.C., 269 U.S. App. D.C. 249, 844 F.2d 867, 875 (D.C. Cir. 1988) (27.77% increase in cost of living since enactment of EAJA). This increase, however, does not satisfy plaintiff's counsel. For the services of two senior attorneys, the billing rate was $ 175 per hour. *fn5" Consequently, the question arises whether some special factor justifies a higher rate.

 The EAJA expressly recognizes that a scarcity of qualified attorneys for a particular type of litigation justifies an award of fees at a rate in excess of the statutory cap. Plaintiff argues that its counsel deserve their $175 hourly fee "because of the limited availability of qualified counsel at the rate proposed by the government [$96]." Plaintiff's Memorandum in Support of Application for Award of Attorneys Fees and Other Expenses of Litigation at 8 [hereinafter Plaintiff's Memorandum]. The argument mischaracterizes the language of the EAJA and, if accepted, would eviscerate the rate ceiling. The statute contemplates awards above the ceiling when the nature of the case renders the proceedings capably handled by only a limited number of attorneys. Were the Court to exceed the statutory ceiling simply because no attorney in Washington, D.C. offers his services at $96 per hour, the ceiling would be meaningless. Pierce, 56 U.S.L.W. at 4812. Indeed, the search for an experienced attorney at the adjusted statutory rate would likely be fruitless, and the EAJA does not authorize disregard for the ceiling because attorneys' rates have increased more quickly than the cost of living. If the award is to be calculated with a rate higher than $ 96 per hour, plaintiff must identify some other special factor. *fn6"

 As additional special factors justifying a $175 hourly rate for its counsel, plaintiff cites "the public interest served by this litigation, the excellent result obtained and the quality of the representation by plaintiff's counsel." Plaintiff's Memorandum at 8. The Court has noted that plaintiff's lawsuit vindicates the interest of all citizens that government procurement be accomplished at the lowest possible price. Abel Converting, 679 F. Supp. at 1141 n.11. Nevertheless, the public interest served by plaintiff's victory is common to all bid protests under CICA; neither the enhancement of competition nor the enforcement of procurement regulations is a special factor within the meaning of EAJA. Were the contrary true, nearly every successful bid protester would justifiably claim attorney's fees above the statutory ceiling.

 While plaintiff's counsel may be proud of the battle fought and won in this case, their achievement was not extraordinary. At bottom, the dispute resolved by the Court was simply whether GSA may violate its own regulations, discover the error, and refuse to take complete ameliorative action. The agency admitted its failure to send solicitation materials to plaintiff, and the Court determined with little difficulty that the absence of plaintiff from the small pool of bidders was detrimental to the competitiveness in bidding mandated by CICA. Consequently, there exists no special factor justifying an award of attorney's fees in excess of the adjusted statutory ceiling of $96. *fn7"

  2. The Time Frame For Which The Government Is Liable For Attorney's Fees

 Plaintiff's calculation of attorney's fees is based on services received by it from January 20, 1988, five days prior to the filing of this lawsuit, through the resolution of the fees petition now before the Court. On February 16, 1988, however, the government filed with the Court a notice of its intent to rescind the entire solicitation. At that moment, the government's position became identical to that sought by plaintiff from the outset. The government contends that it cannot be liable for attorney's fees and expenses incurred after it acquiesced.

 Though the government offers no rationale for relieving it of liability after it acquiesced, the argument is intuitively based upon the concept of "substantial justification." When the government adopts a losing position against a private litigant who then petitions for fees under EAJA, the government may avoid liability by demonstrating that its position was substantially justified. If during the course of the litigation, however, the government accepts the private litigant's demand, which is later determined by the Court to be justified, the government's position from that point forward is necessarily substantially justified. Thus, it would be contrary to the EAJA to impose upon the government the burden of the plaintiff's attorney's fees and expenses incurred after the government agreed to settle the case. Cf. Cinciarelli, 729 F.2d at 805 (substantial justification standard must be applied to each of government's defenses). *fn8"

 The circumstances of the case at bar present just this situation. Litigation between the government and plaintiff ended on February 16, 1988 when the government stated that it would comply with the plaintiff's demand. The suit remained vital only because another private litigant, Fort Howard, took up the government's discarded sword. Accordingly, the government should not be liable for plaintiff's attorney's fees and expenses incurred during litigation of the merits of this case after February 16. Without regard to other exclusions or reductions that the Court may deem proper, plaintiff was billed for the following hours of service between January 20, 1988 and February 16, 1988: - Attorney Trilling 106.65 - Attorney Kennedy 23.25 - Attorney Reznik 28.00 - Paralegal Tilly 28.50


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