A Chicago federal appeals court ruled that although the federal Equal Employment Opportunity Commission should not have filed a labor law suit against the CVS Pharmacy chain without first trying conciliation, the EEOC should not have to pay the company’s legal costs, because the suit was not frivolous.
The U.S. Seventh Circuit Court of Appeals issued the decision June 8. The panel that heard the matter included Seventh Circuit Chief Judge Diane Wood and Circuit Judges Ilana Rovner and David Hamilton. CVS, which is based in Woonsocket, R.I., runs the most retail pharmacies of any chain in the U.S., with 9,600 locations.
The case stems from 2011, when the severance agreement for a former manager of a Chicago CVS store came to the EEOC’s attention. The agreement with CVS included a “broad release of claims and a covenant not to sue, but which carved out exceptions for ‘rights that Employee cannot lawfully waive’ and for participation ‘in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws,’” according to the appeals panel, which quoted parts of the severance contract.
Eric Dreiband
| Jones Day
The EEOC contended the “broad release and obscure exceptions” could deter those who sign such agreements from cooperating with the EEOC or exercising rights they retain. Citing that finding, the EEOC took CVS to Chicago federal district court in February 2014, alleging CVS, through the severance agreements, engaged in a “pattern or practice of resistance” to Title VII of the U.S. Civil Rights Act of 1964, which prohibits employment discrimination.
District Judge John Darrah threw out the action in October 2014, saying the EEOC’s own regulation required the agency to attempt a conciliation agreement with CVS before suing, but the EEOC did not do so. The EEOC appealed, arguing the suit was filed as a “pattern-or-practice claim” – a legal action akin to a class action – not an individual suit on the ex-manager’s behalf, which under the agency’s regulation did not demand a conciliation attempt.
Darrah disagreed with the EEOC and threw out the case. The agency appealed, but was again shut down, as the appeals panel determined a conciliation effort is necessary in either type of suit.
CVS then asked Darrah to order the EEOC to pay the drug retailer’s legal bills for fighting the suit. Darrah assented, reasoning the EEOC should have known a conciliation effort was first required before it sued CVS. As a result, Darrah directed the agency to pay $307,902.
On appeal, however, the Seventh Circuit overruled Darrah, finding Darrah’s thinking was based incorrectly on hindsight, noting, “there is more” to the matter “than meets the eye.”
Appellate judges determined, although the EEOC’s interpretation of its regulations turned out wrong, that was not necessarily clear to the agency when it launched its action against CVS. In defense of this finding, the appeals court said the agency’s position had “modest support” from prior case law and no case “squarely foreclosed the EEOC’s interpretation.” Further, the regulation’s wording was “odd.”
According to the appeals court, the EEOC did not have to “satisfy a high burden” and it met this “low bar.”
“Precedent may not have favored it, but the fee statute does not punish a civil rights litigant for pursuing a novel, even if ambitious, theory,” the appeals panel concluded, adding the suit was “neither legally nor factually frivolous.”
The Seventh Circuit reversed Darrah’s ruling, saying the EEOC does not have to cover CVS’ legal tab.
CVS has been represented by lawyers Eric S. Dreiband and Jacob M. Roth, of the Jones Day firm of Washington, D.C.
The EEOC has been represented by the EEOC’s Chicago district lawyers Deborah L. Hamilton, Gregory M. Gochanour, John C. Hendrickson, Laura R. Feldman and Justin Mulaire.