_______________________________ GRANTED IN PART: June 28, 1995 _______________________________ GSBCA 12872-C(11760-TD) NORTHERN VIRGINIA SERVICE CORPORATION, Applicant, v. DEPARTMENT OF THE TREASURY, Respondent. Katherine S. Nucci of Dykema Gossett, Washington, DC, counsel for Applicant. Roger Rhodes and Sherry L. Travers, Regional Counsel, Department of the Treasury, Internal Revenue Service, Southwest Region, Dallas, TX, counsel for Respondent. Before Board Judges WILLIAMS, VERGILIO, and GOODMAN. VERGILIO, Board Judge. On June 10, 1994, the Board received this application, pursuant to the Equal Access to Justice Act (EAJA), from Northern Virginia Service Corporation for the reimbursement of fees and other expenses incurred by it in connection with the underlying appeal. Northern Virginia seeks to recover, through its supplemented application, $14,017.57. In seeking to deny entitlement in its entirety, the respondent, the Department of the Treasury, Internal Revenue Service, contends that the applicant was not a prevailing party and did not prevail on a significant issue. Further, the agency maintains that its position was substantially justified and that specific circumstances make an award unjust. If the Board deems reimbursement appropriate, the agency asserts that the requested fees and expenses must be substantially reduced. The Board concludes that the applicant prevailed on a significant issue in the underlying appeal; the agency has not demonstrated that its position was substantially justified or that specific circumstances make an award unjust. The Board determines that recovery in the amount of $9,769.63 is attributable to the issue of appeal on which the applicant prevailed; the Board awards that amount. Findings of Fact 1. The applicant was a janitorial services contractor to the agency. During performance, a dispute arose when portions of space were reconfigured--tile flooring was carpeted over and systems furniture replaced banks of desks and file cabinets. In the appeal underlying this application, the contractor pursued two distinct determinations of the contracting officer relating to the impact of the reconfigured space on the monthly contract price. In one, the contracting officer had denied a contractor claim for a monthly price increase. In the other, the contracting officer had claimed a monthly price deduction (retroactive and prospective). The Board granted in part the appeal, denying the contractor claim and granting the appeal of the Government claim. As a result of the appeal, the contractor was reimbursed for deductions the agency had made in the monthly contract price. Northern Virginia Service Corp. v. Department of the Treasury, GSBCA 11760-TD, 94-2 BCA 26,847. 2. In an uncontested affidavit, the president and sole owner of the applicant specifies that the size and net worth of the company are below the ceilings established by the EAJA, 5 U.S.C. 504 (1994). 3. The applicant seeks to recover $14,017.57. This amount consists of the following: fees incurred pursuing the underlying appeal; fees incurred preparing the EAJA application and responding to the agency's objections to EAJA recovery; and expenses incurred during the appeal. The fees reflect hours billed by the law firm for the pursuit of the appeal multiplied by $75 per hour (the actual, billed hourly rates exceed the $75 EAJA maximum hourly rate). Time logs and entries, which are part of the record, detail (albeit not broken down by issue) the time and efforts expended. Recognizing that it prevailed on one of the two issues of appeal, the applicant seeks to recover for one- half of the hours and expenses incurred in pursuing the appeal, and for the total hours expended in pursuing the EAJA recovery. 4. In its initial application, the applicant seeks to recover $12,900.07, broken down in its worksheets as follows: $ 8,527.50 Law firm fees pursuing appeal (at $75 per hour) 829.69 Law firm disbursements pursuing appeal 2,201.63 Applicant disbursements pursuing appeal 986.25 Law firm fees pursuing EAJA application (at $75/hr) $12,545.07 TOTAL of initial submission worksheets Three hundred sixty-five dollars, the amount in excess of $12,545.07, is not supported by the record. 5. The disbursements are for photocopying, courier services, telecommunications, facsimiles/telecopies, computer research, postage, and parking, lodging, and meals for an out-of- town deposition. The expenses paid directly by the applicant are for airfare (including $120 for upgrades for travel to the hearing on the merits--$60 each for counsel and the president of the applicant), lodging and meals for the out-of-town hearing, and transcripts. The record demonstrates that the costs were incurred in pursuing the appeal. 6. The applicant also seeks to recover $ 1,117.50, calculated at the EAJA maximum rate (which is less than actual hourly rate), for efforts of counsel in responding to the agency's opposition to the EAJA application. 