Ninth Circuit Appears Skeptical of DOL Arguments in Atty Fee Battle

A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit recently heard oral arguments in an architecture firm’s appeal of a district court judge’s order denying its attorney fees. Bowers + Kubota Consulting Inc. sought attorney fees against the U.S. Department of Labor (DOL) in an ERISA suit in which it prevailed. The case is Martin Walsh v. Brian Bowers et al., case number 22-15378, U.S. Court of Appeals for the Ninth Circuit.

Following a five-day trial, the district court ruled that the firm had complied with ERISA when it structured a $40 million stock sale to the employee stock ownership plan (ESOP). The DOL could not produce sufficient evidence supporting its allegations that Bowers + Kubota had mismanaged the ESOP in violation of ERISA. More specifically, the DOL failed to prove that the firm had overvalued its stock at $40 million because its key expert witness erred in the valuation calculation.

The DOL had to prove its lawsuit was justified to avoid being responsible for the architecture firm’s attorney fees. The Ninth Circuit panel appeared skeptical that the lack of substantial evidence to support the DOL’s case justified the suit. As one judge pointed out, it was questionable that the DOL could justify proceeding with the suit when it had the erroneous expert opinion before trial. A different judge pointed out the existence of at least one “red flag” that could have justified the DOL’s actions in filing suit. The fact that a $40 million transaction was based on a trustee billing only 30 hours using a valuation expert that the firm previously hired, the judge noted, created suspicious circumstances that might have justified the DOL pursuing the lawsuit.

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