Board of Contract Appeals General Services Administration Washington, D.C. 20405 ___________________________________________ GRANTED IN PART: March 17, 1999 ____________________________________________ GSBCA 14719-C(14442-TD) HOSPITAL HEALTHCARE SYSTEMS, INC., Applicant, v. DEPARTMENT OF THE TREASURY, Respondent. James P. Rome, Wilmette, IL, counsel for Applicant. Michael Salyards, General Legal Services, Internal Revenue Service, Department of the Treasury, Dallas, TX, counsel for Respondent. Before Board Judges BORWICK, WILLIAMS, and DeGRAFF. BORWICK, Board Judge. Hospital Healthcare Systems, Inc. (applicant or HHS), under the Equal Access to Justice Act (EAJA), 5 U.S.C. 504 (Supp. III 1997), seeks reimbursement of $8708.20 for 57.8 hours of attorney fees and expenses as the prevailing party in the appeal of Hospital Healthcare Systems, Inc. v. Department of the Treasury, GSBCA 14442-TD, 98-2 BCA 29,986, a dispute over a termination for convenience settlement proposal. Applicant meets EAJA's eligibility criteria. Applicant was the prevailing party in GSBCA 14442-TD; we conclude that the position of the Government as to a procedural issue--respondent's unsuccessful motion to disqualify HHS's attorney--was not substantially justified. We conclude that the position of the Government on one merits issue- -the sample roll--on which HHS prevailed was not substantially justified throughout the appeal proceedings. On the second merits issue--special tooling--the position of the Government was not substantially justified after July 29, 1998. After appor- tionment to reflect the degree of success obtained, we award applicant $3781.95 as allowable fees and expenses. Eligibility Under the EAJA a party eligible for reimbursement of costs is defined as "any . . . corporation . . . the net worth of which did not exceed $7,000,000 at the time the adversary adjudication was initiated, and which had not more than 500 employees at the time the adversary adjudication was initiated." 5 U.S.C. 504(b)(1)(B)(ii). Applicant is a firm which, when applicant initiated these appeals, had a net worth that did not exceed $7,000,000 and had no more than 500 employees. Affidavit of Albert J. Paveza (Feb. 19, 1999) 3. Prevailing Party EAJA provides that an agency that conducts an adversary adjudication shall award, to an eligible prevailing party, fees and other expenses incurred by that party in connection with that proceeding unless the adjudicative officer of the agency finds that the position of the agency was substantially justified or that special circumstances make an award unjust. 5 U.S.C. 504(a)(1). A prevailing party is one who succeeds on any signif- icant issue in the litigation which achieves some of the benefit the party sought in bringing suit. Cf. Hensley v. Eckerhart, 461 U.S. 424, 433 (1983) (construing analogous fee shifting provision in Civil Rights Act). Applicant is the prevailing party in GSBCA 14442-TD. The appeal was filed at the Board on December 18, 1997, and was decided under the small claims procedure of Board Rule 202 on the record pursuant to Board Rule 111. Respondent raised a proce- dural issue by filing a motion for disqualification of HHS's counsel. HHS defeated that motion. Hospital Healthcare Sys- tems., Inc. v. Department of the Treasury, GSBCA 14442-TD (June 29, 1998). On the merits, the dispute concerned the pricing of a termination for convenience settlement proposal on a contract for laser printer labels. In its proposal, HHS sought $19,438.78; by decision of the contracting officer, the Government offered $2228.87. The Government rejected HHS's claim of $2407.42 for costs of special tooling, $6962.20 for consultant fees, full costs for production of a sample roll, and $7500 profit for the alleged contract value. The Government maintained that HHS had not shown that the special tooling was purchased for the con- tract, that the costs were not substantiated, and that the tooling had use in HHS's other business. The Government argued that the claim for consultant fees was an unallowable contingent fee. The Government refused to compensate HHS for its labor costs for the sample roll, treating the sample roll as a complet- ed end item under the contract and thus limited by the contract price. As for the profit, HHS amended its claim to seek only profit on the sample roll. We concluded that the special tooling costs were allowable and awarded HHS $2371.97 for that item. We rejected the Govern- ment's position that the consultant costs were an unallowable contingent fee, but refused to award any amount for consultant costs because HHS had not established the reasonableness of the costs. We rejected the Government's position that HHS was not entitled to its labor costs in producing the sample roll, and awarded HHS the costs of labor, material and profit totaling $1607.12. We also awarded $925 for attorney's fees in preparing the termination for convenience proposal. Our total award was $4904.09, which was twenty-five percent on a rounded basis of the claimed amount of $19,438.78 and twenty-eight percent of the disputed amount of $17,209.91. See Hospital Healthcare Systems, 98-2 BCA at 148,314. Although HHS lost on the issue of the consultant, and gave up its claim for profit on the contract value, it is not neces- sary for a litigant to succeed on every issue to be a prevailing party. Naekel v. Department of Transportation, 884 F. 2d 1378, 1379 (Fed. Cir. 1989). We consider applicant's prevailing on the attorney disqualification and two merits issues significant, relative to the size of the claim. Substantial Justification When the applicant has shown it is the prevailing party, it is the Government's burden to show that the position of the agency was substantially justified. Fanning, Phillips & Molnar, VABCA 3856E, 97-2 BCA 29,008, at 144,503, aff'd in part, dismissed in part, 160 F.3d 717 (Fed. Cir. 1998). Whether or not the position of the agency is substantially justified is to 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). We are "to look at the entirety of the Government's conduct and make a judgment call whether the Government's overall position had a reasonable basis in both law and fact." Chiu v. United States, 948 F.2d 711, 715 (Fed. Cir. 1991). In addition to considering this question with regard to the merits of the appeal, although respondent does not address the issue, we must consider whether the respondent's motion to disqualify HHS's attorney was both reasonable and substantially justified.