Dantran, Inc. v. United States Department of Labor

United States Court of Appeals
For the First Circuit

No. 00-1656

DANTRAN, INC. AND ROBERT HOLMES,

Plaintiffs, Appellants,

v.

UNITED STATES DEPARTMENT OF LABOR,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. Gene Carter, U.S. District Judge]

Before

Selya, Circuit Judge,
Coffin and Campbell, Senior Circuit Judges.

Richard P. Romeo, with whom Seth D. Harrow was on brief, for
appellants.
Carol Arnold, Attorney, with whom Henry L. Solano, Solicitor
of Labor, Steven J. Mandel, Associate Solicitor, and Paul L.
Frieden, Counsel for Appellate Litigation, were on brief, for
appellee.

April 13, 2001
 COFFIN, Senior Circuit Judge. After six years of litigation

challenging the Secretary of Labor's attempt to bar them from

government contracting because of irregular payroll practices,

appellants Dantran, Inc., and its principal, Robert C. Holmes,

prevailed. This court ruled that, given the circumstances,

"debarment would be a punishment totally out of proportion to

the offense (and, therefore, contrary to the regulations)." See

Dantran v. U.S. Dep't of Labor, 171 F.3d 58, 74-75 (lst Cir.

1999). Having achieved that outcome, appellants came back to

court seeking attorney's fees under the Equal Access to Justice

Act (EAJA), 28 U.S.C. § 2412(d)(1)(A), which entitles litigants

who prevail against the government to attorney's fees unless the

position of the United States was "substantially justified."

The district court concluded that the government's position had

sufficient merit and rejected the fee request. Our review of

the record and relevant legal principles persuades us that the

court erred in its assessment of the latter phase of the

government's case. We therefore reverse its judgment and remand

for calculation of fees covering the appropriate portions of the

litigation, as discussed in Section III below.

I. Background

In our earlier decision, we discussed at length the facts

underlying this case, see Dantran, 171 F.3d at 61-62, and we

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revisit only so much of that history as is necessary to provide

a backdrop for the issue now before us. Dantran is a trucking

company that for more than a decade contracted with the United

States Postal Service to haul mail between various sites in

Maine, Vermont, New Hampshire, and Massachusetts. This case

began with the Secretary of Labor's 1993 administrative

complaint seeking to exclude, or "debar," appellants from

government contracting for three years based on violations of

the McNamara-O'Hara Service Contract Act of 1965 (the "Act" or

the "SCA"), 41 U.S.C. §§ 351-358, and related regulations. The

complaint followed an examination by the Department of Labor's

Wage and Hour Division, whose investigator concluded that two of

Dantran's routine practices – paying employees on a monthly

basis and capping fringe benefits at 40 hours per week

regardless of the number of hours an employee actually worked

("cross-crediting" benefits) – violated the Act.

Although appellants promptly took action to remedy the

identified violations, and the wage deficiencies were settled

through payments to employees totaling about $67,000, 1 the

investigator's final report pressed for debarment. The report

1 About $40,000 of that amount consisted of wages Dantran
had been unable to pay because the Secretary froze funds owed to
Dantran by the Postal Service. This act ultimately resulted in
a loss of insurance on the company's fleet of trucks, forcing
the company to suspend operations. Dantran, 171 F.3d at 61.

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noted "'the size of the violations and the fact that the firm

was investigated once before.'" Dantran, 171 F.3d at 62. That

prior investigation had a markedly different outcome, however.

Even though Dantran had been using the same procedures, another

investigator, Rioux, found no irregularities, and his report

stated that there were no problems with the company's fringe

benefit payment practices.

The Secretary nonetheless followed the recommendation of the

second investigator and filed a debarment complaint. The Act's

enforcement scheme generally anticipates debarment proceedings

whenever the Secretary determines that a government contractor

has violated the Act or its associated regulations, but both the

statute and regulations provide that the existence of "unusual

circumstances" may warrant a reprieve from that sanction. See

41 U.S.C. § 354(a); 29 C.F.R. § 4.188(a). The existence of

"unusual circumstances" in a given case depends on the absence

of aggravating factors and the presence of mitigating factors.

See Dantran, 171 F.3d at 68, 73 (listing some aggravating and

mitigating factors); 29 C.F.R. § 4.188(b)(3)(i), (ii). If a

contractor's conduct evidences one of the enumerated aggravating

circumstances, which include culpable neglect or culpable

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disregard of regulatory obligations, "relief from the debarment

sanction cannot be in order." Id. at § 4.188(b)(3)(i).2

After a hearing, an Administrative Law Judge (ALJ) concluded

that neither Holmes nor Dantran should be debarred, finding:

that the plaintiffs attempted to comply with the
regulations in good faith; that they cooperated fully
with the Secretary's investigation; that they promptly
settled their account and changed their monthly
payment practice once the matter was brought to their
attention; that nothing in their past compliance
history reflected adversely on them; and that, in all
events, the alleged violations were not especially
serious.

Dantran, 171 F.3d at 74 n.9 (summarizing ALJ's conclusions). The

Labor Department's Administrative Review Board (ARB) reversed,

however, and ordered debarment. The ARB ruled that appellants'

violation of the payment frequency regulation reflected

2 The "unusual circumstances" analysis is done on a case-by-
case basis, 29 C.F.R. § 4.188(b)(1), and may warrant relief from
debarment if three components are satisfied. First, there must
be no aggravated circumstances, which include willful or
deliberate violations, "culpable neglect to ascertain whether
practices are in violation, culpable disregard of whether they
were in violation or not, or culpable failure to comply with
recordkeeping requirements (such as falsification of records)."
Id. at § 4.188(b)(3)(i). Second, the contractor must have
maintained a good compliance history, cooperated in the
investigation, repaid monies due, and adequately assured future
compliance. Id. at § 4.188(b)(3)(ii). Finally, when aggravating
circumstances are absent and mitigating circumstances are
present, the Secretary must consider a variety of other factors,
including whether sums due were promptly paid, the seriousness
of past or present violations, and "whether liability was
dependent upon resolution of a bona fide legal issue of doubtful
certainty," id.

