More companies are going to be able to get the government to pick up some of their legal expenses.
The Equal Access to Justice Act is supposed to open the way for companies that might not otherwise be able to afford a lawsuit to oppose federal agency rulings they consider unjust or incorrect. The carrot: When small companies win, the judge can tell the Treasury to pick up their lawyer bills. A small business used to be one with a net worth of less than $5 million, although Congress last year raised that limit to $7 million.
The statute does not define how net worth is to be figured, however, and so the government has been trying to limit the fiscal impact of the law by using a definition that excludes as many companies as possible. Last year, the U.S. Court of Appeals in Chicago tossed out one such technique. Now, in its April 25 ruling in American Pacific v. NLRB, the U.S. Court of Appeals in San Francisco comes to the same conclusion.
In the case, the National Labor Relations Board turned down an application for legal fees because it said the company was too big. It reached that conclusion by valuing all assets at their original purchase price and refusing to make any allowances for depreciation.
The NLRB defended that practice by citing a sentence in the legislative history of the equal access law that says: "In determining the value of assets, the cost of acquisition rather than fair market value should be used."
But the Chicago judges wrote: "All this means to us is that the net worth figure must be derived from the company's books, rather than from an appraisal." The San Francisco panel added that the reference to acquisition costs was merely the starting point to figure the depreciated value -- meant, for instance, o bar a company from arguing that the market value of a piece of equipment was less than its book value.
It is normal accounting practice to reduce the value of an asset each year, and that is the approach the courts opted to endorse. The San Francisco judges said that although they usually have an obligation to give great weight to a government agency's interpretation of a statute, the fact that the NLRB had no particular expertise in depreciation removed that obligation in this case.
In other cases, courts ruled that:
*The Federal Deposit Insurance Corp. is a government agency. The courts always struggle with how to fit novel entities that bear hallmarks of private and public entities into rules that have two options, one for government bodies and another for the private sector. The FDIC, run by a board of Senate-approved directors, was declared a nongovernmental institution by a U.S. district court, which ruled that the agency therefore had 20 days to file an answer to a lawsuit rather than the 60 days allowed for federal agencies. But the U.S. Court of Appeals in New Orleans reversed that ruling, saying the FDIC was set up by Congress to serve the public interest, and so should have all the protections given more routine agencies -- including the extra time to respond to legal challenges. (Rausch Pierce v. FDIC, May 9)
*Conclusions in official reports are going to continue to be difficult to introduce as evidence in trials in federal courts in the South. In general, "hearsay" evidence cannot be made part of the record in a trial, but there is a general exception for reports of official government investigations. In most of the country, anything in such reports can be used in a trial. But in 1980 the court of appeals covering the Gulf South decided the exception applied only to the facts contained in such reports, not to any opinions.
Despite later criticism of that rule, the U.S. Court of Appeals in Atlanta decided to stick with it. The ruling throws out a victory by an aircraft manufacturer in a damage suit brought by the spouses of a Navy flight instructor and student killed in a training exercise; the victory hinged on a Navy investigatory report that did not fault the manufacturer. (Rainey v. Beech, March 25)
*A company may not be able to fire an employe who has gone on a rampage, beating up coworkers, with no provocation, and destroying company property. When an arbitrator told E. I du Pont de Nemours & Co. to reinstate the worker, reasoning that he had suffered a mental breakdown through no fault of his own and was unlikely to repeat the offense, the chemical giant took the controversy to court. Its argument: The arbitrator's award is at odds with the public policy of providing a safe work place. But the U.S. Court of Appeals in Chicago ruled that its hands were tied by the arbitrator's finding that a second outbreak of violence was extremely remote -- a finding the courts are obligated to accept because it was not clearly wrong. (Du Pont v. Grasselli Employes, May 9)
*A state cannot haul a company into its courts simply because the defendant has run ads in publications mailed into the state. The Minnesota Court of Appeals, reversing a trial court, told a Minnesota company it could not use the state's courts to go after a Chicago seller of used kitchen equipment, when the Chicago firm's only connection with Minnesota was to solicit business there through national advertising. The fact that the Minnesota buyer traveled to Chicago to examine the steam kettles he was buying and accepted delivery of the equipment in Chicago doomed his attempt to charge the dealer with misrepresentation and breach of conduct under Minnesota statutes. (Now Foods v. Madison Equipment, May 6)
*There's not much federal retirees can do if states tax them unfairly. A group of such pensioners got the go-ahead from a trial court in Georgia to bring a class-action suit against the state, claiming they had suffered unlawful discrimination because the state imposed income tax on their retirement pay but not on that of retired state workers. But the U.S. Court of Appeals in Atlanta tossed out the suit, citing a law that limits the power of federal courts to issue injunctions against state-taxing procedures. The fact that Georgia would not allow the retirees to use the less expensive class-action approach to press their claims made no difference, the appellate judges decided. (Waldron v. Collins, May 6)