                United States Court of Appeals
                    FOR THE EIGHTH CIRCUIT
                       ___________

                      No. 96-3660
                       ___________
United States Department    *
of Labor; Robert B. Reich, *
Secretary of U.S.           * Appeal from the United
Department of Labor,        * States
                            * District Court for the
         Appellants,        * Western District of
                            * Missouri.
     v.                     *
                            *
Rapid Robert's Inc.;        *
Robert E. Wilson, Jr..

         Appellees.
                       ___________

               Submitted:    April 10, 1997

Filed:   December 2, 1997
                      ___________

Before MCMILLIAN, FLOYD R. GIBSON, and JOHN R. GIBSON,
    Circuit Judges.
                      ___________

JOHN R. GIBSON, Circuit Judge.

    The United States Department of Labor and its
Secretary appeal from an order of the district court
granting attorneys' fees to Rapid Robert's, Inc. as a
result of the district court setting aside an order of
the Secretary of the United States Department of Labor
assessing penalties against Rapid Robert's for violation
of the Employee Polygraph Protection Act, 29 U.S.C. §§
2001-2009 (1988), and implementing




                          -2-
regulations. The Secretary concedes that Rapid Robert's
was the prevailing party in the litigation on the merits,
but argues the district court erred in holding that the
Department's position was not substantially justified,
and in awarding fees. We decline to address the issue of
substantial justification and instead hold that special
circumstances exist which would make the award of
attorneys' fees unjust. Accordingly, we reverse.

     In 1990, Rapid Robert's performed fifteen polygraph
examinations of    employees, testing five employees on
March 10, May 31, and June 11. Rapid Robert's explained
that   it performed the polygraphs to investigate
heightened inventory losses occurring close to those
dates.   The Department of Labor sought penalties from
Rapid Robert's, claiming that the polygraph examinations
violated the Employee Polygraph Protection Act.

    This Act, which was enacted June 27, 1988, became
effective six months following that date on December 27,
1988. Congress had directed the Secretary of Labor to
issue rules and regulations not later than ninety days
after June 27, 1988, or September 25, 1988. The interim
final regulations, however, were actually promulgated on
October 21, 1988, with comments requested on or before
February 27, 1989. The final regulations were eventually
promulgated three years later on March 4, 1991, with the
effective date of April 3, 1991.

    The Department conducted an investigation, issued a
notice of violation, and assessed a $74,000 penalty.
Rapid Robert's denied the violations and requested an
administrative hearing.

                           -3-
    The ALJ found that Rapid Robert's had made a good
faith effort to comply with the Act and had not
terminated any employees based on the polygraph
examinations.




                         -4-
Although it found Rapid Robert's and its President,
Robert Wilson, liable for violating the Act, it reduced
the penalty to $26,000.1

    All parties appealed the ALJ's decision to the
Secretary. The Secretary affirmed the $26,000 penalty,
although articulating somewhat different reasoning.
Further, the Secretary rejected the ALJ's exception not
to hold Wilson personally liable and placed liability
upon Wilson as an employer under § 2001(2).

    Rapid Robert's then sought review of the Secretary's
decision in the district court. Rapid Robert's argued
that the Secretary's decision was unlawful because the
Department of Labor implemented the controlling interim
regulations without notice or the opportunity for public
comment in violation of the Administrative Procedure Act,
5 U.S.C. § 551, as well as the Fifth and Fourteenth
Amendments    of   the   United    States   Constitution.
Additionally, Rapid Robert's claimed that the Department
failed to provide technical assistance as required by the


      1
        Specifically, the ALJ found that Rapid Robert's failed to give proper notice
according to 29 U.S.C. § 2006(d)(4). The amount assessed for violation of 29
U.S.C. § 2006(d) was reduced to $500 for each of eight incidents in which the
notices provided to employees did not comply with the content requirements set
forth in § 2006(d)(4). The ALJ assessed $1000 for each of seven incidents in which
the notices not only contained insufficient content but also were not provided to
employees at least forty-eight hours before testing. The ALJ upheld the penalty of
$1,500 assessed for each of six counts of unlawfully threatening to discipline
employees refusing to submit to polygraph testing in violation of 29 U.S.C. §
2002(3)(A). With respect to the unlawful suspension of three employees, the ALJ
reduced the $22,000 in penalties for violations of 29 U.S.C. §§ 2002(3)(A) and
2002(4)(C) to a penalty of $2000 for each of the three violations.
                                        -5-
Act, that Wilson was not an employer under the Act, and
that   it conducted the polygraph examinations in
accordance with the ongoing investigation exemption in 29
U.S.C. § 2006(d).      Rapid Robert's prayed that the
decision of the Secretary and the administrative law
judge be reversed and set




                           -6-
aside, and that it be awarded its attorneys' fees. As
a result, the district court dismissed the enforcement
action.