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"culpable disregard" of that legal requirement, and their cross-

crediting of fringe benefits constituted "culpable neglect" for

failing to ascertain the proper calculation, making them

ineligible for "unusual circumstances" relief. The district

court affirmed the ARB, but this court then reversed that

decision,3 concluding that the factors militating against

debarment were "so potent" that an outcome "contrary to that

which the ALJ reached would constitute an abuse of discretion,"

id. at 74.

Armed with our firm statement in support of their position,

appellants sought attorney's fees under the EAJA, contending

that the government's litigation stance was not "substantially

justified." The district court denied the request, finding that

the Secretary had a "reasonable basis" in fact and law to pursue

debarment. The court relied primarily on the differing

conclusions reached in the prior judicial and administrative

proceedings to support its conclusion that a reasonable person

could view the government's position as justified.4

3 Senior Circuit Judge Cudahy concurred in part and
dissented in part, expressing somewhat different views on both
alleged violations and advocating a remand to the ARB rather
than an outright reversal of its decision. See Dantran, 171
F.3d at 75-78.
4We note the challenging task faced by the district court
judge in a case such as this: "Where, as here, the district
court originally accepts the Government's position and is then

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 On appeal, appellants argue, inter alia, that the court

erred by failing to consider the government's position not only

at the outset of the proceedings but also throughout the

litigation, and by giving no consideration to the unusual

circumstances that this court found weighed so strongly against

debarment.

II. Discussion

A. The Standard: Limited Role for Objective Factors

The EAJA obliges a court to award attorney's fees and

expenses to a party that prevails in litigation against the

government unless the court finds that the government's position

was "substantially justified." 28 U.S.C. § 2412(d)(1)(A).5

There is no dispute that appellants prevailed, and the

controversy before us therefore centers on whether the

reversed on appeal, the EAJA requires the district court to
determine whether the very Government argument it previously
accepted was not substantially justified, i.e., unreasonable."
Halverson v. Slater, 206 F.3d 1205, 1208 (D.C. Cir. 2000).
5 The statute states, in relevant part:

[A] court shall award to a prevailing party other than
the United States fees and other expenses . . .
incurred by that party in any civil action . . . ,
including proceedings for judicial review of agency
action, brought by or against the United States . . .
, 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).

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government was "substantially justified" in pursuing debarment.

That the government lost in the underlying litigation does not

create a presumption that its position was not substantially

justified. Pierce v. Underwood, 487 U.S. 552, 569 (1988);

United States v. One Parcel of Real Prop., 960 F.2d 200, 208

(lst Cir. 1992). Nor does success at some stage of the

litigation prove the requisite level of justification. Pierce,

487 U.S. at 569; Sierra Club v. Sec'y of Army, 820 F.2d 513, 517

(lst Cir. 1987).6 The question is whether the government's

6
In Pierce, the Supreme Court recognized the limited role
played by "objective indicia consisting of the views expressed
by other courts on the merits of the Government's position," 487
U.S. at 569:

Obviously, the fact one other court agreed or
disagreed with the Government does not establish
whether its position was substantially justified.
Conceivably, the Government could take a position that
is not substantially justified, yet win; even more
likely, it could take a position that is substantially
justified, yet lose. Nevertheless, a string of losses
can be indicative; and even more so a string of
successes.

Id. The government's position in Pierce was rejected by nine
district courts and two courts of appeals, though two courts,
including the Supreme Court, issued stays that the government
relied on to show justification. The Court declined to base its
decision on "this category of objective indicia," turning
instead to a review of the merits.
While it would not be insignificant that the ultimate merits
panel, as here, was divided in its outcome (or that the district
court and ARB sided with the government), that objective fact
could not outweigh an appellate court's conviction, based on a
review of the underlying issues, that the district court erred
in ruling the government's position to be substantially

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position "has a reasonable basis in law and fact," Pierce, 487

U.S. at 566 n.2, or, stated another way, whether "a reasonable

person could think it correct," id.; see also De Allende v.

Baker, 891 F.2d 7, 11-12 (lst Cir. 1989). This standard means

that the government's case need not be frivolous to support an

award of fees, Pierce, 487 U.S. at 566, but, on the other hand,

the litigation need not be a cliffhanger to be sufficiently

justified. The government bears the burden of proving, by a

preponderance of the evidence, that its position was

substantially justified, De Allende, 891 F.2d at 12, and we

review the district court's determination for abuse of

discretion, Pierce, 487 U.S. at 562-63.

B. Our Assessment

We find no error in the district court's conclusion that the

decision to initiate a debarment proceeding was substantially

justified. The Act provides that "no contract of the United

States shall be awarded" to individuals or firms found to have

violated its provisions "[u]nless the Secretary otherwise

recommends because of unusual circumstances." 41 U.S.C. §

354(a). As we noted in our earlier decision, appellants

justified. Cf. Sierra Club, 820 F.2d at 518 ("[A]fter the
merits of a case have been adjudicated, fresh and distinctive
inquiry is needed to determine whether a fee entitlement vests
under EAJA.").

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violated an explicit prohibition against pay periods longer than

semimonthly, see Dantran, 171 F.3d at 65-66 (citing 29 C.F.R. §

4.165(b)), and, on that basis alone, the Secretary was required

to institute debarment proceedings, see id. at 67. We think it

reasonable for the Secretary to have awaited the fact finding

hearing before deciding whether appellants were entitled to a

reprieve from that penalty because of "unusual circumstances."