7. The applicant had the burden of proof in pursuing its claim for increased monthly payments; the agency had the burden of proof in pursuing its claim for decreased monthly payments. There was overlap in the development of the factual record for the two claims--each was premised on the level of effort required before and after the space reconfigurations. The facts dictate the result (increase, decrease, no-change), not the other way around. Given the nature of the claims and the evidence and argument presented by each party, particularly the paucity of evidence in support of the Government claim which the applicant had to rebut, the Board concludes that one-third of the applicant's requested efforts and expenses can be reasonably attributed to pursuing the appeal of the Government claim, with the remaining two-thirds attributed to the unsuccessful pursuit of its own claim for an increase. Discussion The agency does not dispute that the applicant has satisfied basic prerequisites to pursuing its EAJA claim; the Board concludes that the applicant timely filed its application and falls within the net worth and employee size criteria. However, the agency maintains that the request must be denied in its entirety because the applicant did not prevail on a significant issue, the agency's position was substantially justified or special circumstances exist that would make an award unjust. Alternatively, the agency asserts that the request must be denied in part, because the claimed fees and expenses are not reasonable--that is, are excessive for the issue on which the applicant may be deemed to have prevailed. Prevailing party The agency contends that the contractor did not prevail in the underlying appeal. In support, it quotes snippets from the opinion on the merits, then concludes: "In short, the foregoing excerpts from the Board's March 1994 decision establish that neither the Appellant, nor the Respondent, was the prevailing party in this matter. Both parties 'washed out' on their respective claims. Accordingly, the Appellant is not the prevailing party for EAJA purposes." Agency Answer at 8. The agency ignores the realities of the appeal and the opinion and decision of the Board. The contractor prevailed with respect to the Government claim--the deductions were deemed improper; the appeal was granted in part. The agency mischaracterizes the underlying appeal, when it contends that the thrust of this litigation was the contractor's claim for an upward price adjustment and refers to a Government counter-claim as a minor sub-issue. Agency Answer at 7-9. The contracting officer had made two distinct determinations, one not to increase the monthly contract price, the other to decrease the monthly contract price. The contractor raised two substantive bases on appeal: one relating to its claim for an upward price adjustment, a claim the contracting officer had denied; the other relating to the contracting officer's decision to reduce the monthly payment, that is, the Government claim. The Board denied the first basis of appeal and granted the second. As a result, the agency was required to reimburse the contractor for the improperly taken deductions. Both bases of appeal were significant. The agency had reduced the monthly contract price--both retroactively and prospectively. By prevailing on that basis of appeal, the contractor improved its position by enforcing the terms of the contract. Had the contractor pursued only the denial of its claim for an increased monthly price, and been unsuccessful on appeal, the agency could have continued with its deductions. To substantiate its assertion that the applicant failed to prevail on a significant issue, the agency specifies the number of pages in the appeal file and in the applicant's post-hearing brief which it claims were devoted to the unsuccessful contractor claim. Although the effort (measured as a percentage of pages or time) devoted to any particular issue may affect the amount of the recovery, the agency has not suggested the relevance of its alleged indicator to the determination of "prevailing party." As noted above, had the applicant not succeeded in overturning the agency determination to reduce the monthly contract price, it would have recovered that much less money over the contract's life. The amount was not insubstantial; it was significant to prohibit the agency from reducing the contract price without a justified basis. The applicant prevailed on a significant issue so as to satisfy the statutory predicate to relief. 5 U.S.C. 504(a)(1); Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). Substantially justified The agency bears the burden of demonstrating that its position was "substantially justified." 