Butts v. McDonald, docket no. 14-3019(E) (June 3, 2016)
HELD: VA's compliance with existing Court precedent "does not relieve the Court of its duty to evaluate the reasonableness of the Secretary’s regulatory interpretation and his conduct at the administrative level.” therefore, “the Secretary may be required to pay EAJA fees despite following [Court] precedent.”
SUMMARY: In Johnson v. Shinseki (Johnson I), 26 Vet.App. 237 (2013) (en banc), the Court held that 38 C.F.R. § 3.321(b)(1) was ambiguous and deferred to the Secretary’s interpretation that limited extraschedular consideration to individual disabilities, as opposed to multiple conditions. The Federal Circuit reversed this decision in Johnson v. McDonald (Johnson II), 762 F.3d 1362 (Fed. Cir. 2014), concluding that the plain language of the regulation was unambiguous and that it “provides for referral for extra-schedular consideration based on the collective impact of multiple disabilities.” Johnson II, 762 F.3d at 1365-66.
While Johnson I was on appeal to the Federal Circuit, the Board of Veterans’ Appeals issued the decision in Mr. Butts’ case, denying referral for extraschedular consideration for his service-connected disabilities. Mr. Butts filed his Notice of Appeal in September 2014 – after the Federal Circuit issued Johnson II. The parties subsequently agreed to a joint motion for partial remand (JMPR) because the Board’s adverse extraschedular determination did not comply with 38 C.F.R. § 3.321. The Court granted the JMPR and Mr. Butts’ attorney filed an application for fees under the Equal Access to Justice Act (EAJA).
The Secretary disputed the EAJA application, arguing that Mr. Butts was “not a prevailing party because the JMPR was based on a change in precedent, rather than Board error.” Mr. Butts argued that “he is a prevailing party because the JMPR was implicitly based on the Board’s failure to properly apply § 3.321(b)(1), as Johnson II ‘did not create a new interpretation of the regulation, but simply explained what the regulation has always said.’”
The Court first noted that it is the appellant’s burden to show “prevailing-party status under the EAJA,” and that a joint motion for remand “may confer prevailing-party status if the JMR contains an explicit or implicit admission of error.” *4 (citing Thompson v. Shinseki, 24 Vet.App. 176, 178 (2010)). It is the Secretary’s burden to show “that his position was substantially justified at both the administrative and litigation stages.” *5 (citing Locher v. Brown, 9 Vet.App. 535, 537 (1997)).
The Court found that the language of the JMPR “explicitly concedes error” because it stated that the Board’s decision did not comply with § 3.321. Because of this language, the Court determined that Mr. Butts was a prevailing party for EAJA purposes. *7.
The Secretary argued that his position was substantially justified because the Board was bound to comply with Johnson I when it issued its decision. *8. The Court rejected this argument, noting that the Board never mentioned Johnson I in its decision. The Court added that the fact that the Court had previously upheld the Secretary’s “erroneous interpretation” of the regulation in Johnson I did not resolve the substantial-justification question. *9. Instead, the Court must examine the “totality of the circumstances” surrounding the government’s position and assess “the reasonableness of the Secretary’s regulatory interpretation and his conduct at the administrative level.” *9. The Court found that, in Johnson I, the majority had “simply erred when it deferred to the Secretary’s interpretation” – and that the majority’s error did not make the Secretary’s error “reasonable . . . under the totality of the circumstances.” Id. The Court thus held that “under the EAJA’s totality-of-the-circumstances analysis, the Secretary may be required to pay EAJA fees despite following precedent.” *10.
The Court found further support for its holding in the Federal Circuit’s determination “that there was ‘no logic’ and no policy support for [the Secretary’s] interpretation that § 3.321(b)(1) applied only to service-connected disabilities on a disability-by-disability basis ‘and not also on the collective impact of all of the veteran’s disabilities.’” *11.
The Court reiterated the Federal Circuit’s finding that the plain language of the regulation was consistent with 38 U.S.C. § 1155, which authorizes the Secretary to adopt and apply a rating schedule, adding that the Secretary’s interpretation was not supported by the regulation’s history. *12.
The Court also noted that while VA was bound by Johnson I, the Secretary could have sought a stay in any cases that would involve the application of Johnson I while that decision was on appeal to the Federal Circuit. *14-15. The Court concluded that the only factor in favor of substantial justification was the Board’s obligation to comply with Johnson I. That factor was outweighed by
(1) the Secretary’s failure to abide by the plain wording of § 3.321(b)(1) … (2) the fact that the Secretary had no policy basis for his proffered interpretation; (3) the fact that [Johnson I] was a mixed decision and on appeal while the Secretary continued to misapply § 3.321(b)(1); and (4) the fact that the Secretary had the option of staying the case pending a decision on appeal. *15.