Indeed, the enforcement regulations caution the Secretary to use

restraint in excusing a contractor from the ineligible list, see

29 C.F.R. § 4.188(b)(1), and the burden of establishing unusual

circumstances falls on the violator, id. See also Vigilantes,

Inc. v. Adm'r, Wage and Hour Div., 968 F.2d 1412, 1418 (lst Cir.

1992) ("The legislative history of the SCA makes clear that

debarment of contractors who violated the SCA should be the

norm, not the exception, and only the most compelling of

justifications should relieve a violating contractor from that

sanction.").

Our inquiry does not end, however, with the Secretary's

initial decision to bring a debarment complaint. To satisfy

its burden, the government must justify not only its pre-

litigation conduct but also its position throughout litigation.

Comm'r, INS v. Jean, 496 U.S. 154, 159 (1990); Jackson v.

Chater, 94 F.3d 274, 278 (7th Cir. 1996); One Parcel of Real

-11-
Prop., 960 F.2d at 208; see also 28 U.S.C. § 2412(d)(2)(D).7 The

court's task in examining the government's position is not to

make "discrete findings as to each of these temporally distinct

elements, [but to] . . . arrive at one conclusion that

simultaneously encompasses and accommodates the entire civil

action." Chater, 94 F.3d at 278.

The difficulty with the Secretary's position in this case

surfaces when we look beyond the ALJ's hearing and fact finding.

The Secretary's continuing view that appellants' practices

warranted debarment does not give us pause; the payment

frequency requirement is unambiguous, and the lengthy analysis

in our earlier opinion demonstrates that the Secretary's

position on the lawfulness of cross-crediting was sufficiently

debatable, though we ultimately ruled it incorrect.

We balk, however, on the issue of "unusual circumstances."8

The ALJ thoroughly examined the relevant circumstances in the

course of concluding that appellants were ideally suited for

relief from the debarment penalty. See supra at 4-5. In our

7
Section 2412(d)(2)(D) states that both the position taken
by the United States in court and "the action or failure to act
by the agency" are considered the "position of the United
States."
8The district court's EAJA opinion does not analyze the
merits of the government's position on "unusual circumstances,"
and it therefore carries little weight on this issue.

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earlier decision, we noted the ALJ's unassailable finding that

"no aggravating factors were extant," Dantran, 171 F.3d at 73,

as well as his "specific findings of historical fact that

resolve virtually all of the enumerated factors in the

plaintiffs' favor," id. See also id. at 74 ("[L]egal certainty

associated with the payment frequency provision, without more,

cannot overcome a record that reeks of mitigation.").

The Secretary resisted this determination, however, and

persisted in pushing for debarment. She took this path even

though the company had ceased to exist because of financial

difficulties triggered by the Department of Labor's freezing of

its assets, see note 1 supra, and despite repeated settlement

offers from appellants, see infra at 14-15. Although the

Secretary prevailed in the next stage of the litigation when the

ARB reversed the ALJ, the Board's decision lends no support to

the Secretary's effort to justify the continuing pursuit of

debarment. The ALJ's decision had been based on first-hand

observation of witnesses, giving strength to the credibility

assessments on which it rested. We found the ARB's contrary

ruling to be not only incorrect, but without foundation:

On appellate review, courts are entitled to expect, at
a minimum, that an agency which rejects an ALJ's
factfinding will provide a rational exposition of how
other facts or circumstances justify such a course of
action. [Citations omitted.] There is no hint of such
an analysis in the ARB's opinion. . . . The short of

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 it is that, gauged by the proper standard of review,
the ARB had no legally sufficient reason for upsetting
the ALJ's findings of fact (particularly those that
relied on credibility assessments).

Dantran, 171 F.3d at 73.

The particular testimony prompting that criticism of the

ARB's ruling concerned appellants' knowledge of the bi-weekly

pay rules. The investigator who had done the earlier

examination of appellants' pay practices, Rioux, testified that

he had told appellant Holmes that the regulations call for

payment twice a month, rather than monthly. Rioux testified

that appellant replied as follows:

"[T]he post office pays me on a monthly basis. When
they pay me on a bi-weekly basis, I'll pay [my
employees] on a bi-weekly basis."

Id. at 69. According to the ARB, this exchange demonstrated

appellants' "culpable disregard" of the law – an "aggravating

circumstance" under 29 C.F.R. § 4.188(b)(3)(i) that made Dantran

and Holmes ineligible for relief from debarment.

As we explained in our earlier decision, however, the ALJ

– the only factfinder with direct exposure to the testifying

parties – explicitly considered this evidence and declined to

give it weight, instead crediting Holmes' testimony that Rioux

made no such point. See Dantran, 171 F.3d at 72. We devoted a

considerable part of our opinion to an explanation why this was

binding on the ARB. See id. at 68-72. The ALJ's finding that

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"Dantran had a reasonable, good-faith belief throughout the

ensuing period that its wage-payment practices conformed with

the Act's requirements" was reinforced, moreover, by Rioux's

final report stating that plaintiffs' payroll practices were

"'in compliance with all the provisions of the [Act].'" Id.

On this record, a majority of our panel found that the ARB's

decision reflected a "serious infirmity in agency

decisionmaking," and we concluded that there was "no plausible

basis" for an outcome contrary to that reached by the ALJ on the

absence of aggravating factors. See id. at 73. In the panel

majority's view, the mitigating factors in appellants' favor

were so strong – as the ALJ had recognized – that this was the

"rare case" in which "the facts admit of only one plausible

legal conclusion." See id. at 75. We observed:

[T]here is no reasonable doubt about the balancing
equation's overall equilibrium. Although the Act
grants the Secretary latitude in considering whether
to recommend relief from debarment, she has cabined
that discretion by enumerating specific factors (and
the balancing methodology) upon which she will rely to
determine the existence of unusual circumstances. In
this case, the findings as to mitigation are so potent
that solving the balancing equation in any manner
contrary to that which the ALJ reached would
constitute an abuse of discretion.