5 U.S.C. 504(a)(1) (1994). An agency's position is "substantially justified" if it is "justified in substance or in the main"--that is, justified to a degree that could satisfy a reasonable person. That is no different from the "reasonable basis both in law and fact" formulation[.] Pierce v. Underwood, 487 U.S. 552, 565 (1988); Chiu v. United States, 948 F.2d 711 (Fed. Cir. 1991). The agency contends that its position was reasonable during the entire period of dispute--both in administering the contract and throughout the litigation. As to the contract administration stage, the agency maintains that the record shows that price deductions were taken only in response to [the contractor]'s questionable demand for an upward price adjustment. . . . The record is absolutely devoid of any evidence showing that the IRS even ever considered taking price deductions prior to the time [the contractor] submitted its demand for a price increase. Moreover, it was only after [the contractor] repeatedly pushed the issue that the IRS skeptically questioned the Contractor's cost figures and concluded that a price reduction was in order. In short, the Agency's price reduction was a direct outgrowth of the [contractor]'s claim and, but for [the contractor]'s greed and relentless pursuit of funds, the Agency never would have taken a price deduction because of the building renovations. Agency Answer at 10-11 (citation omitted). Additionally, the agency points to "pain-staking, time-consuming efforts" it utilized after the dispute arose. Id. at 11. Despite its efforts prior and subsequent to reducing the monthly contract price, the agency failed in a fundamental respect to reach and pursue a position which was substantially justified. Its studies and analyses fail to rely, even colorably, on facts which are reasonably linked to the conditions of the building at issue. The agency did not take the deductions on a contract in the abstract, but on a particular contract involving specific space. The record (as of the time the deduction was taken, and as developed throughout the litigation) does not suggest reasonably that the contractor's expenses should have been reduced because of the space reconfigurations. Factually and legally, the agency lacked reasonable support for its position throughout. The position of the agency was not substantially justified. Special circumstances In support of its position that the Board should deny the entirety of the requested recovery, the agency contends that "special circumstances" exist which would make an award unjust. 5 U.S.C. 504(a). The agency identifies what it asserts to be the "special circumstances." Principally, the agency references the applicant's rejection of the agency's offer to settle the appeal in February 1993--prior to the taking of a deposition and the hearing on the merits. Secondarily, the agency contends that both parties are equally responsible for the events that culminated in this litigation. The applicant objects to the inclusion into the record of the material relating to settlement offers. Although other boards of contract appeals prohibit the introduction of such material in an EAJA case, the EAJA statute does not mandate such a practice. The statute provides: "Whether or not the position of the agency was substantially justified shall be determined on the basis of the administrative record as a whole, which is made in the adversary adjudication for which fees and other expenses are sought." 5 U.S.C. 504(a)(1). The statute expressly distinguishes between a substantially justified agency position and special circumstances; each serves as an independent basis to preclude an award. Although the statute is specific with respect to the record applicable to the determination of whether the position of the agency was substantially justified, the statute does not preclude a board from developing the record in an EAJA case to determine the existence, or not, of special circumstances. Further, the statute permits a board to reduce the amount of, or deny, an award if it determines that an applicant has engaged in conduct which unduly and unreasonably protracted the final resolution of the matter in controversy. 5 U.S.C. 504(a)(3). A record developed apart from that developed on the merits of the underlying appeal may well be relevant and necessary to proper factual and legal conclusions. As part of its settlement offer of February, in addition to settling all matters relating to the case, the agency proposed to take no further "monetary deductions against invoices for work performed by the contractor on or after March 1, 1993 relating to (a) cleaning costs for carpet placed over existing vinyl floor covering or (b) the addition of systems furniture to any carpeted area" and to pay the contractor $45,000. Agency Answer, Exhibit 2 ( 1, 3, 4). The agency-proposed settlement required the contractor to agree "that, for the life of this contract, the [contractor] will take no further appeals of any kind regarding (a) cleaning costs for carpet placed over existing vinyl floor covering or (b) the addition of systems furniture to any carpeted area." Id. ( 5). Additionally, each party would bear its own costs and fees. Id. ( 7). The settlement offer was not simply the agency's proffer of a settlement on the Government claim portion of the appeal; rather, the proposed agreement required the contractor to give up its claim for increased monthly costs, its right of appeal, and its ability to request costs under the EAJA. Nor has the agency demonstrated that the proposed payment of $45,000 would reasonably compensate the contractor for all relevant deductions taken and interest. After the contractor rejected the settlement offer, the agency fully pursued the Government claim. The agency did not amend its answer or abandon its claim to a deduction (retroactive and prospective). The agency did not stipulate to facts dispositive of that portion of the appeal. The agency did not stipulate to an award to the contractor for that portion of the appeal, Rule 36(e).