To amend the provisions of titles 5 and 28, United States Code, relating to equal access to justice, award of reasonable costs and fees, and administrative settlement offers, and for other purposes.

February 1, 2005

Mr. MANZULLO (for himself and Mr. BLUMENAUER) introduced the following bill; which was referred to the Committee on the Judiciary, and in addition to the Committee on Small Business, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

To amend the provisions of titles 5 and 28, United States Code, relating to equal access to justice, award of reasonable costs and fees, and administrative settlement offers, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Equal Access to Justice Reform Act of 2005'.

SEC. 2. FINDINGS AND STATEMENT OF PURPOSE.

(a) Findings- The Congress finds that--

(1) the Equal Access to Justice Act (Public Law 96-481; 94 Stat. 2325 et seq.) (in this section referred to as `EAJA') was intended to make the justice system more accessible to individuals of modest means, small businesses, and nonprofit organizations (in this section collectively referred to as `small parties') through limited recovery of their attorneys fees when they prevail in disputes with the Federal Government;

(2) although EAJA has succeeded, at modest cost, in improving access to the justice system for small parties, EAJA retains formidable barriers to attorneys' fees recovery (even for small parties that completely prevail against the Government), as well as inefficient and costly mechanisms for determining the fees recovery;

(3) among the barriers retained by EAJA are--

(A) EAJA's `substantial justification defense', whereby the Government can deny attorneys' fees recovery to prevailing small parties if the Government can show that its position, although proven illegal, was not abusive or entirely unreasonable;

(B) EAJA's hourly rate cap on attorneys' fees of $125, which is well below the market rate for competent legal services in many legal markets (especially for complex and high-risk litigation against the Federal Government) and thus prevents fair reimbursement of attorneys' fees for small parties and discourages competent counsel from undertaking meritorious cases on a contingency or reduced-fee basis; and

(C) EAJA's outdated small business eligibility requirements, which have not increased or indexed for inflation the net worth threshold of $7,000,000 established in 1985;

(4) among the inefficiencies retained by EAJA are--

(A) EAJA's substantial justification defense, which initiates collateral litigation over attorneys' fees recovery that both consumes significant Federal resources and prolongs the time, expense, and risk of pursuing fees recovery to the prevailing small party;

(B) EAJA's omission of any mechanism (such as the offer in compromise feature of Federal Rule of Civil Procedure 68) that would apply after a small party has prevailed on the merits of its claim to encourage both sides to reach a prompt and reasonable settlement of attorneys' fees;

(C) EAJA's failure to create an educational and technical assistance function within an appropriate agency to facilitate more efficient use, settlement, and payment of claims under EAJA; and

(D) EAJA's failure to reassign congressional reporting obligations to an appropriate, existing agency (EAJA lodges annual congressional reporting with the Administrative Conference of the United States, an agency which ceased to exist in 1995);

(5) none of these barriers or inefficiencies exists in the primary Federal fee-shifting statute applicable to State and local governments, Revised Statutes section 722 (42 U.S.C. 1988(b)), resulting in--

(A) an unequal level of accountability to Federal law among governments in the United States (shielding the Federal Government to a greater degree than State and local governments from the consequences of violating Federal law);

(B) an uneven playing field for small party victims of Federal law violations (discouraging resistance to illegal action by the Federal Government); and

(C) an inefficient use of Federal agency resources (burdening the Federal budget);

(6) a further barrier and inefficiency is the practice of Federal agencies of paying their EAJA liabilities from the General Treasury rather than their own agency budgets, relieving those agencies of the financial consequences of their misconduct (i.e., EAJA liability) and burdening the Federal budget unnecessarily;

(7) it is in the national interest to remove these barriers and inefficiencies for small parties, particularly small business owners, involved in disputes with the Federal Government in order to develop sound policies relative to the national economy in which small businesses play a significant and strategic role; and

(8) the removal of these barriers and inefficiencies is essential to--

(A) equalize the level of accountability to Federal law among governments in the United States;

(B) discourage marginal or abusive Federal enforcement actions directed at small parties;

(C) stop the practice of paying EAJA liabilities from the General Treasury, which has insulated agencies from the financial consequences of their misconduct and burdened the Federal budget unnecessarily;

(D) refine and improve Federal policies through adjudication;

(E) promote a fair and cost-effective process for prompt settlement and payment of attorneys' fees claims; and

(F) provide a fairer opportunity for full participation by small businesses in the free enterprise system, further increasing the economic vitality of the Nation.