Id. at 74 (emphasis added).

Although there may be cases in which the government's

position would be substantially justified even though to adopt

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it would be an abuse of discretion, this is not one of them.

Once the ALJ resolved crucial credibility issues against the

Department of Labor, the Secretary needed some rationale for

rejecting those findings in order to be deemed substantially

justified in continuing to press for debarment. We found there

was none. The Secretary again emphasizes that appellants, as of

the time of the first investigation in 1989, had copies in hand

of the applicable regulations; in her view, this led to a

reasonable perception that appellants' continuing violations

represented at least "culpable neglect," an aggravating

circumstance that would on its own preclude relief from

debarment.

We previously have identified the flaws in this logic,

pointing out that language in appellants' postal contracts

calling for monthly payments to Dantran, together with the

investigator's clean bill of health after the earlier

investigation, would have lulled appellants into a reasonable

assumption of compliance. See Dantran, 171 F.3d at 74. The

legislative intent behind the Act was to make "the full vigor of

the law [] felt by those who repeatedly and callously violate

it,"9 and it would be a stretch to characterize appellants'

9 This statement, quoted in the Secretary's brief, was made
by Representative James G. O'Hara, co-author of the SCA, at a
hearing on legislation to amend the Act.

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conduct as culpable within that understanding. With affirmative

assurances that their practices were lawful, theirs was not even

a failure to pay attention to the requirements, let alone a

deliberate flaunting of them. See Dantran, 171 F.3d at 74 n.10

("[T]he regulatory scheme with which we are dealing is designed

to debar those whose conduct is culpable and to excuse those

whose actions invite leniency.").

We recognize that the debarment sanction is not intended as

a punishment only for deliberate misconduct. The regulations do

not permit relief from debarment simply because the violator

pays what should have been paid previously, see 29 C.F.R. §

4.188(b)(2); such leniency would provide no incentive for

contractors to seek out and conform to the regulations governing

their conduct. But the facts here go far beyond such a

straightforward failure to abide by the law. Not only had

appellants experienced an apparent endorsement of their

practices by a Department investigator, but by the time of the

ALJ's decision the Secretary's enforcement actions already had

imposed a severe punishment by triggering the loss of their

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business.10 It is hard to imagine a more compelling case for

leniency.

The insistence on forging ahead was exacerbated in this

case, moreover, by the Secretary's apparent refusal to consider

appellants' repeated offers to cut short the litigation with a

settlement that would have conceded the legal issues in exchange

for the relief from debarment to which they ultimately were

found entitled. The costs of not settling are precisely what

appellants seek to recover here. Although the offer of

settlement certainly does not on its own render the Secretary's

position unjustified, the decision to persevere in light of the

ALJ's findings of unusual circumstances seems all the more

unreasonable against the backdrop of appellants' overtures.

In sum, while the Secretary's original decision to bring a

debarment action was supportable, we believe the district court

abused its discretion in failing to find that the Secretary's

continuing pursuit of debarment following the ALJ's ruling was

ill-considered and, in the language of the EAJA, "not

substantially justified." In these circumstances – involving

a company already severely penalized by the government's

10The ALJ found that appellants also had forfeited more
than $20,000 in penalties and Holmes had lost a potential
partner as a result of the revenue freeze and subsequent
collapse of the business.

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enforcement action, a factfinder's determination of no

culpability, full compliance with remedial obligations, and

repeated offers to settle with acquiescence to the government's

legal stance – we do not believe a reasonable person could find

the government's position following the ALJ's decision to be

correct, particularly with the burden on the government to prove

itself justified. We conclude that the decision to prolong the

adversarial proceedings swallowed up the earlier justifiable

pursuit of debarment. These appear to be precisely the

circumstances in which Congress intended a successful litigant

to be able to recover the costs of obtaining success. See Jean,

496 U.S. at 163 ("[T]he specific purpose of the EAJA is to

eliminate for the average person the financial disincentive to

challenge unreasonable governmental actions.").11

11Our difference with Judge Selya stems primarily from our
conclusion that the unusual circumstances found by the ALJ
rendered the Secretary's pursuit of debarment from that point
forward unjustified. We acknowledge that the original panel's
assessment of the strength of unusual circumstances occurred in
the context of our legal conclusion that the fringe benefits
"violation" was not supportable – a ruling the Secretary could
not predict. We also recognize that the Secretary reasonably
could have felt that two violations were more troubling than
one. The ALJ, however, found after hearing the witnesses that
Dantran had a justifiable, good-faith belief that both practices
were lawful. That finding, combined with all of the other
mitigating factors, leaves us at a loss to explain the
Secretary's persistence in seeking debarment. In our view, the
conduct and circumstances at issue plainly "invite leniency,"
Dantran, 171 F.3d at 74 n.10.

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 We therefore reverse the district court's judgment and hold

that appellants are entitled to fees under the EAJA. We address

the precise scope of that award in the following section.

III. The Fee Award: What Proceedings are Covered by the EAJA?

The Secretary argues that appellants should be limited in

any award of attorney's fees to expenses associated with the

court action and should not recover fees stemming from the

administrative proceedings before the ALJ and ARB. Appellants

counter that the EAJA entitles them to fees for both the

judicial and administrative stages of the litigation. Because

we have concluded that the Secretary's position before the ALJ

was substantially justified, appellants may not be reimbursed

for expenses through the time of the ALJ's decision. We must

consider, however, whether a fee award is appropriate for the

costs of litigating before the ARB.