[foot #] 1 The record does not support the contention of the agency that it long ago agreed to resolve the Government claim portion of this appeal. The agency's continued pursuit of the Government claim for the deduction in the monthly contract price is not a special circumstance which makes unjust the award of costs to the applicant. The agency contends that each party bears equal responsibility for the events that culminated in the litigation. It equates the activity of the parties to a special circumstance which makes unjust the award of costs. The record does not support the premise of equal responsibility. Although space was reconfigured, a monthly contract price existed. Had no party sought a change, that price would have remained effective. A request for a price increase and a price decrease are independent events. One can occur without the other. The contractor's actions did not compel the agency to raise and pursue the Government claim. The agency could have simply denied the request for a price increase. Instead, the agency pursued the price deduction throughout this appeal, taking a position which was not substantially justified by the facts or the law. The agency has not demonstrated that the applicant should bear any responsibility for the agency's position. The agency has failed to meet its burden of demonstrating the existence of special circumstances that make unjust the award of costs. Claimed fees and expenses The agency asserts that many of the claimed fees and expenses are unreasonable and excessive, and that some charges are also unallocated and unexplained and should be denied. ----------- FOOTNOTE BEGINS --------- [foot #] 1 Although the agency correctly points out that the Board lacks an "Offer of Judgment" rule, as in Rule 68 of the United States Court of Federal Claims, the agency could have accomplished a similar result through various means. Instead, it fully pursued the Government claim-- engaging in discovery, and developing the evidentiary and administrative record. ----------- FOOTNOTE ENDS ----------- apportionment Recognizing that it did not prevail on its claim, the applicant proposes to apportion its pre-EAJA costs equally between the successful and unsuccessful claim. It maintains that it reasonably did not keep track of its efforts by issue and "that essentially the same legwork and preparation would have been expended to pursue either appeal issue." Accordingly, it concludes that a fifty-fifty distribution is fair. Application at 10. The Board concludes that one-third (not the applicant- proposed one-half) of the reasonable expenses and costs incurred in pursuing the appeal represents the appropriate basis for recovery. While the contractor claim and the Government claim each represented a significant basis of appeal, the contractor bore the burden of proof on its claim for an increased monthly contract price. The record does not support the applicant's request for one-half of the efforts and expenses. Finding 7. unnecessary fees and expenses The agency seeks to reduce the award because of what it characterizes as unnecessary fees and expenses. Contrary to the assertions and suggestions of the agency, the record does not reveal unnecessary, wasted, or duplicate efforts of counsel. excessive charges The agency requests that the amount of recovery be reduced because of excessive charges for photocopying, airline upgrades, facsimile transmissions, and unexplained expenditures. With the exception for $120 in airline upgrades, all of the requested expenses appear to be reasonable and related to the pursuit of the appeal and EAJA application. The record does not demonstrate that the airline upgrades were necessary or cost effective. Decision The Board GRANTS IN PART the application, and awards the applicant $9,769.63, to be paid in accordance with 5 U.S.C. 504. This amount consists of one-third of the legal fees and disbursements, and one-third of the applicant disbursements (less the airline upgrades) relating to the appeal, plus the entirety of legal fees for pursuing the EAJA application. Thus, the reimbursed amounts are as follows: $ 5,685.00 Law firm fees pursuing appeal (at $75 per hour) 553.13 Law firm disbursements pursuing appeal 1,427.75 Applicant disbursements pursuing appeal 986.25 Legal fees pursuing EAJA application (at $75/hr) 1,117.50 Legal fees responding to agency's EAJA objection $ 9,769.63 TOTAL __________________________ JOSEPH A. VERGILIO Board Judge We concur: __________________________ __________________________ MARY ELLEN COSTER WILLIAMS ALLAN H. GOODMAN Board Judge Board Judge