    The court held that it was undisputed that the
Department brought the enforcement action under the
interim final regulations, not the final regulations. In
analyzing the requirement of the Administrative Procedure
Act for notice and comment, the court rejected the
argument that the situation fell within the "good cause"
exemption contained in 5 U.S.C. § 553(b)(3)(B). After
considering legislative history as well as law from this
circuit, the district court concluded that the good cause
exemption applies only in narrow circumstances where the
facts and interests are such that notice and comment is
impossible or manifestly unnecessary. The court rejected
the   Secretary's   argument   that   ninety   days   was
insufficient to solicit public comments, review them, and
promulgate final regulations.       Likewise, the court
rejected the Secretary's argument that the good cause
exemption applied because the interim regulations
obviated uncertainty on the part of employers, employees,
and polygraph examiners concerning the scope of the
statutory coverage and the exemptions. The court held
that the regulations were promulgated without public
participation under § 553(b)(3)(B), and therefore, were
invalid. The district court set aside the decision of
the Secretary and entered judgment in favor of Rapid
Robert's. The Secretary did not appeal.

    Thereafter, Rapid Robert's applied for attorneys'
fees under the Equal Access to Justice Act, 28 U.S.C. §
2412 (1997). The court found that Rapid Robert's was the
prevailing party under the Act, that the Secretary of

                           -7-
Labor's position in the litigation was not substantially
justified, and that the award of attorneys' fees and
expenses was proper.

    The district court's decision to set aside the
Secretary's decision and enter judgment in favor of Rapid
Robert's is not in issue. It was not appealed, and the
Secretary concedes that no issue is raised concerning its
propriety. The only issue before us is the propriety of
the attorneys' fee award. The district court held that
the




                           -8-
Department lacked substantial justification for its
position simply because it lost on the merits. For the
most part, both parties on appeal battle over the
question of whether the issuance of the interim
regulations without notice and comment was such that it
could not be defended. The government also argues that
its position was substantially justified because the
pursuit of penalties against Rapid Robert's was primarily
based on violations of the statute and not the interim
regulations.

    While the parties have vigorously asserted their
positions with respect to the propriety of the interim
regulations, we need not tread that sensitive ground to
reach the issue of attorneys' fees.     Under the Equal
Access to Justice Act, the court should deny an award of
attorneys' fees not only when the government's position
is substantially justified but also when "special
circumstances make an award unjust."       28 U.S.C. §
2412(d)(1)(A).

    The   district   court's   decision   concerning   an
application for fees under the EAJA is reviewed for abuse
of discretion. S.E.C. v. Kluesner, 834 F.2d 1438, 1439
(8th Cir. 1987).     Under this standard, the district
court's conclusions of law are reviewable under a de novo
basis, and its factual findings are reviewed for clear
error. Id. at 1439-40.

    In explaining the "special circumstances" exception,
the House Report accompanying the EAJA stated:

    Furthermore, the Government should not be held
    liable where "special circumstances would make

                           -9-
an award unjust." This "safety valve" helps to
insure that the Government is not deterred from
advancing in good faith the novel but credible
extensions and interpretations of the law that
often underlie vigorous enforcement efforts. It
also gives the court discretion to deny awards
where equitable considerations dictate an award
should not be made.




                      -10-
H.R.Rep. No. 1418, 96th Cong., 2d Sess. at 11, reprinted
in 1980 U.S.C.C.A.N 4953, 4990.          "The EAJA thus
explicitly directs a court to apply traditional equitable
principles in ruling upon an application for counsel fees
by a prevailing party." Oguachuba v. INS, 706 F.2d 93,
98 (2d Cir. 1983).

    Relying on this direction, courts have denied
attorneys' fees in a number of different situations. For
example, in Oguachuba, the Second Circuit upheld the
district court's denial of attorneys' fees to an
applicant who, because of a technical error by the INS,
prevailed on a petition for writ of habeas corpus despite
having repeatedly violated federal immigration laws. Id.
at 99. In reaching its result, the appellate court found
the petitioner to be "without clean hands."      Id.; see
also Taylor v. United States, 815 F.2d 249 (3rd Cir.
1987) (denying attorneys' fees under EAJA where applicant
for fees took advantage of unlawful government action but
then challenged that action to avoid serving valid
manslaughter conviction).

    In United States v. 27.09 Acres of Land in Town of
Harrison, 43 F.3d 769 (2d Cir. 1994), an otherwise
eligible and prevailing party was denied attorneys' fees
because it did not substantially contribute to the
successful phase of the litigation.        Id. at 775.
Purporting to apply general equitable principles, the
Second Circuit reasoned that "where one or more
ineligible parties are willing and able to pursue the
litigation against the United States, the parties
eligible for EAJA fees should not be able to take a free
ride through the judicial process at the government's
expense." Id. (quotation and citation omitted).

                           -11-
      The circumstances surrounding the present case
similarly demand that attorneys' fees be denied.      The
government argues that, regardless of the validity of the
interim regulations, Rapid Robert's committed several
violations of the statute itself.        These statutory
violations have gone unpunished as the result of the
district court's order setting aside the Secretary of
Labor's decision.