In addition to providing for an award of fees and other

expenses incurred in a civil action in federal court, see 28

U.S.C. § 2412(d)(1)(A), the EAJA specifically allows a court to

award fees for an administrative proceeding that qualifies as an

"adversary adjudication" under 5 U.S.C. § 504(b)(1)(C), see 28

U.S.C. § 2412(d)(3). Section 504, in turn, defines such an

adjudication as one "under section 554 [of the Administrative

Procedure Act (APA)] in which the position of the United States

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is represented by counsel or otherwise. . . ." APA section 554

"applies . . . in every case of adjudication required by

statute to be determined on the record after opportunity for an

agency hearing," with some exceptions not relevant here. 5

U.S.C. § 554(a).

The Secretary argues that this sequence of statutory

provisions does not permit Dantran to recover fees and expenses

for the ARB proceedings because, notwithstanding the

proceeding's adversary nature and the Secretary's representation

by counsel, the debarment hearing was not "required by statute"

and thus was not an adjudication within the coverage of the

EAJA. She emphasizes that only fees within the explicit

language of the statute are recoverable because the EAJA must be

strictly construed as it is a waiver of the government's

sovereign immunity. See Ardestani v. INS, 502 U.S. 129, 137

(1991) (a waiver of sovereign immunity "must be strictly

construed in favor of the United States"); Fidelity Constr. Co.

v. United States, 700 F.2d 1379, 1386 (Fed. Cir. 1983)

("Although the EAJA lifts the bar of sovereign immunity for

awards of fees in suits brought by litigants qualifying under

the statute, it does so only to the extent explicitly and

unequivocally provided."), superseded in part by statute, 5

U.S.C. § 504(b)(1)(C) (specifying that certain proceedings under

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the Contract Disputes Act are adversary adjudications under the

EAJA).

Appellants maintain, however, that a hearing that meets the

EAJA definition is mandated by the Service Contract Act. They

point to SCA section 354(a), which provides in relevant part as

follows:

Where the Secretary does not otherwise recommend
because of unusual circumstances, he shall, not later
than ninety days after a hearing examiner has made a
finding of a violation of this chapter, forward to the
Comptroller General the name of the individual or firm
found to have violated the provisions of this chapter.

41 U.S.C. § 354(a) (emphasis added). They emphasize that this

provision does not leave it to the Secretary's discretion

whether to conduct hearings on debarment, but explicitly

authorizes the penalty to be imposed only after a finding by a

hearing examiner (also called an ALJ) that such penalty is

warranted. They further point out that the proceedings

conducted under section 354(a) do conform to the requirements of

an adversary adjudication under the APA, with representation by

counsel and all of the other procedural protections specified in

5 U.S.C. §§ 554-557. See generally 29 C.F.R. §§ 6.1-6.20, 8.1-

8.13.

We are persuaded by multiple considerations that appellants

have the better argument. Like appellants, we read the language

in section 354(a) to require a hearing. The statute expressly

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links the Secretary's obligation to place a contractor on the

ineligible list to a hearing examiner's finding of a violation.12

That the statute does not command a hearing "on the record" – in

the language of APA section 554 – is of modest significance, as

it has long been recognized that the applicability of the APA

does not turn on the presence or absence of "the precise words

'on the record,'" Seacoast Anti-Pollution League v. Costle, 572

F.2d 872, 876 (lst Cir. 1978) (citing United States v. Florida

East Coast Ry. Co., 410 U.S. 224, 245 (1973)). See also St.

Louis Fuel and Supply Co. v. F.E.R.C., 890 F.2d 446, 448 (D.C.

Cir. 1989) ("Our decision . . . does not turn, mechanically, on

the absence of magic words.")13; Marathon Oil v. EPA, 564 F.2d

12
Section 354 explicitly refers to a hearing examiner's
"finding of a violation," but refers separately to the
Secretary's recommendation on "unusual circumstances." See
supra at 18. The statutory language thus could be read to
provide that only the former is required by statute to be
resolved through a hearing, while proceedings to determine the
latter are left to the Secretary's discretion. The Secretary,
however, has decided that both the finding of a violation and
any finding of unusual circumstances will occur as a result of
the same hearing, see 29 C.F.R. § 6.19(b)(2), undoubtedly
because debarment cannot occur without a hearing and the
question of unusual circumstances is a necessary part of the
debarment inquiry. Thus, like the Secretary, we view these two
questions as elements of a single adjudication.
13 We note with some displeasure the Secretary's
representation that St. Louis Fuel stands for the contrary
proposition – that the proceedings at issue there were not
subject to the EAJA "because the statute provided '"an
opportunity for a hearing"' but does not expressly state that
the hearing must be 'on the record.'" The words quoted by the

-23-
1253, 1262-63 & nn. 30, 31 (9th Cir. 1977) (similar, referring

to "the magical phrase 'on the record'"). Rather, "the

resolution of this issue turns on the substantive nature of the

hearing Congress intended to provide." Seacoast Anti-Pollution

League, 572 F.2d at 876.

We have no reason to doubt that Congress intended this

adjudication to be governed by standard APA procedures. As we

previously have observed, an adjudication such as this, which

involves specific factual findings with potential for "serious

impact on private rights," is "exactly the kind of quasi-

judicial proceeding for which the adjudicatory procedures of the

APA were intended." Id. (citation omitted); see also id. at 878

("'[I]t is assumed that where a statute specifically provides

for administrative adjudication (such as the suspension or

revocation of a license) after opportunity for an agency

hearing, such specific requirement for a hearing ordinarily

implies the further requirement of a decision in accordance with

evidence adduced at the hearing.'" (quoting Attorney General's

Manual on the Administrative Procedure Act (1947))). Neither

Secretary simply described the statute and did not represent a
holding of the court. The court in fact stated that "it is
inconclusive that DOE section 7193(c) requires only a 'hearing,'
while section 554 applies when a statute commands a hearing 'on
the record.'" 890 F.2d at 448. That statement was followed by
the one quoted in the parenthetical above.

