Authored by Kevin Fritz
. . . and these words are only from the first seven pages of the opinion.
The Fifth Circuit Court of Appeals recently slammed the United States Department of Labor with a finding of abusive conduct and ordered an award of significant monetary sanctions for bad faith, harassment, and abusive litigation. In what is notably a colorful opinion, a unanimous three-judge panel of the Fifth Circuit Court of Appeals found that the Department of Labor acted in bad faith during its 2010 probe and subsequent litigation with Gate Guard Services: a Texas security company that provides guards at oil drilling sites.
In 2010, the Department began a formal investigation after a government investigator received a tip from a drinking companion and former employee of Gate Guard. The “tip” led to a $6.2 million penalty, claiming the Company misclassified its employees as independent contractors and owed back pay for minimum wage and overtime violations to its 400 gate attendants. The Department later lowered the back wages to $2 million, but that did not prevent the Company from suing the government in the U.S. District Court for the Southern District of Texas to overturn the penalty.
Claiming that the labor department investigator failed to ask basic questions, improperly interviewed workers, and shredded/burned handwritten notes, in 2013, the district court sided with the Company and ruled that the gate attendants were independent contractors – not employees entitled to minimum wage and overtime. Soon after, the department was ordered to pay Gate Guard nearly $600,000 to cover legal fees.
Enter the Fifth Circuit and its Colorful Prose
$600,000 was the wrong amount according to the Court of Appeals. Writing for the unanimous panel, Judge Edith Jones descriptively noted that at nearly every turn, the investigation and prosecution violated the Department’s internal procedures and ethical litigation practices.
From the deliberate destruction of evidence and ambushing low level employees for interviews without counsel to demanding inflated penalties and unnecessarily opposing routine motions, the Fifth Circuit fired – and hit – the bull’s-eye of the government’s abuses, and pulled out all the stops in describing the government’s misconduct.
“The government’s extraordinarily uncivil and costly litigation tactics strongly suggest that it hoped to prevail by oppressively pursuing a very weak case,” Judge Jones wrote. The government pressed on even after it discovered its lead investigator based his conclusions on just three interviews, destroyed evidence, and demanded a “grossly inflated” multimillion-dollar penalty, according to the ruling. Once in litigation, the government opposed routine motions, refused to produce evidence, and “stonewalled” the deposition of its lead investigator, the appeals court found.
Gate Guard will now return to the lower court to determine how much more money it will receive.
Coming on the heels of the Second Circuit’s recent rulings in intern wage cases against the Hearst Corp. and Fox Entertainment Group Inc., last week was not a good week for the Department of Labor.
Assuming the Department’s investigators and attorneys follow its own procedures, hopefully a colorful ruling like this won’t again be necessary. But in the Fifth Circuit at least, the ruling will likely lower the bar to bring bad faith claims against the government when its investigators or attorneys do not comport with the standards expected of them.