[foot #] 1 Respondent filed its disqual- ----------- FOOTNOTE BEGINS --------- [foot #] 1 This motion generated two responses from applicant, and HHS's attorney spent many hours--relative to the total attorney hours spent in this appeal--in defeating respondent's motion. Prevailing parties are entitled to an award based upon the number of hours reasonably spent on the litigation times a reasonable hourly rate. Hensley v. Eckerhart, 461 U.S. _____________________ 424 at 433. Generally, attorney hours spent on responding to the opponent's motions are not to be excluded from fee awards. Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 886 F.2d 1545 ________________________________________________ (9th Cir. 1989), cert. den. 494 U.S. 1017 (1990). Here, the __________ (continued...) ----------- FOOTNOTE ENDS ----------- ification motion out of its chief concern that it might call HHS's counsel as an adverse witness. Respondent did not show, however, that applicant's counsel's testimony is or may be prejudicial to the client, the standard stated in Illinois Rule of Professional Conduct 3.7(b), when a party's attorney is called as a witness other than on behalf of the client. HHS demonstrat- ed clearly that it did not intend to call its attorney as a witness. During the merits phase of the appeal, respondent never sought evidence by testimony or affidavit from applicant's counsel. As noted earlier, the appeal was decided on a record submission basis. While ethical matters are often delicate and not free from doubt, this one was straightforward. We do not consider respondent's motion to have been substantially justi- fied. On the merits, the Government argues that its position was substantially justified because "the agency prevailed on its position that the claimed profit of $7500 was unallowable and that HHS had failed to show that the consultant fee in the amount of $6926.20 was reasonable. Therefore the position of the agency was substantially justified on most, but not all, the claimed items." Respondent's Opposition at 2. Respondent recognizes that because it had different bases for denying each item, it is appropriate to consider whether respondent was substantially justified in raising each of them. See Cinciarelli v. Reagan, 729 F.2d 801, 805 (D.C. Cir. 1984); KMS Fusion Inc. v. United States, 39 Fed. Cl. 593 (1997) (where applicant prevailed on two of six issues, court considered substantial justification on an issue by issue basis).[foot #] 2 Furthermore, in considering substantial justification, we are mindful that a Government position may be substantially justified in one phase of the litigation and not so in a later phase after the develop- ment of the record. Public Citizen Healthcare Group v. Young, 909 F.2d 546, 552 (D.C. Cir. 1990). Here, the agency's position as to the correct reimbursement for the sample roll was not substantially justified, because ----------- FOOTNOTE BEGINS --------- [foot #] 1 (...continued) appeal could not proceed with Mr. Rome representing HHS in the absence of a denial of the disqualification motion, and if Mr. Rome had been disqualified, there would have been considerable delay allowing HHS to secure new counsel and allowing counsel to become familiar with the issues. The attorney's time spent in successfully resisting respondent's motion enabled the Board to reach the merits sooner rather than later. [foot #] 2 There are cases in which the issues are so intertwined that one Government position substantially justifies denial of the complete claim. Aislamientos y Construcciones ______________________________ Apache S.A., ASBCA 45,437, 98-1 BCA 29,373. This is not the ____________ case here; the agency had distinct reasons, unique to the item, for denying the claimed costs. ----------- FOOTNOTE ENDS ----------- throughout the contracting officer's consideration of the claim and the subsequent appeal, the agency misapplied Federal Acquisi- tion Regulation (FAR) 49.201(a)--dealing with compensation for completed end items--to the sample roll, which we found was not a completed end item. We also found that the agency unfairly blamed HHS for the roll's supposedly "incorrect" winding direc- tion, when the correct winding direction was not specified in the contract. Hospital Healthcare Systems., Inc., 98-2 BCA at 148,313. As for the special tooling, the agency was substantially justified in questioning reimbursement of the costs until July 29, 1998, when HHS as part of its record submission submitted the affidavit of HHS's president explaining why the special tooling was unique to this contract and not usable in applicant's other business. On this issue, the Government was substantially justified until July 29, 1998, after that date, it was not. Analysis of hours and apportionment As noted above, applicant claims its attorney spent 57.8 hours on this appeal. The attorney fee schedule submitted by applicant shows that it seeks compensation for 3.6 hours of attorney time in settlement discussions and claim review for November 6-7, 1997, before applicant received the contracting officer's decision on or about