-24-
the SCA itself nor case law excludes proceedings under the Act

from APA coverage. Cf., e.g., Ardestani, 502 U.S. at 133-34

(Supreme Court precedent established that deportation

proceedings are not subject to the APA); Owens v. Brock, 860

F.2d 1363, 1365 (6th Cir. 1988) (a provision of the Federal

Employees Compensation Act specifically excludes workers'

compensation proceedings from coverage under section 554).14

Indeed, both the parties and district court invoked the judicial

review provisions of the APA as the basis of jurisdiction.

Moreover, a careful review of the relevant statutory

provisions suggests that the APA is indirectly made applicable

by statute to debarment proceedings under the SCA. Section 353

of Title 41 – the SCA section preceding the one on which

appellants rely – incorporates the enforcement authority granted

to the Secretary under certain provisions of another statute,

the Walsh-Healey Act. See 41 U.S.C. §§ 353(a), 38, 39. 15

14 We note that the other cases offered as equivalent by the
Secretary in which the EAJA was ruled inapplicable also are
distinguishable, either for lack of a statutory hearing
requirement or because the relevant scheme otherwise was
excluded from the APA adversary adjudication provisions. See
Smedberg Machine & Tool, Inc. v. Donovan, 730 F.2d 1089, 1092-93
(7th Cir. 1984) (no statutory requirement); Hashim v. INS, 936
F.2d 711, 713 (2d Cir. 1991) (deportation proceedings not
governed by APA).
15 SCA section 353(a) provides:

Sections 38 and 39 of this title [provisions of

-25-
Pursuant to yet another provision of Walsh-Healey, 41 U.S.C. §

43a(a), the APA is "applicable in the administration of sections

35 to 39" of that Act, a grouping that includes the provisions

governing the Secretary's enforcement of the SCA. By that chain

of relationship, all of the requirements for EAJA coverage would

be met: a hearing required by statute, with counsel representing

the government, governed by the provisions of the APA.16

The Secretary notes that regulations implementing the EAJA

within the Department of Labor explicitly foreclose the award of

attorney's fees for SCA proceedings before the ARB. See 29

C.F.R. § 8.19.17 She also points to a regulation listing the

the Walsh-Healey Act] shall govern the Secretary's
authority to enforce this chapter [the SCA], make
rules, regulations, issue orders, hold hearings, and
make decisions based upon findings of fact, and take
other appropriate action hereunder.

41 U.S.C. § 353(a). Section 38 is entitled "Administration of
Walsh-Healey provisions; officers and employees; appointment;
investigations; rules and regulations." Section 39 covers
"Hearings on Walsh-Healey provisions by Secretary of Labor;
witness fees; failure to obey order; punishment." 41 U.S.C. §§
38, 39.
16 Although section 43a(a) does not itself oblige the
Secretary to hold hearings in particular circumstances, that
requirement is imposed in the case of SCA violations by section
354(a). See supra at 18.
17 The rule governing ARB proceedings provides:

Proceedings under the Service Contract Act and the
Contract Work Hours and Safety Standards Act are not
subject to the Equal Access to Justice Act . . . .

-26-
programs within the Department to which the EAJA is applicable,

see id. at § 16.104(a), and argues that the omission of SCA

hearings from the list is further proof that fees are

unavailable for such proceedings. Several administrative

decisions on which the Secretary relies also hold that SCA

hearings do not qualify as "adversary adjudications" under the

EAJA. See, e.g., Nationwide Bldg. Maint., Inc., BSCA Case No.

92-04, at 8 (Oct. 30, 1992); Pat's Janitorial Serv., Inc., Case

No. 81-SCA-1308, Dep. Sec. Dec., at 8 (July 7, 1988).

We consider this administrative authority to be of limited

value. Agency regulations interpreting a statute that relates

to matters outside the agency's area of expertise are entitled

to no special deference, see Adams Fruit Co. v. Barrett, 494

U.S. 638, 649-50 (1990), and eligibility for attorney's fees

under the EAJA is not within the Department of Labor's

particular knowledge, see Ardestani, 502 U.S. at 148 (Blackmun,

J., dissenting) ("Because the EAJA, like the APA, applies to all

agencies and is not administered by any one in particular,

deference to the interpretation by any particular agency is

Accordingly, in any proceeding conducted pursuant to
the provisions of this Part 8, the Board shall have no
power or authority to award attorney fees and/or other
litigation expenses pursuant to the Equal Access to
Justice Act.

29 C.F.R. § 8.19

-27-
inappropriate."). In addition, the administrative rulings cited

by the Secretary do not consider section 354's reference to a

hearing examiner's finding of a violation, focusing instead on

the discretion given to the Secretary under section 353 "'to

make rules and regulations and to hold hearings,'" Pat's

Janitorial Serv., at 5 (quoting Verticare, Case No. 82-SCA-44,

Dep. Sec. Dec. (June 7, 1988)).

Moreover, one of the regulations cited by the Secretary

suggests an inconsistency in the regulatory scheme. As noted,

section 16.104 of the Department's regulations lists a variety

of proceedings that are considered adversarial adjudications

covered by the EAJA "when all other conditions" in that statute

and the Department's rules are met. The list includes

"[v]iolations and debarment in Federal contracts under the

Walsh-Healey Act." 29 C.F.R. § 16.104(a)(2)(ii). Because the

SCA specifically incorporates the enforcement procedures of the

Walsh-Healey Act, we think it significant that the Department

explicitly deems the EAJA applicable to debarment proceedings

under that referenced statute. Logically, if debarment

proceedings under the Walsh-Healey Act are embraced by the EAJA,

equivalent proceedings under the SCA also should be covered.