(b) Purpose- It is, therefore, the purpose of this Act to remove existing barriers and inefficiencies in EAJA in order to--

(1) equalize the level of accountability to Federal law among governments in the United States;

(2) discourage marginal or abusive Federal enforcement actions directed at small parties;

(3) stop the practice of paying EAJA liabilities from the General Treasury, which has insulated agencies from the financial consequences of their misconduct and burdened the Federal budget unnecessarily;

(4) refine and improve Federal policies through adjudication;

(5) promote a fair and cost-effective process for prompt settlement and payment of attorneys' fees claims; and

(6) provide a fairer opportunity for full participation by small businesses in the free enterprise system, further increasing the economic vitality of the Nation.

(c) Compliance Policy- In complying with the statement of congressional policy expressed in this section, each Federal agency, to the maximum extent practicable, should--

(1) avoid unjustified enforcement actions directed at small parties covered by EAJA;

(2) alleviate unnecessary burdens of compliance with justified enforcement actions directed at small parties covered by EAJA; and

(3) minimize impediments to prompt resolution and payment of reasonable attorneys' fees to prevailing small parties covered by EAJA.

SEC. 3. REPORTING AND TECHNICAL ASSISTANCE BY OFFICE OF ADVOCACY.

(a) Functions of Office of Advocacy- Section 202 of Public Law 94-305 (15 U.S.C. 634b) is amended--

(1) in paragraph (3), by inserting before the semicolon at the end the following: `and for ensuring that the justice system remains accessible to small businesses for the resolution of disputes with the Federal Government;'; and

(2) by striking paragraph (11) and inserting the following:

`(11) advise, cooperate with, and consult with the President and Attorney General with respect to section 303(b) of the Small Business Economic Policy Act of 1980 (15 U.S.C. 631b(b)) and section 504(e) of title 5, United States Code; and'.

(b) Duties of Office of Advocacy- Section 203 of Public Law 94-305 (15 U.S.C. 634c) is amended--

(1) in paragraph (2), by inserting before the semicolon at the end the following: `, including the resolution of disputes with the Federal Government and the role of procedures established by the Equal Access to Justice Act (Public Law 96-481; 94 Stat. 2325) in such disputes'; and

(2) in paragraph (3), by inserting after `the Small Business Act' the following: `, including those related to the Equal Access to Justice Act,'.

(c) Reports to Congress-

(1) IN GENERAL- Not later than 180 days after the date of the enactment of this Act, the Attorney General, in cooperation with the Chief Counsel for Advocacy of the Small Business Administration, shall transmit to the congressional committees specified in paragraph (2) a report containing--

(A) an analysis of the effectiveness of the Equal Access to Justice Act (Public Law 96-481; 94 Stat. 2325) (in this paragraph referred to as `EAJA') in achieving its purpose to ease the burden upon small businesses and other small parties covered by EAJA of engaging in dispute resolution with the Federal Government, including--

(i) the relative awareness of EAJA in the small business community;

(ii) the relative awareness of EAJA's requirements among Federal agencies;

(iii) the extent and quality of rules and regulations adopted by each Federal agency for processing, resolving, and paying attorneys' fees claims under EAJA;

(iv) the extent to which each Federal agency claims any exemptions in whole or in part from EAJA's coverage;

(v) the frequency or degree of use of EAJA's procedures by prevailing small businesses; and

(vi) an analysis of the costs and benefits of EAJA generally;

(B) an analysis of the variations in the frequency and amounts of fee awards paid by specific Federal agencies and within specific Federal circuits and districts under section 504 of title 5, United States Code, and section 2412 of title 28, United States Code, including the number and total dollar amount of all claims filed with, and all claims processed, settled, litigated, and paid by, each agency under EAJA; and

(C) recommendations for congressional oversight or legislative changes with respect to EAJA, including any recommendations for promulgation or amendment of regulations issued under EAJA by specific Federal agencies.

(2) SPECIFIED COMMITTEES- The congressional committees referred to in paragraph (1) are the following:

(A) The Committee on the Judiciary and the Committee on Small Business of the House of Representatives.

(B) The Committee on the Judiciary and the Committee on Small Business and Entrepreneurship of the Senate.

