On June 8, 2018, the 7th Circuit reversed an order of the district court which had awarded the prevailing defendant, CVS Pharmacy, Inc. ("CVS") its attorneys' fees against the United States Equal Employment Opportunity Commission ("EEOC"), in the wake of the EEOC's unsuccessful attempt to challenge the validity and enforceability of CVS's standard employee severance agreement and release. Equal Employment Opportunity Commission v. CVS Pharmacy, Inc., No. 17-1828 (7th Cir. 6/8/2018). The EEOC filed a complaint against CVS alleging that CVS was using a severance agreement that chilled its employees' exercise of their rights under Title VII of the Civil Rights Act of 1964, as amended ("Title VII"). The EEOC contended that CVS's use of the severance agreement was a pattern or practice of resistance to the rights protected by Title VII. The district court ruled against the EEOC on this issue and the 7th Circuit affirmed. Subsequently, the district court awarded CVS $307,902.30 in attorneys' fees against the EEOC.
The district court reasoned that the EEOC should have attempted conciliation before filing filing suit, as required by its own regulations. However, the 7th Circuit stated that "that was not at all clear" at the time the EEOC filed suit and, therefore, the district court's fee award impermissibly rested on hindsight. The case originated in connection with a charge of discrimination against CVS filed with the EEOC by a former CVS employee, who had signed a severance agreement that included a general release of claims and covenant not to sue, but carved out exceptions for rights that cannot by law be waived and the right to participate in governmental anti-discrimination investigations. The EEOC did not file suit for the former employee, but instead filed its own suit against CVS, without first attempting conciliation, arguing that the severance agreement and release were invalid and unenforceable under Title VII because they would deter former employees who signed them from cooperating with the EEOC or enforcing their carved out rights. The EEOC lost that case. The question on the appeal of the fee award was whether the EEOC's position, that it could file its own suit against CVS without first attempting conciliation, was so far afield at the time it filed suit that a fee award was warranted. Although section 706(k) of Title VII provides for fee shifting in favor of any prevailing party, it is well established that fees should be awarded to prevailing defendants only in exceptional cases. This is based on the policy that the protections of Title VII would be undermined if good-faith plaintiffs pursuing reasonable theories were deterred from filing lawsuits because of the risk of paying a hefty fee award in defeat. A district court may award fees to a prevailing defendant only upon a finding that the plaintiff's action was frivolous, unreasonable, or without foundation, even though not brought in subjective bad faith.
The 7th Circuit stated that "the EEOC's legal position did not have to satisfy a high burden--a colorable legal argument will do." The EEOC "met this low bar" based on its arguments, in view of the law as it existed when the EEOC attempted to advance its position. The EEOC had a textual foothold in the statute, because section 707(a) of Title VII, under which the EEOC filed suit, was distinctive in regard to conciliation requirements. The EEOC also had "modest support in our prior case law" and "no case squarely foreclosed the EEOC's interpretation." A fee award can be assessed against a losing plaintiff only if its arguments were squarely blocked by controlling and unambiguous precedent, but the EEOC's theory "was not that fruitless." "[T]he fee statute does not punish a civil rights litigant for pursuing a novel, even if ambitious, theory."