We see no need to delve more deeply into the complexities

of the regulatory scheme, having come this far primarily to show

-28-
its inconclusiveness and, to a lesser extent, its arguable

endorsement of fee recovery for adversary adjudications of

debarment. Our holding rests not on the agency's views but on

our conclusion that the hearing prescribed by section 354

satisfies the APA requirement for a statutorily mandated

adjudication that is adversarial in nature.

Because the adjudication of debarment is required by

statute, is adversarial in nature, appears intended by

legislation to be covered by the APA, and implicates interests

traditionally protected by APA procedures – and because it is

not otherwise excluded from APA coverage – we hold that

appellants are entitled to fees and expenses associated with the

proceedings before the ARB.

IV. Conclusion

Although the government justifiably instituted debarment

proceedings against appellants, the record shows that it was not

substantially justified in continuing to pursue debarment after

the ALJ's unassailable determination that unusual circumstances

warranted a reprieve from that harsh sanction. The district

court therefore erred in rejecting appellants' request for

attorney's fees under the EAJA. Because the debarment hearing

qualifies as an adversary adjudication under the APA, appellants

are entitled to fees for both the administrative and judicial

-29-
components of the litigation, limited in this instance to the

period following the ALJ's decision.

We leave to the district court the task of assessing a

specific fee award, which may include the legal costs associated

with this appeal.

Reversed and remanded for further proceedings consistent

with this opinion.

Dissent follows.

-30-
 SELYA, Circuit Judge (dissenting). Congress, in

enacting the Equal Access to Justice Act (the EAJA), 28 U.S.C.

§ 2412, never intended to chill the federal government's

legitimate efforts to enforce statutes and regulations. Fees

were to be awarded if — and only if — the government's stance

was not substantially justified. See id. § 2412(d)(1)(A). The

majority gives lip service to this principle, but proceeds to

flout it.

As the court's opinion explains, this appeal requires

us to revisit a dispute between the Secretary of Labor and a

government contractor, Dantran, Inc. On our previous encounter,

a divided panel of this court reversed a debarment order

promulgated by the Secretary under the McNamara-O'Hara Service

Contract Act of 1965 (the SCA), 41 U.S.C. §§ 351-358. See

Dantran, Inc. v. Dep't of Labor, 171 F.3d 58, 75 (1st Cir. 1999)

(Dantran I). This time around, a different panel is asked to

determine whether the district court abused its discretion in

denying Dantran's subsequent motion for counsel fees and

incidental expenses under the EAJA. In a strange twist of fate,

the majority takes our earlier opinion — an opinion that I

authored — and fashions it into a club, which it then wields to

beat the Secretary about the ears. In doing so, the court

mistakes the import of what was written.

-31-
 The Secretary's consistently held position vis-à-vis

Dantran had two components. First, she claimed that Dantran

persistently violated a regulation governing frequency of wage

payments. See Dantran I, 171 F.3d at 65-66. Second, she

claimed that Dantran persistently violated a fringe benefit

regulation, 29 C.F.R. § 4.172, by cross-crediting certain

benefit payments. Her first claim was indisputably correct:

the evidence is uncontradicted that Dantran paid its employees

monthly — a practice forbidden by the explicit language of a

directly applicable regulation, 29 C.F.R. § 4.165(b). Her

second claim was plausible, even though it ultimately was

rejected by this court.

The claim was plausible because the Secretary's

understanding of the fringe benefit regulation was perfectly

reasonable. At the very least, this regulation was susceptible

to conflicting readings. See Dantran I, 171 F.3d at 63; id. at

75 (Cudahy, J., dissenting). And the mere fact that the

Secretary, confronted with a choice among plausible

interpretations of an opaque regulation, failed to predict how

the courts would rule does not suffice to prove that the

government acted unjustifiably. See De Allende v. Baker, 891

F.2d 7, 12-13 (1st Cir. 1989) (holding that the government was

substantially justified in pursuing a novel — but erroneous —

-32-
interpretation of the law); Martinez v. Sec'y of HHS, 815 F.2d

1381, 1383-84 (10th Cir. 1987) (per curiam) (finding the

government position substantially justified when the applicable

law was unclear); Dougherty v. Lehman, 711 F.2d 555, 566 (3d

Cir. 1983) (similar).

The history of the fringe benefit regulation helps to

prove this point. The Secretary promulgated the regulation in

1983. When she cited Dantran in 1991, no court had construed it

in respect to cross-crediting, and the regulation's application

simply was not self-elucidating in that type of situation.

Where, as here, a government actor's decisionmaking turns on a

question of novel impression, the answer to the question would

have to be relatively clear to warrant a holding that the

government actor's plausible, though erroneous, response was not

substantially justified. See De Allende, 891 F.2d at 12-13

(holding that the government was justified in pursuing its own

understanding of a particular provision absent any previous

rulings clarifying its meaning); United States v. Yoffe, 775

F.2d 447, 451 (1st Cir. 1985) ("We do not think that the

government should be found to have acted without substantial

justification because it did not foresee how the court of

appeals would interpret the regulations."). Here, moreover, the

fact that the Administrative Review Board (the ARB), the

-33-
district judge, and one member of the original panel of this

court agreed with the Secretary's reading of the fringe benefit

regulation is a strong indicator of the cogency, and thus the

reasonableness, of her position. E.g., United States v.

Paisley, 957 F.2d 1161, 1167 (4th Cir. 1992).

The majority seems to concede, albeit grudgingly, that

the Secretary's attempts to enforce the frequency-of-payment and

cross-crediting regulations were substantially justified. It

nonetheless maintains that the Secretary went too far by pushing

for debarment. Although it strives mightily to treat these

inquiries as separate and distinct, the two are inextricably

intertwined.