(3) REPORT ON SMALL BUSINESS AND COMPETITION- Section 303 of the Small Business Economic Policy Act of 1980 (15 U.S.C. 631b) is amended--

(A) in subsection (a) by striking paragraph (5) and inserting the following:

`(5) recommend a program for carrying out the policy declared in section 302 (including a policy to ensure that the justice system remains accessible to small business enterprises for the resolution of disputes with the Federal Government), together with such recommendations for legislation as the President may deem necessary or desirable.';

(B) in subsection (b)--

(i) by striking `(b)' and inserting `(b)(1)'; and

(ii) by adding at the end the following:

`(2) The President, after consultation with the Chief Counsel for Advocacy of the Small Business Administration and the Attorney General, shall transmit simultaneously as an appendix to such annual report, a report that describes, by agency and department--

`(A) the total number of claims filed, processed, settled, and litigated by small business concerns under section 504 of title 5, United States Code, and section 2412 of title 28, United States Code (originally enacted pursuant to the Equal Access to Justice Act (Public Law 96-481; 94 Stat. 2325));

`(B) the total dollar amount of all outstanding awards and settlements to small business concerns under such sections;

`(C) the total dollar amount of all claims paid to small business concerns under such sections;

`(D) the underlying legal claims involved in each controversy with small business concerns under such sections; and

`(E) any other relevant information that the President determines may aid Congress in evaluating the impact on small business concerns of such sections.

`(3) Each agency shall provide the President with such information as is necessary for the President to comply with the requirements of this subsection.'; and

(C) in subsection (d)--

(i) by striking `(d)' and inserting `(d)(1)'; and

(ii) by adding at the end the following:

`(2) All reports concerning the Equal Access to Justice Act (Public Law 96-481; 94 Stat. 2325), or the congressional policy to ensure that the justice system remains accessible to small business enterprises for the resolution of disputes with the Federal Government, shall be transmitted to the following congressional committees:

`(A) The Committee on the Judiciary and the Committee on Small Business of the House of Representatives.

`(B) The Committee on the Judiciary and the Committee on Small Business and Entrepreneurship of the Senate.'.

SEC. 4. EQUAL ACCESS FOR SMALL PARTIES IN CIVIL AND ADMINISTRATIVE PROCEEDINGS.

(a) Elimination of Substantial Justification Standard-

(1) ADMINISTRATIVE PROCEEDINGS- Section 504 of title 5, United States Code, is amended--

(A) in subsection (a)(1), by striking `, unless the adjudicative officer' and all that follows through the period at the end and inserting a period; and

(B) in subsection (a)(2), by striking `The party shall also allege that the position of the agency was not substantially justified.'.

(2) JUDICIAL PROCEEDINGS- Section 2412 of title 28, United States Code, is amended--

(A) in subsection (d)(1)(A), by striking `, unless the court' and all that follows through the period at the end and inserting a period;

(B) in subsection (d)(1)(B), by striking `The party shall also allege' and all that follows through the period at the end and inserting a period; and

(C) in subsection (d)(3), by striking `, unless the court' and all that follows through the period at the end and inserting a period.

(b) Eligibility of Small Businesses for Fee Award-

(1) ADMINISTRATIVE PROCEEDINGS- Section 504(b)(1)(B)(ii) of title 5, United States Code, is amended by striking `$7,000,000' and inserting `$10,000,000'.

(2) JUDICIAL PROCEEDINGS- Section 2412(d)(2)(B)(ii) of title 28, United States Code, is amended by striking `$7,000,000' and inserting `$10,000,000'.

(c) Elimination of Rate Cap-

(1) ADMINISTRATIVE PROCEEDINGS- Section 504(b)(1)(A) of title 5, United States Code, is amended--

(A) by striking `(i)'; and

(B) by striking `by the agency involved' and all that follows through `a higher fee' and inserting `by the agency involved'.

(2) JUDICIAL PROCEEDINGS- Section 2412(d)(2)(A) of title 28, United States Code, is amended--

(A) by striking `(i)'; and

(B) by striking `by the United States' and all that follows through `a higher fee' and inserting `by the United States'.

(d) Offers of Settlement-

(1) ADMINISTRATIVE PROCEEDINGS- Section 504(a) of title 5, United States Code, as amended by this section, is further amended by adding at the end the following:

`(5)(A) At any time after an agency receives an application submitted under paragraph (2), the agency may serve upon the applicant a written offer of settlement of the claims made in the application. If within 10 business days after such service the applicant serves written notice that the offer is accepted, either the agency or the applicant may then file the offer and notice of acceptance together with proof of service thereof.

`(B) An offer not accepted within the time allowed shall be deemed withdrawn. The fact that an offer is made but not accepted shall not preclude a subsequent offer. If any award of fees and expenses for the merits of the proceeding finally obtained by the applicant is not more favorable than the offer, the applicant shall not be entitled to receive an award for fees or other expenses incurred (in relation to the application for fees and expenses) after the date of the offer.'.

(2) JUDICIAL PROCEEDINGS- Section 2412(d)(1) of title 28, United States Code, as amended by this section, is further amended by adding at the end the following:

`(E)(i) At any time after an agency receives an application submitted under subparagraph (B), the agency may serve upon the applicant a written offer of settlement of the claims made in the application. If within 10 business days after such service the applicant serves written notice that the offer is accepted, either the agency or the applicant may then file the offer and notice of acceptance together with proof of service thereof.