December 12. The starting point for an EAJA claim for a Contract Disputes Act appeal, however, is receipt of the contracting officer's decision. Levernier Con- struction Inc. v. United States, 947 F.2d 497, 499-501 (Fed. Cir. 1991); Quality Diesel Engines Inc., GSBCA 11237-C (10805-COM), 91-3 BCA 24,331, at 121,567. Thus we start with 54.2 attorney hours as our baseline for the analysis we must perform as to whether the hours spent were reasonable and whether the attor- ney's rate was reasonable. American Power, Inc., GSBCA 10558-C (8752), 91-2 BCA 23,766. Of those hours, applicant claims 21.4 hours for legal fees in successfully defeating respondent's counsel's motion for disqualification of HHS's counsel. Howev- er, the attorney's fee schedule attached to the application shows that applicant included in those hours .5 of an hour for tele- phone calls on general progress of the case to the Board on June 9 and 22, 1998, and .3 of an hour on June 26 for telephone calls to the Board on the general progress of the case. Applicant has not established that the time was limited to the disqualification motion. The proven time spent on the disqualification motion was 20.6 hours. Because counsel's motion required research and the preparation of a response and supplemental response from HHS, we consider that number of hours spent to be reasonable, and appli- cant is entitled to appropriate apportioned compensation for its attorney's charge for that time. We are left with 33.6 hours devoted to the claim issues. Of those hours, 3.8 were generated by HHS's counsel after July 29, 1998. We conclude that half of the 33.6 hours devoted to claim issues hours--16.8--was spent on the issues on which applicant prevailed and that time was equally divided at 8.4 hours each, between the special tooling and sample roll issues. We now separate the hours spent on the issue in which the Government defense was substantially justified at least until July 29. Since HHS's attorney generated 3.8 hours on all claim issues after July 29, he spent one quarter of that time, or .95 of an hour each, on the special tooling and sample roll issues after that date. For the special tool issue, the hours until July 29-- 7.45--cannot be compensated because HHS's attorney generated those hours when the Government's position was substantially justified. HHS's attorney spent 9.35 (8.4+.95) compensable hours on merits issues. We consider those hours reasonable, cf. Greenville Storage & Investment v. General Services Administra- tion, GSBCA 13547-C(12989), 98-2 BCA 29,985, and applicant is entitled to compensation based on the hourly total of 29.95 hours, plus allowable expenses.[foot #] 3 Hourly rate For adversary adjudications commenced on or after March 29, 1996, applicant is entitled to reimbursement of its attorney fees at the rate of $125 per hour, unless the agency determines by regulation that the cost of living justifies a higher fee or determines that a special factor, such as the limited availabili- ty of attorneys for the proceedings involved, justifies a higher fee. 5 U.S.C. 504(b)(1)(A)(ii). The application shows an attorney billing rate of $150 per hour. Applicant does not argue that the agency has determined by regulation that the cost of living justifies a higher fee. Applicant has not demonstrated that this higher rate is justified based upon the complexity of the litigation. In this regard, avoidance of EAJA's rate cap requires more than a showing of the competent legal representa- tion that HHS's counsel provided in this matter. The applicant must demonstrate that the litigation required distinct knowledge and skill as opposed to general legal competence. American Power, Inc., 91-2 BCA at 119,047 (citing Pierce v. Underwood, 487 U.S. 552 (1988)). For example, construction contract law experi- ence will be a special factor only in highly complex cases where such experience is essential to prosecute the case. Id. at ----------- FOOTNOTE BEGINS --------- [foot #] 3 Where several unrelated issues are tried together, the Board must apportion the litigation effort among the issues, to reflect the degree of success obtained. Jordan & ________ Nobles Construction Co. v. General Services Administration, GSBCA ----------- FOOTNOTE BEGINS --------- 11278-C-R(8576), 93-2 BCA 25,741; cf. Fanning, Phillips & ___ ____________________ Molnar, 97-2 BCA at 144,504 (apportioning between two appeals). ______ Respondent urges that we apportion recovery on the basis of the percentage of the termination for convenience settlement proposal--25 percent--we awarded HHS. As noted above, our apportionment is based on the number of attorney hours spent on the applicant's prevailing issues for which the Government's position was not substantially justified. This is a fair measure of apportionment. Jordan & Nobles Construction Co. ________________________________ ----------- FOOTNOTE ENDS ----------- 119,048. HHS's attorney specializes in public contract law. The termination for convenience claim, however, was not factually complex and the legal issue--the pricing of a termination for convenience settlement proposal--was ordinary. The proper hourly rate in this case is $125. The product of 29.95 compensable hours and $125 per hour is $3743.75. Applicant is therefore entitled to that amount as an award for attorney fees. Respondent does not contest the claimed expenses of $38.20. Applicant is entitled to $3781.95. Decision The application is GRANTED IN PART. Applicant is entitled to an award of $3,781.95 of allowable fees and expenses under the EAJA as the prevailing party in GSBCA 14442-TD. _______________________________ ANTHONY S. BORWICK Board Judge We concur: ___________________________ ____________________________- ___ MARY ELLEN COSTER WILLIAMS MARTHA H. DeGRAFF Board Judge Board Judge