The SCA requires the Secretary, within ninety days

after she concludes that a violation of the statute has

occurred, to "forward to the Comptroller General the name of the

individual or firm found to have [committed the violation]." 41

U.S.C. § 354(a). The case law makes manifest that debarment

"should be the norm, not the exception, and only the most

compelling of justifications should relieve a violating

contractor from that sanction." Vigilantes, Inc. v. Adm'r, Wage

& Hour Div., Dep't of Labor, 968 F.2d 1412, 1418 (1st Cir.

1992). This case law informs the statutory grant to the

Secretary of a limited discretion to recommend against debarment

-34-
"because of unusual circumstances," 41 U.S.C. § 354(a). As a

result, the "unusual circumstances" standard must be read

narrowly. Equally as important, the standard must not be

applied in a vacuum. With respect, the majority contravenes

both of these tenets.

In this case, the Secretary, having credibly found

violations of both the frequency-of-payment and fringe benefit

regulations, thought it inconcinnous to exempt Dantran from

debarment. The district court upheld that determination. The

calculus changed, however, when we set aside the finding that

Dantran had violated the fringe benefit regulation. Dantran I,

171 F.3d at 65-66. At that point, after noting that the issue

was one of "some complexity," id. at 68, we conducted a lengthy

analysis and determined that unusual circumstances rendered

debarment an inappropriate remedy for the violation of the

frequency-of-payment regulation, standing alone. Id. at 68-75.

The majority seizes on this determination and argues that it

demonstrates that the Secretary was not substantially justified

in seeking debarment in the first place. The fallacy in this

argument is that it wrests what the prior panel wrote from the

context in which we wrote it.

Take, for example, the majority's reliance on the

constellation of mitigating factors (e.g., the first compliance

-35-
officer's acquiescence in Dantran's payroll practices, Dantran's

generally good compliance history, and its prompt payment of all

monies due) that the prior panel enumerated to excuse Dantran's

violation of the frequency-of-payment provision. See Dantran I,

171 F.3d at 69-73. The majority transplants these factors, root

and branch, from one opinion to the other without the slightest

allowance for the stark difference in settings. The prior panel

wrote in the context of a finding that Dantran had transgressed

only the frequency-of-payment regulation. My brethren write,

however, for a different purpose — a purpose that requires them

to take account of the Secretary's reasonable belief that

Dantran had flagrantly violated not one, but two, substantive

regulations. Given this important distinction, the majority's

attempt to use our earlier opinion to debunk the Secretary's

original decision compares plums with pomegranates. After all,

by clarifying the meaning of the cross-crediting provision, we

removed one of the two principal bases on which the Secretary's

decision to pursue debarment rested.

Stated another way, the Secretary, in deciding not to

grant relief from debarment, was entitled to rely on her

reasonable (albeit erroneous) finding that Dantran had

persistently violated the fringe benefit regulation. This

factor, together with Dantran's undeniable violation of the

-36-
frequency-of-payment regulation, justified the Secretary's

conclusion that aggravating circumstances prevented relief from

debarment. See 29 C.F.R. § 4.188(b)(3)(ii) (explaining that a

contractor cannot be relieved from debarment in the face of

aggravating factors). Not having the benefit of Dantran I, the

Secretary reasonably could have concluded, as did the ARB, that

the law left her no choice but to pursue debarment because

Dantran had blatantly disregarded two separate regulations.

With both breaches in the case, Dantran was culpable (or so the

Secretary reasonably could have thought) and there was no

"compelling . . . justification[]," Vigilantes, 968 F.2d at

1418, for recommending leniency.

In an effort to shore up its flawed reasoning, the

majority suggests that "the Secretary's persistence" in seeking

debarment after the ALJ had found that "Dantran had a

justifiable, good-faith belief that [the two challenged]

practices were lawful" somehow robbed her subsequent actions of

any patina of substantial justification. Ante at 16 n.11. But

this occurred quite early in the proceedings — and the

majority's position is tantamount to requiring the Secretary to

quit while she was behind. This position is counterintuitive

for at least three reasons. First, the Secretary obviously had

a better case than the ALJ intuited; after all, she succeeded up

-37-
and down the line in negating the ALJ's finding that Dantran's

monthly pay periods were legitimate, and she convinced both the

ARB and the district court that the ALJ's finding as to the

cross-crediting of fringe benefits was erroneous. Second, the

majority's position requires the Secretary to keep a crystal

ball on her desk; she is charged with anticipating not only a

contrary interpretation of the cross-crediting provision but

also the precise workings of the SCA's "odd standard of review."

Dantran I, 171 F.3d at 69. Demanding this kind of clairvoyance

is particularly unsettling considering the "interpretive

difficulties" that this standard presented. Id. at 70.

Finally, the majority's position creates a perverse incentive,

in effect encouraging the government to abandon efforts to

pursue reasonable interpretations of federal statutes and

regulations whenever it encounters difficulty at an early stage

of a proceeding. For these reasons, I believe that it is both

unreasonable and unwise to punish the Secretary for her

unwillingness to cave in to an ALJ's debatable findings, forgo

judicial remedies, and abdicate her enforcement

responsibilities.

I need go no further. The short of it is that, on this

record, I see no way to hold that the Secretary lacked

substantial justification in not exempting Dantran from

-38-
debarment. After all, the EAJA does not require the government

to be prescient: "substantially justified" does not mean

"justified to a high degree, but rather justified in substance

or in the main — that is, justified to a degree that could

satisfy a reasonable person." Pierce v. Underwood, 487 U.S.

552, 565 (1988) (internal quotation marks omitted). Here, the

Secretary not only had reasonable bases in fact and law for

believing that Dantran had violated the SCA, but also had

reasonable bases in fact and law for pursuing debarment. No

more is exigible to show substantial justification (and,

accordingly, to defeat an EAJA application). See id.; see also

Sierra Club v. Sec'y of Army, 820 F.2d 513, 516-17 (1st Cir.

1987). Because my brethren set the bar considerably higher for

the Secretary, I respectfully dissent.

-39-