`(ii) An offer not accepted within the time allowed shall be deemed withdrawn. The fact that an offer is made but not accepted shall not preclude a subsequent offer. If any award of fees and expenses for the merits of the proceeding finally obtained by the applicant is not more favorable than the offer, the applicant shall not be entitled to receive an award for fees or other expenses incurred (in relation to the application for fees and expenses) after the date of the offer.'.

(e) Declaration of Intent to Seek Fee Award-

(1) ADMINISTRATIVE PROCEEDINGS- Section 504(a)(2) of title 5, United States Code, as amended by this section, is further amended by inserting before the first sentence the following: `At any time after the commencement of an adversary adjudication, the adjudicative officer may (and if requested by a party shall) require a party to declare whether such party intends to seek an award of fees and expenses against the agency should such party prevail.'.

(2) JUDICIAL PROCEEDINGS- Section 2412(d)(1)(B) of title 28, United States Code, as amended by this section, is further amended by inserting before the first sentence the following: `At any time after the commencement of an adversary adjudication, as defined in subsection (b)(1)(C) of section 504 of title 5, United States Code, the court may (and if requested by a party shall) require a party to declare whether such party intends to seek an award of fees and expenses against the agency should such party prevail.'.

(f) Payment of Attorneys' Fees From Agency Appropriations-

(1) ADMINISTRATIVE PROCEEDINGS- Section 504(d) of title 5, United States Code, is amended--

(A) by striking `subsection' and inserting `section'; and

(B) by adding at the end the following: `Fees and expenses awarded under this section may not be paid from the claims and judgments account of the Treasury from funds appropriated pursuant to section 1304 of title 31.'.

(2) JUDICIAL PROCEEDINGS- Section 2412(d)(4) of title 28, United States Code, is amended by adding at the end the following: `Fees and expenses awarded under this subsection may not be paid from the claims and judgments account of the Treasury from funds appropriated pursuant to section 1304 of title 31.'.

(g) Eligibility of Taxpayers for Fee Award-

(1) ADMINISTRATIVE PROCEEDINGS- Section 504 of title 5, United States Code, as amended by this section, is further amended by striking subsection (f).

(2) JUDICIAL PROCEEDINGS- Section 2412 of title 28, United States Code, as amended by this section, is further amended by striking subsection (e) and redesignating subsection (f) as subsection (e).

(h) Conforming Amendment Relating to Reporting Requirement Under Small Business Act- Section 504(e) of title 5, United States Code, is amended to read as follows:

`(e)(1) The Attorney General, after consultation with the Chief Counsel for Advocacy of the Small Business Administration, shall report annually to the Congress on the amount of fees and other expenses awarded to individuals during the preceding fiscal year pursuant to this section and section 2412 of title 28. The report shall describe the number, nature, and amount of the awards, the claims involved in the controversy, and any other relevant information which may aid the Congress in evaluating the scope and impact of such awards for individuals engaged in disputes with Federal agencies. Each agency shall provide the Attorney General with such information as is necessary for the Attorney General to comply with the requirements of this subsection.

`(2) A requirement that the President report annually on proceedings affecting small business concerns under this section and under section 2412 of title 28 is provided in section 303(b) of the Small Business Economic Policy Act of 1980 (15 U.S.C. 631b(b)).'.

(i) Applicability- The provisions of this section and the amendments made by this section shall apply to any proceeding pending on, or commenced on or after, the effective date of this Act.

SEC. 5. DEFINITION OF PREVAILING PARTY IN EAJA CASES.

(a) Title 5- Section 504(b)(1) of title 5, United States Code, is amended by adding at the end the following new paragraph:

`(G) `prevailing party' includes, in addition to a party who prevails through a judicial or administrative judgment or order, a party whose pursuit of a nonfrivolous claim or defense was a catalyst for a voluntary or unilateral change in position by the opposing party that provides any significant part of the relief sought.'.

(b) Title 28- Section 2412 of title 28, United States Code, is amended--

(1) in subsection (d)(2)(H), by inserting after `means' the following: `, subject to subsection (g),'; and

(2) by adding at the end the following new subsection:

`(g) For the purposes of this section, the term `prevailing party' includes, in addition to a party who prevails through a judicial or administrative judgment or order, a party whose pursuit of a nonfrivolous claim or defense was a catalyst for a voluntary or unilateral change in position by the opposing party that provides any significant part of the relief sought.'.

SEC. 6. EFFECTIVE DATE.

The provisions of this Act and the amendments made by this Act shall take effect 30 days after the date of the enactment of this Act.

END