                           -12-
    The government did not argue the statutory basis of
the penalties before the district court, and ordinarily
we do not consider issues raised for the first time on
appeal.    See Miller v. Federal Emergency Management
Agency, 57 F.3d 687 (8th Cir. 1995). This general rule,
however, is not absolute.     As the Supreme Court has
stated,

    The matter of what questions may be taken up and
    resolved for the first time of appeal is one
    left primarily to the discretion of the courts
    of appeals, to be exercised on the facts of
    individual cases. We announce no general rule.
    Certainly there are circumstances in which a
    federal   appellate   court   is  justified   in
    resolving an issue not passed on below, as where
    the proper resolution is beyond any doubt, or
    where injustice might otherwise result.

 Singleton v. Wulff, 428 U.S. 106, 121 (1975) (quotations
and citations omitted).

    This court has applied an exception to the general
rule where "the obvious result of following the rule
would be a plain miscarriage of justice or would be
inconsistent with substantial justice."       Seniority
Research Group v. Chrysler Motor Corp., 976 F.2d 1185,
1187 (8th Cir. 1992). We believe this exception applies
here.

    Rapid Robert's direct violations of the statutory
provisions are outlined in detail in the ALJ's order. As
a result, the record on the issue is well-developed and
amenable to our review. The Secretary briefed and argued
the statutory basis for the penalties, and Rapid Robert's
had the opportunity to respond.        Therefore, it is

                           -13-
appropriate for us to consider whether Rapid Robert's
relief from valid statutory penalties constitutes a
special circumstance which would make an award of
attorneys' fees unjust.

    While the district court focused exclusively on the
validity of the interim regulations, the vast majority of
the penalties levied against Rapid Robert's were for
direct violations of statutory provisions.




                           -14-
    An analysis of the administrative law judge's order
reveals that the only violations which depended on the
regulations were those related to the failure to give 48-
hour advance notification of testing. See 29 C.F.R. §
801.12(g)(2). Because the statutory language specifies
only that written notice be provided before the polygraph
test, the 48-hour time frame was derived purely from the
interim regulations. See 29 U.S.C. § 2006(d)(4).
Therefore,   without    the   interim   regulation,   the
administrative law judge could not conclude that Rapid
Robert's did not give written notice sufficiently in
advance of testing.

    The other violations were based on requirements
plainly set forth in the statute. The administrative law
judge found fifteen violations related to the content of
the written notices provided by Rapid Robert's to its
employees.    Namely, the written notices did not set
"forth with particularity the specific incident or
activity being investigated" as required by 29 U.S.C. §
2006(d)(4)(A) and did not describe "the basis of the
employer's reasonable suspicion" as required by 29
U.S.C. § 2006(d)(4)(D)(iii). Rapid Robert's argues that
the interim regulations provided a detailed description
of "reasonable suspicion." See 29 C.F.R. § 801.12(g)(3)
(Interim 1989). The administrative law judge, however,
referred primarily to a line of Supreme Court decisions
to determine the meaning of "reasonable suspicion."
Thus, he did not rely on regulatory language to interpret
the statutory requirements or to ascertain that those
requirements had been violated.

    Rapid Robert's was also held accountable for six
violations involving unlawful threats in conjunction with

                           -15-
polygraph examinations and for three violations involving
unlawful employee suspensions. While the administrative
law judge found that Rapid Robert's violated both the
statute and the regulations in these instances, only the
statutory language was necessary to find the violations
as the statutory and regulatory provisions were virtually
identical. Compare 29 U.S.C. §§ 2002(3)(A), 2002(4)(C),




                           -16-
with 29 C.F.R. § 801.4(a)(3). Therefore, Rapid Robert's
was in clear violation of the statute regardless of the
validity of the interim regulations.2

    When the district court set aside the decision of the
Secretary of Labor, the court released Rapid Robert's
from all penalties, not just those rooted in regulatory
violations.   Consequently, Rapid Robert's recognized a
substantial benefit beyond mere relief from the interim
regulations. For the seven violations of the 48-hour
advance notice requirement, the administrative law judge
levied penalties totaling $3500. The remaining $22,500
in penalties were levied for other violations which, as
discussed above, stemmed from clear violations of the
statute.

    While we may not disrupt the district court's
disposition on the merits, the consequence of that
disposition is a factor in weighing the equities of
awarding attorneys' fees.      Here, the district court
relieved Rapid Robert's of over seven times the amount of
penalties which actually resulted from the invalidated
regulations.   Rapid Robert's has reaped a windfall by
escaping its duty to pay for clear violations of a valid
statute.    To add to that windfall by requiring the
government to pay attorneys' fees and expenses would be


      2
       In its brief, Rapid Robert's argues that §§ 801.40-.43 of the interim
regulations dictated the procedures for enforcement actions and the assessment of
penalties under the Employee Polygraph Protection Act. The Administrative
Procedure Act, however, provides that rules of agency procedure or practice are
exempt from the requirements of notice and hearing. 5 U.S.C. § 553(b)(3)(A)
(1997). Thus, the validity of the enforcement procedures contained in the interim
regulations was never at issue.
                                        -17-
patently unjust.   We conclude that the district court
abused its discretion by failing to find special
circumstances in this case.

    We reverse the district court's order.




                          -18-
    A true copy.

           Attest:

               CLERK,   U.   S.   COURT   OF   APPEALS,   EIGHTH
CIRCUIT.



.




                              -19-
